QL RESOURCES BERHAD INTEGRATED ANNUAL REPORT 2023 Feature Saujana Ballroom, Saujana Resort, Jalan Lapangan Terbang SAAS, 40150 Shah Alam, Selangor Darul Ehsan Wednesday, 30 August 2023 10:00 a.m. 26th Annual General Meeting Cover Rationale QL achieved satisfactory results with strong profit growth in business divisions. Meanwhile, we continued to optimise our business model to accelerate business development and to sustain solid growth. As a result, we enhanced the enterprise value of QL in 2023. During the year, we increased the Group’s revenue, implemented effective cost control and improved capital structure. Taking these measures, we expanded our business portfolio, further consolidated our leading position in the industry, and strengthened our profitability to enhance shareholder returns and to maximise enterprise value. What’s Inside SECTION To be the preferred global agro-based enterprise. Create nourishing products from agro resources, leading to benefit for all parties. About This Report Management Discussion And Analysis Sustainability Statement Financial Statements Chairman’s Statement QL At A Glance Leadership & Governance Appendices VISION MISSION OUR CORE VALUES Personality • Progressive • Trustworthy • Initiative • Humility Values • Integrity • Win-Win • Teamwork • Innovative Page 2 Pages 8 - 11 Pages 28 - 76 Pages 112 - 228 Pages 3 - 7 Pages 12 - 27 Pages 77 - 111 Pages 229 - 246 1 2 3 4 6 7 8 5 2 About This Report 3 Principal Activities 4 2023 Key Highlights 6 Our Presence 8 Chairman’s Statement 28 Overview & FY2023 Sustainability Highlights 32 Stakeholder Engagement 33 Materiality Assessment 36 Environmental Responsibility 43 Social Responsibility 66 Governance Responsiblity 77 Corporate Information 78 Profile of Board of Directors 93 Key Senior Management 94 Corporate Governance Overview Statement 103 Audit Committee Report 106 Statement on Risk Management and Internal Control 110 Additional Compliance Information 111 Statement of Directors’ Responsibility 229 List of Properties 231 Shareholders’ Analysis Report 234 Disclosure on Recurrent Related Party Transactions 238 Notice of Annual General Meeting Form of Proxy 113 Directors’ Report 119 Statements of Financial Position 121 Statements of Profit or Loss and Other Comprehensive Income 122 Consolidated Statement of Changes in Equity 124 Statement of Changes in Equity 125 Statements of Cash Flows 129 Notes to the Financial Statements 223 Statement by Directors 224 Statutory Declaration 225 Independent Auditors’ Report 8 7 6 5 1 2 3 12 Group Managing Director’s Review 14 Strategy 16 Value Creation Business Model 18 Business Review 26 Group Outlook 4 Navigation Icon CAPITALS OUR GROWTH STRATEGY STAKEHOLDERS Regional Replication Downstream Integration Enhance Branding & Product Innovation Financial FC Social SC Human HC Intellectual IC Manufactured MC Natural NC Strengthening Value Chain Sustainably Enhancing Performance Empowering Talents Integrating Technology Customers Vendors and suppliers Community Regulators and NGOs Employees Investors and shareholders Media
Marine Products Manufacturing (MPM) About This Report Principal Activities QL Resources Berhad (QL) developed this Integrated Annual Report for the financial year ended 31 March 2023 (FY2023) to meet stakeholders’ disclosure requirements and provide insights into the company’s value creation process. We recognise the importance of consistent and effective stakeholder engagement in a transparent manner towards strengthening and retaining trust. This report details the company’s value creation process, demonstrating how we generate and share value while minimising erosion. This report is the outcome of QL’s reporting approach as governed by the Board. QL produces nutritious sources of protein from agro resources to feed a growing population. This is done through a scalable and resource-efficient value chain that is sustainable both operationally and economically. Our operations in Malaysia, Indonesia, and Vietnam are internationally certified, allowing us to market our products globally, as well as cater to local consumers. Our value chains are streamlined into four complementary business pillars, which are characterised by interconnectedness and synergy. Reporting Scope and Boundaries Forward-Looking Statements This Integrated Annual Report contains forwardlooking statements, which by their very nature are subject to change. This includes projections made about the future at the material time of preparing this report, which could significantly change due to dynamic emergence of new risks and similar factors. These statements should not be taken as guarantees or predictions of QL’s future performance. Readers of this report are urged not to place undue reliance on forward-looking statements