PPB Group Berhad at a glance
PPB Group Berhad was established in November 1968, and by May 1972 it was listed on the then Stock Exchange of Kuala Lumpur and Singapore with an issued and paid-up capital of RM15.0 million.
From its initial operations of cane cultivation and sugar milling, the Group has since grown into a major conglomerate engaged in a wide spectrum of activities mainly in Malaysia and Indonesia. With a total domestic and overseas workforce of more than 20,000 employees, PPB Group also has operations in China, Vietnam, Myanmar, Thailand, Singapore and Europe.
The Group’s core businesses are sugar refining; grains trading, flour and feed milling; edible oils refining and trading; oil palm plantations; and environmental engineering, infrastructure and waste management services. PPB Group is also involved in film exhibition and distribution; property ownership and development; livestock farming; bulk and consumer packaging; consumer products distribution; chemicals manufacturing and commodity trading.
Currently, PPB ranks among the top companies listed on the Bursa Malaysia Securities Berhad with a market capitalization of RM6.46 billion as at 31 December 2006. The Group’s total assets amounted to RM7.3 billion with a turnover of RM11.5 billion. FFM’s flour mill complex at Pulau Indah the corporation1 the business2
chairman’s statement 04 sugar refining & cane plantation 46 corporate information 13 grains trading, flour and feed milling 48 directors’ profiles 14 livestock farming 50 group financial highlights 20 edible oils refining and trading 52 simplified group balance sheets 21 packaging 54 group’s corporate events in 2006 22 oil palm plantations 56 financial calendar 23 environmental engineering, waste management & utilities 58 corporate governance statement 24 film exhibition and distribution 60 audit committee report 31 property investment and development 62 statement of internal control 34 chemicals trading & manufacturing 64 corporate social responsibility statement 36 additional compliance information 40 corporate structure 42 PPB Group Berhad annual report 2006
the financials3 the properties4 & shareholdings
financial review 68 properties owned by PPB and its subsidiaries 200 directors’ responsibility statement 70 statement of shareholdings 211 5-year financial statistics 71 group corporate directory 214 segmental analysis 73 notice of annual general meeting 216 share performance chart 74 proxy form directors’ report 75 financial statements 80 consolidated income statement 81 consolidated balance sheet 82 consolidated statement of changes in equity 84 consolidated cash flow statement 88 income statement 90 balance sheet 91 statement of changes in equity 92 cash flow statement 93 notes to the financial statements 95 statement by directors 195 statutory declaration 196 report of the auditors 197 1 PPB Group Berhad annual report 2006 the corporation
1 the corporation chairman’s statement
Dear Shareholders, On behalf of the Board of Directors of PPB Group Berhad, it is with great pleasure that I present to you the Annual Report, incorporating the Financial Statements of the Company and the Group for the year ended 31 December 2006.
GROUP RESULTS
The year 2006 has been the most successful and financially rewarding one for the Group as it achieved a new record profit before tax of RM840.1 million, a 38% increase over the previous year’s profit of RM608.5 million.
This significant improvement is largely due to higher profit contributions from grains trading, flour and feed milling; oil palm plantations; edible oils refining and commodity trading. The disposal of an associated company engaged in utilities also contributed to the increased profits.
Revenue was up 7.8% to RM11.5 billion from RM10.7 billion due principally to higher refined palm product prices and higher sales of edible oils.
Corresponding to the higher profits, profit attributable to shareholders grew by 42.1% to RM560.7 million, translating to earnings per share of 47.29 sen as compared with 33.28 sen in the year before. With the stronger profit performance, net assets per share rose to RM4.67 from RM4.23.
PPB Group Berhad annual report 2006 chairman’s statement
DIVIDENDS
The Board has recommended for shareholders’ approval, a final dividend of 15 sen per share less 27% income tax payable on Thursday, 7 June 2007. Together with the interim dividend of 5 sen less 28% income tax paid on 28 September 2006, this will bring the total gross dividend to 20 sen per share less tax for the year ended 31 December 2006.
Net dividend payment for the year will amount to RM172 million which is equivalent to a dividend payout ratio of 104% of the Company’s earnings.
The Company’s dividend policy is aimed at providing shareholders with competitive dividend yields whilst balancing the need to retain adequate funds for its expansion and investment needs to ensure continued profit growth.
MARKET CAPITALIZATION
The domestic stock market performed well in 2006 fuelled by the healthy Malaysian economy which recorded a GDP of 5.9%, sustained business confidence and strong consumer sentiment amidst a supportive monetary policy. The KLCI closed 21.8% higher at 1096.2 points in 2006 up from 899.79 points the year before. In tandem with the overall market, PPB shares appreciated by 31% to close at RM5.45 on the last trading day of the year compared with RM4.16 registered in 2005.
With the significant increase in the market price of PPB shares, the Company’s market capitalization improved to RM6.5 billion as at 31 December 2006 from RM4.9 billion in the last financial year.
MAJOR CORPORATE ACTIVITY
On 14 December 2006, PPB received a conditional letter of offer from Wilmar International Limited (Wilmar), a company listed on the Singapore Exchange Securities Trading Limited, to acquire from PPB’s wholly owned subsidiary, FFM Berhad, its 65.8% equity interest in PGEO Group Sdn Bhd (PGEO) and 28% equity interest in Kuok Oils & Grains Pte Ltd (KOG) for a purchase consideration to be satisfied by the issuance of 287,122,772 and 305,635,556 Wilmar shares respectively.
In addition, PPB’s 55.6% subsidiary, PPB Oil Palms Berhad (PPBOP) had on the same day, received a Notice of Conditional Voluntary Offer from Wilmar of its intention to acquire all the ordinary shares in PPBOP not owned by Wilmar to be satisfied by the issuance of 2.3 new Wilmar Shares for each PPBOP share acquired.
PPB’s Board had on 24 January 2007 approved the above proposals and had agreed to present them to the shareholders of PPB at an Extraordinary General Meeting for their consideration and approval.
1 the corporation chairman’s statement
the Group with its diverse activities and strong fundamentals delivered a healthy profit before tax of RM840 million
OVERVIEW OF OPERATIONS
FOOD MANUFACTURING ACTIVITIES For the first half of the year, the Group’s sugar refining division faced a challenging time due to high raw sugar prices but turned around in the second half of the year to record an operating profit of RM85 million due to lower raw sugar prices and growth in domestic sales of about 5.1%.
In the year under review, Malayan Sugar Manufacturing Company Bhd (MSM) improved its melting and packing facility to increase its refined sugar production capacity to 800,000 mt a year. The increase in capacity will allow the Group to expand its export activities. To further enhance operating efficiency, MSM has earmarked another RM24.5 million in capital expenditure to upgrade its storage, packing and distribution facilities.
The grains trading, flour and feed milling division performed better with the timely buying of raw materials and freight to record a 91% increase in operating profits to RM110 million. This was accomplished despite the fact that world output of wheat grain was affected by unfavourable weather conditions resulting in not only higher prices but also disruption in supply of certain wheat grains. Taking a cautious stand, flour sales were maintained at the previous year’s level whilst animal feed sales were higher by 3%. Following the relocation of the Group’s flour operations to Pulau Indah from South Port, the feed manufacturing activities of FFM Berhad have also been fully relocated to Pulau Indah.
In line with its long-term plans to expand domestically and abroad, the Group will commence construction of a new flour mill with a wheat milling capacity of 360 mt per day at Prai, Penang in April 2007. The plant which is expected to be completed in the 4th quarter of 2008 will increase FFM’s market share and provide better service to its customers in the northern region.
PPB Group Berhad annual report 2006 chairman’s statement
Subsequent to the Group’s expansion of its flour milling operations into Vietnam and Thailand, it has now entered into a joint venture to construct, maintain and operate a 1000 mt per day wheat flour mill in Cilegon on Java Island, Indonesia which will further enhance operating efficiencies resulting from economies of scale.
The Group’s livestock farming operations had a difficult year with poor prices of eggs and day-old-chicks arising from an oversupply of farm products in the market. As the poultry industry is vulnerable to the threat of avian flu and other diseases, the Group’s focus is centred on maintaining high standards of bio-security and good farming practices to ensure customer satisfaction on food safety.
EDIBLE OILS REFINING & TRADING The Group’s edible oils trading and refining operations performed well to register profits of RM149 million, an increase of 18% from the previous year mainly due to increasing contributions from its downstream activities especially in the manufacturing of specialty fats. Revenue grew 9% to RM8.8 billion due to higher sales volume of downstream products coupled with firmer edible oil prices.
The Group’s refineries processed 3.4 million metric tonnes of edible oils which is about the same level as that of the previous year but sales of crude palm oil (CPO) were higher.
A firm advocate of renewable energy, the Group commenced operations of two biomass steam generation plants in Lahad Datu and Sandakan to supply renewable energy in the form of steam, chilled water and electricity which significantly reduced its dependence on fossil fuel.
1 the corporation chairman’s statement
In its continuing quest to improve operations and expand capacities to cater to growing demand, the Group doubled its hydrogenation capacity and increased the capacity of its palm kernel crushing plant in Sandakan. The commissioning of a bio-diesel plant in Pasir Gudang completed the Group’s expansion projects for the year.
OIL PALM PLANTATIONS Favourable CPO prices together with higher crop production boosted contribution from the oil palm plantation division to RM203 million from RM165 million in 2005. Net CPO prices averaged RM1,444 per tonne in 2006, up 7% from that achieved in the previous year of RM1,349 per tonne whilst production of fresh fruit bunches increased 5% to reach 1.51 million tonnes compared with 1.44 million tonnes in 2005. The average yield per hectare dropped marginally to 22.4 tonnes but yield is expected to further improve as more mature palms reach their prime production age.
Approximately 1.9 million tonnes of fresh fruit bunches were processed from PPBOP’s own plantations and outside suppliers, an increase of 6% over 2005. Mill performance continued to improve with the oil extraction rate and kernel extraction rate reaching 22.1% and 4.6% respectively. As a result of higher throughput and better oil extraction rate, CPO output rose 7% to 424,117 tonnes.
In 2006, PPBOP planted 17,387 hectares of land with palms mostly in Central Kalimantan. To cater to the increasing production from its plantations in this area, PPBOP has commissioned its tenth CPO mill in Central Kalimantan in October 2006.
PPB Group Berhad annual report 2006 chairman’s statement
the average yield per hectare in the oil palm plantation division is expected to further improve as more palms reach maturity
ENVIRONMENTAL ENGINEERING, WASTE MANAGEMENT AND UTILITIES Chemquest Sdn Bhd, PPB’s 55% subsidiary engaged in environmental engineering, waste management and utilities had an exceptional year and recorded a 133% increase in pre-tax profit to RM92.6 million against revenue of RM330 million.
A significant contribution to profits came from the divestment of its 25% stake in Konsortium Abass Sdn Bhd, the concessionaire for the Sg. Semenyih Privatization Scheme in April 2006.
During the year, this division commissioned 3 water projects one of which was the Ultrafiltration Potable Water Treatment Plant in Bukit Pancor, Penang, a 5 million litre per day municipal water treatment plant employing advanced membrane technology. This plant is notable as it showcases Chemquest’s credibility and position in membrane technology applications.
Another noteworthy project is the mechanical and electrical works for the Sewage Treatment Plant Phase 2 Package 2 project funded by Japan Bank for International Cooperation which forms part of the total RM235 million in new contracts secured by the Group.
The roll-out of the infrastructure projects under the Ninth Malaysia Plan for Water, Sewage, Flood Mitigation and Rural Water Supply should augur well for the Group with its established and long-term presence in the industry.
1 the corporation chairman’s statement
going to the cinemas continue to be a favourite choice of entertainment with a recorded admission of 13.9 million
FILM EXHIBITION AND DISTRIBUTION The film exhibition and distribution operations recorded increased profits of RM19 million on the back of higher revenue of RM125 million. Movies continue to be a favourite choice for entertainment drawing more people to the cinemas as evident from the increased cinema admissions to 13.9 million from 13.5 million registered the year before.
