OUR VISION OUR MISSION FOSTERING. To be a leading sustainable palm oil producer and supplier of choice for both local and global markets.

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1 HAPP PY PA ALM MS ANNUAL REPORT Dwarf oil palm Fresh Fruits Bunches (FFB) Happy trees produce happy fruits. About 80% of the Group s oil palms are in their immature and young mature phases. When these growing trees mature, Fresh Fruit Bunches ( FFB ) production volume will increase exponentially. Kencana also has dwarf variety oil palm trees, which produce bigger and better quality FFBs and are of lower heights so FFBs can be easily harvested. FOSTERING HAPPY DEDICATED WORKERS Happy workers at Kencana s oil palm plantation nurturing the young plants with care using environmentally-friendly methods, protecting mother-earth. Kencana worker harvesting FFBs Registration No: E SINGAPORE 3 Shenton Way #10-06 Shenton House Singapore INDONESIA Kencana Tower 9th Floor Business Park Kebon Jeruk Jalan Raya Meruya Ilir No. 88 Jakarta Barat Indonesia OUR VISION To be a leading sustainable palm oil producer and supplier of choice for both local and global markets. OUR MISSION To expand our plantation business through sustainable and environmentally-friendly best management practices whilst reinforcing our responsibility as a good corporate citizen. K E N C A N A A G R I L I M I T E D A N N U A L R E P O R T Kencana worker planting oil palms

2 HAPPY PALMS ENVIRONMENTALLY FRIENDLY PRACTICES Dwarf oil palm Fresh Fruits Bunches (FFB) Happy trees produce happy fruits. About 80% of the Group s oil palms are in their immature and young mature phases. When these growing trees mature, Fresh Fruit Bunches ( FFB ) production volume will increase exponentially. Kencana also has dwarf variety oil palm trees, which produce bigger and better quality FFBs and are of lower heights so FFBs can be easily harvested. HAPPY DEDICATED WORKERS Happy workers at Kencana s oil palm plantation nurturing the young plants with care using environmentally-friendly methods, protecting mother-earth. Empty Fruit Bunches ( EFB ) and oil palm branches being recycled back to the field as natural fertiliser EFB fertilising oil palm roots HAPPY ENVIRONMENT Kencana s eco-friendly plantations use natural fertilisers such as liquid waste and empty fruit bunches, as well as natural predators like the owl to catch pests, keeping mother nature happy. Kencana worker harvesting FFBs Kencana worker planting oil palms Liquid waste from palm oil mills being recycled back to the field as natural fertiliser Owl barn at Kencana s plantation OUR VISION To be a leading sustainable palm oil producer and supplier of choice for both local and global markets. OUR MISSION To expand our plantation business through sustainable and environmentally-friendly best management practices whilst reinforcing our responsibility as a good corporate citizen. Happy INVESTORS Happy investors from Target Asset Management at Kencana s oil palm plantation at Bangka Island during a recent site visit.

3 OUR BUSINESS AND OPERATIONS Kencana s integrated value chain comprises 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. GROWTH EXCELLENCE INTEGRITY PLANTATION Our oil palm plantations are strategically located in Sumatera, Kalimantan, and Sulawesi. PLANTATION Total Land Bank : 185,888 ha (1) Nucleus : 174,884 ha Plasma : 11,004 ha Note: (1) As at 28 Feb 2011 Total Planted Area : 46,713 ha Nucleus : 35,709 ha Plasma : 11,004 ha PROCESSING We have three palm oils mills and two kernel crushing plants in Sumatera and Kalimantan. PRODUCTS Our main products are Crude Palm Oil ( CPO ) and Crude Palm Kernel Oil ( CPKO ), which are derived from the fresh fruit bunches harvested from our plantations or purchased from third parties (including our plantations under the Plasma Programme). We produce CPO and CPKO at our palm oil mills and kernel crushing plants respectively. Palm Kernel Cake ( PKC ) is a by-product of the CPKO production process and may be sold to third parties or utilised as biomass. Our products are typically sold to reputable trading companies, refineries, and oleochemical companies, among others, in Indonesia, Malaysia, and other countries. PALM OIL MILL No. of Mills : 3 Total Production Capacity : 165 MT/hour Total Annual Processing Capacity : 940,500 MT KERNEL CRUSHING PLANT No. of Kernel Crushing Plants : 2 Total Production Capacity : 435 MT/hour CRUDE PALM OIL Total Production Volume 66,017 MT (FY2008) 87,239 MT (FY) 94,154 MT (FY) CRUDE PALM KERNEL OIL Total Production Volume 24,323 MT (FY2008) 20,258 MT (FY) 16,513 MT (FY) Total Annual Processing Capacity : 108,315 MT RENEWABLE WASTE PRODUCTS (Empty Fruit Bunches, Liquid Waste, Kernel Shells, Fibre) PALM KERNEL CAKE Medan Dumai Singapore Sumatera Oil palm estate Oil palm estate with palm oil mill and kernel crushing plant Palm oil mill Port and Bulking terminal* Biomass power plant West Malaysia * Joint venture with Louis Dreyfus Commodities in Balikpapan Bangka Belitung Jakarta East Malaysia West Kalimantan Indonesia Brunei Central Kalimantan Surabaya Bali East Kalimantan Kutai South Kalimantan Bulungan Samarinda Balikpapan North Sulawesi Gorontalo Central Sulawesi Southeast Sulawesi SUPPORTING BUSINESSES Our bulking terminals and logistic services complement or support our plantation operations by providing storage facilities and transportation for our products. BULKING TERMINAL Total Capacity : 19,500 MT The green electricity generated by our renewable biomass power plant in Bangka is mainly sold to the state-owned electricity company, PT Persusahaan Listrik Negara ( PLN ). This power plant has also been approved as a Clean Design Mechanism ( CDM ) project, which allows us to sell carbon credits to the international market. LOGISTICS No of Vessels : 3 Capacity : 7,600 MT BIOMASS POWER PLANT 1st Plant (2005) Location : Bangka Capacity : 6.0 MW 2nd Plant () Location : Belitung Capacity : 7.5 MW CONTENTS 02 Corporate Profile 03 Corporate Structure 04 Chairman s Statement 06 Financial and Operational Highlights 11 Key Milestones 12 Environmentally Friendly Practices 13 Corporate Social Responsibility 14 Board of Directors 16 Key Management Team 17 Financial Contents

