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Saturday, December 15, 2007

Exciting year ahead for corporate Malaysia

Tan Sri Lee Shing Cheng
TAN SRI LEE SHIN CHENG

Executive Chairman

IOI Corp Bhd

YOUR views on the escalating risks in the plantation sector’s crucial growth parameters such as the scope of expanding oil palm areas, control of harvesting costs and maintaining high yields?

The most challenging factor for growth would be finding suitable land to cultivate. First, land prices have escalated. Second, not all agronomically-plantable land is suitable in today’s context.

We are all concerned about the environment and the impact businesses have on the environment. We need to ensure that business is conducted under sustainable business models. In the case of palm oil, the cultivation of oil palm should be in accordance with sustainability principles and criteria as prescribed by Roundtable of Sustainable Palm Oil, of which IOI is a founding member.

Among other things, this means for instance, that virgin forest or areas with “high conservation value” or peat areas more than 2m deep, should not be touched.

On the cost front, the most serious area of cost increases is fertilisers. Five years ago, we used to spend about RM800 per hectare per annum on fertilisers. Today, the amount has almost doubled and it's still going up. Fortunately, the strengthening ringgit has mitigated the increase.

As for maintaining high yields, we hope to not only maintain but to further improve as well. Oil yields per hectare can be further improved both in terms of FFB yield as well as extraction rates at the mills.

How do you foresee the 2008 growth outlook for biofuel/biodiesel industry in Malaysia amid the international trade limitations, higher feedstock (CPO) prices, sustainability and the food versus fuel debate?

The growth of the biofuel/biodiesel industry is mainly driven by Europe and the US. For these regions, the main consideration is energy security and therefore, governments are backing the development of the bio-energy sector either in the form of subsidies or mandated use.

There are clear targets in these countries and hence the growth trend is expected to continue. Besides, for the developed countries, food prices is not such a big issue. For poorer nations in Asia and Africa, escalating food prices is a serious concern.

In Malaysia, cooking oil is a price-controlled item and the bigger producers are required to contribute to a cooking oil cess. Hence, since we even have to subsidise cooking oil, we will not be ready for the biodiesel industry to take off in Malaysia as yet.

Globally, the amount of palm oil that is used for bio-energy is very low (less than 5%). Palm oil will continue to face obstacles as a feedstock for bio-energy in places like Europe.

However, despite all these, we see palm oil demand and palm oil prices going up. This is because as more rapeseed oil, soy oil and corn gets diverted to the bio-energy sector, more palm oil is needed to fill up the shortfall in the food and other sectors.

I see the food versus fuel debate continuing. Unfortunately, the world is hungry for both food and fuel. But as I said, actually, very little of palm oil goes to fuel at the moment.

Do you agree that the structural changes in the global commodities supply and demand pattern i.e. the biodiesel market, the fight for hectarage to plant corn for ethanol instead of soy bean and rapeseed in the US and South America, trans-fatty acid concerns, China and India relaxing their palm oil import tariffs, will lend support to higher CPO prices in 2008?

Prices of soft commodities in general are expected to remain high. In the case of vegetable oil, supply over the next 12 months, with the notable exception of palm oil, is expected to lag behind consumption again.

Hence, prices of soy oil, rapeseed oil and sunflower oil will remain high and will even go higher if projected production is cut by unfavourable weather.

Palm oil production growth, on the other hand, will be above average but this is not a bearish sign because its surplus supply is needed to make up for the deficits in the other oil.

Overall, for 2008, palm oil prices will follow the lead of other vegetable oil which prices are expected to be high.

Your company’s strategies in 2008 and the rationale behind it, i.e. overseas expansion, refineries, mills, biomass, biodiesel projects or carbon credit initiatives.

We are bullish about the long-term prospects of palm oil and will continue to invest at the appropriate time and in an appropriate manner to grow the business, both upstream and downstream.

We recently entered into a joint venture (JV) to invest in oil palm cultivation in Indonesia. Our effective interest in the JV is equivalent to about 70,000ha, which is nearly 50% increase to current planted hectarage in Malaysia. It is, therefore, a very significant addition and this will likely be the main area of focus in 2008 for the upstream sector.