and the assertions made as actual outcomes and performance may differ from those expressed in this report. Material Matters Reporting Philosophy and Principles The report includes essential information on QL’s strategy for generating value in the short, medium, and long term, as well as its business model, operating environment, risks, opportunities, stakeholder concerns, performance, and prospects. It presents QL’s past, present, and anticipated performance in a coherent manner to illustrate the company’s operating environment and execution of strategy. QL’s financial statements are prepared in accordance to the Malaysian Financial Reporting Standards (MFRS) and are independently audited. Reporting Framework and Guidance • Main Market Listing Requirements of Bursa Malaysia Securities Berhad • Malaysian Code on Corporate Governance 2021 • International Integrated Reporting Council International <IR> Framework • Companies Act 2016 • Malaysian Financial Reporting Standards • International Financial Reporting Standards • Global Reporting Initiative (GRI) Standards Assurance • Internal control and management assurance • Internal audit and compliance • External audit by KPMG PLT on financial statements Approval by the Board The Board recognises its role in ensuring this report’s integrity. To our knowledge, this report fairly presents QL’s integrated performance and reflects material issues that impact QL’s ability to create, preserve, or erode value. The Board affirms that this report was prepared to the best of our capability, in accordance with the International <IR> Framework. The report was approved on 10 July 2023. Dr. Chia Song Kun Executive Chairman Mr. Chia Song Kooi Group Managing Director The ILF business pillar produces high-quality, nutritious, affordable sources of protein for consumers. From the trading of feed and raw materials, feed milling, layer farming, and broiler integration, ILF activities span the full value chain. QL maintains strict biosecurity measures and optimal farming conditions to ensure sustainable farm operations. IN DRIVE THRU IN DRIVE THRU frozen fd POCE MPM CVS ILF MPM produces quality, convenient and nourishing marinebased products. This is done through its value chain of upstream-to-downstream activities, from aquaculture, deep-sea fishing, value-added processing and fishmeal, manufacture of surimi and surimi-based products to ready-to-cook food. QL is recognised as a market leader in Malaysia, being the largest producer of surimi and halal fish-based food items in Southeast Asia. The FamilyMart convenience store direct-to-consumer channel provides wholesome, ready-to-eat and easily prepared meals suitable for modern lifestyles. Built on the konbini concept, it extends QL’s range of food production and distribution. The FamilyMart offering has expanded to include smart kiosks called FamilyMart Mini, “Food Superstore” concept stores, as well as FamiCafé. QL provides environmental solutions including bioenergy, renewable energy, and water treatment to help businesses meet the increasing environmental, social, and governance (ESG) needs. This pillar also includes operations in the palm oil value chain, provision of milling-as-a-service for smallholders and management of 16,000 hectares of palm oil estate. Convenience Store Chain (CVS) Integrated Livestock Farming (ILF) Palm Oil and Clean Energy (POCE) The strategic plans for QL are outlined in this Integrated Annual Report, along with the quantitative and qualitative results of the company’s operations from 1 April 2022 to 31 March 2023. This encompasses all QL subsidiaries’ financial and non-financial accomplishments, unless stated otherwise. The sustainability impact of QL’s activities and how sustainability considerations affect QL’s stakeholders are disclosed where practicable. Further reading about our sustainability practices are on pages 28 - 76. Matters that can substantially impact QL’s capacity to generate value is disclosed in this report. Continuous engagement with internal and external stakeholders is the basis in identifying key material matters. Our Material Matters and Materiality Assessment procedure can be read on pages 33 - 35. SEC. QL AT A GLANCE 2 003 PG. QL RESOURCES BERHAD INTEGRATED ANNUAL REPORT 2023 002 PG.
2023 Key Highlights 2023 Key Highlights IMPROVED TO 3-star ESG GRADING BAND PER FTSE RUSSEL ESG RATINGS METHODOLOGY RM6.24 billion REVENUE 1.20 billion STANDARD PROTEIN SERVINGS PRODUCED RM14.14 billion MARKET CAP RM170.36 million TOTAL DIVIDEND PAYOUT ASEAN CORPORATE GOVERNANCE SCORECARD ASEAN Asset Class Award RECIPIENT IN DECEMBER 2022 EMPLOYED 14,602 PEOPLE 924 FISHERMEN ASSISTED IN FY2023 25,153.67 TCO2E AVOIDED 1,145 HALAL CERTIFIED PRODUCTS >30 OPERATING ENTITIES OVER 10 ACCEPTED AND TRUSTED BRANDS RM480.83 million PBT RM346.82 million PATAMI INSTALLED RE SOLUTIONS FOR 337 BUSINESSES EXPORT TO MORE THAN 10 COUNTRIES 3,000 MANGROVE SEEDLINGS PLANTED SINCE 2022 IMPROVED TO “BBB” MSCI ESG RATING 19.50 million MEALS PRODUCED QL RESOURCES BERHAD INTEGRATED ANNUAL REPORT 2023 SEC. QL AT A GLANCE 2 005 004 PG. PG.
