FGV Annual Report 2014

The Palm Upstream Cluster manages more than 450,000 hectares across Malaysia and Kalimantan, Indonesia. In Malaysia, the largest plantations are located in Pahang and Sabah. FGV is the only plantation company in Malaysia that adopts the unique Land Lease Agreement (LLA) business model – of the land we manage in Malaysia, 88 percent is subject to LLA. We own Pontian United Plantations Berhad (PUP), which operates 15,161 hectares of oil palm plantation in Sabah. In Indonesia, the Cluster's activities are focussed in Kalimantan through PT Citra Niaga Perkasa, a company that owns 14,385 hectares of land. Through our subsidiaries PT Temila Agro Abadi and PT Landak Bhakti Palma, FGV acquired another 21,037 hectares of land in West Kalimantan in 2013. Financial Performance and Industry Outlook During the year under review, the Palm Upstream Cluster registered a profit before tax of RM740.9 million, a decrease from RM1,164.2 million posted in the previous year, despite the increase in average CPO price to RM2,410 from RM2,333 per metric tonne. This decrease was largely attributed by the Land Leasing Agreement (LLA) fair value losses of RM115.2 million in 2014 compared to a gain of RM494.5 million in 2013. Excluding the LLA effect, the Cluster's result was RM856.2 million, an increase as compared to RM669.7 million in 2013. Following the acquisition of Felda Holdings Berhad, this has also contributed to lower revenue for the year as most of the transactions are now deemed as internal. The price of Fresh Fruit Bunches (FFB) increased to RM480 per tonne, against RM448 per tonne recorded in 2013. However, FFB production decreased to 4.9 million metric tonnes from 5.05 million metric tonnes in 2013. Average yields decreased to 19.3* metric tonnes per hectare due to unfavourable weather conditions during the harvesting season. Operational Review The Group owns a total land bank of 469,835.31 2 hectares, of which 413,604.74 2 hectares (88 percent) are in Malaysia. The remaining 56,230.58 2 hectares are located in Indonesia. Out of this, 348,827.30 2 hectares have been planted with oil palm and another 12,397.08 2 hectares consist of rubber plantations. We processed 14.8 million metric tonnes of oil palm fresh fruit bunches (FFB) in the year under review, 4.9 million metric tonnes from our own plantations and the balance from FELDA settlers and independent suppliers. Our 71 mills produced 3.1 million metric tonnes of crude palm oil (CPO) in 2014, more than any other producer in the world. The Group has been aggressively expanding its landbank size since 2011, working towards a more favourable crop-age profile. A two-pronged strategy was adopted: on the one hand driving forward an aggressive replanting programme of 15,000 hectares per year and on the other hand expanding through brown field acquisitions of plantation land in Malaysia as well as overseas. Since the replanting programme began in 2007, we have successfully reduced the total hectarage of old palm by around 5 percent per annum, including during 2014 despite being impeded by floods. * excludes APL Felda Global Ventures Holdings Berhad pg 70 BUSINESS OPERATIONS REVIEW PALM UPSTREAM