GSM 5160: STRATEGIC MANAGEMENT
CASE ANALYSIS

PREPARED BY: marziana basir gm04459
SYAZwANI MUSTAFA gm04625 johan adam leong gm04319
FADZILLA ZAHRA SAMIAN GM04550

PREPARED FOR:
SR. DR. HJ MAZLAN HJ HASSAN
Graduate School of Management
Universiti Putra Malaysia

TABLE OF CONTENTS

1 | INTRODUCTION | | 1 | 2 | MISSION AND VISSION STATEMENT | | 2 | 3 | MARKET POSITIONING MAP | | 5 | 4 | KLK CORPORATE STRUCTURE | | 6 | 5 | FIRM’S OPERATIONS MAP LOCATION | | 8 | 6 | FINANCIAL ANALYSIS | | 9 | 7 | COMPETITORS’ ANALYSIS | | 18 | 8 | STRATEGY FORMULATIONSWOT ANALYSISInternal Factor Evaluation (IFE) MatrixExternal Factor Evaluation (EFE) MatrixCompetitive Profile Matrix (CPM)SWOT MatrixSPACE MatrixBOSTON CONSULTING GROUP (BCG) MATRIXINTERNAL EXTERNAL MATRIXQUANTITATIVE STRATEGIC PLANNING MATRIX (QSPM)GRAND STRATEGY MATRIXEPS/EBIT ANALYSIS BALANCE SCORECARD | | 21212223252629323435394041 | 9 | CONCLUSION | | 42 |

INTRODUCTION
Kuala Lumpur Kepong Berhad (KLK) is a Malaysian multinational company involved in plantation, manufacturing, retailing and property development. While plantation remains KLK's core business, it has expanded downstream into resource-based manufacturing, in particular oleochemicals, cocoa processing and rubber processing and employs more than 35,000 employees worldwide. As at 30 September 2011, KLK is listed on the Main Market of Bursa Malaysia Securities Berhad and has a market capitalization of approximately RM22.5 billion.
From a humble plantation company established more than 100 years ago in Malaysia and through strategic acquisition and sound management, the Group’s oil palm and rubber plantations today stand at approximately 250,000 hectares in Malaysia and Indonesia. Plantations remain KLK’s core business activity and with replanting in Sabah and vast new plantings in Indonesia progressively brought into harvesting; the annual crop production is expected to increase rapidly in the years ahead.

MISSION AND VISION STATEMENT
KLK Berhad corporate vision:
Servicing our customers with refined palm products, natural rubber and oleochemical products.
KLK Berhad corporate mission:
We strive to emerge as a global force in the plantations and oleochemical arena and to continue building on the Group’s century old legacy of excellence by:
1. Offering quality products and services at competitive prices.
2. Being a good and responsible corporate citizen.
3. Earning a fair return on investments.
4. Maintaining steady dividend payments and adequate dividend cover.
5. Sustaining growth through re-investment of retained profits.
6. Maintaining a high standard of business ethics and practices.
7. Fulfilling our social responsibilities in the community in which we operate.
Comparing its mission and vision with top competitor for KLK Berhad, Sime Darby Berhad.
Sime Darby Berhad Corporate vision:
To be a leading multinational corporation delivering sustainable value to all stakeholders
Sime Darby Berhad Corporate mission:
1. We are committed to developing a winning portfolio of sustainable businesses.
2. We subscribe to good corporate governance and high ethical values.
3. We continuously strive to deliver superior financial returns through operational excellence and high performance standards.
4. We provide an environment for our people to realize their full potential.
Improved Vision and Mission
In KLK vision, it is clear on what sector the organization is trying to concentrate on, which are palm, rubber and oleochemicals. Who they servicing is pretty vague. Where they want to be in future and strive to be is also not reflected in the vision. Who they want to be is also blurry. For normal people to see the vision, it is just another company trying to survive based on all three products range.
Comparing with its' competitor like Sime Darby, it has a slight advantage. A better punch in the vision conveyed. The words "to be the leading multinational...." is already delivering the message the organization's ambition in the future. Not being the best, but in the top group in the world. Plus, delivering values to stakeholders is another strong word to reflect in vision statement. This will somehow ensuring the investors that the organization's commitment to deliver not only profit in short run but values for the longer term. However, the downside on Sime Darby vision is that it does not indicate in what sector it wants to concentrate on. It is too generic compared to KLK vision which stipulates clearly.
So, it is recommended for KLK to revise its' vision to a stronger statement by capitalizing on its internal strengths. Here is the recommended:
To be the world's best by returning to the world quality organic chemicals to improve health, safety and environment while delivering values to stakeholders.
Looking at the mission, KLK seems to be put in thorough thoughts in their effort to get concise and comprehensive statement. It has the element that suits a vision statement instead of mission. Unlike the vision, the mission has the strength, areas of focusing and approaches in order for them to achieve it. Overall it is the opposite of KLK's vision; the mission in overall is good and should be retained. Only additional elements regarding concerns about the employees should be included to have a higher motivational factor for the employees.
“Providing a safe, stimulating and healthy environment for employees to grow”
Evaluation Matrix for Mission Statement Mission components | Kuala Lumpur Kepong | Sime Darby | Improved KLK | Customers | No | No | No | Products and Services | Yes | No | Yes | Markets | Yes | Yes | Yes | Concern for Survival, Growth, Profitability | Yes | Yes | Yes | Philosophy | Yes | Yes | Yes | Self-Concept | No | No | No | Concern for Public Image | Yes | Yes | Yes | Concern for Employees | No | Yes | Yes |

Market Positioning and Strategies to Grow Market Share and Plans for the Future
Known as a responsible global player in the palm oil industry, KLK aims to secure sustainability of its upstream and downstream plantation operations. In Malaysia, KLK ranks among the top three plantation companies. Its target is to grow the plantation landbank to 300,00ha and targets new oil palm plantings of 10,000ha per annum to ensure future production growth is sustainable. Also, KLK aims to establish the operations of oleochemicals as a major global player. Its oleochemicals operation has a strong in-house team which is able to leverage on future opportunities. KLK will continue to enhance its production value chain for plantation and oleochemicals businesses as further land acquisitions in Indonesia and other parts of the world are being explored in order to increase the plantation landbank.
Global Presence
Also, KLK will invest total of RM706 million in an effort to develop the downstream sector of the palm oil industry. The first project is an integrated methyl ester sulphonate and fatty alcohol plant with investment of RM480mil. The second project is a plant to produce specialty fatty ester while the third project is a plant to produce high grade tocotrienol and isomers. The fourth project is to develop a world class research and development (R&D) center.
MARKET POSITIONING MAP | Premium Brands Quadrant Volume of production | Economy Brands Quadrant | |

The position of KLK is based on its global presence and production volume.

