HOME

Dear Stakeholders,


The year 2018 has been another eventful one for Kulim (Malaysia) Berhad (“Kulim”), where the Group once again proved its fundamental strengths by recording yet another commendable performance amidst the significant headwinds faced by the industry. 


Despite the turbulent business environment, Kulim continues to prove its resilience in weathering such circumstances, thanks to well-executed business strategies planned by our management over the past several years.


Being a subsidiary of Johor Corporation (“JCorp”) , it is with pride that our committed team continue to strive in delivering value to all our stakeholders, despite tough business conditions.


While the Financial Year 2017 (“FY2017”) has seen us “Defining New Perspectives” for the Group, this year is the year for us to strengthen our key businesses and leverage on our strengths, hence the theme of Kulim’s Integrated Annual Report 2018 is “Strengthening Core Competencies”. On behalf of the Board of Directors, it is my pleasure to present the fifth Integrated Annual Report and Audited Financial Statements of Kulim (Malaysia) Berhad for the financial year ended 31 December 2018 (“FY 2018”).


A COMMENDABLE PERFORMANCE

In 2018, Kulim continued to strengthen its core competencies with regards to its business operations. This strategic move has proven beneficial to the Group, in a year that was rife with various challenges which include Crude Palm Oil (“CPO”) and Palm Kernel (“PK”) price fluctuations, weather uncertainties, as well as stagnant growth potential and cost escalation for our Malaysian operations. In addition, our Group had to operate amidst unfavorable exchange rates, capital constraints, changes introduced by the Government, rising operating costs and manpower shortages were also issues that have to be faced by the Group.


At the global scene, the industry is also facing dwindling demand from traditional export markets, which was made tougher by the smear campaign against palm oil from the European Union (“EU”).


On a brighter side, palm oil production is expected to increase after the El Nino phenomenon, whereby young palm will come to maturity, hence increasing the harvested areas.




OUR ACHIEVEMENTS

Kulim has set a high level of standards in running our business, whereby the numerous industry awards and accolades received by the Group over the past years are testament to our continuous efforts in strengthening our position as a responsible and sustainable corporate player.


In the year under review, Kulim was announced as the winner in Excellence Category for Sustainable Palm Oil Plantation Management at the Global Responsible Business Leadership Award 2018. This prestigious award which are aligned with the criteria of the United Nation’s Sustainable Development Goals is presented to corporate players with outstanding Corporate Social Responsibility (“CSR”) and corporate sustainability practices.


At the 10th Annual Global CSR Summit Award 2018, Kulim was announced as the winner in three (3) categories, namely Best Environment Practices Award (Platinum),Empowerment of Women Award (Gold) and Best Workplace Practices Award (Silver).


Kulim was also awarded a Plaque of Merit for CSR Category at the 41st Association of Development Financing Institutions in Asia and the Pacific (“ADFIAP”) Awards 2018.Adding to its long list of accolades are the Best Quality Leadership Award 2018 in Gold Category, as well as the Bronze award in HR Best Practices Category at the Malaysia International HR Awards & Dinner Presentation 2018.





CORPORATE DEVELOPMENTS

In strengthening our core competencies, we strive to focus on the company’s strengths and fine-tune our portfolio of assets to ensure optimal results for our shareholders. This would involve a variety of corporate exercises such as monetisation of assets and investments, disposal of assets that are under-performing or are no longer in line with the Group’s strategic vision as well as strengthening our existing businesses, among others.


With regards to our marine services unit, E.A. Technique (M) Berhad (“EA Tech”), 2018 witnessed the launch of our two (2) new Fast Crew Boats (“FCB”) namely M.V. Nautica Gambir and M.V. Nautica Langsat. The vessels, which are in the Offshore Support Vessels (“OSV”) category of FCB, are to be deployed for new contracts secured by the Group. Kulim also completed numbers of corporate exercises and this will be discussed further on the Management Discussion and Analysis (“MD&A”) section in this Integrated Annual Report.



A CREDIBLE PERFORMANCE

Amidst the challenging operating environments, the Group’s revenue declined marginally to RM1.39 billion as of end-December 2018 from RM1.53 billion recorded in FY 2017. Nonetheless,the Plantation Segment remained as the main contributor to the Group contributing RM843.68 million or 60.80% of total revenue.


However, Profit Before Tax (“PBT”) increased to RM71.04 million from RM34.42 million posted in the previous year. The major contributor to Group PBT were Plantation segment contributing RM49.97 million and O&G segment due to reversal cost of Engineering, Procurement,Contracts, Installation and Constructions(“EPCIC”) project by EA Tech amounting to RM70.76 million. 




