-
1Annual Report 2018
Contents Corporate Information 2
Directors’ Profile & Key Senior Management’s Profile 3
Corporate Governance Overview Statement 6
Statement Of Directors’ Responsibility For Preparing The
Financial Statements 16
Audit Committee Report 17
Statement On Risk Management And Internal Control 20
Management Discussion & Analysis 21
Sustainability Report 2018 28
Plantation Statistics 47
Directors’ Report 48
Statement By Directors 53
Statutory Declaration 53
Independent Auditors’ Report 54
Statements Of Profit Or Loss 60
Statements Of Other Comprehensive Income 61
Consolidated Statement Of Financial Position 62
Company Statement Of Financial Position 64
Statements Of Changes In Equity 65
Statements Of Cash Flows 68
Notes To The Financial Statements 71
List Of Properties 172
Shareholdings Statistics 174
-
2 Kretam Holdings Berhad (168285-H)
Corporate Information
BOARD OF DIRECTORS
• Datuk Lim Nyuk Sang @ Freddy Lim Chief Executive Officer /
Executive Director
• Wong Len Kee Executive Director
• Lim Tshung Yu Executive Director
• Tan Kung Ming Independent Non-Executive Director
• Teo Gim Suan (f) Independent Non-Executive Director
• Lee Kok Toong @ Lee Ming Heng Independent Non-Executive
Director
AUDIT COMMITTEE
• Tan Kung Ming Chairman
• Teo Gim Suan (f)
• Lee Kok Toong @ Lee Ming Heng
SECRETARY
Liu Yee Ling @ Annie Liu (LS 0001146)
REGISTERED OFFICELot 6, Block 44, Leboh Tiga90000 Sandakan,
SabahTel : 089-218999Fax : 089-275111Website : www.kretam.com
REGISTRARS
Bina Management (M) Sdn BhdLot 10, The Highway CentreJalan
51/20546050 Petaling Jaya, SelangorTel : 03-77843922Fax :
03-77841988
AUDITORS
Ernst & Young16th Floor, Wisma Khoo Siak ChiewJalan Buli Sim
Sim90000 Sandakan, Sabah
SOLICITORS
William Liaw, Chan & CoSuite No. 801-804, 8th Floor Wisma
Khoo Siak ChiewJalan Buli Sim Sim90000 Sandakan, Sabah
PRINCIPAL BANKERS
• Public Bank Berhad• RHB Bank Berhad• Hong Leong Bank Berhad•
Hong Leong Islamic Bank Berhad
STOCK EXCHANGE LISTING
Main Market of Bursa Malaysia Securities Berhad
-
3Annual Report 2018
Directors’ Profile & Key Senior Management’s ProfileThe
profile of the Directors of KHB, whereby three of the Directors are
Independent and the profile of Key Senior
Management, are as follows:-
DIRECTORS’ PROFILE
DATUK LIM NYUK SANG @ FREDDY LIM
Aged 67, Male, Malaysian, Executive Non-Independent Director and
Chief Executive Officer of KHB. He is also a
member of the Executive Committee and Risk Management Committee
of KHB. He was appointed to the Board of
Directors of KHB on 10 December 1998. He has been involved in
the plantation business and the timber industry
for more than thirty years. He has interests in private
companies which are involved in oil palm plantation, oil
milling
operations and property development. He also holds directorship
in Sabah Softwoods Berhad.
He is the father of Lim Tshung Yu, an Executive Non-Independent
Director of the Company and is a brother of Datuk Lim
Nyek Kiong @ Lim Nyuk Min, a major shareholder of the Company.
He has no conflict of interest with KHB Group other
than Recurrent Related Party Transactions as disclosed on Page
149 in the Annual Report. He has not been convicted
of any offence within the past ten years.
He attended three out of the four Board Meetings held during the
financial year ended 31 December 2018.
WONG LEN KEE
Aged 70, Male, Malaysian, Executive Non-Independent Director of
KHB. He is also a member of the Executive Committee
and was appointed on 5 July 2016 as Chairman of the Risk
Management Committee of KHB. He is also the Plantations
Director of KHB Group. He was appointed to the Board of
Directors of KHB on 14 April 2004. He holds a Bachelor of
Science (Forestry) degree from The Australian National
University Canberra, A.C.T. As the Project Manager for Sabah
Softwoods Sdn Bhd, he held the post from 1974 to 1984. From 1985
to 1986, he was a director of Sri Brumas Sdn Bhd.
He does not have any family relationship with other Directors
and/or major shareholders of the Company. He has no
conflict of interest with KHB Group other than Recurrent Related
Party Transactions as disclosed on Page 149 in the
Annual Report. He has not been convicted of any offence within
the past ten years.
He attended all the four Board Meetings held during the
financial year ended 31 December 2018.
TAN KUNG MING
Aged 49, Male, Malaysian, Independent Non-Executive Director of
KHB. He was appointed to the Board of KHB
on 1 August 2008 and is currently the Chairman of the Audit
Committee, Nomination Committee and Remuneration
Committee of KHB. He is a Chartered Accountant and a member of
both the Malaysian Institute of Accountants and
the Malaysian Institute of Certified Public Accountants. He
began his accountancy career with a renowned audit firm in
1991 and later joined the commercial sector. He started his own
public accounting practice in 2003 under the name of
TKM & Co. after obtaining his practising certificate. He
also sits on the board of WMG Holdings Bhd.
He does not have any family relationship with other Directors
and/or major shareholders of the Company nor does he
have any conflict of interest with the Company. He has not been
convicted of any offence within the past ten years.
He attended all the four Board Meetings held during the
financial year ended 31 December 2018.
-
4 Kretam Holdings Berhad (168285-H)
TEO GIM SUAN
Aged 56, Female, Malaysian, Independent Non-Executive Director
of KHB. She was appointed to the Board of KHB
on 1 January 2011 and is currently a member of the Audit
Committee, Nomination Committee and Remuneration
Committee of KHB. She is a member of the Malaysian Institute of
Accountants and an associate member of Chartered
Institute of Management Accountants. She was an Audit Assistant
with KPMG from 1990 to 1993. She was a Tax
Assistant with KPMG Tax Services Sdn Bhd in 1993 and later held
the position of Tax Senior until 2003. Between 2003
and 2005, she was the Manager of M & C Services Sdn Bhd,
Sandakan Branch that provided company secretarial and
related services. She is a Director and Company Secretary of
Moving Swift Corporate Services Sdn Bhd, a company
which provides company secretarial and related services, since
2005.
She does not have any family relationship with other Directors
and/or major shareholders of the Company nor does she
have any conflict of interest with the Company. She has not been
convicted of any offence within the past ten years.
She attended three out of the four Board Meetings held during
the financial year ended 31 December 2018.
LEE KOK TOONG @ LEE MING HENG
Aged 67, Male, Malaysian, Independent and Non-Executive Director
of KHB. He was appointed to the Board of KHB
on 30 August 2017 and is currently a member of the Audit
Committee, Nomination Committee and Remuneration
Committee of KHB. Prior to his present position of Managing
Director of K-Excel Sdn Bhd since 2009, he was an Audit
Senior with Ernst & Young from 1970 to 1982. During his
tenure as the Finance Manager for Innoprise Corporation Sdn
Bhd from 1982 to 1990, he acquired his Chartered Institute of
Management Accountant qualification. He held the post
of Finance Manager for Innoprise Wood Products Sdn Bhd from 1991
to 1994, and for Pacific Hardwoods Sdn Bhd from
1994 to 1996. From 1997 to 2009, he was the General Manager for
Tawau Plywood Manufacturing Sdn Bhd.
He does not have any family relationship with other Directors
and/or major shareholders of the Company nor does he
have any conflict of interest with the Company. He has not been
convicted of any offence within the past ten years.
He attended three out of the four Board Meetings held during the
financial year ended 31 December 2018.
LIM TSHUNG YU
Aged 28, Male, Malaysian, Executive Non-Independent Director of
KHB. He was appointed to the Board of KHB on 20
December 2018 and is currently a member of the Executive
Committee and Risk Management Committee of KHB. He
holds a First Class Honours in Civil Engineering from the
University of Sheffield and a Masters in General Structural
Engineering from the Imperial College London. After his
graduation he began his career with Mott MacDonald Pte
Ltd, Singapore, from 2014 to 2016 during which he gained
experience in several projects as Design Engineer. He is
entrusted with KHB’s growth development, particularly in project
tender execution and interviews, since joining the
Company in 2017 as an Executive. He is also tasked with the
co-ordination and operations of Green Edible Oil Sdn Bhd,
a wholly-owned subsidiary of the Company. Currently, he is the
director in charge of 2 private companies carrying out
property development activities. He also holds directorships in
some other private companies.
He is a child of Datuk Lim Nyuk Sang @ Freddy Lim, the CEO and a
major shareholder of KHB. He has not been
convicted of any offence within the past ten years.
Prior to his appointment as a Director of KHB on 20 December
2018, he attended the last Board Meeting held during
the financial year ended 31 December 2018 by invitation.
-
5Annual Report 2018
KEY SENIOR MANAGEMENT’S PROFILE
HO SUI TING
Aged 66, Male, Malaysian, Chief Plantations Officer. He joined
the KHB Group in September 2003 as the General
Manager for the Plantation Division. In 2013, he was promoted as
the Chief Plantations Officer responsible for the
Group’s plantation operations.
