ANNUAL REPORT 019 RAISING THE BAR ON RAISING THE BAR SUSTAINABLE GROWTH
SIME DARBY PLANTATION BERHAD Registration No.: 200401009263 (647766-V) Annual Report 2019 Malaysia Find Us On Us Find 47301 Petaling Jaya, Selangor Jaya, 47301 Petaling Registration No.: 200401009263 (647766-V) No.: Registration SIME DARBY PLANTATION BERHAD PLANTATION SIME DARBY This report paper This on 100% recycled is printed No. 2, Jalan PJU 1A/7, Ara Damansara 1A/7, Ara 2, Jalan PJU No. Main Block, Level 10, Plantation Tower 10, Plantation Main Block, Level www.simedarbyplantation.com Tel: (603) 7848 4000 Tel: (603) 7848 4172 Fax: RAISING THE BAR ON SUSTAINABLE GROWTH ‘Raising the Bar on Sustainable Growth’ is the driving theme of our Integrated Report, which documents Sime Darby Plantation’s journey in the financial year 2019. The theme is reflected in the overall green hues of the cover design, which embodies our deep-rooted legacy in sustainability. The curved and contour lines simultaneously represent the topography of our plantations and supply chain. The elevated peaks signify the standards we set to raise the bar on sustainable growth – the latest of which is to ‘draw the line on deforestation’ as unveiled in this financial year. A circle highlighting the topography denotes ‘Crosscheck’ – the online tool which enables traceability of our supply chain.
Deforestation is an urgent challenge for the planet. People around the world are concerned about
the continued rapid rate of deforestation, and that the palm oil industry is contributing to the problem.
As the world’s largest producer of certified sustainable palm oil, this concerns us too.
Sime Darby Plantation (SDP) has worked to produce palm oil responsibly for a long time, because we believe it
is the right thing to do for our company, for the industry, and for forests globally. We made our
Zero Burning commitment over 30 years ago, even before we became the founding members
of the Roundtable on Sustainable Palm Oil (RSPO) in 2004. Today, we are committed to upholding the
No Deforestation, No Peat, No Exploitation (NDPE) standards, and extending these
same standards to our suppliers.
Yet the standards to which we hold ourselves continue to evolve: today, we are operating to higher standards
than we did in the past. Amid intensifying global debate on the viability of the palm oil sector and its ability to
contribute to a sustainable future, the expectations from our stakeholders have increased and
demand a meaningful response.
Knowing that the industry needs to make a step change, we have taken a stand to draw the line on
deforestation throughout our supply chain. We are committed to help make deforestation an unviable
way to participate in the industry. In the year under review, SDP also backed this commitment through
our Research and Development capabilities, enabling us to produce more yield on our existing land. By
removing the need to deliver growth through the expansion of our plantation into new areas, we can help to
preserve forests and biodiversity without compromising on efficiency and productivity.
Our teams are committed to making a meaningful impact, but we know we could not achieve what we aim to
do without like-minded partners. By working together with our industry peers, NGOs as well as third party
suppliers and smallholders in our supply chain, we believe that we can provide long term business advantage
and growth prospects for the palm oil industry, and raise the bar on sustainable growth.
This sector has been critical to providing livelihoods and economic prosperity for palm oil producing regions over many years. Now, it is imperative that we continue to work together with our partners in improving the economic, environmental and social performance of our business as well as that of the palm oil industry. HOW WE ARE RAISING THE BAR
TAKING THE LEAD Drawing the Line on Deforestation There is a worldwide concern that palm oil production is causing deforestation. Increasingly, major global customers, investors, and other stakeholders require confidence that the palm oil they buy is not associated with deforestation. SDP believes the frontier to halting deforestation is traceability. Tracking supply back to its source will make it possible to identify where problems may exist, and to take action.
COMMITTED TO TRACEABILITY Crosscheck To achieve this level of visibility, we developed Crosscheck, a new online tool that allows anyone to trace sources of our palm oil supply down to the mill level. The open source platform places all our mills and refineries, including third-party suppliers, on a digital map with the aim of ensuring traceability and inviting others to alert us to problems so that we can act on them.
INSPIRING CHANGE Working in Partnership Our goal is to expand the sphere of like-minded stakeholders and smallholders operating to the NDPE standards, especially those within our supply chain. We have extended these standards to our third-party suppliers to improve their sustainability compliance. We also believe in obtaining independent feedback and input to further improve our own standards and practices, as well as raising the bar on sustainable growth for the industry. INSIDE THIS REPORT
001 Raising The Bar On Sustainable Growth 004 About Our Report 038-039 MANAGEMENT DISCUSSION 006 Our Approach To Integrated Thinking & ANALYSIS 008 Our Approach To Sustainability
STRATEGIC REVIEW 040 Our Market Landscape 010-011 044 Our Value Creation Model OVERVIEW 046 Stakeholder Engagement 048 Managing Our Material Matters 012 Vision & Values 050 Our Strategies 013 Who We Are 051 Rise To Apex 014 What We Do PERFORMANCE REVIEW 016 Global Footprint Financial Review 018 Our Financial Highlights 054 Group Financial Review 019 Corporate Information 061 5-Year Financial Highlights
Business Review 020-021 062 Upstream KEY MESSAGES 068 Sime Darby Oils 072 Others: Renewables
022 Chairman’s Message 074 R&D 030 Group Managing Director’s Review 080 Human Capital Growth 090-091 SUSTAINABLE VALUE CREATION
092 Sustainability At Sime Darby Plantation 094 Drawing The Line On Deforestation 100 Building Climate Change Resilience 104 Our Commitment To Human Rights And Decent Work 108 Innovating For Sustainability
114-115 LEADERSHIP
116 Board Of Directors’ Profile 128 Our Leadership Team 130 Profiles Of Leadership Team
138-139 GOVERNANCE FRAMEWORK
140 Corporate Governance Overview Statement 150 Governance & Audit Committee Report 370-371 160 Nomination & Remuneration Committee ADDITIONAL INFORMATION Report 164 Sustainability Committee Report 372 Properties Of The Group 169 Board Tender Committee Report 378 Analysis Of Shareholdings 171 Risk Management Committee Report 381 Additional Compliance Information 174 Statement On Risk Management And Internal 387 Financial Calendar Control 388 Share Price Movement 183 Statement Of Responsibility By The Board Of Directors 389 Notice To Shareholders (Under The Personal Data Protection Act 2010) 390 Notis Kepada Pemegang Saham (Di Bawah Akta Perlindungan Data Peribadi 2010) 184-185 391 Notice To Proxies FINANCIAL STATEMENTS (Under The Personal Data Protection Act 2010) (“Notice”) 392 Notis Kepada Proksi 186 Directors’ Report (Di Bawah Akta Perlindungan Data Peribadi 2010) 191 Statements Of Profit Or Loss (“Notis”) 192 Statements Of Comprehensive Income 393 Global Reporting Initiative (GRI) Content Index 193 Statements Of Financial Position 195 Consolidated Statement Of Changes In Equity 196 Company Statement Of Changes In Equity 197 Statements Of Cash Flows 202 Notes To The Financial Statements 364 Statement By Directors 364 Statutory Declaration 365 Independent Auditors’ Report ABOUT OUR REPORT
OUR PRIMARY REPORTS TO STAKEHOLDERS
Interim Reports Financial Results and Group Updates Corporate Governance Reports Malaysian Companies Act 2016 Malaysian Financial Reporting Standards (MFRS) Main Market Listing Requirements of Bursa Malaysia Securities Berhad Malaysian Code on Corporate Governance 2017 International Integrated Reporting Framework Financial Statements:
Key Stakeholders Involved Shareholders Employees Customers Regulators Suppliers Business Partners Analysts Communities Non-Profit Partners
Reporting Boundary Group Subsidiaries Joint Ventures
The United Nations Sustainable Development Goals The Sustainable Development Goals (SDGs) are global benchmarks set by the United Nations as a call to action for sustainable development.
Sime Darby Plantation Berhad (SDP or The Group) aligns all its sustainability efforts to the SDGs, and we have developed an articulation on how we approach and contribute to the goals.
We have identified two main SDGs that drive our approach and this is further supported by primary goals and secondary goals that we contribute to indirectly.
Read all about our efforts to deliver these goals in Our Approach to Sustainability on pages 8 and 9 of this Integrated Report.
CROSS REFERENCES
Tells you where you can find more information within the reports Tells you where you can find more information online at www.simedarbyplantation.com This Annual Report is available at www.simedarbyplantation.com Reporting Boundary and Scope NAVIGATION ICONS This Integrated Report covers the primary activities of SDP, our business divisions, Malaysian and Our Stakeholders international operations as well as our entities. Prepared in accordance with the International Integrated Reporting
INVESTORS LOCAL COMMUNITIES Standards and Guidelines GOVERNMENT CUSTOMERS This report applies the Guiding Principles of the AGENCIES International Integrated Reporting
All financial statements have been prepared in EMPLOYEES INDUSTRY GROUPS accordance with the requirements of the Companies Act 2016 and the Malaysian Financial Reporting ACADEMIC INSTITUTIONS Standards (MFRS).
Our Capitals Our relevance as a business today and in the future, Capitals Impacted as well as our ability to create long term value, are MANUFACTURED FINANCIAL CAPITAL interrelated and fundamentally dependent on the CAPITAL forms of capital available to us (our inputs), how we use them (our value-added activities), and our impact INTELLECTUAL NATURAL CAPITAL and the value we produce (our outputs and CAPITAL outcomes). SOCIAL & RELATIONSHIP HUMAN CAPITAL CAPITAL OUR APPROACH TO INTEGRATED THINKING
PERFORMANCE LINKED TO Influencing Our Integrated Thinking VALUE CREATION Our high-performance culture is supported by an environment in which our people are empowered and rewarded for their contribution towards realising our purpose and vision. OUR STAKEHOLDERS Our stakeholders are the providers of financial and non-financial capitals that we need to create value. Our proactive engagement with stakeholders provides a platform for us to share how we execute our business strategy and activities, shape products and services, help us manage and respond to their concerns as well as expectations, minimise reputational risks and positively influence the OUR MATERIAL environment that we operate in. OUR ABILITY TO CREATE AND ISSUES PROTECT VALUE Our material Our governance approach issues synthesise OUR OPERATING CONTEXT promotes strategic decision- the interests of making that combines long term Our organisational agility supports flexible the Group and strategic responses to the cyclical pressures in our stakeholders, and short term outcomes to our markets while aligning our business taking into reconcile the interests of the effectively to the structural shifts in our account Group and society in our pursuit industry in the long term. We identify focused structural shifts of sustainable value. Our specific opportunities for revenue generation, and cyclical governance framework supports pressures in our and use well-developed risk models to the creation and protection of operating anticipate and manage the impact of risks. value in our activities which context. They We align our strategy to changes in our enables ethical and effective steer our leadership and a sustainable operating environment, instil an innovation- priorities in organisation. driven culture throughout the Group and managing our continually enhance our capabilities. strategic value drivers.
OUR STRATEGY Our Group strategy is focused on creating sustainable value. It represents our commitment to the shared future we are creating for our people and our stakeholders. Our strategic value drivers and focus areas align our allocation of resources to our REMUNERATION THAT DRIVES strategy. They determine and provide the VALUE OVER TIME basis for measuring the value we create. Our reward philosophy reflects the Group strategy and is aligned to our value drivers through the lenses of client experience, productivity and shareholder value. Material Issues Impacting SDP Shareholders Employees Investors PEOPLE MANAGEMENT Employees Suppliers/Business Partners Customers Investors Regulators Employees Suppliers/Business Partners Investors AND HEALTHPERFORMANCE OCCUPATIONAL SAFETY Government/Authorities/Regulators Society/Communities Civil SocietyOrganisations/NGOs Employees Suppliers/Business Partners Customers Investors ENVIRONMENTAL IMPACT SOCIAL AND Business Partners Employees Suppliers Customers Investors MACROECONOMIC CONDITIONS OPERATIONAL PERFORMANCE Suppliers/Business Partners Shareholders Investors CAPITAL MANAGEMENT stakeholders. sustainable valueforallour reinforce resilienceanddeliver our relationshipstodrivegrowth, deploy ourresourcesandalign making frameworktooptimally We applyaformaldecision- ALLOCATING OURRESOURCES RETURNS RESILIENCE GROWTH Strategy
Value Capability
Annual Report2019 our strategy? opportunity alignedwith Is theinvestmentor value? opportunities tocreate and unlockfuture with anadequatereturn opportunity provideus Will theinvestmentor processes? existing expertiseand deliver itthroughour resources, andcanwe risk appetiteandavailable opportunity fallwithinour Does theinvestmentor offering? deliver anintegrated support ourabilityto Does itcreatevalueand P G. 006 –G.
007 OUR APPROACH TO SUSTAINABILITY
SHAPING THE FUTURE Sime Darby Plantation (SDP) has long been committed to sustainable practices. We were at the forefront of implementing the Zero Burning principles decades ago. We were the founding members of the Roundtable on Sustainable Palm Oil. We operate our plantations to the No Deforestation, No Peat, No Exploitation (NDPE) standards today and require all SUSTAINABILITY FOR US IS ABOUT companies that supply to us to endorse and comply with TAKING DEFINITIVE ACTION TO those standards. It is because we are proud of this heritage, that we are committed to playing a leading role in shaping PRESERVE THE ENVIRONMENTAL AND a sustainable future for the palm oil industry. THE SOCIAL FABRIC OF OUR SOCIETY. Today, there is a need to raise the bar again. Deforestation AS THE WORLD’S LARGEST PRODUCER has become an urgent challenge for the planet. People around OF CERTIFIED SUSTAINABLE PALM OIL, the world are concerned about the continued rapid rate of deforestation and believe, correctly, that unsustainably produced WE WANT TO RAISE THE BAR ON palm oil is a contributor to that. As the world’s largest producer SUSTAINABLE GROWTH. THIS MEANS of certified sustainable palm oil, it concerns us too. WE WILL CONTINUE TO LEAD In the context of the threat from global warming and the INDUSTRY CONVERSATIONS AND reality that we all face a narrowing window of opportunity to take decisive action, it is vital that all stakeholders say no BUSINESS ACTION ON SUSTAINABLE to deforestation. Amid intensifying global debate on the AGRICULTURAL PRACTICES AND viability of the palm oil industry, our stakeholders are demanding more of us than ever before. It is time to break HUMAN WELFARE. WE WILL SET NEW free of the legacy of bad practice that has beset the industry BENCHMARKS AND CHAMPION NEW for too long. We will undermine the long term prospects of the industry if we do not operate in a different way in the STANDARDS TO ENSURE WE ARE future to conserve the forests that remain. POSITIVELY CONTRIBUTING TO BOTH At SDP, we are striving to eradicate deforestation in our supply THE GLOBAL SUSTAINABLE chain. This is no easy task. To drive lasting change, we have DEVELOPMENT GOALS AND PROGRESS to recognise that changing traditional practices presents real operational challenges for third-party suppliers and smallholders. IN THE LOCAL CONTEXT. However, we need to persevere because raising the bar on sustainable growth will provide long term business advantage and secure us a license to operate and compete in the future, At SDP, we will continue to work to improve the economic, for our suppliers and for us. This, in turn, enables our suppliers environmental and social performance of our business and and smallholders to benefit from being in business with us. our industry. We are committed to maintaining our investment So we are engaging with our extensive network to develop to achieve this and share our learning with our peers and new practical ways of accelerating progress. the many stakeholders in the value chain.
COMMITTED TO RESPONSIBLE GROWTH In the last three years, we have set out our approach to responsible production in our charters: our Responsible Agriculture Charter, Human Rights Charter; and Innovation and Productivity Charter. They can be found at www. SUSTAINABILITY simedarbyplantation.com. PURPOSE We operate our business on the basis of our Good Agriculture and Best Management Practices, in addition to the principles of sustainability standards that we have committed to, including the Roundtable on Sustainable Palm Oil (RSPO), Malaysian Sustainable Palm Oil (MSPO), Indonesian Sustainable Palm Oil (ISPO) and the Rainforest Alliance. Together, these guide our actions and determine how we manage our performance in relation to economic, environmental, social and governance factors.
These policies, procedures and internal operating systems are Contribute to Deliver Sustainable fundamental to SDP as a sustainable palm oil producer today. a Better Society Development We want to build on that foundation to devise new forward- looking solutions that will help to drive change across the Minimise industry and catalyse business growth in a sustainable way. Environmental Harm Annual Report 2019 P –G. 009 008
DRIVING CHANGE THROUGH TRACEABILITY As the industry continues to mature and face new and emerging risks, it is a collective responsibility for us and our We believe that the frontline of halting deforestation is partners to evolve how we operate. Throughout 2019, increasing traceability across the sector. By tracking supply we formed new alliances and strengthened existing back to the source, we can identify where the problems are collaborations to tackle some of the complex sustainability and take action more effectively. problems we face.
In 2019, we launched Crosscheck as an open access, online platform that traces our supply right down to the mill level. CREATING VALUE, SUSTAINING GROWTH It allows users to overlay the location of any mill against maps of the surrounding landscape that highlight risk areas, including As a leading business in our sector, we recognise that we forest, peat or other protected areas, and the habitats of large must continue to sustain our growth and deliver value to animals; orangutans, elephants and tigers. In addition, the our shareholders, while also serving the needs of multiple platform increases accountability by providing new data that other stakeholders. links the mills to their owners, for both SDP’s own mills and the group owners of others beyond our direct network. A sustainable industry requires successful, profitable businesses that are also accountable to improve environmental and Crosscheck was an important step forward in traceability. It social performance: often referred to as ‘profits with purpose’. was developed to support new data over time, so we will Understanding the impact of trends driving change in the work with NGO partners and other stakeholders to make it external world and the expectations of all our stakeholders increasingly useful as a tool for driving change in the industry. is key to creating long term value. Working with others, our ambition is to shape a responsible future for our business, our people and our industry. NEW WAYS TO TACKLE OLD CHALLENGES For more information on our sustainability initiatives We see opportunities for innovation in all parts of the business. and outcomes, please refer to pages 92 to 113 of this report We continue to find new ways to tackle old challenges to or download our Sustainability Report 2019 from our website ensure the sustainability and competitiveness of our business www.simedarbyplantation.com. well into the future. That is why in the year under review, we continued our efforts to improve our operational efficiencies, which is all about operating at the lowest cost possible to mitigate externalities and Crude Palm Oil (CPO) price volatilities: the “new normal” for the industry.
We initiated our Operational Excellence and Innovation Business Management Strategy 2.0 (OEIBMS 2.0), which is a blueprint for achieving RM550 million in cumulative operational excellence benefits by FY2022. These are both hard benefits derived from cost savings as well as improved revenue generation and soft benefits derived from cost avoidance and sustainability performance. Our cost savings, improved operational resilience and productivity also support our sustainability commitments, such as more effective resource management.
Our focus on innovative solutions includes our investment in Research and Development (R&D) to improve yield. The year under review saw the first harvest of the seeds produced by our GenomeSelectTM initiative. It confirmed that over time these seeds will deliver considerably higher yields from our plantations. This represents another step forward for us in our sustainability journey, enabling us to continue growing as a business, while producing more palm oil without using more land.
COLLABORATION WITH STAKEHOLDERS We believe in an inclusive approach to transformation that leads us toward forging long term partnerships. Engagement is not only about initiating dialogue. At SDP, we want to go beyond just sharing the problem. We want to work with others to devise lasting solutions. OVERVIEW OF SIME DARBY PLANTATION
012 Vision & Values 013 Who We Are 014 What We Do 016 Global Footprint 018 Our Financial Highlights 019 Corporate Information
VISION & VALUES
OUR VISION To be the Leading Integrated Global R&D Palm Oil Player Over 190 technocrats, scientists and technicians working together to improve every aspect of our business
OUR VALUES
Integrity
Respect & Responsibility
Enterprising
Excellence
UPSTREAM 583,766 ha planted with oil palm Annual Report 2019 P –G. 013 012
WHO WE ARE
THE WORLD’S LARGEST Formerly under the multinational conglomerate Sime Darby Berhad (SDB), Sime Darby Plantation (SDP) was PRODUCER OF CERTIFIED listed on Bursa Malaysia on 30 November 2017, following SUSTAINABLE PALM OIL (CSPO) a strategic decision by SDB to unlock value for its shareholders by demerging its plantation and property sectors, thereby WITH A PRODUCTION OF 2.496 creating three independent pure play entities. Today, with MILLION MT (AS AT 31 DEC 2019). a market capitalisation of RM34.1 billion (as of 30 April 2020) and a global operation across 16 countries with a workforce of more than 94,000 employees, SDP is among the largest companies listed on Bursa Malaysia and one of the most valuable plantation companies in the world.
SDP is involved in the full spectrum of the palm oil value
RENEWABLES chain. Under our Upstream operations, the Group has OVERVIEW Leveraging the potential of related 776,812 hectares (ha) of landbank spread across Malaysia, products along the palm oil value Indonesia, Papua New Guinea (PNG) and the Solomon chain to create a portfolio of Islands (SI), of which 583,766 ha are currently being sustainable businesses cultivated for oil palm. Under this sector, the Group is also involved in rubber, sugar cane plantation as well as cattle rearing.
In the Downstream sector, SDP’s current operations represented by Sime Darby Oils in 16 countries worldwide, 1 comprise the production as well as the sales and marketing of oils and fats, oleochemicals, biodiesel and other palm oil derivatives. SDP’s business philosophy in the manufacturing of a comprehensive range of palm oil based products is to maintain the highest quality at all times. This ensures that the Group has an edge in our unique selling proposition and sets SDP apart from our competition.
Committed to operational excellence, innovation and sustainability, SDP has R&D and Innovation Centres located across the globe with over 190 technocrats, scientists and technicians assisting to improve every aspect of our value chain; from developing quality planting materials and environmental-friendly fertilisers to enhancing the systems and processes in cultivating, harvesting and milling, to manufacturing not only high quality but also traceable refined palm oil and palm kernel products.
In addition to our Upstream and Downstream operations, SDP is also involved in various other businesses that leverage on the potential of related products along the palm oil value chain.
SIME DARBY OILS Operations across 16 countries comprising production as well as the sales and marketing of oils and fats products, oleochemicals, biodiesel, and other palm oil derivatives WHAT WE DO
MALAYSIA UPSTREAM 343,254 hectares (ha) Total Landbank Upstream operations encompass 240 estates and 69 palm oil mills located in Malaysia, Indonesia, Papua New Guinea and the Solomon Islands where fresh fruit bunches (FFB) from our In Malaysia, we own and operate 123 oil estates are delivered to our palm estates in Peninsular Malaysia, mills to be processed into Sarawak and Sabah, 34 palm oil mills, as crude palm oil (CPO). well as 12,606 ha of rubber plantations in the states of Kedah, Perak, Negeri Sembilan and Johor in Peninsular Malaysia
GLOBAL PRESENCE SIME DARBY OILS
Our current Downstream operations, represented by Sime Darby Oils, comprise the production of oils and fats, oleochemicals, biodiesel, other palm oil derivatives and renewables as well as the sales and marketing of these products. With business presence in 16 countries around the world, we take pride in our identity as a global provider of sustainable palm oil products to our customers
RESEARCH & DEVELOPMENT CAPACITY R&D 5 Our R&D capabilities RESEARCH & DEVELOPMENT CENTRES encompass all research area in Malaysia, Indonesia and Papua New Guinea requirements across the value chain. Through our strategic and operational 3 R&D, we are committed to INNOVATION CENTRES developing, applying and in Malaysia, the Netherlands and South Africa transferring relevant knowledge, research 1 findings and technologies FULLY OPERATIONAL GENETIC TESTING FACILITY to improve our plantation in Malaysia to commercialise high yielding oil yields, milling processes and palm with secondary traits for harvesting customise our Downstream efficiency and climate resilience products.
190 190 SCIENTISTS AND TECHNICIANS developing better seedlings and systems to enhance plantation yields Annual Report 2019 P –G. 015 014
INDONESIA PAPUA NEW GUINEA AND SOLOMON ISLANDS
287,460 ha 146,098 ha Total Landbank Total Landbank
In Indonesia we own and operate 66 oil In Papua New Guinea & Solomon Islands, palm estates, 1 rubber estate and 23 we own and operate 48 oil palm estates, palm oil mills located in Sumatera, 12 palm oil mills, as well as sugar cane Kalimantan and Sulawesi plantation and grazing pasture for cattle OVERVIEW rearing
Our operations are located in: Malaysia The Netherlands 1 Indonesia USA Singapore United Kingdom Thailand South Korea China Japan South Africa Papua New Guinea Germany Solomon Islands UAE Philippines
RENEWABLES
SDP seeks to invest in complementary and SOLAR integrated platforms to In 2018, 20 MW Large Scale Solar project leverage on various commenced operations in SDP’s estate products and by-products along the palm oil value chain, transforming these into high value-added BIOGAS SDP achieved a 12% relative carbon emission goods. At the core of SDP’s reduction intensity between 2017-2019 business is the investment and development of innovative technologies in the bio-chemicals, BIOMASS nutraceuticals & wellness Exploration into the valorisation of oil palm trunks, and bio-energy space. empty fruit bunches and palm kernel shells with multiple global partners GLOBAL FOOTPRINT
UNITED KINGDOM
GERMANY SOUTH KOREA JAPAN NETHERLANDS CHINA UAE USA
PHILIPPINES THAILAND SOLOMON MALAYSIA SINGAPORE Certifications ISLANDS
INDONESIA PAPUA NEW GUINEA Malaysian Sustainable Palm Oil (MSPO)
Roundtable on Sustainable Palm Oil (RSPO)
Indonesian Sustainable Palm Oil (ISPO) Annual Report 2019 P –G. 017 016
16 Countries
776,812 OVERVIEW Hectares Landbank
240 UNITED Estates KINGDOM *including oil palm, rubber, sugar cane and grazing pasture 1 GERMANY SOUTH KOREA JAPAN NETHERLANDS CHINA UAE USA 71 Mills *including two (2) copra mills PHILIPPINES THAILAND SOLOMON MALAYSIA SINGAPORE ISLANDS
INDONESIA PAPUA NEW 5 R&D Centres GUINEA
11 Refineries
3 Innovation Centres OUR FINANCIAL HIGHLIGHTS
15,000 14,336 3,000 2,737
12,062 2,500 12,000
2,000 9,000
1,500 6,518 6,000 1,000 615 3,000 500 406
0 0 1 1 1 1 1 1 REVENUE PROFIT BEFORE INTEREST AND TAX (RM Million) (RM Million)
2,000 1,928 1 14.1
1,500 1
1,000 4.6
500 300 122 0.9
0 1 1 1 1 1 1
NET EARNINGS RETURN ON SHAREHOLDERS’ E UITY (RM Million) (%)
25 11,000 10,232
10,000 9,679 20.51 20 19.77 9,000 8,000
7,000 15
6,000 5,556 11.25 5,000 10 4,000
3,000 5
0000 2,000
1,000
0 0 1 1 1 1 1 1
FFB YIELD FFB PRODUCTION (MT per hectare) ( 000 MT)
* Six-month financial period ended 31 December 2018 ** The financial results for FY2018 and FP2018 have been restated to exclude discontinuing operations Annual Report 2019 P –G. 019 018
CORPORATE INFORMATION As At 2 April 2020
BOARD OF DIRECTORS
TAN SRI DATO’ A. GHANI OTHMAN TUNKU ALIZAKRI RAJA MUHAMMAD ALIAS Non-Independent Non-Executive Chairman Non-Independent Non-Executive Director
TAN SRI DATUK DR YUSOF BASIRAN ZAINAL ABIDIN JAMAL Independent Non-Executive Director Non-Independent Non-Executive Director
MUHAMMAD LUTFI TAN TING MIN Independent Non-Executive Director Independent Non-Executive Director
DATUK ZAITON MOHD HASSAN LOU LEONG KOK Senior Independent Non-Executive Director Independent Non-Executive Director
DATO’ MOHD NIZAM ZAINORDIN MOHAMAD HELMY OTHMAN BASHA Non-Independent Non-Executive Director Group Managing Director OVERVIEW DATO’ HENRY SACKVILLE BARLOW Independent Non-Executive Director
GROUP MANAGING DIRECTOR AUDITORS MOHAMAD HELMY OTHMAN BASHA PricewaterhouseCoopers PLT (LLP0014401-LCA & AF 1146) Chartered Accountants SECRETARY Level 10, 1 Sentral, Jalan Rakyat AZRIN NASHIHA ABDUL AZIZ (LS 0007238) Kuala Lumpur Sentral 1 50706 Kuala Lumpur, Malaysia. Tel : +(603) 2173 1188 REGISTERED OFFICE Fax : +(603) 2173 1288 Level 10, Main Block, Plantation Tower No. 2, Jalan PJU 1A/7, Ara Damansara FORM OF LEGAL ENTITY 47301 Petaling Jaya, Selangor Darul Ehsan, Malaysia. Tel : +(603) 7848 4000 Incorporated on 2 April 2004 as a private company Fax : +(603) 7848 5360 limited by shares under the Companies Act, 1965 and Email : [email protected] converted into a public company limited by shares on Website : www.simedarbyplantation.com 20 July 2017.
SHARE REGISTRAR STOCK EXCHANGE LISTING Tricor Investor & Issuing House Services Sdn Bhd Listed on the Main Market of Bursa Malaysia Securities Registration No.: 197101000970 (11324-H) Berhad since 30 November 2017. Stock Code : 5285 Office: Stock Name : SIMEPLT Unit 32-01, Level 32, Tower A Vertical Business Suite Avenue 3, Bangsar South PLACE OF INCORPORATION AND DOMICILE No. 8, Jalan Kerinchi 59200 Kuala Lumpur, Malaysia. Malaysia Tel : +(603) 2783 9299 Fax : +(603) 2783 9222 Email : [email protected] Customer Service Centre: Unit G-3, Ground Floor, Vertical Podium Avenue 3, Bangsar South No. 8, Jalan Kerinchi 59200 Kuala Lumpur, Malaysia. KEY MESSAGES
022 Chairman’s Message 030 Group Managing Director’s Review
CHAIRMAN’S MESSAGE
“As the world’s largest producer of Certified Sustainable Palm Oil (CSPO), we are imbued with a great sense of responsibility towards the industry that has provided for the well- being and livelihood of generations in palm oil producing regions. At Sime Darby Plantation, we know we have to continuously demonstrate our leadership by raising the bar on sustainable growth. It is not only an expectation from our stakeholders, but also our own aspiration to set new benchmarks and improve standards, as well as positively contribute to the sector’s sustainable future.”
Dear valued shareholders,
IT IS MY PRIVILEGE TO SHARE THE ANNUAL NAVIGATING THROUGH A CHALLENGING ENVIRONMENT & REPORT 2019 FOR SIME DARBY PLANTATION FUTURE UNCERTAINTIES
BERHAD (“SDP” OR THE “GROUP”). AS Throughout our existence for more than a century in the plantation PRESCRIBED BY THE INTERNATIONAL industry, the Group has encountered and navigated through numerous INTEGRATED REPORTING COUNCIL, WE challenges. Our resilience and resolve in the face of various adversities have been instrumental in our effort to rise above any obstacle, HAVE SUBSCRIBED TO THE PRINCIPLES OF allowing the Group to come out stronger and more determined to INTEGRATED REPORTING TO PRESENT A TRUE continue our journey towards building a sustainable future. NARRATIVE ON OUR STRATEGIES, GOALS AND PERFORMANCE FOR THE FINANCIAL YEAR Amid the preparation of this report, the Group, as well as many other companies around the world, are facing an unprecedented challenge ENDED 31 DECEMBER 2019 (FY2019). IN THIS in the wake of a major global disruption. On 11 March 2020, the REPORT, WE FOCUS ON IMPROVING THE World Health Organisation (WHO) declared the outbreak of COVID-19 QUALITY OF OUR DISCLOSURES BY SHARING as a global pandemic and this has unexpectedly become a new RELEVANT AND CREDIBLE INFORMATION ON global threat to our daily lives. It is now the single most significant element that will determine the world’s economy and hence, the OUR JOURNEY DURING THE YEAR UNDER entire palm oil industry’s outlook in 2020. REVIEW. THIS REPORT SPEAKS OF OUR TRANSFORMATION EFFORTS, INNOVATIVE In Malaysia, to contain the spread of COVID-19, the Movement Control SOLUTIONS, SUSTAINABILITY APPROACHES, Order (MCO) has been imposed from 18 March to 12 May 2020*, but the Malaysian Government has allowed the oil palm and rubber AND ABOVE ALL, VALUE CREATED FOR OUR industries to continue to operate as these are industries that provide MULTIPLE STAKEHOLDERS. essential services to the country. Thankfully, we are able to continue with most of our operations in spite of the restrictions in movement in various countries.
The Group is blessed to be operating in an industry that provides an essential product to the world. It is foreseeable that the demand for palm oil as an important ingredient in food and non-food products would continue, even in times of crisis. Based on preliminary assessment, the potential impact of COVID-19 on the Group’s business and results have been limited at this juncture.
* As per the latest official announcement made by the Malaysian government on 23 April 2020. Annual Report 2019 P –G. 02 022 3 KEY MESSAGES
2
TAN SRI DATO’ A. GHANI OTHMAN Chairman CHAIRMAN’S MESSAGE
Over 580k Hectares Planted with Oil Palm Annual Report 2019 P –G. 025 024
Nevertheless, the Group should never has impacted demand from the be under the illusion that our industry world’s largest palm oil importer, thus would be insulated from the impact setting up a discouraging start to the of this pandemic as it has not reached new year 2020 for the Malaysian palm its peak, and many nations are still oil industry. struggling to contain the rapid increase in global infection rate and In the year under review, SDP navigated mortality. A prolonged pandemic may through the various challenges by impact global markets, disrupt supply focusing on improving its efficiencies chains and economies, and trigger a and operating at the lowest possible looming global recession which could costs. We had felt it vital to provide a also impact palm oil’s supply and focal point to initiate, structure and demand worldwide. drive change within the Group to survive the “New Normal” of low KEY MESSAGES I would like to assure our shareholders commodity prices. that the Group will, to the best of our abilities, weather through the Our key to survival and competitiveness challenging period ahead and deal was our diversification strategy, which with the assault of the COVID-19 allowed us to explore new pandemic. Mitigation plans have been opportunities for growth across put in place by the Group to minimise different markets, as well as in our any adverse impact of this pandemic Downstream business, which is now to our business and we will continue represented by a new brand, Sime to rely on the Group’s diversity, as Darby Oils. From differentiated 2 well as our resolve and resilience as products to alternative sectors such we have done many times in the past. as renewables, the Group’s integrated supply chain allowed us to leverage Indeed, these are the qualities that on our presence across the palm oil have taken us through the challenges production value chain. In short, we of FY2019 as presented in this report. were partially insulated against socio- Our tenacity throughout the year economic, political, environmental under review demanded the focus and social influences due to our and readiness to make decisive, and integrated approach to business. sometimes, difficult decisions while we leveraged on our inherent We continued to dedicate our strengths. resources towards some of the most critical aspects of our business such The tough market conditions faced as our replanting and outside crop by the palm oil industry in the Group’s programmes; upskilling of human previous financial period continued capital; digitalisation and supply chain to present a challenging business engagement, especially with environment throughout FY2019. smallholders and third-party traders. Unfavourable weather conditions Our investments in these areas which affected our FFB production, reinforced SDP’s commitment to its prevailing low CPO and Palm Kernel transformation journey through the (PK) prices for the most part of 2019, Group’s RISE to APEX value creation as well as a volatile external programme aimed at accelerating environment influenced by the on- the performance of our core businesses going US-China trade war have through results driven initiatives that continued to impact our financial incorporate the six (6) Winning performance. Although there was Mindsets – Deliver Results, Customer some respite to industry players when First, Value Talent, Build Trust, CPO prices rebounded towards the Continuous Improvement and end of 2019, the recent diplomatic Empowered Decisions. friction between India and Malaysia CHAIRMAN’S MESSAGE
240 estates and 69 palm oil mills located in Malaysia, Indonesia, Papua New Guinea and the Solomon Islands form an essential part of SDP’s Upstream operations.
PROTECTING VALUE & DELIVERING The Group’s discontinuing operations, and deliver better returns to our RETURNS comprising its Liberian operations and shareholders moving forward joint ventures in the oleochemical continued throughout FY2019. The For the financial year under review, and biomass businesses, recorded a Group remains on track in its strategies the Group registered total revenue of net loss of RM322 million, mainly of increasing profit contribution from RM12.1 billion and net profit of RM122 arising from the impairment charge its Downstream segment. Our various million from its continuing operations. of RM235 million for its assets in initiatives to improve operational The weaker earnings were attributable Liberia. Accordingly, the Group posted efficiencies and maintain disciplined to lower CPO and PK prices realised, a net loss of RM200 million for FY2019 management of cost and liquidity as well as lower FFB production in compared to a net profit of RM523 were also strengthened throughout FY2019. This was partially offset by million in the same period last year. the Group’s operations. We were lower non-recurring losses, finance determined to lower our costs and costs and a tax credit registered for Despite an overall weaker financial stop continuing losses from non- the financial year. performance, the Group’s unwavering performing assets so that we could resolve on a number of strategic re-allocate our financial resources priorities to ensure long term stability towards better value creation for our shareholders. Annual Report 2019 P –G. 027 026
At the end of FY2019, the Group INTERNALISING GOVERNANCE FOR MANAGING RISKS THAT CAN decided to divest its entire equity HIGH PERFORMANCE IMPACT OUR STRATEGIES interest in Sime Darby Plantation At SDP, we recognise the importance The inherent nature of our business (Liberia) Inc. to Mano Palm Oil Industries of having an optimum balance of is prone to both internal and external Limited (MPOI). The decision to exit governance in yielding sustainable risks. Our approach has been and will was made in view of various operating high performance. From Board continue to: challenges the Group had faced since oversight and accountability to its foray into the West African country exercise caution by staying attuned institutional checks and balances to in 2009. The divestment will prevent to global developments and transparency – in adopting the future losses from our operations in external vulnerabilities which principles of good governance, our Liberia and will enable the Group to impact trades, price trends, endeavour is to go beyond compliance reallocate financial resources to generate bilateral arrangements and and take into account progressive KEY MESSAGES higher value for its shareholders. The relationships, as well as our value measures that are required to move divestment exercise was completed in chain; our business forward. January 2020. apply prudent risk management Our governance activities are focused principles to manage and mitigate The Group also remained on track in on delivering value to stakeholders various types of risks – from credit, our deleveraging journey via the asset and aligned with our strategic liquidity, operational, people and monetisation of other non-core and objectives of driving operational market risks to economic, under-performing assets, as well as a excellence, serving our customers and environmental, social and refinancing exercise to improve our maximising returns across our value governance risks; and debt maturity profile. We completed chain. Our Code of Business Conduct the refinancing of SDP’s credit facilities pre-empt and prepare resources, (COBC) guides us in upholding our 2 worth approximately RM3.9 billion on capabilities, and capacity to Core Values of Integrity, Respect & marginally improved terms in effectively manage the emerging Responsibility, Enterprising and December 2019. The refinancing risks and unprecedented challenges Excellence, which in turn promotes exercise, which involved mainly that may arise in the mid-to-long exemplary and responsible behaviour, Shariah-compliant instruments, has term. while we seize opportunities and not only resulted in a lower cost of challenge set boundaries to achieve debt for us, but also strengthened In 2019, we encountered both the outstanding results. our balance sheet and provided traditional and some unanticipated financial flexibility to manage our risks that affected markets and trade At the Board level, we approved the operations and finances. Furthermore, relationships. A common approach to implementation of ISO 37001:2016 this exercise has placed the Group in risk analysis and management is Anti-Bribery Management Systems a much stronger position to withstand enshrined in SDP’s Risk Management (ABMS) Certification (ISO 37001) for the volatility and uncertainties that Framework and Standard. Our focus SDP, as well as the Anti-Corruption can be expected as a result of the on risk management activities was to Compliance Framework and Anti- COVID-19 implications on global ensure that internal risks were Corruption Policy Statement as part markets. The refinancing exercise was appropriately managed, while external of the Group’s Anti-Corruption viewed positively by many financial risks that could impact the achievement Compliance Programme to further analysts and Moody’s Investors Service. of the Group’s strategies and objectives strengthen our stand against corruption. were proactively identified and Please refer to the Group Financial mitigated, where possible. Review section on pages 54 to 61 of Overall, in FY2019 the Board continued the Annual Report for a detailed to provide the benefit of its leadership discussion on our financial performance. The risk management framework and towards successful implementation of approach is further described in the corporate strategies, ethical practices, Statement on Risk Management and and sustainability approaches. This Internal Control on pages 174 to 182 of the Annual Report. Key risk underscored the ultimate responsibility management activities undertaken of the Board in guiding the Group during the year under review are towards long term success and described in the Risk Management Committee report on pages 171 to 173 delivering sustainable value to our of the Annual Report stakeholders.
Read more about the Group’s approach to governance in the Governance Framework section on pages 140 to 183 of the Annual Report. CHAIRMAN’S MESSAGE
BUILDING CAPABILITIES & MAINTAINING THE WELL-BEING OF OUR WORKFORCE
At SDP, human capital development is anchored on three key thrusts. First is to create an alignment between our vision and everything that drives our people to contribute to that vision. This includes the culture of the organisation, where our people are guided by our values, strategic goals, and capable leadership. Second is the need to build our people’s capabilities, whilst instilling in them, a sense of responsibility and accountability to not just drive SDP firmly believes in human capital development and emphasised on leadership and profitable business, but to continually technical capabilities during the year under review to future-proof our business and support our future-ready talent and succession pool initiatives. create value for our stakeholders. The third thrust is our appetite and capacity for new knowledge and Read more about the Group’s work Our commitment to drawing the line innovation that will future-proof our culture in the Human Capital Growth on deforestation is the inspiration section on pages 80 to 89 of the business as well as our people. Annual Report. behind the theme of this Annual Report. On the back of these thrusts, during the year under review, leadership and LEADERSHIP TO RAISE THE BAR For us, the frontier to halting technical capabilities development has ON SUSTAINABLE GROWTH deforestation is traceability. Tracking been one of our top priorities. We We believe that businesses have a supply back to its source will make introduced a number of programmes, responsibility to champion sustainability it possible to identify where problems including Upstream capability building and sustainable development; it’s the may exist, and for action to be taken. through the BEST Programme (Building right thing to do. We also believe the This led us to develop and launch Estates’ Sustainable Transformation). most effective way to do so is by ‘Crosscheck’. The first of its kind for In support of our diversity and inclusion mobilising stakeholders’ support and the palm oil industry, it is an online agenda, we introduced our Female building partnerships. In our industry, tool that allows everyone to trace Manager Development programme, we must allocate resources to improve sources of the Group’s palm oil supply mainly to provide opportunities for our environmental footprint as well down to the mill level. high potential female talents to as create a deforestation-free and shoulder bigger responsibilities and to exploitation-free supply chain. With our latest ‘Working with Suppliers develop future leaders. to Draw the Line on Deforestation’ As at 31 December 2019, we are 99% policy, we extended our pledge to During FY2019, we also continued our Roundtable on Sustainable Palm Oil responsible agricultural practices to Culture and Health Transformation (RSPO) certified for all our operations our third-party suppliers. The policy journey, anchored on our commitment and we hope to attain a 100% certified builds on SDP’s existing practices and to sustain performance excellence status in the second half of 2020. sets a path for suppliers to meet our through Organisational Health. We However, for the Group, sustainability expectation that they also adhere to deployed Organisational Health Index goes beyond certification. It also No Deforestation, No Peat, No or OHI pulse surveys across our means a commitment to addressing Exploitation (NDPE) standards. operations and developed robust global issues including the rising actions plans based on the findings. concern about deforestation within Raising the standard for responsible the palm oil industry. As the leading practices throughout the supply chain Moving forward, our focus will be on producer of sustainable palm oil, SDP is not a feat that can be achieved establishing Core Leadership shares those concerns. We believe alone. SDP works with our stakeholders Development programmes to support that we can offer leadership in helping to obtain valuable advice and insights SDP’s future-ready talent and to provide solutions that prevent on the best management and succession pool. deforestation. agricultural practices for our company. Annual Report 2019 P –G. 029 028 KEY MESSAGES
Indonesia’s Chairman of Palm Oil Agribusiness Strategic Policy as well as the Borneo Orangutan Survival Foundation, Prof. Bungaran Saragih, speaking to stakeholders and members of the media during our Introduction to ‘Crosscheck: Drawing The Line on Deforestation’ session in Jakarta on 9 September 2019.
During FY2019, the Group partnered ACKNOWLEDGING THE VALUABLE On behalf of the Board, I would like with NGOs, industry partners and CONTRIBUTIONS OF OUR PEOPLE to congratulate all members of Senior customers to collaborate on a number Management and the SDP family for I would like to bid a warm welcome 2 of significant initiatives in our effort to your patience and determination in to YM Tunku Alizakri Raja Muhammad build a sustainable future for the palm one of the most challenging years we Alias who joined the Board on oil industry. These include, a radar- have had in decades. Moving forward, 1 January 2020. On another note, I based forest monitoring system known and with the COVID-19 pandemic would like to thank Dato’ Mohamad as Radar Alerts for Detecting taking centre stage globally, the Group Nasir Ab Latif for his tenure of service Deforestation (RADD); the Decent Rural will be counting on your continued to the Group. I am grateful to have Living Initiative (DRLI) to tackle labour support, tenacity and dedication. been given the opportunity to serve rights challenges and improvements alongside them both. in working conditions for Indonesia’s We need to acknowledge that the palm oil sector; and partnering with turmoil is far from over. As I have I would like to take this opportunity to the European Palm Oil Alliance (EPOA) mentioned, the Group will need to thank Tan Sri Dato’ Seri Mohd Bakke to drive the uptake of CSPO by Europe’s once again rely on its resilience to Salleh, who retired as SDP’s Executive food manufacturing value chain. wade through the uncertainties that Deputy Chairman & Managing Director lie ahead. We will deal with this on 30 June 2019, for his dedicated These initiatives and others are pandemic together with all our service and commitment during his described in detail in our Sustainability countries of operations, joined in unity tenure of service to the Group. Replacing Report that is now publicly available with other citizens around the world. him at the helm of the Group’s together with this Annual Report. They We are not alone in this predicament management team is Mohamad Helmy demonstrate SDP’s effort to remain and God willing, we will persevere. Othman Basha who assumed the at the forefront of raising the bar for position of SDP’s Group Managing the industry as well as for our own Director effective 1 July 2019. I thank business to catalyse sustainable growth. Mohamad Helmy for bringing passion, insight and experience to the table For further details on our progress Tan Sri Dato’ A. Ghani Othman around sustainability, please refer to and for his unwavering commitment Chairman the Our Approach To Sustainability in driving this organisation forward. section on pages 8 to 9 and Sustainable Value Creation section on pages 92 to 113 of the Annual Report as well as SDP’s Sustainability Report 2019. MOHAMAD HELMY OTHMAN BASHA Group Managing Director Annual Report 2019 P –G. 031 030
GROUP MANAGING DIRECTOR’S REVIEW
“At Sime Darby Plantation, we are committed to raising the bar on sustainable value creation while responding effectively to emerging global challenges, external factors that drive market trends as well as the expectations of our various stakeholders. In pursuing our commitment, we employ robust strategies that can strengthen our position and improve our performance, to enable us to continuously deliver value to our stakeholders.” KEY MESSAGES
Dear valued shareholders,
I AM PLEASED TO PRESENT THE FY2019 was for us, a year of many strategic interventions; ones that we hope INTEGRATED ANNUAL REPORT would continue to pave the way towards greater progress for the Group and the entire palm oil industry. It was also a year of ‘Leadership with a Purpose’ for 2019 FOR THE GROUP, WHICH 2 the Group; requiring each one of our people to strengthen our sense of CHRONICLES OUR KEY AREAS OF accountability and ownership in the face of challenging times as we continue FOCUS, THE CHALLENGES WE FACED, our journey towards building a sustainable future for the Group. AS WELL AS OUR ACHIEVEMENTS DURING THE YEAR UNDER REVIEW. I FACING THE LATEST GLOBAL THREAT MUST BEGIN BY EMPHASISING THAT Just as circumstances seemed to improve for the palm oil industry when CPO DURING FY2019, SDP REMAINED and PK prices rebounded towards the end of 2019, the whole world was caught off-guard by an unprecedented global threat. As countries around the world COMMITTED TO PURSUE OUR battled to deal with the spread of the deadly COVID-19 virus, major disruptions TARGETS WHILST IMPROVING ON in global businesses, markets and supply chains quickly ensued, giving rise to an THE WAY WE RUN OUR BUSINESS impending global recession in the new year 2020. AND OPERATIONS. AS THE WORLD’S LARGEST PRODUCER OF CSPO, WE EMBRACE OUR LEADERSHIP ROLE AND ARE RENEWING OUR EFFORTS TO IMPROVE SUSTAINABILITY STANDARDS AND PRACTICES, THUS RAISING THE BAR ON SUSTAINABLE GROWTH FOR THE PALM OIL INDUSTRY.
Through the Group’s combined contribution with Sime Darby Berhad and Sime Darby Property Berhad, Yayasan Sime Darby (YSD) or the Sime Darby Foundation pledged over RM4.4 million to support efforts to alleviate the impact of COVID-19 pandemic. GROUP MANAGING DIRECTOR’S REVIEW
At the time of preparing this statement, a Movement Control Order (MCO) to contain the spread of the virus has been imposed by the Malaysian government throughout the country from 18 March until 12 May 2020*. The period may be extended depending on the outcome of the containment exercise in the days to come. For our Malaysian operations, the Group is thankful that the government has relaxed the earlier MCO rulings to allow our estates and mills to continue to operate, with strict safety conditions. To date, no restrictions were imposed on our Upstream operations in Indonesia, Papua New Guinea and the Solomon Islands.
Our Downstream operations in Malaysia are still running too, albeit under certain operating conditions as allowed under the MCO. Whilst SDO has begun to experience a slight impact to its overall B2B segment with less demand from customers, the need to continue filling up supermarket shelves with our cooking oils to cater to customers’ demand has buoyed SDO’s B2C business. At the point of preparing this report, based on our preliminary assessment, the impact of the pandemic on the Group’s operations and financials has been limited.
Nevertheless, we foresee increasing challenges to our operations due to disruption in logistics arrangements and supply chain if the global pandemic prolongs. As the world’s economy showed signs of rapid deterioration, we should be cognisant that the domino effect of the upcoming recession is going to further impact the Group’s value chain as well as global demand for CPO and palm oil products. In facing the rising threat of COVID-19 to our operations, the Group had responded swiftly to assess all our operational and financial risks and came up with business continuity plans and our mitigation actions.
I would like to take this opportunity to record my highest appreciation to our employees for their dedication in continuing to run our business operations, where allowed, with as little disruption as possible while abiding to movement restrictions. I am also heartened to see the intense care and devotion displayed by our teams across the globe in responding to the crisis – both the frontliners in operations and support services working in the background. The extra effort and long hours they have sacrificed in making sure that infrastructures are ready for the Group to operate under these very challenging circumstances with minimum disruption, as well as in ensuring the safety of our employees and their family members, are truly commendable indeed.
As the Group Managing Director, I give my assurance that the management will continue to monitor the COVID-19 situation closely. Our team will continue to endeavour to further minimise the threat of this pandemic on the safety of our people, while we mitigate any adverse operational and financial impact to our business as we strive to overcome the challenging times ahead.
RE-STRATEGISING IN RESPONSE TO MARKET DEVELOPMENTS
It is truly unfortunate that this global catastrophe has come at a time when the palm oil sector is already grappling with various challenges such as low CPO and PK prices for the most part of 2019, unfavourable weather conditions as well as a volatile external environment influenced by the US-China trade tensions. CPO prices dropped to as low as approximately RM1,800 per MT in March 2019 before surging to its highest level in nearly three years at around RM3,000 per MT in December 2019. However, due to concern on demand arising from the worsening situation of COVID-19 global pandemic and sharply lower oil price, CPO price has plunged to around RM2,200 per MT in March 2020.
* As per the latest official announcement made by the Malaysian government on 23 April 2020. Annual Report 2019 P –G. 033 032 KEY MESSAGES
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YAB Prime Minister Tan Sri Muhyiddin Yassin checking on the availability of essential items including the first RSPO certified cooking oil Alif by Sime Darby Oils at a hypermarket in Seri Kembangan during the COVID-19’s Movement Control Order. GROUP MANAGING DIRECTOR’S REVIEW
For the Group, FY2019 was indeed a crucial time for us to re-strategise and tap the revenue potential of our different business segments and create a more balanced profit contribution between our Upstream and Downstream segments.
Aligning to this aspiration, the Group rebranded its global Downstream business under a new identity, Sime Darby Oils (SDO) to realise our full potential as a trusted brand for sustainability and superior product qualities. In FY2019, SDO continued to achieve stronger profits, and made positive contributions to the Group’s overall performance, largely driven by good performance from its differentiated business and global trading operations in Asia Pacific. SDO’s extensive network, assets locations and distribution channels Our rebranded Downstream division, Sime Darby Oils, manages 11 refineries located in in key markets around the world were 7 countries throughout its global operations. instrumental in creating easy access for buyers at destination markets ACCELERATING EFFORTS TO proceeds of RM103 million. A few during the year under review. In HARNESS GROWTH POTENTIAL parcels of land in Malaysia and in keeping with its signature tagline Thailand were also sold for During the year under review, we ‘Realising Possibilities Together’, SDO approximately RM21 million. continued to form strategic continued to focus on the Group’s three-pronged strategic blueprint and partnerships with local and global Assets identified for disposal and exit priorities – Driving Operational distributors to further grow its including our joint ventures in Excellence; Maximising Returns; and customer base and market reach in oleochemical and biomass businesses Serving our Customers Evolving Needs. major markets such as India, China as well as our West African operations, These in turn, have guided SDP and Europe, whilst establishing various Sime Darby Plantation (Liberia) Inc. towards operating at lower costs, distribution channels and satellite (SDPL) were classified as discontinuing improving our efficiencies and ability sales offices to unlock untapped value operations in FY2019. These divestments to withstand challenging market from markets such as the Middle East will enable us to prevent further losses conditions, as well as delivering and North America. in our books and reallocate our optimum returns in FY2019. financial resources into areas where The Group believes that by continuously they will create the highest value for Apart from the return on investments, rediscovering our innate potential the Group and its shareholders. beyond Upstream operations, we can we aim to raise the bar on all aspects of our business and continue to push our very own boundaries and Despite our best endeavours throughout contribute to value creation. Thus, in institutionalise new revenue streams FY2019, the Group’s performance was FY2019, we continued to embrace the to mitigate external risks to our severely impacted by prevailing external Group’s RISE to APEX value creation business such as palm oil price factors. The Group registered a total programme realised through the six fluctuations, increasing costs of labour revenue of RM12.1 billion and a net (6) Winning Mindsets and focused our and fertiliser, and other socio-economic profit of RM122 million from its efforts on strengthening the confidence and political influences. The Group continuing operations; a decline of of our shareholders. will continue to strengthen its focus 9% and 83% respectively compared on operational excellence for our to similar period in 2018. Operationally, In FY2019, the Group continued its Upstream segment with strategies we registered a 6% decline in FFB pursuit to unlock value from non-core such as greater automation, production and 0.46% increase in oil and underperforming assets, and have mechanisation and digitalisation. extraction rate (OER) for our Upstream completed the disposal of our 100% Meanwhile, the Group’s Downstream operations. As for SDO, sales volume stake in PT Mitra Austral Sejahtera growth plans will complement our increased by 5% while capacity (PT MAS) in Indonesia, for a total existing Upstream strategies and utilisation rate was maintained at 75%. become our game-changer. Annual Report 2019 P –G. 035 034
The Group’s discontinuing operations Lab target was to reduce approximately It is also important that we optimise recorded a net loss of RM322 million, 66% of overall time spent on the the power and potential of digital, mainly arising from the impairment three processes and reports, thus data analytics, robotics, automation, charge of RM235 million for its assets enabling employees to allocate their artificial intelligence and crowd in Liberia. Accordingly, the Group unhampered time for other high- sourcing platforms to solve all the posted a net loss of RM200 million priority value-creation assignments. pain points that our industry is for FY2019 compared to a net profit As at 31 December 2019, the Lab struggling to overcome. For instance, of RM523 million in the same period achieved 42.7% of the target time- strategic investments in data analytics last year. spent reduction. and algorithms can help to make better yield prediction and even price Please refer to the Group Financial RDO conducted 5 other Lab series forecasting, which are valuable in Review section on pages 54 to 61 of throughout the Group’s operations in preparing us against volatile markets
the Annual Report for a detailed KEY MESSAGES analysis of our financial performance Malaysia, Indonesia and Papua New and global uncertainties. and position. Guinea. Key focus areas for these Labs include amongst others, enhancing Already in the pipeline, one of our business and operational efficiency, pioneering establishments, the Sime INVESTING IN THE WELFARE, reducing costs, and creating a stronger Darby Plantation Academy is creating WELL-BEING AND GROWTH OF ecosystem of SDP talents to thrive future-ready talents, not only for the OUR PEOPLE and excel. The lessons learnt and Group, but also the industry. Through During the year under review, the efforts of these labs will drive future the Academy, we continue to increase Group continued to invest in our people results and ensure value creation the pool with higher quality talents, to instil in them a sense of belonging efforts will be delivered. whom we hope will accelerate the and pride in SDP, as well as the belief development of the sector in the 2 in our core values. In the spirit of our In addition to productivity and future. It is our aspiration to develop flagship RISE to APEX initiatives, we performance improvement initiatives, candidates with high integrity and focus our efforts to drive the Group’s we continue to offer new opportunities unparalleled experience to champion transformation towards a high- to our employees by equipping them the present and future growth of the performance work culture by motivating with new competencies and catalysing palm oil industry. our people to achieve professional and their career development. In FY2019, personal growth and contribute to we set-up a Digital Office to develop, In 2018, the Group also introduced SDP’s value creation aspirations, while amongst others, new skill sets in data the Organisational Health Index (OHI) achieving work-life balance. science, design thinking, as well as as an important part of our Health agile delivery and management. Our and Culture transformation journey In FY2019, we accelerated the efforts objective is to provide digital for a more performance-driven of Results Delivery Office (RDO) to drive immersion opportunities, incubating workforce. Last year, the results of the transformation and enhance the a new digital culture, with an agile survey were translated into action performance of our core businesses. and collaborative work culture. It is plans that became key deliverables This dedicated unit championed our aspiration to adopt a Digital for all business heads. In November initiatives to drive value creation while Factory Model and co-create exciting 2019, the OHI pulse survey was helping our people overcome barriers opportunities for our people in deployed, seeking feedback and input to growth by eliminating redundancies Precision Agriculture, Intelligent from employees on how the action and improving efficiencies. Process Automation, Sales and plans have improved the teams’ Marketing and many others. During abilities to carry out their duties and During the financial year, a pilot the year under review, we explored enhanced their work satisfaction Process Rationalisation Lab was rolled our digital imperatives and digital throughout the year of implementation. out in Malaysia whereby 18 initiatives opportunities with leaders across Not only has the survey provided an to improve process efficiencies on various transformational initiatives. We avenue to the Group’s most valuable three work-streams, namely tender also delivered our first round of Digital assets to voice their opinions, it also process, management reports, and Immersion Days for our Malaysian gave the Group the opportunity to Headquarter visits were implemented. managers and innovators in 2019. optimise performance where necessary. A Lab is essentially an intense cross- More immersions and challenges are functional problem-solving workshop planned for colleagues across various involving various departments within functions of our business in 2020. the Group. The Process Rationalisation GROUP MANAGING DIRECTOR’S REVIEW
SHAPING A SUSTAINABLE FUTURE located. The first of its kind for the In FY2019, together with ‘Yayasan & EMPOWERING SUSTAINABLE sector, Crosscheck reinforces our Sime Darby’ (YSD) or the Sime Darby COMMUNITIES commitment to traceability and Foundation, we supported various transparency of our supply chain. Corporate Social Responsibility (CSR) Being the world’s largest CSPO programmes comprising those that producer comes with a great As at 31 December 2019, Crosscheck promoted environmental stewardship, responsibility to continue doing the provides information on 14 facilities community health and well-being, right things, even though they may and 909 mills in our supply chain, in access to universal education as well be challenging. With over three the context of the risk areas in the as employee volunteering programmes. decades of track record in landscapes surrounding our mills, and In view of the calamity that befell the championing sustainable palm oil our network of suppliers. Our aspiration world due to the outbreak of the production, SDP is well positioned to is to create a deforestation-free supply COVID-19 virus, the Group played our address some of the most critical chain, but we know we cannot do it part to assist the brave efforts by issues for the palm oil industry. alone. Crosscheck is an open invitation frontliners to contain the pandemic to our stakeholders to alert us to and save human lives. Through our From environmental stewardship to where problems in our supply chain combined contribution with Sime social equity, we seek to work with lie. We continue to engage with our Darby Berhad and Sime Darby the industry, our supply chain partners, NGO partners, investors and customers Property Berhad, YSD pledged over smallholders and government to to incorporate their valuable input RM4.4 million to support efforts that raise standards of production. In the and suggestions on how Crosscheck address the immediate needs of year under review, we remained can be further improved. Following individuals and communities impacted uncompromising in our approach to the publication of Crosscheck, we by the COVID-19 pandemic. In implement No Deforestation, No Peat, released our ‘Working with Suppliers addition, SDP by itself also pledged No Exploitation (NDPE) standards to Draw the Line on Deforestation’ an additional RM3 million to be across our supply chain. policy statement to expand the sphere channelled as contribution (either in of oil palm companies in our supply cash or in kind) to official disaster In FY2019, the Group announced our chain operating to NDPE standards, relief networks and hospitals that have stand on drawing the line on whilst employing constructive been designated to deal with infected deforestation in the palm oil supply engagement to systematically resolve cases in Malaysia, Indonesia as well chain. We believe that the frontline non-compliance. as Papua New Guinea and Solomon to stopping deforestation is traceability, Islands where we have our main so we launched an online open access At SDP, we believe that our efforts in operations. tool called ‘Crosscheck’. It allows any building sustainable local communities of our stakeholders to trace our supply can contribute not only to the success Indeed, the Group is passionate about back to the mill level whilst checking of our business and the wellbeing of our sustainability initiatives and CSR that against suppliers throughout our our employees, but also to the contributions because we truly believe supply chain, as well as the risk on development of a better, fairer society. that it is important for corporate the ground where those mills are citizens to act responsibly regardless of the challenges that we may face. On that note, we were humbled by the various acknowledgements we received in recognition of our efforts throughout FY2019. These include among others, the Group’s continued successful showing at the Sustainable Business Awards Malaysia 2019 and the 2019 Europa Awards for Sustainability for the second consecutive year. We were also ranked first in the ‘Human Rights Disclosure in ASEAN’ collaborative study by ASEAN CSR Network, the Institute of Human Rights and Peace Studies, Mahidol University and Article 30s. More than anything, these awards motivate us to continuously improve SDP held an engagement in London to introduce Crosscheck to multiple stakeholders and gain their feedback as part of our commitment to work with like-minded individuals to and deliver on our various sustainable drive deforestation out of our industry. commitments. Annual Report 2019 P –G. 037 036
I would like to take this opportunity to invite all our stakeholders to learn more about the Group’s journey and on-going initiatives to raise the bar on sustainable growth that we have curated and displayed at our new Palm Oil Experience Centre (POEC) in Carey Island, Malaysia. Launched in October 2019, the POEC has been designed to be an educational hub where visitors from all over the world can gain more insight about the production of CSPO,
SDP’s complete value chain of KEY MESSAGES operations as well as our best practices and passion for the production of sustainable palm oil.
For further details on our progress around sustainability, please refer to the Our Approach To Sustainability Students from The International School @ ParkCity, taking a closer look at a barn owl that is section on pages 8 to 9 and Sustainable part of SDP’s Integrated Pest Management System to control the rat population in our estates Value Creation section on pages 92 during their visit to the Palm Oil Experience Centre in Carey Island. Photo by Ian Pittman. to 113 of the Annual Report as well as SDP’s Sustainability Report 2019.
needs throughout Malaysia by 2023, ACKNOWLEDGING PERFORMERS 2 ENVISIONING SUSTAINABLE this breakthrough palm oil breed, that & MAINTAINING OUR RESOLVE FUTURES FOR THE GROUP AND enables yield improvement of 15% I take this opportunity to thank all OUR PEOPLE above our previous best planting our stakeholders for your utmost material, is going to be yet another As we continue our journey into 2020 confidence in the Group to plan and game-changer that will future-proof and beyond, our primary responsibility deliver strategic programmes to drive our business and performance. is to prepare our business and our sustainable performance. I also people to efficiently manage the commend our people’s untiring efforts Moving forward, the Group will emerging economic, environmental, and demonstrated leadership in continue to focus on improving the social and governance risks. We will execution of various strategies and steering through the challenges and need to continuously strengthen our value creation initiatives that have changes the Group has implemented value proposition as a future-ready been identified to achieve a balanced in FY2019 for a better future. organisation, which is well-positioned Upstream and Downstream portfolio. to attract the best of talents, deploy Despite the global uncertainties we the most innovative of technologies, Our Upstream operations will continue are currently facing due to the and deliver sustainable outcomes for to rigorously pursue operational COVID-19 pandemic, I believe that our stakeholders. excellence improvements with what the Group has achieved in strategies in accelerated replanting, FY2019 will resonate strongly in the The role of the Group’s Research and best agricultural practices as well as year 2020 and beyond, and will help Development (R&D) will thus be greater automation, mechanisation us to steer through a sustainable path critical to devise new solutions that and digitalisation. As for SDO, our key amidst the challenging tide ahead. will enable our business to serve the areas of focus will be on product de- The Group will continue to operate needs of our various stakeholders and commoditisation, asset utilisation and to a set of high standards, ethics and contribute towards solving various optimisation, strengthening supply integrity, industry best practices, and global challenges such as deforestation chain network for seamless connectivity resilience to continuously raise the and food security for an ever-increasing globally, and improving customer bar on sustainable growth. world population. During FY2019, our satisfaction through productivity and R&D team has been on track to plant efficiency improvement measures. I more than 2,300 ha of our believe that all these continuing GenomeSelect™ palms in multiple initiatives will positively contribute in locations across Malaysia and improving our balance sheet position, Mohamad Helmy Othman Basha commenced test seed production for while helping the Group to become Group Managing Director new GenomeSelect™ mother palms. more robust and resilient against With a target to cater to full replanting various externalities. MANAGEMENT DISCUSSION & ANALYSIS
STRATEGIC REVIEW 040 Our Market Landscape 044 Our Value Creation Model 046 Stakeholder Engagement 048 Managing Our Material Matters 050 Our Strategies 051 Rise To Apex
PERFORMANCE REVIEW Financial Review 054 Group Financial Review 061 5-Year Financial Highlights
Business Review 062 Upstream 068 Sime Darby Oils 072 Others: Renewables 074 R&D 080 Human Capital Growth
STRATEGIC REVIEW OUR MARKET LANDSCAPE
GLOBAL TRENDS & MARKET OUTLOOK
GLOBAL VEGETABLE OIL DEMAND & SUPPLY VS POPULATION
Million MT KG
300 28.1 30.0 2 .6 24. 2 .2 2 .4 250 25.0 Total Demand (Million MT) (LHS) 200 20.0 Total Supply (Million MT) (LHS) 150 15.0 Total Population (bil)
100 10.0 Demand per capita (kg) (RHS)
50 5.0
0 0 2018 2019 2020 202 2030
(Source: LMC Oilseeds & Oils Report 2019)
The recent pandemic will create significant demand uncertainties in the vegetable oils market, especially in the next couple of years. Nonetheless, the longer-term fundamentals of the business remain relatively strong.
Demand for vegetable oils in both the developing and developed nations continue to grow, driven largely by rapidly expanding populations as well as an increase in per capita intake especially in China, India, the European Union, the United States and Indonesia.
TOTAL FOOD DEMAND FOR VEGETABLE OILS IN LEADING CONSUMERS (MILLION MT)
Million MT 0
4
40
3
30
2
20
1
10
0 2000 2001 2002 2003 2004 200 2006 200 2008 2009 2010 2011 2012 2013 2014 201 2016 201 2018 2019 2020 2021 2022 2023 2024 202 2026 202 2028 2029 2030
China EU India Indonesia USA
(Source: LMC Oilseeds & Oils Report 2019)
For vegetable oil (food use), India and China together account for over a third of the total food oil consumption today. This has increased from a market share of less than 30% in 2000 of which 20% of the consumption was palm oil. By 2030, their combined shares will have climbed close to 40% of which 30% of the consumption would be palm oil, making these two (2) markets fundamental to the sector’s development.
Globally, palm oil is the largest consumed vegetable oil making up 36% of the total vegetable oil consumption. This is followed by soybean oil (29%) and rapeseed oil (14%). Global dependence on palm oil is expected to rise in 2020, particularly with higher import needs from India and China.
Hence, despite some impact on demand as a result of the pandemic in the near term, food demand remains fundamentally sound. Annual Report 2019 P –G. 041 040
PALM OIL SUPPLY FORECAST (MILLION MT)
Million MT MANAGEMENT DISCUSSION & ANALYSIS 60
0
40
30
20
10
0 2014 201 2016 201 2018 2019 2020 2021 2022 2023 2024 202 2026 202 2028 2029 2030
Indonesia Malaysia Rest of The World
(Source: LMC Oilseeds & Oils Report 2019)
In the immediate aftermath of the pandemic, some supply disruptions may occur. However, the long term supply trends will still be determined by fundamentals such as the growth of new planting and replanting exercises as 3 well as improvements in planting materials.
YOY GROWTH IN OIL PALM HARVESTED AREA (%)
%
30
25
20
15
10
5
0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Indonesia Malaysia
(Source: USDA)
Despite the slowdown in plantings due to moratoriums and other expansion challenges, palm oil has consistently contributed to around 38% of the total vegetable oil supply over the past few years. This is expected to remain over the coming years. Malaysia and Indonesia will continue to be key palm oil producers, supplying around 80% of the total palm oil output by 2030. The focus moving forward will be on strengthening productivity and efficiency to improve yields. STRATEGIC REVIEW
OUR MARKET LANDSCAPE
VEGETABLE OIL PRICE OUTLOOK (USD/MT)
USD/MT
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0 199 1996 199 1998 1999 2000 2001 2002 2003 2004 200 2006 200 2008 2009 2010 2011 2012 2013 2014 201 2016 201 2018 2019 2020 2021 2022 2023 2024 202 2026 202 2028 2029 2030
Coconut Oil Palm Kernel Oil Rapeseed Oil Sunflower Oil Soybean Oil Palm Oil Brent Crude Oil
(Source: LMC Oilseeds & Oils Report 2019)
Crude Palm oil (CPO) prices are also partially influenced by unpredictable and extreme weather patterns which have been occurring more frequently over the last few years. Beyond 2019, the supply and demand calculations suggest the palm oil market will once again move into deficit by 2024. This rebalancing of supply and demand is principally the result of slowing output growth.
In addition to the uncertainties resulting from the 2020 global pandemic, other factors such as the movement of the Ringgit, the revision of biodiesel mandates in Malaysia and Indonesia, tax regulations in major consuming countries and competition from other edible oils are also likely to influence the market prices of CPO and other palm products. As output slows, demand growth will also be weaker than in the past as higher prices restrict biodiesel demand, notably in Indonesia.
SDP’s carbon reduction initiative involves the establishment of biogas facilities at our mills for captive use as well as supplying electricity to the national grid Annual Report 2019 P –G. 043 042
CERTIFIED SUSTAINABLE PALM OIL PRODUCTION AREA (MILLION HA)
Million Ha
3.5 MANAGEMENT DISCUSSION & ANALYSIS
3.0
2.5
2.0
1.5
1.0
0.5
0 2008 2009 2010 2011 2012 2013 2014 201 2016 201 2018 2019
(Source: RSPO, December 2019)
3
MSPO CERTIFICATION AS OF 31 DECEMBER 2019
CERTIFIED AREA CERTIFIED MILLS
280 4,115,944 384 20,555 Units Ha Units Capacity (MT/Hour)
Over the years, there has been a continuous increased awareness on global issues surrounding climate change and human rights. As a result, there is greater expectation and demand from stakeholders for organisations to continue operating in an environmentally, socially and economically responsible manner. The agricultural sector, particularly the palm oil industry, has been under intense scrutiny by a wide range of stakeholders including customers, governments, investors and civil society organisations who demand the adoption and implementation of sustainable practices. More palm oil companies have already taken the initiative to comply with recognised certification standards e.g. RSPO, MSPO and ISPO, in order to remain sustainability of the business. STRATEGIC REVIEW OUR VALUE CREATION MODEL
The World’s Largest Oil Palm Plantation Leadership in Sustainability OUR COMPETITIVE ADVANTAGE Company by Planted Area Taking a leadership position in Proven track record with over 100 years of the sustainable production of experience in the plantation industry palm oil
OUR 6 CAPITALS OUR ENABLERS OUR VALUE CHAIN
FINANCIAL U P S T R E A M RM28.5 billion worth of total assets Access to Capital RM15.9 billion in total equity
SOCIAL & RELATIONSHIP Presence in Strategic Vendor Development Programme Geographical Smallholder & supply chain Locations collaboration Collaborative partnerships with customers and business partners Continuous engagement with Intellectual communities, authorities and Property & Over Seed related stakeholders where we 10 Decades of Production operate Experience & Expertise
INTELLECTUAL
Brand Values Assets: Rubber/ Oil Palm Industry Best Practices Technologies, Sugar cane/ Nursery Intellectual Property, Expertise, Innovations and Cattle Products Knowledge & Experience within Brand Values the Industry Mills – CPO & Estate PK Production Management NATURAL Talent: Highly Skilled And 776,812 ha Land Experienced 240 Estates Workforce
MANUFACTURED Stakeholder Palm Fibres, Smallholders Sludge Oil, 11 Refineries & 71 Mills Relationships: Palm Oil Aggregation 5 R&D Centres Engaged and Mill Effluent collaborated with (POME), 3 Innovation Centres Empty Fruit various stakeholders Bunch (EFB), MT Bulking Terminals 273,160 Kernel Shell capacity Sustainability Focus: Responsible Business WASTE TO WEALTH HUMAN Practices and Adherence to Energy Compost Biogas Over employees 94,000 and Environmental Science Impact
MATERIAL MATTERS WHICH ALIGN
OPERATIONAL PERFORMANCE PEOPLE MANAGEMENT MACROECONOMIC CONDITIONS Annual Report 2019 P –G. 045 044
As a fully integrated palm oil company, our operations are diversified within the palm oil industry. This allows the Group to mitigate volatilities in segment margins and maximise value by de-commoditising our Crude Palm Oil (CPO) into high-value differentiated products that garner higher margins. Our ‘Waste-to-Wealth’ initiatives convert by-products into applications such as animal nutrition and feed from palm kernel expellers as well as tocotrienols from palm fatty acid distillate. Our value creation model reflects this agility and is formulated to better withstand an ever-changing business landscape, whilst maximising returns.
Performance & Innovation Driven Culture Value Chain Integration Wide & Diverse Geographical Reach Develop talent to propel Sime Darby Fully integrated operations across the Upstream operations in 4 countries. Plantation (SDP) into a high performance value chain with economies of scale Downstream operations are spread company across 16 countries MANAGEMENT DISCUSSION & ANALYSIS OUR OUTPUTS VALUE CREATION HOW WE SHARE THE VALUE WE CREATE
GENERATE INVESTORS Higher financial – Total shareholder return D O W N S T R E A M returns through – Responsible investment operational – Shariah-compliant excellence and high performance standards LOCAL COMMUNITIES – Improvement in the livelihood Shareholder of our employees Value DIFFERENTIATE – Mutual growth and De-commoditising development of local sustainably communities via provision of Palm Oil Food Applications produced palm employment, technical training, Cooking Oil products smallholder schemes and Confectionary community development Bakery projects (focused on education, Dairy Replacer healthcare, food security, water Spread INNOVATION Infant Formula Ongoing and sanitation) Nutrition transformational – Development of a sustainable 3 efforts to establish palm oil supply chain that Quality contributes to national and local Products a sustainable innovation economic development, while ecosystem which balancing traditional needs and Customised improves environmental protection Refineries productivity, optimises CUSTOMERS efficiency of – Preferred supplier of green palm processes, and Bulk products and quality food enhances quality Refineries ingredients of products and Food – Customisation of products to fit services specific needs Oleo Chemicals – Focus on value added/ Service differentiated products CULTIVATE Excellence – Focus on food safety products Cultivate a skilled Biodiesel and healthy workforce and EMPLOYEES Non-Food develop an – Cultivation of winning mindsets Animal Feed innovative work – Continuous capability building culture via structured development programmes for technical/ leadership competency CONTRIBUTE – Enhance quality of life through Committed in provision of a safe, healthy and Trading of CPO ensuring conducive work-life environment and Bulk Sales socioeconomic Sustainable developments Development as well as GOVERNMENT & SOCIETY environmental – Develop positive relationships and carbon with authorities and local WASTE TO WEALTH management communities to gain support for in-line with our business development Tocotrienol Animal Feed Biodiesel growth strategy – Support the industry’s biodiesel and other green initiatives
OUR VALUE CREATION MODEL
SUSTAINABILITY HEALTH AND SAFETY PERFORMANCE FINANCIAL CAPITAL GOVERNANCE STRATEGIC REVIEW STAKEHOLDER ENGAGEMENT
Stakeholder Engagement is both a business-as-usual and strategic exercise. At the operational level, our intent is to understand our stakeholders’ climate of opinion, identify opportunities to collaborate, take stock of various challenges and impeding factors in order to deliver their expectations. The ultimate objective is to ensure a certain degree of consensus, acceptance, and trust is established between the Group and stakeholders who are associated with us, directly or indirectly. Other objectives include seeking consultation, co-creating ideas, and sharing responsibilities. Beyond these, our continuous engagement with stakeholders also helps to put in place various monitoring and grievance mechanisms for proactive and fair assessments and resolution of potential conflicts. At SDP, we strongly believe that stakeholders’ participation and engagement in the course of our business can and should positively contribute to value creation.
PRIORITY FREQUENCY OF MODE OF ENGAGEMENT STAKEHOLDERS ENGAGEMENT
•• Product Quality & Services •• ISPO, RSPO, MSPO Certified Products •• Engagement Events and Forums •• Product Pricing •• No Deforestation, No Peat, No Exploitation (NDPE) Policy •• Meetings •• Traceability •• Responsible Agriculture Charter, Human Rights Charter, •• Satisfaction Surveys and Feedback •• Environmental Harm Innovation and Productivity Charter CUSTOMERS •• E-mails •• Social Injustice or Exploitation •• R&D and Product Innovation (to work with customers)
•• Health & Safety Issues •• Employee Engagement Surveys •• Occupational Safety and Health Policy and Training •• Skill Gaps •• Volunteer Programmes •• Technical Skills Training and Development •• KPI Misalignments •• Skills Development Workshops •• KPIs & Performance Management Sustainability Roadmap •• Sustainability Issues EMPLOYEES •• Organisational Health Index (OHI) •• Organisational Health Index (OHI) Action Plans •• Career Development
•• Free, Prior and Informed Consent •• Environmental & Social Issues •• Meetings and Forum Participation •• Expansion Plans •• Occupational Safety and Health (OSH) Systems and •• Engagement Surveys NGOs/ •• Traceability Standards •• Collaborative Projects CIVIL SOCIETY •• Sustainability Issues ORGANISATIONS •• Food Security
•• Certification-Related Issues •• Working Groups •• Newly Imposed Regulations •• Diversification Strategies •• Task Forces •• Regulatory Pressures •• Partnership Opportunities INDUSTRY GROUPS •• Technical Committees •• Market Forces (Trade and Business) •• SDP’s Sustainability Scorecard •• Sustainability Issues
•• Meetings •• Compliance Issues •• Beyond Compliance Approach •• On-Site Inspections •• Regulations (Breaches) •• Robust Governance GOVERNMENT •• E-Correspondence •• Newly Imposed Regulations •• Risk Frameworks Policy Participation and Support AGENCIES
•• NDPE Policy •• Land Rights •• Community Meetings and Engagement Events •• Responsible Agriculture Charter •• Fire and Haze Prevention •• RSPO Complaints •• Human Rights Charter •• Exploitation LOCAL •• Grievance Panels •• Commitment to Community Development COMMUNITIES •• Local Ecosystems/Employment •• Free, Prior and Informed Consent (FPIC)
•• Collaborative Projects •• Awareness on Sustainable Palm Oil •• Partnership Opportunities •• Advisory Roles Production •• Collective Action and Commitments ACADEMIC •• Funding Applications •• Community Engagement INSTITUTIONS Annual Report 2019 P –G. 047 046
Annually Quarterly Monthly MANAGEMENT DISCUSSION & ANALYSIS
HOW WE ADDRESS STAKEHOLDERS’ CONCERNS AND KEY STAKEHOLDERS’ CONCERNS EXPECTATIONS
•• Product Quality & Services •• ISPO, RSPO, MSPO Certified Products •• Engagement Events and Forums •• Product Pricing •• No Deforestation, No Peat, No Exploitation (NDPE) Policy •• Meetings •• Traceability •• Responsible Agriculture Charter, Human Rights Charter, •• Satisfaction Surveys and Feedback •• Environmental Harm Innovation and Productivity Charter CUSTOMERS •• E-mails •• Social Injustice or Exploitation •• R&D and Product Innovation (to work with customers)
•• Health & Safety Issues •• Employee Engagement Surveys •• Occupational Safety and Health Policy and Training •• Skill Gaps •• Volunteer Programmes •• Technical Skills Training and Development •• KPI Misalignments •• Skills Development Workshops •• KPIs & Performance Management Sustainability Roadmap 3 •• Sustainability Issues EMPLOYEES •• Organisational Health Index (OHI) •• Organisational Health Index (OHI) Action Plans •• Career Development
•• Free, Prior and Informed Consent •• Environmental & Social Issues •• Meetings and Forum Participation •• Expansion Plans •• Occupational Safety and Health (OSH) Systems and •• Engagement Surveys NGOs/ •• Traceability Standards •• Collaborative Projects CIVIL SOCIETY •• Sustainability Issues ORGANISATIONS •• Food Security
•• Certification-Related Issues •• Working Groups •• Newly Imposed Regulations •• Diversification Strategies •• Task Forces •• Regulatory Pressures •• Partnership Opportunities INDUSTRY GROUPS •• Technical Committees •• Market Forces (Trade and Business) •• SDP’s Sustainability Scorecard •• Sustainability Issues
•• Meetings •• Compliance Issues •• Beyond Compliance Approach •• On-Site Inspections •• Regulations (Breaches) •• Robust Governance GOVERNMENT •• E-Correspondence •• Newly Imposed Regulations •• Risk Frameworks Policy Participation and Support AGENCIES
•• NDPE Policy •• Land Rights •• Community Meetings and Engagement Events •• Responsible Agriculture Charter •• Fire and Haze Prevention •• RSPO Complaints •• Human Rights Charter •• Exploitation LOCAL •• Grievance Panels •• Commitment to Community Development COMMUNITIES •• Local Ecosystems/Employment •• Free, Prior and Informed Consent (FPIC)
•• Collaborative Projects •• Awareness on Sustainable Palm Oil •• Partnership Opportunities •• Advisory Roles Production •• Collective Action and Commitments ACADEMIC •• Funding Applications •• Community Engagement INSTITUTIONS STRATEGIC REVIEW MANAGING OUR MATERIAL MATTERS
At SDP, our deep understanding of the industry and sectoral challenges, as well as our long-standing relationships with various stakeholders in our value chain gives us a business advantage. The very foundation of our mid-to-long term strategies, as well as solutions, are built on the most critical aspects of our business and the matters that are most material to our diverse stakeholders. At functional or operational level, we focus our efforts on responding to various risks and opportunities in relation to the identified/top material matters. This in itself contributes to value creation. Our aspiration, however, is to go beyond the expectations of our stakeholders by Raising the Bar on Sustainable Growth and delivering innovative, future-proof solutions.
HOW WE MEASURE STAKEHOLDERS CAPITALS MATERIAL MATTERS RISKS OPPORTUNITIES STRATEGIES (MID-TERM) HOW WE CREATE VALUE VALUE CREATION AFFECTED IMPACTED
Disruption in production cycles due to economic and Deploy innovative technologies including digitalisation RISE to APEX to focus on execution strategy Create a sustainable innovation Profits (PATAMI) political factors, in addition to externalities and Black and mechanisation strategies to improve operational ecosystem to improve productivity, Cost-to-Customer (CtC) Swan events can affect throughput and erode revenue performance and excellence Drive operational excellence through optimise efficiency of processes and digitalisation, innovation, mechanisation and potential enhance quality of products and services Customer Satisfaction Index OPERATIONAL Enhance technical skills and invest in the welfare and automation Manage capital, create savings on cost, PERFORMANCE Inefficiencies can compromise the volume, quality and well-being of people to improve efficiencies Focused implementation on cost reduction safety of products optimise portfolio performance, enable strategies incremental earnings and revenue generation through higher productivity and responsiveness in decision-making
Productivity loss due to poor working conditions, low Create a healthy pipeline of talent through systematic Invest in human capital development and in Cultivate a skilled workforce and develop Upskilling and Reskilling morale, and lack of adequate skills can affect succession planning, upskilling and reskilling, as well strategies that help future-proof employees and an innovative work culture on the back Workforce organisational performance as well as reputation as employee welfare and well-being policies their growth of our core values – Integrity, Respect & Employee Satisfaction Index PEOPLE MANAGEMENT Responsibility, Enterprising, and Excellence Employee Productivity & Performance
Fluctuation in commodity prices due to trade wars and Agility and flexibility to capitalise on changing market Diversify business and risks across geographies; Identify trends ahead of competitions Cost Savings protectionist policies, political instability and conflicts, conditions product segments; and trading partners and execute strategies to secure market Stable long term profit and competition can affect demand and supply trends, leadership and deliver a sustainable and growth over cycles as well as erode revenue potential Ability of pre-emptively leverage and take advantage De-commoditise by increasing the ratio stable profit growth between commodity and differentiated MACROECONOMIC of cyclicalities to deliver sustained profit growth Commercialise innovations products and service offerings across markets CONDITIONS Changes in legal and regulatory environments can put additonal pressure and increase cost of compliance and tapping on alternative revenue streams and operations Operate at the lowest cost possible by improving efficiencies and leveraging on innovations to produce more from less
High costs of recovery from negative environmental Future-proof business and people Map and manage environmental and social Ensure socio-economic development, Higher customer acceptance and social impacts risks across the value chain towards creating proactive environmental and carbon of product offerings & Capture greater market share and customer net positive impact footprint management in-line with our higher market share Reputational risks and as a result, erosion of credibility segments through responsibly produced/sustainable growth strategy No Deforestation, No Peat, and trust in the marketplace from real or perceived high value products SOCIAL AND Strengthen stakeholder relationships No Exploitation (NDPE) concerns especially related to environmental and social ENVIRONMENTAL IMPACT through purposeful engagement policy harm, traceability, food security and emissions Enhance brand equity and investor proposition by improving environmental and social performance Carbon Footprint and Mitigation Community Investments
Fatalities, injuries, accidents of employees lead to drop Create a culture of safety and health across the Raise awareness and educate employees and Develop the capabilities of our Occupational Safety & in performance organisation (operations in the value chain), supply chain partners on safety precautions/ employees and leaders through training, Health (OSH) systems and OCCUPATIONAL SAFETY optimising human potential measures as well as preventive health emphasising on safety and health for standards compliance AND HEALTH Unsafe or poor working conditions affect employee high performance Zero harm under the OSH morale and productivity PERFORMANCE systems
Capital depreciation, financial distress, value destruction, Strengthen balance sheet and improve profitability Develop a robust and effective capital risk Prioritise financial resources, manage the Profitability Index: corporate credit rating downgrade through prudent and resilient capital management management framework, including an working capital and inventory turnover Return on Capital Employed tactics and approaches efficient inventory and capital deployment ratio, in addition to improving controls, (ROCE)/Return on Assets strategies capital deployment monitoring (ROA), Return on Equity CAPITAL MANAGEMENT as well as performance (ROE) Total Shareholder Return (TSR)
Annual Report 2019 P –G. 049 048
HOW WE MEASURE STAKEHOLDERS CAPITALS MANAGEMENT DISCUSSION & ANALYSIS MATERIAL MATTERS RISKS OPPORTUNITIES STRATEGIES (MID-TERM) HOW WE CREATE VALUE VALUE CREATION AFFECTED IMPACTED
Disruption in production cycles due to economic and Deploy innovative technologies including digitalisation RISE to APEX to focus on execution strategy Create a sustainable innovation Profits (PATAMI) political factors, in addition to externalities and Black and mechanisation strategies to improve operational ecosystem to improve productivity, Cost-to-Customer (CtC) Swan events can affect throughput and erode revenue performance and excellence Drive operational excellence through optimise efficiency of processes and digitalisation, innovation, mechanisation and potential enhance quality of products and services Customer Satisfaction Index OPERATIONAL Enhance technical skills and invest in the welfare and automation Manage capital, create savings on cost, PERFORMANCE Inefficiencies can compromise the volume, quality and well-being of people to improve efficiencies Focused implementation on cost reduction safety of products optimise portfolio performance, enable strategies incremental earnings and revenue generation through higher productivity and responsiveness in decision-making
Productivity loss due to poor working conditions, low Create a healthy pipeline of talent through systematic Invest in human capital development and in Cultivate a skilled workforce and develop Upskilling and Reskilling morale, and lack of adequate skills can affect succession planning, upskilling and reskilling, as well strategies that help future-proof employees and an innovative work culture on the back Workforce organisational performance as well as reputation as employee welfare and well-being policies their growth of our core values – Integrity, Respect & Employee Satisfaction Index PEOPLE MANAGEMENT Responsibility, Enterprising, and Excellence Employee Productivity & Performance
Fluctuation in commodity prices due to trade wars and Agility and flexibility to capitalise on changing market Diversify business and risks across geographies; Identify trends ahead of competitions Cost Savings 3 protectionist policies, political instability and conflicts, conditions product segments; and trading partners and execute strategies to secure market Stable long term profit and competition can affect demand and supply trends, leadership and deliver a sustainable and growth over cycles as well as erode revenue potential Ability of pre-emptively leverage and take advantage De-commoditise by increasing the ratio stable profit growth between commodity and differentiated MACROECONOMIC of cyclicalities to deliver sustained profit growth Commercialise innovations products and service offerings across markets CONDITIONS Changes in legal and regulatory environments can put additonal pressure and increase cost of compliance and tapping on alternative revenue streams and operations Operate at the lowest cost possible by improving efficiencies and leveraging on innovations to produce more from less
High costs of recovery from negative environmental Future-proof business and people Map and manage environmental and social Ensure socio-economic development, Higher customer acceptance and social impacts risks across the value chain towards creating proactive environmental and carbon of product offerings & Capture greater market share and customer net positive impact footprint management in-line with our higher market share Reputational risks and as a result, erosion of credibility segments through responsibly produced/sustainable growth strategy No Deforestation, No Peat, and trust in the marketplace from real or perceived high value products SOCIAL AND Strengthen stakeholder relationships No Exploitation (NDPE) concerns especially related to environmental and social ENVIRONMENTAL IMPACT through purposeful engagement policy harm, traceability, food security and emissions Enhance brand equity and investor proposition by improving environmental and social performance Carbon Footprint and Mitigation Community Investments
Fatalities, injuries, accidents of employees lead to drop Create a culture of safety and health across the Raise awareness and educate employees and Develop the capabilities of our Occupational Safety & in performance organisation (operations in the value chain), supply chain partners on safety precautions/ employees and leaders through training, Health (OSH) systems and OCCUPATIONAL SAFETY optimising human potential measures as well as preventive health emphasising on safety and health for standards compliance AND HEALTH Unsafe or poor working conditions affect employee high performance Zero harm under the OSH morale and productivity PERFORMANCE systems
Capital depreciation, financial distress, value destruction, Strengthen balance sheet and improve profitability Develop a robust and effective capital risk Prioritise financial resources, manage the Profitability Index: corporate credit rating downgrade through prudent and resilient capital management management framework, including an working capital and inventory turnover Return on Capital Employed tactics and approaches efficient inventory and capital deployment ratio, in addition to improving controls, (ROCE)/Return on Assets strategies capital deployment monitoring (ROA), Return on Equity CAPITAL MANAGEMENT as well as performance (ROE) Total Shareholder Return (TSR)
STRATEGIC REVIEW OUR STRATEGIES
RAISING THE BAR ON SUSTAINABLE GROWTH The global health pandemic has resulted in a new normal in the global business environment that requires businesses to be more resilient as well as have a heightened agility in a rapidly evolving operating environment. Hence the key thrust in our three-pronged Strategy Blueprint has always been on building businesses that are resilient to the uncertainties of the international commodities markets based on the three key pillars of driving operational excellence, serving our customers’ evolving needs and maximising returns across the business’ integrated value chain.
The new normal also places increased focus on businesses that are agile. With over 100 years of industry experience, SDP has the in-depth knowledge on various aspects of the palm oil business and sector. Our market intelligence and demonstrated leadership further allow us to pre-empt the emerging global trends and influences, providing us the agility and a strong platform that enable us to deliver our best to our customers and the marketplace while continuously “Raising the Bar on Sustainable Growth”.
Vision To Be The Leading Integrated Global Palm Oil Player
Strategic Strategic Interventions Strategic Priorities Objectives 2019 2020
Driving operational Scaled-up preparation of GenomeSelectTM Implementation of GenomeSelectTM excellence in our materials for replanting on a limited programme to further enhance the Upstream sector arable land to increase FFB production per planting materials’ productivity traits hectare Focus on driving the implementation GenomeSelectTM programme to further of the various initiatives recommended enhance the planting materials’ by the Labs conducted in FY2019 to productivity traits ensure the targeted values are delivered Conducted Cost-to-Customer Reduction Roll out additional Labs which cover Lab in Indonesia and Papua New Guinea areas such as logistics and finance (PNG) to improve operations’ profitability Continued focus on digital and industry and competitiveness 4.0 innovation to improve productivity Commercialised and rolled-out irrigation and efficiency – innovation in operational plans across all regions processes to reduce manpower, Rolled-out mechanisation best practices in increase productivity and quality Indonesia and PNG
Serving our Increased the product ratio between SDO transformation programme customers’ evolving commodity and differentiated products Continuous effort and focus on high needs in our such as premium frying oils, differentiated margin differentiated products Downstream sector bakery and confectionery products, etc Greater focus on customers’ evolving Disciplined portfolio management across needs and trends on food products in the value chain by minimising the number terms of health, food safety and of product rework and rejections by sustainability customers Continuous efforts to improve Initiated efforts to make inroads into North operational excellence and increase America and Middle East by establishing sales in high growth key markets satellite offices and/or partnerships with local players Digital interventions to improve supply chain efficiencies and deliver customer Increased refinery and kernel crushing needs plant’s (KCP) utilisation rates across all business units by improving sales volume in key growth markets Initiated SDO Logistics Lab to design and implement performance improvement initiatives
Maximising returns Optimised supply chain to ensure Strengthen the supply chain network across the palm oil seamless connectivity, taking advantage of and focus on flawless execution value chain by price spreads across locations Continuous efforts to integrate all data leveraging on our Intensified trading around the assets by points throughout SDP and implement integrated business leveraging on SDP’s assets in various data analytics to enhance efficiency model countries and productivity across the value chain Annual Report 2019 P –G. 051 050
RISE TO APEX
DRIVING PERFORMANCE THROUGH CULTURE CHANGE RISE is a performance-driven cultural transformation initiative, incorporating our 6 Winning Mindsets in setting up a culture of accountability. APEX, on the other hand is a value creation programme aimed at accelerating the performance of our core businesses through results-driven initiatives. MANAGEMENT DISCUSSION & ANALYSIS ‘RISE to APEX’ is our rallying call for the Group to focus on delivering superior performance. It anchors our transformation towards a healthy and performance-based organisation. RISE unites us around a common culture that allows us to speak in a common language and align ourselves to the targets set by APEX, as well as the vision to become the Leading Integrated Global Palm Oil Player.
