5. RISK FACTORS 5. RISK FACTORS Our operations are subject to the legal, regulatory and business environment in Malaysia as well as in other countries that may impact on the palm oil sector. Our operations are also subject to a number of factors, many of which are outside our control. Before making an investment decision, you should carefully consider, along with the other matters in this Prospectus, the risks and investment considerations set out below. The risks and investment considerations set out below are not an exhaustive list of the challenges that we currently face or that may develop in the future. These and other risks, whether known or unknown, may have a material adverse effect on us and/or our Shares. 5.1 RISKS RELATING TO OUR INDUSTRY 5.1.1 Inherent business risks in the plantation industry may affect our business We are subject to risks inherent to the plantation industry. These include, but are not limited to, outbreaks of oil palm plantation diseases, damage from pests, fire or other natural disasters, unscheduled interruptions in palm oil milling, adverse climate conditions, downturns in the global, regional and national economies, the entry of new players into the market, changes in law and tax regulations affecting palm oil, increases in labour and/or other production costs, claims and disputes involving local natives on the land in which we operate and changes in business and credit conditions. Our ability to mitigate these risks depends on various factors, including our ability to keep abreast of the latest technologies related to planting materials, disease prevention and plantation operations, and other developments in the industry, as well as our ability to effectively implement business strategies. For example, while we deploy new planting materials, including oil palm clonal seeds, issue culture ramets and compact palms developed in-house through our collaboration with AA Resources with the aim of increasing oil yield and FFB yield per Ha, various risks in the plantation industry may cause us not to achieve the desired results, as may be brought about by, for example, adverse changes in climate patterns. There can be no assurance that we will be able to successfully mitigate the various risks of the plantation industry, or that we will be successful in Implementing our strategies. If we are unable to do so, our business, financial position, results of operations and prospects would be materially and adversely affected. 5.1.2 Local and international commodity prices fluctuate based primarily on local and international market conditions, and will affect the prices of FFB, CPO and PK Movements in CPO prices influence the prices of FFB. As with the price of other commodities, CPO prices are characterised by a high degree of volatility and cyclicality. The highest and lowest monthly average closing prices for CPO prices (local delivered) pUblished by MPOB for the year 2011, 2012, 2013 and January 2014 to March 2014 are as follows: Year High Low RMIMT RMIMT 2011(1 1 3,811.00 2,838.50 201i21 3,480.50 2,052.00 2013(31 2,574.50 2,221.00 2014141 _ January to March 2,855.00 2,528.50
Notes: (1) In 2011, CPO prices have fluctuated from a monthly average of RM3,811 per MT in February 2011 to a monthly average of RM2,838.50 perMT in October 2011.
5. RISK FACTORS (Gonl’d)
(2) In 2012, CPO prices have fluctuated from a monthly average of RM3, 480. 50 per MT in April 2012 to a monthly average of RM2, 052 perMT in December 2012.
(3) In 2013, CPO prices have fluctuated from a monthly average Df RM2, 221.00 per MT in January 2013 tD a monthly average ofRM2, 574. 50 perMT in December 2013.
(4) In 2014, CPO prices have fluctuated from a monthly average of RM2. 528. 50 per MT in January 2014 to a mDnthly average of RM2,855.00 per MT in March 2014.
Local and international prices for CPO are affected by a number of factors, including the following: (i) the price of crude oil, which impacts the prices of biofuels, which in turn impact the price of CPO;
(ii) the supply and demand levels for CPO and those for substitute oils, particularly soy oil;
(iii) global production levels and physical stocks of CPO and other vegetable oils, which tend to be affected principally by global weather conditions and the area of land under cultivation, which in turn is affected by competition with other plantation companies and non-traditional players to procure suitable plantation land; (iv) global consumption levels of CPO and other vegetable oils;
(v) developments in the Malaysian, Indonesian, regional and global economic and political situations;
(vi) foreign exchange rates;
(vii) import and export duties and other taxes; and (viii) Government regulations. A significant and prolonged reduction in the prices for FFB, CPO and palm oil-based products would have a material adverse effect on our results of operations and cash flows.
