IOI COrpOratIOn Berhad 9027-W annual repOrt 2010

Our Vision
is to be a leading corporation in our core businesses by providing products and services of superior values and by sustaining consistent long-term growth in volume and profitability. We shall strive to achieve responsible commercial success by satisfying our customers needs, giving superior performance to our shareholders, providing rewarding careers to our people, cultivating mutually beneficial relationship with our business associates, caring for the society and the environment in which we operate and contributing towards the progress of our nation.

Our Core Values

In our pursuit of Vision IOI, we expect our people to uphold, at all times, the IOI Core Values which are expressed as follows: which is essential and cannot be compromised as we do what we say we will do is crucial because we are one team sharing one vision as our commitments can only be realized through actions and results in response is important in our ever changing business environment to provide us additional competitive edge is crucial as we need to remain competitive

Integrity

Commitment Loyalty

Excellence in Execution Speed or Timeliness Innovativeness Cost Efficiency

CONTENTS
Proven balance ~ work in harmony to achieve both our ha business goals and the wider goals of a caring society.

006 012 014

015 015 016

Chairmans Statement Group Financial Overview Group Performance Highlights Group Quarterly Results Financial Calendar Five-Year Financial Highlights managements discussion and analysis Group Financial Review Group Business Review Corporate Social Responsibility Corporate Information Board of Directors Pro le of Directors

068 069 070 072

074

Senior Management Team Group Business Activities Global Presence Location of Operations in Malaysia Corporate Calendar Audit Committee Report Statement on Corporate Governance Statement on Internal Control Risk Management Statement of Directors Interests Other Information Financial Reports Group Properties

264

267

annual general meeting information Notice of Annual General Meeting Statement Accompanying Notice of Annual General Meeting Shareholders Information Proxy Form

076 081

268

090

018 026 050

092 094

095

062 063 064

098 250

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IOI CORPORATION BERHAD

ANNUAL REPORT 2010

meeting business goals

Delivering maximum returns to our stakeholders and ensuring high productivity and high protability.

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ANNUAL REPORT 2010

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maintaining a sustainable environment

Our CSR activities enable and support sustainable and responsible business practices in all sectors, thereby ensuring a balanced strategy for our planet.

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KEY INDICATORS
% 30 20

10

-10
24.07.09 14.08.09 04.09.09 25.09.09 16.10.09 06.11.09 27.11.09 18.12.09 08.01.10 29.01.10 19.02.10 12.03.10 02.04.10 23.04.10 14.05.10 04.06.10 25.06.10

IOI CORPORATION BERHAD

FTSE BURSA MALAYSIA KLCI

KL PLANTATION INDEX

2010

2009

2008

2007

2006

FINANCIAL
Prot before taxation Prot attributable to equity holders of the Company Equity attributable to equity holders of the Company Return on average equity Basic earnings per share Gross dividend per share
RM000 RM000

2,550,633 2,035,661 10,780,181 21.29 32.96 170.0 3,405,090 154,709 1,045,095 2,044

1,550,117 983,517 8,346,290 11.75 16.62 80.0 3,626,776 150,931 688,487 1,465

3,095,197 2,231,632 8,391,361 27.67 36.85 170.0 3,957,281 149,445 696,743 1,934

1,991,073 1,482,104 7,739,258 21.52 24.13 70.0 3,694,535 148,871 683,471 1,529

1,152,873 829,002 6,033,923 15.22 14.51 87.0 3,674,483 144,055 570,842 1,524

RM000

% SEN %

PLANTATION
FFB production Total oil palm area
MT HA

PROPERTY
Sales value Sales
RM000 UNIT

MANUFACTURING Oleochemical
Plant utilisation Sales
% MT

91 684,389 75 2,533,527 96 486,828

78 597,351 78 2,817,987 100 504,317

92 668,808 91 2,996,439 100 521,719

95 509,965 85 2,287,190 95 502,695

99 364,393 87 1,283,647 91 482,876

Renery
Plant utilisation Sales
% MT

Specialty oils and fats

Plant utilisation Sales
% MT

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ANNUAL REPORT 2010

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Dividend Per Share 2010 Prot Before Taxation 2010

170.0%
2009 80.0%

RM2.55 BILLION
2009 RM1.55 BILLION

Return on Average Equity 2010

21.29 %
2009 11.75 %

RM5.01
2009 RM4.72

Share Price 2010

Market Capitalisation 2010

RM31.95 BILLION
2009 RM28.11 BILLION

Basic Earnings Per Share 2010

32.96 SEN
2009 16.62 SEN

006 | IOI CORPORATION BERHAD ANNUAL REPORT 2010

CHAIRMANS STATEMENT
Dear Shareholders, On behalf of the Board of Directors of IOI Corporation Berhad, I am pleased to present to you the annual report of the Company and the Group for the nancial year ended 30 June 2010 (FY2010).

