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Extracted from Annual Report 2016

Chairman

On behalf of the Board of Directors of Jaya Tiasa Holdings Berhad, I am pleased to present to you the Annual Report and Audited Financial Statement of the Group for the Financial Year Ended 30 June 2016.

ECONOMY OVERVIEW

It has been a rather challenging year for the global economy. Rising international debt, dramatic fall in oil prices and lower than expected GDP growth heightened fears that the world is settling into a mediocre of slow growth. Euro zone exhibited unspectacular growth and the impact from Brexit remain uncertain while emerging markets like China and India are managing healthy growth despite slowdown in their economy. According to IMF, the sluggish advanced industrialized economies are expected to gain small GDP growth in the coming year.

On the domestic front, Malaysian Ringgit remains weak. The sharp downturn in oil prices, threat of rate hike in the US and political risks have added concerns to the nation. Overall, Malaysia economy is relatively stable with the government strenuously committed to fiscal reform despite still being far from achieving a balanced budget.

GROUP PERFORMANCE

Our Group has also a mixed performance in FY2016. Timber division outperformed by contributing 61% and 119% of the group's revenue and profit before tax respectively. The profit before tax increased significantly by 31% despite 15% drop in revenue. Log price manage to sustain due to the tight supply and the favorable exchange rate contributed to the better performance.

Comparing to last Financial Year, our loss in oil palm division has narrowed to RM17.2 million. Crude Palm Oil (CPO) price increased by 4.1% to RM2,255 per Metric Tonnes (MT) while fresh fruit bunches (FFB) price increased by 4.4% to RM417 per MT. FFB productions increased significantly by 26% to 931,745MT. The loss was mainly due to high field input cost.

FINANCIAL PERFORMANCE

We closed the year with revenue of RM1,023 million, a slight 1% drop from last year primarily due to lower sales volume from timber division. Profit before tax increased by 56% to RM82 million and net profit was RM57 million, a 65% increase. Earning per share rose to 5.60 sen from 3.27 sen recorded last financial year. Shareholders' fund improved to RM1,814 millions compared to RM1,769 million achieved for the preceding financial year. Net tangible assets per share stood at RM1.81 for the year ended 30 June 2016.

DIVIDEND

To enhance shareholders' return, the Board of Directors has maintained its dividend policy of paying out not less than 20% of its net profit, subject to not compromising the Group's ability to support its pursuit for long term growth. The Board of Directors has recommended a first and final single-tier dividend of 1.3 sen per share representing about 22% of after tax profit in respect of the Financial Year Ended 30 June 2016 for approval by the shareholders at the forthcoming Annual General Meeting to be held on 24 November 2016.

REVIEW OF OPERATION

Logging

The logging division contributed about 27% of the total Group's revenue. Dry weather and low water level continued to impede the transportation of logs for processing mills and exports. Average export price for logs remained strong, hovering around USD220 per cubic metre (m3) largely due to the tightening log supply and the continuing sustained demand from India. More stringent controls by government also help to stabilize log prices.

As mentioned, India remained the largest log export market for the group for consecutive years with sales accounting for 72% of the Group's total log export sales in US Dollars. Demand from the country remains robust despite the challenging economy and competition from other regions.

Logging Outlook and Strategy

We foresee the market demand for tropical logs to remain robust despite the slow global growth. The Group will continue to export logs in the coming financial year at prices that are likely to be sustained due to supply constraint.

To better manage our forest, we will select species with higher value for harvesting and maintain vigilant controls on the cost of production. Increased attention will also be given to logistical planning to ensure that logs extracted are delivered within the shortest time frame possible to preserve their freshness and maintain their quality for premium prices.

Plywood

In FY2016, the plywood division contributed about 23% to the total revenue of the Group. Plywood sales volumes decreased by 25% YoY, while the average selling prices decreased by 12%. The market conditions remain challenging. To maximize our revenue and profit as well as to maintain our existing markets, we maintained our strategy in producing more high value products.

During the year, South Korea continued as our largest export destinations, accounting for 42% of total plywood exports of the group in US Dollar terms. The reduced anti-dumping duty rate from previous 6.43% to current 3.08% has worked us favor. Other major exports markets were China / Hong Kong, Taiwan and Japan.

