contents annual report 2018 1 contents corporate information 2 ... 2 kretam holdings berhad...

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.


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 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 hold any directorship in public companies and public listed companies.


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.


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:-


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


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.


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


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.


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.


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.


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


• 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.


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.


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.


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


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.


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.


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.


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.


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.


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.


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.


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


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.


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.


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 =


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):


0.210.27

0.400.400.40

0.250.310.51


EFB recycled to Estate in m/ton:


26,77545,15010,205


Compost Plant. Compost applied to field in m/ ton. 25,433



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:


Dec 2018June 2018Sept 2018

CA=Certification Audit

Dec 2018 CA16/04/2018Oct 2018 CA

Certification

ISCC Certification:


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


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.


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.


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

contents annual report 2018 1 contents corporate information 2 ... 2 kretam holdings berhad...

Documents