OPERATING ENVIRONMENT Whilst markets have rebounded from their lows, the global economy is currently in a period of uncertainty and is likely to experience greater volatility until a clearer picture emerges on the strength of the global economic recovery. Global economic growth is likely to slowdown in the second half of 2010 as worldwide scal spending dissipates and austerity measures in developed countries begin to take eect. These will be compounded by policy tightening in some Asian countries and other emerging economies. There is therefore a risk of a sharper than expected slowdown in global economic growth. The Malaysian economy is also likely to slow down in the second half of 2010 after recording strong growth in the rst half on the back of a surge in exports. Although most sectors of the domestic economy are likely to moderate in line with external demand, domestic demand is expected to remain resilient due to the high level of savings and rising consumerism. REVIEW OF RESULTS The Groups operating prot of RM2,636.3 million for FY2010 was higher by 34% compared to the previous year with increases reported in all main business segments except for plantation.

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ANNUAL REPORT 2010

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Segmental Contribution to Operating Prot

Plantation divisions earnings were 31% lower at RM1,126.2 million on the back of lower CPO prices realised and a reduction in FFB production. The average selling price of CPO reduced from RM2,831

PROPERTY

26%

RESOURCE-BASED MANUFACTURING

per MT in FY2009 to RM2,372 per MT as CPO prices retreated from their highs towards more sustainable levels. Production of FFB reduced from 3.63 million MT to 3.41 million MT in FY2010 largely due to lower yields achieved as a result of poor weather conditions. The resource-based manufacturing divisions earnings improved by 59% to RM568.6 million in FY2010 mainly coming from better results in the specialty oils and fats and oleochemicals businesses. The renery business was adversely aected by excess capacity in the industry and recorded a reduction in capacity utilisation in its plants. The property divisions results for FY2010 of RM602.9 million was 29% higher than the previous year despite a lower fair value gain on investment properties of RM21.0 million (FY2009 RM110.8 million). The property division achieved a total revenue exceeding RM1 billion contributed by an overall increase in units sold and higher average sales value per unit.

24%

2010

PLANTATION

OTHERS

48%
PROPERTY

2%
RESOURCE-BASED MANUFACTURING

The Groups pre-tax prot of RM2,550.6 million was 65% better than the prot achieved in FY2009 whilst net earnings for FY2010 improved 107% to RM2,035.7 million partly due to unrealised translation gains on its long term USD denominated borrowings as opposed to foreign currency losses recorded in FY2009. The Group continues to generate healthy cash ow from its operations, which amounted to RM2,008.6 million for FY2010. A more detailed review of the Groups performance is covered under the section on Management Discussion and Analysis in this Annual Report.

18%

14%

2009

RETURNS TO SHAREHOLDERS Two interim dividends totalling 17.0 sen per ordinary share amounting to a total payout of approximately RM1,084.6 million were declared for FY2010. The dividends represent an approximately 50% distribution of the Groups net prot attributable to shareholders which is in line with the dividend payout ratio in FY2009.

