Business Overview

7. BUSINESS OF OUR GROUP 7. BUSINESS OF OUR GROUP 7.1 HISTORY AND BUSINESS OVERVIEW We are a global agricultural and agri-commodities company based in Malaysia, with operations across ten countries. According to Frost & Sullivan, we were the third largest oil palm plantation operator in the world based on planted hectarage (other than plantings of immature oil palms) in 2011. We currently operate 343,521 hectares of oil palm plantation estates in Malaysia that produced 5.2 million MT of FFB in 2011. FHB, our 49%-owned associate, is the largest producer of CPO in the world based on production volume, having produced 3.3 million MT of CPO in 2011, and our subsidiary, MSM Holdings, which is listed on the Main Market of Bursa Securities, is the leading refined s~gar producer in Malaysia. We were incorporated in Malaysia under the Act on 19 December 2007 as the commercial arm of FELDA for overseas investments in the upstream and downstream palm oil business and other agribusinesses, and we are currently a producer of oil palm and rubber plantation products, soybean and canola products, oleochemical products and sugar products. Our primary business activities are classified into three main business segments: plantations business, downstream business and sugar business. • We have approximately 355,864 hectares of plantation estates on the FELDA-Leased and Managed Land in Malaysia pursuant to tenancy agreements with FELDA with respect to 347,584 hectares of land in Peninsular Malaysia and Sabah and a management agreement with FELDA with respect to 8,280 hectares of land in Sarawak. The vast majority of the FELDA-Leased and Managed Land is devoted to the cultivation of oil palms, with a small amount used to cultivate rubber trees. In 2011, 5.2 million MT of FFB were produced from the oil palm plantation estates on the FELDA-Leased and Managed Land. F Palm Industries, which is a subsidiary of our 49%-owned associate FHB, has historically purchased from FELDA substantially all of the FFB produced on the oil palm plantation estates on the FELDA-Leased and Managed Land, and, with the effectiveness of the Land Lease Agreement and the Sarawak Land Management Agreement on 1 January 2012, F Palm Industries has purchased that FFB from us. Pursuant to contractual arrangements that we entered into with F Palm Industries with effect from 1 March 2012, F Palm Industries will purchase from us substantially all of the FFB produced on the oil palm plantation estates on the FELDA-Leased and Managed Land. F Palm Industries produces CPO and PK using the FFB it acquires from us, as well as the FFB it acquires from FELDA Settlers, third parties and F Agricultural, a subsidiary of FHB. Pursuant to the same contractual arrangements between F Palm Industries and us, F Palm Industries sells to us substantially all of the total CPO that it produces. F Palm Industries sold to us 115,064 MT of CPO since the contractual arrangements with F Palm Industries came into effect on 1 March 2012. We resell this CPO to third-party customers, such as refiners and traders in Malaysia and abroad, to our joint ventures and to FHB’s various subsidiaries and its associate, MEa, for their production of palm oil-based products. For a summary of the terms of the contractual arrangements between F Palm Industries and us, refer to Section 7.22.2(iii) of this Prospectus. Outside of Malaysia, we have invested in Trurich, a joint venture that owns 42,000 hectares of oil palm plantations in East and Central Kalimantan, Indonesia, and we have acquired PT Citra Niaga, a company that owns 14,385 hectares of land in West Kalimantan, Indonesia for oil palm plantation development. In addition to oil palms, in our rubber plantation operations, we cultivate and harvest cup lumps on 10,308 hectares of rubber plantations on the FELDA-Leased and Managed Land, all of which we sell to F Rubber Industries, a subsidiary of FHB, as raw materials for its production of rubber products. 7. BUSINESS OF OUR GROUP (Cont’d) • In our downstream business segment, we produce soybean and canola products through our subsidiary, TRT-ETGO Inc, in Quebec, Canada, and we produce oleochemicals through our subsidiary, TRT US, in Massachusetts, United States. Our soybean and canola business’ commercial operations are conducted through our joint venture, Bunge ETGO, with Bunge Limited, which is a vertically integrated food and feed ingredient company. We entered into a tolling agreement with Bunge ETGO on 9 December 2011, pursuant to which Bunge ETGO provides us with soybeans and canola seeds, which we process into soybean and canola products that Bunge ETGO sells and markets. Following the implementation of this tolling agreement, we now recognise revenue from tolling fees that Bunge ETGO pays us, and we no longer recognise revenue from the sale of soybean and canola products or cost of sales from the purchase of soybeans and canola seeds. For a summary of the terms of the tolling agreement between Bunge ETGO and us, refer to Section 7.22.5 of this Prospectus.
We have a joint venture called Felda IFFCO with IFFCO Group, a mass-market consumer goods manufacturer and marketer based in the United Arab Emirates. Through this joint venture, we have interests in palm oil refineries and downstream processing facilities in Malaysia, Indonesia, China, Turkey and South Africa, a facility for other oils and fats in Ohio, United States, and sales and marketing offices in France and Spain.
• Through our subsidiary, MSM Holdings, we produce a full range of refined sugar products for both the commercial and retail sectors. According to Frost & Sullivan, in 2011, we were the largest refined sugar producer in Malaysia based on production volume of 958,377 MT of sugar products and an annual production capacity of over 1.1 million MT of sugar products. The customers of our sugar business segment are primarily in Malaysia.

The following tables set forth the revenues derived from the sale of certain key products and services in each of our three main business segments for the periods indicated and exclude sales by our associates and joint ventures. Year Ended 31 December 2009 2010 2011 (in RM million) Plantations Business  Sale of FFB  .  2,219.2  2,596.5  3,183.8  Sale of cup lumps  .  45.6  58.5  89.9  Downstream Business  Sale of soybean and canola products  .  380.2  1,091.2  Sale of oleochemicals  .  606.7  609.1  797.6  Sugar Business  Sale of sugar products(1)  .  1,667.8  2,144.8  Total  .  2,871.5  5,312.1  7,307.3  Note:
(1) Does not include RM479.9 million and RM154.6 million in subsidies from the Government for refined sugar sold in the domestic market at government-controlled pn”ces in 2010 and 2011, respectively. (The rest of this page has been intentionally left blank) 7. BUSINESS OF OUR GROUP (Cont’d) Three Months Ended 31 March 2011 2012 (in RM million) Plantations Business Sale of FFB{1 l . 752.2 460.8 Sale of cup lumps . 23.2 14.9 Sale of CPO . 374.3 Downstream Business Sale of soybean and canola products(2).., 228.1 Tolling fee from soybean and canola
products(2) . 16.9 Sale of oleochemicals . 180.0 194.4 Sugar Business Sale of sugar productS(3) . 449.1 457.5 Total . 1,632.6 1,518.8 Notes: (1) Effective from 1 March 2012, when we entered into contractual arrangements with F Palm Industries, we will no longer recognise revenue from our FFB sales to F Palm Industries.
(2) On 9 December 2011, we entered into a tolling agreement with our joint venture, Bunge ETGO. Following the implementation of this agreement, we recognise revenue from tolling fees that Bunge ETGO pays us for processing soybeans and canola seeds, and we no longer recognise revenue from the sale of soybean and canola products.
(3) Does not include RM54.1 million and RM74.3 million in subsidies from the Government for refined sugar sold in the domestic market at government-controlled prices for the three months ended 31 March 2011 and 2012, respectively.

7.2 COMPETITIVE STRENGTHS We are one of the largest agricultural and agri-commodities companies in the world. According to Frost & Sullivan, we were the third largest oil palm plantation operator in the world based on planted hectarage (other than plantings of immature oil palms) of 288,442 hectares in 2011. Given our leading position, we believe we are well-positioned to capitalise on the growing demand for CPO and other agricultural and food products globally. We believe our key competitive strengths to be the following: 7.2.1 Well-positioned to benefit from the favourable global palm oil and agriculture industry outlook Palm oil is the world’s most consumed vegetable oil due to its competitive price and versatility. Global consumption levels of palm oil increased by 106.7% to 49.2 million MT in 2011 from 23.8 million MT in 2001, according to Frost & Sullivan. Over the same period, global consumption of soybean oil, which was the second most consumed vegetable oil in 2011, grew by 53.2% to reach 42.0 million MT (source: Frost & Sullivan). Consumption levels for palm oil are expected to continue to grow by 23.4% to 60.7 million MT in 2015 from 49.2 million MT in 2011, representing a CAGR of 4.8% from 2012 to 2015, which is higher than the CAGR of 4.2% anticipated for global consumption of edible oils and fats over the same period (source: Frost & Sullivan). According to the US Department of Agriculture, oil palm is the most productive vegetable oil crop, yielding more oil per hectare than any other major oilseed commodity. The production costs for oil palm are low in comparison to other crops of a similar nature and as it is free from any trans fats, palm oil is well-positioned to benefit from the growth in consumption of edible oils worldwide.
7. BUSINESS OF OUR GROUP (Cont’d) The growth in palm oil consumption is expected to be primarily driven by increasing imports from China and India to meet the needs of their end-user production facilities and end-consumer markets, as well as increasing demand in Indonesia for its fast-growing domestic consumer markets. In 2011, India, China and Indonesia accounted for 13.8%, 12.8% and 12.7% of total global consumption of palm oil, respectively. China does not produce any significant amounts of palm oil and therefore is heavily dependent on imports to meet domestic demand, according to the US Department of Agriculture. In recent years, the Government has acknowledged the significance of the palm oil industry for the domestic economy and its growth potential by identifying it as a National Key Economic Area in its Economic Transformation Programme (“ETP”). Under the ETP, the Government has announced plans to implement eight core entry point projects that span the palm oil value chain. These include public funding to encourage replanting, implementation of innovative techniques to increase worker productivity, promotion of subsidised mechanisation processes to increase the efficiency of the harvesting process and to reduce overall labour costs and dependence on foreign workers, promotion of the food and health-based downstream segments through coordinated marketing efforts and clinical trials and grants for investments in high value oleochemicals derivatives. As the leading palm oil plantation operator in Malaysia, we believe we will benefit from the Government’s initiatives in the palm oil industry. Global consumption of refined sugar has increased by 18.7% since 2001 and reached 154.2 million MT in 2010 and in that year, sugar consumption in Malaysia was 1.4 million MT. Our domestic market share in terms of production volume in Malaysia was 56.8% and 56.9% in 2010 and 2011, respectively. According to Frost & Sullivan, refined sugar consumption in Malaysia is expected to grow to 1.8 million MT in 2015, implying a CAGR of 4.3% from 2011 through 2015, as a result of increasing demand from both industrial and household consumers. Global consumption of natural rubber has grown steadily over the past 11 years, recording total growth of 52.4% from 2001 to 2011. According to Frost & Sullivan, global natural rubber consumption is forecasted to increase at a CAGR of 3.9% from 2012 to 2015, primarily driven by demand from end-user industries, such as tyre and rubber glove manufacturers. 7.2.2 Third largest oil palm plantation operator in the world and significant equity ownership in the largest CPO producer in the world According to Frost & Sullivan, in 2011, we were the third largest oil palm plantation operator in the world based on planted hectarage (other than plantings of immature oil palms) of 288,442 hectares, representing 2.1% market share of global mature planted area. We currently operate approXimately 343,521 hectares of palm oil plantations in Malaysia. According to Frost & Sullivan, we are also one of the largest producers of FFB in Malaysia, with a FFB production volume of 5,197,344 MT and a market share of 5.5% in 2011. . We hold a 49.0% eqUity interest in FHB, the largest CPO producer worldwide, with 3.3 million MT of CPO produced in 2011, representing a 6.6% market share of global production of CPO in that year, according to Frost & Sullivan. FHB’s leading position in CPO production is further supported by its operations in the upstream and downstream segments of the palm oil value chain. • According to Frost & Sullivan, FHB is one of the world’s largest millers of FFB, with 70 mills located throughout Malaysia and a total milling capacity of 20.4 million IVIT as of 31 December 2011, representing approXimately 20.5% of total palm oil milling capacity in Malaysia. 136 I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cont’d) • FHB sources FFB from uS, FELDA Settler managed oil palm plantations and third parties in Malaysia. We have access to sUbstantially all of the CPO produced by FHB, other than the CPO used by its subsidiary DOP, which provides us with a reliable source of CPO. Moreover, through our arrangement with FHB, we believe we are able to provide higher quality products and traceability for our customers than many of our direct competitors, because FHB is able to trace its FFB source. Because we have access to a substantial portion of FHB’s CPO, we believe we have stronger price negotiating power than many of our smaller competitors. We believe this allows us to better weather periods of low CPO prices and position ourselves to benefit from the expected future consumption growth in CPO and CPO-based products. 7.2.3 Large scale and integrated operations across the palm oil value chain Whilst our primary focus is on the upstream operations, our investment in FHB provides us with access to the downstream oil value chain. The management of our upstream plantation estates is integrated with FHB’s downstream activities and supply chain services, as evidenced by both FGVH and FHB presently having a common CEO and certain members of our management team. These operations span the entire palm oil value chain from seed breeding and fertiliser to plantations, milling, refineries, manufacturing, bulking and transportation to oleochemicals and end-consumer products. Our palm oil operations are large in scale compared to those operated by most of our peers in Malaysia and other parties in Asia. A significant portion of the oil palm plantations that we operate across Malaysia are located on contiguous blocks of land, which we believe enables us to manage our estates efficiently. We believe we are able to achieve efficiency through: (i) lower transportation costs within the estates; (ii) centralised logistics, such as employee housing and security; (iii) the inclusion of supporting infrastructure such as mills, refineries, jetties and ports which are owned by FHB, on our estates; and (iv) the operation of an independent power plant owned by FHB that runs on biomass fuels, resulting in lower costs for our operations. FHB’s leading position in palm oil milling is further supported by its leading position in downstream CPO and CPKO refining. FHB directly owns and operates five refineries in Malaysia. These refineries had a combined CPO and CPKO refining capacity of approximately 2.5 million MT as of 31 December 2011, which was approximately 10.5% of Malaysia’s total CPO and CPKO refining capacity (source: Frost & SUllivan). FHB is also present in the consumer packed products and its product range includes cooking oil, margarines and specialty fats. As the sales of such packaged products typically generate higher margins than bulk sales, we believe that FHB is well-positioned to benefit from growth in demand for these consumer products in Malaysia. FHB has built a strong brand footprint with the “Saji”, “Tiara”, “Tiga Udang” and “Sri Pelangi” brands, which has provided a strong base from which to launch other consumer products, such as instant noodles, mayonnaise and sweetened condensed milk. FHB also provides us with supply chain support, inclUding bulking stations, barges and fleets of trucks and road tankers to ensure efficient transport of CPO from mills to refineries and from refineries to other downstream facilities, ports and end-consumer markets, to minimise the risk of bottlenecks in the supply chain. FHB also owns a significant bulking station in Pasir Gudang, which handled over 4.0 million MT of edible oil and oleochemical products in 2011. 7. BUSINESS OF OUR GROUP (Cont’d) We believe our integrated operations help us achieve a greater coordination and efficiency in terms of operating costs, logistics, production and merchandising. We also believe that by participating across the palm oil value chain, we are able to extract value from each stage of the edible oils and fats supply chain, from the sourcing and aggregating of raw materials to the processing of the raw materials into various value-added products and the marketing and distribution of the products globally. Moreover, we believe we are able to respond quickly to changes in demand, supply and pricing for our products by producing a wide variety of value-added products and that we have the flexibility to sell our CPO externally when refining margins are unfavourable. As a result, we believe our downstream presence supports our upstream plantation margins. 7.2.4 Largest sugar producer in Malaysia Through our subsidiary, MSM Holdings, we are Malaysia’s largest refined sugar producer. We produced approximately 958,377 MT of sugar products in 2011, which represented 56.9% of domestic refined sugar production, according to Frost & Sullivan. We have been operating in the sugar business for over 50 years and we believe MSM Holdings has a reputation for providing reliable, high-quality products to our customers. To support our sugar production and sales, we own and operate an integrated network of storage, packaging and distribution facilities. Both of our sugar refining facilities have packaging, storage and distribution capabilities on-site. We believe the proximity of our facilities to ports, main roads and railway lines also enables us to efficiently manage our production and deliver our products to our customers in a cost effective manner. We market our sugar products under our “Gula Prai” and “Gula Perlis” brands and have built strong relationships with a broad base of 260 customers in Malaysia, including industrial customers, wholesalers and retailers. Our key customers for sugar include F&N Beverages Manufacturing Sdn Bhd, Permanis Sdn Bhd (the manufacturer, distributor and marketer of PepsiCo’s beverages in Malaysia) and Nestle Manufacturing (M) Sdn Bhd. In addition, we also own 20% of Tradewinds, another leading Malaysian sugar producer. According to Frost & Sullivan, based on total production volume in Malaysia of 1.7 million MT and MSM’s production volume of 958,377 MT in 2011, Tradewinds’ market share, in terms of production volume, was 43.1 % in 2011 as MSM and Tradewinds are the only two sugar refiners in the country. 7.2.5 Global footprint across products Since our incorporation in 2007 as FELDA’s arm for overseas investments, we have embarked on a programme of global expansion across various products. Through our subsidiaries and joint ventures, our operations span across ten countries including Malaysia, Indonesia, China, Turkey, USA and Canada. Including FHB, we are present in 12 countries. Our international operations reflect our strong focus on palm oil and palm oil products, as well as our diversification across the agri-business value chain in the areas of oleochemicals and soybean and canola crushing. Our Indonesian operations include our investment in Trurich, a joint venture that owns 42,000 hectares of oil palm plantations in East and Central Kalimantan, Indonesia and the recent acquisition of PT Citra Niaga, which owns 14,385 hectares of land in West Kalimantan, Indonesia that we intend to use for oil palm plantation development. 7. BUSINESS OF OUR GROUP (Cont’d) In the downstream segment, we have developed an international footprint that we believe gives us the ability to sell directly to and develop long-term relationships with multi-national end-users. We operate a manufacturing facility in the United States through our subsidiary, TRT US, and FHB operates another facility in Malaysia through its joint venture with Procter & Gamble. Our North American operations include our Canadian facility, which has extended our business into soybean and canola crushing. Our total refining capacity was 396,000 MT as of 31 December 2011. We believe our operations in Canada positions us favourably to gain experience and knowhow by being situated closer to the end-consumer for our products. Through our joint ventures, we jointly own and operate seven refineries in countries with rapidly growing demand for edible oil, including Malaysia, Indonesia, China, Turkey and the USA, with a total refining capacity of 2.4 million MT as of 31 December 2010. Coupled with FHB’s refining capacity, these investments position us among the largest refiners of CPO in the world, with a total capacity of 4.9 million MT as of 31 December 2010 according to Frost & Sullivan. We believe our diversified operations across select commodities and across various geographies and end-consumer markets enable us to better manage cyclicality in our industry and fluctuations in the price of CPO and other commodities and provide us with a defensible and more stable earnings stream over time. 7.2.6 Strong R&D support in oil palm breeding and selection, biotechnology, agronomy and crop protection FHB’s sUbsidiary F Agricultural provides R&D capabilities to support the plantation estates on the FELDA-Leased and Managed Land. We believe F Agricultural’s investment in oil palm breeding and selection, bio-technology, agronomy and crop protection programmes will continue to assist us in achieving high yields and cost efficiencies. F Agricultural has devoted significant resources to its oil palm breeding and selection programme over the last 40 years and has a R&D team dedicated to improving both FFB and oil yield per hectare. In recent field trials, F Agricultural has been able to consistently achieve yields above 30 I’v1T of FFB per hectare per year at prime production years and oil extraction rates above 25% from such FFB. The seeds responsible for such productivity will be used for our replanting programme. F Agricultural markets its germinated oil palm seeds and seedlings under the award­winning “Felda Yangambi” brand with sales exceeding RM50 million in 2011, which we believe makes F Agricultural one of the market leaders in this segment. We believe F Agricultural is also acknowledged in the industry as a key producer of oil palm clones derived through tissue culture. As of 31 December 2011, we had planted over 10,000 hectares of land with clones on the plantation estates on the FELDA-Leased and Managed Land. F Agricultural’s R&D effort in tissue culture is centred on improving embryo proliferation and amenability of tissues to the tissue culture process, which we believe could increase production efficiency and reduce costs.

 

7. BUSINESS OF OUR GROUP (Cont’d) F Agricultural is also actively involved in bio-molecular marker research with the aim of supporting the plantation estates on the FELDA-Leased and Managed Land through its breeding and tissue culture research. Development of markers tied to specific traits such as oil yield, compact or dwarf palms, high concentration of unsaturated oil and disease tolerance has the potential to reduce the time and cost for commercialisation of new varieties and also helps improve efficiency in clonal production. F Agricultural has filed two patents for two types of markers, one for phosphate transporters genes and one for Ganoderma disease diagnosis. F Agricultural has also launched an Applied Technology Division, which focuses on applying new technologies such as electronics, wireless sensor technology, geographical information systems, remote sensing and automation and mechanisation of daily operations to improve productivity and efficiency in our oil palm operations. We believe that we will be able to leverage on F Agricultural’s strong R&D initiatives, especially in our upstream business, to increase yield and efficiency, reduce production costs, better ensure environmental sustainability and help increase our profits over time. 7.2.7 Experienced and professional management team We have an experienced and qualified management team with a strong track record in the agribusiness industry, with members of our key management possessing an average of over 30 years of related experience. Our key management team comprises individuals with experience in operations, with us and other multinational companies, both in Malaysia and internationally. Our management has experience spanning both the upstream and downstream segments, in the palm oil and sugar industries, manufacturing and logistics, corporate strategy and business planning, accounting and finance, marketing, legal and regulatory and human resources. We are committed to our policy of continued development of the skills and expertise of our management team through extensive training and clear incentive programmes. We believe these initiatives will further reinforce the quality and dedication of our management team.
7.2.8 Strong brand recognition from our association with FELDA We are associated with FELDA, which is a Government statutory body. FELDA has a strong reputation for having successfully established the settlement programmes in Malaysia since 1957, and as a result, advanced Malaysia’s agricultural industry and agro­based businesses. For details of History and Milestones -FELDA, refer to Section 7.4.1 of this Prospectus. Consequently, the FELDA brand is well-known internationally. We believe that we and our brand will continue to benefit from our association with the strong reputation of FELDA, in particular in developing our overseas footprint. (The rest of this page has been intentionally left blank)

7. BUSINESS OF OUR GROUP (Cont’d) 7.3 BUSINESS STRATEGIES AND FUTURE PLANS We intend to grow and strengthen our position as a leading integrated, diversified and high performance agri-business player worldwide. Our strategies focus on enhancing our existing upstream portfolio through operational improvements and further land access and selective acquisitions in Southeast Asia and Africa, complemented by select downstream initiatives and new market penetration to support and strengthen our business. 7.3.1 Enhance our operating efficiency to improve profitability and margins, following the implementation of the Land Lease Agreement and the Sarawak Land Management Agreement Through the implementation of the Land Lease Agreement and the underlying tenancy agreements and the Sarawak Land Management Agreement with FELDA, we have gained full control of the estate management of their palm oil plantation operations. We are now in a position to implement initiatives that we believe will increase our overall profitability and margins, such as the implementation of best agricultural practices to improve productivity, optimisation of our replanting programme and entering into forward sales, spot and hedging contracts as appropriate to maximise the sales price of our CPO and other commodities and provide us with the ability to leverage our expertise in logistics, infrastructure and marketing and the ability to better manage supply chain sales to control costs and to better manage our margins. We intend to increase FFB production per mature hectare and oil extraction rates in the estates we manage through the implementation of high standards of agronomic and agricultural practices, including: (i) leaf and soil sampling to ensure optimal application of fertiliser; (ii) the use of legume cover to discourage weed growth, maintain soil conditions and reduce the risk of erosion; (iii) the use of high grade, customised, compound fertiliser manufactured by our facilities, which have consistent nutrient content; (iv) the application of fertiliser according to defined schedules; and (v) ensuring that we have a sufficient and stable labour supply to maintain the estates, harvest ripe FFB and collect loose fruits during the harvesting process. We are also undertaking a significant replanting programme to rejuvenate the aging tree profile of the plantations on the FELDA-Leased and Managed Land. With respect to the replanted areas, in addition to the implementation of optimal agronomic and agricultural practices, we intend to apply the following initiatives to increase their yield potential: (i) utilising the high yielding oil palm planting materials that we have developed to optimise long-term efficiency; (ii) focusing on good nursery practices by using high-quality soils and slow release fertilisers; (iii) culling poor planting materials; and (iv) using efficient irrigation systems and Vigilant pest control. To help ensure stable FFB production and a more balanced tree age profile, we intend to periodically review our replanting schedule to ensure that the appropriate areas are replanted. We also expect to continue to benefit from synergies in the operations of MSM and KGFP follOWing the acquisition of MSM in 2010. We intend to continue to coordinate the purchase of raw sugar for both companies to maximise leverage in purchase negotiations, as well as manage hedging activities and conduct joint marketing. We intend to implement additional initiatives to enhance our cost competitiveness, including increasing levels of automation at the KGFP Facility, upgrading eXisting boilers and increasing use of our rail facilities to reduce freight costs. We intend to apply initiatives that will strengthen our current soybean and canola crushing facilities to increase efficiency and optimise the utilisation of our Canadian operations by improVing the supply chain logistics to minimise bottleneck risks. 7. BUSINESS OF OUR GROUP (Cont’d) To support our operational improvement initiatives, we intend to adapt our organisational structure by investing in human capital and consolidating our capabilities. We have begun utilising new KPls and have implemented new incentive systems to ensure objectives are well understood and interests are aligned among entities of our Group. An example of such an initiative includes empowering our plantation general managers to each have management control over 15,000 hectares of land starting in 2012. We are focused on developing and implementing our human resource roadmap through regular training and international exposure through our overseas operations and joint ventures. We believe these initiatives will help us improve our operating efficiency and yield on our managed plantations, and as a result improve our earnings and margins. 7.3.2 Enhance our upstream business focus on palm oil and rubber through new plantings, optimising crop portfolio, selective acquisitions and sustainability certification We intend to pursue further expansion of our upstream business, focusing on palm oil and rubber by planting existing greenfield landbank, pursuing future acquisitions or seeking access to production where available. Although palm oil remains our primary focus, we believe maintaining crop diversification in rubber and sugar will assist in mitigating risk against exposure to commodity price volatility as we believe that the industry cycle of each crop complements each other and provides a natural hedge against volatility. Moreover, we believe these crops offer high profitability potential, are ideally suited for tropical climate similar to where we are operating at present, are crops with which we have extensive experience managing, and are crops that are located near key end-consumer markets. For example, following the recent acquisition of a 95% equity interest in PT Citra Niaga, we intend to commence planting oil palms on 14,385 hectares of greenfield landbank in Kalimantan, Indonesia. We expect the first FFB production from this land to commence in 2015 and reach an optimal production level by 2018. Our global expansion strategy for our palm plantations will focus on acquiring additional landbank where it is available and economically attractive. We believe we will continue to benefit from our association with the strong international reputation of FELDA, which could assist our upstream growth strategy internationally. The criteria in selecting our key target countries are physical conditions (such as climate, humidity and adequate agricultural landspace), strategic fit with respect to our operations, and the competitive and commercial landscape. More specifically, we have identified Southeast Asia and Africa as priority regions for upstream expansion. We believe that sustainable operations are key to continuous success and for palm oil, we intend to base our sustainability initiatives on the implementation of international standards such as RSPO and ISCC. We believe that RSPO and ISCC certified CPO command premium pricing in the international markets, and as such we are targeting to produce 3.0 million MT of RSPO and ISCC certified palm oil annually by 2017. We are aiming to increase our rubber plantation footprint and are targeting to increase our plantation landbank from 10,308 hectares to 30,000 hectares by 2015. Our current initiatives include optimising our crop portfolio by repositioning a certain portion of our current landbank. While we do not have plans to make significant acquisitions in sugar plantation as yet, we plan to consider opportunities to expand our raw sugar refining capacity and diversify to external markets through strategic acquisitions or investments on a selective basis outside Malaysia in locations near sugar cane plantations. 142 7. BUSINESS OF OUR GROUP (Cont’d) 7.3.3 Accelerate the turnaround of our downstream operations in Canada The integrated soybean and canola crushing and refining facility owned and operated by our subsidiary, TRT-ETGO Inc, in Canada, was developed as a greenfield project in 2008 and has been ramping up operations since 2010. As part of its start-up phase, the facility is continuing to undergo significant infrastructure upgrades. In 2010 and 2011, due to market conditions and internal restructuring, TRT-ETGO Inc recorded losses and recognised substantial impairment charges. To turn around the operations, we, through TRT-ETGO Inc, entered into a tolling agreement with Bunge ETGO, a joint venture with Bunge Limited, where TRT-ETGO Inc holds a 49% equity interest, effective as of 9 December 2011. Pursuant to this tolling agreement, Bunge ETGO provides us with soybeans and canola seeds, which we process into soybean and canola products that Bunge ETGO sells and markets. Following the implementation of this tolling agreement, we recognise tolling fees that Bunge ETGO pays us, comprising a monthly fixed fee, a variable fee and the reimbursement of certain operating costs we incur, and we no longer recognise revenue from the sale of soybean and canola products or cost of sales from the purchase of soybeans and canola seeds. We believe that Bunge ETGO will benefit from the expertise of Bunge Limited, one of the leading companies in soy products and soft oils globally. For a summary of the terms of the tolling agreement, refer to Section 7.22.5 of this Prospectus. In addition to the tolling agreement and joint venture with Bunge ETGO, we intend to try to accelerate the turnaround of our soybean and canola crushing operations by applying initiatives that we believe will strengthen our current facilities. We have purchased a fifth expeller unit that we expect will improve production reliability, and a second centrifuge unit that we believe will help us to reach our designed refining capacity of 396,000 MT per annum. We are also improving supply chain logistics to increase efficiency by working to minimise bottleneck risks. Consequently, we expect to optimise our utilisation to reach our designed capacity and crush 3,000 MT of soy and canola seeds per day, an increase from the current operational capability of 2,500 MT per day, subject to commercial decision otherwise. (The rest of this page has been intentionally left blank)
7. BUSINESS OF OUR GROUP (Cont’d) 7.3.4 Expand our downstream capabilities to protect and enhance the value of our upstream products We intend to expand our downstream capabilities and market access to gain better visibility on product flows and help us defend and optimise the margins of our upstream business. We intend to pursue further expansion into the downstream segment through future acquisitions and investments in refinery assets, consumer packed products plants and bulking facilities in markets where we have limited operations. We have identified Southeast Asia, North America, China and India as key focus markets to capitalise on high growth in consumption levels of CPO in these countries. In particular, India and China consumed the highest volumes of palm oil in 2011 and both countries have exhibited high growth in consumption levels, with CAGRs of 6.5% and 11.2%, respectively, from 2001 to 2011, according to Frost & Sullivan. We believe our strategic partnership with Louis Dreyfus Commodities, proposed through our Downstream Framework with its subsidiary Louis Dreyfus Commodities Asia, is one of the steps that will enable us to expand our downstream capabilities and presence in these markets. We believe that this will leverage upon the partners’ respective networks, financial strength and expertise to identify and assess potential investments in Asia that will be mutually beneficial to the partners. Separately, we also intend to explore opportunities in the area of specialty fats in the sophisticated markets of l\Iorth America, Europe, Japan and Australia. For sugar, we intend to increase our sugar production efficiency and capacity through the implementation of various initiatives and investments, such as (i) increasing annual production capacity at KGFP by 50,000 MT to 200,000 MT by 2014; (ii) increasing daily raw sugar melt capacity at MSM by 1,000 MT to 4,000 I\IIT; (iii) increasing raw sugar storage capacity at MSM by 100,000 MT to 200,000 MT and refined sugar storage capacity by 10,000 MT to 37,000 MT; and (iv) pursuing selective strategic acquisitions and investments.
7.3.5 Enhance upstream and establish downstream R&D to improve our value and competitiveness In order to improve the value and competitiveness of our business, we plan to enhance the upstream and establish downstream R&D. We intend to collaborate with F Agricultural to enhance and expand our upstream R&D. Areas of expansion in upstream R&D, apart from our current oil palm breeding and selection, agronomy, bio-technology and crop protection, include intensifying our efforts in bio-molecular marker research towards improving the breeding programmes as well as tissue culture research. The new areas of R&D we are focused on include developing beneficial microbes for improving both soil and plant health and research into development of phytonutrients. Weare also focused on sustainable palm oil production as a fundamental concern and our upstream R&D efforts are geared towards biological control of pests and diseases, thereby reducing chemical usage. Our other agronomic studies intended to help develop sustainable good agricultural practices include research on using EFB and oil palm based organic fertiliser in order to help reduce use of mineral fertiliser and soil and moisture conservation research. 7. BUSINESS OF OUR GROUP (Cont’d) We will also be establishing a new downstream R&D division to enhance our downstream efforts. Its activities will emphasise developing new products, both food and non-food, from CPO and PKO, that we believe will command higher margins. Our focus will be on, amongst others, specialty fats, margarine, cooking/frying oil and phytonutrients. We further intend to expand our revenue streams from biomass. While higher impact initiatives are being evaluated, we intend to capitalise on available opportunities to maximise revenue streams from biomass, including the development of biofuel and bioethanol initiatives. 7.3.6 Focus on building strong relationships with communities within the areas of our operations We are committed to building and strengthening our relationships with communities within the areas of our operations and with our workers to enhance retention. We intend to continue to participate in the implementation of corporate social responsibility programmes in order to provide job opportunities and improved living conditions for our workers and the residents of the areas near our operations. Some of the examples of programmes which we have implemented include development of logistics, utilities and infrastructure around our plantations area, such as roads, schools, mosques and electricity.
7.4 HISTORY AND MILESTONES Our Company was incorporated in Malaysia as a wholly owned subsidiary of FELDA under the Act on 19 December 2007 to operate as FELDA’s investment arm for its overseas investments. In 2008, we acquired FELDA’s investments in North America, including TRT Holdings, through its acquisition of FGV North America. In 2009, we acquired a 49% equity interest in FHB from FELDA, a 50% equity interest in Felda IFFCO from FHB and a 50% equity interest in Trurich from Lembaga Tabung Haji. In 2010, we purchased from PPB Group a 100% equity interest in MSM, a 50% equity interest in KGFP, a 20% equity interest in Tradewinds and 5,797 hectares of sugar cane plantation land in Chuping, Perlis. In 2011, we acquired a 49% equity interest in Bunge ETGO, a joint venture with Bunge Limited with respect to our soybean and canola business. In 2012, we acquired a 95% equity interest in PT Citra Niaga, which owns land to be developed into oil palm plantations in West Kalimantan, Indonesia. We own 49% of FHB, which, as part of its palm oil business, provides replanting and long-term management services to FELDA Settlers pursuant to contracts with FELDA. The remaining 51 % of FHB is owned by KPF, a cooperative for the settlers and those employees of FELDA, FHB and FGVH who have subscribed for KPF share units. FELDA and FAHC own 23% and 17% of FGVH, respectively. FAHC is wholly owned by FELDA. In November and December 2011, we and FELDA executed agreements in respect of a land lease for approximately 347,584 hectares of land owned by FELDA that used to be managed by F Plantations pursuant to a management agreement. In addition, F Palm Industries has historically purchased from FELDA substantially all of the FFB produced on the oil palm plantation estates on the FELDA-Leased and Managed Land, and, with the effectiveness of the Land Lease Agreement and the Sarawak Land Management Agreement on 1 January 2012, F Palm Industries has purchased that FFB from us. Pursuant to contractual arrangements that we entered into with F Palm Industries with effect from 1 March 2012, F Palm Industries will purchase from us substantially all of the FFB produced on the oil palm plantation estates on the FELDA-Leased and Managed Land. F Palm Industries produces CPO and PK using the FFB it acquires from us, as well as the FFB it acquires from FELDA Settlers, third parties and F Agricultural, a subsidiary of FHB.

