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Our Vision
is to be a leading corporation in our core businesses by providing products and services of superior values and by sustaining consistent long-term growth in volume and profitability. 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.
Integrity
Commitment Loyalty
CONTENTS
Proven balance ~ work in harmony to achieve both our ha business goals and the wider goals of a caring society.
Chairmans Statement Group Financial Overview Group Performance Highlights Group Quarterly Results Financial Calendar Five-Year Financial Highlights managements discussion and analysis Group Financial Review Group Business Review Corporate Social Responsibility Corporate Information Board of Directors Pro le of Directors
074
Senior Management Team Group Business Activities Global Presence Location of Operations in Malaysia Corporate Calendar Audit Committee Report Statement on Corporate Governance Statement on Internal Control Risk Management Statement of Directors Interests Other Information Financial Reports Group Properties
264
267
annual general meeting information Notice of Annual General Meeting Statement Accompanying Notice of Annual General Meeting Shareholders Information Proxy Form
076 081
268
090
092 094
095
098 250
002 |
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KEY INDICATORS
% 30 20
10
-10
24.07.09 14.08.09 04.09.09 25.09.09 16.10.09 06.11.09 27.11.09 18.12.09 08.01.10 29.01.10 19.02.10 12.03.10 02.04.10 23.04.10 14.05.10 04.06.10 25.06.10
KL PLANTATION INDEX
2010
2009
2008
2007
2006
FINANCIAL
Prot before taxation Prot attributable to equity holders of the Company Equity attributable to equity holders of the Company Return on average equity Basic earnings per share Gross dividend per share
RM000 RM000
2,550,633 2,035,661 10,780,181 21.29 32.96 170.0 3,405,090 154,709 1,045,095 2,044
1,550,117 983,517 8,346,290 11.75 16.62 80.0 3,626,776 150,931 688,487 1,465
3,095,197 2,231,632 8,391,361 27.67 36.85 170.0 3,957,281 149,445 696,743 1,934
1,991,073 1,482,104 7,739,258 21.52 24.13 70.0 3,694,535 148,871 683,471 1,529
1,152,873 829,002 6,033,923 15.22 14.51 87.0 3,674,483 144,055 570,842 1,524
RM000
% SEN %
PLANTATION
FFB production Total oil palm area
MT HA
PROPERTY
Sales value Sales
RM000 UNIT
MANUFACTURING Oleochemical
Plant utilisation Sales
% MT
Renery
Plant utilisation Sales
% MT
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RM2.55 BILLION
2009 RM1.55 BILLION
RM5.01
2009 RM4.72
CHAIRMANS STATEMENT
Dear Shareholders, On behalf of the Board of Directors of IOI Corporation Berhad, I am pleased to present to you the annual report of the Company and the Group for the nancial year ended 30 June 2010 (FY2010).
OPERATING ENVIRONMENT Whilst markets have rebounded from their lows, the global economy is currently in a period of uncertainty and is likely to experience greater volatility until a clearer picture emerges on the strength of the global economic recovery. Global economic growth is likely to slowdown in the second half of 2010 as worldwide scal spending dissipates and austerity measures in developed countries begin to take eect. These will be compounded by policy tightening in some Asian countries and other emerging economies. There is therefore a risk of a sharper than expected slowdown in global economic growth. The Malaysian economy is also likely to slow down in the second half of 2010 after recording strong growth in the rst half on the back of a surge in exports. Although most sectors of the domestic economy are likely to moderate in line with external demand, domestic demand is expected to remain resilient due to the high level of savings and rising consumerism. REVIEW OF RESULTS The Groups operating prot of RM2,636.3 million for FY2010 was higher by 34% compared to the previous year with increases reported in all main business segments except for plantation.