4 CORPORATE PROFILE Kencana Agri Limited ( Kencana or the Group ) is a fastgrowing producer of Crude Palm Oil ( CPO ) and Crude Palm Kernel Oil ( CPKO ) with oil palm plantations strategically located in the Sumatera, Kalimantan and Sulawesi regions in Indonesia where climatic conditions are well-suited for the planting of oil palms. Our integrated value-chain operations comprise plantations, palm oil mills, kernel crushing plants, bulking and logistics assets, as well as renewable biomass power plant to support and complement our plantation operations. In May, Kencana formed a joint venture with Louis Dreyfus Commodities to develop and operate a deep-water port (accessible to vessels up to 70,000 MT) and bulking terminal in Balikpapan, East Kalimantan to source and trade CPO and other products. This joint venture adds a new dimension to Kencana s expansion into East Kalimantan and a new revenue stream to Kencana s integrated business model. Kencana also welcomed the Wilmar Group as a strategic shareholder with a 20% stake in the Group in September. A strong supporter of sustainable palm oil and a member of the Roundtable on Sustainable Palm Oil ( RSPO ), Kencana strives to pursue long-term and sustainable palm oil production for the benefit of all stakeholders. In addition, we signed an Emission Reductions Purchase Agreement ( ERPA ) with the Danish Ministry of Climate and Energy to sell Certified Emission Reduction ( CER ) credits from our biomass power plant at Bangka Island in August in. The Group was listed on the Main Board of the Singapore Exchange on 25 July 2008 (SGX-ST Stock Code: F9M). 02

5 CORPORATE STRUCTURE PLANTATION Sawindo Agri Pte. Ltd. 100% PT Sawit Permai Lestari 100% PLANTATION Kencana Plantations Pte. Ltd. 100% PT Wira Palm Mandiri 100% LOGISTICS & BULKING Kencana Logistics Pte. Ltd. 100% PT Bumi Permai Sentosa 100% POWER GENERATION Kencana Bio-energy Pte. Ltd. 100% PT Cahaya Permata Gemilang 95% JOINT VENTURE Kencana LDC Pte. Ltd. 50% LDC Kencana Trading Pte. Ltd. 50% ANNUAL REPORT 03

6 CHAIRMAN S STATEMENT Going forward, we will continue to build on our competitive strengths, grow our operations, as well as accelerate our planting programme. With our strategies in place, we believe that we are well-poised to leverage on the growth of the palm oil industry. 04

7 Dear Shareholders, LOOKING BACK AT A MOMENTOUS YEAR We are delighted to welcome Wilmar Group as a 20% strategic shareholder of the Group. We hope to further leverage on each other s strengths to develop operational synergies. was another good year for Kencana despite the prolonged adverse weather conditions which impacted palm oil production. With CPO prices trending higher in, the Group posted a 25.0% increase in revenue from US$121.9 million in FY to US$152.0 million in FY, with net profit after tax increasing by 36.0% from US$16.7 million in FY to US$22.8 million in FY. In line with our expansion plans, we increased our planted area (nucleus plus plasma) by approximately 7,300 ha to a total of 46,700 ha in. Our mature planted area increased by 3,600 ha in the same year. In line with the increase in more mature oil palms, FFB production increased in tandem by 11.7%, from 318,500 MT to 355,900 MT. In addition, Kencana also completed its third mill in East Kalimantan, with a capacity of 45 MT/hr. GROWTH STRATEGIES Going forward, we will continue to build on our competitive strengths, grow our operations, as well as accelerate our planting programme. With our strategies in place, we believe that we are well-poised to leverage on the growth of the palm oil industry. In addition, Kencana s joint venture port project with Louis Dreyfus Commodities is progressing well and the port is expected to be operational in This new port will add value to the company, diversify our income streams and boost our presence as a major palm oil player in East Kalimantan. In anticipation of an increase in trading volume with the completion of the new port, we are also considering to add more vessels in 2011/2012. Our fourth mill with a capacity of 45MT/hr will be completed in 2011 as well to cope with our growing production volume. DIVIDENDS I am pleased to propose a final dividend of 0.25 Singapore cents per share. LOOKING AHEAD We believe that the outlook for the palm oil industry in 2011 continues to be promising. In, CPO prices were supported by a seasonal drop in palm oil output and unfavourable weather patterns which affected the supply of other vegetable oils in many parts of the world. We foresee that in 2011, palm oil substitutes may face supply shortages as a result of adverse weather conditions in North and South America which resulted in the lower supply of oilseeds. These supply shortages should support demand for crude palm oil despite factors like higher vegetable oil prices putting pressures on demand in markets such as China, India, and the European Union. APPRECIATION I would like to take this opportunity to thank all our directors, staff, clients, investors and business partners for their invaluable support. We will continue to work hard to deliver greater value to our shareholders. Henry Maknawi Chairman and Chief Executive Officer The future of the crude palm oil industry looks bright as the long-term demand for crude palm oil continues to be fuelled by growing affluence in the world s top two importing nations, China and India. ANNUAL REPORT 05

