ANNUAL REPORT2018

This Annual Report is printed on Cocoon Silk 100% recycled paperThe Financial Statements are printed on Cocoon Offset 100% recycled paper.

With United Plantations choosing to use Cocoon Silk and Cocoon Offset rather than a non-recycled paper, the environmental impact, for the total number of

Annual reports produced,was reduced by :

Sources :

Water and energy savings are based on a comparison between a recycled paper manufactured at Arjowiggin Graphic mills versus an equivalent virgin fibre paper according to the latest European BREF data available (virgin fibre papers

manufactured in a non-integrated paper mill).CO2 emission savings is the difference between the emissions produced at an Arjowiggins Graphic mill for a specific recycled paper compared to the manufacture of an equivalent virgin fibre paper.

Carbon footprint data evaluated by Labelia Conseil in accordance with the Bilan Carbone® methodology. Results are obtained according to technical information and subject to modification.

11,040 kmTravel in Average European Car

1,104 kg CO2 and green house gases

7,846 kg of landfill

270,000 liters of water

15,862 Kwh of energy

12,750 kg of wood

Group Philosophy

We strive towards being recognized as second to none within the plantation

industry, producing high quality products, always focusing on the sustainability

of our practices and our employees’ welfare whilst attaining acceptable returns

for our shareholders.

Front Cover:

Aerial picture of the Optimilland Unifuji project.

1

Contents

Brief History and Principal Business Activity 2

UP’s Palm Oil Business Activities 3

Corporate Information 4

Executive Committee/Senior Management and Senior Executive 5

Group Structure 6

Financial Highlights 7

Profile of Directors 8 - 11

Chairman’s Statement 12 - 13

Management Discussion and Analysis 14 - 28

Sustainability Report 2018 29 - 141

Corporate Governance Overview Statement 142 - 147

Statement on Directors’ Responsibility 148

Statement on Risk Management and Internal Control 149 - 151

Audit Committee Report 151 - 154

Nomination Committee Report 155 - 156

Additional Disclosures 157

Financial Statements 159 - 235

Shareholders Information 236 - 237

Comparative Statistics 238

All Properties of the Group 239

Group’s Plantation Properties 240

Notice of Annual General Meeting 241 - 246

2

CSVRC

Corporate Social Responsibility and Creating Shared Values

Founded on Danish and Malaysian Expertise and Resources, United Plantations

Berhad (UP) from a modest beginning in 1906, has over the years grown in size

and stature.

Today UP is one of the larger medium sized plantation groups in Malaysia and

is listed on the Main Market of Bursa Malaysia Securities Berhad with a market

capitalization of approximately RM 5.31 billion at the end of its financial year

31 December 2018.

UP’s core business activities are focused on responsible cultivation of oil palm

and coconuts. Its total cultivated landbank covers approximately 50,000ha

spread over Malaysia (80%) and Indonesia (20%) and is supported by 6,508

employees across the Group.

UP possesses considerable know-how in plant breeding, agronomy and tissue

culture through its R & D facilities established in the early 1950’s, ensuring the

development of new and improved planting materials as well as improved crop

husbandry practices.

Its subsidiary companies are engaged in several downstream activities such as

edible oil refining as well as producing and packaging of specialty fats based

on certified sustainable palm oil and a strong emphasis on high quality and food

safety standards.

Through its focus on Corporate Social Responsibility and Creating Shared

Values combined with sound managerial and technical expertise, UP is today

recognised as one of the highest yielding, cost competitive and innovative

plantations companies in the world.

Brief history and principal business activity

3

Pre & Main Nursery

Bio-Mass Boiler

Oil Palm Plantation

Recycled

Fronds, Trunks

Replanting of 25 year old oil palms

Recycled

Seed Production

Research Department(UPRD)

Tissue Culture

Methane Capture&

Biogas Production

Biogas Plant

UP Group

FFB

Transport

Recycled

Electricity

TNB National Electricity Grid

(4 in Malaysia)(1 in Indonesia)

(4 in Malaysia)(1 in Indonesia)

Steam & Electricity

Shells, Fibre & EFB

Lorries(Indonesia)

Palm Oil Mill Effluent (POME)

Palm Oil Mills (CPO)(Internal*)

Unitata Refinery(Internal*)

Plan

tatio

n D

ivis

ion

Man

ufac

turi

ng D

ivis

ion

Crude Palm Oil Palm Kernels

Crude Palm Kernel Oil

Palm KernelCake

Palm Kernel Crushing Plant(External**)

External Plantations &

Smallholders

Light Railway(Malaysia)

Lorries(Malaysia & Indonesia)

Own ProductionExternal Production

UniFuji Refinery (JV)(Internal*)

Animal Feed

Snacks & ChocolatesManufacturing Industries

(External**)

Specialty Fats Industry(External**)

Specialty fats&

Vegetable oil fractions

Oleochemical Industry (External**)

BFBFF

UP’s Palm Oil Business ActivitiesUP’s main activities are depicted in the diagram below providing an overview of our vertically integrated set up.

Internal* : Within the UP Group. External** : Stakeholders, outside the UP Group.

Sm

4

Corporate Information

Country of Incorporation

Company Secretary

Auditors

Principal Bankers

Stock Exchange Listing

Registered Office andPrincipal ShareRegister

Board of Directors

Malaysia

Mr. Ng Eng Ho

Ernst & Young

MalaysiaHSBC Bank Malaysia BerhadMaybank BerhadStandard Chartered Bank Malaysia BerhadPublic Bank BerhadOCBC Bank (Malaysia) BerhadUnited Overseas Bank (Malaysia) Berhad

IndonesiaPT Bank Mandiri (Persero) TbkBank DBSPT Bank CIMB Niaga Tbk

MalaysiaBursa Malaysia Securities Berhad (Bursa Malaysia)Website : www.bursamalaysia.com

United Plantations BerhadJendarata Estate, 36009 Teluk Intan, Perak Darul Ridzuan, MalaysiaPhone : +605-6411411Fax : +605-6411876E-mail : up@unitedplantations.comWebsite : www.unitedplantations.com

Ybhg. Tan Sri Datuk Dr. Johari bin Mat (Chairman, Independent, Non-Executive)Ybhg. Dato’ Carl Bek-Nielsen (Chief Executive Director)Mr. Ho Dua Tiam (Non-Independent, Non-Executive)Mr. Ahmad Riza Basir (Independent, Non-Executive)Y.Hormat Dato’ Jeremy Derek Campbell Diamond (Independent, Non-Executive) Mr. Martin Bek-Nielsen (Executive)Mr. Loh Hang Pai (Executive)Mr. R. Nadarajan (Independent, Non-Executive)Madam Rohaya binti Mohammad Yusof (Non-Independent, Non-Executive)Mr. Jorgen Balle (Non-Independent, Non-Executive)

5

Executive Committee/Senior Management and Senior Executives(GRI 102-10)

Senior Executives

Executive Committee (EXCOM)

Dato' Carl Bek-NielsenVice Chairman, Chief Executive Director (CED)Director In-Charge, Unitata Berhad

Finance & Corporate

Ng Eng HoCompany Secretary /Sr Group Manager (Finance)

Cheriachangel MathewsGroup Manager Human Resources &Environment, Safety & Health

Dewi Anita SuyatmanSr Manager, Legal & Corp AffairsPT SSS

Norhazizi bin NayanSr Manager, Human Resources &Environment, Safety & Health

S. Chandra MohanFinancial Controller

Choo Kah LeongSr Financial Controller, PT SSS

Shirley SelvasingamManager, IT Systems

D. Jeevan DharmapalanManager Human Resources &Environment, Safety & Health

Lee Kian WeiManager Human Resources &Environment, Safety & Health

Research

Ho Shui HingDirector of Research

Kandha SritharanResearch Manager

Lim Chin ChingResearch Manager(Biotechnology)

Wong Foo HinResearch Manager(Tissue Culture)

J. VijiandranSr Research Manager

Appala Naidu MarieResearch Manager, PT SSS

Palm Oil Refining and Others

Senthamarai SelviManager (Shipping & Logistics)Unitata Berhad

Soo Yook KeeSr Manager / Engineer In-Charge,Butterworth Bulking Installation Sdn. Bhd.Bernam Agencies Sdn. Bhd.