5.1.3 We face competition from other producers of palm oil and substitute oils The palm oil industry is highly competitive and includes a large number of producers globally. Many of the palm oil producers are from Malaysia and Indonesia, which are the largest producing nations of palm oil and refined palm oil-based products in the world. In 2012, Malaysia produced approximately 18.8 million MT of palm oil, or 35% of global production, and Indonesia produced approximately 26.3 million MT, or 50% of global production ‘. As a result, our primary competitors are other Malaysian, as well as Indonesian, palm oil producers. Palm oil-based products are commodities, and the primary competitive factor in the palm oil industry is price. In recent years, Indonesian producers of palm oil-based products have become major competitors to Malaysian producers for a variety of reasons affecting the relative competitiveness of the palm oil-based products of the two countries in international markets, including the following: (i) the production costs, including labour and other operating costs, are lower in Indonesia than in Malaysia; 1 Global palm Dil production figures fDr the year 2013 has nDt been publicly released and therefore, the figures for the year 2012 have been maintained. 5. RISK FACTORS (Cont’d) (ii) Indonesia, the world’s biggest palm oil producer, has since October 2011, widened the gap between the CPO and refined export taxes to encourage more downstream investment and production of refined palm products in Indonesia. As a result, CPO and CPKO are cheaper for downstream producers there, which results in Indonesian refiners having a cost advantage in their domestic CPO purchases, refining margins and costs related to the production of refined palm oil-based products. While we are not directly affected by the Indonesian export duty structure on CPO, we are indirectly affected by any downward pressure in Malaysian CPO prices which may be induced by increasing CPO stockpiles, should the relevant export tax differential between Malaysia and Indonesia result in diminishing competitiveness of Malaysian downstream producers; and (iii) Indonesia has more land available for oil palm plantations than Malaysia. Based on the current regulatory environment in Malaysia, these factors affecting price and margins have a significant impact on competition and would negatively impact our ability to compete effectively against Indonesian producers. The palm oil industry also faces competition from other edible oils, such as soy oil, canola oil and sunflower oil, which are substitutes for palm oil. The United States, Europe, China, India, Brazil and Argentina are all large producers of edible oils. A decline in the price of these other edible oils may cause consumers to increase their use of these other edible oils in place of palm oil, which in turn could have a material adverse effect on our business, financial condition and results of operations. 5.1.4 Our production and supply of FFB may be adversely affected by weather conditions, natural disasters and other factors that affect our sales The following factors, most of which are outside our control, may affect the production and supply of FFB: (i) Local and global weather patterns Overly dry or wet weather conditions can potentially induce tree-stress, leading to lower supplies of FFB. Insufficient rainfall causes oil palm to produce fewer flowers which develop into FFBs and may delay fertilising schedules. Heavy rainfalls may cause the condition of the terrain on our plantation estates to be slippery or soft, thereby making it difficult for our workers to access our plantation estates and harvest our FFBs. Additionally, continuous torrential rain may lead to flooding especially in areas near riverbanks, and subsequently delay FFB harvesting. In 2009, the seasonal EI Nino phenomenon which occurred from June 2009 to April 2010 caused prolonged dry weather conditions in Malaysia, resulting in lower FFB yields in 2009 and 2010. On the other hand, the La Nina phenomenon which hit Malaysia in July 2010 brought heavy rainfall and monsoon flooding and resulted in limited FFB harvesting activities and consequently FFB supplies. (i1) Stringent environmental and conservation regulations Changes in environmental and conservation regulations can impact the operations of industry players. Malaysian Government agencies have the power to take action against industry players for failure to comply with their environmental regulations, including the imposition of fines and revocation of licenses. The imposition and enforcement of stringent environmental and conservation regulations in Malaysia can potentially impact planting activities, and consequently the supply of FFBs. 5. RISK FACTORS (Cont’d) (iii) Natural disasters Natural disasters, especially floods, impact FFB harvesting activities and can lead to lower FFB supplies. Flooding can limit FFB harvesting, particularly in areas near riverbanks, and disrupt the supply of palm oil in the short term. (iv) Diseases or crop pests Diseases and pests can cause lower FFB yields, and in extreme cases, these attacks could destroy large areas of oil palm crops. Fungal diseases such as ‘ganoderma basal stem rot’, ‘fusarium’ and ‘fatal yellowing’ as well as bacteria-related diseases such as ‘endophytic bacteria’ are examples of diseases that typically infect oil palm crops while pests that attack oil palm crops include rats, squirrels and ‘rhinoceros beetles’. The external factors above may cause disruption or reduction in the production and supply of FFB, which may in turn adversely affect our sales, margins and results of operations. 