8 FINANCIAL AND OPERATIONAL HIGHLIGHTS Kencana continued on its growth path, reporting strong financial results for the financial year ended 31 December ( FY ). Despite the unfavourable weather conditions that adversely affected the palm oil industry, the Group also continued to deliver good operational performances. FINANCIAL HIGHLIGHTS Summary of results for FY USS 000 FY FY % Change Revenue 121, , % Gross Profit 21,089 27, % Operating Profit 22,129 34, % Profit before Tax 18,836 30, % Net Profit after Tax 16,714 22, % Kencana reported a 25% increase in revenue from US$121.9 million in FY to US$152.0 million in FY. The revenue increase was a result of higher average selling prices ( ASP ) of both Crude Palm Oil ( CPO ) and Crude Palm Kernel Oil ( CPKO ). On the back of the increase in revenue, the Group s gross profit increased by 31% from US$21.1 million in FY to US$27.7 million in FY. Operating profit rose by 58% from US$22.1 million to US$35.0 million in FY and net profit after tax increased by 36% from US$16.7 million in FY to US$22.8 million in FY. The increases in the Group s bottom line were mainly due to corresponding increases in revenue as a result of higher CPO prices, as well as increases in the fair value of biological assets 1 and the appreciation of the Indonesian Rupiah ( IDR ) against the US Dollar. The Group s fair value of biological and other assets increased about 50% from FY. The increase was mainly due to higher valuations of biological assets that resulted from higher CPO prices and a 2,600 ha increase in mature planted area in FY. 1 The fair value of biological assets is a non-cash item included in the Group s financial statements as it has adopted the Singapore Financial Reporting Standard 41 Agriculture. The fair value changes are prepared by an independent valuer, which take into account factors such as CPO prices, discount rates, maturity of oil palm plantations, and general industry outlook. Whilst any gain or loss due to changes in fair value of biological assets impacts the Group s bottomline, it is non-cash and non-operational in nature, and neither impacts nor reflects its operational performance or cash position. 06

9 Excluding the fair value changes in biological and other assets, the Group reported a higher operating profit of US$18.6 million in FY, up 66% from US$11.2 million in FY. Accordingly, the Group s net profit after tax excluding fair value changes for FY was US$11.0 million, an increase of 29.4% from US$8.5 million in FY. Balance Sheet USS 000 FY2008 FY FY Current Assets 37,430 40,221 86,180 Non-Current Assets 137, , ,363 Current Liabilities 23,570 30,906 39,260 Non-Current Liabilities 41,153 86, ,165 Shareholders Equity 110, , ,118 Kencana s total assets rose by 49% from US$260,613 in FY to US$387,543 in FY, mainly as a result of: The addition of new plants and maintenance of immature plants, fair value gain of US$17.8 million, and a translation gain of US$7.6 million as a result the appreciation of the IDR The increase of US$20.5 million in property, plant, and equipment as part efforts to build up infrastructure, buildings, mills, and heavy equipment in the Group s plantations The US$3.4 million increase in the value of land rights Total liabilities rose by 52% from US$116,911 a year ago to US$177,425, largely due to an increase in bank borrowings for the further development of plantations, mills, and plants; as well as increases in tax payable and trade payables as the Group expanded its operations. Net asset value per share as at 31 December was US cents, up 27% from US cents a year ago. Cash Flow USS 000 FY2008 FY FY Cash at the beginning of Year 3,999 10,909 4,692 Net Cash (used in) / from Operating Activities (3,477) 3,248 (3,463) Net Cash used in Investing Activities (22,924) (43,762) (51,585) Net Cash from Financing Activities 34,493 34,870 74,616 Net Effect of Exchange Rate Changes (1,182) (573) (44) Net Increase / (Decrease) in Cash 6,910 (6,217) 19,524 Cash at End of Year 10,909 4,692 24,216 Cash and cash equivalents increased from US$4.7 million in FY to US$24.2 million in FY. This increase was mainly a result of placement proceeds from Wilmar Group. ANNUAL REPORT 07

10 FINANCIAL AND OPERATIONAL HIGHLIGHTS REVIEW OF OPERATIONAL PERFORMANCE Increasing Planted Area The group continued to implement its planting programme and increased its planted area by 7,302 ha from 39,411 ha a year ago to 46,713 ha. Its nucleus planted area increased from 29,542 ha in to 35,709 ha in. The planted area of its plasma plantations also increased from 9,869 ha to 11,004 ha within the same time frame. Planted Area (Ha) 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 DEVELOPMENT OF KENCANA S PLANTED AREA (NUCLEUS) Phase 1 Phase 2 Prime Mature 7,214 ha (20%) Young Mature 11,850 ha (33%) Immature 16,645 ha (47%) Years of Planting Higher Yields From Maturing Oil Palms Leading To Increasing Production Volume As the Group s oil palms matured, it witnessed a corresponding increase in its production of Fresh Fruit Bunches ( FFB ) despite the unfavourable weather conditions. FFB production from its nucleus plantations increased from 253,754 MT in to 269,899 MT in. Its plasma plantations also saw a hike in FFB production from 64,724 MT a year ago to 85,966 MT this year. FFB Production (MT) 300, ,000 FFB PRODUCTION GROWTH (NUCLEUS) Last 5 years CAGR 17% 200, , ,000 50, Years of Harvesting 08

