Ken Can A Prospectus July 2008

PROSPECTUS DATED 17 JULY 2008
(registered by the Monetary Authority of Singapore on 17 July 2008) This document is important. If you are in any doubt as to the action you should take, you should consult your legal, nancial, tax or other professional adviser. We have applied to the Singapore Exchange Securities Trading Limited (the SGX-ST) for permission to deal in, and for quotation of, all the ordinary shares (the Shares) in the capital of Kencana Agri Limited (the Company) already issued and the new Shares (the New Shares) which are the subject of this Invitation (as dened herein) on the Main Board of the SGX-ST. Such permission will be granted when we have been admitted to the Ofcial List of the SGX-ST. The dealing in and quotation of the Shares will be in Singapore dollars. Acceptance of applications will be conditional upon, inter alia, permission being granted by the SGX-ST to deal in and for quotation of all our existing issued Shares and the New Shares. Monies paid in respect of any application accepted will be returned to you, at your own risk, without interest or any share of revenues or other benet arising therefrom if the completion of the Invitation does not occur if the said permission is not granted or for any other reason and you will not have any claim against us or DBS Bank Ltd, the Issue Manager (as dened herein), or DBS Bank Ltd and CIMB-GK Securities Pte. Ltd., the Joint Underwriters and Placement Agents (as dened herein). The SGX-ST assumes no responsibility for the correctness of any of the statements made, opinions expressed or reports contained in this Prospectus. Admission to the Ofcial List of the SGX-ST is not to be taken as an indication of the merits of the Invitation, our Company, our subsidiaries or our Shares, including the New Shares. A copy of this Prospectus has been lodged with and registered by the Monetary Authority of Singapore (the Authority) on 16 June 2008 and 17 July 2008 respectively. The Authority assumes no responsibility for the contents of this Prospectus. Registration of this Prospectus by the Authority does not imply that the Securities and Futures Act, Chapter 289 of Singapore (the Securities and Futures Act), or any other legal or regulatory requirements, have been complied with. The Authority has not, in any way, considered the merits of the Shares, or the New Shares being offered or in respect of which the Invitation is made, for investment. Investing in our Shares involves risks. Potential investors in our Company are advised to read the section Risk Factors of this Prospectus and the rest of this Prospectus carefully and to seek professional advice if in doubt. No Shares shall be allotted or allocated on the basis of this Prospectus later than six months after the date of registration of this Prospectus by the Authority.
Kencana Agri Limited

Growth . Excellence . Integrity
The Shares have not been and will not be registered under the United States Securities Act of 1933, as amended (the U.S. Securities Act), and may not be offered or sold in the United States or to U.S. persons, as dened in Regulation S under the U.S. Securities Act (Regulation S) unless the Shares are registered under the U.S. Securities Act, or an exemption from the registration requirements of the U.S. Securities Act is available. The Shares are being offered outside the United States in accordance with Regulation S and may not be offered or sold within the United States or to, or for the account or benet of, U.S. persons, except to persons in offshore transactions in reliance on Regulation S. For a description of certain restrictions on transfer of the Shares, see the section Transfer Restrictions of this Prospectus. The Shares, or the New Shares may not be offered or sold, directly or indirectly in Indonesia or to Indonesian citizen in a manner constituting a public offering under the laws and regulations of the Republic of Indonesia.

(Registration Number: 200717793E) (Incorporated in the Republic of Singapore)
Invitation in respect of 200,000,000 New Shares comprising: (a) 1,000,000 Offer Shares at S$0.305 each by way of public offer; and (b) 199,000,000 Placement Shares by way of placement, comprising: (i) 186,600,000 Placement Shares at S$0.305 each for applications by way of Placement Share application forms or such other forms of application as the Issue Manager and the Joint Underwriters and Placement Agents may, in consultation with the Company, deem appropriate; (ii) 300,000 Internet Placement Shares at S$0.305 each for applications made through the Internet website of DBS Vickers Securities (Singapore) Pte Ltd; and (iii) 12,100,000 Reserved Shares at S$0.305 each reserved for our employees, business associates, Independent Directors and persons who have contributed to the success of our Group, payable in full on application. Issue Manager
Joint Underwriters and Placement Agents
Growth .Excellence.Integrity
Kencana Agri Limited (Kencana) is a fast-growing producer of crude palm oil (CPO) and crude palm kernel oil (CPKO) in Indonesia, with oil palm plantations strategically located in the Sumatera and Kalimantan regions, where climatic conditions are wellsuited for the planting of oil palms. We aim to be a leading palm oil producer and supplier of choice for the local Indonesian and international markets. We have successfully grown our land bank from 9,000 hectares in 1995 to 107,782* hectares as at the Latest Practicable Date.
*Inclusive of land bank under our Plasma Programme
Our Oil Palm Plantations & Facilities

As at Latest Practicable Date
Own Land Bank (Hectares) Plasma Programme Land Bank (Hectares) Our Aggregate Land Bank
Sumatera
14,331 4,791 19,122
Kalimantan
81,079 7,581 88,660
Total
95,410 12,372 107,782
Own Planted Area (Hectares) Plasma Programme Planted Area (Hectares) Our Aggregate Planted Area
5,587 4,783 10,370
18,762 3,198 21,960
24,349 7,981 32,330
For the Year ended 31 Dec 2007

Average Prime fresh palm fruit bunches (FFB) Yield (MT/Hectare) Average Oil Extraction Rate: CPO (%) Average Oil Extraction Rate: CPKO (%) Palm Oil Mill: Production Capacity (MT/Hour) Kernel Crushing Plant: Production Capacity (MT/Day) Bulking Terminal: Tank Storage Capacity (MT) Vessels: 2 Barges, Max. Capacity (MT) Renewable Biomass Power Generation: Max. Capacity (MW) 21.9 20.5 41.2 60 135 19,500 6 21.7 22.1 41.3 60 300 120 435 19,500 4,500 6
Medan
West Ma l a y si a Ea st Ma l a y si a
Bulungan
Dumai Sumatera
S i ng a po r e
West Kalimantan
East Kalimantan
Kutai Samarinda Balikpapan Southeast Sulawesi
Bangka
Ketapang
Central Kalimantan
Belitung Indo nesi a

Surabaya Bali
South Kalimantan
Jakarta
Oil palm estate estat state lm Oil palm estate with palm mi oil mill and kernel crushing plant B Bulking terminal Biomass power generation
Our Business & Operations

Our integrated plantation operations comprise plantations, palm oil mills, kernel crushing plants, bulking facilities and logistics services, as well as a renewable biomass power plant to support and complement our plantation operations.
Plantation
Processing
Products
Supporting Businesses
Palm Oil Mill
Crude Palm Oil
Bulking Terminal
Plantation
Kernel Crushing Plant
Crude Palm Kernel Oil
Logistics
Biomass Powerplant
Financial Highlights
Revenue Gross Prot and Gross Prot Margin
USD million (Gross Prot) Gross Prot Margin
Prot/(loss) for the year*
USD million 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0
USD million
69.3
35.0 30.0
33.9%
35.0% 30.0%
60.0 50.0
36.6
41.1
25.0 20.0 15.0 10.0 5.0
20.7% 12.1% 8.5 4.4

FY05 05 FY06
23.5
25.0% 20.0% 15.0% 10.0% 5.0%
39.2
40.0 30.0 20.0 10.0 0 -10.0
14.8
FY05
FY06
FY07
FY07
0.0%
FY05
FY06
FY07
Gross Prot Margin
(7.0)
*Including net gains/(losses) on fair value changes in biological assets.
Competitive Strengths
Signicant cultivatable land bank with new planting potential
We intend to increase our planted area from 24,349 hectares as at the Latest Practicable Date to over 80,000 hectares in the next ve years
Land Bank as at the Latest Practicable Date

Hectares 100,000 80,000 60,000 40,000 20,000 0 FY200 FY2007 2 2007 FY2008 FY2009 FY2010 FY2011 FY Y2011 CAGR 25.0% (estimated)
Land Bank Total Planted
FY2012
Potential benets from maturing oil palms in the near future

As at the Latest Practicable Date, approximately 50% of our planted area is immature. We expect the majority of these immature plants to mature from 2009 to 2010, thus helping to increase our FFB harvests, reduce our reliance on third party suppliers, lower our unit production cost and improve our average CPO extraction rates
Age Prole of Planted Oil Palm Trees

7,412 Ha 30% Immature (<3 years) Mature Young (4-6 years) Mature Prime (7-18 years) 4,865 Ha 20%
12,072 Ha 50%
Proven and recognised track record in plantation cultivation and management d k d

We have an experienced and committed management team led by our Chairman and CEO, Mr Henry Maknawi Our managements track record is demonstrated by successful cultivation of all our current plantations from greeneld land We have received recognition from the provincial governments in the Sumatera and Kalimantan regions based on our management and administration of the Plasma Programme and social, economic and environmental considerations
Integrated value-chain resulting in operational synergies

Our plantation operations consist of palm oil mills, kernel crushing plants, logistics services and bulking facilities, as well as renewable power generation capabilities We entered into an agreement with IOPRI to develop oil palm seed breeding and seed processing facilities Having our own bulking facilities and barges enables us to exercise better control over our logistics management and to meet customers delivery requirements at short notice
Strategy and Future Plans

Expand our oil palm plantation business
Focus on new plantings and expanding our current planted area Accumulate additional land bank Acquire high-yielding mature plantations
Expand production capacity, improve efciency and product quality

Build two additional palm oil mills in Kalimantan to cater for the expected increase in our future sales volume Increase CPO oil extraction rates by utilising the latest proven technology Improve transportation system and existing supporting infrastructure
Develop seed production capability

Develop own seed processing capability to control and ensure a steady supply of high quality germinated seeds Build the seed processing facilities close to our plantations to lower transportation costs and minimise spoilage of the germinated seeds Develop a core plantation of parent oil palms trees to provide seeds for our seed processing facilities
Develop our bulking and logistics services and renewable biomass power generation business
Increase the amount of services we provide to third party customers Add a double-hull vessel to the two barges we currently operate Build renewable biomass power plants in Kalimantan when appropriate or commercially viable and sell the carbon credits attributable to these future CDM projects
Industry Prospects
Driven by world population growth and increasing demand for palm oil, palm oil consumption registered the highest compound annual growth rate of 8.3% amongst the vegetable oils for the past 10 years ended 2007. Prices of palm oil have increased substantially in tandem with growing market demand. World Consumption and Production of Palm Oil
Million MT 50
45.5 42.2 3 36.1 5.2 15.9 5.6 17.3 15.8 38.0 6.1 6.5 17.6
48.4 7.0 17.9
40
33.4
30
4.8 15.0
Production (Indonesia) Production (Malaysia) Production (Other Countries) World Consumption
20
10
14.1
16.1
16.9
18.8
21.3
23.6
2005 2005 0 05
2006 2006 0
2007 2007 0 07
2008 2008 0
2009 2009 0 09
2010 1 2010
Actual Data
Projections
Source: Oil world annual and monthly publications and information from its website http://www.oilworld.biz
Key factors underpinning the growth of palm oil industry

Economic advantages of palm oil
Lower production costs and higher yield compared to other oil-yielding crops Greater resilience against adverse weather conditions hence improving supply reliability
Rising demand for oils and fats

Increasing demand for food per capita, especially in Asia, Central & South America Additional demand for non-food applications
Growing popularity of palm oil

Versatile use in the food industry as well as for non-food applications Increased market share at the expense of other competing vegetable oils
Source: Oil world
Palm Oil Prices

Palm oil prices showed a tremendous increase from an average of US$437 in June 2006, US$583 in December 2006, US$805 in June 2007 to US$1,174 in April 2008.
Source: Oil world annual and monthly publications and information from its website http://www.oilworld.biz
Corporate Social Responsibility (CSR)

We are committed to the welfare of the local communities through various CSR initiatives: Educational, Medical and Social Initiatives
Offer scholarships, provide free basic medical services to the local communities; build and repair places of worship, sponsor and participate in traditional events and social functions
Plasma Programme
Develop surrounding small landholders plantations and assist in harvesting and production of FFB, such that the plantation owners benet socially and economically with increasing incomes and better welfare such as training and education in oil palm cultivation
Environmentally-friendly Policies
Undertake comprehensive and participatory independent social and environmental impact assessment prior to any new plantings Apply zero burning and zero waste management policies
Indicative Timetable
Time and Date 9:00 a.m. on 18 July 2008 12:00 noon on 23 July 2008 9:00 a.m. on 25 July 2008 Event Commencement of Invitation Close of Application List and closing date and time for the Invitation Commence trading on a ready basis
Applications for the Shares may be made through:

ATMs of DBS Bank (including POSB), OCBC and UOB Group, Internet banking websites of DBS Bank and UOB Group, or Printed application forms which form part of the Prospectus.
CONTENTS
CORPORATE INFORMATION............................................................................................................ DEFINITIONS...................................................................................................................................... GLOSSARY OF TECHNICAL TERMS................................................................................................ CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS .................................................... TRANSFER RESTRICTIONS ............................................................................................................ DETAILS OF THE INVITATION .......................................................................................................... LISTING ON THE SGX-ST ........................................................................................................ INDICATIVE TIMETABLE FOR LISTING .................................................................................... 4 6 14 15 16 17 17 21 22 22 27 28 29 46 49 51 53 56 57 66 66 68 69 71 72 76 79 79 80 81 84 86
PROSPECTUS SUMMARY ................................................................................................................ OVERVIEW OF OUR GROUP .................................................................................................... SUMMARY OF OUR FINANCIAL INFORMATION ....................................................................
THE INVITATION ................................................................................................................................ RISK FACTORS .................................................................................................................................. EXCHANGE RATES AND EXCHANGE CONTROLS........................................................................ INVITATION STATISTICS .................................................................................................................. USE OF PROCEEDS FROM THE INVITATION AND EXPENSES INCURRED ................................ MANAGEMENT, UNDERWRITING AND PLACEMENT AGREEMENTS .......................................... DIVIDEND POLICY ............................................................................................................................ SHARE CAPITAL................................................................................................................................ PRINCIPAL SHAREHOLDERS .......................................................................................................... SHAREHOLDERS ...................................................................................................................... MORATORIUM ............................................................................................................................
CAPITALISATION AND INDEBTEDNESS ........................................................................................ DILUTION............................................................................................................................................ RESTRUCTURING EXERCISE .......................................................................................................... GROUP STRUCTURE ........................................................................................................................ GENERAL INFORMATION ON OUR GROUP .................................................................................. BUSINESS .................................................................................................................................. OUR HISTORY............................................................................................................................ COMPETITIVE STRENGTHS .................................................................................................... STRATEGY AND FUTURE PLANS ............................................................................................ BUSINESS AND OPERATIONS ................................................................................................
CONTENTS
SEASONALITY .......................................................................................................................... CORPORATE SOCIAL RESPONSIBILITY ................................................................................ AWARDS AND CERTIFICATIONS.............................................................................................. QUALITY CONTROL .................................................................................................................. RESEARCH AND DEVELOPMENT .......................................................................................... INTELLECTUAL PROPERTY .................................................................................................... SALES AND MARKETING.......................................................................................................... CREDIT MANAGEMENT ............................................................................................................ CREDIT TERMS GRANTED BY SUPPLIERS............................................................................ INVENTORY MANAGEMENT .................................................................................................... RISK MANAGEMENT ................................................................................................................ MAJOR SUPPLIERS .................................................................................................................. MAJOR CUSTOMERS ................................................................................................................ COMPETITION .......................................................................................................................... PROPERTIES AND FIXED ASSETS.......................................................................................... INSURANCE .............................................................................................................................. PROCESS OF OBTAINING HGU LAND TITLE.......................................................................... GOVERNMENT REGULATIONS ................................................................................................ 101 101 102 102 103 104 105 105 105 106 106 107 108 109 109 113 113 115
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION .................................................................................................................... OPERATING RESULTS OF OUR GROUP ................................................................................ SELECTED OPERATING DATA .................................................................................................. OVERVIEW ................................................................................................................................ SEGMENTAL BREAKDOWN OF PAST PERFORMANCE ........................................................ REVIEW OF OVERALL PAST PERFORMANCE ...................................................................... REVIEW OF FINANCIAL POSITION .......................................................................................... LIQUIDITY AND CAPITAL RESOURCES .................................................................................. CAPITAL EXPENDITURE, COMMITMENTS AND CAPITAL DIVESTMENT ............................ COMMODITY HEDGING POLICY .............................................................................................. FOREIGN EXCHANGE EXPOSURE.......................................................................................... INFLATION .................................................................................................................................. ACCOUNTING POLICIES ..........................................................................................................
116 116 118 120 125 126 130 131 133 135 135 136 136 138 138 152 153 154 154 155
PROSPECTS ...................................................................................................................................... PALM OIL INDUSTRY ................................................................................................................ TREND INFORMATION .............................................................................................................. ORDER BOOK ............................................................................................................................
DIRECTORS, EXECUTIVE OFFICERS AND STAFF ........................................................................ MANAGEMENT REPORTING STRUCTURE ............................................................................ DIRECTORS AND EXECUTIVE OFFICERS .............................................................................. 2
CONTENTS
REMUNERATION OF DIRECTORS AND EXECUTIVE OFFICERS .......................................... PENSION AND RETIREMENT BENEFITS ................................................................................ SERVICE AGREEMENTS .......................................................................................................... EMPLOYEES .............................................................................................................................. STAFF TRAINING AND DEVELOPMENT .................................................................................. 160 160 160 161 162 163 165 165 165 167 170 171 173 174 178 179
CORPORATE GOVERNANCE .......................................................................................................... INTERESTED PERSON TRANSACTIONS AND CONFLICT OF INTERESTS ................................ INTERESTED PERSON TRANSACTIONS ................................................................................ PAST INTERESTED PERSON TRANSACTIONS ...................................................................... PRESENT AND ONGOING INTERESTED PERSON TRANSACTIONS .................................. REVIEW PROCEDURES FOR FUTURE INTERESTED PERSON TRANSACTIONS .............. POTENTIAL CONFLICT OF INTERESTS .................................................................................. INTERESTS OF EXPERTS ........................................................................................................
PLAN OF DISTRIBUTION .................................................................................................................. CLEARANCE AND SETTLEMENT .................................................................................................... GENERAL AND STATUTORY INFORMATION.................................................................................. APPENDIX A TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATIONS AND ACCEPTANCE ............................................................................................ APPENDIX B TAXATION ............................................................................................................ APPENDIX C INDONESIAN REGULATORY OVERVIEW.......................................................... APPENDIX D SUMMARY OF THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE COMPANY .............................................................................................. APPENDIX E INDEPENDENT AUDITORS REPORT ON THE UNAUDITED PROFORMA COMBINED FINANCIAL INFORMATION OF KENCANA AGRI LIMITED FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2007.............................. INDEPENDENT AUDITORS REPORT ON THE AUDITED COMBINED FINANCIAL STATEMENTS OF KENCANA AGRI LIMITED FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2005, 2006 AND 2007 ................
A-1 B-1 C-1
D-1
E-1
APPENDIX F
F-1
APPENDIX G AKA INDEPENDENT PUBLIC CONSULTANT APPRAISERS REPORT MARKET RENT VALUE OF OFFICE SPACE OF PT SAWINDO KENCANA ............................................................................................................
G-1
CORPORATE INFORMATION
BOARD OF DIRECTORS : Mr. Henry Maknawi (Executive Chairman and CEO) Tengku Alwin Aziz (Vice-Chairman and Non-Executive Director) Ms. Ratna Maknawi (Deputy CEO) Mr. Kent Surya (Executive Director) Mr. Soh Yew Hock (Lead Independent Director) Mr. Leung Yew Kwong (Independent Director) Catherine Lim Siok Ching, ACIS, LLB(Hons)(London) 200717793E 3 Shenton Way #10-06 Shenton House Singapore 068805 Graha Kencana Jl. Raya Perjuangan No.88GK Jakarta 11530 Indonesia Boardroom Corporate & Advisory Services Pte. Ltd. 3 Church Street #08-01 Samsung Hub Singapore 049483 DBS Bank Ltd 6 Shenton Way DBS Building Tower One Singapore 068809 DBS Bank Ltd 6 Shenton Way DBS Building Tower One Singapore 068809 CIMB-GK Securities Pte. Ltd. 50 Raffles Place #19-00 Singapore Land Tower Singapore 048623 REPORTING ACCOUNTANTS AND AUDITORS : RSM Chio Lim 18 Cross Street #08-01 Marsh & McLennan Centre Singapore 048423 Partner in Charge: Mr. Peter Jacob (a member of the Institute of Certified Public Accountants of Singapore) SOLICITORS TO THE INVITATION AND LEGAL ADVISER TO OUR COMPANY ON SINGAPORE LAW : Stamford Law Corporation 9 Raffles Place #32-00 Republic Plaza Singapore 048619
COMPANY SECRETARY
COMPANY REGISTRATION NUMBER REGISTERED OFFICE
: :
PRINCIPAL OFFICE
SHARE REGISTRAR AND SHARE TRANSFER AGENT
ISSUE MANAGER AND RECEIVING BANK
JOINT UNDERWRITERS AND PLACEMENT AGENTS
CORPORATE INFORMATION
SOLICITORS TO THE ISSUE MANAGER AND THE JOINT UNDERWRITERS AND PLACEMENT AGENTS : Venture Law LLC 50 Raffles Place #30-00 Singapore Land Tower Singapore 048623 Ali Budiardjo, Nugroho, Reksodiputro Graha Niaga, 24th Floor Jalan Jenderal Sudirman Kav. 58 Jakarta 12190, Indonesia ISTA Mielke GmBH (Global Research & Analyses) Langenberg 27 21077 Hamburg, Germany PT Actual Kencana Appraisal Hayam Wuruk No. 1-RL & 2E Jakarta 10120, Indonesia PT Asian Appraisal Indonesia Jalan Musi 38 Jakarta 10150, Indonesia PT Bank Mandiri (Persero) Tbk. Plaza Mandiri Jl. Jend. Gatot Subroto Kav. 36-38 Jakarta 12190, Indonesia PT Bank DBS Indonesia Plaza Permata, Ground 9 & 12th Floor Jl. M.H. Thamrin Kav 57 Jakarta 10350, Indonesia PT Bank Danamon Indonesia, Tbk. Menara Bank Danamon Jl. Prof. Dr. Satrio Kav. E4 No. 6 Mega Kuningan, Jakarta 12950, Indonesia
LEGAL ADVISER TO OUR COMPANY ON INDONESIAN LAW
INDUSTRY EXPERT
INDEPENDENT VALUER (PROPERTY)
INDEPENDENT VALUER (BIOLOGICAL ASSETS)
PRINCIPAL BANKERS
DEFINITIONS
In this Prospectus and the accompanying Application Forms, and in relation to the Electronic Applications, the instructions appearing on the screens of ATMs of Participating Banks or the IB websites of the relevant Participating Banks, unless the context otherwise requires, the following terms or expressions shall have the following meanings: Group Companies
Company or Kencana Agri Group or Proforma Group
: :
Kencana Agri Limited Our Company and its subsidiaries, assuming that our group structure as set out in the section Group Structure of this Prospectus had been in place since 1 January 2005, including an entity under common control whose accounts we have consolidated in our Groups financial statements but has been liquidated prior to the Restructuring Exercise Our Company or any of its subsidiaries
Group Company
Singapore
KB KL KP SA
Indonesia
: : : :
Kencana Bio-energy Pte. Ltd. Kencana Logistics Pte. Ltd. Kencana Plantations Pte. Ltd. Sawindo Agri Pte. Ltd.
AML AIK AEK AKM ASML ATK BE BPS CPG IDT KAJ LK LNM PAM
: : : : : : : : : : : : : :
PT Agro Mas Lestari PT Agro Inti Kencanamas PT Agri Eastborneo Kencana PT Alamraya Kencana Mas PT Agro Sawitmas Lestari PT Agrojaya Tirta Kencana PT Belitung Energy PT Bumi Permai Sentosa PT Cahaya Permata Gemilang PT Indotrust PT Kencana Agro Jaya PT Listrindo Kencana PT Langgeng Nusa Makmur PT Pelayaran Asia Marine
DEFINITIONS
PMKS SPL SKL SCEM SWK WMP WPM WSM
: : : : : : : : PT Palm Makmur Sentosa PT Sawit Permai Lestari PT Sawit Kaltim Lestari PT Sawindo Cemerlang PT Sawindo Kencana PT Wira Mas Permai PT Wira Palm Mandiri PT Wira Sawit Mandiri
Other Companies, Organisations and Agencies
Authority or MAS CDP or Depository CPF CIMB-GK DBS Bank, Issue Manager or Receiving Banker IOI Group IOPRI
: : : : :
The Monetary Authority of Singapore The Central Depository (Pte) Limited Central Provident Fund CIMB-GK Securities Pte. Ltd. DBS Bank Ltd
: :
IOI Corporation Berhad (Plantation) and its subsidiaries Indonesian Oil Palm Research Institute, otherwise known as Pusat Penelitian Kelapa Sawit (PPKS) DBS Bank and CIMB-GK
Joint Underwriters and Placement Agents, Joint Underwriters or Joint Placement Agents Keck Seng Group KH or Kencana Holdings Minamas Group PLN Regional Land Agency
: : : : :
Keck Seng (Malaysia) Berhad and its subsidiaries Kencana Holdings Pte. Ltd. PT Minamas Gemilang and its subsidiaries PT Perusahaan Listrik Negara (Persero) A part of the National Land Agency, a non-departmental government agency directly responsible to the President of the Republic of Indonesia in charge of land affairs at national, regional or sector-related levels Singapore Exchange Securities Trading Limited PT Sinar Mas Agro Resources & Technology Tbk and its subsidiaries United Nations Framework Convention on Climate Change
SGX-ST Sinar Mas Group
: :
UNFCCC
DEFINITIONS
Wilmar Group
General : Wilmar International Limited and its subsidiaries
Act or Companies Act or Singapore Companies Act Application Forms Application List Articles of Association associate
The Companies Act, (Chapter 50) of Singapore, as amended or modified from time to time The printed application forms to be used for the purpose of the Invitation and which form part of this Prospectus The list of applications for subscription of the New Shares Articles of association of our Company, supplemented or modified from time to time (a) as amended,
: :
In relation to a director, chief executive officer, substantial shareholder or controlling shareholder of a corporation who is an individual, means: (i) (ii) his immediate family; a trustee, acting in his capacity as such trustee, of any trust of which the individual or his immediate family is a beneficiary or, in the case of a discretionary trust, is a discretionary object; and any corporation in which he and his immediate family together (directly or indirectly) have an interest of not less than 30% of the aggregate of the nominal amount of all the voting shares.
(iii)
(b)
In relation to a corporation, means: (i) any corporation in which the corporation or its subsidiary has, or the corporation and its subsidiary together have, a direct interest of not less than 20% but not more than 50% of the aggregate of the nominal amount of all the voting shares; or any corporation, other than a subsidiary of the corporation or a corporation which is an associated company by virtue of paragraph (a), the policies of which the corporation or its subsidiary, or the corporation together with its subsidiary, is able to control or influence materially
(ii)
ATM Audit Committee Board CEO
: :
Automated teller machine of a Participating Bank The audit committee of our Company as at the date of this Prospectus and from time to time constituted The board of Directors of our Company as at the date of this Prospectus and from time to time constituted Chief Executive Officer
: :
DEFINITIONS
Controlling Shareholder
: A person who: (a) holds directly or indirectly 15% or more of the nominal amount of all voting shares in a company. The SGX-ST may determine that a person who satisfies this paragraph is not a controlling shareholder; or in fact exercises control over a company
(b)
Directors
The directors of our Company as at the date of this Prospectus, except where otherwise stated or where the context requires otherwise Applications for the Offer Shares made through an ATM of one of the relevant Participating Banks or the IB website of one of the relevant Participating Banks, subject to and on the terms and conditions of this Prospectus Extraordinary General Meeting Earnings per Share The executive Directors of our Company as at the date of this Prospectus, except where otherwise stated or where the context requires otherwise The executive officers of our Company as at the date of this Prospectus, except where otherwise stated or where the context requires otherwise Financial year ended, or as the case may be, ending 31 December Goods and Services Tax
Electronic Applications
EGM EPS Executive Directors
: : :
Executive Officers
FY
GST HGU
: :
Hak Guna Usaha, a right to utilise government-owned land for plantation, fisheries or farming with minimum area of five hectares, for a period of up to 35 years, extendable for an additional period of up to 25 years. HGU can be renewed for an additional period of up to 35 years, subject to fulfillment of requirements under the prevailing laws and regulations
Internet Banking The independent Directors of our Company as at the date of this Prospectus, except where otherwise stated or where the context requires otherwise The Invitation by our Company for subscription by investors for the New Shares at the Issue Price, subject to and on the terms and conditions of this Prospectus A permit that allows our Group to acquire the land up to the area covered by the location permit in accordance with the prevailing laws and regulations Any reference in this Prospectus to acquisition/accumulation of land/land bank refers to the acquisition of rights over the land 9
IB Independent Directors
: :
Invitation
Ijin Lokasi
DEFINITIONS
Internet Placement Shares
: The 300,000 Placement Shares for which our Company invites applications to be made through the Internet website of DBS Vickers Securities (Singapore) Pte Ltd (DBS Vickers), on the terms and subject to the conditions of this Prospectus S$0.305 per New Share Land that has been measured by the Panitia B to determine the actual land area for the HGU title based on the application submitted by our Group. A land map (which includes the borders) and other technical information of the relevant land will be produced following the land measurement. Please refer to the section Process Of Obtaining HGU Land Title of this Prospectus for a summary of the process by which HGU is obtained
Issue Price Kadastral land
: :
KKPA
Kredit Koperasi Primer Anggota, a plantation business cooperative scheme under the Plasma Programme pursuant to which plantation owners develop land owned by the local community and plant and maintain the oil palm to maturity, after which the land is maintained and managed by the villager or the plantation owner Kebun Kelapa Sawit Rakyat, a cooperation in local community palm oil plantation scheme under the Plasma Programme pursuant to which plantation owners co-operate with the regional authorities to provide seedlings and fertiliser to the villager who owns the land
The land for which Ijin Lokasi has been allocated to our Group, Kadastral land measured and/or land for which HGU has been obtained by our Group. Please refer to the section Process of obtaining HGU Land Title of this Prospectus for a summary of the process by which HGU is obtained 2 June 2008, being the latest practicable date for the ascertainment of information prior to the printing of this Prospectus The date of commencement of dealing in our Shares on the SGXST Listing Manual of the SGX-ST, as amended, modified or supplemented from time to time Loss per Share A day on which the SGX-ST is open for trading in securities Net asset value The 200,000,000 new Shares for which our Company invites applications to subscribe for pursuant to the Invitation, subject to and on the terms and conditions of this Prospectus The nominating committee of our Company as at the date of this Prospectus and from time to time constituted
KKSR
land bank
Latest Practicable Date
Listing Date
Listing Manual
LPS Market Day NAV New Shares
: : : :
Nominating Committee
10
DEFINITIONS
Non-executive Directors
: Non-executive Directors of our Company (including Independent Directors) as at the date of this Prospectus, except where otherwise stated or where the context requires otherwise Net tangible assets The offer by our Company of the Offer Shares to the public in Singapore for subscription at the Issue Price, on the terms and subject to the conditions of this Prospectus The 1,000,000 New Shares which are the subject of the Offer A special committee formed by the Regional Land Agency with the duty to review, research, and analyse the technical documents submitted by our Group including verifying and inspecting the physical condition of the land in the framework of the process for the issuance of the HGU title DBS Bank Ltd (including POSB) (DBS Bank), Oversea-Chinese Banking Corporation Limited (OCBC) and United Overseas Bank Limited and its subsidiary, Far Eastern Bank Limited (the UOB Group) The period which comprises FY2005, FY2006 and FY2007 Price earnings ratio The placement of the Placement Shares by the Joint Placement Agents on behalf of our Company for subscription at the Issue Price, subject to and on the terms and conditions of this Prospectus The 199,000,000 New Shares which are the subject of the Placement An independent plasma scheme whereby the plantation owner will provide the seedlings to the villager who owns the land, and the villager will plant and maintain the plantation The remuneration committee of our Company as at the date of this Prospectus and from time to time constituted The 12,100,000 Placement Shares reserved for subscription by our employees, business associates, Independent Directors and persons who have contributed to the success of our Group The restructuring exercise that we carried out to rationalise and streamline our corporate structure as described in the section Restructuring Exercise of this Prospectus
NTA Offer
: :
Offer Shares Panitia B
: :
Participating Banks
period under review PER Placement
: : :
Placement Shares
Plasma Mandiri
Remuneration Committee
Reserved Shares
Restructuring Exercise
SBI Securities Account
: :
Sertifikat Bank Indonesia

Securities account maintained by a Depositor with CDP, not including a securities sub-account Securities and Futures Act, (Chapter 289) of Singapore, as amended or modified from time to time
Securities and Futures Act
11
DEFINITIONS
Service Agreements
: The service agreements entered into between our Company and our Executive Directors as described in the section Service Agreements of this Prospectus Ordinary shares in the capital of our Company Registered shareholders of our Company Singapore Inter-Bank Offered Rate The take-over laws and regulations in Singapore, comprising sections 138, 139 and 140 of the Securities and Futures Act and the Singapore Code on Take-overs and Mergers The sub-division of ordinary shares in the capital of our Company as defined in the section Share Capital of this Prospectus A person who holds directly or indirectly 5% or more of the total issued share capital of our Company United States of America, its territories and possessions and all areas subject to its jurisdiction
Shares Shareholders SIBOR Singapore Take-over Laws and Regulations
: : : :
Sub-division
Substantial Shareholder
US or USA
Currencies, Units and Others % or per cent Ha MT KWh MW MWh Rp or Rupiah S$ and cents sq ft sq m US$ and US cents
: : : : : : : : : : : Per centum or percentage Hectare(s) Metric tonne Kilowatt-hour Megawatt Megawatt-hour Indonesian Rupiah Singapore dollars and cents, respectively Square feet Square metres United States dollars and cents respectively
The expressions Depositor, Depository Agent and Depository Register shall have the meanings ascribed to them respectively in Section 130A of the Companies Act. The terms associated company, associated entity, controlling interest-holder, controlling shareholder, related corporation, related entity, subsidiary, subsidiary entity and substantial interest-holder shall have the same meanings ascribed to them respectively in the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005. Words importing the singular shall, where applicable, include the plural and vice versa and words importing the masculine gender shall, where applicable, include the feminine and neuter genders and vice versa. References to persons shall include corporations. 12
DEFINITIONS
Any discrepancies in tables included herein between the amounts listed and the totals thereof are due to rounding. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them. Any reference in this Prospectus, the Application Forms or the Electronic Applications to any statute or enactment is a reference to that enactment as for the time being amended or re-enacted. Any word defined under the Companies Act and the Securities and Futures Act or any statutory modification thereof and used in this Prospectus, the Application Forms or the Electronic Applications shall, where applicable, have the meaning assigned to it under the Companies Act, the Securities and Futures Act or such statutory modification, as the case may be. Any reference in this Prospectus and the Application Forms and/or Electronic Applications to Shares being allotted and/or allocated to an applicant includes allotment to CDP for the account of that applicant. Any reference to a time of day in this Prospectus, the Application Forms and the Electronic Applications shall be a reference to Singapore time, unless otherwise stated. Any references to we, our, and us or other grammatical variations thereof in this Prospectus is a reference to our Company or any member of our Company (including an entity under common control whose accounts we have consolidated in our Groups financial statements) as the context requires. All exchange rates referred to in this Prospectus are extracted from Bloomberg L.P. and Bank Indonesia. Certain names in Bahasa Indonesia have been translated into English. Such translations are provided solely for the convenience of Singapore-based investors. They may not be registered with the relevant Indonesian authorities and should not be construed as representations that the English names actually represent the Indonesian names.
13
GLOSSARY OF TECHNICAL TERMS

To facilitate a better understanding of the business of our Group, the following glossary provides a description of the technical terms and abbreviations commonly found in our industry. The terms and their assigned meanings may not correspond to standard industry meanings or usage of these terms:
AMDAL
Environmental Impact Assessment (locally known as Analisis Mengenai Dampak Lingkungan) Plant material, vegetation, or agricultural waste used as a fuel or energy source Storage facilities including tank farms for palm oil products and other liquids Clean Development Mechanism is an arrangement under the Kyoto Protocol allowing industrialised countries to invest in projects that reduce greenhouse gas emissions Crude palm oil Crude palm kernel oil Empty palm fruit bunches Fresh palm fruit bunches A written license from the authorised official which must mandatorily be possessed by a company undertaking a plantation business activity integrated with plantation product manufacturing in Indonesia The oil palm plantations which are owned and developed by our Company, as opposed to plantations which are owned and developed for small landholders under the Plasma Programme Chemicals derived from biological oils or fats. Oleochemicals are analogous to petrochemicals which are chemicals derived from petroleum Palm kernel cake / Palm kernel meal The programme initiated by the Indonesian government to encourage the development of smallholders plantations with the assistance of certain oil palm plantation owners, such as our Group
biomass
bulking
CDM
CPO CPKO EFB FFB Ijin Usaha Perkebunan
: : : : :
nucleus
oleochemical
PKC Plasma Programme
: :
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CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

All statements contained in this Prospectus, statements made in press releases and oral statements that may be made by our Company, Directors, Executive Officers or employees acting on our behalf, that are not statements of historical fact, constitute forward-looking statements. Some of these statements can be identified by forward-looking terms such as expect, believe, plan, intend, estimate, anticipate, may, will, would and could or similar words or phases. However, these words are not the exclusive means of identifying forward-looking statements. All statements regarding our expected financial position, business strategies, plans and prospects, and the future prospects of our industry are forward-looking statements. These forward-looking statements and other matters discussed in this Prospectus regarding matters that are not historical fact are only predictions. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risk factors and uncertainties are discussed in more details in this Prospectus, in particular, but not limited to, discussions in the section entitled Risk Factors. Given the risks and uncertainties that may cause our actual future results, performance or achievements to be materially different from that expected, expressed or implied by the forward-looking statements in this Prospectus, we advise you not to place undue reliance on those statements. Neither our Company, the Issue Manager, the Joint Underwriters and Placement Agents, nor any other person represents or warrants to you that our actual future results, performance or achievements will be as discussed in those statements. Our actual future results may differ materially from those anticipated in these forward-looking statements as a result of the risks faced by us. Our Company, the Issue Manager, the Joint Underwriters and Placement Agents disclaim any responsibility to update any of those forward-looking statements or publicly announce any revisions to those forward-looking statements to reflect future developments, events or circumstances for any reason, even if new information becomes available or other events occur in the future. Our Company is however subject to the provisions of the Securities and Futures Act and the Listing Manual regarding corporate disclosure. In particular, pursuant to Section 241 of the Securities and Futures Act, if after this Prospectus is registered but before the close of the Invitation, we become aware of (a) a false or misleading statement in this Prospectus; (b) an omission from this Prospectus of any information that should have been included in it under Sections 243 of the Securities and Futures Act; or (c) a new circumstance that has arisen since this Prospectus was lodged with the Authority and would have been required by Section 243 of the Securities and Futures Act to be included in this Prospectus, if it had arisen before this Prospectus was lodged and that is materially adverse from the point of view of an investor, we may lodge a supplementary or replacement prospectus with the Authority.
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TRANSFER RESTRICTIONS
TRANSFER RESTRICTIONS Each purchaser of Shares offered in reliance on Regulation S will be deemed to have acknowledged, represented and agreed with our Company, the Issue Manager and the Joint Underwriters and Placement Agents as follows (terms defined in Regulation S shall have the same meaning when used in this section): (i) The Shares have not been and will not be registered under the U.S. Securities Act or with any securities regulatory authority of any state or territory of the United States and are subject to significant restrictions on transfer. The purchaser (and the person, if any, for whose account it is acquiring Shares under the Invitation) is not a U.S. person and is acquiring the Shares in an offshore transaction meeting the requirements of Regulation S. It is not an affiliate of our Company or a person acting on behalf of such affiliate; and it is not in the business of buying and selling securities or, if it is in such business, it did not acquire the Shares from our Company or an affiliate thereof in the initial distribution of the Shares. Such purchaser will not, prior to the expiration of 40 days after the later of the commencement of the Invitation and the last closing date of the Invitation (the Restricted Period), offer, sell, pledge or otherwise transfer any interest in the Shares except in an offshore transaction in accordance with Regulation S, and in accordance with any applicable securities laws of any state or territory of the United States and any other jurisdiction.
(ii)
(iii)
(iv)
Upon the expiration of the Restricted Period, the New Shares offered in reliance on Regulation S shall no longer be subject to the restrictions set out above, if, at the time of such expiration, the offer or sale of such Shares in the United States would not be restricted under the securities laws of the United States or any state of the United States.
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DETAILS OF THE INVITATION

LISTING ON THE SGX-ST An application has been made to the SGX-ST for permission to deal in and for quotation of, all our Shares already issued (including the New Shares). Such permission will be granted when our Company has been admitted to the Official List of the SGX-ST. Acceptance of applications will be conditional upon, inter alia, the SGX-ST granting permission to deal in, and for quotation of, all our existing issued Shares (including the New Shares). Monies paid in respect of any application accepted will be returned to you, subject to applicable laws, without interest or any share of revenue or other benefit arising therefrom and at your own risk, if the said permission is not granted or for any other reason and you will not have any claims whatsoever against our Company, the Issue Manager, or the Joint Underwriters and Placement Agents. No Share shall be allotted or allocated on the basis of this Prospectus later than six months after the date of registration of this Prospectus by the Authority. The SGX-ST assumes no responsibility for the correctness of any statements made, reports contained or opinion expressed in this Prospectus. Admission to the Official List of the SGX-ST is not to be taken as an indication of the merits of the Invitation, our Company, our subsidiaries, our Shares or the New Shares. A copy of this Prospectus has been lodged with and registered by the Authority on 16 June 2008 and 17 July 2008, respectively. The Authority assumes no responsibility for the contents of this Prospectus. Registration of this Prospectus by the Authority does not imply that the Securities and Futures Act, or any other legal or regulatory requirements, have been complied with. The Authority has not, in any way, considered the merits of our Shares (including the New Shares), as the case may be, being offered or in respect of which an Invitation is made, for investment. This Prospectus has been seen and approved by our Directors and they individually and collectively accept full responsibility for the accuracy of the information given in this Prospectus and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, the facts stated and the opinions expressed in this Prospectus are fair and accurate in all material respects as at the date of this Prospectus and that there are no material facts the omission of which would make any statements in this Prospectus misleading and that this Prospectus constitutes full and true disclosure of all material facts about the Invitation and our Company. No person has been or is authorised to give any information or to make any representation not contained in this Prospectus in connection with the Invitation and, if given or made, such information or representation must not be relied upon as having been authorised by our Company, the Issue Manager, or the Joint Underwriters and Placement Agents. Neither the delivery of this Prospectus and the Application Forms nor the Invitation shall, under any circumstances, constitute a continuing representation or create any suggestion or implication that there has been no change, or development reasonably likely to involve a change, in our affairs, condition or prospects, or our Shares (including the New Shares), or in the statements of fact or information contained in this Prospectus since the date of this Prospectus. Where such changes occur and are material or are required to be disclosed by law, we will make an announcement of the same to the SGX-ST and the public and, if required, lodge a supplementary or replacement prospectus with the Authority pursuant to Section 241 of the Securities and Futures Act and other applicable provisions of the Securities and Futures Act and take immediate steps to comply with the requirements of the Securities and Futures Act. We will also comply with all other applicable requirements of the Securities and Futures Act and/or any other requirements of the Authority and/or SGX-ST. All applicants should take note of any such announcements, supplementary or replacement prospectus and, upon the release of the same, shall be deemed to have notice of such changes. Save as expressly stated in this Prospectus, nothing herein is, or may be relied upon as, a promise or representation as to our future performance or policies. Neither our Company, the Issue Manager, the Joint Underwriters and Placement Agents, our Directors, the experts nor any other parties involved in the Invitation is making any representation to any person regarding the legality of an investment in our Shares by such person under any investment or other laws or regulations. No
17

information in this Prospectus should be considered to be business, legal or tax advice. Investors should be aware that they may be required to bear the financial risk of an investment in our Shares (including the New Shares) for an indefinite period of time. Each prospective investor should consult his own professional or other advisers for business, financial, legal or tax advice regarding an investment in our Shares (including the New Shares). This Prospectus has been prepared solely for the purpose of the Invitation and may not be relied upon by any other persons other than the applicants in connection with their application for the New Shares or for any other purpose. This Prospectus does not constitute an offer, solicitation or invitation to subscribe for the New Shares in any jurisdiction in which such offer, or solicitation or invitation is unlawful or is not authorised or to any person to whom it is unlawful to make such offer, solicitation or invitation. We are subject to the provisions of the Securities and Futures Act and the Listing Manual regarding corporate disclosure. In particular, if after this Prospectus is registered but before the close of the Invitation, we become aware of: (a) (b) a false or misleading statement in this Prospectus; an omission from this Prospectus of any information that should have been included in it under Section 243 of the Securities and Futures Act; or a new circumstance that has arisen since this Prospectus was lodged with the Authority which would have been required by Section 243 of the Securities and Futures Act to be included in this Prospectus if it had arisen before this Prospectus was lodged,
(c)
that is materially adverse from the point of view of an investor, we may lodge a supplementary or replacement prospectus with the Authority pursuant to Section 241 of the Securities and Futures Act. Where prior to the lodgement of the supplementary or replacement prospectus, applications have been made under this Prospectus to subscribe for the New Shares and: (a) where the New Shares have not been issued to the applicants, our Company shall either: (i) within two days (excluding any Saturday, Sunday or public holiday) from the date of lodgement of the supplementary or replacement prospectus, give applicants notice in writing of how to obtain, or arrange to receive, a copy of the supplementary or replacement prospectus, as the case may be, and provide applicants with an option to withdraw their applications, and take all reasonable steps to make available within a reasonable period the supplementary or replacement prospectus, as the case may be, to applicants who have indicated that they wish to obtain, or who have arranged to receive, a copy of the supplementary or replacement prospectus; or within seven days from the date of lodgement of the supplementary or replacement prospectus, give the applicants the supplementary or replacement prospectus, as the case may be, and provide the applicants with an option to withdraw their applications; or treat the applications as withdrawn and cancelled, in which case the applications shall be deemed to have been withdrawn and cancelled, and our Company shall, within seven days from the date of lodgement of the supplementary or replacement prospectus, return all monies paid in respect of any application to, without interest or a share of revenue or benefit arising therefrom; or
(ii)
(iii)
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(b) where our New Shares have been issued and/or sold to the applicants, our Company shall either: (i) within two days (excluding any Saturday, Sunday or public holiday) from the date of lodgement of the supplementary or replacement prospectus, give applicants notice in writing of how to obtain, or arrange to receive, a copy of the supplementary or replacement prospectus, as the case may be, and provide applicants with an option to withdraw their applications, and take all reasonable steps to make available within a reasonable period the supplementary or replacement prospectus, as the case may be, to applicants who have indicated that they wish to obtain, or who have arranged to receive, a copy of the supplementary or replacement prospectus; or within seven days from the date of lodgement of the supplementary or replacement prospectus, give the applicants the supplementary or replacement prospectus, as the case may be, and provide the applicants with an option to return to us the New Shares, which they do not wish to retain title in; or treat the issue of the New Shares as void, in which case the issue or sale shall be deemed void and our Company shall, within seven days from the date of lodgement of the supplementary or replacement prospectus, return all monies paid in respect of any application, without interest or a share of revenue or benefit arising therefrom.
(ii)
(iii)
An applicant who wishes to exercise his option under paragraph (a)(i) and (a)(ii) to withdraw his application shall, within 14 days from the date of lodgement of the supplementary or replacement prospectus, notify our Company of this, whereupon our Company shall, within seven days from the receipt of such notification, pay to him all monies paid by him on account of his application for those Shares without interest or a share of revenue or benefit arising therefrom, at the applicants risk. An applicant who wishes to exercise his option under paragraph (b)(i) and (b)(ii) to return the New Shares issued to him shall, within 14 days from the date of lodgement of the supplementary or replacement prospectus, notify our Company of this and return all documents, if any, purporting to be evidence of title to those New Shares, to our Company, whereupon our Company shall, within seven days from the receipt of such notification and documents, if any, pay to him all monies paid by him for those Shares, without interest or a share of revenue or benefit arising thereform at the applicants risk and the issue of those Shares shall be deemed to be void. Pursuant to Section 242 of the Securities and Futures Act, the Authority may, in certain circumstances issue a stop order (the Stop Order) to our Company, directing that no or no further New Shares to which this Prospectus relates, be allotted, issued or sold. Such circumstances will include a situation where this Prospectus (i) contains a statement, which in the opinion of the Authority is false or misleading; (ii) omits any information that should be included in accordance with the Securities and Futures Act; (iii) does not, in the opinion of the Authority, comply with the requirements of the Securities and Futures Act; or (iv) if the Authority is of the opinion that it is in the public interest to do so. In the event that the Authority issues a Stop Order and applications to subscribe for the New Shares have been made prior to the Stop Order, then: (a) where the New Shares have not been issued to the applicants, the applications for the New Shares shall be deemed to have been withdrawn and cancelled and our Company shall, within 14 days from the date of the Stop Order, pay to the applicants all monies the applicants have paid on account of their applications for the New Shares; or where the New Shares have been issued to the applicants, the issue of the New Shares shall be deemed to be void and our Company shall, within 14 days from the date of the Stop Order, pay to the applicants all monies paid by them for the New Shares.
(b)
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Such monies paid in respect of the applicants application shall be returned to the applicants at their own risk, without interest or any share or revenue or other benefit arising therefrom, and the applicants will not have any claim against our Company, the Issue Manager, or the Joint Underwriters and Placement Agents. Copies of this Prospectus and the Application Forms may be obtained on request, subject to availability, during office hours from: DBS Bank Ltd 6 Shenton Way #36-01 DBS Building Tower One Singapore 068809 CIMB-GK Securities Pte. Ltd. CIMB-GK Investment Centre 50 Raffles Place #01-01 Singapore Land Tower Singapore 048623
and from branches of DBS Bank (including POSB), members of the Association of Banks in Singapore, members of the SGX-ST and merchant banks in Singapore. A copy of this Prospectus is also available on the SGX-ST website at http://www.sgx.com and the Authoritys OPERA website at http://masnet.mas.gov.sg/opera/sdrprosp.nsf The Application List will open at 10.00 a.m. on 23 July 2008 and will remain open until 12.00 noon on the same day or for such further period or periods as our Directors may, in consultation with the Issue Manager and the Joint Underwriters and Placement Agents decide, subject to any limitation under all applicable laws PROVIDED ALWAYS THAT where a supplementary or replacement prospectus has been lodged with the Authority, the Application List shall be kept open for at least 14 days after the lodgement of the supplementary or replacement prospectus. Details of the procedure for applications to subscribe for the New Shares are set out in Appendix A of this Prospectus.
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INDICATIVE TIMETABLE FOR LISTING An indicative timetable for the Invitation and trading in our Shares is set out for the reference of applicants: Indicative time/date 9.00 a.m. on 18 July 2008 12.00 noon on 23 July 2008 24 July 2008 Event Commencement of Invitation Close of Application List and closing date and time for the Invitation Balloting of applications, if necessary (in the event of oversubscription for the Offer Shares) Commence trading on a ready basis Settlement date for all trades done on a ready basis
9.00 a.m. on 25 July 2008 30 July 2008
The above timetable is only indicative as it assumes that the date of closing of the Application List will be 23 July 2008, the date of admission of our Company to the Official List of the SGX-ST will be 25 July 2008, the shareholding spread requirement will be complied with and the New Shares will be issued and fully paid-up prior to 25 July 2008. The actual date on which our Shares will commence trading on a ready basis will be announced when it is confirmed by the SGX-ST. The above timetable and procedures may be subject to such modification as the SGX-ST may, in its absolute discretion, decide, including the decision to permit trading on a ready basis and the commencement date of such trading. Investors should consult the SGX-STs announcement on ready trading date on the Internet (at the SGX-ST internet website http://www.sgx.com) or the newspapers, or check with their brokers on the date on which trading on a ready basis will commence. In the event of any changes in the closure of the Application List or the time period during which the Invitation is open, we will publicly announce the same: (a) through SGXNET announcement to be posted on the internet at the SGX-STs internet website at http://www.sgx.com; and through a paid advertisement in a major Singapore English newspaper such as The Straits Times or The Business Times.
(b)
We will provide details of the results of the Invitation (including the level of subscription for the New Shares and the basis of allocation of the New Shares pursuant to the Invitation), as soon as it is practicable after the closure of the Application List through the channels in (a) and (b) above.
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PROSPECTUS SUMMARY
The information contained in this summary is derived from and should be read in conjunction with, the full text of this Prospectus. Because it is a summary, it does not contain all the information that potential investors should consider before investing in the Shares of our Company. Potential investors should read this entire Prospectus carefully, especially the section Risk Factors of this Prospectus. OVERVIEW OF OUR GROUP Our Company was incorporated in Singapore on 26 September 2007 under the Companies Act as a private limited company, under the name of Kencana Agri Pte. Ltd. and changed its name to Kencana Agri Limited upon conversion to a public company. Our Group comprises our Company and our various subsidiaries. Please refer to the section Group Structure of this Prospectus for more details. Business We are a fast-growing producer of CPO and CPKO in Indonesia with oil palm plantations located in the Sumatera and Kalimantan regions. From 2005 to the Latest Practicable Date, our Groups total land bank increased from 77,374 hectares to 95,410 hectares and our total planted area increased from 12,277 hectares to 24,349 hectares. Our Group has implemented a Plasma Programme under the plantation business cooperatives scheme (KKPA), the cooperation in local community palm oil plantation scheme (KKSR), and the independent plasma scheme (Plasma Mandiri). As at the Latest Practicable Date, we have approximately 12,372 hectares of plantation land under our Plasma Programme, of which approximately 7,981 hectares have been planted. For the purpose of the disclosures made in respect of our land bank and planted area in this Prospectus, we have not included the land and planted area under our Plasma Programme. If we had included the land and planted area under our Plasma Programme, our aggregate land bank as at the Latest Practicable Date would be 107,782 hectares and our aggregate planted area would be 32,330 hectares. Our Group has two palm oil mills and two kernel crushing plants, with one of each located on Bangka Island in Sumatera and in South Kalimantan respectively. Our palm oil mills have a total production capacity of 120 MT/hour, and our kernel crushing plants have a combined production capacity of 435 MT/day. We operate a bulking terminal in Belinyu, Bangka Island consisting of three storage tanks with a total capacity of 19,500 MT and a nearby jetty for vessels to take delivery of our products. We also operate a jetty in East Kalimantan to facilitate the transportation of our products. In addition, we own and operate two barges which we use primarily to transport our own products. Our bulking terminal and logistics services primarily serve to complement and support our palm oil business by enabling us to be self-sufficient in terms of storage and transportation. Our Group also operates a renewable biomass power plant on Bangka Island which generates electricity by utilising waste recycled from the CPO production process. Most of the electricity generated is sold to PLN, a state-owned electricity company. The balance is used for internal consumption by our plantation located on Bangka Island. Further details are set out in the section General Information On Our Group Business of this Prospectus.
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PROSPECTUS SUMMARY
Competitive Strengths We believe that our Group has the following competitive strengths: Significant cultivatable land bank with new planting potential The following table shows our land bank and planted area as at the Latest Practicable Date:
Location Sumatera Kalimantan Total Land Bank (Hectares) 14,331 81,079 95,410 Planted Area (Hectares) 5,587 18,762 24,349
As we intend to increase our planted area to over 80,000 hectares in the next five years (which is an estimated compounded annual growth rate of 25.0% from 2007 to 2012), we estimate future planting of approximately 56,000 hectares of our land bank. The graph below shows our planned expansion of our planted area within our existing land bank.
Hectares
Land bank as at the Latest Practicable Date
CAGR 25.0%
Taking into account our existing land bank and planting programme, we believe that we are well positioned to substantially increase our planted area over the next few years. We are also continuously seeking opportunities to increase the aggregate size of our land bank and planted area through selective external acquisitions. Potential benefits from maturing oil palm trees in the near future Oil palm trees generally mature after three years of growth and reach their prime after six years, when FFB production levels peak. As at the Latest Practicable Date, our total planted area is 24,349 hectares, of which 12,277 hectares (approximately 50.4%) are mature and 12,072 hectares (approximately 49.6%) are immature. We expect the majority of these immature plants to mature from 2009 to 2010. The majority of our expected increase in FFB crop will be from our Kalimantan plantations.
23
PROSPECTUS SUMMARY
12,277 ha
Immature Mature
12,072 ha
Going forward, we expect our FFB harvested from our Kalimantan plantations to increase and thereby lower our reliance on third party FFB suppliers. We believe that this will significantly reduce our unit production cost and improve our average extraction rates as we will generally have better control over quality in terms of FFB harvested from our plantation. In addition, we expect the utilisation rates of our palm oil mill in Kalimantan to improve as our Kalimantan plantations continue to mature and reach peak production age. We expect to benefit from economies of scale as our FFB production volume increases. Proven and recognised track record in plantation cultivation and management Our Group has an experienced and committed management team which has successfully operated in various challenging business conditions and is able to understand and adapt to the local culture in the regions that our Group operates. We believe that our managements track record is demonstrated by our successful cultivation of all our current plantations from greenfield land. The development of greenfield land into a plantation requires detailed planning, careful implementation of a planting programme as well as close cooperation with the local community. Our Groups plantation operations have received recognition from the provincial governments in the Sumatera and Kalimantan regions based on an assessment of large scale private plantations. Please refer to the section Awards and Certifications of this Prospectus for more information. Integrated value-chain resulting in operational synergies We have integrated our plantation operations, complete with palm oil mills, kernel crushing plants, logistics services and bulking facilities. As part of our plans to improve our value-chain, we have recently entered into an agreement with IOPRI, a reputable research institute on germinated oil palm seeds to develop seed processing facilities. Our bulking and logistics services complement our plantation operations by allowing us to store and transport our products in an efficient and effective manner. Our Group currently owns and operates two barges, with a total capacity of 4,500 MT, which serve our plantations in both Sumatera and Kalimantan. Having tank storage facilities for bulking and our own barges for transportation enables us to exercise better control over our logistics management and to meet customers delivery requirements at short notice. The strategic location of our bulking terminal in Belinyu also provides us with direct access from Sumatera and Kalimantan to both local and international customers. In addition, our first renewable biomass power plant, which is located within our plantation in the Sumatera region, utilises the waste products from our production facilities, such as EFB and palm kernel shells, as fuel for the generation of electricity. Most of the generated electricity is sold to PLN. We are also currently applying to the relevant authorities for our renewable biomass plant to be registered as a Clean Development Mechanism (CDM) project that will in turn allow us to sell the carbon credits attributable to this project. Please refer to the section General Information On Our Group Competitive Strengths of this Prospectus for more details. 24
PROSPECTUS SUMMARY
Strategy and Future Plans Our strategy and future plans are as follows: (i) Expand our oil palm plantation business Our key strategy is to focus on growing our oil palm plantations. We have a considerable amount of undeveloped, cultivatable land which represents a significant potential for growth. We plan to focus on new plantings by increasing our current planted oil palm area from 24,349 hectares as at the Latest Practicable Date to over 80,000 hectares in the next five years, within our existing land bank. We also plan to, where appropriate, accumulate additional land bank and/or acquire highyielding mature plantations directly or indirectly through acquisitions of companies with such interests whenever suitable opportunities arise. (ii) Expand production capacity and improve efficiency and product quality To cater for the expected increase in our future sales volume, we plan to increase our annual CPO processing capacity from 120 MT/hour to 210 MT/hour by 2010, by building two more palm oil mills in the Kalimantan region. Our new palm oil mills will utilise the latest proven technology which we expect will improve operational efficiency and increase CPO extraction rates. With the expansion of our plantations, we plan to improve our transportation system and existing supporting infrastructure to increase the efficiency of our delivery of harvested FFB to our processing facilities. (iii) Develop seed production capability We intend to develop our own seed processing capability to control and ensure a steady supply of high quality germinated seeds, which in turn will increase our FFB yields. We plan to build the seed processing facilities close to our plantations to lower transportation costs and minimise spoilage of the germinated seeds. We have entered into an agreement with IOPRI for them to provide technical assistance for the development of our seed processing facilities to produce high-yielding seeds (otherwise known as Benih-bina). We also have plans to develop a core plantation of parent oil palm trees to provide seeds for our seed processing facilities. Our long-term objective is to eventually become a seed producer and develop self-sufficiency in respect of seed supply. (iv) Develop our bulking and logistics services and renewable biomass power generation business We currently complement our plantation business with our bulking and logistics operations and renewable biomass power generation business. As part of our long-term business strategy, we intend to continue developing our bulking and logistics services in tandem with our main plantation business. We intend to add a double-hull vessel to the two barges we currently operate. We intend to increase the amount of services we provide to third party customers.
25
PROSPECTUS SUMMARY
Following the successful implementation of our first renewable biomass power plant in Bangka Island, we have commenced construction of our second renewable biomass power plant in Belitung. Like our first renewable biomass power plant, this will enable us to sell electricity to PLN to meet the needs of local communities in power-scarce areas and serve as an additional source of revenue. We intend to build similar renewable biomass power plants in Kalimantan when appropriate or commercially viable. We also intend to sell the carbon credits attributable to these future CDM projects and will, at the appropriate time, apply to the relevant authorities for validation of such projects. As at the Latest Practicable Date, our renewable power plant in Bangka Island has been validated as a CDM project and is now pending registration status by the executive board of the UNFCCC. For more details, please refer to the section General Information On Our Group Strategy and Future Plans of this Prospectus. Where you can find us Our registered office is located at 3 Shenton Way, #10-06 Shenton House, Singapore 068805. Our telephone number is +65 6227 9122 and our facsimile number is +65 6227 9121.
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PROSPECTUS SUMMARY
SUMMARY OF OUR FINANCIAL INFORMATION
You should read the following summary financial information in conjunction with the audited combined financial statements of our Group and the related notes and the section Managements Discussion and Analysis of Results of Operations and Financial Condition of this Prospectus. Our audited combined financial statements for FY2005, FY2006 and FY2007 are set out in Appendix F of this Prospectus. Our unaudited proforma combined financial information for FY2007 is set out in Appendix E of this Prospectus.
Selected items from the combined operating results of our Group (1)
Audited (US$000) Revenue Gross profit Profit / (loss) before tax Profit / (loss) for the year EPS / (LPS) (US cents)(2) FY2005 36,623 4,434 (9,175) (7,037) (0.9) FY2006 41,067 8,497 20,317 14,835 1.9 FY2007 69,280 23,454 54,556 39,202 4.9
Selected items from the combined financial position and proforma combined financial position of our Group(3)
As at 31 December 2007 (US$000) Non-current assets Current assets Current liabilities Net current assets / (liabilities) Non-current liabilities Shareholders equity NTA per Share (US cents)(4)
Notes: (1) The audited combined operating results of our Group for FY2005, FY2006 and FY2007 have been prepared assuming that our Group had been in existence since 1 January 2005. For comparative purposes, EPS/(LPS) for FY2005, FY2006 and FY2007 have been computed based on the profit/(loss) for the year and our pre-Invitation share capital of 798,044,720 Shares. The audited combined financial position of our Group as at 31 December 2007 has been prepared assuming that our Group had been in existence as at 1 January 2005. The proforma combined financial position as at 31 December 2007 has been prepared assuming that our Group had existed since 1 January 2005 and takes into account the intended distribution of dividends amounting to Rp9 billion (approximately US$1 million) and changes in capital structure as a result of the Restructuring Exercise. Please refer to Appendix E Independent Auditors Report of the Unaudited Proforma Combined Financial Information of Kencana Agri Ltd for the Financial Year Ended 31 December 2007 for a description of the proforma adjustments. For comparative purposes, the NTA per Share for the period under review has been computed based on our pre-Invitation share capital of 798,044,720 Shares.
Audited 135,041 19,153 17,304 1,849 58,313 78,577 9.8
Proforma 135,041 16,223 18,304 (2,081) 58,313 74,647 9.4
(2)
(3)
(4)
27
THE INVITATION
Issue Size : 200,000,000 New Shares comprising 1,000,000 Offer Shares and 199,000,000 Placement Shares which, upon allotment and issue, rank pari passu with our existing issued Shares. S$0.305 for each New Share. The Offer comprises an Invitation by our Company to the public in Singapore to subscribe for 1,000,000 Offer Shares at the Issue Price, subject to and on the terms and conditions of this Prospectus. The Placement comprises a placement of 199,000,000 Placement Shares (including 300,000 Internet Placement Shares) and 12,100,000 Reserved Shares at the Issue Price, subject to and on the terms and conditions of this Prospectus. Our Directors consider that the listing of our Company and the quotation of our Shares on the SGX-ST will enhance our public image locally and overseas and enable us to tap into the capital markets for the expansion of our business operations. The Invitation will also provide members of the public with an opportunity to participate in the equity of our Company. Listing status : Our Shares will be quoted in Singapore dollars on the Mainboard of the SGX-ST, subject to admission of our Company to the Official List of the SGX-ST and permission for dealing in, and for quotation of, our Shares being granted by the SGX-ST and the Authority not issuing a Stop Order.
Issue Price The Offer
: :
The Placement
Purpose of the Invitation
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RISK FACTORS
Prospective investors should carefully consider and evaluate the following considerations and all other information contained in this Prospectus before deciding to invest in our Shares. Some of the following risk factors relate principally to the industries in which our Group operates and the business of our Group in general. Other considerations relate principally to general economic and political conditions and the securities market and ownership of our Shares, including possible future sales of Shares. If any of the following considerations and uncertainties develop into actual events, our business, results of operations and financial condition could be materially and adversely affected. In such cases, the trading price of our Shares could decline due to any of these considerations and uncertainties, and investors may lose all or part of their investment in our Shares. To the best of our Directors belief and knowledge, all the risk factors that are material to investors in making an informed judgement have been set out below.
RISKS RELATING TO OUR BUSINESS AND THE INDUSTRIES IN WHICH OUR GROUP OPERATES Risks Relating To Our Business We may not be able to obtain HGU certification in respect of our Kadastral land and Ijin Lokasi As at the Latest Practicable Date, we are in the final process of obtaining HGU certificates in respect of 42,640 hectares of Kadastral land (representing approximately 44.7% of the total land bank held by our Group) and are also occupying 33,100 hectares of land under Ijin Lokasi. We intend to apply for HGU certification in respect of the 33,100 hectares of Ijin Lokasi in due course. Please refer to the section General Information On Our Group Process of Obtaining HGU Land Title of this Prospectus for a summary of the process by which HGU certification is obtained. Prior to the issuance of the HGU certificates, such lands are considered as uncertified land. Pending the issuance of HGU certificates, our Group is allowed to physically occupy, build and plant crops on the uncertified land. However, as the administration of land laws and regulations may be subject to a certain degree of discretion by the Indonesian government authorities, there is no assurance that the relevant authorities would not take a different approach or view with respect to the uncertified land, its use, registration and future disposal for value. A significant portion of our Groups land has been allocated in the form of Kadastral land. We have been advised by Ali Budiardjo, Nugroho, Reksodiputro, legal advisers to our Company on Indonesian Law, that on the basis that we have actual possession of the uncertified land and the measurement process by Panitia B having been completed, our Group would have the right to obtain HGU certification over such land, subject to the fulfilment of the registration procedures as required under the Basic Agrarian Law of 1960 (the Agrarian Law). As for the land under Ijin Lokasi, such Ijin Lokasi may be revoked by the Indonesian government if we fail to acquire the land within the stipulated validity period (or any extension thereof) of the said Ijin Lokasi. In such an event, we may lose our rights granted by the Indonesian government under the Ijin Lokasi. Presently, we are taking steps to acquire the land in respect of such Ijin Lokasi. Please refer to the section General Information On Our Group Process of Obtaining HGU Land Title of this Prospectus for more information. If for any reason our Group fails to fulfill the registration procedures as required under the Agrarian Law, there is no assurance that the Regional Land Agency will proceed to issue a HGU certificate for land on which we have begun planting. In the event that HGU certification is not obtained for whatever reason, we are required by law to clear such land on which we have started planting, which in turn would materially adversely affect our operations and prospects. As at the Latest Practicable Date, we have planted over 11,838 hectares (or 27.8%) of our Kadastral Land of 42,640 hectares. We have not yet commenced planting on the 33,100 hectares of land under Ijin Lokasi as we had just obtained the Ijin Lokasi for ASML on 26 March 2008, SCEM on 8 April 2008 and WSM on 27 November 2007. We need to effectively manage our expansion plans and may be adversely affected by risks relating to the expansion of our plantations and processing operations Our main operations are currently based in Indonesia. As disclosed in the section Strategy and Future Plans of this Prospectus, our Directors intend to, among others, grow and expand our oil palm plantations, increase our production capacity by building more processing facilities and relying on new
29
RISK FACTORS
technology. We are also looking into developing germinated seeds to improve our planting process. Our expansion plans involve various risks which include operational, construction and regulatory risks and risks involving investment in working capital. The success of our expansion plans depends on many factors, some of which are not within our control. For example, our expansion plans are subject to the following events: Indonesian government policies could limit our ability to obtain adequate land rights to additional land suitable for plantations; we may not be able to convert all of the land bank that we hold to HGU title and therefore may not be able to use all of this land for our planned expansion; we may not be able to complete our plantation and processing facilities expansion on time or within budget; our new or expanded plantations may not be able to produce FFB at expected production levels or may require additional costs to cultivate and harvest; we may experience difficulties integrating our new expanded plantations with our current plantations and processing facilities; we may not be able to carry out our planned expansion due to unfavourable weather conditions and natural disasters; and unforeseen circumstances and problems relating to our expansion projects. Any of these factors may affect our ability to execute our expansion plans successfully, in which event, our business, financial condition and results of operations may be adversely affected. We are vulnerable to significant fluctuations in prices and availability of our key raw materials and germinated seeds Our operations depend on key raw materials which include FFB, kernels, kernel shells, fertiliser, pesticide, herbicide and diesel fuel. Approximately 75.7%, 67.7% and 78.7% of our costs of sales were for FFB and kernels purchased from third parties in FY2005, FY2006 and FY2007 respectively. We do not have long term supply contracts with such third parties, save for FFB supplied by villagers under our Plasma Programme. The prices and availability of raw materials may be affected by factors such as changes in their global demand and supply, the state of the global economy, inflationary pressure, environmental regulations, tariffs, natural disasters, forest fires, weather conditions and labour unrest. Under Indonesian government policy, oil palm plantation companies are encouraged to develop new plantations that will be operated by local small landholders, a scheme known as the Plasma Programme. Under this programme, we are committed to purchase FFB from landholders at a formula price fixed by the local government. All plantations in the region must purchase FFB under the Plasma Programme at this price. There can be no assurance, however, that the formula price will continue to approximate the market price. As our plantations continue to expand with new plantings, the land area assigned under our Plasma Programme will increase accordingly. This may adversely affect our margins as we are required to buy a higher proportion of FFB at the formula price which may be greater than market price. In the event of a shortage of germinated seeds arising from factors such as high demand for germinated seeds in the industry or from natural disasters, we may not achieve our new planting targets under our expansion plans and we may not be able to seek alternative sources of supply in a timely manner. Between FY2005 and FY2007, we purchased a significant proportion of FFB and kernels from third parties. In the event that there is a disruption or significant reduction in the supply of FFB and kernels from these third parties, we may not be able to achieve a comparable level of production of CPO and CPKO, and accordingly our financial performance may be affected.
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RISK FACTORS
Any significant fluctuation in the prices and availability of such materials may significantly increase our cost of sales, which in turn may adversely affect our business, profitability and overall financial performance. Our financial results may fluctuate due to increases or decreases in the appraised fair value of our biological assets We reassess the fair value of our biological assets on our plantations at every balance sheet date. Our annual valuations are prepared by independent valuers and the estimations are based on discounted cashflows of the underlying biological assets. In accordance with Singapore Financial Reporting Standards (SFRS), we recognise changes to the appraised fair value of our biological assets on our plantations as an increase or decrease (as applicable) in our income statements. However, there is no cash flow impact arising from any fair value increase or decrease as long as the relevant plantations on which the biological assets are located are held by our Group. Based upon our audited combined income statements, we recognised fair value gains of US$16.7 million and US$41.9 million in FY2006 and FY2007 respectively and a fair value loss of US$9.0 million in FY2005. The appraised fair value of our biological assets may fluctuate further in the future, and our historical results should not be regarded as an indicator of the future profits of our Group. The appraised fair value of our biological assets may decrease in the future. Any decrease in the fair value of our biological assets could have a material adverse effect on our profitability, overall financial condition and results of operations. We may not be able to effectively hedge the risks of price fluctuations for our products Our Group from time to time utilises forward physical contracts in the ordinary course of business to hedge the risks of adverse price fluctuations of our products, namely CPO and CPKO. Nonetheless, as we enter into forward physical contracts for only a portion of our products, our Group may not be able to fully hedge against the risks of future price fluctuations of our remaining products. Should the future market prices of these remaining products decrease, our profitability may be adversely affected. We may face prohibitions and constraints in our ownership and acquisition of plantation land We currently possess land that is in different stages of the regulatory processes described therein. As at the Latest Practicable Date, our land bank is 95,410 hectares. We have obtained HGU title in respect of 19,670 hectares. We are also in the final process of obtaining HGU title for 42,640 hectares of our Kadastral land bank. The balance of 33,100 hectares is held under Ijin Lokasi. In Indonesia, the government holds title to all land under Basic Agrarian Law of 1960. In order to obtain HGU title from the Indonesian government, an application needs to be made to the National Land Agency. HGU titles granted by the Indonesian government have a fixed duration that may be extended for additional periods provided that the holders can fulfill certain requirements. HGU is a right to utilise government-owned land for plantation, fisheries or farming with minimum area of five hectares, for a period of up to 35 years, extendable for an additional period of up to 25 years, provided holders can fulfill the extension requirements. A holder of HGU title can also renew this land use right after the extended term expires. Only Indonesian citizens and legal entities established under Indonesian Law with domicile in Indonesia may hold HGU. The HGUs we hold expire between the years 2034 and 2042 in our South Kalimantan plantation and between the years 2032 and 2037 in our Bangka plantation, unless further extended. The intermediate stages of obtaining approval for HGU include the acquisition of the land bank and the survey of the land by Panitia B, after which the Decision Letter on the Granting of HGU (Surat Keputusan Pemberian HGU) is issued followed by registration of the HGU. Please refer to Appendix C Indonesian Regulatory Overview of this Prospectus for more information. With regard to limitations on the maximum size of land allowable for plantation business, on 10 February 1999, the State Minister of Agrarian Affairs / Head of the National Land Agency issued Regulation No. 2 of 1999 (Regulation No. 2/1999), which limits the aggregate size of agricultural plantations (including oil palm plantations) held by any person, company, group or related persons or companies. According to Regulation No. 2/1999, the maximum aggregate size for oil palm plantations for a company or a group of companies under the same shareholding is 100,000 hectares nationally and 20,000 hectares for each province of Indonesia, except for the province of Papua (formerly known as Irian Jaya) where the maximum area is 40,000 hectares. The above limitations are only applicable to HGU titles and do not apply to Kadastral land or land under Ijin Lokasi.
31
RISK FACTORS
Further on 23 May 2002, the Minister of Agriculture issued Decree No. 357/Kpts/HK.350/5/2002 on guidelines for licensing plantation business (Decree No. 357/2002) with the same restrictions on the size of land-plots for the business of plantation cultivation. However on 11 August 2004, the Indonesian government enacted Law No. 18 of 2004 concerning Plantation (Law No. 18/2004 or Plantation Law), which provides, inter-alia, that for the use of land for a plantation business, the minister in charge of and responsible for managing the plantation sector (the Minister of Agriculture) shall stipulate the lands maximum and minimum area of use, while the agency in charge of land affairs shall issue the land titles. In determining the maximum and minimum land areas permitted to be used for the purposes of a plantation business, the Minister of Agriculture shall be guided by the following factors: (i) the types of plants; (ii) the availability of land according to the agro-climatic conditions; (iii) capitalisation of the business; (iv) the factorys capacity; (v) the population density of the area; (vi) the business development pattern; (vii) the local conditions; and (viii) the respective general technology development. In addition to the above, a plantation shall be operated with the aim of: (i) improving the communitys income; (ii) increasing the states revenue; (iii) increasing the states foreign exchange receipts; (iv) creating job opportunities; (v) increasing productivity, added value and competitiveness; and (vi) optimising the management of natural resources in a sustainable way. Further to the implementation of Law No. 18/2004, on 29 February 2007, the Regulation of the Minister of Agriculture No. 26/Permentan/OT.140/2/2007 (Regulation No. 26/2007) was issued which provides, among others, the maximum acreage of plantation area which can be granted to a plantation company as a single legal entity. The maximum acreage of the plantation area is determined based on the types of commodities as stated in Regulation No. 26/2007, such as oil palm and rubber, where the maximum acreage is 100,000 hectares and 25,000 hectares, respectively, except that the maximum acreage of plantation area in the province of Papua is two times the maximum acreage of plantation area as set forth in Regulation No. 26/2007. Regulation No. 26/2007 also provides various exceptions to the size limitations, one of which is that the limitations do not apply to plantation companies listed in Indonesia and in which the majority of the shares is owned by the public. The Plantation Business Licence (Ijin Usaha Perkebunan IUP) issued prior to the enactment of Regulation No. 26/2007 is still valid and serves as a business licence for the holder. Please note that based on the issuance of Regulation No. 26/2007, Decree No. 357/2002 was revoked. Even though Regulation No. 26/2007 has been effective since February 2007, Regulation No. 2/1999 has never been revoked. Hence, it is unclear how the National Land Agency or the provincial governments will respond to the issuance of Regulation No. 26/2007, which allows each company to own plantations up to 100,000 hectares. Although Decree No. 357/2002 has been revoked by Regulation No. 26/2007, in practice, the National Land Agency still preserves the limitation of plantation area as stipulated in Decree No. 357/2002. As at the Latest Practicable Date, our Group is in compliance with both Regulation No. 2/1999 and Regulation No. 26/2007. We also believe that by enacting the Law No. 18/2004 the Indonesian government has given its support to the development and expansion of plantation business activities. In addition, due to the developing nature of Indonesian property law and the lack of a uniform title system in Indonesia, disputes over our purchase of title from previous land owners could occur. In particular, rights to plantation lands that have been formed from the land of many small landholders or lands belonging to the indigenous people may give rise to disputes with former or illegal land owners. We have entered into various agreements with small landholders who own uncertified land pursuant to which these individuals have relinquished their title over the land to the State so as to enable us to obtain a HGU title over the land. Following the relinquishment of title, such land is typically left vacant pending its intended use by us. As we are only in possession of a contractual right to physical possession of the land based on our agreements with the previous landowners, we are therefore required to apply for a HGU title with the Indonesian government before we are able to obtain valid title to the land. We believe that we are able to submit successful applications to obtain a HGU title over such land on the basis that there are currently no legal disputes over such land. However, due to the developing nature of Indonesian land law, disputes over title from previous landowners or any third parties may arise in the future. A dispute may prevent or indefinitely postpone the granting of HGU titles in our favour, which could in turn have an adverse effect on our prospects and future plans.
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RISK FACTORS
Further, before allocating undeveloped land for plantation use, the regional government will consult other related government agencies. As there are difficulties in producing accurate maps, the regional government may assign overlapping Ijin Lokasi for different uses for the same area of land. There is a risk that we may be assigned Ijin Lokasi in respect of land for which there are conflicting Ijin Lokasi or overlapping protected areas such as woodlands. Such conflicts would prevent us from fully utilising the land and require us to seek further approvals from the authorities. There can be no assurance that such approvals will be granted. Failure to obtain HGU certification for our land bank and any disputes over our land which we are involved in, could each have an adverse effect on our business, financial condition, results of operations, and prospects. The issuance of Ijin Lokasi is subject to approval and recommendation from the relevant authorities As at the Latest Practicable Date, our Group is applying for additional Ijin Lokasi (outside our current total land bank) in respect of approximately 36,700 hectares of plantation land in Indonesia allocated by the Indonesian government. The Ijin Lokasi will be issued by the Head of Regency having jurisdiction over the location of the plots of land in respect of which the Ijin Lokasi is being applied for. The issuance of Ijin Lokasi will be made by the Head of Regency in accordance with the regional spatial layout and based on the recommendations from the regional land office and other government related agencies, such as the Department of Agriculture and the Department of Forestry (Relevant Department). There is a possibility that the Relevant Department may, for any reason, not issue the required recommendations in our favour, and in such circumstances, the Head of Regency may not issue the Ijin Lokasi under our name. This in turn may have a material adverse effect on our prospects and future plans. The Ijin Lokasi (location permit) of certain of our properties may not be extended As at the Latest Practicable Date, our Group holds Ijin Lokasi in respect of approximately 33,100 hectares of plantation land in Indonesia allocated by the Indonesian government. The Ijin Lokasi allows our Group to acquire rights over the land covered by the Ijin Lokasi in accordance with the prevailing laws and regulations. Upon the completion of the acquisition of such land, our Group will be entitled to begin the process of application for HGU certification over such land. Under Regulation No. 2/1999, Ijin Lokasi may be extended only if the holder of the Ijin Lokasi has acquired from existing landowners more than 50% of the land covered under the Ijin Lokasi. The duration of Ijin Lokasi may not be extended by the Indonesian government and will automatically expire if our Group fails to acquire up to 50% of the land covered in the Ijin Lokasi within the stipulated validity period of the said Ijin Lokasi. In such an event, our Group may lose the rights granted by the Indonesian government under the Ijin Lokasi in respect of the remaining area covered by the original Ijin Lokasi, which would have a material adverse effect on our prospects and future plans. Our Group is presently taking steps to acquire the remaining land in respect of such Ijin Lokasi. Please refer to Appendix C Indonesian Regulatory Overview of this Prospectus for more information. We will be adversely affected by any significant or prolonged disruption to our production facilities Any prolonged and/or significant disruption to our production facilities (whether occasioned by the need for repair, maintenance or servicing or the result of industrial accidents or human error) will adversely affect our operations. Further, any major or sustained disruptions in the supply of utilities such as water or electricity or any fire, flood, earthquake or other natural calamities could lead to significant disruption to our operations or result in significant damage to our production facilities or inventories. These will adversely affect our business, financial performance and prospects. We may have insufficient insurance coverage or no insurance coverage for certain contingencies Our operations are subject to hazards and risks inherent in agriculture and processing operations, such as fires, storage tank leaks, mechanical failure of equipment at our processing facilities and natural disasters. Many of these operating and other risks may cause personal injury and loss of life, severe damage to or destruction of our properties and environmental pollution, and could result in suspension of part or all of our operations and the imposition of penalties.
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RISK FACTORS
We face the risks of loss and damage to our properties, machinery and FFB due to fire, theft and natural disasters such as earthquakes and floods. Such events may cause a disruption to or cessation of our operations. While our insurance policies cover some losses in respect of loss and damage to our properties, machinery and inventories, our insurance coverage may not be sufficient to cover all of our potential losses. In addition, our insurance coverage may not cover all the risks which we may be exposed to, such as loss and damage to our biological assets. In the event our losses exceed our insurance coverage, or if we are not covered by the insurance policies we have taken up, we may be liable to cover any shortfall or losses. Our insurance premiums may also increase substantially because of such claims. In such circumstances, our financial results may be materially and adversely affected. We do not insure our plantations against fire, diseases, or pests. We currently maintain insurance coverage for industrial all risks, machinery breakdown, and earthquake of approximately US$67.7 million in respect of our Bangka Island and Kalimantan processing facilities which includes equipment and machineries, stocks, inventories and power plant. Our insurance coverage is also subject to certain exclusions such as war, terrorism and nuclear contamination. In the event that our processing facilities are damaged, such insurance coverage may be inadequate to cover the loss or damage that may be incurred as a result of such events. In addition, the operation of our vessels is subject to risks such as losses caused by adverse weather conditions, mechanical failures, collisions, human error, war, terrorism, piracy, labour stoppages and other circumstances or events including spills and other environmental mishaps. In addition, transporting cargo across international jurisdictions involves the risk of business interruptions due to political circumstances in foreign countries, hostilities, labour strikes and boycotts, and the risk of government expropriation of our vessels. We may not be able to obtain adequate insurance coverage at reasonable rates for our vessels in the future or successfully make claims against the insurance companies. Furthermore, even if insurance coverage is adequate to cover our losses, we may not be able to obtain a replacement ship in a timely manner. Any significant loss or liability for which we are not adequately insured or any delay in obtaining a replacement ship could have a material adverse effect on our business, financial position and results of operations. We also maintain marine hull insurance coverage of Rp19.6 billion (approximately US$2.2 million) in respect of our vessels. Such insurance covers events such as fire, explosion, perils of the seas, piracy, accidents in loading, discharging or shifting cargo and is subject to certain exclusions including loss of life and personal injury, war, derelict bombs or torpedoes, nuclear fission and terrorism. The amount of such insurance coverage may be inadequate to cover the loss or damage that may be incurred as a result of such events. If we suffer a large uninsured loss or in the event that any insured loss suffered by us significantly exceeds our insurance coverage, our business, financial condition, results of operations and prospects could be materially and adversely affected. Please refer to the section General Information On Our Group Insurance of this Prospectus for more information. We are dependent on our key management team and skilled employees The continued services of our management team and skilled employees make up one of our key success factors. Our Groups success is to a large extent attributable to the strategy and vision of our founder and Chairman and CEO, Mr. Henry Maknawi, as well as our senior management team and operational personnel who are familiar with our Groups operations and are able to meet the needs and requirements of our customers. As we do not have keyman insurance, the loss of the services of the aforementioned persons would have an impact on our business and operations. There is no assurance that we will be able to retain our key management personnel. A loss of any of our key personnel without sufficiently qualified and timely replacements may have an adverse impact on our operations and our growth, prospects and future performance.
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RISK FACTORS
We rely on bank borrowings to finance our operations and may require additional funding for our future growth Certain of our Group companies currently rely on credit facilities from financial institutions. Such facilities involve restrictive covenants such as (i) limiting certain of our Group companies ability to pay dividends or requiring us to seek consent from the relevant financial institutions for the payment of dividends; (ii) requiring us to maintain certain financial ratios, failing which repayment of the debt may be accelerated; (iii) restricting our ability to undertake or requiring us to obtain consents from the relevant financial institutions for corporate restructurings, mergers and acquisitions, additional financing or other fundraising exercises; and/or (iv) requiring the retention of ultimate majority shareholding interest in certain of our Group companies by members of the Maknawi family both prior to and after the Invitation. In the event that such restrictive covenants are not discharged or such consent is not granted by the relevant financial institutions, our operations, future expansion and the attractiveness of our Shares as an investment may be adversely affected. As at the Latest Practicable Date, the aggregate amount of bank borrowings which are covered by these restrictive covenants was approximately US$39.7 million (86.7% of our total indebtedness). Apart from internal funding resources, we also rely on finance leases and term loans to finance our operations. Please refer to the section Capitalisation and Indebtedness of this Prospectus for details of our bank borrowings. If all or a substantial portion of our facilities are withdrawn and we are unable to secure alternative funding on acceptable commercial terms, or if the cost of such alternative funding is higher than our present cost of funds, our operations and financial position will be materially and adversely affected. We may need additional financing to fund our activities in future. There is no assurance that we will be able to obtain additional financing on terms that are acceptable to us or at all. If we are unable to do so, our future plans and growth prospects may be adversely affected. Our operations are subject to negative impact of government export taxes, import policies and tariffs and price control measures As we export a significant portion of our products to countries outside Indonesia, we are currently affected by export taxes levied by the Indonesian government. For instance, the Indonesian government had on 15 June 2007 implemented a price control measure by imposing an export duty hike on CPO to lower and curb any further increase in the price of cooking oil. Tariffs and government import policies of our Groups export markets (such as India) will also affect the cost of materials to our foreign customers. Such taxes increase the cost of our export sales. Based on the Regulation of the Minister of Finance No. 94/PMK.011/2007 dated 31 August 2007 (MOF Regulation No. 94) in conjunction with the Regulation of the Minister of Trade No. 35/M-DAG/PER/8/2007 dated 31 August 2007, the Ministry of Trade will determine Export Check Price (ECP), also commonly known as Harga Patokan Export (HPE), on a monthly basis for certain Export Goods (MOT Regulation No. 35) in order to ensure a sufficient supply of raw material for the domestic cooking oil industry and to maintain the stability of domestic cooking oil prices. The Ministry of Trade utilises the monthly average international price and/or FOB Indonesian ports to determine the ECP. The Ministry of Finance will then determine the percentage of export tax to be applied to the ECP every month based on the average monthly CIF Rotterdam (Reference Price). Pursuant to the Regulation of the Ministry of Finance No. 72/PMK.011/2008 dated 8 May 2008, a new range of export tax rates were imposed on CPO and its derivative products. The export tax rate imposed on CPO and CPKO could extend up to a maximum of 25% depending on the Reference Price. If the Indonesian government further increases the export tax level on our products or imposes an export ban on our products or takes other similar actions, our export sales and the prices we can charge in the Indonesian market will be adversely affected, which could adversely affect our business, financial condition, results of operations and prospects. Any material changes in Indonesian export policies or the import policies of our Groups export markets such as an export or import ban or an increase in export or import taxes or other similar or related actions by the various governments would adversely affect the price competitiveness of our Groups products. 35
RISK FACTORS
We are exposed to foreign exchange fluctuation risks Our Companys functional and reporting currency is the US dollar and that of our Indonesian subsidiaries is the Rupiah. The majority of the sales of palm oil products of our Group are quoted in US dollars while our purchases (with the exception of certain key costs such as fertilisers, plant and heavy equipment) and business operations in Indonesia are mainly denominated in Rupiah. For FY2007, approximately 96.6% and 3.4% of our revenue were denominated in US dollars and Rupiah respectively. For the same period, approximately 5.1% and 94.9% of our total purchases were denominated in US dollars and Rupiah respectively. As such, our Group has a net foreign exchange exposure due to a mismatch in the currencies of receipts and payments. To the extent of such mismatch, any significant appreciation or depreciation in the US dollar against the Rupiah and/or arising from timing difference due to credit terms given by our suppliers and to our customers may cause our Group to incur foreign exchange losses or, conversely, benefit from foreign exchange gains. In addition, our Group has significant borrowings denominated in US dollars to finance our operations in Indonesia. As such, any appreciation in the US dollar against the Rupiah may also result in our Group incurring foreign exchange losses due to settlement or revaluation of our US dollar-denominated borrowings. As at 31 December 2007, approximately 34.6% and 65.4% of our Groups total borrowings were denominated in US dollars and Rupiah respectively. Our Group records its financial results in either Rupiah or US dollars and the accounts of our Indonesian subsidiaries will need to be translated to US dollars for consolidation purposes. Any fluctuations in currency exchange rates will also result in exchange translation gains or losses. For the last three financial years ended 31 December 2005, 2006 and 2007, the net foreign exchange gains/(losses) of our Group are as follows:
FY2005 Net foreign exchange gains/(losses) recognised in income statement (US$000) FY2006 FY2007
(563)
1,206
(773)
In seeking to mitigate the volatility associated with US dollar-denominated sales, our Group usually utilises foreign currency forward contracts. The value of such foreign currency forward contracts is equivalent to approximately 30.0% of US dollar-denominated sales. Our Groups foreign currency hedging policy aims to reduce the impact of significant fluctuations in the exchange rate between the US dollar and the Rupiah, on our financial performance. Nonetheless, any sudden and significant changes in the exchange rate between the US dollar and the Rupiah could affect the results of our operations, if the prices of our products fail to fully reflect the changes in raw material costs or if our currency position is not properly or adequately hedged. Our operations are subject to disruptions in transportation and volatility in freight costs We are dependent on freight and transportation services provided in part by external parties to transport materials between our processing and storage facilities as well as for delivery of our products to our customers. Disruption of transportation services arising from factors such as unfavourable weather conditions, labour unrest, significant downtime arising from major and unexpected repairs or other events could impair our production process and affect the quality of our products and our ability to supply our products to customers on time. Failure to or delay in supply of our products to customers may result in contractual claims against us and any repeated delay or failure to supply our products to customers may in the long term, adversely affect the demand for our products, our reputation and the growth and prospects of our business as a whole. Freight and handling expenses incurred in the transportation of our products account for a substantial portion of our Groups distribution costs and are therefore vital factors in customers purchasing decisions. Increases in freight and transportation related costs, including cost increases due to an escalation of fuel prices, could increase our Groups expenses which may in turn have a material adverse effect on our operating results. 36
RISK FACTORS
A significant portion of our revenue is attributable to a major end customer Kuok Oils & Grains Pte. Ltd. (now part of the Wilmar Group) is our major end customer accounting for approximately 62.7%, 52.2% and 35.2% of our revenues for FY2005, FY2006 and FY2007 respectively. Please refer to the section General Information On Our Group Major Customers of this Prospectus for more information. We generally do not have any long-term supply agreements with our customers. The strength of our relationship with our major customers in the future will depend on our ability to supply quality products in a timely manner and at acceptable prices. Hence, there can be no assurance that the Wilmar Group or any of our other major customers will continue to place orders with us at current levels and any significant reduction or cessation in orders would have a material adverse effect on our financial results. We may be adversely affected by the imposition and enforcement of more stringent environmental regulations Our main environmental concerns relate to the discharge of effluent arising from the milling of FFB and clearance of land and forest for developing our plantations. Our main social concern relates to possible conflicts that may arise with local communities in the areas around our plantations. Any environmental claims or failure to comply with any present or future regulations could result in the imposition of fines, or the suspension or cessation of our operations. Our plantations are subject to both scheduled and unscheduled inspections by various government agencies, each of whom may have different perspectives or standards from the others. These agencies have the power to examine and control our compliance with their environmental regulations, including the imposition of fines and revocation of licenses and land rights. However, governmental agencies may adopt additional regulations that would require us to spend additional funds on environmental matters. Please refer to Appendix C Indonesian Regulatory Overview of this Prospectus for more information. Environmental regulations and social practices in Indonesia tend to be less stringent than in developed countries. It is possible that these regulations could become more stringent in the future and compliance with them may involve incurring significant costs. This may consequently have an adverse effect on our operations. Any failure to comply with the laws and regulations could subject us to liabilities. Our plantation operations may face disruption from environmental groups, non-governmental organisations and interested individuals Environmental groups, non-governmental organisations and interested individuals may from time to time seek to challenge or impair the ability of plantation companies to engage in plantation activities. For instance, groups and individuals may stage protests that disrupt harvesting or production plans and may file or threaten to file legal proceedings seeking to disrupt the operations of plantation companies generally. Such activities may generate negative press about plantation companies in general. Any delay in or restrictions on harvesting or production activities imposed as a result of the intervention of environmental groups, non-governmental organisations or such interested individuals or other action that may give rise to negative perceptions about plantation companies generally, may adversely affect our reputation and disrupt our operations which in turn may cause us to suffer financial loss. We may be adversely affected by third parties actions in using fire for land clearing We adopt a strict zero burning policy for land clearing and practice fire-control measures such as maintaining watchtowers and conducting regular patrols. However, there is a possibility that third parties may conduct burning in order to carry out land clearing activities near our plantation areas or commit arson or subterfuge that cause fires to occur in our plantation areas, resulting in damage to our plantations. This may lead to legal proceedings against us in respect of fires occurring in our plantations, which may affect our reputation and disrupt our operations, which in turn may cause us to suffer financial loss. We may make acquisitions which could place a strain on our resources and adversely affect our financial performance Going forward, we may make acquisitions to expand our existing business. The entire acquisition process involves, inter alia, identifying suitable targets, negotiations and due diligence investigations and could place a strain on our resources and may not result in the completion of successful acquisitions. Future acquisitions could also divert our managements attention from other business concerns and may expose 37
RISK FACTORS
our business to unforeseen liabilities or risks associated with entering new markets. We may also lose key employees while integrating new organisations. Consequently, the acquired business may not be successfully integrated and we may not achieve the anticipated revenues and cost benefits. Such acquisitions could also result in, inter alia, loss of customers, potential dilutive issuance of equity securities or the incurrence of debt, contingent liabilities or other unanticipated events or circumstances, any of which could adversely affect our business and financial performance. Labour activism and strikes, or failure to comply with various labour regulations or maintain satisfactory labour relations may adversely affect our Group Our plantations and processing plants are labour-intensive. In addition, our plantations are surrounded by plasma plantations which may affect our field maintenance and plant harvesting. Our operations have not been materially affected by any significant labor dispute or dispute with the villagers of the local communities in the past. However, we may, in the future, experience labor unrest, activism, disputes or actions involving our employees or villagers, any of which could have a material adverse effect on our business operations and, in turn, our financial performance as a whole. Although the operations of our Group have not been materially affected by any significant labour dispute in the last three financial years ended 31 December 2005, 2006 and 2007 and the period from 1 January 2008 to the Latest Practicable Date, there is no assurance that we will not experience labour unrest, activism or disputes in future which may be significant and could adversely and materially affect our business and financial performance as a whole. Our Group may be exposed to the risk of small landholders defaulting on repayment of the loans extended or guaranteed by our Group under the Plasma Programme in which we participate The Indonesian government requires oil palm plantations to develop the surrounding local plantation areas held by small landholders when applying for land rights for oil palm plantations. This form of assistance to local small landholders is generally known as a Plasma Programme. Under a Plasma Programme, a plantation developer transfers a designated land area to small landholders, who then operate the plasma plantation under the supervision of the plantation developer. Our Group has implemented a Plasma Programme using the plantation business cooperatives scheme (KKPA), the cooperation in local community palm oil plantation scheme (KKSR), and the independent plasma scheme (Plasma Mandiri). Under the KKPA scheme, the land is typically occupied by the villagers and our Group helps to develop the land (including assisting the villagers to obtain land certificates) and manage the oil palm trees to maturity. The development costs are funded by bank loans, which are guaranteed by the land rights over the small landholders oil palm plantations and by corporate guarantees from our Group. In the event that the small landholders default on repayment of their loans, and the banks claim on the guarantees provided by our Group, our Group will be entitled under Indonesian law to be subrogated in relation to the security held by the banks over the debts of the small landholders. Upon maturity of the oil palm trees, the land will be maintained and managed by the villagers or in the future by our Group. The harvested FFB will then be sold to our Group. The loan facilities will be repaid by the villagers from part of the FFB sales proceeds. The banks typically charge interest at fixed and floating rates under the government scheme or a floating rate under the company scheme for the financing of such development costs. Historically, the interest rates charged ranged between 10.0% and 18.9% per annum. Repayment of interest typically starts after the fourth year of planting and repayment of the principal (including interest) starts between the sixth and seventh year of planting. Our Group will obtain a power of attorney to manage the account of the villagers into which the sales proceeds of FFB will be deposited. This power of attorney allows our Group to withdraw funds from such account to pay for all the villagers operating costs and expenses. Under the KKSR scheme, the land is also typically occupied by the villagers. Our Group will provide seedlings and the regional authorities will provide fertiliser to the villagers. Post-harvest, the FFB will be sold to our Group and part of the sale proceeds will be paid to our Group and the regional authorities as payment for the seedlings and fertiliser respectively.
38
RISK FACTORS
Plasma Mandiri is a scheme whereby our Group will provide the seedlings to the villagers, and the villagers will plant and maintain the plantation. Post-harvest, the FFB will be sold to our Group and part of the sales proceeds will be paid to our Group as payment for the seedlings provided. There is no governmental involvement under this scheme. Please refer to Appendix C Indonesian Regulatory Overview of this Prospectus for more information on the above schemes under our Plasma Programme. There is no assurance that the small landholders will not default on their obligations to sell FFB to our Group. As such, this may result in them defaulting on their loan repayments to the banks and our Group. In such event, the banks may call upon the guarantees which have been provided by our Group to the banks to secure the loans of the small landholders. Under the KKPA scheme, our Group has provided guarantees for loan facilities of up to Rp92.1 billion (approximately US$9.9 million) and approximately Rp50.0 billion (approximately US$5.4 million) of such loans have been drawn down as at the Latest Practicable Date. In addition, under our Plasma Programme, our Group may provide financial aid to small landholders for the development of their plantations, where necessary. As at the Latest Practicable Date, the receivables from small landholders amounted to approximately Rp10.6 billion (approximately US$1.1 million). Any material default by such small landholders on their obligations to the banks and/or our Group would therefore have a material adverse impact on our Groups business and financial performance as a whole. Our bulking terminal is situated on leased property and such lease may be terminated and/or may have to be relocated at the end of the lease period We lease the land on which our bulking terminal (including the nearby jetty for vessels to berth) is situated as well as our storage tanks from PT Timah Industri. The respective leases will expire in 2012. There is no assurance that these leases (or any future leases taken up) will not be terminated prior to their expiry or that when an application for extension is made, that an extension for such leases will be granted, or granted on no less favourable terms. In addition, we occupy the pier in the Belinyu port area pursuant to a co-operation agreement with PT (Persero) Pelabuhan Indonesia II Pangkalbalam Branch which will expire at the end of 2013. If the lease or co-operation agreement is terminated or if our Group is unable to extend the same on the expiry of their respective existing terms, we would have to relocate the infrastructure built on the leased property and incur significant relocation costs, which in turn may have an adverse effect on our Groups financial performance. Our renewable biomass power generation business is in its early stages of development and therefore exposed to operational risks Our renewable biomass power generation operations are relatively new and may face operational risks typically associated with new businesses. The technology our power plant relies on utilises renewable biomass as a commercially viable fuel source. This technology is relatively new and may not be as stable as conventional power plant technology. In addition, we rely on third parties for the supply of over 30% of the raw materials, namely kernel shells and EFB, used as the fuel source for our biomass power generation operations. In the event that we are unable to obtain sufficient raw materials for use as biomass or should the technology we rely on prove more unstable than conventional technology, our power output may fluctuate as a result. This may adversely affect the financial performance of our power generation business. Our renewable biomass power generation business only supplies PLN, a state-owned electricity enterprise with whom we do not have any long term contractual agreement for the supply of our power supply services. We currently have a one-year renewable contract with PLN for the supply of power generated from our renewable biomass power plant on Bangka Island in Sumatera which will expire on 31 May 2009. We are in the process of negotiating for a renewal of the contract and, where possible, for a longer term power purchase contract. However, there is no assurance that PLN will continue to transact with us at the same levels and price in the future as they have had in the past. In the event that our contract for our Bangka Island power plant is not renewed and we are unable to secure alternative purchasers, our revenue and profitability from our power generation operations will be adversely affected.
39
RISK FACTORS
We are dependent on temporary labour for some of our production proceses We engage temporary labour directly or through sub-contractors to carry out certain aspects of our production processes including the harvesting of FFB and the upkeep of our oil palm plantations. Labour for harvesting is generally engaged on a yearly contract basis while labour for the upkeep of our plantations are engaged on a daily basis without any contract. There can be no assurance that we can engage sufficient temporary labour for the upkeep of our plantations or, upon the expiry of the relevant contracts, temporary labour for the harvesting of our FFB. In the event that we are unable to secure sufficient temporary labour, our ability to produce our products may be adversely affected and accordingly, our business, results of operations and financial performance may be adversely affected. We are subject to intense competition We operate in an industry which is highly competitive and we face competition from other producers of similar CPO and CPKO products in both the local and foreign markets. Some of these producers have similar capabilities and compete with us on key attributes such as quality of products, pricing, time-tomarket and available production capacity. There can be no assurance that we can compete successfully in the future and maintain or increase our market share. In the event that we are unable to compete effectively, our business and future growth will be adversely affected. We are affected by regional and worldwide social, political and economic conditions Globalisation has resulted in our exposure to global, social, political and economic conditions. Uncertainties arising from war, the potential threat of terrorism and the outbreak of infectious diseases may cause our customers to take a cautious approach to spending and consumption of services. Adverse changes in the political and social conditions both regionally and worldwide may affect consumers sentiment and result in the reduction of demand for our CPO and CPKO which will have an adverse effect on our Groups financial performance and growth. We are and will continue to be dependent on the economic growth, political stability as well as, social conditions of Indonesia and any other countries in which we operate or intend to operate. Our growth and expansion plans may also be undermined by any labour disputes, political unrest, economic or financial crisis or disturbances occurring in any of such countries. RISKS RELATING TO THE PALM OIL INDUSTRY The prices of our products may fluctuate based on international prices Our main products, CPO and CPKO, are freely-traded market commodities. As such, their international prices are affected by various factors that include changes in global demand for and supply of CPO and CPKO, prices and global demand for and supply of other vegetable oils, world consumption levels of these products and import and export tariffs. Our increase in revenue between FY2006 and FY2007 was partially attributable to the increase in CPO and CPKO prices. Downward fluctuations in the prices for these products could have a material adverse effect on our business, financial condition, results of operations and prospects. Our products are subject to changes in consumer preferences and may face significant competition from other substitute products CPO, soybean oil and rapeseed oil are some of the most consumed vegetable oils and to a certain extent are substitutable for one another. We believe worldwide consumption of palm oil has increased faster than any other vegetable oil and its success is linked to its versatile use in the food industry as well as for many non-food applications. Any significant increase in demand for products manufactured from soybean or rapeseed or substitution of palm oil for its competing vegetable oils in both food and non-food operations may have a material adverse effect on our business, results of operations and financial performance.
40
RISK FACTORS
We are adversely affected by downturns in the harvesting of FFB due to adverse weather conditions, natural disasters and other factors The production of CPO and other palm oil derivative products are highly dependent on a sufficient supply of FFB. Being an agricultural product, the occurrence of unfavourable weather conditions and natural disasters such as fires, droughts, floods, earthquakes, volcanic activity, pestilence, crop disease and annual drought in the Kalimantan regions which typically lasts for approximately three months (although in the past have lasted for up to five months), haze from forest fires, labour strikes or other disturbances and delay in fertiliser application will affect the supply of FFB. In addition, the Indonesian government may take action against us, such as suspending our land rights, if forest fires occur on our plantations. Any of these factors may result in FFB supply being less readily available, which in turn could have a material adverse effect on our business, financial condition, results of operations and prospects. We may be adversely affected by pests and diseases Palm oil plantations are susceptible to pests and diseases. The outbreak of leaf eating insects such as nettle caterpillars and bagworms are commonly encountered, especially in plantations where only one type of crop is grown on the land. The outbreak of pest infestation and disease may result in a decrease in the production of FFB and destruction of oil palm trees in some instances, which in turn may have a negative impact on our business operations and financial performance. In addition, we may have to incur additional expenditure to control or eradicate such outbreaks. Since the commencement of our business, we have not experienced any outbreak of pests infestation and diseases that has had a significant impact on our operations or FFB production. There can be no assurance that there will be no major outbreaks of pest infestation and disease in the future that could materially and adversely affect our business, financial condition, results of operations and prospects. RISKS RELATING TO INDONESIA Our operations may be adversely affected by political and social instability in Indonesia All our operations are located in Indonesia. There is no assurance that Indonesias political landscape will not change, giving rise to political instability, social and civil unrest and disruption of businesses and the economy. These could have adverse effects on our operations. Since the change of government in 1998, Indonesia has experienced a process of democratic change, resulting in political and social events that have highlighted the unpredictable nature of Indonesias changing political landscape. These events have resulted in political instability, as well as general social and civil unrest on certain occasions in the past few years. For example, since 2000, thousands of Indonesians have participated in demonstrations in Jakarta and other Indonesian cities both for and against the government and government officials, as well as in response to specific issues, including fuel tariff increases, labour matters, privatisation of state assets, anti-corruption measures, decentralisation and provincial autonomy, actions of former government officials and their family members and the US-led military campaigns in Afghanistan and Iraq. In October 2005, demonstrations affected several cities after the government mandated an increase in fuel prices. Although these demonstrations were generally peaceful, some have turned violent. In 2004, Indonesians directly elected the President, the Vice-President and representatives of the Indonesian parliament through a proportional voting system for the first time. Although the 2004 elections were conducted peacefully, future political campaigns and elections may bring a degree of political and social uncertainty to Indonesia. Political and social unrest may occur if the results of future elections are disputed or unpopular. Political and social developments in Indonesia have been unpredictable in the past and have caused confidence in the Indonesian economy to remain low. Any resurgence of political instability could adversely affect the Indonesian economy, which could adversely affect our Groups respective businesses. Social and civil disturbances could occur in the future and on a wider scale, directly or indirectly, have a material adverse effect on our business, financial condition, results of operations, prospects and on our Shares. 41
RISK FACTORS
Terrorist attacks in Indonesia could destabilise the country Terrorist acts could destabilise Indonesia and increase internal divisions within the Indonesian government as it evaluates responses to that instability and unrest. Violent acts arising from, and leading to, instability and unrest have occurred in the past, and may continue to have, a material adverse effect on investment and confidence in, and the performance of, the Indonesian economy. Such terrorist attacks or armed conflicts in Indonesia may directly impact our physical facilities or those of the suppliers and customers. They may also have an adverse effect on the demand for and supply of our products, our production capability and our ability to deliver products to customers in a timely manner which in turn may have a material adverse effect on our business, financial condition, results of operations and prospects. Economic changes in Indonesia may adversely affect our business The economic crisis which affected Southeast Asia, including Indonesia, from mid-1997 was characterised in Indonesia by, among other effects, currency depreciation, negative economic growth, high interest rates, high inflation, social unrest and extraordinary political developments. These conditions had material adverse effect on Indonesian businesses. The economic difficulties faced by Indonesia during the Asian economic crisis in 1997 resulted in among other things, significant volatility in interest rates, which had a material adverse impact on the ability of many Indonesian companies to service their then existing indebtedness. A loss of investor confidence in the financial system of emerging and other developing markets, or other factors, may cause increased volatility in the Indonesian financial markets and a slowdown or negative growth could have a material adverse effect on our business, financial condition, results of operations and prospects. Our operations may be adversely affected by earthquakes, tsunamis, floods or other natural disasters The Indonesian archipelago is one of the most active volcanic regions in the world. As it is located in the convergence zone of three major lithospheric plates, it is subject to significant seismic activity that can lead to destructive earthquakes, tidal waves and volcanic eruptions. On 26 December 2004, an underwater earthquake off the coast of Sumatera resulted in a tsunami that devastated coastal communities in Indonesia, Thailand and Sri Lanka. In March 2007, a major earthquake struck Solok in Central Sumatera, destroying hundreds of buildings and resulting in human casualties. In February 2007, incessant rain caused rivers to overflow across Jakarta. As a result, residential and government buildings, retail malls and roads were flooded. The authorities were forced to cut off electricity and water supplies in certain areas. There can be no assurance that future geological occurrences will not significantly impact our operations. An earthquake or other geological disturbance in any of Indonesias more populated cities and financial centres could disrupt the Indonesian economy and our operations, which could have a material adverse effect on our business, financial condition, results of operations and prospects. Our operations may be adversely affected by an outbreak of SARS, avian influenza or other epidemics During the last three years, large parts of Asia experienced unprecedented outbreaks of avian flu. No fully effective avian flu vaccines have been developed and there is evidence that the H5N1 virus is evolving. An effective vaccine may not be discovered in time to protect against the potential avian flu pandemic. In 2003, certain countries in Asia experienced an outbreak of SARS, a highly contagious form of atypical pneumonia, which seriously interrupted the economic activities and the demand for goods plummeted in the affected regions. An outbreak of avian flu, SARS or other contagious disease or the measures taken by the governments of affected countries against such potential outbreaks, could seriously interrupt our
42
RISK FACTORS
production operations or those of our suppliers and customers, which could have a material adverse effect on our business, financial condition, results of operations and prospects. The perception that an outbreak of avian flu, SARS or other contagious disease may occur again may also have an adverse effect on the economic conditions of countries in Asia. The Indonesian legal system is subject to considerable discretion and uncertainty As Indonesia is a developing market, its legal and regulatory regime may be less certain than in more developed markets and may be subject to unforeseen changes. At times, the interpretation or application of laws and regulations may be unclear and the content of applicable laws and regulations may not be immediately available to the public. In particular, regional regulations are not nationally published. Under such circumstances, consultation with the relevant regional authority in Indonesia may be necessary to obtain better understanding or clarification of applicable laws and regulations. Indonesias legal system is a civil law system based on written statutes. Judicial decisions in Indonesia, in particular those rendered by the Supreme Court, are persuasive but they do not constitute binding precedent. These decisions are not as systematically and immediately published as in developed countries. Many of Indonesias commercial and civil laws and rules on judicial process are based on preindependence Dutch law and have not been revised to reflect the complexities of modern financial transactions and instruments. Indonesian courts are often unfamiliar with sophisticated commercial or financial transactions, leading in practice to uncertainty in the interpretation and application of Indonesian legal principles. The application of many Indonesian laws and regulations depends, in large part, upon subjective criteria such as the good faith of the parties to the transaction and principles of public policy. Indonesian judges operate in an inquisitorial legal system and have very broad fact-finding powers and a high level of discretion in relation to the manner in which those powers are exercised. In practice, Indonesian court decisions may omit, or may not be decided upon, a legal and factual analysis of the issues presented in a case. As a result, administration and enforcement of laws and regulations by Indonesian courts and governmental agencies may be subject to uncertainty and considerable discretion. For instance, the amount we have set aside which we believe to be adequate as provision for taxes and other related charges may be insufficient based on the relevant authorities assessment and we may be required to pay more as a result. Uncertainty regarding the application of various laws and regulations to our Groups business, our entitlement to the various licenses we require to operate our Groups business, our Groups entitlement to various land rights or other legal or regulatory matters relating to our Groups business could have a material adverse effect on our Groups business, financial condition, results of operations and prospects. Future restrictions on foreign ownership The Government of Indonesia recently promulgated Law No. 25/2007 dated 26 April 2007 on investment (the New Investment Law) and issued Government Regulation No. 77 dated 3 July 2007 on a list of closed and restricted business sectors for capital Investment (the Negative List). Under the New Investment Law, as long as the field activity is open for foreign investment, foreign companies and individuals may own 100% of the shares of the foreign investment company (PMA Company). However, certain strategic industries, such as the port, telecommunication, airport, shipping, airline, water supply, railway, oil and gas, electricity or power plant, tourism, multimedia and plantation industries are prohibited from being directly wholly-owned by foreign individuals or foreign companies. Our Group comprises PMA Companies, namely SPL, WPM, BPS and CPG, which are presently owned by our Singapore-incorporated subsidiaries (save for the remaining 100 shares in SPL, WPM and BPS held by Mr. Henry Maknawi and the remaining 97 shares in CPG held by the initial shareholders of LK and BE). As our PMA Companies do not fall under the relevant restricted industries, and our remaining Indonesian subsidiaries are not deemed to be PMA Companies, our current Group structure is in compliance with the New Investment Law. However, it is still not clear under the New Investment Law whether SA, KP, KL and KB must divest their respective shareholdings in SPL, WPM, BPS and CPG as required under the previous foreign investment regulation. In addition, the New Investment Law does not specify the amount of the divestment required and the divestment period. BKPM officials have indicated that this is subject to the implementing regulations of the New Investment Law. The substantial portion of the implementing regulations of the 43
RISK FACTORS
New Investment Law has not been issued to date. Based on the previous foreign investment regulation, the divestment period is 15 years from the first commercial production. If our Singapore-incorporated subsidiaries are forced to divest a substantial portion of their shareholdings in our PMA Companies, our business, financial condition, results of operations and prospects may be adversely affected. Please refer to Appendix C Indonesian Regulatory Overview of this Prospectus for further information. RISKS RELATING TO AN INVESTMENT IN OUR SHARES Our Directors and Substantial Shareholders will retain significant control over our Company after the Invitation, which will allow them to influence the outcome of matters submitted to Shareholders for approval Upon the completion of the Invitation, our Directors, Substantial Shareholders and their associates and such Shareholders who are related to our Directors or Substantial Shareholders, will beneficially own in aggregate approximately 73.8% of our Companys post-Invitation share capital. As a result, these persons will be able to exercise significant influence over all matters requiring shareholders approval, including the election of directors and the approval of significant corporate transactions, if they act together. These persons will also have veto power, if they act together, with respect to any shareholders action or approval requiring a majority vote except where they are required by the rules of the Listing Manual or the SGX-ST to abstain from voting. Such concentration of ownership may also have the effect of delaying, preventing or deterring a change in control of our Company which may not benefit our Shareholders. Any future sales of our Shares could adversely affect our Share price There could be downward pressure on our Share price as a result of any future sale or availability of our Shares. The sale of a significant amount of Shares in the public market after the Invitation, or the perception that such sales may occur, could adversely affect the market price of our Shares. These factors could also affect our ability to sell additional equity securities. Except as otherwise described in the section Moratorium of this Prospectus, there will be no restrictions imposed on our Directors, Substantial Shareholders and their associates to dispose of their shareholding. Currency fluctuations could adversely affect the dividends of the Shares Our Company may declare and pay dividends in US dollars, while Shareholders holding their Shares through the CDP may receive their dividends in Singapore dollars. Hence, fluctuations in the exchange rates between the US dollar and the Singapore dollar may adversely affect the amount of cash dividends received by such Shareholders holding their Shares are held through CDP. There has been no prior market for our Shares There has been no public market for our Shares, prior to the Invitation. We have applied to the SGX-ST for the listing and quotation of our Shares on the Official List of the SGX-ST. However, no assurance can be given that an active trading market for our Shares will develop or, if developed, will be sustained, or that the market price for our Shares will not decline below the Issue Price. The Issue Price may not be indicative of the market price for our Shares after the completion of the Invitation. Our Share price may fluctuate following the Invitation The market price of our Shares may fluctuate significantly and rapidly as a result of, among others, the following factors, some of which are beyond our control: variations of our operating results; changes in securities analysts recommendation, perceptions or estimates of our financial performance; changes in market valuations and share prices of companies with similar businesses to our Company that may be listed in Singapore; announcements by us of significant acquisitions or divestments, strategic alliances or joint ventures;
44
RISK FACTORS
additions or departures of key personnel; fluctuations in stock market prices and volume; involvement in litigation; success or failure of our management team in implementing business and growth strategies; announcements of technological innovations or new products; changes in conditions affecting our industry, the general economic conditions or stock market sentiments or other events or factors; events adversely affecting the political, economic and social situation in Indonesia; and negative publicity involving our Company, any of our Directors, Executive Officers or Substantial Shareholders, whether or not it is justified. New investors will incur immediate dilution and may experience further dilution Our Issue Price of our Shares is substantially higher than the Adjusted NTA per Share based on the postInvitation issued share capital. If we were liquidated immediately following the Invitation, each investor subscribing to the Invitation would receive less than the price paid for his Shares. Please refer to the section Dilution of this Prospectus for more information. Additional funds raised through issue of new Shares for our future growth will dilute Shareholders equity interests We may in the future expand our capabilities and business through acquisition, joint venture and strategic partnership with parties who can add value to our business. We may require additional equity funding after the Invitation and our Shareholders will face dilution of their shareholdings should we issue new Shares to finance future acquisitions, joint ventures and strategic partnerships. Our operating subsidiaries are incorporated or established, and their assets are located outside Singapore, hence the rights and protection accorded to our Shareholders may not be the same as those applicable to shareholders of a Singapore incorporated company Our operating subsidiaries (all of which are incorporated outside Singapore) have their operations and assets located in Indonesia. The Singapore Companies Act may provide shareholders of Singapore incorporated companies with certain rights and protection of which there may be no corresponding or similar provisions under the laws of Indonesia. As such, if you invest in our Shares, you may or may not be accorded the same level of shareholder rights and protection that a shareholder of a Singapore incorporated company would be accorded under the Singapore Companies Act. In addition, all our Executive Directors, as at the Latest Practicable Date, are non-residents of Singapore and their assets are mainly located outside Singapore. As such, it may be difficult for you to commence any action as services of process will have to be effected outside Singapore against our operating subsidiaries and those of our Directors residing outside Singapore, or to enforce a judgement obtained in Singapore against our Group or any of such Directors.
45
EXCHANGE RATES AND EXCHANGE CONTROLS

