KUALA LUMPUR: Armed with a cash pile of RM1.3 billion, plantation group Kuala Lumpur Kepong Bhd (KLK) is looking to expand its plantation and oleochemical businesses this year via acquisitions.

In line with its expansion strategy, KLK is also looking at building strong teams to manage both its upstream and downstream activities.

“We look to grow our plantation landbank via greenfield or brownfield acquisitions whenever we find suitable opportunities.

“For oleo, it is the same strategy, especially if new projects or acquisitions fit well into our overall business plan,” its plantations director Roy Lim told The Edge Financial Daily in an email reply to queries.

Like many other plantation companies, KLK is working on increasing synergies between its upstream and downstream operations by integrating the plantation and oleochemical businesses in an effort to reduce earnings volatility.

“We will integrate our plantation operations with our oleo business where possible to create greater synergy and for purposes of positioning ourselves in the global markets,” Lim said.

“On the oleo side, our volumes will increase when several debottlenecking and new plants come onstream in 2010.”

Buoyed by high crude palm oil (CPO) prices over the past few years, KLK, one of the oldest plantation companies in the country, had cash and cash equivalents of RM1.3 billion as at Sept 30, 2009.

The group has estates in Malaysia and Indonesia with a total landbank in excess of 217,000 hectares. It operates several oleochemical factories in Malaysia and China, supporting a global clientele across Asia, the United States and Europe.

Most plantation companies have a balance of upstream and downstream operations because when CPO prices are low, the downstream operations such as oleochemical plants enjoy better margins, hence making up for the shortfall.

For KLK, the plantation division contributed RM294.4 million or 86% of group profit before tax (PBT) of RM342.8 million in the fourth quarter ended Sept 30, 2009 (4QFY09). The oleochemical operations contributed RM58.2 million to group PBT.

This came about amidst a drop in the group’s net profit for the quarter, which slipped 8.9% to RM243.7 million on the back of a 16.3% lower revenue of RM1.8 billion.

Lim noted that KLK’s plantation division had performed reasonably well in FY09 due to forward sales and that CPO prices had held up better than expected during the year.

He expected the early months of 2010 to be promising for CPO prices but there would be uncertainty if there was a good soybean harvest in South America.

Nevertheless, he noted that soybean was a meal seed with low oil content and would not affect demand for CPO as much.

“The uncertain factor of inclement weather either in producing or consuming countries could lead to an upside in prices to RM2,800 or above which cannot be discounted with climate change,” he said.

The medium-term outlook for plantations was positive based on fundamental supply/demand factors, Lim said.

“The supply of oilseeds will be tight at least up till April or May 2010 and we can count on support from the growing biodiesel industry. Also, funds have moved into commodities, apparently as a hedge against the weak US dollar.

“Going forward, we expect to improve in both our plantation and oleo businesses due to higher commodity prices, as well as the loss-making sectors through reorganising and restructuring,” he said.

Its loss-making units are primarily the retailing and neutraceutical businesses.

Through Crabtree & Evelyn, a worldwide brand, KLK manufactures and retails personal-care products, toiletries, home fragrances and fine foods.

Lim said KLK was in the process of restructuring Crabtree & Evelyn in the US and would continue with research and intensifying marketing activities in the neutraceutical business.

Its retailing sector’s losses widened to RM41.4 million in FY09 from RM20.4 million a year earlier, mainly due to the restructuring of its US operations.

Although the economy was on an upturn, Lim said there was still a lot of uncertainty as Malaysia was not immune to the turmoil happening abroad.

He said it was crucial for the government to ensure that plantations were able to secure foreign labour as the industry was a very important contributor to export revenue.

This article appeared in The Edge Financial Daily, January 4, 2010.