IOI IOI C O COrpOration rp O rat 9027-W io AnnuAl report 2011 n Berhad 9027-W Berhad • ANN U a L REP Boosting O RT plantation 2011 productivity through Bio-technology IOI’s cutting-edge manufacturing facilities nsIght I together with IOI COrpOration Berhad 9027-W two IOI Square ppOrtunIty IOI resort the IOI property O 62502 putrajaya portfolio: resulting in Malaysia Quality pays nnOvation www.ioigroup.com I cover rationale Our businesses are based on two of mankind’s most fundamental resources: land and crops. Our challenge is not only to build a sustainable business for the benefit of all our stakeholders, but to nurture these resources. In our 2011 Annual Report we focus on the various ways in which we are achieving innovation for the future good for mankind and of the planet. our vision …is to be a leading corporation in our core businesses by providing products and services of superior values and by sustaining consistent long-term growth in volume and profitability. We shall strive to achieve responsible commercial success by satisfying our customers’ needs, giving superior performance to our shareholders, providing rewarding careers to our people, cultivating mutually beneficial relationship with our business associates, caring for the society and the environment in which we operate and contributing towards the progress of our nation. our core values In our pursuit of Vision IOI, we expect our people to uphold, at all times, the IOI Core Values which are expressed as follows: Integrity Loyalty Speed or Timeliness Cost Efficiency which is essential and is crucial because we are in response is important is crucial as we need cannot be compromised one team sharing one in our ever changing to remain competitive vision business environment Commitment Excellence in Execution Innovativeness as we do what we say we as our commitments can to provide us additional will do only be realised through competitive edge actions and results key indicators % 40 30 20 10 0 23.07.10 13.08.10 03.09.10 24.09.10 15.10.10 05.11.10 26.11.10 17.12.10 07.01.11 28.01.11 18.02.11 11.03.11 01.04.11 22.04.11 13.05.11 03.06.11 24.06.11 IOI Corporation beRHAd FTse buRsa malaysIA kLCI kl plantation index 2011 2010 2009 2008 2007 FINANCIAL Profit before taxation RM’000 2,863,612 2,550,633 1,550,117 3,095,197 1,991,073 Profit attributable to owners of the parent RM’000 2,222,899 2,035,661 983,517 2,231,632 1,482,104 Equity attributable to owners of the parent RM’000 11,999,177 10,780,181 8,346,290 8,391,361 7,739,258 Return on average equity % 19.52 21.29 11.75 27.67 21.52 Basic earnings per share seN 34.75 32.96 16.62 36.85 24.13 Gross dividend per share % 170.0 170.0 80.0 170.0 70.0 PLANTATION FFB production MT 3,295,473 3,405,090 3,626,776 3,957,281 3,694,535 Total oil palm area HA 157,045 154,709 150,931 149,445 148,871 PROPeRTY Sales value RM’000 942,002 1,045,095 688,487 696,743 683,471 Sales unit 1,730 2,044 1,465 1,934 1,529 MANuFACTuRING OleOchemical Plant utilisation % 82 91 78 92 95 Sales MT 618,960 684,389 597,351 668,808 509,965 RefineRy Plant utilisation % 72 75 78 91 85 Sales MT 2,640,091 2,533,527 2,817,987 2,996,439 2,287,190 Specialty OilS and fatS Plant utilisation % 92 96 100 100 95 Sales MT 492,432 511,143 504,317 521,719 502,695 Gross dividend Per share Profit 2011 Before 170.0% 2010 taxation 170.0% 2011 RM2.86 bILLION 2010 RM2.55 bILLION share Price 2011 RM5.30 2010 RM5.01 Market capitalisation 2011 RM34.00 bILLION 2010 RM31.95 bILLION earnings Per share 2011 34.75 seN 2010 32.96 seN contents Our Vision 56 Senior Management Team annual general Our Core Values 57 Group Business Activities meeting information Key Indicators 58 Global Presence 60 Location of Operations 282 Notice of Annual General 2 Chairman’s Statement in Malaysia Meeting 6 Group Financial Overview 62 Corporate Calendar 286 Statement Accompanying 8 Group Performance Notice of Annual General Highlights 66 Audit Committee Report Meeting 9 Group Quarterly Results 71 Statement on 9 Financial Calendar Corporate Governance 10 Five-Year Financial 80 Statement on 287 Shareholders Information Highlights Internal Control 82 Risk Management 83 Statement of Proxy Form management’s Directors’ Interests discussion and 84 Other Information analysis 87 Financial Reports 12 Group Financial Review 269 Group Properties 20 Group Business Review 40 Corporate Social Responsibility 48 Corporate Information 49 Board of Directors 50 Profile of Directors chairMan’s stateMent Dear Shareholders, On behalf of the Board of Directors of IOI Corporation Berhad, I am pleased to present to you the annual report of the Company and the Group for the financial year ended 30 June 2011 (“FY2011”). OPerating EnvIRONMeNT RevIew OF Results he debt problems in America that triggered a downgrade of its he Group’s operating profit of RM2,815.6 million