He obtained a Bachelor of Science Degree in Chemical Engineering
from University College London in 1978. He has
worked in the Oil Palm Industry for over thirty years.
He started his career as Bulking Engineer with Sabah Land
Development Board briefly before joining Pamol Sabah,
a subsidiary of Unilever, as Assistant Engineer and later as the
Factory Manager from 1988 to 1993. In 1994, he was
promoted as the General Manager for Pamol Estates Sabah until
2003 when he resigned.
He served as Convener and committee member for East Malaysia
Planters’ Association (EMPA), Malaysian Palm Oil
Association (MPOA) and Sabah Employers Consultative Association
(SECA) between 2002 to 2009.
He does not have any family relationship with other Directors
and/or major shareholders of the Company nor does he
have any conflict of interest with the Company. He has not been
convicted of any offence within the past ten years.
He does not hold any directorship in public companies and public
listed companies.
-
6 Kretam Holdings Berhad (168285-H)
Corporate Governance Overview Statement
The Board of Directors (“the Board”) of Kretam Holdings Berhad
(“KHB”/”the Company”) is committed to ensuring that high standards
of corporate governance are practised by the KHB Group (“the
Group”) to be in line with the Malaysian Code on Corporate
Governance 2017 (“MCCG”) and the Main Market Listing Requirements
(“MMLR”) of Bursa Malaysia Securities Berhad (“Bursa Securities”)
to enhance shareholders’ value.
The Company’s detailed application of the Principles and
Practices for the financial year ended 31 December 2018 (“Corporate
Governance Report”) is made available on the Company’s website at
www.kretam.com.
A. LEADERSHIP AND EFFECTIvENESS
I. BOARD RESPONSIBILITIES
The Board is responsible for the corporate governance practices
of the Group and has full and effective control of the Group,
including the Management. To ensure good performance of the Group’s
business, the Board, in discharging its fiduciary functions,
allocates sufficient time to assume the responsibilities of
reviewing and adopting the strategic plans for the Group,
overseeing the conduct and monitoring the Group’s business
operations, identifying principal risks and instituting risk
management, reviewing and establishing a succession plan for senior
management and maintaining and reviewing the adequacy of the
Group’s internal control systems, management information systems
and compliance systems.
In addition, the Board is also responsible for assessing and
monitoring the budget proposed and cash flow requirements in order
to maintain full and effective control over the Management of the
Group as well as monitoring compliance with all relevant statutory
and legal obligations.
a) Distinction of Responsibilities between Chairman and Chief
Executive Officer The role of the Chairman has always been separate
from that of the Chief Executive Officer to ensure
a balance of power and authority. The Chairman heads the Board
and leads the Directors to review and decide on the Management’s
proposals relating to the Company’s financial and corporate
matters. However, following the resignation of Y. Bhg. Dato’ Abd.
Aziz Bin Haji Sheikh Fadzir, the Board has yet to identify a
suitably qualified Chairman of the Company.
The Chief Executive Officer is the key personnel responsible for
the day-to-day management of the Company’s operations and the
implementation of the Board’s policies and decisions into actions.
He monitors actual results on a regular basis with the senior
management team and where budget and planned performance are not
met, strategies are reassessed and actions are to be taken to
address the variances.
b) Responsibilities of the Company Secretary The Board is
supported by an experienced qualified in-house Company Secretary
who undertakes
continuous professional development and who has served the Group
for more than twenty (20) years. She is accountable to the Board on
all matters connected with the proper functioning of the Board and
her responsibility includes, amongst others:
• assisting the Chairman and the chairmen of the Board
Committees in developing the agendas for the meetings;
• administering, attending and preparing the minutes of meetings
of the Board, Board Committees and shareholders;
• acting as liaison to ensure good information flow within the
Board, between the Board and its Committees as well as between
Management and the Directors;
• advising on statutory and regulatory requirements and the
resultant implication of any changes that have bearing on the
Company and the Directors;
• advising on matters of corporate governance and ensuring Board
policies and procedures are adhered to;
• monitoring compliance with the Companies Act, 2016, MMLR of
Bursa Securities and the Constitution or Articles of Association of
the Company;
• facilitating orientation of new director; and• disseminating
suitable training courses and arranging for Directors to attend
such courses when
requested.
-
7Annual Report 2018
The Board members have full access to all information within the
Company and access to the advice and services of the Company
Secretary as a full board or in their individual capacity to enable
them to discharge their duties. The Company Secretary and the
Senior Management proactively monitor and guide the Board on the
corporate disclosure requirements stipulated in the MMLR to ensure
the Company is in compliance and makes timely disclosures.
The terms of appointment and removal of the Company Secretary is
a matter for the Board as a whole.
c) Supply Of Information Information including the latest
statutory and non-statutory regulations and requirements is
provided to
the Board members on a timely basis. One (1) week prior to
meetings of the Board and the Board Committees, reports and
information relating to the business operations and/or financial
affairs of the Group are provided to the Directors to enable them
to be properly briefed and to obtain further information or
explanation, where necessary, before the meetings.
The Senior Management are invited to attend the Board meetings
to present to the Board on matters or reports relating to their
respective areas of responsibilities as and when required.
The Directors may, as a full Board or in their individual
capacity, seek independent professional advice at the Company’s
expense when necessary.
d) Board Charter and Code of Ethics and Conduct The Board
Charter (“the Charter”) adopted by the Board has set out clear
functions reserved for the Board
and those delegated to the Management. The Management is
responsible for providing accurate and complete information in a
suitable form and in a timely manner to the Board to enable it to
discharge its duties effectively.
The Company’s Charter sets out the following:• the Board
structure and protocol• the Board’s strategic intent• key values
and principles of the Company• the Board’s roles and
responsibilities, the division of responsibilities and powers
between Board
and Management, Board Committee and Chief Executive Officer •
frequency for the convening of Board meetings.
The Board will review the Board Charter as and when necessary to
ensure that it is consistent with the Board’s objectives and the
applicable laws and regulatory requirements.
The Company’s Code of Ethics and Conduct (“the Code”) approved
and adopted by the Board provides guidance to the Board, Management
and employees of the Group in its day-to-day operations, including
dealing with customers, suppliers, shareholders and business
associates.
Both the Charter and the Code are made available on the
Company’s website at www.kretam.com.
II. BOARD COMPOSITION
a) Board Composition and Balance Subsequent to the appointment
of Lim Tshung Yu on 20 December 2018 as a Non-Independent
Executive
Director, the Board currently has six (6) members comprising of
three (3) Executive Directors and three (3) Independent
Non-Executive Directors, which is in compliance with Practice 4.1
of the MCCG which states that “at least half of the board comprises
independent directors”.
Collectively, the Board brings a broad range of agricultural,
financial, accounting, company secretarial, corporate and
operational experience and expertise necessary for the Company’s
business operations.
The Independent Non-Executive Directors provide unbiased views
and objective and independent judgment to the decision-making
process of the Board and provide a capable check and balance for
the Executive Directors.
-
8 Kretam Holdings Berhad (168285-H)
As at 1 August 2018, Tan Kung Ming has served ten (10) years on
the Board as an Independent Director. In accordance with Practice
4.2 of the MCCG, the Board, with the exception of Tan Kung Ming,
has undertaken the necessary assessment and review, and would
recommend to the shareholders of the Company for Tan Kung Ming to
continue to serve as an Independent Non-Executive Director based on
the following justifications:
(a) Tan Kung Ming has fulfilled the criteria of an Independent
Director in accordance with the MMLR.
(b) His vast experience and knowledge has equipped him with the
ability to provide insights to support the Board’s decision making
in material matters of the Company.
(c) As an Independent Director on the Board and as Chairman in
several Board Committees, he has performed professionally well in
his roles and responsibilities as an Independent Director and in
the best interest of the Company and its shareholders.
b) Boardroom Diversity The Board takes note of Practice 4.5 of
the MCCG relating to the establishment of a gender diversity
policy but has no immediate plans to formalise or set targets or
measures for any diversity policy. The Board is of the opinion that
the appointment of directors should refer on merit with a sense in
diverse mix of skills, experience, knowledge and background as
paramount importance rather than on gender. However, this Practice
will be assessed from time to time. Currently, the Board has a
female Independent Non-Executive Director who also sits on several
of the Board Committees.
c) Appointments to the Board The Nomination Committee is
responsible for considering and recommending the right candidate
to
be recruited to the Board and for assessing Directors’
performance on an on-going basis. The present members of the
Nomination Committee which comprises exclusively of Independent
Non-Executive Directors are as follows:-
Tan Kung Ming - Chairman (Independent Non-Executive Director)
Teo Gim Suan - Member (Independent Non-Executive Director) Lee Kok
Toong @ Lee Ming Heng - Member (Independent Non-Executive
Director)
The Nomination Committee is responsible for:-• Identifying and
recommending to the Board of Directors, candidates to the Board and
Board
Committees;• Considering, in making its recommendations to the
Board, candidates for directorships proposed
by the Chief Executive Officer and, within the bounds of
practicability, by any other senior executive or any Director or
major shareholders; and
• Reviewing the effectiveness of the Board as a whole, the Board
Committees and assessing the contributions of each individual
Director.
In the selection process of a candidate for directorship before
recommending to the Board of Directors, the Nomination Committee
takes into consideration the candidate’s qualifications such as the
necessary skills, experience, knowledge, professionalism,
competencies and commitment.