In 2020, the Results Delivery Office (RDO) was set up to drive and ensure the effective execution of the strategy, timely delivery of value creation projects and ultimately, the overall profit targets under RISE to APEX. To strengthen results delivery, the activities of the Change Management Office instituted in August 2019, are now incorporated into the RDO which is now focused on driving not just value creation initiatives, but also to ensure that our Overall profits targets are achieved. RDO combines disciplined execution and rigour with constant innovation and ideation in an agile work culture. The RDO’s renewed focus will strengthen SDP’s ability to sustainably outperform in the post- pandemic “New Normal”.
RESULTS INNOVATION ACCELERATING SUSTAINABILITY PERFORMANCE ENERGY EXCELLENCE 3
PERFORMANCE HEALTH AND CULTURE
Accelerating Performance Excellence Sustaining Performance Excellence through RISE
Measure: Measure: PATAMI Growth Organisational Health Index (OHI) “How we deliver results” “How do we sustain results”
DELIVER RESULTS CUSTOMER FIRST VALUE TALENT We drive results. We put customers first. We value talent. I exceed expectations. I win with the customer. I am a team player.
CONTINUOUS EMPOWERED BUILD TRUST VALUE CREATION INITIATIVES IMPROVEMENT DECISIONS We build trust. We improve and We make empowered I walk the talk. Generating value beyond Business As Usual innovate. decisions. workstreams I do better, every time. I am responsible and proactive. OPERATIONAL EXCELLENCE 6 WINNING MINDSETS Continuous improvements to reinforce results Key behavioural indicators in setting up a culture of accountability as a foundation for organisational health
ORGANISATION PRACTICES Committing to action on health, focusing on priority areas for each business unit
RESULTS DELIVERY OFFICE Disciplined execution and rigour across APEX STRATEGIC REVIEW
RISE TO APEX
At SDP, it is our utmost priority to constantly shape the mind and behaviour of our workforce towards practicing a strong performance and healthy culture across the organisation. In achieving this objective, SDP has introduced a performance management system that focuses on the identification, tracking and evaluation of performance results using performance indicators. The adoption of this system at SDP is aimed to instill accountability, motivate high performance and align business goals. In entirety, it is a process of matching our resources against our value creation levers. Below are the value creation levers and the corresponding financial and non-financial KPIs.
FFB Aggregation C O Aggregation & Trading Bulk Sales
Seed Production & Nursery Customised Refineries
Estate Mills Refineries/Bulking Management
Non-Food
UPSTREAM DOWNSTREAM
Drive efficiency to yield more CPO from “Integrated’ model as differentiator & key Position SDP as a sustainable key our existing land bank offering downstream industry player
High quality & sustainable feedstock to Leverage on sustainability, traceability & Emphasis on growth strategy to expand fuel SDP’s growth efficiency reach & capture value from palm oil
Financial Metrics Non-Financial Metrics Financial Metrics Yield Sustainability – Sustainable Palm Price/Margin, Volume, Cost, Customer Extraction Rates Oil Transparency Toolkit (SPOTT) Satisfaction Index, Customised vs Evaluation Commodity Product Ratio, Sales of Cost Brand Index Physical Certified Palm Oil New Revenue Organisational Health Index (OHI)
Non-Financial Metrics Non-Financial Metrics (Productivity and Efficiency) (Productivity and Efficiency) FFB Production/Yield Oil Yield/Oil Loss Refinery Utilisation/ OER & KER Refinery’s availability Mill Utilisation/Replanting Customer Satisfaction Index Annual Report 2019 P –G. 053 052
Key Value Creation (VC) & Innovation Activities Carried Out Since Inception
Total
Value Creation (VC) Idea Generation Workshops 18 MANAGEMENT DISCUSSION & ANALYSIS VC Bottom Up Planning 4 Digital Bootcamp & Sprints 2 Change Management Office (CMO) Process & HR Labs 4 CMO Cost-to-Customer Labs 2 APEX/VC Engagements 19 APEXpedition Newsletters 42 OHI Pulse Surveys 2 Total 93
Ongoing Initiatives Across 7 Workstreams* Total 1,603 3 Inclusive of Digital Transformation 22 Operational Excellence 82 Cost-to-Customer Labs 162
* 7 Workstreams: Upstream, Downstream (SDO), Cash Control Tower, R&D, Special Projects, Organisation & Digital
SDP is on an ongoing transformation journey to create a high performance and innovation culture within the organisation. The Group began by nurturing RISE & the 6 Winning Mindsets culture amongst our employees before implementing the Accelerating Performance Excellence (APEX) programme to achieve SDP’s value creation aspirations.
We are continuously re-inventing ourselves and the way we work to become more agile and efficient; lean and productive; whilst maintaining an optimum level of governance and controls.
This year, we have embarked on various labs to scrutinise and to seek greater opportunities to create and protect our organisation’s value from Process Rationalisations and Performance Management to exploring innovative ways to ensure the competitiveness of our Cost-to-Customer.
Our aim is to periodically engage, recognise and celebrate our organisation’s successes through roadshows, engagement sessions and internal publications as a way to keep our employees abreast with the progress and achievements delivered. PERFORMANCE REVIEW – Financial Review GROUP FINANCIAL REVIEW
SDP’s mechanisation projects have helped improve productivity and operational efficiencies in our estates.
CHANGE IN THE FINANCIAL YEAR END REVIEW OF OPERATIONS
The Board of Directors had on 22 February 2018 approved FY2019 was indeed a challenging year for the oil plantation the change in the financial year end of the Group from industry and the Group was operating under unfavourable 30 June to 31 December, which was implemented after business environment, stemming from volatility in CPO the close of the financial year ended 30 June 2018. The market prices which resulted in low CPO and PK prices first set of financial statements issued subsequent to the realised during the financial year and fair value losses change in the financial year end reflect the 6 months registered on commodity hedges as the palm product ended 31 December 2018 (FP2018). prices increased sharply towards the end of the financial year. In addition, the unfavourable weather conditions The audited financial statements for 31 December 2019 and pest and disease issue posed operational challenges (FY2019) is the first full 12-month financial statements to the Upstream segment in its oil palm and sugar issued subsequent to the change in the financial year. operations which resulted in a decline in crop production For more equitable and meaningful review, financial results in the year under review. of the Group for the financial year ended 31 December 2019 are compared against the results of the previous As the Group continues its pursuit to unlock value from year, the unaudited 12 months ended 31 December 2018 under performing assets, the Board of Directors of the (YE2018). Company had during the year under review made its decision to divest the Group’s operations in Liberia and to exit the joint ventures in oleochemical and biomass Annual Report 2019 P –G. 055 054
businesses. Consequently, the Group had reclassified the The Group has performed a preliminary assessment and assets and liabilities of its subsidiary, Sime Darby Plantation carefully considered the potential impact of COVID-19 on Liberia Inc. (“SDP Liberia”) and joint ventures, Emery the Group’s and the Company’s operations and financial Oleochemical (M) Sdn Bhd and Emery Specialty Chemicals performance in the financial year ending 31 December
Sdn Bhd (collectively referred to as “Emery”), as Non-current 2020, which include amongst others the slowing down MANAGEMENT DISCUSSION & ANALYSIS assets held for sale and these operations were also of demand for oils, increasing risks on customers deferring presented as discontinuing operations in accordance with or defaulting on contracts, customer credit risks, and the requirements of MFRS 5 “Non-current assets held for volatility from foreign exchange fluctuations. Based on sale and Discontinued Operations” (“MFRS 5”). the preliminary assessment, the Group’s operating results have been forecasted to remain satisfactory and the cash Subsequent to the close of the FYE 31 December 2019, flow position together with its undrawn facilities are on 11 March 2020, the World Health Organisation (“WHO”) adequate to meet the Group’s requirements. has declared the outbreak of COVID-19 to be a global pandemic. The restrictions in movement which have been The rapid and widening spread of COVID-19 outbreak, implemented in the various countries where the Group deteriorating global economic outlook, falling oil prices operates in, fortunately has not curtailed all of its operations and asset price declines are creating a severe and extensive and value chain. Additionally, the Group had implemented credit shock across many sectors, regions and markets. remote work arrangements to maintain certain operations, The combined credit effects of these developments are such as financial reporting systems and monitoring of its unprecedented. Hence, Management will continue to operations at its various sites. monitor developments and will take the necessary corrective actions.
3 REVIEW OF OPERATIONS
(RM’million) FY2019 YE2018* %
CONTINUING OPERATIONS
Revenue 12,062 13,246 (9)
Recurring profit before interest and tax 430 1,458 (71) Non-recurring transactions (24) (114) 79
Profit before interest and tax 406 1,344 (70) Finance income 13 15 (13) Finance costs (168) (195) 14
Profit before tax 251 1,164 (78) Tax credit/(expense) 24 (297) 108
Profit after tax 275 867 (68) Perpetual Sukuk (124) (123) (1) Non-controlling interests (29) (15) (93)
Profit from continuing operations attributable to equity holders of the Company 122 729 (83)
DISCONTINUING OPERATIONS Loss from discontinuing operations attributable to equity holders of the Company (322) (206) (56)
(Loss)/profit attributable to equity holders of the Company (200) 523 (138)
* Unaudited 12 months ended 31 December 2018 PERFORMANCE REVIEW – Financial Review
GROUP FINANCIAL REVIEW
REVENUE**
(RM Million)
15,000
12,000
9,000
6,000
3,000
0 FY2019 FY2019 FY2019 FY2019 FY2019 FY2019 *YE2018 *YE2018 *YE2018 *YE2018 *YE2018 *YE2018
Upstream Upstream Upstream Total Downstream Total Group Malaysia Indonesia PNG/SI Upstream
External Inter-segment
* Unaudited 12 months ended 31 December 2018 ** Excluding Discontinuing Operations
Revenue from the Group’s continuing operations for FY2019 was lower by 9% compared to the previous year, attributable to a 6% lower average CPO realised price of RM2,063 per MT (YE2018: RM2,185 per MT), a 33% lower average PK realised price of RM1,118 per MT (YE2018: RM1,660 per MT), exacerbated by the 7% lower FFB production of 9.58 million MT (YE2018: 10.25 million MT).
PROFIT BEFORE INTEREST & TAX (PBIT)*
(RM Million)
1,500
1,200
900
600
300
0
-300
Upstream Upstream Upstream Total Downstream Other Recurring Non- Malaysia Indonesia PNG/SI Upstream Operations PBIT Recurring Items
FY2019 YE2018 * Excluding Discontinuing Operations Annual Report 2019 P –G. 057 056
For the Group’s continuing operations, the recurring PBIT of RM430 million was 71% lower than RM1,458 million recorded in YE2018, mainly due to the weaker performance from the Upstream segment which was adversely affected by the volatility in CPO and PK prices, as well as operational challenges faced by its oil palm and sugar operations during the year under review. The downstream operations posted slightly lower recurring PBIT, mainly impacted by
unrealised fair value losses on its commodity hedges. MANAGEMENT DISCUSSION & ANALYSIS
UPSTREAM
For the year ended 31 December 2019, Upstream operations reported a recurring PBIT of RM125 million from continuing operations, lower than RM1,141 million reported in the previous year. The weaker performance was largely due to: i. lower average CPO and PK prices realised, which declined by 6% and 33% respectively in the year under review; ii. 7% lower FFB production; and iii. unrealised fair value loss on commodity hedges of RM136 million attributable to the sharp rise in market prices in the last 2 months of the financial year. This was partially cushioned by the higher OER which improved to 21.58% in the current year.
The key operational drivers for the Upstream segments for FY2019 and comparison against the previous year are as follows:
CPO price realised (RM per MT) FFB production (MT’000)
FY2019 YE2018 +/(-) FY2019 YE2018 +/(-)
% % 3 SEGMENT Upstream Malaysia 2,069 2,262 (9) 5,102 5,373 (5) Upstream Indonesia 2,048 1,920 7 2,663 2,892 (8) Upstream PNG/SI 2,074 2,412 (14) 1,814 1,980 (8)
Continuing operations 2,063 2,185 (6) 9,579 10,246 (7) Discontinuing operations 2,037 1,989 2 100 86 16
Total 2,063 2,184 (6) 9,679 10,332 (6)
PK price realised (RM per MT) CPO Extraction Rate (%)
FY2019 YE2018 +/(-) FY2019 YE2018 +/(-)
% SEGMENT Upstream Malaysia 1,220 1,780 (31) 21.18 20.65 0.53 Upstream Indonesia 933 1,430 (35) 21.92 21.14 0.79 Upstream PNG/SI – – 22.10 22.35 (0.25)
Continuing operations 1,118 1,660 (33) 21.58 21.13 0.44 Discontinuing operations 399 481 (17) 22.35 19.76 2.59
Total 1,106 1,653 (33) 21.58 21.12 0.46
DOWNSTREAM Downstream reported a recurring PBIT of RM276 million in the year under review, slightly lower than the previous year despite the improved results of Asia Pacific bulk and differentiated refineries which recorded higher sales volumes and margins. The weak results were primarily due to lower PBIT reported by the Europe, Middle East and Africa operations which suffered from lower sales volume and margin, and unrealised fair value loss arising from commodity contracts.
OTHER OPERATIONS Other operations reported a lower recurring PBIT of RM29 million compared to RM38 million recorded in the previous year due to the lower results from associates and joint ventures in the current year. PERFORMANCE REVIEW – Financial Review
GROUP FINANCIAL REVIEW
NON-RECURRING TRANSACTIONS Net Earnings The Group reported non-recurring LBIT of RM24 million For the year ended 31 December 2019, the Group posted which comprised of the impairment of assets in Indonesia net earnings from continuing operations of RM122 million, of RM19 million, impairment of a loan to a joint venture as compared to RM729 million recorded in the previous of RM25 million, compensated by gains on sale of land in year, mainly due to lower recurring PBIT contributed by Malaysia and Thailand of RM11 million, and a gain from the Upstream segment, partially compensated by lower divestment of a subsidiary in Indonesia of RM9 million. finance costs arising from higher capitalisation of borrowing costs, and lower non-recurring losses arising from The net non-recurring LBIT of RM114 million in the previous impairment charges on the Group’s non-current assets. year comprised of impairment charges of assets mainly in Indonesia of RM83 million and impairment of investments of RM180 million, compensated by a gain from divestment Discontinuing operations registered higher net loss of of a subsidiary in Vietnam of RM30 million and a gain on RM322 million compared to RM206 million in the previous sale of land in Malaysia of RM119 million. year mainly due to higher impairment charge on non- current assets in Liberia in the current year of RM235 DISCONTINUING OPERATIONS million against RM127 million charge incurred in the previous year. Upstream Liberia reported a loss of RM318 million, as compared to a loss of RM196 million in the previous year, mainly due to the higher impairment charges on its non- As a result, the Group reported a total net loss of RM200 current assets in the current year of RM235 million as million, as compared to the net earnings of RM523 million compared to RM127 million last year. recorded last year.
The joint ventures recognised under discontinuing Earnings per share are as follows: operations reported a loss of RM4 million, as compared to a loss of RM10 million in the previous year. FY2019 YE2018*
Basic (loss)/earnings per share Finance Cost attributable to equity holders Finance costs incurred during the year of RM168 million of the Company (sen): were 14% lower than YE2018, due to higher capitalisation – from continuing operations 1.8 10.6 of borrowing costs in the current year, which compensated – from discontinuing for the higher interest charges due to the increased operations (4.7) (3.0) funding for working capital required in FY2019 attributable to the low CPO market prices during the year. Total (2.9) 7.6
Taxation Return on Shareholder’s Equity (ROE) The Group reported a net tax credit of RM24 million during the year under review, as compared to a charge % FY2019 YE2018* of RM297 million in the previous year mainly due to lower Return on Equity profits and recognition of deferred tax assets. – from continuing operations 0.9 5.6 – from discontinuing (1.6) For the year ended 31 December 2019, the Group recognised (2.4) operations deferred tax asset of RM78 million on losses suffered by the holding company of PT Mitra Austral Sejahtera (“PT Total (1.5) 4.0 MAS”) on the disposal of the subsidiary. In addition, deferred tax asset of RM33 million was recognised on * Unaudited 12 months ended 31 December 2018 unrealised profit on sale of land within the Group from prior years as a result of the change in Real Property Gains Tax (RPGT) rate in Malaysia, which compensated for the impact of non-deductible expenses and interests. Annual Report 2019 P –G. 059 058
GROUP BORROWING POSITION The Sale & Purchase agreement for the sale of the Group’s entire shareholding in Sime Darby Plantation Liberia Inc. December December with Mano Palm Oil Industries Ltd was signed on 12 RM’Million 2019 2018 December 2019 and the divestment was completed on
15 January 2020. MANAGEMENT DISCUSSION & ANALYSIS Total Borrowings 7,745 7,297 Bank balances, deposits 431 491 and cash In addition to these disposals and as part of the asset monetisation exercise, the Group is in the midst of divesting Equity 15,861 15,746 amongst others the following assets which have been Debt/Equity 48.8% 46.3% classified as assets held for sale:
The Group’s borrowings as at 31 December 2019 increased the entire 50% shareholding in joint ventures, Emery to RM7.7 billion from RM7.3 billion reported at the end Oleochemical (M) Sdn Bhd and Emery Specialty of the previous financial period ended 31 December 2018, Chemical Sdn Bhd, respectively attributable to additional funding for working capital the entire 52% shareholding in Verdant Bioscience drawn down during the year. Pte Ltd, a subsidiary in Singapore the entire 95% shareholding in PT Indo Sukses Lestari GROUP CASH FLOW Makmur, a subsidiary which has a rubber development in Indonesia RM’Million FY2019 YE2018* The Group continues to place priority in its deleveraging Revenue 12,062 13,246 efforts and completed the refinancing of its credit facilities EBITDA – total 1,612 2,531 worth approximately RM3.9 billion on marginally improved EBITDA – recurring 1,636 2,645 3 terms in December 2019. The refinancing exercise was Operating cash flow 1,745 1,990 rated as credit positive by Moody’s Investors Service. Capital expenditure (1,573) (1,638) Investments – (252) Proceeds from disposals 194 646 DIVIDENDS Finance cost, net of finance (249) (218) In line with the Group’s policy of distributing of not less income than 50% of the consolidated recurring net earnings as Free cash flow 117 529 dividends to its shareholders, the Board of Directors of the Company has approved a final dividend of 1.0 sen * Unaudited 12 months ended 31 December 2018 per share with respect to the financial year ended 31 December 2019. The dividend will be paid in cash on The decline in the Group’s free cash flow in FY2019 was 22 May 2020. due to lower operating cashflow of RM1,745 million, 12% lower than YE2018 largely attributable to the lower profits generated by the operations given lower CPO prices, and DIVIDEND REINVESTMENT PLAN lower proceeds from disposal, which had posed greater During the Extraordinary General Meeting held on challenges in reducing the Group’s debt. In addition, the 21 November 2018, the shareholders of the Company Group has yet to fully realise benefit from its asset approved the establishment of the Dividend Reinvestment monetisation exercise in FY2019, as planned divestments Plan that provides the shareholders of the Company with are still under negotiation and land sales in Malaysia are an option to elect to reinvest their dividend in new pending completion. ordinary shares of the Company (“DRP”). The Board of Directors of the Company has the authority to determine ASSET MONETISATION AND DELEVERAGING EXERCISES whether the DRP shall apply to a particular dividend distribution. There was no application of DRP on dividends During the year under review, the Group realised proceeds with respect to FY2019. from disposals which include sale of the Group’s entire 100% shareholding in PT Mitra Austral Sejahtera, a subsidiary in Indonesia. In addition, the Group had also put up for sale by tender certain parcels of land in Malaysia during the year, of which sale of 2 parcels have been completed by December 2019. The remaining parcels are pending completion. PERFORMANCE REVIEW – Financial Review
GROUP FINANCIAL REVIEW
VALUE DISTRIBUTION
The value that the Group creates for its stakeholders can either be in the form of financial returns or in non-financial or intangible forms.
The Statement of Value Added illustrates how the Group’s performance supports its ability to deliver financial value to its stakeholders.
The financial value in the statement is based on the Profit before Finance Costs, Corporate Social Responsibility (CSR) expenses, Tax, Depreciation & Amortisation and Staff Cost.
VALUE ADDED** VALUE DISTRIBUTED**
(RM’000) FY2019 YE2018* (RM’000) FY2019 YE2018*
Turnover 12,114,056 13,285,436 Employees 2,301,133 2,504,515
Direct & Indirect Costs (8,097,902) (8,451,376) Government & Society (13,579) 328,137 Value Added from Providers of Capital Operations 4,016,154 4,834,060 Dividends 459,011 442,054 Other Operating Finance Costs 269,522 242,785 Income 202,361 428,488 Non-controlling Interests 28,952 14,007 Other Losses (209,376) (36,096) Perpetual sukuk 124,300 124,300 Share of Results of Joint 881,785 823,146 Ventures 7,972 (14,123) Share of Results of Associates (2,257) (4,508) Reinvestment and Finance Income 12,975 16,137 future growth 858,490 1,568,160
Total Value Added 4,027,829 5,223,958 Total Value Distributed 4,027,829 5,223,958
* Unaudited 12 months ended 31 December 2018 ** Including Discontinued Operations Annual Report 2019 P –G. 061 060
5-YEAR FINANCIAL HIGHLIGHTS
GROUP FY 30 June FP 31 Dec 2018(2) Financial Year/Period Ended A six month FY 31 Dec (1) (RM’000) 2016 2017 2018 financial period 2019 MANAGEMENT DISCUSSION & ANALYSIS FINANCIAL RESULTS CONTINUING OPERATIONS Revenue* 11,945,994 14,767,935 14,335,826 6,518,321 12,062,266 Earnings before interest, tax, depreciation and amortisation (EBITDA)* 2,394,776 6,073,863 3,872,983 1,213,295 1,611,899 Profit before interest and tax* 1,275,604 4,848,815 2,736,749 614,687 405,886 Profit before tax* 855,274 4,424,443 2,577,722 513,175 251,316 Profit after tax* 1,019,170 3,945,390 2,086,175 367,923 274,885 Perpetual sukuk* – (2,724) (124,300) (62,661) (124,300) Non-controlling interests* (35,756) (42,087) (33,624) (5,626) (28,952) Profit from continuing operations attributable to equity holders of the Company 983,414 3,900,579 1,928,251 299,636 121,633 DISCONTINUING OPERATIONS Loss from discontinuing operations attributable to equity holders of the Company (16,235) (393,480) (200,772) (56,128) (321,793) Profit attributable to equity 3 holders of the Company 967,179 3,507,099 1,727,479 243,508 (200,160) FINANCIAL POSITION Share capital 600,000 600,000 1,100,000 1,100,000 1,506,119 Reserves 8,992,178 11,858,084 12,574,687 12,018,449 11,754,854 Shareholders’ equity 9,592,178 12,458,084 13,674,687 13,118,449 13,260,973 Perpetual sukuk – 2,231,384 2,230,717 2,231,398 2,231,398 Non-controlling interests 454,959 433,887 408,398 396,078 368,351 Total equity 10,047,137 15,123,355 16,313,802 15,745,925 15,860,722 Borrowings 5,522,365 7,737,927 6,489,398 7,296,914 7,744,927 Liabilities associated with assets held for sale – 15,395 45,993 21,133 35,735 Other liabilities 12,867,607 6,578,200 4,642,482 5,562,330 4,866,338 Total equity and liabilities 28,437,109 29,454,877 27,491,675 28,626,302 28,507,722 Non-current assets 23,732,635 23,794,526 22,517,962 23,583,606 23,541,567 Current assets excluding Cash 4,064,272 4,763,309 4,391,511 4,426,979 4,012,270 Assets held for sale 3,862 183,594 218,964 124,675 522,538 Cash 636,340 713,448 363,238 491,042 431,347 Total assets 28,437,109 29,454,877 27,491,675 28,626,302 28,507,722
FINANCIAL RATIOS Operating margin (%)* 10.8 32.9 19.2 9.4 3.4 Return on shareholders’ equity (%) 10.1 28.2 12.6 3.7(5) (1.5) Debt/Equity (%) 55.0 51.2 39.8 46.3 48.8 Debt/EBITDA (times) 2.3 1.4 1.8 6.0 4.8 SHARE INFORMATION Basic earnings per share (sen)(3) 14.4 52.2 25.5 3.6 (2.9) Net assets per share attributable to owners of the Company (RM) 1.4 1.8 2.0 1.9 1.9 Net dividend per share (sen)(4) 116.7 150.0 17.5 1.7 1.0
Note: 1 Restated following the first-time adoption of the MFRS framework and early adoption of MFRS 15. 2 A six month financial period. 3 The weighted average numbers of ordinary shares in issue for the financial year ended (FYE) 30 June 2016 and FYE 30 June 2017 have been adjusted for 1:11.19 share split. 4 Based on number of ordinary shares in issue of 600,000,000 as at 30 June 2016 and 30 June 2017, 6,800,839,377 as at 30 June 2018 and 31 December 2018, and 6,884,575,283 as at 31 December 2019. 5 Ratio is annualised. * The financial results have been restated to exclude discontinuing operations. PERFORMANCE REVIEW – Business Review OUR PERFORMANCE BY SECTOR: UPSTREAM
FY2019 was a year of planning, and a springboard “for all future growth. Despite a challenging operating environment, our Upstream operations continued in its implementation of efficiency improvement and cost reduction initiatives. We took an integrated approach by synergising opportunities beyond Upstream and hedging risks through mid- term strategies for diversification of products, solutions, and markets. We grew stronger and more resilient to externalities with “ our focus on sustainability best practices, and efforts to future-proof our organisation as well as our people.”
The Mini Tractor Grabber is part of SDP’s mechanisation initiative that has helped improve our productivity and cost efficiency.
ABOUT OUR UPSTREAM OPERATIONS
Under our Upstream operations, the Group owns 776,812 hectares of landbank across Malaysia, Indonesia, Papua New Guinea (PNG) and Solomon Islands (SI), of which 583,766 hectares are currently being cultivated for oil palm. Under this sector, the Group is also involved in rubber, sugar cane plantation as well as cattle rearing.
Our Upstream plantation operations are located in some of the most diverse ecosystems globally. As the world’s largest producer of CSPO, the Group embraces the RSPO Principles and Criteria and remains committed to environmental best practices, biodiversity conservation, and social protection in all areas of our operations. As at 31 December 2019, we are 99% RSPO certified for all our operations, and we aspire to achieve a 100% certified status in the second half of 2020. Annual Report 2019 P –G. 063 062
KEY CONTRIBUTORS TO PERFORMANCE IN 2019 YIELD PER HECTARE (mt/ha)
Despite the susceptibility to volatile commodity prices, MANAGEMENT DISCUSSION & ANALYSIS our Upstream operations continued to strengthen its focus 25 on operational excellence with strategies such as greater 20.51 automation, mechanisation and digitalisation in FY2019. 19.77 We also leveraged on our supply chain network to maximise 20 value by ‘decommoditising’. This entailed the diversification into differentiated products that can help build alternative 15 revenue streams as well as fetch higher margins as
compared to commodity products. In addition, we looked 11.25 at enhancing trading and aggregation, with external 10 purchases of FFB, PK and CPO to optimise the utilisation of the Group’s mills and refineries. In the long run, we believe these approaches, will prove effective in managing 5 market uncertainties, price volatility, and our sales margins.
During the year under review, we also invested in digital 0 FY2019 innovations in our plantation business, mainly to automate FY2018* FP2018 various processes, with the objective to further improve efficiencies, productivity and cost savings while enhancing 3 the outputs for better value. In line with these objectives, OIL EXTRACTION RATE we also expanded our mechanisation initiative to PNG % and SI.
In FY2019, our focused efforts helped to shape more efficient supply chain systems and improve our risk management mechanism. We also initiated the process of integrating all data points throughout the Group to deploy data analytics. We believe that quality data will help improve demand and supply forecasting processes, resource allocation, our sales mix and asset utilisation.
FY2018* FP2018 FY2019 FINANCIAL AND NON-FINANCIAL PERFORMANCE
In terms of financial performance, with unfavourable business environment, fair value losses registered on KERNEL EXTRACTION RATE commodity hedges, and less favourable operating % environment, the Group’s Upstream operations registered a PBIT of RM125 million, compared to RM1,141 million reported in the previous 12 months ended 31 December 2018. Operationally, we registered a 6% decline in FFB production and 0.46% increase in OER.
Despite various market and operational challenges, we remained committed to environmental stewardship and social equity. We introduced a number of programmes, such as the BEST programme (Building Estates’ Sustainable Transformation) to further build the Group’s Upstream FY2018* FP2018 FY2019 capability. We also continued with our replanting programme using GenomeSelectTM, which is critical to increase yield Note: * Financial year ended 30 June 2018 per hectare on our existing land. ^ 6-month financial period ended 31 December 2018 PERFORMANCE REVIEW – Business Review
UPSTREAM
ACHIEVEMENTS/INDUSTRY RECOGNITION
Recognition Awarding Body
Upstream Indonesia: Three Awards for Operational Excellence for PT Sajang Opexcon 2019 Heulang’s Mustika Factory and PT Ladangrumpun Suburabadi Angsana Factory
Upstream Malaysia: Three Gold Awards for Operational Excellence for Seri Pulai Malaysian Productivity Council Estate
Best Innovation in Sustainability Metamorphosis Projects – Technology innovation to upcycle Europa Awards 2019 waste from our estate operations OPEX Business Transformation World War on Waste Project – Waste elimination through Kaizen Summit 2019, USA (Award Category: methodology, focusing on cultural transformation and a Most Innovative Approach to Driving continuous improvement mindset Culture)
KEY HIGHLIGHTS FOR THE YEAR
Driving efficiency to yield more CPO Reducing Cost-to-Customer (CtC) from existing landbank
PT Minamas, Indonesia: Implemented five PT Minamas, Indonesia: Executed 45 initiatives initiatives to generate an additional revenue of to reduce CtC by 2.4% or RM27 million RM23 million by 31 December 2020 New Britain Palm Oil Limited, PNG: Malaysia: Replanted over 2,300 hectares with Implemented 64 initiatives to reduce CtC by GenomeSelectTM, with estimated yield potentially 15% or RM148 million by 31 December 2020. higher than the GH600 material As of 31 December 2019, achieved 134% of the target for FY2019
Accelerating digitalisation and innovation Developing model plantations to scale for efficiencies, productivity and best practices and produce high responsiveness in decision-making quality and sustainable feedstock:
Process Rationalisation Lab, Malaysia: Continued Increased OER by reducing oil loss and implementing 18 initiatives to improve process ensuring mill efficiency (through Structured efficiencies via three work-streams: tender Oil Recovery Assessment) from the average process, reports, and HQ visits 1.6% to 1.21%
Reduced 66% of overall time spent on the three streams, and allocated freed-up time for other high-priority value-creation assignments
Achieved 42.7% of the target time-spent reduction as at 31 December 2019 Annual Report 2019 P –G. 065 064
KEY CHALLENGES & STRATEGIES
Risks Strategies Results
Extreme Weather & Pests: Affects quality and quantity of Strict adherence to the Agriculture Reference Zero cases/instances of severe palm
fruit and oil production Manual by all operating units to maximise stress observed during the year MANAGEMENT DISCUSSION & ANALYSIS and sustain the potential yield
Compromised Milling Capacities: Increased pressure, (especially Increase outside FFB purchases that are in Optimum mill utilisation rate even during low volume of crop compliance with the Responsible Sourcing during low cropping season production), to maintain mill Guidelines (RSG) utilisation and support Downstream businesses (Annually, the Group processes approximately 10% of outside FFB purchases of its total mill processing)
Rising Production Costs: Erodes margins and revenue Remodel the current cost structure through Reallocation of financial resources to potential, especially with weak LABs by implementing cost reduction partially offset losses and improve CPO price environment and initiatives and tapping high-potential revenue operations through cost reduction trade tensions generating opportunities and cost avoidance initiatives
Shortage of Competent Manpower: 3 Affects the performance and Reduce dependency on manual labour Improvement in the current labour- overall productivity through mechanisation and by maintaining to-land ratio, contributing to the an optimum level of labour-to-land ratio target ratio of 1:11 by end of 2020 for Malaysia
WAY FORWARD – RISKS AND OPPORTUNITIES
As trade tensions and disruptions due to the COVID-19 pandemic continue, CPO prices may continue to be volatile in the short term. However, there will be opportunities to diversify products as well as export markets, in addition to deploying technology and R&D to devise innovative solutions. Additionally, the Group will also pursue operational excellence improvements with strategies in accelerated replanting, best agricultural practices as well as greater automation, mechanisation and digitalisation. Other continuing measures by the Group’s Upstream operations will include the following:
Cost reduction initiatives as one of the main drivers of improvement in 2020 and beyond: – We aspire to lower down the current ex-mill production cost of Minamas and NBPOL to slightly above our Malaysia operations. We will also continue to realign our processes and implement mechanisation, where possible, to achieve our targeted production cost. For instance, mechanisation will be further expanded to our operations in PNG and SI. Mechanising some of the estate activities would also help to reduce our dependency on manual labour given the recent announcement on the increase in minimum wage which affects 56 City Councils and Municipal Councils
Application of new knowledge, skills, and innovation: – The production of our GenomeSelectTM planting material, which has started to bear fruit in 2019, will be further expanded to enable replanting of all our estates with the high-yielding breed by 2023.
Deployment of technology to improve efficiency and performance: – We will continue to leverage on technology and digital platforms to accelerate our progress and catalyse future growth. We will further develop big data application through machine learning to assist in the planning and allocation of our resources In summary, the efforts in the coming year will focus on efficiency improvement, cost reduction, and sustainable operations, with positive social and environmental impacts. PERFORMANCE REVIEW – Business Review
UPSTREAM
KEY HIGHLIGHTS 12 10.23
10 9.68
8
6 5.56
4
2
0 FY2018 FP2018 FY2019
FFB PROD CTION (Million MT)
FY2018 (July 2017 – June 2018) FP2018 (July 18 – December 18) FY2019 (January 2019 – December 2019) 3-YEAR OPERATIONAL REVIEW Malaysia Indonesia PNG & SI Liberia Total Malaysia Indonesia PNG & SI Liberia Total Malaysia Indonesia PNG & SI Liberia Total
FFB Production (in MT) 5,822,150 2,614,615 1,731,006 64,611 10,232,382 2,798,425 1,712,521 994,214 51,154 5,556,314 5,101,675 2,663,105 1,814,399 100,303 9,679,482
Oil Palm Hectarage (in hectare) – Mature hectares 252,055 158,180 77,500 9,701 497,436 244,963 158,791 79,126 9,975 492,854 244,615 152,469 80,803 10,137 488,024 – Immature hectares 48,972 43,040 9,804 741 102,557 55,767 42,282 11,955 288 110,292 54,735 41,336 9,808 143 106,022 – Total planted hectares 301,027 201,220 87,304 10,442 599,993 300,730 201,072 91,081 10,263 603,145 299,350 193,805 90,611 10,280 594,046 Yield per Hectare (in MT per hectare) 23.13 16.40 22.36 6.78 20.51 11.40 10.72 12.59 5.13 11.25 20.96 17.14 22.44 9.90 19.77
FFB Processed (in MT) – Own 5,822,123 2,614,615 1,731,006 64,611 10,232,354 2,798,425 1,712,521 994,214 51,154 5,556,314 5,101,384 2,663,105 1,814,399 100,303 9,679,191 – Outside 1,133,700 705,801 537,008 10,726 2,387,235 508,669 489,052 287,786 1,281 1,286,788 811,768 670,754 527,970 214 2,010,706 – Total 6,955,823 3,320,416 2,268,014 75,337 12,619,589 3,307,094 2,201,573 1,282,000 52,435 6,843,102 5,913,152 3,333,859 2,342,369 100,517 11,689,897
Mill Production – Crude Palm Oil (in MT) 1,418,945 710,207 508,263 15,520 2,652,935 683,678 465,306 288,677 11,042 1,448,703 1,252,236 730,908 517,598 22,468 2,523,210 – Palm Kernel (in MT) 356,930 159,529 130,437 2,989 649,886 171,670 105,759 75,405 3,156 355,991 307,666 160,996 135,409 5,749 609,820 – Oil Extraction Rate (%) 20.40 21.39 22.41 20.60 21.02 20.67 21.14 22.52 21.06 21.17 21.18 21.92 22.10 22.35 21.58 – Kernel Extraction Rate (%) 5.13 4.80 5.75 3.97 5.15 5.19 4.80 5.88 6.02 5.20 5.20 4.83 5.78 5.72 5.22
Rubber – Planted area (in hectare) 12,674 1,924 107 14,705 12,680 1,924 121 14,725 12,606 1,924 121 14,651 – Rubber production (in kg) 6,512,000 6,512,000 4,038,335 4,038,335 7,402,829 7,402,829 – Yield per Hectare (kg per hectare) 1,318 1,318 770 770 1,422 1,422
Sugar Cane – Planted area (in hectare) 5,613 5,613 5,613 5,613 5,613 5,613 – Cane yield (MT per hectare) 52.59 52.59 50.69 50.69 29.36 29.36
Beef Production – Grazing Pasture (in hectare) 8,956 8,956 9,560 9,560 9,503 9,503 – Total herd as at 31 December 2019 (in heads) 26,013 26,013 23,527 23,527 24,625 24,625 – Average deadweight (kg per head) 268 268 260 260 265 265 Total Landbank/Concession 343,445 299,278 140,373 220,000 1,003,096 343,251 299,255 146,463 220,000 1,008,969 343,254 287,460 146,098 *220,000 *996,812 Annual Report 2019 PG. 066 – 067
83% 83%
Own Crop MANAGEMENT DISCUSSION & ANALYSIS 82% Own Crop Mature 82% 9,679,191 MT Mature 9,679,191 MT 488,024 ha 488,024 ha Oil PalmOil Palm FFBFFB HectarageHectarage ProcessedProcessed in FY2019in FY2019 in FY2019in FY2019
18% 18% 17%17% Immature Immature OutsideOutside Crop Crop 106,022106,022 ha ha 2,010,7062,010,706 MT MT
MATUREMATURE vs IMMATURE vs IMMATURE AREA AREA OWNOWN CROP CROP vs OUTSIDEvs OUTSIDE CROP CROP
FY2018 (July 2017 – June 2018) FP2018 (July 18 – December 18) FY2019 (January 2019 – December 2019) 3-YEAR OPERATIONAL REVIEW Malaysia Indonesia PNG & SI Liberia Total Malaysia Indonesia PNG & SI Liberia Total Malaysia Indonesia PNG & SI Liberia Total 3 FFB Production (in MT) 5,822,150 2,614,615 1,731,006 64,611 10,232,382 2,798,425 1,712,521 994,214 51,154 5,556,314 5,101,675 2,663,105 1,814,399 100,303 9,679,482
Oil Palm Hectarage (in hectare) – Mature hectares 252,055 158,180 77,500 9,701 497,436 244,963 158,791 79,126 9,975 492,854 244,615 152,469 80,803 10,137 488,024 – Immature hectares 48,972 43,040 9,804 741 102,557 55,767 42,282 11,955 288 110,292 54,735 41,336 9,808 143 106,022 – Total planted hectares 301,027 201,220 87,304 10,442 599,993 300,730 201,072 91,081 10,263 603,145 299,350 193,805 90,611 10,280 594,046 Yield per Hectare (in MT per hectare) 23.13 16.40 22.36 6.78 20.51 11.40 10.72 12.59 5.13 11.25 20.96 17.14 22.44 9.90 19.77
FFB Processed (in MT) – Own 5,822,123 2,614,615 1,731,006 64,611 10,232,354 2,798,425 1,712,521 994,214 51,154 5,556,314 5,101,384 2,663,105 1,814,399 100,303 9,679,191 – Outside 1,133,700 705,801 537,008 10,726 2,387,235 508,669 489,052 287,786 1,281 1,286,788 811,768 670,754 527,970 214 2,010,706 – Total 6,955,823 3,320,416 2,268,014 75,337 12,619,589 3,307,094 2,201,573 1,282,000 52,435 6,843,102 5,913,152 3,333,859 2,342,369 100,517 11,689,897
Mill Production – Crude Palm Oil (in MT) 1,418,945 710,207 508,263 15,520 2,652,935 683,678 465,306 288,677 11,042 1,448,703 1,252,236 730,908 517,598 22,468 2,523,210 – Palm Kernel (in MT) 356,930 159,529 130,437 2,989 649,886 171,670 105,759 75,405 3,156 355,991 307,666 160,996 135,409 5,749 609,820 – Oil Extraction Rate (%) 20.40 21.39 22.41 20.60 21.02 20.67 21.14 22.52 21.06 21.17 21.18 21.92 22.10 22.35 21.58 – Kernel Extraction Rate (%) 5.13 4.80 5.75 3.97 5.15 5.19 4.80 5.88 6.02 5.20 5.20 4.83 5.78 5.72 5.22
Rubber – Planted area (in hectare) 12,674 1,924 107 14,705 12,680 1,924 121 14,725 12,606 1,924 121 14,651 – Rubber production (in ‘000kg) 6,512 6,512 4,038,335 4,038,335 7,402,829 7,402,829 – Yield per Hectare (kg per hectare) 1,318 1,318 770 770 1,422 1,422
Sugar Cane – Planted area (in hectare) 5,613 5,613 5,613 5,613 5,613 5,613 – Cane yield (MT per hectare) 52.59 52.59 50.69 50.69 29.36 29.36
Beef Production – Grazing Pasture (in hectare) 8,956 8,956 9,560 9,560 9,503 9,503 – Total herd as at 31 December 2019 (in heads) 26,013 26,013 23,527 23,527 24,625 24,625 – Average deadweight (kg per head) 268 268 260 260 265 265 Total Landbank/Concession 343,445 299,278 140,373 220,000 1,003,096 343,251 299,255 146,463 220,000 1,008,969 343,254 287,460 146,098 *220,000 *996,812
*Numbers reflect our hectarage prior to SDP’s Liberia asset divestment. Our current total landbank stands at 776,812ha. PERFORMANCE REVIEW – Business Review OUR PERFORMANCE BY SECTOR: SIME DARBY OILS
The year under review was a key turning point and an “important milestone for Downstream operations, which deployed strategies to hedge risks and externalities that affect the Group’s overall performance. Sime Darby Oils (SDO), the rebranded Downstream division, focused its efforts on introducing differentiated products and market solutions, which in turn helped mitigate the impact from our exposure to lower
CPO prices and trade tensions. On the back of SDO’s positive performance “ during the year, its future prospects are promising in terms of both growth and sustainability.
At Sime Darby Oils, we are focused on delivering quality excellence throughout our integrated and fully traceable value chain.
ABOUT SIME DARBY OILS ensuring sustainable living for consumers. With extensive network and global footprint, SDO strives to be the most Our Downstream segment, known as Sime Darby Oils accessible supplier of oils and fats by focusing on quality, (SDO) is present in 16 countries worldwide. SDO is involved food safety, sustainability, integration and innovation. in trading, manufacturing as well as sales and marketing of refined oils and fats products, oleochemicals, palm oil based biodiesel, nutraceuticals and other palm oil KEY CONTRIBUTORS TO PERFORMANCE IN 2019 derivatives. Globally, SDO manages and operates 11 Our key growth drivers in FY2019 came from improved refineries with a total capacity of 3.8 million metric tonne refining operations, enhanced trading performance and (MT) per year and a total bulking installation capacity of efficient supply chain operations, among others. SDO 273,160 MT. In addition, SDO also operates 10 kernel continued to achieve stronger profits, and made positive crushing plants (KCP) with a total annual capacity of contributions to SDP’s overall performance. Substantial 569,640 MT, one biodiesel plant with a production capacity contributions were from higher volumes and better of 120,000 MT per annum, a soya crushing plant with margins, largely driven by good performance from our an annual capacity of 132,000 MT and two copra mills differentiated business and global trading operations in in Papua New Guinea. Asia Pacific. Increased demand led to higher capacity utilisation of our refineries with better processing cost In keeping with our mission of ‘Realising Possibilities, allowing for sustainable increase in profit growth. Together’, our philosophy is to leverage on various partnerships to produce quality and enriching products, Annual Report 2019 P –G. 069 068
In March 2019, the Group rebranded its entire Downstream locations, strategic partnerships and distribution channels operations to SDO to realise SDP’s full potential as a also played a major role in helping to create easy access MANAGEMENT DISCUSSION & ANALYSIS trusted brand for sustainability and superior product for buyers at the destination markets. qualities. During the year, we initiated efforts to achieve the highest standards of operational excellence, with a focus on quality, food safety, traceability, responsible FINANCIAL AND NON-FINANCIAL PERFORMANCE environmental and social practices, secured supply of For the year under review, SDO operations continued to feedstock and innovation. register strong profits, with substantial contributions largely from customised businesses and global trading operations SDO is responsible for the trading and sales of CPO and in Asia Pacific This is primarily attributable to an increase refined palm products. It is therefore, critical to ensure in sales volume at 5% Year on Year (YoY) and better robust risk management strategies to prevent factors margins as well as manageable operating expenses. which can negatively impact our performance. During the year, CPO prices were low due to large inventory This compensated for the lower profits from customised build-up and weak demand but were mitigated by our businesses in Europe & Africa due to the loss arising from improved earnings attributable to better contribution the fair value of commodity contracts and declining from customised businesses offering higher value added margins from certain speciality products to the competitive products and increased focus on the physical sale of market environment. CSPO. SDO’s presence in key markets through its assets
ROSS MAR IN SALES VOLUME CAPACITY UTILISATION 3 RM million ’000MT % 3,828 3,638
74.7 75.3 YE2018* FY2019
732 819
YE2018* FY2019 YE2018* FY2019 * Unaudited 12 months ended 31 Dec 2018.
ACHIEVEMENTS/INDUSTRY RECOGNITION
Recognition Awarding Body
SDO Morakot #1 Brand and the most popular of vegetable oils in Marketeer Magazine Thailand (2018-2019)
The Superbrands Award (2018-2019) Superbrands Thailand Organisation
The Corporate Management Excellence Award Thailand Corporate Excellence Award 2019 by Thailand Management Association
First RSPO Segregated (SG)/Identity Preserve (IP) oil manufacturer in Thailand
SDO Pulau Laut 3 Stars Gold Award: Best Performance Team Award and The Overall Best International ACE Award 2019 by Asia Pacific Award Quality Organisation (APQO) PERFORMANCE REVIEW – Business Review
SIME DARBY OILS
KEY HIGHLIGHTS FOR THE YEAR
Shift to Higher-Margin, Sustainable, Strategic Partnerships with Local and Traceable and Customised Products Global Distributors to Grow Customer Base and Market Reach Improved earnings attributable to better Accelerated efforts to strengthen presence in contribution from customised businesses and major markets (India, China and Europe) for higher value-added products bulk CPO and other commoditised products Expanded the customised product portfolio by Established various distribution channels locally collaborating with our Innovation Centres to and internationally to market introduce and market new product offerings to Established partnerships with local players in existing and potential customers globally North America and Middle East to establish Increased focus on the physical sales of CSPO our satellite sales office and unlock untapped Efficient supply chain and enhanced traceability value from key markets, our assets and by- to connect our palm oil production to products destination markets and customers
Optimum Utilisation via Improved Excellent Customer Satisfaction Aggregation and Manufacturing Index as the Driver for Operational Excellence Continuous Improvement Achieved lower costs on higher utilisation Driven by production of sustainable, innovative through aggregation of external oil for the bulk and high quality products, SDO has shown its refineries, which in turn contributed to an credibility as a trusted and reliable edible oils increase in profit growth by 9% and fats producer Introduced a framework (Operational Excellence Model) as a tool to benchmark the standard of operational excellence in terms of cost efficiencies and quality
Diversify to Hedge Risks
Explored the value chain of specialty and customised products to reap better returns and contribute to the business accretive growth
KEY CHALLENGES & STRATEGIES
Risks Strategies Results
US-China Trade War Waning business confidence Memorandum Of Understanding From the partnership, SDO had and slowing growth due to (MOU) with China Oil and successfully shipped 70,000 MT of olein lingering concerns over Foodstuffs Corporation (COFCO) to COFCO in FY2019 foreign trade and export on the back of CPO price policies recovery and potential export of palm oil to China. However, this strategy was hindered post FY2019 due to the impact of COVID-19 pandemic
Our business continues to find pockets of opportunity in the midst of the US-Led Trade Wars. The way forward for SDO includes expansion of differentiated product sales to China Annual Report 2019 P –G. 07 070 1
Risks Strategies Results
Geopolitical Uncertainties Affecting CPO prices, Explore alternative markets as Sales to India had decreased sharply in exacerbated by bilateral approved by SDO Board – FY2019 by approximately 380,000 MT tensions, trade uncertainty, namely North America, Middle due to various tax changes and volatile markets, vulnerable East, Philippines, China restrictions applied on palm and refined and shifting trade (Differentiated) and Australia oil made by the government of India.
arrangements, etc and Pakistan (Bulk) MANAGEMENT DISCUSSION & ANALYSIS While India remains as our biggest SDO has mapped out the market, we have been agile and flexible expansion to alternative in channelling our volumes to other markets in the strategic growth destination markets (China, Pakistan, plan. We are in progress of Netherlands and Africa) to cushion the setting up respective offices impact of the aforementioned restriction where necessary to accelerate the opportunities Additionally, SDO has successfully established various distribution channels in the Middle East and North America
Sustainability Risks & Pressures: Expectations from stakeholders in the value chain, including the EU continue to rise in ensuring sustainability and food safety requirements in the conduct of our business Impacting the reputation Maintain and improve supply Our current traceability platform, 3 and potential trade chain traceability systems Crosscheck and other systems provide arrangements, mainly approximately 95% traceability to mills sprouting from supply chain Implement a supplier and 48% traceability to plantations scrutiny and allegations by sustainability risk monitoring NGO/Civil Society on possible and engagement framework Our grievance mechanisms have surfaced linkages to deforestation, a total of 61 investigations, with 15 issues human rights and related resolved and 7 companies no longer in issues SDO’s supply chain. 17 of the companies are in active engagements and 22 in preliminary investigation
WAY FORWARD – RISKS AND OPPORTUNITIES
SDO aims to be the preferred sustainable palm oil and fats specialists and a trusted customer solutions provider by focusing on differentiated, sustainable and traceable high value products, to serve its customers’ evolving needs. We are constantly working together with our Innovation Centres to introduce new product offerings, intended for both our existing and potential customers globally. SDO’s business philosophy is to provide a comprehensive range of oil and fats products of the world’s best quality which has placed us securely ahead of our competitors.
In addition to SDO’s transformation aspirations, SDO aspires to increase its share of revenue to the Group. Going into 2020 and beyond, we will focus on the following:
Superior financial returns through operational excellence and high-performance standards De-commoditisation of sustainably produced palm products Establishment of a sustainable innovation ecosystem, which improves productivity, optimises efficiency of processes and enhances quality of product and services Consistent delivery of profitable growth by optimising existing business vertically Improving returns, on trading, enhancing capacity utilisation and site condition, and most importantly, pivot towards high value-add business Building a world-class company, with world-class capabilities and processes as well as top quartile organisational health and culture PERFORMANCE REVIEW – Business Review OUR PERFORMANCE BY SECTOR: OTHERS: RENEWABLES
Global warming and the looming Climate Emergency “are piling on pressure on businesses worldwide to generate energy from clean sources. As the world transitions to a low-carbon or carbon neutral economy, the business case for going green is becoming undeniable. SDP believes in a future that is powered by renewables and we are committed to strategising our investments today to address environmental challenges along our value chain, as well as complement“ our mainstream business verticals, in terms of both revenue and sustainable growth.
SDP’s first solar project that was established on 28ha of land in our Byram Estate, Penang began delivering returns in 2019.
ABOUT OUR RENEWABLES BUSINESS During the year under review, we accelerated our efforts to develop the Renewables business, particularly in the With Renewables as part of our diversification strategy, energy space, mainly to reduce our fossil fuel dependence the idea is to leverage on our asset and various by-products and methane emissions. Our current exploration and along the palm oil value chain to further produce high involvement is in solar, biogas, biodiesel and biomass. value-added goods. With our ability to generate sustainable feedstock, the Group is well positioned to stimulate new In the mid-to-long term, we see significant potential for growth and innovation in the renewables industry, Renewables to create value for our business, mainly in unlocking greater value for our business as well as our two ways: First, there will be an opportunity for cost stakeholders. reduction/cost advantage through biogas or solar energy; and second, we will be able to generate new revenue Over the years, the Group has shifted from our strategy from our land and valorising our biomass. to invest in early-stage start-ups in this promising sector. Instead, we now subscribe to an asset-light strategy of ACHIEVEMENTS partnering with established players, and focus on renewable energy sector, instead of renewable chemicals. The objective In FY2019, Sime Darby Plantation Renewable Energy Sdn is to acquire new capacities and capabilities from local Bhd (formerly known as Sime Darby Beverage Sdn Bhd) and international players to unlock untapped values from was restructured to champion the Group’s renewable energy our assets and by-products. businesses. Meanwhile, we achieved a good momentum with positive earnings from large-scale solar business. Annual Report 2019 P –G. 073 072
KEY HIGHLIGHTS FOR THE YEAR
Solar Biogas
In 2018, SDP’s first involvement in solar project was SDP explored a more unique asset-light commissioned in Penang. The 20 MW project was built on business model for its biogas plants. 28 ha of SDP’s estate The Group partnered with many MANAGEMENT DISCUSSION & ANALYSIS different players to unlock the value We started realising returns in terms of rental and revenue- from our feedstock whilst doing good share income in 2019 and SDP has been more active in to the environment searching for potential partners to build more solar farms for the future. This is also in line with the National Renewable Several of our plants are already in Energy generation target construction. The Group’s focus for the coming year is to execute plans to In addition to the large-scale solar, SDP is also identifying reduce SDP’s carbon emission different business models for solar mainly for self-consumption, and a corporate power purchase model for consideration as the government further liberalises the market
Biomass During the year under review, the Group continued to assess potential partnerships with regional and international technology partners to pilot new Biomass projects. For instance, the valorisation of biomass for energy pellet is a potential area where we can work with global experts as well as our home-grown R&D team to innovate and introduce solutions of the future 3
KEY CHALLENGES & STRATEGIES
Externalities/Market Uncertainties: The ‘new normal’ affects the Hedge risks by exploring value Generated positive results from our core business, revenue preservation and revenue expansion solar businesses, and initiated efforts potential and value creation opportunities in alternatives/ to focus on replicating the results in Renewables (also leveraging our other sites present assets and complying to regulatory requirements and sustainability demands)
Early Investments in Renewables: Concerns over commercial Assess business potential, Explored potential partnerships with viability of projects, considering emerging opportunities and matured players/experts in challenging factors such as revenue potential in food, energy Renewables high levels of capital for and water-related businesses by Biogas and the need to investing in R&D and frontier aggregate volume in Biomass technologies
Right Capabilities with Right Partners: Risk of entering into bold Forge global partnerships to Signed several commercial ventures with partners without build SDP’s expertise and agreements with seasoned industry the right capabilities capacity through transfer of players and exploring further knowledge and skills from the opportunities to expand the network world’s ‘crème de la crème’ of Sime Darby Plantation Renewable Energy Sdn Bhd PERFORMANCE REVIEW – Business Review OUR PERFORMANCE BY SECTOR: R&D
In raising the bar on sustainable growth, we are committed to investing in “frontier research and development efforts that can deliver solutions of the future for the palm oil sector. From technologies that will improve oil extraction and reduce waste, to mechanisation of supply chain processes for improved efficiencies and enhanced productivity; from genomics for climate resilient plants to digital solutions for traceability and sustainability
– our aspiration is to champion promising R&D that will generate “ meaningful commercial, environmental and social benefits for us as well as the industry at large.
At the heart of SDP’s business, are the dedicated scientists who continuously deliver value for both the company and the industry at large.
ABOUT OUR R&D DIVISION KEY CONTRIBUTORS TO PERFORMANCE SDP has been in the forefront of agricultural research In FY2019, the R&D division continued its efforts to and development since the early 1900’s. The Group has accelerate development of solutions, tools and platforms, well-established facilities in five countries. These include technologies, which in turn contribute to improving five R&D centres in Malaysia, Indonesia and PNG; three efficiencies and productivity along our value chain. During Innovation Centres (IC) in Malaysia, the Netherlands and the year under review, we have been on track with our South Africa; and one genetic testing facility in Malaysia. GenomeSelectTM – a technology developed by SDP’s scientists to enable yield improvement of 15% above the These centres of research and innovation are equipped current best planting materials available in SDP. We with robust, infrastructure and more than 190 scientists pursued our plan to plant 1,000 ha of GenomeSelectTM and technicians, who are constantly at work to revolutionise per year from 2018 to 2021, and scale-up to a capacity palm oil products and industry practices. The projects range of 15,000 ha in order to cater for full annual replanting from developing better seedlings and systems, to enhancing activities in Malaysia by 2023. We are confident of the plantation yields, reinventing the milling processes for outcomes as the pre-commercial yield records from the improved production and designing new technologies to 2016 GenomeSelectTM fields showed FFB yields in excess bolster Downstream activities. Key areas and priorities are; of 40% more, and OER results that were 10% higher than to increase yield, improve efficiency, reduce cost of other commercial fields of the same age and similar production, and accelerate sustainability performance. location. Research at Dami OPRS in 2019 included ongoing collaboration with the Molecular Breeding team at the Annual Report 2019 P –G. 075 074
Sime Darby Plantation Technology Centre in Malaysia on other production areas, reducing our total dependency the development of a genomic selection model from an on labour. This is in addition to our efforts to develop elite line of Dami breeding material. Furthermore, clone new rapid methods to expand our lab automation and MANAGEMENT DISCUSSION & ANALYSIS production of around new 15 selections of elite Dura robotics to cover soil, water, and food safety tests, mainly palms and five elite Pisifera palms was initiated in 2019 to increase its throughput. for future SUPERFAMILY® seed production. To fully leverage on new technologies and digital solutions, Our efforts in plantation research and agronomy also our researchers have worked to develop capabilities in reinforced the potential of Agriculture 4.0 and the need data collection, processing and analytics. Another strategy for large-scale deployment of new precision agriculture to enhance productivity and efficiency in our estates has tools to improve productivity and decision-making been to deploy mechanised solutions to reduce our processes. Another strategy to enhance productivity and dependency on labour. Additional efficiency gains come efficiency in our estates has been to deploy mechanised from expansion of the level of automation in our labs. solutions or new digital technologies in processing and
OUR PERFORMANCE: LAB SERVICES
LAB SERVICES NUMBER OF DETERMINATIONS CONDUCTED 392,000 390,000 388,000 Lab Analyses : 201,002 3 386,000 Investment : RM4.53 million 384,000 ISO1705 Accreditation : 150 Tests 382,000 Savings : RM0.62 million 380,000 378,000 376,000 374,000 2018 2019
ACHIEVEMENTS/INDUSTRY RECOGNITION
Recognition Awarding Body
Accreditation
MS ISO/IEC 17025:2017 Accreditation for our Genetic Department of Standards Malaysia Testing Laboratory
Awards
R&D’s Enzyme Project team won two awards on 14 IChemE Malaysia October 2019: 1. Palm Oil Award 2019; 2. Sustainability Award; for the Enzymatic Assisted Extraction Palm Oil project.
Innovation
R&D’s Advanced Mechanisation Technology team Permodalan Nasional Berhad (PNB) won PNB Innovation Challenge 2019 on 24 October 2019 for their Mechanical Buffalo Grabber innovation. PERFORMANCE REVIEW – Business Review
R&D
KEY HIGHLIGHTS FOR THE YEAR
GenomeSelectTM Enhancing Yield Monitoring and Mapping and Climate Resiliency Our Operations
At the end of 2019, more than 2,300 ha of We have set-up an enterprise wide geographic GenomeSelectTM palms have been planted in information system (GIS) to centralise spatial data multiple locations across Peninsular and East and facilitate faster decision-making Malaysia. We also commenced test seed production for new GenomeSelectTM mother palms. We have also dedicated additional resources to Genetic testing facilities initiated routine seed increase image collection through drone and purity testing of all seeds produced since 2019 satellite-based systems. These images allow for more efficient delivery of mapping services as well During the year under review, we also released as the development of operational analytics such elite hybrid seed, iCalix to our plantations in as palm census, health, and water management Indonesia. iCalix is derived from the best of the status. The use of artificial intelligence has Calix600 seeds planted in Malaysia and will serve increased the amount of images and data that as a base to deploy GenomeSelectTM technology in can be processed, improving delivery of solutions Indonesia in the coming years to our internal customers
Agronomic Trials Ensuring Best Mechanisation: Improving Practices Efficiencies & Productivity
We focused on refining and improving our After systematic trials and tests in our estates, we approaches in best agricultural practices through initiated efforts to scale-up and commercialise continuous Pest & Diseases (P&D) and agronomic our patented machines that assist in more trials, which contributed to higher economic efficient FFB evacuation and loose fruit collection returns, while reducing the burden on the environment We also developed two new machines – Mechanical Buffalo Scissor Lift (MBSL) and Similarly, we continued our efforts to optimise the Integrated Oil Palm Loose Collector (ILFC), which use of green fertilisers to enhance soil health, have already been commercialised and licensed especially on low fertility soils. We have also made to external manufacturers progress on early pest and disease detection using advanced remote sensing and non-invasive technologies
Differentiated Products: Innovating for our Customers
Our IC in Malaysia developed and launched six new quality consumer products in Asia. IC also provided extensive technical support and services to internal and external customers. We have also initiated efforts to phase out the trans fats from our product offerings Annual Report 2019 P –G. 07 076 7
KEY CHALLENGES & STRATEGIES
Risks Strategies Results MANAGEMENT DISCUSSION & ANALYSIS Climate Change: Impacts crop productivity, Invest in R&D for developing Developing drought resistant quality and sustainability, climate resilient agricultural inputs materials. Mapping areas with affecting revenue potential and infrastructure. For e.g., new water management problems and planting materials in breeding, tools devising viable solutions and solutions to manage water- related issues in estates
Stagnant Labour Productivity: Compromises performance, Accelerate research for Deployed new tools/machines in mainly due to absence of mechanisation of processes and the field to enhance efficiencies skilled and well-trained labour labour-intensive components in the and workers’ productivity production value chain
Mineral Oil Hydrocarbon and 3-MCPD Contamination: Raising concerns over food Develop effective and alternative/ Monitored and evaluated ongoing safety and compliance to permanent solutions to eliminate findings from the comprehensive 3 regulations; affecting product contamination in CPO production trial to determine various causes quality and reputation of contamination and use of alternatives at a test mill
Initiated efforts to equip business units with the right facilities to achieve the contamination limits set by the EU
Effluents & Waste from Mills: Impacts negatively on the Strategise a blueprint for Launched new solution that environment and the ‘wastewater treatment’ system to combines membrane and electro communities that depend on address effluent issues in oil palm oxidation technology into a small it, creating cyclical ecosystem industries footprint, patented wastewater and health issues treatment process. Patented and licenced for industry use
Patent Infringements: Imposes cost of litigation, Improve our Intellectual Property Filed five new patents for new compromises credibility and (IP) management system, conduct technologies and solutions. quality of patented technology periodic monitoring of industry’ Commercialised 1 new patented patents activity, and set-up active IP product for industry use committee to review classification of potential IP and its protection status on a regular basis PERFORMANCE REVIEW – Business Review
R&D
WAY FORWARD – RISKS AND OPPORTUNITIES
Moving forward, in FY2020, R&D will continue to focus on three key strategies – yield and productivity improvement; increase in revenue streams; and development of sustainable practices. There will be a shift in our focus from Upstream to developing new technologies and products for the Group’s Downstream business, catalysing new growth through diversification. In keeping with customers’ demand for sustainable products, we will continue to invest in technologies and processes which will ensure traceable, sustainably produced palm oil of the highest quality.
In the coming years, the high yielding potential of GenomeSelectTM will be augmented by research into other oil palm traits to enable faster harvesting and climate change tolerance. With a focus on field testing of elite palms, supported by experimental data in specifically designed plant phenotyping nurseries, while this research has been on track, we will validate the results in 2020. Additionally, we will pursue the ongoing development of models for plant health and nutrition to allow optimise use of resources.
In the case of our processing technology that relies on application of biocatalyst, we will replicate its deployment in twelve palm oil mills in 2020. We are expecting a potential increase in OER of 0.70% based on the commercial evaluations at four test mills.
As the world transitions to Industry 4.0, we will continue our mechanisation and automation efforts. Beginning 2020, we will commence the operations of a 5 ton/hr experimental pilot plant known as Tennamaram Experimental Station (TESt). TESt will be the foundation for the next generation palm oil mill with more automation and process control. It will also provide an opportunity for our engineers and mill managers to objectively evaluate and determine the best design that will help our mills reach their optimum performance.
On the digital side, our ongoing efforts will be directed on the continued development and roll-out of imaging and analytics tools to benefit estate operations. We also recognise the potential of investing in the internet of things (IoT) – enabled devices to further strengthen our data collection capabilities and enable additional analytics to improve performance.
At SDP, we have a talented and diverse group of over 190 scientists, of which more than 50% are women who have been critical in translating ideas into reality. Annual Report 2019 P –G. 079 078 MANAGEMENT DISCUSSION & ANALYSIS
3
R&D initiatives are critical for SDP to continue producing quality products while delivering sustainable growth concurrently. PERFORMANCE REVIEW – Business Review OUR PERFORMANCE BY SECTOR: HUMAN CAPITAL GROWTH
With the advent of digitalisation, the “dynamics of both people and their expectations from organisations are fast evolving. Human capital development is no longer a functional aspect, but a performance indicator “ which contributes to the overall success of our business endeavours.
It has been more than two years into our journey as a pure play entity and our focus has been on refining our HR strategy towards strengthening and sustaining performance excellence as the anchor to our transformation agenda. Annual Report 2019 P –G. 081 080 MANAGEMENT DISCUSSION & ANALYSIS Our HR strategy, aligned to SDP’s strategy, is focused on three (3) key areas below as part of our value creation for employees.
Group HR’s three (3) strategic thrusts:
Creating Alignment Quality of Execution Capacity for Renewal
Establish clarity on strategic Develop employees who are Drive and enable innovation goals through demonstrated accountable and capable to and knowledge-sharing to leadership helps align our drive the business of today face future business vision and shape a and create value for challenges. performance culture. tomorrow. Core Focus Areas in FY2019 Core Focus Areas in FY2019 Core Focus Areas in FY2019 include: include: include: Driving Digitalisation Inculcating Health and Enhancing Performance Building Future 3 Culture Agenda Management Capabilities Accelerating Leadership Improving Total Rewards Shaping Talent and Development Facilitating Engagement Employee Development and Reach Out
We remain cognisant that our ability to adapt to changes, remain competitive and relevant will increasingly be influenced by our strategies that foster human capital growth. It will be about our commitment to shape an inspired generation of employees, who are engaged, healthy, and productive, contributing to create a high-performance culture as strategic partners in business as well as growth.
INCULCATING HEALTH AND CULTURE AGENDA What is OHI? SDP remains steadfast in ensuring our workforce is enabled with the right setting and culture that will support and drive performance. It has been a OHI is Organisational year since we first embarked on our Health and Culture Transformation in Health Index. It focusses 2018. on targeted interventions to improve elements of This transformation journey is strengthened by our commitment to achieve organisational health and desired business results through OHI as an anchor to build and sustain culture directly linked to performance. performance PERFORMANCE REVIEW – Business Review
HUMAN CAPITAL GROWTH
The chart below illustrates the approach undertaken in our culture and health transformation – Measure, Focus, Act and Embed.
OHI Journey and Key Milestones
Measure Focus Act Embed
What is our health How do we How do we How do we condition? achieve optimal manage the live the health? journey? action plan?
Identification of Prioritisation of Action Plans Periodic pulse survey baseline OHI Score Management Practices execution, monitoring and actual impact on Action Plans design and refinement the ground to ensure and endorsement Action Plan efforts are embedded consistently OHI Mirror & Commitment Workshops across all
Objectives & Key Highlights business segments
July 2018 Now 2018 Jan 2019 June 2019 onwards
For the year under review, we forged strong partnerships with the business to “execute, assess and refine” the OHI interventions/actions, to improve our health and culture towards building a performance-driven workforce.
Recognising that implementation of these interventions is crucial in driving the desired outcomes, periodic pulse surveys, involving our operations in Malaysia, Indonesia, Thailand, South Africa, Papua New Guinea and Solomon Islands, were undertaken in June and November 2019 to seek employees’ feedback on the effectiveness of these targeted interventions in addressing the priority focus areas for the respective businesses.
Through dedicated follow-through and implementation of Action Plans, positive movements have been noted at most of our business segments and units despite FY2019’s industry conditions. Annual Report 2019 P –G. 083 082
Below are some of the key insights and findings from the recent OHI November 2019 Pulse Survey:
FY19 Achievements MANAGEMENT DISCUSSION & ANALYSIS Increased appreciation of focus practices and criticality of action plan to unlocking business performance Leaders showed strong commitment through volatile market conditions, to execute the health and culture agenda, fully appreciating its strategic importance Action Plans improved from OHI June 2018 FY19 Challenges
Restructuring in the departments/business units and remobilisation of key leaders diluted the bottom-up implementation impact with changes in team dynamics 71% Departments/Business Units went through “trial and error” to understand and gauge the most relevant focus practices that can clear the most pressing 3 hurdles to performance excellence
FY20 Recommended Strategy
17 teams Leadership to continue defining impactful strategies and driving its implementation that can address the Improved their OHI scores by more than 100% enterprise-wide performance hurdles: Motivation, Capability and Work Environment
The pulse survey essentially resulted in better understanding of the sentiments on the ground. This has enabled the businesses to identify current and arising challenges and allowing them to review and refine their action plan focus to “unlocking best performance” in arriving at the desired business results.
A OHI Debrief Workshop for Human Resource (HR) Network personnel that was held in September 2019. PERFORMANCE REVIEW – Business Review
HUMAN CAPITAL GROWTH
FY2020 and Forward Priorities To further strengthen our transformation journey, our focus will be to review the FY2019 OHI performance against the baseline and redefine the FY2020 action plans based on the feedbacks and insights received from the pulse survey. A “review and reset” action plan session with the business will be undertaken to help enhance their action plans towards achieving the desired organisational culture and health that drives performance.
The effectiveness of the enhanced action plans will be monitored and reviewed through ground observation checks or interviews and periodic pulse surveys that focus on assessing the impact of the initiatives against the targeted management practice scores. This is to ensure a continuous delivery of Health and Culture Transformation in SDP.
ACCELERATING LEADERSHIP DEVELOPMENT
Leadership involvement in talent management is crucial to secure top-down commitment and accountability in building leadership pipeline. For the year under review, extensive discussions were carried out with top management across business segments in the identification of mission critical positions and their potential next in lines.
The chart below illustrates our approach in building our talent bench strength:
SDP talent High Potential successor High Performer Fast tracker
Competent worker
Talent Bench Strength Talent identification, assessment and Normal position development Talent Supply
Building SDP’s Talent Bench Strength.
Given the criticality of our business needs, we recognise that it is imperative to ensure SDP’s investment towards people development to bridge the talent gaps through a structured assessment that delivers superior outcome. To predict workplace performance, SDP focused on aptitude and personality assessments that provide both potential and person-position fit dimensional outputs.
The potential leadership development area identified was an effective communication style by continuously providing feedback, giving motivation and clarity of work to the team. This is in line with the Group’s objective to enhance performance management. In driving continuous growth of leaders, the intervention is planned to be deployed in the next financial year where it will be embedded within each leaders’ KPI and their superiors’ under people development. This is to ensure necessary support is extended while enforcing positive accountability.
Understanding the need and importance of leadership development in succession planning, an Enterprise Talent Council (ETC) was held to re-ignite a holistic talent review, being the first after the pure play. Comprehensive outcomes from the successors’ assessment were put forward for deliberation to ensure consensus was achieved on the proposed developmental interventions for the identified successors. Annual Report 2019 PG –. 084085
FY2020 and Forward Priorities The respective Talent Councils at the enterprise, country and operational levels, will continue to play a pivotal role to ensure a holistic coverage of succession management. The next line of leaders will be included in the succession management exercise to nurture talent throughout the Group. The Plantation Leadership Committee is committed and will continue to be actively involved in talent discussions towards driving the talent strategy forward. MANAGEMENT DISCUSSION & ANALYSIS
Our focus moving forward is to ensure that structured core leadership development programmes are also in place to equip our leaders with the qualities and skills necessary to drive SDP to achieve its business objectives and enhance performance outcomes.
ENHANCING PERFORMANCE MANAGEMENT
Performance management has been the key component to our organisational health and culture. It drives employee behaviour to align with organisational goals and objectives. Over the years, leaders have been very consistent in their messaging that the execution and ownership of performance is the penultimate determinant in driving performance across the Group.
For the year under review, we emphasised on enhancing performance management through the following initiatives: 3
The Group MD officiating the Performance Management Lab. (i) Strengthening Goal Setting In line with our continuous effort to strengthen and sustain performance of the organisation, an enhanced performance management framework that places emphasis on strengthening goal setting, and ownership was introduced. This framework was designed from ground up, leveraging feedback and input from employees across all business segments through an 8-day lab session, where ideas and improvement recommendations were gathered and reviewed from various segments of the business. Individual responsibilities in owning performance via solid alignment between strategy and job function translates into positive performance for the organisation. The Group MD emphasising the importance of enhancing Goals and targets were shared across levels and performance management. deliberated to align with expectations between different functions. These goals were first created based on functional focus and strategy with a 3-year vision supporting SDP’s target PATAMI by FY2022.
As we strive towards instilling accountability and ownership, we have moved the overall governance of performance to the Group MD’s office. This is in line with our belief that performance must be driven from the top, and ownership should be cascaded down through solid alignment between business strategy, the management team and employees.
Attendees at the Performance Management Lab with representatives from the Plantation Leadership Committee. PERFORMANCE REVIEW – Business Review
HUMAN CAPITAL GROWTH
(ii) Continuous Performance Management Performance conversations have become increasingly important as we grow to the next level of performance management. For the year under review, all managers across Malaysia, Indonesia and Thailand were equipped with the right tools and competencies to have a meaningful and constructive performance conversation that inspires their direct reports to achieve their goals. This was done through the Conversation to Inspire Performance (CIP) workshop. Anchored around the Health and Culture Transformation, this development initiative focused on improving conversation skills, building effective relationships within teams, giving developmental feedback and providing a guide for managing common coaching challenges.
In line with our objective to build a healthy and strong performance driven culture in SDP, a new feedback application system was introduced to encourage more frequent performance conversations between managers and employees. This new approach makes the conversation easier, relatable and brings a casual flair to an otherwise serious conversation whilst maintaining the importance for continuous engagement and feedback.
FY2020 and Forward Priorities Our focus in FY2020 is to continuously enhance the performance management framework by operationalising performance dialogues between managers and employees. Frequent conversations between managers and employees will be the centrepiece of the new performance framework. As we progress, we aim to build a more robust performance management that drives improved performance for SDP.
IMPROVING TOTAL REWARDS HR Engagement & Reach Out (HERO) capitalises on four communication platforms, established to expand reach In recognising that our people are our priority, a series and improve engagement effectiveness, which supports of Total Rewards Review exercises were undertaken for the operations at large to enhance and improve their the year under review. The enhanced total rewards, performance through people. including the review of salary structures and employee benefits, were implemented in Malaysia, Thailand and Indonesia operations. Interactive platform to FY2020 and Forward Priorities discuss HR related matters To remain competitive, our focus in FY2020 is to review Total Rewards for Papua New Guinea operations by aligning employee terms, salary structure and employee benefits. In support of SDP’s commitment to grow the business in SDO, focus will be given to ensure that the right remuneration Scheduled session between framework for the respective SDO entities worldwide is HR and employee on put in place in line with SDO’s aspirational target to achieve one-to-one basis RM1 billion PIBT in FY2024.
FACILITATING HR ENGAGEMENT AND REACH OUT HR information access such as policies, procedures, SDP recognises the importance of engaging with employees FAQs and HR contacts from all levels of the business. For the year under review, focus group sessions were undertaken to hear employees’ feedback and areas for improvements that were expected.
Avenue for employees to direct their queries/concerns to HR
HERO provides varied HR channels for employees Annual Report 2019 PG. 086 – 087
Two pilot sessions were rolled-out in Johor and Sabah in September and October 2019 respectively. A total of ten sessions were conducted, with participation from more than 500 employees from various levels in both Upstream and Downstream operations. Joined by leaders at the Operations, the impact delivered through the sessions created greater alignment between HR, operations and our employees, to shed light on SDP’s people strategy while
strengthening the bond and rapport that ensure smooth delivery of our internal initiatives. MANAGEMENT DISCUSSION & ANALYSIS
HR Engagement & Reach Out (HERO) sessions that were conducted at SDP’s Southern and Sabah Region.
FY2020 and Forward Priorities While engagement is one of the important indicators in gauging satisfaction at the workplace, it is also imperative for us to ensure the engagement session is effective and ultimately leads to engaged employees that are more 3 productive. A structured agenda with clear goals will be planned and tracked to improve these engagement sessions moving forward.
DRIVING DIGITALISATION FY2020 and Forward Priorities
SDP demonstrated unwavering commitment in anchoring To start-off a multiyear partnership between SDP and Digital as a core driver of our long term strategies and Workday Inc. for the wholesome review and transformation vision in FY2019. The introduction of SDP’s very own Chief of SDP’s People Management System. This journey will be no small feat as it goes beyond a one-dimensioned Digital Officer, Mr. Aditya Ranjit Tuli, into the ranks of our system implementation project. The focus on delivery Plantation Leadership Committee (PLC), is a clear signal precision will be dedicated to this journey to deliver the that our adoption of Digitalisation is not limited to token following outcomes for the business: projects or “buzz words”. Instead, Digital will be considered as an enabling tool for the business in assessing and A. Transition People Management System unlocking hidden synergies along our value chain, taking us to the next level of value maximisation. All existing HR Processes, Systems and Environment will be aligned across Business Segments, Countries Understanding that this “DNA-level” change of how SDP and Operating Units, and migrated seamlessly into the destination system with minimal disruption to operates will require more than just technical talents to ongoing HR activities in the coming years. deliver our Digital initiatives. During the year under review, Group HR made headway into the foundational setup B. Enabling Adoption of Self-Service HR Delivery of the change engine of this mindset shift. The main Model initiative undertaken was the SAP HR System Carve-out, which saw the employee data of SDP employees being Ownership and accountability of routine, transactional transitioned from its original storage location within Group HR activities will be handed over to each individual/ Sime Darby’s data infrastructure domain, into our very user for faster transaction turnover and independent own system architecture and environment. A monumental self-management for greater productivity. milestone in our journey of Digitalising HR, it signifies the establishment of the first “living” set of employee C. Elevate Group HR to SDP’s Strategic Anchor data that relates to Finance, IT and other relevant modules Group HR will focus on the long term people needs in our architecture. This is our first starting point of pure of the business to leverage digital technologies. Group plantation-related data and trends, setting us up for the HR will not just be the frontline adopter of digital bigger HR Digitalisation journey ahead. mindset in SDP, it will also be demystifying the “digital buzz” and transition our workforce to the change mindset ahead. PERFORMANCE REVIEW – Business Review
HUMAN CAPITAL GROWTH
BUILDING FUTURE CAPABILITIES
SDP places great importance on cultivating and nurturing future generation with the right skills, knowledge and values that are essential to drive the organisation forward.
Graduate Accelerated Programme (GAP) is a 2-year programme providing a structured and unique platform to leverage and enhance the skills of SDO’s Core Talent Pool as well as provide the required exposure to specific segments of the business such as commodity trading, sales and marketing as well as manufacturing. The objectives MET Participants with the Group MD and PLC members. of the programme are to build a pool of talented and global-ready talents, increase agility and flexibility of talents FY2020 AND FORWARD PRIORITIES in dealing with new world problems and challenges, foster The second batch of the GAP participants will be coming exchange of talents between operating units within SDO, on board in August 2020. Group HR will review the reduce potential talent hoarding by creating an environment impact and effectiveness of MET programme based on that supports Talent Mobilisation and Succession Pipeline the post programme feedback. and placement of internal talents to fill critical roles in mid-to-long term. Our focus in FY2020 is to review and design learning needs assessment for all departments and develop the For the year under review, the GAP participants have learning interventions. undergone various developmental programmes such as familiarisation sessions, structured training programmes, leadership series and job rotation and placement to SHAPING TALENT AND EMPLOYEE DEVELOPMENT Upstream operations and Downstream functions. This Equipping our employees with the necessary knowledge programme will be a continuous joint effort between and skills to keep us in the forefront of the industry has SDO and Group HR. always been our priority. Our obligation to ‘Developing Sustainable Futures’ is demonstrated in our continued commitment to build a sustainable talent pipeline through well-developed and dedicated assistants to meet the present and future needs of our Upstream business, through the Building Estate Sustainable Transformation (BEST) programme.
BEST is a structured programme that is developed and implemented internally, encompassing material aspects of Upstream operations, and is divided into targeted trainings such as Estate Assistants Structured Training GAP Participants with the Group MD, Chief Human Resources Officer and other employees during its launch. (EAST), Cadet Planters (CP), Cadet Engineers (CE), Field Officer Structured Training (FOST) and Medical Assistant Mentoring Executive Talent (MET) is a mentor-mentee Structured Training (MEDICAST). programme initiated in August 2019 with the objective of focussing on leadership and personal effectiveness Over the years, we have consistently supported our skills to maximise on the mentees’ potential and Upstream operations in delivering a total of 888 BEST performance. For the year under review, a total of 26 alumni, comprising of: mentees were mentored by the Plantation Leadership 181 EAST graduates Committee (PLC) members. These sessions focused on 290 Cadet Planters the mentees’ expectations, career goals, support required 211 Cadet Engineers and moving forward plans. 75 FOST graduates 131 MEDICAST graduates Annual Report 2019 P –G. 089 088
For the year under review, a total of 89 graduates from Malaysia, Indonesia, Papua New Guinea and Solomon Island received recognition from our Group MD, Mohamad Helmy Othman Basha. MANAGEMENT DISCUSSION & ANALYSIS
The FMDP’s participants with the trainer during the Project Management Training.
The programme provided an avenue for our female leaders to excel. Some of their accomplishments are highlighted below:
The Group MD’s address during the BEST Programme 2019 ceremony. Received Malaysian Society for Occupational Safety and Health (MSOSH) Silver Award for Tanah Merah Mill in August 2019. The award was given in recognition Embracing diversity and inclusion in the workplace has of commendable and outstanding OSH performance 3 become increasingly vital for SDP to grow. We are and achievements through stringent compliance and committed to developing the next generation of leaders practices at workplace. by providing development opportunities to interested female employees with huge potential to take on Reduced pests and diseases prevention cost by planting leadership roles in Upstream Business. In conjunction beneficial plant at oil palm plantation. with International Women’s Day 2019, SDP has reaffirmed its commitment to improve gender equality by launching Improved OER of between 19.45% and 20.61% through its first Female Manager Development Programme process modification to enhance oil recovery, FFB (FMDP) in March 2019. handling method, flexible sterilisation programme and engagement with estates for them to deliver good For the year under review, female employees from quality bunches and crop freshness. Upstream estate operations were enrolled into a 1-year programme, with the objective of providing development FY2020 AND FORWARD PRIORITIES opportunities for female assistants to shoulder higher responsibilities as potential future leaders. This development The BEST programme will continue to support the talent programme encompassed both technical as well as pipeline for Upstream operations. SDP is also in collaboration leadership and personal effectiveness programmes with with FELDA and FELCRA to facilitate their employees’ via coaching elements focused on their development needs. participation in the EAST and Cadet Planter programmes at Sime Darby Plantation Academy, Carey Island, as part of our effort to share knowledge and support our industry players. We will also be moving forward with developing more female future leaders through the FMDP. SUSTAINABLE VALUE CREATION
092 Sustainability At Sime Darby Plantation 094 Drawing The Line On Deforestation 100 Building Climate Change Resilience 104 Our Commitment To Human Rights And Decent Work 108 Innovating For Sustainability
SUSTAINABILITY AT SIME DARBY PLANTATION
The inroads we have made in tackling“ the multifaceted and challenging issues of deforestation, traceability and exploitation are only the beginning. We are on a journey and are committed to progress our initiatives, engage with
stakeholders and lead the
industry in its sustainability efforts for the benefit of all parties. Our aspiration is to“ continuously raise the bar for sustainable growth.
SDP has long been committed to sustainable practices. bad practices that has beset the industry for too long. We were at the forefront of the Zero Burning principles We will undermine our long term prospects if, as an implementation decades ago. SDP was a founding member industry, we do not operate in a different way in the of the Roundtable on Sustainable Palm Oil (RSPO). We future to conserve the remaining forests. operate our plantations on No Deforestation, No Peat, No Exploitation (NDPE) standards and extend those expectations At SDP, we are striving to eradicate deforestation in our to all the companies that supply to us. It is because we supply chain and abolish it as a viable way to participate are proud of this heritage and we are committed to in the industry. This is not an easy task. To drive a lasting playing a leading role in shaping a sustainable future for change, we are aware that shifting practices presents real the palm oil industry. operational challenges for third-party suppliers and smallholders. We need to persevere because raising the Today, there is a need to raise the bar again. Deforestation bar on sustainable growth will provide long term business has become an urgent challenge for the planet. People advantage and secure a license to operate as well as around the world are concerned about the rapid rate of compete in the future, for us and for our suppliers. deforestation and the oil palm industry is an alleged Therefore, we are engaging across our extensive network contributor. As the world’s largest producer of sustainable to develop new practical ways of accelerating progress. palm oil, this is also a concern to us. In the context of the global warming threat and the reality that we are facing a narrowing window of opportunity to take a COMMITTED TO GLOBAL GOALS & LOCAL IMPACT: decisive action, it is vital that we say no to deforestation. LEAVING NO ONE BEHIND Our approach to sustainability embraces the Sustainable Amidst the intensifying global debate on palm oil industry Development Goals (SDGs). We are focused on the goals viability, our stakeholders are demanding more of us than and targets that are most relevant to our business, where ever before. It is time to break free from the legacy of we can make the most impactful contributions. Annual Report 2019 P –G. 093 092
Primary Goals
Secondary Goals SUSTAINABLE VALUE CREATION Central Pillar
Base Goal
We have developed an articulation on how we approach COLLABORATION WITH STAKEHOLDERS and contribute to the SDGs, in the illustration above. We We believe in an inclusive approach to transformation that have identified two goals as the central pillar and base of leads us towards forging long term partnerships. Engagement our approach. This is further supported by the primary and 4 is not only about initiating a dialogue. We want to go secondary goals, that we contribute to indirectly. beyond just sharing the problem; we want to work with others to devise lasting solutions. We treat Goal 17, Partnerships for the Goals, as our foundational goal as we believe partnerships are the base As the industry continues to mature and face new and from which we build upon. We recognise that we cannot emerging risks, it is a collective responsibility for us and tackle the issues facing our industry alone, and in order our partners to evolve in our operations. Throughout 2019 to overcome more complex challenges, we collaborate we have formed new alliances and strengthened existing with like-minded organisations. SDP is currently actively collaborations to tackle some of the complex sustainability involved in multiple platforms and collaborations with problems we face. stakeholders and other growers.
Goal 12, Responsible Consumption and Production, is the CREATING VALUE THROUGH SUSTAINABLE GROWTH central pillar of our activities because responsible production is fundamental to everything we do. It is who we are as At SDP, we will continue to improve the economic, a company, and it defines our aspiration to be a leader in environmental and social performance of our business and the best agriculture practices. industry. We are committed to maintaining our investment in sustainability to achieve this and share our knowledge Around the central pillar, we have other goals which we with peers and stakeholders in the value chain. call our ‘Primary Goals’ namely Goal 2; Zero Hunger; Goal 8; Decent Work and Economic Growth; Goal 9; Industry, Regulators, governments, investors and customers are looking Innovation and Infrastructure; Goal 13; Climate Action; and at the sustainability of palm oil production, and an increasing Goal 15; Life on Land. number of end-consumers are raising concerns about the use of unsustainably produced palm oil in their products. The remaining Goals-1, No Poverty; 3, Good Health and As a leading business in our industry, we recognise the Well-being; 4, Quality Education; 5, Gender Equality; 6, Clean importance of delivering growth in ways that are sustainable, Water and Sanitation; 7, Affordable and Clean Energy; 10, and in delivering value to our shareholders while also serving Reduced Inequality; 11, Sustainable Cities and Communities; the needs of multiple stakeholders. 14, Life Below Water; and 16, Peace and Justice Strong Institutions; are considered the ‘Secondary Goals’ which are A sustainable industry requires successful, profitable indirectly related to our operations. These are, in many cases, businesses that are also accountable for improving improving covered by our compliance with the Principles and Criteria environmental and social performance. Understanding the of the RSPO, the Malaysian Sustainable Palm Oil (MSPO) impact of trends driving change in the external world and and the Indonesian Sustainable Palm Oil (ISPO) standards. the expectations our stakeholders is key to creating long term value. Along with others, our ambition is to shape a Together, they articulate our alignment and contributions responsible future for our business, our people and our to the SDGs. industry. DRAWING THE LINE ON DEFORESTATION
DRIVING SUPPLY CHAIN TRACEABILITY
WHAT IS THE CHALLENGE? WHY DOES IT MATTER TO US?
The rapid rate of deforestation is an In countries where palm oil production urgent challenge for the world. is concentrated, the industry has Satellite data shows that tropical brought prosperity and economic forests are being destroyed at a rate growth over the past decades. of about 8 million hectares a year, However, looking into the future, we with about 81,000 hectares of believe that in order to remain rainforest – an area the size of relevant, the industry must change. Singapore – are burned around the world each day. Deforestation As a vertically integrated palm oil
represents up to 20% of all CO2 company, most of the palm products emissions, more than the entire processed by our refineries originate transportation sector, and agricultural from SDP’s own mills. As of 2019, 63% commodities account for 70% of of our palm-based raw materials were global deforestation. sourced from our own operations, which are certified with RSPO. We Many stakeholders are concerned that are proud as this allows us to provide palm oil production is driving our customers with high quality, and deforestation. As the leading producer responsibly produced palm oil. of sustainable palm oil, we share their concern and are working towards However, the remaining 37% of our No-Deforestation for our industry. palm-based raw materials are sourced from third-party producers and traders. Yet, driving deforestation out of the This is why traceability is the next industry is a complex challenge. It frontier in halting deforestation. involves hundreds and thousands of Assuring traceability across the palm producers and smallholders. Supply oil supply chain is a crucial first step chains are vast and complex, company to identifying the existence of problems structures are often opaque, and and allowing us to take action. visibility of problems is low. This makes it very difficult to pinpoint issues on the ground and prioritise the areas of greatest risk. Annual Report 2019 P –G. 095 094
WHAT IS OUR PROGRESS? Crosscheck takes a big step forward in making traceability possible throughout our supply chain Our commitment to halting deforestation means It traces our supply up to the level of specific mills that we are increasingly focused on improving
the traceability of the oils in our supply chain It links the mills to their owners in order to improve SUSTAINABLE VALUE CREATION that are sourced beyond our own production. To traceability and accountability. Some of those mills do so, we have created two tools to enhance belong to SDP but many are not. For those that did traceability: not belong to us, we identify the group owners of each mill. This will provide new information about In 2016, we launched Open Palm Traceability the extent of network and relationships that runs Dashboard to enhance the transparency of through our supply chain and beyond our supply chain for customers and record the actions taken to ensure that it remains It enables users to overlay the location of any mill sustainable against maps of the surrounding landscape that highlight risk areas i.e.: forest, peat or other protected In 2019, we introduced Crosscheck with areas, and also the habitats of large animals; additional layers of information: an open access orangutans, elephants and tigers tool that further adds layers of information. It is linked to satellite data so anyone can check This allow access to our investors, NGO partners, the information against imagery that provides more customers, and any other stakeholders who information about happenings on the ground are concerned about the preservation of the 4 forests to access information about our supply chain
Covering all the 14 refineries and 909 mills in our supply chain, the publication of Crosscheck was a first for the industry with SDP, as a leading producer, putting this enhanced level of information into the public domain. The platform has been developed to enable additional layers of data to be incorporated over time. We will work with NGO partners and other stakeholders to make it increasingly useful as a tool for driving change in the industry.
We know we do not have all the answers; but we are determined to work with our stakeholders to raise the bar for the industry and to draw the line on deforestation. We invite you to visit https://www.simedarbyplantation.com for more information on our efforts.
HOW DO WE CREATE VALUE?
During the year, we joined a coalition of 10 major palm oil producers and buyers to fund and pilot Radar Alerts for Detecting Deforestation (RADD) – the first radar-based monitoring system that will make deforestation alerts As of December 2019, 94% of FFB supplied to our publicly available. RADD complements our Crosscheck, mills are traceable to the plantation and we have which maps out our operations on the ground, by providing set the target to achieving 100% by 2022 satellite data to identify where the problems might be. RADD is being developed in collaboration with various stakeholders in Indonesia and Malaysia, where the preliminary results demonstrate its capability to detect tropical deforestation several weeks earlier than optical- based systems
For more information, please refer to pages 21 to 29 of our Sustainability Report 2019. DRAWING THE LINE ON DEFORESTATION
WORKING WITH SUPPLIERS
WHAT IS THE CHALLENGE? WHY DOES IT MATTER TO US?
Raising the bar across an extensive network of We were founding members of the RSPO and we suppliers that is complex, dispersed and diverse is operate our plantations on NDPE standards and a significant challenge with no easy answer. Some we extend those expectations to all the companies industry issues remain particularly difficult to tackle. that supply to us. Hence, to raise the bar on We believe that we cannot do it alone, hence, we sustainable practice with our third-party suppliers, continue to work in collaboration with our stakeholders we need to enhance our engagement. Our goal is in support of our aspiration for a deforestation-free to expand the base of responsible palm oil producers. supply across the industry. For instance, it is critical for us to obtain relevant information from our third- WHAT IS OUR PROGRESS? party suppliers especially on the sources of their raw Our aspiration is to draw the line on deforestation materials. Such information, though challenging to and the practices that contribute to it across the obtain consistently, will allow us to monitor more industry. Therefore, in 2019 we updated our approach effectively how our sustainability requirements are to working with suppliers through our new Draw being met by third-party suppliers. the Line policy and an expansion of our team. The policy can be viewed at www.simedarbyplantation. Another aspect that remains a concern is operational com/content/working-suppliers-draw-line- practices of smallholders, who operate on less than deforestation-policy-statement. The policy sets out 50 hectares of land, and small growers who operate what suppliers are expected to do in the event of on more than 50 hectares, but less than 500 a confirmed violation of the NDPE standards: hectares. Despite having small landholdings, smallholders account for almost 40% of the palm Stop work immediately on the affected land. oil industry’s production. However, with inadequate Develop a plan for remediating the damaged information and knowledge to effectively grow forest, including conducting High Carbon Stock palms and sell oil and relatively low yield from their Approach (HCSA)/High Carbon Value (HCV) crop, they may resort to deforesting to increase assessments, as necessary. their production. Develop a programme to improve their ongoing operational practices to meet NDPE standards.
If the supplier concerned is unwilling to make these commitments, it is our policy then to remove them from our supply chain. Once a supplier is no longer in our supply chain, purchases will not resume until our conditions above are met.
At SDP, it is our view that it is not helpful to cut off suppliers without providing a path for reengagement. Constructive engagement has been proven to be critical to systematically resolving issues and building suppliers’ capacity to improve their practices. Also, simply suspending suppliers may create an unintended consequence of driving poor practice elsewhere into the system, making As of 2019, 63% of our palm-based raw materials were it less visible and harder to act on. sourced from our own operations, which are certified with RSPO. Annual Report 2019 P –G. 097 096
Engagement is critical. With the support from Aidenvironment, we SUPPORTING SMALLHOLDERS do not only conduct due diligence on third-party supplying mills Working with smallholders requires a different to identify and assess various risks, but also engage mill owners to approach and dedicated programmes to build share guidelines on sustainable production. their capacity. We work actively in partnership with governments to lift smallholders to a We have put in place an expanded team to implement our policy SUSTAINABLE VALUE CREATION certifiable standard of sustainability, so they and manage supplier engagement. As of December 2019, we have can make their living in a way that does not had 61 high risk mills in our supply chain that were identified through damage the forest. our Supplier Grievance Register. Of these, we have removed seven from our supply chain. We are currently engaging 22 mills, and 17 We have smallholders in our supply chain across more have begun to put in place the remedial plans as per our policy Papua New Guinea, Thailand, Indonesia and requirements. We have investigated and resolved 15 other cases. Malaysia. We take a localised approach to best meet the needs in each of the geographies we operate in.
