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The year 2018 was marked with challenges for Kulim’s Plantation Segment with lower palm oil market prices experienced by the Group.


In the year under review, our Malaysian operations produced a total of 919,844 tonnes of Fresh Fruit Bunches (“FFB”), a 7.57% decreased from 995,129 tonnes in 2017.


Meanwhile, the prices of CPO began to show a downward trend in the first quarter of the year and dropped further to RM1,794 per tonne in December 2018. Overall, CPO prices trended lower in the year at RM2,232 per tonne on the back of surplus palm oil production by the industry and lower CPO export volume to major countries.


FINANCIAL PERFORMANCE


Kulim’s Plantation Segment remained by far the biggest contributor to Group revenue,accounting for 60.80% in 2018. Total revenue earned amounted to RM843.68 million, as it decreased by 17.88% from RM1.03 billion recorded in 2017. The decreased in revenue was mainly due to lower average CPO price of RM2,327 per tonne in 2018, against RM2,852 per tonne registered in the previous year. The average price of Palm Kernel (“PK”) also decreased to RM1,792 per tonne, compared with RM2,427 per tonne registered in 2017.


TOTAL PLANTATION LANDBANK


Kulim’s plantation operations span across Peninsular Malaysia as well as Indonesia, with a total landbank of 65,505 hectares. Out of this, 50,994 hectares or 77.85% are located in the southern part of Peninsular Malaysia while the remaining 14,511 hectares are in South Sumatera, Indonesia which have been granted with the Hak Guna Usaha (“HGU”) status. Our oil palm planted areas as at 31 December 2018 are as listed below.




As at 31 December 2018, the Group had a total of 55,604 hectares planted with oil palm, of which 47,259 hectares are located in Malaysia. The total planted area of mature palms stand at 44,370 hectares, of which 41,556 hectares are in Malaysia and the balance 2,814 hectares are in Indonesia. During the year, total FFB production for both Malaysia and Indonesia operation was amounted to 925,700 tonnes. 


PLANTATION IN MALAYSIA


ESTATE OPERATIONS 


In 2018, our Malaysian operations produced a total of 919,844 tonnes FFB, a 7.57% decreased from 995,129 tonnes that were produced in 2017. As a result, Yield Per Hectare (“YPH”) has also decreased to 22.13 tonnes from 23.98 tonnes recorded in the previous year. However, this performance by the Group was far superior than the average yield achieved by the industry in Johor as well as in Peninsular Malaysia, which stood at 19.63 tonnes and 17.44 tonnes respectively.


There was a temporary recovery in the first three (3) months of production in 2018, an impact carried over from the bumper crop in year 2017. The trend however, was not sustained but instead, declined in the remaining months. This scenario was also faced by Malaysian plantation industry which recorded a decrease in YPH to 17.16 tonnes from 17.89 tonnes in the preceding year (Source: MPOB).



Zooming into the rainfall, the Group noted that there was some correlation between this lower production with the lesser rainfall experienced in 2016 at 1,781 mm in that year. Normally, the lower rainfall received by oil palms could cause and affect their production 18 months later as the situation might reduce the development of female flower, thus lowering the number of bunches produced and causing relatively smaller fruit bunch formations which lead to lower weight.


To strengthen its sustainable performance, Kulim continues to commit to replanting programme which a very important aspect of the industry with a view to improving the age profile of its palms and achieve optimal productivity. For this purpose, a total of 1,378 hectares were replanted with high yielding clones in 2018. Replanting was undertaken on a staggered basis to maximise the crop’s potential before felling. As at end-2018, the Group’s planted area in Malaysia comprised of 63% prime mature areas, 32% immature/young mature areas and the balance 5% areold palms of above 23 years.


The tight supply of labour situation in Malaysia, especially in the plantation industry, has not improved much from the previous year. The situation caused plantation owner to resort to all possible ways and means to attract and retain these workers.


Notwithstanding this, Kulim managed to recruit a fairly adequate number of workers in 2018 with some 1,283 new foreign workers were recruited resulting in a total labour force of 5,124 for its 47,259 hectares of oil palm planted areas.