The Board acknowledges that all Board appointments should be the
responsibility of the full Board after considering the
recommendations of the Nomination Committee.
The Nomination Committee annually reviews the required mix of
skills and experience, assesses the effectiveness of the Board and
evaluates the Board as a whole, individual Director and Board
committees. The Terms of Reference of the Nomination Committee
defining the scope of authority, responsibilities and duties are
made available on the Company’s website at www.kretam.com.
-
9Annual Report 2018
For the financial year ended 31 December 2018, the Nomination
Committee held one (1) meeting. A week prior to this meeting,
members of the Nomination Committee and the Board had individually
undertaken a written evaluation to assess on the effectiveness of
the Board and Board Committees in the following areas:-
• Assessment of the Board and Board Skills as a Whole∗ Board Mix
and Composition which included reviewing the right blend of
knowledge and
experience to optimise performance and strategy, the roles and
responsibilities of the Board and individual Directors clearly
defined in the Board Charter, compliance with the Company’s
independence policies or Code of Conduct/Ethics as well as
corporate governance regulations and guidelines, the work
functionality of the Board as a team and the individual Directors’
literacy in audit, accounting, financial reporting and taxation
matters.
∗ Quality Information and Decision Making which included
assessing the adequacy and timeliness of the dissemination of
information pertaining to the Company’s business, meetings and
material changes, participation of the Board members in the
deliberations and decision making of issues faced by the Group.
∗ Boardroom Activities which included evaluating the Board
members’ input and adequacy of time spent on discussing the
Company’s values, mission, and strategic and business plans, the
Board’s review of the Company’s internal control system and on the
risks attached with the business structure and mitigation
measures.
∗ Board’s Relationship with the Management which included
evaluating the adequacy of support by the Board towards management
in terms of working partnership and strategic oversight.
• Review on the Board Committees (Nomination, Audit,
Remuneration and Risk Management)∗ Appraisal on the right
composition of each Committee.∗ Review on the recommendations by
each Committee whether useful to assist the Board in
better decision-making.∗ Assessment on individual member of each
Committee for sufficient and relevant expertise
in fulfilling his role.∗ Review on the appropriateness of the
appointments of Board and Committee Chairmen in
terms of responsibilities, ability, experience and expected
performance.∗ Assessment on the preparation and comprehensive
documentation of each Committee
Meeting minutes.∗ Appraisal on the chairman of each Committee
for the proper discharge of his responsibilities
and providing appropriate reporting and recommendations to the
Board.∗ Review on the quality of communications by each Committee.∗
Assessment on whether the Board was well informed on a sufficiently
timely basis regarding
each Committee’s deliberations.
During the meeting, the Nomination Committee reviewed and
deliberated on the individual evaluations and was satisfied with
the generally good rating on the composition and mix of the
existing Board and Board Committees, as well as the contributions
of each individual Director.
The Secretary was in attendance to record the proceedings of the
meeting.
d) Re-election In accordance with the Company’s Articles of
Association, all Directors who are appointed by the Board
during the year, shall hold office only until the next AGM and
shall be eligible for re-election. In addition, all the Directors,
including the Chief Executive Officer, shall retire from office at
the AGM at least once every three (3) years but shall be eligible
for re-election.
e) Board Meetings At least four (4) Board Meetings are held
annually. Each meeting is scheduled to coincide with the
Company’s financial reporting cycle, with additional meetings
convened as and when required. Matters considered during the Board
Meetings held during the financial year ended 31 December 2018
included the Group’s financial results, strategic decisions,
business plan and direction. Four (4) Board Meetings were held
during the financial year ended 31 December 2018, with the
attendance of each Director recorded as follows:-
-
10 Kretam Holdings Berhad (168285-H)
Directors Number of Meetings Attended
Y. Bhg. Dato’ Abd. Aziz Bin Haji Sheikh Fadzir (resigned on 29
June 2018)
1 of 3
Datuk Lim Nyuk Sang @ Freddy Lim 3 of 4
Wong Len Kee 4 of 4
Tan Kung Ming 4 of 4
Teo Gim Suan 3 of 4
Lee Kok Toong @ Lee Ming Heng 3 of 4
Lim Tshung Yu (appointed on 20 December 2018) Attended 1 by
invitation, prior to his appointment
f) Directors’ Training All the Directors, except Lim Tshung Yu
who was appointed only on 20 December 2018, had successfully
completed the Mandatory Accreditation Programme as prescribed by
Bursa Securities. The Directors will continue to attend other
relevant training programmes to further enhance their skills and
knowledge and to keep abreast with regulatory changes and
developments.
Programmes and seminars attended by the Directors, collectively
or individually, during the year ended 31 December 2018 were as
follows:-
• Soil of Sabah and Their Management Overview in-house training
by Kretam Holdings Berhad• RSPO SCCS for CCP Training in-house
training by Kretam Holdings Berhad• Internal Audit for Board and
Audit Committee by Malaysian Institute of Accountants• Seminar on
‘Corporate Directors Training Programme Fundamemtal 2.0’ by
Suruhanjaya Syarikat
Malaysia• Corporate Tea Talk (Peringkat Negeri): Malaysian
Business Reporting System (MBRS) by
Suruhanjaya Syarikat Malaysia • Corporate Tea Talk: Malaysian
Business Reporting System (MBRS) by Suruhanjaya Syarikat
Malaysia • Seminar on “Introduction to MBRS” by Suruhanjaya
Syarikat Malaysia and Malaysian Institute of
Chartered Secretaries and Administrators • Program Seranta
PERKESO, Sandakan Tahun 2018 by PERKESO Sandakan • Seminar on “MBRS
For Preparers – Financial Statements” by Suruhanjaya Syarikat
Malaysia and
Malaysian Association of Company Secretaries• Seminar on Board
Evaluation & Board Effectiveness Assessment – The Untold Story
by Malaysian
Institute of Chartered Secretaries and Administrators • Seminar
Percukaian Kebangsaan 2018 by Lembaga Hasil Dalam Negeri Malaysia •
Malaysian Business Reporting System (MBRS) for Preparers: Financial
Statements by
Suruhanjaya Syarikat Malaysia and Malaysian Institute of
Accountants
-
11Annual Report 2018
g) Executive Committee The members of the Executive Committee
are as follows:-
Y. Bhg. Dato’ Abd. Aziz Bin Haji Sheikh Fadzir (resigned w.e.f.
29 June 2018)
Datuk Lim Nyuk Sang @ Freddy Lim
Wong Len Kee
Lim Tshung Yu (appointed w.e.f. 20 December 2018)
The Terms of Reference of this committee are to undertake tasks
specifically assigned to it by the Board of Directors and the
Executive Committee shall be vested with the same powers and
authority in respect of management, control, and direction of the
Company as the Board of Directors save as provided below:-
1) any investment which is in excess of 30% of the total issued
share capital or such higher amount as the Board of Directors shall
decide from time to time; and
2) any matter which may not by law be delegated by the Board of
Directors, or which would cause the Board of Directors to be in
breach of any duty.
III. REMUNERATION
a) Director’s Remuneration The Remuneration Committee and the
Board would ensure that the Directors’ remuneration packages
remain competitive to attract and retain high calibre Directors
required for an effective Board.
A summary of the Directors’ remuneration on named basis in
accordance with Practice 7.1 of the MCCG, received from the Company
and subsidiary companies during the financial year ended 31
December 2018 is as follows:-
Name of Directors
RM’000
Fees Other Emoluments
Salaries and other
Remuneration
Bonus Benefit-in-kind
Total
Y. Bhg. Dato’ Abd. Aziz Bin Haji Sheikh Fadzir(resigned on 29
June 2018)
10 - 289 - - 299
Datuk Lim Nyuk Sang @ Freddy Lim
10 - 1,456 368 105 1,939
Wong Len Kee 10 - 555 140 48 753
Tan Kung Ming 10 40 - - - 50
Teo Gim Suan 10 36 - - - 46
Lee Kok Toong @ Lee Ming Heng
5 27 - - - 32
Lim Tshung Yu (appointed on 20 December 2018)
- - 82 6 14 102
Total 55 103 2,382 514 167 3,221
-
12 Kretam Holdings Berhad (168285-H)
b) Remuneration Committee The following Directors, consisting
exclusively of Non-Executive Directors, are the present members
of
the Remuneration Committee (“RC”) :-
Tan Kung Ming - Chairman (Independent Non-Executive
Director)
Teo Gim Suan - Member (Independent Non-Executive Director)
Lee Kok Toong @ Lee Ming Heng - Member (Independent
Non-Executive Director)
The Remuneration Committee is responsible for:-• Recommending to
the Board the remuneration of the Executive and Non-Executive
Directors;• Assisting the Board in assessing the responsibility and
commitment undertaken by the Board
member; and• Assisting the Board in ensuring the remuneration of
the Directors reflects the responsibility and
commitment of the Director concerned.
B. EFFECTIVE AUDIT AND RISK MANAGEMENT
I. AUDIT COMMITTEE The Audit Committee comprises three (3)
members, all of whom are Independent Non-Executive Directors.
Details of the Audit Committee are set out in the Audit
Committee Report on page 17.
a) Relationship With The External Auditors The Company has
established a formal and transparent relationship with the external
auditors in line with
the auditors’ professional requirements ensuring compliance with
the accounting standards in Malaysia.