PLANTATION

OTHERS

65%

3%

008 | IOI CORPORATION BERHAD ANNUAL REPORT 2010

If a shareholder had subscribed for 1,000 ordinary shares of RM1.00 each in 1980 when the Company was listed and assuming the shareholder had taken up all the rights issues to date, the 1,000 shares that the shareholder subscribed for would have increased to 76,000 ordinary shares of RM0.10 each worth RM433,960 based on a share price of RM5.71 as at 15 September 2010. If we take into consideration all the dividends received less capital outlay for the past 30 years together with the capital appreciation as stated above, the shareholder would have achieved a remarkable compounded annual return of 22.8% per annum over the same period. The company continues to manage its capital in a proactive manner to provide value to shareholders, optimise gearing levels and provide for funding requirements. During the year, the Company completed a renounceable rights issue of 398,821,324 new ordinary shares at an issue price of RM2.90 per Rights Share. The proceeds from the Rights Issue of RM1.157 million are to nance potential investment opportunities and repayment of borrowings. The Group also continues to maintain a healthy cash and bank balance, which as at 30 June 2010 stood at RM3.9 billion, and a net gearing ratio of 8%. is actively pursuing certication audits on its other estates and mills in Malaysia with a target towards completing the RSPO audits by the end of 2011. The Group is also involved in other projects such as the Prince Charles Rainforest Project and the Sainsbury Responsible Palm Project to promote its standing as a responsible and value-added palm oil producer. CORPORATE SOCIAL RESPONSIBILITY Education remains an integral part of our corporate social The Company is a founding member of the Roundtable on Sustainable Palm Oil (RSPO), a global initiative which operates on a multistakeholder format and involves strict principles and criteria covering the social and environmental development requirements for the production and use of sustainable palm oil. Preparation and training for RSPO certication began three years ago and todate, four groupings of the Companys estates and palm oil mills have been awarded the RSPO compliance certication and a further two groupings have been audited and are pending certication. The Group responsibility via Yayasan Tan Sri Lee Shin Cheng, a charitable foundation fully funded by the Group to provide sponsorships to schools and students from poor families as well as award scholarships and grants to high-achieving university undergraduates.

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ANNUAL REPORT 2010

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IOI CORPORATION BERHAD

ANNUAL REPORT 2010

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PROSPECTS Against a backdrop of slowing economic growth globally, Asia and other emerging economies remain relatively resilient and their moderate growth will provide the Group with opportunities for growth. FFB production volume from our estates in Malaysia is expected to improve in FY2010 due to more favourable weather conditions and better yielding trees coming to maturity. Planting on our land in Indonesia continues to gather momentum and we expect to plant 10,000 hectares every year over the next 5 years. With 79% of our Group planted acreage in Malaysia within the prime ages of 7 to 20 years old, production volume will increase steadily over the next few years to meet increasing demand. Demand for palm oil and its products remain strong supported by growing demand from the food sector, increasing awareness arising from mandatory labelling of trans fatty acid content in food products, price competitiveness over other edible oils and higher consumption in emerging markets such as China and India. Prices of palm oil are also expected to be underpinned by the relatively low world vegetable oil stock to usage ratio and strong biofuel commitments from developed countries. Prospects for the Groups resource-based manufacturing business are expected to remain mixed, with compressed margins in the renery sector but stable volume and margins in the oleochemicals and specialty oils and fats sectors. Our renery expansion in the Netherlands to produce mainly value added margarine ingredients was commissioned in April 2010 and our Bionexus-status plant in Johor to supply enzymatic components to the Group is expected to be completed by the end of 2010. The enzymatic lipid modication manufacturing process used by the Group in the specialty oils and fats business holds great promise as it fulls the quest for healthier edible oils and also oers unique solutions that cannot be met with conventional lipid modication techniques. With a development land bank of approximately 6,000 acres, the Groups proven track record in township development will provide a strong base for the Groups property business. Our strength in township development has also enabled the Group to build more commercial properties in existing mature developments for investment to earn good rental returns. The property market in Singapore has improved and with the completion of the integrated resorts augers well for our projects in Sentosa Cove. The launching in March 2010 of the rst phase of our Seascape collection in Sentosa met with encouraging response. Tan Sri Dato Lee Shin Cheng
EXECUTIVE CHAIRMAN

The Groups strong cash ow from operations and a healthy balance sheet provides the Group with opportunities to acquire additional landbank both locally and abroad. The Group has recently acquired a piece of leasehold land measuring approximately 7.7 acres in Xiamen, Fujian Province in the Peoples Republic of China for a total consideration of RMB314.2 million. The property is to be developed into residential and commercial units for sale. We view this project as a stepping stone towards further larger property projects in China. ACKNOWLEDGEMENTS I wish to take this opportunity to express my gratitude and appreciation to our employees for their contribution, dedication and loyalty. I also wish to thank all our customers, business partners, government authorities, shareholders and fellow Board members for their continued strong support. Thank you.

