Our Business

BUSINESS OVERVIEW

The Group is principally involved in cultivation of oil palm, processing of FFB to produce crude palm oil (CPO) and palm kernel (PK), and contract timber logging. The Group is presently undertaking planting and development on 22,763 hectares of land of which approximately 13,000 hectares are suitable for oil palm planting. Plantation operation is organised under six (6) estates, namely Imbak, Gunung Rara, Labau, Maliau, Lokan and Luasong estates and one (1) palm oil mill with capacity of 60/90 MT FFB per hour. All are located in the locality of Gunung Rara/Kalabakan, Sabah.

The Group is working towards certification by the Roundtable for Sustainable Palm Oil (RSPO) and is committed to becoming an environmental and community friendly organization.

FINANCIAL RESULTS

Key Financial Performance
The purpose of this review is to provide an overview of key financial performance at Group Level.

    2016 2015
Revenue RM’000 136,349 115,045
Profit before interest & taxation RM’000 45,187 31,858
Pre-tax profit RM’000 41,387 26,763
Net profit after tax RM’000 31,358 20,459
Return on average equity (ROE) % 9.90 8.20
Net cash generated from operating activities RM’000 34,708 21,769
Net gearing % 15 31
Total Shareholder’s fund RM’000 316,802 249,460

 

Segmental contributions to operating profit

  2016

RM’000
2015

RM’000
Change %
Plantation 39,393 23,238 70%
Contract Timber Logging 5,794 8,620 (33%)
Total Operating Profit 45,187 31,858 42%
  • Plantation segment’s contribution increased by 70% to RM39.393 million due to higher FFB production and higher CPO and PK prices.

  • Contract Timber Logging segment’s contribution reduced by 33% to RM5.794 million due to lower volume of timber logged as the logging contract expired on 4 June 2016 and was not renewed.

  • Pre-tax profit increased 55% to RM41.387 million compared to the previous financial year due to reasons as explained above and also on account of lower interest expenses.

  • Net profit attributable to shareholders increased to RM31.358 million with Earning per Share at 6.71 cent.

  • ROE improved to 9.90% compared to 8.20% for the previous financial year.

  • Consequent to the Rights Issue and cash flow generated from operations, the Group’s net gearing has been reduced to 0.15 and Net Interest Covered improved to 12 times (2015: 6 times)

  • The Group generated Operating Cash Flow of RM34.708 million against RM21.769 million in the preceding year.

Financial Assets and Financial Liabilities

For the financial year 2016, the Group spent RM9.915 million for the acquisition of vehicles and field/mill equipment as well as the construction of housing, staff and workers’ quarters and stores for fertiliser and chemicals. The Group also spent RM8.635 million on oil palm plantation development.

The Group’s shareholders’ equity as at 31 December 2016 stood at RM318.095 million, an increase of RM67.342 million as compared to FY2015. The increase was mainly due to net profit for the year of RM31.358 million and proceeds from the issuance of right shares of RM36.335 million. The proceeds raised from the right shares have been utilised for the repayment of bank borrowings, plantation development expenditure, capital expenditure and working capital. 

As at 31 December 2016, the Group’s borrowings stood at RM53.837 million as compared to RM91.913 million for FY2015. The Group has fully repaid invoice financing and revolving credit facilities amounted to RM3.643 million and RM21.000 million respectively. The Group also repaid RM13.500 million term loan during the financial year.

Plantation Operations

Out of a total land bank of 22,763 hectares, it is estimated that 12,801 hectares are plantable. At the end of the financial year, total area planted is 11,905 hectares of which 9,542 hectares are matured.  A further 1,160 hectares will come into maturity during 2017.  We expect to complete our planting programme by 2017.  The area statement is as shown below:

  2016


Ha
2015


Ha
Matured 9,542 8,080
Immature 2,363 3,570
Total Planted 11,905 11,650
Plantable 896 1,105
Unplantable 9,962 10,008
Total Area 22,763 22,763

As can be discerned from the area statement, the Group’s plantations operate under rather challenging environment as most of the area is undulating to hilly. On the other hand, generally favourable rainfall pattern is a positive factor. Nonetheless management is confident that above average yield can be achieved with hands-on management and dedication to details.  Yield achievable is further augmented through planting of TSH’s Wakuba high yielding clonal palms. Critically, the Group is able to tap on the management expertise of TSH Resources Bhd on agronomic and agricultural husbandry practices.

Despite the adverse impact of the 2015/16 El Nino phenomenon, the Group is able to produce 159,435 MT of FFB in 2016 which represents an increase of 10% against FY2015. The increase is principally due to higher hectarage under harvesting and improving age profile of the plantings.  However yield per mature hectare fell to 16.71 MT per hectare in 2016 from 17.98 MT per hectare in 2015 due to the adverse effect of the 2015/16 El Nino weather condition.

The Group’s oil palm ages are between 1 to 10 years with about 20% being immature palms. About 65% are young mature palms (4 - 7 years) with an increasing yield trend in coming years and 15% of the total palms are of prime mature (8 - 10 years).  As such there will be no necessity for replanting for the next 15 years.