To assist smallholders in Malaysia with certification, we initiated a small-scale pilot with just 300 smallholders in the Northern 11% Region. We brought together partners to help No longer in tackle the barriers encountered by smallholders supply chain 36% Under in their effort to be certified, most notably 4 investigation financial constraints and land title registration.
SDP teams provide practical support to smallholders for example with the registration process. Following this intervention, SDP’s Sungai Dingin Oil Mill is now 84% traceable to the Breakdown of Grievances plantation with 349 registered smallholders. 25% by Status as of Solved December 2019 Our pilot project and partnerships have helped cases us identify models that we will now use to replicate and expand across more smallholder supply base in Malaysia.
In Indonesia, since receiving our first RSPO smallholder certification for Kredit Koperasi Primer Anggota (KKPA) smallholders in 2014, 28% we have to date certified 50% of our smallholders Remedial plans in the country (5 KKPA and 2 Plasma) with a in place total of 22,506 hectares of smallholder area and total production capacity of 404,108 MT of FFB. Our aim is to have 100% of our associated smallholders in Indonesia RSPO Certified by 2022.
For more information, please refer to pages 30 to 35 of our Sustainability Report 2019. DRAWING THE LINE ON DEFORESTATION
MANAGING LAND AND BIODIVERSITY ECOSYSTEMS
WHAT IS THE CHALLENGE? freshwater ecosystems support a rich and diverse array of flora and fauna ranging from the Bornean Sustainable growth and expansion continue to orangutans, Pygmy elephants, Sumatran Rhinoceros present challenges to the palm oil industry. Land and many more. Yet, every year, the species that clearing for oil palm plantations over the last decade roam our rainforests are under severe threat due has led to the destruction of rainforests and to deforestation. The rapid rate of deforestation is degradation of peatland. The greatest impact is an urgent challenge for the world that demands seen in the largest producing countries – Indonesia a meaningful response. and Malaysia. New expansion is also threatening ecosystems in other parts of Asia, Central and South Major agricultural commodities are some of the America, and Central and West Africa. main drivers of deforestation. Reports cite the top five contributors are cattle, soy, pulp & paper, maize At SDP, we are working towards a deforestation- and palm oil1. Palm oil companies have led the free supply chain by making the alternative an way in establishing significant and stricter unviable way to participate in the industry. commitments to zero deforestation.
WHY DOES IT MATTER TO US? WHAT IS OUR PROGRESS? Our Upstream plantation operations are spread In 2014, we made a commitment to cease all new across the world in some of the most diverse development or clearing of forested land. This ecosystems. The tropical rainforests, sea and commitment also includes no new planting on peat lands. Today, we are focused on increasing yields on existing plantations and any new development will be done in accordance with the HCSA:
We do not develop on land identified as High Carbon Stock (HCS) areas. The HCSA requires that such areas must be protected because they are considered high density forests that are intact, or young regenerating forests that, if left alone, will regenerate themselves. We abide by that definition in our operations.
We abide by the HCV and protect the rights of local communities.
Our commercial operations and new developments will be limited to shrubs and grass land which are low carbon stock areas and have no demonstrable conservation values.
An integrated HCV-HCSA Assessment Manual has been developed to merge the importance of HCSA and HCV assessments.
SDP has managed to identify 39,482.94 ha as High 1 Progress on the New York Declaration on Forests: Eliminating Conservation Value (HCV) areas across our global Deforestation from the Production of Agricultural Commodities, operations as of December 2019 through detailed Goal 2 Assessment Report November 2016. periodic assessments. Annual Report 2019 PG. 098 – 099
These assessments are conducted for every new planting Managing Peatland area but have subsequently being used only on low carbon For our existing plantations on peat, we employ best landscapes as we enforce the HCSA. Additionally, practices to ensure the water table in the area is maintained conservation areas within plantation operations such as at 45-65 cm below soil surface to reduce decomposition riparian zones, steep slopes and forest boundary reserves rate of dried peat. In addition, we maintain existing are also required to be mapped out. As at December vegetation within and adjacent to our oil palm plantations. 2019, through periodic assessments of our plantations, We also engage local communities to educate them on we have mapped HCV areas and Conservation Set Aside sustainable management of peat areas in an effort to SUSTAINABLE VALUE CREATION (CSA) areas, with 39,482.94 ha tagged as HCV and 8,323 prevent slash and burn activities. ha as CSA. We are guided by the RSPO Drainability Assessment Procedure. We started piloting the drainability assessment in our current peatland plantings in 2017. The assessment procedure, officially issued in 2019, will be tested and further refined for 12 months.
HOW DO WE CREATE VALUE?
Overall, our efforts to draw the line on deforestation aim to: 4
Drive change through the supply chain by increasing Support the inclusion of smallholders in the supply traceability to better identify the whereabouts of the chain in a sustainable way, using the learnings from problems and prioritise attention on the areas of our pilot projects to get more of them on-board the greatest risk and to build confidence over time path to certification amongst our stakeholders about sustainability of the industry
Expand the sphere of NDPE compliant companies within the industry by becoming more deliberate in Abide by our commitment not to develop on forest our engagement with suppliers around instances of areas as defined by the HCSA and that any existing non-compliance. This includes working with them plantations planted on peat, will remain guided by to develop plans to improve their practices to deliver best management practices NDPE standards consistently BUILDING CLIMATE CHANGE RESILIENCE
with the El Niño phenomenon this year, and overall hotter temperatures, South Kalimantan province experienced four times more peat fires compared to other provinces. ‘Open burning’ practised by local communities also led to peat fires within and around estate boundaries. As a result, local communities’ health and natural ecosystems are also adversely affected.
WHY DOES IT MATTER TO US? Composting of empty fruit bunches as part of our efforts to reduce waste. Global growth in food demand, has prompted increased agricultural activity. While this has helped feed billions of people and contribute to socio-economic progress, WHAT IS THE CHALLENGE? it has also come at a cost to the stability of the planet. While palm oil is so widely Recent global studies consistently show used due to its versatility, we have to work rising greenhouse gas emissions and the to reduce the industry’s carbon footprint. rapid advancement of climate change. According to the SDG 13 2019 progress The complex value chain and the inherent report issued by the Economic and Social risks of oil palm plantations pose many Council of the United Nations, in 2017, challenges to our operations, including in greenhouse gas concentrations reached carbon inventory, mapping, operational globally averaged mole fractions of CO2 at 405.5 parts per million (ppm), up from and supply chain emissions measuring, as 400.1 ppm in 2015, and at 146 per cent of well as emissions monitoring and pre-industrial levels. Moving towards 2030 management. Identifying, the primary emission objectives compatible with the sources of emissions, including from land use change (LUC), is also one of our biggest 2°C and 1.5°C pathways requires a peak to challenges, in terms of investments, be achieved as soon as possible, followed coverage and reliability of data. by rapid reductions.
By increasing the use of renewable energy Another cyclical issue is that of fire and and putting in place more rigorous haze. Every year during dry season in sustainability standards and commitments, Southeast Asia, the atmosphere surrounding the palm oil industry aims to reduce its Indonesia, Singapore and Malaysia is carbon footprint and thereby its impact polluted with ash, dust and smoke. Coupled on global warming trends. Annual Report 2019 P –G. 101 100
WHAT IS OUR PROGRESS? Renewable energy
We are making efforts to minimise our There has been a large reduction of renewable energy usage since 2015. environmental impact through restoration This is largely due to lower FFB processing. Most of the energy used by of degraded land, protection of habitats, palm oil boilers comes from renewable sources such as biomass (palm and reduction of emissions, as well as kernel shell and fibre). This contributes to 84% of SDP’s overall energy through our efforts to drive deforestation requirements. This initiative has managed to avoid approximately 1.8 million
out of the supply chain. tCO2-e had diesel been used instead. SUSTAINABLE VALUE CREATION
In 2012, we set relative targets for reducing Similarly, the biogas produced during the degradation of Palm Oil Mill emissions; 40% reduction in carbon Effluent (POME) is used to generate power that is fed to the grid, or flared, emissions intensity (tonnes of CO2-e per to ensure that methane is not released into the atmosphere. The installation metric tonne of CPO produced) by 2020 of biogas plants at our palm oil mills contributes significantly to our carbon against a 2009 baseline for our Upstream reduction target. On top of that, we also compost empty fruit bunches (EFB), operations. Following review of the POME as well as boiler ash and use the end product for manuring as part progress in meeting our target, together of our efforts to reduce inorganic fertiliser usage hence achieving zero waste. with input from relevant stakeholders and our sustainability advisor, we decided To date, 13% of our mills are equipped with methane capture plants. As to extend the target date to 2030- a of December 2019, we achieved an emissions intensity reduction of 13.7% more realistic and achievable timeframe delivered by these plants. to deliver our goal. Fire & Haze management We have made significant investments to Since 1985, SDP has introduced a Zero Burning Policy. In 2015, we began accelerate reduction targets through 4 proactively monitoring and managing fire and haze issues within our improved infrastructure in climate change operating areas through our Hotspot Alert Dashboard. It provides near adaptation and mitigation efforts. Our real-time fire hotspot monitoring with data retrieved from the Fire operations are actively exploring energy Information for Resource Management System (FIRMS) of the United efficient alternatives such as transition from States National Aeronautics and Space Administration (NASA) and ASEAN diesel to natural gas for energy production Specialised Meteorological Centre (ASMC) websites. These platforms are in palm oil mill boilers. However, this linked to SDP’s own geospatial programme, based on Google Earth maps. remains highly dependent on the In 2015 we announced our commitment to respond to fires that occur accessibility and availability of alternative within 5 km beyond our boundaries. solutions in the areas where we operate.
NUMBER OF FIRE ALERTS DETECTED WITHIN SDP’S OPERATIONS AND COMMITMENT AREA
1,400
1,200
1,000
800
600
Number of fire alerts detected Number of 400
200
0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
FY2018 FY2019 BUILDING CLIMATE CHANGE RESILIENCE
While forest fires are cyclical, typically occurring every year, most of the potential fires or hotspots in 2019 were detected during the month of August and September, unlike in 2018 where the high occurrences were in July and August.
From January to December 2019, a total of 2,445 hotspots were detected within our field of operations and commitment areas. They were verified by satellites within our operating fields and commitment areas. Upon verification, 255 fires, occurred within our field of operations. Approximately 90% of the remaining fire alerts were verified to be within our 5km radius commitment area. Please refer to our Sustainability Report 2019 for more information on the causes of fire.
Number of confirmed fires by country in 2019
MALAYSIA Within field: 1 case Outside field: 12 cases
4 13 64 2,364 LIBERIA Within field: 3 cases Outside field: 1 case
INDONESIA PNG & SI Within field: 191 cases Within field: 60 cases Outside field: 2,173 cases Outside field: 4 cases
Our Hotspot Alert Dashboard can also be accessed via our corporate website: http://www.simedarbyplantation.com/sustainability/hotspot-dashboard
Note: *Outside field refers = 5km radius outside operating fields
Since 2011, we have established the Desa Mandiri Cegah Api (DMCA) or Community-based Fire Prevention Programme in our effort to manage and support the management of fires within the vicinity of our estates. The programme has resulted in a myriad of tangible positive impacts to the environment, with notable declines in the number of fire occurrences, improvements communities’ livelihoods, increased their capacity through education and awareness, as well as maintaining good relationships between the Company, surrounding communities and civil society groups.
Our partnership with the local communities is an integral part of our Community-based Fire Prevention Programme and Zero Burning initiative. Annual Report 2019 P –G. 103 102
HOW DO WE CREATE VALUE?
Our initiatives to build climate change resilience encompass: SUSTAINABLE VALUE CREATION
Responding to fire and haze occurrences within and Actively pursuing the 40% emissions reduction target up to 5km radius beyond our boundaries, where we from our operations by 2030, through the work with local communities on the prevention and establishment of biogas plants at 50% of our current management of fires mills in Indonesia and Malaysia
+ 4
Expanding alternative energy infrastructure, e.g., four Exploring power generation technologies that can new biogas plants are being constructed in Malaysia potentially generate cheaper power and steam for and more will be constructed in strategic locations palm oil mills as well as managing waste worldwide over the next five years
Using our land that is unsuitable for oil palm planting to generate power via solar PV technology, which could potentially offset our carbon emissions OUR COMMITMENT TO HUMAN RIGHTS AND DECENT WORK
WHAT IS THE CHALLENGE? WHY DOES IT MATTER TO US?
About 86% of the world’s palm oil is Due to our large global footprint, we currently grown in Indonesia or are faced with a myriad of human Malaysia, where 4.5 million people rights challenges that are at times earn their living from the industry. In systemic but unique to the countries Indonesia alone, as many as 25 million we operate in. For instance, our people depend indirectly on palm oil operations in Malaysia alone employ production for their livelihoods. approximately 24,814 migrant workers which represent nearly 63% of our This includes smallholders in both workers on the ground in Malaysia. Indonesia and Malaysia that produce We also continue to be challenged 40% of the world’s palm oil. with cross border policy gaps and deeply rooted socio-economic drivers As a labour intensive industry, reports of migration. continue to reveal issues of poor working conditions experienced by an We support the SDG’s for decent work alarming number of workers in the and economic growth. Therefore, our agriculture sector. Palm oil particularly, ambition to raise the bar of sustainable has been no stranger to this criticism. growth includes our commitment to Highly complex supply chains, poor human rights and providing decent economic conditions, a lack of legal work for our employees. enforcement and inadequate regulatory support and action have presented WHAT IS OUR PROGRESS? challenges in ending exploitation in Our complex supply chains however, the industry. provide us with opportunities to work on identifying areas where collective There are strong indications that the action can create a positive change issues surrounding forced labour in to the industry. We believe that palm oil estates may be largely innovative partnerships can help palm attributed to weak systems and oil to drive economic growth and enforcement, geographical locations provide decent work as a means to that present limited opportunities and end exploitation in the supply chain. employment systems related to casual and undocumented workers. Annual Report 2019 P –G. 105 104
Respecting Human Rights
In 2015, we took a hard look at gaps in our operational practice against the UN Guiding Principles on Business and Human Rights. We undertook a Human Rights Due Diligence exercise to identify salient issues in our operations. Through a human rights heat map, we prioritised our
efforts in areas where salient human rights risks exist and SUSTAINABLE VALUE CREATION have the most severe impact. We started reporting our progress in eradicating exploitation in 2016 through the UK Modern Slavery Act Statement and to date we have issued four statements. Visit our website to see our UK Modern Slavery Act Statement 2019.
Responsible Recruitment
We practise direct hiring method in our operations to ensure we have better oversight and management. Our dedicated Workforce Management Teams visit countries of origin to promote recruitment efforts, conduct interviews Our Workforce Management Team engaging with workers during and select workers. Following our human rights due recruitment in Indonesia. diligence programme, our approach focuses on salient issues surrounding key indicators of forced labour in our operations in Malaysia. We monitor this through ongoing 4 engagements with our agents as well as our established grievance mechanisms that help us respond to risks in our supply chain.
Our Responsible Recruitment Programme outlines our best practices as follows:
1. We do not charge recruitment fees Recruitment is conducted directly by our own teams in countries of origin We cover all statutory costs including return transport from country of origin We work with agents and their sub-agents to monitor risks of debt bondage
2. We ensure transparent working terms Briefing materials are translated into local languages during recruitment to ensure workers understand and accept terms & conditions of work voluntarily All written contracts are translated into native languages and explained to workers
3. We do not retain personal documents Workers are reminded to always keep their own personal documents All our operations do not retain passports unless explicitly requested to by workers, in which written consent in their respective native language is required Workers right to freedom of movement is never be compromised at our operations OUR COMMITMENT TO HUMAN RIGHTS AND DECENT WORK
Grievance Mechanism In 2019, nine accidents resulted in occupational permanent disability were recorded in Papua New Guinea (4), Malaysia We established a worker’s helpline that is designed to (3), Indonesia (1), and Sime Darby Oils (1). They were due be accessible. In collaboration with Nestlé, the Workers’ to machinery (4), harvesting (3) and working near a tractor Voice (“Suara Kami”) helpline is a pioneer in the oil palm (2). industry in providing a 24/7 helpline in multiple languages that is accessible to workers via phone call, text and The Group is determined to continue its mitigation efforts Facebook Messenger. All calls and texts to the helpline such as safety programmes to keep our workers safe and are toll-free. healthy in the workplace. The high number of fatalities and permanent injuries has been a sober reminder that we Workers’ Voice is run by ELEVATE, the company behind cannot rest on our laurels to achieve zero harm. These the renowned ‘Amada Kother’ garment industry helpline serious accidents are particularly worrying especially when in Bangladesh, and an electronics and manufacturing we have consistently managed to reduce the overall number industry helpline in Malaysia. Workers’ Voice for the palm of accidents year on year. Our lost time injury frequency oil industry had to be adapted to meet the demographic rate shows that the total number of accidents has been needs of our workers as well as the geographical spread reduced by 34% since 2015. and remote locations of the work sites. In 2019, we piloted the helpline in one of our six regions – Central East region. More details on our safety and health data can be found More information on the pilot programme is available in in our Sustainability Report 2019. our Sustainability Report 2019.
Empowering Community for Inclusive Development A Safe and Healthy Workplace We actively engage local community leaders and members We recognise our inherent responsibility to strengthen the prior to embarking on any development by obtaining safety performance of our operations. Our continued efforts their Free, Prior and Informed Consent (FPIC). We are are in support of our contribution to the global goals of guided at all times by effective conflict resolution good health and well-being. The key to our delivery has frameworks through independent social impact assessments been to ensure that our people have the necessary technical and periodic stakeholder consultations before and during and educational support in occupational safety and health. our operations.
We regret to report that there were six (6) occupational We are committed to supporting land cultivation that fatalities in 2019 and a Fatality Rate (FAR) of 2.8 (2.8 fatalities proactively promotes benefit sharing and enhances local for every 100 million hours worked). The fatalities were all food security. In these locations we support and sometimes work related – transporting/travelling using a tractor (4), take on the role of building and rebuilding infrastructure machinery (1) and harvesting (1). The accidents occurred in and facilities such as roads, community halls and health Papua New Guinea (4), Malaysia (1) and Liberia (1). centres, as well as facilities that help improve or make basic needs such as clean water, sanitation and education OCCUPATIONAL FATALITIES & FATALITY RATE accessible for everyone. We also support the livelihoods of local communities through job opportunities, economic
SDP Fatalities FAR (Per 100m Hours Worked) growth and alternative livelihood trainings through our operations.
Additionally, together with the Sime Darby Foundation,
we supported various Corporate Responsibility programmes amounting to more than RM127 million to date. These include initiatives on environmental stewardship, community health and well-being, access to universal education as 4 well as volunteerism programmes involving our employees.
CY2015 CY2016 CY2017 CY2018 CY2019 Annual Report 2019 P –G. 107 106
Pre-competitive collaborations
In 2018, the Decent Rural Living Initiative was formed as a unique pre-competitive collaboration with five large Our collective vision is to identify and scale grower-driven palm oil producers – Cargill Incorporated, Golden Agri- solutions that enable a palm oil industry that provides Resources Ltd., Musim Mas Holdings Pte. Ltd., Wilmar employment in a safe, fair and decent manner in rural International Limited and SDP, it was convened by Indonesia. The initiative is now entering its implementation
international sustainability non-profit, Forum for the Future. phase and is expected to receive support from other SUSTAINABLE VALUE CREATION The aim of this initiative is to tackle labour rights challenges companies, experts and NGOs who will be invited to assist in the palm oil industry in Indonesia, through the in empowering and enhancing the lives of communities. development of a much needed improvement in working conditions.
HOW DO WE CREATE VALUE?
Overall, our initiatives to support human rights and decent work resilience include the following:
4
Taking proactive and tangible steps to improve the Supporting land cultivation that proactively promotes welfare and well-being of workers and uphold the benefit sharing and enhances local food security fundamental principles of Human Rights
Building and rebuilding infrastructure and facilities Supporting livelihoods of local communities through to improve access to basic needs such as clean job opportunities, economic growth and alternative water, sanitation and education livelihood training INNOVATING FOR SUSTAINABILITY
WHAT IS THE CHALLENGE? Moreover, with a glut in the edible oil market and low crude oil prices, With the world population increasing, additional land expansion and there is expected to be a food gap production capacity will be of approximately 56%. Projections from counterproductive to the industry. We the World Resources Institute (WRI) urgently need a steady and consistent show that to close this gap, with growth in yield, to meet the world’s agricultural practice remaining the growing demand. same – we would need to expand a further 593 million hectares of land. WHAT IS OUR PROGRESS? This expansion will lead to a global increase in emissions of about 11 Raising the bar on yield gigatons of CO2 equivalent. At SDP, we have been working on breakthrough innovations to increase The continuing challenge for yield. Oil palm is already a very efficient agricultural industries is to invest in crop, capable of producing 10 times frontier research and innovate to more oil per hectare than other leading produce high-yielding agricultural oilseed crops. Through genetic analysis inputs, double yields, and modernise and selection, we have been able to to increase productivity. All of this identify outstanding individual oil palms must be achieved without clearing or for plant breeding purposes that can converting forest land. further improve yield per hectare. This will help us to continue meeting the WHY DOES IT MATTER TO US world’s demand for oils and fats Yield is core to our growth and without increasing our land size. essential to creating a deforestation- TM free industry. At SDP, we are aware GenomeSelect that sustainable growth in the palm Our GenomeSelectTM oil palm planting oil industry cannot be achieved material is another major step forward through additional land expansion. in our sustainability journey because Therefore, we have been working on it allows us to produce more oil with breakthrough innovation to increase our existing land. This is in line with yield. Yield innovation enables our our sustainability commitment to industry to produce more oil without minimise green and brown field clearing forested land hence promoting expansions. We have begun planting sustainable growth. GenomeSelectTM commercially in selected operations in Malaysia. This year, we saw the first harvest of GenomeSelectTM on a 100-hectare land. Over time these seeds will deliver considerably higher yields from our plantations. Annual Report 2019 P –G. 109 108
Currently in Malaysia we have over 2,300 hectares replanted Impact created from the project is as follows: with GenomeSelectTM material. The plantings are equipped with geotagging technology to help us monitor environment Actual To-date interaction – data for us to further optimise our breeding Items (Dec 2019) materials to withstand climate challenges over the next 30 years. In 2017, the project received recognition from the Total Number of Projects 3,208 Edison Award under the Energy and Sustainability category. Operating Unit Participation 74% SUSTAINABLE VALUE CREATION
Features of GenomeSelectTM Number of Champions 240
GenomeSelectTM is able to deliver oil yield improvements Number of Internally Developed 56 of up to 15% above our previous best seeds Black Belts
Under optimal growth conditions, the potential yield Number of Practitioners Trained 1,550 from the GenomeSelectTM palms can go above 11 MT oil/ha, resulting in average yields above 6.1 MT oil/ha The OEIBMS 2.0 and its operationalisation is strengthened across all environments in our Malaysian plantations, by four key programmes namely War on Waste (WOW), compared to 5.3 MT from our Calix 600 yields. Lean Palm & Value Chain Enterprise, Clone Protocol, and our Universal Learning programme. In addition to the GenomeSelectTM successful, our Research & Development (R&D) team will continue to focus on the 1. War on Waste Programme (WOW): SDP’s WOW was three key strategies – yield and productivity improvement; introduced in 2015 to enable and empower each employee increase in revenue streams; and the development of to create bottom line impact through intensification of sustainable practices. In addition, the team will focus waste elimination efforts using the Kaizen methodology. 4 more on developing new technologies and products for In the fourth edition of WOW in 2019 we introduced the Downstream business and catalysing new growth through “Clone Protocol” framework – a platform to replicate our diversification. successful projects throughout the business to accelerate growth. The framework serves as a replication platform Innovating for operational excellence: that highlights hard benefits, high impact projects that In February 2018, SDP embarked on the second instalment impact key business strategies and objectives of each of our five-year Operational Excellence and Innovation business stream – (Downstream & Upstream). Business Management Strategy (OEIBMS 2.0), which is the blueprint for achieving RM550 million in cumulative 2. Clone Protocol is built onto the pre-existing analysis of Operational Excellence benefits by 2022. The benefits each business stream, Upstream and Downstream, to consist of hard benefits derived from cost savings and further enhance key projects that will help improve the improved revenue generation, and soft benefits derived business. Projects must be derived from the established from cost avoidance and sustainability indicators. Clone Protocol Catalogue for each business stream (Downstream & Upstream). Central to the implementation OEIBMS 2.0 is a holistic approach that not only incorporates a vision and measurable 3. Lean Palm and Value Chain Enterprise: Focused on target to achieve higher operational excellence and expanding the coverage of Lean Six Sigma (LSS) application productivity, but also capacity building and skills as well across our value chains, Lean Palm and Value Chain as people transformation. Enterprise drives organic growth through operational excellence. It ensures innovative enhancements to our OEIBMS 2.0 Implementation products through improvements to maximise profit margins. This programme was rolled out in December 2017 and is Lagging target: due for completion in 2022. RM550 million in cumulative benefits by 2022 4. Universal learning: In keeping with the fast changing Leading targets: dynamics of learning, we introduced digital versions of our 80% Operating Unit participation by 2022 Operational Excellence resources in 2015. This way, our 452 business leaders and champions developed by 2022 employees will have access to a variety of e-learning 70 internally developed Black Belts by 2022 resources to supplement training workshops. This approach allows us to train a wider base of employees across our operations. INNOVATING FOR SUSTAINABILITY
Managing Quality
In pursuing our goals, we are aware that certification alone is not enough. On that note we combined our field assessments into one programme called the Structured Crop Recovery Assessment (SCRA Q+) in our endeavour to develop and implement new, innovative approaches.
SCRA Q+ aims to further realise our commitment to achieving high yield and OER by increasing efficiency in harvesting and evacuation of crops, maximising crop quality, reducing oil losses and ensuring mill efficiency. The programme comprises three assessments, Structured Crop Recovery Assessment (SCRA) for palm oil estates, and Structured Oil Recovery Assessment (SORA) for palm oil mills and Quality & Hygiene Assessments (QHA) for rubber.
SCRA supports yield maximisation by addressing the yield loss factor (efficiency of crop harvesting and evacuation to the mill). The assessment also includes crop quality, which directly affects OER. A SCRA scoring of more than good harvesting and recovery culture in operating units.
SORA supports the realisation of increased OER by reducing oil loss and ensuring mill efficiency. In addressing the effectiveness of mill processes, this assessment covers 10 areas including leakages, housekeeping, palm product quality, laboratories, oil and kernel losses, as well as safety and security.
01 02 03 Empty fertiliser bags are At the factory, the fertiliser The shredded bags are kept in the estate’s store, bags are shredded into further melted into a soft waiting to be recycled finer pieces black substance
04 05 The melted plactic is The plastic resins cooled off under running produced will undergo an water to harden it injection moulding process to create the final product
Project Metamorphosis upcycles discarded fertiliser bags into plastic chairs. Annual Report 2019 PG. 110 – 111
Effective Resource Management Environmental Mainstreaming Tools Deployed in Malaysia Effluent management In compliance with effluent discharge standards We maintain robust management systems to regulated by the Malaysian Department of Environment SUSTAINABLE VALUE CREATION ensure all our mills are in compliance with (DOE) national environmental standards. All our mills Sabah Region complies with the Biochemical Oxygen and refinery operations are fitted with Palm Demand (BOD) limit of 20 ppm for water discharge Oil Mill Effluent Treatment Systems (POMETS) Sarawak Region complies with the BOD limit of 50 and Industrial Effluent Treatment Systems ppm for water discharge and land application (IETS) to support management of waste Northern, Central East and Central West Regions We invested in technically competent comply with relevant BOD levels, which vary from employees to manage effluent and the 5,000 ppm for land application to 50 ppm for water treatment systems such as Certified Professionals discharge in Palm Oil Mill Effluent (CePPOME), and Southern Region is moving towards compliance Certified Environmental Professionals in the with a BOD limit of 20 ppm for water discharge Operation of Industrial Effluent Treatment and 100 ppm for land application Systems (CePIETSO – PCP/BP, etc) 4
Effluent management in all our mill operations are constantly monitored by the respective mills and any non- conformance will be addressed immediately and corrected by the mill management.
Water management
The current palm oil benchmark for water consumption is approximately 1.4m3 per tonne of FFB produced. In 2017, we began monitoring water intensity at our mills. Whilst our mill design ratio is 1:1 (1 MT FFB: 1m3 water) an approximate 0.2 to 0.4m3 of water is used for processing other than FFB (approximately 20%).
Water intensity Palm Oil Mills Annual reduction required to achieve target by 2023 2019 2023
Total Upstream 1.40 1.00 6%
Plastic waste management
In 2017, we conducted an inventory of single-use plastic waste at our Head Office and recorded 325,830 pieces of single use plastic which is equivalent to 4,522.12 kg in a year. Meanwhile, in our estate operations, we collaborated with a plasticware manufacturer, to develop the technology to upcycle discarded fertiliser bags into plastic chairs. This innovative discovery will not only reduce the number of discarded fertiliser plastic bags but also support the waste management strategy for our Upstream operations.
Known as the Metamorphosis project, it was awarded the Best Innovation in Sustainability, EUROPA AWARDS 2019. We have piloted the project in two estates in the Southern Region since 2019 and have collected 8,750kg of bags and produced 35 chairs. INNOVATING FOR SUSTAINABILITY
HOW DO WE CREATE VALUE?
Overall, our initiatives to drive forward innovation for sustainability encompass:
Continuing research and development on our high- Accelerating our Replanting Programme – to improve yielding planting materials to develop better seed- our average palm age from about 13 years in 2017 production palms without genetic modifications to approximately 12 years by 2023
Investing in ideas and solutions to reduce water Addressing issues concerning air, water and soil intensity to a target of 1.0m3 per tonne of FFB by pollution by implementing sustainable management 2023, translated into a cumulative reduction of systems at the mills 10-40% over five years
FFB
Just as we are committed to innovating to improve our sustainability, productivity, and product quality, Continuously improving our Malaysian operations, we strive to raise the bar on our operational with a target of maintaining 0.65 tonnes of effluent performance. Doing so effectively enables us to per FFB processed consistently improve our resource management and impact as well as people development
Other notable awards
Opexcon 2019: PT Sajang Heulang’s Mustika Factory and PT Ladangrumpun Suburabadi Angsana Factory won three awards between them for Operational Excellence
Asia Pacific Quality Organisation (APQO): Gold Medal won by PT Sime Darby Oils Pulau Laut (SDOPLR) and Rhimau Selatan for Quality & The Best for Impact on Transformation Award for Sime Darby Oils
Malaysia Productivity Corporation (MPC): Three Gold Awards won by Seri Pulai estate for team excellence. The team showcased their innovation, Field Machine 3 – a semi mechanised fertiliser application machine capable of reducing manuring cost per hectare Annual Report 2019 P –G. 113 112 SUSTAINABLE VALUE CREATION
4
The Zero Burning Policy has been the hallmark of Sime Darby Plantation’s (SDP) global business operations for over three (3) decades. SDP adheres strictly to this policy and will continue to do so because we believe it is the right thing to do for our planet. LEADERSHIP
116 Board Of Directors’ Profile 128 Our Leadership Team 130 Profile Of Leadership Team
BOARD OF DIRECTORS’ PROFILE
OUR COMMITMENT Governance is not just about adherence to a set of recommendations. It is a way of doing business and is at the heart of everything we do.
TAN SRI DATO’ A. GHANI OTHMAN Chairman, Non-Independent Non-Executive Director
NATIONALITY Malaysian AGE 73 GENDER Male
DATE OF APPOINTMENT: 1 July 2013
AREAS OF EXPERTISE: Economics
RELEVANT EXPERIENCE: Began his career with the Faculty of Economics, University of Malaya and has held various positions in the Malaysian Government including Deputy Minister of Energy, Telecommunications and Post, Deputy Minister of Finance, Minister of Youth and Sports and Chief Minister of Johor. Former Chairman of Sime Darby Berhad, Sime Darby Property Berhad and Johor Corporation. Current member of the Board of Trustees of the World Islamic Economic Forum (WIEF) Foundation and the Board of Trustee of Malaysian Institute of Economic Research.
DIRECTORSHIP OF OTHER LISTED ISSUERS/PUBLIC COMPANIES: Listed Issuers: None
Public Companies: None Annual Report 2019 P –G. 117 116
TAN SRI DATUK DR YUSOF BASIRAN Independent Non-Executive Director LEADERSHIP
5
NATIONALITY Malaysian AGE 71 GENDER Male
DATE OF APPOINTMENT: 31 December 2010 (Designated as Independent Non-Executive Director of Sime Darby Plantation Berhad on 30 November 2017)
AREAS OF EXPERTISE: Plantation and Research & Development
RELEVANT EXPERIENCE: Former Chief Executive Officer of the Malaysian Palm Oil Council and Director-General of the Malaysian Palm Oil Board and Palm Oil Research Institute of Malaysia. Past President of the Academy of Sciences Malaysia. Former Director of Bank Negara Malaysia and Federal Land Development Authority (FELDA). Current Executive Director of Council of Palm Oil Producing Countries. Senior Fellow of the Academy of Sciences Malaysia and Fellow of the Malaysian Oil Scientists’ and Technologists’ Association and the Incorporated Society of Planters.
DIRECTORSHIP OF OTHER LISTED ISSUERS/PUBLIC COMPANIES: Listed Issuers: CB Industrial Product Holding Berhad
Public Companies: None
MEMBERSHIP OF BOARD COMMITTEE(S):
NRC Nomination & Remuneration Committee (Chairman) BTC Board Tender Committee (Chairman) BOARD OF DIRECTORS’ PROFILE
MUHAMMAD LUTFI Independent Non-Executive Director
NATIONALITY Indonesian AGE 50 GENDER Male
DATE OF APPOINTMENT: 24 November 2015 (Designated as Independent Non-Executive Director of Sime Darby Plantation Berhad on 30 November 2017)
AREAS OF EXPERTISE: Trading, Oil & Gas and Power Utilities
RELEVANT EXPERIENCE: Former President Director and Chief Executive Officer of Mahaka Group of Companies. Former National Chairman of the Indonesia Young Entrepreneurs Association (HIPMI) and Chairman of the Indonesia Coordinating Board of Investment. Former Ambassador Extraordinary and Plenipotentiary to Japan and the Federated States of Micronesia and Minister of Trade of the Republic of Indonesia. Current President Commissioner of PT Medco Energi International Tbk.
DIRECTORSHIP OF OTHER LISTED ISSUERS/PUBLIC COMPANIES: Listed Issuers: None
Public Companies: None
MEMBERSHIP OF BOARD COMMITTEE(S):
SC Sustainability Committee Annual Report 2019 PG. 118 – 119
DATUK ZAITON MOHD HASSAN Senior Independent Non-Executive Director LEADERSHIP
NATIONALITY Malaysian AGE 63 GENDER Female 5
DATE OF APPOINTMENT: 24 February 2016 (Appointed as Senior Independent Non-Executive Director of Sime Darby Plantation Berhad on 14 July 2017)
AREAS OF EXPERTISE: Banking and Finance
RELEVANT EXPERIENCE: Has working experience in PricewaterhouseCoopers, Bank Pembangunan (M) Bhd and Bapema Corporation Sdn Bhd. Has served 12 years with Maybank in various senior positions including that of General Manager, Group Strategic Planning. Former President/Executive Director of Malaysian Rating Corporation Berhad. Current Chairman of the Private Pension Administrator Malaysia and Chief Executive Officer of the Malaysia Professional Accountancy Centre. Fellow and Council Member of the Association of Chartered Certified Accountants and member of the Malaysian Institute of Accountants, Malaysian Institute of Certified Public Accountants, International Federation of Accountants (IFAC) Professional Accountants in Business (PAIB) Committee and Vice Chairman of FIDE Forum.
DIRECTORSHIP OF OTHER LISTED ISSUERS/PUBLIC COMPANIES: Listed Issuers: None
Public Companies: Bank Pembangunan Malaysia Berhad (Chairman)
MEMBERSHIP OF BOARD COMMITTEE(S):
GAC Governance & Audit Committee (Chairman) NRC Nomination & Remuneration Committee
RMC Risk Management Committee BOARD OF DIRECTORS’ PROFILE
DATO’ MOHD NIZAM ZAINORDIN Non-Independent Non-Executive Director
NATIONALITY Malaysian AGE 56 GENDER Male
DATE OF APPOINTMENT: 14 July 2017
AREAS OF EXPERTISE: Finance and Investment Management
RELEVANT EXPERIENCE: Over 20 years of experience in the finance sector. Held various senior positions in Permodalan Nasional Berhad (PNB) including Senior Vice President of Finance and Investment Processing Division, Chief Financial Officer (CFO) and Group CFO. Presently, the Deputy President and Group CFO of PNB. Holds an Executive Masters in Business Administration. A Certified Financial Planner since 2002. Fellow of the Association of Chartered Certified Accountants and member of the Malaysian Institute of Accountants.
DIRECTORSHIP OF OTHER LISTED ISSUERS/PUBLIC COMPANIES: Listed Issuers: None
Public Companies: Pengurusan Pelaburan ASN Berhad Securities Industry Dispute Resolution Center
MEMBERSHIP OF BOARD COMMITTEE(S):
GAC Governance & Audit Committee NRC Nomination & Remuneration Committee Annual Report 2019 P –G. 121 120
DATO’ HENRY SACKVILLE BARLOW Independent Non-Executive Director LEADERSHIP
NATIONALITY British AGE 75 GENDER Male 5
DATE OF APPOINTMENT: 5 April 2019
AREAS OF EXPERTISE: Finance and Plantation
RELEVANT EXPERIENCE: Over 35 years of experience in the plantation industry including Finance Director of Barlow Boustead Estates Agency Sdn Bhd and Joint Managing Director of Highlands & Lowlands Berhad. Former Board member of Sime Darby Berhad and HSBC Bank Malaysia Berhad. Former Council Member of the Incorporated Society of Planters and Joint Chairman of the Roundtable on Sustainable Palm Oil (RSPO) Biodiversity Technical Committee. Currently Joint Chair of the Grievance Committee of the RSPO, Fellow of the Institute of Chartered Accountants in England and Wales and Honorary Treasurer of the Malaysian Branch of the Royal Asiatic Society.
DIRECTORSHIP OF OTHER LISTED ISSUERS/PUBLIC COMPANIES: Listed Issuers: None
Public Companies: None
MEMBERSHIP OF BOARD COMMITTEE(S):
SC Sustainability Committee (Chairman) GAC Governance & Audit Committee
NRC Nomination & Remuneration Committee BOARD OF DIRECTORS’ PROFILE
TUNKU ALIZAKRI RAJA MUHAMMAD ALIAS Non-Independent Non-Executive Director
NATIONALITY Malaysian AGE 50 GENDER Male
DATE OF APPOINTMENT: 1 January 2020
AREAS OF EXPERTISE: Investment Management and Strategic Management
RELEVANT EXPERIENCE: Former Chief Marketing Officer and Chief Operating Officer of the Iclif Leadership and Governance Centre. Former Director of Strategic Management at Bank Negara Malaysia, Director and Head of Strategy and Corporate Affairs at DiGi Telecommunications Berhad, and Vice-President and Head of Group Strategic Planning at Malayan Banking Berhad. Currently Chief Executive Officer of the Employees Provident Fund.
DIRECTORSHIP OF OTHER LISTED ISSUERS/PUBLIC COMPANIES: Listed Issuers: Astro Malaysia Holdings Berhad
Public Companies: None
MEMBERSHIP OF BOARD COMMITTEE(S):
SC Sustainability Committee Annual Report 2019 P –G. 12 122 3
ZAINAL ABIDIN JAMAL Non-Independent Non-Executive Director LEADERSHIP
NATIONALITY Malaysian AGE 66 GENDER Male 5
DATE OF APPOINTMENT: 14 July 2017
AREAS OF EXPERTISE: Legal, Business and Regulatory Affairs
RELEVANT EXPERIENCE: Enrolled as an Advocate and Solicitor of the Supreme Court of Singapore and the High Court of Malaya. Served as a First Class Magistrate in Brunei Darussalam and was Company Secretary of Harrisons Malaysian Plantations Berhad. Founder and Senior Partner of Zainal Abidin & Co. Presently the Chairman of Global Humanitarian Fund, a company limited by guarantee in the United Kingdom. Appointed as a member of the Asian International Arbitration Centre Advisory Council since July 2019. A member of Shariah Advisory Council, Bank Negara Malaysia from 2019 to 2022.
DIRECTORSHIP OF OTHER LISTED ISSUERS/PUBLIC COMPANIES: Listed Issuers: Chemical Company of Malaysia Berhad
Public Companies: Maybank Islamic Berhad (Chairman) Padu Corporation (Limited by Guarantee) (Chairman)
MEMBERSHIP OF BOARD COMMITTEE(S):
RMC Risk Management Committee (Chairman) SC Sustainability Committee
BTC Board Tender Committee BOARD OF DIRECTORS’ PROFILE
TAN TING MIN Independent Non-Executive Director
NATIONALITY Malaysian AGE 51 GENDER Female
DATE OF APPOINTMENT: 14 July 2017
AREAS OF EXPERTISE: Equity Research and Investment Analyst
RELEVANT EXPERIENCE: Had served over 23 years with Credit Suisse Malaysia. Head of Equity Research in Credit Suisse Malaysia from 2010 until her retirement in 2017. Led the team to top the Institutional Investor polls for seven (7) consecutive years, 2010 to 2017. Has also served as the Malaysian equity strategist and the regional plantations head for Credit Suisse.
DIRECTORSHIP OF OTHER LISTED ISSUERS/PUBLIC COMPANIES: Listed Issuers: IJM Corporation Berhad
Public Companies: None
MEMBERSHIP OF BOARD COMMITTEE(S):
GAC Governance & Audit Committee RMC Risk Management Committee
BTC Board Tender Committee Annual Report 2019 P –G. 125 124
LOU LEONG KOK Independent Non-Executive Director LEADERSHIP
NATIONALITY Singaporean AGE 65 GENDER Male 5
DATE OF APPOINTMENT: 1 December 2017
AREAS OF EXPERTISE: Trading and Investment Management
RELEVANT EXPERIENCE: Has a wealth of industry experience in the edible oil sector spanning over 41 years managing investments and businesses of edible oil and grains trading, shipping, storage terminals, refineries and biofuel manufacturing, as well as investor & advisor to a leading physical palm brokerage. Presently, the Founding Chairman of Charleston Holdings Pte Ltd, a private investment group which controls subsidiaries and investments ranging from trading, brokerage and logistics.
DIRECTORSHIP OF OTHER LISTED ISSUERS/PUBLIC COMPANIES: Listed Issuers: None
Public Companies: None
MEMBERSHIP OF BOARD COMMITTEE(S):
RMC Risk Management Committee BOARD OF DIRECTORS’ PROFILE
MOHAMAD HELMY OTHMAN BASHA Group Managing Director
NATIONALITY Malaysian AGE 53 GENDER Male
DATE OF APPOINTMENT: 1 July 2019
AREAS OF EXPERTISE: Accounting, Management and Plantation
RELEVANT EXPERIENCE: Began his career as a Trainee Accountant/Auditor with Wellers Accountants, Oxford, United Kingdom before joining Shell Refining Company (FOM) Bhd and held various roles including Head of General Accounts, Project Accountant, Area Accountant for Shell Malaysia Trading Sdn Bhd (Southern Region) and Indirect Tax Advisor for Shell Malaysia Ltd. Former Chief Executive Officer of Highlands & Lowlands Berhad and Guthrie Ropel Berhad. Held various senior positions in SDP including Head, Plantation Upstream Malaysia; Head, Plantation Services and Special Project; Chief Operating Officer, Upstream; and Deputy to Managing Director.
DIRECTORSHIP OF OTHER LISTED ISSUERS/PUBLIC COMPANIES: Listed Issuers: None
Public Companies: None Annual Report 2019 P –G. 127 126
AZRIN NASHIHA ABDUL AZIZ Acting Group Secretary LEADERSHIP
NATIONALITY Malaysian AGE 48 GENDER Female 5
DATE OF APPOINTMENT: 1 February 2020
RELEVANT EXPERIENCE: Began her career with the Group Secretarial Department of Malayan Banking Berhad in 1996 before joining Affin Investment Bank Berhad in 1999. Joined the SDP Group in February 2002 and was appointed Company Secretary/Head of Legal in October 2004. After the merger of Sime Darby Berhad, Golden Hope Plantations Berhad and Kumpulan Guthrie Berhad in November 2007, she was designated as the Head of Legal and Corporate Secretarial Department of SDP. Following the re-organisation of the Department in June 2014, she led the Corporate Secretarial Department until the completion of the Pure Play exercise in November 2017.
QUALIFICATIONS: LLB (Hons) from the University of Newcastle Upon Tyne, United Kingdom Certificate in Legal Practice from the Legal Profession Qualifying Board, Malaysia Postgraduate Diploma in Strategic Management from the University of Technology Malaysia Licensed Company Secretary
Note: The profile of the Acting Group Secretary is also available online in the Senior Management section at www.simedarbyplantation.com/our- people/senior-management
Additional Information 1. Save as disclosed herein, none of the Directors has any family 2. Other than traffic offences, none of the Directors has any conviction relationship with and is not related to any Director and/or major for offences within the past five (5) years nor public sanctions or shareholder of Sime Darby Plantation Berhad, nor has any personal penalties imposed by the relevant regulatory authorities during the pecuniary interest in any business arrangement involving the Group: financial period. None of the Directors has any conflict of interest i. Tunku Alizakri Raja Muhammad Alias is a nominee director of with Sime Darby Plantation Berhad. the Employees Provident Fund Board. 3. The details of Directors’ attendance at Board Meetings held in the ii. The nominee Directors of Permodalan Nasional Berhad as follows: financial year ended 31 December 2019 are set out in the Corporate Governance Overview Statement on page 143 of this Annual Report. Tan Sri Dato’ A. Ghani Othman; Dato’ Mohd Nizam Zainordin; and 4. The full profiles of the Directors are available online in the Board of Zainal Abidin Jamal. Directors section at www.simedarbyplantation.com OUR LEADERSHIP TEAM Annual Report 2019 PG. 128 – 129 LEADERSHIP
5 PROFILES OF LEADERSHIP TEAM
MOHAMAD HELMY OTHMAN BASHA Group Managing Director
NATIONALITY AGE GENDER Malaysian 53 Male
DATE OF APPOINTMENT 1 July 2019
SKILLS AND EXPERIENCE: Began his career as a Trainee Accountant/Auditor with Wellers Accountants, Oxford, United Kingdom. Joined Shell Refining Company (FOM) Bhd and has held various roles including Head of General Accounts, Project Accountant, Area Accountant for Shell Malaysia Trading Sdn Bhd (Southern Region) and Indirect Tax Advisor for Shell Malaysia Ltd.
He joined Guthrie Property Holding Sdn Bhd in 1997 as Finance and Administration Manager and subsequently held various leadership positions in Kumpulan Guthrie Berhad including Head of Marketing, Head of Corporate Planning & Development, Head of Plantation as well as Chief Executive Officer of Highlands & Lowlands Berhad and Guthrie Ropel Berhad, the two (2) listed companies within the Kumpulan Guthrie Berhad Group. He was instrumental in bringing about the completion of the acquisition and restructuring exercise of PT Minamas Gemilang Plantation in Indonesia.
He was appointed Head Plantation Upstream Malaysia of Sime Darby Plantation Berhad (SDPB) before he left in 2013 to set up Xcellence Alliance Sdn Bhd and Chemara Palmea Holdings Bhd. He later joined SDPB as Head, Plantation Services and Special Project in 2016 and was subsequently appointed as the Chief Operating Officer, Upstream in 2017. He was appointed Deputy to Managing Director & Chief Operating Officer, Upstream on 1 January 2019. In this role, he assisted the Managing Director with the overall running of the SDP Group and led the Plantation Upstream business. He was appointed the Group Managing Director of SDP on 1 July 2019.
Presently, he is the President of the Malayan Agricultural Producers Association and a member of Incorporated Society of Planters.
QUALIFICATION(S): Fellow of the Association of Chartered Certified Accountants Member of the Malaysian Institute of Accountants Annual Report 2019 P –G. 131 130 LEADERSHIP
MOHD HARIS MOHD ARSHAD RENAKA RAMACHANDRAN Managing Director, Sime Darby Oils Chief Financial Officer
NATIONALITY AGE GENDER NATIONALITY AGE GENDER Malaysian 47 Male Malaysian 52 Female
DATE OF APPOINTMENT DATE OF APPOINTMENT 5 1 April 2014 1 April 2011
SKILLS AND EXPERIENCE: SKILLS AND EXPERIENCE: Began his career as a trader with Cargill in Malaysia and More than 20 years of experience in finance, external audit the Philippines. He joined Nestlé in Kuala Lumpur in 2001 and financial advisory services. Began her career with Raj and subsequently moved to London to join the company’s and Associates and subsequently joined global cocoa procurement and price risk management PricewaterhouseCoopers (PwC). Held various senior positions/ desk. He held various senior positions in Nestlé including leadership roles in PwC including Executive Director. As an General Manager and Head of Global Oils and Fats, and Executive Director, she was involved in, among others, the helped establish Nestlé’s Commodity Procurement Centre audit of public listed companies, review of profit and cash for Asia, Oceania and Africa Regions in Singapore. He was flow forecast and projections for restructurings and initial a former Director of Commodity Risk Management, Unilever public offerings, due diligence and financial analysis. She Plc (Singapore) before joining Sime Darby Plantation has been actively involved in the Malaysian Accounting Berhad in 2014 as Head of Global Trading and Marketing/ Standards Board (MASB) for the changes to IAS 41 by Sime Darby Oils Manufacturing. working on papers with the MASB for its onward discussion with the International Accounting Standards Board. She is QUALIFICATION(S): also a member of the Accounting and Taxation Committee Bachelor of Science degree in Business Administration of the Malaysian Palm Oil Association and a member of from the University of Arizona, United States of America the ACCA Accountants for Business Global Forum.
QUALIFICATION(S): Fellow of the Association of Chartered Certified Accountants PROFILES OF LEADERSHIP TEAM
DATUK FRANKI ANTHONY DASS ZULKIFLI ZAINAL ABIDIN Chief Advisor & Value Officer Chief Human Resources Officer
NATIONALITY AGE GENDER NATIONALITY AGE GENDER Malaysian 63 Male Malaysian 58 Male
DATE OF APPOINTMENT DATE OF APPOINTMENT 1 December 2010 21 November 2017
SKILLS AND EXPERIENCE: SKILLS AND EXPERIENCE: Has over 35 years of plantation management and corporate Has more than 25 years of experience across the full experience in Sime Darby Plantation Berhad (SDPB). He spectrum of the human resources discipline. Held various began his career with Kumpulan Guthrie Berhad (KGB) and senior positions including General Manager, Group Human has held various senior leadership roles in KGB rising up Resources, Golden Hope Plantations Berhad and Group through the ranks to become the Chief Executive Officer, Chief Human Resources Officer, Sime Darby Berhad. PT Minamas Gemilang, Indonesia and subsequently, appointed Managing Director of SDPB on 1 December 2010. He assumed QUALIFICATION(S): his current position on 21 November 2017. Master in International Affairs degree and a Bachelor in Business Administration degree from Ohio University, He is also a Board member of a number of subsidiary United States of America (USA) companies in SDPB both local and abroad. Attended Senior Management Development Programmes at Harvard Business School and Peter F. Drucker School Presently, he is the Chairman of the Malaysian Palm Oil of Management, Claremont, California, USA Association, a member of the Programme Advisory Council of Malaysian Palm Oil Board, The Board of Trustees of the Malaysian Palm Oil Council and a council member of the Malaysia Productivity Corporation. He is a Fellow of the Incorporated Society of Planters (ISP) and the Malaysian Oils Scientists and Technologists Association (MOSTA).
QUALIFICATION(S): Bachelor of Science degree in Agriculture from Universiti Pertanian Malaysia. He has also attended various management and business programmes with the Malaysian Institute of Management (MIM), the Asian Institute of Management (AIM) and the Harvard Senior Management Leadership programmes Annual Report 2019 P –G. 133 132 LEADERSHIP
PROF. SIMON LORD DR SHARIMAN ALWANI MOHAMED NORDIN Chief Sustainability Officer Chief Strategy & Innovation Officer
NATIONALITY AGE GENDER NATIONALITY AGE GENDER British 62 Male Malaysian 50 Male
DATE OF APPOINTMENT DATE OF APPOINTMENT 5 21 November 2017 1 February 2014
SKILLS AND EXPERIENCE: SKILLS AND EXPERIENCE: Began his career as a Management Trainee at Unilever PLC He was formerly the Senior Vice President, Strategy & – Unilever Plantations Ltd, and rose through the ranks as Value Management in Sime Darby Berhad, an Economist Business Development Manager in 1996. Held various senior at Bank Negara Malaysia and a Sector Economist in leadership positions in New Britain Palm Oil Limited Group Fidelity Management and Research, Boston, USA. He was including Group Director of Sustainability for New Britain appointed as Head, Strategy & Business Development of Plantation Services Pte Ltd, Head of Research and Head Sime Darby Plantation Berhad (SDPB) in 2014 and was of Technical Services. Former Vice President/Executive Board redesignated as Chief Strategy & Innovation Officer in Member of the Roundtable on Sustainability Palm Oil Board January 2018. and Group Chief Sustainability Officer of Sime Darby Berhad. QUALIFICATION(S): Presently, he is an Adjunct Professor at the National PhD in International Economics & Finance from Brandeis University of Malaysia (UKM) Faculty of Engineering and University’s International Business School, United States Built Environment, a member of the Industry Advisory of America Board for the University of Nottingham Business School and Industry advisor Flex Crops and Commodities Supply Bachelor’s degree in Economics from Cambridge Chain Initiative (FLEXIS) Leeds University. He is also a University, United Kingdom member of the Procter & Gamble Palm External Advisory Chartered Financial Analyst (CFA) Panel, a Trustee of the Forest Conservation Trust, Earthworm Foundation, Geneva and a member of the Advisory Board of Rainforest Alliance Landscape Standard, Landscale.
He is one of the founders of the Pongo Alliance, an alliance of oil palm growers, businesses and NGOs working towards supporting and implementing projects. He was a member of the World Economic Forum’s Global Agenda Council on Natural Capital and Biodiversity.
QUALIFICATION(S): Bachelor of Science degree in Applied Biology from Lanchester (Coventry) Polytechnic, United Kingdom PhD in Environmental Effects of Pesticides from the University of Bath, United Kingdom PROFILES OF LEADERSHIP TEAM
DR HARIKRISHNA KULAVEERASINGAM ADI WIRA ABD. RAZAK Chief Research & Development Officer Chief Operations Services Officer
NATIONALITY AGE GENDER NATIONALITY AGE GENDER Malaysian 58 Male Malaysian 45 Male
DATE OF APPOINTMENT DATE OF APPOINTMENT 1 July 2016 1 November 2019
SKILLS AND EXPERIENCE: SKILLS AND EXPERIENCE: Began his career as a Post-Doctoral Researcher with the Has over 20 years of working experience with commercial University of California, Davis. Joined Golden Hope and operations career development with top MNC, which Plantations Berhad as a Biotechnologist. He was a Lecturer include three world No. 1 company in its industry sector. and an Associate Professor at Universiti Putra Malaysia. Industry experience covers tobacco, snack and beverages, Joined Sime Darby Technology Centre Sdn Bhd as General intergrated food business and agribusiness. Manager, Biotechnology, where he helped establish a new technology centre with biotechnology capability, and Began his career with Torray Plastics (M) Sdn Bhd in a subsequently assumed the position as Director of Research. supply chain function and subsequently with Philip Morris Held various senior positions in Sime Darby Plantation International – Malaysia and Asia Regional Operations and Berhad including Senior Vice President II, Biotechnology Technical Centre. Following which he joined Coca Cola and Breeding and Head Research & Development. Bottlers Malaysia in procurement and project function, during which time he was a team member building and QUALIFICATION(S): completing the Coca Cola Bottlers greenfield plant in Bachelor’s degree in Plant Sciences from London Malaysia. Subsequently moving into roles with increasing University responsibility in other food industry and intergrated food PhD in Plant Molecular and Developmental Biology business in procurement role and finally as CEO of an from Leicester University upstream division prior to joining Sime Darby Plantation. He was also the Group Head of Procurement for Sime Darby Berhad from 2013 up to the completion of demerger, end 2017
QUALIFICATION(S): BA (Hon) Accounting & Management from Sheffield Hallam University, United Kingdom Annual Report 2019 P –G. 135 134 LEADERSHIP
AZRIN NASHIHA ABDUL AZIZ LEE AI LENG Acting Group Secretary Group General Counsel
NATIONALITY AGE GENDER NATIONALITY AGE GENDER Malaysian 48 Female Malaysian 54 Female
DATE OF APPOINTMENT DATE OF APPOINTMENT 5 1 February 2020 1 June 2014
SKILLS AND EXPERIENCE: SKILLS AND EXPERIENCE: Began her career with the Group Secretarial Department Has more than 25 years of experience in the areas of of Malayan Banking Berhad in 1996 before joining Affin corporate and commercial law focusing on domestic and Investment Bank Berhad in 1999. Joined the SDP Group cross-border mergers and acquisitions, capital markets, in February 2002 and was appointed Company Secretary/ issuance of private debt securities, joint ventures, banking Head of Legal in October 2004. After the merger of Sime and finance matters as well as real and personal property Darby Berhad, Golden Hope Plantations Berhad and transactions. Beginning her career in private practice in Kumpulan Guthrie Berhad in November 2007, she was 1991, she subsequently joined IOI Corporation Berhad in designated as the Head of Legal and Corporate Secretarial 1994 as the Group Legal Advisor and later served as Department of SDP. Following the re-organisation of the Company Secretary as well. She was appointed as Head Department in June 2014, she led the Corporate Secretarial of Legal at Sime Darby Plantation Berhad in 2014 and was Department until the completion of the Pure Play exercise redesignated as the Group General Counsel in April 2018. in November 2017. QUALIFICATION(S): QUALIFICATION(S): LLB (Hons) degree in Law from the University of Malaya, LLB (Hons) from the University of Newcastle Upon Tyne, Kuala Lumpur United Kingdom Admitted to the Malaysian Bar Certificate in Legal Practice from the Legal Profession Licensed Company Secretary Qualifying Board, Malaysia Diploma in Accounting and Finance (Association of Postgraduate Diploma in Strategic Management from Chartered Certified Accountants) the University of Technology Malaysia Licensed Company Secretary PROFILES OF LEADERSHIP TEAM
NIK MAZIAH NIK MUSTAPHA ELIZA MOHAMED Chief Integrity & Assurance Officer Chief Communications Officer
NATIONALITY AGE GENDER NATIONALITY AGE GENDER Malaysian 45 Female Malaysian 52 Female
DATE OF APPOINTMENT DATE OF APPOINTMENT 1 March 2018 1 July 2017
SKILLS AND EXPERIENCE: SKILLS AND EXPERIENCE: Began her career as an audit associate with one of the Held various senior leadership positions including Group big six global accounting firm back then, and had since Head – Corporate Affairs at Nestlé Malaysia, Group Head accumulated almost 23 years’ experience in internal and – Corporate Affairs & Sustainability at Maybank and Group external audit, credit management and financial accounting. General Manager – Group Communications at Media Held senior positions in the Group Corporate Assurance Prima Berhad. Served public affairs roles at Phillip Morris function of Sime Darby Berhad including Head of Group Malaysia and has experience in the legal profession. Corporate Assurance – Plantation and Head of Group Corporate Assurance – Property. QUALIFICATION(S): LLB (Hons) degree in law from the University of Leeds, She was appointed as the Acting Head, Governance, United Kingdom Assurance & Compliance of Sime Darby Plantation Berhad Admitted as Barrister-at-law Lincolns Inn, London (SDPB) on 1 March 2018. She was then designated as the Chief Internal Auditor on 1 July 2018 and effective 25 February 2019, she was designated as the Chief Integrity & Assurance Officer of SDPB.
QUALIFICATION(S): Member of the Malaysian Institute of Accountants Certified Internal Auditor from the Institute of Internal Auditors, United States of America Certification in Control Self-Assessment from the Institute of Internal Auditors, United States of America Chartered member of the Institute of Internal Auditors, Malaysia Bachelor of Accounting (Hons) degree from the Universiti Utara Malaysia Annual Report 2019 P –G. 137 136 LEADERSHIP
GAJANI NAYAGI SEEVENESERAJAH ADITYA TULI Chief Risk Officer Chief Digital Officer
NATIONALITY AGE GENDER NATIONALITY AGE GENDER Malaysian 43 Female British 42 Male
DATE OF APPOINTMENT DATE OF APPOINTMENT 5 1 June 2018 1 August 2019
SKILLS AND EXPERIENCE: SKILLS AND EXPERIENCE: Began her career in Ernst & Young and rose through the Has more than 17 years of experience in the IT Industry. ranks to become a Director in the Advisory practice where Began his career as a Software Analyst and later became she provided assurance & advisory services to various multi- CTO at company Info Bahn in India. Served as Applications national and public listed companies across a myriad of Head for Petrofac in 2006. Former Vice President of Technology industries. She joined the Group Risk Management Department and Innovation for Malaysia Global Innovation and Creativity of Sime Darby Berhad as a Vice President in July 2012 and Centre (MaGIC) prior to joining SDP. subsequently moved on to be the Head of Performance & Innovation Management for Sime Darby Berhad Group. She QUALIFICATION(S): was appointed as Head of Portfolio Management of Sime B.E. (Computer Engineering), University of Mumbai, India Darby Plantation Berhad in October 2017. She was appointed Master’s Degree in Business Administration (MBA) from as the Chief Risk Officer in June 2018. Glasgow Business School in University of Glasgow, United Kingdom QUALIFICATION(S): Fellow of the Institute of Chartered Accountants in England & Wales Member of the Malaysian Institute of Accountants Bachelor of Arts (Hons) degree in Accounting and Financial Management from the University of Sheffield, United Kingdom
Additional Information 1. None of the Senior Management has any family relationship 4. Directorships held by the Senior Management in public companies with and is not related to any director and/or major shareholder and listed issuers, other than companies within the Sime Darby of Sime Darby Plantation Berhad. Plantation Berhad Group, if any, are disclosed in the Senior 2. None of the Senior Management has any conflict of interest Management section at www.simedarbyplantation.com/ourpeople/ with Sime Darby Plantation Berhad. senior-management. 3. Other than traffic offences, none of the Senior Management has 5. The full profiles of the Senior Management are available online any conviction for offences within the past five (5) years nor in the Senior Management section at www.simedarbyplantation. public sanctions or penalties imposed by the relevant regulatory com/ourpeople/senior-management. authorities during the financial year period. GOVERNANCE FRAMEWORK
140 Corporate Governance Overview Statement 150 Governance & Audit Committee Report 160 Nomination & Remuneration Committee Report 164 Sustainability Committee Report 169 Board Tender Committee Report 171 Risk Management Committee Report 174 Statement On Risk Management And Internal Control 183 Statement Of Responsibility By The Board Of Directors
CORPORATE GOVERNANCE OVERVIEW STATEMENT
As a testament to our commitment to the right values and ethical conduct, the Board of Sime Darby Plantation Berhad (SDP) embraces the enhanced corporate governance disclosure requirements set out in the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (the Listing Requirements). This statement is also prepared in accordance with the requirements of the Companies Act 2016 of Malaysia and the Corporate Governance Guide – 3rd Edition issued by Bursa Malaysia Berhad.
The Board is pleased to present the CG Overview Statement (Statement), which highlights how our Company complies with the three key CG principles The Board believes that of the Malaysian Code on Corporate Governance (MCCG) 2017, which are: effective Corporate Governance (CG) practices Principle A : Board Leadership and Effectiveness Principle B : Effective Audit and Risk Management cement our commitment to Principle C : Integrity in Corporate Reporting and Meaningful Relationship doing business responsibly with Stakeholders towards protecting This Statement is to be read together with the CG Report 2019, which is stakeholder value and the available on the Company’s corporate website at http://www.simedarbyplantation. sustainable growth of the com/CGReport.
Group. We recognise the As at the date of this Statement, the Company has applied almost all of the importance of setting an recommended practices (including Step Up) in MCCG 2017, except for the following: appropriate tone from the top in ensuring that ethical Recommended Practice Step Up Practice standards of behaviour Practice 4.5 Practice 4.3 “The Board must have at least “The board has a policy which limits permeate throughout the 30% women directors.” the tenure of its independent directors Group at all levels. The way to nine years.” we live and breathe our Practice 12.3 Practice 7.3 “Leverage technology to facilitate “Full disclosure of detailed remuneration culture can be seen by the voting and remote shareholders’ of each member of senior management way in which our Core Values participation at General Meetings.” on a named basis.” are embedded across all our Practice 8.4 “The Audit Committee should comprise businesses and how they solely of Independent Directors.” underpin our business model and strategy of delivering Detailed explanations for the practices’ departure and the non-adoption of Step-up practices are outlined in the CG Report 2019. The Board remain long term shareholder value. committed to promoting strong and effective governance to support better decision-making and accountability and instil stakeholders’ confidence and trust in the Company.
This statement is made in accordance with a resolution of the Board of Directors dated 16 April 2020. Annual Report 2019 P –G. 141 140
CORPORATE GOVERNANCE FRAMEWORK
Our CG framework is designed based on the following principles:
To promote greater transparency, accountability and responsiveness. To balance the operating autonomy of the various Group Companies with appropriate checks and balances and performance benchmarks. To cultivate ethical business conduct and instil desired behaviours based on the Group’s espoused Core Values and Business Principles as set out in the Code of Business Conduct. GOVERNANCE FRAMEWORK
The diagram below illustrates our Group’s governance structure.
POLICY INSTRUMENT Stakeholders FRAMEWORK
Legislation Board of Directors
BOARD Company Constitution Governance Risk Nomination & Sustainability Board Tender & Audit Management Remuneration Committee Committee Committee Committee Committee Board Charter & Board Committees’ Terms of Reference 6
MANAGEMENT Group Policies & Group Authorities (GPA) Managing & Other Policies Director (GMD)* Procedures
Group Integrity, Plantation External Group Risk Governance & Leadership Auditors Management Assurance Committee (PLC)
Note: * The GMD is also an Executive Director of the Board
The role and effectiveness of the Board are essential, and the Board’s primary remit is to provide direction to help shape the Group’s strategy and ensure that this is being executed effectively within a well-controlled structure, mitigates risk and is compliant with the requisite rules and regulations. Our Board takes pride in what we do and in the way we conduct our business and deliver our strategic objectives.
The Board Committees are established to assist the Board in discharging its statutory and fiduciary responsibilities. This includes ensuring independent oversight of risk management and internal control. We have established the Board Committees’ Terms of Reference (TOR) to ensure that Committees remain focused on their duties, thus enables the Board to take a broader perspective, looking at enterprise-level issues such as strategy and governance.
The TOR of each Board Committee is available on the Company’s website under Governance section at http://www. simedarbyplantation.com/corporate/corporate-governance. CORPORATE GOVERNANCE OVERVIEW STATEMENT
PRINCIPLE A: BOARD LEADERSHIP AND EFFECTIVENESS
BOARD RESPONSIBILITIES
Our Board Charter sets out the Board’s strategic intent and outlines the roles and powers that the Board reserves explicitly for itself, and those which it delegates to Management. In so doing, it also sets the tone of the various Board Committees. The specified roles are summarised below:
Board Chairman Group Managing Director
Leading and managing Board meetings to ensure The Group Managing Director assumes the overall robust decision-making; responsibility for the execution of the Group’s strategies Building a high-performance Board; in line with the Board’s Direction, oversees the operations Managing Board and Management interface by acting of the subsidiary companies and drives the Group’s as the conduit between Management and the Board, businesses and performance towards achieving the Group’s developing a positive relationship with the Group vision and goals. Managing Director; Acting as a spokesperson for and representative of Group Secretary the Board and the Group; and Ensuring appropriate steps are taken to provide effective The Group Secretary is responsible for advising the Board communication with stakeholders and that their views on regulatory compliance matters and providing good are communicated to the Board as a whole. information flow and comprehensive practical support to Directors, both as individuals and collectively, with particular Individual Directors emphasis on supporting the Non-Executive Directors in maintaining the highest standards of probity and corporate Acting in good faith and the best interests of the governance. All Directors have unrestricted access to the Group; advice and services of the Group Secretary to facilitate Demonstrating good stewardship and acting the discharge of their duties. professionally with sound mind; Acting with reasonable care, skill and diligence For further details, refer to the Board Charter that is subject to the business judgement rule; available on the Company’s corporate website at http:// Avoiding conflicts of interest with the Group in a www.simedarbyplantation.com/boardcharter. personal or professional capacity, including improper use of the property, information and opportunity of the Group; Exercising greater vigilance and professional scepticism in understanding and shaping the strategic direction of the Company and the Group; and Complying with the Companies Act 2016 of Malaysia, Securities Commission Malaysia’s regulations, and the Listing Requirements.
Senior Independent Non-Executive Director
The Senior Independent Non-Executive Director serves as a sounding board for the Chairman, an intermediary for other Directors when necessary, and the point of contact for shareholders and other stakeholders with concerns that have failed to be resolved or would not be appropriate to be communicated through the usual channels of the Chairman or Group Managing Director. Annual Report 2019 P –G. 143 142
BOARD MEETINGS & ATTENDANCE (Total Board & Board Committees Meetings Hours = 67.4)
The breakdown of the Board and Board Committee Meetings (Meetings) held as well as Directors’ attendances at the Meetings are set out below:
Board and Board Committee Meetings held in financial year ended 31 December 2019 (FY2019)
SC BTC SC SC SC GOVERNANCE FRAMEWORK
RMC BTC RMC RMC RMC
NRC SC NRC NRC NRC NRC
BOD GAC RMC BOD GAC BOD GAC BOD GAC BOD BOD GAC
Jan’19 Feb’19 Mar’19 Apr’19 May’19 Jun’19 Jul’19 Aug’19 Sep’19 Oct’19 Nov’19 Dec’19
Board Meetings: Board Committee Meetings:
BOD Board GAC Governance & Audit Committee SC Sustainability Committee RMC Risk Management Committee
NRC Nomination & Remuneration Committee BTC Board Tender Committee
Details of the key activities of each Board Committee are set out within the relevant Committee reports from pages 150 to 173. 6 The table below shows each Director’s attendance at the Meetings during FY2019.
Board Meetings# Directors Designation/Independence Attendance %
Tan Sri Dato’ A. Ghani Othman Chairman, Non-Independent 6/6 100 Tan Sri Datuk Dr. Yusof Basiran Independent 5/6 83 Muhammad Lutfi Independent 3/6 50 Datuk Zaiton Mohd Hassan Senior Independent 4/6 67 Dato’ Mohd Nizam Zainordin Non-Independent 5/6 83 Dato’ Henry Sackville Barlow Independent 4/4 100 Tunku Alizakri Raja Muhammad Alias Non-Independent N/A(ii) N/A(ii) Zainal Abidin Jamal Non-Independent 6/6 100 Tan Ting Min Independent 6/6 100 Lou Leong Kok Independent 4/6 67 Mohamad Helmy Othman Basha Group Managing Director 3/3(i) 100(i)
Board Meetings# Former Directors Designation/Independence Attendance % Tan Sri Dato’ Seri Mohd Bakke Salleh Executive Deputy Chairman & 3/3(iii) 100(iii) Managing Director Dato’ Mohamad Nasir Ab. Latif Non-Independent 4/6(iv) 67(iv)
Notes: # Reflects the number of meetings held during the time the Director held office. (i) The Group Managing Director, Mohamad Helmy Othman Basha, was appointed on 1 July 2019. (ii) Not Applicable as the effective date of appointment was 1 January 2020. (iii) The Executive Deputy Chairman & Managing Director, Tan Sri Dato’ Seri Mohd Bakke Salleh, retired on 30 June 2019. (iv) A Non-Independent Director, Dato’ Mohamad Nasir Ab. Latif, resigned on 31 December 2019.
Details of the respective Directors’ attendance at Board Committee Meetings are provided in the relevant Committee reports from pages 150 to 173. CORPORATE GOVERNANCE OVERVIEW STATEMENT
BOARD COMPOSITION AND DYNAMICS Board Evaluations are conducted annually to provide opportunities for increasing efficiency, maximising strengths Board Composition and highlighting areas for improvement. Pursuant to the The Board is pleased to confirm that the composition of Board Effectiveness Evaluation exercise in November 2019, the Board complies with Paragraph 15.02 of the Listing it was concluded that the Board had discharged its Requirements, that calls for at least two or one-third of responsibilities well, with good Board structure and the Board members shall be Independent Directors, operations. Out of the 5-point Likert scale, with 5 being whichever is higher. It is also in line with the prescribed the best possible rating, most assessment criteria under Practice 4.1 under MCCG 2017 to have a majority the Board assessment were rated either ‘4’ or ‘5’. The Independent Directors on the Board. As at the date of Board was satisfied with the evaluation outcome and this Annual Report, the Board Composition is as follows: identified key areas of enhancement.
Independent Non-Executive Directors : 6 out of 11 (or 55%) CORPORATE CULTURE & VALUES Non-Independent Non-Executive : 4 out of 11 Our Code of Business Conduct (COBC) demonstrates Directors (including the Chairman) (or 36%) our enforcement for behaving fairly, honestly and Executive Director : 1 out of 11 ethically wherever we do business, and our collective (Group Managing Director) (9%) commitment to uphold integrity throughout the Group. The COBC guides the standards of behaviour expected of all Directors and Employees of the Group, and Our Board is composed of eleven Directors, in which five where applicable, Counterparties and Business Partners. are Non-Independent Directors, including the Chairman. Apart from our Group Managing Director (GMD) who is · Our commitment to excellence extends beyond our an Executive Director, the other four are Non-Executive organisation. In this regard, our Vendor Code of Directors. The majority of our Directors (55% or six) are Business Conduct (VCOBC) guides our Vendors on Independent Non-Executive Directors. the required standards of behaviour when conducting work for the Group and mirrors our Group’s Core The Non-Independent Non-Executive Directors are Tan Values and Business Principles. By signing off on the Sri Dato’ A. Ghani Othman (Chairman), Dato’ Mohd Nizam Vendor Integrity Pledge (VIP), our Vendors acknowledge Zainordin, Zainal Abidin Jamal, who are all nominees of compliance with our standards of behaviour on labour Permodalan Nasional Berhad (PNB), and Tunku Alizakri and human rights, environment, safety & health as Raja Muhammad Alias, who is a nominee of Kumpulan well as ethics & management practices (including Wang Simpanan Pekerja (KWSP). regulations on anti-bribery, fraud and corruption).
The profiles of the Board of Directors are presented on Our Anti-Corruption Management System is a pages 116 to 127 of this Annual Report. manifestation of our zero tolerance policy against all forms of bribery and corruption and demonstrates the Board Dynamics Group’s commitment to combat corruption in Beyond age, ethnic and gender diversity, our Board consists furtherance of our Core Values and Business Principles. of members with diverse skills and educational background, international and industry experiences, as well as knowledge Our Whistleblowing Policy provides an avenue for and philosophies in bringing competing views when the reporting of genuine concerns on wrongdoings deliberating matters at Board meetings, thus ensuring without fear of retaliation and reprisals. Any employee, decision-making perspectives are enhanced (refer to stakeholder or the public can lodge their concerns further details on our Board Diversity on page 163 of this via the Company’s corporate website www. report). A majority of our Board members are independent simedarbyplantation.com. to foster greater boardroom objectivity. Annual Report 2019 P –G. 145 144
SETTING STRATEGY
The Board is responsible in deciding the Group’s strategy and overseeing its performance while passing the responsibility of the day-to-day operations to the GMD. The Board is directly involved in approving major acquisitions, providing oversight and control, growing shareholder value and promoting corporate governance. The regular report by the GMD to the Board includes business updates and insights, which ensures that the Directors have a sound understanding of our operational matters, the competitive and regulatory environment, group and business unit performance, investor relations and sustainability. GOVERNANCE FRAMEWORK The Board supports the Group in its implementation of the Group’s value-driven strategic objectives and achieving them. The Board commits to providing credible and comprehensive financial and non-financial reporting accompanied by strong constructive stakeholder engagement. On the public and other stakeholder interests, we have aligned with best practices relating to disclosures and are subject to internal and external assurance and governance procedures.
The Board devises strategies focused on unlocking value for our shareholders, whilst mitigating risks to ensure holistic growth. The Board and Management strive to create maximum shared value by delivering on our purpose and ensuring relevance and sustainability of our business model. Our strategy of leveraging our efforts around sustainability enables us to create value to the organisation and our wide range of stakeholders by delivering sustainable development. Making available capital inputs and taking care of stakeholders’ needs, has enabled the Group to maintain focus in conducting operations underpinned by good governance, and at the same time, delivering our financial targets.
MATTERS CONSIDERED BY THE BOARD 6 The Board primarily focused on the Group’s strategic growth, plans and financial budgets. During the Board and Management Retreat in September 2019, the Board together with PLC members, discussed the strategic direction of the Company and Group to remain resilient and position itself for future growth. STRATEGY The Board met in November 2019 to set the tone for the Group’s overall long term strategy blueprint and to discuss and challenge the Group’s business strategy and plan as well as Group Budget. The Board also monitored the progress of implementation of the Group’s strategy and value creation initiatives.
The Board had in-depth deliberations on financial and business performance of the Group. The Board considered and approved major acquisitions, disposals and PERFORMANCE transactions of the Group such as the rebranding of the Group’s Downstream business to Sime Darby Oils, disposal of PT Mitra Austral Sejahtera in Indonesia as well as the divestment of its business operations in Liberia.
The Board considered the principal risks of business proposals and the implementation of appropriate internal controls and mitigation measures to manage these risks. RISK & INTERNAL CONTROL The Board reviewed the Group’s system of internal control covering financial, operational and compliance as well as risk management, and the adequacy and integrity of the system.
During FY2019, the Board reviewed changes in and considered for adoption key INTEGRITY & policies, procedures and delegated authority limits of the Group such as the Group GOVERNANCE Policies & Authorities, Anti-Corruption Compliance Framework and Anti-Corruption Policy Statement.
The Board reviewed the Group’s succession planning process by reviewing and SUCCESSION considering the appointment of the Group Managing Director and Key Management PLANNING of the Group. CORPORATE GOVERNANCE OVERVIEW STATEMENT
PROFESSIONAL DEVELOPMENT AND CONTINUOUS BOARD REMUNERATION EDUCATION The Nomination & Remuneration Committee (NRC) is Newly appointed Directors undergo an on-boarding session primarily responsible for conducting periodical reviews to orientate them on the Group’s business, performance, and recommending to the Board a formal and transparent issues, strategies and structure. Site visits, which include remuneration policy and framework for Directors and briefings from the Management of operational units, are Senior Management of our Company, drawing on external organised to provide each new Director with a visual consultants’ advice as necessary, as well as the remuneration perspective of the Group’s operations and further depth framework of employees of our Company. and appreciation of the key drivers behind the Group’s businesses. The Directors’ remuneration policy is reviewed regularly to ensure that the compensation of the Chairman and We encourage all Directors to keep their skills and Directors of the Board are aligned to at least around the knowledge up to date and to help them; we provide the 75th percentile and the 50th percentile of appropriate Board and individual directors with the continuous peer groups, respectively. The remuneration framework is education that they require. All our Directors have attended aligned to the complexity and leadership position of the the Mandatory Accreditation Programme (MAP). Company and benchmarked against regional companies which are comparable to us in terms of size and similar During FY2019, the Group Secretary regularly organised nature of the business, to ensure that we are remunerating training programmes for the Directors. All Directors attended our Board and Board Committee members competitively. training programmes, conferences, seminars, courses and/ or workshops. For more details on the Directors’ Training [The salient elements of the Directors’ remuneration policy and a summary of the Executive Director’s remuneration package are and Continuous Education Programme, please refer to described in Practice 7.1 of the CG Report 2019.] the Company’s corporate website at http://www. simedarbyplantation.com/our-people/board-of-directors.
Remuneration for the Non-Executive Directors of the Board and as members of the Board Committees in the form of fees for FY2019 is shown below:
Chairman Member Board/Board Committee (RM/Year) (RM/Year)
Board 600,000 240,0001 400,0002
Governance & Audit Committee 80,000 50,000
Nomination & Remuneration Committee 60,000 35,000
Risk Management Committee 60,000 35,000
Sustainability Committee 60,000 35,000
Board Tender Committee 60,000 35,000
Notes: 1 Fee for Resident Director 2 Fee for Non-Resident Director Annual Report 2019 P –G. 147 146
Remuneration & Material Benefits of Our Directors The remuneration of our Directors, which includes salaries and bonuses for the Executive Director and Director’s fees, meeting allowances, benefits for the Non-Executive Directors, is considered and recommended by our NRC and subsequently approved by our Board. Our shareholders approve the fees and benefits payable to the Non-Executive Directors at a general meeting of the Company.
Details of Directors’ remuneration (including benefits-in-kind) and the aggregate remuneration of Directors at the
Group level for FY2019 are as follows: GOVERNANCE FRAMEWORK
Directors’ Directors’ Fees (vi) Fees(vii) Salary & As Board Total Other As Committee Directors’ Benefits Subsidiaries Grand (RM’000) Remuneration Directors Members Fees -in-kind(i) Sub-Total of SDP Total EXECUTIVE DIRECTOR Mohamad Helmy 1,070 N/A(v) N/A(v) N/A(v) 14 1,084 0 1,084 Othman Basha(ii) NON-EXECUTIVE DIRECTOR Tan Sri Dato’ A. 600 0 600 69 669 0 669 Ghani Othman(iii) Tan Sri Datuk Dr. Yusof 240 120 360 11 371 119 490 Basiran 6 Muhammad Lutfi (iv) 400 35 435 2 437 50 487 Datuk Zaiton Mohd 240 150 390 117 507 0 507 Hassan N/A(v) Dato’ Mohd Nizam 240 85 325 2 327 0 327 Zainordin Dato’ Henry Sackville 178 108 286 9 295 125 420 Barlow Zainal Abidin Jamal 240 125 365 8 373 21 393 Tan Ting Min 240 120 360 10 370 43 414 Lou Leong Kok (iv) 400 35 435 2 437 0 437 Total for Non-Executive 2,778 778 3,556 230 3,786 358 4,144 Directors Grand Total 1,070 2,778 778 3,556 244 4,870 358 5,228
Notes: (i) Benefits-in-kind include Healthcare, Insurance and Mobile Phone (ii) Appointed as the Group Managing Director of SDP on 1 July 2019 (iii) Company car, petrol and driver for Non-Executive Chairman (iv) Non-Resident Director (v) N/A – Not Applicable (vi) Paid by SDP (vii) Paid by Subsidiary Companies of SDP CORPORATE GOVERNANCE OVERVIEW STATEMENT
Additionally, details of remuneration (including benefits-in-kind) for Directors who had retired or resigned during FY2019 are as follows:
Directors’ Directors’ Fees (iii) Fees (iv)
Salary & As Board Total Other As Committee Directors’ Benefits Subsidiaries Grand (RM’000) Remuneration Directors Members Fees -in-kind(i) Sub-Total of SDP Total EXECUTIVE DIRECTOR Tan Sri Dato’ Seri Mohd 2,923 N/A(v) N/A(v) N/A(v) 27 2,950 N/A(v) 2,950 Bakke Salleh(ii)
NON-EXECUTIVE DIRECTOR Dato’ Mohamad Nasir N/A(v) 240 35 275 7 282 0 282 Ab. Latif
Grand Total 2,923 240 35 275 34 3,232 0 3,232
Notes: (i) Benefits-in-kind include Healthcare, Insurance & Mobile Phone (ii) Retired as the Executive Deputy Chairman & Managing Director on 30 June 2019 (iii) Paid by SDP (iv) Paid by Subsidiary Companies of SDP (v) Not Applicable
Bands of the senior management’s remuneration for FY2019 are disclosed in Practice 7.2 of the CG Report 2019.
PRINCIPLE B: EFFECTIVE AUDIT AND RISK MANAGEMENT
GOVERNANCE & AUDIT COMMITTEE (GAC) RISK MANAGEMENT COMMITTEE (RMC)
The Group’s Senior Independent Non-Executive Director, The RMC is established as one of the committees of the Datuk Zaiton Mohd Hassan, is the Chairman of the GAC. Board and supports the Board by setting and overseeing Following the appointment of Dato’ Henry Sackville Barlow the Group’s Risk Management Framework (the Framework). on 5 April 2019, the GAC is composed of three Independent RMC also regularly assess the Framework and policies to Non-Executive Directors and one Non-Independent Director. ascertain its adequacy and effectiveness. The RMC is composed of four Directors and chaired by a Non- The GAC’s TOR encapsulates its mandate which, among Independent Non-Executive Director, Zainal Abidin Jamal. others, defines its purpose, composition, appointment, The remaining three RMC members are Independent authority, functions and duties. During the year under Non-Executive Directors, including one who is the Senior review, the GAC had convened five meetings, during Independent Non-Executive Director. which, significant matters relating to financial reporting, internal and external audits, governance and related party The RMC is assisted by the Chief Risk Officer (CRO) in transactions, among others, were discussed. executing its main functions and duties as specified in the RMC’s TOR. In effectively discharging its oversight roles on governance and internal controls, the GAC is assisted by the Chief The activities of the RMC, its duties and responsibilities as well as details of meetings attended by each member can be found on Integrity & Assurance Officer (CIAO) who leads the Group’s pages 171 to 173 of this Annual Report and Section A of the CG in-house internal audit (assurance) and integrity & Report 2019. governance functions.
The activities of the GAC, its duties and responsibilities as well as details of meetings attended by each member is deliberated on pages 150 to 159 of this Annual Report and Section A of the CG Report 2019. Annual Report 2019 P –G. 149 148
RISK MANAGEMENT AND INTERNAL CONTROL The Group’s financial results, announcements made to FRAMEWORK Bursa Malaysia Securities Berhad and corporate presentations are retrievable from our Company’s corporate The Board has delegated its responsibilities of overseeing website at http://www.simedarbyplantation.com/investor- the effectiveness of risk management and internal control relations and this facilitates accessibility of information to systems to the RMC and GAC. Accordingly, RMC and GAC, the shareholders and other stakeholders. advise the Board on principal risks facing our business, including those that would threaten the Group’s solvency Integrated Reporting or liquidity. GOVERNANCE FRAMEWORK Our Annual Report for FY2019 is prepared in accordance Details of the Risk Management and Internal Control Framework with the Global Reporting Initiative Standards: Core Option are disclosed in the “Statement on Risk Management and Internal and guided by the International Integrated Reporting Control” and can be found on pages 174 to 182 of this Annual Report and Section A of the CG Report 2019. Council (IIRC). All financial statements have been prepared according to the requirements of the Companies Act 2016 of Malaysia and the Malaysian Financial Reporting PRINCIPLE C: Standards (MFRS) and audited by our external auditors, INTEGRITY IN CORPORATE REPORTING PricewaterhouseCoopers PLT. AND MEANINGFUL RELATIONSHIP WITH STAKEHOLDERS CONDUCT OF GENERAL MEETINGS
COMMUNICATION WITH STAKEHOLDERS Notification in writing to shareholders (via hard copy or electronic means) of the publication of the Notice of AGM “The Board Believes in an Effective, Transparent and and the Annual Report on the Company’s corporate Regular Communication with Its Stakeholders to Build website, will be dispatched to shareholders at least 6 Trust and Facilitate Mutual Understanding of Each Other’s 28 days prior to the AGM. The Notification will provide Objectives and Expectations.” the designated website link and Quick Response (QR) code, where a copy of the Notice of AGM and the Annual TIMELY AND QUALITY DISCLOSURE Report may be downloaded. The Board is committed to ensuring all communications to the investing public regarding the business, operations Shareholders have the right to request a hard copy of and financial performance of the Company are accurate, our Annual Report through the designated channel. The timely, factual, informative, consistent, broadly disseminated venue of the AGM is at a central and easily accessible and where necessary, filed with regulators in accordance location. with applicable legal and regulatory requirements. The AGM provides an opportunity to the Chairman and We look forward to engaging with our shareholders at other members of the Board to share the Company’s the forthcoming Annual General Meeting (AGM). The AGM progress and performance. Directors shall attend the AGM offers an opportunity to our shareholders to raise questions to answer any question from shareholders. pertaining to our Company’s performance directly to our Board, GMD and Senior Leaders. In view of the current COVID-19 pandemic, the Company is taking the necessary precautions and preventive measures The Group’s corporate website is a key communication in complying with directives issued by the Malaysian Ministry channel for the Company to reach its shareholders, the of Health. These include considering the option of investment community, and the general public. The shareholders’ remote participation at the forthcoming AGM. Group’s values, Corporate Governance Framework, Code of Business Conduct (COBC), whistleblowing guidelines, More detailed information on the AGM is available and various other corporate governance initiatives are online in the Investor Relations section http://www. available on the Company’s corporate website. simedarbyplantation.com/investor-relations/shareholder- dividend-information. GOVERNANCE & AUDIT COMMITTEE REPORT
“The Committee assists the Board in embedding a strong ethics and integrity culture within the Group, thus ensuring the implementation of good governance practices that are fundamental in delivering sustainable value for our stakeholders.”
DATUK ZAITON MOHD HASSAN Chairman of Governance & Audit Committee
INSIDE THIS REPORT
This report highlights the activities of the Governance & Audit Committee (GAC) during the year under review, i.e. financial year ended 31 December 2019 (FY2019). We report to shareholders on our oversight responsibilities of overseeing the financial risk processes, financial reporting and internal control systems, external and internal audit functions, as well as compliance and ethics programmes established in the Group.
WHO IS THE COMMITTEE
Members1 Membership Appointment Attendance2 Datuk Zaiton Mohd Chairman 24 February 2016 4/5 80% Hassan Senior Independent Non-Executive Director
Dato’ Mohd Nizam Member 14 July 2017 4/5 80% Zainordin Non-Independent Non-Executive Director
Dato’ Henry Sackville Member 5 April 2019 3/3 100% Barlow Independent Non-Executive Director
Tan Ting Min Member 9 August 2017 5/5 100% Independent Non-Executive Director
Notes: 1 For the Members’ profiles see pages 116 to 127. 2 A total of five GAC meetings were held in FY2019. Reflects the number of meetings held during the time the member held office.
The GAC comprises four members, all of whom are Non-Executive Directors, with a majority being Independent Directors. The composition of the GAC complies with the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (Listing Requirements) that stipulates, at the minimum, a three-member committee with a majority being Independent Non-Executive Directors. Datuk Zaiton Mohd Hassan serves as the Chairman of the GAC, thus satisfying the requirement of a separation of powers between the Chairman of the Board and the Chairman of the GAC as prescribed by the Malaysian Code on Corporate Governance (MCCG) 2017. None of the GAC members is a former key audit partner of the Group.
Meetings of the GAC are attended by the Group Managing Director, Chief Financial Officer, Managing Director, Sime Darby Oils, Chief Operations Services Officer, Chief Integrity & Assurance Officer (CIAO), and Chief Risk Officer. In addition, other members of senior management are also invited to attend meetings as and when necessary to support detailed discussions.
The external auditors, PricewaterhouseCoopers PLT (PwC), also attend and brief the GAC on matters relating to external audit for the year under review and provided update on past audit matters at the meetings. Annual Report 2019 P –G. 151 150
The Chairman of the GAC, Datuk Zaiton Mohd Hassan, ROLES OF THE COMMITTEE is a Fellow and Council Member of the Association of Key areas under the purview of the GAC include financial Chartered Certified Accountants (ACCA), a member of reporting and performance oversight, the Group’s in-house the Malaysian Institute of Accountants (MIA), Malaysian internal audit (assurance) and integrity & governance Institute of Certified Public Accountants (MICPA) and functions, dealings with external auditors, related party International Federation of Accountants (IFAC) Professional transactions, share issuance schemes, as well as controls Accountants in Business (PAIB) Committee. and governance oversight. GOVERNANCE FRAMEWORK Dato’ Mohd Nizam Zainordin is a Fellow of the ACCA, a Further details on the functions and duties of the GAC member of the MIA and holds an Executive Masters in are provided in its Terms of Reference (TOR), which is Business Administration. He is a Certified Financial Planner available in the Corporate Governance section of our and has held various finance and investment positions in Group’s corporate website at www.simedarbyplantation. his more than 25-year career. com/corporate/corporate-governance.
Dato’ Henry Sackville Barlow obtained his Bachelor and Master of Arts degrees from the University of Cambridge, ANNUAL PERFORMANCE ASSESSMENT United Kingdom, and is a Fellow of the Institute of In April 2020, the Board performed an annual review of Chartered Accountants in England and Wales (ICAEW) the term of office and performance of the GAC. The Board and a member of the MIA. He has over 35 years of is satisfied that the GAC has effectively discharged its experience in the plantation industry and is currently the duties in accordance with its TOR. The Board agreed that Joint Chair of the Grievance Committee of the Roundtable the GAC Chairman has properly discharged her on Sustainable Palm Oil (RSPO). responsibilities, deploying resources and expertise and providing appropriate reporting and recommendation to 6 Tan Ting Min obtained her Bachelor and Master of Arts the Board. degrees from the University of Cambridge, United Kingdom in 1991 and 1994, respectively. She is an experienced equity strategist, having served Credit Suisse Malaysia since 1994 until her retirement in 2017, and has covered the plantation sector for close to 25 years.
The GAC members bring diversity in knowledge and skills to the Group in the effective discharge of their duties. Among the four members of the GAC, three are qualified accountants. Additionally, two of the members have extensive experience in the plantation business. Both professions, combined, satisfy the need for the GAC to be financially literate and have sufficient understanding of the Group’s activities. In keeping abreast of relevant developments in the industry, governance and regulatory landscape, the GAC members participate in relevant continuous professional development programmes, which maintains high-quality GAC deliberations.
Further details on the professional development programmes attended by the GAC members are provided in their respective profiles available in the Group’s corporate website at www.simedarbyplantation.com/our-people/ board-of-directors. GOVERNANCE & AUDIT COMMITTEE REPORT
OUR FOCUS AND ACTION PLAN
The GAC received updates on key governance matters, audit initiatives and issues across the Group at each of its quarterly meetings. The GAC also reviewed significant matters including financial reporting issues, significant judgements made by Management, material and unusual events or transactions, and how these matters were addressed. The summary of key matters discussed by the GAC during the year is shown below:
Significant Matters Considered Outcomes Initiatives/Issues
Recoverability of the Following the Board’s approval of SDP Liberia’s The GAC considered and Group’s investment finalised exit option, Management had assessed the concurred with Management’s in Sime Darby conditions of the Malaysian Financial Reporting assessment that the non- Plantation (Liberia) Standards (MFRS) 5 to classify SDP Liberia as current assets of SDP Liberia Inc. (SDP Liberia) non-current assets held for sale as at 30 September are fully impaired. The GAC 2019, and accordingly re-measured the non-current further concurred that the assets held for sale at the lower of its carrying results of SDP Liberia are amount and fair value less cost of disposal (FVLCS). presented as a discontinuing As a result, Management had recognised an operation in FY2019 following additional impairment charge of RM256 million in the requirements of MFRS 5. FY2019 for SDP Liberia, on the basis that the recoverable amount based on FVLCS is expected to The gain on disposal of SDP be USD1 and included impairment of other current Liberia would be recognised in assets. Quarter 1 of FY2020 as the completion of the divestment of PwC had reviewed and concurred with SDP Liberia only took place on Management’s assessment. 15 January 2020. The completion of the divestment of SDP Liberia would be disclosed in the financial statements for FY2019 as a subsequent event in accordance with MFRS 110 “Events after the reporting period”.
Impairment The carrying value of goodwill arising from NBPOL’s The GAC agreed with assessment on the acquisition was allocated to two of SDP’s cash Management’s assessment and carrying value of generating units (CGU), i.e. NBPOL Group and view that no impairment charge goodwill arising Minamas Group, since Minamas Group operations are is required for FY2019 as the from the New Britain expected to benefit from the synergies of the recoverable amount exceeded Palm Oil Limited acquisition of NBPOL. NBPOL’s carrying value. The (NBPOL) acquisition GAC further concurred that Management performed an impairment assessment of appropriate disclosures of key the CGU based on value-in-use (VIU) determined using assumptions and sensitivities are the discounted cash flow projection for each CGU. made in the Group’s financial Management also performed a range of statements for FY2019. sensitivity analysis, the results of which showed that an individual change of the key assumptions provides sufficient headroom on the VIU to recover the carrying value of the net assets (including the allocated goodwill) in Minamas Group. However, should all the key assumptions used change in a negative manner, the Group will record a deficit.