Dr. Andrew NairGroup Research & Quality Controller,Unitata Berhad

Muhammad SilmiManager, Biodiversity,PT SSS

Jughdev Singh DhillonGroup Production Manager,Unitata Berhad

Erwin Khor Siew YanManager, Internal Audit

Allan Loh Teik BoonManager, CommerceUnitata Berhad

Suganthi KrishnanManager, Quality AssuranceUnitata Berhad

Dev GaneshManager, OPPUnitata Berhad

Jayarama ReddyManager,Bernam Bakery

Kapil PunjRefinery Manager,UniFuji Sdn. Bhd.

Plantations

Edward Rajkumar DanielsEstates Director, Upriver

L. MakesyarangManager,Kuala Bernam Estate

Khor Boon WahManager,Seri Pelangi Estate

C. Mohan DasGroup Manager,Jendarata Estate

S. ChanthravarnamSr Manager,UIE

Geoffrey CooperEstates Director,Downriver

R. Siva SubramaniamManager,Sungei Erong Estate/Sungei Chawang Estate

Nek Wahid bin Nek HarunGroup Manager,Ulu Basir Estate

Jason JosephSr Manager,PT SSS

S. KumaresanManager,Sungei Bernam Estate

Muhammad RathaPresident Director,PT SSS

Patrick KananManager,Changkat Mentri Estate

Ridzuan Bin Md. IsaManager,Ulu Bernam Estate

Azhar bin YazidSr Manager,Lima Blas Estate

Engineering

P. SekerDirector of Engineering,Upstream

Ir P. RajasegaranDirector of Engineering,Downstream

Ir V. RenganathanGeneral Manager Engineering,PT SSS

K.T. SomasegaranDeputy Group Engineer, UIE

G. PadmanathanResident Engineer,Ulu Basir

N. SaravanaganesResident Engineer,Ulu Bernam

Goh Kheng WeeResident Engineer,Jendarata Estate

Martin Bek-NielsenExecutive Director (Finance & Marketing)Commercial Director, Unitata Berhad

Loh Hang PaiExecutive Director (Estates)

6

Group as at 31 January 2019

Plantations

Palm Oil Refining

United Plantations Berhad (Malaysia)

Issued Capital (no. shares) 208m

Bernam Agencies Sdn. Bhd.(Malaysia)

100%

Butterworth Bulking Installation Sdn. Bhd. (Malaysia)

100%

Bernam Advisory Services Sdn. Bhd. (Malaysia)

100%

Berta Services Sdn. Bhd. (Malaysia)

100%

PT Surya Sawit Sejati (Indonesia)

95%

Unitata Berhad (Malaysia)

100%

UniFuji Sdn. Bhd. (Malaysia)

50%

General Shareholding StructureGroup as at 31 January 2019

The UIEL Group andThe Bek-Nielsen Family

49.25%

United Plantations Berhad

Issued Capital (no. shares) 208m

OthersOther

Major Shareholdersholding 5% and above

25.10% 25.65%

UNIFUJI100 YEARS OF PALMOIL

INNOVATION AND SUSTAINABILITY

7

2018 2017 Change (%) 2016 2015 2014

Revenue (RM’ Million) 1,306 1,474 (11.40) 1,228 1,004 1,022

Profit Before Tax ( RM’ Million) 491 504 (2.58) 418 376 356

Profit After Tax (RM’ Million) 374 395 (5.32) 331 292 279

Earnings Per Share (Sen) 179 189 (5.29) 159 141 134

Net Dividend Per Share (Sen)* 140 150 (6.67) 115 100 165**

Dividend Payout Ratio 0.78 0.79 (1.27) 0.72 0.71 1.23**

Dividend yield as at 31 December (%) 5.49 5.34 2.81 4.27 3.94 6.76

Total Equity (RM’ Million) 2,589 2,531 2.29 2,368 2,239 2,127

Return on Equity (%) 14.45 15.61 (7.43) 13.98 13.04 13.12

Total Borrowings (RM’ Million) 0.1 0.1 - 0.1 0 0.80

Non-Controlling Interests (RM’ Million) 7.8 6.9 13.04 5.3 3.2 2.40

Cash Position (RM’ Million) 916 852 7.51 691 753 738

Total Assets (RM’ Million) 2,918 2,850 2.39 2,644 2477 2,334

Total Liabilities (RM’ Million) 329 319 3.13 276 238 207

Year-End Closing Share Price (RM) 25.50 28.08 (9.19) 26.92 25.36 24.40

* Including proposed Final Dividend

** Including Special Extraordinary Dividend paid out in 2014

Financial Highlights

Total Equity, Total Assets and Total LiabilitiesRMMillion

2,500

3,000

2,000

1,500

1,000

500

0

Total Equity Total Assets Total Liabilities

Profit After Tax and Year-End Share Price RMMillion400

350

300

250

200

150

100

50

0

Share PriceRM

30.00

25.00

20.00

15.00

10.00

5.00

0.002014 2015 2016 2017 2018

Profit After Tax (RM Mil) Share Price (RM)

Earnings Per Share and Net Dividend Per Share

200

160

120

80

40

0

Sen

Earnings Per Share Net Dividend Per Share

?

2014 2015 2016 2017 20182014 2015 2016 2017 2018

CPO PRODUCTION

219,729 45,860 71.4 5.71METRIC TONNES METRIC TONNES MILLION NUTS METRIC TONNES/HECTARE

PKPRODUCTION

COCONUTPRODUCTION

CPOYIELD

7% 7%5% 5%

8

Profile Of Directors

Appointed Director of United Plantations Berhad on 9 October 2001 and elected as Chairman of the Board on 21 June 2003. Tan Sri Datuk Dr. Johari bin Mat, born in 1944, a Malaysian, obtained his B.A. (Hons.) from the University of Malaya and PhD from the University of Southern California, USA and completed the Advanced Management Program from Harvard University, USA in 1997. He was also a chartered member of the Malaysian Institute of Planners. He has 33 years of work experience in the Malaysian Administrative and Diplomatic Services which included positions as Director of INTAN and the Klang Valley Planning Secretariat in the Prime Minister’s Department and as Secretary General in the Ministries of Social Development, Domestic Trade and Education. He held various positions in several national and international organizations, such as UNESCO, UNCRD, SEAMEO, and COL (Commonwealth of Learning) based in Vancouver, Canada. Currently he is on the Board of a number of private companies.

