IOI CORPORATION BERHAD IOI CORPORATION (9027-W) Annual Report 2016 Annual Report IOI CORPORATION BERHAD (9027-W) Two IOI Square, IOI Resort City, 62502 Putrajaya, Malaysia www.ioigroup.com Strength in Fundamentals Annual Report 2016 STRENGTH IN FUNDAMENTALS IOI Corporation Berhad remains focused towards being a fully integrated palm oil producer by further strengthening its fundamentals in its plantation and resource- based manufacturing sectors. By improving the quality of our products and enhancing our operational efficiencies, we will continue to pursue profitability and sustainability and deliver value to our shareholders. 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 which is essential and cannot 1 be compromised COMMITMENT as we do what we 2 say we will do LOYALTY is crucial because we are one 3 team sharing one vision EXCELLENCE IN EXECUTION as our commitments can only 4 be realised through actions and results SPEED OR TIMELINESS in response is important in our ever 5 changing business environment INNOVATIVENESS to provide us additional 6 competitive edge COST EFFICIENCY is crucial as we need to 7 remain competitive DIVIDEND PER SHARE 8.0 SEN 2015 – 9.0 SEN PROFIT EARNINGS PER BEFORE RM1.45 SHARE (SEN) INTEREST AND TAXATION BILLION 9.99 SEN 2015 – RM1.24 BILLION 2015 – 0.82 SEN OUR RESULTS MARKET CAPITALISATION 2015 – RM27.29 RM25.66 BILLION BILLION SHARE PRICE RM4.34 2015 – RM4.06 ANNUAL REPORT 2016 KEY INDICATORS % 25 20 15 10 5 0 -5 -10 -15 JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN 2015 2016 IOI CORPORATION BERHAD FTSE BURSA MALAYSIA KLCI BURSA MALAYSIA PLANTATION 2016 2015 2014 2013 2012 In RM million unless otherwise stated MFRS MFRS FRS FRS FRS FINANCIAL Profit before interest and taxation 1,449.6 1,240.4 1,927.4 1,622.6 2,821.3 Profit attributable to owners of the parent 629.7 51.9 3,373.0 1,973.7 1,797.4 Equity attributable to owners of the parent 7,138.1 7,069.0 6,036.8 13,650.5 12,607.0 Return on average shareholders’ equity (%) 8.86 0.68 34.27 15.03 14.62 Basic earnings per share (sen) 9.99 0.82 52.93 30.88 28.09 Gross dividend per share (%) 80.0 90.0 200.0 155.0 155.0 PLANTATION FFB production (MT) 3,145,317 3,542,222 3,506,706 3,408,935 3,185,878 Total oil palm area (Ha) 179,271 178,768 174,061 160,626 157,752 MANUFACTURING OLEOCHEMICALS Plant utilisation (%) 82 85 84 80 77 Sales (MT) 595,820 586,076 583,555 561,001 624,542 REFINERY Plant utilisation (%) 62 66 68 70 77 Sales (MT) 2,427,326 2,591,197 2,706,786 3,052,027 2,919,543 SPECIALTY OILS AND FATS Plant utilisation (%) 47 52 50 56 88 Sales (MT) 782,972 773,767 735,099 734,691 665,785 Note: In conjunction with the adoption of Malaysian Financial Reporting Standards (“MFRS”) framework by the Group, the above information for FY2015 and FY2016 have been prepared in accordance with MFRS, whereas information from FY2012 to FY2014 have been prepared in accordance with Financial Reporting Standards (“FRS”). 3 CONTENTS 7 18 38 MANAGEMENT’S SUSTAINABILITY CHAIRMAN’S DISCUSSION AND AND CORPORATE STATEMENT ANALYSIS RESPONSIBILITY Our Vision Management’s Discussion and Analysis Sustainability and Corporate Responsibility 38 Our Core Values 1 Group Financial Review 18 Corporate Responsibility 54 Our Results 2 Group Business Review 22 – Social Contributions Key Indicators 3 – Plantation Corporate Information 58 Group Business Review 30 Board of Directors 59 – Resource-Based Manufacturing Chairman’s Statement 7 Profile of Directors 60 Group Financial Overview 12 Senior Management Team 68 Group Performance Highlights 14 Profile of Senior Management Team 70 Group Quarterly Results 15 Group Business Activities 74 Financial Calendar 15 Global Presence 76 Five-Year Financial Highlights 16 Local Presence 78 Corporate Calendar 80 Audit and Risk Management Committee Report 84 Statement on Corporate Governance 89 Statement on Risk Management and Internal Control 109 Statement of Directors’ Interests 113 Other Information 114 117 FINANCIAL PROXY REPORTS FORM Financial Reports 117 Group Properties 290 Notice of Annual General Meeting 296 Statement Accompanying Notice of Annual General Meeting 301 Shareholders’ Information 302 Proxy Form th ANNUAL GENERAL MEETING 47 IOI CORPORATION BERHAD (9027-W) VENUE : Putrajaya Ballroom I (Level 3), Putrajaya Marriott Hotel, IOI Resort City, 62502 Sepang Utara, Malaysia DATE : Friday, 28 October 2016 TIME : 10:00 am TAN SRI DATO’ LEE SHIN CHENG Executive Chairman ANNUAL REPORT 2016 CHAIRMAN’S STATEMENT DEAR SHAREHOLDERS, On