2016 Synopsis
Digital annual report 2016
Management Discussion & Analysis

"DEAR SHAREHOLDERS, The financial year under review posed numerous challenges to businesses across the globe, both on the international and domestic front. Domestic business sentiment was among others, affected by a sluggish economic environment amid the weakening ringgit and cuts in government spending."

On the international front,uncertainty surrounded commodity prices while the Oil and Gas (“O&G”) sector struggled to find their footing in one of the industry’s worst downturns and planters had to contend with diminished yield at a time of rising Crude Palm Oil (“CPO”) prices.

In addition, global economies were also adjusting to market volatility arising from political changes,further compounding unpredictability on the outlook for global trade.

These were the global economic landscape and challenges that Kulim (Malaysia) Berhad’s (“Kulim” or “The Group”) faced in year 2016, and the dynamics of our effectiveness and responses to these challenges have helped us emerge leaner, stronger and with greater determination to forge ahead towards a better future.

Commodity price volatility dominated the scene during the year under review, and left a profound impact on the operations and financial performance of Kulim, whose earnings predominantly comes from the plantations business.

Kulim’s plantation business encompasses the entire cycle of plant breeding, tissue culture, nursery, and oil palm plantation right up to palm oil milling for the production of CPO and Palm Kernel (“PK”).

Overall, it was a year of mixed fortunes for Kulim because the erratic weather and dry spells had affected flowering and fruit production, and consequently crop output, which in turn led to higher CPO prices, whilst a weaker local currency led to higher costs.

Foreign exchange fluctuations and volatility in crude oil prices too had left an impact on our O&G operations, the Group’s second largest earnings contributor.

The Group ended its financial year on 31 December 2016 with an 11.76% growth in revenue to RM1.61billion, aided by the surging CPO prices, to better its 2015 achievement of RM1.44 billion. While the PBT was decrease by 49.14% in 2016 to RM59.92 million, from RM117.80 million previously mainly due to the requirement of the Group's prior year adjustment as well as impairment.

Of this, the Plantation segment contributed 56%, or RM899.52 million, and O&G operations 39% or RM626.17 million that year, whilst the remainder came from other businesses.

Though faced with plunging crude oil prices, O&G Division managed to edge up by charting its course with key subsidiary E.A.Technique (M) Bhd, which continued to stay afloat with existing contracts to provide marine transportation and offshore O&G storage services.

Unfortunately, the Group had to contend with lower crop yields, low oil prices that affected the sentiment in the overall O&G sector, as well as a beleaguered local currency that inevitably raised operating costs.

The Malaysian Ringgit fell to its lowest levels in years, slipping as much as 4.3% against the US Dollar to its 19-year low in 2016 after losing 18.5% in 2015, and tumbled further to RM4.50 against the greenback in at the beginning of 2017.

Kulim has performed relatively well in 2016, field costs contained at RM266 per tonne FFB, similar to the budget estimates. However, it was an increase as compared to RM252 per tonne achieved last year mainly due to lower crop production in 2016. Whilst, our milling costs stood at RM46.68 per tonne FFB, beating our own budget estimates by 0.76%.





The performance of the Plantation Division was swayed by several key factors, namely the erratic weather conditions, crop yield, global commodity price trends, and operating efficiency.

Palm oil prices rallied in 2016 as yields fell during the year amid lingering drought damage. Since January 2016 CPO prices climbed steadily from the September 2015 low of USD538 per tonne to peak at USD783 per tonne in December 2016. This represented a massive 38% jump from the beginning of the year and a whopping 45% increase from September 2015.

This had helped to boost revenue for the Plantation segment by a significant 15.73% to RM899.52 million, while pre-tax profit increased by 71.58% to RM98.98 million.

During the year, we managed to achieve average CPO prices of RM2,532 tonne for our Malaysian operations, which was well above the RM2,191 tonne average attained a year earlier.

We also recorded a higher PK price of RM2,387 tonnes in 2016 for our Malaysian operations,compared with RM1,534 per tonne previously.

However, drought damage diminished production growth, causing Kulim’s Fresh Fruit Bunches (“FFB”) output to shrinkby 3.92% to 851,435 tonnes and consequently reducing CPO production by 7.10% to 273,354 tonnes during the year.

