Our People Our Strength Annual Report 2012 WE C.A.R.E Kulim (Malaysia) Berhad believes that the spirit of caring is integral to the prosperity and survival of our business. Our concept of caring integrates and extends beyond our capital providers, to include our employees, our society and our environment. It means building our COMPETITIVE capacity with intense biasness towards ACTION in generating profitable growth whilst being firmly guided by our pledge to be RESPONSIBLE and ETHICAL. We CARE, VISION so we ensure our shareholders are rewarded with superior returns. DELIVERING VALUE To excel in delivering value to all our stakeholders through We CARE, high performance teams who are committed to the highest so we teach and nurture the same spirit among our standards of ethics, integrity and professionalism. employees. We CARE, MISSION so we contribute and enrich the lives of our community and We aim to be the most progressive, efficient, profitable and society. respectable corporate organisation. We CARE, We shall: so we treat the earth with respect for it has given us our reason for being. • Enhance and deliver value to the stakeholders • Optimise the use of resources We CARE, • Produce superior quality products so we share... • Be a socially and environmentally responsible corporate citizen • Operate with due regard for the welfare, health and safety of employees, the local community and the wider public. Our Competitive spirit We attribute this success We strongly subscribe Our Ethical will continue to drive us to our ability to effectively and uphold the three business conducts to forge ahead expanding execute our strategies pillars of Responsible are a culmination of our market reach and - our biasness towards business operations - management practices global presence. Action. People, Planet and Profit. that espouse transparency and accountability. spirit spirit Competitive Our will continue to drive us us drive to continue will to forge ahead expanding expanding ahead forge to our market reach and and reach market our global presence. global We attribute this success We strongly subscribe Our Ethical to our ability to effectively and uphold the three business conducts execute our strategies pillars of Responsible are a culmination of - our biasness towards business operations - management practices Action. People, Planet and Profit. that espouse transparency and accountability. We attribute this success success this attribute We spirit Competitive Our to our ability to effectively effectively to ability our to us drive to continue will execute our strategies strategies our execute expanding ahead forge to - our biasness towards towards biasness our - and reach market our . Action presence. global We strongly subscribe Our Ethical and uphold the three business conducts pillars of Responsible are a culmination of business operations - management practices People, Planet and Profit. that espouse transparency and accountability. We strongly subscribe subscribe strongly We success this attribute We spirit Competitive Our and uphold the three three the uphold and effectively to ability our to us drive to continue will Responsible of pillars strategies our execute expanding ahead forge to business operations - - operations business towards biasness our - and reach market our People, Planet and Profit. and Planet People, . Action presence. global Our Ethical business conducts are a culmination of management practices that espouse transparency and accountability. SECTION 1 2012 Synopsis SECTION 2 About Kulim SECTION 3 Performance Highlights and Statistics SECTION 4 Segment Review SECTION 5 Sustainability SECTION 6 Governance Statement SECTION 7 Financial Statements SECTION 8 Other Corporate Information contents 10 2012 Highlights 30 Sustainability Event Highlights 2012 11 Simplified Group Statement of 32 Recognitions and Accreditations Financial Position 35 In the News 12 Statement to Stakeholders 36 Financial Calendar 28 Corporate Event Highlights 2012 38 Corporate Profile 46 Board of Directors 40 Corporate Milestones 54 Management Team 44 Group’s Significant Subsidiaries 56 Organisation Chart 45 Corporate Information 59 Group 5-Year Financial Statistics 68 Human Capital Statistics 62 Group Quarterly Performance 2012 69 Shareholding Statistics 63 Group Statement of Value Added 71 Warrantholding Statistics 64 5-Year Plantation Statistics: 73 Price Performance and Volume Traded 2012 - Share and Warrant • Group • Malaysia • Papua New Guinea • Solomon Islands 74 Plantation 94 Intrapreneur Ventures 100 PART I : Kulim’s Sustainability 108 PART II : Environmental Performance 114 PART III : Social Performance in Context • Protecting and Conserving • Labour Standards • Policy Framework Biodiversity • Employees Retention • Policy, Strategy and Management • Water Conservation • Occupational Health and Safety System • Addressing Climate Change Issues • Empowerment and Diversity • Stakeholders Engagement • Community and Economic Contributions • Commitments and Targets 124 PART IV: Doing Our Part for the Palm Oil Supply Chain 126 Corporate Governance Report 140 Statement on Risk Management and Internal Control 151 Audit Committee Report 156 Additional Compliance Information 157 Additional Disclosure 158 Group Financial Statements 276 Locations of the Group’s 284 Notice of Annual General Meeting Palm Oils Division Operations 289 Statement Accompanying Notice of Annual General Meeting 278 Properties of the Group Proxy Form • Malaysia • Papua New Guinea • Solomon Islands 10 Kulim (Malaysia) Berhad (23370-V) SECTION 1 2012 SYNOPSIS 2012 HIGHLIGHTS 2012 2011 Variance FINANCIAL Revenue (RM Million) 906.82 1,042.17 (13.0%) PBT from continuing operations (RM Million) 763.50 214.75 255.5% PAT - including Discontinued Operations (RM Million) 1,011.27 1,007.87 0.3% Basic EPS (sen) 66.34 45.90 44.5% Operational Yield per hectare (tonnes) - Group 22.72 24.36 (6.7%) - Malaysia 20.68 21.89 (5.5%) - PNG 23.64 25.49 (7.3%) - SI 25.73 24.37 5.6% OER (%) - Group 21.71 22.07 (1.6%) - Malaysia 20.29 20.20 0.4% - PNG 22.39 22.85 (2.0%) - SI 21.73 21.86 (0.6%) SHAREHOLDERS' RETURNS 2012 2011 % sen % sen Dividends for year ended 31 December: - Interim 30.00 7.50 20.00 5.00 - Special 363.76 90.94 - - Share price (RM) - Lowest 4.11 3.10 - Highest 5.37 4.22 annual report 2012 11 SIMPLIFIED 2012 SYNOPSIS SECTION 1 GROUP STATEMENT OF FINANCIAL POSITION 2012 2011 TOTAL ASSETS 3% 3% Property, plant and equipment 1% Intangible assets 6% Investments 8% Associates 34% 8% Assets held for sale Inventories 2% 37% Receivables 10% Cash 66% 2% 20% TOTAL LIABILITIES AND 2012 2011 SHAREHOLDERS’ EQUITY 4% 3% Share capital 8% 14% Other reserves 2% 13% 17% 9% Retained earnings Non-controlling interests 14% Borrowings 21% Lialibilities held for sale 23% Deferred tax liabilites 22% Payables 12% 15% 23% 12 Kulim (Malaysia) Berhad (23370-V) SECTION 1 2012 SYNOPSIS STATEMENT TO STAKEHOLDERS from left to right: DATO’ KAMARUZZAMAN ABU KASSIM Chairman AHAMAD MOHAMAD Managing Director KULIM - POISED FOR NEW GROWTH KEY CORPORATE DEVELOPMENTS TO ALL OUR 2012 marked another new phase in Acquisition of 13,687 hectares of staKEHOLDERS, Kulim’s history. The year saw us exiting JCORP Estates by Kulim through our Foods and Restaurants business MAHAMURNI Plantations SDN BHD On behalf of the Board of and the dilution of our equity stake in (“MPSB”) Kulim (Malaysia) Berhad NBPOL, thus changing NBPOL status The exercise involves the acquisition to that of an associate company of of 6 oil palm estates measuring (“Kulim” or “the Group”) it is the Group. On top of this, measures approximately 13,687 hectares and 2 our pleasure to present the to streamline the Group’s Intrapreneur palm oil mills for a total consideration of Annual Report and Audited Ventures (“IV”) businesses were also RM700 million. implemented. Financial Statements of the Stage 1 of the acquisition (completed Group for the financial year As a result of these exercises, Kulim in Dec 2011) saw Kulim adding emerged with a strengthened balance approximately 6,000 hectares of oil palm ended 31 December 2012. sheet and is strongly poised to make estates belonging to the Sg. Papan Estate inroads into the market segments it and Siang Estate. In 2012, another 3 operates in, as well as capitalise on estates, namely the Palong, Mungka and new areas of opportunities especially Kemedak estates as well as the Palong in servicing the Oil and Gas sector Cocoa Palm Oil Mill were successfully and undertaking selective property transferred to MPSB. Through this development. second phase of the exercise, the Group secured another 5,600 hectares However, notwithstanding the new of oil palm estates and a 40-tonne per frontiers to be explored and developed, hour (“TPH”) mill processing capacity. our core business growth going forward At the time of writing, the final parcel will still primarily be driven by our incorporating the Pasir Panjang Estate Malaysian plantation business and and Pasir Panjang Mill, is in the process influenced by the results of NBPOL. of being transferred to MPSB. annual report 2012 13 STATEMENT TO STAKEHOLDERS 2012 SYNOPSIS SECTION 1 “notwithstanDING THE NEW FRONTIERS TO BE EXPLORED AND DEVELOPED, OUR CORE BUSINESS GROWTH GOING forwarD WILL STILL primarily BE DRIVEN BY OUR Malaysian plantation BUSINESS AND INFLUENCED BY THE RESUlts OF NBPOL.” We are pleased that the exercise was Non-Current Assets Held for Sale and widely applauded by our shareholders Discontinued Operations. and the investment community as it allowed Kulim’s expansion