5.1.5 Current and future consumer trends and preferences may reduce the demand for vegetable oils, including for CPO and other palm oil-based products Demand for CPO and other palm oil-based products has, in the past, and may, in the future, be affected by campaigns brought by environmental groups, such as Greenpeace International and the World Wide Fund for Nature (formerly known as the World Wildlife Fund). These environmental groups have raised concerns that oil palm plantations result in the destruction of large areas of tropical forests and wildlife habitats, and have campaigned to promote sustainable oil palm cultivation and environmentally friendly practices on oil palm plantations. Should changing consumer preferences reduce the demand for CPO and other palm oil-based prOducts, including as a result of environmental concerns, our business, financial condition and results of operations may be materially and adversely affected. 5.1.6 We may be adversely affected by changes in the perception of the climate change costs and benefits connected with palm oil production and the use of biofuels Growth in the palm oil industry is expected to be driven in part by expansion of demand for biofuels as part of an effort to lower global greenhouse gas emissions. However, environmental non-governmental organisations have challenged the sustainability of growth in palm oil production and whether the climate change benefits from biofuels outweigh the perceived environmental costs of increased palm oil production. It is likely that there will be continued pressure for plantations to demonstrate sustainable practices and for palm oil processors to demonstrate sustainable sourcing. It is also possible that there may be increasing limitations placed on the operation of the palm oil industry as a result of legislation in producer or customer nations and the internal environmental policies of customer companies. Accordingly, there can be no assurance that restrictions on the expansion of the palm oil industry will not be imposed or that there will be a rise in demand for palm oil as a result of climate change concerns and the demand for biofuels. 5. RISK FACTORS (Cont’d)
5.2 RISKS RELATING TO OUR BUSINESS 5.2.1 Failure to improve our plantation yield could adversely affect our profitability The yield for oil palm plantation is generally dependent on the age profile, planting materials, diseases or crop pests that affected the oil palm, terrain, weather and soil characteristics of the area in which our plantations are located as well as the availability of labour and the social structure of the local community surrounding our estates. For the past three consecutive financial years, our Group’s estates in Peninsular Malaysia have been generating higher FFB yield compared to the average industry yield in Peninsular Malaysia, as evidenced in the following: Annual FFB yield (MT per Hal for the FYE 31 December 2011 2012 2013 Peninsular Malaysia 20.1 20.9 19.9 Peninsular Malaysia: MPOB benchmarl<* 19.2 19.1 19.3 Sabah 17.2 16.9 17.3 Sabah: MPOB benchmarl< * 22.3 20.4 20.9 Sarawak 13.2 13.6 11.4 Sarawak: MPOB benchmarl< * 16.8 16.5 16.2 Overall Group 17.0 17.4 16.5 National: MPOB benchmarl< * 19.7 18.9 19.0
Source: MPOB However, our Group’s estates in Sabah and Sarawak have been generating lower FFB yields compared to the average industry yield in Sabah and Sarawak, respectively. In Sabah, this is attributable to the higher proportion of oil palms exceeding 20 years of age, amounting to approximately 23.1 % of our Group’s planted area in Sabah. The difficulty in our sourcing of skilled labour to harvest FFB from taller oil palms, has led to the lower FFB yields from our estates in Sabah. In Sarawak, the combination of geographical and social factors has resulted in our Sarawak FFB yield being lower than industry average. Geographically, our estates in Sarawak experience high rainfall and feature hilly terrains, which in certain sloping areas, inhibit dense planting and increase the risk of paim oil casualty from land slide during rainy season. Socially, we also experience disruptions in FFB harvesting arising from unforeseen legal claims in our plantation area and unauthorised harvesting of FFBs as set out in Section 5.2.3 and Section 5.2.6 above as well in Section 7.14 of this Prospectus. We cannot assure that the challenges faced in our affected estates in Sabah and Sarawak can be quickly resolved in the near future. 5. RISK FACTORS (Cont’d)
5.2.2 We rely on foreign workers Like many Malaysian plantation companies, we rely to a significant extent on foreign workers, primarily from Indonesia, for our plantation operations. As at the LPD, we employed a total of approximately 6,200 foreign estate workers on a permanent and contract basis, representing approximately 63% of the total personnel required in our estates and mill. As the standard of living in Malaysia improves over time, we have found it increasingly difficult to hire Malaysian production workers for our plantation operations, and this difficulty may increase in the future. Currently, we obtain at least three-year work permits for our Indonesian workers, which may be renewed on a yearly basis. We must apply to the Ministry of Home Affairs of Malaysia to issue the necessary work penmits, and a similar application is made simultaneously to the Indonesian Embassy in Malaysia. If visa policies in Malaysia or Indonesia were to change in any way so as to make it more difficult for us to maintain a sufficient foreign labour workforce, our business, results of operations and financial condition would be materially and adversely affected. In addition, the expansion of plantation operations in Indonesia ‘has increased competition for Indonesian workers, resulting in increased wages that we must pay to foreign workers and, accordingly, increased operating costs for our plantations.
