HOME
  Segment Review
Digital annual report 2016
Segment Review - Plantation
In 2016, Kulim’s core plantation segment continued to operate in a very dynamic and volatile environment, significantly influenced by changes in weather pattern due to El Nino and the resulting lower yield led to Crude Palm Oil (“CPO”) prices peaking at a 20-month high of RM3,200/mt in December, as well as fluctuations in foreign exchange. The rapid growth of the palm oil industry has also brought about many new challenges to the sector’s sustainability and competitiveness. For the country, making inroads into new markets is critical to absorb the nation’s growing annual CPO production. The scenario in 2016 has seen better prices for the commodity but plantation players still need to embark on tight cost control measures.
INDUSTRY OVERVIEW


According to the Plantation Industries and Commodities Minister, Datuk Seri Mah Siew Keong, the El Nino effects in 2016 had led to a 13% decline in palm oil production at 17.32 million tonnes compared with 19.96 million tonnes in 2015, but the commodity’s price has averaged at RM3,200 per tonne against RM2,200 per tonne in January 2016. Exports of palm oil products declined by 8.2% in 2016 to 23.29 million tonnes from 25.37 million tonnes in the preceding year. In 2016, palm oil stocks also declined by 23.2% to 1.77 million tonnes, the lowest level since 2011. India remained the largest export market, accounting for 17.6% of total Malaysia palm oil exports in 2016 or 2.83 million tonnes, followed by European Union at 2.06 million tonnes and China at 1.88 million tonnes.

The increase in consumption was also boosted by the implementation of biodiesel blend by Malaysia and Indonesia, which was further propelled by competitive palm oil prices, mainly trading at a range between RM2,162 and RM2,678 during the year.

Total Malaysian oil palm planted area stood at 5.74 million hectares in 2016, up 3.2% from 5.64 million hectares in 2015, mainly attributed to a 4.7% increase in Sarawak. Geographically, Sabah has largest planted oil palm estates with 27% of total planted area, followed by Sarawak at 26% and Peninsular Malaysia collectively accounting for 47%.



* With Izin Usaha Perkebunan ("IUP")                   



FINANCIAL PERFORMANCE


The Group’s FFB production decreased by 3.92% to 851,435 tonnes in 2016 from 886,172 tonnes in the preceding year. In line with the industry’s trend, the average CPO price achieved by the Group’s Malaysian operations increased to RM2,532 per tonne in 2016, compared to RM2,191 per tonne posted in 2015. PK prices were also higher at RM2,387 per tonne, from RM1,534 per tonne a year earlier.

For the year under review, Plantation segment recorded revenues of RM899.52 million, an increase of 15.73% from RM777.26 million posted in 2015 mainly due to higher CPO and PK average price by 15.56% and 55.61% respectively. Nonetheless, Plantation segment remained by far the biggest contributor to Group’s revenue, accounting for 56% in 2016.


In 2016, CPO production fell by 13.2% to 17.32 million tonnes, from 19.96 million tonnes in 2015, resulting from a 12.0% reduction in FFB processed following a 13.9% decline in FFB yield. Oil Extraction Rate (“OER”) also declined. A breakdown of production by geographical area are as follows:



During the year, overall FFB yield fell 13.9% to 15.91 tonnes per hectare, from 18.48 tonnes per hectare achieved in 2015, as the El Nino phenomenon since the second half of 2015 brought prolonged dry weather and below-average rainfall. Further details are available in the following table:

OPERATIONAL REVIEW


For the year ended 31 December 2016, Kulim has plantation operations in Peninsular Malaysia as well as in Central Kalimantan and South Sumatera Indonesia, with the Group’s plantation landbank totalling 115,378 hectares. Of this, some 51,033 hectares or 44% are located in the southern part of Peninsular Malaysia. Following the completion of acquisitions of PT Tempirai Palm Resources (“PT TPR”) and PT Rambang Agro Jaya (“PT RAJ”) on 23 June 2016, adding 8,345 hectares of planted oil palm in South Sumatera, Indonesia.
PLANTATION IN MALAYSIA


ESTATE OPERATIONS
In 2016, our Malaysian operations produced a total of 851,435 tonnes of FFB, a 3.92% decrease from 886,172 tonnes produced in 2015. Correspondingly, this led to a 7.29% decrease in YPH to 20.86 tonnes from 22.50 tonnes recorded in the previous year. The FFB performance remained superior compared to the average yield achieved by the industry in Johor as well as Peninsular Malaysia, which was 17.80 tonnes and 15.77 tonnes respectively.