PwC had reviewed and concurred with Management’s assessment. Annual Report 2019 P –G. 153 152
SUMMARY OF ACTIVITIES At all of its quarterly meetings held throughout FY2019, the GAC reviewed the results and issues During the year under review, the GAC discharged its arising from PwC’s audit, including the Key Audit functions and carried out its duties as set out in its TOR. Matters and the update on Management’s The summary of key activities undertaken by the GAC responses and resolution actions on issues during the year under review is provided below: highlighted in PwC’s report.
1. Financial Reporting On 22 August 2019, the GAC reviewed and
approved PwC’s Group Audit Plan which outlined GOVERNANCE FRAMEWORK At its quarterly meetings, the GAC reviewed the the audit strategy and approach for FY2019. PwC quarterly financial results and the related and all members of its engagement team have announcements and press statements, prior to confirmed their independence in accordance with submission to the Board for approval. PwC’s requirement and with the provisions of the The GAC reviewed the annual audited financial By-Laws on Professional Ethics, Conduct and statements of the Company and the Group, and Practice of the MIA in its Report to the GAC. the accompanying Directors’ Report to ensure The annual assessment on PwC’s performance that the financial statements were drawn up (i.e. suitability, objectivity and independence) was pursuant to the requirements of MFRS and completed on 2 April 2020 and conducted in provisions of the Companies Act 2016 in Malaysia, accordance with the Group’s policy on External for recommendation to the Board for approval. Auditor Appointment & Selection based on the At its quarterly meetings, the GAC focused on following criteria: changes to the accounting policies and practices, (a) The competence, audit service quality and significant judgement and estimates, summary of resource capacity of the external auditor in 6 uncorrected misstatement, foreign currency relation to the audit; exposures and liquidity risk, divestment of non- performing and non-core assets, and matters relating (b) The nature and extent of the non-audit to big data analytics and information technology. services rendered and the appropriateness of the level of fees; and The GAC also reviewed Management’s assessment and impact analysis on the following: (c) The governance and independence of the external auditor. (a) Tax provisions; Accordingly, the GAC had recommended the (b) Tax reviews conducted by inland revenue, reappointment of PwC to the Board. Prior to that, customs and other authorities on companies on 21 February 2020, the GAC had also within the Group; recommended for the Board’s approval the (c) Provisions for doubtful debts and stock proposed global audit fees payable to the Group’s obsolescence; external auditors for FY2019.
(d) Provisions and disclosures on legal matters 3. Internal Audit and claims; and The GAC held quarterly sessions with the CIAO, (e) All other financial disclosures to be made in without the presence of Management (except for the public documents. the Group Secretary) to discuss any matters CIAO The GAC considered the proposed dividends for may wish to present and to ensure that there recommendation to the Board for approval. were no restrictions in the discharge of the Group’s internal audit activities. As the Group has a 2. External Audit combined internal audit (assurance) and integrity & governance functions under the CIAO’s purview, The GAC had quarterly private meetings with the matters relating to integrity & governance activities external auditors, PwC, without the presence of were also included in the private discussions. Management (except for the Group Secretary) during the year under review to discuss any matters PwC may wish to present and to ensure that there were no restrictions in the scope and discharge of their audit activities. GOVERNANCE & AUDIT COMMITTEE REPORT
On 22 November 2018, the GAC reviewed the The GAC had reviewed and endorsed the revisions Group Corporate Assurance (GCA) Plan for FY2019 made to the Group Policies & Authorities (GPA) (the Plan) and ensured adequacy of its scope and on 20 February 2019 and 22 August 2019 for coverage of the Group’s activities based on GCA’s recommendation to the Board for approval. The risk-based audit methodology and adoption of GPA revision made in August 2019 included changes agile auditing principles. In approving the Plan, to the Limits of Authority proposed by Management, the GAC considered the adequacy of GCA’s following senior leadership changes. resources and competencies to execute the Plan. In ensuring the Group’s readiness for the The GAC had also approved the revised GCA enforcement of the Corporate Liability provision Charter. of the Malaysian Anti-Corruption Commission At every quarterly meeting held throughout FY2019, (Amendment) Act 2018 (Section 17A) come June the GAC reviewed the internal audit reports 2020, the GAC had: presented by GCA. These include the results of (a) On 20 February 2019, reviewed and all planned, follow-up and special audits (including recommended to the Board for approval the investigations on whistleblowing and non- Anti-Corruption Compliance Programme, whistleblowing cases) and the corresponding key which follows the Adequate Procedures’ findings, recommendations and corrective actions Guiding Principles of T.R.U.S.T1. As part of the taken by Management. GCA also presented the Group’s Anti-Corruption Programme, the GAC status of audits as compared to the Plan and its had endorsed for GCO to pursue the ISO resource adequacy in fulfilling the Plan. 37001 Anti-Bribery Management System At every quarterly meeting, the GAC also reviewed (ABMS) certification in ensuring that the the minutes of meetings of Minamas Plantation’s Group is on the right track of the adequate GAC and/or the minutes of meetings of New procedures defence against Section 17A. Britain Palm Oil’s Audit Committee for oversight (b) On 18 November 2019, reviewed and of the state of internal control systems of those recommended for the Board’s approval, the key subsidiaries. Group’s Anti-Corruption Compliance Framework The Group Integrity, Governance & Assurance’s and Anti-Corruption Policy Statement in (GIGA) Key Performance Indicators (KPI) for FY2019 strengthening the Group’s defence on adequate was approved by the GAC on 2 April 2019. procedures. Subsequently, the performance appraisal of the (c) Reviewed the quarterly updates on ABMS CIAO following GIGA’s FY2019 KPI was deliberated certification progress presented in GCO Reports and approved by the GAC on 21 February 2020. from the GAC’s May 2019 meeting onwards, including the anti-corruption risk assessment 4. Integrity & Governance exercises undertaken and to be undertaken The GAC Chairman updated the Board on key for each country that the Group operates. matters deliberated at GAC meetings and the The GAC had endorsed the GPA on Integrity & activities undertaken by the GAC. Minutes of the Governance (IG) for the Board’s approval in August GAC meetings are circulated to the Board for 2019 and subsequently approved the IG Charter noting. This is a standing agenda item at the in November 2019. The GAC also endorsed the quarterly meetings of the Board. biannual submission of the “Integrity & Governance On 22 November 2018, the GAC reviewed and Core Function Report” to the Malaysian Anti- approved the Group Compliance (GCO) Plan for Corruption Commission (MACC) in August 2019 FY2019, which outlined the Group’s integrity and and February 2020, for the periods January to governance initiatives/key activities and the June 2019 and July to December 2019, respectively. corresponding resources required to support the achievement of the GCO Plan. The GAC had also approved the revised Integrity & Governance Charter.
1 The “Guidelines on Adequate Procedures” issued by the Malaysian Prime Minister’s Department outline the five Adequate Procedures principles, in the acronym of T.R.U.S.T (Top Level Commitment; Risk Assessment; Undertake Control Measures; Systematic Review, Monitoring and Enforcement; Training and Communication) Annual Report 2019 PG. 154 – 155
The GAC reviewed the statistics of whistleblowing 6. Annual Report complaints received through the Group’s various The GAC reviewed and endorsed on 2 April 2020 whistleblowing channels and the manner to which for the Board’s approval, the following documents the complaints were addressed. Results of for inclusion in the Group’s Annual Report 2019: whistleblowing investigations were also monitored every quarter to ensure that independent (a) The Corporate Governance Report; investigation of the allegations had been conducted (b) The Corporate Governance Overview Statement; and appropriate follow-up action was taken.
(c) The Governance & Audit Committee Report; GOVERNANCE FRAMEWORK The Group’s regulatory compliance across prioritised and compliance areas were monitored on a quarterly (d) The Statement on Risk Management and basis by the GAC, through GCO Report that Internal Control. included the results of self-attestation by Management to known non-compliance incidents 7. Other Matters and independent assessments of the adequacy The GAC reviewed its TOR and recommended of compliance controls. the amendments to the Board for approval.
5. Related Party Transactions (RPT) and Recurrent As a standing agenda, the following reports are Related Party Transactions (RRPT) presented to the GAC on a quarterly basis for noting purposes: The GAC reviewed the related party disclosures of the Group in compliance with the MFRS 124, (a) Report on hedges and open positions; and the Listing Requirements, the Malaysian Companies (b) Appointments of financial advisors for Act 2016, and the Group’s internal guidelines, on non-audit services. 6 a quarterly basis. The GAC reviewed the RPTs/ RRPTs at all quarterly meetings held during FY2019.
GROUP INTEGRITY, GOVERNANCE & ASSURANCE
A. Overview The GIGA function comprises GCA and Group Integrity Non- & Governance (GIG1). GIGA is an independent function, Offices/Regions Executives Executives Total reporting directly and functionally to the GAC and administratively to the Group Managing Director and Head Office, Malaysia 39* 3# 42 headed by the CIAO, Nik Maziah Nik Mustapha. Nik Indonesia 31@ 0 31 Maziah is a Certified Internal Auditor (CIA) with the Papua New Global Institute of Internal Auditors, a member of the Guinea 2& 0 2 MIA and has completed the Certified Integrity Officer (CeIO) programme by the MACC. She has gained Total 72 3 75 about 23 years of working experience, primarily within the ambit of Governance, Risk and Compliance (GRC) Notes: * CIAO, Practice Manager, 25 GCA, 7 GCO and 5 GFCRM personnel function, in a wide range of industries including # Includes 1 Secretary who is a diploma holder banking, airline, property and plantation. @ 30 GCA and 1 GCO personnel & 2 GCA personnel GIGA is manned by 75 personnel comprising 72 executives and 3 non-executive/administrative Diploma staff across Malaysia, Indonesia and Papua New 4 With 20 Guinea, who have the right balance of knowledge, skills and competencies to support the effective execution of the annual GCA and GIG Plans. In Professional Certifications enhancing the professionalism and quality of services Education Level or equivalent to the Group, members of GIGA are encouraged to (including pursue relevant professional certifications and in progress) memberships as detailed out below: 68 52 Degree Without 1 GIG comprises GCO and Group Fraud & Corruption Risk Management (GFCRM) as its sub-functions. GOVERNANCE & AUDIT COMMITTEE REPORT
B. Group Corporate Assurance GCA’s principal responsibility is to undertake regular In maintaining independence and objectivity, GCA and systematic reviews for the Group to evaluate and ensures that its internal auditors are free from any improve the effectiveness of risk management, control relationship or conflict of interest when performing and governance processes. The ambit of GCA is defined their duties. in the GCA Charter, which is annually reviewed and tabled to the GAC for approval. All independent internal audit and advisory services for the Group during FY2019 were conducted by GCA. GCA activities are governed by the Global Institute of In ascertaining adequate internal audit coverage Internal Auditors mandatory guidance including the throughout the Group’s operations, GCA is supported Definition of Internal Auditing, the Code of Ethics, and by Regional Heads in GCA Malaysia, GCA Indonesia the International Professional Practices Framework. In and GCA Papua New Guinea, who all report to CIAO. addition, an internal Quality Assurance and Improvement Under the supervision of a GCA IT & Analytics Head, Programme (QAIP) that is managed by GCA’s Practice who also reports to CIAO, GCA runs an in-house data Management unit, promotes continuous assessment analytics unit to optimise further the use of analytics and improvement within the function. As part of the throughout the audit lifecycle. The expanded use of QAIP, structured projects focussing on operational data analytics helps to broaden audit coverage in excellence, elevating competence, improved providing a more comprehensive opinion on the communication and sharing of best practices set the effectiveness of governance, risk and controls to the foundation towards GCA’s first external assessment businesses, increases audit efficiencies and enables exercise (post Pure Play) to be undertaken in FY2021. GCA to provide continuous control monitoring services All of these continuous improvement efforts ensure to operating management in assisting them to embrace that GCA remains effective and responds to the self-governance. The operational costs incurred by expanding demand for value-added internal audit and GCA for FY2019 was approximately RM10.7 million, advisory services. comprising mainly staff costs and travelling expenses.
In line with the Group’s Strategic Plan, GCA supports the Group by providing assurance within the following key focus areas:
Group’s Strategic Plan GCA’s Audit Coverage
Driving operational excellence through Digitised systems – Utilisation of fresh fruit bunches evacuation/ digitisation tracking (SEMUA) and harvesting supervision (SDDS) systems CAPEX – dust collection system Serving the customer of the future FFB bunch reconciliation Maximise returns across the value chain Open position monitoring and reporting Options trade Procurement, inventory and cost management Bulking operations Kernel crushing plant Doubtful debts Value creation initiatives Land management
Apart from the above assurance coverage, GCA also regularly monitors the implementation progress of recommended action plans by Management to ensure timely resolution of audit findings/issues in addressing any risk and control gaps. Annual Report 2019 P –G. 157 156
C. Group Integrity & Governance GIG oversees the functions of whistleblowing (complaints management), investigations (detection & verification), integrity enhancement, and governance for the Group.
Group Compliance GCO provides compliance assurance and advisory support to ensure that the Group’s operations are conducted in accordance with regulatory requirements, internal policies and procedures, Code of Business Conduct
(COBC) and standards of good business practice. The GCO Framework is based on the Australian Standard GOVERNANCE FRAMEWORK 3086 Compliance Programme and maps out its key activities as prescribed in its Integrity & Governance Charter, which is depicted below:
IANCE CUL MPL TUR CO E TRAINING
C C R Risk Identification R A 6
LEADERSHIP ENGAGEMENT
C C M M M
C N OMMUNICATIO C E OM UR PLIANCE CULT
Compliance Governance Regulatory Compliance Corporate Compliance
Whistleblowing Regulation & Legislation Policy Instrument Framework Anti-Corruption Compliance Code of Business Conduct Advisory & Special Projects (COBC) Control Self-Assessment GOVERNANCE & AUDIT COMMITTEE REPORT
In addressing the compliance issues and concerns within the Group, the following key activities were undertaken during the year under review:
Pillars Key Activities
Compliance a) Revised the Group Compliance Charter in aligning to the integrity & governance unit’s Governance roles and responsibilities.
b) Administered the whistleblowing channel which entails receipt of whistleblowing complaints, channelling complaints for investigation, monitoring of cases for closure as well as reporting to relevant parties on whistleblowing complaints received.
c) Conducted half-yearly reporting of the activities of the Integrity & Governance function to the MACC.
Regulatory a) Commenced the pursuit of the ISO 37001 ABMS certification, as part of the Group’s Compliance preparation to meet the requirements of Adequate Procedures as a defence to Section 17A. Among others, these included the following:
– Developed an Anti-Corruption Compliance Framework and Anti-Corruption Policy Statement. In line with the Listing Requirements, the Group’s Anti-Corruption Policy Statement has been made available on the Group’s corporate website to emphasise the Group’s zero tolerance towards bribery and corruption.
– Conducted corruption awareness sessions and corruption risk assessment workshops for key management and operations personnel based in Malaysia, Indonesia, Papua New Guinea, the Solomon Islands and Thailand. Following the outcome of the corruption risk assessments, internal control improvements to mitigate corruption risks were identified for Management’s implementation.
– Equipped GCO, GCA and GFCRM staff with the necessary skills and knowledge for better understanding of the Section 17A requirements via relevant trainings on “Implementing ISO 37001” and “ISO 37001 Lead Auditor Training”.
– Conducted awareness sessions on anti-bribery and anti-corruption as part of the COBC awareness programmes.
– Enhanced relevant HR policies and procedures on consequence management and the identification of ‘hot jobs’ relating to corruption exposure.
b) Provided advisory on regulatory compliance matters such as sanctions, anti- competition and personal data protection.
c) Monitored the status of compliance with laws and regulations and the implementation of corrective action.
Corporate a) Conducted COBC awareness sessions for employees based in Malaysia, Indonesia, Compliance Papua New Guinea, the Solomon Islands and Thailand.
b) Reviewed GPA to ensure that they remain relevant in the current operating environment, reflect better intended practices for relevance, which included the development of new GPA on competition law compliance and trading & sales.
c) Conducted awareness sessions on the Policy Instrument Framework to ascertain that operations within the Group adhere to the established standards on the hierarchy, approval, development, establishment, amendment and review of all core policy instruments.
d) Engaged Upstream Malaysia operations in a control self-assessment exercise covering 121 estates and 33 mills. Annual Report 2019 P –G. 159 158
Group Fraud & Corruption Risk Management GFCRM detects and responds to fraud and corruption incidents/risks by conducting special reviews and investigations at the request of the GAC, Management and complaints received through the whistleblowing channel. Key activities conducted by GFCRM during the year under review included the following:
Strategy Activities
Collaborated with GCO in the implementation of integrity enhancement activities as Prevent GOVERNANCE FRAMEWORK part of the prevention mechanism for the Group.
Detect Given the first year of set-up, GFCRM had initiated a fraud and corruption risk assessment for Upstream Malaysia operations and implemented fraud and corruption detection strategies and mechanisms for the same. This activity will expand in FY2020.
Respond Undertook special reviews and investigations reported via the whistleblowing channel or as requested by stakeholders, including conducting or assisting the investigation of suspected fraudulent activities within the Group.
Worked closely with the Industrial Relations of Group HR in verifying evidence and participated in Disciplinary Inquiry due processes.
This Report is made in accordance with the resolution of the Board of Directors dated 16 April 2020. 6 NOMINATION & REMUNERATION COMMITTEE REPORT
“The Committee reviews the Board composition and ensures that any appointment brings the right balance of skills, knowledge, breadth of experience and diversity to the Board. The Committee also oversees the appointment and promotion of Senior Management and succession plans to support the development of talent within the Group.”
TAN SRI DATUK DR. YUSOF BASIRAN Chairman of the Nomination & Remuneration Committee
INSIDE THIS REPORT
This report highlights the activities of the Nomination & Remuneration Committee (NRC) during the financial year ended 31 December 2019. We report to shareholders on our responsibility in supporting the development of a balanced Board in terms of expertise, skills, experience and diversity and ensuring remuneration principles for Directors will adequately compensate the Directors for their time and effort for the continuous success of the Company.
WHO IS THE COMMITTEE:
Members1 Membership Appointment Attendance Tan Sri Datuk Dr. Yusof Chairman/Independent 14 July 2017 5/5 100% Basiran Non-Executive Director
Datuk Zaiton Mohd Member/ 14 July 2017 3/5 60% Hassan Senior Independent Non-Executive Director
Dato’ Mohd Nizam Member/ 14 July 2017 4/5 80% Zainordin Non-Independent Non-Executive Director
Dato’ Henry Sackville Member/ 5 April 2019 3/3 100%2 Barlow Independent Non-Executive Director
Notes: 1 For the Members’ profiles, see pages 116 to 127. 2 Reflects the number of meetings held during the time the Director held office
The NRC comprises Non-Executive Directors (NED) with a majority being Independent Directors and includes a Senior Independent NED. The composition of the NRC complies with the requirements of both the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (Listing Requirements) and the Malaysian Code on Corporate Governance (MCCG) 2017.
Meetings of the NRC are attended by the Group Managing Director (GMD). Other members of Senior Management are invited to meetings of the NRC when necessary to support detailed discussion on matters relevant to the agenda of the meeting. Annual Report 2019 P –G. 161 160
ROLES OF THE COMMITTEE initiatives for key Management.
The primary objectives of the Committee are as follows: Monitoring the conduct of the Board Effectiveness Assessment (BEA) 2019 To assist the Board in reviewing the appropriate size and balance of the Board, and reviewing the required Recommending suitable training programmes to mix of skills, experience and knowledge of the Directors. continuously train and equip Directors The NRC also ensures that there is sufficient succession Reviewing the Bumiputera Empowerment Agenda planning and human capital development focus in
Key Performance Indicators (KPI) 2018 achievement GOVERNANCE FRAMEWORK the Sime Darby Plantation Berhad (SDP) Group. from January 2018 to December 2018.
To recommend to the Board the remuneration 2. Remuneration Function framework for the Non-Executive Chairman, the GMD, NEDs, Executive Directors, key Management positions Recommending the remuneration for the NEDs and employees of the SDP Group. of the SDP Group of Companies for the six-month financial period ended 31 December 2018 The Terms of Reference (TOR) of the NRC are available Reviewing and recommending the remuneration online in the Governance section at www. simedarbyplantation. and benefits for the EDCMD and Direct Reports com/corporate/corporate-governance. to the EDCMD
Recommending the salary increment and ex-gratia ANNUAL PERFORMANCE ASSESSMENT proposals for the six-month financial period from 1 July 2018 until 31 December 2018 The Board has reviewed the Committee’s effectiveness in carrying out its duties as set out in the Committee’s TOR. Recommending the composition and remuneration 6 The Board is satisfied that the Committee has effectively framework of the Board of Directors of Sime discharged its duties in accordance with its TOR. Darby Oils International Limited
Reviewing the performance of the EDCMD and The Committee’s TOR was revised on 6 January 2020 for recommending the ex-gratia proposal for the administrative matters. EDCMD
Recommending the salary increment and ex-gratia OUR FOCUS DURING THE FINANCIAL YEAR ENDED proposals for Direct Reports to the EDCMD 31 DECEMBER 2019 Deferment of the Long Term Incentive Plan. During the Financial Year Ended 31 December 2019, the NRC undertook the following key activities: NOMINATION AND RECRUITMENT PROCESS
1. Nomination Function One of the NRC’s key roles is to drive the recruitment process for new Directors. In considering candidates as Recommending the re-election of Directors retiring potential Directors, the NRC takes into account the at the 2019 Annual General Meeting (AGM) following criteria: Assessing and recommending the composition Skills, knowledge, expertise and experience of the Board and Board Committees Time commitment, character, professionalism and Evaluating and recommending suitable candidates integrity for appointments at key Management positions Perceived ability to work cohesively with other members Recommending revisions to the TOR of the NRC of the Board Recommending the disclosure of the Report on Specialist knowledge or technical skills in line with the NRC for the Annual Report for the six-month the Group’s strategy financial period ended 31 December 2018. Diversity in age, gender and experience/background Overseeing succession planning for the Executive Deputy Chairman & Managing Director (EDCMD) Number of directorships in companies outside the Group. Reviewing and recommending development
On the appointment of Directors on the Board of SDP, NOMINATION & REMUNERATION COMMITTEE REPORT
where applicable, the NRC will seek third-party feedback The Board recommends the re-election of the following on candidates that the NRC is considering for recommendation Directors who will be retiring pursuant to Rules 81.2 and to the Board of SDP. 103 of the Company’s Constitution at the forthcoming AGM: Prior to appointment, potential Directors are made aware of the time commitment expected from each of them Rule 81.2 of the Constitution in carrying out their roles as Director and/or Member of Tunku Alizakri Raja Muhammad Alias Board Committees including attendance at the Board, Tunku Alizakri is the Chief Executive Officer of the Board Committees and other meetings. Directors are Employees Provident Fund Board (EPF). Representing required to confirm that they are able to devote sufficient EPF as its nominee Director on the Board of the time to their roles at the Company and at the Group Company, Tunku Alizakri’s extensive experience in policy taking into consideration the number of their listed development and strategic planning contributes company board(s) and other commitments. In accordance significantly to the deliberations at meetings of the with the provisions of the Listing Requirements, none of Board and Board Committees. the Directors hold more than five (5) directorships in listed issuers during the financial year ended 31 December 2019. Mohamad Helmy Othman Basha Mohamad Helmy was appointed as the GMD of the Mohamad Helmy Othman Basha was appointed as the Company on 1 July 2019. He has been instrumental in GMD of the Company on 1 July 2019 following the delivering the transformational strategies and driving retirement of Tan Sri Dato’ Seri Mohd Bakke Salleh as the Group’s business and performance towards achieving the EDCMD of the Company on 30 June 2019. its vision and goals by focusing on operational improvements and acceleration of innovation through On 28 November 2019, the Board approved the appointment research & development and agronomic practices as of Tunku Alizakri Raja Muhammad Alias in place of Dato’ well as enhancing value through sustainability. Mohamad Nasir Ab. Latif as a Non-Independent NED on the Board of SDP and as a Member of the Sustainability Rule 103 of the Constitution Committee. Zainal Abidin Jamal The Group Secretary ensures that all appointments are Zainal has held the position of a Non-Independent NED properly made and that all necessary information is since 14 July 2017 and is currently Chairman of Risk obtained from the Directors, both for the Company’s own Management Committee of the Company. He is also records and for the purposes of meeting statutory obligations the Chairman of Maybank Islamic Berhad. As a prominent as well as obligations arising from the Listing Requirements. corporate and commercial lawyer, He possesses immense knowledge, skill and experience in the legal, compliance and regulatory area. He provides valuable legal perspective RE-ELECTION OF DIRECTORS and insight to the Company’s investment proposals and The NRC ensures that the Directors retire and are re- corporate activities. He is also a member of the elected in accordance with the relevant laws and Sustainability Committee and Board Tender Committee regulations and the Company’s Constitution. of the Company.
Pursuant to Rule 81.2 of the Company’s Constitution, any Tan Ting Min Director appointed during the year shall hold office only Tan has held the position of an Independent NED of until the conclusion of the next AGM and shall be eligible the Company since 14 July 2017. She was the regional for re-election at such meeting, but shall not be taken plantation sector team lead in Credit Suisse Malaysia into account in determining the number of Directors who from 1998 to 2017 and has an extensive career in are to retire by rotation at such meeting. plantation sector spanning over 25 years. She has extensive experience in equity investment through her Pursuant to Rule 103 of the Company’s Constitution, at career in Credit Suisse has provide effective discussion least one-third (1/3) of the Directors (excluding the Director at Board and Board Committee meetings. She is also seeking re-election pursuant to Rule 81.2 of the Company’s a member of the Risk Management Committee, Constitution) are required to retire by rotation at each AGM. Governance & Audit Committee and Board Tender Rule 104 of the Company’s Constitution states that all Committee. Directors shall retire from office once at least in each three (3) years. A retiring Director shall be eligible for re-election. Annual Report 2019 P –G. 163 162
Lou Leong Kok • Ethnic Diversity Lou is an Independent NED of the Company and was The Board will work towards diversifying the ethnic appointed to the Board on 1 December 2017. He has composition of the Board as and when vacancies arise broad business experience and knowledge on and suitable candidates are identified. investment and edible oil sector spanning over 38 years. His extensive network and expertise in managing • Independence of Directors investment and business of edible oil have brought Currently, six (6) out of 11 Directors of SDP are Independent added input during deliberation at meetings of the Directors. A Board comprising a majority of Independent Board and Board Committees. He is also a member Directors allows for more effective oversight of GOVERNANCE FRAMEWORK of the Risk Management Committee. Management.
The Directors have met the Board’s expectations of high The NRC is responsible for the implementation of the performance based on the performance and contribution Policy and for monitoring progress towards the achievement of each Director as assessed through the BEA 2019. of the Board’s objectives.
The Board is of the view that the Independent Directors The salient features of the Policy are available online in have brought independent and objective judgment in the Corporate Governance section at www. Board deliberations and decisions. simedarbyplantation.com/corporate/corporate-governance
TENURE OF THE INDEPENDENT DIRECTORS BOARD EFFECTIVENESS ASSESSMENT
None of the six (6) Independent Directors have served The BEA 2019 was conducted internally through on the Board for more than nine (9) years. questionnaires. The questionnaires were based on the 6 Corporate Governance Guide (3rd Edition) on the Guidance Two (2) Independent Directors namely Tan Ting Min and on Board Leadership and Effectiveness issued by Bursa Lou Leong Kok are seeking re-election at this AGM. Malaysia Securities Berhad.
Detailed information on the BEA and the assessment BOARD COMPOSITION AND DIVERSITY criteria is provided in the Corporate Governance Report The Board Composition Policy was adopted by the Board from pages 35 to 37 available in our website www. in February 2018 and reviewed in September 2018 to simedarbyplantation.com/corporate/corporate-governance. align with the Securities Commission Malaysia’s stated target of increasing women participation on the Boards BOARD REMUNERATION FRAMEWORK of the top 100 companies on Bursa Malaysia Securities Berhad. The Board’s progress towards achieving targets The Remuneration Framework for members of the Board set out in the Policy is as shown below. and Board Committees of SDP was last reviewed and adopted in August 2017. There has been no change to Gender Diversity the Remuneration Framework since 2017. The Board will maintain at least two (2) women Directors on the Board and will actively work towards having a Detailed disclosure on the remuneration of individual minimum of 30% women as members of the Board Directors of SDP on named basis is provided in the by 2020. Corporate Governance Overview Statement from pages 146 to 148. Age Diversity The Board will work towards having a generationally- diverse Board so as to have a balance between maturity and experience.
The age diversity of the Board can be found on page 26 of the Corporate Governance Report at www. simedarbyplantation.com/corporate/corporate-governance. SUSTAINABILITY COMMITTEE REPORT
“With increased scrutiny around the implementation of No Deforestation, No Peat and No Exploitation commitments within the supply chain, Sime Darby Plantation Berhad has implemented measures to further strengthen how it manages supply chain sustainability risks this year.”
DATO’ HENRY SACKVILLE BARLOW Chairman of the Sustainability Committee
INSIDE THIS REPORT
The purpose of this report is to highlight areas that the Committee has reviewed during the financial year ended 31 December 2019. We report to shareholders on our oversight responsibilities in relation to the Sime Darby Plantation Berhad (SDP) Group objectives, policies and practices pertaining to sustainability, more particularly towards contributing to a better society, minimising environmental harm and delivering sustainable development.
WHO IS THE COMMITTEE
Members1 Membership Appointment Attendance Dato’ Henry Sackville Chairman 5 April 2019 3/3 100%2 Barlow Independent Non-Executive Director
Muhammad Lutfi Member 13 December 2017 2/5 40% Independent Non-Executive Director
Tunku Alizakri Raja Member 1 January 2020 N/A4 N/A4 Muhammad Alias3 Non-Independent Non-Executive Director
Zainal Abidin Jamal Member 13 December 2017 5/5 100% Non-Independent Non-Executive Director
Former Member Membership Retirement Attendance Dato’ Mohammad Nasir Member 31 December 2019 5/5 100% Ab. Latif Non-Independent Non-Executive Director
Ex Officio Member Membership Appointment Attendance Sir Jonathon Espie Sustainability Advisor 22 March 2018 4/5 80% Porritt
Notes: 1 For the Members’ profiles see pages 116 to 127. 2 Reflects the number of meetings held during the time the Director held office. 3 Tunku Alizakri Raja Muhammad Alias was appointed after the FYE 31 December 2019. 4 Not Applicable.
The Sustainability Committee (SC) consists of Non-Executive Directors with 50% being Independent Non-Executives. The Committee is supported by Sir Jonathon Espie Porritt, Sustainability Advisor. Sir Jonathon assists the Committee by identifying emerging sustainability trends and their implications to SDP, and reviewing and advising on SDP’s progress towards meeting its sustainability commitments, whilst meeting stakeholders’ expectations.
Meetings of the Committee are attended by the Group Managing Director, the Chief Sustainability Officer, together with other members of senior management. Annual Report 2019 P –G. 165 164
ROLES OF THE COMMITTEE OUR FOCUS AND ACTION PLANS
The SC is committed to ensuring that the Group operates Our Focus During the Financial Year Ended 31 December in line with its sustainability purpose, which is to contribute 2019 to a better society, minimise environmental harm and As SDP continues to implement responsible agricultural deliver sustainable development. practices throughout its global operations, there has been increased scrutiny this year around how companies The primary objectives of the Committee are as follows: operating in our sector, including SDP, are implementing GOVERNANCE FRAMEWORK Reviewing the sustainability strategy and performance commitments to contribute to a better society, minimise at the Board level around the critical sustainability environmental harm and deliver sustainable development issues to the SDP Group, which includes health and throughout its global supply chain. safety, biodiversity, conservation, human rights, climate change, and supply chain sustainability. Although the SC deliberates in detail the sustainability Overseeing the monitoring, reporting and verification performance of SDP’s own operations, the management of the Sustainability Key Performance Indicators of of supply chain sustainability risks has also gained SDP Group and their implementation through the prominence, with the company rolling out key initiatives Group Blueprint and Roadmaps. around the supply chain this year. These include: Emphasising and facilitating the adoption of a mindset – Launching the “Crosscheck” system, which is an online in favour of sustainability throughout the Group. access platform to demonstrate the transparency of Working to a set of Corporate Sustainability Principles SDP’s global supply chain (the Charter). – Launching the “Working with Suppliers to Draw the Line on Deforestation” policy. This articulates SDP’s Detailed Terms of Reference for the Committee are approach to engaging with its supply chain. This is to 6 available online at the Corporate Governance section of eliminate deforestation by third-party suppliers. the corporate website at www.simedarbyplantation.com/ corporate/corporate-governance Throughout the year, SDP has been recognised for its efforts around sustainability, and for the second year ANNUAL PERFORMANCE ASSESSMENT running, SDP received awards in the 2019 Sustainable Business Awards. SDP was awarded in the supply chain The Board performs an annual assessment of the SC’s management and land use and biodiversity categories, effectiveness in carrying out its duties as set out in the whilst receiving a special recognition in the United Nations Terms of Reference. The Board is satisfied that the Sustainable Development Goals category. Committee has effectively discharged its duties in accordance with its Terms of Reference.
The Committee’s Terms of Reference was revised on 28 November 2019 on administrative matters.
Throughout the reporting period, the Committee has received updates on key sustainability initiatives and issues across the Group at each Committee meeting. The Committee’s focus during these meetings has included:
Significant Initiatives/Issues Matters Considered Outcome
Improving OSH related issues remain one of the top priority OSH Performance continues Occupational areas deliberated in detail during the SC meetings, to be an area of focus for the Safety and Health as the number of fatalities and major incidents entire Group. The frequency of (OSH) Performance remain an area of concern. Safety & Health related incidents have been reducing Safety and Health performance indicators and for the third year running mitigation actions undertaken by management since Calendar Year 2016. across the Group are discussed extensively to improve the overall performance of the company. SUSTAINABILITY COMMITTEE REPORT
Significant Initiatives/Issues Matters Considered Outcome
Enhancing Supply Stakeholder expectations around the management The Group has achieved a 95% Chain Sustainability of sustainability risks within the supply chain has traceability to mill level, and a continued to intensify, with a focus on the issue of 47% traceability to plantation. deforestation within the supply chain. The Group has launched “Crosscheck”, an online access The Committee has continued to deliberate in detail tool, to demonstrate and the management’s efforts to improve supply chain communicate more effectively transparency, manage supply chain sustainability the Group’s supply chain risks and engage with suppliers around compliance footprint. with SDP’s sustainability commitments. The Group has also launched its policy to “Work with Suppliers to Draw the Line Against Deforestation” to articulate the Group’s approach to engagement with suppliers.
These initiatives are above and beyond existing efforts to manage supply chain risks and manage supplier grievances from stakeholders.
Enhancing Respect We have enhanced our scrutiny around how The Group has further rolled for Human Rights organisations are implementing respect for Human out its Human Rights Impact within the Rights, in line with the United Nations Guiding Assessments throughout its Organisation Principles (UNGP) on Business and Human Rights. global operations to identify salient human rights risks. Salient human rights risks, such as management of Although the focus previously migrant workers, modern day slavery and providing was around Upstream access to grievance mechanisms continue to be operations, the scope of the deliberated during Committee meetings and are assessments has also been mitigated on the ground. extended to include Sime Darby Oils operations. Customers are also starting to look into Human Rights practices of their suppliers with more An enhanced third-party diligence. grievance channel was piloted in selected Malaysian operations to provide better access to workers, and is targeted to be rolled out across Malaysia in 2020.
The Group also continues to work with NGOs and competitors in a pre- competitive collaboration to develop solutions to address the more systemic human rights challenges the industry faces. Annual Report 2019 P –G. 167 166
Significant Initiatives/Issues Matters Considered Outcome
Climate Change The impact of Climate Change and mitigation To date, 13% of SDP’s mills Impacts and actions undertaken by the Group has continued to have been equipped with Mitigation be an area of focus for the Committee; progress of measures for methane the biogas implementation plan is deliberated in capture, while several more detail during the Committee meetings. are in different stages of planning and/or development. GOVERNANCE FRAMEWORK The Committee this year has also looked into the risk of stranded assets within the Group and The Group’s no-deforestation deliberated around diversification of existing land commitment has also been use, considering the future impacts of climate further strengthened change and emerging regulations. throughout its supply chain with increased efforts being implemented in managing supply chain sustainability risks, and supplier grievances from stakeholders.
The Group is currently exploring various approaches to diversify its existing land 6 use, taking into account economic considerations and issues of stranded assets whilst ensuring any climate change related impacts may be mitigated.
COVID-19 Pandemic The Committee has at the end of FY2019 and at the Every effort has been made by start of FY2020 deliberated and endorsed various management to contain the Standard Operating Procedures and Guidelines to spread of the virus, which tackle the issue of the COVID-19 pandemic. include: Working from Home arrangements Restrictions and minimisation of business travel Full compliance with government guidelines and regulations in all countries, e.g. the Movement Control Order (MCO) in Malaysia Rollout of Emergency Preparedness and Response Procedures across the organisation to protect the safety and health of workers Execution and rollout of the Business Continuity Plan SUSTAINABILITY COMMITTEE REPORT
Priorities for 2020 Moving forward in 2020, the SC will continue to work with management to ensure the Group pursues sustainability in a way that creates value to the organisation. Key areas of focus will include:
– Ensuring flawless implementation of sustainability standards that the Group adopts. These include the Roundtable on Sustainable Palm Oil (RSPO), Malaysian Sustainable Palm Oil (MSPO) and Indonesian Sustainable Palm Oil (ISPO), amongst others.
– Effectively managing sustainability risks in the supply chain, via increased transparency, supplier risk management, handling of supplier grievances and smallholder inclusion.
– Leading in the development of new environmental and social standards and approaches to tackle material sustainability issues faced by the Group and the Industry.
– Ensuring stakeholders are effectively engaged with and included throughout the Group’s sustainability journey.
– Finding ways for the Group to leverage on its sustainability credentials to differentiate itself and create value to the organisation.
– Mitigate the impacts of the COVID-19 pandemic to the organisation with the priority of ensuring the safety and health of all employees of the organisation in the immediate and long term. Annual Report 2019 P –G. 169 168
BOARD TENDER COMMITTEE REPORT
“The Board Tender Committee is established to assume the responsibility for reviewing and deliberating on key tenders, ensuring that tender exercises are conducted in a transparent and fair manner adopting the principle of good governance, and delivering the best value to the Group. The Committee will
continue to ensure that the procurement of key contracts also comply with the GOVERNANCE FRAMEWORK processes and procedures of the Group Procurement Policies & Authorities.”
TAN SRI DATUK DR YUSOF BASIRAN Chairman of the Board Tender Committee
INSIDE THIS REPORT
The purpose of this report is to highlight areas that the Committee has reviewed during the year and its priorities going forward.
WHO IS THE COMMITTEE: 6 Members* Membership Appointment Attendance Tan Sri Datuk Dr. Yusof Chairman 21 February 2018 2/2 100% Basiran Independent Non-Executive Director
Zainal Abidin Jamal Member 27 February 2019 2/2 100% Non-Independent Non-Executive Director
Tan Ting Min Member 21 February 2018 2/2 100% Independent Non-Executive Director
Notes: * For the Members’ profiles see pages 116 to 127.
The BTC comprised a majority of Independent Non-Executive Directors. The BTC is supported by Group Procurement who assists in arranging various sub-tender committee meetings to review and support the tender papers prior to tabling to the BTC. The BTC Chairman reports to the Board on key matters deliberated at the BTC meetings.
Meetings of the BTC are attended by the Group Managing Director, Chief Financial Officer, Sime Darby Oils Managing Director, Chief Operations Services Officer, Head of Group Procurement and other members of senior management. BOARD TENDER COMMITTEE REPORT
ROLES OF THE COMMITTEE OUR FOCUS & ACTION PLAN
The Board Tender Committee (BTC) was established on The BTC is committed to ensuring that the Group continues 21 February 2018 to assist the Board in fulfilling its statutory to procure goods and services for key contracts/tenders and fiduciary responsibilities in overseeing the process of in a transparent, objective and fair manner adopting the awarding significant contracts/tenders by Sime Darby principles of good governance and at the same time Plantation Berhad (SDP) and its subsidiaries (SDP Group). deliver best value to the Group. The BTC has the mandate to review and approve tenders with value above RM100 million up to RM500 million. The BTC is also committed to ensuring that the procurement For tenders above RM500 million, the BTC has the of key contracts is conducted in accordance with the mandate to review and support the tenders before the processes and procedures of the Group Procurement same are deliberated and approved by the Board. Meetings Policies & Authorities. of the BTC are held as and when required. The Group has undertaken the following key activities in The Committee is responsible for: the financial year ended 31 December 2019:
Overseeing that the tender process is carried out in Revised its Terms of Reference and the Group Policies accordance with the Group Procurement Policies & & Authorities on procurement in alignment to the Authorities including ensuring that the tender evaluation changes proposed by the Change Management Office. criteria is comprehensive and allows for maximum competition among vendors resulting in tenders being Standardised specifications, consolidated volume, awarded based on merit. sourced for alternative materials and adopted the most competitive method of negotiation to secure Reviewing and deliberating the adequacy of the Tender the best value to the Group. Evaluation Report, which incorporates both the technical and commercial evaluations, and recommending The BTC will continue to focus on its commitment in appropriate actions. The BTC reviews and approves ensuring that SDP continues to pursue value creation for the Tender Report, highlighting any concern or the SDP Group which is sustainable and of significant irregularity in the tender (if any). benefit to all stakeholders. In addition to getting the best value for the Group through procurement, cost reduction Detailed Terms of Reference for the Committee are and cost avoidance have become a top priority for the available online at www.simedarbyplantation.com/corporate/ Group. corporategovernance.
ANNUAL PERFORMANCE ASSESSMENT
The Board performs an annual assessment of the BTC’s effectiveness in undertaking its duties as set out in the Terms of Reference. The Board is satisfied that the Committee has effectively discharged its duties in accordance with its Terms of Reference. Annual Report 2019 P –G. 17 170 1
RISK MANAGEMENT COMMITTEE REPORT
“The Committee is committed to ensuring the deployment of a robust risk management framework, enabling key risks to be adequately identified, mitigated and reported in the pursuit of the Group’s strategies and objectives.” GOVERNANCE FRAMEWORK ZAINAL ABIDIN JAMAL Chairman of the Risk Management Committee
INSIDE THIS REPORT
The purpose of this report is to highlight areas that the Committee has reviewed during the financial year ended 31 December 2019 and the priorities going forward.
We report to shareholders on our responsibility to ensure the implementation of appropriate systems to manage the overall risk exposures of the Sime Darby Plantation Berhad (SDP) Group.
WHO IS THE COMMITTEE: 6 Members1 Membership Appointment Attendance Zainal Abidin Jamal Chairman 14 July 2017 5/5 100% Non-Independent Non-Executive Director
Datuk Zaiton Mohd Member 14 July 2017 2/5 40% Hassan Senior Independent Non-Executive Director
Tan Ting Min Member 14 July 2017 5/5 100% Independent Non-Executive Director
Lou Leong Kok Member 1 December 2017 5/5 100% Independent Non-Executive Director
Notes: 1 For the Members’ profiles see pages 116 to 127.
The RMC comprises a majority of Independent Non-Executive Directors and is supported by the Group Risk Management (GRM) Department in discharging its responsibilities. The RMC Chairman reports to the Board on key matters deliberated at the RMC meetings.
Meetings of the Committee are attended by the Group Managing Director, Chief Financial Officer, Sime Darby Oils Managing Director, Chief Operations Services Officer, Chief Risk Officer and Chief Integrity & Assurance Officer. In addition, other members of senior management are also invited to attend meetings as and when necessary to support detailed discussions. RISK MANAGEMENT COMMITTEE REPORT
ROLES OF THE COMMITTEE ANNUAL PERFORMANCE ASSESSMENT
The primary objective of the Committee is to assist the The Board performs an annual assessment of the Board of Directors in the discharge of its statutory and Committee’s effectiveness in undertaking its duties as set fiduciary responsibilities by identifying significant risks and out in the Terms of Reference. The Board is satisfied that ensuring that the Group Risk Management Framework the Committee has effectively discharged its duties in (RMF) includes the necessary policies and mechanisms accordance with its Terms of Reference. to manage the overall risk exposures of the Group. The RMC is also tasked with reviewing the adequacy and effectiveness of the RMF to ensure that it continues to OUR FOCUS AND ACTION PLANS support the vision, mission, and strategic objectives of the During the financial year ended December 2019, the RMC Group whilst safeguarding stakeholders’ interests. has undertaken the following key activities:
Specific duties of the Committee are as follows: Monitoring of principal risks affecting the achievement of the Group’s strategies & objectives. This includes Review the adequacy of the scope, functions, authority, reviewing strategic risk reports on external and emerging competency and resources of the GRM Department. risk outlooks as well as country risk assessments for Provide oversight, direction and counsel to the risk territories in which we operate; management process, specifically to: Reviewing and providing oversight on GRM’s activities (i) Establish the Group’s risk management framework which includes the following, amongst others: based on internationally recognised risk – Fortnightly key risks perspective newsletter management standards – Development of Group risk appetite statements (ii) Conduct an annual review and periodic testing – Revision to the Risk Management Standard of the Group RMF – Development of Business Continuity Plans at (iii) Establish and periodically review the Group risk Upstream and Downstream sites as well as a refresh management guidelines and policies and ensure of the SDP Head Office Business Continuity Plans implementation of the objectives outlined in the policies and compliance with them – Project risk assessments.
(iv) Review and recommend the Group’s level of risk Reviewing of risk appetite principles and related tolerance and actively identify, assess and monitor exposures; key business risks to safeguard shareholders’ Reviewing and tracking previous approved investment investments and the Group’s assets initiatives; and
(v) Monitor the Group level risk exposures and Reviewing and tracking the financial exposure position management of the significant financial and non- of the Group. financial risks identified including considering whether response strategies (and contingency Where appropriate, the RMC also leveraged on the work plans) to manage or mitigate material risks are of other Board committees such as the Sustainability appropriate and effective given the nature of the Committee and Nomination & Remuneration Committee identifiable risks. to assist with ensuring robust oversight of these particular Review investment proposals that are significant from risk exposures. a risk perspective and monitor the execution of risk mitigation strategies for such proposals. Follow up on In the coming year, the RMC will continue to focus on post-investment risk mitigation strategies to ensure providing oversight over the implementation of the RMF that the strategies are implemented subsequent to throughout the Group as well as monitoring the key risk the Board’s approval. exposures and the resultant mitigating actions affecting SDP. In the first quarter of 2020, the RMC was apprised Detailed Terms of Reference of the Committee are available of the key risk exposures arising from the COVID-19 online in the Corporate Governance section at http://www. outbreak. In particular, focus was on ensuring adequate simedarbyplantation.com/corporate/corporate-governance. business continuity procedures were undertaken in line Annual Report 2019 P –G. 173 172
with the business continuity management framework Developed and deployed specific and customised outlined in the Statement on Risk Management and guidelines in addition to SC19PERP for specific countries Internal Control. Amongst the activities undertaken by where SDP operates including those for Sime Darby the organisation to mitigate this risk includes the following: Oils (SDO) operating plants and sites. These include manpower repatriation plans whilst ensuring minimum Establishment and activation of SDP COVID-19 Response disruption to SDP’s operations. Team on 3 March 2020, chaired by the Group Managing Director to closely monitor related developments and To ensure business continuity, a chain of command
deliberate action plans focusing on the areas of risk was approved by the Board and all direct report GOVERNANCE FRAMEWORK management, safety & health, employee welfare, positions to the Group Managing Director have identified communications and business continuity. Where alternates in the event the incumbent is indisposed. necessary, specific country-level teams were also SDP is also active in assisting the frontlines i.e hospitals, established at locations where SDP operates. directly, through industry umbrella bodies (Malaysian Developed and deployed the SDP COVID-19 Preparedness Palm Oil Association) and also through Yayasan Sime and Emergency Response Plan (SC19PERP) which Darby in collaboration with the other two Sime Darby includes procedures and guidelines drawn in accordance listed companies. with those prescribed by the World Health Organisation, Ministry of Health, Malaysia and other relevant authorities, as well as specific procedures and guidelines to fit SDP’s various operations. SC19PERP has been deployed throughout the organisation and customised where applicable. Measures that have been deployed include stringent health screening and monitoring e.g. 6 mandating temperature checks, provision of adequate protective equipment and quarantine guidelines; business travel bans as well as ensuring social distancing is practiced through leveraging technology, limiting meeting sizes and segregation of teams and work from home arrangements.
Extensive communication to all employees on company policies and preventive measures to be adopted in response to COVID-19 as outlined in the SC19PERP.
Active engagement and communication to all stakeholders, particularly during the Movement Control Order in Malaysia (18 March 2020 to 12 May 20201), including major shareholders, Board of Directors, employees, business partners, regulators and policy makers to ensure minimum disruption to SDP’s operations while adhering to all laws and regulations imposed in SDP’s operating regions.
Developed and deployed specific guidelines in addition to SC19PERP for SDP estates and mills incorporating the specific requirements outlined by the Malaysian government as a condition for operating.
Liaising closely with other stakeholders to ensure the industry continues to operate and all industry players abide by the guidelines issued by the Authorities. SDP COVID-19 guidelines for estates and mills operations were adopted as industry standard in Malaysia.
1 As at press time STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL
INTRODUCTION The Board is pleased to provide the Statement on Risk Management and Internal Control which outlines the state of risk management and internal control within Sime Darby Plantation (SDP) for the financial year under review.
RESPONSIBILITIES AND ACCOUNTABILITIES
In today’s volatile, uncertain, complex and ambiguous business environment, it’s imperative that the Group anticipates future challenges and addresses its risks strategically. In SDP, our governance structure accords a dynamic balance of Board and Management working within a corporate ecosystem of risk management and internal controls. This is to effectively steer the Group in meeting its long term objectives and deliver value to the Group’s stakeholders within the realm of accountability, transparency, integrity and ethics.
The following sections further describe our corporate ecosystem of risk management and controls:
Board of Directors
Governance & Audit Risk Management Group Managing Committee Committee Director
Group Integrity, Group Risk Plantation Leadership Governance & Management Committee Assurance
Group Fraud & Group Corporate Group Corruption Risk Assurance Compliance Management
Board The Board recognises that business decisions involve taking appropriate risks and the Board’s understanding of risks and how risks are addressed have been fundamental in achieving the right balance of risks and controls in the Group. In carrying out its responsibility for the Group’s Risk Management Framework and related processes, the Board sets the risk appetite within which the Board expects Management to operate and monitor the operational, financial and risk management processes of the Group. Delegation of these responsibilities to the Governance & Audit Committee and the Risk Management Committee, ensures independent oversight over risk and internal control matters in the Group. Annual Report 2019 P –G. 175 174
Governance & Audit Committee The Governance & Audit Committee (GAC) supports the Board in fulfilling its statutory and fiduciary responsibilities by overseeing SDP’s internal control framework to ensure operational effectiveness and adequate protection of SDP’s assets from misappropriation. This covers a wide scope of duties that include oversight over financial reporting, governance and controls. The GAC is assisted by Group Integrity, Governance & Assurance (GIGA) which comprises three distinct functions of Group Corporate Assurance (GCA), Group Compliance (GCO) and Group Fraud & Corruption Risk Management (GFCRM). GOVERNANCE FRAMEWORK
▶ Group Integrity, Governance & Assurance The three functions within GIGA are tasked with a unique role in addressing the integrity, governance and assurance functions in the Group, as provided below: GCA undertakes regular and systematic reviews to evaluate and improve the effectiveness of risk management, control and governance processes throughout the Group operations and activities. GCO coordinates compliance risk management activities and provides reasonable assurance that the Group’s operations and activities are conducted in line with all regulatory requirements, internal policies and procedures, Code of Business Conduct and standards of good business practice. GFCRM detects and responds to fraud and corruption incidents/risks in the Group’s operations and activities by way of conducting special and investigative reviews.
For further details on the activities of the GAC and GIGA, refer to the GAC Report on pages 150 to 159. 6
Risk Management Committee The Risk Management Committee (RMC) assists the Board in providing the framework and guidance in which the business units can operate, identify, and report on Group-wide risks. The RMC has a broad mandate to ensure effective implementation of the objectives outlined in the Group Risk Management Framework and compliance with them throughout the Group. The RMC is also responsible for periodically reporting higher risk exposures as well as on the progress and assessment of risk management in the Group to the Board. Where appropriate, the RMC also leveraged on the work of other Board Committees such as the Sustainability Committee and Nomination & Remuneration Committee to assist with ensuring robust oversight of these particular risk exposures. The RMC is assisted by the Group Risk Management (GRM) function.
▶ Group Risk Management GRM assists the Board and the RMC with establishment, update and oversight of the Group Risk Management Framework. In carrying out its functions, GRM integrates risk into key business processes to facilitate effective decision making, embeds risk into the organisational culture to encourage effective decision making at all levels of the organisation, establishes and maintains a formal risk management process, including the establishment and maintenance of the business continuity management planning process.
For further details on the activities of the RMC and GRM, refer to the RMC Report on pages 171 to 173.
Group Managing Director The Board delegates to the Group Managing Director (GMD) the responsibility for ensuring effective implementation and maintenance of the Group Risk Management Framework and that all personnel adhere to its mandates. The Plantation Leadership Committee (PLC) supports the GMD in ensuring that appropriate controls are in place and working effectively in managing risk and governance within the Board mandated risk appetite as entrusted by the Board, as part of their responsibility in evaluating and making key strategic and operational decisions in the pursuit of the Group’s strategies. STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL
RISK MANAGEMENT
Group Risk Management Framework Our Group Risk Management Framework is aligned with ISO31000:2018 standard on risk management which promotes three facets of risk management as depicted in the diagram below:
Continual Integrated Improvement
Human and Structured and Cultural Comprehensive Factors Value Creation and Protection
Best Available Customised Information
Dynamic Inclusive
Principles (clause 4) Integration Scope, Context, Criteria
Risk Assessment
Risk Identification Improvement Design
Leadership and Risk Analysis Commitment
Risk Evaluation MONITORING & REVIEW MONITORING COMMUNICATION & CONSULTATION COMMUNICATION Evaluation Implementation Risk Treatment
RECORDING & REPORTING
Framework (clause 5) Process (clause 6)
The primary goal of the Group Risk Management Framework Management Framework involves identification of risk and is to identify, evaluate and manage risks that would mitigating measures in both, strategy-setting and in driving impede the achievement of the Group’s long term and performance. The role of leaders and their responsibilities short term strategies and objectives. Our approach to risk are emphasised in the framework to ensure that risk management is aimed at embedding risk awareness in management is an essential part of business. The all decision-making and a commitment to managing risk responsibility for identifying, evaluating and managing risks proactively and effectively. This includes identifying and lies with all employees and business leaders and they evaluating threats and opportunities early, managing and operate within the Group-wide framework to manage risks preventing threats before they materialise and responding within approved limits. The Group Risk Management effectively if they do, and actively pursuing opportunities Framework is also aligned with COSO1 2017 Enterprise Risk to capture value within agreed risk tolerances. Management – Integrating with Strategy and Performance which clearly underscores our commitment towards As creating and protecting value is the key driver of risk enterprise risk management in strategic planning and our management, it is imperative that the Group Risk will to embed risk management throughout the organisation.
1 Committee of Sponsoring Organisations of the Treadway Commission Annual Report 2019 P –G. 17 176 7
Our integrated approach is two pronged, i.e. a top down strategic view which is complemented by bottom up operational risk assessments, whilst taking cognisance of the external environment in which we operate. These risk assessments are complemented by strategic country risk analyses and forecasts as well as risk assessments for key projects and investments undertaken by the Group in an effort to proactively anticipate and mitigate risk events. This facilitates the understanding and management of risk at all levels of the business.
The Risk Management Governance Structure shown below captures the arrangements and accountability of relevant levels of management and operations. GOVERNANCE FRAMEWORK
Board of Directors
Governance Risk & Audit Management Committee Committee Group Managing Director
Group Integrity, Group Risk Plantation Leadership Committee 6 Governance & Management (Risk Owners) Assurance Accountable and responsible for effective risk identification & management
2nd & 3rd Lines of Defence
Risk Champions Respective Business Units/Support Function have nominated Risk Champions who will support the Risk Owners on risk management matters
Business Units / Support Functions
Group Group Advisory Sime Darby Group Group Human Sustainability Upstream & Value Creation Oils Finance Resources & Quality Management
Group Strategy Group Group Research Group Corporate Group Group Digital & Innovation Legal & Development Secretarial Communications
1st Line of Defence
These three lines of defence in the exercise of their functions are designed to reinforce each other in the implementation and strengthening of the Group Risk Management Framework.
To read more about how risk management was implemented during the year under review, refer to the RMC Report on pages 171 to 173. STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL
Group Business Continuity Framework Our Business Continuity Framework is aligned with ISO22301:2012 standard on business continuity management systems. It covers end to end guidance to assist with managing a crisis event with the main objectives as follows: To safeguard life, property and environment; To minimise the loss of assets, revenue and impact upon customers; To continue to provide products and services during adverse conditions; and To facilitate timely recovery of critical business functions.
Process Emergency and Crisis Management Recovery and Restoration Management
Document Emergency Crisis Disaster Recovery Business Continuity Preparedness and Communications Plan (DRP) Plan (BCP) Response (EPR) Plan (CCP) Procedures
Nature of Documents Documents Documents Documents Document procedures to procedures to procedures to recover procedures to recover manage potential manage and protect business and restore business and actual communications operations to IT infrastructure to emergency situations when a crisis is normality support business with ESH imminent or has operations implications happened
Objective of Safety and health of Communications IT applications/data People relocate and Document people are occurs effectively protected resume operation maintained effectively
The Group is committed to safeguard the interests of all stakeholders in times of disaster and/or emergency. Therefore, Business Continuity processes are put in place to ensure that the Group is able to continue operations with minimal impact to stakeholders in the event of disruption.
Risk Reporting The Group Risk Management Framework provides for consistent review and reporting. On a quarterly basis, formal risk reports are developed and presented to the PLC and RMC. Any potential risks identified are escalated as appropriate, with mitigation actions put in place to manage such risks. Significant risks affecting the business as well as periodic external and emerging risk outlooks are presented to the RMC. Additionally, due to the evolving nature of risk events in the external environment in which we operate, a fortnightly key risks perspective newsletter on external and emerging risks is prepared and circulated to the Board and Management. Annual Report 2019 P –G. 179 178
INTERNAL CONTROL FRAMEWORK
At SDP, the following key control components have been embedded to assist the Board in maintaining a sound system of internal control in the Group.
Policy Instruments Our policy instruments refer to the various types of policies, procedures and guidelines which serve as a backbone for both, external and internal compliance, in achieving best practices and streamlining internal processes. Within GOVERNANCE FRAMEWORK the hierarchy of our Policy Instrument Framework, we have established ground rules for the development, establishment, amendment, and review of all core policy instruments.
Legislation
Company Constitution
• Board Charter • Terms of reference of Board Committees 6 Board Charter
• GPAs • Group Policies • Business Segment Policies (GHO) • Business Segment Policies (Others) Policies • Statement of Intent Hierarchy of Policy Instruments of Hierarchy • Group Procedures • GHO Departmental Procedures • Business Segment Procedures • Business Unit Procedures Procedures • Guidelines
The list of Policy Instrument above is non exhaustive. Categorical equivalence to policies/procedures include, but are not limited to items illustrated in this diagram.
Key policy instruments for the Group include the following:
Our Board Charter sets out the Board’s strategic intent and outlines the Board’s roles and powers which it reserves for itself, and those which it delegates to Management.
Our Terms of Reference of the respective Board Committees set the tone of the various Board Committees with regard to their purpose, scope, responsibility, and accountability.
Our Group Policies & Authorities (GPAs) define the lines of responsibility, accountability, and authority limits and represent a formal delegation of the Board’s powers and functions to Management. The GPAs are designed to empower Management to achieve business objectives within the boundaries of business ethics governance and covers functional policies, ethics and conduct, protecting of Group assets, key processes, and Limits of Authority.
Our policies, procedures and guidelines are developed by relevant departments, business segments and business units to support the achievement of the principles stipulated in the GPAs, all of which, are mandatory to be complied with by Directors and Employees of the Group.
Key policy instruments are accessible via the Group intranet in ensuring that Directors and Employees understand their obligations within the Group’s governance framework. All policy instruments are reviewed and revised, as appropriate, on a periodic basis to ensure that they are relevant to the current operating environment and better reflect intended practices. STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL
Code of Business Conduct Our Code of Business Conduct (COBC) has been instrumental in guiding Directors and Employees in upholding our Core Values of Integrity, Respect & Responsibility, Enterprising and Excellence.
All Directors and Employees are required to sign an attestation to acknowledge compliance with the COBC and their understanding of the rules, principles and policies outlined in the COBC. The COBC is made available in all key languages in the jurisdictions within which the Group operates and is accessible on the Group’s corporate website and intranet.
In enhancing the awareness and understanding of the COBC among Employees throughout the Group, various awareness programmes are rolled out across the Group via a combination of physical briefings, video briefings, collaterals, surveys and graphics.
INTEGRITY RESPECT & RESPONSIBILITY We uphold high levels of personal We have respect for the individuals and professional values in all our we interact with, the environment that business interactions and decisions we operate in and are committed to being responsible in all our actions CORE VALUES EXCELLENCE ENTERPRISING We stretch the horizons of growth for We seek and seize opportunities with ourselves and our business through speed and agility, challenging set our unwavering ambition to achieve boundaries personal and business results
Business Planning and Reporting People Development Our annual business planning process entails the Our people development approach applies consistent development of a Group Strategy Blueprint which includes structured development through experiential and practical among others, our vision and mission, business objectives learning. Talent identification for high potential and and goals, assessment of the competitive environment, succession talent candidates emphasise on assessment financial highlights and details on our strategies, action criteria and talent governing structure steered by our plans and roadmap and corresponding Group Budget. Enterprise Talent Council at Management level and Both the Group Strategy Blueprint and the Group Budget Nomination & Remuneration Committee at the Board are subjected to rigorous deliberation with key stakeholders Committee level. High potential talents are identified for prior to approval by the Board. Our performance is their future growth development in harnessing their monitored on a periodic basis by the Board and capability while ensuring talent retention whereas for Management via the preparation and review of operational succession talent, the focus is on identifying talent readiness reports, periodic budgets and financial performance (actual to succeed the Group Mission Critical Positions. As staff against budget) and forecast reports. This provides an KPIs are defined based on critical business strategies, there avenue for performance to be periodically monitored and exists clarity on development potential for each employee followed up upon, whereby corrective actions are taken based on technical, functional and competency requirements. to address deviation from plans. Internal Audit Performance Management Our internal audits provide independent, objective and Our Performance Management Framework applies the risk based assurance and consulting services designed to balanced scorecard approach in setting goals aligned to add value and improve the operations in the Group by Group’s vision of becoming a high performance organisation. assessing whether risk management, control and The organisation’s strategies are translated into Key governance processes are designed and operate sustainably Performance Indicators (KPI), which is then mapped across and effectively. Where control limitations are noted, four dimensions, i.e. financial, customer, operational and corrective actions are proposed for Management’s people development. These KPIs are aligned across consideration and thereafter monitored for implementation. businesses, functions and levels; striving towards shared The implementation of data analytics and continuous common goals of driving business objectives, while strongly control monitoring harnesses the potential of real-time upholding core governance principles. auditing towards improving the control environment. Annual Report 2019 P –G. 181 180
Control Self-Assessment Amongst others, this Framework entails the development Our Control Self-Assessment (CSA) process accords line of relevant policies and procedures on corruption Management with full responsibility and accountability management, corruption risk assessment as well as relevant for effective risk management and controls implementation training and awareness programmes for our Directors and within their operations. Selected validation promotes the Employees. The Board is kept abreast on our anti-corruption integrity of the process while focused workshops provide compliance programmes via periodic reporting in the avenue to deliberate and agree on control enhancements. demonstrating the top-level commitment on the Group’s anti-corruption efforts. Where applicable, the requirements of this Framework are extended to our Counterparties and GOVERNANCE FRAMEWORK Fraud & Corruption Risk Management Business Partners in ensuring that anti-corruption and Our Fraud & Corruption Risk Management function detects bribery initiatives are applied throughout our supply chain and responds to fraud and corruption incidents/risks by in promoting a corruption-free business environment. Our way of conducting special and investigative reviews at stance on our Commitment in Combatting Corruption is the request of the GAC, Management and/or complaints made publicly available via our Anti-Corruption Policy formally received through the whistleblowing channel or Statement on our corporate website. based on red flags identified through other form of reviews. The implementation of fraud and corruption risk assessment Vendor Management as well as fraud and corruption detection strategies assist to minimise the incidence of fraud and corruption in the Vendor Code of Business Conduct Group. Our Vendor Code of Business Conduct (VCOBC) emphasises our commitment to work closely with our Vendors (such Whistleblowing as Service Providers, Suppliers, Contractors and Consultants) Our whistleblowing channels assist stakeholders to raise to ensure that our values and principles are carried through 6 concerns, without fear of retaliation, on any wrongdoing in every aspect of our business operations. In this regard, that they may observe in the Group. We take a serious we extend our business principles and standards of view of any wrongdoing on the part of any of our behaviour to our Vendors via the VCOBC, which outlines Employees, Management, Directors and Vendors, in the standards of behaviour required from the Vendors in particular with respect to their obligations to the Group’s relation to labour & human rights, sustainability, health, interests and all reports made in good faith will be safety & environment, and ethics & management practices. investigated, regardless of the length of service, position/ title, relationship or connection of the alleged parties to Vendor Integrity Pledge the Group. To facilitate reporting of whistleblowing The Vendor Integrity Pledge is a formal affirmation by complaints, complaints can be lodged via various channels any Vendor who intends to conduct business transaction(s) (website, e-mail, telephone, WhatsApp, postal box) with us that the said Vendor will comply with all applicable throughout our global operations and are managed via laws or regulations, is not involved with any offence of an independent function to ensure the transparency and bribery, corruption or fraud; and will not engage in bribery, confidentiality of the process. corruption or fraud with the Group.
Anti-Corruption Compliance Vendor selection Our Anti-Corruption Compliance Framework promotes Vendor management is a key area in managing compliance the implementation and enforcement of effective systems of our overall vendor and procurement governance. All to counter corruption by providing the principles and vendors are required to undergo the various processes guidelines to address corruption risks in a coordinated involved, including registration and pre-qualification for and consistent manner and defining roles, responsibilities the Group to establish a quality and comprehensive and accountabilities of key parties within the Group. This Approved Vendor List. Further evaluation is conducted to Framework is developed based on the ISO 37001:2016 assess vendors’ range of work categories and nature of (Anti-Bribery Management System) and the Plan-Do- business against the business needs. Continuous Check-Act (PDCA) model, taking cognisance of the Group’s performance evaluations will be carried out to ensure global operating footprint, in consideration of, among that these Vendors continue to meet the business others, the nature of activities, business norms, organisation requirements of the Group. structure, regulatory requirements, as well as the needs and expectations of the Group’s stakeholders. STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL
Communication and Reporting Insurance Our relevant policies and procedures on stakeholder Our insurance programmes are designed as a key risk engagement ensures that we proactively engage and management tool to protect the Group against insurable effectively manage the dissemination of information to critical threats. Prior to procuring any insurance policy, risk key stakeholders of the Group. Disclosures, which include assessments are conducted to develop an insurance quarterly and annual financial statements, announcements programme which balances insurance premium costs, the made to Bursa Malaysia Securities Berhad (Bursa Securities), quality of insurance coverage and overall claim experience and corporate presentations are made in accordance to without compromising on our overall risk exposure. regulatory requirements and are published on our website on a timely basis. MATERIAL JOINT VENTURES AND ASSOCIATES
Information Systems The disclosures in this statement exclude the risk management and internal control practices of the Group’s Our Enterprise Resource Planning (ERP) system enables Joint Ventures and Associates. The Group’s interests in transactions to be captured, compiled, analysed, and these entities are safeguarded through the appointments reported in a timely and accurate manner. This is in line of members of the Group’s Senior Management team to with the need to maintain a secure, effective and reliable the Board of Directors and, in certain cases, the IT environment to support the Group’s business operations. management or operational committees of these entities. In this regard, information systems in the Group are automated and provide Management with data, analysis, variations, exceptions and other inputs relevant to the REVIEW OF THE STATEMENT BY THE EXTERNAL Group’s performance. AUDITORS
The information system platform in the Group also operates As per the requirement of Paragraph 15.23 of the Main based on a set of IT policies and procedures intended to Market Listing Requirements (MMLR) of Bursa Securities, protect the usage of the Group’s information and resources. the external auditors have reviewed this Statement on Risk These include IT governance and authority, information Management and Internal Control (SORMIC). Their limited security policies, identity and access management standards, assurance review was performed in accordance with the project management framework, service management, Audit and Assurance Practice Guide (AAPG) 3 (Revised: and guidelines on the usage of computer facilities. February 2018) issued by the Malaysian Institute of Accountants. The AAPG 3 (Revised) does not require the external auditors to consider whether the SORMIC covers all risks and controls, Sustainability or to form an opinion on the adequacy and effectiveness Our Group Sustainability Principles, which are guided by of the Group’s risk management and internal control systems the United Nations Sustainable Development Goals, seek including the assessment and opinion by the Board of to contribute to a better society, minimise environmental Directors and the Management thereon. harm and deliver sustainable development and these principles are encapsulated in our Human Rights, Responsible Agriculture and Innovation & Productivity Charters. All CONCLUSION Employees are responsible to promote good governance For the financial year under review and up to the date and transparency in their actions by instilling a culture of of approval of this statement, the Board is satisfied with integrity and addressing sustainability and quality risks into the adequacy and effectiveness of the Group’s system of all operational and decision making process. risk management and internal control to safeguard the shareholders’ investments and the Group’s assets. Risk Management Enterprise Risk Management The Board has received reasonable assurance from the GMD and the Chief Financial Officer that the Group’s risk Please refer to the Risk Management section of this management and internal control systems, in all material Statement on pages 171 to 173. aspects, are operating adequately and effectively. This statement is made in compliance with Paragraph 15.26(b) Business Continuity Management of the MMLR of Bursa Securities and Principle B of the Please refer to the Risk Management section of this Malaysian Code on Corporate Governance 2017 issued by Statement on pages 171 to 173. Securities Commission Malaysia, and guided by the Statement on Risk Management & Internal Control: Guidelines for Directors of Listed Issuers.
This statement is made in accordance with a resolution of the Board dated 16 April 2020. Annual Report 2019 P –G. 183 182
STATEMENT OF RESPONSIBILITY BY THE BOARD OF DIRECTORS
The Directors are responsible for the preparation, integrity and fair presentation of the annual financial statements of the Sime Darby Plantation Berhad Group. As required by the Companies Act, 2016 (Act) and the Main Market Listing Requirements of Bursa Malaysia Securities Berhad, the financial statements for the financial year ended 31 December 2019, as presented on pages 191 to 363, have been prepared in accordance with the Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Act.
The Directors consider that in preparing the financial statements, the Group and the Company have used the appropriate accounting policies, consistently applied and supported by reasonable and prudent judgments and estimates. The Directors are satisfied that the information contained in the financial statements give a true and fair GOVERNANCE FRAMEWORK view of the financial position of the Group and of the Company at the end of the financial year and of the financial performance and cash flows for the financial year.
The Directors have responsibility for ensuring that proper accounting records are kept. The accounting records should disclose with reasonable accuracy the financial position of the Group and the Company to enable the Directors to ensure that the financial statements comply with the Act. The Directors have the general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group to prevent and detect fraud and other irregularities.
This statement is made in accordance with a resolution of the Board of Directors dated 29 April 2020.
BOARD APPROVAL OF FINANCIAL STATEMENTS
The annual financial statements for the financial year ended 31 December 2019 are set out on pages 191 to 363. 6 The preparation thereof was supervised by the Chief Financial Officer and approved by the Board of Directors on 29 April 2020. FINANCIAL STATEMENTS
186 Directors’ Report 191 Statements Of Profit Or Loss 192 Statements Of Comprehensive Income 193 Statements Of Financial Position 195 Consolidated Statement Of Changes In Equity 196 Company Statement Of Changes In Equity 197 Statements Of Cash Flows 202 Notes To The Financial Statements 364 Statement By Directors 364 Statutory Declaration 365 Independent Auditors’ Report
DIRECTORS’ REPORT For The Financial Year Ended 31 December 2019
The Directors hereby submit the Directors’ Report (“Report”) together with the audited financial statements of the Group and of the Company for the financial year ended 31 December 2019.
PRINCIPAL ACTIVITIES
The principal activities of the Company consist of the production, processing, refining and sales of palm oil and palm kernel oil, manufacturing and marketing of specialty fats and edible oils, rubber and other palm oil related products and investment holding.
The principal activities of the Group consist of the production, processing, refining and sales of palm oil and palm kernel oil, manufacturing and blending, marketing and distribution of specialty fats, edible oils, rubber, coconut oil and other palm oil related products, production and sales of sugar and beef, and the involvement in other agriculture related business as disclosed in Note 51 to the financial statements.
Other than the above, there were no significant changes in the nature of these activities during the financial year.
FINANCIAL RESULTS Group Company RM’000 RM’000
Profit/(loss) before tax 251,316 (255,789) Tax credit/(expense) 23,569 (5,755)
Profit/(loss) for the financial year from continuing operations 274,885 (261,544) Loss for the financial year from discontinuing operations (321,793) –
Loss for the financial year (46,908) (261,544)
Profit/(loss) for the financial year attributable to: – equity holders of the Company – from continuing operations 121,633 (385,844) – from discontinuing operations (321,793) –
(200,160) (385,844) – Perpetual Sukuk – from continuing operations 124,300 124,300 – non-controlling interests – from continuing operations 28,952 –
(46,908) (261,544)
DIVIDENDS
Since the end of the previous financial period, the Company has paid the following dividends:
RM’000
Dividends for the financial period ended 31 December 2018:
Final single tier dividend of 1.7 sen per ordinary share, paid on 21 May 2019 117,038
A final single tier dividend of 1.0 sen per ordinary share, amounting to RM68.9 million in respect of the financial year ended 31 December 2019 has been declared on 28 February 2020 and will be paid on 22 May 2020. The entitlement date for the dividend payment is 12 May 2020. Annual Report 2019 P –G. 187 186
RESERVES AND PROVISIONS
All material transfers to or from reserves and provisions during the financial year are shown in the financial statements.
SHARE CAPITAL, PERPETUAL SUKUK AND DEBENTURES
During the financial year, the Company increased its issued and paid-up share capital to RM1,506,119,114 by way of issuance of 83,735,906 new shares pursuant to the Dividend Reinvestment Plan of the Company.
DIRECTORS FINANCIAL STATEMENTS
The Directors in office during the financial year and during the period from the end of the financial year to date of this Report are:
Tan Sri Dato’ A. Ghani Othman Tan Sri Dato’ Seri Mohd Bakke Salleh (Retired on 30 June 2019) Tan Sri Datuk Dr. Yusof Basiran Muhammad Lutfi Datuk Zaiton Mohd Hassan Dato’ Mohamad Nasir Ab. Latif (Resigned on 31 December 2019) Dato’ Mohd Nizam Zainordin Dato’ Henry Sackville Barlow Tunku Alizakri Raja Muhammad Alias (Appointed on 1 January 2020) Zainal Abidin Jamal 7 Tan Ting Min Lou Leong Kok Mohamad Helmy Othman Basha (Appointed on 1 July 2019)
DIRECTORS’ REMUNERATION
Details of Directors’ remuneration are set out in Note 11 to the financial statements.
DIRECTORS’ BENEFITS
During and at the end of the financial year, no arrangements subsisted to which the Company is a party, with the object or objects of enabling Directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate, as disclosed in Directors’ Interests in Shares.
Since the end of the previous financial period, no Director has received or become entitled to receive a benefit (other than benefits disclosed as Directors’ remuneration in Note 11 to the financial statements) by reason of a contract made by the Company or a related corporation with the Director or with a firm of which he or she is a member, or with a company in which he or she has a substantial financial interest except for any benefits which may be deemed to have arisen from the transactions disclosed in Note 11 to the financial statements.
The Directors and officers of the Group and of the Company are covered by Directors and Officers liability insurance for any liability incurred in the discharge of their duties, provided that they have not acted fraudulently or dishonestly or derived any personal profit or advantage. The insurance premium paid for the financial year amounted to RM329,525.
DIRECTORS’ INTERESTS IN SHARES
According to the Register of Directors’ Shareholdings required to be kept under Section 59 of the Companies Act 2016, none of the Directors who held office at the end of the financial year held any shares, or debentures of, the Company or its related corporations during the financial year. DIRECTORS’ REPORT For The Financial Year Ended 31 December 2019
STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS
(a) Before the financial statements of the Group and of the Company were prepared, the Directors took reasonable steps:
(i) to ascertain that proper action had been taken in relation to the writing off of bad debts and the impairment for doubtful debts, and satisfied themselves that all known bad debts had been written off and adequate impairment had been made for doubtful debts; and
(ii) to ensure that any current assets, which were unlikely to realise in the ordinary course of business, their values of current assets as shown in the accounting records of the Group and of the Company, have been written down to amounts which they might be expected to realise.
(b) At the date of this Report, the Directors are not aware of any circumstances:
(i) which would render the amount written off for bad debts or the amount of the impairment for doubtful debts in the financial statements of the Group and of the Company inadequate to any substantial extent;
(ii) which would render the values attributed to current assets in the financial statements of the Group and of the Company misleading; or
(iii) which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate.
(c) As at the date of this Report:
(i) there are no charges on the assets of the Group or of the Company which have arisen since the end of the financial year to secure the liability of any other person; and
(ii) there are no contingent liabilities in the Group or in the Company which have arisen since the end of the financial year other than those arising in the ordinary course of business.
(d) At the date of this Report, the Directors are not aware of any circumstances not otherwise dealt within the Report or financial statements which would render any amount stated in the financial statements misleading.
(e) In the opinion of the Directors:
(i) the results of the operations of the Group and of the Company during the financial year were not substantially affected by any item, transactions or events of a material and unusual nature, except that (a) the Group has impaired the assets in a wholly-owned subsidiary, Sime Darby Plantation (Liberia) Inc. (“SDP Liberia”) of RM235.4 million as disclosed in Note 13 to the financial statements; and (b) impairment of the Company’s cost of investment in SDP Liberia amounting to RM305.9 million as described in Note 21 to the financial statements.
(ii) no contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which will or may substantially affect the ability of the Group and of the Company to meet their obligations as and when they fall due; and
(iii) no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this Report which is likely to affect substantially the results of the operations of the Group and of the Company for the financial year in which this Report is made except for the events disclosed in Note 52 to the financial statements. Annual Report 2019 PG. 188 – 189
LIST OF DIRECTORS OF SUBSIDIARIES
Pursuant to Section 253 of the Companies Act 2016, the list of Directors of the subsidiaries during the financial year and up to the date of this Report is as follows (excluding Directors who are also Directors of the Company):
Abdul Jalil Sulaiman Fazli Salikin Nor Aznan Mohd Yusof Adi Wira Abd Razak Francois van Hoydonck Nuchanand Sukmongkol Agus Dani Ariyanto Fuyuhiko Nakata Nurwanto Ahmad Zairil Zainal Gajani Nayagi Seeveneserajah Pandu Wibowo Ahmad Faraid Mohammed Yahaya Godfrey Shiletikwa Urasa Philip KO Kunjappy Alagendran Maniam Handi Kusnandar Prof. Peter Caligari FINANCIAL STATEMENTS Amir Hisham Hashim Hernandy Rifansyah Karli R Krishna Moorthy Ramasamy Amir Mohareb Hersoebeno Brotowinoto Rasyid Redza Anwarudin Andrew Timothy Worrall Hissammudin Mohamad Sabidin Renaka Ramachandran Armando Edgar Mahyudion Daniel Ir. Safwani Robert Anak Tugang Ary Tri Prasetyo Izaidin Mohd Zahari Robert Nilkare Asanee Mallamphut James Walter Graham Roslin Azmy Hassan Asmawatti Othman Jeffry Faizal Kamaruddin Ruari MacWilliam Ayu Siri Ratana Chandra Johari Meor Ngah Rusdianto S. Sos Azmi Jaafar Jonathan Pennefather Sandeep Bhan Bambang Sumantri Hadi Mulyanto Khaizarudin Awaludin Shahrakbah Yacob Benjamin McKeeman Oakley Lakon Anak Igey Shahrizan Aini Shamsul Khalil Bryan Dyer Lee Ai Leng Shamsuddin Muhammad Budi Darmono Lee Chong Yee Shogo Yoshida 7 Budi Suyanto Lim Ban Yeow (Alternate Director to Burhan Chahyadi Lisnawati Ibrahim Fuyuhiko Nakata) Chim Foong May M. Rukun Siregar Sir Joseph Tauvasa Craig Gibsone Marie Cindhia Veronique Suhartono Datu Haji Abdul Rashid Mohd Azis Magny-Antoine Supasak Chirasavinuprapand Datuk Franki Anthony Dass Marie-Claude Priscille Koenig Syah Nizam Denny Wicaksana Mersal Abang Rosli Syamsidar Syamsul, SH Djoko Martopo (Alternate Director to Datu Haji Tan Sri Datuk Amar Haji Bujang Dodik Prayitno Abdul Rashid Mohd Azis) Mohammed Bujang Mohammed Dorab Erach Mistry Michael Barkhuysen Nor Dr. K. Harikrishna Michelle Chang Yuet Ling Datuk Haji Abang Abdul Wahap Dr. K. Kulaveerasingam Mohamed Abd Samad Bin Haji Abang Julai Dr. Luc Bonneau Mohammad Japri Giman (Alternate Director to Tan Sri Dr. Shariman Alwani Mohamed Mohd Amri Baharuddin Datuk Amar Haji Bujang Nordin Mohd Hamdi Abd Karim Mohammed Bujang Mohammed Dr. Stephen Nelson Mohd Haris Mohd Arshad Nor) Dr. Ir. Ahmad Jaafar Abd Hamid Mohd Khiri Abd Wahab Vistra NC B.V. Drs. Jakob Tobing MPA Mohd Nazri Mohamad Nageeb Wan Fauzan Shah Wan Ismail Edeng Mulia Dermawan Mohd Zamri Pardi Yogesh Kotak Edi Febriyanto Muhammud Nurazli Razali Yustinus Lambang Setyo Putro Elaim Tangirongo Nindyo Pranantoro Zuhairi Zubir Eliza Mohamed Zulkifli Zainal Abidin Ernie Gangloff DIRECTORS’ REPORT For The Financial Year Ended 31 December 2019
SUBSIDIARIES
Details of subsidiaries of the Company are set out in Note 51 to the financial statements.
IMMEDIATE AND ULTIMATE HOLDING COMPANIES
The Directors regard Permodalan Nasional Berhad as its immediate holding company and Yayasan Pelaburan Bumiputra as its ultimate holding company. Both companies are incorporated in Malaysia.
AUDITORS
The audit fees for services rendered by the auditors to the Group and the Company for the financial year ended 31 December 2019 are disclosed in Note 6(f) to the financial statements.
The Group and the Company do not indemnify the auditors of the Company for losses in the event of legal actions brought against the auditors for alleged wrongful acts by the auditors.
The auditors, PricewaterhouseCoopers PLT (LLP0014401-LCA & AF 1146), have expressed their willingness to accept the re-appointment as auditors.
This Report was approved by the Board of Directors on 29 April 2020.
TAN SRI DATO’ A. GHANI OTHMAN MOHAMAD HELMY OTHMAN BASHA DIRECTOR DIRECTOR
Selangor 29 April 2020 Annual Report 2019 P –G. 191 190
STATEMENTS OF PROFIT OR LOSS For The Financial Year Ended 31 December 2019
GROUP COMPANY
Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000
Continuing operations Revenue 5 12,062,266 6,518,321 3,161,885 1,652,040 Operating expenses 6 (11,651,019) (6,103,470) (3,307,209) (1,676,203) Other operating income 7 202,361 155,620 168,980 137,941 FINANCIAL STATEMENTS Other gains and losses 8 (209,376) 42,423 (99,387) (153,938)
Operating profit/(loss) 404,232 612,894 (75,731) (40,160) Share of results of joint ventures 22(a) 3,911 225 – – Share of results of associates 23(a) (2,257) 1,568 – –
Profit/(loss) before interest and tax 405,886 614,687 (75,731) (40,160)
Finance income 9 12,975 8,473 17,786 8,934 Finance costs 10 (167,545) (109,985) (197,844) (89,347)
Profit/(loss) before tax 251,316 513,175 (255,789) (120,573) Tax credit/(expense) 12 23,569 (145,252) (5,755) (15,970)
Profit/(loss) for the financial year/ period from continuing operations 274,885 367,923 (261,544) (136,543) 7
Discontinuing operations Loss for the financial year/period from discontinuing operations 13 (321,793) (56,128) – –
(Loss)/profit for the financial year/period (46,908) 311,795 (261,544) (136,543)
Profit/(loss) for the financial year/ period attributable to: – equity holders of the Company – from continuing operations 121,633 299,636 (385,844) (199,204) – from discontinuing operations 13 (321,793) (56,128) – –
(200,160) 243,508 (385,844) (199,204) – Perpetual Sukuk – from continuing operations 36 124,300 62,661 124,300 62,661 – non-controlling interests – from continuing operations 37 28,952 5,626 – –
(46,908) 311,795 (261,544) (136,543)
sen sen
Basic/diluted earnings/(loss) per share attributable to equity holders of the Company
– from continuing operations 14 1.77 4.41 – from discontinuing operations 14 (4.67) (0.83) STATEMENTS OF COMPREHENSIVE INCOME For The Financial Year Ended 31 December 2019
GROUP COMPANY
Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000
(Loss)/profit for the financial year/period (46,908) 311,795 (261,544) (136,543)
Continuing operations Items that will be reclassified subsequently to profit or loss: Currency translation differences gains/ (losses): – subsidiaries 16 88,580 160,998 – – Cash flow hedge – changes in fair value (17,564) (4,551) (18,899) (7,465) – transfers to profit or loss 8 (6,433) (7,966) 1,211 267 Tax (expense)/credit relating to components of other comprehensive income 16 (1,181) (975) (302) 26
63,402 147,506 (17,990) (7,172)
Items that will not be reclassified subsequently to profit or loss: Actuarial loss on defined benefit plans 38 (15,257) (2,100) – – Investment at fair value through other comprehensive income (“FVOCI”) – changes in fair value 25 1,175 1,204 1,300 (839) Tax credit relating to components of other comprehensive loss 16 3,567 526 – –
(10,515) (370) 1,300 (839)
Other comprehensive income/(loss) from continuing operations 52,887 147,136 (16,690) (8,011) Other comprehensive income from discontinuing operations 13 2,000 15,557 – –
Total other comprehensive income/(loss) for the financial year/period 16 54,887 162,693 (16,690) (8,011)
Total comprehensive income/(loss) for the financial year/period 7,979 474,488 (278,234) (144,554)
Total comprehensive income/(loss) for the financial year/period attributable to: – equity holders of the Company – from continuing operations 173,236 441,326 (402,534) (207,215) – from discontinuing operations 13 (319,793) (40,571) – –
(146,557) 400,755 (402,534) (207,215) – Perpetual Sukuk – from continuing operations 124,300 62,661 124,300 62,661 – non-controlling interests – from continuing operations 30,236 11,072 – –
7,979 474,488 (278,234) (144,554) Annual Report 2019 P –G. 193 192
STATEMENTS OF FINANCIAL POSITION As At 31 December 2019
GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000
NON-CURRENT ASSETS Property, plant and equipment 17 17,314,025 17,004,073 7,914,895 7,838,988 Investment properties 18 7,609 15,176 – – Right-of-use assets 20 2,145,540 2,239,212 282,601 287,477 Subsidiaries 21 – – 8,032,180 8,381,283
Joint ventures 22 34,152 446,805 3,745 311,938 FINANCIAL STATEMENTS Associates 23 39,755 41,678 420 420 Intangible assets 24 2,840,508 2,892,843 2,073,603 2,081,424 Investments at fair value through other comprehensive income (“FVOCI”) 25 30,469 29,294 27,049 25,749 Deferred tax assets 26 640,094 508,991 – – Tax recoverable 27 333,674 290,412 – – Trade and other receivables 28 155,741 115,122 – – Amount due from a subsidiary 30 – – 59,768 49,080
23,541,567 23,583,606 18,394,261 18,976,359
CURRENT ASSETS Inventories 29 1,498,398 1,681,776 141,046 219,530 7 Biological assets 19 188,764 178,783 27,767 19,007 Trade and other receivables 28 1,933,597 2,070,290 227,902 218,841 Tax recoverable 27 312,616 435,295 50,821 93,372 Amounts due from subsidiaries 30 – – 536,325 522,981 Amounts due from related parties 30 2,158 2,171 3,226 2,903 Derivatives 31 76,737 58,664 35,489 20,860 Bank balances, deposits and cash 32 431,347 491,042 85,403 65,693
4,443,617 4,918,021 1,107,979 1,163,187
Non-current assets held for sale 33 522,538 124,675 328,247 14
TOTAL ASSETS 28,507,722 28,626,302 19,830,487 20,139,560
EQUITY Share capital 34 1,506,119 1,100,000 1,506,119 1,100,000 Reserves 35 11,754,854 12,018,449 7,449,143 7,968,715
Attributable to equity holders of the Company 13,260,973 13,118,449 8,955,262 9,068,715 Perpetual Sukuk 36 2,231,398 2,231,398 2,231,398 2,231,398 Non-controlling interests 37 368,351 396,078 – –
TOTAL EQUITY 15,860,722 15,745,925 11,186,660 11,300,113 STATEMENTS OF FINANCIAL POSITION As At 31 December 2019
GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000
NON-CURRENT LIABILITIES Retirement benefits 38 259,736 229,809 50,699 50,306 Deferred income 41 207 446 – – Deferred tax liabilities 26 2,598,247 2,653,870 701,855 710,406 Amount due to a subsidiary 30 – – 503,112 504,707 Borrowings 39 5,255,384 5,492,575 4,051,838 4,292,526 Lease liabilities 40 162,112 165,433 6,954 7,478 Trade and other payables 42 77,401 63,447 58,071 139,939
8,353,087 8,605,580 5,372,529 5,705,362
CURRENT LIABILITIES Trade and other payables 42 1,360,612 1,466,545 387,133 363,567 Deferred income 41 13,071 28,536 7 42 Amounts due to subsidiaries 30 – – 994,982 1,000,313 Amounts due to related parties 30 6,989 61,020 6,027 36,826 Retirement benefits 38 15,189 7,784 – – Lease liabilities 40 25,163 27,122 1,340 1,919 Tax payable 104,698 89,028 – – Derivatives 31 242,913 21,198 134,197 8,883 Dividend payable – 748,092 – 748,092 Borrowings 39 2,489,543 1,804,339 1,747,612 974,443
4,258,178 4,253,664 3,271,298 3,134,085
Liabilities directly associated with non-current assets held for sale 33 35,735 21,133 – –
TOTAL LIABILITIES 12,647,000 12,880,377 8,643,827 8,839,447
TOTAL EQUITY AND LIABILITIES 28,507,722 28,626,302 19,830,487 20,139,560 Annual Report 2019 P –G. 195 194
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For The Financial Year Ended 31 December 2019
Attributable to equity holders of the Company Non- Share Retained Perpetual controlling Total Capital Reserves earnings Total Sukuk interests equity GROUP Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
At 1 January 2019 1,100,000 670,359 11,348,090 13,118,449 2,231,398 396,078 15,745,925 Continuing operations Profit for the financial year – – 121,633 121,633 124,300 28,952 274,885 Other comprehensive income/(loss) FINANCIAL STATEMENTS for the financial year 16 – 62,170 (10,567) 51,603 – 1,284 52,887 Total comprehensive income for the financial year – 62,170 111,066 173,236 124,300 30,236 327,772
Transactions with equity holders: – share issue 34 406,119 – – 406,119 – – 406,119 – dividends – – (117,038) (117,038) – (57,963) (175,001) – distribution to Perpetual Sukuk holders 36 – – – – (124,300) – (124,300)
Discontinuing operations Total comprehensive income/(loss) for the financial year 13 – 13,402 (333,195) (319,793) – – (319,793) At 31 December 2019 1,506,119 745,931 11,008,923 13,260,973 2,231,398 368,351 15,860,722 7
At 1 July 2018 1,100,000 515,841 12,050,571 13,666,412 2,230,717 408,398 16,305,527 Continuing operations Profit for the financial period – – 299,636 299,636 62,661 5,626 367,923 Other comprehensive income/(loss) for the financial period 16 – 143,123 (1,433) 141,690 – 5,446 147,136 Total comprehensive income for the financial period – 143,123 298,203 441,326 62,661 11,072 515,059 Transactions with equity holders: – dividends – – (952,117) (952,117) – (24,557) (976,674) – distribution to Perpetual Sukuk holders 36 – – – – (61,980) – (61,980) – disposal of a subsidiary – (931) 4,330 3,399 – 1,165 4,564
Discontinuing operations Total comprehensive income/(loss) for the financial period 13 – 12,326 (52,897) (40,571) – – (40,571)
At 31 December 2018 1,100,000 670,359 11,348,090 13,118,449 2,231,398 396,078 15,745,925 COMPANY STATEMENT OF CHANGES IN EQUITY For The Financial Year Ended 31 December 2019
Attributable to equity holders of the Company
Share Retained Perpetual Total Capital Reserves earnings Total Sukuk equity COMPANY Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
At 1 January 2019 1,100,000 43,502 7,925,213 9,068,715 2,231,398 11,300,113 (Loss)/profit for the financial year – – (385,844) (385,844) 124,300 (261,544) Other comprehensive loss for the financial year 16 – (16,690) – (16,690) – (16,690) Total comprehensive (loss)/ income for the financial year – (16,690) (385,844) (402,534) 124,300 (278,234)
Transactions with equity holders: – share issue 34 406,119 – – 406,119 – 406,119 – dividends 15 – – (117,038) (117,038) – (117,038) – distribution to Perpetual Sukuk holders 36 – – – – (124,300) (124,300)
At 31 December 2019 1,506,119 26,812 7,422,331 8,955,262 2,231,398 11,186,660
At 1 July 2018 1,100,000 51,513 9,076,534 10,228,047 2,230,717 12,458,764 (Loss)/profit for the financial period – – (199,204) (199,204) 62,661 (136,543) Other comprehensive loss for the financial period 16 – (8,011) – (8,011) – (8,011) Total comprehensive (loss)/ income for the financial period – (8,011) (199,204) (207,215) 62,661 (144,554)
Transactions with equity holders: – dividends 15 – – (952,117) (952,117) – (952,117) – distribution to Perpetual Sukuk holders 36 – – – – (61,980) (61,980)
At 31 December 2018 1,100,000 43,502 7,925,213 9,068,715 2,231,398 11,300,113 Annual Report 2019 P –G. 197 196
STATEMENTS OF CASH FLOWS For The Financial Year Ended 31 December 2019
GROUP COMPANY Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000 CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) for the financial year/period
from continuing operations 274,885 367,923 (261,544) (136,543) FINANCIAL STATEMENTS Adjustments for: Amortisation of intangible assets 24 32,544 19,077 7,990 4,741 Bad debts written off 6(e) 19 97 19 – Depreciation of: – property, plant and equipment 6(a) 1,073,555 516,237 255,811 122,987 – investment properties 18 84 40 – – – right-of-use assets 6(a) 99,830 63,254 5,337 2,627 Dividend income 5(b) (4,059) (4,059) (4,059) (4,059) Finance costs 10 167,545 109,985 197,844 89,347 Finance income 9 (12,975) (8,473) (17,786) (8,934) Unrealised fair value losses/(gains): – commodities options and futures contracts 178,701 (3,268) 92,785 3,849 – forward foreign exchange contracts 7 (non-hedging derivatives) (1,250) (8,838) – (1,112) – forward foreign exchange contracts (cash flow hedge) 6,433 7,966 (1,211) (267) Fair value changes in biological assets (net) (13,065) (22,939) (8,760) 17,145 Gains on disposals of: – property, plant and equipment 7 (60,684) (35,589) (54,280) (26,328) – non-current assets held for sale 7 (19,455) (46,058) (832) (16,756) Impairment of: – property, plant and equipment (6e) 2,474 5,969 – 1,296 – right-of-use assets (6e) 19,446 – – – – investment in subsidiaries 21 – – 309,462 136,084 – investment in a joint venture – – 11,350 – – amounts due from subsidiaries 6(e) – – 18,267 11,795 – amounts due from joint ventures 6(e) 27,501 – 25,088 2,413 – advances for plasma plantation projects 6(e) 1,703 3,440 – – – trade and other receivables 6(e) 9,310 5,768 1,475 311 Write off of: – Intangible assets 24 13 193 – 193 – property, plant and equipment 17 26,218 32,268 9,510 12,241 Write-down of: – right-of-use assets 20 1,971 – – – – inventories (net) 6(e) 3,554 4,070 459 50 Retirement benefits 38 41,805 12,838 7,622 4,262 Reversal of impairment of: – investment in subsidiaries 7 – – (94,731) (72,509) – amounts due from subsidiaries 7 – – (1,153) – – advances for plasma plantation projects 7 (2,130) (315) – – – trade and other receivables 7 (18,309) (7,498) – – Share of results of: – joint ventures 22(a) (3,911) (225) – – – associates 23(a) 2,257 (1,568) – – STATEMENTS OF CASH FLOWS For The Financial Year Ended 31 December 2019
GROUP COMPANY Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000 CASH FLOWS FROM OPERATING ACTIVITIES (CONTINUED) Tax (credit)/expense 12 (23,569) 145,252 5,755 15,970 Unrealised exchange (gains)/losses (net) (13,856) (26,818) (5,571) 119,838 1,796,585 1,128,729 498,847 278,641 Changes in working capital: Inventories 154,978 (113,294) 78,025 (73,515) Trade and other payables (99,678) (97,560) 22,491 (37,607) Trade and other receivables 137,264 105,423 (11,906) 81,417 Intercompany and related party balances (44,822) 2,877 (128,694) 105,361 Cash generated from operations 1,944,327 1,026,175 458,763 354,297 Tax (paid)/refunded (net) (111,214) (154,255) 27,943 (74,130) Retirement benefits paid 38 (25,242) (2,793) (7,229) (2,589) Operating cash flow from continuing operations 1,807,871 869,127 479,477 277,578 Operating cash flow used in discontinuing operations (63,363) (23,916) – – Net cash generated from operating activities 1,744,508 845,211 479,477 277,578
CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of a subsidiary 43 – (227,882) – – Capital contribution to a subsidiary 48(c) – – (63,081) (23,214) Advances for plasma plantation projects (10,078) (7,236) – – Repayment of advances for plasma plantation projects 8,137 – – – Advances to subsidiaries 48(e) – – (46,365) (61,774) Repayment of advances to a subsidiary 48(c) – – 77,333 – Repayment of capital contribution from a subsidiary 48(c) – – 161,653 51,120 Dividends received from: – associates 23(d) 2,955 – – – – other investments 5(b) 4,059 4,059 4,059 4,059 Finance income received 12,975 8,473 17,786 8,934 Proceeds from sale of: – property, plant and equipment 71,340 44,018 58,922 31,145 – non-current assets held for sale 122,575 66,861 846 45,246 Purchase of: – property, plant and equipment (1,566,157) (793,061) (394,903) (210,735) – intangible assets (6,406) (3,403) (3,054) (1,358) Investing cash flow used in continuing operations (1,360,600) (908,171) (186,804) (156,577) Investing cash flow used in discontinuing operations – (2,332) – – Net cash used in investing activities (1,360,600) (910,503) (186,804) (156,577) Annual Report 2019 P –G. 199 198
GROUP COMPANY Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000 CASH FLOWS FROM FINANCING ACTIVITIES Finance costs paid (261,831) (117,614) (211,824) (98,861)
Loans raised 6,028,965 1,292,226 4,877,644 512,260 FINANCIAL STATEMENTS Borrowing transaction cost paid 39 (10,644) (700) (10,437) (700) Loan repayments (5,557,088) (719,990) (4,340,450) (269,165) Repayments of lease liabilities (56,078) (19,397) (2,901) (1,334) Distribution to Perpetual Sukuk holders 36 (124,300) (61,980) (124,300) (61,980) Dividend paid to shareholders 15 (459,011) (204,025) (459,011) (204,025) Dividend paid to non-controlling interests of subsidiaries 37 (57,963) (24,557) – – Financing cash flow (used in)/from continuing operations (497,950) 143,963 (271,279) (123,805) Financing cash flow from discontinuing operations 63,081 23,204 – – Net cash (used in)/generated from financing activities (434,869) 167,167 (271,279) (123,805) 7 NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS DURING THE FINANCIAL YEAR/PERIOD (50,961) 101,875 21,394 (2,804)
Exchange differences (7,240) 25,929 (1,684) 213
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL YEAR/PERIOD 491,042 363,238 65,693 68,284 Less: Reclassified to non-current assets held for sale 33(c) (1,494) – – – CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL YEAR/ PERIOD 431,347 491,042 85,403 65,693
NOTES TO STATEMENTS OF CASH FLOWS
(A) Principal non-cash transactions
Details of significant non-cash transactions during the financial year are set out in Note 34 to the financial statements. STATEMENTS OF CASH FLOWS For The Financial Year Ended 31 December 2019
NOTES TO STATEMENTS OF CASH FLOWS (CONTINUED)
(B) Reconciliation of liabilities arising from financing activities
A reconciliation between the opening and closing balances in the statement of financial position for liabilities arising from financing activities is as follows:
Lease Borrowings* liabilities Total GROUP Note RM’000 RM’000 RM’000
31 December 2019 At 1 January 2019 7,342,384 192,555 7,534,939
Cash flows from financing activities Finance costs paid (261,831) – (261,831) Loans raised 6,092,046 – 6,092,046 Borrowing transaction cost paid 39 (10,644) – (10,644) Loan repayments (5,557,088) – (5,557,088) Repayment of lease liabilities – (56,078) (56,078)
Non-cash changes Finance costs 10 159,854 7,691 167,545 Finance costs capitalised 10 113,582 – 113,582 Recognition of additional lease liabilities – 42,615 42,615 Exchange differences (89,834) 492 (89,342)
At 31 December 2019 7,788,469 187,275 7,975,744
31 December 2018 At 1 July 2018 6,537,995 199,538 6,737,533
Cash flows from financing activities Finance costs paid (117,614) – (117,614) Loans raised 1,315,430 – 1,315,430 Borrowing transaction cost paid 39 (700) – (700) Loan repayments (719,990) – (719,990) Repayment of lease liabilities – (19,397) (19,397)
Non-cash changes Acquisition of a subsidiary 43 34,806 – 34,806 Finance costs 10 105,371 4,614 109,985 Finance costs capitalised 10 17,452 – 17,452 Recognition of additional lease liabilities – 8,439 8,439 Exchange differences 169,634 (639) 168,995
At 31 December 2018 7,342,384 192,555 7,534,939
* The borrowings include interest payable for the Group which was classified under trade and other payable in Note 42. Annual Report 2019 P –G. 201 200
NOTES TO STATEMENTS OF CASH FLOWS (CONTINUED)
(B) Reconciliation of liabilities arising from financing activities (continued)
A reconciliation between the opening and closing balances in the statement of financial position for liabilities arising from financing activities is as follows: (continued)
Amounts Lease due to a Borrowings* liabilities subsidiary Total
COMPANY Note RM’000 RM’000 RM’000 RM’000 FINANCIAL STATEMENTS
31 December 2019 At 1 January 2019 5,289,563 9,397 511,765 5,810,725
Cash flows from financing activities Finance costs paid (200,423) – (11,401) (211,824) Loan raised 4,877,644 – – 4,877,644 Borrowing transaction cost paid (10,437) – – (10,437) Loan repayments (4,340,450) – – (4,340,450) Repayment of lease liabilities – (2,901) – (2,901)
Non-cash changes Finance costs 10 179,900 877 17,067 197,844 Finance costs capitalised 10 27,766 – – 27,766 7 Recognition of additional lease liabilities – 921 – 921 Exchange differences (7,090) – (1,512) (8,602)
At 31 December 2019 5,816,473 8,294 515,919 6,340,686
31 December 2018 At 1 July 2018 4,939,282 10,406 497,341 5,447,029
Cash flows from financing activities Finance costs paid (86,409) – (12,452) (98,861) Loan raised 512,260 – – 512,260 Borrowing transaction cost paid 39 (700) – – (700) Loan repayments (269,165) – – (269,165) Repayment of lease liabilities – (1,334) – (1,334)
Non-cash changes Finance costs 10 80,236 325 8,786 89,347 Finance costs capitalised 10 10,922 – – 10,922 Exchange differences 103,137 – 18,090 121,227
At 31 December 2018 5,289,563 9,397 511,765 5,810,725
* The borrowings include interest payable for the Company which was classified under trade and other payable in Note 42. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
1. CORPORATE INFORMATION
The principal activities of the Company consist of the production, processing, refining and sales of palm oil and palm kernel oil, manufacturing and marketing of specialty fats and edible oils, rubber and other palm oil related products and investment holding.