5.2.3 There are legal claims on certain lands on which we operate Our Group has experienced certain land disputes by natives claiming that they hold native customary rights in our estates in Sarawak, in particular involving NCR lands measuring 1,050 Ha, situated in Sg. Kelimut, Kanowit District (“Block 01”), which is within Kelimut Estate and Maong Estate. As at the LPD, B Kanowit has developed approximately 14,064 Ha of the 24,000 Ha of NCR land into oil palm plantations (“B Kanowit Plantation”). On 30 April 2012, the Sibu High Court had allowed the natives’ claim and on 3 May 2012, we had filed a Notice of Appeal to Sibu High Court Registry to appeal against Sibu High Court’s said decision. As at the LPD, the ultimate outcome of the said appeal is still pending, as the Court of Appeal had on 11 February 2014 reserved judgement to a date to be fixed. Should our appeal be unsuccessful, our Group would be required to surrender lands held under Block 01 back to the natives. The expected loss arising from such eventuality is the loss on the prepaid land lease and biological assets attributable to Block 01 of approximately RM15 million. B Kanowit will no longer be able to recognise the revenue from Block 01, which would be approximately RM3.6 million based on the management financial statements of B Kanowit for the FYE 31 December 2013. Should the ultimate outcome result in the extinguishing of our Group’s rights over the entire B Kanowit Plantation, the expected loss will comprise the prepaid land lease and biological assets attributable to the entire B Kanowit Plantation of approximately RM217.0 million as well as the loss of yearly profits. For the FYE 31 December 2013, B Kanowit recorded losses after tax of approximately RM11.7 million and had NA of RM67.4 million as at 31 December 2013. Even if we succeed in our court appeal, there can be no assurance that there will not be other claims of a similar nature involving NCR land matters in other areas within B Kanowit’s estates and/or other subsidiaries within our Group. Further information on the abovementioned legal claim is set out in Section 15.5 of this Prospectus. 46 5. RISK FACTORS (Conl’d) 5.2.4 We may not be able to successfully acquire new plantation land We have previously expanded our plantation estates through acquisitions and joint ventures. We may seek to grow our plantation assets in similar ways in the future, as well as by embarking on undeveloped plantation lands or entering into new partnerships. We may face difficulty in identifying and acquiring new matured plantation land with prime yielding trees in view of its scarcity and high market prices and we may also not be able to secure opportunities to jointly acquire and manage such plantation lands with land owners on commercially viable profit sharing terms. In the event that we are successful in identifying feasible plantation assets for acquisition and/or are able to secure an opportunity to enter into a joint venture arrangement to acquire and manage such plantation assets, our future acquisitions, joint ventures or partnerships may require us to make significant cash investments, issue shares or incur substantial debt. In addition, these acquisitions, partnerships or joint ventures may require significant attention from our management, which may stretch our managerial resources and disrupt our existing business. Further, any acquisition, joint ventures or partnerships could entail a number of additional risks, including, higher cost arising from competition for target assets, increased issues with regulatory and compliance requirements, problems with effective integration of operations, limited influence or obligations as well as the inability to retain key personnel. Any of these risks could adversely affect our business, financial condition and results of operations. 5.2.5 Our borrowings and gearing levels may increase as a result of future potential acquisitions of plantation assets, hence potentially affecting our financial performance As at 31 December 2013, our total borrowings on a pro forma basis are approximately RM977.4 million, which translates to a gearing of 0.42 times, based on our pro forma shareholders’ funds of approximately RM2.35 billion. In the event that our Group identifies additional feasible plantation estates for acquisition after we have fully utilised our IPO proceeds earmarked for the acquisition of plantation assets, we may finance such future acquisitions through additional borrowings which may result in our gearing level to increase There can be no assurance that any plantation estates that our Group may acquire can generate sufficient income to improve our Group’s profitability to enable us to meet our Group’s financial obligations, which includes servicing our Group’s borrowing costs. The growth and success of our Group depends on our ability to identify and acquire earnings-accretive, mature plantation estates. As such, we will properly conduct financial, operation and legal due diligence in connection with future acquisition of plantation estates, to ensure that we acquire earnings-accretive, mature plantation land. Such due diligence will involve, amongst others, assessing the earnings potential to be derived from the plantation estates, age profile of the oil palm trees, any capex to be incurred. In addition to the above, we will also continue to review and assess our current financial position and gearing level in order to gauge our ability to undertake such future acquisition of plantation estates. 