EXCHANGE RATES Our financial statements are expressed in US dollars. The exchange rates for Rp to US$ as outlined in the table below are the foreign exchange rates for public transactions as quoted by Bank Indonesia. The fixing rate is at 11.00 a.m. Indonesian time. These exchange rates have been presented solely for information only. The tables and figures below should not be construed as representations that those US dollar or Rupiah amounts could have been, could be or would be, converted or convertible into Rupiah or US dollars at any particular rate, the rate stated below, or at all. Bank Indonesia and Bloomberg L.P. have not consented to the inclusion of the exchange rates quoted under this section for the purposes of Section 249 of the Securities and Futures Act and are thereby not liable for these exchange rates under Sections 253 and 254 of the Securities and Futures Act. Our Company has included the above exchange rates in the proper form and context in this Prospectus. The information has not been verified by our Company, the Issue Manager, or the Joint Underwriters and Placement Agents. The following table sets out the high and low exchange rates between the US dollar and Rupiah for each of the past six months prior to the Latest Practicable Date. The table illustrates how many Rupiah it would take to buy one US dollar.
Rp / US$ Bank Indonesia Period December 2007 January 2008 February 2008 March 2008 April 2008 May 2008 Average 9,380 9,453 9,227 9,231 9,255 9,337 Low 9,268 9,333 9,096 9,117 9,225 9,273 High 9,481 9,533 9,315 9,372 9,285 9,423 Average 9,356 9,406 9,182 9,178 9,203 9,281 Bloomberg Low 9,240 9,240 9,045 9,085 9,135 9,220 High 9,428 9,490 9,265 9,265 9,245 9,350
Source: Bank Indonesia and Bloomberg L.P.
The following table sets out, for the financial periods indicated, the amount of Rupiah it would take to buy one US dollar, based on the average of monthly closing exchange rates over the financial period (Average).
Rp / US$ Bank Indonesia Average Exchange Rate FY2005 FY2006 FY2007
Source: Bank Indonesia and Bloomberg L.P.
Bloomberg Average Exchange Rate 9,712 9,165 9,139 Closing Exchange Rate 9,830 8,994 9,400
Closing Exchange Rate 9,830 9,020 9,419
9,711 9,167 9,136
As at the Latest Practicable Date, the exchange rate between the US dollar and the Rupiah was US$1: Rp9,305.
46

Bloomberg L.P. has not consented to the inclusion of the exchange rates quoted under this section for the purposes of Section 249 of the Securities and Futures Act and is thereby not liable for these exchange rates under Sections 253 and 254 of the Securities and Futures Act. The Company has included the above exchange rates in the proper form and context in this Prospectus. The information has not been verified by our Company, the Issue Manager or the Joint Underwriters and Placement Agents. For certain parts of this Prospectus, we have converted Singapore dollars to US dollars for the convenience of the potential investors in our Company. The exchange rates for S$ to US$ as outlined in the table below are extracted from published information by Bloomberg L.P. These exchange rates have been presented solely for information only. The tables and figures below should not be construed as representations that these US dollar amounts could have been, could be or would be, converted or convertible into Singapore dollars at any particular rate, the rate stated below, or at all. The following table sets out the high and low exchange rates between the Singapore dollar and US dollar for each of the past six months prior to the Latest Practicable Date. The table indicates how many Singapore dollars it would take to buy one US dollar.
S$ / US$ Period December 2007 January 2008 February 2008 March 2008 April 2008 May 2008
Source: Bloomberg L.P.
High 1.4625 1.4500 1.4195 1.3965 1.3840 1.3835
Low 1.4405 1.4185 1.3930 1.3790 1.3480 1.3570
The following table sets out, for the financial periods indicated, how many Singapore dollars it would take to buy one US dollar, based on the average of monthly closing exchange rates over the financial period (Average Exchange Rate).
S$ / US$ Average Exchange Rate FY2005 FY2006 FY2007
Source: Bloomberg L.P.
Closing Exchange Rate 1.6186 1.5340 1.4405
1.7045 1.6583 1.5070
As at the Latest Practicable Date, the exchange rate between the US dollar and the Singapore dollar was US$1: S$1.3630. EXCHANGE CONTROLS The following is a description of the exchange controls existing in the jurisdictions in which our Group operates which may affect the repatriation of capital and the remittance of profits by or to our Company. SINGAPORE Currently, no foreign exchange control restrictions exist in Singapore.
47

INDONESIA The Rupiah and foreign currency have been, and in general are, freely convertible. Bank Indonesia has introduced regulations to prohibit the movement of Rupiah from banks within Indonesia to banks located offshore, thereby limiting offshore trading to existing sources of liquidity. The movement of Rupiah to foreign parties (which include foreign citizens, foreign legal entities, foreign bodies, Indonesian citizens having permanent resident status in another country and not domiciled in Indonesia, offices of Indonesian banks and Indonesian companies located offshore) within banks in Indonesia without certain underlying trade or investment reasons is also prohibited. In addition, there is a reporting requirement to Bank Indonesia of foreign exchange transactions carried through banks or non-bank financial institutions (for example, insurance companies, securities companies, finance companies or venture capital companies) in Indonesia. The repatriation of capital or remittance of profit may be made subject to the reporting requirement to Bank Indonesia on the foreign exchange activities. The requirement is imposed on the relevant Indonesian banks or non-bank financial institutions that carry out the transactions. There is also a reporting requirement to Bank Indonesia imposed on certain activities of Indonesian companies (with total assets or annual sales of not less than Rp100 billion) with regard to their offshore financial assets and liabilities which are not carried out through the Indonesian banking system. The Indonesian subsidiaries will repatriate profit and capital to the parent listed entity in Singapore. Therefore, the above regulations will not affect repatriation of capital and remittance of profit into Indonesia. Save for the regulations pertaining to the reporting of foreign exchange activities, there are no other regulations governing profit and capital remittance into Indonesia.
48
INVITATION STATISTICS
Issue Price 30.5 cents (equivalent to 22.4 US cents(1))
NTA NTA per Share based on the proforma balance sheet for FY2007(2) of our Group as disclosed in this Prospectus: (a) before adjusting for the estimated net proceeds from the issue of the New Shares and based on our pre-Invitation share capital of 798,044,720 Shares after adjusting for the estimated net proceeds from the issue of the New Shares and based on our post-Invitation share capital of 998,044,720 Shares 9.4 US cents
(b)
11.5 US cents
Premium of Issue Price over the proforma NTA per Share as at FY2007: (a) before adjusting for the estimated net proceeds from the issue of the New Shares and based on our pre-Invitation share capital of 798,044,720 Shares after adjusting for the estimated net proceeds from the issue of the New Shares and based on our post-Invitation share capital of 998,044,720 Shares 139.2 per cent
(b)
94.2 per cent
Earnings Historical EPS of our Company based on our audited results of our Group for FY2007 and our pre-Invitation share capital of 798,044,720 Shares Historical EPS of our Company based on our audited results of our Group for FY2007 and our pre-Invitation share capital of 798,044,720 Shares had the Service Agreements been in effect since the beginning of FY2007 Price Earnings Ratio Historical price earnings ratio based on the historical EPS of our Company for FY2007 Historical price earnings ratio based on the historical EPS of our Company had the Service Agreements been in effect since the beginning of FY2007
Notes: (1) (2) Based on exchange rate as at the Latest Practicable Date of US$1: S$1.3630. Please refer to Appendix E - Independent Auditors Report on the Unaudited Proforma Combined Financial Information of Kencana Agri Limited for the financial year ended 31 December 2007 of this Prospectus for more information.
4.9 US cents
4.9 US cents
4.6 times
4.6 times
49
INVITATION STATISTICS
Net Operating Cash Flow(1) Historical audited net operating cash flow per Share for FY2007 based on our preInvitation share capital of 798,044,720 Shares Historical audited net operating cash flow per Share for FY2007 based on our preInvitation share capital of 798,044,720 Shares had the Service Agreements been in place since the beginning of FY2007 Price to Net Operating Cash Flow Ratio Issue Price to historical audited net operating cash flow per Share of our Company for FY2007 based on our pre-Invitation share capital of 798,044,720 Shares Issue Price to historical audited net operating cash flow per Share of our Company for FY2007 based on our pre-Invitation share capital of 798,044,720 Shares had the Service Agreements been in place since the beginning of FY2007 Market Capitalisation Market capitalisation based on our post-Invitation share capital of 998,044,720 Shares and the Issue Price
Note: (1) Net operating cash flow is defined as net profit before taxation adjusted for non-cash operating activities such as depreciation, changes in working capital and income tax paid.
2.2 US cents
2.2 US cents
10.1 times
10.4 times
US$223.3 million
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USE OF PROCEEDS FROM THE INVITATION AND EXPENSES INCURRED

The net proceeds from the issue of the New Shares are estimated to be approximately S$55.0 million (approximately US$40.4 million(1)). The net proceeds represent the amount that we will receive after payment of underwriting commissions and other transaction expenses related to the Invitation estimated to be S$6.0 million (approximately US$4.4 million(1)). Which we intend to use in the following manner:
Amount allocated for each dollar of the gross proceeds raised by our Company (%)
Use of proceeds
Estimated Amount (US$000)
Estimated Amount (S$000)
(a)
Establishment of new planting for existing land, and acquiring rights for additional land banks of companies holding land banks or mature plantations Build new palm oil mills and maintaining and improving the infrastructure of our plantations Repayment of loans from financial institutions (please see below for more information)
20,913
28,505
46.7
(b)
6,970
9,500
15.6
(c)
12,469
16,995
27.9
Net Proceeds from the Invitation Expenses (a) (b) (c) Listing fees Professional fees and charges Underwriting commission, placement commission and brokerage Miscellaneous expenses
40,352
55,000
90.2
55 2,715
75 3,700
0.1 6.1
1,119 513
1,525 700
2.5 1.1
(d)
Gross proceeds from the Invitation
44,754
61,000
100.0
Notes: (1) Based on exchange rate as at the Latest Practicable Date, US$1: S$1.3630.
Financial institutions PT Bank DBS Indonesia(1)
Description of loan facility and maturity 18 months term loan of principal amount of US$2,000,000 repayable in full at the earlier of (i) the end of period in March 2009 or (ii) completion of initial public offering of the Group
Indebtedness to be repaid from Invitation proceeds US$2,000,000
Purpose To refinance existing facilities to SWK and AKM; and refinance inter-company loans between SWK, AKM and AIK
Annual interest rate Banks cost of funds plus (COF) 2.5%
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USE OF PROCEEDS FROM THE INVITATION AND EXPENSES INCURRED

Indebtedness to be repaid from Invitation proceeds US$4,000,000
Financial institutions PT Bank DBS Indonesia(1)
Description of loan facility and maturity 18 months long term loan of US$4,000,000 repayable in full at the earlier of (i) the end of March 2009 or (ii) completion of initial public offering of our Group
Purpose
Annual interest rate
To refinance existing COF + 2.5% facilities to SWK and AKM; and refinance inter-company loans between SWK, AKM and AIK To provide financing for the Company to purchase palm kernels, fertilizers, and FFB To finance internal shareholding reorganisation COF + 2.5%
PT Bank DBS Indonesia(1)
18 months term loan of US$1,000,000 repayable in full at the earlier of (i) March 2009 or (ii) completion of initial public offering of our Group
US$1,000,000
PT Bank Danamon Indonesia, Tbk.
One year term loan of US$3,850,000 repayable in full at the earlier of (i) end of March 2009 or (ii) completion of initial public offering of our Group One year term loan of US$1,650,000 repayable in full at the earlier of (i) the end of March 2009 or (ii) completion of initial public offering of our Group
US$3,818,500
SIBOR + 3%
PT Bank Danamon Indonesia, Tbk.
US$1,650,000
To finance internal shareholding reorganisation
SIBOR + 3%
Note: (1) PT Bank DBS Indonesia is a subsidiary of DBS Bank.
Please refer to the section General Information On Our Group Strategy and Future Plans of this Prospectus for more information on our plans above. Pending the deployment of the net proceeds as aforesaid, the funds will be placed in short-term deposits with financial institutions, used to invest in short-term money market instruments and/or used for working capital requirements as our Directors may deem appropriate. In the event that any part of our proposed uses of the net proceeds from the issue of the New Shares do not materialise or proceed as planned, our Directors will carefully monitor the situation and may reallocate the proceeds to other purposes and/or hold such funds on short-term deposits for so long as our Directors deem it to be in the interest of our Company and our Shareholders, taken as a whole. Any change in the use of the net proceeds will be subject to the listing rules of the SGX-ST and appropriate announcements will be made by our Company on SGXNET. As and when the funds from the Invitation are materially disbursed, our Company will make periodic announcements via SGXNET on the use of the net proceeds and will provide a status report on the use thereof in our annual report. In the opinion of our Directors, no minimum amount must be raised by the Invitation.
52
MANAGEMENT, UNDERWRITING AND PLACEMENT AGREEMENTS

Pursuant to the Management and Underwriting Agreement dated 17 July 2008 (the Management and Underwriting Agreement) made between our Company, DBS Bank and CIMB-GK, our Company appointed DBS Bank to manage the Invitation and DBS Bank and CIMB-GK to underwrite the subscription of the number of Offer Shares set forth opposite each of their respective names in the following table, at the Issue Price.
Joint Underwriters DBS Bank CIMB-GK Number of Offer Shares 750,000 250,000
DBS Bank and CIMB-GK may, at their absolute discretion, appoint one or more sub-underwriters to subunderwrite the Offer Shares. DBS Bank will receive a management fee, payable by our Company, for its services rendered as Issue Manager in connection with the Invitation. DBS Bank and CIMB-GK will each also receive an underwriting commission of 2.25 per cent of the Issue Price save for accepted applications for Offer Shares made on Application Forms bearing the stamp of DBS Bank or through the ATMs or IB website of DBS Bank for which the commission shall be 2.0 per cent of the Issue Price. In the event that the minimum brokerage of S$5,000 (as described below) levied by DBS Bank as one of the Participating Banks is not met, the amount of underwriting commission payable to each Joint Underwriter for accepted applications for Offer Shares made on Application Forms bearing the stamp of DBS Bank or through the ATMs or IB website of DBS Bank shall be 2.5 per cent of the Issue Price and reduced by the aforementioned minimum brokerage fee. Payment of the commission shall be made whether or not any allotment or issue of the Offer Shares is made to each Joint Underwriter, and whether or not any part of the Offer Shares have been applied to satisfy excess application for Placement Shares. Pursuant to the Placement Agreement dated 17 July 2008 (the Placement Agreement) made between our Company, DBS Bank and CIMB-GK, DBS Bank and CIMB-GK agreed to subscribe for and/or procure subscribers for the number of Placement Shares set forth opposite each of their respective names in the following table, at the Issue Price.
Joint Placement Agents DBS Bank CIMB-GK Number of Placement Shares 149,250,000 49,750,000
DBS Bank and CIMB-GK will each receive a placement commission of 2.5 per cent of the Issue Price for the total number of Placement Shares set out against their respective names in the table above. DBS Bank and CIMB-GK may, at their absolute discretion, appoint sub-placement agent(s) for the Placement Shares. Brokerage will be paid by our Company to DBS Bank, members of the SGX-ST, Participating Banks, merchant banks and members of the Association of Banks in Singapore in respect of all accepted applications made on Application Forms bearing their respective stamps or to Participating Banks in respect of successful applications made through Electronic Applications at their respective ATMs or IB websites, at the rate of 0.25 per cent of the Issue Price for each Offer Share, subject to any minimum brokerage agreed with any of the Participating Banks. DBS Bank levies a brokerage of 0.5 per cent of the Issue Price or minimum brokerage of S$5,000 that will be borne by our Company. Discretionary fees of 0.2 per cent and 0.025 per cent of the aggregate gross proceeds of the Invitation will be payable to DBS Bank and CIMB-GK respectively at the sole discretion of our Group. Subscribers of the Placement Shares may be required to pay a brokerage of up to 1% of the Issue Price.
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The New Shares may be re-allocated between the Offer and the Placement, at the discretion of DBS Bank and CIMB-GK in consultation with our Company. The Management and Underwriting Agreement may be terminated by the Joint Underwriters at any time on or before 9.00 a.m. on the date of commencement of trading of the Shares on SGX-ST on the occurrence of certain events including without limitation: (a) if there shall come to the knowledge of the Issue Manager or the Joint Underwriters of: (i) any breach of any obligations of our Company under the Management and Underwriting Agreement or the Placement Agreement or that any of the warranties in the Management and Underwriting Agreement or the Placement Agreement is untrue, inaccurate, misleading or breached in any respect; or any event occurring after the date of the Management and Underwriting Agreement, which if it had occurred before the date of the Management and Underwriting Agreement would have rendered any of the warranties contained in the Management and Underwriting Agreement untrue, inaccurate or misleading or breached in any respect; or any material adverse change (whether or not foreseeable at the date of the Management and Underwriting Agreement), or any development (which has occured or is likely to occur) involving a prospective material adverse change, in the business or in the condition (financial or otherwise), or prospects of our Group taken as a whole; or
(ii)
(iii)
(b)
if there shall have been in the opinion of the Joint Underwriters, since the date of the Management and Underwriting Agreement: (i) any new or prospective introduction of or any change or prospective change in any legislation, regulation, order, policy, rule, guideline or directive (including without prejudice the generality of the foregoing in respect of any laws or regulations relating to taxation or exchange controls) in Singapore, Indonesia or elsewhere (whether or not having the force of law) and including, without limitation, any directive or request issued by the Authority, the Securities Industry Council of Singapore or the SGX-ST or other authorities in Singapore or Indonesia or in the interpretation or application thereof by any court, government body, regulatory authority or other competent authority; or any event or series of events resulting in or representing any change, or any development involving a prospective change, in local, national, regional or international financial markets (including stock market, foreign exchange markets, inter-bank markets or interest rates or money market), political, industrial, economic, legal or monetary conditions (including without limitation, the imposition of any moratorium, suspension or material restriction on trading in securities generally on the SGX-ST or the Indonesia Stock Exchange, any banking moratorium declared by any U.S. Federal, New York, United Kingdom, Indonesia, or Singapore authorities due to exceptional financial circumstances or otherwise); or any event or series of events in the nature of force majeure (including without limitation, acts of government, strikes, lock-outs, fire, explosion, flooding, epidemic or pestilence, civil commotion, acts of war, acts of terrorism, acts of God); or any imminent threat or occurrence of any local, national or international outbreak or escalation of hostilities, insurrection or armed conflict (whether or not involving financial markets); or any other occurrence of any nature whatsoever,
(ii)
(iii)
(iv)
(v)
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which event or events shall in the opinion of the Joint Underwriters (1) result or be likely to result in a material adverse fluctuation or adverse conditions in the stock market in Singapore or overseas, or (2) be likely to prejudice the success of the subscription or offer of the New Shares and the distribution of the New Shares or dealings in the Shares (whether in the primary market or in respect of dealings in the secondary market), or (3) make it impracticable, inadvisable, inexpedient or uncommercial to proceed with any of the transactions contemplated in the Management and Underwriting Agreement, or (4) be likely to have an adverse effect on the business, trading position, operations or prospects of our Company or of our Group as a whole, or (5) be such that no reasonable underwriter would have entered into the Management and Underwriting Agreement, or (6) result or be likely to result in the issue of a Stop Order by the Authority pursuant to the Securities and Futures Act (notwithstanding that a supplementary or replacement prospectus is subsequently registered by the Authority pursuant to section 241 of the Securities and Futures Act), or (7) make it uncommercial or otherwise contrary to or outside the usual commercial practices of underwriters in Singapore for the Joint Underwriters to observe or perform or be obliged to observe or perform the terms of the Management and Underwriting Agreement. The Placement Agreement is conditional upon the Management and Underwriting Agreement not having been terminated or rescinded pursuant to the provisions of the Management and Underwriting Agreement. In the event that the Management and Underwriting Agreement is terminated, we and the Joint Underwriters and Placement Agents reserve the right, at our absolute discretion, to cancel the Invitation. Save for DBS Banks role as the Issue Manager, a Joint Underwriter and Placement Agent and the Receiving Bank in connection with the Invitation and PT Bank DBS Indonesias role as a Principal Banker, we do not have any material relationship with DBS Bank. DBS Bank may engage in further commercial banking and/or investment banking transactions with our Group in the future and may receive customary fees for such transactions. Net proceeds from the Invitation will also be used to partially repay bank loans provided by PT Bank DBS Indonesia to us. Please refer to the section Use of Proceeds from the Invitation and Expenses Incurred of this Prospectus for more information.
55
DIVIDEND POLICY
Save as disclosed below, no dividends have been paid or proposed by our Company or its subsidiaries for each of FY2005, FY2006 and FY2007. In FY2007, one of our Indonesian subsidiaries had declared and made a dividend payment of Rp18.5 billion (approximately US$2.0 million) to its shareholders prior to the Invitation. In FY2008, one of our Indonesian subsidiaries has declared and intends to make a dividend payment of Rp9.0 billion to its shareholders prior to the Invitation. The amount of past dividends is not indicative of the amount that we will pay in the future. Further dividends will be paid by us as and when approved by our Shareholders and our Directors. In making their recommendation, our Directors will consider, among other things, our future earnings, operations, capital requirements, cash flow and financial condition, as well as conditions in the general business environment and other factors (including, but not limited to, certain limitations imposed on us in connection with our bank borrowings) which may be considered relevant by our Directors. There can be no assurance that dividends will be paid in the future or as to the timing of any dividends that are to be paid in the future. Our Company may declare dividends by ordinary resolution of our Shareholders at a general meeting, but we may not pay dividends in excess of the amount recommended by our Board. Our Board may, without the approval of our Shareholders, also declare interim dividends. We currently do not have a formal dividend policy. We may pay dividends in Singapore dollars or US dollars. Shareholders whose Shares are held through CDP will receive their dividends in Singapore dollars. We intend to make the necessary arrangements with CDP to convert the dividends received from our Company in US dollars into its Singapore dollar equivalent at such foreign exchange rate as we or CDP (as the case may be) may determine for onward distribution to such shareholders entitled thereto. Neither our Company nor CDP will be liable for any loss howsoever arising from the conversion of the dividend entitlement of shareholders holding their Shares through CDP from US dollars into their Singapore dollar equivalent. Please refer to Appendix B - Taxation of this Prospectus. for information relating to taxes payable on dividends.
56
SHARE CAPITAL
Our Company was incorporated in Singapore on 26 September 2007 under the Act as a private company limited by shares under the name Kencana Agri Pte. Ltd.. On 10 July 2008, our Company changed its name to Kencana Agri Limited in connection with its conversion to a public company limited by shares. As at the date of this Prospectus, our Company has only one class of shares in its share capital. The rights and privileges of our Shares are stated in our Articles of Association. There are no founder, management, deferred shares, preference or unissued shares reserved for issuance for any purpose. Pursuant to written resolutions passed by our Shareholders on 20 June 2008, our Shareholders approved the following: (a) the conversion of our Company into a public company limited by shares and the consequential change of name to Kencana Agri Limited; the adoption of our new Articles of Association; the authorisation to our Directors to allot and issue Shares and/or convertible securities (where the maximum number of Shares to be issued upon conversion can be determined at the time of issue of such convertible securities) from time to time (whether by way of rights, bonus or otherwise) and upon such terms and conditions and for such purposes and to such persons as our directors may in their absolute discretion deem fit, provided that the aggregate number of Shares and/or convertible securities which may be issued pursuant to such authority shall not exceed 50% of the issued shares of our Company, of which the aggregate number of Shares and/or convertible securities which may be issued other than on a pro-rata basis to the existing shareholders of our Company shall not exceed 20% of the issued shares of our Company (the percentage of issued shares being based on the post-Invitation issued shares of our Company after adjusting for new Shares arising from the conversion or exercise of any convertible securities or employee share options on issue at the time such authority is given and any subsequent consolidation or subdivision of shares) and, unless revoked or varied by our Company in general meeting, such authority shall continue in force until the conclusion of the next annual general meeting of our Company or on the date by which the next annual general meeting is required by law to be held, whichever is earlier; the issue of the Shares pursuant to the Invitation, which when fully paid, will rank pari passu in all respects with the existing issued Shares; and the sub-division of every one ordinary share in the issued and paid up capital of our Company into 40 ordinary shares.
(b) (c)
(d)
(e)
As at the Latest Practicable Date, the issued share capital of our Company is S$19,951,118 comprising 798,044,720 Shares. Upon the allotment of the New Shares which are the subject of the Invitation, the resultant issued share capital of our Company will be increased to S$74,951,118 comprising 998,044,720 Shares.
57
SHARE CAPITAL
Details of the changes in our issued share capital since our incorporation and our issued share capital immediately after the Invitation are as follows:
Resultant Paid-up Capital (S$)
Number of Shares Upon first and second allotment and issue of two ordinary shares New ordinary shares issued and adjustments to share capital(1) pursuant to the Restructuring Exercise Additional shares issued pursuant to subdivision of every one ordinary share into 40 ordinary shares Pre-Invitation share capital New Shares to be issued pursuant to the Invitation Post-Invitation share capital
19,951,116
19,951,118(2)
778,093,602 798,044,720 200,000,000 998,044,720
19,951,118 19,951,118 55,000,000(3) 74,951,118
Notes: (1) Please refer to Appendix E Independent Auditors Report on the Unaudited Proforma Combined Financial Information of Kencana Agri Limited for the Financial Year ended 31 December 2007 of this Prospectus for details of the adjustments made to the share capital Converted from US dollars to Singapore dollars based on historical exchange rate of US$1 to S$1.537 Resultant share capital has taken into account the estimated expenses in connection with the Invitation
(2) (3)
The shareholders funds of our Company (after adjustments to share capital) after the Restructuring Exercise (and adjustments to the reserves) and after the Invitation are set out below. These statements should be read in conjunction with Appendix E - Independent Auditors Report on the Unaudited Proforma Combined Financial Information of Kencana Agri Limited for the Financial Year ended 31 December 2007 of this Prospectus.
After the Restructuring Exercise
(S$) Shareholders Equity Issued and paid-up share capital Reserves Total shareholders equity
As at Incorporation
After the Invitation
1 1
19,951,118(1) 88,860,706(2) 108,811,824
74,951,118 88,860,706(2) 163,811,824
Notes: (1) (2) Converted from US dollars to Singapore dollars based on historical exchange rate of US$1 to S$1.537. Converted from US dollars to Singapore dollars based on a closing exchange rate of US$1 to S$1.441 as at 31 December 2007.
58
SHARE CAPITAL
The changes in the issued and paid-up share capital of our Company and our subsidiaries existing at the date hereof within the three years preceding the Latest Practicable Date are set out below: Our Company
Date of Issue Event No. of shares issued Par Value Issue Price Per Share (S$) 1.00 Resultant Issued share capital (S$) 1.00
26 September 2007
First allotment and issue Allotment and issue
NA(1)
10 January 2008
NA(1)
1.00
2.00
Kencana Bio-energy Pte. Ltd.

29 December 2006
First allotment and issue
NA(1)
Kencana Logistics Pte. Ltd.

29 December 2006
NA(1)
Kencana Plantations Pte. Ltd.

29 December 2006
NA(1)
Sawindo Agri Pte. Ltd.

29 December 2006
NA(1)
PT Agri Eastborneo Kencana

Date of Issue Event No. of shares issued Par Value (Rp) 10,000 Issue Price Per Share (Rp) 10,000 Resultant Issued share capital (Rp) 25,250,000
13 September 2007
Reclassification of shares and issue and allotment
25 serial A shares with right to appoint members of the board of directors and board of commissioners
59
SHARE CAPITAL
PT Agro Inti Kencanamas
Date of Issue Event No. of shares issued Par Value (Rp) 1,000,000 Issue Price Per Share (Rp) 1,000,000 Resultant Issued share capital (Rp) 11,000,000,000
15 February 2006
Issue and allotment
10,880
18 September 2006
Issue and allotment Issue and allotment Issue and allotment Reclassification of shares and issue and allotment
10,000
1,000,000
1,000,000
21,000,000,000
23 August 2007
7,000
1,000,000
1,000,000
28,000,000,000
23 August 2007
2,000
1,000,000
1,000,000
30,000,000,000
13 September 2007
300 serial A shares carrying the right to appoint members of the board of directors and board of commissioners
1,000,000
1,000,000
30,300,000,000
PT Alamraya Kencana Mas

11 January 2006
Issue and allotment Issue and allotment Issue and allotment Issue and allotment Reclassification of shares and issue and allotment
4,780
11 January 2006
15,059
1,000,000
1,000,000
49,000,000,000
10 January 2007
11,000
1,000,000
1,000,000
60,000,000,000
27 August 2007
10,000
1,000,000
1,000,000
70,000,000,000
13 September 2007
1,000,000
1,000,000
70,500,000,000
60
SHARE CAPITAL
PT Agro Mas Lestari
31 August 2007
First allotment and issue Reclassification of shares and issue and allotment
250
25 September 2007
100,000
100,000
25,200,000
PT Agro Sawitmas Lestari

3 May 2005
2,500
PT Agrojaya Tirta Kencana

9 June 2006
Issue and allotment Reclassification of shares and issue and allotment
1,300
13 September 2007
1,000,000
1.000,000
1,414,000,000
PT Belitung Energy
13 September 2007
61
SHARE CAPITAL
PT Bumi Permai Sentosa
26 July 2007
First allotment and issue Issue and allotment
250
19 May 2008
28,398
100,000
100,000
2,864,800,000
PT Cahaya Permata Gemilang

17 July 2007
250
14 May 2008
13,250
100,000
100,000
1,350,000,000
PT Indotrust
17 September 2007
PT Kencana Agro Jaya

Date of Issue Event No. of shares issued Par Value (Rp) 1,000 Issue Price Per Share (Rp) 1,000 Resultant Issued share capital (Rp) 2,000,000,000
29 August 2007
Issue and allotment Reclassification of shares and issue and allotment
1,000,000
13 September 2007
20,000 serial A shares with right to appoint members of the board of directors and board of commissioners
1,000
1,000
2,020,000,000
PT Langgeng Nusa Makmur

22 August 2007
250
62
SHARE CAPITAL
PT Listrindo Kencana
12 September 2007
Issue and allotment Reclassifcation of shares and issue and allotment
2,211,190
13 September 2007
25,000 serial A shares carrying the right to appoint members of the board of directors and board of commissioners
1,000
1,000
2,525,000,000
PT Palm Makmur Sentosa

22 August 2007
250
PT Pelayaran Asia Marine

2 August 2007
Issue and allotment Issue and allotment Reclassification of shares and issue and allotment
100,000
6 September 2007
70,000
10,000
10,000
1,000,000,000
17 September 2007
2,000 serial A shares carrying the right to appoint members of the board of directors and board of commissioners
10,000
10,000
2,020,000,000
PT Sawindo Cemerlang
Date of Issue Event No. of shares issued Par Value (Rp) 1,000,000 Issue Price Per Share (Rp) 1,000,000 Resultant Issued share capital (Rp) 25,000,000
22 August 2007
25
13 September 2007
1,000,000
1,000,000
26,000,000
63
SHARE CAPITAL
PT Sawit Kaltim Lestari
13 September 2007
PT Sawit Permai Lestari

17 July 2007
250
16 May 2008
961,334
100,000
100,000
96,158,400,000
PT Sawindo Kencana
13 September 2007
PT Wira Mas Permai

23 August 2007
250
PT Wira Palm Mandiri

23 July 2007
250
19 May 2008
185,097
100,000
100,000
18,534,700,000
64
SHARE CAPITAL
PT Wira Sawit Mandiri
16 April 2006
250
17 September 2007
500,000
500,000
126,000,000
Note: (1) Not applicable.
Save as disclosed above, no shares in our Company or any of our subsidiaries existing at the date hereof had been issued as fully or partly paid for in cash or for a consideration other than cash, within the past three years preceding the Latest Practicable Date.
65
PRINCIPAL SHAREHOLDERS
SHAREHOLDERS Our Shareholders and their respective shareholdings immediately before and after the Invitation are set out below:
Before the Invitation Direct Interest Deemed Interest Number of % Number of % Shares Shares
Directors Henry Maknawi(1) (2)(4) Ratna Maknawi(3) (4) Tengku Alwin Aziz Kent Surya Executive Officers Albert Maknawi(1) Ajis Chandra(3) Substantial Shareholders Kencana Holdings(2) Other shareholders Karmila Maknawi(1) Jeanny Maknawi(4) Eddy Maknawi(4) Johan Maknawi(4) Bambang Pangestu Djoko Dick Permana Drs. Soetikno Edy Suroso Heri Dwi Basuki PT Intinusa Metrotama J. Amin Delarosa Jauhari Chandra Jimmy Chandra Letjen TNI (Purn.) Soekarto Lili Suryani Mayjen TNI (Purn.) Soeprapto Muhidin Mardjuki Samsuri Samaun Wisely Antonius Tang Public shareholders Total
Notes: (1) Mr. Henry Maknawi is deemed to be interested in the Shares held by his son Mr. Albert Maknawi and his daughter Ms. Karmila Maknawi. Kencana Holdings is an investment company incorporated in Singapore on 28 November 2007. Mr. Henry Maknawi is deemed to be interested in the Shares held by Kencana Holdings by virtue of his 43.4% shareholding interest in Kencana Holdings. Kencana Holdings became a shareholder of our Company pursuant to the Restructuring Exercise (please refer to the section Restructuring Exercise of this Prospectus for further information). Ms. Ratna Maknawi is the wife of Mr. Ajis Chandra and is therefore deemed to be interested in the Shares held by Mr. Chandra. For the same reason, Mr. Chandra is likewise deemed to be interested in the Shares held by Ms. Ratna Maknawi. Mr. Henry Maknawi, Ms. Ratna Maknawi, Ms. Jeanny Maknawi, Mr. Eddy Maknawi and Mr. Johan Maknawi are siblings. n.m means not meaningful.
After the Invitation Direct Interest Deemed Interest Number of % Number of % Shares Shares
35,592,880 5,506,520 1,675,880 1,037,440 2,234,520 159,600 689,829,840 1,516,280 8,140,040 7,581,440 6,943,000 159,600 6,384,360 1,276,880 159,600 239,400 3,750,800 5,745,920 1,276,880 2,074,920 9,177,520 159,600 5,745,920 1,276,880 239,400 159,600 798,044,720
4.5 0.7 0.2 0.1 0.3 n.m 86.4 0.2 1.0 1.0 0.9 n.m 0.8 0.2 n.m n.m 0.5 0.7 0.2 0.3 1.1 n.m 0.7 0.2 n.m n.m 100
693,580,640 159,600 5,506,520
86.9 n.m 0.7
35,592,880 5,506,520 1,675,880 1,037,440 2,234,520 159,600 689,829,840 1,516,280 8,140,040 7,581,440 6,943,000 159,600 6,384,360 1,276,880 159,600 239,400 3,750,800 5,745,920 1,276,880 2,074,920 9,177,520 159,600 5,745,920 1,276,880 239,400 159,600
3.6 0.6 0.2 0.1 0.2 n.m 69.1 0.2 0.9 0.8 0.7 n.m 0.6 0.1 n.m n.m 0.4 0.6 0.1 0.2 0.9 n.m 0.6 0.1 n.m n.m 20.0 100
693,580,640 159,600 5,506,520
69.5 n.m 0.6
200,000,000 998,044,720
(2)
(3)
(4) (5)
66
Save as disclosed in the section Restructuring Exercise of this Prospectus, there are no significant changes in percentage of ownership of our Company over the last three years prior to the date of this Prospectus. Save as disclosed above, none of our Directors and our Substantial Shareholders are related to one another. Save as disclosed above, our Company is not directly or indirectly owned or controlled by another corporation, any government or other natural or legal person whether severally or jointly. No option to subscribe for shares in, or debentures of, our Company or our subsidiaries has been granted to, or was exercised by, any Director or Executive Officer within the two financial years preceding the date of this Prospectus. No person has been, or is entitled to be, given an option to subscribe for any shares in or debentures of our Company or any of our subsidiaries. The Shares held by our Directors and Substantial Shareholders do not carry different voting rights from the New Shares. Our Directors are not aware of any arrangement the operation of which may, at a subsequent date, result in a change of control of our Company.
67
MORATORIUM To demonstrate its commitment to our Company, Kencana Holdings, our holding company, which will hold 689,829,840 Shares representing approximately 69.1% of our Companys post-Invitation issued share capital, has given an undertaking to DBS Bank and CIMB-GK, not to sell, realise, transfer or otherwise dispose of or transfer any part of its existing shareholding in our Company for a period of six months from the date of admission to the Official List of the SGX-ST. In addition, each of the shareholders of Kencana Holdings has also undertaken to DBS Bank and CIMBGK that each of them will not dispose of or transfer any part of their shareholdings in Kencana Holdings for a period of six months from the date of admission of our Company to the Official List of the SGX-ST. Finally, each of our Shareholders immediately after the Invitation (save for Kencana Holdings and the public Shareholders), as set out in the section Principal Shareholders - Shareholders of this Prospectus, in aggregate representing approximately 10.8% of our Companys post-Invitation issued share capital, have each undertaken to DBS Bank and CIMB-GK that they will not sell, realise, transfer or otherwise dispose of or transfer any part of their individual existing shareholding in our Company for a period of six months from the date of admission to the Official List of the SGX-ST.
68
CAPITALISATION AND INDEBTEDNESS

The following table shows the cash and cash equivalents as well as capitalisation and indebtedness of our Group as at 30 April 2008 (i) on an actual basis; and (ii) as adjusted to give effect to the issuance of 200,000,000 New Shares based on an Issue Price of S$0.305 per Share pursuant to the Invitation and the application of the net proceeds of the Invitation after deducting estimated expenses incurred for the Invitation.
As at 30 April 2008 Actual Adjusted 2,834 30,717
(US$000)(1) Cash and cash equivalents(3) Indebtedness Short-term Secured and not guaranteed Long Term Secured and guaranteed Secured and not guaranteed Unsecured and not guaranteed Total indebtedness Total proforma shareholders equity Total Capitalisation & Indebtedness
21,635
9,166
4,575 11,915 5,000 43,125 76,774 119,899
4,575 11,915 5,000 30,656 117,126 147,782
(2) (2)
Notes: (1) Facilities borrowed in Rupiah were converted to US$ based on the exchange rate of US$1: Rp9,305 as at the Latest Practicable Date. Approximately S$17.0 million (US$12.5 million) will be used for the repayment of loans from financial institutions. Please refer to the section Use of Proceeds from the Invitation and Expenses Incurred of this Prospectus for further information. There were no cash balances restricted in use as at 30 April 2008.
(2)
(3)
The cash and cash equivalents of our Company are mainly held in Rupiah and US dollars.
69
CAPITALISATION AND INDEBTEDNESS

As at the Latest Practicable Date, our total facilities (utilised and unutilised) are as follows:
Facilities granted (US$000) Term loans 19,843 Utilised (US$000) 18,652 Unutilised (US$000) 1,191(1) 5.59% to 11.67% per annum Monthly instalments and end of period payment expiring in one to three years End of period payment expiring in one to two months Monthly and quarterly instalments expiring in one to eight years Interest rates Maturity profile
Working Capital loans
13,399
10,012
3,387
8.25% to 12.0% per annum
Investment loans
28,675
17,116
11,559(1)
8.25% to 12.0% per annum
Total
61,917
45,780
16,137(1)
Note: (1) The unutilised amount is based on the existing unutilised facilities and does not take into account repayments made.
To the best of our Directors knowledge, we are not in breach of any terms and conditions or covenants associated with any credit arrangement or bank loan which could materially affect our financial position and results or business operations, or the investments of our Shareholders. The above facilities are secured by mortgages over our Groups leasehold properties and joint and several personal guarantees of our Chairman and CEO, Mr. Henry Maknawi and our Deputy CEO, Ms. Ratna Maknawi. Please refer to the section Interested Person Transactions And Conflicts of Interest Interested Person Transactions of this Prospectus for further details of the joint and several guarantees provided by our Executive Directors. The guarantors intend to obtain a release and discharge of the guarantee granted in favour of PT Bank Mandiri (Persero) Tbk. after the admission of our Company to the Official list of the SGX-ST. In the event that PT Bank Mandiri (Persero) Tbk. does not agree to release the personal guarantees, the guarantors will either continue to provide the said guarantee or substitute the same with other securities to be furnished by our Group that are acceptable to PT Bank Mandiri (Persero) Tbk. As at the Latest Practicable Date, we have obligations under finance leases amounting to US$0.4 million. These leases are for plant and equipment which are secured by certain fixed assets of our Group. Contingent Liabilities As at the Latest Practicable Date, our Group has contingent liabilities of approximately US$5.4 million due to corporate guarantees given by our Group under our Plasma Programme. Please refer to the section General Information on Our Group Business and Operations Plasma Programme of this Prospectus. Save as disclosed above, we have no other borrowings or indebtedness in the nature of borrowings including bank overdrafts and liabilities under acceptances (other than normal trading credits) or acceptances credits, mortgages, charges, hire purchase commitments, guarantees or other contingent liabilities.
70
DILUTION
Dilution is the amount by which the Issue Price paid by the subscribers of our Shares in the Invitation exceeds the NAV per Share after the Invitation. Our proforma NAV per Share as at 31 December 2007 before adjusting for the net proceeds from the issue of the New Shares and based on our pre-Invitation share capital of 798,044,720 Shares is 9.4 US cents. Pursuant to the Invitation in respect of 200,000,000 New Shares at the Issue Price, our proforma NAV per Share as at 31 December 2007 after adjusting for the estimated net proceeds from the Invitation and based on the post-Invitation share capital of 998,044,720 Shares (Adjusted NAV) would have been 11.5 US cents. This represents an immediate increase in proforma NAV per Share of 2.1 US cents to our existing Shareholders and an immediate dilution in proforma NAV per Share of 10.9 US cents to our new investors. The following table illustrates the dilution per Share as at 31 December 2007:
US cents Issue Price per Share 22.4 (or 30.5 Singapore cents) 9.4 2.1 11.5 10.9
Proforma NAV per Share based on the pre-Invitation share capital of 798,044,720 Shares Increase in proforma NAV per Share attributable to existing Shareholders Proforma NAV per Share after the Invitation Dilution in proforma NAV per Share to new investors
The following table summarises the total number of Shares issued by us, the total consideration paid and the average price per Share paid by our existing Shareholders and by our new public investors in the Invitation.
Average effective cost per Share (US cents) 1.8 22.4
Number of Shares % Existing Shareholders New public investors Total 798,044,720 200,000,000 998,044,720 80.0 20.0 100.0
Total consideration (US$) 14,637,650 44,754,219

(1) (1)
Note: (1) The US$ equivalent is computed based on an exchange rate of US$1 to S$1.3630 as at the Latest Practicable Date.
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RESTRUCTURING EXERCISE
Prior to the Invitation, the Restructuring Exercise was carried out to rationalise and streamline our corporate structure, resulting in our Company becoming the holding company of our Group. The following steps were taken in the Restructuring Exercise: (a) Our Company was incorporated on 26 September 2007 with one subscriber share issued to our Chairman and CEO, Mr. Henry Maknawi. The share capital of our Company was subsequently increased to two shares on 10 January 2008 by the issue of an additional share to our Chairman and CEO, Mr. Henry Maknawi. These shares were subsequently transferred to Kencana Holdings. SA, KP, KL and KB (collectively, the Sincos and each a Sinco) were incorporated in Singapore on 29 December 2006 with an initial share capital of two shares each. The two subscriber shares in each of SA, KP, KL and KB were transferred to our Company on 16 April 2008 and in consideration of such transfers, our Company issued eight new shares in favour of Kencana Holdings as directed by the initial shareholders of the Sincos. SA and KP are established to be the holding companies for our plantation business, KL for our bulking and logistics business and KB for our power generation business. The initial shareholders of each of the Sincos are as follows: Sinco SA KP KL KB Initial shareholders of Sincos (No. of shares held) Ratna Maknawi (1 share) and Albert Maknawi (1 share) Ratna Maknawi (1 share) and Albert Maknawi (1 share) Ajis Chandra (1 share) and Albert Maknawi (1 share) Ratna Maknawi (1 share) and Albert Maknawi (1 share)
(b)
These initial shareholders held the subscriber shares in the Sincos as nominees of the Company. (c) SPL, WPM, BPS and CPG (collectively, the Indocos and each an Indoco) were respectively established in Indonesia on 16 February 2007, 19 February 2007, 22 February 2007 and 22 February 2007 with a share capital of 250 shares each. SPL and WPM are established to be the Indonesian holding companies for our plantation operations, BPS for our bulking and logistics business and CPG for our power generation operations. The initial shareholders of each of the Indocos comprised the individual shareholders of the Indonesian operating companies, namely, SWK, KAJ, AKM, AIK, ATK, AEK, SKL, AML, SCEM, WSM, ASML, PMKS, LNM, WMP, IDT, PAM, LK and BE (collectively, the Operating Companies and each an Operating Company). For the purposes of the rest of this Restructuring Exercise section, the individual shareholders of the Indonesian operating companies will be collectively referred to as the Initial Shareholders. Each of the Initial Shareholders (other than our Chairman and CEO, Mr. Henry Maknawi) was allocated one share in the capital of the Indocos (save for CPG) with the balance of the share capital of the Indocos (that is, 226 shares in SPL, 236 shares in WPM and 241 shares in BPS) allocated to Mr. Henry Maknawi. In relation to CPG, each of the Initial Shareholders (other than Mr. Henry Maknawi and the other Initial Shareholders of LK and BE) was allocated one share each in the capital of CPG. The balance of 202 shares and 46 shares in the share capital of CPG was allocated to Mr. Henry Maknawi and the other Initial Shareholders of LK and BE (in accordance with their interests in LK and BE) respectively. (Such shares of Indocos held by the Initial Shareholders are hereinafter referred to as the Initial Indoco Shares).
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(d) Each of the Indocos then subscribed for Serial A shares issued by the respective Operating Companies. The Serial A shares entitle each of the Indocos to have full power to appoint the members of the respective board of directors and board of commissioners of the Operating Companies. Between June and August 2007, each of the Indocos entered into various conditional sale and purchase agreements with the Initial Shareholders to acquire : (i) all of the shareholding interests in the Operating Companies (other than BE) (except for our Chairman and CEO, Mr. Henry Maknawi, who retained one share in each of the Operating Companies); and 90.1% of shareholding interest in BE (the balance 9.9% is held by our Chairman and CEO, Mr. Henry Maknawi).
(e)
(ii)
The purchase consideration for all the Operating Companies (other than PAM) was based on valuation determined by an independent valuer. The purchase consideration for PAM was based on the audited net asset value of PAM as at 31 December 2006. Pursuant to these agreements and on or about 9 May 2008, the Initial Shareholders transferred all of their shareholding interests in the Operating Companies to the respective Indocos which resulted in the following : SPL and WPM became the Indonesian holding companies of our plantation Operating Companies; BPS, the Indonesian holding company of our bulking and logistics Operating Companies; and CPG, the Indonesian holding company of our power generation Operating Companies.
In consideration for the transfer by the Initial Shareholders of their respective shareholding interests in the respective Operating Companies to the Indocos, each of the Indocos provisionally allotted new shares in each of its share capital (New Indoco Shares) as detailed below to the Initial Shareholders: No. of New Indoco Shares 961,334 New Indoco Shares in SPL In consideration for: 100% (less one share(1)) of certain of our plantation Operating Companies, namely, SWK(2), AKM, and KAJ 100% (less one share(1)) of certain of our plantation Operating Companies, namely, AIK, SKL, AEK, ATK, AML, SCEM, PMKS, WMP, LNM, ASML and WSM 100% (less one share(1)) of each of IDT and PAM, which are our bulking and logistics Operating Companies 100% (less one share(1)) of LK and 90.1% of BE, which are our power generation Operating Companies
185,097 New Indoco Shares in WPM
28,398 New Indoco Shares in BPS
1,686 New Indoco Shares in CPG
Notes: (1) Held by our Chairman and CEO, Mr. Henry Maknawi in order to comply with Indonesian law which requires companies in Indonesia to have at least two shareholders. The consideration paid for the share capital of SWK consisted of cash and New Indoco Shares in SPL. The cash consideration paid by SPL amounted to Rp27.6 billion and the number of New Indoco Shares in SPL issued as consideration amounted to 362,933 New Indoco Shares in SPL.
(2)
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The Initial Shareholders then assigned their rights in the New Indoco Shares (as detailed below) to the Sincos and these shares were issued directly to Sincos. Following the issuance of such New Indoco Shares directly to the Sincos, SA became the Singapore holding company of SPL; KP, the Singapore holding company of WPM; KL, the Singapore holding company of BPS; and KB, the Singapore holding company of CPG. In consideration for the assignment by the Intial Shareholders of their right to the New Indoco Shares to the Sincos (as detailed below), each of the Sincos provisionally allotted new shares in each of its share capital to the Initial Shareholders (First Issuance of new Sinco shares). The Initial Shareholders then assigned their rights in the First Issuance of new Sinco shares to our Company and the shares were issued directly to our Company as follows: No. of new Sinco shares provisionally allotted and directed to be issued to the Company 16,293,793 new Sinco shares in the capital of SA
Aggregate no. of Indoco Shares 961,334 New Indoco Shares in SPL issued to SA 185,097 New Indoco Shares in WPM issued to KP 28,398 New Indoco Shares in BPS issued to KL 1,686 New Indoco Shares in CPG(1) issued to KB
Note: (1)
3,137,239 new Sinco shares in the capital of KP
481,326 new Sinco shares in the capital of KL
28,582 new Sinco shares in the capital of KB
CPG issued 11,564 additional shares to comply with the minimum capital requirement set by the Indonesian authority regulating foreign investment in Indonesia (Badan Koordinasi Penanaman Modal or BKPM). KB subscribed for 10,986 shares whilst the Initial Shareholders subscribed for the remaining shares. The 1,686 New Indoco Shares in CPG together with the 153 Initial Indoco Shares of CPG (see restructuring step in paragraph (f) below) constitute 95% of the share capital of CPG. The balance 5% of the share capital of CPG are held by the Initial Shareholders of LK and BE.
(f)
In October 2007, each of the Sincos entered into various conditional sale and purchase agreements with certain Initial Shareholders to purchase 150 Initial Indoco Shares (referred to in paragraph (c) above) in each of the Indocos (save for CPG, whereby the number of shares purchased was 153 Initial Indoco shares) based on the par value of the Initial Indoco Shares. On 9 May 2008, the Initial Shareholders transferred their Initial Indoco Shares as stated below to the respective Sincos: No. of new Sinco shares 2,542 new Sinco shares in SA 2,542 new Sinco shares in KP 2,542 new Sinco shares in KL 2,542 new Sinco shares in KB
Note: (1) 100 Initial Indoco Shares in each of SPL, WPM and BPS are held by our Chairman and CEO, Mr. Henry Maknawi, and 97 Initial Indoco Shares in CPG are held by the Initial Shareholders of LK and BE, so as to comply with Indonesian law which requires companies in Indonesia to have at least two shareholders.
In consideration for: 150 Initial Indoco Shares(1) of SPL 150 Initial Indoco Shares(1) of WPM 150 Initial Indoco Shares(1) of BPS 153 Initial Indoco Shares(1) of CPG
74
In consideration for these Initial Indoco Shares in each of the Indocos, each of the Sincos provisionally allotted to the Initial Shareholders new shares in each of its share capital (Second Issuance of new Sinco Shares).The Initial Shareholders then assigned their rights in the Second Issuance of new Sinco shares to our Company and such new Sinco shares were accordingly issued directly to our Company. For the purposes of the rest of this Restructuring Exercise section, the First Issuance of new Sinco shares and the Second Issuance of new Sinco shares will be referred to as the New Sinco Shares. (g) Pursuant to a share allotment and issuance direction agreement entered into on 19 June 2008 between our Company and the Initial Shareholders (the Allotment and Direction Agreement), our Company issued in aggregate an additional 19,951,108 new shares in its capital to the Initial Shareholders as consideration for the New Sinco Shares, (after taking into account the values of the respective shareholding interests in the Operating Companies and Indocos transferred from each of them to the Indocos and Sincos respectively as set out under paragraphs (e) and (f) above). To streamline our shareholding structure, some of the Initial Shareholders, who also hold shares in Kencana Holdings (Kencana Holdings Shareholders) as described in paragraphs (a) and (b) above, directed their shares in our Company to be issued directly to Kencana Holdings thereby resulting in Kencana Holdings holding an additional 17,245,736 of our Companys shares. As consideration for these new Shares in our Company, Kencana Holdings issued a total of 17,245,736 new ordinary shares in its capital to the Kencana Holdings Shareholders. Kencana Holdings in aggregate holds 17,245,746 of our Shares. The following table shows the respective shareholdings of the shareholders of Kencana Holdings pursuant to the Allotment and Direction Agreement (after taking into account the values of the respective shareholding interests in the Operating Companies and Indocos transferred from each of them to the Indocos and Sincos as set out under paragraphs (e) and (f) above and the existing shares of Kencana Holdings).
Name of Initial Shareholders % of shareholding interests in Kencana Holdings 43.4 7.2 2.2 2.9 2.6 8.2 1.7 10.6 9.9 9.1 2.0 0.2
(h)
Henry Maknawi Ratna Maknawi Tengku Alwin Aziz Albert Maknawi Jimmy Chandra Dick Permana Jauhari Chandra Jeanny Maknawi Eddy Maknawi Johan Maknawi Karmila Maknawi Ajis Chandra
75
GROUP STRUCTURE
As at the date of this Prospectus, our Group structure is as set out below:
OUR COMPANY
100% 100% 100%
100%
Plantation Plantation
Logistics & Bulking KL