MILL OPERATIONS


During the year under review, Kulim’s five (5) palm oil mills (“POM”) processed a total of 1,459,331 tonnes of FFB, including 402,523 tonnes sourced from external smallholders and outgrowers. This represented a slight decreased by 0.57% from 2017, attributed mainly by a decrease in FFB supplied by the Group’s estates. 


Total CPO production from our mills amounted to 306,484 tonnes, a 2.17% increased from 299,981 tonnes recorded in 2017. During the same period, total production of PK slightly decreased by 0.10%, from 79,071 tonnes to 78,995 tonnes. Our OER improved to 21.00%, from 20.44% achieved previously. As in previous years, our OER is higher than the industry average of 19.69% for Peninsular Malaysia and 19.95% for Malaysia as a whole. We also achieved a higher KER of 5.41%, against 5.39% recorded in 2017.


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. In this regard, the Group successfully contained our field costs at RM279.78 per tonne of FFB, which was lower by 2.43% compared to the budgeted cost of RM286.76. The Group milling cost was higher by 6.19% to RM47.38 per tonne of FFB. 


Regulatory issues also play a role in shaping the planter’s performance and one of the examples was the government’s announcement to impose Employment Insurance Scheme (“EIS”) in 2018 for local workers. The EIS contributes to approximately 0.4% of monthly wage cost, with the employee and employer contributing of 50% each.


To mitigate the higher wage costs, Kulim continues to adopt and enhance its Good Agricultural Practices (“GAP”) and Operational/Manufacturing Practices of its plantation operations and this strategy has been proven to work in enhancing operation efficiency and productivity.


The Group has also progressively stepped up its mechanisation programme to reduce reliance on manual labour. To this effect,the Group has invested more in mini tractor mounted with Scissor Lift Trailer and Bin System for quicker and more efficient FFB loading and evacuation.


In addition, to improve work efficiency at the estate level, we continuously monitor the effectiveness of Kulim In-Field Data Execution and Analytics System (“IDEAS”) implementation. The system was designed to facilitate our estates in capturing and recording their daily data, particularly on workers’ attendance, bunch count number, loose fruit record and total bunch number, through the collection and processing of field data via portable digital bar code terminals.


RENEWABLE ENERGY PROJECTS


A waste-product in the production of CPO is Palm Oil Mill Effluent (“POME”), which produces huge amount of methane gas from its anaerobic process and has 21 times the Global Warming Potential (“GWP”) compared to other gases. However, the high organic content of POME carries great potential for biogas production, a source of renewable energy. In killing two birds with one stone and to achieve its goal of reducing the Group’s overall carbon footprint to 58% by 2020, Kulim will establish biogas plants at all of its five (5) mills by 2025. Three (3) biogas plants have already been installed and in operation, while another two (2) biogas plants will be installed in 2019.


During the year under review, the total biogas produced by the mills are 1,051,026 cubic metres for power generation and flaring.A total of 12,216 tonnes of palm kernel shell and 10,417 tonnes of palm fibres were sold for external use as a replacement for fossil based fuels.As part of our compliance to the Environmental Quality (Clean Air) Regulation 2014, air pollution control devices has been installed at our mills. Two (2) of our mills had installed Hurricane Recyclone system in 2016 and one (1) mill had installed Electrostatic Precipitator system in 2018. Another two (2) mills are in progress of installing Electrostatic Precipitator system to meet the requirement of the regulation and are expected to complete by June 2019. 


Also, as part of our compliance to the new regulation imposed by the Department of Environment, Johor on final discharge of waste water, four (4) mills are in the progress of installing Tertiary Treatment Plant which are expected to be completed by December 2019. Meanwhile, Sindora Mill had completed its installation and is in operation since December 2017.


PLANTATION IN INDONESIA


The total landbank for SumSel region with granted HGU stood at 14,511 hectares. As at 31 December 2018, the total planted area was 8,345 hectares, of which 5,302 hectares are managed by PT Rambang AgroJaya (“PT RAJ”) and 3,043 hectares by PT Tempirai Palm Resources (“PT TPR”).