We will also further invest in downstream operations in Malaysia as well as Europe and the US over the next two years to capture demand, further value add and innovate on the use of our palm oil fractions.

Also, not forgetting that we have a sizeable property business that should also see decent growth as the market is improving.

The current volatile CPO prices from RM2,900 to RM3,000 per ton have made it very difficult for planters to lock in their CPO selling prices. At what price would your company be “comfortable” with for FY2008 and FY2009? Kindly indicate your average cost of production annually.


We are “comfortable” with the current price levels but will not be aggressive on forward sales, as there are upside risks. Our production cost is about RM550 per tonne. However, cost of sales, after factoring in transport costs, Sabah sales tax and cooking oil cess, is about RM950 per tonne.

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Thursday, December 13, 2007

IOI building muscle to become Stronger and Bigger

Although it wasn’t published officially the people around the palm oil industry knew what awaken the plantation sector. It used to be one of the most boring sectors and the related stocks’ movement could out you to sleep. It started with the Super-Merger that saw the merger of Kumpulan Guthrie Berhad, Sime Darby Berhad and Golden Hope Plantations Berhad creating the biggest listed palm oil producer in the world in terms of output and market value under a new company called Synergy Drive. As expected the branding of Sime Darby was too valuable to be put to sleep and the temporary Synergy Drive was renamed Sime Darby Berhad (SIME: stock-code 4197) again.

In actual fact the Super-Merger involved
9 (nine) listed companies and somehow StockTube believed the shareholders were under-offered. Almost simultaneously, other palm oil players were awaken and sensing that they could be eaten up alive (not that it have not happen before), the boring chess game begun its interesting movement. Less than a month after the mega-merger, IOI Corp Berhad (KLSE: IOICORP, stock-code 1961) acquired Pan Century Group, operator of an edible oils refinery for RM423 million from one of India’s conglomerates, the Aditya Birla Group. The acquisition by IOI Corp created the the world’s biggest vegetable oil-based fatty acid producer in the world.

Then the Kuok Group, controlled by tycoon and richest man in Malaysia, Tan Sri
Robert Kuok, undertook a mammoth S$6.6 billion (RM15.18 billion) corporate exercise to merge several of its companies in Malaysia and Singapore - Wilmar International Ltd (SIN: F34) and PPB Oil Palms Bhd (KLSE: PPB, stock-code 4065). It was then Kuala Lumpur Kepong Berhad’s (KLSE: KLK, stock-code 2445) turn when it announced the acquisition of Swiss-based Dr W Kolb Holdings AG, a specialty oleochemical holdings company, for 135 million Swiss francs (RM393.39 million).
IOI Corp vs Sime DarbyAmongst all the players, the most aggressive would be IOI Corp Berhad. Taking the second seat in terms of market capitalization behind Sime Darby Berhad is not a situation to be taken with complacency. In terms of landbank IOI Corp’s figure stands at 320,000 ha (after the 152,504ha of palm oil plantation in Kalimantan from Indonesia's Harita Group) while Sime Darby is comfortably at 543,626ha of landbank. And IOI Corp’s executive chairman Tan Sri Lee Shin Cheng has no plan of stopping at the current level.


Yesterday, it was reported that IOI shareholders approved a planned US$600 million (RM2 billion) issue of bonds exchangeable to new shares. "We actually have enough funds for expansion and upgrading of manufacturing facilities. The money from this bond issue is mainly for acquisitions." IOI executive chairman Tan Sri Lee Shin Cheng said after shareholders meeting in Putrajaya.

While Lee said the company was looking at either Malaysia or the IOI Lee Shin Chengregion for future acquisitions and it’s not to “compete” with Sime Darby, you just got to take that with a pinch of salt. He knew too well how the corporate scenes in Malaysia are being played. Furthermore to be known as the most efficient producer in squeezing six tonnes of crude palm oil per hectare in a year, Tan Sri Lee Shin Cheng is no ordinary man you could squeeze easily. In addition there is still some RM300 million left unspent in IOI's planned capital expenditure for the current year ending June 2008. Add that to the latest RM2 billion war-chests from the bonds issued and you can guarantee of more interesting acquisition(s) from IOI Corp.