The principal activities of the Group consist of the production, processing, refining and sales of palm oil and palm kernel oil, manufacturing and blending, marketing and distribution of specialty fats, edible oils, rubber, coconut oil and other palm oil related products, production and sales of sugar and beef, and the involvement in other agriculture related business as disclosed in Note 51 to the financial statements.
Other than the above, there were no significant changes in the nature of these activities during the financial year.
The Company is a public limited company incorporated and domiciled in Malaysia, and is listed on the Main Market of Bursa Malaysia Securities Berhad commencing 30 November 2017. The registered office of the Company is located at Level 10, Main Block, Plantation Tower, No. 2, Jalan PJU 1A/7, Ara Damansara, 47301 Petaling Jaya, Selangor Darul Ehsan.
The Directors regard Permodalan Nasional Berhad as its immediate holding company and Yayasan Pelaburan Bumiputra as its ultimate holding company. Both companies are incorporated in Malaysia.
2. BASIS OF PREPARATION
The financial statements of the Group and of the Company have been prepared in accordance with the Malaysian Financial Reporting Standards (“MFRS”), International Financial Reporting Standards and the requirements of the Companies Act 2016 in Malaysia.
The financial statements have been prepared under the historical cost convention except as disclosed in the summary of principal accounting policies in Note 3.
The preparation of financial statements in conformity with MFRS, requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of the revenue and expenses during the reported period. It also requires Directors to exercise their judgement in the process of applying the Group’s and the Company’s accounting policies. Although these estimates and judgement are based on Directors’ best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 4.
The Group and Company had changed its financial year end from 30 June to 31 December effective from the previous reporting period. Consequently, the comparative figures are the previous 6 months period from 1 July 2018 to 31 December 2018. The current financial statements are for a period of 12 months from 1 January 2019 to 31 December 2019. Due to the change in the financial year end, the amounts presented in the financial statements are not entirely comparable. Annual Report 2019 P –G. 203 202
2. BASIS OF PREPARATION (CONTINUED)
a. Accounting pronouncements that have been adopted in preparing these financial statements
During the financial year, the Group has considered the new accounting pronouncements in the preparation of the financial statements, as follows:
(i) New accounting pronouncements with effective date on or after 1 January 2019
• Amendments to MFRS 9 “Prepayment Features with Negative Compensation” • Amendments to MFRS 128 “Long-term Interests in Associates and Joint Ventures” FINANCIAL STATEMENTS • Amendments to MFRS 119 “Plan Amendment, Curtailment or Settlement” • IC Interpretation 23 “Uncertainty over Income Tax Treatments” • Annual Improvements to MFRSs 2015 – 2017 Cycle
The Annual Improvements to MFRSs 2015–2017 Cycle on MFRS123 “Borrowing Costs” requires borrowings obtained specifically for the construction of a qualifying asset to be designated as general borrowings when the qualifying asset is ready for its intended use or sale. Hence, instead of charging to profit and loss, such borrowing costs are capitalised as part of other qualifying assets. This has resulted in the capitalisation of additional finance costs of RM48.8 million into property, plant and equipment for the year ended 31 December 2019.
Other than that, the adoption of these amendments and IC Interpretations listed above did not have any impact on the current year or any prior period/years and is not likely to affect future periods. 7
b. Standards and amendments that have been issued but not yet effective
Interpretation and amendments that are effective on or after 1 January 2020
• Amendments to MFRS 3 “Definition of a Business” • Amendments to MFRS 101 and MFRS 108 “Definition of Material” • The Conceptual Framework for Financial Reporting
The amendments shall be applied prospectively.
c. Accounting pronouncement where the effective date has been deferred to a date to be determined by the Malaysian Accounting Standards Board (“MASB”) is set out below:
• Amendments to MFRS 10 and MFRS 128 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
The following significant accounting policies have been applied consistently in dealing with items that are considered material in relation to the financial statements, and to all the financial periods presented, unless otherwise stated.
(a) Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and all of its subsidiaries made up to the end of the financial year and are prepared using uniform accounting policies for like transactions and other events in similar circumstances.
(i) Subsidiaries
Subsidiaries are entities over which the Group has control. The Group controls an entity when the Group has power over the entity, has exposure to or rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
Subsidiaries are consolidated using the acquisition method except for those subsidiaries acquired under common control. Under the acquisition method, subsidiaries are consolidated from the date on which control is transferred to the Group and de-consolidated from the date when control ceases. The consideration is measured at the fair value of the assets given, equity instruments issued and liabilities incurred at the date of exchange.
Contingent consideration is recorded at fair value as component of the purchase consideration with subsequent adjustment resulting from events after the acquisition date taken to profit or loss. Acquisition related costs are recognised as expenses when incurred.
Existing equity interests in the acquiree are re-measured to fair value at the date of business combination with any resulting gain or loss taken to profit or loss.
Identifiable assets, liabilities and contingent liabilities assumed in a business combination are measured at their fair values, at the date of acquisition. The excess of the consideration and the fair value of previously held equity interests over the Group’s share of the fair value of the identifiable net assets acquired at the date of acquisition is reflected as goodwill. Any gain from bargain purchase is recognised directly in profit or loss.
Intercompany transactions and balances are eliminated on consolidation, but unrealised losses arising therefrom are eliminated only to the extent of the cost of the asset that can be recovered, and the balance is recognised in profit or loss as reduction in net realisable value or as impairment loss.
Non-controlling interests in the results and net assets of non-wholly owned subsidiaries are presented separately in the financial statements. Transactions with owners of non-controlling interests without a change in control are treated as equity transactions in the statements of changes in equity.
When control ceases, the disposal proceeds and the fair value of any retained investment are compared to the Group’s share of the net assets disposed. The difference together with the carrying amount of allocated goodwill and the exchange reserve that relate to the subsidiary is recognised as gain or loss on disposal in profit or loss.
(ii) Business combinations under common control
Business combinations under common control are accounted using the predecessor method of accounting where the profit or loss and other comprehensive income include the results of each of the combining entities from the earliest date presented or from the date when these entities came under the control of the common controlling party (if later). Annual Report 2019 P –G. 205 204
3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(a) Basis of consolidation (continued)
(ii) Business combinations under common control (continued)
The assets and liabilities of the combining entities are accounted for based on the carrying amounts from the perspective of the common controlling party, or the combining entities if the common controlling party does not prepare consolidated financial statements.
The difference in cost of acquisition over the aggregate carrying value of the assets and liabilities of FINANCIAL STATEMENTS the combining entities as of the date of the combination is taken to equity. Transaction costs for the combination are recognised in profit or loss.
Similar treatment applies in the Company’s separate financial statements when assets and liabilities representing the underlying businesses under common control are directly acquired by the Company. In accounting for business combinations in the Company’s separate financial statements, the excess of the cost of acquisition over the aggregate carrying amounts of assets and liabilities as of the date of the combination is taken to equity.
(iii) Joint ventures
Joint ventures are separate vehicles in which the Group has rights to its net assets and where its strategic, financial and operating decisions require unanimous consent of the Group and one or more parties sharing the control. 7
Joint ventures are accounted using the equity method. Equity method is a method of accounting whereby the investment is recorded at cost inclusive of goodwill and adjusted thereafter for the Group’s share of the post-acquisition results and other changes in the net assets of the joint ventures based on their latest audited financial statements or management accounts. Where necessary, adjustments are made to the financial statements of joint ventures used by the Group in applying the equity method to ensure consistency of accounting policies with those of the Group.
After application of the equity method, the carrying amount of the joint ventures will be assessed for impairment. Equity method is discontinued when the carrying amount of joint venture reaches zero, or reaches the limit of the obligations in the case when the Group has incurred legal or constructive obligations in respect of the joint venture.
Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint ventures. Unrealised losses are also eliminated on the same basis but only to the extent of the costs that can be recovered, and the balance that provides evidence of reduction in net realisable value or an impairment of the assets transferred are recognised in profit or loss.
When joint control ceases, the disposal proceeds and the fair value of any retained investment are compared to the carrying amount of the joint venture. The difference together with the exchange reserve that relate to the joint venture is recognised as gain or loss on disposal. In the case of partial disposal without losing joint control, the difference between the proceeds and the carrying amount disposed, and the proportionate exchange reserve is recognised as gain or loss on disposal.
(iv) Associates
Associates are entities in which the Group is in a position to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions, but not control over those policies.
Investments in associates are accounted for using the equity method, similar to Note 3(a)(iii) above. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(b) Investments in subsidiaries, joint ventures and associates in separate financial statements
In the Company’s separate financial statements, investments in subsidiaries, joint ventures and associates are carried at cost less accumulated impairment losses. On disposal of investments in subsidiaries, joint ventures and associates, the difference between disposal proceeds and the carrying amounts of the investments are recognised in profit or loss.
The amount due from subsidiaries of which the Company does not expect repayment in the foreseeable future are considered as part of the Company’s investments in the subsidiaries.
(c) Foreign currencies
(i) Presentation and functional currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Ringgit Malaysia (“RM”), which is the Company’s functional and presentation currency.
(ii) Transactions and balances
Foreign currency transactions and monetary items are translated into the functional currency using the exchange rates prevailing at the transaction dates and at the end of the reporting period, respectively. Foreign exchange differences arising therefrom and on settlement are recognised in profit or loss.
Foreign exchange differences arising from the translation of a monetary item designated as hedge of net investment in a foreign operation are recognised in other comprehensive income in the consolidated financial statements until the net investment is disposed.
(iii) Translation of foreign currency financial statements
For consolidation purposes, foreign operations’ results are translated into the Group’s presentation currency at average exchange rates for the financial year whilst the assets and liabilities, including goodwill and fair value adjustments arising on consolidation, are translated at exchange rates ruling at the end of the reporting period. The resulting translation differences are recognised in other comprehensive income and accumulated in exchange reserve.
Intercompany loans where settlement is neither planned nor likely to occur in the foreseeable future, are treated as part of the parent’s net investment. Translation differences arising therefrom are recognised in other comprehensive income and reclassified from equity to profit or loss upon repayment or disposal of the relevant entity.
Exchange reserve in respect of a foreign operation is recognised to profit or loss when control, joint control or significant influence over the foreign operation is lost. On partial disposal without losing control, a proportion of the exchange reserve in respect of the subsidiary is re-attributed to the non- controlling interests. The proportionate share of the cumulative translation differences is reclassified to profit or loss in respect of all other partial disposals. Annual Report 2019 P –G. 207 206
3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(d) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of an asset. The carrying amount of the replaced part is derecognised and all repairs and maintenance costs are charged to profit or loss during the financial year in which they are incurred.
All costs directly related to bearer plants are capitalised until such time as the bearer plants reach maturity,
at which point all further costs are expensed and depreciation commences. Such costs include seedling FINANCIAL STATEMENTS and planting costs, other upkeep costs, and an allocation of overhead costs.
Freehold land is not depreciated as it has indefinite life. Depreciation commences when the bearer plants mature or when the assets under construction are ready for their intended use. Other property, plant and equipment are depreciated on a straight-line basis to write down the cost or valuation of each asset to its residual value over its estimated useful lives as follows:
Buildings 20 to 50 years Bearer plants – Oil palm 22 years, or the lease term, if shorter – Rubber trees 24 years, or the lease term, if shorter – Growing canes 5 years, or the lease term, if shorter Plant and machinery 5 to 40 years 7 Vehicles, equipment and fixtures 3 to 10 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.
Property, plant and equipment are tested for impairment whenever indication of impairment exists, see Note 3(l)(i) on impairment of non-financial assets.
(e) Investment properties
Investment properties are land and buildings held for rental income and/or capital appreciation which are not substantially occupied or intended to be occupied for use by, or in the operations of the Group.
Investment properties are stated at cost less accumulated depreciation and accumulated impairment losses. Freehold land and buildings under construction are not depreciated. Other investment properties are depreciated on a straight-line basis to write down the cost of each asset to its residual value over its estimated useful life as follows:
Buildings 20 to 50 years, or over the lease term, if shorter
The residual values and useful lives are reviewed, and adjusted if appropriate, annually. Investment properties are tested for impairment whenever indication of impairment exists, see Note 3(l)(i) on impairment of non– financial assets.
(f) Biological assets
Biological assets comprised cattle livestock and produce growing on bearer plants. Biological assets are measured at fair value less costs of disposal. Any gains or losses arising from changes in the fair value less costs of disposal net of transfers to produce stocks are recognised net in profit or loss. Fair value is determined based on the present value of expected net cash flows from the biological assets. The expected net cash flows are estimated using the expected output method and the estimated market price of the biological assets.
Biological assets are classified as current assets for bearer plants that are expected to be harvested and livestock that are expected to be sold or used for production on a date not more than 12 months after the reporting date, and the balance is classified as non-current. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(g) Intangible assets
(i) Goodwill
Goodwill represents the excess of the consideration and the fair value of previously held interests over the Group’s share of the fair value of identifiable assets, liabilities and contingent liabilities of the acquiree at the date of acquisition.
Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to cash generating units for the purpose of impairment testing. Goodwill on acquisition of joint ventures and associates is included as part of the cost of investments in joint ventures and associates. Such goodwill is tested for impairment as part of the overall net investment in each joint venture and associate.
(ii) Research and development costs
Research costs are charged to profit or loss in the financial year in which the expenditure is incurred.
Internally generated agriculture development costs are capitalised as intangible assets when the following criteria are fulfilled:
(i) it is technically feasible to complete the intangible asset so that it will be available for use or sale; (ii) management intends to complete the intangible asset and use or sell it; (iii) there is an ability to use or sell the intangible asset; (iv) it can be demonstrated how the intangible asset will generate probable future economic benefits; (v) adequate technical, financial and other resources to complete the development and to use or sell the intangible asset are available; and (vi) the expenditure attributable to the intangible asset during its development can be reliably measured.
Subsequently, such capitalised development costs are amortised from the commencement of commercial production of the product to which they relate on a straight-line basis between 5 and 20 years. The useful life will be reviewed and adjusted, if appropriate, annually. Impairment testing is performed annually on development activities which have not entered commercial production. Development activity is also tested for impairment whenever indication of impairment exists. See Note 3(l)(i) on impairment of non-financial assets.
Development costs previously recognised as an expense in profit and loss are not recognised as an asset in subsequent period.
(iii) Smallholder relationships
Smallholder relationships have arisen on the acquisition of subsidiaries. These assets reflect the economic relationship between Group and the smallholders who cultivate and harvest fresh fruits bunches on land owned by the smallholders. These assets are shown at fair value on acquisition of subsidiaries and subsequently subject to amortisation on a straight line basis over the estimated average remaining lease term of the Group’s land of 45 years. The smallholder relationships are tested for impairment whenever indication of impairment exists.
(iv) Computer software
Expenditure on computer software that is not an integral part of the related hardware is treated as an intangible asset and is carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using the straight-line basis over their estimated useful lives. The annual amortisation rates range from 10% to 33%. Projects in progress are not amortised as these computer software are not yet available for use. Annual Report 2019 P –G. 209 208
3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(g) Intangible assets (continued)
(v) Intellectual property rights
Intellectual property rights acquired from third parties are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using the straight-line basis over their estimated useful life of 20 years.
(vi) Other intangible assets FINANCIAL STATEMENTS
Other intangible assets with finite useful lives are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using the straight-line basis over their contractual periods or estimated useful lives. The principal annual amortisation rates are:
Brand names and trademarks 5% to 20% Assets usage rights 7% Customer relationships Contract periods ranging from 10 months to 10 years
These intangible assets are tested for impairment whenever indication of impairment exists. See Note 3(l)(i) on impairment of non-financial assets.
(h) Non-current assets held for sale
Non-current assets (or disposal groups) are classified as “held for sale” if their carrying amounts will be 7 recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. Depreciation ceases when an asset is classified as a non-current asset held for sale. Non– current assets held for sale are stated at the lower of carrying amount and fair value less costs of disposal.
An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs of diposal. A gain is recognised for any subsequent increases in fair value less costs of disposal of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of derecognition.
A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately in the statements of profit or loss and statement of comprehensive income.
(i) Inventories
Inventories comprise palm oil products, sugar stocks, coconut oil, raw materials, trading inventories, consumables and spare parts. Inventories are stated at the lower of cost and net realisable value. The cost of raw materials, trading inventories and consumable stores represent cost of purchase plus incidental costs, and in the case of other inventories, include cost of materials, direct labour, other direct costs and related production overheads based on normal operating capacity.
Costs for palm oil products and sugar stock includes all direct expenses, an appropriate proportion of variable and fixed overheads arising from manufacturing and head office expenses and the estimated fair value less costs of disposal attributed to agriculture produce at the point of harvest in accordance with MFRS 141 “Agriculture”. The fair value of biological assets harvested from the Group’s own plantations and sold during the financial year are recorded as part of the biological assets movement (see Note 19) and as part of “fair value changes in biological assets (net)” in determining the profit.
The cost of inventories is determined on a weighted average basis whilst net realisable value is the estimated selling price in the ordinary course of business, less estimated cost to completion and estimated selling expenses. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(j) Financial assets
The Group classifies its financial assets in the following measurement categories:
(i) Financial assets at amortised cost – Debt instruments
The Group and the Company classify its financial assets at amortised cost when the asset is held within a business model with the objective to collect contractual cash flows and the contractual terms give rise to cash flows that are solely payments of principal and interest (“SPPI”). Financial assets of the Group and the Company which fall under this category are trade and other receivables, bank balances, deposits and cash.
At initial recognition, the Group and the Company measure a financial asset at its fair value plus transaction costs that are directly attributable to the acquisition of the financial asset. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains and losses together with the related foreign exchange gains and losses.
(ii) Financial assets at fair value through other comprehensive income (“FVOCI”) – Equity instruments
The Group and the Company have made an irrevocable election to classify its equity investments in unquoted shares under this category. At initial recognition, the Group and the Company measure a financial asset at its fair value plus transaction costs that are directly attributable to the acquisition of the financial asset.
Subsequently, any fair value gains and losses on equity investments are recognised in investment in FVOCI reserve. On derecognition, the cumulative gain or loss is reclassified from investment in FVOCI reserve to retained earnings. Dividends from such investments continue to be recognised in profit or loss as other income when the Group’s and the Company’s right to receive payments are established.
Equity instruments designated at FVOCI are not subject to impairment assessment.
(iii) Financial assets at fair value through profit or loss (“FVTPL”) – Debt instruments
Financial assets that do not meet the criteria for amortised cost or FVOCI are measured at FVTPL. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Accordingly, the Group and the Company classify its non-hedging derivative assets under this category.
At initial recognition, the Group and the Company measure this financial asset at its fair value. Transaction costs attributable to the acquisition of the financial asset are expensed in profit or loss. Net changes in the fair value of financial assets at FVTPL are subsequently recognised in other gains and losses in profit or loss.
Purchases and sales of financial assets are recognised at trade date, the date at which the Group and the Company commit to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group and the Company have transferred substantially all the risks and rewards of ownership.
Financial assets are classified as current assets for those having maturity dates of not more than 12 months after the end of the reporting period, and the balance is classified as non-current.
See Note 3(l)(ii) on impairment of financial assets. Annual Report 2019 P –G. 211 210
3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(k) Derivatives and hedging activities
Derivatives are measured at fair value and carried as assets when the fair value is positive and as liabilities when the fair value is negative.
A derivative that is neither designated nor an effective hedging instrument is categorised under fair value through profit or loss and changes in its fair value is recognised in profit or loss. In the case of a derivative that qualifies for cash flow hedge, the effective portion of changes in its fair value is recognised in other
comprehensive income. FINANCIAL STATEMENTS
The gain or loss is removed from equity and included in profit or loss in the same period or periods during which the hedged item affects profit or loss. In the case of a hedge of a forecast transaction which results in the recognition of a non-financial asset or a non-financial liability, the gain or loss is removed from equity and included in the carrying amount of the asset or liability.
When a derivative expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately reclassified to profit or loss within other gains and losses.
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. 7
Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in other comprehensive income and accumulated in reserves within equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss within other gains or losses.
Gains and losses accumulated in equity are reclassified to profit or loss when the foreign operation is disposed or partially disposed of.
The Group and the Company document at the inception of the hedge relationship, the economic relationship between hedging instruments and hedged items including whether changes in the cash flows of the hedging instruments are expected to offset changes in the cash flows of hedged items. The Group and the Company document its risk management objective and strategy for undertaking its hedge transaction.
(l) Impairment
(i) Impairment of non-financial assets
Goodwill and other intangible assets that have an indefinite useful life or are not yet available for use are tested for impairment. Other non-financial assets are assessed for indication of impairment. If an indication exists, an impairment test is performed.
An impairment loss is recognised for the amount by which the carrying amount of the non-financial asset exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in-use. Impairment loss on non-financial assets is charged to profit or loss.
Except for goodwill, non-financial assets that were previously impaired are reviewed for possible reversal of the impairment at the end of each reporting period. Any subsequent increase in recoverable amount is recognised in the profit or loss. Reversal of impairment loss is restricted to the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior financial periods.
An impairment loss recognised for goodwill is not reversed.
The Group and the Company perform impairment exercise annually and whenever events or circumstances occur indicating that impairment may exist. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(l) Impairment (continued)
(ii) Impairment of financial assets
The Group and the Company recognise an allowance for expected credit loss (“ECL”) for all debt instruments not held at FVTPL and financial guarantee contracts issued. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group and the Company expect to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms. For financial guarantee contract, the ECL is the difference between expected payments to reimburse the holder of the guarantee debt instruments less any amounts the Group and the Company expect to recover from the other party.
While cash and cash equivalents are also subject to the impairment requirements of MFRS 9 “Financial Instruments”, the identified impairment loss is immaterial.
ECLs are measured based on a general 3-stage approach and a simplified approach.
General 3-stage approach for other receivables, non-trade inter-company balances, advances for plasma plantation projects and financial guarantee contracts issued
ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12 months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
Simplified approach for trade receivables including inter-company balances
For trade receivables, the Group and the Company apply a simplified approach in calculating ECLs. Therefore, the Group and the Company do not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group and the Company have established a provision matrix that is based on its historical credit loss experience, adjusted for forward- looking factors specific to the debtors and the economic environment.
Significant increase in credit risk
The Group and the Company consider the probability of default upon initial recognition of asset and whether there has been a significant increase in credit risk on an ongoing basis throughout each reporting period. To assess whether there is a significant increase in credit risk, the Group and the Company compare the risk of a default occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition. The assessment considers available, reasonable and supportable forward-looking information.
The following indicators are incorporated in the assessment:
• internal/external credit rating (as far as available) • actual or expected significant adverse changes in business, financial or economic conditions that are expected to cause a significant change to the debtor’s ability to meet its obligations • actual or expected significant changes in the operating results of the debtor • significant increases in credit risk on other financial instruments of the same debtor • significant changes in the value of the collateral supporting the obligation or in the quality of third- party guarantees or credit enhancements • significant changes in the expected performance and behaviour of the debtor, including changes in the payment status of debtor in the Group and changes in the operating results of the debtor. Annual Report 2019 P –G. 213 212
3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(l) Impairment (continued)
(ii) Impairment of financial assets (continued)
Significant increase in credit risk (continued)
Macroeconomic information (such as market interest rates or growth rates) is incorporated as part of the internal rating model.
Regardless of the analysis above, a significant increase in credit risk is presumed if a debtor is more FINANCIAL STATEMENTS than 90 days past due in making a contractual payment.
Definition of default and credit-impaired financial assets
The Group and the Company consider a financial asset in default, which is fully alligned with the definition of credit-impaired, when contractual payments are 90 days past due. However, in certain cases, the Group and the Company may also consider a financial asset to be in default when internal or external information indicates that the Group and the Company are unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group and the Company. A financial asset is written off to profit or loss when there is no reasonable expectation of recovering the contractual cash flows.
Grouping of instruments for ECL measured on collective basis 7 Collective assessment
To measure ECL, trade receivables arising from plantation upstream and downstream, and other operations were assessed based on credit risk profile and grouped into two categories (i.e. local and export customers). Local customers are defined as the customers with operation presence within the country in which the entity operates. Export customers represent customers outside the country in which the entity operates. Both portfolios are differentiated by country risks and are subject to different credit assessment.
Individual assessment
Trade receivables, other receivables, advances from plasma plantation projects, amounts due from subsidiaries and amounts due from related parties which are in default or credit-impaired are assessed individually.
(m) Share capital and Perpetual Sukuk
(i) Share capital
Proceeds from ordinary shares issued are accounted for as share capital in equity. Costs directly attributable to the issuance of new shares are deducted from equity.
Dividends to the owner of the Company and non-controlling interests are recognised in the statement of changes in equity in the period in which they are declared.
(ii) Perpetual Sukuk
Perpetual Sukuk is classified as equity instruments as there is no contractual obligation to redeem the instrument. Costs directly attributable to the issuance of the instrument, net of tax, are treated as a deduction from the proceeds.
Perpetual Sukuk holders’ entitlement is accounted for as an appropriation in profit or loss and distribution is recognised in the statement of changes in equity in the period in which it is declared. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(n) Provisions
Provisions are recognised when the Group and the Company have a legal or constructive obligation, where the outflow of resources is probable and can be reliably estimated. Provisions are measured at the present value of the obligation. The increase in the provision due to the passage of time is recognised as finance costs.
(o) Employee benefits
(i) Short-term employee benefits
Wages, salaries, paid annual leave and sick leave, bonuses and non-monetary benefits are accrued in the financial period in which the services are rendered by employees.
(ii) Defined contribution pension plans
A defined contribution pension plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
The Group has various defined contribution pension plans in accordance with local conditions and practices in the countries in which it operates. The Group’s contributions to defined contribution pension plans are charged to profit or loss in the financial period in which they relate.
(iii) Defined benefit pension plans
A defined benefit pension plan is a pension plan that is not a defined contribution pension plan. Typically defined benefit pension plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.
The Group has various defined benefit pension plans, some of which are funded by payments from the relevant group of companies in various countries. The Group’s defined benefit pension plans are determined based on a periodic actuarial valuation by external consultants where the amount of the benefits that eligible employees have earned in return for their services in the current and prior financial periods are estimated.
The liabilities in respect of the defined benefit pension plans are the present value of the defined benefit obligations at the end of the reporting period, adjusted for actuarial gains and losses and past service costs, and reduced by the fair value of the plan assets. The defined benefit obligations, calculated using the Projected Unit Credit Method, are determined by independent actuaries, considering the estimated future cash outflows.
Actuarial gains or losses arising from market adjustments and changes in actuarial assumptions are recognised in other comprehensive income.
(iv) Termination benefits
Termination benefits are payable whenever an employee’s employment is terminated in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal or to provide termination benefits as a result of a proposal to encourage voluntary redundancy.
(v) Other long-term employee benefits
Other long-term employee benefits such as deferred compensation payable 12 months or more after the service period are calculated based on the Group’s and the Company’s policy using the same methodology as other post-employment benefits. Annual Report 2019 P –G. 215 214
3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(p) Financial liabilities
The Group’s financial liabilities are classified into four categories and the accounting policies for each of these categories are as follows:
(i) Financial liabilities at fair value through profit or loss (“FVTPL”)
Financial liabilities are classified as FVTPL if they are held for trading. Derivatives are categorised as held for trading unless they are designated and are effective hedging instruments. FINANCIAL STATEMENTS
(ii) Financial guarantee contracts
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due, in accordance with the terms of a debt instrument. Financial guarantee contracts are recognised initially at fair value plus transaction costs.
Financial guarantee contracts are subsequently measured at the higher of the amount determined in accordance with expected credit loss model under MFRS 9 “Financial Instruments” and the amount initially recognised less, the cumulative amount of income recognised in accordance with the principles of MFRS 15 “Revenue from Contracts with Customers”, where appropriate.
Where financial guarantees in relation to loans or payables of subsidiaries are provided by the Company 7 for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of investment in subsidiaries.
(iii) Financial liabilities at amortised cost
Payables, amounts due to subsidiaries, amounts due to related parties and borrowings are recognised initially at fair value plus transaction costs and thereafter, at amortised cost using the effective interest method. Amortisation is charged to profit or loss.
(iv) Derivatives used for hedging activities
The accounting policy for derivatives used for hedging activities is disclosed in Note 3(k).
Financial liabilities are classified as current liabilities for those having maturity dates of not more than 12 months after the reporting date, and the balance is classified as non-current.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy.
(q) Cash and cash equivalents
For the purpose of the statements of cash flows, cash and cash equivalents include cash in hand and deposits held at call with banks and other short-term highly liquid investments (with original maturities of 3 months or less) and are subject to an insignificant risk of changes in value, net of bank overdrafts. In the statements of financial position, bank overdrafts are included in short-term borrowings. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(r) Borrowings and borrowing costs
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statements of profit or loss over the period of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.
General and specific borrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets are capitalised to the cost of those assets until the assets are substantially ready for their intended use or sale. Any specific borrowing that remains outstanding after a related qualifying asset is ready for its intended use or sale will become part of the Group’s general borrowings. All other borrowing costs are recognised in the statement of profit and loss in the financial year in which they are incurred.
(s) Tax
Taxation comprises current and deferred tax. Tax is recognised in the profit or loss, except to the extent that it relates to items recognised directly in other comprehensive income. In this case, the tax is recognised in other comprehensive income.
The current income tax charge is the expected income taxes payable in respect of the taxable profit for the financial year and is measured using the applicable tax rates. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred tax is recognised on temporary difference arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements including those arising from business combination. Deferred tax is not recognised on goodwill and those arising from initial recognition of an asset or liability which at the time of the transaction affects neither accounting nor taxable profit or loss.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax is recognised on temporary differences arising on investments in subsidiaries, joint ventures and associates except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax is measured based on the tax rates (and laws) that have been enacted or substantively enacted at the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
(t) Government grants
Government grants are recognised at fair value when there is reasonable assurance that the Group will comply with the conditions attached to them and the grants will be received. Grants are treated as deferred income and allocated to profit or loss over the useful lives of the related assets or over the period of the operating expenditure to which the grants are intended to compensate. Annual Report 2019 P –G. 217 216
3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(u) Revenue
(i) Revenue from contracts with customers
Revenue from contracts with customers is recognised by reference to each distinct performance obligation promised in the contract with customer when or as the Group and the Company transfer control of the goods or services promised in a contract and the customer obtains control of the goods or services. Revenue from contracts with customers is measured at its transaction price, being the amount of consideration to which the Group and the Company expect to be entitled in exchange for FINANCIAL STATEMENTS transferring promised goods or services to a customer, net of any Government Tax applicable at the prevailing rates. The transaction price is allocated to each distinct good or service promised in the contract. Depending on the terms of the contract, revenue is recognised when the performance obligation is satisfied, which may be at a point in time or over time.
Sales of agricultural produce and refined palm oil related products
The Group’s and the Company’s revenue are derived mainly from its upstream and downstream operations.
In the upstream operations, revenue is from sales of agricultural produce such as crude palm oil (“CPO”), fresh fruit bunches (“FFB”), palm kernel (“PK”), rubber, beef and sugar. In the downstream operations, revenue is derived from sales of refined oil related products and provision of freight and tolling services.
Revenue from sales of agricultural produce and refined palm oil related products are recognised net of 7 discount and taxes collected on behalf at the point in time when control of the goods has transferred to the customer. Depending on the terms of the contract with the customer, control transfers either upon delivery of the goods to a location specified by the customer and acceptance of the goods by the customer; or upon delivery of the goods on board vessels or tankers for onward delivery to the customer.
Contracts where control of goods transfer to the customer upon delivery of the goods on board vessels or tankers are often bundled with freight services. In such contracts, sale of goods and provision of freight are accounted for as separate performance obligations as the customer can benefit from the sale of goods and freight services on its own or with the use of other resources. The transaction price is allocated to each performance obligation based on the stand-alone selling prices of the goods and services.
There is no element of financing present as the Group’s and the Company’s sale of goods are either on cash terms (immediate payments or advance payments not exceeding 30 days); or on credit terms of up to 30 days. The Group’s and the Company’s obligations to provide quality claims against off-spec goods under the Group’s and the Company’s standard contractual terms are recognised as a provision.
Rendering of services – Provision for freight, tolling and other services
Revenue from provision of freight is recognised in the accounting period in which services are rendered. In cases where customers pay for the bundled contract in advance to the rendering of the freight services, a deferred income is recognised.
Revenue from the provision of tolling services is recognised in the period in which the manufacturing activities are performed. There is no element of financing present as the sales is made with credit terms of up to 30 days.
(ii) Revenue from other sources
Specific revenue recognition criteria for other revenue and income earned by the Group and the Company are as follows:
• Rental income – recognised on a straight-line basis over the lease terms. • Dividend income – recognised when the right to receive payment is established. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(v) Leases
The Group as a lessee
The Group and the Company recognise a right-of-use (“ROU”) asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of the right-of-use assets are determined on the same basis as those of property, plant and equipment as follows:
Leasehold land over the lease period ranging from 20 to 999 years Buildings 20 to 50 years, or over the lease term, if shorter Plant and machinery 5 to 40 years, or over the lease term, if shorter Vehicles, equipment and fixtures 5 years, or over the lease term, if shorter
In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurement of the lease liability.
The lease liability is initially measured at the present value of future lease payments at the commencement date, discounted using the Group’s and the Company’s incremental borrowing rates. Lease payments included in the measurement of the lease liability include fixed payments, any variable lease payments, amount expected to be payable under a residual value guarantee, and exercise price under an extension option that the Group and the Company are reasonably certain to exercise. This incremental borrowing rates is the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the ROU assets in a similar economic environment with similar term, security and conditions.
In determining the lease term, the Group and the Company consider all facts and circumstances that create an economic incentive to exercise an extension option, or not to exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not to be terminated).
The Group and the Company reassess the lease term upon the occurrence of a significant event or change in circumstances that is within the control of the Group and Company and affect whether the Group and the Company are reasonably certain to exercise an option not previously included in the determination of lease term, or not to exercise an option previously included in the determination of lease term.
The Group and the Company are also exposed to potential future increases in variable lease payments that depend on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is remeasured and adjusted against the ROU assets.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in rate, or if the Group or the Company changes its assessment of whether it will exercise an extension or termination option.
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Annual Report 2019 P –G. 219 218
3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(v) Leases (continued)
The Group as a lessee (continued)
Lease payments associated with short term leases and leases of low value assets are recognised on a straight-line basis as an expense in profit or loss. Short term leases are leases with a lease term of 12 months or less. Low value assets are those assets valued at less than RM20,000 each when purchased new.
The Group presents the lease liabilities as a separate line item in the statement of financial position. Interest FINANCIAL STATEMENTS expense on the lease liability is presented within the finance cost in the statement of profit or loss.
The Group as a lessor
As a lessor, the Group and the Company determine at lease inception whether each lease is a finance lease or an operating lease. To classify each lease, the Group and the Company make an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset to the lessee. As part of this assessment, the Group and the Company consider certain indicators such as whether the lease is for the major part of the economic life of the asset.
Operating leases
The Group and the Company classify a lease as an operating lease if the lease does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset to the lessee. 7 The Group recognises lease payments received under operating lease as lease income on a straight-line basis over the lease term.
(w) Commodity futures, forward contracts and options
Commodity futures, forward contracts and options are entered into by the Group and the Company to manage exposure to adverse movements in vegetable oil prices. Certain contracts are entered into and continue to be held for the purpose of the receipt or delivery of the physical commodity in accordance with the Group’s and the Company’s expected purchase, sale or usage requirements. Accordingly, such contracts are deemed not to be financial instruments. Gains or losses arising from these contracts are deferred and included in the measurement of the purchase or sale transactions only upon the recognition of the anticipated transactions.
Contracts entered other than for the purpose of the receipt or delivery of physical commodity are treated as derivatives.
(x) Contingent liabilities
The Group and the Company do not recognise contingent liabilities, but discloses their existence in the notes to the financial statements. A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Group or the Company or a present obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in the extremely rare circumstances where there is a liability that cannot be recognised because it cannot be measured reliably. However, contingent liabilities do not include financial guarantee contracts.
(y) Segment reporting
Segment information is presented in a manner that is consistent with the internal reporting provided to management for the allocation of resources and assessment of its performance. The Group’s operating businesses are organised and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(y) Segment reporting (continued)
Segment revenue, expense, assets and liabilities are those amounts resulting from operating activities of a segment that are directly attributable to the segment and the relevant portion that can be allocated on a reasonable basis to the segment. They are determined before intragroup balances and intragroup transactions are eliminated as part of the consolidation process, except to the extent that such intragroup balances and transactions are between group companies within a single segment. Intragroup transactions which in substance represent re-allocation of non-current assets from a segment to another segment are also eliminated. Inter-segment pricing is based on similar terms as those available to external parties.
(z) Fair value estimation
Fair values shown in the financial statements are categorised into three different levels to increase consistency and comparability in fair value measurements. The levels of hierarchy are based on the input used to measure the fair value of an asset or a liability. The hierarchy based on highest to the lowest priority is as follows:
Level 1 – quoted prices in active markets for identical assets or liabilities Level 2 – valuation inputs (other than Level 1 input) that are observable for the asset or liability, either directly or indirectly Level 3 – valuation inputs that are not based on observable market data
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENT IN APPLYING ACCOUNTING POLICIES
The preparation of financial statements in conforming with MFRS requires the use of certain critical accounting estimates that involve complex and subjective judgements and the use of assumptions, some of which may be for matters that are inherently uncertain and susceptible to change. The Directors exercise their judgement in the process of applying the Group’s accounting policies. Estimates and assumptions are based on the Directors’ best knowledge of current events. Such estimates and judgement could change from period to period and have a material impact on the results, financial position, cash flows and other disclosures.
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below:
(a) Impairment of goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash generating units (“CGU”) to which the goodwill is allocated. Estimating the recoverable amount requires management to make an estimate of the expected future cash flows from the CGUs and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The recoverable amounts of the CGUs were determined based on the value in use (“VIU”) calculations. The VIU is the net present value of the projected future cash flows derived from the CGU discounted at an appropriate discount rate. Projected cash flows are estimates made based on historical and industry trends, general market and economic conditions and other available information.
The carrying amount of the Group’s and the Company’s goodwill as at 31 December 2019 were USD517.0 million (RM2,123.3 million based on 31 December 2019 exchange rate) arising from the acquisition of New Britain Palm Oil Limited (“NBPOL”) and goodwill of RM1,974.8 million arising from the merger exercise of plantation businesses as disclosed in Note 24(i) to the financial statements. Based on the impairment assessments, no impairment charge is required. The key assumptions are also disclosed in Note 24(i) to the financial statements. Annual Report 2019 P –G. 221 220
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENT IN APPLYING ACCOUNTING POLICIES (CONTINUED)
(b) Impairment of investment in subsidiaries and joint ventures
The Group and the Company assessed whether there is any indication that the investments in subsidiaries and joint ventures are impaired at the end of each reporting period in accordance with the respective accounting policies. Significant judgement is required in the estimation of the present value of future cash flows generated by the assets, which involve uncertainties and are significantly affected by assumptions used and judgements made regarding estimates of future cash flows and discount rates. Changes in assumptions could significantly affect the results of the Group’s and the Company’s test for impairment of assets. FINANCIAL STATEMENTS
During the financial year, the Group has reassessed the profitability of its investment in a joint venture, MYBiomass Sdn Bhd. As a result, of recurring losses for the past years and the Board’s decision to discontinue the financing in the joint venture, the Group and the Company has recognised an impairment of RM8.2 million and RM11.4 million, respectively in the current financial year.
The Company also recorded impairment of investments in subsidiaries of RM309.5 million during the financial year. The impairments were mainly attributed to impairment of cost of investments in Sime Darby Plantation (Liberia) Inc. of RM305.9 million (see Note 21).
(c) Taxation
(i) Income taxes The Group is subject to income taxes in numerous jurisdictions in which the Group operates. Significant 7 judgement is required in determining the provision for income taxes. There are transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for tax based on estimates of assessment of the tax liability due. The Group also recognised certain tax recoverable for which the Group believes that there is reasonable basis for recognition. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions and tax recoverable balance in the financial year in which such determination is made.
(ii) Deferred tax assets
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which temporary differences or unutilised tax losses and tax credits (including investment allowances) can be utilised. This involves judgement regarding future taxable profits of particular entities within the Group in which the deferred tax asset has been recognised.
During the financial year, the Group has recognised deferred tax assets arising from unutilised tax losses and other deductible temporary differences as disclosed in Note 26.
(d) Bearer plants
There are certain parcels of land use rights where the remaining periods are less than 25 years as at 31 December 2019. The assumption of further extension of the land use rights periods to be granted on those lands involve judgement on the future decision by the local authority and the explicit terms and conditions imposed on the land titles. Based on the management’s assessment of the assumed extension of the land use rights, management is of the view that there is no impairment indicator of the related bearer plants. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
5. REVENUE
The Group and the Company derive the following types of revenue:
GROUP COMPANY
Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000
Revenue from contracts with customers 5(a) 12,046,316 6,504,904 3,148,353 1,642,464 Revenue from other sources 5(b) 15,950 13,417 13,532 9,576
12,062,266 6,518,321 3,161,885 1,652,040
(a) Disaggregation of revenue from contracts with customers GROUP COMPANY
Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000
Upstream – Malaysia 780,944 473,237 539,780 314,989 – Indonesia 865,114 468,596 – – – Papua New Guinea and Solomon Islands (“PNG/SI”) 836,398 581,693 – – Downstream – Bulk products 5(a)(i) 5,514,435 2,647,541 1,095,600 678,527 – Differentiated products 5(a)(ii) 3,994,753 2,305,006 1,505,966 645,295 Other operations 54,672 28,831 7,007 3,653
12,046,316 6,504,904 3,148,353 1,642,464
(i) Bulk products include basic refined products comprising Refined Bleached Deodorised (“RBD”) palm oil, palm olein, stearin Palm Fatty Acid Distillate (“PFAD”), crude palm kernel oil which are refined in the bulk refineries and kernel crushing plants and coconut oils products which are extracted from the copra.
(ii) Differentiated products are further processed from the basic refined products into products catering to customers’ specific requirements. Annual Report 2019 P –G. 22 222 3
5. REVENUE (CONTINUED)
(a) Disaggregation of revenue from contracts with customers (continued) GROUP COMPANY
Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
Sales of palm based products, other FINANCIAL STATEMENTS refined edible oils, rubber, sugar, beef and other agricultural products 11,741,983 6,392,519 3,140,960 1,638,070 Freight services 297,099 107,697 386 741 Tolling services 7,234 4,688 7,007 3,653
12,046,316 6,504,904 3,148,353 1,642,464
Timing of revenue recognition – at point in time 11,741,983 6,392,519 3,140,960 1,638,070 – over time 304,333 112,385 7,393 4,394
12,046,316 6,504,904 3,148,353 1,642,464 7 (b) Revenue from other sources GROUP COMPANY
Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
Dividends (gross) received/receivable from: – other investments 4,059 4,059 4,059 4,059 Rental income 11,891 9,358 9,473 5,517
15,950 13,417 13,532 9,576
(c) Revenue expected to be recognised in relation to unsatisfied performance obligations
The following table shows the revenue expected to be recognised in the future relating to performance obligations that were unsatisfied (or partially satisfied) at the end of the financial year/period.
Expected timing of recognition: GROUP COMPANY
Financial Financial Financial Financial year ended year ended year ended year ended 31.12.2020 31.12.2019 31.12.2020 31.12.2019 Note RM’000 RM’000 RM’000 RM’000
Freight income 41 13,071 28,536 7 42 NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
6. OPERATING EXPENSES GROUP COMPANY Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000 (a) Operating expenses include: Changes in inventories of finished goods and work-in-progress (991,470) (695,958) 11,981 (47,766) Finished goods and work-in-progress purchased 1,423,964 583,602 – – Raw materials and consumables 4,893,392 2,652,275 1,157,723 531,662 Other direct costs of sales 6(b) 1,883,434 1,231,512 508,099 291,818 Employee costs 6(d) 2,301,133 1,270,833 715,160 455,435 Depreciation of: – property, plant and equipment 6(c) 1,073,555 516,237 255,811 122,987 – right-of-use assets 6(c) 99,830 63,254 5,337 2,627 – investment properties 18 84 40 – – Amortisation of intangible assets 24 32,544 19,077 7,990 4,741 Other operating expenses 6(e) 934,553 462,598 645,108 314,699 11,651,019 6,103,470 3,307,209 1,676,203
(b) Other direct costs of sales include: Transport and handling charges 676,858 394,944 54,206 31,935 Commissions fees 7,046 3,589 32,980 23,336 Tolling fees 23,121 9,900 4,787 4,436 Upkeep, manuring, and collection expenses 601,137 370,156 218,284 118,592 Selling and distribution expenses 83,100 98,827 761 457 Mills and refineries maintenance expenses 173,783 146,997 62,584 37,292 Research expenses 2,585 1,586 87,250 46,926 Others 315,804 205,513 47,247 28,844 1,883,434 1,231,512 508,099 291,818
(c) Depreciation Depreciation for the financial year/period – property, plant and equipment 17 1,119,197 533,353 265,005 127,622 – capitalised in immature bearer plant (45,642) (17,116) (9,194) (4,635) 6(a) 1,073,555 516,237 255,811 122,987 Depreciation for the financial year/period – right-of-use assets 20 109,105 64,805 5,797 2,843 – capitalised in immature bearer plant (9,275) (1,551) (460) (216) 6(a) 99,830 63,254 5,337 2,627 Depreciation included in profit or loss 1,173,385 579,491 261,148 125,614 Annual Report 2019 P –G. 225 224
6. OPERATING EXPENSES (CONTINUED) GROUP COMPANY
Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000
(d) Employee costs include:
Salaries, wages and bonus 1,899,838 1,020,166 490,720 316,654 FINANCIAL STATEMENTS Defined contribution plans 104,630 62,728 80,624 49,706 Retirement benefits 38 41,805 12,838 7,622 4,262 Termination benefits 3,072 19,566 3,072 12,897 Other employee benefits 251,788 155,535 133,122 71,916
2,301,133 1,270,833 715,160 455,435
(e) Other operating expenses include: Fair value changes in biological assets (net) (13,065) (22,939) (8,760) 17,145 Impairment of: – property, plant and equipment 17 2,474 5,969 – 1,296 7 – investment in subsidiaries 21 – – 309,462 136,084 – investment in joint venture – – 11,350 – – right-of-use assets 20 19,446 – – – – advances for plasma plantation projects 49(c)(iii) 1,703 3,440 – – – trade and other receivables 49(c)(iii) 9,310 5,768 1,475 311 – amounts due from subsidiaries 49(c)(iii) – – 18,267 11,795 – amounts due from joint ventures 49(c)(iii) 27,501 – 25,088 2,413 Write off of: – property, plant and equipment 17 26,218 32,268 9,510 12,241 – intangible assets 24 13 193 – 193 – bad debts 19 97 19 – Write-down of: – right-of-use assets 20 1,971 – – – – inventories 3,554 4,070 459 50 Donations 20,000 20,000 2,948 21,042 Insurance charges 32,354 12,675 5,511 2,562 Information technology charges 74,610 38,011 22,284 14,339 Professional fees 108,510 36,011 34,506 8,702 Quit rent and assessment 48,224 21,725 21,195 8,282 Expense relating to short- term leases 22,224 12,963 12,476 8,283 Repairs and maintenance 225,198 100,313 30,464 17,290 Telecommunication expenses 9,621 4,949 1,118 471 Travelling expenditure 40,789 27,722 11,483 5,284 Utilities expenditure 137,150 66,280 34,000 16,250 Liberia’s exit cost – – 20,650 – NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
6. OPERATING EXPENSES (CONTINUED) GROUP COMPANY Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
(f) Auditors’ remuneration Fees for statutory audits: – PricewaterhouseCoopers PLT, Malaysia 2,769 2,659 1,521 1,564 – Member firms of PricewaterhouseCoopers International Limited 7,503 6,245 – – – Other firms 334 644 – – 10,606 9,548 1,521 1,564
Fees for non-audit services: – PricewaterhouseCoopers PLT, Malaysia 318 149 318 149 – Member firms of PricewaterhouseCoopers International Limited 1,717 1,439 – – – Other firms* 1,853 4,614 1,212 4,413 3,888 6,202 1,530 4,562
* Fees for non-audit services provided by other firms for the financial year ended 31 December 2019 exclude amount capitalised in intangible asset of RM3.5 million for the Group and the Company.
7. OTHER OPERATING INCOME GROUP COMPANY
Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000
Gain on disposal of: – property, plant and equipment 60,684 35,589 54,280 26,328 – non-current assets held for sale 19,455 46,058 832 16,756 Government grants/incentives 7,543 3,117 – – Insurance claims 25,670 10,201 1,111 5,675 Other compensation income 17,526 9,320 742 8,919 Reversal of impairment of: – investment in subsidiaries 21 – – 94,731 72,509 – advances for plasma plantation projects 49(c)(iii) 2,130 315 – – – trade and other receivables 49(c)(iii) 18,309 7,498 – – – amounts due from subsidiaries 49(c)(iii) – – 1,153 – Sale of scrap 13,765 14,195 4,280 2,428 Sale of rubber wood 3,204 428 3,204 428 Other income 34,075 28,899 8,647 4,898
202,361 155,620 168,980 137,941 Annual Report 2019 P –G. 227 226
8. OTHER GAINS AND LOSSES GROUP COMPANY
Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
Fair value losses on forward foreign exchange contracts: FINANCIAL STATEMENTS – non-hedging derivatives (320) – – – – cash flow hedge (6,433) (7,966) – – Fair value losses on commodities future contracts – realised (68,836) – (65,499) – – unrealised (178,701) – (92,785) (3,849) Foreign currencies exchange losses: – realised (2,024) (15,627) (318) (32,741) – unrealised (13,134) (17,114) (7,281) (121,603) Fair value gains on forward foreign exchange contracts: – non-hedging derivatives 1,570 8,838 – 1,112 – cash flow hedge – – 1,211 267 Fair value gains on commodities 7 future contracts – 3,268 – – Foreign currencies exchange gains: – realised 31,512 27,092 52,433 1,111 – unrealised 26,990 43,932 12,852 1,765
(209,376) 42,423 (99,387) (153,938)
9. FINANCE INCOME GROUP COMPANY
Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
Finance income from: – banks and other financial institutions 8,478 5,146 1,970 957 – subsidiaries – – 8,482 7,155 – financial guarantee contracts – – 7,322 – – others 4,497 3,327 12 822
12,975 8,473 17,786 8,934 NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
10. FINANCE COSTS GROUP COMPANY
Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000
Finance costs charged by: – banks and other financial institutions 261,831 117,614 196,098 86,516 – lease liabilities 7,691 4,614 877 325 – subsidiaries – – 17,067 8,786 Amortisation of deferred financing expenses 39 11,605 5,209 11,568 4,642
281,127 127,437 225,610 100,269
Interests capitalised in: – capital work-in-progress 17 (25,316) (875) (1,424) (840) – immature bearer plants 17 (88,037) (16,476) (26,113) (9,981) – intangible assets 24 (229) (101) (229) (101)
(113,582) (17,452) (27,766) (10,922)
Net finance costs 167,545 109,985 197,844 89,347
11. DIRECTORS’ REMUNERATION GROUP COMPANY
Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
Non-executive Directors: – fees and allowances 4,189 2,153 3,018 1,938 – estimated monetary value of benefits 237 108 237 108
4,426 2,261 3,255 2,046
Executive Director: – salaries and other emoluments 3,704 2,386 3,704 2,386 – defined contribution pension plans 290 376 290 376 – estimated monetary value of benefits 40 29 40 29
4,034 2,791 4,034 2,791 Annual Report 2019 P –G. 229 228
12. TAX EXPENSE GROUP COMPANY
Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000
Current tax: In respect of current financial year/ FINANCIAL STATEMENTS period – Malaysian income tax 24,022 25,418 3,912 7,389 – foreign income tax 108,586 48,699 – –
132,608 74,117 3,912 7,389
In respect of prior financial period/ year – Malaysian income tax 30,086 (33) 10,696 1,553 – foreign income tax (13,528) (1,274) – –
16,558 (1,307) 10,696 1,553
Deferred tax – origination and reversal of temporary differences 26 (172,735) 72,442 (8,853) 7,028 7
Tax (credit)/expense (23,569) 145,252 5,755 15,970 NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
12. TAX EXPENSE (CONTINUED)
A reconciliation of income tax expense applicable to profit/(loss) before tax at the statutory income tax rate to income tax expense at the effective income tax rate is as follows:
GROUP COMPANY
Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000
Profit/(loss) from continuing operations before income tax expense 251,316 513,175 (255,789) (120,573) Loss from discontinuing operations before income tax expense 13 (321,793) (56,128) – –
(70,477) 457,047 (255,789) (120,573)
Applicable tax 12(a) (54,350) 107,772 (61,389) (28,937) Effects of income not subject to tax (99,367) (35,620) (60,435) (16,648) Effects of expenses not deductible for tax purposes 102,440 57,920 169,406 87,321 Expenses subject to double deductions (26,667) (14,405) (22,691) (12,280) Deferred tax assets not recognised in respect of tax losses and deductible temporary differences for the current financial year/ period 93,460 40,828 – – Under/(over) provision in respect of prior financial period/year 16,558 (1,307) 10,696 1,553 Perpetual Sukuk distribution and expenses (29,832) (15,039) (29,832) (15,039) Effect of changes in tax rates on current tax (33,116) – – – Real property gain tax 188 – – – Share of tax expense from associates and joint ventures 7,117 5,103 – –
Tax (credit)/expense for the financial year/period (23,569) 145,252 5,755 15,970
Effective tax rate (%) 12(b) 33.4 31.8 (2.2) (13.2)
(a) The applicable tax rate of the Group is derived from the consolidation of all the Group’s companies’ applicable tax rates based on their respective domestic tax rates. The applicable tax of the Company is the product of profit before tax multiplied by the domestic tax rate of the Company.
(b) The effective tax rate is lower than the average applicable tax rate of the Group mainly due to the effect of the change in real property gain tax rate and the recognition of deferred tax asset on the loss on disposal of cost of investment in PT Mitra Austral Sejahtera (“PT MAS”) suffered by the holding company. Annual Report 2019 P –G. 2 230 31
13. DISCONTINUING OPERATIONS
During the financial year, the Board of Directors has approved the Group’s intention to exit the upstream business in Liberia, to dispose its investments in the joint ventures, Emery Oleochemical (M) Sdn Bhd and Emery Specialty Chemicals Sdn Bhd and to cease further investment in its joint venture, MYBiomass Sdn Bhd. The associated assets and liabilities were consequently presented as held for sale in Note 33 to the financial statements.
On 12 December 2019, Sime Darby Plantation Investment (Liberia) Private Limited, a wholly-owned subsidiary of the Group entered into a Sale and Purchase Agreement with Mano Palm Oil Industries Limited (“MPOI”) to dispose off its entire 100% equity interest in Sime Darby Plantation (Liberia) Inc. (“SDP Liberia”) for a total cash consideration FINANCIAL STATEMENTS of USD1. The Group will receive from MPOI, an earn-out payment to be determined by the average future crude palm oil (“CPO”) price and future CPO production of SDP Liberia. The earn-out consideration will be payable quarterly over a period of eight (8) years, commencing from April 2023. The disposal of SDP Liberia was completed subsequent to the financial year on 15 January 2020 as disclosed in Note 52(a) to the financial statements.
(a) Analysis of the results and cash flow information of the discontinuing operations are as follows:
GROUP
Financial Financial year ended period ended 31.12.2019 31.12.2018 Note RM’000 RM’000
Statements of Profit or Loss 7 Revenue 51,790 24,227 Operating expenses (377,644) (81,721)
Operating loss (325,854) (57,494) Share of results of joint ventures 22(a) 4,061 1,366
Loss for the financial year/period (321,793) (56,128)
Loss for the financial year/period attributable to: – equity holders of the Company (321,793) (56,128)
Statements of Comprehensive Income Loss for the financial year/period (321,793) (56,128)
Items that will be reclassified subsequently to profit/(loss):
Currency translation differences gains: – subsidiary 1,412 7,454 – joint ventures 11,990 4,872
13,402 12,326
Items that will not be reclassified subsequently to profit/(loss):
Share of other comprehensive (loss)/profit of joint ventures 22(a) (11,402) 3,231
Total other comprehensive income for the financial year/period 16 2,000 15,557
Total comprehensive loss for the financial year/period (319,793) (40,571) NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
13. DISCONTINUING OPERATIONS (CONTINUED)
(a) Analysis of the results and cash flow information of the discontinuing operations are as follows: (continued)
GROUP
Financial Financial year ended period ended 31.12.2019 31.12.2018 Note RM’000 RM’000
Statements of Cash Flows Net cash used in operating activities (63,363) (23,916) Net cash used in investing activities – (2,332) Net cash generated from financing activities 63,081 23,204
Net decrease in cash and cash equivalents (282) (3,044) Foreign exchange differences (18) 102 Cash and cash equivalents at beginning of the financial year/period 1,794 4,736
Cash and cash equivalents at end of the financial year/period 1,494 1,794
(b) Significant operating expenses of the discontinuing operations for the financial year/period are as follow:
Financial Financial year ended period ended 31.12.2019 31.12.2018 Note RM’000 RM’000
Depreciation of: – property, plant and equipment 19,520 10,394 – right-of-use assets 206 103 Impairment of: – property, plant and equipment 17 224,467 14,539 – right-of-use assets 20 10,967 – Liberia’s exit cost 6(e) 20,650 – Impairment of investment in a joint venture 22(e) 8,176 –
Annual Report 2019 P –G. 2 232 33
14. EARNINGS PER SHARE Basic earnings per share The basic earnings per share for the financial year/period has been calculated based on the Group’s net profit attributable to the equity holders of the Company for the financial year/period and the weighted average number of ordinary shares in issue during the financial year/period. GROUP
Financial Financial year ended period ended 31.12.2019 31.12.2018 FINANCIAL STATEMENTS RM’000 RM’000
Profit/(loss) for the financial year/period (RM’000) – continuing operations 121,633 299,636 – discontinuing operations (321,793) (56,128)
Weighted average number of ordinary shares in issue (‘000 units) – continuing operations 6,884,575 6,800,839 – discontinuing operations 6,884,575 6,800,839
Basic earnings/(loss) per share (sen) – continuing operations 1.77 4.41 – discontinuing operations (0.83) (4.67) 7 Diluted earnings per share There is no dilution in earnings per share as there is no potential dilutive ordinary shares.
15. DIVIDENDS Dividends payable and paid in respect of the ordinary shares for the financial year/period are as follows: GROUP
Financial Financial year ended period ended 31.12.2019 31.12.2018 RM’000 RM’000
Dividends for the financial period ended 31 December 2018: Final single tier dividend of 1.7 sen per ordinary share, paid on 21 May 2019 117,038 – Dividends for the financial year ended 30 June 2018: Special interim single tier dividend of 3.0 per share, paid on 5 October 2018 – 204,025 Final single tier dividend of 8.0 sen per ordinary share, paid on 7 January 2019 – 544,067 Special final single tier dividend of 3.0 per share, paid on 7 January 2019 – 204,025
117,038 952,117
A final single tier dividend of 1.0 sen per ordinary share, amounting to RM68.9 million in respect of the financial year ended 31 December 2019 has been declared on 28 February 2020 and will be paid on 22 May 2020. The entitlement date for the dividend payment is 12 May 2020.
The final single tier dividend in respect of the financial period ended 31 December 2018 of RM117.0 million was paid in cash on 21 May 2019.
The final single tier dividend and special final single tier dividend in respect of the financial year ended 30 June 2018 (“FYE June 2018 Final Dividend”) of RM748.1 million was paid on 7 January 2019, RM406.1 million which was satisfied by the issuance of 83,735,906 new Sime Darby Plantation Berhad shares pursuant to the Company’s Dividend Reinvestment Plan (“DRP”) and cash of RM342.0 million. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
16. OTHER COMPREHENSIVE INCOME Attributable to equity holders of the Company
Investments Non- Hedging at FVOCI Exchange Retained controlling reserve reserve reserve earnings Total interests Total GROUP Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
For the financial year ended 31 December 2019 Items that will be reclassified subsequently to profit or loss: Currency translation differences: – subsidiaries – – 86,821 – 86,821 1,759 88,580 Net changes in fair value: – cash flow hedge (24,645) – – 382 (24,263) 266 (23,997) Tax expenses relating to components of other comprehensive income (1,181) – – – (1,181) – (1,181) Items that will not be reclassified subsequently to profit or loss: Actuarial loss on defined benefit plans 38 – – – (14,516) (14,516) (741) (15,257) Net changes in fair value: – investment at FVOCI 25 – 1,175 – – 1,175 – 1,175 Tax credit relating to actuarial loss on defined benefit plans – – – 3,567 3,567 – 3,567
Continuing operations (25,826) 1,175 86,821 (10,567) 51,603 1,284 52,887 Discontinuing operations 13 – – 13,402 (11,402) 2,000 – 2,000
Total other comprehensive (loss)/income (25,826) 1,175 100,223 (21,969) 53,603 1,284 54,887
For the financial period ended 31 December 2018 Items that will be reclassified subsequently to profit or loss: Currency translation differences: – subsidiaries – – 155,765 – 155,765 5,233 160,998 Net changes in fair value: – cash flow hedge (12,517) – – – (12,517) – (12,517) Tax expenses relating to components of other comprehensive income (975) – – – (975) – (975) Items that will not be reclassified subsequently to profit or loss: Actuarial loss on defined benefit plans 38 – – – (1,911) (1,911) (189) (2,100) Net changes in fair value: – investment at FVOCI 25 – 850 – – 850 354 1,204 Tax credit relating to actuarial loss on defined benefit plans – – – 478 478 48 526
Continuing operations (13,492) 850 155,765 (1,433) 141,690 5,446 147,136 Discontinuing operations 13 – – 12,326 3,231 15,557 – 15,557
Total other comprehensive (loss)/income (13,492) 850 168,091 1,798 157,247 5,446 162,693
Annual Report 2019 P –G. 2 234 35
16. OTHER COMPREHENSIVE INCOME (CONTINUED) Investments at FVOCI Hedging reserve reserve Total COMPANY Note RM’000 RM’000 RM’000
For the financial year ended 31 December 2019 Items that will be reclassified subsequently to profit or loss: FINANCIAL STATEMENTS Net changes in fair value: – cash flow hedge – (17,688) (17,688) Tax expenses relating to cash flow hedge – (302) (302) Items that will not be reclassified subsequently to profit or loss: Net changes in fair value: – investment at FVOCI 25 1,300 – 1,300
Total other comprehensive income/(loss) 1,300 (17,990) (16,690)
For the financial period ended 31 December 2018 7 Items that will be reclassified subsequently to profit or loss: Net changes in fair value: – cash flow hedge – (7,198) (7,198) Tax credit relating to cash flow hedge – 26 26 Items that will not be reclassified subsequently to profit or loss: Net changes in fair value: – investment at FVOCI 25 (839) – (839)
Total other comprehensive loss (839) (7,172) (8,011) NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
17. PROPERTY, PLANT AND EQUIPMENT Bearer Vehicles, Capital Freehold plants Plant and equipment work-in- land Buildings (Note 17(a)) machinery and fixtures progress Total GROUP Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 31 December 2019 Net Book Value At 1 January 2019 2,759,863 3,158,441 7,915,811 1,935,156 485,174 749,628 17,004,073 Additions – 16,097 1,027,961 61,646 109,033 519,690 1,734,427 Disposals (4,701) (19) (652) (1,539) (1,471) (2,274) (10,656) Write offs 6(e) – (1,063) (23,777) (1,123) (255) – (26,218) Depreciation charge for the 6(c), financial year 13(b) – (225,262) (456,790) (320,809) (135,856) – (1,138,717) Impairment charge for the 6(c), financial year 13(b) – (38,760) (145,928) (24,822) (6,324) (11,107) (226,941) Transfer to non-current assets held for sale 33 (51,655) (17,397) (23,676) (3,670) (1,905) (2,477) (100,780) Reclassification – 505,857 – 217,337 43,745 (766,939) – Exchange differences 4,450 18,331 34,331 24,932 (1,770) (1,437) 78,837 At 31 December 2019 2,707,957 3,416,225 8,327,280 1,887,108 490,371 485,084 17,314,025
At 31 December 2019 Cost 2,707,957 5,219,349 11,653,369 4,280,529 2,222,541 488,870 26,572,615 Accumulated depreciation – (1,789,232) (3,324,455) (2,375,447) (1,726,464) – (9,215,598) Accumulated impairment losses – (13,892) (1,634) (17,974) (5,706) (3,786) (42,992) Net book value 2,707,957 3,416,225 8,327,280 1,887,108 490,371 485,084 17,314,025
31 December 2018 Net Book Value At 1 July 2018 2,758,103 3,089,014 7,378,752 1,849,669 436,552 767,596 16,279,686 Additions – 17,678 494,596 27,146 72,222 219,990 831,632 Disposals (5,262) (5) (3,088) – (295) – (8,650) Write offs 6(e) – (1,011) (21,640) (3,764) (379) (5,474) (32,268) Depreciation charge for the financial 6(c), period 13(b) – (114,807) (227,917) (132,701) (68,322) – (543,747) Impairment charge for the financial 6(c), period 13(b) – (646) (15,921) (2,599) (1,342) – (20,508) Acquisition of a subsidiary 43(a) – 13,624 201,287 26,793 2,410 – 244,114 Reclassification – 98,830 – 108,615 34,475 (241,920) – Exchange differences 7,022 55,764 109,742 61,997 9,853 9,436 253,814 At 31 December 2018 2,759,863 3,158,441 7,915,811 1,935,156 485,174 749,628 17,004,073
At 31 December 2018 Cost 2,759,863 4,780,771 11,250,462 4,061,486 2,201,542 768,787 25,822,911 Accumulated depreciation – (1,565,903) (3,038,299) (1,977,062) (1,708,472) – (8,289,736) Accumulated impairment losses – (56,427) (296,352) (149,268) (7,896) (19,159) (529,102) Net book value 2,759,863 3,158,441 7,915,811 1,935,156 485,174 749,628 17,004,073
Included in depreciation charge for the financial year are depreciation charged for continuing and discontinuing operations of RM1,119.2 million (2018: RM533.4 million) and RM19.5 million (2018: RM10.4 million) respectively while included in impairment charge for the financial year are impairment charged for continuing and discontinuing operations of RM2.5 million (2018: RM6.0 million) and RM224.5 million (2018: RM14.5 million) respectively.
Included in additions of the Group’s property, plant and equipment (“PPE”) during the financial year are depreciation charged for PPE of RM45.6 million (2018: RM17.1 million) and depreciation charged for right-of-use assets of RM9.3 million (2018: RM1.6 million) capitalised in immature bearer plants, borrowing costs capitalised in capital work-in-progress of RM25.3 million (2018: RM0.9 million) and borrowing costs capitalised in immature bearer plants of RM88.0 million (2018: RM16.5 million). The finance cost is capitalised at an average capitalisation rate of 3.65% (2018: 3.18%). Annual Report 2019 P –G. 2 236 37
17. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Bearer Vehicles, Capital Freehold plants Plant and equipment work-in- land Buildings (Note 17(a)) machinery and fixtures progress Total COMPANY Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 31 December 2019 Net Book Value At 1 January 2019 4,102,105 1,013,713 2,205,905 342,155 116,629 58,481 7,838,988 Additions – 7,656 301,918 9,203 24,147 89,170 432,094 FINANCIAL STATEMENTS Intra group acquisition – – – – 27 – 27 Disposals (4,642) – – – – – (4,642) Intra group disposal – (408) – (3,296) (4,387) – (8,091) Write offs 6(e) – (4) (9,019) – (12) (475) (9,510) Depreciation charge for the financial year 6(c) – (59,681) (100,513) (67,331) (37,480) – (265,005) Transfer to non-current assets held for sale 33 (55,700) (285) (12,879) (102) – – (68,966) Reclassification – 21,510 – 40,415 16,994 (78,919) – At 31 December 2019 4,041,763 982,501 2,385,412 321,044 115,918 68,257 7,914,895
At 31 December 2019 Cost 4,041,763 1,468,577 3,076,086 902,206 421,274 68,257 9,978,163 Accumulated depreciation – (486,076) (690,674) (577,714) (305,356) – (2,059,820) 7 Accumulated impairment losses – – – (3,448) – – (3,448) Net book value 4,041,763 982,501 2,385,412 321,044 115,918 68,257 7,914,895
31 December 2018 Net Book Value At 1 July 2018 4,106,922 1,014,037 2,101,439 353,211 111,020 65,592 7,752,221 Additions – 3,258 160,411 5,872 21,771 35,095 226,407 Intra group acquisition – 9,875 – 561 49 – 10,485 Disposals (4,817) – – – – – (4,817) Intra group disposal – (152) – (694) (3,303) – (4,149) Write offs 6(e) – (191) (10,276) (1,547) (11) (216) (12,241) Depreciation charge for the financial period 6(c) – (29,091) (45,669) (34,334) (18,528) – (127,622) Impairment charge for the financial period 6(e) – – – (1,296) – – (1,296) Reclassification – 15,977 – 20,382 5,631 (41,990) – At 31 December 2018 4,102,105 1,013,713 2,205,905 342,155 116,629 58,481 7,838,988
At 31 December 2018 Cost 4,102,105 1,441,879 2,834,184 864,440 400,630 58,481 9,701,719 Accumulated depreciation – (428,166) (628,279) (518,837) (284,001) – (1,859,283) Accumulated impairment losses – – – (3,448) – – (3,448) Net book value 4,102,105 1,013,713 2,205,905 342,155 116,629 58,481 7,838,988
Included in additions of the Company’s property, plant and equipment (“PPE”) during the financial year are depreciation charged for PPE of RM9.2 million (2018: RM4.6 million) and depreciation charged for right-of-use assets of RM0.5 million (2018: RM0.2 million) capitalised in immature bearer plants, borrowing costs capitalised in capital work-in-progress of RM1.4 million (2018: RM0.8 million) and borrowing costs capitalised in immature bearer plants of RM26.1 million (2018: RM10.0 million). The finance cost is capitalised at an average capitalisation rate of 3.38% (2018: 3.56%). NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
17. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
(a) Bearer plants Bearer plants comprised oil palm, rubber trees and growing canes.
Mature Immature Total Rubber Growing Rubber bearer Oil palm trees canes Total Oil palm trees Total plants GROUP RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
31 December 2019 Net Book Value: At 1 January 2019 5,230,084 44,016 223 5,274,323 2,455,313 186,175 2,641,488 7,915,811 Additions – – – – 980,978 46,983 1,027,961 1,027,961 Disposals (219) – – (219) (433) – (433) (652) Write offs (23,186) (331) – (23,517) (260) – (260) (23,777) Depreciation charge for the financial year (455,697) (2,565) 1,472 (456,790) – – – (456,790) Impairment charge for the financial year (145,693) – – (145,693) (235) – (235) (145,928) Transfer to non-current assets held for sale (16,507) – 9 (16,498) (7,178) – (7,178) (23,676) Reclassification 874,302 3,410 – 877,712 (874,302) (3,410) (877,712) – Exchange differences 9,734 – (27) 9,707 24,624 – 24,624 34,331 At 31 December 2019 5,472,818 44,530 1,677 5,519,025 2,578,507 229,748 2,808,255 8,327,280
At 31 December 2019 Cost 8,687,151 58,415 97,914 8,843,480 2,580,141 229,748 2,809,889 11,653,369 Accumulated depreciation (3,214,333) (13,885) (96,237) (3,324,455) – – – (3,324,455) Accumulated impairment losses – – – – (1,634) – (1,634) (1,634) Net book value 5,472,818 44,530 1,677 5,519,025 2,578,507 229,748 2,808,255 8,327,280
31 December 2018 Net Book Value: At 1 July 2018 5,093,766 38,895 8,759 5,141,420 2,073,402 163,930 2,237,332 7,378,752 Additions 353 – – 353 465,523 28,720 494,243 494,596 Disposals (3,088) – – (3,088) – – – (3,088) Write offs (19,203) (211) – (19,414) (2,226) – (2,226) (21,640) Depreciation charge for the financial period (217,292) (1,263) (9,362) (227,917) – – – (227,917) Impairment charge for the financial period (14,582) – – (14,582) (1,339) – (1,339) (15,921) Acquisition of a subsidiary – – – – 201,287 – 201,287 201,287 Reclassification 295,435 6,595 – 302,030 (295,435) (6,595) (302,030) – Exchange differences 94,695 – 826 95,521 14,101 120 14,221 109,742 At 31 December 2018 5,230,084 44,016 223 5,274,323 2,455,313 186,175 2,641,488 7,915,811
At 31 December 2018 Cost 8,444,690 56,049 98,233 8,598,972 2,462,395 189,095 2,651,490 11,250,462 Accumulated depreciation (2,928,256) (12,033) (98,010) (3,038,299) – – – (3,038,299) Accumulated impairment losses (286,350) – – (286,350) (7,082) (2,920) (10,002) (296,352) Net book value 5,230,084 44,016 223 5,274,323 2,455,313 186,175 2,641,488 7,915,811
Annual Report 2019 P –G. 2 238 39
17. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
(a) Bearer plants (continued) Bearer plants comprised oil palm, rubber trees and growing canes. (continued)
Mature Immature Rubber Rubber Total bearer Oil palm trees Total Oil palm trees Total plants COMPANY RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 FINANCIAL STATEMENTS 31 December 2019 Net Book Value: At 1 January 2019 1,399,378 44,016 1,443,394 610,757 151,754 762,511 2,205,905 Additions – – – 267,279 34,639 301,918 301,918 Write offs (8,443) (316) (8,759) (260) – (260) (9,019) Depreciation charge for the financial year (97,948) (2,565) (100,513) – – – (100,513) Transfer to non-current assets held for sale (10,720) – (10,720) (2,159) – (2,159) (12,879) Reclassification 298,909 3,410 302,319 (298,909) (3,410) (302,319) –
At 31 December 2019 1,581,176 44,545 1,625,721 576,708 182,983 759,691 2,385,412
At 31 December 2019 7 Cost 2,257,966 58,429 2,316,395 576,708 182,983 759,691 3,076,086 Accumulated depreciation (676,790) (13,884) (690,674) – – – (690,674)
Net book value 1,581,176 44,545 1,625,721 576,708 182,983 759,691 2,385,412
31 December 2018 Net Book Value: At 1 July 2018 1,358,304 38,895 1,397,199 568,045 136,195 704,240 2,101,439 Additions – – – 138,257 22,154 160,411 160,411 Write offs (7,839) (211) (8,050) (2,226) – (2,226) (10,276) Depreciation charge for the financial period (44,406) (1,263) (45,669) – – – (45,669) Reclassification 93,319 6,595 99,914 (93,319) (6,595) (99,914) –
At 31 December 2018 1,399,378 44,016 1,443,394 610,757 151,754 762,511 2,205,905
At 31 December 2018 Cost 2,015,624 56,049 2,071,673 610,757 151,754 762,511 2,834,184 Accumulated depreciation (616,246) (12,033) (628,279) – – – (628,279)
Net book value 1,399,378 44,016 1,443,394 610,757 151,754 762,511 2,205,905 NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
17. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
(b) Underlying assets for Islamic financing facilities
In January 2013, the Company entered into a notional sale and leaseback of certain of its plantation land and bearer plants with Sime Darby Plantation Global Berhad (fka Sime Darby Global Berhad) (“SDP Global”), a special purpose vehicle established by Sime Darby Berhad (“SDB”), the former immediate holding company. This sale and leaseback arrangement is solely to facilitate the issuance of Islamic Trust Certificates (“Sukuk”) by SDP Global and it does not represent a collateralisation nor involve a transfer of registered land title. On 23 May 2017, the Company acquired the entire equity interest of SDP Global.
The carrying amount of the assets used as underlying Sukuk assets amounted to RM253 million (2018: RM265 million), comprised of property, plant and equipment of RM240 million (2018: RM252 million) and right-of-use assets of RM13 million (2018: RM13 million).
(c) Impairment of Group’s property, plant and equipment (“PPE”) in Liberia
Pursuant to the disposal of SDP Liberia, an impairment of property, plant and equipment of RM224.5 million has been recognised in the profit or loss for the current financial year within discontinuing operations as disclosed in Note 13(b). The carrying cost of SDP Liberia’s property, plant and equipment impaired, accumulated depreciation and accumulated impairment losses of RM655.9 million, RM89.3 million and RM566.6 million have been reclassified to non-current assets held for sale.
In the previous financial period, the recoverable amount of the Group’s PPE in Liberia that comprise of the oil palm estates and oil palm mill valued by management with assistance of CBRE CH Williams Sdn Bhd (“CBRE”), an independent valuer based on the higher of fair value less costs of disposal (“FVLCTS”) and value-in-use (“VIU”) using the comprehensive valuation model performed for financial year ended 30 June 2018 by CBRE.
The updated valuation, as approved by the Directors in the previous financial period resulted in an impairment loss on PPE in Liberia of RM14.5 million recorded as the carrying amount of the PPE exceeded its FVLCTS of RM242.8 million. Estimate of fair values on the PPE as determined by CBRE were based on the income approach and are within Level 3 of the fair value hierarchy. The sensitivity analysis of each of these assumptions with all other variables being held constant are as follows:
Key assumptions 31.12.2018 CPO price (net of freight costs) USD560 per MT FFB yields 6 to 22 MT per hectare Fixed operating costs USD682 per hectare Discount rate 12% per annum
Additional impairment Sensitivity analysis: (RM’million) (i) CPO and PKO price decrease by 10% 97.5 (ii) FFB yields decrease by 1 MT per hectare 30.0 (iii) Average costs increased by 10% 18.7 (iv) Discount rate increased by 200 basis points 26.2 Annual Report 2019 P –G. 241 240
18. INVESTMENT PROPERTIES Freehold land Buildings Total GROUP Note RM’000 RM’000 RM’000 31 December 2019 Cost Cost At 1 January 2019 14,719 1,406 16,125 Transfer to non-current assets held for sale 33 (8,259) (799) (9,058) Exchange differences 861 108 969 FINANCIAL STATEMENTS At 31 December 2019 7,321 715 8,036
Accumulated depreciation At 1 January 2019 – 611 611 Charge for the financial year 6(a) – 84 84 Transfer to non-current assets held for sale 33 – (317) (317) Exchange differences – 49 49 At 31 December 2019 – 427 427
Accumulated impairment losses At 1 January 2019 – 338 338 Transfer to non-current assets held for sale 33 – (364) (364) Exchange differences – 26 26 7 At 31 December 2019 – – – Net book value at 31 December 2019 7,321 288 7,609
31 December 2018 Cost Cost At 1 July 2018 14,234 1,345 15,579 Exchange differences 485 61 546 At 31 December 2018 14,719 1,406 16,125
Accumulated depreciation At 1 July 2018 – 546 546 Charge for the financial period 6(a) – 40 40 Exchange differences – 25 25 At 31 December 2018 – 611 611
Accumulated impairment losses At 1 July 2018 – 323 323 Exchange differences – 15 15 At 31 December 2018 – 338 338 Net book value at 31 December 2018 14,719 457 15,176
The aggregate direct operating expenses arising from investment properties that did not generate rental income which were recognised during the financial year amounted to RM91,141 (2018: RM48,990) respectively.
The fair value of investment properties is RM11.6 million (2018: RM24.2 million) based on the valuation performed by external professional firms of surveyors and valuers. The valuation was performed using the comparable method based on current prices of comparable properties in an active market for all properties within Level 2 of the fair value hierarchy. Level 2 is based on the inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). The latest external valuation was carried out as at 31 December 2019. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
19. BIOLOGICAL ASSETS Growing Oil palm canes Livestock Total GROUP RM’000 RM’000 RM’000 RM’000
31 December 2019 At 1 January 2019 33,335 96,888 48,560 178,783 Transfers to produce stocks (33,366) (98,172) (49,203) (180,741) Fair value changes 63,018 59,043 71,745 193,806 Exchange differences (89) (630) (2,365) (3,084)
At 31 December 2019 62,898 57,129 68,737 188,764
31 December 2018 At 1 July 2018 66,056 40,889 45,297 152,242 Transfers to produce stocks (66,167) (42,319) – (108,486) Fair value changes 34,029 95,925 1,471 131,425 Exchange differences (583) 2,393 1,792 3,602
At 31 December 2018 33,335 96,888 48,560 178,783
Total COMPANY RM’000
Oil Palm 31 December 2019 At 1 January 2019 19,007 Transfers to produce stocks (19,007) Fair value changes 27,767
At 31 December 2019 27,767
31 December 2018 At 1 July 2018 36,152 Transfers to produce stocks (36,152) Fair value changes 19,007
At 31 December 2018 19,007
The Group’s and the Company’s biological assets were fair valued within Level 3 of the fair value hierarchy with the exception of livestock which are on Level 2 basis (inputs are observable indirectly). Fair value assessments have been completed consistently using the same valuation techniques.
There were no transfers between Level 2 and Level 3 of the fair value hierarchy during the financial year/period. Annual Report 2019 P –G. 243 242
19. BIOLOGICAL ASSETS (CONTINUED)
The biological assets have the following maturity periods:
GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
Current Due not later than one year 188,764 178,783 27,767 19,007 FINANCIAL STATEMENTS
The biological assets of the Group and the Company comprise of:
(i) Oil palm
Oil palm represents the fresh fruit bunches (“FFB”) of up to 2 weeks prior to harvest for use in the Group’s and the Company’s palm product operations. During the financial year, the Group and the Company harvested approximately 9,579,000 metric tonnes (“MT”) of FFB (2018: 5,576,000 MT) and 3,610,557 MT of FFB (2018: 1,995,000 MT) respectively. The quantity of unharvested FFB of the Group and of the Company as at 31 December 2019 included in the fair valuation of FFB was 291,652 MT (2018: 370,299 MT) and 87,373 MT (2018: 142,976 MT) respectively.
The Group and the Company attribute a fair value on the FFB prior to harvest at each statement of financial position date as required under MFRS 141 “Agriculture”. FFB are produce of oil palm trees and are harvested 7 continuously throughout the financial year to be used in the production of crude palm oil (“CPO”). Each FFB takes approximately 22 weeks from pollination to reach maximum oil content to be ready for harvesting. The value of each FFB at each point of the FFB production cycle will vary based on the cumulative oil content in each fruit.
In determining the fair values of FFB, management has considered the oil content of all unripe FFB from the week after pollination to the week prior to harvest. As the oil content accrues exponentially in the 2 weeks prior to harvest, the FFB prior to 2 weeks before harvesting are excluded in the valuation as the increase in fair values are considered negligible.
The valuation model adopted by the Group and the Company is a discounted cash flow model which includes all cash inflows, cash outflows and imputed contributory asset charges where no actual cash flows associated with the use of assets essential to the agricultural activity are accounted for. The net present value of cash flows is then determined with reference to the market value of CPO at the reporting date, adjusted for freight, extraction rates, production, transportation, contributory asset charges and other cost to sell at the point of harvest. Changes to the assumed tonnage included in the valuation will have a direct effect on the reported valuation.
If the Group’s and the Company’s FFB tonnage changes by 10% (2018: 10%) and 10% (2018: 10%) respectively, the impact of fair value of FFB would be as follows:
31.12.2019 31.12.2018 RM’000 RM’000
GROUP FFB tonnage increase by 10% (2018: 10%) 10,861 7,389 FFB tonnage decrease by 10% (2018: 10%) (10,861) (7,389)
COMPANY FFB tonnage increase by 10% (2018: 10%) 3,020 2,169 FFB tonnage decrease by 10% (2018: 10%) (3,020) (2,169)
NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
19. BIOLOGICAL ASSETS (CONTINUED)
(ii) Growing canes
Growing canes represent the standing canes prior to harvest whereby the values are dependent on the age, sucrose content and condition as at the statement of financial position date. During the financial year, the Group harvested approximately 165,680 MT (2018: 184,916 MT) of canes. The estimated quantity of unharvested canes as at 31 December 2019 included in the fair valuation of growing canes of the Group was 258,040 MT (2018: 319,315 MT).
The determination of fair value for the Group’s growing canes requires estimates to be made of the anticipated canes harvest, its age and condition at the statements of financial position date, the sucrose content to be extracted and sugar prices. The anticipated canes harvest is based on management’s historical records, current planting statistics and production forecast. Fair value of the harvested canes is based on the accepted industry benchmark of allocating the fair value of sugar production between the fair value attributable to the canes grower and the value attributable to the miller. The fair value of the growing canes at the statement of financial position date is based on the estimated fair value of the growing canes less further costs to be incurred in growing and harvesting the canes up to the point of harvest and contributory asset charges.
If the estimated harvest volume of canes increased or decreased by 10% (2018: 6%), fair value changes in growing canes would have increased or decreased by approximately RM8.3 million (2018: RM2.0 million) accordingly.
(iii) Livestock
Livestock comprise the cattle livestock included within the Group’s beef production operations. Cattle livestock are generally fed for 120 days prior to use for beef production. During the financial year, the Group produced 1,957.5 tonnes (2018: 982.2 tonnes) of beef. The number of cattle as at 31 December 2019 included in the fair values of livestock was 24,625 heads (2018: 23,527 heads).
The fair value of livestock is based on the Group’s assessment of age, average weights and market values of the livestock at the statement of financial position date. If the average weight per cattle increases or decreases by 1% (2018: 1%), fair value changes in livestock would have increased or decreased by approximately RM0.7 million (2018: RM0.5 million) respectively. Annual Report 2019 P –G. 245 244
20. RIGHT-OF-USE ASSETS Vehicles, Leasehold Plant and equipment land Buildings machinery and fixtures Total GROUP Note RM’000 RM’000 RM’000 RM’000 RM’000
31 December 2019 Net Book Value: At 1 January 2019 2,152,669 40,626 39,726 6,191 2,239,212 FINANCIAL STATEMENTS Additions 11,178 24,789 5,420 1,228 42,615 Write-downs 6(e) – (1,181) – (790) (1,971) Depreciation charge for the financial year (71,181) (17,984) (17,058) (3,088) (109,311) Impairment charge for the financial year (30,393) (20) – – (30,413) Exchange differences 5,093 1,117 (846) 44 5,408
At 31 December 2019 2,067,366 47,347 27,242 3,585 2,145,540
At 31 December 2019: Cost 3,294,170 74,366 56,235 9,142 3,433,913 Accumulated depreciation (1,207,065) (26,999) (28,993) (5,557) (1,268,614) Accumulated impairment (19,739) (20) – – (19,759) 7 Net book value 2,067,366 47,347 27,242 3,585 2,145,540
31 December 2018 Net Book Value: At 1 July 2018 2,081,102 43,101 45,608 7,801 2,177,612 Additions 3,556 4,883 – – 8,439 Disposal (51) – – (188) (239) Depreciation charge for the financial period (50,398) (7,570) (5,512) (1,428) (64,908) Acquisition of a subsidiary 43(a) 82,037 225 – – 82,262 Exchange differences 36,423 (13) (370) 6 36,046
At 31 December 2018 2,152,669 40,626 39,726 6,191 2,239,212
At 31 December 2018: Cost 3,293,025 49,845 51,766 8,638 3,403,274 Accumulated depreciation (1,139,855) (9,219) (12,040) (2,447) (1,163,561) Accumulated impairment (501) – – – (501)
Net book value 2,152,669 40,626 39,726 6,191 2,239,212
Included in the depreciation charge for the financial year are depreciation charged for continuing and discontinuing operations of RM109.1 million (2018: RM64.8 million) and RM0.2 million (2018: RM0.1 million) respectively while included in impairment charge for the financial year are impairment charged for continuing and discontinuing operations of RM19.4 million (2018: nil) and RM11.0 million (2018: nil) respectively.
