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DEAR STAKEHOLDERS,

I am pleased to present to you, our sixth Integrated Annual Report and Audited Financial Statements of Kulim (Malaysia) Berhad for the Financial Year Ended 31 December 2019 (“FYE 2019”)

The year 2019 can best be described as another challenging year for Kulim (Malaysia) Berhad (“Kulim”) on the back of weak Crude Palm Oil (“CPO”) and Palm Kernel (“PK”) prices that have impacted the Group’s profitability.

Nevertheless, Kulim’s fundamentals remain strong as we have undertaken various group-wide initiatives to optimise the potential of our business segments. Our plantation business continued to be the main contributor to the Group, amidst a backdrop of volatile CPO and PK prices, European Union (“EU”) restrictions on the use of palm oil, high inventory levels and lower CPO export volume to major countries. These were further compounded by labour shortages and increasing labour costs, which continued to affect our operations.

Kulim believes inconsistently performing our best, and this is reflected by our continuous introduction of various strategic initiatives to unleash our full potential. Hence, it came as no surprise that the Group continued to win various accolades during the year under review, reflecting its commitment in nurturing and promoting excellence, sustainability and Corporate Responsibility group-wide.

Over the years, we have been the recipient of numerous industry-wide awards and accolades. During the year under review, Kulim was announced as the winner of the World Business Leader and Inspirational Company category at the BIZZ Awards AMEA 2019.

Kulim’s Integrated Annual Report 2018 was named as the winner of the best annual report for non-listed organisations at the National Annual Corporate Report Awards (“NACRA”) 2019.

At the 11th Annual Global CSR Summit Awards Ceremony 2019, the Group was announced as the winner in three (3) categories, namely, Best Workplace Practices Award (Gold), CSR Leadership Award (Silver) and Empowerment of Women Award (Bronze).

Kulim was awarded the Bronze Award for HR Best Practices category during the 19th Malaysia International HR Awards 2019. Kulim’s Ulu Tiram Central Laboratory (“UTCL”) has also been awarded with the IKM Laboratory Excellence Award 2019 at Malam Kimia 2019. Our culture of excellence was also recognised at the Asia Pacific Quality Organisation Conference and International Quality and Productivity Convention 2019, where our Kompass (Engineering Department) and Forces (Sepang Loi Estate) were awarded a 3-star recognition for their project. Our winning streak continued at Hari Peladang, Penternak dan Nelayan Kebangsaan 2019, where Kulim Pineapple Farm ("KPF") was announced as the winner of the MD2 pineapple competition for the Agricultural Produce category.

Kulim was awarded the Bronze Award for HR Best Practices category during the 19th Malaysia International HR Awards 2019. Kulim’s Ulu Tiram Central Laboratory (“UTCL”) has also been awarded with the IKM Laboratory Excellence Award 2019 at Malam Kimia 2019. Our culture of excellence was also recognised at the Asia Pacific Quality Organisation Conference and International Quality and Productivity Convention 2019, where our Kompass (Engineering Department) and Forces (Sepang Loi Estate) were awarded a 3-star recognition for their project. Our winning streak continued at Hari Peladang, Penternak dan Nelayan Kebangsaan 2019, where Kulim Pineapple Farm ("KPF") was announced as the winner of the MD2 pineapple competition for the Agricultural Produce category.

Our subsidiary, Danamin (M) Sdn Bhd was also announced as the On-call Contractor 2019 by BASF Petronas Chemicals in conjunction with the Global Safety Days 2019 celebration. Kulim was also named as a finalist for Piala Menteri Sumber Manusia under the category of Major Corporations at Pertandingan Hari Anugerah PLWS 2019 Piala Menteri Sumber Manusia. In addition, Kulim was a finalist for Excellence in Employee Engagement category in HR Excellence Award 2019. To promote a workplace culture that is free from corruption, Kulim is currently working towards obtaining MS ISO 37001:2016 certification for Anti-Bribery Management Systems (“ABMS”) which is expected to be certified in December 2020.

MEASURING BUSINESS PERFORMANCE

To measure the performance and the efficiency of our business, the Group used a Balanced Scorecard which consists of both financial and non-financial metrics. This scorecard contains Key Performance Indicators (“KPI ”) in four (4) perspectives, namely Financial, Stakeholder, Internal Process and Organisational Capacity. I am pleased to note that as at year end-2019, the Group has achieved 79.78% of its KPIs, thus positioning us on a strong and stable trajectory.