The better performance was also attributable to the full year contribution from GSC’s multiplex at 1Utama (New Wing) and the release of more commercial movies from Hollywood and Asian countries.
In January 2007, GSC opened an 8-screen multiplex to encouraging response at Queensbay Mall, Penang which is GSC’s second outlet in Penang after the 12-screen multiplex at GSC Gurney Plaza. With its presence established in the north and south of Penang island, GSC’s next opening would be at Seberang Prai to cater to moviegoers on the mainland. In addition to Seberang Prai, GSC also has in the pipeline another five new multiplexes to be opened in the next three years in the Klang Valley and East Malaysia.
On 28 February 2007, the Group completed the acquisition of the entire 40.2% equity interest in GSC held by Golden Harvest Film Distribution Holding Limited making GSC a 94.4% subsidiary of the Group. The acquisition allows the Group to have better control of the direction and growth of its cinema business.
PROPERTY INVESTMENT AND DEVELOPMENT The property investment and development division performed satisfactorily to record improved revenue of RM53.5 million mainly due to higher rental income from Cheras LeisureMall and Cheras Plaza as well as sales of the Masera
10 PPB Group Berhad annual report 2006 chairman’s statement
bungalows by PPB Hartabina Sdn Bhd. Profits however were lower at RM13.9 million compared with RM18.9 million in 2005 which included a write-back of development cost of RM7.6 million.
The Masera Bukit Segar Project launched in September 2006 is a gated community project comprising 25 units of 2½ storey exclusive bungalows on the hilltop of Bukit Segar. The second phase of another 13 units is expected to be launched in the second half of 2007.
In Penang, PPB Hartabina completed construction of the first phase of New World Park which houses a food court with 28 hawker stalls and is currently developing the second phase which includes F&B outlets, shops and a covered performance stage. The second phase is expected to commence business in the second quarter of 2007 and these premises will generate additional rental income for PPB Hartabina.
Other property projects to be undertaken by PPB Hartabina are on 29 acres of freehold land at Taman Tanah Aman in Seberang Prai, Penang and on 344 acres of land bank at Bedong, Kedah.
CORPORATE SOCIAL RESPONSIBILITY
Throughout the year under review, the Group embarked on various CSR projects which include amongst others cash donations, food donations and educational sponsorships. Detailed CSR activities are listed on pages 36 to 39 of the Annual Report.
1 the corporation 11 chairman’s statement
PROSPECTS AND CHALLENGES FOR 2007
Economic prospects for Malaysia are expected to remain favourable in 2007 with a projected GDP of 6%. The growth momentum is expected to be driven primarily by domestic demand from both the private and public sectors supported by modest growth in the external sector. The implementation of the Ninth Malaysia Plan should also provide further impetus to our domestic economic activities.
The Group is optimistic that the year would augur well for its businesses. The sugar refining division is expected to perform better based on current raw sugar prices and with higher exports. The grains trading, flour and feed milling division is expected to perform satisfactorily. Higher profits are expected from the oil palm plantation division with the prevailing CPO prices and the increase in crop production as more young palms become mature and mature palms reach prime age.
If the proposed disposals of PPBOP, PGEO and KOG to Wilmar in exchange for Wilmar shares are approved by the shareholders of PPB, the earnings of these companies would be excluded from PPB Group’s future earnings after the completion of the disposals. However, such exclusion would be compensated by the inclusion of the enlarged Wilmar Group’s earnings in PPB Group’s future earnings to the extent of its equity interest in the enlarged Wilmar.
The Group’s strategy remains focused on strengthening its core businesses through domestic and regional expansion in order to maintain its competitive edge in the global market. The Group is also looking for investments in value-added businesses which are able to enhance current operations to provide long term shareholder value growth.
SPECIAL THANKS
The financial achievement for the year and continued success of the Group would not have been possible without the resourcefulness, dedication and commitment of the Board of Directors, management team and staff of PPB Group and to them I wish to express my sincere gratitude for their tireless effort and loyalty.
I would also like to thank our customers, business associates, shareholders and other stakeholders for their continued support and confidence in the Group.
Datuk Oh Siew Nam Executive Chairman
6 April 2007
12 PPB Group Berhad annual report 2006 corporate information
BOARD OF DIRECTORS AUDIT COMMITTEE Datuk Oh Siew Nam Dato Sri Liang Kim Bang *Chairman Executive Chairman Ang Guan Seng Dato’ Lim Chee Wah YM Raja Dato’ Seri Abdul Aziz bin Raja Salim Deputy Chairman Datuk Harun bin Din Dato Sri Liang Kim Bang Datuk Rajasingam a/l Mayilvaganam Independent Non-Executive Director Ang Guan Seng NOMINATION COMMITTEE Non-Independent Non-Executive Director Ang Guan Seng *Chairman Tan Yew Jin Dato Sri Liang Kim Bang Non-Independent Executive Director YM Raja Dato’ Seri Abdul Aziz bin Raja Salim YM Raja Dato’ Seri Abdul Aziz bin Raja Salim Independent Non-Executive Director REMUNERATION COMMITTEE Tan Gee Sooi Dato Sri Liang Kim Bang *Chairman Non-Independent Non-Executive Director Datuk Oh Siew Nam Datuk Harun bin Din Ang Guan Seng Independent Non-Executive Director COMPANY SECRETARY Datuk Rajasingam a/l Mayilvaganam Independent Non-Executive Director Tan Teong Boon
REGISTERED OFFICE AUDITORS 17th Floor Wisma Jerneh Moores Rowland 38 Jalan Sultan Ismail 7th Floor South Block 50250 Kuala Lumpur Wisma Selangor Dredging Telephone : 03-21170888 142-A Jalan Ampang Facsimile : 03-21170999 50450 Kuala Lumpur Website : www.ppbgroup.com
SOLICITORS REGISTRARS Kadir Andri & Partners PPB Corporate Services Sdn Bhd 8th Floor, Menara Safuan 14th Floor Wisma Jerneh 80 Jalan Ampang 38 Jalan Sultan Ismail 50450 Kuala Lumpur 50250 Kuala Lumpur Telephone : 03-21170888 Lee Hishammuddin Allen & Gledhill Facsimile : 03-21170999 Level 16, Menara Asia Life 189 Jalan Tun Razak 50400 Kuala Lumpur STOCK EXCHANGE LISTING Bursa Malaysia Securities Berhad (Main Board) PRINCIPAL BANKERS Sector : Consumer Products Malayan Banking Berhad Stock Number : 4065 CIMB Bank Berhad ISIN : MYL4065OO008 Citibank Berhad Reuters Code : PEPT.KL
1 the corporation 13 directors’ profiles
1
directors’ profiles
2 3
14 PPB Group Berhad annual report 2006 directors’ profiles
1 Datuk Oh Siew Nam
Executive Chairman Non-Independent Executive Director Member of Remuneration Committee Age: 68
DATE OF APPOINTMENT Director 2 March 1988 Executive Chairman 1 July 2004
QUALIFICATIONS AND EXPERIENCE * Bachelor of Engineering (Honours) degree in * Served as a member of the Capital Issues Electrical Engineering from the University of Committee and the National Economic Canterbury, New Zealand Consultative Council II (MAPEN II) * Assistant Controller of Telecom Malaysia * Chairman of PPB Oil Palms Berhad from 2004 for 5 years before joining FFM Berhad Group to 2007 in 1968 * Managing Director of FFM Berhad from 1982 to 2002 and Executive Chairman from OTHER DIRECTORSHIPS IN PUBLIC COMPANIES 2002 to 2006 Kuok Foundation Berhad * Board member of Bank Negara Malaysia PPB Oil Palms Berhad since 1989
2 Dato’ Lim Chee Wah 3 Dato Sri Liang Kim Bang
Deputy Chairman Independent Non-Executive Director Non-Independent Executive Director Chairman of Audit and Remuneration Committees Age: 67 Member of Nomination Committee Age: 70 DATE OF APPOINTMENT Director 2 March 1988 DATE OF APPOINTMENT Deputy Chairman 1 July 2004 4 January 1995
QUALIFICATIONS AND EXPERIENCE QUALIFICATIONS AND EXPERIENCE * Bachelor of Arts (Honours) degree in Economics * Bachelor of Arts and Bachelor of Arts (Honours) from the University of Malaya degrees from the University of Malaya, Singapore * Joined Malayan Sugar Manufacturing Company * Post Graduate Course in Public Administration at Berhad in 1965 and held several senior Cambridge University, England managerial positions before being appointed as * Former Sarawak State Financial Secretary Director in 1989 and Executive Chairman in 2000 OTHER DIRECTORSHIPS IN PUBLIC COMPANIES OTHER DIRECTORSHIPS IN PUBLIC COMPANIES Cahya Mata Sarawak Berhad Jerneh Asia Berhad CMS Trust Management Berhad Jerneh Insurance Berhad MISC Berhad Kuok Foundation Berhad PPB Oil Palms Berhad Malaysian Bulk Carriers Berhad Rashid Hussain Berhad Malayan Sugar Manufacturing Company Berhad Utama Banking Group Berhad
1 the corporation 15 directors’ profiles directors’ profiles
4
5 6
16 PPB Group Berhad annual report 2006 directors’ profiles directors’ profiles
4 Ang Guan Seng
Non-Independent Non-Executive Director Chairman of Nomination Committee Member of Audit and Remuneration Committees Age: 68
DATE OF APPOINTMENT 8 July 1998
QUALIFICATIONS AND EXPERIENCE * Extensive experience and knowledge in commerce, industry, building as well as trading and has been the Managing Director of Petaling Garden Berhad since 1963
OTHER DIRECTORSHIPS IN PUBLIC COMPANIES Petaling Garden Berhad Malayan United Industries Berhad
5 Tan Yew Jin 6 YM Raja Dato’ Seri Abdul Aziz bin Raja Salim
Executive Director Independent Non-Executive Director Non-Independent Executive Director Member of Audit and Nomination Committees Chairman of Risk Advisory Committee Age: 68 Age: 65 DATE OF APPOINTMENT DATE OF APPOINTMENT 12 May 2003 Director 12 May 2001 Executive Director 25 August 2004 QUALIFICATIONS AND EXPERIENCE * Fellow of the Chartered Association of Certified QUALIFICATIONS AND EXPERIENCE Accountants, United Kingdom * Member of Malaysian Institute of Accountants * Fellow of the Chartered Institute of Management * Member of Malaysian Institute of Certified Public Accountants, United Kingdom Accountants * Member of the Malaysian Institute of Accountants * Member of Certified Public Accountants, Australia * Honorary Fellow of the Malaysian Institute of Taxation * Fellow of the Institute of Certified Public * Former Director-General of Inland Revenue, Malaysia Accountants, Singapore * Former Accountant-General of Malaysia * Was actively involved in FFM Berhad Group operations and was Deputy Managing Director of OTHER DIRECTORSHIPS IN PUBLIC COMPANIES FFM Berhad from 1998 to 2000 Amanah Saham Mara Berhad * Executive Chairman of PPB Oil Palms Berhad from Camerlin Group Berhad 2000 to 2004 Gamuda Berhad Jerneh Asia Berhad OTHER DIRECTORSHIPS IN PUBLIC COMPANIES Jerneh Insurance Berhad Jerneh Asia Berhad Kenanga Investment Bank Berhad Jerneh Insurance Berhad K&N Kenanga Holdings Berhad Tradewinds (M) Berhad Kenanga Unit Trust Berhad Shangri-La Hotels (Malaysia) Berhad Panasonic Manufacturing Malaysia Berhad PPB Oil Palms Berhad Southern Steel Berhad Tasek Corporation Berhad
1 the corporation 17 directors’ profiles directors’ profiles
7
82 9
18 PPB Group Berhad annual report 2006 directors’ profiles directors’ profiles
7 Tan Gee Sooi
Non-Independent Non-Executive Director Age: 62
DATE OF APPOINTMENT 28 July 2004
QUALIFICATIONS AND EXPERIENCE * Bachelor of Engineering (Honours) degree in Electrical Engineering from the University of Malaya * Held several senior managerial positions in the FFM Berhad Group and is presently the Executive Chairman/Managing Director of FFM Berhad
OTHER DIRECTORSHIPS IN PUBLIC COMPANIES FFM Berhad Tradewinds (M) Berhad
8 Datuk Harun bin Din 9 Datuk Rajasingam a/l Mayilvaganam
Independent Non-Executive Director Independent Non-Executive Director Member of Audit Committee Member of Audit Committee Age: 72 Age: 64
DATE OF APPOINTMENT DATE OF APPOINTMENT 12 May 2005 16 May 2005
QUALIFICATIONS AND EXPERIENCE QUALIFICATIONS AND EXPERIENCE * Bachelor of Arts (Honours) degree from the * Fellow of the Chartered Institute of Logistics and University of Malaya, Singapore Transport * Joined the Malaysian Civil Service as Assistant * Associate Member of the Institute of Industrial Secretary in the Prime Minister’s Department in Engineers, Australia 1959 and held the position of Deputy Secretary- * Served the Lembaga Pelabuhan Klang for 33 General before retiring in 1990 years and was the General Manager prior to his * Former Secretary-General of the Ministry of retirement in November 1997 Housing & Local Government * Independent Non-Executive Director of FFM * Former Secretary-General of the Ministry of Berhad from 1997 to 2004 National & Rural Development * Chairman of the Malaysian Election Commission from 1990 to 1999 * Independent Non-Executive Director of FFM Berhad from 1999 to 2004 * Former General Manager of Klang Port Authority
NOTES
1. All the Directors are Malaysians. 2. None of the Directors has any family relationship with any other Director or substantial shareholder of the Company, nor any conflict of interest with the Company except for Mr Ang Guan Seng, whose interests in transactions with the PPB Group are disclosed on pages 78 (Directors’ Report), 40 and 41 (Additional Compliance Information) of this Annual Report. 3. None of the Directors had any convictions for offences within the past ten years.
