Annual Report 2013 EXPANDING OUR REACH Annual Report 2013 IOI CORPORATION BERHAD (9027-W) Two IOI Square, IOI Resort, 62502 Putrajaya, Malaysia www.ioigroup.com IOI CORPORATION BERHAD (9027-W) Cover Rationale Our 2013 marks a year of growth and expansion for IOI Group as we set our sights on Expanding our Reach. By continuously seizing new opportunities, enhancing our Vision product offerings and growing our business portfolio, we have strengthened our competitive edge and delivered …is to be a leading corporation in our core businesses added values to our customers and shareholders. by providing products and services of superior values The cover design features IOI Group’s three core and by sustaining consistent long-term growth in operations. As we expand our reach in Malaysia and volume and profitability. abroad, we are committed to growing sustainably on our journey to become a global leader in our integrated plantation and property businesses. We shall strive to achieve responsible commercial success by satisfying our customers’ needs, giving superior performance to our shareholders, providing rewarding careers to our people, cultivating mutually beneficial relationship with our business associates, caring for the society and the environment in which we operate and contributing towards the progress of our nation. Our Core Values In our pursuit of Vision IOI, we Integrity Speed or Timeliness expect our people to uphold, at which is essential and cannot in response is important all times, the IOI Core Values be compromised in our ever changing which are expressed as follows: business environment Commitment as we do what we say Innovativeness we will do to provide us additional competitive edge Loyalty is crucial because we are Cost Efficiency one team sharing one vision is crucial as we need to remain competitive Excellence in Execution as our commitments can only be realised through actions and results Key Indicators % 20 15 10 5 0 -5 -10 -15 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 2012 2013 IOI CORPORATION BERHAD FTSE BURSA MALAYSIA KLCI BURSA MALAYSIA PLANTATION We Profit from 2012 2013 RM2.38 billion RM2.51 billion 27.96 sen 30.83 sen 155.0 % 155.0 % RM5.19 RM5.44 RM33.21billion RM34.74 billion In RM million unless otherwise stated 2013 2012 2011 2010 2009 FINANCIAL Profit before taxation 1 2,506.8 2,378.9 2,863.6 2,550.6 1,550.1 Profit attributable to owners of the parent 1,970.1 1,789.4 2,222.9 2,035.7 983.5 Equity attributable to owners of the parent 13,672.0 12,627.9 11,999.2 10,780.2 8,346.3 Return on average shareholders’ equity (%) 14.98 14.53 19.52 21.29 11.75 Basic earnings per share (sen) 30.83 27.96 34.75 32.96 16.62 Gross dividend per share (%) 155.0 155.0 170.0 170.0 80.0 PLANTATION FFB production (MT) 3,408,935 3,185,878 3,295,473 3,405,090 3,626,776 Total oil palm area (Ha) 160,626 157,752 157,045 154,709 150,931 PROPERTY Sales value 1,709.9 856.3 942.0 1,045.1 688.5 Sales (unit) 2,491 1,412 1,730 2,044 1,465 MANUFACTURING OLEOCHEMICAL Plant utilisation (%) 80 77 82 91 78 Sales (MT) 561,001 624,542 618,960 684,389 597,351 REFINERY Plant utilisation (%) 70 77 72 75 78 Sales (MT) 3,052,027 2,919,543 2,640,091 2,533,527 2,817,987 SPECIALTY OILS AND FATS Plant utilisation (%) 56 88 92 96 100 Sales (MT) 734,691 665,785 492,432 511,143 504,317 1 Profit before taxation is before the classification of Discontinued Operations results pursuant to the internal reorganisation and demerger exercise as disclosed in Note 47 to the financial statements. our Principles PROFIT BEFORE TAXATION1 EARNINGS PER SHARE GROSS DIVIDEND PER SHARE SHARE PRICE MARKET CAPITALISATION IOI Corporation Berhad_Annual Report 2013 TABLE OF ON go online at www.ioigroup.com 14 16 Group Five-Year Performance Highlights Financial Highlights 18 63 Management’s Corporate Discussion and Analysis Information 06 Chairman’s Statement 06 Chairman’s Statement 78 Location of Operations in Malaysia 12 Group Financial Overview 80 Corporate Calendar 14 Group Performance Highlights 88 Audit and Risk Management Committee Report 15 Group Quarterly Results 92 Statement on Corporate Governance 15 Financial Calendar 106 Statement on Risk Management and Internal Control 16 Five-Year Financial Highlights 109 Statement of Directors’ Interests 18 Management’s Discussion and Analysis 110 Shareholdings of Senior Management Team 18 Group Financial Review 111 Other Information 26 Group Business Review – Plantation 113 Financial Reports 34 Group Business Review – Resource-based Manufacturing 274 Group Properties 42 Group Business Review – Property 287 Notice of Annual General Meeting 292 Appendix 1 293 Statement Accompanying Notice of Annual General Meeting 294 Shareholders Information TENTS Proxy Form 50 Sustainability and Corporate Responsibility 64 92 58 Corporate Responsibility 63 Corporate