The Plantation Division continued to be the main performer and contributor to the KHB Group’s revenue. The Group’s Fresh Fruit Bunches (“FFB”) production improved by 10.95% to 223,058 metric tonnes (“mt”) in 2007 from 201,046 in 2006 due to larger areas achieving maturity in the Sandakan and Tawau estates. The average yield per hectare for its Sandakan and Tawau estates in 2007 was 26.26 mt and 10.30 mt respectively, against 24.48 mt for the Sandakan estates and 10.79 mt for the Tawau estates in 2006. KHB’s average prices for sales of Crude Palm Oil (“CPO”) and palm kernels were RM2,357 and RM1,310 per mt respectively in 2007 compared to RM1,466 and RM823 per mt respectively in 2006. KHB’s average oil extraction rate was 20.56% and palm kernel extraction rate was 4.73% in 2007. The Plantation Division achieved an improved revenue of RM131.3 million for the year under review resulting from the sustained surge in commodity prices compared to RM75.3 million recorded in the previous year.
The Group reaped a significant increase in its profit by recording a profit before tax of RM49.0 million in 2007 as a result of the improved yields achieved by the Plantation Division and uptrend in CPO prices, compared to a loss before tax of RM595,000 in the previous year.
DIVIDEND
In view of the future commitment of KHB Group pursuant to its Restructuring Scheme as well as the past losses incurred by the Group, the Board does not propose any dividend payment for the year ended 31 December 2007.
RESTRUCTURING SCHEME
To enable the KHB Group to focus on and further strengthen its Plantation Division as its core business, the Board is still continuing with its efforts to divest the Group’s last remaining non-core business, namely its stockbroking business in Sabah, pursuant to its Rationalisation program.
Subsequent to the signing of a conditional Sale and Purchase Agreement on 25 April 2007 between Jeffa Construction Sdn Bhd (“JCSB”), a 51% subsidiary of KHB Development Sdn Bhd which is in turn a wholly-owned subsidiary of the Company, and Mahabuilders Sdn Bhd to dispose the landed properties in Johor Bahru known as Pandan Place Project comprising the wholesale market and eight pieces of contiguous leasehold land titles together with the rights, obligations and liabilities under the Privatisation Agreement dated 17 October 1994 on an as-is-where-is basis for a total consideration of RM50 million, approvals of Majlis Bandaraya Johor Bahru, the Johor Bahru State Government, shareholders of JCSB and KHB and other relevant authorities had been obtained. The disposal of the Pandan Place Project was completed on 25 July 2007.
During the financial year ended 31 December 2007, the following classes of Redeemable Convertible Secured Loan Stocks (“RCSLS”) have been redeemed and Irredeemable Convertible Unsecured Loan Stocks 2003 / 2010 (“ICULS”) converted into fully paid-up ordinary shares of RM1.00 each in KHB, pursuant to the Restructuring Scheme undertaken by the KHB Group in 2003:-
Interest on the nominal amount of 1% Irredeemable Convertible Unsecured Loan Stocks 2003 / 2010 has been paid semi-annually on 10 February and 10 August respectively during the year 2007.
None of the 57,618,375 Warrants was exercised during the financial year ended 31 December 2007.
OUTLOOK FOR THE FUTURE
Cultivation of oil palm plantations and palm oil processing will remain the core business of the KHB Group, although it will be necessary to suspend milling operations for the most part of the current year by Syarikat Kretam Mill Sdn Bhd located at Bode Estate, Sandakan, to allow major overhaul and upgrading of the mill which was constructed 26 years ago.
Production for the first quarter of year 2008 amounted to 49,423 tonnes FFB, including 12,812 tonnes from Silimpopon Estates, being only 0.276% short of crop harvested during the first quarter of the previous year, and it is anticipated that Silimpopon Estates located in the Tawau region will make an increased contribution to total FFB harvested by the Group as further areas of oil palms reach maturity during the year.
Syarikat Kretam Mill Sdn Bhd, located at Bode Estate, Sandakan region, processes FFB from the Group’s Sandakan and Kinabatangan estates as well as some FFB purchased from nearby outside sources. Total throughput for 2007 amounted to 146,949 tonnes FFB which was 16.83% less than the previous year, and outside purchases of FFB accounted for 10.78% of total purchases of FFB compared to 10.71% for year 2006. FFB harvested from the Group’s Silimpopon Estates was sold to palm oil mills in the vicinity.
Although work has not yet started on the construction of the Syarikat Kretam Mill Sdn Bhd’s Palm Oil Mill at Sg. Silimpopon to process FFB from the Group’s estates there, planning has reached an advanced stage and it is anticipated that preliminary work will commence on site during the current year.
Given favourable commodity prices and continued satisfactory crops throughout the year, plus an adequate supply of plantation employees and sufficient rainfall, the Plantation Division of KHB can be expected to operate profitably during the current year despite rising costs.
CORPORATE SOCIAL RESPONSIBILITY
KHB Group, being a caring employer which understands the needs of its employees, gives high priority to the welfare of the employees, especially those working and living in the estates. We continue to provide better housing to the estate employees whereby a housing replacement plan has been implemented to replace older houses in Sandakan region whilst good standard houses are being built in our Silimpopon estates in Tawau region. At the same time, recreation facilities are also being up-graded.
The Company continued to invest in the upgrading of knowledge and skills of its employees through formal and on-the-job training during the past year.
Health and Safety at the work place in the estates remains a high priority. In 2007, we recorded over 8,400 hours on training related to Health and Safety for our estate employees. This had yielded positive results of reducing accidents at work by 67% compared to 2006.
KHB continues to provide training opportunity on its estates for students from local universities and other training institutions when requested.
Blood donation campaign is a regular activity for the estate management. In 2007, we donated over 200 pints of blood for Duchess of Kent Hospital in Sandakan.
The Board and Management are committed to protect the environment through good management of estate practices. The introduction of cattle-rearing projects in both the Sandakan and Tawau regions help to reduce the usage of herbicide.
Realising the inefficiency of our current oil mill in Sandakan region, we are in the process of a major up-grading exercise to modernize the mill and turn it into an environmental-friendly mill where we aim for zero waste water discharge and the recycling of mill by-products.
In Silimpopon, Tawau, we have plans to enhance those areas which we have left unplanted and the riverine reserve with fast growing trees.
KHB’s subsidiary, Innosabah Securities Berhad (“ISB”) accepted 2 students for a 3-month attachment each during the past year and paid them training allowances. Similarly, Innosabah Options Futures Sdn Bhd, subsidiary of ISB, also accepted a student for a 3-month attachment with paid training allowance.
During the past year, ISB also made donations to Kian Kok High School, Tabika Perpaduan Terawi Putatan and Persatuan Hemodialisis Kinabalu for their fund-raising campaigns, to Sabah Family Planning for the purchase of an ultrasound scanning system and to Sabah Society For The Blind for their promotion and creation of opportunities for education, training and employment.
ISB also sponsored electrical goods as gifts for its client’s annual dinner, a full-page advertisement in the Sabah Tshung Tsin Alumni Association’s souvenir magazine, embroidery on 200 hand towels for the golf tournament organised for charity by Kelab AIM Malaysia (Sabah Branch) to help women and children in crisis in Sabah and the basketball tournament for young people organized by Sabah Friendship League. ISB also sponsored a dinner organized by its sports club for its staff during the Harvest Festival.
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