Source here

IOI Corp plans second US plant

PUTRAJAYA: IOI Corporation Bhd plans to set up a second plant in the East Coast of the US to expand its existing businesses there, apart from its Chicago plant as part of its expansion drive.

“We are in the middle of negotiating to purchase the land. Geographically, it has to be in the right position, as logistics costs are concerns to us,” said its group executive director Datuk Lee Yeow Chor.

Presently, IOI Corp has a plant in Chicago to produce fats for food ingredients manufacturers with a capacity of 200,000 tonnes annually.

With the second plant being planned, Lee said it would increase the total capacity in the US to 400,000 tonnes annually.

He said IOI Corp was eyeing the East Coast to set up the new plant because it has the second highest concentration of food ingredient manufacturers, after Chicago.

However, he added that the group would also target to expand their operations in the West Coast in the future.

On IOI Corp operations, Lee said the group was on an acquisition trail, with an appetite for more lands for its plantation and property development divisions, as well as stakes in other companies, other than expanding its plants both locally and overseas, as part of its strategy for group expansion.

The group, which had recently acquired several Indonesia-based palm oil plantation companies for RM289 million, was raising funds to finance its acquisition activities, via the issuance of convertible bonds. IOI Corp had issued two convertible bonds previously, raising a total of US$720 million (RM2.38 billion).

Speaking to reporters after the company’s EGM here yesterday, its group executive chairman Tan Sri Datuk Lee Shin Cheng said: “Continuous acquisition is one of our agendas. I am interested in everything, as far as business is concerned.”

At the company EGM, shareholders approved the up to US$600 million convertible bonds issue by its wholly owned subsidiary IOI Resources (L) Bhd. Lee said: “We raise funds not only for expansion, but also for acquisition. We are looking at buying more land here or in other countries.”

However, IOI Corp had not targeted to make any acquisitions yet, he said, adding that the funds raised from the bonds issuance would be on a standby mode, in the event any acquisitions cropped up.

Meanwhile, Lee dismissed reports that IOI Corp was acquiring a substantial stake in Unico-Desa Plantations Bhd as rumours, and said he had not received any propositions from the latter regarding the stake sale.

He said: “I have not received any offers, but if the opportunity arises and the offer is reasonable, I will consider it.”

It was reported in October that IOI Corp was seeking its board’s approval to buy a substantial stake in Unico-Desa, as part of its plan to grow its plantation business. Lee added that the group also did not intend to privatise its property development arm IOI Properties Bhd for the moment, contrary to analysts’ reports.

The group was also finalising plans to expand its operations in Johor, which would concentrate on creating value-added products.

Lee Shin Cheng said: “Currently, we have three businesses in Pasir Gudang — refinery, specialty fats and oleochemical — and we want to make use of our unique position to create a synergy between these businesses, to come up with value-added products.”

He added that the group expected its profitability to be enhanced by the second half of fiscal year 2009, following the completion of its acquisition of plantation lands in Indonesia.

On the possibility of the government revoking licences among companies that did not use them to produce biofuel, Lee Shin Cheng said it would not affect IOI Corp’s businesses.

He added that the group had not embarked on producing biodiesel, as it was not profitable, due to high crude palm oil (CPO) prices. “It is still difficult to convert CPO into biodiesel because of the high prices, and it might even increase again next year,” he said.

Source here

Voices '08: I believe in Malaysia, says Tony

What do Malaysians think about Malaysia? What are the experiences that shape our feelings for the country? Over the next few weeks, we will hear from different Malaysians as they share with us their thoughts and ideas about Malaysia in this series called Voices. Not coincidentally, this is also the theme for the NST’s year-end pullout. ABDUL RAZAK AHMAD gets the ball rolling by talking to Datuk Tony Fernandes who is doing everything he can to sell Brand Malaysia to Malaysians and the rest of the world.
Q: What has the year been like?

A:
It’s been a phenomenal year. Our profits have been great, we won airline of the year (Airline Of The Year 2007 award by the Centre for Asia Pacific Aviation), the first time a Malaysian company has done that, beating Emirates, Singapore Airlines and others. I suppose getting the Singapore-Kuala Lumpur routes represents a feather in our cap. We also launched AirAsia X, and it’s great to be in partnership with (Sir) Richard Branson, who is an icon himself.