This brought the yield per hectare in 2016 to 20.86 tonnes compared to 22.50 tonnes recorded in year 2015.

In 2016, total FFB processed was also lower by 5.03% at 1,339,659 tonnes while Oil Extraction Rate (“OER”) stood at 20.40%, markedly lower than that of 20.86% achieved in 2015.

To mitigate the impact, we implemented Good Agricultural Practices ("GAP") and enhanced the use of natural organics material,such as using fronds to help in soil conservation and Empty Fruit Bunches ("EFB") for mulch to retain moisture and return organic matter to soil.
At a more advanced level, we have long invested in mechanisation to reduce dependency on labour,increase the productivity and enhance the harvesting process alongside the use of more elite planting materials, such as sowing seeds of high-yielding crosses. This year, we have continue the mechanisation of oil palm operation; namely using motorised harvesting poles – Cantas and motorized sickles - Ckat,to some 1,164 hectares of oil palm area, with the ever rising labour costs, we believe mechanization is the way forward for the oil palm industry.
                                            In all, Kulim spent RM96.83 million in capital expenditure (“capex”) for plantation in 2016 mainly for replanting at our estates in Malaysia.

The capex is 16% lower than the RM114.80 million spent in 2015, due to smaller replanting area in 2016 at 1,050 hectares as compared to 1,182 hectares replanted in 2015.

Our continuous replanting efforts on a staggered basis to improve the age profile of our palms also bore fruit, as high yielding clones enabled us to reap better yields.

Our prime trees of between 9 and 18 years constitute around 47% of our total planted area.

Kulim currently has a total landbank of 51,033 hectares in Malaysia, of which 93% has been planted with oil palm and 3,500 hectares are slated for replanting in 2017.

In 2016, Kulim expanded its footprint to Indonesia through the acquisition of four estates, to add more than 100,000 hectares to its plantation landbank.

On 10 February 2016, Kulim had signed an agreement via its 74%-owned subsidiary PT Wisesa Inspirasi Nusantara(“PTWIN”) to acquire the four (4) mid-sized oil palm plantation companies that owned the four (4) Indonesian estates for a total of IDR1.64 trillion (approximately RM509.35 million).

The four (4) companies are PT Nusa Persada Indonesia (“PT NPI”), PT Surya Panen Subur (“PTSPS”), as well as PT Tempirai Palm Resources (“PT TPR”) and PT Rambang Agro Jaya (“PT RAJ”) of the Amara Group

The four (4) companies collectively held about 100,424 hectares of plantation land with Izin Usaha Perkebunan ("IUP"), of which 33,489 hectares have been planted with oil palm.

PT WIN officially took over the two (2) estates of PT RAJ and Pt TPR on 23 June 2016. These estates, which are located in South Sumatera, stretches across 14,397 hectares areas secured with Hak Guna Usaha (“HGU”) while 8,345 hectares of planted area and 4,316 hectares with matured trees.

Our first harvest was in August 2016 amounting to 1,041 tonnes of FFB, which was sold to a third party mill at an average price of IDR1.35 million (approximately RM 450 per tonne), with the low production attributable to poor ground accessibility and lower fruit yield palms.

Subsequently,we initiated the rehabilitation process including infrastructure improvements to facilitate speedier revenue generation,and measures to head towards compliance with Roundtable on Sustainable Palm Oil ("RSPO") and Indonesian Sustainable Palm Oil ("ISPO"). Plans are also afoot to prepare for new planting using high yielding clones, on a staggered basis from 2018.

Our aim is to fully rehabilitate the two (2) estates over a period of three (3) years beginning with 500 hectares in 206. For the PT RAJ estate, we began the rehabilitation with 500 hectares in 2016, followed by 2,000 hectares in 2017 and 2,000 hectares in 2018. These will bring the complete rehabilitated total planted areas to 9,000 hectares for both estates upon completion of the exercises.

As for Kulim’s estate in North Barito, Central Kalimantan,where it has 307 hectares of planted areas, there were no further developments in 2016 due to some regulatory issues.However, we are currently ironing out the matters as well as to ensure compliance with all requirements, because as an RSPO-certified palm oil Group, it is our belief that true sustainability requires a harmonious balance of economic,social and environmental factors.