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IOI CORPORATION BERHAD

ANNUAL REPORT 2010

BALANCE SHEET AS AT 30 JUNE 2009

RM MILLION PROPERTY, PLANT & EQUIPMENT CASH & CASH EQUIVALENTS (A)

GROUP FINANCIAL OVERVIEW

CASH FLOW FOR THE FINANCIAL YEAR ENDED 30 JUNE 2010
RM MILLION

4,570

2,459

ASSETS

Net operating cash ow Capital expenditure, net of disposal Free cash ow from operation Proceeds from right issue of a subsidiary Proceeds from disposal of investments, net of payments for other investments Proceeds from issuance of shares Privatisation of a subsidiary Share repurchases by the company Payment to jointly controlled entities Investment in development land bank Interest paid Dividend payments - Shareholders of the Company - Shareholders of subsidiaries Cash outow in net borrowings Repurchase of of 3rd Exchangeable Bonds Accretion of exchangeable bonds Accretion of guaranteed notes Net decrease in net borrwoings Net borrowings as at 30.06.09 Translation dierence Net borrowings as at 30.06.10

2,009 (423) 1,586 1,157 201 24 (12) (35) (118) (132) (145) (566) (23) 1,937 (20) (94) (1) 1,822 (3,095) 393 (880)

OTHER LONG TERM ASSETS

OTHER CURRENT ASSETS

5,405
OTHERS LIABILITIES MINORITY INTEREST

3,548
BORROWINGS (B)

1,656

426

5,554

SHAREHOLDERS EQUITY AND LIABILITIES

RETAINED PROFITS

SHARE CAPITAL & OTHER RESERVES

6,858

1,488

NET BORROWINGS=(B)-(A)=RM3,095 MILLION NET GEARING=37%

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ANNUAL REPORT 2010

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BALANCE SHEET AS AT 30 JUNE 2010

RM MILLION PROPERTY, PLANT & EQUIPMENT CASH & CASH EQUIVALENTS (C)

RETAINED PROFIT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2010

RM MILLION

4,604

3,877

ASSETS

Segment results Unallocated corporate expenses Operating prot Net interest expenses Share of results of associates Share of results of jv Prot before taxation Taxation Prot for the nancial year Less: Attributable to minority interests Prot for the nancial year attributable to equity holders of the Company Dividend paid Purchase of 3rd exchangeable bonds Changes in equity interest in subsidiaries Retained prot for the nancial year Retained prot as at 30.06.09 Retained prot as at 30.06.10

2,359 277 2,636 (174) 55 33 2,550 (486) 2,064 (29) 2,035 (566) 38 50 1,557 6,858 8,415

OTHER LONG TERM ASSETS

OTHER CURRENT ASSETS

5,579
OTHERS LIABILITIES MINORITY INTEREST

3,283
BORROWINGS (D) OTHERS 61 RESOURCE-BASED MANUFACTURING 569

1,517

289

4,757

2%

24%

SHAREHOLDERS EQUITY AND LIABILITIES

SEGMENTAL CONTRIBUTION TO OPERATING PROFIT

RM MILLION

RETAINED PROFITS

SHARE CAPITAL & OTHER RESERVES

PLANTATION 1,126

PROPERTY 603

8,415

2,365

48%
SEGMENT RESULTS=RM2,359 MILLION

26%

NET BORROWINGS=(D)-(C)=RM880 MILLION NET GEARING=8%

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IOI CORPORATION BERHAD

ANNUAL REPORT 2010

GROUP PERFORMANCE HIGHLIGHTS

RM000 2010 2009 % +/(-)

FINANCIAL PERFORMANCE Revenue Prot before interest and taxation Prot before taxation Net operating prot after taxation (NOPAT) Net prot attributable to equity holders Average shareholders equity Average capital employed Operating margin (%) Return on average equity (%) NOPAT/Average capital employed (%) Basic earnings per share (sen) Dividend per share - gross (sen) Net assets per share (sen) Dividend cover (number of times) Interest cover (number of times) PLANTATION PERFORMANCE FFB production (MT) Yield per mature hectare (MT) Mill production (MT) Crude palm oil Palm kernel Oil extraction rate (%) Crude palm oil Palm kernel Average selling price (RM / MT) Crude palm oil Palm kernel Operating prot (RM / mature hectare) PROPERTY PERFORMANCE Sales value Sales (unit) Average selling price Revenue Operating prot Progress billings MANUFACTURING PERFORMANCE OLEOCHEMICAL Plant utilisation (%) Sales (MT) REFINERY Plant utilisation (%) Sales (MT) SPECIALTY OILS AND FATS Plant utilisation (%) Sales (MT)