11 Significant Growth Potential Potential for strong annual double-digit production growth over the next five years About 80% of the Group s nucleus plantations are immature and young The weighted average age of the Group s oil palms is 5.4 years FFB Yield Parameters & Assumptions Immature Young Mature Prime Mature Oil Palm Age (years) Average FFB yield (MT/ha) Based on the above table, oil palms start to yield FFB after approximately 36 months of age as they enter the young mature phase. After which, their average FFB yields will increase exponentially from the initial 5-6 MT/ha to up to 22-28MT/ha when they enter their prime years. With more FFB, CPO production can also be ramped up. Kencana s relatively young plantation age profile is an attractive investment proposition. Its current FFB production is supported mainly by its prime mature oil palms (20%), with some contribution from its young mature oil palms (33%) which have yet to produce significant amounts of FFB. Majority of Kencana s oil palms are still in their immature (47%) or young mature phases and will only reach their prime mature phase a few years later, during which FFB production volume will surge. KENCANA S LAND BANK (NUCLEUS) Unplanted Area 139,175 ha (79%) 79% 10% 7% 4% Planted Area 35,709 ha (21%) Immature Young Mature Prime Mature Based on the above chart, the growth potential of the Group is huge as 79% of Kencana s nucleus land bank is still unplanted. As the Group continues to pursue its planting programme and as the oil palms reach their prime mature phase, FFB and CPO production are expected to increase significantly in the next few years, enabling Kencana to deliver better results. ANNUAL REPORT 09

12 FINANCIAL AND OPERATIONAL HIGHLIGHTS FY2008 FY FY LAND BANK (ha) 109, , ,888 2 Nucleus 96,843 (89%) 176,412 (93%) 174,884 2 (94%) Plasma 12,372 (11%) 12,372 (7%) 11,004 2 (6%) PLANTED AREA (ha) 33,428 39,411 46,713 Nucleus 25,089 (75%) 29,542 (75%) 35,709 (76%) Plasma 8,339 (25%) 9,869 (25%) 11,004 (24%) AGE PROFILE Nucleus 25,089 29,542 35, years (Immature) 12,811 (51%) 13,050 (44%) 16,645 (47%) 4-6 years (Young Mature) 4,866 (19%) 9,278 (31%) 11,850 (33%) 7-20 years (Prime Mature) 7,412 (30%) 7,214 (25%) 7,214 (20%) Plasma 8,339 9,869 11, years (Immature) 4,127 (50%) 4,339 (44%) 4,454 (40%) 4-6 years (Young Mature) 2,192 (26%) 3,439 (35%) 4,459 (41%) 7-20 years (Prime Mature) 2,020 (24%) 2,091 (21%) 2,091 (19%) PRODUCTION VOLUME (MT) FFB 204, , ,865 Nucleus 166,392 (81%) 253,754 (80%) 269,899 (76%) Plasma 38,009 (19%) 64,724 (20%) 85,966 (24%) Crude Palm Oil 66,017 87,239 94,154 Crude Palm Kernel Oil 24,323 20,258 16,513 SALES VOLUME (MT) Crude Palm Oil 92, , ,734 Crude Palm Kernel Oil 29,318 25,413 22,009 2 As at 28 February 2011 The Average Selling Price ( ASP ) of CPO rose from US$600 a year ago to US$820 while the ASP of CPKO rose from US$650 a year ago to US$1,010. The higher prices were due to a tightened supply of palm oil, which was brought about by unfavourable weather conditions. At the same time, the Group s overall sales volume for FY decreased by 5% to 202,500 MT, from 214,100 MT a year ago. However, the decrease in sales volume was more than offset by the proportionately higher increase in ASP. 10

13 KEY MILESTONES 2008 Raised S$52.5 million when the Wilmar Group became a 20% strategic shareholder in Kencana Agri in Signed an Emission Reductions Purchase Agreement ( ERPA ) with the Danish Ministry of Climate and Energy to sell Certified Emission Reduction ( CER ) credits from our biomass power plant at Bangka Island in Acquired 80,000 hectares of land in Sulawesi, Indonesia in Entered into a joint venture with Louis Dreyfus Group to build and operate a deep water port in Balikpapan in Became a member of the Roundtable on Sustainable Palm Oil ( RSPO ) in 2008 Listed on the Main Board of the Singapore Exchange in July 2008 SGX Listing Ceremony Deep Water Port in Balikpapan ERPA Signing with the Danish Ambassador to Indonesia Signed a contract to supply green electricity from our biomass power plant at Bangka Island to the state owned electricity firm, PT Persusahaan Listrik Negara ( PLN ) in 2007 Received a Good and a Very Good classification award from the local governor for our subsidiaries PT. Sawindo Kencana ( SWK ) and PT. Alamraya Kencana Mas ( AKM ) respectively in 2006 Acquired 46,000 hectares of land in East Kalimantan in 2005 Built our first biomass power plant on Bangka Island in 2005 Built and operated our first oil barge in 2004 Carried out approximately 4,513 hectares of new planting in 2006 Acquired 12,000 hectares of land in East Kalimantan in Started CPO and CPKO storage operations at our bulking terminal in Belinyu in 2002 Began CPKO production at our first kernel crushing plant on Bangka Island with a capacity of 100 MT/day in 2002 Began CPO production at our palm oil mill at Bangka Island with a capacity of 30 MT/hour in 2001 Commenced planting oil palms in South Kalimantan in 1998 Acquired 15,000 hectares of land in South Kalimantan in 1997 Began planting oil palms in Sumatera in 1996 Began operations by acquiring 9,000 hectares of land on Bangka Island in 1995 ANNUAL REPORT 11