CPO prices are expected to remain firm as it gathers pace in early 2017, though there is a likelihood it may ease towards the later part of the year as yields improve and output increases following better weather conditions in the later part of 2016 and early 2017.

In view of this, we expect that the Plantation Division to continue to present a satisfactory showing in the year ahead, and with greater demand from the biodiesel sector helping to stabilise demand for palm oil.
Oil and Gas


Oil & GAs

The O&G segment was stable in 2016, posting revenue of RM626.17 million as compared to the preceding year at RM569.78 million, despite a highly volatile crude oil price during the year, but suffered from the effects of a weaker local currency.

The benchmark Brent oil price collapsed to USD26 per barrel in early 2016 and sending rig counts plunging across the globe as industry players scaled back on exploration and production activities and as oil majors mulled a production freeze to arrest the price decline.

Oil prices rose above the USD50 level by mid-2016 but eventually slipped below USD40 per barrel in August after a production freeze agreement failed to materialise from an OPEC meeting. Only after OPEC agreed to cut production in the fourth quarter of the year did we see oil prices strengthening to around USD55 per barrel towards the end of the year. It averaged at around USD49 per barrel in the fourth quarter of 2016, buoyed by the decision on output reduction by oil producers.

According to the World Bank, despite the rebound in 2016 the annual average oil price remains 16% below 2015 levels.

The volatile oil prices had little effect on our nascent Exploration and Production (“E&P”) venture in Indonesia, as it is still at an early stage, but it had affected the O&G sector globally, indirectly posing a tremendous challenge to our marine vessel operations that supports the O&G sector.

In 2016, EA Tech contributed RM591.66 million to Group revenue, an increase of 10.28% from revenue in 2015 of RM536.53 million. Pretax profit fell 56% to RM21.54 million, which is a 36.18% increase RM15.82 million achieved in 2015.

Following EA Tech’s listing in 2014, it was able to improve its cash position thus enabling it to acquire additional vessels in a chemical tanker and an oil tanker in mid-2016 and to take in further orders from customers. A couple of harbour tug boats were also delivered to clients in 2016.

Although EA Tech’s planned joint-venture with MTC Engineering Sdn. Bhd. to provide floating services failed to materialise, the effort took off in a different perspective with EA Tech proposed to acquire the topside equipment from the former for USD24 million. The topside equipment, which included extended well test system, flare tower system,metering skid, cargo pump, quick release hook and helideck, are installed to create a complete processing system on a vessel in order to facilitate more efficient transportation,lifting and installation from the dockside onto the vessel.

During the year, EA Tech also acquired Libra Perfex Precision Sdn Bhd, a company that hires and charters marine vessels, at a purchase price of RM5 million, further adding synergy to its existing operations.

Another notable contributor to our O&G Division is engineering and quality assurance provider Danamin (M) Sdn Bhd (“Danamin”), which focuses on niche activities in specialised industries such as O&G, marine, petrochemical, and refineries.

Danamin’s 2016 revenue growth of 8.35% to RM34.50 million, against RM31.84 million in 2015, was mainly attributable to its Non-Destructive Testing (“NDT”) and fabrication activities, while provision quality assurance, integrity management and inspection services to the O&G industry play a lesser role.

Despite the marginal growth in revenue,the company’s earnings improved substantially, turning its pre-tax loss of RM4.75 million in 2015 into pre-tax profit of RM1.33 million in 2016. This was mainly due to the effectiveness in costs management, which includes review of manpower planning.

Despite a better showing in terms of revenue, the O&G Division was unable to completely offset the effects of the weaker Ringgit even with improved cost management.

Overall, O&G Division ended the year with a lower PBT of RM21.03 million, down 56.49% from RM48.34 million in 2015.