7. BUSINESS OF OUR GROUP (Cont’d) Pursuant to the same contractual arrangements between F Palm Industries and us, F Palm Industries sells to us sUbstantially all of the total CPO that it produces, other than the CPO used by its subsidiary DOP. We resell this CPO to third-party customers, such as refiners and traders in Malaysia and abroad, to our joint ventures and to FHB’s various subsidiaries and its associate, IVIEO, for their production of palm oil-based products. For a summary of the terms of the contractual arrangements between F Palm Industries and us, refer to Section 7.22 of this Prospectus.

 

 

7.4.1 FELDA FELDA was established as a statutory body on 1 July 1956 under the Land Development Ordinance (Land Development Act), 1956. FELDA’s historical mission has been to carry out land development and settlement in new areas with the objective of creating prosperous farming communities with economically viable agricultural holdings. From 1959 to 1990, which marked the end of Malaysia’s large-scale settlement period, FELDA assisted in the resettlement of 114,400 households. By 1990, a total of 853,313 hectares had been brought under cultivation through FELDA’s operations, comprising 317 settlement schemes and 152 estates overall, with schemes and estates in 12 of the 13 Malaysian states. A FELDA settlement scheme typically comprises 1,400 to 2,500 hectares. FELDA estimates the number of settler households currently at 112,635. The majority of the settlers’ estates are devoted to the cultivation of oil palm. FELDA has constructed infrastructure instaJlations necessary for the harvesting and processing of the crops, including storage facilities, palm oil mills and PK crushing plants, for cooperative use by the settlers. In addition, FELDA has provided certain basic amenities and facilities in the settlers’ Villages that were necessary for new communities that were being settled in fairly isolated and new environments. These amenities and facilities include retail stores, petrol kiosks, police stations, schools, mosques and places of worship, community halls, shrub­lined roads, cooperatives shops, markets, bus stations, fire stations, health clinics, woman’s associations, public libraries, government reserves, youth clubs and public playgrounds. FELDA is also responsible for ensuring that the agricultural activities undertaken by the settlers are performed in a cost-effective and efficient manner. In this regard, FELDA has, together with its affiliate corporations: • managed the operation of the holdings of certain settlers;
• sourced and supplied inputs required for the agricultural process;
• transported settlers’ FFB to F Palm Industries’ palm oil mills for processing;
• engaged in downstream activities and sourcing markets for settlers’ end products;
• trained the settlers in modern and efficient agriCUltural methods and practices in order to improve yields; and

• offered replanting services to the settlers when oil palms and rubber trees become due for replanting. In addition, FELDA provided financial assistance to settlers, which funds were used to pay for the support of the settlers and the settlers’ family members during the start-up phase of oil palm holdings when oil palms had not commenced producing in commercial quantities. 7. BUSINESS OF OUR GROUP (Cont’d) Further, FELDA has been and continues to be responsible for a variety of matters affecting the settlers with respect to the land that they own. Pursuant to contracts FELDA entered into directly with the settlers, FELDA has agreed to provide integrated replanting and long-term management services for settlers on their oil palm holdings. Pursuant to separate contracts between FELDA and F Technoplant, a subsidiary of FHB, FELDA has engaged F Technoplant to provide these replanting and long-term management services to the settlers. These services consisted of terracing, replanting, ground cover and crop establishment, fertilising, crop management, harvesting and transportation of FFB to palm oil mills. Under an agreement between FELDA and F Technoplant, F Technoplant received a fee paid during the two-year period of replanting from FELDA’s replanting fund and thereafter directly from the settlers by way of deduction from the proceeds of the sale of the settlers’ FFB. F Palm Industries, a SUbsidiary of FHB, also obtained a steady supply of FFB from FELDA, which in turn sourced its FFB from the settlers under the FELDA settlement scheme pursuant to contractual arrangements between FELDA Settlers and FELDA. 7.4.2 FAHC FAHC was incorporated in Malaysia under the Act on 27 March 2012 as an investment holding company. FAHC is wholly-owned by FELDA. (The rest of this page has been intentionally left blank)

7. BUSINESS OF OUR GROUP (Cant’d) 7.4.3 Milestones of FGVH The following table highlights certain of our key dates and milestones: 2007 FELDA invested in North America through wholly owned subsidiary, FGV North America, which later acquired TRT Holdings during the same year. FGVH incorporated as a wholly owned sUbsidiary of FELDA to operate as its investment arm for overseas investments. 2008 ………. FGVH acquired FGV North America from FELDA.
2009 FGVH acquired a 49% equity interest in FHB from FELDA. FGVH acquired a 50% equity interest in Felda IFFCO from FHB. FGVH acquired a 50% equity interest in Trurich from Lembaga Tabung HajL 2010 FGVH acquired 100% equity interest in MSIVI, a 50% equity interest in KGFP, a 20% equity interest in Tradewinds and 5,797 hectares of sugar cane plantation land in Chuping, Perlis, from PPB Group. 2011 MSM Holdings was listeq on the Main Market of Bursa Securities. FGVH acquired a 49% equity interest in Bunge ETGO and entered into a tolling agreement with Bunge ETGO to process soybeans and canola seeds. 2012 Land Lease Agreement and Sarawak Land Management Agreement between FELDA and FGVH came into effect. Agreement between F Palm Industries and FGV Plantations Malaysia, a subsidiary of FGVH, for the purchase by F Palm Industries of substantially all of the FFB that FGV Plantations Malaysia produces and FGV Plantations Malaysia’s purchase of SUbstantially all of the total CPO that F Palm Industries produces (other than the CPO used by F Palm Industries’ subsidiary DOP) came into effect. FGVH acquired a 95% equity interest in PT Citra Niaga, which owns land to be developed into oil palm plantations in West Kalimantan, Indonesia. (The rest of this page has been intentionally left blank) I Company No.: 800165-P I

7. BUSINESS OF OUR GROUP (Cont’d) 7.5 CORPORATE STRUCTURE We are a holding company and conduct our business mainly through our operating Subsidiaries, certain Associates and Jointly-Controlled Entities. Our corporate structure is set out below.
Notes: MoF, Inc has one Special Share in our Company. (1) 620,185,800 FGVH Shares, representing 23.2% equity interest in FGVH, was transferred by FELDA to FAHC on 18 May 2012.
(2) 158,660,000 shares held by FGVH, representing 50% equity interest in Felda IFFCO, will be transferred to FGV Downstream prior to the Listing.

The above structure sets out for illustrative purposes the business and operating structure of our Group as at the Latest Practicable Date. It does not set out all of the Subsidiaries, Jointly-Controlled Entities and Associates of our Company. 149 7. BUSINESS OF OUR GROUP (Cont’d) We are engaged in three primary areas: • plantations business;
• downstream business; and
• sugar business.

The chart below presents our main business segments and certain statistics of our businesses and our Subsidiaries (but not our joint ventures and associates) as at 31 March 2012. Our 49%-owned associate, FHB, is engaged in various businesses, including upstream and downstream palm oil operations, as well as manufacturing, logistics and other activities, including rubber processing. For more information about FHB’s businesses, refer to Section
12.2.1.3 (i) of this Prospectus. I ~ Plantations Malaysia Facilities • Approximately 355,864 hectares of FELDA-Leased and Managed Land, primarily devoted to oil palms, with a small portion used for rubber trees Production* • 5.2 million MT of FFB
• 7,269 MT of cup lumps

CPO Sales** • Sales of sUbstantially all of the total CPO that F Palm Industries produces, other than the CPO used by its subsidiary DOP Indonesia Facilities • 14,385 hectares of oil palm plantations, none of which is currently being developed Notes: FGVH I Downstream
Facilities • 1 soybean and canola crushing and refining facility Production* • 563,307 MT of soybean and canola products United States Facilities • 1 oleochemical facility Production* • 129,491 MT of oleochemical products ~ Sugar I I Malaysia Facilities • 1 sugar milling facility

• 2 sugar refineries
Production*
• 958,377 MT of sugar products

 

Production figures are for the year ended 31 December 2011. In 2011, F Palm Industries produced 3,293,293 MT of CPO, 237,368 MT of which was used by its subsidiary, DOP. 7. BUSINESS OF OUR GROUP (Cont’d) 7.6 PLANTATIONS BUSINESS In Malaysia, we cultivate and harvest FFB on 343,521 hectares of oil palm plantation estates on the FELDA-Leased and Managed Land. These oil palm plantation estates comprise 335,241 hectares of FELDA-leased Land and 8,280 hectares in Sarawak which we manage under the Sarawak Land Management Agreement. In addition to oil palms, in our rubber plantation operations, we cultivate and harvest cup lumps on 10,308 hectares of rubber plantations on the FELDA-Leased and Managed Land, all of which we sell to F Rubber Industries, a subsidiary of FHB, as raw materials for its production of rubber products. Timber is also grown on approximately 2,035 hectares of the FELDA-Leased and Managed Land. Outside of Malaysia, we operate in the plantations business in Indonesia. We have a joint venture, Trurich, which owns oil palm plantation land in East and Central Kalimantan, Indonesia, and we have acquired a 95% equity interest in PT Citra Niaga, which owns land to be developed into oil palm plantations in West Kalimantan, Indonesia. FHB, our 49%-owned associate, is the largest producer of CPO in the world based on production volume, having produced 3.3 million MT of CPO in 2011. F Palm Industries, which is a subsidiary of FHB, purchases from us substantially all of the FFB produced on the oil palm plantation estates on the FELDA-Leased and Managed Land pursuant to contractual arrangements between F Palm Industries and us. F Palm Industries produces CPO and PK using the FFB it acquires from us, as well as the FFB it acquires from FELDA Settlers, third parties and F Agricultural, a subsidiary of FHB. F Palm Industries sells to us substantially all of the total CPO that it produces, other than the CPO used by its subsidiary DOP. We resell all of this CPO to third-party customers, such as refiners and traders in Malaysia and abroad, to our joint ventures and to FHB’s various subsidiaries and its associate, MEa, for their production of palm oil-based products. For a summary of the terms of the contractual arrangements between F Palm Industries and us, refer to Section 7.22 of this Prospectus, and for more information on FHB’s palm oil mills and PK crushing plants, refer to Section 7.11.1.1 of this Prospectus. In addition, FHB processes raw rubber, including the cup lumps that we produce on our rubber plantations on the FELDA-Leased and Managed Land, into rubber products in its processing facilities. For more information on FHB’s rubber processing facilities, refer to Section 7.11.3.1 of this Prospectus. 7.6.1 Plantation products We produced 5,363,849 MT, 4,856,078 MT and 5,197,344 MT of FFB in 2009,2010 and 2011, respectively, and 1,018,978 MT and 1,145,557 MT of FFB in the three months ended 31 March 2011 and 2012, respectively. We sell substantially all of our FFB to F Palm Industries. Sales of FFB accounted for RM2,219.2 million, RM2,596.5 milliQn and RM3,183.8 million of our total pro forma revenue for 2009, 2010 and 2011, respectively, and RM752.2 million and RM460.8 million of our total revenue for the three months ended 31 March 2011 and 2012, respectively. Effective from 1 March 2012, when we entered into contractual arrangements with F Palm Industries, we will no longer recognise revenue from our FFB sales to F Palm Industries. In addition to oil palm plantation products, we also produce rubber plantation products. We produced 8,135 MT, 5,895 MT and 7,269 MT of cup lumps in 2009, 2010 and 2011, respectively, and 1,541 MT and 1,498 MT of cup lumps in the three months ended 31 March 2011 and 2012, respectively. We sell all of our cup lumps to F Rubber Industries, a subsidiary of FHB, as raw materials for its production of rubber products. Sales of cup lumps accounted for RM45.6 million, RM58.5 million and RM89.9 million of our total pro forma revenue for 2009, 2010 and 2011, respectively, and RM23.2 million and RM14.9 million of our total revenue for the three months ended 31 March 2011 and 2012, respectively.

 

7. BUSINESS OF OUR GROUP (Cont’d) 7.6.2 Plantation production facilities The production facilities of our plantations business primarily consist of oil palm plantations, with a small portion of rubber plantations. The following maps show the locations of the oil palm plantations on the FELDA-Leased and Managed Land (indicated as shaded areas) in Peninsular Malaysia, Sabah and Sarawak. (The rest of this page has been intentionally left blank)

7. BUSINESS OF OUR GROUP (Cont’d) Our Plantation Estates in Peninsular Malaysia ~

ytJf
7. BUSINESS OF OUR GROUP (Cont’d) The Plantation Estates in Sabah and Sarawak
_ PLANTATION ESTATES STATE BOUNDARY I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cont’d) 7.6.3 Oil palm plantations As at 31 March 2012, there were approximately 343,521 hectares of oil palm plantation land on the FELDA-Leased and Managed Land, of which approximately 323,588 hectares of land was cultivated and approximately 19,934 hectares of remaining land was not cultivated due to topography, climate, soil and usage for ancillary purposes (such as roads and other infrastructure essential to the plantation estates). The oil palm plantation land is further divided into oil palm plantation estates, each of approximately 2,000 hectares on average. Dividing the plantations into estates allows us to operate the plantations more efficiently. We have also acquired a 95% equity interest in PT Citra Niaga, which owns 14,385 hectares in West Kalimantan, Indonesia. None of this land has been developed yet, and we plan to eventually develop this land into oil palm plantations and palm oil mills and expand our hectarage beginning in the second half of 2012. The following table sets forth the location by region, number, total hectares and percentage of total hectares of the oil palm plantation estates on the FELDA-Leased and Managed Land according to total cultivated and uncultivated land as at 31 March 2012. Oil Palm Plantation Estates on the FELDA-Leased and Managed Land Percentage Region No. of estates Hectares (%) Land Total Peninsular Malaysia . 95 232,069 67.6 Sabah . 47 103,173 30.0 Sarawak .. 5 8,280 2.4 Subtotal . 147 343,521 100.0 Cultivated Land Peninsular Malaysia . 95 215,096 66.5 Sabah . 47 100,811 31.1 Sarawak . 5 7,681 2.4 Subtotal . 147 323,588 100.0 Uncultivated Land(1) Peninsular Malaysia . 95 16,973 85.1 Sabah . 47 2,362 11.9 Sarawak .. 5 599 3.0 Subtotal . 147 19,934 100.0 Note: (1) Uncultivated land is not cultivated due to topography, climate, soil and usage for ancillary purposes (such as roads and other infrastructure essential to the plantation estates). Where possible, we aim to create integrated operations with respect to the oil palm plantations. For example, our Sahabat oil palm plantation has 95,542 hectares of contiguous land, representing 27.8% of the oil palm plantation estates on the FELDA­Leased and Managed Land. We are able to achieve efficiencies through lower transportation costs within the complexes, centralisation of logistics, such as housing for workers and security, and maximal use of the plantation’s infrastructure, such as FHB’s palm oil mills, palm oil refineries, jetties and ports and independent power plant that runs on biomass fuels produced from the plantation operations. I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cont’d) Oil palms first begin bearing fruit about two and a half years after planting in the field. We begin harvesting oil palms when they begin bearing fruit. However, when harvesting begins, the yield of oil palms is relatively low. In Malaysia, the yield of oil palms up to nine years of age is typically about 16 MT per hectare. As the oil palms continue to mature, the yields increase, generally reaching peak production in years ten through 20. The average yield of oil palms at peak production is about 24 to 27 MT per hectare. The yields of oil palms generally start decreasing from year 21 to 25. Production after this point is approximately 18 to 24 MT per hectare. The yields of oil palms decrease further after year 25 and harvesting of these older oil palms becomes increasingly difficult because of their height. Production after this point is approximately 17 to 19 MT per hectare. The following table sets forth the maturity profile of the oil palms on the cultivated portion of the oil palm plantation estates on the FELDA-Leased and Managed Land by region as at 31 March 2012. Maturity Profile of Oil Palms on the Cultivated Portion of the FELDA-Leased and Managed Land Percentage of land  Immature  Young  Mature  Old  Total  planted  (0-3)  (4-9)  (10-14)  (15-20)  (21-25)  (Over 25)  (%)  Region  (in hectares)  Peninsular  Malaysia ……………..  40,502  33,735  21,659  10,134  67,278  41,788  215,096  66.5  Sabah …………………  15,125  9,787  30  20,022  43,649  12,198  100,811  31.1  Sarawak ……………..  290  1,364  5,452  575  7,681  2.4  Total ………………….,  55,917  43,522  21,689  31,520  116,379  54,561  323,588  100.0  Percentage (%) …..  17.3  13.4  6.7  9.7  36.0  16.9  100.0
Production of FFB is fairly consistent throughout the year, with slightly higher production and harvesting during the third quarter. Furthermore, production of FFB varies according to topography, soil and climate conditions. As a result of FELDA’s historical policy role in the land development and settlement of previously undeveloped land in Malaysia, there are oil palm plantation estates located throughout Malaysia. These regions are diverse in topography, type of soil and rainfall and, consequently, oil palm plantation estates from which we source FFB are diverse and have varying production yields, including areas with low FFB yield potential. (The rest of this page has been intentionally left blank) 7. BUSINESS OF OUR GROUP (Cont’d) The following table presents the average actual production yields in MT of FFB per hectare of the oil palm plantation estates on the FELDA-Leased and Managed Land, compared to the relevant MPOB national performance benchmarks by geographic location for the periods indicated. Production Yield of FFB from the FELDA-Leased and Managed Land Year Ended 31 December Three Months Ended 31 March 2009 2010 2011 2011 ~012 Average production yield per hectare of oil palm plantation estate(1) (in MT)
Peninsular Malaysia -actual , 19.8 17.6 18.6 3.6 4.1 MPOB Benchmark , 19.4 17.9 19.2 3.7 3.7 Sabah -actual…. 19.9 20.1 22.6 4.1 5.1 MPOB Benchmark 21.2 20.2 22.3 4.4 4.4 Sarawak -actual…………………………………………… 19.1 18.7 19.4 4.6 4.8 MPOB Benchmark 15.3 14.9 16.8 3.3 3.3 Average -actual. 19.8 18.8 19.9 3.8 4.4 MPOB Benchmark…………………………………….. 19.2 18.0 19.7 3.9 3.8 Note: (1) The average is calculated by dividing the total production yield by the total hectarage, each for the relevant area and period. Average production yield per hectare of oil palm plantation estate declined to 18.8 MT in 2010 from 19.8 MT in 2009 as a result of declines in Peninsular Malaysia and Sarawak, which experienced lower average rainfall, particularly during the months of February to May in 2010. In addition, the average production yield per hectare of oil palm plantation in Peninsular Malaysia declined, in part due to the maturity profile of the region, with the age of a majority of the oil palms being 21 years or over. However, during the same period, Sabah recorded a slight increase in FFB yield per hectare of oil palm plantation estate to 20.1 MT in 2010 from 19.9 MT in 2009. 7.6.4 Trurich palm oil operations We have a 50:50 joint venture with Lembaga Tabung Haji called Trurich, which is engaged in the plantations business in Indonesia. The results of Trurich are not consolidated with the results of FGVH and its Subsidiaries in our financial statements, but are included in our share of results from Jointly-Controlled Entities. Lembaga Tabung Haji is a Malaysian statutory body that manages assets and investments in various industries, including oil palm plantations, property, banking, engineering and construction, in addition to carrying out its historical role of providing hajj management services. Trurich has 42,000 hectares of plantation land in East Kalimantan and Central Kalimantan, Indonesia. The following table provides information about this plantation land by region and purpose as at 31 March 2012. (The rest of this page has been intentionally left blank) I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cont’d) Trurich Plantation Land in Indonesia  Immature Oil Palms(1)  Mature Oil Palms(2j Greenfield Land(3) (in hectares)  Remainin~ Land(  Total
East Kalimantan  .  6,000  22,887  280  29,167  Central Kalimantan  .  2,667  5,238  4,443  485  12,833  Total  .  8,667  5,238  27,330  765  42,000
Notes: (1) Planted with immature oil palms.
(2) Planted with mature oil palms.
(3) Land that Trurich plans to develop into oil palm plantation estates and palm oil mills.
(4) Land that is or will be used for palm oil mills and infrastructure, such as roads, housing and office buildings.

FFB produced on Trurich’s plantations is processed at its palm oil mill, with the resulting CPO and PK sold on the open market by open tender to customers. 7.6.5 Rubber plantations In addition to oil palms, in our rubber plantation operations, we cultivate and harvest cup lumps on 10,308 hectares of rubber plantations on the FELDA-Leased and Managed Land, all of which we sell to F Rubber Industries, a subsidiary of FHB, as raw materials for its production of rubber products. Our rubber plantations on the FELDA-Leased and Managed Land are located on eight plantation estates in Peninsular Malaysia that are planted with both rubber trees and oil palms. The portion of the FELDA-Leased and Managed Land devoted to rubber plantations is approximately 10,308 hectares, of which approximately 9,472 hectares of land was cultivated and approximately 836 hectares was not cultivated due to topography, climate, soil and usage for ancillary purposes (such as roads and other infrastructure essential to our plantations). The following table sets forth the maturity profile of our rubber trees on the cultivated portion of our rubber plantations on the FELDA-Leased and Managed Land as at 31 March 2012. Immature Young Mature Old Total (0-5) (6-10) (11-15) (16-20) (Over 20) Region (in hectares) Peninsular Malaysia ………. 4,272 359 77 703 4,061 9,472 Percentage (%) ………… 45.1 3.8 0.8 7.4 42.9 100.0
(The rest of this page has been intentionally left blank) 7. BUSINESS OF OUR GROUP (Cont’d) 7.6.6 Maintenance of plantation production facilities We have implemented plantation management systems to optimise the yields of the oil palm plantation estates on the FELDA-Leased and Managed Land, including: • ensuring that oil palms are protected from pests and disease;
• applying fertiliser in the most efficient manner in view of the estate’s topography;
• implementing replanting programmes to replace trees over 25 years of age that are yielding below 18 MT of FFB per hectare, using high yielding planting materials and updated plantation management techniques to ensure that new trees will be of higher yielding varieties; and
• relying on the R&D activities of F Agricultural, a subsidiary of our 49%-owned associate, FHB, that complement and support the activities described above, including its R&D on oil palm breeding, tissue culture, agronomy and crop protection.