KLK CORPORATE STRUCTURE
KLK Berhad Corporate Structure can be summarized as below. Detail Corporate Structure is as given in Appendix A.

Our proposed structure suggested rearranging the plantation division regionally, divided to Malaysia, Indonesia and new ventures. We also proposed Research and Development team to be established to support new strategy proposed.

FIRM’S OPERATIONS MAP LOCATION
Landbank status:

Geographical distribution of land bank (as at 31 Mar 2012):

Growing planted area:

FINANCIAL ANALYSIS
Income statement in MYR
Year on year Kuala Lumpur Kepong Bhd net income fell 22.92% from 1.57bn to 1.21bn despite flat revenues.
REVENUE

Gross margin --
Net profit margin 10.95%
Operating margin 13.90%

NET INCOME

Return on assets 9.87%
Return on equity 14.86%
Return on investment 12.62%
Growth rates in MYR
Year on year, growth in dividends per share increased 41.67% while earnings per share excluding extraordinary items fell by 32.37%. The positive trend in dividend payments is noteworthy since very few companies in the Crops industry pay a dividend. Additionally when measured on a five year annualized basis, both dividend per share and earnings per share growth ranked in-line with the industry average relative to its peers.
DIVIDEND PER SHARE

Div. yield (5 year average) 0.04%
Div. growth rate (5 year) 18.16%
Payout ratio (TTM) 85.90%
EARNINGS PER SHARE

EPS growth (5 years) 8.71
EPS (TTM) vs TTM 1 year ago -32.3719

Balance sheet in MYR
Kuala Lumpur Kepong Bhd has a Debt to Total Capital ratio of 24.82%, a higher figure than the previous year's 7.43%.
TOTAL ASSETS

Current ratio 3.05
Quick ratio 2.28

TOTAL DEBT

Total debt/total equity 0.3486
Total debt/total capital 0.2482

Balance sheet: Fiscal Year Ending Sep 30 2012 | 2012 | 2011 | 2010 | ASSETS | Cash And Short Term Investments | 2,359 | 1,670 | 1,255 | Total Receivables, Net | 1,150 | 1,304 | 786 | Total Inventory | 1,219 | 1,673 | 1,288 | Prepaid expenses | -- | 55 | 40 | Other current assets, total | 87 | 75 | 25 | Total current assets | 4,815 | 4,777 | 3,395 | Property, plant & equipment, net | 5,280 | 4,947 | 4,671 | Goodwill, net | 286 | 304 | 290 | Intangibles, net | 185 | 198 | 191 | Long term investments | 680 | 652 | 549 | Note receivable - long term | 83 | 62 | 47 | Other long term assets | -- | -- | -- | Total assets | 11,383 | 10,970 | 9,164 | LIABILITIES | Accounts payable | 841 | 358 | 266 | Accrued expenses | -- | 149 | 169 | Notes payable/short-term debt | 696 | 882 | 399 | Current portion long-term debt/capital leases | -- | 682 | 180 | Other current liabilities, total | 43 | 437 | 255 | Total current liabilities | 1,580 | 2,508 | 1,270 | Total long term debt | 1,783 | 526 | 1,107 | Total debt | 2,479 | 2,090 | 1,687 | Deferred income tax | 242 | 246 | 242 | Minority interest | 398 | 392 | 320 | Other liabilities, total | 271 | 225 | 219 | Total liabilities | 4,273 | 3,896 | 3,158 | SHAREHOLDERS EQUITY | Common stock | 1,068 | 1,068 | 1,068 | Additional paid-in capital | -- | 1,018 | 1,018 | Retained earnings (accumulated deficit) | 6,056 | 4,714 | 3,808 | Treasury stock - common | (13) | (13) | (13) | Unrealized gain (loss) | -- | 81 | 81 | Other equity, total | -- | 207 | 44 | Total equity | 7,110 | 7,074 | 6,005 | Total liabilities & shareholders' equity | 11,383 | 10,970 | 9,164 | Total common shares outstanding | 1,065 | 1,065 | 1,065 | Treasury shares - common primary issue | 2.54 | 2.54 | 2.54 |