14 ENVIRONMENTALLY FRIENDLY PRACTICES EFB and oil palm branches being recycled back to the field as natural fertiliser Liquid waste from palm oil mills being recycled back to the field as natural fertiliser Being a member of the RSPO, we are always cognizant of the environmental impact that plantations may have, and we have been deeply committed to the implementation of environmentally friendly practices at our plantations since our establishment. Our environmentally friendly practices include: ZERO BURNING We adhere strictly to a zero burning policy in our land-clearing methods to avoid polluting the air and being a health hazard in the region. We are mindful that some aspects of our plantation and mill operations impact the environment. Therefore, prior to expanding any of our plantation and mill operations, we undergo a comprehensive and participatory independent social and environmental impact assessment to identify any potential negative impact and ensure that we comply with the prevailing governmental rules and regulations. The findings from the assessments are taken into account when planning and managing any new plantings. ZERO WASTE MANAGEMENT We apply a zero waste policy by recycling waste products from our production facilities. The EFB and liquid waste/effluents emitted from our palm oil mills are captured and re-used as natural fertiliser in the plantations. In addition, the EFB and kernel shells are used by our power plant as a biomass fuel source, reducing carbon emissions. OTHER PRACTICES Kencana is proud to pioneer the first commercialised biomass power plant project in Indonesia which sells green electricity to PLN. Located within the Group s plantation in Sumatera, the 6.0 MW biomass power plant utilises waste products from palm oil mills, such as empty fruit bunches and palm kernel shells, as fuel for the generation of green electricity. In addition, the renewable biomass power plant has been registered as a CDM project, and in August we signed an Emission Reductions Purchase Agreement ( ERPA ) with the Danish Ministry of Climate and Energy to sell Certified Emission Reduction ( CER ) credits from our biomass power plant. We also adopt eco-friendly plantation management practices such as the use of owls to control pests and gall flies to control weed populations. 12

15 CORPORATE SOCIAL RESPONSIBILITY Community engagement with local villagers on Bangka Island 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 multi-pronged Corporate Social Responsibility ( CSR ) programme. 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. PLASMA PROGRAMME The Plasma Programme is an initiative by the Indonesian Government that seeks to encourage plantation owners in Indonesia to provide economic and social assistance to surrounding villagers (small landholders) by helping them increase their income and welfare. Under the Plasma Programme, Kencana is committed to helping villagers till their land and purchase FFB from them at a price set by a pricing committee established by the Indonesian government. Through our Plasma Programme, over 4,000 local villagers who were previously plantation workers have now become new plantation owners. As plantation owners, local villagers benefit economically and socially with increased incomes and better welfare. They also receive 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 community. EDUCATION INITIATIVES Since 2000, we have offered over 3,000 scholarships to children from the local communities. Scholarship recipients comprise the top three students from the local schools, as well as orphans or children from single-parent households, and they are offered employment opportunities with us when they graduate. We also contribute to the local schools by sponsoring local teachers. HEALTHCARE SERVICES We have been collaborating with local hospitals and clinics since 2000 to provide free basic medical services, such as medical checkups, to the local communities. SOCIAL AND CULTURAL ACTIVITIES We value the diverse culture of Indonesia, and to further foster cultural values, we sponsor and participate in traditional events and social functions. 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. In this way, we are able to maintain strong ties with the local communities. ANNUAL REPORT 13

16 BOARD OF DIRECTORS From left to right: Mr. Henry Maknawi, Tengku Alwin Aziz, Ms. Ratna Maknawi and Mr. Kent Surya. MR. HENRY MAKNAWI Chairman and Chief Executive Officer Mr. Henry Maknawi is responsible for the overall business strategies and policies of the 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 15 years. In November 1994, Mr. Henry Maknawi was conferred the Primaniyarta award for outstanding export from 1989 to 1993 by the late President Soeharto, the second President of the Republic of Indonesia who held office from 1967 to 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 National Agency for Export Development given to exporters at the national and provincial levels for their achievements in increasing non-oil and gas exports. TENGKU ALWIN AZIZ Vice-Chairman and Non-Executive Director Tengku Alwin Aziz has been an Independent Commissioner of PT. London Sumatra Indonesia Tbk, an Indonesian-listed company in the palm oil and rubber industry, since He was appointed by the Indonesian authorities as an interim President Director of PT. Bank Umum Nasional from 1998 to 1999 to oversee the structuring 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 He also held the post of Managing Director of Staco International Financial Ltd in Hong Kong from 1990 to He graduated in 1968 with an Economics degree majoring in Accountancy from Universitas Sumatera Utara, Medan. MS. RATNA MAKNAWI Deputy Chief Executive Officer Ms. Ratna Maknawi is responsible for managing the Group s overall business operations and development. She started as Finance Manager in 1993 and had played pivotal senior management roles in the growth and development of the Group s diverse businesses before advancing to her present position as Deputy Chief Executive Officer. Ms. Ratna Maknawi graduated cum laude from the University of Wisconsin Whitewater, USA with a Bachelor of Business Administration (Accounting Major) in MR. KENT SURYA Finance Director Mr. Kent Surya is responsible for treasury and cashflow management, finance and corporate finance, IT, tax compliance, and financial reporting at our Group. Mr. Surya is engaged as a Director for most of the Group s companies since. Since , he has held various positions relating to the commercial and housing developer industries. Between 1987 and 1998, as well as 2000 and 2003, he has held various positions related to banking (PT Bank Danamon Indonesia, listed co) and consumer finance (PT Olympindo Multi Finance). In addition, he oversaw a business in the wood-based industry (Hutrindo group) as Chief Operating Officer and Deputy Chief Executive Officer from 1999 to Since 2004, he has been engaged by some of our Group s companies, namely SWK, AKM and AIK, first as a senior Financial Advisor and later on as Vice President Director in charge of the Group s finances and operations. In August 2004, he was engaged as President Director of PT Graha Meruya, a company related to the Group. Mr. 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 (International/Strategic Management Major) in 1994 from the Institut Management Prasetya-Mulya, Jakarta-Indonesia. 14