Pursuant to the proposed disposal of SDP Liberia, an impairment of right-of-use assets of RM11.0 million has been recognised in the profit or loss for the current financial year within discontinuing operations as disclosed in Note 13(b). The carrying cost of SDP Liberia’s right-of-use assets impaired, accumulated depreciation and accumulated impairment of RM12.4 million, RM1.4 million and RM11.0 million respectively have been reclassified to non-current assets held for sale. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
20. RIGHT-OF-USE ASSETS (CONTINUED) Vehicles, Leasehold Plant and equipment land Buildings machinery and fixtures Total COMPANY RM’000 RM’000 RM’000 RM’000 RM’000
31 December 2019 Net Book Value: At 1 January 2019 278,191 200 7,388 1,698 287,477 Additions 312 78 – 852 1,242 Disposal – – – (321) (321) Depreciation charge for the financial year (3,574) (242) (534) (1,447) (5,797)
At 31 December 2019 274,929 36 6,854 782 282,601
At 31 December 2019: Cost 316,878 428 7,655 2,932 327,893 Accumulated depreciation (41,949) (392) (801) (2,150) (45,292)
Net book value 274,929 36 6,854 782 282,601
31 December 2018 Net Book Value: At 1 July 2018 279,965 350 7,655 2,401 290,371 Disposal (51) – – – (51) Depreciation charge for the financial period (1,723) (150) (267) (703) (2,843)
At 31 December 2018 278,191 200 7,388 1,698 287,477
At 31 December 2018: Cost 316,566 350 7,655 2,401 326,972 Accumulated depreciation (38,375) (150) (267) (703) (39,495)
Net book value 278,191 200 7,388 1,698 287,477
(a) Underlying assets for Islamic financing facilities
During the financial year ended 30 June 2016, a subsidiary of the Company entered into a notional sale and leaseback of certain of its plantation land and bearer plants with SDB. This sale and leaseback arrangement is solely to facilitate the issuance of Perpetual Subordinated Sukuk Programme (“Perpetual Sukuk”) by Sime Darby Berhad (“SDB”). The structure does not represent collateralisation and there was no transfer of registered land title. On 23 June 2017, the Perpetual Sukuk was novated from SDB to the Company. The sale and leaseback agreement was similarly novated from SDB to the Company.
The carrying amount of assets used as underlying Perpetual Sukuk assets amounted to RM109 million (2018: RM111 million). Annual Report 2019 P –G. 247 246
21. SUBSIDIARIES COMPANY
31.12.2019 31.12.2018 RM’000 RM’000
Unquoted shares at cost 7,748,778 7,794,595 Amounts due from subsidiaries – non-interest bearing 1,084,902 2,051,736 Accumulated impairment losses (801,500) (1,465,048)
8,032,180 8,381,283 FINANCIAL STATEMENTS
The amounts due from subsidiaries above are deemed as capital contribution to subsidiaries as the repayment of these amounts are neither fixed nor expected.
Movements of impairment losses for investment in subsidiaries are as follows:
COMPANY
31.12.2019 31.12.2018 Note RM’000 RM’000
At 1 January 2019/1 July 2018 1,465,048 1,401,473 Charge for the financial year/period 6(e) 309,462 136,084 Reversal for the financial year/period 7 (94,731) (72,509) 7 Transfer to non-current assets held for sale (878,279) –
At 31 December 2019/2018 801,500 1,465,048
As set out in Note 13, the Group will dispose its entire 100% equity interest in SDP Liberia for a total cash consideration of USD1. As a result, an impairment loss of RM305.9 million has been recognised during the financial year, for the excess of the carrying amount of the cost of investment in SDP Liberia (including the amount due from SDP Liberia which was deemed as capital contribution to SDP Liberia) over the fair value less costs of disposal (“FVLCS”), as determined by the expected purchase consideration, less any directly related costs not yet recognised as expense.
In the previous financial period, the recoverable amount of the investment in SDP Liberia of RM242.8 million was determined based on FVLCS method (Level 3 of the fair value hierarchy). The fair value was determined by an independent professional valuer via a simulation based on the valuation model as per the independent valuation report dated 28 June 2018. The key assumptions and sensitivity analysis for the impairment assessment are disclosed in Note 17(c) to the financial statements. As a result of the impairment assessment, an impairment charge on the costs of investments (including the amount due from SDP Liberia which was deemed as capital contribution to SDP Liberia) of RM49.6 million was recorded in the operating expense in the Company’s statement of profit or loss for financial period ended 31 December 2018.
A further impairment charge on costs of investment (including the amount due from subsidiaries) of RM86.5 million was recorded in the Company’s statement of profit or loss for the previous financial period relating mainly to Kumpulan Jelei Sdn Bhd (“Kumpulan Jelei”) of RM78.2 million. The cost of investment in Kumpulan Jelei was fully impaired as the company had become dormant and did not generate sufficient cash flows.
During the financial year, a reversal of impairment on the amount due from Sime Darby Oils Zwijndrecht Refinery B.V. (which deemed as capital contribution) of RM94.7 million (2018: reversal of impairment of RM68.6 million) was recorded in the Company’s statement of profit or loss as a result of a higher recoverable amount. The recoverable amount was determined based on its value-in-use calculations using cash flow from the approved financial budgets covering a 5 year period.
The Group’s equity interest in the subsidiaries as at 31 December 2019 and 31 December 2018, their principal activities and countries of incorporation are shown in Note 51. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
22. JOINT VENTURES
The Group’s equity interest in the joint ventures as at 31 December 2019 and 31 December 2018, their respective principal activities and countries of incorporation are shown in Note 51.
(a) Share of results of joint ventures
The Group’s share of results of joint ventures are as follows:
GROUP
Financial Financial year ended period ended 31.12.2019 31.12.2018 RM’000 RM’000
Share of results for the financial year/period 3,911 225
Aggregate amount from discontinuing operations: Share of results for the financial year/period 4,061 1,366 Currency translation differences 11,990 4,872 Share of other comprehensive (loss)/income (net of tax) (11,402) 3,231
Share of total comprehensive (loss)/income from discontinuing operations 4,649 9,469
(b) Investments in joint ventures
The Group’s and the Company’s investments in joint ventures are as follows:
GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
Unquoted shares, at cost 79,348 375,347 3,745 311,938 Share of post-acquisition reserves (45,196) 71,458 – –
34,152 446,805 3,745 311,938
(c) Material joint ventures
Set out below are the joint ventures of the Group as at 31 December 2019 which, in the opinion of the Directors, are material to the Group.
Group’s effective Place of business/ Name of joint ventures interest (%) Country of incorporation
Continuing Operations Rizhao Sime Darby Oils & Fats Co. Ltd. 45.0 China
Discontinuing Operations Emery Oleochemicals (M) Sdn Bhd 50.0 Malaysia Emery Specialty Chemicals Sdn Bhd 50.0 Malaysia
The Group’s investments in joint ventures are in private companies and there are no quoted market prices available for these shares.
There are no contingent liabilities in respect of the Group’s interests in the joint ventures. Annual Report 2019 P –G. 249 248
22. JOINT VENTURES (CONTINUED)
(d) Summarised financial information
The summarised statements of comprehensive income of the joint ventures are as follows:
Discontinuing operations Continuing operations
Emery Rizhao Emery Specialty Sime Darby Oleochemicals Chemicals MYBiomass Oils & Fats (M) Sdn Bhd Sdn Bhd* Sdn Bhd Total Co. Ltd. Others* Total FINANCIAL STATEMENTS RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
For the financial year ended 31 December 2019 Revenue 2,119,385 172,713 74 2,292,172 45,548 68,342 113,890
Depreciation and amortisation (75,747) (13,695) (98) (89,540) – (2,065) (2,065) Interest income 11,729 78 – 11,807 18 45 63 Interest expense (34,810) (14,420) – (49,230) – (2,599) (2,599)
Profit/(loss) before tax 23,136 (40,892) (1,108) (18,864) (4,320) 12,408 8,088 Tax (expense)/credit (14,234) (23) 65 (14,192) – (608) (608) Profit/(loss) for the financial 7 year 8,902 (40,915) (1,043) (33,056) (4,320) 11,800 7,480
Profit/(loss) for the financial year attributable to owners of: – the joint venture 8,121 (40,915) (1,043) (33,837) (4,320) 11,800 7,480 – non-controlling interests 781 – – 781 – – –
Profit/(loss) for the financial year 8,902 (40,915) (1,043) (33,056) (4,320) 11,800 7,480
Other comprehensive (loss)/ income – unrealised exchange differences (12,240) 36,220 – 23,980 – – – – actuarial loss on defined benefit plans (31,142) – – (31,142) – – – – tax credit relating to actuarial loss on defined benefit plans 8,338 – – 8,338 –
(35,044) 36,220 – 1,176 – – –
Total comprehensive (loss)/ income for the financial year (26,142) (4,695) (1,043) (31,880) (4,320) 11,800 7,480
Total comprehensive (loss)/ income for the financial year attributable to owners of: – the joint venture (26,923) (4,695) (1,043) (32,661) (4,320) 11,800 7,480 – non-controlling interests 781 – – 781 – – –
(26,142) (4,695) (1,043) (31,880) (4,320) 11,800 7,480 NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
22. JOINT VENTURES (CONTINUED)
(d) Summarised financial information (continued)
The summarised statements of comprehensive income of the joint ventures are as follows: (continued)
Discontinuing operations Continuing operations
Emery Rizhao Emery Specialty Sime Darby Oleochemicals Chemicals MYBiomass Oils & Fats (M) Sdn Bhd Sdn Bhd* Sdn Bhd Total Co. Ltd. Others* Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
For the financial period ended 31 December 2018 Revenue 1,209,604 88,884 59 1,298,547 21,414 39,729 61,143
Depreciation and amortisation (38,850) (7,985) (54) (46,889) – (1,068) (1,068) Interest income 6,079 35 – 6,114 9 462 471 Interest expense (20,031) (7,638) – (27,669) (17) (507) (524)
Profit/(loss) before tax 12,689 (28,833) (330) (16,474) (1,913) 3,727 1,814 Tax (expense)/credit (9,568) (17) 65 (9,520) – (261) (261)
Profit/(loss) for the financial period 3,121 (28,850) (265) (25,994) (1,913) 3,466 1,553
Profit/(loss) for the financial period attributable to owners of: – the joint venture 2,890 (25,277) (265) (22,652) (1,913) 3,466 1,553 – non-controlling interests 231 (3,573) – (3,342) – – –
Profit/(loss) for the financial period 3,121 (28,850) (265) (25,994) (1,913) 3,466 1,553
Other comprehensive income/(loss) – unrealised exchange differences 9,971 (226) – 9,745 – – – – actuarial gain on defined benefit plans 9,679 – – 9,679 – – – – tax expense relating to actuarial gain on defined benefit plans (3,218) – – (3,218) – – – 16,432 (226) – 16,206 – – –
Total comprehensive income/(loss) for the financial period 19,553 (29,076) (265) (9,788) (1,913) 3,466 1,553
Total comprehensive income/(loss) for the financial period attributable to owners of: – the joint venture 19,322 (25,503) (265) (6,446) (1,913) 3,466 1,553 – non-controlling interests 231 (3,573) – (3,342) – – –
19,553 (29,076) (265) (9,788) (1,913) 3,466 1,553 Annual Report 2019 P –G. 251 250
22. JOINT VENTURES (CONTINUED)
(d) Summarised financial information (continued)
The summarised statements of financial position of the joint ventures are as follows:
Discontinuing operations Continuing operations
Emery Rizhao Emery Specialty Sime Darby Oleochemicals Chemicals MYBiomass Oils & Fats FINANCIAL STATEMENTS (M) Sdn Bhd Sdn Bhd* Sdn Bhd Total Co. Ltd. Others* Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
31 December 2019 Non-current assets 876,216 216,116 190 1,092,522 67,180 106,526 173,706
Current assets Cash and cash equivalents 110,966 19,798 1,053 131,817 168 2,963 3,131 Other current assets 950,744 49,805 26,190 1,026,739 1,690 60,724 62,414
1,061,710 69,603 27,243 1,158,556 1,858 63,687 65,545
Non-current liabilities Financial liabilities (excluding trade and 7 other payables) (4,369) – – (4,369) – (22,086) (22,086) Other non-current liabilities – – – – (175) (495) (670) (4,369) – – (4,369) (175) (22,581) (22,756)
Current liabilities Financial liabilities (excluding trade and other payables) (614,578) (62,890) – (677,468) – (33,578) (33,578) Other current liabilities (481,146) (351,714) (180) (833,040) (8,748) (121,469) (130,217)
(1,095,724) (414,604) (180) (1,510,508) (8,748) (155,047) (163,795)
Non-controlling interests (50,094) 7,145 – (42,949) – – –
Net assets/(liabilities) 787,739 (121,740) 27,253 693,252 60,115 (7,415) 52,700 NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
22. JOINT VENTURES (CONTINUED)
(d) Summarised financial information (continued)
The summarised statements of financial position of the joint ventures are as follows: (continued)
Discontinuing operations Continuing operations
Emery Rizhao Emery Specialty Sime Darby Oleochemicals Chemicals MYBiomass Oils & Fats (M) Sdn Bhd Sdn Bhd* Sdn Bhd Total Co. Ltd. Others* Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
31 December 2018 Non-current assets 901,951 227,752 297 1,130,000 72,887 117,983 190,870
Current assets Cash and cash equivalents 168,761 17,100 3,299 189,160 172 3,186 3,358 Other current assets 1,014,017 62,032 24,839 1,100,888 24,252 26,898 51,150
1,182,778 79,132 28,138 1,290,048 24,424 30,084 54,508
Non-current liability Financial liabilities (excluding trade and other payables) (4,859) – – (4,859) (195) (23,633) (23,828)
(4,859) – – (4,859) (195) (23,633) (23,828)
Current liabilities Financial liabilities (excluding trade and other payables) (714,784) (81,071) – (795,855) – (35,543) (35,543) Other current liabilities (501,111) (314,456) (139) (815,706) (31,006) (83,841) (114,847)
(1,215,895) (395,527) (139) (1,611,561) (31,006) (119,384) (150,390)
Non-controlling interests (49,313) 7,145 – (42,168) – – –
Net assets/(liabilities) 814,662 (81,498) 28,296 761,460 66,110 5,050 71,160 Annual Report 2019 P –G. 253 252
22. JOINT VENTURES (CONTINUED)
(e) Reconciliations of summarised financial information
Reconciliations of the summarised financial information presented to the carrying amounts of the Group’s interests in joint ventures are as follows:
Discontinuing operations Continuing operations
Emery Rizhao Emery Specialty Sime Darby FINANCIAL STATEMENTS Oleochemicals Chemicals MYBiomass Oils & Fats (M) Sdn Bhd Sdn Bhd* Sdn Bhd Total Co. Ltd. Others* Total Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
31 December 2019 Net assets At 1 January 2019 814,662 – 28,296 842,958 66,110 5,050 71,160 Total comprehensive (loss)/income (26,923) – (1,043) (27,966) (4,320) 11,800 7,480 Exchange differences – – – – (1,675) 240 (1,435)
At 31 December 2019 787,739 – 27,253 814,992 60,115 17,090 77,205
Group’s effective 7 interest 50.0% 50.0% 30% 30.0% – 50.0% 45% 49.0% – 51.0% 45.0% – 51.0% Interests in joint ventures 393,870 – 8,176 402,046 27,052 7,100 34,152 Impairment charge for the financial year 13(b) – – (8,176) (8,176) – – – Transfer to non-current assets held for sale 33 (393,870) – – (393,870) – – –
Carrying amount at end of the financial year – – – – 27,052 7,100 34,152
* The Group has capped the recognition of its share of losses incurred by Emery Specialty Chemicals Sdn Bhd (“ESC”) in the previous financial period/years and Guangzhou Keylink Chemicals Co. Ltd. (“Keylink”) in the current financial year as the Group’s interests in ESC and Keylink had been reduced to zero and the Group does not have any obligations or guarantee of any obligations on behalf of ESC and Keylink. The Group’s share of losses in ESC and Keylink for the current financial year amounted to RM2.3 million and RM5.7 million, respectively, which had not been equity accounted for. As at 31 December 2019, the unrecognised amounts of the Group’s share of losses in ESC and Keylink are RM46.9 million and RM5.7 million (2018: RM44.6 milion and nil), respectively. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
22. JOINT VENTURES (CONTINUED) (e) Reconciliations of summarised financial information (continued) Reconciliations of the summarised financial information presented to the carrying amounts of the Group’s interests in joint ventures are as follows: (continued)
Discontinuing operations Continuing operations
Emery Rizhao Emery Specialty Sime Darby Oleochemicals Chemicals MYBiomass Oils & Fats (M) Sdn Bhd Sdn Bhd* Sdn Bhd Total Co. Ltd. Others* Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
31 December 2018 Net assets At 1 July 2018 795,340 – 24,061 819,401 68,712 1,553 70,265 Total comprehensive income/(loss) 19,322 – (265) 19,057 (1,913) 3,466 1,553 Additional investment in existing joint ventures – – 4,500 4,500 – – – Exchange differences – – – – (689) 31 (658)
At 31 December 2018 814,662 – 28,296 842,958 66,110 5,050 71,160
Group’s effective interest 50.0% 50.0% 30% 30.0% – 50.0% 45% 49.0% – 51.0% 45.0% – 51.0% Interests in joint ventures 407,331 – 8,489 415,820 29,750 1,235 30,985
Carrying amount at end of the financial period 407,331 – 8,489 415,820 29,750 1,235 30,985
23. ASSOCIATES The Group’s equity interest in the associates as at 31 December 2019 and 31 December 2018, their respective principal activities and countries of incorporation are shown in Note 51.
(a) Share of results of associates The Group's share of results of associates are as follows: GROUP
Financial Financial year ended period ended 31.12.2019 31.12.2018 RM’000 RM’000
Share of results for the financial year/period (2,257) 1,568
(b) Investments in associates The Group’s and the Company's investments in associates are as follows:
GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
Unquoted shares, at cost 73,733 70,456 420 420 Share of post-acquisition reserves (33,978) (28,778) – –
39,755 41,678 420 420 Annual Report 2019 P –G. 255 254
23. ASSOCIATES (CONTINUED)
(c) Material associates
Set out below are the associates of the Group as at 31 December 2019, which, in the opinion of the Directors, are material to the Group:
Name of associates Group’s effective Place of business/ interest (%) Country of incorporation
Muang Mai Guthrie Public Company Limited 49.0 Thailand FINANCIAL STATEMENTS Verdezyne, Inc. 43.5 United States of America
The Group’s investments in associate companies are in private companies and there are no quoted market prices available for these shares.
There are no contingent liabilities in respect of the Group’s interests in the associates.
(d) Summarised financial information
The summarised statements of comprehensive income/(loss) and dividends received from the associates are as follows:
Muang Mai Guthrie 7 Public Company Verdezyne, Limited Inc. Others Total RM’000 RM’000 RM’000 RM’000
For the financial year ended 31 December 2019 Revenue 192,095 – 60,162 252,257
Loss before tax (1,623) – (3,979) (5,602) Tax expense (157) – (72) (229)
Loss for the financial year/ Total comprehensive loss for the financial year (1,780) – (4,051) (5,831)
Dividend received (2,955) – – (2,955)
For the financial period ended 31 December 2018 Revenue 98,278 – 48,711 146,989
Profit before tax 2,917 – 841 3,758 Tax expense (401) – – (401)
Profit for the financial period/Total comprehensive income for the financial period 2,516 – 841 3,357
Dividend received – – – – NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
23. ASSOCIATES (CONTINUED)
(d) Summarised financial information (continued)
The summarised statements of financial position of the associates are as follows:
Muang Mai Guthrie Public Company Verdezyne, Limited Inc. Others Total RM’000 RM’000 RM’000 RM’000 31 December 2019 Non-current assets 42,201 247,507 53,792 343,500
Current assets Cash and cash equivalents 947 18,687 8,630 28,264 Other current assets 41,838 5,158 7,387 54,383
42,785 23,845 16,017 82,647
Non-current liabilities Financial liabilities (excluding trade and other payables) – (189,826) – (189,826) Other non-current liabilities (1,299) – (20,519) (21,818)
(1,299) (189,826) (20,519) (211,644)
Current liabilities Other current liabilities (28,869) (81,526) (15,438) (125,833)
Net assets/(liabilities) 54,818 – 33,852 88,670
31 December 2018 Non-current assets 39,625 250,339 54,101 344,065
Current assets Cash and cash equivalents 588 18,901 6,530 26,019 Other current assets 44,591 5,217 12,952 62,760
45,179 24,118 19,482 88,779
Non-current liabilities Financial liabilities (excluding trade and other payables) – (191,998) – (191,998) Other non-current liabilities (695) – (22,334) (23,029)
(695) (191,998) (22,334) (215,027)
Current liabilities Other current liabilities (25,465) (82,459) (15,774) (123,698)
Net assets 58,644 – 35,475 94,119
The above information reflects the amounts presented in the financial statements of the associates adjusted for differences in accounting policies between the Group and the associates as well as post-acquisition changes to the fair value adjustments at the acquisition date. Annual Report 2019 P –G. 257 256
23. ASSOCIATES (CONTINUED)
(e) Reconciliations of summarised financial information
Reconciliations of the summarised financial information presented to the carrying amounts of the Group’s interests in associates are as follows:
Muang Mai Guthrie Public
Company Verdezyne, FINANCIAL STATEMENTS Limited Inc. Others Total RM’000 RM’000 RM’000 RM’000
31 December 2019 Net assets At 1 January 2019 58,644 – 35,475 94,119 Total comprehensive loss (1,780) – (4,051) (5,831) Dividend declared (6,030) – – (6,030) Exchange differences 3,984 – 2,428 6,412
At 31 December 2019 54,818 – 33,852 88,670
Group’s effective interest 49.0% 43.5% 32.0% – 40.0% 32.0% – 49.0% Interests in associates 26,861 – 12,593 39,454 7 Goodwill – – 301 301
Carrying amount at end of the financial year 26,861 – 12,894 39,755
31 December 2018 Net assets At 1 July 2018 54,480 – 29,714 84,194 Total comprehensive income 2,516 – 841 3,357 Exchange differences 1,648 – 4,920 6,568
At 31 December 2018 58,644 – 35,475 94,119
Group’s effective interest 49.0% 43.5% 32.0% – 40.0% 32.0% – 49.0% Interests in associates 28,736 – 12,641 41,377 Goodwill – – 301 301
Carrying amount at end of the financial period 28,736 – 12,942 41,678
The Group has capped the recognition of its share of losses incurred by Verdezyne, Inc. (“Verdezyne”) in the previous financial period/years as the Group’s interests in Verdezyne had been reduced to zero and the Group does not have any obligations or guarantee if any obligations on behalf of Verdezyne. For TheFinancialYearEnded31December2019 STATEMENTS FINANCIAL TO THE NOTES 24. INTANGIBLE ASSETS
Work-in- progress capitalised Acquired Assets Intellectual Agriculture – agriculture brand usage property Smallholder Customer Computer development development names/ Goodwill rights rights relationships relationships software costs costs trademarks Total GROUP Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
31 December 2019 Net book value At 1 January 2019 2,169,202 824 14,700 560,929 2,592 20,693 76,972 8,816 38,115 2,892,843 Additions – – – – – 2,765 3 3,867 – 6,635 Write-off 6(e) – – – – – (13) – – – (13) Amortisation 6(a) – (132) (840) (14,977) (724) (7,996) (4,650) – (3,225) (32,544) Transfer to non-current assets held for sale 33 (3,113) – – – – (15) – – – (3,128) Exchange differences (17,113) (1) – (2,301) (191) (1,982) (1,362) – (335) (23,285)
At 31 December 2019 2,148,976 691 13,860 543,651 1,677 13,452 70,963 12,683 34,555 2,840,508
Cost 2,154,499 1,925 16,800 610,924 9,741 172,063 87,668 3,136,212 12,683 69,909 Accumulated amortisation – (1,234) (2,940) (67,273) (8,064) (155,203) – (16,705)(33,036) (284,455) Accumulated impairment losses (5,523) – – – – (3,408) – – (2,318) (11,249)
Net book value as at 31 December 2019 2,148,976 691 13,860 543,651 1,677 13,452 70,963 12,683 34,555 2,840,508
31 December 2018 Net book value At 1 July 2018 2,102,062 889 15,120 553,533 2,972 24,677 79,2577,396 38,635 2,824,541 Acquisition of a subsidiary 43 9,054 – – – – – – – – 9,054 Additions – – – – – 2,084 – 1,420 – 3,504 Write-off 6(e) (193) – – – – – – – – (193) Amortisation 6(a) – (65) (420) (7,464) (693) (6,471) (2,358) – (1,606) (19,077) Exchange differences 58,279 – – 14,860 313 403 73 – 1,086 75,014
At 31 December 2018 2,169,202 824 14,700 560,9292,592 20,693 76,9728,816 38,115 2,892,843
Cost 2,174,725 1,927 16,800 612,786 10,260 169,9428,816 88,050 70,694 3,154,000 Accumulated amortisation – (1,103) (2,100) (51,857) (7,668) (145,817)– (11,078) (30,255) (249,878) Accumulated impairment losses (5,523) – – – – (3,432) – – (2,324) (11,279)
Net book value as at 31 December 2018 2,169,202 824 14,700 560,9292,592 20,693 76,9728,816 38,115 2,892,843
Included in the additions of the Group’s intangible assets during the financial year is borrowing costs capitalised of RM0.2 million (2018: RM0.1 million). Annual Report 2019 P –G. 259 258
24. INTANGIBLE ASSETS (CONTINUED) Work-in- progress capitalised Intellectual Agriculture – agriculture property Computer development development Goodwill rights software costs costs Total COMPANY Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
31 December 2019 FINANCIAL STATEMENTS Net book value At 1 January 2019 1,977,918 14,700 5,486 74,504 8,816 2,081,424 Additions – – 228 – 3,054 3,282 Amortisation 6(a) – (840) (2,901) (4,249) – (7,990) Transfer to non-current assets held for sale 33 (3,113) – – – – (3,113)
At 31 December 2019 1,974,805 13,860 2,813 70,255 11,870 2,073,603
Cost 1,974,805 16,800 64,895 84,995 11,870 2,153,365 Accumulated amortisation – (2,940) (62,082) (14,740) – (79,762)
Net book value as at 31 December 2019 1,974,805 13,860 2,813 70,255 11,870 2,073,603 7
31 December 2018 Net book value At 1 July 2018 1,978,111 15,120 7,643 76,629 7,396 2,084,899 Additions – – 39 – 1,420 1,459 Write-off 6(e) (193) – – – – (193) Amortisation 6(a) – (420) (2,196) (2,125) – (4,741)
At 31 December 2018 1,977,918 14,700 5,486 74,504 8,816 2,081,424
Cost 1,977,918 16,800 64,666 84,995 8,816 2,153,195 Accumulated amortisation – (2,100) (59,180) (10,491) – (71,771)
Net book value as at 31 December 2018 1,977,918 14,700 5,486 74,504 8,816 2,081,424
Included in the additions of the Company’s intangible assets during the financial year is borrowing costs capitalised of RM0.2 million (2018: RM0.1 million). NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
24. INTANGIBLE ASSETS (CONTINUED)
(i) Goodwill
The goodwill in the Group’s consolidated statement of financial position represents mainly the excess of the purchase consideration over the fair value of identifiable assets, liabilities and contingent liabilities recognised upon the Group’s acquisition of New Britain Palm Oil Limited (“NBPOL”) and its subsidiaries of USD517.0 million (RM2,123.3 million) during the financial year ended 30 June 2015.
The Group carries out its annual impairment assessment on the goodwill arising from the acquisition of NBPOL, which for the purposes of impairment testing has been allocated to cash generating units (“CGU”) within the Group, namely NBPOL CGU and PT Minamas Gemilang and its subsidiaries (“Minamas Group CGU”) as the Group believes that Minamas Group’s operations will benefit from the additional planting material synergies arising from the acquisition of NBPOL and will not be impacted from Group’s planned disposal of Verdant Bioscience Pte Lte, as set out in Note 33 (c)(ii).
The impairment assessment is carried out on goodwill allocated to NBPOL CGU of USD367 million (equivalent to RM1,507.2 million) (2018: USD367 million (equivalent to RM1,524.5 million)) and Minamas Group CGU of USD150 million (equivalent to RM616.1 million) (2018: USD150 million (equivalent to RM623.1 million)).
The recoverable amounts of these two CGUs are based on their respective value-in-use calculations which are derived at using cash flow projections in which the following key assumptions are used:
GROUP
31.12.2019 31.12.2018
NBPOL CGU Projection period A 37-year cash flow projection, based A 37.5-year cash flow projection, based on the average remaining lease on the average remaining lease period period of land in NBPOL of land in NBPOL FFB yields 24.7 to 30.7 MT per hectare ("ha") 24 to 32 MT per hectare ("ha") CPO price USD581 to USD944 per MT USD625 to USD947 per MT Discount rate 10.4% per annum 9.1% per annum
Minamas Group CGU Projection period A 45-year cash flow projection, based A 45.5-year cash flow projection, based on the average remaining lease on the average remaining lease period period of land in Indonesia of land in Indonesia FFB yields 18.7 to 27.2 MT per ha, inclusive of a 19 to 30 MT per ha, inclusive of a 1MT 1MT per ha yield increase from a per ha yield increase from a replanting replanting programme with Super programme with Super Dami seeds Dami seeds CPO price USD500 to USD718 per MT USD525 to USD708 per MT Discount rate 9.8% per annum 9.5% per annum
The Group’s impairment assessment of both CGUs as outlined above included a sensitivity analysis on the key assumptions used. Based on the results of the sensitivity analysis, no reasonable change in the key assumptions used would result in an impairment charge for current financial year or prior financial period.
Management believes that no impairment charge is required on the goodwill as the recoverable amount calculated based on value-in-use exceeded the carrying value of the goodwill of NBPOL CGU and Minamas Group CGU. Annual Report 2019 P –G. 261 260
24. INTANGIBLE ASSETS (CONTINUED)
(i) Goodwill (continued)
The Company’s goodwill arose from merger exercise of plantation businesses between Sime Darby Berhad, Golden Hope Plantations Berhad and Kumpulan Guthrie Berhad in the financial year 2008. The acquisition of the plantation businesses from this merger exercise resulted in a goodwill of RM1,974.8 million.
The Company evaluates the recoverable amounts of the goodwill as one CGU based on its value-in-use calculations using cash flow from approved financial budgets covering a 5 year period inclusive of the
terminal values. FINANCIAL STATEMENTS
COMPANY
31.12.2019 31.12.2018
Discount rates (%) 9 9 CPO price (RM per MT) 2,200 to 2,675 2,300 to 2,650
Based on our assessment, no impairment charge is required on the goodwill as the recoverable amounts exceed the carrying value of the CGUs’ assets and goodwill. The management believes that no reasonable possible change in any of the key assumptions used would result in the carrying amount of the CGU to materially exceed the recoverable amounts.
(ii) Smallholder relationships 7 The smallholder relationships arose from the acquisition of a controlling interest in a subsidiary. These assets reflect the relationship between the Group and smallholders who cultivate and harvest FFB on land which is owned by the smallholders. The FFB is subsequently purchased by the Group for processing as palm oil. These assets are initially recognised at fair value and thereafter amortised over the remaining lease term of the Group’s land of 45 years.
(iii) Work-in-progress capitalised – agriculture development costs
Capitalised agriculture development costs comprise of expenditure incurred relating to the development of oil palm genomic data and techniques, as well as clonal technology with the objective to increase yields and profit streams from the Group’s plantation. Once the development enters into commercial production, the asset will be amortised over its estimated useful life of 5 to 20 years.
(iv) Intellectual property rights
The Company acquired intellectual property rights (“IP rights”) on the genome base data from a third party, Synamatix Sdn Bhd for RM16.8 million. The Company had assessed that the IP rights have a finite life. As a result, the Company amortised the IP rights on a straight line basis, over the estimated useful life of 20 years.
(v) Acquired brand names/trademarks
This mainly consists of fair value of brands in relation to the Group’s beef, sugar and seed production operations which arose from the acquisition of NBPOL. The brands are initially recognised at fair value and thereafter amortised on a straight-line basis over the estimated useful life of 20 years. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
25. INVESTMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (“FVOCI”) GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000
Non-current Unquoted shares At 1 January 2019/1 July 2018 29,294 28,090 25,749 26,588 Net changes in fair value 16 1,175 1,204 1,300 (839)
At 31 December 2019/2018 30,469 29,294 27,049 25,749
The unquoted non-current investments at FVOCI of the Group and of the Company were categorised under Level 3 investment, of which the fair value is determined using a valuation technique with reference made to quoted market prices for companies with similar business.
The Group and the Company have irrevocably elected non-trading equity securities above at initial recognition to present its fair value changes in OCI. The Group and the Company consider the classification to be more relevant as these instruments are strategic investments of the Group and the Company and not held for trading purposes.
26. DEFERRED TAX
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same tax authority.
The following amounts, determined after appropriate offsetting, are shown in the statements of financial position:
GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
Deferred tax assets 640,094 508,991 – – Deferred tax liabilities (2,598,247) (2,653,870) (701,855) (710,406)
(1,958,153) (2,144,879) (701,855) (710,406) Annual Report 2019 P –G. 263 262
26. DEFERRED TAX (CONTINUED)
The unutilised tax losses and deductible temporary differences for which no deferred tax assets are recognised in the consolidated financial statements are as follows:
GROUP
31.12.2019 31.12.2018 RM’000 RM’000
Unutilised tax losses FINANCIAL STATEMENTS – Expiring within 10 years* 1,522,416 1,233,711** – No expiry period – 21,029
1,522,416 1,254,740
Deductible temporary differences – No expiry period 20,354 20,596
1,542,770 1,275,336
* Included unutilised tax losses related to discontinuing operations of SDP Liberia of RM1,000.1 million (2018: RM655.1 million).
** Under the Malaysia Finance Act 2018 which was gazetted on 27 December 2018, the Group’s unutilised tax losses with no expiry period amounting to RM39.3 million as at 31 December 2018 will be imposed with a time 7 limit of utilisation. Any accumulated unutilised tax losses brought forward from year of assessment 2018 can be carried forward for another 7 consecutive years of assessment (i.e. from year of assessments 2019 to 2025).
Deferred tax assets are not recognised by certain subsidiaries in respect of the above temporary differences as the Directors are of the view it is not probable that sufficient taxable profits will be available to allow the deferred tax assets to be utilised. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
26. DEFERRED TAX (CONTINUED)
The components and movements of the deferred tax assets and liabilities during the financial year/period are as follows:
GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000
At 1 January 2019/1 July 2018 (2,144,879) (1,975,677) (710,406) (703,404) (Credited)/charged to profit or loss 12 – property, plant and equipment (27,194) (38,560) (3,120) (15,378) – biological assets (12,214) 11,913 (2,102) 4,115 – right-of-use assets 8,641 4,212 – – – derivatives 39,227 187 26,867 (137) – unutilised tax losses 136,965 (26,042) – – – retirement benefits 4,815 2,410 (1,438) 401 – impairments and provisions 2,063 (20,257) (11,354) 2,997 – others 20,432 (6,305) – 974
172,735 (72,442) 8,853 (7,028) Charged/(credited) to other comprehensive income 16 2,386 (449) (302) 26 Transfers to non-current assets held for sale 33 (6,150) – – – Acquisition of a subsidiary 43 – (68,279) – – Exchange differences 17,755 (28,032) – –
At 31 December 2019/2018 (1,958,153) (2,144,879) (701,855) (710,406) Annual Report 2019 P –G. 265 264
26. DEFERRED TAX (CONTINUED) GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000
Deferred tax assets (before offsetting) – unutilised tax losses 221,656 83,859 – – – retirement benefits 66,540 56,528 10,635 12,073 FINANCIAL STATEMENTS – impairments and provisions 51,202 47,828 8,715 20,069 – derivatives 33,454 – 23,690 – – property, plant and equipment 26(a) 386,235 385,825 – – – others 6,402 11,182 – –
765,489 585,222 43,040 32,142
Offsetting (125,395) (76,231) (43,040) (32,142)
Deferred tax assets (after offsetting) 640,094 508,991 – –
Deferred tax liabilities (before offsetting) – property, plant and equipment (2,348,364) (2,327,930) (738,231) (735,111) – biological assets (52,167) (40,322) (6,664) (4,562) 7 – intangible assets (122,114) (128,443) – – – right-of-use assets (181,381) (190,022) – – – derivatives – (6,365) – (2,875) – others (19,616) (37,020) – –
(2,723,642) (2,730,102) (744,895) (742,548)
Offsetting 125,395 76,231 43,040 32,142
Deferred tax liabilities (after offsetting) (2,598,247) (2,653,871) (701,855) (710,406)
(a) The Ministry of Finance in Indonesia has issued a new regulation on fixed assets revaluation (under Peraturan Menteri Keuangan No.191/PMK.010/2015) (“PMK 191”) effective from 20 October 2015 as a temporary special tax treatment to taxpayers. Under the special tax regulation, taxpayers who elect to apply the fixed asset revaluation are granted a special tax treatment, leading to a reduction in the final tax rate to be applied on the companies.
Under the special tax regulation, the Group’s Indonesia subsidiaries had elected and submitted their application for the special tax incentive by performing a tax revaluation on certain assets and paid a final tax for the revaluation surplus. Subsequent to the approvals of the fixed assets revaluation by the Director General of Taxation (“DGT”), the Group has recognised deferred tax assets arising from the fixed asset revaluation surplus.
Deferred tax is not recognised on the unremitted earnings of overseas subsidiaries where the Group is able to control the timing of the remittance and it is probable that there will be no remittance in the foreseeable future. If these earnings were remitted, tax of RM938 million (2018: RM944 million) would have been payable. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
27. TAX RECOVERABLE GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000
Non-current Corporate income taxes recoverable 27(a) 177,250 178,832 – – Value added tax recoverable 27(b) 144,832 100,144 – – Other taxes recoverable 11,592 11,436 – –
333,674 290,412 – –
Current Corporate income taxes recoverable 27(a) 149,419 113,435 50,821 93,372 Value added tax recoverable 27(b) 163,197 321,860 – –
312,616 435,295 50,821 93,372
Note: (a) Certain subsidiaries within the Minamas Group have received corporate income tax assessments from the local tax authorities in Indonesia for various years of assessment. These subsidiaries disagreed with certain of these assessments and have filed objections, appeals and judicial reviews.
During the financial year, the Group received tax refunds of IDR635 billion (RM187 million) (2018: IDR77 billion (RM22 million)) and paid tax assessments of IDR160 billion (RM47 million) (2018: IDR167 billion (RM48 million)).
(b) During the financial year, the Group has received VAT refund of IDR609 billion (RM180 million) (2018: IDR80 billion (RM23 million)) out of the approved VAT refund of IDR457 billion (RM135 million) (2018: IDR476 billion (RM136 million)). Subsequently in January 2020, the Group has also received a total VAT refund of IDR47 billion (RM14 million).
The non-current tax recoverable includes additional tax assessments paid and value added taxes, which would normally take more than a year to resolve with the relevant tax authorities. Annual Report 2019 P –G. 267 266
28. TRADE AND OTHER RECEIVABLES GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000
Non-current Advances for plasma plantation projects 179,579 138,588 – –
Accumulated impairment losses 49(c)(iii) (23,838) (23,466) – – FINANCIAL STATEMENTS
155,741 115,122 – –
Current Trade receivables 1,264,454 1,431,891 181,261 143,621 Other receivables 293,283 122,400 18,599 20,042 Goods and services tax/value added tax receivable 204,019 267,643 6,326 11,312 Prepayments 144,178 218,166 15,791 17,195 Deposits 16,626 17,385 8,683 8,833 Amounts due from associates 2,425 3,046 778 774 Amounts due from joint ventures 51,881 52,159 40,541 40,858 Interest receivable 29,302 11,499 – – 7 2,006,168 2,124,189 271,979 242,635
Accumulated impairment losses: Trade receivables 49(c)(iii) (24,648) (33,099) (766) (3,846) Other receivables 49(c)(iii) (3,081) (3,459) (2,692) (4,417) Amounts due from associates 49(c)(iii) (618) (618) (618) (618) Amounts due from joint ventures 49(c)(iii) (44,224) (16,723) (40,001) (14,913)
(72,571) (53,899) (44,077) (23,794)
1,933,597 2,070,290 227,902 218,841
Credit terms for trade receivables of the Group and of the Company ranges from 7 to 120 days (2018: 7 to 120 days).
The amounts due from associates and joint ventures are trade in nature, unsecured, interest free and repayable within 30 days (2018: 30 days).
As at 31 December 2019, no trade and other receivables pledged as security for borrowings (2018: nil).
The Group’s and the Company’s currency exposure profile and concentration of credit risk are disclosed in Note 49(c)(i) and 49(c)(iii). NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
29. INVENTORIES GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
Produce inventories: – palm oil products 429,144 393,759 20,383 36,189 – sugar stocks 5,526 47,020 – – – rubber 15,769 10,564 14,013 7,784 Trading inventories 6,505 11,422 – – Raw materials and consumable stores 699,403 764,675 40,711 60,452 Refined inventories: – work-in-progress 194,560 298,469 52,907 105,182 – finished goods 147,491 155,867 13,032 9,923
1,498,398 1,681,776 141,046 219,530
The carrying amounts of inventories of the Group of RM24.1 million (2018: RM124.7 million) and the Company of RM12.5 million (2018: RM29.5 million) are stated at net realisable value.
30. AMOUNTS DUE FROM/(TO) SUBSIDIARIES AND RELATED PARTIES GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
Non-current Amount due from a subsidiary – interest bearing (non-trade) – – 59,768 49,080
Amount due to a subsidiary – interest bearing (non-trade) – – (503,112) (504,707)
Current Amounts due from subsidiaries – interest bearing (non-trade) – – 235,485 156,494 – non-interest bearing (non-trade) – – 111,015 135,118 – non-interest bearing (trade) – – 189,825 231,369
– – 536,325 522,981
Amounts due from related parties – non-interest bearing (trade) 2,158 2,171 3,226 2,903
Amounts due to subsidiaries – interest bearing (non-trade) – – (12,807) (7,058) – non-interest bearing (trade) – – (982,175) (993,255)
– – (994,982) (1,000,313)
Amounts due to related parties – non-interest bearing (trade) (6,989) (61,020) (6,027) (36,826) Annual Report 2019 P –G. 269 268
30. AMOUNTS DUE FROM/(TO) SUBSIDIARIES AND RELATED PARTIES (CONTINUED)
Interest rates per annum
COMPANY
31.12.2019 31.12.2018 % %
Non-current
Amount due from a subsidiary 2.65 – 4.16 4.27 – 4.45 FINANCIAL STATEMENTS Amount due to a subsidiary 3.29 3.29
Current Amounts due from subsidiaries 4.02 – 4.45 4.02 – 4.45 Amounts due to subsidiaries 3.29 3.29
The amounts due (to)/from subsidiaries and related parties are unsecured whilst the non-current amounts are payable after 12 months and all current amounts are repayable on demand. The amounts due from subsidiaries and related parties are neither past due nor impaired.
The Group’s and the Company’s currency exposure profile and concentration of credit risk are disclosed in Note 49(c)(i) and 49(c)(iii). 7
31. DERIVATIVES
The Group’s and the Company’s derivatives are as follows:
GROUP
Contract/ notional Fair value amount Assets Liabilities RM’000 RM’000 RM’000
31 December 2019 Current Cash flow hedges: – forward foreign exchange contracts 395,253 2,584 (405) – interest rate swap contracts 797,785 232 –
1,193,038 2,816 (405)
Non-hedging derivatives: – forward foreign exchange contracts 194,418 3,661 (3,616) – commodities options and futures contracts 1,215,486 70,260 (238,892)
1,409,904 73,921 (242,508)
2,602,942 76,737 (242,913) NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
31. DERIVATIVES (CONTINUED)
The Group’s and the Company’s derivatives are as follows: (continued)
GROUP
Contract/ notional Fair value amount Assets Liabilities RM’000 RM’000 RM’000
31 December 2018 Current Cash flow hedges: – forward foreign exchange contracts 94,075 944 (1,375) – interest rate swap contracts 1,130,407 18,536 –
1,224,482 19,480 (1,375)
Non-hedging derivatives: – forward foreign exchange contracts 783,619 7,333 (2,727) – commodities options and futures contracts 645,645 31,851 (17,096)
1,429,264 39,184 (19,823)
2,653,746 58,664 (21,198)
COMPANY Contract/ Fair notional value amount Assets Liabilities RM’000 RM’000 RM’000
31 December 2019 Current Cash flow hedges: – interest rate swap contracts 797,785 232 –
797,785 232 –
Non-hedging derivatives: – forward foreign exchange contracts 171,724 1,609 (36) – commodities options and futures contracts 692,202 33,648 (134,161)
863,926 35,257 (134,197)
1,661,711 35,489 (134,197) Annual Report 2019 P –G. 27 270 1
31. DERIVATIVES (C0NTINUED)
The Group’s and the Company’s derivatives are as follows: (continued)
COMPANY Contract/ Fair notional value amount Assets Liabilities RM’000 RM’000 RM’000
31 December 2018 FINANCIAL STATEMENTS Current Cash flow hedges: – interest rate swap contracts 1,130,407 18,536 –
1,130,407 18,536 –
Non-hedging derivatives: – forward foreign exchange contracts 261 – (1) – commodities options and futures contracts 326,203 2,324 (8,882)
326,464 2,324 (8,883)
1,456,871 20,860 (8,883) 7 The Group and the Company have forward foreign exchange contracts in place with a notional value that are designated and effected as cash flow hedges. These contracts are expected to cover the Group’s exposures ranging from 1 month to 6 months (2018: 2 month to 12 months) and the Company’s exposures ranging from 1 month to 12 months (2018: 1 month to 6 months).
The interest rate swap contracts require settlement of net interest receivable or payable every 6 months. The settlement dates coincide with the dates on which interest is payable on the underlying debt and settlement occurs on a net basis.
These derivatives are entered into to hedge certain risks as described in Note 49(c). Whilst all derivatives entered into provide economic hedges to the Group, non-hedging derivatives are instruments that do not qualify for the application of hedge accounting under the specific rules in MFRS 9. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
31. DERIVATIVES (C0NTINUED)
(a) Forward foreign exchange contracts
As at end of the financial year/period, forward foreign exchange contracts have been entered into with the following notional amounts and maturities:
Within 1 year
31.12.2019 31.12.2018 GROUP RM’000 RM’000
Forward contracts used to hedge anticipated sales – United States Dollar 166,757 233,235 – European Union Euro 7,224 7,743 Forward contracts used to hedge receivables – United States Dollar 215,879 322,704 – European Union Euro – 9,765 Forward contracts used to hedge anticipated purchases – United States Dollar 83,258 266,807 – European Union Euro 7,832 16,541 Forward contracts used to hedge payables – United States Dollar 108,721 20,899
589,671 877,694
Within 1 year
31.12.2019 31.12.2018 COMPANY RM’000 RM’000
Forward contracts used to hedge anticipated sales – United States Dollar – 261
Forward contracts used to hedge payables – United States Dollar 171,724 –
171,724 261 Annual Report 2019 P –G. 273 272
31. DERIVATIVES (C0NTINUED) (b) Commodities options and futures contracts As at end of the financial year/period, the notional amounts and maturity of commodities options and futures contracts that are not held for the purpose of physical delivery are as follows:
Within 1 year
31.12.2019 31.12.2018 RM’000 RM’000
GROUP FINANCIAL STATEMENTS Commodities contracts – buying – Ringgit Malaysia 233,907 158,399 – United States Dollar 121,561 97,640
Commodities contracts – selling – Ringgit Malaysia 482,520 10,401 – United States Dollar 377,498 379,205
1,215,486 645,645
COMPANY Commodities contracts – buying – Ringgit Malaysia 230,477 167,107 7
Commodities contracts – selling – Ringgit Malaysia 461,725 159,096
692,202 326,203
(c) Interest rate swap contracts As at the end of the financial year/period, the notional amounts and terms of the interest rate swap contracts for the Group and the Company are as follows:
Range of weighted average rate Notional amount in Notional amount in per annum (%) original currency Ringgit equivalent Type of interest With Without At At At At rate swap Effective period swap swap 31.12.2019 31.12.2018 31.12.2019 31.12.2018
Plain vanilla 19.08.2019 to 18.02.2020 1.89 3.11 41,625 – 170,954 – Plain vanilla 19.08.2019 to 18.02.2020 1.84 3.11 41,625 – 170,954 – Plain vanilla 19.08.2019 to 18.02.2020 1.75 3.11 27,750 – 113,969 – Plain vanilla 19.08.2019 to 18.02.2020 1.78 3.11 41,625 – 170,954 – Plain vanilla 19.08.2019 to 18.02.2020 1.78 3.11 41,625 – 170,954 – NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
31. DERIVATIVES (C0NTINUED) (c) Interest rate swap contracts (continued) As at the end of the financial year/period, the notional amounts and terms of the interest rate swap contracts for the Group and the Company are as follows: (continued)
Range of weighted average rate per Notional amount in Notional amount in annum (%) original currency Ringgit equivalent Type of interest With Without At At At At rate swap Effective period swap swap 31.12.2019 31.12.2018 31.12.2019 31.12.2018
Plain vanilla 17.08.2018 to 19.02.2019 1.89 3.61 – 58,313 – 242,230 Plain vanilla 17.08.2018 to 19.02.2019 1.84 3.61 – 58,313 – 242,230 Plain vanilla 17.08.2018 to 19.02.2019 1.75 3.61 – 38,875 – 161,487 Plain vanilla 17.08.2018 to 19.02.2019 1.78 3.61 – 58,313 – 242,230 Plain vanilla 17.08.2018 to 19.02.2019 1.78 3.61 – 58,313 – 242,230
The notional amount, fair value and maturity periods of the interest rate swap contracts are as follows:
GROUP/COMPANY
31.12.2019 31.12.2018 RM’000 RM’000
Notional amount Maturity periods: – due not later than one year 797,785 1,130,407
Fair value asset/(liabilities) Maturity periods: – due not later than one year 232 18,536
32. BANK BALANCES, DEPOSITS AND CASH GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
Deposits with licensed banks 76,389 63,428 52,833 30,032 Cash and bank balances 354,958 427,614 32,570 35,661
431,347 491,042 85,403 65,693
Effective annual interest rates applicable during the financial year/period are as follows: % % % %
Deposits with licensed banks 3.77 4.23 3.02 3.19 Annual Report 2019 P –G. 275 274
32. BANK BALANCES, DEPOSITS AND CASH (CONTINUED)
The maturity period for deposits with licensed banks of the Group and the Company range from 1 to 90 days (31 December 2018: 1 to 90 days) and 3 days (31 December 2018: 3 days) respectively.
Bank balances are non-interest bearing deposits held at call with banks.
The currency exposure profile is disclosed in Note 49(c)(i). FINANCIAL STATEMENTS 33. ASSETS AND LIABILITIES HELD FOR SALE GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000
Non-current assets held for sale – property, plant and equipment 33(a) 65,946 14 68,966 14 – intangible assets 24 3,128 – 3,113 – – joint venture 33(b) 393,870 – 256,168 – Disposal group held for sale – property, plant and equipment 34,668 78,633 – – – other assets 24,926 46,028 – –
522,538 124,675 328,247 14 7 Disposal group held for sale – liabilities (35,735) (21,133) – –
486,803 103,542 328,247 14
(a) Proposed disposal of property, plant and equipment
(i) On 30 May 2019, 12 parcels of land totalling 1,004 hectares have been approved by the Board of Directors of the Company for disposal. During the financial year, Sale and Purchase Agreements (“SPA(s)”) for 8 parcels of land, totalling RM479.1 million have been signed. The condition precedents are expected to be fulfilled within the next 12 months after the financial year end.
Certain transactions have been completed subsequent to the financial year end as described in Note 52(b).
(ii) On 8 May 2018, the Company accepted the offer to dispose off two plots of freehold land for a total consideration of RM2.6 million. The sale and purchase agreements for the respective plot of land were signed on 28 August 2018. The disposal has been completed during the financial year.
(b) Proposed divestment of joint venture
(i) On 29 August 2019, the Board of Directors of the Company has authorised the proposed divestment of its entire 50% equity interest in Emery Oleochemicals (M) Sdn Bhd and Emery Specialty Chemicals Sdn Bhd. The Group has commenced active discussion with the potential buyer and the disposal of the joint ventures is expected to be completed within the next 12 months subsequent to the financial year end.
(ii) During the financial year, the Board of Directors has expressed its intention to divest the equity interest of 30% in a joint venture, MYBiomass Sdn Bhd (“MYBiomass”) as the investment has been in loss making position in prior financial years. Following a shareholders agreement to cease further investments in the joint venture as the technology is not feasible to be rolled out by the biofuel refinery, MYBiomass ceased its operations with effect from 31 December 2019. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
33. ASSETS AND LIABILITIES HELD FOR SALE (CONTINUED) (c) Proposed divestment of subsidiaries (i) On 12 December 2019, Sime Darby Plantation Investment (Liberia) Private Limited, a wholly-owned subsidiary of the Group has entered into a Sales and Purchase Agreement with Mano Palm Oil Industries Limited (“MPOI”) to dispose off its entire 100% equity interest in Sime Darby Plantation (Liberia) Inc. (“SDP Liberia”) for a total cash consideration of USD1 plus an earn-out payment which is to be determined by the average future crude palm oil (“CPO”) price and future CPO production of SDP Liberia. The earn-out consideration will be payable quarterly over a period of eight (8) years, commencing from April 2023. The transaction has been completed on 15 January 2020 as described in Note 52(a).
The following assets and liabilities have been reclassified as held for sale in relation to the discontinuing operation as at 31 December 2019:
GROUP
31.12.2019 RM’000
Inventories 13,800 Receivables 709 Bank 1,494 Payables (424)
Net assets disposed 15,579
(ii) On 18 November 2019, the Board of Directors of the Company has authorised its wholly owned subsidiary, NBPOL to divest the entire 52% equity interest in Verdant Bioscience Pte Ltd. The Group has commenced active discussion with a potential buyer and the disposal is expected to be completed within the next 12 months subsequent to the financial year end.
(iii) In prior financial period, the Board of Directors approved a proposed divestment of the entire equity interest in PT Indo Sukses Lestari Makmur (“PT ISLM”), a subsidiary of the Group. Despite of the current market condition, the Group is actively seeking for potential buyers. The transaction is expected to be completed within the next 12 months subsequent to the financial year end.
(d) Completed divestment of subsidiaries (i) On 15 February 2019, the Board of Directors has completed the divestment of the entire 100% equity stake in PT Mitra Austral Sejahtera (“PT MAS”), a subsidiary of the Group. The disposal of the equity interest in PT MAS for a consideration of USD29.7 million (equivalent to approximately RM123.1 million) was completed on 25 June 2019.
Details of the assets, liabilities and net cashflow arising from the disposal of the subsidiary are as follows:
RM’000
Property, plant and equipment 77,468 Rights-of-use assets 2,005 Advances for plasma plantation projects 12,952 Receivables 759 Prepayments 34 Inventories 3,614 Bank 796 Payables (2,885)
Net assets disposed 94,743 Gain on disposal of a subsidiary 8,682
Proceeds from disposal, net of transaction costs 103,425 Less: Cash and cash equivalent in a subsidiary (796) Net cash inflow from disposal of a subsidiary 102,629 Annual Report 2019 P –G. 27 276 7
33. ASSETS AND LIABILITIES HELD FOR SALE (CONTINUED)
(d) Completed divestment of subsidiaries (continued)
(ii) On 29 November 2018, the Group completed the divestment of the 65% equity interest in Golden Hope-Nha Be Edible Oils Ltd. (“GHN”), a former subsidiary of the Group for a consideration of RM8.2 million (equivalent to 45.9 billion Vietnamese Dong). As at 31 December 2018, part of the consideration of RM4.1 million (equivalent to 23.0 billion Vietnamese Dong) was retained in an escrow account which shall be released after 2 years.
Upon disposal of GHN, the Group received a corporate guarantee from the new shareholder of GHN FINANCIAL STATEMENTS primarily on the outstanding trade receivables due from GHN of RM48.2 million (which aged more than 360 days). As the trade receivables were secured by the corporate guarantee, these receivables were not provided for.
Details of the assets, liabilities and net cash flow arising from the disposal of the subsidiary are as follows:
RM’000
Property, plant and equipment 5,443 Receivables 15,139 Inventories 18,604 Deferred tax assets 665 Cash and cash equivalents 1,490 Payables (61,584) 7 Non-controlling interest (1,165)
Net liabilities disposed (21,408) Gain on disposal of a subsidiary 29,624
Proceeds from disposal, net of transaction costs 8,216 Less: Cash and cash equivalent in a subsidiary (1,490)
Net cash inflow from disposal of a subsidiary 6,726 NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
33. ASSETS AND LIABILITIES HELD FOR SALE (CONTINUED)
(e) The movements during the financial year/period relating to net assets held for sale are as follows:
GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000
At 1 January 2019/1 July 2018 103,542 172,971 14 28,504 Change in value of disposal group (15,652) (48,888) – – Transfers from/(to): – property, plant and equipment 17 100,780 – 68,966 – – intangible assets 24 3,128 – 3,113 – – investment property 18 8,377 – – – – joint ventures 22 393,870 – 256,168 – – inventories 14,174 390 – – – trade and other receivables 3,292 – – – – deferred tax assets 26 6,150 – – – – trade and other payables (32,101) (1,086) – – – bank balances, deposits and cash 1,494 – – – Disposals (103,120) (22,293) (14) (28,490) Exchange differences 2,869 2,448 – –
At 31 December 2019/2018 486,803 103,542 328,247 14
34. SHARE CAPITAL GROUP/COMPANY
Number of shares Amount
31.12.2019 31.12.2018 31.12.2019 31.12.2018 ’000 ’000 RM’000 RM’000
Issued and fully paid ordinary shares: At 1 January 2019/1 July 2018 6,800,839 6,800,839 1,100,000 1,100,000 Shares Issue 83,736 – 406,119 –
At 31 December 2019/2018 6,884,575 6,800,839 1,506,119 1,100,000
The final single tier dividend and special final single tier dividend in respect of the financial year ended 30 June 2018 (“FYE June 2018 Final Dividend”) of RM748.1 million was paid on 7 January 2019, RM406.1 million which was satisfied by the issuance of 83,735,906 new Sime Darby Plantation Berhad shares pursuant to the Company’s Dividend Reinvestment Plan (“DRP”) and cash of RM342.0 million. Annual Report 2019 P –G. 279 278
35. RESERVES
Investments Hedging Capital at FVOCI Exchange Merger Retained reserve reserve reserve reserve reserve earnings Total GROUP Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
31 December 2019 At 1 January 2019 31,457 9,574 26,419 620,605 (17,696) 11,348,090 12,018,449
Profit for the financial year – – – – – 121,633 121,633 FINANCIAL STATEMENTS Total other comprehensive (loss)/income for the financial year 16 (25,826) – 1,175 86,821 – (10,567) 51,603 Transactions with equity holders: – dividends 15 – – – – – (117,038) (117,038)
Continuing operations 5,631 9,574 27,594 707,426 (17,696) 11,342,118 12,074,647 Discontinuing operations 13 – – – 13,402 – (333,195) (319,793)
At 31 December 2019 5,631 9,574 27,594 720,828 (17,696) 11,008,923 11,754,854
31 December 2018 At 1 July 2018 44,949 13,361 25,569 449,658 (17,696) 12,050,571 12,566,412 7 Profit for the financial period – – – – – 299,636 299,636 Total other comprehensive (loss)/income for the financial period 16 (13,492) – 850 155,765 – (1,433) 141,690 Transactions with equity holders: – dividends 15 – – – – – (952,117) (952,117) Disposal of a subsidiary – (3,787) – 2,856 – 4,330 3,399
Continuing operations 31,457 9,574 26,419 608,279 (17,696) 11,400,987 12,059,020 Discontinuing operations 13 – – – 12,326 – (52,897) (40,571)
At 31 December 2018 31,457 9,574 26,419 620,605 (17,696) 11,348,090 12,018,449 NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
35. RESERVES (CONTINUED) Investments at FVOCI Hedging Retained reserve reserve earnings Total COMPANY Note RM’000 RM’000 RM’000 RM’000
31 December 2019 At 1 January 2019 24,644 18,858 7,925,213 7,968,715 Loss for the financial year – – (385,844) (385,844) Total other comprehensive income/ (loss) for the financial year 16 1,300 (17,990) – (16,690) Transactions with equity holders: – dividends 15 – – (117,038) (117,038)
At 31 December 2019 25,944 868 7,422,331 7,449,143
31 December 2018 At 1 July 2018 25,483 26,030 9,076,534 9,128,047 Loss for the financial period – – (199,204) (199,204) Total other comprehensive loss for the financial period 16 (839) (7,172) – (8,011) Transactions with equity holders: – dividends 15 – – (952,117) (952,117)
At 31 December 2018 24,644 18,858 7,925,213 7,968,715
36. PERPETUAL SUKUK GROUP/COMPANY
31.12.2019 31.12.2018 RM’000 RM’000
At 1 January 2019/1 July 2018 2,231,398 2,230,717 Profit attributable to Perpetual Sukuk holders 124,300 62,661 Distribution to Perpetual Sukuk holders (124,300) (61,980)
At 31 December 2019/2018 2,231,398 2,231,398
On 23 June 2017, the RM2.2 billion nominal value of Perpetual Subordinated Sukuk (“Perpetual Sukuk”) was novated by Sime Darby Berhad, the former immediate holding company to the Company. The Perpetual Sukuk is rated AAIS by the Malaysian Rating Corporation Berhad. Annual Report 2019 P –G. 281 280
36. PERPETUAL SUKUK (CONTINUED)
The Perpetual Sukuk is accounted for as an equity instrument as there is no contractual obligation to redeem the instrument and pay periodic distribution. The salient features of the Perpetual Sukuk are as follows:
a. Unsecured and is issued under the Islamic principle of Wakalah Bi Al-Istithmar (“Sukuk Wakalah”) where the Company is to manage a Wakalah portfolio on behalf of the Perpetual Sukuk holders. The Wakalah portfolio comprises certain assets of the Group (see Note 17(b)(ii)) and investments in commodities in accordance with the Shariah Principle of Ijarah and Murabahah.
FINANCIAL STATEMENTS b. Carries an initial fixed periodic distribution rate of 5.65% per annum payable on a semi-annual basis in arrears. The periodic distribution rate will be reset on 24 March 2026 to the then prevailing 10-year Malaysian Government Securities (“MGS”) benchmark rate plus 1.75% (“Initial Spread”) and 1.00% (“Step-Up Margin”) at every 10 year thereafter.
c. No fixed redemption date but the Company has the option to redeem at the end of the tenth year from the date of issue and on each subsequent semi-annual periodic distribution date.
d. The expected periodic distribution amount may be deferred by the Company to perpetuity as long as no discretionary dividend distribution or other payment has been declared by the Company in respect of any of the Company’s ordinary shares.
e. The Company also has the option to redeem the Perpetual Sukuk under the following circumstances: 7 (i) Accounting Event – if the Perpetual Sukuk is or will no longer be recorded as equity as a result of changes to accounting standards;
(ii) Tax Event – if the Company is or will become obliged to pay additional amount due to changes in tax laws or regulations;
(iii) Tax Deductibility Event – if distribution made would not be fully deductible for income tax purposes as a result of changes in tax laws or regulations or changes to official interpretation or pronouncement that provides for a position with respect to such laws or regulations; and
(iv) Rating Event – if the equity credit is lower than initially assigned to the Perpetual Sukuk as a result of changes in equity credit criteria, guidelines or methodology of rating agency.
The Perpetual Sukuk holders do not have any voting rights in the Company and rank in priority to holders of ordinary shares, but subordinated to the claims of present and future creditors of the Company. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
37. NON-CONTROLLING INTERESTS
The subsidiaries of the Group that have non-controlling interests, which, in the opinion of the Directors, are material to the Group are as follows:
Proportion of equity held by owners of non-controlling interests (%) Place of business/ Name of subsidiaries 31.12.2019 31.12.2018 Country of incorporation
Subsidiaries consolidated under PT Minamas Gemilang: – PT Kartika Inti Perkasa 40.00 40.00 Indonesia – PT Sritijaya Abaditama 40.00 40.00 Indonesia – PT Asricipta Indah 10.00 10.00 Indonesia – PT Bersama Sejahtera Sakti 8.90 8.90 Indonesia – PT Laguna Mandiri 11.40 11.40 Indonesia – PT Indotruba Tengah 50.00 50.00 Indonesia – PT Tunggal Mitra Plantations 40.00 40.00 Indonesia – PT Tamaco Graha Krida 10.00 10.00 Indonesia – PT Bahari Gembira Ria 0.03 0.70 Indonesia – PT Indo Sukses Lestari Makmur 5.00 5.00 Indonesia
Subsidiaries consolidated under New Britain Palm Oil Limited: – PT Timbang Deli Indonesia 51.00 51.00 Indonesia – Guadalcanal Plains Palm Oil Limited 20.00 20.00 Solomon Islands – Verdant Bioscience Pte Ltd 48.00 48.00 Singapore Wangsa Mujur Sdn Bhd 27.50 27.50 Malaysia
There are no significant restrictions on the ability of these subsidiaries to transfer funds to the Group in the form of cash dividends.
The summarised financial information of the subsidiaries that has non-controlling interests to the Group is based on amounts before intercompany elimination. Annual Report 2019 P –G. 283 282
37. NON-CONTROLLING INTERESTS (CONTINUED)
Summarised financial information
The summarised statements of comprehensive income and dividends paid by each subsidiary that has non- controlling interests to the Group are as follows:
Subsidiaries of Subsidiaries of New Britain Wangsa PT Minamas Palm Oil Mujur
Gemilang Limited Sdn Bhd Others Total FINANCIAL STATEMENTS RM’000 RM’000 RM’000 RM’000 RM’000
For the financial year ended 31 December 2019 Revenue 3,862,817 1,953,609 45,160 2,002,220 7,863,806
Profit/(loss) for the financial year 285,235 (154,650) 782 64,158 195,525 Other comprehensive income 8,814 397 – 24 9,235
Total comprehensive income/(loss) 294,049 (154,253) 782 64,182 204,760 7 Profit/(loss) allocated to non-controlling interests 20,898 396 (324) 7,982 28,952
Dividends paid to non-controlling interests (57,963) – – – (57,963)
For the financial period ended 31 December 2018 Revenue 2,141,974 1,108,719 24,287 972,779 4,247,759
Profit for the financial period 55,070 85,267 2,151 4,149 146,637 Other comprehensive income 3,758 1,668 – 27 5,453
Total comprehensive income 58,828 86,935 2,151 4,176 152,090
Profit/(loss) allocated to non-controlling interests 9,801 (1,299) 143 (3,019) 5,626
Dividends paid to non-controlling interests (22,238) – (1,549) (770) (24,557) NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
37. NON-CONTROLLING INTERESTS (CONTINUED)
Summarised financial information (continued)
The summarised statements of financial position of each subsidiary that has non-controlling interests to the Group are as follows:
Subsidiaries of Subsidiaries of New Britain Wangsa PT Minamas Palm Oil Mujur Gemilang Limited Sdn Bhd Others Total RM’000 RM’000 RM’000 RM’000 RM’000
31 December 2019 Non-current assets 5,955,517 4,814,084 261,864 506,705 11,538,170
Current assets 1,697,252 2,393,571 2,110 718,175 4,811,108
Non-current liabilities (1,875,883) (1,205,696) (28,090) (191,158) (3,300,827)
Current liabilities (1,368,636) (1,829,121) (14,185) (498,587) (3,710,529)
Net assets 4,408,250 4,172,838 221,699 535,135 9,337,922
Non-controlling interests’ share of net assets 217,382 59,874 61,205 29,890 368,351
31 December 2018 Non-current assets 5,292,599 4,957,135 244,623 365,728 10,860,085
Current assets 1,976,136 2,088,030 15,812 502,629 4,582,607
Non-current liabilities (1,566,379) (1,458,338) (28,209) (174,783) (3,227,709)
Current liabilities (1,624,735) (1,201,819) (9,347) (357,508) (3,193,409)
Net assets 4,077,621 4,385,008 222,879 336,066 9,021,574
Non-controlling interests’ share of net assets 246,929 65,736 61,529 21,884 396,078 Annual Report 2019 PG –. 284285
37. NON-CONTROLLING INTERESTS (CONTINUED)
Summarised financial information (continued)
The summarised statements of cash flows of each subsidiary that has non-controlling interests that are material to the Group are as follows:
Subsidiaries of Subsidiaries of New Britain Wangsa PT Minamas Palm Oil Mujur
Gemilang Limited Sdn Bhd FINANCIAL STATEMENTS RM’000 RM’000 RM’000
For the financial year ended 31 December 2019 Cash flows from operating activities Cash generated from operations 654,611 387,342 30,906 Tax paid (133,574) (42,541) (245)
Net cash from operating activities 521,037 344,801 30,661 Net cash used in investing activities (460,173) (320,990) (30,950) Net cash (used in)/generated from financing activities (76,664) (66,695) 1
Net decrease in cash and cash equivalents (15,800) (42,884) (288) Exchange differences 3,770 (5,631) – Cash and cash equivalents at beginning of the financial year 113,433 88,085 506 7
Cash and cash equivalents at end of the financial year 101,403 39,570 218
For the financial period ended 31 December 2018 Cash flows from operating activities Cash generated from operations 216,018 220,064 21,561 Tax paid (38,100) (82,401) (9)
Net cash from operating activities 177,918 137,663 21,552 Net cash used in investing activities (474,307) (392,803) (13,980) Net cash generated from/(used in) financing activities 308,176 257,245 (7,300)
Net increase in cash and cash equivalents 11,787 2,105 272 Exchange differences 1,685 18,394 – Cash and cash equivalents at beginning of the financial period 99,961 67,586 234
Cash and cash equivalents at end of the financial period 113,433 88,085 506 NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
38. RETIREMENT BENEFITS
The Group operates unfunded and funded final salary defined benefit plans for its employees in Malaysia, Thailand and Netherlands, and funded defined benefit plans for its employees in Indonesia.
The employees in Malaysia are covered under collective agreements with the following unions:
– All Malayan Estates Staff Union (“AMESU”) – National Union of Commercial Workers (“NUCW”) – Sabah Plantation Industry Employees Union (“SPIEU”)
Subsidiary companies in Indonesia operate a funded defined benefit scheme for qualified permanent employees in accordance with Labour Law No. 13 Year 2003.
Subsidiaries in Thailand operate a wholly unfunded defined benefit scheme, in respect of the Statutory Severance Pay Plan prescribed under Section 118, Chapter 11 of the Labour Protection Act B.E. 2541 (1998).
One of the Group’s subsidiary in Netherlands has a defined benefit scheme for non-active participants only, managed by Aegon N.V. (“AEGON”). The conditions of the Dutch Pension Act are applicable to the scheme.
The latest actuarial valuations of the plans in Malaysia and Indonesia were carried out on 21 September 2017 and 6 February 2020, respectively.
The movements during the financial year/period in the amounts recognised in the statements of financial position are as follows:
GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000
Non-current
At 1 January 2019/1 July 2018 229,809 213,209 50,306 48,633 Charge for the financial year/period 6(d) 41,805 12,838 7,622 4,262 Actuarial loss recognised in other comprehensive income 16 15,257 2,100 – – Contributions and benefits paid (25,242) (2,793) (7,229) (2,589) Transfers (to)/from current retirement benefits (7,188) 2,935 – – Acquisition of a subsidiary 43 – 55 – – Exchange differences 5,295 1,465 – –
At 31 December 2019/2018 259,736 229,809 50,699 50,306
Current
At 1 January 2019/1 July 2018 7,784 10,485 – – Transfers from/(to) non-current retirement benefits 7,188 (2,935) – – Exchange differences 217 234 – –
At 31 December 2019/2018 15,189 7,784 – – Annual Report 2019 P –G. 287 286
38. RETIREMENT BENEFITS (CONTINUED)
The amounts recognised on the statements of financial position are determined as follows:
GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000
Present value of funded obligations 38(a) 193,271 155,071 – – Fair value of plan assets 38(b) (454,175) (415,651) – – FINANCIAL STATEMENTS (260,904) (260,580) – – Present value of unfunded obligations 38(a) 535,829 498,173 50,699 50,306
Net liabilities 274,925 237,593 50,699 50,306
The expenses recognised in statements of profit or loss are analysed as follows:
GROUP COMPANY
Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000 7
Current service cost 17,706 7,777 2,925 1,466 Interest cost 23,199 6,907 2,309 1,141 Expected return on plan assets (7,637) (3,792) – – Contracted gratuity 9,613 2,371 2,388 1,655 Curtailment (1,076) (425) – –
Total included in employee costs 6(d) 41,805 12,838 7,622 4,262
(a) Changes in the present value of defined benefit (funded and unfunded) obligations
GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000
At 1 January 2019/1 July 2018 653,244 620,218 50,306 48,633 Current service cost 17,706 7,777 2,925 1,466 Interest cost 23,199 6,907 2,309 1,141 Contracted gratuity 9,613 2,371 2,388 1,655 Curtailment (1,076) (425) – – Benefits paid (33,979) (7,496) (7,229) (2,589) Actuarial losses recognised in other comprehensive income 69,089 16,447 – – Acquisition of a subsidiary 43 – 55 – – Exchange differences (8,696) 7,390 – –
At 31 December 2019/2018 729,100 653,244 50,699 50,306 NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
38. RETIREMENT BENEFITS (CONTINUED)
(b) Changes in the fair value of plan assets
GROUP
31.12.2019 31.12.2018 RM’000 RM’000
At 1 January 2019/1 July 2018 415,651 396,524 Expected return on plan assets 7,637 3,792 Actuarial gains due to actual experience 53,832 14,347 Benefits paid (8,737) (4,703) Exchange differences (14,208) 5,691
At 31 December 2019/2018 454,175 415,651
The range of principal assumptions used in respect of the Group’s and the Company’s defined benefit plans are as follows:
GROUP
31.12.2019 31.12.2018 % %
Expected return on plan assets (per annum) 2.0 – 8.3 1.9 – 8.5 Discount rates (per annum) 1.9 – 8.3 1.9 – 8.3 Expected rate of salary increases (per annum) 1.5 – 6.5 1.5 – 6.5
COMPANY
31.12.2019 31.12.2018 % %
Discount rates (per annum) 5.2 5.2 Expected rate of salary increases (per annum) 6.0 6.0 Annual Report 2019 P –G. 289 288
39. BORROWINGS GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
Non-current Unsecured – term loans 2,709,767 3,032,785 2,466,226 2,814,335 – revolving credits-i 1,601,730 1,495,440 1,601,730 1,495,440 FINANCIAL STATEMENTS – bonds 459,738 475,405 – – – multi-currency Sukuk 503,112 508,869 – – – unamortised deferred financing expenses (18,963) (19,924) (16,118) (17,249)
5,255,384 5,492,575 4,051,838 4,292,526
Current Secured – trade facilities 2 – – –
Unsecured – term loans 957,023 588,106 693,056 532,133 – revolving credits 1,532,518 1,216,233 1,054,556 442,310
2,489,543 1,804,339 1,747,612 974,443 7
Total borrowings 7,744,927 7,296,914 5,799,450 5,266,969
During the financial year, a subsidiary did not meet its loan covenant obligations. As a result, RM132.0 million has been reclassified from non-current to current liabilities as at 31 December 2019. Subsequent to the financial year end, the subsidiary has received an unconditional waiver from the financial institution.
In December 2019, the Group has completed the refinancing exercise to improve the Group’s loan maturity profile and liquidity. The Group repaid in full the USD760 million (RM3.2 billion) term loans that were due with drawdowns of new facilities from three financial institutions and additional short term facilities of RM800 million. The refinancing exercise in December 2019 is considered an extinguishment of the previous term loans and correspondingly, the unamortised transaction costs related to the former loans had been charged to profit and loss and the transactions cost for the new facilities has been capitalised as at 31 December 2019.
The currency exposure profile is disclosed in Note 49(c)(i).
The breakdown of the unamortised deferred financing expenses is as follows:
GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000
At 1 January 2019/1 July 2018 19,924 24,433 17,249 21,191 Drawdown during the financial year/period 10,644 700 10,437 700 Amortisation/acceleration of amortisation 10 (11,605) (5,209) (11,568) (4,642) At 31 December 2019/2018 18,963 19,924 16,118 17,249 NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
39. BORROWINGS (CONTINUED)
(a) Term loans
The term loans include the following:
i. RM500 million 5-year unsecured term loan repayable in full 60 months after the first drawdown date of 26 December 2019.
ii. USD110 million 3-year unsecured term loan repayable over 5 semi-annual instalments starting from the twelfth month after the first drawdown date of 23 December 2019.
iii. USD260 million 5-year unsecured term loan repayable over 10 semi-annual instalments starting from the sixth month after the first drawdown date of 20 December 2019.
iv. USD35 million 5-year unsecured term loan repayable in equal quarterly instalments commencing from the first repayment date of 23 March 2020.
v. USD50 million 3-year unsecured term loan repayable in equal quarterly instalments commencing from the first repayment date of 23 March 2020.
vi. USD60 million term loan credit facility drawdown on 23 August 2018 repayable commencing from one month after the first drawndown.
vii. THB432.5 million 10-year unsecured term loan repayable in equal quarterly instalments commencing from the first repayment date of 1 March 2017.
viii. USD500 million 7-year unsecured multi-currency term loan repayable over eight semi-annual instalments of 11.125%, commencing 36 months from the first drawdown date of 17 February 2015 and one final payment of 11% on the final maturity date.
The term loans which have been repaid during the financial year include the following:
i. RM500 million 7-year unsecured term loan repayable over nine semi-annual instalments from 36 months after the first drawdown date of 26 June 2012 was repaid on 26 June 2019.
ii. USD100 million 3-year unsecured term loan repayable in full from 36 months after the first drawdown date of 22 June 2017 was repaid on 23 December 2019.
iii. USD300 million 3-year unsecured term loan under commodity murabahah financing-i facility repayable in full from 36 months after the first drawdown date of 22 June 2017 was repaid on 26 December 2019.
(b) Revolving credits
The revolving credits include the following:
i. USD390 million 5 years unsecured term loan under revolving credit-I facility repayable in full from 60 months after the first drawdown date of 19 December 2019.
ii. Facility limit of IDR1 trillion or its equivalent in other currency with availability period within 12 months from the signing date. The loan agreement has been renewed several times and most recently on 15 January 2019 for the period up to 15 January 2020.
iii. RM350 million mutli-currency revolving credit facility with availability period of up to one year with annual extension subject to annual review by the bank.
iv. RM190 million multi-currency revolving credit facility with availability period of up to one year with annual extension subject to annual review by the bank.
v. EUR15 million uncommitted short-term revolving loans facility for period not exceeding 1 month or 3 months with availability period of up to one year with annual extension subject to annual review by the bank. Outstanding balance as at 31 December 2019 was EUR15 million. Annual Report 2019 P –G. 291 290
39. BORROWINGS (CONTINUED)
(b) Revolving credits (continued)
The revolving credits include the following: (continued)
vi. USD40 million uncommitted short-term revolving loans facility for a period up to one year and automatically extended for a continuous one year period after each expiry date. Outstanding balance as at 31 December 2019 was USD40 million.
vii. RM700 million multi-currency revolving credit facility, with first drawdown 16 August 2018. Facility has
a maximum tenure of 5 years. FINANCIAL STATEMENTS
viii. USD100 million multi-currency revolving time loan facility with first drawdown date 2 July 2018. Tenure is up to a maximum of 6 month, as may be agreed by the bank from time to time.
ix. USD60 million multi-currency revolving credit facility for advances of 1 week, 1 month, 3 months or 6 months tenor, or any other period agreeable to the bank commencing from the effective date of 12 January 2015. Outstanding balance as at 31 December 2019 was USD38.6 million.
The revolving credit which has been repaid during the financial year include the following:
i. USD360 million 3-year unsecured term loan under revolving credit-i facility repayable at maturity was repaid on 19 December 2019.
(c) Multi-currency Sukuk 7 On 11 January 2013, Sime Darby Berhad (“SDB”) had established a Multi-currency Sukuk Programme (“Sukuk Programme”) with a programme limit of USD1,500 million (or its equivalent in other currencies). Sime Darby Plantation Global Berhad (fka Sime Darby Global Berhad) (“SDP Global”), a subsidiary of SDB is the issuer of the Sukuk Programme structured under the Shariah Principle of Ijarah, which is a sale and leaseback arrangement. On 29 January 2013, SDP Global issued two tranches of USD400 million Sukuk each with a tenure of 60 months (“2018 Sukuk”) and 120 months (“2023 Sukuk”) respectively.
On 18 April 2017, SDB invited eligible sukukholders to tender for its purchase of the outstanding Sukuk (the “Sukuk Tender Offer”) and to consent to the substitution of the Company in place of SDB in its capacities as Obligor, Seller and Lessee in respect of both tranches of the Sukuk (hereinafter referred to as “the consent solicitation”). Pursuant to the Sukuk Tender Offer, SDB has repurchased in part the 2018 Sukuk and 2023 Sukuk in an aggregate principal amount of USD350.4 million and USD277.5 million.
At the meetings of the sukukholders held on 16 May 2017, consents were received for substitution of the Company to replace SDB. On 23 May 2017, the Company acquired all of the shareholding in SDP Global, as part of SDB’s corporate restructuring.
On 29 January 2018, the 2018 Sukuk matured and SDP Global paid off the principal amount of USD49.6 million (RM195.6 million) to the sukukholders. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
39. BORROWINGS (CONTINUED)
(c) Multi-currency Sukuk (continued) Details of the Sukuk Programme that remains outstanding are as follows:
31 December 2019 Nominal value
At At At Periodic Tenure 31.12.2018 31.12.2019 31.12.2019 distribution Maturity Date of issuance (month) RM’000 RM’000 USD’000 (per annum) date
29.01.2013 120 508,869 503,112 122,501 3.29% 29.01.2023
The Sukuk Programme has been accorded ratings of BBB and Baa1 by Fitch Ratings on 1 October 2019 and Moody’s Investors Service on 9 October 2019 respectively.
(d) Other borrowings The N-bonds amounting to EUR100 million shall be repayable at a nominal amount on 12 August 2030.
For other borrowings, the factoring agreement is entered into with maximum limit of EUR75 million with availability period of up to 12 months from the signing date, and is renewable for the same period of time, unless the agreement is terminated by one of the parties.
(e) Other information (i) The average annual effective interest rates by currency profile of the borrowings, analysed into their respective currency profiles are as follows: GROUP
31.12.2019 31.12.2018 % %
Floating interest rates Term loans – Ringgit Malaysia 4.51 – 4.55 4.68 – United States Dollar 2.68 – 3.85 2.68 – 3.55 – Thailand Baht 3.34 3.36
Revolving credits – Ringgit Malaysia 3.60 – 3.93 4.21 – 4.74 – United States Dollar 2.28 - 3.88 2.00 – 4.00 – European Union Euro 0.50 0.50
Trade facilities – European Union Euro 0.60 –
Fixed interest rates Bonds – European Union Euro 2.90 2.90
Distribution rate Multi–currency Sukuk – United States Dollar 3.29 3.29 Annual Report 2019 P –G. 293 292
39. BORROWINGS (CONTINUED)
(e) Other information (continued)
(ii) The average annual effective interest rates by currency profile of the borrowings, analysed into their respective currency profiles are as follows: (continued)
COMPANY
31.12.2019 31.12.2018 % % FINANCIAL STATEMENTS Floating interest rates Term loans – Ringgit Malaysia 4.51 – 4.55 4.68 – United States Dollar 3.01 – 3.55 3.20 – 3.55
Revolving credits – Ringgit Malaysia 3.60 – 3.93 4.21 – 4.74 – United States Dollar 2.28 – 3.86 2.69 – 3.25
(iii) The maturity periods of borrowings are as follows:
GROUP COMPANY 7 31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
Not later than 1 year 2,489,543 1,804,339 1,747,612 974,443 Later than 1 year but not later than 2 years 790,651 3,664,114 705,781 3,610,238 Later than 2 years but not later than 5 years 3,495,236 1,307,517 3,346,057 682,288 More than 5 years 969,497 520,944 – –
7,744,927 7,296,914 5,799,450 5,266,969
The fair values of borrowings approximate their carrying values as the impact of discounting is not significant. It is estimated based on discounted cash flows using prevailing market rates for borrowings with similar risk profile and is within Level 2 of the fair value hierarchy. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
40. LEASE LIABILITIES GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
Non-current 162,112 165,433 6,954 7,478 Current 25,163 27,122 1,340 1,919
187,275 192,555 8,294 9,397
Minimum lease payments: – not later than 1 year 32,839 34,939 1,438 2,491 – later than 1 year and not later than 5 years 104,246 91,015 3,556 3,812 – later than 5 years 122,951 172,352 6,454 7,553
260,036 298,306 11,448 13,856 Less: unexpired finance charges (72,761) (105,751) (3,154) (4,459)
187,275 192,555 8,294 9,397
Present value of lease liabilities: – not later than 1 year 25,163 27,122 1,340 1,919 – later than 1 year and not later than 5 years 76,733 80,398 2,845 1,888 – later than 5 years 85,379 85,035 4,109 5,590
187,275 192,555 8,294 9,397
41. DEFERRED INCOME GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
Non-current Government grant 207 446 – –
Current Deferred freight income 13,071 28,536 7 42
The government grants are received in relation to the purchase of property, plant and equipment and right-of- use leasehold land of certain subsidiaries. Annual Report 2019 P –G. 295 294
41. DEFERRED INCOME (CONTINUED)
Significant changes of the deferred freight income during the financial year/period are as follows:
GROUP COMPANY
Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000 FINANCIAL STATEMENTS Revenue recognised that was deferred from previous financial period/year 28,536 19,275 42 36
Consideration received for freight services that are partially or fully unsatisfied at the end of the financial year/period 13,071 28,536 7 42
42. TRADE AND OTHER PAYABLES GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 Note RM’000 RM’000 RM’000 RM’000 7 Non-current Other payables 76,774 62,664 – – Financial guarantee contracts 42(a) 627 783 58,071 139,939
77,401 63,447 58,071 139,939
Current Trade payables 528,685 710,434 80,695 98,281 Accruals 364,614 294,921 62,003 98,181 Other payables 263,812 301,364 160,612 59,289 Employee related payables 154,204 106,443 59,478 57,905 Interest payable 43,542 45,470 17,023 22,594 Goods and services tax/ value added tax payable 5,145 7,225 – – Financial guarantee contracts 42(a) 610 688 7,322 27,317
1,360,612 1,466,545 387,133 363,567
Credit terms for trade payables of the Group and of the Company range from 1 to 90 days (2018: 1 to 90 days). NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
42. TRADE AND OTHER PAYABLES (CONTINUED)
(a) Financial guarantee contracts
The gross financial guarantees provided by the Group and the Company at the end of the financial year/ period are as follows:
GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
Guarantees in respect of credit facilities granted to: – joint ventures 5,717 6,443 5,717 6,443 – subsidiaries – – 874,730 1,167,211 – plasma stakeholders 46,846 45,165 – –
43. ACQUISITIONS
Acquisition of subsidiary in the previous financial period
New Britain Palm Oil Limited (“NBPOL”), a wholly-owned subsidiary of the Company, had on 23 August 2018, completed the acquisition of a 100% equity interest in Markham Farming Company Limited (“MFCL”) for a total cash consideration of USD55.0 million (equivalent to approximately RM230.0 million), from Markham Agro Pte. Ltd. (“MAPL”) pursuant to a Share Sale and Purchase Agreement (“SPA”) entered into between NBPOL and MAPL on 23 August 2018 (“the Acquisition”).
The valuation of material assets (land, building, plant and machinery) of the subsidiary acquired were carried out by independent professional firms, to arrive at fair value of identifiable assets and liabilities at the date of acquisition.
As allowed under MFRS 3 “Business Combinations”, the Group had exercised the option to finalise the purchase price allocation (“PPA”) within 12-month period from acquisition date. As such, on finalisation of the PPA, there may be changes in the provisional fair values of the net assets acquired and, consequently the residual goodwill. The provisional goodwill of RM9.1 million arising from the acquisition consists largely the cost of entry into coconut oil production, synergies and economies of scale expected from combining the oil palm operations of the Group and the subsidiary acquired. Annual Report 2019 P –G. 297 296
43. ACQUISITIONS (CONTINUED)
Acquisition of subsidiary (continued)
(a) The provisional fair value of net identifiable assets including residual goodwill recognised in the financial statements of the Group are as follows:
GROUP
As at 31.12.2018 FINANCIAL STATEMENTS Note RM’000
Property, plant and equipment 17 244,114 Right-of-use assets 20 82,262 Trade and other receivables 2,219 Inventories 2,039 Cash and cash equivalents 1,521 Retirement benefits 38(a) (55) Deferred tax liabilities 26 (68,279) Trade and other payables (8,666) Borrowings (34,806)
Net assets acquired 220,349 Purchase consideration (229,403) 7 Goodwill 24 (9,054)
The Group has completed the PPA during the current financial year, with no changes being made to the provisional fair value of net assets acquired and the residual goodwill amount arising from the acquisition.
(b) The cash outflow on the acquisition was as follows:
GROUP
As at 31.12.2018 RM’000
Outflow of cash to acquire subsidiary, net of cash acquired Cash consideration 229,403 Less: Bank balances acquired (1,521)
Net cash outflow from acquisition of a subsidiary 227,882 NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
44. SEGMENT INFORMATION – GROUP
The Company is a globally integrated plantation company which is involved in the entire span of the palm oil value chain, from upstream to downstream activities, research and development (“R&D”), renewables and agribusiness. The Group is also involved in rubber and sugar cane plantations, coconut crushing as well as beef cattle industry.
The management of the Group has determined the operating segments based on information reviewed by the Group’s Plantation Leadership Committee (“PLC”) which consists of the Group Managing Director (“GMD”), Chief Financial Officer (“CFO”), Managing Director (Sime Darby Oils), Chief Human Resources Officer, Chief Sustainability Officer, Chief Strategy & Innovation Officer, Group Secretary, Chief Communication Officer, Group General Counsel, Chief Integrity & Assurance Officer, Chief Risk Officer, Chief Digital Officer, Chief Operations Services and other key management personnel for the purposes of allocating resources and assessing performance.
Management separately evaluates the performance of the upstream segment by geographical locations. Although the Upstream Liberia segment does not meet the quantitative threshold as a reportable segment, the segment remains closely monitored by the PLC. As at 31 December 2019, the Upstream Liberia segment has been classified as discontinuing operation, in accordance to MFRS 5 “Non-current Assets Held for Sale and Discontinued Operations” pursuant to the disposal of the subsidiary as disclosed in Note 13.
The downstream segment is evaluated based on the nature of the products and services, specific expertise and technologies requirement of individual operating units. These operating units have been reported as a single segment as the disaggregation does not meet the quantitative thresholds for separate disclosures, and may exceed the practical limit of a reportable segment. The other business activities of the Group are excluded from the reportable operating segments as they are individually insignificant.
Segments comprise: Upstream Malaysia developing, cultivating and managing oil palm and rubber plantation estates and milling of fresh fruit bunches ("FFB") into crude palm oil ("CPO") and palm kernel ("PK"), processing and sales of rubber
Upstream Indonesia developing, cultivating and managing oil palm plantation estates and milling of FFB into CPO and PK
Upstream Papua New developing, cultivating and managing oil palm and sugar cane plantation estates; Guinea and Solomon milling of FFB into CPO and PK, processing and sales sugar cane, cocounut oil, Islands ("PNG/SI") cattle rearing and beef production
Downstream crushing of PK to crude palm kernel oil (“CPKO”) and palm kernel expeller (“PKE”); production and sales of refined oils and fats (which includes specialty and end-user oils and fats); production and sales of coconut oils; and production and sales of biodiesel products and derivatives
Other operations other operations including trading of agricultural products and services, production and/or sale of oil palm seeds and seedlings, sales of oleochemical products, research and breeding programmes of oil palm and rubber with special focus on genome science; and renewables business with a focus on development of green technology and renewable energy which includes bio-based chemicals, biogas and composting
Note:
(i) FFB, being the oil palm fruits which grow in bunches on oil palm trees, from which CPO and PK are obtained. (ii) CPO, which is the oil extracted from the fibrous outer layer (mesocarp) of the oil palm fruit.
Transactions between segments are carried out on agreed terms between both parties. The effects of such inter-segment transactions are eliminated on consolidation. 44. SEGMENT INFORMATION – GROUP (CONTINUED) (a) Segment results Continuing operations
Inter- Upstream Upstream Upstream Other segment Discontinuing Malaysia Indonesia PNG/SI Downstream operations elimination Total operations Total Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
For the financial year ended 31 December 2019
Segment revenue External 793,364 865,114 836,742 9,512,374– 54,67212,062,266 51,790 12,114,056 Inter-segment 2,275,669 833,804 439,067 81,699 288,437– (3,918,676) – –
3,069,033 1,698,918 1,275,809 9,594,073 343,109 (3,918,676) 12,062,266 51,790 12,114,056
Segment results Operating profit/(loss) 155,246 196,202 (239,075) 283,8508,009 – 404,232 (325,854) 78,378 Share of results of joint ventures and associates – – – – 1,654 – 1,654 4,061 5,715
Profit/(loss) before interest and tax 155,246 196,202 (239,075) 283,8509,663 – 405,886 (321,793) 84,093 Finance income 1,988 6,858 – 3,525 604 – 12,975 – 12,975 Finance costs (127,115) – – (10,099) (30,331) – (167,545) – (167,545)
Profit/(loss) before tax 30,119 203,060 (239,075) 277,276 (20,064)– 251,316 (321,793) (70,477) Tax credit/(expense) 5,047 2,744 70,362 (27,941) (26,643)– 23,569 – 23,569
Profit/(loss) for the financial year 35,166 205,804 (168,713) 249,335 (46,707)– 274,885 (321,793) (46,908)
Included in the operating (profit)/loss are: Annual Report2019 Depreciation and amortisation 6(a), 372,481 229,020 470,036 114,36120,115 – 1,206,013 19,726 1,225,739 13(b)
Impairment losses of property, plant and equipment, right-of-use assets, trade and other receivables, advances for plasma6(e), plantation projects and joint venture13(b) 27,501 3,545 2 9,776 19,610 – 60,434 243,610 304,044
Reversal of impairment losses of trade and other receivables and advances for plasma plantation projects 7 (3) (2,130) (1,086) (17,206)(14) – (20,439) – (20,439) P Gains on disposals of property, plant and equipment and non-current assets held
for sale 7 (58,716) (11,926) (911) (8,586) – – (80,139) – (80,139) 298 –G.