100%(1)
Power Generation
SA
100%(1)
KP
KB
95.0%(2)
100%(1)
SPL BPS
100%(3) 100%(3)
WPM
CPG
100%(3)
100%(3)
SWK AIK ATK IDT SKL AEK
LK
90.1%(4)
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KAJ AML SCEM

Notes:
PAM
BE
AKM WSM ASML

(1)
In accordance with Indonesian law requirements for a minimum of two shareholders, remaining 100 shares are held by Mr. Henry Maknawi. (2) The balance 97 shares representing 5.0% of the share capital of CPG are held by the initial shareholders of LK and BE. (3) In accordance with Indonesian law requirements for a minimum of two shareholders, remaining one share held by Mr. Henry Maknawi. (4) Remaining 9.9% of share capital is held by Mr Henry Maknawi.
PMKS
LNM
WMP
GROUP STRUCTURE
The following table sets out details of our subsidiaries as at the date of this Prospectus:
Singapore
Issued and paid-up capital (S$) 16,296,337 Percentage owned by our Company (%) 100
Name SA
Date and place of establishment 29 December 2006, Singapore
Principal business Trading and Investment holding Investment holding Investment holding Investment holding
Principal place of business Singapore
KL
29 December 2006, Singapore 29 December 2006, Singapore 29 December 2006, Singapore
Singapore
483,870
100
KB
Singapore
31,126
100
KP
Singapore
3,139,783
100
Indonesia
Issued and paid-up capital (Rp) 25,250,000 Percentage owned by our Company (%) 100(4)
Name AEK
Date and place of establishment 9 March 2004, Jakarta 25 March 1997, Jakarta 9 December 1996, Jakarta 19 February 2007, Jakarta 9 March 2004, Jakarta 25 March 1997, Jakarta 8 August 2006, Bangka Belitung 22 February 2007, Jakarta
Principal business Agribusiness
Principal place of business East Kalimantan
AIK
Agribusiness
East Kalimantan
30,300,000,000
100(4)
AKM
Agribusiness
South Kalimantan
70,500,000,000
100(4)
AML
Agribusiness
East Kalimantan
25,200,000
100(4)
ASML
Agribusiness
Jakarta
25,000,000
100(4)
ATK
Agribusiness
East Kalimantan
1,414,000,000
100(4)
BE
Power generation
Belitung
50,500,000
90.1(1)
BPS
Wholesale of shippingrelated products Wholesale of products related to electricity Bulking
Jakarta
2,864,800,000
100(2)
CPG
22 February 2007, Jakarta
Jakarta
1,350,000,000
95(3)
IDT
13 September 2002, Bangka Island 16 August 2002, Bangka Island
Bangka Island, Sumatera Bangka Island, Sumatera
505,000,000
100(4)
KAJ
Agribusiness
2,020,000,000
100(4)
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GROUP STRUCTURE
Issued and paid-up capital (Rp) 2,525,000,000 Percentage owned by our Company (%) 100(4)
Name LK
Date and place of establishment 8 December 2003, Bangka Island 16 February 2007, Jakarta 17 October 2003, Jakarta 19 February 2007, Jakarta 9 March 2004, Jakarta 16 February 2007, Jakarta
Principal business Power generation Agribusiness
Principal place of business Bangka Island, Sumatera Jakarta
LNM
25,000,000
100(4)
PAM
Logistics
Jakarta
2,020,000,000
100(4)
PMKS
Agribusiness
Jakarta
25,000,000
100(4)
SKL
Agribusiness
East Kalimantan
25,250,000
100(4)
SPL
Wholesale of plantationrelated products Agribusiness
Jakarta
96,158,400,000(4)
100(2)
SCEM
4 September 2006, Jakarta 16 September 1994, Jakarta 16 February 2007, Jakarta 19 February 2007, Jakarta
East Kalimantan
26,000,000
100(4)
SWK
Agribusiness
Bangka Island, Sumatera Jakarta
60,000,000,000
100(4)
WMP
Agribusiness
25,000,000
100(4)
WPM
Wholesale of plantationrelated products Agribusiness
Jakarta
18,534,700,000
100(2)
WSM
13 January 2006, Jakarta
Jakarta
126,000,000
100(4)
Notes: (1) (2) (3) (4) Remaining 9.9% of the share capital is held by Mr. Henry Maknawi Remaining 100 shares are held by Mr. Henry Maknawi Remaining 5.0% of the share capital is held by the initial shareholders of LK and BE Remaining one share held by Mr. Henry Maknawi
We do not have any associated companies. None of our subsidiaries are listed on any stock exchange.
78
GENERAL INFORMATION ON OUR GROUP

BUSINESS We aim to be a leading palm oil producer and supplier of choice for the local Indonesian and international markets through continuous improvement of both operational efficiencies and product quality. Our mission is to expand our plantation business, commit to the welfare of local communities where our plantations and processing facilities are located through various corporate social responsibility programmes and implement environmentally-friendly practices such as zero burning and zero waste management (recycling). We are a fast-growing producer of CPO and CPKO in Indonesia with oil palm plantations located in the Sumatera and Kalimantan regions, where climatic conditions are well-suited for the planting of oil palm trees. From 2005 to the Latest Practicable Date, our Groups total land bank increased by 23.3% from 77,374 hectares to 95,410 hectares and our total planted area increased by 98.3% from 12,277 hectares to 24,349 hectares. As at the Latest Practicable Date, 85.0% of our total land bank is in Kalimantan with a planted area of 18,762 hectares, while our remaining land bank is situated in Sumatera, with a planted area of 5,587 hectares. As our planted area covers only 25.5% of our current land bank, we believe that we are able to significantly increase our planted area within our existing land bank. Our Group also participates in the Plasma Programme under which the Indonesian government requires plantation owners to develop surrounding small landholders plantations and purchase the FFB harvested from such plantations. This is one way in which our Group contributes to the welfare of the local communities in the areas that our Group operates. As at the Latest Practicable Date, we have approximately 12,372 hectares of plantation land under our Plasma Programme of which approximately 7,981 hectares have been planted. For the purpose of the disclosures made in respect of our land bank and planted area in this Prospectus, we have not included the land and planted area under our Plasma Programme. If we had included the land and planted area under our Plasma Programme, our aggregate land bank as at the Latest Practicable Date would be 107,782 hectares and our aggregate planted area would be 32,330 hectares. Our Group has two palm oil mills and two kernel crushing plants, with one of each located on Bangka Island in Sumatera and in South Kalimantan respectively. Our palm oil mills have a total production capacity of 120 MT/hour, and our kernel crushing plants have a combined production capacity of 435 MT/day. We operate a bulking terminal in Belinyu, Bangka Island, which is conveniently situated approximately 80 km from our plantation. This bulking terminal has three storage tanks with a total capacity of 19,500 MT and a nearby jetty for vessels to berth at and take delivery of our products. For our plantation operations in South Kalimantan, we also operate a jetty approximately 50 km from the plantations to facilitate the transportation of our products. We own and operate two barges with a total capacity of 4,500 MT which we use primarily for the transportation of our own products. Our bulking terminal and logistics services primarily serve to complement and support our palm oil business by enabling us to be self-sufficient in terms of storage and transportation. Our Group also has a 6.0 MW renewable biomass power plant on Bangka Island, which is used to generate electricity by utilising waste, namely EFB and kernel shells recycled from the CPO production process. Most of the electricity generated is sold to PLN, a state-owned electricity company. The balance is used for internal consumption by our plantation located on Bangka Island.
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OUR HISTORY Our Company was incorporated in Singapore on 26 September 2007 as a private company with limited liability and was converted to a public limited company on 20 June 2008. Our Company became the holding company of our Group pursuant to the Restructuring Exercise. The history of our Group can be traced back to 1995 when our Chairman and CEO, Mr. Henry Maknawi acquired a land bank of 9,000 hectares on Bangka Island in Sumatera for the cultivation of oil palm plantations. We began our operations in the first quarter of 1995 and commenced planting in early 1996. In September 1997, our Group further acquired a land bank of approximately 15,000 hectares in South Kalimantan and began planting in 1998. The following sets out certain milestones achieved as part of our expansion strategy: (a) In March 2001, our Group began commercial production of CPO with a capacity of 30 MT/hour at our first palm oil mill located on Bangka Island. We also acquired an additional land bank of 650 hectares on Bangka Island in December 2001. We upgraded our oil mill operations in 2004 by increasing our production capacity to 60 MT/hour. In August 2002, our Group began commercial production of CPKO at our first kernel crushing plant on Bangka Island with a capacity of 100 MT/day, which we increased to 135 MT/day in 2005. To support our business operations, our Group then began operating a bulking terminal in Belinyu, Bangka Island in September 2002 for storage of our CPO and CPKO. In August 2003, our Group began commercial production of CPO at our second palm oil mill in South Kalimantan with a capacity of 45 MT/hour. Our second kernel crushing plant, situated in the same vicinity as our second palm oil mill, commenced operations in June 2004 and had a CPKO production capacity of 300 MT/day. To cater for the expansion in business activities, our Group built and operated our first oil barge in March 2004 and later acquired a self-propelled oil barge in July 2006. In February 2004, as part of our Groups strategy to build up our land bank, we acquired approximately another 12,000 hectares in East Kalimantan and acquired an additional 2,000 hectares in April 2005, at which we began planting in 2005. In October 2005, our Group continued to build up our land bank by acquiring an additional 44,000 hectares in a separate area in East Kalimantan. We began planting in this area in 2006. In line with our zero-waste management policy to provide green renewable electricity, we began construction of our first biomass power plant on Bangka Island at the start of 2005 to supplement the electricity needs of the Bangka Islands local community as well as our energy requirements. In May 2007, we first entered into a one-year renewable power purchase agreement with PLN to supply PLN with electricity. We have since renewed this contract for another year up to 31 May 2009. With the success of this pilot project, we were invited by the local government in Belitung Island and PLN in 2007 to build a second renewable biomass power plant on Belitung Island in Sumatera. For 2006, SWK scored the highest among 18 private plantation companies in the province of Bangka Island Belitung in an assessment of large scale private plantations by the provincial government of Bangka Island Belitung classifying SWK under a plantation class of good. AKM was awarded a certificate giving AKM a plantation class of very good by the Governor of the Province of South Kalimantan, based on a merit point system for the classification of plantation companies operating in the region. In August 2007, our Group applied for the allocation of the location permit of an area of 19,600 hectares in West Kalimantan which was granted in November 2007.
(b)
(c)
(d)
(e)
(f)
(g)
(h)
As at the Latest Practicable Date, our total land bank comprised approximately 95,410 hectares with a total planted area of 24,349 hectares.
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COMPETITIVE STRENGTHS Our Group is well positioned to take advantage of the expected strong demand for palm oil products in the coming years and we intend to leverage our competitive strengths to become a choice supplier of palm oil products. Our Groups core competitive strengths are as follows: Significant cultivatable land bank with new planting potential We set up our initial oil palm plantations in Sumatera and Kalimantan, where we began planting in 1996 and 1998, respectively. Since 2005, we have been focusing on strategic acquisitions of substantial land banks in the Kalimantan region to expand our oil palm plantations. We believe that the Kalimantan region is well-suited for the cultivation of oil palm plantations given the conducive environment with good rainfall, suitable soil and sunshine. From 2005 to the Latest Practicable Date, our Groups total land bank increased by 23.3% from 77,374 hectares to 95,410 hectares and our total planted area increased by 98.3% from 12,277 hectares to 24,349 hectares. The following table shows our land bank and planted area as at the Latest Practicable Date:
Location Sumatera Kalimantan Total Land Bank (Hectares) 14,331 81,079 95,410 Planted Area (Hectares) 5,587 18,762 24,349
We have approximately over 70,000 hectares of our land bank available for future planting. We intend to increase our planted area to over 80,000 hectares in the next five years within our existing land bank (which is an estimated compounded annual growth rate of 25.0% from 2007 to 2012). We estimate future planting of approximately 56,000 hectares of our land bank. The graph below shows the planned expansion of our planted area within our existing land bank.
Hectares
Land bank as at the Latest Practicable Date
CAGR 25.0%
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Taking into account our existing land bank and planting programme, we believe that our Group is well positioned to substantially increase our planted area over the next few years. We are also continuously seeking opportunities to increase the aggregate size of our land bank and planted area through selective external acquisitions. For more information, please refer to the section Strategy and Future Plans of this Prospectus. Potential benefits from maturing oil palm trees in the near future Oil palm trees generally mature after three years of growth and reach their prime after six years, when FFB production levels peak. As at the Latest Practicable Date, our total planted area is 24,349 hectares, of which 12,277 hectares (approximately 50.4%) are mature and 12,072 hectares (approximately 49.6%) are immature, as shown in the graph below:
12,277 ha
Immature Mature
12,072 ha
We expect the majority of these immature plants to mature from 2009 to 2010. The majority of our expected increase in FFB crop will be from our Kalimantan plantations. As at the Latest Practicable Date, approximately 7,008 hectares (or 37.4% of our planted area in Kalimantan) have reached maturity. By 2010, we expect about 17,046 hectares to reach maturity. We believe that our FFB yields will improve correspondingly as our trees mature. Going forward, we expect our FFB harvested from our Kalimantan plantations to increase, thereby reducing our reliance on third party FFB suppliers. This will reduce our unit production cost and improve our average CPO extraction rates. As at the Latest Practicable Date, the average oil extraction rate is approximately between 21.5% and 22.5% for FFB harvested from our own plantations in Kalimantan compared to between 18.0% and 20.0% for FFB purchased from third party suppliers. As at the Latest Practicable Date, about 53.6% of our total FFB requirements were sourced from our plantations with our Kalimantan plantations contributing approximately 20.0% of our total FFB requirements. In addition, the utilisation rate of our palm oil mills in Kalimantan for FY2007 was 33.5% as the majority of the trees in our Kalimantan plantations were then still immature and hence produced little or no FFB. Going forward, we expect the utilisation rates of our palm oil mill in Kalimantan to improve as our Kalimantan plantations continue to mature and reach peak production age. As our FFB production and CPO production volumes increase, we expect to benefit from economies of scale which is expected to lower our unit production cost and thus enhance our profitability. Proven and recognised track record in plantation cultivation and management Our Group has an experienced and committed management team led by our Chairman and CEO, Mr. Henry Maknawi, who has been instrumental in the growth and success of our Group. Over the years, he has demonstrated the ability to identify new business opportunities and with our team, achieved costs savings by improving overall operation efficiencies. Our team has shown its commitment and dynamism by successfully operating in various challenging business conditions and being able to understand and adapt to the local culture in the regions that our Group operates.
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We believe that our managements track record is demonstrated by our successful cultivation of all our current plantations from greenfield land. The development of greenfield land into a plantation requires detailed planning, careful implementation of a planting programme as well as close cooperation with the local community. Through our Plasma Programme as well as our corporate social responsibility programme, our Group has successfully developed good rapport and relationships with the local communities and authorities in both the Sumatera and Kalimantan regions. Our Groups plantation operations have received recognition from the provincial governments in the Sumatera and Kalimantan regions. For 2006, SWK scored the highest among 18 private plantation companies in the province of Bangka Island Belitung in an assessment of large scale private plantations by the Provincial Government of Bangka Island Belitung classifying SWK under a plantation class of good. Scores were based on factors such as management, administration of the Plasma Programme as well as social, economic and environmental considerations. AKM was awarded a certificate giving AKM a plantation class of very good by the Governor of the Province of South Kalimantan, based on a merit point system for classification of plantation companies operating in the region. Integrated value-chain resulting in operational synergies We have integrated our plantation operations, complete with palm oil mills, kernel crushing plants, logistics services, bulking facilities and power generation capabilities. As part of our plans to improve our value-chain, we have recently entered into an agreement with IOPRI, an institute which conducts research on germinated oil palm seeds, to provide technical assistance to our Group to develop oil palm seed breeding and seed processing facilities. The technical assistance covers the monitoring of each stage of our Groups seed production process from the initial research stage through to seed production, preparation and germination. Our bulking and logistics service supports and complements our plantation operations by allowing us to store and transport our products in an efficient and effective manner. Our Group currently owns and operates two barges, with a total capacity of 4,500 MT, which serve our plantations in both Sumatera and Kalimantan. Having tank storage facilities for bulking and our own barges for transportation enable us to exercise better control over our logistics management and to meet customers delivery requirements at short notice. The strategic location of our bulking terminal in Belinyu also provides us with direct access from Sumatera and Kalimantan to both local and international customers. In addition, our first renewable biomass power plant, which is located within our plantation in the Sumatera region, utilises waste products from our production facilities, such as EFB and palm kernel shells, as fuel for the generation of electricity. Most of the generated electricity is sold to PLN. We are also currently applying to the relevant authorities for our renewable biomass plant to be validated as a Clean Development Mechanism (CDM) project that will allow us to sell the carbon credits attributable to this project. As at the Latest Practicable Date, our renewable power plant in Bangka Island has been validated as a CDM project and is now pending registration by the executive board of UNFCCC.
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STRATEGY AND FUTURE PLANS Our key strategy is to continue to expand our oil palm plantations to take advantage of the expected strong demand for CPO and CPKO in the coming years. To support our growth in our plantation operations, we also intend to develop our complementary business operations such as developing our seed production capabilities, our bulking and logistics services and our renewable biomass power generation businesses. (i) Expand our oil palm plantation business Our key strategy is to focus on growing our oil palm plantations. We have a considerable amount of undeveloped, cultivatable land in our existing oil palm plantations, which we believe represents a significant potential for growth. We plan to focus on new plantings by increasing our current planted oil palm area from 24,349 hectares as at the Latest Practicable Date to over 80,000 hectares in the next five years within, our existing land bank. We expect to increase our planted area by between 10,000 to 15,000 hectares per annum. We also plan, where appropriate, to accumulate additional land bank and/or acquire high-yielding mature plantations directly or indirectly through acquisitions of companies with such interests whenever suitable opportunities arise. We intend to set aside approximately S$28.5 million (US$20.9 million) from the net proceeds of the Invitation for new planting for our existing land bank and/or acquisition of mature plantations or companies holding land banks. (ii) Expand production capacity and improve efficiency and product quality To cater for the expected increase in our future sales volume, we plan to increase our annual CPO processing capacity from 120 MT/hour to 210 MT/hour by 2010, by building two more palm oil mills (each with an initial capacity of 45 MT/hour) in the Kalimantan region. The commencement of the construction of the first additional palm oil mill will take place in the fourth quarter of 2008 and the second additional palm oil mill in 2009. Our new palm oil mills will utilise new technologies which we expect to improve operational efficiency and increase CPO extraction rates. With the expansion of our plantations, we plan to improve our transportation system and the existing supporting infrastructure to increase the efficiency of our delivery of harvested FFB to our processing facilities so as to ensure that the FFB are processed within the requisite timeframe of 24 hours, thereby achieving better product quality. We intend to set aside approximately S$9.5 million (US$7.0 million) from the net proceeds of the Invitation to build new palm oil mills and maintain and improve the infrastructure of our plantations. (iii) Develop seed production capability In line with our expansion plans, we intend to develop our own seed processing capability which will enable us to control and ensure a steady supply of high quality germinated seeds. High quality seeds would increase our FFB yields. We plan to build the seed processing facilities close to our plantations which will lower transportation costs and minimise spoilage of the germinated seeds. We had on 27 September 2007 entered into an agreement with IOPRI to develop our seed processing facilities. Under this agreement, IOPRI will provide technical assistance for the development of our seed processing facilities to produce high-yielding seeds (otherwise known as Benih-bina). Thereafter, we also plan to develop a core plantation of parent oil palm to provide seeds for our seed processing facilities. Construction of the facility is expected to commence at the end of 2008 and to be completed by the first half of 2009. We expect to invest approximately US$0.5 million towards the development of our seed processing facilities and core plantation, which will be internally funded. Our long-term objective is to develop self-sufficiency in respect of seed supply.
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(iv) Develop our bulking and logistics services and renewable biomass power generation business We currently complement our plantation business with our bulking and logistics operations and renewable biomass power generation business. As part of our long-term business strategy, we intend to continue developing our bulking and logistics operations in tandem with our main plantation business. We intend to acquire a 3,500 MT double-hull vessel to add to our existing fleet of two barges. The estimated cost of this additional vessel is approximately US$3.0 million, which we intend to finance through bank borrowings and internal funding. Following the successful implementation of our first renewable biomass power plant on Bangka Island, we commenced construction of our second renewable biomass power plant of 7.5MW in Belitung following an agreement with PLN to sell electricity generated on a long-term basis. The completion of our second renewable biomass power plant is expected in 2009. It is estimated that the Belitung power plant would cost about US$6.0 million to build. The amount expended to date is approximately US$1.6m (Rp15.0 billion). We intend to fund the balance through bank financing and internal funding. We believe that the continued development of this line of business augurs well for our Group as it is an additional source of revenue while also contributing to the local communities by providing employment opportunities for their people. We intend to build similar renewable biomass power plants in Kalimantan as and when appropriate or commercially viable. We also intend to sell the carbon credits attributable to these future CDM projects and will apply to the relevant authorities for registration of such projects.
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BUSINESS AND OPERATIONS Plantation Business
Products
Our main products are CPO and CPKO, which are derived from the FFB harvested from our plantations or purchased from third parties (including our plantations under our Plasma Programe). We produce CPO and CPKO at our palm oil mills and kernel crushing plants respectively in the Sumatera and Kalimantan regions. PKC is a by-product of the CPKO production process and may be sold to third parties or utilised as biomass. Please refer to the sub-section Manufacturing Processes below for more information regarding the extraction of CPO and CPKO. In general, our CPO and CPKO are sold to large trading companies and refineries and oleochemical companies in Indonesia and Malaysia such as Kuok Oils & Grains Pte Ltd (now part of the Wilmar Group), the Keck Seng Group and the IOI Group. The following tables set out the production volume, sales volume and sales revenue of our plantations in the Sumatera and Kalimantan regions. Please refer to the sub-section Harvesting and FFB yield from oil palm plantations below for more information regarding the breakdown of FFB we harvested and purchased respectively. Production Volume
Year Ended 31 December (MT) Sumatera Region: CPO CPKO Kalimantan Region: CPO CPKO
Notes: (1) The decrease in CPO production levels in Sumatera and Kalimantan in FY2007 was due to a significant reduction in the supply of FFB from our suppliers, namely PT Bumi Permai Surya Lestari, Kelompok Tani Swadaya and Pradiksi. For more information, please refer to the section Major Suppliers of this Prospectus. The reduction in CPKO production volume in FY2006 was due to a temporary shortage of storage capacity for kernel arising from an unexpected delay in customers taking delivery of PKC. In anticipation of future increase in CPKO production, we have since increased our storage capacity. The increase in CPKO production levels in Kalimantan in FY2007 was due to an increase in kernel purchased from third parties.
2005
2006
2007
44,144 9,002
45,918 7,799(2)
39,121(1) 9,264
23,721 12,982
26,544 13,164
25,436(1) 19,221(3)
(2)
(3)
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Sales Volume
Year Ended 31 December (MT) Sumatera Region: CPO CPKO Kalimantan Region: CPO CPKO
Notes: (1) The decrease in CPO sales volume in FY2007 was due to a reduction in CPO production arising from the reason set out in footnote (1) to the above Production Volume table. The increase in CPKO sales volume in FY2007 was due to an increase in CPKO production arising from the reason set out in footnote (3) to the above Production Volume table.
2005 43,765 8,346
2006 49,247 8,323
2007 42,981(1) 9,104
23,027 13,171
27,490 14,330
23,893(1) 18,016(2)
(2)
Sales Revenue
Year Ended 31 December (in US$000) Sumatera Region: CPO CPKO Others Sub-total Kalimantan Region: CPO CPKO Others Sub-total Total 2005 2006 2007
15,221 4,698 377 20,296
75.0% 23.1% 1.9% 100%
18,480 4,320 950(3) 23,750
77.8% 18.2% 4.0% 100%
25,469 8,224 1,986
(1)
71.4% 23.0% 5.6% 100%
(2)
(4)
35,679
8,611 7,716 16,327 36,623
52.7% 47.3% 100%
10,098 7,049 170 17,317 41,067
58.3% 40.7% 1.0% 100%
16,791 14,067 2,537
(1)
50.3% 42.1% 7.6% 100%
(2)
(4)
33,395 69,074
Notes: (1) The increase in sales revenue of CPO in FY2007 in Sumatera and Kalimantan was mainly due to an increase in selling price of CPO in FY2007. The increase in sales revenue of CPKO in FY2007 in Sumatera and Kalimantan was mainly due to an increase in sales volume and selling price of CPKO in FY2007. The increase in sales revenue in FY2006 in Sumatera was due to an increase in selling price of PKC. The increase in sales revenue in FY2007 in Sumatera and Kalimantan was mainly due to an increase in sales volume and selling price of PKC.
(2)
(3) (4)
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Our Oil Palm Plantations Our Groups oil palm plantations are strategically located in the Sumatera and Kalimantan regions of Indonesia where the climatic conditions are well-suited for planting of oil palm trees. From 2005 to the Latest Practicable Date, our Groups total land bank increased by 23.3% from 77,374 hectares to 95,410 hectares and our total planted area increased by 98.3% from 12,277 hectares to 24,349 hectares. As at the Latest Practicable Date, 85.0% of our total land bank is in Kalimantan with a planted area of 18,762 hectares, while our remaining land bank is situated in Sumatera, with a planted area of 5,587 hectares. As at the Latest Practicable Date, our Group is applying for Ijin Lokasi in respect of approximately 36,700 hectares of plantation land. The following table sets out the details of our plantations in the Sumatera and Kalimantan regions as at the Latest Practicable Date:
Location Permit (Ijin Lokasi)
Company
Location of plantation
Kadastral Land
Land Use Title (HGU)
Date of Issue / Expiry (HGU/Ijin Lokasi)
Land Bank(1)
Total Planted Area
Mature
Immature
Sumatera region SWK Desa Sangku Tempilang, Buyan Kelumbi, Tanjung Niur and Kota Waringin Kecamatan Kelapa Merawang and Puding Besar Kabupaten Bangka Propinsi Bangka Belitung 7,331 10 October 1997 / 9 October 2032 (HGU No.1/ Bangka 6,731Ha) 13 July 2002 / 13 July 2037 (HGU No.10/ Bangka 200 Ha) 13 July 2002 / 13 July 2037 (HGU No.11/ Bangka 200 Ha) 13 July 2002 / 13 July 2037 (HGU No.12/ Bangka 200 Ha) SCEM Desa Kelumbi dan, Mengkubang, Kecamatan Manggar, Kabupaten Belitung Timur, Propinsi Bangka Belitung 7,000 8 April 2008 / 8 April 2011(4) Location Permit No. 525.26/003/ BPT.4/KEP/IV/ 20087,000Ha 7,000 7,331 5,587 5,269 318
Sub-total for Sumatera
7,000
7,331
14,331
5,587
5,269
318
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Company
Location of plantation
Kadastral Land
Land Bank(1)
Total Planted Area
Mature
Immature
Kalimantan region AKM Desa Sengayam Mangka, Buluh Kuning and Bepara; Kecamatan pamanukan Utara, Pamanukan Barat and Sungai Durian Kabupaten Kotabaru; Propinsi South Kalimantan 12,339 (2) 25 May 1999 / 12 April 2034 (HGU No.17/ Kotabaru 3,838 Ha) 25 May 1999 / 12 April 2034 (HGU No.18/ Kotabaru 8,204.5 Ha) 19 April 2007 / 20 April 2042 (HGU No.65/ Kotabaru 42 Ha) 12,339 6,924 6,117 807
19 April 2007 / 20 April 2042 (HGU No.66/ Kotabaru 62 Ha) 19 April 2007 / 20 April 2042 (HGU No.67/ Kotabaru 192.5 Ha) AIK Desa Lomu and Riwang; Kecamatan Batu Engau; Kabupaten Pasir; Propinsi East Kalimantan Desa Sabintulung and Muarakaman Ulu; Kecamatan Muarakaman; Kabupaten Kutai Kertanegara; Propinsi East Kalimantan 7,674 7,674 5,197 891 4,306
SKL
10,009
10,009
4,696
4,696
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Company AEK
Location of plantation Desa Sabintulung Sedulang; Kecamatan Menamang; Kabupaten Kutai Kertanegara; Propinsi East Kalimantan Desa Liang Buaya, Sabin Tulung and Puan Cepak; Kecamatan Muarakaman; Kabupaten Kutai Kertenegara; Propinsi East Kalimantan Kecamatan Jelai Hulu and Tumbung Titi; Kebupatan Ketapang; Propinsi West Kalimantan Desa Tanah Kuning and Mangkupadi, Kecamatan Tanjung Palas Timur, Kabupaten Bulungan, Propinsi East Kalimantan
Kadastral Land 9,615
Land Bank(1) 9,615
Total Planted Area 1,451
Mature
Immature 1,451
ATK
15,342
15,342
494
494
WSM
19,600
27 November 2007 / 27 November 2010(4) Location Permit No. 40819,600 Ha
19,600
ASML
6,500
26 March 2008 / 26 March 2009(4) Location Permit No. SK: 522.1/06/ EK/IL-X/2007 as amended by Location Permit No, 522.1/07/EK/ IL-III/2008 6,500Ha
6,500
Sub-total for Kalimantan Total for Sumatera and Kalimantan

Notes: (1) (2)
26,100
42,640
12,339
81,079
18,762
7,008
11,754
33,100
42,640
19,670
95,410(3)
24,349(3)
12,277
12,072
Our land bank comprises Ijin Lokasi, Kadastral land and HGU title. HGU title in respect of approximately 500 hectares held by AKM has been used for the KKPA plasma scheme. This land may at any time be transferred to the villagers through the regional authorities.
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(3) For the purpose of the disclosures made in respect of our land bank and planted area in this Prospectus, we have not included the land and planted area under our Plasma Programme. If we had included the land and planted area under our Plasma Programme, our aggregate land bank as at the Latest Practicable Date would be 107,782 hectares and our aggregate planted area would be 32,330 hectares. The validity date may be extended subject to the fulfilment of the conditions stated under the Ijin Lokasi.
(4)
On average, an oil palm tree typically has a commercial life span of approximately 25 years. Germinated seeds are first carefully selected and purchased from reliable seed producers before being delivered to our Groups nurseries at our plantations. After approximately 12 months, the young oil palm plants are transferred to the fields. The young oil palm plants are generally planted approximately nine metres apart, which results in approximately 128 to 143 trees per hectare. The area surrounding each young oil palm plant is free from other vegetation which may compete for fertiliser, water and sunlight. When an oil palm tree reaches maturity at approximately three years after being planted in the field, harvesting of the FFB begins. Yield from the oil palm tree increases as it continues to mature, generally reaching peak production between the 7th to 18th year of growth. The yield of an oil palm tree generally starts to gradually decrease from 18 years onwards. Normally, at the end of an oil palm trees commercial lifespan, the land upon which it is planted will be cleared and replanted.
Plasma Programme
Plantation companies are required under Indonesian government regulations to develop a plantation area near its plantation covering a minimum of 20% of the total plantation area which is operated by that plantation company for the local communities. This development is achieved through the implementation of credit, grant or profit-sharing scheme and is commonly referred to as a Plasma Programme. Plasma Programmes are mutually beneficial to both villagers in the local communities and plantation companies. The villagers benefit socially and economically with increasing incomes and better welfare such as training and education in oil palm cultivation. Plantation companies are able to enjoy a steady supply of FFB at prices set by a price committee established by a Governor at the province where the plantation is located. Our Plasma Programme comprises the plantation business cooperatives scheme (Kredit Koperasi Primer Anggota or KKPA), the cooperation in local community palm oil plantation scheme (Kebun Kelapa Sawit Rakyat or KKSR), and the independent plasma scheme (Plasma Mandiri). Under the KKPA scheme, the land is typically occupied by the villagers of the local communities and our Group helps to develop the land and manage the oil palm trees to maturity. The development costs are funded by bank loans, which are secured by the land rights over the small landholders oil palm plantation as the main collateral and by corporate guarantees of our Group as well as a mortgage over HGU land owned by our Group as secondary collateral. In the event that the small landholders default on repayment of their loans, and the banks claim on the guarantee provided by our Group, our Group will be entitled under Indonesian law to be subrogated in relation to the security held by the banks over the debts of the small landowners. Upon maturity of the oil palm trees, the land will be maintained and managed by the villagers or in the future, by our Group. The harvested FFB will then be sold to our Group. The loan facilities will be repaid by the villager from a portion of the sales proceeds. The banks typically charge a fixed interest rate for a certain number of years and a floating interest rate for the balance of the loan period under the government scheme. Historically, the commercial interest rates charged range between 10.0% and 16.5% per annum. Repayment of interest typically starts after the fourth year of planting and repayment of the principal (including interest) starts between the sixth and seventh year of planting. Our Group will obtain a power of attorney to manage the account of the villager into which all the sales proceeds will be deposited. This power of attorney allows our Group to withdraw funds from such account to pay for all the villagers operating costs and expenses.
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Under the KKSR scheme, our Group will co-operate with the regional authorities to provide seedlings and fertiliser to the villagers. The lands belong to the villagers. Post-harvest, the FFB will be sold to our Group and part of the sales proceeds will be paid to our Group and the regional authorities as payment for the seedlings and fertiliser respectively. Plasma Mandiri is a scheme whereby our Group will provide the seedlings to the villagers, and the villager will plant and maintain the plantation. The land belongs to the villagers. Post-harvest, the FFB will be sold to our Group and part of the sales proceeds will be paid to our Group as payment for the seedlings provided initially. There is no governmental involvement under this scheme. For more information on the above schemes under the Plasma Programme, please refer to Appendix C Indonesian Regulatory Overview of this Prospectus. As at the Latest Practicable Date, we have approximately 12,372 hectares of plantation land under the Plasma Programme, of which approximately 7,981 hectares have been planted. For the purposes of the disclosures made in respect of our land bank and planted area in the Prospectus, we have not included the land and planted area under our Plasma Programme. If we had included the land and planted area under our Plasma Programme, our aggregate land bank as at the Latest Practicable Date would be 107,782 hectares and our aggregate planted area would be 32,330 hectares. Under the KKPA scheme, our Group has provided guarantees for loan facilities of an aggregate of up to Rp92.1 billion (approximately US$9.9 million) and approximately Rp50.0 billion (approximately US$5.4 million) of such loans have been drawn down as at the Latest Practicable Date. In addition, under our Plasma Programme, when necessary, our Group may provide financial aid to small landholders for the development of their plantations. As at the Latest Practicable Date, the receivables from small landholders amounted to approximately Rp10.6 billion (approximately US$1.1 million). If the small landholders default on the repayment of their loans, the banks may exercise their rights under the corporate guarantees provided by our Group. Upon the full repayment by our Group, under Indonesian law, we will be entitled to claim the security previously provided by the small landholders in respect of their loans. As at the Latest Practicable Date, no small landholders under our Plasma Programe have defaulted on the repayment of their loan obligations.
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The following table sets out the details of the Plasma Programme as at the Latest Practicable Date:
KKPA (Hectares) KKSR (Hectares) Plasma Mandiri (Hectares) Land under Plasma Programme
Land under Plasma Programme Bina Tani Sejahtera (Plasma for SWK) Tempilang, Pembantu Tempilang, Bangka Barat, Bangka Belitung Puding Besar Kabupaten Bangka Induk TempilangKelapa Kabupaten Bangka Barat 2,230
Planted area 2,230
Land under Plasma Programme
Planted area
Planted area
Kebun Kelapa Sawit Rakyat (Plasma for SWK) Plasma Mandiri (Plasma for SWK) Bina Tani Mandiri (Plasma for AKM)
1,250
1,242
1,311
1,311
SengayamSemanggang,. Pamukan Barat, Kab. Kota Baru, South Kalimantan RiwangLomu, Kec. Batu Engau, Kab. Pasir, East Kalimantan Sabintulung, Muarakaman, Kutai Kertanegara, East Kalimantan Sedulang, Kec. Muarakaman, Kab. Kutai Kertanegara, East Kalimantan
2,131
2,131
Bina Tani Lestari (Plasma for AIK)
1,350
750
Bina Tani Sawit Lestari (Plasma for SKL) Plasma Agri Eastborneo Kencana (Plasma for AEK) Plasma Agrojaya Tirta Kencana (Plasma for ATK) Total
2,200
235
1,300
82
Puan Cepak, Muarakaman, Kutai Kertanegara, East Kalimantan
600
9,811
5,428
1,250
1,242
1,311
1,311
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Planting Programme and Age Profile of Planted Oil Palm Trees
Additional Planting (Hectares) For the Year of Nucleus 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 As at the Latest Practicable Date Total 1,215 2,989 883 793 1,532 997 3,869 4,513 5,816 Plasma 633 547 563 53 158 66 70 966 1,156 1,316 1,725 Total 1,215 3,622 1,430 1,356 1,585 158 66 70 1,963 5,025 5,829 7,541
1,742 24,349
728 7,981
2,470 32,330
The following table sets out the area and age profile of the oil palm trees on our plantations in the Sumatera and Kalimantan regions as at the Latest Practicable Date: Age Profile of Planted Oil Palm Trees
Immature Plants Mature Plants Old (Over 18 years) Sub-Total of Mature Plants Total area planted
(1-3 years) Sumatera Region Planted area (hectares) Percentage of area planted Kalimantan Region Planted area (hectares) Percentage of area planted Total area (hectares) Percentage of total area planted 11,754 62.7% 12,072 318 5.7%
Young (4-6 years)
Prime (7-18 years)
169 3.0%
5,100 91.3%
5,269 94.3%
5,587 100.0%
4,696 25.0% 4,865
2,312 12.3% 7,412
7,008 37.4% 12,277
18,762 100.0% 24,349
49.6%
20.0%
30.4%
50.4%
100.0%
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Immature (< 3 years)
7,412 Ha 30%
12,072 Ha 50%
Mature Young (4-6 years) Mature Prime (7-18 years)
4,865 Ha 20%
Age Profile of Planted Oil Palm Trees(1)

Note: (1) As at the Latest Practicable Date.
Harvesting and FFB yield from oil palm plantations

We start FFB harvesting when an appropriate quantity of palm fruitlets become detached from the FFB as an indication of ripeness. Ripeness is a critical factor in maximising the quality and quantity of palm oil extracted. The harvested FFB are transported by truck to our processing mills located at our Groups plantations and are typically processed within 24 hours to maintain the quality of CPO. The quantity of FFB from oil palm trees, otherwise known as FFB yield, is dependent on a variety of factors, including the quality of the oil palm seeds, soil and climatic conditions, application of fertiliser, quality of plantation management as well as the timely harvesting of FFB. As part of our efforts to increase FFB yield, our Group also uses the effluent, EFB and solids from our oil palm mills as organic fertiliser in addition to regular fertiliser. Generally, in the palm oil industry, mature oil palm trees in their prime (7-18 years) produce approximately 18 to 25 MT of FFB per hectare per annum. The following table sets out the average yield of FFB per hectare of our mature oil palm trees on our plantations in the Sumatera and Kalimantan regions for the periods stated: Average Yield per Hectare
Year Ended 31 December (MT / hectare) Sumatera Region: Young (4 6 years) Prime (7 18 years)(2) Kalimantan Region: Young (4 6 years) Prime (7 18 years)(2) 7.4 14.6 (1) 17.0 10.0 21.7 (1) 19.9 (1) 19.2 (1) 21.9 2005 2006 2007
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Notes: (1) (2) There were no oil palm trees aged between four to six years old in these years. We do not have any oil palm trees aged above 18 years.
FFB Harvested and Purchased

Year Ended 31 December (MT) Sumatera Region: Harvested Purchased(1) Sub-total for Sumatera Kalimantan Region: Harvested Purchased(1) Sub-total for Kalimantan Total FFB
Note: (1) FFB purchased includes FFB purchased under our Plasma Programme.
2005 101,592 137,146 238,738
2006 97,977 129,936 227,913
2007 110,972 77,719 188,691
22,558 105,851 128,409 367,147
38,933 95,711 134,644 362,557
60,180 53,360 113,540 302,231
Manufacturing Processes
The following flow-chart sets out the key manufacturing processes and palm oil-based products produced through these processes:
Fresh Palm Fruit Bunches (FFB)
Milling
Waste (Empty Fruit Bunches (EFB), liquid waste, kernel shells, fibre)
Crude Palm Oil (CPO)
Palm Kernel
Palm Kernel Cake (PKC)
Crushing
Crude Palm Kernel Oil (CPKO)
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(i) Processing FFB into CPO and palm kernel The process begins with harvesting FFB of appropriate ripeness. The FFB are typically processed within 24 hours after being harvested. FFB are first transported to our palm oil mills, where they are sterilised by applying high-pressure steam to deactivate the enzymes which cause the palm oil fruit to break down. The fruit is then separated from the palm bunches. After the steaming process, the palm fruitlets are crushed in a pressing machine to obtain CPO and palm kernel. A centrifuge is then used to clear and separate waste and water from the CPO. The cleared CPO derived from the centrifuge is sent for refining while the palm kernel nut is sent for crushing. The liquid waste arising from the process is applied as fertiliser in the plantations, while the EFB and kernel shells are used as a biomass fuel source by our power plant. The palm kernel extraction rate from FFB based on the industry standard generally ranges between 4% to 5.5% of FFB. The following table sets out the palm kernel extraction rate from FFB on our plantations in the Sumatera and Kalimantan regions of Indonesia for the periods stated: Palm Kernel Extraction Rate (%)
Year Ended 31 December 2006 2007 4.8 3.9 5.0 4.2
2005 Sumatera Kalimantan 5.0 3.6
(ii)
Processing palm kernel into CPKO and PKC The palm kernel nut is fractured, which causes the palm kernel within the shell to contract from the shell. The shell is separated from the kernel by means of a clay bath, after which it is used as fuel in the boiler room. The palm kernel is further crushed to produce palm kernel oil and PKC.
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Manufacturing Facilities and Production Capacity
Our processing mills and kernel crushing plants in Sumatera and Kalimantan are conveniently located within our plantation estates with easy access to raw materials and also within close proximity to our jetties. The following tables set out certain information with respect to the manufacturing capacity and utilisation rate of our Groups facilities.
FY2005 Palm Oil Mills (MT) Sumatera Kalimantan Annual Production Capacity(1) 342,000 256,500 Actual Production 238,738 128,410 Utilisation Rate (%) 69.8 50.1 Annual Production Capacity(2) 342,000 342,000 FY2006 Actual Production 227,913 134,645 Utilisation Rate (%) 66.6 39.4 Annual Production Capacity(2) 342,000 342,000 FY2007 Actual Production 190,647 115,129 Utilisation Rate (%) 55.7 33.7
FY2005 Kernel Crushing Plant (MT) Sumatera Kalimantan Notes: (1) Annual Production Capacity(3) 33,615 74,700 Actual Production 21,802 31,586 Utilisation Rate (%) 64.9 42.3 Annual Production Capacity(3) 33,615 74,700
FY2006 Actual Production 18,428 31,891 Utilisation Rate (%) 54.8 42.7 Annual Production Capacity(3) 33,615 74,700
FY2007 Actual Production 22,496 46,540 Utilisation Rate (%) 66.9 62.3
FFB processed is calculated based on the mill operating at 95% of 20 hours / day for 300 days a year at a capacity of 60 MT/hour and 45 MT/hour in Sumatera and Kalimantan respectively. FFB processed is calculated based on the mill operating at 95% of 20 hours / day for 300 days a year at a capacity of 60 MT/hour for both Sumatera and Kalimantan. Kernel processed is calculated based on the mill operating at 83% for 300 days a year at a capacity of 135 MT/day and 300 MT/day in Sumatera and Kalimantan respectively.
(2)
(3)
Utilisation of palm oil mills The utilisation rate for our palm oil mill in Sumatera decreased from 69.8% for FY2005 to 66.6% for FY2006 due to decrease in FFB harvested arising from the El Nino effect. The decrease in utilisation rate from 66.6% for FY2006 to 55.7% for FY2007 was due to a decrease in FFB purchased from third party suppliers. The decrease in utilisation rate from 50.1% for FY2005 to 39.4% in FY2006 for our palm oil mill in Kalimantan was due to an increase in capacity from 45MT/hour in FY2005 to 60MT/hour in FY2006. The utilisation rate for our palm oil mill in Kalimantan decreased from 39.4% in FY2006 to 33.7% in FY2007 due to a decrease in FFB purchased from third party suppliers, which more than offset the increase in FFB harvested in Kalimantan. Utilisation of kernel crushing plants The utilisation rate decreased from 64.9% for FY2005 to 54.8% for FY2006 for our kernel crushing plant in Sumatera due to a decrease in kernels purchased from third party suppliers. The increase in utilisation for our kernel crushing plant in Sumatera from 54.8% in FY2006 to 66.9% in FY2007 was due to an increase in kernel purchased from third party suppliers. The utilisation rate increased from 42.3% for FY2005 to 42.7% for FY2006 for our kernel crushing plant in Kalimantan due to increase in purchases of kernels from third party suppliers as well as increase in our own kernel production. The utilisation rate for our kernel crushing plant in Kalimantan increased from 42.7% in FY2006 to 62.3% in FY2007 mainly due to an increase in kernel purchased from third party suppliers.
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Please refer to the section General Information On Our Group Our Oil Plam Plantation FFB Harvested and Purchased of this Prospectus for the breakdown between FFB purchased and FFB harvested. Please refer to the section General Information On Our Group Major Suppliers of this Prospectus for information on the reduction in FFB and increase in kernels from major suppliers.
Oil extraction rates

Generally, our Groups CPO extraction rate ranges between 18.5% and 22.1% and CPKO extraction rate ranges between 41.1% and 42.3%. The EFB and liquid waste from the CPO production process are used as fertiliser. In addition, some of the EFB is also used as a biomass fuel source. PKC is a by-product of the CPKO production process and is sold to third parties or used as a biomass fuel source. The following table sets out the average CPO and CPKO extraction rates of our plantations in the Sumatera and Kalimantan regions of Indonesia for the periods as stated: Average Oil Extraction Rates (%)
2005 Sumatera Region: CPO
(1)
Year Ended 31 December 2006 2007
18.5
(2)
20.2 42.3
20.5 41.2(3)
CPKO
41.3
Kalimantan Region: CPO

(1)
18.5
(2)
19.7 41.3
22.1 41.3
CPKO
Notes: (1) (2)
41.1
CPO extraction rate is calculated based on total weight of CPO produced (MT) / total weight of FFB processed (MT) CPKO extraction rate is calculated based on total weight of CPKO produced (MT) / total weight of palm kernel processed (MT) The decrease in the average CPKO extraction rate for FY2007 was primarily due to the lower quality of palm kernels.
(3)
Save for the CPKO extraction rate in FY2007 for the Sumatera region, the average oil extraction rates of CPO and CPKO increased steadily year on year for the last three financial years ended 31 December 2005, 2006 and 2007 for both regions due to increase in FFB contribution from our own plantations as more of our oil palm trees matured. As a result, we purchased less FFB from third parties which generally have lower extraction rates. The increase in the oil extraction rates was due to improvements in various stages of our production processes such as minimising oil loss during production and employing new processing technology. Bulking Terminal and Logistics Operations As part of our integrated palm oil operations, our Group also operates a bulking terminal which we use primarily for storing CPO and CPKO. Our bulking terminal is strategically located in Belinyu, Bangka Island and comprises three storage tanks (6,500 MT each) with a total storage capacity of 19,500 MT. We lease the land and storage tanks from PT Timah Industri, a subsidiary of a company listed on the Jakarta Stock Exchange. We also have an agreement with the Indonesian Port Authority (Pelindo) to use the nearby jetty facilities for vessels to berth and have the CPO or CPKO pumped onboard through pipes extending from our storage tanks. Vessels with capacities of up to 6,000 MT are able to berth at the jetty.
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To further support and streamline our operations, our Group also owns and operates two barges with a total capacity of 4,500 MT for transportation of our CPO and CPKO products from Sumatera and Kalimantan regions. Details of our two barges and one tugboat are set out in the table below:
Name of vessel Kencana 1 Type of vessel Oil barge Capacity (MT) 1,500 Port of Registry / Flag Pangkal Balam, Indonesia
Class BKI
Encumbrance Vessel is part of security granted in favour of PT Bank Rakyat Indonesia (Persero), Tbk(2) Vessel is part of security granted in favour of PT Bank Rakyat Indonesia (Persero), Tbk(2) Vessel is part of security granted in favour of PT Bank Rakyat Indonesia (Persero), Tbk(2)
WMT Satu
Tugboat(1)
BKI
Jakarta
Kencana 2
Self-propelled oil barge
3,000
BKI
Batam, Indonesia
Notes: (1) (2) The tug boat is used to tow Kencana 1. Please refer to the section Capitalisation and Indebtedness of this Prospectus for more information.
The main function of our bulking terminal and barges is to support our plantation operations by providing storage facilities and transportation for our products. Only when not required for our Groups own use do we lease our bulking terminal storage facilities or charter out our barges to third parties. Power Generation In line with our zero waste strategy, our Group embarked on a renewable energy project (renewable biomass power generation) using the waste from the EFB and excess kernel shells to produce green electricity. This project also ties in with our corporate social responsibility programme to contribute to the local community. Please see the section Corporate Social Responsibility of this Prospectus for more details. The shortage of electricity within the vicinity has motivated our Group to work with PLN, a stateowned electricity company, in the generation and sale of green electricity, which we believe is the first commercialised renewable biomass project in Indonesia. Our first renewable biomass project began construction in 2005 in Bangka Island. This renewable biomass plant is adjacent to our palm oil mill and has a capacity of 6.0 MW. It is currently operating on a trial basis and supplying electricity to PLN under a one year renewable contract which will expire on 31 May 2009. In addition to using our own EFB and palm kernel shells as biomass fuel, we also purchase biomass from third parties if there is insufficient supply. Following the success of the Bangka Island project, the local authorities in Belitung Island (which is next to Bangka Island) together with PLN requested our Group to set up a similar project on Belitung Island. Construction on the new plant on Belitung Island commenced in December 2006 with the estimated completion date for the first power train with a capacity of 7.5 MW in 2009. The plant will be within the vicinity of our future plantation on Belitung Island and we may decide to add a second 7.5 MW power train to the plant if there are sufficient sources of biomass. Even though this biomass power plant will be able to co-fire coal to generate power, we intend to purchase EFB and palm kernel shells from our neighbouring plantations and aim to use our own produce when our plantation on Belitung Island begins production. Please refer to the section Strategy and Future Plans of this Prospectus for more information.
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The chart below sets out the key power generation processes of our biomass generation operations:
Boiler uel Boile Fuel BIOMASS MASS STORAGE ST E BOILER R
Steam eam TURBINE GENERATOR GENERA
20KV Electricit Electricity PROVINCIAL PROVINCI GRID
Biomass fuel is transported from
biomass storage to the boiler whic h in turn will be co busted. combusted
Biomass fuel is transported from biomass storage to the boiler which in turn will be combusted. Biomass fuel is transported from the biomass storage to the boiler for combustion. The combustion of fuel in the boiler will produce steam and this steam energy is converted into kinetic energy and further into electrical energy in the turbine generator. The electricity is then transmitted to the provincial grid for commercial use.
Power Purchase Agreement

Our power plant generates and supplies electric power to the Bangka Island provincial transmission grid. Electric power generated by the power plant is delivered to the power grid through 20 KV transmission lines. Pursuant to the power purchase agreement dated 26 May 2008 entered into between LK and PLN, LK will generate up to 5.0 MW of electricity for transmission to the Bangka Island provincial grid for a oneyear period commencing from 1 June 2008 at a rate of Rp675/KWh. As the renewable biomass power plant is a green pilot project for both LK and PLN, LK will not be subject to any power discontinuities and energy penalties under the power purchase agreement. As at the Latest Practicable Date, we are in the process of negotiating for a power purchase agreement for a term longer than 12 months. SEASONALITY Generally, the production of FFB in our Groups oil palm plantations tends to increase in the second half of the year, as a result of the rainfall patterns in the areas where our Groups planted oil palm plantations are located. The majority of our Groups revenue from our plantation segment is normally derived between July and December as 68% to 70% of our FFB are harvested and produced during this period. This results in an increase in the supply of CPO and in turn, results in an increase in sales volume of our Groups palm oil products for the second half of each financial year. However, this trend may be affected by any anomaly in weather or rainfall patterns, such as the La Nina effect. CORPORATE SOCIAL RESPONSIBILITY As part of our commitment to improve the social and economic welfare of the local communities in the areas where we operate, we have been implementing a corporate social responsibility programme which includes the provision of educational aid and healthcare, Plasma Programme and environmentally friendly policies. We believe that through these community development programmes, we are able to establish good rapport with the local community which is one of the key factors in ensuring the success of our plantation management.
Educational, Medical and Social Initiatives

Since 2000, we provided the local communities with over 500 scholarships covering elementary to tertiary levels. The scholarship recipients comprise the top three students from local schools as well as orphans or children from single-parent households. When these students graduate, our Group will provide employment opportunities for them. In addition, we contribute to the local schools by sponsoring the salaries of local teachers. We have been providing free basic medical services to the local communities since 2000. From time to time, we arrange for doctors from local clinics and hospitals to conduct basic medical check-ups and provide medication where necessary. This has been well-received by the local communities.
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We also contribute to the social and cultural welfare of the local communities by helping to build and repair places of worship such as mosques, churches and temples. To promote cultural values, we sponsor and participate in traditional events and social functions. In this way, we are able to maintain strong ties with the local communities.
Plasma Programme
Through our Plasma Programme, over 3,500 local villagers have now become new plantation owners instead of being employed as plantation workers. As plantation owners, local villagers benefit socially and economically with increasing incomes and better welfare such as training and education in oil palm cultivation. We believe that the improvement in their income will have a multiplier effect on the economy of the entire local communities. For more information on the Plasma Programme, please refer to Appendix C Indonesian Regulatory Overview of this Prospectus.
Environmentally-friendly Policies
Prior to embarking on any new plantings, a comprehensive and participatory independent social and environmental impact assessment will be undertaken to comply with prevailing governmental rules and regulations. The results will be incorporated into the planning and management of new plantings. We are mindful that some aspects of the plantation and mill management could have environmental and conservation impacts. As such, prior to any expansion of our plantation and mill operations, we will undertake an assessment to identify any potential negative impact on the environment in determining whether to proceed. We adhere strictly to the zero burning policy in our land-clearing methods so as not to increase air pollution which is a health hazard to the local communities. In addition, we also apply a zero waste management policy by recycling waste products such as EFB and kernel shells as renewable biomass fuel. Our first renewable biomass power plant is a green project as it reduces carbon emissions. The power generated is used to supply electricity to the local community through a joint cooperation with PLN. Many villages generally face a shortage of electricity. As such, as part of our continued commitment to community development and zero waste management, our Group is keen to explore possibilities to develop more renewable biomass projects to provide the local communities with electricity. Besides establishing closer working ties with the local community, we believe that our corporate social responsibility has also been recognised by the regional authorities. Please refer to the section Awards and Certifications of this Prospectus. AWARDS AND CERTIFICATIONS For 2006, SWK scored the highest among 18 private plantation companies in the province of Bangka Island Belitung in an assessment of large scale private plantations by the Provincial Government of Bangka Island Belitung classifiying SWK under a plantation class of good. Scores were based on factors such as management, administration of the Plasma Programme and social, economic and environmental consideration. AKM was awarded a certificate giving it a plantation class of very good by the Governor of the Province of South Kalimantan, based on a merit point system for classification of plantation companies operating in the region. We believe that such awards are a testimony of our commitment to the quality of our operations and services. QUALITY CONTROL We seek to ensure that the quality of our products meets customers satisfaction and have implemented quality control procedures at each stage of the production process. Quality control begins from the plant selection stage and continues through planting, harvesting, transporting the FFB to the processing mills, processing the FFB and storage of the CPO and CPKO.
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(a) Procurement of raw materials The raw materials required by our Group in its production process comprise mainly FFB and palm kernel. In the plantations, FFB are only harvested when appropriate quantities of fruitlets become detached from the FFB indicating appropriate ripeness. Our harvesting procedures ensure that all loose fruitlets are collected as far as possible. We keep to strict procedures to ensure that we transport the FFB promptly to our processing mills. The FFB are transported to the mills for processing within 24 hours of harvesting to minimise the build-up of fatty acids and avoid compromising the quality of the CPO extracted. On reaching the palm oil mills, visual checks are done on the FFBs ripeness and readiness for processing. We also reject and return FFB and palm kernel purchased from suppliers when they do not meet our quality criteria. (b) Processing The efficiency of the production process and the oil loss during the extraction process are closely monitored. We have laboratories at each of our palm oil mills to monitor the quality of our products using sampling methods at each production stage so that the CPO produced will comply with the industry standards guided by the Federation of Oils, Seeds and Fats Association Limited. (c) Finished products Prior to the delivery of our products, a final round of quality assurance inspections are done to ensure that only products which meet the requisite quality requirements are delivered to our customers. RESEARCH AND DEVELOPMENT Our Group does not engage in extensive research and development activities. However, we periodically engage qualified agronomists to evaluate the conditions of our plantations and assess how to improve our plantations. These agronomists will analyse factors such as the general conditions of our oil palm trees and the soil. Thereafter, they will make recommendations accordingly based on their observations and results from laboratory tests. The amount we spend on research and development activities is insignificant. In line with our policy to adopt best management practices, we have entered into an agreement with IOPRI for them to provide us with technical assistance for the development of seed processing facilities to produce high-yielding seeds (otherwise known as Benih-bina). We also have plans to develop a core plantation of parent oil palm trees to provide seeds for our seed processing facilities. Our management team is constantly exploring ways in which we can further improve our market knowledge and operational processes. Our sales and marketing team routinely carries out market intelligence research to understand industry trends and factors driving the demand and supply in the market. Our operational teams also keep up to date with new developments in plantation practices and processing technologies to further enhance our competitiveness through improvement in cultivation and processing capabilities.
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INTELLECTUAL PROPERTY Currently, our business is not materially dependent on any intellectual property such as patents, patent rights, licences and processes or other intangible assets. We have not paid or received royalties for any licence or use of any intellectual property. Our Group has applied for registration of the following trade marks in Singapore and Indonesia as at the Latest Practicable Date:
Place of Application Singapore Application Number T0802182F Date of Application 25 February 2008
Trade Mark
Class 29
Status Pending Registration
Singapore
31
T0802184B
25 February 2008
Pending Registration
Singapore
40
T0802185J
25 February 2008
Indonesia
39
700.2008.012932
11 April 2008
Indonesia
41
700.2008.012929
11 April 2008
Indonesia
37
700.2008.012931
11 April 2008
Indonesia
29
700.2008.012933
11 April 2008
Indonesia
31
700.2008.012935
11 April 2008
Indonesia
700.2008.012936
11 April 2008
We may file further applications to register additional trade marks where appropriate and necessary. To the best of our Directors knowledge and belief, we are not aware of any third party that is currently using a trade mark similar to the above trade marks. As at the date of this Prospectus, we have not faced any claims for any infringement of other intellectual property owned or held by third parties.
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SALES AND MARKETING Our products are mainly sold to refineries, oleochemical companies, large trading companies and through commissioned brokers or agents. For FY2005, FY2006 and FY2007, approximately 70% of our products were exported to India, China, Malaysia and Vietnam. Our sales team closely monitors market prices of our products to ensure that we obtain competitive prices for our sales transactions. In addition, our sales team is also responsible for maintaining strong working relationships with our existing customers and developing new business opportunities to enlarge our customer base. As part of our marketing activities, our management and staff actively attend conferences and exhibitions both locally and internationally such as in China, Malaysia and Singapore to meet industry players and source for potential customers. In line with our expansion plans, our Singapore subsidiary SA was awarded approved status by International Enterprise Singapore under its Global Trader Programme (GTP) on 1 February 2008. The GTP will enable us to grow our regional and global sales network for our products whilst enjoying concessionary tax incentives. CREDIT MANAGEMENT For export sales, we typically receive payment either through prepayment, letter of credit or cash against presentation of documents of title. For domestic sales, we typically receive cash prepayment in full. For new customers in relation to export sales, we evaluate the customers credit worthiness by considering the customers financial standing, operating track records and conducting background checks. Based on the information obtained, we will decide on the mode of payment and whether any limits should be set. We do not set credit limits for different classes of customers as each customer is dealt with on an individual basis. As a practice, we usually require prepayment or letters of credit for such sales. For FY2005, FY2006 and FY2007, our Group has not provided for any doubtful receivables. As our export sales were mainly on a cash basis, prepayments and letters of credit, there were no significant trade receivables turnover days. CREDIT TERMS GRANTED BY SUPPLIERS Our trade suppliers generally grant us credit terms of between 30 and 90 days. Our average trade payables turnover days for FY2005, FY2006 and FY2007 are as follows:
FY2005 Average trade payables turnover days
Note: (1) The average trade payables turnover days is calculated as the number of days in the financial year multiplied by the closing trade payables and divided by cost of sales.
FY2006 50
FY2007 65
46
The increase in trade payables turnover days in FY2007 to 65 days from 50 days in FY2006 was due to an unexpectedly large supply of FFB and kernel from one of our suppliers which led to a corresponding increase in our trade payables. Notwithstanding the increase in trade payables turnover days, our Groups cash flow has remained positive to date and our Group has not experienced any difficulty meeting its short-term obligations as and when they fall due.
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INVENTORY MANAGEMENT Our Groups inventory comprises mainly finished goods (CPO and CPKO) and raw materials such as palm kernel, fertiliser, consumables and supplies. Our products (CPO and CPKO) are agricultural commodities which have quoted market prices, are freely traded, may be sold without significant further processing and have insignificant costs of disposal. Inventory level is determined principally by our production requirements, sales forecasts and timely collection of finished goods by our customers. Our Group generally maintains palm oil (both CPO and CPKO) inventory of approximately two weeks to two months of its production and holds inventory of fertiliser for up to three months. The inventory turnover for each of FY2005, FY2006 and FY2007 are as follows:
FY2005 Average inventory turnover days
Note: (1) The average inventory turnover days is calculated as the number of days in the financial year multiplied by the closing inventory and divided by cost of sales.
FY2006 50
FY2007 38
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In FY2007, the inventory turnover days decreased due to the increase in the volume of sales in December 2007 as our customers were timely in collecting our products. Our Group adopts the first-in-first-out method of stock (fertiliser, consumables and supplies) control. We perform full stock counts at the end of each financial year. Discrepancies in the amount of inventories detected during stock counts as well as slow moving inventories that are identified during stock-takes are written down to their net realisable value (NRV) at the end of each financial period. The adjustment to NRV was insignificant in FY2005, FY2006 and FY2007. RISK MANAGEMENT Our Group mainly produces CPO, CPKO and PKC and sell these products to large trading companies and refineries and oleochemical companies in Indonesia and Malaysia where the majority of the transactions are denominated in US dollars. As a result of our sales to global customers, we are exposed to various types of market risk, including changes in foreign currency exchange rates, agricultural commodity prices and interest rates. Foreign Exchange Risk Management The majority of our Groups sales is denominated in US dollars. Some of our expenditure and a significant proportion of our bank loans are also denominated in US dollars. Operating companies within our Group which present their financial results in Rupiah would need to report US dollar sales, expenditure and bank loans in Rupiah. Any fluctuation in foreign currency exchange rates will result in foreign exchange gains and losses. We review our working capital very closely and maximise the use of natural hedging by offsetting our US$ income with our US dollar expenditure and US dollar loan repayment. We primarily enter into foreign currency forward contracts on a proportion of excess US dollar income to reduce our exposure to the movement of the US dollar. Our Groups hedging policy aims to minimise the impact of foreign currency fluctuations on our cash flow and operating results, and is not used for speculative purposes. Our Board will review our foreign currency hedging policy periodically and new hedging policies to be implemented by our Group must be approved by our Board. We will also prepare relevant information to assist our Board in its quarterly review. Our Group does not enter into foreign currency forward contracts for speculative purposes.
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Commodity Price Risk Management Our Company is exposed to commodity price risk due to certain factors, such as weather, government policy, level of demand and supply in the market and the global economic environment resulting from population growth and changes in standards of living, and global production of similar and competitive crops. To minimise our exposure to commodity price fluctuations, we enter into forward contracts periodically to hedge the price of our CPO produced from our nucleus production line. Our Group does not enter into forward sale contracts for speculative purposes and intends to establish a dedicated sales team in order to better advise the management on its entry into forward sale contracts. Prior to entering into any forward sale contracts, our sales team will need to seek the approval of either our COO or our Finance Director as well as one of our Directors. Interest Rate Risk Management We are exposed to fluctuations in interest rates since our debt financing generally comprises floating rate debt. The interest rates under these floating rate debt facilities are typically based on the prevailing SBI plus a margin, the lending banks prime rate plus a margin or SIBOR plus a margin. For a description of our bank facilities, please refer to the section Capitalisation and Indebtedness of this Prospectus. We do not typically hedge our floating rate debt interest rate exposure. We review our Groups loan position periodically and endeavour to refinance or renegotiate the terms of our loans to minimise interest costs. Discussions with the banks and the loan selection process are carried out by our senior management and reviewed by our Finance Director. Credit Risk Management To mitigate our credit risk, our Group has set a policy that requires the monitoring of receivable balances on an ongoing basis. In the event of late payment and/or default, our Group will cease the supply of all products to the customer. Depending on our Groups assessment, specific provisions may be made if the debt is deemed uncollectible. As our sales were based on cash terms, prepayments and letters of credit in FY2005, FY2006 and FY2007, there were no significant trade receivables turnover days or bad debts during this period. For FY2005, FY2006 and FY2007, our Group has not provided for any doubtful receivables. Please refer to the section General Information On Our Group Credit Management of this Prospectus for further information. Liquidity Risk Management We use short term debt financing to partially fund our working capital needs. In addition, we tap long term debt financing to fund our capital expenditure. Availability of such debt financing is dependant on liquidity conditions in the Indonesian and global financial markets. MAJOR SUPPLIERS The following table sets forth our Groups suppliers which accounted for 5.0% or more of our purchases (comprising primarily purchase of FFB and kernel for our processing and crushing) for the periods as stated.
Percentage of Total Purchases (%) Supplier Sinar Mas Group PT Sumarco Makmur Indah Minamas Group KUD Bina Tani Sejahtera PT Bumi Permai Surya Lestari Kelompok Tani Swadaya PT Sentana Adidya Pratama Fertiliser Type of raw materials FFB & kernel FFB FFB & kernel FFB FFB FFB Fertiliser FY2005 12.1 9.9 10.1 3.6 11.0 12.9 4.9 FY2006 4.7 9.2 13.2 4.1 8.5 3.3 6.4 FY2007 8.3 6.1 25.8 5.2 0.3 4.8 1.4
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The decrease in purchases from the Sinar Mas Group from FY2005 to FY2006 was due to a reduction in the supply of FFB made available to us by the Sinar Mas Group in FY2006 as a result of the Sinar Mas Group completing construction of their own mill. The increase from FY2006 to FY2007 was due to an increase in the purchase of kernel from the Sinar Mas Group. Our purchases from PT Sumarco Makmur Indah decreased from 9.2% in FY2006 to 6.1% in FY2007 due to significant upward revision in quoted price towards the end of FY2007. Our purchases from the Minamas Group increased from 13.2% in FY2006 to 25.8% in FY2007 as a result of an increase in purchase of kernel which resulted in an increase in our CPKO production. Our purchases from PT Bumi Permai Surya Lestari decreased from 8.5% in FY2006 to 0.3% in FY2007 as it was acquired by another plantation company to serve its internal FFB requirements. Our purchases from Kelompok Tani Swadaya decreased from 12.9% in FY2005 to 3.3% in FY2006 as there was a third party mill built within close proximity to their plantation. Our purchases from Kelompok Tani Swadaya increased from 3.3% in FY2006 to 4.8% in FY2007 as Kelompok Tani Swadaya had excess FFB in FY2007. Our purchases from PT Sentana Adidya Pratama Fertiliser decreased from 6.4% in FY2006 to 1.4% in FY2007 as we were able to source fertiliser from alternative suppliers at more competitive prices. To the best of our Directors belief and knowledge, our Directors and Substantial Shareholders do not have any interest, direct or indirect, in any of the above suppliers. MAJOR CUSTOMERS The following table sets forth our Groups customers which accounted for 5.0% or more of our sales for the periods as stated.
Percentage of Total Turnover (%) Customer Kuok Oils & Grains Pte Ltd (now part of the Wilmar Group) IOI Group Keck Seng (Malaysia) Berhad PT Ecogreen Oleochemicals PT Sinar Jaya Inti Mulya Principal Product(s) FY2005 FY2006 FY2007
CPO & CPKO CPO & CPKO CPKO CPKO CPO
62.7 9.5 10.8
52.2 6.3 11.1
35.2 9.3 9.6 4.6 5.0
As our products are commodities and freely tradable in the open market, the distribution of sales to our end customers is subject to existing market forces and do not necessarily illustrate any particular sales trend. Over the last three financial years ended 31 December 2005, 2006 and 2007, we have increased our customer base for our products and in line with this, the percentage of sales to our largest customer has decreased during the abovementioned periods. There were no sales made to PT Ecogreen Oleochemicals in FY2006 as we were able to secure more favourable prices from other customers. Our Directors and Substantial Shareholders do not have any interest, direct or indirect, in any of the above customers.
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COMPETITION CPO and CPKO are freely traded in the local and international commodity markets. As such, CPO and CPKO producers and plantation owners (whether in Indonesia or in the region) are potentially our competitors. However, as the current demand for CPO exceeds supply, our Directors are of the view that there is little or no competition among the producers of CPO. As for CPKO, our Directors are of the view that our main competition comes from local and Malaysian CPKO producers. The players in the Indonesian oil palm plantation industry comprise state-owned plantation companies as well as private plantation companies. Some of the larger listed plantation companies which produce CPO products and which may be our potential competitors are Indofood Agri Resources Ltd., GoldenAgri Resources Ltd, First Resources Limited, PT Astra Agro Lestari Tbk and PT Sampoerna Agro Tbk. PROPERTIES AND FIXED ASSETS As at the Latest Practicable Date, we own the following properties:
Type / Use of Property Approximate Area
Owner/Location SWK Sangku, Tempilang, Buyan Kelumbi, Tanjung Niur, Kota Waringin Village; Kelapa Merawang Subdistrict, Bangka , Bangka Belitung Province Kota Waringin Village, Puding Besar Subdistrict, Bangka , Bangka Belitung Province Kota Waringin Village, Puding Besar Subdistrict, Bangka , Bangka Belitung Province Kota Waringin Village, Puding Besar Subdistrict, Bangka , Bangka Belitung Province AKM Sengayam Mangka and Buluh Kuning Village, North Pamukan and Sungai Durian District, Kotabaru , South Kalimantan Province
Note: (1) (2) Leased to KAJ and LK
Encumbrance
Tenure
Right to Cultivate (Hak Guna Usaha), land title used for oil palm plantation
6,731.2 hectares
1st, 2nd, 3rd and 4th mortgage over this plot of land in favour of PT Bank Mandiri (Persero) Tbk
35 years from 10 October 1997 to 9 October 2032
200 hectares
35 years from 13 July 2002 to 13 July 2037
Right to Cultivate (Hak Guna Usaha), land title used for oil palm plantation (1)
200 hectares
1st rank of mortgage over this plot of land in favour of PT Bank Syariah Mandiri(2)
200 hectares
Right to Cultivate (Hak Guna Usaha) Land Title used for oil palm plantation
8,204.5 hectares
1st, 2nd, 3rd and 4th mortgage over this plot of land in favour of PT Bank Mandiri (Persero) Tbk
35 years from 25 May 1999 to 12 April 2034
The mortgage is created to secure the facility given by PT Bank Syariah Mandiri to KAJ.
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Type / Use of Property Right to Cultivate (Hak Guna Usaha) Land Title used for oil palm plantation Approximate Area 3,838 hectares
Owner/Location Sengayam Mangka Village, North Pamukan District, Kotabaru, South Kalimantan Province Mangka Village, West Pamukan District, Kotabaru , South Kalimantan Province Mangka and Bepara Village, West Pamukan District, Kotabaru, South Kalimantan Province Mangka Village, West Pamukan District, Kotabaru South Kalimantan Province
Encumbrance
Tenure 35 years from 25 May 1999 to 12 April 2034
62 hectares
35 years from 19 April 2007 to 20 April 2042
42 hectares
192.5 hectares
In process of mortgage in favour of PT Bank Lippo, Tbk
As at the Latest Practicable Date, we lease the following properties:

Use of Property / Type Bulking 2 storage tanks Rental / Consideration Rp300,000,000 annually with possible revision every December 2004, 2006, 2008, 2010 with maximum limit of 10% from the last rent value Rp150,000,000 annually with possible revision every June of 2006, 2008, 2010, 2012 with maximum limit of 10% from the last rent value Rp35,000 per sq m per month Approximate Area 3,850 sq m Lessor / Issuer PT Timah Industri as lessor
Title/Location IDT Air Jukung Village, Belinyu District, Bangka
Encumbrance
Tenure 10 years expiring 30 December 2012
Air Jukung Village, Belinyu District, Bangka
Bulking 1 storage tank, jetty
3,850 sq m
10 years expiring 30 June 2012
PT Timah Industri as lessor
Graha Kencana Building, 5th floor, Jl. Raya Perjuangan No.88, Blok GK, Kebon Jeruk Sub District, Kebon Jeruk District, West Jakarta
Office space
30.43 sq m
Five years expiring 31 December 2009
PT Tomang Maju Perkasa
110

Use of Property / Type Office space
Title/Location Graha Kencana Building, 5th floor, Jl. Raya Perjuangan No.88, Blok GK, Kebon Jeruk Sub District, Kebon Jeruk District, West Jakarta SWK Graha Kencana Building, 6th floor, Jl. Raya Perjuangan No.88, Blok GK, Kebon Jeruk Sub District, Kebon Jeruk District, West Jakarta Kencana Tower Business Park, Kebon Jeruk 8th, 9th and 10th floor, Jl. Raya Meruya Utara, North Meruya Sub District, Kembangan District, West Jakarta AKM Graha Kencana Building, 6th floor, Jl. Raya Perjuangan No.88, Blok GK, Kebon Jeruk Sub District, Kebon Jeruk District, West Jakarta PAM Graha Kencana Building, 5th floor, Jl. Raya Perjuangan No.88, Blok GK, Kebon Jeruk Sub District, Kebon Jeruk District, West Jakarta
Rental / Consideration Rp35,000 per sq m monthly
Encumbrance
Approximate Area 30.43 sq m
Tenure Five years expiring 31 December 2009
Lessor / Issuer PT Tomang Maju Perkasa as lessor
Office space
Rp45,000 per sq m monthly
219.92 sq m
1 January 2004 to 31 December 2009
PT Tomang Maju Perkasa as lessor
Office space
Rp19,052 per sq m monthly
2,624.4 sq m
25 years expiring 30 June 2033
PT Graha Meruya as lessor
Office space
Rp45,000 per sq m per month
146.61 sq m
Office space
90.86 sq m
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Use of Property / Type
Title/Location AIK Graha Kencana Building, 6th floor, Jl. Raya Perjuangan No.88, Blok GK, Kebon Jeruk Sub District, Kebon Jeruk District, West Jakarta KAJ Tempilang Village, Pembantu Tempilang District, Bangka ATK
Rental / Consideration
Encumbrance
Approximate Area
Tenure
Lessor / Issuer
Office space
67.39 sq m
2 January 2006 to 1 January 2011
Mill and Office space
Rp12,000,000 per year
2,807 sq m
Three years expiring 31 October 2010
SWK
Gedung Graha Office Kencana 1 space Jl. Raya Perjuangan No.88, Blok GK, Kebon Jeruk Sub District, Kebon Jeruk District, West Jakarta
50.69 sq m
Two years expiring 14 June 2009
PT Tomang Maju Perkasa
LK Tempilang Village, Pembantu Tempilang District, Bangka Power generation Rp25,000,000 per year 13,064 sq m Three years expiring 31 October 2010 SWK
In addition, our Company utilises the following premises:

Approximate Area Registered owner
Title/Location IDT Land and space on pier, Belinyu Port Area
Use of Property
Consideration
Tenure
CPO handling
Rp5,133,433 per year
200 sq m
10 years expiring 31 December 2013
PT (Persero) Pelabuhan Indonesia II Pangkalbalam Branch
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INSURANCE Law No. 13 of 2003 on Manpower (Labour Law), in conjunction with Law No. 3 of 1992 concerning Social Security for Employee, provides that any employer with ten or more employees or pays out wages exceeding Rp1.0 million per month is obliged to register its employees in the Jamsostek program provided by PT Jamsostek (Persero). This program covers security for employees as follows (i) work accidental security, (ii) death security, (iii) old age security, and (iv) health maintenance security. Employers that provide a better health maintenance security for its employees are not required to register its employees in the Health Maintenance Security program provided by Jamsostek program. We currently maintain social welfare insurance for our full-time employees under the Jamsostek as required under the legislation. Our Group provides internal health maintenance security for our employees, which exceeds the minimum requirement under the Jamsostek program. We have taken out insurance coverage in respect of all our operations. We currently maintain industrial all risks, movable property, machinery breakdown, and earthquake insurances for our Bangka Island and Kalimantan processing facilities which includes equipment, stocks, inventories and power plant. We also maintain marine hull insurances on our vessels, which provide insurance cover against fire, explosion, perils of the seas, accidents in loading, discharging or shifting cargo. The policies cover our costs of replacement but will not cover any losses of profits we incur. We are also not insured for losses arising from certain risks such as plantation fires, volcanic eruption, war and terrorism. Our Directors believe that our Group has adequate insurance coverage for the purpose of our business operations and we will procure the necessary insurance coverage for our assets as and when the need arises. However, significant disruption to our operations or damage to any of our properties, whether as a result of fire and/or other causes, may still have a material adverse impact on our results of operations or financial condition. PROCESS OF OBTAINING HGU LAND TITLE Based on Regulation No. 2/1999, a location permit (Ijin Lokasi) is granted by the Head of Regency for any company to acquire land within the framework of investment and can also be relied on as a permit for transferring land-related rights or using the land for the purpose of business investment. The process begins with a company submitting an application to the local land office. The grant of a location permit is based on factors such as the control of the land and their rights attached to the land concerned, the regional physical assessment, technical land use plan, the prescribed usage and capacity of the land. The Head of Regency must conduct a coordination meeting among the government officials prior to the issuance of the location permit to consider the interest of the landowners located in the area in question. In general, an applicant for HGU certification needs to prepare or otherwise present to the Regional Land Agency certain documents including the location permit, an application letter addressed to the Regional Land Agency and a proposal for utilisation of the land area which must be in line with the purpose of the HGU, for example for use as part of a plantation business. Normally, an applicant engages a local land notary (Pejabat Pembuat Akta Tanah (PPAT)) to assist in applying for the HGU land certificate as part of the land processing procedure set out below. The land processing procedure is generally divided into the following stages:
Review of documents (Legal Aspect Review)

The land office will initially review the completeness of the application documents and the supporting documents, including the land relinquishment documents. They may undertake a site visit and interview the local villagers or authority to verify that ownership of the land has indeed been relinquished.
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Mapping/Land measurements (Technical Aspect Review)
The land office will undertake a land measurement to determine the actual land area that has been relinquished by villagers for the HGU title and to verify the technical documents submitted by the applicant.
Discussion by special land committee

A special land committee further evaluates the results of the legal and technical reviews and recommends whether or not an HGU certificate in respect of the target land should be issued to the applicant.
Public Announcements
If the land committee recommends that an HGU certificate be issued, the land office will make a public announcement at the land office or in the newspaper for a minimum period of 90 days from the date of issue.
Results of Public Announcements

If there is an objection and/or a claim submitted within the 90-day period, the Regional Land Agency will advise the applicant to address the objection and settle the objection/claim. Until the objection is addressed or the claim is settled, the Regional Land Agency will not issue any decree regarding the issue of a land title certificate. If there is no objection or claim within the public announcement period, the Regional Land Agency will advise the applicant accordingly and instruct the applicant to pay the land registration duty (Bea Perolehan Hak Atas Tanah dan Bangunan/ (BPHTB)).
Payment of Land Registration Duty/BPHTB

The applicant is required to pay BPHTB to the tax office in the amount of 5% of the higher of the Tax Object Selling Price of the land (Nilai Jual Objek Pajak (NJOP)) determined from time to time by the tax office or the purchase price of the land.
Issuance of Decree regarding Statement of Rights

After the BPHTB payment has been made (for which evidence of payment needs to be submitted to the Regional Land Agency), the Regional Land Agency will issue a decree regarding the issue of the land title (Surat Ketetapan Hak Atas Tanah) over the targeted land under the name of the applicant. Following the issuance of the decree, the Regional Land Agency will register the land title in the name of the applicant in the General Book of Land Titles. Upon registration, the Regional Land Agency will issue a land title certificate to the applicant. Before a HGU certificate can be issued, the targeted land has to be measured by the Panitia B for classification as Kadastral land first. However, an applicant seeking HGU certification is typically required to start planting over the land as an indication of commitment to utilise the targeted land for oil palm plantation and as opposed to engagement in land speculation. This effectively means that the planting process must begin even before formal HGU certification to approve such planting is issued by the Regional Land Agency. There is no assurance that the Regional Land Agency will proceed to issue a HGU certificate for land on which we have begun planting. In the event that HGU certification is not obtained for whatever reason, we may be required to vacate such land on which we have started planting. We may not be able to obtain HGU certification for the entire area under our land bank as parts of such area may be unsuitable for plantation or be subject to dispute with the land owners. It should be noted, however, that Article 32(2) of Government Regulation No. 24 of 1997 regarding Land Registration provides that a claim relating to land title is statute-barred after the expiration of five years from the issuance of the HGU certificate and no claim can be made against the holder of the HGU certificate, assuming such holder has obtained the land in good faith and has actual possession of the land.
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GOVERNMENT REGULATIONS As Indonesia is a developing market, its legal and regulatory regime may be less certain than in more developed markets and may be subject to unforeseen changes. At times, the interpretation or application of laws and regulations may be unclear and the content of applicable laws and regulations may not be immediately available to the public. In particular, regional regulations are not nationally published. Under such circumstances, consultation with the relevant regional authority in Indonesia may be necessary to obtain better understanding or clarification of applicable laws and regulations. However, as regional regulations are issued by taking into consideration prevailing laws and regulations which are nationally published, it is unlikely that the provisions of such regional regulations will contradict national laws and regulations. A summary of the Indonesian laws and regulations relevant to our Group is set out in Appendix C Indonesian Regulatory Overview of this Prospectus. As at the Latest Practicable Date, we have obtained the following documents and licenses: (i) Environmental Management/Monitoring Effort (UKL/UPL) for the storage of palm oil on the land on which our bulking terminal is situated; and (ii) licenses from the Indonesian Environmental Agency for the re-use of lube oil, which is a lubricant for the equipment and machineries in our Bangka Island and Kalimantan processing facilities. While our Company has in the past failed to comply with certain laws and regulations, we believe that these past breaches have been fully rectified and we have obtained approvals for outstanding documents and licences. The relevant government authorities in Indonesia have also confirmed that there are no legal issues outstanding in respect of these said past breaches. Save as disclosed above, we believe that we have obtained all the necessary material licenses and permits and are in compliance with all laws and regulations in Indonesia, the principal jurisdiction in which our Group operates that would materially affect our business operations.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The following selected financial information should be read in conjunction with the full text of this Prospectus, including the Independent Auditors Report on the Audited Combined Financial Statements of Kencana Agri Limited for the Financial Years Ended 31 December 2005, 2006 and 2007 as set out in Appendix F of this Prospectus.
OPERATING RESULTS OF OUR GROUP
US$000 Revenue Cost of sales Gross profit Gain/(loss) on fair value changes in biological assets Interest income Financial expenses Foreign exchange transactions (loss)/gain Distribution costs Administrative expenses Other credits/(charges) Profit/(loss) before income tax Income tax credit/(expense) Profit/(loss) for the year Attributable to: Equity holders of the company Minority interests
(1)
FY2005 36,623 (32,189) 4,434 (8,997) 25 (1,181) (563) (1,144) (2,157) 408 (9,175) 2,138 (7,037)
Audited FY2006 41,067 (32,570) 8,497 16,675 20 (1,892) 1,206 (1,406) (2,872) 89 20,317 (5,482) 14,835
FY2007 69,280 (45,826) 23,454 41,898 161 (2,797) (773) (1,781) (4,561) (1,045) 54,556(3) (15,354) 39,202(3)
(7,037) (7,037)
14,835 14,835 1.9
39,202 39,202 4.9
Earnings/(loss) per Share (US cents)

