Kulim Bursa.indb - Bursa Malaysia Stock
Transcription
Kulim Bursa.indb - Bursa Malaysia Stock
Kulim (Malaysia) Berhad (23370-V) We CARE for Tomorrow Kulim (Malaysia) Berhad (23370-V) Suite 12B, Level 12 Menara Ansar 65 Jalan Trus 80000 Johor Bahru Johor MALAYSIA Tel Fax Email Website +607 226 7692 +607 226 7476 +607 222 3044 +607 222 3022 [email protected] www.kulim.com.my Annual Report | 2011 We CARE for Tomorrow Annual Report 2011 CONTENTS SECTION 1: 2011 Synopsis 4 5 6 22 24 26 29 30 2011 Highlights Simplified Group Statement of Financial Position Statement to Stakeholders Corporate Event Highlights 2011 Sustainability Event Highlights 2011 Recognitions and Accreditations In the News Financial Calendar SECTION 2: About Kulim 34 37 40 42 44 53 55 Corporate Profile Corporate Milestones Group’s Significant Subsidiaries Corporate Information Board of Directors Management Team Organisation Chart WE C.A.R.E SECTION 3: Performance Highlights and Statistics Kulim (Malaysia) Berhad believes that the spirit of caring is 58 61 62 63 integral to the prosperity and survival of our business. Our concept of caring integrates and extends beyond our capital providers, to include our employees, our society and COMPETITIVE capacity with intense biasness towards ACTION in generating our environment. It means building our profitable growth whilst being firmly guided by our pledge to be RESPONSIBLE and ETHICAL. We CARE, so we ensure our shareholders are rewarded with superior returns. We CARE, so we teach and nurture the same spirit among our employees. 67 68 69 71 73 Group 5-Year Financial Statistics Group Quarterly Performance 2011 Group Statement of Value Added 5-Year Plantation Statistics: • Group • Malaysia • Papua New Guinea • Solomon Islands 5-Year Foods and Restaurants Statistics Human Capital Statistics Shareholding Statistics Warrantholding Statistics Share Price Performance and Volume Traded 2011 SECTION 4: Segment Review We CARE, so we contribute and enrich the lives of our community and society. We CARE, so we treat the earth with respect for it has given us our reason for being. We CARE, so we share… Plantation 76 100 Foods and Restaurants 108 Intrapreneur Ventures SECTION 5: Sustainability 116 PART I: Kulim’s Sustainability in Context • Policy Framework • Policy, Strategy and Management System • Stakeholders Engagement • Commitments and Targets 122 PART II: Environmental Performance • Protecting and Conserving Biodiversity • Water Conservation • Addressing Climate Change Issues 128 PART III: Social Performance 136 • Labour Standards • Employees Retention • Occupational Health and Safety • Empowering Women • Community and Economic Contributions PART IV: Doing Our Part for the Palm Oil Supply Chain SECTION 6: Governance Statement 142 153 160 164 165 Corporate Governance Report Internal Control Statement Audit Committee Report Additional Compliance Information Additional Disclosure SECTION 7: Financial Statements VISION DELIVERING VALUE To excel in delivering value to all our stakeholders through high performance teams who are committed to the highest standards of ethics, integrity and professionalism. 167 Group Financial Statements SECTION 8: Other Corporate Information 280 Locations of the Group’s Palm Oils Division Operations 282 Properties of the Group MISSION • Malaysia We aim to be the most progressive, efficient, profitable and respectable corporate organisation. • Papua New Guinea We shall: • Solomon Islands • Enhance and deliver value to the stakeholders • Optimise the use of resources • Produce superior quality products • Be a socially and environmentally responsible corporate citizen • Operate with due regard for the welfare, health and safety of employees, the local community and the wider public. Notice of Annual General Meeting 297 301 Statement Accompanying Notice of Annual General Meeting Proxy Form SECTION 1: 2011 SYNOPSIS 4 2011 HIGHLIGHTS 5 SIMPLIFIED GROUP STATEMENT OF FINANCIAL POSITION 6 STATEMENT TO STAKEHOLDERS 22 CORPORATE EVENT HIGHLIGHTS 2011 24 SUSTAINABILITY EVENT HIGHLIGHTS 2011 26 RECOGNITIONS AND ACCREDITATIONS 29 IN THE NEWS 30 FINANCIAL CALENDAR C OUR COMPETITIVE SPIRIT WILL CONTINUE TO DRIVE US TO FORGE AHEAD EXPANDING OUR MARKET REACH AND GLOBAL PRESENCE OUR VISION IS CLEAR AND RESOLUTE – TO DELIVER VALUE TO OUR STAKEHOLDERS. IMPERATIVE TO THE REALISATION OF THE SET VISION AND ULTIMATELY OUR SURVIVAL IS OUR ABILITY TO COMPETE IN THE FAST-CHANGING AND DYNAMIC MARKET PLACE. THE THRUST TO OUR COMPETITIVENESS LIES IN OUR FAR-SIGHTED STRATEGY, BEING DRIVEN BY A CUSTOMER-CENTRIC AND MARKET-ORIENTED ATTITUDE, COMPETENT WORKFORCE, COHESIVE TEAMWORKING AND MORE PROFOUNDLY, A PASSION FOR EXCELLENCE. Kulim (Malaysia) Berhad (23370-V) 4 | annual report 2011 2011 HIGHLIGHTS PBT from continuing operations Revenue 28.3 RM7,041.77 M 75.4 RM1,364.80 M from RM5,488.94 million from RM777.90 million % % to to OPERATIONAL 2011 2010 – Group 24.36 21.66 – Malaysia 21.89 19.01 – PNG 25.49 23.60 – SI 24.37 21.97 – Group 22.07 21.78 – Malaysia 20.20 20.24 – PNG 22.85 22.42 – SI 21.86 21.63 Yield per hectare (tonnes) OER (%) SHAREHOLDERS’ RETURNS 2011 2010 % sen % sen – Interim 20 5.00 15 7.50 – Special – – 85 42.50 Gross dividends for year ended 31 December: Share price (RM) – Lowest 3.10 7.04 – Highest 4.22 14.20 annual report 2011 | 5 Kulim (Malaysia) Berhad (23370-V) SIMPLIFIED GROUP STATEMENT OF FINANCIAL POSITION TOTAL ASSETS 5% 6% 7% 8% Property, plant and equipment 8% 7% Intangible assets Investments 2% 2011 6% 2010 Inventories Receivables 10% Cash 11% 64% 66% TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 7% 1% 3% 1% 2% 2% 13% 16% 9% Share capital 9% Other reserves 7% Retained earnings 2011 21% Non-controlling interests 2010 Borrowings Deferred tax liabilities 23% Payables Current tax liabilities 21% Others 23% 21% 21% Kulim (Malaysia) Berhad (23370-V) 6 | annual report 2011 STATEMENT TO STAKEHOLDERS To all our stakeholders, On behalf of the Board of Kulim (Malaysia) Berhad (“Kulim” or “the Group”) we are pleased to present the Annual Report and Audited Financial Statements of the Group for the financial year ended 31 December 2011. WE CARE FOR TOMORROW The Group achieved a record breaking year with revenue in excess of RM7 billion while for the first time ever, profit before tax breached the billion mark, at RM1.36 billion. All 3 divisions: Plantation, Foods and Restaurants and Intrapreneur Ventures, contributed higher revenues and profits. The achievement is a testament to the contributions of our many stakeholders whose engagement helps drive our long-term sustainability and shareholder’s value. Indeed, our stakeholders have contributed immeasurably to the Group’s great success this year with their unstinting support. We thank and congratulate them on the deserved outstanding result achieved. As the theme for the report this year – ‘We Care for Tomorrow’ suggests, we are setting in place a leaner organisational structure to drive our strategy, drawing together, along with the right systems, skills, people and shared values, all the elements to forge a higher performance company that will deliver sustainable returns for our shareholders in the coming years. All whilst taking cognisance of our role and responsibilities as a sizable player in our industries to help satisfy global needs while ensuring the protection of the environment and care for the well-being of the communities that we operate in. In the Plantation Division, more milestones have been achieved. Fruit production and profits hit record highs of 2.38 million tonnes and RM1.13 billion, a reflection of both the excellent performance by our operational personnel as well as the strong fundamentals in the oils and fats markets during the year. Similarly important is the fact that these encouraging results had been achieved as a culmination of various key corporate exercises undertaken during the past 2 years. Our London-listed subsidiary New Britain Palm Oil Limited’s (“NBPOL”) palm oil refinery in Liverpool in the UK continues to capture new markets and we will be commissioning a bakery margarines and fats plant, whose products will be sustainable and fully traceable. Our Foods and Restaurants business opened more new outlets and continues to invest in expanding the KFC franchise in India. Our Intrapreneur Ventures Division has also shown improved results. There remains much to be done to further enhance our businesses to best position the Group to capitalise on all potential opportunities and meet the challenges of tomorrow. We are however quietly confident that our objective to promote economically viable, socially equitable and environmentally sustainable production, processing and trade of palm oil can be achieved. annual report 2011 | 7 Kulim (Malaysia) Berhad (23370-V) “THE GROUP ACHIEVED A RECORD BREAKING YEAR WITH REVENUE IN EXCESS OF RM7 BILLION WHILE FOR THE FIRST TIME EVER, PROFIT BEFORE TAX BREACHED THE BILLION MARK, AT RM1.36 BILLION.“ KULIM AND SUSTAINABILITY CORPORATE DEVELOPMENTS We regard the sustainable palm oil programme as one of our Corporate Responsibility fundamentals. Our goal is to integrate business into serving a higher social cause, adding value to creation, embracing the sustainable use of land and water, advocating appropriate treatment of wildlife, and leaving a lasting heritage for our future generations. Our active representation in the Roundtable on Sustainable Palm Oil (“RSPO”) and the adoption of the RSPO Principles and Criteria denote our systematic and planned approach to achieve a balance between People, Planet and Profit. Towards this end, Kulim has established a comprehensive set of policies and adopts an integrated approach in developing the policy framework for our sustainable development. Our environmental performances on biodiversity and soil conservation are covered in more detail in this report along with coverage of our social programmes and involvement with the communities in which we operate and live. Our sustainability policy framework interrelates with our Corporate Vision and Mission and is embraced within our corporate governance processes to ensure it has direct relevance to the overall set corporate strategy and direction. The policy thus serves as the foundation and overriding philosophy of the Group’s continuous progress towards delivering value to all our stakeholders. In March 2012, we embarked on a capital restructuring exercise to make our shares more affordable and enable a wider spread of investors to participate in Kulim’s growth. The exercise that involved share split, issuance of bonus shares and free warrants, has also helped to enhance the liquidity and marketability of Kulim shares on the Main Market of Bursa Securities. Kulim currently has 1.26 billion tradable shares as opposed to 312.35 million shares previously. On top of that, the bonus shares and free warrants have rewarded Kulim’s existing shareholders for their continuous support and will allow them to further participate in the future growth of the Group when the warrants are exercised. Kulim at its core is an agriculture company with palm oil as its dominant business. Thus we were pleased that after repeated pursuits, our majority shareholder, Johor Corporation (“JCorp”), finally agreed to divest a significant portion of its oil palm estates to us. On 16 August 2011, Kulim announced that its wholly-owned subsidiary, Mahamurni Plantations Sdn Bhd (“MPSB”) had entered into conditional Sale and Purchase Agreements (“SPA”) with JCorp for the proposed acquisition of 6 oil palm estates of approximately 13,687 hectares, and 2 palm oil mills, for a total consideration of RM700 million. An Extraordinary General Meeting (“EGM”) was convened on 22 December 2011 and shareholders’ approval was obtained for the proposed acquisition. As at 31 December 2011, Stage 1 of the proposed acquisition involving Sungai Papan Estate and Siang Estate was completed, injecting some 6,000 hectares of productive oil palm estates into the Group. Stage 2 of the proposed acquisition is targeted for completion within the first half of 2012. For several years, our then listed subsidiary, Sindora Berhad, had failed to meet the shareholding spread requirement of a listed entity. On 16 August 2011, Kulim announced a voluntary general offer to acquire the remaining Sindora shares at an offer price of RM3 per share. The offer price was subsequently revised to RM3.10 per share in September 2011. Subsequently on 25 October 2011, Kulim announced that it had acquired greater than nine tenth (9/10) of the nominal value of Sindora shares and accordingly invoked the compulsory acquisition of outstanding Sindora shares pursuant to Section 222(1) of the Capital Market and Services Act 2007. On 30 November 2011, Sindora was removed from the official listing of Bursa Securities. Completion was on 5 December 2011, upon the bulk transfer of Sindora shares to Kulim. Sindora since then has become a whollyowned subsidiary of Kulim. On 14 December 2011, Kulim announced that that the Board of Directors of QSR Brands Bhd (“QSR”) and KFC Holdings (Malaysia) Bhd (“KFCH”) had, respectively, received letters from Massive Equity Sdn Bhd (“MESB”) which set out MESB’s conditional offer to acquire nearly all the businesses and undertakings, including substantially all Kulim (Malaysia) Berhad (23370-V) 8 | annual report 2011 STATEMENT TO STAKEHOLDERS (continued) of the assets and liabilities, of QSR and KFCH respectively. Subsequently on 21 December 2011, the Board of Directors of QSR and KFCH accepted the respective offers subject to the execution of the relevant Sale of Business Agreements (“SBA”). Further announcements by QSR and KFCH on 23 April 2012 indicated that the parties are in the process of finalising the SBA. Group stands to record a substantial gain from this exercise. We are proud of our record in growing the business and increasing its value. It has been an exhilarating period and we are pleased to recognise the many individuals for their contribution and in particular the role played by Jamaludin Md Ali, the Managing Director of KFC Holdings (Malaysia) Bhd and QSR Brands Bhd. Subject to the completion of the whole exercise, Kulim will effectively exit the Foods and Restaurants business. The impact of this move to the Group’s financial performance and position upon deconsolidation is expected to be significant. Nonetheless, should the divestment come to fruition, the An equally significant development is the announcement by NBPOL on 25 April 2012 that it had issued 3,333,147 new NBPOL shares to the Independent Public Business Corporation of Papua New Guinea (“IPBC”) as consideration for the acquisition of 20% interest in Kula Palm Oil Limited (“KPOL”). KULIM AND KFCH 2002-2006 2007-2011 60 188 RM1.07 billion (31.12.2006) RM3.05 billion (31.12.2011) Revenue 5.1% 12.9% Shareholders’ Funds 6.5% 15.2% Share Price 12% 23.3% 11.1% 6.9% New Stores Market Capitalisation CAGR* (%) FBM KLCI * Compound Annual Growth Rate This results in Kulim’s shareholding in NBPOL being reduced from 50.68% to 49.54% and renders NBPOL to be an associate company of Kulim, instead of a subsidiary. The issuance of 3.33 million new shares to IPBC, other than to streamline the shareholding structure at KPOL, is also strategically aimed to enhance the existing good cooperation and relationship between NBPOL and the provincial governments in PNG. A further 1.7 million shares are also planned to be issued to New Britain Nominees Limited to assist in potential acquisition of approximately 20,000 hectares of new leases in PNG, and to New Ireland Development Corporation (“NIDC”) to streamline shareholdings in KPOL’s subsidiary, Poliamba Limited, representing the continuation of NBPOL’s long term established process of land acquisition. Going forward, Kulim will no longer consolidate NBPOL’s accounts and instead their results will be equity-accounted. Nonetheless, we expect that impact to the Group’s cash flow and Group’s bottom-line at Profit After Tax and Minority Interests (“PATMI”) level to be minimal. The imminent exit from the Foods and Restaurant business as well as the change in status of NBPOL from subsidiary to associate company will reduce borrowings at Group level, thus further strengthening the Group’s Balance Sheet. annual report 2011 | 9 REVIEW OF EXTERNAL BUSINESS ENVIRONMENT The Arab Spring and the monetary travails of the Eurozone were the defining backdrops for the year 2011. Overall, global growth eased from 3.8% in 2010 to 3.2% in 2011 even as the global recovery broadened to encompass more firms, more countries and more components of aggregate demand. There is cautious optimism that improving labour market conditions in high-income countries and strongly expanding domestic demand in developing countries will continue to spur global economic recovery. The Malaysian economy recorded a steady pace of growth of 5.1% in 2011 (2010: 7.2%), despite the challenging international economic environment. Growth was lower in the first half of the year, particularly in the second quarter, as the economy was affected by the overall weakness in the advanced economies and the disruptions in the global manufacturing supply chain arising from the natural disaster in Japan. Although the global economic environment became increasingly more challenging and uncertain in the second half-year, Malaysia’s economic growth improved due to stronger domestic demand. Kulim (Malaysia) Berhad (23370-V) coupled with a jump in productivity contributed to the large increase. Despite this massive uplift in production, world demand remained robust. Growth would have been higher but for the consumption slowdown observed in the European Union owing to unstable macro economic conditions. Food demand increased by 4% with much of the growth coming from China, India and other emerging economies while growth from matured economies was almost flat. Palm oil accounts for 21% and 47% of the global oils and fats production and trade respectively. Both Malaysia and Indonesia together are the world’s largest producers and exporters of palm oil holding 84% and 90% shares of world palm oil production and export, respectively. Palm oil has played an increasingly dominant role in the world oils and fats supply and demand equation during the past 40 years. The ascent of palm oil as a powerhouse in the global oils and fats market augurs well for palm oil in its role as the driving force of the world oils and fats economy and the future prospects on the Group’s core plantation business in Malaysia, Papua New Guinea and the Solomon Islands. GROUP FINANCIAL RESULTS All 3 core business divisions recorded growth in terms of revenues and operating profits. REVENUE 2011 EBIT 2011 3% -1% 6% 20% RM7.04 billion 46% RM1.44 billion 48% From a global perspective an unprecedented increase in global palm oil production of 9% to some 50.13 million tonnes was boosted by a very good cropping year in 2011. The expansion in Indonesia and other regions 78% Plantation Foods and Restaurants Intrapreneur Ventures Others Kulim (Malaysia) Berhad (23370-V) 10 | annual report 2011 STATEMENT TO STAKEHOLDERS (continued) REVENUE The Group’s Foods and Restaurants as well as Plantation Divisions were the largest contributors to Group revenue, at 48% (2010: 55%) and 46% (2010: 38%) respectively; the Intrapreneur Ventures (“IV”) division’s contribution remained fairly constant with 6% (2010: 5%). Revenue rose by RM1.55 billion to RM7.04 billion in 2011, the highest ever revenue recorded in Kulim’s history and an increase of 28.3% over the RM5.49 billion recorded in 2010. The significant increase in revenue was mainly due to higher palm product prices fetched during the year by the Plantation Division as compared to 2010. Average CPO prices per tonne achieved in Malaysia ascended to RM3,193 (2010: RM2,604) and in Papua New Guinea (“PNG”) and Solomon Islands (“SI”) to USD1,108 (2010: USD850). This year the Group’s accounts also reflect Kula Palm Oil Limited’s (“KPOL”) full-year revenue versus 8 months results in 2010. The Foods and Restaurants segment recorded a solid 10.3% increment adding sales of RM314.08 million to reach RM3.35 billion compared to RM3.04 billion in the corresponding period. The growth was mainly driven by the restaurants business with the opening of new KFC and Pizza Hut restaurants locally and regionally. 16 new Pizza Hut restaurants, 42 Pizza Hut Delivery (“PHD”) outlets, and 24 new KFC restaurants were added in 2011. This was in addition to the launching of the KFC 500th Restaurant Celebration, the ‘So Good’ thematic campaign, and extensive marketing programmes as well as the introduction of innovative new products. The revenue from the IV Division also recorded commendable growth of RM103.82 million or 35.5%, from RM292.80 million to RM396.62 million in 2011 mainly driven by shipping business under E.A. Technique (M) Sdn Bhd (“EA Technique”) and its subsidiary, Orkim Sdn Bhd (“Orkim”), with the successful deliveries of 10 newly constructed vessels, all of which had secured long-term contracts with oil majors. PROFITABILITY Earnings before interest and tax (“EBIT”) increased by a remarkable 68.9% to RM1.44 billion from RM850.79 million in the prior year. Consequently, the EBIT margin improved to 20.4% from 15.5% in the previous year. Significantly, pre-tax profit from continuing operations had increased by RM586.90 million or 75.4% to RM1.36 billion in 2011 from RM777.90 million in 2010. Pre-tax profit margin from continuing operations improved to 19.4% from 14.2% in 2010. As in the previous year, the Plantation Division still accounted for the largest share of the Group’s EBIT at 78% (2010: 78%); Foods and Restaurants Division came next, albeit lower at 20% (2010: 32%); and IV Division contributed 3% (2010: 2%). The growth in the Group’s profitability was substantially driven by the stellar performance of the Plantation Division, particularly by the PNG and SI operations whose profits alone almost doubled to RM893.22 million. High prices obtained for other palm products also were a contributing factor, along with increased annual report 2011 | 11 productivity, as well as better fresh fruit bunch (“FFB”) yields and palm product extraction rates. In Malaysia, the increase in estate operating costs, arising mainly from higher labour and fertiliser costs, were absorbed by the higher production of FFB. The unit cost of production in 2011 was steady at RM1,790 per tonne CPO (2010: RM1,775 per tonne CPO), before kernel credits. In addition, profitability also improved from the full-year profit before tax (“PBT”) contribution from the KPOL estates of USD57.8 million compared to the 8-month result of approximately USD29 million in 2010. The Foods and Restaurants Division, despite recording steady growth in revenue, turned in only a marginally 2.4% higher operating profit than last year. While the Pizza Hut and KFC restaurants in Malaysia, Singapore and Brunei were recording good levels of profit growth, the overall result was tempered by losses incurred by the operations in Cambodia and India as well as costs associated with the start of the new KFCH International College campus in Johor Bahru. Kulim (Malaysia) Berhad (23370-V) The loss recorded by KFC India was mainly due to high initial start-up costs as it is still in the gestation period. Following the opening of the new KFCH International College’s Bandar Dato’ Onn campus in Johor, the education segment incurred higher marketing expenses for advertising and promotions in the media. Aggressive promotion to solicit student intake was undertaken via participation in education fairs and career talks, collaboration with Government agencies, and by running short courses and certification programmes. “THE GROWTH IN THE GROUP’S PROFITABILITY WAS SUBSTANTIALLY DRIVEN BY THE STELLAR PERFORMANCE OF THE PLANTATION DIVISION...” Results from the Cambodian operations were damped by a weak economy although it is now showing signs of recovery. KFC Cambodia registered encouraging sales but its profitability was affected by the high cost of both local poultry products and imported raw materials. Steps are being taken actively to source for cheaper alternative suppliers and review the marketing programmes to improve sales throughput at the restaurants. Impairment on fixed assets for 4 non-performing restaurants was also prudently taken. to from RM5.49 billion REVENUE % 28.3 RM7.04 B PBT FROM CONTINUING OPERATIONS % 75.4 RM1.36 B to from RM777.90 million Kulim (Malaysia) Berhad (23370-V) 12 | annual report 2011 STATEMENT TO STAKEHOLDERS (continued) In addition, the integrated poultry segment registered a lower profit as it was significantly affected by the higher cost of feed for its broiler farming as well as increased energy, storage and other operating costs. The segment also incurred a higher cost for broiler purchases from the open market to meet the increasing demand by KFC Malaysia’s operations. The IV Division recorded a substantial improvement in operating profit of 224.5% or RM29.71 million, from last year’s RM13.23 million, mainly driven by the new tanker deliveries and the commencement of income generation from these tankers as all are fully secured with long-term contract with oil majors. The operating profit margin on the IV business also improved significantly to 10.8% from 4.5% in 2010. Finance cost increased by 12.3% to RM91.48 million from RM81.44 million in 2010, mainly due to a higher interest expense recorded by NBPOL as a result of the refinancing of the 12-month USD200 million loan for the acquisition of KPOL with a USD240 million long-term loan. Interest cover was more than satisfactory, increasing to 15.92 times as compared to 10.55 times in the previous year due to the higher EBIT recorded this year. Earnings per share (“EPS”) from continuing activities increased to 45.90 sen for the current year from 18.73 sen in 2010 (adjusted for share split and bonus shares), reflecting this year’s record highest profits attributable to shareholders in the Group’s history. SHARE PRICE MOVEMENT 2011 40% KLCI Plantation Index BALANCE SHEET The Group’s cash position as at the end of 2011 improved notably to RM645 million from RM452 million last year demonstrating the financial health of the business. The Group’s total borrowings stood at RM2.62 billion, a significant 36% increase from last year’s RM1.93 billion, mainly attributable to an additional RM375 million loan acquired to part finance the acquisition of JCorp estates, a USD240 million term loan secured by NBPOL to refinance the short-term USD200 million loan obtained previously to fund the acquisition of KPOL, and an increase in Sindora’s and QSR’s borrowings of RM163 million and RM101 million respectively, mainly for expansion purposes. As a result, gross and net gearing increased to 0.38 times and 0.29 times respectively (2010: 0.35 times and 0.27 times respectively), never theless staying within prudent parameters. Kulim 30% Group shareholders’ funds recorded a commendable improvement of 20.4% to RM4.29 billion as at December 2011 from RM3.57 billion in December 2010, reflecting the high PATMI recorded in 2011. Net assets per share also increased to RM3.48 from RM2.80 in 2010 (adjusted for share split and bonus shares). 20% 10% 0% Kulim : 35.73% FBM KLCI : -0.18% Plantation Index : 0.36% -10% -20% Jan Feb Mac Apr May Jun Jul Aug Sep Oct Nov Dec SHARE PRICE MOVEMENT 2011 – LISTED SUBSIDIARIES 40% NBPOL QSR 30% KFCH 20% RETURNS TO SHAREHOLDERS SHARE PRICE From a closing price on 31 December 2010 of RM12.74, Kulim’s share price recorded strong growth during the first 2 months of 2011, trading at its highest level ever at RM16.00 per share. After the share split (1 share split into 2 shares) and issuance of bonus shares (1 for 1) was completed on 24 February 2011, Kulim’s share closed at RM3.63 on even date. Kulim also issued free warrants (1 free warrant for every 8 shares) as reward to its owners. This exercise was completed by early March 2011. 10% 0% -10% NBPOL : -19.49% QSR : 30.05% KFCH : 1.75% -20% -30% Jan Feb Mac Apr May Jun Jul Aug Sep Oct Nov Dec Kulim’s share price grew by 35.73% in 2011, well outperforming the FBM KLCI and the Plantation Index which tracked a gain of 0.36% and loss of 0.18%, respectively. Kulim’s market capitalisation reached RM5.21 billion as at 31 December 2011, a 31% improvement from RM3.98 billion as at 31 December 2010. annual report 2011 | 13 All listed subsidiaries within the Group, except NBPOL, also recorded positive growth in their share prices, reflecting the improvement in market sentiment during the year and investors’ confidence. NBPOL’s share price rallied from the start of the year before peaking at the end of the second quarter and ending the year lower. DIVIDENDS The Group declares and pays annual dividend after taking due consideration on various factors including the level of available cash and cash equivalents, retained earnings and projected levels of capital expenditure and other investment plans. During the year, Kulim declared an interim dividend for the year ending 2011 of 20% or 5 sen net per ordinary share of RM0.25 each. The lower dividend is reflective of several major “...THIS INTERIM DIVIDEND THEORETICALLY CAN BE TRANSLATED INTO A NET DIVIDEND OF 20 SEN PER ORDINARY SHARE OF RM0.50 EACH, OR 40% BASED ON KULIM’S PREVIOUS PAR VALUE.” Kulim (Malaysia) Berhad (23370-V) corporate exercises undertaken during the year. Nonetheless, for Kulim’s shareholders who have owned Kulim shares prior to the capital restructuring at end of February 2011, this interim dividend theoretically can be translated into a net dividend of 20 sen per ordinary share of RM0.50 each, or 40% based on Kulim’s previous par value. The interim dividend was paid in December 2011 amounting to RM61.72 million. have the effect of increasing the value of shares outstanding in the hands of our shareholders, will continue to remain a practical strategy when the Board believes the market is under-pricing the shares. Further exercises will be evaluated at opportune times. The share volume traded in 2011 was 4.24 billion units (2010:1.20 billion units). Warrant conversion in 2011 amounted to 500 units. SHARE BUY-BACK The programme was carried out in 2011 with 14.84 million shares bought back at an average purchase price of RM3.40, signalling to the market that the management believes that Kulim’s share price is undervalued. As at 31 December 2011, total treasury shares held by Kulim was 27.48 million, averaged at RM3.50 per share. Share buy-backs, which As part of our effort to promote robust and effective investors’ relations, we held 6 meetings, 2 conference calls, 5 company visits and participated in 4 roadshows, including 2 international roadshows during the year. Foreign shareholding of Kulim stood steadily at around 16% in 2011, signalling the confidence long-term investors, including those abroad, have in Kulim. Kulim (Malaysia) Berhad (23370-V) 14 | annual report 2011 STATEMENT TO STAKEHOLDERS (continued) SEGMENT HIGHLIGHTS PLANTATIONS GROUP’S FFB PRODUCTION % 19.6 2.38 to million tonnes from 1.99 million tonnes The Group’s plantation operations turned in yet another strong performance in 2011 with a record harvest of 2,375,388 tonnes of FFB from the Malaysian, PNG and SI estates. This represented a positive growth of 19.6% against a total of 1,985,619 tonnes of Group FFB produced in 2010, the upswing owing to a cyclical biological surge in the crop and good weather. The Malaysian estates produced 27% of total Group FFB (2010: 28%); PNG estates produced 68% (2010: 66%), whilst the SI estates’ contribution shrunk slightly to 5% (2010: 6%). The Group’s planted area to oil palm increased to 118,655 hectares as compared to 112,224 hectares in 2010. The Group continues to pursue its “30:30” initiative with the objective of raising fruit yields to 30 tonnes per hectare and palm product extraction rates to 30%. Results this year have been positive and well over the Malaysian industry standard. Further gains are anticipated by the recent replanting with higher yielding hybrids and the lowering of the average age of the trees. Malaysian Plantations The Malaysian estates recorded a marked increase in FFB production of 15.6%, mainly due to better rainfall and the benefit of a relatively more stable workforce compared to the labour conditions prevailing in 2010, producing a total of 636,761 tonnes of FFB in 2011. The yield per hectare in 2011 increased to 21.89 tonnes from 19.01 tonnes in the preceding year. In Malaysia, total CPO production was 185,666 tonnes in 2011 which was higher by 13.74%, than the 163,233 tonnes in the prior year. PK production was 53,678 tonnes, an increase of 12.39% from the 47,758 tonnes in 2010. The Group’s Malaysian mills’ extraction rates were affected by wet weather in early 2011 and higher purchases of variable quality third party crop that increased from 345,281 tonnes in 2010 to 365,151 tonnes in 2011. So in terms of oil yield, the Malaysian plantations recorded an increase from 5.63 tonnes CPO per hectare in 2010 to 6.38 tonnes in 2011. annual report 2011 | 15 To sustain higher production, the Group is committed to improving the age profile of its plantations. In Malaysia, 868.29 hectares were replanted in 2011. By the end of 2011, taking into consideration the 6,000 hectares of oil palm estates acquired from Johor Corporation, the Malaysian estates’ average palm age decreased slightly to 12.40 years in December 2011, from 12.90 years in 2010. PNG and SI Plantations With weather conditions across PNG and SI favourable for crop growth during 2011, the overall palm product extraction rate for 2011 was 28.21%, an increase from the 2010 result of 27.50%. FFB production from the PNG and SI estates increased to approximately 1.74 million tonnes supported by the full production from the newly acquired KPOL estates at Higaturu, Milne Bay and Poliamba in the New Ireland Province, PNG. In PNG and SI, NBPOL has 78,332 hectares planted with oil palm of which 68,438 hectares are being harvested with the balance being immature oil palms that were planted over the last three years. Yield of FFB per hectare over the area under harvest was 25.4 tonnes (2010: 23.7 tonnes per hectare). Kulim (Malaysia) Berhad (23370-V) “THE MALAYSIAN ESTATES RECORDED A MARKED INCREASE IN FFB PRODUCTION OF 15.6%, MAINLY DUE TO BETTER RAINFALL AND THE BENEFIT OF A RELATIVELY MORE STABLE WORKFORCE COMPARED TO THE LABOUR CONDITIONS PREVAILING IN 2010...” In PNG and SI, NBPOL continued to expand their palm oil production base with the addition of 1,582 hectares of new plantings in West New Britain and Ramu Agri-Industries Limited (“Ramu”). Replanting of 1,544 hectares was completed across Guadalcanal Plains Palm Oil Ltd (“GPPOL”), Higaturu, Milne Bay and Poliamba. Supported by the full year’s contribution of fruits from the newly acquired KPOL estates at Higaturu, Milne Bay and Poliamba, the PNG and SI mills registered a record year with 591,477 tonnes of crude oils (crude palm oil and palm kernel oil) produced, representing a 23.5% increase over 2010. The new mill commissioned at Waraston increases the total processing capacity in West New Britain from 260 to 320 tonnes of fruit per hour. In SI, the mill upgrade at Tetere from 25 to 45 tonnes per hour was completed with further work on the kernel mill ongoing. At Ramu, work commenced at the Gusap palm oil mill during the year to increase the capacity from 30 to 45 tonnes per hour. NBPOL’s first methane capture plants in West New Britain is a major step forward for the company as it begins to utilise the potent greenhouse gas as an energy source and reduce carbon footprint. Commissioning of the plants is expected in the first half of 2012. The power will be utilised to supply the housing estates and refinery as well as supplying the local grid in support of rural electrification through an agreement with PNG Power. NBPOL is embarking on the construction of a further 3 CDM projects in West New Britain, Higaturu and Milne Bay. In West New Britain, the team is proud to have completed the second fractionation plant at the Kumbango refinery, which will supply specialised palm products to Ferrero Rocher. Kulim (Malaysia) Berhad (23370-V) 16 | annual report 2011 STATEMENT TO STAKEHOLDERS (continued) Palm Oil Refinery in Liverpool, United Kingdom In Liverpool, New Britain Oils Limited (“NBOL”) refinery operation, as a result of a further multi-million pound investment, is scheduled to produce its first packed products for sale into the UK bakery and foodservice sectors in the first quarter of 2012. This will give NBOL the largest range of fully traceable sustainable products in the market. Sugar production During the year, the operation harvested some 397,328 tonnes of cane from 7,311 hectares. This was an improvement on 2010 when 375,822 tonnes of cane was harvested. The sugar factory with a capacity of processing 500,000 tonnes of cane was therefore under little pressure. Overall sugar recovery from cane processing improved in 2011 to 81.4% from 79.3% in 2010. Beef Production NBPOL remains the largest producer of beef in PNG. However, beef production will continue to play only a minor role in the overall investment strategy. The herd size showed some growth with 20,000 cattle managed in 2 separate locations. The herd produced some 1,284,000 kilograms of beef for the PNG market, generating revenue of PGK14.9 million. Additional investment in stock yards and machinery for both silage production and pasture improvement are all contributing to better efficiencies. International College expanded further during the year, now spanning 2 campuses, and is positioned to provide the Foods and Restaurants business with trained candidates for managerial roles. FOODS AND RESTAURANTS In 2011, the total number of outlets operating under our Foods and Restaurants brands – Pizza Hut, KFC, Kedai Ayamas and RasaMas – exceeded the 1,000 mark for the first time by growing to 1,063 units from 978 in 2010. By December 2011, we had 307 Pizza Hut and 756 KFC/Kedai Ayamas/RasaMas restaurants and we now operate across 5 countries in Asia, from Brunei to India. All our brands were strengthened in 2011 and the recent expansion of KFC into India was consolidated. QSR Brands Bhd (“QSR”) and its subsidiaries continued to add new outlets and executed their programmes for image enhancement, always reaching out to new markets and strengthening the loyalty of existing customers. KFCH Revenue at the Foods and Restaurants Division in 2011 rose by 10.3% to RM3.35 billion. However profit before tax increased only marginally, by 1.2% to RM269.96 million against RM266.86 million in the previous year, as a consequence of start-up costs and rising expenses at the new KFC restaurants in Cambodia and India. 2011 brought QSR widespread recognition. Yum! Brands presented Pizza Hut Malaysia with the Franchisee of the Year Award in the dine-in category, the People’s Choice Best Remodel Award, and the Best Advertising Award. BrandLaureate voted Pizza Hut the Best Brand in the Food & Beverage Pizza category, and Readers’ Digest presented us with their Trusted Brand Gold Award. At KFC’s 13 outlets in India, in Pune, Mumbai and Aurangabad, sales more than tripled to RM19.8 million. Capitalising on the Indian passion for Cricket, KFC India was an Official Partner in the 2011 ICC World Cup. The staff donned special tournament T-shirts, and customers took advantage of the limitedtime offer of meals served in a cricketthemed Fan Bucket. annual report 2011 | 17 “BY DECEMBER 2011, WE HAD 307 PIZZA HUT AND 756 KFC/KEDAI AYAMAS/ RASAMAS RESTAURANTS AND WE NOW OPERATE ACROSS 5 COUNTRIES IN ASIA, FROM BRUNEI TO INDIA. “ KFCH International Colllege enrollment currently stands at 700 students on campuses in Puchong and Johor Bahru. On offer are 9 diploma programmes in a variety of hospitality-related disciplines, as well as Early Childhood Education, Business Administration, Information Technology, and Electrical & Electronics. The food sector is relatively resilient but it faces inflationary cost pressures. QSR plans to generate earnings by continuing to drive the topline aggressively through new and repeat customer purchases. QSR Kulim (Malaysia) Berhad (23370-V) is also continuously seeking better cost efficiencies and improving productivity at all its business segments. Culinary skills and great service will continue to reinforce customer loyalty, while creative products and marketing will entice new customers as well as long-time customers. INTRAPRENEUR VENTURES Results at the Intrapreneur Venture (“IV”) Division were encouraging. Revenue in 2011 increased by 35.5% to RM396.62 million, from RM292.80 million in the previous financial year. Operating profit more than doubled to RM42.94 million from RM13.23 million. The good performance this year was attributable mainly to the growth of the shipping segment. The IV portfolio’s other start-ups are in the early stage of investing, building prototypes and gathering feedback and data from their customers to build sustainable businesses. We will continue identifying promising start-ups for incubation and give them access to the resources needed to grow, prosper, improve earnings, add value, and maximise returns to shareholders. Our subsidiaries EA Technique and Orkim have propelled the Group to becoming an important player in the maritime sector and positioned us as the second biggest shipping company in Malaysia in the clean petroleum product tanker category. Both companies operate in niche markets providing long-term charter contracts for the transportation of clean petroleum product, and upstream exploration support, for oil majors. The substantial improvement in performance in both companies in 2011 was the result of the successful deliveries of 10 newly constructed tankers for commission under long-term charter contracts. The higher full year contributions from these new vessels will be felt in 2012. The Group also provides offshore support vessels and manages third party vessels. Currently, EA Technique provides 9 vessels for offshore support services that includes 2 fast crew boats, 4 mooring boats, 2 harbour tugs and a security boat, while Orkim manages 2 vessels owned by a third party for an oil major. The construction of the Kulim (Malaysia) Berhad (23370-V) 18 | annual report 2011 STATEMENT TO STAKEHOLDERS (continued) PROSPECTS AND PLANS The global economy is expected to post a more moderate growth in 2012. The IMF has lowered its forecast for 2012 global growth to 4%. The US economy is proving to be resilient and is expected to grow about 2.3%, an improvement from 2011 but well below the rate needed to make much of a dent in the unemployment rate. In the housing market, on a downtrend for 5 years, price expectations have changed from negative to positive. Consumer confidence is up. Ramped up motor vehicle assemblies are helping revive industrial activity, while oil and gas production has increased sharply, buoyed by higher prices. Consumer spending has benefited from improving employment gains, and cash flows are being bolstered by sharply lower borrowing costs that have accelerated refinancing activity. Solid corporate profits are exceeding expectations so far in 2012 and will help boost confidence of business managers, encouraging more hiring and investment. A strong, sustained expansion though remains elusive in an election-year with uncertainty about tax rates and the spending cuts necessary to trim the federal deficit. “THE SUBSTANTIAL IMPROVEMENT IN PERFORMANCE IN 2011 WAS THE RESULT OF THE SUCCESSFUL DELIVERIES OF 10 NEWLY CONSTRUCTED TANKERS FOR COMMISSION UNDER LONG-TERM CHARTER CONTRACTS. THE HIGHER FULL YEAR CONTRIBUTIONS FROM THESE NEW VESSELS WILL BE FELT IN 2012.” new tankers, and disposals of ageing vessels, have resulted in a much lower average age profile for the fleet and enabled the Group to position itself to seize opportunities in the shipping market ahead of competitors. Our shipbuilding and ship repair facility, Johor Shipyard and Engineering Sdn Bhd (“JSE”) has the potential to become a major contributor considering that the high demand for ship repairing facilities is currently being met by a limited number of yards around the region. JSE has identified a 10-acre site at Hutan Melintang, Bagan Dato, Perak for its permanent base. Currently, JSE is preparing basic facilities for the shipyard that is expected to become fully operational by the end of 2012. The shipyard will be able to accommodate vessels of up to 10,000 deadweight tonnage (“dwt”) for construction or repair. Besides shipbuilding, to diversify revenues, the yard will also become involved in steel fabrication for the offshore oil and gas industry. The still unfolding Euro zone debt crisis is hurting the region’s growth outlook and weighing on the exports of the European Union’s key trading partners, which includes China. In Europe, rising unemployment will work against any quick recovery in light of the unprecedented structural adjustments related to wages and productivity needed to regain export competitiveness. Household deleveraging in the more highly indebted developed nations will continue, with most countries embarking upon a multi-year period of fiscal consolidation. Fortunately, there appears to be greater confidence that the developing economies have engineered a soft rather than a hard landing. Construction and investment activity remains quite firm, helping to keep employment and spending in the relative fast lane of growth. However the rise in the price of crude oil poses a growing threat to many incomeconstrained consumers and businesses around the world, and a risk to many emerging nations battling domestic inflation. Crude oil prices began to firm up in the second half of last year as escalating geopolitical tensions again in the Middle East, this time involving potential supply disruptions surrounding Iran and Syria, caused the price of crude oil annual report 2011 | 19 Kulim (Malaysia) Berhad (23370-V) to jump close to USD110 a barrel, a level previously reached in the first quarter of last year that contributed to the cooling down of US and global growth. Amid the more challenging external environment, Malaysia’s economy is projected to experience a steady pace of growth of 4% – 5% in 2012. Domestic demand is expected to remain resilient and will continue to be the anchor for growth. Several measures that were announced in the 2012 Budget are expected to provide support to private consumption. These include the upward revision of public sector wages and the oneoff financial assistance to low and middleincome groups. Private investment will be supported by domestic-oriented industries and the ongoing implementation of projects under the Economic Transformation Programme (“ETP”). The Malaysian public sector will remain supportive of growth in 2012, with higher capital expenditure by both the Federal Government and the non-financial public enterprises. The implementation of the Special Stimulus Package through Private Financing Initiative that was announced in the 2012 Budget would provide further impetus to real activity during the year. While the domestic drivers appear positive, global concerns may weigh down on the near-term outlook of the Malaysian economy and economic growth will likely get bumpier in the months ahead. Production in Indonesia, the world’s top palm oil producer, is estimated to rise by as much as 1.5 million tonnes next year to 25 million tonnes. The major swings in palm oil prices would come from Malaysia’s production, which will grow at an even smaller rate, thanks to limited acreage. Next year, Malaysia’s output is expected to rise. Both countries account for more than 90 percent of global supplies of the edible oil, which is used in products such as food, cosmetics and biofuels, which is likely to hit 48 million tonnes for 2012. With production growth normalised in 2012, demand should grow steadily along with increasing population and incomes. As supply is not going to be affected, we are going to see the global economic scenario driving the oil market. Southeast Asian palm oil prices may come under pressure as looming concerns over the global economy weigh on Brent crude oil. Palm oil investor “AVERAGE PALM OIL PRICES ARE LIKELY TO BE SUSTAINED AT AROUND RM3,000 (USD990) PER TONNE LEVEL NEXT YEAR ON THE ANTICIPATION OF TIGHT SUPPLIES AFTER SPELLS OF ERRATIC WEATHER AND STABILISING GLOBAL ECONOMIC OUTLOOK. ” sentiment has improved in recent weeks as dominant Southeast Asian producers enter the rainy season and the La Nina weather pattern is seen to be returning. Average palm oil prices are likely to be sustained at around RM3,000 (USD990) per tonne level next year on the anticipation of tight supplies after spells of erratic weather and stabilising global economic outlook. On the positive side, robust demand from emerging markets is likely to offset the early effects of the Euro zone and its sovereign debt crisis that has been weakening demand for raw materials. An important factor in 2012 could be the intensifying competition between Malaysia and Indonesia to capture market share. Indonesia has the early advantage with the introduction of a new tax structure. We expect a positive impact next year from the acquisition of the plantation assets from JCorp, by way of higher volumes of FFB, CPO and PK in 2012. So far, we have completed the acquisition of 2 estates with the other 4 estates plus 2 palm oil mills expected to reach completion by mid-2012. Including the impact of these acquisitions, crop production from the Group’s Malaysian operation is expected to increase in 2012 going forward. Underlining the importance of research in producing high quality planting materials, the Group will construct a new purposebuilt dedicated R&D complex in Malaysia, scheduled to be ready by 2013 which will also include the Group’s in-house genome research facility. Along with other major players, the goal of the research is to develop and utilise biotechnological tools to support and complement our crop improvement and agronomic research programme, which encompasses oil palm breeding, tissue culture, pests and diseases control and agronomy. NBPOL has commissioned its 12th palm oil mill in West New Britain, adding an annual processing capacity of over 300,000 tonnes of FFB, giving NBPOL increased capacity and flexibility to mill the rising West New Britain crop. NBPOL also increased its processing capacity in the SI from 30 to 45 tonnes of fruit per hour. Our RSPO certification process continues and in 2011 NBPOL successfully completed the audit at Poliamba. We are targeting to have our remaining sites at Milne Bay and Higaturu audited under RSPO as part of our commitment to have all units and supply chains certified as fully sustainable and traceable by the end of 2012. Kulim (Malaysia) Berhad (23370-V) 20 | annual report 2011 STATEMENT TO STAKEHOLDERS (continued) “THE GROUP EXPECTS TO COMMISSION ITS FIRST METHANE CAPTURE PLANT IN MALAYSIA AND 2 IN WEST NEW BRITAIN DURING THIS YEAR WHICH WILL SUBSTANTIALLY REDUCE OUR CARBON FOOTPRINT AS WELL AS DELIVER RENEWABLE ENERGY FOR OUR OPERATIONS AND THE WIDER COMMUNITY.” The reporting and mitigation of carbon dioxide and other greenhouse gas emissions can now be quantified and NBPOL has released its first Carbon Footprint report. As palm oil is such a ubiquitous product, we feel that this will prove to be another persuasive argument for companies to switch to sustainable palm from the Group. To tap another stream of income in the coming years, we are embarking upon downstream processing, turning the mills’ by-products such as biomass, POME and biogas into high value-added end-products that can generate additional revenue. The Group expects to commission its first methane capture plant in Malaysia and 2 in West New Britain during this year which will substantially reduce our carbon footprint as well as deliver renewable energy for our operations and the wider community. With the acquisition of the JCorp estates, the Group’s focus henceforth in the Plantation segment will be primarily on the Malaysian operation. The estate operation’s strong growth since the sixties was achieved through acquisitions and distinctive plantation management practices which emphasised continuous improvements in yields and cost efficiencies. As a major player in the palm oil industry, which is the third biggest contributor to the Malaysian economy, Kulim looks forward to the challenge of ensuring its future will be as illustrious as its past. The Group also looks forward to continuing to receive tremendous value from its investment in NBPOL and has full confidence in the Board, and experienced management team in PNG and SI, to continue delivering outstanding results. With a view to consider the possibility of restarting Nexsol, our biodiesel plant, the Group is being prepared for the International Sustainability and Carbon Certification (“ISCC”). ISCC recognition would offer access to the EU market and afford us an additional competitive edge, and further increase customer loyalty and marketability of sustainable palm products. annual report 2011 | 21 WORDS OF APPRECIATION On behalf of the Board, we would like to most sincerely thank all our employees for their loyalty, dedication and hard work in making 2011 the best year in history for Kulim. We would also like to thank all other stakeholders who have contributed, supported and believed in Kulim: our financiers, our business partners, all Government bodies and Regulatory Authorities that we dealt with and last but not least, our most valued loyal customers. We also would like to take this opportunity to thank our fellow Board members for their valuable insights and thoughtful advice in helping us to steer Kulim into its current position. To further strengthen the Board in facing a more challenging tomorrow, we would also like to take this opportunity to welcome the new directors of the Company - Zulkifli Ibrahim, Datuk Ahmad Zaki Zahid, Wan Mohd Firdaus Wan Mohd Fuaad, Leung Kok Keong and Natasha Kamaluddin. KAMARUZZAMAN ABU KASSIM Chairman Kulim (Malaysia) Berhad (23370-V) The status of palm oil as it is today in the world market is without doubt due to the significant contribution by the Malaysian palm oil industry. In fact, the country has become a role model for many other palm oil producing countries in their plans to spur economic development in the agricultural sector and to gain foreign exchange through exports of surplus production. The Palm Oils business will continue to form the backbone of our Group and the industry continues to face new challenges in the face of globalisation. Rapid responses are needed to meet the increasing challenges of the sector as they unfold. We are prepared to do our part. We care for tomorrow and we believe that the best has yet to come for Kulim. We hope all our shareholders will share in the excitement that we feel as we work together to create a progressive business enterprise that is set to continue growing profitably. For tomorrow, as is today, our vision remains unchanged, to excel in delivering value progressively to all our stakeholders in a sustainable manner. AHAMAD MOHAMAD Managing Director Kulim (Malaysia) Berhad (23370-V) CORPORATE EVENT HIGHLIGHTS 2011 22 | annual report 2011 annual report 2011 | 23 10 February 2011 Kulim (Malaysia) Berhad (23370-V) 5 10 Kulim was announced as one of the winners of The Edge Billion Ringgit Club Award 2011 during the Gala Dinner held at Shangri-La Hotel, Kuala Lumpur. Kulim’s Extraordinary General Meeting for the Share Restructuring approval was held at Persada Johor International Convention Centre, Johor Bahru. 6 1 13 July 2011 14 February 2011 18 – 19 July 2011 Kulim participated in MPC Mini ICC Convention – North Region held at Meritus Pelangi Beach Resort & SPA, Langkawi. An annual gathering of Group employees, Pedoman 2011 with the theme “Membina & Membela”, was held at Persada Johor International Convention Centre, Johor Bahru. 11 Kulim participated in MPC Mini ICC Convention – South Region organised by Malaysian Productivity Corporation (“MPC”), held at Renaissance Hotel, Melaka. Kulim participated in Karnival Mahabbah IKIMfm, held at Kompleks Mutiara Johor Land, Johor Bahru. 8 18 June 2011 9 23 – 26 June 2011 Kulim participated in Hari Mekar Johor Corporation 2011 , an annual event organised by Johor Corporation (“JCorp”) to promote total quality initiative, held at Pe r s a d a J o h o r I n te r n a t i o n a l Convention Centre, Johor Bahru. 19 – 20 October 2011 Kulim participated in the exhibition during the Ekspo Beli Barangan Buatan Malaysia held at Persada Johor International Convention Centre, Johor Bahru. 23 June 2011 Kulim participated in Karnival Kerjaya, Perniagaan & Kemahiran 2011 (“KEPAK 2011”) held at Persada Johor International Convention Centre, Johor Bahru. 7 – 9 December 2011 16 – 18 December 2011 Kulim participated in the exhibition during MyAgroSis Programme, held at University Technology MARA (“UiTM”), Merbok, Kedah. 19 – 23 October 2011 Kulim’s 36th Annual General Meeting was held at the Puteri Pacific Hotel, Johor Bahru. 4 27 – 28 September 2011 Kulim participated in the MPC National Convention 2011, an annual event organised by MPC, held at Sunway Pyramid Convention Centre, Selangor. Gerak Kemas Perdana 2011 , an annual event initiated by the 5S Committee to promote the adoption of 5S ‘house-keeping’ philosophy by focusing on effective work place organisation. 3 Removal of Sindora Berhad from official listing of Bursa Securities at the conclusion of the privatisation exercise by Kulim. Kulim participated as the Silver Sponsor in The CSR Asia Summit 2011, held at Istana Hotel, Kuala Lumpur. 22 – 24 April 2011 2 30 November 2011 Kulim participated in MPC Mini ICC Convention – Central Region organised by MPC, held at Grand Dorsett Hotel, Subang Jaya. 7 28 – 30 October 2011 Kulim participated in the exhibition during the Malaysia International Commodit y Conference and Showcase (“MICCOS”) organised by the Ministry of Plantation Industries and Commodities at Malaysia AgroExposition Park, Serdang. 18 – 20 November 2011 Kulim participated in BN Youth Job Fair 2011, held at Putra World Trade Centre. 25 - 26 July 2011 19 April 2011 15 November 2011 Kulim was announced as the winner for Industry Excellence Award (Main Board) – Plantations and Mining, during NACRA award presentation d i n n e r h e l d a t S i m e D a r by Convention Centre, Kuala Lumpur. 12 22 December 2011 Kulim’s Extraordinary General Meeting for the acquisition of plantation assets from JCorp at total consideration of RM700 million was held at Persada Johor International Convention Centre, Johor Bahru. Kulim (Malaysia) Berhad (23370-V) SUSTAINABILITY EVENT HIGHLIGHTS 2011 24 | annual report 2011 annual report 2011 | 1 25 3 January – 12 February 2011 Kulim (Malaysia) Berhad (23370-V) 6 25 – 27 April 2011 11 Pre-Retirement Programme, a programme to emphasise personal financial factors affecting employees’ retirement planning, was held at Pulau Sibu. KSRT Sports Carnival, an annual sports programme organised by Kelab Sukan & Rekreasi Tiram (“KSRT”) with the aim to promote healthy lifestyle among employees. 12 2 7 May 2011 22 February 2011 Inter Region Sports Carnival organised by KSRT and opened to all operating units within Kulim Group to promote commitment to healthy lifestyle among employees. 3 6 March – 16 April 2011 13 March 2011 8 2 & 9 April 2011 9 29 October 2011 Through KSRT, Kulim participated in the Charity Walk ‘World Hunger Relief 2011’ at Putrajaya. 14 11 – 13 December 2011 Break That Pattern! To Maximise Value Creation – Senior management retreat held at Selesa Beach Resort, Port Dickson. 25 June 2011 With the theme ‘Glitz Glamorous’, KSRT Dinner 2011 was successfully held at Persada Johor International Convention Centre, Johor Bahru. Kulim Wildlife Defenders (“KWD”) Programme, a programme opened to students from surrounding estates, was successfully held at Sekolah Kebangsaan Nam Heng, Basir Ismail Estate. 16 – 17 October 2011 Kulim Family Day with the theme ‘We Are One’, was held at A’Famosa Resort Water World, Melaka. 25 June 2011 WOW ( Women OnWards) Carnival was held at KSRT, with the aim to promote handcrafting and cooking skills among female employees within the Group. Majlis Maulidur Rasul , a religious programme attended by Group employees and surrounding community, held at Masjid Jamek Ulu Tiram Estate. 5 13 Jointly organised by Kulim, Wildlife Conservation Society and several g ove r n m e n t a g e n c i e s, a p re s s conference on Tiger Conservation by the US Ambassador was held at Persada Johor International Convention Centre, Johor Bahru. Kulim participated in Johor Corporation Sports Carnival 2011 and was declared as the overall champion. 4 12 May 2011 8 October 2011 Infaq 1 Warisan, a tree-planting project as part of Kulim’s sustainable initiatives, was held at Mungka Estate, Segamat. KWD Programme for Sindora Complex was held at Rengam Estate, Kluang. 7 24 September 2011 Syukur Raya 2011, an annual employee gathering in conjunction with Aidilfitri organised by KSRT, was held at Kulim Corporate Office, Ulu Tiram, Johor. 15 17 December 2011 Karnival Sukan Rakyat & Senandung Irama KSRT was held to commemorate traditional games. 2 July 2011 A religious talk by Dr. Fatma Az-Zahra was held at KSRT, attended by the Group employees and surrounding community. 14 – 24 April 2011 Sultan Iskandar Challenge Trophy 2011, an annual shooting competition, jointly organised by Johor Clay Target Shooting Association (“JCTSA”) and Majlis Sukan Negeri Johor (“MSNJ”) was held at Johor Clay Target Shooting Club, REM Estate, Kota Tinggi. 10 16 21 December 2011 Program Seminar Keluarga Bahagia by Dato’ Dr. Hj. Mohd Fadzilah Kamsah, a motivational talk jointly-organised by KSRT, was held at Persada Johor International Convention Centre, Johor Bahru. 9 July 2011 Kulim’s International Women’s Day (“IWD”) 2011 was held at AKLI with the theme – ‘Wanita & Ekonomi’. 24 December 2011 1-day trip to Universal Studio, Singapore, organised by KSRT. Kulim (Malaysia) Berhad (23370-V) 26 | annual report 2011 RECOGNITIONS AND ACCREDITATIONS AWARDS RECEIVED IN 2011 RECOGNITION AND ACCREDITATION AWARDED BY RECEIVING COMPANY/ OPERATING UNIT NACRA 2011 • Winner of Industry Excellence Award (Main Board) – Plantations and Mining National Annual Corporate Report Award Kulim (Malaysia) Berhad Industry Excellence Award (Plantation Sector 2010/2011) • • • Global Leadership Award 2011 - Plantation Sector The Leaders International Ahamad Mohamad (Kulim (Malaysia) Berhad) The Edge Billion Ringgit Club Award 2011 • Best Performing Stock - Highest Returns to Shareholders Over Three Years (Plantation Sector) • Highest Profit Growth Company – Highest Growth in Profit Before Tax Over Three Years (Plantation Sector) The Edge Kulim (Malaysia) Berhad Basis Holdings Sdn Bhd Kulim (Malaysia) Berhad Malaysia National News Agency (BERNAMA) Malaysia External Trade Development Corporation (MATRADE) Scored ‘A’ in Malaysian Corporate Governance (MCG) Index 2011 Minority Shareholder Watchdog Group (MSWG) Kulim (Malaysia) Berhad • Industry Excellence (Plantations) ACCA MaSRA Awards 2011 • Shortlisted - Sustainability Report within Annual Report ACCA Malaysia Kulim (Malaysia) Berhad Malaysia’s Best Certificate Federal Agriculture Malaysia Authority (FAMA) Kulim Montel Farm (Basir Ismail Estate) 3 Star (SME Competitiveness Rating for Enhancement) SME Corp Malaysia Kulim Civilworks Sdn Bhd annual report 2011 | 27 Kulim (Malaysia) Berhad (23370-V) PAST AWARDS RECOGNITION AND ACCREDITATION AWARDED BY RECEIVING COMPANY/ OPERATING UNIT 2010 ACCA MaSRA 2010 ACCA Malaysia • Winner – Best Sustainability Report • Commendation – Reporting on Strategy and Governance • Shortlisted – Sustainability Report • Shortlisted – Sustainability Report within Annual Report Kulim (Malaysia) Berhad NACRA 2010 • Winner of Industry Excellence Award (Main Board) – Plantations and Mining National Annual Corporate Report Award Kulim (Malaysia) Berhad Prime Minister’s CSR Awards 2010 • Honorable Mention for Outstanding Work in Empowerment of Women Ministry of Women, Family and Community Development Kulim (Malaysia) Berhad Scored ‘A in MCG Index 2010 MSWG Kulim (Malaysia) Berhad Skim Amalan Ladang Baik Malaysia Department of Agriculture, Malaysia Kulim (Malaysia) Berhad 2009 Certification for “Sustainable Palm Oil Producer” Executive Board of RSPO Kulim (Malaysia) Berhad – Plantations in Malaysia Global CSR Awards 2009 • Gold Award for Best Environmental Excellence Award Pinnacle Group International Kulim (Malaysia) Berhad CICM Responsible Care Awards 2007/2008 Category: Oleochemicals 1. Distribution Code – Merit 2. Process Safety Code – Merit 3. Employee Health and Safety Code – Merit 4. Product Stewardship Code – Gold Chemical Industries Council of Malaysia (CICM) Natural Oleochemicals Sdn Bhd Kulim (Malaysia) Berhad (23370-V) 28 RECOGNITIONS AND ACCREDITATIONS | annual report 2011 (continued) AWARDED BY RECEIVING COMPANY/ OPERATING UNIT ACCA MaSRA 2009 • Shortlisted • Winner of Best First Time Reporter • Commendation - Reporting on Strategy and Governance ACCA Malaysia Kulim (Malaysia) Berhad NACRA 2009 • Silver Award for Most Outstanding Annual Report • Winner of Industry Excellence Award (Main Board) – Plantations and Mining National Annual Corporate Report Award Kulim (Malaysia) Berhad MPOB Code of Practice 2009 for: • Good Agricultural Practice • Oil Palm Nursery • Mill Operations Malaysia Palm Oil Board (MPOB) Sindora Estate Sindora Palm Oil Mill 2009 South East Asia Frost and Sullivan Growth Strategy Excellence Award for Oleochemicals Frost and Sullivan Natural Oleochemicals Sdn Bhd ISO 9001:2008 Certification SIRIM QAS International Sdn Bhd SIM Manufacturing Sdn Bhd National MPC 2009 • Overall Champion • 1st Place for Service Category • 3-Star Award Malaysia Productivity Corporation (MPC) Kulim (Malaysia) Berhad National MPC 2009 – 3-Star Award MPC Kulim (Malaysia) Berhad Kulim Montel Farm – Tereh Selatan Estate National MPC 2009 – 3-Star Award MPC Kulim (Malaysia) Berhad Sindora Palm Oil Mill Good Manufacturing Practice (GMP) MOODY International Natural Oleochemicals Sdn Bhd Dubois-Natural Esters Sdn Bhd NACRA 2008 • Winner of Industry Excellence Award (Main Board) – Plantations and Mining • Silver Award for Best Annual Report in Bahasa Malaysia National Annual Corporate Report Award Kulim (Malaysia) Berhad ACCA MESRA 2008 – Shortlisted ACCA Malaysia Kulim (Malaysia) Berhad Anugerah Kecemerlangan Pengurusan Keselamatan dan Kesihatan Pekerjaan Negeri Johor 2008 Ministry of Human Resources Selai Estate New Company of the Year Award – 2008 London Stock Exchange New Britain Palm Oil Limited Certification for “Sustainable Palm Oil Producer” Executive Board of RSPO New Britain Palm Oil Limited National MPC 2008 – 3rd Placing for Service Category, 3-Star Award MPC Kulim (Malaysia) Berhad Sindora Estate National MPC 2008 – 3-Star Award MPC Kulim (Malaysia) Berhad Sindora Palm Oil Mill ACCA MESRA 2007 – Shortlisted ACCA Malaysia Kulim (Malaysia) Berhad HALAL Certification Jabatan Kemajuan Islam Malaysia Dubois-Natural Esters Sdn Bhd Natural Soaps Sdn Bhd RECOGNITION AND ACCREDITATION 2009 (continued) 2008 2007 annual report 2011 | 29 Kulim (Malaysia) Berhad (23370-V) IN THE NEWS Kulim (Malaysia) Berhad (23370-V) 30 | annual report 2011 FINANCIAL CALENDAR 2011 QUARTERLY RESULTS DATE OF ANNOUNCEMENT SHARES AND WARRANTS Event 26 August 2011 27 May 2011 1 2 ST QUARTER ND QUARTER 3 4 TH QUARTER 25 November 2011 29 February 2012 500 Purchase Date 3,304,700 2,561,900 1,975,000 1,391,400 858,700 300,000 445,000 2,246,300 800,000 100,000 234,200 110,000 70,000 25,600 60,000 30,000 120,000 207,200 10,863,522 8,824,130 6,888,084 4,830,305 2,988,085 1,034,642 1,530,515 7,632,018 2,683,666 334,801 782,660 373,724 235,678 86,502 203,067 102,644 410,690 691,434 17.03.2011 18.03.2011 21.03.2011 22.03.2011 23.03.2011 24.03.2011 25.03.2011 28.03.2011 29.03.2011 30.03.2011 31.03.2011 01.04.2011 04.04.2011 05.04.2011 06.04.2011 07.04.2011 08.04.2011 12.04.2044 14,840,000 50,496,167 As at 31.12.2010 12,642,200* 45,691,040 As at 31.12.2011 27,482,200 96,187,207 2. Share buy-back – ordinary shares of RM0.25 each ENTITLEMENT DATE 15 December 2011 23 December 2011 15.08.2011 Units Consideration Purchased Paid (RM) INTERIM - FOR YEAR ENDED 31 DECEMBER 2011 PAYMENT DATE 500 Total warrants converted in 2011 DIVIDENDS 20% Listing Date 1. Exercise of warrants 2011/2016 – listing of new ordinary shares of RM0.25 each Event RD QUARTER Units Listed and Quoted Total share buy-back in 2011 Accumulated Treasury Shares * Adjusted for share split ANNUAL REPORT AND GENERAL MEETINGS ISSUANCE OF ANNUAL REPORT 2010 1 June 2011 EXTRAORDINARY GENERAL MEETING 10 February 2011 22 December 2011 36TH ANNUAL GENERAL MEETING 23 June 2011 SECTION 2: ABOUT KULIM 34 CORPORATE PROFILE 37 CORPORATE MILESTONES 40 GROUP’S SIGNIFICANT SUBSIDIARIES 42 CORPORATE INFORMATION 44 BOARD OF DIRECTORS 53 MANAGEMENT TEAM 55 ORGANISATION CHART A WE ATTRIBUTE THIS SUCCESS TO OUR ABILITY TO EFFECTIVELY EXECUTE OUR STRATEGIES – OUR BIASNESS TOWARDS ACTION KULIM HAS BEEN IN EXISTENCE FOR MORE THAN 7 DECADES. WE HAVE GROWN AND PROGRESSED FROM A HUMBLE BEGINNING INTO BECOMING A SUCCESSFUL DIVERSIFIED CORPORATE ORGANISATION. WE TAKE GREAT EFFORT TO ENSURE OUR GOALS AND STRATEGIES ARE TRANSLATED INTO ACTIONABLE PERFORMANCE MEASURES, CONSISTENT WITH OUR MISSION TO BECOME THE MOST PROGRESSIVE CORPORATE ORGANISATION. Kulim (Malaysia) Berhad (23370-V) 34 | annual report 2011 CORPORATE PROFILE WE CARE FOR TOMORROW THE FOUNDATION OF KULIM Kulim (Malaysia) Berhad’s (“Kulim”) corporate history dated back to 1933 when it was first incorporated in the United Kingdom as Kulim Rubber Plantations Ltd. Kulim was later incorporated as a public limited company and was listed on the Kuala Lumpur Stock Exchange (now known as the Main Market of Bursa Malaysia Securities Berhad) in 1975. Since Johor Corporation became the major shareholder of Kulim in 1976, Kulim has increased its interest in the plantation industry through acquisition of plantation assets and controlling stakes in Malaysian and regional plantation companies. Currently employing more than 61,000 people, 39,000 of the staff are in Malaysia and the remaining contingent are spread across Papua New Guinea, the Solomon Islands, Singapore, Brunei, Cambodia, India and the United Kingdom. Over the years, Kulim has evolved and now focuses on three core business operations – oil palm plantation, foods and restaurants and intrapreneur ventures. Our diversified business portfolio is a progressive development from our traditional business of palm oil, pursued in line with our aim to sustain value creation for all our stakeholders via the adoption of an evolving and balanced business mix. The imminent exit from the foods and restaurants business would bring us back closer to our root. We welcome the opportunities that this will bring as greater demand are placed in agriculture. annual report 2011 | 35 Kulim (Malaysia) Berhad (23370-V) CORE BUSINESSES PLANTATION Kulim is recognised as one of the leading palm oil groups in the world with a unique geographical footprint – in Malaysia, PNG and SI. Kulim was amongst the earliest plantations in the world to be certified as a sustainable palm oil producer when its operations under NBPOL in West New Britain, PNG and in Malaysia were awarded the RSPO certification in 2008 and early 2009 respectively. Our management and growth strategy is fundamentally guided by “Vision 30:30” – fruit yields of 30 tonnes per hectare and combined palm products extraction rates of 30%, and sustainable development principles. FOODS AND RESTAURANTS INTRAPRENEUR VENTURES Kulim’s subsidiar y, QSR Brands Bhd (“QSR”), is currently the leading, fully integrated quick ser vice restaurant enterprise in Malaysia, Singapore and Brunei. QSR is also beginning to establish itself in Cambodia, Mumbai and Pune in India. In January 2009, KFC Holdings (Malaysia) Berhad (“KFCH”) officially became a subsidiary of QSR. In line with the value-add approach, one of our principal growth thrusts is the Intrapreneur Ventures (“IV”) division, which is involved in a diverse range of businesses. We also operate a host of auxiliary activities that support the Group’s core restaurant business, encompassing feed mills, breeder farms, hatchery, contract broiler farms, poultry processing and other processing plants, sauce manufacturing and seasoning. Our integrated operation safeguards the integrity of the supply chain and ensures all products sold are Halal to meet the traditional food needs as well as the industrial needs of the world. The IV companies are subject to a systematic and rigorous process of selection, management and control to ensure they continue to deliver value and returns to shareholders. The IV companies will be developed and nurtured to become leading players in their respective industries and transformed into strategic business divisions of the Group. The Group’s IV companies are involved in businesses ranging from shipping and logistics, facilities management and civil works, agricultural machinery, IT services and development of IT system, trading of tropical fruits and integrated poultry farming. Kulim (Malaysia) Berhad (23370-V) 36 | annual report 2011 CORPORATE PROFILE (continued) BUSINESS STRATEGY Plantation and agriculture will dominate our profile. We will continue to invest in businesses that offer superior long-term potential for growth and profitability that will collectively minimise earning fluctuations so as to enable the Group to provide attractive returns to our shareholders. Our pursuit of value and growth is firmly underpinned by our commitment to embrace sustainability and strong corporate governance as the overriding philosophy. KULIM AND SUSTAINABILITY As a socially and environmentally responsible corporate citizen, Kulim embraces the principles of sustainable development and has continued to work towards demonstrating sustainability throughout our operations. We recognise sustainability as an opportunity to change the way we do our business. Our Sustainable Palm Oil (“SPO”) Programme defines its ultimate objective as to improve Kulim’s business performance and profitability as well as positioning Kulim as a world leader in SPO. Our efforts with regards to sustainable development will continue to guide our business. We hope that by being mindful of our surroundings and the socioeconomic impact of our actions, we will move forward by developing business methods that are economically viable, environmentally appropriate and socially beneficial. OUR PROMISE, WE CARE Kulim has laid solid foundations for its future growth and will continue to adapt its approach to the ever-changing needs of its businesses and environment. The Group will build upon its strength of experience and expertise in its established core businesses. Guided by a clear vision of where it is heading and with a strong governance culture, the Group is well-positioned to capitalise on emerging opportunities in the market place, locally and globally, to deliver value to all its stakeholders. We care for tomorrow. We translate this as a responsibility to aspire to international standards and global recognition. Kulim has ambitious plans for this goal: to improve performance, increase sustainability, and manage risks. That is why we are transforming the businesses by bringing technology and teamwork together in innovative ways, making our assets more productive and our people more proficient. We care for tomorrow. We believe that we are responsible in shaping tomorrow and must act prudently for the sustainable development of this planet, our home for our people. annual report 2011 | 37 Kulim (Malaysia) Berhad (23370-V) CORPORATE MILESTONES 1933 1933 - 1947 THE BEGINNING Incorporation of Kulim Rubber Plantations Ltd (“KRPL”) in the United Kingdom (“UK”) on 4 July. 1947 KRPL began operations with a 190 hectares rubber plantation in Johor, Malaysia. 1970 1976 On 16 July, KRPL changed its name to Kulim Group Limited (“KGL”) and listed its shares on London Stock Exchange (“LSE”). The Johor State Economic Development Corporation (now k nown as Johor Corporation or JCorp) became a shareholder of Kulim. 1973 1970 - 1979 “REBRANDING” AND RESTRUCTURING KGL’s businesses expanded from oil palm and rubber plantations, to include property development in the UK, hotels in the Trinidad and Tobago islands in the Caribbean and a rubber plantation in Nigeria. CONSOLIDATION AND GROWTH KGL withdrew from the LSE and became a subsidiary of Kulim. KGL transferred to Kulim all its assets and liabilities and divested its assets in the UK. 1979 1975 Incorporation of Kulim (Malaysia) Sdn Bhd on 3 July and was later made public as Kulim (Malaysia) Berhad (“Kulim”) on 18 August. On 14 November, Kulim was listed on the main board of the Kuala Lumpur Stock Exchange (now known as the Main Market of Bursa Malaysia Securities Berhad). 1980 - 1993 1977 Kulim ventured into property development through its wholly-owned subsidiary, Advance Development Sdn Bhd (“ADSB”). 1980 1993 Kulim disposed of Minister Bay Hotel Limited in Trinidad and Tobago. Kulim acquired 49% of Yule Catto Plantations Sdn Bhd, now known as Mahamurni Plantations Sdn Bhd (“MPSB”), which owns 7,033 hectares of oil palm with a palm oil mill and rubber estate. 1982 Kulim disposed of Mount Irvine Bay Hotel Limited in Trinidad and Tobago. 1988 Kulim acquired 60% of Selai Sdn Bhd. 1989 Kulim acquired Labis Bahru Estate, a 2,110 hectares of oil palm and rubber estate. 1990 Kulim disposed of its entire equity in Waterside Rubber Estates Ltd, Nigeria to focus on its Malaysian plantation. Kulim acquired 70% equity in Skellerup Industries (Malaysia) Sdn Bhd, a rubber-based products manufacturer. Kulim constructed the 21-storey modern intelligent building, Menara Ansar, which was completed and launched in 1997. Kulim (Malaysia) Berhad (23370-V) 38 | annual report 2011 CORPORATE MILESTONES (continued) 1994 - 2007 DIVERSIFYING AND FURTHER GROWTH 1994 2001 Kulim diversified into the oleochemicals business by acquiring 91.38% of Natural Oleochemicals Sdn Bhd (“NatOleo”) in July. Kulim disposed of 3,104 acres of land in Ulu Tiram Estate for RM313.7 million. 2004 The acquisition of MPSB was completed along with Mutiara Estate and Sungai Sembrong Estate. Kulim made an entry into Kalimantan, Indonesia when it acquired 100% equity in EPA Management Sdn Bhd (“EPA”). 1995 Kulim acquired 92.99% stake in Kumpulan Bertam Plantations Berhad, injecting an additional 1,016 hectares of plantation land into the Group. NatOleo entered into a joint-venture with Stearinerie Dubois Fils, a French company to produce specialty esters. NatOleo took 55% equity in the new company, Dubois-Natural Esters Sdn Bhd (“DNE”). 1996 Kulim’s regional expansion began with the acquisition of 90% stake in New Britain Palm Oil Limited (“NBPOL”) in Papua New Guinea (“PNG”). Kulim’s subsidiary, Kulim Plantations (Malaysia) Sdn Bhd, ventured into plantations in Indonesia through a 60% stake in PT Padang Bolak Jaya and PT Multrada Multi Maju in Sumatra. Johor Land Berhad (“JLand”) became a subsidiary of Kulim and was subsequently listed on the main board of KLSE. 1997 Commissioning of DNE’s ester plant and expansion of fatty acids plant from 45,000 tonnes per annum (“TPA”) to 150,000 TPA. 1998 New Britain Nominees Ltd was incorporated by NBPOL as a vehicle for its employees, outgrowers and traditional landowners to acquire NBPOL’s shares and allowing them to participate in NBPOL’s future growth and prosperity. NBPOL entered into agreement for the formation of Guadalcanal Plains Palm Oil Limited (“GPPOL”), a company incorporated in the Solomon Islands with NBPOL holding 80% equity. Kulim entered into a joint-venture with TopPlant Laboratories Sdn Bhd, to own 60% equity in Kulim TopPlant Sdn Bhd, for the production of high-yielding oil palm clones using tissue culture technology. 2005 Kulim purchased 52% stake in QSR Brands Bhd (“QSR”), the operator of Pizza Hut and the controlling shareholder of KFC Holdings (Malaysia) Bhd (“KFCH”). Expansion of NatOleo’s fatty acids production capacity from 150,000 TPA to 380,000 TPA. 2006 Kulim completed a capital distribution-inspecie of its entire holding of JLand shares in March, signalling the Group’s exit from the property business. Kulim divested all of the Group’s plantations in Sumatra in March. NBPOL Foundation was established to assist communities in West New Britain, PNG in the fields of health and education. In June, Kulim completed the acquisition of QSR when it gained control over the QSR Board at an Extraordinary General Meeting (“EGM”) of the company. 1999 2007 NBPOL was successfully admitted to Port Moresby Stock Exchange, PNG. Secondary listing of NBPOL on the LSE in December for realisation of NBPOL’s true earnings potential in the trading market. 2000 Kulim acquired the remaining 40% stake in Selai Sdn Bhd. Commissioning of NBPOL’s fourth mill, Numundo Palm Oil Mill and construction of Kumbango Palm Oil Refinery with a capacity of 100,000 TPA. Divestment of Kalimantan plantations in August, marking the Group’s exit from plantation operations in Indonesia. annual report 2011 | 2008 - 2011 SUSTAINABLE GROWTH 39 Kulim (Malaysia) Berhad (23370-V) 2008 2010 Sindora became a 77%-owned subsidiary of Kulim in May, adding plantation land and bringing in a number of Intrapreneur Venture (“IV”) companies into the Group. In April, NBPOL acquired 80% stake in CTP (PNG) Ltd (now known as Kula Palm Oil Limited), bringing in additional 26,000 hectares of plantation land to the Group’s landbank. In October, NBPOL acquired 100% stake in Ramu Agri-Industries Limited (“Ramu”), PNG, further expanding the Group’s landbank to 124,833 hectares. NBPOL became one of the first plantation companies to receive Roundtable on Sustainable Palm Oil (“RSPO”) certification in September. Construction commenced for NBPOL’s 200,000 TPA refinery plant in UK. Expansion of QSR into Cambodia for KFC restaurants. 2009 Official RSPO certification was accorded to Kulim-owned plantations in Malaysia in January. Completion of equity swap in Nexsol (S) Pte Ltd and Nexsol (M) Sdn Bhd between Kulim and Peter Cremer (Singapore) GmBH in April. Following the exercise, Nexsol (M) Sdn Bhd became a 100% subsidiary of Kulim, while at the same time Nexsol (S) Pte Ltd ceased to be an associate of Kulim. In May, NBPOL officially launched its refinery in Liverpool. NBPOL’s subsidiary, Ramu, was officially accorded with RSPO certification in August. In September, Kulim concluded the disposal of NatOleo and its subsidiaries, marking the Group’s exit from the oleochemicals business. 