Location of Group Properties Perlis Kedah Pulau Pinang Kelantan Terengganu Perak Pahang Selangor Negeri Sembilan Melaka Johor PLANTATIONTION OILOIL MILL Peninsular Malaysia Sabah Genting Bukit Sembilan Estate Genting Sabapalm Estate Genting Sabapalm Oil Mill Genting Selama Estate Genting Indah Estate Genting Mewah Oil Mill Genting Sepang Estate Genting Permai Estate Genting Trushidup Oil Mill Genting Tebong Estate Genting Kencana Estate Genting Indah Oil Mill Genting Cheng Estate Genting Mewah Estate Genting Tanjung Oil Mill Genting Tanah Merah Estate Genting Sekong Estate Genting Sri Gading Estate Genting Suan Lamba Estate Genting Sungei Rayat Estate Genting Jambongan Estate Genting Kulai Besar Estate Genting Tanjung Estate Genting Ayer Item Oil Mill Genting Bahagia Estate Genting Tenegang Estate Genting Landworthy Estate Genting Layang Estate 18 GENTING PLANTATIONS BERHAD ANNUAL REPORT 2012 Sabah Sarawak Kalimantan KALIMANTAN Barat Kalimantan Tengah Kalimantan Selatan PROPERTYPROPERTY BIOTECHNOLOGYBIOTECHNOLOGY Sarawak (joint venture) Peninsular Malaysia Peninsular Malaysia Serian Palm Oil Mill Genting Indahpura ACGT Laboratories Genting Pura Kencana The Gasoline TreeTM Indonesia (joint ventures) Genting Cheng Perdana Experimental Research Station, Mulia Estates Genting Permaipura Jatropha Division Abadi Estates Johor Premium Outlets Surya Estates (joint venture) Cemerlang Estates Kapuas Estates Mangkatip Estate Bakuta Estate Lamunti Estates Mulia Oil Mill Golden Hill Oil Mill GENTING PLANTATIONS BERHAD ANNUAL REPORT 2012 19 Management’s Discussion and Analysis DESCRIPTION OF OUR GROUP’S BUSINESS (b) Higher other expenses stemming from the following: i. Higher research and development expenditure incurred by our Genting Plantations Berhad (“our Group”) commenced operations in Biotechnology segment in tandem with the intensification of 1980 and is principally involved in the oil palm plantation business. Our our R&D activities along with higher amortisation during the Group has a landbank of about 66,000 hectares in Malaysia and some year; 162,700 hectares in Indonesia. In addition, our Group also owns six oil ii. Higher selling and distribution cost from an escalation in diesel mills in Malaysia and one in Indonesia, with a total milling capacity of price; and 325 metric tonnes per hour as at 31 December 2012. iii. Higher foreign currency translation loss on our USD denominated loans arising from the weakening of IDR against Genting Plantations Berhad has also diversified into property development USD. and into biotechnology for crop improvement through the application of genomic science. Adjusted EBITDA FINANCIAL REVIEW During the year, our Group registered an adjusted EBITDA of RM422.6 million, or 31% lower than RM612.4 million registered a year earlier. The Revenue decline was mainly on account of lower contribution from our Plantation segment, although partly cushioned by the 50% year-on-year growth in Our Group registered revenue of RM1.23 billion during the financial year adjusted EBITDA achieved by our Property segment. 2012 or 8% lower compared with RM1.34 billion in the previous year as the impact of the weaker palm product selling prices more than offset a) Plantation Segment the higher production of Fresh Fruit Bunches. Plantation Malaysia’s adjusted EBITDA saw a year-on-year decline of 29% from RM623.3 million in 2011 to RM440.3 million during Financial Year the year, reflecting the weaker palm product selling prices and ended higher input cost as mentioned earlier. Likewise, EBITDA margin 31 December narrowed to 42% from 52% a year earlier. 2012 2011 Change (%) Average Selling Price/tonne (RM) In Indonesia, the segment’s loss was 23% higher year-on-year as CPO 2,784 3,240 -14 mature areas had yet to reach higher-yielding brackets and amid PK 1,543 2,235 -31 less conducive local market conditions. Production for b) Property Segment Fresh Fruit Bunches (‘000mt) 1,392 1,372 +1 Property segment registered a commendable 50% year-on year increase in adjusted EBITDA, driven mainly by better demand for Revenue from our Plantation segment declined 10% from RM1.20 billion our commercial and industrial products, particularly at our flagship in 2011 to RM1.08 billion in 2012. This decline more than offset the Genting Indahpura project, which is strategically located within the increase in revenue registered by our Property segment as demand for Iskandar Malaysia region. our commercial and industrial properties in Johor improved. c) Biotechnology Segment Costs and Expenses Biotechnology segment posted a higher loss of RM21.3 million against RM16.2 million in 2011 in line with the increased research Total cost and expenses before finance costs and share of results of and development activities during the year. jointly controlled entities and associates of RM893.1 million in 2012 was RM112.6 million higher than the corresponding amount of RM780.5 million Other Income incurred a year earlier mainly due to the net effect of the following items: Other income of RM55.1 million