Income statement: Fiscal Year Ending Sep 30 2012 | 2012 | 2011 | 2010 | REVENUE AND GROSS PROFIT | Total revenue | 10,067 | 10,092 | 7,491 | OPERATING EXPENSES | Cost of revenue total | -- | -- | 5,308 | Selling, general and admin. expenses, total | -- | -- | 838 | Depreciation/amortization | -- | -- | -- | Unusual expense(income) | -- | -- | -- | Other operating expenses, total | 8,688 | 8,328 | 128 | Total operating expense | 8,668 | 8,044 | 6,108 | Operating income | 1,400 | 2,048 | 1,383 | Other, net | -- | -- | -- | INCOME TAXES, MINORITY INTEREST AND EXTRA ITEMS | Net income before taxes | 1,400 | 2,048 | 1,383 | Provision for income taxes | 297 | 415 | 316 | Net income after taxes | 1,103 | 1,632 | 1,067 | Minority interest | (49) | (74) | (55) | Net income before extra. Items | 1,054 | 1,558 | 1,012 | Total extraordinary items | 157 | 13 | -- | Net income | 1,211 | 1,571 | 1,012 | Inc.avail. to common excl. extra. Items | 1,054 | 1,558 | 1,012 | Inc.avail. to common incl. extra. Items | 1,211 | 1,571 | 1,012 | EPS RECONCILIATION | Basic/primary weighted average shares | 1,065 | 1,065 | 1,065 | Basic/primary eps excl. extra items | 0.99 | 1.46 | 0.95 | Basic/primary eps incl. extra items | 1.14 | 1.48 | 0.95 | Dilution adjustment | -- | -- | -- | Diluted weighted average shares | 1,065 | 1,065 | 1,065 | Diluted eps excl. extra items | 0.99 | 1.46 | 0.95 | Diluted eps incl. extra items | 1.14 | 1.48 | 0.95 | COMMON STOCK DIVIDENDS | DPS - common stock primary issue | 0.85 | 0.60 | 0.60 | Gross dividend - common stock | 905 | 639 | 639 | PRO FORMA INCOME | Pro forma net income | -- | -- | -- | Interest expense, supplemental | 63 | 70 | 58 | SUPPLEMENTAL INCOME | Depreciation, supplemental | 270 | 265 | 224 | Total special items | (141) | (228) | (96) | NORMALIZED INCOME | Normalized income before taxes | 1,259 | 1,820 | 1,287 | Effect of special items on income taxes | (30) | (46) | (22) | Income tax excluding impact of special items | 267 | 369 | 294 | Normalized income after tax | 992 | 1,451 | 994 | Normalized income avail. to common | 943 | 1,377 | 939 | Basic normalized EPS | 0.89 | 1.29 | 0.88 | Diluted normalized EPS | 0.89 | 1.29 | 0.88 |

COMPETITORS’ ANALYSIS
Notes;
Felda : Felda Global Ventures Holdings Bhd
Genting: Genting Plantations Berhad
KLK: Kuala Lumpur Kepong Berhad
Kulim: Kulim (Malaysia) Berhad
Sime Darby : Sime Darby Berhad
United: United Plantations Berhad
Key information: Company | | Revenue (TTM) | Net income (TTM) | Market cap | Employees | Felda | | 7.65bn | -346.18m | 16.85bn | 32768 | Genting | | 1.25bn | 334.08m | 6.34bn | 5695 | KLK | | 10.07bn | 1.05bn | 22.52bn | 38000 | Kulim | | 5.22bn | 205.56m | 5.73bn | 48629 | Sime Darby | | 48.37bn | 4.12bn | 54.81bn | 100000 | United | | 1.17bn | 323.15m | 5.17bn | 7141 |

Stock performance: Company | | Price/earnings
(TTM) | Price/book value (MRQ) | Price/cash flow (TTM) | Price/sales (TTM) | Felda | | -- | 2.84 | -- | 2.20 | Genting | | 18.97 | 1.89 | 16.56 | 5.07 | KLK | | 21.32 | 3.16 | -- | 2.24 | Kulim | | 26.37 | 0.863 | -- | 1.10 | Sime Darby | | 13.31 | 2.04 | 10.09 | 1.13 | United | | 16.01 | 2.44 | -- | 4.42 |

Per share data: Company | | EPS (excluding extraordinary items (TTM) | EPS (including extraordinary items) (TTM) | Revenue per share (TTM) | Book value per share (MRQ) | Felda | | -0.0949 | -0.0949 | 2.10 | 1.63 | Genting | | 0.4403 | 0.4403 | 1.65 | 4.41 | KLK | | 0.9895 | 1.14 | 9.45 | 6.68 | Kulim | | 0.1695 | 1.82 | 4.26 | 5.18 | Sime Darby | | 0.6852 | 0.6767 | 8.05 | 4.47 | United | | 1.55 | 1.55 | 5.62 | 10.19 |

Financial strength: Company | | Quick ratio (MRQ) | Interest coverage (TTM) | Total debt to capital (MRQ) | Payout ratio (5 yr average) | Felda | | 2.74 | -5.605 | 0.2472 | -- | Genting | | 5.13 | -- | 0.1482 | 20.31 | KLK | | 2.28 | 27.46 | 0.2482 | 60.51 | Kulim | | 1.02 | 96.44 | 0.2081 | 16.21 | Sime Darby | | 0.9782 | 45.21 | 0.2483 | 51.42 | United | | 7.29 | -- | 0.00 | 41.26 |

STRATEGY FORMULATION
SWOT ANALYSIS
Strengths:
1. One of the pre-eminent plantation companies because of established regional footprint in both Malaysia and Indonesia. 2. One of the largest producers of basic oleochemicals and derivative products ranging from fatty acids, glycerin, fatty alcohols, methyl esters and methyl esters sulphonate. 3. Diversified business activities such as resource-based manufacturing (oleochemicals, derivatives and specialty chemicals), property development and retailing (personal care products, toiletries and foods) across the world. 4. Together with its subsidiaries, operates worldwide in regions that include Malaysia, North America, South America, Australia, Africa, Middle East, Europe and others. 5. Has land bank in approximately 360,000 acres, located in Peninsular Malaysia (160,000 acres), Sabah (100,000 acres) and Indonesia (100,000 acres). 6. Has a strong and experienced management team with core competencies.
Weaknesses:
1. Slow palm tree replanting process overseas operations (Kalimantan). 2. Slow conversion process from rubber tree to palm tree in overseas operations (Sumatera). 3. Malaysia land availability restriction which slowing down expansion and growth. 4. Ageing palm trees which requires replanting soon and less output due to ageing crops. 5. Young fields in Kalimantan produced less output. 6. Ageing processing mills which requires higher maintenance to comply with local authority guidelines and regulations, thus reducing processing efficiency effecting Oil Extraction Rate (OER). 7. High operating cost for rubber plantation. 8. Weak rubber output from North Sumatera operations. 9. Lack of skilled plantation labor. 10. Shortage of workers in plantation industry. 11. Malaysian production have taken a longer time than expected to recover from tree stress and suffered negative growth and stagnation. 12. To streamline marketing teams in three regions into one cohesive unit.
Opportunities:
1. 6,000 acres plantation land in Sungai Buloh earmarked for future property development. 2. New oil palm planting in Indonesia mainly in Kalimantan. 3. New and expansion of palm oil mills in Indonesia and Peninsular Malaysia to support growing upstream operations. 4. Capacity expansion of oleochemicals at existing sites in Europe, Malaysia and China. 5. New tank expansion program for oleochemicals. 6. Concerted replanting program for plantation. 7. Rising crude palm oil prices and strong demand. 8. Vast agriculture potential, proximity and cultural similarity in Indonesia to expand its landbank.
Threats:
1. Stiff competition from competitors in the markets (IOI, Sime Darby and Felda Holdings) in terms of plantation expansion. 2. Effects of Indonesia new export duty structure that gives advantages to Indonesian company. 3. Delay in regulatory approvals for new plantings in Indonesia. 4. Dependency to global economy – 2008 financial crisis and 2011 European debt crisis causing investors’ lack of confidence. 5. Weak demand on its retail industry (Crabtree & Evelyn products). 6. Adverse weather conditions induce biological stress and affect harvesting. 7. Malaysian government enforcement of minimum wages will increase its operational expenditure. 8. Scarce/limited land size locally due to strict policies to maintain forest cover at about 50 per cent of total land area. 9. Western (European) country badmouthing KLK Oil Palm with accusations such as deforestation, low quality and disturbing animals’ habitat.