One accomplishment I’m really proud of is that wherever I go we’re always referred to as Malaysia AirAsia, or Malaysia’s AirAsia. If I walk around in KL people know me but in London, very few do. But that number is growing, and that shows that our brand is becoming more significant.

Q: What are the major lessons?

A: Maybe, patience. It has its virtue sometimes, but we are a company in a rush. Malaysia Airlines is celebrating its 60th year, and we are only celebrating our sixth year, but we’re still proud to see what we’ve been able to achieve. It shows what Malaysia and Malaysians can do if we put our minds to it.

Q: What were the low points? And how did you overcome them?

A:
I’m disappointed that another uneven surface has been opened, that Firefly can operate from Subang and we can’t. I pray for the day that we can have a level playing field with Malaysia Airlines. I feel that we could do many more things together, and I feel that as Malaysian companies, competition is good and we should compete, and the real competition is out there. And we should do more together.

Q: You often lament about an uneven playing field between your private company and the government-linked MAS. Is this a problem in general for other private companies in the country?

A:
Sometimes the problem of a private company versus a GLC is we just don’t get the airtime the GLC gets with the political leadership. There’s no one to blame for this. I have confidence in the government but it is frustrating. I think we could be twice the size we are now.

Q: You have travelled widely, lived and worked abroad, yet you chose to come back to Malaysia. Why?

A:
I came back, and I’m a big advocate (of returning). When I went to a UKEC (United Kingdom and Eire Council for Malaysian Students) programme and gave speeches at universities in England, I advocated that people should come home.

One, it’s home. I don’t care what anyone says. There is only one home. Anywhere else is adopted. And no one can take that from me. I have a blue IC and a red passport. And I’m proud of it, even though I can live anywhere in the world, and most places would welcome me.

Two, I’m very nationalistic. From a young age, my mother used to be so pro-Singapore Airlines and anti-MAS, and now, funny how life has changed - I always argue with her about MAS being the best. In the last Olympics I watched every single Malaysian perform. If I support the All Blacks in rugby, or the West Indies or India in cricket, it’s not my country.

Third, I was born here; I received a good education because my parents did well in Malaysia, and so I felt it was my responsibility to come back. It’s not perfect, Malaysia. But where is perfect?

I’m the sort of person who doesn’t believe in just sitting back and complaining. Come back and make a difference. Now especially, more and more have this perception that, oh, there must be someone behind Tony Fernandes. I’ve heard so many different names. The most famous being Ananda Krishnan, Tan Sri Azman Hashim, (Tan Sri) Vincent Tan, (Datuk) Mokhzani Mahathir, Khairy Jamaluddin, I mean you name it. But we are the best advertisement that anything is possible in Malaysia.

Q: Was there any point in the early years when you returned that you felt you should have stayed away?

A:
No, never. I’ve always loved this place and our people. We’re unique. James Ingram (American soul musician) — I brought him down when I was in Warner Music — once said to me the American government should visit here. Because he couldn’t get over how all the races here get together, the intermarriage, the people going out together. Yeah, we have our racial problems, but we generally get on with each other.

I know I’ve persuaded many people to come back. I know that I have been involved in bringing many who migrated abroad to come back. And I don’t think for one minute they have regretted it.

Q: Who are your Malaysian heroes, the people who inspire you?

A:
There are so many. I always talk about “Mr IOI” (Tan Sri Lee Shin Cheng, founder of the IOI Group). I love his story of how he started, selling ice cream on a bicycle, and now he’s owner of one of the biggest oleo-chemical companies. And you know what I love about him? I went to one of his estates, and I noticed his passion. He’s obviously now a very, very rich guy, but he still enjoys going out there and showing me seeds. I mean, to me, a seed is just a seed, but his passion! So that guy really stands out for me.

Tan Sri Naza (Tan Sri S.M. Nasimuddin S.M. Amin, Naza Group chairman and chief executive officer) is another guy I really like. He never ages and is always pushing to be the best, and Tan Sri G. Gnanalingam (Westports Malaysia Sdn Bhd chairman), too. He started in one industry, got a chance in another. All of them seized their chances.