Our Presence Our Presence QL RESOURCES BERHAD QL FEEDINGSTUFFS SDN. BHD. QL FEED SDN. BHD. QL INTERNATIONAL PTE. LTD. No. 16A, Jalan Astaka U8/83, Bukit Jelutong, 40150 Shah Alam, Selangor. Tel : +603 7801 2288 Fax : +603 7801 2222 URL : www.ql.com.my PACIFIC VET GROUP (M) SDN. BHD. QL PACIFIC VET GROUP SDN. BHD. No. 886-C8, Jalan Subang 9, Taman Perindustrian Subang, 47600 Subang Jaya, Selangor. Tel : +603 8024 9508 Fax : +603 8024 9634 Email : pvgmal@pacificvet.com.my QL POULTRY FARMS SDN. BHD. Lot 1338/5, Pajam, 71700 Mantin, Negeri Sembilan. Tel : +606 758 7377 Fax : +606 758 7385 URL : www.qleggs.com QL ANSAN POULTRY FARM SDN. BHD. Lot 2051, 2053, 2054, MK Sidam Kanan, Kg. Paya Union, 09400, Padang Serai, Kedah. Tel : +604 403 2526 Fax : +604 403 4534 QL AGROFOOD SDN. BHD. QL AGROVENTURES SDN. BHD. P.O.Box A158, lnanam, 88857 Kota Kinabalu, Sabah. Tel : +6088 422 604 Fax : +6088 421 943 QL AGRORESOURCES SDN. BHD. QL LIVESTOCK FARMING SDN. BHD. Tingkat 1,Sublot 2490 Fortune Land, Jalan Rock, 93250 Kuching, Sarawak. Tel : +6082 252 760 Fax : +6082 410 646 QL FARMS SDN. BHD. QL BREEDER FARM SDN. BHD. QL TAWAU FEEDMILL SDN. BHD. QL AGROBIO SDN. BHD. QL OIL SDN. BHD. QL BIOENERGY SDN. BHD. QL PLANTATION SDN. BHD. QL TAWAU BIOGAS SDN. BHD. TB 50 & 51, Mile 5, Apas Road, 91000 Tawau, Sabah. OR P.O.Box 61651, 91026 Tawau, Sabah. Tel : +6089 917 711/ +6089 917 722/ +6089 917 733 Fax : +6089 912 045/ +6089 913 482 Email : qltawauhq@ql.com.my PT QL TRIMITRA JI. Sindanglaya, No. 100 Cipanas, Cianjur 43253, West Jawa, Indonesia. Tel : +62 263 515 100 Fax : +62 263 519 966 PT QL FEED INDONESIA PT QL AGROFOOD JI. Pangkalan VI RT. 03/RW, 06 Kel. Ciketingudik, Kec. Bantargebang, Bekasi, Jawa Barat, 17153 Indonesia. Tel : +62 21 2296 7444 Fax : +62 21 3396 7437 QL VIETNAM AGRORESOURCES LIABILITY LIMITED CO. QL FEEDINGSTUFFS VIETNAM LIMITED LIABILITY CO. QL FARMS (TAY NINH) LIABILITY LIMITED CO. 18 Cong Hoa, Ward 4, Tan Binh District, Ho Chi Minh City (Warehouse No.6), Vietnam. Tel : +84 28384 25131/ +84 28384 28435/ +84 28384 28437 Fax : +84 28384 28434 URL : www.qlvietnam.com.vn QL MARINE PRODUCTS SDN. BHD. QL AQUAMARINE SDN. BHD. QL FRESH CHOICE SEAFOOD SDN. BHD. QL DEEP SEA FISHING SDN. BHD. P.O.Box 502, 89208 Tuaran, Sabah. Tel : +6088 791 833/ +6088 791 866 Fax : +6088 791 822/ +6088 787 166 URL : www.qlmarine.com.my QL ENDAU MARINE PRODUCTS SDN. BHD. QL ENDAU DEEP SEA FISHING SDN. BHD. QL ENDAU FISHMEAL SDN. BHD. RIKAWAWASAN SDN. BHD. No. 11, Jalan Merlimau, 86900 Endau, Johor. Tel : +607 794 3814/ +607 794 4087 Fax : +607 794 4088 URL : www.qlendau.com.my QL FIGO (JOHOR) SDN. BHD. HQ QUARTER: Lot 3627, Jalan Harmoni 1, Taman Harmoni, 81000 Kulai, Johor. Tel : +607 663 7388 Fax : +607 663 7366 QL LIAN HOE SDN. BHD. No. 4, Jalan Penaga 9, Kawasan Perindustrian Kata Putri, 81750 Masai, Johor Bahru. Tel : +607 387 5745/ +607 387 5700 Fax : +607 386 1629 Email : sales@lian-hoefood.com.my URL : www.lian-hoefood.com.my QL FOODS SDN. BHD. Lot 9120 & 9121, Jalan Tepi Sungai, 36400 Hutan Melintang, Perak. Tel : +605 641 5805/ +605 641 7954 Fax : +605 641 2257 URL : www.qlfoods.com QL SUBSIDIARIES 1 6 7 11 12 13 8 9 10 14 15 QL FISHMEAL SDN. BHD. Lot 164, 3314 & 2647, Jalan Tepi Sungai, 36400 Hutan Melintang, Perak. Tel : +605 641 2752 Fax : +605 641 1042 PT QL HASIL LAUT JI. Raya Deansdles KM.81.25, Desa Sedayulawas, Kecamatan Brondong-Kabupaten, Lamongan 62263, Jatim-lndonesia. Tel : +62 322 662 828 Fax : +62 322 663 222 KEMBANG SUBUR SDN. BHD. 58-1, Jalan Temenggung 13/9, Bandar Mahkota Cheras, 43200 Cheras, Selangor Tel : +603 9011 9635/8935 Fax : +603 9011 9935 Email : info@kembangsubur.com.my BOILERMECH HOLDINGS BERHAD HEAD OFFICE: Lot 875, Jalan Subang 8, Taman Perindustrian Subang, 47620 Subang Jaya, Selangor Darul Ehsan. Tel : +603 8023 9137 Fax : +603 8023 2127 URL : www.boilermech.com PT PIPIT MUTIARA INDAH JI. Slamet Riady RT, 26/123, Tarakan, Kalimantan Utara. Tel : +62 551 24 328 Fax : +62 551 32 667 QL MAXINCOME SDN. BHD. QL KITCHEN SDN. BHD. No. 16A, Jalan Astaka U8/83, Bukit Jelutong, 40150 Shah Alam, Selangor. Tel : +603 7801 2288 Fax : +603 7801 2222 URL : www.ql.com.my 16 17 19 20 18 21 2 3 4 5 vietnam indonesia malaysia 10 4 2 3 5 7 8 6 9 1 21 16 15 19 20 17 12 13 14 11 18 Marine Products Manufacturing (MPM) Palm Oil and Clean Energy (POCE) Convenience Store Chain (CVS) Integrated Livestock Farming (ILF) QL RESOURCES BERHAD INTEGRATED ANNUAL REPORT 2023 SEC. QL AT A GLANCE 2 007 006 PG. PG.