Internal Factor Evaluation (IFE) Matrix Key Internal Factors | Weight | Rating | Weighted Score | Internal Strengths | 1. One of the pre-eminent plantation companies due to long establishment. | 0.08 | 4 | 0.32 | 2. One of the largest producers of basic oleochemicals and derivative products. | 0.09 | 4 | 0.36 | 3. Diversified business activities. | 0.07 | 4 | 0.28 | 4. Operates worldwide. | 0.05 | 4 | 0.20 | 5. Has land bank in approximately 360,000 acres. | 0.04 | 3 | 0.12 | 6. Has a strong and experienced management team with core competencies. | 0.04 | 3 | 0.12 | Internal Weaknesses | 1. Slow palm tree replanting process in Kalimantan operations. | 0.05 | 1 | 0.05 | 2. Slow conversion process from rubber tree to palm tree in Sumatera operations. | 0.04 | 2 | 0.08 | 3. Malaysia land availability restriction. | 0.07 | 1 | 0.07 | 4. Ageing palm trees which requires replanting soon and less output due to ageing crops. | 0.05 | 2 | 0.10 | 5. Young fields in Kalimantan produced less output. | 0.06 | 2 | 0.12 | 6. Ageing processing mills which requires higher maintenance to comply with local authority guidelines and regulations, thus reducing processing efficiency effecting Oil Extraction Rate (OER). | 0.08 | 1 | 0.08 | 7. High operating cost for rubber plantation. | 0.04 | 2 | 0.08 | 8. Weak rubber output from North Sumatera operations. | 0.04 | 2 | 0.08 | 9. Lack of skilled plantation labor. | 0.05 | 2 | 0.10 | 10. Shortage of workers in plantation industry. | 0.07 | 1 | 0.07 | 11. Malaysian production took longer time than expected for tree stress recovery and suffered negative growth and stagnation. | 0.05 | 2 | 0.10 | 12. To streamline marketing teams in three regions into one cohesive unit. | 0.03 | 2 | 0.06 | TOTAL | 1.00 | | 2.39 |
Total weighted scores 2.5 characterize organizations that are weak internally, whereas scores significantly above 2.5 indicate a strong internal position. The total weighted score of 2.39 is slightly lower from the average which shows that the internal position of KLK Berhad is quite weak.

External Factor Evaluation (EFE) Matrix Key Internal Factors | Weight | Rating | Weighted Score | External Opportunities | 1. 6,000 acres plantation land in Sungai Buloh earmarked for future property development. | 0.07 | 3 | 0.21 | 2. New oil palm planting in Indonesia mainly in Kalimantan. | 0.08 | 4 | 0.32 | 3. New and expansion of palm oil mills in Indonesia and Peninsular Malaysia to support growing upstream operations. | 0.08 | 4 | 0.32 | 4. Capacity expansion of oleochemicals at existing sites. | 0.07 | 4 | 0.28 | 5. New tank expansion program for oleochemicals. | 0.08 | 3 | 0.24 | 6. Concerted replanting program for plantation. | 0.08 | 3 | 0.24 | 7. Rising crude palm oil prices and strong demand. | 0.06 | 2 | 0.12 | 8. Vast agriculture potential, proximity and cultural similarity in Indonesia to expand its landbank. | 0.05 | 3 | 0.15 | External Threats | 1. Stiff competition from competitors in the markets. | 0.05 | 2 | 0.10 | 2. Effects of Indonesia new export duty structure. | 0.06 | 3 | 0.18 | 3. Delay in regulatory approvals for new plantings in Indonesia. | 0.07 | 2 | 0.14 | 4. Dependency to global economy causing investors’ lack of confidence. | 0.05 | 1 | 0.05 | 5. Weak demand on its retail industry (Crabtree & Evelyn products). | 0.06 | 2 | 0.12 | 6. Adverse weather conditions induce biological stress and affect harvesting. | 0.04 | 1 | 0.04 | 7. Malaysian government enforcement of minimum wages will increase its operational expenditure. | 0.03 | 2 | 0.06 | 8. Scarce/limited land size locally. | 0.05 | 3 | 0.15 | 9. Western (European) country badmouthing KLK Oil Palm. | 0.02 | 1 | 0.02 | TOTAL | 1.00 | | 2.74 |

The total weighted score 2.74 is above average which means that KLK strategies are effective and the company is taking advantage of existing opportunities along with minimizing the potential adverse effects of its external threats.