Tan Sri Datuk Dr. Johari bin MatChairman, IndependentNon-Executive DirectorChairman of the Remuneration & Nomination Committees

Appointed director of the Company on 1 January 2000 and elected Vice Chairman on 8 March 2002 and appointed Chief Executive Director (CED) of United Plantations Berhad on 1 January 2013.Dato’ Carl Bek-Nielsen, born in Petaling Jaya in 1973, is a Danish citizen with a Permanent Resident status in Malaysia. He started his career with the Company in 1993 as a Cadet Planter leaving a year later to pursue his tertiary education in Denmark graduating with a B.Sc. degree in Agricultural Science from the Royal Veterinary

and Agriculture University of Denmark. In 1998 he returned to Malaysia to take up the position of Corporate Affairs Officer with the Company. He was promoted to the position of Executive Director (Corporate Affairs) on 1 March 2000. On 9 November 2004 he was appointed Director In-Charge of Unitata Berhad.He is the Chairman of United International Enterprises Limited (UIEL), a public listed company on the NASDAQ OMX Copenhagen A/S. He is also a Board Member of Melker Schorling AB, a public listed company on the NASDAQ OMX Stockholm AB.Since 2005, he has been a Council Member of the Malaysian Palm Oil Association (MPOA) and the Malaysian Palm Oil Council (MPOC). He currently serves as a member of the Programme Advisory Committee to the Malaysian Palm Oil Board (MPOB). On 17 November 2014, he was appointed on to the RSPO Board of Governors as Co-Chairman representing the MPOA. He is the brother of Mr. Martin Bek-Nielsen, and a Board representative of the Company‘s two major shareholders, UIEL and Maximum Vista Sdn. Bhd. He is deemed interested in various related party transactions between UP Group and certain companies carried out in the ordinary course of business as disclosed in Note 26 to the Financial Statements.

Dato’ Carl Bek-NielsenVice ChairmanChief Executive Director (CED)Non-Independent Director-in Charge of Unitata Berhad

Appointed director of the Company on 1 January 1995 , Mr. Ho Dua Tiam, born in 1943, a Malaysian.After completing his study at the Serdang Agricultural College, he started his career with United Plantations Berhad in 1964 as a Cadet Planter. He served the Company in various positions before his appointment as Deputy Senior Executive Director on 28 January 2002 and thereafter as Senior Executive Director on 21 June 2003. He retired from his position as Senior Executive Director (CEO) on 31 December 2012 and continued to serve the Company as Inspector General, Estates and Special Advisor of UP Berhad from 1 January 2013 until his retirement on 31 December 2018. He is also a director of United International Enterprises (M) Sdn. Bhd. and Maximum Vista Sdn. Bhd. He is not on the Board of any other public listed company. He is a Council member and Deputy President of the Malaysian Agricultural Producers Association (MAPA) and Chairman of its Finance Executive Committee.

Ho Dua TiamNon-IndependentNon-Executive Director

9

Profile Of Directors

Appointed director of the Company on 17 June 2000, Mr. Ahmad Riza Basir, born in 1960, a Malaysian, is a lawyer by training. He graduated with a Bachelor of Arts in Law (Hons.) from the University of Hertfordshire, United Kingdom and Barrister-At-Law (Lincoln’s Inn), London in 1984 and was called to the Malaysian Bar in 1986. He is a director of Perlis Plantations Berhad, a public listed company on Bursa Malaysia Securities Berhad. He is also a member of the Board of Directors of several other private limited companies in Malaysia.

Ahmad Riza BasirIndependentNon-Executive DirectorMember of the Audit Committee

Appointed director of the Company on 31 July 2001, Dato’ Jeremy Derek Campbell Diamond, born in 1940, a British citizen with Permanent Resident status in Malaysia, graduated from Durham University with a B.Sc.(Hons.) in Agricultural Economics and Management in 1963.Commenced his career in Malaysia in 1963 as a Planter with Socfin Company Bhd, and served in that company in various capacities until his appointment as General Manager/Chief Executive Officer (CEO) in 1977. He held that position for 24 years until his retirement in 2001. Currently, he is on the Board of a number of private companies which include Jedecadi Sdn. Bhd.He served as a Council member of the Malaysian Agricultural Producers Association (MAPA), United Planting Association of Malaysia (UPAM), Malaysian Oil Palm Growers Council (MOPGC), Malaysian Rubber Producers Council (MRPC), as an Alternate Member of the Board of the Palm Oil Research Institute of Malaysia (PORIM). He was a member of the General Committee of the Malaysian International Chamber of Commerce and Industry (MICCI) for 15 years.

Dato’ Jeremy DerekCampbell DiamondIndependentNon-Executive DirectorChairman of the Audit Committee and a member of the Nomination and Remuneration Committees.

Appointed to the Board on 29 August 2000, Mr. Martin Bek-Nielsen, born in 1975, is a Danish citizen with a Permanent Resident Status in Malaysia. He started his career with the Company as a Cadet Planter in 1995. Left Malaysia in 1996 to pursue his tertiary education in Denmark and graduated with a B.Sc. degree in Agricultural Economics from the Royal Danish Agricultural University of Copenhagen in 1999.After his graduation in 1999 he returned to Malaysia to take up the position of Corporate Affairs Officer. In 2001, he was appointed to the position of Executive Director and on 20 February 2003 was promoted to his current position of Executive Director (Finance and Marketing). On 9 November 2004 he was appointed Commercial Director of Unitata Berhad.He is the Deputy Chairman of United International Enterprises Limited (UIEL), a public listed company on the NASDAQ OMX Copenhagen A/S. He is the brother of Dato’ Carl Bek-Nielsen, and is a Board representative of the Company’s two major shareholders, UIEL and Maximum Vista Sdn. Bhd. He is deemed interested in various related party transactions between UP Group and certain companies carried out in the ordinary course of business as disclosed in Note 26 to the Financial Statements.

Martin Bek-NielsenExecutive DirectorNon-IndependentCommercial Director, Unitata Berhad.

Appointed to the Board as Executive Director (Estates) on 1 January 2013, Mr. Loh Hang Pai, born in 1948, a Malaysian, graduated from the Serdang Agricultural College. He served Kumpulan Guthrie as Junior Assistant in 1969 and subsequently joined United Plantations Berhad on 1 January 1973 as an Assistant Manager. He served the Company in various positions and was

Loh Hang PaiExecutive DirectorNon- Independent

10

Profile Of Directors

Appointed director of the Company on 1 June 2013, Mr. R. Nadarajan, born in 1948, a Malaysian, joined the company in 1977 as a Management Accountant, after having qualified and worked in the UK in various capacities in management accounting and finance. He was promoted to the position of Financial Controller in 1980 and to the position of Company Secretary/ Group Manager Finance in 2000. He fully retired in 2012 as Group Financial Adviser, a position he held since 2008 on retirement as Company Secretary/ Senior Group Manager, Finance. He is an associate member of the Chartered Institute of Management Accountants, United Kingdom(UK) and a member of the Malaysian Institute of Accountants.He is not on the Board of any other public listed companies.

Appointed director of the Company on 21 May 2018, Mr. Jorgen Balle, born in 1964, a Danish citizen, graduated in 2001 with a Masters in Business Administration from SIMI/CBS Copenhagen.Started his career with Aarhus Karlshamn AB as a Director (2000-2003) and was subsequently appointed to Managing Director of Aarhus Karlshamn A/S (2003 to 2010). He also held the position of VP Global CCF/LFC in the Business Unit of Aarhus Karlshamn AB for a duration of 5 years from 2005 to 2010. In 2010, he was appointed Executive Director of Frode Laursen Group and to date holds the position of Advisor of the Frode Laursen Group He is also a member of the Board of Directors of other private limited companies in Denmark.