CORPORATE DEVELOPMENTS

During the year under review, Kulim continued to fine-tune our portfolio of assets as part of our efforts to establish a firm operational base that will continue to deliver optimum results. Our approach to optimise the portfolio took into account various factors such as market dynamics, as well as under performing assets or no longer in line with the Group’s strategic vision. In addition, monetisation would also be an option when an opportunity arises. Parallel to our strategy to monetise certain non-strategic assets, we also carried out a variety of corporate exercises during 2019, which will be discussed at greater length in the Management Discussion and Analysis (“MD&A”) section in this Integrated Annual Report.

FINANCIAL PERFORMANCE

The year 2019 saw the Group recorded a slightly lower in revenue at RM1.21 billion from RM1.39 billion registered in 2018. The decrease in revenue was attributed mainly due to a reduction in revenue of EA Tech by 35% in the absence of revenue contribution from Engineering, Procurement, Construction, Installation and Commissioning (“EPCIC”) project throughout 2019. Furthermore, the decrease in revenue was compounded by a weaker contribution from the Plantation Segment specifically Palm Kernel (“PK”) amounting to RM43 million. There was a slight reduction in PK delivered of 77,256 tonnes in 2019 compared to 79,286 tonnes in 2018. Moreover, the PK prices suffered greatly in 2019 at an average price of RM1,289 per tonne compared to RM1,792 per tonne in 2018. Nonetheless, the Plantation Segment remained as the main contributor to the Group contributing RM834.61 million or 69.04% of total revenue. The Group also incurred a Loss Before Tax (“LBT”) of RM127.85 million in 2019, from a PBT of RM57.81 million registered previously. LBT was mainly due to impairment recognised in accordance with the new adoption of Malaysian Financial Reporting Standard (“MFRS ”) and share of loss of Indonesia Oil and Gas joint venture investment amounting to RM42.98 million and provision for foreseeable loss for litigation case of E A Tech against Malaysia Marine and Heavy Engineering Holdings Berhad (“MMHE”) amounting to RM45.29 million. Despite the impairment, the Group’s cashflow remains healthy.

DIVIDENDS

Notwithstanding the challenges to balance investment with payables and cashflows, Kulim remains steadfast in delivering value to the shareholders. In line with this commitment, the Board has approved a total dividend payment of RM200 million for the FYE2019.

SUSTAINABILITY AS OUR PRIORITY

Our sustainability agenda remains a top priority during the year under review, as reflected in the various initiatives undertaken across our business operations. We are pleased to note that almost all of Kulim's operation in Malaysia are fully RSPO-certified since January 2009. To date, five (5) of our mills have been accorded the RSPO certification, and this was followed by the Malaysian Sustainable Palm Oil (“MSPO”) certification obtained in March 2019. Furthermore, three (3) mills have also earned RSPO Identity Preserved (“IP”) status. Five (5) of our mills have been accorded with International Sustainability and Carbon Certification (“ISCC ”) status. Being certified means that any Sustainable Palm Oil (“SPO”) produced at the mill can be traced throughout the supply chain from an estate to factory to retailer. Realising that sustainability premium could become an important contributor to the Group’s margins, we aim to have fully-segregated mills for internal Fresh Fruits Bunches (“FFB”) processing. As at the end of 2019, three (3) biogas plants have already been installed and currently in operations, while another two (2) biogas plants will be installed in 2020. By generating biogas from Palm Oil Mill Effluent (“POME”), it can help to reduce emissions while generating energy, thereby improving our palm oil production on Greenhouse Gas (“GHG”). Our strategy of sustainability embraces the 5Ps of Peace, Prosperity, Planet, People and Partnership, which will be elaborated further in Section 5 of Sustainability Report in this Integrated Annual Report.

FOCUS ON HUMAN CAPITAL & CORPORATE RESPONSIBILITY (“CR”)

Fully realising that our employees are our greatest asset, Kulim takes pride in our effort to nurture the Group’s human capital to ensure that they are able to reach their potential. Various key programmes were undertaken in 2019 to enhance the quality of our talent, which include Change Management Programme and Internalising C.A.R.E. Programme (Kulim Corporate Value), Closing Competency Gaps for Critical Role, Strengthening of Performance Management System, as well as Talent Management and Leadership Development Programme. The Group also undertook employee engagement initiatives and implemented a total competitive remuneration package in order to attract and retain quality talent. As a responsible corporate citizen that truly believes in giving back to the community, our continuous support towards community development is well-reflected through our education initiatives under the Yayasan Johor Corporation Tuition Project, Kulim Wildlife Defenders (“KWD”), Pintar Harapan Tuition Programme, Pintar Foundation Programme and Kulim’s Adoption School Programme. In addition, the Group also provided sponsorships and Internship Programmes, where priority is given to Johoreans as well as the children of Kulim’s Group employees. During the year under review, Kulim continued to extend our financial support for various CR and community development programmes.