17 From left to right: Mr. Soh Yew Hock, Mr. Leung Yew Kwong, Mr. Sim Idrus Munandar, Mr. Teo Kim Yong and Mr. Ang Kok Min. MR. SOH YEW HOCK Lead Independent Director Mr. Soh Yew Hock is the Lead Independent Director of the Group with extensive experience in commerce and industry. He is presently the Lead Independent Director of Japan Residential Assets Manager Limited (Manager of Saizen REIT). Mr Soh has previously served as a director of Wearne Brothers Limited (now known as WBL Corporation Ltd), a director of MFS Technology Limited and Deputy Chairman of O Connors Berhad (now known as OCB Berhad). Mr Soh was also CEO/Managing Director of Wearnes International (1994) Limited from 1993 to He 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). He holds a Bachelor of Accountancy degree from the University of Singapore (now National University of Singapore) and is a graduate of the Chartered Institute of Marketing (UK) and an alumnus of the Advanced Management Program of Harvard Business School. Mr. Soh was a past President of the Singapore Division of CPA (Australia). MR. LEUNG YEW KWONG Independent Director Mr. Leung Yew Kwong 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 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 has been in the legal practice specialising in tax since Mr. Leung also holds professional qualifications in real estate and valuation. 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. SIM IDRUS MUNANDAR Independent Director Mr. Sim Idrus Munandar is an Independent Director of Samko Timber Limited since December In addition to this, he is also a commissioner of various companies, namely, PT. Sumber Sawit Sejahtera and PT. Catur Manunggal Hidup Sejahtera. Prior to 2005, he was the President Director of PT. Bina Danatama Finance Tbk, a public listed company in Indonesia engaged in the financing business. Mr. Sim obtained a Bachelor Degree in Economics in 1981 from the University of Indonesia. He has also been a lecturer in the Sekolah Tinggi Ekonomi ( STIE ) Jayakarta since MR. TEO KIM YONG Non-Executive Director Mr. Teo Kim Yong is currently an Executive Director of Wilmar International Limited, in charge of commercial activities and the Group s merchandising of palm and lauric oils. Mr. Teo joined Wilmar in 1992 and has extensive experience in the marketing, merchandising and trading of edible oil products. Mr. Teo graduated from the then University of Singapore with a Bachelor of Business Administration degree. Mr Teo was appointed to the Kencana board on 30 September. MR. ANG KOK MIN Alternate Director (to Mr. Teo Kim Yong) Mr. Ang Kok Min is the Senior Manager Trading with Wilmar Trading Pte Ltd. He heads the Palm Division and is responsible for the arbitraging/hedging/procurement of palm oils for Wilmar Group of companies and joint ventures. Mr. Ang first joined the Kuok Group in April 1989, and was the General Manager in Kuok Oils and Grains Pte Ltd ( KOG ) from 2000 to At KOG. He headed various divisions ranging from palm oil to grains. Upon the merger with Wilmar s palm plantation, edible oils, grains and related business in 2007, he was appointed to head the Palm Division in Wilmar Trading Pte Ltd. Mr. Ang graduated from the National University of Singapore with a Bachelor of Science degree. ANNUAL REPORT 15

18 KEY MANAGEMENT TEAM From top to bottom: CS Kwang Kay Albert Maknawi Ooi Min Choo Chua Voon Hai Ajis Chandra MR. CS KWANG CHUA KWANG KAY Chief Operating Officer Mr. CS Kwang Chua Kwang Kay is responsible for overseeing the Group s overall operational activities. Mr. Chua has over 30 years of experience in the plantation industry. Since 1975, Mr. Chua has held management positions at Harrisons & Crosfield Co, Ltd, Ban Len Sdn Bhd, Sabah Land Development and PBB Oil Palms Berhad ( PPBOP ). 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. MR. ALBERT MAKNAWI Deputy Chief Operation Officer Mr. Albert Maknawi is in charge of overseeing the Group s overall engineering operations. Mr. Albert Maknawi first joined the Group in 2004, where he was appointed as Technical Manager of SWK and was in charge of managing daily operations of mills and purchasing of plant and equipment. Since 2005, he has been a director of PT Listrindo Kencana ( LK ) and is responsible for the development and construction of our renewable biomass power plant operations. He has also been a director of PT Belitung Energy ( 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. MR. OOI MIN CHOO Head of Plantations Mr. Ooi Min Choo is responsible for the operational management of our plantation activities. He has more than 30 years of experience managing plantations. 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 From 1986 to 1989, Mr. Ooi also completed ISP s professional papers relating to tree crops and milling. These professional papers include estate book keeping, soil science, estate land survey and oil palm practices. MR. CHUA VOON HAI Financial Controller Mr. Chua Voon Hai is responsible for the Group s finance and accounts department. Mr. Chua has extensive experience and financial knowledge pertaining to accounting issues related to palm oil industry and companies. Prior to joining the Group, Mr. Chua was working with Kuok Oils and Grains Group ( KOG ), which merged with Wilmar in 2007, for more than 10 years. During his tenure with Wilmar and KOG, Mr. Chua held various responsibilities relating to internal and external reporting, tax, financing and IT related matters. In June 2004, he was seconded to China as Finance Manager in one of KOG s manufacturing subsidiaries in Tianjin. Before joining KOG, Mr Chua was the assistant group accountant of Amcol Holdings Ltd (now part of AFP Group) from 1995 to His responsibilities included annual audit, internal and external reporting as well as SGX reporting of Amcol Holdings Ltd. Mr. Chua is a fellow member of Association of Chartered Certified Accountants ( ACCA ), United Kingdom. He graduated from Emile Woolf College, London in December MR. AJIS CHANDRA Head of Bulking and Logistics Mr. Ajis Chandra is in charge of managing the bulking and logistics segment of our operations. He is also currently the President Director of PT Indotrust and PT Pelayaran Asia Marine. He was previously with the Lippo Group for about 11 years, holding various positions in Indonesia, Malaysia, and Vietnam. 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. 16