47 5. RISK FACTORS (Cont’d) 5.2.6 We may face operational disruptions arising from conflicts with local communities The establishment of oil palm plantations will have an impact on local communities, which may include reallocation of land and resources and displacement of people and settlements. Our Group has experienced several conflicts and disputes with certain local communities in Sarawak, particularly in certain areas of our estates under B Kanowit and B Tinjar relating to NCR claims giving rise to encroachment, trespassing and unauthorised harvesting of FFBs in pockets of our Group’s estates in Sarawak. Kelimut Estate, Maong Estate and Bukit Limau Estate had experienced disruptions in their operations arising from unauthorised harvesting and pilferage of FFBs which escalated since the year 2009. The total estimated value of crop loss arising from unauthorised harvesting of FFB and field blockades by certain local natives in the Kelimut Estate, Maong Estate and Bukit Limau Estate in 2013 was approximately RM9.1 million based on an estimated FFB tonnage lost of approximately 21,345 MT. While efforts have been taken to increase the security measures in the areas affected by unauthorised FFB harvesting, there can be no assurance that we are able to eliminate the practice of unauthorised harvesting in B Kanowit’s and B Tinjar’s plantations and field blockades in the near future. As our ability to harvest FFBs from areas with disputed NCR land claims is highly dependent upon the legal outcome and/or resolution of the said land disputes, our Group is taking a conciliatory approach towards resolving unauthorised harvesting in our estates pending the settlement of any legal proceedings thereto. For further details, see Section 7.14 of this Prospectus.
5.2.7 Reliance on the experienced management personnel We believe that our continued success will depend, in part, on the abilities, skills, experience, competency and continuous efforts of our key management team as disclosed in Section 9 of this Prospectus as well as other management and technical personnel, each of whom could be difficult to replace without the development of succession planning. Any significant or sudden loss of the services of our experienced management and technical personnel without suitable and timely replacement or our inability to attract and retain qualified and skilled personnel may have an adverse effect on our Group’s business operations. We continuously strive to groom and develop younger members of our work force to gradually assume greater responsibilities in preparation for our long-term future expansion and furtherance of our succession planning. To ensure continuity in leadership and access to qualified talent pool, we have put in place management succession plans and training programmes to reduce dependency on senior management and key personnel. as set out in Section 9.2.8 of this Prospectus. [The rest of this page has been intentionally left blank] 48 5. RISK FACTORS (Cont’d) 5.2.8 Our pro forma consolidated statement of financial position, statements of comprehensive income and statement of cash flows included in this Prospectus may not be indicative of our future financial position, results of operations and cash flows The pro forma consolidated statements of comprehensive income set out in Section 12.4 of this Prospectus represents the combined financial information of BPB and BREIT for the FYE 31 December 2011,31 December 2012 and 31 December 2013 were prepared on the basis that the SUR Exercise was completed as of 1 January 2011. Additionally, the pro forma consolidated statement of financial position and the pro forma consolidated statement of cash flows for FYE 31 December 2013 as set out in Section 12.4 of this Prospectus were prepared as if the SUR Exercise was completed as of 31 December 2013 and 1 January 2013, respectively. The abovementioned pro forma financial statements were based on the assumptions disclosed in the Reporting Accountants’ Letter on the Pro Forma Consolidated Financial Information as set out in Section 12.4 of this Prospectus. Our historical financial information as set out in Section 12.4 of this Prospectus may not be indicative of our Group’s future financial position due to differing underlying business factors before and after the IPO such as the management, tax and cost structure of our Group. For example, for the purpose of the preparation of pro forma consolidated statements of comprehensive income, BREIT is assumed to form part of our Group prior to 1 January 2011. Therefore, it is assumed that BREIT will not be eligible for the tax exemption granted under Section 61A(1) of the Income Tax Act 1967 for the FYE 31 December 2011 to 2013 and we had imputed an estimated income tax for BREIT at the rate of 25%. This differs from the audited financial information of BREIT for FYE 31 December 2011 to 31 December 2013, whereby prior to the BREIT Privatisation, BREIT was still exempted from taxation since its establishment under the Trust Deed as a real estate investment trust on 11 December 2006. Hence, our historical audited financial statements which form the basis for the pro forma consolidated statement of financial position, statements of comprehensive income and statement of cash flows included in this Prospectus do not reflect the financial effects relating to management decisions and associated risk implications which may otherwise have materialised if our Group was operating in its current structure in the past. [The rest of this page has been intentionally