MOVING FORWARD

The Group, however, remains steadfast in mitigating the forecast challenges through the strategic initiatives mentioned earlier, in our bid to optimise the potential of our business segments.

AGRIBUSINESS

Kulim plans to strengthen our competencies in Agribusiness segment through diversification of the existing upstream activities into an integrated agribusiness value chain. This will reduce over-dependency on palm oil upstream activities and will able cushion the impact of CPO and PK price volatility to the company. Kulim will also leverage its expertise in oil palm plantation activities to plant other crops such as pineapple and coconut.

Research & Development (“R&D”)

To advance in Agribusiness sector, Kulim has signed a Memorandum of Agreement (“MoA”) with the Malaysian Palm Oil Board (“MPOB”) to utilise the latter’s technology applications to identify and verify choices of seeds faster, and more accurately. Kulim also has signed a Memorandum of Understanding (“MoU”) with the Malaysian Nuclear Agency to conduct research on the new disease-resistant pineapple varieties. These collaborations offer great potential in enhancing the value of our Agribusiness sector and will have significant impact on the development of the nation’s economy.

INTRAPRENEUR VENTURE (“IV”)

Kulim aims to establish a stronger foundation to further grow our IV Business. In line with this, Kulim has been continuously assessing the performance of IV companies, whereby companies with potential and profit growth have been nurtured and expanded, while companies that experienced setbacks have either been restructured or merged.

OIL & GAS (“O&G”)

For our Indonesia’s O&G segment, we intend to focus on the completion of the Conditional Share Subscription and Purchase Agreement (“CSSPA”) by end-2020. Moving forward, we aim to recoup our investment in the O&G business, considering either through joint venture with a third party or cashing out via dilution of Kulim Energy Nusantara Sdn Bhd (“KENSB”)’s equity in PT Citra Sarana Energi (“PT CSE ”) for a huge potential return after development.

PROPERTY

Kulim aims to increase the values of land owned by the Group which will involve the conversion of our plantation estates into the property development projects, especially in strategic locations with a high growth population and demand. The first property project developed for staff housing at Taman R.E.M. was completed by end-2019 and is currently open for sale.

ACKNOWLEDGMENTS

Amidst the challenging scenario in the global palm oil industry, I am confident that Kulim will continue to thrive on the back of our strong management and dedicated team of employees who have contributed their knowledge, expertise and commitment to the Group. On behalf of the board, I applaud you and I thank each and every one of you. On that note, I would like to extend a special appreciation to our former Chairman, Dato’ Kamaruzzaman Abu Kassim who resigned on 31 December 2019, and our former Corporate Advisor, Ahamad Mohamad who resigned on 1 March 2020, for their leadership and contribution that have helped bring the Group to greater heights. A note of appreciation also goes to the outgoing Non-Independent Non-Executive Directors namely, Zulkifli Ibrahim, Mohd Sahir Rahmat and Mohamad Salleh Mohamad Yusof, who resigned on 1 March 2020. They have contributed significantly to the Group’s development. I also take this opportunity to congratulate Dato’ Sr. Hisham Jafrey and Kandasamy a/l Kanny who were appointed to the board as Independent Non-Executive Director on 1 March 2020 and Idham Jihadi Abu Bakar who was appointed as Non-Independent E xecutive D irector on 1 March 2020. Our utmost gratitude also goes to our parent company, Johor Corporation, for their support and guidance all through the years that have brought us to where we are today. I also wish to express my heartfelt thanks to our shareholders, business partners, associates, consultants, financiers, media as well as the relevant government authorities in Malaysia and Indonesia for the role played by them in ensuring smooth and successful operations of the Group’s business segments. With your continued support, we look forward to progress Kulim into a resilient and efficient Group. My sincerest thanks to all of you.

Datuk Anuar Ahmad

Chairman/ Independent
Non-Executive Director