As part of our plantation management system, we maintain a controlled replanting programme to ensure that oil palms reaching the end of their economic lives are replanted with higher yielding planting materials, which we source from F Agricultural, which is engaged in R&D activities for palm oil and other agricultural products. We believe that the use of these higher yielding materials, combined with improved agronomic practices, can improve the production yields of the replanted areas by 20% to 30%. We generally replant an oil palm plantation estate when the trees are over 25 years of age and its economic yield is below 18 MT of FFB per hectare per annum. We use “zero burn” techniques during replanting, which involve chipping the trunks of cut-down trees and using these chips as mulch on the land to be replanted, thereby allowing the biomass of the old trees to rot and gradually return nutrients to the ecosystem. Replanting is generally a three-year programme, and consists of terracing, replanting, ground cover and crop establishment, fertilising and crop management during the three-year replanting period. Depending upon the location and size of the oil palm plantation estate, the topographical conditions and the productivity of the areas, we may replant the oil palm plantation estate in stages. We believe that monitoring crop yields, combined with a staggered replanting programme, will enable us to maintain an improving level of production from the oil palm plantation estates on the FELDA-Leased and Managed Land. (The rest of this page has been intentionally left blank) I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cont’d) We commenced the next stage of our replanting programme in 2012. The following table sets forth the number of hectares covered by the historical replanting programme from 2002 to 2011 and the indicative replanting schedule from 2012 to 2015 for the oil palm plantation estates on the FELDA-Leased and Managed Land. Replanting Programme Schedule for Plantation Estates on the FELDA-Leased and Managed Land Year (in hectares) Historical Replanting Programme  2002  2,112  2003  2,712  2004  4,672  2005  6,319  2006  5,213  2007  12,019  2008  12,736  2009  8,238  2010  13,665  2011  14,428  Indicative Replanting Schedule  2012  15,292  2013  15,000  2014  15,000  2015  15,000
In addition, rubber trees that are cut down when replanting our rubber plantations on the FELDA-Leased and Managed Land are sold to various lumber processors. 7.6.7 Plantation production process 7.6.7.1 FFB Production FFB production begins with the careful selection of oil palm seeds sourced from F Agricultural. F Agricultural grows oil palm seedlings in its main nursery for 12 months before we plant them in the fields. Young oil palm seedlings are generally planted 9.2 meters apart, which results in approximately 136 oil palms per hectare and which we believe provides optimal sunlight and sufficient space for seedlings to grow. From planting in the fields to the mature production stage, effective maintenance of young oil palms is essential. We have implemented plantation management systems to optimise the yields of the oil palm plantation estates on the FELDA-Leased and Managed Land, as described in Section 7.6.6 of this Prospectus, above. Upon reaching harvestable age, which is about two and a half years after field planting, harvesting of FFB is carried out at set intervals throughout an oil palm’s economic life. The harvested FFB are collected and thereafter transported to palm oil mills. 7.6.7.2 CPO and PK Production Our FFB are processed into CPO and PK at FHB’s palm oil mills generally within 24 hours after harvest. For more information, refer to Section 7.11.1.2 of this Prospectus. 160 7. BUSINESS OF OUR GROUP (Cont’d) 7.6.8 Plantation raw materials Oil palm and rubber seedlings and fertiliser are the primary raw materials used in the production of our plantation products. We sourced all of our oil palm seedlings from F Agricultural in 2009, 2010, 2011 and the three months ended 31 March 2011 and 2012. For more information, refer to Section 7.11.3.3 of this Prospectus. The cost of oil palm seedlings accounted for RM15.1 million, RM18.1 million and RM20.8 million of our total pro forma cost of sales for 2009, 2010 and 2011, respectively, and RM3.9 million and RM5.3 million of our total cost of sales for the three months ended 31 March 2011 and 2012, respectively. The prices of oil ‘palm seedlings are volatile, as they are based on local and international market prices. We sourced our rubber seedlings from our rubber plantations on the FELDA-Leased and Managed Land and third-party Malaysian nurseries. The prices of rubber seedlings are volatile, as they are based on local and international market prices. We sourced substantial portions of our fertiliser, including biomass-generated fertiliser, from FHB in 2009, 2010, 2011 and the three months ended 31 March 2011 and 2012. We sourced the balance of our fertiliser from third-party Malaysian and international fertiliser companies. For more information on the FHB sources of biomass-generated fertiliser and other fertiliser, refer to Sections 7.11.1 and 7.11.3.6 of this Prospectus, respectively. Cost of fertiliser consumed, inclUding biomass­generated fertiliser, accounted for RM379.4 million, RM236.1 million and RM256.3 million of our total pro forma cost of sales for 2009, 2010 and 2011, respectively, and RM64.1 million and RM114.2 million of our total cost of sales for the three months ended 31 March 2011 and 2012, respectively. The prices of fertilisers are volatile, as they are based on local and international market prices and are influenced by international oil prices and shipping rates, which are also volatile, since substantially all of this fertiliser is made of imported raw materials. 7.7 DOWNSTREAM BUSINESS Our downstream business consists of our operations in North America. We produce soybean and canola products through our subsidiary, TRT-ETGO Inc, in Canada, and we produce oleochemicals through our subsidiary, TRT US, in the United States. We entered into a tolling agreement with Bunge ETGO on 9 December 2011, pursuant to which Bunge ETGO provides us with soybeans and canola seeds, which we process into soybean and canola products that Bunge ETGO sells and markets. Following the implementation of this tolling agreement, we now recognise revenue from tolling fees that Bunge ETGO pays us, and we no longer recognise revenue from the sale of soybean and canola products or cost of sales from the purchase of soybeans and canola seeds. For a summary of the terms of the tolling agreement between Bunge ETGO and us, refer to Section 7.22.5 of this Prospectus. In addition, FHB, our 49%-owned associate, engages in a downstream business that processes CPO purchased from us into palm oil-based products. For more information, refer to Section 7.11.2 of this Prospectus. 7. BUSINESS OF OUR GROUP (Cont’d) 7.7.1 Downstream products 7.7.1.1 Soybean and canola products Since 2010, our subsidiary, TRT-ETGO Inc, has produced soybean and canola products by crushing and refining soybeans and canola seeds at its soybean and canola crushing and refining facility in Becancour, Quebec, Canada. Our primary soybean and canola products include: • RB/RBD soy and canola oils;
• degummed soy and canola oils; and
• soy and canola meals, which are by-products of soy and canola oil production.

Soy and canola oils are used for a variety of consumer purposes, such as edible oils, and industrial purposes, such as biodiesel and oleochemicals. Soy and canola meals are used as animal feed. We produced 216,088 MT and 563,307 MT of soybean and canola products in 2010 (our first year of production for these products) and 2011, respectively, and 113,490 MT and 163,522 MT in the three months ended 31 March 2011 and 2012, respectively. Sales of soybean and canola products accounted for RM380.2 million and RM1,091.2 million of our total pro forma revenue for 2010 (the year we commenced these sales) and 2011, respectively, and RM228.1 million of our total revenue for the three months ended 31 March 2011. All of these sales were made to customers in Canada, the United States and Germany. Pursuant to an agreement with our joint venture, Bunge ETGO, with effect from 9 December 2011, we operate our soybean and canola business under a tolling arrangement. Bunge ETGO sells all of the soybean and canola products that we produce. Accordingly, we recognised R1VI16.9 million of revenue from tolling fees for the three months ended 31 March 2012, but we did not recognise revenue from the sale of soybean and canola products for the three months ended 31 March 2012.
7.7.1.2 Oleochemical products Through the Quincy, Massachusetts facility of our subsidiary, TRT US, we produce oleochemicals, such as fatty acids and glycerin, from tallow, lauric oils and vegetable oils. Fatty acids are used in the production of food, personal care products, cosmetics, pharmaceuticals, rubber products and textile products, and glycerin is widely used in pharmaceutical formulations, including as food and beverage additives and as an intermediary in the production of soaps and other pharmaceuticals. We produced 136,875 MT, 148,038 MT and 129,491 MT of oleochemicals in 2009, 2010 and 2011, respectively, and 32,625 MT and 76,501 MT of oleochemicals in the three months ended 31 March 2011 and 2012, respectively. Sales of oleochemicals accounted for RM606.7 million, RM609.1 million and RM797.6 million of our total pro forma revenue in 2009, 2010 and 2011, respectively, and RM180.0 million and RM194.4 million of our total revenue for the three months ended 31 March 2011 and 2012, respectively. These sales were made to North American manufacturers and in the export market. 162 7. BUSINESS OF OUR GROUP (Cant’d) 7.7.2 Downstream facilities 7.7.2.1 Soybean and canola crushing and refining facility TRT-ETGO Inc owns and operates an integrated soybean and canola crushing and refining facility in Becancour, Quebec, Canada, that began construction in 2008. As at 31 March 2012, the facility had an annual crushing capacity of 1,050,000 MT of soybeans and canola seeds, annual oil refining capacity of 396,000 MT of soy and canola oils and annual meal production capacity of 720,000 MT of soy and canola meals. This facility produces RB/RBD soy and canola oils, degummed soy and canola oil, as well as soy and canola meals, which are by-products of soy and canola oil production. The facility is also capable of refining CPO. We plan to add a blending facility to this operation to enable it to produce blends of refined palm oil-based products and refined soy and canola oil-based products. Our soybean and canola crushing and refining facility has been ramping up operations since 2010, and is continuing to undergo significant infrastructure upgrades. 7.7.2.2 Oleochemical facilities TRT US operates oleochemical facilities producing fatty acids and glycerin in Quincy, Massachusetts, in the United States. These operations also include their own rail line, FRTC, which runs from port and bulking terminals to their production facilities and to the main U.S. rail line system, and services primarily the TRT US facility in addition to a third party. As at 31 March 2012, the TRT US’ facility had an annual production capacity of 150,000 MT of fatty acids and 25,000 MT of glycerin. In 2011, the TRT US’ facility’s capacity utilisation rate was approximately 88%, based on the facility operating 12 months in a calendar year for 30 days a month and 24 hours a day. 7.7.2.3 Maintenance Our downstream facilities are shut down periodically for scheduled maintenance and occasionally for unscheduled corrective maintenance and repair. We regUlarly monitor the performance and condition of our equipment in these facilities. Maintenance on our facilities is performed by trained personnel to ensure long-term reliability of key equipment and the production processes as a whole. These comprehensive maintenance efforts contribute to the reduction of our long-term costs and an improvement in our asset utilisation, thereby helping to increase overall reliability and maintain production efficiency of these facilities. I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cont’d) 7.7.3 Downstream production process 7.7.3.1 Soybean and canola product production Our subsidiary, TRT-ETGO Inc, processes soybeans and canola seeds into soybean and canola products through the following process: • Crushing: Soybeans undergo a preconditioning phase before they are cracked, dehulled, cooked and flaked. The resulting soybean flakes go to the extraction plant, while the soybean hulls are further ground so they may later be used for soy meal production. In addition, canola seeds undergo a preconditioning phase before they are flaked, cooked and pressed for crude canola oil. The resulting canola pressed cakes go to the extraction plant, while the crude canola oil is sent for refining.
• Extraction: Soybean flakes and canola pressed cakes at the extraction plant are mixed with hexane to dissolve any oil residue. The soybean flakes and canola pressed cakes are further processed by a desolventiser, toaster, dryer and cooler before being ground into soy and canola meals. In addition, oil residue and hexane undergo a distillation process to separate the oil and hexane, with the resulting crude soybean and canola oils sent for refining.
• Refining: Crude soybean and canola oils from the extraction plant undergo further processing by’ degumming, bleaching and/or deodorising to become RB/RBD soy and canola oils.

(The rest of this page has been intentionally left blank) 7. BUSINESS OF OUR GROUP (Cont’d) The following diagram illustrates how soybeans and canola seeds are processed into soybean and canola products: SOYBEAN SEEDS CANOLA SEEDS

CANOLA MEAL Our subsidiary, TRT US, produces fatty acids (such as whole cut coconut, tallow and soya acids; fractionated coconut acids; and oleic acids and stearic acids) and glycerin from tallow, lauric oils (CNO and PKO) and other vegetable oils (such as soy oil and palm oil stearine). TRT US’ fatty acids and glycerin are sold primarily to manufacturers of consumer and industrial goods in North America. Tallow, lauric oils and other vegetable oils are processed into fatty acids and glycerin in the following process: • Hydrolyser. Tallow, lauric oils and other vegetable oils can be split through three different systems at the facility, distillation, fractionation and oleic/stearic, in order to produce various forms of fatty acids (such as whole cut coconut, tallow, soya acids; fractionated coconut acids; and oleic acids and stearic acids), while the sweet water co­products of the hydrolyser can be further processed into glycerin using an evaporation system.
• Distillation and Hardening: The distillation system separates fatty acids of top, middle and bottom fractional cuts from any impure fractions. Distilled fatty acids are hardened through a hydrogenation process in order to produce whole cut coconut, tallow and soya acids.

I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cont’d) • Fractionation and/or Hardening: The fractionation system separates coconut fatty acids into various components known as fractionated coconut acids. Fractionated coconut acids can be hardened through a hydrogenation process to produce other forms of fractionated coconut acids.
• Oleic/Stearic, Distillation and/or Hydrogenation: The oleic/stearic system uses the freezing point of tallow to separate the oleic acid and stearic acid fractions, which, through distillation and/or hydrogenation, produce oleic and stearic acids.
• Evaporation: The evaporation system removes water from sweet water co-products of the hydrolyser to produce crude glycerin with at least 80% glycerin content, which, thereafter, is refined using the facility’s United States Pharmacopeia (USP) refining system into refined glycerin.

(The rest of this page has been intentionally left blank) I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cont’d) The following diagrams illustrate the production of fatty acid and glycerin from tallow, lauric oils and other vegetable oils: Fatty Acid and Refined Glycerin Process Overview REFINEDCrude —-. USPRefiningEvapo ration 4 ~ GLYCERINGlycerin ~ WHOLE CUT COCONUT, TALLOW,AND
SOYA ACIDS TALLOW, LAURIC OILSANDOTHER
VEGETABLE OILS Hydrolyser ~ Distillation —-.4 Fractionation Hardening~ Oleic/Stearic Process Overview Hardening .. FRACTIONATED COCONUT ACIDS

~
Oleic/Stearic Process
f—–.
OLEIC ~ ACIDSDistillation ..
Distillation Hyd rogenation H ~ (The rest of this page has been intentionally left blank) STEARIC ACIDS
7. BUSINESS OF OUR GROUP (Cont’d) 7.7.4 Downstream raw materials 7.7.4.1 Soybeans and canola seeds Soybeans and canola seeds are the primary raw materials in the production of our soybean and canola products. Cost of soybeans and canola seeds accounted for RM346.2 million and RM1,048.6 million of our total pro forma cost of sales for 2010 and 2011, respectively, and R1VI226.7 million of our total cost of sales for the three months ended 31 March 2011. Pursuant to an agreement with our joint venture, Bunge ETGO, with effect from 9 December 2011, we operate our soybean and canola business under a tolling arrangement. All of the soybeans and canola seeds that we use are provided to us on a tolling basis by Bunge ETGO and, accordingly, we did not recognise cost of sales from the purchase of soybeans and canola seeds for the three months ended 31 March 2012. Prior to the effectiveness of our tolling agreement with Bunge ETGO, we purchased all of our soybeans and canola seeds from third parties, such as Viterra Inc., Richardson International and Parrish & Heimbecker Limited, in the spot and futures markets in 2009, 2010 and 2011. The prices of soybeans and canola seeds from these third parties are volatile, as they are based on local and international market prices. 7.7.4.2 Tallow, lauric oils and vegetable oils Tallow, lauric oils and vegetable oils are the primary raw materials in the production of our fatty acids and glycerin. Cost of tallow, lauric oils and vegetable oils consumed accounted for RM462.9 million, RM447.6 million and RM625.9 million of our total pro forma cost of sales for 2009,2010 and 2011, respectively, and RM131.7 million and RM143.5′ million of our total cost of sales for the three months ended 31 March 2011 and 2012, respectively. We currently purchase all of the tallow, lauric oils and vegetable oils that we use from third parties, including FHB’s SUbsidiary, F Marketing, according to monthly contracts. The prices of tallow, lauric oils and vegetable oils from third parties are volatile, as they are influenced by the Rrice of crude oil, which impacts the prices of biofuels, which in turn impact the prices of these raw materials. (The rest of this page has been intentionally left blank) 7. BUSINESS OF OUR GROUP (Cont’d) 7.8 SALES AND MARKETING 7.8.1. We market and sell our FFB, cup lumps and downstream products. Effective 1 April 2012, F Marketing, a subsidiary of our 49%-owned associate FHB, acts as our agent for sales of our CPO and receives a commission on all these sales. 7.8.1.1 Plantation products Historically, the major products sold by our plantations business segment were FFB and raw rubber in the form of cup lumps. Effective from 1 March 2012, we and F Palm Industries entered into contractual arrangements for the purchase by F Palm Industries of all of the FFB produced on the oil palm plantation estates on the FELDA-Leased and Managed Land, with the exception of the FFB that we produce on certain oil palm plantation estates on the FELDA-Leased and Managed Land in Johor and Perak, which, because F Palm Industries does not have nearby palm oil mills, we sell to third parties. F Palm Industries produces CPO and PK using the FFB it acquires from us, as well as the FFB it acquires from FELDA Settlers, third parties and F Agricultural, a sUbsidiary of FHB. . Pursuant to the same contractual arrangements between F Palm Industries and us, F Palm Industries sells to us substantially all of the CPO that it produces, other than the CPO use’d by its subsidiary DOP. We resell this CPO to third-party customers, such as refiners and traders in Malaysia and abroad, to our joint ventures and to FHB’s various subsidiaries and its associate, MEa, for their production of palm oil-based products. These contractual arrangements are intended to create a mutually beneficial relationship for us and F Palm Industries, allowing us to sell our FFB to F Palm Industries’ palm oil mills, many of which are strategically located close to the oil palm plantation estates on the FELDA-Leased and Managed Land, and helping F Palm Industries to maintain heightened utilisation rates for its palm oil mills, many of which have no other FFB suppliers nearby. Maximising the amount of FFB that we sell to F Palm Industries is also important for us, as it allows us to maximise our CPO supply since F Palm Industries’ palm oil mills sell to us substantially all of the total CPO that they produce, other than CPO used by F Palm Industries’ SUbsidiary DOP. For a summary of the terms of the contractual arrangements between F Palm Industries and us, refer to Section 7.22 of this Prospectus. The following tables set forth our revenues from our plantation products, both inside and outside of Malaysia, each as a percentage of our total revenues for the sale of plantation products, for the periods indicated. Plantation Product Revenues Inside and Outside Malaysia Year Ended 31 December 2009  2010  2011  (in RM millions, except  percentages)  Sales  Percentage (%)  Sales  Percentage (%)  Sales  Percentage (%)
Inside Malaysia . 2,264.8 100.0 2,655.0 100.0 3,273.7 100.0 Outside Malaysia . Total plantation product revenues . 2,264.8 100.0 2,655.0 100.0 3,273.7 100.0 I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cont’d) Plantation Product Revenues Inside and Outside Malaysia Three Months Ended 31 March 2011 2012 Sales  Percentage  Sales  Percentage  (in RM millions, except percentages)  (~)  (~)  Inside Malaysia  .  775.4  100.0  971.5  100.0  Outside Malaysia  –:­ :-­ —-,-“….”….,:­ Total plantation product revenues  775.4  100.0  971.5  100.0
(i) Sales and marketing within Malaysia We sold 5,363,849 MT, 4,856,078 MT and 5,197,344 MT of FFB in 2009, 2010 and 2011, respectively, and 1,018,978 MT and 761,900 MT of FFB in the three months ended 31 March 2011 and 2012, respectively. Substantially all of our FFB was sold to F Palm Industries. In addition, we sold 8,135 MT, 5,895 MT and 7,269 MT of cup lumps to F Rubber Industries in 2009, 2010 and 2011, respectively, and 1,541 MT and 1,498 MT of cup lumps in the three months ended 31 March 2011 and 2012, respectively. F Marketing’s sales of our CPO, which began on 1 April 2012, are priced by reference to the regional spot market prices in Malaysia for CPO, which are influenced by prices on the Malaysian Derivatives Exchange. The MPOB reports the weighted average price of regional physical CPO sales transactions on a daily basis. F Marketing sells our CPO in the Malaysian market, generally on a spot, pre-paid basis to FHB, including its various subsidiaries, our joint ventures and third-party customers. (ii) Sales and marketing outside Malaysia F Marketing’s export sales of our plantation products, which began on 1 April 2012, consist of CPO. The primary export markets for our CPO include India, Pakistan and China. F Marketing sells our CPO to FHB’s associate in Pakistan, MEa, and to other customers located principally in India, Pakistan and China. These sales are made through foreign sub-agents or directly to the importer located in the target country. F Marketing typically uses one foreign sub-agent to handle all of our exports to a particular country. These sub-agents receive commissions, which vary according to the export country. F Marketing generally makes export sales of CPO on a forward basis from one to two months prior to actual delivery under letters of credit, cash against documents and bank guarantee arrangements. I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cant’d) (iii) Competition The market for CPO is highly competitive and includes a number of producers globally, especially from Malaysia and Indonesia, which are the largest producers of CPO. In 2011, Malaysia produced 18.9 million MT of CPO, or 37.7% of total world production, and Indonesia produced 23.9 million MT of CPO, or 47.6% of total world production. Malaysia’s upstream palm oil industry comprises a mix of large, government-owned and private sector oil palm plantation companies, as well as other independent companies and small landholders, primarily the FELDA Settlers. CPO is a commodity, and CPO producers compete on the basis of price and on the ability to meet the required delivery time and quantity on a consistent, long-term basis. In recent years, Indonesian producers have brought on significant competition to Malaysian producers, including ourselves, due to lower labour and other operating costs. 7.8.1.2 Soybean and canola products Our sales of soybean and canola products are priced by reference to the futures exchange markets in the United States and Canada for soybean and canola products, which in turn are influenced by prices on the Chicago Mercantile Exchange for soy products and the Intercontinental Exchange for canola products, respectively. We entered into a tolling agreement with Bunge ETGO on 9 December 2011, pursuant to which Bunge ETGO provides us with soybeans and canola seeds, which we process into soybean and canola products that Bunge ETGO sells and markets. The following tables set forth our revenues from soybean and canola products, both inside and outside of Canada, each as a percentage of our total revenues for the sale of soybean and canola products, for the periods indicated. Soybean and Canola Product Revenues Inside and Outside Canada Year Ended 31 December 2010 2011 (in RM millions, except percentages)  Sales  Percentage (%)  Sales  Percentage (%)  Outside Canada  United States  .  73.9  19.4  328.5  30.1  Other countries  .  184.8  48.6  436.2  40.0  Total soybean and canola product exports  258.7  68.0  764.7  70.1  Inside Canada  .  121.5  32.0  326.5  29.9  Total soybean and canola product  revenues  .  380.2  100.0  1,091.2  100.0
7. BUSINESS OF OUR GROUP (Cont’d) Soybean and Canola Product Revenues Inside and Outside Canada Three Months Ended 31 March 2011 2012(1) Sales  Percentage  Sales  Percentage  (in RM millions, except percentages)  (%)  (%)  Outside Canada  United States  .  55.7  24.4  Other countries  .  97.1  42.6  Total soybean and canola product exports.  152.8  67.0  Inside Canada  75.3….:…..:..::..:.­ 33.0….::….:..:….::.­ _  Total soybean and canola product  revenues  .  228.1  100.0
Note: (1) On 9 December 2011, we entered into a tolling agreement with our joint venture, Bunge ETGO. Following the implementation of this agreement, we recognise revenue from tolling fees that Bunge ETGO pays us for processing soybeans and canola seeds, and we no longer recognise revenue from the sale of soybean and canola products. (i) Sales and marketing Prior to establishing our joint venture, Bunge ETGO, and entering into a tolling agreement with it, which became effective on 9 December 2011, in Canada, we sold RB/RBD soy and canola oils to repackers and food processors and crude degummed soy and canola oils to biodiesel manufacturers. In addition, we sold soy and canola meals, including soy meals purchased from third parties, to independent feed compounders, resellers and cooperatives. These products are now sold by Bunge ETGO. We sold 11,07’1 MT and 36,780 MT of RB/RBD soy and canola oils, as well as degummed soy and canola oils, to customers in Canada in 2010 and 2011, respectively, and 2,630 MT in the three months ended 31 March 2011. Our sales volume of RB/RBD soy and canola oils, as well as degummed soy and canola oils, to our customers in Canada accounted for 15.0% and 19.2% of our total product sales volume for RB/RBD soy and canola oil, as well as degummed soy and canola oil, in 2010 and 2011, respectively, and 7.3% of our total product sales volume for RB/RBD soy and canola oil, as well as degummedsoy and canola oil, in the three months ended 31 March 2011. In addition, we sold 76,655 MT and 223,910 MT of soy and canola meals to feed mills and farmer cooperatives in Canada in 2010 and 2011, respectively, and 47,307 MT in the three months ended 31 March 2011. Our sales volume of soy and canola meals to these buyers accounted for 62.0% and 70.0% of our total soy and canola meal sales volume in 2010 and 2011, respectively, and 71.0% of our total soy and canola meal sales volume in the three months ended 31 March 2011. Soybean and canola products sold outside Canada include RB/RBD soy and canola oils, degummed soy and canola oils and soy and canola meals. Sales of soybean and canola products outside Canada were 68.0% and 70.1 % of total soybean and canola product revenues in 2010 and 2011, respectively, and 67.0% of total soybean and canola product revenues in the three months ended 31 March 2011. 172 7. BUSINESS OF OUR GROUP (Cant’d) Our sales of soybean and canola products outside of Canada were primarily to customers located in the United States and Germany. These sales were made directly to the importer located in the target country. (ii) Competition The markets for soybean and canola products are highly competitive and include a number of producers globally, especially from Canada. Producers of soybean and canola products include large corporations, such as Archer Daniels Midland Company, Bunge Limited (Global), Richardson International and Viterra Inc. Soybean and canola products are commodities, and producers of these products compete on the basis of price and on the ability to meet the required delivery time and quantity on a consistent, long-term basis. In recent years, soybean and canola product users from the renewable energy and food manufacturing industries have offered increased competition to Canadian soybean and canola product producers, including ourselves, for raw materials by increasing the demand for, and prices of, soybean and canola products for other uses, including the production of alternative fuels and edible oils. 7.8.1.3 Oleochemical products Our sales of oleochemicals are priced by reference to the regional spot market prices in the United States for oleochemicals, which are influenced by prices posted by Jacobsen, an industry publication on oleochemical prices. The following tables set forth our revenues from oleochemicals, both inside and outside of the United States, each as a percentage of our total revenues for the sale of oleochemicals, for the periods indicated. Oleochemical Revenues Inside and Outside the United States Year Ended 31 December 2009 2010 2011 (in RM millions, except percentages) Sales Percentage (‘Yo) Sales Percentage (‘Yo) Sales Percentage (‘Yo) Outside the United States Canada …………………………….. 15.1 2.5 25.4 4.1 38.5 4.8 Mexico………………………………. 41.0 6.7 49.8 8.2 60.9 7.6 Other countries(1) ……………….. 0.4 0.1 2.9 0.5 2.1 0.3 Total oleochemical exports ….. 56.5 9.3 78.1 12.8 101.5 12.7 Inside the United States ……. 550.2 90.7 531.0 87.2 696.1 87.3 Total oleochemital revenues ………………………….. 606.7 100.0 609.1 100.0 797.6 100.0 Note: (1) In 2010, percentage of sales to “other countries” was approximately 0.002%. 7. BUSINESS OF OUR GROUP (Cont’d) Oleochemical Revenues Inside and Outside the United States Three Months Ended 31 March 2011 2012 Sales  Percentage  Sales  Percentage  (in RM millions, except percentages)  (%)  (%)  Outside the United States  Canada  9.8  5.4  9.1  4.7  Mexico  14.0  7.8  15.2  7.8  Other countries  —-:-:-::­ :-:–::-­ ~0~.9::…——–:-0=-=.:..:-4­ Total oleochemical exports  23.8  13.2  25.2  12.9  Inside the United States  -:-1-=-56=-=.72  –;-:8:-:6~.8:—-7.16=-=9;-;.:.27—-~87::-:.-:::-1­ Total oleochemical revenues  180.0  100.0  194.4  100.0
(i) Sales and marketing We sell our oleochemicals predominantly to customers located in the United States. We sell fatty acids to manufacturers and distributors of tyres and other rubber products, personal care products, lubricants, plastics and paper in the United States. We sell glycerin to manufacturers and distributors of personal care, oral care, food and beverage products, as well as to tobacco and pharmaceutical companies, in the United States. These sales include oleochemical products purchased from third parties and re-sold to our customers, and were made generally on spot, prepaid or annual contract bases. We sold 136,875 MT, 148,032 MT and 122,090 MT of oleochemicals to manufacturers and distributors in the United States in 2009, 2010 and 2011, respectively, and 30,902 MT and 33,323 MT of oleochemicals in the three months ended 31 March 2011 and 2012, respectively. Our sales volume of oleochemicals to manufacturers and distributors in the United States accounted for 90.7%, 87.2% and 87.3% of our total oleochemical product sales volume in 2009, 2010 and 2011, respectively, and 86.8% and 87.1 % of our total oleochemical product sales volume in the three months ended 31 March 2011 and 2012, respectively. Oleochemical products sold outside the United States include fatty acids and glycerin. Export sales of oleochemicals were 9.3%, 12.8% and 12.7% of total oleochemical revenues in 2009, 2010 and 2011, respectively, and 13.2% and 12.9% of total oleochemical revenues in the three months ended 31 March 2011 and 2012, respectively. Our sales of oleochemicals outside of the United States are primarily to customers located in Canada and Mexico. Sales to Canada and Mexico are made directly to the importer located in the target country. Sales to Mexico are sold “delivered at place”, such that customs clearance and other import-related formalities are the obligation of the buyer. We also sell oleochemicals to customers located in other countries, such as China, when demand is present. These sales are made through foreign agents located in the target country. One foreign agent is appointed to handle all of our exports to a target country. The agents receive commissions, which vary according to the export country. We generally make export sales of oleochemicals on a forward basis from one to two months prior to actual delivery under letters of credit, cash against documents and bank guarantee arrangements. 174 7. BUSINESS OF OUR GROUP (Cont’d) (ii) Competition The markets for fatty acids are highly competitive and include a number of producers globally, especially from the United States. The United States’ fatty acid industry is composed primarily of large, private sector companies, such as Emery Oleochemicals, Vantage Oleochemicals and PMC Biogenix. The markets for glycerin are highly competitive, with the United States’ glycerin industry composed of large, private sector companies, such as Emery Oleochemicals, Vantage Oleochemicals, Cargill, Archer Daniels Midland Company, PMC Biogenix and the Procter and Gamble Company. In addition, these United States glycerin producers must compete with international producers, as a high volume of imported glycerin is sold in the United States for distribution. Oleochemicals are commodities, and producers of these products compete on the basis of price and on the ability to meet the required delivery time and quantity on a consistent, long-term basis. In recent years, oleochemical producers from Malaysia and Indonesia have brought on significant competition to producers from the United States, including ourselves, due to better economies of scale. 7.8.2 Proposed Strategic Partnership As part of a proposed strategic partnership with the Louis Dreyfus Commodities Group (“Louis Dreyfus Commodities”), we have entered into a memorandum of understanding dated 14 May 2012 with Louis Dreyfus Commodities Asia with a view to establishing a trading and marketing joint venture that will trade and market CPO and CPO-based products (“Trading JV”), which includes binding principles to establish a framework upon which we and Louis Dreyfus Commodities Asia will work together to explore investment opportunities in the downstream activities relating to palm oil (“Downstream Framework”). Louis Dreyfus Commodities is a world leader in the processing of agricultural products and the merchandising of a diverse range of commodities, including oilseeds and oilseed by-products. The group is privately held and whilst founded and based in Europe, Louis Dreyfus Commodities enjoys strong regional presence in North and South America, Europe, Asia, the Middle East and Africa, with offices in more than 55 countries and employs over 34,000 employees. In the palm oil segment, Louis Dreyfus Commodities originates, stores, transforms, transports and sells a wide spectrum of oilseeds and oilseed by-products, including palm and palm oil products. Louis Dreyfus Commodities’ oilseeds operations are present in all major producing and consuming regions. Trading and Marketing JV and Downstream Framework In May 2012, we entered into a memorandum of understanding with Louis Dreyfus Commodities Asia with a view of entering into a trading and marketing joint venture agreement and ancillary commercial agreements, including CPO supply agreements. Execution of the transaction agreements is subject to various conditions, including the ultimate agreement of the parties. As at the date of this Prospectus, the transaction documents in relation to the Trading JV and the Downstream Framework have not been executed by the parties. 7. BUSINESS OF OUR GROUP (Cont’d) Upon the execution of the CPO supply agreements, we would commit to supply and the proposed Trading JV would commit to purchase 1.1 million MT of CPO per annum. The proposed Trading JV intends to purchase the CPO based on agreed pricing formulas that are linked to MPOB prices and Malaysia Derivatives Exchange prices. Louis Dreyfus Commodities Asia would commit to offer the proposed Trading JV 500,000 MT of CPO per annum. The proposed Trading JV will purchase CPO from us and will either export the CPO (subject to availability of export quota) or refine the CPO at refineries owned by F Vegetable and sell the end products as part of its trading operations. The proposed Trading JV is expected to commence operations in early 2013 and will have a three year review period, after which either party can terminate the Trading JV under specified conditions. The proposed Trading JV is intended to be 51 % owned by Louis Dreyfus Commodities Asia and 49% owned by FGV Downstream. FGV Downstream is expected to be granted a call option over 1% of Louis Dreyfus Commodities Asia’s shares in the proposed Trading JV, exercisable after three years. In addition, the proposed agreement in respect of the Trading JV includes binding principles upon which we and Louis Dreyfus Commodities Asia will work together in the Downstream Framework, with a focus on China and India. 7.9 SUGAR BUSINESS We are the leading refined sugar producer in Malaysia, involved primarily in the production, marketing and sale of refined sugar products, with an annual production capacity of over 1.1 million MT of refined sugar. In 2011, we produced a total of approximately 958,377 I\I1T of refined sugar products, accounting for approximately 56.9% of total sugar production in . Malaysia, according to Frost & Sullivan. We conduct our sugar business primarily through MSM Holdings and its two operating subsidiaries, MSM and KGFP. MSM Holdings was listed on the Main Market of Bursa Securities in June 2011. In addition, we own a 20% equity interest in Tradewinds, a company listed on the Main Market of Bursa Malaysia that controls the operators of the two other sugar refineries in Malaysia, namely Central Sugar Refinery Sdn Bhd and Gula Padang Terap Sdn Bhd. 7.9.1 Sugar products Our sugar products range from white refined sugar of various grain sizes to soft brown sugar and are marketed and sold in a variety of packaging options under the “Gula Prai” and “Gula Perlis” brands. We also sell molasses, a by-product of the refining process, to distilleries and producers of ethanol, animal feed and yeast, among other products. Sales from our sugar business accounted for RM1,667.8 million and RM2,144.8 million of our total pro forma revenue for 2010 and 2011, respectively, and RM449.1 million and RM457.5 million of our total revenue for the three months ended 31 March 2011 and 2012, respectively. 7.9.2 Sugar production facilities We own and operate two sugar refineries, as well as a sugar cane milling facility in Malaysia. KGFP operates a sugar refinery in Chuping, Perlis, and MSM operates a sugar refinery located in Seberang Prai, Penang. Each refining facility has packaging, storage and distribution capabilities on site. MSM also operates a packaging and distribution· warehouse in Sungai Buloh, Selangor, and another distribution warehouse in Johor Bahru, Johor. Both of these facilities are connected to the refinery in Prai by rail. 7. BUSINESS OF OUR GROUP (Cont’d) The following· table provides information about the location, current capacity, utilisation rate and production of our sugar production facilities as at 31 March 2012. Annual  Refined  Refined  Daily Raw  Refining  Sugar  Sugar  Sugar  Capacity  Daily  Raw to  Production  Production  Melt  Utilisation  Milling  Refined  Volume for  Production Facility  Capacir1; (MT)< )  Capacity (MT)  Rate for 2011(2)  Capacity (MT)  Sugar Yield for 2011  2011 (MT)
MSM 960,000 3,000 85.7% N/A 97.0% 822,384 Facility, located in Prai, Penand31
KGFP 150,000 600 90.7% 5,500 96.6% 135,993 Facility, located in Chuping,
Perlis(4)
Notes: (1) For the MSM Facility, calculated based on daily raw sugar melt capacity of 3,000 MT per day multiplied by 330 days per year multiplied by raw to refined sugar yield of 97.0%.
For the KGFP Facility, calculated based on (i) 5,500 MT of cane milled per day multiplied by 65 days per year divided by 13 (which is the TCTS (MT of cane to MT of sugar) ratio) plus (ii) daily raw sugar melt capacity of 600 MT per day mUltiplied by 212 days per year multiplied by raw to refined sugar yield of 96.6%.
(2) Calculated by dividing actual production volume per year by annual production capacity.
(3) Consists of facilities to store raw sugar, produce refined sugar using the raw sugar refining process described below, conduct quality control, package and store refined sugarproducts and load such products for distribution.
(4) Consists of facilities to process sugar cane into raw sugar using the process described below, store raw sugar, produce refined sugar using the raw sugar refining process described below, conduct quality control, package and store refined sugar products and load such products for distribution.