Competitive Profile Matrix (CPM) Critical Success Factors | Weight | Kuala Lumpur Kepong | Sime Darby | Felda Global Venture | | | Rating | Weighted Score | Rating | Weighted Score | Rating | Weighted Score | Product Quality | 0.10 | 3 | 0.3 | 3 | 0.3 | 3 | 0.3 | Management Experience | 0.05 | 4 | 0.2 | 4 | 0.2 | 4 | 0.2 | Market Share | 0.20 | 2 | 0.4 | 4 | 0.8 | 2 | 0.4 | Innovation | 0.05 | 3 | 0.15 | 4 | 0.2 | 2 | 0.1 | Market Expansion | 0.10 | 3 | 0.3 | 4 | 0.4 | 2 | 0.2 | Financial Position | 0.11 | 3 | 0.33 | 4 | 0.44 | 2 | 0.22 | Strategic Partnership & Alliance | 0.07 | 3 | 0.21 | 4 | 0.28 | 2 | 0.14 | Geographic Coverage | 0.11 | 3 | 0.33 | 4 | 0.44 | 4 | 0.44 | Corporate Social Responsibility | 0.09 | 3 | 0.27 | 4 | 0.36 | 1 | 0.09 | Profit Margin | 0.12 | 3 | 0.36 | 3 | 0.36 | 1 | 0.12 | Total | 1.00 | | 2.85 | | 3.72 | | 2.21 |

KLK strongest competitor is SIME DARBY BERHAD, where it scores almost highest in every critical success factors compared to KLK. Sime Darby has bigger advantage than KLK in market expansion, global presence and market share.

SWOT Matrix | Strengths 1. One of the pre-eminent plantation companies because of established regional footprint in both Malaysia and Indonesia. 2. One of the largest producers of basic oleochemicals and derivative products ranging from fatty acids, glycerin, fatty alcohols, methyl esters and methyl esters sulphonate. 3. Diversified business activities such as resource-based manufacturing (oleochemicals, derivatives and specialty chemicals), property development and retailing (personal care products, toiletries and foods) across the world. 4. Together with its subsidiaries, operates worldwide in regions that include Malaysia, North America, South America, Australia, Africa, Middle East, Europe and others. 5. Has land bank in approximately 360,000 acres, located in Peninsular Malaysia (160,000 acres), Sabah (100,000 acres) and Indonesia (100,000 acres). 6. Has a strong and experienced management team with core competencies. | Weaknesses 1. Slow palm tree replanting process overseas operations (Kalimantan). 2. Slow conversion process from rubber tree to palm tree in overseas operations (Sumatera). 3. Malaysia land availability restriction which slowing down expansion and growth. 4. Ageing palm trees which requires replanting soon and less output due to ageing crops. 5. Young fields in Kalimantan produced less output. 6. Ageing processing mills which requires higher maintenance to comply with local authority guidelines and regulations, thus reducing processing efficiency effecting Oil Extraction Rate (OER). 7. High operating cost for rubber plantation. 8. Weak rubber output from North Sumatera operations. 9. Lack of skilled plantation labour. 10. Shortage of workers in plantation industry. 11. Malaysian production have taken a longer time than expected to recover from tree stress and suffered negative growth and stagnation. 12. To streamline marketing teams in 3 regions into 1 cohesive unit | Opportunities 1. 6,000 acres plantation land in Sungai Buloh earmarked for future property development. 2. New oil palm planting in Indonesia mainly in Kalimantan. 3. New and expansion of palm oil mills in Indonesia and Peninsular Malaysia to support growing upstream operations. 4. Capacity expansion of oleochemicals at existing sites in Europe, Malaysia and China. 5. New tank expansion program for oleochemicals. 6. Concerted replanting program for plantation. 7. Rising crude palm oil prices and strong demand. 8. Vast agriculture potential, proximity and cultural similarity in Indonesia to expand its landbank | SO Strategies 1. Rapid growth to cater demand everywhere, anywhere (S4, O3, O4) 2. Received RM134 million grant from MPOB under the Economic Transformation Programme by the Malaysian Government to use in the replanting of palm oil trees (S5, O6) 3. Ease of operation and management due to cultural similarity with Indonesia is an added advantage (S6, O8) 4. Open new oleochemicals plant in Indonesia to increase production and speed up operation (S2, O5) 5. To gain interest and trust for new investors for future development (S1, O1, O2) | WO Strategies 1. Explore and expand to other parts of Kalimantan for new plantation land (W1, W5, O2) 2. Attract local labour by attractive offerings like remuneration (increase wages, commission and compensation) (W10, O2, O3) 3. Provide skills courses and trainings for the labours (W9, O1, O2) 4. Replanting of tissue culture ramets in Malaysia improves yield per hectare (W4, O7) 5. Study the rules and regulations as well as policy of the expansion country for proper arrangement and agreement that needs to be complied with the local authorities of each expansion country (W6 , O4) 6. Joint venture with local employment agency to supply labours (W10, O2, O3) | Threats 1. Stiff competition from competitors in the markets (IOI, Sime Darby and Felda Holdings) in terms of plantation expansion 2. Effects of Indonesia new export duty structure that gives advantages to Indonesian company. 3. Delay in regulatory approvals for new plantings in Indonesia. 4. Dependency to global economy – 2008 financial crisis and 2011 European debt crisis causing investors’ lack of confidence. 5. Weak demand on its retail industry (Crabtree & Evelyn products). 6. Adverse weather conditions induce biological stress and affect harvesting. 7. Malaysian government enforcement of minimum wages will increase its operational expenditure. 8. Scarce/limited land size locally due to strict policies to maintain forest cover at about 50 per cent of total land area. 9. Western (European) country badmouthing KLK Oil Palm with accusations such as deforestation, low quality and disturbing animals’ habitat. | ST Strategies 1. Propose and share the annual report and financial analysis to the potential investors in ensuring them that the company(KLK) is financially sound (S1, T4) 2. Sell its business (Crabtree & Evelyn) as it is receiving weak demand and focus more on its profitable businesses like plantation and oleochemical (S3, T5) 3. Exploring strategic alliances with reputable Indonesian upstream players for refining and oleo chemical ventures (S4, T3) 4. Buy over Indonesian plantation by requiring the stake and shares which will make Indonesian plantation company a subsidiary of KLK and enjoying the min wages imposed as well as other benefits (S5, T2) | WT Strategies 1. Explore market and land availability to other south east Asian countries like Thailand, Cambodia and Papua New Guinea which has the same and suitable tropical climate (W3, T8) 2. Follow competitors strategy and adapting in into the KLK’s own strategy of expansion (W11, T1) 3. Increase capex for refineries and oleochemical plant in Indonesia to protect upstream activities due to effects of Indonesian export duties (W6, T2) 4. Add more value added advantage to the minimum wages by including bonus, compensation, commission, clinical and hospital benefits (W10, T7) |