left blank] 5. RISK FACTORS (Cont’d) 5.2.9 Funding, especially on terms acceptable to us, may not be available to meet our future capital needs Our ability to obtain external financing and to make timely repayments of our debt obligations are subject to various uncertainties, including our future results of operations, financial condition and cash flows, the performance of the Malaysian economy and the markets for our products, the cost of financing and the condition of financial markets, and the continuing willingness of banks to provide new loans. We cannot assure you that any required additional financing, either on a short-term or long-term basis, will be made available to us on terms satisfactory to us or at all. If adequate funding is not available when needed, or is available only on unfavourable terms, meeting our capital needs or otherwise taking advantage of business opportunities or responding to competitive pressures may become challenging, which could have a material and adverse effect on our business, financial condition and results of operations. 5.2.10 Our insurance coverage may not be adequate to cover all losses or liabilities that may arise in connection with our operations We maintain insurance at levels that are customary in our industry to protect against various losses and iiabilities. However, our insurance may not be adequate to cover all losses or liabilities that might be incurred in our operations. For example, we do not maintain insurance against losses at our oil palm plantations as a result of fires or natural disasters. Further, we do not insure most of our assets against war, terrorism or sabotage. Moreover, we will be subject to the risk that in the future we may not be able to maintain or obtain insurance of the type and amount desired at reasonable rates. If we were to incur a significant liability for which we were not fully insured, it could have a material adverse effect on our business, financial condition and results of operations. 5.2.11 We may be exposed to costs arising from compliance with environmental and health and safety regulations and may be exposed to liabilities if we fail to comply with these regulations We are subject to various health and safety and environmental laws and regulations in Malaysia. These include requirements related to the emission and discharge of hazardous materials into the ground, air or water from our facilities, safety and integrity of our mills, solid waste management and emergency planning. As these laws and regulations become more stringent, they may require us to purchase and install new or additional pollution control equipment or to make operational changes to limit actual or potential impacts on the environment or the health of our employees. Our principal environmental concerns relate to land and forest clearance for plantation development and emission and discharge from our palm oil mills. Any health and safety or environmental claims or the failure to comply with any present or future regulations could result in the assessment of damages, the imposition of fines. criminal sanctions or the suspension or cessation of our facilities and operations. [The rest of this page has been intentionally left blank] 5. RISK FACTORS (Cont’d) 5.2.12 If we are not able to renew or maintain the approvals, licences, permits and certificates required to operate our business, this may have a material adverse effect on our business We require various approvals, licences, permits and certificates to operate our business and facilities. We may be required to renew these approvals, licences, permits and certificates or to obtain new approvals, licences, permits and certificates. For a more detailed description of our material licences, permits and approvais, see Annexure A of this Prospectus. While we have not experienced any significant difficulty in renewing and maintaining our approvals, licences, permits and certificates, we cannot assure you that in the future the relevant authorities will issue or renew any reqUired approvals, licences, permits or certificates in a timely manner or at all. Failure by us to renew, maintain or obtain the reqUired approvals, licences, permits and certificates may interrupt our operations or deiay or prevent the implementation of any capacity expansion or other new projects and may have a material adverse effect on our business, financial condition and results of operations. 5.2.13 We may be subject to various potential litigation risks associated with our operations We may be subject to various litigations from time to time in respect of our plantation and milling businesses. Disputes and legal proceedings in which we may be involved are subject to many uncertainties, and their outcomes are often difficult to predict. The defence of any such claims and any associated settlement costs can be SUbstantial, even with respect to claims that have no merit. In addition, adverse judgments arising from litigation could result in restrictions or limitations on our operations or result in a material adverse impact on our reputation or financial condition. Due to the inherent uncertainty of the litigation and dispute resolution process, there is no assurance that the resolution of any particular legal proceeding or dispute will not have a material adverse effect on our future cash flow, results of operations or financial condition. 