FGV Annual Report 2013

OUTLOOK AND PROSPECTS Against the backdrop of a gradual improvement in the global economy, the Group remains cautiously optimistic that CPO prices in 2014 will be on the uptrend. According to some industry experts and analysts, CPO prices will average around RM2,600 per tonne, which is RM200 higher than 2013 prices. Fundamentals to watch out for would be the implementation of Indonesia’s and Malaysia’s biodiesel programmes that could mop up excess inventory and result in a lower supply of CPO to world markets. Meanwhile, the coming year will see the Group harvesting the low hanging fruits of its recent acquisitions. The PUP acquisition has already started contributing to FGV’s bottom-line in the fourth quarter of 2013. As most of its trees are at a prime age of 13 years, there will be minimal replanting costs incurred for the next 10 years. A consistent replanting programme underway will bring down the average age profile of the Group palm estates. As more palms reach maturity, there will be a corresponding improvement in yields, supporting stronger CPO production year will also see the Group begin to book earnings from FHB, which saw its status change from an associate to a wholly-owned subsidiary on 27 December 2013. FHB is a very profitable entity as an investment holding company with subsidiaries, joint arrangements and other related companies involved in the processing of crude, refined and packed palm oil products. It is also involved in the provision of shared support services including research and development, bulking and transportation services, rubber processing and manufacturing of fertilisers. In 2013, FHB generated a consolidated profit before tax of RM383.4 million and had a net cash position of RM1,656.6 million. The full-year earnings of FHBwill be reflected in FGV’s financial performance in 2014. As at the end of the 2013 financial year, the Group had utilised about 70 percent of its IPO proceeds of RM4.5 billion. The bulk of it went to the acquisition of plantation assets, with another RM427 million invested in the downstream business. The Group has set aside RM100 million as capital expenditures to increase efficiency and capabilities and RM130 million as working capital requirements. Moving into FY 2014, we have a balance of RM1.33 billion from our IPO coffers and cash reserves of RM3.70 billion. The Group, therefore, is in a strong position to pursue its merger and acquisition (M&A) mandate in the GSB. We will continue to relentless pursue every opportunity for future profitable growth in both the upstream and downstream segments of our business. As Malaysia is running short of land that can be used for plantation cultivation, the Group is looking abroad for opportunities to increase its landbank. Myanmar, Cambodia and Papua New Guinea have been identified as suitable countries for our upstream expansion programme not only for oil palms, but also rubber and sugar cultivation. We also recognise that some of the best opportunities for growth exist outside the region, and areas of interest include the African countries around the tropical belt, such as Ghana, Cameroon and Gabon. Our growing international portfolio will be one of the Group’s main drivers of revenue growth in the coming years. At the mid and downstream ends of the value chain, the Group remains alert to collaborations and joint-ventures with prospective partners. The Group has also developed a promising line of downstream products to increase our market presence in the Southeast Asian market. In Cambodia, we will build on the foothold established and the target is to capture a 30 percent market share for our products from Delima Oil Products Sdn Bhd over the next three years. Our outlook for the coming year is for profit growth to continue at a very satisfactory level. I would like to emphasise that the FGV Group is not just about making money. It is doing it in a responsible and sustainable manner and this will always be the cornerstone of our business philosophy. APPRECIATION At the end of the day, it is FGV’s people who will determine the success of the Group and its ultimate destiny. In this time of revitalisation and preparing for the next thrust forward, what has been inspirational is how everyone has pulled together to share the Group’s bold vision and ambitions. Your professionalism, commitment and willingness to work hard will remain our greatest source of confidence in the Group’s future. In its transformation journey, the Group is fortunate to have a great support team comprising its shareholders, customers, contractors, business partners and other stakeholders. We thank all of you for your confidence in us and your continuing support as we look forward to expanding our horizons. I thank my Board colleagues for their diligence and support throughout 2013. The composition of the Board has changed during the year with the departure of Tan Sri Dato’ Sabri Ahmad who has completed his term of office together with Datuk Wira Jalilah Baba, Datuk Shahril Ridza Ridzuan and Tan Sri Dato’ Sri Dr Mohd Irwan Serigar Abdullah who resigned from the Board owing to other commitments. During his three- year tenure as Group President/Chief Executive Officer, Tan Sri Dato’ Sabri played an instrumental role in the listing of FGV and put in place the Strategic Global Blueprint. All of them will be missed and the Board wishes them every success in their future undertakings. Mohd Emir Mavani Abdullah has been appointed Group President/CEO effective 15 July 2013. A leading expert in economic and government administration reforms and a Board member since January 2012, he has the breadth and depth of knowledge and experience required to lead the Group at this critical phase of its transformation journey. The FGV Group is entering 2014 with a new vigour. We have come some distance over the past year but it is only the beginning. The task at hand is to sustain the momentum into 2014 and in the years ahead. I thank all of you. YB Tan Sri Haji Mohd Isa Dato’ Haji Abdul Samad Chairman Chairman’s Letter to Shareholders Perutusan Pengerusi kepada Pemegang Saham Felda Global Ventures Holdings Berhad 22