7.9.3 MSM MSM operates the MSM Facility, a sugar refinery located in Seberang Prai, Penang, on the northwest coast of Peninsular Malaysia. The MSM Facility is the largest sugar refinery in Malaysia, with an annual production capacity of 960,000 MT of refined sugar, representing approximately 86.5% of our total capacity as at 31 March 2012. In 2010 and 2011, the MSM Facility produced 806,658 MT and 822,384 MT of refined sugar, respectively, representing 85% and 86% of our total refined sugar production output, respectively. In 2011, 79% of MSM’s refined sugar products by volume were sold in the domestic market, while 16% were exported and 3% were sold as “local exports” to domestic industrial customers that use sugar purchased from us to manufacture products for export. I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cant’d) The MSM Facility is strategically located near Penang Port and has a dedicated jetty on-site that enables barges to easily and cost-effectively offload raw sugar taken from sea vessels directly into storage for use in our refining process. Railways connect the MSM Facility and our warehouse facilities in Sungai Buloh, Selangor, and Johor Bahru, Johor. Products are also delivered from the MSM Facility and MSM’s warehouses to our customers by lorries operated by MSM’s subsidiary, Astakonas, and other modes of transportation. MSM also offers the option of bulk delivery from the Sungai Buloh facility via road tankers to customers who are able to receive the bulk sugar directly into their silos. In addition, MSM’s Sungai Buloh warehouse has its own packaging facilities, enabling us to package our products at different times and in various sizes, according to our customers’ needs. For East Malaysia and overseas exports other than Singapore, our products can be sent from our dedicated on-site jetty through Penang Port as bagged bulk cargo. Alternatively, we can load our products in full container loads at MSM’s loading facility, which has a 1,000 MT per day loading capacity, and send the containers to Penang Port. 7.9.4 KGFP KGFP operates the KGFP Facility, an integrated sugar mill and refinery located in Chuping, Perlis in the northwestern part of Peninsular Malaysia. The sugar mill has a sugar cane crushing capacity of 5,500 MT per day. The KGFP Facility has an annual production capacity of 150,000 MT of refined sugar, representing approximately 13.5% of our total capacity as at 31 March 2012. In 2010 and 2011, the KGFP Facility produced 138,045 MT and 135,993 MT of refined sugar, respectively, representing 15% and 14% of our total refined sugar production output, respectively. Currently, all of KGFP’s refined sugar prodUcts are sold in the domestic market, and it expects to continue focusing on supplying the domestic market. Approximately 85% to 90% of the raw sugar used at the KGFP Facility is imported. The KGFP Facility has warehouse facilities on site, as well as a bulk cargo terminal at Prai, Penang, from which its products are transported throughout Malaysia via road and sea. A number of our customers also take delivery of our products directly from our warehouse located in the KGFP Facility and from our bulk cargo terminal via bulk tankers. (The rest of this page has been intentionally left blank) 7. BUSINESS OF OUR GROUP (Cont’d) 7.9.5 Maintenance Both the MSM Facility and the KGFP Facility are shut down periodically for scheduled maintenance and occasionally for unscheduled corrective maintenance and repair. We regularly monitor the performance and condition of our equipment in our production facilities, including the boilers, turbine generators, vacuum pans, centrifuges and other critical machinery. Maintenance on our facilities is performed by trained personnel to ensure long-term reliability of key equipment and the production processes as a whole. On average, refining facilities at both the MSM Facility and the KGFP Facility operate at various production capacities for 24 hours a day, 330 to 340 days a year. Milling operations at the KGFP Facility only run seasonally to process the sugar cane harvest from December through April and are not operational for the remainder of the year. During the periods of operation, our milling facilities are shut down weekly for scheduled maintenance to optimise performance. These comprehensive maintenance efforts contribute to reduction of our long-term costs and improvement of our asset utilisation, thereby helping to increase the overall reliability and maintain the production efficiency of these facilities. 7.9.6 Sugar production process The primary raw material used in our refined sugar production process is raw sugar from sugar cane. Sugar cane is processed into raw sugar by raw cane mills promptly after harvest. Cane sugar refineries like those we operate purify raw sugar to produce refined sugar. Operating results of cane sugar refineries are driven primarily by the spread between raw sugar and refined sugar prices and by the conversion and other costs of the refining process. Each of the MSM Facility and the KGFP Facility refines raw sugar to produce refined sugar, along with molasses as a by-product of the refining process. The refining process consists of several steps. • Affination: Raw sugar crystals are initially mixed with raw syrup to soften them and remove impurities from the crystals’ outer coating. The crystals are then separated from the syrup and washed with hot water in a centrifuge in a process called “affination”.
• Melting and Carbonation: The washed sugar is dissolved to form “melted liquor”. The melted liquor is then pumped to the carbonator, together with lime (calcium hydroxide) and carbon dioxide, for a process called “carbonation”, which forms a carbonated precipitate that traps most of the impurities in the liquor.
• Filtration: The carbonated precipitate, together with the impurities, is removed by pressure filtering to produce “clear liquor”.
• Decolourisation: Further colour removal is completed through either of two methods depending on the production facility, ultimately leading to the production of “decoloured liquor”.

a Ion Exchange: At the MSM Facility, colour removal is achieved by pumping the clear liquor through towers containing ion exchange resins that absorb the colouring matters. 179 7. BUSINESS OF OUR GROUP (Cont’d) o SUlphitation: At the KGFP Facility, colour removal is achieved by a “sulphitation” process that uses sulphur dioxide reaction and filtration that absorb the colouring matters.
o Solid impurities are removed from the decoloured liquor through a final filtration process to yield “fine liquor”.

• Evaporation: At the MSM Facility, an additional step is undertaken to concentrate the fine liquor by having its excess water content evaporated before it undergoes crystallisation.
• White Sugar Crystallisation: The fine liquor is subsequently boiled in vessels called vacuum pans to form crystals. Fine sugar crystals are used as seed and are grown to the required size by adding more liquor.
• Centrifuging: The mixture of grown sugar crystals and syrup that is formed, called “massecuite”, is placed into centrifuge machines which separate the crystals from the syrup.
• Drying and Cooling: The refined sugar crystals are then dried, cooled, sieved and screened into various grain-sized products and stored in silos to be transferred to warehouses or packaged into various grades for delivery to customers.

Molasses is also a by-product of this refining process after a certain amount of sugar is extracted to produce our refined sugar products. (The rest of this page has been intentionally left blank) I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cont’d) The following diagram illustrates how raw sugar is processed into refined sugar products. RAW SUGAR
7.9.7 Sugar raw materials The main raw material for our operations is raw sugar, which is processed in our refineries to produce our sugar products. We use raw sugar produced from sugar canes that are processed in milling facilities promptly after harvest. Most of the raw sugar we require is imported, with our primary suppliers being Queensland Sugar Limited, Cargill, Noble Resources Pte Ltd, Sucres et Denrees SA and Eagle Trading Limited (currently known as Sucden Hong Kong Pty Ltd). Cost of raw sugar consumed accounted for RM1,455.6 million and RM1 ,581.2 million of our total pro forma cost of sales for 2010 and 2011, respectively, and RM308.2 million and RM366.3 million of our total cost of sales for the three months ended 31 March 2011 and 2012, respectively. I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cont’d) 7.9.7.1 Raw sugar Raw sugar is an intermediate product in cane sugar production that is used at our refineries for final processing to produce our refined sugar products. Raw sugar is a tan, coarse granulated product that ;s approximately 97% sucrose and obtained through the milling process that involves evaporation of clarified sugar cane juice. In 2011, approximately 1,103,639 MT of the raw sugar we used, accounting for approximately 98.8% of our total raw sugar used, was imported sugar produced mainly in Australia and Brazil. We also purchase raw sugar from Thailand and other countries on an opportunistic basis. Since the early 1970s, the Government, represented by the MITI, has participated, together with Malaysian refined sugar producers, including MSM and KGFP, in negotiations for long-term raw sugar supply contracts with foreign raw sugar suppliers. Pursuant to these negotiations, the MITI and all the refined sugar producers in Malaysia, including MSM and KGFP, had collectively entered into supply contracts with foreign raw sugar suppliers, typically covering a three-year period, and such contracts have helped us secure a consistent supply of raw sugar at prices that are usually lower than those available otherwise on the international spot market. These long-term supply contracts typically have had pricing terms that take into account the then-prevailing global market prices at the time of the contract and have been renegotiated and renewed for three-year terms generally on a continuous basis prior to their scheduled expiry. 7.9.8 Sugar sales and marketing We market our sugar products to retailers, distributors and industrial food manufacturers directly through our sales force and indirectly through wholesalers and traders. Our primary business strategy is to capitalise on our well-known brands and expand brand penetration through on-going emphasis on product quality to meet customers’ expectations and to leverage our effective distribution and delivery network to more easily reach customers throughout Malaysia. 7.9.8.1 Sales to distributors/retailers We sell a variety of sugar products, including coarse and fine granulated white sugar and brown sugar, to wholesale distributors who in turn sell those products to retail outlets, manufacturers, restaurants and institutional food service establishments in a variety of packaging sizes marketed under the trade names “Gula Prai” and “Gula Perlis”. Our products reach all regions in Peninsular Malaysia and East Malaysia. 7.9.8.2 Sales to industrial customers We produce and sell refined sugar products to industrial customers, principally food manufacturers, in bulk or packaged form ranging from 50 kg to 1,400 kg. Food manufacturers purchase sugar for use in the preparation of ice cream, dairy products, beverages, confectionery and various other food products. We also sell molasses to producers of ethanol, animal feed and yeast. Historically, we have made the majority of our sales to industrial customers under fixed price, forward sales contracts with terms of up to one year. 7. BUSINESS OF OUR GROUP (Cont’d) Domestic sales primarily comprise coarse grain and fine grain white sugar, with our other refined sugar products, such as caster sugar and brown sugar, comprising the remainder of our domestic sales. Export and local export sales comprise entirely of coarse grain and fine grain white sugar products. We currently sell molasses only in the domestic market. 7.9.9 Sugar competition We compete primarily with other domestic sugar producers in Malaysia and foreign sugar producers in overseas markets. In the domestic market for refined sugar products that are price-controlled, we compete primarily on the basis of product offerings, product quality, the ability to meet timely delivery requirements and overall customer service. In markets that are not sUbject to price control, we also compete on the basis of price, and refined sugar product prices in such markets are determined largely by external market factors including global supply and demand balances and raw material costs that to some extent are beyond our control. The import of refined sugar into Malaysia is restricted by the Government, with such imports only being allowed for industrial consumers with approved permits issued by the Government. At present we are not aware of any permits for the import of refined sugar for resale in the domestic market having been approved and issued by the Government, thus our primary competitors in the domestic market are the operators of the other sugar refineries in Malaysia, namely Central Sugar Refinery Sdn Bhd and Gula Padang Terap Sdn Bhd, which are controlled by Tradewinds. In export markets, our main competitors include local sugar producers in those markets, such as SIS’ 88 Pte Ltd in Singapore, as well as global sugar companies such as ED & F Man Holdings Limited, Wilmar International Limited and Mitr Phol Sugar Group. 7.10 OTHER BUSINESS In our other business, we provide certain human resources, procurement, financial, legal and secretarial services to various companies within our group. Since 2010, we have also provided these types of services to FHB and its subsidiaries in exchange for management fees. In addition, we were engaged in real estate property management and sale of food and beverages in the Middle East until 30 December 2011. Our other business accounted for small portions of our total pro forma revenue for 2009, 2010 and 2011 and accounted for small portions of our total revenue for the three months ended 31 March 2011 and 2012. (The rest of this page has been intentionally left blank) I Company No.: B00165-P 7. BUSINESS OF OUR GROUP (Conl’d) 7.11 ASSOCIATE BUSINESSES· FHB FHB, our 49%-owned associate, is the largest producer of CPO in the world based on production volume, having produced 3.3 million MT of CPO in 2011. Under contractual agreements between FHB’s subsidiary, F Palm Industries, and us, F Palm Industries purchases from us substantially all of the FFB produced on the oil palm plantation estates on the FELDA-Leased and Managed Land. F Palm Industries produces CPO and PK using the FFB it acquires from us, as well as the FFB it acquires from FELDA Settlers, third parties and F Agricultural, a subsidiary of FHB. We purchase sUbstantially all of the total CPO produced by F Palm Industries, other than the CPO used by its subsidiary DOP. We resell all of this CPO to third-party customers, such as refiners and traders in Malaysia and abroad, to our joint ventures and to FHB’s various subsidiaries and its associate, MEO, for their production of palm oil-based products. For a summary of the terms of the contractual arrangements between F Palm Industries and us, refer to Section 7.22 of this Prospectus, and for more information on our joint ventures, refer to Section 7.12 of this Prospectus. In its upstream business, FHB processes FFB into CPO and PK in its 70 palm oil mills in Malaysia, which have an aggregate annual capacity of approximately 20.4 million MT of FFB and are mostly located near the oil palm plantation estates on the FELDA-Leased and Managed Land. Further, FHB processes PK into PK Products, namely PKO and its by­product, PKE, in its four PK crushing plants. In its downstream business, FHB processes CPO, inclUding CPO purchased from us, and PKO into bulk and consumer-packed oils and fats, such as RBD products, margarine, shortening, cooking oil, vegetable ghee and industrial fats. FHB operates five palm oil refineries in Malaysia, with a total capacity of approximately 2.5 million MT, as well as one refinery in Pakistan through its associate, MEO, and another refinery in China through its associate, Voray Holdings. FHB also produces oleochemicals through an associate, FPG, in Malaysia. FHB’s manufacturing, logistics and others segment includes the production of rubber products from raw materials, including the cup lumps that we produce on our rubber plantations on the FELDA-Leased and Managed Land that F Rubber Industries, a subsidiary of FHB, purchases from us. In addition, FHB provides logistical services to support its own operations and provides products and services to third parties, including seedling and fertiliser production and R&D activities for our plantations business and sales, marketing and trading for our products. Further, FHB is engaged in cocoa product production, livestock operations and other activities, such as bulking, transportation and information technology. (The rest of this page has been intentionally left blank) 7. BUSINESS OF OUR GROUP (Cont’d) The chart below presents FHB’s corporate structure and certain statistics of its businesses and subsidiaries (but not its joint ventures and associates) as at 31 March 2012. Upstream Malaysia Facilities • 70 palm oil mills
• 4 PK crushing plants
• 14 biomass­related facilities

Production’ • 3.3 million MT of CPO
• 840,746 MT of
PK 392,083 MT of PKO
• 444,659 MT of PKE

Note: FHB r
Downstream Malaysia Facilities • 5 palm oil refineries Production* •  1.5 million MT of  RBD products  •  99,000 MT of  packed goods for  consumers and  food services  industry
Production figures are for the year ended 31 December 2011. 185
Manufacturing, Logistics and Others
Malaysia R&D Facilities • 3 R&D
centresl laboratories
• 3 seed
production facilities
• 1 rat bait production facility

1 oil palm and banana clone production facility Production Capacity • 30,000,000 germinated oil palm seeds
• 1,500,000 oil palm seedlings
• 5,000,000 oil palm and banana ramets

• Manufacturing of rubber, cocoa and fertiliser products
• Bulking installations
• Transportation services
• Other businesses

I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cont’d) 7.11.1 Upstream products FHB is the largest producer of CPO in the world based on production volume, and it produced 3,112,205 MT, 2,989,215 MT and 3,293,293 MT of CPO in 2009,2010 and 2011, respectively. FHB’s sales of CPO amounted to RM3,820.6 million, RM5,158.8 million and RM6,621.2 million for 2009,2010 and 2011, respectively. FHB sold to us 115,064 MT of CPO in the three months ended 31 March 2012 pursuant to our contractual arrangements with F Palm Industries that came into effect on 1 March 2012. Because of transition arrangements related to the implementation of these arrangements, F Palm Industries did not sell to us all of the CPO that it produced. However, in future periods, we will purchase for resale all of the CPO that F Palm Industries produces, other than the CPO it uses for the downstream operations of its subsidiary DOP. When FHB produces CPO from FFB at its palm oil mills, PK is also produced as part of this process. FHB produced 819,230 MT, 770,140 MT and 840,746 MT of PK in 2009, 2010 and 2011, respectively. FHB processes sUbstantially all of its PK into PKO and its by-product, PKE, in its PK crushing plants, with a very small portion sold to unaffiliated third parties such as other PK crushing plants in Malaysia. PKO is a lauric oil that can be further refined to produce oleochemicals, while PKE is used as animal feed. FHB produced 398,856 MT, 386,989 MT and 392,083 MT of PKO in 2009, 2010 and 2011, respectively. Sales of PKO amounted to RM927.1 million, RM1,378.4 million and RM1,810.9 million for 2009, 2010 and 2011, respectively. Sales of PKO to unaffiliated third parties amounted to RM532.2 million, RM476.4 million and RM628.7 million for 2009, 2010 and 2011, respectively. FHB produced 439,742 MT, 437,761 MT and 444,659 MT of PKE in 2009, 2810 and 2011, respectively. FHB sold sUbstantially all of its PKE to the European, South Korean and New Zealand export markets. Sales of PKE amounted to RM91.5 million, RM135.6 million and RM182.7 million for 2009,2010 and 2011, respectively. All of the PKE sales were to unaffiliated third parties. FHB also produces biomass, such as EFB, PK shells and mesocarp fibres. FHB sold the biomass it produced in 2009, 2010 and 2011 to our plantations business as mulch and fertiliser and to customers, such as fertiliser users and paper manufacturers, in Malaysia. Sales of biomass did not amount to significant revenues for 2009, 2010 and 2011. 7.11.1.1 Upstream production facilities FHB’s upstream production facilities consist of palm oil mills, PK crushing plants and biomass facilities. The following map shows the locations of FHB’s palm oil mills, PK crushing plants and biomass-related projects in Peninsular Malaysia.
I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cont’d) FHB’s Mills, Crushing Plants and Bio-Gas Plants In Peninsular Malaysia
THAILAND LANGKAWI KEDAH
/
)KUALA KRAI ‘-1i .,~ii \ KUALA TERENGGANU PENAD \/(Iv’
L/ ( KELANT: PERAK
PEKAN KUALA ROMPIN LEGEND –INTERNATIONAL BOUNDARY –STATE BOUNDARY =PALM OIL MILL .A. PK CRUSHING PLANT
BATU PA* BIOGAS PLANT
187

I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cant’d) The following map shows the locations of FHB’s palm oil mills, PK crushing plants and biomass-related projects in Sabah and Sarawak. FHB’s Mills, Crushing Plant and Power Plant In Sabah and Sarawak SOUTH CHINA SEA INDONESIA iii PALM OIL MILL
… PK CRUSHING PLANT* POWER PLANT –INTERNATIONAL BOUNDARY —–STATE BOUNDARY –MAINROAD 7. BUSINESS OF OUR GROUP (Cant’d) Palm oil mills FHB operates 70 palm oil mills in Malaysia, 58 of which are located in Peninsular Malaysia and 12 of which are located in Sabah and Sarawak. In addition, FHB is constructing a new palm oil mill in Johor in Peninsular Malaysia that is expected to be completed by the end of 2012. FHB is the largest operator of palm oil mills in Malaysia, with an aggregate annual milling capacity of approximately 20.4 million MT of FFB, and FHB operated approximately 20.5% of the total milling capacity in Malaysia in 2011, according to Frost & Sullivan. The following table sets forth FHB’s production of CPO and PK by region for the periods indicated. Total Production of CPO and PK Year Ended 31 December 2009  2010  2011  Region  (in MT)  CPO  Peninsular Malaysia  .  2,541,603  2,444,542  2,699,206  Sabah  .  535,020  507,574  550,585  Sarawak  .  35,582  37,099  43,502  Total  .  3,112,205  2,989,215  3,293,293  PK  Peninsular Malaysia  .  687,621  648,436  703,909  . Sabah  .  122,658  112,380  126,381  Sarawak  .  8,951  9,324  10,456  Total  .  819,230  770,140  840,746  (The rest of this page has been intentionally left blank)
7. BUSINESS OF OUR GROUP (Cont’d) The following table sets forth FHB’s actual average CPO and PK extraction rates as a percentage of FFB by weight, in each case compared to the relevant MPOB industry average figures by geographic location for the periods indicated. Performance Metrics of Palm Oil Mills Year Ended 31 December 2009 2010 2011 Region (%) CPO extraction rate Peninsular Malaysia -actual. . 20.4 20.6 20.5 MPOB Benchmark .. 19.9 19.9 20.1 Sabah -actual .. 21.2 21.2 20.5 MPOB Benchmark .. 21.4 21.3 20.7 Sarawak -actual. .. 21.3 21.4 22.0 MPOB Benchmark .. 21.2 20.9 20.6 Average CPO extraction rate -actual(1) .. 20.5 20.7 20.5 MPOB Benchmark .. 20.5 20.5 20.4 PK extraction rate Peninsular Malaysia -actual. .. 5.5 5.5 5.3 MPOB Benchmark .. 5.6 5.5 5.5 Sabah -actual .. 4.9 4.7 4.7 MPOB Benchmark .. 4.8 4.8 4.7 Sarawak -actual. , 5.4 5.4 5.3 MPOB Benchmark .. 4.5 4.4 4.4 Average PK extraction rate -actual(1) .. 5.4 5.3 5.2 MPOB Benchmark .. 5.3 5.2 5.1 Note: (1) The average is calculated by summing the extraction rates for CPO and PK, as applicable, in Peninsular Malaysia, Sabah and Sarawak and dividing the total sum by three. The following table provides information about the location, maximum processing capacity and approximate utilisation rate for FHB’s palm oil mills as at and for the year ended 31 December 2011. Maximum FFB Maximum FFB processing processing FFB Approximate capacity per capacity per processed in utilisation Production Facility No. of mills hour (MT) annum (MT)11 l 2011 (MT) rate(2) Peninsular Malaysia .. 58 2,600 16,224,000 13,192,420 81.3% Sabah . 11 627 3,912,480 2,691,790 68.8% Sarawak . 1 40 249,600 197,600 79.2% Notes: (1) FHB’s annual processing capacity is based on the optimum processing capacity of its palm oil mills and has been calculated based on the mills operating 12 months in a calendar year for 26 days a month and 20 hours a day.
(2) Calculated by dividing processed volume per annum by maximum processing capacity per annum.

