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Chief Financial Officer's Statement


The year 2020 was challenging on various fronts. In addition to COVID-19, which caused supply chain disruptions and, more pertinently, labour shortage, the Group also faced volatile and generally decreasing oil prices which had an impact on our Oil & Gas business. Overall, however, the palm oil industry was not as affected by the pandemic as many other sectors, given that palm oil is an essential and widely used edible oil. This enabled us to continue to produce a relatively steady set of financial figures. It gives me pleasure to add that, based on our performance, Kulim has continued to create value for our shareholders, with the Board approving a total dividend payout of RM52 million for FY2020.

FINANCIAL PERFORMANCE

CPO and PK prices increased in FY2020, averaging RM2,753 and RM1,625 per tonne, against RM2,182 and RM1,289 per tonne respectively in FY2019. This contributed to an increase in the Group’s revenue by 17% to RM1.41 billion from RM1.21 billion in 2019, despite lower production. However, the increase in revenue was not reflected in our bottom line, which was impacted by impairments related to Indonesia Oil & Gas, Indonesia Plantation and EA Tech. Recognition of these costs resulted in a further deepening of the Group’s LBT from RM127.85 million in FY2019 to RM398.95 million. On a more positive note, despite the impairments, the Group’s cash flow remained healthy.

SEGMENTAL PERFORMANCE

Plantation

Boosted by higher CPO and PK prices, our Oil Palm Plantation business continued to be the main contributor to the Group’s revenue, at RM1.02 billion or 72% of the total. This revenue was, however, dampened by lower sales volume for CPO compared to the previous year due to decrease in oil palm crop production coupled with less frequent delivery during the MCO.

Oil & Gas

Revenue from Oil & Gas support services came in at RM334.15 million, marking a 9% increase from RM307.52 million in FY2019. However, the segment incurred LBT of RM306.41 million compared to LBT RM92.51 million in the previous year mainly due to one-off impairments. These included impairment on the Indonesia Oil & Gas joint venture investments, impairment of vessels and provision for litigation settlement between EA Tech and Malaysia Marine and Heavy Engineering (“MMHE”).


Intrapreneur Venture (“IV”)

Revenue from this segment was comparable to that achieved in the previous year at RM26.46 million, with Extreme Edge Sdn Bhd registering the highest revenue of RM15.86 million. However, most of the companies under the IV portfolio suffered setbacks due to the pandemic with the result that, overall, the segment recorded an LBT of RM0.88 million, compared to a PBT of RM0.25 million in FY2019.

Apart from that, consolidation of accounts from the different segments has been facilitated by the implementation of a new accounting system called Sigma Conso. This has created a more efficient and effective consolidation of the Group financial statements to cater to the reporting requirements which are getting tighter.

STRATEGY & PRIORITIES

In view of the current operating landscape, the Management conducted a deep-dive into Kulim’s business model and operations, with the result that a new strategy has been outlined to ensure optimal use of resources for our continued sustainability. Among others, the following key initiatives are being implemented:

• An internal restructuring which involves the consolidation of plantation assets, acquisition of brownfield oil palm plantations, novation for strategic financing and operational improvements;

• A corporate restructuring entailing the divestment of underperforming businesses and monetisation of non-strategic assets such as landbank; and

• Opportunities for effective cost saving and cost optimisation with appropriate measures to prudently manage financing costs
and costs of operations across the board.

As a result of these initiatives, we believe Kulim will be a leaner, more streamlined and efficient organisation – one that we can once again list on Bursa Malaysia Berhad. The idea is to raise more funds to be able to finance further growth in what we have identified as being our core business going forward: Agriculture.

MAINTAINING OUR FINANCIAL POSITION

Cash Flow

The Group’s capital and cash flow requirements are rigorously prepared and monitored. We review our working capital levels regularly to maintain minimum cash requirement levels, while taking into account potential business opportunities as well as variability.

Liquidity

To ensure sufficient liquidity while meeting our financial obligations, we match our cash inflows and outflows with sufficient credit facilities. At the same time, we seek to reduce our gearing level by repaying debts from the proceeds of divestment of non-core business and monetisation of non-strategic assets.

Capital Management

The primary objective of the Group’s capital management is to ensure we maintain a strong capital base and healthy capital ratios in order to support our business and maximise stakeholder value.

Costs

The Group continues to implement cost saving and cost optimisation initiatives to manage our financing costs prudently, and to mitigate external volatilities, including that of CPO prices – in the future. To reduce our financing costs, we monitor both our internal and external borrowings, pare down as and when there is excess cash. We also constantly review inter-company borrowings.





RISK MANAGEMENT


Other than the financial risk of liquidity, which we manage by balancing our funding needs with standby credit facilities while divesting investments as well as monetising non-core assets (as mentioned above), we face certain operational risks, as below:

Risk Description Mitigation Strategies
Prolonged and unpredictable adverse weather – Prolonged
rains and drought affect replanting works such as land preparation, manuring and weeding.
Impact:
• Palm oil growth
• FFB production
• FFB evacuation and CPO delivery
• Financial loss
Planning of replanting and routine programmes to avoid dry
weather and heavy rains
• Reduce harvesting interval prior to or during rainy season
• Avoid field work maintenance and fertiliser application during wet season
• Scheduled programme of road maintenance
Risk of fire – Fire incidents in estates pose a significant safety
threat to workers. The incident may be caused by dry weather, electrical faults or human negligence.
Impact:
• Loss of crop
• Financial loss
• Additional cost for replanting

• Zero burning policy
• Fire extinguishers are placed at strategic locations
• Smoke detectors/fire alarms installed in buildings
• Awareness training on safety for better understanding among staff and workers
• Annual inspections to ensure no illegal electricity extension


OUTLOOK

Moving into 2021, we will continue to enhance our performance, operational efficiency and productivity with the Agriculture segment as our core business. By focusing the Group’s resources towards achieving our transformation objectives, we are confident of remaining at the forefront of the plantation and agribusiness industry.



Aziah Ahmad
Chief Financial Officer