1 the corporation 19 group financial highlights
2006 2005 CHANGE RM ‘MILLION RM ‘MILLION %
INCOME STATEMENTS Revenue 11,519.767 10,687.950 7.8 Profit before tax 840.065 608.501 38.1 Profit for the year 694.250 468.235 48.3 Profit attributable to shareholders of the Company 560.665 394.579 42.1
BALANCE SHEETS Equity attributable to shareholders of the Company 4,644.684 4,215.153 10.2 Total equity 5,531.325 5,018.809 10.2
RATIOS Return on net assets attributable to shareholders of the Company % 12.07 9.36 Earnings per share sen 47.29 33.28 42.1 Interest coverage times 26.68 40.24 -33.7 Current ratio times 2.69 2.83 -4.9 Total borrowings/Equity % 12.49 10.29 Long term borrowings/Equity % 6.04 2.98 Net assets attributable to shareholders of the Company RM 3.92 3.56 10.1 Operating cashflow per share sen 24.53 50.00 -50.9 Price earnings ratio times 11.52 12.50 -7.8 Net dividend per share sen 14.55 14.40 1.0 31 December closing price RM 5.45 4.16 31.0
20 PPB Group Berhad annual report 2006 simplified group balance sheets
ASSETS
2006 2005 6.01% 11.28%
11.82%
10.46%
42.04% 5.89% 43.66% 5.74%
14.88% 13.92%
7.16% 5.89% 10.13% 9.95%
0.54% 0.63%
Non-Current Assets Current Assets Property, plant and equipment, investment properties, Inventories, biological assets and biological assets and other intangible assets other intangible assets Associates Trade receivables Joint ventures Cash, bank balances and deposits Other non-current assets Other current assets
EQUITY AND LIABILITIES
4.71% 3.76% 4.89% 5.76%
2006 2005 4.12% 2.35% 5.79%
4.58% 5.21% 4.15%
12.62% 12.16% 63.72% 66.18%
Current Liabilities Non-Current Liabilities
Trade payables Long term borrowings Minority Interests Short term borrowings Other non-current liabilities Equity attributable to shareholders Other current liabilities of the Company
1 the corporation 21 group’s corporate events 2006 group’s corporate events 2006
17 January FFM Berhad (FFM), a wholly owned subsidiary of PPB Group, announced the construction of a new 360-mt per day flour mill at a total investment cost of RM46 million. The new flour mill will increase FFM’s market share and provide better service to its customers in the northern region.
3 March A Press and Analyst Briefing was held to review the financial results for the year ended 31 December 2005 and other matters.
17 March PGEO Group Sdn Bhd (PGEO Group), a wholly owned indirect subsidiary of PPB, acquired 100% equity interest in Biogreen Supply Sdn Bhd (Biogreen). Biogreen will undertake the production of oleo chemical products using palm oil.
28 March Hexarich Sdn Bhd, a wholly owned subsidiary of PPB, entered into a Share Sale Agreement with Redtone International Berhad to purchase 3 million ordinary shares of RM1.00 each representing 20% equity interest in Mobile Money International Sdn Bhd for a total cash consideration of RM3.2 million.
Mobile Money International Sdn Bhd is a mobile payment service provider and an investment holding company, while the principal activities of its subsidiaries are provision of software development services and marketing of payment services.
27 April PGEO Group acquired 100% equity interest in PGEO Marketing Sdn Bhd (PMSB). PMSB will undertake the marketing and trading of edible oils.
28 April Chemical Waste Management Sdn Bhd, a 100% indirect subsidiary of PPB Group, completed the disposal of its entire 25% equity interest in Konsortium Abass Sdn Bhd to Titisan Modal (M) Sdn Bhd for a total cash consideration of RM132 million giving rise to a profit of RM87.2 million.
28 April FFM acquired 100% equity interest in Mantap Hijau Sdn Bhd (MHSB). MHSB will manage and operate a meat processing plant at Pulau Indah.
15 June PGEO Group acquired 100% equity interest in Saga Venture Sdn Bhd (SVSB). SVSB will undertake the manufacturing of specialty fats at Sandakan, Sabah.
5 September A Press and Analyst Briefing was held to review the financial results for the six months ended 30 June 2006 and other matters.
8 September FFM SMI Sdn Bhd, a wholly owned indirect subsidiary of PPB Group, entered into a Share Sale Agreement with Mr Victor Lee Lok Kan, to acquire 35% equity interest in Foodteller Sdn Bhd (FSB) for a total cash consideration of RM2.52 million. FINANCIAL YEAR FROM 1 JANUARY 2006 TO 31 DECEMBER 2006
FSB is principally engaged in the production of Asian snack food. Set up in 2001, FSB RESULTS specializes in spring roll pastry, vegetable spring roll, vegetable samosa, kachorie, 1st Quarter ended 31 March 2006 Announced on 23-May-06 vegetable patties and paratha. Today, FSB exports 80% of its products to Europe, USA, 2nd Quarter ended 30 June 2006 Announced on 23-Aug-06 Canada, Middle East, Australia, New Zealand and other Asia Pacific countries. 3rd Quarter ended 30 September 2006 Announced on 24-Nov-06 4th Quarter ended 31 December 2006 Announced on 27-Feb-07 12 September PPB Hartabina Sdn Bhd (PPBH), a wholly owned subsidiary of PPB, launched the development of Masera Bukit Segar bungalows. PPBH’s exclusive residential homes, located on the DIVIDENDS highest point of Bukit Segar off Jalan Cheras, will be undertaken in two phases comprising Interim Dividend of 5 sen less 28% income tax Declared on 23-Aug-06 38 units of 2½ storey luxury bungalows in a private gated community covering a total area Entitlement Date 14-Sep-06 of 21 acres of freehold land. Paid on 28-Sep-06
22 September PT Mustika Sembuluh, a 90% indirect subsidiary of PPB Group, commissioned the Group’s Proposed Final Dividend of 15 sen less 27% income tax Announced on 27-Feb-07 first palm oil mill in Central Kalimantan. Located 65 km from Sampit town and costing about Entitlement Date 24-May-07 RM33 million, the mill features state-of-the-art vertical sterilizer design, which is the first of Payable on 7-Jun-07 its kind in the Group’s palm oil mills. Issue of Annual Report 20062005 26-Apr-06 With a production capacity of 60 tonnes per hour (tph) and expandable to 120 tph, the mill is set to cater to the rising fresh fruit bunches production from the Group’s Central 38th37th Annual General Meeting 18-May-06 Kalimantan existing oil palm projects.
22 PPB Group Berhad annual report 2006 group’s corporate events 2006
1 November Mantap Aman Sdn Bhd (“Mantap Aman”), an indirect wholly owned subsidiary of PPB Group entered into a Joint Venture Agreement with Millerstar Pte Ltd, Singapore, to construct, maintain and operate a wheat flour mill in Indonesia under a joint venture company known as “PT Pundi Kencana” in which Mantap Aman will own 51% equity interest.
The proposed flour mill will be located at Cilegon, a town situated on the western side of Java, Indonesia. The joint venture will enable PPB Group to expand its flour milling activity into Indonesia and enhance operational efficiencies as a result of economies of scale in the wheat flour milling business.
15 November PPB completed the disposal of its entire 12.15% equity interest in Gula Padang Terap Sdn Bhd (GPT) comprising 13 million ordinary shares of RM1.00 each to Tradewinds (M) Bhd for a total cash consideration of RM22.842 million. GPT is principally engaged in the processing of sugar cane and refining of imported raw sugar.
28 November PPB Leisure Holdings Sdn Bhd (PPBL), a wholly owned subsidiary of PPB, entered into a Share Sale & Separation Agreement with Golden Harvest Films Distribution Holding Ltd to acquire 12,269,466 ordinary shares of RM1.00 each equivalent to 40.2% equity interest in Golden Screen Cinemas Sdn Bhd (GSC). The acquisition will increase PPBL’s stake in GSC to 94.4% and enable PPBL to have better control of the growth and direction of GSC as well as increase market share in the cinema business in Malaysia.
14 December PPB received a friendly offer from Wilmar International Limited (Wilmar) to acquire from FFM Berhad its 65.8% equity interest in PGEO Group Sdn Bhd and 28% equity interest in Kuok Oils & Grains Pte Ltd for a total consideration of 287,122,772 and 305,635,556 new Wilmar shares respectively.
PPB Oil Palms Berhad (PPBOP), a 55.6% subsidiary of PPB, has also received a Notice of Conditional Voluntary Offer from Wilmar to acquire all of its shares under the Malaysian Code on Takeovers and Mergers 1998 on the basis of 2.3 new Wilmar shares for every PPBOP share acquired.
The above offers are subject to the approval of the relevant authorities and shareholders of PPB. financial calendar FINANCIAL YEAR FROM 1 JANUARY 2006 TO 31 DECEMBER 2006
RESULTS 1st Quarter ended 31 March 2006 Announced on 23-May-06 2nd Quarter ended 30 June 2006 Announced on 23-Aug-06 3rd Quarter ended 30 September 2006 Announced on 24-Nov-06 4th Quarter ended 31 December 2006 Announced on 27-Feb-07
DIVIDENDS Interim Dividend of 5 sen less 28% income tax Declared on 23-Aug-06 Entitlement Date 14-Sep-06 Paid on 28-Sep-06
Proposed Final Dividend of 15 sen less 27% income tax Announced on 27-Feb-07 Entitlement Date 24-May-07 Payable on 7-Jun-07
Issue of Annual Report 20062005 26-Apr-06
38th37th Annual General Meeting 18-May-06
1 the corporation 23 corporate governance statement corporate governance statement
The Board of Directors of PPB Group Berhad continues to be committed in maintaining a high standard of corporate governance and ensuring that effective self regulatory controls exist throughout PPB and its subsidiaries (“the Group”) to safeguard the Group’s assets. The Board especially recognizes that good corporate governance encompasses four key areas namely transparency, accountability, integrity and corporate performance.