Outlook for the O&G Division
Market conditions for the offshore O&G industry was extremely challenging throughout 2016, but going forward, we expect the environment to improve as oil prices stabilise, which is timely for our upstream venture in Indonesia that is likely to begin to yield returns in about 2-3 years. We ventured into the South West Bukit Barisan (“SWBB”) Block E&P project, onshore West Sumatera Province under a production sharing contract in 2016 via acquisition of 60% equity in PT Citra Sarana Energi (“PT CSE”) by Kulim’s wholly-owned subsidiary, Kulim Energy Nusantara Sdn Bhd (“KENSB”). Currently the completion of the acquisition is subject to obtaining appropriate approvals. Depending largely on its commercial viability, production is targeted to begin in the second half of 2017, thus making us well positioned to capitalise on the anticipated upstream O&G recovery in the coming year.

In January, crude oil prices traded around USD53-55 per barrel following the commencement of production cuts and,according to The World Bank, are projected to average USD55 per barrel in 2017 (Source: Commodity Markets Outlook, Jan 2017, World Bank Quarterly Report). We continue to see bright prospects for EA Tech as it continues to leverage on its existing contracts whilst also securing new jobs from a recovering industry. This wider fleet of vessels has enabled us to meet greater and more diverse needs of our customers and we also see a renewal in demand for more supporting O&G activities amid anticipation in the market of an up tick in upstream activities in 2017.

In its 2016 Johor Budget, the Johor state government announced its decision to task the establishment of the Pengerang Local Authority to JCorp in order to attract more firms to invest in the Pengerang Integrated Petroleum Complex (PIPC),which is expected to begin operations in 2019. JCorp will also be developing the Pengerang Industrial Park (PIP) area that can house some 266 factories and offer an estimated 15,846 jobs.

On 16 January 2017, we celebrated the official launching of the Pengerang Local Authority, which will oversee the Pengerang Integrated Petroleum Complex (“PIPC”) industrial zone and its surrounding areas. The Local Authority will be administered by JCorp and its jurisdiction covers an area of 128,830 hectares of land in Pengerang.

This development will bode well for Kulim’s 8,000-hectare mixed property development projects in Pengerang, Kota Tinggi, which is located about 30 kilometres from Petroliam Nasional Bhd’s Refinery and Petrochemical Integrated Development (RAPID) project.

We foresee stable demand for properties in strategic areas in view of the developments such as RAPID, Pengerang Industrial Park and Pengerang’s role in the near future as a growth area and catalyst for the development of east Johor Corridor.



The overall financial performance of the IV Division was somewhat muted as the triumph from a turnaround in several ventures as well as higher revenue were overcome by higher operating costs resulting from the weaker currency.

In all, IV Division raked in RM57.61 million in revenue for 2016, down 10.07% from 2015’s RM64.06 million, the pre-tax profit has decreased by 35.23% from RM1.09 million to RM704,960.

Extreme Edge Sdn Bhd (“EESB”) remains its key earnings contributor, bringing with revenue of RM20.42 million, followed by MIT Insurance Brokers Sdn Bhd (“MIT”) and Kulim Safety Training and Services(“KSTS”). MIT secured a revenue of RM9.59 million while KSTS traded in RM3.29 million in sales for the year, locking in PBT of RM1.50 million and RM666,640 respectively.

The revenue improvement was mainly due to a strategic shift in business and marketing strategy, turnaround in several loss-making ventures, favourable new acquisitions and gain from sale of several ventures.
As in all business decisions, it was unfortunate that a couple of smaller ventures had stalled, which led to the subsequent disposal o f these non-performing ventures.

Network infrastructure and system provider Extreme Edge Sdn Bhd (“EESB”) had a taxing year, with revenue buckling 14% under the strain of lower contribution from subsidiary Sovereign Multimedia Resources Sdn Bhd (“SMR”). Following the completion of the Kedai Ayamas & Rasamas (“KARA”) project, SMR had narrowed its services solely to JCorp, resulting in a decline in revenue.

EESB’s operating expenses and administration cost was increase significantly in 2016 to RM18.38 mil from RM16.52 mil previously, and this helped it sustain its profit margins, which was also affected by the weaker currency. For the year, its PBT stood at RM2.44 million, down 19.49% from RM3.04 million in 2015. Nevertheless, EESB remained the IV Division’s core profit contributor, accounting for 37% of the Division’s bottom line in 2016. The insurance business also performed well during the year, with MIT obviously benefiting with the staff of Takaful Brokers, Mutual Sense Sdn Bhd, joining the company and bringing along their portfolio. MIT also found new major clients in Yayasan Pembangunan Ekonomi Islam Malaysia (“YaPEIM”), Dewan Bandaraya Kuala Lumpur (“DBKL”) and Bank Rakyat.

