Annual Report 2012 - IOI Group

for the production of specialty fats, providingbuilding blocks for products within the different IOILoders Croklaan production units. Enzymetechnology enables production of Betapol®, a humanmilk fat replacer for better fat and calcium absorptionin infant nutrition, a key ingredient for high qualityinfant formula. It also enables the Group to increaseits competitiveness in the strategically importantmarket for cocoa butter equivalents. The uniqueprocesses and enzymes used by IOI Lipid Enzymtecensure competitive advantage in quality and cost ofthe end products.OPERATIONS REVIEWThe resource-based manufacturing division reporteda profit of RM287.1 million for FY2012 which is 36%lower than the reported profit of RM446.0 million forFY2011. The lower profit is mainly due to fair valuedifferences on derivative contracts where a loss ofRM88.2 million was reported for FY2012 comparedto a gain of RM6.4 million for FY2011. After excludingthese fair value differences, the resource-basedmanufacturing division reported a decline of RM64.3million profit to RM375.3 million due to a weakerperformance from the specialty oils and fats subsegmentthat was offset by a better performance inthe oleochemical sub-segment. The refining subsegmentalso managed to register satisfactoryresults despite stiff competition posed by Indonesianrefiners due to their tariff differentiated export dutystructure.OUTLOOK & PROSPECTSWe expect our refinery sub-segment to facecontinued challenges due to Indonesia’s aggressiveexpansion into the downstream activities in linewith the differentiated export duty structurebetween crude palm oil and processed palm oil.Meanwhile our oleochemical sub-segment willcommission an additional fatty ester productioncapacity of 20,000 MT/year by mid-2013. Althoughcontributions from the new plant will only be seenin FY2014, we are optimistic that with the rightstrategies, the performance of the oleochemical subsegmentin FY2013 would remain satisfactory amidsta slowing global economy. As for our specialty oilsand fats sub-segment, the completion of theChannahon facility in the USA as well as thecommissioning of IOI Lipid Enzymtec will see outputfrom these two plants increase. Combined with afocus on margin growth and cost reduction in ourEuropean operations, performance by our specialtyoils and fats sub-segment should remain satisfactoryand the Group is confident of an improvingperformance in the year ahead.Top: IOI Loders CroklaanAsia’s and IOI LipidEnzymtec’s tank farm in PasirGudang, Johor have acombined storage capacity of101,561 MT.Bottom: The research anddevelopment (R&D) teamevaluating the end productto determine its quality at IOILoders Croklaan Americas.Annual Report 2012IOI CORPORATION BERHAD 39