SPACE Matrix No | Strategic Position | Ratings | 1 | Financial Strength (FS) | | a | Quick ratio of 1.24 times in year 2011 increases to 2.28 times by year 2012 | 3 | b | Return on asset is higher for year 2012 with 0.15% compared to competitor, Sime Darby with 0.11% | 5 | c | KLK shares increases from RM 17.00 – RM 29.00 in 52 weeks range | 4 | d | Plantations Division delivered an all-time record profitbefore tax of RM1.60 billion which was 42% higher than the year before on the back of a turnover of RM4.88 billion | 6 | | | Total = 18 | | | | | | Average = 18/4 = 4.5 | 2 | Industry Strength (IS) | | a | One of the largest producers of basic oleochemicals and derivative products with good demand in the market | 7 | b | Malaysian government enforcement of minimum wages will attract local labours | 5 | c | RSPO Certification body,Control Union Certifications has awarded Certificate of Sustainability to Kekayaan Complex (KLK subsidiary) on 31 October 2011 | 3 | d | Despite being affected by weak demand following the Japan earthquake, ethylene-bis-stearamide (EBS) segment had picked up and recorded healthy performance since then. EBS is used in ABS plastics, which is used mostly in the automobile and home appliances industries | 4 | | | Total = 19 | | | | | | Average = 19/4 = 4.75 | 3 | Environmental Stability (ES) | | a | Received RM134 million grant from MPOB under the Economic Transformation Programme by the Malaysian Government to use in the replanting of palm oil trees | -1 | b | Strengthens business in the market with its subsidiaries by operating worldwide in regions that include Malaysia, North America, South America, Australia, Africa, Middle East, Europe and others | -2 | c | Exploring strategic alliances with reputableIndonesian upstream players for refining andoleo chemical ventures | -4 | d | Acquire plantation land in Sungai Buloh, in Indonesian region mainly in Kalimantan as well as acquiring to purchase Collingwood Plantation PTE LTD (CPPL)- Singapore registered company | -3 | | | Total = -10 | | | | | | Average = -10/4 = -2.5 | 4 | Competitive Advantage (CA) | | a | Provide job opportunity in country of expansion like Indonesia, Europe and China | -3 | b | Well manage asset management by turning ageing rubber plantation into oil palm plantation and reduce cost of acquiring new plantation (re-use of land) | -2 | c | Leverage on Europe facilities to providelogistics advantage and shorten delivery leadtime to customers | -1 | d | Working with Humana Child Aid Society of Sabah to set up learning centres at estates in Sabah and collaborates with the Indonesia Heritage Foundation (IHF) to provide community based crèches and kindergartens for the children of the estate workers and those living in the vicinity of those estates | -5 | | | Total = - 11 | | | | | | Average = -11/4 = -2.75 |

From the results of the ratings above:
Directional Vector Coordinates: X-axis = -2.75 + (+4.75) = + 2 : Y-axis = -2.5 +(4.5 ) = + 2

From the SPACE matrix graph, the Directional Vector Coordinates falls in the Aggressive quadrant where backward, forward and horizontal integration, market penetration, market development, product development and diversification either related or unrelated are specified and pursued based on the current situations of KLK and circumstances the organization is facing.
KLK has the financial strength and industrial strength as what has been discussed earlier in the SWOT matrix to compete with its competitors such as Sime Darby, IOI and FELDA. KLK is lacking in the competitive and environmental stability as Sime Darby, IOI and FELDA has been pursuing to expand the landmark to other Asian countries like Cambodia and Thailand where the tropical climate is similar with fertile soil suitable for plantation as well as going as far to Africa for the same purpose. KLK should not limit the choice to Indonesia country only and should go beyond for multiple choice and alternatives since the rules, regulations and policy imposed such as new export duty structure that gives advantages to Indonesian company on foreign business like KLK is affecting KLK itself. Delay in regulatory approvals for new plantings in Indonesia proves that Indonesia itself is reluctant to let go of its land to foreign business as it plays a major role in oil palm plantation as well and is one of the competitor country for the oil palm production where both Malaysia and Indonesia are the world's top two palm oil producers.
Despite receiving bad rumours by Western (European) country who had badmouthing KLK Oil Palm with accusations such as deforestation, low quality and disturbing animals’ habitat, KLK continued to prosper and grow with expansion in plantation and manage to diversify in other business areas with high demand in oleochemicals. In reality, Malaysian government impose strict policies to maintain forest cover at about 50 per cent of total land area with the purpose to avoid deforestation and disturbing animals’ habitat. With all aspects taken into consideration and abiding with the law and policy, KLK has been awarded with the following awards and with the awards received, it is proven that KLK is not affected by the bad rumors :
a) RSPO Certification body that Control Union Certifications awarded Certificate of Sustainability to Kekayaan Complex (KLK subsidiary) on 31 October 2011
b) 1st place under the Plantations category for the prestigious National Occupational Safety and Health Award 2010 for its dedicated efforts to provide employees with a safe and healthy workplace by the National Council for Occupational Safety and Health
Diversified business activities such as resource-based manufacturing (oleochemicals, derivatives and specialty chemicals), property development and retailing (personal care products, toiletries and foods) across the world proven a good strategy by KLK especially with demand in the market for oleochemicals with 38% investment for its growth. Therefore KLK should pursue aggressive strategies in order to strengthen its current business areas, be in good terms with its subsidiary companies, build beneficial and strong alliance with reputable Indonesian, China and European upstream players for refining and oleochemical ventures.
Although weak demand on its retail industry, Crabtree & Evelyn products in few countries like US and Europe, KLK can divert the business venture and penetrate to other potential market in China and India where the number of population is high.

