ANNUAL REPORT 2019 CONTENTS 01 Vision & Mission 02 Corporate Profile 04 Chairman’s Message 08 Operational & Financial Highlights 12 Operational & Financial Review 16 Corporate Milestones 18 Board Of Directors 20 Key Management 21 Sustainability & Corporate Social Responsibility Report 39 Corporate Governance 59 Annual Financial Statements 142 Shareholders' Information 144 Notice Of Annual General Meeting 149 Proxy Form IBC Corporate Information OUR VISION To be a leading CPO producer through continuous improvement; focus on productivity, cost efficiency, sustainability and growth. OUR MISSION To enhance shareholder’s value; to improve the benefits and quality of life of our employees; to improve the welfare of the local communities and the environment. BUMITAMA AGRI LTD. ANNUAL REPORT 2019 01 CORPORATE PROFILE Bumitama Agri Ltd. (“Bumitama” or the remains firmly committed to seven RSPO certificates as at 31 “Group”), founded in 1996 and listed sustainability. Bumitama is a member December 2019, and is on track on the Singapore Exchange in 2012, is of the voluntary and internationally- towards securing RSPO certification one of the leading producers of crude recognised Roundtable on Sustainable for all mills and plasma smallholder palm oil (“CPO”) and palm kernel (“PK”) Palm Oil (“RSPO”) non-governmental schemes by 2024. Apart from achieving in Indonesia. The Group is principally organisation, and also adheres to certification for its own plantations engaged in the cultivation of oil palm the mandatory requirements of the and mills, Bumitama actively engages trees, as well as the harvesting and Ministry of Agriculture’s Indonesian and guides independent smallholders processing of fresh palm fruit bunches Sustainable Palm Oil certification towards obtaining such certifications as (“FFB”) into CPO and PK, which are then scheme. Bumitama has achieved part of its social responsibility efforts. sold to refineries in Indonesia. Bumitama manages a total planted area of 187,567 hectares of which 29.3% are allocated for plasma smallholders, located across the Indonesian provinces of Central Kalimantan, West Kalimantan and Riau. The Group’s oil palm trees are relatively matured, with a weighted average age of 10.6 years as at 1 January 2020. With 90.7% of the planted area in the mature category as at 31 December 2019, Bumitama is poised to take advantage of production growth opportunities as the oil palm trees mature and achieve peak production. The Group places strong emphasis on achieving better yields and extraction rates through investments in research and development, and good agricultural practices. To ensure the timely processing of FFBs, and to maintain a high-quality CPO output, Bumitama operates 14 CPO mills that are strategically located in close proximity to its plantations, with a total FFB processing capacity of 5.85 million metric tonnes per annum. The advantageously-located CPO mills also allow the Group to Office reduce transportation costs as well Plantation as its carbon footprint, embodying CPO Mill Bumitama’s sustainability objectives. As one of the first few oil palm growers in Southeast Asia to adopt a “No Deforestation, No Peat and No Exploitation” policy, the Group 02 BUMITAMA AGRI LTD. ANNUAL REPORT 2019 The Group is honoured to have Awards — Most Outstanding Investor Relations (2015, 2016), Best received numerous awards and Company in Singapore for the for Corporate Social Responsibility accolades over the years. These decade (2010-2019), Overall Most (2015, 2016), Best Managed Small include being listed in Forbes Asia’s Outstanding Company in Singapore Cap Company (2016), Best for 200 Best Under a Billion list (2013), (2018), Most Outstanding Company Disclosure and Transparency (2016), Frost & Sullivan Indonesia Excellence in Singapore (Small Cap) (2018, Best for Shareholders’ Rights and Award (2014), The Edge Billion Dollar 2019), Most Outstanding Company Equitable Treatment (2016) and Club — Most Profitable Company in Singapore (Consumer Staple) Best for Responsibilities of (Agriculture Sector) (3 years in a row (2018), Best Overall for Corporate Management and the Board of in 2017, 2018, 2019), Asiamoney Governance (2015, 2016), Best for Directors (2016). BUMITAMA AGRI LTD. ANNUAL REPORT 2019 03 CHAIRMAN’S MESSAGE Gunawan H. Lim Executive Chairman and Chief Executive Officer DEAR SHAREHOLDERS, and Malaysia, and the weak oil palm Financial and Operating production arising from extremely dry Performance On behalf of the Board, I am pleased and hot weather pushed palm prices to present the FY2019 Annual Report above MYR 2,500 per MT. Volatility in For the fiscal year under review, for Bumitama Agri Ltd. (“Bumitama” palm prices has become the new norm, the Group recorded revenue of IDR or “the Group”). deviating from the widely accepted 10 7,691 billion, an 8.2% reduction from year commodity price cycle. IDR 8,377 billion in FY2018. This was The Year in Review