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Plantation divisions earnings were 31% lower at RM1,126.2 million on the back of lower CPO prices realised and a reduction in FFB production. The average selling price of CPO reduced from RM2,831
PROPERTY
26%
RESOURCE-BASED MANUFACTURING
per MT in FY2009 to RM2,372 per MT as CPO prices retreated from their highs towards more sustainable levels. Production of FFB reduced from 3.63 million MT to 3.41 million MT in FY2010 largely due to lower yields achieved as a result of poor weather conditions. The resource-based manufacturing divisions earnings improved by 59% to RM568.6 million in FY2010 mainly coming from better results in the specialty oils and fats and oleochemicals businesses. The renery business was adversely aected by excess capacity in the industry and recorded a reduction in capacity utilisation in its plants. The property divisions results for FY2010 of RM602.9 million was 29% higher than the previous year despite a lower fair value gain on investment properties of RM21.0 million (FY2009 RM110.8 million). The property division achieved a total revenue exceeding RM1 billion contributed by an overall increase in units sold and higher average sales value per unit.
24%
2010
PLANTATION
OTHERS
48%
PROPERTY
2%
RESOURCE-BASED MANUFACTURING
The Groups pre-tax prot of RM2,550.6 million was 65% better than the prot achieved in FY2009 whilst net earnings for FY2010 improved 107% to RM2,035.7 million partly due to unrealised translation gains on its long term USD denominated borrowings as opposed to foreign currency losses recorded in FY2009. The Group continues to generate healthy cash ow from its operations, which amounted to RM2,008.6 million for FY2010. A more detailed review of the Groups performance is covered under the section on Management Discussion and Analysis in this Annual Report.
18%
14%
2009
RETURNS TO SHAREHOLDERS Two interim dividends totalling 17.0 sen per ordinary share amounting to a total payout of approximately RM1,084.6 million were declared for FY2010. The dividends represent an approximately 50% distribution of the Groups net prot attributable to shareholders which is in line with the dividend payout ratio in FY2009.
PLANTATION
OTHERS
65%
3%
If a shareholder had subscribed for 1,000 ordinary shares of RM1.00 each in 1980 when the Company was listed and assuming the shareholder had taken up all the rights issues to date, the 1,000 shares that the shareholder subscribed for would have increased to 76,000 ordinary shares of RM0.10 each worth RM433,960 based on a share price of RM5.71 as at 15 September 2010. If we take into consideration all the dividends received less capital outlay for the past 30 years together with the capital appreciation as stated above, the shareholder would have achieved a remarkable compounded annual return of 22.8% per annum over the same period. The company continues to manage its capital in a proactive manner to provide value to shareholders, optimise gearing levels and provide for funding requirements. During the year, the Company completed a renounceable rights issue of 398,821,324 new ordinary shares at an issue price of RM2.90 per Rights Share. The proceeds from the Rights Issue of RM1.157 million are to nance potential investment opportunities and repayment of borrowings. The Group also continues to maintain a healthy cash and bank balance, which as at 30 June 2010 stood at RM3.9 billion, and a net gearing ratio of 8%. is actively pursuing certication audits on its other estates and mills in Malaysia with a target towards completing the RSPO audits by the end of 2011. The Group is also involved in other projects such as the Prince Charles Rainforest Project and the Sainsbury Responsible Palm Project to promote its standing as a responsible and value-added palm oil producer. CORPORATE SOCIAL RESPONSIBILITY Education remains an integral part of our corporate social The Company is a founding member of the Roundtable on Sustainable Palm Oil (RSPO), a global initiative which operates on a multistakeholder format and involves strict principles and criteria covering the social and environmental development requirements for the production and use of sustainable palm oil. Preparation and training for RSPO certication began three years ago and todate, four groupings of the Companys estates and palm oil mills have been awarded the RSPO compliance certication and a further two groupings have been audited and are pending certication. The Group responsibility via Yayasan Tan Sri Lee Shin Cheng, a charitable foundation fully funded by the Group to provide sponsorships to schools and students from poor families as well as award scholarships and grants to high-achieving university undergraduates.