DIVIDENDS

Kulim remains steadfast in delivering value to the shareholders and in line with this commitment, the Board has approved a total dividend payment of RM150 million for the FY 2018.


OUR SUSTAINABILITY AGENDA

Striving for sustainability remains a core part of our operations, as we pride ourselves as being one of the first Malaysian companies to be certified to the RSPO, a not-for profit organisation which has developed a set of global standards which companies must comply with in order to produce Certified Sustainable Palm Oil (“CSPO”). When properly applied, the environmental and social criteria set by RSPO can help minimise the adverse impact of palm oil cultivation on the environment and communities.


Almost all of our operations in Malaysia, including JCorp’s plantations managed by Kulim, are fully RSPO-certified since January 2009. To date, five (5) of our mills have accorded the RSPO certification, with the latest certification, with the latest certification received for Pasir Panjang Palm Oil Mill on 9 March 2017.


We have set a target to have our fully segregated mills for internal Fresh Fruits Brunches (“FFB”) processing, with the exception of Sedenak Palm Oil Mill, to gain the benefits of Sustainable Palm Oil (“SPO”) premium. The sustainability premiums could become an important contributor to the Kulim Group’s margins in the future.


The commissioning of Sindora Biogas Plant, which has commenced on 16 January 2018, marked another step forward in our plantation business and sustainability agenda. As at the end of 2018, three (3) biogas plant have already been installed and in operations, while another two (2) biogas plants will be installed in 2019.By generating biogas from Palm Oil Mill Effluent (“POME”), it can help to reduce emissions while generating energy, there by improving the Greenhouse Gas (“GHG”) impacts of palm oil production.


First launched in 2015 on a voluntary basis, the Malaysian Sustainable Palm Oil (“MSPO”) certification will become mandatory for all Malaysian oil palm producers by 2019.While our strategy and sustainability policy have always embraced the 3Ps of People, Planet and Profit, we have recently transitioned into the more comprehensive 5Ps that are built on the principles of Peace, Prosperity, Planet, People and Partnership, which will be elaborated further in the Section 4 of Sustainability Report. 


HUMAN CAPITAL & CORPORATE RESPONSIBILITY

Our organisation is only as good as our people. In this regard, we have developed our very own human capital strategies to inculcate high performance culture in the company, as well as to unlock the people potential for manpower optimisation. Our human capital strategies are also aimed at strengthening Kulim’s talent pipeline and promoting a sense of belonging and loyalty among our staff, while enhancing the teamwork synergy with a continuous improvement mindset.


At the same time, we strive to enhance and maintain fair human resource practices which have resulted in a thriving work culture. Our human capital development initiatives also involve the exchange of management knowledge between our Malaysian and Indonesian operations as well as relocation of employees across all business operations in Kulim’s Group. In 2018, we have implemented several key programmes to develop our human capital, one of which was the Change Management Programme and Internalised CARE (refer to page 9) of Kulim’s core values. In addition, initiatives have been taken to close competency gaps for critical roles, as well as to strengthen our Performance Management System (“PMS”).


We have also undertaken our Talent Management and Leadership Development Programmes and conducted employees engagement sessions to further enhance the Group’s human resource capabilities and introduce a competitive total remuneration package to ensure that our employees are well-paid.


In terms of Corporate Responsibilities (“CR”) strategies, our Group have provided continuous support for community development in collaboration with the government agencies, NGO’s as well as JCorp through education and awareness initiatives such as PINTAR programme, Johor Corporation Tuition Project and Kulim Wildlife Defenders (“KWD”) just to name a few. As a responsible corporate citizen,we have allocated an annual budget for our CR activities which include internship programmes with priority given to the natives of Johor, as well as the children of our employees.


As part of our CR strategies, we also pledged our continuous commitment to RSPO to ensure our operations are carried out in a sustainable manner, in a way that will not harm the people and the planet.


MOVING FORWARD

Having redefined our perspectives and strengthening our core competencies, we are now ready to face the coming Financial Year 2019 (“FY 2019”) which is expected to be another challenging period for us. Thus,we have set clear strategies for each of our business segment to ensure that the Group are able to weather the challenges, while creating optimum value for shareholders.


