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Quarterly Report For The Financial Period Ended 30 June 2017

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Unaudited Condensed Consolidated Income Statement

Unaudited Condensed Statement Of Financial Position

Performance Review

For the half-year period ended 30 June 2017, the Group registered an unaudited pre-tax profit of RM233.4 million, a 38% decrease compared with RM377.4 million in the previous year's corresponding period. Last year's pre-tax profit was higher mainly due to gains realised on divestment of the Group's associate company Jendela Hikmat and disposal of plantation land, amounting to RM209.5 million and RM124.2 million respectively. Excluding these gains, the Group's pre-tax profit for the current period was higher by RM189.7 million or 434%. The Group's profit after taxation of RM167.9 million was also lower compared with RM310.9 million in the same period last year, primarily due to the gains realised.

The Group posted a higher revenue of RM4.8 billion for its first six months, up by 21% from RM3.9 billion recorded in last year's corresponding period. For the six-month period, the Plantation Division's revenue rose by 15% to RM358.5 million, on the back of buoyant palm product prices and better FFB production. The Trading & Industrial Division's revenue was 32% higher compared with last year's corresponding period, mainly due to increased fuel prices. The Heavy Industries Division revenue increased by 41% on higher billings for its LCS and ship repair projects, as well as recognition of revenue from its Littoral Mission Ship project. Revenue for the Pharmaceutical, Property and Finance & Investment Divisions was marginally better than last year's corresponding period.

For the half-year period, the Plantation Division registered a lower pre-tax profit of RM85.9 million (2016: RM151.2 million). Pre-tax profit for last year's corresponding period was bolstered by the gain on disposal of plantation land amounting to RM124.2 million. Excluding this gain, the current year's pre-tax profit was higher by 218%, on the back of higher palm product prices, improved crop production and lower finance cost. The average selling price of CPO for the first six months was RM2,969 per MT, up by RM545 per MT or 22% from RM2,424 per MT in last year's corresponding period. Similarly, the average PK price of RM2,620 per MT was better by RM500 per MT or 24%, compared with RM2,120 per MT in the same period last year. FFB production for the six-month period was 440,075 MT, an improvement of 10% from 398,418 MT in the same period last year. The crop uptrend was primarily due to improved yields post El-Nino. Oil and kernel extraction rates averaged at 20.8% (2016: 21.4%) and 4.3% (2016: 4.4%) respectively.

For the six-month period, the Heavy Industries Division registered a pre-tax profit of RM45.9 million, marking an improvement from the deficit of RM99.6 million in the previous year's corresponding period. This was achieved on the back of an improved contribution from Boustead Naval Shipyard (BNS), which made good progress on the LCS and ship repair projects, as well as recognising income from the new Littoral Mission Ship (LMS) project. BNS had also benefitted from the reversal of provision for Liquidated Ascertain Damages (LAD) for KD Kasturi and KD Perantau. MHS Aviation contributed to the Division's stronger results as well, turning in a profit mainly due to recognition of monthly standing charges that were previously deferred pending negotiations with Petronas on the Joint Operations contract.

The Finance & Investment Division closed the half-year period with a higher pre-tax profit of RM40.5 million (2016: RM24.6 million). The Division had benefitted from a net interest income of RM0.7 million (2016: net finance cost of RM18.6 million) arising from reduced borrowings and placement of surplus funds from Rights issue proceeds. The contribution from Affin Holdings was also stronger, mainly due to an increase in other operating income, Islamic banking income and net interest income.

For the six-month period, the Pharmaceutical Division recorded a lower pre-tax profit of RM28.7 million (2016: RM37.9 million). Despite stronger contributions from its concession and private sector businesses, the Division was impacted by the temporary closure of certain production lines for preparatory works to facilitate the commercialisation of new products, which resulted in lower production by the Division's manufacturing facilities for the period. The Trading & Industrial Division posted a lower pre-tax profit of RM47.4 million for the six-month period (2016: RM51.1 million). Despite an improved contribution from UAC Berhad, the Division was impacted by a stockholding loss incurred by Boustead Petroleum Marketing (BPM).

The Property Division recorded a deficit of RM15.0 million for the first six months, compared with a pre-tax profit of RM212.2 million in last year's corresponding period. However, last year's pre-tax profit included a gain on disposal of an associate company, Jendela Hikmat, amounting to RM209.5 million. The current period's deficit was mainly due to start-up costs for the newly opened MyTOWN Shopping Centre under a joint venture, Boustead Ikano.

Prospects

The second half of 2017 is expected to be challenging, both globally and domestically. Policy uncertainties in Europe, the potential retreat of globalisation in advanced economies and other geopolitical risks are key factors which could impact global growth. On the domestic front, volatile commodities prices and slower domestic demand may impede growth. Despite this tough backdrop, long-term prospects are positive for the Malaysian economy, which is supported by strong economic fundamentals, a sound financial system, an accommodative monetary policy as well as the implementation of various Government initiatives. As such, the diversified nature of BHB in six core areas of the Malaysian economy certainly augurs well for the Group.

The Plantation Division's profitability is dependent on the price direction of CPO and crop production. FFB yields are improving in Peninsular Malaysia and Sabah regions but labour shortage coupled with difficult ground conditions in Sarawak may hamper crop production. CPO prices are expected to soften in the second half of the year amid slower demand from traditional markets, higher CPO production, as well as reduced biodiesel production in Indonesia. Lower yields of soybean production in the United States could also influence CPO prices.

The Pharmaceutical Division is well-positioned to capitalise on opportunities in the growing healthcare sector, both domestically and internationally. The Division remains committed to reinforcing its leadership position in Malaysia's pharmaceutical sector by leveraging on this growth potential, coupled with its focus to implement continuous cost optimisation measures across its operations in order to strengthen earnings potential and deliver sustained results.

In the Property Division, progress billings from ongoing and upcoming housing projects will continue to strengthen the Division's bottom line. Furthermore, the Division's portfolio of prime investment properties are on-track to generate solid rentals as well as appreciation in value over time. Meanwhile, the Division's hotel activities are expected to achieve a satisfactory performance moving forward, although occupancies and rates will remain key challenges. In the Heavy Industries Division, the LCS and LMS projects as well as defence related maintenance, repair and overhaul activities are expected to contribute to the Division's performance. The Finance & Investment Division's earnings will largely be driven by Affin Holdings, while the Trading & Industrial Division will continue to be propelled by BPM and UAC Berhad.

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