12,542,962 2,636,343 2,550,633 2,230,994 2,035,661 9,563,236 15,611,798 21.02 21.29 14.29 32.96 17.0 169 1.88 12.53

14,600,474 1,969,055 1,550,117 1,236,314 983,517 8,368,826 15,426,081 13.49 11.75 8.01 16.62 8.0 140 2.07 7.71

(14) 34 65 80 107 14 1 56 81 78 98 113 21 (9) 62

3,405,090 24.44 732,275 170,876 21.53 5.02 2,372 1,229 8,148

3,626,776 26.03 777,310 182,075 21.38 5.01 2,831 1,279 11,448

(6) (6) (6) (6) (16) (4) (29)

1,045,095 2,044 511 945,538 532,052 917,548

688,487 1,465 470 660,167 309,556 642,374

52 40 9 43 72 43

91 684,389

78 597,351

17 15

75 2,533,527

78 2,817,987

(4) (10)

96 486,828

100 504,317

(4) (3)

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ANNUAL REPORT 2010

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GROUP QUARTERLY RESULTS

1ST QUARTER RM000 % 2ND QUARTER RM000 % 3RD QUARTER RM000 % 4TH QUARTER RM000 % FY2010 RM000 %

Revenue Operating prot Interest income Finance costs Share of results of associates Share of results of jointly controlled entities Prot before taxation Taxation Prot for the nancial year Attributable to: Equity holders of the Company Minority interests

3,275,460 657,289 11,121 (59,366) 15,450 622 625,116 (136,851) 488,265

26 25 24 27 28 2 25 28 24

3,060,237 24 623,147 14,694 (55,153) 15,212 341 598,241 (122,494) 475,747 24 31 25 28 1 23 25 23

3,147,327 733,533 9,760 (51,291) 16,791 475 709,268 (149,048) 560,220

25 28 20 23 31 1 28 31 27

3,059,938 622,374 11,639 (55,360) 7,394 31,961 618,008 (77,124) 540,884

25 23 25 25 13 96 24 16 26

12,542,962 100 2,636,343 100 47,214 100 (221,170) 100 54,847 100 33,399 100 2,550,633 100 (485,517) 100 2,065,116 100

478,382 24 9,883 34 488,265 24

461,211 23 14,536 49 475,747 23

549,018 27 11,202 38 560,220 27

547,050 26 (6,166) (21) 540,884 26

2,035,661 100 29,455 100 2,065,116 100

Earnings per share (sen) Basic Diluted Operating prot on segmental basis Plantation Property development Property investment Manufacturing Others Segment results Unallocated corporate expenses Operating prot

8.01 7.37

7.71 7.29

8.60 6.92

8.57 8.28

32.96 30.01

249,782 147,574 14,474 158,901 10,641 581,372 75,917 657,289

22 28 20 28 17 25 27 25

319,907 28 111,617 21 13,778 19 145,405 26 6,990 12 597,697 25 25,450 9 623,147 24

282,027 25 110,047 21 14,627 21 128,589 23 10,644 17 545,934 23 187,599 68 733,533 28

274,498 162,814 27,952 135,667 33,238 634,169 (11,795) 622,374

25 30 40 23 54 27 (4) 23

1,126,214 532,052 70,831 568,562 61,513 2,359,172 277,171 2,636,343

100 100 100 100 100 100 100 100

FINANCIAL CALENDAR
Financial Year End Announcement of Results 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Notice of Annual General Meeting Annual General Meeting 30 June 2010 24 November 2009 10 February 2010 14 May 2010 24 August 2010 29 September 2010 29 October 2010 Payment of Dividends 1st Interim Declaration Book Closure Payment 2nd Interim Declaration Book Closure Payment 10 February 2010 16 March 2010 25 March 2010 24 August 2010 27 September 2010 7 October 2010