ANNUAL REPORT 2019 197701003946 (34993-X) about GENTING PLANTATIONS OUR VISION We strive: To become a leader in the plantation industry. To embark aggressively onto value-added downstream manufacturing activities which are synergistic to our core business. To enhance return on the company land bank through property development activities. To adopt a market-driven and customer-oriented approach, with emphasis on product quality and diversity. To strengthen our competitive position by adopting new technologies and innovations. As people are the key to achieving the company’s vision, we are committed to develop our employees and create a highly motivating and rewarding environment for them. OUR CORE VALUES • HARDWORK • HONESTY • HARMONY • LOYALTY • COMPASSION CORPORATE PROFILE Genting Plantations, a subsidiary of Genting Berhad, commenced operations in 1980. It has a landbank of about 64,600 hectares in Malaysia and some 178,200 hectares (including the Plasma schemes) in Indonesia. It owns seven oil mills in Malaysia and four in Indonesia, with a total milling capacity of 580 metric tonnes per hour. In addition, our Group has ventured into the manufacturing of downstream palm-based products. Genting Plantations has also diversified into property development to unlock the value of its strategically- located landbank and has invested significantly in biotechnology in a major effort to apply genomics- based solutions to increase crop productivity and sustainability. www.gentingplantations.com CONTENTS FINANCIAL STATEMENTS: 02 Chairman’s Statement/ 74 Statements of Profit or Loss Penyata Pengerusi/ 主席文告 75 Statements of Comprehensive Income 10 Board of Directors 76 Statements of Financial Position 12 Directors’ Profile 78 Statements of Changes in Equity 21 Management & Corporate Information 82 Statements of Cash Flows 23 Corporate Diary 86 Notes to the Financial Statements 24 Financial Highlights 158 Statement on Directors’ Responsibility 25 Five-Year Summary 158 Statutory Declaration 27 List of Group Properties 159 Independent Auditors’ Report 28 Location of Group Properties OUR CORE VALUES 163 Analysis of Shareholdings 30 Management’s Discussion and Analysis • HARDWORK • HONESTY • HARMONY • LOYALTY • COMPASSION of Business Operations and Group Offices and Operating Units Financial Performance 32 Review of Operations 40 Sustainability Statement 42 Highlights of Group’s Key Sustainability Performance 43 Corporate Governance Overview Statement 56 Audit Committee Report 60 Statement on Risk Management and Internal Control 64 Directors’ Report 02 CHAIRMAN’S STATEMENT Dear Shareholders, On behalf of the Board of Directors, I am pleased to present the Annual Report and Audited Financial Statements of Genting Plantations Berhad (“the Company”) and its subsidiaries (“our Group”) for the year ended 31 December 2019. FINANCIAL OVERVIEW 2019 proved to be another challenging year for the palm oil industry as it continued to face the negative market dynamics in the previous year, namely the elevated palm oil inventory levels as demand struggled to match the increasing global production. These negative factors along with the prolonged weakness in soybean oil prices caused the crude palm oil (“CPO”) prices to continue languishing for the first nine months of 2019, averaging about RM2,000 per metric tonne (“mt”). However, CPO prices recovered sharply starting from October 2019 and closed the year at a high of RM3,025 per mt from concerns of a weaker production outlook arising from the lagged impact of the severe dry weather conditions that beset Malaysia and Indonesia in the first half and third quarter of 2019 respectively. The commitment by Malaysia and Indonesia to implement the B20 and B30 biodiesel mandates respectively in 2020 further fuelled the price rally with the market expecting a more rapid drawdown in palm oil inventory. Therefore, the year ended on a brighter note with optimism that CPO prices will be sustained until crop production exhibits a recovery from the lagged effects of the dry weather conditions. The sharp rally in CPO prices towards year end was indeed long overdue and contributed to the Group achieving an average CPO price of RM2,048 per mt, narrowing the price gap against the previous year to a 3% year-on-year decline. Production wise, the Plantation Division once again charted a new high with a 5% year-on-year improvement but had to settle with a lower profit contribution in 2019 as the impact of the lower palm products prices eclipsed its higher crop output. The Downstream Manufacturing Division turned in a sterling performance with higher sales volume and capacity utilisation, coupled with improved margins for both its biodiesel and refinery operations. The Property Division performed satisfactorily given