Notes: (1) (2)
(2)
(0.9)
Minority interests are below US$1,000. For comparative purposes, the earnings/(loss) per Share for the period under review has been computed based on the profit/(loss) for the year and the pre-Invitation share capital of 798,044,720 Shares assuming our Group had existed since 1 January 2005. Had the Service Agreements (as set out under the section Service Agreements of this Prospectus) been in place with effect from FY2007, our profit before income tax and profit for the year for FY2007 would have been US$54.1 million and US$38.9 million respectively.
(3)
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COMBINED FINANCIAL POSITION OF OUR GROUP
US$000 ASSETS Current assets: Cash and cash equivalents Trade and other receivables Inventories Total current assets Non-current assets: Properties, plant and equipment Biological assets Land rights Trade and other receivables Total non-current assets Total assets LIABILITIES AND EQUITY Current liabilities: Short-term borrowings Trade and other payables Current tax payable Current portion of long-term borrowings Current portion of finance leases Financial liabilities Total current liabilities Non-current liabilities Deferred tax liabilities Estimated liabilities for employee benefits Long-term borrowings Finance leases Total non-current liabilities Total liabilities Equity Share capital Translation reserves Retained earnings Total equity Minority Interests(1) Total equity Total liabilities and equity NTA per Share (US cents)
Notes: (1) (2) Minority interests are below US$1,000. The NTA per Share has been computed based on our pre-Invitation share capital of 798,044,720 Shares assuming our Group had existed as at 1 January 2005.
(2)
Audited As at 31 December 2007
5,941 8,041 5,171 19,153
19,869 111,649 2,480 1,043 135,041 154,194
473 12,686 990 2,233 245 677 17,304
26,073 288 31,660 292 58,313 75,617
19,110 (4,328) 63,795 78,577 78,577 154,194 9.8
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The following discussion of our results of our operations and financial condition should be read in conjunction with the Independent Auditors Report on the Audited Combined Financial Statements of Kencana Agri Limited for the Financial Years ended 31 December 2005, 2006 and 2007 as set out in Appendix F of this Prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future results to differ significantly from those projected in the forward-looking statements include, but are not limited to, those discussed below and elsewhere in this Prospectus, particularly in the section Risk Factors of this Prospectus. Under no circumstances should the inclusion of such forward-looking statements herein be regarded as a representation, warranty or prediction with respect to the accuracy of the underlying assumptions by our Company, the Issue Manager, the Joint Underwriters and Placement Agents or any other person. Investors are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. Please refer to the section Cautionary Note on Forward-Looking Statements of this Prospectus.
SELECTED OPERATING DATA
Revenue (US$000)
Plantation Segment Sumatera Region: CPO CPKO Others(1) Sub Total Kalimantan Region: CPO CPKO Others Sub Total Plantation Segment Biomass segment(3) Total Revenue FY2005 FY2006 FY2007
15,221 4,698 377 20,296
75.0% 23.1% 1.9% 100%
18,480 4,320 950 23,750
77.8% 18.2% 4.0% 100%
25,469 8,224 1,986 (2) 35,679
71.4% 23.0% 5.6% 100%
8,611 7,716 16,327 36,623 36,623
52.7% 47.3% 100%
10,098 7,049 170 17,317 41,067 41,067
58.3% 40.7% 1.0% 100%
16,791 14,067 2,537 (2) 33,395 69,074 206 69,280
50.3% 42.1% 7.6% 100%
Sales volume (MT)

CPO Sales Sumatera region Kalimantan region Sub Total CPKO Sales: Sumatera region Kalimantan region Sub Total Total Sales volume
FY2005
FY2006
FY2007
43,765 23,027 66,792
65.5% 34.5% 100%
49,247 27,490 76,737
64.2% 35.8% 100%
42,981 23,893 66,874
64.3% 35.7% 100%
8,346 13,171 21,517 88,309
38.8% 61.2% 100%
8,323 14,330 22,653 99,390
36.7% 63.3% 100%
9,104 18,016 27,120 93,994
33.6% 66.4% 100%
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CPO Production (MT)
Sumatera region Kalimantan region Total CPO Production FY2005 44,144 23,721 67,865 65.0% 35.0% 100% FY2006 45,918 26,544 72,462 63.4% 36.6% 100% FY2007 39,121(6) 25,436(6) 64,557 60.6% 39.4% 100%
CPKO Production (MT)

Sumatera region Kalimantan region Total CPKO Production
FY2005 9,002 12,982 21,984 40.9% 59.1% 100%
FY2006 7,799 13,164 20,963 37.2% 62.8% 100%
FY2007 9,264 19,221 28,485 32.5% 67.5% 100%
Average selling price (US$/Tonne) (4)

CPO CPKO
FY2005 357 577 FY2005 19.9 9.8 FY2005
FY2006 372 502 FY2006 19.2(5) 17.0 FY2006
FY2007 653 853 FY2007 21.9 18.2 FY2007
FFB yield (Tonnes/Hectare)

Sumatera region Kalimantan region(5)
Average oil extraction rates ( % )

Sumatera region CPO CPKO Kalimantan region CPO CPKO
18.5 41.3
20.2 42.3
20.5 41.2
18.5 41.1 FY2005 3.7 1.8
19.7 41.3 FY2006 3.9 3.3
22.1 41.3 FY2007 4.5 4.0
Average CPO yield (MT/Ha)

Sumatera region Kalimantan region
Notes: (1) (2)
Others include sale of palm kernel, PKC and management income earned from our Plasma Programme. In FY2007, our other income from Plantation segment increased approximately US$3.4 million as compared to FY2006. This was mainly due to increase in our sale of kernels in the first six months of FY2007 in Kalimantan and sale of PKC by approximately US$0.7 million and US$2.3 million respectively and the commencement of the sale of certain cooking oil for which we recorded approximately US$0.4 million of revenue during FY2007. The increase in our sale of kernels was mainly due to favorable selling price and higher profit margin from sale of kernels as compared to CPKO. Hence, in the first six months of FY2007, we decided to sell palm kernels of approximately 2,600 MT. The increase in PKC sales was due to increase in demand from new customers as well as higher selling price as compared to FY2006. During the period, we also traded Refined, Bleached & Deodorised (RBD) palm olein in both Sumatera and Kalimantan regions. This is to comply with the requirement of an Indonesian government regulation which took effect in May 2007 which set a quota for every palm oil company to sell RBD palm olein at a pre-determined price to stabilise the price of cooking oil in Indonesia. In the second half of June 2007, this regulation was superceded by the imposition of export tax for palm oil products.
(3) (4)
Revenue from Biomass segment refers to the sale of electricity to PLN as we officially commenced our operation in 2007. The average selling price is derived by dividing the total revenue over the total sales volume of the respective products. Our average selling price is primarily affected by shipment terms (i.e. FOB or CIF) and by our forward contracts arrangements.
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(5) FFB yields declined in FY2006 as compared to FY2005 mainly due to a drought in Indonesia between June and December 2006. FFB yields from our Kalimantan plantations are generally lower than those of our Sumatera Plantations as our Kalimantan plantations comprise mainly young mature oil palm trees. Please refer to the section on Age Profile of Planted Oil Palm Trees of this Prospectus. The decrease in CPO production levels in Sumatera and Kalimantan for FY2007 was due to a reduction in the supply of FFB from our suppliers, namely PT Bumi Permai Surya Lestari, Kelompok Tani Swadaya and Pradiksi.
(6)
OVERVIEW We are a producer of CPO and CPKO in Indonesia with oil palm plantations located in the Sumatera and Kalimantan regions, where climatic conditions are well-suited for planting of oil palm trees. From 2005 to the Latest Practicable Date, our Groups total land bank increased from 77,374 hectares to 95,410 hectares and our total planted area increased from 12,277 hectares to 24,349 hectares. As at the Latest Practicable Date, 85.0% of our total land bank is in Kalimantan with a planted area of 18,762 hectares, while our remaining land bank is situated in Sumatera, with a planted area of 5,587 hectares. As our planted area covers only 25.5% of our current land bank, we believe that we are able to significantly increase our planted area within our existing land bank. Our Group also participates in the Plasma Programme under which the Indonesian Government requires plantation owners to develop surrounding small landholders plantations and purchase the FFB harvested from such plantations. This is one way in which our Group contributes to the welfare of the local communities in the areas that our Group operates. As at the Latest Practicable Date, our Group has a total area of approximately 12,372 hectares and 7,981 hectares of planted area administered under the Plasma Programme. Our Group has two palm oil mills and two kernel crushing plants, with one located on Bangka Island in Sumatera and one in South Kalimantan. Our palm oil mills have a total production capacity of 120 MT/hour, and our kernel crushing plants have a combined production capacity of 435 MT/day. We operate a bulking terminal in Belinyu, Bangka Island which is conveniently situated approximately 80 km from our plantation. This bulking terminal has three storage tanks with a total capacity of 19,500 MT and a nearby jetty for vessels to berth at and take delivery of our products. For our plantation operations in Kalimantan, we also operate a jetty approximately 50 km from the plantations to facilitate the transportation of our products. We own and operate two barges with a total capacity of 4,500 MT which we use primarily for our own products. Our bulking terminal and logistics services serve primarily to complement and support our palm oil business by enabling us to be self-sufficient in terms of storage and transportation. Our Group also has a 6.0 MW renewable biomass power plant on Bangka Island, which is used to generate electricity by utilising waste, namely EFB and kernel shells recycled from the CPO production process. Most of the electricity generated is sold to PLN. The balance is used for internal consumption by our plantation located on Bangka Island.
Revenue
A significant proportion of our revenue is generated through the sale of CPO and CPKO and to a smaller extent sale of by-products such as palm kernel and PKC. In FY2007, we sold 57.9% of our CPO and 49.8% of our CPKO to India, China, Malaysia and Vietnam. Such export sales are denominated in US dollars. The balance of our CPO and CPKO are sold in the domestic market. Sales in Indonesia are mainly denominated in Rupiah (save for CPKO sales which are denominated in US dollars). Revenue from biomass power plant is relatively insignificant as we officially commenced our operations in 2007 and only supply to PLN.
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Our revenue is recognised upon delivery of products and services when significant risk and rewards of ownership are transferred to our customers. With respect to sales of CPO and CPKO, depending on the shipment terms in the sales contracts, insurance costs and freight charges may be included in our selling prices. For example, shipment terms under CIF (cost, insurance and freight) include insurance costs and freight charges in the selling price whereas shipment terms under FOB (free on board) exclude these charges. The insurance costs and freight charges, where applicable, form part of our distribution costs. Our revenue is affected primarily by the following factors:
(a)
Prices for CPO and CPKO

We derived most of our revenue from the sale of CPO and CPKO through export to international markets. As such, our selling prices are referenced to the global spot and future prices as traded in the international commodity markets (such as the Rotterdam market, and the Malaysian Commodity Derivatives Exchange in Kuala Lumpur). The prices of CPO and CPKO are subject to intense price volatility in the global markets and are generally affected by, inter alia, weather conditions, government policies (i.e. imposition of export and import tariffs), worldwide demand and supply for the underlying commodity, fluctuation in crude oil prices, shifts in consumption patterns, economic developments as well as population growth and the availability and prices of substitute products (i.e. rapeseed oil and soybean oil). In general, the prices of our products will move in tandem with the changes in the global commodity prices of CPO and CPKO which would in turn impact our revenue. Please refer to the section Prospects of this Prospectus for more information on the factors which may affect CPO and CPKO prices. Our average selling prices per MT of our CPO for FY2005, FY2006 and FY2007 were US$357, US$372 and US$653. Our average selling price per MT of our CPKO for FY2005, FY2006 and FY2007 was US$577, US$502 and US$853. Our average selling prices of our CPO and CPKO were generally lower than the average international market prices as most of our shipping terms were under FOB. Furthermore, some of our sales are based on forward contracts arrangements where the selling prices of CPO and CPKO are agreed in advance and as such may deviate from the average international spot prices. As at 31 December 2007, we have entered into various forward contracts for sale of 16,500 MT of CPO for delivery in January to December 2008. Prices for CPO range from approximately US$725 to US$880. This represents 22.7% of our projected CPO production for 2008. The remaining output will be sold at spot prices to be determined by our Group and where appropriate, our Group may enter into forward contracts if the terms and pricing are considered favourable by our Group.
(b)
Our ability to increase volume of FFB harvested

FFB is the primary raw material used in our Groups production of CPO and other palm oil products. We purchase FFB from third party producers or harvest from our plantations in Sumatera and Kalimantan (including from villagers under the Plasma Programme). As at 31 December 2007, 43.4% of the FFB used in the production of CPO is from third party producers. Due to the purchase price of FFB from third party producers being significantly higher compared to the unit cost of FFB harvested from our plantation, the lack of assurance of consistency of supply from such third party producers and the possibility of such FFB having a lower oil extraction rate, we intend to utilize more internally harvested FFB in our production. The volume of FFB harvested is affected by factors which include, inter alia, quality of the oil palm seeds, soil and climatic conditions, application of fertiliser, quality of plantation management as well as the timely harvesting of FFB and the age profile of our existing plantations. Generally, the yield of FFB would peak when the trees are between 7 and 18 years old. In general, matured trees can produce 18 to 25 MT per hectare per annum. Given that the majority of our trees is either immature or young, we expect that the FFB harvested from our plantation will increase in the near future as these trees mature hence producing more FFB. Please refer to the section General Information On Our Group Our Oil Plam Plantation Harvesting and FFB yield from oil palm plantations of this Prospectus for more information. 121

Our ability to increase the volume of FFB harvested would affect our production volume and accordingly our revenue derived from sale of our palm oil products.
(c)
Our ability to improve oil extraction rate

The production volume of our CPO and CPKO production are affected by the oil extraction rates. The extraction of CPO and CPKO is primarily dependant on the quantity and ripeness of the FFB, the quality of kernel and the processing efficiency of our mill and kernel crushing plant. To optimise our extraction rate, FFB must be harvested when ripe and transported quickly to the mills for processing. In general, harvested FFB should be processed within 24 hours to maintain the quality of the CPO produced. Furthermore, our ability to increase the processing efficiency will depend on the implementation of better processing techniques and our ability to control and minimize oil loss throughout the milling process. If we are successful in improving our oil extraction rates, we would expect an increase in our CPO and CPKO production which would result in an increase in our revenue. For more information, please refer to the section Oil extraction rates of this Prospectus for additional information.
(d)
Our ability to expand the planted area

We have a considerable amount of undeveloped cultivable land, which represents significant potential for growth. Our ability to expand our planted area and cultivate our land would affect the production volume of FFB and hence our revenue derived from the sale of palm oil products. Factors which may affect our ability to expand include the ability to convert land rights to HGUs, government policies, unforeseen climate changes, the ability to build infrastructure and support from the villagers. Please refer to the section on Our Oil Palm Plantations and Plasma Programme of this Prospectus for additional information.
(e)
Fluctuations in foreign currency exchange rates

We have substantial sales denominated in US dollars. As the functional currency of our operating companies is denominated in Rupiah, any movement in the exchange rate between US dollars and Rupiah will have an impact to our revenue. Generally, our revenue recorded in Rupiah is higher when US dollars appreciate against Rupiah and lower when US dollars depreciate against Rupiah.
Cost of Sales Cost of sales consists of costs relating to FFB and kernels purchased from third party suppliers, expenses directly related to the production of FFB incurred at our plantations, and cost of production of CPO and CPKO. Our cost of sales constituted approximately 87.9%, 79.3% and 66.1% of our revenue in FY2005, FY2006 and FY2007 respectively.
(US$000) Raw materials Labour Overheads Depreciation Changes in inventory Other purchases(1) Total cost of sales FY2005 24,353 767 5,851 1,351 (142) 9 32,189 75.7% 2.4% 18.2% 4.2% (0.5)% % 100% FY2006 22,059 905 6,078 1,541 1,987 32,570 67.7% 2.8% 18.7% 4.7% 6.1% % 100% FY2007 36,045 1,133 6,840 1,784 (447) 471 45,826 78.7% 2.5% 14.9% 3.9% (1.0)% 1.0% 100%
Note: (1) In FY2007, other purchases include purchases of 750MT of cooking oil (RBD palm olein). Please refer to note 2 of the table entitled Selected Operating Data under this section for more information.
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Our purchases of raw materials (mainly purchase costs of FFB and kernel from third party producers) form a significant part of our cost of sales. In general, the purchase price of FFB from third party producers is significantly higher than the unit cost of FFB harvested from our plantation. From FY2005 to FY2006, we reduced the proportion of raw material costs from 75.7% to 67.7% of total cost of sales as the volume of FFB harvested from our plantations increased. We expect this trend to continue as more of our trees become mature and as a result lead to an increase in FFB produced. In FY2007, raw material costs constituted approximately 78.7% of the total cost of sales which was higher than that in FY2006. This was due to increase in the purchase price per MT of FFB by approximately 68.6% which more than offset the decrease in the volume of FFB purchased of approximately 39.4% and the increase in both quantity and purchase price of kernel by approximately 52.7% and 82.3% respectively. The cost of sales relating to the production of FFB consists of labour costs at our plantations and overheads incurred for plantation upkeep and maintenance. Labour costs accounted for approximately 2.4%, 2.8% and 2.5% of our total cost of sales in FY2005, FY2006, and FY2007, respectively. Labour costs comprised mainly of salaries and other staff-related costs which are affected by factors such as the number of employees, number of hours worked, performance bonus and salary increments. The increase in labour costs in FY2007 was due to the increase in headcount arising from the increase in harvesting activities. Overhead costs accounted for approximately 18.2%, 18.7% and 14.9% of our total cost of sales in FY2005, FY2006 and FY2007 respectively. These overheads are related mainly to plantation upkeep expenses such as fertilizer, harvesting, collection, repair and maintenance as well as fuel and lubricants costs. Upkeep expenses may vary with the soil and weather conditions, harvest yields, and the age profile of the oil palm trees. The increase in overhead costs in FY2005, FY2006 and FY2007 was mainly due to increase in price of fertilizer, fuel and repairs and maintenance cost as a result of increase in our production level. Depreciation charges relate to our properties, plant and equipment used within our plantation estates, as well as equipment used in our bulking and logistics operation. In FY2006, the increase in depreciation was due to the completion of an additional vessel as well as acquisitions of plantation and mill equipment. In FY2007, the increase in depreciation was due to additional depreciation expense incurred in respect of leasehold buildings which were completed in late 2006. Changes in inventory represent the difference between the value of opening and closing inventory levels for raw material and finished goods for the respective financial periods. In FY2006, there was a decrease in closing inventory of approximately US$2.0 million due to timing differences in collecting our CPO and CPKO inventory by our customers. In FY2007, there was an increase in our inventory level of approximately US$0.5 million, despite a significantly lower volume of inventory of CPO as at 31 December 2007 as compared to closing inventory of CPO as at 31 December 2006, offset by a slight increase in volume of closing inventory of CPKO for the same periods. This was mainly due to higher unit cost of production of closing inventory of CPO and CPKO as at 31 December 2007 arising from increases in prices of FFB and kernel purchased from third party suppliers during FY2007.
Financial income
Our financial income relates mainly to interest income and was insignificant for the period under review.
Financial expenses
Our financial expenses amounted to approximately US$1.2 million, US$1.9 million and US$2.8 million for FY2005, FY2006 and FY2007 respectively. The increase in financial expenses in FY2005 of US$0.2 million was mainly due to additional US dollar borrowings in the second half of the year (US$6.7 million) obtained to finance the expansion of our mill, construction of biomass power generation facilities in Bangka Island and vessel, the acquisition of heavy equipment and new planting.
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Our financial expenses increased by US$0.7 million in FY2006 as we increased our Rupiah borrowings by US$4.9 million which charge higher interest compared to our US dollar borrowings, to finance additional acquisition of plantation and mills equipment, new planting and to support our working capital Our financial expenses in FY2007 increased by US$0.9 million as compared to FY2006. This was mainly due to interest charged on new borrowings drawn down during the first nine months of 2007. Approximately US$4.2 million of these borrowings were settled during October to December 2007. In addition, we incurred additional interest expenses for new bridging loans of approximately US$17.5 million which were taken up by our Group in September 2007 as part of the Restructuring Exercise.
Gain/(loss) on Fair Value Changes in Biological Assets

We have adopted FRS No. 41 - Agriculture, which requires biological assets (i.e. mature and immature oil palm trees in our plantations) to be stated at their fair values less estimated point-of-sale costs at each balance sheet date. The fair value of these biological assets is estimated by reference to independent professional valuations using the discounted cash flows from the underlying biological assets. The expected cash flows from the whole life cycle of the oil palm plantations are determined using the market price and the estimated yield of FFB, net of maintenance and harvesting costs and the costs required to bring the oil palm plantations to maturity. The estimated yield of the oil palm plantations is affected by the age of the oil palm trees, the location, soil type, and infrastructure. The market price of the FFB is largely dependent on the prevailing market price of the processed products after harvest i.e. the CPO and palm kernel. Point-of-sale costs include commissions to brokers and dealers, levies by regulatory agencies and commodity exchanges and transfer taxes and duties. The transport and other costs necessary to get assets to a market are excluded. Any resultant gain or loss arising from the change in fair value is immediately recognised in the income statement. Based upon our combined income statements, we recognised fair value gains of US$16.7 million and US$41.9 million in FY2006 and FY2007 respectively and a fair value loss of US$9.0 million in FY2005. A change in fair value of these biological assets is primarily due to changes in CPO prices, oil extraction rates and discount rates as well as the general industry outlook in the year under examination.
Distribution costs
Our distribution costs include freight and handling charges, export expenses such as terminal handling charges, transportation and other miscellaneous expenses relating to our Groups sales and marketing activities. Our distribution costs amounted to US$1.1 million, US$1.4 million and US$1.8 million for FY2005, FY2006 and FY2007 respectively. Freight costs, which are generally affected by the movements in fuel price, is a major cost component of our distribution costs, and accounted for approximately 48.9%, 77.7% and 65.0% of the total distribution costs for FY2005, FY2006 and FY2007, respectively. Export expenses are related to our overseas sales and are affected by international sea freight rates. The increase in freight costs in FY2006 and FY2007 was due to increase in price of fuel and export volume of our products.
Administrative expenses
Our administrative expenses consist mainly of remuneration and employee benefit expenses (including remuneration of directors and administrative staff), premise-related expenses (such as land tax, rental of premise, utility charges), depreciation charges on office plant and equipment and other miscellaneous expenses such as insurance premium, legal and professional fees. Our administrative expenses amounted to US$2.2 million, US$2.9 million and US$4.6 million for FY2005, FY2006 and FY2007 respectively. Our administrative expenses is generally affected by changes in remuneration and employee benefit expenses and depreciation expenses which in aggregate accounted for approximately 45.1%, 56.6% and 49.5% of the total administrative expenses for FY2005, FY2006 and FY2007, respectively.
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Other (charges)/credits
Other (charges)/credits comprise mainly of losses on forward sales contracts, amortisation of land rights, gains or losses on disposal of plant and equipment and other miscellaneous credits and charges. Other (charges)/credits amounted to US$0.4 million, US$0.08 million, and US$(1.0) million in FY2005, FY2006, and FY2007 respectively. The increase in other charges of US$1.0 million in FY2007 was mainly due to mark to market hedging losses arising from futures commodities contracts being marked to market. The losses arose due to the difference between the market value of the contracts as at 31 December 2007 and the delivery price stated in the contracts. Losses on futures contracts were insignificant to our Group in FY2005 and FY2006.
Foreign exchange transactions gain/(loss)

We incur losses and gains on foreign exchange transactions as the Rupiah fluctuates against the US dollar over a given period of time. Please refer to the section Risk Factors of this Prospectus for information relating to foreign exchange fluctuation risks for more information. Our Group maintains our accounts in either Rupiah or US dollars. Transactions during the year involving foreign currencies are recorded at the rates of exchange prevailing at the relevant transaction dates. At the balance sheet dates, monetary assets and liabilities denominated in foreign currencies are translated into respective functional currencies at the closing rates. Any losses are credited or charged to the profit and loss accounts for the year. In FY2005, FY2006 and FY2007 net foreign exchange gains/(losses) were (US$0.6) million, US$1.2 million and (US$0.8) million respectively. Income tax credit/(expense) Our effective corporate tax rate was approximately 23.3%, 27.0% and 28.1% of our profit/(loss) before income tax in FY2005, FY2006 and FY2007, respectively. The corporate tax rate in Indonesia is progressive, based on the level of income earned, and ranges from 10% to 30%. The effective tax rates of our Group for FY2005, FY2006 and FY2007 were lower than the applicable effective corporate tax rate in Indonesia of approximately 30%. In FY2005, the lower effective tax rate was mainly due to uncertainty in the utilization of tax losses of certain entities in our Group as at the balance sheet date and hence our Group did not provide for deferred tax assets. In FY2006 and FY2007, the lower effective tax rate was mainly due to utilisation of brought forward losses within our Group. SEGMENTAL BREAKDOWN OF PAST PERFORMANCE We have segmented below our revenue, gross profit, gross profit margin, profit/(loss) before income tax and pre-tax profit/(loss) margin by business segments for the period under review. Review of Past Performance by Business Segments
Revenue
FY2005 US$000 Plantations Biomass Total 36,623 36,623 100.0% % 100% FY2006 US$000 41,067 41,067 100.0% % 100% FY2007 US$000 69,074 206 69,280 99.7% 0.3% 100%
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Gross Profit/(Loss) and Gross Profit Margin
FY2005 US$000 Plantations Biomass Total Overall Gross Profit Margin (%) 4,434 4,434 12.1% 100.0% % 100% FY2006 US$000 8,497 8,497 20.7% 100.0% % 100% FY2007 US$000 23,618 (164) 23,454 33.9% 100.7% (0.7)% 100%
Profit/(loss) before Income Tax and (Loss)/Profit Margins

FY2005 US$000 Plantations Biomass Total (9,103) (72) (9,175) (99.2%) (0.8%) (100%) FY2006 US$000 20,317 20,317 49.5% 100% % 100% FY2007 US$000 54,866 (310) 54,556 78.7% 100.6% (0.6)% 100%
Overall Pre-tax Profit/(Loss) margin (%) (25.1%)
REVIEW OF OVERALL PAST PERFORMANCE FY2006 vs FY2005
Revenue
Our revenue increased by approximately US$4.4 million or 12.1% from US$36.6 million in FY2005 to US$41.1 million in FY2006. The increase was mainly attributable to increase in revenue of US$4.4 million from our plantation segment. The increase in revenue from our plantation operations was mainly due to overall increase in sales volume of CPO and CPKO of 11,081 MT or 12.5% from both our Sumatera and Kalimantan operations and higher CPO average selling price reported by approximately 4.2% (from US$357 per MT to US$372 per MT). However, this increase was partially offset by a decrease in average selling price of CPKO by approximately 13.0% (from US$577 per MT to US$502 per MT). Our sales volume of CPO in Sumatera increased by 5,482 MT or 12.5% in FY2006 which was partially due to sale of CPO closing inventory carried forward from FY2005. Our CPO production volume in Sumatera increased marginally compared to FY2005, as we experienced a drought during the period from June 2006 to December 2006 which resulted in a decrease in FFB yield from 19.9 MT per hectare to 19.2 MT per hectare. Our sales volume of CPO and CPKO from our Kalimantan operations increased by 5,622 MT or 15.5% mainly due to higher FFB yields and oil extraction rates of CPO and CPKO as more of our trees became mature despite the unfavourable weather conditions.
Cost of sales
Despite an increase in revenue of 12.1% in FY2006, our Group recorded a marginal increase in cost of sales of US$0.4 million or 1.1% from US$32.2 million to US$32.6 million in FY2006. The increase in our cost of sales was attributable to decrease in closing inventory of US$2.1 million and increase in labour expenses of US$0.1 million, overhead expenses of US$0.2 million and depreciation expenses of US$0.2 million. The increase was partially offset against reduction in purchases of raw materials by US$2.3 million as we were able to increase the volume of FFB harvested from our plantation due to increasing maturity of our oil palm trees.
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Gross Profit and Gross Profit margin
Our gross profit increased by approximately US$4.1 million or 91.6% from US$4.4 million in FY2005 to US$8.5 million in FY2006 as our cost of sales increased marginally by 1.1% despite an increase in revenue of 12.1%. The increase in gross profit margin by 8.6 percentage points from 12.1% in FY2005 to 20.7% in FY2006 was mainly due to reduction in purchases of raw materials from third party suppliers . The purchases of FFB from third party suppliers as a proportion of our total FFB requirements decreased from 66.2% in FY2005 to 62.2% in FY2006, which lowered our cost of sales accordingly. We used a higher proportion of FFB harvested from our plantations for the production of CPO and CPKO as our oil palm trees in our Kalimantan plantation became more mature.
Net Gains Arising from Changes in Fair Value of Biological Assets

Net gains arising from changes in fair value of biological assets was US$16.7 million in FY2006 as compared to a net loss of approximately US$9.0 million in FY2005 as the fair value of our biological assets in FY2006 was higher than FY2005. The increase in the fair value of the biological assets for FY2006 was mainly due to the following factors: (i) average CPO prices based on CIF terms at Rotterdam port increased from US$422 per MT in FY2005 to US$478 per MT in FY2006; oil extraction rates increased from 18.5% in FY2005 to 20.2% in FY2006; discount rate used decreased from 22% in FY2005 to 18% in FY2006; and a more favourable industry outlook on the CPO price trend.
(ii) (iii) (iv)
Distribution costs
Our distribution costs increased by approximately US$0.3 million or 22.9% in FY2006 due to increase in costs of delivery and transportation of our products due to higher sales volume in FY2006 and increase in fuel prices. Our total sales volume increased by 12.5% from 88,309 MT in FY2005 to 99,390 MT in FY2006.
Our administrative expenses increased by US$0.7 million or 33.1% due to increase in payroll cost of US$0.3 million and increase in depreciation and other overheads of US$0.4 million. The increase in payroll cost resulted from additional headcount and salary adjustment. The increase in depreciation and other overhead costs was mainly due to additions in plantation equipment as a result of business expansion in FY2006. Foreign exchange transactions gain/(loss) In FY2006, we recorded net foreign exchange gain of US$1.2 million as compared to a net loss of US$0.6 million due to appreciation of US dollars against Rupiah.
Other credits
Other credits in FY2006 were not significant to our Group.
Interest Income
There were no significant changes in our interest income earned in FY2006.
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Financial Expenses
Our financial expenses increased by US$0.7 million as we increased our Rupiah borrowings by US$4.9 million which charge higher interest compared to our US dollar borrowings, to finance additional acquisition of plantation and mills equipment, new planting and to support our working capital.
Profit/(loss) before Income Tax

Our profit before income tax increased by approximately US$29.5 million in FY2006. The increase was mainly due to the net gains on changes in fair value of biological assets of approximately US$16.7 million in FY2006. The improvement in our Groups performance in FY2006 was also attributable to higher gross profit, gain from foreign exchange offset against higher distribution, administrative and financial expenses incurred. Excluding the changes in fair value of biological assets, our adjusted profit/(loss) before income tax for FY2005 and FY2006 is US$(0.2) million and US$3.6 million respectively.
Income Tax Credit/(Expense)

Our Group recorded an income tax expense of US$5.5 million in FY2006 as compared to an income tax benefit of US$2.1 million in FY2005. The increase in income tax expense was due mainly to higher income tax expenses incurred due to increase in net operating profits before tax of US$3.8 million and deferred tax expenses of US$4.8 million arising from gains on fair value changes in biological assets. Our effective tax rate in FY2006 was approximately 27.0%, which was lower than our statutory tax rate in Indonesia mainly due to utilisation of brought forward losses within our Group.
Net profit/(loss) attributable to Shareholders

We recorded net profit of approximately US$14.8 million in FY2006 compared to the net loss position of US$7.0 million in FY2005. This was mainly due to significant improvement in our gross margin, net gain from foreign exchange and gain in fair value of biological assets as explained above. FY2007 vs FY2006
Revenue
Our revenue increased by approximately US$28.2 million or 68.7% from US$41.1 million in FY2006 to US$69.3 million in FY2007. The increase was mainly attributable to the increase in revenue of US$28.0 million from our Plantation business segment and US$0.2 million from our Biomass business segment. The increase in revenue from our plantation operations of US$28.0 million was mainly due to overall increase in average selling prices of CPO and CPKO and sales volume of CPKO. Our average selling price of CPO increased by approximately 75.5% (from US$372 per MT to US$653 per MT) and for CPKO, we registered a 69.9% increase in average selling price (from US$502 per MT to US$853 per MT) due to increase in prevailing international selling prices and increase in sales volume of CPKO of 4,467 MT from 22,653 MT to 27,120 MT. However, this increase was partially offset by a decrease in sales volume of CPO from 76,737 MT to 66,874 MT due mainly to significant reduction in the FFB purchased from third party suppliers. Revenue from the Biomass business segment was derived from the sale of electricity generated by our renewable biomass power plant which officially commenced operation in FY2007.
Cost of sales
Despite an increase in revenue of 68.6% in FY2007, our Group recorded a proportionately smaller increase in cost of sales of US$13.2 million or 40.5% from US$32.6 million to US$45.8 million in FY2007. The increase in our cost of sales was attributable to increase in raw materials costs of US$14.0 million, labour expenses of US$0.2 million, overhead expenses of US$0.8 million, depreciation of US$0.2 million and other purchases of US$0.5 million, offset against an increase in closing inventory of US$2.4 million. The increase in raw materials was due to increase in prices of kernels by approximately 81.9% and of FFB by approximately 68.6%. 128

Gross Profit and Gross Profit margin
Our gross profit increased by approximately US$15.0 million or 176.0% from US$8.5 million in FY2006 to US$23.5 million in FY2007. Despite an increase in revenue of 68.6%, our cost of sales increased by 40.5%. The increase in gross profit margin by 13.2 percentage points from 20.7% in FY2006 to 33.9% in FY2007 was mainly due to increase in average selling prices of CPO and CPKO and materially lower cost of sales as a percentage of revenue. The lower cost of sales was attributable to an increase in the proportion of harvested FFB used in production, as compared to third party FFB, as well as as a lower proportionate increase in revenue as compared to overheads. The purchases of FFB from third party suppliers as a proportion of our total FFB requirements decreased from 62.2% in FY2006 to 43.4% in FY2007, which lowered our cost of sales accordingly.
Gains on Fair Value Changes in Biological Assets

Gains arising from changes in fair value of biological assets was US$41.9 million in FY2007 as compared to US$16.7 million in FY2006 as the fair value of our biological assets in FY2007 was higher than FY2006. The increase in the fair value of the biological assets for FY2007 was mainly due to the following factors: (i) average CPO prices (based on CIF terms at Rotterdam port) increased from US$478 per MT in FY2006 to US$765 per MT in FY2007; average CPKO prices (based on CIF terms at Rotterdam port) increased from US$581 per MT in FY2006 to US$925 per MT in FY2007; and a more favourable outlook on the CPO and CPKO price trend.
(ii)
(iii)
Distribution costs
Despite lower sales volume of our products, our distribution cost marginally increased by approximately US$0.4 million or 26.7% in FY2007 due to increase in costs of delivery and transportation costs mainly arising from increases in fuel price.
Our administrative expenses increased by about US$1.7 million or 58.8% in FY2007 due mainly to an increase in payroll expenses of US$0.9 million resulting from the increase in headcount and salary adjustments, non-recurring professional fee expenses of US$0.4 million relating to the Initial Public Offering exercise which are not allowed to be capitalised, and increased planting activities in our new plantation companies in Kalimantan.
Foreign Exchange Transactions Gain/(Loss)

In FY2007, we recorded net foreign exchange loss of approximately US$0.8 million as compared to a net gain of US$1.2 million in FY2006 due to depreciation of US dollars against Rupiah.
Interest Income
There were no significant changes in our interest income earned in FY2007.
Financial Expenses
In FY2007, our financial expenses increased by US$0.9 million as compared to the previous year. This was mainly due to interest charged on new borrowings drawn down during the first nine months of 2007. Approximately US$4.2 million of these borrowings were settled during October to December 2007. In addition, we incurred additional interest expenses for new bridging loans of approximately US$17.5 million which were taken up by our Group in September 2007 as part of the Restructuring Exercise.
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Other charges
Other charges increased by approximately US$1.1 million in FY2007 due to losses on sales hedging activities incurred during the year and fair value losses on forward CPO sales contracts. The fair value losses arose due to the difference between the market value of the contract as at 31 December 2007 and the delivery price stated in the contract. Losses on forward sales contracts were insignificant to our Group in FY2005 and FY2006.
Profit before Income Tax

Our profit before income tax increased by approximately US$34.2 million in FY2007. The increase was mainly due to the net gains on changes in fair value of biological assets of approximately US$41.9 million in FY2007. The improvement in our Groups performance in FY2007 was also attributable to higher gross profit, offset against net foreign exchange loss, higher administrative and financial expenses incurred. Excluding the changes in fair value of biological assets, our adjusted profit before income tax for FY2006 and FY2007 is US$3.6 million and US$12.7 million respectively.
Income Tax Expense

Our Group recorded an income tax expense of US$15.4 million in FY2007 as compared to US$5.5 million in FY2006. The increase in income tax expense was mainly due to higher income tax expenses incurred due to increase in net operating profit before tax of US$9.0 million and US$14.7 million deferred tax expense arising from gain in fair value of biological assets. Our effective tax rate in FY2007 was approximately 28.1% due to utilisation of brought forward losses within our Group.
Net profit/(loss) attributable to Shareholders

We recorded an increase in net profit for FY2007 of approximately US$24.4 million mainly due to increased revenue, gross profit margin, as well as a significant gain on changes in fair value of biological assets, as explained above. REVIEW OF FINANCIAL POSITION
Current Assets
Our current assets comprise cash and cash equivalents, trade and other receivables, and inventories. As at 31 December 2007, current assets amounted to approximately US$19.2 million or 12.4% of our total assets. Trade and other receivables which amounted to US$8.0 million accounted for 42.0% of our current assets. Our other receivables amounted to approximately US$7.2 million and it comprised mainly prepayments, deferred public listing expenses, employee loans, tax recoverable, amounts due from villagers under our Plasma Programme and sundry debtors. Inventories accounted for 27.0% of our current assets. The remaining balance of our current assets comprised cash and cash equivalents amounting to US$5.9 million. As at 31 December 2007, all outstanding amounts due to and from Shareholders have been fully repaid.
Non-Current Assets
Our non-current assets comprise properties, plant and equipment, biological assets, land rights, and trade and other receivables. As at 31 December 2007, our non-current assets amounted to approximately US$135.0 million or 87.6% of our total assets, of which approximately US$19.9 million related to our properties, plant and equipment, US$111.6 million related to biological assets, US$2.5 million related to land rights for our plantations and approximately US$1.0 million related to prepaid rent to a related party.
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Current Liabilities
Our current liabilities comprise short-term borrowings, trade and other payables, current tax payable, current portion of long-term borrowings, finance leases and financial liabilities. As at 31 December 2007, our current liabilities amounted to approximately US$17.3 million or 22.9% of our total liabilities. Trade and other payables amounted to approximately US$12.7 million and accounted for 73.3% of our current liabilities. Trade and other payables related to amount due to trade creditors for the purchases of raw materials and fertilisers, accrued operating expenses, and advance receipts from customers. Short-term borrowings comprising bank loans and bank overdrafts, amounted to approximately US$0.5 million and accounted for 2.7% of our current liabilities. Current portion of longterm borrowings of approximately US$2.2 million, which accounted for 12.9% of our current liabilities, related to the interest- bearing term loans from financial institutions to finance our capital expenditure and also to support our working capital. Financial liabilities of approximately US$0.7 million, which accounted for 3.9% of our current liabilities, related to provision for losses on forward sales contracts of CPO as at 31 December 2007. The remaining current liabilities consists of current portion of finance leases of approximately US$0.2 million and current tax payable of approximately US$1.0 million.
Non-Current Liabilities
Our non-current liabilities comprise long-term borrowings, long-term portion of finance leases, deferred tax liabilities and provision for retirement benefits. As at 31 December 2007, non-current liabilities amounted to approximately US$58.3 million or 77.1% of our total liabilities. Long-term borrowings amounted to approximately US$31.7 million and related to interest-bearing term loans from financial institutions to finance our capital expenditure and also to support our working capital. Deferred tax liabilities amounted to approximately US$26.1 million and mainly related to deferred tax charges on the temporary differences arising from the recognition of changes in fair value of biological assets in the income statement and other tax provisions. The remaining non-current liabilities consists of finance leases amounting to approximately US$0.3 million and estimated liability for employee benefits amounting to approximately US$0.3 million.
Shareholders Equity
As at 31 December 2007, our shareholders equity amounted to approximately US$78.6 million. The increase of approximately US$29.8 million from FY2006 was mainly due to the increase in the retained earnings by approximately US$32.5 million. There was a decrease in translation reserves of US$3 million due to depreciation of the Rupiah against the US dollar. Our translation reserves are due to foreign exchange differences arising from the translation of Rupiah functional currency into US dollar presentation currency. LIQUIDITY AND CAPITAL RESOURCES Our operations are funded by a combination of shareholders equity and loan, cash generated from our operating activities, credit extended to us by our suppliers and bank borrowings. The principal uses of our Groups funds are for working capital and capital expenditure purposes. Based on our shareholders equity of US$48.7 million as at 31 December 2006 and US$78.6 million as at 31 December 2007 and our interest-bearing borrowings of US$30.6 million as at 31 December 2006 and US$34.4 million as at 31 December 2007, our gearing ratio (defined as total interest-bearing borrowings divided by shareholders equity) was 0.6 and 0.4 times respectively. Our working capital ratio (defined as current assets divided by current liabilities) was 0.8 times as at 31 December 2006 and 1.1 times as at 31 December 2007. We had been able to gradually increase our net cash flow over the periods under review.
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Our Directors are of the opinion that, as at the Latest Practicable Date, after taking into account our cash position, the operating conditions and the funding available under our existing bank facilities, our Group has adequate working capital to meet its present requirements. Please refer to the section Capitalisation and Indebtedness of this Prospectus for details on our banking facilities. We set out below a summary of our combined cashflow statement for FY2005, FY2006, and FY2007. The following combined cashflow summary should be read in conjunction with the full text of this Prospectus, including the Independent Auditors Report on the Audited Combined Financial Statements of Kencana Agri Limited for the Financial Year Ended 31 December 2005, 2006 and 2007 as set out in Appendix F of this Prospectus:
FY2005 US$000 Net Net Net Net cash generated from operating activities cash used in investing activities cash generated from (used in) financing activities effect of exchange rate changes 845 (7,015) 5,990 725 545 244 789 FY2006 US$000 6,523 (10,389) 6,671 (2,257) 548 789 1,337 FY2007 US$000 20,485 (11,644) (2,621) (3,558) 2,662 1,337 3,999
Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period
FY2005 We generated net cash inflow from operating activities of approximately US$0.8 million which comprised mainly operating profit before changes in working capital of approximately US$2.7 million and net cash used in working capital amounted to approximately US$1.9 million. Net cash used in working capital was mainly due to increase in other receivables (mainly shareholders loan) of US$2.4 million and increase in inventories of approximately US$0.4 million, which was partially offset by an increase in trade and other payables of approximately US$0.9 million. We reported net cash used in investing activities amounting to approximately US$7.0 million. The net cash outflow was due mainly to the acquisition of property, plant and equipment of approximately US$3.1 million (including the expansion of capacity of our CPO mills from 45 MT/hour to 60MT/hour, land right costs and construction of a new vessel) and used mainly in new planting in Kalimantan region amounting to approximately US$3.7 million. We generated net cash inflows from financing activities of US$6.0 million. This was due mainly to the net increase in borrowings from financial institutions of approximately US$5.6 million, and proceeds from the issuance of shares by subsidiaries of approximately US$2.2 million offset against interest payments of US$1.8 million. FY2006 We generated net cash inflows from operating activities of approximately US$6.5 million which comprised mainly operating profit before working capital changes of approximately US$7.6 million, net cash used in working capital amounted to approximately US$0.9 million and income tax paid of approximately US$0.2 million. Net cash used in working capital was mainly due to increase in other receivables (mainly shareholders loan and prepayment) of approximately US$3.8 million offset by increase in trade and other payables (due mainly to an increase in advance payment by a customer of approximately US$3.3 million and decrease in shareholders loan payables by approximately US$1.0 million) and decrease in inventories of US$0.5 million.
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We reported net cash used in investing activities amounting to approximately US$10.4 million. This was due mainly to payments made for the new planting activities in Kalimantan and acquisition of property, plant and equipment (including land right costs and costs for construction of the new vessel) amounting to approximately US$6.2 million and US$3.6 million respectively. We generated net cash inflows from financing activities amounting to approximately US$6.7 million. This was due mainly to the net increase in borrowings from financial institutions of approximately US$6.2 million and proceeds from the issuance of shares by subsidiaries amounting to approximately US$3.4 million offset against interest payments amounting to approximately US$3.0 million. Interest payment had increased compared to FY2005 mainly due to the full effect of additional financial institutions borrowings of approximately US$12.0 million over late FY2005 and FY2006 taking place in FY2006. FY2007 We generated net cash inflows from operating activities of approximately US$20.5 million which comprised mainly operating profit before working capital changes of approximately US$18.1 million, net cash generated from working capital amounting to approximately US$3.2 million and income tax paid of approximately US$0.8 million. Net cash generated from working capital was mainly due to decrease in trade and other receivables of approximately US$3.0 million and increase in trade and other payables of US$2.8 million, offset by an increase in inventories of approximately US$0.6 million and cash restricted in use of approximately US$1.9 million. We reported net cash used in investing activities amounting to approximately US$11.6 million. This was due mainly to payments made for the new planting activities in Kalimantan and acquisition of property, plant and equipment (including land right costs) amounting to approximately US$7.6 million and US$3.6 million respectively. We reported net cash used in financing activities amounting to approximately US$2.6 million. This was due mainly to interest payments of US$4.1 million, dividend payment of US$2.0 million and decrease in finance leases of US$0.6 million, offset by the net increase in bank borrowings of approximately US$3.7 million and proceeds from the issuance of shares by subsidiaries amounting to approximately US$0.3 million CAPITAL EXPENDITURE, COMMITMENTS AND CAPITAL DIVESTMENT Capital Expenditure and Divestment Our capital expenditure in FY2005, FY2006 and FY2007 were related to the acquisitions of land rights, property, plant and equipment as well as biological assets, as follows:
US$000 Land rights(1) Leasehold property(2) Plant, fixtures and equipment(3) Assets under construction(4) Vessels Biological assets(5) FY2005 336 94 1,752 1,651 1,012 4,517 9,362 FY2006 635 118 824 2,230 539 7,514 11,860 FY2007 651 167 1,622 2,751 9,338 14,529
Notes: (1) (2) (3) Related mainly to the land rights for our plantation land. Related mainly to plantation related buildings constructed on our plantation land. Related mainly to plant and equipment for our plantation operations as well as for our administrative office.
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(4) Assets under construction comprise various infrastructures, properties, expansion of mill, kernel crushing plant and heavy equipment under construction and these assets will be reclassified to the respective fixed asset account upon completion. Related mainly to mature and immature oil palm plantations.
(5)
The above capital expenditures were financed by borrowings from banks and other financial institutions and internally generated funds. Our capital expenditure for FY2005, FY2006 and FY2007 were approximately US$9.4 million, US$11.9 million and US$14.5 million respectively. In FY2005, our capital expenditure on plant, fixtures, equipment and assets under construction related mainly to the acquisition of our kernel crushing plant and CPO mill equipment amounting to approximately US$1.8 million, the construction of our Biomass power plant in Bangka Island of approximately US$0.6 million and the expansion of our Kalimantan CPO mills capacity from 45 MT/hour to 60 MT/hour totaling US$0.7 million. Our capital expenditure on vessel and biological assets related mainly to the construction of a new vessel amounted to approximately US$1.0 million and costs incurred mainly for our new planting related activities in Kalimantan region amounting to approximately US$4.5 million respectively. Our capital expenditure on land rights related mainly to the payment of processing fees for the land rights in our Kalimantan region amounting to approximately US$0.3 million. We carried out approximately 3,869 hectares of new planting during FY2005. In FY2006, our capital expenditure on plant, fixtures, equipment and assets under construction related mainly to the acquisition of general plant and equipment amounting to approximately US$0.8 million and the construction of various infrastructures and facilities for our plantations in Sumatera and Kalimantan regions amounting to approximately US$2.2 million. Our capital expenditure on vessel and biological assets related mainly to the remaining construction costs incurred on a new vessel amounting to approximately US$0.5 million and costs incurred mainly for our new planting related activities in Kalimantan region amounting to approximately US$7.5 million respectively. Our capital expenditure on land rights related mainly to the payment of processing fees for the land rights in our Kalimantan region amounting to approximately US$0.6 million. We carried out approximately 4,513 hectares of new planting during FY2006. In FY2007, our capital expenditure were mainly for the construction of various infrastructures and facilities amounting to approximately US$2.8 million, purchases of additional plants, fixtures and equipments of US$1.6 million in both of our plantations in the Sumatera and Kalimantan regions, and for new planting related activities mainly in Kalimantan region amounting to approximately US$9.3 million. We also incurred land rights processing fee for our Kalimantan plantation land which amounted to approximately US$0.6 million. We carried out approximately 5,816 hectares of new planting during FY2007. There was no material divestment in the periods mentioned above. Capital and Lease Commitments As at 31 December 2007, we have the following outstanding capital and lease commitments:
US$000 (a) (b) Contracted capital commitment Lease payments under non-cancellable operating lease falling due: Not later than one year Later than one year and not later than five years Later than five years 597 189 1,452
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Contracted capital commitment mainly relates to land clearing and development costs and purchase of plant and equipment. Operating lease payments represent rental payable for our bulking facilities in Sumatera region and prepayment arising from a long term lease of 25 years. The lease from the owner of the bulking facilities is for approximately 10 years and is effective from June 2002 to December 2012. In FY2007, one of our subsidiaries had entered into a long-term lease for 25 years with a related party. As at 31 December 2007, there had been an initial prepaid rental payment of approximately US$1.1 million (Rp10.0 billion) to the related party. In addition to this, the balance of the rent amounting to US$0.5 million (Rp5.0 billion) will be paid upon handing over the premises to our subsidiary. The lease period is expected to commence in the second quarter of 2008. We intend to finance these costs mainly through internal funds and bank borrowings. Please refer to the section Interested Person Transactions and Conflict of Interests of this Prospectus for more information on the long-term lease. As at the Latest Practicable Date, we have outstanding capital commitments of approximately US$17.0 million. These capital commitments comprise amounts relating to purchase of equipment (approximately US$0.7 million), mill-related expenses (approximately US$0.7 million), new planting (approximately US$8.8 million), infrastructure (US$3.7 million) and purchase of vessel (approximately US$3.0 million). We intend to finance these costs mainly through internal funds, bank borrowings, and IPO proceeds. Contracted capital commitment mainly relates to land clearing and development costs, purchase of plant and equipment, oil palm mill development cost and purchase of land. Save as disclosed above, we do not have any other material capital or lease commitments as at the Latest Practicable Date. COMMODITY HEDGING POLICY The prices we receive for CPO and CPKO are based on these products international market prices. In order to moderate fluctuations in the price of our CPO and CPKO products, our Group from time to time engages in limited hedging activities to cover our downside risk resulting from volatility in the price of CPO and CPKO through the use of forward sale contracts. We have an established policy, of which the Board is fully apprised, for determining the quantum of our forward sale contracts, taking into account factors such as expectations of our production of CPO and CPKO based on our current Nucleus production, movement in the price of CPO and CPKO and overall market conditions. Decisions to enter into forward sale contracts must be approved by our COO or Finance Director as well as one other Director. Our Group intends to establish a dedicated sales team in order to better advise our Board on its entry into of forward sale contracts. Our Group does not enter into forward sale contracts for speculative purposes. FOREIGN EXCHANGE EXPOSURE Our Companys functional and reporting currency is US dollars and that of our Indonesian subsidiaries is the Rupiah. The majority of the sales of palm oil products of our Group are quoted in US dollars while our purchases (with the exception of certain key costs such as fertilizers, plant and heavy equipment) and business operations in Indonesia are mainly denominated in Rupiah. Our Group has a net foreign exchange exposure due to a mismatch in the currencies of receipts and payments. To the extent of such mismatch, any significant appreciation or depreciation in the US dollar against the Rupiah and/or arising from timing difference due to credit terms given by our suppliers and to our customers may cause our Group to incur foreign exchange losses or, conversely, benefit from foreign exchange gains. In addition, our Group has significant borrowings denominated in US dollars to finance our operations in Indonesia. As such, any appreciation in the US dollar against the Rupiah may also result in our Group incurring foreign exchange losses due to settlement or revaluation of the US dollar-denominated borrowings.
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For FY2005, FY2006 and FY2007, the net foreign exchange gains/(losses) of our Group are as follows:
FY2005 Foreign exchange transaction gains/(losses) recognised in income statement (US$000) FY2006 FY2007
(563)
1,206
(773)
In seeking to mitigate the volatility associated with US dollar denominated sales, our Group usually utilises foreign currency forward contracts. The value of such foreign currency forward contracts is equivalent to approximately 30% of US dollars denominated sales. Our Groups foreign currency hedging policy aims to reduce the impact of significant fluctuations in the exchange rate between the US dollars and the Rupiah on our financial performance. Our Board will review our foreign currency hedging policy periodically and new hedging policies to be implemented by our Group must be approved by the Board. We will also prepare relevant information to assist our Board in its quarterly review. Our Group does not enter into foreign currency forward contracts for speculative purposes. As at the Latest Practicable Date, our Group had the following outstanding foreign exchange forward contracts:
Sell US dollars for Rupiah Contracted and due between June and October 2008 US$000 9,500
INFLATION Inflation in Indonesia is relatively high in FY2005, FY2006 and FY2007 and the major contributing factor has been the increase in energy prices. According to Bank Indonesia, the inflation rates for the abovementioned financial periods were 17.1%, 6.6% and 6.6% respectively. Except for the effect of high energy costs in particular, in the fuel and fertilizer costs, we believe that inflation had no significant impact to our business operations. ACCOUNTING POLICIES Our consolidated financial statements (Financial Statements) are presented in US dollars and they are drawn up in accordance with Singapore Financial Reporting Standards (SFRS). We have not made any significant changes in our accounting policies during FY2005, FY2006 and FY2007. Our Group has not adopted certain new and revised SFRS that have been issued as of the balance sheet date but yet to be effective as fully described in the Independent Auditors Report on the Audited Combined Financial Statements of Kencana Agri Limited for the financial years ended 31 December 2005, 2006 and 2007 as set out in Appendix F of this Prospectus. The adoption of these standards in the future is not expected to have significant impact to the presentation, measurement and recognition of transactions in our financial statements. Our Group has not considered the impact arising from the standards that were issued after the balance sheet date. Revised SFRS 23 Borrowing costs removes the option to expense borrowing costs and requires an entity to capitalize it as costs of those qualifying assets. Our Groups current policy is consistent with the new requirement. New SFRS 108 Operating Segments replaces SFRS 14 Segment Reporting. The principal requirement of SFRS 108 is the identification and reporting of operating segments whose operating results are regularly reviewed by the entitys chief operating decision maker to make decisions about resources to be allocated to the segments and assess its performance. Currently, our Group operates predominantly in Indonesia and presents its segment information principally under business segment basis. Upon the adoption of SFRS 108, our Group will present the segment information in respect of its operating segments, which will be substantially similar with the components currently disclosed in the business segment.
136

Please refer to Appendix F Independent Auditors Report on the Unaudited Proforma Combined financial Information of Kencana Agri Limited for the Financial Year Ended 31 December 2005, 2006 and 2007 of this Prospectus for a summary of our significant accounting policies and the discussion of our critical judgments, assumptions and estimation uncertainties made in the process of applying the accounting policies and key sources of estimation uncertainties at the balance sheet date that may have a significant risk of causing material adjustment to the carrying values of our assets and liabilities.
137
PROSPECTS
PALM OIL INDUSTRY
ISTA Mielke Gmbh, an independent authority of global market research and analysis on world supply, demand and prices of oil and oil products, has been commissioned to provide an independent overview on the palm oil industry for the purpose of inclusion in this Prospectus. In this section, unless otherwise specified, all statistical data or forecasts relating to the palm oil industry have been compiled by ISTA Mielke Gmbh, extracted from its website http://www.oilworld.biz and based on its publication, Oil World Annual 2007 and other publications.
Overview of the Palm Oil Industry The development of palm oil has been outstanding. Within the last thirty years, world production virtually doubled every ten years and the rate of increase has even accelerated during the latest decade. For the past 10 years ended 2007, palm oil consumption registered the highest compound annual growth rate of 8.3% amongst the vegetable oils. Palm oil has many economic advantages namely low production costs and very high yields hence creating excellent profitability of palm oil cultivation. This has contributed to a very sharp increase in oil palm cultivation primarily in Malaysia and Indonesia. Malaysian and Indonesia have a combined market share of approximately 90%. For the past ten years from 1998 to 2007, Malaysia is the worlds largest palm oil exporter and but Indonesia is closely behind. In terms of production of palm oil, Indonesia has overtaken Malaysia in 2006. Palm oil has also benefited from growing popularity and has increased its market share at the expense of competing vegetable oils (i.e. rapeseed oil, soybean oil, sunflower oil) and animal fats/oils. The success of the palm oil industry has been linked to its versatile use in the food industry as well as for many non-food purposes (for soap and detergents, lubricants, animal feed and biofuels). Consumption of palm oil on a worldwide basis has grown faster than any other vegetable oil and more than doubled during the past 10 years 17.7 million tonnes in 1998 to 38.0 million tonnes in 2007. The increase is mainly attributable to growing population and economic growth. Annual per capita consumption of oils and fats are still relatively low in Asia but has shown considerable increases over the past ten years in the major consuming countries namely China, Pakistan, Indonesia and India. Given that the per capita consumption in most Asian countries is below the world average of 23.2 kilograms, thus indicating the potential for continued growth in this region especially if economic growth remains strong. Palm oil is the leading edible oil in the international export trade and accounted for 51% of total world trade of 17 major oils and fats in 2007. Major import markets are the European Union, China, India, Pakistan, the USA, Mexico, Russia, Ukraine, Turkey, the Middle East, Japan, South Korea and several African countries.
Palm Oil and Its Uses

Crude palm oil is extracted through the process of cooking, mashing and pressing the oil palms fleshy fruit. During this process, seeds are separated from the fruit and upon cracking the seeds shell the kernel inside is separated. In addition, the kernel can be further processed to produce palm kernel oil. Unlike many other oil-yielding crops which are grown for their meal, oil palm is grown primarily for its oil, which contains antioxidants such as carotene and a relatively high content of vitamins A and E. Crude palm oil is a versatile vegetable oil with a variety of edible and industrial applications. Over the past decade, the edible uses of crude palm oil have increased as a result of promotion and research in its applications. Crude palm oil is often further processed to produce refined bleached and deodorized palm oil, a major ingredient in margarines and shortenings. Crude palm oil can also be fractionated to produce palm olein and palm stearin. Palm olein, the liquid fraction, can be used as cooking oil to fry processed foods like potato chips, instant noodles and other snack foods. Palm stearin, the solid fraction, can be further processed to make soaps and detergents. During the past 10 years, about 80% of crude palm oil is processed for consumption in edible products and about 20% is used for inedible applications. 138
PROSPECTS
In contrast, approximately 25% of palm kernel oil derivatives are used for edible products while the other 75% are used for industrial purposes. Palm kernel meal, a by-product from palm kernel processing, is generally used for animal feed. Economic Advantages of Palm Oil over other Oils The success of palm oil and the substantial expansion in plantings and production in recent years is linked to a number of advantages as compared to other oil-yielding crops. Firstly, palm oil production costs on a per tonne basis are considerably lower than any other vegetable oil. The production costs for successful producers in Indonesia and Malaysia is between US$170-240 per tonne, which is much lower than the production cost of rape oil, sun oil and soya oil. A major reason for this cost advantage is the high productivity of palm oil production. During the past five years, the average yield for a Malaysian plantation is approximately 4.0 tonnes per hectare of palm oil and for an Indonesian plantation average yield is approximately 3.7 tonnes per hectare. Some plantation companies have reportedly achieved annual average yields of 4.5-6.0 tonnes per hectare in the same period. As a comparison against the competing vegetables oil, the average yields for oil production are considerably lower. Palm oil producers have an additional advantage over their competitors of other vegetable oils due to the greater supply reliability. Production of vegetable oils from annual crops (like soybeans or rapeseed) are more susceptible to weather conditions. As against this, the oil palm is a perennial crop and is generally less affected by adverse weather conditions. First harvesting can take place approximately three years after planting and it can be done until 20-25 years of age. The optimal time for replanting depends on the variety, the land and the yield performance of the oil palm. World Production of Oils & Fats and Rising Importance of Palm Oil The world production of the major 17 oils & fats increased sharply from 103.1 million tonnes in 1998 to 154 million tonnes in 2007, representing an average annual growth in production of approximately 4.3%. Most of the growth in world production occurred in vegetable oils with an average annual increase of 4.9% during the past 10 years. Production of animal oils/fats (butter, lard as well as tallow) increased moderately by 1.9% per annum. Production of fish oil even declined slightly by 1.2%. Among the 13 vegetable oils, palm oil showed the largest increase during the past 10 years by 7.9% per annum. Soya oil is in the second place with an average annual growth of 5.9% for the same period. Rape oil production (including canola oil) increased by 4.7% per annum for the same period. The increase in palm oil was due to several factors namely limited expansion opportunities of other vegetable oils and animal oils/fats and market price signals accelerated the growth in plantings and production of palm oil. Palm oil producers in Southeast Asia, primarily Indonesia, responded and this has been reflected in a steep increase in new plantings of oil palm trees in many parts of Indonesia since about 2001. The total area planted with oil palm trees has approached 6.7 million hectares as of end 2007. Significant additional expansion in new plantings is needed in coming years to generate the additional quantities required to satisfy prospective world consumption in the years to come.
139
PROSPECTS
World Production of Major Oils and Fats
Average annual growth 1998 2007 2007
(Million Tonnes) Vegetable Oils: Palm oil Soybean oil Sunflower oil Rapeseed oil Other vegetable oils Total vegetable oils Animal fats Fish oil Total oils and fats
1980
1990
1998
1999
2000
2001
2002
2003
2004
2005
2006
4.6 13.4 5.0 3.5 12.9
11.0 16.1 7.8 8.2 16.7
17.2 24.0 8.4 12.3 20.2
20.6 24.8 9.3 13.3 19.8
21.9 25.6 9.7 14.5 20.8
24.0 27.8 8.2 13.7 22.3
25.4 29.9 7.6 13.3 22.2
28.3 31.2 8.9 12.7 21.9
31.0 30.7 9.4 15.1 22.8
33.9 33.6 9.8 16.3 23.8
37.1 35.3 11.2 18.5 23.9
38.3 37.5 10.9 18.7 24.3
7.9% 5.9% 1.7% 4.7% 1.7%
39.4 16.8 1.2 57.4
59.8 18.8 1.4 80.0
82.1 20.1 0.9 103.1
87.8 20.7 1.4 109.9
92.4 20.9 1.4 114.7
95.9 20.6 1.1 117.6
98.4 21.4 0.9 120.7
103.0 21.7 0.9 125.6
109.0 22.1 1.1 132.2
117.4 22.6 1.0 141.0
126.0 23.1 1.0 150.1
129.7 23.4 1.1 154.2
4.9% 1.9% -1.2% 4.3%
Source: Oil World annual and monthly publications and information from its website http://www.oilworld.biz
Demand for Oils and Fats The worlds consumption of the major 17 oils and fats has increased substantially during the past four years and is expected to continue growing very sharply in 2008 and 2009. World consumption increased from 103.2 million tonnes to 154.7 million tonnes from 1998 to 2007. The main driving factors for the ever-increasing consumption demand are as follows : (a) Increasing demand for food per capita, primarily in those countries in Asia as well as in Central & South America where economic activity is strong and average per capita usage levels still relatively low; Increasing population (primarily in the developing countries); and Additional demand for non-food applications i.e. (oleochemicals, compound feed and biofuels)
(b) (c)
World and Regional Population 1950 - 2050

1 0
9 .0 8
7 .5 8 6 .4 6
7 .8 4
Billion
6 .3 4
6
World
5 .2 5
4
Less Developed Regions
2 0
1 95 0 1 9 6 0 1 9 7 0 1 98 0 1 9 9 0
1 .2 1
1 .2 4
1 .2 4
More Developed Regions
2 0 0 0
2 0 1 0
2 02 0
2 03 0
2 0 4 0
2 0 5 0
Source: United Nations, 2004 Revision (Medium Variant)
140
PROSPECTS
World Consumption by Commodity of Major Oils and Fats:
(Million Tonnes) Vegetable Oils: Palm oil Soybean oil Sunflower oil Rapeseed oil Other vegetable oils Total vegetable oils Animal fats Fish oil
1980
1990
1998
1999
2000
2001
2002
2003
2004
2005
2006
4.5 12.8 5.0 3.4 12.6
11.1 16.1 7.9 8.2 16.3
17.7 23.5 8.6 12.3 20.1
19.5 24.5 9.1 13.2 20.1
21.6 25.1 9.4 14.5 20.5
23.6 27.5 8.8 14.0 21.9
25.4 30.0 7.6 13.5 22.6
28.2 31.2 8.8 12.8 22.1
30.0 31.1 9.6 15.0 22.6
33.4 32.9 9.6 16.1 23.5
36.1 34.6 10.9 18.1 24.0
38.0 37.4 11.2 19.1 24.6
7.9% 5.7% 1.7% 5.1% 2.1%
38.3 16.7 1.2
59.6 18.7 1.5 79.9
82.2 20.1 0.9 103.2
86.4 20.8 1.3 108.4
91.1 20.8 1.4 113.4
95.8 20.7 1.2 117.7
99.2 21.3 0.9 121.4
103.1 21.7 1.0 125.9
108.3 22.1 1.0 131.4
115.5 22.7 1.0 139.2
123.7 23.2 1.0 147.9
130.3 23.4 1.0 154.7
5.0% 1.9% -2.1% 4.4%
Total oils and fats 56.2
Over the last decade, consumption of vegetable oil has increased at the expense of other oils and fats. Increasingly, food manufacturers have been using vegetable oils as a substitute for animal oils because they contain lower cholesterol levels. In addition, there has been some concern regarding the off-take of saturated fatty acids, of which animal fats contain a higher proportion than most vegetable oils. Overall, Asia accounted for approximately 47% of worldwide oils and fats consumption in 2007. Annual per capita consumption of oils and fats is still relatively low in Asia, but has shown considerable increases over the past ten years in the major consuming countries, primarily China, Pakistan, Indonesia and India. In 2007, per capita consumption in most Asian countries was still considerably trailing the world average of 23.2 kilograms, thus indicating the potential for continued growth in this region. China and India are the most populous countries and in 2007 accounted for 37% of world population. The future expansion in demand of vegetable oils will be significant in Asia, owing to the rising population and increasing per capita usage, particularly if economic growth remains strong (as was the case in the latest five years). The table illustrates per capita consumption of oils and fats in Indonesia, the United States, the European Union and certain countries for the years 1998 and 2007 according to information provided by Oil World. It should be noted that per capita consumption includes the use of oils and fats for food and non-food purposes (feed, oleochemicals and for biofuels from 2006). 17 Oils and Fats: Per Capita Consumption in Indonesia, United States, the European Union and Certain Other Countries
Population as of July 2007 Countries China India European Union (27 member states) United States Indonesia Pakistan
Source: Oil World Annual 2001 and 2008
(In millions) 1,305.6 1,169.0 493.2 305.8 231.6 163.9
Per Capita Consumption (food and non-food uses) 1998 2007 (kg) (kg) 12.5 10.1 39.2 46.8 15.3 19.1 22.1 12.3 57.8 54.1 20.8 21.7
141
PROSPECTS
Exports of Oils and Fats
Globally, consumers have become more dependent on palm oil during the past 10 years, as production of other vegetable oil could not be increased sufficiently. As a result, world trade in 17 vegetable and animal oils and fats has accelerated substantially and expanded at a higher rate than output and consumption. Palm oil contributed to a large share of this development with respect to trade and consumption, as it is a dominant and dynamic product among oils and fats. Approximately 75-80% of its annual output is exported, compared with 30% in the case of soybean oil or sunflower oil and only 10% in the case of rapeseed oil. As the bulk of world palm oil production is concentrated in only two countries (Malaysia and Indonesia accounted for 85% of the total in 2007), the enormous growth in output registered during the past decade was also accompanied by a similar increase in exports. In 1998, the share of palm oil in total exports of oils and fats was 35% and increased substantially to 51% in 2007. During that period, soybean oil declined from 24% to 19% along with sunflower oil and rapeseed oil. In fact, the very strong and rapidly rising world import demand has been the driving factor behind the very dynamic growth of palm oil production. Due to the rising global requirements (from the food industries as well as from the oleochemical sector and the emerging biofuels industries), the dependence on a further acceleration of the annual growth of palm oil production should also increase in the future as the production of the competing seed oils (derived from soybeans, rapeseeds and other oilseeds) cannot be expanded fast enough to meet world demand. The table below illustrates world exports of major oils and fats by type for the years 1980 to 2007 according to information provided by Oil World : World Exports of Major Oils and Fats
(Million Tonnes) Vegetable Oils: Palm oil Soybean oil Sunflower oil Rapeseed oil Other vegetable oils Total vegetable oils Animal fats Fish oil
1980
1990
1998
1999
2000
2001
2002
2003
2004
2005
2006
3.7 2.6 0.9 0.5 3.8
8.4 3.2 2.1 1.6 3.8
11.4 7.8 2.8 2.1 5.1
14.1 7.5 3.0 1.6 4.5
15.1 6.8 3.0 1.8 5.4
17.8 7.8 2.3 1.2 5.6
19.4 8.7 2.3 1.2 5.4
21.9 9.3 2.6 1.0 5.8
24.2 9.1 2.8 1.5 6.0
26.5 9.8 3.1 1.4 6.8
30.1 10.4 4.5 2.1 6.8
29.9 11.1 4.3 2.1 6.8
9.2% 5.2% 2.4% 1.2% 3.2%
11.5 2.9 0.7
19.1 3.3 0.7 23.1
29.1 3.1 0.4 32.7
30.7 3.2 0.7 34.6
32.0 3.1 0.8 35.9
34.6 2.9 0.8 38.2
37.0 3.1 0.5 40.6
40.6 3.0 0.6 44.2
43.6 3.1 0.7 47.3
47.6 3.0 0.6 51.1
53.9 3.0 0.7 57.6
54.2 3.1 0.8 58.2
6.3% 1.2% 0.7% 5.9%
Total oils and fats 15.1
Demand and Supply of Palm Oil

World production of palm oil has been expanding in tandem with growth in consumption thereof. The expansion in world palm oil production over the last decade can be attributed mainly to Indonesian and Malaysian plantations. Since world consumption is steadily increasing as a result of growing population and economic growth, further expansion in world palm oil production through investments in new planting areas and milling capacity is required to meet the growing demand. The table below presents data on world consumption and supply of palm oil between the years 1980 and 2007, as provided by Oil World.
142
PROSPECTS
World Production, Export & Consumption of Palm Oil
Average annual growth 1998 2007 2007 38.3 29.9 38.0 7.9% 9.2% 7.9%
(Million Tonnes) Production Export Consumption
1980 4.6 3.7 4.5
1990 11.0 8.4 11.1
1998 17.2 11.4 17.7
1999 20.6 14.1 19.5
2000 21.9 15.1 21.6
2001 24.0 17.8 23.6
2002 25.4 19.4 25.4
2003 28.3 21.9 28.2
2004 31.0 24.2 30.0
2005 33.9 26.5 33.4
2006 37.1 30.1 36.1
Differences in production and consumption when measured at the end of marketing years are, as seen in the table above, attributable to seasonal vacancies which balance themselves out through market forces in the following marketing year. Large markets for high growth of palm oil usage are countries in Asia, particularly India, Indonesia, China, Malaysia and Pakistan, and in the Middle East. The European Union is also a major consumer. The table below shows data on consumption of palm oil for the years 1980 to 2007 in certain high growth market countries according to information provided by Oil World: Consumption of Palm Oil by Country
Average annual growth 1998 2007 2007 3.8 4.1 4.5 5.5 2.2 1.7 16.2 38.0 10.5% 3.8% 8.4% 12.5% 6.3% 4.4% 8.0% 7.9%
(Million Tonnes) India Indonesia EU-27 China Malaysia Pakistan Other Total
1980 0.6 0.2 0.7 0.1 0.3 0.2 2.4 4.5
1990 0.7 1.2 1.4 0.9 0.5 0.7 5.7 11.1
1998 1.8 2.8 2.1 1.5 1.0 1.1 7.4 17.7
1999 3.0 3.0 2.3 1.4 1.2 1.1 7.5 19.5
2000 3.6 3.0 2.5 1.6 1.5 1.1 8.3 21.6
2001 3.6 2.9 3.0 2.2 1.5 1.2 9.2 23.6
2002 3.6 3.0 3.4 2.7 1.5 1.4 9.8 25.4
2003 4.2 3.2 3.5 3.3 1.6 1.3 11.1 28.2
2004 3.4 3.3 3.9 3.7 1.8 1.4 12.5 30.1
2005 3.3 3.6 4.4 4.3 2.0 1.6 14.2 33.4
2006 3.1 3.7 4.5 5.5 2.2 1.6 15.5 36.1
The pattern of global production of crude palm oil has evolved over the past three decades, with Malaysia and Indonesia accounting for 85.4% of the worlds crude palm oil output in 2007. The ecological requirements for the cultivation of oil palm exist in zones lying within ten degrees latitude to the north and south of the equator. The regions where oil palm is grown includes West Africa, Central America, South America and South East Asia, including Malaysia and Indonesia.
143
PROSPECTS
The table entitled World Output of Palm Oil by Country below shows the world output of crude palm oil as contributed by selected countries for the years 1980 to 2007 according to information provided by Oil World. World Output of Palm Oil by Country
Average annual growth 1998 2007 2007 15.8 16.9 0.8 0.3 0.7 1.0 0.4 2.4 38.3 5.7% 12.1% 1.6% 1.8% 4.8% 8.3% 7.2% 5.1% 7.9%
(Mn T) Malaysia Indonesia Nigeria Ivory Coast Colombia Thailand Ecuador Others Total
1980 2.6 0.7 0.4 0.2 0.1 0.03 0.04 0.5 4.6
1990 6.1 2.4 0.6 0.3 0.2 0.2 0.1 1.1 11.0
1998 8.3 5.4 0.7 0.3 0.4 0.5 0.2 1.4 17.2
1999 10.6 6.3 0.7 0.3 0.5 0.6 0.3 1.3 20.6
2000 10.8 7.1 0.7 0.3 0.5 0.5 0.2 1.8 21.9
2001 11.8 8.1 0.8 0.2 0.6 0.6 0.2 1.7 24.0
2002 11.9 9.4 0.8 0.2 0.5 0.6 0.2 1.8 25.4
2003 13.4 10.6 0.8 0.2 0.5 0.6 0.3 1.9 28.3
2004 14.0 12.4 0.8 0.3 0.6 0.7 0.3 1.9 31.0
2005 15.0 14.1 0.8 0.3 0.7 0.7 0.3 2.0 33.9
2006 15.9 16.1 0.8 0.3 0.7 0.9 0.4 2.0 37.1
Demand from downstream chemical manufacturers and food processors for palm oil is also rising. Other than the biodiesel industry, the traditional market for palm oil is also increasing. Palm oil is currently the leading edible oil in the international export trade. In 2007, palm oils export volume of 29.9 million tonnes accounted for 51% of total world trade in 17 major oils and fats. High oil prices have prompted manufacturers, such as Procter & Gamble, to reduce their reliance on petrochemicals produced from crude oil by switching to surfactants made from oleochemicals produced from palm and coconut oils. This will further boost demand for palm oil as long as crude oil remains costly. The increased awareness of trans-fatty acids (commonly called trans-fat) could also result in increased demand for palm oil. Research suggests a correlation between diets high in trans fats and diseases like arteriosclerosis and coronary heart disease. The US National Academy of Sciences recommended in 2002 that dietary intake of trans fatty acids should be minimized, but not removed completely. The U.S. Food and Drug Administration made the labeling of trans-fats on food labels compulsory as at January 1, 2006. As a result, some U.S. food companies have started to use more palm oil in their food products because crude palm oil is very low in trans-fatty acids, particularly in comparison to oils from animal fats. Under its World Trade Organization obligations, China lifted its quota on vegetable oils on January 1, 2006. As a result, crude palm oil was a major beneficiary in 2006 when palm oil was 20% cheaper than soybean oil and 40% cheaper than rapeseed oil. The Chinese import policy of vegetable oils has become more liberal, as the Government realized the usually strong growth in domestic demand, partly linked to the continuous very sharp increase in economic growth and disposable income. Chinas total domestic consumption of vegetable oils and palm oil has been growing at a compound annual growth rate of 7.5% and 26.5%, respectively, over the last 23 years.
Major Exporters of Palm Oil

Malaysia and Indonesia are the largest producers and in aggregate accounted for 85% of world production in 2007. Malaysia was the top palm oil producer up till 2006 and has since been overtaken by Indonesia. The sharp increase in Indonesian output (average annual growth in palm oil production of 5.7% in the 10 years until 2007) was mainly driven by rapidly rising mature oil palm area from its plantation. Taking into account the very large land reserves still available and suitable for oil palm cultivation, Indonesia has a much larger growth potential than Malaysia in the years ahead. Given the strong global demand and high palm oil prices, these will drive new investments into the development of new oil palm plantings. 144
PROSPECTS
The table below shows the world export of palm oil by Malaysia and Indonesia from 1980 to 2007. Despite the pronounced growth in Indonesian exports of palm oil ( average annual growth rate of 15.6% from 1998-2007), we expect Malaysia will remain as the primary exporter until approximately 2009 or 2010, as the stronger growth in domestic demand of the more populous Indonesia is impeding a more intense expansion of exports. However, Malaysia has lost market share to Indonesia during the past 10 years, from 68% in 1998 to 46% in 2007. World Exports of Palm Oil with details for Malaysia and Indonesia
Average annual growth 1998 2007 2007 13.8 46% 12.7 42% 3.4 29.9 5.9%
(Million Tonnes) Malaysia Market share Indonesia Market share Others Total
1980 2.3 62% 0.5 14% 0.9 3.7
1990 5.9 70% 1.2 14% 1.3 8.4
1998 7.7 68% 2.3 20% 1.4 11.4
1999 9.2 65% 3.3 23% 1.6 14.1
2000 9.2 61% 4.1 28% 1.7 15.1
2001 10.7 60% 5.0 28% 2.1 17.8
2002 10.9 56% 6.5 34% 2.0 19.4
2003 12.2 56% 7.4 34% 2.3 21.9
2004 12.6 52% 9.0 37% 2.7 24.3
2005 13.4 51% 10.4 39% 2.7 26.5
2006 14.4 48% 12.5 42% 3.2 30.1
15.6%
7.1% 9.2%
Palm Oil Imports During the past 16 years, the largest growth in palm oil imports was in China, India, the European Union and Pakistan. However, USA, Russia, Turkey and several other countries (primarily in Asia) saw an increase in the level of imports and consumption of palm oil. Please refer to the details provided in the table below. World Imports of Palm Oil by Country (Mn T)
(Million Tonnes) EU-27 China India Pakistan Egypt Russia Ukraine U.S.A Mexico Bangladesh Iran Japan Singapore Others Total 1980 0.74 0.06 0.53 0.25 . 0.09 0.01 0.12 . 0.08 0.02 0.15 0.72 0.82 3.59 1990 1.41 1.13 0.67 0.68 0.33 0.19 0.01 0.13 0.12 0.08 0.02 0.28 0.88 2.47 8.40 1998 2.21 1.37 1.67 1.11 0.41 0.08 0.02 0.12 0.10 0.09 0.09 0.36 0.33 3.58 11.54 1999 2.34 1.35 3.26 1.05 0.51 0.11 0.04 0.14 0.10 0.11 0.10 0.36 0.40 4.05 13.92 2000 2.49 1.76 3.65 1.11 0.52 0.16 0.02 0.17 0.14 0.23 0.16 0.37 0.37 3.98 15.13 2001 3.10 2.12 3.49 1.32 0.52 0.26 0.09 0.17 0.17 0.38 0.18 0.39 0.33 5.00 17.52 2002 3.48 2.66 3.46 1.30 0.61 0.32 0.11 0.22 0.18 0.44 0.24 0.42 0.33 5.48 19.25 2003 3.63 3.35 3.98 1.49 0.68 0.39 0.09 0.20 0.20 0.50 0.29 0.43 0.36 6.30 21.89 2004 4.02 3.85 3.45 1.43 0.70 0.44 0.13 0.27 0.28 0.64 0.33 0.47 0.35 7.61 23.97 2005 4.49 4.32 3.32 1.65 0.77 0.60 0.20 0.42 0.28 0.93 0.45 0.48 0.33 8.38 26.62 2006 4.62 5.46 3.20 1.77 0.77 0.54 0.19 0.63 0.34 0.89 0.37 0.50 0.35 9.71 29.34 2007 4.65 5.50 3.69 1.71 0.72 0.58 0.34 0.79 0.30 0.71 0.42 0.53 0.37 9.10 29.41
Indonesian Palm Oil Industry The Indonesian oil palm plantation industry is composed of Government-owned plantation companies, private sector plantation companies and other independent companies and small landholders. Until recently, the Government-owned plantation companies as a group were the largest producers of crude palm oil in Indonesia.
145
PROSPECTS
However, over the last few years, the palm oil industry in Indonesia has evolved from a primarily Government-owned enterprise to one of private ownership. Since 1989, the growth of these companies has reduced the number of Government-owned companies to about 14% of the total oil palm plantation area in 2005, based on a policy implemented to promote private sector expansion. In 2005, the Government, individual smallholders and private companies made up 14%, 31% and 55%, respectively, of the reported total hectares of oil palm plantations in Indonesia. Domestic Consumption and Export of Indonesian Palm Oil Indonesia, with the fourth largest population in the world and an annual per capita consumption of oils and fats of about 20.8 kilograms in 2007, accounts for approximately 11% of world consumption of palm oil. Please refer to the table below for the consumption of palm oil and palm kernel oil in Indonesia from 1980 to 2007 provided by Oil World. Consumption of Palm Oil & Palm Kernel Oil in Indonesia
Average annual growth 1998 2007 2007 4.1 0.45 3.8% 19.4%
(Million Tonnes) Crude palm oil Palm kernel oil
1980 0.2 0.04
1990 1.2 0.1
1998 2.8 0.11
1999 3.0 0.08
2000 3.0 0.16
2001 2.9 0.21
2002 3.0 0.26
2003 3.2 0.31
2004 3.3 0.40
2005 3.6 0.40
2006 3.7 0.44
Despite a substantial domestic market (approximately 4.1 million tonnes consumed in 2007), domestic consumption of palm oil in Indonesia is well below production levels (16.9 million tonnes produced in 2007), which has contributed to a significant surplus of crude or processed palm oil available for export. Given projected increase in domestic production of palm oil, Indonesian producers are expected to increase selling crude palm oil in the international export markets and to further process crude palm oil domestically into downstream products in order to target a larger population of potential customers in both the domestic and overseas markets. With annual production increasing by an average of 12.1% in the past ten years and accelerating expansion in coming years, export of palm oil by Indonesian oil palm producers is set to continue to increase rapidly. The table below shows the staggering growth of Indonesian palm oil production for the years 1980 to 2007 as well as the corresponding development of the annual export volumes: Production and Exports of Palm Oil in Indonesia
Average annual growth 1998 2007 2007 16.9 12.7 12.1% 15.5%
(Million Tonnes) Production Export
1980 0.7 0.5
1990 2.4 1.2
1998 5.4 2.3
1999 6.3 3.3
2000 7.1 4.1
2001 8.1 5.0
2002 9.4 6.5
2003 10.6 7.4
2004 12.4 9.0
2005 14.1 10.4
2006 16.1 12.5
Record Palm Oil Prices in early 2008 Prices of palm oil increased substantially from June 2006 until April 2008. In Rotterdam, the prices of crude palm oil were boosted from US$437 in June 2006 to US$805 in June 2007 and further accelerated to US$1,174 in April 2008. A similar price increase was noted in Malaysian and Indonesian export prices of crude and processed palm oils. The magnitude of the price increase is obvious if one compares the situation in the second half of 2007 with the average price of crude palm oil in Rotterdam of US$466 per MT in the 30 years from 1976-2005. Crude palm oil, like other commodities, has shown significant price volatility however the recent boost in prices is unprecedented.
146
PROSPECTS
The prices of crude and processed palm oils are mainly determined by the global supply and demand prospects of : (a) (b) (c) palm oil, supply and demand developments of soya oil, rape oil and other competing vegetable oils; and developments in outside markets, like currency changes, crude mineral oil prices, government interference (import or export taxes or any other government intervention) and other factors.
Palm oil in its crude or in any of its processed form is a commodity traded worldwide in both the cash and futures markets. The Bursa Malaysia Derivatives is the most important futures market for palm oil. However, prices of palm oil are also impacted by changes on the Chicago Board of Trade (primarily from soybean and soya oil futures). Palm oil prices showed a tremendous increase from an average of US$437 in June 2006 to US$583 in December 2006, to US$805 in June 2007 and to US$1,174 in April 2008. The following graph shows the monthly development of crude palm oil prices in Rotterdam from January 1996 until April 2008:
Monthly Crude Palm Oil Prices cif Rotterdam in US-$ / MT
1200 1000 800 600 400 200
The average 1976-2005 is US-$ 466.
0 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 Monthly Prices from March 1972 until April 2008
Monthly soya oil prices in Rotterdam in US-$ / MT