2011 In January, QSR increased its shareholding in KFCH to 50.25% and KFCH became a subsidiary of QSR. Kulim completed its capital restructuring exercise, involving a share split, bonus shares and free warrants in March. Estate swap with Sime Darby Plantations Sdn Bhd (“SDP”) in September, involving Sindora’s Sungai Simpang Kiri Estate and SDP’s Sungai Tawing Estate, to realise potential rationalisation benefits of their respective locations. Kulim announced the acquisition of 6 parcels of oil palm estates measuring approximately 13,687 hectares and 2 palm oil mills from JCorp, for cash consideration of RM700 million. Sindora and its subsidiary, E.A. Technique (M) Sdn Bhd acquired 20% and 18% respectively, of Orkim Sdn Bhd (“Orkim”), increasing its tanker fleet, bringing along charter contracts with major oil companies. KFCH received the franchise rights to operate KFC restaurants in Mumbai and Pune, India. Sindora became a wholly-owned subsidiary of Kulim and delisted from the official list of Bursa Malaysia Securities Berhad effective 30 November. Kulim (Malaysia) Berhad (23370-V) 40 | annual report 2011 GROUP’S SIGNIFICANT SUBSIDIARIES AS AT 31 MARCH 2012 PLANTATION FOODS AND RESTAURANTS 100% Kulim Plantations (Malaysia) Sdn Bhd 100% Ulu Tiram Manufacturing Company (Malaysia) Sdn Bhd QSR Brands Bhd 57% Pizza Hut Restaurants Sdn Bhd 100% 100% 100% Mahamurni Plantations Sdn Bhd 100% 100% 100% 100% Selai Sdn Bhd EPA Management Sdn Bhd 94% 51% 100% 100% 100% Multibrands QSR Holdings Pte Ltd 100% Kampuchea Food Corporation Limited 51% KFC Holdings (Malaysia) Berhad New Britain Palm Oil Limited Dami Australia Pty Ltd New Britain Oils Limited 100% Ayamas Food Corporation Sdn Bhd 100% Region Food Industries Sdn Bhd 100% Ayamas Integrated Poultry Industry Sdn Bhd 100% Integrated Poultry Industry Sdn Bhd 100% KFC India Holdings Sdn Bhd 100% KFCH Education (M) Sdn Bhd 100% KFC IC Assets Sdn Bhd Ramu Agri-Industries Limited Guadalcanal Plains Palm Oil Limited 80% Kula Palm Oil Limited 55% Tepak Marketing Sdn Bhd Kulim TopPlant Sdn Bhd Malaysia Papua New Guinea Orkim Sdn Bhd Johor Shipyard & Engineering Sdn Bhd 20% Orkim Sdn Bhd 75% Metro Parking (M) Sdn Bhd 75% Pro Office Solutions Sdn Bhd 90% GranuLab (M) Sdn Bhd 90% MIT Insurance Brokers Sdn Bhd 75% Epasa Shipping Agency Sdn Bhd 60% Microwell Bio Solutions Sdn Bhd 20% Tepak Marketing Sdn Bhd Roaster’s Chicken Sdn Bhd Kumpulan Bertam Plantations Berhad 80% 60% 31% Pizza Hut Singapore Pte Ltd Sindora Bhd E.A. Technique Sdn Bhd 51% PHD Delivery Sdn Bhd 55% 100% 100% Others annual report 2011 | 41 Kulim (Malaysia) Berhad (23370-V) INTRAPRENEUR VENTURES Under Kulim (Malaysia) Berhad 80% 75% 100% JTP Trading Sdn Bhd JTP Montel Sdn Bhd Under EPA Management Sdn Bhd 75% Extreme Edge Sdn Bhd 95% Pinnacle Platform Sdn Bhd Under KFC Holdings (Malaysia) Bhd 100% Rasamas Taman Universiti Sdn Bhd 89% Rasamas Tebrau Sdn Bhd 89% The Secret of Secret Garden Sdn Bhd 95% AKLI Resources Sdn Bhd Ayamas Food Corporation Sdn Bhd 100% 75% Renown Value Sdn Bhd 90% 75% 100% Kulim Nursery Sdn Bhd Palma Bumimas Sdn Bhd 100% 78% 90% 75% 90% 100% 75% Roaster’s Chicken Sdn Bhd Kulim Livestock Sdn Bhd 90% Ayamas Farms & Hatchery Sdn Bhd 85% Ayamas Feedmill Sdn Bhd 75% Semangat Juara Sdn Bhd 90% Southern Poultry Farming Sdn Bhd 85% Synergy Poultry Farming Sdn Bhd 90% Ventures Poultry Farming Sdn Bhd Exquisite Livestock Sdn Bhd Superior Harbour Sdn Bhd Special Appearance Sdn Bhd Edaran Badang Sdn Bhd Perfect Synergy Trading Sdn Bhd Optimum Status Sdn Bhd Kulim Civilworks Sdn Bhd 100% KCW Hardware Sdn Bhd 100% KCW Electrical Sdn Bhd 100% KCW Kulim Marine Services Sdn Bhd 100% KCW Roadworks Sdn Bhd The full list of companies under Kulim Group is set out in Notes 16 to the Financial Statements. Kulim (Malaysia) Berhad (23370-V) 42 | annual report 2011 CORPORATE INFORMATION BOARD OF DIRECTORS Chairman/ Non-Independent Non-Executive Director KAMARUZZAMAN ABU KASSIM Managing Director AHAMAD MOHAMAD Executive Director WONG SENG LEE ZULKIFLI IBRAHIM DATUK AHMAD ZAKI ZAHID Non-Independent Non-Executive Director DATIN PADUKA SITI SA’DIAH SH BAKIR ROZAN MOHD SA’AT WAN MOHD FIRDAUS WAN MOHD FUAAD Independent Non-Executive Director TAN SRI DATO’ SERI ARSHAD AYUB KUA HWEE SIM DATUK HARON SIRAJ DR. RADZUAN A. RAHMAN LEUNG KOK KEONG NATASHA KAMALUDDIN AUDIT COMMITTEE REGISTRAR TAN SRI DATO’ SERI ARSHAD AYUB Chairman KUA HWEE SIM DR. RADZUAN A. RAHMAN PRO CORPORATE MANAGEMENT SERVICES SDN BHD Suite 12B, Level 12, Menara Ansar 65, Jalan Trus 80000 Johor Bahru Johor Darul Takzim Tel : +607-226 7692 / 226 7476 Fax : +607-222 3044 / 222 3022 Email : [email protected] NOMINATION COMMITTEE KAMARUZZAMAN ABU KASSIM Chairman TAN SRI DATO’ SERI ARSHAD AYUB KUA HWEE SIM REMUNERATION COMMITTEE KAMARUZZAMAN ABU KASSIM Chairman TAN SRI DATO’ SERI ARSHAD AYUB DR. RADZUAN A. RAHMAN PRINCIPAL BANKERS CIMB Bank Berhad OCBC Bank (M) Berhad RHB Bank Berhad Malayan Banking Berhad HSBC Bank Malaysia Berhad Standard Chartered Bank Malaysia Asian Finance Bank Berhad The Bank of Nova Scotia Berhad SECRETARIES IDHAM JIHADI ABU BAKAR (MAICSA 7007381) AUDITORS Ernst & Young NURALIZA A. RAHMAN (LS 0008565) WEBSITE www.kulim.com.my REGISTERED OFFICE Suite 12B, Level 12, Menara Ansar 65, Jalan Trus 80000 Johor Bahru Johor Darul Takzim Tel : +607-226 7692 / 226 7476 Fax : +607-222 3044 / 222 3022 STOCK EXCHANGE LISTING LISTED ENTITIES WITHIN THE GROUP STOCK EXCHANGE LISTED SINCE STOCK CODE 14 November 1975 2003 1 April 2004 9415 11 November 1988 3492 Main Market – London Stock Exchange 17 December 2007 NBPO Port Moresby Stock Exchange 19 December 1999 NBO Kulim (Malaysia) Berhad QSR Brands Bhd Main Market of Bursa Malaysia Securities Berhad KFC Holdings (Malaysia) Bhd New Britain Palm Oil Limited Kulim (Malaysia) Berhad (23370-V) 44 | annual report 2011 BOARD OF DIRECTORS 1 2 3 4 5 KAMARUZZAMAN ABU KASSIM Chairman/Non-Independent Non-Executive Director AHAMAD MOHAMAD Managing Director WONG SENG LEE Executive Director ZULKIFLI IBRAHIM Executive Director DATUK AHMAD ZAKI ZAHID Executive Director 6 7 8 9 10 DATIN PADUKA SITI SA’DIAH SH BAKIR Non-Independent Non-Executive Director ROZAN MOHD SA’AT Non-Independent Non-Executive Director WAN MOHD FIRDAUS WAN MOHD FUAAD Non-Independent Non-Executive Director TAN SRI DATO’ SERI ARSHAD AYUB Independent Non-Executive Director KUA HWEE SIM Independent Non-Executive Director annual report 2011 | 11 12 13 14 45 Kulim (Malaysia) Berhad (23370-V) DATUK HARON SIRAJ Independent Non-Executive Director DR. RADZUAN A. RAHMAN Independent Non-Executive Director LEUNG KOK KEONG Independent Non-Executive Director NATASHA KAMALUDDIN Independent Non-Executive Director 7 11 12 2 4 1 3 13 9 8 14 6 10 5 Kulim (Malaysia) Berhad (23370-V) BOARD OF DIRECTORS 46 | annual report 2011 (continued) KAMARUZZAMAN ABU KASSIM AHAMAD MOHAMAD Chairman/Non-Independent Non-Executive Director Managing Director Aged 48, is a Non-Independent Non-Executive Director and the Chairman of Kulim (Malaysia) Berhad. He was appointed to the Board of Kulim as Director on 1 January 2008 and appointed as Chairman on 12 January 2011. He graduated with a Bachelor of Commerce majoring in Accountancy from the University of Wollongong, New South Wales, Australia in 1987. Aged 58, is the Managing Director of Kulim (Malaysia) Berhad and was appointed to the Board on 24 January 1991. He graduated with a Bachelor of Economics (Honours) degree in 1976 from the University of Malaya. He joined JCorp in June 1979 as a Company Secretary for various companies within the JCorp Group. He embarked his career as an Audit Assistant at Messrs K.E. Chan & Associates in May 1988, later joined an international accounting firm, Messrs PricewaterhouseCoopers (formerly known as Messrs Coopers & Lybrand) in 1989. In December 1992, he left the firm and joined Perbadanan Kemajuan Ekonomi Negeri Johor (currently known as Johor Corporation (“JCorp”)) as a Deputy Manager in the Corporate Finance Department and later promoted to General Manager in 1999. He was involved in many of JCorp’s projects, among others are the Johor Specialist Hospital, prefabricated housing project and the Kotaraya Complex in Johor Bahru. He is presently a member of the Board of Directors of KPJ Healthcare Berhad, New Britain Palm Oil Limited (Papua New Guinea) and the Deputy Chairman of QSR Brands Bhd and KFC Holdings (Malaysia) Bhd. He is also the Chairman and Director of several other companies within the JCorp Group. He is the President and Chief Executive of JCorp with effect from 1 December 2010. He had served as the Acting President and Chief Executive of JCorp from 29 July 2010 to 30 November 2010. Prior to that, he had served as the Chief Financial Officer and Chief Operating Officer of JCorp beginning 1 August 2006, before his appointment as the Senior Vice President, Corporate Services & Finance of JCorp beginning 1 January 2010. During his tenure as the Johor Corporation’s Chief Operating Officer, as well as the Senior Vice President, Corporate Services & Finance, Johor Corporation had received Excellence Award For Financial Management Accountability Index with 4-star ratings from the National Audit Department for 4 consecutive years from 2007 – 2010. He was appointed to the Board of Damansara Realty Berhad (“DBhd”) on 11 December 1995 before assuming the position as its Executive Director on 16 August 1999. He was later appointed as its Deputy Chairman on 4 October 2006, then re-designated as DBhd’s Managing Director on 1 January 2010. He resigned as the Managing Director of DBhd with effect from 12 January 2011 and was later appointed as the Chairman of DBhd with effect from the same date. He sits as the Chairman of Damansara REIT Managers Sdn Bhd, the manager of Al-Aqar KPJ REIT beginning 12 January 2011. He is also the Chairman of KPJ Healthcare Berhad, and a Director of QSR Brands Bhd and KFC Holdings (Malaysia) Bhd, which are JCorp’s Group of Companies listed on the Main Market of Bursa Malaysia Securities Berhad. He is also a Director of Waqaf An-Nur Corporation Berhad, an Islamic endowment institution that spearheads JCorp’s Corporate Responsibility programmes. He also sits as Chairman and/or Director of several other companies within JCorp Group. Other than as disclosed, he does not have any family relationship with any director and/or major shareholder of Kulim. He has no personal interest in any business arrangement involving Kulim. He has not been convicted for any offences. He attended all eight (8) Board of Directors’ Meetings of the Company in the financial year ended 31 December 2011. He is also active as the President of the Johor Corporation Football Club (“Johor FC”) and Director of Waqaf An-Nur Corporation Berhad, an Islamic endowment institution that spearheads JCorp Group’s Corporate Responsibility programmes, including the unique Corporate Waqaf Concept initiated by JCorp. Other than as disclosed, he does not have any family relationship with any director and/or major shareholder of Kulim. He has no personal interest in any business arrangement involving Kulim and has not been convicted for any offences. He attended all eight (8) Board of Directors’ Meetings of the Company in the financial year ended 31 December 2011. annual report 2011 | 47 Kulim (Malaysia) Berhad (23370-V) WONG SENG LEE ZULKIFLI IBRAHIM Executive Director Executive Director Aged 61, is an Executive Director of Kulim (Malaysia) Berhad. He was appointed to the Board of Kulim on 8 January 1996. He is currently the Vice President of Marketing and Corporate Affairs. Aged 54, was the Chief Operating Officer of Kulim (Malaysia) Berhad since 3 November 2003 and was re-designated as an Executive Director when he was appointed to the Board on 1 July 2011. He qualified as a Certified Accountant in 1974 and is a Fellow of the Association of Chartered Certified Accountants. In 1974, he joined an international audit firm in Singapore and left to join EPA Management Sdn Bhd as an Accountant in July 1979. He was previously the Financial Controller for Kulim Group. He is a Fellow of the Association of Chartered Certified Accountants, United Kingdom and a member of the Malaysian Institute of Accountants since 1992. He is presently a member of the Board of Directors of several other companies within the Kulim Group. Other than as disclosed, he does not have any family relationship with any director and/or major shareholder of Kulim. He has no personal interest in any business arrangement involving Kulim and has not been convicted for any offences. He attended all eight (8) Board of Directors’ Meetings of the Company in the financial year ended 31 December 2011. After serving various companies in the private sector since his graduation in 1983, he joined JCorp Group in 1990 as the Financial Controller of Sindora Berhad. In 1996, he was appointed the Managing Director of Antara Steel Mills Sdn Bhd until 2000 before joining PJB Pacific Capital Group in 2001 as the Chief Operating Officer. He joined Kulim as the Chief Operating Officer in 2003. He is also the Chairman and Director of several other companies within the JCorp Group. Other than as disclosed, he does not have any family relationship with any director and/or major shareholder of Kulim. He has no personal interest in any business arrangement involving Kulim and has not been convicted for any offences. Since his appointment date, he attended five (5) Board of Directors’ Meetings of the Company in the financial year ended 31 December 2011. Kulim (Malaysia) Berhad (23370-V) BOARD OF DIRECTORS 48 | annual report 2011 (continued) DATUK AHMAD ZAKI ZAHID DATIN PADUKA SITI SA’DIAH SH BAKIR Executive Director Non-Independent Non-Executive Director Aged 41, was appointed to the Board of Kulim (Malaysia) Berhad as an Executive Director on 8 November 2011. He holds a Bachelor of Laws, University of Bristol, England in 1994. He was the Executive Director, Malaysian Resources Corporation Berhad from May 2009 to October 2011 and was an Independent Director, Malaysian Resources Corporation Berhad from January 2005 to April 2009. He was a Senior Executive Officer at the Issues and Investment Division of Securities Commission of Malaysia from November 1994 to July 1998. Thereupon, from August 1998 to February 2000, he worked as a Senior Consultant at Booz Allen & Hamilton (Kuala Lumpur and Singapore). He assumed the role of Special Assistant to YB Dato’ Seri Hishamuddin Tun Hussein, Minister of Youth & Sports, Malaysia from March 2000 – June 2001. In July 2001, he joined the Deputy Prime Minister’s office as the Special Officer to YAB Tun Abdullah Hj Ahmad Badawi and was promoted to Special Officer to YAB Tun Abdullah Hj Ahmad Badawi and Head of Policy Unit, Prime Minister’s Office from November 2003 to April 2009. He is also the Managing Director of Damansara Realty Berhad and the Managing Director of Damansara Assets Sdn Bhd. Besides that, he is also a Director of several other companies within the JCorp Group. Other than as disclosed, he does not have any family relationship with any director and/or major shareholder of Kulim. He has no personal interest in any business arrangement involving Kulim and has not been convicted for any offences. Since his appointment date, he attended two (2) Board of Directors’ Meetings of the Company in the financial year ended 31 December 2011. Aged 59, was appointed to the Board of Kulim on 1 January 2005. She is currently a Non-Independent Non-Executive Director of Kulim (Malaysia) Berhad. Datin Paduka is the Managing Director of KPJ Healthcare Berhad (“KPJ”) since 1 March 1993. She graduated with a Bachelor of Economics from University of Malaya in 1974 and holds an MBA from Henley Management College, University Reading, London. Her career with JCorp commenced in 1974 and she was directly involved with JCorp’s Healthcare Division since 1978. Datin Paduka was appointed as the Chief Executive of Kumpulan Perubatan (Johor) Sdn Bhd (“KPJSB”) from 1989 until the listing of KPJ in November 1994. Datin Paduka is the Chairman of various hospitals and companies in the KPJ Group, as well as MIT Insurance Brokers Sdn Bhd. She is a Non-Independent Non-Executive Director of KFC Holdings (Malaysia) Bhd, QSR Brands Bhd and Damansara REIT Managers Sdn Bhd. Datin Paduka is also a Director of Waqaf An-Nur Corporation Bhd, a nongovernmental organisation dedicated to the provision of healthcare services to the less fortunate. Datin Paduka is an Independent Non-Executive Director of Bursa Malaysia, elected since 2004. Committed to promoting excellence in healthcare, Datin Paduka is the President of the Malaysian Society for Quality in Health (“MSQH”), elected since its inception in 1997 to date. She is a member of the Malaysia Productivity Corporation (“MPC”) Consultative Panel on Healthcare since 2001 and a member of the National Patient Safety Council, Ministry of Health since 2003. In 2009, she was appointed as a member of the Malaysian Healthcare Travel Council, Ministry of Health. She was a Board member of MATRADE from 1999 to 2010. In 2010, Datin Paduka was named the ‘CEO of the Year 2009’ by the New Straits Times Press and the American Express. In 2011, Datin Paduka achieved 3 more awards, namely the ‘Asia Leading Woman CEO of The Year’ at the Women in Leadership Forum Asia, the ‘Masterclass Woman CEO of The Year’ by the Global Leadership Awards and the ‘BrandLaureate Transformational Corporate Leader Brand iCon Leadership Awards 2011’ from The Asia Pacific Brands Foundation. Other than as disclosed, she does not have any family relationship with any director and/or major shareholder of Kulim. She has no personal interest in any business arrangement involving Kulim and has not been convicted for any offences. She attended all eight (8) Board of Directors’ Meetings of the Company in the financial year ended 31 December 2011. annual report 2011 | 49 Kulim (Malaysia) Berhad (23370-V) ROZAN MOHD SA’AT WAN MOHD FIRDAUS WAN MOHD FUAAD Non-Independent Non-Executive Director Non-Independent Non-Executive Director Aged 52, is currently a Non-Independent Non-Executive Director of Kulim (Malaysia) Berhad. He was appointed to the Board of Kulim on 1 January 2008. He is the Chief Executive of Hospitality Division of JCorp and the Managing Director of Sindora Berhad. He holds a Bachelor of Economics (Honours) majoring in Statistics from Universiti Kebangsaan Malaysia. He started his career in 1983 as an Administrative Officer in Planning & Research Department of JCorp before being seconded as an Operations Manager in Sergam Berhad, a subsidiary of JCorp in 1986. From 1987 to 1988, he served in the Corporate Communications Department, JCorp as an Administrative Officer. From 1988 to 1993, he was appointed as the Executive Director of several subsidiaries in JCorp Group. In 1994, he was appointed as the General Manager of JCorp’s Tourism Division before assuming the post as Chief Executive of the same Division on 15 June 1996, a post which he held until his appointment as the General Manager, Business Development, JCorp, beginning January 1999. Prior to his appointment as the Managing Director of Sindora Berhad, he served as the Senior General Manager, Business Development of JCorp from 2000 until August 2002. He is also a Director of Waqaf An-Nur Corporation Berhad, an Islamic endowment institution that spearheads JCorp Group’s Corporate Responsibility programmes, including the unique Corporate Waqaf Concept initiated by JCorp. Other than as disclosed, he does not have any family relationship with any director and/or major shareholder of Kulim. He has no personal interest in any business arrangement involving Kulim and has not been convicted for any offences. He attended all eight (8) Board of Directors’ Meetings of the Company in the financial year ended 31 December 2011. Aged 29, was appointed to the Board of Kulim (Malaysia) Berhad as a Non-Independent Non-Executive Director on 9 November 2011. He is also currently a Non-Independent Non-Executive Director of Damansara Realty Berhad. He holds a Bachelor of Law (Honours) degree from the University of Nottingham. He is currently the Special Officer to the Menteri Besar of Johor. He is the founder of Young Corporate Malaysians (“YCM”), a business club for young Malaysian professionals and founder of the Institute for Democracy and Economic Affairs (“IDEAS”), a think tank promoting free market values. He is also a Director of Damansara Assets Sdn Bhd. Other than as disclosed, he does not have any family relationship with any director and/or major shareholder of Kulim. He has no personal interest in any business arrangement involving Kulim and has not been convicted for any offences. Since his appointment date, he attended one (1) Board of Directors’ Meeting of the Company in the financial year ended 31 December 2011. Kulim (Malaysia) Berhad (23370-V) BOARD OF DIRECTORS 50 | annual report 2011 (continued) TAN SRI DATO’ SERI ARSHAD AYUB KUA HWEE SIM Independent Non-Executive Director Independent Non-Executive Director Aged 83, was appointed to the Board of Kulim on 31 January 1987. He is currently an Independent Non-Executive Director of Kulim (Malaysia) Berhad. He is the Chairman of the Audit Committee and also appointed as a member of the Nomination and Remuneration Committee of Kulim. Tan Sri graduated with a Diploma in Agriculture in 1954 from Serdang Agriculture College, Selangor and with a Bachelor of Science (Honours) in Economics and Statistics in 1958 from University College of Wales, Aberystwyth in the United Kingdom. He graduated with Post Graduate Diploma in Business Administration from IMEDE, now IMD Lausanne, Switzerland. He had a distinguished career in the Malaysian Civil Service. Among the senior positions he held were First Director, Mara Institute of Technology (1965 –1975), Deputy Governor of Bank Negara Malaysia (1975 – 1977), Deputy Director-General in the Economic Planning Unit of the Prime Minister’s Department (1977 –1978) and SecretaryGeneral in the Ministry of Primary Industries (1978), Ministry of Agriculture (1979 – 1981) and Ministry of Land and Regional Development (1981 – 1983). Currently, he serves as President of the Malaysian Rubber Products Manufacturers Association (“MRPMA”). He is also the Pro Chancellor of UiTM and KPJ International University College and Chairman of University of Malaya Board. He also holds directorship in Malayan Flour Mills Berhad, LBI Capital Berhad, Top Glove Corporation Berhad, PFM Capital Holdings Sdn Bhd, Land Rover (M) Sdn Bhd, Bistari Johor Berhad and Zalaraz Sdn Bhd. Other than as disclosed, he has no family relationship with any Director and/or substantial shareholder of Kulim. He has no personal interest in any business arrangement involving Kulim and has not been convicted for any offences. He attended all eight (8) Board of Directors’ Meetings of the Company in the financial year ended 31 December 2011. Aged 59, was appointed to the Board of Kulim on 22 January 1999. She is currently an Independent Non-Executive Director of Kulim (Malaysia) Berhad. She is also a member of the Audit Committee. She is a Fellow of the Association of Chartered Certified Accountants (UK) and a Registered Accountant of Malaysia and Singapore. She has more than 35 years of corporate and financial experience in several industries within Malaysia and overseas. She is currently a Director of QSR Brands Bhd and KFC Holdings (Malaysia) Bhd which are JCorp’s subsidiaries listed on the Main Market of the Bursa Malaysia Securities Berhad. She is a member of Audit Committee of all listed companies mentioned. As a professional accountant, she also provides financial training for companies within Malaysia. Other than as disclosed, she does not have any family relationship with any director and/or major shareholder of Kulim. She has no personal interest in any business arrangement involving Kulim and has not been convicted for any offences. She attended all eight (8) Board of Directors’ Meetings of the Company in the financial year ended 31 December 2011. annual report 2011 | 51 Kulim (Malaysia) Berhad (23370-V) DATUK HARON SIRAJ DR. RADZUAN A. RAHMAN Independent Non-Executive Director Independent Non-Executive Director Aged 68 was appointed to the Board of Kulim (Malaysia) Berhad on 9 January 2006 as an Independent Non-Executive Director. Aged 68, was appointed to the Board of Kulim (Malaysia) Berhad on 1 November 2006 as an Independent Non-Executive Director. He graduated with a Bachelor in Economics (Honours) degree in 1968 from the University of Manchester, United Kingdom and Master of Development Economics from Williams College, United States of America in 1975. He graduated with a Bachelor in Agricultural Science (Honours) degree from the University of Malaya in 1969. Subsequently, he obtained his Master and PhD in Resource Economics from Cornell University, New York in 1971 and 1974 respectively. He had a distinguished career in the Malaysian Civil Service. Among the senior positions he had held were Assistant Controller of Ministry of Commerce and Industry (1969 – 1971), Principal Assistant Secretary, Ministry of Primary Industries (1972 – 1974), Minister Counselor (Economic Affairs) at the Permanent Mission of Malaysia in Geneva, Switzerland (1980 – 1986), Director of Industrial Development at Ministry of International Trade and Industry (1986 – 1987), Director of International Trade at Ministry of International Trade and Industry (1987 – 1990), Deputy Secretary-General (Trade) Ministry of International Trade and Industry (1990 – 1992), Ambassador, Permanent Representative of Malaysia to United Nations and other International Organisations and Specialised Agencies in Geneva, Switzerland (1992 – 1996), Secretary-General Ministry of Primary Industries (1996 – 2000) and as the Chief Executive Officer of Malaysian Palm Oil Promotion Council since 2001 until he retired in January 2006. Dr. Radzuan has an outstanding career, both as an academician and corporate practitioner. Amongst the notable distinguished positions held were as Associate Professor and the Dean of the Resource and Agribusiness Faculty, Universiti Pertanian Malaysia (now known as Universiti Putra Malaysia) (1969 – 1980) , Regional Director, Sime Darby Plantations for Melaka, Negeri Sembilan and Johor Regions (1980 – 1983), Director, Development Division, Sime Darby Plantations (1983 – 1984), Director, Corporate Planning, Golden Hope Plantations Berhad (1984 – 1992) and Group Director – Plantations, Golden Hope Plantations Berhad (1993 – 1999). He had also served as the Managing Director for Austral Enterprises Berhad and Island & Peninsular Berhad (1999 – 2004) as well as Tradewinds Plantation Berhad (2005 – 2006). He also holds directorships in Scomi Group Berhad, Jerneh Asia Berhad, HSBC Amanah Takaful Sdn Bhd, Apex Communications Group Sdn Bhd and MM Vitaoils Sdn Bhd. Currently he holds directorships in Idaman Unggul Berhad and Inch Kenneth Kajang Rubber Pte Ltd. Additionally, he sits on the Board of Malaysian Biotechnology Corporation Sdn Bhd, Marditec Sdn Bhd, Kenanga Cergas Sdn Bhd, MAEPS Management Sdn Bhd and Green Capital Sdn Bhd. Other than as disclosed, he does not have any family relationship with any director and/or major shareholder of Kulim. He has no personal interest in any business arrangement involving Kulim and has not been convicted for any offences. He attended all eight (8) Board of Directors’ Meetings of the Company in the financial year ended 31 December 2011. Other than as disclosed, he does not have any family relationship with any director and/or major shareholder of Kulim. He has no personal interest in any business arrangement involving Kulim and has not been convicted for any offences. He attended all eight (8) Board of Directors’ Meetings of the Company in the financial year ended 31 December 2011. Kulim (Malaysia) Berhad (23370-V) BOARD OF DIRECTORS 52 | annual report 2011 (continued) LEUNG KOK KEONG NATASHA KAMALUDDIN Independent Non-Executive Director Independent Non-Executive Director Aged 44, was appointed to the Board of Kulim (Malaysia) Berhad as an Independent Non-Executive Director on 9 November 2011. He obtained his Bachelor Degree in Accounting, Curtin University of Technology, Australia in December 1989 and is a Certified Practising Accountant and Chartered Accountant. He is also a member of CPA Australia and Malaysian Institute of Accountants. Trained as an investment banker, he has significant experience in corporate finance and business development as well as management. He was the founding member and former Executive Director of Newfields Advisors Sdn Bhd, a boutique financial and corporate advisory firm from August 2001 - August 2006. He was the Chief Executive Officer, Platinum Energy Group from September 2006 February 2008. His wide and vast experience spanned from his earlier years as an Investment & Corporate Planning Manager, Hong Leong Credit Berhad from 1994 to 2001 and was an Audit Senior, Messrs. Coopers & Lybrand Kuala Lumpur since 1990 – 1994. He is currently an Independent Non-Executive Director of Damansara Realty Berhad, a company within the JCorp Group. In addition, he is also an Independent Non-Executive Director of Tebrau Teguh Berhad and an Executive Director of Asia Bioenergy Technologies Berhad. Other than as disclosed, he does not have any family relationship with any director and/or major shareholder of Kulim. He has no personal interest in any business arrangement involving Kulim and has not been convicted for any offences. Since his appointment date, he attended two (2) Board of Directors’ Meetings of the Company in the financial year ended 31 December 2011. Aged 40, was appointed to the Board of Kulim (Malaysia) Berhad as an Independent Non-Executive Director on 9 November 2011. She obtained her Masters and Bachelor in Economics (Honours) from the University of Cambridge, United Kingdom in 1995. She is currently the Managing Partner of Ethos & Co., a Malaysian boutique management consulting firm where she has been part of the partnership team since June 2004. She is also currently a Partner and Director in Ethos Capital. Prior to Ethos, She was employed with Accenture from July 1995 to August 2003. Amongst her personal achievements are helping to establish several high impact organisations such as the Performance Management and Delivery Unit (“PEMANDU”), Ekuiti Nasional Berhad (“EKUINAS”), Malaysian Biotechnology Corporation and Northern Corridor Implementation Authority. She was involved in the National Key Results Area (“NKRA”) and National Key Economic Area (“NKEA”) programmes with PEMANDU under the leadership of Datuk Idris Jala. She has also led strategy development, transformation and M&A initiatives with large Malaysian companies, including those in the plantations sector. Other than as disclosed, she does not have any family relationship with any director and/or major shareholder of Kulim. She has no personal interest in any business arrangement involving Kulim and has not been convicted for any offences. Since her appointment date, she attended two (2) Board of Directors’ Meetings of the Company in the financial year ended 31 December 2011. annual report 2011 | 53 Kulim (Malaysia) Berhad (23370-V) MANAGEMENT TEAM 9 8 6 5 4 3 2 7 1 Kulim (Malaysia) Berhad (23370-V) MANAGEMENT TEAM 1 54 (continued) AHAMAD MOHAMAD 4 Aged 58, has been the Managing Director since 1993. He holds a Bachelor of Economics (Honours) from University of Malaya. He joined JCorp in June 1976 as a Company Secretary for various companies within JCorp Group. He was involved in many of JCorp’s landmark projects including the Johor Specialist Hospital, prefabricated housing project and the Kotaraya Complex in Johor Bahru. He is also presently the Deputy Chairman of QSR Brands Bhd and KFC Holdings (Malaysia) Bhd, and a member of the Board of Directors for Kulim (Malaysia) Berhad, New Britain Palm Oil Limited (Papua New Guinea) as well as several other companies within JCorp and Kulim Group. ZULKIFLI IBRAHIM Chief Operating Officer/ Senior Vice President Aged 54, was appointed to the Board on 1 July 2011. He has been the Chief Operating Officer since 3 November 2003. He is a Fellow of the Association of Chartered Certified Accountants, United Kingdom and a member of the Malaysian Institute of Accountants since 1992. He joined JCorp Group in 1990 as the Financial Controller of Sindora Berhad. In 1996, he was appointed the Managing Director of Antara Steel Mills Sdn Bhd until 2000 before joining PJB Pacific Capital Group in 2001 as the Chief Operating Officer. He also sits on the Board of several other companies within Kulim Group. Aged 41, he was appointed to the Board on 8 November 2011 as Executive Director. He is currently the Managing Director of Damansara Realty Berhad. He holds a Bachelor of Laws from the University of Bristol, England. Prior to his current position, he has held various notable positions in both private and public sector including Special Officer to YAB Tun Abdullah Ahmad Badawi and Head of Policy Unit, Prime Minister’s Office from November 2003 to April 2009. He also sits on the Board of several other companies within JCorp Group. 5 WONG SENG LEE Vice President Marketing and Corporate Affairs Aged 61, has been the Executive Director of Kulim (Malaysia) Berhad since 8 January 1996. He qualified as a Certified Accountant in 1974 and is a Fellow of the Association of Chartered Certified Accountants, United Kingdom. He is also a member of Malaysian Institute of Accountants and Institute of Certified Public Accountant of Singapore. He joined EPA Management Sdn Bhd as an Accountant in 1979 and was the Financial Controller for Kulim (Malaysia) Berhad until 1994. He also sits on the Board of several other companies within Kulim Group. 7 AZLI MOHAMED Vice President Finance Aged 44, appointed as Chief Financial Officer of Kulim (Malaysia) Berhad on 1 June 2011 and re-designated as Vice President of Finance in 2012. He is a Member of the Association of Chartered Certified Accountants, United Kingdom and also a member of the Malaysian Institute of Accountants. He was with Messrs. PricewaterhouseCoopers from 1992 prior to joining KPJ Healthcare Berhad in 2001 until 2008. He then served JCorp as the General Manager of Finance Division until he assumed the current position. He also sits on the Board of other companies within JCorp and Kulim Group. IR. IZHAR MAHMOOD Vice President Plantation Operations Aged 57, was appointed as Vice President of Plantation Operations in 2008. Prior to this, he has been the Director of Engineering Department, EPA Management Sdn Bhd since 10 May 2002. He holds a First Grade Steam Engineer’s Certificate and has been a member of the Board Engineer Malaysia (“BEM”) since 1988. He holds a Bachelor in Engineering (Agriculture) from Universiti Pertanian Malaysia (now known as Universiti Putra Malaysia). He is also one of the industry’s panel advisors at 2 local universities in Malaysia on bioprocess engineering. He joined the Company on 1 July 1990 as a Mill Manager. He also sits on the Board of several other companies within Kulim Group. 8 NASHARUDDIN SHUKOR Vice President Foods and Intrapreneur Ventures Age 47, was appointed as Vice President of Foods and Intrapreneur Ventures on 1 February 2012. He holds Master of Business Administration (“MBA”) and Bachelor of Business Administration (Economics) from Sam Houston State University, USA. Prior to this, he has been the General Manager of Usahawan Bistari Ayamas Sdn Bhd, KFC Marketing Sdn Bhd and Ayamas Integrated Poultry Industry Sdn Bhd from April 2009 to January 2012. He was the Intrapreneur at JTP Trading Sdn Bhd from July 2009 to March 2009. He joined Johor Corporation on 2 May 1989 as Administrative Executive. He also sits on the Board of several companies within Kulim Group. SATIRA OMAR Vice President Risk and System Management Aged 45, was appointed as Vice President, Risk and System Management of Kulim in 2012. She graduated with a Bachelor of Science majoring in Communication from the University of Southern Illinois, United States of America in 1992 and holds a Master of Business Administration from Henley Business School, University of Reading, United Kingdom. She joined JCorp Group in 1993 as an Executive before assuming her current position in Kulim in 2012. She also sits on the Board of several other companies within Kulim Group. 9 6 3 DATUK AHMAD ZAKI ZAHID Vice President Property and Business Development Managing Director 2 | annual report 2011 UMI KALTHOM SAMSU Chairman Sustainability and Quality Council Aged 59, was appointed as the Chairman of the Group’s Sustainability and Quality Council in January 2009. Prior to this, she has been the General Manager of Purchasing and Contract Department, EPA Management Sdn Bhd since 1997. She graduated with a Diploma in Marketing in 1973 from Institute of Marketing London / Institut Teknologi MARA (now known as Universiti Teknologi MARA) and began her career with JCorp in September 1973 as an Assistant Marketing Officer. She joined Johor Estates Agency as an Assistant Marketing Officer in March 1976. She also sits on the Board of several other companies within Kulim Group. annual report 2011 | 55 Kulim (Malaysia) Berhad (23370-V) ORGANISATION CHART BOARD OF DIRECTORS AHAMAD MOHAMAD MANAGING DIRECTOR PLANTATION INSPECTORATE INTERNAL AUDIT ZULKIFLI IBRAHIM CHIEF OPERATING OFFICER/ SENIOR VICE PRESIDENT WONG SENG LEE IR. IZHAR MAHMOOD SATIRA OMAR EXECUTIVE DIRECTOR/ VICE PRESIDENT MARKETING AND CORPORATE AFFAIRS DIRECTOR/ VICE PRESIDENT PLANTATION OPERATION VICE PRESIDENT RISK AND SYSTEM MANAGEMENT DATUK AHMAD ZAKI ZAHID AZLI MOHAMED NASHARUDDIN SHUKOR EXECUTIVE DIRECTOR/ VICE PRESIDENT PROPERTY AND BUSINESS DEVELOPMENT CHIEF FINANCIAL OFFICER/ VICE PRESIDENT FINANCE VICE PRESIDENT FOODS AND INTRAPRENEUR VENTURES SECTION 3: PERFORMANCE HIGHLIGHTS AND STATISTICS 58 GROUP 5-YEAR FINANCIAL STATISTICS 61 GROUP QUARTERLY PERFORMANCE 2011 62 GROUP STATEMENT OF VALUE ADDED 63 5-YEAR PLANTATION STATISTICS: • GROUP • MALAYSIA • PAPUA NEW GUINEA • SOLOMON ISLANDS 67 5-YEAR FOODS AND RESTAURANTS STATISTICS 68 HUMAN CAPITAL STATISTICS 69 SHAREHOLDING STATISTICS 71 WARRANTHOLDING STATISTICS 73 SHARE PRICE PERFORMANCE AND VOLUME TRADED 2011 Kulim (Malaysia) Berhad (23370-V) 58 | annual report 2011 GROUP 5-YEAR FINANCIAL STATISTICS 2011 2010 2009 2008 2007 7,041,771 5,488,939 4,702,399 2,449,970 1,646,650 46% 48% 6% 0% 38% 55% 5% 2% 34% 59% 5% 2% 71% 22% 6% 1% 71% 28% 0% 1% 1,445,081 861,275 615,701 637,273 520,969 Plantation Foods and Restaurants Intrapreneur Ventures Others 78% 20% 3% (1%) 78% 32% 2% (12%) 59% 39% 3% (1%) 89% 8% 3% 0% 91% 9% 0% 0% Unallocated expenses (8,393) (10,483) (12,281) (9,929) (5,698) 1,436,688 12,591 (91,475) 6,992 1,364,796 (356,930) 850,792 6,370 (81,440) 2,174 777,896 (233,681) 603,420 12,332 (68,028) 4,010 551,734 (177,451) 627,344 16,759 (57,263) 61,154 647,994 (137,169) 515,271 6,281 (57,170) 43,098 507,480 (111,715) 1,007,866 – 1,007,866 544,215 151,611 695,826 374,283 (22,372) 351,911 510,825 15,728 526,553 395,765 119,309 515,074 565,013 442,853 1,007,866 385,592 310,234 695,826 145,837 206,074 351,911 351,228 175,325 526,553 426,823 88,251 515,074 STATEMENT OF COMPREHENSIVE INCOME HIGHLIGHTS (RM'000) REVENUE Segment %: Plantation Foods and Restaurants Intrapreneur Ventures Others PROFIT FROM OPERATIONS (BEFORE UNALLOCATED EXPENSES) Segment %: PROFIT FROM OPERATIONS Interest income Finance costs Share of net results of associates PROFIT BEFORE TAX Income tax expense PROFIT AFTER TAX FROM – Continuing operations – Discontinued operations NET PROFIT FOR THE YEAR Attributable to: Owners of the Company Non-controlling interests NET PROFIT FOR THE YEAR PAT (RM Million) /CPO Price (USD/tonne) GROUP 5-YEAR PROFIT VS AVERAGE CPO PRICE 1,200 1,125 1,008 949 1,000 901 780 800 600 683 515 696 527 352 400 200 0 2007 2008 2009 PAT (RM Million) 2010 2011 CPO Price (USD/tonne) annual report 2011 | 59 Kulim (Malaysia) Berhad (23370-V) 2011 2010 2009 2008 2007 Other non-current assets 7,852,213 6,254,289 5,365,042 4,832,569 3,665,454 Intangible assets 1,097,799 1,046,895 891,691 320,906 288,159 8,950,012 7,301,184 6,256,733 5,153,475 3,953,613 1,925,524 1,492,362 1,412,098 1,021,008 946,390 644,702 452,146 405,227 445,476 648,307 2,570,226 1,944,508 1,817,325 1,466,484 1,594,697 Other current liabilities 935,471 1,056,630 844,355 500,129 313,870 Loans and borrowings 571,843 995,410 547,747 566,229 624,642 STATEMENT OF FINANCIAL POSITION HIGHLIGHTS (RM’000) ASSETS EMPLOYED Total Non-Current Assets Other current assets Cash and bank balances Total Current Assets Total Current Liabilities 1,507,314 2,052,040 1,392,102 1,066,358 938,512 10,012,924 7,193,652 6,681,956 5,553,601 4,609,798 315,509 159,336 159,336 154,227 148,545 Reserves 1,540,087 1,433,182 1,491,041 1,479,650 1,500,756 Retained profits 2,436,500 1,972,850 1,720,988 1,615,436 1,300,978 4,292,096 3,565,368 3,371,365 3,249,313 2,950,279 Non-controlling interests 2,628,603 1,977,374 1,699,037 1,020,621 759,739 Long term borrowings 2,049,101 931,020 1,157,484 899,444 666,547 FINANCED BY: Share capital Shareholders' equity 1,043,124 719,890 454,070 384,223 233,233 10,012,924 7,193,652 6,681,956 5,553,601 4,609,798 Average capital employed 8,603,288 6,937,804 6,117,779 5,081,700 4,312,280 Average shareholders' equity 3,928,732 3,468,367 3,310,339 3,099,796 2,691,872 Other long term liabilities RM Million GROUP 5-YEAR REVENUE VS AVERAGE CAPITAL EMPLOYED 9,000 8,603 6,938 7,042 6,118 6,000 5,082 4,312 3,000 5,489 4,702 2,450 1,647 0 2007 2008 2009 Revenue 2010 2011 Average Capital Employed Kulim (Malaysia) Berhad (23370-V) GROUP 5-YEAR FINANCIAL STATISTICS 60 | annual report 2011 (continued) 2011 2010 2009 2008 2007 Net cash flows from operating activities 1,441,145 804,778 641,664 706,541 471,148 Net cash flows from investing activities (1,473,307) (1,077,473) (632,855) (617,793) 79,787 Net cash flows from financing activities 180,358 316,116 (58,464) (324,781) (26,536) Net change in cash and cash equivalents 148,196 43,421 (49,655) (236,033) 524,399 STATEMENT OF CASH FLOWS HIGHLIGHTS (RM'000) KEY FINANCIAL INDICATORS: PROFITABILITY AND RETURNS Operating profit margin 20.40% 15.50% 12.83% 25.61% 31.29% PBT margin 19.38% 14.17% 11.73% 26.45% 30.82% Profit after tax and non-controlling interests margin 8.02% 7.02% 3.10% 14.34% 25.92% 14.38% 11.12% 4.41% 11.33% 15.86% 6.57% 5.56% 2.38% 6.91% 9.90% 3.48 11.41 10.79 10.75 10.05 – Gross 0.38 0.35 0.34 0.34 0.35 – Net 0.29 0.27 0.26 0.24 0.17 Interest cover (times) 15.92 10.55 9.11 12.32 9.88 Current ratio (times) 1.71 0.95 1.31 1.38 1.70 – basic 45.90 30.86* 47.22 117.04 150.91 – diluted Return on average shareholders' equity Return on average capital employed Net assets per share (RM) SOLVENCY AND LIQUIDITY Gearing ratio (times) FINANCIAL MARKET EPS (sen) 45.90 30.86* 47.22 114.96 144.66 Gross dividend per share (sen) 5.00 50.00 17.50 15.00 15.00 Gross dividend rate (%) 20% 100% 35% 30% 30% Gross dividend yield (%) 1.45% 5.83% 2.73% 2.09% 2.20% 10.93% 30.38% 28.11% 9.77% 7.53% Average price-to-earnings ratio (times) 7.53 6.94 13.57 6.13 4.52 Average price-to-book ratio (times) 0.99 0.75 0.59 0.67 0.68 Net dividend payout rate (%) * Adjusted to reflect the effect of share split and issuance of bonus shares. annual report 2011 | 61 Kulim (Malaysia) Berhad (23370-V) GROUP QUARTERLY PERFORMANCE 2011 2011 Q1 Q2 Q3 Q4 FINANCIAL PERFORMANCE (RM’000) REVENUE 1,657,480 1,802,388 1,780,209 1,801,700 Plantations 46% 48% 48% 44% Foods and Restaurants 47% 46% 46% 51% Intrapreneur Ventures 6% 6% 6% 5% Others 1% 0% 0% 0% OPERATING RESULTS 396,845 373,952 345,932 321,076 Plantations 82% 75% 73% 84% Foods and Restaurants 17% 18% 18% 26% Intrapreneur Ventures 3% 2% 5% 3% Others (2%) 5% 4% (13%) 1,487 1,795 2,149 1,561 Share of net results in associates Interest income Finance costs PROFIT BEFORE TAX BASIC EARNINGS PER SHARE (SEN) 2,933 3,850 2,433 2,248 (20,050) (22,969) (20,858) (27,455) 381,215 356,628 329,656 297,430 10.12 11.70 13.97 8.51 115,615 165,765 184,427 170,954 OPERATIONAL RESULTS FFB Production (tonnes) – Malaysia – PNG and SI 473,818 459,038 399,570 406,201 589,433 624,803 583,997 577,155 CPO Production (tonnes) – Malaysia – PNG and SI 34,844 51,217 51,647 47,958 152,061 145,752 123,902 129,942 186,905 196,969 175,549 177,900 Kulim (Malaysia) Berhad (23370-V) | annual report 2011 62 GROUP STATEMENT OF VALUE ADDED 2011 2010 RM'000 7,041,771 RM'000 5,488,939 (4,475,946) (3,602,453) 2,565,825 1,886,486 Other income 321,290 185,327 Finance costs (91,475) (81,440) 6,992 2,174 Revenue Purchase of goods and services Value added by the Group Share of net results of associates Discontinued operation Value added available for distribution – 151,611 2,802,632 2,144,158 1,012,142 879,441 356,930 233,681 DISTRIBUTION To employees Staff costs To the Government Taxation To providers of capital Dividends to shareholders Non-controlling interests 61,728 134,700 442,853 310,234 425,694 335,210 To re-invest in the Group Depreciation and amortisation Retained profits 503,285 250,892 2,802,632 2,144,158 No. of employees at year end 61,293 50,835 Value added per employee (RM) 41,862 37,110 Wealth created per employee (RM) 45,725 42,179 1,234,555 312,349 Value added per share (RM) 2.08 6.04 Wealth created per share (RM) 2.27 6.86 No. of shares at year end ('000 units) VALUE ADDED DISTRIBUTION 27% 33% Employees 36% 2011 Government 2010 Providers of capital Re-investment 21% 18% 13% 11% 41% annual report 2011 | 63 Kulim (Malaysia) Berhad (23370-V) 5-YEAR PLANTATION STATISTICS GROUP 2011 2010 2009 2008 2007 2,375,388 1,985,619 1,643,810 1,460,600 1,426,430 OIL PALM Production (tonnes) Fresh Fruit Bunches (FFB) Crude Palm Oil 737,323 607,653 501,587 431,149 387,531 Palm Kernel 185,009 148,413 124,311 106,988 97,730 3,340,307 2,790,553 2,305,671 1,989,682 1,818,411 FFB yield (tonnes per mature hectare) 24.36 21.66 23.97 23.76 25.45 OER (%) 22.07 21.78 21.75 21.67 21.31 KER (%) 5.54 5.32 5.39 5.38 5.37 101,303 100,185 68,583 62,750 56,057 17,352 12,039 15,289 19,894 12,960 118,655 112,224 83,872 82,644 69,017 7,720 8,231 8,199 8,193 – FFB processed Yield and Extraction Rates AREA STATEMENT (HECTARES) Oil palm – mature – immature area Sugar Other crops (excluding inter-row planted fruits) Planted area Pastures Reserve land, building sites etc Titled area 910 900 846 944 111 8,630 9,131 9,045 9,137 111 127,285 121,355 92,917 91,781 69,128 9,282 9,518 9,729 11,014 – 36,453 34,459 22,177 21,755 13,778 173,020 165,332 124,823 124,550 82,906 Yield (tonnes) and Extraction Rate (%) GROUP FFB YIELD AND PALM PRODUCT EXTRACTION RATE (%) 30 25.45 27.14 27.05 26.68 23.76 27.61 27.10 24.36 23.97 21.66 20 10 0 2007 2008 2009 2010 FFB Yield (tonnes per mature hectare) 2011 PPER (%) Kulim (Malaysia) Berhad (23370-V) 64 | annual report 2011 5-YEAR PLANTATION STATISTICS MALAYSIA 2011 2010 2009 2008 2007 554,156 461,016 461,834 444,109 390,707 OIL PALM Production (tonnes) FFB produced - Processed by own mills FFB produced - Sold to others Total FFB produced 82,605 90,210 142,151 159,935 131,766 636,761 551,226 603,985 604,044 522,473 Purchased FFB 365,151 345,281 372,437 296,135 170,329 Total FFB processed 919,307 806,297 834,271 740,244 561,036 Crude Palm Oil 185,666 163,233 166,059 141,634 105,216 53,678 47,758 49,950 42,102 29,256 FFB yield (tonnes per mature hectare) 21.89 19.01 21.22 22.70 22.65 OER (%) 20.20 20.24 19.90 19.13 18.75 KER (%) 5.84 5.92 5.99 5.69 5.21 Crude Palm Oil (locally delivered) 3,193 2,604 2,167 2,530 1,774 Palm Kernel (ex-mill) 2,300 1,666 1,052 1,545 1,180 Palm Kernel Yield and Extraction Rates Average Selling Price (RM per tonne) RUBBER* Production (kgs) – 33,398 626,760 360,463 70,746 Yield per mature hectare (kgs) – 362 1,250 719 766 Average selling prices (sen per kg) – 1,032 591 806 758 32,865 7,458 28,997 5,416 28,317 6,649 27,941 7,320 22,525 6,254 40,323 34,413 34,966 35,261 28,779 498 498 501 501 99 AREA STATEMENT (HECTARES) Oil palm – mature – immature OTHER CROPS: Rubber Sentang Pineapple Fruits (inter-row planting with oil palm) Planted area Reserve land, building sites etc Titled area * Rubber area was leased out w.e.f. 1 April 2010. 25 25 28 28 12 128 118 58 – – 546 425 324 466 393 40,974 35,054 35,553 35,790 28,890 2,916 2,396 2,516 2,006 2,422 43,890 37,450 38,069 37,796 31,312 annual report 2011 | 65 Kulim (Malaysia) Berhad (23370-V) 5-YEAR PLANTATION STATISTICS PAPUA NEW GUINEA 2011 2010 2009 2008 2007 1,608,330 1,313,876 932,568 765,801 760,065 OIL PALM Production (tonnes) FFB produced Purchased FFB 668,155 538,041 419,456 379,498 378,027 FFB processed 2,276,485 1,851,917 1,352,024 1,145,299 1,138,092 Crude Palm Oil 520,065 415,801 310,405 267,534 257,338 Palm Kernel 122,999 93,123 67,279 58,747 62,180 Refined Palm Oil 59,741 66,434 68,798 67,326 73,412 Palm Olein 27,120 34,418 34,413 14,679 27,104 Palm Stearin 16,398 15,448 11,537 13,501 11,540 Crude Palm Kernel Oil 36,283 31,039 27,625 23,219 25,571 11.78 8.35 4.51 15.09 3.54 FFB yield (tonnes per mature hectare) 25.49 23.60 26.53 25.36 26.00 OER (%) 22.85 22.42 22.96 23.36 22.61 KER (%) 5.40 5.08 4.98 5.13 5.46 2,359 2,090 1,721 2,181 1,878 Oil palm seeds (million sold) Yield and Extraction Rates Average Selling Prices (Kina per tonne) Crude Palm Oil (fob) Refined Palm Oil (cif) - 1,968 2,444 2,896 2,778 Palm Olein (cif) 2,980 2,472 2,127 2,440 2,958 Palm Stearin (cif) 2,851 2,473 2,355 2,971 2,780 Crude Palm Kernel Oil (fob) 3,896 3,094 2,105 3,297 2,909 Seeds (Kina per seed) 1.77 1.99 2.10 1.97 1.57 63,091 65,306 35,154 30,196 29,604 8,924 6,191 7,392 10,826 4,553 72,015 71,497 42,546 41,022 34,157 7,720 8,231 8,199 8,193 - AREA STATEMENT (HECTARES) Oil palm – mature – immature Sugar Other crops Planted area Pastures Reserve land, building sites etc Titled area 259 259 259 415 - 79,994 79,987 51,004 49,630 34,157 9,282 9,518 9,729 11,014 - 32,277 30,800 18,444 18,533 10,557 121,553 120,305 79,177 79,177 44,714 Kulim (Malaysia) Berhad (23370-V) 66 | annual report 2011 5-YEAR PLANTATION STATISTICS SOLOMON ISLANDS 2011 2010 2009 2008 2007 130,297 120,517 107,257 90,755 71,794 OIL PALM Production (tonnes) FFB produced Purchased FFB 14,218 11,822 12,119 13,384 6,138 Processed FFB 144,515 132,339 119,376 104,139 77,932 Crude Palm Oil 31,592 28,619 25,123 21,981 17,152 Palm Kernel 8,332 7,532 7,082 6,139 4,567 Crude Palm Kernel Oil 3,537 3,206 3,098 2,744 – FFB yield (tonnes per mature hectare) 24.37 21.97 20.98 19.67 18.63 OER (%) 21.86 21.63 21.05 21.11 22.01 KER (%) 5.77 5.69 5.93 5.90 5.86 Yield and Extraction Rates Average Selling Prices (Kina per tonne fob) Crude Palm Oil 2,359 2,090 1,746 2,850 2,014 Palm Kernel Oil 3,896 3,094 1,970 3,789 – 5,347 5,882 5,112 4,613 3,928 970 432 1,248 1,748 2,153 AREA STATEMENT (HECTARES) Oil palm – mature – immature area Planted area 6,317 6,314 6,360 6,361 6,081 Reserve land, building sites etc 1,260 1,263 1,217 1,216 799 Titled area 7,577 7,577 7,577 7,577 6,880 annual report 2011 | 67 Kulim (Malaysia) Berhad (23370-V) 5-YEAR FOODS AND RESTAURANTS STATISTICS QSR BRANDS BHD GROUP 2011 2010 2009 2008 2007 3,349.91 3,035.83 2,760.29 532.75 466.38 283.90 277.36 241.93 49.99 47.60 Financial (RM Million) Revenue Operating profit Profit before tax (PBT) 269.93 266.86 230.26 97.74 80.19 Profit after tax (PAT) 182.40 189.76 158.39 83.74 67.02 Shareholders' equity 948.99 852.37 687.14 633.68 476.52 2,728.19 2,410.10 2,092.79 903.10 801.77 PBT Margin (%) 8% 9% 8% 18% 17% PAT Margin (%) 5% 6% 6% 16% 14% 19% 22% 23% 13% 14% 210 220 208 187 168 55 49 50 45 40 265 269 258 232 208 42 – – – – 42 – – – – 539 515 475 436 403 80 77 77 73 69 Total assets Return on shareholders' equity (%) No. of Pizza Hut Outlets Malaysia Singapore No. of PHD Outlets Malaysia No. of KFC Outlets Malaysia Singapore Brunei 12 9 9 8 7 Cambodia 10 10 7 2 – India 13 7 – – – 654 618 568 519 479 25 39 40 34 22 No. of RasaMas Outlets Malaysia Brunei No. of Kedai Ayamas Outlets TOTAL 2 3 3 2 - 27 42 43 36 22 75 49 35 25 20 1,063 978 904 812 729 Kulim (Malaysia) Berhad (23370-V) | annual report 2011 68 HUMAN CAPITAL STATISTICS AS AT 31 DECEMBER 2011 BY DIVISION Malaysia Papua New Guinea Singapore Solomon Islands Others* Total DIVISION Plantations and Support 5,206 - 14,257 1,784 - 21,247 32,563 3,884 - - 1,192 37,639 1,636 66 - - 705 2,407 39,405 3,950 14,257 1,784 1,897 61,293 Foods and Restaurants Intrapreneur and Other Services BY CATEGORY Malaysia Singapore Papua New Guinea Solomon Islands Others* Total CATEGORY Managerial and Professional 549 65 59 14 50 737 Executives and Assistant Managers 1,042 71 221 16 64 1,414 Office and Field Staff 6,632 506 1,927 110 699 9,874 General Workers - Field Work/Guard 31,182 3,308 12,050 1,644 1,084 49,268 39,405 3,950 14,257 1,784 1,897 61,293 * The Philippines, Hong Kong, Cambodia, Brunei and India. BY CATEGORY Plantations and Support Papua New Guinea Foods and Restaurants Solomon Islands Intrapreneur and Other Services 59 221 1,927 65 71 506 Singapore Others Papua New Guinea 50 64 699 1,084 Singapore 3,308 6,632 549 1,042 1,192 705 1,784 3,884 66 1,636 5,206 Malaysia Malaysia 14 16 110 1,644 12,050 No. of employees 14,257 No. of employees 32,563 31,182 BY DIVISION Solomon Islands Others Managerial and Professional Executives and Assistant Managers Office and Field Staff General Workers - Field Work/Guard annual report 2011 | 69 Kulim (Malaysia) Berhad (23370-V) SHAREHOLDING STATISTICS AS AT 4 MAY 2012 Authorised Share Capital Issued & Fully Paid-Up Capital Class of Shares : RM500,000,000.00 : RM315,512,888.50 less RM6,870,550 Treasury Shares = RM308,642,338.50 : Ordinary Share of RM0.25 each VOTING RIGHT OF SHAREHOLDERS Every member of the Company present in person or by proxy shall have one vote on a show of hand and in the case of a poll shall have one vote for every share of which he/she is the holder. BREAK DOWN OF SHAREHOLDING Size of Shareholding No. of Shareholders % No. of Shares % 163 2.22 6,574 - Less than 100 100 – 1000 1,133 15.44 898,838 0.07 1,001 – 10,000 3,768 51.36 17,799,798 1.44 10,001 – 100,000 1,840 25.08 54,118,438 4.39 100,001 to less than 5% of Issued Capital 5% and above of Issued Capital TOTAL 430 5.86 424,450,046 34.38 3 0.04 737,295,660 59.72 100.00 1,234,569,354 100.00 7,337 TOP THIRTY SECURITIES ACCOUNT HOLDERS (Without aggregating the securities from different securities accounts belonging to the same depositor) Name No. of Shares % 1 Maybank Noms (T) Sdn Bhd - A/C Johor Corporation (51401100634A) 484,000,000 39.20 2 Johor Corporation 185,795,260 15.05 3 HSBC Noms (A) Sdn Bhd - A/C NTGS LDN for Skagen Kon-Tiki Verdipapirfond 67,500,400 5.47 4 Citigroup Noms (T) Sdn Bhd - A/C Employees Provident Fund Board 52,068,200 4.22 5 Waqaf An-Nur Corporation Berhad 49,391,304 4.00 6 Johor Corporation 22,478,400 1.82 7 Citigroup Noms (T) Sdn Bhd - A/C Employees Provident Fund Board (Nomura) 11,220,000 0.91 8 Citigroup Noms (A) Sdn Bhd - A/C CBNY for Dimensional Emerging Markets Value Fund 9,703,300 0.79 9 Citigroup Noms (T) Sdn Bhd - A/C ING Insurance Berhad (Inv-IL PAR) 9,551,100 0.77 10 AmanahRaya Trustees Berhad - A/C Amanah Saham Wawasan 2020 9,429,820 0.76 11 HSBC Noms (A) Sdn Bhd - A/C Exempt An for The Bank of New York Mellon (Mellon Acct) 7,626,900 0.62 12 HSBC Noms (A) Sdn Bhd - A/C Exempt An for JPMorgan Chase Bank, National Association (Norges BK Lend) 7,385,700 0.60 13 Johor Corporation 7,336,800 0.59 14 Tabung Amanah Warisan Negeri Johor 6,423,200 0.52 15 HSBC Noms (A) Sdn Bhd - A/C HSBC-FS for Value Partners “A” Fund 6,160,800 0.50 16 AmanahRaya Trustees Berhad - A/C Public Islamic Select Treasures Fund 5,505,000 0.45 17 Malaysia Noms (T) Sendirian Berhad - A/C Great Eastern Life Assurance (Malaysia) Berhad (LSF) 4,982,600 0.40 18 Zalaraz Sdn Bhd 4,800,800 0.39 Kulim (Malaysia) Berhad (23370-V) SHAREHOLDING STATISTICS 70 | annual report 2011 (continued) AS AT 4 MAY 2012 Name No. of Shares % 19 OSK Noms (T) Sdn Bhd - A/C Jedcon Engineering Survey Sdn Bhd 4,700,600 0.38 20 Cartaban Noms (A) Sdn Bhd - A/C SSBT Fund J734 for SPDR S And P Emerging Market’s Small Cap ETF 4,648,800 0.38 21 HSBC Noms (A) Sdn Bhd - A/C Exempt An for JPMorgan Chase Bank, National Association (U.S.A) 4,361,200 0.35 22 Malaysia Noms (T) Sendirian Berhad - A/C Great Eastern Life Assurance (Malaysia) Berhad (LGF) 4,278,700 0.35 23 Malaysia Noms (T) Sendirian Berhad - A/C Great Eastern Life Assurance (Malaysia) Berhad (LPF) 4,220,000 0.34 24 HSBC Noms (A) Sdn Bhd - A/C Exempt An for JPMorgan Chase Bank, National Association (Australia) 3,649,500 0.30 25 Malaysia Noms (T) Sendirian Berhad - A/C Great Eastern Life Assurance (Malaysia) Berhad (DR) 3,605,400 0.29 26 Citigroup Noms (T) Sdn Bhd - A/C Employees Provident Fund Board (CIMB PRIN) 3,049,400 0.25 27 Mak Seng Fook 2,734,400 0.22 28 Maybank Noms (T) Sdn Bhd - A/C Etiqa Takaful Berhad (Family PRF EQ) 2,636,900 0.21 29 HSBC Noms (A) Sdn Bhd - A/C BNY Brussels for Wisdomtree Emerging Markets Smallcap Dividend Fund 2,527,839 0.20 30 Cartaban Noms (A) Sdn Bhd - A/C State Street Lux Fund 9T47 for State Street Global Advisors Luxembourg SICAV-SSGA Enhanced Emerging Markets Equity Fund 2,330,300 0.19 SUBSTANTIAL SHAREHOLDERS Direct Name No. of Shares Indirect % No. of Shares % 1 Maybank Noms (T) Sdn Bhd - A/C Johor Corporation (51401100634A) 484,000,000 39.20 221,969,060 17.98 2 Johor Corporation - 3 a/cs 215,610,460 17.46 490,358,600 39.72 3 HSBC Noms (A) Sdn Bhd - A/C NTGS LDN for Skagen Kon-Tiki Verdipapirfond 67,500,400 5.47 – – No. of Shareholders % No. of Shares % ANALYSIS OF SHAREHOLDERS Name Malaysian – Bumiputra – Others Foreigners TOTAL 770 10.50 835,682,272 67.69 5,632 76.76 195,972,206 15.87 935 12.74 202,914,876 16.44 7,337 100.00 1,234,569,354 100.00 annual report 2011 | 71 Kulim (Malaysia) Berhad (23370-V) WARRANTHOLDING STATISTICS AS AT 4 MAY 2012 BREAK DOWN OF WARRANTHOLDING Break down of Warrantholding No. of Warrantholders Less than 100 No. of Warrants % % 443 8.83 13,709 0.01 100 – 1000 2,085 41.56 1,224,165 0.78 1,001 – 10,000 1,929 38.45 7,240,232 4.64 485 9.67 15,419,407 9.87 71 1.41 38,883,774 24.90 4 0.08 93,378,230 59.80 5,017 100.00 156,159,517 100.00 10,001 – 100,000 100,001 to less than 5% of Issued Capital 5% and above of Issued Capital TOTAL TOP THIRTY SECURITIES ACCOUNT HOLDERS (Without aggregating the securities from different securities accounts belonging to the same depositor) Name No. of Warrants % 1 Maybank Noms (T) Sdn Bhd - A/C Johor Corporation (51401100634A) 60,500,000 38.74 2 Johor Corporation 14,717,980 9.42 3 OSK Noms (T) Sdn Berhad - A/C Jedcon Engineering Survey Sdn Bhd 9,722,700 6.23 4 HSBC Noms (A) Sdn Bhd - A/C NTGS LDN for Skagen Kon-Tiki Verdipapirfond 8,437,550 5.40 5 Waqaf An-Nur Corporation Berhad 6,173,913 3.95 6 Voon Chong Kian 5,860,000 3.75 7 Citigroup Noms (T) Sdn Bhd - A/C Employees Provident Fund Board (Nomura) 3,700,000 2.37 8 Johor Corporation 2,809,800 1.80 9 PUJB Capital Sdn. Bhd. 1,315,600 0.84 10 Inter-Pacific Equity Noms (A) Sdn Bhd - A/C Mak Seng Fook 1,248,200 0.80 11 HLG Nom (T) Sdn Bhd - A/C Koon Yew Yin (M) 1,043,900 0.67 12 Yeo Hock Kim 1,000,000 0.64 13 Alliancegroup Noms (T) Sdn Bhd - A/C Ong Siew Eng @ Ong Chai (8040800) 919,000 0.59 14 Johor Corporation 917,100 0.59 15 Lee Keng Hong 600,000 0.38 16 Mak Seng Fook 457,500 0.29 17 Toh Cheok 450,000 0.29 18 HSBC Noms (A) Sdn Bhd - A/C Exempt An for JPMorgan Chase Bank, National Association (Australia) 385,350 0.25 19 Maybank Noms (T) Sdn Bhd - A/C Etiqa Takaful Berhad (Family PRF EQ) 384,700 0.25 20 Zalaraz Sdn Bhd 350,000 0.22 21 TA Noms (T) Sdn Bhd - A/C Koon Yew Yin 344,587 0.22 22 RHB Capital Noms (T) Sdn Bhd - A/C Ho Swee Ming (CEB) 340,000 0.22 23 Loh Swee Chong 336,000 0.22 24 Ostrich Enterprises Sdn Bhd 323,500 0.21 Kulim (Malaysia) Berhad (23370-V) WARRANTHOLDING STATISTICS 72 | annual report 2011 (continued) AS AT 4 MAY 2012 No. of Warrants Name % 25 HLG Nom (A) Sdn Bhd - A/C Exempt An for UOB Kay Hian Pte Ltd (A/C Clients) 322,010 0.21 26 Mak Suet Chee 322,000 0.21 27 Yeu Chian Kim 310,000 0.20 28 CimSec Noms (T) Sdn Bhd - A/C Koh Chong Hap (Penang-CL) 300,000 0.19 29 ECML Noms (T) Sdn Bhd - A/C Yu Kuan Chon (001) 300,000 0.19 30 Ng Eng Ewi 300,000 0.19 SUBSTANTIAL WARRANTHOLDERS Direct No. of Warrants Name Indirect % No. of Warrants % 1 Mayban Noms (T) Sdn Bhd - A/C Johor Corporation (51401100634A) 60,500,000 38.74 28,248,892 18.09 2 Johor Corporation - 3 a/cs 18,444,880 11.81 70,304,012 45.02 3 OSK Noms (T) Sdn Berhad - A/C for Jedcon Engineering Survey Sdn Bhd 9,722,700 6.23 79,026,192 50.60 4 HSBC Noms (A) Sdn Bhd - A/C NTGS LDN for Skagen Kon-Tiki Verdipapirfond 8,437,550 5.40 – – ANALYSIS OF WARRANTHOLDERS No. of Warrantholders Name Malaysian – Bumiputra – Others Foreigners TOTAL % No. of Warrants 461 9.19 102,955,022 65.93 3,879 77.32 36,292,705 23.24 677 13.49 16,911,790 10.83 5,017 100.00 156,159,517 100.00 % annual report 2011 | 73 Kulim (Malaysia) Berhad (23370-V) SHARE PRICE PERFOMANCE AND VOLUME TRADED 2011 VOLUME TRADED CLOSING SHARE PRICE (RM) MONTH HIGHEST AVERAGE LOWEST ('000) JANUARY 13.70 13.27 12.76 83,084 FEBRUARY* 15.88 12.21 3.46 355,326 MARCH 3.45 3.33 3.17 763,769 APRIL 3.41 3.31 3.20 382,247 MAY 3.68 3.29 3.20 332,355 JUNE 3.68 3.58 3.52 242,530 JULY 3.75 3.56 3.49 252,604 AUGUST 3.88 3.73 3.57 605,519 SEPTEMBER 3.74 3.56 3.25 258,316 OCTOBER 3.60 3.35 3.11 199,020 NOVEMBER 3.69 3.60 3.47 293,820 DECEMBER 4.22 3.87 3.66 468,534 20 800,000 700,000 15 600,000 500,000 10 400,000 300,000 5 200,000 100,000 0 0 Jan Feb* Highest Mar Apr May Jun Average * Completion of share split and issuance of bonus shares in February 2011. Jul Aug Lowest Sep Oct Nov Dec Volume Traded Price (RM) 4,237,124 Volume Traded (’000) TOTAL SECTION 4: SEGMENT REVIEW 76 PLANTATION 100 FOODS AND RESTAURANTS 108 INTRAPRENEUR VENTURES R WE STRONGLY SUBSCRIBE TO AND UPHOLD THE THREE PILLARS OF RESPONSIBLE BUSINESS OPERATIONS – PEOPLE, PLANET AND PROFIT CORPORATE RESPONSIBILITY IS THE CORNERSTONE OF OUR BUSINESS PHILOSOPHY AS WE BALANCE OUR ECONOMIC ASPIRATIONS WITH THE WELL-BEING OF OUR PEOPLE, COMMUNITY AND NATURAL ENVIRONMENT. WE ARE PROUD OF OUR SUSTAINABILITY POLICY, BEING AN EMBODIMENT OF OUR COMMITMENT TO BE RESPONSIBLE. Kulim (Malaysia) Berhad (23370-V) 76 | annual report 2011 SEGMENT REVIEW S PLANTATION INDUSTRY ENVIRONMENT From the global perspective the major oil palm growing regions in South East Asia had a very good cropping year in 2011, contributing to an unprecedented increase in global palm oil production of 9% to some 50.13 million tonnes. The hectarage expansion in Indonesia and other regions coupled with a jump in productivity as palm trees benefited from biological yield upswings contributed to the large increase. annual report 2011 | 77 Kulim (Malaysia) Berhad (23370-V) Despite this massive uplift in production, world demand remained robust. Food demand increased by 4% with much of the growth coming from China, India and other emerging economies while growth from matured economies was almost flat. The use of vegetable oils in the industrial segment increased at a faster pace of 8.4% as their usage for biodiesel production increased in countries like USA,Argentina,Brazil,Thailand and Indonesia. Growth would have been higher but for the consumption slowdown observed in the European Union owing to unstable macroeconomic conditions. Kulim (Malaysia) Berhad (23370-V) 78 | annual report 2011 SEGMENT REVIEW PLANTATION (continued) MALAYSIA The Malaysian oil palm industry turned in a stellar performance in 2011 achieving record high prices for palm oil products and registering growth in crude palm oil production and export volumes. The average price of palm oil for the year breached the RM3,000 mark to register RM3,219 per tonne, while the total export revenue earned for palm products reached a record high of RM80.4 billion, an increase of 34.5% against the RM59.8 billion achieved in 2010. “THE PLANTED AREA WITH OIL PALM IN MALAYSIA IN 2011 REACHED 5 MILLION HECTARES, AN INCREASE OF 3.0% AGAINST 4.85 MILLION HECTARES RECORDED THE PREVIOUS YEAR. “ AVERAGE CPO PRICE 2011 IN MALAYSIA 19.2 RM3,219 % to per tonne from RM2,701 per tonne In Malaysia, the average CPO price recorded for the year 2011 was the highest annual ever reaching RM3,219 per tonne, an increase of RM518 or 19.2% against RM2,701 per tonne in the previous year. During the first quarter of the year CPO prices traded firmer at RM3,659 per tonne supported by positive sentiments related to supply tightness of vegetable oils and low domestic palm oil stocks level in the period. Subsequently, during the second quarter bullish market sentiments for palm oil were supported by a firm Brent crude oil price coupled with the continuing tightness in world vegetable oils supply, especially for palm and soyabean oils. Despite worries over the prolonged Eurozone sovereign debt crisis during the second half of the year weakening the world vegetable oils market, CPO prices were still stable, averaging RM3,027 per tonne, troughing temporarily in October at RM2,838 per tonne. Nearer to home, Indonesian refiners offered discounts benefiting from a cut in processed palm oil export taxes and a surge in supply that lifted margins to realise a cost advantage of at least USD100 per tonne for refined palm oil. Total exports of oil palm products, consisting of palm oil, palm kernel oil, palm kernel cake, oleochemicals, biodiesel and finished products increased by 5.3% or 1.21 million tonnes to 24.27 million tonnes in 2011 from 23.06 million tonnes recorded in 2010. China maintained its position as the largest palm oil export destination for the tenth consecutive year, with off-take totalling 3.98 million tonnes or 22.1% of total palm oil exports, followed by the European Union, Pakistan, India, USA, Egypt and Japan. These 7 markets combined accounted for 11.78 million tonnes or 65.4% of total Malaysian palm oil exports in 2011. The planted area with oil palm in Malaysia in 2011 reached 5 million hectares, an increase of 3.0% against 4.85 million hectares recorded the previous year. This was mainly due to an increase in the planted area in Sarawak, up 11.0% or by 102,169 hectares. Sabah still ranks first as the state with the largest holdings of oil palm with 1.43 million hectares or 28.6% of the total oil palm planted area in Malaysia, followed by Sarawak with 1.02 million hectares or 20.4%. CPO production in 2011 increased by 11.3% to reach a record high of 18.91 million tonnes. Sarawak’s CPO production increased by 23.7% to 2.7 million tonnes while Sabah and Peninsular Malaysia increased by 9.9% and 9.2% to 5.84 million tonnes and 10.37 million tonnes respectively. The increase in production was mainly due to the recovery in the FFB yield after the 2 year down trend of declining yields in 2009 and 2010. Improved weather conditions as well as more hectarage coming into peak production contributed to the increased production. annual report 2011 | 79 Kulim (Malaysia) Berhad (23370-V) REVENUE 54.5 RM3.26 B % to from RM2.11 billion OPERATING PROFIT 68.9 RM1.13 B % to from RM668.92 million PAPUA NEW GUINEA AND SOLOMON ISLANDS In terms of GDP growth, construction of PNG’s Liquefied Natural Gas (“LNG”) project and high Government spending supported growth in the non-mineral sector while favourable commodity prices supported growth in the agricultural sector with oil palm and coffee in particular performing well. The Solomon Islands economy benefited from high log prices. Gold production is quickly picking up speed and will increasingly become more important. CPO prices at the start of 2011 traded at levels around USD1,200 per tonne, peaked at USD1,335 per tonne and found a temporarily low at USD960 per tonne. As at the year end, NBPOL had made forward sales of CPO of approximately 144,750 tonnes of its 2012 production at an average price of USD1,057 per tonne. As at 15 February 2012, the forward sales of NBPOL Group were approximately 220,000 tonnes of 2012 CPO production at a slightly higher average price of USD1,078 per tonne. FINANCIAL RESULTS The Plantation Division recorded a significant leap in revenue of 54.5% to RM3.26 billion from RM2.11 billion in 2010 due to the increase in oil yield and higher prices. The Group made further progress with the integration of Kula Palm Oil Limited (“KPOL”) estates acquired at the end of April 2010. The impact of this acquisition is reflected in the full year 2011 results. The Malaysian plantation operation achieved substantially better CPO and PK price averages at RM3,193 and RM2,300 per tonne respectively compared to RM2,604 and RM1,666 in 2010. Similarly the average CPO selling price achieved in PNG and SI during the year climbed to USD1,108 per tonne, an increase of 30% against USD850 per tonne in 2010. In Malaysia, there was a general increase in operating costs as a result of higher labour and fertiliser costs as compared to the previous year. However, as a result of increase in FFB production, our Malaysia operation managed to maintain a level unit cost of production of approximately RM1,790 per tonne CPO (2010: RM1,775 per tonne CPO), before kernel credits. In line with the higher production and better prices, supported by fairly stable production costs, operating profit from the Plantation Division rose sharply by 68.9% to RM1.13 billion from RM668.92 million in 2010. In PNG and SI, NBPOL enjoyed a very solid performance in 2011 with revenues of USD780.1 million, an increase of 69% over 2010, stemming from increased fruit and oil production, record sales volumes, and higher oil prices. Total CPO production rose to 551,657 tonnes in 2011, an increase of 24% over 2010, whilst palm kernel production increased to 131,331 tonnes, compared to 100,655 tonnes in 2010. We have continued using time chartered vessels with larger loading capacities throughout 2011 to cater for the increased oil production and are working with the local port authorities at our various locations to optimise the movements of our shipments through these ports. Profit before tax increased 110% to a record USD275.5 million. These results include a one-off net gain of USD8.4 million on disposal of NBPOL’s 50% joint venture interest in PT Dami Mas Sejahtera. Kulim (Malaysia) Berhad (23370-V) 80 | annual report 2011 SEGMENT REVIEW PLANTATION (continued) ESTATES PERFORMANCE 2011 2010 Variance 636.76 551.23 15.5% 1,608.33 1,313.88 22.4% 130.30 120.52 8.1% Group Plantation Highlights FFB Production (‘000 tonnes) – Malaysia – PNG – SI GROUP’S FFB PRODUCTION % 19.6 2.38 to million tonnes from 1.99 million tonnes FBB Yield (tonnes/ha) – Malaysia 21.89 19.01 15.1% – PNG 25.49 23.60 8.0% – SI 24.37 21.97 10.9% Industry - Peninsular Malaysia 19.24 17.91 7.4% – Malaysia 185.67 163.23 13.7% – PNG 520.07 415.80 25.1% 31.59 28.62 10.4% CPO Production (‘000 tonnes) – SI OER (%) – Malaysia 20.20 20.24 (0.2%) – PNG 22.85 22.42 1.9% – SI 21.86 21.63 1.1% Industry - Peninsular Malaysia 20.08 19.91 0.9% The Group recorded a marked increase in FFB production of 19.6% mainly due to better rainfall and the benefit of a relatively more stable workforce compared to the labour conditions prevailing in 2010. The Group remains committed towards achieving its productivity target of raising the fruit yields to 30 tonnes per hectare and palm product extraction rates to 30%. The plantation operation in Malaysia will require longer time to reach the Vision “30:30” target following the recent acquisitions of estates from Johor Corporation that have older palms due for replanting. Additionally, replanting with clonal culture materials in a modest scale enable the Group to evaluate its growth, tolerance to pest and disease and adverse fluctuations in the climatic conditions. Nevertheless, we can expect the Group to reap better yields in the years ahead. And on the other side of the Vision ratio, we have seen that Good Agricultural Practices (“GAP”) coupled with efficient milling technology and Good Manufacturing Practices (“GMP”), such as better system and process control will drive the Group towards its 30% palm products yields target. Indeed, recently some mills under NBPOL have been achieving a yield of over 31%. The key to achieving the overall Vision “30:30” target is consistency, and that is the focus in terms of raising productivity to the next level. Total Group’s FFB and CPO production in 2011 was 2.38 million tonnes and 737,323 tonnes, an increase of 19.6% and 21.3% respectively over 2010. The increase was mainly contributed by the PNG and SI estates with the added benefit of a full-year contribution in 2011, versus eight months’ contribution in 2010, from the Kula Palm Oil Limited (previously CTP (PNG) Limited) (“KPOL”) acquisition. The Malaysian estates produced 27% of total Group FFB (2010: 28%); PNG estates produced 68% (2010: 66%), whilst the SI estates’ contribution shrunk slightly to 5% (2010: 6%). The Group’s planted area of oil palm increased to 118,655 hectares as compared to 112,224 hectares in 2010. The acquisition of some 6,000 hectares of oil palm estates from Johor Corporation completed on 30 December 2011 is reflected in the increase in the total oil palm hectarage. The geographical distribution of planted oil palm hectarage was: 34% in Malaysia, 61% in PNG and 5% in the SI. The Malaysian estates produced a total of 636,761 tonnes of FFB in 2011, 15.5% higher than the 551,226 tonnes in 2010. The yield per hectare in 2011 increased to 21.89 tonnes from 19.01 tonnes in the preceding year. This performance was superior to the average yields achieved by the industry as a whole in Johor and Peninsular Malaysia this year which were 19.75 tonnes and 19.24 tonnes respectively. The average FFB yield for the whole country (inclusive of Peninsular Malaysia, Sabah and Sarawak) increased to 19.69 tonnes per hectare from 18.03 tonnes in 2010. The Malaysian estates’ performance were limited first by floods occurring in January and February and then again in December 2011 and secondly by the tight labour situation. The flood affected 12 out of 18 estates covering approximately 3,915 annual report 2011 | 81 hectares leading to crop loss both during the post and pre-harvesting period at the fields submerged by flood water. The tight labour situation in Malaysia especially in the plantation industry has not improved much from the previous year. The situation is further aggravated by the steep competition among plantation industry players and also from unrelated industries for the limited supply of foreign workers. In 2011, 2,163 new foreign workers were recruited, 808 foreign workers were repatriated and 310 absconded. In order to improve and sustain the FFB yield, a continuous effort has been made to ensure that GAP and GMP are adopted in all stages of plantation operations from plant breeding, nursery preparation, and field planting, through to estate and mill processing. In Malaysia, the introduction of Structured Block Supervision (“SBS”) on harvesting, manuring, weeding and other field routines has further improved the efficienc y and effec tiveness of plantation operations. During the year, revisions of the MAPA/NUPW collective agreements for harvesters and field workers saw their wage rates increase by some 8% and 10%, respectively. Kulim and other Malaysian plantations also agreed Kulim (Malaysia) Berhad (23370-V) to implement the Government’s recently introduced Special Gratuitous Payment (“SGP”) for eligible workers and staff in the estates and mills that supplement their income with a further RM200 a month. The payment, to encourage attendance, productivity and reduce crop loss, increases FFB production cost by some RM17 per tonne. The Group has taken proactive measures to enhance its mechanisation programmes to reduce dependency on labour especially with regard to FFB har vesting and evacuations. These steps have included expanding the internally-developed Kulim Crane Free System to assist in FFB loading and evacuation, application of a mist blower for manuring, a rotoslasher, and, the latest addition on mechanisation, expanding the usage of motorised harvesting poles known as Cantas in the estates for FFB harvesting of palms below the height of 5 meters. Cantas have proved to be a success, improving harvesters’ productivity by 80%. Mechanisation has been expanded in 2011. Weather conditions across PNG and SI were favourable for crop growth during 2011, starting in the first quarter with steady and welcome rainfall, but well below normal monsoon levels. This meant that harvesting and crop recovery operations were not negatively impacted by the weather and the overall palm product extraction rate for 2011 was 28.21%, an increase from the 2010 result of 27.50%. FFB production from the PNG and SI estates increased to approximately 1.74 million tonnes with a further 0.68 million tonnes purchased from over 15,600 outgrower blocks. The purchased crop represents 28.2% of NBPOL’s total. In PNG and SI, NBPOL has 78,332 hectares planted with oil palm of which 68,438 are under harvest with the balance being immature oil palms that were planted over the last 3 years. Yield of FFB per hectare over the area under harvest was 25.4 tonnes per hectare (2010: 23.7 tonnes per hectare). The yields of FFB in West New Britain were 28.6 tonnes per hectare, a creditable increase from the 2010 levels of 26.1 tonnes and likewise, yields for Higaturu, Milne Bay and Poliamba were 23.9 tonnes per hectare, a solid gain from the 2010 levels of 22.7 tonnes. Yields at Ramu Agri-Industries Ltd (“Ramu”) were 14.4 tonnes per hectare, reflective of the very young age profile for those estates and at Guadalcanal Plains Palm Oil Limited (“GPPOL”), yields were 24.4 tonnes per hectare (2010: 22.0 tonnes per hectare). Kulim (Malaysia) Berhad (23370-V) | annual report 2011 82 SEGMENT REVIEW PLANTATION (continued) the Malaysian estates’ average palm age decreased slightly to 12.40 years in December 2011 from 12.90 years in 2010. The 6,000 hectares newly acquired has an average age of 8.85 years as almost one third (27%) is immature, while another 44% is categorised under young prime. REPLANTING To sustain higher production, the Group is committed to improving the average age profile of its palms. Scheduled replanting strategies continued during the year with palms aged older than 25 from the date of field planting in Malaysia, and older than 22 years in PNG and SI, being felled and the areas replanted with the latest high yielding palm varieties. In PNG and SI, NBPOL continued to expand their palm oil production base with the addition of 1,582 hectares of new plantings in West New Britain and Ramu. Replanting of 1,544 hectares was completed across GPPOL, Higaturu, Milne Bay and Poliamba. The replants for West New Britain were placed on hold during 2010 and 2011 due to the new acquisitions but are due to recommence in 2012. In Malaysia 868.29 hectares were replanted in 2011 against 1,042.89 hectares scheduled. The wet weather in the last quarter of the year affected some of the planting work, which is in progress now as we report, and is expected to be completed by early 2012. By the end of 2011, taking into consideration 6,000 hectares of oil palm acquired from Johor Corporation, OIL PALM AREA STATEMENT OIL PALM PLANTED AREA Titled area (ha) Malaysia PNG SI Total Mature (ha) Immature (ha) Average palm age Total (ha) Total (%) (years) 43,890 32,865 7,458 40,323 34% 12.40 121,553 63,091 8,924 72,015 61% 11.18 7,577 5,347 970 6,317 5% 12.79 173, 020 101,303 17,352 118,655 100% 11.69 PALM AGE PROFILE BY COUNTRY AS AT 31 DECEMBER 2011 5% 12% 13% 13% 15% 21% 13% 15% Malaysia 40,323ha PNG 72,015ha 28% SI 27% 6,317ha 13% 35% 42% 32% 1 – 3 years 4 – 8 years 16% 9 – 18 years 19 – 23 years >23 years annual report 2011 | 83 MILLS PERFORMANCE The total CPO produced by the Group reached 737,323 tonnes (2010: 607,653 tonnes) an increase of 21.3% whilst total PK produced was 185,009 tonnes (2010: 148,413 tonnes) an increase of 24.7%. Total FFB processed by the Group climbed to 3,340,307 tonnes (2010: 2,790,553 tonnes) a rise of 19.7%. The increase in palm products produced (CPO and PK) was mainly due to the full-year contribution from KPOL estates in 2011, versus an eight-month contribution in 2010. OER improved to 22.07% compared to 21.78% in 2010 and KER to 5.54% in 2011 from 5.32% last year. In Malaysia, total CPO production was 185,666 tonnes in 2011 which was higher by 13.7% than the 163,233 tonnes in the prior year. PK production was 53,678 tonnes, an increase of 12.4% from the 47,758 tonnes in 2010. In Kulim (Malaysia) Berhad (23370-V) terms of oil yield, the Malaysian plantations recorded an increase from 5.63 tonnes CPO per hectare in 2010 to 6.38 tonnes in 2011. For the Malaysian operation, although both OER and KER recorded a slight dip, respectively from 20.24% in 2010 to 20.20% in 2011 and from 5.92% in 2010 to 5.84%, we are still ahead of the industry average (Peninsular Malaysia) of 20.08% and 5.45%. The Group’s Malaysian mills’ extraction rates were affected mainly by wet weather in early 2011 and higher purchases of variable quality third party crops that increased from 345,281 tonnes in 2010 to 365,151 tonnes in 2011. On the other hand, third party crops enabled the Group’s mills to operate at a higher capacity and benefit from marginal costing advantage as well as accruing additional volumes of palm produce, both CPO and PK. The average OER and KER targeted for the Group’s Malaysian mills in 2012, inclusive of the soon-to-be acquired palm oil mill from JCorp, is 20.75% and 5.83%, respectively. To achieve this, we will be upgrading and rehabilitating the Malaysian mills to improve milling efficiency, reliability and safety while optimising on manpower and cutting costs. The upgrade of the clarification and kernel plant at Tereh Palm Oil Mill (“POM”) is underway with the refurbishments of Sedenak POM and Sindora POM to follow. Supported by the full year’s contribution of fruits from the newly acquired KPOL estates at Higaturu, Milne Bay and Poliamba, the PNG and SI mills registered a record year for oil production of 591,477 tonnes of crude oil (crude palm oil and palm kernel oil), representing a 23.5% increase over 2010. Kulim (Malaysia) Berhad (23370-V) 84 | annual report 2011 SEGMENT REVIEW PLANTATION (continued) Commissioning of the 12 th oil mill at Waraston, in West New Britain, PNG commenced in December 2011. This was after considerable delays in the early part of the year when the lead contractor was unable to secure work permits for its staff. The new mill increases the total processing capacity in West New Britain from 260 to 320 tonnes of fruit per hour and will allow greater flexibility to both manage fruits in a more timely fashion as well as schedule much needed repairs and maintenance to the other existing mills which came under considerable pressure during 2011. In the Solomon Islands, the mill upgrade at Tetere from 25 to 45 tonnes per hour was completed with further work on the kernel mill ongoing. At Ramu, work commenced at the Gusap POM during the year to increase the capacity from 30 to 45 tonnes per hour. Across the new acquisitions, considerable progress has been made during the year in upgrading and refurbishing several mills with the objective of not only increasing processing capacity, but improving milling efficiency and reliability. Unlike NBPOL’s existing facilities, the oil mills at Higaturu (apart from the Sangara POM), Milne Bay and Poliamba, have no capacity to crush palm kernels and therefore have traditionally sold and exported palm kernels to Malaysia. To maximise the value of palm kernels, work on building palm kernel crushing facilities and associated kernel oil storage tanks started during 2011 with commissioning of the new facilities expected during the second half of 2012. This will have immediate savings on shipping costs whilst also increasing the sales value of the palm kernels by selling palm kernel oil and palm kernel expeller. Kulim’s first methane capture plant in Malaysia at Sedenak POM is due for completion before the end of 2012. The Clean Development Mechanism (“CDM”) project utilising biogas from the mill’s POME will mitigate greenhouse gas emissions and generate power for our own downstream plants, adding another potential revenue stream. We are working on similar projects for the other Group mills. At the same time, NBPOL’s first methane capture plants in West New Britain are also nearing completion. This is a major step forward for NBPOL as it begins to utilise the potent greenhouse gas as an energy source and reduce its carbon footprint. Commissioning of the plants is expected in the first half of 2012. The power will be utilised to supply the housing estates and refinery as well as supplying the local grid