largely due to weaker palm oil prices This was also the year that Indonesia attributable to oversupply in the first Sentiment for the year 2019 was held its Presidential Election. The half of the year. Fortunately, there was subdued with the International general Indonesian public and the a respite towards the end of the year Monetary Fund indicating 3.0 business community were especially as prices rose due to a supply shortfall percent global growth, its lowest relieved with the Constitutional Court’s in Indonesia and Malaysia. since 2008-2009. The slowdown decision in June 2019, upholding the was attributed to rising trade and election results, ending months of The Group’s gross profit fell 27.4% geopolitical tensions which took a toll political and economic uncertainty. from FY2018 at IDR 1,733 billion. on business confidence, investment, EBITDA followed closely with a 29.3% global manufacturing and trade. Despite these challenges, we remain drop to IDR 1,694 billion as compared positive on the long-term outlook of to the IDR 2,395 billion of the prior This less than optimal global business the industry. The year 2019 was a year financial year. Meanwhile, net profit environment and expectation of that we demonstrated our resilience fell by 35.1% to IDR 840 billion. Despite growth in palm supply had kept palm by continuing to grow the Group’s the challenges that we faced in 2019, prices subdued in 2019. Prices fell potential to sustainably create value Bumitama remained profitable. to MYR 1,951 per MT in the second for our stakeholders in face of a volatile quarter. Conversely in December 2019, palm oil price, lower production and Bumitama’s balance sheet was healthy the falling palm stock in Indonesia severe weather. while generating strong positive cash 04 BUMITAMA AGRI LTD. ANNUAL REPORT 2019 Despite the immense challenge resulting in a softer performance, Bumitama remains profitable and maintained a healthy balance sheet with a positive cash flow. flow. The Group’s robust financial lower, due to the effects of dry and offers significant long-term upside in position augurs well for strategic hot weather. FFB yield fell by 6.4% to production growth. investment opportunities and 19.1 MT per hectare, while CPO yield provides a safety net for challenges in dipped 4.4% to 4.3 MT per hectare. Maintaining Financial Stability the business environment. However, the extraction rates for both CPO and palm kernel (“PK”) did For the year under review, Bumitama In 2019, the Group has strategically improve with the CPO extraction issued MYR 700 million of Islamic reviewed its investments and initiated rate edging up to 22.7% from Medium-Term Notes. The net the sale of 28% interest in each of 22.1% and the PK extraction rate at proceeds were mainly used to PT Sawit Nabati Agro and PT Berkat 4.7%, up from 4.4%. These higher refinance existing debt. The well- Agro Sawitindo to Oleander Capital extraction rates can be attributed to timed issuance of these notes Resources Pte Ltd., an associate of IOI improvements in our mills processes. allowed us access to funding at a Corporation Berhad. This divestment competitive rate. As sukuk valuation will allow the Group to refocus We have expanded the Group’s is based on the value of assets its resources and attention on its total planted area by 1.3% or 2,402 backing them, it is a testament to subsidiaries. hectares to 187,567 hectares. our strong financial position. In However, going forward, expansion addition, RAM Ratings has reaffirmed The Group’s internal FFB production with large hectarage will be Bumitama’s AA3 rating with a stable stayed almost flat at 3.3 million metric challenging given the country’s outlook. tonnes (“MT”) in 2019. This accounts moratorium on the issuance of for 71.6% of total production with new permits for plantations. As of Share Buyback external FFB production at 1.3 million 1 January 2020, the Group’s oil palm MT. trees have a weighted average age In connection with 2019 Share of 10.6 years with 7,000 hectares Buyback Mandate (as of 19 March From a yield perspective, both FFB of planted area reaching maturity. 2020), the Group bought back and crude palm oil (“CPO”) yield were Our relatively young palm age profile 2,107,800 shares representing 0.12% BUMITAMA AGRI LTD. ANNUAL REPORT 2019 05 CHAIRMAN’S MESSAGE of the total outstanding shares. This will form collaborations with expert Coronavirus outbreak, the US-China programme underlines the Group’s organisations and local communities. trade war, uncertainty in crude oil confidence in the prospect of our We will continue to innovate and due to breakdown of pact between business. improve towards the achievement of Russia and OPEC, and a more intense our sustainable development goals. dry season due to a possible El Nino Our Commitment to Sustainability effect) can all have a huge impact on Dividends the global economy and the palm This past year represented industry.