IOI CORPORATION BERHAD ANNUAL REPORT 2018 FORTIFYING (9027-W) STRENGTHS IOI CORPORATION BERHAD (9027-W) IOI City Tower 2, Lebuh IRC, IOI Resort City, 62502 Putrajaya, Malaysia www.ioigroup.com ANNUAL REPORT REPORT ANNUAL 2018 OUR VISION“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. FORTIFYING STRENGTHS IOI Corporation Berhad (“IOI”) continuously We shall strive to achieve responsible commercial success strives to realise the potential and value of its businesses. In 2017, the Group embarked by satisfying our customers’ needs, giving superior on a strategic path to leverage on the power of collaboration by partnering with a leading performance to our shareholders, providing rewarding agribusiness and food company which has careers to our people, cultivating mutually beneficial a wider global presence. The move has led to an expanded market that further fortifies relationship with our business associates, caring for the IOI’s palm oil supply chain and strengthens its business network, expertise and value society and the environment in which we operate and creation in the plantation and resource- contributing towards the progress of our nation.” based manufacturing industries. “Fortifying Strengths” refers to the commitment to constantly overcome challenges and capitalise on new opportunities to ensure greater long-term growth and sustainability for the Group. ABOUT IOI CORPORATION BERHAD IOI Corporation Berhad (“IOI”), listed on the Main Market of Bursa Malaysia Securities Berhad, is a leading global integrated and sustainable palm oil player. Employing more than 28,000 people in several countries, it is a fully integrated company that undertakes the plantation and resource-based manufacturing businesses. Its plantation business covers Malaysia and Indonesia while its downstream resource-based manufacturing business includes refining of palm oil as well as manufacturing of oleochemical and specialty oils and fats, with strong presence in Asia, Europe and USA. OUR CORE INTEGRITY which is essential and cannot be VALUES compromised COMMITMENT EXCELLENCE as we do what we say in EXECUTION we will do as our commitments can only be realised through actions and results In our pursuit of VISION IOI, we expect our people to uphold at all times, these IOI CORE VALUES: LOYALTY is crucial because we are one team sharing one vision INNOVATIVENESS COST EFFICIENCY to provide us additional SPEED or is crucial as we need competitive edge TIMELINESS to remain competitive in response is important in our ever changing business environment 2 IOI CORPORATION BERHAD Dividend Per Share AT A 20.5 SEN GLANCE 2017 – 9.5 sen Profit Attributable Share Price to Owners of the Parent RM3.06 BILLION RM4.54 2017 – RM0.74 billion 2017 – RM4.45 Earnings Per Share Market Capitalisation 48.70 SEN RM28.53 BILLION 2017 – 11.82 sen 2017 – RM27.96 billion ANNUAL REPORT 2018 3 KEY INDICATORS % 10 8 6 4 2 0 -2 -4 -6 -8 JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN 2017 2018 ¢ IOI CORPORATION BERHAD ¢ FTSE BURSA MALAYSIA KLCI ¢ BURSA MALAYSIA PLANTATION 2018 2017 2016 2015 2014 In RM million unless otherwise stated MFRS MFRS MFRS MFRS FRS FINANCIAL Profit before interest and taxation from continuing operations 1,380.6 1,401.4 1,459.6 1,237.6 1,921.5 Profit attributable to owners of the parent 3,060.5 743.2 629.7 51.9 3,373.0 Equity attributable to owners of the parent 9,156.3 7,457.4 7,138.1 7,069.0 6,036.8 Return on average shareholders’ equity (%) 36.84 10.18 8.86 0.68 34.27 Basic earnings per share (sen) 48.70 11.82 9.99 0.82 52.93 Dividend per share (sen) 20.5 9.5 8.0 9.0 20.0 PLANTATION FFB production (MT) 3,514,857 3,155,628 3,145,317 3,542,222 3,506,706 Total oil palm area (Ha) 174,081 174,396 179,271 178,768 174,061 MANUFACTURING Oleochemical Plant utilisation (%) 83 80 82 85 84 Sales (MT) 573,005 582,458 595,820 586,076 583,555 Refinery Plant utilisation (%) 69 63 62 66 68 Sales (MT) 2,152,8001 2,414,773 2,427,326 2,591,197 2,706,786 Specialty oils and fats Plant utilisation (%) 54 57 47 52 50 Sales (MT) 578,6651 766,188 782,972 773,767 735,099 Note: 1 The sales (MT) of FY2018 includes eight (8) months’ results of discontinued operations. In conjunction with the adoption of Malaysian Financial Reporting Standards (“MFRS”) framework by the Group, the above information from FY2015 to FY2018 have been prepared in accordance with MFRS, whereas information of FY2014 has been prepared in accordance with Financial Reporting Standards (“FRS”). INSIDE CHAIRMAN’S 6 STATEMENT Our Vision 12 Group Financial Overview Our Core Values 14 Group Performance Highlights 2 At a Glance 15 Group Quarterly Results 3 Key Indicators 15 Financial Calendar 6 Chairman’s Statement 16 Five-Year Financial