in support of rural electrification through an agreement with PNG Power. NBPOL is embarking on the construction of a further 3 CDM projects in West New Britain, Higaturu and Milne Bay. food and personal care markets. For NBOL, 2011 has really been about building on the initial successes and steadily gaining bulk oil market share within the UK while simultaneously executing expansion plans into packed products. NBOL will also be producing its first packed products for sale into the UK bakery and foodservice sectors in the first quarter of 2012. This will give NBOL the largest range of fully traceable sustainable products in the market. SUGAR PRODUCTION In Liverpool, New Britain Oils Limited (“NBOL”) refinery operation marked a significant milestone when in 2010 it began supplying directly to manufacturers in the European Marketed under the brand “Ramu Sugar”, sugar sales were 32% lower in 2011 where 28,404 tonnes of sugar were sold in PNG, annual report 2011 | 85 Kulim (Malaysia) Berhad (23370-V) due to the cane production shortfall in 2010. During the year Ramu faced the challenge of meeting demand and had to import over 4,000 tonnes to meet the shortfall. Despite the industry enjoying protection in the form of a tariff of 35% for all imported sugar, several consumers against the backdrop of reduced supply, imported sugar directly which impacted negatively on the year’s sales. World sugar prices remained robust during 2011, further reducing the threat of competition from imported sugar. One of the most important limiting factors to increased sugar consumption in PNG is overcoming logistical challenges. Ramu has gone some way to addressing this with a bulk depot and distribution office in Mt. Hagen, the largest centre in the Highlands. During the year the sugar operation harvested some 397,328 tonnes of cane from 7,311 hectares. This was an improvement on 2010 when 375,822 tonnes of cane was harvested. Improved planting techniques incorporating a legume fallow period has reduced weed competition, this as well as increasing the area replanted every year will go some way to increasing yields. The sugar factory with a capacity of processing 500,000 tonnes of cane was therefore under little pressure. Overall sugar recovery from cane processing improved in 2011 to 81.4% from 79.3% in 2010. Further improvements in cane delivery from the field, maintenance and milling planned for 2012 are expected to support sugar recovery. BEEF PRODUCTION NBPOL remains the largest producer of beef in PNG, however beef production will continue to play only a minor role in the overall investment strategy. This does not mean that the beef operations will not receive investment or that beef production cannot be significantly improved to provide a valuable resource to supplement the earning capacity of NBPOL, especially in areas where cattle and oil palms can be intercropped, or in areas where oil palms are unsuited as a sole commercial crop. The herd size showed some growth with 20,000 cattle managed in 2 separate locations. The herd produced some 1,284,000 kilograms of beef for the PNG market generating revenue of K14.9 million. The herd at Ramu has approximately 16,500 heads of cattle. The feedlot has a capacity to finish up to 1,000 head 120 days prior to slaughter. Good efficiencies and standards in the abattoir combined with the improved weights have yielded much improved quality in the final product. Additional investment in stock yards and machinery for both silage production and pasture improvement are all contributing to better efficiencies. The herd at West New Britain has approximately 3,500 heads of cattle. The total number of animals processed fell short of budget by 9% affected by shipping schedules and lower numbers through the feedlot. However, due to strong weight gains in the feedlot, increased selling prices and a larger proportion of high value sales of butchered products into the local community, revenues were in line with budget. Kulim (Malaysia) Berhad (23370-V) 86 | annual report 2011 SEGMENT REVIEW PLANTATION (continued) RESEARCH AND DEVELOPMENT The main attraction of palm oil is its low production cost and high yield per hectare and the goal of the whole industry is to make sure that we maintain our lead in these areas. Harnessing technology and science, our Research and Development (“R&D”) initiative applies new techniques to build the Group’s competitiveness in the market and create greater value providing agronomic and laboratory services and carrying out innovative research. R&D personnel are involved in advisory services, seed production, plant breeding, and feasibility studies on land suitability. R&D goals include yield optimisation, reducing palm immaturity period and agro by-products utilisation. Due to our geographically-diverse operations, the Group’s R&D services are provided separately by the Kulim Agro-Tech Centre based in Kota Tinggi, Johor for its Malaysian operation, and by NBPOL’s Dami Oil Palm Research Station (“OPRS”) based in West New Britain Province, Papua New Guinea for PNG and SI operations. PRECISION AGRICULTURE AND ANALYTICAL SERVICES All the Group’s estates in Malaysia have been mapped and digitised capturing agronomic and management data using the Kulim Agrotech Information Systems (“KATIS”) which is an integrated system comprising of a Global Positioning System (“GPS”), Geography Information System (“GIS”) and Oil Palm Monitoring Programme. The data offers a quick overview of the estate’s current performance and enables managers to identify under-performing areas that require close attention. Precision agriculture management aims for specific mitigation to specific areas and significantly enhances effective fertiliser usage, reduces fertiliser inputs and boosts yields through the higher yield attainable. Applying the right amount of inputs in the right place and at the right time benefits the trees, soils and groundwater, and thus the entire crop cycle. The aim of precision agriculture is to vary the allocation of production inputs on a fieldby-field or palm-by-palm basis so that each field within the plantation reaches the maximum economic yield. The system increases the accuracy of the area computation, analyses yield gap, planting material selection, nutrient management, natural resource management and other agronomic parameters. Consequently, precision agriculture has become a cornerstone of sustainable agriculture. annual report 2011 | 87 Kulim has a policy of sharing scientific research findings with the research community. Our agronomists and scientists attend and present papers on oil palm breeding, palm nutrition, oil palm byproducts and new technologies at national and international forums in the interest of disseminating knowledge for the benefit of the industry as a whole. The latest impressive test results gathered from low cost aerial photo-mapping using unmanned model auto-pilot aircraft were presented at the 2011 International Palm Oil Congress held in Kuala Lumpur. Aerial photographs enable cross checking and updating of estate census data to reflect true status. The information obtained enables accurate palm inventory, palm health checks and surveillance of field conditions including roads, water body, slope stability and other parameters. This data enhances the efficiency of field management by facilitating assessment of the current land condition for better yield forecasting. We firmly advocate the development of agri-science and technology to improve crop and oil yields to meet increasing demands. The Ulu Tiram Central Laboratory (“UTCL”) analytical service provides technical support for the Group’s plantations and mills. The laboratory offers soil, foliar and nutrient analyses, agronomic and fertiliser recommendations for high crop productivity, and quality and effluent testing for the palm oil mills, using leading-edge testing equipment such as the Atomic Absorption Spectrophotometer, Flame Photometer, UV-spectrophotometer and Buchi Auto distillation to ensure reliable and accurate analytical results. Accredited under MS ISO/ IEC 17025 SAMM (Skim Akreditasi Makmal Malaysia) since 2007, the laboratory’s competency is also recognised globally and supported by the ILAC – MRA (International Laboratory Accreditation Cooperation – Mutual Recognition Agreement), an international co-operation of laboratory inspection accreditation bodies. Kulim (Malaysia) Berhad (23370-V) AGRONOMY The Agronomy department’s oil palm management database in Malaysia now holds information collated over the past 17 years. Programmes based on the data are used to determine the performance of different fields across the locations, providing analysis and recommendations on best practices, determining sites for new agronomy trials, and to generate information for optimising planting schedules. The section’s responsibilities have escalated from providing technical advice and services to the plantations to full involvement with research and development. Interpreted data is made available to estates in order to enhance the monitoring of field performance, benchmarking individual estates against the leaders. Agronomic ser vices based on Best Management Practices (“BMP”) are provided to all Group estates in order to apply optimum inputs to achieve maximum yield and production in a sustainable manner. The service covers precision and site specific management proposals to ensure maximum sustainable yield through determining the yield gap between fields to elucidate fertiliser response through the provision of nutrient management and soil characterisation and conservation strategies, all aimed at improving soil management. In line with RSPO targets that single out soil fertility as a principle criterion for achieving sustainability, long-term fertiliser studies are aimed at increasing the efficiency of specific nutrient application as well as evaluating herbicides that are less toxic and more environmentally friendly. Improving soil health is one of the ways to ensure vigorous palm growth thus preparing the trees for unexpected pest and disease threats. Emphasis is given to the integration of inorganic and organic fertilisers to promote efficient energy usage and sustainable high palm oil yields especially in the current economic climate where the prices of inorganic fertilisers have been steadily rising. Efficacy trials on weedicides continue Kulim (Malaysia) Berhad (23370-V) 88 | annual report 2011 SEGMENT REVIEW PLANTATION (continued) in order to provide estates with information on the most cost-effective chemical for weed control. Application of biocompost, an organic fertiliser currently produced by the Group’s mills has enabled efficient byproduct utilisation covering larger planting areas. A study carried out by R&D indicates biocompost acts as a soil ameliorant and its application results in better soil health thus producing further and faster root growth. Integrated Pest Management (“IPM”), the use of holistic and compatible methods of pest and disease control, has long been practised and refined by research, experience and onthe-ground breakthroughs. A balanced IPM approach removes the overdependence on pesticides, making the control process more biosustainable. The typical pests within an oil palm estate include rats, bagworms, nettle caterpillars and rhinoceros Oryctes beetles. These pests are controlled using direct biocontrol agents such as viruses and fungi to infect the pests, such as Cordyceps militaris to manage the population of the nettle caterpillar. Predatory animals and insects such as barn owls that feed on rats are fostered to control pest populations. While barn owls and snakes keep a check on the rodent populations, predatory insects, parasitoids and entomopathogenic fungi eliminate defoliating insects. Beneficial plants are cultivated to provide shelter and supplementary food such as nectar in encouraging the population of predators and parasites. Insecticides are only resorted to in outbreak situation where natural enemy predation is no longer sufficient to manage the pest population. Once the situation is within control, natural controls are reactivated. The practical and environmentally sound technique of zero-burning replanting has been adopted and implemented by the Group. This is the best option to the previous practice of burning and is suitable for converting other crops into palm cultivation or for replanting. Using the zero-burning replanting technique, old and uneconomical stands of oil palm are shredded and left to decompose in situ. This technique also allows all plant tissues to be recycled, enhancing soil organic matter, helping to restore and improve soil fertility. The biomass of the palm residue through decomposition recycles nutrients into the soil and reduces the input of inorganic fertilisers. The return of organic matter also improves the physical and chemical properties of the soil. Besides being nonpolluting, zero-burning also contributes positively towards efforts in minimising global warming. Felling and clearing is no longer dependent on the vagaries of weather. In the past, wet weather often delayed burning and thus replanting. Such delays are now avoided. In the absence of burning, the cost of land clearing is substantially cheaper. Zero-burning is nonpolluting, contributes positively towards minimising global warming, and complies with environmental legislation. PLANT BREEDING B y s e l e c t i n g p l a n t s w i t h d e s i ra b l e characteristics, the Plant Breeding unit develops new varieties that are higheryielding, resistant to pests and diseases, drought-resistant or regionally adapted to different environments and growing conditions. High yielding oil palms are the bedrock of the Group’s “30:30” strategy and the most influential driver of profitability, other than commodity prices. During the year a set of progeny testing involving 150 annual report 2011 | 89 crosses were completed that tested elite duras from Dami, ex-OPGL, Kulim-Nigerian and Kulim duras with AVROS pisiferas from the Malaysian Palm Oil Board (“MPOB’), Kulim, Dami. The objectives of this trial were to find new sources of better duras and pisiferas for future planting materials and select ortets for clonal propagation. The seeds will be germinated in 2012 for 2013 field planting in Sungai Papan Estate. Using Connected Design (Incomplete North Carolina Mating Design II) in the crossings, selection of elite dura and pisifera parental palms will be more meaningful as the General Combining Ability (“GCA”) and Specific Combining Ability (“SCA”) can be estimated instead of the ordinary North Carolina Mating I (“NCMI”) which can estimate only the GCA of the pisiferas while the duras performance is based on the mean value. A total of 100 MPOB Ganoderma tolerant DxP materials planted in a Ganoderma hot spot area in one of our managedestates in 2009 were in bearing. Further negotiations with MPOB progressed to progeny test some duras and teneras/ pisiferas of Zaire, Cameroon and Nigerian populations and self-pollination of the dura and tenera parental palms for future genetic improvement. The crossing programmes are expected to be completed by end of 2012. Screening of tolerant materials through inoculation technique on the three-month old seedlings using rubber wood block will be carried out in February 2013. Kulim (Malaysia) Berhad (23370-V) A Single Seed Descend (“SSD”) programme involving 7 ex-OPGL and 15 Dami duras was completed. The materials are in big polybags and will be field planted in 2012. This programme is an alternative path to shorten the period of creating an inbred line in a 5-year cycle instead of 10-year cycle using a standard selfing programme. The plant breeding and seed production operations based at Dami in West New Britain supply planting material that is both high yielding and suited to its environment aiming to deliver oil yields in excess of 9 tonnes per hectare on a consistent basis under New Britain’s growing conditions. Improvement in the oil yield of each subsequent generation of palms over the last 3 decades showed that the average yield of CPO in progeny testing trials has increased from 6.1 tonnes per hectare to over 9.0 tonnes per hectare. In addition the palms are maturing faster and are in full harvest at 24 months after field planting. Through rigorous and wide scale field trials that cover an extensive range of genetic materials, the plant breeding team has been able to identify a number of high yielding parental crossing combinations, producing elite progenies that have the characteristics of early yields, high bunch numbers, high total oil yields of CPO and palm kernel oil, large fruits and good oil extraction rates. This material is used across the estates for NBPOL’s replanting and new planting programme. In 2011 NBPOL also focused on elite parent palm conservation through cloning, since some of its most valuable palms are now reaching the end of their useful lives. Although NBPOL will continue to clone these parent palms in 2012, it also plans to sample more elite crosses, which have the potential of producing CPO yields in excess of 10 tonnes per hectare per year. SEED PRODUCTION In Malaysia, a total of 1.80 million commercial DxP seeds were produced and 0.86 million germinated seeds were sold by the Group’s Malaysian Plant Breeding unit in 2011. In PNG and SI, seed sales reached 11.8 million, a 42% increase from the sales achieved in 2010. Of those sales, 8.1 million were to customers overseas and 3.7 million for internal use and within PNG. The high and stable palm oil prices combined with the ongoing economic recovery supported sales, which were actively pursued by the Dami Oil Palm Research team. NBPOL’s international customer base includes companies from Indonesia, Thailand, Philippines, Honduras, Cameroon and Sri Lanka. The Dami seed Kulim (Malaysia) Berhad (23370-V) 90 | annual report 2011 SEGMENT REVIEW PLANTATION (continued) by using genetic relationship studies to determine desirable oil palm breeding partners. Palms can be cloned both for increasing the number of elite breeding trees and for improving the quality of new oil producing feedstock. Advances in molecular biology have transformed biotechnology in recent years. Whereas in the past, crop improvement depended on selective breeding within species, tissue culture, through which plants can be cloned from a single cell, has sped up the process of making new varieties available. It allows rapid multiplication of uniform planting materials with desired characteristics. This enables improvement of planting materials using existing individuals which have all or most of the desired qualities such as good oil yield and composition, slow vertical growth and disease resistance. The research, development, production and supply of high quality oil palm plantlets through a tissue culturing process for Malaysia-based operations continued through the year at Kulim TopPlant Sdn Bhd (“Kulim TopPlant”) in REM Estate. Commissioned in July 2007, Kulim TopPlant was awarded BioNexus Status by the Malaysia BiotechCorp in 2008, a status that carries significant tax incentives. During the reporting period, the production of clonal ramets at Kulim TopPlant went on smoothly; over 40,000 units were delivered to estates within the Group in 2011. With more trained laboratory technicians and higher plant culture inventories, tissue culture production in the year ahead is expected to double. Some orders from estates outside the Group have been received for 2012. production unit successfully maintained its ISO 9001:2008 Quality Management System certification giving further independent assurance and confidence to the customers of Dami’s reputation as a producer of high grade oil palm planting material. The sales forecast for 2012 remains buoyant with budgeted sales of 12 million seeds for the year. BIOTECHNOLOGY Research and development in this field being explored by the Group focuses upon genetic improvement through modern molecular techniques using tissue culture methodology to clone elite trees. The research also seeks to hasten traditional breeding programmes The Group is also constructing a new dedicated R&D establishment to house genome research. This investment for the future is being taken because of the many advantages to work independently on genome research in our own facilities, among others, a more accurate result when the legitimacy of the off-spring can be confirmed through DNA finger printing; research methodology and progress can be secured and remained confidential before being published. annual report 2011 | 91 Over the past 3 years, the biotechnology team at Dami Research Station has developed and tested a new high efficiency palm reproduction technology. During 2011, further gains were made as the tissue culture protocols were refined, enabling us to carry out tissue culture processes only 16 weeks after sampling the palms, which is a substantial reduction in time compared to the 50 to 100 weeks taken with traditional tissue culture protocols. As part of the process of moving from laboratory to field, cloned palms were assessed in the Dami nursery for any abnormality and exhibited encouraging results. From the initial sampling of elite material, Dami has exceeded the goal of having at least 5 clones for large-scale production technology. The first of these clones has been moved from the laboratory into the nursery and production will accelerate as embryos from tissue culture begin to accumulate. Kulim (Malaysia) Berhad (23370-V) HUMAN CAPITAL The Group considers human capital planning a critical business process because of its transformational impact to the business and the way it delivers that value. Some of the most important strategic decisionmaking we make is in the selection, training and promotion of human capital because of the deep implications on corporate strategy. Financial resources are insufficient without people to drive the strategy toward success. The future of our organisation depends on developing a people strategy that enables every employee to remain competitive in a global economy. The Group’s ongoing ‘People Excellence’ campaign is about developing people to excel, to be the best, and do their best for customers. As at the end of 2011, our plantations operations employed 21,247 personnel, representing a 12% increase over the previous year. The increase was mainly attributable to the expansion of business at NBPOL in PNG and SI. The composition by countries was: Malaysia at 5,206 (25%), PNG at 14,257 (67%) and SI at 1,784 (8%). Learning programmes are a critical tool in the transformation of employees and their development. To this aim, the Group endeavours to employ the best talent and continuously hones skills. Formal courses, seminars, and workshops, both internal and external, were held during the year. The scope of training modules ranged from corporate culture familiarisation to awareness, productivity, effective communication, sustainability and executive and leadership development. Formal training programmes directly related towards enhancing our operational management capability were emphasised. In 2011, 10 employees were registered for an Executive Diploma programme with their final assessment and results expected in April 2012. Another employee was placed in an Executive Master in Business Administration programme in collaboration with Johor Corporation and UTM-SPACE. The pre-retirement programme was continued during the year to ensure upcoming prospective retirees over the next 2 years are well prepared financially, physically and mentally after they leave the Company’s employment. During the year, our Malaysian operations invested RM1.3 million or 4.45% of payroll towards training and recorded an average training man-day of 4.13 per employee, which exceeded our target of 3 man-days. Following on from last year’s Organisational Climate Sur vey, in 2011, the Group conducted a Salary Survey to review and revise scales for current competitiveness in the market. The new emphasis on performance appraisal and merit pay is to maximise our people resources to make our business even more successful by boosting employees’ productivity. The performance appraisal system is communicated to all employees via a series of road shows to underscore the value the Group places on high performance in the organisation. The Kulim (Malaysia) Berhad (23370-V) 92 | annual report 2011 SEGMENT REVIEW PLANTATION (continued) evaluation of each person’s performance objectively, fairly and systematically is an integral part of our Per formance Management System (“PMS”) which aims to measure the individual employee’s performance against critical targets, in particular Key Performance Indicators (“KPIs”). Sustainability-related dimensions such as Safety and Health, participation in social and recreational activities as well as in Non-Governmental Organisations, were maintained in the assessment, reflecting the Group’s commitment to embrace the ethos of corporate responsibility. Discussions between the organisation, relevant Government officials, staff and workers’ union officials and Hospital Assistants Association representatives, enable the exchange of information and the maintenance of good rapport among the parties. Besides that, regular ongoing consultations resolve any differences, grievances and disputes. It has been a core principle of the Company to responsibly manage the whole workforce with full adherence to the Code of Conduct for Industrial Harmony and at the same time respect each other obligations. The Group’s Malaysian operations are dependent on foreign labour, especially migrant workers from Indonesia. We welcome the move by the Malaysian and Indonesian Governments to regularise and protect the rights of each nation’s citizen. This is in line with the Group’s practice of working with bona fide labour suppliers to ensure the legality of its manpower and eliminate making any distinction based upon an employee’s race and origin. The establishment of a performancemanagement based organisational culture involves a coaching environment and conscious attempt at continuous dialogue between management and staff to achieve a balance between driving for results and listening to feedback. The annual Peers and Reverse Feedback (“PARFEED”) appraisal system is achieving its objective of complementing the usual top-down appraisal approach and provides a better- rounded assessment of an individual employee’s performance revealing areas for further improvement. Questions were expanded to assess leadership qualities and management style. The resulting feedback guides employees to further improve performance in the areas of teamwork, communication, leadership and organisational values. The Group’s Malaysian operation had in December 2011, organised a retreat programme for the Senior Management members at Selesa Beach Resort, Port Dickson. During the programme, 10 groups were formed to look at the various material issues within the operation. Areas covered, among others, inclusive of plantation operations, internal control and human resource management. An interactive dialogue session with the Managing Director was held to share all the identified stumbling blocks and also to address current business development. Task forces are being formed to address each issue and generate creative solutions in enhancing the organisation performance. annual report 2011 | 93 Pedoman , the Group’s annual gathering of employees, is a forum for the open and transparent exchange of ideas, plans and opinions. The motivational theme for Pedoman 2011 was ’Membina dan Membela’. Every year at this popular event, the management team provides updates on the Group’s performance, extols the highlights of the preceding year, identifies the challenges we face, and tables a road map to reach our vision. The gathering again presented an opportunity for employees from all levels to hold an open dialogue with the management team as well as raise questions and offer suggestions. Educational certificates were presented, awards given for quality and operational achievements, and service milestones celebrated. The Ethics Declaration form embedded in the organisation is an important instrument to promote a positive working culture by encouraging employees to whistle-blow and alert the management about any ethical wrong-doings that might occur below the compliance radar. In 2011, all employees provided their valuable feedback and appropriate action was taken to address Kulim (Malaysia) Berhad (23370-V) issues raised. The Asset Declaration exercise was extended to all executives who were also requested to individually declare income, assets and liabilities to eliminate the risk of corruption and conflict of interest. To protect our security, eliminate risk to the health, welfare and safety of the staff, and to increase productivity in the workplace, it is the Group’s policy that the use of illegal drugs and alcohol not be tolerated in the workplace. Every employee is responsible for complying with this policy and the Group promotes a drug-free workplace programme requiring all employees to adhere to the required policies. The prohibition includes policies and procedures, objectives, and guidelines concerning the nature, frequency, and type of drug testing to be instituted, including random testing, voluntary testing, and testing as part of, or as a follow-up to, counselling or rehabilitation. An inspection programme to vet all internal grocery shops in the operating units for illegal medication and alcohol has also proven to work as a first-line deterrence initiative. Kulim (Malaysia) Berhad (23370-V) 94 | annual report 2011 SEGMENT REVIEW PLANTATION (continued) TOTAL QUALITY MANAGEMENT The Group’s Total Quality Management (“ TQM”) looks at the overall quality measures used including managing quality design and development, quality control and maintenance, quality improvement, and quality assurance. We recognise that a good quality management system is effective when we can quantify the results that will then help set the Company’s goals for the future and ensure that every department is working toward the same result. Various Islamic-based activities are promoted throughout the organisation to promote religious precepts amongst employees and their families. The Qurban programme is a highlight of each year when we witness the charitable spirit of our staff sharing their blessings. In 2011, 319 employees in the Malaysian operations pooled resources and distributed meat to less fortunate families in the operating units and surrounding communities, a noble way indeed for employees to contribute towards realising the organisation’s corporate social responsibility to society. This year we pay tribute to the highest level of participation since the implementation of the programme in 2006. The Group has a human resource outreach and external public relations strategy, to publicise our success and attract the best and brightest talent to further our goal of building a winning organisation, that includes road shows to school leavers and university graduates. The promotional schedule this year included visits to institutions of higher learning and our participation in career and educational fairs and exhibitions where the Group expounded to prospective recruits on the adventure and passion of the plantation business and the direction the Group is taking to maintain its leadership position. We remain committed to the continuous improvement of the service and product quality of the operating units through maintenance of the current standards certifications. The Roundtable on Sustainable Palm Oil (“RSPO”) certification, a global, multi-stakeholder initiative on sustainable palm oil, held by the Group’s plantation operations in Malaysia, PNG (except KPOL) and SI is a seal of approval that our palm oil is produced in a sustainable manner and volumes are traceable. In 2011, NBPOL has successfully completed an audit for RSPO certification for Poliamba Limited in New Ireland, PNG. In 2012 we hope to have undergone audits at the remaining 2 sites of KPOL at Milne Bay and Higaturu as part of the Group’s commitment to have all units and supply chains traceable and certified as fully sustainable by the end of 2012, delivering production assurance and product knowledge of carbon values to customers who value such supply sources. annual report 2011 | 95 Kulim (Malaysia) Berhad (23370-V) 4 of the Group’s operating units in Malaysia; Sedenak Palm Oil Mill (“POM”), Sindora POM, Tereh POM and Tereh Selatan Estate successfully underwent the reassessment of their Quality System, that entailed the re-certification of the ISO 9001 accreditation. ISO 9001:2008 is the internationally recognised standard for the quality management of businesses. It applies to the processes that create and control the products and services an organisation supplies and prescribes systematic control of activities to ensure that the needs and expectations of customers are met. It is designed and intended to apply to virtually any product or service, made by any process anywhere in the world. OUR ACCREDITATIONS CERTIFICATIONS Receiving Company/ Operating Units RSPO ISO 9001:2008 ISO 14001:2004 All Malaysian, PNG and SI estates and mills (except KPOL) Malaysian operations – Sedenak POM, Sindora POM, Tereh POM and Tereh Selatan Estate All PNG operations and for Malaysian operations – Sedenak Estate, Sindora Estate and Sindora POM Customers, consumers and shareholders are increasingly concerned over the environmental impact of the activities, products and services they consume. They expect companies to comply with environmental standards and demonstrate their commitment to reducing their environmental impact in daily operations. The ISO 14001:2004 environmental management standard helps us minimise the impact of our operations on the environment (air, water, land, community and natural resources), and comply with applicable laws and regulations. Sedenak Estate, Sindora Estate and Sindora POM successfully underwent the surveillance of their ISO 14001:2004 certification during the year under review. ISO/IEC 17025 is the main standard used by testing and calibration laboratories issued by the International Organisation for Standardisation. It applies directly to those organisations that produce testing IEC 17025 Ulu Tiram Central Laboratory (UTCL) and calibration results. Our Ulu Tiram laboratory uses ISO/IEC 17025 to implement a quality system aimed at improving their ability to consistently produce valid results. The standard places great emphasis on the responsibilities of senior management, with explicit requirements for continual improvement of the management system itself, and particularly, communication with the customer. In January 2011, to meet increasing demand from internal and external customers, Ulu Tiram Central Laboratory (“UTCL”) added accreditation Kulim (Malaysia) Berhad (23370-V) 96 | annual report 2011 SEGMENT REVIEW PLANTATION (continued) The key areas addressed by OHSAS 18001 are planning for hazard identification, risk assessment and risk control, the OHSAS management programme, structure and responsibility, training, awareness and competence, consultation and communication, operational control, emergency preparedness and response and performance measuring, monitoring and improvement. The Group’s adoption of OHSAS 18001 embeds a formal procedure to reduce the risks associated with health and safety in the working environment for employees, customers and the general public, reducing and preventing accidents and accident-related loss of lives, time and resources. for their foliar testing service. Foliar chemical analysis identifies deficiencies of nitrogen, phosphorus, potassium, magnesium and calcium and other metals in samples. The report will indicate the normal and deficient levels of these elements and recommend a prescription for a remedial fertiliser application. A series of refresher training courses on Understanding, Documenting and Implementation of ISO 9001:2008 and ISO 14001 were conducted for 45 personnel from the respective certified operating units. An integrated audit training on ISO 9001 and 14001 was conducted in June 2011 and a session of ISO/IEC 17025 audit training also conducted for laboratory operators. 73 personnel make up our TQM Internal Audit team in Malaysia. The team functions as Group Internal Auditors for ISO certification with 17 members trained as Lead Auditors for both ISO 9001 and ISO 14001. The awards received by the various operating units in 2011, and in prior years, are a testament to the Group’s ongoing journey towards quality management excellence. With such dedication, the Group is confident that each certified unit will continue to excel, perform and conform to international standards. The internationally recognised assessment specification Occupational Health and Safety Assessment Series (“OHSAS”) 18001 guidelines are implemented as part of the Group’s risk management strategy to address changing legislation and protect our workforce. OHSAS promotes a safe and healthy working environment by providing a framework that allows the organisation to consistently identify and control health and safety risks, reduce the potential for accidents, aid legislative compliance and improve overall performance. OHSAS 18001 is designed to be compatible with ISO 9001 and 14001 and helps the organisation meet health and safety obligations in an efficient manner. To involve employees in productivity and efficiency improvement activities, a teambased environment has been developed in which they can participate actively in improving their process, product, or service performance. One such employee participation programme is the Quality Control Circle (“QCC”) directed towards improvements in the workplace focusing on areas such as cost, safety and productivity. Other complementing initiatives such as Innovative and Creative Circles (“ICC”) and the Japanese 5S System are also an integral part of enhancing operations. annual report 2011 | 97 Kulim (Malaysia) Berhad (23370-V) Management makes every effort to help employees provide suggestions for the betterment of job processes and to harness the power of in-house creative ideas. PROSPECTS AND PLANS 2012 continues to present mixed offerings. Concerns on Eurozone remains. However, in emerging markets, risk perceptions have eased since the beginning of 2012 and capital flows resumed into emerging Asia, Latin America and South Africa economies. Higher crude petroleum oil prices are a risk to global growth and the impact of an oil supply shock in the Middle East could be large if supplies were not increased elsewhere. Looking at the outlook for the global vegetable oil market in general and palm oil in particular, the signs on the horizon look constructive, as demand for palm oil is sure to remain robust over the coming months because of tightening soya oil availability. The world’s stocks of vegetable oil at the end of 2011 remained virtually unchanged which suggests that despite the expected bumper palm oil production the global appetite for vegetable oil remains strong. Global production of the 8 major vegetable oils for 2012 is forecast at 152.4 million tonnes, up 3.9% over the previous year. Palm oil production growth is expected to slow down as a result of an expected drop in yields due to biological stress following periods of record production. The Group organises annually its internal ICC/ QCC competition and regularly participates in those organised at its holding company level by JCorp and by the Malaysian Productivity Corporation (“MPC”) at both regional and national levels. Hari Mekar, the Company level quality convention, was successfully organised on 15 and 16 November 2011 drawing participation from 5 ICC groups and 47 presentations from CEMPAKA. T h e C E M PA K A S u g g e s t i o n S c h e m e provides the mechanism for employees to channel their suggestions and ideas for improvements. Annual awards tied to the level of participation help publicise the scheme which has also been strengthened by incentives. To maintain an adaptable and responsive organisation we have developed a culture that actively solicits input and recommendations from every level of staff. An important factor could be the intensifying competition between Malaysia and Indonesia to capture market share. Indonesia looks set to wrest a larger market share next year because of the new Indonesian tax structure. Over the first half of the year CPO is most likely to trade at an average of around RM3,100 a tonne with a RM200 movement on either side. Prices are expected to weaken as we move towards the second half. While higher crude oil prices and weather aberrations can disturb the outlook and push prices higher, a major commodity sell-off or concerns about global economic growth prospects could pull prices down. Kulim (Malaysia) Berhad (23370-V) 98 | annual report 2011 SEGMENT REVIEW PLANTATION (continued) We expect a positive impact from the acquisition of plantation assets from JCorp, by way of higher volumes of FFB, CPO and PK in 2012. So far, we have completed the acquisition of 2 estates from JCorp and have started accruing production and earnings from these estates since January 2012. The remaining 6 operating units to be acquired, comprising 4 estates and 2 POMs, are expected to reach completion by mid-2012. Including the impact of these acquisitions, crop production from the Group’s Malaysian operation is expected to increase by 20% to 25% in 2012. The estimated yield for 2012 is set at 22.95 tonnes per mature hectare with an estimated cost of production of RM216 per tonne of FFB or RM4,522 per hectare. OER and KER, inclusive of the new acquisition areas, are targeted at 20.75% and 5.83% respectively, whilst the estimated milling cost is RM41 per tonne FFB processed. The labour supply next year should be adequate with an ample quota secured from the Government to bring in foreign workers, especially harvesters. The continued attention to improving our workers’ income and living environment, by providing better housing amenities and local community activities, encourages foreign labour to work harder and stay longer with the Group. 2 estates, Sindora and Sg. Tawing, are currently using biofertiliser supplied by Microwell Bio Solutions Sdn Bhd, a Group company, for manuring of some 4,000 hectares. Sindora Estate commenced application in May 2010 whilst Sg. Tawing Estate in 2011. Its usage is expected to increase yields. A cost-benefit assessment on the trial will be reviewed before extending the application of biofertilisers to other Group estates. NBPOL has commissioned its 12th palm oil mill in West New Britain, adding an annual processing capacity of over 300,000 tonnes of FFB, giving NBPOL increased capacity and flexibility to mill the rising West New Britain crops and it also increased processing capacity in the SI from 30 to 45 tonnes of fruit per hour. Our RSPO certification process continues and in 2011 we successfully completed an audit at Poliamba. NBPOL is targeting having the remaining sites at Milne Bay and annual report 2011 | 99 Higaturu audited under RSPO as part of its commitment to have all units and supply chains certified as fully sustainable and traceable by the end of 2012. NBPOL has also released its first Carbon Footprint report. The reporting and mitigation of Carbon Dioxide and other greenhouse gas emissions can now be quantified and this is an excellent way for companies down the supply chain to see how “sustainable” palm oil differs from other sources. NBPOL is also expected to commission 2 methane capture plants in West New Britain in the coming months which will substantially reduce its carbon footprint as well as deliver renewable energy for its operations and the wider community. Kulim (Malaysia) Berhad (23370-V) To tap another stream of income for the Group in the coming years, we are embarking upon downstream processing, turning the mills’ by-products such as biomass, POME and biogas into high value-added end products that can generate additional revenue. The master plan for the multiphase integrated downstream process plants aims at generating additional revenues and meeting corporate social responsibilities while at the same time improving compliance to statutory requirements and maintaining the sustainability of the palm oil industry, especially relevant to our overseas clients. The long term goal is to balance between the “wants and needs” in the Group’s effort to strive for sustainability by creating value through embracing opportunities and managing risks derived from economic, environmental and social demands. Underlining the importance of research in producing high quality planting material, the Group will construct a new purposebuilt R&D complex in Malaysia, scheduled to be ready by 2013. The new establishment will house the dedicated genome research. Along with other major players such as Sime Darby Plantation, Felda and Applied Agricultural Resources, the goal of the research is to develop biotechnological tools to support and complement our crop improvement and agronomic research programme, which encompasses oil palm breeding, tissue culture, pests and diseases, and agronomy. Kulim (Malaysia) Berhad (23370-V) 100 | annual report 2011 SEGMENT REVIEW S FOODS AND RESTAURANTS INDUSTRY ENVIRONMENT 2011 proved to be another resoundingly successful year for the Foods and Restaurants Division, despite international economic turbulence. QSR Brands Bhd (“QSR”) and its subsidiaries continued their programmes of restaurant expansion and image enhancement, always reaching out to new markets and strengthening the loyalty of existing customers. Innovative menu items were a feature throughout the year, giving people even more reason to stop by and try something different. annual report 2011 | 101 Kulim (Malaysia) Berhad (23370-V) Meanwhile, developing and retaining a skilled workforce remained a key priority, and QSR invested heavily in a broad range of training for its personnel. The KFCH International College also expanded further during the year, now spanning 2 campuses, and is positioned to provide the Foods and Restaurants organisation with excellent candidates for managerial roles. Kulim (Malaysia) Berhad (23370-V) 102 | annual report 2011 SEGMENT REVIEW FOODS AND RESTAURANTS (continued) RESULTS REVENUE 10.3 RM3.35 B % to from RM3.04 billion PROFIT BEFORE TAX % 1.1 RM269.9 M to from RM266.9 million QSR Group registered revenue of RM3.35 billion for 2011, representing an increase of 10.3% over RM3.04 billion in the corresponding period in 2010. Profit before tax increased marginally by 1.1% to RM269.9 million against RM266.9 million in the previous year. The combined sales of the Pizza Hut chains in Malaysia and Singapore grew by 7.9% to RM638.2 million, lifting their profit before tax by 18.3% to RM69.7 million. KFC Holdings (Malaysia) Bhd (“KFCH”) achieved revenue of RM2.80 billion representing growth of 11.1% over RM2.52 billion in 2010. However, profit before tax declined marginally by 2.8% to RM215.5 million from RM221.8 million in 2010. Specifically, the Group invested some RM104.2 million during the year in vital supply chain facilities, while its operations in KFC India and KFCH International College incurred initial start-up cost as they build the critical mass. As at December 2011, the total number of outlets operating under QSR’s brands Pizza Hut, KFC, Kedai Ayamas and RasaMas exceeded the 1,000 mark for the first time by growing to 1,063 units from 978 in 2010. OPERATIONS PERFORMANCE PIZZA HUT Malaysia and Singapore Pizza Hut Malaysia’s sales jumped 7.4% to RM441.9 million in 2011, thanks in part to the growing number of outlets. The year’s excellent performance reflected creative new products, promotional offers which exceeded their initial goals, joint marketing campaigns with corporate partners, and an increasing number of ways for customers to order Pizza Hut’s meals. 10 promotions were launched during the year, with new product releases tied to festive seasons. January opened with the launch of a new menu, while the Ring of Fortune Pizza marked Chinese New Year. In the shape of an old Chinese coin and topped with chargrilled chicken, capsicum and pineapple, this offering promised auspicious beginnings. The Ring of Fortune Pizza lived up to its name, generating 24% of all sales during the promotional period. The Pizza Hut Delivery (“PHD”) service commenced in 2011, offering its own promotions, menu and ordering mechanisms to busy customers. The separation of PHD from the dine-in business allows staff to focus on the needs and challenges unique to the delivery sector. Customers can, of course, order by telephone, but as of October 2011, they could order online as well. Delivery is free of charge, with a 30-minute delivery guarantee. The online ordering service got off to a promising start, accounting for 8% of all delivery orders. Pizza Hut Malaysia ended 2011 with 210 outlets, including 12 new openings and 3 closures. 10 outlets underwent image enhancement during the year, and Pizza Hut Kotaraya is currently closed for a major upgrade that will make it a flagship restaurant. 2011 brought QSR Group widespread recognition. Yum! presented Pizza Hut Malaysia with the Franchisee of the Year Award in the dine-in category, the People’s Choice Best Remodel Award, and the Best Advertising Award. BrandLaureate voted Pizza Hut the Best Brand in the Food & Beverage Pizza category, and Readers’ Digest presented us with their Trusted Brand Gold Award. annual report 2011 | 103 Kulim (Malaysia) Berhad (23370-V) and increase transaction counts. The KDS will be implemented in high sales volume restaurants in early 2012. A Self-Order Kiosk also succeeded in reducing queue time during its trial run at Wisma KFC. To keep the menu fresh, KFC introduced 8 new items during the year, each launched with a promotional event. Offerings such as the Fish Donut, Chicken Chop with Mushroom Gravy, Quarter Chicken with Black Pepper Sauce, Olé Pocketful, Tom Yum Crunch, Double Zinger Burger and Krushers with new flavours enticed customers craving new tastes. “YUM! PRESENTED PIZZA HUT MALAYSIA WITH THE FRANCHISEE OF THE YEAR AWARD IN THE DINE-IN CATEGORY, THE PEOPLE’S CHOICE BEST REMODEL AWARD, AND THE BEST ADVERTISING AWARD.” Net revenue achieved by Pizza Hut Singapore climbed 9.1% to RM196.3 million, an increase of RM16.4 million over 2010. This success was driven by strategic menu enhancements and attractive promotional campaigns. Pizza Hut Singapore celebrated the Chinese New Year festivities by launching a Prosperity Pizza in the shape of a golden Chinese coin topped with barbecued chicken and pineapple. This proved to be a successful start to the year’s special promotions. To honour the 30th Anniversary of our presence in Singapore, Pizza Hut rolled out a signature Pan Pizza and also introduced a host of new non-pizza menu items in April and May. The menu change was deemed one of the most successful campaigns of the year. Staying true to the promise of hot pizza delivery, the team introduced HOT Power technology, a battery pack that charges the heating elements in the pouch throughout the delivery to keep food piping hot all the way to the customer’s doorstep. A number of specifically targeted deals also gave the delivery segment a further boost. In September, the Cheesy Bite Treats, a great hit in 2010, returned for another limited time offer. Varieties included chicken sausage and three-cheese fillings, and nacho-flavoured cheese or Texan chicken toppings. This campaign contributed to our support for the World Hunger Relief Programme, with Pizza Hut donating RM2.40 for every Cheesy Bite Treat purchased. The fund-raising drive was a huge success, raising RM391,000, an increase of 77% over 2010’s donation. KFC Malaysia, Singapore and Brunei KFC Malaysia achieved revenue of RM1.66 billion last year, up 10.6% on the RM1.50 billion figure reported the year before. A combined effort to provide exciting new menu variations and attractive promotions drew customers into its outlets. Several projects were initiated during the year to increase operational efficiency, especially during peak hours. The Kitchen Display System (“KDS”) has proven to reduce queue length, improve operational efficiency A large number of promotions implemented throughout the year meant customers could always find something new and exciting, and several media channels were employed to keep them informed of the latest events. The year kicked off with a celebration to mark the opening of KFC’s 500th restaurant, and customers enjoyed the Celebration Combo which came with a limited edition 24-karat gold-inscribed Celebration Mug. Chinese New Year followed soon after, and the new Fish Donut made its debut. This was a very successful limited time offer, and accounted for about 10% of the total sales during the promotional period. KFC Malaysia operates a continuing programme of image enhancement for its outlets, and 18 restaurants were renovated last year. The expansion schedule to the network in 2011, added 24 new outlets and retained market dominance. KFC Singapore’s performance mirrored the healthy economy in early 2011, achieving a record high sales figure of RM409.1 million. This represented a RM40.5 million, or 11.0%, increase over 2010. The Chinese New Year celebrations featured the KFC Fortune Feast, a seasonal offering in a collectible bucket with a gift of complementary cushion covers. The Mandarin Orange Egg Tart – sold individually and in colourful boxes of 6 – was an inspired new variation on the classic Egg Tart. Kulim (Malaysia) Berhad (23370-V) 104 | annual report 2011 SEGMENT REVIEW FOODS AND RESTAURANTS (continued) was consistently in the public eye as the Brunei team established a busy calendar of product launches, activities and premiums. Customers were lured by new offerings such as the Fish Donut and Tom Yum Chicken, and corporate marketing partners collaborated on 10 various month-long promotions. Staff members also attended 9 different in-house training seminars throughout the year. 2 new in-line restaurants, 2 drive-throughs, and image enhancements for the KFC Berakas locations are all on KFC Brunei’s agenda for 2012. Cambodia and India The new ‘So Good’ marketing slogan made its debut in Singapore in February 2011, emphasising fresh ingredients and superlative preparation techniques. A series of special offers and a photography contest drew Singaporeans into the ‘So Good’ spirit. Product innovation was a strong draw in 2011. The Blueberry Pancake rejuvenated the KFC breakfast menu. The Ultimate Box launched in January, and the box meal line expanded further in April to include the Ultimate Roasta Box. Joining in the excited anticipation of the premiere of the ‘Transformers 3 – Dark of the Moon’ movie, KFC Singapore designed a new ‘big eat’ for Transformer fans with hearty appetites. In July, KFC Singapore introduced the Cheesy Crunch, a fusion of chicken and 2 cheeses, to popular acclaim. KFC Brunei’s revenue of nearly RM20.5 million represented an impressive gain of 25% over 2010, while the addition of 3 more restaurants brought the total to 12. KFC KFC Cambodia once again exceeded its previous performance, generating sales of RM12.5 million in 2011, a 9.5% increase over the RM11.4 revenue figure for 2010. KFC’s operations in the country faced a number of challenges in 2011, including increased chicken prices, high electricity and fuel costs, steep taxes on prepared food items, and a shortage of skilled workers. Nonetheless, the team devised a packed schedule of promotions, celebrations, contests and concerts to draw customers into KFC. ‘More Value, More Variety, More Choice’ was the year’s strategic message, and it proved a successful one. annual report 2011 | 105 Kulim (Malaysia) Berhad (23370-V) was an Official Partner in the 2011 ICC World Cup. The staff donned special tournament T-shirts, and customers took advantage of the limited-time offer of meals served in a cricket-themed Fan Bucket. The launch of the ‘So Good’ campaign in July 2011 resulted in doubled transactions. The menu expanded to include 12 different burgers, such as beef, fish and shrimp. The introduction of the new Value Chicken Burger selling at USD1 was the single most popular item, driving up sales in all outlets, especially in Siem Riep, where transactions soared by 70%. KFC sponsored a two-night concert to mark the birthday celebration of the King of Cambodia. The concert received tremendous support from loyal fans, and KFC is on the road to building the brand through music. Live music in some outlets on Friday nights continues to draw customers. The number of KFC Cambodia outlets held steady at 10 last year, which is still the highest count for any restaurant chain in the Kingdom. KFC India, with 13 outlets in Pune, Mumbai and Aurangabad, registered RM19.8 million in sales in 2011, its second year of operation. This is a stunning increase on 2010 sales of RM6.2 million. Promotions were successfully tailored for the local market and capitalising on the Indian passion for Cricket, KFC India Always mindful of attracting the more than 40% of Indians who are vegetarian, KFC launched 2 new meatless combos in August. The Veg Rizo Meal is flavourful rice and spicy gravy, served with 3 veg strips and a regular Pepsi. The Veg Zing Kong Box contained a spicy crunchy Veg Zinger, 3 veg strips, regular fries, a regular Pepsi and a chocolate. The September launch of the Fiery Grilled featured a unique combination of KFC’s signature spices grilled with the ‘steam roast’ technology in the combi oven. This offering, specially aimed at young working adults, accounted for 15% of total sales during the launch period. RASAMAS AND KEDAI AYAMAS 15 RasaMas outlets in Malaysia and Brunei were closed in 2011 as part of a consolidation initiative, resulting in lower sales of RM19 million, a 23% drop from 2010. RasaMas pursued an energetic marketing schedule using inventive tactics and varied media. A new menu attracted customers in February, and April saw a celebration of the brand’s ‘Typically Malaysian’ identity. The team redesigned the website, and over 10,000 visitors had checked in by July. Kulim (Malaysia) Berhad (23370-V) 106 | annual report 2011 SEGMENT REVIEW FOODS AND RESTAURANTS (continued) Kedai Ayamas, meanwhile, achieved a 41% leap in sales to RM77.7 million. The new Kedai Ayamas (Sabah) brought in an additional RM743,000. 26 new stores were opened in 2011, bringing the total to 75. Delivery service from 40 outlets in the Klang Valley and e-pay terminals in several branches now offer extra convenience. Among the most successful product launches in 2011 were the Percik, Auspicious and Spicy Siam Roasters, and corporate partners Digi and Bank Rakyat helped Kedai Ayamas to promote them far and wide. KFCH INTERNATIONAL COLLEGE The College’s enrollment currently stands at over 800 students on campuses in Puchong and Johor Bahru. It offers 9 diploma programmes in a variety of hospitalityrelated disciplines, as well as Early Childhood Education, Business Administration and Information Technology. During the year, the College achieved a revenue of RM4.3 million from its diploma programmes and a further RM325,675 from short courses. HALAL COMMITMENT QSR and its subsidiaries guarantee full halal compliance to customers in all of their markets. Every aspect of the food manufacturing processes, including raw materials procurement, preparation, packaging, storage and utensils follow strict controls. QSR pays keen attention to any products acquired from foreign suppliers, requiring that they be halal certified within the source country, and accepts only certificates recognised by the Department of Islamic Development Malaysia (“JAKIM”). The Group’s internal Shariah and Halal Department reports directly to the Shariah Advisory Council. The Department’s members foster increased awareness and understanding of halal among all stakeholders. They devise a wide range of activities to this end, including halal awareness training for all staff, halal audits of existing and prospective suppliers, and media campaigns for open discussion of halal beyond the boundaries of the Group. The Shariah and Halal Department is the front line for QSR’s steadfast commitment to halal. annual report 2011 | 107 PROSPECTS While celebrating 2011’s financial and operational success, the Foods and Restaurants Division is looking forward to greater progress next year. Though the global economic outlook still appears uncertain in view of the lingering debt crisis in Europe there are nascent signs of recovery in the US economy judging by the improving jobs market and corporate earnings released thus far. The positive data from US appears to outweigh the concerns in Europe at this moment and if sustainable will be pivotal to win back investors’ and consumers’ confidence in the global economy. Kulim (Malaysia) Berhad (23370-V) The Malaysian economy continued to be sustained by public spending under the Government’s Economic Transformation Programme (“ETP”) as well as by private capital spending. Coupled with incentives announced during the 2012 Budget, it is expected the domestic economy will achieve a GDP growth of 5% in 2012. The food sector is relatively resilient but it faces inflationary cost pressures. QSR expects profit margins to be tight and it plans to generate earnings by continuing to drive the topline aggressively through new and repeat customer purchases. The Foods and Restaurants Division will strive to develop and introduce new winning products, launch successful promotions that provide value to consumers, invest in new facilities and refurbish existing ones, and improve customer service and experience. QSR is also continuously seeking better cost efficiencies and improving productivity at all its business segments. The economies of the other markets where we operate such as Singapore, Brunei and India appear resilient with moderate GDP growth. The plan is to continue growing in these markets through sustained development and refurbishment of stores besides e xe c u t i n g o p e r a t i o n a l e xc e l l e n c e. Cambodia’s economy remains weak and the intention is to consolidate our position and improve operations by aligning menus and promotions in response to market dynamics. Kulim (Malaysia) Berhad (23370-V) 108 | annual report 2011 SEGMENT REVIEW INTRAPRENEUR VENTURES INTRODUCTION Despite challenging global financial conditions in 2011, the Malaysian economy expanded with growth being underpinned by domestic demand as exports increased at a more moderate pace. Federal Government development expenditure during the year was mostly channelled into the transportation, and trade and industry sectors. Crude oil prices rose worldwide because of political unrest and upheavals in the Middle East sustaining upstream exploration and benefiting the Intrapreneur Ventures (“IV”) Division’s shipping arm. Oil prices are likely to remain high and volatile as long as concerns about supply disruptions continue. annual report 2011 | 109 Kulim (Malaysia) Berhad (23370-V) The concept of an intrapreneurship scheme was first introduced to Kulim in 2005 as a novel market-driven approach to develop entrepreneurial talent amongst the Group’s employees. The recent acquisition of Sindora concluded in 2011 brought in an experienced well-seasoned management team that further strengthened the Group’s involvement in IV. The aim of the Division is to add diverse revenue streams by nurturing businesses that will evolve into future growth engines for the Group. The strategy looking ahead is to provide the seed funding, mentoring and operational support necessary to give each venture the greatest chance for success. Kulim (Malaysia) Berhad (23370-V) 110 | annual report 2011 SEGMENT REVIEW INTRAPRENEUR VENTURES (continued) OPERATIONAL REVIEWS AND PROSPECTS OF SELECTED KEY COMPANIES E.A. TECHNIQUE (M) SDN BHD Our involvement in the shipping business through EA Technique (M) Sdn Bhd (“EA Technique”) and Orkim Sdn Bhd (“Orkim”) has seen the Group emerge as a key player in the maritime sector and positioned as the second biggest shipping company in Malaysia in the clean petroleum product tanker category. Acquired in 2006, EA Technique has a paidup capital of RM44.04 million while Orkim, which was acquired in 2009, has a paid-up capital of RM37.60 million. Both companies operate in niche markets providing longterm charter contracts for the transportation of clean petroleum product and upstream exploration support for oil majors. In combination, the value of the contracts is worth more than RM1.4 billion. “THE COMMENDABLE PERFORMANCE THIS YEAR WAS ATTRIBUTABLE MAINLY TO THE GROWTH OF THE SHIPPING SEGMENT.” REVENUE % 35.5 RM396.62 M to from RM292.80 million OPERATING PROFIT % 224.6 RM42.94 M to from RM13.23 million FINANCIAL PERFORMANCE The Group’s IV Division recorded remarkable improvements in both revenue and operating profit. Revenue in 2011 increased by 35.5% to RM396.62 million from RM292.80 million in the previous financial year. Operating profit more than double to RM42.94 million from RM13.23 million. The commendable performance this year was attributable mainly to the growth of the shipping segment. Revenue rose to RM169.94 million from RM87.15 million in 2010, flowing from successful deliveries of 10 newly constructed vessels. Operating profit soared to RM37.47 million. All 10 newly constructed vessels entered long-term charter contracts with oil majors with staggered deliveries beginning in 2010 through to mid-2011. The full year contributions from these new vessels will be wholly appreciated in 2012. The IV portfolio’s other start-ups are in early stage investing, building prototypes and gathering feedback and data from their customers to build sustainable businesses. We will continue identifying promising startups for incubation and give them access to the resources needed to grow, prosper, improve earnings, add value, and maximise returns to shareholders. The Group also provides offshore support vessels and manages third party vessels. Currently, EA Technique provides 9 vessels for offshore support services that included 2 fast crew boats, 4 mooring boats, 2 harbour tugs and a security boat, while Orkim manages 2 vessels owned by a third party for an oil major. As at the end of 2011, the Group’s fleet of 28 owned vessels was comprised of 15 tankers, 6 mooring boats, 6 harbour tugs (of which 4 are under construction) and a security boat. The total carrying capacity today of more than 144,500 dwt marks an exponential increase from the 8 vessels with a combined 14,500 dwt carrying capacity when Sindora originally acquired EA Technique in late 2006. The biggest vessel owned by the Group, the 40,000 dwt MT Nautica Muar is temporarily operating uneconomically on a spot charter basis pending the securing of long-term charter contracts or a possible disposal or trade-in. The construction of the new tankers and disposals of ageing vessels have resulted in a much lower average age profile for the fleet and enabled the Group to position itself to seize opportunities in the shipping market. The IV Division’s shipping arm is set to expand its operations and emerge as one of the major players in the Malaysian maritime industry. annual report 2011 | 111 Kulim (Malaysia) Berhad (23370-V) JOHOR SHIPYARD AND ENGINEERING SDN BHD The establishment of our own shipbuilding and ship repair facility was critical to meet the maintenance scheduling of the Group’s fleet of 28 vessels in light of the difficulties experienced in booking slipways for repairs. The shipyard business has in fact the potential to become the main business enterprise of the Group considering that the high demand for ship repairing facilities is currently being met by a limited number of yards around the region. The shipyard project is currently handled by EA Technique’s wholly-owned subsidiary, Johor Shipyard and Engineering Sdn Bhd (“JSE”). JSE successfully constructed its first vessel the 5,500 dwt MT Nautica Johor Bahru (“MTN JB”) in 2008 at a leased site in Teluk Intan, Perak. With the experience gathered from the construction of MTN JB, JSE proceeded to build a larger vessel, the 10,000 dwt MTN Maharani, which entered into service in the second quarter of 2011. This vessel holds the record as the biggest double-hulled tanker built locally in Malaysian history. The successful voyages of MTN JB and MTN Maharani were important testaments to the expertise and ingenuity of the shipyard in building small and medium-sized seagoing vessels. JSE has identified a 10-acre site located at Hutan Melintang, Bagan Dato, Perak for its permanent shipyard base. Currently, JSE is preparing basic facilities for the shipyard that is expected to become fully operational by the end of 2012. The shipyard will be able to accommodate vessels of up to 10,000 dwt for construction or repair. To diversify revenues, the yard will also involve in steel fabrication for the offshore oil and gas industry. PRO OFFICE SOLUTIONS SDN BHD 2011 was a challenging year for Pro Office Solutions Sdn Bhd (“Pro Office”). In an extremely competitive business environment major clients imposed stringent requirements while expecting very competitive rates. Despite the demanding nature of the business, the company was able to consistently meet or exceed customers’ expectations and enhance its reputation as one of the top service providers in the country. This has led to a high level of customer loyalty and attracted other reputable clients. Pro Office is a Business Process Outsourcing (“BPO”) company that provides total solutions in the Data and Document Processing (“DDP”) industry. The company is principally involved in the provision of integrated outsourcing solutions in DDP to telecommunication companies, financial institutions, insurance companies and a number of government-linked agencies. DDP includes services that ranged from data extraction, conversion, formatting of documents to data printing and preparation of printed documents for distribution via post. Pro Office has also diversified its services to include other value-added services such as Mailroom Management, Direct Marketing, Handmail/Admail and Courier/Parcel Services. Due to the challenging economic environment, revenue declined 9.5% to RM30.4 million, margins were squeezed and profit declined to RM0.53 million, a disappointing fall from the profit of RM2.9 million recorded in 2010. During the year under review, the venture continued to provide services to renowned and reputable corporate and government entities. This role call is a testament to our clients’ confidence and satisfaction in the superior services provided by Pro Office. In line with the Group’s business exit strategy under its Intrapreneur Venture concept and in order to maximise returns and mitigate risks, Pro Office has been identified as a potential candidate company to be restructured and harvested. Meanwhile, Pro Office has taken steps to scale down its operations to improve efficiency and will relocate to more economical and cost effective offices. Kulim (Malaysia) Berhad (23370-V) 112 | annual report 2011 SEGMENT REVIEW INTRAPRENEUR VENTURES (continued) MICROWELL BIO SOLUTIONS SDN BHD Sindora’s involvement in the biotech sector, specifically in biofertilisers, is through the 60% equity acquisition of Microwell Bio Solutions Sdn Bhd (“Microwell”), concluded on 24 April 2010. Microwell is a biotechnology company with soil remediation and conditioning, crop protection and biofertiliser as its main areas of expertise. The company is involved in research and development and commercialisation of combinatorial technology of organic substances and micro-organisms for biotechnology products in agriculture, aquaculture and the environment. Micro-organisms in biofertilisers produce organic nutrients which are extremely efficient in enriching the soil and protecting the palms from harmful diseases such as Ganoderma, which is prevalent in oil palm plantations throughout Malaysia. Biofertilisers provide nitrogen and growth promoting substances such as hormones, organic acids and amino acids. The company has successfully formulated its own biofertilisers under the brand names GroAgro 1 – GroAgro 4, which are pending patent trademarks. Trial runs on the biofertilisers have been conducted for the past 2 years and the results have been promising. Microwell also provides technical advisory and consultancy such as assistance in Good Agriculture Practices, Good Manuring Practices, Clean Development Management projects, agro-biotechnology input formulation, market feasibility of innovative biotechnology products and organic farming. In 2011, the company registered a pre-tax profit of RM2.1 million on the back of revenue of RM11.1 million, a substantial increase from RM0.2 million pre-tax profit on RM4.9 million sales registered respectively in 2010. The company trades and imports biofertilisers from a manufacturer in Indonesia that uses Microwell’s own formulation. The Intrapreneur-Manager is the researcher who has the knowledge and know-how in formulating and producing the biofertilisers. The superiority of Microwell’s biofertiliser is expected to allow the Kulim Group the opportunity to substantially substitute KULIM NURSERY SDN BHD KNSB’s nurseries are strategically located around Johor to cater for the Group’s oil palm seedling offtake as well as for smallholders and other oil palm plantations. The nurseries have been certified with the “Oil Palm Nursery Competency Certificate” by the Malaysian Palm Oil Board (“MPOB”), a quality assurance that acknowledges the commitment by KNSB towards producing high quality seeds. KNSB is also certified with RSPO accreditation as well as ISO 14001. Kulim Nursery Sdn Bhd (“KNSB”), comprising the nursery, biocompost and landscaping businesses, doubled its sales to RM10.2 million, and registered a pre-tax profit of RM2.4 million which was 130% higher than in the previous year. The nursery and biocompost segments remain the stalwart businesses. Landscaping projects are commissioned and executed on a contract basis. The company’s market for ornamental plants, on the other hand, includes Government agencies, housing developers and individuals. The environmentally friendly biocompost organic fertiliser, produced from oil palm by-products, enriches the soil. KNSB’s plan for 2012 will include controlling operating costs, improving quality, expanding the market and increasing sales. chemical based fertilisers throughout its oil palm estates. In addition to its solutions to enhancing soil fertility and productivity, Microwell has started collaborating with several GLCs in researching and developing solutions to rectify other agronomic problems in order to widen its range of products and services. annual report 2011 | 113 Kulim (Malaysia) Berhad (23370-V) EXTREME EDGE SDN BHD Extreme Edge Sdn Bhd (“EESB”) is committed to becoming a premier information technology solution integrator and business performance enhancer, while recognising that it faces some established competitors in the ICT business landscape in Malaysia. EESB was incorporated on 1 January 2010. The Intrapreneur’s team consists of system engineers, application consultants, system analysts, application programmers and technical support engineers. EESB is a one-stop centre that provides various solutions from hardware to applications. The services include networking and communications, backup, recovery, and maintenance of hardware. The company also offers website design, development, hosting and management, advisory service and project management. Demonstrating determination and resilience, EESB registered revenue of RM6.9 million, a 97% increase over RM3.5 million in 2010. EESB improved its revenues by securing new contracts in both the private and Government sectors and sharpening its competitiveness through better operating efficiencies. Pretax profit was up by 27% to RM727,000. EESB plans to achieve its vision by greater specialisation of its products and services. EDARAN BADANG SDN BHD Edaran Badang Sdn Bhd (“EBSB”) is principally involved in the manufacturing and selling of a motorised three-wheeler named the Mechanical Buffalo, designed for the mechanised evacuation of FFB in oil palm estates, sold under the trademark of BADANG. EBSB also sells a motorised crawler that can manoeuvre on soft peat terrain. The successful penetration into new markets, especially in Sabah, saw sales improve to 371 units in 2011 compared to 201 units in the prior year. In the year under review, EBSB registered a creditable performance with an increase of revenue by 64% to RM24.4 million from RM15.0 million in 2010. The company achieved a handsome pre-tax profit of RM1.84 million compared to a loss of RM0.18 million in previous year. Sales of the Mechanical Buffalo and spare parts are expected to increase in the coming year with more demand coming from Sabah for these versatile and labour saving agricultural machines. Machinery sales are increasingly being supplemented by stable and recurring income from the supply of agricultural tools and equipment, Personnel Protective Equipment (“PPE”), and machinery spare parts for oil palm plantations. EBSB is set to further expand its horizons in 2012 by supplying fertiliser and chemicals and also offer palm oil mill maintenance and fabrication works via its 2 subsidiary companies, Perfect Synergy Trading Sdn Bhd and Optimum Status Sdn Bhd. SECTION 5: SUSTAINABILITY 116 122 128 136 PART I: KULIM’S SUSTAINABILITY IN CONTEXT • POLICY FRAMEWORK • POLICY, STRATEGY AND MANAGEMENT SYSTEM • STAKEHOLDERS ENGAGEMENT • COMMITMENTS AND TARGETS PART II: ENVIRONMENTAL PERFORMANCE • PROTECTING AND CONSERVING BIODIVERSITY • WATER CONSERVATION • ADDRESSING CLIMATE CHANGE ISSUES PART III: SOCIAL PERFORMANCE • LABOUR STANDARDS • EMPLOYEES RETENTION • OCCUPATIONAL HEALTH AND SAFETY • EMPOWERING WOMEN • COMMUNITY AND ECONOMIC CONTRIBUTIONS PART IV: DOING OUR PART FOR THE PALM OIL SUPPLY CHAIN E OUR ETHICAL BUSINESS CONDUCTS ARE A CULMINATION OF MANAGEMENT PRACTICES THAT ESPOUSE TRANSPARENCY AND ACCOUNTABILITY UNDERLYING OUR COMMITMENT TO EMBRACE THE TRUE SPIRIT OF CORPORATE RESPONSIBILITY IS OUR PLEDGE TO UPHOLD THE HIGHEST STANDARDS OF ETHICS, INTEGRITY AND PROFESSIONALISM. ETHICS IS OUR CORE VALUE AND EMBEDDED AT THE HEART OF OUR BUSINESS AS CLEARLY SET OUT IN OUR ETHICS POLICY, TO GUIDE ALL OUR ACTIVITIES AND CONDUCTS. Kulim (Malaysia) Berhad (23370-V) 116 | annual report 2011 Part I: Kulim’s Sustainability in Context POLICY FRAMEWORK We integrate our business strategy with sustainability through a commitment to People, Planet and Profit (“3Ps”). The 3Ps govern how we create sustainable value for all our stakeholders. To meet our goals and deliver the sustainable returns expected of us, we embrace a deep commitment towards building a fair, ethical and responsible company. This sits at the heart of our sustainability approach and structures our relationships with our stakeholders and the operating environment. annual report 2011 | 117 Kulim (Malaysia) Berhad (23370-V) CORPORATE VISION AND MISSION SUSTAINABILITY POLICY PEOPLE PLANET PROFIT People Policy Environmental Policy Business Policy Core Labour Standards Malaysian Palm Oil Association Environmental Charter Ethics Policy OSH Policy Social Contributions Workplace Drug Policy Profits with Responsibility HIV/AIDS Policy Fraud Policy Sexual Harassment Policy Quality Policies for Estates and Mills Grievance Procedure Production Charter (30:30) POLICY, STRATEGY AND MANAGEMENT SYSTEM POLICY Kulim embraces the principles of sustainable development and the Company’s goal is to ensure that future generations will continue to benefit from today’s actions. Kulim defines sustainable development as encompassing social responsibility, r e s o u r c e s t e w a r d s h i p, a p p r o p r i a t e environmental control and the capacity to produce efficiently. The goal of sustainable development will be achieved by balancing the considerations for People, Planet and Profit in all management decisions and operations. Kulim is acutely conscious of its varied responsibilities in respect to People, Planet and Profit. Kulim is committed to continuous improvement of its performance. The implementation of a Sustainable Management System (“SMS”) will provide the framework to realise these goals. The SMS will be wholly based on the principles and criteria set out by the RSPO. Kulim will maintain a safe, healthy and viable working environment and conduct all operations in a manner consistent with its SMS framework. Kulim will operate in compliance with all applicable national and international legislation and ensure that long term economic viability does not compromise its ethical and business policies. Kulim is committed to investing in the development as well as advancement of its employees and will, through training improve knowledge, skills and competency, in order to enhance performance, processes and career. Kulim is committed to ensuring that land management practices are consistent with the long-term productivity of the resource, so that the land remains suitable for agricultural use. Kulim will not undertake new developments in areas of primary forest or on land containing one or more High Conservation Value (“HCV”). Land development undertaken by the Company takes into account the maintenance of biodiversity, protection of cultural heritage and customary land use, and the capability of the land to sustain the proposed agricultural activities. Kulim upholds the principles of free, prior and informed consent and undertakes to use this principle in all negotiations and interactions with stakeholders. Kulim will continue to be a responsible c o r p o r a t e c i t i z e n , m a k i n g p o s i t i ve contribution to the communities within which it operates. Kulim conduc ts its operations in a transparent manner and complies with all relevant legislation in the countries it operates in. By implementing the principles of the RSPO, Kulim is adopting a planned approach to achieve the balance between People, Planet and Profit. Kulim believes that this approach is the safest, most efficient and socially and environmentally responsible way of operating sustainably. Kulim (Malaysia) Berhad (23370-V) 118 | annual report 2011 SUSTAINABILITY Part I: Kulim’s Sustainability in Context (continued) People Profit In order to ensure and establish a sustainable social development in Kulim that addresses social stability, security and equality, various social considerations are factored in, such as: In order to remain competitive whilst adhering to sustainable practices, corporate efficiency through compliance efforts will enable Kulim to deliver value to all our stakeholders – shareholders, partners, employees and the public. • Opportunities for education and training; • Health and availability of medical services; • Commitment to transparency; • Human rights and equal opportunities; • Compliance with applicable laws and regulations; and • Crime and social disorder levels; and • Housing provisions and quality. Our corporate philosophy enables us to provide: • Commitment to long-term economic and financial viability. Planet Strategy In ensuring environmental sustainability, various factors are assessed and deliberated. Issues that need to be addressed and highlighted include: Sustainability is central to our business strategy and stakeholders’ concerns are key inputs in mapping out the corporate strategy. We believe active stakeholder