The Group’s rehabilitation programme for its Indonesia plantation has been completed much earlier than its original scheduled timeline of April 2019. PT RAJ completed the rehabilitation work on 4,317 hectares of land in October 2018, while PT TPR completed its rehabilitation work on an areas panning 3,191 hectares in July 2018.


The Group’s investment in rehabilitation since the past two (2) years has been proven beneficial, as it resulted in a significant improvement in crop recovery. 


Both estates produced 5,856 metric tonnes of FFB representing a production yield of 4.63 metric tonnes per hectare (“mt/ha”)from 1,264 hectares of harvesting area,which was 183.58% higher than the entire 2017 production of 2,065 metric tonnes. 


Both estates have the potential to continue producing satisfactory yield in years to come, based on the field condition and palm vigour improvement.


With regards to infrastructure development,PT RAJ has completed 38 kilometers (“km”)of field roads, 14 km of desilted main canal,104 km of desilted field drain and 15 km of bunds respectively in 2018. 


Meanwhile, PT TPR has completed the development of 27 km of laterite field roads,13 km of desilted main canal and 151 km of desilted field drain.


The new main office building for both estates has been in operation since December 2018.Construction of the Kayuagung-Pematang Panggang toll road which connects Palembang to Jakarta is expected to be completed in June 2019. This toll roadwhich cut across 63 hectares of PT RAJ land will increase the land valuation in the surrounding areas.


RESEARCH AND DEVELOPMENT


Research and Development (“R&D”) is the game changer for the global palm oil industry. Thanks to R&D, what was once basically a wild crop has been transformed into one that now dominates the world trade in oils and fats. 


Kulim has long invested in R&D to remain at the fore-front of the business. This is epitomised by the establishment of a dedicated R&D centre known as the Kulim Agro-Tech Centre in Kota Tinggi, Johor. The R&D center is supported by a team of highly trained and research personnel with expertise in agronomy, remote sensing, microbiology, seed production, plant breeding, biotechnology and chemistry, among other relevant disciplines. 


In August 2018, our Plantation Advisory Division has moved into a newly built R&D building, which was constructed to further enhance the Group’s R&D activities by providing better R&D facilities and greater environmental compliance. The building houses a plant breeding lab, an analytical lab, tissue culture lab and research administration office. In moving forward towards Industry 4.0, Kulim has identified Genomic study, an advance technology that the Group will explore for in-depth study.This will ensure that Kulim will be at the forefront, alongside other industry members.


The new building also comprised a mini microbiology lab, which will enable us to embark on our own research on beneficial microbes in pursuit of yield enhancement via a more sustainable oil palm production.


PRECISION AGRICULTURE AND ANALYTICAL SERVICES 

The Kulim Agrotech Information System (“KATIS”) was designed based on the concept of precision agriculture. It aims to optimise field-level management by combining the Global Positioning System (“GPS”), Geography Information System (“GIS”) and the Oil Palm Monitoring Programme to capture agronomic and management data.The data collected gives a quick overview of an estate’s performance so that under performing areas can be identified and remedial actions can be taken.


Under this system, drones are deployed to capture high-resolution aerial photographs,which are then integrated into available GPS digital maps. Apart from the drone,the system is equipped with avionics autopilot, an imaging sensor from a digital camera or any advance sensor and a cradle system, ground control points and photogrammetric processing software. From the data collected, we can efficiently improve land utilisation, precisely control the recommended fertilizer, accurately map fields, as well as monitor crop health for signs of diseases and pest infestations.


The Group has also ventured into computerised terrain modeling using digital elevation data taken from an airborne Interferometric Synthetic Aperture Radar (“IFSAR”) sensor. A Digital Elevation Model(“DEM”) is a digital geographic data set of elevations in “xyz” coordinates. The elevations for ground positions are sampled at regularly spaced horizontal intervals,whereby the data obtained can be used to improve land preparation during replanting. 