Highlights MANAGEMENT’S DISCUSSION 18 AND ANALYSIS 18 Group Financial Review 22 Group Business Review – Plantation 30 Group Business Review – Resource-Based Manufacturing 36 Sustainability and Corporate 66 Local Presence Responsibility 68 Corporate Calendar 42 Corporate Responsibility 72 Corporate Governance – Social Contribution Overview Statement 47 Corporate Information 80 Audit and Risk 36 48 Board of Directors Management Committee GOVERNANCE 50 Profile of Directors Report AND 54 Senior Management Team 86 Statement on Risk Management and Internal 56 Profile of Senior Management SUSTAINABILITY Control Team 91 Statement of Directors’ Interests 62 Group Business Activities 92 Other Information 64 Global Presence FINANCIAL 95 REPORTS 95 Financial Reports 223 Group Properties 228 Notice of AGM 233 Statement Accompanying Notice of AGM 228 234 NOTICE OF Shareholders’ Information ANNUAL Proxy Form GENERAL MEETING (“AGM”) IOI CORPORATION BERHAD (9027-W) Venue : Millennium Ballroom 1 (Level 1), Le Meridien Putrajaya, Lebuh IRC, IOI Resort City, th 62502 Putrajaya, 49 Malaysia. Date : Friday, 26 October 2018 AGM Time : 10:00 am 6 IOI CORPORATION BERHAD 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 2018 (“FY2018”). CHAIRM STATEME TAN SRI DATO’ LEE SHIN CHENG Executive Chairman ANNUAL REPORT 2018 7 OPERATING ENVIRONMENT Domestically, Malaysia achieved a Gross Contribution to Domestic Product (“GDP”) growth of 5.9% Segment Results During the review period, the global in 2017 which is amongst the strongest in economy experienced an increase in the region. The relatively strong growth was Others Plantation growth with some major economies like driven by domestic demand with further 1% 63% the United States (“US”), the Euro Area and support from stellar growth in exports. The Resource-Based China registering growth at 2.3%, 2.4% and new Malaysian Government is expected to Manufacturing 6.9% respectively in 2017. However, since be very cautious on its capital expenditure 24% the second quarter of 2018, protectionist especially on major projects in view of measures in the form of tariff increases anticipated reduction of Government 2018 by the US and retaliatory measures by its revenue from the narrower scope of Sales trading partners, especially China, leading and Service Tax (“SST”) which replaces the to escalating trade conflicts have taken former Goods and Services Tax (“GST”), Discontinued a toll on global trade, investments and coupled with the high overall Government Operations* investor sentiment. debts of more than RM1.0 trillion that it 12% needs to repay. Others Plantation In the foreign currency exchange market, 1% 79% the US Dollar (“USD”) against Ringgit rate Resource-Based started to weaken from July 2017 at a rate Manufacturing of about 4.30 to 3.86 in early April 2018, 12% before strengthening back to about 4.04 by end of June 2018. During the period, 2017 the strength of the Ringgit was buoyed by higher crude oil prices and a 25 basis points rate hike in overnight policy rate Discontinued by Bank Negara Malaysia in January Operations* 2018. The Ringgit subsequently fell with 8% broader dollar strength due to the global trade conflicts and in anticipation of further increases in US interest rates in the second * Discontinued operations represent the resource-based half of 2018. manufacturing business that were held by the Group prior to the completion of divestment of 70% equity interest in AN’S Loders as disclosed in Note 12 to the financial statements. NT Dato’ Lee Yeow Chor and IOI Oleochemical’s senior management staff accompanying the Malaysian Primary Industries Minister YB Teresa Kok on a facility tour at IOI Esterchem (M) Sdn Bhd in Prai, Penang. 8 IOI CORPORATION BERHAD CHAIRMAN’S STATEMENT IOI Oleochemical’s subsidiary in Germany is expanding its production facilities with new products in pharmaceutical and personal care categories which enhance the Group’s sales and profitability. million is due mainly to lower CPO and PK prices realised but mitigated by higher FFB production. Overall average CPO and PK prices realised for FY2018 are RM2,549/MT (FY2017 – RM2,766/MT) and RM2,252/MT (FY2017 – RM2,691/ MT) respectively. The resource-based manufacturing segment profit of RM384.0 million for FY2018 is higher than the profit of RM184.7 million reported in FY2017 mainly due to contribution by the oleochemical sub- segment’s higher fatty acids sales volume and higher sales margins as a result of lower feedstock price coupled with higher selling prices of its products. In respect of the discontinued operations In the palm oil sector, palm oil planters REVIEW OF RESULTS represented by Loders Croklaan Group experienced significant recovery in fresh B.V.