R. NadarajanIndependentNon-Executive DirectorMember of the Audit, Remuneration and Nomination Committees

Jorgen BalleNon-IndependentNon-Executive Director

Appointed director of the Company on 30 November 2017, Madam Rohaya binti Mohamad Yusof, born in 1965, a Malaysian, graduated in 1988 with a Bachelor

Rohaya binti Mohammad YusofNon-IndependentNon-Executive Director

promoted to the position of Estates Director on 1 January 2004. He is not on the Board of any other public listed companies.He was actively involved in various activities of the planting associations, having held the position of Chairman, Perak Planters Association, President of United Planting Association of Malaysia and Chairman of Malaysian Cocoa Growers Council.Currently, he is the Convener of MAPA’s Oil Palm and Coconut Committee and Chairman of MAPA’s Negotiating Committee and had been actively involved in the negotiations on several MAPA/NUPW wage agreements.

degree in Commerce (Accountancy), Australian National University, Canberra, Australia and is an Associate Member of The Certified Practising Accountants, Australia. Started her career with Arthur Andersen & Co as a Senior Financial Consultant –Audit Division (1988-1990). In 1990, she joined Maybank Investment Bank (previously named Aseambankers ) and was promoted to the position of Executive Vice President, Corporate Investment Banking in 2005 and acquired 18 years of banking experience. In 2008, she joined the Employees Provident Fund (EPF) Investment Division as Head of Corporate Finance and in 2010, was appointed as Head of Capital Market Department overseeing investment loan and bonds. Her portfolio also includes monitoring external fund managers for domestic and global fixed income. Since April 2017, she serves as Head of Private Market, Investment Division, Employees Provident Fund, whose primary function is to invest in private equity, infrastructure, global and regional real estates.She is also a member of the Board of Directors of UMW Holdings Berhad, Malaysian Resources Corporation Berhad, Plus Malaysia Berhad and Projek Lebuhraya Usahasama Berhad.

11

The UP Board of Directors attending a Board Meeting in November 2018.

Note:

1. Family Relationship with Director and/or Major Shareholder Save for Dato’ Carl Bek- Nielsen and Mr. Martin Bek- Nielsen, none of the other Directors have any family relationship with any Director and/or major shareholder of the Company.

2. Conflict of Interest Save for Dato’ Carl Bek-Nielsen and Mr. Martin Bek-Nielsen, none of the other Directors have any conflict of interest with the Company.

3. Conviction for Offences None of the Directors of the Company have any conviction for offences within the past 10 years.

4. Attendance of Board Meetings Details of the Directors’ attendance at Board Meetings are set out in the Corporate Governance Overview Statement on pages 142 to 147.

5. Gender UP’s Board consist of one female director and nine male directors.

6. Profile of Senior Management The Senior Management only comprise of the Executive Directors.

12

Chairman’s StatementOn behalf of the Board of Directors of United Plantations Berhad, it gives me much pleasure to present to you the Annual Report of our Company and Group for the financial year ended 31 December 2018. Similar to last year, the early release on the 25 February 2019 is an improvement in keeping up with the global trend of finalizing the annual accounts earlier which ultimately is to the benefit of all stakeholders.

Financial Performance

For the Financial year 2018 our group posted an after tax profit of RM374 million.

Whilst this is a reduction of 5% compared with the RM395 achieved in 2017, it is viewed as a very pleasing result based on the depressed market prices for palm oil experienced during the second half of 2018. Palm Oil production on our estates continued its recovery in Malaysia as well as Indonesia during 2018 following the El-Nino in 2016 which impacted South East Asia. This increase contributed positively to our Groups results and was somewhat of a buffer to the decline in palm oil prices.

Whilst labour shortages continue to hamper operations resulting in associated crop losses, the situation was not as significant compared with 2017. Nevertheless, the drive towards mechanization that has taken place over the last many years and which is still ongoing, minimized the negative impact of this ongoing problem.

The Group continues to maintain a healthy policy in respect of its cash and cash equivalents, which as of 31 December 2018 stood at RM916 million. This was an increase of RM64 million from RM852 million in 2017 which was most gratifying considering the capital expenditure that took place in 2018.

Our prudent approach towards capital management has ensured that we can balance the dividend payments to shareholders, and take on necessary capital investments required within our group as well as to pursue new investment possibilities when the right opportunities arise, without having to be dependent on banks.

Pinehill Plantations

In this connection and after a number of years searching for the right land bank expansion opportunity, it was most pleasing that we announced the acquisition of the 3,642Ha Pinehill Plantations Estates, for a total consideration of RM414 million, located in the Lower Perak Region approximately 25km from our Headquarters on Jendarata Estate.

Our cash and cash equivalents will thereby also reduce compared with the 31st December 2018 position, when the deal is completed and payment has been made.

Our Chief Executive Director, Ybhg. Dato’ Carl Bek-Nielsen will in detail explain UP’s financial performance in the Management Discussion and Analysis section on pages 14 to 28 .

Dividends

Based on the above gratifying results, your Board isrecommending a final dividend of 110sen per shareconsisting of;

1. A Final Single Tier Dividend of 20sen per share

2. A Special Single Tier Dividend of 90sen per share

When taking into consideration the interim dividend of 30sen per share paid during December 2018, the total dividend paid in respect of FY2018 is 140sen per share compared with 150sen in FY2017.

Inauguration Ceremony

On the 17 January 2019, the combined project of the Optimill and UniFuji refinery was officially inaugurated by our Royal Highnesses Duli Yang Maha Mulia Paduka Seri Sultan Perak Darul Ridzuan Sultan Nazrin Muizzuddin Shah and Duli Yang Maha Mulia Raja Permaisuri Perak Darul Ridzuan Tuanku Zara Salim. It was indeed a great honour.

My sincere appreciation goes out to the team of people involved in making this important milestone for UP a successful one.

Sustainability

The Board upholds our commitment to undertake responsible agricultural practices which focuses on sustainability and good corporate governance and we remain committed to the Round Table of Sustainable Palm Oil (RSPO) and our Policy on No Deforestation.

13

I am proud of the progress being made and grateful for the support from our stakeholders on this important sustainability journey.

In this connection it was most pleasing that UP received recognition for its sustainability efforts by receiving three (3) awards for year 2018 as follows:

1. The ”EUROPA AWARDS for Best Sustainability Reporting 2018”.

2. Best Climate Change Initiatives (First Place) and3. A Special Recognition Award Land Use &

Biodiversity (Runner up) by the Sustainable Business Awards in partnership with Global Initiatives

More information on the awards as well as our many Sustainability initiatives are covered under the “Sustainability Report” section in this annual report starting from pages 29 to 141.

Looking ahead I note with concern the increasing global inventories of vegetable oils which resulted in prices coming under significant pressure over the last 6 months. Nevertheless, with production starting to slow down and exports picking up the recent spot price recovery from RM1,800 to RM2,200 has been most welcome.

We must, however, continue to place strong emphasis on the importance of our core values and the necessity to adapt

to the ever changing and challenging business environment in the form of lower commodity prices combined with the constraints associated with labour shortages.

Before closing, I would like to thank all our customers, business partners, government agencies and shareholders for their continued support and trust in our group. I would also like to place on record my appreciation for the commitment, understanding and wise counsel which I have received from all Directors. I, also take great pleasure in welcoming Mr Jorgen Balle to the UP Board and will look forward to working alongside him going forward.

Finally, I would like to place on record the Board’s appreciation to Mr Ho Dua Tiam for his outstanding contributions, loyalty and integrity towards the UP Group over the last 54 years. Whilst he retired from his executive roles on 31 December 2018, Mr Ho Dua Tiam will continue as a Board Member as well as having an advisory role to the Group.

In closing and on behalf of the Board of Directors, I would also like to place on record my sincere appreciation to all United Plantations’ employees for their loyal and dedicated service which is so essential for the future growth and well-being of our Group of Companies. Tan Sri Datuk Dr. Johari bin MatChairman

A harvester, pictured here in his rounds, undertakes one of the most important tasks in any plantation group today.

14

Management Discussion and AnalysisSummary of Global Operating Environment

The likelihood of a global economic slowdown has risen considerably over the last 6 months mainly due to the looming trade war between the USA and China and the adverse consequences which this would unleash onto the world economy.