ANALYTICAL SERVICES 


Kulim’s Ulu Tiram Central Laboratory(“UTCL”) specialises in the chemical and physical testing of samples. The results will facilitate agronomic and fertilizer recommendations in improving productivity.They also provide services for effluent testing for palm oil mills. It is equipped with the latest testing equipment such as the Inductive Coupled Plasma-Optical Emission Spectrophotometer (“ICP-OES”), Atomic Absorption Spectrophotometer (“AAS”), Flame Photometer, UV Spectrophotometer and Nitrogen Auto Analyser to ensure fast and reliable analytical results for both in house and external customers.


As an assurance of quality, UTCL has maintained its accreditation to MS ISO/IEC17025 SAMM (Skim Akreditasi Makmal Makmal Malaysia), the main ISO standard for testing and calibration laboratories. It also participates in the National Crosscheck,an annual event organised by Agricultural Lab Association of Malaysia (“AgLAM”).


UTCL’s expertise has been widely acknowledged and recognised globally. This is underpinned by the Mutual Recognition Agreement (“MRA”) endorsed by the International Laboratory Accreditation Cooperation (“ILAC”). ILAC is the international organisation for accreditation bodies operating in accordance with ISO/IEC17011 and is involved in the accreditation of conformity assessment bodies including calibration laboratories, testing laboratories,medical testing laboratories and inspection bodies. Over 90 accreditation bodies from more than 80 countries have signed the ILAC MRA.


AGRONOMY 


Agronomy is the science and technology of soil management and crop production. Kulim has a database built up over more than 20 years to gauge the performance of different planting areas, provide analysis and recommendations on best practices,identify sites for new agronomy trials and put forward suitable measures to overcome outbreaks. 


Kulim’s Agronomy Unit has expanded its responsibilities from merely providing technical advice and services to undertaking full-fledged R&D activities. Its research findings are shared with estates across the Group to enhance the monitoring of field performance and facilitate bench-marking against the high-performers.


MAXIMISING YIELD


By applying the Best Management Practices (“BMP”), Kulim like many other plantation companies, has constantly using agronomic services to maximise yields and outputs in a sustainable manner:

  • Nutrient management as well as soil characterisation and conservation are deployed to improve soil management.
  • Long-term fertilizer studies look into the efficiency of specific nutrient applications. 
  • Trials/ screening of pesticides evaluate the use of pesticides for effectiveness and cost competitiveness, whilst ensuring it is less toxic and more environmentally friendly. 
  • Emphasis is also placed on achieving an optimal balance of inorganic and organic fertilizers to promote efficient energy usage and sustainably achieve higher oil palm yields. This will also enhance soil ameliorant, thus improving soil fertility and health. 
  • In the wake of increasing prices of inorganic fertilizers, bio compost produced from the Group’s milling operations has enabled the efficient use of by-products covering larger planting areas. 
  • Whils it has been proven that achieving high yields of above 30 tonnes per hectare is possible with good terrain and rainfall, the challenge in going forward is to sustain the high yields. 
  • Cognizant of the importance of water, especially in the drier zones of the Segamat area, Kulim has embarked on studies utilising available water resource to irrigate small sections of its plantation under a yield intensification initiative.
INTEGRATED PEST MANAGEMENT(“IPM”)

Based on experience and integral to its sustainability agenda, Kulim recognizes the need for a balanced IPM approach to pest and disease control in its effort to reduce over-dependence on pesticides. Kulim has the distinction of being among the first industry players to collaborate with well known Tyto Alba (barn owl) researcher, Dr.Chris Small, on the use of owls to control pest population in oil palm plantations in the early 1980s. Barn owls and snakes play a useful role in helping to keep rodent population in check, while predatory insects, parasitoids and entomopathogenic fungi keep defoliating insects at bay.

Only in an outbreak situation, where natural predatory controls are inadequate, do were sort to using insecticides. Kulim has also adopted mechanical control techniques inland preparation to minimise the spread of Ganoderma infections. Planting of beneficial plants has also been advocated to providea conducive environment for parasitoids and predators to deter defoliating insects. Pheromone traps have also been widely used in replanting areas to control the Oryctesrhinoceros beetle population, which can inflict serious damage on young oil palms.