1600 1400 1200 1000 800 600 400 200
'72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08
Monthly Prices from Jan 1972 until April 2008
147
PROSPECTS
Monthly rape oil prices in Rotterdam in US-$ / MT
1500 1300 1100 900 700 500 300 100
'72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 Monthly Prices from March 1972 until April 2008
Palm Oil Supply and Demand Price Outlook until 2010 The world market will become increasingly dependent on palm oil in the next few years. The growth in world production of soybeans, rapeseed and sunflower seed is partly curtailed by the prospective battle for acreage which is likely to intensify, primarily between oilseed crops and grains in North America, Europe, China, India, Brazil, Argentina, Russia, Ukraine and other countries. It will be necessary to accelerate the growth in palm oil plantings and production to get prepared for the forthcoming increase in world demand of all oils & fats. According to Oil Worlds current assessment and projections, world demand for palm oil will increase by 3.0-3.2 million tonnes per annum in the next three years. To date, palm oil has shown the largest annual increase and will considerably exceed the prospective expansion in soya oil, rape oil and other vegetable oils. Total global demand of 17 major oils and fats is going to accelerate with an average annual growth of approximately 7.1 million tonnes in the five years ended 2010 owing to 2 factors: 1) further pronounced growth in demand for food from a rising world population and 2) the prospective significant expansion of biofuel production (primarily biodiesel), which requires vegetable oils as a feedstock. The growth we are projecting for the next five years ended 2010 will by far exceed the average annual growth of 5.2 million tonnes in the five years ended 2005 and the 4.2 million tonnes in the five years ended 2000. World Consumption of Major Oils and Fats with Forecasts until 2010
(Million Tonnes) Annual Growth (1) 2010F 17 Oils & Fats of which: Palm oil Soya oil Rape oil (2) Sun oil
Notes: (1) (2) Average annual growth in 5 years to 2010. Including canola oil.
Projections 2009F 2008F

168.0 45.5 41.0 20.3 10.8 161.3 42.2 39.6 19.5 10.2
2007 154.7 38.0 37.4 19.1 11.2
2006 147.9 36.1 34.6 18.1 10.9
2005 139.2 33.4 32.9 16.1 9.6
2000 113.4 21.6 25.1 14.5 9.4
1995 92.6 14.7 19.4 10.6 8.4
+7.1 +3.0 +1.9 +1.1 +0.3
174.8 48.4 42.6 21.5 11.2
Palm oil is best suited to accomplish the highest contribution (to meet the world demand) and will, in our assessment, show an above-average growth in production in the next few years. Due to its much higher oil production per hectare (as compared to soya, rape and sunflowers) considerably less acreage is required to produce the same amount of vegetable oil. To illustrate, the production of 2.0 million tonnes of palm oil and palm kernel oil requires an area of 0.5 million Ha in contrast to 1.6 million Ha of rapeseed and 3.8 million Ha of soybean cultivation. 148
PROSPECTS
Given that there is sufficient area suitable for expansion of oil palm cultivation still available in Indonesia, we expect the mature area to rise from 4.54 million Ha on the average in 2007 to 5.0 million Ha in 2008 and to 6.1 million Ha in 2010. In Malaysia, however, future expansion will be limited and we expect only a moderate increase in the oil palm mature area from 3.79 million Ha on the average in 2007 to 4.1 million Ha in 2010. On a global basis, Oil World forecasts the aggregate oil palm mature area to reach 12.8 million Ha in 2010, reflecting an increase of 3.6 million Ha from 2005. Details given in the table confirm the accelerating growth in the mature area in the five years until 2010 as compared to the preceding five-year averages. Mature Area in Malaysia and Indonesia
Projections
(Million Hectares) Malaysia Indonesia Oth. countries WORLD 2010F 4.10 6.10 2.62 12.82 2009F 4.03 5.55 2.56 12.14 2008F 3.92 5.00 2.37 11.29 2007 3.79 4.54 2.22 10.55 2006 3.68 4.11 2.08 9.87 Actual Data 2005 3.55 3.69 1.99 9.23 2004 3.40 3.32 1.90 8.62 2003 3.26 3.03 1.79 8.08 20062010F 3.90 5.06 2.37 11.33 5-year Averages 2001- 1996- 19912005 2000 1995 3.28 3.06 1.80 8.14 2.59 1.85 1.44 5.88 1.99 1.05 1.29 4.33
The growth in world palm oil production is going to accelerate, mainly driven by strong world demand for food as well as for non-food uses. The biggest growth potential will be in Indonesia. Oil World forecasts Indonesian palm oil output to increase by approximately 6.7 million tonnes within the next 3 years to 23.6 million tonnes in 2010. Higher yields and more aggressive plantings could boost production in Indonesia to higher levels. Production of Palm Oil in Malaysia and Indonesia
Projections
(Million) Malaysia Indonesia Oth ctries WORLD 2010F 17.90 23.60 7.00 48.50 2009F 17.60 21.30 6.52 45.42 2008F 17.30 18.80 6.08 42.18 2007 15.82 16.90 5.59 38.31 2006 15.88 16.05 5.19 37.12 Actual Data 2005 14.96 14.10 4.79 33.85 2004 13.97 12.38 4.64 30.99 2003 13.35 10.60 4.31 28.26 20062010F 16.90 19.33 6.08 42.31 5-year Averages 2001- 1996- 19912005 2000 1995 13.20 10.91 4.38 28.49 9.43 5.72 3.62 18.77 6.99 3.43 2.93 13.35
But with recent very high palm oil prices, there is an increase in investments to expand oil palm plantations in various other countries outside Indonesia and Malaysia, primarily in several African countries, Central and South America as well as in Thailand, Papua New Guinea and other Asian countries. Oil World expects global palm oil production to be boosted to 42.3 million tonnes for the five years ended 2010, up sharply by 13.8 million tonnes from the previous five-year period. Indonesia will become the worlds largest exporter of palm oil from 2009 onward. Oil World forecasts Indonesian exports to reach 16.3 million tonnes in 2009 and 18.3 million tonnes in 2010. This is a sharp increase in export from the 12.5 million tonnes in 2006. The growth in Malaysia will be more moderate and Oil World expects the countrys palm oil exports to be approximately 15.5 million tonnes in 2010. Due to land limitations, further expansion in Malaysian palm oil production will largely dependent on increase in production per hectare.
149
PROSPECTS
World Exports of Palm Oil
Projections
(Million Tonnes) Malaysia Indonesia Oth. countries WORLD 2010F 15.50 18.30 3.90 37.70 2009F 15.30 16.30 3.75 35.35 2008F 15.35 14.20 3.60 33.15 2007 13.75 12.65 3.48 29.88 2006 14.42 12.54 3.11 30.07 Actual Data 2005 13.44 10.44 2.63 26.51 2004 12.58 9.00 2.67 24.25 2003 12.22 7.37 2.27 21.86 20062010F 14.86 14.80 3.57 33.23 5-year Averages 2001- 1996- 19912005 2000 1995 11.97 7.65 2.34 21.96 8.23 2.91 1.61 12.75 6.28 1.74 1.53 9.55
World palm oil imports are seen rising significantly with big increases expected for China, the European Union, Pakistan, India and several other countries. World Imports of Palm Oil
(Million Tonnes)
Imports China EU-27 India Pakistan Other countries WORLD
Projections January / December 2010F 2009F 2008F

7.00 5.80 4.70 2.04 18.21 37.75 6.60 5.50 4.50 1.92 16.98 35.50 6.40 5.10 4.40 1.80 16.00 33.70
2007 5.50 4.65 3.69 1.71 13.86 29.41
Actual Data January / December 2006 2005 2004 5.46 4.62 3.20 1.77 14.29 29.34 4.32 4.49 3.32 1.65 12.84 26.62 3.85 4.02 3.45 1.43 11.22 23.97
2003
20062010F
5-year Averages 2001- 1996- 19912005 2000 1995 3.26 3.74 3.54 1.44 9.87 21.85 1.54 2.22 2.26 1.10 5.62 12.74 1.31 1.67 0.37 1.07 5.10 9.52
3.35 6.19 3.63 5.13 3.98* 4.10 1.49 1.85 9.44 15.87 21.89 33.14*
Price Projections The table provides a summary of our price estimates of palm oil until 2010. All the prices shown in the table refer to the average of January/December. It should be noted that the price forecasts shown for the years 2008, 2009 and 2010 represent averages of our current range forecasts. Oil World has sharply raised its price forecasts due to the huge additional world demand for energy (vegetable oils and animal fats for biodiesel as well as grains and sugar cane for ethanol) and the increasing fight for acres between grains and oilseeds. The global production deficit of grains and oilseeds has turned out considerably greater than expected in the world crop season 2007/08. Also, the biofuel targets of various governments has been raised to levels which will result in a significant global deficit of total demand relative to production in the next three years. The expectation of a widening deficit has boosted purchases of agricultural commodities by funds and speculators and therefore resulted in a sharply higher than expected increase in prices during the 12 months until May 2008. With Oil Worlds price forecasts shown in the table, Oil World has assumed that biodiesel policies with be at least partly changed to the extent that the current too ambitious biodiesel consumption targets will be revised and moderated, and this for two reasons: 1) to bring them more in line with what the global market can provide and 2) to reduce the competition with global food demand.
150
PROSPECTS
Price Projections for Palm Oil (cif Rotterdam) until 2010 (US$per Tonne)
Projections January/December Actual Data January/December 2007 2006 780 478 2005 422 2004 471 2003 443
Palm Oil
2010F 1,150
2009F 1,000
2008F 1,130 5 - Year Averages 1996 19912000 1995 499 453
2006 2010F
20012005 403
1986 - 19811990 1985 335 550
Palm Oil
908
Prices of palm oil as well as of other vegetable oils will continue to fluctuate during 2008 and the following years. But this fluctuation will be at higher price levels. Thus, the price lows of the future price cycles will be higher then in preceding years. For calendar year 2009, Oil World expects a decline in palm oil prices on the world market and has placed its estimate for crude palm oil in Rotterdam at US$1,000 per metric tonne. This reflects the average of our current range forecast. In this forecast, we have assumed some moderate price setback from the price highs reached in 2008 due to: (1) Prospects of higher world production of oilseeds and vegetable oils, as farmers are expanding plantings in response to the attractive prices worldwide. Some cutbacks in the ambitious biofuel targets in Europe, North America and some other countries. Governments are under increasing pressure to make some revisions in their biofuel targets due to the increasing global food crisis caused by the skyrocketing prices of many agricultural products.
(2)
However, it is unlikely that there will be a sharp decline in prices. The downward potential will be limited as long as energy prices in general and crude mineral oil prices in particular are ruling firm. It should also be considered that capacity utilization of most biodiesel production units will be very low and probably only about 30-35% (or even less) in 2008. Therefore, there is a lot of unused capacity waiting and ready to expand production again as soon as prices of vegetable oils will have declined sufficiently. This will limit the downward potential in prices. The prospective sharp increase in world palm oil production in 2008 and the subsequent two years will tend to be bearish for prices. However, the bearishness will be partly offset by the prospects of still very low world stocks of grains, oilseeds and vegetable oils in 2009 and the continuing and probably intensifying fight for acres between oilseeds and grains in North America, Europe, South America, China, India and other countries. Also, global demand for food will continue to rise at a rather robust range, particularly in Asia. Oil Worlds expectation of a change in biodiesel policies in Europe and worldwide is likely to result in a slowing-down of the growth in mandatory mixing is likely to have a bearish impact on vegetable oil prices. However, this is a political decision, timing and any changes are impossible to predict. However, downward potential on prices is limited as long as crude mineral oil prices are high and above US$100 per barrel. In May 2008, crude mineral oil prices reached a new record of US$136 per barrel.
151
PROSPECTS
From 2008 onward a lot of capacity will be available to use vegetable oils as a substitute for crude mineral oil for energy purposes. At the end of calendar year 2008 world production capacities of biodiesel will reach approximately 32-33 million tonnes, according to latest Oil World estimates. But actual biodiesel production will be only around 10-11 million tonnes in calendar year 2008. Therefore, there is a huge unused capacity which is just waiting for prices of palm oil, soya oil, rape oil and other vegetable oils to become economically feasible for biofuel usage. Only a moderate price decline in vegetable oils is necessary to stimulate additional demand from the energy sector. It should be considered that the vegetable oil price rally in the six months from November 2007 until April 2008 rationed global vegetable oil demand for biofuels by approximately 3 million tonnes (annualised). Only a relatively moderate decline in vegetable oil prices would be sufficient to revive demand from the biofuel industry again. New demand would show up from the unused biodiesel production capacity and would thus bring an end to additional price declines. Consumers worldwide will become increasingly dependent on palm oil in the years ahead. Therefore, the growth in palm oil output has to accelerate to cover future global requirements. The prospects of unusually high prices steeply above production costs represent a significant incentive to further increase investments into expanding palm oil plantings and production in Indonesia, Malaysia and other countries.
Annual Average Palm Oil Prices in Rotterdam (US$/T)

1200 1150 1100 1050 1000 950 900 850 800 750 700 650 600 550 500 450 400 350 300 250
Crude Palm Oil
76 78 80 82 84 86 88 90 92 94 96 98 '00 '02 '04 '06 '08 '10 Prices from Jan 1977 until Dec 2010
TREND INFORMATION Our Directors observed the following trends for FY2007: From 1 January 2007 to 31 December 2007, our revenue increased by 68.7% as compared to the corresponding period in 2006 due to significant increase in our CPO and CPKO average selling prices. From 2006 to 2007, international spot prices for CPO had increased by 63.2% from an average of US$478 per MT (CIF Rotterdam) in 2006(1) to an average of US$780 per MT (CIF Rotterdam) in 2007(1). Based on the forward contracts entered into for delivery by December 2008, our Directors are of the view that the average selling prices of our CPO and CPKO for FY2008 is expected to be higher than FY2007. Our Directors believe that the current trend of high prices is mainly due to growing popularity of CPO for both food and non-food applications (such as biodiesel). The current high crude oil prices have also increased the demand for alternative fuels, such as biodiesel fuel, which have, in turn contributed to the increase in the demand and prices of CPO.
152
PROSPECTS
The Indonesian government has revised the export tax rates upwards since 31 August 2007. Based on the graduated tax structure, higher palm oil prices will attract higher taxes. As a result, should palm oil prices continue to increase and we continue our current level of export, we will expect to incur higher export tax expenses. Our average FFB yields for the last three financial years ended 31 December 2005, 2006 and 2007 (save for Sumatera region in FY2006) have been increasing. Given that the majority of our trees are either immature or young, we expect that the FFB harvested from our plantations to increase in the near future as these trees mature hence producing more FFB. We expect an additional 3,869 hectares, 4,513 hectares and 5,816 hectares of our planted area to mature in FY2008, FY2009 and FY2010 respectively. The most significant component of our Groups cost of sales relates to costs of FFB and kernel. Cost of FFB has increased from the average price of US$70 per MT in FY2006 to US$118 per MT in FY2007. In addition, cost of kernel has also increased from the average price of US$181 per MT in FY2006 to US$330 per MT in FY2007. Our Directors believe that the current trend of increasing FFB prices (and, to a certain extent, kernel prices) is largely driven by strong CPO prices and strong demand for vegetable oils in 2007 to date. The cost of FFB and kernel is likely to increase due to the projected increase in CPO prices and the continuing growth in demand for vegetable oils, in particular, palm oil. However, as our Group is able to produce more FFB, our Directors are of the view that there would be less reliance on FFB and kernel purchased from third party suppliers.
Note: (1) Extracted from the Oil World Report.
Save for the above, our Directors do not expect any significant recent trends or any other known trends, uncertainties, demands, commitments or events that may have a material adverse effect on us in the current financial year. ORDER BOOK Our order book consists of forward contracts entered into with our customers. As at the Latest Practicable Date, our order book comprises outstanding orders of an aggregate value of approximately US$17.1 million, all of which are for delivery by 31 December 2008. The aggregate value of US$17.1 million comprises: (a) (b) (c) approximately US$13.0 million in respect of 12,400 MT of CPO; approximately US$3.8 million in respect of 2,800 MT of CPKO; and approximately US$0.3 million in respect of 2,403 MT of PKC.
However, these orders may be rescheduled by mutual consent, which in turn may result in potential delays in delivery. Consequently, our order book as of any particular date may not be indicative of our revenue for the relevant period.
153
DIRECTORS, EXECUTIVE OFFICERS AND STAFF

MANAGEMENT REPORTING STRUCTURE The following chart shows our management reporting structure as at the Latest Practicable Date:
Board of Directors
Chairman and CEO Henry Maknawi
Deputy CEO Ratna Maknawi
Chief Operating Officer CS Kwang Kay (also known as Chua)
Finance Director Kent Surya
Financial Controller Lim Chin Chai Head of Plantations Ooi Min Choo Head of Engineering and Processing Albert Maknawi Head of Bulking and Logistics Ajis Chandra
154

DIRECTORS AND EXECUTIVE OFFICERS Directors Our Board is entrusted with the responsibility for the overall management of our Company. Our Directors particulars are set out below:
Principal Occupation N/A
Name Henry Maknawi
Age 53
Address Puri Indah Raya Blok G2/1, West Jakarta, Indonesia Jl. Lebak Bulus Raya I/2, Cilandak, South Jakarta, Indonesia
Designation Chairman and Chief Executive Officer Vice-Chairman and Non-Executive Director
Tengku Alwin Aziz
65
Finance Director, PT Cakra Petrokindo Utama N/A
Ratna Maknawi
38
Jl. Pulau Nirwarna Raya Blok, H3/5, Taman Permata Buana, West Jakarta, Indonesia Jl. Kenanga No. 4, Jatipulo, Palmerah, West Jakarta, Indonesia 100 Arthur Road Singapore 439831
Deputy Chief Executive Officer
Kent Surya
51
Finance Director
N/A
Soh Yew Hock
64
Lead Independent Director Independent Director
Company director
Leung Yew Kwong
55
304 Upper East Coast Road, #03-01 Rich East Garden, Singapore 466442
Partner, Wong Partnership LLP
Information on the areas of responsibility, the business and working experiences of our Directors are set out below: Henry Maknawi Mr. Henry Maknawi is the Chairman and CEO of our Group and was appointed a director of our Company on 1 June 2008. He is responsible for the formulation of the overall business strategies and policies for our Group. Mr. Henry Maknawi has developed his expertise in business operations and development based on his knowledge and experience gained in the plantation industry for the past 13 years. Mr. Henry Maknawi started his career in 1976 in PT Inpama, a tissue manufacturer, as a supervisor in charge of production and technical engineering. In 1984, he served as President Director of PT Maknawi Jaya Kencana, a major stationery manufacturing company that he established, as well as PT Tomang Maju Perkasa, a property investment, leasing and management services company before setting up SWK in 1994 when he founded our Groups plantation operations. In November 1994, Mr. Henry Maknawi was awarded the Primaniyarta award for outstanding export from 1989 to 1993 by the late President Soeharto, former President of the Republic of Indonesia. The Primaniyarta award is the highest award from the Indonesian Government issued by the Menteri Perdagangan Republik Indonesia (Trade Minister of the Republic of Indonesia) and the National Agency for Export Development given to the exporters at the national and provincial levels for their achievements in increasing non-oil and gas exports. Ratna Maknawi Ms. Ratna Maknawi is the Deputy CEO of our Group and was appointed a director of our Company on 1 June 2008. She is responsible for managing the daily operations of our Group. From 1993 to 1994, Ms. Ratna Maknawi was a finance manager in PT Maknawi Jaya Kencana. In 1995, she became the President Director of SWK, a post she currently holds. Since 1996 and 2002 she has been acting as the President Commissioner of AKM and KAJ, respectively. She was appointed director of PT Dermaga Kencana Indonesia in 2004, President Commissioner of AIK in 2005 and President Commissioner of PT Bangun Inti Kencana in 2006, and has been holding these positions since.
155

Ms. Ratna Maknawi graduated cum laude from the University of Wisconsin - Whitewater, USA with a Bachelor of Business Administration (Accounting Major) in 1993. Kent Surya Mr. Kent Surya is the Finance Director of our Group and was appointed a director of our Company on 1 June 2008. As Finance Director, Mr. Kent Surya is responsible for treasury and cash flow management, corporate finance, audit and tax compliance and financial reporting of our Group. Mr. Kent Surya started as Vice Design Manager and later as a Design Manager and Quality Controller in PT Super Progress which is a Developer-Real Estate in North Jakarta from 1983 to 1987. From May 1987 he served as an Account Officer in PT Bank Danamon Indonesia Tbk. in 1987 and left in early 1999 as Deputy General Manager and Vice Credit Committee Head of the Corporate Banking Division. He joined Hutrindo Group, a diversified business group engaged mainly in the Forestry and Timber industry, in February 1999 as Chief Operating Officer and was later the Deputy CEO in charge of finance, marketing, human resource and operations before leaving in June 2000. From July 2000 to December 2003, he was Director of Finance & Treasury in PT Olympindo Multi Finance where he was in charge of finance and accounting matters. In 2001 he was appointed as a Coordinator Finance Group for Olympindo Group which had business lines in Consumer Financing (PT OMF), Car Authorized Dealer for Volvo & Audi, Insurance, and BPR (Micro Finance Bank). Since March 2004, he has been engaged by certain of our Group Companies, namely SWK, AKM and AIK, first as senior financial advisor and later on as Vice President Director in charge of finance and operation of the group. In August 2004, he was engaged as a President Director of PT Graha Meruya, which is a related company to our group. Mr. Kent Surya graduated in 1983 with a degree in civil engineering from the University of Tarumanagara in Jakarta-Indonesia, and obtained his Masters in Business Administration in 1994 from the Institut Management Prasetya Mulya, Jakarta-Indonesia. Tengku Alwin Aziz Tengku Alwin Aziz is our Vice-Chairman and Non-Executive Director and was appointed to our Board on 30 May 2008. He has been an Independent Commissioner of PT London Sumatra Indonesia Tbk, an Indonesian-listed company in the palm oil and rubber industry, since 2000. He was appointed by the Indonesian authorities as an interim President Director of PT Bank Umum Nasional from 1998 to 1999 to oversee the restructuring of the bank. Prior to this, he served as an executive director of Bank Dagang Negara from 1992 to 1997 and as President Commissioner of various finance companies (including subsidiaries of Bank Dagang Negara) from 1990 to 1998 as well as holding the post of Managing Director of Staco International Financial Ltd in Hong Kong from 1990 to 1992. He graduated in 1968 with an Economics degree majoring in Accountancy from Universitas Sumatera Utara, Medan. Soh Yew Hock Mr. Soh Yew Hock is our Lead Independent Director and was appointed to our Board on 30 May 2008. Mr. Soh is currently an independent director of both Asia Dekor Holdings Limited and Japan Residential Assets Manager Limited. Mr. Soh has extensive experience in commerce and industry and had previously served as head of finance and corporate affairs of Guthrie Berhad (now known as Guthrie GTS Limited) and head of corporate affairs of WBL Corporation Limited respectively. He was CEO/Managing Director of Wearnes International (1994) Limited from 1993 to 2006. Mr. Soh was an executive director of WBL Corporation Ltd from 1993 to 2007 and a director of several of its joint ventures and subsidiaries in Asia, Peoples Republic of China, Australia and the United States of America, a director of MFS Technology Ltd and Deputy Chairman of OConnors Corporation Berhad (now known as OCB Berhad). Mr. Soh was also the past President of the Singapore division of CPA (Australia). He holds a Bachelor of Accountancy degree from the University of Singapore and is a graduate of the Chartered Institute of Marketing (UK) and the Advanced Management Program of Harvard Business School. Mr. Soh is a Fellow of the Institute of Certified Public Accountants (Singapore), Certified Practising Accountants (Australia), Association of Chartered Certified Accountants (UK) and the Chartered Institute of Marketing (UK).
156

Leung Yew Kwong Mr. Leung Yew Kwong is our Independent Director and was appointed to our Board on 30 May 2008. He is presently a partner in Wong Partnership LLP, specialising in tax law. He was previously with the Inland Revenue Authority of Singapore (IRAS) and its predecessor, the Inland Revenue Department, for 28 years from 1975 to 2004. He last held the posts of Chief Legal Officer and Chief Valuer concurrently whilst in IRAS where he dealt with all the taxes administered by IRAS, namely income tax, GST, stamp duty, property tax and estate duty. He was awarded the Public Administration Medal (Silver) when he was in the Civil Service. Mr. Leung was admitted to the Singapore Bar in 1992. He has been in legal practice specialising in tax since 2004. Mr. Leung also holds professional qualifications in real estate and valuation. He received a Colombo Plan Scholarship to study at the University of Auckland, New Zealand, where he obtained a Diploma in Urban Valuation in 1974. He has a Masters of Science (Urban Land Appraisal) degree from the University of Reading in the United Kingdom, a Masters of Business Administration degree from the National University of Singapore and has attended the Executive Progamme at the University of Michigan, Ann Arbor USA. Mr. Leung has authored and co-authored a number of books on various taxes. He is presently an Honorary Tax Adviser to the Real Estate Developers Association of Singapore and an Honorary Legal Adviser to the Institute of Estate Agents. He is an Adjunct Associate Professor in the Department of Real Estate at the National University of Singapore. Executive Officers Our Board of Directors is assisted by our team of Executive Officers whose particulars are as follows:
Name CS Kwang Kay (also known as Chua) Age 58 Address Lippo Sudirman Condominium, Tower C #20-A Jalan Garnisun Dalam No.8, South Jakarta, 12930 Indonesia Lippo Sudirman Condominium, Tower C #20-A Jalan Garnisun Dalam No.8, South Jakarta, 12930 Indonesia Puri Indah Raya Blok G2/1,West Jakarta, Indonesia Jl. Pulau Nirwarna Raya Blok, H3/5, Taman Permata Buana, West Jakarta, Indonesia Designation Chief Operating Officer
Ooi Min Choo
50
Head of Plantations
Albert Maknawi
26
Head of Engineering and Processing Head of Bulking and Logistics
Ajis Chandra
43
Lim Chin Chai
44
26 Jalan Lempeng, #07-19, Singapore 128805
Financial Controller
Information on the business and working experience of our Executive Officers is set out below: CS Kwang Kay (also known as Chua) Mr. CS Kwang Kay (also known as Chua) is the Chief Operating Officer of our Group and was appointed on 1 March 2008. He is responsible for overseeing our Groups overall operational activities. From 1975 to 1978, Mr. Chua was an Assistant Manager of Plantations at Harrisons & Crosfield Co, Ltd (formerly known as Golden Hope Plantations and now part of Sime Darby Plantations) in charge of a division dealing with rubber and oil palm in Kajang, Selangor and cocoa with a cocoa fermentary in Bagan Datok, Perak. From 1978 to 1982, Mr. Chua was a Manager of Plantations at Ban Len Sdn Bhd and provided advisory services to its estates in Johor. From 1982 to 1985, Mr. Chua served as a Project Manager at Asrisan Plantations and was involved in the development and management of 15,000 hectares of
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property. From 1985 to 1987, Mr. Chua was a Group Manager at Sabah Land Development where he was responsible for its regional operations in Lahad Datu in the East Coast of Sabah. Subsequently, Mr. Chua joined PBB Oil Palms Berhad (PPBOP) (previously owned by Kuok Group, now part of Wilmar Group) and left in 2007 as chief operating officer after having played a pioneering role in the companys entry into the plantation business in East Malaysia. During his tenure with Kuok Group, Mr. Chua served as board member in various PPBOP subsidiaries and also as chairman and director of Suburmas Plantation Sdn. Bhd. Mr. Chua graduated in December 1975 from the University of Allahabad, India with a Bachelor of Science in Agriculture with first class honours. He is a member of the Incorporated Society of Planters, a professional body representing executives and professionals engaged in plantation agriculture as well as a committee member of the Palm Oil Association (East Malaysia) and the Sabah Employers Consultative Association. Ooi Min Choo Mr. Ooi Min Choo is our Head of Plantations and was appointed on 1 March 2008. He is responsible for the operational management of our plantation activities. From 1977 to 1982, Mr. Ooi was a Plantation Supervisor at SOCFIN Co Bhd, Benta, Pahang, where he was in charge of mature rubber operations and the replanting of rubber trees. From 1983 to 1986, Mr. Ooi was an Assistant Manager with Hap Seng Plantation Sdn Bhd, Tawau, Sabah, where he was in charge of mature rubber, oil palm, cocoa operations and the running of a RSS rubber factory. From 1987 to 1989, he served as an Assistant Manager with River Estate Sdn Bdh, Sandakan. From 1990 to 1995, Mr. Ooi was a Senior Assistant Manager with Terusan Estate, PPBOP, Sandakan, Sabah, where he was in charge of planting new oil palms in swampy land as well as water management. From 1995 to 2003, Mr. Ooi worked at PPBOP - SAPI estate, Sandakan, Sabah where he started as Manager and became Senior Manager and was responsible for mature oil palm operations and oil palm replanting. From 2003 to October 2004, Mr. Ooi was a Senior Manager with PPBOP - Sabahmas Plantation, Lahad Datu, Sabah, where he was in charge of mature oil palm rehabilitation work. From 2004 till June 2007, Mr. Ooi was a Senior and Group Manager of Kencana Sawit Indonesia (a subsidiary of PPBOP), Padang Sumatera, in charge of mature oil palm operations, system and field operation rehabilitation works. Since July 2007, Mr. Ooi has been an Assistant General Manager overseeing PT Kerry Sawit Indonesia, PT Sarana Titian Permata and PT Prima Sawit Makmur which are subsidiaries of PPBOP in Sampit, Central Kalimantan, where he is responsible for large scale oil palm planting. Mr. Ooi is a member of the Incorporated Society of Planters (ISP), which is a professional body representing executives and professionals related to Agricultural Plantations since 1983. From 1986 to 1989, Mr. Ooi also completed ISPs professional papers relating to tree crops and milling. These professional papers include estate book keeping, soil science, estate land survey and oil palm practices. Albert Maknawi Mr. Albert Maknawi is the Head of Engineering and Processing of our Group. He is in charge of overseeing our Groups overall engineering operations. Mr. Albert Maknawi first joined our Group in 2004, where he was appointed as Technical Manager of SWK and was in charge of managing daily operations and maintenance of mills and purchasing of plant and equipment. Since 2005, he has been a director of LK and is responsible for the development and construction of our renewable biomass power plant operations. He has also been a director of BE since 2006, where he is the founder and project leader responsible for the construction of our Belitung power plant. Mr. Albert Maknawi graduated in 2004 from the University of Melbourne, Australia with a Bachelor of Engineering (Honours) and a Bachelor of Commerce.
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Ajis Chandra Mr. Ajis Chandra is our Head of Bulking and Logistics. He is in charge of managing the bulking and logistics segment of our operations since 2002. Mr. Ajis Chandra was previously with the Lippo Group for almost 11 years. From 1991 to 1992, Mr. Ajis Chandra was an Account Officer (Corporate Finance) in PT Lippo Bank Tbk. where he was in charge of providing and maintaining credit facilities to selected corporate clients. Mr. Ajis Chandra was assigned as Representative to operate the Representative Offices of PT Lippo Bank Tbk. in Malaysia (Kuala Lumpur) from 1993 to 1994, and then Vietnam (Hanoi and Ho Chi Minh City) from 1994 to 1995, where he was responsible for developing banking relationships with both local and foreign banks as well as identifying business development opportunities for the Lippo Group and its clients. From 1996 to 2002, Mr. Ajis Chandra was the Vice President for PT Lippo Life Tbk. (which changed its name to PT Lippo E Net Tbk.). Since 2002, he has been the President Director of PT Indotrust, our subsidiary in the bulking business. Mr. Chandra obtained a Bachelor of Commerce in 1987 and two Masters Degrees in Accountancy and Commerce in 1988 and 1989 respectively, from the University of Wollongong, Australia. Following his graduation from university, Mr. Chandra spent over one year travelling around the world prior to beginning his professional career with the Lippo Group. Lim Chin Chai Mr. Lim Chin Chai is our Financial Controller. He is responsible for our finance and accounts department. Mr. Lim has extensive experience in the preparation and consolidation of financial accounts and has 14 years experience serving as a finance manager in the group companies of various public listed companies in Singapore and Malaysia. Mr. Lim began his career in 1990 as a senior accountant at Amsteel Mills Berhad, a subsidiary of the Lion Group, where he was responsible for the establishment and computerisation of the finance department of a newly acquired subsidiary. Between 1993 and 1994, he served as the finance manager of OYL Electronics Sdn Bhd, a subsidiary of the Hong Leong Group. Mr. Lim was subsequently employed as the finance manager of Hubei Zhong Chang Vegetable Oils Co., a subsidiary of Kepong Berhad, where he was responsible for the establishment of the finance and administration department from 1994 and 1996. Between 1996 and 2001, Mr. Lim served as the finance manager of Sichuan Kerry Oil & Grains Industrial Ltd, a subsidiary of Kuok Oil and Grains Pte. Ltd. In 2001, Mr. Lim was transferred to the position of finance manager for Kuok Oil and Grains Pte. Ltd. (now part of the Wilmar Group), a position he has occupied until joining our Group in April 2008. Mr. Lim graduated from the University of Malaya in 1990 with a Bachelor of Accounting degree and subsequently obtained a Master of Business Administration degree from the University of Preston in 2004. He is a Chartered Accountant of Malaysia and a member of the Malaysian Institute of Accountants. Relationships between certain of our Directors and Executive Officers Our Deputy CEO, Ms. Ratna Maknawi is the sister of our Chairman and CEO, Mr. Henry Maknawi. Our Head of Engineering and Processing, Mr. Albert Maknawi is the son of our Chairman and CEO, Mr. Henry Maknawi. Our Head of Bulking and Logistics, Mr. Ajis Chandra is the husband of Ms. Ratna Maknawi. Saved as disclosed above, none of our Directors and Executive Officers is related to one another or to any Substantial Shareholder of our Group and to the best of our Directors knowledge and belief, there are no arrangements or understanding with any of our Substantial Shareholders, customers, suppliers, or any other person, pursuant to which any of our Directors or Executive Officers were appointed. The list of present and past directorships held by each of our Directors and Executive Officers over the last five years, other than directorships in our Company, is set out in the section General and Statutory Information of this Prospectus.
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REMUNERATION OF DIRECTORS AND EXECUTIVE OFFICERS The compensation paid to our Directors and our Executive Officers for services rendered to us and our subsidiaries on an aggregate basis and in remuneration bands of S$250,000 during FY2005, FY2006, FY2007 and FY2008 (estimated), excluding bonuses and any profit sharing plan or any other profit-linked agreement(s) which has not been paid, are as follows:
Directors FY2005 FY2006 FY2007 FY2008 (estimated) Band Band Band Band Band Band 2 2 2 1 1 1
Henry Maknawi Ratna Maknawi Kent Surya Tengku Alwin Aziz Leung Yew Kwong Soh Yew Hock Executive Officers
Band Band Band Band
1 1 1 1
Band Band Band Band
1 1 1 1
Band Band Band Band
1 1 1 1
FY2005
FY2006
FY2007
FY2008 (estimated) Band Band Band Band Band 2 1 1 1 1
CS Kwang Kay (also known as Chua) Ooi Min Choo Albert Maknawi Ajis Chandra Lim Chin Chai
Note: Band 1 : compensation of up to S$250,000 per annum
Band 1 Band 1
Band 1 Band 1
Band 1 Band 1
Band 2 : compensation of between S$250,001 up to S$500,000
PENSION AND RETIREMENT BENEFITS Our Company will provide the pension and retirement benefits to our employees as set out below. Our Groups plantation division has defined contribution retirement plans covering its qualified permanent employees. Our Group contributes 3.7% of the basic pensionable income retirement funds for its employees. Total pension cost amounted to approximately US$62,000, US$66,000 and US$88,000 in FY2005, FY2006 and FY2007 respectively. Further, in addition to the benefits provided under the aforesaid defined contribution retirement plans, our Group provides provisions for employee service entitlements in order to meet the minimum benefit required to be paid to qualified employees, as required under the Indonesian Labour Law No.13/2003. As at 31 December 2005, 2006 and 2007, the balance of the related actuarial liability for employee benefits amounted to approximately US$0.1 million (approximately Rp0.9 billion), US$0.2 million (approximately Rp1.8 billion) and US$0.3 million (approximately Rp2.7 billion) respectively. SERVICE AGREEMENTS On 1 June 2008, our Company entered into separate service agreements (the Service Agreements) with our Executive Directors, namely, Mr. Henry Maknawi, Ms. Ratna Maknawi and Mr. Kent Surya, for an initial term of three years commencing from the Listing Date, which will continue thereafter until terminated by not less than six months notice in writing served by either party on the other, which notice shall not expire until after the initial fixed term. Pursuant to the terms of their respective Service Agreements, Mr. Henry Maknawi, Ms. Ratna Maknawi and Mr. Kent Surya, are entitled to an annual basic salary of S$0.3 million, S$0.2 million and S$0.2 million (approximately US$0.2 million, US$0.1 million and US$0.1 million) respectively. The annual basic salaries of our Executive Directors may be subject to such
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increase as the Remuneration Committee may determine at its absolute discretion. In addition, our Executive Directors may be awarded such annual bonuses as determined by the Remuneration Committee. Directors fees do not form part of the terms of the Service Agreements as these require the approval of Shareholders in our Companys annual general meeting. We may terminate their respective Service Agreements prior to the expiry of the term by service of notice in writing if any of our Executive Directors is disqualified to act as an Executive Director under any applicable law or rules prescribed by the SGX-ST, found guilty of dishonesty, gross misconduct or wilful neglect of duty or any continued material breach of the terms of the Service Agreement, becomes bankrupt or otherwise acts to the prejudice of our Group. None of our Executive Directors will be entitled to any benefits upon termination of their respective Service Agreements. All travelling and travel-related expenses, entertainment expenses and other out-of-pocket expenses reasonably incurred by our Executive Directors in the process of discharging their duties on behalf of our Group will be borne by our Company. We have not entered into any service agreements with our Executive Officers but have entered into standard labour contracts or letters of employment with them, specifying the usual terms of employment, including remuneration. Had the Service Agreements been in place since 1 January 2007, the aggregate remuneration paid to our Executive Directors for FY2007 would have been approximately US$0.8 million instead of US$0.3 million and our profit for the year would have been US$38.9 million instead of US$39.2 million. Pursuant to their respective Service Agreements, each Executive Director shall not, at any time during the period of his employment with our Company (the Employment) and for a period of one year after the expiry or termination of his Employment accept any office or employment or engage or be concerned or interested, directly or indirectly, in any business or occupation or hold an investment in any company which is in competition, directly or indirectly, with the business carried on by our Company or any Group Company, provided that nothing therein contained shall prevent such Executive Director from holding equity interest in any company the share capital of which is quoted and dealt in upon any recognised stock exchange to the extent of the aggregate of his such holding and the holding of such shares by his associates does not exceed 5% of the total issued share capital, nor does he or any of his associates participate nor be involved in the management of such company. Save as disclosed above, there are no existing or proposed service contracts entered or to be entered into by our Directors with our Company or any of our subsidiaries which provide for benefits upon termination of employment. There are no other existing or proposed service agreements between our Company or our subsidiaries and any of our Directors. EMPLOYEES As at the Latest Practicable Date, our Group had a total of 1,009 full-time employees. Our employees include individuals (other than our Directors and Executive Officers) who are related to our initial Shareholders, Directors and Executive Officers. These employees are namely Mr. Johan Maknawi, Mr. Mario Permana, Mr. Irfan Budisiswanto, Mr. Eddy Maknawi, Mr. J. Amin Delarosa, Ms. Yuki Tukiaty and Ms. Augyawati Joe (the Related Employees). The aggregate remuneration of the Related Employees (other than Ms. Augyawati Joe who joined our Group in 2008) received from our Group for FY2007 amounted to approximately Rp2.3 billion (the equivalent of US$0.3 million). Our Group believes that it has established good working relationships with its employees. There have not been any strikes or work stoppages by our employees that have led to major production disruption or government intervention for the last three financial years ended 31 December 2005, 31 December 2006 and 31 December 2007 and up to the Latest Practicable Date. As at the Latest Practicable Date, there are no arrangements with any of our Directors or employees of our Group that involve the issue or grant of options or shares or any other securities of our Company. 161

The following is a breakdown of our Groups permanent employees by function and geographic location:
Breakdown by function
Function Management (1) Finance and Administration Operations and Production Marketing Total 2005 13 119 424 5 561 As at 31 December 2006 11 160 532 7 710 2007 11 305 622 8 946
Note: (1) Includes our Executive Directors and Executive Officers
Breakdown by geographic location

2005 Sumatera Kalimantan Total 276 270 546(1) As at 31 December 2006 286 393 679(1) 2007 360 558 918(1)
Note: (1) Excludes members of the crews operating our barges which serve both our Sumatera and Kalimantan operations, which accounted for 15, 31 and 28 employees as at the end of the last three financial years ended 31 December 2005, 2006 and 2007 respectively.
We employ a significant number of temporary employees, who are hired to assist in harvesting and maintaining our plantations. The average number of temporary employees for FY2007 (based on our month-end numbers) was 4,908. STAFF TRAINING AND DEVELOPMENT As our employees are the key contributors to the growth of our Group, we seek to continuously improve upon the quality and skill set of our staff. As such, we believe that our staff should constantly upgrade their skills in order to increase their productivity and to stay relevant in their respective areas of work. We conduct in-house training, workshops and arrange for seminars conducted by external parties at our oil palm plantations to improve the skills and technical expertise of our employees. Our employees also receive training in oil palm plantation management and agronomics.
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CORPORATE GOVERNANCE
Our Directors recognise the importance of corporate governance and the offering of high standards of accountability to our Shareholders. Our Chairman and CEO is Mr. Henry Maknawi. Where the Chairman and the CEO is the same person, the Code of Corporate Governance 2005 recommends that companies appoint an independent non-executive director to be the lead independent director. The lead independent director would be available to shareholders where they have concerns which contact through the normal channels of the chairman, CEO or finance director has failed to resolve or for which such contact is inappropriate. Accordingly, we have appointed Mr. Soh Yew Hock as our Lead Independent Director. We have also established an Audit Committee, a Remuneration Committee and a Nominating Committee. Audit Committee Our Audit Committee is chaired by Mr. Soh Yew Hock, our Lead Independent Director, and includes our Independent Director, Mr. Leung Yew Kwong and our Vice Chairman and Non-Executive Director, Tengku Alwin Aziz. Our Independent Directors do not have any existing business or professional relationship of a material nature with our Company, other Directors or Substantial Shareholders. They are also not related to the other Directors or Substantial Shareholders. Our Audit Committee will assist our Board of Directors in discharging their responsibility to safeguard our assets, maintain adequate accounting records and develop and maintain effective systems of internal control, with the overall objective of ensuring that our management creates and maintains an effective control environment in our Company. Our Audit Committee will provide a channel of communication between our Board of Directors, our management and our external auditors on matters relating to audit. Our Audit Committee shall meet periodically to perform the following functions: (a) review the audit plans of the external auditors and our internal auditors, including the results of our external and internal auditors review and evaluation of our system of internal controls; review the annual consolidated financial statements and the external auditors report on those financial statements, and discuss any significant adjustments, major risk areas, changes in accounting policies, compliance with Singapore Financial Reporting Standards, concerns and issues arising from their audits including any matters which the external auditors may wish to discuss in the absence of management, where necessary, before submission to our Board of Directors for approval; review the periodic consolidated financial statements comprising the income statements and the balance sheets and such other information required by the Listing Manual, before submission to our Board of Directors for approval; review and discuss with external and internal auditors, any suspected fraud, irregularity or infringement of any relevant laws, rules or regulations, which has or is likely to have a material impact on our Companys operating results or financial position and our managements response; review the co-operation given by our management to our external auditors; consider the appointment and re-appointment of the external auditors and matters relating to the resignation and dismissal thereof; review any interested person transactions falling within the scope of Chapter 9 of the Listing Manual; review any potential conflicts of interest;
(b)
(c)
(d)
(e) (f)
(g)
(h)
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CORPORATE GOVERNANCE
(i) undertake such other reviews and projects as may be requested by our Board of Directors, and will report to our Board its findings from time to time on matters arising and requiring the attention of our Audit Committee; and undertake generally such other functions and duties as may be required by law or the Listing Manual, and by such amendments made thereto from time to time.
(j)
Apart from the duties listed above, our Audit Committee shall commission and review the findings of internal investigations into matters where there is any suspected fraud or irregularity, or failure of internal controls or infringement of any relevant laws, rules or regulations which has or is likely to have a material impact on our operating results and/or financial position. Our Group currently has an in-house internal audit department for reviewing and implementing appropriate internal accounting controls. Following our listing on the SGX-ST, the in-house internal audit department will report to our Audit Committee who will approve the internal audit policies plans. The inhouse internal audit departments objective, under the direction and supervision of our Audit Committee, is to perform an examination and evaluation of the internal control environment, systems and procedures (including risk management) in order to ensure efficiency in operations, compliance with prevailing rules and regulations. Each member of our Audit Committee will abstain from voting in respect of matters in which he is interested. Our Audit Committee will review the effectiveness of the internal audit function and where deemed necessary, expand or outsource the internal audit function to ensure its effectiveness within our Company. Remuneration Committee Our Remuneration Committee is chaired by our Lead Independent Director, Mr. Soh Yew Hock, and includes our other Independent Director, Mr. Leung Yew Kwong and our Vice-Chairman and NonExecutive Director, Tengku Alwin Aziz. Our Remuneration Committee will recommend to our Board a framework of remuneration for our Directors and Executive Officers and determine specific remuneration packages for each Executive Director. The recommendations of our Remuneration Committee should be submitted for endorsement by our Board. All aspects of remuneration, including but not limited to Directors fees, salaries, allowances, bonuses and benefits-in-kind shall be covered by our Remuneration Committee. Each member of our Remuneration Committee shall abstain from voting on any resolution in respect of his remuneration package. Nominating Committee Our Nominating Committee is chaired by Mr. Leung Yew Kwong, our Independent Director, and includes our Chairman and CEO, Mr. Henry Maknawi and our Lead Independent Director, Mr. Soh Yew Hock. Under our Articles of Association, at least one-third of our Directors are required to retire from office at every Annual General Meeting of our Company. Every Director must retire from office at least once every three years. A retiring Director is eligible and may be nominated for re-election. The Nominating Committee has been set up to take the responsibility of the re-nomination of our Directors (including Independent Directors of our Company) taking into consideration each Directors contribution and performance. The Nominating Committee is also charged with the responsibility of determining annually whether a Director is independent. Each member of the Nominating Committee will not take part in determining his own re-nomination or independence. Each member of the Nominating Committee shall abstain from voting on any resolution relating to his re-nomination as a Director. Term of Office Our Directors are appointed by our Shareholders at general meeting, and an election of Directors takes place annually. One-third (or the number nearest two) of our Directors, are required to retire from office at each annual general meeting. However, a retiring Director is eligible for re-election at the meeting at which he retires.
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INTERESTED PERSON TRANSACTIONS AND CONFLICTS OF INTERESTS

INTERESTED PERSON TRANSACTIONS In general, transactions between our Group and any interested persons (namely, our Directors, CEO or Controlling Shareholder of our Company or the associates of such persons) are known as interested person transactions. Save as disclosed below and in the section Restructuring Exercise of this Prospectus, our Group does not have any other material transactions with any of its interested persons within the last three most recent completed financial years ended 31 December 2005, 2006 and 2007 and for the period from 1 January 2008 to the Latest Practicable Date (the Relevant Period). For the purpose of the disclosure below, transactions between entities in our Group have been eliminated on consolidation in our financial statements, and have accordingly, not been disclosed. PAST INTERESTED PERSON TRANSACTIONS Advances made by/to our Group to/by our Controlling Shareholder, our Deputy CEO and their associates Mr. Henry Maknawi, our Chairman and CEO, Ms. Ratna Maknawi, our Deputy CEO and some of their associates, provided advances to and received advances from certain of our subsidiaries from time to time during the last three most recent completed financial years ended 31 December 2005, 2006 and 2007 and the Relevant Period. These advances were unsecured, interest-free and did not have any fixed dates for repayment and were not on an arms length basis. The aggregate amount due to and from the abovementioned interested persons as at 31 December 2005, 2006 and 2007 and as at the Latest Practicable Date are as follows:
As at 31 December 2006 7,643 As at 31 December 2006 381 As at the Latest Practicable Date As at the Latest Practicable Date
(US$000) Aggregate amount due to our Group
2005 4,884
2007
(US$000) Aggregate amount due from our Group

Note: (1)
2005 1,362
2007
The amounts outstanding to/from our Group were fully repaid in November 2007.
The largest outstanding amount due to and from the abovementioned interested persons during the last three most recent completed financial years ended 31 December 2005, 2006 and 2007 was US$5.7 million and during the Relevant Period was US$9.4 million. These transactions were not on an arms length basis as Mr. Henry Maknawi and/or Ms. Ratna Maknawi and their associates did not receive any compensation for the loans provided in nor paid any compensation for the loans received from our Group. As at the date of this Prospectus, there were no amounts due to or from our Group by the abovementioned interested persons. We do not intend to enter into any other loan arrangements with such interested persons in the future.
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Guarantees and pledge of certain of our subsidiaries shares by Mr. Henry Maknawi and Ms. Ratna Maknawi to secure credit investment facilities for SWK Mr. Henry Maknawi, our Chairman and CEO, and Ms. Ratna Maknawi, our Deputy CEO have each provided personal guarantees and/or pledged their shares in SWK to PT Bank Mandiri (Persero) Tbk (Bank Mandiri) to secure working capital and credit investment facilities granted to SWK for an aggregate principal amount of US$7.0 million. The following table shows the aggregate amount secured by the personal guarantees and/or share pledges granted by the above interested persons in the last three most recent completed financial years ended 31 December 2005, 2006 and 2007 and the Relevant Period:
Personal guarantees provided by Mr. Henry Maknawi
Bank Bank Mandiri
Type of facility Working capital
Amount Up to US$337,268.12
Shares pledged 3,000 SWK shares of Rp1,000,000 each by Mr. Henry Maknawi 2,036 SWK shares of Rp1,000,000 each by Ms. Ratna Maknawi 3,000 SWK shares of Rp1,000,000 each by Mr. Henry Maknawi 2,036 SWK shares of Rp1,000,000 each by Ms. Ratna Maknawi
Ms. Ratna Maknawi
Bank Mandiri
Credit Investment
Up to a total of US$6,270,935.93, consisting of: - Investment loan of up to US$4,442,718.91
Mr. Henry Maknawi
Ms. Ratna Maknawi
- Construction loan of up to US$1,828,217.02 Bank Mandiri Working capital Up to a total of Rp3,700,000,000 Mr. Henry Maknawi 3,000 SWK shares of Rp1,000,000 each by Mr. Henry Maknawi 2,036 SWK shares of Rp1,000,000 each by Ms. Ratna Maknawi
Ms. Ratna Maknawi
The interest rates charged under the above facilities ranged from 7.75% to 13% per annum. The largest aggregate outstanding amount guaranteed by Mr. Henry Maknawi and Ms. Ratna Maknawi in connection with the above facilities in the last three most recent completed financial years ended 31 December 2005, 2006 and 2007 and the Relevant Period based on month-end balances was approximately US$3.7 million. As at the Latest Practicable Date, all personal guarantees and share pledges in respect of the above facilities have been discharged. These transactions were not on an arms length basis as Mr. Henry Maknawi and Ms. Ratna Maknawi did not receive any form of compensation for the provision of the guarantees and share pledges.
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PRESENT AND ONGOING INTERESTED PERSON TRANSACTIONS Guarantees and pledge of certain of our subsidiaries shares by Mr. Henry Maknawi, Ms. Ratna Maknawi and Tengku Alwin Aziz to secure credit investment facilities and foreign exchange contract lines for SWK and AIK Mr. Henry Maknawi, our Chairman and CEO, Ms. Ratna Maknawi, our Deputy CEO, and Tengku Alwin Aziz, our Vice Chairman and Non-Executive Director, have each provided personal guarantees and/or pledged their shares in AIK to secure credit investment facilities granted to AIK by Bank Mandiri (the Lending Institution) for an aggregate principal amount of Rp137.7 billion. In addition, Ms. Ratna Maknawi, our Deputy CEO, has provided a personal guarantee to Bank of Tokyo Mitsubishi UFJ Capital Corporation (BTMU) to secure a foreign exchange credit line of US$15 million. Details of the above facilities, personal guarantees and share pledges provided in the last three most recent completed financial years ended 31 December 2005, 2006 and 2007 and the Relevant Period are as follows:
Personal guarantees provided by Mr. Henry Maknawi
Bank Bank Mandiri
Type of facility Credit Investment
Amount Up to a total of Rp114,911,000,000 Consisting of: - Investment loan of up to Rp84,911,000,000
Shares pledged
(1)
10,101 AIK shares of Rp1,000,000 each by Mr. Henry Maknawi 1,050 AIK shares of Rp1,000,000 each by Ms. Ratna Maknawi 630 AIK shares of Rp1,000,000 each by Tengku Alwin Aziz
Ms. Ratna Maknawi
- Construction loan of up to Rp30,000,000,000
Bank Mandiri
Credit Investment (loan on behalf of Plasma BTS)
Up to a total of Rp22,798,875,000 Consisting of: - Investment loan of up to Rp13,198,875,000
Mr. Henry Maknawi
10,101 AIK shares of Rp1,000,000 each by Mr. Henry Maknawi 1,050 AIK shares of Rp1,000,000 each by Ms. Ratna Maknawi 630 AIK shares of Rp1,000,000 each by Tengku Alwin Aziz
Ms. Ratna Maknawi
- Construction loan of up to Rp9,600,000,000
BTMU
Foreign Exchange
- Foreign exchange credit line of up to US$15,000,000 million
Ms. Ratna Maknawi
Note: (1) Prior to 31 December 2007, share pledges over certain shares held in subsidiaries were also given in favour of the banks in addition to the personal guarantees. As at 31 December 2007, all share pledges have been discharged by the Lending Institution.
The interest rates charged under the facilities ranged from 13% to 16% per annum. The largest aggregate outstanding amount guaranteed by Mr. Henry Maknawi and Ms. Ratna Maknawi in the last three most recent completed financial years ended 31 December 2005, 2006 and 2007 and the Relevant Period based on month-end balances was approximately US$3.5 million.
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Our Group intends to procure the release and discharge of the personal guarantees given by Mr. Henry Maknawi and Ms. Ratna Maknawi to the Lending Institution after the admission of our Company to the Official List of the SGX-ST by replacing the aforementioned guarantees with other securities acceptable to the said Lending Institution. Should the terms and conditions of our existing facilities be affected by the withdrawal of these personal guarantees, or in the event the Lending Institution do not agree to the release or discharge of such guarantees, Mr. Henry Maknawi and Ms. Ratna Maknawi will continue to provide the relevant guarantees for the relevant credit investment facilities. These transactions are not on an arms length basis as Mr. Henry Maknawi and/or Ms. Ratna Maknawi did not receive any form of compensation for the provision of the guarantees and share pledges. Payment of rental by our Group to PT Tomang Maju Perkasa PT Tomang Maju Perkasa is an associate of our Chairman and CEO, Mr. Henry Maknawi and our Deputy CEO, Ms. Ratna Maknawi. Accordingly, transactions between our Group and PT Tomang Maju Perkasa are considered as interested person transactions. In 2004, some of our subsidiaries entered into lease agreements with PT Tomang Maju Perkasa under which we leased from PT Tomang Maju Perkasa office spaces located at Graha Kencana at Kebon Jeruk, West Jakarta. The terms of each lease range between three to five years and can be extended for another one year period. The rental payable under such leases is between Rp35,000 per sq m and Rp45,000 per sq m. All the leases are still in existence. As at the Latest Practicable Date, our Group leases from PT Tomang Maju Perkasa an aggregate area of approximately 555.21 sq m at the premises located at Graha Kencana, Jalan Raya Pejuangan No. 88GK Jakarta 11530, Indonesia. We do not intend to renew these leases upon their expiry. Details of the aggregate rental paid by our Group to PT Tomang Maju Perkasa in the last three most recent completed financial years and the Relevant Period are as follows:
(US$000) Aggregate rental paid FY2005 32.2 FY2006 36.4 FY2007 42.4 Relevant Period 15.7
Please refer to the section Properties and Fixed Assets of this Prospectus for further information regarding the expiry dates of the respective leases. Our Directors are of the view that the rental amounts paid for the abovementioned premises were not on an arms length basis as they were lower than prevailing market rates. Long term lease of office premises by SWK from PT Graha Meruya PT Graha Meruya (the Lessor) is an associate of our Chairman and CEO, Mr. Henry Maknawi and our Deputy CEO, Ms. Ratna Maknawi. Our Executive Director, Mr. Kent Surya is also the President Director of the Lessor. Accordingly, transactions between our Group and the Lessor are interested person transactions. Pursuant to a lease agreement dated 13 November 2007 (the SWK Lease Agreement), SWK will lease on a long term basis from the Lessor three levels of a building comprising an aggregate area of approximately 2,624.4 sq m at the premises located at Jl. Raya Meruya Ilir No. 88, Jakarta Barat 11620, to be known as Business Park - Kebon Jeruk. The term of the lease is 25 years and shall commence from 1 July 2008 and expire on 30 June 2033. SWK will be a major tenant in the building, occupying in total approximately 35% of the total lettable area of the building. Under the terms of the SWK Lease Agreement, the entire amount of rent for the 25 year lease is payable in advance at the commencement of the lease. SWK has paid an initial aggregate amount of Rp10 billion (approximately US$1.1 million) to the Lessor. The balance of the rent amounting to Rp5.0 billion (approximately US$0.5 million) will be paid upon the handing over of the premises to SWK, expected to be in the third quarter of 2008. SWK will not be able to terminate the lease except under certain limited circumstances. However, SWK has the right under the lease agreement to lease out the space to another tenant with the prior written approval of the Lessor.
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Under the SWK Lease Agreement, the Lessor has provided warranties to SWK that the latter will, for the term of the lease, enjoy quiet possession free from any interruption, disturbance or claim of any title or right of ownership, by the Lessor or any party. SWK is entitled to compensation from the Lessor, including, but not limited to, a refund of the unused portion of the rental paid in advance, for all losses and damages incurred to or suffered by the SWK as a result of any breach of representation made by the Lessor or as a result of any proceedings, actions, claims or demands relating to such claims or losses. Based on valuation conducted (for the purpose of incorporation in this Prospectus) by an independent valuer, PT Actual Kencana Appraisal (AKA), the net present value (NPV) of the market rent for the office premise at Business Park Kebon Jeruk based on a 25-year term is approximately Rp23.1 billion (US$2.5 million). Please refer to Appendix G of this Prospectus for the computation methodology and assumptions used by AKA. If we assume no growth in rental rates and annual payments during the term of the lease, the NPV of the market rent would be approximately Rp17.0 billion or US$1.8 million. If we assume no growth in rental rates and monthly payments during the term of the lease, the NPV of the market rent would be approximately Rp15.8 billion or US$1.7 million, which is still higher than the total amount of rent payable under the SWK Lease Agreement of Rp15.0 billion or US$1.6 million. The transaction was negotiated and entered into on a willing landlord-willing tenant basis. Our Directors are of the view that the aggregate rent of Rp15.0 billion for the abovementioned office premise was not entered into on an arms length basis but is not prejudicial to our Company and minority Shareholders as the aggregate rent of Rp15.0 billion is lower than the net present value of Rp23.1 billion provided by AKAs independent appraisal. The 25-year term is to ensure continuity of operations of our Companys head office. It can be concluded that the aggregate rent of Rp15.0 billion is lower than the independent valuation of AKA which has assigned an NPV of Rp23.1 billion based on the current market rent for the aforementioned office premise. The lease agreement furthermore does not contain an escalation clause providing for an upward review of rent. Hence the Company is protected against inflation and any rising rent in the next 25 years. Based on the foregoing, our Audit Committee is of the opinion that this arrangement is not prejudicial to the Company or its minority Shareholders. None of our Group or our Directors, Executive Officers, Substantial Shareholders or any of their associates has an interest in AKA. We do not consider the lease of the above premises pursuant to the SWK Lease Agreement as a recurrent interested person transaction which will be subject to a Shareholders general mandate under the Listing Manual because the SWK Lease Agreement was entered into between the Lessor and our Group prior to listing. Services provided by Interested Persons to our Company Provision of trucking services to our Group Our Chairman and CEO, Mr. Henry Maknawi, and our Deputy CEO, Ms. Ratna Maknawi and three employees of our Group entered into an informal arrangement among themselves to provide trucking services to our Group. The aggregate amounts paid for these services were Rp8.0 billion (approximately US$0.8 million), Rp8.0 billion (approximately US$0.9 million) Rp4.8 billion (approximately US$0.5 million) and Rp3.1 billion (approximately US$0.3 million) for FY2005, FY2006, FY2007 and the Relevant Period respectively. The rates charged for these services were at market rates and determined on an arms length basis. Our Chairman and CEO, Mr. Henry Maknawi, and our Deputy CEO, Ms. Ratna Maknawi and three employees of our Group have incorporated a company limited by shares and formalised this arrangement to provide trucking services. Involvement by Mr. Henry Maknawi and/or Ms. Ratna Maknawi (who collectively hold 58% of the said companys shareholding) is limited to passive shareholding. We intend to continue to utilise such trucking services as we believe that the rates offered, reliability and quality of the services provided are generally better than those offered by independent third parties. 169

Where appropriate, the existing and future interested person transactions as disclosed above will be subject to the review procedures described in the section Review Procedures for Future Interested Person Transactions of this Prospectus. REVIEW PROCEDURES FOR FUTURE INTERESTED PERSON TRANSACTIONS All future transactions with interested persons shall comply with the requirements of the Listing Manual. As required by Paragraph 9(e) of Appendix 2.2 to the Listing Manual, our Company has adopted a set of new Articles of Association that requires a director to abstain from voting in any contract or arrangement in which he (directly or indirectly) has a material personal interest. Our Audit Committee will review all interested person transactions to ensure that they are transacted on arms length basis, on normal commercial terms, and will not be prejudicial to the interest of our Company and our minority Shareholders. Our Audit Committee will adopt the following procedures when reviewing interested person transactions: (a) when purchasing items from or engaging the services of an interested person, at least two other quotations from non-interested persons will be obtained for comparison, where available and practicable, and the purchase price for such items or fees for such services shall not be higher than two of the most competitive prices or fee quotes from the independent quotations to ensure that the interests of our minority Shareholders are not disadvantaged. In determining the most competitive price or fee, all pertinent factors, including but not limited to quality, delivery time and track record will be taken into consideration; when selling items or supplying services to an interested person, the price and terms of two other successful sales of a similar nature to non-interested persons will be used for comparison, where available and practicable, and the sale price for such items or fees charged for such services shall not be higher than two of the most competitive prices or fee quotes from the independent quotations to ensure that the interests of our minority Shareholders are not disadvantaged. In determining the most competitive price or fee, all pertinent factors, including but not limited to size of transaction, credit-worthiness and track record will be taken into consideration; when renting properties or leasing facilities from or to an interested person, our Directors shall take appropriate steps to ensure that such rental or lease rates commensurate with the prevailing market rates, including adopting measures such as making relevant inquiries with landlords or lessors of similar properties or facilities and obtaining suitable reports or reviews published by property agents (as necessary). The rent or lease payable shall be based on the most competitive market rental rate or lease rate of similar properties or facilities in terms of size and location, based on the results of the relevant inquiries; and should any future interested person transactions be on less preferential terms than as determined in paragraphs (a) to (c) above, our Board must grant prior approval.
(b)
(c)
(d)
Our Audit Committee will review all interested person transactions, if any, at least quarterly to ensure that they are carried out at arms length and in accordance with the procedures outlined above. It will take into account all relevant non-quantitative factors. Our Audit Committee shall have the right to engage or seek assistance from professional advisers (including valuers) as it deems fit. In the event that a member of our Audit Committee is interested in any interested person transaction, he will abstain from reviewing that particular transaction. Furthermore, if during these periodic reviews, our Audit Committee believes that the guidelines and procedures as stated above are not suitable or insufficient to ensure that the interests of our Company and our minority Shareholders are not prejudiced, we will adopt new guidelines and procedures. We will maintain a register where all our interested person transactions and documentation, including the bases on which such transactions are entered into, the quotations which were obtained to support such bases, the rationale behind the transactions, as well as credit terms and payment period are recorded for review by our Audit Committee.
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In addition, our Audit Committee will include the review of interested person transactions as part of its standard procedures whilst examining the adequacy of our internal controls. Our Board of Directors will also ensure that all disclosures, approvals and other requirements on interested person transactions, including those required by prevailing legislation, the Listing Manual and accounting standards, are complied with. Such transactions will also be subject to Shareholders approval if deemed necessary by the Listing Manual. POTENTIAL CONFLICTS OF INTERESTS Shareholding in PT Dermaga Kencana Indonesia (DKI) DKI (a private investment company of Mr. Henry Maknawi, Ms. Ratna Maknawi and their associates) currently owns a land parcel in East Kalimantan (the DKI Land Parcel). In the event that DKI decides to build and operate a bulking terminal (including storage tanks) and a jetty on the DKI Land Parcel, this would pose a prima facie potential conflict of interests in terms of competition for customers if we decide to lease out excess bulking facilities to third party customers. However, our Directors are of the view that the above does not present a real conflict of interests for the following reasons: (a) the DKI Land Parcel is located a considerable distance from our current bulking operations in Bangka Island and is also in a different time zone from Bangka Island. In the event that a bulking terminal is built on the DKI Land Parcel, it would serve Eastern Indonesia, a different geographic market from Western Indonesia which our operations in Bangka Island currently serve; our current bulking and logistics services are mainly to support our plantation requirements and revenue from third party customers is insignificant; and our Kalimantan operations are not in close proximity to the DKI Land Parcel. Should the need arise, our Company can build a jetty located nearer to our operations to facilitate transportation of our products.
(b)
(c)
In the event that DKI decides to develop the DKI Land Parcel and build and operate a bulking terminal (including storage tanks) and a jetty, it will offer a right of first refusal to our Company to lease such facilities from DKI and such transactions will be subject to the review procedures described in the section Review Procedures for Future Interested Person Transactions of this Prospectus. Non-executive Directorship in PT Bangun Inti Kencana (BIK) Ms. Ratna Maknawi, our Deputy CEO, is a non-executive director of BIK, a company which operates a copra crushing plant in Sulawesi to produce coconut oil (CNO). CPKO and CNO can be used in both food and oleochemical applications and accordingly may sometimes be broadly considered as substitutes depending on the users or manufacturers preference. Both CPO and CNO can be used in the production of cooking oil. However due to greater supply of CPO, it is more widely used as cooking oil compared to CNO. Even though the general uses of CNO, CPKO and CPO are similar, our Directors are of the opinion that any potential conflicts of interests arising from Ms. Ratna Maknawis role as a non-executive director of BIK is minimised taking into account that Ms. Ratna Maknawi is neither a shareholder of BIK nor is she involved in the day-to-day operations or management of BIK. Following the disposal of her shareholding in BIK to an independent third party, Ms. Ratna Maknawi remained as a non-executive director in BIK at the request of the board of directors and shareholders of BIK as they are of the view that her knowledge of the edible oil industry and good network of contacts would be beneficial to BIK.
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Independent Commissioner of PT London Sumatra Indonesia Tbk Tengku Alwin Aziz, our Vice-Chairman and Non-Executive Director, has been an Independent Commissioner of PT PP London Sumatra Indonesia Tbk (LSI), an Indonesian-listed company in the palm oil and rubber industry, since 2000. Our Directors are of the view that Tengku Alwin Aziz is not in a position of conflict and that his judgment and ability to act in the interest of our Group and our Shareholders will not be compromised as a result of his role as an Independent Commissioner of LSI which is essentially a non-executive role with the primary responsibility of supervising the board of directors. He is furthermore not a shareholder of LSI and is also not involved in the day-to-day management or operations of LSI. Save as disclosed in the section Interested Person Transactions and Conflicts of Interests of this Prospectus: (a) none of our Directors, Executive Officers, Substantial Shareholders or any of their associates has had any interest, direct or indirect, in any transactions to which our Group was or is to be a party; none of our Directors, Executive Officers, Substantial Shareholders or any of their associates has any interest, direct or indirect in any company carrying on the business or a similar trade which competes materially and directly with the existing business of our Group; and none of our Directors, Executive Officers, Substantial Shareholders or any of their associates has any interest, direct or indirect, in any company that is our customer or supplier of goods and services.
(b)
(c)
Non-compete undertaking Pursuant to non-compete undertakings dated 14 April 2008, each of Mr. Henry Maknawi, Ms. Ratna Maknawi and Kencana Holdings has undertaken not to do or permit any of the following for as long as each of Mr. Henry Maknawi, Ms. Ratna Maknawi and Kencana Holdings (whether individually or collectively, as the case may be) is an Executive Director and/or Controlling Shareholder of our Company: (a) directly or indirectly carry on or be engaged or interested in any capacity in any other business, trade or occupation whatsoever, except, in a business, trade or occupation which does not compete with the business of our Company or any of its subsidiaries or associated companies in Indonesia or elsewhere; either solely or jointly with or on behalf of any person, firm or corporation directly or indirectly carry on or be engaged or interested in any business competing with the business of our Company or any of its subsidiaries or associated companies in Indonesia or elsewhere; solicit the custom of any person who is or has been at any time, a customer of our Company for the purpose of offering to such customer goods or services similar to or competing with those of the business of our Company or any of its subsidiaries or associated companies; or cause or permit any person, or any company directly or indirectly under his/her/its control or in which he/she/it, together with his/her/its associates, have a minimum aggregate beneficial interest of 30% to do any of the foregoing acts or things.
(b)
(c)
(d)
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INTERESTS OF EXPERTS None of the experts named in this Prospectus: (a) (b) is employed on a contingent basis by our Company or any of our subsidiaries; has a material interest, whether direct or indirect, in our Shares or in the shares of our subsidiaries; or has a material economic interest, whether direct or indirect, in our Company, including an interest in the success of the Invitation.
(c)
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PLAN OF DISTRIBUTION
The Issue Price will be determined following a book-building process, by agreement among the Issue Manager, the Joint Underwriters and Placement Agents and ourselves. Among the factors that will be taken into account in determining the Issue Price are our prospects, the expected demand for the New Shares and the prevailing conditions in the securities markets. The New Shares may be re-allocated between the Offer and the Placement at the discretion of the Joint Underwriters and Placement Agents in consultation with our Company. Offer Shares The Offer Shares are made available to the members of the public in Singapore for subscription at the Issue Price. The terms and conditions and procedures for applications are described in Appendix A of this Prospectus. Pursuant to the terms and conditions contained in the Management and Underwriting Agreement signed between our Company, DBS Bank and CIMB-GK dated 17 July 2008, DBS Bank has agreed to manage the Invitation and DBS Bank and CIMB-GK have agreed to underwrite the subscription of the number of Offer Shares set forth opposite each of their respective names in the following table, at the Issue Price.
Joint Underwriters DBS Bank CIMB-GK Number of Offer Shares 750,000 250,000
In the event of an under-subscription for the Offer Shares as at the close of the Application List, that number of Offer Shares not subscribed for shall be made available to satisfy excess applications for the Placement Shares to the exent that there are excess applications for the Placement Shares as at the close of the Application List. In the event of an over-subscription for the Offer Shares as at the close of the Application List (the Placement Shares having been fully subscribed for or there are excess applications for the Placement Shares as at the close of the Application List), the successful applications for the Offer Shares will be determined by ballot or otherwise as determined by our Directors, in consultation with the Issue Manager and the Joint Underwriters and Placement Agents, and approved by the SGX-ST. Placement Shares Applications for the Placement Shares (excluding Reserved Shares) may only be made by way of application form or through the website of DBS Vickers or such other forms of application as the Issue Manager and the Joint Underwriters and Placement Agents deem appropriate. The terms and conditions and procedures for applications are described in Appendix A of this Prospectus. Pursuant to the terms and conditions in the Placement Agreement signed between our Company and DBS Bank and CIMB-GK dated 17 July 2008, DBS Bank and CIMB-GK have agreed to subscribe for and/or procure subscriptions for the number of Placement Shares set forth opposite each of their respective names in the following table, at the Issue Price.
Joint Placement Agents DBS Bank CIMB-GK Number of Placement Shares 149,250,000 49,750,000
DBS Bank and CIMB-GK may, at their absolute discretion, appoint one or more sub-placement agents for the Placement Shares. In the event of an under-subscription of applications for the Placement Shares as at the close of the Application List, that number of Placement Shares not subscribed for shall be made available to satisfy applications for the Offer Shares to the extent that there are excess applications for the Offer Shares as at the close of the Application List.
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In the event of an under-subscription of applications for the Internet Placement Shares to be subscribed for through the Internet website of DBS Vickers as at the close of the Application List, that number of Internet Placement Shares not subscribed for shall be made available to satisfy applications for the Placement Shares by way of Placement Shares application forms or any other form at application as may be deemed appropriate by the Issue Manager and the Joint Underwriters and Placement Agents to the extent that there are excess applications for such Placement Shares as at the close of the Application List or to satisfy applications for the Offer Shares, to the extent that there are excess applications for the Offer Shares as at the close of the Application List. Application for Internet Placement Shares through the website of DBS Vickers will be made on a first-come-first-served basis. Subscribers of Placement Shares (including the Internet Placement Shares) may be required to pay brokerage (and if so required, such brokerage will be up to 1% of the Issue Price), as well as stamp duties and any other similar charges. Reserved Shares We have reserved 12,100,000 Placement Shares for subscription by our employees, business associates, Independent Directors and persons who have contributed to the success of our Group at the Issue Price to recognise their contributions to our Group. These Reserved Shares are not subject to any moratorium and may be disposed of after admission of our Company to the Official List of the SGX-ST. In the event that any of the Reserved Shares are not taken up, they will be made available to satisfy applications for the Placement Shares to the extent that there is an over-subscription for the Placement Shares as at the close of the Application List or, in the event of an under-subscription for the Placement Shares as at the close of the Application List, to satisfy excess applications made by members of the public for the Offer Shares to the extent that there is an over-subscription for the Offer Shares as at the close of the Application List. Subscription for New Shares As at the date of this Prospectus, we are not aware of any person who intends to subscribe for Shares in the Invitation amounting to more than 5% of the New Shares. Distribution and Selling Restrictions No action has been taken or will be taken in any jurisdiction that would permit a public offering of the Shares being offered outside Singapore, or the possession, circulation or distribution of this Prospectus or any other material relating to us or the Shares in any jurisdiction where action for the purpose is required. Accordingly, the Shares in the Invitation may not be sold, directly or indirectly, and neither this Prospectus nor any other offering material or advertisement in connection with the Shares may be distributed or published, in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction. This document may not be used for the purpose of an offer or invitation in any circumstances in which such offer or Invitation is not authorised.
United States
The Shares have not been and will not be registered under the U.S. Securities Act and may not be offered or sold in the United States or to U.S. persons (as defined in Regulation S under the U.S. Securities Act) unless the Shares are registered under the U.S. Securities Act, or an exemption from the registration requirements of the U.S. Securities Act is available. The Shares are being offered and sold outside the United States in reliance on Regulation S under the U.S. Securities Act. In addition, until 40 days after the commencement of the offering of the Shares, an offer or sale of the Shares within the United States by a dealer (whether or not participating in the offering) may violate the registration requirements of the U.S. Securities Act.
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Indonesia
The offering of the Shares is not registered under the Law of the Republic of Indonesia No. 8 Year 1995 on Capital Market (Indonesian Capital Market Law) and its implementing regulations, and is not intended to become a public offering of securities under the Indonesian Capital Market Law and its implementing regulations. This document may not be distributed or passed on within Indonesia or to persons who are citizens of Indonesia or entities or residents in Indonesia. The Shares may not be offered or sold, directly or indirectly, within Indonesia or to Indonesian citizens, entities or residents in a manner which constitutes a public offering of the Shares under the laws or regulations of Indonesia.
Hong Kong
This Prospectus has not been approved by or registered with the Securities and Futures Commission of Hong Kong or the Registrar of Companies of Hong Kong. The New Shares may not be offered or sold in Hong Kong, by means of any document other than (i) to professional investors as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (ii) in other circumstances which do not result in the document being a prospectus as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the New Shares may be issued or may be in the possession of any person for the purpose of issue whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted of any person under the securities laws of Hong Kong) other than with respect to the New Shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance.
European Economic Area

In relation to each Member State of the European Economic Area which has implemented this Prospectus Directive (each, a Relevant Member State) an offer to the public of any New Shares which are the subject of the Invitation contemplated by this document may not be made in that Relevant Member State except that an offer to the public in the Relevant Member State of any New Shares may be made at any time under the following exemptions under this Prospectus Directive, if they have been implemented in that Relevant Member State: (a) to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 43,000,000 and (3) an annual net turnover of more than 50,000,000, as shown in its last annual or consolidated accounts; to fewer than 100 natural or legal persons (other than qualified investors as defined in this Prospectus Directive); or in any other circumstances falling within Article 3(2) of the Prospectus Directive.
(b)
(c)
(d)
For the purposes of this provision, the expression an offer to the public in relation to any New Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any New Shares to be offered so as to enable an investor to decide to purchase the New Shares, as the same may be varied in that Member State by any measure implementing this Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.
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United Kingdom
No Invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (FSMA)) in relation to the New Shares may be communicated or caused to be communicated to persons in the United Kingdom, except in circumstances where section 21(1) of FSMA does not apply to our Company. All applicable provisions of FSMA must be complied with in respect of anything done in relation to the New Shares in, from or otherwise involving the United Kingdom.
United Arab Emirates

The offering of the New Shares has not been approved or licensed by the Central Bank of the United Arab Emirates (the UAE), the Securities and Commodities Authority of the UAE and/or any other relevant licensing authority in the UAE including any licensing authority incorporated under the laws and regulations of any of the free zones established and operating in the territory of the UAE, in particular the Dubai Financial Services Authority (the DFSA), a regulatory authority of the Dubai International Financial Centre (the DFIC). The offering of the New Shares does not constitute a public offer of securities in the UAE, DFIC and/or any other free zone in accordance with the Commercial Companies Law, Federal Law No.8 of 1984 (as amended), DFSA Offered Securities Rules and the Dubai International Financial Exchange Listing Rules, accordingly or otherwise. The New Shares may not be offered to the public in the UAE and/or any of the free zones. The Company represents and warrants that the New Shares will not be offered, sold, transferred or delivered to the public in the UAE or any of its free zones.
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CLEARANCE AND SETTLEMENT

Upon listing and quotation on SGX-ST, our Shares will be traded under the book-entry settlement system of the CDP, and all dealings in and transactions of the Shares through SGX-ST will be effected in accordance with the terms and conditions for the operation of securities accounts with the CDP, as amended from time to time. Our Shares will be registered in the name of CDP or its nominee and held by CDP for and on behalf of persons who maintain, either directly or through depository agents, securities accounts with CDP. Persons named as direct securities account holders and depository agents in the depository register maintained by the CDP, rather than CDP itself, will be treated, under our Articles of Association and the Act, as members of our Company in respect of the number of Shares credited to their respective securities accounts. Persons holding our Shares in securities account with CDP may withdraw the number of Shares they own from the book-entry settlement system in the form of physical share certificate(s). Such share certificates will, however, not be valid for delivery pursuant to trades transacted on SGX-ST, although they will be prima facie evidence of title and may be transferred in accordance with our Articles of Association. A fee of $10.00 for each withdrawal of 1,000 Shares or less and a fee of $25.00 for each withdrawal of more than 1,000 Shares is payable upon withdrawing our Shares from the book-entry settlement system and obtaining physical share certificates. In addition, a fee of $2.00 or such other amount as our Directors may decide, is payable to the Share Registrar for each share certificate issued and a stamp duty of $10.00 is also payable where our Shares are withdrawn in the name of the person withdrawing our Shares or $0.20 per $100.00 or part thereof of the last-transacted price where it is withdrawn in the name of a third party. Persons holding physical share certificates who wish to trade on SGX-ST must deposit with CDP their share certificates together with the duly executed and stamped instruments of transfer in favour of CDP, and have their respective securities accounts credited with the number of Shares deposited before they can effect the desired trades. A fee of $10.00 is payable upon the deposit of each instrument of transfer with CDP. Transactions in our Shares under the book-entry settlement system will be reflected by the sellers securities account being debited with the number of Shares sold and the buyers securities account being credited with the number of Shares acquired. No transfer of stamp duty is currently payable for the Shares that are settled on a book-entry basis. A Singapore clearing fee for trades in our Shares on the SGX-ST is payable at the rate of 0.04% of the transaction value subject to a maximum of $600 per transaction. The clearing fee, instrument of transfer deposit fee and share withdrawal fee may be subject to Singapore Goods and Services Tax at the prevailing rate of 7.0%. Dealings of our Shares will be carried out in Singapore dollars and will be effected for settlement on CDP on a scripless basis. Settlement of trades on a normal ready basis on the SGX-ST generally takes place on the third Market Day following the transaction date, and payment for the securities is generally settled on the following business day. CDP holds securities on behalf of investors in securities accounts. An investor may open a direct account with CDP or a sub-account with a CDP agent. The CDP agent may be a member company of the SGX-ST, bank, merchant bank or trust company.
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GENERAL AND STATUTORY INFORMATION

INFORMATION ON DIRECTORS AND EXECUTIVE OFFICERS 1. The present and past directorships (held in the five years preceding the date of this Prospectus) of each of our Directors, other than those held in our Company, are set out below (note that for Indonesia-incorporated companies, directorships include positions held on the board of directors as well as the board of commissioners):
Name Henry Maknawi Present Directorships Group companies PT Sawit Permai Lestari PT Wira Palm Mandiri PT Agro Mas Lestari PT Wira Mas Permai PT Palm Makmur Sentosa PT Langgeng Nusa Makmur PT Agro Sawitmas Lestari PT Indotrust PT Listrindo Kencana Other companies Kencana Holdings Pte. Ltd. Mcnawie Pty Ltd, Australia PT Kaltim Bulking Terminal PT Maknawi Jaya Kencana PT Maknawi Pencil PT Tomang Maju Perkasa PT Mitra Usaha Makmur PT Mega Investindo Ratna Maknawi Group companies Kencana Plantations Pte Ltd Kencana Bio-Energy Pte Ltd PT Sawindo Kencana PT Alamraya Kencana Mas PT Kencana Agro Jaya PT Agro Inti Kencanamas PT Sawit Permai Lestari PT Bumi Permai Sentosa PT Cahaya Permata Gemilang PT Agro Mas Lestari PT Wira Sawit Mandiri PT Wira Mas Permai PT Palm Makmur Sentosa PT Agro Sawitmas Lestari PT Langgeng Nusa Makmur Other companies PT Dermaga Kencana Indonesia PT Bangun Inti Kencana PT Tomang Maju Perkasa PT Aldo Tekindo Past Directorships Group companies
Other companies PT Indocare
Group companies PT Agrojaya Tirta Kencana
Other companies
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Name Kent Surya Present Directorships Group companies PT Sawindo Kencana PT Alamraya Kencana Mas PT Argo Inti Kencanamas Other companies PT Graha Meruya Tengku Alwin Aziz Group companies PT Alamraya Kencana Mas PT Agro Inti Kencanamas Other companies PT PP. London Sumatra Indonesia Tbk PT Daya Sakti Unggul Corpora Tbk PT Cakra Petrokindo Utama Enduring Capital Resources (Ltd), Singapore Leung Yew Kwong Group companies Other companies Soh Yew Hock Group companies Other companies Asia Dekor Holdings Ltd Japan Residential Assets Manager Ltd Past Directorships Group companies
Other companies PT Olympindo Multi Finance Group companies
Other companies PT. Akbar Indo Makmur Stimec
Group companies Other companies Group companies Other companies WBL Corporation Limited OConnors Holding Pte Ltd SM Motors Private Limited EPD Pureionics Pte Ltd Starsauto Pte Ltd MFS Technology Ltd Wearne Brothers Services (Private) Limited Associated Motor Industries (Private) Limited OConnors Singapore Pte Ltd Wearnes Investment Pte Ltd Wearnes Gas (Private) Limited Wearnes Automotive & Equipment Pte Ltd Wearnes International (1994) Limited Wearnes Environmental Pte Ltd Gentron (Pte) Ltd OCM Communications Pte Ltd Wearnes Construction (2001) Pte Ltd Wearnes Development (Private) Limited Wearnes Equipment & Machinery Pte Ltd
180