The decrease of FFB production experienced by the Group’s estates was in tandem with the general industry trend, as planters suffered from drought stressed weather over the past two years, exacerbated by the El Nino phenomenon.

* With Izin Usaha Perkebunan ("IUP") 





To strengthen its sustainable performance, Kulim continues to commit to replanting - a very important aspect of the industry - with a view to improving the age profile of its palms and for optimal productivity. During the year under review, a total of 1,050 hectares were replanted with high yielding clones. Replanting is undertaken on a staggered basis to maximise the crop potential before felling is carried out. As a result of our replanting initiative, the average age profile of our palms has improved to 12.16 years from 11.72 years in 2015. As at the end of 2016, the Group’s planted area in Malaysia consists of 53% prime mature area, 36% immature/ young mature areas and 11% old palms above 23 years.
MILL OPERATIONS


For the year under review, our five (5) mills processed a total of 1,339,659 tonnes of FFB, including 359,224 tonnes sourced from external smallholders and outgrowers. Although there was a 5.03% decline from 2015, it was notable that the decreased was narrower compared to the national average reduction at 12%.

Total CPO production from our mills amounted to 273,354 tonnes, a 7.10% decrease from 2015 production of 294,255 tonnes. Total PK production also decreased by 10.55% to 70,030 tonnes. Our oil yields declined to 5.78 tonnes of CPO per hectare for the year under review.

Our Oil Extraction Ratio (“OER”) declined to 20.40%, from 20.86% recorded in 2015. However, as in previous years, we continue to achieve an OER that is higher than the industry average of 19.76% for Peninsular Malaysia and 20.18% for Malaysia as a whole. Our Kernel Extraction Rate (“KER”) was 5.23%, against 5.55% recorded previously.



COST MANAGEMENT AND PRODUCTIVITY INITIATIVES
Palm oil producers are generally seen as price takers in the market where industry players are unable to significantly influence or affect the market price. Hence, producers need to look into cost control and productivity improvement measures to enhance their bottom line. Field cost contained at RM266 per tonne FFB whilst our milling costs stood at RM46.68 per tonne, 0.76% higher than the Group’s own 2016 estimate.

Regulatory issues also play a role in shaping a planter’s performance and the government’s announcement in the 2016 Budget for an increase in minimum wage rate for the private sector to RM1,000 per month was one that had affected plantation owners. This latest decision saw plantation owners paying an additional RM25 per worker per month in workers’ wages, bringing the daily wage rate to RM38.47 per manday.
RENEWABLE PROJECTS
The production of CPO also generates Palm Oil Mill Effluent (“POME”), which carries polluting characteristics of methane from the decomposition of POME. However, POME has high organic content that carries great potential for biogas production, a source of renewable energy. With this in mind, coupled with efforts to reduce Greenhouse Gas (“GHG”) emissions. Kulim targets to cut the Group’s overall carbon footprint to 58% by 2020 and to establish biogas plant at all of its five (5) mills by 2025. At end-2016, we have two (2) biogas plants installed and commenced operations at two of our palm oil mills. The installation of biogas plants at the remaining three palm oil mills are expected to complete by 2025 as per requirement by the Department of Environment (“DOE”). This new timeline will supersede our previous planning that the installation will be completed in 2017.
RESEARCH AND DEVELOPMENT


Research and development (“R&D”) is an integral part of Kulim’s strategy to be a key player in the palm oil industry, epitomised by the Group’s investment in industry specialists as well as a dedicated R&D centre known as Kulim AgroTech Centre in Kota Tinggi, Johor. The Group’s investment in the development of its people and the R&D centre is supported by a team of highly trained and experienced research personnel with expertise in agronomy, remote sensing, microbiology, seed production, plant breeding, biotechnology & chemistry, among others.
PRECISION AGRICULTURE AND ANALYTICAL SERVICES
The Kulim Agrotech Information System (“KATIS”) is based on the concept of precision agriculture. It combined the Global Positioning System (“GPS”), Geography Information System (“GIS”) and the Oil Palm Monitoring Programme to capture agronomic and management data. The data provides a quick overview of an estate’s performance so that underperforming areas can be identified and mitigation action taken.