Prior to the provision of any engagement of non-audit services
by the external auditor, the Audit Committee will review and
approve the acceptance of such engagements. Non-audit services
provided by the external auditors and their affiliates during the
financial year 2018 were in respect of services rendered for the
review of the Statement of Risk Management and Internal Control as
required under the MMLR and provision of taxation services.
During the financial year ended 31 December 2018, the Audit
Committee relied on the written assurance obtained from the
external auditors confirming their independence throughout the
conduct of the audit engagement.
The Audit Committee had reviewed the suitability and
independence of Messrs Ernst & Young and had recommended the
re-appointment of Messrs Ernst & Young as external auditors of
the Company for the ensuing year to the Board. The Board, having
considered the recommendation, was satisfied with the competency,
performance and independence of Messrs Ernst & Young and
further recommended the re-appointment as the Company’s external
auditors for shareholders’ approval at the forthcoming AGM.
-
13Annual Report 2018
b) Recurrent Related Party Transactions of a Revenue Nature
Recurrent related party transactions of a revenue nature of the
Group for the financial year ended 31
December 2018 were as follows:-
Nature of Transaction Related Party
Total valueTransacted During
The Year(RM ‘000)
Purchase of Crude Palm Oil by GreenEdible Oil Sdn Bhd (“GEOSB”)
1
Malsa Corporation Sdn Bhd (“MCSB”) 2
37,863
Purchase of Empty Fruit Bunch and Palm Kernel Shell by GEOSB
1
MCSB 2148
Rental of Jetty by GEOSB 1 Priceworth Industries Sdn Bhd
(“PISB”) 3
40
Purchase of Water by GEOSB 1 PISB 3 42
Purchase of Fresh Fruit Bunch by Syarikat Kretam Mill Sdn Bhd
(“SKMSB”) 4
MPK Plantations Sdn Bhd (“MPK”) 5
158
Purchase of FFB by SKMSB 4 Anne Lee Kit Chin 6 336
1 Wholly-owned subsidiary of KHB
2 Datuk Lim Nyuk Sang @ Freddy Lim (“FLNS”), a Director and
major shareholder of KHB, is a director and major shareholder of
MCSB
3 Lim Nyuk Foh (“LNF”), a brother of FLNS, is a director of PISB
which is a wholly-owned subsidiary of Priceworth International
Berhad (“PIB”). LNF is also a director and major shareholder of
PIB
4 Wholly-owned subsidiary of KHB
5 Wong Len Kee (“WLK”), a Director and shareholder of KHB, has
direct interests in MPK
6 Spouse of Liaw Chin Loi who is a Director and shareholder of
Winpalm Development Sdn Bhd, a 51%-owned subsidiary of KHB
II. RISK MANAGEMENT AND INTERNAL CONTROL FRAMEWORK
a) Risk Management and Internal Control The Board recognises its
responsibility for the Group’s system of internal control covering,
in addition to
financial controls, operational and compliance controls and risk
management.
The Company’s Statement on Risk Management and Internal Control
is set out on page 20.
b) Risk Management Committee The Risk Management Committee
consists of the following:-
Wong Len Kee - Chairman (Non-Independent Executive Director)
Datuk Lim Nyuk Sang @ Freddy Lim - Member (Non-Independent
Executive Director)
Lim Tshung Yu - Member (Non-Independent Executive
Director)*Appointed w.e.f. 20 December 2018
-
14 Kretam Holdings Berhad (168285-H)
The principal roles and responsibilities of the Risk Management
Committee are as follows:-• Create a high-level risk strategy
(policy) aligned with KHB’s strategic business objectives;•
Communicate Board vision, strategy, policy, responsibilities, and
reporting lines to all employees across
the Group;• Identify and communicate to the Board the critical
risks (present or potential) the Group faces, their
changes, and the management action plans to manage the risks;•
Perform risk oversight and review risk profiles and organisational
performance;• Set performance measures for the Group (e.g.
departments); and• Provide guidance to the departments on the
Group’s and departments’ risk appetite and capacity, and
other criteria, which when exceeded, trigger an obligation to
report upward to the Board.
The Committee meets twice annually. A week prior to each
meeting, the Committee members are provided by the Risk Management
Units (“RMUs”) of the Plantation Division, Oil Refinery Division,
Palm Oil Mills Division, Fertiliser Division and Corporate Office
with risk assessment reports of operational, financial and business
risks that had been identified. During the meetings, the heads of
the RMUs responsible for monitoring and managing risks in their
respective area of responsibility, report to the Committee on the
status and impact of the risks and the mitigating actions
implemented to control such risks.
Risks are gauged on their likelihood of occurrence and magnitude
of impact and those rated as high or significant will be reviewed
together with the mitigating controls. Significant risks and
control issues will be reported to the Board.
C. INTEGRITY IN CORPORATE REPORTING AND MEANINGFUL RELATIONSHIP
WITH STAKEHOLDERS
I. COMMUNICATION WITH STAKEHOLDERS
The Board acknowledges the importance of constant communication
and effective dissemination of corporate and financial disclosures
to the Company’s shareholders and the stakeholders and this is
conducted through:
1) Despatching the Group’s Annual Report and circular to
shareholders (if any); 2) Timely release of the Group’s Annual
Report, circular to shareholders (if any), Quarterly Results
announcements and other announcements to the regulatory
authorities namely Bursa Securities;3) Accessibility of the Group’s
Annual Report, circular to shareholders (if any), Quarterly
Results
announcements and other announcements through the Bursa
Securities’ website at www.bursamalaysia.com as well as the
Company’s website at www.kretam.com;
4) Bursa Securities Link, whereby queries from Bursa Securities
are addressed in a timely manner; 5) Notifying shareholders of
dates of AGM and other general meetings in the printed media and on
the
Bursa Securities’ website to ensure communication with the
shareholders; 6) Holding dialogues with shareholders at the AGM and
other general meetings and with stakeholders at
forums on the Company’s business and policies on the environment
and sustainability; and7) The Company’s website through which the
shareholders and the stakeholders can have access to
information or to forward their queries pertaining to the
Group.
a) Financial Reporting The Board aims to present a balanced and
understandable assessment of the Group’s position and
prospects through its Quarterly Results announcements, annual
audited financial statements as well as the Management Discussion
and Analysis in the Annual Report.
b) Directors’ Responsibility Statement In Respect Of The
Preparation Of The Audited Financial Statements
The Directors’ Responsibility Statement in respect of the
preparation of the audited financial statements is set out on page
16.
-
15Annual Report 2018
II. CONDUCT OF GENERAL MEETINGS
Notices convening meetings are sent to shareholders at least
fourteen (14) days before a general meeting, or at least twenty-one
(21) days before an AGM or a general meeting where any special
resolution is to be proposed, together with the related circular.
The Notice of the 31st AGM will be despatched at least twenty-eight
(28) days prior to the meeting pursuant to Practice 12.1 of the
MCCG.
The special business in the Notice of AGM is accompanied with
full explanatory notes of the effects of the proposed resolutions
to facilitate full understanding and to help shareholders make
informed decisions at the AGM.
At the AGM, the shareholders are given the opportunity to raise
questions or seek information on the resolution being proposed and
about the Group’s operations in general. The Company’s External
Auditors are also present to respond to the shareholders’ enquiries
during the AGM.
The MCCG recommends putting substantive resolutions to vote by
poll at Annual General Meetings and encourages electronic poll
voting. The Board is of the view that the Company will not
implement electronic poll voting as the cost outweighs the
benefits.
ADDITIONAL INFORMATION
(a) Non-audit Fees Non-audit fees incurred for services rendered
by the external auditors and/or their affiliates to the Company
and
its subsidiary companies for the financial year ended 31
December 2018 amounted to RM72,224.10.
(b) Material Contracts No material contract which involved the
Company’s Directors and/or major shareholders was entered into by
the
Company and/or its subsidiary companies during the financial
year ended 31 December 2018.
(c) Strategies Promoting Sustainability Recognising the
importance of sustainability, the Board is committed to promoting
and implementing sustainable
practices throughout the Group. The Company is putting in
continuous efforts and measures in protecting and improving the
environment, improving the socioeconomic conditions of its
employees, the communities in the vicinity and the community at
large and on building long-term good relationship of all
stakeholders. The Group’s Sustainability Report is found on page
28.
This Statement was approved by the Board on 25 April 2019.
-
16 Kretam Holdings Berhad (168285-H)
Statement Of Directors’ ResponsibilityFor Preparing The
Financial Statements
The Directors are responsible for the preparation of the
financial statements of the Group and of the Company that give a
true and fair view in accordance with Malaysian Financial Reporting
Standards, International Financial Reporting Standards and the
requirements of the Companies Act, 2016 in Malaysia. In preparing
the financial statements, the Directors have: •
selectedandappliedappropriateaccountingpoliciesonaconsistentbasis;•
madejudgmentsandaccountingestimatesthatarereasonableinthecircumstances;and•
ensuredthatapplicableaccountingstandardshavebeenfollowed. In
preparing the financial statements of the Group and of the Company,
the Directors are responsible for ensuring that proper accounting
records are kept and which disclose with reasonable accuracy the
financial position of the Group and of the Company and which enable
them to ensure that the financial statements are in compliance with
Malaysian Financial Reporting Standards, International Financial
Reporting Standards and the Companies Act, 2016, in Malaysia. They
are responsible for taking reasonable steps to safeguard the assets
of the Group and of the Company to prevent and detect fraud and
other irregularities.