This statement describes the manner in which PPB Group has applied the principles of good governance and the extent of compliance with the best practices set out in the Malaysian Code on Corporate Governance (“the Code”) throughout the financial year.
CORPORATE GOVERNANCE STRUCTURE
shareholders
nomination commiTtee
board of directors
remuneration commiTtee
risk advisory audit commiTtee commiTtee
management group internal audit
FLOUR ENVIRONMENTAL ANIMAL FEED ENGINEERING, PROPERTY CHEMICALS EDIBLE OILS OIL PALM FILM EXHIBITION SUGAR WASTE INVESTMENT & TRADING & LIVESTOCK PLANTATIONS & DISTRIBUTION MANAGEMENT DEVELOPMENT MANUFACTURING FARMING & & UTILITIES PACKAGING
24 PPB Group Berhad annual report 2006 corporate governance statement
BOARD OF DIRECTORS
BOARD RESPONSIBILITY The Board is fully responsible for the effective control of PPB Group. This includes responsibility for determining the Group’s strategic direction, financial performance, allocation of resources, principal risks and implementing appropriate steps to manage these risks, investor relations programme and ensuring the systems of internal control are in place and are effective.
The Board has delegated specific responsibilities to four committees, namely, the Audit, Nomination, Remuneration and Risk Advisory Committees, which operate within approved terms of reference. These Committees have the authority to examine particular issues and report to the Board with their recommendations. The ultimate responsibility for the final decision on all matters, however, lies with the entire Board.
COMPOSITION OF THE BOARD The Board has nine Directors comprising three Executive Directors and six non-executive Directors, of whom four are independent. The number of independent directors is in compliance with the Listing Requirements of the Bursa Malaysia Securities Berhad (“Bursa Securities”) which requires one third of the Board to comprise independent directors.
Collectively, the Directors bring to the Board a wide range of business, financial and technical experience for the effective management of the Group’s diversified businesses. The profile of each director is presented on pages 14 to 19 of this Annual Report.
There is a clear division of responsibilities in the Company. The Executive Chairman represents the Board to shareholders and provides Board leadership and direction on policy formation and decision-making. The Executive Directors are responsible for implementing the policies and decisions of the Board, overseeing the operations and development of business and corporate strategies. The non-executive Directors of calibre and experience provide the necessary balance of power and authority to the Board. They ensure that all proposals by management are fully deliberated and examined taking into account the interests of shareholders and other stakeholders and the communities in which the Group conducts its businesses. The Independent Non-executive Directors provide unbiased and independent views to safeguard the interest of minority shareholders.
The Board has appointed Dato Sri Liang Kim Bang as the Senior Independent Non-executive Director of the Board to whom concerns of the Group may be conveyed.
The Board is satisfied that the current Board composition fairly reflects the investment of minority shareholders in the Company.
1 the corporation 25 corporate governance statement corporate governance statement
BOARD MEETINGS The Board meets at least four times a year, with additional meetings held when decisions on urgent matters are required between scheduled meetings.
During the financial year ended 31 December 2006, the Board met four times and the record of the attendance of each Director is set out below:-
NAME OF DIRECTOR ATTENDANCE % OF ATTENDANCE Datuk Oh Siew Nam 4 100 Dato’ Lim Chee Wah 4 100 Dato Sri Liang Kim Bang 4 100 Ang Guan Seng 4 100 Tan Yew Jin 4 100 YM Raja Dato’ Seri Abdul Aziz bin Raja Salim 4 100 Tan Gee Sooi 4 100 Datuk Harun bin Din 4 100 Datuk Rajasingam a/l Mayilvaganam 4 100
SUPPLY OF INFORMATION The Executive Chairman plays a key role to ensure that all Directors have full and timely access to information. All Directors are provided with an agenda and a set of board papers issued in sufficient time prior to Board meetings to ensure that the Directors can appreciate the issues deliberated and where necessary, to obtain further explanation. The Board papers include updates on financial, operational and corporate developments of the Group. At each Board Meeting, the directors are briefed on the Group’s activities and operations by the CEOs of the principal subsidiaries.
In exercising their duties, the Directors have access to all information within the Company and to the advice and services of the Company Secretary. If necessary, the Directors can seek professional opinion and advice from external consultants including merchant bankers, valuers and financial advisers.
In addition, there is a schedule of matters reserved specifically for the Board’s decision, including amongst others, the overall Group strategy and direction, approval of financial results, corporate plans and budgets, acquisitions and disposals of assets that are material to the Group, major investments and capital expenditures. This schedule ensures that the governance of the Group is in its hands.
APPOINTMENTS TO THE BOARD The Nomination Committee comprises three non-executive Directors and they are Ang Guan Seng (Chairman), Dato Sri Liang Kim Bang and YM Raja Dato’ Seri Abdul Aziz bin Raja Salim.
The Committee assists the Board in the following:-
* Recommend to the Board, candidates for all directorships to be filled by the shareholders or the Board.
26 PPB Group Berhad annual report 2006 corporate governance statement corporate governance statement
* Regularly review the required mix of skills, experience and other qualities of the directors, including core competencies which non-executive Directors should bring to the Board.
* Review the Board structure, size and composition and make relevant recommendations to the Board including Directors to fill the seats on board committees.
* Assess the effectiveness of the Board as a whole, the committees of the Board and the contribution of the Directors.
Decisions on appointments are made by the Board after considering recommendations by the Committee. During the financial year ended 31 December 2006, the Nomination Committee had one (1) meeting which was attended by all members.
DIRECTORS’ TRAINING There is a familiarization programme for new Board members including, where appropriate, visits to the Group’s businesses and meetings with senior management to facilitate their understanding of the Group’s businesses and operations.
All the Directors have attended the Continuous Education Programmes (“CEP”) as required by Bursa Securities to keep abreast with relevant new regulatory developments on a continuous basis. In addition, in-house Directors’ CEP training sessions in the form of seminars were held during the financial year ended 31 December 2006, as follows :-
SEMINAR TOPICS NO. OF HOURS SPENT i. Succession Planning for Success and Talent Management 4 ii. Regulation of the Securities Market 2.5 iii. Directors and Officers Liability 2.5 iv. Enhancing Your Image Quotient 3.5 v. Briefings on the Group’s major business activities 1
RE-ELECTION OF DIRECTORS In accordance with the Company’s Articles of Association, Directors who are appointed by the Board are subject to election by shareholders at the first opportunity after their appointment. The Articles also provide that at least one third of the Board including the Executive Chairman is subject to re-election annually and each Director shall stand for re-election at least once every three years.
DIRECTORS’ REMUNERATION i. Remuneration Policy The remuneration of Directors is determined at levels which enable the Company to attract and retain Directors with the relevant experience and expertise to manage the Group successfully. In the case of Executive Directors, the remuneration is structured to link rewards to corporate and individual performance. As for the non-executive Directors, the level of remuneration reflects the experience and level of responsibility undertaken by the non-executive Director.
1 the corporation 27 corporate governance statement corporate governance statement
ii. Remuneration Procedure The Remuneration Committee comprising mainly non-executive Directors, recommends to the Board the remuneration of the Executive Directors and it is the ultimate responsibility of the entire Board to approve the remuneration of these Directors. The members of this Committee are Dato Sri Liang Kim Bang (Chairman), Datuk Oh Siew Nam and Ang Guan Seng.
The determination of the remuneration of the non-executive Directors is a matter for the Board as a whole subject to approval of shareholders at the Annual General Meeting (“AGM”). The directors are not involved in the approval of their own remuneration package. During the financial year ended 31 December 2006, the Remuneration Committee had two (2) meetings which were attended by all members.
iii. Remuneration Package The details of the remuneration of Directors on Group basis for the financial year ended 31 December 2006 are as follows :-
ALL FIGURES IN RM’000 EXECUTIVE DIRECTORS NON-EXECUTIVE DIRECTORS Salary 2,400 720 Fees 52 443 Attendance Fee 2 34 Bonus 4,600 1,300 Benefits-in-kind 88 32 Employer Provident Fund 1,010 315 Total 8,152 2,844
The aggregate remuneration of Directors analysed into the appropriate bands of RM50,000 are as follows :-
RANGE OF REMUNERATION EXECUTIVE DIRECTORS NON-EXECUTIVE DIRECTORS RM50,001 – RM100,000 - 3 RM100,001 – RM150,000 - 2 RM800,001 – RM850,000 1 - RM2,400,001 – RM2,450,000 - 1 RM2,450,001 – RM2,500,000 1 - RM4,850,000 – RM4,900,000 1 - Total 3 6
Note : Successive bands of RM50,000 are not shown entirely as they are not represented.
28 PPB Group Berhad annual report 2006 corporate governance statement corporate governance statement
INVESTOR RELATIONS
INVESTOR RELATIONS PROGRAMME The Company has an active Investor Relations programme directed to both individual and institutional investors. The Company’s Investor Relations mission is to maintain an ongoing awareness of the Company’s performance among its shareholders, media and the investment community. The Company’s Investor Relations programme focuses on transparency of disclosure and the timely dissemination of information.
i. Sources of Information The principal sources of information disseminated by the Company during the year, include :-
* Our annual report which aims to give readers a comprehensive picture of PPB Group’s businesses and performance for the financial year under review.
* Quarterly Investor Updates designed like a newsletter are sent to registered shareholders and the investment community. The Investor Update contains financial results, articles of the Group’s operations as well as significant events during the quarter under review.
* The Investor Handbook published annually provides shareholders and the investment community an overview of the Group’s operations and serves as a convenient reference guide.
* News releases which announce financial performance and important events relating to the Group via the local media and the corporate website.
* The Company’s corporate website, www.ppbgroup.com contains a separate section for our shareholders or potential investors under “Investors” where they can request for information or provide feedback to the Company. Information on the Group, its businesses, financial data, annual reports and Investor Updates can be easily downloaded from the website.
ii. Direct Meetings PPB Group’s policy is to maintain an active dialogue with its shareholders with the objective of giving shareholders a clear and complete picture of the Company’s performance. This is provided at the Company’s annual general meetings where shareholders can express their views or raise questions in relation to the Company’s financial performance and business operations. Members of the Board as well as the Auditors of the Company are present to answer questions raised at the meeting.
The Company conducts analyst briefings twice a year to provide consistent dialogues between the Company’s senior management and the investment community. Biannual press conferences are also held after the final and half-yearly results are released to the Bursa Securities. On these occasions, the Executive Chairman and CEOs of the principal subsidiaries are present to address any questions on the Group’s businesses.
At other times, the Company makes every attempt to meet all requests for meetings or information by the investment community.
While the Company endeavours to provide as much information possible to shareholders and the investment community, it is always mindful of the legal and regulatory framework governing the release of material and price-sensitive information.
1 the corporation 29 corporate governance statement
iii. Queries and Feedback PPB welcomes inquiries and feedback from the shareholders and the investment community. The Corporate Affairs Department of the Company provides investors with a channel of communication on which they can provide feedback to the Company.
Queries and concerns regarding PPB Group may be conveyed to the following persons :-
1. Dato Sri Liang Kim Bang, Senior Independent Non-executive Director Telephone number : 03-21170888 Facsimile number : 03-21170999
2. Koh Mei Lee, Senior Manager (Corporate Affairs) Telephone number : 03-21170800 Facsimile number : 03-21170998 E-mail address : [email protected]
ACCOUNTABILITY AND AUDIT
FINANCIAL REPORTING In presenting the annual financial statements and quarterly announcement of results to shareholders, the Directors are committed to present a balanced and fair assessment of PPB Group’s position and prospects. The Audit Committee assists in reviewing the information disclosed to ensure accuracy and adequacy.
A statement by the Directors of their responsibilities in preparing the financial statements is set out on pages 70 of this Annual Report.