Moving forward, the group uses a drone to capture high resolution aerial photographs and integrates them into the available GPS digital maps. The system comprises a drone, which is a gadget equipped with avionics-autopilot, an imaging sensor (digital camera or any advance sensor) and the cradle system, ground control points and a photogrammetric processing software.
ANALYTICAL SERVICES
The Group’s Ulu Tiram Central Laboratory (“UTCL”) has its expertise in chemical and physical testing of samples, agronomic and fertiliser recommendations to improve productivity, as well as effluent testing for palm oil mills.

The Laboratory is well-equipped with the latest testing equipment such as the Inductive Coupled PlasmaOptical Emission Spectrophotometer (“ICP-OES”), Atomic Absorption Spectrophotometer (“AAS”), Flame Photometer, UV-spectrophotometer and Nitrogen Auto Analyser to ensure reliable analytical results and reflecting Kulim’s commitment to R&D.
AGRONOMY
To promote the science of soil management and crop production, the Group relies on a database built up over 20 years to determine the performance of different planting areas, provide analysis and recommendations on best practices and determine sites for new agronomy trials and the suitable measures to overcome pest outbreaks.

Over the years, the Agronomy Unit has extended its responsibilities from merely providing technical advice and services to undertaking full-fledged R&D activities, where findings were subsequently made available to estates across the Group to enhance the monitoring of field performance and facilitate benchmarking against other high-performers.

Maximising Yields
Applying best management practices, Agronomic services are used to maximise yields and outputs in a sustainable manner

Integrated Pest Management (“IPM”)
As an experienced planter, Kulim recognises the need for a balanced IPM approach for pest and disease control and to reduce overdependence on pesticides as part of the Group’s sustainable growth. Kulim was tagged as one of the first industry players to collaborate with wellknown Tyto alba (barn owl) researcher, Dr Chris Small, on the use of owls to control pest population growth in oil palm plantations in the early ‘80s. Barn owls and snakes help keep a check on rodent populations while predatory insects, parasitoids and entomopathogenic fungi keep defoliating insects at bay. Only in an outbreak situation, where natural predatory controls are inadequate, do we resort to using insecticides.

Research Collaboration
Kulim has long collaborated with other research institutions such as MPOB and University Putra Malaysia (“UPM”) for further advancement of the palm oil industry. Recent initiatives include research on Ganoderma, a major disease of oil palm trees and possible mitigation factors including the use of microbes. It also worked with UPM on the study of population fluctuation of Elaeidobious kamerunicus (pollinating weevil) in oil palm plantation to find ways of enhancing pollinator weevil population for better oil palm fruit set.

Zero-Burning Replanting
It has always been the Group’s principle to practice environmentally-friendly zero-burning replanting, as opposed to burning old and uneconomical methods. This includes shredding oil palm stands and leaving them to decompose naturally in situ, thus helping to recycle nutrients into the soil. Zero-burning is also our contribution to the global effort to minimise global warming alongside compliance to environmental legislation.
PLANT BREEDING
Conventional Breeding
The industry has made significant progress in palm oil production over the past few decades but it is pertinent for the sector to continue improving agricultural productivity in view of competing interests for other vegetable oils.

While conventional breeding continues to play a significant role in yield enhancements, industry players are increasingly looking towards advancements for variety improvements as an alternative to relatively shorter cycles and better yields.