-
17Annual Report 2018
Audit Committee Report
The Audit Committee (“AC” or “the Committee”) of KHB is pleased
to present the AC Report for the financial year ended 31 December
2018.
The AC of KHB was established in 1994 to serve as a committee of
the Board. In carrying out its responsibilities, the AC is guided
by its Terms of Reference (“TOR”) which is available on KHB’s
website at http://www.kretam.com. A. COMPOSITION OF AC AND
ATTENDANCE AT AC MEETINGS
4 meetings were held during the financial year ended 31 December
2018. Details of the AC members and record of their attendance at
the meetings are as follows:-
Members Attendance
Tan Kung Ming - Chairman (Independent, Non-Executive Director,
MIA Member) 4 of 4
Teo Gim Suan - Member (Independent, Non-Executive Director, MIA
Member) 3 of 4
Lee Kok Toong @ Lee Ming Heng – Member (Independent,
Non-Executive Director)
3 of 4
The Head of Finance and Accounts was present by invitation in
all the meetings. Representatives of the external auditors, Messrs
Ernst & Young, also attended two meetings by invitation.
B. SUMMARY OF ACTIvITIES OF THE AC DURING THE FINANCIAL YEAR
Pursuant to the TOR of the AC, the main activities undertaken by
the Committee during the financial year ended 31 December 2018 were
as follows-:
External Audit• Reviewed the external auditors’ scope of work
and audit plan for the financial year prior to the commencement
of the audit work.
• Met with the external auditors twice during the financial year
without the presence of any executive Board member, to review and
deliberate on the results, issues and audit report arising from the
audit by the external auditors.
• Evaluated the performance of the external auditors and their
audit fees and made recommendations to the Board of Directors for
approval.
Financial Results And Financial Matters• Reviewed the following
unaudited quarterly results of the Group before recommending them
to the Board
for approval for announcements thereof to Bursa Securities:
Unaudited Quarterly Results
Unaudited quarterly results for the quarter ended 31 December
2017
Unaudited quarterly results for the quarter ended 31 March
2018
Unaudited quarterly results for the quarter ended 30 June
2018
Unaudited quarterly results for the quarter ended 30 September
2018
-
18 Kretam Holdings Berhad (168285-H)
• Reviewed the audited financial statements of the Company for
the financial year ended 31 December 2017 and ensured that they
were drawn up in accordance with the provisions of the Companies
Act, 2016 and the applicable accounting standards in Malaysia
before recommending them to the Board for approval.
• Reviewed the annual budget for 2018 for the Group before
recommending it to the Board for approval.
Statements for Annual Report• Reviewed the following statements
of the Company for the financial year ended 31 December 2017
before
recommending them to the Board for approval for inclusion in the
Annual Report 2017:-
Annual Report 2017
Audit Committee Report
Management Discussion and Analysis
Corporate Governance Overview Statement
CG Report
Statement of Risk Management And Internal Control
Internal Audit• Reviewed with the Internal Audit Function
(“IAF”) on their audit plan to ensure that the extent of the
scope
and coverage of the activities of the Company and the Group is
adequate.
• Reviewed the adequacy of the scope, functions, competency and
resources of the IAF and their audit fees and made recommendations
to the Board of Directors for approval.
• Reviewed reports of the IAF and deliberated on findings
arising from their audit visits to the Group’s plantations in
Sandakan, Tawau and Lahad Datu and the Lahad Datu palm oil mill,
their recommendations and their follow-up thereto and the
Management’s responses thereto and ensured that material findings
were addressed by Management.
Related Party Transactions Including Recurrent Related Party
Transactions• Reviewed the recurrent related party transactions
(“RRPTs”) entered into by the Group and reviewed
the internal audit reports relating to RRPTs to ascertain that
all guidelines and procedures established to monitor RRPTs have
been complied with.
• Reviewed the Circular to Shareholders in relation to the
proposed shareholders’ mandate for RRPTs.
-
19Annual Report 2018
C. INTERNAL AUDIT FUNCTION
The IAF, which is outsourced to Messrs Jeta PLT (“Jeta PLT”),
comprises the following persons responsible for the internal audit
of the Company:-
1. Chen Foo Siong, partner-in-charge of Jeta PLT and a member of
the Malaysian Institute of Certified Public Accountants, Malaysian
Institute of Accountants and the Chartered Tax Institute of
Malaysia, with over 35 years of extensive experience in the audit
of public listed companies and multi-national companies, is overall
in charge of the internal audit function of the Company.
2. Henry Liau, principal of Jeta PLT and a fellow member of the
Association of Chartered Certified Accountants, has more than 35
years of audit experience of companies involved in timber,
plantations, property development, power supply, construction,
clubs and listed companies.
3. Ang Sui Ming, senior manager of Jeta PLT and a member of the
Malaysian Institute of Accountants and the Association of Chartered
Certified Accountants, with more than 20 years of audit experience,
leads the internal audit of the Company.
The IAF personnel, including their supporting staff, are free
from any relationship or conflicts of interest, which could impair
their objectivity and independence.
The activities of the IAF are as follows:-
• Carrying out 5 cycles of internal audit annually on a rotation
basis among the plantation division’s estates and mills, the
fertiliser division, the refinery division, marketing and sales
division and the corporate office within the Group;
• Gathering data, discussing with relevant personnel of the
Group and reviewing available process documentation, policies,
etc., to gain an understanding of the areas to be covered;
• Meeting with process owners to discuss the intended approach,
process overview and project logistics;• Interviewing/walking
through to identify process, risks and controls of the specific
areas to be covered;• Testing of key internal controls and
discussing issues with Management as they are identified;•
Verifying two significant risk management controls per cycle as
listed in the Risk Management Register to
confirm their implementation;• Holding periodic status meetings
with process owners and with relevant Management personnel to
discuss fieldwork status and any issues/findings identified
todate and/or specific issues or concerns and documenting
thereof;
• Preparing report on the findings, risks for each finding and
action steps to be taken for each issue identified; and
• Preparing the final report upon receipt of the Management’s
comments and presenting it the AC.
The IAF has incurred expenses amounting to RM71,594 during the
financial year ended 31 December 2018.
-
20 Kretam Holdings Berhad (168285-H)
Statement On Risk Management And Internal ControlThe Board of
Directors recognises its responsibility for managing business risks
as well as maintaining a sound system of internal control for the
Group. In managing risks it must be understood that this is not
about eliminating all risk; rather it is about identifying,
assessing and responding to risks to achieve the Group’s
objectives.
To assist it in the discharge of such responsibility, the Board
had constituted a Risk Management Committee (RMC) comprising
executive directors and also members of senior management from both
the corporate head office and individual business units. This
Committee oversees all aspects relating to the risk management
function and meets regularly to update itself on new developments
that may affect the Group’s risk profiles, and to respond
accordingly. During the year, and up to the date this statement is
approved for inclusion in this Annual Report, the RMC had, under
its ongoing Enterprise Risk Management framework, reviewed and
updated the Group’s risk appetites, identified and evaluated the
significant risks faced by the various business units to ensure
that adequate actions can be taken to restrict such risks to the
status of “residual risk”.
The Group’s internal control system represents the activity of
managing risk and ensuring the achievement of objectives conducted
by the Board and management. It covers all types of control
including financial, operational and compliance controls, and
involves every business unit. In the context of risk appetites,
such a system can only provide reasonable rather than absolute
assurance against significant loss or failure, as it is designed to
keep to an acceptable level of, rather than eliminate, the risk of
failure to achieve the Group’s objectives.
Recognising the importance of a control-conscious environment,
the Board had designed the Group’s organisational structure in such
a way that each business unit and its scope of activities and
responsibilities is clearly defined. Within each of these business
units there is a clear and well-defined delegation of authority and
responsibilities to the members of the respective management teams;
emphasis is given to the segregation of duties among employees.
Levels of authorisation are also imposed on management personnel
who have been authorised to enter into day-to-day transactions on
behalf of their respective business units. In all cases, management
personnel and employees are made aware of their responsibilities
for safeguarding the interests of the Group.
The framework and key features of the internal control system of
the Group include the following:
• The Board reviews periodic reports from management on key
operating and financial performance, legal, environmental and
regulatory matters.
• Annual budgets and business plans are prepared by all business
units and consolidated at Group level. Operating results and key
performance indicators are monitored by senior management against
budgets and where information is available, industrial norms and/or
averages. Major variances and critical operational issues are then
followed up with appropriate actions taken thereon.
• Limits of Authority guidelines provide a sound framework of
authority and accountability within the organisation and to
facilitate quality and timely corporate decision making at the
appropriate level in the organisation’s hierarchy.
• Policies and procedures are clearly documented for all major
operations of the Group.
The Board has received assurance from the Chief Executive
Officer and Head of Department - Finance & Accounts that the
Group’s risk management and internal control system is functioning
adequately and effectively in all material aspects.
The Board had reviewed the Group’s need for an internal audit
department, and for the time being is of the opinion that the
Group’s needs can be met adequately by outsourcing the internal
audit function. Presently Messrs JETA PLT (formerly known as FS
Chen & Associates), a firm of chartered accountants, provides
such outsourced service. Their reports are reviewed by the Audit
Committee, and appropriate action is taken to correct any
weaknesses identified in the internal control system.
This Statement was approved by the Board on 25 April 2019.