RESEARCH COLLABORATION

Kulim has long collaborated with research institutions such as the MPOB and Universiti Putra Malaysia (“UPM”) for the further advancement of the palm oil industry. A long-standing collaboration isthe research on Ganoderma, a major oil palm disease. One of our contribution in the research field include a co-authored paper with UPM titled “Textural Measures for Estimating Oil Palm Age”, which has been published in the International Journal of Remote Sensing

ZERO-BURNING REPLANTING

The zero-burning replanting technique has been adopted as the industry standard in palm oil replanting since the early 1990s. As opposed to burning, the environmentally friendly technique involves the shredding of oil palm stands and leaving them to decompose naturally in situ, there by recycling nutrients into the soil. Apart from complying with local environment allegislation and RSPO, this zero-burning practice is part of Kulim’s contribution to minimise global warming through emissions of GHG.

PLANT BREEDING

CONVENTIONAL BREEDING

The primary objective of Kulim’s palm breeding programme is to produce elite planting materials to achieve high oil yields. To this end, several new crosses were nurtured for the 2019 planting and evaluation programme.

Experiments were undertaken to find new sources of improved dura and pisifera parental palms that can be used as future planting materials. Besides dami duras, another new 76 SIRIM-certified duras of ex Oil Palm Genetic Laboratory (“OPGL”) were used as mother palms for dura population enrichment. Our efforts have resulted in 0.3 million commercial DxP seeds being sold.


GENOMIC STUDY

MAPPING THE SHELL GENE

Mapping the shell gene was one of MPOB’s early demonstrations of exploiting the genome data to identify the location of a gene of interest in the genome. The use of a marker linked to shell gene can be used as a quality control tool to check for dura contaminants in commercial planting materials, thus indirectly increasing yields. This control checking can be carried out as early as at the fresh seeds stage. Through Kulim-MPOB collaboration, it was found that the occurrence of dura contaminants in Kulim DxP seeds after several testings was far below the permissible level of 5%.


MARKER FOR FRUIT COLOUR

The MPOB’s marker can distinguish virescens fruits (green when young and orange when ripe) and nigrescens fruits (black when young and red when ripe) before field planting, even in the pre-nursery stage. This marker has a potential to select virescens materials with non-abscission fruits for ease of ripeness determination and to reduce the problem of uncollected loose fruit due to labour shortage in the plantations. This marker is targetable for homozygous virescens pisifera or dura. Through Kulim-MPOB collaboration, someduras of Tanzanian and Angolan populations were identified as heterozygous virescens that require a cycle of selfing in order to obtain a generation of homozygous virescens.

TISSUE CULTURE


SELECTION OF HIGH YIELDING TENERA CLONES FOR RECLONING 


A total of 40 tenera palms with O/B over 33% and oil yield above nine (9) tonnes per hectare per year from five (5) clones of different genetic backgrounds were selected and 27 palms were recloned. A total of 28,000 units of these high yielding ramets have been sold to Kulim Estate.

PLANTING OF ELITE TENERA AND DURA CLONES


A total of 11 commercial clones, two (2) elite clonal duras of ex-OPGL selection and two(2) embryo-cultured pisiferas of different origins had been field-planted. The elite dura and tenera clone will be tested andused for Kulim Bi-Clonal or Semi-Clonal seed programme in the future, while the commercial clone will be used for future recloning.


TOTAL QUALITYMANAGEMENT 


Kulim has embraced Total Quality Management to systematically address every area of its business processes. Since March 2017, all of Kulim’s ISO certified units have been transiting to the new standards and had successfully completed their transition in August 2018. Five (5) of the Group’s operating units, namely Tereh Selatan Estate, Palong Cocoa POM, Tereh POM, Sindora POM and Sedenak POM have successfully earned the accreditation for ISO 9001:2015, the International Standards Organisation’s (“ISO”) flagship standard that specifies the requirements for a Quality Management System (“QMS”). Having an ISO 9001 QMS in place enables the Group to continually monitor and maintain the quality in its products and services across all operations,as well as identify ways to achieve and benchmark consistent performance and service. Apart from a number of new requirements and concepts, the latest editions incorporate new approaches in the Quality and Environmental Management System. In addition to meeting rising stakeholder expectations, the focus will be on performance as opposed to merely managing the processes. In discharging its responsibility to its stakeholders, the adoption of ISO EMS14001:2015 is part of Kulim’s effort to reduce its environment footprint.