Name Present Directorships Past Directorships Wearnes Far East Pte Ltd Wellmate Pte Ltd Wearnes Biotech & Medicals (1998) Pte Ltd Far East Motors Malaysia Sendirian Berhad Kumpulan OConnors (Malaysia) Sdn Bhd Rank-Maju Sdn Bhd Wearne Brothers (1983) Sdn Bhd Wearnes Gas Sdn Bhd Gentron Trading Sdn Bhd OConnors Engineering Sdn Bhd OConnors Trading Sdn Bhd OConnors Enterprise Sdn Bhd Wealco Malaysia Sendirian Berhad Wearnes Brothers Services Malaysia Sdn Bhd Wearnes Gas Sdn Bhd Wearnes Technology Sdn Bhd Johan Kekal Sdn Bhd Permata Alasan Sdn Bhd Renown Heritage Sdn Bhd Sukatan Garisan Sdn Bhd Wilmington Sdn Bhd Wearnes Gas Sdn Bhd Suzhou Wearnes Environmental & Technology Co Ltd Suzhou Future Agriworld Co Ltd Central China International Leasing Co Ltd Pacific Silica Pty Ltd Polytek Catering Equipment Pty Ltd Polytek Industrial Equipment Pty Ltd Polytek Wearnes Pty Ltd Rank P T OConnors Co Ltd Jaguar Cars (Thailand) Co Ltd EPD Wearnes (USA) Inc MedicineNet, Inc Wearnes Motors (HK) Ltd
2.
The present and past directorships (held in the five years preceding the date of this Prospectus) of each of our Executive Officers, other than those held in our Company, are set out below:
Name Albert Maknawi Present Directorships Group companies PT Listrindo Kencana PT Belitung Energy Sawindo Agri Pte Ltd PT Wira Palm Mandiri PT Sawindo Cemerlang PT Pelayaran Asia Marine Other companies Past Directorships Group companies
Other companies
181

Name Ajis Chandra Present Directorships Group companies Kencana Logistics Pte. Ltd. PT Agri East Borneo Kencana PT Pelayaran Asia Marine PT Indotrust Other companies PT PT PT PT CS Kwang Kay (also known as Chua) Kaltim Bulking Terminal Global Positiong Solutions GPS Indonesia Graha Meruya Past Directorships Group companies
Other companies
Group companies Other companies
Group companies Other companies Clonal Palms Sdn Bhd Sapi Plantations Sdn Bhd Reka Halus Sdn Bhd Saremas Sdn Bhd Ribubonus Sdn Bhd Hibumas Sdn Bhd Sri Kamusan Sdn Bhd Sabahmas Plantations Sdn Bhd Sekar Imej Sdn Bhd Penumilek Sdn Bhd Ceramilek Sdn Bhd Jebawang Sdn Bhd Suburmas Plantations Sdn Bhd Suburmas Palm Oil Mill Sdn Bhd Group companies Other companies Group companies Other companies Orisatin Sdn Bhd
Ooi Min Choo
Lim Chin Chai
3.
Saved as disclosed below, none of our Directors, Executive Officers or Controlling Shareholder: (a) has at any time during the last ten years, had an application or a petition under any bankruptcy laws of any jurisdiction filed against him or against a partnership of which he was a partner at the time when he was a partner or at any time within two years from the date he ceased to be a partner; has at any time during the last ten years, had an application or a petition under any law of any jurisdiction filed against an entity (not being a partnership) of which he was a director or an equivalent person or a key executive, at the time when he was a director or an equivalent person or a key executive of that entity or at any time within two years from the date he ceased to be a director or an equivalent person or a key executive of that entity, for the winding up or dissolution of that entity or, where that entity is the trustee of a business trust, that business trust, on the ground of insolvency; 182
(b)

(c) (d) has any unsatisfied judgement against him; has ever been convicted of any offence, in Singapore or elsewhere, involving fraud or dishonesty punishable with imprisonment or has been the subject of any criminal proceedings (including any pending criminal proceedings of which he is aware of) for such purpose; has been convicted of any offence, in Singapore or elsewhere, involving a breach of any law or regulatory requirement that relates to the securities or futures industry in Singapore or elsewhere, or has been the subject of any criminal proceedings (including pending criminal proceedings of which he is aware) for such breach; has at any time during the last ten years, had judgement entered against him in any civil proceedings in Singapore or elsewhere involving the breach of any law or regulatory requirement that relates to the securities or futures industry in Singapore or elsewhere, or a finding of fraud, misrepresentation or dishonesty on his part, or been the subject of any civil proceedings (including any pending civil proceedings of which he is aware) involving an allegation of fraud, misrepresentation or dishonesty on his part; has been convicted in Singapore or elsewhere of any offence in connection with the formation or management of any entity or business trust; has been disqualified from acting as a director or an equivalent person of any entity (including the trustee of a business trust), or from taking part in any way directly or indirectly in the management of any entity or business trust; has been the subject of any order, judgement or ruling of any court, tribunal or governmental body permanently or temporarily enjoining him from engaging in any type of business practice or activity; has ever, to his knowledge, been concerned with the management or conduct, in Singapore or elsewhere, of affairs of: (i) any corporation which has been investigated for a breach of any law or regulatory requirement governing corporations in Singapore or elsewhere; any entity (not being a corporation) which has been investigated for a breach of any law or regulatory requirement governing such entities in Singapore or elsewhere; any business trust which has been investigated for a breach of any law or regulatory requirement governing business trusts in Singapore or elsewhere; or any entity or business trust which has been investigated for a breach of any law or regulatory requirement that relates to the securities or futures industry in Singapore or elsewhere,
(e)
(f)
(g)
(h)
(i)
(j)
(ii)
(iii)
(iv)
in connection with any matter occurring or arising during the period when he was so concerned with the entity or business trust; or (k) has been the subject of any current or past investigation or disciplinary proceedings, or has been reprimanded or issued any warning, by the Authority or any other regulatory authority, exchange, professional body or governmental agency, whether in Singapore or elsewhere.
183

4. Mr. Henry Maknawi was a former director and indirect shareholder of PT Indra Maju Lestari, an Indonesian property development company which was declared insolvent in 1998 as a result of deterioration of the Indonesian economy arising from the May 1998 riots in Indonesia. Mr. Henry Maknawi had disposed of his indirect shareholding interests and resigned as director in April 1998 prior to its insolvency. Mr. Soh Yew Hock was appointed as a non-executive director of Effort Holdings Pte Ltd on 23 Aug 1994 and resigned on 1 April 1999. Effort Holdings Pte Ltd was wound up under a court order on 1 December 2000. Mr. Soh Yew Hock was the representative of Wearnes International Ltd on the board of Effort Holdings Pte Ltd. Wearnes International Ltd had a minority stake of 12.85% equity interest in EH.
5.
SHARE CAPITAL 6. As at the Latest Practicable Date, to the best of the knowledge of our Directors, our Directors are not aware of any arrangements, the operation of which may at a subsequent date result in the change of control of our Company.
MATERIAL CONTRACTS 7. The following contracts, not being contracts entered into in the ordinary course of business, have been entered into by our Company and our subsidiaries within the two years preceding the date of lodgement of this Prospectus and are or may be material: (a) The Management and Underwriting Agreement dated 17 July 2008 made between our Company, DBS Bank and CIMB-GK referred to in the section Management, Underwriting and Placement Arrangements of this Prospectus; The Placement Agreement dated 17 July 2008 made between our Company, DBS Bank and CIMB-GK referred to in the section Management, Underwriting and Placement Arrangements of this Prospectus; The Depository Agreement dated 17 July 2008 made between our Company and CDP pursuant to which CDP agreed to act as central depository for our securities for trades in the securities of the Company through the SGX-ST; The various Conditional Sale and Purchase Agreements dated 22 October 2007 (as amended by supplemental agreements dated 19 November 2007 and 19 March 2008) entered into between the Initial Shareholders as vendor and the Sincos as purchaser, whereby the Initial Shareholders transferred their Initial Indoco Shares in consideration for the allotment of new ordinary shares in the capital of the Sincos in the manner described in the section Restructuring Exercise of this Prospectus; and The various Conditional Sale and Purchase Agreements and their initial supplemental agreements dated 22 June 2007, 26 June 2007, 23 August 2007 and 31 August 2007 (as amended by subsequent supplemental agreements dated 27 February 2008) entered into between the Initial Shareholders as vendor and the Indocos as purchaser, whereby the Initial Shareholders transferred all of their shareholding interests in the Operating Companies to the Indocos (save for our Chairman and CEO, Mr. Henry Maknawi who retained one (1) share in each operating company) in consideration for Indocos allotment of new ordinary shares in the capital of the Indocos in the manner described in the section Restructuring Exercise of this Prospectus.
(b)
(c)
(d)
(e)
LITIGATION 8. Neither our Company nor any of our subsidiaries is engaged in any legal or arbitration proceedings as plaintiff or defendant, including those which are pending or known to be contemplated, which may have or which have had in the 12 months immediately preceding the date of lodgement of this Prospectus, a material effect on the financial position or the profitability of our Group. 184

MISCELLANEOUS 9. There have been no public takeover offers by third parties in respect of our Shares or by us in respect of other companies shares or units of a business trust which have occurred between 1 January 2007 and the Latest Practicable Date. Application monies received by our Company in respect of successful applications (including successful applications which are subsequently rejected) will be placed in a separate non-interest bearing account with DBS Bank (the Receiving Bank). In the ordinary course of business, the Receiving Bank will deploy these monies in the interbank money market. All profits derived from the deployment of such monies will accrue to the Receiving Bank. Any refund of all or part of the application monies to unsuccessful or partially successful applicants will be made without any interest or any share of revenues or any other benefit arising therefrom. Save as disclosed in this Prospectus, our Directors are not aware of any relevant material information including trading factors or risks which are unlikely to be known or anticipated by the general public and which could materially affect the profits of our Company and our subsidiaries. Save as disclosed under the sections, Risk Factors, Capitalisation and Indebtedness, Managements Discussion and Analysis of Financial Position and Results of Operations, General Information on our Group Prospects and General Information on our Group Strategy and Future Plans of this Prospectus, the financial condition and operations of our Group are not likely to be affected by any of the following: (a) known trends or demands, commitments, events or uncertainties that will result in or are reasonably likely to result in our Groups liquidity increasing or decreasing in any material way; material commitments for capital expenditure; unusual or infrequent events or transactions or any significant economic changes that materially affected the amount of reported income from operations; and known trends or uncertainties that have had or that we reasonably expect will have a material favourable or unfavourable impact on revenues or operating income.
10.
11.
12.
(b) (c)
(d)
13.
We currently have no intention of changing our auditors after the listing of our Company on the SGX-ST. Save as disclosed under Significant Events in Appendix F on the audited combined financial statements of our Group, our Directors are not aware of any event which has occurred since 1 January 2008 which may have a material effect on the combined financial information of our Group set out in this Prospectus. No expert is employed on a contingent basis by our Company or any of our subsidiaries, or has a material interest, whether direct or indirect, in our Shares, the shares of our subsidiaries or has a material economic interest whether direct or indirect, in our Company, including an interest in the success of the Invitation. No option to subscribe for Shares in, or debentures of, our Company or our subsidiaries has been granted to, or was exercised by, any Director or Executive Officer within the two financial years preceding the date of this Prospectus. No person has been, or has the right to be, given an option to subscribe for or purchase any securities of our Company or any of our subsidiaries.
14.
15.
16.
17.
185

CONSENTS 18. The Auditors and Reporting Accountants have given and have not withdrawn their written consent to the issue of this Prospectus with the inclusion herein of the Audited Combined Financial Statements and the Unaudited Proforma Combined Financial Information of our Company in the form and context in which they are included and references to their name in the form and context in which it appears in this Prospectus and to act in such capacity in relation to this Prospectus. Each of the Solicitors to the Invitation and to our Company on Singapore law, the Solicitors to the Issue Manager and the Joint Underwriters and Placement Agents, the Share Registrar and Share Transfer Agent, the Principal Bankers and the Receiving Banker do not make or purport to make any statement in this Prospectus or any statement upon which a statement in this Prospectus is based and each of them makes no representation regarding any statement in this Prospectus and to the maximum extent permitted by law, expressly disclaim and takes no responsibility for any liability to any person which is based on, or arises out of, any statement, information or opinions in, or omission from, this Prospectus. DBS Bank has given and has not withdrawn its written consent to being named in this Prospectus as the Issue Manager. DBS Bank and CIMB-GK have each given and have not withdrawn their written consent to being named in this Prospectus as the Joint Underwriters and Placement Agents. ABNR has given and has not withdrawn its written consent to the issue of this Prospectus with the inclusion of its name and references thereto, the statements on page 29 under the section Risk Factors of this Prospectus in the form and context in which it appears in this Prospectus and to act in the capacity of Legal Advisers to our Company on Indonesian law in respect of this Prospectus. PT Actual Kencana Appraisal has given and has not withdrawn its written consent to the issue of this Prospectus with the inclusion therein of the information in the Interested Person Transactions and Conflicts of Interests Present and Ongoing Interested Person Transactions section of this Prospectus in the form and context in which they are included and to being named in this Prospectus as the independent valuer to the Company. PT Asian Appraisal Indonesia has given and has not withdrawn its written consent to being named in this Prospectus as the valuer of the biological assets. ISTA Mielke GmBH (Global Research & Analyses) has given and has not withdrawn its written consent to the issue of this Prospectus with the inclusion therein of the information in the Prospects section of this Prospectus in the form and context in which they are included and references to its name in the form and context in which it appears in this Prospectus and to act in such capacity in relation to this Prospectus.
19.
20.
21.
22.
23.
24.
25.
RESPONSIBILITY STATEMENT BY OUR DIRECTORS 26. This Prospectus has been seen and approved by our Directors and they individually and collectively accept full responsibility for the accuracy of the information given herein and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, the facts stated and the opinions expressed herein are fair and accurate in all material respects as of the date hereof and there are no material facts the omission of which would make any statements in this Prospectus misleading and that this Prospectus constitutes full and true disclosure of all material facts about the Invitation and our Group.
186

DOCUMENTS AVAILABLE FOR INSPECTION 26. The following documents or copies thereof may be inspected at our registered office at 3 Shenton Way, #10-06 Shenton House, Singapore 068805 during normal business hours for a period of six months from the date of registration by the Authority of this Prospectus: (a) (b) the Memorandum and Articles of Association of our Company; the Independent Auditors Reports on the Audited Combined Financial Statements of our Group for the financial years ended 31 December 2005, 2006 and 2007; the Independent Auditors Report on the Unaudited Proforma Combined Financial Information of our Group for the financial year ended 31 December 2007; the material contracts referred to in paragraph 7 above; the letters of consent referred to in paragraphs 18, 20, 21, 22, 23, 24 and 25 above; the Service Agreements; the report dated 2 June 2008 issued by ISTA Mielke GMBH (Global Research & Analyses) and reproduced in the section Prospects of this Prospectus; the rental valuation report by PT Actual Kencana Appraisal referred to in the Interested Person Transactions and Conflicts of Interests - Present and Ongoing Interested Persons Transactions - Long term lease of office premises by SWK from PT Graha Meruya section of this Prospectus; and the audited financial statements of our subsidiaries (where available) for the financial years ended 31 December 2005, 2006 and 2007.
(c)
(d) (e) (f) (g)
(h)
(i)
187
APPENDIX A TERMS, CONDITIONS AND PROCEDURES FOR APPLICATIONS AND ACCEPTANCE

Applications are invited for the subscription of the New Shares at the Issue Price, subject to the following terms and conditions: 1. YOUR APPLICATION MUST BE MADE IN LOTS OF 1,000 NEW SHARES OR INTEGRAL MULTIPLES THEREOF. YOUR APPLICATION FOR ANY OTHER NUMBER OF NEW SHARES WILL BE REJECTED. Your application for the Offer Shares may be made by way of the printed WHITE Offer Shares Application Forms or through Automated Teller Machines (ATMs) belonging to the Participating Banks (ATM Electronic Application) or through the Internet banking (IB) websites of the relevant Participating Banks (Internet Electronic Application). Application for Internet Placement Shares (also referred to as Internet Electronic Application) may only be made by way of an Internet Electronic Application through the Internet website of DBS Vickers Securities (Singapore) Pte Ltd (DBS Vickers) at www.dbsvonline.com if you have an internet trading account with DBS Vickers. Internet Electronic Applications, both through the IB websites of the relevant Participating Banks and the Internet website of DBS Vickers, shall together with ATM Electronic Applications, be referred to as Electronic Applications. Applications for Placement Shares (other than Internet Placement Shares and Reserved Shares) may only be made by way of the printed BLUE Placement Shares Application Forms or in such other forms of application as the Issue Manager and the Joint Underwriters and Placement Agents deem appropriate. Application for Reserved Shares may only be made by way of the printed PINK Reserved Shares Application Forms or in such other forms of application as the Issue Manager and the Joint Underwriters and Placement Agents deem appropriate. YOU MAY NOT USE YOUR CPF FUNDS TO APPLY FOR THE NEW SHARES. 3. You (being other than an approved nominee company) are allowed to submit ONLY one application in your own name for: (a) the Offer Shares by any one of the following: Offer Shares Application Form; ATM Electronic Application; or Internet Electronic Application; or (b) the Placement Shares by any one of the following: Placement Shares Application Form; or Internet Electronic Application; or In such other forms of application as the Issue Manager and the Joint Underwriters and Placement Agents deem appropriate. Only one application may be made for the benefit of one person for the Offer Shares in his own name. Multiple applications for the Offer Shares will be rejected, except in cases of applications by approved nominee companies where each application is made on behalf of a different beneficiary. You may not submit multiple applications for the Offer Shares via the Application Form, ATM Electronic Application or Internet Electronic Application. A person who is submitting an application for the Offer Shares by way of the Offer Shares Application Form may not submit another application for the Offer Shares by way of an ATM Electronic Application or Internet Electronic Application and vice versa.
2.
A-1

A person, other than an approved nominee company, who is submitting an application for the Offer Shares in his own name should not submit any other application for the Offer Shares, whether on an Application Form or through an ATM Electronic Application or Internet Electronic Application, for any other person. Such separate applications will be deemed to be multiple applications and shall be rejected. Joint or multiple applications for the Offer Shares shall be rejected. Persons submitting or procuring submissions of multiple applications for the Offer Shares may be deemed to have committed an offence under the Penal Code, Chapter 224 of Singapore, and the Securities and Futures Act, Chapter 289 of Singapore, and such applications may be referred to the relevant authorities for investigation. Multiple applications or those appearing to be or suspected of being multiple applications (other than as provided herein) will be liable to be rejected at the Companys discretion. You may make one or more applications for the Placement Shares under the Placement and/or make a single application for Offer Shares under the Offer and/or, if eligible, make one or more applications for Reserved Shares. 4. We will not accept applications from any person under the age of 21 years, undischarged bankrupts, sole-proprietorships, partnerships, non-corporate bodies, joint Securities Account holders of CDP and applicants whose addresses (furnished in their printed Application Forms or in any other form of application as may be deemed appropriate by the Issue Manager and the Joint Underwriters and Placement Agents or, in the case of Electronic Applications, contained in the records of the relevant Participating Banks or DBS Vickers, as the case may be) bear post office box numbers. No persons acting or purporting to act on behalf of a deceased person is allowed to apply under the Securities Account with CDP in the deceased name at the time of application. In addition, applicants who wish to subscribe for the Placement Shares through the website of DBS Vickers: (a) (b) (c) (d) (e) (f) 5. must must must must must must not be corporations, sole-proprietorships, partnerships, or any other business entity; be at least 21 years old; not be undischarged bankrupts; apply for the Placement Shares in Singapore; have a mailing address in Singapore; and be customers who maintain trading accounts with DBS Vickers.
We will not recognise the existence of a trust. Any application by a trustee or trustees must be made in his/their own name(s) and without qualification or, where the application is made by way of a printed Application Form by a nominee, in the name(s) of an approved nominee company or approved nominee companies, in each case, in compliance with paragraph 6 below. WE WILL ONLY ACCEPT NOMINEE APPLICATIONS FROM APPROVED NOMINEE COMPANIES. Approved nominee companies are defined as banks, merchant banks, finance companies, insurance companies, licensed securities dealers in Singapore and nominee companies controlled by them. Applications made by nominees other than approved nominee companies will be rejected. IF YOU ARE NOT AN APPROVED NOMINEE COMPANY, YOU MUST MAINTAIN A SECURITIES ACCOUNT WITH CDP IN YOUR OWN NAME AT THE TIME OF YOUR APPLICATION. If you do not have an existing Securities Account with CDP in your own name at the time of application, your application will be rejected (if you apply by way of an Application Form), or you will not be able to complete your Electronic Application (if you apply by way of an Electronic Application). If you have an existing Securities Account but fail to provide your Securities Account number or provide an incorrect Securities Account number in Section B of the Application Form in any other form of application as may be deemed appropriate by the Issue Manager and the Joint Underwriters and Placement Agents or in your Electronic Application, as the case may be, your application is liable
6.
7.
A-2

to be rejected. Subject to paragraph 8 below, your application may be rejected if your particulars such as name, NRIC/passport number, nationality, permanent residence status and CDP Securities Account number provided in your Application Form, or in the case of an Electronic Application, contained in the records of the relevant Participating Bank or DBS Vickers at the time of your Electronic Application, as the case may be, differ from those particulars in your Securities Account as maintained by CDP. If you have more than one individual direct Securities Account with CDP, your application shall be rejected. 8. If your address as stated in the Application Form or, in the case of an Electronic Application, contained in the records of the relevant Participating Bank or DBS Vickers, as the case may be, is different from the address registered with CDP, you must inform CDP of your updated address promptly, failing which the notification letter on successful allotment will be sent to your address last registered with CDP. Our Company reserves the right to reject any application which does not conform strictly to the instructions set out in the Application Forms and this Prospectus or which does not comply with the instructions for Electronic Applications or with the terms and conditions of this Prospectus or in the case of an application by way of an Application Form, which is illegible, incomplete, incorrectly completed or which is accompanied by an improperly drawn up or improper form of remittance. Our Company further reserves the right to treat as valid any applications not completed or submitted or effected in all respects in accordance with the instructions set out in the Application Forms or the instructions for the Electronic Applications or the terms and conditions of this Prospectus, and also to present for payment or other processes all remittances at any time after receipt and to have full access to all information relating to, or deriving from, such remittances or the processing thereof. Our Company reserves the right to reject or to accept, in whole or in part, or to scale down or to ballot any application, without assigning any reason therefor, and we will not entertain any enquiry and/or correspondence on the decision of our Company except in respect of applications which have been balloted but subsequently rejected where the reasons for such rejection will be provided to the Applicant. This right applies to applications made by way of Application Forms or in any other form of application as may be deemed appropriate by the Issue Manager and the Joint Underwriters and Placement Agents and by way of Electronic Applications. In deciding the basis of allotment, our Company will give due consideration to the desirability of alloting New Shares to a reasonable number of applicants with a view to establishing an adequate market for the Shares. Share certificates will be registered in the name of CDP or its nominee and will be forwarded only to CDP. It is expected that CDP will send to you, at your own risk, within 15 Market Days after the close of the Application List, a statement of account stating that your Securities Account has been credited with the number of New Shares allotted to you. This will be the only acknowledgment of application monies received and is not an acknowledgment by our Company. You irrevocably authorise CDP to complete and sign on your behalf as transferee or renouncee any instrument of transfer and/or other documents required for the issue or transfer of the New Shares allotted to you. This authorisation applies to applications made by way of printed Application Forms or in any other form of application as may be deemed appropriate by the Issue Manager and the Joint Underwriters and Placement Agents and by way of Electronic Applications. In the event that our Company lodges a supplementary or replacement prospectus (Relevant Document) pursuant to the Securities and Futures Act or any applicable legislation in force from time to time prior to the close of the Invitation, and the New Shares have not been issued, we will (as required by law) at our sole and absolute discretion either: (a) within two days (excluding any Saturday, Sunday or public holiday) from the date of the lodgement of the Relevant Document, give you notice in writing of how to obtain, or arrange to receive, a copy of the same and provide you with an option to withdraw your application and take all reasonable steps to make available within a reasonable period the Relevant Document to you if you have indicated that you wish to obtain, or have arranged to receive, a copy of the Relevant Document; or A-3
9.
10.
11.
12.

(b) within seven days of the lodgement of the Relevant Document give you a copy of the Relevant Document and provide you with an option to withdraw your application; or deem your application as withdrawn and cancelled and refund your application monies (without interest or any share of revenue or other benefit arising therefrom) to you within seven days from the lodgement of the Relevant Document.
(c)
Any applicant who wishes to exercise his option under paragraphs 12(a) and (b) above to withdraw his application shall, within 14 days from the date of lodgement of the Relevant Document, notify us whereupon we shall, within seven days from the receipt of such notification, return all monies in respect of such application (without interest or any share of revenue or other benefit arising therefrom). In the event that the New Shares have already been issued at the time of the lodgement of the Relevant Document but trading has not commenced, we will (as required by law) either: (i) within two days (excluding Saturday, Sunday or public holiday) from the date of the lodgement of the Relevant Document, give you notice in writing of how to obtain, or arrange to receive, a copy of the same and provide you with an option to return to us the New Shares which you do not wish to retain title in and take all reasonable steps to make available within a reasonable period the Relevant Document to you if you have indicated that you wish to obtain, or have arranged to receive, a copy of the Relevant Document; or within seven days from the lodgement of the Relevant Document give you a copy of the Relevant Document and provide you with an option to return the New Shares which you do not wish to retain title in; or deem the issue as void and refund your payment for the New Shares (without interest or any share of revenue or other benefit arising therefrom) within seven days from the lodgement of the Relevant Document.
(ii)
(iii)
Any applicant who wishes to exercise his option under paragraphs 12(i) and (ii) above to return the New Shares issued to him shall, within 14 days from the date of lodgement of the Relevant Document, notify us of this and return all documents, if any, purporting to be evidence of title of those New Shares, whereupon we shall, within seven days from the receipt of such notification and documents, pay to him all monies paid by him for the New Shares without interest or any share of revenue or other benefit arising therefrom and at his own risk, and the New Shares issued to him shall be deemed to be void. Additional terms and instructions applicable upon the lodgement of the supplementary or replacement prospectus, including instructions on how you can exercise the option to withdraw, may be found in such supplementary or replacement prospectus. 13. In the event of an under-subscription for Offer Shares as at the close of the Application List, that number of Offer Shares not subscribed for shall be made available to satisfy excess applications for Placement Shares to the extent there is an over-subscription for Placement Shares as at the close of the Application List. In the event of an under-subscription for Placement Shares as at the close of the Application List, that number of Placement Shares not subscribed for shall be made available to satisfy excess applications for Offer Shares to the extent that there is an over-subscription for Offer Shares as at the close of the Application List.
A-4

In the event of an under-subscription for the Reserved Shares as at the close of the Application List, the number of Reserved Shares under-subscribed shall be made available to satisfy applications for Placement Shares by way of Placement Shares Application Forms or in any other form of application as may be deemed appropriate by the Issue Manager and the Joint Underwriters and Placement Agents to the extent that there is an over-subscription for such Placement Shares as at the close of the Application List or to satisfy excess applications for Offer Shares, to the extent that there is an over-subscription for Offer Shares as at the close of the Application List. In the event of an under-subscription for Internet Placement Shares to be applied for through the website of DBS Vickers as at the close of the Application List, that number of Internet Placement Shares not subscribed for shall be made available to satisfy applications for Placement Shares by way of Placement Shares Application Forms or in any other form of application as may be deemed appropriate by the Issue Manager and the Joint Underwriters and Placement Agents to the extent that there is an over-subscription for such Placement Shares as at the close of the Application List or to satisfy excess applications for Offer Shares, to the extent that there is an over-subscription for Offer Shares as at the close of the Application List. In the event of an over-subscription for Offer Shares as at the close of the Application List and/or Placement Shares (including Internet Placement Shares) are fully subscribed or over-subscribed as at the close of the Application List, the successful applications for Offer Shares will be determined by ballot or otherwise as determined by our Directors, in consultation with the Issue Manager and the Joint Underwriters and Placement Agents, and approved by the SGX-ST. 14. You irrevocably authorise CDP to disclose the outcome of your application, including the number of New Shares allotted to you pursuant to your application, to the Company, the Issue Manager, the Joint Underwriters and Placement Agents, DBS Vickers and any other parties so authorised by the foregoing persons. Any reference to you or the Applicant in this section shall include an individual, a corporation, an approved nominee company and trustee applying for Offer Shares by way of an Offer Shares Application Form or by way of an Electronic Application, a person applying for Placement Shares (including Internet Placement Shares) by way of Placement Shares Application Form or in such other forms of application as the Issue Manager and Joint Underwriters and Placement Agents deem appropriate and a person applying for the Reserved Shares by way of a Reserved Shares Application Form or in such other forms of application as the Issue Manager and Joint Underwriters and Placement Agents deem appropriate. By completing and delivering an Application Form and, in the case of an ATM Electronic Application, by pressing the Enter or OK or Confirm or Yes key or any other relevant key on the ATM or in the case of an Internet Electronic Application, by clicking Submit or Continue or Yes or Confirm or any other button on the IB website of the relevant Participating Bank or the website of DBS Vickers in accordance with the provisions herein, you: (a) irrevocably offer, agree and undertake to subscribe for the number of New Shares specified in your application (or such smaller number for which the application is accepted) at the Issue Price for each New Share and agree that you will accept such New Shares as may be allotted to you, in each case on the terms of, and subject to the conditions set out in, this Prospectus and the Memorandum and Articles of Association of the Company; agree that in the event of any inconsistency between the terms and conditions for application set out in this Prospectus and those set out in the website of DBS Vickers, or the IB websites or ATMs of the relevant Participating Banks, the terms and conditions set out in this Prospectus shall prevail; agree that the aggregate Issue Price for the New Shares applied for is due and payable to the Company upon application; A-5
15.
16.
(b)
(c)

(d) warrant the truth and accuracy of the information contained, and representations and declarations made, in your application, and acknowledge and agree that such information, representations and declarations will be relied on by our Company in determining whether to accept your application and/or whether to allot any New Shares to you; and agree and warrant that if the laws of any jurisdictions outside Singapore are applicable to your application, you have complied with all such laws and none of our Company, the Issue Manager or the Joint Underwriters and Placement Agents will infringe any such laws as a result of the acceptance of your application.
(e)
17.
Our acceptance of applications will be conditional upon, inter alia, our Company being satisfied that: (a) permission has been granted by the SGX-ST to deal in, and for quotation of, all our existing Shares and the New Shares, on the Official List of the SGX-ST; the Management and Underwriting Agreement, and the Placement Agreement referred to in the section entitled Management, Underwriting and Placement Agreements of this Prospectus have become unconditional and have not been terminated; and the Monetary Authority of Singapore (the Authority) has not served a stop order which directs that no or no further shares to which this Prospectus relates be allotted or issued (Stop Order).
(b)
(c)
18.
In the event that a Stop Order in respect of the New Shares is served by the Authority or other competent authority, and: (a) the New Shares have not been issued, we will (as required by law) deem all applications to be withdrawn and cancelled and our Company shall refund the application monies (without interest or any share of revenue or other benefit arising therefrom) to you within 14 days of the date of the Stop Order; or if the New Shares have already been issued but trading has not commenced, the issue will (as required by law) be deemed void and we will refund your payment for the New Shares (without interest or any share of revenue or other benefit arising therefrom) to you within 14 days from the date of the Stop Order.
(b)
This shall not apply where only an interim Stop Order has been served. 19. In the event that an interim Stop Order in respect of the New Shares is served by the Authority or other competent authority, no Invitation Shares shall be issued to you until the Authority revokes the interim Stop Order. The Authority is not able to serve a Stop Order in respect of the New Shares if the New Shares have been issued and listed on the SGX-ST and trading in them has commenced. We will not hold any application in reserve. We will not allot or allocate any Shares on the basis of this Prospectus later than six months after the date of registration of this Prospectus by the Authority. Additional terms and conditions for applications by way of printed Application Forms are set out in the section entitled Additional Terms and Conditions for Applications Using Printed Application Forms on pages A7 and A11 of this Prospectus. Additional terms and conditions for applications by way of Electronic Applications are set out in the section entitled Additional Terms and Conditions For Electronic Applications on pages A11 and A16 of this Prospectus. A-6
20.
21. 22.
23.
24.

ADDITIONAL TERMS AND CONDITIONS FOR APPLICATIONS USING PRINTED APPLICATION FORMS Applications by way of Application Forms shall be made on and subject to the terms and conditions of this Prospectus, including but not limited to the terms and conditions appearing below as well as those set out under the section entitled TERMS, CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE on pages A1 to A6 of this Prospectus, as well as the Memorandum and Articles of Association of our Company. 1. Your application for Offer Shares must be made using the WHITE Offer Shares Application Forms and WHITE official envelopes A and B, accompanying and forming part of this Prospectus. Application for Placement Shares (other than Internet Placement Shares) by way of Application Forms must be made using the BLUE Placement Shares Application Forms, accompanying and forming part of this Prospectus or in any other form of application as may be deemed appropriate by the Issue Manager and the Joint Underwriters and Placement Agents. Application for Reserved Shares must be made using the PINK Reserved Shares Application Forms or in such other forms of application as the Issue Manager and the Joint Underwriters and Placement Agents deem appropriate. Without prejudice to the rights of the Company, the Issue Manager and the Joint Underwriters and Placement Agents have been authorised to accept, for and on behalf of the Company, such other forms of applications, as the Issue Manager and the Joint Underwriters and Placement Agents may (in consultation with the Company) deem appropriate. We draw your attention to the detailed instructions contained in the respective Application Forms and this Prospectus for the completion of the Application Forms which must be carefully followed. Our Company reserves the right to reject applications which do not conform strictly to the instructions set out in the Application Forms and this Prospectus or to the terms and conditions of this Prospectus or which are illegible, incomplete, incorrectly completed or which are accompanied by improperly drawn remittances. 2. Your Application Form must be completed in English. Please type or write clearly in ink using BLOCK LETTERS. You must complete all spaces in the Application Form except those under the heading FOR OFFICIAL USE ONLY and you must write the words NOT APPLICABLE or N.A. in any space that is not applicable. Individuals, corporations, approved nominee companies and trustees must give their names in full. If you are an individual, you must make your application using your full name as it appears in your identity card (if you have such an identification document) or in your passport and, in the case of corporations, in your full names as registered with a competent authority. If you are not an individual, you must complete the Application Form under the hand of an official who must state the name and capacity in which he signs the Application Form. If you are a corporation completing the Application Form, you are required to affix your Common Seal (if any) in accordance with your Memorandum and Articles of Association or equivalent constitutive documents. If you are a corporate Applicant and your application is successful, a copy of your Memorandum and Articles of Association or equivalent constitutive documents must be lodged with our Companys Share Registrar and Share Transfer Agent. Our Company reserves the right to require you to produce documentary proof of identification for verification purposes. (a) (b) You must complete Sections A and B and sign page 1 of the Application Form. You are required to delete either paragraph 7(a) or 7(b) on page 1 of the Application Form. Where paragraph 7(a) is deleted, you must also complete Section C of the Application Form with particulars of the beneficial owner(s). If you fail to make the required declaration in paragraph 7(a) or 7(b), as the case may be, on page 1 of the Application Form, your application is liable to be rejected. A-7
3.
4.
5.
(c)

6. You (whether an individual or corporate Applicant, whether incorporated or unincorporated and wherever incorporated or constituted) will be required to declare whether you are a citizen or a permanent resident of Singapore or a corporation in which citizens or permanent residents of Singapore or any body corporate constituted under any statute of Singapore have an interest in the aggregate of more than 50 per cent. of the issued share capital of or interests in such corporations. If you are an approved nominee company, you are required to declare whether the beneficial owner of the New Shares is a citizen or permanent resident of Singapore or a corporation, whether incorporated or unincorporated and wherever incorporated or constituted, in which citizens or permanent residents of Singapore or any body corporate, whether incorporated or unincorporated and wherever incorporated or constituted under any statute of Singapore, have an interest in the aggregate of more than 50 per cent. of the issued share capital of or interests in such corporation. You may apply for New Shares using only cash. Each application must be accompanied by a cash remittance in Singapore currency for the full amount payable, in respect of the number of New Shares applied for, in the form of a BANKERS DRAFT or CASHIERS ORDER drawn on a bank in Singapore, made out in favour of KENCANA SHARE ISSUE ACCOUNT crossed A/C PAYEE ONLY with your name and address written clearly on the reverse side. APPLICATIONS NOT ACCOMPANIED BY ANY PAYMENT OR ACCOMPANIED BY ANY OTHER FORM OF PAYMENT WILL NOT BE ACCEPTED. REMITTANCES BEARING NOT TRANSFERABLE OR NON TRANSFERABLE CROSSINGS WILL BE REJECTED. No acknowledgment of receipt will be issued by our Company, the Issue Manager or the Joint Underwriters and Placement Agents for applications or application monies received. Monies paid in respect of unsuccessful applications are expected to be returned (without interest or any share of revenue or other benefit arising therefrom) to you within 24 hours of the balloting at your own risk. Where your application is rejected or accepted in part only, the full amount or the balance of the application monies, as the case may be, will be refunded (without interest or any share of revenue or other benefit arising therefrom) to you by ordinary post at your own risk within 14 Market Days after the close of the Application List, provided that the remittance accompanying such application which has been presented for payment or other processes has been honoured and the application monies have been received in the designated share issue account. Capitalised terms used in the Application Forms and defined in this Prospectus shall bear the meanings assigned to them in this Prospectus. By completing and delivering the Application Form, you agree that: (a) in consideration of our Company having distributed the Application Form to you and agreeing to close the Application List at 12.00 noon on 23 July 2008 or such other time or date as our Directors may, in consultation with the Issue Manager, decide and by completing and delivering this Application Form: (i) (ii) your application is irrevocable; and your remittance will be honoured on first presentation and that any monies returnable may be held pending clearance of your payment without interest or any share of revenue or other benefit arising therefrom;
7.
8.
9.
9.
10.
(b)
all applications, acceptances or contracts resulting therefrom under the Invitation shall be governed by and construed in accordance with the laws of Singapore and that you irrevocably submit to the non-exclusive jurisdiction of the Singapore courts; in respect of the New Shares for which your application has been received and not rejected, acceptance of your application shall be constituted by written notification by or on behalf of our Company and not otherwise, notwithstanding any remittance being presented for payment by or on behalf of our Company;
(c)
A-8

(d) you will not be entitled to exercise any remedy of rescission for misrepresentation at any time after acceptance of your application; reliance is placed solely on the information contained in this Prospectus and none of our Company, the Issue Manager, the Joint Underwriters and Placement Agents or any other person involved in the Invitation shall have any liability for any information not so contained; you consent to the disclosure of your name, NRIC/passport number, address, nationality, permanent resident status, CDP Securities Account number, and share application amount to our Share Registrar, SGX-ST, CDP, SCCS, our Company, the Issue Manager and the Joint Underwriters and Placement Agents; you irrevocably agree and undertake to subscribe for the number of New Shares applied for as stated in the Application Form or any smaller number of such New Shares that may be allotted to you in respect of your application. In the event that our Company decides to allot any smaller number of New Shares or not to allot any New Shares to you, you agree to accept such decision as final; and you irrevocably authorise CDP to complete and sign on your behalf as transferee or renouncee any instrument of transfer and/or other documents required for the issue or transfer of the New Shares that may be allotted to you.
(e)
(f)
(g)
(h)
Applications for Offer Shares 1. Your application for Offer Shares MUST be made using the WHITE Offer Shares Application Forms and WHITE official envelopes A and B. You must: (a) enclose the WHITE Offer Shares Application Form, duly completed and signed, together with your correct remittance in accordance with the terms and conditions of this Prospectus, in the WHITE official envelope A provided; in appropriate spaces on the WHITE official envelope A: (i) (ii) (iii) (iv) write your name and address; state the number of Offer Shares applied for; tick the relevant box to indicate the form of payment; and (where the application is despatched by ordinary post) affix adequate Singapore postage;
2.
(b)
(c) (d)
SEAL THE WHITE OFFICIAL ENVELOPE A; write, in the special box provided on the larger WHITE official envelope B addressed to DBS Bank Ltd, 6 Shenton Way, #36-01 DBS Building Tower One, Singapore 068809, the number of Offer Shares you have applied for; and (e) insert WHITE official envelope A into WHITE official envelope B, seal WHITE official envelope B, affix adequate Singapore postage on WHITE official envelope B (if despatching by ordinary post) and thereafter DESPATCH BY ORDINARY POST OR DELIVER BY HAND the documents at your own risk to DBS Bank Ltd, 6 Shenton Way, #36-01 DBS Building Tower One, Singapore 068809, so as to arrive by 12:00 noon on 23 July 2008 or such other time or date as our Directors may, in consultation with the Issue Manager, decide. Courier services, local urgent mail or registered post must NOT be used.
A-9

3. Applications that are illegible, incomplete or incorrectly completed or accompanied by improperly drawn remittances or which are not honoured upon their first presentation are liable to be rejected. ONLY ONE APPLICATION should be enclosed in each envelope. No acknowledgment of receipt will be issued for any application or remittance received.
4.
Applications for Placement Shares (other than Internet Placement Shares) 1. Your application for Placement Shares (other than Internet Placement Shares) must be made using the BLUE Placement Shares Application Forms or in any other form of application as may be deemed appropriate by the Issue Manager and the Joint Underwriters and Placement Agents. The completed and signed BLUE Placement Shares Application Form and your remittance, in accordance with the terms and conditions of this Prospectus, for the full amount payable in respect of the number of Placement Shares applied for with your name, CDP Securities Account number and address written clearly on the reverse side, must be enclosed and sealed in an envelope to be provided by you. You must affix adequate Singapore postage on the envelope (if dispatching by ordinary post) and thereafter the sealed envelope must be DESPATCHED BY ORDINARY POST OR DELIVERED BY HAND at your own risk to DBS Bank Ltd, 6 Shenton Way, #36-01 DBS Building Tower One, Singapore 068809, for the attention of Equity Capital Markets, to arrive by 12:00 noon on 23 July 2008 or such other time or date as our Directors may, in consultation with the Issue Manager, decide. Courier services, local urgent mail or registered post must NOT be used. No acknowledgment receipt will be issued for any application or remittance received. Applications that are illegible, incomplete or incorrectly completed or accompanied by improperly drawn remittances or which are not honoured upon their first presentation may be rejected. ONLY ONE APPLICATION should be enclosed in each envelope. No acknowledgment of receipt will be issued for any application or remittance received. Alternatively, you may remit your application monies by electronic transfer to the account of DBS Bank Ltd, Shenton Way Branch, Current Account Number 003-710359-4 in favour of KENCANA SHARE ISSUE ACCOUNT for the number of Placement Shares applied for by 12:00 noon on 23 July 2008. Applicants who remit their application monies via electronic transfer should send a copy of the telegraphic transfer advice slip to DBS Bank Ltd, 6 Shenton Way, #36-01 DBS Building Tower One, Singapore 068809, for the attention of Equity Capital Markets, to arrive by 12:00 noon on 23 July 2008, or such other time or date as our Directors may, in consultation with the Issue Manager, decide.
2.
3.
4.
5.
Applications for Reserved Shares 1. Your application for Reserved Shares must be made using the PINK Reserved Shares Application Forms. The completed and signed PINK Reserved Shares Application Form and your remittance, in accordance with the terms and conditions of this Prospectus, for the full amount payable in respect of the number of Placement Shares applied for with your name, CDP Securities Account number and address written clearly on the reverse side, must be enclosed and sealed in an envelope to be provided by you. You must affix adequate Singapore postage on the envelope (if despatching by ordinary post) and thereafter the sealed envelope must be DESPATCHED BY ORDINARY POST OR DELIVERED BY HAND at your own risk to our registered office at 3 Shenton Way #10-06, Shenton House, Singapore 068805, to arrive by 12:00 noon on 23 July 2008 or such other time or date as our Directors may, in consultation with the Issue Manager, decide. Courier services, local urgent mail or registered post must NOT be used. No acknowledgment receipt will be issued for any application or remittance received.
A-10

2. Applications that are illegible, incomplete or incorrectly completed or accompanied by improperly drawn remittances or which are not honoured upon their first presentation may be rejected. ONLY ONE APPLICATION should be enclosed in each envelope. No acknowledgment of receipt will be issued for any application or remittance received.
3.
ADDITIONAL TERMS AND CONDITIONS FOR ELECTRONIC APPLICATIONS The procedures for Electronic Applications are set out on the ATM screens (in the case of ATM Electronic Applications) and in the case of Internet Electronic Applications on the IB website screens of the relevant Participating Banks and the website screens of DBS Vickers (the Steps). Currently, DBS Bank and UOB Group are the only Participating Banks through which the Internet Electronic Applications may be made. For illustration purposes, the procedures for Electronic Applications for Offer Shares through ATMs and the IB website of DBS Bank are set out in the Steps for ATM Electronic Applications for Offer Shares through ATMs of DBS Bank (including POSB) and the Steps for Internet Electronic Applications for Offer Shares through the IB website of DBS Bank beginning on page A16 of this Prospectus. The procedures for Electronic Applications for Placement Shares through the website of DBS Vickers are set out in the Steps for Internet Electronic Applications for Placement Shares through the website of DBS Vickers on pages A19 and A20 of this Prospectus. Please read carefully the terms and conditions of this Prospectus, the Steps and the terms and conditions for Electronic Applications set out below carefully before making an Electronic Application. Any reference to you or the Applicant in these Additional Terms and Conditions for Electronic Applications and the Steps shall refer to you making an application for Offer Shares through an ATM or the IB website of a relevant Participating Bank, or an application for Placement Shares through the website of DBS Vickers. The steps set out the actions that you must take at ATMs or the IB website of DBS Bank or the website of DBS Vickers to complete an Electronic Application. The actions that you must take at the ATMs or the IB websites of the other Participating Banks are set out on the ATM screens or the IB website screens of the relevant Participating Banks. If you are making an ATM Electronic Application, you must have an existing bank account with and be an ATM cardholder of one of the Participating Banks before you can make an Electronic Application at the ATMs of the relevant Participating Banks. An ATM card issued by one Participating Bank cannot be used to apply for the New Shares at an ATM belonging to other Participating Banks. Upon the completion of your ATM Electronic Application transaction, you will receive an ATM transaction slip (Transaction Record), confirming the details of your ATM Electronic Application. The Transaction Record is for your retention and should not be submitted with any printed Application Form. You must ensure that you enter your own CDP Securities Account number when using the ATM card issued to you in your own name. If you fail to use your own ATM card or do not key in your own CDP Securities Account number, your application will be rejected. If you operate a joint bank account with any of the Participating Banks, you must ensure that you enter your own CDP Securities Account number when using the ATM card issued to you in your own name. Using your own CDP Securities Account number with an ATM card which is not issued to you in your own name will render your Electronic Application liable to be rejected. If you are making an Internet Electronic Application, you must have an existing bank account with and/or a User Identification (User ID) and a Personal Identification Number (PIN) given by the relevant participating Bank or DBS Vickers, in the case of you applying for Placement Shares through the website of DBS Vickers.
A-11

If you are making an Internet Electronic Application, you must ensure that the mailing address of your account selected for the application is in Singapore and you must declare that the application is being made in Singapore. In this connection, you will be asked to declare that you are in Singapore at the time when you make the application. Otherwise, your application is liable to be rejected. Upon completion of your Internet Electronic Application through the IB website of DBS Bank, there will be an on-screen confirmation (Confirmation Screen) of the application which can be printed by you for your record. This printed record of the Confirmation Screen is for your retention and should not be submitted with any printed Application Form. Your Electronic Application shall be made on the terms and subject to the conditions of this Prospectus, including but not limited to, the terms and conditions appearing below and those set out under the section entitled TERMS, CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE on pages A1 and A6 of this Prospectus, as well as the Memorandum and Articles of Association of our Company. 1. In connection with your Electronic Application for the Offer Shares or Internet Placement Shares in the case of you applying for Internet Placement Shares through the website of DBS Vickers, you are required to confirm statements to the following effect in the course of activating the Electronic Application: (a) that you have received a copy of this Prospectus (in the case of ATM Electronic Applications only) and have read, understood and agreed to all the terms and conditions of application for the Offer Shares or Placement Shares and this Prospectus prior to effecting the Electronic Application and agree to be bound by the same; that you consent to the disclosure of your name, NRIC/passport number, address, nationality, permanent resident status, CDP Securities Account number, and share application amount (the Relevant Particulars) from your account with the relevant Participating Bank or DBS Vickers, as the case may be, to our Share Registrar, SGX-ST, CDP, SCCS, our Company, the Issue Manager and the Joint Underwriters and Placement Agents (the Relevant Parties); and that this is your only application for the Offer Shares or Placement Shares (including Internet Placement Shares), as the case may be, and it is made in your name and at your own risk.
(b)
(c)
Your application will not be successfully completed and cannot be recorded as a completed transaction unless you press the Enter or OK or Confirm or Yes or any other relevant key in the ATM or click Confirm or OK or Submit or Continue or Yes or any other relevant button on the Internet screen. By doing so, you shall be treated as signifying your confirmation of each of the above three statements. In respect of statement 1(b) above, your confirmation, by pressing the Enter or OK or Confirm or Yes or any other relevant key or by clicking Confirm or OK or Submit or Continue or Yes or any other relevant button, shall signify and shall be treated as your written permission, given in accordance with the relevant laws of Singapore, including Section 47(2) of the Banking Act (Chapter 19) of Singapore, to the disclosure by that Participating Bank or DBS Vickers, as the case may be, of the Relevant Particulars of your account(s) with that Participating Bank or DBS Vickers to the Relevant Parties. 2. By making an Electronic Application you confirm that you are not applying for Offer Shares or Placement Shares as a nominee of any other person and that any Electronic Application that you make is the only application made by you as the beneficial owner. You shall make only one Electronic Application and shall not make any other application for Offer Shares whether at the ATMs of any Participating Bank or the IB websites of the relevant Participating Banks or on the Application Forms.
A-12

3. You must have sufficient funds in your bank account with your Participating Bank at the time you make your Electronic Application at the ATM or IB website of the relevant Participating Bank, failing which such Electronic Application will not be completed. Any Electronic Application made at the ATM or IB website of the relevant Participating Bank which does not conform strictly to the instructions set out in this Prospectus or on the screens of the ATM or IB website of the relevant Participating Bank through which your Electronic Application is being made shall be rejected. For Offer Shares, you may make an ATM Electronic Application at the ATM of any Participating Bank or an Internet Electronic Application at the IB website of the relevant Participating Bank for Offer Shares, using only cash by authorising such Participating Bank to deduct the full amount payable from your account with such Participating Bank. If you make an application to subscribe for Internet Placement Shares through the website of DBS Vickers, you must have sufficient funds in your nominated Automatic Payment account with an Automatic Payment Facility (direct debit/credit authorisation or GIRO) with DBS Vickers. Your application will be rejected if there are insufficient funds in your account for DBS Vickers to deduct the full amount payable from your account for your application. 4. You irrevocably agree and undertake to subscribe for and to accept the number of Offer Shares or Placement Shares, as the case may be, applied for as stated on the Transaction Record or the Confirmation Screen or any lesser number of such Offer Shares or Placement Shares that may be allotted to you in respect of your Electronic Application. In the event that our Company decides to allot any lesser number of such Offer Shares or Placement Shares or not to allot any Offer Shares or Placement Shares to you, you agree to accept such decision as final. If your Electronic Application is successful, your confirmation (by your action of pressing the Enter or OK or Confirm or Yes or any other relevant key on the ATM or clicking Confirm or OK or Submit or Continue or Yes or any other relevant button on the Internet screen) of the number of Offer Shares or Placement Shares applied for shall signify and shall be treated as your acceptance of the number of Offer Shares or Placement Shares that may be allotted to you and your agreement to be bound by the Memorandum and Articles of Association of our Company. You also irrevocably authorize CDP to complete and sign on your behalf as transferee or renouncee any instrument of transfer and/or other documents required for the issue or transfer of the New Shares that may be allotted to you. We will not keep any application in reserve. Where your Electronic Application is unsuccessful, the full amount of the application monies will be refunded (without interest or any share of revenue or other benefit arising therefrom) to you by being automatically credited to your account with your Participating Bank or if you have applied for the Internet Placement Shares through DBS Vickers, by ordinary post or such other means as DBS Vickers may agree with you, at your risk within 24 hours of the balloting provided that the remittance in respect of such application which has not been presented for payment or other processes has been honoured and the application monies have been received in the designated share issue account. Trading on a when issued basis, if applicable, is expected to commence after such refund has been made. Where your Electronic Application is rejected or accepted in part only, the full amount or the balance of the application monies, as the case may be, will be refunded (without interest or any share of revenue or other benefit arising therefrom) to you by being automatically credited to your account with your Participating Bank or if you have applied for the Internet Placement Shares through DBS Vickers, by ordinary post or such other means as DBS Vickers may agree with you, at your own risk, within 14 Market Days after the close of the Application List provided that the remittance in respect of such application which has been presented for payment or other processes has been honoured and the application monies have been received in the designated share issue account.
5.
A-13

Responsibility for timely refund of application monies from unsuccessful or partially successful Electronic Applications lies solely with the respective Participating Banks and with DBS Vickers (as the case may be). Therefore, you are strongly advised to consult your Participating Bank or DBS Vickers as to the status of your Electronic Application and/or the refund of any money to you from your unsuccessful or partially successful Electronic Application, to determine the exact number of Shares allotted to you before trading the Shares on the SGX-ST. None of the SGX-ST, the CDP, the SCCS, the Participating Banks, DBS Vickers, our Company, the Issue Manager or the Joint Underwriters and Placement Agents assumes any responsibility for any loss that may be incurred as a result of you having to cover any net sell positions or from buy-in procedures activated by the SGX-ST. If your Electronic Application is unsuccessful, no notification will be sent by the relevant Participating Bank or DBS Vickers. It is expected that successful applicants who applied for Internet Placement Shares through the website of DBS Vickers will be notified of the results of their applications through the website of DBS Vickers no later than the evening of the day immediately prior to the commencement of trading of the Shares on the SGX-ST. 6. Applicants who make ATM Electronic Applications for Offer Shares through the ATMs of the following banks may check the provisional results of their ATM Electronic Applications as follows:
Bank Telephone Other Channels Operating Hours Service expected from Evening of the balloting day
DBS Bank
1800-339 6666 (for POSB account holders) 1800-111 1111 (for DBS account holders) 1800-363 3333
Internet Banking www.dbs.com(1)
24 hours a day
OCBC
ATM/Internet Banking/ Phone Banking(2) ATM (Other Transactions IPO Enquiry) www.uobgroup.com(1),(3)
24 hours a day
Evening of the balloting day Evening of the balloting day
UOB Group
1800-222 2121
24 hours a day
Notes: (1) Applicants who have made Internet Electronic Applications through the IB websites of DBS Bank or UOB Group may check the results of their applications through the same channels listed in the table above in relation to ATM Electronic Applications made at the ATM of DBS Bank or UOB Group. Applicants who have made Electronic Applications through the ATMs of OCBC Bank may check the result of their applications through OCBC Personal Internet Banking, OCBC ATMs or OCBC Phone Banking services. Applicants who have made Electronic Application through the ATMs or the IB website of the UOB Group may check the results of their applications through UOB Personal Internet Banking, UOB ATMs or UOB Phone Banking services.
(2)
(3)
7.
Electronic Applications shall close at 12:00 noon on 23 July 2008 or such other time and date as our Directors may, in consultation with the Issue Manager, decide. All Internet Electronic Applications must be received by 12:00 noon on 23 July 2008. Subject to paragraph 9 below, an Internet Electronic Application is deemed to be received when it enters the designated information system of the relevant Participating Bank or DBS Vickers, as the case may be.
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8.
You are deemed to have irrevocably requested and authorised our Company to: (a) (b) (c) register the Offer Shares or Placement Shares, as the case may be, allotted to you in the name of CDP for deposit into your Securities Account; send the relevant Share certificate(s) to CDP; return or refund (without interest or any share of revenue earned or other benefit arising therefrom) the application monies, should your Electronic Application be unsuccessful, by automatically crediting your bank account with your Participating Bank or if you have applied for the Internet Placement Shares through DBS Vickers, by ordinary post or such other means as DBS Vickers may agree with you, at your risk, within 24 hours of the balloting PROVIDED THAT the remittance in respect of such application which has been presented for payment or such other processes has been honoured and application monies received in the designated share issue account; and return or refund (without interest or any share of revenue or other benefit arising therefrom) the balance of the application monies, should your Electronic Application be accepted in part only, by automatically crediting your bank account with your Participating Bank or if you have applied for the Internet Placement Shares through DBS Vickers, by ordinary post or such other means as DBS Vickers may agree with you, at your risk, within 14 Market Days after the close of the Application List PROVIDED THAT the remittance in respect of such application which has been presented for payment or such other processes has been honoured and application monies received in the designated share issue account
(d)
9.
You irrevocably agree and acknowledge that your Electronic Application is subject to risks of electrical, electronic, technical and computer-related faults and breakdown, fires, acts of God and other events beyond the control of the Participating Banks, DBS Vickers, our Company, the Issue Manager and the Joint Underwriters and Placement Agents, and if in any such event our Company, the Issue Manager, the Joint Underwriters and Placement Agents, DBS Vickers and/or the relevant Participating Bank and/or CDP do not receive your Electronic Application, or data relating to your Electronic Application or the tape or any other devices containing such data is lost, corrupted or not otherwise accessible, whether wholly or partially for whatever reason, you shall be deemed not to have made an Electronic Application and you shall have no claim whatsoever against our Company, the Issue Manager, the Joint Underwriters and Placement Agents, DBS Vickers and/or the relevant Participating Bank and/or CDP for Offer Shares or Placement Shares, as the case may be, applied for or for any compensation, loss or damage. We do not recognise the existence of a trust. Any Electronic Application by a trustee must be made in his own name and without qualification. Our Company will reject any application by any person acting as nominee (other than approved nominee companies). All your particulars in the records of your Participating Bank or DBS Vickers at the time you make your Electronic Application shall be deemed to be true and correct and your Participating Bank, DBS Vickers and any other Relevant Parties shall be entitled to rely on the accuracy thereof. If there has been any change in your particulars after making your Electronic Application, you shall promptly notify your Participating Bank or DBS Vickers (as the case may be). You should ensure that your personal particulars as recorded by both CDP and the relevant Participating Bank or DBS Vickers (as the case may be) are correct and identical, otherwise, your Electronic Application is liable to be rejected. You should promptly inform CDP of any change in address, failing which the notification letter on successful allotment will be sent to your address last registered with CDP.
10.
11.
12.
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13.
By making and completing an Electronic Application, you are deemed to have agreed that: (a) in consideration of our Company making available the Electronic Application facility, through the Participating Banks and DBS Vickers acting as agents of our Company, at the ATMs and the IB websites of the relevant Participating Banks and at the website of DBS Vickers: (i) (ii) your Electronic Application is irrevocable; and your Electronic Application, the acceptance by our Company and the contract resulting therefrom under the Invitation shall be governed by and construed in accordance with the laws of Singapore and you irrevocably submit to the non-exclusive jurisdiction of the Singapore courts;
(b)
none of our Company, the Issue Manager, the Joint Underwriters and Placement Agents, CDP, the Participating Banks or DBS Vickers shall be liable for any delays, failures or inaccuracies in the recording, storage or in the transmission or delivery of data relating to your Electronic Application due to breakdowns or failure of transmission, delivery or communication facilities or any risks referred to in paragraph 9 above or to any cause beyond their respective controls; in respect of the Offer Shares or the Placement Shares, as the case may be, for which your Electronic Application has been successfully completed and not rejected, acceptance of your Electronic Application shall be constituted by written notification by or on behalf of our Company and not otherwise, notwithstanding any payment received by or on behalf of our Company; you will not be entitled to exercise any remedy for rescission for misrepresentation at any time after acceptance of your application; and reliance is placed solely on information contained in this Prospectus and that none of our Company, the Issue Manager, the Joint Underwriters and Placement Agents or any other person involved in the Invitation shall have any liability for any information not so contained.
(c)
(d)
(e)
Steps for ATM Electronic Applications for Offer Shares through ATMs of DBS Bank (including POSB) Instructions for ATM Electronic Applications will appear on the ATM screens of the Participating Bank. For illustration purposes, the steps for making an ATM Electronic Application through a DBS Bank or POSB ATM are shown below. Certain words appearing on the screen are in abbreviated form (A/c, amt, appln, &, I/C, SGX and No. refer to Account, amount, application, and, NRIC, SGX-ST and Number respectively). Instructions for ATM Electronic Applications on the ATM screens of Participating Banks (other than DBS Bank (including POSB)), may differ slightly from those represented below. Steps 1. 2. 3. 4. 5. Insert your personal DBS Bank or POSB ATM card. Enter your Personal Identification Number. Select CASHCARD AND MORE SERVICES. Select ESA-IPO SHARE/INVESTMENTS. Select ELECTRONIC SECURITY APPLN (IPOS/BOND/ST-NOTES/SECURITIES).
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6.
Read and understand the following statements which will appear on the screen: (IN THE CASE OF SECURITIES OFFERING THAT IS SUBJECT TO A PROSPECTUS REGISTERED WITH THE MONETARY AUTHORITY OF SINGAPORE) THE OFFER OF SECURITIES (OR UNITS OF SECURITIES) WILL BE MADE IN, OR ACCOMPANIED BY, A COPY OF THE PROSPECTUS/DOCUMENT OR PROFILE STATEMENT (AND IF APPLICABLE, A COPY OF THE REPLACEMENT OR SUPPLEMENTARY PROSPECTUS/OFFER INFORMATION STATEMENT/DOCUMENT OR PROFILE STATEMENT) WHICH CAN BE OBTAINED FROM ANY DBS/POSB BRANCH IN SINGAPORE AND, WHERE APPLICABLE, THE VARIOUS PARTICIPATING BANKS DURING BANKING HOURS, SUBJECT TO AVAILABILITY. (IN THE CASE OF SECURITIES OFERING THAT IS SUBJECT TO A PROSPECTUS/DOCUMENT REGISTERD WITH THE MONETARY AUTHORITY OF SINGAPORE) ANYONE WISHING TO ACQUIRE THESE SECURITIES (OR UNITS OF SECURITIES) SHOULD READ THE PROSPECTUS/DOCUMENT OR PROFILE STATEMENT (AS SUPPLEMENTED OR REPLACED, IF APPLICABLE) BEFORE SUBMITTING HIS APPLICATION WHICH WILL NEED TO BE MADE IN THE MANNER SET OUT IN THE PROSPECTUS/DOCUMENT OR PROFILE STATEMENT (AS SUPPLEMENTED OR REPLACED, IF APPLICABLE). A COPY OF THE PROSPECTUS/DOCUMENT OR PROFILE STATEMENT, AND IF APPLICABLE, A COPY OF THE REPLACEMENT OR SUPPLEMENTARY PROSPECTUS/DOCUMENT OR PROFILE STATEMENT HAS BEEN LODGED WITH AND REGISTERED BY THE MONETARY AUTHORITY OF SINGAPORE WHO ASSUMES NO RESPONSIBILITY FOR ITS OR THEIR CONTENTS. Press the ENTER key to confirm that you have read and understood.
7. 8.
Select KENCANA to display details. Press the ENTER key to acknowledge: YOU HAVE READ, UNDERSTOOD AND AGREED TO ALL THE TERMS OF APPLICATION AND (WHERE APPLICABLE) THE PROSPECTUS, OFFER INFORMATION STATEMENT, DOCUMENT, PROFILE STATEMENT, REPLACEMENT OR SUPPLEMENTARY PROSPECTUS/OFFER INFORMATION STATEMENT/DOCUMENT OR PROFILE STATEMENT, NOTICE AND/OR CIRCULAR. YOU CONSENT TO DISCLOSE YOUR NAME, NRIC/PASSPORT NUMBER, ADDRESS, NATIONALITY, CDP SECURITIES A/C NO, CPF INVESTMENT A/C NO AND SECURITY APPLN AMOUNT FROM YOUR BANK A/C(S) TO SHARE REGISTRARS, SGX, SCCS, CDP, CPF ISSUER/VENDOR(S). FOR FIXED AND MAX PRICE SECURITIES APPLICATION, THIS IS YOUR ONLY APPLICATION AND IT IS MADE IN YOUR OWN NAME AND AT YOUR OWN RISK. THE MAXIMUM PRICE FOR EACH SECURITY IS PAYABLE IN FULL ON APPLICATION AND SUBJECT TO REFUND IF THE FINAL PRICE IS LOWER. FOR TENDER SECURITIES APPLICATION, THIS IS YOUR ONLY APPLICATION AT THE SELECTED TENDER PRICE AND IT IS MADE IN YOUR OWN NAME AND AT YOUR OWN RISK. YOU ARE NOT A US PERSON AS REFERRED TO IN (WHERE APPLICABLE) THE PROSPECTUS, DOCUMENT, PROFILE STATEMENT, REPLACEMENT OR SUPPLEMENTARY PROSPECTUS/DOCUMENT/PROFILE STATEMENT, NOTICE AND/OR CIRCULAR. A-17
THERE MAY BE A LIMIT ON THE MAXIMUM NUMBER OF SECURITIES THAT YOU CAN APPLY FOR. SUBJECT TO AVAILABILITY, YOU MAY BE ALLOCATED A SMALLER NUMBER OF SECURITIES THAN YOU APPLIED FOR OR (IN) THE CASE OF AN EARLIER CLOSURE UPON FULL SUBSCRIPTION YOUR APPLICATION MAY BE REJECTED IF ALL THE AVAILABLE SECURITIES HAVE BEEN FULLY ALLOCATED TO EARLIER APPLICANTS. 9. 10 11. Select your nationality. Select your payment method. Select the DBS Bank account (AutoSave/Current/Savings/Savings Plus) or the POSB account (current/savings) from which to debit your application monies. Enter the number of securities you wish to apply for using cash. Enter or confirm (if your CDP Securities Account number has already been stored in the DBS Banks records) your own 12-digit CDP Securities Account number. (Note: This step will be omitted automatically if your CDP Securities Account Number has already been stored in DBS Banks record.) Check the details of your securities application, your CDP Securities Account number, number of securities and application amount on the screen and press the ENTER key to confirm your application. Remove the Transaction Record for your reference and retention only.
12. 13.
14.
15.
Steps for Internet Electronic Applications for Offer Shares through the IB website of DBS Bank For illustrative purposes, the steps for making an Internet Electronic Application through the DBS Bank IB website is shown below. Certain words appearing on the screen are in abbreviated form (A/C, amt, &, I/C, SGX and No. refer to Account, amount, and, NRIC, SGX-ST and Number respectively). Steps 1. 2. 3. 4. 5. Click on to DBS Bank website (www.dbs.com) Login to Internet banking. Enter your User ID and PIN. Select Electronic Security Application (ESA). Click Yes to proceed and to warrant, inter alia, that you are currently in Singapore, you have observed and complied with all applicable laws and regulations and that your mailing address for DBS Internet Banking is in Singapore and that you are not a U.S. person (as such term is defined in Regulation S under the United Securities Act of 1933, amended). Select your country of residence and click I confirm. Click on KENCANA and click Submit. Click I Confirm to confirm, inter alia,: (a) You have read, understood and agreed to all terms of this application and the Prospectus/ Document or Profile Statement and if applicable, the Supplementary or Replacement Prospectus/Document or Profile Statement. A-18
6. 7. 8.
(b)
You consent to disclose your name, I/C or Passport number, address, nationality, CDP Securities Account number, CPF Investment Account number (if applicable) and securities application amount from your DBS/POSB Account(s) to registrars of securities, SGX, SCCS, CDP, CPF Board and issuer/vendor(s). You are not a US Person (as such term is defined in Regulation S under the United States Securities Act of 1933, as amended). You understand that the securities mentioned herein have not been and will not be registered under the U.S. Securities Act of 1933 as amended (the U.S. Securities Act) or the securities laws of any State of the United States and may not be offered or sold in the United States or to, or for the account or benefit of any U.S. person (as defined in Regulation S under the U.S. Securities Act) except pursuant to an exemption from or in a transaction subject to, the registration requirements of the U.S. Securities Act and applicable state security laws. There will be no public offer of the securities mentioned herein in the United States. Any failure to comply with this restriction may constitute a violation of the United States securities laws. This application is made in your own name and at your own risk. For FIXED/MAX price securities application, this is your only application. For TENDER price securities application, this is your only application at the selected tender price. FOR FOREIGN CURRENCY Securities, subject to the terms of the issue, please note the following: the application monies will be debited from your bank account in S$, based on the Banks prevailing board rates at time of application. Any refund monies will be credited in S$ based on the Banks prevailing board rates at the time of refund. The different prevailing board rates at the time of application and the time of refund of application monies may result in either a foreign exchange profit or loss or application monies may be debited and refunds credited in S$ at the same exchange rate. FOR 1ST-COME-1ST-SERVE securities, the number of securities applied for may be reduced, subject to availability at the point of application.
(c)
(d)
(e) (f)
(g)
9. 10.
Fill in details for share application and click Submit. Check the details of your securities application, your NRIC or passport number and click OK to confirm your application. Print Confirmation Screen (optional) for your reference & retention only.
11.
Steps for Internet Electronic Applications for Placement Shares through the website of DBS Vickers For illustrative purposes, the steps for making an application through the website of DBS Vickers is shown below: Steps 1. 2. 3. 4. Access the website at www.dbsvonline.com. Login with user ID and password. Click on IPO Centre hyperlink to go to the IPO Section. Click on the IPO issue hyperlink.
A-19
5.
Click Yes to represent and warrant that, inter alia, that you are in Singapore, you have observed and complied with all applicable laws and regulations, you have a mailing address in Singapore, you have read, understood and agreed to the APPLICATION TERMS AND CONDITIONS and the GENERAL TERMS AND DISCLAIMERS and you are not a U.S. Person (as such term is defined in Regulation S under the United States Securities Act of 1933, as amended). Confirm the IPO applying for and its details by clicking on the Next button. Click Yes, I have read the above terms and conditions and wish to subscribe and click Submit to confirm, inter alia: (a) You have read, and agreed to the terms and conditions set out in the Prospectus/Document or Profile Statement including the notes and instructions for the completion of this Application Form and that this application has been made in accordance with the Prospectus/Document or Profile Statement and such notes and instructions. You have read and understood the disclaimers. You have read, understood and agreed to the APPLICATION TERMS AND CONDITIONS and the GENERAL TERMS AND DISCLAIMERS. You consent to the disclosure of your name, NRIC or passport number, address, nationality and permanent resident status, CDP Securities Account number, CPF Investment Account number (as applicable) and share application amount from your account with DBS Vickers to the Share Registrar, SCCS, SGX-ST, CDP, CPF (if applicable), Issuer and the Issue Manager. This application is your only application for the Shares and it is made in your own name and at your own risk. This application is made in Singapore. You understand that these are not deposits or other obligations of or guaranteed or insured by DBS Vickers and are subject to investment risks, including the possible loss of the principal amount invested. You declare that (a) you are not under 21 years of age, (b) you are not a corporation, sole proprietorship, partnership, or any other business entity, (c) you are not an undisclosed bankrupt, (d) you are in Singapore, (e) you have a mailing address in Singapore and (f) you are not a US Person (within the meaning of Regulation S under the United States Securities Act of 1933, as amended).
6. 7.
(b) (c)
(d)
(e)
(f) (g)
(h)
8. 9. 10. 11. 12.
Fill in amount of share applied for and preferred payment mode, then click Submit. Check and verify details of your share application and your personal particulars on the screen. Enter your password and click Submit to continue. Click on Application Status to check your IPO application details. Print page for your reference and retention only.
A-20
APPENDIX B TAXATION
SINGAPORE TAXATION The following discussion describes the material Singapore income tax, capital gains tax, stamp duty and Goods and Services Tax (GST) consequences of the subscription, ownership and disposal of our Shares. Income Tax General Income accruing in or derived from Singapore or received or deemed received in Singapore are subject to tax in Singapore subject to certain exceptions. Foreign-sourced income in the form of dividends, branch profit and service income remitted or deemed remitted to Singapore by Singapore tax resident companies on or after 1 June 2003 are tax exempt if the income has been subjected to tax in the foreign jurisdiction and the headline tax rate of the foreign jurisdiction is at least 15%. All foreign-sourced income received by individuals in Singapore from 1 January 2004 are exempt from tax, except those received through a partnership in Singapore. Certain Singapore-sourced investment income derived by individuals on or after 1 January 2004 are also exempt from income tax. A corporate entity is regarded as a tax resident in Singapore if its business is controlled and managed in Singapore (for example, if the board of directors meets and our company conducts its business in Singapore). An individual is regarded as a tax resident in Singapore if the individual is physically present in Singapore or exercises an employment in Singapore (other than as a director of a company) for 183 days or more in a calendar year, or if the individual resides in Singapore. The corporate tax rate in Singapore for year of assessment 2008 (i.e. for income relating to companies financial year ending in 2007) is 18%. The effective tax rate is lower due to the following partial tax exemption on companies first $300,000 income chargeable to tax at 18% (excluding Singapore franked dividend): a) First 3 years of assessment of tax resident Singapore incorporated companies with no more than 20 individual shareholders(1) b) 100% of first $100,000 chargeable income 50% of next $200,000 chargeable income
All other cases 75% of first $10,000 50% of next $290,000
Personal income tax rates for a tax resident individual vary according to the individuals circumstances, but is subject to a maximum rate of 20% for the year of assessment 2008 (i.e. for income relating to the calendar year 2007).
Note: (1) With effect from year of assessment 2009, tax resident Singapore incorporated companies with no more than 20 shareholders of which at least one is an individual holding at least 10% of total number of issued ordinary shares throughout the basis period relating to the YA of claim will also qualify for this tax exemption
B-1
APPENDIX B TAXATION
Dividend Distributions Singapore introduced the one-tier corporate tax system on 1 January 2003. The five-year transitional period ceased on 31 December 2007, and by 1 January 2008, all companies have moved to the one-tier corporate system. Under the one-tier corporate tax system, the tax payable on normal chargeable income by Singapore companies, whether tax resident in Singapore or not, would constitute a final tax. Dividends payable by companies on the one-tier corporate tax system would be tax exempt in the hands of its shareholders. Such dividends are referred to as tax exempt (one-tier) dividends. There is no withholding tax on dividends paid to non-Singapore tax resident shareholders. Shareholders are advised to consult their own tax advisors in respect of tax laws of their respective countries of residence and the applicability of any double taxation agreement that their country of residence may have with Singapore. Gains on Disposal of our Shares Singapore does not impose tax on capital gains. However, there are no specific laws or regulations which deal with the characterisation of capital gains, hence, gains may be construed to be of an income nature and subject to tax especially if they arise from activities which the Inland Revenue Authority of Singapore (IRAS) regards as the carrying on of a trade in Singapore. Any profits from the disposal of our Shares are not taxable in Singapore unless the seller is regarded as having derived these gains of an income nature, in which case, the disposal profits would be taxable. Stamp Duty There is no stamp duty payable on the subscription of our Shares. In the event that a register of Shares is kept in Singapore and where an instrument of transfer is executed in respect of Shares registered in such register, stamp duty is payable on such instrument of transfer at the rate of S$2.00 for every S$1,000 market value of the Shares registered in Singapore. The subscriber is liable for stamp duty, unless there is an agreement to the contrary. No stamp duty is payable if no instrument of transfer is executed or the instrument of transfer is executed outside Singapore. However, stamp duty is payable if the instrument of transfer which is executed outside Singapore is received in Singapore. The above stamp duty is not applicable to electronic transfers of our Shares through the CDP. GST The sale of shares to Singapore investors or through SGX-ST is exempt from GST. However, this exemption does not apply to related share transaction costs such as brokerage commissions and clearing fees. Brokerage commissions charged by a GST registered broker and clearing fees arising from shares traded through SGX-ST will be subject to 7.0% GST in respect of transactions undertaken by Singapore investors and is subject to 0% GST in respect of transactions undertaken by overseas investors. TAXATION IN INDONESIA On July 17, 2007 the Indonesian Parliament had approved the latest amendment of Tax Law Number 28/2007 on General Provision and Tax Procedures which had became effective on January 1, 2008. At present, the Indonesian parliament and the Directorate of General Taxation are planning to amend the current Tax Law on Income Tax and Value Added Tax. However, as at the Latest Practicable Date, the draft of amendment has not been approved by the Indonesian parliament. Our discussion below is based on the current Tax Law Number 17 /2000 on Income Tax and Tax Law Number 18/2000 on Value Added Tax. Any changes based on the draft of Tax Law on Income Taxes that are most likely to be implemented are noted below.
B-2
APPENDIX B TAXATION
The following discussion is limited to a general description of certain taxation in Indonesia applicable to the members of the Target Group in Indonesia. Corporate tax (a) Tax residency A corporation is classified as resident or non-resident for tax purposes under Indonesian law according to the country of incorporation of the corporation. In Indonesia, resident corporations are taxed on their worldwide income; however, tax credits are allowed for income that is taxed outside the country. Non-residents are taxed only on income derived from Indonesian sources, subject to any relief available under double taxation agreements. However, a non-resident entity with a permanent establishment in Indonesia (PE) (such as a branch office) is taxed on (i) the PEs income from its business activities; (ii) the income office arising from business activities, or sales of goods and services in Indonesia of the same type as those sold by the PE in Indonesia; and (iii) all other income, either received or accrued by the head office such as dividends, interest, royalties, rent and other income connected with the use of property, fees for services, etc., provided that the property or activities producing the income is effectively connected with the PE in Indonesia. In Indonesia, a PE is generally defined as an operation in which a non-resident establishes a fixed place of business in Indonesia. This would include a management location, a branch office and an office building. A PE may also be established as a result of the non-resident entitys employees providing services in Indonesia for more than 60 days in any 12-month period. Under the double tax agreement between Indonesia and Singapore, the time test to qualify as PE is 90 days in any 12-month period. (b) Income subject to tax Taxable income is defined as any increase in economic prosperity received or accrued by a taxpayer, whether originating from within or outside Indonesia that may be used for consumption or to increase the recipients wealth in whatever name and form. It includes any remuneration in connection with work and services, business profits (for this purpose, there is no distinction between operating and capital income), dividends, interest, rent, royalties and other income related to the use of property. Dividend withholding tax must be deducted by a corporation declaring a dividend. Such dividend withholding tax has to be paid by the corporation to the State Treasury not later than the 10th of the month following the declaration of the dividend by the shareholders of the corporation or in the case of a public company, the 10th of the month following the record date of the dividend at the shareholders meeting. The applicable tax rate for dividends paid to resident taxpayers is 15%. However dividends received from Indonesian corporations by limited liability corporations incorporated in Indonesia, co-operatives and state or region-owned entities are exempt from tax if: (i) (ii) (iii) the dividends are paid out of retained earnings; the shareholder holds at least 25% of the corporationss paid-up capital; and the shareholder has other active businesses aside from the share ownership.
In the draft of amendment of Income Tax Law, (iii) above is proposed to be eliminated. The applicable tax rate for non-resident shareholders is 20% (or the relevant tax rate applicable under any tax treaty which may be in force between Indonesia and the relevant jurisdiction). In order to apply the treaty tax rate, the dividend recipient should provide its original Certificate of Residence to the corporation which is paying the dividend.
B-3
APPENDIX B TAXATION
(c) Corporate tax rates In accordance with Tax Law Number 17/2000, the corporate tax rates are as follows:
Amount of taxable income for the tax year Up to Rp50,000,000 Between Rp50,000,000 to Rp100,000,000 Above Rp100,000,000 Tax rate (%) 10 15 30
In the draft of amendment of Income Tax Law, the corporate tax rates are proposed to be reduced and changed to a single rate of 28 % for fiscal year 2009 and 25% for fiscal year 2010. Tax Incentives Based on Government Regulation No. 1/2007, investors of certain business sector and / or area will be granted income tax incentives as follows: Taxable income reduction as much as 30 % of the realized investment spread in 6 years (5% for each year). Accelerated depreciation and amortization. A 10 % income tax on dividends, possibly lower if stipulated in the provisions of a particular tax treaty. A loss carried forward facility for a period of more than 5 years, at a maximum of 10 years. Withholding tax Indonesia has two types of withholding tax, namely, prepayment tax and final tax. Expenses incurred in deriving income subject to final tax are not deductible. Payments made to resident taxpayers and permanent establishments by resident corporate taxpayers, government bodies, activity organizers, permanent establishments, representative offices and certain appointed individuals are subject to withholding tax at the rates specified in the following table:
Tax rate (%) 10 Transaction Land and building rental payments to individuals, companies and permanent establishments (final tax) Interest on time or saving deposits and Bank Indonesia Certificates other than that payable to banks operating in Indonesia and Government-approved pension funds (final tax) Interest on bonds sold on Indonesian stock exchanges other than that payable to banks operating in Indonesia and Government-approved pension funds, and mutual fund companies registered with the Capital Market Supervisory Board (BAPEPAM) for 5 years from their establishment (final tax) Transaction Rental and other payments for the use of property other than land and buildings Compensation related to management services, and technical services Compensation related to professional services, including legal and tax services Dividends payable to individuals and companies Interest, including premiums, discounts and guarantee fees Royalties
20
20
Tax rate (%) 3 4,5 4,5 15 15 15
B-4
APPENDIX B TAXATION
In the draft of amendment of Income Tax Law, the withholding tax rate on dividend paid to individuals is proposed to be imposed as final income tax. The draft of amendment of Income Tax Law also proposed to charge a higher tax rate (20% - 100%) on the existing withholding tax rate for unregistered Indonesian Taxpayers (taxpayers with no Indonesian Tax Identification Number). On the other hand, the following payments made by a government body, resident taxpayer, activity organizer, permanent establishment and representative office to a non-resident taxpayer are subject to withholding tax at 20% (or applicable reduced treaty rate) of the gross amount: Dividends. Interests including premiums, discounts, guarantee fees and interest rate swap premiums. Royalties, rent and other income with respect to the use of property. Compensation for technical, management and other services. Prizes and awards. Pensions and any other periodic payments. After-tax profits of a branch or permanent establishments. Insurance premiums (withholding on estimated net income). Income derived from the disposal of assets (withholding on estimated net income). Individuals and organizations resident in Indonesia that derive income from the following business lines are subject to withholding tax at the rates listed below:
For small businesses (final tax) Construction Services Planning Construction services Supervisory Construction services 2% 4% 4% Others (Individuals and other businesses) 2% 4% 4%
As at the Latest Practicable Date, the businesses of our various Group Companies in Indonesia do not include the above business lines. In order to satisfy the definition of small business, one will have to meet certain income requirements and obtain a certificate issued by the authorized government agency. Value added tax (VAT) and Sales Tax on luxury goods (a) General on VAT VAT is imposed on most goods and services at a rate of 10%. Government regulations can adjust the rate to as low as 5% and as high as 15%. The tax is generally collected by VAT-able firms (entities which deliver taxable goods or services). These firms are required to submit monthly VAT returns. Certain goods and services, however, are exempt from VAT, and as at Government Regulation Number 144/2000 include, for example: Food and beverages served at a hotel, restaurant, food stall or like premises Healthcare services
B-5
APPENDIX B TAXATION
Banking, insurance and financial leasing Education services Public transportation services Manpower services Hotels Hotels and food and beverages served at hotels, restaurants, food stalls are subject to 10% development tax. Aside from the above, primary production companies and small businesses (corporations or individuals) with annual sales of less than Rp600,000,000 for goods and services have the option to be exempted from imposing VAT. Exported goods are subject to 0% of VAT. Exporters can claim a refund of the input tax (VAT incurred in producing goods for export). The local purchaser of imported goods and services, including intangible goods, is responsible for all payments of VAT on goods and services and customs duty on goods. VAT and customs duty are collected at the port of entry for imported goods. A self-assessed VAT payment mechanism is applied in connection with the following: (i) the utilization of intangible VAT-able goods obtained from outside the Indonesian customs area and utilized within the Indonesian customs area; and the utilization of VAT-able services obtained from outside the Indonesian customs area and utilized within the Indonesian customs area.
(ii)
(b)
VAT relief Under Government Regulation Number 12/2001 as most recently amended with Government Regulation Number 31/2007, the Indonesian Government provides VAT relief in the form of VAT exemption on importation or acquisition of certain strategic goods, i.e., capital goods used for producing VAT-able goods and agriculture products such as palm oil FFB.
(c)
Sales Tax on luxury goods Government Regulation No. 145/2000 as most recently amended with Government Regulation No. 12/2006 details various goods subject to Sales Tax at rates ranging from 10% to 75%. In addition, the rate applicable to many types of goods has been increased. The maximum rate of Sales Tax has increased to 75%. Examples of goods subject to this maximum rate are: Sedans/ station wagons/ vans with spark or compression ignition internal combustion reciprocating piston engines exceeding 3,000 cc with seating capacity of less than ten persons Certain types of liquor and wine Indonesia has no rules for insubstantial (minor) imports of goods and services. VAT and customs duty will be imposed on all goods irrespective of their value. Likewise VAT will be imposed on the importation of services irrespective value. No changes are foreseen in this area despite the fact that the availability of e-commerce transactions will lead to an increase in low value cross-border trade.
B-6
APPENDIX B TAXATION
Indirect tax on land and buildings Tax is imposed on individuals, companies or organizations that have certain rights to or obtain benefits from land, or possess, control or obtain benefits from ownership of land and buildings. The tax is based on the sales value of the land and buildings as determined by the Ministry of Finance. Land value is reassessed every three years in most areas and every year in rapidly developing areas. The current effective tax rate on land and buildings is 0.1% of the sales value. One exception is individual housing worth more than Rp1,000,000,000, which incurs a rate of 0.2%. Buildings with assessed sales value of not more than Rp12,000,000 are tax-exempt. Tax treaty between Indonesia and Singapore Indonesia has concluded tax treaties with certain countries, including Singapore. Under the IndonesiaSingapore tax treaty, the rates of withholding tax applicable to payments to recipients in Singapore are as follows:
Withholding tax rate (%) Dividends Portfolio Singapore
Note: (1) The applicable withholding tax rate is 0% of interest payments if such interest payments were made in respect of bonds (or other similar instruments) issued by the Indonesian Government.
Substantial holdings 10
Interest 10/0*
Royalties 15
Branch Profit tax 15
15
B-7
APPENDIX C INDONESIAN REGULATORY OVERVIEW