And look at what Nazir Razak (Datuk Mohamed Nazir Razak, group chief executive, CIMB) has done. Yeah, he was born with a silver spoon. He’s my friend. He wasn’t my friend three years ago — I thought he was arrogant. I didn’t give CIMB our IPO. But I’m proud of what he’s done and to be associated with him now. He’s gone out there and put CIMB on the map of banking in the world. He goes out there and he brands. I mean, come on, CIMB is now a household name.

Q: What’s the common trait of the people who inspire you?

A:
Most of them managed to come up from nowhere and just do something. They are people whom, given a chance, will do much more, and who succeed despite adversity. I love it, I love seeing it.

Q: Every now and then, something happens that unites all Malaysians and there is an overwhelming “proud to be Malaysian feeling". Recent examples are usually sports-related, like when Nicol David became the World No 1 in women’s squash. Do you think we as Malaysians have lost that feeling?

A:
Do I think Malaysians feel this less? No, but I think Malaysians need icons. When Zainal Abidin and Sheila Majid gained success as music artistes, and even Siti Nurhaliza, they’re about the only artistes able to ignite that Malaysian pride. You’ll see all the races supporting them, able to transcend their differences.

So we do want a Malaysian “brand". I’m proud of being part of it. We don’t sell it enough — this Bangsa Malaysia we talk about. I hope for the next generation, well, it’s my dream anyway, that we don’t put ourselves down as Chinese, Indian, Malay, but as Malaysian. And I hope there’s a Barisan Nasional that I can join. I think our “brand” is our biggest selling point, because there’s no country in Asia quite like us.

Q: How do you think we can get the youth of Malaysia to be proud of our country?

A:
What I tell them is, one, I say, look at AirAsia. We were just three guys from the music industry with not a lot of money, no experience, no political connections — zero. Datuk Pahamin Rajab was the only guy with connections, and with due respect to him, he’s not the person with the strongest political connections around, though he is respected.

But we’ve been able to build an airline and compete with Malaysia Airlines and have slowly been able to close the uneven playing field. No one has an answer to explain that away! So who says you can’t do anything?

Where else in Asean can this (AirAsia) happen? In the aviation industry, nowhere. Singapore hasn’t managed to do it. And in Singapore it’s a function of the government. Tiger Air is owned by Temasek and Singapore Airlines.

So no one can give me an answer and say Malaysia is not fair. No one can say that no one gets equal opportunities. I did. I am living proof that we can. That’s what I tell the students, like those in the UK. I said you live in a wonderful country, don’t believe what you hear, it’s up to you, because Malaysians are their own worst enemy.

But I don’t think anyone in any country would have been able to achieve what we have, and it’s because of our government, and it’s because of the fairly level playing field. Of course, I want it completely level, who wouldn’t? But in six years, we’ve achieved a lot, and we owe a lot of it to the government.

Q: What’s your wish for 2008 — for AirAsia, and also your hopes as a Malaysian?

A:
I hope the country can spur more private investors. I hope there can be more encouragement given, and that it’s not rhetoric. I hope more investment can be put in education, much more emphasis on education.

You asked is it just sports that bring us together. No. It can be music, movies, and companies. When we have something to be proud about, that brings us together. So what’s lacking in education? More emphasis on sports and the arts.

From the sports field, you get your first eradication of colour. No one can say “pass the ball to him — he’s an Indian winger, or a Chinese or Malay". It’s from there you first learn teamwork and working together.

Now, we’re just memorising 15,000 books to get 15As. How sad it is to see a girl committing suicide because she didn’t get it. Education is not about getting 15As, which I didn’t come close to getting.

Education is also about sports, interaction, about learning how to work as a team, about leadership. And we do not put enough emphasis on sports.

You can put all the money into FAM, but where did the Soh Chin Auns and Arumugams and all those guys come from? Schools, and playing football in the padang. Where are the padang nowadays?

Two, is art, drama and music. That’s where you gain a sharing of culture and breaking down the invisible barriers.

Q: Do you face problems getting people with the right qualities when you recruit?