The repercussions of what can only be seen as an economic conflict between the world’s two largest economies will indeed send shock waves to all trading nations inevitably impacting not just global growth but more so the livelihoods of billions of people fueling the risk of political instability as inequalities continue to widen.

Already now we see how big companies like Apple of the US, South Korea’s Samsung and Indian owned Jaguar-Land Rover in the UK have warned that their businesses are being hit by the slowdown notably in China.

However, the point which one must appreciate is that the signs of distress being felt by China’s slowdown is now slowly but steadily metastasizing and spreading from the capital markets to the real economy where the external impact will be far greater than most people can imagine.

Already today, China is the world’s biggest automotive market representing 30% of the global car market. For the first time since 1991 car sales in China fell in 2018.

From the start of 2012 to 2016 China produced nearly three times as much cement as the US did in the entire

20th century. However, much of this investment has gone to waste as more than one in five Chinese homes in urban areas or about 65 million apartments are empty (source: China South Western University of Finance & Economic 2018).

Even cosmetic sales in China slowed by 10.5% in 2018 a sharp decline compared to 2017. What we are seeing is a level of insecurity setting into the mind of the 1.4 billion Chinese consumers who will without hesitation display their natural ability to hold back and apply a level of restraint on temptations and unnecessary purchases.

This will make companies around the world tremble as China today accounts for not only 16% of the global economy but has for the past decade accounted for a staggering 30% of worldwide growth.

This combined with the risks of a hard Brexit, slower growth prospects in the EU, growing tensions between Southern Europe and Northern Europe (France’s Ambassador was recently called back from Italy due to disagreement) have resulted in the Federal Reserve Chairman, Mr Jay Powell sending a more dovish message on interest rates and monetary policy contra the hawkish attitude which prevailed during the first 3 quarters of 2018.

These evolving developments will be followed closely as the geopolitical forces at play will have a compelling and lasting influence on the health of the world economic activity and with that the supply but especially the demand of global commodities which our business is a part of.

Synchronized SlowdownGlobal growth is set to decelerate in coming years

Source: Organization for Economic Cooperation and Development

World OECD Japan ChinaU.S. Euro area.

2017 2018 2019 2020

0

3

4

5

6

7 %

2

1

15

Production and Prices of Crude Palm Oil (CPO)

2018 saw a continued recovery in palm oil production in South East Asia, notably from Indonesia, where CPO production grew to 41 million MT up from 37.1 million MT in 2017. Global palm oil production continued to expand from 68.25 million MT in 2017 to 72.08 million MT in 2018 equal to a net increase of 3.83 million MT or 5.6% year on year mainly attributable to the favourable weather throughout 2018. Indonesia alone accounted for over 90% of the net growth in global palm oil production in 2018.

UP’s Estates, both in Malaysia and in Indonesia also benefited from the better weather conditions recording a 6.7% increase in CPO production in Malaysia and a 7.6% increase in CPO production on our Indonesian estates. Combined, the UP Group’s total CPO production rose by 6.9% to 219,729MT and PK production rose by 4.8% to 45,860MT.

During the first half of 2018, CPO prices remained in the range of RM2,400-RM2,600, however with the recovery in production and with that rising CPO stocks, market prices started to come under pressure especially in the last quarter of 2018.

CPO prices hit the lowest levels in 10 years with the 3rd month future position on BMD breaking the psychological RM2,000/MT level and spot month prices going below RM1,800/MT due to Malaysian palm oil stocks reaching an all time high of above 3 million MT in December 2018. (see below tables)

The price situation could have been worse had it not been for the Malaysian currency weakening vis-a-vis the USD thereby lending their support to CPO prices in Ringgit Malaysia.

2nd Best Result in UP’s History

For 2018, the Company nevertheless managed to secure an average CPO price of RM2,606/MT and coupled with the improvement in overall CPO production, the Group secured a profit after tax of RM374 million or just over USD91 million.

On the following pages, I will elaborate further on the financial performance for 2018 and the reasons for securing the above net profit.

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16

Dividends for the year ended 31 December 2018

Financial Review of Operations

The Group’s revenue during 2018 decreased by 11% to RM1,306 million compared to 2017 mainly due to lower sales prices for PK in our Malaysian operations and lower CPO and PK prices in our Indonesian operations. In addition, the Refinery unit also witnessed a lower revenue as a function of lower sales prices of PK products.

The Group’s profit before tax decreased by 3% from RM504 million in 2017 to RM491 million in 2018.

The Group profit after tax of RM374 million for 018 was a decrease of 5% from the record result of RM395 million in 2017. It should be noted that due to the fair value adjustment of our forward sales, as per the accounting treatment, RM 17 million after tax have been included into the 2018 result. Nevertheless, the Board of Directors joins me in acknowledging that the post-tax results achieved in tax results achieved in 2018 were very satisfactory, the 2nd best ever in the Company’s history.

Dividends

The Board of Directors has recommended a Final Single Tier Dividend of 20sen per share and a Special Single Tier Dividend of 90sen per share for the year ended 31 December 2018. Summary of Dividends for the year ended 31 December 2018 are shown below:

The total dividend pay-out will therefore amount to

RM291 million for year ended 2018 which is a 7% decrease from 2017.

Strong Cash Position and Investment in Pinehill Estate

It is important to re-emphasize that the Board of Directors is committed towards maintaining its policy of having a strong balance sheet and especially a healthy cash position, which as of 31 December 2018 stood at RM916 million.

Such prudent and conservative fiscal policy has served our group well and will provide our company with the freedom to seek and make sound investments should opportunities arise without being dependent on financial institutions.

In this connection UP managed to enter into a sales and purchase agreement pertaining to 3,642Ha (8,999 acres) of established (brownfield) estates for a total consideration of RM414 million.

The acquisition is expected to be finalized, pending certain approvals from the Perak State Government, in March/April 2019 and will thereafter increase our landbank in Malaysia by almost 10% from 40,766Ha to 44,408Ha.

The announcement on page 17, was released information t naveler sedivorp dna 8102 rebmetpeS ni

tekram eht ot

behind the acquisition:

RMInterim single tier dividend

nes02diap dna deralced

Special single tier dividend nes01diap dna deralced

Proposed final single tier dividend 20sen

Proposed special single tier dividend 90sen

Total Dividends 140sen

Group Total and Segmental Contribution 2018 & 2017

2018 2017 2018 2017 2018 2017 2018 2017 2018 2017

RM Million

400.00

374.1394.7

350.00

300.00

250.00

200.00

150.00

100.00

50.00

0.00

-50.00

Group Total

Others

Plantations - MalaysiaPlantations - IndonesiaManufacturing - UnitataManufacturing - UniFujiIDR Realised and Unrealised Foreign Exchange Gain/(Loss)

450.00

34.450.4

279.2 285.6

57.2 63.0

(3.9) (4.3)(0.1)(14.3)

11.5 10.2

17

UP has today entered into 3 conditional sales & eriuqca ot puorG lliheniP htiw stnemeerga esahcrup

their 8,999-acre agriculture land together with all structures attached to the land including a palm oil mill, employees’ living quarters and site office (“Subject Properties”), located approximately 10 KM from Teluk Intan in lower Perak, Malaysia, for a sum of RM413.57 million equal to a transacted price per acre of approximately RM46,000.

The acquisition will be funded through UP’s internally generated funds. The deal is expected to be completed by the first quarter of 2019 subject to approvals by the relevant authorities. The Subject Properties will thereafter be incorporated into UP’s existing business.

“We have long been eying on this property due to good accessibility which is located approximately 10 KM away from UP’s from UP’s headquarters in lower Perak and the the acquisition is therefore a remarkable opportunity for our Group.