the prevailing soft market conditions as it registered higher sales and profit, including the improved contribution from its Premium Outlets®. GENTING PLANTATIONS BERHAD | ANNUAL REPORT 2019 CHAIRMAN’S STATEMENT 03 Overall, the Group posted a 10% year-on-year decline in stores such as Bottega Veneta, Kenzo, Outlet by Club 21, pre-tax profit to RM185 million in 2019 reflective of the Prada, Stuart Weitzman and The North Face. softer performance from our Plantation Division. Meanwhile, our Biotechnology Division is continuing its OPERATIONAL PERFORMANCE efforts on developing commercial solutions and applications to enhance the yield and productivity of oil palm. For our mainstay Plantation Division, in spite of the dry weather conditions mentioned earlier and the reduced DIVIDENDS harvesting areas arising from replanting being carried out at our Malaysian estates, total fresh fruit bunch (“FFB”) Cognisant of the need to maintain an optimal balance production continued to grow by 5% and registered a between rewarding shareholders with reasonable dividends record high of 2.19 million mt in 2019 as our Indonesian while conserving sufficient reserves to support our Group’s operations saw an increase in mature areas and reached a long-term growth aspirations, the Board of Directors has better age profile. recommended a final single-tier dividend of 9.5 sen per ordinary share for the 2019 financial year. If approved by Average CPO price achieved for the year fell 3% to shareholders at the coming Annual General Meeting, the RM2,048 per mt from RM2,117 per mt in 2018. Likewise, final dividend would take the total dividend (including the the average palm kernel (“PK”) price achieved was 30% interim dividend of 3.5 sen) for 2019 to 13.0 sen per ordinary lower at RM1,179 per mt compared to RM1,681 per mt in the share, representing a payout ratio of 82%. In comparison, previous year. the total dividend paid out for the 2018 financial year amounted to 13.0 sen per ordinary share, equivalent to a 2019 was an excellent year for our Group’s Downstream payout ratio of 68%. Manufacturing Division as the biodiesel operations capitalised on the favourable palm oil–gas oil (“POGO”) PROSPECTS spread, which incentivised the export demand for discretionary blending while the refinery operations As we look ahead for the rest of 2020, the long-term continued to expand its market reach by leveraging on its outlook for the palm oil industry remains positive given established marketing channel. These factors garnered palm oil’s unrivalled versatility as a superior resource for higher sales, and correspondingly higher capacity both food and non-food applications, while the continuous utilisation during the year for both of these units. growth in global population and household incomes will further boost its demand. The property market in Malaysia continued to grapple with lacklustre demand amid tight credit conditions and One of the demand catalysts for palm oil in the coming cautious investor sentiment during the year. In view of year is the rise in biofuel consumption from Indonesia with the prevailing subdued sentiment, our Group’s Property its government’s commitment to expand the biodiesel Division adopted a judicious strategy of striking a balance mandate to B30. Separately, Malaysia will implement its between launching new properties catering to the broader B20 biodiesel programme for the transportation sector and market and promoting existing inventories to offload B10 biodiesel for the industrial sector by mid-2021. It was its carrying stocks. To this end, the Property Division reported that the aggregate demand for CPO to be utilised launched 82 units of higher-end residential properties towards the aforesaid two countries’ biodiesel mandates is priced between RM885,000 to RM1.2 million per unit at more than 3 million mt annually. our flagship development, Genting lndahpura, and of which the non-Bumiputra units were fully taken-up. The adopted However, in the nearer term, demand uncertainties have strategy bore fruit and resulted in a higher year-on-year surfaced for the two biggest importers of palm oil with the sales to about RM154 million in 2019. recent outbreak of Coronavirus Disease 2019 (“COVID-19”) in China as well as India’s reported restriction on the import The performance of the Group’s Premium Outlets® of refined palm oil products from Malaysia. These have continued to grow in 2019. Genting Highlands Premium caused a notable pullback in CPO prices after peaking at Outlets® marked its second year of operations with the RM3,114 per mt around mid-January 2020. addition of new brands such as Burberry and Longchamp whilst Johor Premium Outlets® celebrated its official Palm products prices are also expected to track the opening,