299 7 STATEMENTS FINANCIAL For TheFinancialYearEnded31December2019 STATEMENTS FINANCIAL TO THE NOTES 44. SEGMENT INFORMATION – GROUP (CONTINUED) (a) Segment results (continued)
Continuing operations
Inter- Upstream Upstream Upstream Other segment Discontinuing Malaysia Indonesia PNG/SI Downstream operations elimination Total operations Total Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
For the financial period ended 31 December 2018
Segment revenue External 483,185 468,626 584,225 4,952,723 29,562– 6,518,321 24,227 6,542,548 Inter-segment 1,306,657 654,466 213,490 2,125,135 144,872– (4,444,620) – –
1,789,842 1,123,092 797,715 7,077,858 174,434 (4,444,620) 6,518,321 24,227 6,542,548
Segment results Operating profit/(loss) 301,367 67,880 56,629 176,270– 10,748 612,894 (57,494) 555,400 Share of results of joint ventures and associates – – – – 1,793 – 1,793 1,366 3,159
Profit/(loss) before interest and tax 301,367 67,880 56,629 176,27012,541 – 614,687 (56,128) 558,559 Finance income 1,790 4,100 46 2,262 275 – 8,473 – 8,473 Finance costs (80,463) (1,349) (4,171) (8,627) (15,375) – (109,985) – (109,985)
Profit/(loss) before tax 222,694 70,631 52,504 169,905(2,559) – 513,175 (56,128) 457,047 Tax expense (44,063) (58,740) (14,550) (26,249)– (1,650) (145,252) – (145,252)
Profit/(loss) for the financial period 178,631 11,891 37,954 143,656(4,209) – 367,923 (56,128) 311,795
Included in the operating (profit)/loss are: Depreciation and amortisation 6(a), 176,433 110,268 245,195 56,9619,751 – 598,608 10,497 609,105 13(b)
Impairment losses of property, plant and equipment, trade and other receivables6(e), and advances for plasma plantation projects13(b) 4,259 5,220 2,926 2,772 – – 15,177 14,539 29,716
Reversal of impairment losses of trade and other receivables and advances for plasma plantation projects 7 (2,208) (315) (2,312) (2,978) – – (7,813) – (7,813)
Gains on disposals of property, plant and equipment and non-current assets held for sale 7 (50,721) (474) (107) (30,345) – – (81,647) – (81,647) 44. SEGMENT INFORMATION – GROUP (CONTINUED)
(b) Segment assets and liabilities and additions to non-current assets
Continuing operations
Inter- Upstream Upstream Upstream Other segment Discontinuing Malaysia Indonesia PNG/SI Downstream operations elimination Total operations Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
31 December 2019 Segment assets Operating assets 9,400,590 4,860,256 7,877,568 4,263,085 223,394– 26,624,893 – 26,624,893 Joint ventures and associates – – – – 73,907 – 73,907 – 73,907 Non-current assets held for sale 69,059 – 43,909 – – – 112,968 409,570 522,538
9,469,649 4,860,256 7,921,477 4,263,085 297,301– 26,811,768 409,570 27,221,338
Segment liabilities Liabilities 660,775 287,839 81,657 878,896– 66,9511,976,118 – 1,976,118 Liabilities directly associated with non-current assets held for sale – 3,507 31,804 – – – 35,311 424 35,735
660,775 291,346 113,461 878,896– 66,9512,011,429 424 2,011,853
Additions to non-current assets are as follows: Capital expenditure 681,517 603,562 230,640 244,406 23,552– 1,783,677 – 1,783,677
31 December 2018 Segment assets Operating assets 9,168,113 4,268,847 8,164,513 4,625,821 263,354– 26,490,648 287,798 26,778,446 Joint ventures and associates – – – – 72,663 – 72,663 415,820 488,483 Annual Report2019 Non-current assets held for sale 14 124,587 – 74 – – 124,675 – 124,675
9,168,127 4,393,434 8,164,513 4,625,895 336,017– 26,687,986 703,618 27,391,604
Segment liabilities Liabilities 1,294,130 576,159 241,694 395,549– 86,178 2,593,710 33,167 2,626,877 Liabilities directly associated with non-current assets held for sale – 21,133 – – – – 21,133 – 21,133 P 1,294,130 597,292 241,694 395,549– 86,178 2,614,843 33,167 2,648,010 G. 300 –G.
Additions to non-current assets are as follows: 301
Capital expenditure 369,792 262,412 141,57652,321 14,921 – 841,022 2,553 843,575 7 STATEMENTS FINANCIAL NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
44. SEGMENT INFORMATION – GROUP (CONTINUED)
(b) Segment assets and liabilities and additions to non-current assets (continued)
Capital expenditure consists of the following:
Continuing Discontinuing operations operations Total RM’000 RM’000 RM’000
For the financial year 31 December 2019 Property, plant and equipment 1,734,427 – 1,734,427 Right-of-use assets 42,615 – 42,615 Intangible assets other than goodwill 6,635 – 6,635
1,783,677 – 1,783,677
For the financial period 31 December 2018 Property, plant and equipment 829,079 2,553 831,632 Right-of-use assets 8,439 – 8,439 Intangible assets other than goodwill 3,504 – 3,504
841,022 2,553 843,575
Reconciliations of segment assets and liabilities to total assets and total liabilities are as follows:
31.12.2019 31.12.2018 RM’000 RM’000
Assets: Segment total 27,221,338 27,391,604 Tax assets 1,286,384 1,234,698
28,507,722 28,626,302
Liabilities: Segment total 2,011,853 2,648,010 Tax liabilities 2,702,945 2,742,898 Borrowings 7,744,927 7,296,914 Lease liabilities 187,275 192,555
12,647,000 12,880,377 Annual Report 2019 P –G. 303 302
44. SEGMENT INFORMATION – GROUP (CONTINUED)
(c) Segment by geography
Revenue by location of customers is analysed as follows:
Financial Financial year ended period ended 31.12.2019 31.12.2018 RM’000 RM’000
Malaysia 3,045,208 1,495,248 FINANCIAL STATEMENTS Europe 2,547,424 1,227,976 India 1,967,517 1,489,702 Indonesia 954,724 447,252 Thailand 1,059,900 544,604 Other countries in South East Asia 107,648 184,178 South Africa 541,545 282,666 Papua New Guinea and Solomon Islands 283,021 245,587 China 545,415 106,163 Other countries (which are individually insignificant) 1,009,864 494,945
12,062,266 6,518,321
Non-current assets, other than financial instruments and tax assets, by location of the Group’s operations 7 are analysed as follows:
31.12.2019 31.12.2018 RM’000 RM’000
Malaysia 11,807,354 11,997,659 Indonesia 3,971,981 3,546,698 Papua New Guinea and Solomon Islands 5,739,975 5,996,536 Thailand 289,151 274,080 China 27,052 23,911 Europe 533,594 536,994 Liberia – 251,332 South Africa 12,482 12,577
22,381,589 22,639,787
Reconciliations of non-current assets, other than financial instruments and tax assets to the total non-current assets are as follows:
31.12.2019 31.12.2018 RM’000 RM’000
Non-current assets other than financial instruments and tax assets 22,381,589 22,639,787 Investments at FVOCI 30,469 29,294 Deferred tax assets 640,094 508,991 Tax recoverable 333,674 290,412 Receivables 155,741 115,122
23,541,567 23,583,606
The Group’s operations are diverse in terms of the range of products and services it offers and the geographical coverage. There is no single customer that contributed 10% or more to the Group’s revenue NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
45. CONTINGENT LIABILITIES Other than those disclosed in Note 47, there are no significant contingent liabilities as at the financial year/ period end.
46. COMMITMENTS
(a) Capital commitments GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
Authorised capital expenditure not provided for in the financial statements: Contracted – property, plant and equipment 330,994 330,636 88,190 105,403 Not contracted – bearer plants 768,000 681,400 264,526 255,903 – property, plant and equipment 175,444 68,924 104,833 119,281
1,274,438 1,080,960 457,549 480,587
(b) Plasma plantation The Group is committed to develop a total of 53,381 (2018: 56,722) hectares of oil palm plantation for plasma farmers in Indonesia. A total of 43,558 (2018: 47,004) hectares have been developed of which approximately 37,054 (2018: 37,113) hectares have been transferred/handed over to plasma farmers.
47. MATERIAL LITIGATION Material litigation against the Group are as follows:
(a) PT Sajang Heulang (“PT SHE”) vs. PT Anzawara Satria (“PT AS”) On 23 April 2014, PT SHE filed a claim at the District Court of Batulicin against PT AS for the sum of IDR672.8 billion (equivalent to around RM198.4 million) for damages caused by PT AS in executing the Supreme Court Decision which ordered PT SHE to surrender 2,000 hectares of land in Desa Bunati forming part of HGU 35 to PT AS.
On 20 January 2015, the District Court of Batulicin decided in favour of PT SHE and awarded damages in the sum of IDR69.9 billion (equivalent to around RM20.6 million) to be paid by PT AS, but on appeal on 19 November 2015, the Banjarmasin High Court ruled in favour of PT AS.
On 22 February 2016, PT SHE filed an appeal to the Supreme Court against the decision of the Banjarmasin High Court but the Supreme Court rejected PT SHE’s appeal. Following that, on 5 March 2018, PT SHE filed a judicial review against the decision of the Supreme Court. On 9 July 2019, PT SHE received the official notice of the Supreme Court rejecting PT SHE’s judicial review application.
In February 2018, PT SHE received a copy of a notice from the Provincial Land Office in Kalimantan Selatan dated 3 January 2018 addressed to the Central Land Office in Jakarta on an application to annul PT SHE’s HGU 35. PT SHE has filed a written objection to the Central Land Office in Jakarta in respect of the said application. PT SHE received written notification from BPN that part of PT SHE’s HGU 35 measuring approximately 1,580 Ha has been annulled. After having further assessed and considered the matter, PT SHE has since decided not to pursue the matter. Such annulment does not have a material impact on the Group as substantial impairments have been made in the Group’s financial statements. Annual Report 2019 P –G. 305 304
47. MATERIAL LITIGATION (CONTINUED)
Material litigation against the Group are as follows: (continued)
(b) New Britain Palm Oil Limited (“NBPOL”) vs. Masile Incorporated Land Group (“Masile”), Rikau Incorporated Land Group (“Rikau”) & Meloks Incorporated Land Group (“Meloks”) (collectively, “Defendants”)
NBPOL, a wholly-owned subsidiary of the Company, had on 31 August 2011 initiated 3 separate legal actions against the Defendants in the National Court of Justice at Waigani, Papua New Guinea (Court). All 3 actions relate to the same cause of action whereby the Defendants had defaulted in their obligations to surrender
their Special Agricultural Business Leases (SABL) to NBPOL for registration of the sub-leases despite having FINANCIAL STATEMENTS received benefits from NBPOL under the sub-lease agreements (SLA). Such benefits received by the Defendants include rental paid by NBPOL for 3,720 Ha of land under the SABL (Land), royalties for the FFB harvested from the Land, and 31,250 ordinary shares in NBPOL respectively issued to each of the Defendants.
On 25 June 2018, the Court rendered its decision on NBPOL’s claims against Meloks in NBPOL’s favour. In its decision, the Court declared the SLA entered into between NBPOL and Meloks to be valid and an order of specific performance was made against Meloks to deliver the SABL to NBPOL and to do all acts and things necessary to enable NBPOL to register the SLA entered into between NBPOL and Meloks. On 10 October 2018, Meloks surrendered the SABL to NBPOL. However, in view that Meloks had laminated the SABL, Meloks had to execute an application for the official copy of the SABL which NBPOL will lodge with the registrar of titles together with NBPOL’s application for registration of the SLA.
Masile and Rikau were considering whether to continue defending against NBPOL’s claims in view of the 7 Court’s decision on the trial relating to NBPOL’s claims against Meloks or to conclude on the same basis as Meloks given that the facts, issues and evidences are similar. However, Masile and Rikau have been unable to come to a decision and therefore NBPOL decided to proceed with trial in respect of the claims against Rikau and Masile. The matter has been adjourned to a date to be fixed as Masile and Rikau have engaged a new lawyer.
(c) PT Mulia Agro Persada (“PT MAP”) and PT Palma Sejahtera (“PT PS”) vs. PT Minamas Gemilang (“PT MGG”), PT Anugerah Sumbermakmur (“PT ASM”) and PT Indotruba Tengah (“PT ITH”)
PT MGG and PT ASM, both indirect wholly-owned subsidiaries of the Company, and PT ITH, a 50%-owned subsidiary of the SDP Group, are involved in a lawsuit brought by Yayasan Kartika Eka Paksi (YKEP) against PT MAP, PT PS and others. PT MGG and PT ASM are shareholders of PT ITH, each holding 25% equity interest. YKEP holds the remaining 50% share in PT ITH.
YKEP sold and transferred its shares in PT ITH to PT MAP in December 2008 but thereafter YKEP filed a lawsuit to invalidate and nullify the transfer of shares as it is against law and regulations. The purchase of shares in PT ITH by PT MAP was funded by PT PS. Subsequently, on 31 May 2016, the Supreme Court decided the Judicial Review (1st Judicial Review Decision) application by Darsono CS (ex-officer of YKEP) in favour of YKEP. This decision reinforced the earlier District Court decision which had invalidated and nullified the transfer of the ordinary shares of PT ITH from YKEP to PT MAP.
In that regard, YKEP then filed a petition at the Central Jakarta District Court to execute the 1st Judicial Review Decision, demanding that (i) the 6,200 ordinary shares in PT ITH be returned to YKEP and (ii) PT MAP and the former officers of YKEP to pay compensation for damages to YKEP in the amount of IDR200.0 billion (equivalent to around RM59.0 million). YKEP’s petition was granted under a Warning Letter (Surat Aanmaning) issued by the Central Jakarta District Court which obligates PT MAP and the former officers of YKEP to comply with the 1st Judicial Review Decision. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
47. MATERIAL LITIGATION (CONTINUED)
Material litigation against the Group are as follows: (continued)
(c) PT Mulia Agro Persada (“PT MAP”) and PT Palma Sejahtera (“PT PS”) vs. PT Minamas Gemilang (“PT MGG”), PT Anugerah Sumbermakmur (“PT ASM”) and PT Indotruba Tengah (“PT ITH”) (continued)
In response, the former officers of YKEP (some of them were represented by their heirs) filed a Third Party Opposition Suit (Gugatan Perlawan) registered under case number 537/PDT.PLW/2017/PN.Jkt.Pst dated 18 October 2017, seeking nullification towards both the Warning Letter (Surat Amaran) issued by the Central Jakarta District Court and the execution of the 1st Judicial Review Decision, on the basis that (i) the 6,200 ordinary shares in PT ITH are currently owned by YKEP; (ii) YKEP has also received dividends as a shareholder of PT ITH; and (iii) there are conflicting decisions on the matter of legality of transfer of the 6,200 shares in PT ITH between (i) the 1st Judicial Review Decision No. 196 PK/Pdt/2016, which nullified such transfer of shares, and (ii) the Decision of East Jakarta District Court No. 130/Pdt.G/2015/PN.Jkt.tim dated 7 July 2015 (Decision of East Jakarta District Court), which declared the transfer of 6,200 ordinary shares in PT ITH from YKEP to PT MAP as legally valid. However, neither YKEP, PT ITH, PT MGG nor PT ASM were included as parties under the Decision of East Jakarta District Court. On 12 April 2018, the Central Jakarta District Court rejected the Third Party Opposition Suit (Gugatan Perlawanan) by the former officers of YKEP. The former officers of YKEP then filed an appeal at the Jakarta High Court against the decision of the Central Jakarta District Court. On 4 March 2019, PT ITH was notified that the former officers’ appeal was rejected by the Jakarta High Court.
Despite the 1st Judicial Review Decision, PT MAP and PT PS still filed a lawsuit at the South Jakarta District Court seeking compensation from the defendants (and a number of individuals), individually or jointly and severally, namely PT ITH, PT MGG, PT ASM and YKEP. The compensation sought by PT MAP and PT PS comprised of: (i) material damages (direct loss) in the amount of IDR247.0 billion (equivalent to around RM69.4 million) with an interest of 3% per month of the amount of IDR137.2 billion (equivalent to around RM38.5 million) until the payment is made to PT MAP and PT PS; (ii) fine (dwangsom) in the amount of IDR250 billion (equivalent to around RM70.2 million); and (iii) immaterial damages (indirect loss) in the amount of IDR500 billion (equivalent to around RM140.4 million). The potential exposure of PT MGG, PT ASM and PT ITH could be up to IDR997.0 billion (equivalent to around RM280.0 million), being the total sum of the above material damages (excluding the 3% interest), fine and immaterial damages claimed by PT MAP and PT PS from all the 11 defendants, individually or jointly and severally. The term “individually or jointly and severally” means that one or more defendants can be pursued to pay all amounts demanded. In other words, PT MAP and PT PS may recover all the damages from any of the defendants regardless of their individual share of the liability.
To that extent, the South Jakarta District Court and the Jakarta High Court, which previously adjudicated and examined this case, rejected PT MAP and PT PS’s lawsuit. In response, PT MAP and PT PS filed an appeal to the Supreme Court which was subsequently rejected. PT MAP and PT PS then filed a judicial review (Jakarta Selatan Judicial Review) in the Supreme Court against the Supreme Court’s decision. As at the reporting date, parties are awaiting the official decision of the Jakarta Selatan Judicial Review by the Supreme Court.
Separately, PT PS filed a judicial review in the Supreme Court against the 1st Judicial Review. As at the reporting date, the matter is still before the Supreme Court.
(d) Chantico Ship Management Ltd (“Chantico”) vs. Sime Darby Oils Zwijndrecht Refinery B.V. (fka Sime Darby Unimills B.V.) (“SDOZR”)
SDOZR, an indirect wholly-owned subsidiary of the Company, is involved in litigation in respect of a vessel known as the mv Geraki (fka mv Cap Thanos). This vessel was carrying vegetable oils for 9 different cargo owners (7 European cargo owners including SDOZR, and 2 Algerian cargo owners). One of the 9 cargo owners is SDOZR. The percentage of SDOZR’s cargo on board was about 14.4%. The vessel was auctioned and in April 2011 sold to Chantico. All cargo were eventually discharged in April/May 2013. Beginning in 2012, Chantico started various proceedings against the cargo owners. Annual Report 2019 P –G. 307 306
47. MATERIAL LITIGATION (CONTINUED)
Material litigation against the Group are as follows: (continued)
(d) Chantico Ship Management Ltd (“Chantico”) vs. Sime Darby Oils Zwijndrecht Refinery B.V. (fka Sime Darby Unimills B.V.) (“SDOZR”) (continued)
The following 2 lawsuits are still pending:
(i) Proceedings before the Court of Piraeus which started in October 2014 (“Lawsuit 1”) FINANCIAL STATEMENTS The claims by Chantico are based on alleged actions in tort (i.e. alleged delay of discharge of cargo) and the current total amount claimed from all 9 cargo owners, jointly and severally, is EUR6 million (approximately RM27.6 million). The hearing for Lawsuit 1 concluded on 25 September 2018.
(ii) Proceedings before the Court of Piraeus which started in December 2015 (“Lawsuit 2”)
The claim in these proceedings is based on the alleged damage to the vessel and loss of profit caused by the alleged actions in tort during transshipment and heating of the cargo. The claim against the 9 cargo owners and the third party, jointly and severally, amounts to EUR9.3 million (approximately RM42.8 million) and an additional claim was filed against all cargo owners, jointly and severally, of EUR380,000 (approximately RM1.7 million) for port and anchorage dues. The hearing for Lawsuit 2 concluded on 25 September 2018.
SDOZR is waiting for the court judgement to be rendered on both of the above cases. SDOZR’s Greek 7 lawyer estimates the exposure of SDOZR (and all of the other 8 cargo owners, jointly and severally) at EUR2.1 million (approximately RM9.7 million) for Lawsuit 1 and EUR145,000 (approximately RM0.7 million) for Lawsuit 2, all amounts inclusive of interest. As at this juncture, adequate provision has been made.
(e) Sime Darby Plantation Berhad (“SDP”) v. Pengarah Tanah dan Galian Negeri Melaka, Pentadbir Tanah Daerah Jasin, Kerajaan Negeri Melaka and GI A Resources Sdn Bhd (“GI A”) (collectively “the Respondents”)
On 29 April 2019, SDP commenced a Judicial Review proceeding in the Melaka High Court against the Respondents for wrongfully initiating compulsory acquisition of SDP’s land measuring 185.5 acres held under Lot 7498, GRN 49371, Mukim Merlimau, District Jasin, State of Melaka which forms part of SDP’s Kempas Estate (“JR”).
SDP is seeking, among others, the orders of certiorari1 and mandamus2 to nullify the compulsory acquisition, and a declaratory relief that the Land Acquisition Act 1960 cannot be abused to compulsorily acquire land belonging to SDP for the benefit of a foreign owned company, GI A.
On 23 May 2019, the Melaka High Court granted SDP leave to commence JR, among others, to declare the compulsory acquisition of its land as wrongful and void.
The High Court has also granted a stay of all further proceedings in the land acquisition. Consequently, the land shall remain in SDP until final disposal of the JR. On 26 June 2019, GI A filed an appeal against the High Court’s decision.
Parties negotiated for out of court settlement and are currently finalising the settlement terms. Pending settlement, all court proceedings have been stayed.
1 Certiorari is an order of court to quash the legal effect of a decision. 2 Mandamus is a command issued by the court asking an authority to perform a public duty imposed upon it by law. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
48. DISCLOSURES OF SIGNIFICANT RELATED PARTY TRANSACTIONS
The immediate and ultimate holding companies of the Company are Permodalan Nasional Berhad (“PNB”) and Yayasan Pelaburan Bumiputra (“YPB”), which are incorporated in Malaysia.
Transactions entered into for the respective financial year/period under review, with companies in which PNB and YPB have significant interest, include the sales and purchases of goods and services.
These related party transactions were entered into in the ordinary course of business on negotiated trade terms and conditions and do not require the approval of shareholders.
In addition to related party disclosures mentioned elsewhere in the financial statements, set out below are other significant related party transactions and balances:
GROUP COMPANY
Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
(a) Transactions with joint ventures (i) Sale of goods and tolling services – Emery Oleochemicals (M) Sdn Bhd 50,917 16,618 50,390 15,957 – Rizhao Sime Darby Oils & Fats Co. Ltd. 33,758 19,268 14 –
(b) Transactions with associates (i) Purchase of latex concentrate – Thai Eastern Trat Co., Ltd. 36,904 29,989 – –
(c) Transactions with subsidiaries (i) Sales of goods – Sime Darby Oils Trading (Labuan) Limited – – 941,320 423,946 – Sime Darby Oils Trading Sdn Bhd – – – 834 – Sime Darby Oils Biodiesel Sdn Bhd – – 152,226 63,721 – Sime Darby Oils Zwijndrecht Refinery B.V. – – 4,320 39,108 – Sime Darby Oils Professional Sdn Bhd (fka Sime Darby Foods & Beverages Marketing Sdn Bhd) – – 74,597 35,899 – Sime Darby Oils Pasir Gudang Sdn Bhd – – 72,480 41,402 – The China Engineers (Malaysia) Sdn Bhd – – 43,282 17,234 – Sime Darby Oils South Africa (Pty) Ltd. – – 14,558 7,143 Annual Report 2019 P –G. 309 308
48. DISCLOSURES OF SIGNIFICANT RELATED PARTY TRANSACTIONS (CONTINUED)
In addition to related party disclosures mentioned elsewhere in the financial statements, set out below are other significant related party transactions and balances: (continued)
GROUP COMPANY
Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018
RM’000 RM’000 RM’000 RM’000 FINANCIAL STATEMENTS
(c) Transactions with subsidiaries (continued) (ii) Research expenses – Sime Darby Technology Centre Sdn Bhd – – 27,745 14,594 – Sime Darby Plantation Research Sdn Bhd – – 58,568 33,482
(iii) Commission on purchase of FFB and sale of palm products – Sime Darby Oils Trading Sdn Bhd – – 33,805 18,506
(iv) Management fees income 7 – Sime Darby Plantation (Sabah) Sdn Bhd – – 13,688 6,843
(v) Interest income/(expenses) – Guthrie Industries Malaysia Sendirian Berhad – – 1,357 4,313 – Mulligan International B.V. – – 5,790 2,814 – Sime Darby Plantation Global Berhad (fka Sime Darby Global Berhad) – – (16,669) (8,291)
(vi) Purchases of goods – The China Engineers (Malaysia) Sdn Bhd – – 57,043 61,362 – Sime Darby Plantation Agri-Bio Sdn Bhd (fka Sime Darby Agri-Bio Sdn Bhd) – – 106,593 49,658 – Sime Darby Oils Bintulu Sdn Bhd – – 26,792 38,318 – Sime Darby Oils Trading Sdn Bhd – – – 14,212 – Sanguine (Malaysia) Sdn Bhd – – 4,727 2,799 – PT Aneka Inti Persada – – – 6,406 – PT Teguh Sempurna – – – 12,793 NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
48. DISCLOSURES OF SIGNIFICANT RELATED PARTY TRANSACTIONS (CONTINUED)
In addition to related party disclosures mentioned elsewhere in the financial statements, set out below are other significant related party transactions and balances: (continued)
GROUP COMPANY
Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
(c) Transactions with subsidiaries (continued) (vii) Capital contribution to subsidiaries/(repayment of capital contribution) – Sime Darby Plantation (Liberia) Inc. – – 63,081 23,214 – Sime Darby Oils Zwijndrecht Refinergy B.V. – – (161,653) – – Sime Darby Plantation (Europe) Ltd – – – (51,120)
(viii) Advances to subsidiaries – Sime Darby Oils Trading (Labuan) Limited – – 41,945 61,774 – The China Engineers (Malaysia) Sdn Bhd – – 4,420 –
(ix) Repayment of advances to a subsidiary – Sime Darby Oils Trading (Labuan) Limited – – 77,333 –
(x) Purchase of compost plant – Sime Darby Plantation Agri-Bio Sdn Bhd – – – 10,446
(xi) Sales of property, plant and equipment – Sime Darby Plantation (Sarawak) Sdn Bhd – – 4,387 – – Sime Darby Plantation (Sabah) Sdn Bhd – – 3,704 – Annual Report 2019 P –G. 311 310
48. DISCLOSURES OF SIGNIFICANT RELATED PARTY TRANSACTIONS (CONTINUED)
In addition to related party disclosures mentioned elsewhere in the financial statements, set out below are other significant related party transactions and balances: (continued)
(d) Transactions with related parties
PNB and the funds managed by its subsidiary, Amanah Saham Nasional Berhad, together owns 56.49% as at 31 December 2019 (2018: 55.93%) of the issued share capital of the Company. PNB is an entity controlled by the Malaysian Government through YPB. The Group considers that, for the purpose of MFRS 124 “Related
Party Disclosures”, the Malaysian Government are in the position to exercise significant influence over it. As FINANCIAL STATEMENTS a result, the Malaysian Government and Malaysian Government’s controlled bodies (collectively referred to as government related entities) are related parties of the Group and of the Company.
Transactions entered into during the financial year/period include the following:
GROUP COMPANY
Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
Transactions with related parties (i) Payroll, accounting and IT 7 processing costs – DXC Technology Sdn Bhd (fka Sime Darby Global Services Centre Sdn Bhd) 27,094 32,628 13,274 12,062
(ii) Purchase of heavy equipment, spare parts and services – Sime Darby Industrial Sdn Bhd 24,633 25,311 6,385 11,364 – Sime Kubota Sdn Bhd 1,474 13,584 3,730 12,608
(iii) Foreign currency payment arrangement – Hastings Deering (PNG) Limited 124,225 48,957 – –
Transactions with associate (i) Corporate social responsibility donation paid – Yayasan Sime Darby 20,000 20,000 2,800 20,000
Apart from the individually significant transactions as disclosed elsewhere in the financial statements, the Group and the Company have collectively, but not individually, significant transactions with other government- related entities which include but not limited to the following:
(i) Purchasing of goods and services, including use of public utilities and amenities; and (ii) Placement of bank deposits with government-related financial institutions
All the transactions entered into by the Group and the Company with the government-related entities are conducted in the ordinary course of the Group’s and the Company’s businesses on negotiated terms. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
48. DISCLOSURES OF SIGNIFICANT RELATED PARTY TRANSACTIONS (CONTINUED)
In addition to related party disclosures mentioned elsewhere in the financial statements, set out below are other significant related party transactions and balances: (continued)
(e) Remuneration of Directors and key management personnel GROUP/COMPANY
Financial Financial year ended period ended 31.12.2019 31.12.2018 RM’000 RM’000
Remuneration of key management personnel
The aggregate amount of emoluments received/receivable by key management personnel of the Group and the Company during the financial year/period are as follows: – Salaries, fees and other emoluments 21,380 10,232 – Defined contribution pension plans 1,843 1,361 – Estimated monetary value of benefits by way of usage of the Group’s and the Company’s assets 532 177
23,755 11,770
Key management personnel comprise all Plantation Leadership Committee (“PLC”) members having authority and responsibility for planning, directing and controlling the activities of the Group either directly or indirectly.
(f) The outstanding balances with related companies within the PNB Group are shown in Note 30. The significant outstanding balances with other related parties are as follows:
GROUP COMPANY
Financial Financial Financial Financial year ended period ended year ended period ended 31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
Amounts due from joint ventures – Rizhao Sime Darby Oils & Fats Co. Ltd. 7,657 7,432 513 327 – Guangzhou Keylink Chemicals Co., Ltd. – 44,715 – 25,606
Financial guarantees in respect of credit facilities – Sime Darby Oils Nonthaburi Co., Ltd (fka Industrial Enterprises Co., Ltd.) – – 38,027 48,175 – Sime Darby Oils Netherlands B.V – – 645,202 640,846 – New Britain Palm Oil Limited – – 191,501 478,190
All outstanding balances are unsecured and repayable within the normal credit periods. Annual Report 2019 P –G. 313 312
49. FINANCIAL INSTRUMENTS
(a) Financial instruments by category
Financial assets and financial liabilities are categorised as follows:
Financial Derivatives Financial assets at Financial used for assets at amortised assets at hedging FVTPL cost FVOCI Total
GROUP RM’000 RM’000 RM’000 RM’000 RM’000 FINANCIAL STATEMENTS
31 December 2019 NON-CURRENT ASSETS Investments at FVOCI – – – 30,469 30,469 Trade and other receivables – – 155,741 – 155,741
CURRENT ASSETS Trade and other receivables – – 1,585,400 – 1,585,400 Amounts due from related parties – – 2,158 – 2,158 Derivatives 2,816 73,921 – – 76,737 Bank balances, deposits and cash – – 431,347 – 431,347 7 Total financial assets 2,816 73,921 2,174,646 30,469 2,281,852
Financial Derivatives Financial Financial liabilities at used for liabilities at guarantee amortised hedging FVTPL contracts cost Total RM’000 RM’000 RM’000 RM’000 RM’000
NON-CURRENT LIABILITIES Borrowings – – – 5,255,384 5,255,384 Lease liabilities – – – 162,112 162,112 Other payables – – – 76,774 76,774 Financial guarantee contracts – – 627 – 627
CURRENT LIABILITIES Trade and other payables – – 610 1,354,857 1,355,467 Borrowings – – – 2,489,543 2,489,543 Lease liabilities – – – 25,163 25,163 Amounts due to related parties – – – 6,989 6,989 Derivatives 405 242,508 – – 242,913
Total financial liabilities 405 242,508 1,237 9,370,822 9,614,972 NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
49. FINANCIAL INSTRUMENTS (CONTINUED)
(a) Financial instruments by category (continued)
Financial assets and financial liabilities are categorised as follows: (continued)
Financial Derivatives Financial assets at Financial used for assets at amortised assets at hedging FVTPL cost FVOCI Total GROUP RM’000 RM’000 RM’000 RM’000 RM’000
31 December 2018 NON-CURRENT ASSETS Investments at FVOCI – – – 29,294 29,294 Trade and other receivables – – 115,122 – 115,122
CURRENT ASSETS Trade and other receivables – – 1,584,481 – 1,584,481 Amounts due from related parties – – 2,171 – 2,171 Derivatives 19,480 39,184 – – 58,664 Bank balances, deposits and cash – – 491,042 – 491,042
Total financial assets 19,480 39,184 2,192,816 29,294 2,280,774
Financial Derivatives Financial Financial liabilities at used for liabilities at guarantee amortised hedging FVTPL contracts cost Total RM’000 RM’000 RM’000 RM’000 RM’000
NON-CURRENT LIABILITIES Borrowings – – – 5,492,575 5,492,575 Lease liabilities – – – 165,433 165,433 Other payables – – – 62,664 62,664 Financial guarantee contracts – – 783 – 783
CURRENT LIABILITIES Trade and other payables – – 688 1,458,632 1,459,320 Borrowings – – – 1,804,339 1,804,339 Lease liabilities – – – 27,122 27,122 Amounts due to related parties – – – 61,020 61,020 Dividend payable – – – 748,092 748,092 Derivatives 1,375 19,823 – – 21,198
Total financial liabilities 1,375 19,823 1,471 9,819,877 9,842,546 Annual Report 2019 P –G. 315 314
49. FINANCIAL INSTRUMENTS (CONTINUED)
(a) Financial instruments by category (continued)
Financial assets and financial liabilities are categorised as follows: (continued)
Financial Derivatives Financial assets at Financial used for assets at amortised assets at hedging FVTPL cost FVOCI Total
COMPANY RM’000 RM’000 RM’000 RM’000 RM’000 FINANCIAL STATEMENTS
31 December 2019 NON-CURRENT ASSETS Investments at FVOCI – – – 27,049 27,049 Amount due from a subsidiary – – 59,768 – 59,768
CURRENT ASSETS Trade and other receivables – – 205,785 – 205,785 Amounts due from subsidiaries – – 536,325 – 536,325 Amounts due from related parties – – 3,226 – 3,226 7 Derivatives 232 35,257 – – 35,489 Bank balances, deposits and cash – – 85,403 – 85,403
Total financial assets 232 35,257 890,507 27,049 953,045
Financial Financial Financial liabilities at liabilities at guarantee amortised FVTPL contracts cost Total RM’000 RM’000 RM’000 RM’000
NON-CURRENT LIABILITIES Amount due to a subsidiary – – 503,112 503,112 Borrowings – – 4,051,838 4,051,838 Lease liabilities – – 6,954 6,954 Financial guarantee contracts – 58,071 – 58,071
CURRENT LIABILITIES Trade and other payables – 7,322 379,811 387,133 Borrowings – – 1,747,612 1,747,612 Lease liabilities – – 1,340 1,340 Amounts due to subsidiaries – – 994,982 994,982 Amounts due to related parties – – 6,027 6,027 Derivatives 134,197 – – 134,197
Total financial liabilities 134,197 65,393 7,691,676 7,891,266 NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
49. FINANCIAL INSTRUMENTS (CONTINUED)
(a) Financial instruments by category (continued)
Financial assets and financial liabilities are categorised as follows: (continued)
Financial Derivatives Financial assets at Financial used for assets at amortised assets at hedging FVTPL cost FVOCI Total COMPANY RM’000 RM’000 RM’000 RM’000 RM’000
31 December 2018 NON-CURRENT ASSETS Investments at FVOCI – – – 25,749 25,749 Amount due from a subsidiary – – 49,080 – 49,080
CURRENT ASSETS Trade and other receivables – – 190,334 – 190,334 Amounts due from subsidiaries – – 522,981 – 522,981 Amounts due from related parties – – 2,903 – 2,903 Derivatives 18,536 2,324 – – 20,860 Bank balances, deposits and cash – – 65,693 – 65,693
Total financial assets 18,536 2,324 830,991 25,749 877,600
Financial Financial Financial liabilities at liabilities at guarantee amortised FVTPL contracts cost Total RM’000 RM’000 RM’000 RM’000
NON-CURRENT LIABILITIES Amount due to a subsidiary – – 504,707 504,707 Borrowings – – 4,292,526 4,292,526 Lease liabilities – – 7,478 7,478 Financial guarantee contracts – 139,939 – 139,939
CURRENT LIABILITIES Trade and other payables – 27,317 336,250 363,567 Borrowings – – 974,443 974,443 Lease liabilities – – 1,919 1,919 Amounts due to subsidiaries – – 1,000,313 1,000,313 Amounts due to related parties – – 36,826 36,826 Dividend payable – – 748,092 748,092 Derivatives 8,883 – – 8,883
Total financial liabilities 8,883 167,256 7,902,554 8,078,693 Annual Report 2019 P –G. 317 316
49. FINANCIAL INSTRUMENTS (CONTINUED)
(b) Income, expenses, gains and losses on financial instruments
Income, expenses, gains and losses on the financial instruments are as follows:
Derivatives used for Financial hedging assets at FVTPL
Forward Forward Commodities Financial Financial FINANCIAL STATEMENTS foreign foreign options and assets at liabilities at exchange exchange futures amortised amortised contracts contracts contracts cost cost Total GROUP RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
For the financial year ended 31 December 2019 Operating expenses – impairment of trade and other receivables – – – (9,310) – (9,310) – impairment of amounts due from joint ventures – – – (27,501) – (27,501) – impairment of advances for plasma plantation projects – – – (1,703) – (1,703) 7 – bad debts written off – – – (19) – (19) Other operating income – reversal of impairment of trade and other receivables – – – 18,309 – 18,309 – reversal of impairment of advances for plasma plantation projects – – – 2,130 – 2,130 Other gains and losses – net change in fair value (6,433) 1,250 (247,537) – – (252,720) Finance income – – – 12,975 – 12,975 Finance costs – – – – (281,127) (281,127)
(6,433) 1,250 (247,537) (5,119) (281,127) (538,966)
For the financial period ended 31 December 2018 Operating expenses – impairment of trade and other receivables – – – (5,768) – (5,768) – impairment of advances for plasma plantation projects – – – (3,440) – (3,440) – bad debts written off – – – (97) – (97) Other operating income – reversal of impairment of trade and other receivables – – – 7,498 – 7,498 – reversal of impairment of advances for plasma plantation projects – – – 315 – 315 Other gains and losses – net change in fair value (7,966) 8,838 3,268 – – 4,140 Finance income – – – 8,473 – 8,473 Finance costs – – – – (127,437) (127,437)
(7,966) 8,838 3,268 6,981 (127,437) (116,316) NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
49. FINANCIAL INSTRUMENTS (CONTINUED)
(b) Income, expenses, gains and losses on financial instruments (continued)
Income, expenses, gains and losses on the financial instruments are as follows: (continued)
Derivatives used for Financial hedging assets at FVTPL
Forward Forward Commodities Financial Financial foreign foreign options and assets at liabilities at exchange exchange futures amortised amortised contracts contracts contracts cost cost Total COMPANY RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
For the financial year ended 31 December 2019 Operating expenses – impairment of trade and other receivables – – – (1,475) – (1,475) – impairment of amounts due from subsidiaries – – – (18,267) – (18,267) – impairment of amounts due from joint ventures – – – (25,088) – (25,088) – bad debt written off – – – (19) – (19) Other operating income – reversal of impairment of amounts due from subsidiaries – – – 1,153 – 1,153 Other gains and losses – net change in fair value 1,211 – (158,284) – – (157,073) Finance income – – – 17,786 – 17,786 Finance costs – – – – (225,610) (225,610)
1,211 – (158,284) (25,910) (225,610) (408,593)
For the financial period ended 31 December 2018 Operating expenses – impairment of trade and other receivables – – – (311) – (311) – impairment of amounts due from subsidiaries – – – (11,795) – (11,795) – impairment of amounts due from joint ventures – – – (2,413) – (2,413) Other gains and losses – net change in fair value 267 1,112 (3,849) – – (2,470) Finance income – – – 8,934 – 8,934 Finance costs – – – – (100,269) (100,269)
267 1,112 (3,849) (5,585) (100,269) (108,324) Annual Report 2019 P –G. 319 318
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies
The Group’s activities expose it to a variety of financial risks, including foreign currency exchange risk, interest rate risk, credit risk, liquidity risk, cash flow risk and price risk. The Group’s financial risk management objective is to ensure that the Group creates value for its shareholders. Financial risk management is carried out through risk reviews, internal control systems, insurance programmes and adherence to the Group’s financial risk management policies. The Board regularly reviews these risks and approves the policies covering the management of these risks. The Group uses derivative financial instruments such as foreign exchange
contracts, forward commodities contracts and interest rate swaps to hedge certain exposures. FINANCIAL STATEMENTS
Whilst all derivatives entered into provide economic hedges to the Group, certain derivatives do not qualify for the application of hedge accounting under the specific rules in MFRS 9. Changes in the fair value of these derivatives are recognised in profit or loss, whilst changes in the fair value of those derivatives that qualify for cash flow hedge accounting are recognised in other comprehensive income.
(i) Foreign currency exchange risk
The Group and the Company are exposed to currency risk as a result of the foreign currency transactions entered into by the Group and the Company. The Group’s and the Company’s revenue were transacted in the following currencies:
Other than Functional functional Total 7 currency currency revenue GROUP RM’000 RM’000 RM’000
For the financial year ended 31 December 2019 Transacted currency Ringgit Malaysia 2,820,081 – 2,820,081 United States Dollar 3,942,324 517,069 4,459,393 Indonesian Rupiah 944,098 9,020 953,118 European Union Euro 1,223,439 24,561 1,248,000 Thailand Baht 1,070,205 – 1,070,205 South African Rand 536,251 – 536,251 United Kingdom Pound – 678,114 678,114 Papua New Guinea Kina – 297,104 297,104
10,536,398 1,525,868 12,062,266
NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued) (i) Foreign currency exchange risk (continued)
The Group and the Company are exposed to currency risk as a result of the foreign currency transactions entered into by the Group and the Company. The Group’s and the Company’s revenue were transacted in the following currencies: (continued)
Other than Functional functional Total currency currency revenue GROUP RM’000 RM’000 RM’000
For the financial period ended 31 December 2018 Transacted currency Ringgit Malaysia 1,435,087 – 1,435,087 United States Dollar 2,268,163 256,949 2,525,112 Indonesian Rupiah 425,498 4,402 429,900 European Union Euro 706,447 16,682 723,129 Singapore Dollar 759 8,572 9,331 Thailand Baht 535,229 – 535,229 Vietnamese Dong 77,965 – 77,965 South African Rand 282,025 – 282,025 United Kingdom Pound – 301,499 301,499 Papua New Guinea Kina – 199,044 199,044
5,731,173 787,148 6,518,321
Other than Functional functional Total currency currency revenue COMPANY RM’000 RM’000 RM’000
For the financial year ended 31 December 2019 Transacted currency Ringgit Malaysia 2,040,035 – 2,040,035 United States Dollar – 1,121,565 1,121,565 European Union Euro – 285 285
2,040,035 1,121,850 3,161,885
For the financial period ended 31 December 2018 Transacted currency Ringgit Malaysia 1,057,738 – 1,057,738 United States Dollar – 594,225 594,225 European Union Euro – 77 77
1,057,738 594,302 1,652,040 Annual Report 2019 P –G. 321 320
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(i) Foreign currency exchange risk (continued)
Where the transacted currencies differ from the Company’s and subsidiaries’ functional currency, the Group is exposed to currency translation risk. The risk also extends to purchases denominated in currency other than the subsidiaries’ functional currency.
Where possible, the Group will apply natural hedge by selling and purchasing in the same currency. FINANCIAL STATEMENTS Otherwise, the Group enters into forward foreign exchange contracts to limit its exposure on foreign currency receivables and payables, and on cash flows generated from anticipated transactions denominated in foreign currencies. These derivatives are normally contracted through centralised treasury in order to achieve the benefits of netting within the Group and to manage the cost of hedging effectively.
The Group’s policy on the extent of a foreign currency transaction or balance to be hedged is dependent on the duration to the settlement date. In terms of forecast transaction, exposure is hedged only if it is expected to be cost effective.
The Group does not hedge its cash, deposits and borrowings denominated in other than functional currency.
The Group is also exposed to currency translation risk arising from its net investments in foreign subsidiaries. The investments in foreign subsidiaries are not hedged due to the long-term nature of 7 those investments, except for the net investments in NBPOL group whereby the foreign currency borrowings related to the acquisition of the subsidiary of USD1,160.0 million (equivalent to RM4,764.1 million) (2018: USD1,271.3 million (equivalent to RM5,280.8 million)) are designated as a natural hedge against the net investment. The unrealised foreign currencies exchange gains of RM56.7 million (2018: unrealised foreign currencies exchange losses of RM145.9 million) in relation to the net investment hedge was adjusted to other comprehensive income. There was no ineffectiveness to be recorded from net investment in NBPOL group hedge. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(i) Foreign currency exchange risk (continued)
Currency profile of monetary financial assets and financial liabilities are as follows:
Denominated United European in functional States Dollar Union Euro Others currencies Total GROUP RM’000 RM’000 RM’000 RM’000 RM’000 31 December 2019 Investments at FVOCI – non-current – – – 30,469 30,469 Trade and other receivables (net) – non-current – – – 155,741 155,741 – current 192,965 503 165,505 1,226,427 1,585,400 Bank balances, deposits and cash 61,456 26,512 17,892 325,487 431,347 Amounts due from related parties – – – 2,158 2,158 Derivatives assets 6,377 101 – 70,259 76,737 Long-term borrowings (4,262,646) – – (992,738) (5,255,384) Short-term borrowings (1,802,993) – – (686,550) (2,489,543) Lease liabilities – – (125,444) (61,831) (187,275) Amounts due to related parties – – – (6,989) (6,989) Trade and other payables – non-current (64,778) – – (12,623) (77,401) – current (24,087) (2,913) (96,798) (1,231,669) (1,355,467) Derivatives liabilities (3,851) (171) – (238,891) (242,913)
(5,897,557) 24,032 (38,845) (1,420,750) (7,333,120)
31 December 2018 Investments at FVOCI – non-current – – – 29,294 29,294 Trade and other receivables (net) – non-current – – – 115,122 115,122 – current 181,475 2,336 84,146 1,316,524 1,584,481 Bank balances, deposits and cash 12,837 34,698 73,253 370,254 491,042 Amounts due from related parties – – – 2,171 2,171 Derivatives assets 21,720 220 – 36,724 58,664 Long-term borrowings (4,801,745) – – (690,830) (5,492,575) Short-term borrowings (1,062,507) – – (741,832) (1,804,339) Lease liabilities – – (116,611) (75,944) (192,555) Dividend payables – – – (748,092) (748,092) Amounts due to related parties – – – (61,020) (61,020) Trade and other payables – non-current – – – (63,447) (63,447) – current (34,778) (147) (396) (1,423,999) (1,459,320) Derivatives liabilities (2,417) (117) – (18,664) (21,198) (5,685,415) 36,990 40,392 (1,953,739) (7,561,772) Annual Report 2019 P –G. 32 322 3
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(i) Foreign currency exchange risk (continued)
Currency profile of monetary financial assets and financial liabilities are as follows: (continued)
United Denominated States European in functional
Dollar Union Euro Others currencies Total FINANCIAL STATEMENTS COMPANY RM’000 RM’000 RM’000 RM’000 RM’000
31 December 2019 Investments at FVOCI – non-current – – – 27,049 27,049 Trade and other receivables (net) 16,727 (14) 191 188,881 205,785 Bank balances, deposits and cash 9,965 410 – 75,028 85,403 Amounts due from related parties – – – 3,226 3,226 Amounts due from subsidiaries – non-current – – – 59,768 59,768 7 – current 16,743 199,682 28,142 291,758 536,325 Derivatives assets 1,841 – – 33,648 35,489 Long-term borrowings (3,551,838) – – (500,000) (4,051,838) Short-term borrowings (1,136,612) – – (611,000) (1,747,612) Lease liabilities – – – (8,294) (8,294) Amounts due to related parties – – – (6,027) (6,027) Amounts due to subsidiaries – non-current (503,112) – – – (503,112) – current (31,832) (18,231) (51,899) (893,020) (994,982) Trade and other payables – non-current (3,114) (50,693) (4,239) (25) (58,071) – current (17,725) (5,609) (1,035) (362,764) (387,133) Derivatives liabilities (33) (3) – (134,161) (134,197)
(5,198,990) 125,542 (28,840) (1,835,933) (6,938,221) NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(i) Foreign currency exchange risk (continued)
Currency profile of monetary financial assets and financial liabilities are as follows: (continued)
United Denominated States European in functional Dollar Union Euro Others currencies Total COMPANY RM’000 RM’000 RM’000 RM’000 RM’000
31 December 2018 Investments at FVOCI – non-current – – – 25,749 25,749 Trade and other receivables (net) 43,918 – 40,549 105,867 190,334 Bank balances, deposits and cash 20,447 86 – 45,160 65,693 Amounts due from related parties – – – 2,903 2,903 Amounts due from subsidiaries – non-current – – – 49,080 49,080 – current 1,253 157,347 14,408 349,973 522,981 Derivatives assets 18,536 – – 2,324 20,860 Long-term borrowings (4,292,526) – – – (4,292,526) Short-term borrowings (524,443) – – (450,000) (974,443) Lease liabilities – – – (9,397) (9,397) Amounts due to related parties – – – (36,826) (36,826) Amounts due to subsidiaries – non-current (504,707) – – – (504,707) – current (27,961) – (66,781) (905,571) (1,000,313) Dividend payables – – – (748,092) (748,092) Trade and other payables – non-current (75,524) (58,262) (6,081) (72) (139,939) – current (19,703) (5,113) (28,992) (309,759) (363,567) Derivatives liabilities (1) – – (8,882) (8,883)
(5,360,711) 94,058 (46,897) (1,887,543) (7,203,093) Annual Report 2019 P –G. 325 324
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(i) Foreign currency exchange risk (continued)
The following table illustrates the effects of changes in exchange rate on the translation of foreign currency monetary items against the functional currency at 31 December 2019 and 31 December 2018, both before and after taking into account the hedge instruments. If the major currencies strengthened by the following percentage at the end of the reporting year/period, the Group’s and the Company’s profit after tax will improve/(decline) by: FINANCIAL STATEMENTS
Impact on profit after tax Net Strengthened monetary Before After against item Hedged hedge hedge Major currency RM by RM’000 RM’000 RM’000 RM’000
GROUP 31 December 2019 United States Dollar – Assets 5% 260,798 215,879 13,040 2,246 – Liabilities 5% (6,158,355) (108,721) (307,918) (302,482) European Union Euro – Assets 4% 27,116 – 1,085 1,085 7 – Liabilities 4% (3,084) – (123) (123)
31 December 2018 United States Dollar – Assets 3% 216,032 322,704 6,481 (3,200) – Liabilities 3% (5,901,447) (20,899) (177,043) (176,416) European Union Euro – Assets 1% 37,254 9,765 373 275 – Liabilities 1% (264) – (3) (3)
COMPANY 31 December 2019 United States Dollar – Assets 5% 45,276 – 2,264 2,264 – Liabilities 5% (5,244,266) (171,724) (262,213) (253,627) European Union Euro – Assets 4% 200,078 – 8,003 8,003 – Liabilities 4% (74,536) – (2,981) (2,981)
31 December 2018 United States Dollar – Assets 3% 84,154 261 2,525 2,517 – Liabilities 3% (5,444,865) – (163,346) (163,346) European Union Euro – Assets 1% 157,432 – 1,574 1,574 – Liabilities 1% (63,375) – (634) (634)
NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
49. FINANCIAL INSTRUMENTS (CONTINUED) (c) Financial risk management objectives and policies (continued) (i) Foreign currency exchange risk (continued) Net monetary items balances are higher than hedged as the Group and the Company do not hedge its foreign currency denominated bank balances, deposits and cash and amount due from subsidiaries.
A similar percentage decrease in the exchange rate would have an equal but opposite effect. Changes in exchange rate will also result in changes to the fair value of forward foreign exchange contracts used to hedge forecast transactions. No sensitivity is performed as the Group’s exposure in those contracts is limited.
The table below illustrates the effects of changes in exchange rate on the translation of foreign operations’ profit or loss on the Group’s profit after tax. If the currency of the foreign operations strengthened by the following percentage during the financial year/period, the Group’s profit after tax and equity will improve/(decline) by:
Impact on Profit/(loss) Strengthened profit after tax against after tax Currency of foreign operations RM’000 RM by RM’000
GROUP For the financial year ended 31 December 2019 Indonesian Rupiah 285,235 9% 25,671 United States Dollar (161,410) 5% (8,071)
For the financial period ended 31 December 2018 Indonesian Rupiah 54,222 2% 1,084 United States Dollar 62,252 3% 1,868
A similar percentage decrease in the exchange rate would have an equal but opposite effect.
(ii) Interest rate risk The Group’s and the Company’s income and operating cash flows are substantially independent of changes in market interest rates. Interest rate exposure which arises from certain of the Group’s and the Company’s borrowings is managed through the use of floating debt and derivative financial instruments. Derivative financial instruments are used, where appropriate, to generate the desired interest rate profile.
The percentages of fixed rate borrowings, both before and after taking into account the interest rate swap contracts, to the total of borrowings at the end of the financial year/period are as follows:
GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
Total of borrowings 7,744,927 7,296,914 5,799,450 5,266,969
Fixed rate borrowings 962,850 984,274 – – Floating rate borrowings (swapped to fixed) 797,785 1,130,407 797,785 1,130,407
Total fixed rate after swaps 1,760,635 2,114,681 797,785 1,130,407 Annual Report 2019 P –G. 327 326
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(ii) Interest rate risk (continued)
Percentage of fixed rate borrowings over total of borrowings.
GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018
% % % % FINANCIAL STATEMENTS
– before swaps 12 13 – – – after swaps 23 29 14 21
As at 31 December 2019, all of the Group’s and the Company’s floating rate borrowings (after interest swap contracts) stood at RM5,984.3 million (2018: RM5,182.2 million) and RM5,001.7 million (2018: RM4,136.6 million) respectively. The following tables demonstrate the effects of changes in interest rate on floating rate borrowings. If the interest rate increased by 0.5% (2018: 0.5%), the Group’s and the Company’s profit or loss after tax will be lower/higher by:
GROUP COMPANY
Financial Financial Financial Financial year ended period ended year ended period ended 7 31.12.2019 31.12.2018 31.12.2019 31.12.2018 RM’000 RM’000 RM’000 RM’000
Profit or loss after tax 22,740 9,846 19,006 7,859
A 0.5% (2018: 0.5%) decrease in interest rate would have an equal but opposite effect.
The following table demonstrates the effect of changes in interest rate on the fair value of the interest rate swap contracts which are designated as cash flow hedge. If the interest rate increased by 0.5% (2018: 0.5%), the Group’s and the Company’s hedging reserve will be higher by:
GROUP/COMPANY
31.12.2019 31.12.2018 RM’000 RM’000
Hedging reserve 5,945 11,115
A 0.5% (2018: 0.5%) decrease in interest rate would have an equal but opposite effect. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(iii) Credit risk
Credit risk arises on sales made on credit terms, derivatives with positive fair value and deposits with banks.
A) Risk management
The Group and the Company seek to control credit risk by dealing with customers and joint venture partners of appropriate credit history and transact and deposit with bank and financial institution with good credit ratings. Third party agencies’ ratings are considered, if available. In addition, the customers’ most recent financial statements, payment history and other relevant information are considered in the determination of credit risk. Customers are assessed at least annually and more frequently when information on significant changes in the customers’ financial position becomes known. Credit terms and limit are set based on the assessment. Where appropriate, guarantees or securities are obtained to limit credit risk. Sales to customers are usually suspended when earlier amounts are overdue exceeding 180 days.
B) Collateral
The Group and the Company receive collateral at the end of the reporting period, summarised as follows:
GROUP COMPANY
Collateral Collateral Maximum and credit Maximum and credit exposure enhancement exposure enhancement RM’000 RM’000 RM’000 RM’000
31 December 2019 Trade and other receivables (net) – non-current 155,741 – – – – current 1,585,400 501,010 205,785 1,535 Amounts due from subsidiaries – – 596,093 – Amounts due from related parties 2,158 – 3,226 – Derivatives 76,737 – 35,489 – Bank balances, deposits and cash 431,347 – 85,403 – Guarantees in respect of credit facilities granted to: – a joint venture 5,717 – 5,717 – – subsidiaries – – 874,730 – – plasma stakeholders 46,846 – – –
2,303,946 501,010 1,806,443 1,535 Annual Report 2019 P –G. 329 328
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(iii) Credit risk (continued)
B) Collateral (continued)
The Group and the Company receive collateral at the end of the reporting period, summarised as follows: (continued)
GROUP COMPANY FINANCIAL STATEMENTS
Collateral Collateral Maximum and credit Maximum and credit exposure enhancement exposure enhancement RM’000 RM’000 RM’000 RM’000
31 December 2018 Trade and other receivables (net) – non-current 115,122 – – – – current 1,584,481 507,115 190,334 2,209 Amounts due from subsidiaries – – 572,061 – Amounts due from related parties 2,171 – 2,904 – 7 Derivatives 58,664 – 20,860 – Bank balances, deposits and cash 491,042 – 65,693 – Guarantees in respect of credit facilities granted to: – a joint venture 6,443 – 6,443 – – subsidiaries – – 1,167,211 – – plasma stakeholders 45,165 – – –
2,303,088 507,115 2,025,506 2,209
C) Impairment of financial assets and financial guarantee contracts The Group and the Company assess on a forward looking basis the expected credit loss (“ECL”) associated with its debt instruments carried at amortised cost and financial guarantee contracts issued. The impairment methodology applied depends on whether there has been a significant increase in credit risk. The Group and the Company have six types of financial instruments that are subject to the ECL model:
Measurement of ECL – simplified approach
• Trade receivables • Intercompany receivables (trade) – inclusive of amounts due from associates, joint ventures, subsidiaries and related parties
Measurement of ECL – general 3-stage approach
• Intercompany receivables (non-trade) – inclusive of amounts due from subsidiaries • Advances for plasma plantation projects • Financial guarantee contracts issued • Other receivables
While cash and cash equivalents are also subject to the impairment requirements of MFRS 9, the identified impairment loss was immaterial. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(iii) Credit risk (continued)
C) Impairment of financial assets and financial guarantee contracts (continued)
Reconciliation of loss allowance for trade and other receivables, intercompany receivables (trade), intercompany receivables (non-trade) and advances from plasma plantation projects.
Amounts Advances Amount due from for plasma Trade due from joint plantation Other receivables associates ventures projects receivables Total GROUP Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
31 December 2019 At 1 January 2019 33,099 618 16,723 23,466 3,459 77,365 Charge for the financial year 6(e) 9,308 – 27,501 1,703 2 38,514 Reversal for the financial year 7 (17,930) – – (2,130) (379) (20,439) Exchange differences 171 – – 799 (1) 969
At 31 December 2019 24,648 618 44,224 23,838 3,081 96,409
31 December 2018 At 1 July 2018 35,577 618 15,817 20,315 2,821 75,148 Charge for the financial period 6(e) 2,842 – – 3,440 2,926 9,208 Write offs 97 – – – – 97 Write backs – – – – (698) (698) Reversal for the financial period 7 (5,904) – – (315) (1,594) (7,813) Exchange differences 487 – 906 26 4 1,423
At 31 December 2018 33,099 618 16,723 23,466 3,459 77,365 Annual Report 2019 P –G. 331 330
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(iii) Credit risk (continued)
C) Impairment of financial assets and financial guarantee contracts (continued)
Reconciliation of loss allowance for trade and other receivables, intercompany receivables (trade), intercompany receivables (non-trade) and advances from plasma plantation projects. (continued)
Amount Amount FINANCIAL STATEMENTS Amounts due from due from Trade due from joint subsidiaries Other receivables associates ventures (non-trade) receivables Total Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
COMPANY 31 December 2019 At 1 January 2019 3,846 618 14,913 303,515 4,417 327,309 Charge for the financial year 6(e) 63 – 25,088 18,267 1,412 44,830 Write offs (3,143) – – – (3,137) (6,280) Reversal for the financial year 7 – – – (1,153) – (1,153) 7 At 31 December 2019 766 618 40,001 320,629 2,692 364,706
31 December 2018 At 1 July 2018 3,545 618 12,500 291,720 4,407 312,790 Charge for the financial period 6(e) 301 – 2,413 11,795 10 14,519
At 31 December 2018 3,846 618 14,913 303,515 4,417 327,309 NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(iii) Credit risk (continued)
C) Impairment of financial assets and financial guarantee contracts (continued)
A summary of the assumptions underpinning the Group’s and the Company’s ECL are as follows:
• Trade receivables using simplified approach The ECL rates are based on 5-year historical credit losses experienced by the Group and the Company. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. However, based on the Group’s and the Company’s assessment, the ability to collect has minimal correlation with macroeconomic factors as these are consumers products. No significant changes to estimation techniques or assumptions were made during the reporting year/period.
The following table contains an analysis of the credit risk exposure of trade receivables for which a loss allowance is recognised using simplified approach. The gross carrying amount of trade receivables below also represents the Group’s and the Company’s maximum exposure to credit risk on these assets:
Carrying Expected amount Gross credit loss Loss (net of loss receivables rate allowances allowance) GROUP RM’000 % RM’000 RM’000
31 December 2019 Upstream Local customers: Current 82,353 0.0% – 82,353 Past due by: – 1 to 30 days 16,449 12.6% (2,075) 14,374 – 31 to 60 days 8,795 6.9% (605) 8,190 – 61 to 90 days 1,293 0.0% – 1,293 – 91 to 180 days 283 0.0% – 283 – 181 to 360 days 16 0.0% – 16 – more than 360 days 2,663 100.0% (2,663) –
111,852 (5,343) 106,509
Export customers: Current 576 0.0% – 576 Past due by: – 1 to 30 days 13,519 0.0% – 13,519
14,095 – 14,095 Annual Report 2019 PG. 332 – 333
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(iii) Credit risk (continued)
C) Impairment of financial assets and financial guarantee contracts (continued)
• Trade receivables using simplified approach (continued) The following table contains an analysis of the credit risk exposure of trade receivables for which a loss allowance is recognised using simplified approach. The gross carrying amount of FINANCIAL STATEMENTS trade receivables below also represents the Group’s and the Company’s maximum exposure to credit risk on these assets: (continued)
Carrying Expected amount Gross credit loss Loss (net of loss receivables rate allowances allowance) GROUP RM’000 % RM’000 RM’000
31 December 2019 (continued) Downstream Local customers: Current 316,214 0.0% – 316,214 7 Past due by: – 1 to 30 days 154,552 0.0% (7) 154,545 – 31 to 60 days 41,082 0.0% – 41,082 – 61 to 90 days 1,930 0.0% – 1,930 – 91 to 180 days 177 35.0% (62) 115 – 181 to 360 days 11,355 82.7% (9,391) 1,964 – more than 360 days 2,873 100.0% (2,873) –
528,183 (12,333) 515,850
Export customers: Current 503,542 0.0% – 503,542 Past due by: – 1 to 30 days 72,715 0.0% (20) 72,695 – 31 to 60 days 14,061 0.0% – 14,061 – 61 to 90 days 2,990 19.0% (569) 2,421 – 91 to 180 days 1,739 0.7% (12) 1,727 – 181 to 360 days 4,670 40.8% (1,906) 2,764 – more than 360 days 4,355 100.0% (4,355) –
604,072 (6,862) 597,210
NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(iii) Credit risk (continued)
C) Impairment of financial assets and financial guarantee contracts (continued)
• Trade receivables using simplified approach (continued) The following table contains an analysis of the credit risk exposure of trade receivables for which a loss allowance is recognised using simplified approach. The gross carrying amount of trade receivables below also represents the Group’s and the Company’s maximum exposure to credit risk on these assets: (continued)
Carrying Expected amount Gross credit loss Loss (net of loss receivables rate allowances allowance) GROUP RM’000 % RM’000 RM’000
31 December 2019 (continued) Other Operations Local customers: Current 273 0.0% – 273 Past due by: – 1 to 30 days 313 0.0% – 313 – 31 to 60 days 14 0.0% – 14 – 61 to 90 days 2 0.0% – 2 – 91 to 180 days 106 0.0% – 106 – 181 to 360 days 35 0.0% – 35 – more than 360 days 217 0.0% – 217
960 – 960
Export customers: Current 3,850 0.0% – 3,850 Past due by: – 1 to 30 days 1,152 0.0% – 1,152 – 31 to 60 days 180 0.0% – 180 – 61 to 90 days 30 100.0% (30) – – 91 to 180 days – 0.0% – – – 181 to 360 days 39 100.0% (39) – – more than 360 days 41 100.0% (41) –
5,292 (110) 5,182 Annual Report 2019 P –G. 335 334
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(iii) Credit risk (continued)
C) Impairment of financial assets and financial guarantee contracts (continued)
• Trade receivables using simplified approach (continued) The following table contains an analysis of the credit risk exposure of trade receivables for which a loss allowance is recognised using simplified approach. The gross carrying amount of FINANCIAL STATEMENTS trade receivables below also represents the Group’s and the Company’s maximum exposure to credit risk on these assets: (continued)
Carrying Expected amount Gross credit loss Loss (net of loss receivables rate allowances allowance) GROUP RM’000 % RM’000 RM’000
31 December 2018 Upstream Local customers: Current 165,676 0.0% – 165,676 Past due by: 7 – 1 to 30 days 57,362 0.0% (4) 57,358 – 31 to 60 days 5,511 2.2% (123) 5,388 – 61 to 90 days 826 2.4% (20) 806 – 91 to 180 days 37 0.0% – 37 – 181 to 360 days 23 0.0% – 23 – more than 360 days 3,935 100.0% (3,935) –
233,370 (4,082) 229,288
Export customers: Current 161,320 0.0% – 161,320 Past due by: – 1 to 30 days 870 0.0% – 870
162,190 – 162,190 NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(iii) Credit risk (continued)
C) Impairment of financial assets and financial guarantee contracts (continued)
• Trade receivables using simplified approach (continued) The following table contains an analysis of the credit risk exposure of trade receivables for which a loss allowance is recognised using simplified approach. The gross carrying amount of trade receivables below also represents the Group’s and the Company’s maximum exposure to credit risk on these assets: (continued)
Carrying Expected amount Gross credit loss Loss (net of loss receivables rate allowances allowance) GROUP RM’000 % RM’000 RM’000
31 December 2018 (continued) Downstream Local customers: Current 289,531 0.0% – 289,531 Past due by: – 1 to 30 days 194,029 0.1% (164) 193,865 – 31 to 60 days 52,227 0.0% – 52,227 – 61 to 90 days 11,272 1.3% (148) 11,124 – 91 to 180 days 8,256 9.2% (758) 7,498 – 181 to 360 days 1,561 69.0% (1,077) 484 – more than 360 days 8,782 97.7% (8,580) 202
565,658 (10,727) 554,931
Export customers: Current 323,647 0.0% – 323,647 Past due by: – 1 to 30 days 51,560 0.0% – 51,560 – 31 to 60 days 12,979 0.0% – 12,979 – 61 to 90 days 5,300 0.0% – 5,300 – 91 to 180 days 2,197 0.0% – 2,197 – 181 to 360 days 2,602 0.0% – 2,602 – more than 360 days 66,422 100.0% (18,211) 48,211*
464,707 (18,211) 446,496
* The RM48.2 million relates to amounts due from Golden Hope-Nha Be Edible Oils Ltd. which was secured by a corporate guarantee as described in Note 33(d)(ii). Annual Report 2019 P –G. 337 336
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(iii) Credit risk (continued)
C) Impairment of financial assets and financial guarantee contracts (continued)
• Trade receivables using simplified approach (continued)
Carrying
Expected amount FINANCIAL STATEMENTS Gross credit loss Loss (net of loss receivables rate allowances allowance) GROUP RM’000 % RM’000 RM’000
31 December 2018 (continued) Other Operations Local customers: Current – 0.0% – – Past due by: – 1 to 30 days 1,737 0.0% – 1,737 – 31 to 60 days 1,398 0.0% – 1,398 – 61 to 90 days 1,341 0.0% – 1,341 7 – 91 to 180 days 644 0.2% (1) 643 – 181 to 360 days 135 0.7% (1) 134 – more than 360 days 226 33.6% (76) 150
5,481 (78) 5,403
Export customers: Current – 0.0% – – Past due by: – 1 to 30 days 457 0.0% – 457 – 31 to 60 days 28 0.0% – 28
485 – 485
NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(iii) Credit risk (continued)
C) Impairment of financial assets and financial guarantee contracts (continued)
• Trade receivables using simplified approach (continued) The following table contains an analysis of the credit risk exposure of trade receivables for which a loss allowance is recognised using simplified approach. The gross carrying amount of trade receivables below also represents the Group’s and the Company’s maximum exposure to credit risk on these assets: (continued)
Carrying Expected amount Gross credit loss Loss (net of loss receivables rate allowances allowance) COMPANY RM’000 % RM’000 RM’000
31 December 2019 Upstream Local customers: Current 29,888 0.0% – 29,888 Past due by: – 1 to 30 days 2,075 0.0% – 2,075 – 31 to 60 days 579 0.0% – 579 – 61 to 90 days – 0.0% – – – 91 to 180 days 59 0.0% – 59 – 181 to 360 days 11 0.0% – 11 – more than 360 days 389 100.0% (336) 53
33,001 (336) 32,665
Export customers: Current – 0.0% – – Past due by: – 1 to 30 days 1,042 0.0% – 1,042
1,042 – 1,042 Annual Report 2019 P –G. 339 338
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(iii) Credit risk (continued)
C) Impairment of financial assets and financial guarantee contracts (continued)
• Trade receivables using simplified approach (continued) The following table contains an analysis of the credit risk exposure of trade receivables for which a loss allowance is recognised using simplified approach. The gross carrying amount of FINANCIAL STATEMENTS trade receivables below also represents the Group’s and the Company’s maximum exposure to credit risk on these assets: (continued)
Carrying Expected amount Gross credit loss Loss (net of loss receivables rate allowances allowance) COMPANY RM’000 % RM’000 RM’000
31 December 2019 (continued) Downstream Local customers: 7 Current 69,333 0.0% – 69,333 Past due by: – 1 to 30 days 61,696 0.0% – 61,696 – 31 to 60 days 5,051 0.0% – 5,051 – 61 to 90 days 16 0.0% – 16 – 91 to 180 days – 0.0% – – – 181 to 360 days – 0.0% – – – more than 360 days 430 100.0% (430) –
136,526 (430) 136,096
Export customers: Current 8,773 0.0% – 8,773 Past due by: – 1 to 30 days 526 0.0% – 526 – 31 to 60 days 1,393 0.0% – 1,393
10,692 – 10,692
NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(iii) Credit risk (continued)
C) Impairment of financial assets and financial guarantee contracts (continued)
• Trade receivables using simplified approach (continued) The following table contains an analysis of the credit risk exposure of trade receivables for which a loss allowance is recognised using simplified approach. The gross carrying amount of trade receivables below also represents the Group’s and the Company’s maximum exposure to credit risk on these assets: (continued)
Carrying Expected amount Gross credit loss Loss (net of loss receivables rate allowances allowance) COMPANY RM’000 % RM’000 RM’000
31 December 2018 Upstream Local customers: Current 763 0.0% – 763 Past due by: – 1 to 30 days 8,354 0.0% – 8,354 – 31 to 60 days 176 0.0% – 176 – 61 to 90 days 31 0.0% – 31 – 91 to 180 days 37 0.0% – 37 – 181 to 360 days 15 0.0% – 15 – more than 360 days 793 100.0% (793) –
10,169 (793) 9,376
Export customers: Current – 0.0% – – Past due by: – 1 to 30 days 860 0.0% – 860
860 – 860 Annual Report 2019 P –G. 341 340
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(iii) Credit risk (continued)
C) Impairment of financial assets and financial guarantee contracts (continued)
• Trade receivables using simplified approach (continued) The following table contains an analysis of the credit risk exposure of trade receivables for which a loss allowance is recognised using simplified approach. The gross carrying amount of FINANCIAL STATEMENTS trade receivables below also represents the Group’s and the Company’s maximum exposure to credit risk on these assets: (continued)
Carrying Expected amount Gross credit loss Loss (net of loss receivables rate allowances allowance) COMPANY RM’000 % RM’000 RM’000
31 December 2018 (continued) Downstream Local customers: Current 65,266 0.0% – 65,266 7 Past due by: – 1 to 30 days 45,204 0.0% – 45,204 – 31 to 60 days 2,883 0.0% – 2,883 – 61 to 90 days 408 0.0% – 408 – 91 to 180 days 62 0.0% – 62 – 181 to 360 days 96 0.0% – 96 – more than 360 days 367 100.0% (367) –
114,286 (367) 113,919
Export customers: Current 11,854 0.0% – 11,854 Past due by: – 1 to 30 days 3,544 0.0% – 3,544 – 31 to 60 days 222 0.0% – 222 – more than 360 days 2,686 100.0% (2,686) –
18,306 (2,686) 15,620 NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(iii) Credit risk (continued)
C) Impairment of financial assets and financial guarantee contracts (continued)
• Intercompany receivables (trade) – inclusive of amounts due from associates, joint ventures, subsidiaries and related parties using simplified approach
Intercompany receivables (trade) represent amounts outstanding arising from sales of goods. In arriving at loss allowance, the same assumptions as trade receivables have been applied. As a result, management is of the view that adequate loss allowance has been recognised as at the date of reporting.
• Intercompany receivables (non-trade) - inclusive of amounts due from subsidiaries using general 3-stage approach
The Company provides unsecured advances to subsidiaries and where necessary makes payments for expenses on behalf of its subsidiaries. The Company monitors the performance of the subsidiaries regularly.
Management has assessed the loss allowance for amount due from subsidiaries individually taking into consideration of the financial position and the plans in place for the respective subsidiaries. As at this reporting date, management is of the view that adequate loss allowance has been recognised.
• Advances for plasma plantation projects using general 3-stage approach In Indonesia, oil palm plantation owners/operators are required to participate in selected programs to develop plantations for smallholders (herein referred to as “plasma farmers”). The Group is involved in “Perusahaan Inti Rakyat Transmigrasi” and “Kredit Koperasi Primer untuk Anggotanya” which require the Group to serve as a contractor for developing the plantations, train and develop the skills of the plasma farmers, and purchase the fresh fruit bunches harvested by plasma farmers at prevailing prices determined by the Indonesian Government.
The advances made by the Group in the form of plasma plantation development costs are recoverable from the plasma farmers upon the completion of the plasma plantation projects, either from the plasma farmers directly, through the assignment to plasma farmers of the loans obtained for the projects or netted-off with the FFB purchased from the plasma farmers. Impairment losses are made when the estimated recoverable amounts are less than the outstanding advances.
• Financial guarantee contracts using general 3-stage approach The Group is exposed to credit risk arising from financial guarantee contracts given to banks for joint ventures’ and plasma stakeholders’ borrowings where the maximum credit risk exposure is the amount of borrowings utilised by the joint ventures or plasma stakeholders. Management has reviewed the financial position of the joint ventures and plasma stakeholders as at the reporting date and was of the view that the financial guarantee contracts are unlikely to be called by the lenders.
The Company is exposed to credit risk arising from financial guarantee contracts given to banks for joint ventures’ and subsidiaries’ borrowings where the maximum credit risk exposure is the amount of borrowings utilised by the joint ventures and subsidiaries. Historically, the Group has not defaulted in any borrowings and with the stringent monitoring over the treasury process, management is of the view that the financial guarantee contracts are unlikely to be called by the joint ventures’ and subsidiaries’ lenders. Annual Report 2019 P –G. 343 342
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(iii) Credit risk (continued)
C) Impairment of financial assets and financial guarantee contracts (continued)
• Other receivables using general 3-stage approach The Group’s and the Company’s other receivables are amounting to RM290.2 million and RM15.9 million (2018: RM118.9 million and RM15.6 million) respectively. Management has assessed the FINANCIAL STATEMENTS other receivables comprises mainly of amounts due from brokers, arising from the Group’s trading operations individually and determined that the majority of the other receivables were fully recoverable and adequate loss allowance has been recognised.
(iv) Liquidity and cash flow risks
Liquidity and cash flow risks are the risks that the Group or the Company will encounter difficulty in meeting financial obligations due to shortage of funds. The Group’s and the Company’s exposure to these risks arise primarily from the mismatch of maturities of financial assets and liabilities. To mitigate these risks to an acceptable level, the Group maintains sufficient cash and marketable securities, and the availability of funding through an adequate amount of committed credit facilities.
The Group maintains centralised treasury functions where all strategic funding requirements are managed. 7
The undiscounted contractual cash flows of the Group’s and the Company’s financial liabilities are as follows:
On demand Between Between Total Total or within 1 and 2 2 and 5 Above 5 contractual carrying 1 year years years years cash flows amount GROUP RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
31 December 2019 Trade and other payables 1,311,315 – – 76,774 1,388,089 1,388,089 Borrowings – principal 2,489,543 790,651 3,495,236 969,497 7,744,927 7,744,927 – interest 89,230 84,480 195,653 103,049 472,412 43,542 Amounts due to related parties 6,989 – – – 6,989 6,989 Lease liabilities 32,839 39,654 64,592 122,951 260,036 187,275 Derivatives – gross settled 589,671 – – – 589,671 4,021
4,519,587 914,785 3,755,481 1,272,271 10,462,124 9,374,843
NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(iv) Liquidity and cash flow risks (continued)
The undiscounted contractual cash flows of the Group’s and the Company’s financial liabilities are as follows: (continued)
On demand Between Between Total Total or within 1 and 2 2 and 5 Above 5 contractual carrying 1 year years years years cash flows amount GROUP RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
31 December 2018 Trade and other payables 1,413,162 – – 62,664 1,475,826 1,475,826 Borrowings – principal 1,804,339 3,664,114 1,307,517 520,944 7,296,914 7,296,914 – interest – 16,589 45,085 97,457 159,131 45,470 Dividend payable 748,092 – – – 748,092 748,092 Amounts due to related parties 61,020 – – – 61,020 61,020 Lease liabilities 34,939 38,539 52,476 172,352 298,306 192,555 Derivatives – gross settled 877,694 – – – 877,694 4,102
4,939,246 3,719,242 1,405,078 853,417 10,916,983 9,823,979 Annual Report 2019 P –G. 345 344
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(iv) Liquidity and cash flow risks (continued)
The undiscounted contractual cash flows of the Group’s and the Company’s financial liabilities are as follows: (continued)
On demand Between Between Total Total or within 1 and 2 2 and 5 Above 5 contractual carrying FINANCIAL STATEMENTS 1 year years years years cash flows amount COMPANY RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
31 December 2019 Trade and other payables 362,788 – – – 362,788 362,788 Borrowings – principal 1,747,612 705,781 3,346,057 – 5,799,450 5,799,450 – interest 48,338 43,065 102,054 – 193,457 17,023 Intra-group payables 994,982 – 503,112 – 1,498,094 1,498,094 Lease liabilities 1,438 991 2,565 6,454 11,448 8,294 Derivatives – gross settled 171,724 – – – 171,724 36
3,326,882 749,837 3,953,788 6,454 8,036,961 7,685,685 7
31 December 2018 Trade and other payables 313,656 – – – 313,656 313,656 Borrowings – principal 974,443 3,610,588 681,938 – 5,266,969 5,266,969 – interest 168,483 86,993 15,516 – 270,992 22,594 Intra-group payables 1,000,313 – – 504,707 1,505,020 1,505,020 Lease liabilities 2,491 1,247 2,565 7,553 13,856 9,397 Dividend payable 748,092 – – – 748,092 748,092 Derivatives – gross settled 261 – – – 261 1
3,207,739 3,698,828 700,019 512,260 8,118,846 7,865,729
As at 31 December 2019, the Group’s and the Company’s maximum potential liabilities under financial guarantee contracts amounted to RM52.6 million and RM880.4 million respectively (2018: RM51.6 million and RM1,173.7 million respectively). Financial guarantee contracts are assumed to be immediately payable on demand.
NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
49. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Financial risk management objectives and policies (continued)
(v) Price risk
The Group and the Company are largely exposed to commodity price risk due to fluctuations in crude palm oil and other palm products futures prices.
The Group and the Company enter into commodities options and futures contracts to minimise exposure to adverse movements in crude palm oil and other palm products prices. Certain contracts are entered into and continue to be held for the purpose of the receipt or delivery of the physical commodity in accordance with the Group’s and the Company’s expected purchase, sale or usage requirements. Contracts that are not held for the purpose of physical delivery are accounted for as derivatives and are disclosed in Note 31(b).
Average contract Maturity price per period Tonnage tonne Months Tonnes RM
GROUP – 31 December 2019 Sale contracts Less than 12 426,501 2,868 Purchase contracts Less than 12 134,285 2,559
GROUP – 31 December 2018 Sale contracts Less than 12 129,516 2,992 Purchase contracts Less than 12 103,834 2,466
COMPANY – 31 December 2019 Sale contracts Less than 12 384,725 1,200 Purchase contracts Less than 12 89,400 2,578
COMPANY – 31 December 2018 Sale contracts Less than 12 750 1,862 Purchase contracts Less than 12 64,100 2,232
Annual Report 2019 P –G. 347 346
49. FINANCIAL INSTRUMENTS (CONTINUED)
(d) Financial instruments measured at fair value
In estimating the financial instruments carried at fair value, there are, in general, three different levels which can be defined as follows:
(i) Level 1 – Quoted prices in active markets for identical assets or liabilities; (ii) Level 2 – Valuation inputs (other than level 1 input) that are observable for the asset or liability, either directly or indirectly; and (iii) Level 3 – Valuation inputs that are not based on observable market data. FINANCIAL STATEMENTS
The following table presents the Group’s and the Company’s financial assets and liabilities that are measured at fair value at the end of the reporting date based on the three different levels as defined above:
Level 1 Level 2 Level 3 Total GROUP RM’000 RM’000 RM’000 RM’000
31 December 2019 Financial assets Investments at FVOCI – 3,396 27,073 30,469 Derivatives – commodities options and futures contracts 70,260 – – 70,260 – forward foreign exchange contracts – 6,245 – 6,245 7 – interest rate swap contracts – 232 – 232
70,260 9,873 27,073 107,206
Financial liabilities Derivatives – commodities futures contracts (238,892) – – (238,892) – forward foreign exchange contracts – (4,021) – (4,021)
(238,892) (4,021) – (242,913)
31 December 2018 Financial assets Investments at FVOCI – 3,545 25,749 29,294 Derivatives – commodities futures contracts 31,851 – – 31,851 – forward foreign exchange contracts – 8,277 – 8,277 – interest rate swap contracts – 18,536 – 18,536
31,851 30,358 25,749 87,958
Financial liabilities Derivatives – commodities futures contracts (17,096) – – (17,096) – forward foreign exchange contracts – (4,102) – (4,102)
(17,096) (4,102) – (21,198) NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
49. FINANCIAL INSTRUMENTS (CONTINUED)
(d) Financial instruments measured at fair value (continued)
The following table presents the Group’s and the Company’s financial assets and liabilities that are measured at fair value at the end of the reporting date based on the three different levels as defined above: (continued)
Level 1 Level 2 Level 3 Total COMPANY RM’000 RM’000 RM’000 RM’000
31 December 2019 Financial assets Investments at FVOCI – – 27,049 27,049 Derivatives – commodities options and futures contracts 33,648 – – 33,648 – forward foreign exchange contracts – 1,609 – 1,609 – interest rate swap contracts – 232 – 232
33,648 1,841 27,049 62,538
Financial liabilities Derivatives – commodities options and futures contracts (134,161) – – (134,161) – forward foreign exchange contracts – (36) – (36)
(134,161) (36) – (134,197)
31 December 2018 Financial assets Investments at FVOCI – – 25,749 25,749 Derivatives – commodities options and futures contracts 2,324 – – 2,324 – interest rate swap contracts – 18,536 – 18,536
2,324 18,536 25,749 46,609
Financial liabilities Derivatives – commodities options and futures contracts (8,882) – – (8,882) – forward foreign exchange contracts – (1) – (1)
(8,882) (1) – (8,883) Annual Report 2019 P –G. 349 348
49. FINANCIAL INSTRUMENTS (CONTINUED)
(d) Financial instruments measured at fair value (continued)
If quoted market prices in active markets are available, these are considered Level 1. If such quoted market prices are not available, fair value is determined using market prices for similar assets or present value techniques, applying an appropriate risk-free interest rate adjusted for non-performance risk. The inputs used in present value techniques are observable and fall into the Level 2 category. It is classified into the Level 3 category if significant unobservable inputs are used.
The fair values of derivatives are determined using quoted price of identical instruments from an active FINANCIAL STATEMENTS market, if available (Level 1). If quoted prices are not available, price quoted for similar instruments, appropriately adjusted or present value techniques, based on available market data, or option pricing models are used. The fair values obtained using price quotes for similar instruments or valuation techniques represent a Level 2 input unless significant unobservable inputs are used.
(e) Financial instruments measured at amortised costs
The carrying amounts and fair values of non-current financial assets and liabilities are measured at amortised cost.
The following methods and assumptions are used to estimate the fair value of each class of financial instruments:
(i) Short-term financial instruments 7
The carrying amounts of financial assets and liabilities with a maturity of less than one year are assumed to approximate their fair values.
(ii) Long-term financial instruments
The fair value of the Group’s long-term financial instruments is estimated by discounting the future contractual cash flows at the current market rate available to the Group for similar instruments. NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
50. CAPITAL MANAGEMENT
(a) Capital management objectives
The Group’s capital management objectives are to ensure the Group’s ability to continue as a going concern and maximise shareholder value. This is achieved through reviewing and managing its equity, debt and cash. Equity attributable to equity holders of the Company includes share capital, reserves and retained earnings.
The Group seeks to achieve optimal capital structure taking into account returns expected by shareholders, cost of debts, capital expenditure, investment opportunities, projected cash flows and externally imposed financial covenants. The Group has consistently paid out around 50% to 70% of its annual profit attributable to equity holders of the Company as dividends and reinvests the rest. Whilst the current practice provides a reasonable balance between expansion and cash dividends, the Group may adjust the dividend payout, equity levels and debt levels to achieve the optimal capital structure.
(i) Rating by External Rating Agencies
The Company and its capital market programmes are rated by both local and international rating agencies:
Rating Agency Company/Programme Rating as at Rating
Fitch Ratings Company and the USD1.5 billion 1.10.2019 BBB Multi-currency Sukuk Programme Moody’s Investors Service Company and the USD1.5 billion 9.10.2019 Baa1 Multi-currency Sukuk Programme
Malaysian Rating RM3.0 billion Perpetual Subordinated 19.12.2019 AAIS Corporation Berhad Sukuk Programme (Perpetual Sukuk)
(ii) Gearing ratio and interest cover
Gearing ratio and interest cover are some of the ratios used in capital management. Gearing ratio is calculated as gross debt divided by total equity. Gross debt is calculated as the total of borrowings and amount due to a subsidiary (including “current and non-current” as shown in the Company’s statements of financial position). Interest cover is calculated as profit/(loss) before interest and tax excluding impairment on investments in subsidiaries and joint ventures divided by total finance costs (gross).
The ratios are as follows:
GROUP COMPANY
31.12.2019 31.12.2018 31.12.2019 31.12.2018
Gearing ratio (%) 48.8 46.3 56.3 51.0 Interest cover (times) – continuing operations 1.4 4.8 1.1 1.0
(b) Externally imposed financial covenants and capital structure
In addition to optimising capital structure and complying with externally imposed financial covenants, the Group is also required to comply with statutory requirements in certain countries where the Group operates. This includes minimum capital requirement and the requirement to maintain legal reserves which are non-distributable.
The Group was in compliance with externally imposed financial covenants and capital requirements for the financial year/period ended 31 December 2019 and 31 December 2018 except as disclosed in Note 39. Annual Report 2019 P –G. 351 350
51. LIST OF SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES
(i) Subsidiaries which are active as at 31 December 2019 are as follows:
Country of incorporation/ Group’s effective Principal interest (%) place of Name of company business 31.12.2019 31.12.2018 Auditors Principal activities
Chartquest Sdn Bhd Malaysia 61.1 61.1 1 Cultivation of oil palm FINANCIAL STATEMENTS Chermang Development Malaysia 83.9 83.9 1 Investment holding (Malaya) Sdn Bhd Consolidated Plantations Malaysia 100.0 100.0 1 Investment holding Berhad Golden Hope Overseas Malaysia 100.0 100.0 1 Investment holding Sdn Bhd Guthrie Industries Malaysia 100.0 100.0 1 Cultivation of oil palm and Malaysia Sendirian processing of palm oil Berhad and palm kernel Guthrie International Labuan, 100.0 100.0 1 Investment holding Investments (L) Ltd Malaysia 7 Mostyn Palm Processing Malaysia 100.0 100.0 1 Investment holding Sdn Bhd Sanguine (Malaysia) Malaysia 100.0 100.0 1 Cultivation of oil palm Sdn Bhd Sime Darby Plantation Malaysia 100.0 100.0 1 Manufacturing and Agri-Bio Sdn Bhd marketing of rat baits (fka Sime Darby Agri-Bio and trading of Sdn Bhd) agricultural related products Sime Darby Plantation Malaysia 100.0 100.0 1 Investment holding Austral Holdings Berhad (fka Sime Darby Austral Holdings Berhad) Sime Darby Oils Bintulu Malaysia 60.0 60.0 1 Processing of palm oil and Sdn Bhd palm kernel oil Sime Darby Oils Biodiesel Malaysia 100.0 100.0 1 Production and sale of Sdn Bhd biodiesel and related products Sime Darby Plantation Malaysia 100.0 100.0 1 Provision of oil palm tissue Biotechnology Lab Sdn culture services Bhd (fka Sime Darby Biotech Laboratories Sdn Bhd) Sime Darby Consulting Malaysia 100.0 100.0 1 Investment holding Sdn Bhd Sime Darby Oils Malaysia 100.0 100.0 1 Distribution and marketing Professional Sdn Bhd of cooking oil, (fka Sime Darby Foods & tocotrienols, coconut oil Beverages Marketing and palm related Sdn Bhd) products NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
51. LIST OF SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES (CONTINUED)
(i) Subsidiaries which are active as at 31 December 2019 are as follows: (continued)
Country of incorporation/ Group’s effective Principal interest (%) place of Name of company business 31.12.2019 31.12.2018 Auditors Principal activities
Sime Darby Oils Trading Malaysia 100.0 100.0 1 Trading of crude palm oil Sdn Bhd and palm oil products and as marketing agent of commodities for its related companies Sime Darby Plantation Malaysia 100.0 100.0 1 Special purpose vehicle for Global Berhad (fka Sime the issue of securities Darby Global Berhad) programme Sime Darby Oils Trading Labuan, 100.0 100.0 1 Trading of commodities (Labuan) Limited Malaysia Sime Darby Oils Pasir Malaysia 100.0 100.0 1 Processing of edible oil Gudang Refinery and related products Sdn Bhd Sime Darby Plantation Malaysia 100.0 100.0 1 Investment property Latex Sdn Bhd activity (fka Sime Darby Latex Sdn Bhd) Sime Darby Plantation Malaysia 100.0 100.0 1 Cultivation of oil palm and (Sabah) Sdn Bhd processing of palm oil and palm kernel Sime Darby Plantation Malaysia 100.0 100.0 1 Cultivation of oil palm and (Sarawak) Sdn Bhd processing of palm oil and palm kernel Sime Darby Plantation Malaysia 100.0 100.0 1 Operating childcare Childcare Centre services to employees Sdn Bhd Sime Darby Plantation Malaysia 100.0 100.0 1 Acquiring, developing and Intellectual Property investing in trademarks, Sdn Bhd patents and intellectual property rights Sime Darby Plantation Malaysia 100.0 100.0 1 Investment holding Thailand Sdn Bhd Sime Darby Plantation Malaysia 100.0 100.0 1 Research and Research Sdn Bhd development services to (fka Sime Darby group companies in Research Sdn Bhd) relation to tropical agriculture Sime Darby Plantation Malaysia 100.0 100.0 1 Agricultural research and Seeds & Agricultural advisory services, Services Sdn Bhd production and sale of (fka Sime Darby Seeds & oil palm seeds and Agricultural Services seedlings Sdn Bhd) Annual Report 2019 P –G. 353 352
51. LIST OF SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES (CONTINUED)
(i) Subsidiaries which are active as at 31 December 2019 are as follows: (continued)
Country of incorporation/ Group’s effective Principal interest (%) place of Name of company business 31.12.2019 31.12.2018 Auditors Principal activities
Sime Darby Plantation Malaysia 100.0 100.0 1 Research and FINANCIAL STATEMENTS Technology Centre Sdn development services in Bhd (fka Sime Darby biotechnology and Technology Centre agriculture Sdn Bhd) The China Engineers Malaysia 100.0 100.0 1 Cultivation of oil palm and (Malaysia) Sdn Bhd processing of palm oil and palm kernel Wangsa Mujur Sdn Bhd Malaysia 72.5 72.5 1 Cultivation of oil palm and processing of palm oil and palm kernel PT Aneka Intipersada Indonesia 100.0 100.0 2 Cultivation of oil palm and processing of palm oil 7 and palm kernel PT Aneka Sawit Lestari Indonesia 100.0 100.0 2 Production and sale of oil palm planting materials PT Anugerah Indonesia 100.0 100.0 2 Investment holding Sumbermakmur PT Asricipta Indah Indonesia 90.0 90.0 2 Investment holding PT Bahari Gembira Ria Indonesia 99.97 99.3 2 Cultivation of oil palm and processing of palm oil and palm kernel PT Bersama Sejahtera Indonesia 91.1 91.1 2 Cultivation of oil palm and Sakti processing of palm oil and palm kernel PT Bhumireksa Nusasejati Indonesia 100.0 100.0 2 Cultivation of oil palm and processing of palm oil and palm kernel PT Bina Sains Cemerlang Indonesia 100.0 100.0 2 Cultivation of oil palm and processing of palm oil and palm kernel PT Budidaya Agrolestari Indonesia 100.0 100.0 2 Cultivation of oil palm PT Sime Darby Oils Indonesia 100.0 100.0 2 Processing of palm oil Pulau Laut Refinery products PT Guthrie Pecconina Indonesia 100.0 100.0 2 Cultivation of oil palm and Indonesia processing of palm oil and palm kernel PT Indo Sukses Lestari Indonesia 95.0 95.0 2 Development of rubber Makmur plantation PT Indotruba Tengah Indonesia 50.0 50.0 2 Cultivation of oil palm and processing of palm oil and palm kernel NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
51. LIST OF SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES (CONTINUED)
(i) Subsidiaries which are active as at 31 December 2019 are as follows: (continued)
Country of incorporation/ Group’s effective Principal interest (%) place of Name of company business 31.12.2019 31.12.2018 Auditors Principal activities
PT Kartika Inti Perkasa Indonesia 60.0 60.0 2 Investment holding PT Kridatama Lancar Indonesia 100.0 100.0 2 Cultivation of oil palm and processing of palm oil and palm kernel PT Ladangrumpun Indonesia 100.0 100.0 2 Cultivation of oil palm and Suburabadi processing of palm oil and palm kernel PT Laguna Mandiri Indonesia 88.6 88.6 2 Cultivation of oil palm and processing of palm oil, palm kernel and palm kernel oil PT Lahan Tani Sakti Indonesia 100.0 100.0 2 Cultivation of oil palm and processing of palm oil and palm kernel PT Langgeng Indonesia 100.0 100.0 2 Cultivation of oil palm and Muaramakmur processing of palm oil and palm kernel PT Minamas Gemilang Indonesia 100.0 100.0 2 Investment holding PT Mitra Austral Sejahtera Indonesia – 100.0 2 Cultivation of oil palm and processing of palm oil and palm kernel PT Muda Perkasa Sakti Indonesia 100.0 100.0 2 Investment holding PT Padang Palma Permai Indonesia 100.0 100.0 2 Cultivation of oil palm and processing of palm oil and palm kernel PT Paripurna Swakarsa Indonesia 100.0 100.0 2 Cultivation of oil palm and processing of palm oil and palm kernel PT Perkasa Subur Sakti Indonesia 100.0 100.0 2 Processing of palm oil and palm kernel PT Perusahaan Indonesia 100.0 100.0 2 Cultivation of oil palm Perkebunan Industri dan Niaga Sri Kuala PT Sajang Heulang Indonesia 100.0 100.0 2 Cultivation of oil palm and processing of palm oil and palm kernel PT Sandika Natapalma Indonesia 100.0 100.0 2 Cultivation of oil palm and processing of palm oil and palm kernel PT Sime Darby Indonesia 100.0 100.0 2 Trading of agricultural Plantation Agri Bio related products (fka PT Sime Agri Bio) Annual Report 2019 P –G. 355 354
51. LIST OF SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES (CONTINUED)
(i) Subsidiaries which are active as at 31 December 2019 are as follows: (continued)
Country of incorporation/ Group’s effective Principal interest (%) place of Name of company business 31.12.2019 31.12.2018 Auditors Principal activities
PT Sime Darby Oils Indonesia 100.0 – 2 Provision of procurement, FINANCIAL STATEMENTS Indonesia marketing and sale of edible oils PT Sime Darby Plantation Indonesia 100.0 100.0 2 Cultivation of oil palm and Indo Agro (fka PT Sime processing of palm oil Indo Agro) and palm kernel PT Sritijaya Abaditama Indonesia 60.0 60.0 2 Investment holding PT Swadaya Andika Indonesia 100.0 100.0 2 Cultivation of oil palm and processing of palm oil and palm kernel PT Tamaco Graha Krida Indonesia 90.0 90.0 2 Cultivation of oil palm and processing of palm oil and palm kernel 7 PT Tamiyang Sumber Indonesia 90.0 90.0 3 Cultivation of oil palm Rezeki PT Teguh Sempurna Indonesia 100.0 100.0 2 Cultivation of oil palm and processing of palm oil and palm kernel PT Tunggal Mitra Indonesia 60.0 60.0 2 Cultivation of oil palm and Plantations processing of palm oil and palm kernel PT Timbang Deli Indonesia 49.0 49.0 2 Oil palm seed production Indonesia and cultivation of rubber Kula Palm Oil Limited Papua New 100.0 100.0 2 Cultivation of oil palm and Guinea processing of palm oil, palm kernel and palm kernel oil New Britain Palm Oil Papua New 100.0 100.0 2 Investment holding, Limited Guinea cultivation of oil palm and processing of palm oil, palm kernel and palm kernel oil Poliamba Limited Papua New 100.0 100.0 2 Cultivation of oil palm and Guinea processing of palm oil, palm kernel and palm kernel oil Ramu Agri-Industries Papua New 100.0 100.0 2 Cultivation of oil palm and Limited Guinea growing canes, cattle rearing, processing and sale of palm oil, palm kernel oil, sugar, ethanol and beef NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
51. LIST OF SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES (CONTINUED)
(i) Subsidiaries which are active as at 31 December 2019 are as follows: (continued)
Country of incorporation/ Group’s effective Principal interest (%) place of Name of company business 31.12.2019 31.12.2018 Auditors Principal activities
Markham Farming Papua New 100.0 100.0 2 Cultivation of oil palm and Company Limited Guinea processing of palm oil, palm kernel, palm kernel oil and coconut Guadalcanal Plains Palm Solomon 80.0 80.0 3 Cultivation of oil palm and Oil Limited Islands processing of palm oil, palm kernel and palm kernel oil New Britain Plantation Singapore 100.0 100.0 2 Investment holding and Services Pte. Ltd. management of oil palm plantations and seed production Ultra Oleum Pte. Ltd. Singapore 100.0 100.0 2 Investment holding Verdant Bioscience Singapore 52.0 52.0 2 Agriculture science and Pte. Ltd. research Sime Darby Oils Liverpool United 100.0 100.0 2 Processing of edible oil Refinery Limited Kingdom and related products Sime Darby Oils Singapore 100.0 100.0 2 Marketing of edible oils International Limited and palm oil related products Sime Darby Oils Singapore 100.0 100.0 2 Investment holding Singapore Limited (fka Sime Darby Plantation Europe Ltd.) Sime Darby Plantation Singapore 100.0 100.0 2 Investment holding Investment (Liberia) Private Limited Sime Darby China Oils Hong Kong 100.0 100.0 2 Investment holding And Fats Company SAR Limited Sime Darby Hong Kong Hong Kong 100.0 100.0 2 Investment holding Nominees Limited SAR Sime Darby Oils Thailand 99.9 99.9 2 Processing of soya bean Nonthaburi Co., Ltd oil and related products (fka Industrial Enterprises Co., Ltd.)