7. BUSINESS OF OUR GROUP (Cont’d) Production Facility Pasir Gudang, Johor Semambu, Pahang Pandamaran, Selangor Sahabat, Sabah Type of Biomass EFB Palm Kernel Shells Mesocarp Fibre Palm Oil Mill Effluent PK crushing plants FHB owns and operates four PK crushing plants, three of which are located in Peninsular Malaysia and one of which is located in Sabah. FHB’s PK crushing plants had an aggregate annual crushing capacity of 1,030,000 MT and FHB operated approximately 14.5% of Malaysian PK crushing capacity in 2010. The actual extraction rates for FHB’s PK crushing plants in Peninsular Malaysia and Sabah, as well as the average extraction rates for the two regions, were substantially similar to the relevant MPOB average figures in 2009,2010 and 2011. The following table provides information about the location, maximum processing capacity and approximate utilisation rate for FHB’s PK crushing plants as at and for the year ended 31 December 2011. Maximum PK  Maximum PK  processing  processing  capacity per  capacity per  PK processed  Approximate  hour (MT)  annum (MT)11)  in 2011 (MT)  utilisation rate(2)
.  35.42  302,000  273,593  90.6%  .  50.00  426,000  321,484  75.5%  .  16.67  142,000  136,628  96.2%  .  18.75  160,000  125,298  78.3%  Notes:
(1) FHB’s annual processing capacity is based on the optimum processing capacity of its PK crushing plants and has been calculated based on the PK crushing plants operating 12 months in a calendar year for 29.6 days a month and 24 hours a day.
(2) Calculated by dividing processed volume per annum by maximum processing capacity per annum.

Biomass facilities FHB’s upstream business includes biomass facilities that use various forms of biomass produced in palm oil mills to produce fuel, fertiliser, pellet and long fibre. FHB has ten biogas plants that are co-located with certain of its palm oil mills. These facilities capture methane gas from palm oil mill operations, which they currently flare to. comply with Malaysian Department of Environment regulations on methane emissions. In addition to its biogas plants, FHB also operates one power plant and three mini-gasifiers, all of which convert EFB into fuel for palm oil mills. In addition to FHB’s power-related biomass projects, FHB also uses biomass to produce fertiliser, which is used in oil palm plantations. The table below presents the various types of biomass used in FHB’s biomass projects, the estimated annual volume of these materials and their current uses. Estimated volume (in thousands of Source MT per annum) Current use Mill 3,000 Compost fertiliser, pellet, long fibre and renewable energy Mill 700 Co-generation Mill 1,700 Co-generation Mill 9,000 Methane gas capture (biogas) 191 I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cont’d) Maintenance FHB’s palm oil mills, PK crushing plants and biomass facilities generally undergo maintenance during the low season for FFB harvest to minimise interruption to FHB’s production processes. FHB regularly monitors the performance and condition of its equipment. Maintenance of these facilities is performed by trained personnel to ensure long-term reliability of key equipment and the production processes as a whole. These comprehensive maintenance efforts contribute to reduction of FHB’s long-term costs and improvement of FHB’s asset utilisation, thereby helping to increase overall reliability and maintain production efficiency of these facilities. 7.11.1.2 Upstream production process The primary raw materials used in FHB’s upstream production process are FFB, which it sources from the oil palm plantation estates on the FELDA­Leased and Managed Land, FELDA Settlers, third parties and F Agricultural, as well as PK, which it sources from its palm oil mills. PK is processed at its PK crushing plants into PK products, namely PKO and its by-product, PKE. A wide range of products are produced through the downstream processing of CPO and PKO, while PKE is used as animal feed. CPO and PK production FFB received by FHB’s palm oil mills are generally processed within 24 hours after harvesting to ensure the production of high-quality palm oil, particularly palm oil with low levels of free fatty acids. Upon delivery at a palm oil mill, incoming FFB are weighed and recorded. Thereafter, FFB undergo various processes, such as sterilisation, threshing and oil clarification, in order to produce CPO and PK. The processing of FFB into CPO and PK is known as “milling” and consists of several steps. • Sterilisation: To enable efficient mechanical threshing of FFB and to obtain high oil yield from downstream activities, the fruits are sterilised in a high-temperature pressure vessel. Sterilisation deactivates acid-forming enzymes, loosens the fruits from the stalk and pre-conditions the mesocarp and nuts for further processing.
• Threshing: The sterilised FFB are emptied from the fruit cages into a thresher and then fed into a revolving, slated steel drum by an auto­feeder. As non-oil bearing bunch stalks are oil absorbent, they are removed to prevent unnecessary loss of oil. FFB not fUlly threshed are sent for re-threshing to remove any entrapped fruits through a bunch crusher. During the threshing process, fruits loosened from FFB are dropped through a steel slate onto a conveyer below the drum and then transferred via a fruit elevator into a digester. After separation, EFB are transported using a conveyer to the empty bunch hopper, where EFB can be returned to the field for use as mulch ahd fertiliser due to their high nutrient levels.

7. BUSINESS OF OUR GROUP (Cont’d) • • • • • • Digester. The purpose of a digester is to release the oil by rupturing oil bearing cells in the mesocarp, loosen the mesocarp from the nuts, raise the temperature of the mash to facilitate subsequent pressing and drain away free oil to reduce the volume to be pressed. The fruits are transported to the digester using a fruit elevator and fruit distribuJing conveyor. In the digester, the fruits are mashed by sets of stirring arms that create relative circular and vertical movements of fruits. Steam is injected to maintain a high temperature. Pressing: Mash passing through the digester is fed into a screw press, with the screw turning within a perforated press cage and pushing mash towards a pre-set cone. Pressure on the mash is gradually increased, forcing oil and moisture to be squeezed from the mash through a· perforated press cage and leaving behind a compact, dried mass, consisting mainly of nuts and fibre known as press cake. Crude oil sludge extracted from mash is then fed into a sand trap~tank in which dirt particles and shell fragments are allowed to settle to the bottom. Oil Clarification: Free oil drained from the digester, together with crude oil sludge from the screw press, are allowed to flow past a vibrating screen to further remove any retained fibre and shell particles. The composition of crude oil varies in accordance with the composition of the fruits, but is generally made up of part oil and part sludge (dirt particles and water). At this composition, the crude oil is highly viscous and therefore difficult to separate effectively from the sludge. In order to reduce viscosity, hot water and steam are injected to accelerate the oil/sludge separation process. Purification and Drying: Crude oil is then skimmed off from the mixture, with the clarified oil then placed in a high-speed centrifuge known as a purifier to reduce the moisture content and impurities content. The purified oil is then pumped through a vacuum dryer to further reduce the moisture content. Purified and dried oil, or CPO, is then conveyed through pipes and stored in oil storage tanks before dispatch. Centrifuge: After the clarification process, the separated sludge is temporarily stored and heated in a sludge tank. The sludge goes through a second separation using a centrifuge, which is used to recover final trace amounts of suspended oil in the sludge, and thereby maximising oil recovery and achieving minimal oil loss in the sludge water discharge and solids. Recovered oil is pumped back to the crude oil clarification tank. Sludge water discharge is transported to an effluent treatment plant through a sludge pit, while solid sludge is returned to the fields for utilisation as compost. Depericarping: In the kernel recovery station, nuts are separated from the fibre, with the fibre being used as fuel to generate power for the mills. Nuts are cracked so that the kernel separates from the shell. Kernels are then dried and stored. Fibres are used in our boiler as fuel and nuts are sent to a de-stoner to remove any stones and other foreign matter. 7. BUSINESS OF OUR GROUP (Cont’d) •  Nut Drying: Cleaned nuts are sent to a nut silo for drying, which reduces the moisture content of the nuts. The temperature of the hot air used for drying nuts is regulated to prevent discolouration of the kernel. Drying will detach the kernel inside the nut from the nut shell, which facilitates cracking and separation at a later stage.  •  Nut Cracking: Dried nuts are fed into ripple mills for cracking. The cracked mixtures comprising kernels and shells are fed into a series of winnowers that blow the lighter shell fragments and remaining fibre off the kernels. Residual kernel and shell mixtures are then fed into a kernel grading drum. The whole kernel is then separated from the broken kernel and shell mixture in the drum before being conveyed to a kernel silo. The kernel and shell mixtures are then fed into a  hydrocyclone via a conveyor.  •  Kernel Separation: Kernels and shells are separated hydrocyclone, with separated shells used as boiler fuel.  in  a  •  Kernel Drying: Kernels are dried in hot air heated by steam in a heat exchanger in the kernel silo. The drying time and temperature is regulated to achieve uniform consistency and moisture content, with dried PK stored in a bulking silo.
(The rest of this page has been intentionally left blank) 7. BUSINESS OF OUR GROUP (Cont’d) The following diagram illustrates how FFB is processed into CPO and PK.
Fibre PK product production PK received by FHB’s PK crushing plants are processed into PKO and its by­product, PKE, in the following process: • Pre-Pressing: During pre-pressing, screw-in cage presses exert intense pressure on PK to expel oil. In pre-pressing, approximately 40% by weight of PK input is expelled as CPKO, while the remaining cake, which still contains oil, is conveyed to the final presses. The pre-pressed CPKO is pumped to the filters. 7. BUSINESS OF OUR GROUP (Cont’d) •  Final-Pressing: The pre-pressed cake enters the final presses, such that the resulting, final-pressed CPKO joins the stream of pre­pressed CPKO and is pumped to the filters. The remaining cake, or PKE, consists of a powder containing protein and residual amounts of oil.  •  Filtration: CPKO is filtered through horizontal leaf filters, and the resulting filtered cake is removed and recycled back into the final presses. The resulting PKO is placed in storage tanks for sale in bulk
shipments from the port or in lorry tankers. The following diagram illustrates how PK is processed into PKO and its by­product, PKE. PK Pre -Pressing
(The rest of this page has been intentionally left blank) I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cont’d) 7.11.1.3 Upstream raw materials FFB are the primary raw materials used in the production of CPO, PK and biomass, while PK is the primary raw material used in the production of PK products, namely PKO and its by-product, PKE. The FFB processed by FHB into CPO and PK are sourced from the oil palm plantation estates on the FELDA-Leased and Managed Land, FELDA Settlers, third parties and F Agricultural. FHB’s supply of FFB from FELDA Settlers is pursuant to contractual arrangements between FELDA Settlers and FELDA. Under the FELDA settlement scheme, FELDA Settlers sell their FFB to FELDA. While FHB’s supply of FFB from third parties is not fully secured by supply agreements, more than 1.44 million MT of FFB per year is pursuant to contractual arrangements between FHB and four major third-party suppliers. FHB is able to secure a steady supply of FFB from other third-party suppliers because it is considered a reliable processor of FFB given its position as Malaysia’s largest operator of palm oil mills, with an aggregate annual milling capacity of approximately 20.4 million MT of FFB, representing approximately 20.5% of the total milling capacity in Malaysia in 2011. Further, FHB’s palm oil mills are located throughout Peninsular Malaysia, Sabah and Sarawak, providing third parties with convenient access to a buyer in an industry where the processing of FFB within 24 hours of harvesting is critical to maintaining CPO quality, and certain palm oil mills are also constructed to be strategically located near third-party oil palm plantations. Most of FH B’s palm oil mills face competition from palm oil mills owned by other parties. Notwithstanding the number of palm oil mills owned by other parties, FHB has been able to consistently secure approximately one third of its FFB requirements from third parties for the years ended 31 December 2009, 2010 and 2011. The following table sets forth the sources of FFB acquired by FHB’s palm oil mills for the periods indicated. Total Sources of FFB Year Ended 31 December 2009  2010  2011  (MT)  (%)  (MT)  (%)  (MT)  (%)  Oil palm plantation estates on  the FELDA-Leased and  Managed Land ………………………  5,212,860  34.4  4,743,808  32.8  5,127,680  31.9  FELDA Settlers ……………………..  4,794,393  31.6  4,774,003  33.0  5,307,029  33.0  Third parties(1) ……………………….  4,895,641  32.3  4,693,477  32.5  5,381,172  33.4  F Agricultural. ………………………..  259,897  1.7  248,093  1.7  272,100  1.7  Total …………………………………  15,162,791  100.0  14,459,381  100.0  16,087,981  100.0  Note:
(1) Includes private plantation owners and small FFB growers. 7. BUSINESS OF OUR GROUP (Cant’d) Cost of FFB purchased amounted to RM6,601.6 million, RM7,449.2 million and RM8,170.1 million for 2009, 2010 and 2011, respectively. The prices of FFB are volatile, as they are based indirectly on CPO market prices published by the MPOB, which in turn are based on domestic and international market prices of CPO. FHB currently sources all of its PK requirements for its PK crushing plants from its palm oil mills. 7.11.2 Downstream Businesses FHB produces and sells a variety of products derived from the downstream palm oil process, such as oils and fats (including RBD products) and packed goods for consumers and food services industry. Through its associate, FPG, FHB produces and sells oleochemicals, while through its other associate, MEO, FHB produces and sells oils and fats, such as refined oils, and through its associate, Voray Holdings, FHB packs and sells cooking oils. 7.11.2.1 Downstream products FHB’s downstream products as well as those of its associates, FPG, MEO and Voray Holdings, include: • oils and fats, such as RBD products and refined oils, produced in its five palm oil refineries in Malaysia and MEO’s refinery in Pakistan; • packed goods for consumers and food services industry, such as margarine, shortening, cooking oil, vegetable ghee and industrial fats, produced in its integrated manufacturing facility in Malaysia; and • oleochemicals produced in FPG’s facility in Malaysia. RBD products and packed goods for consumers and food services industry FHB produces RBD products and packed goods for consumers and food services industry from its palm oil refineries. RBD products can be further processed at oleochemical facilities to produce oleochemicals, while packed goods for consumers and food services industry can be sold to retailers, wholesalers (including re-packing operations) and manufacturers. FHB’s RBD products include: • RBD PKO, derived by processing PKO;
• RBD palm kernel fatty acid distillate, a by-product of processing PKO into RBD PKO;
• RBD palm oil, derived by processing CPO;
• palm fatty acid distillate, a by-product of processing CPO into RBD palm oil;
• RBD palm olein, the liquid product of fractionating RBD palm oil; and
• RBD palm stearin, the solid product of fractionating RBD palm oil.

198 7. BUSINESS OF OUR GROUP (Cont’d) FHB is one of the largest producers of RBD products in the world. FHB produced 1,642,285 MT, 1,831,450 MT and 1,507,514 MT of RBD products in 2009, 2010 and 2011, respectively. It sold substantially all of its RBD products to customers such as industrial manufacturers in Malaysia and in the export market. Sales of RBD products amounted to RM3,526.7 million, RM4,282.9 million and RM5, 150.6 million for 2009, 2010 and 2011, respectively. Sales of RBD products to unaffiliated third parties amounted to RM3,502.9 million, RM3,914.5 million and RM4,480.3 million for 2009, 2010 and 2011, respectively. FHB’s packed goods for consumers and food services industry include margarine, shortening, cooking oil, vegetable ghee and industrial fats. FHB produced 93,071 MT, 98,388 MT and 99,000 MT of packed goods for consumers and food services industry in 2009, 2010 and 2011, respectively. These products were sold through Malaysian retailers, wholesalers and manufacturers for commercial use and to the Malaysian food service and baking industries for industrial use. These products were also sold in the export market. Sales of packed goods for consumers and food services industry amounted to RM232.3 million, RM265.3 million and RM316.1 million for 2009, 2010 and 2011, respectively. Almost all of these sales were made to unaffiliated third parties. FHB is a market leader in the oils and fats category of packed goods for consumers and food services industry in Malaysia. . Oleochemical products Through FHB’s associate, FPG, in Kuantan, Malaysia, FHB produces oleochemicals, such as methyl esters, fatty alcohols and glycerin, from downstream products, such as PKO and RBD palm stearin, sourced internally and externally. These oleochemicals include various precursors and intermediate products that are used primarily in the consumer goods sector for the production of toiletries, personal care items and household detergents, as well as the industrial sector for the production of paints, resins and fuels. The following is a brief description of these oleochemicals: •  Methyl Esters: Methyl esters are primarily used as intermediaries in the production of fatty alcohols that are used in the production of detergents, emulsifiers and cosmetics.  •  Fatty Alcohols: Fatty alcohols, which are the result of hydrogenating methyl esters, are used as emulsifiers, emollients and thickeners in both the cosmetics and food industry.
• Glycerin: Glycerin is widely used in pharmaceutical formulations, including as food and beverage additives or as intermediaries in the production of soaps and other pharmaceuticals. FPG also manufactures detergents from a number of inputs, including fatty alcohols produced at its facility. 199 7. BUSINESS OF OUR GROUP (Cont’d) 7.11.2.2 Downstream facilities FHB’s downstream facilities as well as those of its associates, FPG, MEa and Voray Holdings, consist of refineries to produce oils and fats (such as RBD products and refined oils) and packed goods for consumers and food services industry, as well as oleochemical facilities to produce oleochemicals. Palm oil refineries FHB operates five palm oil refineries in Malaysia, with a total capacity of approximately 2.5 million MT. In 2010, FHB operated approximately 11% of Malaysia’s palm oil refining capacity. Of FHB’s five palm oil refineries in Malaysia, FHB owns and operates two palm oil refineries in Peninsular Malaysia and three palm oil refineries in Sabah. The following table sets forth the aggregate annual refining capacity, aggregate annual fractionation capacity and aggregate annual packed products capacity of FHB’s Malaysian palm oil refineries as at 31 March 2012. Refinin~  Fractionation  Packed products  capacity(  capacity(1)  capacity(1)  Location  (MT per year)  (MT per year)  (MT per year)  Pasir Gudang, Johor.  :  .  336,000  302,400  134,400  Kuantan, Pahang  .  1,260,000  806,400  Tawau, Sabah  .  151,200  201,600  Lahad Datu, Sabah  ..  336,000  268,800  Sahabat, Sabah  ..  403,200  369,600  Total.  ..  2,486,400  1,948,800  134,400  Note:
(1) FHB’s processing capacity is based on the optimum processing capacity of its palm oil refineries and has been calculated based on the palm oil refineries operating 12 months in a calendar year for 28 days a month and 24 hours a day. In 2011, FHB’s palm oil refineries had capacity utilisation rates of approximately 62% for refining, 71 % for fractionation and 74% for packed product production, based on the refineries operating 12 months in a calendar year for 28 days a month and 24 hours a day. MEO Refinery Through FHB’s associate, MEa, a joint venture with the Westbury Group, FHB has a 30.0% equity interest in a refinery in Port Qasim, Pakistan. As at 31 March 2012, the MEa refinery had an annual refining capacity of 360,000 MT of CPO and canola, soy and sunflower oils. I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cant’d) MEa refines soft oils, including CPO and canola, soy and sunflower oils, for sale to industrial users, such as Unilever, and manufacturers of vegetable ghee and soy and canola oil-based packed goods for consumers and food services industry in the Pakistani market. Most of the CPO required for its operations is sourced from FGV Plantations Malaysia, while the other soft oils required for its operations are sourced from a number of international and local suppliers. In 2011, its capacity utilisation rate was approximately 75%, based on the refinery operating 12 months in a calendar year for 17 days a month and 24 hours a day. Voray Holdings Refinery Through FHB’s associate, Voray Holdings, which is FHB’s venture with Kuala Lumpur Kepong Berhad, FHB has a 27.0% equity interest in a refinery in Wuhan, China. As at 31 March 2012, the Voray Holdings’ refinery had an annual refining capacity of 100,000 MT of CPO, soy and other vegetable oils. The Wuhan, China operations do not currently conduct refining operations and, accordingly, do not have meaningful capacity utilisation rates. Currently, the Wuhan, China operations focus on packing, marketing and selling cooking oils for the Chinese market. It sources the RBD palm olein, soy oil and other vegetable oils required for its operations from a number of international and’local suppliers based in China. Oleochemical production facilities Through its associate, FPG, which is FHB’s 50:50 joint venture with Procter & Gamble in Kuantan, Malaysia, FHB produces oleochemicals. Procter & Gamble has management control of FPG. FHB accounts for the results of FPG as an associate, and its results are not consolidated in its financial statements. FPG’s oleochemical production plant is adjacent to one of FHB’s palm oil refineries, which supplies the primary feedstock for its operations. FPG manufactures methyl ester, fatty alcohol, refined glycerin and detergents under the “Dynamo” brand. The oleochemical production plant has an annual production capacity of 280,000 MT of methyl ester, 80,000 MT of fatty alcohol, 35,000 MT of refined glycerin and 60,000 MT of detergent. FPG sells its detergents and oleochemical products to Procter & Gamble under a supply agreement. FPG sources its raw materials, such as PKO and RBD palm stearin, from FHB’s palm oil refineries and PK crushing plants and from third parties. Maintenance FHB’s downstream facilities are shut down periodically for scheduled maintenance and occasionally for unscheduled corrective maintenance and repair. FHB regUlarly monitors the performance and condition of its equipment in such facilities. Maintenance of FHB’s facilities is performed by trained personnel to ensure long-term reliability of key equipment and the production processes as a whole. These comprehensive maintenance efforts contribute to the reduction of FHB’s long-term costs and an improvement in FHB’s asset utilisation, thereby helping to increase overall reliability and maintain production efficiency of these facilities. I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cont’d) 7.11.2.3 Downstream production process RBD products and packed goods for consumers and food services industry CPO is refined in FHB’s palm oil refineries to produce RBD palm oil and its by-product, palm fatty acid distillate, while PKO is refined in FHB’s palm oil refineries to produce RBD PKO and its by-product, RBD palm kernel fatty acid distillate. RBD palm oil can be fractionated into a liquid component, RBD palm olein, and a solid component, RBD palm stearin, both of which are used in the production of packed goods for consumers and food services industry, such as margarine, shortening, cooking oil, vegetable ghee and industrial fats. RBD palm stearin can be further fractionated into hard stearin and soft stearin, while RBD palm olein can be further fractionated into super olein and palm mid-fraction. CPO is processed into RBD palm oil and its by-produCt, palm fatty acid distillate, after which point RBD palm oil can be further fractionated into a solid component, RBD palm stearin, and a liquid component, RBD palm olein. RBD palm stearin can be further fractionated into hard stearin and soft stearin, while RBD palm olein can be further fractionated into super olein and palm mid-fraction. PKO is processed into RBD PKO and its by-product, RBD palm kernel fatty acid distillate, in a similar process. • Bleaching Process: CPO is fed from a storage tank to a dryer vessel through a heat recovery system to remove moisture and to increase the CPO temperature from 40 -60°C to a CPO temperature around 90 -120°C. • Degumming: Degumming removes phosphatide gums from the CPO, which, if retained, could have an adverse effect on the shelf life of the RBD palm oil and cause processing problems, such as scaling in the deodoriser. Phosphoric acid is dosed in line into the dry CPO to precipitate the phosphatide gums. Thorough mixing of acid and oil is achieved through in line static and dynamic mixers before storage in a degumming vessel for approximately 20 minutes. The precipitated gums are thereafter ready to be removed during the subsequent bleaching and filtration process.
• Bleaching: The degummed CPO, still at a temperature around 90 -120°C, is fed into a bleacher vessel and mixed with about 0.8% bleaching earth, where various grades of activated or non-activated bleaching earth are used depending on the quality of the CPO. Low pressure steam is sparged into the bleacher to agitate the concentrated slurry, permitting the bleaching earth to absorb impurities from the CPO. The slurry containing the CPO and bleaching earth is then passed through a Niagara filter.
• Filtration: In the Niagara filter, the slurry passes through the filter, with the bleaching earth, precipitated gums and other impurities trapped on the filter leaves. The purpose is to produce clean oil free from impurities. Degummed bleached palm oil from the Niagara filter is then pumped into a buffer tank for temporary storage.

202 7. BUSINESS OF OUR GROUP (Cont’d) • Deodoriser and Storage: Deodorisation removes fatty acids and volatile impurities from the CPO, renders the CPO’s taste bland and changes the CPO’s colour from deep red to almost colourless. The degummed bleached palm oil is pumped to a deodoriser at around 250 -260°C and kept under a vacuum. Vaporised fatty acids rise up the deodoriser column, are pulled out by a vacuum system and collected in a fatty acid condenser as fatty acids. The fatty acids are cooled and discharged as palm fatty acid distillate. The deodoriser also produces RBD palm oil, which, after being cooled to 50c C, can be either placed in storage or fractionated.
• Fractionation: Through a simple fractionation process, RBD palm oil can be fractionated into a solid component, RBD palm stearin, and a liquid component, RBD palm olein. RBD palm oil is heated to 70c C and passed through a crystalliser vessel, where it is cooled under a slow and carefully controlled cooling curve in order to produce large grain crystals that are more easily filtered. When optimum crystal growth has been obtained, a cooled slurry is pumped into a membrane filter press, separating the RBD palm stearin and RBD palm olein components. The RBD palm stearin cakes are dropped into a melting tank, with both RBD palm stearin and RBD palm olein pumped to storage tanks for sale or further processing. Through double and multiple fractionations, RBD palm stearin can be further fractionated into hard stearin and soft stearin, while RBD palm olein can be further fractionated into palm mid-fraction and super olein.

(The rest of this page has been intentionally left blank) 7. BUSINESS OF OUR GROUP (Cont’d) The following diagram illustrates how CPO is processed into RBD palm oil and its by-product, palm fatty acid distillate, after which point RBD palm oil can be further fractionated into a solid component, RBD palm stearin, and a liquid component, RBD palm olein. RBD palm stearin can be further fractionated into hard stearin and soft stearin, while RBD palm olein can be further fractionated into super olein and palm mid-fraction. PKO is processed into RBD PKO and its by-product, RBD palm kernel fatty acid distillate, in a similar process. cpo Bleaching Process 1. Degumming 2. Bleaching 3. Filtration
Degummed Bleached Palm Oil
Deodoriser RBDPALMOIL PALM FATTY ACID DISTILLATE
II
Fractionation StorageII I I RBDPALMOLEIN i I Fractionation  I I  RBDPALM STEARIN Fractionation  I  I  I  SUPER OLEIN  II  PALMMID-FRACTION  II  HARD STEARIN  II  SOFT STEARIN  I
7. BUSINESS OF OUR GROUP (Cont’d) RBD products, such as RBD palm olein and RBD palm stearin, are processed into margarine and shortening in the following process: •  Oil Phase Preparation:  Margarine and shortening  are  made from  different blends of oils and fats depending  on  the desired melting  characteristics  and  texture.  The  oil  and  fat  components  for  a  particular formulation may include RBD products, such as RBD palm  oil and RBD palm stearin, PKO, soft oils or hydrogenated fats.  After  mixing in a three-MT blending tank in the appropriate proportions, oil­ soluble  ingredients,  such  as  lecithin,  emulsifiers,  flavours  and  colourant, are blended in to produce the finished oil phase.  •  Water Phase Preparation: Water-soluble ingredients, such  as  salt,  citric acid and preservatives, are measured and dissolved in purified  water in a one-MT water phase preparation tank.  •  Emulsion Preparation: Margarine is a liquid-in-oil emulsion composed  of 80% oil phase and 20% water phase. The appropriate amounts of  oil and water phases are mixed together in a three-MT blending tank,  and agitated to produce a pre-emulsion, which is pumped to an  in­ line holding tank.
• Chilling, Crystallisations and Texturising: For margarine production, the pre-emulsion is pumped under high pressure through crystalliser units, which are refrigerated, scraped-surface heat exchangers that use ammonia as the refrigerant. The higher melting point fats are crystallised and the premix becomes a soft, homogeneous and finely divided emulsion recognisable as margarine. The emulsion then passes through various configurations of worker units and dwell tubes to achieve the appropriate texture and plasticity, with the finished margarine piped directly to a packing machine. As shortening is a 100% fat product that contains no water phase, the chilling and texturising of shortening follow a similar process as that of margarine, except that no water phase is used.
• Packing: The chilled and texturised margarine or shortening is pumped from crystalliser/texturiser units to the packing hall, where they are automatically packed into consumer packs or into 18. kg bags in cartons for industrial bakery and food service customers. Margarine and shortening are relatively soft when packed and firm up in storage. Pastry fats that have higher melting points pass through a high residence-time dwell tube prior to packing, with the hardened, texturised fat cut and packed for the bakery industry.