behalf of the Board of Directors of IOI Corporation Berhad, it gives me great pleasure to present to you the Annual Report of the Company and the Group for the financial year ended 30 June 2016 (“FY2016”). OPERATING ENVIRONMENT CONTRIBUTION TO SEGMENT RESULTS The global economy was generally weak during the entire FY2016. Emerging and developing economies were faced with PLANTATION lacklustre trade flows and persistently low commodity prices, 58% as well as a 12-year low of Brent crude oil prices of around RESOURCE-BASED USD28/- per barrel. Growth for the China economy moderated MANUFACTURING to 6.9% in 2015. In addition, the competitive devaluing of 42% China’s Renminbi heightened concerns over the health of the Chinese economy and the potential spillovers of its effects to trading partners around the globe. The unexpected Brexit vote in June 2016 has also sparked uncertainties in the financial 2016 markets and there were concerns of contagion effects with further European countries taking similar vote to leave the European Union. Meanwhile, the Malaysian economy expanded by 4.2% during the first quarter of 2016, compared with 5.3% in the same PLANTATION period last year, but the growth slowed to 4.0% during the 67% second quarter of 2016. On the foreign currency exchange RESOURCE-BASED (“FX”) front, the beginning of interest-rate normalisation regime MANUFACTURING in the United States (“US”) and the adjustment of China’s 33% currency rate coupled with the slowdown of China’s economy contributed to high volatility in the FX and capital markets during the financial year. The Dollar/Ringgit exchange market started trading at 3.77 level at the beginning of our FY2016 2015 and trended upwards during the months of August and September 2015 to as high as 4.45 level before settling down to 4.01 level at the end of the FY2016. 7 IOI CORPORATION BERHAD CHAIRMAN’S STATEMENT (Cont’d) On the operational front, FY2016 recorded the hottest periods impacted by the strong El Nino weather phenomenon that spawned droughts and weather-related calamities across the South East Asia region. Crude palm oil (“CPO”) prices hovered at a lacklustre level between RM2,100/MT and RM2,200/MT during most of the first half of FY2016. However, prices recovered subsequently and peaked at more than RM2,800/MT in April 2016 after the reported fall in palm production caused mainly by El Nino. As for the palm oil downstream segment, the refining sub-segment was again affected by negative refining and fractionation margins mainly due to excess capacity in the marketplace. Malaysian refiners also lost their competitiveness due to duty advantage enjoyed by their Indonesian counterparts. The oleochemical sub-segment continued to face challenges following the graduation of Malaysia from the Generalised System of Preferences (“GSP”) status in Europe in 2014 which gave oleochemical players in Indonesia some tariff advantage With 90 estates in Malaysia and Indonesia totalling over 180,000 hectares of when they sell fatty acids products into Europe. The build-up of planted area, IOI is confident of driving positive growth prospects and cultivating a oleochemical capacities in Indonesia during the last two years satisfactory performance. has caused intense competition while the surge in palm kernel (“PK”) oil prices during the second half of FY2016 affected our oleochemical sub-segment’s profitability for the financial year REVIEW OF RESULTS under review. For FY2016, the Group reported a Profit Before Tax (“PBT”) of RM965.8 million as compared to a PBT of RM316.4 million As for our specialty oils and fats sub-segment, it experienced reported for FY2015. The higher PBT is due mainly to lower the most difficult times since the acquisition of Loders Croklaan net foreign currency translation loss on foreign currency group in 2002 from Unilever. This sub-segment was on a denominated borrowings and higher contribution from the volume and profit growth path for some years especially in the resource-based manufacturing segment. Excluding the net Americas and Asia regions before the suspension of Roundtable foreign currency translation loss of RM318.5 million (FY2015 – on Sustainable Palm Oil (“RSPO”) certification on IOI Group’s RM735.3 million) on foreign currency denominated borrowings, businesses in April 2016. The suspension was subsequently lifted the underlying PBT of RM1,284.3 million for FY2016 is 22% on 8 August 2016. higher than the underlying PBT of RM1,051.7 million for FY2015.