FGV Annual Integrated Report 2019

30 FGV HOLDINGS BERHAD STATEMENTS AND ANALYSIS MESSAGE FROM THE GROUP CHIEF EXECUTIVE OFFICER With our recent foray into animal feed, we are now realising potential from by-products that we used to ignore. After producing 21,653 MT of animal feed in 2019, our target for 2020 will be to produce a higher amount based on the projected demand, to further increase the revenue. In terms of Renewable Energy, as we have the most biogas plants for a single plantation company, we already produce revenue of over RM100 million by unlocking the value of the waste that we produce at no extra cost. Sugar Sector The Sugar Sector registered a loss of RM316.13 million in FY2019 compared to RM58.71 million profit in the previous financial year mainly due to the high cost of the new refinery in Johor, low utilisation due to the additional capacity provided by the Johor refinery, impairments on certain assets, depressed sugar prices and an increase in gas tariffs. In 2019, we started to export valued-added sugar products such as sugar syrup and premixed sugar to the Asian market, and plan to install a biomass boiler to reduce our energy bills. Logistics Division The Logistics Division recorded higher profit of RM87.49 million in FY2019 compared to RM73.14 million in FY2018 due to higher throughput and tonnage. In 2019, the Logistics Division begun its journey to becoming a total logistics solutions provider in Malaysia and also made its first foray into the handling of basic chemicals. Others Division The Others Division recorded losses of RM57.28 million in FY2019 compared to a RM5.51 million loss in FY2018 due to impairments and provisions for a separation scheme following the proposed closure of two entities. Initiatives for Greater Efficiency The Group has adopted initiatives to improve our financial position and human capital capabilities to drive future growth, including stricter management of our finances and right-sizing our workforce. We realised procurement savings and disposed of non-core and non-performing businesses. We have also received the internationally recognised ISO 37001:2016 certification for our Anti-Bribery Management System (ABMS), which has been rolled out across the Group. In 2019, Group Human Capital optimised employee benefit policies from a cost perspective given the business challenges faced by FGV. As at the end of 2019, we have achieved 7.1% savings in manpower costs and a reduction of manpower numbers from 18,742 to 17,104, while improving productivity. The training of our employees did not stop however, as we believe in capability building for future growth. We invested a total of RM3.3 million on various programmes, with an estimated 15,517 training man-days. We also introduced a brand new Young Shapers Programme (YSP) to develop and drive a group of potential young talents, aged 35 and below, as enablers to boost FGV’s transformation plans and create a culture of performance excellence. A total of 36 candidates completed the programme in 2019. Moving into 2020, the Group will introduce a new performance management framework that is designed to develop a high performance culture. The YSP programme will also be carried out again in 2020. OVERCOMING THE CHALLENGES Accomplishing all that we did in 2019 was a feat, especially remarkable considering the external operating environment. With CPO prices depressed for most of 2019 and a drought in the first half of the year, we decided to take a slightly more conservative stance, and as a result, we did not aggressively implement our budgeted replanting programme. Similarly, we delayed the application of fertiliser though we ensured that there would be no material impact on future productivity. However, we were able to deliver strong production numbers due to a number of factors that included a higher proportion of mature and prime trees compared to old trees that were more resilient against lower rainfall, being declared as matured and a more stable labour supply. The moderating economy, trade uncertainty and dampened consumer and business sentiment also contributed another set of challenging factors. In 2019, the palm oil industry experienced a second consecutive year of lower prices with the average price of palm oil down 7.2% year-on-year to RM2,077.50 per MT. This was largely due to historical highs of palm oil stock of 3.2 million MT at the start of the year. Nevertheless, we delivered significant operational improvements as the team remained steadfastly focused on their goals and targets, consistently and tenaciously implementing change to improving efficiency, while innovating to create products that continue to meet market needs. I want to commend the thousands of FGV employees who enabled this shift in attitude, that resulted in improved performance through their hard work and dedication. I realise that most of our employees are starting to embrace the culture change that the Board of Directors and Management have been driving day in and day out. This is a positive sign for the Group. As we continue to be energised by our charge towards a high-performance culture that incorporates accountability and integrity, I am confident FGV will overcome the challenges that lie ahead. LIVING AND BREATHING SUSTAINABILITY Sustainability for FGV is not new. We have implemented numerous initiatives that underscore our commitment to sustainability and to ensuring it is embedded in everything that we do. From a broad perspective, this involves respecting human rights, environmental stewardship and providing that all important link between our smallholders and the international markets. In the context of producing sustainable palm oil, the Group now has almost half of its 68 complexes certified by the Roundtable on Sustainable Palm Oil (RSPO). As for the Malaysian Sustainable