As the acquired land is an old established plantation (brownfield land), UP will comply fully with its No Deforestation Policy and will also transform the Subject Properties to produce certified sustainable palm oil in accordance with the criteria of the Round Table on Sustainable Palm Oil (RSPO)”, said UP’s Chief Executive Director, Dato’ Carl Bek-Nielsen. “The acquisition will increase UP’s land bank size in Malaysia

by almost 10% and provide synergies by enhancing our economies of scale and facilitate a continuation of UP’s core strength of cutting bureaucracy and providing a “hands on” management approach throughout our Group,” said UP’s Chief Executive Director, Dato’ Carl Bek-Nielsen.

“The soil types are excellent and the land is flat, providing UP with the ability to mechanize the operations which is vital in respect of enhancing productivities and reducing costs. Within the next 3 years, UP will replant a majority of the acquired land and by introducing UP’s high yielding planting materials combined with our total commitment towards enforcing sustainable practices, we will be able to increase the yields significantly on this 8,999-acre property within the next 4-6 years. Finally, we remain confident and committed to long term investments in Malaysia and especially in our home state of Perak where we have operated since 1906 and look forward to continue creating value for all stakeholders, ” said Dato’ Carl Bek-Nielsen.

“A lot of work has gone into this and there have been many tough negotiations. Today I would like to thank my team headed by the Executive Director Finance & Marketing Mr Martin Bek-Nielsen and the Company Secretary Mr Ng Eng Ho together with our advisors who have diligently been working around the clock towards reaching this stage of the deal, ” said UP’s Chief Executive Director, Dato’ Carl Bek-Nielsen.

21 September 2018 Announcement on the Acquisition of Pinehill Plantations Estates

18

Plantation Operations

CPO production in 2018 reached 168,680 MT (Malaysia) and 51,049 MT (Indonesia) totaling 219,729 MT of CPO for the Group compared to 205,519 MT CPO in 2017. The 6.9% increase in the Group’s overall CPO production, equal to 14,210 MT of CPO was, as mentioned before mainly due to the recovery in production arising from the excellent weather conditions combined with the improved performance of UP’s latest planting materials from the substantial replanting undertaken over the last 10 years.

Average yields for the UP Group also improved as can be seen in the tables below reaching 5.71 MT CPO/Ha and 5.73 MT CPO/Ha for our Malaysian Estates equal to a 67% higher yield from the national average yield recorded in Malaysia.

As of 31 December 2018, our Group’s areas planted up with oil palms can be summarized as follows:

One can also note that the total immature area in relation to the total group area under oil palms in 2018 now stands at 10.8% compared to 12.0% in 2017.

The total immature area on our Malaysian Estates is now 13.7% compared to 15.1% in 2017.

Cost of Production of Crude Palm Oil

The direct cost of production (before depreciation and amortization) during 2018 increased marginally by 0.34% to RM896/MT CPO from RM893/MT CPO in 2017 for our Malaysian operations. The total cost of production including depreciation and amortization for 2018 was RM1,188/MT CPO vs. RM1,197/MT in 2017.

During the second half of the year labour costs in Malaysia increased by 5% compared to levels in 2017 and have now increased by over 149% from 2006 to 2018 impacting the labour costs considerably. The trend has been even more steep in Central Kalimantan where labour costs have risen by 337% since 2006 reaching levels which are similar to the labour costs paid in Malaysia today. In spite of these significant increases in labour costs, several sectors in Malaysia continue to find themselves exposed to a situation of acute labour shortages. This is particularly the case not only for the manufacturing sector, the construction sector but also the agricultural and plantation sectors.

The Board of Directors join me in stating that this is a concerning and unsustainable trend as it will only erode the Malaysian and Indonesian Palm Oil Industry’s ability to compete against the other 16 competing oils and fats unless this is matched by commensurate increases in yields and productivity, which unfortunately has not been the case for the majority of palm oil producers in Malaysia who have seen their cost of production escalate.

Labour Shortages

Labour shortages continued to affect the operations within the Malaysian Plantation Sector in 2018, including our Company. However, crop losses were minimized mainly due to the newly introduced measures of mechanization

.rehgih hcum neeb evah dluow sessol porc hcihw tuohtiw

During 2019, new initiatives will continue to be explored in order to introduce more innovative ways to boost productivities through mechanization.

UP GroupMetric Tonnes (MT) CPO

2018 2017 Change

%7.6060,851086,861aisyalaM

%6.7954,74940,15aisenodnI

Total UP Group 219,729 205,519 6.9%

UP GroupMetric Tonnes (MT) PK

2018 2017 Change

%0.4373,53987,63aisyalaM

%2.8783,8170,9aisenodnI

Total UP Group 45,860 43,760 4.8%

2018 2017 Change

UP Group FFB average yield in MT/Hectare

26.20 24.78 5.73%

UP Group average OilExtraction Rates (OER) in %

21.80 21.46 1.58%

UP Group average Kernel Extraction Rates (KER) in %

4.55 4.57 (0.44%)

UP Malaysian CPO average yield in MT/Hectare

5.73 5.34 7.30%

UP Indonesian CPO average yield in MT/Hectare

5.66 5.25 7.81%

UP Group CPO average yieldin MT/Hectare

5.71 5.32 7.33%

Malaysian National CPO yield in MT/Hectare

3.42 3.52 (2.84%)

* Includes our Indonesian plantations.

egnahC71028102seratceH nI

UP Malaysia

%6.0483,92365,92aerA erutaM

Total Group Area having come into Maturity 2,502 2,514 (0.5%)

(oil palms between 2 1/2 - 5 years in age) 14.45% 23.11% (37.5%)

)%6.01(722,5476,4aerA erutammI

Replanted Area 1,949 1,394 39.8%

Total Area under Oil Palm 34,237 34,611 (1.1%)

UP Indonesia

%7.0530,9890,9aerA erutaM

---aerA erutammI

Total Area under Oil Palm 9,098* 9,035* 0.7%

Grand Total for the Group 43,335 43,646 (0.7%)

* net of areas converted to Plasma.

19

Nevertheless, it is hoped that the Malaysian Government will continue to give due consideration to the Plantation Sector’s plea to recruit guest workers as our produce is highly perishable and will suffer great losses if labour shortages re-emerge as has periodically been the case during 2018.

We believe that with sufficient guest workers yields on Malaysian Estates in general could increase by 0.5-1 MT FFB/Ha on average.

Selling Prices of CPO and Palm Kernels

The average selling prices of Crude Palm Oil achieved during the year increased from RM2,578/MT in 2017 to RM2,606/MT in 2018 from our Malaysian CPO, an increase of 1.09% which was achieved through the Group’s forward sale policy which resulted in certain quantities having been sold at higher price levels than the depressed market prices achievable during the 2nd half of 2018.

The average selling price for Palm Kernels recorded a decrease of 24.8% to RM1,992/MT in 2018 compared to RM2,650/MT in 2017 for our Malaysian Palm Kernels.

Manufacturing Division

Unitata and UniFuji

In our downstream refinery division, our wholly owned subsidiary Unitata performed very satisfactorily especially in view of the much tougher market conditions and increasing competition by the Indonesian RefinerySector in recording a contribution to the Group amountingto RM57.2 million in 2018 vis-à-vis RM63.0 million in 2017.

The results were mainly attributable to the sales of high quality, certified sustainable and traceable products, a much weaker Malaysian Ringgit vs US Dollar, favourable hedging results as well as cost cutting measures that continue to be an ongoing priority for Management.

Interest in certified sustainable palm oil is increasing,and Unitata is committed to providing high quality tailor-made solutions to clients who demand palm fractions which go well beyond the sustainability criteria of the RSPO.

For our JV refinery UniFuji, the plant was being commissioned in the 2nd half of 2018. It recorded a RM3.9mil negative contribution to our Group.