BOSTON CONSULTING GROUP (BCG) MATRIX Division | Revenue (RM’000) | Expenses (RM’000) | Percent Revenues | Profits (RM’000) | Percent Profits | RMSP * | ISG (%) * | Palm Products | 4,551,491 | 3,135,442 | 42.45% | 1,416,049 | 75.24% | 0.9 | 7% | Rubber | 328,920 | 159,126 | 3.07% | 169,794 | 9.02% | 0.8 | 15% | Manufacturing | 5,135,476 | 4,909,131 | 47.89% | 226,345 | 12.03% | 0.3 | 16% | Retailing | 651,054 | 628,194 | 6.07% | 22,860 | 1.21% | 0.4 | 7% | Property Development | 4,588 | 3,237 | 0.04% | 1,351 | 0.07% | 0.6 | 17% | Investment Income | 51,326 | 5,774 | 0.48% | 45,552 | 2.42% | 0.7 | 10% | Total | 10,722,855 | 8,840,904 | 100.00% | 1,881,951 | 100.00% | | |

Majority of KLK operations are in STARS quadrant, which has a potential growth and potential higher long term profitability. Therefore, it is suggested that the businesses in STARS quadrant are expanded through market penetration, market share expansion and horizontal integration within the same industry. Manufacturing and retailing are in QUESTION MARK quadrant as it has the highest operating cost and low profit. However, it is suggested the business is maintained as it supports the other division’s expansion strategy.
INTERNAL EXTERNAL MATRIX | | IFE total weighted score | | IFE = 2.39
EFE = 2.74 | Strong
(3.00-4.00) | Average
(2.00-2.99) | Weak
(1.00-1.99) | EFE total weighted score | High
(3.00-4.00) | Igrow | IIand | IIIbuild | | Medium
(2.00-2.99) | IVhold | VandKLK position | VImaintain | | Low
(1.00-1.99) | VIIharvest | VIIIor | IXdivest |

KLK positioned in Quadrant V “hold and maintain”. The best strategy in this quadrant is market penetration and product development, which is in-line with the recommended strategy to expand the landbank for KLK. Due to saturation of market in Malaysia, expansion to other South East Asian countries such as Cambodia and Thailand is much preferred.

QUANTITATIVE STRATEGIC PLANNING MATRIX (QSPM)
For KLK, there are two strategic alternatives in QSPM to be compared. The first strategic alternative for KLK is to expand its plantation development overseas as well as oleochemicals business for market development. The second strategic alternative is to enhance property development business in Malaysia to carve a position amongst its market competitors and for branding strategy. STRATEGIC ALTERNATIVES | | 1Expand plantation development overseas as well as oleochemicals business. | 2Enhance property development business in Malaysia. | Key Factors | Weight | AS | TAS | AS | TAS | Opportunities | 1. 6,000 acres plantation land in Sungai Buloh earmarked for future property development. | 0.07 | 2 | 0.14 | 4 | 0.28 | 2. New oil palm planting in Indonesia mainly in Kalimantan. | 0.08 | 4 | 0.32 | 1 | 0.08 | 3. New and expansion of palm oil mills in Indonesia and Peninsular Malaysia to support growing upstream operations. | 0.08 | 4 | 0.32 | 2 | 0.16 | 4. Capacity expansion of oleochemicals at existing sites. | 0.07 | 4 | 0.28 | 1 | 0.07 | 5. New tank expansion program for oleochemicals. | 0.08 | 4 | 0.32 | 1 | 0.08 | 6. Concerted replanting program for plantation. | 0.08 | 4 | 0.32 | 2 | 0.16 | 7. Rising crude palm oil prices and strong demand. | 0.06 | 3 | 0.18 | 2 | 0.12 | 8. Vast agriculture potential, proximity and cultural similarity in Indonesia to expand its landbank. | 0.05 | 3 | 0.15 | 1 | 0.05 | Threats | 1. Stiff competition from competitors in the markets. | 0.05 | 4 | 0.20 | 3 | 0.15 | 2. Effects of Indonesia new export duty structure. | 0.06 | 3 | 0.18 | 2 | 0.12 | 3. Delay in regulatory approvals for new plantings in Indonesia. | 0.07 | 3 | 0.21 | 2 | 0.14 | 4. Dependency to global economy causing investors’ lack of confidence. | 0.05 | - | - | - | - | 5. Weak demand on its retail industry (Crabtree & Evelyn products). | 0.06 | - | - | - | - | 6. Adverse weather conditions induce biological stress and affect harvesting. | 0.04 | - | - | - | - | 7. Malaysian government enforcement of minimum wages will increase its operational expenditure. | 0.03 | 3 | 0.09 | 1 | 0.03 | 8. Scarce/limited land size locally. | 0.05 | 3 | 0.15 | 1 | 0.05 | 9. Western (European) country badmouthing KLK Oil Palm. | 0.02 | 2 | 0.04 | 1 | 0.02 | Total | 1.00 | | 2.90 | | 1.51 | Strengths | 1. One of the pre-eminent plantation companies due to long establishment. | 0.08 | 4 | 0.32 | 2 | 0.16 | 2. One of the largest producers of basic oleochemicals and derivative products. | 0.09 | 4 | 0.36 | 2 | 0.18 | 3. Diversified business activities. | 0.07 | 3 | 0.21 | 4 | 0.28 | 4. Operates worldwide. | 0.05 | 3 | 0.15 | 1 | 0.05 | 5. Has land bank in approximately 360,000 acres. | 0.04 | 4 | 0.16 | 2 | 0.08 | 6. Has a strong and experienced management team with core competencies. | 0.04 | 4 | 0.16 | 3 | 0.12 | Weaknesses | 1. Slow palm tree replanting process in Kalimantan operations. | 0.05 | 4 | 0.20 | 1 | 0.05 | 2. Slow conversion process from rubber tree to palm tree in Sumatera operations. | 0.04 | 4 | 0.16 | 1 | 0.04 | 3. Malaysia land availability restriction. | 0.07 | 4 | 0.28 | 1 | 0.07 | 4. Ageing palm trees which requires replanting soon and less output due to ageing crops. | 0.05 | 3 | 0.15 | 1 | 0.05 | 5. Young fields in Kalimantan produced less output. | 0.06 | 3 | 0.18 | 1 | 0.06 | 6. Ageing processing mills which requires higher maintenance to comply with local authority guidelines and regulations, thus reducing processing efficiency effecting Oil Extraction Rate (OER). | 0.08 | 4 | 0.32 | 2 | 0.16 | 7. High operating cost for rubber plantation. | 0.04 | 3 | 0.12 | 2 | 0.08 | 8. Weak rubber output from North Sumatera operations. | 0.04 | 3 | 0.12 | 1 | 0.04 | 9. Lack of skilled plantation labor. | 0.05 | 3 | 0.15 | 1 | 0.05 | 10. Shortage of workers in plantation industry. | 0.07 | 3 | 0.21 | 2 | 0.14 | 11. Malaysian production took longer time than expected for tree stress recovery and suffered negative growth and stagnation. | 0.05 | 3 | 0.15 | 1 | 0.05 | 12. To streamline marketing teams in three regions into one cohesive unit. | 0.03 | - | - | - | - | Total | 1.00 | | 6.30 | | 3.17 |

