FGV Annual Integrated Report 2019

29 ANNUAL INTEGRATED REPORT 2019 03 S E C T I O N MESSAGE FROM THE GROUP CHIEF EXECUTIVE OFFICER PROGRESS AGAINST THE BP21 STRATEGY FGV’s Business Plan 2019-2021 (BP21) was formulated with one overall goal in mind — to stop the decline and drive sustainable growth throughout the Group. The plan is guided by key principles that centre around: • Better resource utilisation to generate higher returns. • Portfolio enhancements to balance structural inefficiencies. • Value maximisation through an integrated business value chain. • Commercially driven and accountable business decision making. • Optimising human capital potential in driving growth. The BP21 has also made it a point to embed ethical, sustainable and responsible behaviour into every facet of the business, in order to create long term value, with respect to our stakeholders, the environment, our resources and governance. Four main strategic thrusts were developed to drive this plan to create meaningful outcomes across our core businesses and support functions. As 2019 was its first year of implementation, I would like to spend some time discussing the overall performance and initiatives taken under BP21 in each sector of our business. Plantation Sector The Plantation Sector reported a lower loss of RM8.85 million for FY2019 compared to RM988.54 million in FY2018. The losses incurred in 2018 was mainly due to the recognition of impairment losses amounting to RM921 million. In FY2019, the Sector took a smaller impairment of RM27 million. Upstream Within the Upstream business of the Plantation Sector, the Group focused on improvements across all our operations to maximise productivity, enhance quality and lower costs. We accomplished a number of significant milestones in 2019, recording one of our highest FFB yield, FFB production and oil extraction rate (OER) performances. FFB production rose by 5.6% to 4.45 million MT compared to 4.21 million MT with a yield of 18.44 MT per hectare. OER achieved was higher at 20.61% from 20.49% registered in the previous year. This was possible due to good agricultural practices (GAP), better crop recovery and better FFB quality. The implementation of site- specific GAP in 30 estates across the Group’s estate holdings boosted yield and we are looking to expand these practices depending on the results of two pilot projects. The first project will test the effectiveness of utilising our own manpower for replanting instead of outsourcing, while the other project will utilise Space Applications For Environment (SAFE) technology to implement the highest and most precise replanting standards using satellite technology. We also introduced two Model Estates and two Model Mills that demonstrated the ability to lower average costs compared to other mills and estates, through the implementation of best and lean practices. FGV will move forward in 2020 to implement more Model Estates and Mills in step with the Group’s financial capacity to fund these improvements. We will also undertake selective rationalisation of our mills to increase overall utilisation. To average down our palm tree age profile, we have replanted a total of 8,251 Ha of oil palm, and to boost productivity, we mechanisedanadditional 18,500Ha, bringing the totalmechanised area to 115,000 Ha. In addition, FGV’s R&D Division continues to contribute substantial value to the Group with its award-winning planting material, the Yangambi seed, commanding almost 44% of Malaysia’s seed market. Downstream FGV continued to introduce new products to the market and found ways to add value to existing products to penetrate new markets in the Downstream segment. In 2019, we introduced Premium Quality (PQ) crude palm oil that was further refined for downstream use. It has shown good commercial potential as it is able to command a higher price, and we plan to increase production going forward. We continue to lead in the non-subsidised range of cooking oils with our flagship cooking oil brand, SAJI, with a market share of 34%. Our ADELA products, made in partnership with the R&D Division, have also made significant inroads into their respective markets. Going forward, we will continue to pay close attention to growing our main fast-moving consumer goods (FMCG) brands of SAJI, ADELA and SERI PELANGI. The Group has also recorded a significant increase in the sales volume of palm methyl ester (PME), due to the implementation of the B10 biodiesel mandate for the transport sector in February 2019. The biodiesel journey with the Malaysian Palm Oil Board (MPOB) will continue as we have embarked on a new trial for B20 biodiesel. Research and Development Through this division, new products such as animal fat replacer, dairy fat replacer, palm kernel protein and calcium soap are now in the process of commercialisation. FGV’s R&D Division will continue with its stellar efforts to help create new products for our various markets. Rubber In other areas, our Kilang Palong 8 rubber processing plant achieved a plant utilisation factor of 85% and this was the highest production in 10 years for the plant. Integrated Farming FGV continues to identify new and synergistic areas of growth to drive our long-term performance and we have already started earning revenue from new income streams in the circular economy and renewable energy. FGV is now using palm kernel expeller (PKE) to produce animal feed for beef and dairy cattle. This initiative has shown great potential and is a clear example of the circular economy at work. We have also identified ways to efficiently use our landbank and have started exploring intercropping as well as using land that is not suitable for oil palm for other crops. STATEMENTS AND ANALYSIS