Crude Palm Oil Palm Kernel

2018 2017 Change 2018 2017 Change

MPOB Avrg price(RM)

2,233 2,783 (19.8%) 1,828 2,536 (27.9%)

UP’s Avrg price(RM)

2,606 2,578 1.1% 1,992 2,650 (24.8%)

Source: CIMB Research, MPOB

Malaysian Ringgit vs US Dollar

Source: tradingeconomics.com, OTC Interbank

20

High yielding yellow dwarf coconut palms.

The significant influx of Indonesian coconuts from May to November 2018 had an adverse impact on the demand for Malaysian home-grown nuts.

Source: www.khor-reports.com

Coconut Production

Our coconut production of 71,423,003 nuts in 2018, recorded a decrease of 5.1% compared 75,251,825 nuts in 2017. Average yields therefore declined from 25,345 nuts/hectare in 2017 to 23,154 nuts/Ha in 2018 representing a decrease of 8.6% which was less satisfactory.

This was mainly due to the very serious and concerning glut in the domestic market caused by the tremendous influx of Indonesian coconuts from May to November which affected the demand for our Group’s coconuts. This resulted in several million nuts being lost due to the delayed offtake in nuts extending the harvesting rounds resulting in germination taking place.

The entire Malaysian coconut industry including the smallholders have voiced their deep concern to the Malaysian Government, as this will jeopardize the coconut industry in Malaysia where the cost of production is higher than in Indonesia. The graph below captures the monthly imports of coconuts from 2008 to 2018.

SouSouSouSouSSouSouSouSouSouuSouSouSouSouSouSouSSouSouSouSouSSouuurcercercercercercercercercercerceceercercercercerceceeee: wwww: ww: w: w: www: wwwwwwwwwwwwwwwww.ww.ww.ww.wwww.wwwwwwwwwwww.wwwwwwwwwwwwww khokhokhokhokhokhokhokhokhokhohokhokhokhokkkhokhokkhokhohooookhokhokhor-rr-rr-rr-rr-r-r-rr-rrrrr-r-r-r-rrrrrrr-rr-rrrrrepoepoepoepoepoepepoepoepoepoepoepoepoepoeepoepoepoepeeepopopoppopepopoepoepep rtsrtsrtsrtsrtrtsrtrtsrtsrtsrtsrtsrtstrtsrtstrtsrtsrtstsrts.cocococococococococccocococccocococc mmmmmmmmmmmmmmmmmmmm

21

Loading of FFB into trucks on our Indonesian estates. A leopard cat captured on one of our camera traps in the midst of feeding on a rat. Leopard cats are a natural component of biologi-

cal control against rodents.

Indonesia

Our Plantation Division in Indonesia generated a Group contribution of RM34.4 million in 2018 against RM50.4 million in 2017, representing a decrease of 32%. As mentioned earlier, the reduction in profits were primarily a function of the substantially lower market prices of palm oil and palm kernel obtained in Indonesia. Indeed, CPO prices came under considerable pressure in Kalimantan during the 2nd half of 2018 when the abundance in supply saw domestic CPO prices even testing RM1,500 per MT.

Nevertheless, with better weather and improved growing conditions our estates in Indonesia recorded a 7.6% increase in CPO production in 2018, i.e. from 47,459 MT CPO in 2017 to 51,049 MT in 2018 with the total cost of production declining by 4.0% thereby reaching the lowest cost of production since starting our operations in Indonesia. These factors were fundamentally important in a year of depressed commodity prices and helped to cushion the effects of the lower palm oil and palm kernel prices.

Whilst operating conditions continue to be challenging it is with much satisfaction that after 12 years of operations since entering Indonesia the efforts and commitment provided towards the difficult expansion process into Central Kalimantan is finally paying off both financially but also, just as importantly, from a socio-economic point of view.

UP Indonesia ‘s production accounted for 23.2% of our Group’s CPO production in 2018 compared to 23.1% in 2017 which is a most pleasing development. All plantings have now reached maturity and the company now provides employment for 1,274 employees, many of whom were previously unemployed. The Indonesian Rupiah’s depreciation against the Malaysian Ringgit resulted in an exchange loss of RM4.3million (out of which RM1.3million was realized) for our Group against an exchange loss of RM14.3million experienced in 2017.

All infrastructural additions have been completed in Indonesia during 2018 where 6 new terraced houses were completed thereby bringing the total number of high quality modern living quarters for our executives, staff and workers to over 500 units today.

The Board of Directors, over the last 8-9 years have encountered prolonged delays surrounding the issuance of land permits, however, I am pleased to inform all shareholders that we have received the HGU (Land Titles) for 6,004Ha in 2018.

This has been a long journey and has involved much work. We will remain hopeful and continue as we have done over the last 10 years working closely with the numerous Indonesian Government Departments across several Ministries to seek the HGU for the remaining land bank under PT SSS.

Land availability but also suitability from an environmental regulatory point of view has also become a limiting resource wherefore expansion possibilities are not what they were 13 years ago.

Further expansion will for these reasons only be considered if brown field plantations developed before 2005 come up for sale that in no way contravene or ignore the company’s commitment to not just adhering to the RSPO’s Principles & Criteria but going beyond. In the meantime, management continues to do a commendable job in consolidating the existing properties where agricultural standards have now reached standards similar to those on its Malaysian properties. To date, 9,098Ha of oil palms (net of 1,259Ha converted to Plasma) have been planted and more than 7,500Ha of permanent conservation areas established.

T h e s e c o n s e r v a t i o n a r e a s , m a k i n g u p a b o u t40% of the concession area consist primarily of riparian reserves, peat swamps as well as heavily degraded secondary forests as a result of the intense logging activities carried out in the past prior to UP acquiring the properties.

These sanctuaries are a testimony to our Group’s commitment towards maintaining an important balance between economy and ecology and where conservation means development as much as it does protection of the environment.

22

Sustainability Report (SR)

Since our foundation in 1906, UP has focused on economic development combined with social and environmental care. Identifying and managing UP’s social risks and opportunities is fundamental to our continued success and to the core principles of our business activities, namely doing business sustainably combined with committing ourselves to a long-term perspective.

Today, more than ever, sustainability and financial performance are an integrated and inter-woven part of the UP Group’s well-being.

Our Sustainability commitment focuses on continuous care and responsibility towards our employees, the environment, the community and the marketplace in which it operates.

We see this trend intensifying. A detailed Sustainability report is accounted for in a separate section of this annual report. (please refer to pages 29 to 141 )

Management’s commitment towards providing as well as improving social amenities within our Group shall therefore remain the hallmark of the EXCOM and management in 2019.

Capital Expenditure

The Group spent a capital expenditure of RM120.7 million in property, plant and equipment (including bearer plants) in the current year as compared to RM175.6 million in the previous year.

The 31% decrease was mainly due to the construction of a state-of-the-art palm oil mill and additional capital investments in the refinery division in the previous year. On bearer plants (capex spent on replanting), the Group incurred RM39.6 million in the current year which is a 1% decrease from RM39.8 million in 2017.

For the year 2,345 Ha of oil palm and coconuts were replanted in Malaysia against 2,457Ha in 2017. All capital expenditures were funded by internally generated funds.

Replanting Policy

Concerted efforts are continuously being made by Management to enhance the Company’s Breeding-Agronomy and Tissue Culture activities as these remain of cardinal importance in terms of our Group ‘s ability to further improve our agronomic productivities.

This colourful Stork Billed Kingfisher (Pelargopsis capensis), commonly seen as one drives along our fields. The population of this bird has been on the increase due to the abundant availability of fish and other sources of food such as frogs, lizards and insects, mainly found in our drains and waterways.