-
21Annual Report 2018
BUSINESS OPERATIONS
Kretam Holdings Berhad (“KHB”), a Sabah-based medium-sized oil
palm plantation company together with its subsidiaries (“the
Group”) has a total land bank of 23,865 hectares, of which 17,873
hectares are matured hectares, located in 3 regions mainly in
Sandakan, Tawau and Lahad Datu.
Apart from plantation, the Group consists of other downstream
operations relating to oil palm. Currently, the Group has 3
fully-operational palm oil mills with a total processing capacity
of 135 metric tonnes per hour, a refinery with a processing
capacity of 1,500 metric tonnes of crude palm oil per day and a
biodiesel plant to produce 300 metric tonnes of PME per day. The
Group also has two fertiliser plants, one in Tawau and the other in
Sandakan with a total production capacity of 60,000 metric
tonnes.
Management Discussion & Analysis
-
22 Kretam Holdings Berhad (168285-H)
2018 TRENDS AND EvENTS
2018 saw the declination of Crude Palm Oil (CPO) prices to a
3-year low. This is mainly due to factors such as the mounting of
the nation’s palm oil stock, a looming trade war combining with
adverse foreign government policy.
Since May 2018, the nation’s palm oil stock had been gradually
increasing and peaked at 3.2 million metric tonnes in December
2018. The high palm stocks were mainly due to weaker export demand
of palm products.
During the year, the world has been embroiled with the trade
tension between China and the United States of America (USA). This
increase in protectionism from the USA has brought additional
uncertainty and volatility to the overall market. On top of this,
several foreign policies such as the proposed ban on palm oil
biofuels have also impacted the industry adversely.
India’s decision in March 2018 to increase the import levy has
dampened the prospect for Malaysia to lower its palm stock. With
the faltering on India’s demand, the impact was eventually
reflected in further reduction in CPO’s price. The decision by
Indonesia to cut their crude palm oil levy to zero provided a
competitive edge against Malaysian palm products and this hampered
the hope of Malaysia to reduce its palm oil stocks. Despite all
these complexity and volatility faced in 2018, the world demand for
vegetable oils is still growing and is expected to surpass supply
by 2030. As such, the medium to long term core fundamentals of palm
products will still remain intact.
In 2018, the Group’s overall performance was subdued mainly due
to falling commodity prices and a year with great volatility and
complexity.
-
23Annual Report 2018
5 YEARS’ FINANCIAL SNAPSHOT
The comparative figures were restated to conform with the
requirements arising from the adoption of MFRS framework for
financial year ended 2017 only.
In comparison to previous 4 years’ performance, 2018 had been a
challenging year with lower profit margin due to lower commodity
prices. The Group’s total borrowings had been reduced by RM58.9
million as compared to 2017 borrowings. This is partly reflected in
the Group’s lower total assets employed.
In terms of revenue, a 21.6% drop was mainly attributed to the
low palm products prices in 2018. As for the Group, it recorded a
loss of RM38.5 million. The loss before interest and tax compared
to revenue generated was a result of the downtrend in commodity
prices, where products were sold at a lower profit margin.
The decrease in total assets employed by RM126.9 million was
mainly due to:
a. Lower cash and bank balances in 2018. The bank balances were
RM80.1 million lower when compared to 2017.
b. Lower inventory costs in 2018 (CPO Price: RM1,762.50) as
compared to 2017 (RM2,386.00). The total inventory on hand in 2018
was RM17.9 million lower when compared to 2017.
c. Lower property, plant and equipment employed in 2018. The
total net property, plant and equipment employed was
RM19.2 million lower compared to 2017.
-
24 Kretam Holdings Berhad (168285-H)
SHARE PERFORMANCE:
DIvISION PERFORMANCE:
For better insights of each division’s performance, the Group
has reproduced the segments’ results below for further
commentary:
2018 2017 2016
RM’000 RM’000 RM’000
Segment revenue
- Plantations and mills 274,406 332,694 254,728
- Refinery 396,076 565,433 260,506
less: Adjustments and eliminations (161,488) (248,545)
(136,734)
508,994 649,582 378,500
Segment results
- Plantations and mills 6,022 52,782 54,740
- Refinery (36,827) (26,661) (14,446)
less: Adjustments and eliminations (6,634) (14,444) (7,595)
(37,439) 11,677 32,699
Plantation Division
The Plantation Division, consisting of estate and mill
operations, recorded a total revenue of RM274.4 million (2017:
RM332.7 million) and pre-tax profit of RM6.0 million (2017: RM52.8
million). The decrease in pre-tax profit was mainly due to lower
CPO prices throughout the year.
-
25Annual Report 2018
In 2018, the Group has replanted 734 hectares of land.
Sandakan Region – 182 hectares replanted
Lahad Datu Region – 552 hectares replanted
As of 31 December 2018, the Group’s planted area with oil palms
are 19,567 hectares.
A total of 17,873 hectares are matured area and 1,694 hectares
are still immature.
The table below summarizes our Plantation Division’s key
performance indicators, which are then compared to the MPOB
averages for Sabah Region:
% increase/
2018 2017 (decrease)
FFB Production (tons) 338,204 343,902 (1.66%)
FFB Yield (tons per hectare)
- our Group 18.92 18.86 0.32%
- MPOB Sabah Average 18.16 18.35 (1.04%)
Oil Extraction Rate (%)
- our Group 20.23% 20.24% (0.05%)
- MPOB Sabah Average 20.60% 20.60% 0.00%
Oil Yield (tons per hectare)
- our Group 3.83 3.82 0.21%
- MPOB Sabah Average 3.74 3.78 (1.06%)
In terms of FFB production, our Plantation Division was above
the Sabah Average as a result of better weather coupled with fairly
even rainfall for the last 18 months.
-
26 Kretam Holdings Berhad (168285-H)
In order to remain a sustainable business, the Plantation
Division will focus on the following:
a. Remain focused on our planned Replanting Programme
b. Look at ways and means to improve the welfare of our
employees
c. Promote Good Agriculture Practices
d. Maintain RSPO and attain MSPO certifications for all three
Regions by 2019
Refinery Division
The Refinery Division recorded a total revenue of RM396.1
million (2017: RM565.4 million) and pre-tax loss of RM36.8 million
(2017: loss of RM26.7 million). The decrease of RM169.3 million in
revenue was due to the declination in sales volume and lower
commodity prices in 2018. Refinery’s higher pre-tax loss when
compared to previous year’s pre-tax loss was a result of the
downtrend in commodity prices for the year, where products were
sold at a lower profit margin.
During the year, the refinery processed a total of 118,219
metric tonnes of CPO (2017: 141,636 metric tonnes). A further
48,824 metric tonnes (2017: 38,868 metric tonnes) of CPO were
directly sold due to somewhat favourable opportunities for trading
gains that arose at various times during the year. Out of the
48,824 metric tonnes of CPO sold directly, 32,862 metric tonnes
(2017: 29,854 metric tonnes) were RSPO-certified.
-
27Annual Report 2018
For the overseas markets, the Refinery Division has managed to
sell more products to China at the expense of the European market
where anti-palm oil campaign is heavily debated.
During the year under review, the overall refinery utilization
rate has slightly decreased, from 27.27% in 2017 to 25.21% in
2018.
Referring to the chart above, the Refinery Division has shifted
its utilization to producing Bio-diesel. The Division is hopeful
that supporting the local bio-diesel mandate in 2019 will provide
another avenue for the refinery to increase its utilization rate
and revenue generation.
OUTLOOK FOR THE IMMEDIATE FUTURE
2018 is a year of high volatility and uncertainty both
internationally and locally. Going into 2019, the overall market
outlook is fairly subdued especially in the international arena
where unfavourable overseas policies have dramatically affected the
palm oil market.
In light of the ongoing China-USA trade war, the demand for palm
oil products will remain weak and a rather subdued outlook on the
overall palm oil commodity prices. With Indonesia’s announcement to
reduce their Palm Oil export to USD 0 per metric tonne, it will
further decrease the Malaysian Palm Oil product competitiveness in
the global market.
With a challenging international market, the local market also
has its fair share of complexity. The change of Government in May
2018 has filled the local market with uncertainty. By late 2018,
the Malaysian Government announced the increase in the Bio-diesel
mandate to B10. This will subsequently improve the national demand
outlook.
With prices in an unpredictable nature together with uncertain
foreign variables, 2019 will be a year with rather modest increase
in palm oil prices. The Refining Division may see the greater
margins for its products and eventually provide a better
performance outlook for the Division.
For the Plantation Division, weather will play a huge part in
the FFB production. Should the FFB production remain intact or
increase, the modest increase in commodity prices will provide a
healthier outlook for the Group.
In view of the broader market expectation, the Board has taken
the view that FY 2019 will be a year with modest gains. The Board
is hopeful that FFB production will increase and for a surge in
commodity prices. This will assist in improving the overall
performance of the Group.
-
28 Kretam Holdings Berhad (168285-H)
Sustainability Report 2018
INTRODUCTION
Kretam Holdings Berhad (KHB) Sustainability Report 2018 covers
the environmental, economic and social performance across all our
operational and management activities within our Group, which
include our plantations, mills, fertiliser plants and refinery.
This is our second sustainability report which focuses primarily
on activities carried out within the financial year ended 31
December 2018 and continuation of 2017. This Sustainability Report
will remain as part of our Annual Report. The structure and content
for this report draws upon guidance from Bursa Malaysia’s
Sustainability Reporting Framework.