CHAIRMAN’S STATEMENT Chairman’s Statement Executive Chairman DR. CHIA SONG KUN 2023 REVENUE RM6.24 b i l l i o n 2023 PROFIT BEFORE TAX RM480.83 m i l l i o n 2021 RM4.38 billion 2022 RM5.24 billion 2021 RM432.56 million 2022 RM321.21 million Dear Valued Shareholders, QL operates four business pillars with cross linkages that create value for stakeholders sustainably. This is our third Integrated Annual Report, in which we endeavour to provide more meaningful and transparent disclosure on how QL uses resources to create or preserve value over time. We take lead from developments that guide on better communication for environmental, economic and social impact. The post-pandemic economy in our financial year of 1 April 2022 to 31 March 2023 (FY2023) was marked by significant events which presented as many opportunities as it did challenges. The conflict between Russia and Ukraine which started in February 2022 had sent reverberations through the global economy, driving energy prices and food input cost upwards. The shock in agricultural prices impacted food prices and food security. Together with the lever on interest rates being pushed up to counter inflation and the unexpected laggard reopening of China, it was a year that economists called extraordinary and a year of uncertainty. Businesses that were prepared, able to change and adapt well, survived and some even thrived. We are pleased that QL is in the right business of producing food from agro resources, managed with solid strategy executed with prudence. This steadfast mission has enabled us to deliver on our commitment of creating value for all. While input costs remained high across QL’s principal activities for the majority of FY2023, reprieve came when oil prices cooled, and the high commodity prices receded from its peak in June 2022, albeit remaining significantly higher than 2015-2019 average levels. At the same time, agricultural price pressures saw respite as the Black Sea Grain Initiative, better harvests and lower energy prices in the second half of the financial year helped stabilise agricultural commodity prices from its early-2022 peaks. The persistence and keeping course in investment during the tough pandemic years bore fruit as it enabled QL to capitalise on the opportunities in an overall imbalanced market. We stepped up our risk management and governance as QL pursues our short-term objectives and longterm goals. Resources are allocated in line with our strategy encompassing strategic business growth and strengthening core competencies. The 4C approach remained our opportunities evaluation anchor. QL RESOURCES BERHAD INTEGRATED ANNUAL REPORT 2023 SEC. PG. PG. CHAIRMAN’S STATEMENT 3 009 008
Chairman’s Statement Chairman’s Statement enhance the incorporation of sustainability concerns into our overall strategy, risk management practices and operations to manage and monitor our economic, environmental, and social impact. We pay close attention to how we deploy capitals to derive lasting value for stakeholders. Walking the talk on sustainability, we increased the use of renewable energy and climate solutions in our business. With the experience gained, we extended similar clean energy and water solutions to help other businesses in their environmental agenda. Doing right by nature became a business philosophy that holds potential for QL. It sits well in the Sustainably Enhancing Performance thrust of our strategy. Progressively, QL is working towards setting targets for our material matters such as Occupational Health & Safety while intensifying focus on food safety and quality; we are in the midst of engaging an external, certified consultant to guide us. We are committed to embracing the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations. Thought is the wind, knowledge the sail, and mankind the vessel; strategies will remain as such without understanding and execution. Data-driven management and an improvement-focused mindset become cogs in the wheel for change to happen from within. Supporting this is greater technology integration and automation across our business pillars. With a top-down and hands-on commitment, our Board takes lead in the strategic initiatives and ensures that the implementation and progress are monitored and managed. These are then communicated to internal and external stakeholders. Making progress towards our vision of being the preferred global agro-based enterprise requires sound business strategy and the ability and capability to act on it. Our 4C approach comprising Conserve, Continue, Core Focus and Cultivate helps QL evaluate opportunities and identify resources required to strengthen our businesses. The pandemic and events around the world have changed customer behaviour. As a business that aims to meet a critical need of nutritious and affordable food, QL keeps a finger on the pulse of happenings. Continuous product innovation is complemented by our value chain integration with scalable businesses that enables us to extend downstream into convenient ready-to-cook food and CVS. QL is focusing on expanding our valueadded food processing capability and capacity to feed an increasingly growing population, which crossed the eight billionth mark this year. Enlarging our direct-to-customer network through CVS i.e. FamilyMart has enabled this business to become a growth catalyst for QL. Applying kaizen for continuous improvement and diverse points-of-sale in CVS will power our next phase of growth. The strong brand recall of FamilyMart has boosted visibility. In this same vein, QL is also enhancing the brand presence of MPM products and eggs, while expanding sales channels. We have added Enhance Branding & Product Innovation into the Strengthening of Core Competencies component of our strategy. Sustainability is central to our business and our Board has attended various environmental, social and governance (ESG) trainings. We continuously STRATEGIC FOCUS Financial Performance Guided by our strategy, QL delivered another year of uninterrupted revenue growth for the financial year ended 31 March 2023, recording a year-on-year (YoY) growth of 19.2% to RM6.24 billion, attributable to normalised demand and higher unit selling price. Profit before tax (PBT) increased in tandem with revenue growth, rising 49.7% to RM480.83 million as margins normalised after dipping last year. The efforts in improving productivity and efficiency, as well as cost subsidy helped in this regard. We invested in areas such as product innovation, information technology systems, employee development and branding to deliver a turnaround performance. Value Creation Performance QL is driven by our mission to create nourishing products from agro resources. To this end, our focus on creating value to benefit all received additional acknowledgement in December 2022 when QL was inducted into the FTSE Bursa Malaysia KLCI Index Constituent. Importantly, we also maintained our position in the MSCI Global Index. We also made a significant step forward in our sustainability journey as our ESG Grading Band rating has improved to three-star in accordance with FTSE Russell ESG Ratings Methodology. At the same time, our MSCI ESG rating moved upwards to BBB while S&P Global ESG Score continued to