Details of Oil Palm Maturity Profile are as follow:

  Imbak
Ha
Labau
Ha
Maliau
Ha
Lokan
Ha
Luasong
Ha
Gunung Rara
Ha
Total
Ha
Immature 141 92 208 924 837 161 2,363
Young Mature 510 1,721 1,748 1,168 1,342 1,302 7,791
Total Operating Profit 1,150 432 - - - - 1,751
Total 1,801 2,245 2,125 2,092 2,179 1,463 11,905

The Group recognises the importance of quality planting materials as the primary building block for long term competitiveness and sustainability. Towards this end more new area will be planted with TSH Wakuba clonal oil palm materials which have proven to produce high oil yield per hectare and at the same time stringent culling, best nursery upkeep practices and field planting standard will be observed.

While many factors, including weather conditions influence yield, management has to focus on controllable factors, be hands on and pay attention to details in order to achieve high productivity and cost efficiency. Quality Management Team has been established at each estate to ensure all aspects of operation comply with Standard Operating Procedures.

The Group is firmly committed to sustainability and has been a member of Roundtable on Sustainable Oil Palm (RSPO) since 2014.  Certification process is in progress and the Group targets to have the mill and one (1) estate certified in 2017.

Milling Operations

The Group operates a 60/90 MT FFB per hour palm oil mill which commenced commercial operation on 17 December 2014. In FY2016, total FFB processed was 158,909 MT which is 13,593 MT higher than the preceding financial year. The mill recorded total production of 39,135 MT (2015: 35,656 MT) of CPO and 5,411 MT (2015: 4,990 MT) of PK. The Group achieved outstanding OER of 24.63% for CPO (2015: 24.54%). The sustaining favourable OER is driven by The Group’s commitment to KPI oriented process and procedures in oil palm cultivation, harvesting and milling operations.

Mill processing statistics are as shown below:-

  2016 2015 Change %
FFB Processed (MT) 158,909 145,316 9.35%
Mill Production (MT)      
  • CPO
39,135 35,656 9.76%
  • PK
5,411 4,990 8.44%
Oil Extraction Rate (%)      
  • CPO
24.63 24.54 -
  • PK
3.41 3.43 -
Average Selling Price (RM/MT):      
  • CPO
2,580 2,122 21.58%
  • PK
2,482 1,563 58.80%
Sales Volume (MT)      
  • CPO
39,246 36,300 8.12%
  • PK
5,464 5,003 9.21%




Timber Logging Operation
The Group has an Eco-logging extraction contract with Rakyat Berjaya Sdn. Bhd., which expired on the 4th June 2016 and was not renewed. Profits generated from the operation over a decade from 2006 had contributed to partial funding of the Group’s development and planting of oil palm.

Timber segment contributed RM5.794 million profit to the Group’s revenue for FY2016 as compared with RM8.620 million for FY2015. The decrease was mainly due to lower logs extraction volume as the logging contract expired on 4th June 2016. For FY2016, the volume of timber logged was 131,721 m3 compared to 195,987 m3 for the preceding year. The profit contribution from the logging operation to Group’s profit for the past 2 years is summarised below:

  FY2016 FY2015
Profit from Eco-Logging Operation (RM’000) 5,794 8,620
Group’s Profit Before Taxation  (RM’000) 41,387 26,763
Profit Contribution to The Group’s Profit Before Taxation (%) 14.00 32.20

OUTLOOK AND PROSPECT

For the forth coming year, we expect that the El Nino which abated by first quarter of 2016 in Sabah will continue to have a lingering impact on FFB production due to the sex differentiation phase impact 18 – 24 months later. Nonetheless production should recover from the 2016 level. In the case of the Group, production should also be boosted by the better age profile as more area comes into higher yielding age and with additional area coming into maturity and harvesting.

On the global front, there will be more economic uncertainties brought about by political changes in Europe and USA with the latter posing a risk of trade war which could dampen world trade and economic growth. CPO price for 2017 will be governed by the extent of FFB yield recovery, supply of oilseed crop from USA/ South America and demand from India and People’s Republic of China. Nonetheless CPO price is expected to be reasonably remunerative for 2017 although prices have corrected from the high of RM3,200 pmt reached in January 2017.

For the longer term the Group is optimistic about the prospects of palm oil industry due to population growth propelling increased demand, higher per capital income and the many health qualities of palm oil.

To enhance long term sustainability management will continue its relentless drive for productivity and efficiency improvement to reduce unit cost of production.

DIVIDEND
The Board has recommended a First and Final Dividend of 2 sen per share for the year ended 2016 subject to shareholder’s approval at the Annual General Meeting to be held on 23 May 2017.

With the majority of the Group’s plantation already mature and on an ascending yield curve phase and as much of the supporting infrastructural facilities, offices, stores, staff and labour quarters and workers’ amenities having been completed, future capital expenditure will be substantially reduced.

In the light of the above, your Board will in 2017 be formulating a dividend policy to distribute a substantial level of surplus cash to shareholders by way of dividends.

This statement is made in accordance with a resolution of the Board of Directors passed on 17 April 2017.