19 FINANCIAL CONTENTS 18 Corporate Governance Report 28 Use of Proceeds from Placement 29 Directors Report 32 Statement by Directors 33 Independent Auditors Report 35 Consolidated Statement of Comprehensive Income 36 Statements of Financial Position 37 Statements of Changes in Equity 39 Consolidated Statement of Cash Flows 40 Notes to the Financial Statements 88 Information on Shareholdings 90 Annual General Meeting ANNUAL REPORT 19

20 CORPORATE GOVERNANCE REPORT The Board of Kencana Agri Limited (the Company ) and its Management are committed to ensuring high standards of corporate governance so as to ensure transparency, to protect shareholders interests and promote investors confidence. Steps have been taken, as far as practicable, towards the compliance of the recommendations in the Code of Corporate Governance (the Code ) This report outlines the Company s corporate governance structure, policies and practices that took place since the listing of the Company in July 2008 with specific reference to the relevant provisions of the Code. BOARD MATTERS The Board s Conduct of Affairs Principle 1: Every company should be headed by an effective Board to lead and control the Company. The Board is collectively responsible for the success of the company. The Board works with Management to achieve this and the Management remains accountable to the Board. The Board currently consists of nine members (including one alternate director): Henry Maknawi Alwin Aziz Ratna Maknawi Kent Surya Soh Yew Hock Leung Yew Kwong Sim Idrus Munandar Teo Kim Yong Ang Kok Min Chairman and Chief Executive Officer Vice-Chairman and Non-Executive Director Deputy Chief Executive Officer Finance Director Lead Independent Director Independent Director Independent Director Non-Executive Director Alternate Director to Teo Kim Yong Together, the directors bring a wide range of business, financial and legal experience relevant to the Group. The Board is entrusted with the responsibility of the overall management of the Company. The principal functions of the Board are: (a) (b) (c) (d) Approving corporate objectives, plans, strategies, policies and financial objectives of the Group and monitoring the performance of Management. Overseeing the processes for evaluating the adequacy of internal controls, risk management, financial reporting and compliance. Approving nominations and appointments of Board directors, committee members and key personnel. Approving proposals with regard to annual budgets, investments, capital expenditures, major acquisitions and divestments. 18

21 The Board meets regularly to review the Group s performance, to deliberate on specific issues including major acquisitions and disposals, to approve the annual budget and to approve the release of the quarterly, half-yearly and year-end financial results. There is an objective decision-making process, which allows each Director to engage in constructive discussion and make decisions in the best interests of the Company. The Board also has informal discussions and/or meetings outside of formal board meetings. The Company s Articles of Association provide for the Board to convene meetings by telephone or video conference or similar communication modes. A total of six board meetings were held in the year. The details of attendance of the formal meetings by individual Directors are as follows: Number of meetings held Number of meetings attended Henry Maknawi 6 6 Kent Surya 6 6 Ratna Maknawi 6 6 Alwin Aziz 6 6 Soh Yew Hock 6 6 Leung Yew Kwong 6 6 Sim Idrus Munandar 6 2(a) Teo Kim Yong 6 2(b) (or Ang Kok Min, Alternate to Teo Kim Yong) Notes: (a) (a) Mr Sim Idrus was appointed as an Independent Director on 30 September and there were only two board meetings held after his appointment. Mr Teo Kim Yong was appointed as a Non-Executive Director on 30 September and there were only two board meetings held after his appointment. To assist the Board in the execution of its duties, the Board has established various Board Committees, namely the Nominating Committee ( NC ), the Remuneration Committee ( RC ) and the Audit Committee ( AC ). Each of these committees is empowered to make decisions on matters within its terms of reference. Board members are apprised of the business and operations of the Company on a regular basis either through formal or informal meetings and discussions. They are also encouraged to attend seminars and receive training to improve themselves in the discharge of their duties as directors. The Company works closely with professionals to provide its directors with changes to relevant laws, regulations and accounting standards. The Company has adopted internal guidelines on matters requiring its approval, which include all matters of strategic importance, corporate governance practices, legal and regulatory compliances, risk management, annual budgets, investment proposals and major transactions. Newly-appointed directors are given briefings on the business activities of the Group and its strategic directions. Board Composition and Guidance Principle 2: There should be a strong and independent element on the Board, which is able to exercise objective judgment on corporate affairs independently, in particular, from Management. No individual or small group of individuals should be allowed to dominate the Board s decision making. The Company endeavours to maintain a strong and independent element on the Board. As at the date of this report, more than one-third of the Board members are independent directors. The independent directors have confirmed that they do not have any relationship with the Company or its related companies or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the director s independent business judgment in the best interests of the Company. The Nominating Committee ( NC ) has reviewed and determined that the said directors are independent. The independence of each director is reviewed annually by the NC. ANNUAL REPORT 19