show progress. The advancements in our ESG rating scores are a testament to our sustainability efforts across our business pillars. QL’s market capitalisation increased 15.7% from RM12.22 billion to RM14.14 billion as at 31 March 2023, outperforming the FBM KLCI performance which slid 11.2%. Living up to our name, Quan Li and philosophy of sharing value with all, QL has proposed a final single tier interim dividend of 3.50 sen per share to be approved by shareholders at our upcoming Annual General Meeting. This is in addition to the 3.50 sen per share dividend paid on 29 March 2023. Upon approval, the total dividend payout would amount to RM170.36 million, representing a 49.1% payout ratio, the highest payout to-date. CORPORATE GOVERNANCE QL is built on integrity. Our word is our bond; we do what we say. There is a zero-tolerance stance on bribery and corruption. The Board sets the direction for QL, with our core values of winwin, innovation, integrity and teamwork as the cornerstone. This is enhanced by the personality and culture that have been nurtured throughout the operations. Regular evaluations of the skills, competencies, and qualifications of the Board and management assure that the interests of stakeholders are upheld. Responsibilities are assigned based on respective scopes governed by terms of reference. This streamlined approach supports QL in paying close attention to identified key metrics to enable us in making good on our mission and purpose. In this spirit, the Board committees were restructured to more efficiently carry out its respective ambit based on members’ expertise. To ensure suitability of appointed or elected directors, we formalised our Directors’ Fit and Proper Policy, in accordance with Bursa Malaysia’s requirements beginning 1 July 2022. This policy can be read from our website. Our Board comprises six executive directors and seven independent non-executive directors, of which five are women. This translates to 39% female representation, above the 30% mandate. More detailed reading of our sustainability efforts can be found on pages 28 - 76. 17.2% GHG intensity reduction against base year FY2020 (32.3 tCO2e/RM Mil Revenue) 1,145 (+57.5%) halal certified products (largely due to commission of the second central kitchen of FamilyMart) 10 certifications for food safety and quality 15 average training hours per employee (Total employees: ~14,600) 3,433 QL suppliers signed Code of Conduct In our annual review with reference to the Malaysian Code on Corporate Governance (MCCG), I am pleased to share that we have made progress and now apply 43 out of the total 48 MCCG recommendations compared to last year. Remaining deviances and measures to address them are explained in our CG Report, available for reading at https://ql.com.my/corporate-governance/. The Board has also engaged independent experts to conduct an externally facilitated evaluation of the Board’s effectiveness which is scheduled for completion in FY2024. More details about our CG practices can be read on pages 94 - 102. PROSPECTS The uncertain global economy is anticipated to linger. The drawn-out Russia-Ukraine geopolitical conflict continues to cast a long shadow on the world economy in particular on energy and agriculture-related goods. Input prices are expected to remain high in light of sustained inflation and increasingly extreme weather, which affects agricultural productivity. The situation experienced thus far shows the importance of food security and producing food locally. Food is a fundamental physiological need as highlighted by Maslow. As a food producer, delivering nutritious food, in particular affordable protein for the masses is a matter of national duty. QL shoulders this role by ensuring our operations are efficient and sustainable regardless of economic and market pressures. As we deal in staple foods and the world population grows, barring unforeseen circumstances, the prospects for QL remain positive as we execute and advance on our strategy. ACKNOWLEDGEMENTS AND APPRECIATION Our philosophy of creating value for all, is deeply ingrained in QL’s DNA and motivates us to continue delivering growth and shared value for stakeholders. This is complemented by our emphasis on sustainability. We hold ourselves accountable in our actions. We recognise the effort it took to get where we are today. Our three-pronged strategy of regional replication, value chain strengthening, and downstream integration has expanded to strengthening core competencies over the years. This evidence of the team’s management and execution capability is reflected in our price-to-earnings ratio, signifying investors’ confidence. We will rise to the challenge of driving sustainable value creation and keep working hard to deliver on our mission. On behalf of the Board of Directors, I record a deep appreciation to all stakeholders for their faith and trust in QL. We are grateful for the continued loyalty and support. In addition, I want to express my heartfelt gratitude to fellow Board members, Management, and all employees for your internalisation of and dedication to Quan Li. 011 010 QL RESOURCES BERHAD INTEGRATED ANNUAL REPORT 2023 SEC. PG. PG. CHAIRMAN’S STATEMENT 3
Group Managing Director MR. CHIA SONG KOOI Group Managing Director’s Review Group Managing Director’s Review QL emerged from the storm of FY2022 with the winds in our sails. Our honed strategy of investing in strategic business growth opportunities and strengthening core competencies helped QL to not just weather the storm but return a positive performance in a challenging year. Staying true to our strategic vision and working cohesively enabled QL to drive sustainable value creation. Entering FY2023, the global landscape was unsettled by geopolitical conflicts and China’s approach to COVID-19, which had significant ramifications for the supply chain. The impact was felt as energy prices surged and commodity prices too followed. Growing concerns about inflationary pressures prompted interest rate hikes as a measure to manage consumer prices. The weakened purchasing power eventually drove down consumer sentiment and subsequently affected demand for goods and supplies. These interrelated forces created a tough business environment that required adaptability and careful navigation. Such a landscape also has a far-reaching impact on the global food environment. The supply chain which was recovering from disruptions caused by COVID-19 lockdowns faced a new challenge in energy costs and high commodity prices due to the Russia-Ukraine conflict, and these ate away at food security. As an agro-food producer, QL is committed to ensuring uninterrupted operations, to effectively supply nutritious and affordable food to meet the changing needs of customers. Our steadfast focus enabled QL to turn in a 19.2% year-on-year (YoY) revenue increase to RM6.24 billion. By focusing on expanding our business and enhancing our core competencies, the people within QL stood as a unit, leveraging teamwork to overcome challenges and deliver a record PBT of RM480.83 million and profit after tax and minority interests (PATAMI) of RM346.82 million. FY2023 witnessed pent up demand benefitting Marine Products Manufacturing (MPM), Integrated Livestock