KUB Malaysia Berhad Annual Report 2021

For FP2021, the analysis of our Agro division covers our business activities across five (5) palm oil estates in Johor (Kluang), Sarawak (Mukah) and Sabah (Malua), totalling 8,806 hectares. During the period in review, our Agro division underwent a significant evolution with the disposal of our estates in Kluang, Johor, for RM158.0 million which has contributed to a divisional PAT of RM142.7 million. This was in addition to the disposal of KUB Malua Plantation Sdn. Bhd., which owns our estate in Malua, Sabah for RM10.5 million by the Company. Furthermore, I am pleased to disclose that in spite of ongoing operational challenges, the Agro division closed FP2021 with a notably high revenue of RM82.8 million. This was driven largely by a strong uptick in crude palm oil (‘CPO’) prices. The disposal of the estates as mentioned above was driven by their relative underperformance, lack of economies of scale due to size and location and future capital expenditure avoidance considerations. Specifically, the Kluang estates contained a majority of old palms which would have necessitated replanting in the near future, while the Malua estate had sustained significant losses in the preceding two (2) years which had accelerated additional borrowing to cover operational requirements. As a consequence, the disposal of the estates has reduced our overall debt level and interest expenses, freeing up cash for investment in other growth areas. Agro Division Bolstering our brand enhancement efforts further, we launched rebranded lorries for LPG distribution, a revamped marketing strategy focused on local store activation, and ramped up social media engagement activities over the course of FP2021. These initiatives are being carried out simultaneously to ongoing operational efficiency measures which aim to upgrade and modernise our operations, promote leaner production and optimise our human capital resources. Looking beyond shorter-term challenges, we foresee sustained growth in both the consumer and commercial/industrial markets and have invested an amount of approximately RM10.0 million in the construction of a new LPG sphere for the storage of LPG at our Klang facility. The new sphere will increase storage capacity by 1,000 metric tonnes and will provide the means to cater to the expected rise in demand. Recognising that the reliable supply of LPG is a major determinant of our future profit-generating abilities, we have also initiated plans to source for more competitive supply sources that will enable us to both lower our cost base and fulfil market demand. Meanwhile, we plan to mitigate present day fluctuations by working with other LPG suppliers to establish collaborative arrangements in LPG storage and distribution. Such arrangements would see the LPG partners meet the respective counterparty’s shortfall in LPG supply in instances of excess demand or supply shocks, thereby bringing benefit to the industry as a whole. At the same time, we are cognisant of the major role that our dealers play in ensuring reach and timely distribution of LPG to our wide catchment area. With increased competition in the market, our dealer acquisition initiatives have been ramped up, while we continue to work with existing dealers to develop the capabilities necessary to meet our distribution volume commitments. Through attractive incentives and allowances, we are confident that our distribution network will be able to fulfil current and future demand volumes. In summation, while market conditions have provided a far from ideal environment for our LPG division to increase revenue generation, the initiatives put in place and executed from FY2019 to the present day mean that we will emerge from the pandemic with greater operational efficiency, increased capacity and flexibility on the supply side, and a more distinctive and competitive brand proposition, laying solid ground for long-term growth. 19 ANNUAL REPORT 2021 PERFORMANCE REVIEW