FGV Annual Report 2012

12 Felda Global Ventures Holdings Berhad Chairman’s Statement With the financial, structural and operational advantages gained from the listing exercise, the stage is now set for FGV to climb the ranks and become one of the top agro-business conglomerates in the world by 2020. AN EVENTFUL YEAR In 2012, the international economic landscape became more challenging as global growth moderated. Weakening economic conditions in several key economies affected international trade. This in turn created adverse effects on economic activities in emerging economies. In particular, the global economy was clouded by the Eurozone debt crisis and uncertainty over the outlook for the economies of the United States and China. The gloomy global backdrop reined in international demand and slowed demand for Crude Palm Oil (CPO) from China. Coupled with growing supply from an aggressively expanding Indonesia, which pumped-up palm oil inventory to uncharacteristically high levels, the year 2012 saw lower than expected selling prices for CPO. Average CPO prices dropped to a range between RM2,800 and RM2,900 per tonne versus the previous year’s average of RM3,219 per tonne. FGV’s CPO prices reduced in tandem with this, transacting lower at RM2,843 per tonne last year compared to RM3,218 per tonne in 2011. At company level, the most significant development in 2012 occurred in our plantation business. FGV entered into several agreements with FELDA in the first quarter of 2012 – with respect to 355,864 hectares of land in Peninsular Malaysia, Sabah and Sarawak. These agreements effectively changed FGV’s business models by giving us full control of FELDA estates operations and making FGV the third largest oil palm operator in the world. A CREDIBLE PERFORMANCE In spite of the global economic environment, FGV remained resilient and continued to perform within expectations. The share performance after listing was encouraging, considering the challenges surrounding the oil palm industry in 2012. For the financial year ended 31 December 2012, FGV achieved a profit of RM905.1 million after Land Lease Agreement (LLA) liability, tax and zakat. We also posted higher earnings before interest, tax, depreciation and amortisation (EBITDA) of RM1.44 billion. Profit before LLA and tax stood at a credible RM1.13 billion, achieved on the back of a 73 percent increase in revenue of RM12.89 billion compared to RM7.45 billion in 2011. Though mostly attributed to falling CPO prices, the 35.4 percent lower net profit in 2012 resulted also from higher operational costs and a change of RM210.18 million arising from the Group’s LLA. Contribution from FGV’s significant associates – Tradewinds Malaysia Berhad and Felda Holdings Bhd (FHB) – also declined by 54 percent and 32 percent respectively. Added to this, in 2012 FGV incurred a one-off charge relating to IPO related expenses of RM61.1 million. Of the different business segments, plantations contributed 53.3 percent of total revenue. This segment reported a hefty 77.7 percent rise in revenue, boosted by CPO sales of RM7.1 billion in spite of lower average CPO prices, lower Fresh Fruit Bunch (FFB) production and higher cost of sales in 2012. FFB production declined by 251,074 tonnes to 4.91 million tonnes. Leveraging, however, on heightened operational efficiencies in this division as well as having access to FFB harvest from 500,000 hectares of settlers estates, the Group maintained its CPO production of 3.29 million tonnes in 2012, at par with 2011. The downstream segment, which attained a respectable turnaround, recorded RM20.5 million in pre-tax profit. FGV’s oleo-chemical business in United States also improved its financial position due to strong demand for fatty acids and glycerine from its key customers. The Sugar segment, meanwhile, registered a 34 percent margin drop in profit before tax due to an increase in raw sugar costs although the revenue of RM2.3 billion was similar with 2011. A PROMISE KEPT In 2012, FGV ended the financial year as a listed entity with a solid financial performance. Our balance sheet remains strong with total assets of RM16.5 billion and shareholders’funds of RM6.1 billion as at 31 December 2012. Earnings per share stood at 28.5 sen while net assets per share were RM1.67. As such, the Board has proposed a final dividend of 8.5 sen on 3,648,151,500 ordinary shares under the single-tier system amounting to RM310.0 million. Combined with the earlier interim dividend of 5.5 sen per share paid on October 22, 2012, the total dividends for the year is 14.0 sen per share, representing 64 per cent of dividend payout. This is in keeping with the pledge made in our IPO prospectus to distribute at least 50 percent of net profit as dividends to shareholders every year. It is testimony of our good faith to you, and we will certainly expand every effort to uphold this good dividend policy commitment in future years.