RELATIONSHIP WITH AUDITORS The Board maintains a formal and transparent professional relationship with the auditors through the Audit Committee. The Audit Committee meets with the external auditors without the presence of the management at least once a year.
A report of the Audit Committee is set out on pages 31 to 33 of this Annual Report.
INTERNAL CONTROL The Statement of Internal Control set out on pages 34 to 35 of this Annual Report provides an overview of the Statement of Internal Control within PPB Group.
Datuk Oh Siew Nam Dato Sri Liang Kim Bang Executive Chairman Independent Non-executive Director
6 April 2007
30 PPB Group Berhad annual report 2006 corporate governance statement audit committee report
COMPOSITION
The members of the Audit Committee (AC) during the financial year ended 31 December 2006 comprised the following directors :-
NAME OF DIRECTOR MEMBERSHIP DIRECTORSHIP Dato Sri Liang Kim Bang Chairman Independent Non-executive YM Raja Dato’ Seri Abdul Aziz bin Raja Salim Member Independent Non-executive Ang Guan Seng Member Non-Independent Non-executive Datuk Harun bin Din Member Independent Non-executive Datuk M Rajasingam a/l Mayilvaganam Member Independent Non-executive
TERMS OF REFERENCE
The Terms of Reference of the AC are set out below :-
AUTHORITY The Audit Committee shall :- 1. have authority to investigate any matters within its terms of reference; 2. have the resources which are required to perform its duties; 3. have full and unrestricted access to any information pertaining to the Company; 4. have direct communication channels with the external and internal auditors; 5. be able to obtain independent professional or other advice; and 6. be able to convene meetings with the external auditors, excluding the attendance of the executive members of the committee, whenever deemed necessary.
DUTIES The duties of the Audit Committee are to :-
1. review the following and report the same to the Board of Directors of the Company :-
a. with the external auditors, the audit plan;
b. with the external auditors, their evaluation of the system of internal control;
c. with the external auditors, their audit report;
d. the assistance given by the employees of the Company to the external auditors;
e. the adequacy of the scope, functions and resources of the internal audit function and that it has the necessary authority to carry out its work;
f. the internal audit programme, processes, the results of the internal audit programme, processes or investigation undertaken and whether or not appropriate action is taken on the recommendations of the internal audit function;
1 the corporation 31 audit committee report audit committee report
g. the quarterly results and year-end financial statements, prior to the approval by the Board of Directors, focusing particularly on :- i. changes in or implementation of major accounting policy changes; ii. significant and unusual events; and iii. compliance with accounting standards and other legal requirements;
h. any related party transactions and conflict of interest situation that may arise within the Company or Group including any transaction, procedure or course of conduct that raises questions of management integrity;
i. any letter of resignation from the external auditors of the Company; and
j. whether there is reason (supported by grounds) to believe that the Company’s external auditors are not suitable for re-appointment;
2. recommend the nomination of a person(s) as external auditors;
3. consider the external auditors’ fee and any questions of dismissal;
4. discuss problems and reservations arising from the interim and final audits and any matter the auditor may wish to discuss (in the absence of management where necessary);
5. review the external auditors’ management letter and management’s response;
6. review any appraisal or assessment of the performance of members of the internal audit function;
7. approve any appointment or termination of senior staff member of the internal audit function;
8. inform itself of resignations of internal audit staff members and provide the resigning staff member an opportunity to submit his reasons for resigning; and
9. consider other topics as defined by the Board.
MEETINGS OF AUDIT COMMITTEE
The number of meetings of the AC held during the financial year ended 31 December 2006 and details of attendance of each committee member are as follows :-
NO. OF AUDIT COMMITTEE MEETINGS NAME OF DIRECTOR HELD ATTENDED Dato Sri Liang Kim Bang 4 4 YM Raja Dato’ Seri Abdul Aziz bin Raja Salim 4 4 Ang Guan Seng 4 4 Datuk Harun bin Din 4 4 Datuk M Rajasingam a/l Mayilvaganam 4 4
32 PPB Group Berhad annual report 2006 audit committee report audit committee report
ACTIVITIES OF THE AUDIT COMMITTEE
During the financial year ended 31 December 2006, the AC performed the duties specified in its Termsof Reference. In performing its duties, the AC inter-alia :-
1. reviewed with Moores Rowland the audit plan, the audit report, their evaluation of the system of internal control and the assistance given by the Group’s officers to them;
2. reviewed with the internal auditors their audit reports, approve their audit plan, scope and audit approach including assessing their performance and adequacy of their resources;
3. reviewed the Group’s quarterly results and year-end financial statements prior to submission to the Board of Directors;
4. reviewed the Audit Committee Report and Statement on Internal Control for inclusion in the Annual Report;
5. reviewed half-yearly reports on the Group’s top risks and management action plans to manage the risks;
6. reviewed related party transactions within the Group; and
7. recommended the nomination of Moores Rowland for re-appointment as external auditors.
ACTIVITIES OF THE INTERNAL AUDIT DEPARTMENT
The activities of PPB Internal Audit Department (PPBIAD) are guided by its Remit and the annual audit plan approved by the AC. PPBIAD reports functionally to the AC and is independent of the activities they audit.
During the financial year ended 31 December 2006, PPBIAD reviewed the adequacy and integrity of the Group’s system of internal control covering both financial as well as non-financial controls. In addition, the effectiveness of the Group’s Enterprise Risk Management system was also evaluated. The audits focused on key controls to manage risks, safeguard assets, secure the accuracy and reliability of records, comply with policies, procedures, laws and regulations and promote efficiency of operations.
Dato Sri Liang Kim Bang Chairman (Independent Non-Executive Director)
6 April 2007
1 the corporation 33 statement on internal control
The Board acknowledges its responsibility for establishing an efficient and effective system of internal control covering not only financial controls but also controls relating to operational, compliance and risk management to safeguard shareholders’ investment and the Group’s assets. There is an on-going review process by the Board to ensure the adequacy and integrity of the system. Such a system is designed to manage rather than eliminate the risk of failure. Accordingly, the system can only provide reasonable and not absolute assurance against material misstatement, loss or fraud.
The key elements of the Group’s system of internal control are summarized as follows :-
1. CONTROL ENVIRONMENT The Board considers the integrity of staff at all levels to be of utmost importance, and this is pursued through its comprehensive recruitment, appraisal and reward programmes. There is an effective Group organisation structure within which business activities are planned, controlled and monitored.
The Group’s culture and values, and the standard of conduct and discipline it expects from its employees have been communicated to them via the employee handbook or letters of appointment.
2. RISK MANAGEMENT The Board has established a formal group-wide enterprise risk management system covering the Group’s core business activities to identify, evaluate and manage significant business risks faced by the Group.
This process has been in place throughout the year and is continually reviewed by the Audit Committee for its adequacy and effectiveness and reported accordingly to the Board.
The key features in the Group’s risk management framework are :-
* A formal risk policy and guideline have been established and approved by the Board and communicated to employees throughout the Group;
* A risk reporting structure which outlines the lines of reporting and responsibilities of the Board, Audit Committee, Risk Advisory Committee and the various subsidiary risk committees have been established and approved;
* The group-wide risk assessment process includes identifying the key risks, potential impact and likelihood of those risks occurring, the control effectiveness and adopting the appropriate action plans to mitigate those risks to the desired levels;
* The Risk Advisory Committee provides reports on the risk profile of the Group to the Audit Committee for review and the Audit Committee reports on the significant risks and controls available to mitigate those risks to the Board for its consideration;
* The appointment of a Chief Risk Officer at holding company and risk officers at the subsidiaries to ensure leadership, direction and coordination of the group-wide application of risk management; and
* On-going risk management education and training is provided at management and staff levels.
34 PPB Group Berhad annual report 2006 statement on internal control
3. CONTROL ACTIVITIES The Board has in place a system to ensure that there are adequate risk management, financial and operational policies and procedures and rules relating to the delegation and segregation of duties.
There are comprehensive budgets, requiring board’s approval, which are reviewed and revised on a regular basis, with performance monitored against them and explanations sought for significant variances.
4. INFORMATION AND COMMUNICATION There is a system of financial reporting to the Board, based on quarterly results and annual budgets. Key risks and operational performance indicators are continuously monitored and reported to the Board.
5. MONITORING Monitoring of the Group’s significant business risks is embedded within the Group’s risk management process described in 2 above. A control-self-assessment system is also in place for management to monitor those critical and routine risk areas under their jurisdiction using an internal control checklist.
The effectiveness of the Group’s risk management, internal control and governance processes is monitored by the Audit Committee, which receives regular reports from the internal auditors. Formal procedures are in place for correction of weaknesses identified in these reports.
There were no material internal control failures nor have any of the reported weaknesses resulted in material losses or contingencies during the financial year.
The Group’s system of internal control applies principally to PPB Group Berhad and its subsidiaries. Associated companies have been excluded because the Group does not have full management and control over them.
6 April 2007
1 the corporation 35 corporate social responsibility statement corporate social responsibility statement
Corporate social responsibility (CSR) has always been part of PPB Group’s values, guiding us in decision-making and operations. It is important for us to achieve business success in ways that honour our ethical principles and demonstrate respect for people and the planet. In today’s competitive business environment, our efforts have evolved and taken on a progressively more strategic role, which helps us manage and create worth for our Company.
The sustainability and long-term success of PPB Group depends on our ability to gain access to new resources and the strength of relationships developed with key stakeholders – our customers, our workforce, our business partners, our shareholders and the regulators. In addition, it is our Company’s firm belief that to continue to make economic returns, we have to be an integral part of our community to support the community through various initiatives. We are committed to continuously improve our operations through cutting edge technology towards minimizing harm to the environment, as we believe that this is vital to our Company’s long-term competitiveness in the marketplace.
COMMITMENT
* We remain committed to pursue and demonstrate CSR by ensuring that our operations and business practices are managed responsibly and efficiently with the highest standard of accountability and integrity in increasingly complex environments.
* We are dedicated to help create sustained economic growth by building human and institutional capacity. Our workforce is encouraged to reach their full potential through training, career development and promotion from within wherever possible.
* We especially recognize the importance for our workforce to feel proud and inspired to work for the Group, and thus we strive to improve their quality of life and provide them with a safe workplace.
36 PPB Group Berhad annual report 2006 corporate social responsibility statement
* We believe it is our duty to contribute and engage with the communities to which we belong and society at large. Through our educational initiatives and community projects, we hope to develop relationships with and enhance the quality of life of these communities.
* We are conscious that the planet belongs not to us, but to future generations, and hence we make every effort to ensure that our operations and services are in accordance with appropriate industry standards and best practices, to minimize harm to the environment.
HIGHLIGHTS OF 2006 CSR ACTIVITIES
FOR THE COMMUNITY Recognizing the challenges in today’s society, PPB is committed to regenerate and support the communities in which we are based, through education sponsorships for the young as well as through our various initiatives.
Highlights of the Group’s CSR activities for the community in 2006 are as follows: -
* Inculcate a lifelong habit of reading and learning amongst schoolchildren with the contribution of brightly-colored storybooks to ten primary schools in the Klang Valley under the “Cultivating the Love for Reading” project
1 the corporation 37 corporate social responsibility statement corporate social responsibility statement
* Cash donations totaling RM1,204,054 for the following:- • Disasters (floods) – RM700,000 • Welfare (charitable homes and associations) – RM185,579 • Education (schools and universities) – RM142,762 • Others (unions, government departments and professional bodies) – RM80,523 • Sports (sports associations and activities) – RM19,400 • Medical (hospitals and dialysis centres) – RM16,200
* Participated in the New Straits Times Sponsorship programme by providing free newspapers to all schools in Perlis to encourage reading by children in schools
* Connected with various welfare homes through activities such as visits; monthly contributions of flour, sugar and cooking oil; as well as the establishment of a bakery led by our technical personnel to bake cakes and pastries for welfare homes in Kuching
* Provided industrial trainings for undergraduates * Participated in “gotong-royong” activities organized by local health authorities and the communities by providing garbage bins, labour and vehicles
* Participated in various blood donation drives organized by hospitals and NGOs * Treated senior citizens to special movie screenings at GSC cinemas to show appreciation and care for the elderly
* Jointly organized various film festivals, such as the Japanese Film Festival, European Union Film Festival, French Film Festival and others to promote appreciation of the arts and cultures of other countries
FOR THE WORKPLACE To-date, PPB Group employs more than 20,000 employees in its domestic and overseas operations. We value our workforce, and encourage them to pursue personal and professional development. PPB also undertakes to provide a safe working environment for our workforce.