was 34% or RM14.1 million higher than (a) Higher cost of sales of RM681.7 million in 2012 or an increase a year earlier, mainly derived from higher interest income from higher of RM76.8 million from a year ago due to higher cost of inputs interest yield which more than compensated for the effect of lower cash including labour and fertiliser. In addition, our Group’s purchase reserves. In addition, proceeds from the disposal of property, plant and of external Fresh Fruit Bunches for palm processing activities equipment was also higher in 2012. in Malaysia increased in volume leading to a 9% year-on-year increase in purchase cost to RM248.7 million; 20 GENTING PLANTATIONS BERHAD ANNUAL REPORT 2012 Finance Cost Gearing Our Group’s finance cost increased to RM3.8 million from RM2.0 million Our Group’s gearing as at 31 December 2012 was 16.1%, or 42% incurred in 2011 in tandem with the higher charge out of borrowing higher than the gearing of 11.3% a year ago due to the increase in bank cost arising from the increase in our Group’s USD denominated bank borrowings to fund the continuing expansion in Indonesia. The gearing borrowings to fund the continued expansion of development and activities ratio is calculated as total borrowings divided by total capital where the in Indonesia coupled with more planted areas coming into maturity. total capital is calculated as total debt plus total equity. Taxation As at 31 December 2012, our Group total borrowing position was RM703.4 million where 49% or RM341.7 million thereof are repayable Effective tax rate for our Group for the financial year ended 31 December within 5 years and the remaining 51% or RM361.7 million are due after 2012 was lower than the statutory tax rate mainly due to the utilisation 5 years. of tax incentives. Prospects Profit Attributable to Equity Holders of the Company Our Group’s performance in the forthcoming year will be influenced by, Profit attributable to equity holders of the Company and earnings per among others, the direction of palm oil prices achieved, crop production share of our Group were 26% lower year-on-year at RM327.1 million trends and the impact of rising input costs. and 43.1 sen respectively. Palm oil prices are expected to be largely dictated by the supply and Liquidity and Capital Resources demand dynamics for global edible oils, which are, in turn, sensitive to changes in weather patterns, the regulatory environment in major As at 31 December 2012, our Group’s cash and cash equivalents were producing and consuming countries, as well as global economic marginally lower at RM951.3 million on account of the net effects of the prospects. following during the year: The broader market conditions aside, our Group remains on track to (a) Positive net cash generated from operating activities of RM192.0 deliver continued growth in FFB production in 2013, underpinned by an million stemming from the plantation and property segments in anticipated rise in Indonesia output as additional newly-mature areas Malaysia; are brought into harvesting and more palms move into higher-yielding age brackets. (b) Partly offset by the net cash used in investing activities of RM362.9 million where RM332.5 million was expended for the expansion Our Indonesia plantation segment is also expected to perform better with of our Group’s Indonesia operations and the capital expenditure the scheduled completion of another new oil mill in Central Kalimantan requirements of our Malaysia plantations. That aside, our Group in the first half of 2013, complementing the existing oil mill in West also invested RM67.0 million for the acquisition of 63.2% equity Kalimantan. Ongoing plantation development works are set to continue interest in Global Agripalm Investment Holdings Pte Ltd, bringing through 2013, supported by our Group’s sizeable Indonesia landbank the total cash outflow for investing activities to RM362.9 million; available for cultivation. (c) An additional RM293.9 million of USD denominated bank borrowings Meanwhile, new and revised minimum wage schemes introduced in was utilised during the year to finance our Group’s planting Malaysia and Indonesia in 2013 are expected to push up labour costs for activities and construction of palm oil processing facilities in West the plantation industry. Our Group will continue with ongoing efforts to Kalimantan and Central Kalimantan. On the other hand, dividend raise operational efficiency and productivity including through effective payments amounting to RM92.5 million was paid in 2012, of which labour management to minimise potential cost pressures. RM68.3 million was in respect of the special and final dividends for financial year ended 31 December 2011 as well as RM24.2 million Our Property segment will remain focused on developments in Johor, for interim dividend in respect of the current financial year. especially in our flagship Genting Indahpura project, by expanding the array of property offerings through planned launches to tap the growing investor interest in Iskandar Malaysia.