Farming (ILF) and Convenience Store Chain (CVS). Sales volumes recovered and unit price rose as the transition into endemicity boosted productivity and consumer demand. On the other hand, Palm Oil and Clean Energy (POCE) experienced a difficult year, with slightly lower YoY revenue. However, the strong contributions from MPM, ILF and CVS helped balance the downward pressure on revenue exerted by POCE. We also saw labour regulation changes in the form of a new minimum wage and reduction in maximum weekly working hours coming into effect during FY2023. This added to the weakening consumer sentiment which was straining margins especially when operating costs also rose higher. Our four business pillars positioned us to navigate through challenges and seize opportunities. Overall efficiency initiatives alongside government cost subsidy to aid the tight egg supply situation helped normalise profitability margins. Together with the robust demand for surimi and surimi-based products, this guided QL towards double digit revenue growth and strong profitability recovery. The CVS expansion has progressed according to plan and now positioned this business pillar as a substantial contributor going forward. QL remained resolute in our promise of delivering sustainable value to stakeholders. Our resilience and perseverance in our mission to create nourishing products from agro resources has established us as a trusted food producer. QL is the largest fishmeal producer and the FamilyMart master franchisee in Malaysia, the preferred poultry egg producer in the three countries of our operations, the largest surimi producer in Southeast Asia as well as the top 10 surimi-based products producer in the world. Further analysis about our business performance and operational outlook can be read in the Business Review on pages 18 - 25. 2023 Revenue RM6,242.64 m i l l i o n 2023 PBT RM480.83 m i l l i o n FY2021 FY2021 4,378.80 432.56 FY2022 FY2022 5,236.05 321.21 FY2023 FY2023 6,242.64 480.83 013 012 QL RESOURCES BERHAD INTEGRATED ANNUAL REPORT 2023 SEC. PG. PG. MANAGEMENT DISCUSSION AND ANALYSIS 4
Strategy Strategy ➤ All purse seine fishing vessels operational ➤ Enhance branding of MPM products ➤ Continue R&D by QL PCOE; optimise farming operations ➤ Restructure palm oil activities ➤ Negative impacts on the environment due to operations, especially our impact on climate change ➤ Scarcity of natural resources may impact our operations ➤ Utilise technology for efficient use of natural resources such as renewable energy and alternative water sources ➤ Clean energy business pillar with the competency to build & implement environmental solutions internally & externally ➤ Unable to build competitive advantage due to inefficiency and technology obsolescence ➤ Disease outbreak disrupting production output and quality ➤ Compromised cyber security leading to business disruptions & data breaches ➤ Higher input costs driven by inflation and uncertain economic environment ➤ R&D to enhance food safety, quality and nutrition ➤ Integrating digitalisation, automation & technology to optimise production and resource allocation efficiency ➤ Enhance data collection and insights for improved decision making ➤ Identify & tap new markets to capture growth opportunities ➤ Inferior products & safety issues that affect goodwill and brand reputation ➤ Loss of market share due to slow adaptation to market trends & disruptions ➤ Unable to establish product differentiation caused by increased competition ➤ Non-compliance with regulations impacting our license to operate ➤ Continuous innovation to deliver value to customers ➤ Meet the needs of consumers by offering enhanced customer experience, increased customer touchpoints & innovative products ➤ Strengthen marketing and branding to develop brand visibility & awareness ➤ Changes to labour law ➤ Lack of talent pool to support sustainable business growth ➤ Non-compliance to labour regulations requirements and human rights violations ➤ High turnover of employees ➤ Workplace accidents that could result in injuries or fatalities ➤ Preservation and enhancement of safety and health precautions to prevent occupational illnesses or injuries ➤ Attract, develop and retain talent via workplace policy and practice improvements ➤ A continuous pipeline of talents via strategic partnerships ➤ Reputational damage amongst the community ➤ Loss of goodwill arising from diminished trust in products and brand ➤ Negative consumer perception and impact of processed or unhealthy food ➤ Inability to supply food to support national food security ➤ Potential lawsuits and damages ➤ Contribute to the community through strategic and targeted initiatives ➤ Continuous engagement and communication with stakeholders ➤ Forex, interest rates and credit risks ➤ High financing cost arising from interest rate hikes ➤ Fiscal policies (tax, incentives, etc) ➤ Share price not reflective of the intrinsic value of the company ➤ Enhanced and more transparent external communications ➤ Effective financial management strategies to capitalise on growth opportunities ➤ Grow regional raw materials trading ➤ Refine aquaculture business model to improve performance for long term scalability ➤ Expand surimi-based products manufacturing in high potential markets ➤ Continue innovation and brand building exercise for food products ➤ Enlarge CVS’ reach to northern region and east coast of Peninsular Malaysia ➤ Extend Clean Energy offerings beyond solar, biomass and water treatment solutions RISKS OPPORTUNITIES QL’s strategy advances us towards our vision of being the preferred global agro-based enterprise. Our continuous focus on innovation is the foundation for the “purple ocean” strategy where we create value for stakeholders by introducing blue ocean products and solutions into the red ocean. To continue driving sustainable value creation, QL’s strategy utilises a multicapital management approach when managing the capital flows, exercising due care especially in regards to natural and manufactured capitals. Our goal is to provide nourishing food to consumers. The strategy is distilled into two components, Strategic Business Growth and Strengthening Core Competencies to broaden organisational growth and enhance operational efficiencies in consideration of risk and opportunities surrounding QL’s business. Progressing Strategic Thrusts to Drive Sustainable Shared Value Identify areas of growth opportunities across operating locations to replicate core activities and value chains. Strengthen and build competitive advantages via upward and downward integration. Increase sales channels by establishing QL as a consumer food company. Regional Replication Strengthening Value Chain Downstream Integration ➤ Data-driven decisionmaking in a timely manner ➤ Digitalised audit monitoring system at operating sites to assess and evaluate effectiveness of control measures & areas for improvement ➤ Utilise digital platforms to increase customer reach ➤ Knowledge transfer between business units to accelerate the improvement initiatives ➤ Foster professional and personal development through merit-based career progression and upskilling ➤ Succession planning with healthy talent pipeline for business continuity ➤ Continue human rights