Plantation 

It is imperative that we remain committed in strengthening our core plantation business by aggressively boosting our planted areas and concurrently increase the annual CPO production by the Group. We will also continuously establish updated techniques, deploy innovation, R&D in plantation management experience and know-how and progressively enhance mechanisation/automation programme which is expected to increase efficiency and productivity.Increased production output will also be a catalyst towards higher value chain activity including trading, midstream and within high growth sectors in various downstream activities. This will strengthen its position in various market segments for Kulim be it in oleochemicals, oils and specialty fats,even FMCG markets. More importantly this provides strategic and vertical integration of Kulim’s plantation operations by capturing higher margin value chains.




R&D 

Anchored with the vision to generate cutting-edge proprietary palm oil plantation technologies to enhance operational performance and commercial utilisation, Kulim R&D Centre is deployed in 2018. It is our desire to be the premier front-runner in the oil palm research to support internal growth across all sectors, which involve improving the yield of selected crops through tissue culture agronomy, development of byproducts for use in generating new products with higher-growth, higher-margin industries and optimising waste, among others.


Intrapreneur Venture

The previous financial years had seen Kulim laying the foundations in creating a conducive ecosystem for intrapreneurs through Intrapreneur 2.0 Programme which was implemented across all Intrapreneur Ventures companies in 2017. The next step for us will be to harvest matured ventures and enhance the performance of our Intrapreneur Venture companies that are related to palm oil business, whilst exiting from non-performing businesses to optimise returns for the Group.


Oil and Gas (“O&G”)

Kulim has obtained the Plan of Development (“POD”) approval from the Government of Indonesia for the South West Bukit Barisan Block (“SWBB”) Production Sharing Contract (“PSC”) project in West Sumatera on 22 June 2018. Moving forward, we aim to monetise our investment in the O&G business, either through Joint Ventures (“JV”) with third party or “Cash Out” via dilution of KENSB’s equity in PT Citra Sarana Energi (“PT CSE”) for a huge potential return after development. 


Agrofood

Following the positive market response towards our MD2 pineapples that are marketed under the “Melita” brand, we have identified growth opportunity in our agrofood strategy which involve larger export base into new markets. To support this, Kulim Pineapple Farm (“KPF”) has embarked on an expansion programme through collaboration with Malaysian Pineapple Industry Board for the MD2 Pineapple Cultivation Project which involve a planted area of 48.58 hectares at Tanah Abang in Mersing, Johor. As for cattle rearing business, we are targeting to expand napier planting at Tebing Tinggi, Segamat with 12 hectares of planted areas in 2019 and to produce napier pellet. 




Property Development 

With our vast land bank,we intend to crystalize the values of land owned by the Group which will involve the conversion of our plantation estates into property development projects, especially in strategic locations which are in high growth population, with existing pent up housing and commercial demand. Our first ever property development project at Taman R.E.M is targeted for sale by mid-2019.


CHALLENGES AND OUTLOOK

2019 will come with its own set of challenges, such as the continued fluctuations in CPO and PK prices, crude oil price, as well as unfavorable weather conditions with the arrival of El Nino and La Nina phenomena. Challenging financial conditions involving the exchange rates and interest rates will also pose further challenges to our operations.


To create enterprise value and reinforce the foundation for future success, several strategies have already been outlined earlier by Kulim, which include:




Following the defining of new perspectives and the strenghtening of core competencies this year, the Kulim Group will remain robust in 2019 despite anticipated challenges.


ACKNOWLEDGEMENTS

As Kulim segues from defining new perspectives to strengthening its core competencies, I am confident that the future remains strong for our Group despite the anticipated challenges. My optimism is based on the strength of our management and staff, whose knowledge, experience, professionalism and commitment have helped brought the Group to where it is today. On behalf of the board, I would like to express my heartfelt appreciation to each and every one of you for all your efforts, diligence and hard work.


A special note of appreciation goes to the outgoing Non-Independent Non-Executive Director, Jamaludin Md Ali who resigned on 15 January 2019. He has contributed significantly to the Group’s development. I also take this opportunity to congratulate Mohd Sahir Rahmat who was appointed to the board as Non-Independent Non-Executive Director on 15 January 2019.


Last but not least, my utmost gratitude to all quarters who have played a major role in supporting and backing our business operations. They include our parent company, JCorp, who has always been there to guide and support us along the way, as well as our business partners and associates, consultants, financiers, media and the relevant government and regulatory authorities both in Malaysia and Indonesia. Your support are truly appreciated and has indeed made the difference.


My sincerest thanks to all of you.



DATO’ KAMARUZZAMAN ABU KASSIM

Chairman / Non-IndependentNon-Executive Director