Information Board of Directors Statement on 64 Board of Directors Corporate Governance 66 Profile of Directors 74 Senior Management Team 75 Group Business Activities 76 Global Presence 113 287 Financial Notice of Annual Reports General Meeting CHAIRMAN’S STATEMENT 6 IOI Corporation Berhad Annual Report 2013 REVIEW OF RESULTS For FY2013, the Group’s Earnings Before Interest and Taxation (“EBIT”) of RM2.7 billion was 8% higher than the previous year despite lower contribution from the plantation division. The strong performance from both our property and downstream manufacturing divisions, coupled with translational gain on foreign denominated borrowings of approximately RM191.4 million helped to offset the reduced contribution from the plantation division. Our plantation division reported a 34% decrease in operating profit to RM1,082.9 million in FY2013. The lower profit was due mainly to lower average CPO price realised of RM2,433/MT as compared to FY2012’s average CPO price realised of RM3,135/MT. However, fresh fruit bunches (“FFB”) production was 7% higher than previous year’s production which partly offset the lower CPO price impact. Similarly, the contribution from our associate, Bumitama Agri Ltd (“BAL”), to the Group’s plantation profit was also impacted by the lower CPO prices during the financial year Dear Shareholders, under review. However, the aforesaid impact was significantly 7 mitigated by higher FFB production as more mature areas came On behalf of the Board of Directors of on-stream. IOI Corporation Berhad, I am pleased to The resource-based manufacturing division did exceptionally well present to you the Annual Report of the in an encouraging business environment. The division reported a Company and the Group for the financial profit of RM603.5 million in FY2013, 110% higher than the profit of RM287.1 million reported in FY2012. It also reported a RM8.4 year ended 30 June 2013 (“FY2013”). million loss on changes in fair value of derivative contracts for IOI Corporation Berhad FY2013 whilst in FY2012, it registered a fair value loss of RM88.2 million. After excluding these fair value adjustments, the resource- based manufacturing division’s profit reported an outstanding result of RM611.9 million, an increase of RM236.6 million or 63% OPERATING ENVIRONMENT over last year’s RM375.3 million. The substantial improvement was The financial year under review continues to be yet another contributed by better performance from all sub-segments where challenging year. The global economy recovery was fairly sluggish higher margins were achieved as a result of lower feedstock cost and sporadic. Conversely, the Malaysian economy has continued as well as increased sales volume from the refining and specialty to hold up well to achieve a consistent Gross Domestic Product oils and fats sub-segments. (“GDP”) growth rate of around 5% per annum. Market sentiments were generally upbeat with low inflationary pressure and Bank Our property division registered an improvement in operating Negara Malaysia (“BNM”) holding interest rates steady. profit of RM863.1 million in FY2013 against RM704.0 million in FY2012, which is an increase of 22% over the previous year. In the palm oil sector, Crude Palm Oil (“CPO”) prices were relatively However, it is worthy to note that after excluding the revaluation low since the last quarter of 2012 but the earlier stock overhang gain on investment properties of RM161.7 million and RM165.0 affecting the sector’s outlook had reduced substantially. The palm million in FY2013 and FY2012 respectively and a fair value gain of oil downstream industries, on the other hand, have performed RM21.1 million arising from the revaluation of our jointly controlled relatively well due to lower feedstock prices. entity in China in FY2013, the underlying operating profit for FY2013 is RM680.3 million, which represents an increase of 26% In the domestic property scene, sales of properties at prime areas over the same period last year. The overall good performance of remained encouraging despite a cautious property market the property division was achieved on the back of higher sales in backdrop. Over at the Singapore’s property market, the high-end FY2013. In addition, the higher contribution from our property properties segment continues to be affected by the additional investment portfolio arising from improvements in both rental as buyer’s stamp duty imposed as part of the Singapore government’s well as occupancy rates has also contributed positively to the property cooling measures. overall property division’s performance. Chairman’s Statement At net earnings level, the Group posted a net earnings of RM1,970.1 CONTRIBUTION TO SEGMENT RESULTS million in FY2013 which is approximately 10% higher than the net earnings of RM1,789.4 million in FY2012.