engagement will highlight potential risks or opportunities for our business. Commitment to continuous improvement in key areas of activity; • Infrastructure analysis to ensure proper, sustainable procedures are implemented; • Environmental responsibility and conservation of natural resources and biodiversity; • Life cycle analysis to quantify the use of materials and energy as well as environmental interaction of products and processes; • Responsible development of new plantings; • Research & Development (“R&D”) – product design, process improvement and recycling methods for greater sustainability; • Use of appropriate best practices by growers and millers; and • Responsible consideration of employees and of individuals and communities affected by plantations (growers) and mills. The top 3 material issues that are significant to our stakeholders and our organisation are: • the use of chemicals such as paraquat, herbicides and pesticides in our estates; • the amount of water used for our estates and mills; and • health and safety standards in the workplace. MATERIALITY MATRIX RSPO premium Ethnic diversity High Stakeholder Concerns / Support Company Values • We prioritise our issues by developing a “materiality matrix.” This approach combines the findings from our stakeholder engagements with our organisational priorities. In 2008 our senior management team developed the matrix based on the prevailing stakeholders’ concerns, complemented by other management tools such as social impact assessments and regulatory frameworks. We have since updated the “materiality matrix” to reflect current realities and concerns in this Annual Report. Environment rehabilitation Biodiversity Waste management Worker unions Chemicals Water Health and safety Climate change Foreign workers Gender diversity Agricultural productivity Employee development Talent attraction Smallholder Sand mining Community and workers’ lives Air pollution Practices in the marketplace Good Agricultural Practices Business Risk / Opportunity annual report 2011 | 119 MANAGEMENT SYSTEMS Certification – RSPO Our overall sustainability management system is guided by the Principle and Criteria (“P&C”) developed by the multistakeholder initiative, the RSPO. The standard’s international credibility and commitment to stakeholder inclusion makes the certification credible and robust, though there are always opportunities for improvement. We believe that this standard represents the most responsible way to grow oil palm. The RSPO P&C provides a robust framework to articulate issues fundamental to us. These issues include stakeholder engagement and value creation for the larger society. We achieved the RSPO certification for all our estates in January 2009 and were one of the first palm oil companies to strive for the RSPO certification globally. Our second annual surveillance audit in March 2011 included the relatively new estate, Sungai Tawing Estate. This new estate was acquired by exchanging one of our small estates with another plantation company in August 2009. Kulim (Malaysia) Berhad (23370-V) As part of a bigger supply chain that extends to the end consumer, we are working with our customers, mainly the refineries, to implement the RSPO mechanism for traceability – the Mass Balance and the Green Palm Book and Claim system. As one of the first few palm oil companies RSPO certified globally, we continue to manage our social and environmental risks in accordance with the guidelines developed by the RSPO. For us, the adaptation of RSPO P&C is also connected to Islamic teachings which focus on value creation, sustainable use of biodiversity and engagement of stakeholders. Sustainability and Quality Council In 2010, we consolidated the structure of our Corporate Responsibility (“CR”) governance through the launch of the Sustainability and Quality Council (“SQC”). The role of the SQC is to oversee our CR strategy and activities on behalf of the Board. The SQC has established a Company wide data collection system for monitoring and reporting against agreed matrix. The Council also ensures that our day-to-day business operations respond to the opportunities and avoid the risks posed by sustainability issues. To do this, the SQC challenges the Management to assess and control risks while developing programmes to capitalise on opportunities. The SQC uses targets to monitor the performance in achieving these tasks and co-ordinates sustainability initiatives across departments. The SQC has prioritised employee engagement, including HIV and sexual harassment awareness, work-life balance and capacity building as areas of priority. This is based on the belief that employees at all levels form the backbone of our Company and there is a need to embed a sense of ownership amongst them. Audits and Assessments We take pride in our integrated management and agricultural practices. The framework is set in motion by systematic guidelines and operating procedures. Our Internal Audit Department oversees and reviews all processes and procedures. Our environmental performance is guided by the ISO 14001 framework. All our Papua New Guinea operations (except newly acquired areas) and 1 of our mills and 2 of our estates in Malaysia have been certified to this standard. Under the ISO 14001 framework, mills and estates are to implement environmental policies with third party certification. The framework was also used as a basis for implementing the RSPO Principles and Criteria. Our social impact assessments are framed around the SA8000 standard – the leading international standard on labour conditions. We have also adopted the methodologies of the Occupational Safety and Health Administration (“OSHA”) to measure and manage our health and safety performance as well as using the human rights-based concept of Free, Prior and Informed Consent (“FPIC”) in our dealings with communities and land rights. We c a r r y o u t o n g o i n g S o c i a l I m p a c t Assessments (“SIA”) based on Principle 6 of the RSPO Principles and Criteria as well as SA8000 (established by Social Accountability International). SIA incorporates interviews with workers, dependents and local communities, and forms the basis of improvement plans for all areas identified as common complaints, or areas which are considered high risk in terms of impact or legal compliance. Kulim (Malaysia) Berhad (23370-V) 120 | annual report 2011 SUSTAINABILITY Part I: Kulim’s Sustainability in Context (continued) International Standards In addition to the RSPO P&C, we adhere to other frameworks which form the basis of the current sustainability management systems. These frameworks include ISO14001 Environmental Standard and SA8000 Labour Standards. We are also looking at to embark on the International Sustainability and Carbon Certification (“ISCC”). On the environmental front, we have 1 mill and 2 estates which have attained the ISO 14001 certification. The ISO 14001 provides a framework for a strategic approach to our environmental policy, plans and actions. As for biodiversity-related framework, while there is no presence of High Conservation Values (“HCV”) in our estates, we have developed HCV management plans and toolkits with the help of our partners, to manage biodiversity issues such as human-wildlife conflicts due to our proximity to national parks. As for our social issues, our social impact assessments for the local communities adopt the SA8000 framework, a global social accountability standard for decent working conditions. We have also adopted methodologies of the Occupational Safety and Health Administration (“OSHA”) to measure and manage our health and safety performance. We embrace the concept of Free, Prior and Informed Consent (“FPIC”) in our dealings with communities and land rights, which is based on the principle of human rights. We have recently adopted the ISCC certification standards. The ISCC certification standard is for biomass and bioenergy and meets the Renewable Energy Directive of the European Union. We plan to complete the ISCC certification by 2012 and start the sale of ISCC-certified oil in January 2013. STAKEHOLDERS ENGAGEMENT Stakeholders engagement is crucial to sustainability and organisational success. Stakeholder engagement enhances accountability by allowing an organisation to identify, understand and respond to sustainability issues – a valuable tool to better manage our risks and identify opportunities. It is also an excellent avenue to tap into expertise and existing networks. Most importantly, it enables us to develop trust and transparency in our relationship with the stakeholders. STAKEHOLDER GROUP ISSUE METHOD Employees a. Talent retention b. Employee development Ongoing dialogues, annual surveys and workshops Workers a. Labour policy and workers’ lives Annual Social Impact b. Occupational Health and Safety Assessments (“SIAs”) Quarterly OSH committee meeting OUTCOME Feedback from employee climate survey was incorporated into our strategies for employee retention and attraction. Improved workers’ welfare and housing. Created a safe working environment. Non-Governmental a. Biodiversity loss Organisations b. Climate change c. Environment rehabilitation d. Good Agricultural Practices Partnerships, annual multistakeholder forums and ongoing joint projects Investment Community Investor relations initiative, benefits and drives Ongoing meetings, road shows Incorporated sustainability issues into our investor and conference calls relations communications strategy. Industry Bodies a. b. c. d. e. f. g. Outgrowers Commitment to certify 100% of the crops processed by our mills. Annual SIA, public meetings, Pilot project with a controlled group of smallholders workshops, individual meetings to implement outgrower certification. Customers a. Supply chain certification b. Customer survey Ongoing joint ventures and meetings Member of the Malaysian Nature Society Chemicals Annual multi-stakeholder Water usage initiative – Roundtable on Occupational Health and Safety Sustainable Palm Oil (“RSPO”) Climate Change Biodiversity loss Community and workers’ lives Good Agricultural Practices a. Tree Pledge for Wild Asia Natural Corridor Programme. b. Established the Kulim Wildlife Defenders to prevent poaching and at the same time providing educational support for wildlife conservation. c. Human/wildlife conflict management project with Wildlife Conservation Society (“WCS”) Programme. Kulim was one of the first growers to be certified by RSPO globally. Our Certified Sustainable Palm Oil (“CSPO”) is sold to our buyers via the Mass Balance and Green Palm Book and Claim Traceability Mechanisms. annual report 2011 | 121 Kulim (Malaysia) Berhad (23370-V) COMMITMENTS AND TARGETS – MALAYSIA PLANTATIONS TARGET TARGET DATE (YEAR-END)* STATUS AS AT 31 DECEMBER 2011 People Establish a gender committee to promote diversity and address genderrelated issues 2009 Achieved Rollout of identity card programme to all foreign workers 2011 Revised 100% of external fruit to be certified 2011 2013 – revised Reduce lost time accident rate to 10 Maintain 2009’s performance Achieved – 5.8 Reduce severity rate to 3.5 2009 Not achieved - 4 Zero fatalities 2009 Not achieved - 1 No breaches of excessive overtime Maintain 2009’s performance Not achieved Assist Johor Corporation-owned estates in achieving RSPO certification 2010 Achieved Reduce herbicide usage by 10% (base year FY2009) 2020 Achieved – reduction by 30% Reduce paraquat usage by 10% (base year FY2009) 2020 Achieved – reduction by 30% Reduce water usage to 0.7 tonnes per tonne of FFB (base year FY2009) 2011 Not achieved – 0.94 tonnes CDM projects launched for all 3 mills 2011 Launched at 1 mill CO2 equivalents reduced by 90% 2011 Not achieved No increase in peat development 2009 Achieved No development in land containing one or more High Conservation Values 2009 Achieved No penalties for environment-related incidents 2009 Achieved Carbon footprint for the whole Group 2013 In progress Achieve average FFB yield per hectare of 30 tonnes 2013 In progress Achieve average combined palm product extraction rate of 30% 2013 In progress ISCC certification 2013 In progress Planet Profit * Where target is an ongoing commitment or has already been achieved, the date denotes next status reporting. Kulim (Malaysia) Berhad (23370-V) 122 | annual report 2011 Part II: Environmental Performance PROTECTING AND CONSERVING BIODIVERSITY In 2009, we commissioned detailed surveys to assess the state of the flora and fauna present in and around our estates. Since our last report, the majority of the IUCN Red-listed mammals are in a more precarious state, except for the Southern Pig-tailed Macaque. We recognise our critical role to address this issue, as our plantation operation in Johor borders an important national park, the Endau-Rompin National Park in the southern part of Peninsular Malaysia. This is factored into the strategy for our biodiversity initiatives. annual report 2011 | 123 Kulim (Malaysia) Berhad (23370-V) Our broad approach is underlined by the precautionary principle for unplanted areas, complemented by High Conservation Value (“HCV”) management tools. Our strategy for biodiversity is largely aimed at enhancing or improving biodiverse areas or mitigating the negative impacts on biodiversity. We are strengthening our internal monitoring and control mechanisms, as well as working very closely with our Non-Governmental Organisation (“NGO”) partners to provide the additional resources. PRIMARY FOREST Kulim Wildlife Defenders to safeguard against illegal poaching Buffer zone to mitigate negative impacts from agricultural practices OIL PALM Enhance remaining forest patches within our estates Initiatives to mitigate negative impacts to the environment by our agricultural practices, especially to minimise human-animal conflict UTILISING HCV TOOLS In 2011, we commissioned a birds and bats survey on major water bodies in respective recommended estates by the Rapid Biodiversity Assessment (“RBA”) Report. The survey is mainly to identify and understand the areas of high interest for the seasonal East Asian – Australasian Flyway migratory route as the area may play an important role for these migratory birds’ species that has implications to our replanting planning and management. On the other hand, bats in plantations are normally potential pollinator agent and biological insect controller, at the same its existence is an indicator for forest health around our plantation. ENHANCING POTENTIAL BIODIVERSE AREAS Although our estates do not contain HCVs, we have started a process of planting trees to enhance the small areas of vegetation within our estates. All remaining forested areas within the estates are managed for development into full-fledged HCV forests or preparation for biological corridors. All estates have to identify and demarcate their buffer zone area with white and blue peg stands, especially in the areas designated for replanting. We have 61 hectares of buffer zone and 44 hectares of jungle patch in our estate. MITIGATING IMPACTS We have several initiatives to mitigate our negative impacts on the environment, especially in view of the updated IUCN Red List, including working on managing the human-wildlife conflict. All our estates are required to provide a regular update on the species found in and around the estates, and track incidents of wildlife encroachment, particularly elephants. We have buffer zones around major water bodies in or around the estates and the national park. We conduct regular Rapid Biodiversity Monitoring in these buffer zones. All the estate managers have to update their buffer zone mapping twice yearly. Kulim (Malaysia) Berhad (23370-V) 124 | annual report 2011 SUSTAINABILITY Part II: Environmental Performance (continued) To minimise soil erosion, we re-aligned our roads and constructed silt traps in our drains. We made sure that there are buffer zones around the major water bodies and that replanting is done in stages, with never more than one side exposed to the replanting process at any given time. Within the estates, we have a Conservation Policy that prohibits hunting, fishing and taking of fauna within the estate and adjacent areas. According to our second RSPO surveillance report by our auditor, field inspections and interviews confirmed that employees and contractors are aware of our Conservation Policy. STRENGTHENING MONITORING AND CONTROL Since 2009, we have had in place an environmental unit within the Sustainability and Quality Department to analyse wildlife data and communicate with estates on outcomes and results of our studies on biodiversity. We have programmes for ongoing training as well. We conducted a programme in 2010 and 2011 entitled ‘Biodiversity for Busy Managers’ to enhance the estate managers’ understanding of conservation and the importance of the biodiversity improvement programme. WORKING BEYOND OUR ESTATES We understand that one company’s effort at mitigation is not enough; we need to push beyond our Company boundaries. As neighbours to the Endau-Rompin National Park, we work with Wildlife Conservation Society (“WCS”) Johor, Malaysia to mitigate human-wildlife conflicts, in particular, elephants, for our recently acquired Sungai Tawing Estate. We work with WCS to protect the areas with HCVs adjacent to our estates too. Together with the Johor National Parks Corporation, the Wildlife Department, the Forestry Department and the police force, the Johor Wildlife Conservation Project aims to eliminate poaching through intervention and enforcement, by protecting the boundary of the forest reserves adjacent to our estates. These forest reserves are linked to the national parks. Selected security guards are trained in techniques for vehicle inspections and the use of GPS (Global Positioning System) for recording the locations of animal sightings and poaching incidents during patrols. These security guards are known as Kulim Wildlife Defenders within the Company. Going forward, we hope to register the Kulim Wildlife Defenders as registered NGO. We have also worked with Wild Asia on the Natural Corridor Initiative. This initiative aims to provide green corridors to link natural habitats separated by humanmodified landscapes, thereby increasing the functional space for wildlife. Lastly, we reported on a possible project in 2009 to acquire a neighbouring (degraded) forest area and provide a breeding site for the Rhinoceros Hornbill, as well as restore linkages with other forest patches within the estate. However, we regret to note that the area has already been acquired by other estates and planted with crops. annual report 2011 | 125 WATER CONSERVATION Our updated materiality matrix has shown that water usage in the estates and mills and the risk of water contamination by chemicals continued to be the top issues raised by our stakeholders. Clean water is critical to our business. Most importantly, it is fundamental to life on this planet. Our stakeholders are concerned that this precious resource faces significant challenges in estates such as environmental degradation and the impacts from climate change. We need to manage the use of water from the natural water bodies responsibly and to prevent chemicals and soil particles from contaminating the water sources. We are glad to note that each of our mills achieved significant reductions in water usage. For example, our Sedenak Mill has reduced average annual water usage from 1.02 tonnes per tonne FFB in 2010 to 0.94 tonnes per tonne FFB in 2011. The initiatives to reduce water usage include restricting the use of water for cleaning mill floors. As the main source of water for the mills comes Kulim (Malaysia) Berhad (23370-V) from local rivers, the continued reduction in water usage can reduce our reliance on the local rivers. As for our estates, we do not use much water due to the abundant rainfall in this region, which provides water for the trees. Only a small amount of water is used to maintain our nurseries. PREVENTING ERODED SOIL PARTICLES FROM GETTING INTO THE NATURAL WATERWAYS There is still a risk of contamination in the natural waterways due to soil erosion. As part of our standard operating practice, we use fast-growing leguminous cover crops to prevent eroded soil particles from polluting the water bodies, most importantly to prevent the erosion of the valuable topsoil. Moreover, we refrain from using synthetic fertilisers to avoid pollution from heavy metals. We utilise organic fertilisers such as Empty Fruit Bunch (“EFB”) produced after milling, whenever possible. Another example of an organic fertiliser is the Palm Oil Mill Effluent (“POME”) from our mills. The effluent is first treated before being recycled as fertiliser for our fields, in a process known as land application. The effluent for land application is measured by the level of Biological Oxygen Demand (“BOD”). The average BOD for our 3 mills decreased from 292 ppm in 2009 to 261 ppm in 2011. Kulim (Malaysia) Berhad (23370-V) 126 | annual report 2011 SUSTAINABILITY Part II: Environmental Performance (continued) USE OF HERBICIDE AND PARAQUAT (Active ingredients in litre/hectare) 2.00 0.07 2.0 0.064 0.06 1.5 0.05 1.34 1.37 0.04 0.04 0.041 1.0 0.03 0.03 0.72 0.84 0.02 0.02 0.5 0.01 0 0.00 2007 2008 2009 Paraquat 2010 2011 Herbicide BOD LEVELS (ppm) 500 485 400 292 300 298 262 261 200 100 0 2007 2008 2009 2010 2011 WATER USAGE PER TONNE FFB (Tonnes Per Tonne FFB)* 2.0 1.79 1.5 1.07 1.0 1.02 0.92 0.94 0.5 0 2007 2008 2009 2010 2011 * Mills only. Figures do not cover irrigation in estates and nurseries. REDUCING USAGE OF CHEMICALS – PESTICIDES AND HERBICIDES Another source of potential waterway contaminants is chemicals such as pesticides and herbicides. We seek actively to find biological alternatives for chemical pesticides, whenever possible. The Integrated Pest Management (“IPM”) techniques are central to our operations, as IPM techniques are responsible for managing the issues of pests, diseases, weeds and invasive introduced species and for minimising the use of pesticides. The use of chemical control is considered only as a last resort when all biological methods fail. For example, barn owls have been introduced at each estate to control the rat population. Paraquat is used in small doses to treat young palms. We have reduced our use of paraquat from 0.041 in 2009 to 0.030 in 2011 (active ingredients in litre per hectare), in line with our 10% reduction target, based on 2009 figures. We ensure that those who handle, store, use, spread or dispose of any chemical that could pollute the water, soil or air are aware of their responsibilities. We also collaborated with the Malaysian Croplife and Public Health Association and Department of Agriculture (Malaysia), in an initiative known as ‘Empty Pesticides Containers Recycling Programme’. MINIMISING SOLID WASTE All the solid waste output from our mills is used in line with standard operating procedure within the industry. The EFB are used as biocompost for our estates. The fibre and shell are used as biomass for our mills. Burning the biomass generates a small amount of boiler ash, which can be used for reducing acidity in soil. We do generate a small amount of hazardous waste that is transported to designated public facilities by an authorised agent. annual report 2011 | 127 Kulim (Malaysia) Berhad (23370-V) ADDRESSING CLIMATE CHANGE ISSUES We believe that climate change constitutes the most significant environmental threat to livelihoods and the environment, and we believe that any sustainable business must contribute to reducing greenhouse gas (“GHG”) emissions. We support the initiative by the Malaysian Government to reduce GHG emissions by up to 40% by 2020, as well as the recommendations of the RSPO GHG2 Working Group’s recommendations to incorporate GHG emission reduction requirements into the RSPO Principles and Criteria. We cannot tackle climate change alone, so we will work in partnership with peers and stakeholders. We hope to learn from others and develop our own initiatives to provide inspiration and guidance to our industry and beyond. The following presents a system boundary of the GHG balance calculation and illustrates the sources of emissions, based on the RSPO GHG calculator for oil palm products. The RSPO GHG calculator is a harmonised framework that is compatible with international GHG accounting methodologies such as IPCC and ISCC, which are the applicable standards for the sustainable palm oil industry. INTERNATIONAL SUSTAINABILITY AND CARBON CERTIFICATION We plan to work towards the publication of a full carbon footprint of our operations and will also be moving towards ISCC certification. It is one of the certification standards for biomass and bioenergy which meets Europe’s Renewable Energy Directive. We plan to complete the ISCC certification by 2012 and start the sale of ISCC-certified oil in January 2013. CO2 EQUIVALENT PER TONNE FFB (Tonnes) 0.2 0.19 0.18 0.16 Emissions due to land clearing (loss of stored carbon in the biomass) – Emissions vary greatly, depending on previous land use, but can constitute 60-70% of all emissions. As we have no plan for expansion or land conversion, our operations do not have a significant impact, although we do recognise that any carbon footprint would take into account the original land type. INPUT Emissions avoided by carbon sequestration in the palm biomass. Emissions due to fuel combustion. Emissions avoided by excess energy production - as with the standard operating practices in the industry, all power generation in the mills is based on biomass, (shell and fibre) with only a small volume of diesel used for back-up generators. OUTPUT Allocation of environmental burden between CPO and PK. Emissions due to peatland cultivation - these represent a significant source of GHG emissions. We have a small portion of peat within the cultivated area – 1,380 hectares (slightly over 1% of our cultivated land). This land was cultivated in 1999-2002 and the total area has remained unchanged since. We are mindful of the need for a continued responsible management of this area, via effective water table management – the best way to prevent additional GHG emissions. Emissions due to harvesting and collection of the fruits (fuel combustion during collection and transport of fruits to mills). Emissions due to POME treatment, including possible avoidance through methane capture - capturing the methane gas that arises from the mill effluent – a potent form of GHG – and to use the captured gas as fuel to generate electricity. We are working on methane capture projects to mitigate the production of methane by about 90%. These projects are classified as a Clean Development Mechanism (“CDM”) defined by the United Nations’ Kyoto Protocol. We have launched CDM projects at one of our mills. 0.16 0.10 0.05 0 Emissions due to the transport and use of fertilisers. 0.16 0.15 2007 2008 2009 2010 2011 Kulim (Malaysia) Berhad (23370-V) 128 | annual report 2011 Part III: Social Performance LABOUR STANDARDS Our fundamental guiding principle is that all employees – including workers – must be treated equally, fairly and with respect. Our labour policy is based on the International Labour Organisation (“ILO”) Declaration on Fundamental Principles and Rights at Work, covering the core labour standards on the rights to collective bargaining, the elimination of forced or compulsory labour, the abolition of child labour as well as the elimination of discrimination in respect of employment and occupation. A highly motivated and productive workforce is critical to our business. While our earlier work aimed at improving the welfare and housing of our workers, we are now focusing on end-of-career training and contributing to fulfilling, active and decent retirement for our workers. annual report 2011 | 129 We have 5,206 full-time employees in Malaysia as at 31 December 2011, of which 4,443 (85.3%) are categorised as workers. Our workers are predominantly from Indonesia. Kulim (Malaysia) Berhad (23370-V) created vast discomfort. Other problems included the lack of transport for workers to get to their work site and the practice of open burning of rubbish – a safety hazard. We are currently working on measures to mitigate these issues. MONITORING AND CONTROL We conduc t Internal Social Impac t Assessments (“SIA”) based on the SA8000 Labour Standards to manage our social performance. This is also done as part of our commitment to the RSPO. The SIAs help us to identify corrective actions in areas where these standards were compromised. Our updated SIAs in 2011 revealed workers’ concerns such as presence of dogs and bats in the workers’ residential areas, which WORKERS’ WAGE RATE Although there is no legal minimum wage in Malaysia, there are recommended rates by the Malaysian Agricultural Producers Association (“MAPA”) and the National Union of Plantation Workers (“NUPW”). Our workers receive above the current MAPA/ NUPW rate. Eligible workers are also entitled to a special gratuitous payment of RM200 per month, as part of a voluntary code recommended by the MAPA council. WORKERS’ UNION There is a local committee consisting of union representatives elected by members at each mill and estate. While 1,334 employees or 26% of our employees are union members (as at 31 December 2011), all workers including foreign workers, are covered by a collective bargaining agreement. NON-DISCRIMINATION We recognise value of diversity and the benefits of a diverse workforce. We practise non-discrimination towards women, ethnic or religious minorities and foreign workers. We have equal pay for equal work for all field, office and management staff based on predefined grades. In addition, we have guidelines on HIV/ AIDS. Workers who have the disease are guaranteed confidentiality and retained in employment as long as they are Kulim (Malaysia) Berhad (23370-V) 130 | annual report 2011 SUSTAINABILITY Part III: Social Performance (continued) healthy and able to perform. This policy is institutionalised in our Sustainability Handbook for employees and the Foreign Workers Handbook for our workers. During the induction of foreign workers, an interpreter (usually a senior worker from respective nationality) will explain the terms to the workers. OVERTIME Overtime is a prioritised social issue and was mentioned in our earlier Sustainability Reports. During peak crop season, mill workers tend to work long hours to ensure the fruits are processed before the quality deteriorates. To manage the number of hours worked in the interests of the workers, the departmental heads have to update the mill manager weekly on overtime and adhere to the Department of Labour’s guidelines on monthly overtime limits. We regret to note that our target for zero excessive overtime is yet to be achieved. The overtime cases are due to isolated individuals, not the entire workforce. We are working with the specific cases on this issue. ADDRESSING THE ISSUE OF FOREIGN WORKERS IN MALAYSIA Our industry is highly dependent upon labour, especially non-Malaysian workers. As foreign workers comprise the majority of our labour force, we provide induction programmes to ensure that these workers understand their rights, entitlements and responsibilities. We provide all our workers with an individual copy of the Foreign Workers Handbook. HOUSING The earlier SIA identified issues regarding the availability and quality of housing, particularly for new workers. In response, we are upgrading housing facilities and constructing new houses. In general, there are 4 workers in 2-bedroom 48m2 quarters or 3-bedroom quarters. Moving forward, we have a 5-year plan that covers housing, which is particularly focused on better sanitation, water and electricity facilities. In recent years, with the public spotlight on Malaysia’s reliance on foreign labour, the Malaysian Government has introduced regulations to curtail the recruitment of foreign workers. This has deep implications to our industry in the longer term. The labour shortage was particularly pronounced during the first half of 2010, following the introduction of new regulations. ID CARDS FOR FOREIGN WORKERS The first SIA in 2007 identified the withholding of foreign workers’ passport as a potential breach of the ILO’s conventions, as it seemed that the Company is denying the free movement of workers. The Government has since come up with the 6P Programme, which is a new programme by Ministry of Home Affairs for all foreign workers working in Malaysia and for all industries. This replaces the iKAD scheme that was also mentioned in our 2009 Sustainability Report. While the iKAD scheme is an ID card specifically for foreign workers, the new 6P scheme aims to compile a comprehensive biometric database, instead of having identification documents to reduce incidents of fraud. CHILDREN As a fundamental principle, we do not employ children or young people under 16. Many of our workers of course reside with their families, and hence there are children living in and around our estates. They have access to schools and do not work for us. WORKERS BY COUNTRIES (AS AT 31 DECEMBER 2011) 3% 24% 73% Malaysian Indonesian Bangladeshi annual report 2011 | 131 Kulim (Malaysia) Berhad (23370-V) EMPLOYEES RETENTION A company without skilled management talent will not be able to progress much further. According to a report by the World Bank in April 2011, the Malaysian economy faces an acute brain drain – the migration of talent across borders – the skilled diaspora is now 3 times larger than 2 decades ago. This development has a significant impact upon our future. In the longer term, we need to prepare for a possible shortage in skilled management talent in the oil palm plantation industry. A skilled managerial workforce is crucial for our future growth. In 2011, we worked on strengthening our talent management programmes and instilling a performance-driven culture. We have 5,206 full-time employees and workers in Malaysia as at 31 December 2011, of which 14.7% are categorised as employees, comprising of our staff and management. The women make up about 30% of the employees. EMPLOYEE POLICY AND GUIDELINES Our fundamental guiding principle is that all employees must be treated equally, fairly and with respect. Our labour policy is based on the ILO Declaration on Fundamental Principles and Rights at Work, covering the core labour standards such as the elimination of discrimination in respect of employment and occupation. These topics are covered in our Kulim Sustainability Handbook. The handbook is distributed to all our employees and is translated into standard operating procedures, guidance documents and training throughout our operations. It is also available on our corporate website. Kulim (Malaysia) Berhad (23370-V) 132 | annual report 2011 SUSTAINABILITY Part III: Social Performance (continued) INCORPORATING FEEDBACK FROM THE EMPLOYEE CLIMATE SURVEY A total of 977 employees took part in the Employee Climate Survey as compared to 674 when it was first undertaken in 2005. The updated Climate Survey in 2010 indicated that the employees are generally satisfied with the working conditions and employment policies; 83.8% of the participants responded positively. On the other hand, the sur vey has highlighted employees’ concern with remuneration, especially relating to market competitiveness and fairness of the current salary scheme. In response, we have conducted a salary benchmarking survey to review the competitiveness of the salary scheme. Going forward, we will focus on strengthening our remuneration package and offering employees other benefits. EMPLOYEE DEVELOPMENT Our employees are one of our key stakeholders for engagement. In our engagement workshop, one of the issues highlighted was the lack of young people in the plantation business and the problem of retaining talent. We will need to prepare for a possible shortage in skilled management talent in the plantation industry when the current batch of older employees retires. One of the main ways to retain young people, or commonly known as Gen Y, is to give them room to develop their professional skills and provide opportunities for feedback. We have training and development programmes for our Gen Y employees a n d g e n e ra l l y fo r a l l l e ve l s. Th e s e programmes are structured around formal courses, seminars and workshops, which are organised internally or by external consultants. The Human Resource and Administration Department is responsible for coordinating the training, which covers myriad subjects such as effective communication, sustainability, productivity, executive development and induction programmes for new employees. We spent about 5% of payroll cost on training in 2011 as compared 4% in 2009, and achieved an average training mandays of 4.13 per employee, which exceeded our target of 3 man-days. In addition, 11 employees received formal qualifications funded by Kulim, one of whom was on an Executive Master of Business Administration Programme – a programme collaborated with Johor Corporation and UTM-SPACE. DEVELOPING LEADERSHIP We have a management trainee programme, Strategic Enhanced Executive Development System (“SEEDS”). The first batch of management trainees in 2008 has a retention rate of 77%, of which 20 participants are still with the Company and are working in the different operating units. ANNUAL GATHERING OF EMPLOYEES We recognise the need to provide platforms for employees at the estates, mills and head office. The annual gathering of our employees, Pedoman , addresses this need and also provides a communication platform for the Senior Management, giving an opportunity to communicate performance highlights, the goals, challenges and aspirations for the future, as well as gather feedback from employees. MEASURING PERFORMANCE We are constantly communicating our performance appraisal system via road shows within the Group’s operations.The Performance Management System (“PMS”) aims to measure individual employee’s performance against critical targets, in particular Key Performance Indicators (“KPIs”). The PMS include a peer review appraisal system, while the KPIs also include dimensions on sustainability such as Health and Safety. annual report 2011 | 133 OCCUPATIONAL HEALTH AND SAFETY Occupational Health and Safety (“OHS”) is one of the top priority impact areas for the Company. Our external and internal stakeholders want to be assured of a workplace that is safe from work-related accidents and illnesses. Given the tight labour market for workers, a low accident rate is critical for productivity. It is also, our ethical and social responsibility to ensure the wellbeing of our workers. Each mill and estate has a designated OHS Coordinator who is responsible for organising safety training, meetings, investigation and reporting of accidents and incidents. These OHS Coordinators report to the Corporate Office. We have an OHS plan to improve the safety of employees, which is also reviewed periodically to reflect current realities at work. The OHS plan is documented and effectively communicated to all our employees. We have a set of matrix to measure the efficacy of our OHS plan. LOST TIME ACCIDENT RATE We are glad to note that our Lost Time Accident (“LTA”) rate has consistently met targets for the past 3 years. We aim to keep the LTA rate under 10. Our LTA rates were 7.5 in 2009, 7.6 in 2010 and 5.8 in 2011. ZERO ACCIDENT AND ZERO FATALITY We aim for zero accident and zero fatality. Nevertheless, it was with great regret that we report 4 work-related deaths in the past 2 years. We have one fatality in 2011 and 3 in 2010, an increase from zero fatality in 2009. All of us at Kulim offer our condolences to the families of the deceased. Decisive action has been taken to avoid such occurrences in the future. Safety measures include monitoring system of safety targets, awareness training and safety talks, awareness campaigns, dedicated health and safety officers. Kulim (Malaysia) Berhad (23370-V) SEVERITY RATE We managed to meet our target for severity rate for 2010 but not for 2011. We have set a targeted severity rate of 3.5. As with our 2009 report, the severity rates are due to the same types of injuries that prevail in our field. The major causes of injuries were thorn pricks and cuts from palm fronds. Workers often have to remain absent for 2-4 days before returning to work, due to the risk of wound infection. In 2011, there were 149 incidents of thorn pricks and 87 incidents of cuts from palm fronds. We are working on a plan to solve the root cause of this issue. LOST TIME ACCIDENT RATE 12 9.7 10 7.8 We also have a HIV/AIDS policy for the workers. We provide training to ensure that our employees are aware of the policy. There is a non-discrimination clause if there are affected workers on our plantations. The policy also guarantees the confidentiality of the workers. 5.8 6 4 2 0 2007 2008 2009 2010 LTA rate 2011 Target FATALITY RATE 4 3 3 2 1 1 1 1 0 0 2007 We have also expanded our scope of health and safety measures to include occupational illness. This means that we monitor for the prevalence of any longer term health issues arising from our operational activities, especially the risk of lumbago for our harvesters. We are making changes to our earlier assumptions, with experimental controls to find out the root cause. The main problem may lie in the way that harvesters lift the FFB. A FFB can weigh between 2530kg, which can be quite heavy for a worker, especially for his back, on a prolonged basis. Thus, we provided extra training on lifting techniques. The number of reported incidents was subsequently reduced by 47% from 171 in 2010 to 91 in 2011. 7.6 8 BEYOND OHS Issues beyond OHS in the workplace are prioritised because these also have an impact on productivity in the workplace. For example, we operate a strict No Drugs policy that is enforced through regular and random drug testing. We conducted periodic inspections on all internal grocery shops in the operating units for illegal medication and alcohol. 7.5 2008 2009 2010 Fatality rate 2011 Target SEVERITY RATE 5 4.2 4 4 3.6 3.5 3.34 3 2 1 0 2007 2008 Severity rate 2009 2010 2011 Target Kulim (Malaysia) Berhad (23370-V) 134 | annual report 2011 SUSTAINABILITY Part III: Social Performance (continued) WOMEN IN MANAGEMENT AS AT 31 DECEMBER 2011 17% 83% Male % Female % WOMEN EMPLOYEES AS AT 31 DECEMBER 2011 EMPOWERING WOMEN Our commitment to gender equality is seeing positive results. Our Women OnWards initiative goes from strength to strength, increasing opportunities for women at all levels. We are also supportive of the recommendations adopted by the Government and Bursa Malaysia that 30% of decision-makers in PLCs should be female. Composition of women employees within our management group is now at 17%. Recent Board changes included the addition of a woman director, bringing female representation up to 21%. We believe that this diversity is creating a more balanced, productive and attractive workplace for all employees. WOMEN ONWARDS (“WOW”) WOW was originally called Panel Aduan Wanita or the Women’s Grievance Panel, part of a larger strategy to reach out to all levels of employees, in particular the field workers. It is endorsed by the management and the activities are fully funded by the Company. In the early days, WOW conducted awareness programmes of its existence and how WOW can help the women. Kulim recognised the celebration for International Women’s Day annually. WOW organised the Kulim International Women’s Day (“KIWD”) programme in March 2010 and June 2011. The celebration in 2010 was themed Memperkasa Hak-hak Wanita (Empowering Women) and had motivational and spiritual enhancement programmes conducted at all operating units. The celebration in 2011 was based on the theme of Wanita & Ekonomi (Women & Economy). As at the time of writing, WOW is planning for its third KIWD, slated to be held in June 2012. This year the theme will be based on healthy and active lifestyles. WOW also aims to develop and equip the ladies with entrepreneurship skills, particularly among the female employees, with free trainings that can provide additional income, such as sewing, handcrafting and baking. SEXUAL HARASSMENT Our efforts in reaching out to the women in the Company and getting them to report cases on sexual harassment are proving to be successful. The women in the Company are now more aware of their rights and are more open to reporting cases on sexual harassment. We have no reported incidents of sexual harassment in 2010 and 2 incidents in 2011, As for the 2 incidents in 2011, the employee found to be at fault was terminated for 1 case, while the other case was dropped because there was not enough evidence to prove guilt. 30% 70% Male % Female % Regardless of the low numbers of reports, we will continue to refine our outreach programme to encourage more women to speak up and to seek advice, if applicable. RETURN TO WORK AND MATERNITY LEAVE All our female employees are entitled to 60 consecutive days of paid maternity leave, in accordance to the Malaysian Government regulations. The number of female employees who took maternity leave was 17 in 2011. All employees returned to work after their maternity leave ended and remain employed with the Company 12 months after their return to work. We are proud of the 100% retention rate. annual report 2011 | 135 Kulim (Malaysia) Berhad (23370-V) COMMUNITY AND ECONOMIC CONTRIBUTIONS We recognise that our presence among the local communities impacts the social environment surrounding our operations, and not just the economics. Our business has strong dependencies on the surrounding communities for continuity and growth. We adopt a management approach that has a holistic understanding of the net impact of our presence. We conduct annual SIA to measure our overall impact and review the Social Action Plan based on these SIAs. We try to create a positive impact with an active community investment programme that combines cash contributions, in-kind donations and employee volunteering activities. COMMUNICATING WITH LOCAL COMMUNITIES We have an open approach to communication with the local communities. Local communities can contact the estate or the mill manager directly if they wish to address any issues regarding our operations. The communication process is complemented by annual SIAs, which are conducted by our internal and external auditors. MEASURING OUR COMMUNITY INVESTMENTS The key themes of our community investments are community sports, community health and infrastructure as well as children and education. The community investment activities are structured around a Company-wide programme as ‘We Care We Share’. This programme was rolled out in January 2009 to promote the spirit of volunteerism amongst our staff. In 2011, we participated in the following community programmes: APPROXIMATE CONTRIBUTIONS (RM’000) INSTITUTION/ PROGRAMMES PURPOSES Johor FC (Football Club) National sports sponsorship Darul Hanan Orphans and underprivileged 53 Tabung Tijarah Ramadhan A programme to help the under-privileged 40 Bistari Young Entrepreneur Sponsorship for Tunas Bistari Programme 150 5,330 Kulim (Malaysia) Berhad (23370-V) 136 | annual report 2011 Part IV: Doing our part for the palm oil supply chain The bulk of our crop is sold to refineries, which in turn produce food ingredients and cooking oils largely for domestic sales. There is a growing pressure on the palm oil players to ensure an ethical and sustainable supply chain that is fully traceable to the origins of the crop. We are working on full certification of all the FFB processed by our mills, as part of our commitment to RSPO. More than 35% of our FFB are purchased from independent FFB traders, outgrowers and smallholders. Our strategy is to map out the suppliers of external FFB to our mills, identify partners who can help us increase awareness for RSPO certification and most importantly, enhance understanding on practical implementation in the estates. annual report 2011 | 137 The sale of palm oil for non-food use, especially biofuel, has been largely reduced in recent years. Our biofuel plant is currently not in operation. ENGAGING FFB TRADERS, OUTGROWERS AND SMALLHOLDERS According to the RSPO, smallholders produce much of the world’s palm oil. In the 2 major producing countries – Indonesia and Malaysia – which account for over 80% of the world’s production, smallholders cultivate about 40% of the oil palm area in these 2 countries. Outgrowers and smallholders are therefore key stakeholders for a fully traceable sustainable supply chain, as they supply most of the crops to the mills. As with most mill owners, it is challenging to include external FFB in the certification. We have set a target initially to certify 100% of the outgrowers’ FFB in our mills by 2011. We are still working on this target, but we have extended the timeline to 2013 instead. The certification is challenging because of the complexity in tracing the individual outgrowers, given a substantial amount of FFB processed in our mills are purchased from independent FFB traders. In an initial Kulim (Malaysia) Berhad (23370-V) consultation with a sample group of suppliers, comprising of outgrowers and FFB traders, most of them were aware of RSPO but did not have detailed knowledge of the RSPO requirements. We developed a work plan in 2010 to conduct an awareness and training programme for outgrowers and FFB traders. Currently we are conducting a trial with a controlled group of smallholders at Asam Bubok Estate (“ABE”). We aim to include ABE for coming surveillance due at the end of this year. The Sustainability and Quality Department (“SQD”) is responsible for implementing the RSPO P&C with the outgrowers and independent FFB traders. We are also working with MPOB on the Smallholder Certification Programme, which started in February 2010. The first smallholder engagement session was attended by 68 smallholders and FFB traders who supplied to the Sedenak Palm Oil Mill. The first smallholder engagement session for Sindora Palm Oil Mill was attended by 44 smallholders and FFB traders. The programme aims to foster greater understanding of the RSPO P&C for smallholders and to establish a smallholder cooperative. FFB PROCESSED BY OUR MILLS 2011 6% 30% 64% Kulim estates’ FFB FFB traders Other outgrowers’ FFB Kulim (Malaysia) Berhad (23370-V) ESTABLISHING AN ETHICAL AND SUSTAINABLE SUPPLY CHAIN The RSPO has made significant progress in sustainable sourcing since our last report. Over the last 2 years, industry players have worked hard to iron out issues on practical implementation of the mechanisms – testimony to the strength of a formal multi-stakeholder initiative. For example, some of the rules were changed to better reflect commercial realities, rather than from a technical and process engineering perspective. 138 Kulim’s sustainable palm oil is sold to the market via the Green Palm Book and Claim and the Mass Balance mechanisms. The Green Palm trading mechanism, a Book and Claim system, allows our customers to buy certificates for the volume of certified palm oil required. The Book and Claim mechanism is the most simplified method for a buyer to obtain certified oil without the high administrative costs and complex logistics. On the other hand, the Mass Balance mechanism allows certified palm oil to be mixed with conventional palm oil, but the entire process is monitored administratively. | annual report 2011 This method is slightly more stringent and complex than the Book and Claim system. CONSUMING PALM OIL Obesity among Malaysians is increasingly a health concern due to changes in lifestyle and diet. Obesity can lead to other chronic diseases such as high blood pressure, heart and kidney problems. Malaysian consumers are also concerned about high fat intake and the types of fat they consume, which translates into choices on cooking oil types. annual report 2011 | 139 Palm oil is a basic and inexpensive ingredient for cooking in Malaysia, where we sell most of our palm oil. The vast majority of our palm oil is used for edible consumption, either as cooking oil or further processed into other food ingredients. The palm oil is rich in natural chemical compounds important for health and nutrition. It is a natural source of Carotenoids (including pro-vitamin A), Vitamin D, E and K, as well as supplying fatty acids and other important fat-soluble micronutrients. No other vegetable oil has as much Vitamin E as palm oil and Vitamin E is a powerful anti-oxidant. Kulim (Malaysia) Berhad (23370-V) Often labelled as vegetable oil, palm oil is actually a type of fruit oil, much like coconut and olive oil. Many people mistake palm oil for coconut oil. However, the 2 have distinct uses and compositions. It is palm kernel oil that is similar to coconut oil in terms of chemical composition, physical characteristics and uses. Besides fatty acids composition, palm oil also differs from coconut oil with regard to its potential impact on the heart, as palm oil contains distinctly less saturated fat to coconut oil. Moreover, palm oil in its solid state is much better for health as compared to other edible oils, as it does not have to undergo a chemical composition known as hydrogenation. Hydrogenation produces trans-fat, along with saturated fatty acids and modifies cis-fatty acids. Trans-fat has been linked as a contributory factor to breast and colon cancer, and heart disease. SECTION 6: GOVERNANCE STATEMENT 142 CORPORATE GOVERNANCE REPORT 153 INTERNAL CONTROL STATEMENT 160 AUDIT COMMITTEE REPORT 164 ADDITIONAL COMPLIANCE INFORMATION 165 ADDITIONAL DISCLOSURE Kulim (Malaysia) Berhad (23370-V) 142 | annual report 2011 CORPORATE GOVERNANCE REPORT INTRODUCTION The Board of Directors of Kulim (Malaysia) Berhad subscribes to and supports the Malaysian Code on Corporate Governance (Revised 2007) (“The Code”) as a minimum basis for practices on corporate governance. The Board is pleased to report that it had continued to practise good corporate governance throughout the financial year ended 31 December 2011. Pursuant to Paragraph 15.25 of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (“Listing Requirements”) and except for matters specifically identified, the Board, to the best of their knowledge, confirms that the Group has applied the Principles as set out in Part 1 and has complied with the Best Practices as set out in Part 2 of The Code throughout the year under review. The Board however, recognises that good corporate governance practices should extend beyond mere compliance. It should seek to attain the highest standards of business ethics, accountability, integrity and professionalism across all the Group’s activities and conducts. In addition, the Board considers strong governance as one of the key strategy determinants in building a competitive organisation, achieving its set corporate and business objectives and ultimately in realising investors’ confidence and shareholders’ value. Hence, the Board is committed to continuously improve the Group’s standards of corporate governance in ensuring that all stakeholders’ interest is protected and value enhanced. The Board of Directors plays a key role in the governance process through its review and approval of the Group’s direction and strategy, its monitoring of professional standards and business performance, its review of the adequacy and integrity of the Group’s internal control systems, including the identification of principal risks and ensuring the implementation of appropriate systems to manage those risks, and the acceptance of its underlying duty to ensure that the Company and the Group meets its responsibilities to its shareholders. Kulim’s commitment to strong governance and the continual enhancement of shareholders’ value is evidenced by the following recognitions and accreditations conferred on the Group in 2011: • Malaysia 1000 – Industry Excellence Award under Plantation Sector 2010/2011 organised by BASIS Holdings Sdn Bhd in collaboration with BERNAMA and MATRADE. • The Edge Billion Ringgit Club Award 2011 under the following categories:1. Best Performing Stock – Highest Returns to Shareholders Over Three Years (Plantation Sector) 2. Highest Profit Growth Company – Highest Growth in Profit Before Tax Over Three Years (Plantation Sector) • National Annual Corporate Report Awards (“NACRA”) 2011 – Industry Excellence Award (Main Market) for Plantation and Mining • Industry Excellence (Plantations) and Scored ‘A’ in The Malaysian Corporate Governance (“MCG”) Index 2011 organised by Minority Shareholders Watchdog Group (“MSWG”) • Global Leadership Award 2011 (Plantation Sector) – Ahamad Mohamad Being amongst the earliest plantation companies in the world to be certified as a sustainable palm oil producer under RSPO serves as a testament to the Group’s commitment towards enhancing its governance standards. The Group took its sustainable commitment to the next level when it became the first within the plantation industry to publish sustainability reporting. The Group produced its inaugural Sustainability Report 2007/2008 in October 2008, published separately for both its Plantation operations in Malaysia and Papua New Guinea. Subsequently, the bi-annual Sustainability Report was published in June 2010. As at the time of writing, Kulim is in the process of producing its third Sustainability Report, emphasising the Group’s annual report 2011 | 143 commitment in subscribing to the RSPO Principles and Criteria. The reports which are benchmarked against the international Global Reporting Initiative guidelines seek to present transparent overview, performance evaluation and the Group’s target towards Sustainable Palm Oil practices. It also forms the basis of additional communications and engagement with Kulim’s broader stakeholder groups. The Report is available upon request and can also be downloaded from the company website. BOARD OF DIRECTORS Size, Composition and Effectiveness of Board Kulim (Malaysia) Berhad is led by an effective Board of Directors. The Board, as at the date of this Statement, consists of: • 4 Executive Directors • 4 Non-Independent Non-Executive Directors • 6 Independent Non-Executive Directors All six (6) of the Independent Non-Executive Directors are independent as defined under the Listing Requirements. The Independent Non-Executive Directors are: 1. Tan Sri Dato’ Seri Arshad Ayub 2. Kua Hwee Sim 3. Datuk Haron Siraj 4. Dr. Radzuan A. Rahman 5. Natasha Kamaluddin 6. Leung Kok Keong A statutory declaration is made to Bursa Malaysia Securities Berhad (“Bursa Malaysia”) by all Independent Non-Executive Directors in their individual capacity to the effect that they are independent in compliance with the Listing Requirements. Kulim (Malaysia) Berhad (23370-V) The Board views that the number and composition of the current Board members is sufficient and well-balanced for the Company to carry out its duties effectively, whilst providing assurance that no individual or small group of individuals can dominate the Board’s decision making. There is clear segregation of duties between the Chairman and the Managing Director. The Board is led by the Chairman, Kamaruzzaman Abu Kassim whose principal responsibilities is to ensure the effective running of the Board and is independent of the management. The current Chairman has never held the post of Managing Director of the Company. The post of Managing Director or the Chief Executive Officer of the Group is held by Ahamad Mohamad whose primary task is to report, communicate and recommend key strategic and operational matters and proposals to the Board for decision making purposes as well as to implement policies and decisions approved by the Board. The Non-Independent Non-Executive Directors are from varied business and professional backgrounds and bring with them a wealth of experience that is brought to bear favourably in board decisions and policy formulations. Together, the Directors bring a wide range of business and financial experience relevant to the direction of the expanding Group. The independence of each Independent NonExecutive Directors is safeguarded as none is involved in the day-to-day management of the Group and they do not engage in any business dealings or other relationships with the Group. The presence of 6 Independent Non-Executive Directors, representing more than a third of the total members with necessary calibre, ensures that the Board is well-balanced and could carry sufficient weight on Board’s decisions. Although all the Directors have equal responsibilities for the Group’s operations, the role of these Independent Non-Executive Directors is particularly important in ensuring that all business strategies proposed by the executive management are fully and independently discussed and assessed, and take into account the long term interest, not only of shareholders, but also employees, customers, suppliers, and the many communities in which the Group operates. The Board is satisfied that the size and composition of the Independent Non-Executive Directors has fulfilled its requirement adequately. The profiles of the Directors’ biographies are set out in page 44 to 52 of the Annual Report. The Company has in place a Board Policy Manual to assist the Board in discharging its duties effectively. Among others, the Board Policy Manual covers the following important scopes: • Group Organisation • Board Organisation • Board Responsibilities • Board Procedures • Director Evaluation Guidelines and Procedure • Managing Director Evaluation Guidelines and Procedure. The Position Description for the Chairman and for the Managing Director is prescribed in the Board Policy Manual. At the end of each financial year the Board will set Key Performance Indicators (“KPI”) that should be achieved by the management for the next financial year. Principal Duties and Responsibilities The Board assumes six principal stewardship’s responsibilities: 1. Reviewing and adopting a strategic plan for the Company. The Board will review and approve the annual budget and strategic plan for the Group. The Group’s strategic and business plan for the period 2012-2016 were tabled, discussed and approved by the Board at its meeting on 22 March 2012. Additionally, on an ongoing basis as need arises, the Board will assess whether projects, purchases and sale of equity as well as other strategic consideration being proposed at Board meetings during the year are in line with the objectives and broad outline of the adopted strategic plans. Kulim (Malaysia) Berhad (23370-V) 144 CORPORATE GOVERNANCE REPORT 2. O verseeing the conduc t of the Company’s business to evaluate whether the business is being properly managed. At Board meetings, all operation matters will be discussed and expert advice will be sought if necessary. The performances of the various companies and operating units within the Group represent the major element of Board agenda. Where and when available, data are compared against national trends and performance of similar companies. The Group uses KPI system as the primary driver and anchor to its performance management system, of which is continually refined and enhanced to reflect the changing business circumstances. 3. Identifying principal risks and ensure the implementation of appropriate systems to manage these risks. The Group has set up a Risk & Issues Management Committee for this purpose to assist the Board. The R isk & Issues Management Committee met 4 times in 2011 to review the Group’s risks. Details on Risk & Issues Management Committee are on pages 153 to 154 of this Annual Report. 4. S u c ce s s i o n p l a n n i n g, i n c l u d i n g appointing, training, fixing the compensation of and where appropriate, replacing senior management. The Board responsibility in this aspect is being closely supported by the Human Resource Department. More importantly, after several years of continuous efforts in emphasising and communicating the importance of succession planning, the subject has now become an ongoing agenda being reviewed at various highlevel management and operational meetings of the Group. 5. (continued) are well-informed about the Group affairs and developments. Information on our shareholders’ communication activities is on pages 151 to 152 of this Annual Report. 6. | annual report 2011 Reviewing the adequacy and the integrity of the Company’s internal controls and management information systems, including compliance with applicable laws, regulations, rules, directives and guidelines. The Board’s function as regard to fulfilling the above responsibility is supported and reinforced through the various Committees established at both the Board and managing agent’s level. Aided by an independent function of the Internal Audit Department, the active functioning of these Committees through their regular meetings and discussions would provide a strong check and balance as well as reasonable assurance on the adequacy of the Company’s internal controls. Details on the Internal Audit functions are further discussed in the Internal Control Statement and Audit Committee Report in this Annual Report. Board Meetings and Supply of Information All Board meetings for the ensuing year are scheduled by December in the year before so as to allow Directors to plan ahead. Board meetings are held at least 4 times a year. Apart from the regular scheduled meetings, additional meetings are convened as and when necessary to deliberate and approve ad-hoc, urgent and important issues. Developing and implementing an investor relations programme or shareholder communications policy for the Company. The Chairman, assisted by the Company Secretary takes responsibility in ensuring that the directors receive all notices, agendas and minutes of the previous meetings and is supplied with pertinent information well in advance of each meeting. The Managing Director in consultation with the Chairman would decide on the agenda and accordingly structure and prioritise the respective matters based on their relevance and importance so as to enable quality and in-depth discussion of the matters. All decisions and conclusions of the Board meetings are to be duly recorded and minutes are kept by the Company Secretary. Various strategies and approaches are employed by the Group so as to ensure that investors and shareholders The Board recognises the importance of providing timely, relevant and up-todate information in ensuring an effective decision making process by the Board. In this regard, the Board is provided with not just quantitative information but also those of qualitative nature that is pertinent and of the quality necessary to allow the Board to effectively deal with matters that are tabled in the meeting. All Directors have unrestricted access to all information within the Company in furtherance of their duties. In addition, all Directors have access to the advice of the Company Secretary and where necessary, in furtherance of their duties, take independent professional advice at the Group’s expense. In conjunction with the scheduled meetings or on separate occasions, the Directors also visit locations of operating units, sites of new projects and other operation sites to allow them to have better assessments of the operational progress, status of development and any important issues to be addressed on new proposals. In between meetings, the Managing Director meets regularly with the Chairman and other Board members to keep them abreast of current development. Circular Resolutions are used for determination of matters arising in between meetings. In addition to matters relating to the six principal stewardship’s responsibilities discussed above, other specific topics tabled for Board’s deliberation and decisions include: • updates of relevant factors within the Group external business environment such as economic development and policies, customers and markets and competitors; • current updates of key financial and operational results as well as performances of the Group, Company and its subsidiaries; • strategic and corporate initiatives such as approval of corporate plans and budgets, acquisitions and disposal of material assets and major investments; • changes to management and control structure of the Group, including key policies, procedures and authority limits; • approval of any interim and special dividend as well as the Company’s dividend policy; and • approval of all circulars, resolutions and corresponding documentation sent to shareholders. annual report 2011 | 145 Kulim (Malaysia) Berhad (23370-V) The Board met 8 times during the financial year 2011 and all Directors have complied with the minimum 50% attendance as required by Para 15.05 of the Listing Requirements. The members of the Board of Directors and their attendances at Board meetings in 2011 are set out below: Special BOD 12.1.2011 265th BOD 10.2.2011 266th BOD 23.6.2011 267th BOD 5.8.2011 Special BOD 16.8.2011 Special Special BOD BOD 268th BOD 4.11.2011 15.12.2011 22.12.2011 Kamaruzzaman Abu Kassim ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ 100 Ahamad Mohamad ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ 100 Tan Sri Dato’ Seri Arshad Ayub ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ 100 Kua Hwee Sim ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ 100 Wong Seng Lee ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ 100 Datin Paduka Siti Sa’diah Sh Bakir ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ 100 Zulkifli Ibrahim – – – ✔ ✔ ✔ ✔ ✔ 100 Datuk Ahmad Zaki Zahid – – – – – – ✔ ✔ 100 Datuk Haron Siraj ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ 100 Dr. Radzuan A. Rahman ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ 100 Rozan Mohd Sa’at ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ 100 Leung Kok Keong – – – – – – ✔ ✔ 100 Natasha Kamaluddin – – – – – – ✔ ✔ 100 Wan Mohd Firdaus Wan Mohd Fuaad – – – – – – ✔ ✘ 50 % Notes:• • • • • Zulkifli Ibrahim – appointed as Executive Director on 1.7.2011 Datuk Ahmad Zaki Zahid – appointed as Executive Director on 8.11.2011 Leung Kok Keong – appointed as Independent Non-Executive Director on 9.11.2011 Natasha Kamaluddin – appointed as Independent Non-Executive Director on 9.11.2011 Wan Mohd Firdaus Wan Mohd Fuaad – appointed as Non-Independent Non-Executive Director on 9.11.2011 The Directors, in the event that they have interest in proposals considered by the Board, will be required to make declaration to that effect. The interested Directors will thereupon abstain from deliberations and decisions of the Board on the said proposals. competency to effectively discharge his/ her role as a Director of the Company. The NRC will then recommend their findings for consideration and approval by the Board. The power to appoint the director(s) nominated is vested wholly on the Board. Appointment and Re-election of Directors The Board is responsible to the shareholders. All Directors appointed during the financial year resign at the Annual General Meeting (“AGM”) of the Company in the period of appointment and are eligible for re-election. In compliance with the Para 7.26(2) of the Listing Requirements, all directors shall retire once at least in every 3 years. The number and composition of Board membership are reviewed on a regular basis appropriate to the prevailing size, nature and complexity of the Group’s business operations so as to ensure the relevance and effectiveness of the Board. In the event of a need to appoint new member(s) of the Board, nominations will be tabled and deliberated in the Company’s Nomination and Remuneration Committee (“NRC”) meeting to assess the qualified candidate with the required core In accordance with Article 97 of the Company’s Article of Association, Datin Paduka Siti Sa’diah Sh Bakir and Datuk Haron Siraj retire by rotation at the forthcoming AGM and being eligible, offer themselves for re-election. In accordance with Article 103 of the Company’s Article of Association, Zulkifli Ibrahim, Datuk Ahmad Zaki Zahid, Leung Kok Keong, Natasha Kamaluddin and Wan Mohd Firdaus Wan Mohd Fuaad, who were appointed during the year, retire at the forthcoming AGM and being eligible, offer themselves for re-election. Tan Sri Dato’ Seri Arshad Ayub being above 70 years of age retires in accordance with Section 129(2) of the Companies Act 1965 and has offered himself for re-appointment in accordance with Section 129(6) of the said Act to hold office until the conclusion of the next AGM of the Company. Kulim (Malaysia) Berhad (23370-V) 146 CORPORATE GOVERNANCE REPORT | annual report 2011 (continued) Directors’ Remuneration The Board believes that the levels of remuneration offered by the Group are sufficient to attract Directors of calibre and with sufficient experience and talents to contribute to the performance of the Group. Comparison with similar position within the industry and other major public listed companies is made in order to arrive at a fair rate of remuneration. The details of the remuneration of each Director paid by the Company during the year are as follows: Basic Salary Kamaruzzaman Abu Kassim Ahamad Mohamad Tan Sri Dato’ Seri Arshad Ayub Kua Hwee Sim Wong Seng Lee Datin Paduka Siti Sa’diah Sh Bakir Zulkifli Ibrahim Datuk Ahmad Zaki Zahid Datuk Haron Siraj Dr. Radzuan A. Rahman Rozan Mohd Sa’at Leung Kok Keong Natasha Kamaluddin Wan Mohd Firdaus Wan Mohd Fuaad Jamaludin Md Ali (1) (1) Fees / Allowances / Other emoluments Bonuses Benefit in-kind Total RM'000 – 593 – – 309 – 360 120 – – – – – – – RM'000 107 309 81 70 144 62 129 20 62 70 62 10 10 9 25 RM’000 – 395 – – 206 – 210 – – – – – – – – RM’000 – 79 – – 11 – 26 – – – – – – – – RM’000 107 1,376 81 70 670 62 725 140 62 70 62 10 10 9 25 1,382 1,170 811 116 3,479 Resigned on 1.7.2011 Board Performance Evaluation The effectiveness of the Board is vital to the success of the Group. For that reason, a large portion of the Board Policy Manual is devoted to explaining and outlining the format and procedure for evaluating Board Members performance. The availability of the structured format for Board Members evaluation assists the members in discharging their duties effectively and efficiently. The Board, through its Nomination Committee, undertakes a rigorous evaluation each year in order to assess how well the Board, its committees, the directors and the Chairman are performing. The evaluation covers the Board’s composition, skills mix, experience, communication, roles and responsibilities, effectiveness as well as conduct. All directors complete a questionnaire regarding the Board and committees’ processes, their effectiveness and where improvements may be considered. The process also includes a peer review in which directors assess their fellow directors’ performance against set criteria, including the skills they bring to the Group and the contribution they make. The Company Secretary reported the outcome of the evaluation exercise to the Nomination Committee and then to the Board for review. Following the performance evaluation process for 2011, which was conducted in February 2012, the directors have concluded that the Board and its committees operate effectively. Additionally, the Chairman has concluded that each director continues to make an effective contribution to the work of the Board, is well prepared and informed concerning items to be considered by the Board, has a good understanding of the Group’s business and has remained strongly committed to their roles. Directors’ Training The Company complies with the requirements set out in the amendments to the Listing Requirements in that it regularly assess the training needs of its directors to ensure that they are equipped with the requisite knowledge and competencies to make effective contribution to the board’s functioning. All Directors have successfully completed the Mandatory Accreditation Programme (“MAP”) prescribed by Bursa Malaysia. The Continuous Education Programme (“CEP”) was repealed by Bursa Malaysia with effect from 1 January 2005 and Directors who were required to fulfil this programme complied with the deadline before due date. Nevertheless, Directors are encouraged to continue attending various training programmes that are relevant to the discharge of their responsibilities. annual report 2011 | 147 Training programmes, seminars and briefings attended by the Directors during the year were, among others: • Mandatory Accreditation Programme for Directors of Public Listed Companies pursuant to Paragraph 15.09 of Bursa Securities Listing Requirements • Johor Corporation Directors’ Conference 2011 • Invest Malaysia 2011 • Women In Leadership Forum Asia • MSWG & ICGN Dialogue Session Kulim (Malaysia) Berhad (23370-V) Apart from this requirement, all new directors who are appointed from among the Group’s senior executives must attend an internally-administered directors’ course and pass the examination set prior to being eligible for appointment to the Board. All new directors will be given comprehensive briefing of the Group’s history, operations and financial control systems in order to provide them with first-hand knowledge of the Group’s operations. In the light of increasing complexities in global markets as well as within the industry, in financial reporting and in shareholders’ expectations, training is an ongoing process in the effort to help Directors stay abreast of relevant new developments. Directors’ Code of Ethics nd • 22 Palm & Lauric Oils Conference • Dialogue Session with Securities Commission • International Conference on Language, Culture & Literacy: Engaging Diversity in Challenging Times The Directors adhere to the Code of Ethics which is contained in the Board Policy Manual, the important aspects of which are as follows: • Members must represent non conflicted loyalty to the interests of the Group; • Members must avoid conflict of interest with respect to their fiduciary responsibility; • Members may not attempt to exercise individual authority over the Group except as explicitly set forth in Board Policy; and Members will respect the confidentiality appropriate to issues of a sensitive nature. • NAM Institute for the Empowerment of Women • 7th World Islamic Economic Forum • APHM Conference • Corporate Governance Program – Assessing the Risk and Control Environment • • International Forum on Women in Science and Technology Fraud Risk and Whistle-Blowing • • • The New Corporate Governance Blueprint and Regulatory Updates Seminar 2011 organised by MICG & Federation of Public Listed Companies Berhad Updates on FRS 2010/2011 - New & Revised FRSs, Amendments, Interpretations and the New Bursa Listing Requirements Budget 2012 Proposals & Recent Development The Group is strongly committed to an environment of sound governance, sound internal controls and a culture that will safeguard shareholders’ investments, stakeholders’ interests and the Group’s assets. The safeguarding against loss by fraud or negligence and establishing an environment which effectively minimises fraud risk is a key responsibility of management. All employees have an obligation to support the effort. The Group also upholds the principles of integrity, respect and accountability which includes the maintenance of a workplace that is free from fraud. This involves embedding fraud control into the organisation’s decision making culture and practices. As such, a Fraud Policy was established and approved by the Board of Directors in 2007 to reflect the Group’s commitment to manage control and promote ethical and honest behaviour in the workplace. The policy is intended to provide guidance to employees on how to report and deal with fraud. It also outlines the notification process, investigation procedures and type of outcomes which are likely to be considered. The Group also ensures the sustenance of a dynamic and robust corporate climate focused on strong ethical values. This emphasises active participation and dialogues on a structured basis involving key people at all levels, as well as ensuring accessibility to information and transparency on all executive action. The Group’s annual employees’ gathering; Pedoman is one of the platforms employed in allowing and encouraging employees to engage in an open dialogue with the senior management. The Group has also long established a formal avenue for all employees to report directly to the Managing Director of any misconduct or unethical behaviour conducted by any employees of the Group through a declaration in the Ethic Declaration Form. Further to that, Kulim has established a Grievance Policy and Procedure as well as Women OnWards to ensure that throughout the Group, there is a transparent process for ensuring stakeholders’ grievances and complaints are dealt with fairly, consistently and promptly. The corporate climate is also continuously nourished by value-centred programmes for team-building and active subscription to core values. BOARD COMMITTEE The Group has formed several committees to facilitate the operations of the Group. Each committee has written terms of reference defining their scope, powers and responsibilities. Apart from the Board Committees, there are internal/management committees established at Kulim Corporate Office level and within the Group’s significant/ strategic subsidiaries which facilitate the function of Board of Kulim as well as their respective company. These internal/ management committees and their primary functions are set out on pages 155 to 157 of this Annual Report. Kulim (Malaysia) Berhad (23370-V) 148 CORPORATE GOVERNANCE REPORT The list of Board committees includes: 1. Audit Committee Pursuant to paragraph 15.15 of the Listing Requirements, the Audit Committee Report for the financial year which sets out the composition, terms of reference and a summary of activities of the Audit Committee, is contained on pages 160 to 163 of this Annual Report. 