(The rest of this page has been intentionally left blank) I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cont’d) The following diagram illustrates how RBD products, such as RBD palm olein and RBD palm stearin, are processed into margarine and shortening: REFINED HARD OIL COMPONENTS (RBD PALM STEARIN)
REFINED SOFT OIL COMPONENTS (RBD PALM OLEIN)
II’
OIL SOLUBLE WATER SOLUBLE PURIFIEDINGREDIENTS INGREDIENTSWATERCOMPONENTS Oil Phase Preparation Water Phase Preparation I II Emulsion Preparation II , Chilling, Crystallisations and TexturisingII PackingII RBD products, such as RBD palm olein and RBD palm stearin, are processed into cooking oil and vegetable ghee. RBD palm olein is packed as cooking oil under brands, such as “Saji”, “Tiara” and “Tiga Udang”. After pumping into the packing area, RBD palm olein is mixed with small quantities of antioxidants and thereafter dispensed into 1 kg, 2 kg and 5 kg bottles. For sale of FHB’s cooking oil in sachets, FHB uses third-party packers who are closer to the centres of distribution and produce the sachet packs pursuant to tolling arrangements. Vegetable ghee is a large-grain crystal blend of CPO and RBD palm stearin that is packed directly into tins, without any need for pre-chilling or texturising, under brands, such as “Nadim”. (The rest of this page has been intentionally left blank) 206 7. BUSINESS OF OUR GROUP (Cont’d) PKO RBD PALM STEARIN Oleochemical production FHB’s associate, FPG, produces methyl ester, fatty alcohols and refined glycerin from PKO and RBD palm stearin from FHB’s palm oil refineries and PK crushing plants and from third parties. In addition, it produces detergents from a number of inputs, including fatty alcohols produced at its facility. FPG’s products are exported globally through Procter & Gamble. PKO and RBD palm stearin is processed into oleochemicals, such as methyl ester, fatty alcohols and refined glycerin, and detergent in the following process: • Esterification: A mixture of RBD palm stearin and RBD PKO is reacted with methanol and sodium methoxide in an ester reactor to produce whole cut methyl ester and crude glycerin.
• Ester Distillation: The whole cut methyl ester is washed and dried to remove soap and moisture before it is further separated into different cuts in a series of distillation columns. The ester distillation processes will produce Light Cut Ester (LCE), Intermediate Cut Ester (ITE), Middle Cut Ester (MCE) and Heavy Cut Ester (HCE). The ITE is sent for hydrogenation to convert methyl esters into fatty alcohols.
• Glycerin Refining: Crude glycerin is sent into a separate process to be acidulated, washed, dried and sent to a glycerin refinery, which further processes crude glycerin into refined glycerin of 99.8% purity.
• Hydrogenation: The ITE is hydrogenated by reacting it with hydrogen and a catalyst under high pressure to produce crude fatty alcohol.
• Alcohol Distillation: The crude fatty alcohol is sent through a series of distillation columns to produce different cuts of fatty alcohol product, such as Middle Cut Alcohol (MCA) and Heavy Cut Alcohol (HCA), which in turn can be processed into detergent.

The following diagram illustrates the processing of PKO and RBD palm stearin into oleochemicals, such as methyl ester, fatty alcohols and refined glycerin, and detergent: Glycerin REFINEDCrude Glycerin ~ f—.jRefining GLYCERIN ~ LCE f-FATTY Ester 4~ MCE f-ALCOHOLSEsterification f-­~ ~ Distillation ~ HCE f­4f ITE I -C MCA trAlcoholHydrogenation DETERGENT~ f—+ Distillation HCA 7. BUSINESS OF OUR GROUP (Cant’d) 7.11.2.4 Downstream raw materials CPO and PKO CPO and PKO are the primary raw materials in the production of palm oi/­based products, including RBD products. Since the contractual arrangements regarding the supply and delivery of CPO between F Palm Industries and us became effective on 1 March 2012, FHB now sources a substantial portion of its CPO requirements from us. FHB continues to source internally CPO used by its subsidiary DOP, which produces cooking oil and other packed products for consumers and food services industry, primarily for the Malaysian domestic market. The follOWing table sets forth the annual CPO consumption of DOP for the periods indicated. Year Ended 31 December 2009 2010 (in MT) Annual CPO consumption of DOP . 241,220 215,023 237,368 FHB sources all of its PKO requirements internally from its PK crushing plants. Cost of CPO purchased from third parties other than FGVH, including the purchase of CPO pursuant to swap arrangements with certain of FHB’s suppliers, amounted to RM743.7 million, RM902.0 million and RM1,209.6 million for 2009, 2010 and 2011, respectively. . RBD products RBD palm oil and its by-product, palm fatty acid distillate, and RBD PKO and its by-product, RBD palm kernel fatty acid distillate, are intermediate products in the production of packed goods for consumers and food services industry and oleochemicals. FHB currently sources substantially all of its RBD palm oil and its by-product, palm fatty acid distillate, and RBD PKO and its by-product, RBD palm kernel fatty acid distillate, internally from its palm oil refineries. 7.11.3 Manufacturing, logistics and others Through various subsidiaries and joint ventures, FHB is engaged in the production of rubber and cocoa products and provides products and services both to entities within its group and to third parties in the following areas: • R&D, including R&D activities and seedling production for our plantations business;
• bulking installations;
• transportation;
• fertilisers, including fertiliser production for our plantations business; and • others, including sales, marketing and trading for our plantation products.

7. BUSINESS OF OUR GROUP (Cont’d) FHB developed its capabilities in these areas primarily to support its main palm oil business, which required certain services, such as bulking installations for product storage, and generated certain opportunities, such as the transportation of its products. FHB then began providing these services to third parties to leverage its capabilities and the scale of these operations to generate additional income. While FHB intends to concentrate on its core palm oil business, it will continue to also offer services to third parties in order to increase its earnings and defray the costs of its services operations. 7.11.3.1 Rubber business Through its subsidiary, F Rubber Industries, FHB produces rubber products from rubber grown on our rubber plantations on the FELDA-Leased and Managed Land and rubber that it purchases from FELDA Settlers and third parties, including small rubber holdings and rubber importers. FHB is a large processor of rubber in Malaysia, processing 140,839 MT, 132,053 MT and 139,950 MT of rubber products in 2009, 2010 and 2011, respectively. FHB sold most of its rubber products to manufacturers in the export markets and Malaysian domestic market. In addition to FHB’s operations in Malaysia, its rubber business includes purchasing, processing and marketing operations in both Thailand and Indonesia. Sales of FHB’s rubber products amounted to RM932.1 million, RM1,423.5 million and RM2,074.5 million for 2009,2010 and 2011, respectively. These sales were all to unaffiliated third parties. FHB’s rubber products are: • SMR 10 and SMR 20;
• SIR10andSIR20;
• compound rubber;
• 60% DRC latex concentrates;
• SMR constant viscosity rubber (CV 50 and CV 60) from high-quality latex;
• skim block, a by-product of producing 60% DRC latex concentrates; and

• others, such as crepe rubber and skimp lump. (The rest of this page has been intentionally left blank) 7. BUSINESS OF OUR GROUP (Cont’d) The following table sets forth the primary end-product applications for FHB’s major rubber products. Product Primary End Product Applications SMR and SIR 10/20 and compound tyres, conveyor belts, rubber mountings and rubber rubber moldings for automotive industry Latex concentrates rubber gloves (examination, surgery, household and industrial), rubber threads, mattresses, pillows, carpet lining, prophylactics, catheters and toys SMR CV 50/60 adhesive, engine mounting, carpet underlay and other specialised high-quality products Skim block………………………………….. shoe soles and battery casings
Rubber production facilities FHB has eight rubber processing facilities located throughout Peninsular Malaysia, two in Thailand and one in Indonesia. FHB’s rubber processing facilities have an aggregate annual production capacity of 270,400 MT, including 26,400 MT in Thailand and 24,000 MT in Indonesia. FHB’s two processing facilities in Thailand are operated by a joint venture company, Feltex, which it established in 1994 with Teck Bee Hang Company Limited, one of the largest processors of natural rubber in Thailand that was subsequently acquired by GMG Global Ltd. FHB’s processing facilities produce latex concentrates, and have an aggregate annual production capacity of 26,400 MT. FHB has a 51% equity interest and management control of the joint venture company, and it is included as a consolidated subsidiary in FH B’s financial statements. PT Felda Indo Rubber, FHB’s 90%-owned Indonesian subsidiary, produces SIR 10 and SIR 20, and has an aggregate annual production capacity of 24,000 MT. The following table sets forth FHB’s production in MT by rubber product for the periods indicated. Year Ended 31 December 2009 2010 2011 Production (in MTl SMR and SIR 10/20/Compound Rubber  .  117,929  115,402  123,903  Latex concentrates  ..  19,788  14,322  13,516  SMR CV 50/60  .  1,459  1,219  1,322  Skim block  _  ..  1,645  1,110  1,206  Others (crepe rubber/skimp lump)  .  18  3  Total  .  140,839  132,053  139,950
7. BUSINESS OF OUR GROUP (Cant’d) The  following  table  provides  information  about  the  location,  maximum  processing  capacity  and  approximate  utilisation  rate  for  FHB’s  rubber  processing facilities as at 31 March 2012.  Maximum processing  Processed in  Approximate  Production Facility – capacity per annum (MT)(1l  2011 (MT)  utilisation rate(2)
Malaysia 220,000 109,079 49_6% Thailand 26,400 15,714 59.5% Indonesia 24,000 15,157 63.2% Notes: (1) FHB’s annual processing capacity is based on what FHB believes to be the optimum processing capacity having regard to the designed capacity ofits rubber processing facility and has been calculated based on such rubber processing facility operating 12 months in a calendar year for 25 days a month and 16 hours a day.
(2) Calculated by dividing processed volume per annum by maximum processing capacity per annum.

Maintenance FHB conducts preventative maintenance of its rubber processing facilities at regularly scheduled intervals by using in-house mechanical and electrical teams. Damaged facility parts are sent to authorised workshops for refurbishing, re-grooving and other repairs. Rubber raw materials FHB sources two types of rubber, field latex and cup lumps, from our rubber plantations on the FELDA-Leased and Managed Land, FELDA Settlers and third parties. Cost of field latex and cup lumps consumed amounted to RM735.8 million, RM1,261.8 million and RM1,802.7 million for 2009, 2010 and 2011, respectively. FHB’s field latex and cup lump purchases from third parties are according to long-term supply contracts that generally last six months to two years. The prices of field latex and cup lumps from third parties are volatile, as they are based on local arid international market prices. FHB generally purchases field latex from FELDA Settlers and third parties. The following table sets forth the sources of field latex acquired by FHB’s rubber processing facilities for the periods indicated_ Total Sources of Field Latex Year Ended 31 December 2009 2010 2011 Percentage (%) Rubber plantations on the FELDA-Leased and Managed Land  .  __ .. .. _  ._ _. __ .  . ._  FELDA Settlers _….  _  .. __  .. _  ._  ..  .. _  14  8  4  Third parties.  ..  _. __ .  ..  _  86  92  96  Total  .  100  100  100
7. BUSINESS OF OUR GROUP (Cont’d) FHB generally sources cup lumps from our rubber plantations on the FELDA­Leased and Managed Land, FELDA Settlers and third parties. The following table sets forth the sources of cup lumps acquired by FHB’s rubber processing facilities for the periods indicated. Total Sources of Cup Lumps Year Ended 31 December 2009 2010 2011 Percentage (%) Rubber plantations on the FELDA-Leased and Managed Land . 8 56 FELDA Settlers . 54 39 32 Third parties . 38 56 62 Total .. 100 100 100 7.11.3.2 Cocoa business FHB’s primary cocoa products are: • cocoa powder;
• cocoa butter, which is produced as either pure prime pressed cocoa butter or deodorised cocoa butter, a premium grade of cocoa butter; and
• cocoa liquor.

FHB produced 17,117 MT, 20,008 MT and 18,108 MT of cocoa products in 2009, 2010 and 2011, respectively. FHB sold 64%, 56% and 45% in 2009, 2010 and 2011, respectively, of its cocoa products to Nestle Malaysia under short-term sales contracts that expire upon fulfillment of the contractual terms of delivery. The balance of FHB’s cocoa products is sold on the open market in the Middle East, Europe, Asia and Australia directly to cocoa product users, such as confectioners, and dealers in the international markets. Sales of FHB’s cocoa products amounted to RM210.7 million, RM280.3 million and RM232.1 million for 2009, 2010 and 2011, respectively. Substantially all of FHB’s sales of cocoa products were to unaffiliated third parties. (The rest of this page has been intentionally left blank) [ Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cont’d) Cocoa production facilities FHB grinds cocoa beans in its processing factory in Seremban, Malaysia, which has a grinding capacity of approximately 30,000 MT of cocoa beans per year. FHB’s factory operates two grinding lines. The following table sets forth FHB’s production in MT by cocoa product for the periods indicated. Year Ended 31 December 2009 2010 2011 Product (in MT) Cocoa powder . 9,631 11,470 10,295 Cocoa butter . 7,481 8,538 7,813 Cocoa liquor . 5 In 2011, the capacity utilisation rate for FHB’s cocoa production facility was approximately 77%, based on the facility operating 12 months in a calendar year for 30 days a month and 24 hours a day. Maintenance FHB conducts maintenance and repair of its cocoa production facility to ensure a monthly efficiency rate above 85%. Cocoa raw materials FHB obtains all of its cocoa beans from third parties. A substantial majority is purchased from Indonesia, with the remainder purchased from African countries and approximately 5% purchased within Malaysia. Cost of cocoa beans consumed amounted to R1VI205.8 million, RM250.7 million and RM212.2 million for 2009,2010 and 2011, respectively. FHB currently purchases cocoa beans from suppliers, according to short-term supply contracts that expire upon delivery of contractual quantities. The prices of cocoa beans from third parties are volatile, as they are based on local and international market prices. 7.11.3.3 R&D R&D is an important function of FHB’s palm oil operations and has led to improvements in its agricultural techniques, yields and profitability, many of which also have benefits for us. FHB’s R&D operations through F Agricultural are intended to provide technical support to our plantations business through: • supply of planting materials;
• supply of rat baits and other agricultural products;
• providing of estate support services, such as soil sustainability studies, laboratory services and agronomic advisory visits; and
• R&D on oil palms and other potential crops.

7. BUSINESS OF OUR GROUP (Cont’d) As at 31 March 2012, FHB’s R&D division had 81 researchers, 69 of which specialised in biology and biotechnology and 12 of which specialised in applied technology. Its R&D division is headed by a senior director with more than 30 years of R&D experience and who is supported by three principal researchers in the fields of biology, biotechnology and applied technology. In 2009, 2010 and 2011, FHB spent approximately RM19.2 million, RM29.5 million and RM32.9 million, respectively, which represented approximately 0.2%, 0.2% and 0.1 % of its total revenue, respectively, on oil palm-related R&D activities. For a more detailed description of FHB’s achievements in R&D, refer to Section 7.2.6 of this Prospectus. FHB’s R&D division operates approximately 12,746 hectares of oil palm plantation land, of which approximately 11,723 hectares are used for oil palm-related research purposes and the remaining approximately 1,023 hectares are used for miscellaneous crops, such as tropical fruits, and infrastructure, such as housing, offices and laboratories. The FFB produced on this land is used in FHB’s palm oil mills. This land is managed mainly for research purposes, and FHB’s R&D division has achieved successful research findings on this land that we plan to eventually apply to the oil palm plantation estates on the FELDA-Leased and Managed Land in order to increase production yield, enhance operational efficiency and improve overall maintenance. In addition, FHB’s R&D division is engaged in various ancillary businesses, including: • production and sale of planting materials, which include the award­winning “Felda Yangambi” oil palm seed that has a strong market share in Malaysia and oil palm seedlings;
• production and sale of tissue culture planting material, such as oil palm ramets and banana ramets, and the undertaking of fertiliser, foliar and soil analyses;
• production and sale of rat baits; and

• offering in-house advisory services regarding crop protection and fertiliser recommendation. The following table provides the annual production capacity of various ancillary businesses engaged in by FHB’s R&D division: Activities Annual Production Capacity FFB Production from oil palm plantation land (approximately 11,723 hectares) 28 MT/hectare Oil Palm Seed Production 30,000,000 germinated seeds Oil Palm Seedlings Production 1,500,000 seedlings Tissue Culture Production Oil Palm Ramets 2,500,000 oil palm ramets Banana Ramets 2,500,000 banana ramets Rat Baits 200,000 boxes Fertiliser, Foliar and Soil Analysis Fertiliser Analysis 500,000 MT Foliar Analysis 600,000 hectares Soil Analysis 600,000 hectares I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cont’d) FHB’s R&D efforts aim to maintain and improve oil palm productivity and quality, ensuring that it enjoys a regular and continuous supply of quality FFB for its palm oil mills. FHB’s main research facility in Tun Razak Agricultural Services Centre in Jerantut, Pahang, which began operations in 1968, performs upstream research on a wide range of activities, including: • Breeding and selection for higher yielding oil palm planting materials. In addition to producing higher yielding FFB with higher oil content, these planting materials are also selected for producing compact palms with desirable size characteristics that extend an oil palm’s economic life and permit desirable planting density. Further, FHB’s breeding research includes breeding for other traits, such as high carotene, high oleic acid content and tolerance to basal stem rot caused by Ganoderma boninense. • Agronomic research on soil and plant health, biomass and microbes. Agronomic research is centred on soil and plant health in order to maximise the yield output from oil palm plantings. Emphasis is placed on soil and moisture conservation as well as determining the optimum fertiliser requirement under a particular environment, such as soil type, land’ terrain and moisture regime. Further, FHB’s agronomic research focuses on the recycling of oil palm biomass into the field in order to reduce mineral fertilisers and improve the physico-chemical properties of the soil and the usage of beneficial microbes in order to improve soil and plant health. • Crop protection R&D focused on integrated pest management. Crop protection R&D focuses on four main pests, namely rats, leaf-eating caterpillars, rhinoceros beetle and the fungal pathogen Ganoderma boninense. FHB’s R&D centres on developing protocols not only for chemical control but also for biological control, such as through the usage of predators, pheromones and parasites. This form of integrated pest management allows the use of less chemicals.
• Review of alternative crops on land with marginal oil palm yield. FHB’s R&D division is exploring pilot programmes for alternative crops, such as tropical fruit trees, including mangosteens, rambutan, jackfruit, fragrant coconuts and dragon fruit, selected herbs, such as Tongkat Ali, and other crops for use on land with marginal oil palm yield.

FHB’s R&D division also includes a Biotechnology Research Centre located in Enstek, Nilai. The Centre’s’ operations include oil palm and banana cloning, which have been engaged in since 1983, beginning with collaborative work with IRHO-ORSTOM (Institute of Oils and Oil Seeds-The French Overseas Office for Scientific Research). The facility is recognised as a leader in its field, having produced 1.5 million oil palm ramets in 2011 and planted oil palm clones on approximately 15,000 hectares of the oil palm plantation estates on the FELDA-Leased and Managed Land as at 31 March 2012. These operations are intended to produce high-quality, oil palm clonal planting material, which produces approximately 20% to 30% higher oil yields as compared to conventional planting materials, and to develop and use biotechnology tools to improve oil palm planting material production. The facility’s development of oil palm suspension culture technology permits clonal productions of up to one million, thereby increasing the efficiency and reducing the cost of the tissue culture process. In addition, the facility conducts research on molecular markers to complement its clonal work. FHB’s molecular marker programme is focused on developing molecular 7. BUSINESS OF OUR GROUP (Cant’d) markers that can be used to improve its oil palm breeding programme. By developing its own genetic maps, molecular markers help FHB to identify important agronomic traits, such as yield and compact palm, obtain Ganoderma baninsense-tolerant oil palms and identify floral abnormalities in clonal oil palms. To date, FHB’s facility has filed two patents, one of which relates to a phosphate transport marker that can be used to detect oil palms with lower phosphate fertiliser requirements and another of which is a Ganoderma baninsense marker that is intended to be used to develop Ganoderma baninsense-tolerant planting material. The phosphate transport marker patent was jointly filed with the Universiti Putra Malaysia and the Ganoderma boninsense marker patent was jointly filed with the University of Nottingham. FHB’s R&D division has recently established an Applied Technology Division (ATD), which will consider the use of new technologies and systems to improve productivity and efficiency in palm oil operations. The technologies to be considered by ATD include electronics, wireless sensor network technologies, geographical information systems and remote sensing, as well as the automation and mechanisation of daily operations. ATD is also considering how to improve oil extraction through the use of new technologies at palm oil mills. A new R&D division of FHB will commence operations in 2013 to focus on downstream operations. This new division will consider market-driven development of new products from both palm oil and palm kernel oil for food and non-food uses. FHB’s R&D division collaborates with institutions locally and abroad, including the MPOB, which .regularly shares agronomic improvements and developments with oil palm growers in Malaysia; CIRAD (Centre de Cooperation Internationale en Recherche Agronomique pour Ie Developpement), a French governmental agency that specialises in crop R&D, and other organisations in Europe, including NEIKER (Basque Institute for Agricultural Research & Development, Neiker -Tecnalia) and CABI (Centre for Agriculture & Biosciences International). FHB is also a member of the Oil Palm Genome Project Consortium, an organisation of 16 oil palm companies worldwide dedicated to developing a molecular marker-assisted selection programme. Further, FHB obtains annual guidance from its R&D panel, consisting of local and foreign experts, including those from the IVIPOB, CIRAD (France), Plant Research International (the Netherlands), the University of Nottingham (the United Kingdom), the University of Bath (the United Kingdom), Cambridge University (the United Kingdom) and various other institutes. (The rest of this page has been intentionally left blank) I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cont’d) 7.11.3.4 Bulking Installations FHB owns and operates bulking installations, warehouses and distribution depots throughout Malaysia and overseas that provide logistical support for the storage and distribution of its palm oil-based products. FHB’s bulking installations also provide storage and distribution for other vegetable oil­based products, including oleochemicals and biodiesel, for major customers and traders. As at 31 March 2012, FHB owned seven bulking installations located at Port Klang, Port Pasir Gudang, Port Tanjung Langsat and Kuantan in Peninsular Malaysia and Sahabat and Lahad Datu in Sabah for bulk distributions. These installations have 486 storage tanks with a total capacity of 752,250 MT. FHB’s bulking installations provide annual storage of approximately eight million MT, 40% of which are for crude palm oil products, 50% of which are for processed or refined products and 10% of which are for oleochemicals, biodiesel, acids and other specialty products, such as cocoa butter. The majority of FHB’s bulking terminals are licensed for bonded storage by Royal Malaysian Customs, while its bulking terminals in Port Pasir GUdang and Port Klang are authorised by Bursa Securities to handle physical storage of CPO/PKO for the futures market. As at 31 March 2012, FHB operated two warehouses in Port Pasir Gudang and Kuantan, with total storage capacity of 88,000 MT of PKE, PK pellets and grains. In addition, FHB had seven distribution depots in Kota Bharu in Kelantan, Kuantan in Pahang, Malacca, Seremban in Negeri Sembilan, Butterworth in Penang, Ipoh in Perak and Kota Kinabalu in Sabah for distribution of packed goods for consumers and food services industry in the domestic market to wholesalers, supermarkets and other retailers. In addition, FHB’s joint venture companies operated bulking installations in Port Qasim, Pakistan, Palembang, Indonesia, Guangzhou, China and Tianjin, China for CPO and palm oil-based products as well as vegetable oils, such as soy and canola oils. 7.11.3.5Transportation Services FHB provides land transportation services throughout Malaysia. As at 31 March 2012, FHB operated a fleet of 251 palm oil tanker vehicles that carry liquid cargo and 186 lorries that carry dry cargo. Although this fleet of vehicles is primarily used in FHB’s operations, FHB’s fleet also provides transportation services for our CPO. Third parties generally transport FFB to FHB’s palm oil mills, while FHB’s lorries primarily transport palm oil products and PK products. FHB also manages and operates the Sahabat jetty and warehouse in Sabah that assist in the transportation of products. The average age of FHB’s land transportation fleet is 8.9 years. Continuous upgrading of the fleet is implemented every year. The total capacity that can be transported by land is 16,100 MT per day. 7. BUSINESS OF OUR GROUP (Cont’d) 7.11.3.6 Fertiliser products FHB manufactures urea and ammonium sulphate-based compound fertiliser from urea, ammonium sulphate, phosphate rock, muriate of potash and kieserite that it sources from Malaysian and overseas suppliers, including Phosphate Resources Ltd., Daewoo International and Canpotex Limited. In addition to FHB’s compound fertiliser production, it also packages and sells straight and mixture fertilisers. FHB produced 265,937 MT, 268,012 MT and 267,807 MT of compound fertiliser, 172,102 MT, 239,117 MT and 280,381 MT of mixture fertiliser and 114,338 MT, 85,678 MT and 81,620 MT of straight fertiliser in 2009, 2010 and 2011, respectively. FHB sold approximately 29%, 30% and 25% of its compound fertiliser to our plantations business in 2009, 2010 and 2011, respectively. FHB sold the balance of its compound fertiliser in Malaysia under the “Sun Bear” and “Sun Flower” brands. FHB sold approximately 57%, 68% and 66% of its mixture fertiliser and approximately 84%, 38% and 40% of its straight fertiliser to our plantations business in 2009, 2010 and 2011, respectively. FHB sold the balance of its mixture and straight fertilisers to other third parties. Sales of fertilisers amounted to RM883.8 million, RM622.9 million and RM675.9 million for 2009, 2010 and 2011, respectively. Sales of fertilisers to other third parties amounted to RM468.0 million, RM352.2 million and RM376.7 million in 2009, 2010 and 2011, respectively. Sales of fertilisers to our plantations business amounted to RM415.8 million, RM270.7 million and RM299.2 million in 2009, 2010 and 2011, respectively. Fertiliser production facilities FHB operates three fertiliser manufacturing facilities in Malaysia. FHB’s plant in Pasir GUdang, Johor has an annual production capacity of 300,000 MT of compound fertiliser and 50,000 MT of mixture fertiliser. FHB also has two fertiliser mixing plants, one in Kuantan, Pahang, with an annual production capacity of 250,000 MT and the other in Lahad Datu, Sabah, with an annual production capacity of 80,000 MT. FHB also imports and repackages for sale straight fertiliser. The following table sets forth FHB’s production’in MT by fertiliser product for the periods indicated. Year Ended 31 December 2009 2010 2011 Products (in MT) Compound fertiliser  .  265,937  268,012  267,807  Mixture fertiliser  ‘”  172,102  239,117  280,381  Straight fertiliser  .  114,338  85,678  81,620
7. BUSINESS OF OUR GROUP (Cont’d) In 2011, the capacity utilisation rate for the: • Pasir Gudang, Johor facility was approximately 95%, based on the facility operating 10.5 months in a calendar year for 30 days a month and 24 hours a day;
• Kuantan, Pahang facility was approximately 95%, based on the facility operating 10.5 months in a calendar year for 26 days a month and 10 hours a day; and
• Lahad Datu, Sabah facility was approximately 95%, based on the facility operating 10.5 months in a calendar year for 26 days a month and 10 hours a day.

Maintenance FHB conducts annual maintenance of its fertiliser manufacturing facilities over a six-week period during the off-peak season from mid-October to November. FHB contracts this maintenance to third parties, except in the case of specialty equipment, which is serviced by its in-house technicians. Fertiliser raw materials Urea, ammonium sulphate, phosphate rock, muriate of potash and kieserite are the primary raw materials for fertiliser production. FHB obtains substantially all of its raw materials from outside suppliers. Cost of raw materials consumed for fertiliser production amounted to RM625.6 million, R1VI563.6 million and R1VI546.0 million for 2009, 2010 and 2011, respectively. FHB currently purchases all of its raw materials from third parties according to spot, half-yearly and yearly terms. The prices of raw materials from third parties are volatile, as they are based on local and international market prices. 7.11.3.7 Other businesses Through our associate, FHB is a producer of livestock (primarily cattle and goats) and related products (such as food products and organic fertiliser). FHB’s product lines include cattle and goats for breeding and Qurban, beef and mutton for consumption, animal feed for livestock operations and organic fertiliser produced from feedlots. FHB’s engineering, construction and services include providing solutions for: • planning, design and construction of palm oil mills, refineries and tank farms, including the training of staff and operation of such plants; and
• infrastructure and village development for settlers’ holdings.

FHB also constructs buildings, factories and mills, and performs other civil and mechanical works, primarily to support its operations as well as for third parties. I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cont’d) Since 1999, FH B has also developed residential properties and retail shops as a service to FELDA under its settlement scheme. I\lew real estate development projects being undertaken by FHB are focused on constructing houses for settlers’ dependents residing on the settlers’ holdings, for which FH B is paid project management fees. FH B estimates that approximately 1,000 houses will be built between 2012 and 2013. In addition, FHB provides travel services, including corporate, government and leisure travel as well as pilgrimage services. In Malaysia, FHB operates five plantation resorts and one hotel as at 31 March 2012. FHB markets the resorts as “eco-tourism” destinations to both the international and Malaysian markets. FHB’s resorts provide tours of the oil palm plaritation estates on the FELDA-Leased and Managed Land, organise eco-trips to national parks and other protected natural habitats and offer outdoor activities, such as caving, jungle trekking, teambuilding, sea sports and other activities. Further, FHB provides ·information technology related products and services, inclUding the sale and rental of computer hardware and software, rental of CPU time, hardware maintenance, system consultancy, computer applications systems support and maintenance, including SAP implementation, and general information technology training. FHB is also a distributor for MacroMedia products and other software packages. FHB also provides security services, printing and advertising services and the supply of chemicals and agricultural equipment to various plantations and governmental agencies. The scale of these operations is limited. In addition, FHB’s subsidiary, F Marketing, provides marketing, selling and trading services for our CPO pursuant to an agreement effective 1 April 2012. (The rest of this page has been intentionally left blank) 7. BUSINESS OF OUR GROUP (Cont’d) 7.12 JOINT VENTURE BUSINESSES -FELDA IFFCO Through 50:50 joint ventures with IFFCO Group, a mass-market consumer goods manufacturer and marketer based in the United Arab Emirates, we have: • palm oil refineries and downstream processing facilities in Malaysia, Indonesia, China, Turkey and South Africa;
• an other oils and fats facility in the United States;
• sales and marketing offices in France and Spain; and
• livestock operations through a 17% equity interest in Australian Agricultural Company, the largest cattle producing company in Australia by herd size.