5.2.14 Restrictions in respect of category of land use and/or express conditions While most of the land titles of our plantation assets permit the cultivation of oil palm, some of the land titles carry express cond itions that the lands are to be used for, amongst others, cultivation of rubber and coconut, village, paddy field and livestock farming. We have made the necessary applications to the relevant land authority to change the category of land use and/or express conditions imposed on the relevant land titles of our plantations assets to agriculture and/or cultivation of oil palm, in which the approvals from the relevant authorities are still pending as at the LPD. We are in the process of submitting the necessary applications to the relevant authorities for the change of land use for Chamek Estate and Balau Estate by 30 June 2014 and 31 December 2014 respectively. If any of the relevant authorities does not grant its approval for any of the said applications, we shall appeal against such decision, which may result in the imposition of additional premium and/or increase in quit rent as condition for the approval by the said relevant authority. 5.2.15 We are controlled by BHB, whose interests may not be aligned with those of our other shareholders Upon the successful completion of our IPO, BHB will own up to 59% of our enlarged and issued paid-up share capital and will be our controlling shareholders. As our controlling shareholders, other than in respect of certain votes regarding matters in which it IS an interested party and must abstain from voting under the Bursa Securities LR, BHB will be able to influence the approval of any corporate proposal or transaction requiring a shareholders’ resolution under the Act. This includes the approval of all final dividends and the appointment of directors. There can be no assurance that the interests of BHB will be aligned with those of our other shareholders. 5. RISK FACTORS (Cont’d) 5.2.16 Failure to improve efficiencies in our production in a highly competitive market could adversely affect our profitability We face a number of operational risks at our plantation estates and mills. Outages or extended downtime at our mills could cause us to be unable to process our harvested FFBs, either at all or within a short period of time, which could lead to a loss of product or diminished product quality. These mills may require unscheduled downtime or unanticipated maintenance, which would reduce our revenues and increase our costs during the affected period. Similarly, our plantation estates are also subject to a number of risks, including third party interference, disruption of utility services and mechanical failure of harvesting equipment or transportation vehicles. Our future success and earnings growth depend in part on our ability to be efficient in the production of our products in a highly competitive market. Improving efficiency may become more difficult over time. Failure on our part to reduce costs through productivity gains could adversely affect our profitability and weaken our competitive position. Productivity initiatives that we may implement could involve complex reorganisation of our FFB production and mill operations. Such realignment of operations may result in the interruption of production, which may negatively impact our production volume and margins. 5.2.17 Significant or prolonged disruptions to the production, storage and distribution facilities, transportation infrastructure or modes of transportation that we use could have an adverse effect on us Our business is highly dependent on production, storage and transportation services to ensure smooth operations. The production, storage and distribution facilities, as well as transportation infrastructure and modes of transportation that we use are subject to being partially or completely shut down, temporarily or permanently, as a result of a number of circumstances, such as adverse weather conditions, catastrophic events, environmental remediation, equipment or machinery breakdowns, strikes, lock-outs or other events. Damages to any of these facilities, any significant or prolonged interruption at these facilities or inability to transport products to or from these facilities for any reason would create a bottleneck in the flow of our business operations and impact our ability to serve our customers. If we experience disruptions or interruptions of these types and are unable to quickly identify and resolve them, our reputation, business, financial position and results of operations could be adversely affected.
5.3 RISKS RELATING TO OUR SHARES 5.3.1 There has been no prior market for our Shares and the offering of our Shares may not result in an active liquid market for our Shares There has been no prior market for our Shares, and there is no assurance as to the liquidity of any market that may develop for our Shares after our Listing, the ability of holders to sell our Shares or the prices at which holders would be able to sell our Shares. None of us, the Promoter, the Selling Shareholder and the Joint Bookrunners have an obligation to make a market for our Shares. Application has been made to Bursa Securities for our Listing. On 29 April 2014, we obtained the approval of Bursa Securities for the Admission and the Listing, and it is expected that there will be an approximate 11-Market Day gap between the closing of the Retail Offering and trading of our Shares. We cannot assure you that there will be no event or occurrence that will have an adverse impact on the securities markets, our industry or us during this period that would adversely affect the market price of our Shares when they begin trading.