Sime Darby Oils Morakot Thailand 99.9 99.9 2 Processing and marketing Public Company Limited of edible oil and related (fka Morakot Industries products Public Company Limited) Annual Report 2019 P –G. 357 356
51. LIST OF SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES (CONTINUED)
(i) Subsidiaries which are active as at 31 December 2019 are as follows: (continued)
Country of incorporation/ Group’s effective Principal interest (%) place of Name of company business 31.12.2019 31.12.2018 Auditors Principal activities
Sime Darby Oils Holdings Thailand 100.0 100.0 2 Investment holding FINANCIAL STATEMENTS (Thailand) Limited (fka Sime-Morakot Holdings (Thailand) Limited) The China Engineers Thailand 99.9 99.9 2 Investment holding (Thailand) Limited Sime Darby Plantation Cayman 100.0 100.0 4 Investment holding International Investments Islands Limited (fka Sime Darby International Investments Limited) Sime Darby Plantation Cayman 100.0 100.0 4 Investment holding 7 Holdings (Asia Pacific) Islands Sime Darby Plantation Cayman 100.0 100.0 4 Investment holding Holdings (Cayman Islands Islands) Sime Darby Plantation Liberia 100.0 100.0 2 Cultivation of oil palm and (Liberia) Inc. rubber and processing of palm oil and palm kernel Golden Hope Overseas Mauritius 100.0 100.0 2 Investment holding Capital Mulligan International B.V. Netherlands 100.0 100.0 2 Investment holding Sime Darby Oils Netherlands 100.0 100.0 2 Investment holding Netherlands B.V. Sime Darby Oils Netherlands 100.0 100.0 2 Processing and marketing Zwijndrecht Refinery B.V. of edible oil and related products Sime Darby Oils South South Africa 100.0 100.0 2 Processing and marketing Africa (Pty) Ltd. of edible oils and related edible NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
51. LIST OF SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES (CONTINUED)
(ii) Joint venture which are active as at 31 December 2019 are as follows:
Country of incorporation/ Group’s effective Principal interest (%) place of Name of company business 31.12.2019 31.12.2018 Auditors Principal activities
Emery Oleochemicals (M) Malaysia 50.0 50.0 3 Investment holding, Sdn Bhd production and sale of fatty acids, fatty alcohols, refined glycerine, oilfield chemicals, ozone acids, plastic additives, methyl esters and other oleochemical derivatives Emery Specialty Malaysia 50.0 50.0 3 Investment holding Chemicals Sdn Bhd
MYBiomass Sdn Bhd Malaysia 30.0 30.0 3 Develop and pioneer high value green chemicals biorefinery Ceased operation effective from 31 December 2019 SD Plantation TNBES Malaysia 51.0+ 51.0+ 1 Production and sale of Renewable Energy renewable energy using Sdn Bhd (fka Sime palm oil effluents Darby TNBES Renewable Energy Sdn Bhd) Guangzhou Keylink China 49.0 49.0 3 Manufacturing of surface Chemicals Co., Ltd. active agents Rizhao Sime Darby China 45.0 45.0 2 Storage and marketing of Oils & Fats Co. Ltd. palm oil related products Annual Report 2019 P –G. 359 358
51. LIST OF SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES (CONTINUED)
(iii) Associates which are active as at 31 December 2019 are as follows:
Country of incorporation/ Group’s effective Principal interest (%) place of Name of company business 31.12.2019 31.12.2018 Auditors Principal activities
Barlow Bulking Sdn Bhd Malaysia 32.0 32.0 3 Provision of bulking and FINANCIAL STATEMENTS marketing facilities for edible oil producers and millers Nescaya Maluri Sdn Bhd Malaysia 40.0 40.0 3 Investment holding and licensing Muang Mai Guthrie Thailand 49.0 49.0 3 Processing of rubber Public Company Limited Thai Eastern Trat Co., Ltd. Thailand 40.0 40.0 2 Processing of palm oil and palm kernel Yayasan Sime Darby Malaysia @ @ 1 Administration of scholarship awards and educational loans, 7 undertake sports, environmental conservation and sustainability projects NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
51. LIST OF SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES (CONTINUED)
(iv) Subsidiaries which are dormant/inactive as at 31 December 2019 are as follows:
Country of incorporation/ Group’s effective Principal interest (%) place of Name of company business 31.12.2019 31.12.2018 Auditors Principal activities
Kwang Joo Seng Singapore 100.0 100.0 2 Dormant (Malaysia) Private Limited Derawan Sdn Bhd Malaysia 100.0 100.0 1 Dormant Kumpulan Jelei Sendirian Malaysia 100.0 100.0 1 Dormant Berhad Kumpulan Jerai Sendirian Malaysia 100.0 100.0 1 Dormant Berhad Kumpulan Linggi Malaysia 100.0 100.0 1 Dormant Sendirian Berhad Kumpulan Sua Betong Malaysia 100.0 100.0 1 Dormant Sdn Berhad Kumpulan Tebong Sdn Malaysia 100.0 100.0 1 Dormant Berhad Kumpulan Temiang Malaysia 100.0 100.0 1 Dormant Sdn Berhad Sahua Enterprise Malaysia 100.0 100.0 1 Dormant Sdn Bhd Sime Darby Beverages Malaysia 100.0 100.0 1 Dormant Sdn Bhd Bukit Talang Malaysia 100.0 100.0 1 Dormant Smallholders Sdn Bhd (fka Sime Darby Bukit Talang Sdn Bhd) Sime Darby Oils & Fats Malaysia 100.0 100.0 1 Dormant Sdn Bhd Sime Darby Plantation Malaysia 100.0 100.0 1 Dormant Ecogardens Sdn Bhd (fka Sime Darby Plantation IT Sdn Bhd) Sime Darby Plantation Malaysia 100.0 100.0 1 Dormant (Peninsular) Sdn Bhd PT Guthrie Abdinusa Indonesia 70.0 70.0 2 Dormant Industri PT Sime Darby Indonesia 100.0 100.0 2 Dormant Commodities Trading Sime Darby Oils Netherlands 100.0 100.0 4 Dormant Speciality Ingredients B.V. (fka Sime Darby CleanerG B.V.) Sime Darby Oils Europe Netherlands 100.0 100.0 4 Dormant B.V. Annual Report 2019 P –G. 361 360
51. LIST OF SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES (CONTINUED)
(iv) Subsidiaries which are dormant/inactive as at 31 December 2019 are as follows: (continued)
Country of incorporation/ Group’s effective Principal interest (%) place of Name of company business 31.12.2019 31.12.2018 Auditors Principal activities
Sime Darby Edible Tanzania 100.0 100.0 4 Dormant FINANCIAL STATEMENTS Products Tanzania Limited Sime Darby Oils Malaysia 100.0 100.0 4 Dormant Nutrition Sdn Bhd (fka Sime Darby Bioganic Sdn Bhd) Sime Darby Oils North United States 100.0 – 4 Dormant America Inc. Trolak Estates Limited Scotland 100.0 100.0 5 Dormant Dusun Durian United 100.0 100.0 5 Dormant Plantations Limited Kingdom Kinta Kellas Rubber United 100.0 100.0 5 Dormant 7 Estate Plc. Kingdom Malaysian Estates Plc. United 100.0 100.0 5 Dormant Kingdom The Kuala Selangor United 100.0 100.0 5 Dormant Rubber Plc. Kingdom The London Asiatic United 100.0 100.0 5 Dormant Rubber and Produce Kingdom Company Limited The Pataling Rubber United 100.0 100.0 5 Dormant Estates Limited Kingdom The Straits Plantations United 100.0 100.0 5 Dormant Limited Kingdom The Sungei Bahru United 100.0 100.0 5 Dormant Rubber Estates Plc. Kingdom NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2019
51. LIST OF SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES (CONTINUED)
(v) Subsidiaries placed under members’ voluntary liquidation/deregistered are as follows:
Country of incorporation/ Group’s effective Principal interest (%) place of Name of company business 31.12.2019 31.12.2018 Auditors Principal activities
Eminent Platform Malaysia 100.0 100.0 4 In members’ voluntary Sdn Bhd liquidation
Golden Hope Agrotech Malaysia 100.0 100.0 4 In members’ voluntary Consultancy Sdn Bhd liquidation
Golden Hope Fruit Malaysia 100.0 100.0 4 In members’ voluntary Industries Sdn Bhd liquidation
Nature Ambience Malaysia 100.0 100.0 4 In members’ voluntary Sdn Bhd liquidation
Sime Darby Julau Malaysia 100.0 100.0 4 In members’ voluntary Plantation Sdn Bhd liquidation
Sime Darby Plantation Cameroon 100.0 100.0 4 In members’ voluntary Cameroon Ltd. liquidation
Sime Darby Edible India 100.0 100.0 4 In members’ voluntary Products India Private liquidation Limited
Vertical Drive Sdn Bhd Malaysia 100.0 100.0 4 In members’ voluntary liquidation
(vi) Associates placed under members’ voluntary liquidation/deregistered during the financial year are as follows:
Country of incorporation/ Group’s effective Principal interest (%) place of Name of company business 31.12.2019 31.12.2018 Auditors Principal activities
Verdezyne, Inc. United States 43.5 43.5 3 In members’ voluntary of America liquidation
Notes: 1. Subsidiaries and associates which are audited by PricewaterhouseCoopers PLT, Malaysia. 2. Subsidiaries and associates which are audited by member firms of PricewaterhouseCoopers International Limited, which are separate and independent legal entities from PricewaterhouseCoopers PLT, Malaysia. 3. Subsidiaries, joint ventures and associates which are audited by firms other than member firms of PricewaterhouseCoopers International Limited. 4. No legal requirement to appoint statutory auditors. 5. Subsidiaries which are exempted from having their financial statements audited in UK pursuant to exemption available under section 480 of the UK Companies Act 2006. + Notwithstanding that the Group holds more than 50% equity interest in SD Plantation TNBES Renewable Energy Sdn Bhd, the investment is classified as a joint venture (and not a subsidiary) as significant decisions require unanimous consent from all its shareholders. @ Yayasan Sime Darby is a company without share capital, limited by guarantee. Annual Report 2019 P –G. 363 362
52. SUBSEQUENT EVENTS AFTER REPORTING DATE
(a) Sime Darby Plantation Investment (Liberia) Private Limited, a wholly-owned subsidiary of the Group, has on 15 January 2020, completed the disposal of its entire 100% equity interest in Sime Darby Plantation (Liberia) Inc. (“SDP Liberia”) to Mano Palm Oil Industries Limited (“MPOI”) for a total cash consideration of USD1 plus an earn-out payment to be determined by the average future crude palm oil (“CPO”) price and future CPO production of SDP Liberia. The earn-out consideration will be payable quarterly over a period of eight years, commencing from April 2023. The expected gain from the disposal is RM74 million, after taking into consideration of the cost to sell. FINANCIAL STATEMENTS (b) In January and February 2020, the Group has completed the land disposal for five of the signed Sale and Purchase Agreements (“SPA”), which form part of the planned disposal indicated in Note 33(a)(i) and recognised a gain on land disposal of RM232.1 million, net of costs to sell and real property gain tax.
(c) On 11 March 2020, the World Health Organisation (WHO) has declared the outbreak of COVID-19 to be a global pandemic. The Group is involved in the full spectrum of the value chain comprising upstream and downstream operations across 16 countries and primarily operates in Malaysia, Indonesia, Papua New Guinea, Solomon Islands, Netherlands, United Kingdom, Thailand and South Africa. In Malaysia, to contain the spread of COVID-19, the Movement Control Order (MCO) had been imposed from 18 March to 12 May 2020. However the Malaysian Government has relaxed the MCO on oil palm and rubber industry as these are industries that provide essential services to the country. With this decision but subject to any state or territorial restrictions which may be introduced from time to time, the Group’s estate, mill, rubber and refinery operations are able to operate subject to conditions to certain operating conditions. The restriction in movement which have been implemented in the various countries where the Group operates in has not curtailed all of its 7 operations. Additionally, the Group has implemented remote work arrangements to maintain certain operations, such as financial reporting systems and monitoring of its operations at its various sites.
As a result of these effects, the Group has performed an assessment and carefully considered the potential impact of COVID-19 on the Group’s and the Company’s operations and financials, which include amongst others the slowing down of demand for oils, increasing risks on customers deferring or defaulting on contracts, customers credit risks and volatility from foreign exchange fluctuations. Based on the assessment and information available at the point of reporting, the Group’s operating results have been forecasted to remain satisfactory and the cash flow position together with its undrawn facilities are adequate to meet the Group’s requirements.
Overall at this stage, the impact on the Group’s business and results has been limited. Management will however continue to monitor developments and will take the necessary corrective actions. The Group will continue to run its operations in the best and safest way without jeopardising the health and safety of its employees and abiding with all governmental policies and directives.
53. APPROVAL OF FINANCIAL STATEMENTS
The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on 29 April 2020. STATEMENT BY DIRECTORS Pursuant To Section 251(2) Of The Companies Act 2016
We, Tan Sri Dato’ A. Ghani Othman and Mohamad Helmy Othman Basha, two of the Directors of Sime Darby Plantation Berhad, do hereby state that, in the opinion of the Directors, the financial statements set out on pages 191 to 363 are drawn up so as to give a true and fair view of the financial position of the Group and the Company as at 31 December 2019 and of the financial performance of the Group and the Company for the financial year ended on that date in accordance with the Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act 2016 in Malaysia.
Signed in accordance with a resolution of the Board of Directors dated 29 April 2020.
TAN SRI DATO’ A. GHANI OTHMAN MOHAMAD HELMY OTHMAN BASHA DIRECTOR DIRECTOR
Selangor 29 April 2020
STATUTORY DECLARATION Pursuant To Section 251(1) Of The Companies Act 2016
I, Renaka Ramachandran, the Officer primarily responsible for the financial management of Sime Darby Plantation Berhad, do solemnly and sincerely declare that the financial statements set out on pages 191 to 363 are, to the best of my knowledge and belief, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act 1960.
RENAKA RAMACHANDRAN OFFICER
Subscribed and solemnly declared by the abovenamed Renaka Ramachandran at Selangor, Malaysia on 29 April 2020.
Before me,
COMMISSIONER FOR OATHS Annual Report 2019 P –G. 365 364
INDEPENDENT AUDITORS’REPORT To The Members Of Sime Darby Plantation Berhad (Incorporated In Malaysia) Registration No. 200401009263 (647766-V)
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Our opinion In our opinion, the financial statements of Sime Darby Plantation Berhad (“the Company”) and its subsidiaries (“the Group”) give a true and fair view of the financial position of the Group and of the Company as at 31 December 2019, and of their financial performance and their cash flows for the financial year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act 2016 in Malaysia.
What we have audited FINANCIAL STATEMENTS We have audited the financial statements of the Group and of the Company, which comprise the statements of financial position as at 31 December 2019 of the Group and of the Company, and the statements of profit or loss, statements of comprehensive income, statements of changes in equity and statements of cash flows of the Group and of the Company for the financial year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 191 to 363.
Basis for opinion We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the “Auditors’ responsibilities for the audit of the financial statements” section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 7 Independence and other ethical responsibilities We are independent of the Group and of the Company in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants (“By-Laws”) and the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code.
Our audit approach As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements of the Group and of the Company. In particular, we considered where the Directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the financial statements as a whole, taking into account the structure of the Group and of the Company, the accounting processes and controls, and the industry in which the Group and the Company operate.
Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the Group and of the Company for the current financial year. These matters were addressed in the context of our audit of the financial statements of the Group and of the Company as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. INDEPENDENT AUDITORS’ REPORT To The Members Of Sime Darby Plantation Berhad (Incorporated In Malaysia) Registration No. 200401009263 (647766-V)
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED)
Key audit matters (continued)
Key audit matters How our audit addressed the key audit matters
Measurement, presentation and disclosure of the Group’s and the Company’s disposal of its 100% equity interest in Sime Darby Plantation (Liberia) Inc (“SDP Liberia”)
Refer to Notes 13, 17(c), 20, 21, 33(c)(i) and 52(a) to the We reviewed the SPA entered into with MPOI to financial statements. determine:
On 12 December 2019, the Group entered into a Sale i) the carrying amount of property, plant and and Purchase Agreement (“SPA”) with Mano Palm Oil equipment, right-of-use assets, other assets and Industries Limited (“MPOI”) to dispose of its entire 100% liabilities of SDP Liberia that will be transferred equity interest in SDP Liberia for a total cash consideration to MPOI on completion of the disposal compared of USD 1, inclusive of an earn-out payment by MPOI to with the consideration receivable to assess the SDP, determined by the average future crude palm oil adequacy of the impairment made on these (“CPO”) price and future CPO production of SDP Liberia. assets at the Group; The earn-out consideration is payable quarterly over a period of eight years, commencing from April 2023. The ii) the liabilities including other costs and obligations disposal of SDP Liberia was completed subsequent to that will be assumed or payable by the Group the financial year on 15 January 2020 upon fulfillment on and post disposal to ensure that these liabilities of all conditions precedent. have been adequately accrued for and taken up in the correct financial year; and In accordance with MFRS 5 “Non-current Assets Held for Sale and Discontinued Operations” (“MFRS 5”), SDP Liberia iii) the conditions precedent in determining the has been classified as non-current assets held for sale completion date for SDP Liberia’s disposal had and its results as discontinuing operations as the conditions been fulfilled as at 15 January 2020. set out in MFRS 5 were met as at the financial year end.
Arising from the disposal of SDP Liberia, the impact to In addition, we determined the carrying amount of the Group’s and to the Company’s results for the current the cost of investment in SDP Liberia including any financial year ended 31 December 2019 is as follows: amount due from SDP Liberia which has been deemed as capital contribution to ensure the adequacy of the i) Impact to the Group impairment made at the Company.
An impairment of property, plant and equipment We evaluated the measurement, presentation and amounting to RM224.5 million and right-of-use assets disclosure of SDP Liberia as non-current assets held of RM11.0 million in SDP Liberia had been recognised for sale and its results as discontinuing operations within discontinuing operations in addition to made in the financial statements are in accordance providing for specific costs that the Group would with the requirements of MFRS 5. be liable for under the terms of the SPA.
We also evaluated the appropriateness of the ii) Impact to the Company presentation and disclosure of the completion of SDP An impairment of RM305.9 million was recognised Liberia’s disposal on 15 January 2020 as a subsequent in respect of the Company’s cost of investment in event including checking management’s calculation and deemed capital contribution to SDP Liberia. of the expected gain of disposal of investment in SDP Liberia disclosed in that note. We focused on the measurement and presentation of the disposal of SDP Liberia in the Group’s and the Based on the above procedures, we did not note any Company’s financial statements as it represented a material exception on the measurement, presentation significant transaction to both the Group and the Company and disclosure arising from the disposal of SDP Liberia during the financial year. in the Group’s and the Company’s financial statements as at 31 December 2019. Annual Report 2019 P –G. 367 366
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED)
Key audit matters (continued)
Key audit matters How our audit addressed the key audit matters
Recoverability of the Group’s carrying amount of goodwill arising from the acquisition of New Britain Palm Oil Limited (“NBPOL”)
Refer to Notes 24 (i) and 33(c)(ii) to the financial statements. We evaluated the reasonableness of the key FINANCIAL STATEMENTS assumptions used by management in the approved The intangible assets of the Group’s consolidated financial cash flow projections by comparing the FFB yields statements include goodwill of RM2,123.3 million which and CPO selling prices to historical results, forecasted arose from the acquisition of NBPOL group during the commodity prices and industry data where appropriate. financial year ended 30 June 2015. The goodwill was We had also agreed the projection period to the partly allocated to PT Minamas Gemilang and its remaining lease terms for the respective CGUs. subsidiaries (“Minamas Group”) cash generating units (“CGUs”) as Minamas Group operations are expected We reviewed the Group’s approved disposal plans of to benefit from the additional planting material synergies Verdant Bioscience Pte Ltd and the consideration of arising from the acquisition of NBPOL and these synergies its impact on NBPOL’s goodwill allocated to Minamas will not be impacted from the Group’s planned disposal Group, arising from the planting material synergies. of Verdant Bioscience Pte Ltd. We assessed the reliability of management’s cash flow 7 In accordance with the Group’s policy, the Group determines projections by comparing their previous years’ forecasted whether goodwill is impaired on an annual basis. results against past trends of actual results. We checked that the cash flow projections had been updated with Management performed impairment assessments of the the previous financial period’s historical results. two CGUs based on value-in-use (“VIU”) determined using the discounted cash flow models, which was approved We involved our valuation experts to assess the by the Directors. A range of sensitivity analysis was also discount rates used in determining the recoverable performed by management. amounts of the respective CGUs and also determined whether the change in the discount rates used as We continue to focus on the recoverability of the carrying compared to the rates used in the previous financial amount of goodwill in the two CGUs due to the significant period is reasonable. amount and significant estimates involved in determining the key assumptions used in deriving the recoverable We assessed the appropriateness of sensitivity analysis amounts of the CGUs, i.e. projection period, FFB yields, performed by management, including the disclosures CPO selling prices and the discount rates as disclosed of a reasonable possible change in the key assumptions in Note 24 (i). and the corresponding effect on the respective recoverable amounts by re-performing the sensitivity Based on management’s assessments, no impairment analysis. was required as the recoverable amounts exceeded the carrying amount of goodwill in the two CGUs as at Based on the above procedures, we did not note any 31 December 2019. material exception to management’s assessment on the recoverability of the Group’s carrying amount of goodwill arising from the acquisition of NBPOL as at 31 December 2019. INDEPENDENT AUDITORS’ REPORT To The Members Of Sime Darby Plantation Berhad (Incorporated In Malaysia) Registration No. 200401009263 (647766-V)
INFORMATION OTHER THAN THE FINANCIAL STATEMENTS AND AUDITORS’ REPORT THEREON
The Directors of the Company are responsible for the other information. The other information comprises the Directors’ Report and the remaining 2019 Annual Report of Sime Darby Plantation Berhad, but does not include the financial statements of the Group and of the Company and our auditors’ report thereon.
Our opinion on the financial statements of the Group and of the Company does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements of the Group and of the Company, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Group and of the Company or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
RESPONSIBILITIES OF THE DIRECTORS FOR THE FINANCIAL STATEMENTS
The Directors of the Company are responsible for the preparation of the financial statements of the Group and of the Company that give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act 2016 in Malaysia. The Directors are also responsible for such internal control as the Directors determine is necessary to enable the preparation of financial statements of the Group and of the Company that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements of the Group and of the Company, the Directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
AUDITORS’ RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial statements of the Group and of the Company as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
(a) Identify and assess the risks of material misstatement of the financial statements of the Group and of the Company, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
(b) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and of the Company’s internal control. Annual Report 2019 P –G. 369 368
AUDITORS’ RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED)
(c) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors.
(d) Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s or on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements of the Group and of the Company or, if such disclosures are inadequate, to modify our opinion. Our FINANCIAL STATEMENTS conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group or the Company to cease to continue as a going concern.
(e) Evaluate the overall presentation, structure and content of the financial statements of the Group and of the Company, including the disclosures, and whether the financial statements of the Group and of the Company represent the underlying transactions and events in a manner that achieves fair presentation.
(f) Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial statements of the Group. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. 7 We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Directors, we determine those matters that were of most significance in the audit of the financial statements of the Group and of the Company for the current financial year and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
In accordance with the requirements of the Companies Act 2016 in Malaysia, we report that the subsidiaries of which we have not acted as auditors, are disclosed in Note 51 to the financial statements.
OTHER MATTERS
This report is made solely to the members of the Company, as a body, in accordance with Section 266 of the Companies Act 2016 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.
PRICEWATERHOUSECOOPERS PLT LEE TUCK HENG LLP0014401-LCA & AF 1146 02092/09/2020 J Chartered Accountants Chartered Accountant
Kuala Lumpur 29 April 2020 ADDITIONAL INFORMATION
372 Properties Of The Group 378 Analysis Of Shareholdings 381 Additional Compliance Information 387 Financial Calendar 388 Share Price Movement 389 Notice To Shareholders (Under The Personal Data Protection Act 2010) 390 Notis Kepada Pemegang Saham (Di Bawah Akta Perlindungan Data Peribadi 2010) 391 Notice To Proxies (Under The Personal Data Protection Act 2010) (“Notice”) 392 Notis Kepada Proksi (Di Bawah Akta Perlindungan Data Peribadi 2010) (“Notis”) 393 Global Reporting Initiative (GRI) Content Index
PROPERTIES OF THE GROUP As At 31 December 2019
Age of Net book Land area Year of building value Location Tenure (Hectares) acquisition (Years)+ Description (RM million)
UPSTREAM PROPERTIES Malaysia Kedah Darul Aman Anak Kulim, Bukit Hijau, Bukit Freehold 18,885 1978-2006 14 Oil palm and 472 Selarong, Jentayu, Padang Buluh, rubber estates and Somme, Sungai Dingin a palm oil mill Bukit Hijau Leasehold 9 2006 – Rubber estate ^ expiring 2068
Perak Darul Ridzuan Bagan Datoh, Bikam, Chersonese, Freehold 37,155 1978-2001 10-26 Oil palm and 1,061 Cluny, Elphil, Flemington, Holyrood, rubber estates and Kalumpong, Kamuning, Kinta Kellas, 5 palm oil mills Sabrang, Selaba, Seri Intan, Sogomana, Sungei Samak, Sungei Wangi, Tali Ayer Chersonese, Cluny, Kalumpong, Leasehold 5,446 1978-1987 – Oil palm estates 78 Kamuning, Kinta Kellas, Sogomana, expiring Sungai Samak, Sungei Wangi, Tali Ayer 2035-2897
Pahang Darul Makmur Bukit Puteri, Chenor, Jabor, Jentar, Freehold 9,336 1985-2006 23 Oil palm estates 298 Kerdau, Mentakab, Sungai Mai and 2 palm oil mills Bukit Puteri, Chenor, Kerdau, Sungai Leasehold 10,621 1985-1992 13-23 Oil palm estates 115 Mai expiring and a palm oil mill 2057-2086
Selangor Darul Ehsan Banting, Bestari Jaya, Bukit Cheraka, Freehold 36,153 1978-2013 2-28 Oil palm estates, 1,300 Bukit Kerayong, Bukit Lagong, Bukit 4 palm oil mills, Rajah, Bukit Rotan, Bukit Talang, biodiesel and Dusun Durian, East Carey Island, kernel crushing Elmina, Sabak Bernam, Sepang, Sungai plants, rat bait Buloh, Teluk Panglima Garang, factory, laboratories, Tennamaram, West Carey Island research centres, warehouse and a training centre East Carey Island, Port Klang, Sungai Leasehold 171 1978-2010 43 Oil palm estates 19 Buloh, Tennamaram expiring and a bulking 2020-2083 plant
Negeri Sembilan Darul Khusus Bradwall, Bukit Pelandok, Bukit Pilah, Freehold 36,020 1978-2009 7-22 Oil palm and 826 Kok Foh, Labu, New Labu, Muar River, rubber estates, P.D. Lukut, Pertang, Rantau, Salak, 4 palm oil mills Sengkang, Siliau, Sungai Gemas, Sungai and a research Sabaling, St Helier, Sua Betong, Sungai laboratory Bharu, Tampin Linggi, Tanah Merah Kok Foh, Sungai Bharu Leasehold 145 1982-1993 – Oil palm estates 2 expiring 2034-2072 Annual Report 2019 P –G. 373 372
Age of Net book Land area Year of building value Location Tenure (Hectares) acquisition (Years)+ Description (RM million)
UPSTREAM PROPERTIES (CONTINUED) Malaysia (Continued) Melaka Bukit Asahan, Diamond Jubilee, Freehold 14,779 1978-2011 12-20 Oil palm estates 267
Kempas, Kemuning, Serkam and 2 palm oil ADDITIONAL INFORMATION mills Leasehold 470 1982-1992 – Oil palm estates 3 expiring 2025-2071
Johor Darul Takzim Batu Anam, Bintang, Bukit Badak, Freehold 54,518 1978-2012 2-23 Oil palm and 1,494 Bukit Benut, Bukit Paloh, CEP Nyior, rubber estates, 4 CEP Renggam, Cha’ah, Gunung Mas, palm oil mills, a Hadapan, Kempas Klebang, Kulai, research centre Lambak, Lanadron, Layang, New Pagoh, and 2 rubber Nordanal, North Labis, Pagoh, factories Pengkalan Bukit, Sembrong, Seri Pulai, Sungai Senarut, Sungai Simpang Kiri, Tangkah, Tun Dr. Ismail, Ulu Remis, 8 Welch, Yong Peng Cenas, CEP Nyior, Cha’ah, Lanadron, Leasehold 18,612 1978-2012 23-27 Oil palm estates 242 Layang, Muar River, Pekan, Sembrong, expiring and 2 palm oil Sungai Senarut, Sungai Simpang Kiri, 2020-2918 mills Ulu Remis
Sabah Binuang, Giram, Imam, Jeleta Bumi, Leasehold 53,654 1978-1983 12-33 Oil palm estates, 5 1,373 Kunak, Melalap, Merotai, Mostyn, expiring palm oil mills, a Sandakan Bay, Sapong, Segaliud, 2020-2940 bulking plant and Sentosa, Sungang, Table, Tiger, Tigowis, a research centre Tingkayu, Tun Tan Siew Sin, Tunku
Sarawak Bayu, Belian, Chartquest, Damai, Leasehold 47,280 1990-2004 16-24 Oil palm estates 789 Derawan, Dulang, Kelida, Lavang, expiring and 4 palm oil Paroh, Pekaka, Rajawali, Rasan, Ruai, 2048-2082 mills Sahua, Samudera, Semarak, Takau
Upstream Malaysia Properties 343,254 8,339 PROPERTIES OF THE GROUP As At 31 December 2019
Age of Net book Land area Year of building value Location Tenure (Hectares) acquisition (Years)+ Description (RM million)
UPSTREAM PROPERTIES (CONTINUED) Indonesia Kalimantan – West Awatan, Beturus, East, Kelampai, Leasehold 36,880 2001-2013 8-17 Oil palm estates, 2 206 Lembiru, Pelanjau, Sei Mawang, Sungai expiring 2030 palm oil mills and Putih, West a bulking plant
Kalimantan – Central Baras Danum, Batang Garing,Hatan Leasehold 59,116 2001-2018 11-22 Oil palm estates, 3 374 Tiring, Kawan Batu, Kuala Kuayan, expiring palm oil mills, a Pemantang, Sapiri, Sekunyir, Seruyan, 2033-2034 bulking plant and Sukamandang, Barito a kernel crushing plant
Kalimantan – South Angsana, Bakau, Bebunga, Betung, Leasehold 86,924 2001-2012 2-23 Oil palm estates, 8 1,254 Binturung, Gunung Aru, Gunung expiring palm oil mills, 2 Kemasan, Gunung Sari, Lanting, Laut 2032-2039 bulking plants and Timur, Matalok, Mustika, Pantai Bonati, a kernel crushing Pantai Timur, Pondok Labu, Rampa, plant Randi, Rantau, Sangkoh, Sekayu, Selabak, Sesulung, Sungai Cengal
Sulawesi – Central Ungkaya Leasehold 4,712 2001-2011 7-24 Oil palm estate, a 76 expiring 2024 palm oil mill and a bulking plant
Sumatera – Jambi Panjang Leasehold 4,000 2001-2007 11 Oil palm estate 43 expiring 2038 and a palm oil mill
Sumatera – South Bumi Ayu, Bukit Pinang, Karang Ringin, Leasehold 21,157 2001-2002 16-18 Oil palm estates 284 Mangun Jaya, Napal, Rantau Panjang, expiring and 2 palm oil Sungai Jernih, Sungai Pinang 2033-2034 mills Bangka Belitung Leasehold 10,045 2012 – Rubber estate – expiring 2072
Sumatera – East Aceh Batang Ara, Blang Simpo 1 & 2, Leasehold 8,820 2001-2008 21-36 Oil palm estates 154 Tamiang expiring and a palm oil mill 2022-2037 Annual Report 2019 P –G. 375 374
Age of Net book Land area Year of building value Location Tenure (Hectares) acquisition (Years)+ Description (RM million)
UPSTREAM PROPERTIES (CONTINUED) Sumatera – Riau Alur Damai, Aneka Persada, Mandah, Leasehold 54,835 2001-2015 5-23 Oil palm estates, 5 804 Menggala 1 – 3, Nusa Lestari, Nusa expiring palm oil mills and Persada, Pinang Sebatang, Rotan 2031-2036 a research centre Semelur, Teluk Bakau, Teluk Siak ADDITIONAL INFORMATION
Sumatera – North Deli Serdang Leasehold 972 2015 – Rubber estate, oil 29 expiring 2023 palm nursery and office building
Upstream Indonesia Properties 287,460 3,224
Liberia Bomi, Bong 1 & 2, Grand Cape Mount, Leasehold 220,000 2009 5-8 Oil palm and – Gbarpolu, Lofa expiring 2072 rubber estates 8 Papua New Guinea West New Britain, Morobe, Oro, Milne Leasehold 137,783 2018 2-46 Oil palm estates, a 3,695 Bay, New Ireland, Markham Valley expiring sugar cane, 2020-2107 plantation, grazing, pasture, a refinery, 2 biogas plants, a sugar factory, 11 palm oil mills, 5 kernel crushing plants, and 2 abattoirs
Solomon Islands Guadalcanal Leasehold 8,315 2015 3-13 Oil palm estates, a 323 expiring palm oil mills and 2043-2065 a kernel crushing plant
Upstream Properties 996,812 24 15,581 PROPERTIES OF THE GROUP As At 31 December 2019
Age of Net book Land area Year of building value Location Tenure (Hectares) acquisition (Years)+ Description (RM million)
DOWNSTREAM AND OTHERS PROPERTIES Malaysia Selangor Darul Ehsan Teluk Panglima Garang Freehold 2 2012 – Vacant land 11 North Port Edible Oil Refinery Leasehold 17 2006-2012 8-10 Refineries 134 Complex, Teluk Panglima Garang expiring 2076-2105
Johor Darul Takzim Pasir Gudang Leasehold 6 1974-1985 43 Refinery 9 expiring 2035-2043
Sarawak Kawasan Perindustrian Kidurong, Leasehold 14 2004 5-11 Refinery and a 27 Bintulu expiring 2072 kernel crushing plant
Downstream and Others 39 181 Properties – Malaysia
OVERSEAS Indonesia Desa Sei Taib, Kecamatan Pulau Laut, Leasehold 32 2014 4-5 Refinery 111 Kalimantan expiring 2044
Thailand Sukhumvit Road, Bangkok Freehold – 1986-2011 11-30 Office buildings 6 Poochaosamingprai Road, Samut Freehold 5 1986 11-30 Refinery 43 Prakan Yok Krabat-Laksi Road, Samut Sakhon Freehold – 1986 – Vacant land – Tiwanon Road, Nonthaburi Freehold 13 2014 33-38 Crushing and 92 refining plant and office building
The Netherlands Lindtsedijk, Zwijndrecht Freehold 11 2002 5-87 Refinery and a 145 research centre
South Africa Boksburg Leasehold 1 2004 7 Refinery ^ expiring 2019 Annual Report 2019 P –G. 37 376 7
Age of Net book Land area Year of building value Location Tenure (Hectares) acquisition (Years)+ Description (RM million)
DOWNSTREAM AND OTHERS PROPERTIES (CONTINUED) OVERSEAS (CONTINUED) United Kingdom
Liverpool Leasehold 3 2015 4-9 Refinery and 76 ADDITIONAL INFORMATION expiring 2034 office building
Papua New Guinea Markham Valley Leasehold 1 2018 10-3 2 copra mills 207 expiring 2033
Downstream and Others Properties – 66 680 Overseas
Downstream and Others Properties 105 861
GENERAL 8 Malaysia Selangor Darul Ehsan Plantation Tower, Oasis, Ara Damansara Freehold 2 2012 5 Office complex 221
Negeri Sembilan Darul Khusus Port Dickson Freehold 3 2018 24-60 Holiday bungalow 10
Pahang Darul Makmur Cameron Highlands Leasehold 2 2018 32-89 Holiday bungalow 2 expiring 2026-2082
Plantation Properties – General 7 233
Total Plantation Properties 996,925 16,675
+ The age of building is in respect of the building, mill and plant ^ NBV less than RM1 million * Included Upstream Liberia which was divested in January 2020 ANALYSIS OF SHAREHOLDINGS As At 2 April 2020
Total Number of Issued Shares : 6,884,575,283 ordinary shares Class of Shares : Ordinary shares Voting Rights : One vote per ordinary share in the case of a poll and one vote per person on a show of hand
No. of % of No. of % of Size of Shareholdings Shareholders Shareholders Shares Held Issued Shares
Less than 100 2,776 11.01 72,304 0.00
100 to 1,000 6,064 24.04 3,625,131 0.05
1,001 to 10,000 12,204 48.37 40,080,086 0.58
10,001 to 100,000 3,282 13.01 91,104,535 1.32
100,001 to less than 5% of issued capital 899 3.56 2,310,094,145 33.56
5% and above of issued capital 3 0.01 4,439,599,082 64.49
Total 25,228 100.00 6,884,575,283 100.00
No. of % of No. of % of Classification of Shareholders Shareholders Shareholders Shares Held Issued Shares
Individuals 20,811 82.49 124,667,912 1.81
Banks/Finance Companies 89 0.35 4,478,809,589 65.05
Investment Trusts/Foundations/Charities 15 0.06 482,173 0.01
Industrial and Commercial Companies 580 2.30 72,634,242 1.06
Government Agencies/Institutions 2 0.01 1,085,890 0.02
Nominees 3,729 14.78 2,206,790,202 32.05
Others 2 0.01 105,275 0.00
Total 25,228 100.00 6,884,575,283 100.00
DIRECTORS’ DIRECT AND INDIRECT INTERESTS IN THE COMPANY AND ITS RELATED CORPORATIONS
As disclosed in the Directors’ Report of the Financial Statements as set out on page 187, none of the Directors of the Company has any interest, direct or indirect, in shares, or debentures of, the Company or in a related corporation. Annual Report 2019 P –G. 379 378
TOP 30 SECURITIES ACCOUNT HOLDERS ACCORDING TO THE RECORD OF DEPOSITORS No. of % of Issued No. Name of Shareholder Shares Held Shares
1 Amanahraya Trustees Berhad 3,106,412,577 45.12 Amanah Saham Bumiputera 2 Citigroup Nominees (Tempatan) Sdn Bhd 937,737,853 13.62 Employees Provident Fund Board ADDITIONAL INFORMATION 3 Kumpulan Wang Persaraan (Diperbadankan) 395,448,652 5.74 4 Permodalan Nasional Berhad 223,147,723 3.24 5 Amanahraya Trustees Berhad 163,766,464 2.38 Amanah Saham Malaysia 2 – Wawasan 6 Amanahraya Trustees Berhad 152,621,454 2.22 Amanah Saham Malaysia 7 Amanahraya Trustees Berhad 94,041,237 1.37 Amanah Saham Bumiputera 2 8 Amanahraya Trustees Berhad 87,450,437 1.27 Amanah Saham Malaysia 3 9 HSBC Nominees (Asing) Sdn Bhd 64,598,669 0.94 JPMCB NA for Vanguard Total International Stock Index Fund 8 10 Citigroup Nominees (Tempatan) Sdn Bhd 62,692,649 0.91 Great Eastern Life Assurance (Malaysia) Berhad (PAR 1) 11 Citigroup Nominees (Tempatan) Sdn Bhd 59,363,900 0.86 Urusharta Jamaah Sdn Bhd (1) 12 Amanahraya Trustees Berhad 53,650,000 0.78 Amanah Saham Bumiputera 3 – Didik 13 HSBC Nominees (Asing) Sdn Bhd 52,741,479 0.77 JPMCB NA for Vanguard Emerging Markets Stock Index Fund 14 Cartaban Nominees (Tempatan) Sdn Bhd 47,209,527 0.69 PAMB for Prulink Equity Fund 15 Maybank Nominees (Tempatan) Sdn Bhd 47,000,000 0.68 Maybank Trustees Berhad for Public Ittikal Fund (N14011970240) 16 Cartaban Nominees (Asing) Sdn Bhd 40,772,728 0.59 Exempt AN for State Street Bank & Trust Company (WEST CLT OD67) 17 Citigroup Nominees (Tempatan) Sdn Bhd 40,462,700 0.59 Employees Provident Fund Board (Nomura) 18 Maybank Nominees (Tempatan) Sdn Bhd 33,346,216 0.48 Maybank Trustees Berhad for Public Regular Savings Fund (N14011940100) 19 Citigroup Nominees (Tempatan) Sdn Bhd 32,367,345 0.47 Exempt AN for AIA Bhd 20 Amanahraya Trustees Berhad 26,127,863 0.38 Public Islamic Dividend Fund 21 Citigroup Nominees (Tempatan) Sdn Bhd 21,978,402 0.32 Great Eastern Life Assurance (Malaysia) Berhad (PAR 3) ANALYSIS OF SHAREHOLDINGS As At 2 April 2020
TOP 30 SECURITIES ACCOUNT HOLDERS ACCORDING TO THE RECORD OF DEPOSITORS (CONTINUED) No. of % of Issued No. Name of Shareholder Shares Held Shares
22 Cartaban Nominees (Asing) Sdn Bhd 19,969,346 0.29 GIC Private Limited for Government of Singapore (C) 23 Maybank Nominees (Tempatan) Sdn Bhd 19,418,703 0.28 MTrustee Berhad for Principal Dali Equity Growth Fund (UT-CIMB-DALI) (419455) 24 Lembaga Tabung Haji 18,940,900 0.28 25 Amanahraya Trustees Berhad 18,844,187 0.27 Public Ittikal Sequel Fund 26 Citigroup Nominees (Tempatan) Sdn Bhd 18,720,800 0.27 Employees Provident Fund Board (CIMB PRIN) 27 Amanahraya Trustees Berhad 17,171,204 0.25 Public Islamic Select Enterprises Fund 28 HSBC Nominees (Asing) Sdn Bhd 15,408,000 0.22 JPMCB NA for Flexshares Morningstar Global Upstream Natural Resources Index Fund 29 Pertubuhan Keselamatan Sosial 14,495,465 0.21 30 UOB Kay Hian Nominees (Asing) Sdn Bhd 14,032,098 0.20 Exempt AN for UOB Kay Hian Pte Ltd (A/C clients)
TOTAL 5,899,938,578 85.69
SUBSTANTIAL SHAREHOLDERS ACCORDING TO THE REGISTER OF SUBSTANTIAL SHAREHOLDERS
No. of No. of Shares Held Shares Held % of (Indirect/ % of (Direct Issued Deemed Issued No. Name of Substantial Shareholder Interest) Shares Interest) Shares
1 AmanahRaya Trustees Berhad 3,111,412,677 45.19 – – – Amanah Saham Bumiputera
2 Employees Provident Fund Board 926,526,415 13.46 101,172,459 1.47
3 Kumpulan Wang Persaraan 396,539,278 5.76 16,490,400 0.24 (Diperbadankan) Annual Report 2019 P –G. 381 380
ADDITIONAL COMPLIANCE INFORMATION
Information pertaining to Sime Darby Plantation Berhad (SDP or Company) and Group for the financial year under review is as follows:
UTILISATION OF PROCEEDS RAISED FROM CORPORATE PROPOSAL
There was no proceed raised from corporate proposals during the financial year ended 31 December 2019.
AUDIT AND NON-AUDIT FEES ADDITIONAL INFORMATION (i) The amount of audit fees paid or payable to the external auditors, Messrs PricewaterhouseCoopers PLT (PwC), for services rendered to the Group and the Company for the financial year ended 31 December 2019 amounted to RM10,272 million and RM1.521 million, respectively.
(ii) The amount of non-audit fees paid or payable to the external auditors, PwC, and their affiliated companies for services rendered to the Group and the Company for the financial year ended 31 December 2019 amounted to RM2.035 million and RM0.318 million, respectively.
MATERIAL CONTRACTS INVOLVING INTERESTS OF DIRECTORS AND MAJOR SHAREHOLDERS
There was no material contract entered into by the Company and its subsidiaries involving interests of Directors and Major Shareholders during the financial year ended 31 December 2019.
MATERIAL CONTRACTS RELATING TO LOANS 8
There was no material contract relating to loans by the Company involving interests of Directors and Major Shareholders during the financial year ended 31 December 2019.
RECURRENT RELATED PARTY TRANSACTIONS OF A REVENUE OR TRADING NATURE
At the Sixteenth Annual General Meeting (AGM) held on 23 May 2019, the Company obtained a general mandate from its shareholders for recurrent related party transactions (RRPT) of a revenue or trading nature, to be entered into by the Company and/or its subsidiaries (RRPT Mandate).
The RRPT Mandate is valid until the conclusion of the forthcoming Seventeenth AGM of the Company.
The Group proposes to seek a renewal of the existing RRPT Mandate at its forthcoming Seventeenth AGM. The renewal of the existing RRPT Mandate, if approved by the shareholders, will be valid until the conclusion of the Company’s next AGM. Details of the RRPT Mandate being sought are provided in the Circular to Shareholders to be uploaded together with the Notice of AGM. ADDITIONAL COMPLIANCE INFORMATION
Pursuant to Paragraph 10.09(2)(b) and Paragraph 3.1.5 of Practice Note 12 of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad, details of the RRPT of a revenue or trading nature entered into during the financial year ended 31 December 2019 by the Company and/or its subsidiaries were as follows:
Value of Transaction Company Transacting Party Nature of Transactions (RM’million)
Transactions with Subsidiaries of Sime Darby Berhad (SDB)
1. SDP Kumpulan Sime Darby Leaseback of the Malaysia Vision 6.5 Berhad (KSDB) Valley (MVV) Land 1 from KSDB to SDP for the SDP Group to carry out planting/replanting, maintenance of oil palm, harvesting and selling of fresh fruit bunches (FFB) for 3,560 hectares of Labu and New Labu Estates located at Mukim Labu, Seremban, Negeri Sembilan for a term of three (3) years from 30 June 2017.
The rental expenses are payable on a monthly basis.
2. SDP Sime Darby Malaysia Grant of a non-exclusive, non- 2.0 Berhad (SDMB) assignable and non-transferable licence to use the “SIME DARBY” mark, Sime Darby Shield Device Logo, Shield Device Logo, Sime Darby in Chinese Characters, the “DEVELOPING SUSTAINABLE FUTURES” tagline and the “DELIVERING SUSTAINABLE FUTURES” tagline worldwide, solely in the course of or in connection with SDP’s business via the Trademark and Brand Licence Agreement by SDMB to SDP.
3. SDP and Group DXC Technology Global Receipt of centralised operational 27.1 Services Centre (DXC support, i.e. payroll, accounting and Technology) (fka Sime information technology processing, Darby Global Services and other administration services. Centre Sdn Bhd)
DXC Technology ceased to be a related party effective from 1 May 2019.
4. SDP and its following Sime Darby Auto Purchase of motor vehicles and 0.9 subsidiaries: ConneXion Sdn Bhd charges for vehicle maintenance Sime Darby Sime Darby Auto services on an ad hoc basis. Plantation (Sabah) Hyundai Sdn Bhd Sdn Bhd (SDP Sabah) Sime Darby Plantation Sarawak Sdn Bhd (SDP Sarawak) Annual Report 2019 P –G. 383 382
Value of Transaction Company Transacting Party Nature of Transactions (RM’million)
Transactions with Subsidiaries of Sime Darby Berhad (SDB) (Continued)
4. SDP and its following subsidiaries: (Continued)
Sime Darby ADDITIONAL INFORMATION Plantation Research Sdn Bhd (SDP Research) (fka Sime Darby Research Sdn Bhd) Sime Darby Plantation Seeds & Agricultural Services Sdn Bhd (SDP SAS) (fka Sime Darby Seeds & Agricultural Services Sdn Bhd) Sime Darby Plantation Agri-Bio Sdn Bhd (fka Sime Darby 8 Agri-Bio Sdn Bhd) Sime Darby Plantation Technology Centre Sdn Bhd (SDP TC) (fka Sime Darby Technology Centre Sdn Bhd) The China Engineers (Malaysia) Sdn Bhd (TCEM) Wangsa Mujur Sdn Bhd (WMSB)
5. SDP and its following Sime Darby Rent-A-Car Car leasing charges payable on an ad 2.1 subsidiaries: Sdn Bhd hoc basis. SDP Sabah SDP Sarawak SDP TC Sime Darby Plantation Biotech Lab Sdn Bhd (fka Sime Darby Biotech Laboratories Sdn Bhd) ADDITIONAL COMPLIANCE INFORMATION
Value of Transaction Company Transacting Party Nature of Transactions (RM’million)
6. SDP and its following Kubota Malaysia Purchase of heavy equipment and 27.1 subsidiaries: Sdn Bhd spare parts, and receipt of SDP Sabah (fka Sime Kubota Sdn maintenance services on an ad hoc SDP Sarawak Bhd) (Kubota) basis. SDP Research Hastings Deering (PNG) SDP SAS Limited SDP TC Hastings Deering TCEM (Solomon Islands) WMSB Limited Guthrie Industries Sime Darby Industrial Malaysia Sendirian Sdn Bhd Berhad Chartquest Sdn Bhd Kubota ceased to be a New Britain Palm Oil related party effective Limited from 1 April 2019. Sanguine (Malaysia) Sdn Bhd (Sanguine)
7. SDP Sabah Sime Darby Energy Design, engineering, procurement, – Solutions Sdn Bhd construction, testing, commissioning and completion of palm oil mill effluent biogas power plant for Sandakan Bay, Binuang and Giram.
SDP Sabah has terminated the engagement of Sime Darby Energy Solutions Sdn Bhd and engaged a third party contractor for the remaining work. The amount granted under the mandate represents the balance of the contract amount due to Sime Darby Energy Solutions Sdn Bhd for the work performed.
Transactions with Sime Darby Property Berhad (SD Property) and its subsidiaries
8. SDP Sime Darby Property (City Rental income from the tenancy of 0.5 of Elmina) Sdn Bhd quarry land of 80.14 hectares of Tanah (fka Sime Darby Elmina Merah Estate located at Mukim Jimah, Development Sdn Bhd) District of Port Dickson, Negeri Sembilan for a term of 30 years from SDP terminated the 1 January 1995 until 31 December tenancy of Tanah Merah 2024. quarry land with effect from December 2019. The rental income is receivable on an annual basis. Annual Report 2019 PG –. 384385
Value of Transaction Company Transacting Party Nature of Transactions (RM’million)
Transactions with Sime Darby Property Berhad (SD Property) and its subsidiaries (Continued)
9. SDP and its following Sime Darby Property Rental expenses from leasing of the 5.5 subsidiaries: (Ampar Tenang) Sdn following agricultural lands: Bhd (fka Sime Darby
Sime Darby (i) Six (6) tenancy agreements for a ADDITIONAL INFORMATION Plantation Latex Sdn Ampar Tenang Sdn term of two (2) years from 1 July Bhd Bhd) 2017 with an option to renew for (fka Sime Darby Sime Darby Property a further term of one (1) year in Latex Sdn Bhd) (Bukit Selarong) Sdn respect of: Bhd SDP Sabah (a) 95 hectares of Bukit Sanguine Sime Darby Property (Nilai) Sdn Bhd Kerayong Estate located at Sime Darby Property Mukim Kapar, Klang, (Sabah) Sdn Bhd Selangor (fka Sime Darby (b) 120 hectares of Sua Betong Properties (Sabah) Sdn Estate located at Mukim Si Bhd) Rusa, Port Dickson, Negeri Sime Darby Property Sembilan (Lukut) Sdn Bhd (c) 61 hectares of Mostyn Estate (fka Sime Darby Lukut located at Mukim Kunak, Development Sdn Bhd) Tawau, Sabah 8 Sime Darby Property (Nilai Realty) Sdn Bhd (d) 20 hectares of Bukit Selarong (fka Sime Darby Estate located at Mukim Properties Realty Sdn Naga Lilit, Kulim, Kedah Bhd) (e) 371 hectares of Padang Sime Darby Property Buluh Estate located at (Lembah Acob) Sdn Mukim Bandar Gurun, Kuala Bhd Muda, Kedah Sime Darby Property (f) 138.76 hectares of Lanadron (Utara) Sdn Bhd Estate located at Mukim Sime Darby Property Jorak, Muar, Johor (Pagoh) Sdn Bhd (fka Sime Darby Pagoh (ii) Three (3) tenancy agreements for Development Sdn Bhd) a term of two (2) years from 1 November 2017 with an option to renew for a further term of one (1) year in respect of: (a) 121 hectares of Bukit Selarong Estate located at Mukim Padang Meha, Kulim, Kedah (b) 495 hectares of Bukit Lagong Estate located at Mukim Rawang, Gombak, Selangor (c) 206.59 hectares of New Labu Estate located at Mukim Labu, Nilai, Negeri Sembilan (iii) A tenancy agreement for a term of two (2) years from 1 January 2018 with an option to renew for a further term of one (1) year for 269.5 hectares of Labu Estate located at Mukim Dengkil, Sepang, Selangor. ADDITIONAL COMPLIANCE INFORMATION
Value of Transaction Company Transacting Party Nature of Transactions (RM’million)
9. SDP and its following (iv) A tenancy agreement for a term subsidiaries: (Continued) of two (2) years from 1 November 2017 with an option to renew for a further term of one (1) year for 563.05 hectares of Elmina Estate located at Mukim Rawang, Gombak, Selangor. (v) A tenancy agreement for a term of three (3) years from 29 September 2017 with an option to renew for a further three (3) years of the MVV Land 2 for 760.95 hectares of Labu and New Labu Estates located at Mukim Labu, Seremban, Negeri Sembilan.
The rental expenses are payable on a monthly basis.
Transaction with Yayasan Sime Darby 1
10. SDP Yayasan Sime Darby Rental income from office space 0.4 located at Level 2, Block C, Plantation Tower for a period of 12 months commencing 1 July 2018 with an option to extend for a further three (3) years.
The rental income is receivable on a monthly basis.
Transaction with subsidiary of UMW Holdings Berhad (UMWH) 2
11. SDP UMW Toyota Motor Sdn Purchases of motor vehicles. 0.8 Bhd
GRAND TOTAL 72.9
Notes: 1 SDP, SDB and SD Property are the registered corporate members of Yayasan Sime Darby, a company limited by guarantee. 2 AmanahRaya Trustees Berhad – Amanah Saham Bumiputera (ASB) is a major shareholder of SDP with 45.19% direct equity interest in SDP as at 2 April 2020 and is deemed interested in the Recurrent Related Party Transactions (Interested Major Shareholder). ASB is also a Major Shareholder of SDB and SD Property with 43.96% direct equity interest in SDB and 41.20% direct equity interest in SD Property, as at 2 April 2019. ASB is also a Major Shareholder of UMWH, holding 41.14% direct equity interest as at 2 April 2019. Annual Report 2019 P –G. 387 386
FINANCIAL CALENDAR For The Financial Year Ended 31 December 2019
ANNOUNCEMENT OF UNAUDITED CONSOLIDATED RESULTS 1st Quarter ended 31 March 2019 : 31 May 2019 2nd Quarter ended 30 June 2019 : 30 August 2019 3rd Quarter ended 30 September 2019 : 29 November 2019 4th Quarter ended 31 December 2019 : 28 February 2020
DIVIDEND ADDITIONAL INFORMATION Notice Date Entitlement Date Payment Date
Final Single Tier Dividend of 1.0 sen per 28 February 2020 12 May 2020 22 May 2020 Ordinary Share
SEVENTEENTH ANNUAL GENERAL MEETING Notice Date : to be announced at a later date Meeting Date : to be announced at a later date
8 SHARE PRICE MOVEMENT For The Financial Year Ended 31 December 2019
Closing Price Volume Traded of the Month (Million shares) (RM) (RHS)
7 140
6 120
5 100
4 80
3 60
2 40
1 20
0 0 Jan’19 Feb’19 Mar’19 Apr’19 May’19 Jun’19 Jul’19 Aug’19 Sep’19 Oct’19 Nov’19 Dec’19
Highest (RM) Lowest (RM) Volume Traded (Million Share) (RHS)
Jan’19 Feb’19 Mar’19 Apr’19 May’19 Jun’19 Jul’19 Aug’19 Sep’19 Oct’19 Nov’19 Dec’19
Highest (RM) 5.18 5.28 5.15 5.17 5.14 5.00 4.90 4.98 4.93 4.91 5.15 5.56
Lowest (RM) 4.55 5.09 5.02 5.02 4.53 4.55 4.61 4.42 4.73 4.60 4.91 5.07
Volume Traded (Million Shares) 73.70 52.25 46.95 45.32 101.37 93.10 40.32 59.04 44.70 42.02 127.34 109.50 (RHS) Annual Report 2019 P –G. 389 388
NOTICE TO SHAREHOLDERS (Under The Personal Data Protection Act 2010) (“Notice”)
Sime Darby Plantation Berhad (“SDP” or “we” or “us” or To this end, we are committed to ensuring the “our”) strives to protect your personal data in accordance confidentiality, protection, security and accuracy of your with the Personal Data Protection Act 2010 (“the Act”). personal data made available to us. It is your obligation The Act was enacted to regulate the processing of personal to ensure that all personal data submitted to us and data. To comply with the Act, we are required to manage retained by us are accurate, not misleading, updated and the personal data that we collect from you relating to complete in all aspects. For the avoidance of doubt, we your shareholding in SDP. and/or the Group and/or our or their employees or authorised officers or agents will not be responsible for The purposes for which your personal data may be used any personal data submitted by you to us that is inaccurate, are, but not limited to: misleading, not up to date and incomplete. ADDITIONAL INFORMATION Internal record keeping including but not limited to Further, we request you to procure the consent of third the registration and management of your shareholding parties including, but not limited to your proxy(ies) whose in SDP personal data is made available by you to us and you To provide services to you hereby agree to use your best endeavours to do so. To communicate with you as a shareholder of SDP To better understand your needs as a shareholder of You may at any time after the submission of your personal SDP data to us, request for information relating to your personal For security and fraud prevention purposes data by contacting our share registrar Tricor Investor & For the purposes of statistical analysis of data Issuing House Services Sdn Bhd if you wish to enquire For marketing activities about any aspects of share registration matters: For the purposes of our corporate governance To send you event invitations based on selected events Tricor Investor & Issuing House Services Sdn Bhd To comply with any legal, statutory and/or regulatory Unit 32-01, Level 32, Tower A requirements Vertical Business Suite For the purposes of inclusion in media engagements Avenue 3, Bangsar South and/or any relevant or related events No. 8, Jalan Kerinchi For the purposes of us preparing guest invitations, 59200 Kuala Lumpur. 8 registration and/or sign-ups for our events For the purposes of printed and online publications Attention : Ms Lim Lay Kiow, Senior Manager Tel : 03-2783 9299 (collectively, “the Purposes”) e-mail : [email protected]
Your personal data is or will be collected from information In addition, you may request for access to your personal provided by you, including but not limited to, postal, data by contacting your broker or alternatively Tricor facsimile, telephone, and e-mail communications with or Investor & Issuing House Services Sdn Bhd as shown from you, and information provided by third-parties, including above if: but not limited to, Bursa Malaysia Berhad and any other stock exchange, and your stockbrokers and remisiers. you require access, wish to limit access and/or make any corrections and/or updates to your personal data You may be required to supply us with your name, identity subject to such request for access, limitation, correction card/passport number, correspondence address, telephone and/or updates not being refused under the provisions number, facsimile number and email address. of the Act and/or existing laws; or you wish to enquire about your personal data. If you fail to supply us with such personal data, we may not be able to process and/or disclose your personal data Any personal data retained by us shall be destroyed and/ for any of the Purposes. or deleted from our records and system in accordance with our retention policy in the event such data is no Please be informed that your personal data may be longer required for the said Purposes. disclosed, disseminated and/or transferred to companies within the SDP group of companies (including the holding In the event of any inconsistency between the English company, subsidiaries, related and affiliated companies, version and the Bahasa Malaysia version of this Notice, both local and international), whether present or future the English version shall prevail over the Bahasa Malaysia (collectively, “the Group”) or to any third-party organisations version. or persons for the purpose of fulfilling our obligations to you in respect of the Purposes and all such other purposes We shall process your personal data for the Purposes as that are related to the Purposes and also in providing set out above, on the basis that you have consented to integrated services, maintaining and storing records our processing of your personal data in accordance with including but not limited to the share registrar(s) appointed this Notice until we receive a notification from you with by us to manage the registration of shareholders. regards to this Notice, and you hereby declare that you have read, understood and accepted the statements and The processing, disclosure, dissemination and/or transfer terms herein. SDP reserves the right to change and/or of your personal data by us and/or the Group and/or amend this Notice from time to time. third-party organisations or persons may result in your personal data being transferred outside of Malaysia. NOTIS KEPADA PEMEGANG SAHAM (Di Bawah Akta Perlindungan Data Peribadi 2010) (“Notis”)
Sime Darby Plantation Berhad (“SDP” atau “kami”) Pemprosesan, pendedahan, penyebaran dan/atau bermatlamat untuk melindungi data peribadi anda selaras pemindahan data peribadi anda oleh kami dan/atau dengan Akta Perlindungan Data Peribadi 2010 (“Akta”). Kumpulan dan/atau organisasi atau individu pihak ketiga Akta tersebut digubal untuk mengawal selia pemprosesan mungkin akan mengakibatkan data peribadi anda data peribadi. Bagi mematuhi Akta tersebut, kami perlu dipindahkan ke luar Malaysia. menguruskan data peribadi yang kami kumpulkan daripada anda berkenaan dengan pegangan saham anda di SDP. Untuk tujuan ini, kami komited untuk memastikan kerahsiaan, perlindungan, keselamatan dan ketepatan data Tujuan penggunaan data peribadi anda adalah untuk, peribadi anda yang diberikan kepada kami. Anda tetapi tidak terhad kepada: bertanggungjawab untuk memastikan bahawa semua data peribadi yang anda berikan kepada kami dan yang Penyimpanan rekod dalaman termasuk, tetapi tidak disimpan oleh kami adalah tepat, tidak mengelirukan, terhad kepada, pendaftaran dan pengurusan pegangan terkini dan lengkap dalam semua aspek. Bagi mengelakkan saham anda di SDP keraguan, kami dan/atau Kumpulan dan/atau pekerja atau Untuk memberikan perkhidmatan kepada anda pegawai yang diberi kuasa atau ejen kami tidak akan Untuk berkomunikasi dengan anda sebagai pemegang bertanggungjawab untuk apa-apa data peribadi yang saham SDP diberikan oleh anda kepada kami yang tidak tepat, Untuk lebih memahami keperluan anda sebagai mengelirukan, bukan terkini dan tidak lengkap. pemegang saham SDP Bagi maksud-maksud keselamatan dan pencegahan Selanjutnya, kami meminta anda untuk mendapatkan penipuan persetujuan pihak ketiga, termasuk tetapi tidak terhad Bagi maksud analisis statistik data kepada proksi yang data peribadinya telah diberikan oleh Untuk aktiviti-aktiviti pemasaran anda kepada kami dan anda dengan ini bersetuju untuk Bagi maksud tadbir urus korporat kami menggunakan usaha terbaik anda untuk berbuat demikian. Untuk menghantar undangan-undangan ke acara-acara terpilih Anda boleh pada bila-bila masa selepas penyerahan data Untuk mematuhi sebarang keperluan undang-undang, peribadi anda kepada kami, mengemukakan permintaan statutori, dan peraturan untuk mengakses data peribadi anda dengan menghubungi Bagi maksud penyertaan dalam penglibatan media pendaftar saham kami Tricor Investor & Issuing House Services dan/atau apa-apa acara yang relevan atau yang berkaitan Sdn Bhd jika anda ingin membuat sebarang pertanyaan Bagi maksud untuk kami menyediakan jemputan berkenaan dengan aspek-aspek pendaftaran saham: tetamu, pendaftaran dan/atau kemasukan untuk acara- acara kami Tricor Investor & Issuing House Services Sdn Bhd Bagi maksud penerbitan bercetak dan penerbitan Unit 32-01, Aras 32, Tower A dalam talian kami Vertical Business Suite, Avenue 3, Bangsar South No. 8, Jalan Kerinchi, 59200 Kuala Lumpur. (secara kolektif dirujuk sebagai, “Tujuan-Tujuan tersebut”). Untuk perhatian : Puan Lim Lay Kiow, Pengurus Kanan Data peribadi anda adalah data yang sedang atau yang No.Tel : 03-2783 9299 akan dikumpulkan daripada maklumat yang diberikan e-mel : [email protected] oleh anda, termasuk tetapi tidak terhad kepada, komunikasi- komunikasi dengan anda atau daripada anda melalui pos, Anda juga boleh membuat permintaan untuk mengakses faksimili, telefon, dan e-mel serta maklumat yang diberikan data peribadi anda dengan menghubungi broker anda oleh pihak ketiga, termasuk tetapi tidak terhad kepada, atau secara alternatif Tricor Investor & Issuing House Services Bursa Malaysia Berhad dan mana-mana bursa saham lain, Sdn Bhd seperti yang tersebut di atas jika: broker saham dan remisier anda. anda memerlukan akses, menyekat akses, meminda Anda mungkin diminta untuk memberikan kepada kami dan/atau mengemas kini data peribadi anda, tertakluk nama, nombor kad pengenalan/pasport, alamat surat- kepada syarat bahawa permintaan untuk akses, sekatan, menyurat, nombor telefon, nombor faksimili dan alamat pindaan dan/atau kemas kini tersebut tidak ditolak di emel anda. bawah peruntukan Akta dan/atau undang-undang yang sedia ada; atau Jika anda gagal membekalkan kepada kami data peribadi anda ingin membuat pertanyaan mengenai data tersebut, kami tidak akan dapat memproses dan/atau peribadi anda. mendedahkan data peribadi anda untuk Tujuan-Tujuan tersebut. Data peribadi anda yang disimpan oleh kami akan dimusnahkan dan/atau dipadamkan daripada rekod dan Sila ambil maklum bahawa data peribadi anda boleh sistem kami mengikut polisi penyimpanan kami sekiranya didedahkan, disebarkan dan/atau dipindahkan kepada data tersebut tidak lagi diperlukan bagi Tujuan-Tujuan syarikat-syarikat di dalam kumpulan syarikat SDP (termasuk tersebut. syarikat induk, anak-anak syarikat, syarikat-syarikat berkaitan dan bersekutu tempatan dan antarabangsa), sama ada Sekiranya terdapat sebarang percanggahan atau konflik pada masa kini atau masa hadapan (secara kolektif, antara versi Bahasa Inggeris dan versi Bahasa Malaysia “Kumpulan”), atau kepada mana-mana organisasi atau Notis ini, versi Bahasa Inggeris akan digunapakai. individu pihak ketiga bagi maksud memenuhi tanggungjawab kami kepada anda untuk melaksanakan Kami akan memproses data peribadi anda untuk Tujuan- Tujuan-Tujuan tersebut dan apa sahaja tujuan lain yang Tujuan tersebut, atas dasar bahawa anda telah bersetuju berkaitan dengan Tujuan-Tujuan tersebut, serta dalam untuk membenarkan kami memproses data peribadi anda menyediakan perkhidmatan-perkhidmatan bersepadu, mengikut Notis ini sehingga kami menerima pemberitahuan menyelenggara dan menyimpan rekod-rekod oleh, termasuk daripada anda berkenaan Notis ini dan anda dengan ini tetapi tidak terhad kepada, pendaftar saham atau pendaftar- mengakui bahawa anda telah membaca, memahami dan pendaftar saham yang dilantik oleh kami bagi menguruskan menerima pernyataan-pernyataan dan terma-terma di pendaftaran pemegang saham. dalam Notis ini. SDP berhak mengubah dan/atau meminda Notis ini dari semasa ke semasa. Annual Report 2019 P –G. 391 390
NOTICE TO PROXIES (Under The Personal Data Protection Act 2010) (“Notice”)
Sime Darby Plantation Berhad (“SDP” or “we” or “us” or Further, we request you to procure the consent of third- “our”) strives to protect your personal data in accordance parties whose personal data is made available by you with the Personal Data Protection Act 2010 (“the Act”). to us and you hereby agree to use your best endeavours The Act was enacted to regulate the processing of personal to do so. data. To comply with the Act, we are required to manage the personal data that we collect from you relating to You may at any time after the submission of your personal your acting as a proxy for a shareholder in SDP. data to us, request for access to your personal data from Tricor Investor & Issuing House Services Sdn Bhd if: The purposes for which your personal data may be used are, but not limited to: you require access, wish to limit access and/or make any corrections and/or updates to your personal data ADDITIONAL INFORMATION Internal record keeping including but not limited to subject to such request for access, limitation, correction the registration of attendance at the general meeting(s) and/or updates not being refused under the provisions To communicate with you as a proxy for a shareholder of the Act and/or existing laws; or of SDP you wish to enquire about your personal data. For security and fraud prevention purposes For the purposes of statistical analysis of data Tricor Investor & Issuing House Services Sdn Bhd For the purposes of our corporate governance To comply with any legal, statutory and/or regulatory Unit 32-01, Level 32, Tower A requirements Vertical Business Suite Avenue 3, Bangsar South (collectively, “the Purposes”) No. 8, Jalan Kerinchi 59200 Kuala Lumpur. Your personal data is or will be collected from information provided by you, including but not limited to, postal, Attention : Ms Lim Lay Kiow, Senior Manager facsimile, telephone, and e-mail communications with or Tel : 03-2783 9299 from you, and information provided by third-parties, including e-mail : [email protected] but not limited to, Bursa Malaysia Berhad and any other 8 stock exchange, and your stockbrokers and remisiers. Any personal data retained by us shall be destroyed and/ or deleted from our records and system in accordance You may be required to supply us with your name, identity with our retention policy in the event such data is no card/passport number and correspondence address. longer required for the said Purposes.
If you fail to supply us with such personal data, we may In the event of any inconsistency between the English not be able to process and/or disclose your personal data version and the Bahasa Malaysia version of this Notice, for any of the Purposes. the English version shall prevail over the Bahasa Malaysia version. Please be informed that your personal data may be disclosed, disseminated and/or transferred to companies We shall process your personal data for the Purposes as within the SDP group of companies (including the holding set out above, on the basis that you have consented to company, subsidiaries, related and affiliated companies, our processing of your personal data in accordance with both local and international), whether present or future this notice until we receive a notification from you with (collectively, “the Group”) or to any third-party organisations regards to this Notice, and you hereby declare that you or persons for the purpose of fulfilling our obligations to have read, understood and accepted the statements and you in respect of the Purposes and all such other purposes terms herein. SDP reserves the right to change and/or that are related to the Purposes and also in providing amend this Notice from time to time. integrated services, maintaining and storing records including but not limited to the share registrar(s) appointed by us to manage the registration of shareholders.
The processing, disclosure, dissemination and/or transfer of your personal data by us and/or the Group and/or third-party organisations or persons may result in your personal data being transferred outside of Malaysia.
To this end, we are committed to ensuring the confidentiality, protection, security and accuracy of your personal data made available to us. It is your obligation to ensure that all personal data submitted to us and retained by us are accurate, not misleading, updated and complete in all aspects. For the avoidance of doubt, we and/or the Group and/or our or their employees or authorised officers or agents will not be responsible for any personal data submitted by you to us that is inaccurate, misleading, not up to date and incomplete. NOTIS KEPADA PROKSI (Di Bawah Akta Perlindungan Data Peribadi 2010) (“Notis”)
Sime Darby Plantation Berhad (“SDP” atau “kami”) Untuk tujuan ini, kami komited untuk memastikan bermatlamat untuk melindungi data peribadi anda selaras kerahsiaan, perlindungan, keselamatan dan ketepatan dengan Akta Perlindungan Data Peribadi 2010 (“Akta”). data peribadi anda yang diberikan kepada kami. Anda Akta tersebut digubal untuk mengawal selia pemprosesan bertanggungjawab untuk memastikan bahawa semua data peribadi. Bagi mematuhi Akta tersebut, kami perlu data peribadi yang anda berikan kepada kami dan yang menguruskan data peribadi yang kami kumpulkan daripada disimpan oleh kami adalah tepat, tidak mengelirukan, anda yang berkait dengan perwakilan anda sebagai proksi terkini dan lengkap dalam semua aspek. Bagi mengelakkan untuk pemegang saham SDP. keraguan, kami dan/atau Kumpulan dan/atau pekerja atau pegawai yang diberi kuasa atau ejen kami tidak Data peribadi anda adalah untuk, tetapi tidak terhad akan bertanggungjawab untuk apa-apa data peribadi kepada tujuan-tujuan berikut: yang diberikan oleh anda kepada kami yang tidak tepat, mengelirukan, bukan terkini dan tidak lengkap. Penyimpanan rekod dalaman termasuk, tetapi tidak terhad kepada, pendaftaran kehadiran di mesyuarat Selanjutnya, kami meminta anda untuk mendapatkan atau mesyuarat-mesyuarat agung persetujuan pihak ketiga yang data peribadinya telah Untuk berkomunikasi dengan anda sebagai proksi diberikan oleh anda kepada kami dan anda dengan ini kepada pemegang saham SDP bersetuju untuk menggunakan usaha terbaik anda untuk Bagi maksud-maksud keselamatan dan pencegahan berbuat demikian. penipuan Bagi maksud analisis statistik data Anda boleh pada bila-bila masa selepas penyerahan data Bagi maksud tadbir urus korporat kami peribadi ini mengemukakan permintaan untuk mengakses Untuk mematuhi sebarang keperluan undang-undang, data peribadi anda daripada Tricor Investor & Issuing statutori, dan/atau peraturan House Services Sdn Bhd jika: (secara kolektif dirujuk sebagai, “Tujuan-Tujuan tersebut”). anda memerlukan akses, menyekat akses, meminda dan/atau mengemaskini data peribadi anda, tertakluk Data peribadi anda adalah data yang sedang atau yang kepada syarat bahawa permintaan untuk akses, sekatan, akan dikumpulkan daripada maklumat yang diberikan pindaan dan/atau kemaskini tersebut tidak ditolak di oleh anda, termasuk tetapi tidak terhad kepada, komunikasi- bawah peruntukan Akta dan/atau undang-undang komunikasi dengan anda atau daripada anda melaui pos, yang sedia ada; atau faksimili, telefon, dan e-mel serta maklumat yang diberikan anda ingin membuat pertanyaan mengenai data oleh pihak ketiga, termasuk tetapi tidak terhad kepada, peribadi anda. Bursa Malaysia Berhad dan mana-mana bursa saham lain, broker saham dan remisier anda. Tricor Investor & Issuing House Services Sdn Bhd Unit 32-01, Aras 32, Tower A Anda mungkin diminta untuk memberikan kepada kami Vertical Business Suite, Avenue 3, Bangsar South nama, nombor kad pengenalan/pasport dan alamat surat- No. 8, Jalan Kerinchi, 59200 Kuala Lumpur. menyurat anda. Untuk perhatian : Puan Lim Lay Kiow, Pengurus Kanan Jika anda gagal membekalkan kepada kami data peribadi No.Tel : 03-2783 9299 tersebut, kami tidak akan dapat memproses dan/atau e-mel : [email protected] mendedahkan data peribadi anda untuk Tujuan-Tujuan tersebut. Data peribadi anda yang disimpan oleh kami akan dimusnahkan dan/atau dipadamkan daripada rekod dan Sila ambil maklum bahawa data peribadi anda boleh sistem kami mengikut polisi penyimpanan kami sekiranya didedahkan, disebarkan dan/atau dipindahkan kepada data tersebut tidak lagi diperlukan bagi Tujuan-Tujuan syarikat-syarikat di dalam kumpulan syarikat SDP (termasuk tersebut. syarikat induk, anak-anak syarikat, syarikat-syarikat berkaitan dan bersekutu tempatan dan antarabangsa), sama ada Sekiranya terdapat sebarang percanggahan atau konflik pada masa kini atau masa hadapan (secara kolektif, antara versi Bahasa Inggeris dan versi Bahasa Malaysia “Kumpulan”), atau kepada mana-mana organisasi atau Notis ini, versi Bahasa Inggeris akan digunapakai. individu pihak ketiga bagi maksud memenuhi tanggungjawab kami kepada anda untuk melaksanakan Kami akan memproses data peribadi anda untuk Tujuan- Tujuan-Tujuan tersebut dan apa sahaja tujuan lain yang Tujuan tersebut atas dasar bahawa anda telah bersetuju berkaitan dengan Tujuan-Tujuan tersebut, serta dalam untuk membenarkan kami memproses data peribadi menyediakan perkhidmatan-perkhidmatan bersepadu, anda mengikut Notis ini sehingga kami menerima menyelenggara dan menyimpan rekod-rekod oleh, pemberitahuan daripada anda berkenaan Notis ini dan termasuk tetapi tidak terhad kepada, pendaftar saham anda dengan ini mengakui bahawa anda telah membaca, atau pendaftar-pendaftar saham yang dilantik oleh kami memahami dan menerima pernyataan-pernyataan dan bagi menguruskan pendaftaran pemegang saham. terma-terma di dalam Notis ini. SDP berhak untuk mengubah dan/atau meminda Notis ini dari semasa ke Pemprosesan, pendedahan, penyebaran dan/atau semasa. pemindahan data peribadi anda oleh kami dan/atau Kumpulan dan/atau organisasi atau individu pihak ketiga mungkin akan mengakibatkan data peribadi anda dipindahkan ke luar Malaysia. Annual Report 2019 P –G. 393 392
GLOBAL REPORTING INITIATIVE (GRI) CONTENT INDEX
The Global Reporting Initiative (GRI) is a multi-stakeholder standard for sustainability reporting, providing guidance on determining report content and indicators. Sime Darby Plantation Berhad Annual Report has been prepared in accordance with the GRI Standards: Core option. The following summary table details the location of specific disclosures throughout this report and its supplementary Sustainability Report. It also includes additional supporting commentary and reasons for the omission of data, where relevant. For further details, please visit www.simedarbyplantation.com.
GRI 101: Foundation 2016
GRI 102: General Disclosures 2016 ADDITIONAL INFORMATION Disclosure Page or reason for omission Organisational Profile 102-1 Name of organisation Sime Darby Plantation Berhad (SDP) 102-2 Activities, brands, products, and services Who We Are (12-13) What We Do (14-15) 102-3 Location of headquarters Our Corporate Information (19) 102-4 Location of operations What We Do (14-15) Our Global Presence (16-17) 102-5 Ownership and legal form Our Corporate Information (19) 102-6 Markets served What We Do (14-15) Our Global Presence (16-17) Our Value Creation Model (44-45) 8 102-7 Scale of the organisation Who We Are (12-13) Our Global Presence (16-17) Our Financial Highlights (18) Group Financial Review (54-60) 5-Year Financial Highlights (61) 102-8 Information on employees and other Sustainability Report 2019 – Our Commitment to workers Human Rights and Decent Work (69), Where We are in Numbers (90-91) 102-9 Supply chain What We Do (14-15) Our Global Presence (16-17) Our Value Creation Model (44-45) Our Performance by Sector: Upstream (62) Our Performance by Sector: Downstream (70) Supporting Smallholders (97) 102-10 Significant changes to the organisation and Chairman’s Message (26-27) its supply chain Group Managing Director’s Review (34-35) Group Financial Review (54-60) Corporate Governance Overview Statement (145) 102-11 Precautionary Principle or approach Chairman’s Message (27) Statement on Risk Management and Internal Control (176-177) 102-12 External initiatives About Our Report (4-5) Our Approach to Sustainability (8) Sustainability at Sime Darby Plantation (92-93) Drawing the Line on Deforestation (95-98) Our Commitment to Human Rights and Decent Work (104, 106) GLOBAL REPORTING INITIATIVE (GRI) CONTENT INDEX
GRI 102: General Disclosures 2016 (Continued) Disclosure Page or reason for omission Organisational Profile (Continued) 102-13 Membership of associations About Our Report (4) Our Approach to Sustainability (8) Sustainability at Sime Darby Plantation (93) Drawing the Line on Deforestation (95-98) Our Commitment to Human Rights and Decent Work (104, 106) Strategy 102-14 Statement from senior decision-maker Group Managing Director’s Review (36-37) Ethics and integrity 102-16 Values, principles, standards, and norms of Corporate Governance Overview Statement (144) behavior Statement on Risk Management and Internal Control (180-181) Governance 102-18 Governance structure Corporate Governance Overview Statement (140-144) Stakeholder Engagement 102-40 List of stakeholder groups Stakeholder Engagement (46-47) 102-41 Collective bargaining agreements Sustainability Report 2019 – Our Commitment to Human Rights and Decent Work (60) 102-42 Identifying and selecting stakeholders Stakeholder Engagement (46-47) 102-43 Approach to stakeholder engagement Stakeholder Engagement (46-47) 102-44 Key topics and concerns raised Stakeholder Engagement (46-47) Managing Our Material Matters (48-49) Reporting Practice 102-45 Entities included in the consolidated Financial Statements financial statements 102-46 Defining report content and topic About This Report (5) Boundaries 102-47 List of material topics About This Report (5) 102-48 Restatements of information Who We Are (13) 102-49 Changes in reporting About This Report (5) 102-50 Reporting period About This Report (5) 102-51 Date of most recent report Non-applicable. Reports are produced every financial year. 102-52 Reporting cycle About This Report (5) 102-53 Contact point for questions regarding the Our Corporate Information (19) report 102-54 Claims of reporting in accordance with the About This Report (5) GRI Standards 102-55 GRI Content Index Global Reporting Index (GRI) Content Index 102-56 External assurance Independent Assurance Report Annual Report 2019 P –G. 395 394
Material Topics GRI Standard Disclosure Page or reason for omission ECONOMIC
Economic Performance GRI 103: 103-1 Explanation of the material topic Group Managing Director’s Review (30-37) Management and its Boundary Group Financial Review (54-60) Approach 2016 103-2 The management approach and Group Financial Review (54-60) ADDITIONAL INFORMATION its components 103-3 Evaluation of the management Group Financial Review (54-60) approach GRI 201: 201-1 Direct economic value generated Group Financial Review (54-60) Economic and distributed Financial Statements Performance 2016 Market Presence GRI 103: 103-1 Explanation of the material topic Our Global Presence (16-17) Management and its Boundary Approach 2016 103-2 The management approach and Our Market Landscape (40-43) its components 103-3 Evaluation of the management Our Market Landscape (40-43) approach 8 GRI 202: 202-2 Proportion of senior Profile of Leadership Team (128-137) Market Presence management hired from the 2016 local community Indirect Economic Impacts GRI 103: 103-1 Explanation of the material topic Our Commitment to Human Rights and Management and its Boundary Decent Work (104-107) Approach 2016 103-2 The management approach and Our Commitment to Human Rights and its components Decent Work (104-107) 103-3 Evaluation of the management Our Commitment to Human Rights and approach Decent Work (104-107) GRI 203: 203-1 Infrastructure investments and Our Commitment to Human Rights and Indirect Economic services supported Decent Work (104-107) Impacts 2016 Group Managing Director’s Review (31, 36) 203-2 Significant indirect economic Our Commitment to Human Rights and impacts Decent Work (104-107) Procurement Practices GRI 103: 103-1 Explanation of the material topic Board Tender Committee Report (169-170) Management and its Boundary Approach 2016 103-2 The management approach and Board Tender Committee Report (169-170) its components Statement of Risk Management and Internal Control (174-182) 103-3 Evaluation of the management Statement of Risk Management and Internal approach Control (174-182) Anti-corruption GRI 103: 103-1 Explanation of the material topic Governance and Audit Committee Report Management and its Boundary (150-159) Approach 2016 103-2 The management approach and Governance and Audit Committee Report its components (150-159) 103-3 Evaluation of the management Statement of Risk Management and Internal approach Control (174-182) GLOBAL REPORTING INITIATIVE (GRI) CONTENT INDEX
Material Topics GRI Standard Disclosure Page or reason for omission ENVIRONMENT
Water and Effluents GRI 103: 103-1 Explanation of the material topic Innovating for Sustainability (111) Management and its Boundary Approach 2016 103-2 The management approach and Innovating for Sustainability (111) its components 103-3 Evaluation of the management Innovating for Sustainability (111) approach GRI 303: 303-2 Management of water discharge- Sustainability Report 2019 - Innovation for Water and Effluents related impacts Sustainability (80-81) 2018 Biodiversity GRI 103: 103-1 Explanation of the material topic Drawing the Line on Deforestation (98-99) Management and its Boundary Approach 2016 103-2 The management approach and Drawing the Line on Deforestation (98-99) its components 103-3 Evaluation of the management Drawing the Line on Deforestation (98-99) approach GRI 304: 304-2 Significant impacts of activities, Sustainability Report 2019 – Drawing the Line Biodiversity products, and services on on Deforestation (38-41) 2016 biodiversity 304-3 Habitats protected or restored Sustainability Report 2019 – Drawing the Line on Deforestation (38-41) Emissions GRI 103: 103-1 Explanation of the material topic Building Climate Change Resilience (100-103) Management and its Boundary Approach 2016 103-2 The management approach and Building Climate Change Resilience (100-103) its components 103-3 Evaluation of the management Building Climate Change Resilience (100-103) approach GRI 305: Emissions 305-1 Direct (Scope 1) GHG emissions Sustainability Report 2019 – Building Climate 2016 Change Resilience (42-43, 89) 305-2 Disclosure 305-2 Energy indirect Sustainability Report 2019 – Building Climate (Scope 2) GHG emissions Change Resilience (42-43, 89) 305-3 Other indirect (Scope 3) GHG Sustainability Report 2019 – Building Climate emissions Change Resilience (42-43, 89) 305-4 GHG emissions intensity Sustainability Report 2019 – Building Climate Change Resilience (42-43, 89) 305-5 Reduction of GHG emissions Sustainability Report 2019 – Building Climate Change Resilience (42-43, 89) Effluents and Waste GRI 103: 103-1 Explanation of the material topic Innovating for Sustainability (111) Management and its Boundary Approach 2016 103-2 The management approach and Innovating for Sustainability (111) its components 103-3 Evaluation of the management Innovating for Sustainability (111) approach Annual Report 2019 P –G. 397 396
Material Topics GRI Standard Disclosure Page or reason for omission ENVIRONMENT (CONTINUED)
Environmental Compliance GRI 103: 103-1 Explanation of the material topic Innovating for Sustainability (111) Management and its Boundary
Approach 2016 103-2 The management approach and Innovating for Sustainability (111) ADDITIONAL INFORMATION its components 103-3 Evaluation of the management Innovating for Sustainability (111) approach GRI 307: 307-1 Non-compliance with Sustainability Report 2019 – Building Climate Environmental environmental laws and Change Resilience (45), Where We Are in Compliance 2016 regulations Numbers (94)
SOCIAL
Employment GRI 103: 103-1 Explanation of the material topic Our Performance by Sector: Human Capital Management and its Boundary Growth (80-89) Approach 2016 103-2 The management approach and Our Performance by Sector: Human Capital 8 its components Growth (80-89) 103-3 Evaluation of the management Our Performance by Sector: Human Capital approach Growth (80-89) Labour/Management Relations GRI 103: 103-1 Explanation of the material topic Our Performance by Sector: Human Capital Management and its Boundary Growth (80-89) Approach 2016 103-2 The management approach and Our Performance by Sector: Human Capital its components Growth (80-89) 103-3 Evaluation of the management Our Performance by Sector: Human Capital approach Growth (80-89) Occupational Health and Safety GRI 103: 103-1 Explanation of the material topic Our Commitment to Human Rights and Management and its Boundary Decent Work (106-107) Approach 2016 103-2 The management approach and Our Commitment to Human Rights and its components Decent Work (106-107) 103-3 Evaluation of the management Our Commitment to Human Rights and approach Decent Work (106-107) GRI 403: 403-1 Occupational health and safety Statement of Risk Management and Internal Occupational management system Control (181) Health and Safety Sustainability Report 2019 - Our Commitment 2018 to Human Rights and Decent Work (56-59, 84-85) 403-3 Occupational health services Sustainability Report 2019 – Our Commitment to Human Rights and Decent Work (53-55) 403-4 Worker participation, Sustainability Report 2019 – Our Commitment consultation, and communication to Human Rights and Decent Work (60), on occupational health and Managing Our Material Matters (84-85) safety GLOBAL REPORTING INITIATIVE (GRI) CONTENT INDEX
Material Topics GRI Standard Disclosure Page or reason for omission SOCIAL (CONTINUED)
Occupational Health and Safety (Continued) GRI 403: 403-5 Worker training on occupational Our Commitment to Human Rights and Occupational health and safety Decent Work (106-107) Health and Safety 403-7 Prevention and mitigation of Corporate Governance Overview Statement 2018 (Continued) occupational health and safety (144) impacts directly linked by Our Approach to Integrated Thinking (6-7) business relationships Statement of Risk Management and Internal Control (180-181) Drawing the Line on Deforestation (96-97, 99) 403-9 Work-related injuries Sustainability Report 2019 – Our Commitment to Human Rights and Decent Work (56-59) Training and Education GRI 103: 103-1 Explanation of the material topic Our Performance by Sector: Human Capital Management and its Boundary Growth (80-89) Approach 2016 103-2 The management approach and Our Performance by Sector: Human Capital its components Growth (80-89) 103-3 Evaluation of the management Our Performance by Sector: Human Capital approach Growth (80-89) Diversity and Equal Opportunity GRI 103: 103-1 Explanation of the material topic Our Performance by Sector: Human Capital Management and its Boundary Growth (80-89) Approach 2016 103-2 The management approach and Our Performance by Sector: Human Capital its components Growth (80-89) 103-3 Evaluation of the management Our Performance by Sector: Human Capital approach Growth (80-89) Non-discrimination GRI 103: 103-1 Explanation of the material topic Our Performance by Sector: Human Capital Management and its Boundary Growth (80-89) Approach 2016 103-2 The management approach and Our Performance by Sector: Human Capital its components Growth (80-89) 103-3 Evaluation of the management Our Performance by Sector: Human Capital approach Growth (80-89) Freedom of Association and Collective Bargaining GRI 103: 103-1 Explanation of the material topic Sustainability Report 2019 – Our Commitment Management and its Boundary to Human Rights and Decent Work (60) Approach 2016 103-2 The management approach and Sustainability Report 2019 – Our Commitment its components to Human Rights and Decent Work (60) 103-3 Evaluation of the management Sustainability Report 2019 – Our Commitment approach to Human Rights and Decent Work (60) GRI 407: 407-1 Operations and suppliers in Sustainability Report 2019 – Our Commitment Freedom of which the right to freedom to Human Rights and Decent Work (60) Association of association and collective and Collective bargaining may be at risk Bargaining 2016 Annual Report 2019 P –G. 399 398
Material Topics GRI Standard Disclosure Page or reason for omission SOCIAL (CONTINUED)
Child Labour GRI 103: 103-1 Explanation of the material topic Sustainability Report 2019 – Our Commitment Management and its Boundary to Human Rights and Decent Work (70-71)
Approach 2016 103-2 The management approach and Sustainability Report 2019 – Our Commitment ADDITIONAL INFORMATION its components to Human Rights and Decent Work (70-71) 103-3 Evaluation of the management Sustainability Report 2019 – Our Commitment approach to Human Rights and Decent Work (70-71) GRI 407: 408-1 Operations and suppliers at Sustainability Report 2019 – Our Commitment Child Labour 2016 significant risk for incidents to Human Rights and Decent Work (70-71) of child labor Forced or Compulsory Labour GRI 103: 103-1 Explanation of the material topic Our Commitment to Human Rights and Management and its Boundary Decent Work (104-107) Approach 2016 103-2 The management approach and Our Commitment to Human Rights and its components Decent Work (104-107) 103-3 Evaluation of the management Our Commitment to Human Rights and 8 approach Decent Work (104-107) GRI 409: 409-1 Operations and suppliers at Sustainability Report 2019 – Our Commitment Forced or significant risk for incidents of to Human Rights and Decent Work (51-53) Compulsory Labour forced or compulsory labour 2016 Human Rights Assessments GRI 103: 103-1 Explanation of the material topic Our Commitment to Human Rights and Management and its Boundary Decent Work (104-107) Approach 2016 103-2 The management approach and Our Commitment to Human Rights and its components Decent Work (104-107) 103-3 Evaluation of the management Our Commitment to Human Rights and approach Decent Work (104-107) Local Communities GRI 103: 103-1 Explanation of the material topic Our Commitment to Human Rights and Management and its Boundary Decent Work (104-107) Approach 2016 103-2 The management approach and Our Commitment to Human Rights and its components Decent Work (104-107) 103-3 Evaluation of the management Our Commitment to Human Rights and approach Decent Work (104-107) This page has been intentionally left blank This page has been intentionally left blank ANNUAL REPORT 019 RAISING THE BAR ON RAISING THE BAR SUSTAINABLE GROWTH
SIME DARBY PLANTATION BERHAD Registration No.: 200401009263 (647766-V) Annual Report 2019 Malaysia Find Us On Us Find 47301 Petaling Jaya, Selangor Jaya, 47301 Petaling Registration No.: 200401009263 (647766-V) No.: Registration SIME DARBY PLANTATION BERHAD PLANTATION SIME DARBY This report paper This on 100% recycled is printed No. 2, Jalan PJU 1A/7, Ara Damansara 1A/7, Ara 2, Jalan PJU No. Main Block, Level 10, Plantation Tower 10, Plantation Main Block, Level www.simedarbyplantation.com Tel: (603) 7848 4000 Tel: (603) 7848 4172 Fax: