APPENDIX It EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT ON EDIBLE OILS AND FATS: GLOBAL AND REGIONAL OVERVIEW, AND COUNTRY ANALYSIS OF MALAYSIA DATED 3 APRIL 2014 PREPARED BY SMITH ZANDER (Cont'd) ee SMT ZANDER Consumption (million ur 2010 r 24 25 2011 22 2012 22 2013 23 | ce | ‘Sours: Extracted from tho independent market researa report propared by SMITH ZANDER. ei Jn Malaysia, there are 54 refineries that refined CPO in 2013. Each of these refineries is owned by 2 refinery company, and a refinery company may own more than one refinery. Hence, while there are 54 refineries in operation in the country, there may not be 54 distinct companies operating the refineries. A total of 42 refinery companies in Malaysia have been identified, some of which may own more than ‘one refinery, as follows: Paim oil industry in Malaysta - companies involved in the business of refining CPO in 2013 4. lami Refinery Sdn Bhd 2.Pan-Century Edible O's Sdn 3, PGEO Esible Oils Sdn Bhd Bho 4.Assar Refinery Services Sin %. Keck Seng (M) Bnd. 6. Palmaju Eeible Oil Sdn Bhd Bhd 7. Corgi Pain Products Sin Bhd &Kirana Pam lt Refinery Sdo 8. Premium Vegetable Ois Sdn i 10.Felde Vegetable Ol Products 11.KL-Kepong Edible Oils Sdn Bhd. 12.Sime Darby Austral Sdn Bhd ‘Sat Bhd 13.Feida IFFOO Sdn Bhd 414, Kunak Refinery Sdn Bhd 15,Sime Darby Kempas Sdn Bhd 416,Green Eaible Ol Sdn Bhd 417. Kwantas Oil Sdo Bhd 18, Sime Daroy Jomalina Sdn Bb 19.Glopal Biodiesel Sdn Bhd 2.Lam Soon Ele Ole Sih Bhd 24 Sasha, Gaia Oi Indstine Bhd ‘2.Intercontinental Specialty Fats 29-Maleysia Vegetable Oi!Refinery 24.SOP Edible Oils Sdn Bhd ‘Sdn Bhd ‘Sdn hd 25.101 Edble Oils Sdn Ba 26.Ngo Chew Hong Oils & Fats (M)_ 27 Unitata Barbed rT 28.101 Loders Croklaan Os Sdn 2%Pacific Oils & Fats Industies 90. Wimar Edible Oils Sdn Bhd ha ‘Sdn Bhd 31.Bintulu Edible Oil Mis Sdn Bhd 32.Lahad Datu Edible Oils Sdn Bhd 33, PGEO Oil Mil Sdn Bhd 34.Pasir Gudang Edible Oils Sdn 95.Meweh Oils Sdn Bhd 36, Sendakan Edible Oils Sdn Bhd Bhd 37, KLK Premier Oils Sdn Bhd 38. TSH-Wiimar Sdn Bhd 39, Mewaholeo Industries Sdn Bhd 40.Felda Palm Industries Sdn Bhd © 41.Delima Oli Products Sdn Bhd 42. Sawit Raya Sch Bhd * Other than the 42 rarery companiae dented above, there ar als other refiner companies which own refnryies) out of ‘th 84 refineries whose identities are not realy avalabo. Colstvey he 42 carantes above including thar subsides ‘and sssocites mine more than 80% of the CPO in Malaysia ‘Source: Extracted from the ndeoendent market reseerch report prepared by SMITH ZANDER 5 utAPPENDIX fl EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT ON EDIBLE OILS AND FATS: GLOBAL AND REGIONAL OVERVIEW, AND COUNTRY ANALYSIS OF MALAYSIA DATED 3 APRIL 2014 PREPARED BY SMITH ZANDER (Cont) ee SMT ZANDER Palm oil industry in Malaysia - main suppliers of refined palm oil products as at December 2013 ee ane Fete Veqnase O1P2554 B41 | ss Gey Z ae Felda IFFCO Sdn Bhd Sanat 101 Edible Oils Sdn Bhd isi TOlLodereCrokissn Ole Sdn | 101 Group 3 2.100000 Pan-Century Edible Olls Sdn Bhd GEO Edie Ole Sdn Bhd Wiis 7 ae War Ese Os Sdn id Sire Darky Ait Sen Bhs Sine Deby Kempas Son ord——+| «Stay 3 sco,c00 Sime Dry semaine Sdn Be | Refinery companies moy own and opersta mare Than one (7) refinery and/or tere are other randy COMPARES i Te GTOUE that are nat sted above as they are not members of PORAM. * May include cepacties of thar cownstroam produets such as specialty fats and olpochemicals. ‘Source: Extracted from the independent merke! research report prepared by SMITH ZANDER Palm oll industry In Malaysia ~ key external trade statistics Fe nS Recs rc eee Palm oil (including cooking oil) ila 20950 wa | tina aes 20 Pakistan 1,102.0 424 India 2,325.4 128 chine 1.0020 113 Netheranas [18003 os Others 7.9030 42 | Ofer 70.5007 sa fool 9,082.0 | 100.0 | Totalpalmoit | 18,146.8 fr PAO Untad Sazos | __t244 28 | China ma we Neen 7 26 | Unted Sates [ara 76 eran 473 at | Neheinas 1678 ia ‘Otters aot seo | Ones 3140 ee atc) 3 eo) [ETT ‘Source: Extracted rom the dependent market research report prepared by SMITH ZANDER. Downstream Blending and Packing of Edible Oils ‘The vibrancy of Malaysia's palm olf industry on the global front has created opportunites in the downstream segment of the palm ollindustry where heavy investments in plantation and refinery assets are not required, Amiong the segments of opportunities within the downstream segment is the blending and packing of palm-based cooking ollfor the domestic market in Malaysia and export market. Blended ‘cooking oil refers to the mixing of two vegetable-based edible oils. Cooking oils are blended to obtain 6 ee 112APPENDIX II EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT ON EDIBLE OILS AND FATS: GLOBAL AND REGIONAL OVERVIEW, AND COUNTRY ANALYSIS OF MALAYSIA DATED 3 APRIL 2014 PREPARED BY SMITH ZANDER (Cont'd) nes ST) ZANDER ‘an ideal mix withthe best physical, chemical and functional properties of each raw material in achieving quality colour, taste and flavor. While inthe past, this segment was primarily dominated by industry players that had refinery operations, the segment has since expanded to include non-refinery players, including contract blending and Packing industry players. In Malaysia, several large refinery-based industry players with downstream blending and packing operations have their own brands of cooking oil which are being marketed to retail consumers. While non-refinery industry players are able to blend and pack cooking oll under various third party brands based on customers’ demand, selected players also have their own registered brands. Non-tefinery contract blenders and packers of palm oll-based cooking ol oer their customers several distinct benefits: + Ability to tap Into Malaysia's wide network of supply fo source various grades of palm oil and PKO from multipfe refineries nationwide ‘= Abilty to blend and pack various volumes (small and large) of cooking oil based on customers’ requirements AAbifty to blend and pack non-palm-based cooking oil based on customers’ requirements Ability to offer complementary services such as sourcing of packaging materials and arranging logisties for customers Continental Resources Sdn Bhd competes in the niche downstream edible oils blending and packing industry, where itis principally involved in the blending and packing of vegetable-based edible oils under house brands and brands carried by its customers, and contract blending and packing of vegetable-based edible oils for edible oll producers under the brands carried by these producers. Industry Lifecycle ‘The upstream palm oll industry in Malaysia Is mature owing to its tong history of cutivation and processing and growth opportunities are present as replanting is regularly carried out to repiace mature crops fo ensure the sustainability of supply of palm oil and PKO to the refineries. The downstream segment of the palm oll industry, specific to the blending and packing of palm oll based cooking oll segment, is robust as a result ofthe constant supply of ollseeds from the plantation sector and strong consumer demand, Palm-based cooking oil is widely used by retal and industrial Conaumers for food praparation in the regions of Asia, Affica, Europe and Middle East. This strong demand from retail and industrial consumers is expected to secure the sustainability of this segment over the long term. Product and Service Substitution Cooking cil is an essential food item in Malaysia and widely used in food preparation by retail and Industral consumers. It is a key household item most commonly used in the preparation of fried foods. ‘To date, palm-based cooking oll remains as the most popular and cost competitive option of cooking cil avaiable owing to Malaysia's large supply of palm oi! and PKO and the Govemment's act of subsidising and implementing price controls for the sales of pure and blended palmn-based cooking oil to retail consumers. ‘The versatility of palm oil and PKO in a variety of food and non-food applications is hard to be matched by other vegetable oils. Within the food segment, palm oil and PKO are most commonly used in the manufacturing of cooking ol, margarine, shortening, vanaspati ce cream, cocoa butter substitutes and ‘confectionary fats. Other vegetable oils such as coconut oil and rapeseed oil are possible substitutes for paim oil and PKO in these applications. While there are substitutes for palm oil and PKO, SMITH 7 Eanes! 113APPENDIX II EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT ON EDIBLE OILS AND FATS: GLOBAL AND REGIONAL OVERVIEW, AND COUNTRY ANALYSIS OF MALAYSIA DATED 3 APRIL 2014 PREPARED BY SMITH ZANDER (Cont'd) ees SMITE ZANDER ZANDER notes that these two oils remain as the preferred choice owing to thelr availabilty in large ‘volumes compared to other vegetable oils such as soybean oil, rapeseed oll and sunflower ai. From a cost perspective, CPO has also emerged as the most cost effective option compared to soybean oil, rapeseed oll and sunflower cil However the activities of blending and packing of cooking oil can be carried out by tao clusters of Industry players, namely the refinery-based industry players and non-refinery industry players. These ‘wo clusters of industry players compete in different segments, with the refinery-based industry players generally placing priority on blending and pecking oils under their respective house brands and catering to customers with large volumes of demand to ensure the sustainabilly of their operations, Non-refinery industry players are more flexible, and are able to take on customers with smaller volumes of demand. Both clusters of ndusty players cater to domestic and export customers. Relevant Policies, Laws and Regulations Malaysia's palm oil industry is regulated by the Government, with specific regulations applying to the downstream segment and retailing of cooking oll products in Malaysia. Cooking oil is price controlled item and Goverment subsidies ensure that this essential product remains affordable for the middle and lower income households in Malaysia. The Government issues subsidy quotas for the retail sales of cooking oll under the Ceoking Oil Subsidy Scheme. in an effort to maintain the increasing price differential and consumption quota on cooking oil, the Government provided for an allocation of RM1.5 billion in Budget 2013 to stabilise the price of cooking cil in the market. Beyond this, industry players in the blending and packing of cooking oll segment are also subject tothe following laws and regulations: Malaysian Palm Oil Board (Licensing) Regulations 2008 ‘The production and distribution of oil palm products without a license from Malaysian Palm Oil Board (MPOB) are prohibited under the Malaysian Palm Oil Board (Licensing) Regulations 2005.A license is ‘required for the production of oil palm planting material, selling or transporting oil palm planting material, PFBs, palm oll, palm kernel, palm fatty acids and palm oleochemicals, purchasing of FFBSs, palm oll ‘and palm kernel, commencing of construction of palm oil mill and miling, Malaysian Palm Oil Board (Quality) Regulations 2005 This Act provides MPOB with the right to determine the quality of all activities pertaining tothe oll palm industry including the production and management of planting materials, agronomical practices in oi palm plantation estates, grading of FFs, miling of CPO and CPKO, refining and fractionation of palm oll and PKO products, surveying, inspecting, testing, examining and analysing of oll palm products as well as the storing, transferring, handling and transporting of oil palm products. Failure to comply with the specifications set out by MPOB would cause an industry player to be able for a fine not exceeding M200,000 or imprisonment for a term not exceeding two years or both. Control of Supplies Act 1964 This Act controls and rations the supplies of certain goods in Malaysia. Under this Act, cooking oil is classified as a scheduled article and a controlled article. As a scheduled article, the trade (at both ‘wholesale and retail leveis) or production of cooking ol is only permitted by way of obtaining a license. ‘license is a'so required for the wholesale and retail sales of cooking oll. The premise where cooking ‘lis sald also requires a separate license. The Control of Supplies Act is enforced by the Ministry of Domestic Trade, Cooperatives and Consumerism (MDTCC). 8 rr 114APPENDIX {1 EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT ON EDIBLE OILS AND FATS: GLOBAL AND REGIONAL OVERVIEW, AND COUNTRY ANALYSIS OF MALAYSIA DATED 3 APRIL 2014 PREPARED BY SMITH ZANDER (Cont'd) nee SM (TH) ZANDER Prices of cooking oll under Malaysia's List Price Control and Anti-profiteering Act 2014 of Controlled Goods The Price Control and Anti-profiteering Act 2011 replaces the Price Control Act 1948. The price controt of selected goods to prohibit profiteering is t ii regulated by this Act. Price controlled items are not 500 grams cd to be sold above the determined prices and a Tkiogram | 3.30 license is required for the sales of such items. Pure | Purepalmoil | 2kilograms | 6.25 palm of, blended palm oil-based cooking oitis price “Bklograme | 0.00 controlled and its production is subsidised by the Ski 13.25 Govemment. Compliance to this Act is enforced by egrams MOTCC and aimed at encouraging ethical trade Serene F208 practices as well as protecting consumer inerest. | aiasy yj, -thiooram [3.60 This Actfurther provides forthe determinationofthe | BP"@®4PaIm | Phitograms | _7.20 maximum, minimum or fixed price for the Sitogrems [7035 manufacturing, producing, wholesaling or retailing of any goods. The responsibilty for prescribing the Fea mene Ss mechanisms to determine reasonabilty of profit is a entrusted fo MDTCC. et ance ‘report proparod by SMITH ZANDER Reliance and Vulnerability to Imports Malaysia's large supply of oilseeds has ranked the nation among the largest CPO and CPKO Malaysia’s exports of palm oil-based Producers globally. Prior to 2006, Malaysia was cooking olf, the world's largest CPO producer before Indonesia emerged as the leading CPO producer between cies 2007 and 2012. Similarly, Malaysia was also the 2005 . 700.0 : vores lages! CPKO producer historia before Taos 376,163, 7234 ing eclipsed by indonesia in 2008. Therefore, Malaysia is not dependant on imports, wih local -ape~ a 8 production of CPO and CPKO being sufficient to oe meet local demand. Malaysia's palm oil industry is id are 2,108.8 able to meet the local demand for cooking oil and | 2010. HiSais, 2,256.1 produce cooking oil for the export market. Between 2011 ‘778,866 3,038.8 2005 and 2012, Malaysia has exported 2012 368,373 4,367.0 approximately 4.5 million MT of cooking oil which [Total 4,448,780 13,7388 generated export earnings of RM13.7 billion forthe Source: Exirected tom the independent market research ‘country. White small volumes of imported cooking olls are available to retail consumers in Malaysia, its popularity is hampered by price and avallabilty. Imported cooking olls are priced higher than palm-based cooking oll, as these items are not under price control in Malaysia. Additionally, these imported cooking oils are largely only avaliable in urban areas where the gresence of high income population and the expatriate ‘community are more prevalent, 15APPENDIX It EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT ON EDIBLE OILS AND FATS: GLOBAL AND REGIONAL OVERVIEW, AND COUNTRY ANALYSIS OF MALAYSIA DATED 3 APRIL 2014 PREPARED BY SMITH ZANDER (Cont'd) eee SMT] ZANDER Segment Performance, Outlook and Prospects Malaysia's production of palm-based cooking jg 7 sriniemaocoreiraas intent tres has increased ftom approximately 0,7 millon MT in 2005 to an estimated 1.6 mition MT in 2013. Approximately 40% of this vokumie was distibuted for domestic consumption in Maiaysia, while the remaining was for the ‘export markets. The production of cooking oil is driven by demand. In Malaysia, dietary habits of its population that have a preference for fried foods have proven to be a strong driver for cooking oll. Palm-based cooking oil is also the cheapest option of cooking oll availabe to Malaysians, due to the wide availabilty of ppaim ol! rising from the nation’s position as the second largest palm oll producer globally, © PPS PPS Stroy? and Government effors to mainiin the availablity and affordabilly of palm-based Souce: Exiactodirom the independent market esearch pat cooking cil, In Malaysia, the Government reer reed controls the price of pure and blended palm-based cooking oil to ensure its affordability for the population, especially middle and lower income households. ‘Malaysia’s production of cooking ol for the export market is driven by the increasing demand particularly from China, India, Netherlands and countries in the region of Attica. China, India and Netherlands collectively imported 41.7% of Malaysia's total exports of palm oll produets (which inciudes palm-based ‘cooking oil) in 2013. Affica’'s demand for Malaysia's palm oil products, increased from approximately 1.9 milion MT in 2005 (6.8% of total exports) to 2.1 million MT in 2012 (12.1% of total exports) and further to 2.3 million MT in 2013 (13.2% of total exports)? The top three importing countries in Aftica in 2013 were Benin, Egypt and Tanzania. The European Union continues to be a key importing region for Malaysia's palm oll products, with Imports in 2013 accounting for 12.9% of Malaysia's total exports of palm oil products. ‘SMITH ZANDER estimates that Malaysia's production of cooking oll will Increase from an estimated 1.5 nillion MT in 2013 to 1.8 milion MT in 2015, predominantly on the back of strong export demand from India and countries in Africa, Domestic demand in Malaysia is expected to remain constant over the forecast period, Competitive Landscape ‘The competitive tandscape of the blending and packing of cooking oil segment s fairly competitive with ‘two clusters of industry players serving the domestic and export markets. ‘+ The first cluster comprises industry players with refinery operations. Several of the refinery ‘companies in this cluster have their respective brands of paim oil-based cooking ail retailing domestically in Malaysia, This includes industy players such as Delima Oil Products Sdn Bhd Which owns the Saji brand, Lam Soon Group which owns the Knife brand, Yee Lee Edible Oils Sdn Bhd which owns the Red Eagle Ol, Vecotn and Vesawit brands and PPB Group Berhad which * Sourea: Extracted trom the independent merkat research report prepared by SMITH ZANDER 10 EE 116APPENDIX II EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT ON EDIBLE OILS AND FATS: GLOBAL AND REGIONAL OVERVIEW, AND COUNTRY ANALYSIS OF MALAYSIA DATED 3 APRIL 2014 PREPARED BY SMITH ZANDER (Cont'd) ee SM [TE ZANDER owns the Neptune, Seri Muri and Krystal brands. Other major industry players with refinery operations include Sime Darby Bethad, IO! Corporation Berhad, Kuala Lumpur Kepong Berhad and United Plantations Berhad. + The other cluster of industry players comprises non-refinery companies, which provide blending and packing of finished products as well as contract blending and packing services. These players. may have their own respective brands of cooking oil retailing domestically or exported to other countries, and may also blend and pack generic products that carry other third party brands. As these non-refinery companies do not have existing refinery operations, they source various grades of refed palm cil from the 54 refineries operating in Malaysia, of which 36 refineries are located in Peninsular Malaysia, 12 refineries are located in Sabah and 6 refineries are located in Sarawak. The non-refinery companies also carry out blending and packing for palm oil traders and other intermediaries, who also source refined palm ol from these refinery companies in Malaysia. These Players are able to cater to customers with smaller volumes of demand, as compared to refinery companies, owing to the smaller scale of operations in a blending and packing plant compared to arefinery. Refinery companies produce palm-based edible oils, where they refine, bleach and deodorise (RBD) crude palm oil into RBD palm oil. RED palm ol is further fractionated fo obtain a low melting fraction (RED palm olein) and a high melting fraction (RBD palm stearin). RED palm olein isin liquid form and is used as palm-based cooking oil. RBD palm steerinis in solid form and used in the production of food such as margarine and food shortening, Refinery companies also refine, bleach and deodorise crude palm kemel oil into RED palm kernel ol RBD palm kernel ofl can be fractionated to yield RBD palm kernel olein and RBD pakn kemel stearin, which are used for the production of specialty fats such as cocoa butter or milk fat substitutes or for industrial applications such as soaps, shampoos and detergents. Refinery companies operate large scale operations, comprising refining, fractionation, packing and buk storage facilties and sell their palm-based edible and non-edible oils to @ wide range of customers, mainly comprising large local and foreign customers. They primarily sell bulk edible and non-edible oils (ie. RBD palm oll shipped in bulk tankers) and also blend and pack palm-based cooking of and specialty fat products into consumer-sized packs. Refinery companies are the main exporters of palm ‘oll in Malaysia. Out of the 18.1 milion MT of palm oil (including cooking oil) exported from Malaysia in 2013, refinery companies exported approximately 13.5 milion MT of various R&D palm oil products. Non-tefinery companies blend and pack palm-based cooking oll and other vegetable-based cooking oils such 28 soy, canola, sunfiower and com oil info consumer-sized packs. They are not involved in the production of RBD palm oil as they do not have refining and fractionation faciities. Non-refinery companies operate smaller scale operations, generally comprising only packing facilities, as compared to the refinery companies. The non-refinery companies’ target market is primarily the export market with most ofthe exports in the form of palm-based cooking cil 1" 17APPENDIX It EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT ON EDIBLE OILS AND FATS: GLOBAL AND REGIONAL OVERVIEW, AND COUNTRY ANALYSIS OF MALAYSIA DATED 3 APRIL 2014 PREPARED BY SMITH ZANDER (Cont'd) a SMT] ZANDER Both refinery companies and non-refinery companies are involved in blending and packing of palm- based and other vegetable-based cooking oils. The value propositions of the refinery companies and rnon-refinery companies with respect to the blending and packing of palm-besed and other vegetable- based cooking oils are as follows: Sores oey es omen Palm-based and other vegelable-based | Palm-besed and other vegetable-based ‘cooking olls such 9s soy, cancla, sunflower | cooking oils such as soy, canal, sunflower ‘and com oils and com ols ‘Generaly bulk orders as production | Generally smaller and customised orders due requires large economies of scale to smaller scale operations ‘Scalable — focused on specific and usually | Flenible — can range from 250 mitre (m) limited packaging types and sizes as they | polyethylene terephthalate (PET) botties to ‘need to be sealable for bulk orders ‘20 metric tonnes (MT) bags, as smalle scale ‘operations and smaller orders are more ‘easily customised Packed olls generally carry own (in-house) | Packed ols are generaly for third parly ‘brands, Packing for third harty brands are | brands. Own (In-house) brands are usually exceptions produced in smaller volumes Appleabie fo indus payers mi general, bul Te valve popoSTION Of Spec Incvdual players may afr Tea campany To ‘company ‘Source: Erected tom the indopendont markt research rpotpropared by SMITH ZANDER The refinery companies and non-refinery companies bring different but complementary value Propositions to the edible oils industry. While the edible ois industry within the individuat clusters of the refinery companies and non-refinery companies respectively may be faily competitive, the business activities between the refinery companies and non-refinery companies often complement each other. ‘The refinery companies have longer presence in the industry, dating to the 1960s and 1970s during the ‘early days of the oi palm industry in Malaysia. The nor-refinery companies emerged later, from the 1990s onwards, as a sub-segment of the refinery value chain within the edible oils industry providing ‘complementary services to the edible olls market at large. ‘The complementary nature ofthe relationship between refinery companies and nor-refinery companies ‘can be described as follows: ‘+ The non-refinery companies co not have refning facilities, They purchase bulk edible ols from the refinery companies for blending and packing, Thus, they are customers of the refinery companies ‘and a sub-segment of the refinery companies’ value chain within the edible oils industry. ‘+ Many non-refinery companies are established customers ofthe refinery companies, providing the refinery companies with steady, recurrent business. As such, it Is not common business practice for refinery companies to sever these relationships by competing directly with the non-refinery companies. + Non-refinery companies have business relationships with certain customers built through years of Industry experience and track record. Many ronvefinery companies have strong business relationships with foreign customers such as international traders and importers, as the export market is importent to them due to the quota on domestic palm-based cooking ol imposed under the Cooking Oil Subsidy Scheme in Malaysia. The refinery companies may not have business relationships with these customers. As the non-efiiery companies have their own sets of ‘customers, they complement the refinery companies and therefore, the non-refinery companies are part of the refinery companies’ distribution channel. The refinery companies have their own local ‘and foreign customers, but they have ongoing working relationships with the non-refinery 12 EE — EEE 118APPENDIX II EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT ON EDIBLE OILS AND FATS: GLOBAL AND REGIONAL OVERVIEW, AND COUNTRY ANALYSIS OF MALAYSIA DATED 3 APRIL 2014 PREPARED BY SMITH ZANDER (Cont'd) ee SAT) ZANDER ‘companies to reach a wider base of customers o increase their sales. While the refinery companies. also have blending and packing activities similar to the non-refinery companies, it is industry practice not to compete for the same customers when supply chains and distribution are weil established. ‘+ Non-tefinery companies typically deal in smaller orders or volumes, while refinery companies typically deat in bulk edible oils and bulk orders of packed edible ols. Due to thelr smaller scale operations, non-refinery companies are better suited to taking smaller and customised orders from customers. Most refinery companies have large scale operations where they generally prefer dealing in large orders or volumes in order to achieve adequate economies of scale. In general, non-refinery companies are positioned to serve different market segments from the refinery ‘companies, + Non-refinery companies are usually able to offer more variety in packaging sizes. Due to their ‘smaller scale operations, non-refinery companies have greater flexibility to pack in sizes that can range from 250 ml PET botties {0 20 MT bags. Refinery companies are generally involved in buk. ‘edible aits and bulk orders of packed edible oils, hence they generally have specific and limited packaging types and sizes that are scalable for these bulk orders, The non-refinery companies are more versatile in varying thelr packaging sizes according to customer requirements, including ‘smaller packaging sizes that most refinery companies do not pack, ether due to restrictions in their packing fines or insufficient volumes for economies of scale. This again enables both refinery ‘companies and non-refinery companies to address different market segments, + Nomrefinery companies also provide contract packing services to refinery companies. This usually happens when the refinery companies do not have the right fecilties to meet certain customer orders (e.g. smaller volumes or smaller packaging sizes), when the refineries have insufficient capacity or for other various business reasons. BY carrying out contract packing for a refinery company, a non-refinery company effectively becomes an extension to the refinery company's own packing operations, and is thus an important component ofthe refinery company's supply chain. ‘The sustainabity of the non-refinery companies ties in the complementary nature of their relationship ‘with refinery companies in the edible oils industry. The refinery companies focus on the production, sales and export of RBD palm oil while the non-refinery companies complement the refinery companies in primarily the export market for palm-besed cooking oil, where the non-refinery companies have access to different customers, serving the needs of different market segments and are generally a part of the refinery companies’ distribution channel and supply chain, While to some extent there is competition between refinery companies and non-refinery companies, a8 competition exists in all industries, itis an accepted practice for companies in the edible oils industry to work together wherever possible, and not compete for the same customers, when business relationships with these customers are well established. Additionally, the six (6) identified key non-refinery companies, namely Continental Resources Sdn Bhd, Able Perfect Sdn Bhd, Nutrinion Sén Bhd, Packaging Services Centre Sdn Bhd, Promac Group and Soon Hup Edible Oil Sdn Bhd have been in the industry, on average, for over 15 years, wih the more established companies exceeding 20 years, a further testament to the sustainabilty of the non-refinery companies. The sustainability of the non-refinery companies will also be driven by the global demand for edibie ols, hich is growing steadily and will continue to do so, matching the growth in population and rising ving standards in emerging markets. Global demand for edible oils and fats is expected to grow from 113.5 milion MT in 2000 to 208.7 million MT in 2015 at a CAGR of 4.2%, The strong consumption growth in edible oils and fats is projected to be supported by strong palm oll production growth, which is the most produced and consumed of the edible oils and fats, Growth in the palm oll industry is expected to be driven by a number of factors. Among them include the increasing demand for food as a result of the {growing population and economic development of Key consuming markets such as China and India as well as regions such as Aftica and Middle East, 8 ——— 19APPENDIX It EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT ON EDIBLE OILS AND FATS: GLOBAL AND REGIONAL OVERVIEW, AND COUNTRY ANALYSIS OF MALAYSIA DATED 3 APRIL 2014 PREPARED BY SMITH ZANDER (Cont'd) ee SMT) ZANDER Due to the nature of the palm oil industy in Malaysia, non-refinery blending and packing industry players in Malaysia serve a wide market, catering to both the domestic and export markets. Several industry players are also involved in other related businesses, such as the blending and packing of other food products, as well as the manufacturing of packaging materials. In 2011, total revenue generated by these industry players was approximately RM1.3 billion, which includes revenue generated from other businesses as well as revenue derived from Malaysia and other export markets. Continentat Resources ‘Sdn Bh's share of revenue in 2011, relative to the other five (6) identified key non-refinery blending ‘and packing industry players, was 19.3%? based on its revenue of RM242.8 million for the financial year ending 31 December 2011. Based on a comparison with the other five (6) identified key non-refinery biending and packing industry players, namely Able Perfect Sdn Bhd, Nutrinion Sdn Bhd, Packaging Services Centre Sdn Bhd, Promac Group and Soon Hup Ecible Oil Sdn Bhd, Continental Resources. ‘Sdn Bhd ranked third (3%) in terms of revenue and market position in 2011. Able Perfect Sdn Bhd and Promac Group, which ranked ahead of Continental Resources Sdn Bhd in 2011, recorded share of revenues of 40.0% and 22.3% respectively. Share of revenue of selected key non-refinery blending and packing industry players in 2011 ‘8 Latest avaiable year where a majority of industry players hed fied fancied resis wih tne Companies Commission of Malaysia (CCM), as at 20 arch 2014, ‘nth the exception of Able Perfect San Bhd (nancial yoor ended 20 Septombor 2009) and Promec Group (nancial year ended 31 March 2010). 12) Other players inctude Nutinion Sdn Bhd, Packaging Services Centro Sdn Bhd ‘and Scon Hup Edibie Oy Sn Bhd. Toel revenue of Rese players and Cantinantal ‘Resources Sdn Eh! was RUt,257,255 038 for hancial yoar ended 2011, whore Continental Resources San Bhd recorded a reverue of P4242, 759,094 2) For players other then Continental Resoureas Sdn Bhd, may include revenue erved from businesses other fran the Blencing and packing of vegetable ols, 25 ‘well as geographical revenue derved fram Malays end ofr export markets ‘Source: Extracted rom the independent market research repart prepared by SMITH ZANDER 3 in view tht the aucted franca stetemonts of Able Perect Sdh Bhd and Promac Group forthe FVEZO11 wore rot avalable, [SMITH ZANDER hed used tho aueted financial staloments of Able Porect Sdn Bhd and Promac Group forthe FYEZ009 are [FVE2010 respectively, andthe sucted financial statomonts of Soan Hup ale Oil Soh Bhd, Packaging Centre Services Sch ‘Bhd, Nutinion Sdn Bd and Continental Resources San Bhd forthe FYEZO11 to derive at Continental Resources Sdn Bhd 's 19.5% market shaw. Save forthe audi financileterrenis of Soon Hup Edible Ql Sdn Bhd and Continental Resourses Sch Bhd for ho FYE20%2, the audted financial slatemente were the latest avalabie audited financial statements atthe COM, 14 a! 120APPENDIX I EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT ON EDIBLE OILS AND FATS: GLOBAL AND REGIONAL OVERVIEW, AND COUNTRY ANALYSIS OF MALAYSIA DATED 3 APRIL 2014 PREPARED BY SMITH ZANDER (Cont'd) es SMT ZANDER Based on the latest available audited financials of these five (5) identified key non-refinery blending and packing industry players mentioned above, Continental Resources Sdn Bhd fared better in terms of profitability, having recorded a gross profit margin of 9.3% in FYE. 31 December 2012, against a peer average of 8.9%; and a net profit margin of 3.4% in FYE 31 December 2012 compared to a peer ‘average of 2.5%t. Tho rest of this page is intentionally left blank] 4 SIITH ZANDER had used the audited fnanclal statements of Able Perfect Sah Bhd and Promse Group forthe FYE2009 and 'FYE2010 respectively, the avattad financial stalamants of Packaging Cant Services Sdn Bhd forthe FYEZOT1 end the auc {nancial tetorants of Soon Hup Edible Ol Sdh Bhg and Continental Resources Sda Bhd for the FYEZOt2 (0 derive et the Industy peer average gross prof margin and net prot mergin of &.9% and 2.5% respactivaly. The aufted financial statements {Used are Ine lata! avale suited fnencial statements a! the CCM. However, since Nithnion Sdn Bhd recorded @ Iss farthe -FYE2OI 1, wes excluded trom the peer average computation, 15 ee 121APPENDIX II EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT ON EDIBLE QILS AND FATS: GLOBAL AND REGIONAL OVERVIEW, AND COUNTRY ANALYSIS OF MALAYSIA DATED 3 APRIL 2014 PREPARED BY SMITH ZANDER (Cont'd) ee SM (TH ZANDER 2 OVERVIEW OF THE GLOBAL AND REGIONAL EDIBLE OILS AND Fats MARKET Market Segmentation The edible oils and fats market comprises 17 widely recognised and globally traded vegetable oils and animal ollsfats. These edible cis and fats can be broadly categorised into two, namely vegetable olls and animal olsfats. The term ‘oil largely refers to liquid substances while ‘at’ refers to solid substances. Olls and fats are insoluble in water, but are soluble in most organic solvents. Edie oils and fais are made of triglycerides, a molecule that combines one unit of glycerol (or glycerine) with three units of fatty acids. Edible oils and fats can be found in a liquid, semisolid, or solid form at room temperature. Edible olls and fats - market segmentation Ey Cty VEGETABLE o1Ls [= Derived from plantation + = _ Castor ai, coconut ol, como, cotton of, groundnut/peanuit of, linseed oil, olve of pain ‘oil, pam Kore! oi, rapeseedicanola of, Sesame oil, Soybean oi end suntiower oil ANIMAL OILS/FATS ————] -__boerived from animals = Butler, fish of lard and tallow ‘Source: Extracted from the independent market reseerch report prepared by SMITH ZANDER Edible oils and fats are primarily utiised for food applications, and targely in the manufacturing of ‘cooking and salad oils, margarines and spreads, food dressings, shortenings, and substitutes for hard butter and cocoa butter. Edible olls and fats are also utilised in non-food applications as raw materials for the production of oleochemicals, in which they are used in the manufacturing of a wide range of goods such as soaps, lubricants, paints, candles and biodiesel. C1. Holdings Berhad, via the acquisition of Continental Resources Sdn Bhd competes in the vagotable oils segment of the edible oils and fats market. Market Performance, Outlook and Prospects ‘Supply Analysis Global production of edible olls and fats displayed steady positive growth since year 2000, increasing from 114.9 milion MT in 2000 to 186.3 milion MT in 2012 and registered a CAGR of 4.1% over this. period. CPO and PKO recorded the highest production growth over this period, with global production ‘of palm oil increasing from 22 million MT in 2000 to 61.5 milion MT in 2012 at an impressive CAGR of 7.3%. Similarly, PKO grew from 2.7 million MT to 5.8 milion MT over the same period at a CAGR of 6.6%. Over the period of 2000 to 2012, other major vegetable olls including soybean oil (CAGR of 6 EEE 122APPENDIX II EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT ON EDIBLE OILS AND FATS: GLOBAL AND REGIONAL OVERVIEW, AND COUNTRY ANALYSIS OF MALAYSIA DATED 3 APRIL 2014 PREPARED BY SMITH ZANDER (Cont'd) ee SM TH ZANDER 4.1%), rapeseed oll (CAGR of 4.196, sunflower oll (CAGR of 3.5%), castor cil (CAGR of 2.8%), olve il (CAGR of 2.6%), cotton oll (CAGR of 2.2%) and sesame oll (CAGR of 2.0%). als0 registered positive ‘growth, In the animal ollsfats segment, lard and butter registered positive growth rates at a CAGR of 2% and 1.7% respectively over the same duration. Globally, CPO and soybean oil are the highest produced oils far outstripping the supply of other edible lig and fats. The market share of CPO and soybean oi! in 2012 was recorded at 28% and 22% respectively, wth CPO being the ol of choice in developing nations in Asia and Africa, where supplies are abundant, and soybean oif being preferred in the advanced economies of North America and Europe. Rapeseed oll was the third most produced oll globally in 2012 and accounted for 13% of the ‘global edible olls and fats supply market. PKO was the fit most produced vegetable oll globally in 2012 and accounted for 3% of the edible oils and fats supply market in that year. ‘Weather conditions play a crucial role in determining production trends each year, with various parts of the world generally experiencing different weather pattems that wil in tum affect the production of each ‘il and fat in a different manner. For instance, the El Nino phenomenon that occurred in 2009 resulted indry conditions in Southeast Asia and Central America, but in contrast led to wet conditions in South ‘Ametica, Nevertheless, global production of edible of's and fats registered a lower albeit postive growth rate that year by 3%, ftom 160.3 milion MT in 2008 to 165.1 million MT in 2008, compared to a growth rate of 3.8% the previous year. Production levels rebounded in 2010, growing by 4.4% to 172.3 mitfon MT. In terms of suppliers, the key producers of edible oils and fats globally in 2012 were Indonesia (accounted for 45% of global production), China (accounted for 13% of global production), Metaysi {accounted for 12% of global production), the United States (accounted for 9% of global production) and india (accounted for 5% of global production). Member countries of the European Union, such as Germany, France and Spain, were also notable producers of edible oils and fats, and this region collectively accounted for 12% of global production in 2012. Indonesia and Malaysia mainly produced palm oil and PKO, while China was @ producer of a variety of ils including cottonseed oil, ‘groundnutipeanut oll, sesame seed cil and soybean oil. The United States is a key producer of com oil, ‘as well a8 cottonseed oll and soybean oll. India meanwhile produced coconut oil, cottonseed oil, ‘groundnut/peanut ai and sesame seed cil Production of crude soybean oil increased at a healthy pace from 25.6 millon MT in 2000 to 41.7 millon, MT in 2012 at a CAGR of 4.1% over the period. Global production of crude soybean oils influenced by factors such as weather conditions and crop switching due to compettion fram ather crops with greater profit margins, Crude soybean oil is mainly produced in North, Central and South America, particularly in the United States, Brazil and Argentina, In the United States, soybean competes with com, wheat ‘and cotton for planting acreage, leading to the increasing global dependence on South America for soybean supply since 2002. As soybeans enrich the soil wth nitrogen, farmers typically switch erops every alternate year, and more so when the prices of competing crops increase as a result of greater demand, Global production of crude rapeseed oil grew from 44.5 milion MT in 2000 to 23.6 milion MT in 2012, recording a CAGR of 4.1% over the period. In the last 20 years, the production of crude rapeseed oil production has fluctuated due to production slowdowns in the European Union, India, Canada and China that were caused by poor weather conditions and decreasing seeded area, \Werldwide production of crude sunflower oll increased from 9.7 milion MT in 2000 to 14.6 milion MT in 2012, registering a CAGR of 3.5% over this duration. Global production of crude sunflower ail is primarily influenced by seeded area, though itis noted that global production has been increasing at a higher rate than seeded area since 2005 due to Improved yield. Sunflower seed is mainly grown in Ukraine, Russia, the European Union and Argentina, with Ukraine being the iargest exporter in recent years. v SS 123‘APPENDIX I EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT ON EDIBLE OILS AND FATS: GLOBAL AND REGIONAL OVERVIEW, AND COUNTRY ANALYSIS OF MALAYSIA DATED 3 APRIL 2014 PREPARED BY SMITH ZANDER (Cont'd) ee SMT ZANDER Global production of edible olis and fats is expected to further grow to 209 million MT by 2015, registering a CAGR of 4.1% between the years 2000 and 2015. CPO and soybean cil will continue to feature prominently as the highest produced oils during the forecast period. Indonesia, China, Malaysia ‘and United States are expected to remain as key supply nations of edibie oils and fats globally, owing to the arge oil palm and soybean oll crop plantations in hese counties and various Government efforts to encourage replanting. Demand Analysis Consumption of vegetable-based edible oils is commonly measured by the volume of processed and refined oils consumed as opposed to consumption ofits crude form. Glabal consumption edible ols and fats increased from 113.5 milion MT in 2000 to 185.8 milion MT in 2012 at a CAGR of 4.2%. Consumption is largely affected by market prices, production volume, availabilty of product substtutes and demand from end-user industries. Edible oils and fats are consumed by four main industries, ta, food, energy (biofuels), oleochemicals and others such as animal feed. ‘The trend in supply largely reflects a trend similar to production patterns, with most of the edible oils and fats recording positive increasas in consumption over the period betwen 2000 and 2012. Palm cl registered the highest growth in consumption during the ped, increasing from 21.8 million MT in 2000 01.1 million MT in 2012 at an impressive CAGR of 7.4%. PKO recorded the second highest growth rate over the same period, with global consumption levels increasing trom 2.6 milion MT to 6.7 milion MT at a CAGR of 7.1% during the same period, Soybean oll also registered positive growth trends, growing at a CAGR of 5.1% over the period, along with rapeseed oil (CAGR of 4.9%) and sunflower oil (CAGR of 2.8%). In the animal oilsfats segment, butter and lard grew at a CAGR of 1.9% and 1.7% respectively during the period between 2000 and 2012. Palm oil surpassed soybean oil to become the most consumed cil ofthe edible oils and fats in 2005, ‘and grew strongly since then, whereby palm oll consumption accounted for 28% of total consumption ‘of ecible cls and fats in 2012. Soybean oil was the next highest of the vegetable oils consumed in 2012 ‘and accounted for 24% of total consumption, followed by rapeseedicanola ol (14%), sunfiower oil (7%) as well as PKO (3%).Al the same time, PKO has also consistently shown higher consumption rates as compared to soybean oil, rapeseed oll and sunflower cil ‘As with other commodities, consumption pattems of edible oils and fats are subjected to fluctuations in ‘market prices, which are determined by supply and demand dynamics as wel as extemal macro forces. ‘Additionally, several of the edible ois and fats, such as palm oil and soybean oil, are commodities that ‘are traded in global markets, and as such are also infuenced by economic conditions that affect speculative trading, hina represents the largest market for edible ols and fats, whereby in 2012 the nation's consumption ‘was registered at approximately 35.3 milion MT, thereby accounting for 19% of total consumption of edible oils and fats worldwide. Other key consumers in 2012 included the European Union (17% of ‘global consumption), India (10% of global consumption), the United States (0% of global consumption), Brazil (4% of global consumption), Commonwealth of Independent States (4% of global consumption), Indonesia (4% of global consumption), Malaysia (2% of global consumption), Pakistan (2% of global ‘consumption) and Japan (2% af global consumption) Consumption of soybean oll globally Increased trom 25.1 milion MT fn 2000 to 48.4 millon MT in 2012 af & CAGR of 6.1%. Worldwide soybean oi! consumption largely followed production, displaying a