During the year, gross premiums rose to RM65.59 million compared to RM56.66 million in 2015.

MIT’s specialist services currently encompass four (4) practices, namely Financial Solutions (“FINSOL”), Specialty,Commercial and Employees Benefits, and to further broaden its earnings base,the insurance unit has now ventured beyond traditionally-regulated commercial insurance to diversify into Captive Insurance and Reinsurance. A captive insurer is wholly owned and controlled by its owners, insuring the risks of its owners and also allowing them to benefit from the captive insurer’s underwriting profits. The advantages include, among others, lower insurance costs and improved a broader coverage.

As a result, MIT’s PBT improved to RM1.50 million in 2016 from RM1.69 million previously.

During the period under review, Kulim Safety Training and Services Sdn Bhd (“KSTS”) posted an encouraging revenue increase of 26.54% to RM3.29 million from RM2.60 million in 2015, mainly attributed to its strategies to strengthen existence and establish wider reach through setting up additional outfit at the fast-developing RAPID project area in Pengerang. Correspondingly, pretax profit almost doubled to RM0.69 million from RM0.35 million recorded in 2015.

Going forward, KSTS remains committed to providing innovative, cost-effective and quality service and to treat of each contract as a partnership.

Outlook for the IV Division
We believe that the IV Division holds significant growth potential and we will continue to evaluate new ideas and opportunities that will allow us to unlock the value of the businesses nurtured under our IV initiative.

Our strategies going forward include, among others,efforts to strengthen existing businesses by leveraging on the Group’s knowledge, expertise and experience, as well as to support the growth of new investments. We will also consider harvesting matured ventures, exiting non-performing businesses, or divesting investments to optimise returns.

However, for businesses that hold significant potential, we will restructure the operations to make them more efficient in order to remain an ongoing entity. We aim to continue investing in new potential business ventures as well as ideas that provides an opportunity for the Group to further diversify its operations.



Although Kulim has built a strong portfolio in Plantation, Oil & Gas and Intrapreneur Ventures, we continue to look into opportunities that have healthy synergy with our core operations and supports long-term growth.

The progression into Agrofoods is akin to a chain feed, allowing us to promote green activities through natural recycling of compost and fruit waste to support our feedlot and cattle integration effort while, at the same time, supporting our partners and outgrowers in building up a successful venture and in support of the national food security programme.

During the year under review, Kulim made great strides in its Agrofoods Segment, with its feedlot activities generating some RM2.5 million from the sale of cattle whilst its pineapple plantation prospered with revenue of RM4.92 million.

The progression into Agrofoods is akin to a chain feed, allowing us to promote green activities through natural recycling of compost and fruit waste to support our feedlot and cattle integration effort while, at the same time, supporting our partners and outgrowers in building up a successful venture and in support of the national food security programme. 

During the year under review, Kulim made great strides in its Agrofoods Segment, with its feedlot activities generating some RM2.5 million from the sale of cattle whilst its pineapple plantation prospered with revenue of RM4.92 million.

As at 31 December 2016, the feedlots housed a total of 357 cattle, of which 287 heads are in Feedlot Bukit Nyamuk and 70 heads in Feedlot Lubuk Bakul. Whereas, under integration segment,cattle herd was 7,208 at end-2016 versus 7,346 heads as at end-2015. As at year-end 2016, we had a total cattle population of 7,565 heads, an increase of1.52% (2015: 7,452 heads) from the previous year's.

Starting from 1 January 2017, Kulim Livestock Sdn Bhd (“KLSB”), a wholly-owned subsidiary of Kulim in charge of the feedlot operations, will be taking over the management JCorp’s feedlot business which was previously under the care of the latter’s subsidiary, Ihsan Permata Sdn Bhd (“IPSB”). This development will see Kulim to manage as many as eight (8) feedlots with additional 600 heads per cycle of cattle under its care.