To this end, the selection of elite planting materials to achieve high oil yields remains the primary objective of Kulim’s oil palm breeding programme. Seedlings of some new crosses were also nurtured for 2017 planting efforts. Experiments were undertaken to find new sources of improved dura and pisifera parent palms for future planting materials and pisifera ortets for clonal propagation. A total of 0.4 million of commercial DxP seeds were sold.

Biotechnology
a. DNA fingerprinting
b.Shell gene analysis for determination of fruit form

Tissue culture
a. Selection of high yielding tenera clones for recloning
b. Cloning of elite duras
TOTAL QUALITY MANAGEMENT


In striving to become a world-class organisation, Kulim has embraced Total Quality Management to systematically address every area of its business processes. As the stepping stone towards achieving this goal, five (5) of the Group operating units, namely Tereh Selatan Estate, Palong Cocoa Palm Oil Mill, Tereh Palm Oil Mill, Sindora Palm Oil Mill and Sedenak Palm Oil Mill have all been accredited with ISO 9001:2008, the International Standards Organisation’s (“ISO”) flagship quality management system standard. With over 1.1 million certificates issued worldwide, ISO 9001 is a demonstration of an organisation’s ability to offer products and services of a consistently high quality.

In addition, three (3) of the Group’s operating units – Sindora Estate, Sedenak Estate and Sindora Palm Oil Mill have earned certification of ISO 14001:2004, which is the world’s first international environmental standard designed to help organisations improve on their environmental, sustainability and operational performance.

The new revised standards of both ISO QM 9001:2015 and ISO 14001:2015 are recently being enforced and in line with it, the transition programme starting in March with Gap analysis was successfully carried out on 26 March 2017.

QUALITY ENVIRONMENT / 5S CERTIFICATION


In our quest for continual improvement in the work environment and working conditions, our parent company JCorp, has mandated that all companies within the Group be certified to 5S, a Japanese-originated management tool for improving workplace efficiency. Abbreviated from the Japanese words, Seiri, Seiton, Seiso, Seiketsu and Shitsuke, it loosely translates into Sort, Systemise, Sweep, Standardise and Self-Discipline.

Having obtained QE/5S Certification on 8 January 2015, we are pleased to report that we have successfully passed the first Surveillance Audit on 17 January 2016; This serves as a testament to the Group’s commitment towards 5S philosophy - towards a safe and conducive work environment.

The work continued for QE/5S with Internal Audit being conducted on 28 August and 27 November 2016 and we have successfully passed the second Surveillance Audit on 12 March 2017 with Certification Body – Malaysia Productivity Corporation (“MPC”).
HALAL CERTIFICATION


In May 2015, four (4) of our palm oil mills, namely: Palong Cocoa Palm Oil Mill, Tereh Palm Oil Mill, Sindora Palm Oil Mill and Sedenak Palm Oil Mill, earned Halal Certification for its products, issued by Jabatan Kemajuan Islam Malaysia (“JAKIM”). In addition to these mills, our Pasir Panjang Palm Oil Mill has also embarked on Halal certification program with documentation of Halal Management System (“HAMS”) completed in September 2016. The application for registration was done through the newly introduced fast track registration, e-HALAL JAKIM. Internal audit was carried out in December 2016. The Halal Certification was received on 1 February 2017 with the Certification period valid for two (2) years starting from 1 February 2017 until 31 January 2019 and is subject to an annual review audit.
PLANTATION IN INDONESIA


Kulim’s decision to expand its operations to Indonesia is a natural progression given the Group’s strategic goal of increasing its plantation landbank.

The latest Indonesian investment was inked on 10 February 2016, giving Kulim’s 74%-owned subsidiary PT WIN ownership and control over four (4) midsized oil palm plantation companies. Four (4) CSPA were signed for the acquisitions of 95% equity interests in PT NPI, PT SPS, PT TPR and PT RAJ, for a total IDR1.64 trillion (approximately RM509.35 million).

Effective on 23 June 2016, PT WIN had officially taken over two (2) plantations from PT RAJ and PT TPR of the Amara Group, which are located in South Sumatera with 8,345 hectares total oil palm planted areas or around 4,316 hectares of total mature area
Click For More Information...

Download This Section Download Full Report