In preparing for this report, we have engaged and considered the
responses from both internal and external stakeholders, by
performing an internal review and assessment of key sustainability
aspects which represent the most critical areas of our Group’s
business and operations. This exercise resulted in the arriving of
our 16 material sustainability matters which are reflected in the
materiality matrix included in this report.
We hope to provide our stakeholders an overview of our approach
and continuous progress in meeting our sustainability commitments
through this report.
This is our second sustainability report in this format and we
will continue to strengthen our performance and disclosures to
various stakeholders by monitoring our specific targets and key
performance indicators, fostering close relationship with our
stakeholders as well as harmonising material sustainability risks
across the Group.
STATEMENT OR MESSAGE FROM THE CHIEF EXECUTIvE OFFICER (CEO)
I am presenting our 2018 sustainability report where we describe
our continuous commitment on sustainability and to show how we are
pursuing this in practice. As I said in our 2017 report, it is our
actions and behaviour that define the company we are, and for KHB,
sustainability is of paramount importance to our long-term
success.
We continue to have a balance between economy, environment and
social factors in the way we conduct our business. This commitment
was evidenced by the fact that we are pursuing to get all of our
estates, mills and refinery RSPO and MSPO certified. We remain
committed to the RSPO and MSPO Principles & Criteria and Supply
Chain Certification System. The policy applies to Kretam Holdings
Berhad and subsidiaries. While not binding on contractors,
suppliers and business partners, we will encourage the adoption of
this policy throughout our supply chain.
We have reviewed our sustainability materiality matters during
our stakeholders meeting in 2018 and agreed to continue with the
sixteen identified sustainability matters. This exercise has been
very rewarding and is fundamental to achieving our business
strategy.
Again, we must not forget that our commitment to sustainability
is an ongoing journey with no finishing line. We will therefore
continue to align our business values, purposes and strategies with
our sustainability principles.
Economic, Employees & Community
We will continue to support our local community and businesses.
We are giving priority in providing employment opportunities to the
local community. A total of 423 out of our total 451 staff which is
94% are locals; and 352 out of 2,265 workers which is 16% are
locals. We recognise that most of the work on our plantations is
not attractive to the locals.
Our employees remain to be our core assets and as a key pillar
for the success and continuous growth of our Group. In this
connection, their welfare and rights as well as their health and
safety are of key importance in every aspect of our operations.
We continue to remain focused on safety strategies, targeting
risk reduction as we value the lives and wellbeing of our
employees. We will try our utmost best to enhance our standards of
safety and health by further minimizing the risk of work place
accidents thereby moving towards our main goal of achieving zero
accidents of serious bodily injury or death.
-
29Annual Report 2018
We recognise that we are part of a global community, and
therefore have an obligation to bring about positive change to the
lives of our employees and their families. We intend to do this by
engaging and working closely with our employees to uplift their
living standards and offer opportunities to earn a decent living
wherever possible, thereby contributing to their wealth and
wellbeing.
Continuous improvements were made during 2018 to maintain good
and possible welfare standards for our workforce and to ensure high
standards of educational facilities provided for their children.
This naturally includes the continuous review and upgrading of our
housing facilities provided to our employees such as supply of
treated water and electricity. New houses were built in 2018 with
more to come this year.
Environment
We are committed to being a responsible company in environmental
aspects through focusing on good agricultural practices, good
milling practices and safeguarding of natural resources. Finding
the right balance between economy and ecology is a cornerstone in
our Group and much emphasis is therefore placed on reducing
variables that impact our environment negatively.
We believe that producing palm oil sustainably is the only way
forward. It is important that all stakeholders support the RSPO,
MSPO, or other credible initiatives, in order to make sustainable
palm oil the norm. This above all should be our common goal. We
have been monitoring Green House Gas (GHG) emissions and are
continuously looking for ways to reduce our carbon footprint in our
operations. Various areas were identified within our production
chain to which there was much room for improvement.
We have spearheaded many significant investments such as
establishing biomass boilers in our refinery and palm oil mills as
well as constructing biogas plants to ensure optimal utilization of
our by-products in the form of empty fruit bunches, shells, fibre
and waste water to produce renewable energy thereby reducing our
dependency on fossil fuels and our Green House Gas emissions. We
have come a long way since the establishment of our first biogas
plant in 2016 at Kretam Mill Sandakan which had been commissioned
since March 2018 to eliminate methane emission from our effluent
and to provide renewable energy to our quarters and office in the
complex.
We are committed to lower the Biochemical Oxygen Demand (BOD) of
our operations before it reaches the final discharge point, by
exploring new ways of treating our Palm Oil Mill Effluent (POME)
and improving on existing treatment systems. Our mechanical or
membrane filtration system in our Kretam Mill Sandakan, a chemical
treatment system in our Silimpopon Mill Tawau and a biological
treatment system at our Abedon Mill Lahad Datu have improved our
BOD to the requirement of
-
30 Kretam Holdings Berhad (168285-H)
SUSTAINABILITY GOvERNANCE STRUCTURE
We believe that good governance and management policies are for
achieving sustainable business. The Board of Directors of KHB is
responsible for approving the direction and overall strategy for
KHB Group and monitoring the management’s progress in connection
with the sustainability objectives and strategic priorities.
The Board will receive a formal Sustainability Report at least
once a year before it is reviewed and approved for release to the
shareholders and the public. In relation to KHB’s overall
sustainability objectives, targets and priorities, the Board of
Directors has delegated responsibility to the Group Plantations
Director (GPD) and his Group Sustainability Committee (GSC).
The GSC reviews and approves KHB’s sustainability objectives and
monitors progress and sustainability developments within the Group.
The GSC is chaired by the GPD. There is also the Group
Sustainability Team (GST) headed by the Head of Human Resource
& Sustainability. The GST is supported by the Operations
Sustainability Team (OST) which is responsible to implement,
monitor and report progress of approved sustainability objectives
in the operations. The GST collates all the information from GSC,
OST, and stakeholders’ responses and prepares the Sustainability
Report.
Committee Responsibilities
Board of DirectorsResponsible for approving the direction and
overall strategy for KHB Group and monitoring management’s progress
in connection with the sustainability objectives and strategic
priorities.
Group Sustainability CommitteeReviews and approves KHB’s
sustainability objectives and monitors progress and sustainability
developments within the Group.
Group Sustainability TeamCollates all the information from GSC,
stakeholders’ responses and prepares the Sustainability Report.
Operations Sustainability TeamImplements, monitors and reports
progress of approved sustainability objectives in the operations to
GST.
Code of Conduct & Business Ethics
A key element in our KHB’s sustainability framework is our Code
of Conduct and Business Ethics. We implement responsible and
ethical business policies and practices in all aspects of our
operations. We conduct our operations with honesty, integrity and
openness, and with respect for the human rights and interests of
our employees. We shall similarly respect the legitimate interests
of those with whom we have relationships.
Our Directors and employees are required to comply with the
applicable laws and regulations.
We will conduct our operations in accordance with
internationally accepted ethics of good corporate governance. We
will provide timely, regular and reliable information on our
activities, structure, financial situation and performance to all
shareholders.
We are committed to establishing mutually beneficial relations
with our suppliers, customers and business partners. In our
business dealings, we expect our business partners to adhere to
business ethics consistent with our own.
In line with its best practices, a declaration of Conflict of
Interest by each Director as required will be made in order to
increase individual Director and board awareness and responsibility
in managing potential conflict of interest within the Group.
All our personnel and business partners are encouraged to have
the responsibility to report any known or suspected incidences of
improper conduct by reporting verbally or making a protected
disclosure to any member of the Executive Committee or to the
Company Secretary. Confidentiality of the whistle blower is always
maintained.
-
31Annual Report 2018
STAKEHOLDER ENGAGEMENT
We recognise that stakeholder engagement, assessment and
feedback are an integral part of our sustainability strategy and
initiatives. The stakeholder groups which are key to our operations
and which have significant influence over the impacts of our
business are carefully identified and are engaged at various
platforms regularly throughout the year.
The stakeholder engagement process which includes a proactive in
both formal and informal approach is carried out to fully
understand their sustainability concerns and issues with a view to
ensuring that their key interests in these areas are aligned with
that of our Group.
We are continuously improving our approach which is now evolving
into more tailored and targeted engagement.
A total of 109 stakeholders attended our Annual Stakeholders
Meeting at Tawau on 3 July 2018, 105 stakeholders at Lahad Datu on
10 July 2018 and 80 at Sandakan on 11 December 2018. These
stakeholders consist of our customers, employees, smallholders,
local communities, government agencies, non-governmental
organisations, and suppliers.
We commit to the principles of Free, Prior and Informed Consent
(FPIC) and adhere to these principles in all our negotiations and
interactions with stakeholders.
MATERIALITY
This report continues to address key sustainability matters
which have been identified and reviewed after taking into
consideration of both the Group’s views on significant economic,
environmental, and social aspects, impacts, risks and opportunities
which are vital to the success and continuous growth of the Group,
and the views and responses from our stakeholders on pressing
material issues. This includes the views of the GST within our
organisation, stakeholders, industry groups, as well as standards
recommended by global and industry specific reporting bodies, such
as the Roundtable for Sustainable Palm Oil (RSPO) and Malaysian
Sustainable Palm Oil (MSPO).