for FY2011 was sovereign credit rating by Standard and Poor’s and escalating 7% higher than the previous year with increases reported in all debtt issues in Europe have raised fears of a “double-dip” global businesst segments except for resource-based manufacturing. economic recession. As debt issues become a key focus in the West, necessary fiscal austerity will be a drag to economic recovery. Plantation division earnings were 33% higher at RM1,497.8 million The slower economic growth in the West will inevitably lead to lower on the back of higher CPO and PK prices realised partially offset economic growth elsewhere in the world. by a slight reduction in FFB production. The average selling price of CPO increased from RM2,372 per MT in FY2010 to RM2,945 per In Malaysia, GDP growth forecasts are being revised downwards MT in FY2011 whilst PK prices increased from RM1,229 per MT to take into account global headwinds. The expectations of to RM2,241 per MT. FFB production contracted by 3% from 3.41 slower growth have had a negative impact on commodity prices in million MT in FY2010 to 3.30 million MT in FY2011. general although CPO prices have demonstrated some resiliency supported by stable worldwide demand for vegetable oils and The property division’s results for FY2011 of RM719.1 million supply uncertainties. Domestic demand in Malaysia is also expected increased by 19% from the previous year with the inclusion of a to be underpinned by the roll-out of various projects under the RM61 million gain from the disposal of IOI Plaza and higher fair value Government’s Economic Transformation Programme. gain on investment properties of RM93 million compared to RM21 million in the previous year. 2 ioi corporation berhad • annual report 2011 Segmental contribution to Operating profit The resource-based manufacturing division recorded earnings of RM404.3 million, 29% lower than the previous year. Capacity utilisation was lower particularly in the Oleochemicals and Specialty property ResOurce-bAsed Fats sub-segments where lower margins were also reported. 27% manufacturing 15% The Group’s pre-tax profit of RM2,863.6 million for FY2011 was 12% better than the previous year whilst net earnings improved by 9% to RM2,222.9 million. Unrealised translation gains on the Group’s foreign currency denominated borrowings for FY2011 was RM215.4 million compared to RM395.8 million in FY2010 whilst fair value differences arising from the first year of implementation of FRS 139 resulted in an adverse impact on the Income Statement of RM19.8 2011 million. The associate company in Indonesia, Bumitama Gunajaya Agro Group, whose planted acreage has reached maturity has begun to make meaningful contribution to Group’s profit. A more detailed review of the Group’s performance is covered under the section on “Management’s Discussion and Analysis” in this Annual Report. Corporate sOCIAL ResPONsIbILITY he Company is a founding member of the Roundtable on plantation otheRs Sustainable Palm Oil (“RSPO”), a global initiative which 55% 3% operatest on a multi-stakeholder format and involves strict principles and criteria covering the social and environmental development requirements for the production and use of sustainable palm oil. property ResOurce-bAsed Todate, seven groupings of the Group’s estates and palm oil mills 26% manufacturing have been awarded the RSPO compliance certification comprising 24% of 40 estates covering 50% of the Group’s planted area. With regards to the on-going dispute with certain natives in Sarawak, the Group is committed to resolve the dispute in an amicable manner and is working with the RSPO on an action plan using the RSPO’s Dispute Settlement Facility. The Group is also pursuing certification by the International Standard for Carbon Certification (“ISCC”). The ISCC System GmbH Certification supports lower greenhouse gas emissions and the use of sustainable biomass products. Todate, 2010 two of the Group’s estates and palm oil mills have been certified under ISCC. Education remains an integral part of the Group’s corporate social responsibility via Yayasan Tan Sri Lee Shin Cheng, a charitable foundation fully funded by the Group to provide sponsorships to schools and students from poor families as well as award scholarships and grants to high-achieving university undergraduates. plantation otheRs 48% 2% annual report 2011 • ioi corporation berhad 3 PROsPeCTs Prospects for the Group’s resource-based manufacturing businesses are expected to be somewhat dampened by the slower growth alm oil production volume from the Group’s estates is expected in the West but the Group will channel more of its manufacturing to improve and show positive growth in FY2012 due to better capacity towards emerging markets where the demand for palm oil Pweather conditions and less labour shortage.