and forced labour awareness and compliance efforts to ensure a conducive work environment ➤ Purple ocean strategy through continuous innovation of products and services to meet customers’ needs and stay ahead of competition ➤ Strengthen sales and marketing efforts as well as widen customer network ➤ Crisis management plan in preparation to respond to situations ➤ Comply and maintain multiple food quality and safety standards Conserve Continue Core Focus Cultivate 4C APPROACH QL strives to create a positive impact on the economy, environment and society. Sustainably Enhancing Performance Adopt digitalisation, automation & information systems for enhanced efficiency. Integrating Technology Attract and retain talent through employee development & wellbeing initiatives. Empowering Talent Position QL as a trusted agrofood producer with certifications attesting to food quality & safety. Enhance Branding & Product Innovation Not one to rest on our laurels, QL strives to achieve continuous growth via regional replication, value chain strengthening and downstream integration. These growth drivers are implemented with the guidance of the Conserve, Continue, Core Focus and Cultivate. Coined as the 4C approach, the strategic tool determines how resources are allocated and invested to maximise business growth. Initiatives were carefully deliberated, cascaded, and project milestones put in place to ensure success. During the financial year, QL invested RM240.1 million or 3.9% of revenue into strategic business growth opportunities. STRATEGIC BUSINESS GROWTH STRENGTHENING CORE COMPETENCIES QL broadened the strategy enablers with the inclusion of Enhance Branding & Product Innovation into the existing Sustainably Enhancing Performance, Integrating Technology and Empowering Talents in this component. These four facilitate our business objectives. A detailed breakdown of our investment in these enablers can be read in the economic value generated and distributed table on page 45. Natural Capital Manufactured Capital Intellectual Capital Human Capital Social Capital Financial Capital NC HC MC IC SC FC ➤ Continuous biosecurity audits across all farms ➤ Focus on operational safety & health, with external audits and certifications ➤ Increase use of renewable energy, monitor water usage and alternative water sources at operating sites ➤ Explore and develop new retail related business through M&A ➤ Expand convenient RTE food, leveraging QL Kitchen’s capabilities and through M&A 015 014 QL RESOURCES BERHAD INTEGRATED ANNUAL REPORT 2023 SEC. PG. PG. MANAGEMENT DISCUSSION AND ANALYSIS 4
Risk & Opportunities Governance Outlook Material Matters Stakeholder Engagement SC HC IC MC NC FC STRENGTHENING CORE COMPETENCIES STRATEGIC BUSINESS GROWTH Operational Environment Read more on pages 18 - 25 Read more on pages 14 - 15 Read more on pages 77 - 111 Read more on pages 34 - 35 Read more on pages 32 - 33 Read more on pages 26 - 27 Value Creation Business Model Value Creation Business Model CAPITAL INPUTS OUTCOMES OUTPUTS BUSINESS PILLARS UNSDGs OUR VISION To be the preferred global agro-based enterprise. • 1,896,580 GJ energy consumed • 3,042,140 m3 water consumed • 4,844 pieces of additional solar panels installed • Total of 3,000 mangrove seedlings planted to-date • An inclusive and diverse workforce of over 14,600 employees across 4 business pillars • Nurture and upskill employees through training and development programmes • Internal human rights due diligence audits completed for 3 business units • Achieved ISO45001 certification in QL Poultry Farm • More than 30 operating entities • Operating in 3 countries • New second central kitchen • Innovative renewable energy and environmental solutions • Open communication channels and dialogues between QL and stakeholders, ensuring a mutually beneficial relationship • Distributed RM835,662 of net profit to support the community at large • Quality and halal certified products • Best practices and 10 food safety and quality certifications • QL Poultry Centre of Excellence • Total equity: RM2.71 billion • Total borrowings: RM1.36 billion Produced 1.20 billion standard protein servings1 (FY2022: 1.20 billion) Produced 19.50 million meals for Malaysians2 (FY2022: 16.67 million) 99% score of “Fair to Excellent” for QL Eggs and QL Mushroom brand in Consumer Satisfaction Survey Improved to 3-star ESG Grading Band per FTSE Russell ESG Ratings Methodology Improved to “BBB” MSCI ESG rating (FY2022: “BB”) Natural Manufactured Intellectual Human Social Financial FC SC HC IC MC NC QL exercises responsible consumption to ensure sustainable long-term value creation • 841,905.85 GJ Renewable Energy Generated (FY2022: 320,742.54 GJ)* • 25,153.67 tCO2e GHG Emissions Avoided (FY2022: 26,234.23 tCO2e)* • 17.2% GHG Emission Intensity Reduction (FY2022: 4.2% increase)* • 569.89 m3/RM Mil Revenue of Water Withdrawal Intensity (4.3% reduction; FY2022: 595.49 m3/RM Mil Revenue)* • 6,754 m3 Rainwater Harvested (FY2022: 4,033 m3)* • Recycled over 191,600 tonnes of non-hazardous waste recycled (FY2022: 175,500 tonnes)** • Diverted 95.3% of non-hazardous waste from landfills (FY2022: 97.5%)* • Composted 93.7% of chicken manure to organic fertiliser (FY2022: 95.3%)* • Planted 2,000 mangrove seedlings with a 99% survival rate (FY2022: 1,000) Sustainably Enhancing Performance Regional Replication Downstream Integration Strengthening Value Chain Integrating Technology Empowering Talents Enhance Branding & Product Innovation QL develops, implements and utilises automation, technology and best practices to continuously produce safe, quality and nourishing sources of protein • RM6.24 billion revenue (FY2022: RM5.24 billion) • 2.40 billion eggs (FY2022: 2.45 billion) • 153,000 metric tonnes of fish (FY2022: 137,000 metric tonnes**) • 19.82 million broilers (FY2022: 18.72 million) • Over 1,000 quality halal certified products (FY2022: Over 700) QL’s business growth, brand and trusted reputation are attributable to its deep pool of knowledge, experience, and robust systems • Over 10 accepted and trusted brands (FY2022: 10 brands) • Holds Halal and international certifications • Export to more than 10 countries (FY2022: 10 countries) • Developed poultry academy framework An established personal and career development path complements a safe conducive working environment to nurture an inclusive and competent workforce • RM571.12 million paid in salaries and wages (FY2022: RM465.41 million) • 219,491 upskilling and training hours (FY2022: 136,008) • 373 employees underwent Leaders Enhancement and Development (LEAD) Programme (FY2022: 354) • Introduced differentiated learning approaches to 62 participants of the Accelerated Learning Process Programme • Established and rolled out Safety Leadership Training Programme to all people and line managers with 165 participants completing the programme • Commenced internal human rights due diligence audits QL builds and maintains its relationship with stakeholders across operational locations playing its part in socio-economic development via its Corporate Philanthropy • Enhanced the livelihoods of 924 fishermen through the FFAS (FY2022: 914) • Impacted over 11,900 lives via over RM835,600 invested in Corporate Philanthropy initiatives (FY2022: 13,200 lives; RM980,000) • 8,102 locals employed at our operation sites (FY2022: 10,800) • 3,433 suppliers signed QL’s Suppliers and Business Associates Code of Business Ethics • 188 internships for workplace exposure provided • 53 more Orang Asli trained for employability (FY2022: 90) • 207 kindergarten children from low-income and indigenous families that attend government schools in rural areas provided with daily protein requirements for six months Produce uninterrupted long-term shareholder value by optimising financial resources including equity and debt • Resilient business performance, PATAMI: RM346.82 million (FY2022: RM217.35 million) • Total proposed dividend payment: RM170.36 million (FY2022: RM85.18 million) • Cumulative shareholder return since listing in year 2000: 12,700% ROI (FY2022: 10,900%) • Total finance cost: RM64.48 million (FY2022: RM51.72 million) Marine Products Manufacturing (MPM) Integrated Livestock Farming (ILF) Palm Oil And Clean Energy (POCE) Convenience Store Chain (CVS) OUR MISSION CORE VALUES CORE VALUES We create nourishing products from agro resources, leading to benefit for all parties. Integrity | Innovative Win-Win | Teamwork Note: * Information pertains to subsidiaries reported within the Sustainability Statement ** Restated with revised calculation 1 Based on average protein serving of 26g (recommended average daily protein intake by USDA Dietary Guidelines), computed using production volume for MPM and ILF businesses. 2 Based on average 2,000 calories per meal per day (recommended daily calories intake by the Ministry of Health Malaysia), computed using CVS meal production. 017 016 QL RESOURCES BERHAD INTEGRATED ANNUAL REPORT 2023 SEC. PG. PG. MANAGEMENT DISCUSSION AND ANALYSIS 4
Business Review 01 MPM has been a longstanding anchor of QL’s business, generating quality products through deep sea fishing, aquaculture farming, surimi, surimi-based products and convenient wholesome seafood snacks. We uphold our brand promise of safe and quality food by subjecting our processes to external audits for certifications. MPM’s downstream activities meet international standards including Hazard Analysis and Critical Control Point (HACCP) certification, Malaysian Good Agricultural Practice (MyGAP), US Federal Department of Agriculture and EU regulations where applicable, as well as halal certification. Financial Performance The MPM business pillar performance recovered, with YoY revenue rising 15.2% to RM1.34 billion and PBT increasing in tandem by 20.7% to RM242.23 million. The return of normal operations especially the full resumption of our entire fishing fleet translated to business volume recovery. At the same time, the improved selling prices helped to marginally offset the higher production costs and normalised margin. Operational Review Rays of sunshine broke through the clouds that casted shadows on MPM in our last financial year. In FY2023, MPM’s fishing fleet of 29 purse seine vessels equipped with advanced technology of radar and sonar, saw full operations during the fishing season. This business activity has sailed through the tough operating environment brought about by the pandemic to resume revenue contribution. Its performance was nonetheless weighed down by higher fuel cost. Aquaculture activities yielded moderate results in FY2023 as the strong momentum in the first half was hampered by lacklustre grow-out and hatchery performance in the subsequent half. Expansion of our surimi-based production in Indonesia and Johor are progressing well, with completion anticipated in FY2024 as targeted. Upon commission, the Indonesian business unit will add 25,000 metric tonnes annually to QL’s surimi-based production capacity. At the same time, the conversion of a vacant warehouse into a surimi-based production line in Kulai, Johor is on track to increase annual production capacity by about another 7,000 metric tonnes. These two new plants will employ automated machineries similar to our other MPM plants, to improve efficiency and productivity. This business pillar also felt the impact of the changes in labour regulations which was compounded by the increase in the other input costs from higher fuel, electricity and ingredients. Outlook The World Meteorological Organization updated that the El Niño phenomenon is developing, bringing along with it increased heat or rainfall in different parts of the world. Fish landing fortunes will be largely dependent on the weather and climate patterns and this in turn will have an effect on raw material costs on the various business activities in MPM. Fishmeal demand and prices are expected to perform better, attributable to aquaculture activities and Peru’s supply ability. The fish landing experienced thus far heralds a possibly good year and this will be a boon. Likewise, we anticipate demand for surimi and surimi-based products to be stable. The price for surimi is on a downward trend due to competition from countries such as Russia and India. However, the lower prices work in favour of our surimibased segment. Overall, the MPM business pillar will face higher operational costs from labour and fuel prices with the added pressure from the electricity surcharge which came into effect in January 2023 in Malaysia. Barring additional factors, the overall outlook for MPM is positive for FY2024. Business Review Aquaculture farming Deep sea fishing Fishmeal production Surimi production Surimi-based products manufacturing Seafood snacks production Completed new labour quarters in Kulai, Johor Conversion of warehouse into a new production line in Kulai, Johor is near completion Acquisition of 86 hectares in Hutan Melintang is nearing completion New plant being developed in Indonesia MPM ASSETS 9 operating entities OUR VALUE CHAIN KEY DEVELOPMENTS Taking care of our workers and ensuring suitable accommodation for them, we built new labour quarters. The recently completed labour quarters in Kulai, Johor can now house about 380 workers. Additionally, work is underway on the construction of a labour quarter in Hutan Melintang, Perak. The acquisition of 86 hectares of land adjacent to our current site in Hutan Melintang is almost completed, after stalling during the pandemic. This strategic land acquisition will facilitate a seamless expansion of our MPM capacity in the near future. Increasing our use of renewable energy, we installed more solar panels at the Hutan Melintang plant, which generated additional 0.37 MWp solar power to the existing 9.28 MWp output. Challenges The high energy prices anticipated in our FY2022 outlook became a reality and posed a challenge to MPM’s performance as fuel required to operate our fishing fleet became inflated. The improved demand and prices for surimi of 1H FY2023 met with the headwinds of weaker demand and price pressure as supply competition from other countries, in particular India and Russia, intensified in 2H. Revenue (RM million) FY2021 1,257.14 FY2021 260.82 FY2022 1,164.86 FY2022 200.76 FY2023 1,341.70 FY2023 242.23 PBT (RM million) BUSINESS PILLAR Marine Products Manufacturing (MPM) 019 018 QL RESOURCES BERHAD INTEGRATED ANNUAL REPORT 2023 SEC. PG. PG. MANAGEMENT DISCUSSION AND ANALYSIS 4
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