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Dear Stakeholders,


It gives me pleasure to present Kulim’s Integrated Report 2020 as the Company’s recently appointed Managing Director. Kulim has a legacy in Malaysia’s plantation sector that dates back to 1933. Although it diversified into various businesses over the years, agriculture has always been its mainstay and, today, we are at an exciting inflection point as we seek to reclaim our identity as a leading and formidable plantation and agribusiness player.


Agribusiness has always played a key role in economies; and with the pandemic its importance has been further heightened. With border closures and supply chain disruption, it has become even more critical for countries to ensure food security in order to safeguard the well-being of their populations. As a state-owned entity, we have a very strong ethos of social service and are purpose-driven to fulfil this role in Malaysia.

Today, in fact, we seek to further enhance our food production capacity and capabilities. Despite the challenges of the current operating environment, we believe we are in the right position and have the right resources to once again be listed on Bursa Malaysia. We have developed a concrete strategy to achieve this objective, and outlined various initiatives to prepare us for the IPO. We are excited about embarking on this new phase of growth as we continue to create value for our shareholders and stakeholders.




Overview of 2020

As the most affordable and accessible edible oil, palm oil was relatively unravaged by the pandemic. Although prices, already low from an unfavourable environment in 2019, dipped in the initial three months of the Movement Control Order (“MCO”) in Malaysia, they subsequently rose to end the year on a decade-high. This was the result of increasing demand and reduced supply – the latter from less than optimal harvesting activity due to manpower shortage, as well as lowered harvest volume due to the delayed impact of drought and haze from the previous year.

Domestic demand from the food and beverage sector – hotels, restaurants, and cafes – increased with the relaxation of movement restrictions from mid-year onwards; while international demand was boosted by the Government’s implementation of zero export duty for six months from July to December 2020. Reflecting increased demand, Malaysia’s Crude Palm Oil (“CPO”) stockpile dropped to a new low of 1.26 million tonnes at the end of December 2020, as compared to 2.0 million tonnes at the end of December 2019. [1]

Labour shortage, a perennial issue in the sector, was more pronounced in 2020 due to border closures caused by the pandemic preventing the entry of foreign workers who make up a significant number of plantation hands. Together with the weather-impacted harvest, average monthly CPO production dropped 3.6% from 1,654,864 tonnes in 2019 to 1,594,744 tonnes in 2020. [2]



[1] http://mpoc.org.my/monthly-palm-oil-trade-statistics-2020/

[2] http://mpoc.org.my/monthly-palm-oil-trade-statistics-2020/



Strategic Realignment


To ensure success in our journey to become a leading, and listed, plantation and agribusiness company, we set up a Transformation Office and outlined a detailed transformation programme comprising six key components, namely Financial and Corporate Restructuring, Organisational Restructuring, Governance Framework, Business Development, Digital Transformation and Performance Improvements.

Under Financial and Corporate Restructuring, Kulim has been streamlining our operations through the termination of loss-making ventures, and divestment of non-performing businesses as well as non-core assets to focus on the plantation and agribusiness segment, where we have the competencies and experience.

As part of our Organisational Restructuring, we are enhancing our organisation structure and implementing available technologies to facilitate remote work, supporting the latter with more flexible hours and the ability for employees to enjoy better work-life balance.

To promote a culture of integrity, Kulim is working towards the MS ISO 37001:2016 certification for Anti-Bribery Management Systems (“ABMS”) and we expect to be certified in the second quarter of 2021. Apart from that, we remain committed to environmental, social and governance (“ESG”) principles recognising the importance of ESG in everything we do as an organisation. We will also review and reinforce our risk management and governance structures to facilitate our transition into a public listed company.

Currently, we are involved primarily in the upstream segment of the oil palm industry which leaves us exposed to fluctuations in CPO prices. To mitigate this risk, and as part of our new growth strategy, we will be venturing into the downstream segment with an established player. This will also enable us to capture better margins along the entire value chain.


We have set the goal of increasing our oil palm planted area from 63,509 hectares to 80,000 hectares, and made progress in 2020 by entering into an agreement to lease 8,917 hectares of planted land from Johor Corporation (“JCorp”) for a period of 45 years. The four estates involved will be managed by Mahamurni Plantations Sdn Bhd (“MPSB”), wholly owned by Kulim.

We have also identified Renewable Energy (“RE”) as a sector to be fully leveraged through our oil palm business. Methane from biogas released at our mills is currently captured and converted into electricity for internal use. However, much more can and will be done, as we believe this would be beneficial and contribute not only to our financial but also our environmental performance. Our plan is to install biogas plants in all our mills by 2025. To date, four mills have commissioned their biogas plants with the remaining one in Tereh POM to be completed in the first half of 2021.

In addition, we are setting up bio-methane and bio-compressed natural gas (“bio-CNG”) plants – the former to extract methane from biogas and feed this into Gas Malaysia’s grid, and the latter to compress the methane for storage into bottles which will be supplied directly to Gas Malaysia’s clients.