23

Yield Targets

The table below provides an overview of various yields per Ha targets in terms of FFB and CPO as well as OER in Malaysia and Indonesia.

The difference in terms of FFB/Ha/year and the OER between the countries, is due to the difference in planting materials (Research & Development), soils, climatic factor and labour availability.

A total of 1,949 Ha of oil palms were planted on our Malaysian properties during 2018 compared to 1,394 Ha in 2017. Whilst our Group’s average age profile has improved, we must nevertheless appreciate that the major bulk of our Group’s replanting programme for our Malaysian Estates will only be completed by next year.

Indeed, during the course of the last 10 years (2009-2018) our Malaysian estates have replanted a total of 22,451Ha of oil palms equal to 66% of the total area under oil palm today. This is absolutely necessary if we are to further improve on the age profile of our established plantations and with that our average yields which is of special importance in maintaining a favourable cost base.

In this connection, I am pleased to advise that our Group’s long-term replanting policy remains a high priority, both in times of low as well as high commodity prices and that all planting materials used for this extensive replanting programme has been produced at UPRD using exclusively proven germplasm with over more than 60 years of sterling plant breeding techniques where the ultimate goal is to secure high yields.

Failure to implement this critical aspect of plantation management will inevitably lead to stagnating yields and declining production resulting in the inability to remain competitive.

All replanting carried out during 2018 continued to be done in accordance with the environmentally friendly “zero burn policy”, thereby complying fully with the regulations laid down by the Department of Environment.

Indeed, this practice has remained an integral part of our company’s commitment towards Good Agricultural Practices since 1989 and has helped not only in ameliorating and conserving the organic carbon status in our topsoil but also in improving the overall fertility status of our soils.

A well laid out replant of oil palms at Changkat Mentri Estate with the addition of new roads to facilitate not only supervision but also crop evacuation over the next 20-25 years.

UP Group FFB yields/Ha OER CPO yields/Ha

Malaysia 28.0MT 23.0% 6.5MT

Indonesia 25.5MT 25.5% 6.5MT

24

A textbook example of replanted field at Ulu Bernam Estate. Rows of evenly spaced out young seedlings and stacks of shredded palm biomass from the earlier plantings are placed neatly as far as the eye can see.

25

26

Mechanised FFB collection in progress at a mature oil palm field in Jendarata.

Prospects and Outlook

Based on the current operating environment UP is respectful of the challenges which 2019 may bring. Increased focus on cost efficiencies and improved productivity as well as higher yields will therefore continue as a vital part of sustaining our positive development.

Special attention will also be given towards addressing any imminent labour shortages and to further improve on all weaknesses identified in respect of our sustainability journey. UP is far from perfect and much more attention must in this respect be given to operationalise and mainstream the principles of our commitment so this is “built in” and not just “bolted on” – so to say. We shall dedicate our energies to this.

In accordance with our replanting policy, UP will proceed to replant large areas of its older and less productive oil palm stands in Malaysia during 2019 after which the replanting rate will be somewhat lower compared to the acreages replanted over the last 10 years.

As this message is being written, our Company is awaiting the outcome from the authorities on the permits and approvals which are absolutely necessary before UP can complete the land acquisition to take over the 3,640 Ha Pinehill Estate located only 30 minutes’ drive from our Headquarters.

Should this materialize, we will accelerate the replanting on this property in order to take full advantage of our latest planting materials from UPRD which have a much higher yield potential.

World Palm Oil Production thus contributed to over 44% of the net growth in the World’s 17 Oils & Fats production in 2018 which increased from 222.1 million MT to 230.79 million MT enabling stocks to increase from 30.85 million MT in 2017 to 33.06 million MT in 2018.

The abundant supplies of Oils & Fats notably within the palm oil sphere applied a downward pressure on prices which fell to a 12 year low of USD598 on average of January/December 2018 (CIF Rotterdam).

One would have observed how palm oil prices (CIF Rotterdam) declined by a thumping 30% from USD 681 in March to USD475 in November.

The main reason for this was firstly an increase in Palm Oil supplies which increased by 3.79 million MT year on year but more so the poorer demand from key importing nations such as China whereas consumption of palm oil only grew by 5.8% to 5.4 million MT and where consumption in the biggest importing market, India, actually declined from 9.3 million MT in 2017 to 9.07 million MT in 2018.

Palm Oil Production 2018 2017

Indonesia 41.00 37.10

Malaysia 19.52 19.92

Rest of the World 11.52 11.23

Total 72.08 68.25

PALM OIL: World Production (Mn MT)

Source: Oil World 2019

27

For 2019 we foresee that global CPO production will grow by an additional 3.5-3.8 million MT with 80-85% of

.aisenodnI morf gnimoc noitcudorp ni htworg niam ehtThis combined with the ample stocks of soybeans is expected to put a ceiling on the price complex.

However, there are 2 aspects which must be followed closely as they could cause a break-away from the fundamentals. The first is the political intervention by the importing countries such as India and what strategies the Government decides to adopt in terms of import duties for palm oil. The second parameter will be the pace of world biodiesel production and whether the production seen in 2018 amounting to 40.25 million MT cannot just be sustained but in fact will grow by another 3-4 million MT.

The country which hold’s the key to this complex situation will increasingly fall on Indonesia which during 2018 was not only the largest producer of palm oil but became the largest consumer of palm oil.

The renowned and reputable German Company, Oil World, wrote on 11 January that, “At an estimated 13.8 million MT in Oct/Sept 2018/2019 Indonesia is seen boosting palm oil consumption by 2.9 million MT or by 27% from a year earlier.”

Indonesia will be having an election in 2019 and millionsof people’s livelihoods depend on the well-being ofpalm oil prices.

Their votes are therefore important. We believe that the Indonesian Government will go all out not only to fuel their biodiesel industry but also to stimulate the offtake of biodiesel domestically in line with the implementation of the B20 admixture mandate in September 2018 which sharply raised domestic consumption.

A further sizeable growth is expected in 2019 in tandem with the government’s target of raising the admixture mandate to 30% or B30.

The forecasts so far by Oil World, Hamburg are that Indonesia alone will increase its production of biodiesel from 5.2 million MT in 2018 to 7.45 million MT in 2019 representing a 2.25 million MT increase in demand for this sector. This, if materialised, would put a floor on the fairly bearish outlook on prices and may help to sustain prices around the RM2,200-2,300/MT CPO.

With the prices contracted under our forward sales policy and with our Indonesian production improving coupled with large areas steadily coming into maturity from our replanted areas in Malaysia, the Board of Directors expects that the results for 2019, will be lower compared to 2018 but nevertheless satisfactory when taking the prevailing prices for palm oil and palm kernel into consideration.

Acknowledgment

In closing, I would like to applaud Management for the various concerted efforts made during the last many years especially in view of the very difficult situation associated with the effects of the chronic labour shortages experienced on our estates.

This dedication and loyalty displayed by our officers, staff and employees alike continue to win my respect and admiration. I wish to thank you all for this level of devotion which is equaled only by few organizations in today’s world.

I would also like to thank all our customers, business partners, government agencies and shareholders for the continued support and trust in our Group where it shall always be our common goal of striving to be recognised as “second to none”.

Dato’ Carl Bek-NielsenChief Executive Director (CED)

2018 2017

22.908.11aisenodnI

03.970.9aidnI

65.785.782 UE

01.504.5anihC

33.154.1ASU

Consumption of Palm Oil in Key Countries (in Million MT)

Source: Oil World 2019

The Chairman, Tan Sri Datuk Dr. Johari bin Mat and other Board members being shown around the new Unifuji refinery by the Chief

Executive Director, Dato’ Carl Bek-Nielsen.

Productivity improvement - a harvesting team with motorised cutter.