Plywood Outlook and Strategy

Demand for plywood is expected to stabilize at current level in our key markets namely South Korea, Taiwan, China / Hong Kong and Japan.

The group will adopt a dynamic strategic approach in an increasingly competitive global environment, taking into account the scarcity of resources, the volatility of foreign exchange rates and volatile crude oil prices. The group will strengthen its current measures to maintain and enhance its competitive edge, and these include harnessing its existing production technology towards improving operational efficiency and product quality, and being innovative in producing more value-added products for niche markets to enhance margins.

Oil Palm

The division was affected by the unexpected poor performance in third quarter during the year under review. Nonetheless, we managed to narrow the pre-tax loss to RM17.2 million, from the RM21.5 million losses reported in previous year. Revenue for the year was RM396 million, a 33% increase compared to previous year.

As at 30 June 2016, the group's planted areas stood at 69,587 hectares (Ha) spreading over 10 plantations in Sarawak. Our matured area increased slightly to 60,787 Ha, a 3% increase. FFB production for the year had increased significantly by 26% to 931,745 MT from the previous year's 740,013 MT as 54% of our trees have reached their prime age.

The group's palm oil mill produced approximately 120,000 MT of CPO and 21,000 MT of palm kernel (PK). There are currently three mills in operation with total processing capacity of 210 MT per hour, while another mill with designed capacity of 60 MT is scheduled to be commissioned by the end of Year 2016. Upon full operation, the mills are expected to contribute significantly to profitability.

Oil Palm Outlook and Strategy

As at 30 June 2016, the weighted average of our palm age is just above 7 years. We expect our FFB yield (MT) per hectare to continue to improve and consequently reducing our cost of production. Labor shortage will continue to be a plantation issue nationwide and we are no exception. In order to cope with this challenging operating environment, we have increased mechanization so we can optimize the deployment of labor.

We will continue to improve our Oil Extraction Rate (OER) from CPO mills by imposing stringent control over operation efficiency and FFB input quality. With further fine tuning, we expect production volume and efficiency to improve in next financial year.

We remain optimistic about the long term prospects for the palm oil industry despite current weakness in CPO price. We will endeavor to lower our cost of production by enhancing our harvesting yield and productivity so that we are poised to reap the profits in the event CPO prices start to trend upwards.

Reforestation

We are progressively planting in our reforestation areas with fast-growing tree species such as Eucalyptus Deglupta (Kamarere), Eucalyptus Pellita and Kelampayan planted across the plantation areas, the group's forest planted area has been expanding and will continue to trend up steadily.

Reforestation Outlook and Strategy

We are committed to plant forest in line with State Governments commitment on forest sustainability and the world's move towards conservation of natural forests. The division is not expected to contribute to earnings in the short term given that the planted forest has a gestation period of 12 to 15 years before it can be ready for commercial harvesting. The challenge of the group is to improvise silvicultural practices and place greater emphasis on stringent quality control over new plantings and its maintenance so as to improve the survival rate and optimum growth of planted trees.

GOING FORWARD

The International Monetary Fund (IMF) expects the global economy to see tepid growth and cuts its forecast this year and next to 3.4% due to Brexit which creates a wave of uncertainty amid already fragile business and consumer confidence. Malaysian economy's performance is expected to be modest and gradual.

Prices for timber products especially logs are expected to remain firm in view of restricted supply and the stable demand from importing countries. We are optimistic that FY2017 will continue to be a profitable year for the timber division.

FFB yield will continue to improve as more palm trees are reaching their prime. Better utilization resulting from higher FFB production and with additional CPO mill will boost our CPO production while expanding vertical integration should contribute positively to the palm oil division in the next financial year.

Appreciation

The Group is prepared to embrace changes in tandem with the global and local economic demands and challenges. We have in place a clear strategy, focus on uplifting operations to deliver productivity and growth.

On behalf of the board, I wish to convey our sincere thanks to my management team and all employees of the Group for their undivided support commitment and dedication to the Group. I would also like to extend my gratitude to you, our shareholders, customers, business partners, bankers and the relevant authorities and members of the community for your invaluable support and unwavering trust in the Group.

GEN TAN SRI ABDUL RAHMAN BIN ABDUL HAMID (RTD)
Chairman