Kuala Lumpur Kepong Bhd registered a record-breaking net profit of RM2.26 billion for its financial year ended Sept 30, 2021, more than doubling the RM772.6 million posted in FY2020. The jump in the bottom line was due to high crude palm oil (CPO) prices, one-off gains and the remarkable performance of almost all its business segments.
Even after netting off the one-off gains, KLK’s performance still exceeded market expectations.
The performance was achieved despite a 2.4% drop in fresh fruit bunch (FFB) production to 3.849 million tonnes from 3.929 million tonnes in the previous financial year, owing to labour shortages and Covid-19 disruptions, coupled with consecutive months of low rainfall in 2019.
It was also despite KLK’s average CPO price of RM3,211 per tonne being lower than the Malaysian Palm Oil Board’s average price of RM3,964 for the period from October 2020 to September 2021 and the monthly high of RM4,720 in September 2021. In its annual report for 2021, KLK said the lower average selling price was due to “hedging executed earlier” at prices that were thought to be excellent at the time.
Nevertheless, the plantation business still contributed RM1.585 billion in pre-tax profit to the group, more than doubling its contribution of RM725.19 million from the year before.
The manufacturing division turned in an impressive performance with a pre-tax profit contribution of RM682.4 million, up 69.27% from the year before. Meanwhile, its flagship property development Bandar Seri Coalfields saw its contribution to the group rise 27.3% to RM68.8 million despite Covid-19 disruptions.
KLK’s performance in FY2021 helped the agriculture group clinch the prize for the highest growth in profit after tax (PAT) over three years for the plantation sector as well as among Big Cap companies (with RM10 billion to RM40 billion market capitalisation) at The Edge Billion Ringgit Club award 2022. It achieved a risk-weighted three-year PAT compound annual growth rate of 54.7% over the awards review period between FY2018 and FY2021.
During the three-year period, KLK grew exponentially as it went on an acquisition trail and expanded its plantation land bank. For comparison, as at end-FY2018, it had a plantation land bank of 285,000ha and grew its plantation hectarage to 350,000ha by end-FY2021.
The most significant addition would be from the acquisition of IJM Plantations Bhd in FY2021, which added some 61,000ha of planted land bank to KLK. In the same year, it acquired PT Pinang Witmas Sejati, which has 14,980ha in Sumatera.
As these acquisitions were completed late in the financial year, however, their contribution to the group’s bottom line in FY2021 is insignificant but they set the stage for continued growth for KLK upon the successful integration of the newly acquired assets.
For now, the group is reaping the dividends of an aggressive mechanisation drive undertaken since 2018. According to KLK’s 2021 annual report, over the years, mechanisation has expanded to cover 80% of the areas identified as suitable for machines to be used for in-field collection and upkeep of estates.
To illustrate, KLK has been using the Verion Smart Fertiliser Spreader on its estates since 2018. Originally from Argentina and jointly localised by Applied Agricultural Resources Sdn Bhd (AAR), an associate company of KLK, fertiliser application can be split into smaller dosages with more rounds done to increase nutrient uptake efficiency. This has resulted in a four-fold increase in labour productivity.
The move to mechanise paid off during the pandemic when the industry faced acute labour shortages due to the freeze on the intake of migrant labour as borders closed. KLK in its latest annual report said the drop in its FFB production would have been worse had it not been for the aggressive move to mechanise field operations.
KLK adopts a progressive replanting strategy to manage the age profile of its oil palms. As at Sept 30, 2021, 61% of its planted area comprised a favourable age profile, with young and prime palms (ranging between four and 18 years). It acknowledged, however, a slight drop to 15%, from 17% in FY2020, in immature palm trees.
With a target CPO yield of six tonnes per hectare (MT/ha) per year for mature areas, KLK believes there should be no compromise on standards in its replanting efforts. On that note, it highlights that more than 75% of its replants “are off to a good start”, registering FFB yields of at least 20MT/ha in the first year of maturity.
KLK has set targets for CPO yield of 6MT/ha for mature areas and FFB yield of 20MT/ha for the first year of maturity.
The board acknowledged that the CPO yield of 4.66MT/ha in FY2021 was off the mark. “We have yet to be able to cross the 5MT/ha mark in the last five years and this sobering fact is an urgent cry for us to be more focused on the details,” KLK said in its latest annual report.
Its average oil extraction rate slipped to 21.75% from 21.87% in FY2020. Nevertheless, the group notes that its 98,000ha of mature palms in Indonesia recorded average CPO yields of 5.15MT/ha, though still a long way from its 6MT/ha target.
The focus on environmental, social and governance (ESG) issues — ranging from climate change to workers’ rights — has become more intense for the plantation sector over the years. As a member of the Roundtable on Sustainable Palm Oil since 2004, KLK says prioritising ESG issues is essential for the sustainability of its business.
“KLK will play its part to embrace policies that preserve biodiversity and conservation, promote the welfare and well-being of our employees, and foster ethical and responsible behaviour,” it said in its 2021 annual report.