2. Nomination and Remuneration Committee On 1 June 2011, the Board of Directors of the Company established its own Nomination and Remuneration Committee (“NRC ”) in order to exercise Best Practices of Corporate Governance. The previous functions and responsibilities of the NRC of the Company was centralised and vested with Johor Corporation (“JCorp”) Group NRC in line with its Group wide corporate practice. The NRC is accountable to the Board of the Company and not to the executive management of the Company. Subject to the Corporate Governance Principles, the primary functions of the NRC are to: 1. Assess the necessary and desirable competencies of Board members; 2. Review Board succession plans; 3. Evaluate the Board’s performance; 4. Make recommendations to the Board on the following: Executive remuneration and incentive policies; ii. Remuneration packages of senior management; iii. The Company’s recruitment, retention and termination policies for senior management; iv. Incentive Schemes; v. Superannuation arrangements; and vi. The remuneration framework for directors. (continued) In performing its duties, the NRC shall have direct access to the resources of the Company as it may reasonably require and shall seek to maintain effective working relationships with the management. The compositions of the NRC of the Company are as follows: Nomination Committee 1. Kamaruzzaman Abu Kassim – Chairman 2. Tan Sri Dato’ Seri Arshad Ayub 3. Kua Hwee Sim Remuneration Committee 1. Kamaruzzaman Abu Kassim – Chairman 2. Tan Sri Dato’ Seri Arshad Ayub 3. Dr. Radzuan A. Rahman Membership The Nomination Committee shall have at least 3 members, all of whom shall be non-executive directors with the majority being independent directors. The quorum for the Committee shall be 2 members, of which one should be an independent director. The Nomination Committee members and Chairperson shall be appointed by the Board. The appointment of a Committee member terminates when the member ceases to be a director, or as determined by the Board. In the event of equality of votes, the Chairperson of the Committee shall have a casting vote (except where 2 directors form the quorum). In the absence of the Chairperson of the Committee, the members present shall elect one member to chair the meeting. Terms of Reference The terms of reference of the NRC are as follows: The NRC is established primarily for: A. Nomination Purpose T h e N o m i n a t i o n C o m m i t t e e, a Committee of the Board of Directors (“Board”), is established primarily to: 1. i. | annual report 2011 Identify and recommend to the Board, candidates for board directorships of Kulim (Malaysia) Berhad (“the Company”); 2. R e c o m m e n d t o t h e B o a r d, directors to fill the seats on Board Committees; 3. Evaluate the effectiveness of the Board and Board Committees (including its size and composition) and contributions of each individual director; and 4. Ensure an appropriate framework and plan for Board succession for the Company. The Nomination Committee shall have no executive powers. Meetings The Committee shall meet at least once a year. Additional meetings shall be scheduled as considered necessary by the Committee or Chairperson. The Committee may establish procedures from time to time to govern its meetings, keeping of minutes and its administration. The Committee shall have access to such information and advice, both from within the Group and externally, as it deems necessary or appropriate in accordance with the procedures determined by the Board and at the cost of the Group. The Committee may request other directors, members of management, counsels, and consultants as applicable to participate in Committee meetings, as necessary, to carry out the Committee’s responsibilities. Noncommittee directors and members of management in attendance may be required by the Chairperson to leave the meetings of the Committee when so requested. annual report 2011 | 149 The Secretary of the Committee shall be appointed by the Committee from time to time. Committee meeting agendas shall be the responsibility of the Committee Chairperson with input from Committee members. The Chairperson may also request management to participate in this process. The agenda for each meeting including supporting information shall be circulated at least seven days before each meeting to the Committee members and all those who are required to attend the meeting. The Committee shall cause minutes to be duly entered in the books provided for the purpose of all resolutions and proceedings of all meetings of the Committee. Such minutes shall be signed by the Chairperson of the meeting at which the proceedings were held or by the Chairperson of the next succeeding meeting and if so signed, shall be conclusive evidence without any further proof of the facts thereon stated. The minutes of the Committee meeting shall be available to all Board members. Kulim (Malaysia) Berhad (23370-V) 1. To determine the criteria for Board membership, including qualities, experience, skills, education and other factors that will best qualify a nominee to serve on the Board. 2. To review annually and recommend to the Board with regards to the structure, size, balance and composition of the Board and Committees including the required mix of skills and experiences, core competencies which nonexecutive directors should bring to the Board and other qualities to function effectively and efficiently. 3. • The Chairperson of the Committee shall be available to answer questions about the Committee’s work at the AGM of the Company. To evaluate and recommend the appointment of senior executive positions, including that of the Managing Director or Chief Executive and their duties and the continuation (or not) of their service. 6. To establish and implement process for assessing the effectiveness of the Board as a whole, the Committee of the Board and for assessing the contribution of each director. 7. To evaluate on an annual basis: To consider, evaluate and propose to the Board any new board appointments, whether of executive or non-executive position. In making a recommendation to the Board on the candidate for directorship, the Committee shall have regard to: • The Committee, through its Chairperson, shall report to the Board at the next Board of Directors’ meeting after each Committee meeting. When presenting any recommendation to the Board, the Committee will provide such background and supporting information as may be necessary for the Board to make an informed decision. The Committee shall provide such information to the Board as necessary to assist the Board in making a disclosure in the Annual Report in accordance with the Best Practices of the Malaysian Code on Corporate Governance Part 2 AAIX. 5. Size, composition, mix of skills, experience, competencies and other qualities of the existing Board, level of commitment, resources and time that the recommended candidate can contribute to the existing Board; and Best Practices of the Malaysian Code on Corporate Governance Part 2 AAIII which stipulates that nonexecutive directors should be persons of calibre, credibility and have necessary skill and experience to bring an independent judgement to bear on issues considered by the Board and that independent non-executive directors should make up at least one-third of the membership of the Board. 8. 4. To propose to the Board the responsibilities of non-executive directors, including membership and Chairperson of Board Committees. the effectiveness of each director’s ability to contribute to the effectiveness the Board and the relevant Board Committees and to provide the necessary feedback to the directors in respect of their performances; • the effectiveness of the Committees of the Board; and • the effectiveness of the Board as a whole. To recommend to the Board: • whether directors who are retiring by rotation should be put forward for re-election; and • termination of membership of individual directors in accordance with policy, for cause or other appropriate reasons. 9. To establish appropriate plans for succession at Board level, and if appropriate, at senior management level. 10. To provide for adequate training and orientation of new directors with respect to the business, structure and management of the Group as well as the expectations of the Board with regards to their contribution to the Board and Company. 11. To consider other matters as referred to the Committee by the Board. Scope of Activities The duties of the Nomination Committee shall include the following: • Kulim (Malaysia) Berhad (23370-V) 150 CORPORATE GOVERNANCE REPORT B. Remuneration Purpose The Remuneration Committee, a Committee of the Board, is established primarily to: 1. Provide assistance to the Board in determining the remuneration of executive directors and, if applicable, senior management and in par ticular the Chief Executive Officer where the person is not a member of the boards of directors. In fulfilling this responsibility, the Committee is to ensure that executive directors and applicable senior management of the Company: • 2. 3. are fairly rewarded for their individual contributions to overall performance; • that the compensation is reasonable in light of the Company’s objectives; and • that the compensation is comparable to other companies. Establish the Managing Director/ Chief Executive Officer’s goals and objectives; Review the Managing Director/Chief Executive Officer’s performance against the goals and objectives set. Membership The Remuneration Committee shall consist entirely of non-executive directors. It shall have at least 3 members and the quorum for the Committee shall be 2 members. Remuneration Committee members and the Chairperson shall be appointed by the Board based on the recommendations of the Nomination Committee. The appointment of a committee member terminates when the member ceases to be a director, or as determined by the Board. | annual report 2011 (continued) In the event of equality of votes, the Chairperson of the Committee shall have a casting vote (except where 2 directors form the quorum). In the absence of the Chairperson of the Committee, the members present shall elect one member to chair the meeting The Committee members shall: • have a good k nowledge of the Company and its executive directors, and a full understanding of shareholders’ concern; and • have a good understanding, e n h a n c e d a s n e c e s s a r y by appropriate training or access to professional advice, on/of areas of remuneration. Meetings The Committee shall meet at least once a year. Additional meetings shall be scheduled as considered necessary by the Committee or Chairperson. The Committee may establish procedures from time to time to govern its meetings, keeping of minutes and its administration. The Committee may consult the Chairperson of the Board regarding proposals relating to the remuneration of executive directors. The Committee may consult other non-executive directors in its evaluation of the Managing Director/ Chief Executive Officer. The Committee may request other directors and key executives to participate in Committee meetings, as necessary, to carry out the Committee’s responsibilities. The Committee shall have access to such information and advice, both from within the Group and externally, as it deems necessary or appropriate in accordance with the procedures determined by the Board and at the cost of the Company. The Committee is authorised by the Board to obtain external legal or other professional advice, as well as information about remuneration practices elsewhere. The Committee may, if it thinks fit, secure the attendance of external advisers with relevant experience and expertise, and shall have the discretion to decide who else other than its own members, shall attend its meetings. No director or executive shall take part in decisions on his/her own remuneration. The Secretary of the Committee shall be appointed by the Committee from time to time. Committee meeting agendas shall be the responsibility of the Committee Chairperson with input from Committee members. The Chairperson may also ask management to participate in this process. The agenda for each meeting shall be circulated at least 7 days before each meeting to the Committee members and all those who are required to attend the meeting. Written materials including information requested by the Committee from management or external consultants shall be received together with the agenda for the meetings. The Committee shall cause minutes to be duly entered in the books provided for the purpose of all resolutions and proceedings of all meetings of the Committee. Such minutes shall be signed by the Chairperson of the meeting at which the proceedings were held or by the Chairperson of the next succeeding meeting and if so signed, shall be conclusive evidence without any further proof of the facts thereon stated. The minutes of the Committee meeting shall be available to all Board members. The Committee, through its Chairperson, shall report to the Board at the next Board of Directors’ meeting after each Committee meeting. When presenting any recommendation to the Board, the Committee will provide such background and supporting information as may be necessary for the Board to make an informed decision. The Committee shall provide such information to the Board as necessary to assist the Board in making a disclosure in the Annual Report in accordance with the Principles of the Malaysian Code on Corporate Governance annual report 2011 | 151 BIII and the Bursa Malaysia Listing Requirements Appendix 9C Part A. Kulim (Malaysia) Berhad (23370-V) 6. The Chairperson of the Committee shall be available to answer questions about the Committee’s work at the AGM of the Company. Scope of Activities The duties of the Remuneration Committee shall include the following: 1. 2. To establish and recommend the remuneration structure and policy for executive directors and key executives, if applicable, and to review for changes to the policy, as necessary. To ensure that a strong link is maintained between the level of remuneration and individual per formance against agreed targets, the performance-related elements of remuneration setting forming a significant proportion of the total remuneration package of executive directors. 3. To review and recommend the entire individual remuneration packages for each of the executive directors and, as appropriate, other senior executives, including: the terms of employment or contract of employment/service; any benefit, pension or incentive scheme entitlement; any other bonuses, fees and expenses; and any compensation payable on the termination of the service contract by the Company. 4. To review with the Managing Director/Chief Executive Director, his/her goals and objectives and to assess his/her performance against these objectives as well as contribution to the corporate strategy. 5. To review the per formance standards for key executives to be used in implementing the Group’s compensation programmes where appropriate. 7. To consider and approve compensation commitments/severance payments for executive directors and key executives, where appropriate, in the event of early termination of the employment/service contract. Investor Relations Activities 2011 IR meetings To consider other matters as referred to the Committee by the Board. Senior Management members involved in Investor Relations activities are: SHAREHOLDERS No. of times 6 Conference calls 2 Company visits 5 Roadshows 4 • Ahamad Mohamad, Managing Director • Wong Seng Lee, Executive Director • Azli Mohamed, Chief Financial Officer • Md Faizal Abdullah, Senior Manager, Corporate Affairs Department Communication and Investor Relations In line with the Group’s commitment to observe the highest level of accountability and transparency to its stakeholders, the Group continually ensures that it maintains a high level of disclosure and communication with its shareholders and stakeholders through various practicable and legitimate channels. The Group is duty-bound to keep the shareholders and investors informed of any major developments and changes affecting the Group. Other than that, the Board believes that the Company’s Annual Report also serves as an important communication tool to the shareholders, investors and all stakeholders in general. As such, each year, the Company strives to produce a value-added and transparent reporting to its readers. Annual General Meeting Communications are primarily effected through announcements via Bursa Malaysia Link, meetings, briefings, press releases and conference calls. In addition, the Group has established its official website at www.kulim. com.my which investors and shareholders can access for information. The website had been redesigned and enhanced further in 2008 and will be continuously improved to include more relevant information to investors and to better facilitate its navigation. Meetings and briefings are held regularly with shareholders, investors, research analysts, bankers and the press to explain and expand on Group’s latest performance results, current developments and future directions. During meetings, participants are encouraged to pose any question to the Board members or the senior management team of the Group to seek any clarification or explanation on any issues raised. Whilst these forms of communications are important, the Group takes full cognisance of its responsibilities to not disclose any price-sensitive information. The AGM is a vital platform for dialogue and interaction with the shareholders of the Company. The shareholders are given the opportunity to vote on the regular businesses of the meeting by show of hands. Each item of special business included in the notice of the meeting will be accompanied by detailed explanations. Separate resolutions are proposed for substantially different issues at the meeting and the Chairman declares the number of proxy votes received both for and against each resolutions. The resolutions passed at the meeting are released to Bursa Malaysia in a timely manner. Besides the usual agenda, the Board also presents the progress and performance of the Group at each AGM. Shareholders, including the minority shareholders, are encouraged to participate and raise questions during the question and answer session with the Directors. All Board members, senior management and the external auditors are present to respond to questions from the shareholders during AGM. Where appropriate, the Chairman will undertake to provide a written answer to any significant question that cannot be readily answered at the meeting. Kulim (Malaysia) Berhad (23370-V) 152 CORPORATE GOVERNANCE REPORT Other than the Board Chairman and the Managing Director, the shareholders or any stakeholders may convey any concerns that they may have to Tan Sri Dato’ Seri Arshad Ayub, an Independent Non-Executive Director and Chairman of the Audit Committee. ACCOUNTABILITY AND AUDIT Financial Reporting In presenting the annual financial statement and quarterly announcements to shareholders, the Directors aim to present a balanced and candid assessment of the Group’s position and prospects. This also applies to other price-sensitive public reports and reports to regulators. Timely release of announcements reflects the Board’s commitment to provide up-to-date and transparent information on the Group’s performance. In the preparation of the financial statements, the Directors will consider compliance with all applicable Financial Reporting Standards, provisions of the Companies Act 1965 and relevant provision of laws and regulations in Malaysia and the respective countries in which the subsidiaries operate. The Board is assisted by the Audit Committee who reviews both annual financial statements and the quarterly announcements to ensure reports reflect a true and fair view of the state of affairs of the Group and Company. Statement of Directors’ Responsibility in Preparing Audited Financial Statements The Directors are required by Companies Act 1965 to prepare financial statements for each financial year which have been made out in accordance with the applicable approved accounting standards and give a true and fair view of the state of affairs of the Group and the Company at the end of the financial year and of the results and cash flows of the Group and Company for the financial year. (continued) In preparing the financial statements, the Directors have: • adopted suitable accounting policies and applied them consistently; • made judgment and estimates that are reasonable and prudent; • ensured that all applicable Financial Reporting Standards in Malaysia have been followed; and • | annual report 2011 prepared financial statements on the going concern basis as the Directors have a reasonable expectation, having made enquiries that the Group and Company have resources to continue in operational existence for the foreseeable future. The Directors have responsibility for ensuring that the Group and the Company keeps accounting records which disclose with reasonable accuracy the financial position of the Group and the Company and which enable them to ensure that the financial statements comply with Companies Act 1965. The Directors have overall responsibilities for taking such steps as are reasonably open to them to safeguard the assets of the Group to prevent and detect fraud and other irregularities. Related Party Transactions All related party transactions entered into by the Group were made in the ordinary course of business and on substantially the same terms as those prevailing at the time for comparable transactions with other persons or charged on the basis of equitable rates agreed between the parties. All related party transactions are reviewed by the internal auditors and a report on the reviews conducted is submitted to the Audit Committee for their monitoring. Details of the transactions entered into by the Group during the financial year ended 31 December 2011 are set out on pages 257 to 260 of this Annual Report. Internal Control Statement The Group’s Internal Control Statement is set out on pages 153 to 159. Relationship with the External Auditors The Board through the Audit Committee has maintained a formal procedure of carrying out an independent review of all quarterly reports, annual audited financial statements, External Auditor’s audit plan, report, internal control issues and procedures. The Committee meets with the External Auditors without the presence of the Executive Board and Senior Management at least once a year. During the year, 2 meetings have been conducted without the presence of the management. Representatives from the External Auditors are also invited to attend every Annual General Meeting. The role of the Audit Committee in relation to the External Auditors is described on page 162. This Statement is made in accordance with the Resolution made in the Board of Directors’ meeting held on 22 March 2012. KAMARUZZAMAN ABU KASSIM Chairman annual report 2011 | 153 Kulim (Malaysia) Berhad (23370-V) INTERNAL CONTROL STATEMENT INTRODUCTION The Malaysian Code on Corporate Governance requires listed companies to maintain a sound system of internal control to safeguard shareholders’ investment and the Group’s assets. Para 15.26(b) of Main Market Listing Requirements requires Directors of listed companies to include a statement in their annual reports on the state of their internal control. Set out below is the Board’s Internal Control Statement, which has been prepared in accordance with the Statement on Internal Control: Guidance for Directors of Public Listed Companies (“the Guidance”). The Board wishes to highlight that certain of the Group’s subsidiaries which are listed on Bursa Securities, namely QSR Brands Bhd and KFC Holdings (Malaysia) Bhd are also subject to similar disclosure requirements as the Group in preparing this statement. Hence, a more detailed disclosure of the state of internal controls of these subsidiaries is available for references vide their respective Internal Control Statements included in their Annual Reports. Towards fulfilling the Group’s oversight and monitoring responsibilities to ensure the said subsidiaries fully comply with the relevant requirements and legislations with regard to internal controls implementation and disclosure, the Group has adequate representation in the Board of these listed subsidiaries through several common directors and senior management members. BOARD’S RESPONSIBILITIES The Board of Directors recognises the importance of sound internal control and risk management practices to good corporate governance with the objective of safeguarding the shareholders’ investment and the Company’s assets. The Board affirms its overall responsibility for the Group’s system of internal controls and for reviewing the adequacy and integrity of those systems including financial and operational controls, compliance with relevant laws and regulations and risk management. The Group has in place an ongoing process for managing the significant risks affecting the achievement of its business objectives throughout the period, which includes identifying, evaluating, responding to and monitoring these risks. This process is regularly reviewed by the Board, which dedicates separate time for discussion of this subject. The Group’s system of internal control is designed to manage, rather than eliminate the risk of failure to achieve business objectives. It must be recognised that it can only provide reasonable and not absolute assurance against misstatement or loss. In addition, the management needs to consider the expected cost and benefits to be derived from the implementation of the internal control system. CONTROL FRAMEWORK AND ENVIRONMENT Key to the Group’s Internal Control and Risk Management framework is its Control SelfAssessment (“CSA”) process. The process is a recognised and flexible management tool for acquiring information about business process risks, while empowering the risk owners to undertake responsibility and mitigate those risks. Each business unit is required to document the management and mitigating action plan for each significant risk. Risk assessment and evaluation form an integral part of the annual strategic cycle. The Board, as part of the annual strategic review, considers and approves the Group’s risk structure. Risk Management Having regard to the fact that managing risk is an inherent part of the Group’s activities, risk management and the ongoing improvement in corresponding control structures remain a key focus of management in building a successful and sustainable business. For this endeavour, the Group has established a Risk Management Committee in December 2003. The Risk Management Committee was renamed as Risk & Issues Management Committee in 2011. The Committee is chaired by the Executive Director/Vice President of the Group; and represented by senior management members from all functions of the Group. The Committee met 4 times in 2011. Kulim (Malaysia) Berhad (23370-V) 154 INTERNAL CONTROL STATEMENT | annual report 2011 (continued) Apart from complying with the governance requirement, this Committee, which is cross-functional in nature, was formed to assist the Board of Directors in establishing and maintaining effective policies and guidelines to ensure proper management of risks to which the Group is exposed and to take appropriate and timely action to manage such risks. In Kulim, the structure of the Group promotes the active participation of executive management in all of the operational and strategic decisions affecting their business units. This creates a strong culture of ownership and accountability. The risk management structure implemented in Kulim Group is as follows: BOARD OF DIRECTORS Audit Report AUDIT COMMITTEE EXTERNAL AUDITORS INTERNAL AUDIT DEPARTMENT RISK & ISSUES MANAGEMENT COMMITTEE CORPORATE OFFICE & INTRAPRENEUR VENTURES Audit Financial Risk Strategic Risk Business Risk Operational & Hazard Risk Compliance & Systems Risk Advisory and monitoring role Group risks are being managed on an integrated basis and its evaluation is incorporated into the Group decision-making process such as the strategic planning and project feasibility studies. The management of risks of the Group is facilitated by the use of risk management software. A risk management report is to be tabled for Audit Committee and Board discussion once every 6 months. The report identifies principal risks affecting or likely to affect the Group and ensures the implementation of appropriate and adequate systems to manage the risk. Notwithstanding the half-yearly reporting requirement, the Audit Committee and Board will be promptly updated with special risk reports pertaining to any significant ad-hoc risk issues that may arise from time to time during the year. & Issue Management Committee within the respective companies to assess and evaluate the risk management process of the respective companies on a periodic basis. During its meetings, all risks facing each operation and department are discussed in detail within the context of the business objectives and strategy. Status of corrective actions is tabled for comments by the relevant staff. Various ideas and suggestions are tabled for improvement of areas of concern. In essence, the management of risk is treated as an iterative process. The benefits arising from the setting up of this committee creates awareness among employees of different departments to take cognisance of risk on a Group-wide basis. This enhances the Risk Ownership factor across the Group significantly. A separate risk management function also exists within the Group’s significant listed subsidiaries with the establishment of Risk annual report 2011 | 155 Kulim (Malaysia) Berhad (23370-V) KEY INTERNAL CONTROL PROCESSES The key elements of the Group’s system of internal control are stated below: Internal Committees There are internal committees established by EPA Management Sdn Bhd, the managing agent and also a wholly-owned subsidiary of Kulim (Malaysia) Berhad, which facilitate the operations and thus the management of risks of the Group, particularly for plantation operations and Intrapreneur businesses in Malaysia. These committees were established with formal terms of references clearly outlining their functions and duties and are appropriately empowered to ensure effective management and supervision of the business operations. MAIN COMMITTEE STRUCTURE BOARD OF DIRECTORS AUDIT COMMITTEE MANAGEMENT COMMITTEE MCMBUDGET TENDER & ADDITIONAL FUND EXCO RISK & ISSUES MANAGEMENT APPRAISAL, KPI & BONUS Strategic Direction Direction Monitoring & Risk Control Strategic & Business Direction Financial Operation & Business Risk PLANTATION OPERATION PALM OIL MARKETING Performance Monitoring Kulim (Malaysia) Berhad (23370-V) 156 INTERNAL CONTROL STATEMENT | annual report 2011 (continued) The full list of the Internal Committees are as follow: NAME OF COMMITTEE PRIMARY FUNCTION Management Committee To review and evaluate the performance progress including the key policy and strategy implementations of the various divisions, subsidiaries and operating units of the Group. Where authorised, to formulate and approve matters relating to Group policy, objectives and business strategy and projects, and to evaluate and recommend for Board’s approval. Executive Committee (“EXCO”) To coordinate departmental roles and administrative matters in relation to the various divisional operations and review, recommend and seek approval of the management on any related proposals. Management Committee – Budget, Tender and Additional Capital & Revenue Expenditure (“MCMBudget, Tender & Additional Fund”) To recommend to the Management Committee the awarding of contracts for purchases and projects to suppliers/contractors in accordance with the Contract Administration Guidelines & Procedures of the Company. To review budgets and all requests pertaining to capital and revenue spending and to recommend them for the ratification of the Management Committee. Risk & Issues Management Committee To conduct risk identification, evaluation and review of risk treatment process on a periodic basis to ensure the Group’s risk management effectiveness. Further details on the Committee are set out on pages 153 to 154. Plantation Operation Committee To ensure that estates and mills owned by the Group are managed in accordance with requirements and at the best possible standards. Palm Oil Marketing Committee To review and decide on the appropriate selling arrangement, quantity and prices of the Group palm products. Board of Survey To review all requests pertaining to write-off/back of fixed assets, debtors, stocks and creditors and recommend them for the ratification of the Management Committee. Sustainability and Quality Council To oversee and monitor the development, implementation, maintenance, compliance and effectiveness of all matters relevant to sustainability and quality movement of the Group as well as ensuring compliance with the Roundtable on Sustainable Palm Oil (“RSPO”) principles and criteria. Appraisal, KPI and Bonus Committee To deliberate performance, KPIs, behavioural competencies and recommend appropriate increments, promotions and merits for all executives and corporate office staff. Training Committee To formulate training plan in meeting the objective of enhancing knowledge, skill and competencies of Kulim’s employees. Plantation Budget Review To ensure the Plantation Operation budget is prepared to achieve the objective of maximising the long term profitability of oil palm plantation, and at the same time, maintaining its sustainability. OSH Committee To foster cooperation and consultation between management and workers in identifying, evaluating and controlling hazards at workplaces. annual report 2011 | 157 Kulim (Malaysia) Berhad (23370-V) Internal Committees for Intrapreneur Ventures The Company has also established internal committees which act as the strategic direction monitoring agent and risk control to ensure the effective management and supervision of the IVs. NAME OF COMMITTEE PRIMARY FUNCTION IV Monitoring & Executive Committee (“IV EXCO”) To monitor progress and development of all the IV companies as well as strengthening the business and management capabilities. Providing necessary business guidance and referral. To evaluate viability of projects, proposals, funding, CAPEX or capital adequacy of the IV companies. Credit Control Committee To appraise the financial health, performance and compliance to FRS, Income Tax Act and internal controls by the IVs. Project Risk Evaluation Committee To ensure that IVs/projects of the Group are being run, coordinated and managed at the best possible standards to meet the Group’s requirements and to ensure the Group risk management effectiveness. Audit Review Committee To monitor the Internal Control System and recommend improvement of the Internal Control System and practices to achieve the company’s objectives. To ensure that the company is in compliance with laws and regulations and the Code of Conduct and Business Ethics and the company is being managed in line with the aspiration and the expectation of Kulim. Agreement Committee To ensure that material agreements are forwarded for Committee discussion and/or approval. This is to ensure and safeguard the company’s interest. In addition, there are also internal committees set up at the level of respective significant subsidiaries to assist the respective subsidiaries’ Board of Directors in discharging their duties. Organisational Structure The Board has established a formal organisational structure for the Group with delineated lines of authority, responsibility and accountability. It has put in place suitably qualified and experienced management personnel to head the Group’s diverse operating units into delivering results and their performance are measured against the Key Performance Indicators that are approved by the Board. Internal Audit The Board recognises that the internal audit function is an integral component of the governance process. The Internal Audit Department of EPA Management Sdn Bhd being the Managing Agent operates within the Audit Charter approved by the Audit Committee and performs internal audits in diverse areas and environment in the review of any management, accounting, financial and operational activities including internal control within the organisation. The Group’s Internal Audit has maintained a quality assurance and improvement programme and continuously monitors its overall effectiveness. The assessment of the programme conducted via a selfassessment with independent validation by a qualified, independent external reviewer demonstrates that the internal audit activities are in conformance with the International Standards for the Professional Practice of Internal Auditing. The Group’s listed subsidiaries in Malaysia also have separate Internal Audit functions within their organisations which carry out the approved audit plan, risk evaluations, and review the adequacy and effectiveness of the internal control system. Similarly, the Internal Auditors report directly to the Audit Committee of these companies. External Auditors The External Auditors issue Management Letter highlighting issues and weaknesses, which came to their attention during the conduct of their normal audit procedures. The Group’s Internal Audit subsequently performs follow-up reviews to determine the extent to which the recommendations have been implemented. The External Auditors are appointed by the Board to review this Statement on Internal Control and to report thereon. This Statement on Internal Control has been reviewed by the External Auditors for the inclusion in the annual report of Kulim (Malaysia) Berhad for the year ended 31 December 2011. The External Auditors have reported to the Board that nothing has come to their attention that causes them to believe that the statement is inconsistent with their understanding of the process adopted by the Board in reviewing the adequacy and integrity of the system of the internal controls. Kulim (Malaysia) Berhad (23370-V) 158 INTERNAL CONTROL STATEMENT OTHER ELEMENTS OF INTERNAL CONTROL Apart from the committees and parties mentioned in the Corporate Governance Statement, the Audit Committee Report and mentioned above, the other elements of the Group’s Internal Controls are as follows: Financial Authority Limit The Financial Authority Limit defines revenue and capital expenditure spending limits for each level of management within the Group. These limits cover authority for cheque signatories, major capital and revenue expenditure spending limits, works contract procedures and approvals and mechanism for budget approvals. Budget Approval Budgets are an important control mechanism used by the Group to ensure an efficient allocation of Group resources and that the operational managers are sufficiently guided in making business decisions. Budgets are generated annually at each subsidiary and operating unit. For the plantation units, budgets will be reviewed by the Regional Head followed by their presentation to a Plantation Budget Review Committee for further deliberation. Significant subsidiaries will have their budgets reviewed by their own budget committee. All budgets will then be presented for deliberation at the Management Committee - Budget, Tender and Additional Capital & Revenue Expenditure, and subsequently will be tabled to MCM for approval and endorsement. Finally the budgets will be presented to the Board of Directors for final review and approval. Procurement A centralised and coordinated procurement function is established at each of the Group’s key business divisions which enable the Group to leverage on economies of scale and ensures adherence to authority limits, policies and procedures. Major contract and supply works of both capital and revenue nature exceeding the threshold defined in the relevant contract procedure are required to be tendered out. | annual report 2011 (continued) Eligible bidders for contract works will have to attend a contract interview with the Contract Interview Committee that is made up of representatives of several departments at the divisional head-quarter including the acquiring unit’s Manager. The Contract Interview Committee will then forward the recommendations to the Management Committee - Budget, Tender and Additional Capital & Revenue Expenditure for further review and approval. financial policies and procedures. These assist and guide employees on purchasing and contract awards, preparing of financial statements, observing the various internal control policies and procedures, as well as maintaining good management practices to ensure cost efficiencies, integrity of financial records and to safeguard the Group’s assets. The Board believes that all the control measures will significantly enhance the internal control of the Group. Plantation Operational Control The major Policy and Procedure Manuals include: Through Plantation Operation Committee Meetings, which are held once every 2 months, the progress of Group’s estates and mills are monitored. During the meetings, reports and matters including monthly management reports, agronomists’ reports, planting advisors’ reports, internal audit reports and manpower requirement assessments are tabled for discussion. Any major issues will be highlighted for corrective actions to be taken. The executives from the management office visit the Groups’ estates/mills regularly. Discussion is also frequently done via phone, fax and e-mail. Regional Head and Regional Controllers, planting advisors and agronomists separately visit the operating units. A detailed report on the state of affairs of the units is produced after each visit. Security teams visit the operating units on unscheduled basis to review the integrity of the security system. The visits also cover physical security on inventories, post harvest crops and finished products security up to point of delivery. IVs Operational Control Through the internal committee meeting, the operational and financial performances as well as progress of projects undertaken by the respective IVs are monitored. The reports on the financial performance of the IVs are also submitted on monthly basis to the Group. Any major issue highlighted will be tabled to the Management Committee Meeting. Operating and Procedural Manuals The Group has reference manuals covering agricultural practices, purchasing and contract procedures, financial operating system and 1. Agricultural Manual 2. Financial Procedure 3. Executive and Staff Scheme of Service 4. Standard Operation Procedure 5. RSPO-MY NIWG 5 6. Risk Framework 7. Internal Audit Manual Forward Sales Policy The Group has in place a forward sales policy for its palm oil and biodiesel products which has been approved by the Board. For Malaysian palm oil products, the Group adopts the maximum of 6-month forward policy and the maximum of 90% of the Group’s own fruits, whereas Malaysian biodiesel products are allowed to be sold forward up to the maximum of 12 months ahead. Regulatory Compliance The Group adheres strictly to health, safety and environmental regulations and is subject to regular inspections by the relevant government authorities. For the Group’s Plantations division in Malaysia, the Sustainability and Quality Department at its management agent level is responsible for ensuring that the plantation operations are conducted within the constraints of the applicable laws, regulations and quality standards. annual report 2011 | 159 Fraud Policy This policy was established to facilitate the development of controls which will aid in the detection and prevention of fraud against Kulim. The policy details responsibility, reporting and disclosure of fraud occurrences, and investigations relating to fraud. The policy applies to any fraud, or suspected fraud, involving employees as well as vendors, customers and partners who have a business relationship with the Group. The Group has also established a Grievance Policy and Procedure as well as Women OnWards so as to allow an employee or employees to bring to the attention of management of Kulim any dissatisfaction or feeling of injustice which may exist in respect of the workplace. The management will attempt to resolve the grievance in a manner, which is acceptable to the employee(s) concerned and the Group. Code of Ethics This code of ethics defines the standards of conduct that are expected of employees to help them make the right decision in the course of performing their jobs. All employees are required to adhere to the Group’s code of ethics and to submit the Ethics Declaration form annually. Employees are also encouraged to engage in an open dialogue with the senior management through the Group’s annual employees’ gathering; Pedoman. Kulim (Malaysia) Berhad (23370-V) • • Key Performance Indicators (“KPIs”) affecting key aspects of the certification requirements are developed to complement the economic indicators, which are subject to regular monitoring on their achievement progress; • RSPO trainings and briefings are conducted regularly to ensure changes and updates on the RSPO requirement are communicated to all affected employees; • operating in accordance with the requirements of laws and regulations in the areas of safety and health, Kulim regularly collaborates with suppliers and contractors towards ensuring both parties’ responsibilities in complying with the relevant legislations as well as engages third party OSH auditing expertise to conduct independent verification on the Group’s compliance status; • proper documentations and reference systems are established such as the Kulim Sustainability Handbook that sets out all the relevant policies to guide employees. All system’s documentations are monitored and controlled through the Document Annual Review and all changes affecting the documents are traced through the Document Change Note System; and • on the social aspects, internal social impact assessment guided by the SA8000 Standard are conducted in all Operating Units and affecting various levels of stakeholders to identify shortcomings, which are monitored through the Social Register. Maintaining Compliance to the Roundtable on Sustainable Palm Oil (“RSPO”) Certification Requirements Sustainability is a core value to the Group. Kulim has established its sustainability credentials by attaining RSPO certification. Safeguarding this reputation is critical to the organisation and the Group has put in place the control measures in the form of appropriate policies, monitoring systems and procedures so as to minimise, if not prevent the risks of non-compliance to the certification stringent requirements. Among the key measures are: site follow-up visits and inspections are conducted on a periodic basis to review the status of compliance, weaknesses and gaps in the implementations of various programmes, which is also in line with the requirement of Principle 8 of RSPO on Continuous Improvement; CONCLUSION The Board is of the view that the system of internal controls instituted throughout the Group is sound and effective and provides a level of confidence on which the Board relies for assurance. In the year under review, there is no significant control failure or weakness that would result in any material losses, contingencies or uncertainties that would require separate disclosure in the Annual Report. The Board will ensure that the review of the internal control system of the Group is carried out continuously to ensure ongoing adequacy and effectiveness of the system of internal controls and risk management practices to meet the changing and challenging operating environment. The Board is therefore pleased to disclose that the state of internal controls of the Group is adequate, appropriate and effective and in line with the Malaysian Code of Corporate Governance and the Statement of Internal Control – Guidance. Kulim (Malaysia) Berhad (23370-V) 160 | annual report 2011 AUDIT COMMITTEE REPORT COMPOSITION AND ATTENDANCE For the financial year ended 31 December 2011, the Audit Committee comprised of three Directors, all of whom are also members of the Board of Kulim (Malaysia) Berhad. The composition of the Audit Committee was as follows: 1. TAN SRI DATO’ SERI ARSHAD AYUB Chairman / Independent Non-Executive Director 2. KUA HWEE SIM Member / Independent Non-Executive Director 3. DR. RADZUAN A. RAHMAN Member / Independent Non-Executive Director The attendance record of the members of the Audit Committee during the financial year 2011 was as follows: Director 15.2.2011 23.5.2011 22.8.2011 17.11.2011 Tan Sri Dato’ Seri Arshad Ayub ✔ ✔ ✔ ✔ Kua Hwee Sim ✔ ✔ ✔ ✔ Dr. Radzuan A. Rahman ✔ ✔ ✔ ✔ annual report 2011 | 161 Kulim (Malaysia) Berhad (23370-V) TERMS OF REFERENCE • he must be a member of one of the associations of accountants specified in Part II of the 1st Schedule in the Accountants Act, 1967; or 6. • fulfils such other requirement as prescribed or approved by the Exchange. Functions and Duties Primary Purpose The primary purposes of the Audit Committee are: 1. 2. 3. 4. 5. 6. To ensure openness, integrity and accountability in the Group’s activities so as to safeguard the rights and interests of the shareholders; To provide assistance to the Board in fulfilling its fiduciary responsibilities relating to corporate accounting and reporting practices; To improve the Group’s business efficiency, the quality of accounting and audit function and strengthening of public’s confidence in the Group’s reported results; Th e Co m m i t t e e M e m b e r s s h a l l collectively have: i. knowledge of the industries in which the Group operates; ii. the ability to read and understand fundamental financial statements, including a company’s balance sheet, income statement of cash flow and key performance indicators; and To m a i n t a i n a d i r e c t l i n e o f communication between the Board and the External and Internal Auditors; To create a climate of discipline and control, this will reduce the opportunity for fraud. The members of the Committee shall be appointed by the Board of Directors of Kulim and shall consist of not less than 3 members, all of whom must be non-executive directors, with a majority of them being independent directors. If membership for any reason falls below 3 members, the Board of Directors shall, within 3 months of that event, appoint such number of new members as may be required to fulfil the minimum requirement. 2. No alternate directors shall be appointed to the Committee. 3. At least 1 member of the Audit Committee: i. must be a member of the Malaysian Institute of Accountants (“MIA”); or ii. if he is not a member of MIA, he must have at least 3 years of working experience and: • he must have passed the examinations specified in Part I of the 1st Schedule in the Accountants Act, 1967; or The Committee shall carry out the following responsibilities: Financial Statements 1. Review and recommend acceptance or otherwise of major accounting policies, principles and practices. 2. Review the Group’s quarterly results and annual financial statements of the Company and the Group before submission to the Board. The review should focus primarily on: i. any changes in or implementation of major accounting policy changes ii. major judgmental areas, significant and unusual events Authority iii. The Committee for the performance of its duties shall in accordance to the same procedures adopted by the Board and at the cost of the Group: significant adjustments resulting from audit iv. the going concern assumptions v. compliance with accounting standards vi. compliance with stock exchange and legal requirements To enhance the independence of the external and internal audit functions; and Membership 1. 4. To be able to engage independent professional advisors or other advisors and to secure attendance of outsiders with relevant experience and expertise if it considers this necessary. iii. 1. 2. 3. 4. 5. the ability to understand key business and financial risks and related controls and control processes. Have the authority to investigate any activity within its Terms of Reference; Have the resources which are required to perform its duties; Have full and unrestricted access to any employee and information pertaining to the Group. All documents of the Group shall be made accessible to the Committee; Have direct communication channels with the External Auditors and person(s) carrying out the internal audit function or activity for the Group; Have the authority to direct the Internal Audit Department (both corporate, subsidiaries, associates, joint ventures, where applicable) in its activities, including approval of appointments of senior executives and budget in these functions; and 3. Review with management and the external auditors, the results of the audit, including any difficulties encountered. 4. Review, with the Group’s Counsel, any legal matter that could have a significant impact on the organisation’s financial statements. Internal Control 1. Assess the quality and effectiveness of the systems of internal control and the efficiency of the Group’s operations, particularly those relating to areas of significant risks. To evaluate the process the Group has in place a system for assessing and continuously improving internal controls. Kulim (Malaysia) Berhad (23370-V) AUDIT COMMITTEE REPORT 2. Assess the internal processes for determining and managing key risks other than those that are dealt with by other specific Board committees. 3. Review the scope of Internal and External Auditors’ review of internal control over the Group. 4. Review Internal Audit reports (including those of the Group) and the management’s response and ensure that appropriate action is taken in respect of these reports and the Committee’s resolutions. Where actions are not taken within adequate time frame by management, the Committee will report to the Board for its decision. 5. Review External Auditors reports and the management’s response and ensure that appropriate action is taken in respect of these reports and the Committee’s resolutions. 162 (continued) External Audit 1. 2. 3. 2. Approve the Corporate Audit Charter and charters of the Internal Audit functions in the Group and ensure that the Internal Audit functions are adequately resourced and have appropriate standing in the Group. This includes a review of the organisational structure, resource budgets and qualifications of the internal audit functions. Review the adequacy of the Internal Audit plans and the scope of audits and that the Internal Audit Department has the necessary authority, competency and resources to carry out its work. 3. Approve the appointment of Head of Internal Audit. 4. Review appraisals or assessments of members of the Internal Audit functions. 5. Inform itself of resignations of Internal Audit staff members and provide the resigning staff member an opportunity to submit his/her reasons for resigning. 6. Direct any special investigations to be carried out by the Internal Audit. Review External Audit plans and scope of work before the audit commences. Discuss problems and reservations arising out of external audits, including assistance given by the employees and any matters the auditors may wish to discuss, in the absence of Management or Executive Directors where necessary. Nominate the External Auditors together with such other functions as may be agreed to by the Committee and the Board, and recommend for approval of the Board the external audit fees, and consider any questions of resignation or dismissal, experience, resources and capability. 3. 1. Review the effectiveness of the system for monitoring compliance with laws and regulations and the results of the management’s investigation and followup of any instances of non-compliance. 2. Review the findings of any examinations by regulatory authorities. 3. Obtain regular updates from the management and Group’s legal counsel regarding compliance matters. 4. 5. Review any related party transactions and conflict of interest situation that may arise within the Company or the Group including any transaction, procedure or course of conduct that raises questions of the management integrity. 1. Meetings of the Committee shall be held not less than 4 times during the financial year of the Company. 2. Upon the request of any member of the Committee, the Head of Internal Audit or the External Auditor, the Chairman of the Committee shall convene a special meeting of the Committee to consider any matter brought up by them. 3. The quorum for the meeting of the Committee shall be 2 members and the majority of the members present shall be independent directors. In the absence of the Chairman, the members present shall elect a chairman for the meeting from amongst the members present. 4. The meetings of the Committee shall be governed by the provisions contained in the Memorandum and Articles of Association of the Company for regulating the meetings and proceedings of Directors unless otherwise provided in this Terms of Reference. 5. The Non-Executive Directors of the Board who are not members of the Committee may also attend the meeting of the Committee, but they shall not have any voting rights. 6. The meetings of the Committee shall normally be attended by the Head of Internal Audit and the Management of the Company shall be represented by the Managing Director and the Head of Finance, or their nominated person(s), at the invitation of the Committee and shall excuse themselves from the meeting when so directed by the Committee. 7. The Committee may request other directors, members of management, counsels, internal auditors (including subsidiaries) and external auditors, applicable to par ticipate in the Committee meetings, as necessary and when so invited, to carry out the Committee’s responsibilities. Where the Committee is of the view that a matter reported by it to the Board has not been satisfactorily resolved, resulting in a breach to the Main Market Listing Requirements, the Committee must promptly report such matters to the Bursa Malaysia. Other Responsibilities 1. Review and reassess, with the assistance of the management, the External Auditors and legal counsel, the adequacy of the Terms of Reference of the Committee at least annually. 2. Confirm annually that all responsibilities outlined in the Terms of Reference have been carried out. Perform other duties as directed by the Board. Meetings Compliance Internal Audit 1. | annual report 2011 annual report 2011 | 8. 9. 163 The Committee shall meet the External Auditors, the internal auditors or both, excluding the attendance of other directors and employees, whenever deemed necessary. A Committee member shall excuse himself/herself from the meeting during discussions or deliberation of any matter which gives rise to an actual or perceived conflict of interest situation for the member. Where this cause insufficient directors to make up a quorum, the Committee has the right to appoint another director(s) which meets the membership criteria. 10. The Secretary of the Committee shall be the Company Secretary or his/her appointed nominee with the appropriate qualifications and experience. 11. The agenda for the Committee meeting shall be the responsibility of the Committee Chairman with input from the Committee members. The Chairman may also ask the management and others to participate in this process. 12. 13. 14. 15. The notice and agenda of each meeting shall be circulated at least 7 working days before each meeting to the Committee members and all those who are required to attend the meeting. Written materials including information requested by the Committee, from the management, internal auditors and external auditors shall be received together with the agenda for the meetings. Reports of the Committee meeting shall be tabled at the meeting of the Board Directors of the Company. The Committee, through its Chairman, shall report to the Board after each meeting. Kulim (Malaysia) Berhad (23370-V) 1. 2. Review of the External Auditors’ audit observations, the audit report and recommendations in respect of control weaknesses noted in the course of their audit; 3. Review of the audited financial statements for the financial year ended 31 December 2011 before recommending the same to the Board of Directors for approval; 4. Review of the Company’s compliance, in particular the quarterly and yearend financial statements with the Main Market Listing Requirements of Bursa Malaysia and the applicable approved accounting standard issued by the Malaysian Accounting Standard Board; 5. Review of the quarterly unaudited financial results announcements before recommending them for the Board of Directors’ approval; 6. Review of the Internal Audit activities related to management and operations, capacity, internal audit framework and of the analytical process and reporting procedures; 7. 8. 9. The Chairman of the Committee shall be available to answer questions about the Committee’s work at the AGM of the Company. Summary of Activities During the period, the Audit Committee carried out its duties and responsibilities in accordance with its terms of reference: The main activities undertaken by the Audit Committee were as follows: Review and approval of the annual internal audit plan for the year 2011/2012; 10. Internal Audit Function The Group’s Internal Audit function is carried out by the Internal Audit Department (“IAD”) and led by a Certified Internal Auditor (“CIA”). IAD is established separately at the Group Corporate Office and its listed subsidiaries in Malaysia, QSR Brands Bhd and KFC Holdings (Malaysia) Bhd. The IAD reports directly to the Audit Committee and is guided by its Internal Audit Charter. The IAD assists the Board in fulfilling its fiduciary responsibilities over the areas of financial, operational, information systems, investigations, risk management and governance process in accordance with the approved Risk Based Annual Audit Plan. On quarterly basis, the IAD provides the Audit Committee with independent and objective reports on the state of internal control, highlighting any areas for improvement and updates on the extent to which the recommendations have been implemented. The management is responsible to ensure that corrective actions on reported weaknesses as recommended are taken within the required time frame to ensure that all potential weaknesses in system and risks under reviewed area are mitigated or remain within manageable levels. Other IAD activities carried during the year are summarised as below: 1. Review of the audit reports presented by the Internal Auditors and management’s responses thereto and reviewing management’s assurance that significant finding are adequately addressed; Conducted roadshows/workshops with the estates/mill management deliberating on audit related matters. 2. Worked together with the estates and mills in specific risk and control review through Control Self Assessment (“CSA”) programmes. Review of related party transactions entered into by the Group; 3. Par ticipated in Corporate Social Responsibility (“CSR”) programmes organised by management. 4. Performed internal self-assessment on conformance with the International Standards for the professional Practise of Internal Auditor. 5. Conducted special review based on requests from the Audit Committee and/or management. Review of the extent of the Group’s compliance with the relevant provisions set out under the Malaysian Code on Corporate Governance for the purpose of preparing the Corporate Governance Statement and Statement on Internal Control pursuant to the Main Market Listing Requirements; and Review of the risk management development presented by Head of Risk and System Management. The total cost incurred for the internal audit function at the Group Corporate Office level for the financial year ended 31 December 2011 was approximately RM793,000. Kulim (Malaysia) Berhad (23370-V) 164 | annual report 2011 ADDITIONAL COMPLIANCE INFORMATION The following information is provided in compliance with the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (“Bursa Malaysia”) for the financial year ended 31 December 2011: Utilisation of Proceeds from Corporate Proposals There was no corporate proposal specifically intended to raise funds undertaken during the financial period ended 31 December 2011 which has resulted in the receipt of proceeds for utilisation. Share Buy-Backs The Company had, on 20 June 2005, obtained the shareholders’ approval to purchase its own shares up to 10% of its issued and paid up share capital. During the financial year, the Company has acquired 14,840,000 units of its own shares pursuant to the renewed mandate for the share buy-back as approved by the shareholders of the Company at the 36th AGM held on 23 June 2011. As at 31 December 2011, a total of 27,482,200 ordinary shares were held as treasury shares. The details of the buy-backs are set out in page 30. Options, Warrants or Convertible Securities Exercised In 2011, a total of 156,174,319 free warrants were issued by the Company in conjunction with the share split and bonus issue on 28 February 2011. The warrants have an exercise period of 5 years commencing 28 February 2011 and expiring on 27 February 2016. As at 31 December 2011, 500 warrants have been exercised and converted into new ordinary shares. The Company has not issued any other convertible securities in respect of the financial year ended 31 December 2011. American Depository Receipt (“ADR”) of Global Depository Receipt (“GDR”) The Company has not sponsored any ADR or GDR programme for the financial year ended 31 December 2011. Sanctions and/or Penalties There were no sanctions and/or penalties imposed on the Company and its subsidiary companies, directors or management arising from any significant breach of rules/guidelines/legislations by the relevant regulatory bodies during the financial year. Non-Audit Fees During the financial year under review, non-audit fees paid to the external auditors of the Group amounted to RM1,831,000 (please refer to page 206 of the audited financial statements). Variation in Results There is no material variance between the results for the financial year and the unaudited results previously announced by the Group. Profit Guarantee The Company did not issue any profit forecast or profit guarantee for the financial year ended 31 December 2011. Material Contracts Other than those disclosed in the financial statements from page 257 to page 260, there was no material contract including contracts relating to any loans entered into by the Group and its subsidiaries involving Directors and major shareholders’ interest. Revaluation Policy The Group has not adopted a regular revaluation policy on landed properties as disclosed in the financial statements on page 192. Recurrent Related Party Transactions of Revenue or Trading Nature At the AGM held on 23 June 2011, the Company obtained a shareholders’ mandate to allow the Group to enter into recurrent related party transactions of revenue and/or trading nature from the even date up to the next forthcoming AGM. The list of significant recurrent related party transactions entered into by the Group during the financial year ended 31 December 2011 is described on page 165 of the Annual Report. annual report 2011 | 165 Kulim (Malaysia) Berhad (23370-V) ADDITIONAL DISCLOSURE Pursuant to the Listing Requirements RECURRENT RELATED PARTY TRANSACTIONS (“RRPT”) OF REVENUE AND/OR TRADING NATURE Pursuant to the Shareholders’ Mandate, the aggregate value of the recurrent transactions of revenue and/or trading nature conducted during the financial year ended 31 December 2011 between the Company and/or its subsidiary companies with related parties are set out below: Related Parties Involved with the Company and/ or Subsidiary Companies 1. Johor Corporation (“JCorp”) Interested Director and/or Major Shareholder Kamaruzzaman Abu Kassim Ahamad Mohamad Datin Paduka Siti Sa’diah Sh Bakir Rozan Mohd Sa’at Zulkifli Ibrahim Datuk Ahmad Zaki Zahid Wan Mohd Firdaus Wan Mohd Fuaad Nature of Relationship with Kulim Group Kulim is a 57.18% owned subsidiary of JCorp Type of Transaction Purchasing and sales commission on palm products Sdn Bhd (“JFSB”) Kamaruzzaman Abu Kassim Ahamad Mohamad Datin Paduka Siti Sa’diah Sh Bakir Rozan Mohd Sa’at Zulkifli Ibrahim Datuk Ahmad Zaki Zahid Wan Mohd Firdaus Wan Mohd Fuaad 2,335,000 Provision of data and document processing, bulk mailing and related services 107,000 Management of car parks, rental payment for car park facilities and related services 510,000 Provision of insurance broking services on business, assets and properties of JCorp 2. Johor Foods Aggregate Value of Transaction (RM) JFSB is a Sale of FFB wholly-owned subsidiary of Purchasing and sales commission on palm products JCorp 382,000 23,570,000 2,059,000 JCorp 3. Johor Land Berhad (“JLand”) Kamaruzzaman Abu Kassim Ahamad Mohamad Datin Paduka Siti Sa’diah Sh Bakir Rozan Mohd Sa’at Zulkifli Ibrahim Datuk Ahmad Zaki Zahid Wan Mohd Firdaus Wan Mohd Fuaad JLand is a 99.99% owned subsidiary of JCorp Purchase of FFB 4,777,000 JCorp 4. Pro Corporate Management Services Sdn Bhd (“PCMS”) Kamaruzzaman Abu Kassim Ahamad Mohamad Datin Paduka Siti Sa’diah Sh Bakir Rozan Mohd Sa’at Zulkifli Ibrahim Datuk Ahmad Zaki Zahid Wan Mohd Firdaus Wan Mohd Fuaad Secretarial and share registry services PCMS is a wholly-owned subsidiary of JCorp Hotels & Resorts Sdn Bhd 1,266,000 JCorp 5. Damansara Assets Sdn Bhd (“DASB”) Kamaruzzaman Abu Kassim Ahamad Mohamad Datin Paduka Siti Sa’diah Sh Bakir Rozan Mohd Sa’at Zulkifli Ibrahim Datuk Ahmad Zaki Zahid Wan Mohd Firdaus Wan Mohd Fuaad JCorp DASB is a Rental commission wholly-owned subsidiary of JCorp 617,000 SECTION 7: FINANCIAL STATEMENTS 168 DIRECTORS’ REPORT 173 STATEMENT BY DIRECTORS 174 STATUTORY DECLARATION 175 INDEPENDENT AUDITORS' REPORT 177 STATEMENTS OF COMPREHENSIVE INCOME 179 STATEMENTS OF FINANCIAL POSITION 181 STATEMENTS OF CHANGES IN EQUITY 184 STATEMENTS OF CASH FLOWS 186 NOTES TO THE FINANCIAL STATEMENTS 278 SUPPLEMENTARY INFORMATION Kulim (Malaysia) Berhad (23370-V) 168 | annual report 2011 DIRECTORS’ REPORT The directors have pleasure in presenting their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 December 2011. PRINCIPAL ACTIVITIES The Company is principally engaged in oil palm plantation, investment holding and property investment in Malaysia whilst the principal activities of the subsidiaries are as stated in Note 16 to the financial statements. There have been no significant changes in the nature of the principal activities during the financial year. RESULTS Profit net of tax Profit attributable to : Owners of the Company Non-controlling interests Group Company RM’000 RM’000 1,007,866 129,084 565,013 442,853 129,084 –- 1,007,866 129,084 There were no material transfers to or from reserves or provisions during the financial year other than as disclosed in the financial statements. DIVIDEND The amounts of dividends paid by the Company since 31 December 2010 were as follows: RM’000 In respect of the financial year ended 31 December 2010 as reported and taken up in the directors’ report and financial statements of that year: An interim dividend of 7.50 sen per share, less tax at 25%, totalling approximately RM17,570,000 (5.62 sen net per share) in respect of the financial year ended 31 December 2010, paid on 27 January 2011 17,570 A special dividend of 42.50 sen per share, less tax at 25%, totalling approximately RM99,560,000 (31.88 sen net per share) in respect of the financial year ended 31 December 2010, paid on 27 January 2011 99,560 117,130 An interim dividend of 5 sen per share tax exempt (single tier), totalling approximately RM61,728,000 (5 sen net per share) in respect of the financial year ended 31 December 2011, paid on 23 December 2011 Total dividends paid by the Company since 31 December 2010 61,728 178,858 annual report 2011 | 169 Kulim (Malaysia) Berhad (23370-V) DIRECTORS The names of the directors of the Company in office since the date of the last report and at the date of this report are: Kamaruzzaman Abu Kassim Tan Sri Datuk Arshad Ayub Ahamad Mohamad Wong Seng Lee Datin Paduka Siti Sa’diah Sh Bakir Kua Hwee Sim Datuk Haron Siraj Dr Radzuan A. Rahman Rozan Mohd Sa’at Zulkifli Ibrahim Datuk Ahmad Zaki Zahid Wan Mohd Firdaus Wan Mohd Fuaad Natasha Kamaluddin Leung Kok Keong Jamaludin Md Ali (Appointed on 1 July 2011) (Appointed on 8 November (Appointed on 9 November (Appointed on 9 November (Appointed on 9 November (Resigned on 1 July 2011) 2011) 2011) 2011) 2011) DIRECTORS’ BENEFITS Neither at the end of the financial year, nor at any time during that year, did there subsist any arrangement to which the Company was a party, whereby the directors might acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate. Since the end of the previous financial year, no director has received or become entitled to receive a benefit (other than benefits included in the aggregate amount of emoluments received or due and receivable by the directors or the fixed salary of a full-time employee of the Company as shown in Note 9 to the financial statements) by reason of a contract made by the Company or a related corporation with any director or with a firm of which he is a member, or with a company in which he has a substantial financial interest, except as disclosed in Note 30 to the financial statements. DIRECTORS’ INTERESTS According to the register of directors’ shareholdings, the interests of directors in office at the end of the financial year in shares in the Company and its related corporations during the financial year were as follows: Number of ordinary shares of RM0.25 each As at 1.1.2011 Share split* Bonus issue Acquired Disposed As at 31.12.2011 410,950 229,600 112,800 69,500 410,950 229,600 112,800 69,500 821,900 459,200 225,600 139,000 45,000 - (200,000) - 1,643,800 963,400 251,200 278,000 200 200 400 8,000 - 8,800 1,200,200 1,200,200 2,400,400 - - 4,800,800 Company Direct interest Tan Sri Datuk Arshad Ayub Ahamad Mohamad Wong Seng Lee Datin Paduka Siti Sa’diah Sh Bakir Rozan Mohd Sa’at Deemed interest Tan Sri Datuk Arshad Ayub * During the financial year, the Company undertook a share split involving the subdivision of every one (1) existing ordinary share of RM0.50 each into two (2) ordinary shares of RM0.25 each. Further details are disclosed in Note 26 to the financial statements. Kulim (Malaysia) Berhad (23370-V) DIRECTORS’ REPORT 170 | annual report 2011 (continued) DIRECTORS’ INTERESTS (continued) Number of ordinary shares of RM0.50 each 1.1.2011 Acquired Disposed 31.12.2011 172,000 200,000 – – (172,000) – – 200,000 313,824 99,928 99,500 15,092 – – – – (313,824) (99,928) (99,500) (15,092) – – – – 1,016,666 31,516 1,067 – – – (1,016,666) (31,516) (1,067) – – – Direct interest Ahamad Mohamad Datin Paduka Siti Sa’diah Sh Bakir 9,600 320 – – – – 9,600 320 Deemed interest Ahamad Mohamad 3,200 – – 3,200 In subsidiaries KFC Holdings (Malaysia) Bhd. Ahamad Mohamad Tan Sri Datuk Arshad Ayub Sindora Berhad Direct interest Tan Sri Datuk Arshad Ayub Ahamad Mohamad Datin Paduka Siti Sa’diah Sh Bakir Rozan Mohd Sa’at Deemed interest Tan Sri Datuk Arshad Ayub Ahamad Mohamad # Datin Paduka Siti Sa’diah Sh Bakir + In related companies Damansara Realty Berhad Number of ordinary shares of RM1.00 each 1.1.2011 Acquired Disposed 31.12.2011 Direct interest Tan Sri Datuk Arshad Ayub Datuk Haron Siraj Datin Paduka Siti Sa’diah Sh Bakir 150,000 4,000 1,000 – – – – (4,000) – 150,000 – 1,000 Deemed interest Tan Sri Datuk Arshad Ayub 100,000 – – 100,000 In subsidiaries QSR Brands Bhd. annual report 2011 | 171 Kulim (Malaysia) Berhad (23370-V) DIRECTORS’ INTERESTS (continued) # In accordance with Section 134(12)(c) of the Companies Act, 1965, the interests and deemed interests of the spouse of Ahamad Mohamad in the shares of the subsidiaries (other than wholly-owned subsidiaries) shall be treated as the interests of Ahamad Mohamad also. + In accordance with Section 134(12)(c) of the Companies Act, 1965, the interests and deemed interests of a child of Datin Paduka Siti Sa’diah Sh Bakir in the shares of the subsidiaries (other than wholly-owned subsidiaries) shall be treated as the interests of Datin Paduka Siti Sa’diah Sh Bakir also. None of the other directors in office at the end of the financial year had any interest in shares in the Company or its related corporations during the financial year. ISSUE OF SHARES During the financial year, the Company increased its authorised share capital from RM200,000,000 comprising 400,000,000 shares of RM0.50 each to RM500,000,000 comprising 2,000,000,000 shares of RM0.25 each; During the financial year, the Company also increased its issued and paid-up ordinary share capital from RM159,336,000 to RM315,509,000 by way of: (i) Share split involving the subdivision of every one (1) existing ordinary share of RM0.50 each held in the Company into two (2) ordinary shares of RM0.25 each (“sub-divided share(s)”) (Share Split); and (ii) Bonus issue of new sub-divided shares on the basis of one (1) bonus share for every one (1) sub-divided share held after the share split (“Bonus Issue”). The Share Split and Bonus Issue were completed on 28 February 2011. The above new shares issued during the financial year ranked pari passu in all respects with the existing ordinary shares of the Company. ISSUE OF FREE WARRANTS During the financial year, the Company issued 156,174,319 free warrants on the basis of one (1) warrant for every eight (8) sub-divided shares held after the Share Split and Bonus Issue. Each warrant entitles the holder to subscribe for one (1) new sub-divided share at the exercise price of RM3.85 per share at any time during the exercise period. The warrants have an exercise period of five (5) years commencing 28 February 2011 and expiring on 27 February 2016. TREASURY SHARES During the financial year, the Company repurchased 14,840,000 of its issued ordinary shares from the open market at an average price of RM3.40 per share. The total consideration paid for the repurchase including transaction costs was RM50,496,000. The shares repurchased are being held as treasury shares in accordance with Section 67A of the Companies Act, 1965. At 31 December 2011, the Company held as treasury shares a total of 27,482,200 of its 1,262,037,000 issued ordinary shares. Such treasury shares are held at a carrying amount of RM96,186,000 and further relevant details are disclosed in Note 27(h) to the financial statements. Kulim (Malaysia) Berhad (23370-V) DIRECTORS’ REPORT 172 | annual report 2011 (continued) OTHER STATUTORY INFORMATION (a) (b) Before the statements of comprehensive income and statements of financial position of the Group and of the Company were made out, the directors took reasonable steps: (i) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts and satisfied themselves that all known bad debts had been written off and that adequate allowance had been made for doubtful debts; and (ii) to ensure that any current assets which were unlikely to realise their value as shown in the accounting records in the ordinary course of business had been written down to an amount which they might be expected so to realise. At the date of this report, the directors are not aware of any circumstances which would render: (i) the amount written off for bad debts or the amount of allowance for doubtful debts in the financial statements of the Group and of the Company inadequate to any substantial extent; and (ii) the values attributed to the current assets in the financial statements of the Group and of the Company misleading. (c) At the date of this report, the directors are not aware of any circumstances which have arisen which would render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate. (d) At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or financial statements of the Group and of the Company which would render any amount stated in the financial statements misleading. (e) As at the date of this report, there does not exist: (f) (i) any charge on the assets of the Group or of the Company which has arisen since the end of the financial year which secures the liabilities of any other person; or (ii) any contingent liability of the Group or of the Company which has arisen since the end of the financial year. In the opinion of the directors: (i) no contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which will or may affect the ability of the Group or of the Company to meet their obligations when they fall due; and (ii) no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely to affect substantially the results of the operations of the Group or of the Company for the financial year in which this report is made. SIGNIFICANT EVENTS Details of significant events are disclosed in Note 33 to the financial statements. SUBSEQUENT EVENT Details of the subsequent event is disclosed in Note 34 to the financial statements. AUDITORS The auditors, Ernst & Young, have expressed their willingness to continue in office. Signed on behalf of the Board in accordance with a resolution of the directors dated 30 March 2012 Kamaruzzaman Abu Kassim Ahamad Mohamad annual report 2011 | 173 Kulim (Malaysia) Berhad (23370-V) STATEMENT BY DIRECTORS PURSUANT TO SECTION 169(15) OF THE COMPANIES ACT, 1965 We, Kamaruzzaman Abu Kassim and Ahamad Mohamad, being two of the directors of Kulim (Malaysia) Berhad, do hereby state that, in the opinion of the directors, the accompanying financial statements set out on pages 177 to 277 are drawn up in accordance with Financial Reporting Standards and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as at 31 December 2011 and of their financial performance and cash flows for the year then ended. The information set out in Note 40 to the financial statements have been prepared in accordance with the Guidance on Special Matter No.1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants. Signed on behalf of the Board in accordance with a resolution of the directors dated 30 March 2012 Kamaruzzaman Abu Kassim Ahamad Mohamad Kulim (Malaysia) Berhad (23370-V) 174 | annual report 2011 STATUTORY DECLARATION PURSUANT TO SECTION 169(16) OF THE COMPANIES ACT, 1965 I, Azli bin Mohamed, being the officer primarily responsible for the financial management of Kulim (Malaysia) Berhad, do solemnly and sincerely declare that the accompanying financial statements set out on pages 177 to 278 are in my opinion correct, and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960. Subscribed and solemnly declared by the ) abovenamed Azli bin Mohamed at Johor ) Bahru in the State of Johor on 30 March 2012 ) ) ) Before me, Azli bin Mohamed annual report 2011 | 175 Kulim (Malaysia) Berhad (23370-V) INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF KULIM (MALAYSIA) BERHAD (INCORPORATED IN MALAYSIA) REPORT ON THE FINANCIAL STATEMENTS We have audited the financial statements of Kulim (Malaysia) Berhad, which comprise the statements of financial position as at 31 December 2011 of the Group and of the Company, and the statements of comprehensive income, statements of changes in equity and statements of cash flows of the Group and of the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 177 to 277. Directors’ responsibility for the financial statements The directors of the Company are responsible for the preparation of financial statements that give a true and fair view in accordance with Financial Reporting Standards and the Companies Act 1965 in Malaysia, and for such internal control as the directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about 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 our judgement, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by the directors, 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. Opinion In our opinion, the financial statements have been properly drawn up in accordance with Financial Reporting Standards and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as at 31 December 2011 and of their financial performance and cash flows for the year then ended. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following: (a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the Act. (b) We have considered the financial statements and the auditors’ reports of all the subsidiaries of which we have not acted as auditors, which are indicated in Note 16 to the financial statements, being financial statements that have been included in the consolidated financial statements. (c) We are satisfied that the financial statements of the subsidiaries that have been consolidated with the financial statements of the Company are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes. (d) The auditors’ reports on the financial statements of the subsidiaries were not subject to any qualification material to the consolidated financial statements and did not include any comment required to be made under Section 174(3) of the Act. Kulim (Malaysia) Berhad (23370-V) 176 | annual report 2011 INDEPENDENT AUDITORS’ REPORT (continued) TO THE MEMBERS OF KULIM (MALAYSIA) BERHAD (INCORPORATED IN MALAYSIA) OTHER MATTERS The supplementary information set out in Note 40 to the financial statements on page 278 is disclosed to meet the requirement of Bursa Malaysia Securities Berhad. The directors are responsible for the preparation of the supplementary information in accordance with Guidance on Special Matter No. 1 Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants (“MIA Guidance”) and the directive of Bursa Malaysia Securities Berhad. In our opinion, the supplementary information is prepared, in all material respects, in accordance with the MIA Guidance and the directive of Bursa Malaysia Securities Berhad. This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report. Ernst & Young AF 0039 Chartered Accountants Johor Bahru, Malaysia Date: 30 March 2012 Abraham Verghese A/L T.V. Abraham 1664/10/12(J) Chartered Accountant annual report 2011 | 177 Kulim (Malaysia) Berhad (23370-V) STATEMENTS OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 Group Note 2011 RM’000 Company 2010 RM’000 2011 RM’000 2010 RM’000 Continuing operations Revenue Cost of sales 4 7,041,771 (3,491,726) 5,488,939 (2,730,194) 262,765 (89,916) 186,742 (76,310) Gross profit 5 3,550,045 2,758,745 172,849 110,432 Other income Distribution expenses Administrative expenses Other expenses 308,699 (1,738,085) (632,185) (51,786) 178,957 (1,537,502) (484,046) (65,362) 78,736 (2,358) (26,854) (58,710) 43,623 (865) (21,122) (115,255) Profit from operating activities 1,436,688 850,792 163,663 16,813 Interest income Finance costs Share of net results in associates 6 7 12,591 (91,475) 6,992 6,370 (81,440) 2,174 8,379 (20,062) – 6,414 (30,945) – Profit/(Loss) before tax Income tax expense 8 10 1,364,796 (356,930) 777,896 (233,681) 151,980 (22,896) (7,718) (21,153) 1,007,866 544,215 129,084 (28,871) – – (1,806) 153,417 – – – 240,149 1,007,866 695,826 129,084 211,278 Profit from continuing operations Discontinued operation Loss from discontinued operation, net of tax Gain on disposal of discontinued operation Profit for the year 11 11 Other comprehensive income, net of tax Foreign currency translation differences for foreign operations Transfer (from)/to: – reserve – retained profits Cash flow hedges Fair value changes on available-for-sale financial assets 486,229 3,052 – – (22,930) 22,930 120,801 (2,213) (675) 675 (98,372) 56,294 – – – (3,025) – – – 54,526 Other comprehensive income for the year, net of tax 604,817 (39,026) (3,025) 54,526 Kulim (Malaysia) Berhad (23370-V) 178 STATEMENTS OF COMPREHENSIVE INCOME | annual report 2011 (continued) FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 Group Note Total comprehensive income for the year Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 1,612,683 656,800 126,059 265,804 565,013 442,853 385,592 310,234 129,084 – 211,278 – 1,007,866 695,826 129,084 211,278 871,728 740,955 340,522 316,278 126,059 – 265,804 – 1,612,683 656,800 126,059 265,804 45.90 – 18.73 12.13 45.90 30.86 45.90 – 18.73 12.13 45.90 30.86 Profit attributable to: Owners of the Company Non-controlling interests Profit for the year Total comprehensive income attributable to: Owners of the Company Non-controlling interests Total comprehensive income for the year Basic earnings per ordinary share (sen): – from continuing operations – from discontinued operations 12 Diluted earnings per ordinary share (sen): – from continuing operations – from discontinued operations 12 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. annual report 2011 | 179 Kulim (Malaysia) Berhad (23370-V) STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2011 Group Note Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 7,667,603 98,296 1,097,799 – 24,334 52,479 – 9,501 5,876,948 97,863 1,046,895 – 56,610 214,061 917 7,890 1,072,403 94,602 – 1,316,634 – 5,778 – 4,208 1,072,039 94,503 – 1,220,685 – 175,312 – 3,613 8,950,012 7,301,184 2,493,625 2,566,152 145,517 700,690 590,645 16,885 25,125 452,146 95,204 1,892 308,550 234 3,822 79,664 139,613 1,905 269,795 34 3,420 74,826 Assets Non-current assets Property, plant and equipment Investment properties Intangible assets Investments in subsidiaries Investments in associates Other investments Deferred tax assets Deferred farm expenditure 13 14 15 16 17 18 19 Current assets Other investments Inventories Trade and other receivables Prepayments Current tax assets Cash and bank balances 18 20 21 22 97,369 934,732 808,357 65,532 6,502 644,702 Assets of disposal group classified as held for sale 11 2,557,194 13,032 1,931,008 13,500 489,366 – 489,593 – 2,570,226 1,944,508 489,366 489,593 11,520,238 9,245,692 2,982,991 3,055,745 797,120 2,104 135,946 571,843 301 – 677,291 149,476 112,089 995,410 644 117,130 207,676 – – – – – 76,988 – – 100,000 – 117,130 1,507,314 2,052,040 207,676 294,118 1,062,912 (107,532) 281,690 195,475 Total assets Equity and liabilities Current liabilities Trade and other payables Derivative financial instruments Current tax liabilities Loans and borrowings Employee benefits Dividend payable Net current assets/(liabilities) 25 24 23 29 Kulim (Malaysia) Berhad (23370-V) 180 STATEMENTS OF FINANCIAL POSITION | annual report 2011 (continued) AS AT 31 DECEMBER 2011 Group Note Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 2,049,101 – 1,040,424 2,700 931,020 25,201 691,776 2,913 273,171 – 83,655 – 273,171 – 83,803 – 3,092,225 1,650,910 356,826 356,974 Total liabilities 4,599,539 3,702,950 564,502 651,092 Net assets 6,920,699 5,542,742 2,418,489 2,404,653 315,509 1,540,087 2,436,500 159,336 1,433,182 1,972,850 315,509 1,035,201 1,067,779 159,336 1,182,764 1,062,553 Non-controlling interests 4,292,096 2,628,603 3,565,368 1,977,374 2,418,489 – 2,404,653 – Total equity 6,920,699 5,542,742 2,418,489 2,404,653 11,520,238 9,245,692 2,982,991 3,055,745 Non-current liabilities Loans and borrowings Derivative financial instruments Deferred tax liabilities Employee benefits 23 24 19 29 Equity attributable to owners of the Company Share capital Reserves Retained profits Total equity and liabilities 26 27 28 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 315,509 – – – – 113,945 – – – – 116,013 – – – – – – 95,714 – – – – – – – – – – – 219,610 – 219,610 – (22,581) – 242,191 (123,896) (748) – – – – – – – – – – – 67,034 – 67,034 – – 67,034 – (67,782) Hedge reserve RM’000 – – – – – – – – – – 254 (313) – (313) – (313) – – 1,256 1,337,757 – – – – – – – – – – – (54,361) – (54,361) (54,361) – – – 55,617 1,337,816 4,933 – – – – – – – – – – – – – – – – – – 4,933 Other reserve RM’000 (96,186) – – – – – – (50,496) – – – – – – – – – – – (45,690) Retained profits RM’000 Noncontrolling Total interests RM’000 RM’000 Total equity RM’000 – – – (61,728) – (435) – – (113,945) – – 639,758 565,013 74,745 51,815 22,930 – – – – – (61,728) (32,597) (435) (50,496) – – 2 254 871,728 565,013 306,715 (2,546) 36 67,034 242,191 604,817 (2,213) – 120,801 486,229 (4,653) (45,873) 15,032 – (54,232) – – – – – – (4,653) (45,873) 15,032 (61,728) (86,829) (435) (50,496) – – 2 254 740,955 1,612,683 442,853 1,007,866 298,102 333 (36) 53,767 244,038 (32,597) 2,436,500 4,292,096 2,628,603 6,920,699 – – – – (32,597) – – – – – – – – – – – – – – 1,972,850 3,565,368 1,977,374 5,542,742 Equity Treasury transaction shares reserve RM’000 RM’000 Distributable 181 At 31 December 2011 – 113,945 – – – – – – – – – – Warrant Translation reserve reserve RM’000 RM’000 (156,173) – 2 – – – – – – – – – – – – – – 272,184 Share premium RM’000 – 159,336 Bonus issue 156,173 Issue of free warrants – Exercise of warrants – Reversal of deferred tax – Acquisition of non-controlling interest in subsidiary – Acquisition of subsidiary – Treasury shares acquired – Increase in non-controlling interest – Dividends to shareholders – Dividends to non-controlling interests of subsidiaries – Share buy-back by subsidiaries – Transactions with owners Profit for the year Total comprehensive income for the year Foreign exchange translation differences Transfer from reserves to retained profit Cash flow hedges Fair value changes on available-forsale financial assets Total other comprehensive income for the year Group Opening balance at 1 January 2011 Share capital RM’000 Fair value Revaluation reserve reserve RM’000 RM’000 Non-distributable Attributable to shareholders of the Company FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 STATEMENTS OF CHANGES IN EQUITY annual report 2011 | Kulim (Malaysia) Berhad (23370-V) – – – – 272,184 – – – – – – 159,336 – – – – – – – – – – – – – – – – 272,184 – – 159,336 Share premium RM’000 – – – – – – – – – – – – – – – – (123,896) – – – – – – (45,019) – (45,019) – – – (45,019) – (78,877) Warrant Translation reserve reserve RM’000 RM’000 (67,782) – – – – – – (55,668) – (55,668) – – (55,668) – (12,114) – Hedge reserve RM’000 – – – – – – (675) – (675) – (675) – – – 55,617 1,337,816 – – – – – – 55,617 – 55,617 55,617 – – – – – 1,338,491 Fair value Revaluation reserve reserve RM’000 RM’000 4,933 – – – – – – – – – – – – – – 4,933 Other reserve RM’000 (45,690) – – – – – – – – – – – – – – (45,690) Retained profits RM’000 Noncontrolling Total interests RM’000 RM’000 Total equity RM’000 – 340,522 385,592 (45,070) 55,617 – (55,668) (45,019) (11,819) – – – – – – – – (134,700) (134,700) – 386,267 385,592 675 – 675 – – 295 33,150 656,800 695,826 (39,026) 56,294 – (98,372) 3,052 (23,581) (5,176) (14,994) (5,176) (14,994) (5,009) (5,009) (34,150) (34,150) – (134,700) 33,150 316,278 310,234 6,044 677 – (42,704) 48,071 (11,762) – 1,972,850 3,565,368 1,977,374 5,542,742 – – – – – – – – – – – – – – – 1,720,988 3,371,365 1,699,037 5,070,402 Equity Treasury transaction shares reserve RM’000 RM’000 Distributable 182 At 31 December 2010 Increase in non-controlling interest Arising from acquisition of non-controlling interest Disposal of a subsidiary Dividends to shareholders Dividends to non-controlling interests of subsidiaries Share buy-back by subsidiaries Transactions with owners Profit for the year Total comprehensive income for the year Foreign exchange translation differences Transfer from reserves to retained profit Cash flow hedges Fair value changes on available-for-sale financial assets Total other comprehensive income for the year Effect of adopting FRS 139 Opening balance at 1 January 2010 Group Share capital RM’000 Non-distributable Attributable to shareholders of the Company STATEMENTS OF CHANGES IN EQUITY (continued) FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 Kulim (Malaysia) Berhad (23370-V) | annual report 2011 – (156,173) – 2 – – – 156,173 – – – – 315,509 At 31 December 2011 113,944 – – 113,944 – – – – – – – – – – – Warrant reserve RM’000 897,579 – – – – – – – – 897,579 – – – – 897,579 Revaluation reserve RM’000 (313) (54,839) – – – – – (54,839) – 54,526 54,526 – 54,526 – – Fair value reserve RM’000 4,165 – – – – – – – – 4,165 – – – – 4,165 Other reserve RM’000 (96,187) – – – – (50,497) – – – (45,690) – – – – (45,690) Treasury shares RM’000 1,067,779 180,898 – (113,944) – – (61,728) 51,814 129,084 1,062,553 211,278 (134,700) – 211,278 985,975 Retained profits RM’000 Distributable 2,418,489 126,059 – – 2 (50,497) (61,728) (3,025) 129,084 2,404,653 265,804 (134,700) 54,526 211,278 2,273,549 Total RM’000 183 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 116,013 – – – – 272,184 – – – – 159,336 – – 272,184 – – 159,336 Share premium RM’000 Fair value changes on available-forsale financial assets, representing total other comprehensive income Profit for the year Total comprehensive income for the year Bonus issue Issue of free warrants Exercise of warrants Treasury shares acquired Dividends to shareholders At 31 December 2010 Fair value changes on available-forsale financial assets, representing total other comprehensive income Profit for the year Total comprehensive income for the year Dividends to shareholders At 1 January 2010 Company Share capital RM’000 Non-distributable Attributable to shareholders of the Company annual report 2011 | Kulim (Malaysia) Berhad (23370-V) Kulim (Malaysia) Berhad (23370-V) 184 | annual report 2011 STATEMENTS OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 Group Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 1,364,796 – 777,896 1,476 151,980 – (7,718) 240,149 1,500 – 4,811 (18,572) 103 – – 46,440 (679) 68 – 455 – (18,572) – – 1,801 – – – 5,540 – 2,526 – – – 4,045 104,400 767 9,372 – 415,555 7,717 (1,930) 3,461 10,482 78 321,189 – (2,591) – – – 10,636 8,051 (61,498) – – – 11,127 – (33,182) – (18,630) 8,395 – (6,992) (153,417) (62) 4,347 (31,507) (2,174) – (18,351) (9) (49) – (240,149) (14,116) (86) (24,820) – 91,475 – (12,591) 86 (151,322) 81,440 7,004 (6,370) 270 669 20,062 – (8,379) – – 30,945 – (6,414) – 53 939 – 1,144 223 547 844 6,214 821 939 – 145 – 547 – 74 – Operating profit before changes in working capital Changes in working capital: Inventories Payables Receivables 1,702,386 1,068,972 85,410 66,656 (234,042) (267,252) 321,823 (198,264) 40,091 44,351 14 130,689 (38,955) (117) 20,803 (51,330) Cash generated from operations Employee benefits paid Tax paid Tax refunded 1,522,915 (642) (82,091) 963 955,150 (213) (150,159) – 177,158 – (22,952) – 36,012 – (6,099) – Net cash generated from operating activities 1,441,145 804,778 154,206 29,913 Operating activities Profit/(Loss) before tax – continuing operations – discontinued operation Adjustments for: Additional impairment on: – assets held for sale – investment in subsidiaries – property, plant and equipment Fair value changes on other investments Allowance for slow moving inventories Allowances for impairment losses on receivables: – third parties – subsidiaries Amortisation and depreciation of: – deferred farm expenditure – intangible assets – prepaid lease payments – property, plant and equipment Change in fair value of investment properties Dividend income (Gain)/Loss on: – discontinued operation – disposal of other investments – disposal of property, plant and equipment – partial disposal of subsidiaries Group share of net results in associates Interest expense on: – continuing operations – discontinued operation Interest income Provision for employee benefits Unrealised foreign exchange (gain)/loss, net Write off of: – Deferred farm expenditure – Inventories – Property, plant and equipment Write down of inventories annual report 2011 | 185 Kulim (Malaysia) Berhad (23370-V) Group Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 (16,681) 1,930 12,591 (1,611) (629,676) 2,591 6,370 (5,436) – 61,498 8,379 (1,534) – 33,182 6,414 (2,036) (104,648) – – (214,761) (1,592,643) (8,431) (8,150) (5,009) (5,980) (195) (227,072) (726,053) (14,310) – (96,516) – – (203,207) (11,161) – (8,150) (14,644) – (75,258) (105,944) (10,317) – – 454,889 – 4,023 185 – 439,882 17,364 70,051 450,551 – 25 161 – 450,000 348 55,130 (1,473,307) (1,077,473) 200,046 336,875 (178,858) (25,920) 1,482,532 (869,224) (100,091) (40,996) (14,994) 797,232 (272,555) (47,769) (178,858) – – – (100,000) (40,996) – – (205,000) (48,592) 107 (75,092) 38,365 14 – (5,176) – (11,182) 2 (50,496) – 16 – – – (16) (91,475) – (81,440) (7,004) (20,062) – (30,945) – Net cash flows generated from/(used in) financing activities 180,358 316,116 (349,398) (325,549) Net increase in cash and cash equivalents Effect of exchange rate fluctuations on cash held Cash and cash equivalents at 1 January 148,196 2,088 406,434 43,421 (2,370) 365,383 4,854 – 74,460 41,239 (57) 33,278 Cash and cash equivalents at 31 December (Note 22) 556,718 406,434 79,314 74,460 Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired Dividends received Interest received Payment of deferred farm expenditure Purchase of: – equity interest in: – subsidiaries – associates – other investments – other investments – property, plant and equipment – intangible assets – investment properties Proceeds from: – disposal of other investment – disposal of a subsidiary – disposal of property, plant and equipment – partial disposal of subsidiaries Net cash flows (used in)/generated from investing activities Cash flows from financing activities Dividends paid to: – shareholders of the Company – minority shareholders of subsidiaries Proceeds from term loans Repayment of term loans Repayment of short-term borrowings Proceeds from the issue of shares – Warrants Purchase of treasury shares by subsidiary Issue of shares to minority shareholders of subsidiaries Withdrawal/(Addition) of fixed deposits pledged Interest paid – continuing – discontinued The accompanying accounting policies and explanatory notes form an integral part of the financial statements. Kulim (Malaysia) Berhad (23370-V) 186 | annual report 2011 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2011 1. CORPORATE INFORMATION The Company is a public limited liability company incorporated and domiciled in Malaysia and is listed on the Main Board of Bursa Malaysia Securities Berhad. The addresses of the principal place of business and registered office of the Company are as follows: Principal place of business Ulu Tiram Estate 81800 Ulu Tiram Johor Registered office Suite 12B, Level 12, Menara Ansar 65 Jalan Trus, 80000 Johor Bahru, Johor. The Company’s ultimate holding corporation is Johor Corporation (“JCorp”), a body corporate established under the Johor Corporation Enactment (No. 4, of 1968) (As amended by Enactment No.5, 1995). The principal activities of the Company consist of oil palm plantation, investment holding and property investment in Malaysia. The principal activities of the subsidiaries are described in Note 16 to the financial statements. There have been no significant changes in the nature of the principal activities during the financial year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of preparation The financial statements of the Group and of the Company have been prepared in accordance with Financial Reporting Standards and the Companies Act, 1965 in Malaysia. At the beginning of the current financial year, the Group and the Company adopted new and revised FRS which are mandatory for financial periods beginning on or after 1 January 2011 as described fully in Note 2.2. The financial statements have been prepared on the historical basis, except as disclosed in the accounting policies below. The financial statements are presented in Ringgit Malaysia (RM) and all values are rounded to the nearest thousand (RM’000) except when otherwise indicated. 2.2 Changes in accounting policies The accounting policies adopted are consistent with those of the previous financial year except as follows: On 1 January 2011, the Group and the Company adopted the following new and amended FRS and IC Interpretations: FRSs, Interpretations and Amendments effective for annual periods beginning on or after 1 March 2010 Amendments to FRS 132: Classification of Rights Issues FRSs, Interpretations and Amendments effective for annual periods beginning on or after 1 July 2010 FRS 1: First-time Adoption of Financial Reporting Standards FRS 3: Business Combinations (Revised) Amendments to FRS 2: Share-based Payment Amendments to FRS 5: Non-current Assets Held for Sale and Discontinued Operations Amendments to FRS 127: Consolidated and Separate Financial Statements Amendments to FRS 138: Intangible Assets IC Interpretation 12: Service Concession Arrangements IC Interpretation 16: Hedges of a Net Investment in a Foreign Operation IC Interpretation 17: Distributions of Non-cash Assets to Owners Amendments to IC Interpretation 9: Reassessment of Embedded Derivatives annual report 2011 | 2. 187 Kulim (Malaysia) Berhad (23370-V) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.2 Changes in accounting policies (continued) FRSs, Interpretations and Amendments effective for annual periods beginning on or after 1 January 2011 Amendments to FRS 1: First-time Adoption of Financial Reporting Standards – Additional Exemptions for First-time Adopters Amendments to FRS 2: Group Cash-settled Share Based Payment Improvements to FRSs issued in 2010 IC Interpretation 4: Determining whether an Arrangement contains a Lease IC Interpretation 18: Transfers of Assets from Customers The adoption of the above new and amended standards and interpretations did not have any effect on the financial performance or position of the Group and the Company except for those discussed below: FRS 127 Consolidated and Separate Financial Statements (revised) – A change in the ownership interest of a subsidiary that does not result in a loss of control, is accounted for as an equity transaction. Therefore, such a change will have no impact on goodwill, nor will it give rise to a gain or loss. – Losses incurred by a subsidiary are allocated to the non-controlling interest even if the losses exceed the non-controlling interest in the subsidiary’s equity, and – When control over a subsidiary is lost, any interest retained is measured at fair value with the corresponding gain or loss recognised in profit or loss. According to its transitional provisions, the revised FRS 127 has been applied prospectively, and does not impact the Group’s consolidated financial statements in respect of transactions with non-controlling interest, attribution of losses to non-controlling interest, and disposal of subsidiaries before 1 January 2011. The changes will affect future transactions with non-controlling interest. The effects of the adoption of revised FRS 127 on the Group’s consolidated financial statements, relating to the acquisition of the remaining equity interest of 24% in Sindora Berhad from its non-controlling interest during the financial year were as follows: Group 2011 RM’000 Group 2010 RM’000 2011 RM’000 2011 RM’000 Consolidated statement of financial position Decrease in intangible asset – goodwill Decrease in reserves – equity transaction reserves 32,597 32,597 Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 188 | annual report 2011 (continued) 31 DECEMBER 2011 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.3 Standards issued but not yet effective The Group has not adopted the following standards and interpretations that have been issued but are not yet effective: 2011 RM’000 2010 RM’000 Effective for annual periods beginning on or after Description IC Interpretation 19: Extinguishing Financial Liabilities with Equity Instruments Amendments to IC Interpretation 14: Prepayments of a Minimum Funding Requirement FRS 124: Related Party Disclosures Amendments to FRS 1: Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters Amendments to FRS 7: Transfers of Financial Assets Amendments to FRS 112: Deferred Tax: Recovery of Underlying Assets Amendments to FRS 101: Presentation of Items of Other Comprehensive Income FRS 9: Financial Instruments FRS 10: Consolidated Financial Statements FRS 11: Joint Arrangements FRS 12: Disclosure of Interests in Other Entities FRS 13: Fair Value Measurement FRS 119: Employee Benefits FRS 127: Separate Financial Statements FRS 128: Investment in Associate and Joint Venture IC Interpretation 20: Stripping Costs in the Production Phase of a Surface Mine 1 1 1 1 1 1 1 1 1 1 1 1 1 1 July 1 July January January January January 1 July January January January January January January January January January 2011 2011 2012 2012 2012 2012 2012 2013 2013 2013 2013 2013 2013 2013 2013 2013 Except as disclosed below, the directors do not expect any material impact on the financial statements in the period of initial application: Amendments to FRS 112: Deferred Tax: Recovery of Underlying Assets The amendments clarified the determination of deferred tax on investment property measured at fair value. The amendment introduces a rebuttable presumption that deferred tax on investment property measured using the fair value model in FRS 140 should be determined on the basis that its carrying amount will be recovered through sale. Furthermore, it introduces the requirement that deferred tax on non-depreciable assets that are measured using the revaluation model in FRS 116 to be always measured on a sale basis of that asset. Amendments to FRS 101: Presentation of Items of Other Comprehensive Income The amendments to FRS 101 change the grouping of items presented in Other Comprehensive Income. Items that could be reclassified (or “recycled”) to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that will never be reclassified. The amendment affects presentation only and has no impact on the Group’s financial position or performance. FRS 9: Financial Instruments FRS 9 reflects the first phase of work on the replacement of FRS 139 and applies to classification and measurement of financial assets and financial liabilities as defined in FRS 139. The adoption of this first phase of FRS 9 will have an effect on the classification and measurement of the Group’s financial assets but will potentially have no impact on classification and measurements of financial liabilities. The Group is in the process of making an assessment of the impact of adoption of FRS 9. annual report 2011 | 2. 189 Kulim (Malaysia) Berhad (23370-V) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.3 Standards issued but not yet effective (continued) FRS 10: Consolidated Financial Statements FRS 10 replaces the portion of FRS 127 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. FRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by FRS 10 will require management to exercise significant judgement to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in FRS 127. FRS 12: Disclosure of Interests in Other Entities FRS 12 includes all disclosure requirements for interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are required. This standard affects disclosures only and has no impact on the Group’s financial position or performance. FRS 13: Fair Value Measurement FRS 13 establishes a single source of guidance under FRS for all fair value measurements. FRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under FRS when fair value is required or permitted. The Group is currently assessing the impact of adoption of FRS 13. FRS 127: Separate Financial Statements As a consequence of the new FRS 10 and FRS 12, FRS 127 is limited to accounting for subsidiaries, jointly controlled entities and associates in separate financial statements. Malaysian Financial Reporting Standards (MFRS Framework) On 19 November 2011, the Malaysian Accounting Standards Board (MASB) issued a new MASB approved accounting framework, the Malaysian Financial Reporting Standards (MFRS Framework). The MFRS Framework is to be applied by all Entities Other Than Private Entities for annual periods beginning on or after 1 January 2012, with the exception of entities that are within the scope of MFRS 141 Agriculture (MFRS 141) and IC Interpretation 15 Agreements for Construction of Real Estate (IC 15), including its parent, significant investor and venturer (herein called ’Transitioning Entities’). Transitioning Entities will be allowed to defer adoption of the new MFRS Framework for an additional one year. Consequently, adoption of the MFRS Framework by Transitioning Entities will be mandatory for annual periods beginning on or after 1 January 2013. The Group falls within the scope definition of Transitioning Entities and has opted to defer adoption of the new MFRS Framework. Accordingly, the Group will be required to prepare financial statements using the MFRS Framework in its first MFRS financial statements for the year ending 31 December 2013. In presenting its first MFRS financial statements, the Group will be required to restate the comparative financial statements to amounts reflecting the application of MFRS Framework. The majority of the adjustments required on transition will be made, retrospectively, against opening retained profits. The Group has not completed its assessment of the financial effects of the differences between Financial Reporting Standards and accounting standards under the MFRS Framework. Accordingly, the financial performance and financial position as disclosed in these financial statements for the year ended 31 December 2011 could be different if prepared under the MFRS Framework. Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 190 | annual report 2011 (continued) 31 DECEMBER 2011 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.4 Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the reporting 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 to like transactions and events in similar circumstances. All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full. Acquisitions of subsidiaries are accounted for by applying the acquisition method. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Acquisition-related costs are recognised as expenses in the periods in which the costs are incurred and the services are received. In business combinations achieved in stages, previously held equity interests in the acquiree are re-measured to fair value at the acquisition date and any corresponding gain or loss is recognised in profit or loss. The Group elects for each individual business combination, whether non-controlling interest in the acquiree (if any) is recognised on the acquisition date at fair value, or at the non-controlling interest’s proportionate share of the acquiree net identifiable assets. Any excess of the sum of the fair value of the consideration transferred in the business combination, the amount of non-controlling interest in the acquiree (if any), and the fair value of the Group’s previously held equity interest in the acquiree (if any), over the net fair value of the acquiree’s identifiable assets and liabilities is recorded as goodwill in the statement of financial position. The accounting policy for goodwill is set out in Note 2.9(a). In instances where the latter amount exceeds the former, the excess is recognised as a gain on bargain purchase in profit or loss on the acquisition date. 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. 2.5 Transactions with non-controlling interest Non-controlling interest represents the equity in subsidiaries not attributable, directly or indirectly, to owners of the Company, and is presented separately in the consolidated statement of comprehensive income and within equity in the consolidated statement of financial position, separately from equity attributable to owners of the Company. Changes in the Company owners’ ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. In such circumstances, the carrying amounts of the controlling and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interest is adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the parent. annual report 2011 | 2. 191 Kulim (Malaysia) Berhad (23370-V) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.6 Foreign currency (a) Functional and presentation currency The individual financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Ringgit Malaysia (RM), which is also the Company’s functional currency. (b) Foreign currency transactions 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 reporting date. Non-monetary items denominated in foreign currencies that are measured at historical cost are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items denominated in foreign currencies measured at fair value 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 reporting date are recognised in profit or loss except for exchange differences arising on monetary items that form part of the Group’s net investment in foreign operations, which are recognised initially in other comprehensive income and accumulated under foreign currency translation reserve in equity. The foreign currency translation reserve is reclassified from equity to profit or loss of the Group on disposal of the foreign operation. Exchange differences arising on the translation of non-monetary items carried at fair value are included in profit or loss for the period except for the differences arising on the translation of non-monetary items in respect of which gains and losses are recognised directly in equity. Exchange differences arising from such non-monetary items are also recognised directly in equity. (c) Foreign operations The assets and liabilities of foreign operations are translated into RM at the rate of exchange ruling at the reporting date and income and expenses are translated at exchange rates at the dates of the transactions. The exchange differences arising on the translation are taken directly to other comprehensive income. On disposal of a foreign operation, the cumulative amount recognised in other comprehensive income and accumulated in equity under foreign currency translation reserve relating to that particular foreign operation is recognised in the profit or loss. 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 reporting date. Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 192 | annual report 2011 (continued) 31 DECEMBER 2011 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.7 Property, plant and equipment All items of property, plant and equipment are initially recorded at cost. The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Freehold and leasehold plantation lands of the Group have not been revalued since they were last revalued in 1997. The directors have not adopted a policy of regular revaluations of such assets and no later valuation has been recorded. As permitted under the transitional provisions of IAS 16 (Revised) Property, Plant and Equipment, these assets continue to be stated at their 1997 valuation less accumulated depreciation. All expenditure relating to the development of oil palm field (immature field) is classified under estate development expenditure. This cost will be amortised over the useful life when the field reaches maturity. The maturity date for estate development expenditure is the point in time when such new planting areas achieve yields of at least 8.60 tonnes of fresh fruit bunches per hectare per annum or 48 months from the date of initial planting, whichever is earlier. Estate overhead expenditure is apportioned to profit or loss and estate development expenditure on the basis of proportion of mature to immature areas. Subsequent to recognition, property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. When significant parts of property, plant and equipment are required to be replaced in intervals, the Group recognises such parts as individual assets with specific useful lives and depreciation, respectively. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred. Freehold land has an unlimited useful life and therefore is not depreciated. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets, as follows: Leasehold land Leasehold improvements and renovations Estate development expenditure Buildings Other assets, comprising: – Vessels, plant and machinery – Restaurants and office equipment – Furniture and fittings – Motor vehicles 33 – 904 years 10 years 17 – 22 years from year of maturity 4 – 50 years 3 – 25 5 – 15 2 – 15 3–5 years years years years Assets under construction included in plant and equipment are not depreciated as these assets are not yet available for use. 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 residual value, useful life and depreciation method are reviewed at each financial year-end, and adjusted prospectively, if appropriate. 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 on derecognition of the asset is included in the profit or loss in the year the asset is derecognised. annual report 2011 | 2. 193 Kulim (Malaysia) Berhad (23370-V) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.8 Investment properties Investment properties are initially measured at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at fair value which reflects market conditions at the reporting date. Fair value is arrived at by reference to market evidence of transaction prices for similar properties and is performed by registered independent valuers having an appropriate recognised professional qualification and recent experience in the location and category of the properties being valued. Gains or losses arising from changes in the fair values of investment properties are included in profit or loss in the year in which they arise. Investment properties are derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gain or loss on the retirement or disposal of an investment property is recognised in profit or loss in the year of retirement or disposal. Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner-occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. For a transfer from owner-occupied property to investment property, the property is accounted for in accordance with the accounting policy for property, plant and equipment set out in Note 2.7 up to the date of change in use. 2.9 Intangible assets (a) Goodwill Goodwill is initially measured at cost. Following initial recognition, goodwill is measured at cost less accumulated impairment losses. For the purpose of impairment testing, goodwill acquired is allocated, from the acquisition date, to each of the Group’s cashgenerating units that are expected to benefit from the synergies of the combination. The cash-generating unit to which goodwill has been allocated is tested for impairment annually and whenever there is an indication that the cash-generating unit may be impaired, by comparing the carrying amount of the cash-generating unit, including the allocated goodwill, with the recoverable amount of the cash-generating unit. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised in the profit or loss. Impairment losses recognised for goodwill are not reversed in subsequent periods. (b) Other intangible assets Intangible assets acquired separately are measured initially at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial acquisition, intangible assets are measured at cost less any accumulated amortisation and accumulated impairment losses. Intangible assets with finite useful lives are amortised over the estimated 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 are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in profit or loss. Intangible assets with indefinite useful lives or not yet available for use are tested for impairment annually, or more frequently if the events and circumstances indicate that the carrying value may be impaired either individually or at the cash-generating unit level. Such intangible assets are not amortised. The useful life of an intangible asset with an indefinite useful life is reviewed annually to determine whether the useful life assessment continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised. Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 194 | annual report 2011 (continued) 31 DECEMBER 2011 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.10 Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when an annual impairment assessment for an asset 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 fair value less costs to sell and its value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units (“CGU”)). In assessing value in use, the estimated future cash flows expected to be generated by the asset 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 written down to its recoverable amount. Impairment losses recognised in respect of a CGU or groups of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to those units or groups of units and then, to reduce the carrying amount of the other assets in the unit or groups of units on a pro-rata basis. Impairment losses are recognised in profit or loss. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. A previously recognised impairment loss 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 increase cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised previously. Such reversal is recognised in profit or loss. Impairment loss on goodwill is not reversed in a subsequent period. 2.11 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. In the Company’s separate financial statements, investments in subsidiaries are accounted for at cost less impairment losses. 2.12 Associates An associate is an entity, not being a subsidiary or a joint venture, in which the Group has significant influence. An associate is equity accounted for from the date the Group obtains significant influence until the date the Group ceases to have significant influence over the associate. The Group’s investments in associates are accounted for using the equity method. Under the equity method, the investment in associates is measured in the statement of financial position at cost plus post-acquisition changes in the Group’s share of net assets of the associates. Goodwill relating to associates is included in the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the associate’s identifiable assets, liabilities and contingent liabilities over the cost of the investment is excluded from the carrying amount of the investment and is instead included as income in the determination of the Group’s share of the associate’s profit or loss for the period in which the investment is acquired. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. After application of the equity method, the Group determines whether it is necessary to recognise an additional impairment loss on the Group’s investment in its associates. The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in profit or loss. The financial statements of the associates are prepared as of the same reporting date as the Company. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group. In the Company’s separate financial statements, investments in associates are stated at cost less impairment losses. On disposal of such investments, the difference between net disposal proceeds and their carrying amounts is included in profit or loss. annual report 2011 | 2. 195 Kulim (Malaysia) Berhad (23370-V) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.13 Financial assets Financial assets are recognised in the statements of financial position when, and only when, the Group and the Company become 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 and the Company determine the classification of their financial assets at initial recognition, and the categories include financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. (a) Financial assets at fair value through profit or loss Financial assets are classified as financial assets at fair value through profit or loss if they are held for trading or are designated as such upon initial recognition. Financial assets held for trading are derivatives (including separated embedded derivatives) or financial assets acquired principally for the purpose of selling in the near term. Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value. Any gains or losses (other than those relating to derivatives which qualify for hedge accounting, as explained in Note 2.30) arising from changes in fair value are recognised in profit or loss. Net gains or net losses on financial assets at fair value through profit or loss do not include exchange differences, interest and dividend income. Exchange differences, interest and dividend income on financial assets at fair value through profit or loss are recognised separately in profit or loss as part of other losses or other income. Financial assets at fair value through profit or loss could be presented as current or non-current. Financial assets that is held primarily for trading purposes are presented as current whereas financial assets that is not held primarily for trading purposes are presented as current or non-current based on the settlement date. (b) Loans and receivabless Financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, and through the amortisation process. Loans and receivables are classified as current assets, except for those having maturity dates later than 12 months after the reporting date which are classified as non-current. (c) Held-to-maturity investments Financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Group has the positive intention and ability to hold the investment to maturity. Subsequent to initial recognition, held-to-maturity investments are measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the held-to-maturity investments are derecognised or impaired, and through the amortisation process. Held-to-maturity investments are classified as non-current assets, except for those having maturity within 12 months after the reporting date which are classified as current. Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 196 | annual report 2011 (continued) 31 DECEMBER 2011 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.13 Financial assets (d) Available-for-sale financial assets Available-for-sale financial assets are 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. Any gains or losses from changes in fair value of the financial assets are recognised in other comprehensive income, except that impairment losses, foreign exchange gains and losses on monetary instruments and interest calculated using the effective interest method are recognised in profit or loss. The cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment when the financial asset is derecognised. Interest income calculated using the effective interest method is recognised in profit or loss. Dividends on an available-for-sale equity instrument are recognised in profit or loss when the Group and the Company’s right to receive payment is established. Investments in equity instruments whose fair value cannot be reliably measured are measured at cost less impairment loss. Available-for-sale financial assets are classified as non-current assets unless they are expected to be realised within 12 months after the reporting date. A financial asset is derecognised when the contractual right to receive cash flows from the asset has expired. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss. 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. All regular way purchases and sales of financial assets are recognised or derecognised on the trade date i.e., the date that the Group and the Company commit to purchase or sell the asset. 2.14 Impairment of financial assets The Group and the Company assess at each reporting date whether there is any objective evidence that a financial asset is impaired. (a) Trade and other receivables and other financial assets carried at amortised cost To determine whether there is objective evidence that an impairment loss on financial assets has been incurred, the Group and the Company consider factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments. If any such evidence exists, the amount of impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The impairment loss is recognised in profit or loss. The carrying amount of the financial asset is reduced through the use of an allowance account. When the asset becomes uncollectible, it is written off against the allowance account. 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 to the extent that the carrying amount of the asset does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in profit or loss. (b) Unquoted equity securities carried at cost If there is objective evidence (such as significant adverse changes in the business environment where the issuer operates, probability of insolvency or significant financial difficulties of the issuer) that an impairment loss on financial assets carried at cost 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. annual report 2011 | 2. 197 Kulim (Malaysia) Berhad (23370-V) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.14 Impairment of financial assets (continued) (c) Available-for-sale financial assets Significant or prolonged decline in fair value below cost, significant financial difficulties of the issuer or obligor, and the disappearance of an active trading market are considerations to determine whether there is objective evidence that investment securities classified as available-for-sale financial assets are impaired. If an available-for-sale financial asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, is transferred from equity to profit or loss. Impairment losses on available-for-sale equity investments are not reversed in profit or loss in the subsequent periods. Increase in fair value, if any, subsequent to impairment loss is recognised in other comprehensive income. 2.15 Cash and cash equivalents Cash and cash equivalents comprise cash at bank and on hand, demand deposits, and short-term, highly liquid investments that are readily convertible to known amount of cash and which are subject to an insignificant risk of changes in value. For the purpose of the statements of cash flows, cash and cash equivalents are presented net of bank overdrafts and pledged deposits. 2.16 Inventories Inventories are measured at the lower of cost and net realisable value. Cost is determined using the weighted average cost method other than inventories relating to the Group’s quick service restaurant business segment. These inventories, comprising raw materials, groceries, poultry and consumables, equipment and spares and finished goods, are determined on the first-in, first out method. The cost of agricultural produce is based on the weighted average method and includes the cost of direct materials and an appropriate proportion of estate revenue expenditure, manufacturing costs and overhead costs based on normal operating capacity. Agricultural produce consist mainly of palm oil products and sugar stocks. Inventories of palm oil products comprises processed and refined palm oil products in tanks awaiting shipment at the end of the reporting period. The cost of palm oil produce includes direct materials and labour and an appropriate proportion of overheads relating to the milling and refining process. Cost of sugar stocks include all direct expenses and an appropriate proportion of manufacturing overheads based on normal operating capacity. The cost of materials, consumables and livestocks is based on the weighted average method and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of nursery seed stocks and manufactured finished goods, cost includes direct materials and labour and an appropriate share of fixed and variable overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. 2.17 Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be estimated reliably. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of economic resources will be required to settle the obligation, the provision is reversed. If the effect of the time value of money is material, provisions are discounted using a current pre tax rate that reflects, where appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 198 | annual report 2011 (continued) 31 DECEMBER 2011 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.18 Financial liabilities Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. Financial liabilities, within the scope of FRS 139, are recognised in the statement of financial position when, and only when, the Group and the Company become a party to the contractual provisions of the financial instrument. Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other financial liabilities. (a) Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities held for trading include derivatives entered into by the Group and the Company that do not meet the hedge accounting criteria. Derivative liabilities are initially measured at fair value and subsequently stated at fair value, with any resultant gains or losses recognised in profit or loss. Net gains or losses on derivatives include exchange differences. The Group and the Company have not designated any financial liabilities as at fair value through profit or loss. (b) Other financial liabilities The Group’s and the Company’s other financial liabilities include trade payables, other payables and loans and borrowings. Trade and other payables are recognised initially at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method. Loans and borrowings are recognised initially at fair value, net of transaction costs incurred, and subsequently measured at amortised cost using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. For other financial liabilities, gains and losses are recognised in profit or loss when the liabilities are derecognised, and through the amortisation process. A financial liability is derecognised when the obligation under the liability is extinguished. When 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 profit or loss. 2.19 Financial guarantee contracts A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due. Financial guarantee contracts are recognised initially as a liability at fair value, net of transaction costs. Subsequent to initial recognition, financial guarantee contracts are recognised as income in profit or loss over the period of the guarantee. If the debtor fails to make payment relating to financial guarantee contract when it is due and the Group, as the issuer, is required to reimburse the holder for the associated loss, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount initially recognised less cumulative amortisation. annual report 2011 | 2. 199 Kulim (Malaysia) Berhad (23370-V) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.20 Borrowing costs Borrowing costs are capitalised as part of the cost of a qualifying asset if they are directly attributable to the acquisition, construction or production of that 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 incurred. Borrowing costs are capitalised until the assets are substantially completed for their intended use or sale. All other borrowing costs are recognised in profit or loss in the period they are incurred. Borrowing costs consist of interest and other costs that the Group and the Company incurred in connection with the borrowing of funds. 2.21 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. The Malaysian companies in the Group make contributions to the Employee Provident Fund in Malaysia, a defined contribution pension scheme. Contributions to defined contribution pension schemes are recognised as an expense in the period in which the related service is performed. (b) Defined benefit plans The Group’s net obligation in respect of defined benefit retirement plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine the present value. Any unrecognised past service costs and the fair value of any plan assets are deducted. The discount rate is the yield at the reporting period on 7 year high quality corporate bonds that have maturity dates approximating the terms of the Group’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed by a qualified actuary conducted every 2 years with the last actuarial report dated 13 January 2012 using the projected unit credit method. When the calculation results in a benefit to the Group, the recognised asset is limited to the net total of any unrecognised past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Group. An economic benefit is available to the Group if it is realisable during the life of the plan, or any settlement of the plan liabilities. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised in the profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in profit or loss. The Group recognises all actuarial gains and losses arising from defined benefit plans in other comprehensive income and all expenses related to defined benefit plans in personnel expenses in profit or loss. The Group recognises gains and losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs. The gain or loss on curtailment comprises any resulting change in the fair value of plan assets, change in the present value of defined benefit obligation and any related actuarial gains and losses and past service cost that had not previously been recognised. Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 200 | annual report 2011 (continued) 31 DECEMBER 2011 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.22 Leases (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 profit or loss. Contingent rents, if any, are charged as expenses in the periods in which they are incurred. Leased assets are depreciated over the estimated useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life and the lease term. Operating lease payments are recognised as an expense in profit or loss on a straight-line 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. The accounting policy for rental income is set out in Note 2.24(e). 2.23 Discontinued operation A component of the Group is classified as a “discontinued operation” when the criteria to be classified as held for sale have been met or it has been disposed of and such a component represents a separate major line of business or geographical area of operations or is part of a single coordinated major line of business or geographical area of operations. A component is deemed to be held for sale if its carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Upon classification as held for sale, non-current assets and disposal groups are not depreciated and are measured at the lower of carrying amount and fair value less costs to sell. Any differences are recognised in profit or loss. annual report 2011 | 2. 201 Kulim (Malaysia) Berhad (23370-V) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.24 Revenue recognition 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. Revenue is measured at the fair value of consideration received or receivable. The following specific recognition criteria must also be met before revenue is recognised: (a) Sale of palm-based products Sale revenue represents revenues earned from sales of the Group’s products, net of trade allowance and duties and taxes paid. Revenue is recognised when there has been a passing of the title and risk to the customer, and: (b) • The produce is in a form suitable for delivery and sale and no further processing is required; • The quantity and quality of the product can be determined with reasonable accuracy; • The product has been despatched to the customer and is no longer under the physical control of the Group; and • The selling price can be determined with reasonable accuracy. Sale of restaurant food and beverages Sales revenue represents retail sales at the Group’s restaurants and is recognised at the point of sales. The Group presents sales revenue net of sales tax. (c) Freight and time charter hire income Freight income is recognised when the goods are delivered and services rendered and accepted by customers. The results of ships employed and voyages chartered and that of other services rendered are recognised when goods are delivered and services rendered. (d) Services Revenue from parking management, bulk mailing and printing and plantation management services, are recognised as and when the services are rendered. (e) Rental income Rental income from investment properties is recognised in the profit or loss on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease. (f) Dividend income Dividend income is recognised when the right to receive payment is established. Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 202 | annual report 2011 (continued) 31 DECEMBER 2011 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.25 Income taxes (a) Current tax Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. Current taxes are recognised in profit or loss except to the extent that the tax relates to items recognised outside profit or loss, either in other comprehensive income or directly in equity. (b) Deferred tax Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all temporary differences, where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date. Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity and deferred tax arising from a business combination is adjusted against goodwill on acquisition. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. 2.26 Segment reporting For management purposes, the Group is organised into operating segments based on their products and services which are independently managed by the respective segment managers responsible for the performance of the respective segments under their charge. The segment managers report to the Group Managing Director who regularly reviews the segment results in order to allocate resources to the segments and to assess the segment performance. Additional disclosures on each of these segments are shown in Note 38, including the factors used to identify the reportable segments and the measurement basis of segment information. annual report 2011 | 2. 203 Kulim (Malaysia) Berhad (23370-V) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.27 Share capital and share issuance expenses An equity instrument is any contract that evidences a residual interest in the assets of the Group and the Company after deducting all of its liabilities. Ordinary shares are equity instruments. Ordinary shares are recorded at the proceeds received, net of directly attributable incremental transaction costs. Ordinary shares are classified as equity. Dividends on ordinary shares are recognised in equity in the period in which they are declared. 2.28 Treasury shares When shares of the Company, that have not been cancelled, recognised as equity are reacquired, the amount of consideration paid is recognised directly in equity. Reacquired shares are classified as treasury shares and presented as a deduction from total equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of treasury shares. When treasury shares are reissued by resale, the difference between the sales consideration and the carrying amount is recognised in equity. 2.29 Contingencies A contingent liability or asset is a possible obligation or asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of uncertain future event(s) not wholly within the control of the Group. Contingent liabilities and assets are not recognised in the statements of financial position of the Group. 2.30 Hedge accounting The Group uses derivatives to manage its exposure to commodity price risk (specifically fluctuations in palm oil prices). The Group applies hedge accounting for certain hedging relationships which qualify for hedge accounting. For the purpose of hedge accounting, hedging relationship are classified as cash flow hedges. Cash flow hedging is applied when the Group hedges exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment. At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. Hedges which meet the strict criteria for hedge accounting are accounted for as follows: Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 204 | annual report 2011 (continued) 31 DECEMBER 2011 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.30 Hedge accounting (continued) (a) Cash flow hedges The effective portion of the gain or loss on the hedging instrument is recognised directly in other comprehensive income into cash flow hedge reserve, while any ineffective portion is recognised immediately in profit or loss as other operating expenses. Amounts recognised in other comprehensive income previously are reclassified from equity to profit or loss when the hedged transaction affects profit or loss, such as when the hedged interest income or interest expense is recognised or when a forecast sale occurs. Where the hedged item is a non-financial asset or a non-financial liability, the amounts recognised previously in other comprehensive income are removed and included in the initial carrying amount of the non-financial asset or liability. If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognised in other comprehensive income remain in equity until the forecast transaction or firm commitment affects profit or loss. The Group uses forward commodity contracts for its exposure to volatility in the commodity prices. Refer to Note 24 for more details. (b) Derivatives that are not designated or do not qualify for hedge accounting Any gains or losses arising from changes in fair value on derivatives during the year that do not qualify for hedge accounting are directly recognised in profit or loss. 3. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future. In the process of applying the Group’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the financial statements: (a) Impairment of goodwill, brandname and franchise rights Goodwill, brands and other indefinite life intangibles are tested for impairment annually and at other times when such indicators exist. This requires an estimation of the value in use of the cash-generating units to which goodwill and brands are allocated. When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or cashgenerating unit and choose a suitable discount rate in order to calculate the present value of those cash flows. Further details of the carrying value, the key assumptions applied in the impairment assessment of goodwill, brands and franchise rights are given in Note 15. (b) Impairment of loans and receivables The Group assesses at each reporting date whether there is any objective evidence that a financial asset is impaired. To determine whether there is objective evidence of impairment, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments. Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical loss experience for assets with similar credit risk characteristics. The carrying amount and details of the Group’s receivables at the reporting date are disclosed in Note 21. annual report 2011 | 4. 205 Kulim (Malaysia) Berhad (23370-V) REVENUE Group Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 3,072,306 – 3,349,914 163,411 21,226 8,304 8,533 57,656 1,942,091 22,908 3,035,827 163,739 15,285 4,988 6,066 11,032 186,696 – – – – – 6,368 3 140,146 – – – – 299 5,524 4 169,935 115,665 6,488 30,416 27,787 8,200 1,930 87,153 111,888 8,962 33,625 35,232 7,587 2,556 – – – – – 8,200 61,498 – – – – – 7,587 33,182 7,041,771 5,488,939 262,765 186,742 – 881,511 – – 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 1,401,767 (4,108) 1,942,725 88,424 2,533 7,608 2,799 19,061 871,008 (8,904) 1,769,268 71,551 (1,608) 4,870 (1,162) (3,592) 106,038 – – – – 1,626 – – 71,965 – – – 198 1,574 – – 54,039 17,530 1,476 4,818 5,756 3,687 1,930 22,168 18,161 1,822 7,862 1,232 3,513 2,556 – – – – – 3,687 61,498 – – – – – 3,513 33,182 3,550,045 2,758,745 172,849 110,432 – 3,256 – – Continuing operations Sales of goods: Palm-based products Biodiesel Restaurant food and beverages Sugar Livestocks and meats Rubber-based manufactured products Banana products Others Intrapreneur ventures: Freight time-charter hire and related services Parking collection and related services Sales of wood-based products Bulk mailing and printing services Plantation management services and sales of related goods Rental income from investment properties Dividend income Discontinued operations Oleochemical products 5. GROSS PROFIT Group Company Continuing operations Sales of goods: Palm-based products Biodiesel Restaurant food and beverages Sugar Rubber-based products Banana products Livestocks and meats Others Intrapreneur ventures: Freight time-charter hire and related services Parking collection and related services Sales of wood-based products Bulk mailing and printing services Plantation management services Rental income from investment properties Dividend income Discontinued operations Oleochemical products Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 206 | annual report 2011 (continued) 31 DECEMBER 2011 6. INTEREST INCOME Group Interest income on: Deposits with licensed banks Amount due from ultimate holding corporation Amount due from subsidiaries Others 7. Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 10,561 2,022 – 8 3,447 2,911 – 12 3,564 2,022 2,772 21 1,110 2,911 2,381 12 12,591 6,370 8,379 6,414 FINANCE COSTS Group Interest expense on: Bank overdraft Loans Other borrowings Amount due to subsidiaries 8. Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 110 88,770 2,595 – 80 78,881 2,479 – 26 16,924 – 3,112 60 25,179 2,479 3,227 91,475 81,440 20,062 30,945 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 103 68 – – 5,585 – – 1,830 3,412 – – – – – 4,045 104,400 9,372 – 415,555 767 10,482 78 321,189 3,461 – – 10,636 – – – 11,127 – 781 2,992 – 3,202 90 4 – 85 259 1,572 222 1,208 – 405 – 443 12 194 – – PROFIT/(LOSS) BEFORE TAX Group Profit/(loss) before tax is arrived at after charging: Allowance for slow moving inventories Allowance for impairment losses on: – Trade receivables – Other receivables – Amount due from subsidiaries Amortisation and depreciation of: – Intangible assets – Prepaid lease payments – Property, plant and equipment – Deferred farm expenditure Auditors’ remuneration: – Statutory audit – Ernst & Young – Other auditors – Other services – Ernst & Young – Other auditors Fees paid/payable to ultimate holding corporation for services of directors Company annual report 2011 | 8. 207 Kulim (Malaysia) Berhad (23370-V) PROFIT/(LOSS) BEFORE TAX (continued) Group Fees paid/payable to a related company for services of directors Fair value loss on investment properties Impairment loss on: – Investments in subsidiaries – Property, plant and equipment – Assets held for sale Loss on disposal of property, plant and equipment Net foreign exchange loss: – Realised – Unrealised Technology transfer fee payable to corporate shareholder of a subsidiary Write down of inventories Write off of: – Deferred farm expenditure – Property, plant and equipment – Inventories Provision for employee benefits Rental of plant and machinery Rental of land and building paid to: – Ultimate holding corporation – Others Staff costs (excluding key management personnel): – Salaries, wages, allowances and bonuses – Defined contribution plan – Other employee benefits and after crediting: Franchise fee income Dividend income from: – Unquoted shares in Malaysia – Shares quoted in Malaysia – Shares quoted outside Malaysia – Subsidiaries (unquoted shares in Malaysia) Gain on: – Disposal of subsidiary – Disposal of property, plant and equipment – Disposal of other investments – Partial disposal of subsidiaries Management fee received Net foreign exchange gain: – Realised – Unrealised Rental income Reversal of allowance for impairment losses: – Trade receivables Fair value changes on other investments Guaranteed return on car park concession Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 – 7,717 5 – – 8,051 – – – 4,811 1,500 8,409 – 46,440 – 4,503 455 – – – 1,801 – – – – 41 200 719 – – – 53 200 223 200 821 – – – – 939 1,144 – 86 – 547 6,214 844 270 490 939 145 – – – 547 74 – – – 629 278,203 629 256,872 629 – 629 – 783,301 58,467 170,374 661,418 52,780 165,243 21,790 680 – 18,826 669 – 297 282 – – 491 1,439 – – 2,456 135 – – 491 26,823 34,184 – 2,456 30,186 – 540 – 14 18,630 – – 153,417 156 62 31,507 282 – 9 18,351 49 – 240,149 86 14,116 24,820 – 466 151,363 2,815 3,803 50 2,497 466 – 1,215 – – 880 45 18,572 2,953 2,716 679 2,952 – 18,572 – – – – Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 208 | annual report 2011 (continued) 31 DECEMBER 2011 9. DIRECTORS’ REMUNERATION The details of remuneration receivable by directors of the Group and the Company during the year are as follows: Group Executive Directors – Fees – Salaries, allowances and bonuses – Estimated money value of benefits-in-kind – Defined contribution plan – Other emoluments Non-executive Directors – Fees – Salaries, allowances and bonuses – Estimated money value of benefits-in-kind – Defined contribution plan – Other emoluments Independent non-executive Directors – Fees – Other emoluments Total directors’ remuneration Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 652 2,652 182 396 138 290 2,253 281 312 120 200 2,193 116 342 85 150 1,261 90 208 131 4,020 3,256 2,936 1,840 639 526 54 71 268 701 557 115 79 94 195 – – – 45 250 – – – 32 1,558 1,546 240 282 468 132 446 96 215 88 200 46 600 542 303 246 6,178 5,344 3,479 2,368 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 134,035 143,071 (18,216) 96,671 80,589 (5,686) 25,305 – (2,758) 14,288 – 7,176 258,890 171,574 22,547 21,464 80,297 17,743 63,440 (1,333) 321 28 (671) 360 98,040 62,107 349 (311) 356,930 233,681 22,896 21,153 10. INCOME TAX EXPENSE Group Statement of comprehensive income Current income tax – Malaysian income tax – Foreign tax – (Over)/Underprovided in prior years Deferred tax (Note 19): – Origination and reversal of temporary differences – Under/(Over)provided in prior years Income tax expense recognised in profit or loss Company annual report 2011 | 209 Kulim (Malaysia) Berhad (23370-V) 10. INCOME TAX EXPENSE (continued) A reconciliation of income tax expense applicable to profit/(loss) before taxation at the statutory income tax rate to income tax expense at the effective income tax rate of the Group and the Company is as follows: Group Profit/(loss) before tax Taxation at Malaysian statutory tax rate of 25% (2010: 25%) Different tax rates in other countries Effect of non-deductible expenses Effect of income exempt from tax Utilisation of previously unrecognised deferred tax assets Deferred tax assets not recognised (Over)/Underprovision of income tax in prior years Under/(Over)provision of deferred tax in prior years Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 1,364,796 777,896 151,980 (7,718) 341,199 39,442 49,400 (79,960) (580) 7,902 (18,216) 17,743 194,474 23,337 15,558 (7,779) – 15,110 (5,686) (1,333) 37,995 – 14,488 (26,857) – – (2,758) 28 (1,930) – 23,842 (8,295) – – 7,176 360 356,930 233,681 22,896 21,153 11. DISCONTINUED OPERATION AND DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE Group 2011 RM’000 2010 RM’000 Assets held for sale comprise: Investment in associate Less: Allowance for impairment 13,500 (1,500) 13,500 – Property, plant and equipment 12,000 1,032 13,500 – 13,032 13,500 The investment in associate relates to the proposed disposal of MM Vitaoils Sdn. Bhd, an associate of Sindora Berhad. The Group has received to date an amount of RM1,850,000 as partial payment from the buyer. The negotiation with the buyer on the completion of the sale is still in progress. Discontinued operation and disposal group classified as held for sale in the previous financial year During the previous financial year, the Group disposed of its interests in certain subsidiaries – Natural Oleochemicals Sdn. Bhd. and its subsidiaries (“NOSB Group”), which was previously reported in the oleochemical segment. This decision is consistent with the Group’s strategy to focus on its core plantation operations in Malaysia, Papua New Guinea and the Solomon Islands where the Group has extensive experience and strong presence. The results of NOSB Group were presented separately on the statement of comprehensive income for the year ended 31 December 2010 as “Loss from discontinued operation, net of tax”. The disposal was completed on 30 September 2010. Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 210 | annual report 2011 (continued) 31 DECEMBER 2011 11. DISCONTINUED OPERATION AND DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE (continued) The disposal had the following effects on the financial position of the Group as at 31 December 2010: 2010 RM’000 Property, plant and equipment Prepaid lease payments Deferred tax assets Inventories Receivables Derivatives Cash and cash equivalents Deferred tax liabilities Trade and other payables Loans and borrowings Taxation 293,709 5,680 3,242 107,155 215,907 19,438 10,118 (1,621) (67,490) (270,202) (719) Net assets of NOSB Group Non-controlling interests 315,217 (34,150) Net assets of NOSB Group attributable to the Group Incidental costs Total disposal proceeds 281,067 15,516 (450,000) Gain on disposal to the Group (153,417) Cash inflow arising on disposal: Cash consideration Cash and cash equivalents of NOSB Group disposed 450,000 (10,118) Net cash inflow on disposal 439,882 Statement of comprehensive income disclosures The results attributable to NOSB Group were as follows: 1 Jan 2010 to 30 Sep 2010 Group RM’000 Company RM’000 Revenue Expenses 881,511 (873,031) – – Profit from operations Finance costs Gain on disposal of discontinued operation Taxation 8,480 (7,004) 153,417 (3,282) – – 240,149 – Gain from discontinued operation, net of tax 151,611 240,149 annual report 2011 | 211 Kulim (Malaysia) Berhad (23370-V) 11. DISCONTINUED OPERATION AND DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE (continued) Statement of cash flow disclosures The cash flow attributable to NOSB Group were as follows: 1 Jan 2010 to 30 Sep 2010 Group RM’000 Operating Investing Financing (38,265) 328 (38,252) Net cash outflows (76,189) 12. EARNINGS PER SHARE Basic earnings per share amounts are calculated by dividing profit for the year, net of tax, attributable to owners of the Company by the weighted average number of ordinary shares outstanding during the financial year. The following reflect the profit and share data used in the computation of basic earnings per share for the years ended 31 December: Group Profit for the year attributable to shareholders – continuing operations – discontinued operation 2011 RM’000 2010 RM’000 565,013 – 233,981 151,611 565,013 385,592 Group Weighted average number of ordinary shares 2011 ’000 2010 ’000 1,230,853 1,249,396 Group Basic earnings per share – continuing operations – discontinued operation 2011 Sen 2010 Sen 45.90 – 18.73 12.13 45.90 30.86 The comparative amount for earnings per share has been adjusted to take into effect the results of the share split and bonus issue as disclosed in Note 26. Diluted earnings per share is equal to the basic earnings per share as there are no dilutive effects from the potential exercise of the share warrants. Kulim (Malaysia) Berhad (23370-V) 212 NOTES TO THE FINANCIAL STATEMENTS | annual report 2011 (continued) 31 DECEMBER 2011 12. EARNINGS PER SHARE (continued) Group Weighted average number of ordinary shares at 1 January/31 December 2011 RM’000 2010 RM’000 1,230,853 1,249,396 Group Diluted earnings per share: – continuing operations – discontinued operation 2011 RM’000 2010 RM’000 45.90 – 18.73 12.13 45.90 30.86 13. PROPERTY, PLANT AND EQUIPMENT Freehold land RM’000 Long term leasehold land RM’000 Leasehold improvement and renovation RM’000 Estate development expenditure RM’000 Buildings RM’000 Other assets RM’000 Capital work in progress RM’000 Total RM’000 Group Cost At 1 January 2010 Acquisition of subsidiaries Discontinued operation Additions Disposals Write off Transfer from assets held for sale Reclassification Exchange differences 1,472,928 – – 16,568 (768) (1,833) 487,852 – (9,379) 3,357 – – 310,180 178 – 89,912 (18,106) – 1,009,549 464,499 – 108,255 (7,357) (2,987) 1,040,177 147,727 (107,846) 23,197 (9,662) (2,769) 2,209,421 163,461 (327,840) 182,439 (34,874) (9,397) 396,331 21,147 (87) 305,570 – – 6,926,438 797,012 (445,152) 729,298 (70,767) (16,986) – – – – – – – – (2,706) – – (57,807) – 75,501 (38,163) 389 303,706 (61,628) – (379,207) (39,695) 389 – (199,999) At 31 December 2010/ 1 January 2011 1,486,895 481,830 379,458 1,514,152 1,128,162 2,425,677 304,059 7,720,233 At 1 January 2011 Acquisition of subsidiaries Additions Disposals Write off Reclassification Exchange differences 1,486,895 – 26,571 (692) – (271) – 481,830 – 209,951 (695) – 271 – 379,458 – 103,869 (20,349) – (3,778) 2,444 1,514,152 – 512,543 – – – 121,878 1,128,162 – 43,331 (258) (1,152) 75,493 169,446 2,425,677 171,285 374,572 (33,943) (5,942) 151,529 122,639 304,059 – 329,435 – – (223,244) 60,253 7,720,233 171,285 1,600,272 (55,937) (7,094) – 476,660 At 31 December 2011 1,512,503 691,357 461,644 2,148,573 1,415,022 3,205,817 470,503 9,905,419 annual report 2011 | 213 Kulim (Malaysia) Berhad (23370-V) 13. PROPERTY, PLANT AND EQUIPMENT (continued) Freehold land RM’000 Long term leasehold land RM’000 Leasehold improvement and renovation RM’000 Estate development expenditure RM’000 Buildings RM’000 Other assets RM’000 Capital work in progress RM’000 Total RM’000 Group Accumulated depreciation At 1 January 2010 Acquisition of subsidiaries Discontinued operation Charge for the year Disposals Write off Transfer from assets held for sale Reclassification Exchange differences – – – – – – 38,678 – (1,210) 355 – – 128,005 64 – 34,035 (14,687) – 243,479 – – 44,421 – (2,987) 217,296 311 (19,455) 21,816 (3,632) (1,649) 1,004,978 1,231 (130,778) 220,562 (30,737) (6,136) – – – – – – 1,632,436 1,606 (151,443) 321,189 (49,056) (10,772) – – – – 357 – – – (1,487) – – (10,097) – (303) (9,166) 290 (54) (32,783) – – – 290 – (53,533) At 31 December 2010/ 1 January 2011 – 38,180 145,930 274,816 205,218 1,026,573 – 1,690,717 At 1 January 2011 Acquisition of subsidiaries Charge for the year Disposals Write off Reclassification Exchange differences – – – – – – – 38,180 – 4,329 (695) – 981 – 145,930 – 40,429 (16,804) – (732) 1,726 274,816 – 48,715 – – – 3,393 205,218 – 35,290 (13) (773) (265) 2,289 1,026,573 4,065 286,792 (25,993) (5,177) 16 12,147 – – – – – – – 1,690,717 4,065 415,555 (43,505) (5,950) – 19,555 At 31 December 2011 – 42,795 170,549 326,924 241,746 1,298,423 – 2,080,437 At 1 January 2010 Impairment loss for the year 58,733 2,560 – 540 1,276 – 12,177 – 22,931 7,936 10,308 35,404 703 – 106,128 46,440 At 31 December 2010 Impairment loss for the year 61,293 – 540 – 1,276 – 12,177 – 30,867 – 45,712 4,574 703 237 152,568 4,811 At 31 December 2011 61,293 540 1,276 12,177 30,867 50,286 940 157,379 At 31 December 2010 1,425,602 443,110 232,252 1,227,159 892,077 1,353,392 303,356 5,876,948 At 31 December 2011 1,451,210 648,022 289,819 1,809,472 1,142,409 1,857,108 469,563 7,667,603 Accumulated impairment losses Net carrying amount: Kulim (Malaysia) Berhad (23370-V) 214 NOTES TO THE FINANCIAL STATEMENTS | annual report 2011 (continued) 31 DECEMBER 2011 13. PROPERTY, PLANT AND EQUIPMENT (continued) Freehold land RM’000 Long term leasehold land RM’000 Estate development expenditure RM’000 At 1 January 2010 Additions Disposals Write off Transfer 774,737 – – – – 207,768 – – – – 127,976 5,168 – (2,325) – 48,113 174 (22) (631) 760 30,450 1,301 (2,375) (1,142) – 698 3,674 – – (760) 1,189,742 10,317 (2,397) (4,098) – At 31 December 2010/1 January 2011 Additions Disposals Write off Reclassification 774,737 – – – – 207,768 – – – – 130,819 6,105 – – – 48,394 11 – (163) 2,574 28,234 1,651 (66) (1,236) – 3,612 3,394 – (108) (2,574) 1,193,564 11,161 (66) (1,507) – At 31 December 2011 774,737 207,768 136,924 50,816 28,583 4,324 1,203,152 At 1 January 2010 Charge for the year Disposals Write off – – – – 9,691 1,218 – – 56,907 5,812 – (2,325) 26,992 1,846 (9) (597) 22,967 2,251 (2,126) (1,102) – – – – 116,557 11,127 (2,135) (4,024) At 31 December 2010/1 January 2011 Charge for the year Disposals Write off – – – – 10,909 1,218 – – 60,394 5,875 – – 28,232 1,570 – (131) 21,990 1,973 (50) (1,231) – – – – 121,525 10,636 (50) (1,362) At 31 December 2011 – 12,127 66,269 29,671 22,682 – 130,749 At 31 December 2010 774,737 196,859 70,425 20,162 6,244 3,612 1,072,039 At 31 December 2011 774,737 195,641 70,655 21,145 5,901 4,324 1,072,403 Buildings RM’000 Other assets RM’000 Capital work in progress RM’000 Total RM’000 Company Cost Accumulated depreciation Net carrying amount: annual report 2011 | 215 Kulim (Malaysia) Berhad (23370-V) 13. PROPERTY, PLANT AND EQUIPMENT (continued) Other assets can be further analysed as follows: Vessels, plant and machinery RM’000 Restaurant and office equipment RM’000 Furniture and fittings RM’000 Motor vehicles RM’000 Total RM’000 At 1 January 2010 Acquisition of subsidiaries Discontinued operation Additions Disposals Write off Transfer to assets held for sale Reclassification Exchange differences 1,550,546 161,107 (318,243) 48,282 (4,619) (6,599) 220 303,999 (58,743) 529,226 2,018 – 119,712 (24,183) – – – (2,652) 48,058 218 (9,597) 4,436 (251) (365) 169 (293) (59) 81,591 118 – 10,009 (5,821) (2,433) – – (174) 2,209,421 163,461 (327,840) 182,439 (34,874) (9,397) 389 303,706 (61,628) At 31 December 2010 1,675,950 624,121 42,316 83,290 2,425,677 At 1 January 2011 Acquisition of subsidiaries Additions Disposals Write off Reclassification Exchange differences 1,675,950 169,579 168,922 (1,077) (2,947) 151,295 120,922 624,121 12 149,889 (20,737) – 234 1,679 42,316 459 40,644 (1,165) (396) – – 83,290 1,235 15,117 (10,964) (2,599) – 38 2,425,677 171,285 374,572 (33,943) (5,942) 151,529 122,639 At 31 December 2011 2,282,644 755,198 81,858 86,117 3,205,817 At 1 January 2010 Acquisition of subsidiaries Discontinued operation Charge for the year Disposals Write off Transfer to assets held for sale Reclassification Exchange differences 696,192 8 (124,506) 149,320 (5,393) (3,714) 192 1 (31,332) 220,646 1,123 – 56,589 (19,866) – – – (1,313) 31,652 – (6,272) 5,526 (335) (344) 98 (97) (44) 56,488 100 – 9,127 (5,143) (2,078) – 42 (94) 1,004,978 1,231 (130,778) 220,562 (30,737) (6,136) 290 (54) (32,783) At 31 December 2010 680,768 257,179 30,184 58,442 1,026,573 At 1 January 2011 Acquisition of subsidiaries Charge for the year Disposals Write off Reclassification Exchange differences 680,768 3,166 208,372 (248) (2,217) – 10,862 257,179 3 65,320 (14,947) – 16 1,236 30,184 184 4,669 (1,117) (394) – – 58,442 712 8,431 (9,681) (2,566) – 49 1,026,573 4,065 286,792 (25,993) (5,177) 16 12,147 At 31 December 2011 900,703 308,807 33,526 55,387 1,298,423 Group Cost Accumulated depreciation Kulim (Malaysia) Berhad (23370-V) 216 NOTES TO THE FINANCIAL STATEMENTS | annual report 2011 (continued) 31 DECEMBER 2011 13. PROPERTY, PLANT AND EQUIPMENT (continued) Vessels, plant and machinery RM’000 Restaurant and office equipment RM’000 Furniture and fittings RM’000 Motor vehicles RM’000 Total RM’000 At 1 January 2010 Impairment loss for the year 9,031 35,404 1,267 – – – 10 – 10,308 35,404 At 31 December 2010 44,435 1,267 – 10 45,712 At 1 January 2011 Impairment loss for the year 44,435 4,574 1,267 – – – 10 – 45,712 4,574 At 31 December 2011 49,009 1,267 – 10 50,286 At 31 December 2010 950,747 365,675 12,132 24,838 1,353,392 At 31 December 2011 1,332,932 445,124 48,332 30,720 1,857,108 Plant and machinery RM’000 Furniture and fittings RM’000 Motor vehicles RM’000 Total RM’000 At 1 January 2010 Additions Disposals Write off 14,597 211 (1,855) (445) 7,033 315 (61) (164) 8,820 775 (459) (533) 30,450 1,301 (2,375) (1,142) At 31 December 2010 12,508 7,123 8,603 28,234 At 1 January 2011 Additions Disposals Write off 12,508 325 (33) (281) 7,123 438 (33) (250) 8,603 888 – (705) 28,234 1,651 (66) (1,236) At 31 December 2011 12,519 7,278 8,786 28,583 Group Accumulated impairment losses Carrying amount Company Cost annual report 2011 | 217 Kulim (Malaysia) Berhad (23370-V) 13. PROPERTY, PLANT AND EQUIPMENT (continued) Plant and machinery RM’000 Furniture and fittings RM’000 Motor vehicles RM’000 Total RM’000 At 1 January 2010 Charge for the year Disposals Write off 11,837 606 (1,664) (441) 5,034 623 (59) (163) 6,096 1,022 (403) (498) 22,967 2,251 (2,126) (1,102) At 31 December 2010 10,338 5,435 6,217 21,990 At 1 January 2011 Charge for the year Disposals Write off 10,338 527 (32) (276) 5,435 616 (18) (250) 6,217 830 – (705) 21,990 1,973 (50) (1,231) At 31 December 2011 10,557 5,783 6,342 22,682 At 31 December 2010 2,170 1,688 2,386 6,244 At 31 December 2011 1,962 1,495 2,444 5,901 Company Accumulated depreciation Carrying amount Assets held under finance lease During the year, the Group and the Company acquired property, plant and equipment with an aggregate cost of about RM1,600,272,000 (2010: RM729,298,000) and RM11,161,000 (2010: RM10,317,000) respectively, of which RM7,629,000 (2010: RM3,245,000) and Nil (2010: Nil) of the Group and of the Company respectively, were acquired by means of finance lease. Included in property, plant and equipment of the Group are assets acquired under lease arrangements at net book value of RM7,629,000 (2010: RM5,643,000). The leased assets consist of equipments and motor vehicles which secure lease obligations (Note 23). Assets pledged as security for borrowings Group Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 500,792 126,470 633,329 857,989 1,094,076 591,798 200,516 550,915 643,351 773,011 44,953 126,470 1,251 – – 88,903 157,138 30,460 – – 3,212,656 2,759,591 172,674 276,501 Carrying amount of assets pledged as security for borrowings: – – – – – freehold lands long term leasehold lands estate development expenditure buildings other property, plant and equipment Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 218 | annual report 2011 (continued) 31 DECEMBER 2011 13. PROPERTY, PLANT AND EQUIPMENT (continued) Acquisition of oil palm plantations from ultimate holding corporation On 16 August 2011, the Company made an announcement to Bursa Malaysia in relation to the proposed acquisition through its wholly owned subsidiary, Mahamurni Plantations Sdn. Bhd, of six estates (together with all buildings and mills erected thereon) owned by the ultimate holding corporation, Johor Corporation for a cash consideration of RM700 million. As at 31 December 2011, the Group has fully acquired Sungai Papan Estate and part of Siang Estate. The net carrying amount of the acquired estates amounted to RM374,900,000. The balance of RM325,100,000 attributable to the other unacquired estates will be acquired in the financial year ending 31 December 2012. As at the reporting date, the title to the acquired estates is in the midst of being transferred to the Group. Impairment loss During the current financial year, the Group recognised impairment losses of RM4,811,000. This was mainly in respect of its bio-diesel plant and machinery. During the previous financial year, the Group recognised impairment losses of RM11,036,000 in respect of certain assets associated with the Group’s foods and restaurants business segment and RM35,404,000 in respect of the Group’s bio-diesel plant and machinery. 