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010 |
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PROSPECTS Against a backdrop of slowing economic growth globally, Asia and other emerging economies remain relatively resilient and their moderate growth will provide the Group with opportunities for growth. FFB production volume from our estates in Malaysia is expected to improve in FY2010 due to more favourable weather conditions and better yielding trees coming to maturity. Planting on our land in Indonesia continues to gather momentum and we expect to plant 10,000 hectares every year over the next 5 years. With 79% of our Group planted acreage in Malaysia within the prime ages of 7 to 20 years old, production volume will increase steadily over the next few years to meet increasing demand. Demand for palm oil and its products remain strong supported by growing demand from the food sector, increasing awareness arising from mandatory labelling of trans fatty acid content in food products, price competitiveness over other edible oils and higher consumption in emerging markets such as China and India. Prices of palm oil are also expected to be underpinned by the relatively low world vegetable oil stock to usage ratio and strong biofuel commitments from developed countries. Prospects for the Groups resource-based manufacturing business are expected to remain mixed, with compressed margins in the renery sector but stable volume and margins in the oleochemicals and specialty oils and fats sectors. Our renery expansion in the Netherlands to produce mainly value added margarine ingredients was commissioned in April 2010 and our Bionexus-status plant in Johor to supply enzymatic components to the Group is expected to be completed by the end of 2010. The enzymatic lipid modication manufacturing process used by the Group in the specialty oils and fats business holds great promise as it fulls the quest for healthier edible oils and also oers unique solutions that cannot be met with conventional lipid modication techniques. With a development land bank of approximately 6,000 acres, the Groups proven track record in township development will provide a strong base for the Groups property business. Our strength in township development has also enabled the Group to build more commercial properties in existing mature developments for investment to earn good rental returns. The property market in Singapore has improved and with the completion of the integrated resorts augers well for our projects in Sentosa Cove. The launching in March 2010 of the rst phase of our Seascape collection in Sentosa met with encouraging response. Tan Sri Dato Lee Shin Cheng
EXECUTIVE CHAIRMAN
The Groups strong cash ow from operations and a healthy balance sheet provides the Group with opportunities to acquire additional landbank both locally and abroad. The Group has recently acquired a piece of leasehold land measuring approximately 7.7 acres in Xiamen, Fujian Province in the Peoples Republic of China for a total consideration of RMB314.2 million. The property is to be developed into residential and commercial units for sale. We view this project as a stepping stone towards further larger property projects in China. ACKNOWLEDGEMENTS I wish to take this opportunity to express my gratitude and appreciation to our employees for their contribution, dedication and loyalty. I also wish to thank all our customers, business partners, government authorities, shareholders and fellow Board members for their continued strong support. Thank you.