INDONESIAN REGULATORY OVERVIEW Indonesian laws as well as regional laws significantly affect the ownership of our Groups land and operation of our Groups plantations. In this section, we discuss the regulatory framework of the plantation and environmental sectors, particularly the provisions that significantly affect our Groups palm oil plantation and electricity business activities. Plantation
Introduction
Law No. 18/2004 has been enacted by the Indonesian legislature in order to serve as a foundation for the development of plantations in Indonesia. As the implementation regulation of Law No. 18/2004, Regulation No. 26/2007 was issued, which contains the regulations for the implementation of Plantation Law. The Plantation Law and Regulation No. 26/2007 are the two main regulations that govern plantation business activities in Indonesia. The Plantation Law defines plantations as activity designed to grow specific plants on plots of lands or other media in the appropriate ecosystem, and to process and market the goods and services related to those plant products, with assistance from science and technology, capital and management, for the purpose of promoting wealth for plantation business players and the public. Plantation business covers all businesses that produce plantation goods and/or services.
Plantation Businesses
The Plantation Law provides that a plantation business can be conducted in Indonesia either by a farmer (pekebun) (any Indonesian citizen that operates a plantation business that does not reach a specific scale) or a plantation company (any Indonesian citizens or legal entity established under Indonesian laws and domiciled in Indonesia that operates plantation businesses on a specific scale). A foreign legal entity or a foreign individual may enter into the plantation business in Indonesia by establishing an Indonesian joint venture company. The maximum foreign ownership in that joint venture company is 95%.
Licensing
There are three types of plantation business license: Plantation Business License (Ijin Usaha Perkebunan or IUP), which is granted to plantation companies that own a plant cultivation business with an area of 25 hectares or more and own a plantation product processing unit with the same or greater capacity than the minimum processing capacity stipulated in Regulation No. 26/2007. Particularly for crude palm oil processing units, the minimum processing capacity is 5 MT of FFB per hour; Plantation Business License for Cultivation (Ijin Usaha Perkebunan untuk Budidaya or IUP-B), which is granted to plantation companies that own a plant cultivation business with an area of 25 hectares or more up to the limit stipulated in Regulation No. 26/2007 and does not own plantation product processing units with capacity exceeding the minimum processing capacity stipulated in Regulation No. 26/2007. Particularly for crude palm oil processing units, the minimum processing capacity is 5 MT of FFB per hour; and Plantation Business License for Processing (Ijin Usaha Perkebunan untuk Pengolahan or IUP-P), which is granted to plantation companies that own a plantation product processing unit with the same or greater capacity than the minimum processing capacity stipulated in Regulation No. 26/2007. Particularly for crude palm oil processing units, the minimum processing capacity is 5 MT of FFB per hour
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The IUP, IUP-B and IUP-P are issued by the Head of Regency or Mayor, if the plantation areas are located in a regency or city, respectively. These licenses are issued by the Governor, if the plantation areas are located within more than one regency or city (acknowledging the recommendation from the Head of Province or Mayor in relation to the spatial plan of the regency or city, respectively). According to Regulation No. 26/2007, any plantation company that has obtained IUP or IUP-P and wishes to expand its production capacity must obtain prior approval from the Governor/Regent/Mayor. This approval is compulsory if the increase is more than 30% of the approved production capacity. The application for approval must be submitted to the relevant authorities by plantation companies that have obtained IUP or IUP-P, together with a report in physical progress, and report of the financial situation of the plantation company.
Sanction
Violations to certain provisions of Regulation No. 26/2007 may be subject to initial sanction of warning letters. Failing to comply with the requirements under the warning letters may result in the revocation of IUP, IUP-B or IUP-P, and may also lead to the revocation of HGU by the relevant authorities, as recommended by the Minister of Agriculture. Any plantation companies which will conduct a land clearing activity must clear the land without burning and to manage the natural resources sustainably. Violations to this provision may result in the revocation of IUP, IUP-B, or IUP-P and may also lead to the revocation of HGU by the relevant authorities, as recommended by the Minister of Agriculture.
Obligation to Provide Plantation Area to the Nearby Communities or known as Plasma Programme
The holder of IUP or IUP-B is required to construct a plantation area for local communities near its plantation area with a minimum area of 20% of the total plantation area operated by the holder of IUP or IUP-B. This can be realized through the implementation of credit, grant, and profit sharing scheme. In any event, any plantation company must carry out a mutual partnership program. The mutual partnership programme or locally known as Plasma Programme must be formulated in a Cooperation Agreement which shall be acknowledged by the Regent/Mayor. The purpose of Plasma Programme is to ensure the supply of raw materials, normal market price, and implementation of increase in added value for local villagers, with the aim of empowering them. The Plasma Programme is carried out between a plantation company and villagers, employees and local communities by, among others, supplying or investing in production infrastructure, production cooperation, processing, marketing, transportation, operational cooperation and share ownership. Our Group has implemented the Plasma Programme using plantation business cooperatives scheme (Kredit Koperasi Primer Anggota or KKPA), cooperation in local community palm oil plantation scheme (Kebun Kelapa Sawit Rakyat or KKSR), and independent plasma scheme (Plasma Mandiri). Under the KKPA scheme, our Group will develop the land and plant and maintain the palm oil trees to maturity pursuant to bank financing. The financing is guaranteed by our Group. Upon maturity of the palm oil trees, the land will be maintained and managed by the villager or in the future by our Group. The harvested FFB will then be sold to our Group. The loan facilities will be repaid by the villager from a portion of the FFB sale price. Under this scheme, our Group will obtain a power of attorney to manage the account of the villager into which all monies from the sale of FFB will be deposited. This power of attorney allows our Group to withdraw funds from such account to pay for all the villagers operating costs and expenses. The KKSR scheme is a scheme under which our Group will co-operate with the regional authorities to provide seedlings and fertiliser to the villager respectively. The land belongs to the villager. Post harvest, the FFB will be sold to our Group and part of the sale proceeds will be paid to our Group and the regional authorities as payment for the seedlings and fertiliser respectively.
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Plasma Mandiri is a scheme whereby our Group will provide the seedlings to the villager, and the villager will plant and maintain the plantation. The land belongs to the villager. Post harvest, the FFB will be sold to our Group and part of the sale proceeds will be paid to our Group as payment for the seedlings provided. There is no Governmental involvement under this scheme. Maximum Land Area for Palm Oil Plantation
Previously, the ownership of land area for Palm Oil Plantation by a group of companies is limited to a maximum area of 20,000 hectares in one province and 100,000 hectares throughout Indonesia. However, this limitation is no longer applicable since based on Regulation No. 26/2007 each company is allowed to have a plantation area for palm oil plantation of maximum 100,000 hectares thoughout Indonesia, regardless of whether the company is in one group of companies with other companies which carry out the same business.
Seed Nurseries
Seed nurseries are regulated under Government Regulation No. 44 of 1995 (GR No. 44/1995). Under GR No. 44/1995, a seed nursery is defined as anything that relates to the procurement, cultivation and distribution of plant seeds. A plant seed is a plant or a part of a plant that is used for reproducing and breeding plants. There are many types of plant seeds, one of which is called Benih-bina. Benih-bina is a seed from a prime variety of plants (varietas unggul), that may be released, produced and distributed under the supervision of the Government. The Government requires individuals or legal entities to obtain a license from the Minister of Agriculture to produce Benih-bina and the type of license issued depends upon the scale of the individual or legal entities business. The issuance of a license to produce Benih-bina is stipulated under the Minister for Agriculture Regulation No. 39/Permentan/OT.140/8/2006 on Production, Certification and Dissemination of Benih-bina (PMP No. 39/2006). PMP No. 39/2006 states that the production of Benih-bina can be conducted by individuals, legal entities or government institutions (Permitted Parties). However, PMP No. 39/2006 does not clearly set out the permitted amount of foreign investment in Indonesian legal entities that may conduct Benih-bina production business activities. However, under the New Investment Law, foreign investors may own a maximum of 95% of Benih-bina entities. To produce the Benih-bina, the Permitted Parties must have sufficient processing facilities, appropriate support facilities for the seed type, and human resources with relevant knowledge in the seed nursery sector. The Permitted Parties only need to register their activities with the relevant government institution if they do not fulfil the requirements for Benih-bina licensing. The requirements are as follows: employing at least 10 permanent employees; having assets, excluding land and buildings, the value of which at least Rp.500,000,000; and obtained revenue from sales of Benih-bina at least Rp.5,000,000,000 per year. A registration certificate or the license for Benih-bina production is issued by the Head of Regency or Mayor through the relevant bureau for the seed nursery. Permitted Parties are also obliged to obtain a certificate with respect to the quality of the Benih-bina, which can be in the form of certification covering: plant supervision and laboratory testing; quality management system; and the particular seed or its product. If a Permitted Party violates the terms of the Benih-bina production license under PMP No. 39/2006, its license can be revoked.
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Environmental Management In 1997, the Government introduced Law No. 23 of 1997 on Environmental Management (the Environmental Law) to uphold environmental protection in Indonesia and to create sustainable development with regard to environmental issues. Environmental protection in Indonesia is also governed by various laws, regulations and decrees including Government Regulation No. 27 of 1999 on Environmental Impact Analysis (AMDAL) (GR No. 27/1999) and the Regulation of the State Minister for the Environment No. 11 of 2006 on Businesses and/or Action Plans Which Must Be Completed With AMDAL (Regulation No. 11/2006).
Environmental Impact Analysis (AMDAL) and Environmental Management/Monitoring Effort (UKL/UPL)

Any activity having a major or significant impact on the environment must be analyzed to determine the environmental impact of the development. The process is known as an AMDAL, which consists of an RKL Environmental Management Plan (RKL) and an Environmental Monitoring Plan (RPL). GR No. 27/1999 stipulates general provisions for those activities which require an AMDAL, and the mechanism for preparing, evaluating and approving an AMDAL. The State Minister for the Environment decides which development activities require a full AMDAL, based on the following business activities that, among others: (i) (ii) (iii) could change the type of field and landscape; exploit natural resources which are renewable or non-renewable; potentially could result in waste, pollution and environmental damage, including decrease of natural resources in its utilization; could adversely affect the natural environment, manmade environment, and social and cultural environment; could adversely affect the sustainability of natural resources conservation zone, and/or the natural preservation; and introduce new types of plantation, animal, and microorganism.
(iv)
(v)
(vi)
Those activities that do not require an AMDAL are required to undertake an Environmental Management Effort (UKL) and an Environmental Monitoring Effort (UPL). In accordance with Regulation No. 11/2006, any plantation areas (not including food or horticulture plantations) with an aggregate land of 3,000 hectares or more, outside forestry plantation, are obliged to obtain an AMDAL. AMDAL or UKL/UPL is required to obtain the IUP, IUP-B or IUP-P and must be implemented by the plantation companies. Failure by the holder of IUP, IUP-B or IUP-P to implement the AMDAL or UKL/UPL may may results in the revocation of IUP, IUP-B, or IUP-P and may also leads to the revocation of HGU by the relevant authorities, as recommended by the Minister of Agriculture.
Water Quality Management and Water Pollution Control

The Government has addressed water quality and water pollution by issuing Government Regulation No. 82 of 2001 on Water Quality Management and Pollution Control. Under this regulation, any business activities which will use waste water for application to the soil are obliged to obtain a permit from the Head of Regency or Mayor. The permit will be based on the result of AMDAL or UKL and UPL assessment. Any company who disposes of waste water to water or water sources has an obligation to prevent and manage water pollution by way of cleaning up the waste before it is discharged to the water or water sources.
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Research Technical Guidelines for Usage of Waste Water of Palm Oil Industry on the Soil of Oil Palm Plantation Area and Guidelines on the Terms and Procedures of Licensing of the Usage of Oil Palm Industry Waste Water
Every activity that intends to use or utilize waste water on the soil of a plantation area must obtain permit from the Head of Regency or Mayor. The application to obtain such permit must attach the result of the assessment on AMDAL or UKL and UPL. The assessment must cover at least: (i) (ii) (iii) The impact towards breeding of fisheries, animals, and farms; The impact on the ground water and soil quality; and The impact towards public health.
The Head of Regency or Mayor will issue the permit at the latest 90 working days after the application is received.
Guidelines on the Terms and Procedures for Licensing and Research Guidelines of Waste Water Disposal to Water or Water Sources
In 2003, the State Minister for the Environment issued Decree No. 111 of 2003 on Guidelines on the Terms and Procedures for Licensing and Research Guidelines of Waste Water Disposal to Water or Water Sources. The decree requires any business activity which will dispose waste water to water or water sources is required to obtain prior approval from the Head of Regency/Mayor. Under the above decree, The Head of Regency or Mayor is not permitted to issue the waste water disposal permit to any business which may violate the water quality standard and cause water pollution. PROPER PROPER - Program Penilaian Peringkat Kinerja Perusahaan dalam Pengelolaan Lingkungan Hidup (Rating on Companys Performance in Environmental Management Program) is a programme initiated by the State Minister for the Environment to encourage companies to manage environmental control in accordance with the prevailing laws and regulations. The implementation of PROPER is also to promote transparency and to invite community involvement in the management of environmental control in Indonesia. PROPER is regulated under the Decree of the State Minister for the Environment No. 127 of 2002 (Decree No. 127/2002). Under Decree No. 127/2002, PROPER rates companies within five categories: gold, for companies which have succeeded in managing the environmental controls and/or have implemented environmental management with outstanding results; green, for companies which have succeeded in managing environmental controls and/or have implemented environmental management with the results exceeding the requirements as set forth by the prevailing laws and regulations; blue, for companies which have performed environmental controls and/or have implemented environmental management according to the minimum requirements as set forth by the prevailing laws and regulations; red, for companies which have performed environmental controls but have not achieved all minimum requirements as set forth by the prevailing laws and regulations; and black, for companies which have not performed environmental controls and may have caused pollution and/or environmental destruction.
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Those companies with gold and green categories obtain reputation incentives in the form of a certificate of achievement. There is no sanction for those companies included in red or black categories under Decree No. 127/2002. As at the Latest Practicable Date, it is not compulsory to participate and our Group does not participate in PROPER. New Investment Law On 26 April 2007, the Indonesian Government enacted Law No. 25 of 2007 on Capital Investment (the New Investment Law), which revokes the previous Foreign and Domestic Investment Law. The main aim of the New Investment Law is to promote foreign and domestic investment in Indonesia by granting several incentives to investors. The incentives include among others: offering land title for longer periods such that eligible investors may hold HGU in the form of a grant and an advance acceleration of land title for a period of 60 years, with the possibility of renewing this title for a further 35 years; providing tax and financial incentives, including import duty waivers and income tax reductions; offering immigration facilities for foreign workers; and assisting with licensing for imports. The New Investment Law further provides that the President can establish a list detailing industries that are not permitted to receive foreign and/or domestic investment on the basis of certain criteria linked to health, morality, culture, the environment, national defense and security, and other national interests. Although the New Investment Law has already been enacted and became effective, the implementing regulations have not yet been issued, except for implementing regulation which deals with certain business sectors which are closed or restricted for foreign investment as stipulated in Presidential Regulation No. 77 of 2007 as amended by Presidential Regulation No. 111 of 2007 on List of Closed and Restricted Business Activities for Investment (Regulation No. 77/2007). Under Regulation No. 77/2007, foreign investment in integrated palm oil plantation (including crude palm kernel oil plantation) with the area of 25 hectares or more is restricted to maximum 95%. Under the New Investment Law, foreign investment enjoys the same facilities as domestic investment in Indonesia. In addition, the New Investment Law mentions an undertaking from the Government that it will not carry out nationalization or takeover of ownership title of the investors unless otherwise regulated by law. Foreign investors that wish to invest in Indonesia must secure an investment approval before they set up a foreign investment company (PT PMA) in Indonesia. Under the New Investment Law, the process of the foreign investment license is still under the supervision of Capital Investment Coordinating Board (BKPM). There are certain key issues and features associated with the foreign ownerships in a PT PMA, among other things is the divestment requirement under which foreign investor must divest its shareholding. The New Investment Law does not specify clearly the requirement for foreign investor to divest its shares in a PT PMA. Therefore, the provisions of the Government Regulation No. 20 year 1994, as amended, on Ownership of Shares of Companies Established in the Framework of Foreign Investment (GR No. 20/1994), are still applicable.
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Under GR No. 20/1994, a wholly foreign-owned PMA company will be required within 15 years after the date the PMA company commenced the commercial productions to divest its shares. The regulation does not specify the numbers of shares that must be divested. BKPM officials have verbally indicated that it is up to the parties involved. The Regulation No. 77/2007 further stipulates that no divestment will be required if the foreign investor establishes a joint venture PT PMA company with at least 5% Indonesian ownership. This suggests that a 5% divestment would satisfy the requirement to divest a 100% foreign owned PT PMA. By using this analogy, a 95% foreign owned PT PMA will not be required to comply with this divestment requirement, as 5% of its shares are Indonesian owned. Our Group comprises PT PMA Companies which are presently owned by our Singapore-incorporated subsidiaries. WPM, CPG and SPL are wholly-owned by our Singapore-incorporated subsidiaries (save for one share held by Mr. Henry Maknawi), while 95% of BPS is held by KL. As our PMA Companies, namely WPM, CPG, SPL and BPS, do not fall under the relevant restricted industries, our remaining Indonesian subsidiaries are not deemed to be PMA Companies. However, it is still not clear under the New Investment Law, whether SA, KP, KL and KB must divest their shareholdings in WPM, CPG, SPL and BPS as in the previous foreign investment regulation. Based on the previous foreign investment regulation, the divestment period is 15 years from the first commercial production. If our Singapore-incorporated subsidiaries are forced to divest a substantial portion of their shareholdings in our PMA Companies, our business, financial condition, results of operations and prospects may be adversely affected. Land Ownership Title in Indonesia Pursuant to Law No. 5 of 1960 regarding Basic Agrarian Provisions (Land Law) and its implementing regulations, the following are the basic land titles that are recognized in Indonesia: (i) (ii) (iii) (iv) (iv) (v) Right of Ownership/Hak Milik; Right to Cultivate/Hak Guna Usaha; Right to Build/Hak Guna Bangunan; Right to Use/Hak Pakai; Right to Lease/Hak Sewa; Right to Manage/Hak Pengelolaan.
Right of Ownership/Hak Milik (HM) HM is the strongest and fullest hereditary right that can be held by an Indonesian individual on land. In principle, a HM does not have any time limit period. However, please note that all land titles in Indonesia have a social function in which the use of the land must comply with the restriction applicable at the location of the land and nature of the right and thereby benefiting the owner, the community, and the country. HM can be held only by Indonesian individuals and some Indonesia corporate entities as determined by the Government (e.g. social and religious institutions). Other Indonesian corporate entities and foreign nationals (individuals and corporate entities) are not permitted to own land with HM title. HM can be given as collateral to secure financing obligations in the form of Security Interest (Hak Tanggungan).
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Right to Cultivate / Hak Guna Usaha (HGU) HGU is the right to cultivate land which is administered by the State. This title is normally granted over land to be used for cultivation/plantation businesses. HGU can be granted for a period of up to 35 years, extendable for an additional period of up to 25 years. HGU can be renewed for an additional period of up to 35 years, subject to fulfillment of requirements under the prevailing laws and regulations. The minimum area of Land for HGU is 5 hectares, and the maximum is 25 hectares (for individuals). For corporate entities, the area will be determined by the Land Office. HGU may only be granted to Indonesian citizens and Indonesian corporate entities which are domiciled in Indonesia (including PT PMA companies). HGU can be given as collateral to secure financing obligations in the form of Security Interest (Hak Tanggungan). Right to Build/Hak Guna Bangunan (HGB) HGB is basically the right granted by the State to establish and construct (buildings). HGB can be granted for a period of up to 30 years, extendable for an additional period of up to 20 years. HGB right can be renewed for an additional period of up to 30 years, subject to fulfillment of requirements under the prevailing laws and regulations. HGB may be granted to Indonesian citizens and Indonesian corporate entities which are domiciled in Indonesia (including PT PMA). HGB can be acquired by transferring the existing HGB from the holder of the HGB title (e.g. by way of sale and purchase of land) or creating or granting a HGB title on top of land that already has a title, i.e. HM land, HPL land, or State land. HGB can be given as collateral to secure financing obligations in the form of Security Interest (Hak Tanggungan). Right to Use/Hak Pakai (HP) The Land Law defines HP as the right to use and/or collect the products from the land directly administered by the State. The land on which HP title can be granted includes State land, HM land and HPL land. This means that HP title can be created on top of these land titles and is not an independent title in the land itself. HP can be granted for a period of up to 25 years, extendable for an additional period of up to 20 years. HP can be renewed for an additional period of up to 25 years, subject to fulfillment of requirements under the prevailing laws and regulations HP can also be renewed based on a new agreement between the holder of the HM and the holder of the HP. The agreement must be made before the Land Registration Officer (Pejabat Pembuat Akta Tanah) and the HP must be registered at the Land Office. The Land Office in Jakarta will usually consider the purpose of the land before it determines the period of time for HP title. For other areas outside of Jakarta, each land office will have its own policy in granting HP title (time period). In theory, HP can also be granted for an unlimited period of time, to be used as Government offices, international organization offices or foreign embassies. HP may be owned by: (a) (b) (c) Indonesian individuals; Foreigners residing in Indonesia; Corporate bodies established based on Indonesian law and domiciled in Indonesia (including PT PMA companies);
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(d) (e) (f) (g) Foreign corporate bodies with representatives in Indonesia; Departments, non-department government bodies and regional government; Representatives of foreign countries and international organizations; Religious and social institutions.
HP can be given as collateral to secure financing obligations in the form of Security Interest (Hak Tanggungan). Right to Lease/Hak Sewa (Hak Sewa) Article 16 of the Agrarian Law stipulates Hak Sewa or Right to Lease as one of the titles for land. Article 44 of the Agrarian Law further provides that Hak Sewa is a land title that gives its holder a right to construct a building on another persons land, upon payment of rent. While HP is a primary land title as it is granted by the State and constructed on State land, Hak Sewa is a secondary or derivative title granted by an owner of land.
Hak Sewa is not registrable and the terms and conditions thereof depend on the mutual agreement of the contracting parties. Hak Sewa is commonly based on a lease agreement between the land owner and the lessee. A Hak Sewa can be granted to:
(a) (b) (c) Indonesian individuals; Foreigners residing in Indonesia; Corporate bodies established based on Indonesian law and domiciled in Indonesia (including PMA companies); Foreign corporate bodies with representatives in Indonesia;
(d)
Right to Manage/Hak Pengelolaan ( HPL) HPL title is granted only to State-Owned companies and government agencies and is normally granted for an unlimited period of time. The land itself normally originates from land administered by the State and is allocated for government agencies. Theoretically, other land titles, i.e. HGB and HP can be granted on top of HPL land. Electricity Regulatory Framework The electricity sector in Indonesia is under the supervision of the Minister of Energy and Mineral Resources and the State Owned Enterprise namely Perusahaan Listrik Negara (PLN). However, in order to meet the wide demand for electricity and to increase the States ability to supply electricity to the public, an opportunity should be given to the private sector to supply electricity pursuant to an electricity business license for public interest (IUKU), or an electricity business license for self interest (IUKS). Electricity Supply Business for Public Interest Regionally owned enterprises, Indonesian legal entities, non-governmental entities, or individuals may participate in the business of supplying electricity for the public interest by obtaining an IUKU.
Restrictions on the Involvement of the Private Sector in the Business of Supplying Electricity for Public Interest
There are certain restrictions on the ability of the private sector to get involved in the business of supplying electricity for the public interest.
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Decree of Minister of Energy and Mineral Resouces No. 10 of 2005 on the Licensing Procedure of InterProvincial Electrical Business and National Grid Connected (Decree No. 10/2005), the business of supplying electricity for public interest must be carried out within specified business areas. The current regulations do not specify any restrictions on the issue of IUKUs for the supply of electricity in areas that are not connected to the national grid. It remains within the discretion of the Regent or the Governor of an area to pass regional regulations allowing the issuance of IUKUs at their discretion provided such issuances are not detrimental to the interests of the State and are in line with the National Electricity Plan.
Validity Period of IUKUs

Pursuant to Decree No. 10/2005, IUKUs shall be granted for a maximum term of thirty years, with the possibility of extensions. Pursuant to the Minister of Energy and Mineral Resources Decree No. 1455/40/MEN/2000, which sets out the principles which guide regional government when issuing electricity business licenses to non-national grid connected electricity businesses, IUKUs shall be granted for a maximum term of 15 years, with the possibility of extensions.
Rights of IUKU holders to Directly Sell Electricity to the Public

The Electricity Law and its implementing regulations do not expressly provide that an IUKU holder can directly sell electricity to the public. However, there are no provisions that restrict such sales and, in fact, certain provisions of the regulations suggest that an IUKU holder can sell electricity to the public. Article 11 paragraph (3) of government Regulation No. 3 of 2005 (GR No. 3/2005) states that PLN and holders of IUKUs, in carrying out the business of supplying electricity supply for the public interest, can purchase and/or lease electricity from cooperatives, regionally-owned enterprises, Indonesian entities, non-governmental entities (swadaya masyarakat) and individuals, subject to the approval of the Minister of Energy and Mineral Resources or the relevant Governor or Bupati/Mayor. This suggests that holders of an electricity business license (i.e. IUKUs or IUKS) can sell their electricity supply to other holders of IUKUs or PLN. Article 32 paragraph (3) of the GR No. 3/2005 states that the price of electricity that is supplied to consumers by holders of IUKUs shall be determined by the Minister of Energy and Mineral Resources or the relevant Governor or Bupati/Mayor. This also suggests that holders of IUKUs can sell electricity to the public. Decree No. 10/2005, which only applies to inter-provincial and grid-connected projects, expressly gives IUKU holders the power to sell electricity (as part of an isolated integrated system) to the public in areas which are not serviced by PLN or another integrated IUKU holder. Our Group is currently holding IUKU to operate our power plant located on Bangka Island in Sumatera. The electricity produced from this power plant merely will be sold to PLN under power purchase agreement date 8 May 2007, for a one year period commencing from June 2007, and extendable based on agreement of both parties. As at the Latest Practicable Date, we are in the process of negotiating for a renewal of the power purchase agreement, and if possible for a term longer than 12 months. SHIPPING INDUSTRY Maritime Shipping Maritime shipping can only be conducted by Indonesian legal entity, state owned entity, regional owned entity and cooperatives which were specifically established for shipping business. To carry out the maritime shipping business, the relevant companies must obtain the Maritime Shipping Business Permit (SIUPAL) issued by the Minister of Transportation (MOT).To obtain such permit the applicant must possess among others a seaworthy Indonesian flagged ship with gross tonnage of 175 tonnes.
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SIUPAL is valid so long as the holder conducts its shipping business activities. The SIUPAL can be revoked, in the occurrence of the following events: a. b. c. d. The permit holder carried out activities which endanger the security of the state; Endanger human beings and the environment; The permit holder obtained the SIUPAL illegally; or The holder requested revocation.
Under the current regulation, failure to obtain SIUPAL may be imposed by a maximum 3 months imprisonment or fine at maximum amount of Rp.6,000,000. Based on Minister of Transporation Decree No. 33 of 2001 on Shipping Business (Decree No. 33/2001), shipping companies must submit the following: a, General report regarding the arrival and departure of ship (LK3) to port administrator/head of local port office at any time the ship arrives and departs from the port; Monthly report regarding ship arrival activities to the port administrator/local port office, not later than 14 days of the following month, which is construed as a recapitulation of the arrival and departure report; Voyage report to the authority issuing license for ships with permanent and regular route (linear), not later than 14 days after the ship has completed 1 round voyage, while voyage report for ships with non permanent and irregular route (tramper) shall be submitted monthly; Annual report of companys activities to the authority issuing the license, not later than March 31 of the current year, which is construed as a recapitulation of the voyage reports.
b.
c.
d.
Based on the current regulation, failure to submit the above reports may be imposed with administrative sanctions, among others by revocation of the license. Domestic Maritime Shipping Domestic maritime shipping is any shipping carried out inter island within Indonesian waters operated by Indonesian shipping companies by using Indonesian flagged ships. Domestic maritime shipping may transport all goods including oil and gas, general cargo (e.g. textile and textile products, pulp and paper products), coal, timber and primary processed timber, rice, palm oil, fertilizer, cement, mine and quarry (type C mining materials, metals and non metals), other grains (e.g. cocoa grains, wheat grain and coffee grains), liquid materials and other chemical materials, agricultural grains, fresh products (e.g. vegetables, fruit and fish) and supporting materials of upstream and downstream oil and gas business activities. Overseas Maritime Shipping According to Decree No. 33/2001, overseas maritime shipping is any maritime shipping which is carried out from Indonesias port to overseas port carried out by national or foreign shipping entities by using Indonesian or foreign flagged ships from Indonesias ports, which are open for international trade to foreign ports or from foreign ports to Indonesias ports which are open for international trading.
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APPENDIX D SUMMARY OF THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE COMPANY

The discussion below provides a summary of the principal objects of our Company as set out in our Memorandum of Association and certain provisions of our Articles of Association and the laws of Singapore. This discussion is only a summary and is qualified by reference to Singapore law and our Memorandum and Articles of Association. Memorandum of Association and Registration Number We are registered in Singapore with the Registrar of Companies and Businesses. Our company registration number is 200717793E. Our Memorandum of Association sets out the objects for which our Company was formed, including carrying on business as, inter alia, an investment holding company. Summary of our Articles of Association 1. Directors (a) Ability of interested directors to vote A director shall not vote in respect of any contract, proposed contract or arrangement or any other proposal in which he has any personal material interest, and he shall not be counted in the quorum present at the meeting. (b) Remuneration Fees payable to non-executive Directors shall be a fixed sum (not being a commission on or a percentage of profits or turnover of the Company) as shall from time to time be determined by the Company in general meeting. Fees payable to Directors shall not be increased except at a general meeting convened by a notice specifying the intention to propose such increase. Any Director who holds any executive office, or who serves on any committee of the Directors, or who performs services outside the ordinary duties of a Director, may be paid extra remuneration by way of salary, commission or otherwise, as the Directors may determine. The remuneration of a Managing Director shall be fixed by the Directors and may be by way of salary or commission or participation in profits or by any or all of these modes but shall not be by a commission on or a percentage of turnover. The Directors shall have power to pay pensions or other retirement, superannuation, death or disability benefits to (or to any person in respect of) any Director for the time being holding any executive office and for the purpose of providing any such pensions or other benefits, to contribute to any scheme or fund or to pay premiums. The Directors shall not vote in respect of any contract or proposed contract or arrangement or any other proposal whatsoever in which he has any personal material interest, directly or indirectly. A Director shall also not be counted in the quorum at a meeting in relation to any resolution on which he is debarred from voting. (c) Borrowing Our Directors may exercise all the powers of our Company to raise or borrow money, to mortgage or charge its undertaking, property and uncalled capital, and to secure any debt, liability or obligation of our Company. (d) Retirement Age Limit There is no retirement age limit for Directors under our Articles of Association. Section 153(1) of the Act however, provides that no person of or over the age of 70 years shall be appointed a director of a public company, unless he is appointed or re-appointed as a director of the Company or authorised to continue in office as a director of the Company by way of an ordinary resolution passed at an annual general meeting of the Company.
D-1

(e) Shareholding Qualification There is no shareholding qualification for Directors in the Memorandum and Articles of Association of the Company. 2. Share rights and restrictions Our Company currently has one class of shares, namely, ordinary shares. Only persons who are registered on our register of shareholders and in cases in which the person so registered is CDP, the persons named as the depositors in the depository register maintained by CDP for the ordinary shares, are recognised as our shareholders. (a) Dividends and distribution We may, by ordinary resolution of our shareholders, declare dividends at a general meeting, but we may not pay dividends in excess of the amount recommended by our Board of Directors. We must pay all dividends out of our profits; however, we may capitalise any sum standing to the credit of any of our Companys reserve accounts or other distributable reserve or any sum standing to the credit of profit and loss account and apply it to pay dividends, if such dividends are satisfied by the issue of shares to our shareholders. All dividends are paid pro-rata amongst our shareholders in proportion to the amount paid up on each shareholders ordinary shares, unless the rights attaching to an issue of any ordinary share provide otherwise. Unless otherwise directed, dividends are paid by cheque or warrant sent through the post to each shareholder at his registered address. Notwithstanding the foregoing, the payment by us to CDP of any dividend payable to a shareholder whose name is entered in the depository register shall, to the extent of payment made to CDP, discharge us from any liability to that shareholder in respect of that payment. The payment by the Directors of any unclaimed dividends or other moneys payable on or in respect of a share into a separate account shall not constitute the Company a trustee in respect thereof. All dividends unclaimed after being declared may be invested or otherwise made use of by the Directors for the benefit of the Company. Any dividend unclaimed after a period of six (6) years after having been declared may be forfeited and shall revert to the Company but the Directors may thereafter at their discretion annul any such forfeiture and pay the dividend so forfeited to the person entitled thereto prior to the forfeiture. The Directors may retain any dividends or other moneys payable on or in respect of a share on which our Company has a lien, and may apply the same in or towards satisfaction of the debts, liabilities or engagements in respect of which the lien exists. (b) Voting rights A holder of our ordinary shares is entitled to attend, speak and vote at any general meeting, in person or by proxy. Proxies need not be a shareholder. A person who holds ordinary shares through the SGX-ST book-entry settlement system will only be entitled to vote at a general meeting as a shareholder if his name appears on the depository register maintained by CDP 48 hours before the general meeting. Except as otherwise provided in our Articles of Association, two or more shareholders must be present in person or by proxy to constitute a quorum at any general meeting. Under our Articles of Association, on a show of hands, every shareholder present in person and by proxy shall have one vote(provided that in the case of a Member who is represented by two proxies, only one of the two proxies as determined by that Member or, failing such determination, by the Chairman of the Meeting (or by a person authorised by him) in his sole discretion shall be entitled to vote on a show of hands), and on a poll, every shareholder present in person or by proxy shall have one
D-2

vote for each ordinary share which he holds or represents. A poll may be demanded in certain circumstances, including by the Chairman of the meeting or by any shareholder present in person or by proxy and representing not less than 10 per cent. of the total voting rights of all shareholders having the right to attend and vote at the meeting or by any two shareholders present in person or by proxy and entitled to vote. In the case of a tie vote, whether on a show of hands or a poll, the Chairman of the meeting shall be entitled to a casting vote. 3. Change in capital Changes in the capital structure of our Company (for example, an increase, consolidation, cancellation, sub-division or conversion of our share capital) require shareholders to pass an ordinary resolution. Ordinary resolutions generally require at least 14 days notice in writing. The notice must be given to each of our shareholders who have supplied us with an address in Singapore for the giving of notices and must set forth the place, the day and the hour of the meeting. However, we are required to obtain our shareholders approval by way of a special resolution for any reduction of our share capital or other undistributable reserve, subject to the conditions prescribed by law. 4. Variation of rights of existing shares or classes of shares Subject to the Act, whenever the share capital of the Company is divided into different classes of shares, the special rights attached to any class may be varied or abrogated either with the consent in writing of the holders of three-quarters of the total voting rights of the issued shares of the class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of the class. To every such separate general meeting the provisions of our Articles of Association relating to general meetings of the Company and to the proceedings thereat shall mutatis mutandis apply, except that the necessary quorum shall be two persons at least holding or representing by proxy at least one-third of the total voting rights of the issued shares of the class, and that any holder of shares of the class present in person or by proxy may demand a poll and that every such holder shall on a poll have one vote for every share of the class held by him, provided always that where the necessary majority for such a special resolution is not obtained at such general meeting, consent in writing if obtained from the holders of three-quarters of the total voting rights of the issued shares of the class concerned within two months of such general meeting shall be as valid and effectual as a special resolution carried at such general meeting. These provisions shall apply to the variation or abrogation of the special rights attached to some only of the shares of any class as if each group of shares of the class differently treated formed a separate class the special rights whereof are to be varied or abrogated. The relevant Article does not impose more significant conditions than the Act in this regard. 5. Limitations on foreign or non-resident shareholders There are no limitations imposed by Singapore law or by our Articles of Association on the rights of our shareholders who are regarded as non-residents of Singapore, to hold or vote their shares.
D-3
APPENDIX E INDEPENDENT AUDITORS REPORT ON THE UNAUDITED PROFORMA COMBINED FINANCIAL INFORMATION OF KENCANA AGRI LIMITED FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2007
17 July 2008 The Board of Directors Kencana Agri Limited 3 Shenton Way #10-06, Shenton House, Singapore 068805
Dear Sirs This report has been prepared for inclusion in the Prospectus (the Prospectus) of Kencana Agri Limited (the Company) in connection with the invitation of 200,000,000 New Shares. The unaudited proforma combined financial information comprises the proforma combined balance sheet as at 31 December 2007, the proforma combined income statement and the proforma combined cash flow statement of the Company and its subsidiaries (the Proforma Group or Group) for the year ended 31 December 2007. We report on the unaudited proforma combined financial information of the Proforma Group for the year ended 31 December 2007 set out on pages E-3 to E-7 which has been prepared for illustrative purposes only and based on certain assumptions after making certain adjustments to show what: (a) the financial position of the Proforma Group as at 31 December 2007 would have been if the Significant Events as stated in the Explanatory Notes to the unaudited proforma combined financial information had occurred on that date; the financial results of the Proforma Group for the year ended 31 December 2007 would have been if the Significant Events had occurred since the beginning of the year being reported on; and the cash flows of the Proforma Group for the year ended 31 December 2007 would have been if the Significant Events had occurred since the beginning of the year reported on.
(b)
(c)
The unaudited proforma combined financial information has been prepared for illustrative purposes only and, because of their nature, may not give a true picture of the Proforma Groups actual financial position, results or cash flows. The unaudited proforma combined financial information is the responsibility of the Directors of the Company. Our responsibility is to express an opinion on the unaudited proforma combined financial information based on our work. We carried out procedures in accordance with Singapore Statement of Auditing Practice 24: Auditors and Public Offering Documents. Our work, which involved no independent examination of the unaudited proforma combined financial information, consisted primarily of comparing the unaudited proforma combined financial information to the audited combined financial statements of the Group for the year ended 31 December 2007, considering the evidence supporting the adjustments and discussing the unaudited proforma combined financial information with the directors of the Company.
E-1
In our opinion: (a) the unaudited proforma combined financial information for the year ended 31 December 2007 has been properly prepared: (i) from the audited combined financial statements of the Group (or where information is not available in the financial statements, from accounting records of the Group), which were prepared in accordance with Singapore Financial Reporting Standards; in a manner consistent with the accounting policies of the Group; and on the basis stated in Explanatory Note 3 of the unaudited proforma combined financial information; and
(ii) (iii)
(b)
each material adjustment made to the information used in the preparation of the unaudited proforma combined financial information is appropriate for the purpose of preparing such financial information.
Yours faithfully
RSM CHIO LIM Certified Public Accountants Singapore Peter Jacob Partner-in-charge A member of the Institute of Certified Public Accountants of Singapore
E-2
UNAUDITED PROFORMA COMBINED BALANCE SHEET 31 December 2007
Unaudited proforma combined balance sheet US$000
Audited combined balance sheet US$000 ASSETS Current assets: Cash and cash equivalents Trade and other receivables Inventories Total current assets Non-current assets: Property, plant and equipment Biological assets Land rights Trade and other receivables Total non-current assets Total assets
Proforma adjustments US$000
5,941 8,041 5,171 19,153
(2,930) (iii)
3,011 8,041 5,171 16,223
19,869 111,649 2,480 1,043 135,041 154,194
19,869 111,649 2,480 1,043 135,041 151,264
LIABILITIES AND EQUITY Current liabilities: Short-term borrowings Trade and other payables Current tax payable Current portion of long-term borrowings Current portion of finance leases Financial liabilities Total current liabilities Non-current liabilities: Deferred tax liabilities Estimated liability for employee benefits Long-term borrowings Finance leases Total non-current liabilities Total liabilities Equity: Share capital Translation reserves Other reserve Retained earnings Total equity Total liabilities and equity See accompanying explanatory notes.
473 12,686 990 2,233 245 677 17,304
1,000
(i)
473 13,686 990 2,233 245 677 18,304
26,073 288 31,660 292 58,313 75,617
26,073 288 31,660 292 58,313 76,617
19,110 (4,328) 63,795 78,577 154,194
(6,129) (ii) (iii) 826 (ii) 2,373 (ii) (1,000) (i)
12,981 (3,502) 2,373 62,795 74,647 151,264
E-3
UNAUDITED PROFORMA COMBINED INCOME STATEMENT Year ended
Unaudited proforma combined income statement 31.12.2007 US$000
Audited combined income statement 31.12.2007 US$000
Proforma adjustments(1) US$000
Revenue Cost of sales Gross profit Gain on fair value changes in biological assets Interest income Financial expense Foreign exchange transactions loss Distribution costs Administrative expenses Other charges Profit before income tax Income tax expense Profit for the year
69,280 (45,826) 23,454 41,898 161 (2,797) (773) (1,781) (4,561) (1,045) 54,556 (15,354) 39,202
69,280 (45,826) 23,454 41,898 161 (2,797) (773) (1,781) (4,561) (1,045) 54,556 (15,354) 39,202
Note: (1) There are no proforma adjustments to the income statement of the Group.
See accompanying explanatory notes.
E-4
UNAUDITED PROFORMA COMBINED CASH FLOW STATEMENT Year ended
Unaudited proforma combined cash flow statement 31.12.2007 US$000
Audited combined cash flow statement 31.12.2007 US$000 Cash flows from operating activities: Profit before tax Adjustments for : Depreciation expense Amortisation of land rights Interest income Interest expense Gain on fair value changes in biological assets Loss on futures contracts Post-employment benefits Operating profit before working capital changes Trade and other receivables Inventories Cash restricted in use Trade and other payables Cash generated from operations Income tax paid Net cash from operating activities Cash flows from investing activities : Purchase of property, plant and equipment Additions to biological assets Purchase of land rights Interest received Net cash used in investing activities Cash flows from financing activities : Payment to shareholders arising from restructuring exercise Proceeds from issue of shares Increase in borrowings Decrease in finance leases Dividend paid Interest paid Net cash used in financing activities Net effect of exchange rate changes in consolidating entities Net increase / (decrease) in cash Cash at beginning of year Cash at end of year
Proforma adjustments US$000
54,556 1,945 55 (161) 2,797 (41,898) 677 88 18,059 2,967 (634) (1,899) 2,812 21,305 (820) 20,485
54,556 1,945 55 (161) 2,797 (41,898) 677 88 18,059 2,967 (634) (1,899) 2,812 21,305 (820) 20,485
(3,595) (7,559) (651) 161 (11,644)
(3,595) (7,559) (651) 161 (11,644)
355 3,714 (596) (2,025) (4,069) (2,621)
(2,930) (iii)
(2,930) 355 3,714 (596) (2,025) (4,069) (5,551)
(3,558) 2,662 1,337 3,999
(3,558) (268) 1,337 1,069
See accompanying explanatory notes
E-5
EXPLANATORY NOTES TO UNAUDITED PROFORMA COMBINED FINANCIAL INFORMATION 31 December 2007 1. GENERAL INFORMATION The unaudited proforma combined financial information, which comprises the proforma combined balance sheet, income statement and cash flow statement, has been prepared for illustrative purposes only to show what the financial position of the Proforma Group as at 31 December 2007 and the financial results and cash flows for the year ended 31 December 2007 would have been based on certain assumptions and after making certain adjustments as stated in the Note 3 below. Save as disclosed in Notes 2 and 3 below, the Directors of the Company, for the purpose of preparing this set of proforma combined financial information, have not considered the effects of other events. The unaudited proforma combined financial information for the year ended 31 December 2007 has been prepared for inclusion in the Prospectus in connection with the invitation of shares of Kencana Agri Limited and should be read in conjunction with the audited combined financial statements of the Group for the financial years ended 31 December 2005, 2006 and 2007 (Appendix F). The unaudited proforma combined financial information, because of their nature, may not give a true picture of the Proforma Groups actual financial position, results and cash flows. 2. SIGNIFICANT EVENTS Save for the significant events in Note 3 below, the Directors, as at the date of this report, are not aware of any significant acquisitions/disposals of assets and any significant changes made to the capital structure of the Company subsequent to 31 December 2007. 3. BASIS OF PREPARATION OF THE UNAUDITED PROFORMA COMBINED FINANCIAL INFORMATION The unaudited proforma combined financial information has been prepared based on the audited combined financial statements of the Group for the year ended 31 December 2007 (Appendix F), prepared in accordance with Singapore Financial Reporting Standards by the Directors and audited by RSM Chio Lim, in accordance with Singapore Standards on Auditing. The auditors report on these financial statements was not qualified. The unaudited proforma combined financial information is presented in US$ and all values are rounded to the nearest thousand (US$000) except when otherwise indicated. The Proforma Group has applied the same accounting policies and methods of computation in the unaudited proforma combined financial information of the Proforma Group as those of the most recently audited combined financial statements for the year ended 31 December 2007. The unaudited proforma combined financial information for the year ended 31 December 2007 has been prepared for illustrative purposes only. These are prepared based on certain assumptions and after making certain adjustments to show what: (i) the financial position of the Proforma Group as at 31 December 2007 would have been if the Significant Events had occurred at the end of the year; and the financial results and cash flows of the Proforma Group for the year ended 31 December 2007 would have been if the Significant Events had occurred since the beginning of the year being reported on.
(ii)
E-6
3. BASIS OF PREPARATION OF THE UNAUDITED PROFORMA COMBINED FINANCIAL INFORMATION (Contd) Based on the assumptions discussed above, the following material adjustments have been made to the financial statements of the Group in arriving at the unaudited proforma combined financial information included herein. (i) One of the Indonesian subsidiaries in the Group intends to declare and make a dividend payment of US$1,000,000 to its shareholders prior to the Invitation. As a result of the Restructuring Exercise carried out, certain changes were made to the capital structure of the Group and the Company. The changes resulted in adjustments of US$3,199,000, US$826,000 and US$2,373,000 to share capital, translation and other reserves respectively. Details of the Restructuring Exercise are set out in the audited combined financial statements of the Group for the years ended 31 December 2005, 2006 and 2007 (Appendix F). As part of the Restructuring Exercise, the consideration paid for the share capital of one of the Indonesian subsidiaries comprises cash and new shares. The cash consideration paid amounted to US$2,930,000 (IDR 27,600,000,000). Details of the Restructuring Exercise are set out in the audited combined financial statements of the Group for the years ended 31 December 2005, 2006 and 2007 (Appendix F).
(ii)
(iii)
The unaudited proforma combined financial information, because of their nature, is not necessarily indicative of the results of the operations, cash flows or the related effects on the financial position that would have been attained had the Significant Events actually occurred earlier. Save as disclosed in the Explanatory Notes, the Directors of the Company, for the purposes of preparing this set of proforma combined financial information, have not considered the effects of other events.
E-7
APPENDIX F INDEPENDENT AUDITORS' REPORT ON THE AUDITED COMBINED FINANCIAL STATEMENTS OF KENCANA AGRI LIMITED FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2005, 2006 AND 2007
17 July 2008 The Board of Directors Kencana Agri Limited 3 Shenton Way #10-06, Shenton House, Singapore 068805
Dear Sirs, This report has been prepared in accordance with the Singapore Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 for inclusion in the Prospectus of Kencana Agri Limited (the Company) dated 17 July 2008 in connection with the invitation of 200,000,000 New Shares. We have audited the accompanying combined financial statements of the Company and its subsidiaries (collectively the Group), as set out on pages F-3 to F-59, comprising the combined balance sheets as at 31 December 2005, 2006 and 2007, and the related combined statements of income, changes in equity and cash flows for each of the financial years ended 31 December 2005, 2006 and 2007, and a summary of significant accounting policies and other explanatory notes. Directors Responsibility for the Combined Financial Statements The Companys directors are responsible for the preparation and fair presentation of these combined financial statements in accordance with Singapore Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. As is more fully described in note 1 of the notes to the combined financial statements, the combined financial statements for the financial years ended 31 December 2005, 2006 and 2007 have been presented in a manner similar to the pooling-of-interests method to give retrospective application to transactions involving entities under common control. Independent Auditors Responsibility Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
F-1
Opinion In our opinion, the accompanying combined financial statements of the Group are properly drawn up in accordance with Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Group as at 31 December 2005, 2006 and 2007 and the Groups combined results of operations, combined changes in equity and combined cash flows for each of the financial years ended 31 December 2005, 2006 and 2007.
Yours faithfully,
RSM Chio Lim Certified Public Accountants Singapore Partner-in-charge of audit: Peter Jacob A member of the Institute of Certified Public Accountants of Singapore
F-2
COMBINED BALANCE SHEETS As at 31 December
Notes 2005 US$000 2006 US$000 2007 US$000
ASSETS Current assets: Cash and cash equivalents Trade and other receivables Inventories Total current assets Non-current assets: Property, plant and equipment Biological assets Land rights Other assets Trade and other receivables Total non-current assets Total assets LIABILITIES AND EQUITY Current liabilities: Short-term borrowings Trade and other payables Current tax payable Current portion of long-term borrowings Current portion of finance leases Financial liabilities Total current liabilities Non-current liabilities: Deferred tax liabilities Estimated liability for employee benefits Long-term borrowings Finance leases Total non-current liabilities Total liabilities Equity: Share capital Translation reserves Retained earnings Total equity Total liabilities and equity
4 5 6
801 8,256 5,083 14,140
1,351 12,051 4,537 17,939
5,941 8,041 5,171 19,153
7 8 9 5
15,620 36,684 1,274 2 53,580 67,720
18,508 64,461 1,965 84,934 102,873
19,869 111,649 2,480 1,043 135,041 154,194
10 11 12 13 25
7,082 7,090 351 2,907 498 17,928
9,418 9,475 818 2,522 456 22,689
473 12,686 990 2,233 245 677 17,304
19 14 12 13
6,940 134 13,985 509 21,568 39,496
12,410 213 18,683 130 31,436 54,125
26,073 288 31,660 292 58,313 75,617
15
15,322 (3,545) 16,447 28,224 67,720
18,755 (1,289) 31,282 48,748 102,873
19,110 (4,328) 63,795 78,577 154,194
See accompanying notes to combined financial statements. F-3
COMBINED INCOME STATEMENTS Years ended 31 December
Notes 2005 US$000 36,623 (32,189) 4,434 8 17 (8,997) 25 (1,181) (563) (1,144) (2,157) 408 (9,175) 2,138 (7,037) 2006 US$000 41,067 (32,570) 8,497 16,675 20 (1,892) 1,206 (1,406) (2,872) 89 20,317 (5,482) 14,835 2007 US$000 69,280 (45,826) 23,454 41,898 161 (2,797) (773) (1,781) (4,561) (1,045) 54,556 (15,354) 39,202
Revenue Cost of sales Gross profit (Loss) / gain on fair value changes in biological assets Interest income Financial expense Foreign exchange transactions (loss) / gain Distribution costs Administrative expenses Other credits / (charges) (Loss) / profit before income tax Income tax credit / (expense) (Loss) / profit for the year
16
18
19
(Loss) / earnings per share for (loss) / profit attributable to the equity holders of the Group during the year (expressed in US cents per share)
21
(0.9)
1.9
4.9
See accompanying notes to combined financial statements.
F-4
COMBINED STATEMENTS OF CHANGES IN EQUITY Years ended 31 December 2005, 2006 and 2007
Attributable to equity holders of the Group Share capital US$000 Total US$000 US$000 28,224 34,537 (1,507) (1,507) (7,037) (8,544) 1,112 1,119 13,091 1,112 14,203 1,119 (3,545) 16,447 1,119 (1,507) (7,037) (1,507) (7,037) (1,507) (2,038) 23,484 Share application money US$000 Translation reserves US$000 Retained earnings US$000 34,537 (1,507) (1,507) (7,037) (8,544) 1,112 1,119 28,224
Minority interest
Total equity
US$000
Balance at 1 January 2005 (b) Exchange difference on translating IDR functional currency to US$ presentation currency
Net expense recognised directly in equity Loss for the year
Total recognised expense for the year Issue of share capital (Note 15) Share application money (Note 15)
F-5
14,203 1,186 15,389 3,366 2,247 2,256 2,256 2,256 (1,289) (a) 1,119 (3,545) 16,447 14,835 14,835 31,282
Balance at 31 December 2005 (b)
Balance at 1 January 2006 (b) Exchange difference on translating IDR functional currency to US$ presentation currency
28,224 2,256 2,256 14,835 17,091 1,186 2,247 48,748
* * *
28,224 2,256 2,256 14,835 17,091 1,186 2,247 48,748
Net income recognised directly in equity Profit for the year
Total recognised income for the year Issue of share capital (Note 15) Share application money (Note 15)
COMBINED STATEMENTS OF CHANGES IN EQUITY Years ended 31 December 2005, 2006 and 2007
Attributable to equity holders of the Group Total
Minority interest
Total equity
Share capital US$000
Share application money US$000 Translation reserves US$000 Retained earnings US$000
equity
US$000 48,748 (3,039) (3,039) 39,202 36,163 (2,025) (4,664) 355 * * * * US$000 US$000 48,748 (3,039) (3,039) 39,202 36,163 (2,025) (4,664) 355
Balance at 1 January 2007 (b)

15,389 355 3,366 19,110 (4,328) 63,795 (3,366) (4,664) (3,039) 39,202 (2,025) (3,039) 39,202 (3,039) 3,366 (1,289) 31,282
Exchange difference on translating IDR functional currency to US$ presentation currency
Net expense recognised directly in equity Profit for the year
F-6 (a)
Total recognised income / (expense) for the year Dividend paid (Note 29) Capital distribution to shareholders arising from the liquidation of an entity Issue of share capital (Note 15) Share application money (Note 15)
78,577
78,577
Less than US$1,000
(a)
Unrealised and not available for distribution as cash dividends.
(b)
The share capital, share application money, translation reserves and retained earnings represent the share capital, share application money, translation reserves and retained earnings of the subsidiaries prior to the Restructuring Exercise (Note 1).
COMBINED CASH FLOW STATEMENTS Years ended 31 December
2005 US$000 Cash flows from operating activities: (Loss) / profit before tax Adjustments for: Depreciation expense Amortisation of land rights Interest income Interest expense Gain on disposal of plant and equipment Loss / (gain) on fair value changes in biological assets Loss on futures contracts Receivables written off Post-employment benefits Operating profit before working capital changes Trade and other receivables Inventories Cash restricted in use Trade and other payables Cash generated from operations Income tax refunded / (paid) Net cash from operating activities Cash flows from investing activities: Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Additions to biological assets Purchase of land rights Interest received Net cash used in investing activities 2006 US$000 2007 US$000
(9,175) 1,643 32 (25) 1,172 8,997 9 62 2,715 (2,448) (407) 3 966 829 16 845
20,317 1,937 57 (20) 1,892 (13) (16,675) 66 7,561 (3,795) 546 (2) 2,385 6,695 (172) 6,523
54,556 1,945 55 (161) 2,797 (41,898) 677 88 18,059 2,967 (634) (1,899) 2,812 21,305 (820) 20,485
(3,063) 64 (3,705) (336) 25 (7,015)
(3,633) 25 (6,166) (635) 20 (10,389)
(3,595) (7,559) (651) 161 (11,644)
Cash flows from financing activities: Proceeds from issue of shares (Note 15) Share application money received (Note 15) Increase in borrowings Decrease in finance leases Dividend paid Interest paid Net cash generated from / (used in) financing activities
1,112 1,119 6,504 (907) (1,838) 5,990
1,186 2,247 6,649 (461) (2,950) 6,671
355 3,714 (596) (2,025) (4,069) (2,621)
Net effect of exchange rate changes in consolidating entities Net increase in cash Cash at beginning of year Cash at end of year (Note 4)
725 545 244 789
(2,257) 548 789 1,337
(3,558) 2,662 1,337 3,999
F-7
NOTES TO COMBINED FINANCIAL STATEMENTS 31 December 2005, 2006 and 2007 1. GENERAL INFORMATION AND RESTRUCTURING EXERCISE The Company is incorporated in Singapore with limited liability. The combined financial statements are presented in United States dollars (US$) and all values are rounded to the nearest thousand (US$000) except when otherwise indicated. They are drawn up in accordance with the Singapore Financial Reporting Standards (FRS). The principal activities of the Company are those of investment holding. The principal activities and the details of the subsidiaries are described below. The registered office address is: 3 Shenton Way, #10-06 Shenton House, Singapore 068805. The Company is domiciled in Singapore. The subsidiaries held by the Company as of the date of this report are listed below:
Name of subsidiaries, country of incorporation, place of operations and principal activities Percentage of equity held by Group (a) 2005 2006 2007 % % %
PT Sawindo Kencana (SWK) (b) (Incorporated on 16 September 1994) Indonesia Agribusiness PT Alamraya Kencana Mas (AKM) (b) (Incorporated on 9 December 1996) Indonesia Agribusiness PT Kencana Agro Jaya (KAJ) (b) (Incorporated on 16 August 2002) Indonesia Agribusiness PT Agro Inti Kencanamas (AIK) (b) (Incorporated on 25 March 1997) Indonesia Agribusiness PT Agri Eastborneo Kencana (AEK) (b) (Incorporated on 9 March 2004) Indonesia Agribusiness PT Sawit Kaltim Lestari (SKL) (b) (Incorporated on 9 March 2004) Indonesia Agribusiness
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
F-8
1. GENERAL INFORMATION AND RESTRUCTURING EXERCISE (Contd)
PT Agrojaya Tirta Kencana (ATK) (b) (Incorporated on 25 March 1997) Indonesia Agribusiness PT Listrindo Kencana (LK) (b) (Incorporated on 8 December 2003) Indonesia Power generation PT Belitung Energy (BE) (d) (Incorporated on 8 August 2006) (c) Indonesia Power generation PT Pelayaran Asia Marine (PAM) (b) (Incorporated on 17 October 2003) Indonesia Logistics PT Indotrust (IDT) (b) (Incorporated on 13 September 2002) Indonesia Bulking Kencana Bio-energy Pte. Ltd. (KB) (h) (Incorporated on 29 December 2006) (c) Singapore Investment holding Kencana Logistics Pte. Ltd. (KL) (h) (Incorporated on 29 December 2006) (c) Singapore Investment holding Kencana Plantations Pte. Ltd. (KP) (h) (Incorporated on 29 December 2006) (c) Singapore Investment holding Sawindo Agri Pte. Ltd. (SA) (h) (Incorporated on 29 December 2006) (c) Singapore Trading and investment holding PT Agro Mas Lestari (AML) (d) (Incorporated on 19 February 2007) (c) Indonesia Agribusiness
100
100
100
100
100
100
90 (f)
90 (f)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
F-9
1. GENERAL INFORMATION AND RESTRUCTURING EXERCISE (Contd)
PT Agro Sawit Mas Lestari (ASML) (d) (Incorporated on 9 March 2004) Indonesia Agribusiness PT Bumi Permai Sentosa (BPS) (d) (Incorporated on 22 February 2007) (c) Indonesia Wholesaler of shipping-related products PT Cahaya Permata Gemilang (CPG) (d) (Incorporated on 22 February 2007) (c) Indonesia Wholesaler of electricity-related products PT Langgeng Nusa Makmur (LNM) (d) (Incorporated on 16 February 2007) (c) Indonesia Agribusiness PT Palm Makmur Sentosa (PMKS) (d) (Incorporated on 19 February 2007) (c) Indonesia Agribusiness PT Sawit Permai Lestari (SPL) (d) (Incorporated on 16 February 2007) (c) Indonesia Wholesaler of plantation-related products PT Sawindo Cemerlang (SCEM) (d) (Incorporated on 4 September 2006) (c) Indonesia Agribusiness PT Wira Mas Permai (WMP) (d) (Incorporated on 16 February 2007) (c) Indonesia Agribusiness PT Wira Palm Mandiri (WPM) (d) (Incorporated on 19 February 2007) (c) Indonesia Wholesaler of plantation-related products PT Wira Sawit Mandiri (WSM) (d) (Incorporated on 13 January 2006) (c) Indonesia Agribusiness
100
100
100
100 (e)
95 (g)
100
100
100 (e)
100
100
100
100 (e)
100
100
F-10
1. GENERAL INFORMATION AND RESTRUCTURING EXERCISE (Contd) (a) (b) On the basis the Group had existed since 1 January 2005. Audited by member firm of RSM International of which RSM Chio Lim, Singapore is a member. The name of the member firm is RSM AAJ Associates, Jakarta. Included in combined financial statements from date of incorporation. Unaudited as it is immaterial. Remaining 100 shares held by Mr. Henry Maknawi. Remaining shares held by Mr. Henry Maknawi. Remaining shares held by initial shareholders of LK and BE. Audited by RSM Chio Lim, a member of RSM International.
(c) (d) (e) (f) (g) (h)
Restructuring Exercise Prior to the Invitation, the Restructuring Exercise was carried out to rationalise and streamline the corporate structure, resulting in the Company becoming the holding company of the Group. The following steps were taken as part of the Restructuring Exercise: (a) The Company was incorporated on 26 September 2007 with the first two shares in the capital of the Company issued to Mr. Henry Maknawi. These shares were subsequently transferred to Kencana Holdings Pte Ltd (Kencana Holdings). SA, KP, KL and KB (collectively, the Sincos and each a Sinco) were incorporated in Singapore on 29 December 2006 as the holding companies with an initial share capital of two shares each. The two initial shares in each of the Sincos were transferred to the Company on 16 April 2008 and in consideration of such transfers, the Company issued 8 new shares in favour of Kencana Holdings as directed by the initial shareholders of the Sincos. SA and KP are established to be the holding companies for the plantation business, KL for the bulking and logistics business and KB for the power generation business. The initial shareholders of each of the Sincos are as follows: Sinco SA KP KL KB Initial shareholders of Sincos (No. of shares held) Ratna Maknawi (1 share) and Albert Maknawi (1 share) Ratna Maknawi (1 share) and Albert Maknawi (1 share) Ajis Chandra (1 share) and Albert Maknawi (1 share) Ratna Maknawi (1 share) and Albert Maknawi (1 share)
(b)
These initial shareholders held the shares in the Sincos as nominees of the Company. (c) SPL, WPM, BPS and CPG (collectively, the Indocos and each an Indoco) were respectively established in Indonesia on 16 February 2007, 19 February 2007, 22 February 2007 and 22 February 2007 as the Indonesian holding companies with a share capital of 250 shares each. F-11
1. GENERAL INFORMATION AND RESTRUCTURING EXERCISE (Contd) Restructuring Exercise (Contd) SPL and WPM are established as the Indonesian holding companies for the plantation operations, BPS for the bulking and logistics business and CPG for the power generation operations of the Group. The initial shareholders of each of the Indocos comprised the individual shareholders of the Indonesian operating companies, namely, SWK, KAJ, AKM, AIK, ATK, AEK, SKL, AML, SCEM, WSM, ASML, PMKS, LNM, WMP, IDT, PAM, LK and BE (collectively, the Operating Companies and each an Operating Company). For the purposes of the rest of this Restructuring Exercise section, the individual shareholders of the Indonesian operating companies will collectively be referred to as the Initial Shareholders. Each of the Initial Shareholders (other than the Chairman and CEO, Mr. Henry Maknawi) was allocated one share of the Indocos (save for CPG) with the remaining balance (that is, 226 shares in SPL, 236 shares in WPM and 241 shares in BPS) allocated to Mr. Henry Maknawi. In relation to CPG, each of the Initial Shareholders (other than Mr. Henry Maknawi and the other Initial Shareholders of LK and BE) was allocated one share each of CPG. The remaining balance of 202 shares and 46 shares in CPG was allocated to Mr. Henry Maknawi and the other Initial Shareholders of LK and BE (in accordance with their interests in LK and BE) respectively. (Such shares of Indocos held by the Initial Shareholders hereinafter referred to as the Initial Indoco Shares). (d) As part of the Restructuring Exercise to enable the Operating Companies to be considered as part of the Group, each of the Indocos subscribed for the serial A shares issued by the respective Operating Companies. The serial A shares entitle each of the Indocos to have full power to appoint the members of the respective board of directors and board of commissioners of the Operating Companies. Between June and August 2007, each of the Indocos have entered into various conditional sale and purchase agreements with the Initial Shareholders to acquire: (i) all of the shareholding interests in the Operating Companies (other than BE) (except for the Chairman and CEO, Mr. Henry Maknawi, who retained 1 share in each of the Operating Companies); and 90.1% of shareholding interest in BE (the balance 9.9% is held by the Chairman and CEO, Mr. Henry Maknawi).
(e)
(ii)
The purchase consideration for all the Operating Companies (other than PAM) was based on valuation determined by an independent valuer. The purchase consideration for PAM was based on the audited net asset value of PAM as at 31 December 2006. Pursuant to these agreements and on or about 9 May 2008, the Initial Shareholders transferred all of their shareholding interests in the Operating Companies to the respective Indocos which resulted in the following: SPL and WPM became the Indonesian holding companies of the plantation Operating Companies; BPS, the Indonesian holding company of the bulking and logistics Operating Companies; and CPG, the Indonesian holding company of the power generation Operating Companies.
F-12
1. GENERAL INFORMATION AND RESTRUCTURING EXERCISE (Contd) Restructuring Exercise (Contd) In consideration for the shareholding interests in the respective Operating Companies, each of the Indocos provisionally allotted new shares in each of its share capital (New Indoco Shares) as detailed below to the Initial Shareholders: No. of New Indoco Shares 961,334 New Indoco Shares in SPL In consideration for: 100% (less 1 share1) of SWK2, AKM, and KAJ which are the plantation Operating Companies 100% (less 1 share1) of AIK, SKL, AEK, ATK, AML, SCEM, PMKS, WMP, LNM, ASML and WSM which are the plantation Operating Companies 100% (less 1 share1) of IDT and PAM which are the bulking and logistics Operating Companies 100% (less 1 share1) of LK and 90.1% of BE, which are the power generation Operating Companies
185,097 New Indoco Shares in WPM
28,398 New Indoco Shares in BPS
1,686 New Indoco Shares in CPG
Notes: (1) Held by the Chairman and CEO, Mr. Henry Maknawi in order to comply with Indonesian law which requires companies in Indonesia to have at least two shareholders. The consideration paid for the share capital of SWK consisted of cash and New Indoco Shares in SPL. The cash consideration paid by SPL amounted to Rp27.6 billion and the number of New Indoco Shares in SPL issued as consideration amounted to 362,933 New Indoco Shares in SPL.
(2)
The Initial Shareholders then assigned their rights in the New Indoco Shares to Sincos and these shares were issued directly to Sincos. Following the issuance of such New Indoco Shares directly to the Sincos, SA became the Singapore holding company of SPL; KP, the Singapore holding company of WPM; KL, the Singapore holding company of BPS; and KB, the Singapore holding company of CPG. In consideration for the New Indoco Shares (as detailed below), each of the Sincos provisionally allotted new shares in each of its share capital to the Initial Shareholders (First Issuance of new Sinco shares). The Initial Shareholders then assigned their rights in the First Issuance of new Sinco shares to the Company and the shares were issued directly to the Company as follows: Aggregate no. of Indoco Shares No. of new Sinco shares provisionally allotted and directed to be issued to the Company 16,293,793 new Sinco shares in the capital of SA
961,334 New Indoco Shares in SPL issued to SA 185,097 New Indoco Shares in WPM issued to KP 28,398 New Indoco Shares in BPS issued to KL 1,686 New Indoco Shares in CPG1 issued to KB
3,137,239 new Sinco shares in the capital of KP
481,326 new Sinco shares in the capital of KL
28,582 new Sinco shares in the capital of KB
F-13
1. GENERAL INFORMATION AND RESTRUCTURING EXERCISE (Contd) Restructuring Exercise (Contd)
Note: (1) CPG issued 11,564 additional shares to comply with the minimum capital requirement set by the Indonesian authority regulating foreign investment in Indonesia (Badan Koordinasi Penanaman Modal or BKPM). KB subscribed for 10,986 shares whilst the Initial Shareholders subscribed for these remaining shares.The 1,686 New Indoco Shares in CPG together with the 153 Initial Indoco Shares of CPG (see restructuring step in paragraph (f) below) constitute 95% of the share capital of CPG. The balance 5% of the share capital of CPG are held by the Initial Shareholders of LK and BE.
(f)
In October 2007, each of the Sincos entered into various conditional sale and purchase agreements with certain Initial Shareholders to purchase 150 Initial Indoco Shares (referred to in paragraph (c) above) in each of the Indocos (save for CPG, whereby the number of shares purchased were 153 Initial Indoco shares) based on the par value of the Initial Indoco Shares. On 9 May 2008, the Initial Shareholders transferred their Initial Indoco Shares as stated below to the respective Sincos: No. of new Sinco shares 2,542 new Sinco shares in SA 2,542 new Sinco shares in KP 2,542 new Sinco shares in KL 2,542 new Sinco shares in KB
Note: (1) 100 Initial Indoco Shares in each of SPL, WPM and BPS are held by the Chairman and CEO, Mr. Henry Maknawi, and 97 Initial Indoco Shares in CPG are held by the Initial Shareholders of LK and BE, so as to comply with Indonesian law which requires companies in Indonesia to have at least two shareholders.
In consideration for: 150 Initial Indoco Shares1 of SPL 150 Initial Indoco Shares1 of WPM 150 Initial Indoco Shares1 of BPS 153 Initial Indoco Shares1 of CPG
In consideration for these Initial Indocos Shares in each of the Indocos, each of the Sincos provisionally allotted to the Initial Shareholders new shares in each of its share capital (Second Issuance of new Sinco shares).The Initial Shareholders then assigned their rights in the Second Issuance of new Sinco Shares to the Company and such new Sinco shares were issued directly to the Company accordingly. For the purposes of the rest of this Restructuring Exercise section, the First Issuance of new Sinco shares and the Second Issuance of new Sinco shares will be referred to as the New Sinco Shares. (g) In consideration for the New Sinco Shares, pursuant to an agreement reached (after taking into account the values of the respective shareholding interests in the Operating Companies and Indocos transferred from each of them to the Indocos and Sincos respectively as set out under paragraphs (e) and (f) above), the Company issued in aggregate an additional 19,951,108 new shares in its capital to the Initial Shareholders. To streamline the shareholding structure, some of the Initial Shareholders, who also hold shares in Kencana Holdings (Kencana Holdings Shareholders) as described in paragraphs (a) and (b) above, directed their shares in the Company to be issued directly to Kencana Holdings thereby resulting in Kencana Holdings holding an additional 17,245,736 of the Companys shares.
(h)
F-14
1. GENERAL INFORMATION AND RESTRUCTURING EXERCISE (Contd) Restructuring Exercise (Contd) In consideration for these new shares in the Company, Kencana Holdings issued a total of 17,245,736 new ordinary shares in its capital to the Kencana Holdings Shareholders. Kencana Holdings in aggregate holds 17,245,746 of the Companys shares. Pursuant to an agreement reached (after taking into account the values of the respective shareholding interests in the Operating Companies and Indocos transferred from each of them to the Indocos and Sincos as set out under paragraphs (e) and (f) above and the existing shares of Kencana Holdings), the following table shows the respective shareholdings of the Kencana Holdings shareholders.
% of shareholding interests in Kencana Holdings 43.4 7.2 2.2 2.9 2.6 8.2 1.7 10.6 9.9 9.1 2.0 0.2
Name of Initial Shareholders Henry Maknawi Ratna Maknawi Tengku Alwin Aziz Albert Maknawi Jimmy Chandra Dick Permana Jauhari Chandra Jeanny Maknawi Eddy Maknawi Johan Maknawi Karmila Maknawi Ajis Chandra
Basis of preparation The Restructuring Exercise involves companies under common control. The combined financial statements have been prepared using the pooling-of-interests method. Such manner of presentation reflects the economic substance of the combining entities as a single economic enterprise, although the legal parent-subsidiary relationship was not established until after the balance sheet date. Accordingly, the Groups combined financial statements for the financial years ended 31 December 2005, 2006 and 2007 have been prepared as if the Group had been in existence prior to the Restructuring Exercise. The assets and liabilities are brought into the combined balance sheets at the existing carrying amounts. The figures of the Group for the financial years ended 31 December 2005, 2006 and 2007 represent the combined results, state of affairs, changes in equity and cash flows as if the Group had existed since 1 January 2005. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ACCOUNTING CONVENTION The financial statements have been prepared in accordance with the Singapore Financial Reporting Standards (FRS) as issued by the Singapore Accounting Standards Council as well as all related Interpretations to FRS (INT FRS). The financial statements are prepared on a going concern basis under the historical cost convention except where an FRS requires an alternative treatment (such as fair values) as disclosed where appropriate in these financial statements.
F-15
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Contd) BASIS OF PRESENTATION The combined financial statements for the years ended 31 December 2005, 2006 and 2007 have been presented in accordance with Singapore Financial Reporting Standards for the first time. The financial statements have been prepared for inclusion in the Prospectus of the Company in connection with the invitation of certain shares in the Company. As described above, the combined financial statements have been presented in a manner similar to the pooling-of-interests method to give retrospective application to transactions involving entities under common control. The consolidation accounting method is used for the combined financial statements which include the financial statements made up to the balance sheet date for the years ended 31 December 2005, 2006 and 2007 of the Company and of those companies it controls. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities accompanying a shareholding of more than one half of the voting rights or the ability to appoint or remove the majority of the members of the board of directors or to cast the majority of votes at meetings of the board of directors. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries include unincorporated and special purpose entities. The combined financial statements are the financial statements of the Group presented as those of a single economic entity. The combined financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. All significant intragroup balances and transactions, including income, expenses and dividends, are eliminated in full on consolidation. The results of the entities acquired or disposed of or controlled during the years ended 31 December 2005, 2006 and 2007 are combined from the respective dates of acquisition or control up to the dates of disposal including entities that were subsequently liquidated. On disposal the attributable amount of goodwill, if any, is included in the determination of the gain or loss on disposal. BASIS OF PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires the management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The estimates and assumptions are reviewed on an ongoing basis. Apart from those involving estimations, management has made judgements in the process of applying the entitys accounting policies. The areas requiring managements most difficult, subjective or complex judgements, or areas where assumptions and estimates are significant to the financial statements, are disclosed at the end of this footnote, where applicable. BUSINESS COMBINATIONS The business combination involved entities or businesses under common control that is, a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory. The business combination in such situation is accounted for under the pooling-ofinterests or merger method. Under the pooling-of-interests method, the combined assets, liabilities and reserves of the pooled enterprises are recorded at their existing carrying amounts at the date of amalgamation. The excess or deficiency of amount recorded as share capital issued (plus any additional consideration in the form of cash or other assets) over the amount recorded for the share capital acquired is to be adjusted to the merger reserve.
F-16
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Contd) BUSINESS COMBINATIONS (Contd) For entities not under common control, business combinations are accounted for by applying the purchase method. The cost of a business combination includes the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the acquirer, in exchange for control of the acquiree; plus any costs directly attributable to the business combination. Any excess of the cost over the acquirers interest in the net fair value of the identifiable assets, liabilities and contingent liabilities so recognised is accounted for as goodwill. The excess of acquirers interest in the net fair value of acquirees identifiable assets, liabilities and contingent liabilities over cost is accounted for as negative goodwill. The acquirees identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under FRS 103 are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with FRS 105 Non-Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised but is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. An impairment loss in respect of goodwill is not reversed. There was no negative goodwill. There were no acquisitions during the years 2005 to 2007 that had to be accounted for under FRS103. Minority Interest Any minority interest in the acquiree (subsidiary) is initially measured at the minoritys proportion of the net fair value of the assets, liabilities and contingent liabilities recognised. FINANCIAL ASSETS Initial recognition and measurement: A financial asset is recognised on the balance sheet when, and only when, the entity becomes a party to the contractual provisions of the instrument. The initial recognition of financial assets is at fair value normally represented by the transaction price. The transaction price for financial asset not classified at fair value through profit or loss includes the transaction costs that are directly attributable to the acquisition or issue of the financial asset. Transaction costs incurred on the acquisition or issue of financial assets classified at fair value through profit or loss are expensed immediately. The transactions are recorded at the trade date. Subsequent measurement based on the classification of the financial assets in one of the following four categories under FRS 39 is as follows: #1. Financial assets at fair value through profit or loss: As at year end date there were no financial assets classified in this category. #2. Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Assets that are for sale immediately or in the near term are not classified in this category. These assets are carried at amortised costs using the effective interest method (except that short-duration receivables with no stated interest rate are normally measured at original invoice amount unless the effect of imputing interest would be significant) minus any reduction (directly or through the use of an allowance account) for impairment or uncollectibility. Impairment charges are provided only when there is objective evidence that an impairment loss has been incurred as a result of one or more events that occurred after the initial recognition of the asset (a loss event) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Losses expected as a result of future events, no matter how likely, are not recognised. For impairment, the carrying amount of the asset is reduced through use of an allowance account. The amount of the loss is recognised in the income statement. The trade and other receivables are classified in this category.
F-17
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Contd) FINANCIAL ASSETS (Contd) #3. Held-to-maturity financial assets: As at year end date there were no financial assets classified in this category. #4. Available for sale financial assets: As at year end date there were no financial assets classified in this category. Derecognition of financial assets: Irrespective of the legal form of the transactions performed, financial assets are derecognised when they pass the substance over form based derecognition test prescribed by FRS 39 relating to the transfer of risks and rewards of ownership and the transfer of control. Cash and cash equivalents: Cash and cash equivalents include bank and cash balances, on demand deposits and any highly liquid debt instruments purchased with an original maturity of three months or less. For the cash flow statement the item includes cash and cash equivalents less cash subject to restriction and bank overdrafts payable on demand that form an integral part of cash management. INVENTORIES Inventories are measured at the lower of cost (weighted average method) and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. A write down on cost is made for where the cost is not recoverable or if the selling prices have declined. Cost includes all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. DERIVATIVES All derivatives are initially recognised and subsequently carried at fair value. The policy is to use derivatives only for non-speculative purposes. Derivatives are entered into in order to hedge some transactions. Where all the strict hedging criteria prescribed by FRS 39 are not met, even though the transaction has its economic and business rationale, hedge accounting cannot be applied. As a result, changes in the fair value of those derivatives are recognised directly in the income statement and the hedged item follows normal accounting policies. The Group has committed sales contracts for crude palm oil and palm kernel cake that are entered into as part of its processing and sale activities. The price and physical delivery of the sales are fixed in the contracts and these contracts are not recognised in the combined financial statements until physical deliveries take place. The Group enters into futures contracts for its crude palm oil to hedge fluctuations in commodity prices. Prices on commodity exchanges are quoted up to 3 to 5 months forward. The gains or losses arising from matched non-physical delivery futures contracts of crude palm oil are recognised immediately in the income statements. Outstanding forward and future contracts of crude palm oil are valued at their fair values at the balance sheet date. Where available, quoted market prices are used as a measure of fair values for the outstanding contracts. Where the quoted market prices are not available, fair values are based on managements best estimate and are arrived at by reference to the market prices of other contracts that are substantially similar. Unrealised losses arising from the valuation are set off against unrealised gains on an aggregate basis.
F-18
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Contd) PROPERTY, PLANT AND EQUIPMENT Depreciation is provided on a straight-line basis to allocate the gross carrying amounts less their residual values over their estimated useful lives of each part of an item of property, plant and equipment. The annual rates of depreciation are as follows: Freehold land Leasehold buildings Plant, fixtures and equipment Vessels Assets under construction Depreciation is not provided 5% to 6.25% 25% 6.25% Depreciation is not provided until the asset is available for use.
An asset is depreciated when it is available for use until it is derecognised even if during that period the item is idle. Fully depreciated assets still in use are retained in the financial statements. Property, plant and equipment are carried at cost on initial recognition and after initial recognition at cost less any accumulated depreciation and any accumulated impairment losses. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item and is recognised in the income statement. The residual value and the useful life of an asset is reviewed at least at each financial year-end and, if expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate, and the depreciation charge for the current and future periods are adjusted. Cost also includes acquisition cost, any cost directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Subsequent cost are recognised as an asset only when it is probable that future economic benefits associated with the item will flow to the entity and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement when they are incurred. LAND RIGHTS Land rights that have a limited useful life are depreciated in a manner that reflects the benefits to be derived from these rights. Costs associated with the legal transfer or renewal for titles of land rights, such as legal fees, land survey and re-measurement fees, taxes and other related expenses, are deferred and amortised using the straight-line method over the legal terms of the related land rights of thirty-five years. ADVANCES / GUARANTEES UNDER THE PLASMA PROGRAMME The Indonesian Government requires oil palm plantations to develop the surrounding local plantation areas held by small landholders when applying for land rights for oil palm plantations. This form of assistance to local small landholders is generally known as the Plasma Programme. Under the Plasma Programme, a plantation developer transfers a designated land area to the small landholders, who then operate the plasma plantation under the supervision of the plantation developer. Certain subsidiaries of the Group have implemented the Plasma Programme using plantation business cooperatives scheme (Kredit Koperasi Primer Anggota or KKPA), cooperation in local community palm oil plantation scheme (Kebun Kelapa Sawit Rakyat or KKSR), and independent plasma scheme (Plasma Mandiri).
F-19
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Contd) ADVANCES / GUARANTEES UNDER THE PLASMA PROGRAMME (Contd) Under the KKPA scheme, the villagers typically occupy the land and the Group helps to develop the land and manage the oil palms to maturity. The development costs are funded by bank loans, which are guaranteed by the Group using the aforementioned land certificates and/or other appropriate forms of security as collateral. Upon maturity of the oil palms, the land will be maintained and managed by the villagers or in the future by the Group. The harvested fresh fruit bunches (FFB) will then be sold to the Group. The villagers will repay the loan facilities from a portion of the FFB sale price. The Group obtains a power of attorney to manage the accounts of the villagers into which all monies from the sale of FFB will be deposited. This power of attorney allows the Group to withdraw funds from such accounts to pay for all the villagers operating costs and expenses. Under the KKSR scheme, the villagers also typically occupy the land. The Group will provide seedlings and the regional authorities will provide fertiliser to the villagers. Post-harvest, the FFB will be sold to the Group and part of the sale proceeds will be paid to the Group and the regional authorities as payment for the seedlings and fertiliser respectively. Plasma Mandiri is a scheme whereby the Group will provide the seedlings to the villagers, and the villagers will plant and maintain the plantations. Post-harvest, the FFB will be sold to the Group and part of the sale proceeds will be paid to the Group as payment for the seedlings provided. There is no governmental involvement under this scheme. Costs incurred during development up to conversion of the oil palm plantations and temporary funding to the villagers for working capital purposes are included in other receivables in the balance sheets. The funds received from the designated banks on behalf of villagers for the development and operations of the plantations are included in other payables in the balance sheets. BIOLOGICAL ASSETS Biological assets are stated at fair values less estimated point-of-sale costs. These include mature and immature oil palm plantations. Oil palm trees have an average life that ranges from 23 to 25 years, with the first three years as immature and the remaining years as mature. In general, an oil palm plantation takes about 3 (three) years to reach maturity from the time seedlings are planted. As market determined prices or values are not readily available for plantations in their present condition, the Group uses the present value of expected net future cash flows (excluding any future cash flows for financing the assets, taxation, or re-establishing plantations after harvest) from the asset, discounted at a current market determined pre-tax rate in determining the fair values. The fair value of the oil palm plantations is estimated by reference to independent professional valuations using the discounted cash flows of the underlying biological assets. The expected cash flows from the whole life cycle of the oil palm plantations is determined using the market price of the estimated yield of the agriculture produce, being fresh palm fruit bunches (FFB), net of maintenance and harvesting costs and any costs required to bring the oil palm plantations to maturity. The estimated yield of the oil palm plantations is affected by the age of the oil palm trees, the location, soil type and infrastructure. The market price of the fresh palm fruit bunches is largely dependent on the projected market price of the processed products after harvest, being crude palm oil (CPO) and crude palm kernel oil (CPKO). Point-of-sale costs include all costs that would be necessary to sell the assets. Gains or losses arising on initial recognition of plantations at fair value less estimated point-of-sale costs and from the change in fair value less estimated point-of-sale costs of plantations at each reporting date are included in the income statement for the period in which they arise.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Contd) IMPAIRMENT OF NON-FINANCIAL ASSETS The carrying amount of such assets (other than (i) intangible assets not yet available for use, (ii) goodwill and other indefinite life intangible assets) is reviewed at each reporting date for indications of impairment and where impairment is found, the asset is written down through the income statement to its estimated recoverable amount. Irrespective of whether there is any indication of impairment, an annual impairment test is performed at the same time every year on an intangible asset with an indefinite useful life or an intangible asset not yet available for use. The impairment loss is the excess of the carrying amount over the recoverable amount and is recognised in the income statement. The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). At each reporting date non-financial assets other than goodwill with impairment loss recognised in prior periods are assessed for possible reversal of the impairment. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. FINANCIAL LIABILITIES Initial recognition and measurement: A financial liability is recognised on the balance sheet when, and only when, the entity becomes a party to the contractual provisions of the instrument. The initial recognition of financial liability is at fair value normally represented by the transaction price. The transaction price for financial liability not classified at fair value through profit or loss includes the transaction costs that are directly attributable to the acquisition or issue of the financial liability. Transaction costs incurred on the acquisition or issue of financial liability classified at fair value through profit or loss are expensed immediately. The transactions are recorded at the trade date. Financial liabilities including bank and other borrowings are classified as current liabilities unless there is an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Subsequent measurement: Subsequent measurement based on the classification of the financial liabilities in one of the following two categories under FRS 39 is as follows: #1. Liabilities at fair value through profit or loss: Liabilities are classified in this category when they are incurred principally for the purpose of selling or repurchasing in the near term (trading liabilities) or are derivatives (except for a derivative that is a designated and effective hedging instrument) or have been classified in this category because the conditions are met to use the fair value option and it is used. All changes in fair value relating to liabilities at fair value through profit or loss are charged to the income statement as incurred. #2. Other financial liabilities: All liabilities, which have not been classified as in the previous category fall into this residual category. These liabilities are carried at amortised cost using the effective interest method. Trade and other payables and borrowings are classified in this category. Items classified within current trade and other payables are not usually re-measured, as the obligation is usually known with a high degree of certainty and settlement is short-term.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Contd) PROVISIONS A liability or provision is recognised when there is a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are made using best estimates of the amount required in settlement and where the effect of the time value of money is material, the amount recognised is the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense. Changes in estimates are reflected in the income statement in the period they occur. LEASED ASSETS Leases are classified as finance leases if substantially all the risks and rewards of ownership are transferred to the lessee. All other leases are classified as operating leases. A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. At the commencement of the lease term, a finance lease is recognised as an asset and as liability in the balance sheet at amounts equal to the fair value of the leased asset or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease. The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease, if this is practicable to determine; if not, the lessees incremental borrowing rate is used. Any initial direct costs of the lessee are added to the amount recognised as an asset. The excess of the lease payments over the recorded lease liability are treated as finance charges which are allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the periods in which they are incurred. The assets are depreciated as owned depreciable assets. Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased assets are classified as operating leases. For operating leases, lease payments are recognised as an expense in the income statement on a straight-line basis over the term of the relevant lease unless another systematic basis is representative of the time pattern of the users benefit, even if the payments are not on that basis. Lease incentives received are recognised in the income statement as an integral part of the total lease expense. FINANCIAL GUARANTEES A financial guarantee contract requires that the issuer makes specified payments to reimburse the holder for a loss when a specified debtor fails to make payment when due. Financial guarantee contracts are initially recognised at fair value and are subsequently measured at the greater of (a) the amount determined in accordance with FRS 37 and (b) the amount initially recognised less, where appropriate, cumulative amortisation recognised in accordance with FRS 18. EQUITY Equity instruments are contracts that give a residual interest in the net assets of the company. Ordinary shares are classified as equity. Equity instruments are recognised at the amount of proceeds received net of incremental costs directly attributable to the transaction. The shares have no par value. Dividends on equity are recognised as liabilities when they are declared. Interim dividends are recognised when paid.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Contd) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values of current financial assets and financial liabilities including cash, accounts receivable, short-term borrowings, accounts payable approximate their fair values due to the shortterm maturity of these instruments. The fair values of non-current financial instruments may not be disclosed unless there are significant items at the end of the year and in the event the fair values are disclosed in the relevant notes. Disclosures of fair value are not made when the carrying amount is a reasonable approximation of fair value. The maximum exposure to credit risk is the fair value of the financial instruments at the balance sheet date. The fair value of a financial instrument is derived from an active market. The appropriate quoted market price for an asset held or liability to be issued is usually the current bid price without any deduction for transaction costs that may be incurred on sale or other disposal and, for an asset to be acquired or liability held, the asking price. REVENUE RECOGNITION The revenue amount is the fair value of the consideration received or receivable from the gross inflow of economic benefits during the period arising from the course of the ordinary activities of the entity and it is shown net of related tax, estimated returns, discounts and volume rebates. Revenue from sale of goods is recognised when significant risks and rewards of ownership are transferred to the buyer, there is neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, the amount of revenue and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenue from rendering of services that are of short duration is recognised when the services are completed. Interest revenue is recognised on a time-proportion basis using the effective interest rate that takes into account the effective yield on the asset. Rental revenue is recognised on a timeproportion basis that takes into account the effective yield on the asset. FOREIGN CURRENCY TRANSACTIONS The functional currency is the Indonesian Rupiah (IDR) as it reflects the primary economic environment in which the Group operates. Transactions in foreign currencies are recorded in the functional currency at the rates ruling at the dates of the transactions. At each balance sheet date, recorded monetary balances and balances measured at fair value that are denominated in foreign currencies are reported at the rates ruling at the balance sheet and fair value dates respectively. All realised and unrealised exchange adjustment gains and losses are dealt with in the income statement. The presentation currency is the United States dollar as the financial statements are meant primarily for international users. For the United States dollar financial statements assets and liabilities are translated at year end rates of exchange and the income and expense items are translated at average rates of exchange for the year. The resulting translation adjustments (if any) are accumulated in a separate component of shareholders equity. The translation of IDR amounts into US$ amounts for the years ended is included solely for the convenience of readers and has been made at the rates of US$1 to IDR9,830, US$1 to IDR9,020 and US$1 to IDR9,419 for 2005, 2006 and 2007 respectively, the approximate rates of exchange at the end of each year. The average rates used were US$1 to IDR9,711, US$1 to IDR9,167 and US$1 to IDR9,136 for 2005, 2006 and 2007 respectively. Such translation should not be construed as a representation that the US$ amounts could be converted into IDR at the above rates or other rate. TRANSLATION OF FINANCIAL STATEMENTS OF FOREIGN ENTITIES The foreign entities determine the appropriate functional currency as it reflects the primary economic environment in which the entities operate. In translating the financial statements of a foreign entity for incorporation in the consolidated financial statements the assets and liabilities denominated in currencies other than the functional currency of the company are translated at year end rates of exchange and the income and expense items are translated at average rates of exchange for the year. The components of shareholders equity are stated at historical value. The resulting translation adjustments (if any) are accumulated in a separate component of equity until the disposal of the foreign entity.
F-23
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Contd) BORROWING COSTS All borrowing costs that are interest and other costs incurred in connection with the borrowing of funds are recognised as an expense in the period in which they are incurred except for borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset that necessarily take a substantial period of time to get ready for their intended use or sale are capitalised as part of the cost of that asset until substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. The interest expense is calculated using the effective interest method. INCOME TAX The income taxes are accounted using the asset and liability method that requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequence of events that have been recognised in the financial statements or tax returns. The measurements of current and deferred tax liabilities and assets are based on provisions of the enacted or substantially enacted tax laws; the effects of future changes in tax laws or rates are not anticipated. Income tax expense represents the sum of the tax currently payable and deferred tax. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same income tax authority. The carrying amount of deferred tax assets is reviewed at each balance sheet date and is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realised. A deferred tax amount is recognised for all temporary differences, unless the deferred tax amount arises from (a) goodwill for which amortisation is not deductible for tax purposes; or (b) the initial recognition of an asset or liability in a transaction which (i) is not a business combination; and (ii) at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). A deferred tax liability is not recognised for all taxable temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint ventures because (a) the company is able to control the timing of the reversal of the temporary difference; and (b) it is probable that the temporary difference will not reverse in the foreseeable future. EMPLOYEE BENEFITS Short-term employee benefits are recognised at an undiscounted amount where employees have rendered their services to the Group during the accounting periods. Contributions to defined contribution retirement benefit plans are recorded as an expense as and when they fall due. The entitys legal or constructive obligation is limited to the amount that it agrees to contribute to the fund. Post employment benefits are recognised at discounted amounts when the employees have rendered their services to the Group during the accounting periods. Liabilities and expenses are measured using actuarial techniques which include constructive obligations that arise from the Groups common practices. In calculating the liabilities, the benefits are discounted by using the projected unit credit method. Termination benefits are recognised when, and only when, the Group is committed to either; (a) terminate the employment of an employee or group of employees before the normal retirement date; or (b) provide termination benefits as a result of an offer made in order to encourage voluntary redundancy. For employee leave entitlement the expected cost of short-term employee benefits in the form of compensated absences is recognised in the case of accumulating compensated absences, when the employees render service that increases their entitlement to future compensated absences; and in the case of non-accumulating compensated absences, when the absences occur.
F-24
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Contd) SEGMENT REPORTING A business segment is a distinguishable component of an enterprise that is engaged in providing an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other business segments. A geographical segment is a distinguishable component of an enterprise that is engaged in providing products or services within a particular economic environment and that is subject to risks and returns that are different from those of components operating in other economic environments. CRITICAL JUDGEMENTS, ASSUMPTIONS AND ESTIMATION UNCERTAINTIES In addition to those disclosed elsewhere in the notes, the critical judgements made in the process of applying the accounting policies that have the most significant effect on the amounts recognised in the financial statements and the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. These estimates and assumptions are periodically monitored to make sure they incorporate all relevant information available at the date when financial statements are prepared. However, this does not prevent actual figures differing from estimates. BIOLOGICAL ASSETS The Group carries its oil palm plantations at fair value less estimated point-of-sale costs, which require extensive use of accounting estimates and assumptions. Significant components of fair value measurement were determined using assumptions and estimates including determination of future cash flows expected to be generated from the continued use of such assets, average lives of plantations, period of being immature and mature plantations, yield per hectare and annual discount rates (see Note 8). The amount of the changes in fair values would differ if there are changes to the assumptions and estimates used. Any changes in fair values of these plantations would affect the Groups balance sheet, income statement and equity. The carrying amounts of the Groups biological assets as at 31 December 2005, 2006 and 2007 were US$36,684,000, US$64,461,000 and US$111,649,000 respectively. PROPERTY, PLANT AND EQUIPMENT The Group has property, plant and equipment stated at carrying values of US$15,620,000, US$18,508,000 and US$19,869,000 as at 31 December 2005, 2006 and 2007 respectively. An assessment is made at each reporting date whether there is any indication that the asset may be impaired. If any such indication exists, an estimate is made of the recoverable amount of the asset. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates. It is impracticable to disclose the extent of the possible effects. It is reasonably possible, based on existing knowledge, that outcomes within the next financial year that are different from assumptions could require a material adjustment to the carrying amount of the balances affected. USEFUL LIVES OF PLANT AND EQUIPMENT The estimates for the useful lives and related depreciation charges for plant and equipment is based on commercial and production factors which could change significantly as a result of technical innovations and competitor actions in response to severe market conditions. The depreciation charge is increased where useful lives are less than previously estimated lives, or the carrying amounts written off or written down for technically obsolete or non-strategic assets that have been abandoned or sold. The carrying amounts of the specific assets affected by this assumption were US$13,507,000, US$16,450,000 and US$16,221,000 respectively as at 31 December 2005, 2006 and 2007.
F-25
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Contd) CRITICAL JUDGEMENTS, ASSUMPTIONS AND ESTIMATION UNCERTAINTIES (Contd) LAND RIGHTS The Group holds location permits or Ijin Lokasi in respect of plantation land in Indonesia allocated by the Indonesian Government. Upon the completion of the acquisition of such land, the Group will be entitled to begin the process of application for Business Usage Rights (Hak Guna Usaha or HGU) certificates over such land. The Ijin Lokasi may not be extended by the Indonesian Government and will automatically expire if the Group fails to acquire the land covered in the Ijin Lokasi within the stipulated validity period of the said Ijin Lokasi. In such an event, the Group may lose their rights granted by the Indonesian Government under the Ijin Lokasi in respect of the remaining area covered by the original Ijin Lokasi. At the date of this report, the Group is in the final process of obtaining HGU certificates for conversion in respect of 42,640 hectares of Kadastral land. Kadastral land is land that is measured to determine the actual land area for the HGU title based on the application submitted by the Group. The Group is also in the process of acquiring and clearing land held under their land bank prior to the issuance of Kadastral for such land. Prior to the issuance of the HGU certificates, such land is considered as uncertified land. Pending the issue of HGU certificates, the Group is permitted to physically occupy and build on the uncertified land and to plant and harvest crops. However, as the administration of land laws and regulations may be subject to a certain degree of discretion by the Indonesian government authorities, there is no assurance with certainty that the relevant authorities would not take a different approach or view as regard the uncertified land, its use, registration and future disposal for value. Should the relevant authorities take a different approach or view as regards the same and the Group is unable to convert the uncertified land to HGU certified land, the Groups interest in the uncertified land as well as the use of such land may be adversely affected. At 31 December 2007, the uncertified land amounted to 42,640 hectares. INCOME TAXES The Group has exposure to income taxes in mainly 2 jurisdictions, Indonesia and Singapore. Significant judgement is involved in determining the group-wide provision for income taxes. There are certain transactions and computations for which the ultimate determination is uncertain during the ordinary course of business. The Group recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will have an impact on the income tax and deferred tax provisions in the period in which such determination is made. The carrying amounts of the Groups current and deferred tax liabilities as at 31 December 2007 were US$990,000 and US$26,073,000 respectively. DEFERRED INCOME TAXES Management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and the extent to which deferred tax assets can be recognised. A deferred tax asset is recognised if it is probable that sufficient taxable income will be available in the future against which the temporary differences and unused tax losses can be utilised. Management also considers future taxable income and tax planning strategies in assessing whether deferred tax assets should be recognised. PENSION AND EMPLOYEE BENEFITS The determination of the Groups obligations and cost for pension and employee benefits liability is dependent on its selection of certain assumptions used by independent actuaries in calculating such amounts. Those assumptions include among others, discount rates, future annual salary increase, annual employee turnover rate, disability rate, retirement age and mortality rate. Actual results that differ from the assumptions are recognised immediately in the income statements as and when they occur. While the Group believes that its assumptions are reasonable and appropriate, significant differences in the Groups actual experience or significant changes in the assumptions may materially affect its estimated liabilities for pensionable and employee benefits and net employee benefits expense. The carrying amounts of the estimated liabilities for employee benefits as at 31 December 2005, 2006 and 2007 were US$134,000, US$213,000 and US$288,000 respectively.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Contd) ENVIRONMENTAL REGULATIONS The main environmental concerns relate to the discharge of effluent arising from the milling of FFB and clearance of land and forest for developing the Groups plantations. The main social concern relates to possible conflicts that may arise with local communities in the areas around the plantations. Any environmental claims or failure to comply with any present or future regulations could result in the imposition of fines, the suspension or a cessation of the Groups operations. The Groups plantations are subject to both scheduled and unscheduled inspections by various Indonesian government agencies, each of whom may have differing perspectives or standards from the others. These agencies have the power to examine and control the Groups compliances with their environmental regulations, including the imposition of fines and revocation of licenses and land rights. However, governmental agencies may adopt additional regulations that would require the Group to spend additional funds on environmental matters. Environmental regulations and social practices in Indonesia tend to be less stringent than in developed countries. It is possible that these regulations could become more stringent in the future and compliance with them may involve incurring significant costs. This may consequently have an adverse effect on the Groups operations. Any failure to comply with the laws and regulations could subject the Group to further liabilities. It is impracticable to disclose the extent of the possible effects of the above matters on the combined financial statements of the Group. ADVANCES/GUARANTEES UNDER THE PLASMA PROGRAMME The Group has provided guarantees in respect of loans granted by banks to villagers under the Plasma Programme. The villagers will repay the bank loans from the sale proceeds of FFB. In the event the villagers default on their obligations to repay the bank loans, the banks may call upon the guarantees, which have been provided by the Group to the banks to secure the loans of the villagers. Details of the bank guarantees provided are disclosed in Note 24 to these financial statements. 3. RELATED PARTY TRANSACTIONS A related party is an entity or person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common or joint control with, the entity in governing the financial and operating policies, or that has an interest in the entity that gives it significant influence over the entity in financial and operating decisions. It also includes members of the key management personnel or close members of the family of any individual referred to herein and others who have the ability to control, jointly control or significantly influence by or for which significant voting power in such entity resides with, directly or indirectly, any such individual. This includes parents, subsidiaries, fellow subsidiaries, associates, joint ventures and post-employment benefit plans, if any. 3.1. Related parties:
There are transactions and arrangements between the Company and related parties and the effects of these on the basis determined between the parties are reflected in these financial statements. The current related party balances are unsecured, without fixed repayment terms and interest unless stated otherwise. For non-current balances, an interest is imputed based on the prevailing market interest rate for similar debt less the interest rate if any provided in the agreement for the balance. The guarantees are provided by the guarantor without charge but for the financial statements for 2005, 2006 and 2007 fair values were imputed and considered to be not significant.
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3. RELATED PARTY TRANSACTIONS (Contd) Significant related party transactions: In addition to the transactions and balances disclosed elsewhere in the notes to the financial statements, this item includes the following: 2005 US$000 Lease related services Receiving of services expense (46) (827) 2006 US$000 (49) (870) 2007 US$000 (37) (526)
Related party refers to a partnership that is under common control by some of the directors of the Company. Intragroup transactions and balances that have been eliminated in these combined financial statements are not disclosed as related party transactions and balances below. 3.2. Key management compensation:
2005 US$000 Salaries and other short-term employee benefits 128 2006 US$000 173 2007 US$000 424
The above amounts are included under employee benefits expense. Included in the above amounts are the following items:
2005 US$000 Remuneration of directors of the subsidiaries 128 2006 US$000 173 2007 US$000 424
Key management personnel are directors and those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. The above amounts for key management compensation are for all the directors of the Company. 3.3. Other receivables from and other payables to related parties:
The trade transactions and the trade receivables and payables balances arising from sales and purchases of goods and services are disclosed elsewhere in the notes to the financial statements. The movements in other receivables from and other payables to related parties are as follows:
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3. RELATED PARTY TRANSACTIONS (Contd)
Shareholders 2005 US$000 Other receivables: Balance at beginning of year Amounts paid out during the year Amounts paid in during the year Capital distribution to shareholders arising from the liquidation of an entity Foreign currency alignment Balance at end of year debit 1,827 4,040 (975) (8) 4,884 4,884 3,863 (1,117) 13 7,643 7,643 (2,834) (4,664) (145) 2006 US$000 2007 US$000
Other related parties 2005 US$000 Other receivables: Balance at beginning of year Amounts paid out during the year Amounts paid in during the year Foreign currency alignment Balance at end of year debit 4 4 2006 US$000 2007 US$000
Shareholders 2005 US$000 Other payables: Balance at beginning of year Amounts paid out during the year Amounts paid in during the year Foreign currency alignment Balance at end of year credit 2,270 (3,567) 2,688 (29) 1,362 1,362 (1,244) 155 108 381 381 (374) (7) 2006 US$000 2007 US$000
Other related party 2005 US$000 Other payables: Balance at beginning of year Amounts paid out during the year Amounts paid in during the year Foreign currency alignment Balance at end of year credit 1 1 2006 US$000 2007 US$000
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4. CASH AND CASH EQUIVALENTS
2005 US$000 Not restricted in use Restricted in use (a) 789 12 801 Interest earning balances * 2006 US$000 1,337 14 1,351 * 2007 US$000 4,028 1,913 5,941 4,699
The interest earnings balances for 2005 and 2006 were insignificant.
The rates of interest for the cash on interest earning balances were as follows:
2005 Interest rates 4.15% to 7.0% 2006 6.5% to 7.6% 2007 3.0% to 4.0%
(a)
This is for bank balances held by bankers to cover bank facilities provided. See Notes 10 and 12.
The carrying amounts are assumed to be a reasonable approximation of fair values. Cash and cash equivalents in the cash flow statement:
2005 US$000 As shown above Cash restricted in use over 3 months Bank overdrafts (Note 10) Cash at end of year 801 (12) 789 2006 US$000 1,351 (14) 1,337 2007 US$000 5,941 (1,913) (29) 3,999
NON-CASH TRANSACTIONS Additions to property, plant and equipment for 2005, 2006 and 2007 amounting to US$928,000, US$40,000 and US$547,000 respectively were financed by new finance leases. 5. TRADE AND OTHER RECEIVABLES
2005 US$000 Trade receivables: Outside parties Other receivables (including prepayments): Other related parties (Note 3) Deposits to secure services Staff advances VAT receivable Advances under Plasma Programme (Note 24) Other receivables Shareholders (Note 3) Deferred listing expenses Prepayments Total trade and other receivables 2006 US$000 2007 US$000
77
149
1,878
4 87 1,638 1,080 188 4,884 298 8,256
1 100 1,866 906 216 7,643 1,170 12,051
4 94 923 1,523 69 1,416 3,177 9,084
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5. TRADE AND OTHER RECEIVABLES (Contd)
2005 US$000 Trade and other receivables: Current Non-current 2006 US$000 2007 US$000
8,256 8,256
12,051 12,051
8,041 1,043 9,084
Included in prepayments are the following:

2005 US$000 Prepaid rent to a related party (Note 23) Advance payments made for the purchase of kernel Others 298 298 2006 US$000 1,170 1,170 2007 US$000 1,097 378 1,702 3,177
Deferred listing expenses represent expenditures, stated at cost, incurred in relation to the Companys public listing. These expenditures will be set off against share capital and / or expensed in the following year. Staff advances are unsecured, without interest and are on fixed equal monthly repayment terms. Current receivables with a short duration are not discounted and the carrying amounts are assumed to be reasonable approximation of fair values. The trade receivables have been pledged as security for the bank facilities (see Notes 10 and 12). 6. INVENTORIES
2005 US$000 Raw materials, consumables and supplies Finished goods and goods for resale (CPO and CPKO) 1,134 3,949 5,083 2006 US$000 2,575 1,962 4,537 2007 US$000 2,762 2,409 5,171
Changes in inventories of finished goods (increase) / decrease Raw materials and consumables used included in cost of sales
(130) 24,353
1,987 22,224
(447) 36,045
Inventories are pledged as security for the bank facilities (see Notes 10 and 12).
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7.
Freehold land US$000 Vessels US$000 Total US$000 Leasehold buildings US$000 Assets under construction US$000 Plant, fixtures and equipment US$000
PROPERTY, PLANT AND EQUIPMENT
Cost: 8 8 3,519 2,105 1,780 13,763 2,929 94 657 (161) 3,075 1,544 107 (2,451) (170) 813 1,012 (45) 10,913 1,752 (96) 1,794 (600) 17,738 4,402 107 (96) (976) 21,175
At 1 January 2005 Additions Capitalisation of interest Disposals Transfer from / (to) Foreign exchange alignment
At 31 December 2005
Accumulated depreciation: 845 649 234 (38) 10 24 (1) 33 3,224 1,638 (32) (153) 4,677 3,883 1,896 (32) (192) 5,555
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8 2,674 2,105
At 1 January 2005 Depreciation for the year Disposals Foreign exchange alignment
At 31 December 2005
Net book value: 1,747 9,086 15,620
At 31 December 2005
7.
PROPERTY, PLANT AND EQUIPMENT (Contd)
Cost: 8 8 5,532 2,050 2,479 16,693 3,519 118 1,579 316 2,105 2,211 19 (2,474) 189 1,780 539 160 13,763 824 (26) 895 1,237 21,175 3,692 19 (26) 1,902 26,762
At 1 January 2006 Additions Capitalisation of interest Disposals Transfer from / (to) Foreign exchange alignment
At 31 December 2006
Accumulated depreciation: 1,375 845 447 83 33 88 4 125 4,677 1,711 (14) 380 6,754 5,555 2,246 (14) 467 8,254
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8 4,157 2,050
At 1 January 2006 Depreciation for the year Disposals Foreign exchange alignment
At 31 December 2006
Net book value: 2,354 9,939 18,508
At 31 December 2006
7.
PROPERTY, PLANT AND EQUIPMENT (Contd)
Cost: 8 8 5,718 3,640 2,374 18,428 5,532 167 242 (223) 2,050 2,751 (1,075) (86) 2,479 (105) 16,693 1,622 833 (720) 26,762 4,540 (1,134) 30,168
At 1 January 2007 Additions Transfer from / (to) Foreign exchange alignment
At 31 December 2007
Accumulated depreciation: 1,926 1,375 602 (51) 125 127 (9) 243 6,754 1,723 (347) 8,130 8,254 2,452 (407) 10,299
At 1 January 2007 Depreciation for the year Transfer from / (to) Foreign exchange alignment
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8 3,792 3,640
At 31 December 2007
Net book value: 2,131 10,298 19,869
At 31 December 2007
The freehold land is held in trust by a director of the Company.
7. PROPERTY, PLANT AND EQUIPMENT (Contd) Assets under construction represent partial payment for the construction of the following assets:
2005 US$000 Leasehold properties Plant and equipment 452 1,653 2,105 2006 US$000 740 1,310 2,050 2007 US$000 524 3,116 3,640
The depreciation expenses are partly capitalised under biological assets (Note 8) and partly charged to income statement as follows:
Cost of sales US$000 Year 2005 Year 2006 Year 2007 1,351 1,541 1,784 Administrative expenses US$000 292 396 161
Total US$000 1,643 1,937 1,945
Certain property, plant and equipment have been pledged as security for the bank facilities (see Notes 10 and 12). Certain items are under finance lease agreements (see Note 13) Borrowing costs capitalised amounted to US$107,000 and US$19,000 for the financial years ended 31 December 2005 and 2006 respectively. Accumulated borrowing costs capitalised included above amounted to US$107,000 and US$126,000 as at 31 December 2005 and 2006 respectively. The borrowing costs capitalised represent the actual interest incurred on the bank borrowings to finance the construction of property, plant and equipment. 8. BIOLOGICAL ASSETS
2005 US$000 At beginning of year Additions Capitalisation of depreciation (Note 7) Capitalisation of interest Increase / (decrease) in fair value less estimated point-of-sale costs Foreign currency alignment At end of year 43,452 3,705 253 559 (8,997) (2,288) 36,684 2006 US$000 36,684 6,166 309 1,039 16,675 3,588 64,461 2007 US$000 64,461 7,559 507 1,272 41,898 (4,048) 111,649
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8. BIOLOGICAL ASSETS (Contd) Mature oil palm trees produce Fresh Fruit Bunches (FFB), which are used to produce CPO and CPKO. The fair value of the biological assets was determined by PT Asian Appraisal Indonesia, a firm of independent professional valuers on 8 November 2007 and 18 February 2008 using the discounted future cash flows of the underlying plantations. The expected future cash flows of the oil palm plantations are determined using the forecast market price of FFB, which is largely dependent on the projected selling prices of CPO and CPKO in the market. The significant assumptions made in determining the fair values of the oil palm plantations are as follows: (i) Oil palm trees have an average life that ranges from 23 to 25 years, with the first three years as immature and the remaining years as mature; Yield per hectare of oil palm trees is based on the guidelines issued by the Indonesian Oil Palm Research Institute (Pusat Penelitian Kelapa Sawit), which varies with the average age of oil palm trees; The discount rates used in 2005, 2006 and 2007 are 22%, 18% and 18% per annum, respectively, (such discount rates represent the asset specific rate for the Groups plantation operations which are applied in the discounted future cash flows calculations); and The projected selling prices of CPO and CPKO from 2005 to 2007 are based on Rotterdam CIF prices. (a) Analysis of biological assets: At the end of the financial year, biological assets comprise oil palm trees as follows:
2005 Planted area: - mature (US$000) - immature (US$000) 2006 2007
(ii)
(iii)
(iv)
27,653 9,031 36,684
46,902 17,559 64,461
92,164 19,485 111,649
Planted area: - mature (hectares) - immature (hectares)
7,412 4,866 12,278
7,412 9,379 16,791
8,409 14,199 22,608
(b)
Analysis of palm oil production: During the financial years 2005, 2006 and 2007, the Group harvested approximately 124,000, 137,000 and 171,000 tonnes of FFB respectively, which had fair values less estimated point-of-sale costs of US$9,293,000, US$11,074,000 and US$19,857,000 respectively.
(c)
At the balance sheet dates at 31 December 2005, 2006 and 2007, the fair values of biological assets of the Group mortgaged as security for bank borrowings amounted to US$11,908,000 US$17,702,000 and US$71,251,000 respectively. The interest capitalised is the actual interest incurred on the bank borrowings to finance the development of oil palm plantations.
(d)
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9. LAND RIGHTS
2005 US$000 Cost: At beginning of year 1 January Additions Foreign currency alignment At end of year 31 December 1,120 336 (61) 1,395 1,395 635 125 2,155 2,155 651 (91) 2,715 2006 US$000 2007 US$000
Accumulated depreciation: At beginning of year 1 January Amortisation for the year Foreign currency alignment At end of year 31 December
94 32 (5) 121
121 57 12 190
190 55 (10) 235
Net book value: At end of year 31 December 1,274 1,965 2,480
The amortisation expenses are charged to income statement and included in administrative expenses. The land rights have been pledged as security for the bank facilities (see Notes 10 and 12). As at 31 December 2007, the Groups land rights covering a total land area of 62,310 hectares, represent Business Usage Rights (Hak Guna Usaha or HGU) that have been applied for. Out of these land rights, the certificates for 19,670 hectares were obtained before 31 December 2007 while the land rights certificates covering the remaining area of 42,640 hectares are still in the progress of preparation as at the date of this report. The Group has been given a permit to arrange for land clearing for oil palm plantation purposes. The land rights will be amortised once the titles are issued to the Group. The legal terms of the Groups existing certified land rights expire in various years. The details are as follows:
Land rights 19,374 hectares 296 hectares 42,640 hectares Expire in years 2032 2037 2037 2042 Certificates have yet to be received as of the date of this report
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10. SHORT-TERM BORROWINGS
2005 US$000 Bank loans secured Bank loans unsecured Bank overdrafts secured Total short-term borrowings 3,369 3,713 7,082 2006 US$000 1,602 7,816 9,418 2007 US$000 328 116 29 473
All the short-term borrowings are interest bearing. The carrying values are assumed to be a reasonable approximation of fair values. The range of floating interest rates which approximate the weighted effective interest rates paid were as follows:
2005 Bank loans and bank overdrafts 8.0% to 16.5% 2006 8.0% to 16.5% 2007 Sibor+4% and 16.5%
The bank overdrafts and other banking facilities are covered by way of: (a) (b) joint and several personal guarantees of directors and shareholders; or corporate guarantees from a related party and negative pledges on certain fixed deposits, inventories, trade receivables, land rights, properties, vessels, plant and equipment of the Group.
The exposure of the short-term borrowings to interest rate changes and the contractual repricing dates at the balance sheet dates are as follows:
2005 US$000 Below 6 months Within 6 to 12 months Total short-term borrowings 3,541 3,541 7,082 2006 US$000 4,709 4,709 9,418 2007 US$000 236 237 473
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11. TRADE AND OTHER PAYABLES
2005 US$000 Trade payables: Outside parties and accrued liabilities Other payables: Other related party (Note 3) Shareholders (Note 3) Advances from customers Advances under Plasma Programme (Note 24) Provision for listing expenses Other payables Total trade and other payables 1,362 592 952 7,090 381 3,865 328 544 9,475 1 1,168 1,276 862 12,686 4,184 4,357 9,379 2006 US$000 2007 US$000
Included in the other payables is US$304,000 and US$331,000 representing amounts payable to suppliers for the acquisition of plant and equipment at 31 December 2005 and 2007 respectively and US$67,000 representing amounts payable to suppliers for construction of properties at 31 December 2007. 12. LONG-TERM BORROWINGS
2005 US$000 Investment loan A (Effective) secured Investment loan B (Effective) secured Investment loan C (Effective) secured Investment loan D (Interest during construction) secured Investment loan E (Interest during construction) secured Investment loan F (Interest during construction) secured Investment loan G secured Bank loan secured Term loan I secured Term loan II unsecured Term loan III unsecured Term loan IV secured Term loan V unsecured Term loan VI unsecured Term loan VII secured Term loan VIII secured Term loan IX secured Term loan X secured Term loan XI secured 2,059 6,869 20 1,099 474 767 2,000 3,604 16,892 2006 US$000 972 9,135 1,377 78 1,728 11 974 333 597 2,000 4,000 21,205 2007 US$000 907 7,764 3,273 82 1,602 248 541 693 266 1,062 2,000 3,000 2,000 4,000 1,000 3,819 1,636 33,893
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12. LONG-TERM BORROWINGS (Contd)
2005 US$000 The borrowings are repayable as follows: Amounts due within a year Total current portion Non-current portion 2,907 2,907 13,985 2,522 2,522 18,683 2,233 2,233 31,660 2006 US$000 2007 US$000
The non-current portion is payable as follows: Due within 2 to 5 years After 5 years Total non-current portion 13,369 616 13,985 18,683 18,683 28,479 3,181 31,660
The range of floating interest rates which approximate the weighted effective interest rates paid were as follows:
Investment loan A (Effective) secured Investment loan B (Effective) secured Investment loan C (Effective) secured Investment loan D (Interest during construction) secured Investment loan E (Interest during construction) secured Investment loan F (Interest during construction) secured Investment loan G secured Bank loan secured Term loan I secured Term loan II unsecured Term loan III unsecured Term loan IV secured Term loan V unsecured Term loan VI unsecured Term loan VII secured Term loan VIII secured Term loan IX secured Term loan X secured Term loan XI secured 7.75% to 16.50% 13.00% to 16.50% 7.75% to 16.50% 13.00% to 16.50% 15.00% 7.50% 9.75% to 9.76% 9.75% 13.50% to 16.50% 16.00% to 16.50% 16.00% 13.50% to 16.50% 16.00% to 16.50% 16.00% 8.00% 15.43% to 15.74% 7.50% 9.36% to 9.76% 9.78% 13.00% to 15.00% 13.50% to 16.00% 13.00% to 16.00% 13.00% to 15.00% 13.50% to 16.00% 13.00% to 16.00% 8.00% 7.84% to 15.74% Sibor+4% 13.80% Sibor+3.50% Sibor+3.50% 7.84% to 9.75% 7.84% to 9.75% 7.84% to 9.75% Sibor+3.00% Sibor+3.00%
The exposure of the long-term borrowings to interest rate changes and the contractual repricing dates at the balance sheet dates are as follows:
2005 US$000 Below 6 months Within 6 to 12 months Within 2 to 5 years Over 5 years Total long-term borrowings 1,454 1,453 13,369 616 16,892 2006 US$000 1,261 1,261 18,683 21,205 2007 US$000 1,116 1,117 28,479 3,181 33,893
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12. LONG-TERM BORROWINGS (Contd) All the borrowings are interest bearing. The carrying value of long-term borrowings approximates the fair value. The investment loans A and D are covered by personal guarantees from directors and shareholders and by negative pledges on fixed deposits, certain inventories, trade receivables, land rights, and property, plant and equipment. In 2007, the personal guarantees from directors and shareholders were discharged. The investment loans are repayable by quarterly instalments according to the loan repayment schedules from banks. The investment loans will be fully repaid by year 2010. (i) Investment loan A (Effective) The purpose of the loan is to finance the construction of a CPO mill inclusive of all the related facilities such as building construction, vehicles and heavy duty equipment. The funds are drawn down quarterly in accordance with progress payments for the first 5 years. The payment of interest expenses is conducted in 2 ways: 1. During the construction period which is 4.5 years in accordance with the loan agreement, the interest rates are 7.75% to 16.50%, 13.50% to 16.50% and 13.00% to 15.00% per annum for 2005, 2006 and 2007 respectively and charged quarterly. During this period, 65% of the interest charged is capitalised with the investment loan (See investment loan D - Interest during construction), and the remaining 35% is payable in the current period. After the construction period, the floating interest rates are 7.75% to 16.50%, 13.50% to 16.50% and 13.00% to 15.00% per annum for 2005, 2006 and 2007 respectively and no interest charged is capitalised with the investment loan (See investment loan D - Interest during construction).
2.
(ii)
Investment loan D (Interest during construction) The investment loan (Interest during construction) credit facility is the accumulated interest charges capitalised during the construction period. As stated above, the payment obligation for 65% of the total interest charges is postponed until the end of the construction period which is up to the end of the 4.5 year period limit.
The investment loans B and E are covered by negative pledges on certain inventories, trade receivables, land rights, and properties, plant and equipment. The investment loans are repayable by quarterly instalments according to the loan repayment schedules from banks. The investment loans will be fully repaid by year 2011. (i) Investment loan B (Effective) The purpose of the loan is to finance the construction of a CPO mill inclusive of all the related facilities such as building construction, vehicles and heavy duty equipment. The funds are drawn down quarterly in accordance with progress payments for the first 5 years.
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12. LONG-TERM BORROWINGS (Contd) The payment of interest expenses is conducted in 2 ways: 1. During the construction period which is 4.5 years in accordance with the loan agreement, the interest rates are 13.00% to 16.50%, 16.00% to 16.50% and 13.50% to 16.00% per annum for 2005, 2006 and 2007 respectively and charged quarterly. During this period, 65% of the interest charged is capitalised with the investment loan (See investment loan E - Interest during construction), and the remaining 35% is payable in the current period. After the construction period, the floating interest rates are 13.00% to 16.50%, 16.00% to 16.50% and 13.50% to 16.00% per annum for 2005, 2006 and 2007 respectively and no interest charged is capitalised with the investment loan (See investment loan E - Interest during construction).
2.
(ii)
Investment loan E (Interest during construction) The investment loan (Interest during construction) credit facility is the accumulated interest charges capitalised during the construction period. As stated above, the payment obligation for 65% of the total interest charges is postponed until the end of the construction period which is up to the end of the 4.5 year period limit.
The investment loans C and F are covered by personal guarantees from shareholders and directors and by negative pledges on biological assets and land rights. The investment loans are repayable by quarterly instalments according to the loan repayment schedules from banks. The investment loans repayment will commence in year 2011 and will be fully repaid by year 2016. (i) Investment loan C (Effective) The purpose of the loan is to finance the construction of a CPO mill inclusive of all the related facilities such as building construction, vehicles and heavy duty equipment. The funds are drawn down quarterly in accordance with progress payments for the first 5 years. The payment of interest charges is conducted in 2 ways: 1. During the construction period which is 4.5 years in accordance with the loan agreement, the floating interest rate is 16.00% and 13.00% to 16.00% per annum for 2006 and 2007 respectively and charged quarterly. During this period, 65% of the interest charged is capitalised with the investment loan (See investment loan F Interest during construction), and the remaining 35% is payable in the current period. After the construction period, the floating interest rate is 16% and 13.00% to 16.00% per annum for 2006 and 2007 respectively and no interest charged is capitalised with the investment loan (Interest during construction).
2.
(ii)
Investment loan F (Interest during construction) The investment loan (Interest during construction) credit facility is the accumulated interest charges capitalised during the construction period. As stated above, the payment obligation for 65% of the total interest charges is postponed until the end of the construction period which is up to the end of 4.5 year period limit.
The investment loan G is secured by the vessels of the Group. The loan is repayable by quarterly instalments over 3 years from February 2006.
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12. LONG-TERM BORROWINGS (Contd) The bank loan is covered by negative pledges on certain of the Groups land rights, inventories and plant and equipment. The loans are used for working capital purposes and are repayable within 3 years from May 2005. The term loan I is fully repayable by year 2008 while the term loans II and III were fully repaid in September 2007. Term loan I is secured by plant and equipment and vessels of the Group. The term loan IV is repayable by monthly instalments over 5 years from January 2009 and is secured by land and buildings of the Group. The term loans V and VI are fully repayable by September 2010. The term loans VII, VIII and IX are fully repayable by 2009 and are secured by the receivables and inventories of the Group. Term loans X and XI are fully repayable by June 2009 or via IPO proceeds, whichever is sooner, and are secured by a corporate guarantee and letter of comfort by PT Sawindo Kencana. 13. OBLIGATIONS UNDER FINANCE LEASES
2005 Minimum payments US$000 Finance charges US$000 Present value US$000
Minimum lease payments payable: Due within one year Due within 2 to 5 years Total 591 544 1,135 (93) (35) (128) 498 509 1,007
Net book value of plant and equipment under finance leases Analysis of above amount denominated in non-functional currency: United States dollars
2,816
333
2006
Minimum payments US$000
Finance charges US$000
Present value US$000
Minimum lease payments payable: Due within one year Due within 2 to 5 years Total 488 150 638 (32) (20) (52) 456 130 586
Net book value of plant and equipment under finance leases Analysis of above amount denominated in non-functional currency: United States dollars
1,970
212
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13. OBLIGATIONS UNDER FINANCE LEASES (Contd)
2007 Minimum payments US$000 Finance charges US$000 Present value US$000
Minimum lease payments payable: Due within one year Due within 2 to 5 years Total 295 329 624 (50) (37) (87) 245 292 537
Net book value of plant and equipment under finance leases
1,129
Analysis of above amount denominated in non-functional currency: United States dollars 74
It is the Groups policy to lease certain of its plant and equipment under finance leases. The average lease term is 3 to 4 years. The range of interest rates for certain of the finance leases are fixed at 7.60% to 17.12% per annum. The range of interest rates for certain of the finance leases are fixed at 14.50% to 17.00% for the first 6 to 12 months and then at floating rates based on cost of funds + 3.75% to + 4.15% per annum for the remaining period. There is an exposure to fair value interest risk because the interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments. All lease obligations are denominated in Indonesian Rupiah and United States dollars. The obligations under finance leases are secured by the lessors charge over the leased assets and joint and several personal guarantees of certain directors of the Group. The fair value of the lease liabilities approximates the carrying amounts. 14. ESTIMATED LIABILITY FOR EMPLOYEE BENEFITS Besides the benefits provided under the defined contribution retirement plans (see Note 20), the Group has recorded additional provisions for employee service entitlements in order to meet the minimum benefits required to be paid to the qualified employees, as required under existing manpower regulations in Indonesia. The amounts of such additional provisions were determined based on actuarial computations prepared by an independent firm of actuaries, PT Rileos Pratama, using the Projected Unit Credit method which is covered in their reports dated 1 October 2007 and 12 February 2008. As at 31 December 2005, 2006 and 2007, the balance of the related actuarial liability for employee benefits amounted to US$134,000, US$213,000 and US$288,000 respectively, which is presented as Estimated Liability for Employee Benefits in the balance sheets. They are as follows:
2005 US$000 Present value of employee benefits obligation in addition to the defined contribution scheme Unrecognised net actuarial loss Foreign currency alignment 2006 US$000 2007 US$000
139 (4) (1) 134
219 (9) 3 213
342 (45) (9) 288
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14. ESTIMATED LIABILITY FOR EMPLOYEE BENEFITS (Contd) Changes in the present value of the defined benefits obligation are as follows:
2005 US$000 Benefits obligation at beginning of year Current service costs Interest costs on benefits obligation Past services costs vested Foreign currency alignment Benefits obligation at end of year 77 54 8 (5) 134 2006 US$000 134 46 15 5 13 213 2007 US$000 213 62 24 2 (13) 288
The following table summarises the component of net employee benefits expense recognised in the income statements:
2005 US$000 Current service costs Interest costs on benefits obligation Past services costs vested Net employee benefits expense (Note 20) 54 8 62 2006 US$000 46 15 5 66 2007 US$000 62 24 2 88
The principal assumptions used in determining post-employment obligations for the plan are as follows: Annual discount rate Future annual salary increase Annual employee turnover rate : : : 10% in 2005, 10% in 2006 and 10% in 2007 6% in 2005, 6% in 2006 and 6% in 2007 10% in 2005 and 2006, and 5% in 2007 for employees under 40 years old and decreasing linearly until 0% at the age of 55 years 10% per year from mortality rate for office staff 20% per year from mortality rate for plantation staff 55 years of age Indonesian mortality table 2
Disability rate
Retirement age Mortality rate
: :
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15. SHARE CAPITAL
Number of shares 000 Ordinary shares: Balance at beginning of year 1 January 2005 Issue of shares Share application money Balance at end of 31 December 2005 Issue of shares Share application money Balance at end of year 31 December 2006 Issue of shares Balance at end of year 31 December 2007
(a)
Issued share capital US$000 13,091 1,112 1,119 15,322 1,186 2,247 18,755 355 19,110
1,457 38 1,495 191 1,686 2,279 3,965
(a)
The share capital represents the combined share capital of the subsidiaries prior to the Restructuring Exercise.
The ordinary shares carry no right to fixed income. The Company is not subject to any externally imposed capital requirements. As set out in Note 1, the Company completed a Restructuring Exercise on 19 June 2008. The issued share capital of the Company on completion of the Restructuring Exercise was US$12,981,000. The financial effects on the combined financial statements had the Restructuring Exercise been effective as at 31 December 2007, are illustrated in the unaudited proforma combined financial information of the Group (Appendix E). The objectives when managing capital are: to safeguard the Companys ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, and to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk. The Company sets the amount of capital in proportion to risk. The management manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the management may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt. The company has significant external borrowings but an equity base. The debt-to-adjusted capital ratio may not provide a meaningful indicator of the risk of borrowings. 16. REVENUE
2005 US$000 Sale of goods Rendering of services Rental income Management fee income Total 36,297 181 136 9 36,623 2006 US$000 40,643 309 106 9 41,067 2007 US$000 68,511 664 105 69,280
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17. FINANCIAL EXPENSE
2005 US$000 Bad debts written off other receivables Interest expense (9) (1,172) (1,181) 2006 US$000 (1,892) (1,892) 2007 US$000 (2,797) (2,797)
18.
OTHER CREDITS/ (CHARGES)

2005 US$000 Gain on disposal of plant and equipment Unrealised loss on futures contracts (Note 25) Loss on non-physical delivery futures contracts Assets written down Compensation from outside parties Other income Others 242 95 71 408 2006 US$000 13 (2) 5 5 68 89 2007 US$000 (677) (439) 101 9 (39) (1,045)
19.
INCOME TAX
2005 US$000 Current Deferred Total tax (expense) / credit (96) 2,234 2,138 2006 US$000 (639) (4,843) (5,482) 2007 US$000 (648) (14,706) (15,354)
The income tax (expense)/credit varied from the amount of income tax (expense) / benefit determined by applying the applicable Indonesian income tax rates to profit / (loss) before income tax as a result of the following differences: 2005 US$000 (Loss) / profit before tax Income tax (expense) / benefit at the statutory rates* Non-(allowable) / taxable items Tax exemptions Deferred tax assets valuation allowance Prior years tax loss carryforwards utilised Other items less than 3% each Total tax credit / (expense) (9,175) 2006 US$000 20,317 2007 US$000 54,556
2,753 (173) 2 (144) (300) 2,138
(6,095) 254 2 73 284 (5,482)
(16,367) 139 (191) 1,518 (453) (15,354)
* Companies in Indonesia are generally subject to progressive tax rates up to a maximum of 30%.
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19.
INCOME TAX (Contd) The deferred tax amounts are as follows:

Balance sheet 2005 US$ 000 Deferred tax liabilities: Excess of net book value of plant and equipment Fair value changes in biological assets and others 2006 US$ 000 2007 US$ 000 Net change in income statement 2005 US$ 000 2006 US$ 000 2007 US$ 000
(535) (8,874) (9,409)
(418) (13,961) (14,379) 203 (14,176)
(927) (26,449) (27,376) 1,283 (26,093)
(292) 2,451 2,159 2,159
117 (5,087) (4,970) (4,970)
(509) (12,488) (12,997) (12,997)
Foreign currency alignment included in equity Total deferred tax liabilities Deferred tax assets: Tax loss carryforwards Deferred tax assets valuation allowance
976 (8,433)
1,844 (234) 1,610
1,898 (161) 1,737 29 1,766
380 (352) 28 (8) 20
219 (144) 75 75
54 73 127 127
(1,518) (191) (1,709) (1,709)
Foreign currency alignment included in equity Total deferred tax assets Net total of deferred tax assets/(liabilities)
(117) 1,493
(6,940)
(12,410)
(26,073)
2,234
(4,843)
(14,706)
It is impracticable to estimate the amount expected to be settled or used within one year. 20. EMPLOYEE BENEFITS EXPENSE
2005 US$000 Employee benefits expense Contribution to defined contribution retirement plans Other post-employment benefits (Note 14) Other employee benefits Total employee benefits expense 1,295 27 62 59 1,443 2006 US$000 1,634 38 66 17 1,755 2007 US$000 2,845 39 88 62 3,034
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21. EARNINGS / (LOSS) PER SHARE The earnings per share for the years ended 31 December 2005, 2006 and 2007 are calculated by dividing the Groups (loss) / profit for the year of (US$7,037,000), US$14,835,000 and US$39,202,000 respectively by the number of the pre-invitation ordinary shares of 798,044,720. Both basic and diluted earnings per share are the same as there are no dilutive ordinary share equivalents outstanding during the years ended 31 December 2005, 2006 and 2007. 22. DERIVATIVE FINANCIAL INSTRUMENTS The following are the principal derivative financial instruments. Currency derivatives: Currency derivatives are utilised to eliminate or reduce the exposure of foreign currency denominated assets and liabilities, and to hedge future transactions and cash flows. The Group is a party to a variety of foreign currency forward contracts in the management of its exchange rate exposures. The instruments purchased are primarily denominated in the currencies of the Groups principal markets. As a matter of principle, the Group does not enter into derivative contracts for speculative purposes. At the balance sheet dates, the Group had contracted to sell and purchase the following amounts under forward contracts.
2005 US$000 Purchase United States dollars for Indonesian Rupiah: Contractual amount Estimated fair value Sell United States dollars for Indonesian Rupiah: Contractual amount Estimated fair value Maturity period 2006 Maturity period 2007 500 521 3,330 3,189 3,000 2,993 2006 US$000 2007 US$000
January to April 2007 January to March 2008
The fair value of the currency derivatives is estimated above based on market values of equivalent instruments at the balance sheet date. It is based on the difference between the contractual exchange rate and the market rate at the balance sheet date. Fair value adjustments of the above derivatives were not made in the income statements in 2006 and 2007 as the amounts were not significant.
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23. OPERATING LEASE PAYMENTS COMMITMENTS At the balance sheet date the total of future minimum lease payments under non-cancellable operating leases are as follows:
2005 US$000 Not later than one year Later than one year and not later than five years Rental expense for the year 46 221 46 2006 US$000 50 241 49 2007 US$000 597 189 57
Operating lease payments represent rentals payable for certain office and warehousing premises. The leases from the owners are for 10 years from 30 June 2002 to 30 December 2012 and 25 years from 1 July 2008 to 30 June 2033 respectively. The lease rental terms are negotiated annually and rentals are subject to an escalation clause but the amount of the rent increase is not to exceed a certain percentage. Such increases are not included in the above amounts. On 13 November 2007, one of the subsidiaries has entered into a long term lease agreement for 25 years with a related party. As at 31 December 2007, the subsidiary has prepaid an initial aggregate amount of US$1,097,000 (IDR 10 billion) to the related party. In addition, the balance of the rent amounting to US$500,000 (IDR 5 billion) which is included above will be paid upon the handing over of the premises to the subsidiary in accordance with the agreement. This is expected to take place in the second quarter of 2008. 24. CONTINGENT LIABILITIES Corporate guarantees given by the Group under the Plasma Programme Certain subsidiaries of the Group have implemented the Plasma Programme using KKPA, KKSR and Plasma Mandiri. The development of plantations is financed by credit investment facilities granted by designated banks to the villagers through local cooperatives as the representatives of the villagers. The loan facilities are secured against the land certificates held by the villagers and corporate guarantees from the Group. The credit facility amounts and the outstanding balances of the bank loans granted by the banks to the villagers as at 31 December 2005, 2006 and 2007 are as follows:
2005 US$000 Facility amounts Outstanding balances 7,045 2,793 2006 US$000 7,678 3,991 2007 US$000 9,773 3,775
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24. CONTINGENT LIABILITIES (Contd) Corporate guarantees given by the Group under the Plasma Programme (Contd) Upon maturity of the oil palms, the land will be maintained and managed by the villagers or in the future by the Group. The harvested fresh fruit bunches (FFB) will then be sold to the Group. The villagers will repay the loan facilities from a portion of the FFB sale price. In addition to the scheme, the Group provided temporary funding to the local cooperative for working capital purposes. The cost of development of plantations, funds received from the designated banks on behalf of local cooperatives and temporary funding provided to local cooperatives as at 31 December 2005, 2006 and 2007 are as follows:
2005 US$000 Cost of development of plantations Funds received on behalf Advances provided to cooperatives Total Presented as: - Other receivables (Note 5) - Other payables (Note11) Total 1,080 1,080 906 (328) 578 1,523 1,523 1,071 9 1,080 2006 US$000 813 (328) 93 578 2007 US$000 1,523 1,523
25.
COMMITMENTS a. Capital commitments Estimated amounts committed at the balance sheet date for future capital expenditure but not recognised in the financial statements are as follows:
2005 US$000 Commitments for land clearing and development Commitments to purchase plant and equipment Commitments to construct leasehold buildings and jetty facilities 3,060 71 2006 US$000 2,291 826 998 2007 US$000 452 1,000
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25. COMMITMENTS (Contd) b. Commitments for sales The Group has the following committed sales contracts for crude palm oil and palm kernel cake at 31 December 2007. The contractual or underlying principal amounts of the committed contracts with fixed pricing terms that were outstanding at the balance sheet date were as follows:
2007 US$000 Sale of crude palm oil and palm kernel cake Year end fair values: - Positive fair value - Negative fair value Net fair value Maturity period 10,417
211 (1,277) (1,066) January to May 2008
The losses arising from these contracts are not recognised in the combined financial statements until physical deliveries take place. c. Futures commodity contracts Futures commodity contracts are entered into to manage the fluctuations in prices of crude palm oil. The futures contracts are not designated as hedges for accounting purposes. The contractual or underlying principal amounts of the futures contracts with fixed pricing terms that were outstanding at 31 December 2007 were as follows:
2007 US$000 Sale of crude palm oil Year end fair values: - Positive fair value - Negative fair value Net fair value Maturity period 3,473
(677) (677) April to December 2008
The unrealised losses from these futures contracts have been recognised in the income statement in 2007.
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26. FINANCIAL INFORMATION BY SEGMENTS The Group operates predominantly in only one business segment, which is the plantation and palm oil segment. Accordingly, no segmental information is prepared based on business segment as it is not meaningful. The Group operates primarily in Indonesia with sales made to the Indonesian market. Accordingly, an analysis of assets and profits of the Group by geographical distribution has not been included for the purposes of presentation under secondary segment. 27. FINANCIAL INSTRUMENTS: INFORMATION ON FINANCIAL RISKS
27A. Financial risk management The main purpose of the financial instruments is to raise finance for the entitys operations. The main risks arising from the entitys financial instruments are credit risk, interest risk, liquidity risk, foreign currency risk and market price risk comprising interest rate and currency risk exposures. The financial instruments comprise some cash and liquid resources, receivables, payables and borrowings. There are also derivative instruments. Credit risk on cash balances and derivative financial instruments is limited because the counter-parties are banks with high credit ratings. An ongoing credit evaluation is performed of the debtors financial condition and a loss from impairment is recognised in the income statement. There is no significant concentration of credit risk, as the exposure is spread over a large number of counter-parties and customers unless otherwise disclosed in the notes to the financial statements. There are arrangements to reduce currency risk exposure through derivatives. The entity has certain strategies for the management of financial risks. These guidelines set up the short and long term objectives and action to be taken in order to manage the financial risks. The major guidelines are the following: 1. 2. Minimise interest rate, currency, credit and market risk for all kinds of transactions. Maximise the use of natural hedge: favouring as much as possible the natural off-setting of sales and costs and payables and receivables denominated in the same currency and therefore put in place hedging strategies only for the excess balance. The same strategy is pursued with regard to interest rate risk. Enter into derivatives or any other similar instruments solely for hedging purposes. All financial risk management activities are carried out and monitored by senior management staff. All financial risk management activities are carried out following good market practices. The entity may consider investing in shares or similar instruments only in the case of temporary excess of liquidity and such transactions have to be authorised by the board of directors.
3. 4.
5. 6.
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27. FINANCIAL INSTRUMENTS: INFORMATION ON FINANCIAL RISKS (Contd)
27B. Carrying amount of financial assets and liabilities The following table summarises the carrying amount of financial assets and liabilities recorded at the end of the year by FRS 39 categories:
2005 US$000 Financial assets: Cash and cash equivalents Trade and other receivables At end of year 801 6,316 7,117 1,351 9,014 10,365 5,941 3,568 9,509 2006 US$000 2007 $000
Financial liabilities: Financial liabilities at fair value through profit or loss designated as such upon initial recognition: - Futures commodity contracts Measured at amortised cost: - Borrowings - Finance leases - Trade and other payables At end of year
23,974 1,007 6,498 31,479
30,623 586 5,282 36,491
677 34,366 537 11,518 47,098
27C. Credit risk on financial assets Financial assets that are potentially subject to concentrations of credit risk and failures by counterparties to discharge their obligations consist principally of cash, cash equivalents, trade and other accounts receivable. Credit risk on cash balances and derivative financial instruments is limited because the counter-parties are banks with high credit ratings. The exposure to credit risk is controlled by setting limits on the exposure to individual customers and these are disseminated to the relevant persons concerned and compliance is monitored by management. As part of the process of setting customer credit limits, different external credit reference agencies are used, according to the country of the customer. Cash and cash equivalents balances represent short-term deposits with less than 30 days maturity except for cash restricted in use (Note 4). The average credit period generally granted to non-related trade receivable debtors is 30 days for 2005, 2006 and 2007. Some debtors take a longer period to settle the amounts. The table below illustrates the trade receivables ageing analysis:
2005 US$000 Trade receivables: Less than 30 days At end of year 77 77 149 149 1,878 1,878 2006 US$000 2007 US$000
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27C. Credit risk on financial assets (Contd) Concentration of trade receivable customers:
2005 US$000 Concentration of trade receivables customers: Top 1 customer Top 2 customers 2006 US$000 2007 US$000
18 18
20 20
1,536 1,690
Other receivables are normally with no fixed terms and therefore there is no maturity. 27D. Liquidity risk The liquidity risk is managed on the basis of expected maturity dates of the financial liabilities. The following table analyses financial liabilities by remaining contractual maturity (contractual and undiscounted cash flows):
2005 US$000 Borrowings: Less than 1 year 1 3 years 3 5 years Over 5 years At end of year 9,989 8,947 4,422 616 23,974 11,940 961 17,722 30,623 2,706 27,417 1,062 3,181 34,366 2006 US$000 2007 US$000
The average credit period taken to settle non-related trade payables is about 30 to 60 days for 2005, 2006 and 2007. The other payables are with short-term durations. The carrying amounts are assumed to be a reasonable approximation of fair values. See Note 13 for details of the maturity of finance leases. It is expected that all the liabilities will be paid at their contractual maturity. In order to meet such cash commitments the operating activity is expected to generate sufficient cash inflows. Bank facilities:
2005 US$000 Undrawn borrowing facilities 4,459 2006 US$000 12,797 2007 US$000 8,737
The undrawn borrowing facilities are available for operating activities and to settle other commitments. Borrowing facilities are maintained to ensure funds are available for budgeted operations. A monthly schedule showing the maturity of financial liabilities and unused borrowing facilities is provided to management to assist them in monitoring the liquidity risk.
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27E. Interest rate risk The interest rate risk exposure mainly concerns financial liabilities and financial assets. These financial instruments are both at fixed and floating rates. The interest rate risk on financial assets is not significant. The following table analyses the breakdown of the financial liabilities by type of interest rate:
2005 US$000 Financial liabilities: Floating rate Non-interest bearing At end of year 24,981 6,498 31,479 31,209 5,282 36,491 34,903 12,195 47,098 2006 US$000 2007 US$000
Sensitivity analysis:
2005 US$000 A hypothetical increase in interest rates by 50 basis points would have an adverse effect on profit before tax of A hypothetical increase in interest rates by 100 basis points would have an adverse effect on profit before tax of A hypothetical increase in interest rates by 150 basis points would have an adverse effect on profit before tax of A hypothetical increase in interest rates by 200 basis points would have an adverse effect on profit before tax of 2006 US$000 2007 US$000
(68)
(92)
(134)
(136)
(187)
(268)
(203)
(282)
(402)
(271)
(378)
(536)
The analysis has been performed for floating interest rate financial liabilities. The impact of a change in interest rates on floating interest rate financial instruments has been assessed in terms of changing of their cash flows and therefore in terms of the impact on net expenses. Also see Notes 10 and 12 for interest rates. 27F. Foreign currency risks The Group operates in several countries and as a result, is exposed to foreign currency risk as part of its normal business. Other than sales to third party customers within Indonesia, the Group has significant exposure to US$ currency risk due to the large value of sales made in United States dollars while its purchases and business operations in Indonesia are mainly denominated in IDR. The Group reports its financial results in US$. Any fluctuation in exchange rates will also result in foreign currency exchange gains or losses arising from transactions carried out in the foreign currencies as well as translations of foreign currency monetary assets and liabilities as at the balance sheet dates. In this respect, foreign currency contracts are entered into on a rollover basis for the purpose of hedging the excess of anticipated sales in US$ over purchases in US$. Note 22 illustrates the foreign currency hedging activities in place at the end of each year.
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27F. Foreign currency risks Foreign exchange forward contracts are used to limit exposure to losses on account receivables and payables and anticipated transactions denominated in foreign currencies resulting from changes in foreign currency exchange rates. Foreign exchange forward contracts which are designated and effective as hedges of such currency exchange rate risk on existing assets and liabilities are marked to market and included as an offset to foreign exchange losses/gains recorded on the existing assets and liabilities. Such contracts on anticipated transactions, which do not qualify as hedges for accounting purposes, are marked to market with changes in value recognised in foreign exchange gains / losses in the income statement. The board of directors will review the foreign currency hedging policy periodically and new hedging policies to be implemented by the Group must be approved by the board. The Company will also prepare relevant information to assist the board in its quarterly review. The Group does not enter into foreign currency forward contracts for speculative purposes. Analysis of above amount denominated in non-functional currency:
Cash and cash equivalents US$000
Financial assets:
Receivables US$000
Total US$000
At 31 December 2005: US dollars At 31 December 2006: US dollars At 31 December 2007: US dollars
354
77
431
332
149
481
3,593
147
3,740
Financial liabilities:
Borrowings US$000
Finance leases US$000
Total US$000
At 31 December 2005: US dollars At 31 December 2006: US dollars At 31 December 2007: US dollars
9,676
333
10,009
8,792
212
9,004
12,000
74
12,074
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27F. Foreign currency risks (Contd) Sensitivity analysis:

2005 US$000 A hypothetical 10% increase in the exchange rate of the functional currency against the US$ would have an adverse effect on profit before tax of 2006 US$000 2007 US$000
(1,064)
(947)
(1,100)
The analysis above has been carried out on the basis that there are no hedged transactions. In managements opinion, the above sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the year end exposures do not reflect the exposures during the year. 27G. Price risk The Group is exposed to commodity price risk due to certain factors, such as weather, government policy, level of demand and supply in the market and the global economic environment resulting from population growth and changes in standards of living, and global production of similar and competitive crops. During its ordinary course of business, the value of its open sales and purchase commitments and inventory of raw material changes continuously in line with movements in the prices of the underlying commodity. To the extent that its open sales and purchase commitments do not match at the end of each business day, the Group will be subject to price fluctuations in the commodities market. Consequently, it is the Groups policy to minimise the risks arising from the fluctuations in the commodity prices by being partly self-sufficient in CPO and CPKO as this provides a hedge against such cost fluctuations. To the extent it is unable to do so, the Group may minimise such risks through direct purchases of the similar commodity or through forward sales contracts. As such, it may also be exposed to commodity price risk as changes in fair value of future commodity contracts are recognised directly in the income statements. Decisions to enter into forward sales contracts must be approved by at least two directors and are currently under the purview of the Groups Executive Chairman and CEO, Mr. Henry Maknawi, and the Groups Deputy CEO, Ms. Ratna Maknawi. The Group does not enter into forward sales contracts for speculative purposes. 28. FUTURE CHANGES IN ACCOUNTING STANDARDS The following new or revised Singapore Financial Reporting Standards that have been issued will be effective in future. The transfer to the new or revised standards from the effective dates is not expected to have a material impact on the financial statements.
Effective date for periods beginning on or after 1.1.2009 1.1.2009 1.3.2007 1.1.2008
FRS No. FRS 23 FRS 108 INT FRS 111 INT FRS 112
Title Borrowing Costs Operating Segments FRS102 - Group and Treasury Share Transactions Service Concessions Arrangements
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29. DIVIDENDS
2005 US$000 Interim exempt dividend paid of 2.54 cents per share 2006 US$000 2007 US$000 2,025
In respect of the current year, the directors propose that a second interim exempt dividend of 1.25 cents per share totalling $1,000,000 be paid to shareholders after the annual general meeting. There are no income tax consequences. This dividend is subject to approval by shareholders at the next annual general meeting and has not been included as a liability in these financial statements. The proposed dividend for 2007 is payable in respect of all ordinary shares in issue in SWK at the balance sheet date and including the new qualifying shares issued up to the date the dividend becomes payable. 30. SUBSEQUENT EVENTS On 3 January 2008, one of the subsidiaries of the Company had entered into an agreement with a vessel supplier for the purpose of constructing and purchasing a vessel called Kencana 3. The purchase price of the vessel is approximately US$2,034,000. In addition to the events described in these combined financial statements and the unaudited proforma combined financial information for the year ended 31 December 2007 (Appendix E), no other significant events took place subsequent to the year ended 31 December 2007. 31. MANAGEMENTS RESPONSIBILITY FOR THE COMBINED FINANCIAL STATEMENTS The management of the Group is responsible for the preparation of the combined financial statements. The combined financial statements were approved and authorised for issue by the board of Directors of the Company on the date of the Prospectus.
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APPENDIX G AKA INDEPENDENT PUBLIC CONSULTANT APPRAISERS REPORT MARKET RENT VALUE OF OFFICE SPACE OF PT SAWINDO KENCANA
AKA INDEPENDENT PUBLIC CONSULTANT
APPRAISERS REPORT MARKET RENT VALUE OF OFFICE SPACE
FOR PT SAWINDO KENCANA
LOCATION: Business Park Building Jalan Meruya Ilir, Kelurahan Meruya Utara Kecamatan Kebon Jeruk West Jakarta Special Region of Capital Jakarta
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C.C/AKHW/07-07-097.1 Jakarta, November 26, 2007 To: The Board of Directors of PT SAWINDO KENCANA Graha Kencana Jl. Perjuangan No. 88K Jakarta 11530 Subject: Appraisers Report on Market Rent Value of Office Space Dear Sir, Satisfying your request, hereby we offer you our report on Market Rent Value of Office Space of the Business Park Building, Jl. Meruya Ilir, Kelurahan Meruya Utara, Kecamatan Kebon Jeruk, Kecamatan Kebon Jeruk, Jakarta Barat, DKI (Subject). This Report is an addendum to our previous report No. AKA.C.C/AKHW/07-07-097 dated October 01, 2007. This appraisal is the results of review and analysis conducted to find out the market rent value and longterm rent market value used for the long-term lease transaction of office space for a term of 25 years. Grounded on our market review, analysis and fulfilled conditions, the following conclusions may be made: a. b. Market rent value of the Subject office space is Rp. 76,909 / m per month Long term market rent value of the Subject is Rp. 29,365 / m per month.
2 2
Thank you for your attention and cooperation. Respectfully
G-2
APPENDIX G AKA INDEPENDENT PUBLIC CONSULTANT APPRAISERS REPORT MARKET RENT VALUE OF OFFICE SPACE OF PT SAWINDO KENCANA STATEMENT OF APPRAISER
Within the limitation of our ability and confidence as an appraiser, we hereby state that: The statements in this report which are the basis of the analysis, opinion and conclusion set out in it are true and correct based on the actual examination and investigation against the appraised property as shown at the time of inspection by the Employer. Further, this report details all assumptions and limiting conditions affecting the analysis, opinion and conclusion set out in this Report. We hereby confirm that we shall not take any advantage, in present and future, from the appraised property nor from the result of the appraisal being reported. This report is prepared pursuant and subject to the regulations in Indonesian Appraisal Standards of 2002 (SPI 2002).
No. 1.
Name Consultants Head of Division
Signature
Restu Ananda SE 1. Real Property Supervisor
Ir. Bambang Trim Mulyono MAPPI No. P-01584 2. Real Property Appraiser
Taofik Hidayat
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APPENDIX G AKA INDEPENDENT PUBLIC CONSULTANT APPRAISERS REPORT MARKET RENT VALUE OF OFFICE SPACE OF PT SAWINDO KENCANA ASSUMPTIONS AND LIMITING CONDITIONS
1. All statements and data set out in this report are correct and within the knowledge and good faith of the Appraiser. All current claim, suits, dispute and hypothec, when so exist, are ignored and the appraised property is assumed clean under the control of the Employer. The Appraiser had made some direct inspections and physical investigation against the appraised property, the amounts and location based on the designation by the Employer. The fee for this appraisal is independent from the value of the property concluded or set out in this Report. The value is expressed in Indonesian Rupiah. The Appraiser did not conduct any legal investigation since the Appraiser is not a legal consultant, therefore we hereby assume that the land certificate as well as the other documents related to this property are in good, negotiable, rentable conditions and free from any dispute or other charges. The Appraiser did not conduct any investigation against and it is not a responsibility of the Appraiser should there be any issues related to the ownership or debts / losses with respect to the appraised property. PT Actual Kencana Appraisal that conducted the appraisal, is under no obligation to testify or appear before a court or any other agency in connection with the appraised property, unless otherwise has been agreed in advance. The report is invalid if neither signed by the companys director nor sealed with PT Actual Kencana Appraisals seal. Dissemination this statement or report of appraisal totally, partially or as a reference of the value set out in it as well as the name and affiliation of the expert of the Appraiser without express written consent of the Appraiser shall be restricted from the form and context aspects of the publication (SPI 0.5.26.2).
2.
3.
4.
5. 6.
7.
8.
9.
10.
G-4
BACKGROUND PT Sawindo Kencana, hereinafter referred to as the Company is a private company engaged in Plantation, particularly oil palm plantation and oil palm processing industry. The Company is a part of Kencana Business Group. In undertaking its businesses, the Company intends to long term lease the office space in a building office. Therefore, the Company intends to find out the market rent value of the office space and the market rent value that may be used as a reference in the office space lease transaction by the Company. The Company appointed PT Actual Kencana Appraisal (AKA) for such purpose pursuant to the agreement set out in the approval for the Quotation No. Pr. 07.762 dated August 30, 2007. The appraisal is conducted to assess the Market Rent Value and Long Term Market Rent Value of the Property Business Park Building Office Space (Subject) located at Jalan Meruya Ilir, Kelurahan Meruya Utara, Kecamatan Kebon Jeruk, Jakarta Barat, DKI. The property inspection in the location and the survey of primary data for the appraisal were conducted on September 16, 2007. We have submitted the study report on Market Rent Value of Office Space by our report No. AKA.C.C/AKHW/07-07-097 dated October 01, 2007. This report is an addendum to our previous report to obtain the Long-term Rent Value for 25 years with respect to the same Subject. Therefore, all assumptions and approaches are similar to the previous report. This report is an addendum being integral part of our previous report No. AKA.C.C/AKHW/07-07097 dated October 01, 2007. SITE AND LOCATION ANALYSIS The Subject is located at southern part of Meruya Ilir street, Kebon Jeruk district, being an area designated as a commercial area. The buildings erected in this area in general are dwelling houses, shops and offices. Public facilities such as electricity, tap water and telephone lines have been made available in this area while public transportation passes Jalan Panjang (Panjang Street). The subject may be accessed via Jalan Panjang, Jalan Pesanggrahan or Jalan Perjuangan from Kebon Jeruk toll gate. From Kebayoran Baru dan Palmerah, the Subject may be reached via Jalan Panjang through Jalan Kebun Jeruk Raya atau Jalan Lapangan Bola. While from Joglo, the Subject may be accessed via Jalan Srengseng. The traffic condition in front of the Subject is fairly dense and tends to turn into congestion. MACRO ECONOMIC REVIEW According to the statistic figures issued by the Government, the macro economic conditions are still well maintained from the previous years as reflected from the stable economic growth; the main source of the growth has been the export; the main driver sector is the processing and trading-hotel-restaurant sector. However, such activities are not accompanied with establishment of physical investment and fixed capital, as reflected from the portion of application of the Gross Domestic Product for domestic consumptions and government is still high; while only minor part of the GDP has been used for the establishment of physical investment and fixed capital. Business trend index records that the business condition at the first semester of 2007 has been evaluated by business doers as not better than the previous year. However, at the second quarter, the business climate will be more conducive.
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OFFICE SPACE MARKET IN JAKARTA Average growth rate of absorption of office space and supply of office space after the monetary crisis demonstrates positively better condition when compared with the condition during the crisis. The improvement occurs not only in Central Business District area but also outside the CBD. Occupancy rate of office space, in general is better than the rate during the crisis. Occupancy rate of office space beyond the CBD has been higher than the occupancy rate of the CBD. Abundant supply and limited demand (lower absorption growth) has caused occupancy rate of office space in CBD stagnant. Following the monetary, the rents tend to rise. The stimulant, in addition to the national economic growth, has been triggered by fuel and electric power increases. The two commodities have been the important component in maintenance of office building.
Puncak
Puncak
Turun awal
Naik lanjutan * * Naik awal * Eceran Kantor dan JASa * Apartemen sewaan
Turun lanjutan
Bintang 3 Hotel bintang 4 Hotel bintang 5
Dasar
* *
G-6
OFFICE SPACE MARKET AND RENTS AROUND THE SUBJECT LOCATION Analysis of office space rent around the Subject location is made based on the profile and rents information offered by some office space provider around the Subject location. The rents offered (and the transaction) by the office space providers are depending from the location, accessibility, exposure to the main streets, management service, building quality, building facilities and market demand. Office Buildings Around Subject Location Office Space Providers 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Wisma AKF Ged. Sastra Graha Ged. Graha Kencana Wisma RMK Plaza Kelapa dua Graha handaya Gd. Kantor Show Room Gd. Kantor Shop House Shop House Show room Shop House Puri Niaga I Gd. Kantor Permata Regency Gd. Kantor Gd. Kantor Gd. Dana Pensiun BTN Gd. Lisaco Location Jl. Panjang Jl. Perjuangan Jl. Perjuangan Jl. Puri Kencana Jl. Panjang Jl. Perjuangan Jl. Lap. Bola Jl. Panjang Jl. Lap. Bola Jl. Pesanggrahan Jl. Perjuangan Jl. Meruya Ilir Jl. Puri Kencana Jl. Iskandarsyah Jl.. Pos Pengumben Jl. Panjang Jl. Panjang Jl. Kesehatan Jak Pus Jl. Raya Jati Baru Jak Pus
Office Space Providers around the location are classified as being in the center of commercial / business area and not while the others are classified into good and fair location when viewed from their location.
G-7
Fairly Good Office Buildings around the Subject Location Office Space Providers 1 2 3 4 5 6 7 8 9 10 Ged, Graha Kencana Ged. Sasrta Graha Office Building Gd. Lisaco Graham Handaya Shop House Puri Niaga I Shop House Show room Wisma AKF Wisma RMK Location Jl. Perjuangan Jl. Perjuangan Jl. Iskandarsyah Jl. Raya Jati Baru Jakpus Jl. Perjuangan Jl. Perjuangan Jl. Puri Kencana Jl. Panjang Jl. Panjang Jl. Puri Kencana
Accessibility factors play important role in shaping the market demand and establishment of rent of each property, particularly the properly easily accessible from the main road / toll road. Fairly Accessible Office Space around the Subject Location Office Space Providers 1 2 3 4 5 6 7 8 9 10 11 Ged. Graha Kencana Ged. Sastra Graha Office Building Gd. Lisaco Graham Handaya Wisma AKF Wisma RMK Office Building Shop House Shop House Puri Niaga I Show room Location Jl. Perjuangan Jl. Perjuangan Jl. Panjang Jl. Raya Jati Baru Jakpus Jl. Perjuangan Jl. Panjang Jl. Puri Kencana Jl. Panjang Jl. Perjuangan Jl. Puri Kencana Jl. Panjang
The proximity of office space providers to main road is one of consideration in assessing the rents. Main road proximate to the Subject is Jalan Panjang. The closer to the main road, the more attractive the office space will be so that the bargaining position in establishment of rents rate for the relevant office space provider will be relatively strong.
G-8
Exposure of Office Buildings to Subject Location Office Space Providers 1 2 3 4 5 6 7 8 Office Building Gd. Kantor Gd. Kantor Gd. Kantor Gd. Kantor Plaza Kelapa Dua Show room Wisma AKF Location Jl. Lap. Bola Jl. Lap. Bola Jl. Iskandarsyah Jl. Panjang Jl. Panjang Jl. Panjang Jl. Panjang Jl. Panjang
The facilities provided by office spare provider in the forms of parking space, elevator, lifts, air conditioner, perimeters and security are very influencing the determination of the rents. The more complete the facilities, the stronger will be the bargaining position of the office space provider in determining the rents. Building quality in general is one of the factors considered in shaping the rents. This factor includes area, building materials and interior. Good Quality of Office Building around the Subject Location Office Space Providers 1 2 3 4 5 Ged. Graha Kencana Ged. Sastra Graha Gedung dana Pensiun BTN Plaza Kelapa Dua Wisma AKF Location Jl. Perjuangan Jl. Perjuangan Jl. Kesehatan Jak Pus Jl. Panjang Jl. Panjang
The facilities made available in an office building that may satisfy the day-to-day needs or requirements of the tenants. The facilities may be in the forms of bank, ATM, restaurants, food courts, mini markets, cake & coffee shop and laundry. The more complete the facilities, the higher the rents will be considered.
G-9
Complete Building Facilities around the Subject Location Office Space Providers 1 2 3 4 5 6 7 8 9 Plaza Kelapa Dua Wisma AKF Ged. Graha Kencana Ged. Sastra Graha Gedung dana Pensiun BTN Office Building Gd. Lisaco Permata Regency Wisma RMK Location Jl. Panjang Jl. Panjang Jl. Perjuangan Jl. Perjuangan Jl. Kesehatan Jak Pus Jl. Panjang Jl. Raya Jati Baru Jak Pus Jl. Pos Pengumben Jl. Puri Kencana
Complete Building Services around the Subject Location Office Space Providers 1 2 3 4 5 Ged. Graha Kencana Ged. Sastra Graha Gedung dana Pensiun BTN Plaza Kelapa Dua Wisma AKF Location Jl. Perjuangan Jl. Perjuangan Jl. Kesehatan Jak Pus Jl. Panjang Jl. Panjang
Market demand in the form of absorption of office space may be considered as reflection of the rents acceptable to market. Market demand in this appraisal is indicated by the tenancy rate of the office building. The higher the tenancy rate, the more stable the offered rents. The following table shows some office space providers that have high tenancy rate, while the others have been low and moderate. High Tenancy Rate of Office Building around the Subject Location Office Space Providers 1 2 3 4 5 6 7 Ged. Graha Kencana Ged. Sastra Graha Plaza Kelapa Dua Wisma RMK Gd. Kantor Office Building Wisma AKF Location Jl. Perjuangan Jl. Perjuangan Jl. Panjang Jl. Puri Kencana Jl. Panjang Jl. Panjang Jl. Panjang
G-10
The rents offered by office space providers around the Subject location varies fairly, from Rp. 23,750/m2 to Rp. 109,250/m2 per month. While the average has been Rp. 55,372/m2 per month. In general, the rents include service charges. Minimum lease is 1 to 2 years under cooperation contract. Offered Rents of Office Buildings around the Subject Location Office Space Provider 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
*
Location Jl. Meruya Ilir Jl. Pesanggrahan Jl. Perjuangan Jl. Lap. Bola Jl. Lap. Bola Jl. Panjang Jl. Puri Kencana Jl. Iskandarsyah Jl. Perjuangan Jl. Pos Pengumben Jl. Panjang Jl. Panjang Jl. Kesehatan Jak Pus Jl. Raya Jati Baru Jakpus Jl. Panjang Jl. Perjuangan Jl. Perjuangan Jl. Puri Kencana Jl. Panjang
Rents *) (Rp.) 23,750 29,700 29,700 40,500 46,750 48,076 28,500 42,750 47,500 42,750 38,000 42,750 61,750 69,350 72,000 90,000 90,000 99,000 109,250
Show room Shop House Shop House Office Building Office Building Show room Shop House Puri Niaga I Office Building Graham Handaya Permata Regency Office Building Office Building Gd. Dana Pensiun BTN Gd. Lisaco Plaza Kelapa dua Ged. Sastra Graha Ged. Graha Kencana Wisma RMK Wisma AKF
Include Service Charge
G-11
MARKET RENT VALUE ANALYSIS OF SUBJECT OFFICE SPACE The Subject is a new office building and is a new supply to the office space market. This appraisal is made based on the comparison of the profile data of the office space providers in proximity to the Subject location, from the aspects of location, accessibility, exposure, building quality, building facility and market demand as well as offered rents to obtain market rents value of the Subject Assumption of Subject Profiles Determinants 1 2 3 4 5 6 7 Location Accessibility Exposure Building Service Building Quality Facility Tenancy Rate Grade Fair Fair Good Good Good Complete Good
The assumptions of subject profile compared to the office space provider around the subject location may be seen in the following table Attributes scores and Rents of Office Space Providers in proximity to the Subject Location Office Space Providers 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Show room Shop House Shop House Office Building Office Building Show room Shop House Puri Niaga I Office Building Graham Handaya Permata Regency Office Building Office Building Gd. Dana Pensiun BTN Gd. Lisaco Plaza Kelapa dua Score 1.96 2.10 2.37 2.37 2.37 2.42 2.50 2.90 3.06 3.37 3.76 3.91 3.92 3.95 4.37 Rents 23,750 29,700 29,700 40,500 46,750 48,076 28,500 42,750 47,500 42,750 38,000 42,750 61,750 69,350 72,000
G-12
Office Space Providers 16 17 18 19 20 Ged. Sastra Graha Ged. Graha Kencana Wisma RMK Wisma AKF Subject Score 4.68 4.68 4.68 4.73 3.55 Rents 90,000 90,000 99,000 109,250 ?
Based on the profiles of the office space providers in proximity to the Subject location, the attributes are quantified by using a 1 - 5 scale expressing weak - strong or easy - difficult or proximate - distant or poor - good or complete - incomplete or low-high and correlated with the offered rents. Total score of the each factor with percentage of the factor correlation merit points shows the grade of the relevant office building. The calculations are as follows: Grounded on the table above, the market rents value has been modeled based on the following simple linear equation: y = -21,124.68 + 22,669.67 x R2 = 76% where y= market rents value and x = value of each office space provider. Based on the regressive equation, the market rents value of the Subjects based on the values of the attributes should be Rp. 76,909/m2 per month. LONG-TERM MARKET RENT VALUE OF THE SUBJECT The Company has planned to lease the office spaces of the Subject under the following scheme: Total leased area of a floor: 874.8 m2 Total leased floors: 3 floors; Total leased area: 2,624 m2; Lease term: 25 years Based on the scheme, the long-term rents value of the Subject adopt the following assumptions: Market rents value used as the basis of long-term market rents value is Rp. 76,909 Annual rents value increase : 5%; Annual discount rate: 16.21% Discount rate is calculated based on: loan interest 13.50%, and equity costs of 21.25% with portions of 65% and 35% respectively. Based on the aforesaid assumptions, the long-term market rents value of the Subject for 25 years should be Rp. 23,119,542,000.- or Rp. 29,365 / m2 / month (including service charge).
G-13
CONCLUSION Based on the review that considers the office space market condition in proximity to the Subject and the assumptions of the Subject condition a. b. the market rent value of the Subject is Rp. 76,909 / m2 per month the long-term market rents value that may be used in lease agreement with the scheme and assumptions is Rp. 29,3665 / m2 / month.
G-14

kencanaagri.com
3 Shenton Way #10-06 Shenton House Singapore 068805
Graha Kencana Jl. Raya Perjuangan No.88GK Jakarta Barat 11530 Indonesia

Ken Can A Prospectus July 2008

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Ken Can A Prospectus July 2008

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PROSPECTUS DATED 17 JULY 2008

Kencana Agri Limited

Kencana Agri Limited

Joint Underwriters and Placement Agents

Our Oil Palm Plantations & Facilities

5,587 4,783 10,370

18,762 3,198 21,960

24,349 7,981 32,330

For the Year ended 31 Dec 2007

Belitung Indo nesi a

Our Business & Operations

Palm Oil Mill

Crude Palm Oil

Kernel Crushing Plant

Crude Palm Kernel Oil

Prot/(loss) for the year*

USD million 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0

25.0 20.0 15.0 10.0 5.0

20.7% 12.1% 8.5 4.4

25.0% 20.0% 15.0% 10.0% 5.0%

Gross Prot Margin

*Including net gains/(losses) on fair value changes in biological assets.

Land Bank as at the Latest Practicable Date

Land Bank Total Planted

Potential benets from maturing oil palms in the near future

Age Prole of Planted Oil Palm Trees

Proven and recognised track record in plantation cultivation and management d k d

Integrated value-chain resulting in operational synergies

Strategy and Future Plans

Expand production capacity, improve efciency and product quality

Develop seed production capability

48.4 7.0 17.9

Production (Indonesia) Production (Malaysia) Production (Other Countries) World Consumption

Key factors underpinning the growth of palm oil industry

Rising demand for oils and fats

Growing popularity of palm oil

Palm Oil Prices

Corporate Social Responsibility (CSR)

Applications for the Shares may be made through:

A-1 B-1 C-1

COMPANY REGISTRATION NUMBER REGISTERED OFFICE

SHARE REGISTRAR AND SHARE TRANSFER AGENT

ISSUE MANAGER AND RECEIVING BANK

JOINT UNDERWRITERS AND PLACEMENT AGENTS

LEGAL ADVISER TO OUR COMPANY ON INDONESIAN LAW

INDEPENDENT VALUER (PROPERTY)

INDEPENDENT VALUER (BIOLOGICAL ASSETS)

Company or Kencana Agri Group or Proforma Group

Other Companies, Organisations and Agencies

SGX-ST Sinar Mas Group

ATM Audit Committee Board CEO

EGM EPS Executive Directors

Issue Price Kadastral land

Latest Practicable Date

LPS Market Day NAV New Shares

Offer Shares Panitia B

period under review PER Placement

SBI Securities Account

Sertifikat Bank Indonesia

Securities and Futures Act

Shares Shareholders SIBOR Singapore Take-over Laws and Regulations

GLOSSARY OF TECHNICAL TERMS