slightly fuctuating but nevertheless increasing trend over the last twenty-year period. Consumption declines were witnessed in 2004 and 2009 due to production slowdowns and substitution for competing edible oils and fats. Soybean ol is mainly consumed as fcod and feedstock for biodiasel, Major consumers of soybean ol inchide China, Brazil, United States, Argentina and India. Rapeseed oil registered strong worldwide consumption growth in recent years, with consumption fovels ‘growing from 14.5 millon MT in 2000 to 28.6 millon MT in 2012 at a CAGR of 4.9%. Consumption #8 EE 124APPENDIX I EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT ON EDIBLE OILS AND FATS: GLOBAL AND REGIONAL OVERVIEW, AND COUNTRY ANALYSIS OF MALAYSIA DATED 3 APRIL 2014 PREPARED BY SMITH ZANDER (Cont'd) SMT ZANDER trends of rapeseed oil also increased in fine with production, with minor fluctuations caused by lower prices of competing olfs such as soybean and palm oll. Canota oll is mainly utlised in the food sector due its low saturated fatty acid content, while inedible rapeseed oil is typically used as feedstock for biodiesel. The largest consumers of rapeseedicanola oil are the European Union, China, India and the United States. ‘Worldwide consumption of sunflower cil rose from 8.4 milion MT in 2000 to 13.1 million MT in 2012 at ‘a CAGR of 2.8%. In addition to its light taste, sunflower oll has high composition of mono- and polyunsaturated fatty acids, rendering ita healthy choice for food consumption and limiting its use for biodiesel production. Key importers of sunflower oil include the European Union, india, Turkey and Algeria While other substitute vegetable oils are available for palm oll and PKO, these two vegetable oils remain as the preferred choice among consumers due to their availabilty in large volumes which surpass other vegetable ols such as soybean of, rapeseed cil, sunflower oll and coconut oll. Palm oil and PKO are also cost competitive in comparison to other major vegetable oils. Global demand for edible oils and fats is expected to grow to 209.7 milion MT by 2016, registering a CAGR of 4.2% between the years 2000 and 2015, The trend in demand wil reflect the trend in supply, with palm oil and soybean cil being the most consumed oils over the forecast period. Global demand for edible ols and fats over the forecast period will be driven by factors such as the growing demand {or food, wide range of applications of edible oils and fats, increasing demand from key consuming countries China and India, and key consuming regions Aftica and Middle East, and increase in the use of biodiesel, The North America and Attica regions are attractive demand markets, with consumption of edible oils and fats at approximately 21.0 milion MT and 18.9 million MT respectively in 2012. Consumption of edible ols and fats in North America and Altica regions formed 10% and 8% of the Jobat consumption in 2012 (refer to section titled Key Demand Drivers and Dependencies to read more about these factors). Edible olls and fats market ~ gtobal market size, major oils and major regions lex cx it BO PPIPPIPP IPOS EES tend ate aetna 22‘APPENDIX I} EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT ON EDIBLE OS AND FATS: GLOBAL AND REGIONAL OVERVIEW, AND COUNTRY ANALYSIS OF MALAYSIA DATED 3 APRIL 2014 PREPARED BY SMITH ZANDER (Cont'd) nes SMT ZANDER Edible oils and fats market - comparative performance of major olls ‘Sour: Extracted from th independant markt research reprt prepares by SMITH ZANDER Edible olls and fats market — palm oll's global markot size, major regions and major countries. am ooh ne peterance Paarl, “st HL OO oh enn 202 ‘Source: Extracted fram te independent market restarch report prepared by SMITH ZANDER 20 126APPENDIX I EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT ON EDIBLE OILS AND FATS: GLOBAL AND REGIONAL OVEAVIEW, AND COUNTRY ANALYSIS OF MALAYSIA DATED 3 APRIL 2014 PREPARED BY SMITH ZANDER (Cont'd) SMITH ZANDER Edible olls and fats market — PKO’s global market size, major regions and major countries [Pa banana prerence Oem a8 son st ma ca ei 98 i ey “vt HUH ‘Source: Evacted um the independent market research repr prepared by SMITH ZANDER Pricing Analysis and Trends ‘The market prices of individual edible cis and fats generally move in ine with one another, with varying degrees usually as result of their respective production and consumption patterns. Market prices of ‘eile oils and fats are also influenced by the market prices oftheir comparable edible olls and fats due to their similar physical properties and applications, such as in the case of palm oil and soybean oll PKO and coconut oil Matiet prices of edible oils and fats also largely followed that of crude oil, particularly from 2007 ‘onwards, due to their use 2s feedstock in the production of biodiesel and hence serving as a substitute for crude oil, For instance, escalating crude oil prices in 2008 also led to sharp increases in market prices of edible ols and fats that year, with prices subsequently decining sharply in 2009 brought about by the economic recession that ensued. Itis noted that market prices of laurie cits (PKO and coconut cil) are less tied to market prices of crude oll due to thelr distinct properties that render them less favourable for use as feedstock in biodiesel production. Inadattion tots many uses, pa ol also holds several advantages when compared to other vegetable- based edible oils. Most importantly, CPO prices have been among the lowest of the vegetable-based edible oll, such as crude soybean oll, rapeseed oil, sunflower oll and crude coconut all, Throughout the years 2000 to 2012, average annuat prices of CPO, CPKO, crude soybean oil, rapeseed oil, ‘sunflower oil and crude coconut oil have largely moved in tandem with one another, wth CPO recording the lowest prices over this period. |n2012, the average annual price of CPO was recorded at USD999 per MT, the lowest when compared to crude soybean oll at USD1,226 perMT, rapeseed oll at USD1.239 per MT, sunflower oil at USD1,489 er MT and crude coconut oll at USD1,111 per MT. Palm Kernel cll also registered an average annual price of USD1,111 per MT in 2012, The lower CPO price has rendered it a preferred alternative when compared to the other vegetable-based edible oils. Although there are plenty of substitutes available for palm oil and PKO, itis noted that palm oil and PKO remain as the preferred choice of vegetable oils due to their availabilty in large volumes which surpass 2 —_— SS 127APPENDIX EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT ON EDIBLE OILS AND FATS: GLOBAL AND REGIONAL OVERVIEW, AND COUNTRY ANALYSIS OF MALAYSIA DATED 3 APRIL 2014 PREPARED BY SMITH ZANDER (Cont'd) SMITH ZANDER ther vegetable oils such as soybean ol, rapeseed cil, sunflower oll and coconut of. Moreover, palm cil and PKO are cost competitive. Throughout the years 2000 to 2012, CPO has consistently emerged 2s the most cost effective vegetable oll when compared to soybean oll, rapeseed oll, sunflower oil and coconutoll. Meanwhile, PKO prices have been comparable torapeseed ol, sunflower cl, crude coconut cll and crude soybean oll between the years 2000 and 2012. Edibio oils and fats ~ global price trend 2000 ‘erage saul pe (USOT 8 zoo 2001 zone 20032042005 « uso? oes] ONE cro cm -suonerae a Resmegot r= cratconmutor ~~ ~seymanat Source: Extracted trem the independent market research report prepare by SMITH ZANDER Key Supply Conditions and Dependencies ‘The global supply of edible olls and fats is subject to various factors such as weather conditions, stock ‘count from previous year(s), fertity of soll, availability of fand for cultivation and planted area, crop productivity and yield, pest attack and crop diseases and availabilty