As one of the biggest producers of fresh pineapples in Malaysia for the local as well as export markets in the Middle East, East Asia and Singapore, we remain on track in our target to expand our pineapple plantation to about 1,000 hectares by 2019, from the current 182 hectares. The total productions for 2016 was 3,179 tonnes, an increase of 158% from the previous year.

Apart from producing fresh fruits, we are also looking into downstream produce such as tarts, jam, frozen yogurt and drinks under the brand of “Melita”. 

In a two prong approach to recycle waste and to reduce costs, pineapple waste will be collected by KLSB at least twice per week to be used as feed for livestock. This reduces our reliance on the relatively more costly palm kernel cake as a major feed ingredient and also environmentally friendly.


Kulim’s financial position remained stable in 2016, with positive cash balance and net gearing ratio of 0.38 times.

The disposal of New Britain Palm Oil Limited (“NBPOL”) boosted Kulim’s cash balance to RM1.58 billion as at end2015 and despite having paid generous cash repayment to shareholders under the privatisation exercise, the Group remains in positive cash position of RM530.78 million.

In 2016, JCorp took Kulim private via the SCR with cash repayment to the entitled shareholders of RM4.10 per Kulim share,providing minority shareholders with an opportunity to realise their investment in Kulim at a premium to the market price. Kulim was last traded at RM4.06 per share.

Under the SCR, a total capital repayment of approximately RM2.22 billion (including professional fees and incidental costs) was made to the Entitled Shareholders on 5 July 2016.

As a result of additional financing obtained for the Selective Capital Reduction and Repayment (“SCR”) exercise, which amounted to RM1.05 billion, Kulim’s total borrowings increased to RM2.04 billion as at 31 December 2016, compared to RM0.91 billion in 2015. Hence, net gearing ratio increased to 0.38 times from negative gearing of 0.11 times at end-2015.

At the same time, the Group also undertook a revaluation of its plantation landbank, resulting in an increase of RM448.64 million in its Property, Plant and Equipment while its capital base remained strong with Net Assets (“NA”) of RM4.18 billion as at end-2016. The net decrease in NA from previous year’s RM6.03 billion was majorly attributed to the SCR exercise which saw the capitalisation of Kulim’s Retained Earnings of RM2.70 billion for the purpose of Bonus Issue and another RM340.35 million for cancellation of Treasury Shares.


As a wholly-owned subsidiary of state-owned JCorp, following its privatisation, Kulim will be sharing JCorp’s mission in ‘Misi Kesinambungan Bisnes’ with JCorp being a catalyst for continued business growth in the state of Johor.

Plantation will remain as Kulim’s corebusiness while other non-core operations and assets will be reviewed and assessed accordingly for opportunities to realise their value. Productivity improvement a tour estates and palm oil mills will also be a continuing process in 2017, with key focus on improving the oil extraction rate. We also expect to generate greater renewable energy from biogas plant, which will allow us to save on electricity and reduce the use of diesel to power up the generators in our operating units.

As an on-going concern, Kulim will continue to practise good cash management and prudent investment decisions, including that for its expansion in Indonesia, with significant emphasis on cash conservation.

We are hopeful that there will be rapid progress in our efforts to improve plantation returns from our Indonesian estates and to raise their yields to the level that we see in our Malaysian plantations.

To boost returns from our South Sumatera estates, we are reviewing efforts to fast track the rehabilitation process and replanting with higher yielding clones. Such initiatives should bring the FFB yield levels closer to that of our Malaysian operations and we look forward to future earnings improvement.

As for the outstanding Conditional Share Purchase Agreement (“CSPA”) to acquire the two (2) plantation estates from PT Nusa Persada Indonesia (“PT NPI”) and PT Surya Panen Subur (“PT SPS”) of the Amara Group, we have decided not to proceed with the agreement following the expiry of the conditional period on 9 February 2017, considering several unresolved issues that may affect Kulim’s status as a RSPO-certified palm oil producer should we continued with the acquisition.

We also hope to make good progress with the O&G investment in Indonesia, and once we have met all the regulatory requirements, we should be able to commence production at the E&P block to generate future earnings for the Group.