PPB’s CSR activities for the workplace in 2006 are as follows: -
* Organized seminars to educate employees on health, safety measures and others to improve the quality of life of employees
* Provided English Language workshops to enhance the language skills of employees * Organized company trips, dinners, treasure hunts and sporting events to encourage more interaction amongst employees
* Sent employees to various continuing training programmes to enhance job performance and career development
38 PPB Group Berhad annual report 2006 corporate social responsibility statement corporate social responsibility statement
FOR THE ENVIRONMENT PPB strives to ensure that our operations produce as little environmental impact as is consistent with our business needs. Among others, PPB continues to explore possible ways to reduce and recycle waste as well as to minimize the emission of green house gases.
Below are PPB’s CSR activities for the environment in 2006: -
* Composted poultry manure from our layer farms into organic fertilizer * Constructed three biomass plants at Lumut, Lahad Datu and Sandakan to reduce dependence on fossil fuel and thus, reduce carbon emissions in line with the Malaysian government’s commitment to the Kyoto Protocol 1997
* Developed backend power generation systems to process palm waste for use as fuel to generate electricity * Encouraged the practice of recycling in the communities by setting up recycling bins * Refurbished the pre-war heritage building known as “The Whiteaways Arcade” in Lebuh Pantai to preserve the history and culture of Penang
* Strived to minimize operational waste by recycling effluent back into the production process
FOR THE MARKETPLACE PPB actively engages with our shareholders, customers and the investment community and provides them with up-to-date information on our operations through periodic publications and analyst briefings.
The Group’s CSR activities for the marketplace in 2006 are as follows: -
* Published quarterly Investor Updates to keep stakeholders abreast of the Group’s activities during the period * Published annual Investor Handbooks to allow stakeholders to have better understanding and assessment of the future and direction of the Company
* Set up a new baking centre at FFM, Pulau Indah to provide testing, research and training facilities * Active consideration of customers’ feedback and recommendation * Strived to assist people with disabilities to live independently by providing disabled friendly facilities in the Group’s new cinemas
* Participated in the Malaysian Palm Oil Board’s Congress for palm oil industry
This statement is made in accordance with a resolution of the Board of Directors dated 6 April 2007.
1 the corporation 39 additional compliance information additional compliance information
In compliance with the Bursa Malaysia Securities Berhad Listing Requirements, the following additional information is provided :-
1. Non-audit Fees The amount of non-audit fees paid to the external auditors of PPB and its subsidiaries (“PPB Group”) for the financial year ended 31 December 2006 were as follows :-
Name of Auditor Fees (RM) Purpose Moores Rowland 239,003 Consultancy on FRS 139, tax advisory and accounting services. KPMG Corporate Advisory Sdn Bhd 176,500 Due diligence review and corporate tax advisory. KPMG Tax Services 39,735 Tax advisory services. Ernst & Young Tax Consultants 67,030 Tax advisory services. Chin & Co. 500 Tax advisory services. Khin Su Htay & Associates 7,493 Secretarial services.
2. Material Contracts There were no material contracts entered into by PPB Group involving its Directors’ and major shareholders’ interests either still subsisting at the end of the financial year ended 31 December 2006 or entered into since the end of the previous financial year.
3. Recurrent Related Party Transactions of a Revenue or Trading Nature (“RRPT”) The RRPTs entered into by PPB Group during the financial year ended 31 December 2006 were as follows :-
RELATED PARTIES The related parties are as follows :-
a. Kuok Brothers Sdn Berhad (“KB”), a major shareholder of PPB with direct interest of 39.78% and indirect interest of 0.19%, 0.13%, 0.08% and 0.004% held through Gaintique Sdn Bhd, Jerneh Insurance Berhad, Min Tien & Co. Sdn Bhd and Hoe Sen (Mersing) Sdn Bhd respectively;
b. Kerry Group Limited (“KGL”), a major shareholder of PPB with indirect interest of 6.49% held through Kerry Holdings Limited (“KHL”);
c. KHL, a major shareholder of PPB with indirect interest of 3.65%, 2.55%, 0.28% and 0.02% held through Dalex Investments Limited, Natalon Company Limited, Chipchase Limited and Kerry (1989) Limited respectively;
d. Mr Ang Guan Seng (“AGS”), a Director of PPB, has indirect interest of 3.51% held through Nai Seng Sdn Bhd and Ang Toon Chew & Sons (M) Sdn Bhd;
e. Mr Lee Cho Fatt (“LCF”), a Director and shareholder of FFM Feedmills (Sarawak) Sdn Bhd, and a Director of FFM Flour Mills (Sarawak) Sdn Bhd, 75% and 100% subsidiary companies of PPB respectively; and
f. Mr Christopher John Neville (“CJN”), a Director with more than 15% indirect interest in Volac Ingredients Sdn Bhd, a 51% subsidiary company of PPB.
40 PPB Group Berhad annual report 2006 additional compliance information
Year 2006 Interested Nature Of Transactions Undertaken by Actual Related PPB and/or its Subsidiary Companies Transacting Party RM’000 Party Purchase of raw sugar 403,737 KGL & KHL * Malayan Sugar Manufacturing Co. Bhd (“MSM”) * Kerry Foodstuffs Co. Ltd (“KFCL”)/ Eagle Trading Co Ltd (“ET”) Sale and purchase of edible oils/grains 8,484,502 KGL & KHL * PGEO Group S/B Group & its * Kuok Oils & Grains Pte Ltd subsidiary companies & its subsidiary companies Sale of refined sugar MSM Hoe Sen (Mersing) S/B 13,024 KB * * 34,024 KB * MSM * Min Tien & Co. S/B (“MTSB”) MSM Batu Pahat Seng Huat S/B 3,159 AGS * * 34,948 KGL & KHL * MSM * KFCL/ET Purchase of all classes of general insurance 12,082 KB * PPB Group * Jerneh Insurance Bhd (“JIB”) Oil mills & infrastructure construction and provision of engineering services 22,597 KB * Minsec Engineering Services S/B (“MES”) * PPB Oil Palms Bhd (“PPBOP”) Group Sale and purchase of chemicals 36,696 KB * Chemquest S/B Group * Malayan Adhesives & Chemicals S/B (“MAC”) Purchase of corn/soya bean meal FFM Berhad (“FFM”) Group Ban Seng Guan S/B 9,767 AGS * * 74,010 AGS * FFM Group * Hoe Seng Chan S/B Sale of flour 1,961 AGS * Johor Bahru Flour Mill S/B (“JBFM”) * Batu Pahat Seng Huat S/B Purchase of crude palm oil 43,003 AGS * PGEO Edible Oils S/B (“PGEO”) * Perusahaan Minyak Sawit Bintang S/B Purchase of plastics (jerrycans) 1,229 AGS * PGEO * United Plastics S/B Sale of soya bean meal 20,120 KB * PGEO * MTSB Purchase of crude palm oil and/or palm kernel 547,306 KB * Sandakan Edible Oils S/B, Bintulu Edible * PPBOP Group Oils S/B, FFM Feedmills (Sarawak) S/B and FFM (Sabah) S/B Sale of flour, wheat, feed, bran and pollard 4,912 KB * JBFM * MTSB Sale of bran and pollard 5,091 LCF * FFM Flour Mills (Sarawak) S/B * FFM Feedmills (Sarawak) S/B Sale of calcium salt 7,337 CJN * Volac Ingredients S/B * Volac International Ltd Provision of project management services 811 KGL & KHL * PPB Hartabina S/B * Shangri-La Hotels (Malaysia) Berhad Group Factory and infrastructure construction and provision of engineering services 3,909 KB * MES * FFM Group Infrastructure construction and provision of engineering services 2,650 KB * MES * MSM
1 the corporation 41 corporate structure corporate structure as at 21 march 2007
100% 100% 55.6% MALAYAN SUGAR FFM BHD PPB OIL PALMS BHD MANUFACTURING CO BHD *
Masuma Trading Co Ltd 100% Johor Bahru Flour Mill Sdn Bhd 100% Sapi Plantations Sdn Bhd 100%
Astakonas Sdn Bhd 100% FFM Flour Mills(Sarawak) Reka Halus Sdn Bhd 70%
Sdn Bhd 100% Kiabau Plantations Sdn Bhd 100%
50% Vietnam Flour Mills Ltd 100% Sabahmas Plantations Sdn Bhd 100% KILANG GULA FELDA PGEO Group Sdn Bhd 100% Sri Kamusan Sdn Bhd 100% PERLIS SDN BHD PGEO Edible Oils Sdn Bhd 100% Sekar Imej Sdn Bhd 100% Sandakan Edible Oils Sdn Bhd 100%
Bintulu Edible Oils Sdn Bhd 100% Ribubonus Sdn Bhd 100% PGEO Energy Sdn Bhd 100% SEO Energy Sdn Bhd 100% Ceramilek Sdn Bhd 89.8% PGEO Marketing Sdn Bhd 100% Volac Ingredients Sdn Bhd 51% Saremas Sdn Bhd 100% Lahad Datu Edible Oils Sdn Bhd 45% KOG Edible Oils BV 35% Segarmas Plantations Sdn Bhd 100%
FFM Marketing Sdn Bhd 100% Suburmas Plantations Sdn Bhd 70%
Suburmas Palm Oil Mill Sdn Bhd 53% FFM (Sabah) Sdn Bhd 100% Kaminsky Sdn Bhd 100% Kerry Flour Mills Ltd 43.4% Clonal Palms Sdn Bhd 100%
FFM Feedmills (Sarawak) PT Mustika Sembuluh 90% Sdn Bhd 75% PT Kerry Sawit Indonesia 90% FFM Farms Sdn Bhd 100% PT Kencana Sawit Indonesia 100% Katella Sdn Bhd 100% PT Sarana Titian Permata 80%
Taloh Sdn Bhd 100% PT Karunia Kencana Permaisejati 95%
Tego Sdn Bhd 79.9% PT Bumi Sawit Kencana 95% PT Mentaya Sawit Mas 95% Kuok Oils & Grains Pte Ltd 28% Saratok Palm Oil Mill Sdn Bhd 30%
42 PPB Group Berhad annual report 2006 corporate structure as at 21 march 2007
55% 100% 100%
CHEMQUEST SDN BHD PPB HARTABINA SDN BHD PPB LEISURE HOLDINGS SDN BHD
Chemical Waste Kembang Developments Sdn Bhd 100% Golden Screen Cinemas Sdn Bhd 94.4% Management Sdn Bhd 100% South Island Mining Co. Sdn Bhd 100% Cathay Screen Cinemas Sdn Bhd 66.2% Asia Pacific Microspheres Seletar Sdn Bhd 100% Sdn Bhd 100% Kerry Leisure Concepts Sdn Bhd 50%
Products Manufacturing Berjaya-GSC Sdn Bhd 50% Sdn Bhd 70% Easi (M) Sdn Bhd 60% PT Healthcare Glovindo 99.9%
Minsec Engineering Services Sdn Bhd 100%
34% 100% Sitamas Environmental Systems Sdn Bhd 70% SHAW BROTHERS (M) SDN BHD PPB CORPORATE SERVICES SDN BHD
AWS Sales & Services 100% Sdn Bhd 80% HEXARICH SDN BHD Beijing Kerry Veolia Waste Water Treatment Co. Ltd 51% 25%
JER Envirotech Sdn Bhd 50% TRINITY CORAL SDN BHD
Beijing CQ Environmental Mgt Consultancy Services Co. Ltd 100%
* LISTED ON THE BURSA MALAYSIA SECURITIES BERHAD SUGAR MANUFACTURING & SERVICES GRAINS & FEED INVESTMENT HOLDING LIVESTOCK FARMING SHIPPING EDIBLE OILS COMMODITY TRADING OIL PALM WASTE MANAGEMENT & UTILITIES ENTERTAINMENT AND LEISURE OTHERS PROPERTY
This chart features the main operating companies and does not include dormant and inactive companies. Percentages shown indicate the Group’s direct equity interest held.