14. INVESTMENT PROPERTIES Group Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 At 1 January Additions from subsequent expenditure Acquired during the year Net loss from fair value adjustments recognised in profit or loss (Note 8) 97,863 5,248 2,902 97,863 – – 94,503 5,248 2,902 94,503 – – (7,717) – (8,051) – At 31 December 98,296 97,863 94,602 94,503 Investment properties comprise a number of commercial properties that are leased to third parties. Subsequent renewals are negotiated with the lessee and no contingent rents are charged. The fair values of investment properties of the Group and of the Company are determined using the investment and comparison method. Security At 31 December 2011, investment properties of the Group and of the Company with carrying amounts of RM93,570,000 (2010: RM97,863,000) and RM90,000,000 (2010: RM94,503,000) respectively are charged to licensed banks for term loan facilities granted to the Group. annual report 2011 | 219 Kulim (Malaysia) Berhad (23370-V) 15. INTANGIBLE ASSETS Brands RM’000 Franchise rights RM’000 Goodwill RM’000 Concession rights RM’000 Franchise fees RM’000 Supplier relationship RM’000 Others RM’000 Total RM’000 At 1 January 2010 Acquisition of subsidiaries Additions Write off Exchange difference 86,452 – – – – 720,452 – 5,400 – – 36,172 11,075 330 – – 14,198 – – – – 69,866 – 8,019 (3,110) – – 145,072 – – (4,771) 700 – 561 – – 927,840 156,147 14,310 (3,110) (4,771) At 31 December 2010/ 1 January 2011 Acquisition of subsidiaries Reclassification Additions Write off Exchange difference 86,452 – – – – – 725,852 – – – – – 47,577 12,940 – 633 – – 14,198 – – – – – 74,775 – – 7,798 (75) – 140,301 – – – – 37,134 1,261 465 2,062 – – – 1,090,416 13,405 2,062 8,431 (75) 37,134 At 31 December 2011 86,452 725,852 61,150 14,198 82,498 177,435 3,788 1,151,373 At 1 January 2010 Amortisation for the year Write off – – – – – – 2,704 – – 2,000 1,000 – 31,270 9,412 (3,110) – – – 175 70 – 36,149 10,482 (3,110) At 31 December 2010/ 1 January 2011 Reclassification Amortisation for the year Write off – – – – – – – – 2,704 – 76 – 3,000 – 1,000 – 37,572 – 7,814 (75) – – – – 245 756 482 – 43,521 756 9,372 (75) At 31 December 2011 – – 2,780 4,000 45,311 – 1,483 53,574 At 31 December 2010 86,452 725,852 44,873 11,198 37,203 140,301 1,016 1,046,895 At 31 December 2011 86,452 725,852 58,370 10,198 37,187 177,435 2,305 1,097,799 Group Cost Accumulated amortisation and impairment Net carrying amount Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 220 | annual report 2011 (continued) 31 DECEMBER 2011 15. INTANGIBLE ASSETS Brands and franchise rights The Group’s brands and franchise rights were acquired through business combinations. Brands relate to the Group’s Integrated Poultry and Ancillary segments whereas franchise rights relate to the Group’s Restaurant segment. Concession rights The concession rights arose from a 15 year Concession Agreement with the ultimate holding corporation for a subsidiary to manage, operate and maintain a multi-storey car park together with other parking facilities at Persada Johor International Convention Centre. The Group anticipates that the cost will be recovered through future income derived from the car park operations. The income is guaranteed by the ultimate holding corporation pursuant to the Concession Agreement. The Concession Agreement has a remaining amortisation period of 5.8 years (2010: 6.8 years). Franchise fees Franchise fees consists of the initial franchise fee paid for the set up of new restaurants and renewal franchise fees which are paid upon the expiry of the initial franchise period. Franchise fees are amortised on a straight-line basis over a period of 10 years. Supplier relationship The supplier relationship arose from the acquisition of palm oil plantations in Papua New Guinea and reflect the net present value of the future income stream from purchasing of fresh fruit bunches produced by neighbouring smallholders. These assets have an indefinite useful life and are tested annually for impairment. Amortisation expense The amortisation of concession rights and franchise fees are included in the “Administrative expenses” line item in the statements of comprehensive income. Restaurants Integrated poultry Ancillary Bulk-mailing and printing services Parking operator Shipping and forwarding agent Provision of sea transportation and related services Insurance broker Agricultural fertilizer trading and biotechnology research and development Palm oil milling Others Group – 75,595 10,857 – – – – – – – – 86,452 – – – – – – – – 86,452 2010 RM’000 – 75,595 10,857 2011 RM’000 Brandname 725,852 – – – – – – – – 725,852 – – 2011 RM’000 725,852 – – – – – – – – 725,852 – – 2010 RM’000 Franchise rights 58,370 3,584 – 389 5,660 1,642 3,336 1,931 2,347 25,091 10,783 3,607 2011 RM’000 44,873 2,587 – 389 5,660 1,642 1,333 1,931 2,347 15,129 10,278 3,577 2010 RM’000 Goodwill 177,435 – 177,435 – – – – – – – – – 2011 RM’000 140,301 – 140,301 – – – – – – – – – 2010 RM’000 Supplier relationship 49,690 – – 2,305 – – – – 10,198 – 37,187 – 2011 RM’000 49,417 – – 1,016 – – – – 11,198 – 37,203 – 2010 RM’000 Intangible assets with finite useful lives 3,584 177,435 2,694 5,660 1,642 3,336 1,931 12,545 750,943 123,565 14,464 2011 RM’000 2,587 140,301 1,405 5,660 1,642 1,333 1,931 13,545 740,981 123,076 14,434 2010 RM’000 1,046,895 Total 1,097,799 For the purpose of impairment testing, intangible assets with indefinite useful lives have been allocated to the following cash-generating units (“CGU”). Impairment testing of intangible assets with indefinite useful lives 15. INTANGIBLE ASSETS (continued) annual report 2011 | 221 Kulim (Malaysia) Berhad (23370-V) Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 222 | annual report 2011 (continued) 31 DECEMBER 2011 15. INTANGIBLE ASSETS (continued) Key assumptions used in value-in-use calculations The recoverable amount of the CGUs have been determined based on value-in-use calculations using cash flow projections based on financial budgets approved by management. The key assumptions on which management has based its cash flow projections are as follows: Restaurants, integrated poultry and ancillary segments • Cash flows were projected based on financial budgets approved by management covering a ten year period. • The growth rate used to extrapolate the cash flows of the Restaurants, Integrated Poultry and Ancillary segments beyond the 10 year period is 4% (2010: 4%) which does not exceed the average historical growth rate over the long term for the industry or the estimated GDP growth rate of the country. • There will be no material changes in the structure and principal activities of the CGUs. • Raw material price inflation – there will not be any significant increase in the prices and supply of raw materials, wages and other related costs, resulting from industrial disputes, adverse changes in economic conditions or other unusual factors. • There will be no material changes in the present legislation or regulations, rates and bases of duties, levies and other taxes affecting the CGU’s activities. • A pre-tax discount rate of 9.65% was applied in determining the recoverable amounts of the CGUs. The discount rate was estimated based on the weighted average cost of capital of the respective CGUs. • There will be no significant changes in the prevailing existing financing facilities and interest rates. • There will be no significant fluctuations in the foreign exchange rates. Other segments • Cash flows were projected based on actual operating results covering a five year period. • Revenue was projected to grow at approximately 5% – 25% per annum. • Budgeted gross profit margins were projected at between of 4% – 44% per annum. • A pre-tax discount rate of 10% was applied in determining the recoverable amount of theCGU. The discount rate was estimated based on the CGU’s existing rates of borrowing. The values assigned to the key assumptions represent management’s assessment of future trends in the industry. annual report 2011 | 223 Kulim (Malaysia) Berhad (23370-V) 16. INVESTMENT IN SUBSIDIARIES Company 2011 RM’000 2010 RM’000 At cost: Unquoted shares in Malaysia Less: Impairment losses 576,921 (21,705) 371,966 (21,250) Quoted shares in Malaysia Quoted shares outside Malaysia 555,216 545,028 216,390 350,716 653,579 216,390 1,316,634 1,220,685 1,087,065 2,559,965 985,775 3,111,398 Market value: Quoted shares in Malaysia Quoted shares outside Malaysia The investments in quoted shares in subsidiaries are pledged to the bank for borrowings as further disclosed in Note 23 to the financial statements. Details of the subsidiaries are as follows: Effective ownership interest Country of incorporation 2011 % 2010 % Principal activities Mahamurni Plantations Sdn. Bhd. Malaysia 100 100 Oil palm plantation Selai Sdn. Bhd. Malaysia 100 100 Oil palm plantation Ulu Tiram Manufacturing Company (Malaysia) Sdn. Bhd. Malaysia 100 100 Oil palm plantation Kumpulan Bertam Plantations Berhad Malaysia 94.49 94.49 Oil palm plantation EPA Management Sdn. Bhd. Malaysia 100 100 Investment holding, provision of management services and consultancy, and mechanical equipment assembler Skellerup Industries (Malaysia) Sdn. Bhd. Malaysia 100 100 Manufacturer of rubber-based products Kulim Topplant Sdn. Bhd. Malaysia 60 60 Production of oil palm clones JTP Trading Sdn. Bhd. Malaysia 80 80 Trading/distribution of tropical fruits Kulim Energy Sdn. Bhd. Malaysia 100 100 Investment holding Pristine Bay Sdn. Bhd. Malaysia 51 51 Investment holding Kulim Plantations (Malaysia) Sdn. Bhd. Malaysia 100 100 Oil palm plantation Papua New Guinea 50.68 50.68 Oil palm plantation +# QSR Brands Bhd. Malaysia 53.92 56.02 Investment holding Sindora Berhad Malaysia 100 76.29 Investment holding, operations of oil palm million and rubber estates Name of subsidiaries Held by the Company: +@ New Britain Palm Oil Limited Kulim (Malaysia) Berhad (23370-V) 224 NOTES TO THE FINANCIAL STATEMENTS | annual report 2011 (continued) 31 DECEMBER 2011 16. INVESTMENT IN SUBSIDIARIES (continued) Effective ownership interest Country of incorporation 2011 % 2010 % Cita Tani Sdn. Bhd. Malaysia 90 90 Cultivation of sugar cane and other agriculture produce Renown Value Sdn. Bhd. Malaysia 75 90 Cultivation of pineapples and other agricultural produce Kulim Nursery Sdn. Bhd. Malaysia 90 90 Oil palm nursery and other related services The Secret of Secret Garden Sdn. Bhd. Malaysia 100 100 Marketing of personal care products Name of subsidiaries Principal activities Held by the Company: (continued) Held through Mahamurni Plantations Sdn. Bhd.: Pembangunan Mahamurni Sdn. Bhd. Malaysia 100 100 Investment holding United Malayan Agricultural Corporation Berhad Malaysia 100 100 Oil palm plantation Held through Ulu Tiram Manufacturing Company (Malaysia) Sdn. Bhd.: EPA Futures Sdn. Bhd. Malaysia 100 100 Dormant Akli Resources Sdn. Bhd. Malaysia 95 95 Provider of in-house and external training programmes Edaran Badang Sdn. Bhd. Malaysia 75 75 Dealer in agricultural machinery and parts Kulim Civilworks Sdn. Bhd. Malaysia 75 75 Facilities maintenance, project and construction works Panquest Ventures Limited British Virgin Island 100 100 Dormant Kulim Livestocks Sdn. Bhd. Malaysia 90 90 Breeding and sale of cattle Special Appearance Sdn. Bhd. Malaysia 90 90 Production house and event management Superior Harbour Sdn. Bhd. Malaysia 78 78 Aquaculture Extreme Edge Sdn. Bhd. Malaysia 90 100 Computer equipment supplier and services Pinnacle Platform Sdn. Bhd. Malaysia 100 100 Software maintenance and supplier Palma Bumimas Sdn. Bhd. Malaysia 100 100 Dormant +PT Kulim Agro Persada Indonesia 100 100 Management services Malaysia 90 90 Commercial cattle farming Perfect Synergy Trading Sdn. Bhd. Malaysia 100 100 Fertilizer supplier Optimum Status Sdn. Bhd. Malaysia 100 100 Mill maintenance Held through EPA Management Sdn. Bhd.: Held through Kulim Livestocks Sdn. Bhd. Exquisite Livestock Sdn. Bhd. Held through Edaran Badang Sdn. Bhd.: annual report 2011 | 225 16. INVESTMENT IN SUBSIDIARIES Kulim (Malaysia) Berhad (23370-V) (continued) Effective ownership interest Country of incorporation 2011 % 2010 % Principal activities KCW Hardware Sdn. Bhd. Malaysia 100 100 Hardware supplier KCW Kulim Marine Services Sdn. Bhd. Malaysia 100 100 Port services KCW Electrical Sdn. Bhd. Malaysia 100 100 Electrical installation services Name of subsidiaries Held through Kulim Civilworks Sdn. Bhd.: Held through Skellerup Industries (Malaysia) Sdn. Bhd.: Skellerup Foam Products (Malaysia) Sdn. Bhd. Malaysia 100 100 Dormant Skellerup Latex Products (M) Sdn. Bhd. Malaysia 100 100 Dormant SIM Manufacturing Sdn. Bhd. Malaysia 90 90 Investment holding and manufacturers and dealers in rubber and rubber products of all kinds Malaysia 51 51 Dormant Malaysia 67.5 67.5 Trading and distribution of tropical fruits Australia 50.68 50.68 Research and production of oil palm seeds +New Britain Nominees Limited Papua New Guinea 50.68 50.68 Operate as legal entity for New Britain Palm Oil Limited Share Ownership Plan +Guadalcanal Plains Oil Limited Solomon Islands 40.54 40.54 Operate as legal entity for New Britain Palm Oil +New Britain Plantation Services Pte. Limited Singapore 50.68 50.68 Sale of germinated oil palm seeds +Ramu Agri-Industries Limited Papua New Guinea 50.68 50.68 Oil palm, cultivation of sugar cane and other agriculture produce +Dumpu Limited Papua New Guinea 50.68 50.68 Landholding United Kingdom 50.68 50.68 Refinery +Kula Palm Oil Limited Papua New Guinea 40.54 40.54 Oil palm cultivation and processing +Plantation Contracting Services Limited Papua New Guinea 50.68 50.68 Contractual earthworks and roadworks projects +Poliamba Limited Papua New Guinea 32.94 32.94 Oil palm cultivation Held through Kulim Energy Sdn. Bhd.: Nexsol (Malaysia) Sdn. Bhd. Held through JTP Trading Sdn. Bhd.: JTP Montel Sdn. Bhd. Held through New Britain Palm Oil Limited: +Dami Australia Pty. Limited +New Britain Oils Limited Kulim (Malaysia) Berhad (23370-V) 226 NOTES TO THE FINANCIAL STATEMENTS | annual report 2011 (continued) 31 DECEMBER 2011 16. INVESTMENT IN SUBSIDIARIES (continued) Effective ownership interest Country of incorporation 2011 % 2010 % Principal activities +Pizza Hut Holdings (Malaysia) Sdn. Bhd. Malaysia 53.92 56.02 Investment holding +QSR Ventures Sdn. Bhd. Malaysia 53.92 56.02 Investment holding +# KFC Holdings (Malaysia) Bhd. (“KFCH”) Malaysia 27.55 28.35 Investment holding Cambodia 29.66 30.81 Restaurants +Efinite Value Sdn. Bhd. Malaysia 53.92 56.02 Customer service call centre +Pizza Hut Delco Sdn. Bhd. Malaysia 53.92 56.02 Dormant +SBC Coffee Holdings Sdn. Bhd. Malaysia 53.92 56.02 Dormant +Sterling Distinction Sdn. Bhd. Malaysia 53.92 56.02 Dormant +Yayasan Amal Bistari Sdn. Bhd. Malaysia 35.48 36.64 Dormant +Pizza Hut Restaurants Sdn. Bhd. Malaysia 53.92 56.02 Restaurants +PH Property Holdings Sdn. Bhd. Malaysia 53.92 56.02 Dormant Singapore 53.92 56.02 Investment holding Labuan 53.92 – Captive insurer Cambodia 53.92 – Dormant +PHD Delivery Sdn. Bhd. Malaysia 53.92 56.02 Dormant +Cilik Bistari Sdn. Bhd. Malaysia 27.55 28.35 Sale of board games +Gratings Solar Sdn. Bhd. Malaysia 27.55 28.35 Trading of solar equipment +Integrated Poultry Industry Sdn. Bhd. Malaysia 27.55 28.35 Poultry processing plant +KFC Events Sdn. Bhd. Malaysia 27.55 28.35 Sales of food product vouchers +KFC India Holdings Sdn. Bhd. Malaysia 27.55 28.35 Investment holding +Pizza Hut Singapore Pte. Ltd. Singapore 53.92 56.02 Restaurants +Pizza (Kampuchea) Private Limited Cambodia 29.66 30.81 Restaurants +Ayamas Food Corporation Sdn. Bhd. Malaysia 27.55 28.35 Poultry processing and investment holding +Ayamas Integrated Poultry Industry Sdn. Bhd. Malaysia 27.55 28.35 Breeder, broiler farms, hatchery, feedmill and investment holding +KFC Manufacturing Sdn. Bhd. Malaysia 27.55 28.35 Bakery, trading in consumables and investment holding +KFC Restaurants Holdings Sdn. Bhd. Malaysia 27.55 28.35 Investment holding +KFCH Education (M) Sdn. Bhd, Malaysia 27.55 28.35 College/learning institute Name of subsidiaries Held through QSR Brands Bhd.: +Kampuchea Food Corporation +Multibrand QSR Holdings Pte. Ltd. +QSR Captive Insurance Limited +Integrated Poultry Industry (Kampuchea) Private Limited Held through KFCH: (formerly known as Paramount Holdings (M) Sdn. Bhd.) annual report 2011 | 227 Kulim (Malaysia) Berhad (23370-V) 16. INVESTMENT IN SUBSIDIARIES (continued) Effective ownership interest Country of incorporation 2011 % 2010 % Principal activities Malaysia 27.55 28.35 Property holding +Region Food Industries Sdn. Bhd. Malaysia 27.55 28.35 Sauce manufacturing plant +Roaster’s Chicken Sdn. Bhd. Malaysia 27.55 28.35 Investment holding +WP Properties Holdings Sdn. Bhd. Malaysia 27.55 28.35 Investment holding +Ayamas Shoppe Sdn. Bhd. Malaysia 27.55 28.35 Poultry retail, convenience food store chain and investment holding +Ayamazz Sdn. Bhd. Malaysia 27.55 28.35 Push-cart selling food and refreshment +Kentucky Fried Chicken (Malaysia) Sdn. Bhd. Malaysia 27.55 28.35 Restaurants +KFC (East Malaysia) Sdn. Bhd. Malaysia 27.55 28.35 Investment holding +KFC (Peninsular Malaysia) Sdn. Bhd. Malaysia 27.55 28.35 Restaurants, commissary and investment holding +KFC (Sarawak) Sdn. Bhd. Malaysia 27.55 28.35 Restaurants +KFC Marketing Sdn. Bhd. Malaysia 27.55 28.35 Sales and marketing of food products +Ladang Ternakan Putihekar (N.S.) Sdn. Bhd. Malaysia 27.55 28.35 Breeder farm +MH Integrated Farm Berhad Malaysia 27.55 28.35 Property holding +Pintas Tiara Sdn. Bhd. Malaysia 27.55 28.35 Property holding +Rasamas Holdings Sdn. Bhd. Malaysia 27.55 28.35 Restaurants +Rasamas Bangi Sdn. Bhd. Malaysia 27.55 28.35 Restaurants +SPM Restaurants Sdn. Bhd. Malaysia 27.55 28.35 Meals on wheels and property holding +Usahawan Bistari Ayamas Sdn. Bhd. Malaysia 27.55 28.35 Operation of “Sudut Ayamas” +Ayamas Farms & Hatchery Sdn. Bhd. Malaysia 24.80 25.55 Broiler farm +KFC (Sabah) Sdn. Bhd. Malaysia 27.55 28.35 Restaurants +Rasamas BC Sdn. Bhd. Malaysia 27.55 28.35 Restaurants +Rasamas Bukti Tinggi Sdn. Bhd. Malaysia 24.80 25.55 Restaurants +Rasamas Butterworth Sdn. Bhd. Malaysia 24.80 25.55 Restaurants +Rasamas Kota Bharu Sdn. Bhd. Malaysia 24.80 25.55 Restaurants +Rasamas Melaka Sdn. Bhd. Malaysia 24.80 25.55 Restaurants +Rasamas Nilai Sdn. Bhd. Malaysia 24.80 25.55 Restaurants +Rasamas Subang Sdn. Bhd. Malaysia 24.80 25.55 Restaurants +Rasamas Wangsa Maju Sdn. Bhd. Malaysia 24.80 25.55 Restaurants +Rasamas Tebrau Sdn. Bhd. Malaysia 24.59 25.32 Restaurants Name of subsidiaries Held through KFCH: (continued) +KFCIC Assets Sdn. Bhd. (formerly known as Paramount Management Sdn. Bhd.) Kulim (Malaysia) Berhad (23370-V) 228 NOTES TO THE FINANCIAL STATEMENTS (continued) 31 DECEMBER 2011 16. INVESTMENT IN SUBSIDIARIES (continued) Effective ownership interest Country of incorporation 2011 % 2010 % Principal activities +Rasamas Terminal Larkin Sdn. Bhd. Malaysia 24.59 25.32 Restaurants +Rasamas Taman Universiti Sdn. Bhd. Malaysia 24.53 25.27 Restaurants +Ayamas Feedmill Sdn. Bhd. Malaysia 23.40 24.09 Broiler farm +Semangat Juara Sdn. Bhd. Malaysia 20.65 21.29 Broiler farm +Tepak Marketing Sdn. Bhd. Malaysia 15.15 15.57 Contract packing Singapore 27.55 28.35 Restaurants India 27.55 28.35 Restaurants Mauritius 27.55 28.35 Restaurants +Mumbai Chicken Pvt. Ltd. India 27.55 28.35 Restaurants +Pune Chicken Restaurants Pvt. Ltd. India 27.55 28.35 Restaurants +WQSR Holdings (S) Pte. Ltd. Singapore 27.55 28.35 Investment holding +KFC (B) Sdn. Bhd. Brunei Darussalam 12.67 13.00 Restaurants +Rasamas Sdn. Bhd. Brunei Darussalam 12.67 13.00 Restaurants +Asbury’s (Malaysia) Sdn. Bhd. Malaysia 27.55 28.35 Dormant +Ayamas Contract Farming Sdn. Bhd. Malaysia 27.55 28.35 Dormant +Ayamas Franchise Sdn. Bhd. Malaysia 27.55 28.35 Dormant +Ayamas Marketing (M) Sdn. Bhd. Malaysia 27.55 28.35 Dormant +Ayamas Selatan Sdn. Bhd. Malaysia 27.55 28.35 Dormant +Bakers’ Street Sdn. Bhd. Malaysia 27.55 28.35 Dormant +Cemerlang Sinergi Sdn. Bhd. Malaysia 27.55 28.35 Dormant +Chippendales (M) Sdn. Bhd. Malaysia 27.55 28.35 Dormant +Efinite Revenue Sdn. Bhd. Malaysia 27.55 28.35 Dormant +Rangeview Sdn. Bhd. Malaysia 27.55 28.35 Dormant +Rasamas Batu Caves Sdn. Bhd. Malaysia 27.55 28.35 Dormant +Rasamas Endah Parade Sdn. Bhd. Malaysia 27.55 28.35 Dormant +Rasamas Larkin Sdn. Bhd. Malaysia 27.55 28.35 Dormant +Rasamas Mergong Sdn. Bhd. Malaysia 27.55 28.35 Dormant +Restoran Keluarga Sdn. Bhd. Malaysia 27.55 28.35 Dormant +Restoran Sabang Sdn. Bhd. Malaysia 27.55 28.35 Dormant +Seattle’s Best Coffee Sdn. Bhd. Malaysia 27.55 28.35 Dormant Name of subsidiaries Held through KFCH: (continued) +Kentucky Fried Chicken Management Pte. Ltd. +Kernel Foods Pvt. Ltd. +Mauritius Food Corporation Pvt. Ltd. | annual report 2011 annual report 2011 | 229 Kulim (Malaysia) Berhad (23370-V) 16. INVESTMENT IN SUBSIDIARIES (continued) Effective ownership interest Country of incorporation 2011 % 2010 % Principal activities +Signature Chef Dining Serviecs Sdn. Bhd. Malaysia 27.55 28.35 Dormant +Signature Chef Foodservices & Catering Sdn. Bhd. Malaysia 27.55 28.35 Dormant +Wangsa Progresi Sdn. Bhd. Malaysia 27.55 28.35 Dormant +Hiei Food Industries Sdn. Bhd. Malaysia 22.32 22.97 Dormant +Yes Gelato Sdn. Bhd. Malaysia 22.05 22.69 Dormant +Ayamas Food Corporation (S) Pte. Ltd. Singapore 27.55 28.35 Dormant +Ayamas Shoppe (S) Pte. Ltd. Singapore 27.55 28.35 Dormant +Helix Investments Limited Hong Kong 27.55 28.35 Dormant +Ayamas Shoppe (Brunei) Sdn. Bhd. Brunei Darussalam 12.67 13.00 Dormant +Southern Poultry Farming Sdn. Bhd Malaysia 24.80 – Broiler farm +Ventures Poultry Farm Sdn. Bhd Malaysia 24.80 – Broiler farm +Synergy Poultry Farming Sdn. Bhd Malaysia 23.35 – Broiler farm +Ayamas Shoppe Sabah Sdn. Bhd Malaysia 17.90 – Convenience food store +Agrotech Farm Solutions Sdn. Bhd Malaysia 27.55 – Dormant Sindora Wood Products Sdn. Bhd. Malaysia 100.00 76.29 Property letting Sindora Timber Products Sdn. Bhd. Malaysia 100.00 76.29 Dormant Sindora Trading Sdn. Bhd. Malaysia 100.00 76.29 Dormant Sindora Development Sdn. Bhd. Malaysia 100.00 76.29 Dormant Sindora Timber Sdn. Bhd. Malaysia 90.00 68.66 Timber logging, processing and sale of sawn timber, timber doors, laminated timber scantling and trading of wood products Granulab (M) Sdn. Bhd. Malaysia 90.00 68.66 Trading of GranuMas, a granular synthetic bone graft Pro Office Solutions Sdn. Bhd. Malaysia 90.00 68.66 Bulk mailing and printing services Epasa Shipping Agency Sdn. Bhd. Malaysia 75.00 57.22 Shipping and forwarding agent E.A. Technique (M) Sdn. Bhd. Malaysia 51.00 38.91 Provision of sea transportation and related services Metro Parking (M) Sdn. Bhd. Malaysia 75.00 57.22 Parking operations and the provision of related consultancy services Microwell Sdn. Bhd. Malaysia 60.00 45.77 Trading of agricultural fertilizers, water treatment, biotechnology research and development MIT Insurance Brokers Sdn. Bhd. Malaysia 90.00 68.66 Insurance broking and consultancy Orkim Sdn. Bhd. Malaysia 35.86 – Provision of sea transportation and related services Name of subsidiaries Held through KFCH: (continued) Held through Sindora Berhad: Kulim (Malaysia) Berhad (23370-V) 230 NOTES TO THE FINANCIAL STATEMENTS | annual report 2011 (continued) 31 DECEMBER 2011 16. INVESTMENT IN SUBSIDIARIES (continued) Effective ownership interest Country of incorporation 2011 % 2010 % Principal activities + Metro Parking (S) Pte. Ltd. Singapore 52.50 40.05 Parking operator and consultancy services + Metro Parking (B) Sdn. Bhd. Brunei Darussalam 75.00 68.66 Parking operator and consultancy services Metro Equipment Systems (M) Sdn. Bhd. Malaysia 75.00 52.26 Trading in parking and other related equipments Metro Parking (Sabah) Sdn. Bhd. Malaysia 75.00 57.22 Parking operator and other transport related services Smart Parking Management Sdn. Bhd. Malaysia 75.00 42.91 Parking operator and trading in related equipments Hong Kong 41.25 31.47 Parking operator and other transport related services India 75.00 57.22 Parking operator and consultancy services General Access Sdn. Bhd. Malaysia 78.98 61.79 Field clearing, earthwork, road construction and resurfacing Tiram Fresh Sdn. Bhd. Malaysia 90.00 61.79 Cultivation and trading of mushroom and related products Jejak Juara Sdn. Bhd. Malaysia 81.00 61.79 Manufacturers and dealers in rubber products Malaysia 51.00 38.91 Shipbuilding, fabrication of steel structures, engineering services and consultancy Malaysia 60.00 45.77 Trading of biochemical fertilizer Name of subsidiaries Held through Metro Parking (M) Sdn. Bhd.: +Metro Parking (HK) Limited +Metro Parking Services (India) Private Limited Held through Sindora Timber Sdn. Bhd.: Held through E.A. Technique (M) Sdn. Bhd.: Johor Shipyard & Engineering Sdn. Bhd. Held through Microwell Sdn. Bhd.: Julang Sempurna Sdn. Bhd. + Audited by firms other than Ernst & Young @ Listed on Port Moresby Stock Exchange (“POMSOX”) and London Stock Exchange # Listed on the Main Board of Bursa Malaysia Securities Berhad annual report 2011 | 231 Kulim (Malaysia) Berhad (23370-V) 16. INVESTMENT IN SUBSIDIARIES (continued) Acquisition of additional interest in subsidiaries in 2011 During the financial year, the Group and Company acquired an additional 22,076,182 ordinary shares in Sindora Berhad (“Sindora”) representing 23.71% of the issued and paid-up share capital of Sindora for a total purchase consideration of RM70,598,000. Following the acquisition, Sindora became a wholly owned subsidiary of the Group. Acquisition of subsidiaries in 2011 (i) On 1 November 2010, the Group via its subsidiary, KFCH announced that it had via its wholly-owned subsidiary, Ayamas Food Corporation Sdn. Bhd., entered into Sale and Purchase of Shares Agreements for the acquisition of: a. 90.0% of the issued and paid up share capital of Southern Poultry Farming Sdn. Bhd.; b. 84.8% of the issued and paid up share capital of Synergy Poultry Farming Sdn. Bhd.; c. 90.0% of the issued and paid up share capital of Ventures Poultry Farm Sdn. Bhd.; and d. 100% of the issued and paid-up share capital of Agrotech Farm Solutions Sdn. Bhd. for a total cash consideration of RM1,111,951. These acquisitions were completed on 14 January 2011 and did not have any significant impact on the financial position of the Group. (ii) On 11 March 2011, KFCH announced that it had via its wholly-owned subsidiary, Ayamas Shoppe Sdn. Bhd., incorporated a company, i.e. Ayamas Shoppe (Sabah) Sdn. Bhd. pursuant to the Joint Venture Agreement dated 27 October 2010 with Rastamas Trading Sdn. Bhd. for the purpose of operating Kedai Ayamas businesses in Sabah. (iii) During the year, the Group through its subsidiary, E.A. Technique Sdn. Bhd. acquired an additional 380,000 ordinary shares in Orkim Sdn. Bhd. (“Orkim”) representing 1.1% of the issued and paid up share capital of Orkim Sdn. Bhd. for a total purchase consideration of RM866,000. Following the acquisition of the additional interest, Orkim became a subsidiary of the Group. The acquisition of Orkim had the following effect on the Group’s assets and liabilities on the acquisition date: Recognised values on acquisition RM’000 Property, plant and equipment Goodwill Investment in associates Deferred tax assets Cash and cash equivalents Receivables Current tax assets Non-controlling interest Borrowings Payables Current tax liabilities 167,202 518 14,877 24 13,118 6,181 93 (19,186) (128,043) (6,444) (349) Net identifiable assets Less: Non-controlling interest on acquisition 47,991 (30,781) Group’s share of net assets Goodwill on acquisition 17,210 12,589 Consideration paid, satisfied in cash Cash and cash equivalents acquired 29,799 (13,118) Net cash outflow 16,681 Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 232 | annual report 2011 (continued) 31 DECEMBER 2011 16. INVESTMENT IN SUBSIDIARIES (continued) Acquisition of additional interest in subsidiaries in 2011 (continued) Acquisition of subsidiaries in 2011 (continued) Book values at the date of these acquisitions were determined based on the applicable FRSs immediately before these acquisitions. The book value at the date of acquisition of identifiable assets and liabilities recognised on acquisition approximates their fair values. From the date of acquisition, Orkim has contributed RM12,784,000 to the Group’s profit net of tax. The effect of net profits contributed by the other acquired companies are not material in relation to the consolidated net profit for the year. Disposal of interest in subsidiary in 2011 On 2 August 2011, KFCH announced that it had through KFC Marketing Sdn. Bhd. entered into a Sale and Purchase of Shares incorporating Shareholders’ Agreement with Ayamazz Sdn. Bhd. and Mohamed Hashim bin Mohd Kamil (“Intrapreneur”). The agreement enables the Intrapreneur to subscribe/purchase ordinary shares representing up to 25% equity interest in Ayamazz Sdn. Bhd. arising from the implementation of the Group’s Intrapreneur Scheme. During the year, the Group disposed off 10% of its interest in Ayamazz Sdn. Bhd. for a cash consideration of RM50,000. Acquisition of subsidiaries in 2010 Acquisition of Kula Palm Oil Limited (CTP (PNG) Limited) On April 2010, the Group, via its 50.66% controlled subsidiary New Britain Palm Oil Limited (NBPOL), successfully concluded the acquisition of Kula Palm Oil Limited (“Kula”) by acquiring 80% of the issued share capital of Kula. The acquisition had the following effect on the Group’s assets and liabilities on acquisition date: Cash and cash equivalents Trade and other receivables Inventories Property, plant and equipment Intangible assets Borrowings Trade and other payables Deferred tax liabilities Net identifiable assets Book value at date of acquisition RM’000 Fair value adjustments RM’000 Recognised values on acquisition RM’000 1,694 66,170 70,515 293,848 – (2,804) (192,070) (163,366) – – 14,677 481,977 145,072 – – (72,493) 1,694 66,170 85,192 775,825 145,072 (2,804) (192,070) (235,859) 73,987 569,233 643,220 Less: Minority interest on acquisition (128,643) Total purchase consideration Settlement of intercompany payable 514,577 91,071 Total settlement in cash Less: Cash and cash equivalents 605,648 (1,694) Total cash outflow on acquisition 603,954 annual report 2011 | 233 Kulim (Malaysia) Berhad (23370-V) 16. INVESTMENT IN SUBSIDIARIES (continued) Acquisition of subsidiaries in 2010 (continued) Effect of acquisition The acquisition of Kula had the following effect on the Group’s operating results, assets and liabilities as at 31 December 2010: 8 months ended 31.12.2010 RM’000 Statement of comprehensive income Revenue Operating costs 368,200 (271,279) Operating profit Finance costs 96,921 – Profit before tax Income tax expense 96,921 (47,194) Profit for the year Less: Minority interests 49,727 (29,566) Increase in the Group’s net profit at the end of the financial year 20,161 Statement of financial position Property, plant and equipment Current assets Current liabilities Deferred tax liabilities Minority interest 738,743 76,461 (39,575) (246,759) (173,950) Net assets acquired/Group’s share of net assets Intangible assets on acquisition 354,920 140,301 Increase in the Group’s net assets 495,221 Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 234 | annual report 2011 (continued) 31 DECEMBER 2011 16. INVESTMENT IN SUBSIDIARIES (continued) Acquisition of subsidiaries in 2010 (continued) Acquisition of Plantation Contracting Services Limited (“PCSL”) On June 2010, the Group, via its 50.66% controlled subsidiary NBPOL, successfully concluded the acquisition of PCSL by acquiring the remaining 50% of the share capital of PCSL, a company incorporated in Papua New Guinea and in which NBPOL previously held a 50% interest. The acquisiton had the following effect on the Group’s assets and liabilities on acquisition date: Book value at date of acquisition RM’000 Fair value adjustments RM’000 Recognised values on acquisition RM’000 Cash and cash equivalents Trade and other receivables Property, plant and equipment Borrowings Trade and other payables 77 121 11,831 (12,735) (9,422) – 3,175 3,333 – – 77 3,296 15,164 (12,735) (9,422) Net identifiable assets and liabilities (10,128) 6,508 (3,620) Impairment charge 6,177 Total purchase consideration Cash and cash equivalents 2,557 (77) Total cash outflow on acquisition 2,480 The acquisition did not have any significant effect on the Group’s profit net of tax. Acquisition of subsidiaries by QSR Brands Bhd. (“QSR”) (i) During the year, QSR acquired an additional 800,000 ordinary shares in KFC Holdings (Malaysia) Bhd. (“KFCH”) representing 0.39% of the issued and paid-up share capital of KFCH for a total purchase consideration of RM8,786,563. Following the acquisition, QSR’s shareholdings in KFCH increased from 50.25% to 50.64%. (ii) On 18 September 2009, KFCH announced that it had entered into a Share Sale Agreement for the acquisition of the entire equity interest in Paramount Management Sdn. Bhd. and Paramount Holdings (M) Sdn. Bhd., comprising 500,000 ordinary shares each and the entire equity interest in Gratings Solar Sdn. Bhd. comprising 200,000 ordinary shares, at a total cash consideration of RM6.5 million. The acquisition was completed on 29 January 2010. (iii) On 13 April 2010, QSR announced that it had, vide its subsidiary, Kumpuchea Food Corporation Co. Limited, established a wholly owned subsidiary, Pizza (Kampuchea) Private Limited. (iv) On 9 July 2010, QSR announced that it had, vide its wholly-owned subsidiary, Pizza Hut Restaurant Sdn. Bhd., acquired the entire issued and paid-up share capital of PHD Delivery Sdn. Bhd. (formerly known as Pizza Hut Delivery Sdn. Bhd.) comprising two (2) ordinary shares of RM1 each for a total cash consideration of RM2. (v) On 16 July 2010, QSR and KFCH announced that they had jointly established a non-government and non-profitable company i.e Yayasan Amal Bistari Sdn. Bhd. for the primary purposes of regulating and driving all Corporate Responsibility endeavours and programmes. annual report 2011 | 235 Kulim (Malaysia) Berhad (23370-V) 16. INVESTMENT IN SUBSIDIARIES (continued) Acquisition of subsidiaries in 2010 (continued) (vi) On 4 October 2010, KFCH announced that it had acquired the entire issued and paid-up share capital of Cemerlang Sinergi Sdn. Bhd. and Efinite Revenue Sdn. Bhd. comprising 2 ordinary shares of RM1 each at a total cash consideration of RM2, for each of the companies. (vii) On 4 October 2010, QSR announced that it had acquired the entire issued and paid-up share capital of Efinite Value Sdn. Bhd. comprising 2 ordinary shares of RM1 each at a total cash consideration of RM2. (viii) On 27 October 2010, KFCH via its wholly-owned subsidiary, Ayamas Shoppe Sdn. Bhd., acquired the entire issued and paid-up share capital of Ayamas Shoppe (S) Pte. Ltd. comprising 2 ordinary shares of SGD1 each for a total cash consideration of SGD2. (ix) On 18 November 2010, KFCH announced that it had via its subsidiary, KFC (B) Sdn. Bhd., incorporated a subsidiary in Brunei, i.e. Ayamas Shoppe (Brunei) Sdn. Bhd. (x) On 13 December 2010, KFCH announced that it had via its subsidiary, Pune Chicken Restaurant Private Limited, entered into a Share Subscription and Share Purchase Agreement for the acquisition of the entire interest in Kernel Foods Private Limited for a cash consideration of Rs.12,000,000 (Rupees Twelve Lacs only) amounting to approximately RM84,000. The above acquisitions by QSR in the previous financial year had the following combined effects on the Group’s assets and liabilities on acquisition date: Recognised values on acquisition RM’000 Property, plant and equipment Inventories Trade and other receivables Cash and cash equivalents Loans and borrowings Deferred tax liabilities Trade and other payables Current tax liabilities Minority interests 4,005 109 549 (385) (1,023) (31) (597) (39) 3,290 Net identifiable assets and liabilities Intangible assets arising from acquisition Goodwill arising from acquisition 5,878 5,400 6,636 Consideration paid, satisfied in cash Cash and cash equivalents acquired 17,914 385 Net cash outflow 18,299 Book values at the date of acquisition were determined based on applicable FRSs immediately before the acquisition. The book values at the date of acquisition of identifiable assets and liabilities generally approximate their fair values. The effect of net profits and net assets contributed by the acquired companies are not material in relation to the consolidated net profit for the year and net assets of the Group at the reporting date. Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 236 | annual report 2011 (continued) 31 DECEMBER 2011 16. INVESTMENT IN SUBSIDIARIES (continued) Acquisition of subsidiaries in 2010 (continued) Acquisition of subsidiaries by Sindora Berhad During the previous financial year, the Group acquired Microwell Sdn. Bhd. (“Microwell”) and MIT Insurance Brokers Sdn. Bhd. (“MIT”) for a cash consideration of RM5,966,000. The acquisitions had the following effect on the Group’s assets and liabilities on acquisition date. Recognised values on acquisition RM’000 Microwell RM’000 MIT RM’000 27 210 130 441 746 (270) 190 – – 3,579 277 (3,593) 217 210 130 4,020 1,023 (3,863) Net identifiable assets and liabilities Goodwill on acquisition 1,284 2,587 453 1,642 1,737 4,229 Consideration paid, satisfied in cash Cash and cash equivalents acquired 3,871 2,095 5,966 (1,023) Property, plant and equipment Intangible assets Inventories Receivables, deposit and prepayments Cash and cash equivalents Payables and accruals Net cash outflow 4,943 The goodwill recognised on the acquisitions are mainly attributable to the skills and technical talent of the acquired business’s work force and the synergies expected to be achieved from integrating these new subsidiaries into the Group. The acquisitions did not have any significant effect on the Group’s profit net of tax. Acquisition of Exquisite Livestock Sdn. Bhd., Extreme Edge Sdn. Bhd., Pinnacle Platform Sdn. Bhd., Perfect Synergy Trading Sdn. Bhd., Optimum Status Sdn. Bhd., KCW Hardware Sdn. Bhd., KCW Kulim Marine Services Sdn. Bhd. and KCW Electrical Sdn. Bhd. During the previous financial year, the Group acquired 8 new companies, Exquisite Livestock Sdn. Bhd., Extreme Edge Sdn. Bhd., Pinnacle Platform Sdn. Bhd., Perfect Synergy Trading Sdn. Bhd., Optimum Status Sdn. Bhd., KCW Hardware Sdn. Bhd., KCW Kulim Marine Services Sdn. Bhd., and KCW Electrical Sdn. Bhd., for a total cash consideration of RM1,308,000. The acquisition did not have any significant effect on the Group’s profit net of tax. Disposal of subsidiaries in 2010 (i) Disposal of equity interest in Natural Oleochemicals Sdn. Bhd. and its subsidiaries In September 2010, the Group disposed its entire equity interest in Natural Oleochemicals Sdn. Bhd., and its subsidiaries. Further details are disclosed in Note 11 to the financial statements. (ii) Partial disposal of Sindora Berhad In June 2010, the Company disposed off 0.20% of its equity shareholding in Sindora Berhad for a total consideration of RM289,018 resulting in a loss on partial disposal to the Group and the Company of RM283,744 and RM52,749 respectively. The Group recognised an increase in minority interest of about RM572,690. The Group’s equity interest in Sindora Berhad fell to 76.30%. On July 2010, the Company disposed off 0.01% of its equity shareholding in Sindora Berhad for a total consideration of RM19,067 resulting in a loss on partial disposal to the Group and the Company of RM16,624 and RM2,169 respectively. The Group recognised an increase in minority interest of about RM35,690. The Group’s equity interest in Sindora Berhad fell to 76.29%. annual report 2011 | 237 Kulim (Malaysia) Berhad (23370-V) 16. INVESTMENT IN SUBSIDIARIES (continued) Acquisition of subsidiaries in 2010 (continued) Disposal of subsidiaries in 2010 (continued) (iii) Partial disposal of QSR Brands Bhd. During the year, the Company disposed off 3.51% of its equity shareholding in QSR Brands Berhad for a total consideration of RM69,620,000 resulting in a gain on partial disposal to the Group and the Company of RM31,808,000 and RM24,837,000 respectively. The Group recognised an increase in minority interest of about RM32,052,000. The Group’s equity interest in QSR Brands Berhad fell to 56.31%. (iv) Partial disposal of JTP Trading Sdn. Bhd. During the year, the Company disposed off 10% of its equity interest in JTP Trading Sdn. Bhd. for a consideration of RM88,200 resulting in a loss on partial disposal to the Group of RM1,000 and gain to the Company of RM6,776. The Group recognised an increase in minority interest of RM89,200. (v) Partial disposal of Renown Value Sdn. Bhd. During the year, the Company disposed off 15% of its equity interest in Renown Value Sdn. Bhd. This disposal did not have any significant effect on the Group and Company’s profit net of tax. 17. INVESTMENTS IN ASSOCIATES Group Unquoted shares, at cost: – outside Malaysia – in Malaysia Share of post-acquisition reserves: – in Malaysia Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 – 16,622 23,686 30,384 – – – – 7,712 2,540 – – 24,334 56,610 – – Kulim (Malaysia) Berhad (23370-V) | annual report 2011 238 NOTES TO THE FINANCIAL STATEMENTS (continued) 31 DECEMBER 2011 17. INVESTMENTS IN ASSOCIATES (continued) Details of the significant associates are as follows: Effective ownership interest Country of incorporation 2011 % 2010 % Principal activities Malaysia – 35.29 Shipping and forwarding Orkim Discovery Sdn. Bhd. Malaysia 14.32 – Ship owning company Orkim Reliance Sdn. Bhd. Malaysia 14.32 – Ship owning company Orkim Challenger Sdn. Bhd. Malaysia 14.32 – Ship owning company Indonesia – 50.00 Name of associate Held through Sindora Berhad Orkim Sdn. Bhd. Held through Orkim Sdn. Bhd Held through New Britain Palm Oil Limited PT Damitama Mas Sejahtera Production of seed materials Orkim Sdn. Bhd. became a subsidiary during the financial year, whilst PT Damitama Mas Sejahtera was disposed off during the financial year. The summarised financial information of the associates, not adjusted for the proportion of ownership interest held by the Group, is as follows: Net revenues (100%) RM’000 Total profit (100%) RM’000 Total assets (100%) RM’000 Total liabilities (100%) RM’000 14,965 14,965 13,999 5,509 5,822 5,995 4,286 4,345 6,543 50,436 50,132 50,484 16,068 30,238 10,237 3,703 16,789 203,954 3,366 136,985 Group 2011 Orkim Challenger Sdn. Bhd. Orkim Discovery Sdn. Bhd Orkim Reliance Sdn. Bhd 2010 PT Damitama Mas Sejahtera Orkim Sdn. Bhd. annual report 2011 | 239 Kulim (Malaysia) Berhad (23370-V) 18. OTHER INVESTMENTS Subordinated bond in Malaysia Unquoted RM’000 Fund investment RM’000 Total RM’000 Unquoted RM’000 Quoted RM’000 Warrants in Malaysia Quoted RM’000 52,479 10,787 41,692 – – – 33,384 63,985 – – 2,777 – – 63,985 – – 30,607 – 97,369 – 2,777 63,985 – 30,607 149,848 10,787 44,469 63,985 – 30,607 10,787 139,061 10,787 – – 44,469 – 63,985 – – – 30,607 149,848 10,787 44,469 63,985 – 30,607 47,423 166,638 12,514 – 30,909 – – 166,638 4,000 – – – 214,061 12,514 30,909 166,638 4,000 – 139,613 5,904 – – 2,691 5,665 – – – – 136,922 239 145,517 – 8,356 – – 137,161 359,578 12,514 39,265 166,638 4,000 137,161 16,514 343,064 12,514 – – 39,265 – 166,638 4,000 – – 137,161 359,578 12,514 39,265 166,638 4,000 137,161 Shares in Malaysia Group 2011 Non-current Available-for-sale financial assets Current Available-for-sale financial assets Held for trading Representing items: At cost/amortised cost At fair value 2010 Non-current Available-for-sale financial assets Held for trading Current Available-for-sale financial assets Held for trading Representing items: At cost/amortised cost At fair value Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 240 | annual report 2011 (continued) 31 DECEMBER 2011 18. OTHER INVESTMENTS (continued) Total RM’000 Unquoted RM’000 Quoted RM’000 Warrants in Malaysia Quoted RM’000 5,778 – 3,842 – 1,936 – – – – – 5,778 3,842 1,936 – – 31,219 63,985 – – 1,200 – – 63,985 30,019 – 95,204 – 1,200 63,985 30,019 100,982 3,842 3,136 63,985 30,019 3,842 97,140 3,842 – – 3,136 – 63,985 – 30,019 100,982 3,842 3,136 63,985 30,019 8,674 166,638 6,242 – 2,432 – – 166,638 – – 175,312 6,242 2,432 166,638 – 139,613 – 2,691 – 136,922 314,925 6,242 5,123 166,638 136,922 6,242 308,683 6,242 – – 5,123 – 166,638 – 136,922 314,925 6,242 5,123 166,638 136,922 Shares in Malaysia Fund investment RM’000 Company 2011 Non-current Available-for-sale financial assets Held for trading Current Available-for-sale financial assets Held for trading Representing items: At cost/amortised cost At fair value 2010 Non-current Available-for-sale financial assets Held for trading Current Available-for-sale financial assets Representing items: At cost/amortised cost At fair value annual report 2011 | 241 Kulim (Malaysia) Berhad (23370-V) 19. DEFERRED TAX ASSETS AND LIABILITIES Deferred tax assets/(liabilities) as at 31 December relates to the following: Property, plant and equipment RM’000 Tax losses carried forward RM’000 Unutilised investment and reinvestment allowances RM’000 (699,188) – (113,935) – (190,237) 18,175 – 12,672 – 3,244 – – 5,029 – – 52,400 – – (59,304) 6,736 (1,003,360) 34,091 5,029 At 1 January 2010 Acquisition in business combination Recognised in profit or loss Recognised in other comprehensive income Translation exchange difference Discontinued operation (499,564) (74,734) (189,475) – 38,674 25,911 35,699 (161,156) 149,099 – (5,467) – At 31 December 2010 (699,188) 18,175 Hedge reserve RM’000 Fair value gains on financial instruments RM’000 Others RM’000 Total RM’000 (17,668) – 4,625 497 – (44,578) 24 (6,431) – (12,485) (690,859) 24 (98,040) (58,807) (192,742) (168) (12,546) (63,470) (1,040,424) 26,946 – – – – (26,946) 10,243 – – 45,594 (3,437) – – – – (17,668) – – (7,236) – (21,731) – (15,025) (586) (433,912) (235,890) (62,107) 27,926 14,745 (1,621) – 52,400 (17,668) (44,578) (690,859) Group At 1 January 2011 Acquisition in business combination Recognised in profit or loss Recognised in other comprehensive income Translation exchange difference At 31 December 2011 Property, plant and equipment RM’000 Fair value gains on financial instruments RM’000 Others RM’000 At 1 January 2010 Recognised in profit or loss Recognised in other comprehensive income (66,530) 70 – – – (17,658) 74 241 – (66,456) 311 (17,658) At 31 December 2010 Recognised in profit or loss Recognised in other comprehensive income (66,460) (227) – (17,658) – 497 315 (122) – (83,803) (349) 497 At 31 December 2011 (66,687) (17,161) 193 (83,655) Total RM’000 Company Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 242 | annual report 2011 (continued) 31 DECEMBER 2011 19. DEFERRED TAX ASSETS AND LIABILITIES (continued At the reporting date, deferred tax assets have not been recognised in respect of the following items: Group Unutilised tax losses Unabsorbed capital allowances Unabsorbed reinvestment allowances 2011 RM’000 2010 RM’000 59,133 67,899 – 48,672 30,532 15,127 127,032 94,331 The availability of the above tax losses and allowances for offsetting against future taxable profits of the respective subsidiaries in Malaysia are subject to no substantial changes in shareholdings of those subsidiaries under the Income Tax Act, 1967 and other guidelines issued by the tax authority. 20. INVENTORIES Group At cost: Agricultural produce Finished goods Materials and consumables Livestocks Work-in-progress At net realisable value: Finished goods Agricultural produce Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 637,511 88,651 168,758 39,680 132 431,184 77,575 172,346 14,685 232 – – 1,892 – – – – 1,905 – – 934,732 696,022 1,892 1,905 – – 2,423 2,245 – – – – 934,732 700,690 1,892 1,905 annual report 2011 | 243 Kulim (Malaysia) Berhad (23370-V) 21. TRADE AND OTHER RECEIVABLES Group Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 522,777 – 53,510 5,461 371,293 – 47,882 8,411 847 25,050 49,841 1,993 244 12,586 49,287 1,916 581,748 427,586 77,731 64,033 (6,855) (4,432) (5,212) (1,650) – (1,650) – (1,650) (11,287) (6,862) (1,650) (1,650) 570,461 420,724 76,081 62,383 Current Trade receivables Third parties Subsidiaries Ultimate holding corporation Related companies Less: Allowance for impairment losses Third parties Related companies Trade receivables, net Group Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 151,796 – 90,409 76,795 – 100,718 11,981 331,998 1,634 10,558 308,875 1,123 242,205 177,513 345,613 320,556 (4,254) (55) – (7,537) (55) – (4,057) – (109,087) (4,057) – (109,087) (4,309) (7,592) (113,144) (113,144) 237,896 169,921 232,469 207,412 808,357 590,645 308,550 269,795 Current Other receivables Third parties Subsidiaries Deposits Less: Allowance for impairment losses Third parties Deposits Subsidiaries Total trade and other receivables Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 244 | annual report 2011 (continued) 31 DECEMBER 2011 21. TRADE AND OTHER RECEIVABLES (continued) (a) Trade receivables Third party trade receivables are non-interest bearing and payment terms range from payment in advance to 90 days (2010: payment in advance to 90 days). They are recognised at their original invoice amounts which represent their fair values on initial recognition. Ageing analysis of trade receivables The ageing analysis of the Group’s and the Company’s trade receivables is as follows: Group Neither past due nor impaired 1 to 30 days past due not impaired 31 to 60 days past due not impaired 61 to 90 days past due not impaired 91 to 120 days past due not impaired More than 121 days past due not impaired Impaired Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 394,698 284,828 48 181 90,225 19,893 9,343 3,428 52,874 56,547 33,711 81 6,000 39,557 10,781 4,029 4,791 2,335 54,097 29,987 6,539 21,159 1,274 3,243 175,763 11,287 135,896 6,862 76,033 1,650 62,202 1,650 581,748 427,586 77,731 64,033 Receivables that are neither past due nor impaired Receivables that are neither past due nor impaired are mainly regular customers that have been transacting with the Group. None of these balances have been renegotiated during the financial year. Receivables that are past due but not impaired The Group and Company have trade receivables amounting to RM175,763,000 (2010: RM135,896,000) and RM76,033,000 (2010: RM62,202,000) respectively that are past due at the reporting date but not impaired. These balances are not secured. annual report 2011 | 245 Kulim (Malaysia) Berhad (23370-V) 21. TRADE AND OTHER RECEIVABLES (continued) (a) Trade receivables (continued) Receivables that are impaired The Group’s and the Company’s trade receivables that are impaired at the reporting date and the movement of the allowance accounts used to record the impairment are as follows: Group 2011 RM’000 Trade receivables – nominal amounts Less: Allowance for impairment Company 2010 RM’000 2011 RM’000 2010 RM’000 11,287 (11,287) 6,862 (6,862) 1,650 (1,650) 1,650 (1,650) – – – – At 1 January Charge for the year Reversal of impairment losses Written off 6,862 5,585 (45) (1,115) 9,055 1,830 (2,716) (1,307) 1,650 – – – 1,650 – – – At 31 December 11,287 6,862 1,650 1,650 Movement in allowance accounts: Trade receivables that are determined to be impaired at the reporting date relate to debtors that are in significant financial difficulties and have defaulted on repayments. These receivables are not secured by any collateral or credit enhancements. (b) Amount due from subsidiaries (trade and non-trade) These amounts are unsecured, non-interest bearing and repayable on demand except for an amount of RM37,039,000 (2010: RM47,124,000) which bears interest of 5.13% to 6.50% (2010: 4.35% to 6.50%) per annum. (c) Amount due from ultimate holding corporation and related companies (trade and non-trade) These amounts are unsecured, non-interest bearing and repayable on demand except for an amount of RM43,098,000 (2010: RM42,504,000) which bears interest of 5.13% to 5.14% (2010: 4.35% to 4.43%) per annum. Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 246 | annual report 2011 (continued) 31 DECEMBER 2011 21. TRADE AND OTHER RECEIVABLES (continued) (d) Other receivables that are impaired The Group’s and the Company’s other receivables that are impaired at the reporting date and the movement of the allowance accounts used to record the impairment are as follows: Group Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 At 1 January Charge for the year Reversal of impairment losses Written off 7,592 – – (3,283) 4,180 3,412 – – 113,144 – – – 4,708 108,436 – – At 31 December 4,309 7,592 113,144 113,144 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 561,726 82,976 309,602 142,544 9,272 70,392 24,908 49,918 644,702 452,146 79,664 74,826 Movement in allowance accounts: 22. CASH AND BANK BALANCES Group Cash and bank balances Deposits placed with licensed banks Company Included in deposits placed with licensed banks of the Group and of the Company are amounts of RM61,865,000 (2010: RM12,791,000) and RM350,000 (2010: RM366,000) of the Group and of the Company, respectively, pledged for bank facilities granted to the Group and the Company. For the purposes of the statements of cash flows, cash and cash equivalents comprise the following at the reporting date: Group Cash and bank balances Deposits with licensed banks Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 499,861 144,841 309,602 142,544 9,272 70,392 24,908 49,918 644,702 452,146 79,664 74,826 Less: Deposits pledged Bank overdrafts (Note 23) (61,865) (26,119) (12,791) (32,921) (350) – (366) – Cash and cash equivalents 556,718 406,434 79,314 74,460 annual report 2011 | 247 Kulim (Malaysia) Berhad (23370-V) 23. LOANS AND BORROWINGS Group Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 2,614 17,080 30,000 135,522 2,507 23,021 – 826,780 – – – – – – – 100,000 185,216 852,308 – 100,000 150 9,039 35,431 163,747 178,260 34 9,900 9,412 21,200 102,556 – – – – – – – – – – 386,627 143,102 – – 571,843 995,410 – 100,000 1,872 1,627,283 4,076 814,690 – 273,171 – 273,171 1,629,155 818,766 273,171 273,171 362 419,584 128 112,126 – – – – 419,946 112,254 – – Non-current loans and borrowings 2,049,101 931,020 273,171 273,171 Total loans and borrowings 2,620,944 1,926,430 273,171 373,171 Current Secured: Obligations under finance leases Bank overdrafts (Note 22) Revolving credit Term loans Unsecured: Obligations under finance leases Bank overdrafts (Note 22) Bankers’ acceptances Revolving credit Term loans Current loans and borrowings Non-current Secured: Obligations under finance leases Term loans Unsecured: Obligations under finance leases Term loans Kulim (Malaysia) Berhad (23370-V) 248 NOTES TO THE FINANCIAL STATEMENTS | annual report 2011 (continued) 31 DECEMBER 2011 23. LOANS AND BORROWINGS (continued) Details of the Group’s and Company’s term loans are as follows: Year of maturity Carrying amount RM’000 2012 Under 1 year RM’000 2013 1–2 years RM’000 2014 – 2016 2–5 years RM’000 >2016 Over 5 years RM’000 2013 2016 2016 2014 2012 2014 2016 2013 2013 2018 2021 2020 2016 2014 2013 2014 2013 2020 2020 2020 2017 2014 2015 2015 2015 2015 2012 2013 2012 2016 2018 2016 2016 2016 2018 2020 2020 2020 2020 2022 2022 2020 2021 2018 2013 2015 5,000 5,952 5,951 4,520 7,984 4,855 18,349 683 904 2,293 76,330 42,479 273,171 2,979 9,094 45,000 677 59,034 47,279 44,314 183,000 4,500 39,900 31,779 4,116 11,792 2,464 10,080 119,692 735,217 46,400 23,200 6,435 5,265 275,000 12,800 12,800 9,600 6,200 39,284 39,770 36,571 37,945 8,757 785 448 4,000 1,228 1,228 1,957 7,984 1,886 5,463 341 452 296 8,253 4,471 – 1,192 7,275 – 369 – – 6,952 6,863 2,000 11,400 2,701 1,241 3,544 2,464 5,847 119,692 81,675 – – – – – 1,544 1,544 1,544 1,447 4,027 4,027 4,100 4,100 – 562 112 1,000 1,228 1,228 1,957 – 1,886 5,177 341 452 336 8,253 4,471 30,000 1,192 1,819 – 308 8,360 8,737 8,737 9,150 2,000 11,400 5,402 1,181 3,372 – 4,233 – 77,296 580 5,800 644 527 – 2,059 2,059 2,059 1,930 8,055 8,054 8,200 8,200 2,877 223 148 – 3,496 3,495 606 – 1,083 7,709 – – 1,167 24,753 13,414 243,171 596 – 45,000 – 25,080 26,211 26,211 135,878 500 17,100 23,675 1,694 4,876 – – – 576,245 13,340 17,400 5,792 4,739 165,000 6,177 6,177 5,997 2,823 12,082 12,081 12,300 12,300 2,879 – 188 – – – – – – – – – 494 35,071 20,122 – – – – – 25,594 12,331 2,414 31,110 – – – – – – – – – 32,480 – – – 110,000 3,020 3,020 – – 15,120 15,608 11,971 13,345 3,001 – – 2,360,649 313,783 250,931 1,461,234 334,702 Group 2011 Term loan: 2 5 6 7 8 9 10 11 12 14 17 18 19 20 23 24 25 27 28 29 30 31 32 33 37 38 39 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 annual report 2011 | 249 Kulim (Malaysia) Berhad (23370-V) 23. LOANS AND BORROWINGS (continued) Year of maturity Carrying amount RM’000 2012 Under 1 year RM’000 2013 1–2 years RM’000 2014 – 2016 2–5 years RM’000 >2016 Over 5 years RM’000 2016 2013 2011 2011 2016 2016 2014 2012 2014 2016 2013 2011 2011 2018 2018 2011 2021 2015 2016 2014 2011 2011 2013 2014 2013 2011 2020 2020 2020 2017 2013 2015 2015 2031 2031 2022 2015 2015 2011 2011 2011 2011 2016 28,309 9,000 100,000 8,000 6,749 6,748 6,181 16,007 6,258 22,719 2,651 10 40,000 1,868 662 1,475 65,250 35,355 273,171 4,049 10,000 10,000 18,187 45,000 1,046 154 58,293 52,821 50,309 183,000 5,000 33,000 18,510 483 272 212 4,795 13,686 1,153 33,936 617,020 55,212 9,601 1,814 4,000 100,000 8,000 787 787 1,659 10,516 1,402 – 1,099 10 40,000 208 84 1,475 2,292 2,653 – 1,157 10,000 10,000 7,275 – 369 154 4,352 – – – 2,000 6,188 – 14 7 13 960 2,740 1,153 33,936 617,020 55,212 – 6,170 5,000 – – 843 843 1,753 5,491 1,651 – 1,100 – – 213 83 – 6,525 10,607 – 1,157 – – 7,275 – 369 – 4,655 – – 6,863 2,000 8,250 2,622 15 8 14 960 2,740 – – – – – 14,068 – – – 2,907 2,907 2,769 – 3,205 – 452 – – 747 259 – 28,627 22,095 185,000 1,735 – – 3,637 45,000 308 – 16,000 – – 38,887 1,000 18,562 15,888 49 26 48 2,875 8,206 – – – – 4,782 6,257 – – – 2,212 2,211 – – – 22,719 – – – 700 236 – 27,806 – 88,171 – – – – – – – 33,286 52,821 50,309 137,250 – – – 405 231 137 – – – – – – 4,819 1,856,152 929,336 77,207 420,039 429,570 Group 2010 Term loan: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 Kulim (Malaysia) Berhad (23370-V) 250 NOTES TO THE FINANCIAL STATEMENTS | annual report 2011 (continued) 31 DECEMBER 2011 23. LOANS AND BORROWINGS (continued) Year of maturity Carrying amount RM’000 2012 Under 1 year RM’000 2013 1–2 years RM’000 2014 – 2016 2–5 years RM’000 >2016 Over 5 years RM’000 2016 273,171 – – 185,000 88,171 273,171 – – 185,000 88,171 100,000 273,171 100,000 – – – – 185,000 – 88,171 373,171 100,000 – 185,000 88,171 Company 2011 Term loan: 19 2010 Term loan: 3 19 2011 2016 Securities The term loans are secured by the following: (a) Charges over certain property, plant and equipment of the Group and Company as disclosed in Note 13 to the financial statements; (b) Charges over certain investment properties of the Group and Company as disclosed in Note 14 to the financial statements; (c) Charges over the quoted shares in subsidiaries as disclosed in Note 16 to the financial statements; (d) Charges over certain fixed deposits of the Group and Company as disclosed in Note 22 to the financial statements; and (e) Corporate guarantee from the Company as disclosed in Note 36(a) to the financial statements. Significant covenants In connection with the significant term loan facilities, the Group and the Company have agreed on the following significant covenants with the lenders: (i) The consolidated shareholders’ funds of the Group to be at least RM2.5 billion and such consolidated shareholders’ funds excluding its asset revaluation reserve to be at least RM1.0 billion; (ii) The ratio of the consolidated total borrowings to the consolidated shareholders’ funds at all times to be below 0.8 times; (iii) The ratio of the earnings before interest, tax, depreciation and amortisation (EBITDA) to interest expense of the Group to be at least 1.5 times; (iv) The Company will continue to maintain at least 50.1% of the issued and paid-up capital of QSR; and (v) The Company will procure and ensure that each of its subsidiary companies does not and/or will not enter into any agreements which impose restrictions on each of the subsidiary companies ability to make or pay dividend or other forms of distributions to the shareholders. annual report 2011 | 251 Kulim (Malaysia) Berhad (23370-V) 23. LOANS AND BORROWINGS (continued) Group Weighted average effective interest rates at the end of reporting period: – Term loans Company 2011 % 2010 % 2011 % 2010 % 3.89 4.77 5.23 4.84 24. DERIVATIVE FINANCIAL INSTRUMENTS Group National amount Group Carrying amount 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 313,516 – 204,096 33,224 2,104 – 149,476 25,201 313,516 237,320 2,104 174,677 Cash flow hedges Commodity forward contracts – current liabilities – non-current liabilities The Group, via its subsidiary, NBPOL has entered into commodity forward contracts to hedge its exposure to movements in palm oil prices. These forward contracts have been designated as a hedge of highly probable forecast sales of crude palm oil and related products. It is not the Group’s policy to engage in speculative hedging activities. There were no highly probable transactions for which hedge accounting had previously been used, which is no longer expected to occur. As all hedge transactions are highly effective, all gains and losses relating to their remeasurement to fair value are recognised in the hedge reserve within equity and subsequently brought to account in the profit or loss in the same period as the physical sales transaction occurs to which the hedges relate. The cash flow hedges of the highly probable forecast sales of crude palm oil and related products were assessed to be highly effective and as at 31 December 2011, a net gain of RM120,801,000 (2010: net loss of RM98,372,000), including the related deferred tax liability of RM51,772,000 (2010: deferred tax asset of RM42,159,000) was included in other comprehensive income in respect of these contracts. The losses retained in equity at the reporting date are expected to mature and affect the profit or loss as follows: Group Within 12 months After 12 months 2011 RM’000 2010 RM’000 1,471 – 104,634 17,641 1,471 122,275 Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 252 | annual report 2011 (continued) 31 DECEMBER 2011 25. TRADE AND OTHER PAYABLES Group Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 363,951 4,072 – 14,940 252,966 19,446 – 11,488 4,754 – 98,558 747 5,865 – – 350 382,963 283,900 104,059 6,215 414,157 – 393,391 – 6,302 97,315 7,367 63,406 414,157 393,391 103,617 70,773 797,120 677,291 207,676 76,988 Current Trade Third parties Ultimate holding corporation Subsidiaries Related companies Non-trade Third parties Subsidiaries Total trade and other payables (a) Third parties Trade and other payables due to third parties are generally unsecured and non-interest bearing. Credit terms range from payment in advance to 90 days (2010: payment in advance to 90 days). (b) Amounts due to ultimate holding corporation and related companies These amounts which arose mainly from normal trade transactions are unsecured, non-interest bearing and subject to normal trade terms. (c) Amounts due to subsidiaries These amounts which arose mainly from advances and payments on behalf are unsecured, non-interest bearing and repayable on demand except for an amount of RM42,517,000 (2010: RM23,300,000) which is subject to interest at rates ranging from 2.76% to 3.36% (2010: 2.74% to 3.05%) per annum. annual report 2011 | 253 Kulim (Malaysia) Berhad (23370-V) 26. SHARE CAPITAL Number of ordinary shares Amount 2011 ‘000 2010 ‘000 2011 RM’000 2010 RM’000 At 1 January Effect of share split Created during the year 400,000 400,000 1,200,000 400,000 – – 200,000 – – 200,000 – – At 31 December 2,000,000 400,000 200,000 200,000 318,670 318,670 624,697 318,670 – – 159,336 – 156,173 159,336 – – 1,262,037 318,670 315,509 159,336 Authorised Issued and fully paid At 1 January Effect of share split Bonus issue At 31 December (a) Share capital The holders of the ordinary shares are entitled to receive dividends, as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company’s residual assets. (b) Share split and bonus issue During the financial year, the Company increased its authorised share capital from RM200,000,000 comprising 400,000,000 shares of RM0.50 each to RM500,000,000 comprising 2,000,000,000 shares of RM0.25 each; During the financial year, the Company also increased its issued and paid-up ordinary share capital from RM159,336,000 to RM315,509,000 by way of: (i) Share split involving the subdivision of every one (1) existing ordinary share of RM0.50 each held in the Company into two (2) ordinary shares of RM0.25 each (“sub-divided share(s)”) (Share Split); and (ii) Bonus issue of new sub-divided shares on the basis of one (1) bonus share for every one (1) sub-divided share held after the share split (“Bonus Issue”). The Share Split and Bonus Issue were completed on 28 February 2011. The above new shares issued during the financial year ranked pari passu in all respects with the existing ordinary shares of the Company. Kulim (Malaysia) Berhad (23370-V) 254 NOTES TO THE FINANCIAL STATEMENTS | annual report 2011 (continued) 31 DECEMBER 2011 27. OTHER RESERVES Group Note Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 116,013 95,714 (748) 1,256 1,337,757 4,933 113,945 (96,186) (32,597) 272,184 (123,896) (67,782) 55,617 1,337,816 4,933 – (45,690) – 116,013 – – (313) 897,579 4,165 113,944 (96,187) – 272,184 – – 54,526 897,579 4,165 – (45,690) – 1,540,087 1,433,182 1,035,201 1,182,764 Reserves Non-distributable Share premium reserve Translation reserve Hedge reserve Fair value reserve Revaluation reserve Other reserve Warrant reserve Treasury shares Equity transaction reserve (a) (b) (c) (d) (e) (f) (g) (h) (i) The movements of each category of the reserves during the financial year are disclosed in the statements of changes in equity. The nature and purpose of each category of reserves are as follows: (a) Share premium reserve This reserve comprises the premium paid on subscription of shares in the Company over and above the par value of the shares. (b) Translation reserve The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations where functional currencies are different from that of the Group’s presentation currency. (c) Hedge reserve The hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedges related to hedged transactions that have not yet occurred. (d) Fair value reserve The fair value reserve comprises the cumulative net change in the fair value of available-for-sale financial assets until the investments are derecognised or impaired. (e) Revaluation reserve The revaluation reserve relates to the revaluation of the Group’s freehold and leasehold lands in Malaysia on 31 December 1997. (f) Other reserve Other reserves consist mainly of reserves arising from the scheme of reconstruction, amalgamation and liquidation of a former subsidiary in 1975. annual report 2011 | 255 Kulim (Malaysia) Berhad (23370-V) 27. OTHER RESERVES (continued) (g) Warrant reserve A total of 156,174,319 free warrants were issued by the Company in conjunction with the share split and bonus issue on 28 February 2011. Each warrant entitles the holder to subscribe for one (1) new sub-divided share at the exercise price of RM3.85 per share at any time during the exercise period. The warrants have an exercise period of five (5) years commencing 28 February 2011 and expiring on 27 February 2016. As at the reporting date, 500 warrants have been exercised and the number of outstanding warrants was 156,173,819. (h) Treasury shares Treasury shares relate to ordinary shares of the Company that are held by the Company. The amount consists of the acquisition costs of treasury shares net of the proceeds received on their subsequent sale or issuance. Rights on treasury shares are suspended until those shares are reissued. The Company acquired 14,840,000 (2010: Nil) shares in the Company through purchases on Bursa Malaysia Securities Berhad during the financial year. The total amount paid to acquire the shares was RM50,496,000 (2010: Nil) and this was presented as a component within shareholders’ equity. The Directors of the Company are committed to enhancing the value of the Company for its shareholders and believe that the repurchase plan can be applied in the best interests of the Company and its shareholders. The repurchase transactions were financed by internally generated funds. The shares repurchased are being held as treasury shares. At 31 December 2011, the Company held 27,482,000 of its own shares of RM0.25 each (2010: 6,321,000 shares of RM0.50 each). The number of outstanding ordinary shares of RM0.25 each in issue after the set-off is 1,234,555,000 (2010: 312,348,639 ordinary shares of RM0.50 each). (i) Equity transaction reserve The equity transaction reserve comprises the differences between the share of non-controlling interests in subsidiaries acquired/ disposed and the consideration paid/received. 28. RETAINED EARNINGS During the financial year, the Company has elected for the irrevocable option to disregard its 108 balance. As such, the entire retained earnings of the Company as at 31 December 2011 may be distributed as dividends under the single tier system. Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 256 | annual report 2011 (continued) 31 DECEMBER 2011 29. EMPLOYEE BENEFITS Certain subsidiaries operate an unfunded, defined Retirement Benefit Scheme (“the Scheme”) for its eligible employees. Under the Scheme, eligible employees are entitled to retirement benefits calculated by reference to their length of service and earnings. Provision for retirement benefits is calculated based on the pre-determined rate of basic salaries and length of service. The following tables summarise the components of net benefit expense recognised in profit or loss and the amounts recognised in the statement of financial position for the Scheme. Net benefit expense Group 2011 RM’000 Current service costs Interest cost on benefit obligation Past service cost Net benefit expense 2010 RM’000 126 155 (195) 138 164 (32) 86 270 The net benefit expense has been included in administrative expenses. Benefit liabilities Group Defined benefit obligation – Current – Non-current 2011 RM’000 2010 RM’000 301 2,700 644 2,913 3,001 3,557 Changes in present value of defined benefit obligations are as follows: Group 2011 RM’000 2010 RM’000 At 1 January Current service costs and interest Benefits paid 3,557 86 (642) 3,500 270 (213) At 31 December 3,001 3,557 The principal actuarial assumptions used in determining the retirement benefit obligations at the end of the reporting period (expressed as weighted averages) are as follows: Group Discount rates Future salary increases 2011 % 2010 % 5.1 4.0 5.6 4.0 annual report 2011 | 257 Kulim (Malaysia) Berhad (23370-V) 30. RELATED PARTY TRANSACTIONS (a) Sale and purchase of goods and services For the purposes of the financial statements, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals or other entities. All entities within the Johor Corporation Group are considered related companies / parties. In addition to the related party information disclosed elsewhere in the financial statements, the following significant transactions between the Group and related parties took place at terms agreed between the parties during the financial year: Transaction value for the year ended 31 December 2011 RM’000 2010 RM’000 Group Ultimate holding corporation Johor Corporation – Agency fees received – Sales of oil palm fresh fruit bunches – Purchase and sales commission received – Planting advisory and agronomy fees received – Computer charges received – Inspection fees received – Training, seminar and course fees received – Sales of goods – Construction work and maintenance fees received – Event management fees received – Rental income – Sales of oil palm seedling and bio compost fertilizer – Rental payable 334 531 2,335 173 97 30 60 2,909 608 122 159 871 (629) 404 23,412 3,074 174 108 60 83 2,174 125 146 – – (629) 392 23,570 2,059 95 69 30 35 836 657 1,738 373 31,060 1,657 100 63 30 50 642 – – Other related companies Johor Foods Sdn. Bhd. – Agency fees received – Sales of oil palm fresh fruit bunches – Purchase and sales commission received – Planting advisory and agronomy fees received – Computer charges received – Inspection fees received – Training, seminar and course fees received – Sales of goods – Construction work and maintenance fees received – Sales of oil palm seedling and bio compost fertilizer Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 258 | annual report 2011 (continued) 31 DECEMBER 2011 30. RELATED PARTY TRANSACTIONS (continued) (a) Sale and purchase of goods and services (continued) Transaction value for the year ended 31 December 2011 RM’000 2010 RM’000 139 529 60 27 17 1,004 61 61 131 401 58 17 18 830 – – 207 774 85 39 19 1,812 61 72 199 560 86 36 29 985 – – 60 171 (1,266) (249) – (10) (617) 1,045 (10) (469) (4,777) 367 (3,323) 353 (5,330) (3,910) – 89 83 167 Group Other related companies (continued) Kumpulan Penambang Sdn. Bhd. – Agency fees received – Purchase and sales commission received – Planting advisory and agronomy fees received – Computer charges received – Training, seminar and course fees received – Sales of goods – Construction work and maintenance fees received – Sales of oil palm seedling and bio compost fertilizer Johor Franchise Development Sdn. Bhd. – Agency fees received – Purchase and sales commission received – Planting advisory and agronomy fees received – Computer charges received – Training, seminar and course fees received – Sales of goods – Construction work and maintenance fees received – Sales of oil palm seedling and bio compost fertilizer Pro Biz Solution Sdn. Bhd. – Rental income Pro Corporate Management Services Sdn. Bhd. – Secretarial and share registration fees paid Damansara Assets Sdn. Bhd. – Construction work and maintenance fees received – Management fees and services payable – Rental commission payable Johor Land Berhad – Purchase of oil palm fresh fruit bunches – Management fees received Kelab Bolasepak Perbadanan Johor – Donation paid Tanjung Langsat Port Sdn. Bhd. – Event management and booth rental received – Computer charges received annual report 2011 | 259 Kulim (Malaysia) Berhad (23370-V) 30. RELATED PARTY TRANSACTIONS (continued) (a) Sale and purchase of goods and services (continued) Transaction value for the year ended 31 December 2011 RM’000 2010 RM’000 – 164 68 200 15,706 2,356 353 9,364 2,272 124 531 – 23,412 353 (5,330) (3,910) 21,052 14,386 (10) (617) (10) (469) 34,184 – – 201 60 171 Group Other related companies (continued) IPPJ Sdn. Bhd. – Training, seminar and course fees received – Event management and booth rental received Pacific Rim Plantation Services Pte Limited – Sales and marketing agency commission – Project management services – Interest and other charges Company Ultimate holding corporation Johor Corporation – Sales of oil palm fresh fruit bunches – Management fees received Kelab Bolasepak Perbadanan Johor – Donation Johor Foods Sdn. Bhd. – Sales of oil palm fresh fruit bunches Damansara Assets Sdn. Bhd. – Management fees and services payable – Rental commission payable Subsidiaries New Britain Palm Oil Limited – Dividend income – Agriculture consultancy services charged Pro Biz Solution Sdn. Bhd. – Rental income Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 260 | annual report 2011 (continued) 31 DECEMBER 2011 30. RELATED PARTY TRANSACTIONS (continued) (b) Compensation of key management personnel Key management personnel are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Group either directly or indirectly. The key management personnel includes all the Directors of the Group, and certain members of senior management of the Group. The compensation of directors of the Group are disclosed in Note 9 to the financial statements. The compensation of other members of senior management considered as key management personnel (excluding directors) are as follows: Group Salaries, allowance and bonuses Defined contribution plan Other employee benefits 2011 RM’000 2010 RM’000 1,877 236 103 2,334 351 98 2,216 2,783 31. COMMITMENTS (a) Capital commitments Committed capital expenditure as at the reporting date is as follows: Group Authorised capital expenditure in respect of property, plant and equipment not provided for in the financial statements at the end of the year: – Contracted for – Not contracted for Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 388,461 351,934 101,785 348,109 3,873 1,176 606 85 740,395 449,894 5,049 691 annual report 2011 | 261 Kulim (Malaysia) Berhad (23370-V) 31. COMMITMENTS (continued) (b) Operating lease commitments – as lessee The Group’s food and restaurants business segment has entered into non-cancellable operating lease agreements for the use of land and buildings. These leases have an average tenure of 15 years with no renewal or purchase options included in the contracts of the leases. Certain contracts also include escalation clauses or contingent rental arrangements computed based on sales achieved while others include fixed rentals for an average of 3 years. There are no restrictions placed upon the Group by entering into these leases. The Group’s major plantation subsidiary, NBPOL, has entered into non-cancellable operating lease agreements for the use of mini estate land, for terms of 20 or 40 years, and state-owned land for terms of 99 years. These leases are renewable. Future minimum rentals payable under non-cancellable operating leases at the reporting date are as follows: Group Not later than one year Later than 1 year but not later than 5 years Later than 5 years (c) 2011 RM’000 2010 RM’000 139,105 166,614 104,613 156,388 190,959 102,190 410,332 449,537 Finance lease commitments Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as follows: Group 2011 RM’000 2010 RM’000 Not later than one year Later than 1 year but not later than 5 years 3,031 2,462 2,979 4,726 Total minimum lease payments Less: Amounts representing finance charges 5,493 (495) 7,705 (960) Present value of minimum lease payments 4,998 6,745 Not later than one year Later than 1 year but not later than 5 years 2,764 2,234 2,541 4,204 Present value of minimum lease payments Less: Amount due within 12 months 4,998 (2,764) 6,745 (2,541) Amount due after 12 months 2,234 4,204 Minimum lease payments Present value of payments Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 262 | annual report 2011 (continued) 31 DECEMBER 2011 32. CONTINGENCIES At the reporting date, the Group, via NBPOL, had contingent liabilities in respect of legal claims in the ordinary course of business pertaining to land disputes, employee issues and GST disputes. NBPOL has disclaimed all liability in these cases and is vigorously defending these actions. It is not practical to estimate the potential effect of these claims but legal advice indicates that any liability that may arise in the unlikely event these claims are successful will not be significant. 