As a result of the above mentioned exercise and evaluation of
the Group’s Sustainability Risks and Opportunities, we have
concluded to maintain our identified 16 key sustainability issues
under Economic, Environment, and Social aspects which we have
assessed as being of high concern to stakeholders and of high
significance for our Group in 2017 and endorsed to continue in
2018.
Based on these material issues, our Group Sustainability Team
have to ensure that there are policies and procedures in place to
address and manage these issues, and if none or insufficient, to
ensure implementation plans are drawn up and presented to the
management for follow up as part of the Group’s sustainability
commitment.
A quantifiable indicator of data and targets are assigned to
where relevant and are communicated to our stakeholders via this
Sustainability Report.
The materiality assessment process is to be repeated every year
after a thorough review of our key stakeholders and sustainability
risks and opportunities which are significant to the Group as a
whole.
-
32 Kretam Holdings Berhad (168285-H)
Summary of Materiality Matters:
16 Key Sustainability Issues Stakeholder Groups
1. Safe & healthy work environment.2. Safety & health
training at the workplace.3. Treated water supply.4. Provide
medical services to the employees.5. Compliance to Good
Agricultural Practices (GAP) and Good Milling
Practices (GMP).6. Protection of rare and endangered species
(RTE).7. Fair employment practices.8. Reduce pollution due to
business activities.9. Product innovation and improvement of water
conservation and waste
management and recycling process.10. Free supply of Personal
Protective Equipment (PPE).11. Protection and conservation of High
Carbon Value (HCV) area.12. Training & development of employee
potential.13. Planting of trees in the unplanted areas.14.
Electricity supply of seven (7) hours to the employees’
quarters.15. Reduce usage of Chemical Spraying.16. Comprehensive
safety & health induction to all new employees.
o Shareholderso Customerso Employeeso Small holderso Local
communitieso Government Agencieso Non-governmental
organisationso Suppliers
TARGETS & ACHIEvEMENTS
Objective As At 2017 2018 Target2018
Achievement2019 OR L/Term Target
Material Sustainability
Matter
Monitoring andmanagement of HCV, HCS andConservation areas.
Monitoring andmanagement ofHCV, HCS andConservation areas are
conducted as scheduled.
Continue monitoring andmanagement ofHCV, HCS andConservation
areas are conducted as scheduled.
Monitoring andmanagement ofHCV, HCS andConservation areas are
conducted as scheduled.
Continue monitoring andmanagement ofHCV, HCS andConservation
areas are conducted as scheduled.
Biodiversity & Conservation
Tree Planting. Todate Planted:- Sandakan - Lahad Datu- Tawau
Biodiversity & Conservation
Final discharged of BOD =
-
33Annual Report 2018
Zero Methane emission from POME:
- Kretam Mill
Biogas Plant expected completion in March 2018
Zero ( by April 2018)
100% 100%
Emission, Waste & Effluent
GHG kgCO2/ton CPO:
- Kretam Mill- Silimpopon Mill- Abedon Mill
1617 1148 4508301380
Emission, Waste & Effluent
Milling Diesel Consumption (Litre/mt FFB):
- Kretam Mill- Silimpopon Mill- Abedon Mill
0.890.150.37
0.600.150.50
0.530.110.44
Economic & Emission
Milling Water Consumption (m3/mt FFB):
- Kretam Mill- Silimpopon Mill- Abedon
1.481.05
1.201.201.20
1.451.141.14
Economic & Conservation
Domestic Water Consumption (m3/mt FFB):
- Kretam Mill- Silimpopon Mill- Abedon
0.210.27
0.400.400.40
0.250.310.51
Economic & Conservation
EFB recycled to Estate in m/ton:
- Kretam Mill- Silimpopon Mill- Abedon
26,77545,15010,205
Economic & Conservation
Compost Plant. Compost applied to field in m/ ton. 25,433
Economic & Conservation
-
34 Kretam Holdings Berhad (168285-H)
No forced or trafficked labour in our operation (% compliance)
100% 100% 100% 100%
Workers & Human Rights
Induction training on safety & health to new employee (%
compliance) 100 % 100% 100% 100%
Occupational Safety & Health
No/Zero work related fatality Zero Zero Zero Zero
Occupational Safety & Health
RSPO Certification:
- Sandakan - Lahad Datu - Tawau
15/06/201601/11/2017 September
2019
Certification
MSPO Certification:
- Sandakan - Lahad Datu - Tawau
Dec 2018June 2018Sept 2018
CA=Certification Audit
Dec 2018 CA16/04/2018Oct 2018 CA
Certification
ISCC Certification:
- Sandakan - Lahad Datu - Tawau
17/12/1301/03/2018
Certification
Refinery Certification:
- ISO 9001- RSPO- ISCC- HACCP
11/05/201215/06/201611/09/201301/03/2013
To continue all certification as per scheduled.
100%100%100%100%
To continue all certification as per scheduled.
Certification
Stakeholders Meeting/Engagement:
- Sandakan- Lahad Datu- Tawau
11/12/201810/07/201803/07/2018
Certification
-
35Annual Report 2018
ECONOMIC
Employment Practices
KHB provides equal employment opportunity and treatment to the
local community, national and global with NO discrimination on the
basis of race, colour, sex, religion, political opinion, national
extraction or social origin.
We prohibit any form of forced or trafficked labour or unlawful
employment. We practice the policies of having NO child labour and
prevention of sexual harassment and any other form of violence.
Procurement Practices
KHB procurement promotes opportunities to the capable suppliers
especially the local suppliers or community.
Anti-corruption
KHB does not give or receive whether directly or indirectly
bribes or other improper advantages for business or financial gain.
Similarly such unhealthy practices by its employees are not
tolerated. We commit to the principles of anti-corruption
behaviour.
Anti-competitive behaviour
KHB believes in vigorous yet fair competition and supports the
development of appropriate competition laws. KHB and its employees
will conduct their operations in accordance with the principles of
fair competition and all applicable regulations.
ENvIRONMENT
We continue to strive towards sustainable agricultural
practices, environmental performance whilst safeguarding natural
resources and respecting the balance between economy and ecology.
We focus on continuous improvement in order to minimize waste and
our overall carbon footprint.
We fully adhere to the principles & criteria of the RSPO and
MSPO, and have voluntarily incorporated several standards that
amongst others to ensure no deforestation; no new development on
peat soils; reduction of Green House Gases (GHG) and increased
focus and respect for local and indigenous communities including
smallholders and for the benefit of their socioeconomic
development. We are committed to Good Agricultural Practices, Good
Milling Practices, and strive towards finding the right balance
between Economic, Environmental and Social aspects of our
business.
To further emphasise our commitment on sustainability we
continue to achieve certification for RSPO and the mandatory MSPO.
Our first RSPO certification was obtained in 2016 for Sandakan. In
2017 our Lahad Datu Region was RSPO and MSPO certified. In 2018 we
have renewed both certifications. MSPO certification audits for
Sandakan Region and Tawau Region were conducted and have closed all
Non-Compliances in 2018. Lahad Datu was also ISCC certified in
2017. Our refinery, Green Edible Oil Sdn Bhd was RSPO certified
since 2016 and ISCC certified since 2013.
Our Group constantly strives towards reducing variables that
impact the environment negatively. A vital part of our
environmental policy is to focus on reducing GHG’s energy, waste
and effluent.
-
36 Kretam Holdings Berhad (168285-H)
Emissions, Waste & Effluent
Our awareness on pollution to the environment due to palm oil
mill effluent (POME) methane emission has spearheaded with
significant investment on our first biogas plant in 2016 at Kretam
Mill Sandakan and full commissioning in March 2018. This biogas
plant will eliminate methane emission from our effluent and to
provide renewable energy to our quarters in the complex. In 2018
with the biogas plant we achieved a GHG emission of 450kgCO2/ton
CPO.
We work towards a dynamic and innovative waste management and
utilization system towards zero waste. To meet the Department of
Environment (DOE) requirement on Biochemical Oxygen Demand (BOD) at
final discharge point to be 20 ppm or lower, we installed a
mechanical or membrane filtration system at our Kretam Mill
Sandakan. In 2018, we achieved the safety limits of the required
BOD throughout the year.
At our Silimpopon Mill, we installed a chemical treatment system
to reduce the BOD level. In 2018 we achieved within BOD level
throughout the year.
-
37Annual Report 2018
We continue with the research on Duck Weed Project at our Abedon
Mill Lahad Datu that has been approved by the Department of
Environment (DOE) to proceed with the project as a biological
effluent treatment system to reduce our BOD level from the mill.
The process was slow due to the biological ecosystem of duckweed
which is taking time to build up and cultivate. In 2018 encouraging
results were obtained with 75% achievement compared to 33% in 2017.
We are expecting to achieve success in 2019.
The recycling of field and mill biomass residues back into oil
palm land remains a cornerstone of our focus. These measures have
been shown to maintain and even improve soil fertility in the long
term and benefit palm growth and oil yield.
Our Abedon Compost Plant is built for composting empty fruit
bunches (EFB) and along with other palm oil waste to produce
compost or natural fertilizer. The compost is then applied to our
estates as soil conditioner that provides essential nutrients for
our oil palms. In 2018 we have applied a total of 25,433 MT of
compost to the field.
We also continue with our research project with Chitose Agri
Laboratory Sdn Bhd on applying trichoderma into the compost for