1 the corporation 43 2 44 PPB Group Berhad annual report 2006 the business
2 the business 45 sugar refining and cane plantation
46 PPB Group Berhad annual report 2006 MALAYAN SUGAR MANUFACTURING COMPANY BERHAD MSM
The Group’s sugar refining operations are undertaken by its wholly owned subsidiary, Malayan Sugar Manufacturing Company Berhad (MSM) and 50% associate, Kilang Gula Felda Perlis Sdn Bhd (KGFP).
MSM’s sugar refinery at Prai, Province Wellesley started operations in 1964 and has become the region’s largest sugar refinery with a melting capacity of 2,500 tonnes of raw sugar per day. The refinery produces various types of sugar for industrial and household consumers. Its customers consist of major food and beverage industries, confectionaries, hotels, restaurants, food outlets and household consumers.
At present, both MSM and KGFP produce more than 700,000 mt of refined sugar per annum and supply about 60% of the domestic sugar requirements.
REVIEW OF OPERATIONS Sugar operations achieved a lower profit of RM84.6 million in 2006 (2005 : RM90.8 million) due to high raw material prices in the first half of 2006.
MSM’s domestic sales increased by 5.1% despite unfavourable trading conditions whilst exports decreased marginally from 97,575 mt to 91,772 mt with lower export sales to Indonesia.
Sales Volume 2006 2005 Domestic (mt) 534,178 508,498 Export (mt) 91,772 97,575 Total (mt) 625,950 606,073
Domestic (%) 85 84 Export (%) 15 16
In 2006, MSM expanded the melting and packing capacity which is expected to increase refined sugar production capacity to 800,000 mt per annum.
PPB’s 4,350-hectare sugar cane plantation at Chuping, Perlis harvested 222,611 mt cane in the 2005/2006 season, a 13.4% decrease from 257,134 mt in the previous season due to adverse weather conditions which resulted in 50,000 mt cane being carried forward to the next crop. The cane is processed at an integrated sugar mill and refinery operated by KGFP.
LOOKING AHEAD For 2007, MSM has earmarked RM24.5 million to build a new packing station in Kuala Lumpur, increase its regional sugar storage capacity and improve factory operations.
MSM’s sugar refining operations expect to perform satisfactorily in 2007 assuming the prevailing world raw sugar prices remain at current levels.
2 the business 47 grains trading, flour and feed milling
48 PPB Group Berhad annual report 2006 FFM BERHAD FFM
PPB Group’s grains trading, flour and feed milling activities are held under FFM Berhad (FFM), a wholly owned subsidiary of PPB.
FFM Group is one of the largest flour millers in Malaysia supplying more than 40% of the country’s wheat flour requirements. FFM’s milling complexes are strategically located in Pasir Gudang, Johor Bahru; Pulau Indah, Port Klang; Kuching, Sarawak and Vietnam with a total milling capacity of 2,350 mt per day. Kerry Flour Mills Ltd, a 43.35% associate of FFM, operates a 250-mt per day flour mill in Thailand.
FFM also operates five feed mills in Peninsular and East Malaysia with a total milling capacity of 135 mt per hour and is one of the biggest feed millers in Malaysia.
REVIEW OF OPERATIONS The Group’s grains trading, flour and feed milling division performed satisfactorily with operating profits of RM109.6 million for the year 2006 against revenue of RM939.3 million due to better acquisition of raw materials and favourable trading conditions.
World production of wheat grain was badly affected by unfavourable weather conditions in 2006. This had resulted in higher wheat prices and also disruption in the supply of certain types of wheat grain. Taking a cautious stand, the Group’s flour sales in 2006 were maintained at about the same level as the previous year.
On 1 November 2006, Mantap Aman Sdn Bhd (MASB), a wholly owned subsidiary of FFM, entered into a joint venture with Millerstar Pte Ltd, Singapore to construct, maintain and operate a wheat flour mill in Cilegon located in Java, Indonesia. MASB will subscribe for 51% equity interest in the joint venture company known as “PT Pundi Kencana” for a total cash consideration of RM9.9 million. The flour mill, which will be operational by end-2008, will enable FFM Group to expand its flour milling activity into Indonesia and enhance operational efficiencies as a result of economies of scale in the wheat flour milling business.
The Group’s animal feed sales registered an increase of 3% in 2006 compared with 2005.
During the year under review, FFM completed the relocation of all its feed manufacturing activities from South Port to Pulau Indah, Selangor.
LOOKING AHEAD The construction of a new flour mill at Prai, Penang, undertaken by JBFM Flour Mill Sdn Bhd, is scheduled to commence in April 2007 and complete in the 4th quarter of 2008. The mill, with a wheat milling capacity of 360 mt per day, will increase FFM’s market share and provide better services to its customers in the northern region.
FFM will continue to seek opportunities to expand its grains trading, flour and animal feed businesses locally and regionally.
2 the business 49 livestock farming
50 PPB Group Berhad annual report 2006 FFM FARMS SDN BHD FFM FARMS
FFM Farms Sdn Bhd, a wholly owned subsidiary of FFM Berhad, undertakes high-tech livestock farming in two broiler-breeder and one layer farm, producing day-old-chicks and table eggs. These farming activities complement the Group’s feed milling and trading operations.
The breeder farms in Sua Betong, Negeri Sembilan and Gurun, Kedah, have a total land area of 167 hectares with a total production capacity of 3 million chicks per month.
The layer farm in Trong, Perak has a monthly production capacity of 20 million eggs. Sited on 550 acres of isolated land, with ample buffer zone for maintenance of strict biosecurity, this farm produces antibiotic-free premium and vitamin E-enriched eggs marketed under the brand name “Seri Murni”.
FFM Farms also produces “Origanic”, an organic fertilizer using composted poultry manure from the layer farm.
REVIEW OF OPERATIONS Faced with depressed farm product prices in 2006, the livestock farming operations reported a loss of RM4.4 million for the year (2005 : profit of RM18.9 million).
As the poultry industry remained cautious and vigilant in the face of the avian flu threat and sharply higher grain prices, FFM Farms stayed focus on maintaining high standards of biosecurity and good farming practices.
FFM Farms, a participant of the “Certificate for Good Farm Practices Scheme” programme administered by the Department of Veterinary Services, Ministry of Agriculture, Malaysia, was again awarded the certificate in 2006.
LOOKING AHEAD FFM Farms will continue to source for suitable lands to expand its operations and plans are underway to increase the production capacity of its organic fertilizer operations.
FFM Berhad is setting up a halal-meat further processing plant to produce poultry sausages, nuggets and burgers at Pulau Indah, Selangor. The plant which is expected to be operational in the third quarter of 2007, is in line with the Group’s strategy of investing in downstream activities for synergistic growth.
2 the business 51 edible oils refining and trading
52 PPB Group Berhad annual report 2006 edible oils refining and trading PGEO GROUP SDN BHD PGEO GROUP
PPB Group’s edible oils refining operations are held through its 100% indirect subsidiary, PGEO Group Sdn Bhd (PGEO Group). PGEO Group, including its associate, owns and operates six refineries in Peninsular and East Malaysia and refines more than 4.0 million mt of edible oils annually. About 90% of the refined edible oils are exported to India, China, EU countries, Middle East, Pakistan and Russia whilst the balance is sold locally.
PGEO has integrated downstream into the production of shortening, hydrogenated products, cocoa butter replacers and retail packaging. The majority of these products are exported. Cooking oils packed under various brands such as “Neptune” and “Seri Murni” as well as “Blue Team” shortening are marketed locally by FFM Marketing Sdn Bhd, a wholly owned subsidiary of FFM Berhad.
REVIEW OF OPERATIONS In 2006, the Group’s edible oils refining and trading operations recorded profits of RM148.6 million, up 17.8% from the previous year (2005: RM126.2 million). The good performance is attributable to higher sales volume and better contributions from its downstream activities particularly in the manufacturing of specialty fats. Revenue also increased by 9% to RM8.8 billion compared to RM8.1 billion in 2005 due to higher sales volume coupled with firmer edible oil prices.
PGEO Group including its associate’s refineries, processed 4.2 million mt edible oils in 2006.
During the year under review, PGEO Group commissioned two biomass steam generation plants at Lahad Datu and Sandakan to supply renewable energy that will reduce the Group’s dependence on fossil oil.
In the same year, PGEO Group increased the production capacity of its hydrogenation plant in Pasir Gudang as well as relocated and increased the capacity of its palm kernel crushing plant in Sandakan. In December 2006, a 100,000-mt per annum biodiesel plant was commissioned in Pasir Gudang.
LOOKING AHEAD PGEO Group endeavors to strengthen its position in the edible oils market by continually upgrading its processing technology and ensuring that its products are of world standards and in accordance with their customers’ unique requirements. The Group is constantly looking to widen its specialty fats and trans fats free product range to cater for growing market demand.
For the year 2007, PGEO Group will be completing the installation of its 100 tonnes per day palm kernel fractionation plant in Sandakan.
The Group will also conduct studies on oleo chemicals as well as nutraceutical industry to identify potential new businesses in ensuring its sustainability and competitiveness in the global business arena.
With well-planned and managed expansion projects, the Group is anticipating stable growth for the years ahead.
2 the business 53 packaging
54 PPB Group Berhad annual report 2006 PGEO EDIBLE OILS SDN BHD PGEO packaging TEGO SDN BHD TEGO
The Group’s Packaging Division is held through FFM’s wholly owned subsidiary, PGEO Edible Oils Sdn Bhd (PGEO) and 79.9%-subsidiary, Tego Sdn Bhd (Tego).
PGEO operates a consumer packing plant in Pasir Gudang, Johor for packing of edible oils into tin can, PET bottle, HDPE container (Jerry can), BIB (Bag in Box) and steel drum. Most of the packed products are for export whilst some brand names such as “Neptune” and “Seri Murni” are distributed locally. Its two drum assembly lines produce 210-litre steel drums at a combined production capacity of 800 drums per hour.
Tego is the leading manufacturer of commercial polypropylene (PP) and polyethylene (PE) bags used for packing of sugar, flour, feedmeal, fertilizer and industrial chemical products; flexible intermediate bulk container (FIBC) bags for bulk cargoes; technical fabrics for industrial applications; and sewing threads for local as well as export markets. Tego operates two factories located in Senawang, Negeri Sembilan and another in Yangon, Myanmar, which have a combined monthly production capacity of 650 mt of PP products.
REVIEW OF OPERATIONS Packaging Division achieved higher profits of RM10.3 million for 2006 (2005: RM4.9 million) due to lower steel prices and increased drum sales mainly to the chemical and lubricant industries.
During the year under review, Tego completed the expansion of its FIBC production capacity to 50,000 pieces per month in its Myanmar plant at a total cost of RM1.17 million.
LOOKING AHEAD Tego aims to increase its market share in the higher value added sectors like yarns, fabrics and FIBC as the PP woven bags sector becomes more competitive.
With major players merging and more new entrants in the drum manufacturing industry, PGEO will aggressively market its steel drums to stay competitive and maintain its market share.