33. SIGNIFICANT EVENTS Kulim (Malaysia) Berhad (i) (ii) During the financial year, the Company announced the completion and approval of the following proposals: (a) 11 February 2011: Increase in authorised share capital of the Company from RM200,000,000 comprising 400,000,000 shares of RM0.50 each to RM500,000,000 comprising 2,000,000,000 subdivided shares of RM0.25 each (“proposed increase in authorised share capital”); (b) 17 February 2011: Share split involving the sub-division of every one (1) existing ordinary share of RM0.50 each held in the Company or (“share(s)”) into two (2) ordinary shares of RM0.25 each (“sub-divided share(s)”) (“proposed share split”); (c) 17 February 2011: Bonus issue of new sub-divided shares (“bonus share(s)”) on the basis of one (1) bonus share for every one (1) sub-divided share held after the proposed share split (“proposed bonus issue”); and (d) 24 February 2011: Issue of free warrants in the Company (“warrant(s)”) on the basis of one (1) warrant for every eight (8) subdivided shares held after the proposed share split and the proposed bonus issue (“proposed free warrants issue”). The Company had on 16 August 2011 announced the proposed acquisition of plantation assets from its ultimate holding corporation, Johor Corporation (“JCorp”) by Mahamurni Plantations Sdn. Bhd. (“MPSB”), a wholly-owned subsidiary of Kulim, of six (6) estates (together with all buildings and mills (including their plant and machineries erected thereon)), all located in the state of Johor with a total land area measuring approximately 13,687 hectares for a total cash consideration of RM700 million. Of the above proposed acquisition, the following was completed as at year end: (i) The SPA between MPSB and JCorp for the acquisition of the oil palm plantation land (together with all buildings erected thereon together with assets, equipments, appliances, and plant and machineries located within the oil palm plantation) known as “Sungai Papan Estate” for a total cash consideration of RM183,300,000 and SPA between MPSB and JCorp Hotels and Resorts Sdn. Bhd. (“JHRSB”) (formerly known as Kumpulan Penambang (J) Sdn. Bhd), a wholly-owned subsidiary of JCorp, for the acquisition of the oil palm plantation land (together with all buildings erected thereon together with assets, equipments, appliances, and plant and machineries located within the oil palm land) known as “Part of Siang Estate” for a total cash consideration of RM191,600,000. Payments were effected on 31st December 2011. The proposed acquisitions that are yet to be completed as at year end are as follows: (i) a SPA between MPSB and JCorp for the proposed acquisition of the land currently planted with oil palm cultivation (together with all buildings and the palm oil mill (“Pasir Panjang Mill”) erected thereon (together with assets, equipments, appliances, and plant and machineries located within the land and Pasir Panjang Mill)) known as “Part of Pasir Panjang Estate” for a total cash consideration of RM71,783,000; and (ii) a SPA between MPSB and Johor Foods Sdn. Bhd. (“JFSB”), a wholly-owned subsidiary of JCorp, for the proposed acquisition of the land currently planted with oil palm cultivation (together with all buildings and the palm oil mill (“Palong Mill”) erected thereon (together with assets, equipments appliances, and plant and machineries located within the land and Palong Mill)) known as “Mungka, Kemedak and Palong Estate” for a total cash consideration of RM253,317,000. annual report 2011 | 263 Kulim (Malaysia) Berhad (23370-V) 33. SIGNIFICANT EVENTS (continued) Kulim (Malaysia) Berhad (continued) (iii) On 5 December 2011, the Company announced that Sindora Berhad had successfully become a wholly-owned subsidiary on even date under the conditional take-over offer to acquire all the remaining ordinary shares of RM1.00 each in Sindora Berhad not already owned by the Company for a cash offer price of RM3.10 per share. Pursuant to the above, the entire issued and paid-up share capital of Sindora Berhad was removed from the Official List of Bursa Malaysia Securities Berhad. QSR Brands Berhad (“QSR”) (i) On 19 September 2011, the Group via its subsidiary, QSR, announced the re-organisation of its group structure resulting in QSR acquiring the following wholly-owned subsidiaries from its other subsidiaries: Target companies Pizza Hut Restaurants Sdn. Bhd. PH Property Holdings Sdn. Bhd. Multibrand QSR Holdings Pte. Ltd. Vendor Cost RM’000 Pizza Hut Holdings (Malaysia) Sdn. Bhd. Pizza Hut Holdings (Malaysia) Sdn. Bhd. Pizza Hut Holdings (Malaysia) Sdn. Bhd. 44,134 –* 10,000 54,134 * (ii) represents RM2 On 19 September 2011, KFCH announced the re-organisation of its group structure resulting in KFCH acquiring the following subsidiaries from its other subsidiaries: Target companies KFC (Sarawak) Sdn. Bhd. KFC (Sabah) Sdn. Bhd. KFC (Peninsular Malaysia) Sdn. Bhd. Kentucky Fried Chicken (Malaysia) Sdn. Bhd. Asbury’s (Malaysia) Sdn. Bhd. WQSR Holdings (S) Pte. Ltd. KFC (East Malaysia) Sdn. Bhd. Ayamas Shoppe Sdn. Bhd. Rasamas Holdings Sdn. Bhd. Vendor Cost RM’000 KFC (East Malaysia) Sdn. Bhd. KFC (East Malaysia) Sdn. Bhd. KFC Restaurants Holdings Sdn. Bhd. KFC Restaurants Holdings Sdn. Bhd. KFC Restaurants Holdings Sdn. Bhd. KFC Restaurants Holdings Sdn. Bhd. KFC Restaurants Holdings Sdn. Bhd. Ayamas Food Corporation Sdn. Bhd. Ayamas Food Corporation Sdn. Bhd. 2,198 4,363 9,250 2,406 1,145 10,000 6,038 1,829 3,000 40,229 Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 264 | annual report 2011 (continued) 31 DECEMBER 2011 33. SIGNIFICANT EVENTS (continued) QSR Brands Berhad (“QSR”) (continued) (iii) On 14 December 2011, QSR announced that it had received a letter of offer from Massive Equity Sdn. Bhd. (“MESB”) dated 14 December 2011, stating MESB’s intention to acquire substantially all businesses and undertakings of QSR, including substantially all the assets and liabilities of QSR, at an aggregate cash consideration equivalent to: (a) RM6.80 per ordinary share of RM1.00 each held in QSR (“QSR Share”) multiplied by the total outstanding QSR shares (less treasury shares, if any) at a date to be determined later; and (b) RM3.79 per warrant of QSR (“QSR Warrant”) multiplied by the total outstanding number of QSR Warrants in issue at a date to be determined later. (hereinafter referred to as the “QSR Offer”) MESB had also on even date made an offer to acquire the entire businesses and undertakings of KFC Holdings (Malaysia) Bhd. (“KFCH”), including all of the assets and liabilities of KFCH (“KFCH Offer”). The KFCH Offer and the QSR Offer are inter-conditional. The boards of directors of QSR and KFCH had on 21 December 2011 announced that they (save for the interested directors under the QSR Offer and KFCH Offer) had accepted the QSR Offer and KFCH Offer respectively, subject to the execution of the relevant sale and purchase agreement. The QSR Offer and KFCH Offer are in the midst of being implemented for the approval of the relevant shareholders and warrant holders. Full details will be announced in due course. New Britain Palm Oil Limited (“NBPOL”) (i) On 31 March 2011, NBPOL entered into a Facility Agreement with a consortium of local and foreign banks for a USD240 million five (5) year facility, the proceeds of which will be used to repay the USD200 million twelve (12) month facility taken out for the acquisition of Kula (due for repayment on 15 April 2011), and the balance for various capital projects and working capital. The following securities have been provided against this facility: • Registered equitable mortgage over all the assets and undertakings of the NBPOL group except for 2 (two) subsidiaries, Ramu Agri Industries Limited and New Britain Oils Limited; and • Registered mortgage leasehold over all state leases and sub leases greater than 500 hectares comprising all available land and buildings owned by NBPOL. The Facility comprises a USD120 million Tranche 1 and a USD120 million Tranche 2. The principal amount outstanding under Tranche 1 shall be repaid in 18 quarterly instalments of USD6.3 million commencing 6 months from the first drawdown and a final installment of USD6.6 million. The principal amount outstanding under Tranche 2 shall be repaid at maturity. annual report 2011 | 265 Kulim (Malaysia) Berhad (23370-V) 34. SUBSEQUENT EVENT The Company had on 10 January 2012 announced, in reference to the announcement on 9 January 2012 by NBPOL, a 50.68% owned subsidiary of the Company, that NBPOL is seeking authority from its shareholders to disapply pre-emption rights for a potential new issue of shares of up to a maximum of five percent of the current issued share capital of NBPOL. The purpose of the potential new issue of shares is to acquire the non-controlling interest in certain subsidiaries of NBPOL. The issuance of the new shares by NBPOL, if so approved by the shareholders of NBPOL, will dilute the Company’s shareholding in NBPOL from 50.68% to 48.26%, thus potentially rendering NBPOL an associate of the Company. The resolution seeking approval from the shareholders of NBPOL to disapply their pre-emption rights for the potential issue of new shares up to a maximum of five percent of the current issued share capital of NBPOL was approved by the shareholders of NBPOL on 30 January 2012. 35. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group and the Company are exposed to financial risks arising from their operations and the use of financial instruments. The key financial risks include credit risk, liquidity risk, interest rate risk, foreign currency risk and market price risk. The Board of Directors reviews and agrees policies and procedures for the management of these risks, which are executed by the management team. The audit committee provides independent oversight to the effectiveness of the risk management process. It is, and has been throughout the current and previous financial year, the Group’s policy that no derivatives shall be undertaken except for the use as hedging instruments where appropriate and cost-efficient. The Group applies cash flow hedge accounting on those hedging relationships that qualify for hedge accounting. The following sections provide details regarding the Group’s and Company’s exposure to the above-mentioned financial risks and the objectives, policies and processes for the management of these risks. (a) Credit risk Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligations. The Group’s and the Company’s exposure to credit risk arises primarily from trade and other receivables. For other financial assets (including investments, cash and bank balances and derivatives), the Group and the Company minimise credit risk by dealing exclusively with high credit rating counterparties. The Group seeks to invest cash assets safely and profitably. The Group has no significant concentration of credit risk and it is not the Group’s policy to hedge its credit risk. The Group has in place, for significant operating subsidiaries, policies to ensure that sales of products and services are made to customers with an appropriate credit history and sets limits on the amount of credit exposure to any one customer. For significant subsidiaries, there were no instances of credit limits being materially exceeded during the reporting periods and management does not expect any material losses from non-performance by counterparties. Exposure to credit risk At the reporting date, the Group’s and the Company’s maximum exposure to credit risk is represented by: • The carrying amount of each class of financial assets recognised in the statements of financial position; • Guarantees given by the Group and Company to banks in favor of the ultimate holding corporation and various related companies amounting to RM3,940,000 (2010: RM14,469,000). • Corporate guarantees provided by the Company to banks for credit facilities granted to subsidiaries. The amount outstanding on such facilities was RM428,246,350 (2010: RM28,900,000) as at the reporting date. Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 266 | annual report 2011 (continued) 31 DECEMBER 2011 35. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (a) Credit risk (continued) Financial guarantees have not been recognised in the financial statements as the directors are of the opinion that the fair value on initial recognition was not material and that it is not probable that a future sacrifice of economic benefits will be required. Credit risk concentration profile Other than the amounts due from the subsidiaries to the Company, the Group and the Company is not exposed to any significant concentration of credit risk in the form of receivables due from a single debtor or from groups of debtors. Financial assets that are neither past due nor impaired Information regarding trade and other receivables that are neither past due nor impaired is disclosed in Note 21. Deposits with banks and other financial institutions and investments are placed with or entered into with reputable financial institutions or companies with high credit ratings and no history of default. Financial assets that are either past due or impaired Information regarding financial assets that are either past due or impaired is disclosed in Note 21. (b) Liquidity risk Liquidity risk is the risk that the Group and the Company will encounter difficulty in meeting financial obligations due to shortage of funds. The Group’s and the Company’s exposure to liquidity risk arises primarily from mismatches of financial assets and liabilities. The Group’s and the Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of stand-by credit facilities. Analysis of financial instruments by remaining contractual maturities The table below summarises the maturity profile of the Group and the Company’s liabilities at the reporting date based on contractual undiscounted repayment obligations. On demand or within one year RM’000 One to five years RM’000 Over five years RM’000 Total RM’000 797,120 595,595 – 2,156,848 – 374,212 797,120 3,126,655 (392,048) 78,618 – – – – (392,048) 78,618 1,079,285 2,156,848 374,212 3,610,345 Trade and other payables Loans and borrowings 207,676 – – 296,057 – – 207,676 296,057 Total undiscounted financial liabilities 207,676 296,057 – 503,733 At 31 December 2011 Group Financial liabilities: Trade and other payables Loans and borrowings Forward commodity contracts settled gross – Gross payments – Gross receipts Total undiscounted financial liabilities Company Financial liabilities: Financial guarantees have not been included in the above maturity analysis as no default has occurred. annual report 2011 | 267 Kulim (Malaysia) Berhad (23370-V) 35. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (c) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of the Group’s and the Company’s financial instruments will fluctuate because of changes in market interest rates. The Group’s and the Company’s exposure to interest rate risk arises primarily from their loans and borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk whereas those issued at fixed rates expose the Group to fair value interest rate risk.The Group manages its interest rate exposure by maintaining a mix of fixed and floating rate borrowings. Sensitivity analysis for interest rate risk At the reporting date, a change of 50 basis points (“bp”) in interest rates would have increased/(decreased) post-tax profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. Group 50 bp increase in interest rates 50 bp decrease in interest rates (d) Company 2011 RM’000 2010 RM’000 2011 RM’000 (13,105) 13,105 (5,210) 5,210 (1,366) 1,366 2010 RM’000 (1,025) 1,025 Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group operates internationally and is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of the Group entities. The foreign currencies in which these transactions are denominated are principally United States Dollars (“USD”) and Papua New Guinea (“PNG”) Kina. It is not the Group’s policy to hedge its transactional foreign currency risk exposure. The Group also has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. It is not the Group’s policy to hedge foreign currency translation risk. The Group maintains bank accounts denominated in foreign currencies, primarily in USD, as a natural hedge against foreign currency risk. Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 268 | annual report 2011 (continued) 31 DECEMBER 2011 35. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (d) Foreign currency risk (continued) The Group’s exposure to foreign currency risk, based on carrying amounts as at the end of the reporting period was: Group Denominated in USD RM’000 PNG Kina RM’000 As at 31 December 2011 Trade receivables Trade payables Loans and borrowings Derivative financial instruments 347,176 (56,271) (999,945) (2,104) – – – – Net exposure in the statement of financial position (711,144) – Trade receivables Trade payables Loans and borrowings Derivative financial instruments 215,445 (9,407) (754,639) (174,677) 59,974 (93,108) (137,099) – Net exposure in the statement of financial position (723,278) (170,233) As at 31 December 2010 Sensitivity analysis for foreign currency risk The following table demonstrates the sensitivity of the Group’s profit net of tax and other comprehensive income net of tax (“OCI”) to a reasonably possible change in the USD and PNG Kina exchange rates against the respective functional currencies of the Group entities, with all other variables held constant. Other comprehensive income net of tax Profit net of tax USD / PNG Kina – strengthen 5% (2010: 5%) – weaken 5% (2010: 5%) 2011 RM’000 2010 RM’000 2011 RM’000 (160,483) 160,483 (93,000) 93,000 318 (318) 2010 RM’000 6,200 (6,200) annual report 2011 | 269 Kulim (Malaysia) Berhad (23370-V) 35. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (e) Market price risk Market price risk is the risk that the fair value or future cash flows of the Group’s financial instruments will fluctuate because of changes in market prices (other than interest or exchange rates). The Group is exposed to equity price risk arising from its investment in quoted equity instruments which are mainly listed on Bursa Malaysia. The management monitors the equity investments on a portfolio basis. Material investments within the portfolio are managed on an individual basis and all buy and sell decisions are approved by the Risk Management Committee of the Group. Sensitivity analysis for market price risk At the reporting date, a 5% (2010: 5%) strengthening in the FTSE Bursa Malaysia KLCI would have increased the Group’s pre-tax profit by RM3,199,000 (2010: RM1,524,000) and its other comprehensive income by RM2,224,000 (2010: RM23,260,000). A 5% weakening in the FTSE Bursa Malaysia KLCI would have an equal but opposite effect on the Group’s pre-tax profit and other comprehensive income. (f) Commodity price risk The Group derives a significant proportion of its revenues from the sale of palm oil products. The Group uses derivative financial instruments (forward sales and purchases of Malaysian palm oil) to guarantee a minimum price for the sale of its own palm oil and to close out positions previously taken out. Cash flow hedge accounting is applied on such derivatives. At the reporting date, a 10% fluctuation on palm oil prices would have the following effect on the Group’s hedge reserve within equity: (Decrease)/Increase 10% increase in palm oil prices 10% decrease in palm oil prices 2011 RM’000 2010 RM’000 (15,889) 15,889 (12,027) 12,027 Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 270 | annual report 2011 (continued) 31 DECEMBER 2011 35. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (g) Fair value Financial instruments that are not carried at fair value and whose carrying amounts are reasonable approximation of fair values The following are classes of financial instruments that are not carried at fair value and whose carrying amounts are reasonable approximations of fair values: Note Trade and other receivables Loans and borrowings Trade and other payables 21 23 25 The carrying amounts of these financial assets and liabilities are reasonable approximations of fair values, either due to their shortterm nature or that they are floating rate instruments that are re-priced to market interest rates on or near the reporting date. The fair values of borrowings are estimated by discounting expected future cash flows at the market incremental lending rate for similar types of lending, borrowing or leasing arrangements at the reporting date. Quoted equity instruments Fair value is determined directly by reference to their published market bid price at the reporting date. Derivatives Fair values of forward commodity contracts are calculated by reference to forward rates quoted at the reporting date for contracts with similar maturity profiles. Financial guarantees The Company provides financial guarantees to banks for credit facilities granted to certain subsidiaries. The fair value of such guarantees is not expected to be material as the probability of the subsidiaries defaulting is remote. Fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: • Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2: Other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly. • Level 3: Techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data. annual report 2011 | 271 Kulim (Malaysia) Berhad (23370-V) 35. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (g) Fair value (continued) As at 31 December 2011, the Group held the following financial instruments carried at fair value in the statement of financial position: Level 1 RM’000 Level 2 RM’000 Level 3 RM’000 Total RM’000 44,469 63,985 – – – 30,607 – – – 44,469 63,985 30,607 108,454 30,607 – 139,061 – 2,104 – 2,104 39,265 166,638 – – – 137,161 – – – 39,265 166,638 137,161 205,903 137,161 – 343,064 – 174,677 – 174,677 3,136 63,985 – – – 30,019 – – – 3,136 63,985 30,019 67,121 30,019 – 97,140 5,123 166,638 – – – 136,922 – – – 5,123 166,638 136,922 171,761 136,922 – 308,683 Group At 31 December 2011 Financial assets measured at fair value Quoted shares Quoted warrants Fund investments Financial liabilities measured at fair value Derivative financial instruments At 31 December 2010 Financial assets measured at fair value Quoted shares Quoted warrants Fund investments Financial liabilities measured at fair value Derivative financial instruments Company At 31 December 2011 Financial assets measured at fair value Quoted shares Quoted warrants Fund investments At 31 December 2010 Financial assets measured at fair value Quoted shares Quoted warrants Fund investments Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 272 | annual report 2011 (continued) 31 DECEMBER 2011 36. FINANCIAL INSTRUMENTS The financial instruments of the Group and the Company as at 31 December are categorised into the following classes: Note 2011 RM’000 2010 RM’000 21 22 808,357 644,702 590,645 452,146 1,453,059 1,042,791 18 63,985 172,542 18 18 75,076 10,787 174,522 12,514 85,863 187,036 797,120 2,620,944 677,291 1,926,430 3,418,064 2,603,721 24 2,104 174,677 21 22 308,550 79,664 269,795 74,826 388,214 344,621 18 63,985 166,638 18 18 33,155 3,842 142,045 6,242 36,997 148,287 207,676 273,171 76,988 373,171 480,847 450,159 Group (a) Loans and receivables Trade and other receivables Cash and cash equivalents (b) Financial assets at fair value through profit or loss – held for trading Other investments (c) Available-for-sale financial assets Other investments (at fair value) Other investments (at cost less impairment) (d) Financial liabilities measured at amortised cost Trade and other payables Loans and borrowings (e) 25 23 Derivative liabilities designated as hedging instruments Derivative financial instruments Company (a) Loans and receivables Trade and other receivables Cash and cash equivalents (b) Financial assets at fair value through profit or loss – held for trading Other investments (c) Available-for-sale financial assets Other investments (at fair value) Other investments (at cost less impairment) (d) Financial liabilities measured at amortised cost Trade and other payables Borrowings 25 23 annual report 2011 | 273 Kulim (Malaysia) Berhad (23370-V) 37. CAPITAL MANAGEMENT The primary objective of the Group’s capital management is to ensure that it maintains a strong capital base and healthy capital ratios in order to support its business and maximise 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 financial years ended 31 December 2011 and 31 December 2010. A subsidiary of the Group which is involved in insurance broking and consultancy is required by Bank Negara Malaysia to maintain a minimum shareholders’ fund of RM600,000 at any point in time. This externally imposed capital requirement has been complied with by the abovementioned subsidiary for the financial years ended 31 December 2011 and 2010. Bursa Malaysia Practice Note No. 17/2005 imposes a requirement on the Company to maintain a consolidated shareholders’ equity equal to or not less than the 25 percent of the issued and paid up capital (excluding treasury shares) and such shareholders’ equity is to be not less than RM40 million. The Company has complied with this requirement. The Group monitors capital using the debt-to-equity ratio. The Group’s policy, which is unchanged from 2010, is to maintain the debtto-equity ratio at the lower bound of the band between 0.5:1 and 0.8:1. The debt-to-equity ratios at 31 December 2011 and at 31 December 2010 were as follows: Group 2011 RM’000 2010 RM’000 Total borrowings (Note 23) Less: Cash and bank balances (Note 22) 2,620,944 (644,702) 1,926,430 (452,146) Net debt 1,976,242 1,474,284 Total equity 6,920,699 5,542,742 0.29 0.27 Debt-to-equity ratios 38. SEGMENT INFORMATION For management purposes, the Group is organised into strategic business units based on their products and services, and has five reportable segments. The strategic business units offer different products and services, and are managed separately because they require different technology and marketing strategies. The Group Managing Director (Group MD) reviews internal management reports for each of the strategic business units on a monthly basis. The operations of each of the Group’s reportable segments are summarised below: • Plantation operations – Oil palm planting, crude palm oil processing and plantation management services and consultancy • Manufacturing products – Manufacture and sale of oleochemical, biodiesel and rubber products • Food and service restaurants – Pizza Hut, Ayamas and Kentucky Fried Chicken outlets • Intrapreneur ventures – Sea transportation, parking management, sales of wood based products and bulk mailing and printing • Property investment – Rental of office building Performance is measured based on segment profit before tax and interest as included in the internal management reports that are reviewed by the Group MD. Management believes that segment profits are the most relevant measure by which it can assess the results of the segments against those of other entities operating in the same industries Other operations of the Group mainly comprise investment holding and intrapreneur ventures which are not of sufficient size to be reported separately. Segment liabilities 635,120 2,024,830 654,525 4,665,389 – 893,217 – 236,602 410,933 3,405,097 – – – 177,435 163,398 88,277 – – 2,950 (33,307) 2,442,799 7,721 (22,071) 821,485 – – – – – – – – – – – – 4,490 6 5,316 – – – (972) – 177 – (112) 8,304 Rubber based products RM’000 Manufacturing 125,769 205 35,565 – – 4,811 (8,864) – 2,748 – (652) – Biodiesel RM’000 1,034,260 393,088 2,686,468 – 888,972 – 282,916 7,814 135,764 984 (13,972) 3,349,914 Food and restaurants RM’000 439,520 137,624 533,306 – 28,698 – 42,944 1,146 22,632 (1,019) (22,003) 396,618 Intrapreneur ventures RM’000 – – 94,602 – – – (4,364) – – – – 8,200 Property investment RM’000 335,550 3,891 42,016 24,334 2,694 – 3,602 412 2,559 1,955 642 14,451 Other operations RM’000 – – 52,479 – – – (8,393) – – – – – C B A Adjustments and eliminations Notes RM’000 4,599,539 1,600,272 11,520,238 24,334 1,097,799 4,811 1,436,688 9,372 415,555 12,591 (91,475) 7,041,771 Consolidated RM’000 NOTES TO THE FINANCIAL STATEMENTS Assets Investments in associates Intangible assets Additions to non-current assets Segment assets Results Interest income Finance costs Depreciation of property, plant and equipment Amortisation of intangible assets Impairment of non-financial assets Segment profit/(loss) Segment revenue 31 December 2011 Malaysia RM’000 Papua New Guinea & Solomon Oleochemicals Islands (Discontinued) RM’000 RM’000 Plantation 38. SEGMENT INFORMATION (continued) Kulim (Malaysia) Berhad (23370-V) 274 31 DECEMBER 2011 (continued) | annual report 2011 626,094 1,702,335 312,973 3,141,165 – 456,305 – 212,613 48,362 2,815,523 – – – 140,301 121,362 51,400 – – 482 29,302 1,532,526 4,041 32,347 575,131 – – – – – – 8,479 – – – 7,004 881,511 3,743 354 5,654 – – – (2,858) – 114 3 75 4,988 Rubber based products RM’000 Manufacturing 125,401 4,015 44,713 – – 35,404 (63,347) – 4,421 – 1,521 22,908 Biodiesel RM’000 845,920 260,545 2,353,332 – 878,491 11,036 277,355 9,412 117,560 – 10,496 3,035,827 Food and restaurants RM’000 391,092 98,028 482,998 – 26,698 – 13,233 1,070 24,181 56 8,998 292,799 Intrapreneur ventures RM’000 – – 94,503 – – – 3,513 – – – – 7,587 Property investment RM’000 8,365 5,021 93,743 56,610 1,405 – (35,539) – 2,151 1,788 (1,299) 17,173 Other operations RM’000 – – 214,061 – – – (18,962) – – – (7,004) (881,511) C B A Adjustments and eliminations Notes RM’000 3,702,950 729,298 9,245,692 56,610 1,046,895 46,440 850,792 10,482 321,189 6,370 81,440 5,488,939 Consolidated RM’000 275 Segment liabilities Investments in associates Intangible assets Additions to non-current assets Segment assets Assets Interest income Finance costs Depreciation of property, plant and equipment Amortisation of intangible assets Impairment of non-financial assets Segment profit/(loss) Results Segment revenue 31 December 2010 Malaysia RM’000 Papua New Guinea & Solomon Oleochemicals Islands (Discontinued) RM’000 RM’000 Plantation 38. SEGMENT INFORMATION (continued) annual report 2011 | Kulim (Malaysia) Berhad (23370-V) Kulim (Malaysia) Berhad (23370-V) 276 NOTES TO THE FINANCIAL STATEMENTS | annual report 2011 (continued) 31 DECEMBER 2011 38. SEGMENT INFORMATION (continued) The intrapreneur venture business segment can be further analysed as follows: Sea transportation RM’000 Parking managements RM’000 Wood based product RM’000 Bulk mailing and printing RM’000 Others RM’000 Total intrapreneur venture RM’000 169,935 115,665 6,488 30,416 74,114 396,618 – (20,467) – (791) – (82) – (271) (1,019) (392) (1,019) (22,003) 14,062 – 37,469 3,314 1,146 3,234 236 – 280 809 – 991 4,211 – 970 22,632 1,146 42,944 Intangible assets Additions to non-current assets Segment assets 8,996 92,291 404,011 12,545 5,660 47,468 – – 4,662 1,931 354 15,027 5,226 39,319 62,138 28,698 137,624 533,306 Segment liabilities 300,422 44,402 23,872 4,643 66,181 439,520 87,153 111,888 8,962 33,625 51,171 292,799 241 7,305 315 992 – 80 – 283 (500) 338 56 8,998 18,122 – 12,283 4,432 1,070 3,072 228 – 893 809 – 3,134 590 – (6,149) 24,181 1,070 13,233 Intangible assets Additions to non-current assets Segment assets 6,993 83,707 384,116 13,545 9,634 54,028 – 364 6,457 1,931 1,440 18,873 4,229 2,883 19,524 26,698 98,028 482,998 Segment liabilities 273,776 37,344 25,650 7,099 47,223 391,092 31 December 2011 Segment revenue Results Interest income Finance costs Depreciation of property, plant and equipment Amortisation of intangible assets Segment profit Assets 31 December 2010 Segment revenue Results Interest income Finance costs Depreciation of property, plant and equipment Amortisation of intangible assets Segment profit/(loss) Assets annual report 2011 | 277 Kulim (Malaysia) Berhad (23370-V) 38. SEGMENT INFORMATION (continued) Notes Nature of adjustments and eliminations to arrive at amounts reported in the consolidated financial statements A The amounts relating to the discontinued operation (i.e. oleochemical segment) have been excluded to arrive at the amounts shown in the consolidated statement of comprehensive income as they are presented separately in the statement of comprehensive income within one line item, “Gain from discontinued operation, net of tax”. B The following items are added to / (deducted from) segment profit to arrive at “Profit before tax from continuing operations” presented in the consolidated statement of comprehensive income: Share of results of associates Interest income Finance costs C 2011 RM’000 2010 RM’000 6,992 12,591 (91,475) 2,174 6,370 (81,440) (71,892) (72,896) This amount comprises of other items which cannot be allocated to any operating segment. Geographical information Revenue and non-current assets information based on the geographical location of customers and assets respectively are as follows: Revenue Malaysia Papua New Guinea Europe (mainly United Kingdom and Netherlands) Others Non-current assets 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 4,677,679 276,953 2,074,140 12,999 4,051,986 242,479 1,185,754 8,720 5,592,816 2,931,097 413,413 12,686 4,927,178 2,103,656 261,931 8,419 7,041,771 5,488,939 8,950,012 7,301,184 Non-current assets information presented above consist of the following items as presented in the consolidated statement of financial position: Property, plant and equipment Investment properties Intangible assets Investments in associates Other investments Deferred tax assets Deferred farm expenditure 2011 RM’000 2010 RM’000 7,667,603 98,296 1,097,799 24,334 52,479 – 9,501 5,876,948 97,863 1,046,895 56,610 214,061 917 7,890 8,950,012 7,301,184 39. COMPARATIVES AND AUTHORISATION OF FINANCIAL STATEMENTS FOR ISSUE (a) (b) The comparatives were audited by a firm of chartered accountants other than Ernst & Young. The financial statements for the year ended 31 December 2011 were authorised for issue in accordance with a resolution of the directors on 30 March 2012. Kulim (Malaysia) Berhad (23370-V) NOTES TO THE FINANCIAL STATEMENTS 278 | annual report 2011 (continued) 31 DECEMBER 2011 40. SUPPLEMENTARY INFORMATION ON THE BREAKDOWN OF REALISED AND UNREALISED PROFITS AND LOSSES On 25 March 2010, Bursa Malaysia Securities Berhad (“Bursa Malaysia”) issued a directive to all listed entities pursuant to Paragraph 2.06 and 2.23 of Bursa Malaysia Main Market Listing Requirements. The directive requires all listed issuers to disclose the breakdown of the unappropriated profits or accumulated losses as at the end of the reporting period, into realised and unrealised profits or losses. On 20 December 2010, Bursa Malaysia further issued another directive on the disclosure and the prescribed format of presentation. The breakdown of the retained earnings of the Group and of the Company as at 31 December 2010, into realised and unrealised profits, pursuant to the directive, is as follows: Group Company 2011 RM’000 2010 RM’000 2011 RM’000 2010 RM’000 4,244,855 (681,525) 2,420,389 (636,451) 1,119,132 (51,353) 1,135,982 (73,429) 3,563,330 1,783,938 1,067,779 1,062,553 7,712 5,569 – – Add: Consolidated adjustments 3,571,042 (1,134,542) 1,789,507 183,343 1,067,779 – 1,062,553 – Total retained earnings 2,436,500 1,972,850 1,067,779 1,062,553 Total retained earnings of the Company and its subsidiaries: – realised – unrealised Total share of retained earnings associates: – realised The determination of realised and unrealised profits is based on the Guidance of Special Matter No.1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, issued by Malaysian Institute of Accountants on 20 December 2010. SECTION 8: OTHER CORPORATE INFORMATION 280 LOCATIONS OF THE GROUP’S PALM OILS DIVISION OPERATIONS 282 PROPERTIES OF THE GROUP • MALAYSIA • PAPUA NEW GUINEA • SOLOMON ISLANDS 297 NOTICE OF ANNUAL GENERAL MEETING 301 STATEMENT ACCOMPANYING NOTICE OF ANNUAL GENERAL MEETING PROXY FORM Kulim (Malaysia) Berhad (23370-V) MALAYSIA LOCATIONS OF THE GROUP’S PALM OILS DIVISION OPERATIONS 280 | annual report 2011 annual report 2011 | 281 Kulim (Malaysia) Berhad (23370-V) ESTATES AND MILLS: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Bukit Layang Estate Basir Ismail Estate REM Estate Ulu Tiram Estate Sedenak Estate and Mill Kuala Kabung Estate Rengam Estate Sindora Estate and Mill Tereh Selatan Estate Enggang Estate Mutiara Estate 12. 13. 14. 15. 16. 17. 18. 19. 20. Tereh Utara Estate and Tereh Mill Sungai Tawing Estate Selai Estate Sungai Sembrong Estate Labis Bahru Estate Sepang Loi Estate UMAC Estate Sungai Papan Estate Siang Estate Kulim (Malaysia) Berhad (23370-V) 282 | annual report 2011 PROPERTIES OF THE GROUP IN MALAYSIA Tenure Hectares Description Net Book Value @ 31.12.2011 RM’000 Year of Acquisition/ Revaluation KULIM (MALAYSIA) BERHAD Labis Bahru Estate K B 517 85009 Segamat, Johor Freehold 2,109 Oil palm and rubber estate 43,950 1997* Mutiara Estate P O Box 21 Kahang New Village 86700 Kahang, Johor Leasehold expiring 20.06.2085 26.09.2085 04.11.2074 1,619 324 607 Oil palm estate 30,122 1997* Basir Ismail Estate K B 502 81909 Kota Tinggi, Johor Freehold 2,875 Oil palm estate 432,330 1997* REM Estate K B 501 81909 Kota Tinggi, Johor Freehold Leasehold expiring 15.04.2093 (Building age: 13 years) 2,571 5 Oil palm estate Staff training centre 330,515 1997* Sg. Sembrong Estate P O Box 21 Kahang New Village 86700 Kahang, Johor Leasehold expiring 05.05.2074 25.11.2082 13.10.2102 607 607 29 Oil palm estate 14,846 1997* Ulu Tiram Estate K B 710 80990 Johor Bahru, Johor Freehold 502 Oil palm estate 93,491 1997* Kuala Kabung Estate No 70, Jalan Ria 3 Taman Ria, Bukit Batu 81020 Kulai, Johor Leasehold expiring 16.08.2081 1,705 Oil palm estate 10,315 1997* Vacant land 17,458 1997* 21-storey Intelligent office building comprising 3-level Basement Carpark, 5-level Podium and 16-level Tower 99,751 1998+ Mukim of Plentong, Johor Lot 1581 Lot 2222 Lot 2223 Lot 2226 Lot 2227 Menara Ansar 65, Jalan Trus 80000 Johor Bahru Freehold Freehold Freehold Freehold Freehold Leasehold expiring 18.12.2080 (Building age: 13 years) 5 8 66 4 5 – 13,648 1,072,778 KULIM PLANTATIONS (MALAYSIA) SDN BHD Tereh Selatan Estate K B 537 86009 Kluang, Johor Freehold Leasehold expiring 27.08.2078 1,929 869 Oil palm estate 45,086 1997* Tereh Utara Estate K B 536 86009 Kluang, Johor Freehold Leasehold expiring 27.08.2078 Leasehold expiring 27.06.2079 834 1,560 607 Oil palm estate 44,716 1997* 5,799 89,802 annual report 2011 | 283 Kulim (Malaysia) Berhad (23370-V) Tenure Hectares Description Net Book Value @ 31.12.2011 RM’000 Year of Acquisition/ Revaluation MAHAMURNI PLANTATIONS SDN BHD Rengam Estate K B 104 86300 Rengam, Johor Freehold 2,439 Oil palm and rubber estate 165,553 1997* Sedenak Estate K B 726 80990 Johor Bahru, Johor Freehold 2,861 Oil palm estate 188,433 1997* UMAC Estate P O Box 64 86007 Segamat, Johor Leasehold expiring on: 17.03.2070 29.08.2071 11.12.2071 28.11.2072 25.02.2074 Oil palm estate 17,348 1997* Siang Estate K B 515 81909 Kota Tinggi, Johor Leasehold expiring on 23.01.2087 3,414 Oil palm estate 103,077 2011 Sg. Papan Estate P O Box 15 Bandar Penawar 81909 Kota Tinggi, Johor Leasehold expiring on 22.09.2090 3,026 Oil palm estate 94,945 2011 228 237 324 346 481 13,356 569,356 ULU TIRAM MANUFACTURING COMPANY (MALAYSIA) SDN BHD Bukit Layang Estate K B 502 81909 Kota Tinggi, Johor Freehold 398 Oil palm estate 398 52,383 1997* 52,383 SELAI SDN BHD Enggang Estate K B 503 86009 Kluang, Johor Freehold 356 Oil palm estate 25,872 1997* Selai Estate K B 529 86009 Kluang, Johor Freehold 3,179 Oil palm estate 23,618 1997* 3,535 49,490 KUMPULAN BERTAM PLANTATIONS BERHAD Sepang Loi Estate K B 520 85009 Segamat Freehold 1,016 1,016 Oil palm estate 9,644 9,644 2003 Kulim (Malaysia) Berhad (23370-V) 284 | annual report 2011 PROPERTIES OF THE GROUP IN MALAYSIA (continued) Tenure Hectares Description Net Book Value @ 31.12.2011 RM’000 Year of Acquisition/ Revaluation SINDORA BERHAD Sindora Estate K B 539 86009 Kluang, Johor Leasehold expiring 24.01.2086 3,919 Oil palm estate 54,682 1987 Sg. Tawing Estate K B 531 86009 Kluang, Johor Leasehold expiring 27.06.2079 2,219 Oil palm estate 33,463 2009 Total – Plantation + * 6,138 88,145 43,890 1,931,598 This property was acquired during the year as indicated and is stated at cost less accumulated depreciation and impairment losses. These properties were revalued in 1997. The accounting policy on revaluation is disclosed in Note 2.7 to the Financial Statements. annual report 2011 | 285 Kulim (Malaysia) Berhad (23370-V) Tenure Area Description Net Book Value @ 31.12.2011 RM’000 Year of Acquisition/ Revaluation 13,043 2010 9,684 2010 QSR BRANDS BHD AGRICULTURAL PROPERTIES SELANGOR Geran 24766 Lot 1462 Mukim Beranang Daerah Hulu Langat Freehold (Building age: 22 years) 63 acres Breeder farm HS (D) 20746, PT153 Bandar Baru Salak Tinggi District of Sepang Leasehold expiring 25.01.2105 (Building age: 13 years) 32 acres Breeding farm and hatchery 22,727 KEDAH Geran 34780, Lot 1908 Mukim Sidam Kiri Daerah Kuala Muda, Kedah Freehold (Building age: 9 years) 47 acres Breeding farm and hatchery 15,249 2011 15,249 NEGERI SEMBILAN Geran 22067 Lot 3468 Mukim Linggi Daerah Port Dickson Freehold (Building age: 21 years) 55 acres Breeder farm 5,222 2010 Geran 6348 PT 2149 Mukim Lenggeng Daerah Seremban Freehold (Building age: 21 years) 20 acres Breeder farm 2,939 2010 Lot 559 Mukim Gemencheh Daerah Tampin Freehold (Building age: 15 years) 30,557 sq. ft. Breeder farm 4,805 2010 HS (D) 5977-5980, PT 924-927 Mukim Titian Bintangor Daerah Rembau Freehold Vacant land for future expansion 1,362 2010 20 acres 14,328 MELAKA Lots 1375-1397, 1689 and 1706 Mukim Ayer Pa’abas Daerah Alor Gajah Freehold (Building age: 21 years) 151 acres Breeder farm PM 1026 Lot 2294 Mukim Machap Daerah Alor Gajah Leasehold expiring 27.05.2038 (Building age: 16 years) 6 acres Contract broiler farming 9,760 2010 203 2010 9,963 JOHOR Mukim of Mersing District of Johor Freehold 855 acres Vacant land and oil palm estate 44,000 2010 Part of Lot land held under PTD 9374, HSD 14897 Mukim Bukit Batu Daerah Kulai Jaya, Johor Leasehold 16.08.2081 (Building age: 1 year) 400 acres Broiler farms 33,007 2011 77,007 Kulim (Malaysia) Berhad (23370-V) 286 | annual report 2011 PROPERTIES OF THE GROUP IN MALAYSIA (continued) Tenure Sq. Ft. Description Net Book Value @ 31.12.2011 RM’000 Year of Acquisition/ Revaluation 368 2010 QSR BRANDS BHD COMMERCIAL PROPERTIES PERLIS 9 Persiaran Putra Timur Satu 02000 Kuala Perlis Leasehold expiring 25.09.2092 (Building age: 17 years) 2,660 Double-storey intermediate shophouse for storage and accommodation 368 KEDAH Lot No. 269 Pekan Dindong 07000 Kuah Langkawi Freehold (Building age: 17 years) 3,260 3-storey intermediate shopoffice for warehouse, commissary and staff hostel 443 2010 45 Arked Pokok Asam Langkawi Mall 07000 Kuah Langkawi Freehold (Building age: 16 years) 4,077 Double-storey corner shophouse for restaurant 648 2010 46 & 47 Lengkok Cempaka 1 Persiaran Cempaka 08000 Amanjaya Freehold (Building age: 13 years) 7,220 3-storey corner and intermediate shopoffices for restaurant and hostel 475 2010 No. 5 Bangunan Joota Brothers Jalan Sungai Korok, 06000 Jitra Freehold (Building age: 21 years) 1,240 2-storey shopoffice for restaurant 495 2011 2,061 PULAU PINANG Unit No. G-104 Megamall Pinang 2828 Jalan Baru Bandar Perai Jaya 13600 Seberang Perai Tengah Leasehold expiring 04.07.2094 (Building age: 15 years) 2,762 Ground floor of a shopping complex for restaurant 1,401 2010 1-10G Eden Parade Jalan Sungai Emas 11100 Batu Ferringi Freehold (Building age: 11 years) 1,409 Ground and mezzanine floors of a shopping complex for restaurant 450 2010 34 Jalan Mahsuri 11950 Bandar Bayan Baru Leasehold expiring 15.05.2090 (Building age: 19 years) 7,176 Double-storey shophouse for restaurant 2,656 2010 3A-G-18 Blok 3A Kompleks Bukit Jambul Jalan Rumbia 11900 Pulau Pinang Freehold (Building age: 15 years) 2,972 Ground floor of a shopping complex for restaurant 2,431 2010 Unit No. G-103 Megamall Pinang 2828 Jalan Baru Bandar Perai Jaya 13600 Seberang Perai Tengah Leasehold expiring 04.07.2094 (Building age: 15 years) 3,342 Ground floor of a shopping complex for restaurant 1,683 2010 Parcel No. S-C1-05 Pusat Bandar Nibong Tebal 14300 Pulau Pinang Freehold (Building age: 8 years) 2,798 Double-storey intermediate shophouse for restaurant 247 2010 annual report 2011 | 287 Kulim (Malaysia) Berhad (23370-V) Tenure Sq. Ft. Description Net Book Value @ 31.12.2011 RM’000 Year of Acquisition/ Revaluation QSR BRANDS BHD COMMERCIAL PROPERTIES (continued) PULAU PINANG (continued) 1-5G, 1-6G & 1-9G Eden Parade Jalan Sungai Emas 11100 Batu Ferringhi Freehold (Building age: 11 years) 4,397 3 adjoining ground and mezzanine floors of a shopping complex for restaurant 1,512 2010 GF-12A Queensbay Mall 100 Persiaran Bayan Indah 11900 Bayan Lepas Pulau Pinang Freehold (Building age: 6 years) 5,870 Ground floor of a shopping complex for restaurant 6,848 2010 Geran No. 23532 Lot 599 Seksyen 5 Bandar Georgetown No. 10-A Jalan Masjid Negeri 11600 Daerah Timor Laut Pulau Pinang Freehold 30,453 Plot of land with a colonial heritage bungalow 9,600 2010 26,828 PERAK 79 Jalan Dato’ Lau Pak Khuan Ipoh Garden 31400 Ipoh Freehold (Building age: 41 years) 4,980 Double-storey intermediate shophouse for restaurant 589 2010 65 Jalan Dato’ Onn Jaafar 30300 Ipoh Freehold (Building age: 25 years) 19,375 6-storey commercial building for restaurant and staff hostel 1,750 2010 158 Jalan Idris 31900 Kampar Freehold (Building age: 27 years) 7,542 589 2010 PTD 217643 Jalan Kuala Kangsar Daerah Hulu Kinta Klebang, Ipoh Freehold 6,717 2010 43,561 3½-storey shopoffice for restaurant Vacant land for restaurants 9,645 SELANGOR 20-4 & 22-4 Jalan 14/22 The Right Angle 46100 Petaling Jaya Leasehold expiring 16.12.2086 (Building age: 22 years) 3,080 3rd floor of 2 adjoining units of a 4-storey shophouse 730 2010 18A Ground Floor Jalan SS6/3 Kelana Jaya 47301 Petaling Jaya Freehold (Building age: 23 years) 1,490 Ground floor of a 5-storey shophouse for retail outlet 801 2010 60 & 62 Jalan PJS 11/28A Bandar Sunway 46150 Petaling Jaya Leasehold expiring 11.03.2095 & 28.12.2092 (Building age: 16 years) 15,237 2 units of 4-storey shopoffice for restaurant, office and hostel 4,719 2010 9 Jalan Taiping 41400 Klang Freehold (Building age: 31 years) 12,202 4½-storey corner shophouse for restaurant and staff hostel 1,963 2010 Kulim (Malaysia) Berhad (23370-V) 288 | annual report 2011 PROPERTIES OF THE GROUP IN MALAYSIA (continued) Tenure Net Book Value @ 31.12.2011 RM’000 Year of Acquisition/ Revaluation Sq. Ft. Description 4-storey shophouse for restaurant 4,667 2010 17,088 95,788 Vacant land for restaurant 7,902 2010 639 2010 QSR BRANDS BHD COMMERCIAL PROPERTIES (continued) SELANGOR (continued) 18 & 20 Jalan Sulaiman 43000 Kajang Freehold (Building age: 30 years) Lot PT 12209 Mukim Damansara Daerah Petaling Leasehold expiring 01.11.2092 2105 Jalan 3/1 Bandar Baru Sungai Buloh 47000 Sungai Buloh Leasehold expiring 13.03.2087 (Building age: 22 years) 2,423 Double-storey shophouse for restaurant Lot C1-091 Kompleks Galaxy Ampang Jalan Dagang 5 Taman Dagang 68000 Ampang Leasehold expiring 20.10.2084 (Building age: 8 years) 4,108 Concourse level of shopping centre for restaurant 1,466 2010 Lot PT 5665 Pekan Puchong Perdana Daerah Petaling Leasehold expiring 28.05.2108 5,000 Vacant land for restaurant 3,959 2010 Blok B, Jalan Prima 5/5 Persiaran Prima Utama Taman Puchong Prima 47100 Puchong Freehold (Building age: 9 years) 5,968 4-storey shopoffice 4,181 2010 31,027 W.P. KUALA LUMPUR Lot 14083 Jalan Kuchai Lama 58200 Kuala Lumpur Leasehold expiring 08.02.2064 (Building age: 6 years) 8,052 Single-storey building for restaurant 6,660 2010 437 Jalan Ipoh 51200 Kuala Lumpur Freehold (Building age: 29 years) 13,294 5-storey corner lot commercial building for restaurant and staff training 3,969 2010 140 Jalan Raja Laut 50350 Kuala Lumpur Freehold (Building age: 39 years) 6,437 4-storey intermediate shophouse for restaurant and staff hostel 2,488 2010 Lot PT 16805 Jalan Prima 1 Metro Prima Off Jalan Kepong 52100 Kuala Lumpur Leasehold expiring 28.04.2096 (Building age: 11 years) 11,000 Double-storey building for restaurants 10,933 2010 Lot PT 6878 Jalan 8/27A Wangsa Maju 53300 Kuala Lumpur Leasehold expiring 19.04.2083 (Building age: 9 years) 11,768 Single-storey building for restaurants 12,738 2010 No. 23 & 24 Jalan 54 Desa Jaya Kepong 52100 Kepong Leasehold expiring 08.03.2081 (Building age: 29 years) 13,587 2 adjoining units of 4-storey shophouse for restaurant 3,619 2010 40,407 annual report 2011 | 289 Kulim (Malaysia) Berhad (23370-V) Tenure Sq. Ft. Description Net Book Value @ 31.12.2011 RM’000 Year of Acquisition/ Revaluation 812 2010 2,136 2010 498 2010 QSR BRANDS BHD COMMERCIAL PROPERTIES (continued) NEGERI SEMBILAN 26 Jalan Dato’ Sheikh Ahmad 70000 Seremban Freehold (Building age: 27 years) 3,000 Double-storey corner shophouse for retail outlet and staff hostel 20 & 21 Jalan Dato’ Sheikh Ahmad 70000 Seremban Freehold (Building age: 31 years) 7,812 2 adjoining units of 4-storey shophouse for restaurant and hostel 24 & 26 Jalan Bunga Raya 7 Pusat Perniagaan Senawang Taman Tasik Jaya 70400 Senawang Freehold (Building age: 17 years) 5,456 2 units of a double-storey shophouse for restaurant 1 Jalan Mahajaya Kawasan Penambakan Laut Bandar Port Dickson 71009 Negeri Sembilan Leasehold expiring 31.01.2085 (Building age: 15 years) 9,164 3-storey corner shophouse for restaurant and staff hostel 1,126 2010 Lot Nos PT 8241 to 8249 & 8262 Mukim Rantau Daerah Seremban Freehold 119,946 Vacant land (for shoplot and commercial complex) 3,400 2010 PT 12172, Jalan BBN 1/1F Putra Point Bandar Baru Nilai 71800 Nilai Freehold (Building age: 15 years) 423 2010 Lot 3363 Mukim Rasah District of Seremban Negeri Sembilan Freehold 2,343 2011 5,386 3-storey shophouse for restaurant 43,906 Vacant commercial land 10,738 MELAKA 9 Jalan PPM 9 Plaza Pandan Malim 75250 Melaka Leasehold expiring 09.06.2095 (Building age: 14 years) 5,818 4-storey intermediate shophouse for restaurant and staff hostel 555 Plaza Melaka Jalan Hang Tuah 75300 Melaka Freehold (Building age: 25 years) 9,990 PM 222, Lot No. 4260 Mukim Bukit Katil Daerah Melaka Tengah Leasehold expiring 14.09.2077 No. 37 Jalan BBP1 Taman Batu Berendam Putra 75350 Batu Berendam, Melaka Leasehold expiring 28.06.2108 (Building age: 9 years) 621 2010 4½-storey corner shophouse with mezzanine floor for restaurant 1,182 2010 42,851 Vacant land for restaurants 3,123 2010 1,389 Ground floor of a 2-storey shopoffice for restaurant 381 2011 5,307 Kulim (Malaysia) Berhad (23370-V) 290 PROPERTIES OF THE GROUP IN MALAYSIA Tenure Sq. Ft. | annual report 2011 (continued) Description Net Book Value @ 31.12.2011 RM’000 Year of Acquisition/ Revaluation QSR BRANDS BHD COMMERCIAL PROPERTIES (continued) JOHOR 86 Jalan Dedap 4 Taman Johor Jaya 81100 Johor Bahru Freehold (Building age: 29 years) 1,540 Double-storey shophouse for restaurant 544 2010 11 Jalan Sri Perkasa 2/1 Taman Tampoi Utama 81200 Johor Bahru Leasehold expiring 13.04.2094 (Building age: 15 years) 4,620 3-storey intermediate shophouse for restaurant and staff hostel 371 2010 1 & 1-1 Jalan Niaga Pusat Perniagaan Jalan Mawai 81900 Kota Tinggi Leasehold expiring 14.05.2085 (Building age: 12 years) 2,926 Corner unit of double-storey shophouse for restaurant 869 2010 HS(D) 367670 PTD 104984 Damansara Aliff 2 Mukim Tebrau Johor Bahru Freehold 75,229 Vacant commercial land 4,100 2010 Lot 590 & Lot 591 PTD 171459, Tmn Perling Mukim Pulai 81200 Johor Freehold 45,000 Vacant land for restaurant 8,400 2010 No. 1 & 1A Jalan Resam 13 Taman Bukit Tiram Freehold (Building age: 2 years) 6,987 3-storey corner shophouse 853 2010 No. 3, 3A & 3B Jalan Resam 13 Taman Bukit Tiram Freehold (Building age: 2 years) 4,620 3-storey intermediate shophouse 528 2010 No. 43 Jalan Sejambak 14 Taman Bukit Dahlia 81700 Pasir Gudang, Johor Leasehold expiring 30.06.2103 3,080 Vacant land for restaurant 509 2011 No. 2 Jalan Bandar 1 Pusat Bandar Baru Ayer Hitam 86100 Ayer Hitam, Johor Leasehold expiring 16.07.2101 (Building age: 1 year) 5,280 3-storey shopoffice for restaurant 669 2011 No. 1 Jalan Bandar 1 Pusat Bandar Baru Ayer Hitam 86100 Ayer Hitam, Johor Leasehold expiring 16.07.2101 (Building age: 1 year) 9,936 3-storey shopoffice for restaurant 1,279 2011 Part of PTD 84134 Bandar Dato’ Onn Johor Bahru Freehold 2 acres Vacant commercial land 5,904 2011 Part of C9 Taman Damansara Aliff Tampoi, Johor Bahru Freehold (Building age: 1 year) Single-storey building for KFC and Pizza Hut restaurants 6,171 2011 41,295 30,197 TERENGGANU 10 Persiaran Melor Kijal Beach Resort 24100 Kijal Leasehold expiring 25.11.2101 (Building age: 17 years) 3,300 Double-storey intermediate shophouse for restaurant 406 2010 406 PAHANG Retail 1 & 2 Ground Floor Bangunan Baru UMNO Pekan 26600 Pekan Leasehold expiring 29.08.2106 (Building age: 7 years) 2,878 2 contiguous parcels of ground floor retail lots within a 6-storey commercial complex 1,146 1,146 2010 annual report 2011 | 291 Kulim (Malaysia) Berhad (23370-V) Tenure Sq. Ft. Description Net Book Value @ 31.12.2011 RM’000 Year of Acquisition/ Revaluation 1,345 2010 QSR BRANDS BHD COMMERCIAL PROPERTIES (continued) SABAH Lot 25 Block 3 Bornion Centre Jalan Kolam 88300 Kota Kinabalu Leasehold expiring 15.05.2915 (Building age: 27 years) 5,710 3-storey corner shophouse for restaurant and hostel 1,345 SINGAPORE 18 Yung Ho Road Singapore 618591 Leasehold expiring 16.12.2036 (Building age: 36 years) 2,912 Purpose-built single-storey building for restaurant 5,294 2010 5,294 BRUNEI EDR BD 44812 Lot 51759 Kampong Sengkurong Mukim Sengkurong, Brunei Freehold 0.494 acres Vacant land for restaurant 1,122 2011 1,122 INDUSTRIAL PROPERTIES PULAU PINANG 2718 Jalan Seladang Alma 14000 Bukit Mertajam Freehold (Buidling age: 23 years) 47,376 Single-storey factory with double-storey office block for processing plant 3,744 2010 29 & 31 Lorong IKS Juru 3, IKS Juru 14100 Simpang Ampat Seberang Perai Selatan Freehold (Buidling age: 15 years) 5,960 2 adjoining units of a 1½-storey semi-detached factories for commissary and warehouse 1,359 2010 Lot 1136, Mukim 602 Seberang Perai Tengah Pulau Pinang Freehold 8.231 acres Vacant land for processing plant 8,909 2011 14,012 SELANGOR Lot 7 Jalan 51A/223 46675 Petaling Jaya Leasehold expiring 27.04.2065 (Building age: 46 years) 10,883 Single-storey building with a double-storey office block 2,551 2010 Lot 5 Jalan 51A/223 46675 Petaling Jaya Leasehold expiring 18.11.2067 (Building age: 24 years) 27,930 Single-storey detached factory with 4-storey office block 7,256 2010 Lot 20153 Jalan Pelabuhan Utara 42000 Pelabuhan Klang Leasehold expiring 17.12.2086 (Building age: 25 years) 124,031 Land and factory buildings for primary processing and further processing plants 39,511 2010 17, 19 & 21 Jalan Pemaju U1/15 Seksyen U1 HICOM-Glenmarie Industrial Park 40150 Shah Alam Freehold (Building age: 14 years) 169,200 Industrial complex 39,062 2010 Kulim (Malaysia) Berhad (23370-V) 292 | annual report 2011 PROPERTIES OF THE GROUP IN MALAYSIA (continued) Net Book Value @ 31.12.2011 RM’000 Year of Acquisition/ Revaluation Tenure Sq. Ft. Description Lot 166 Jalan Pemaju U1/15 Seksyen U1 HICOM-Glenmarie Industrial Park 40150 Shah Alam Freehold 205,603 Vacant land for future expansion of industrial complex 21,600 2010 1, 3 & 6 Lorong Gerudi 1 Off Jalan Pelabuhan Utara 47000 Pelabuhan Klang Leasehold expiring 15.03.2087 (Building age: 17 years) 312,594 Single and double-storey warehouse buildings and 4-storey office building 71,929 2010 QSR BRANDS BHD INDUSTRIAL PROPERTIES (continued) SELANGOR (continued) 181,909 KEDAH Mukim of Sungai Petani/ Sungai Pasir District of Kedah Freehold 45,900 square metres Vacant industrial/residential land, residential and commercial properties 13,124 2010 13,124 JOHOR PLO 398 Kilang Siapbina PKENJ Jalan Perak Kawasan Perindustrian Pasir Gudang 81770 Pasir Gudang Leasehold expiring 18.04.2050 (Building age: 21 years) 24,057 Land and factory buildings for contract manufacturing and warehouse 2,149 2010 2,149 SABAH Lot 43A Karamunsing Warehouse 88000 Kota Kinabalu Leasehold expiring 22.01.2901 (Building age: 26 years) Lot 5 Lorong Tembaga Tiga Kawasan MIEL KKIP Selatan Kota Kinabalu Industrial Park Menggatal 88450 Kota Kinabalu Leasehold expiring 29.05.2101 (Building age: 11 years) 11,832 18,287 3-storey corner warehouse and office 2,103 2010 1½-storey semi-detached warehouse 1,469 2010 3,572 annual report 2011 | 293 Kulim (Malaysia) Berhad (23370-V) Tenure Sq. Ft. Description Net Book Value @ 31.12.2011 RM’000 Year of Acquisition/ Revaluation 2,978 2010 QSR BRANDS BHD RESIDENTIAL PROPERTIES W.P. KUALA LUMPUR 90 Pinggir Zaaba Taman Tun Dr Ismail 60000 Kuala Lumpur Freehold (Building age: 20 years) 5,388 Double-storey detached house 2,978 NEGERI SEMBILAN Unit Nos 1D, 1E, 1F, 1G & 2D Marina Bay Admiral Cove 71000 Port Dickson Leasehold expiring 27.07.2094 (Building age: 14 years) 3,251 5 units of condominium for staff training and recreation 953 2010 953 PAHANG Unit No. 3556 Block B Awana Golf & Country Resort 69000 Genting Highlands Freehold (Building age: 24 years) 1,399 Condominium for staff training and recreation 318 2010 Unit No. A7-22 (P) Amber Court Villa D’Genting Resort 69000 Genting Highlands Freehold (Building age: 17 years) 2,386 Condominium for staff training and recreation 299 2010 Unit No. B1-22 (P) Amber Court Villa D’Genting Resort 69000 Genting Highlands Freehold (Building age: 17 years) 2,429 Condominium for staff training and recreation 304 2010 Unit No. B1-16 Level 16 Amber Court Villa D’Genting Resort 69000 Genting Highlands Freehold (Building age: 17 years) 1,214 Condominium for staff training and recreation 141 2010 1,062 TOTAL – FOODS AND RESTAURANTS 524,924 Kulim (Malaysia) Berhad (23370-V) 294 | annual report 2011 PROPERTIES OF THE GROUP IN MALAYSIA (continued) Tenure Hectares/ ’000 Sq. Ft. Description Net Book Value @ 31.12.2011 RM’000 Year of Acquisition/ Revaluation SINDORA BERHAD 60 years lease expiring on 24.11.2059 (Building age: 12 years) 2.56/ Industrial land and building 120 2000 60 years lease expiring on 30.01.2041 (Building age: 29 years) /2,344 Industrial land and building for office and factory 6,880 1983 60 years lease expiring on 30.01.2041 (Building age: 26 years) /5 Factory building 41 1986 No. 1, Jalan Temenggong 10 Bandar Tenggara 81000 Kulai, Johor Leasehold expiring on 18.04.2085 (Building age: 25 years) /6 1 unit of double-storey bungalow (staff residence) 53 1987 No. 6, 6A, 6B, 37, 37A, 37B, 41, 41A, 41B Jalan Perang, Taman Pelangi 80000 Johor Bahru, Johor Freehold (Building age: 30 years) /8 4 units of 3-storey shophouses 3,360 1982 No. 17, Jalan Resam Green Plains, Taman Bukit Tiram 81800 Ulu Tiram, Johor Leasehold (Building age: 22 years) 0.5699/ 583 1990 Sindora Timber Complex Lot 1384 Industrial Area Phase 1 Bandar Tenggara 81000 Kulai, Johor 1 unit of double-storey bungalow (staff residence) 11,037 PRO OFFICE SOLUTIONS SDN BHD Wisma Pro Office No. 6, Jalan SBC 6 Taman Sri Batu Caves 68100 Batu Caves, Selangor Freehold (Building age: 7 years) /22.8 Office building 4,256 2005 4,256 E.A. TECHNIQUE (M) SDN BHD Setiawangsa Business Suites Unit C-3A-3A No. 2, Jalan Setiawangsa II Taman Setiawangsa 54200 Kuala Lumpur Freehold (Building age: 6 years) /6.402 Office building 1,535 1,535 TOTAL – INTRAPRENEUR VENTURES 16,828 2006 annual report 2011 | 295 Kulim (Malaysia) Berhad (23370-V) PROPERTIES OF THE GROUP IN PAPUA NEW GUINEA Mature Hectares 31.12.2011 Net Book Value @ 31.12.2011 K’000 Year of Acquisition Bebere 1,958 5,656 1968-1990, 2005 Kumbango 2,323 6,781 1972-1985, 2005 1,320 8,501 1979-1985, 2005 907 1,989 1969-2000, 2005 6,508 22,927 Numundo 1,617 3,487 1996-2001, 2005 Haella 2,941 8,864 1999-2001, 2005 2,562 3,602 1998-2000 687 3,465 1980-1988 7,807 19,418 2,614 16,604 1986-2000 1,350 5,338 1996-1999 2,590 18,150 1995-1999 Tenure Description NEW BRITAIN PALM OIL LIMITED MOSA GROUP Togulo Freehold Mature Oil Palm and Development Costs Dami and Waisisi NUMUNDO GROUP Garu Freehold Mature Oil Palm and Development Costs Navarai KAPIURA GROUP Kautu Freehold Kaurausu Freehold Bilomi Freehold Malilimi Freehold 1,974 11,810 1983-1998 Moroa Leasehold 807 2,305 2003 Rigula Leasehold 2,520 15,260 2005 11,855 69,467 204 1,156 Mature Oil Palm and Development Costs TALASEA GROUP Lotogam Natupi Volupai Leasehold Mature Oil Palm and Development Costs Gororu Lolokoru 2002 163 746 2003 1,060 7,050 2004-2005 66 2,504 2008 2,033 23,255 2005 3,526 34,711 2,058 6,903 2003 1,773 10,122 2004-2005 3,831 17,025 33,527 163,548 KULU-DAGI GROUP Dalaivu Sapuri Leasehold Total – New Britain Palm Oil Limited Mature Oil Palm and Development Costs Kulim (Malaysia) Berhad (23370-V) 296 | annual report 2011 PROPERTIES OF THE GROUP IN PAPUA NEW GUINEA (continued) Mature Hectares 31.12.2011 Net Book Value @ 31.12.2011 K’000 Year of Acquisition 3,687 18,177 2008 2,477 12,212 2008 6,164 30,389 8,237 21,640 2010 9,844 39,633 2010 5,319 4,621 2010 Total – Kula Palm Oil Limited 23,400 65,894 GRAND TOTAL – PAPUA NEW GUINEA 63,091 259,831 Tenure Description RAMU AGRI-INDUSTRIES LIMITED Gusap Leasehold Dumpu Leasehold Mature Oil Palm and Development Costs Total – Ramu Agri-Industries Limited KULA PALM OIL LIMITED Higaturu Leasehold Milne Bay Leasehold Poliamba Leasehold Mature Oil Palm and Development Costs PROPERTIES OF THE GROUP IN THE SOLOMON ISLANDS Mature Hectares 31.12.2011 Net Book Value @ 31.12.2011 K’000 1,413 3,662 2004 1,538 5,588 2004 Mbalisuna 2,396 10,696 2004 GRAND TOTAL – SOLOMON ISLANDS 5,347 19,946 Tenure Description Year of Acquisition GUADALCANAL PLAINS PALM OIL LIMITED Tetere Ngalimbiu Leasehold Mature Oil Palm and Development Costs annual report 2011 | 297 Kulim (Malaysia) Berhad (23370-V) NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the Thirty Seventh (37 th) Annual General Meeting of Kulim (Malaysia) Berhad will be held at Lecture Hall 1 & 2, Level 1, KFCH International College, Johor Bahru Campus, No. 1, Jalan Dato’ Onn 1, Bandar Dato’ Onn, Johor Bahru, Johor, Malaysia on Tuesday, 26 June 2012 at 12:00 noon, for the following purposes: ORDINARY BUSINESS 1. To receive and adopt the Directors’ and Auditors’ Reports and Audited Financial Statements in respect of the year ended 31 December 2011. 2. To re-elect the following Directors who retire in accordance with the Company’s Articles of Association: 3. Resolution 1 (i) Datin Paduka Siti Sa’diah Sh Bakir Resolution 2 (ii) Datuk Haron Siraj Resolution 3 (iii) Zulkifli Ibrahim Resolution 4 (iv) Datuk Ahmad Zaki Zahid Resolution 5 (v) Leung Kok Keong Resolution 6 (vi) Natasha Kamaluddin Resolution 7 (vii) Wan Mohd Firdaus Wan Mohd Fuaad Resolution 8 To consider, and if thought fit, to pass the following resolution pursuant to Section 129(6) of the Companies Act, 1965 (“Act”); Resolution 9 “THAT Tan Sri Dato’ Seri Arshad Ayub, who is over the age of seventy (70) years, be hereby re-appointed as Director of the Company to hold office until the next Annual General Meeting (“AGM”) of the Company.” 4. To approve the payment of Directors’ fees in respect of the financial year ended 31 December 2011. Resolution 10 5. To re-appoint Messrs Ernst & Young as Auditors of the Company and to authorise the Directors to fix their remuneration. Resolution 11 6. SPECIAL BUSINESS To consider and, if thought fit, to pass the following resolutions: 6.1 Ordinary Resolution Authority to Allot and Issue Shares Pursuant to Section 132D of the Act “THAT pursuant to Section 132D of the Act, full authority be and is hereby given to the Directors to issue shares of the Company from time to time upon such terms and conditions and for such purposes as the Directors may in their absolute discretion deem fit provided that the aggregate number of shares to be issued pursuant to this resolution does not exceed ten percent (10%) of the issued share capital of the Company and that such authority shall continue in force until the conclusion of the next AGM of the Company, and that the Directors be and is hereby empowered to obtain the approval of the Bursa Malaysia Securities Berhad (“Bursa Securities”) for the listing and quotation for the new shares so issued.” (See Explanatory Note 1 on Special Business below) Resolution 12 Kulim (Malaysia) Berhad (23370-V) 298 | annual report 2011 NOTICE OF ANNUAL GENERAL MEETING (continued) 6.2 Ordinary Resolution Proposed Renewal of Shareholders’ Mandate to Enable the Company to Purchase up to 10% of its Issued and Paid-up Share Capital (“Proposed Renewal of Share Buy-Back Authority”) “THAT subject to the Act, rules, regulations and orders made pursuant to the Act, provisions of the Company’s Memorandum and Articles of Association and the Listing Requirements of Bursa Securities (“Listing Requirements”) and any other relevant authority, the Company be and is hereby authorised to purchase and/ or hold such amount of ordinary shares of RM0.25 each in the Company’s issued and paid-up share capital through Bursa Securities upon such terms and conditions as the Directors may deem fit in the interest of the Company provided that:(a) the aggregate number of shares so purchased and/or held pursuant to this ordinary resolution (“Purchased Shares”) does not exceed ten percent (10%) of the total issued and paid-up share capital of the Company at any one time; and (b) the maximum amount of funds to be allocated for the Purchased Shares shall not exceed the aggregate of the retained profits and/or share premium of the Company; AND THAT the Directors be and are hereby authorised to decide at their discretion either to retain the Purchased Shares as treasury shares (as defined in Section 67A of the Act) and/or to cancel the Purchased Shares and/or to retain the Purchased Shares as treasury shares for distribution as share dividends to the shareholders of the Company and/or be resold through Bursa Securities in accordance with the relevant rules of Bursa Securities and/or cancelled subsequently and/or to retain part of the Purchased Shares as treasury shares and/or cancel the remainder and to deal with the Purchased Shares in such other manner as may be permitted by the Act, rules, regulations, guidelines, requirements and/or orders of Bursa Securities and any other relevant authorities for the time being in force; AND THAT the Directors be and are hereby empowered to do all acts and things (including the opening and maintaining of a central depositories account(s) under the Securities Industry (Central Depositories) Act, 1991 and to take such steps and to enter into and execute all commitments, transactions, deeds, agreements, arrangements, undertakings, indemnities, transfers, assignments, and/or guarantees as they may deem fit, necessary, expedient and/or appropriate in the best interest of the Company in order to implement, finalise and give full effect to the Proposed Renewal of the Share Buy-Back Authority with full powers to assent to any conditions, modifications, variations (if any) as may be imposed by the relevant authorities; AND FURTHER THAT the authority conferred by this ordinary resolution shall be effective immediately upon passing of this ordinary resolution and shall continue in force until the conclusion of the next AGM of the Company or the expiry of the period within which the next AGM of the Company is required by law to be held (whichever is earlier), unless earlier revoked or varied by ordinary resolution of the shareholders of the Company in general meeting, but shall not prejudice the completion of purchase(s) by the Company before that aforesaid expiry date and in any event in accordance with provisions of the Listing Requirements and other relevant authorities.” (See Explanatory Note 2 on Special Business below) Resolution 13 annual report 2011 | 6.3 299 Kulim (Malaysia) Berhad (23370-V) Ordinary Resolution Proposed Renewal of Existing Shareholders’ Mandate for Recurrent Related Party Transactions (“RRPT”) of a Revenue and/or Trading Nature and New Mandate for Additional RRPT of a Revenue and/or Trading Nature (“Proposed Shareholders’ Mandate for RRPT”) Resolution 14 “THAT authority be and is hereby given in line with Paragraph 10.09 of the Listing Requirements, for the Company, its subsidiaries or any of them to enter into any of the transactions falling within the types of the RRPT, particulars of which are set out in the Circular to Shareholders dated 1 June 2012 (“the Circular”), with the Related Parties as described in the Circular, provided that such transactions are of revenue and/or trading nature, which are necessary for the day-to-day operations of the Company and/or its subsidiaries, within the ordinary course of business of the Company and/or its subsidiaries, made on an arm’s length basis and on normal commercial terms which those generally available to the public and are not detrimental to the minority shareholders of the Company; AND THAT such authority shall commence immediately upon the passing of this ordinary resolution until:(a) the conclusion of the next AGM of the Company following the general meeting at which the ordinary resolution for the Proposed Shareholders’ Mandate for RRPT is passed, at which time it shall lapse, unless the authority is renewed by a resolution passed at the next AGM; or (b) the expiration of the period within which the next AGM after the date it is required by law to be held; or (c) revoked or varied by ordinary resolution passed by the shareholders of the Company at a general meeting of the Company, whichever occurs first; AND FURTHER THAT the Directors of the Company be 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 or give effect to the Proposed Shareholders’ Mandate for RRPT.” (See Explanatory Note 3 on Special Business below) 6.4 Special Resolution Proposed Amendments to the Company’s Articles of Association “THAT the Articles of Association of the Company be and are hereby amended in the manner as set out in Section 4.1 of the Circular to Shareholders dated 1 June 2012; AND THAT the Directors of the Company be and are hereby authorised to give effect to the said amendments, alteration, modification and deletion to the Articles of Association of the Company as may be required by any relevant authorities as they deem fit, necessary or expedient in order to give full effect to the Proposed Amendments to the Company’s Articles of Association.” (See Explanatory Note 4 on Special Business below) 7. To transact any other business of which due notice shall have been given. BY ORDER OF THE BOARD IDHAM JIHADI ABU BAKAR. ACIS (MAICSA 7007381) NURALIZA A. RAHMAN (LS 0008565) Company Secretaries Johor Bahru, Johor 1 June 2012 Resolution 15 Kulim (Malaysia) Berhad (23370-V) NOTICE OF ANNUAL GENERAL MEETING (continued) NOTES: Proxy 1. A member of the Company entitled to be present and vote at the Annual General Meeting may appoint a proxy or proxies to be present and vote instead of him. A proxy may but need not be a member of the Company. 2. The instrument appointing a proxy shall be in writing under the hand of the appointor or his attorney duly authorised in writing or if the appointor is a corporation, under its common seal or signed by its attorney or by an officer on behalf of the corporation. 3. Where a member of the Company is an authorised nominee as defined under the Securities Industry (Central Depositories) Act, 1991, he may appoint at least one (1) proxy in respect of each securities account he holds with ordinary shares of the Company standing to the credit of the said securities account. 4. The instrument appointing a proxy, together with the power of attorney (if any) under which it is signed or a certified copy thereof, shall be deposited at the registered office of the Company at Suite 12B, Level 12, Menara Ansar, 65 Jalan Trus, 80000 Johor Bahru, Johor at least forty-eight (48) hours before the time appointed for holding the meeting or adjourned meeting at which the person named in such instrument proposes to vote; otherwise the person so named shall not be entitled to vote in respect thereof. Explanatory Notes on Special Business: 1. Ordinary Resolution 12 – Proposed renewal of the authority for Directors to issue shares The proposed Ordinary Resolution 12 is proposed for the purpose of granting a renewed general mandate for issuance of shares by the Company under Section 132D of the Act. The Ordinary Resolution 12, if passed, will give the Directors of the Company authority to issue ordinary shares in the Company at any time in their absolute discretion without convening a General Meeting. The authorisation, unless revoked or varied by the Company at a General Meeting, will expire at the conclusion of the next AGM of the Company. The Company had, at the 36th AGM held on 23 June 2011, obtained its shareholders’ approval for the general mandate for issuance of shares pursuant to Section 132D of the Companies Act, 1965 (“the Act”). The Company did not issue any new shares pursuant to this mandate obtained as at the date of this notice. The Ordinary Resolution 12 proposed under item 6.1 of the Agenda is a renewal of the general mandate for issuance of shares by the Company under Section 132D of the Act. At this juncture, there is no decision to issue new shares. If there should be a decision to issue new shares after the general mandate is obtained, an announcement will be made by the Company in respect of the purpose and utilisation of proceeds arising from such issue. The general mandate if granted will provide flexibility to the Company for any possible fund raising activities, including but not limited to further placing of shares, for the purpose of funding future investment project(s), working capital and/or acquisition(s). 2. Ordinary Resolution 13 – Proposed Renewal of the Share Buy-Back Authority Ordinary Resolution 13, if passed, will enable the Company to utilise any of its surplus financial resources to purchase its own shares through Bursa Securities up to 10% of the issued and paid-up capital of the Company. This authority will, unless revoked or varied at a General Meeting, expire at the conclusion of the next AGM of the Company. Further information on the Proposed Renewal of the Share Buy-Back Authority are set out in the Circular to Shareholders of the Company dated 1 June 2012, which is dispatched together with the Company’s Annual Report for the year ended 2011. 3. Ordinary Resolution 14 – Proposed Shareholders’ Mandate for RRPT The proposed Ordinary Resolution 14 if passed is primarily to authorise the Company and/or its unlisted subsidiaries to enter arrangements or transactions with Related Parties, particulars of which are set out in Section 3.2, 3.3 and 3.4 of the Circular to Shareholders dated 1 June 2012, which is dispatched together with the Company’s Annual Report for the year ended 2011, which are necessary for the day-to-day operations of the Group and are based on normal commercial terms that are not more favourable to the Related Parties than those generally made available to the public. 4. Special Resolution – Proposed Amendments to the Company’s Articles of Association The proposed Special Resolution/Resolution 15, if passed, will give authority to the Directors to amend the Company’s Articles of Association in order to be in line with the new Listing Requirements of Bursa Malaysia Securities Berhad, prevailing statutory and regulatory requirements, and to update the Articles of Association of the Company. Further explanatory notes on Resolution 15 are set out in the Circular to Shareholders dated 1 June 2012, which is dispatched together with the Company’s Annual Report for the year ended 2011. 300 | annual report 2011 annual report 2011 | 301 Kulim (Malaysia) Berhad (23370-V) STATEMENT ACCOMPANYING NOTICE OF ANNUAL GENERAL MEETING PURSUANT TO PARAGRAPH 8.28(2) OF THE LISTING REQUIREMENT OF THE BURSA MALAYSIA 1. Directors who are standing for re-election at the 37th Annual General Meeting are as follows: (i) Datin Paduka Siti Sa’diah Sh Bakir (ii) Datuk Haron Siraj (iii) Zulkifli Ibrahim (iv) Datuk Ahmad Zaki Zahid (v) Leung Kok Keong (vi) Natasha Kamaluddin (vii) Wan Mohd Firdaus Wan Mohd Fuaad Particulars of Directors seeking re-election at the Annual General Meeting are set out in the Directors’ Profile appearing in pages 44 to 52 of the Annual Report. 2. The 36th Annual General Meeting of the Company was held at Bilik Permata 3, Level B2, The Puteri Pacific Hotel Johor Bahru, Jalan Abdullah Ibrahim, 80000 Johor Bahru, Johor, Malaysia on Thursday, 23 June 2011 at 12:00 noon. 3. A total of eight (8) Board meetings were held during the financial year ended 31 December 2011. Details of attendance of Directors at Board meetings held during the financial year ended 31 December 2011 are as follows: Special BOD 12.1.2011 265th BOD 10.2.2011 266th BOD 23.6.2011 267th BOD 5.8.2011 Special BOD 16.8.2011 Special BOD 4.11.2011 Kamaruzzaman Abu Kassim ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ Ahamad Mohamad ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ Tan Sri Dato’ Seri Arshad Ayub ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ Kua Hwee Sim ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ Wong Seng Lee ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ Datin Paduka Siti Sa’diah Sh Bakir ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ Zulkifli Ibrahim – – – ✔ ✔ ✔ ✔ ✔ Datuk Ahmad Zaki Zahid – – – – – – ✔ ✔ Datuk Haron Siraj ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ Dr. Radzuan A. Rahman ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ Rozan Mohd Sa’at ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ Leung Kok Keong – – – – – – ✔ ✔ Natasha Kamaluddin – – – – – – ✔ ✔ Wan Mohd Firdaus Wan Mohd Fuaad – – – – – – ✔ ✘ Notes: (i) Zulkifli Ibrahim – appointed on 1.7.2011 (ii) Datuk Ahmad Zaki Zahid – appointed on 8.11.2011 (iii) Leung Kok Keong – appointed on 9.11.2011 (iv) Natasha Kamaluddin – appointed on 9.11.2011 (v) Wan Mohd Firdaus Wan Mohd Fuaad – appointed on 9.11.2011 Special BOD 268th BOD 15.12.2011 22.12.2011 Kulim (Malaysia) Berhad (23370-V) 302 STATEMENT ACCOMPANYING NOTICE OF ANNUAL GENERAL MEETING Meeting Date of Board Meeting Time | annual report 2011 (continued) Venue Special BOD 12 January 2011 2:30 pm Bilik Sekijang 403, Level 4, Persada Johor International Convention Centre, Jalan Abdullah Ibrahim, Johor Bahru BOD 265th 10 February 2011 9:30 am Bilik Sekijang 403, Level 4, Persada Johor International Convention Centre, Jalan Abdullah Ibrahim, Johor Bahru BOD 266th 23 June 2011 9:30 am Berlian Room, Level B2, The Puteri Pacific Hotel, Jalan Abdullah Ibrahim, Johor Bahru BOD 267th 5 August 2011 9:30 am Office of Kulim (Malaysia) Berhad, Ulu Tiram Estate, Ulu Tiram, Johor Special BOD 16 August 2011 1:00 pm Meeting Room, Level 11, Menara JCorp, No. 249 Jalan Tun Razak, Kuala Lumpur Special BOD 4 November 2011 11:00 am Meeting Room, Level 11, Menara JCorp, No. 249 Jalan Tun Razak, Kuala Lumpur Special BOD 15 December 2011 2:30 pm Meeting Room, Level 17, Wisma KFC, No. 17 Jalan Sultan Ismail, Kuala Lumpur BOD 268th 22 December 2011 9:30 am Bilik Sekijang 403, Level 4, Persada Johor International Convention Centre, Jalan Abdullah Ibrahim, Johor Bahru FORM OF PROXY No. of ordinary shares CDS account no. I/We * (Full name and NRIC No. / Company No. in block letters) of (Full address in block letters) being a member(s) of KULIM (MALAYSIA) BERHAD hereby appoint (Full name in block letters) of (Full address in block letters) or failing him/her (Full name in block letters) of (Full address in block letters) or failing him/her, the Chairman of the meeting as my/our proxy to vote for me/us* on my/our* behalf at the 37th Annual General Meeting of the Company to be held at Lecture Hall 1 & 2, Level 1, KFCH International College, Johor Bahru Campus, No. 1, Jalan Dato’ Onn 1, Bandar Dato’ Onn, Johor Bahru, Johor, Malaysia on Tuesday, 26 June 2012 at 12:00 noon and at any adjournment thereof in respect of my/our holdings of shares in the manner indicated below: Resolution 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Description For Against To adopt the Directors’ and Auditors’ Reports and Audited Financial Statements 2011 To re-elect Director – Datin Paduka Siti Sa’diah Sh Bakir To re-elect Director – Datuk Haron Siraj To re-elect Director – Zulkifli Ibrahim To re-elect Director – Datuk Ahmad Zaki Zahid To re-elect Director – Leung Kok Keong To re-elect Director – Natasha Kamaluddin To re-elect Director – Wan Mohd Firdaus Wan Mohd Fuaad To re-appoint Director - Tan Sri Dato’ Seri Arshad Ayub To approve payment of Directors’ fees To re-appoint Messrs Ernst & Young as auditors Authority to allot and issue shares Proposed Renewal of Share Buy-Back Proposed Shareholders’ Mandate for RRPT Proposed Amendments of Company’s Articles of Association Any other business (Please indicate with a (√) in the appropriate box whether you wish your vote to be cast for or against the resolution. In the absence of specific direction, your proxy will vote or abstain as he/she thinks fit. However, if more than one proxy is appointed, please specify in the table below the number of shares represented by each proxy, failing which the appointment shall be invalid) Proportion of shares held Name of proxy 1: NOTE: 1. A member of the Company entitled to be present and vote at the Annual General Meeting may appoint a proxy or proxies to be present and vote instead of him. A proxy may but need not be a member of the Company. Name of proxy 2: Total number of shares held 2. The instrument appointing a proxy shall be in writing under the hand of the appointor or his attorney duly authorised in writing or if the appointor is a corporation, under its common seal or signed by its attorney or by an officer on behalf of the corporation. 3. Where a member of the Company is an authorised nominee as defined under the Securities Industry (Central Depositories) Act, 1991, he may appoint at least one (1) proxy in respect of each securities account he holds with ordinary shares of the Company standing to the credit of the said securities account. Signature(s)/Common Seal of Shareholder(s) Dated this day of 2012 4. The instrument appointing a proxy, together with the power of attorney (if any) under which it is signed or a certified copy thereof, shall be deposited at the registered office of the Company at Suite 12B, Level 12, Menara Ansar, 65 Jalan Trus, 80000 Johor Bahru, Johor at least forty-eight (48) hours before the time appointed for holding the meeting or adjourned meeting at which the person named in such instrument proposes to vote; otherwise the person so named shall not be entitled to vote in respect thereof. STAMP The Secretary KULIM (MALAYSIA) BERHAD Suite 12B, Level 12 Menara Ansar 65 Jalan Trus 80000 Johor Bahru Johor, Malaysia