012 |
4,570
2,459
ASSETS
Net operating cash ow Capital expenditure, net of disposal Free cash ow from operation Proceeds from right issue of a subsidiary Proceeds from disposal of investments, net of payments for other investments Proceeds from issuance of shares Privatisation of a subsidiary Share repurchases by the company Payment to jointly controlled entities Investment in development land bank Interest paid Dividend payments - Shareholders of the Company - Shareholders of subsidiaries Cash outow in net borrowings Repurchase of of 3rd Exchangeable Bonds Accretion of exchangeable bonds Accretion of guaranteed notes Net decrease in net borrwoings Net borrowings as at 30.06.09 Translation dierence Net borrowings as at 30.06.10
2,009 (423) 1,586 1,157 201 24 (12) (35) (118) (132) (145) (566) (23) 1,937 (20) (94) (1) 1,822 (3,095) 393 (880)
5,405
OTHERS LIABILITIES MINORITY INTEREST
3,548
BORROWINGS (B)
1,656
426
5,554
RETAINED PROFITS
6,858
1,488
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4,604
3,877
ASSETS
Segment results Unallocated corporate expenses Operating prot Net interest expenses Share of results of associates Share of results of jv Prot before taxation Taxation Prot for the nancial year Less: Attributable to minority interests Prot for the nancial year attributable to equity holders of the Company Dividend paid Purchase of 3rd exchangeable bonds Changes in equity interest in subsidiaries Retained prot for the nancial year Retained prot as at 30.06.09 Retained prot as at 30.06.10
2,359 277 2,636 (174) 55 33 2,550 (486) 2,064 (29) 2,035 (566) 38 50 1,557 6,858 8,415
5,579
OTHERS LIABILITIES MINORITY INTEREST
3,283
BORROWINGS (D) OTHERS 61 RESOURCE-BASED MANUFACTURING 569
1,517
289
4,757
2%
24%
RETAINED PROFITS
PLANTATION 1,126
PROPERTY 603
8,415
2,365
48%
SEGMENT RESULTS=RM2,359 MILLION
26%
014 |
FINANCIAL PERFORMANCE Revenue Prot before interest and taxation Prot before taxation Net operating prot after taxation (NOPAT) Net prot attributable to equity holders Average shareholders equity Average capital employed Operating margin (%) Return on average equity (%) NOPAT/Average capital employed (%) Basic earnings per share (sen) Dividend per share - gross (sen) Net assets per share (sen) Dividend cover (number of times) Interest cover (number of times) PLANTATION PERFORMANCE FFB production (MT) Yield per mature hectare (MT) Mill production (MT) Crude palm oil Palm kernel Oil extraction rate (%) Crude palm oil Palm kernel Average selling price (RM / MT) Crude palm oil Palm kernel Operating prot (RM / mature hectare) PROPERTY PERFORMANCE Sales value Sales (unit) Average selling price Revenue Operating prot Progress billings MANUFACTURING PERFORMANCE OLEOCHEMICAL Plant utilisation (%) Sales (MT) REFINERY Plant utilisation (%) Sales (MT) SPECIALTY OILS AND FATS Plant utilisation (%) Sales (MT)
12,542,962 2,636,343 2,550,633 2,230,994 2,035,661 9,563,236 15,611,798 21.02 21.29 14.29 32.96 17.0 169 1.88 12.53
14,600,474 1,969,055 1,550,117 1,236,314 983,517 8,368,826 15,426,081 13.49 11.75 8.01 16.62 8.0 140 2.07 7.71
52 40 9 43 72 43
91 684,389
78 597,351
17 15
75 2,533,527
78 2,817,987
(4) (10)
96 486,828
100 504,317
(4) (3)
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Revenue Operating prot Interest income Finance costs Share of results of associates Share of results of jointly controlled entities Prot before taxation Taxation Prot for the nancial year Attributable to: Equity holders of the Company Minority interests
26 25 24 27 28 2 25 28 24
25 28 20 23 31 1 28 31 27
25 23 25 25 13 96 24 16 26
12,542,962 100 2,636,343 100 47,214 100 (221,170) 100 54,847 100 33,399 100 2,550,633 100 (485,517) 100 2,065,116 100
Earnings per share (sen) Basic Diluted Operating prot on segmental basis Plantation Property development Property investment Manufacturing Others Segment results Unallocated corporate expenses Operating prot
8.01 7.37
7.71 7.29
8.60 6.92
8.57 8.28
32.96 30.01
22 28 20 28 17 25 27 25
25 30 40 23 54 27 (4) 23
FINANCIAL CALENDAR
Financial Year End Announcement of Results 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Notice of Annual General Meeting Annual General Meeting 30 June 2010 24 November 2009 10 February 2010 14 May 2010 24 August 2010 29 September 2010 29 October 2010 Payment of Dividends 1st Interim Declaration Book Closure Payment 2nd Interim Declaration Book Closure Payment 10 February 2010 16 March 2010 25 March 2010 24 August 2010 27 September 2010 7 October 2010