7.12.1 Palm oil refineries and downstream processing facilities Felda IFFCO has two palm oil refineries in Malaysia: one in Pandamaran, Selangor and one in Pasir Gudang, Johor. Felda IFFCO also has four refineries in Indonesia, China and Turkey and two downstream processing facilities in China and South Africa. The following table sets forth the refining capacity, fractionation capacity and packed products capacity per year of Felda IFFCO’s palm oil refineries as at 31 March 2012. Fractionation Packed product Refining capacity(3) capacity(3) capacity(3) Effective (MT per year) (MT per year) (MT per year)Interest of Location FGVH CPO PKO CPO PKO
Malaysia Pandamaran, Selangor………………. 50.0% 350,000 192,500 262,500 70,000 653,100 Pasir Gudang, Johor ……………………. 37.5% 490,000 455,000 108,500 Batam, Indonesia ……….. 25.0% 525,000 525,000 87,500 Dongguari; Chlna(1)..:…… 48.5% 630,000 930,000 152,000 Izmir, Turkey……………… 50.0% 52,500(2) 82,250(2) Total …………………………. 2,047,500 192,500 2,172,500 70,000 1,083,350 Notes: (1) Dongguan, China has two plants.
(2) Capacity includes soft oils, such as palm, soy, canola and sunflower oils.
(3) Capacity figures have not been discounted to reflect joint venture interest.

The Pandamaran, Malaysia operations refine both CPO and PKO into bulk and packed products for sale to other Felda IFFCO entities and external customers. The products are sold to consumers, the food service industry and other industrial users. Substantially all of the CPO and PKO required for its operations are sourced from Felda IFFCO. In 2011, its capacity utilisation rate was approximately 85%, based on the refinery operating 12 months in a calendar year for 30 days a month and 24 hours a day. 221 I Company No.: 800165-P 7. . BUSINESS OF OUR GROUP (Cont’d) The Pasir Gudang, Malaysia operations refine CPO into bulk RBD products for sale to industrial users both in the Malaysian market and overseas markets, including Southeast Asia, the United Arab Emirates, South Africa and North America. Substantially all of the CPO required for its operations is sourced from Felda IFFCO. Previously, the operations manufactured bulk RBD products under tolling arrangements for local clients such as Sime Darby Berhad (“Sime Darby”); however, these activities have diminished folloWing Sime Darby’s installation of new capacity. In 2011, its capacity utilisation rate was approximately 84%, based on the refinery operating 12 months in a calendar year for 30 days a month and 24 hours a day. The Indonesia operations refine CPO into bulk RBD products for sale to overseas markets, including South Asia, North Africa and the Middle East. The CPO required for its operations is sourced from Tabung Haji Indo Plantation (THIP) and from other third parties within Indonesia. In 2011, its capacity utilisation rate was approximately 74%, based on the refinery operating 12 months in a calendar year for 30 days a month and 24 hours a day.. The Turkey operations refine soft oils, including canola, soy, olive and palm oils, sourced from the local market and our Malaysian operations under Felda IFFCO to produce specialty fats such as margarines for sale to the retail and food service sectors. Its operations also produce refined oils for sale to industrial customers such as processors, repackagers and traders. Its products are sold in Turkey, Africa, the Middle East and the Balkan region. In 2011, its capacity utilisation rate was approximately 58%, based on the refinery operating 12 months in a calendar year for 30 days a month and 24 hours a day. The China operations do not conduct significant refining or downstream processing activities and, accordingly, do not have meaningful capacity utilisation rates. Currently, the China operations focus mainly on refreshing or double fractionating oils on a tolling basis. In addition, the China operations produce limited amounts of specialty fats, such as margarine and shortening, in its downstream processing facility, which had 63,360 MT margarine production capacity and 79,200 MT shortening production capacity as at 31 March 2012. The operations also provide storage services to third parties in its storage tanks, which have a storage capacity of 170,000 MT, and conduct trading of bulk RBD palm olein and RBD palm stearin, which are imported from our Malaysian operations under Felda IFFCO. In addition, the South Africa operations, which are a wholly owned subsidiary of Felda IFFCO, do not conduct refining activities. The South Africa operations further process RBD products imported from the Malaysian operations of Felda IFFCO to produce specialty fats according to customer specifications. As at 31 March 2012, the South Africa operations had annual capacities of 42,000 MT of blending and deodorising, 23,520 MT of specialty fat production and 13,520 MT of packing frying oil for food service and repackager customers. These palm oil-based products are used in the industrial food products sector for the production of biscuits, ice cream, coffee creamer and bread and in the bakery sector. In 2011, its capacity utilisation rate was approximately 62%, based on the downstream processing facility operating 12 months in a calendar year for 30 days a month and 24 hours a day. 7. BUSINESS OF OUR GROUP (Cont’d) 7.12.2 Other oils and fats facility A subsidiary of our 50:50 joint venture with IFFCO Group, FI Inc, produces other oils and fats. FI Inc has operations in Cincinnati, Ohio, in the United States. Its other oils and fats facility has an annual production capacity of 90,000 MT of interesterified fats, 4,500 MT of omega-3 triglycerides, 90,000 MT of sucrose polyesters (primarily Olestra and Sefose) and 204,000 MT of biodiesel. The following is a brief description of these other oils and fats: • /nteresterified Fats: Interesterified fats are used for deep frying and the production of margarine and shortening with saturated fatty acid contents lower than competing products.
• Omega-3 Trig/ycerides: Omega-3 triglycerides are used as dietary supplements and pharmaceuticals.
• Sucrose Polyester. Sucrose. polyester is used for both consumer and industrial purposes.
• O/estra: One of our branded sucrose polyesters, Olestra is a food additive used as a substitute fat that reduces calories derived from fryi1l9 and baking snack foods to zero, leaving only calories from other ingredients.
• Sefose: One of our branded sucrose polyesters, Sefose, is an industrial additive used primarily in the manufacturing of paints and exterior deck sealants, as well as personal care products, PVC lubes, metal work lubes and resins.

 

• Biodiese/: Vegetable oil-based biodiesel can be used as fuel in standard diesel engines or as an alternative to heating oil.

FI Inc sells its Olestra and Sefose to Procter & Gamble under exclusive manufacturing contracts, and generally sells its interesterified fats to food manufacturers, omega-3 triglycerides to pharmaceutical manufacturers and biodiesel to oil companies. The raw materials for the production of other oils and fats are described below: • interesterified fats are produced from the processing of refined palm oil­based products, including fractionated RBD products, such as super olein and super stearin; • omega-3 triglycerides are produced from the processing of fish oils; • sucrose polyesters (such as Olestra and Sefose) are produced from the processing of vegetable oils, including soy oil, canola oil and cotton oil; and
• biodiesel can be produced from a variety of sources, inclUding vegetable oils.

FI Inc sources its raw materials for interesterified fats from FHB’s Malaysian operations and our Malaysian joint ventures. The raw materials required for its other products are generally sourced locally from North America. In addition, the sales of its products are primarily to the North American market. 7. BUSINESS OF OUR GROUP (Cont’d) 7.12.3 Sales and marketing offices and livestock operations Felda IFFCO also operates sales and marketing offices in France and Spain, which handle the sales and marketing of crude and refined palm oil-based products produced by Felda IFFCO’s operations for markets in West Africa, the Mediterranean and Black Sea regions and South America. Further, Felda IFFCO holds a 17% equity interest in Australian Agricultural Company, the largest beef cattle producing company in Australia by herd size. 7.13 SUPPLIERS AND CUSTOMERS The following table sets forth information about our third-party supplier, FHB, including its subsidiaries, which accounted for more than 10% of our total pro forma cost of sales in 2009, 2010 and 2011 and accounted for more than 10% of our total cost of sales for the three months ended 31 March 2011 and 2012. We believe we are not dependent on any other single third-party supplier. For a summary of the terms of the contractual arrangements between F Palm Industries and us, refer to Section 7.22 of this Prospectus. Percentage of FGVH’s Cost of Sales Year Ended 31 December Three Months Ended 31 March Supplier 2009 2010 2011 2011 2012 FHB 37.1% 15.7% 13.9% 21.1% 37.0% In our plantations business, our third-party supplier of oil palm seedlings is F Agricultural, a SUbsidiary of FHB; our third-party suppliers of rubber seedlings are Malaysian nurseries and our third-party suppliers of fertiliser (including biomass-generated fertiliser) include F Palm Industries and FPM, both subsidiaries of FHB, and Malaysian and international fertiliser companies. In our downstream business, historically, our third-party suppliers of soybeans and canola seeds generally were trading companies and other corporate sellers in Canada. Since 9 December 2011, when we entered into a tolling agreement with our joint venture, Bunge ETGO, all of the soybeans and canola seeds that we used were provided to us on a tolling basis by Bunge ETGO. Our third-party suppliers of tallow, lauric oils and vegetable oils generally are producers in North America and FHB’s subsidiary, F Marketing. In our sugar business, our third-party suppliers of raw sugar generally are producers abroad, primarily in Australia and Brazil. (The rest of this page has been intentionally left blank) 7. BUSINESS OF OUR GROUP (Cont’d) The following table sets forth information about our customer, FHB, including its subsidiaries, which contributed more than 10% of our total pro forma revenue in 2009, 2010 and 2011 and accounted for more than 10% of our total revenue for the three months ended 31 March 2011 and 2012. We believe we are not dependent on any other single customer. For a summary of the terms of the contractual arrangements between F Palm Industries and us, refer to Section 7.22 of this Prospectus. Percentage of FGVH’s Revenue Year Ended 31 December Three Months Ended 31 March —~2=-:0:-::0:-::9–2010 2011 2011 2012Customer FHB 78.6% 45.0% 43.1 % 45.9% 46.8%
In our plantations business, our customers are FHB, including its various subsidiaries and its associate, MEa, our joint ventures and third parties, such as refiners and traders in Malaysia and abroad. In our downstream business, historically, our soybean and canola product customers generally were repackers, food processors, biodiesel manufacturers and· other third parties, such as feed compounders, resellers and cooperatives, in C;:lIlada, the United States and Germany. Since 9 December 2011, when we entered into a tolling agreement with our joint venture, Bunge ETGO, all of the soybean and canola products that we produced were sold by Bunge ETGO. Our oleochemical customers generally are manufacturers in the United States and abroad. In our sLjgar business, our customers generally are retailers, distributors and industrial food manufacturers in Malaysia and abroad. In our other business, our customers are FHB and its subsidiaries. 7.14 BUSINESS INTERRUPTIONS There has not been any material interruption to our business activities during the past 12 months. 7.15 QUALITY CONTROL AND CERTIFICATIONS AND RECOGNITIONS We believe that quality control is important to the conduct of our business, and we implement strict quality control procedures at all stages of our business process to ensure that the quality of our products meets the expectations of our customers and achieves maximum customer satisfaction. We have implemented a comprehensive total quality management programme, and adhere to a strict quality control system over our entire operations, from sourcing of raw materials to processing, manufacturing, packaging, inspection of finished goods, inventory storage and distribution and sales. We always strive to source high-quality raw materials. The incoming raw materials are inspected thoroughly through various processes to ensure that they fulfil our quality standards. Throughout the production process and before the finished goods are distributed, our products must pass through various quality control inspection as per our standard operating procedures. Our quality control· programmes at our production facilities have received a variety of certifications in relation to their operations. 7.15.1 Soybean and canola crushing and refining facility Our soybean and canola crushing and refining facility has been certified with the ASI organisation, and we are seeking Safe Quality Food (SQF) and ISCC certification. 7. BUSINESS OF OUR GROUP (Cont’d) 7.15.2 Oleochemical facilities TRT US has received various certifications, including the following: • Kosher Certification for Specific Raw Materials and Finished Products from the Orthodox Union;
• Good Manufacturing Practices and Food Grade Certification from the American Institute of Baking;
• Certification for United States Pharmacopeia (USP) grade glycerin production from the United States Food & Drug Administration; and
• AOCS Analytical Fats & Oils Quality Laboratory Certification for its quality laboratory.

7.15.3 Sugar production facilities MSM has received various certifications, including the following: • certification for white refined sugars for general and industrial use from SIRIM QAS Sdn Bhd;
• Halal product certification for compliance with stringent food processes from JAKIM;
• ISO 9001 :2000 certification for compliance with quality management systems from SIRIM QAS Sdn Bhd;
• HACCP certification from the lVIinistry of Health of Malaysia; and
• Kosher product certification from the Court of The Chief Rabbi Beth Din, London.

KGFP has received various certifications, including the following: • Buatan Malaysia certification for white refined sugars for general and industrial use from SIRIM QAS Sdn Bhd;
• Halal product certification for compliance with stringent food processes from the Halallndustry Development Corporation;
• ISO 22000:2005 certification for compliance with food safety management systems from SIRIM QAS Sdn Bhd; and
• ISO 9001 :2008 certification for compliance with quality management systems from SIRIM QAS Sdn Bhd.

Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cant’d) 7.16 ENERGY, UTILITIES AND OTHER MATERIALS We require a significant amount of electricity and water for our operations, which generally are supplied by local utilities. Certain other materials, including chemicals for treatment of facility equipment, are required for the operation of our production facilities and are critical in our production processes. We typically purchase these and other products and services from outside suppliers. We also employ local contractors for the maintenance and repair of equipment in our production facilities. 7.17 OCCUPATIONAL SAFETY AND HEALTH AND ENVIRONMENTAL MATTERS We have comprehensive health, safety and environmental management policies and systems covering environmental protection and conservation, people safety, food safety, health and asset protection. 7.17.1 Occupational safety and health The occupational safety and health of our employees, as well as safety and health of our customers, are of critical importance to our company, and we are required to comply with a range of health, safety and food safety laws and regulations that are designed to protect workers, customers and consumers of our products. In order to comply with these regulations, we have developed specific operating and maintenance procedures and are required to maintain records and report data on a timely basis.. We review our health, safety and food safety standards on an ongoing basis and our operations are subject to inspections by government authorities throughout the year. Our ongoing training programmes apply to all phases of our production processes to ensure safe and hygienic conditions for our production facilities. We hold regular safety awareness meetings, and we conduct walk-through inspections to verify safety conditions and employee activities. We maintain compliance with health, safety and food safety regUlations promulgated by local and national governing bodies. The results of inspections and other compliance requirements are typically within the required specifications. We report the compliance related data on a regular basis to the local regulatory offices. Additionally, we have a management system for health, safety and environment, such as our Department of Occupational Safety and Health in our Malaysian operations, that enables us to effectively manage the minimum environment management standard that we have established that is in line with international best practices. (The rest of this page has been intentionally left blank) I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cant’d) 7.17.2 Environmental compliance 7.17.2.1 Malaysia Our cultivation of oil palms raises environmental considerations. At the oil palm plantation estates, we aim to minimise the use of pesticides by introducing more environmentally-friendly, biological methods of controlling pests and preventing diseases. We promote environmentally-friendly oil palm plantation practices and have adopted best management practices at the plantation estates to ensure sustainable oil palm cultivation. These include: • using biomass, such as EFB, as organic mulch and fertiliser for the oil palm plantation estates on the FELDA-Leased and Managed Land;
• constructing terraces on sloping land and planting leguminous cover crops to reduce soil and water runoff during early oil palm establishment;
• avoiding blanket weeding, which allows grass to grow in between the oil palm rows in order to conserve moisture; and
• adopting “zero burn” techniques during replanting, thereby allowing the biomass of old trees to rot and gradually return nutrients to the ecosystem.

We are also committed to the principles of RSPO, an international initiative to address the issue of sustainable palm oil production, and ISee, a global certification system that permits certified providers of sustainable biomass and biofuels to sell their products in Europe under the Renewable Energy Directive. As part of the RSPO, we are required to undertake certification of the various supply-chain models that we use in our business, and, depending on the model, we may be required to segregate our production between RSPO-and non-RSPO-certified raw materials or permit independent verification that our RSPO-certified input corresponds to our RSPO-certified output, among other measures. In addition, we have established RSPO test sites, and we continue to obtain RSPO certification for the plantation estates on the FELDA-Leased and Managed Land. Pursuant to ISee, we are required to undertake certification that our products were not produced from “no-go areas” (primarily areas with high biodiversity or high carbon stock), that they yield savings in greenhouse gas emissions of at least 35% and that they are part of supply-chain models that can evidence the origin, quantity and savings in greenhouse gas emissions. In order to reduce the environmental impact of oil palm plantation estates, the Government requires that an environmental impact assessment be prepared before any grant of approval to develop new oil palm plantation estates. SUbstantially all of our land suitable for cultivation of oil palms has been developed. Should we acquire new lands, we would comply with the environmental impact assessment requirements. 7. BUSINESS OF OUR GROUP (Cant’d) With respect to our 49%-owned associate FHB, air pollution and waste water effluent produced by its palm oil mills and refinery operations are monitored by the Department of Environment, the Government agency responsible for implementing and monitoring the Government’s pollution control regulations and policies, as well as by certain local government authorities. The Government has the power to take action against Malaysian companies, including FHB, for failure to comply with its environmental regulations. The Government can suspend operations, impose fines and revoke licenses and concessions. From time to time, the Department of Environment has levied small fines against FHB and suspended operations of specific facilities for limited times for exceeding permitted levels of air and water pollution. These fines have generally been levied with respect to FHB’s older palm oil mills that lack up-to-date pollution control equipment and its palm oil mills operating at peak capacity for extended periods. FHB is in the process of installing up-to-date anti­pollution control equipment in its older palm oil mills in order to meet Department of Environment gUidelines. We believe we are in material compliance with all applicable Malaysian environmental rules and regulations. However, it is possible that the Government, its environmental agency or other governmental authorities could impose additional regulations, which may require us to spend additional funds on environmental matters. 7.17.2.2 Overseas operations Our business is guided by various environmental regulations in the jurisdictions where we operate. For instance, environmental regulations in the United States are administered and enforced by multiple government and quasi-government agencies that regulate and affect many facets of manufacturing operations. The primary regulatory body in the United States is the Environmental Protection Agency, but state and local authorities may, and often do, have regulations more stringent than those of the Environmental Protection Agency. As our United States operations, TRT US, are located in Massachusetts, we are also subject to environmental regulations from the Massachusetts Department of Environmental Protection. Regulatory agencies establish and enforce limits, levels and boundaries regarding air emissions, water and wastewater discharges, solid and hazardous waste management and disposal and use of property. These limits are assigned to our facility by permit, and we are subject to reporting procedures prescribed by federal and state regulations. Regulatory bodies have the authority to take both civil and criminal actions against companies or individuals in violation of these codes. The United States federal and state governments may take actions against us, including, but not limited to, issuing warnings, sending notices of non-compliance and violation, imposing fines and penalties, revoking permits and licenses and instituting consent orders to facilitate compliance. One area of the site used in our United States operations was involved in a petrochemical spill in the late 1970s and is in the process of being remediated, while a second, small area is subject to site use limitations due to soil contamination. However, neither of these site conditions impact operations. 229 7. BUSINESS OF OUR GROUP (Cont’d) Our United States operations have developed and implemented an Environmental Management System to ensure we maintain regulatory compliance. This system helps manage required permitting, reporting, audits, inspections, training and management of operations and development activities at the facility. When an issue develops that can lead to, or has led to, a non-compliance event, we receive notice from, or we report this event to, the appropriate regulatory qgency and implement corrective measures in order to regain compliance. We believe we are in material compliance, or are working to regain compliance regarding known issues, with all applicable United States environmental laws. However, United States regulations are continuously reviewed, revised and reauthorised. In the event regulations that directly affect our operations change, additional funds to address them may be necessary to maintain compliance in the future. In addition, our Canadian operations’ environmental compliance policy covers a range of areas, including air, water and noise pollution, liquid and solid waste disposal and ecological protection. Environmental protection is one of the important criteria our Canadian operations use when selecting new technologies, plants and equipment. In addition, our Canadian operations implement environmental protection practices through the inclusion of control equipment and pollution monitoring in their plant design and an emphasis on control and pollution management procedures. Our Canadian operations’ environmental policy requires full compliance with local, provincial and federal laws and regulations in Canada concerning environmental protection and related matters. Our Canadian operations are monitored by the Ministry of Sustainable Development, Environment and Parks (Quebec) (MSDEP), which is responsible for enforcing pollution control regulations and policies in Quebec, Canada, and which has issued various environmental authorisations to our Canadian operations, including those for construction of their facilities and other installations, such as water treatment equipment. We maintain compliance with environmental regulations promulgated by municipal authorities and MSDEP. The results of inspections and other compliance requirements are typically within the required specifications, and we report monitoring data on a regular basis to MSDEP as required by MSDEP certificates of authorisation. We believe we are in material compliance with applicable environmental laws and regulations currently in effect in Quebec, Canada. (The rest of this page has been intentionally left blank) 7. BUSINESS OF OUR GROUP (Cont’d) 7.18 INSURANCE We maintain insurance policies for our equipment, machinery, motor vehicles, buildings, facilities and assets (excluding oil palms and rubber trees) and for foreign workers compensation. The insurance policies provide for the replacement cost of the assets covered, including losses from fires, earthquakes, floods, explosions, strikes, aircraft damage and malicious damage. Further, we maintain business interruption insurance, which includes losses due to fire or machinery breakdown as well as consequential and profit losses. In addition, we maintain insurance for the transportation of FFB from the plantation estates to FHB’s palm oil mills and CPO from FHB’s palm oil mills to oil tanker vehicles. While we do not insure our plantation estates against fire, disease, pests or flooding, we believe our insurance coverage is consistent with standard practices in the Malaysian plantation and refining industries. In addition, we believe our risk of loss from forest fires is reduced because the oil palm plantation estates are located in various parts of Peninsular Malaysia and Sabah and Sarawak, areas in which slash and burn practices that may lead to fires are not common. Furthermore, our oil palms are spaced 9.2 meters apart, which reduces the ability of fires to spread from tree to tree. Moreover, live oil palms have high water content and do not ignite easily. We also take other pre-cautionary steps to reduce the risks of fire, such as using firefighting equipment and watch towers on our plantation estates. We generally maintain insurance policies for our employees, including personal accident coverage and professional indemnity for our engineers. Our operations overseas carry various insurance policies to cover their business activities. For instance, our United States and Canadian operations carry insurance policies to cover their activities in their respective country of operation and abroad, including business interruption, property, automobile, flood, ocean cargo and general liability. In addition, they also carry insurance for employees, such as worker’s compensation, and board and management, such as directors and officers insurance. For the years ended 31 December 2009,2010,2011 and the three months ended 31 March 2012, we paid an aggregate of RM9.7 million, RM16.7 million, RM15.6 million and RM3.6 million, respectively, in insurance policy premiums. (The rest of this page has been intentionally left blank) 7. BUSINESS OF OUR GROUP (Cont’d) 7.19 EMPLOYEES The following table sets forth our number of employees and estate workers for the dates indicated. Three Months Ended Year Ended 31 December 31 March Job Function 2009 2010 2011 2011 2012 Employees  .  Executives  .  679  830  881  843  929  Non-executives  .  1,865  2,842  2,842  2,808  3,614  Others (daily rated workers)  __–=-=:-:-:­ 185  135  177  140  Subtotal……………………………….  2,544  3,857  3,858  3,828  4,683  Estate Workers  ..  Local estate workers  5,469  4,499  4,542  4,464  4,712  Foreign estate workers  __2_5–,,_5_53_  23,572  22,026  23,063  25,558  Subtotal  _—–“3-,,-1=-,,,0,…,.2-::-2  28,071  26,568  27,527  30,270  Total  ,~·==3=3;”.,5=6=6  31,928  30,426  31,355  34,953
As at 31 March 2012, we employed a total of 4,323 permanent staff and 360 contract staff, excluding estate workers. Permanent staffgenerally includes executives and non-executives, while contract staff generally includes others (daily rated workers) and certain executives and non-executives. Our permanent staff and contract staff were employed in the following locations as at 31 March 2012. Three Months Ended 31 March 2012 Employee Type Malaysia Indonesia United States Canada Others Permanent staff .. 4,081 3 119 117 3 Contract staff .. 356 31 3 ———:1–=:2-=-2 1184,437 3Total . ===== For our Malaysia operations, we are largely dependent on foreign estate workers, primarily from Indonesia, for our plantation business. As the standard of living in Malaysia has improved over time, we have found it increasingly difficult to hire Malaysian workers to work on the plantation estates. As at 31 March 2012, foreign estate workers constituted 73.1 % of our total workforce. Estate workers’ are employed by us directly or through third-party operators, with foreign estate workers enjoying the same benefits as local estate workers under collective bargaining agreements, excluding contributions to the EPF, Social Security Organisation and housing subsidies. Malaysian employment regulations require employers and employees to contribute to the EPF to provide for the retirement and other needs of employees. Under present regulations, employees contribute 11 % of their monthly salary to the EPF via payroll deductions. Employers are required to contribute a minimum amount equivalent to 12% to 13% of an employee’s monthly salary to the EPF. Under employment contracts and collective agreements entered into by us, we contribute up to 16% of the employees’ salaries to the EPF. As the Government does not require employers to make contributions to the EPF with respect to foreign workers, we do not make contributions to the EPF for our foreign estate workers. 7. BUSINESS OF OUR GROUP (Cont’d) Other than our contributions to the EPF, we do not maintain any other retirement, pension or severance plans or have any unfunded pension liabilities, nor do we owe any amounts to any present or former employees not in the ordinary course of business operations. Wages for estate workers are based on a basic salary and a variable component dependent· on the quantity of produce a worker harvests. A newly recruited foreign estate worker is generally permitted to work on the oil palm plantation estates on the FELDA-Leased and Managed Land for a period of at least three years, which may be extended on a yearly basis. As a result of the limited duration of their work permits, we must recruit between 5,000 and 6,000 foreign estate workers annually in order to meet the workforce requirements of the plantation estates. Approximately 1,908 employees, or approximately 40.7% of our total workforce (excluding estate workers), are unionised under six unions and subject to collective employment agreements. The largest of these unions, which comprises employee members from our palm oil operations business segment, has 1,038 employee members. We have not experienced any strike or work stoppages in the past, and have also not experienced any significant problems with employee unions. Collective employment agreements concerning unionised employees are generally re-negotiated every three years. In certain instances, negotiations over these agreements may be prolonged, and we and the unions, by mutual agreement, may request the Industrial Relations Department of the Government to play the role of mediator in these negotiations. The following table lists the six unions, of which our employees are members. Kesatuan Pekerja-Pekerja FGV Plantations Malaysia Semenanjung Kesatuan Pekerja-Pekerja FGV Plantations Malaysia Sabah Malayan Sugar Manufacturing Company Employees’ Union Kesatuan Pekerja Kilang Gula Felda Perlis Sendrian Berhad Fore River and United Transportation Union Communications, Energy and Paperworkers Union of Canada We recognise the need to retain our senior and middle management in order to ensure continuity in the achievement of our corporate objectives and the seamless implementation of our programmes and initiatives. Our key management, as profiled in “Information on our Directors, Key Management, Substantial Shareholders and Promoters”, have on average over 31 years of experience. Our Board believes that continued success depends on the support and dedication of our management personnel. A large proportion of our senior management has been enrolled by us for advanced degrees and management and other courses to continuously upgrade their management and technical knowledge and expertise. 7. BUSINESS OF OUR GROUP (Cont’d) The following table provides details of the recent training programmes attended by our employees: Skills Name ofProgramme . Job Grade Year Leadership Senior Executive Institute Felda General Manager and 2010 above
Leadership Leadership Institute Felda Managers and Senior 2010 Managers
Leadership Executive Institute Felda Executives 2010 Performance Performance Improvement Non-Performing Employees Ongoing Programme Talent Induction Programme New Employees Ongoing Engagement Talent Executive Master in Executives Ongoing Development Management Talent Cadetship in Plantation Executives Ongoing Development Management Course Talent Accountant Training Executives Ongoing Development Programme Talent Management Training Executives Ongoing Development Programme Talent Certificate in Plantation Non-Executives Ongoing Development Management Talent Certificate in Planting Industry Non-Executives Ongoing Development Management Talent Diploma in Management Managers and above Ongoing Development Talent Executive Professional Diploma Executives and Managers Ongoing Development in Human Resources Management Talent Safety Health Officer Executives and above Ongoing Development In addition, we provide our employees opportunities to participate in externally conducted training programmes, such as those relating to various aspects of our business operations, laws and regulations governing employment practice, computer software skills and knowledge, work safety and inventory control best practices. We believe that our wages and benefits are generally in accordance with market practices and our relationships with our employees are generally good. (The rest of this page has been intentionally left blank) 234
I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cant’d) 7.20 TECHNOLOGY AND INTELLECTUAL PROPERTY Save as disclosed below, as at Latest Practicable Date, we do not have any brand names, patents, trademarks, technical assistance agreements, franchises and other intellectual property rights. 7.20.1 Trademarks We use a number of trademarks, trade names in connection with our business. Several of our Subsidiaries market their products using a number of registered brand names and trade names:­Registered trademarks
235
I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cont’d)
236
7. BUSINESS OF OUR GROUP (Cont’d) 7.20.2 Patents and other intellectual property We are not dependent on any patents or other intellectual property for the operation of our business operations. . 7.20.3 Dependency on licenses, trademarks, patents and other intellectual property Save as disclosed in Section 10 of this Prospectus, our Group is not dependent on any other major licences, permits, registrations and other intellectual property rights for our business operations. 7.21 GOVERNING LAWS AND REGULATIONS 7.21.1 Ministry of Plantation Industries and Commodities The Ministry of Plantation Industries and Commodities is responsible for the development of the primary commodity sector of the economy, which amongst others, includes palm oil. The Ministry of Plantation Industries and Commodities is empowered to make regulations for the palm oil industry of Malaysia. 7.21.2 Governing Laws and Regulations Relating to Palm Oil Industry The cultivation, movement, sale, purchase and milling of the palm fruit as well as the sale, movement and purchase of palm oil and PK in Malaysia are governed by the following legislations: (i) Malaysian Palm Oil Board Act, 1998 (UMPOB Act”) MPOB Act empowers MPOB to govern and regulate every aspect of palm oil business. The MPOB Act emphasises on the composition and the powers of the MPOB. The establishment of the IV1POB is to promote and develop the oil palm industry of Malaysia and to develop national objectives, policies and priorities for the orderly development and administration of the oil palm industry of Malaysia. Furthermore, the MPOB is also responsible for regulating, registering and coordinating all activities relating to planting, production, harvesting, extraction, processing, storage, transportation, use, consumption and marketing of oil palm and its products. Hence, our Group has a duty to work hand in hand with the MPOB to ensure the objective can be achieved and will benefit the country. Our Group will have to comply with regulations passed by the MPOB, where applicable. (ii) Palm Oi/lndustry (Licensing) Regulations, 2005 Pursuant to the Section 78 of the MPOB Act, the Palm Oil Industry (Licensing) Regulations regulate the palm oil licensed activities. These regulations prescribe the procedures and the relevant forms for applications for licences to produce, sell, store, purchase, export or import of oil palm planting material, oil palm fruit, PK and other palm oil produce. As our Group’s main business revolves around palm oil plantation, these regulations must be adhered to ensure smooth and legitimate operations whether in producing or manufacturing palm products. Our Group’s obligation is to monitor all existing licences and apply for renewal if necessary. 7. BUSINESS OF OUR GROUP (Cant’d) (iii) MPOB (Quality) Regulations, 2005 The purpose of MPOB (Quality) Regulations is to control and determine the quality of all activities in the palm oil industry. This includes, inter alia, production and management of palm oil planting material; grading and milling of oil palm fruit; and processing, handling, storage, transportation of oil palm products. Quality declarations for the export, import and internal trade of palm oil products shall be made to the MPOB in order to determine whether such product conform to the type and quality of palm oil products that may be sold, exported and imported or to those specified in the contract for sale relating to such product. Furthermore, the MPOB may set conditions on the sale of palm oil products. Our Group shall refer to the guidelines stated in the MPOB (Quality) Regulations to ensure the quality of the palm oil product. (iv) MPOB (Registration of Contracts) Regulations, 2005
The diverse nature of our Group’s business in palm oil plantation involves a lot of highly dependent contracts to maintain a sustainable business model. The MPOB (Registration of Contracts) RegUlations provide for the registration of contracts in relation to the sale and purchase of oil palm products and the details of such contracts (other than contracts for palm oleochemicals which need not be registered but not including international contracts for export of palm oleochemicals). It is a requirement to ensure such contracts are specifically tailored for palm oil business. The MPOB must be informed of such contracts based on the procedures laid out under these regUlations.
(v) IVIPOB (Compounding of Offences) Regulations, 2005
Under the MPOB (Compounding of Offences) Regulations, all offences committed under the IVIPOB Act and regulations enacted under the MPOB Act that are specified in this regulation, may be compounded by the Director-General of the MPOB. Due to the complexity of process and nature of the palm oil business, it is important for our Group to distinguish the act or conduct which amounts to an offence.
(vi) Industrial Co-ordination Act, 1975

Under the Industrial Co..,ordination Act, 1975 and the Industrial Co-ordination (Exemption) Order, 1976, a licence is required for any manufacturing activity with shareholders’ funds of RM2.5 million and above and/or manufacturing activity employing 75 or more full-time paid employees. A licence will have to be obtained for the manufacture of specified products at each separate manufacturing site. Licences are typically issued in accordance with national economic and social objectives and to promote the orderly development of manufacturing activities in Malaysia. They are issued by the IVIITI, subject to conditions of the licence and are non-transferable save with the prior approval of MIT!. 238
7. BUSINESS OF OUR GROUP (Cont’d) (vii) Control of Supplies Act, 1961 This Act governs the law on controlled article in Malaysia. Cooking oil, fertiliser and sugar are products that have been gazetted as controlled article in Malaysia. Pursuant to the Control of Supplies Regulations 1974, a licence is required for any person to deal, by wholesale or retail, in any scheduled article (which includes a controlled article as defined in this Act and is specified in Part 1 of the Schedule) or to manufacture any scheduled article. The Controller of Supplies has the authority in enforcing the rules and regulations as provided in this Act. As our Group’s main business revolves around the palm oil business, this will prevent any misuse or speculation on the controlled article and prevent black market operations with regards to palm oil industry. (viii) Price Control and Anti Profiteering Act, 2011 (the “PCAPA”) The PCAPA replaced the Price Control Act, 1946 (“PCA”) and came into force on 1 April 2011. The PCAPA provides for the control of prices of goods whereby the Ministry of Domestic Trade, Cooperative and Consumerism (“MDTCC”) may, among other things, determine the maximum, minimum or fixed prices for the manufacturing, producing, wholesaling or retailing of goods. In addition, the Price Advisory Council shall advise the Minister of MDTCC on issues relating to profiteering and the Minister of MDTCC shall prescribe the mechanism to determine whether profit is unreasonably high. The Price Controller is empowered to investigate and enforce the provisions of the PCAPA including any person making unreasonably high profits by selling, supplying or offering to sell or supply goods. 7.21.3 Other relevant Malaysian legislation (i) Factories and Machinery Act, 1967 (“FMA”) The FMA governs the occupational safety, health and welfare of persons working in a factory. The FMA also governs the registration and inspection of the machines used in a factory. The FMA and the regulations enacted under it is the cornerstone legislation for occupational, safety and health improvement in the manufacturing industry, mining, quarrying and construction industries, apart from the general duties to employees under the Occupational Safety and Health Act 1994. Under the FMA, our Group has a duty to maintain the standards of safety, health and welfare of our factories and our factory workers. In addition, our Group must ensure that the machineries used are in good condition and must be registered. (ii) Occupational Safety and Health Act, 1994 (“OSHA”) Under the OSHA, we have a general duty to our employees to provide and maintain the plants and systems of work that are, so far as is practicable, safe and without risks to health, provide information, instruction, training and supervision to ensure, so far as is practicable, the safety and health of our employees at work, and to provide a working environment, which is as far as possible safe, without risks to health, and adequate as regards facilities for their welfare at work. We also have a duty to ensure, so far as is practicable, that other persons, not being our employees, who may be affected thereby are not thereby exposed to risks to their safety or health. 239 I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cant’d) As we employ more than 100 employees, we are obliged under the OSHA to employ a safety and health officer, who is tasked with ensuring the due observance of the statutory obligations as regards to workplace health and safety and the promotion of a safe conduct of work at the place work. We have also set up a health and safety committee, which we consult in promoting and developing measure to ensure the safety and health at the place of work of the employees, and in checking the effectiveness of such measures. (iii) Environmental Quality Act, 1974 The Environmental Quality Act, 1974 restricts pollution of the atmosphere, noise pollution, pollution of the soil, pollution of inland waters without a licence, prohibits the discharge of oil into Malaysian waters without licence, discharge of wastes into Malaysian waters without a licence, and prohibits open burning. The agency responsible for implementing and monitoring Malaysian’s environmental regulations and policies is the Malaysian Department of Environment and the local environmental authority. (iv) Employment Act, 1955 The Employment Act, 1955 governs the law on the employment contracts entered into between employer and employee in Peninsular Malaysia and Federal Territory of Labuan, Malaysia. Our Group employs a vast amount of workers in management as well as at operational level. Furthermore, our Group’s business is highly dependent on foreign labour and contractors in maintaining an efficient operation. As such, the Employment Act, 1955 is important as it stipulates the laws on foreign workers and contractors. 7.21.4 Relevant foreign legislations (i) The Food and Drugs Act (Canada) . The Food and Drugs Act is the primary federal legislation governing the safety and nutritional quality of food sold in Canada. The Food and Drugs Act and its regulations govern, among other issues, food labelling and advertising, food standards, packaging material and pesticides. The objective is to protect the public against health hazards and fraud from the sale of food. The Canadian Food Inspection Agency is responsible for enforcing the food safety rules in the Food and Drugs Act and has broad powers of inspection. Most importantly, the Food and Drugs Act prohibits selling food that is unfit for human consumption or was manufactured or stored under unsanitary conditions. It also prohibits labelling or advertising food in a manner that is false, misleading or deceptive. Food may not be adulterated by pest control products exceeding a specified maximum residue limit. l\Ionetheless, there are no specific labelling requirements that apply since we understand that TRT-ETGO Inc does not sell pre­packaged products, meaning products contained in a package in the manner in which it is ordinarily sold to consumer. Furthermore, the regulations to the Food and Drugs Act do not prescribe any specific standard for the manufacture of edible oils and meals. 7. BUSINESS OF OUR GROUP (Cont’d) (ii) The Federal Food, Drug, and Cosmetic Act (USA) Some of the fatty acids produced by our Group are used as ingredients in various types of products regulated by the United States Food and Drug Administration (“FDA”), including food, cosmetics and soaps. The ingredients of an FDA­regulated product are generally sUbject to similar regulatory requirements as are applicable to the final product As a component of food, a “food additive” must, (i) receive pre-market approval by the Food and Drug Administration; or (ii) be determined by the FDA to be “generally recognised as safe” among experts qualified by scientific training and experience to evaluate its safety under the conditions of its intended use, or (iii) be expressly excluded from the food additive definition set forth in the Federal Food, Drug, and Cosmetic Act. Accordingly, the food additive products must come within one of the three categories in order to be lawfully sold in the United States. Food additives must also be manufactured in compliance with current good manufacturing practise (“CGMP”) requirements set forth in governing regulations. The CGMP regulations set forth requirements affecting personnel, buildings and facilities, equipment, production and process controls, storage, and distribution. If a food additive is not manufactured in compliance with CGMP, the FDCA prohibits its sale or distribution in interstate commerce. Manufacturers who violate these rules may be subject to enforcement actions, including seizure of the violative product, injunctions prohibiting or limiting their manufacturing activities, and civil and criminal penalties and fines. Food additive products are also supject to certain FDA labelling and packaging requirements, food facility registration, restrictions on advertising and promotional labelling, and recordkeeping requirements to ensure that the food additives are safe for consumption and not otherwise adulterated or misbranded. Cosmetics are not SUbject to CGMP requirements by law. The FDA considers a soap product that carries a medical claim, such as dandruff relief, to be a drug, and therefore subject to CGIVIP regUlations, drug labeling requirements, and pre-market approval, which involves the submission of clinical data demonstrating the product is safe and effective for its intended use. (The rest of this page has been intentionally left blank) I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cant’d) 7.22 DEPENDENCY ON COMMERCIAL CONTRACTS The following contracts and arrangements, being contracts and arrangements within the ordinary course of business, are those which our Group is highly dependent on and are material to our Group’s business or profitability: 7.22.1 FGVH (i) Agreement to lease dated 1 November 2011 made between FELDA and FGVH for the lease of lands owned by FELDA and supplemented by an addendum dated 2 January 2012 and as implemented by the tenancy agreement dated 6 January 2012 between FELDA and FGV Plantations Malaysia and the tenancy agreement dated 21 January 2012 between FELDA and FGV Plantations Malaysia (refer to Section 7.22.2 of this Prospectus for further details on the tenancy agreements). FELDA has agreed to lease to FGVH lands with individual land titles issued to FELDA as the registered owner (“Existing Lands”) and existing lands granted to FELDA for development but where individual titles have not been issued to FELDA (“Additional Existing Lands”), as well as other lands to be alienated or to be acquired by FELDA in the future (“Future Lands”) (collectively known as “Lands”) and FGVH has agreed to accept the lease of the Lands from FELDA in consideration of an annual fixed lease amount and 15% of the plantations operating profit of FGVH derived from the Lands for the relevant financial year, which is calculated in accordance with the terms of the Land Lease Agreement. The annual fixed lease amount is subject to review once every 20 years at· FELDA’s request to adjust the lease amount to reflect then-prevailing State land premiums. Calculating amounts payable in respect of the 15% of the plantations operating profit of FGVH is based on revenue from commercial agricultural activities that FGVH undertakes on the Lands, minus certain related operating costs, including costs of sales, replanting costs, depreciation expenses, certain infrastructure costs, a specified profit levy and estate management costs. In the case of agricultural output that FGVH uses internally and does not sell to a third party, revenue for purposes of calculating plantations operating profit includes the amount of revenue that FGVH would have generated if it had sold that output to a third party. For FFB that FGVH uses internally, the amount of revenue is equal to the product of the amount of FFB harvested, mUltiplied by the average FFB price, with the average FFB price equal to the value of CPO and PK extracted from the FFB, minus a milling charge. Through the implementation of the tenancy agreements and the addendum, FELDA has agreed to lease to FGVH a total of approximately 347,584 hectares of Lands, comprising approximately 261,291 hectares of Existing Lands and approximately 86,293 hectares of Additional EXisting Lands. FGVH is required to pay consideration of RM248,481,321.81 per annum, together with 15% of FGVH’s yearly plantations operating profit attributable to the Lands. The term of lease for the Lands is 99 years from 1 January 2012 (“Term”), subject to (a) FELDA undertaking all necessary endeavours to obtain an extension to the leasehold period on the titles to the Lands on a best effort basis, and FGVH assisting FELDA in applying for the said extension, in the event that the remainder of the leasehold period is less than the Term; and (b) in the event FELDA is unable to obtain an extension to the leasehold period, the Term shall be the remaining leasehold period of the Lands as appearing on the titles. 7. BUSINESS OF OUR GROUP (Cont’d) As for the Additional Existing Lands, FELDA shall grant to FGVH either an assignment of development rights or a tenancy exempt from registration of three years commencing from 1 January 2012, with automatic renewals for further terms of three years each, whichever is permissible under the law. In respect of the Existing Lands which require the consent by the relevant State Authorities for the Lease to be granted to FGVH (“Approval”), FELDA shall grant to FGVH a tenancy exempt from registration of three years commencing from 1 January 2012, with automatic renewals of further terms of three years each. As and when the Approval is obtained, such tenancy will be converted to the Lease for the Term commencing from the date the Lease is created after receipt of Approval. The Lands shall only be used by FGVH for commercial agriculture, cultivation of any plant or fungi, raising of animal for purpose of selling such animals or products derived from them, beekeeping, horticultural purposes, aquaculture, conduct processes related to agricultural activities undertaken (e.g. milling) or related by­products or waste (e.g. biomass). In addition to the above, FELDA may also terminate the lease in respect of all or part or parts of the Lands by giving a prior written notice of six months for any portion of the Lands where the aggregate size is less than 10,000 hectares, and prior written notice of 18 months for any portion of the Lands where the aggregate size is 10,000 hectares or more. FELDA is obligated to compensate us based on the calculation of average profit per mature hectare per year for the entire Lands for the latest year in which our audited financial statements are available multiplied by the aggregate size of all of the Lands specified in the notice to terminate mUltiplied by the loss of our expected future profit. We shall be compensated for the loss of (a) ten years of expected future profits if the termination occurs less than eight years from the date such Lands were most recently replanted; or (b) five years of expected future profits if termination occurs eight years or more from the date such Lands were most recently replanted. Pursuant to the Land Lease Agreement, FGVH has sole and absolute control over existing and future crops and vegetation and shall be entitled to make all decisions as to replanting and shall have all rights and responsibilities to maintain and construct the infrastructure on the Lands. The Land Lease Agreement may be terminated on the occurrence of any of the following events, namely (a) land acquisition by the State or Federal Government under the Land Acquisition Act, 1960 or any land reclamation by the State or Federal Government under any legislation; and (b) any unwarranted termination on parcels of lands by FELDA. In the event (a) above occurs, FELDA shall give notice to FGVH within 10 days of receiving the notice from the relevant authorities and compensate FGVH on the replanting and upkeep cost for Lands where crops are planted but have not matured. For mature hectarage, FELDA shall compensate FGVH on loss of three years’ expected future profits if it receives compensation from the relevant authorities. In the event (b) above occurs, FELDA shall give FGVH six months’ notice where the area is below 10,000 hectares and 18 months’ notice where the area is above 10,000 hectares and compensation. FELDA shall also be under obligation to take over FGVH’s plantations staff on termination of the Lease. In the event FGVH fails to pay any Lease Consideration or interest accrued thereon 36 months after due date, such failure shall result in the automatic termination of the Land Lease Agreement. In the event FGVH breaches any of its obligations and fails to rectify after 90 days from the date of notice from FELDA, FELDA may either choose to terminate by giving 60 days notice or require FGVH to pay an amount equivalent to the Lease amount pro-rated in respect of such part or parts of the Lands affected by breach on the part of FGVH. Upon receipt of the payments, FELDA shall allow the lease arrangement to continue for the remainder of the Term. In the event of any unwarranted termination on parcels of lands by FGVH, FGVH shall give six months notice if the area is below 10,000 hectares and 18 months notice if the area is above 10,000 hectares and compensation 243 I Company No.: 800165-P 7. BUSINESS OF OUR GROUP (Cont’d) equivalent to one year Lease Amount pro-rated based on the size of the lands in question. FGVH shall also settle all outstanding payments of the Lease Consideration by the Termination Date. FELDA shall be entitled to require FGVH to remove from the Lands any fixtures on the Lands and to make good any damage caused by such removal. Pursuant to the Land Lease Agreement, if FGVH continues to occupy the lands after the expiry of the lease or after the lease is terminated, FGVH shall pay FELDA double the amount of the Lease Amount for each and every month during the holding-over period. As part of its restructuring process, FELDA, FGVH and FGV Plantations Malaysia had, on 6 January 2012, entered into a Novation Agreement whereby all benefits, rights, title, interest, obligations, undertakings, covenants and liabilities of FGVH under the Land Lease Agreement shall be transferred by FGVH to FGV Plantations Malaysia from 1 January 2012 and FELDA has consented to the transfer of all of FGVH’s benefits, rights, title, interest, obligations, undertakings, covenants and liabilities to FGV Plantations Malaysia subject to the terms and conditions of the Novation Agreement. For details of the lands under the Land Lease Agreement, refer to Section 11.2 of this Prospectus. 7.22.2 FGV Plantations Malaysia (i) Tenancy agreement dated 6 January 2012 between FELDA and FGV Plantations Malaysia pursuant to Clause 2.12 of the Land Lease Agreement in respect of the implementation of the Land Lease Agreement whereby FELDA agreed to grant tenancy and FGV Plantations Malaysia agreed to accept tenancy of (a) all lands listed in Exhibit 1 of the Tenancy Agreement dated 6 January 2012 for which individual land titles have been issued to FELDA but pending Approvals from the relevant authorities (“Remaining EXisting Lands”); and (b) all lands listed in Exhibit 2 of the Tenancy Agreement dated 6 January 2012 for which the State Authority has granted FELDA the right to develop but individual land titles have not been issued to FELDA (“Additional EXisting Lands”) (the Remaining EXisting Lands and Additional EXisting Lands shall collectively be referred to as “Lands”), both together measuring 336,009 hectares. This tenancy shall commence on 1 January 2012 (“Commencement Date”) and shall be for an initial period of three years (“Initial Term”). Upon expiry of the Initial Term, FGV Plantations Malaysia shall have the option to renew the tenancy for further terms of three years each up to a total duration of 99 years (“Renewal Terms”) unless terminated in accordance with the provisions of the Land Lease Agreement (Initial Term and Renewal Terms shall be collectively referred to as “Term”). The option to renew shall be exercisable by written notice, or by conduct of the parties allowing continued enjoyment of rights of the Lands by FGV Plantations Malaysia under the agreement. In the event that the Approvals for any part of the Lands are obtained from time to time or individual land titles are issued by the state authorities for any part of the Additional Existing Lands and the Approvals are obtained (“Approved Lands”), the parties will proceed to register the lease in accordance with Clause 2.9 of the Land Lease Agreement, and thereafter the Approved Lands shall be excluded from this agreement and the tenancy therein and shall fall under the lease in the Land Lease Agreement. 7. BUSINESS OF OUR GROUP (Cant’d) FGV Plantations Malaysia shall pay to FELDA an agreed consideration which reflects the Lease Consideration in accordance with the Land Lease Agreement. On 21 May 2012, the Tenancy Agreement dated 6 January 2012 was supplemented by an addendum, whereby both FELDA and FGV Plantations Malaysia acknowledged that as at 1 January 2012, FGV Plantations Malaysia has yet to be deemed or recognised as native in respect of 8,280 hectares of all the lands in Sarawak (“Sarawak Lands”) pursuant to the Land Code (Cap 81) of Sarawak. Both FELDA and FGV Plantations Malaysia agree to exclude all the Sarawak Lands from the Tenancy Agreement and the Land Lease Agreement. Both FELDA and FGV Plantations Malaysia agree that no lease consideration shall be deemed payable in respect of these Sarawak Lands for the tenancy for the period commencing from 1 January 2012 until FGV Plantations Malaysia has dUly obtained the status of native pursuant to the Land Code (Cap 81) of Sarawak, all Approvals have been obtained and upon registration of the lease in accordance with the Land Code (Cap 81) of Sarawak. Upon fulfilment of the aforementioned conditions, the Sarawak Lands will be included as part of the Remaining Existing Lands and the terms of the Land Lease Agreement shall be applicable in respect thereof. (ii) Tenancy agreement dated 21 January 2012 between FELDA and FGV Plantations Malaysia pursuant to Clause 2.12 of the Land Lease Agreement in respect of the implementation of the Land Lease Agreement whereby FELDA agreed to grant tenancy and FGV Plantations Malaysia agreed to accept a tenancy of certain plantation lands measuring 19,854 hectares which are vested in FELDA, which the parties have decided to segregate the tenancies of these lands as set out in the tenancy agreement (“Plantation Lands”). This tenancy shall commence on 1 January 2012 and shall be for an initial period of three years (“Initial Term TA2”). Upon expiry of the Initial Term TA2, FGV Plantations Malaysia shall have the option to renew the tenancy for further terms of three years each up to a total duration of 99 years unless terminated in accordance with the provisions of the Land Lease Agreement. The option to renew shall be exercisable by written notice, or by conduct of the parties allowing continued enjoyment of rights of the Lands by FGV Plantations Malaysia under the agreement. FGV Plantations Malaysia shall pay to FELDA an agreed consideration which reflects the Lease Consideration in accordance with the Land Lease Agreement. Notwithstanding the default provisions and rights to terminate under the Land Lease Agreement, FELDA has the right to terminate the tenancy by providing 30 days’ notice to FGV Plantations Malaysia in the event that FELDA loses possession of or right to use or any part of the Lands in favour of any third party for any reason whatsoever (“Excluded Lands”). Save and except for the special right to terminate by FELDA as set out above, all other events of defaults or rights to terminate under the Land Lease Agreement is applicable to this Tenancy Agreement. (The rest of this page has been intentionally left blank) I. Company No.: 800165-P I 7. BUSINESS OF OUR GROUP (Cont’d) (iii) Supply and delivery agreement dated 22 February 2012 between FGV Plantations Malaysia and F Palm Industries for the sale of FFB produced by FGV Plantations lVIalaysia on the FELDA-Leased and Managed Land to F Palm Industries and the purchase of CPO produced by F Palm Industries at their Mills (as defined in this agreement) that is not purchased by DOP for its own business and consumption, which is currently approximately 21,000 MT of CPO per month, by FGV Plantations Malaysia. In respect of the sale of FFB, F Palm Industries shall pay FGV Plantations Malaysia a price based on a formula comprising the relevant extraction rates of FFB Milling Products and the price of the FFB Milling Products, minus the processing charges and other related costs. Prices for the FFB Milling Products will be based on MPOB’s prices for Peninsular Malaysia or Sabah and Sarawak. In respect of the sale of CPO, FGV Plantations Malaysia shall pay F Palm Industries a price based on MPOB’s CPO price for Peninsular Malaysia or Sabah and Sarawak. The agreement is valid for a period of 99 years, commencing from 1 March 2012 (“Effective Date”) to 28 February 2111, or such other period that the parties may mutually agree in writing, unless otherwise terminated in accordance with the terms thereof. The parties acknowledge that F Palm Industries shall continue to source and purchase FFB from third parties to fulfill its requirements and to maximise the utilisation factor of its Mills, at its own costs, risk and expense and F Palm Industries agrees and undertakes to indemnify and keep FGV Plantations Malaysia harmless against any liabilities, costs, damages, disputes, demands, claims, compensations or litigations in any form whatsoever in relation to F Palm Industries’ purchase of all FFB from third parties at any time, including those prior to the Effective Date. FGV Plantations Malaysia or F Palm Industries may terminate the agreement at any time without assigning any reason whatsoever, in respect of, (a) one and up to three Mills, by giving six months’ prior written notice to the other party; and (b) more than three Mills, by giving 24 months’ prior written notice to the other party. For further details regarding the historical FFB sources used by F Palm Industries, including those from the FELDA-Leased and Managed Land to which this contract would apply and the CPO production and extraction rates, refer to sections 7.11.1.3 and 7.11.1.1 of this Prospectus, respectively. 7.22.3 MSM (i) MSM had on 29 September 2011 entered into a lease agreement with Perbadanan Aset Keretapi whereby the Perbadanan Aset Keretapi has agreed to grant to the MSM and MSM has agreed to accept a lease for a total land area of 763,553 square feet located entirely on HSD 28137 Lot 287 and HSD 28162, Lot 286 both at Bandar Prai Daerah Seberang Perai Tengah, Pulau Pinang at the rental rates of RMO.18 per square foot for the period commencing from 1 December 1994 to 30 November 2009 and RMO.27 per square foot for the period commencing from 1 December 2009 to 30 November 2024, The agreement is valid for a lease period of 30 years commencing from 1 December 1994 to 30 November 2024, 7. BUSINESS OF OUR GROUP (Cant’d) (ii) Agreement dated 10 May 2012 for the supply of raw sugar between the Government, as represented by MITr, MSM, Central Sugars Refinery Sdn Bhd, Gula Padang Terap Sdn Bhd and Queensland Sugar Limited, whereby Queensland Sugar Limited has agreed to supply the specified amounts of raw sugar to MSM, Central Sugars Refinery Sdn Bhd and Gula Padang Terap Sdn Bhd and MSM, Central Sugars Refinery Sdn Bhd and Gula Padang Terap Sdn Bhd have agreed to purchase the raw sugar at the stated consideration. The agreement is valid for a. period of three years commencing from 1 January 2012 to 31 December 2014, unless otherwise terminated in accordance with the terms thereof. (iii) Agreement dated 10 May 2012 for the supply of raw sugar between the Government, as represented by Mill MSM, Central Sugar Refinery Sdn Bhd, Gula Padang Terap Sdn Bhd, KGFP and Cargill International SA, whereby Cargill International SA has agreed to supply the specified amounts of raw sugar to MSM, Central Sugar Refinery Sdn Bhd, Gula Padang Terap Sdn Bhd and KGFP and MSM, Central Sugar Refinery Sdn Bhd, Gula Padang Terap Sdn Bhd and KGFP have agreed to purchase the raw sL1gar at the stated consideration. The agreement is valid for a period of three years commencing from 1 January 2012 to 31 December 2014, unless otherwise terminated in accordance with the terms thereof. 7.22.4 KGFP Agreement dated 10 May 2012 for the supply of raw sugar between the Government, as represented by MITI, MSM, Central Sugar Refinery Sdn Bhd, Gula Padang Terap Sdn Bhd, KGFP and Cargill International SA as referred to in Section 7.22.3(iii) above. 7.22.5 TRT-ETGO Inc Tolling Agreement dated 9 December 2011 between Bunge ETGO and TRT-ETGO Inc, whereby TRT-ETGO Inc has agreed to crush canola seeds and soybeans into meals, hulls and crude oil, to degum crude oil, to refine and bleach crude oil, and to refine, bleach and deodorise crude oil for Bunge ETGO at the canola and soybean crushing plant and oil refinery owned by TRT-ETGO Inc. Bunge ETGO shall supply canola seeds and soybeans to TRT-ETGO Inc. TRT-ETGO Inc shall perform certain upgrades to the TRT facility in order to be able to achieve the agreed benchmarks. Until achievement of the benchmarks, Bunge ETGO shall pay to TRT-ETGO Inc fixed and variable fees for each MT of crushed raw materials, degummed oil and refined and bleached crude oil (subject to a minimum of 60,000 MT per year of refined and bleached oil) and 80% of certain applicable transportation costs incurred by TRT-ETGO Inc. After achievement of the benchmarks, Bunge ETGO shall pay to TRT-ETGO Inc a monthly fixed fee (irrespective of the quantity of product produced) to be determined, a variable fee per MT of crushed raw materials, degummed oil, refined and bleached crude oil and refined, bleached and deodorised crude oil, and 80% of certain applicable transportation costs incurred by TRT-ETGO Inc. TRT­ETGO Inc shall crush canola seeds and soybeans into meals, hulls and crude oil, degum crude oil, refine and bleach crude oil, and refine, bleach and deodorise crude oil exclusively for Bunge ETGO. The agreement shall commence on 9 December 2011 and shall terminate upon the termination of Bunge ETGO, a limited partnership formed between TRT-ETGO Inc and Bunge Ventures Canada L.P. as the limited partners, and Bunge ETGO G.P. Inc as the general partner. Although the term of the limited partnership is indefinite, either party to the joint venture may terminate it as of 9 December 2014.

 

 

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