of labour, equipment and infrastructure, in addition to market prices and prevailing global economic conditions. + Weather conditions The various vegetable olls thrive under differing weather conditions. For instance, il palm crops thrive in tropical parts of the world, whereby temperature, sunlight and availabilty of moisture determine the crop's growth, yield and quality of output. © Temperature: 25°C-33°C throughout the year © Humidity: ~ 80%-85% © Rainiall:~ 2,000 milimetres of everly distibuted annual rainfall ©. Sunlight. ~ 5-7 hours per day throughout the year © Soll: pH level <7.5, © Prime cultivation area: within 10°-20° off the equator Historically, poor weather conditions have led to low production of CPO and CPO. These include the period of the El Nino and La Nina phenomena that lasted from mid-2008 tit April 2011, leading to a slowdown in oil palm harvesting, subsequently affecting Indonesia's and Malaysia's CPG and CPKO output in 2012. On the other hand, soybean crops around the world display unique location specific production and harvesting cycles. © Temporature: 18°C-22°C, seedlings can tolerate light spring fost at-2.8°C for a short period 22 ———— EE 128APPENDIX II EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT ON EDIBLE OILS AND FATS: GLOBAL AND REGIONAL OVERVIEW, AND COUNTRY ANALYSIS OF MALAYSIA DATED 3 APRIL 2014 PREPARED BY SMITH ZANDER (Cont‘d) SMT ZANDER © Soll loamy soil with pH tevels between 6 and 6.8 ‘Soybean crop — location specific optimum planting and harvesting cycles Late April to Jun‘ Mid-August to mid-December February to May. ‘October to December ‘Apiil to eat Late April to mid-June ‘September to early October ‘Source: Extracted rom the independoné mark! researc epar prepared by SMITH ZANDEF ‘Canola is largely grown in Canada but the crop also thrives in Aftica. While canola is typically a ‘summer crop, itis cultivated in the West Cape Province of South Africa as a winter crop. © Temperature: 21°C 0 Rainfalt: ~ 300 millimetres of rainfall between April and October for a yield of two tonnes per hectare ‘© Soll: clay loam soils with pH levels between 5.6 and 7 + Availability of land for cultivation and planted area ‘The edible oils and fats market 's dependent on the plantation of oilseed crops for the constant supply of crude oils. With the absence of piantations, seeds cannot be harvested and this would, in tum, affect the supply of edible olls and fats for consumption in various end user industies including food, energy and oleochemicals. This can be seen at a country specific level whereby the expansion in planted area influences growth in production of CPO and CPKO. Based on latest available data, the thriving mature planted area in Indonesia which grew at a CAGR of 10% from 2000 to 2012, resulted in a healthy CAGR ‘of CPO and CPKO production of 71.5% and 12.2% respectively over the samme period. in the case of Malaysia, mature off palm planted area in East Malaysia grew significantly during the same periodat a CAGR of 6%, while Peninsular Malaysia witnessed a lower growth rate of 1.5%, resulting jit a nationwide CAGR of 3.6% during the same period. AS a result, CPO and CPKO production also Increased over the same period at a CAGR of 4.6% and 3.8% respectively. * Availability of labour, equipment and infrastructure ‘A major issue which can potentially affect the supply of vegetable oils such as palm oil is the shortage of skilled harvesters to harvest ripe FFs. The issue of shortage of the labour force is ‘common in the agricultural sector in Malaysia and there is currently a reliance on foreign labour, whereby according to the Minister of Plantation, Industries and Commodities, approximately 50% of the total workforce in the plantation sector in 2012 was made up of foreign iabour. As guch, the Jack of skilled labour could potentially affect the output of FFBs, and consequently, the production of CPO and CPKO. CPO and CPKO processing is a highly automated process. Equipment ullised in mils to produce CPO and CPKO include, amongst others, cooker, screw press, digester and clarifying centituge. Edible oils and oleochemical refineries meanwhile employ more sophisticated machinery such as bolle and fractionation tanks. In addition, bulkers are required to handle the logistics and ‘transportation of palm oil and PKO products. As such, the availability of such equipment and infrastructure are viewed as key supply dependencies. 23 rr 129APPENDIX I EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT ON EDIBLE OILS AND FATS: GLOBAL AND REGIONAL OVERVIEW, AND COUNTRY ANALYSIS OF MALAYSIA DATED 3 APRIL 2014 PREPARED BY SMITH ZANDER (Cont'd) eee SMT) ZANDER + Factors affecting crop productivity and yield Productivity levels may be influenced by various factors such as weather conditions, pest attacks and crop diseases, skilled labour availabilty, efficient management of plantations by sourcing and ttiising quality planting materials, ensuring sufficient land area for ollseed crops, maintaining plantations by weeding, pruning, sol fertilisation and harvesting during optimum seasons 2s well as utlising efficient production techniques in the process of ci extraction. Increase in ollseed yields and higher oil extraction rates lead to higher volumes of vegetable oils produced. Therefore, productivity levels and yield play a significant role in determining the supply of vegetable oils. ‘* Pestattack and crop diseases (One of the major challenges in the cultivation of crops includes managing pest attacks and crop diseases as oil palm crops are susceptible to a variety of pests as well 2s diseases. Among the pests that attack oilseed crops include rats, squiels and beetles. Cilseed plants are also susceptible to fungal diseases. The oil plant crop can be affected by diseases such as ‘ganoderma basal stem rot’, ‘fusarium’ and ‘fatal yellowing’ as well as bacteria-related diseases ike the ‘endophytic bacteria’. These pests and diseases can affect yield, and in some cases, these attacks ‘could terminate a wide spread of olf palm crops. n the event of pest attacks or diseases, the supply of cilseeds would be adversely affected, leading to low production of edible cils and fats. + Stock count from previous year(s) tn many instances, the amount of vegetable oils to be produced in a year is determined by the remaining stock count from previous year(s). When consumption patterns remain stable, cil ‘surpluses will typically lead to decreased output, and a deficit in stock count from the previous year wit tead harvesters to increase acreage and yield to meet consumers’ demand. A surplus or deficit in end-of-year stock levels can also exert upward or downward pressure on market prices, following ‘which industry players will eact by decreasing or increasing output in order to stabilise prices. Key Demand Drivers and Dependencies Demand Drivers ‘+ Growing demand for food ‘The demand for edible olls and fats is directly driven by the growing demand for food as a result of the overall global population and economic growth. > Population growth World population in 2013 was approximately 7.1 bilion, having grown by 34% from 6.3 bition in 1990. Higher population growth rates were especially witnessed in developing countries, pressuring the agricultural industry to produce sufficient food and fibres to feed and clothe an increasing world population, as well as to increase the daily food intake of the existing undemoutished population in underdeveloped countries. The agricultural industry has seen a general uptrend in all major crops production within the last decade. The demand for food will increase significantly over the long term despite the slower population growth rate 24 ee cainicienemmmemmmrmemmnssamesanesnameeemeeemeimmt ee oramneal 130