SOUTHERN ACIDS (M) BERHAD 35TH ANNUAL GENERAL MEETING 24 AUGUST 2016 Replies to MSWG’s Questions

Question 1 - Strategy/Financials As reported in the Chairman Statement, in FY2016, the revenue of Southern Acids decreased by 6.2% to RM503.4 million compared to FY2015 revenue of RM536.7 million. PBT of Southern Acids also decreased by 15.5% to RM36.9 million compared to FY2015 PBT of RM43.7 million of which RM17.0 million came from other income.

Question 1 - Strategy/Financials Q1 (a): Please explain the strategy of SAB in the long term Answer: The main objective of the Board is to improve the value of the Company’s assets over the long term which naturally translates to a long term growing shareholders’ value. Currently the Board is desirous of strengthening its two (2) existing long term core businesses which facing changing environmental challenges. The core businesses are as follows:- palm oil oleochemical products manufacturing and exporting; and palm oil milling and oil palm estate operating. The Board is of the view that it is not timely for the Company venture into property development. The Board believes in maintaining long term growth for all stakeholders.

Question 1 - Strategy/Financials Q1 (b): Could the other income be sustainable providing the growth to complement its core business? Answer: Figure 1 – Analysis of net Other Operating Income (“OOI”) (RM’000)   ^ OOE = Other Operating Expenses OOI OOE ^ FY 2016 2015 Characteristic Cash Items Interest Income Other Income (rental & sales proceed) Realized gain/(loss) on forex contract Realized gain/(loss) - commodity hedging Others Sub-Total 5,259 2,107 2,961 285 254 10,866 - (42) 2,919 10,824 4,922 1,525 381 (1,904) 157 5,081 No risk Element of risk Non-Cash Items Unrealized - Forex (bank/receivables) Unrealized - Forward Forex Contract 422 5,087 640 6,149 (4,561) (4,139) 1,588 1,675 (3,916) 212 (2,029) } } No risk element Total 17,015 (4,603) 12,502 3,052

Question 1 - Strategy/Financials Answer to Q1 (b) (Continued): Based on the Figure 1 above, we are looking at annual risk free income of RM6.0 to RM7.0 million a year provided that SAB does not use the existing cash for expansion purposes. The both managing of forex (receivables) and buying of raw materials on a forward basis for Oleochemical Division have its uncertainty and cannot be deemed to be sustainable. Hence, the net Other Operating Income of the Company is not sustainable providing the growth to complement SAB’s core business. Q1 (c): What further measures taken to improve its core activities in the next 12 months? Answer: Kindly refer to presentation slide no. 11, 14 and 17 of the Shareholders Briefing.

Question 2 - Oleochemical Q2 (a): How much budget has been set aside for upgrading its plant and what is the planned capacity to achieve in the long run? Answer: Subject to the feasibility studies and board approval, we are looking to the following capex:- Cooling tower – RM1.3 million; Hydrogen plant – RM8.5 million; and Operation capex – RM4.5 million. Q2 (b): What is the current plant’s efficiency level and to what level it is targeted to achieve? The current plant efficiency level is about 80% and we aim to achieve higher level (hopefully to full capacity).

Question 2 - Oleochemical Q2 (c): On the introduction of export tariff levy by the Indonesian government in 2015, to what extent it have impacted the division and what is the strategy for the division to compete with the Indonesian counterparts in terms of pricing? Answer: There is significant impact to Malaysian oleochemical manufacturers making them less competitive. The following are the measures being look into:- Cost optimization; and To look into automation processes to reduce the dependency on workers in order to improve efficiency and productivity. Q2 (d): Apart from the efficient sourcing of raw materials, what other measures are being planned to cushion the impact of the increase in gas price? The management is looking the possibility of alternate fuel source to reduce the dependency on external energy supply.

Question 3 - Plantation & Milling Q3 (a): It is noted that the SAB has a total of 1,510.9 hectares of immature area in Indonesia. How long would it take to be at prime? Answer: Generally it takes 6 - 7 years to reach the prime stage of FFB production after replanting. All the existing replanted fields will reach prime stage of production from year 2022 – 2025.

Question 3 - Plantation & Milling Q3 (b): How would the Company address the shortage of supply of FFB regionally affected by El Nino weather recently and the increase in the operating costs caused by higher labour cost? Answer: The following measures are being looked into:- To purchase external FFB at more competitive terms of pricing and quality; and To look into mechanization for plantation operations to reduce the dependency on workers and improve efficiency and productivity.

Question 3 - Plantation & Milling Q3 (c): How much has been budgeted for the total replanting of thousand hectares for next three years? Answer: The total budgeted replanting cost is about RM12 million to RM15 million. Q3 (d): What is the current yield for FFB per hectare of the Group’s oil palm? The Group’s current average yield per hectare for FY2016 is 23.7.

Question 3 - Plantation & Milling Q3 (e): What would be the Company’s long term plan to mitigate the labour costs and please explain how would the Company address the impact of minimum wages policy? Answer: The management is looking into mechanization for plantation operations to reduce the dependency on workers and to improve efficiency and productivity.

Question 4 - Healthcare Q4 (a): What is the current state of the sourcing for the new Hospital Information System (HIS) and is the target on track to be implemented by 2018? Was there any cost involved in the failed HIS and how much? Answer: We are currently at the final stage of selecting the new HIS, and is on track to be implemented by 2018. An approximately RM645K has incurred on the failed HIS system.

Question 4 - Healthcare Q4 (b): Please brief shareholders on the existing upgrading program for Sri Kota Medical Centre in terms of timeline, costs and the progress. Answer: We have budgeted a total of RM20 million to upgrade medical equipment and general hospital facilities by FY2018.

Question 5 - Corporate Governance MSWG is promoting certain standards of corporate governance best practices in PLCs. In this regard, we hope the Board would give due consideration to address the following issues:- Q5 (a): Publication of 5-Year Plantation Statistic Please provide the relevant information in the Annual Report such as FFB Production (own estates, sold, purchased and total processed), Yield per mature hectare, Profit per mature hectare & etc. Answer: We take note of this suggestion and consider the relevant information requested in future Annual Report.

Question 5 - Corporate Governance Q5 (b): The recent amendments to Chapter 9, Para 9.21 (2) of the Main Listing Requirements (“MMLR”) requires companies to publish the summary of key matters discussed at the AGMs onto the companies’ website for AGMs held on or after 1 July 2016. In line with this, we hope the Board would publish the summary of proceedings for this AGM on the Company’s website. Answer: In line with the new MMLR, the Company will publish the summary of key matters discussed at today’s AGM as soon as practicable.  

SOUTHERN ACIDS (M) BERHAD Thank you !