The total attractiveness scores indicate that KLK should expand its plantation development overseas as well as oleochemicals business. Instead of enhancing its property development business, it is better for KLK to further expand its landbank in Indonesia and to other countries such as Thailand, Cambodia and Africa and continually develop its oleochemicals business by acquisition of companies who own the land and purchasing the land. Selective and complementary oleochemicals acquisitions will further help consolidate its position as a global leading oleochemicals producer. Therefore, KLK should sustain its internal strengths and at the same time explore all opportunities to expand its landbank beyond its current geographic reach.

GRAND STRATEGY MATRIX

Rapid Market Growth

Slow Market Growth
Strong Competitive Position
Weak Competitive Position

KLK Strategy at Quadrant 1 1. Product Development: KLK should establish a Research and Development unit to develop new product for its manufacturing unit, especially in using the by-products of its current production. 2. Market penetration: KLK is financially strong to start venturing to new territory such as other South East Asia countries. 3. Backward Integration: One of KLK’s weaknesses is the shortage of labor. Therefore, KLK may include employment agency to ensure that its labor shortage can be fulfilled.

EPS/EBIT ANALYSIS
To increase land bank for further market penetration, KLK need to raise RM1 billion. Assuming prefered stock dividend yield at 4.3% , while debt is at 7.8% interest rate | | Common Stock | Preferred Stock | Debt | Price per share (RM) | 22 | 25 | nil | Annual Rate | 0 | 4.3% | 7.80% | | | | | | | | | +Additional Fund (million) | 1000 | 1000 | 1000 | Additional EBIT that are able to be generated | | | | Based on current performance: | | | | Assuming EBIT is 140,000 | | | | EBIT (million) | 140 | 140 | 140 | - Interest Expense | | | 78 | Earnings before Taxes (million) | 140 | 140 | 62 | -Taxes (25%) (million) | 35 | 35 | 15.5 | -Preferred Dividends (million) | | 43 | | Earnings available (million) | 105 | 62 | 46.5 | | | | | Total common shares | 10,045,454,545 | 10,000,000,000 | 10,000,000,000 | EPS (sen) | 95.67099567 | 161.2903226 | 215.0537634 |

Assuming profit can be gained at 140 Millions with 1 Billion fund, Financing through debt will gain a higher earnings per share compared to financing via preferred stock and common stock.

BALANCE SCORECARD | Objective | Measure | Target | Initiatives | Financial | To achieve sustainable financial performance for each business unit, including OPEX, CAPEX, revenue, profit performance. | * OPEX * CAPEX * Revenue * Profit | * OPEX +/- 5% expenditure * CAPEX +/- 5% expenditure | * Quarterly audit on expenditure. * Cost control initiatives. * Robust development planning. | Customer | To increase brand awareness to customers, thus enhance close customer relation and loyalty. | * Sales performance of Evelyn & Crabtree * Sales performance for palm oil | * Profit increase by > 50% * Profit increase by > 20% | * Rebranding of C&E * Construction of new palm oil mills. | Business Processes | * To increase production performance through its efficiency and total output for each business unit. * Continue providing a safe and healthy environment for employees | * Palm oil mill production via oil extraction rate (OER, %) * Rubber production effciency (%) * High profile incident | * > 95% oil extraction rate. * > 95% rubber production efficiency. * Zero/year | * Promotes comprehensive maintenance regime. * Conduct scheduled DOSH inspection. * HSE campaigns * Employment of Safety Officers. * HSE tokens and gifts. * Learning and training | Learning and Growth | To increase staff competency index within each business unit. | * Annual performance appraisal ratings. * Numbers of certified steam boiler level 3 technicians. | * Bell curve tabulation to be applied. * Minimum of 2 level 3 steam boiler techs for each mill. | * Budget allocation for training and to qualify technicians for level 3 certification. |

CONCLUSION
Based on the financial analysis and the company’s internal and external evaluation, it is concluded that the KLK have a big potential to grow. The company had shown a strong financial position and able to convince financier for debt leverage needed for expansion.
The strategies suggested in this paper are in line with the company’s future plan, which includes expansion to South East Asia and Africa. The presence of the company’s closest competitor in the countries might further assist its market penetration, as the competitors already paved the ways for foreign presence in the countries.
Furthermore, the company also includes property development as the area which they would like to expand, as included in our analysis of 2nd strategy that the company needs to explore. The company also has a good relationship with the financier, particularly Maybank and CIMB that able to assist them in providing the fund needed for expansion.

References 1. http://www.theedgemalaysia.com/in-the-financial-daily/222302-klk-acquisition-to-support-long-term-growth.html

2. http://klse.i3investor.com/servlets/stk/2445.jsp

3. http://stock.osfvad.com/stock_financial_summary.php?stockname=KLK

4. Sime Darby annual report 2011

5. KLK annual report 2011

6. http://biz.thestar.com.my/news/story.asp?file=/2012/7/14/business/11645677&sec=business

7. http://investing.businessweek.com/research/stocks/financials/ratios.asp?ticker=KLK:MK

8. http://www.mysinchew.com/node/73759

9. http://www.btimes.com.my/Current_News/BTIMES/articles/fledass/Article/

10. http://www.maybank-ib.com/news/14_aug_2012.html

Appendix A