We are also exploring other new growth areas in agribusiness, and seek to develop an integrated farming model that involves pineapples, smart farming and the planting of other crops as well as livestock and trading. While underlining Kulim’s sustainability, this would also allow us to fulfill our mandate to support economic development in Johor and the nation’s food security programme specifically.

The year saw us make further progress in terms of digitalisation of our corporate processes and procedures. We implemented new systems for enhanced management, operations, administration and accounting while setting up a new network infrastructure to integrate all data from across all our operations onto a central database stored in our headquarters. Though centralised, the data can still be accessed easily by any of our operating units. Currently, our Digital Division is in the process of transforming and moving towards Microsoft 365 which will benefit Kulim as a whole.





Financial Performance

I am pleased to share that, for the year 2020, the Group achieved 17% growth in revenue from RM1.21 billion in 2019 to RM1.41 billion. This was mainly due to the increase in the price of CPO and palm kernel (“PK”) which averaged RM2,753 per tonne and RM1,625 per tonne, as compared to RM2,182 per tonne and RM1,289 per tonne in 2019.

However, we incurred a higher Loss Before Tax (“LBT”) of RM398.9 million compared to RM127.9 million in FY2019, mainly due to impairments of Indonesia Oil & Gas, Indonesia Plantation and E.A. Technique (M) Berhad (“EA Tech”). Despite the impairments, the Group’s cash flow remained healthy, and we were able to uphold our commitment to shareholders with the Board approving a total dividend payment of RM52 million for the year under review.

Research & Development

R&D forms an important component of our business, as we seek continuously to improve the quality of our plant materials for optimal yield. In addition to our R&D work, we have been collaborating with the Malaysian Palm Oil Board (“MPOB”) on different oil palm clones and, after seven years of research, a jointly developed Clone P325 was officially recognised as an “elite clone” (a Planting Material of Choice) producing an average fresh fruit bunch (“FFB”) of 30 tonnes per hectare a year, an oil extraction rate (“OER”) of 28.1%, and CPO of 8.5 tonnes per hectare a year. Recognising its superiority, the clone won the Malaysian Innovative Product Gold at the International Invention, Innovation & Technology Exhibition (“ITEX”) 2020, Kuala Lumpur.

Building a Strong Workforce

Since joining Kulim, I have been struck by the high level of dedication demonstrated by our employees. I truly believe this is one of our greatest strengths, and am also pleased to see how, as a responsible employer, we are playing our part to develop our people professionally while caring for their emotional and physical well-being.

Various programmes are conducted for our corporate employees to nurture their competencies as well as to build a strong talent pipeline. We also ensure a high level of engagement through various platforms, many of which were conducted online this year, respecting the need to maintain social distancing.

We are fortunate in that our plantations are situated away from urban centres, hence there was lowered risk of our workers contracting COVID-19. Nevertheless, we adhered strictly to all SOPs as prescribed by the Ministry of Health to keep our workers safe. Recognising the mental stress of workers unable to return to their families, we provided support in every way possible to keep morale high.

Efforts to develop our employees and nurture job satisfaction through effective engagement have led to a stream of awards by HR industry practitioners. This year, for the first time, we were named the Best Employer in Malaysia in the Government Linked Company (“GLC”) category by Kincentric. The award’s strict assessment criteria mirror Kulim’s focus on people development and HR strategies that enable us to build a future-ready workforce that meets evolving industry needs.





Another significant achievement was our Integrated Annual Report 2019 winning the Gold in the National Annual Corporate Report Awards (“NACRA”) 2020 for the Best Annual Report in the Non-Listed Organisations category.

Outlook

Despite the development and administration of COVID-19 vaccines, there are still many variables in the pandemic world that governments need to control. This means an environment of continued uncertainties in 2021 which industries and businesses will have to take into their stride. Anticipating a prolonged and deeper impact on the economy, Kulim is focused on developing resilience in our supply chains, protecting our revenues and managing our profitability while reconfiguring capital allocation for a post-COVID-19 future. Guided by our transformation programme, we will work towards achieving our goal to deliver sustainable long-term returns and value to shareholders as well as other stakeholders.

Ultimately, the success of our ongoing journey depends on our people; and I would like to take this opportunity to thank the entire Kulim family for their dedication to the Group over the years while seeking their continued commitment to achieving the targets that have been set. Our plans may be ambitious, but by working together we can transform into the leaner, stronger organisation envisaged.

On behalf of the Senior Management Team, I would like to extend my deepest gratitude to our newly appointed Chairman, YBhg. Tan Sri Dr. Ali Hamsa, and all Board members for their leadership, guidance and trust. I would also like to take this opportunity to convey our heartfelt gratitude and appreciation to the former Executive Director, Tuan Haji Zulkifly Zakariah, for his leadership and guidance at the organisation before stepping down upon retirement. Finally, my sincere appreciation goes to my colleagues on the Senior Management Team and all employees for their dedication and commitment. Your support are truly appreciated and has indeed made the difference.

We look forward to achieving many more milestones in the near future.



Mohd Faris Adli Shukery
Managing Director