Eng - IOI Group

Management’s Discussion and Analysis cont’dGROUP FINANCIAL REVIEWFINANCIAL HIGHLIGHTS & INSIGHTS cont’d• The “unallocated segment” in respect of both financial years comprise primarily the gain on forex translation on USD denominatedborrowings. This was in part an anticipatory hedge for our USD income stream.• Pre-tax Earnings increase by 73% over last financial year. Net interest expense, has remained about the same as previous financialyear even though the Group gross borrowings has increased by 45% due to the issuance of USD370 million Exchangeable Bondsand a 30-year JPY15 billion term loan. This is because borrowings were raised in anticipates of future requirement and proceedsstill held in cash.• At the Net Earnings level, profit attributable to shareholders increased by 79% to RM1,482.1 million. Apart from explanationabove at operating level, the privatisation of IOI Oleochemical Industries Berhad (“IOI Oleo”) in FY2006 has by large helped toimprove further the overall net earnings of the Group by enjoying the full year effect of exclusion of IOI Oleo’s minority interests.• For FY2007, the Group recorded a Return on Equity (“ROE”) of 21.5% based on an average shareholders’ equity of RM6.89 billion(FY2006 – RM5.45 billion), up from 15% for the previous financial year. The average over cycle ROE target is 20%.• Similarly, the Return on Average Capital Employed (“ROCE”) increased to 15.6% for FY2007, up from 11.1% for FY2006. Thiswas due to higher net earnings although the denominator has also increased significantly because of the substantial working capitalrequirement for the downstream operation.• The Group strives to enhance ROE and ROCE by continuous improvement in operating performance and by active management ofits capital structure. Initiatives undertaken by the Group include increasing dividend pay-outs, a share buy-back (and cancellation)program and a continuous review and adjustment of the Group’s debt gearing ratio having regard to maintaining stablecredit ratings.Equity reduction for purpose of capital management included the following:FY2007RM millionFY2006RM millionTotal cash dividend 319.0 408.6Share buy-back 105.1 92.3424.1 500.9Capital repayment (completed on 22 August 07) 1,314.4 -Total equity repayments 1,738.5 500.9% to Net Earnings for the financial year 117% 60%The Company targets an average equity payout of not less than 50% of net earnings.IOI Corporation BerhadANNUAL REPORT 2007 20