2 the business 55 oil palm plantations
56 PPB Group Berhad annual report 2006 oil palm plantations PPB OIL PALMS BERHAD PPBOP
Oil palm plantations operation represents one of the core businesses of PPB Group and is held through its 55.6%-listed subsidiary, PPB Oil Palms Bhd (PPBOP). PPBOP has a total planted area of 104,014 hectares in East Malaysia and Indonesia, of which 67,476 hectares are mature and operates ten crude palm oil (CPO) mills with a combined processing capacity of 2.3 million mt per annum.
REVIEW OF OPERATIONS PPBOP Group recorded a higher profit before tax of RM229.91 million for year 2006 (2005: RM193.89 million) of which the plantation operations contributed RM215.09 million (2005: RM169.32 million). The 18.6% increase in profits was due largely to higher palm product prices and improvement in fresh fruit bunches (FFB) production in 2006. Revenue of RM674.27 million (2005: RM583.74 million) was 15.5% higher because of higher realised crude palm oil (CPO) prices and FFB production.
Net CPO prices averaged RM1,444 per tonne in 2006, 7% higher than the previous year’s net average price of RM1,349 per tonne.
PPBOP’s total planted area increased 20% to 104,014 hectares during the year while the mature area grew by 6% to 67,476 hectares. Production of FFB improved 5% to 1,511,904 tonnes, while the average yield per hectare dropped marginally to 22.4 tonnes. The average yield is expected to improve as more young mature palms reach their prime production age.
PPBOP’s tenth CPO mill was commissioned in Central Kalimantan, Indonesia in October 2006. PPBOP Group’s CPO mills processed 1,915,481 tonnes of FFB from its own plantations and outside suppliers, an increase of 6% over 2005. Mill performance continued to improve during the year with oil extraction rate (OER) of 22.1% and kernel extraction rate (KER) of 4.6%. CPO output from the mills rose 7% to 424,117 tonnes mainly due to higher throughput from own FFB production and outside FFB purchases, and better OER.
LOOKING AHEAD In the first half of 2007, PPBOP’s CPO mill in Ribubonus Estate, Sabah is scheduled for completion. The commissioning of the new mill will increase PPBOP Group’s milling capacity to 2.425 million tonnes of FFB per annum.
FFB production is expected to increase further as new areas come into maturity and as more mature areas reach their prime. Mill extraction rates are expected to be maintained at current levels and CPO output is expected to increase further with higher projected FFB production from own plantations and outside FFB purchases.
The Group’s main focus will continue to be on the rapid development of its sizeable Indonesian land bank and improving the operational efficiency of its mature areas as well as lowering its production costs in East Malaysia and Indonesia.
2 the business 57 environmental engineering, waste management and utilities
58 PPB Group Berhad annual report 2006 CHEMICAL WASTE MANAGEMENT SDN BHD CWM
PPB Group’s environmental engineering and waste management operations in Malaysia are primarily undertaken by Chemquest Sdn Bhd’s wholly owned subsidiary, Chemical Waste Management Sdn Bhd (CWM). CWM is the innovative leading provider of advanced technologies and professional management to the water, sewage and solid waste industries. Its track record in these industries comprises over 80 projects which have a combined contract value in excess of RM1 billion.
Chemquest Overseas Limited (CQOL), a wholly owned subsidiary of Chemquest, is the investment vehicle for Chemquest Group’s overseas projects including the 100,000 m³/day Lugouqiao Sewage Treatment Plant (Phase 1) in Beijing, China with a 20-year concession as well as a 30-year concession to process and deliver treated water to the inhabitants of Hohhot, the capital of Inner Mongolia, China.
REVIEW OF OPERATIONS The Group’s environmental engineering and waste management division registered a profit of RM3.1 million in 2006 (2005 : loss of RM6.1 million) against revenue of RM103.1 million (2005 : RM70.9 million).
In 2006, the Chemquest Group successfully commissioned 3 water projects valued at RM27 million out of the existing total projects of RM146 million, amongst them was the Bukit Pancor Ultrafiltration Water Treatment Plant (WTP), which is the 1st sizeable Municipal Potable WTP using membrane technology in Malaysia.
Chemquest Group also secured new contracts with a total value of RM235 million, notably the mechanical and electrical works for the Sewage Treatment Plant Phase 2 Package 2 project funded by Japan Bank for International Cooperation.
The divestment of CWM’s entire 25% stake in Konsortium ABASS Sdn Bhd for a total cash consideration of RM132 million, was completed in April 2006 contributing a profit of RM87.2 million to Group results.
LOOKING AHEAD Chemquest Group will continue to engage in the 9th Malaysia Plan projects with focus in 4 sectors; water, sewage, flood mitigation and rural water which has a total allocation of RM6.5 billion while also initiating Private Finance Initiative schemes for solid waste management activities and rehabilitation program in Johor.
These developments augur well for Chemquest Group with its established and long-term presence in the industry. The Group will continue to adopt a focused strategy in enhancing and expanding its core competencies, business partnerships, project footprints and technology domains while delivering timely, holistic and broad-base solutions to its clients via its team of experienced and committed professionals.
2 the business 59 film exhibition and distribution
60 PPB Group Berhad annual report 2006 film exhibition and distribution GOLDEN SCREEN CINEMAS SDN BHD GSC
Golden Screen Cinemas (GSC), a 94.4% subsidiary of PPB Group, operates a total of 116 screens in 19 locations throughout the country including the popular 18-screen multiplex at Mid Valley Megamall in Kuala Lumpur, the largest in South East Asia. GSC is also the largest distributor of Chinese and independent English films in the country.
REVIEW OF OPERATIONS In 2006, the film exhibition and distribution division posted a higher operating profit of RM18.9 million (2005 : RM18 million) against revenue of RM124.8 million (2005 : RM120.3 million). The better performance was due to the strong lineup of blockbuster films and the full year contribution from its 13-screen multiplex at 1 Utama (New Wing). Blockbuster films such as, “Pirates of the Carribean 2”, “Fearless”, “Casino Royale”, “X-Men 3: The Last Stand”, “Superman Returns” and the local film “Cicakman” increased admissions to 13.9 million from 13.5 million in 2005.
On 28 November 2006, PPB Leisure Holdings Sdn Bhd (PPBL), the holding company of GSC, entered into a Share Sale and Separation Agreement (SSSA) with Golden Harvest Film Distribution Holding Limited (GH), to acquire GH’s entire 40.2% equity interest in GSC at a total cash consideration of RM91 million. The SSSA was completed on 28 February 2007.
LOOKING AHEAD In January 2007, GSC opened its 8-screen multiplex at Queensbay Mall, Penang which will increase its market share in the northern region.
GSC will be investing a total of RM80 million to open six new multiplexes between 2007 to 2009 reinforcing GSC’s long-term commitment in the film industry in Malaysia.
GSC is continually upgrading its cinema facilities and will be introducing e-payment ticketing service to more GSC locations, which will further enhance the cinema going experience for its customers.
2 the business 61 property investment and development
62 PPB Group Berhad annual report 2006 PPB HARTABINA SDN BHD PPBH
PPB’s wholly owned subsidiary, PPB Hartabina Sdn Bhd (PPBH), plays a significant role in the Group’s property development activities especially at its land bank in Taman Segar, Cheras where PPBH has developed residential properties and commercial complexes. PPBH is also engaged in property management and currently owns and manages Cheras LeisureMall, a prime shopping centre in Cheras and Cheras Plaza, a 9- storey office cum commercial building.
Cathay Screen Cinemas Group (CSC Group) in which PPB Group has 66.2% equity interest owns and leases various ex-cinema properties and commercial buildings throughout the country.
REVIEW OF OPERATIONS During the year under review, the properties division reported lower profits of RM13.9 million (2005: RM18.8 million) due to a write-back of development cost in 2005. Revenue rose by 7.4% to RM53.5 million (2005: RM49.8 million) mainly due to higher rental income from Cheras LeisureMall and Cheras Plaza as well as recognition of property income for the Masera project in PPBH.
In July 2006, the construction of New World Park (NWP) at Jalan Burma, Penang, commenced. An F&B and shopping complex initiative, NWP will be developed in two phases. The first phase, consisting of a food court with 28 hawker stalls has been completed and opened on 8 January 2007 to good response from the locals and tourists. Construction of the second phase, comprising F&B outlets, shops and a covered performance stage was completed in February 2007 and is expected to commence business in the 2nd quarter of 2007.
In September 2006, PPBH launched Phase 1 of Masera Bukit Segar, a gated community project on freehold land that comprises 25 units of 2½ storey exclusive bungalows located on the highest point of Bukit Segar off Jalan Cheras. This high-end development is scheduled for completion by end-2007.
PPBH’s own properties, Cheras LeisureMall and Cheras Plaza, both located in Cheras, Kuala Lumpur enjoy 100% and 93% occupancy rates respectively to date.
Seletar Sdn Bhd, a wholly owned subsidiary of PPBH, is currently undertaking a residential development known as “Taman Sinar Mentari” in Bedong, Kedah. Seletar’s large land bank of 344 acres is expected to provide long-term development potential to PPB Group.
LOOKING AHEAD In the second half of 2007, PPBH plans to launch Phase 2 of its Masera Bukit Segar development comprising 13 units of 2½ storey bungalows.
Another project in the pipeline is the 29-acre freehold Taman Tanah Aman project in Bukit Tengah, Seberang Prai which is scheduled to be launched in 2007. This project will be developed in five phases comprising a clubhouse, 48 units of 2½ storey bungalows, 24 units of double storey semi-detached houses and 12 units of two storey shoplots.
PPBH will be sourcing for additional land banks for residential and commercial development, besides providing management services to the Group’s companies for their development projects.
2 the business 63 chemicals trading and manufacturing
64 PPB Group Berhad annual report 2006 ASIA PACIFIC MICROSPHERES SDN BHD APM MALAYAN ADHESIVES & CHEMICALS SDN BHD MAC
PPB Group’s chemicals trading and manufacturing activities are undertaken mainly by Asia Pacific Microspheres Sdn Bhd (APM), Malayan Adhesives & Chemicals Sdn Bhd (MAC), and JER Envirotech Sdn Bhd (JESB). APM and MAC are 100% and 99.1% indirect subsidiaries of PPB Group respectively whilst JESB is a 50% associate of PPB Group.
APM is the world’s only producer of phenolic thermoset microspheres. Marketed under the tradename “Phenoset®”, these are hollow microspheres used primarily for weight reduction in a variety of applications ranging from marine, automotive, adhesives to aviation and aerospace. APM also produces contact adhesive resins for the local market and for export to North America, Europe and the Asia Pacific region.
MAC manufactures adhesives, resins, additives and formaldehyde, which are marketed to the local wood-based and paper industries to be used in the production of plywood, medium density fibreboards and particleboards. MAC also produces strengthening resins for the corrugated paper industry.
The manufacturing plants of both APM and MAC are located in Shah Alam, Selangor. Both companies have received the ISO 9002 certification which were upgraded to the ISO 9001-2000.
JESB is a manufacturer of wood-plastic composite products used in the building and transportation industries as better alternatives to conventional pure wood-based products. JESB’s target markets are North America and Europe, where there are growing demand for the use of more environmentally-friendly products.
REVIEW OF OPERATIONS The chemicals manufacturing division registered lower profits of RM3.6 million in 2006 (2005: RM15.6 million) as 2005 profits included a one-off special large order for microspheres from a US customer.
To improve the efficiency of its operations, MAC invested RM1.35 million in 2006 for the installation of a new 1000KVA diesel-powered generator in its manufacturing plant to ensure no interruptions during power outage, and a new 12-tonne boiler, increasing its current steam capacity six-fold.
JESB commissioned its production line during the year.
LOOKING AHEAD For 2007, APM aims to expand its product offerings by importing and distributing other types of microspheres in the Asian markets. APM also plans to expand the distribution of paper chemicals.
MAC will develop new resin grades to meet customers’ higher productivity targets. A new warehouse will be built to improve the efficiency of MAC’s product handling.
JESB plans to operate its plant at full capacity in 2007.
2 the business 65