22 CORPORATE GOVERNANCE REPORT The Board is of the opinion that its current size of 9 Board members (including one alternate director) is both effective and efficient. This conclusion was drawn after taking into consideration the nature and size of the Company s business and operations. Together, the Board members possess a balanced field of core competencies such as accounting and finance, legal, business and management experience and the requisite industry knowledge to lead the Company. Details of the Board members qualifications and experience are presented in this Annual Report under the heading Board of Directors on pages 14 to 15. Chairman and Chief Executive Officer Principle 3: There should be a clear division of responsibilities at the top of the Company the working of the Board and the executive responsibility of the Company s business which will ensure a balance of power and authority, such that no one individual represents a considerable concentration of power. The Chairman and Chief Executive Officer ( CEO ) of the Company is Mr. Henry Maknawi. The Board, after careful consideration, is of the opinion that the need to separate the roles of the Chairman and CEO is not necessary for the time being. The presence of a strong independent element and the participation of the independent directors ensure that Mr. Henry Maknawi does not have unfettered powers of decision. This has been reflected in the Board and Committee meetings where the independent Directors have participated actively in the decisionmaking process. A Lead Independent Director, Mr. Soh Yew Hock, has been appointed, since the listing of the Company, to be an alternative avenue for shareholders and other directors to raise their concerns where raising through the normal channels of the Chairman has failed to resolve. The Chairman s duties and responsibilities include:- (a) (b) (c) (d) (e) (f) (g) Leading the Board to ensure it is effective in its role; Setting directions for the Company and scheduling of meetings to enable the Board to perform its duties responsibly; Ensuring the proper conduct of meetings and accurate documentation of the proceedings; Ensuring the smooth and timely flow of information between the Board and Management; Ensuring compliance with internal polices and guidelines of the Company and high standards of corporate governance; Ensuring effective communication with shareholders through investors relationship channels and timely announcements of Company s development; Encouraging constructive relations between the Board and Management as well as between all directors. In addition to the above duties, the Chairman will assume duties and responsibilities as may be required from time to time. Board Membership Principle 4: There should be a formal and transparent process for the appointment of new directors to the Board. The Nominating Committee ( NC ) is established and it comprises 3 members, the majority of whom, including the Chairman, are nonexecutive independent directors. Chairman : Leung Yew Kwong Member : Soh Yew Hock Member : Henry Maknawi The NC is established for the purposes of ensuring that there is a formal and transparent process for all Board appointments. It has adopted written terms of reference defining its membership, administration and duties. The NC met once in and was attended by all members of the committee. 20

23 The duties of the NC are as follows: (a) (b) (c) (d) (e) To make recommendations to the Board on all Board appointments, including development of a set of criteria for director appointments, which includes qualifications of director; ability to exercise sound business judgments, relevance to the Company and the industry and appropriate personal qualities; To re-nominate directors having regard to the director s contribution and performance (e.g. attendance, participation and critical assessment of issues deliberated upon by the Board) including, if applicable, as an independent director; To determine annually whether or not a director is independent; To decide how the Board s performance may be evaluated and propose objective performance criteria; and To assess the effectiveness of the Board as a whole. The Articles of Association of the Company currently require one-third of the directors to retire and subject themselves to re-election by the shareholders in every Annual General Meeting. In addition, all directors of the Company (including the CEO) shall retire from office at least once every three years. The details of the Board members qualifications and experience including the year of initial appointment and election are presented in this Annual Report under the heading Board of Directors on pages 14 to 15. Name of Directors Appointment Date of Initial Appointment Date of Last Re-election Directorship in Listed Companies Henry Maknawi Executive 30 May April Kencana Agri Limited Kent Surya Executive 30 May April Kencana Agri Limited Ratna Maknawi Executive 26 September June 2008 Kencana Agri Limited Alwin Aziz Non-Executive 30 May April Kencana Agri Limited Soh Yew Hock Non-executive/ Independent 30 May June 2008 Kencana Agri Limited Japan Residential Assets Manager Ltd (Manager of Saizen REIT) Leung Yew Kwong Non-executive/Independent 30 May April Kencana Agri Limited Sim Idrus Munandar Non-executive/Independent 30 September NA Samko Timber Limited Teo Kim Yong Non-Executive 30 September NA Wilmar International Limited Ang Kok Min Non-Executive/Alternate director 30 September NA Kencana Agri Limited Board Performance Principle 5: There should be a formal assessment of the effectiveness of the Board as a whole and the contribution by each director to the effectiveness of the Board. The NC has adopted a process for assessing the performance of the Board as a whole instead of individual assessment. The performance appraisal includes qualitative and quantitative factors including Board structure, conduct of meetings, corporate strategy and planning, risk management and internal control, and so on. The NC undertakes the Board performance appraisal annually and the appraisal results are presented to and tabled during the Board meeting. Although the Code proposes certain financial indicators as performance criteria, such as the Company s share price performance, the Board is of the opinion that the performance criteria should be geared toward evaluating the performance of the Board and the directors in discharging its principal responsibilities, upholding high standards of corporate governance and strategic oversight of the Company s business rather than the specific performance of the Company s share price and other financial indicators. ANNUAL REPORT 21