In this regard, Kulim has three (3) of its operating units namely, Sindora Estate,Sedenak Estate and Sindora POM, have also earned the certification ISO EMS14001:2015, the world’s most recognised environmental management system standard.


Kulim’s UTCL has also been accredited with the ISO/ IEC 17025 certification,which is the main ISO standard used by testing and calibration laboratories to be deemed technically competent. During the year under review, in addition to the scope extension with regards to testing for fertilizers and water for water quality indexor WQI, the new revised version of ISO/ IEC17025:2005 have also been enforced to the ISO/ IEC 17025:2017.


Since May 2015, four (4) of our palm oil mills, namely the Palong Cocoa POM, Tereh POM, Sindora POM and Sedenak POM, have earned the Halal Certification issued by Jabatan Kemajuan Islam Malaysia (“JAKIM”) for their products. Our Pasir Panjang POM was the latest addition to this list, having received Halal Certification for a validity period of two (2) years starting from 1 February 2017,subject to an annual audit review. 


QUALITY ENVIRONMENT (5S) CERTIFICATION 


JCorp has mandated that all companies within its corporate umbrella to adhere to the Japanese principles of “5S”, in a quest to improve productivity at the workplace on a continuous basis.The 5S concept is an abbreviation from the Japanese words, Seiri(Sort), Seiton (Set In Order), Seiso (Shine), Seiketsu (Standardise)and Shitsuke (Sustain). 


In embracing the concept as a quality management tool, Kulim has adopted the 5S Quality Environment principles since 8 January 2015 as a beginning of a healthy, comfortable and productive life for everyone at work. With QE/5S, we strive to attain the following main objectives:

  • Improve the corporate image of Kulim;
  • Ensure the participation of all employees to inculcate good work habits;
  • Achieve an average score of 75% for all zones; and 
  • Set a target of file and item retrieval of 30 seconds
The QE/5S principles are based on the main premise that cleanliness and tidiness contribute towards a safe and conducive work environment. This in turn, would have an impact on staff performance and ultimately, the Group’s profitability.

For the year of 2018, Kulim has successfully conducted the third Surveillance Audit on 8 April 2018 with the Certification Body of MPC. The audit has been conducted based on new criteria and requirement as set by MPC, which place greater focus on the concept of Plan-Do-Check-Action and Impact.

OUTLOOK AND PROSPECT

Palm oil prices are expected to improve in 2019 on higher exports due to rising demand, while production is anticipated to rise on the back of better FFB yields compared with 2018. The prices are expected to average at RM2,400 per tonne in 2019 versus RM2,300 in 2018. (Source: The Edge Markets, 2 November 2018).

The price weakness of plantation sector is expected to sustain into the first quarter of 2019, arising from high stockpile and absence of positive demand catalyst but would recover from the second quarter of 2019 onwards, supported by the extension of biodiesel mandates in Malaysia and Indonesia, weak ringgit against the US dollar and potential El Nino development. The extension of biodiesel programmes in Malaysia from B7 to B10 effective on February 2019, as well as Indonesia through the extension of B20 biodieselas non-subsidy diesel will raise CPO consumption by up to 2.9 million tonnes per annum and in turn, reduce the combined palm oil stockpile of Malaysia and Indonesia by close to 40%. (Source: The Edge Markets, 7 January 2019).

The Group expects the price of CPO to be well supported at current levels with an average of RM2,400 per tonne, with the possibility of strengthening towards the end of the year due to production growth.

To strengthen our plantation business, the Group will continue our efforts to increase productivity by continually developing and deploying new technology, utilising environment-friendly fertilizers, improving field mechanisation, providing on-the-field training for operational optimisation, allocating more funds for R&D to produce improved clones with higher yields, switching to alternative energy sources and imposing more stringent controls on operational costs. Hence, the Group’s plantation segment is expected to perform satisfactorily during the coming financial year 2019.