A:
Yeah, I do. We’re not getting enough people who can think out of the box. Because you don’t have creativity in schools anymore. Like in art and drama, which is where you learn to express yourself. So, getting enough creative thinkers is a problem.

Q: On occasion though we do see bits and pieces of a Malaysia united and able to transcend ethnic barriers.

A:
It’s coming, it was there, we lost it, and now I think the government’s aim is to promote it. I don’t believe that anyone is marginalised. I believe that ultimately we marginalise ourselves.

Malaysians are their own worst enemies. They just sit there and say, “No, it can’t be done,” even before they try. My philosophy is, try and, if you fail, try again. Because I don’t want to reach 55 and say “I should have done this". But my dream for the future is my belief — I really believe in Malaysia as a Malaysian.

Take the AirAsia Academy. It’s a microcosm of what I’d like to see in Malaysian schools. I don’t think any pilot training academy is like ours. We have lots of social functions, we get the crew and pilots and engineers to do concert productions, we involve ourselves in sports.

Why do I do that? Because I have a bigger problem than just Malaysia. I have Thailand, Philippines and Indonesia. And they all have different cultures and they all want to do their own thing.

I bring them all to the academy, I don’t care if you’re from Cambodia or whatever, you train in one place. It’s in that one place that we mould one culture.

Q: Would you please share with us what you think is a quintessential Malaysian experience?

A:
Two things come to mind. One is food. If you want to see one thing that unifies our country it’s food. Whether it’s a mamak stall or Malay stall, everyone knows everything about all our good food regardless of race.

The other quintessential experience I find peculiar to our country is how we criticise our sportsmen.

Whether you’re Indian, Chinese, Malay, Punjabi, when you sit in the audience at Bukit Jalil and our team is playing badly, the insults are all the same!

That’s the other thing I love about Malaysia. We always know how to do it better!

But anyone can try to argue with me about Malaysia not being a great place and I’d tear them apart. I really would, because I believe in Malaysia.


[source]

Wednesday, December 5, 2007

Top 20 GLCs’ market cap up RM121b from 2004

PUTRAJAYA: The country’s top 20 government-linked companies’ (GLCs) market capitalisation had risen by more than 83% or RM121 billion as of Nov 30 since the introduction of a comprehensive transformation plan in 2004 with strong emphasis on achievement of key performance indicators (KPI).

“During the same period, total shareholder returns of the top 20 GLCs recorded 24.4% compound annual growth rate (CAGR) outperforming the Kuala Lumpur Composite Index (KLCI) by 3.3%,” said Prime Minister Datuk Seri Abdullah Ahmad Badawi in his speech at the Forbes Asia Fabulous 50 and Businessman of the Year Award ceremony here yesterday.

Abdullah (left) with Forbes executive editor and Forbes Asia Tim Ferguson at the Q&A session.
“I am particularly proud of our efforts in transforming GLCs. We introduced KPIs, strengthened corporate governance and instituted many other wide-ranging reforms. Where needed, we brought in new leadership which helped to infuse new energy and new ideas,” he said.

Abdullah said the seeds for excellence had been sown, with the likes of CIMB Investment Bank, which is set to become a regional giant while Malaysia Airlines had made a “dramatic comeback” with ambition to become a five-star airline. Abdullah also cited Sime Darby Bhd as another conglomerate set to embark on a journey of becoming a global giant.

IOI Corp chairman Tan Sri Lee Shin Cheng receiving the Forbes Asia Fabulous 50 award from International Trade and Industries Minister Datuk Seri Rafidah Aziz in Putrajaya.
At the ceremony, Minister of International Trade and Industries Datuk Seri Rafidah Aziz presented the awards to the winners of the third annual Forbes Asia Fabulous 50 list, in which IOI Corporation Bhd emerged as the only Malaysian company in the list.

IOI Corp chairman Tan Sri Lee Shin Cheng received the award from Rafidah. IOI Corp recorded its highest earnings ever with a net profit of RM1.48 billion for the financial year ended June 30, 2007, buoyed by record earnings from the palm oil and property business segments.

India’s ICICI Bank managing director and chief executive officer KV Kamath claimed the honour of being the Businessman of the Year.

Source here