FGV Annual Report 2015

138 Felda Global Ventures Holdings Berhad Annual Integrated Report 2015 Mitigating Our Risks Successful execution of our corporate strategies and achievement of our business goals require that we regularly address the uncertainties in our global business environment. Our business is subject to constant and significant change that requires us to regularly assess our corporate strategies. At FGV, risk management is an integrated discipline that supports informed decision-making throughout the company. We recognize the pivotal role it plays in balancing strategic planning with business execution and compliance and are driving this journey forward. Our approach to managing risk recognizes the need for clear, timely direction and support from the Board of Directors, senior management and our business unit management. Our starting point for managing risk is our strategic planning process, from which relevant external and internal threats and opportunities are derived and key risks are identified. Risks and opportunities are identified by observing, analyzing and anticipating trends along with macroeconomic, industry-specific, regional and local developments. These risks and opportunities are regularly monitored for changes, and further action taken, if necessary. Amongst our key risks for 2015 include: Top Risks Context Mitigation Ageing palm tree profile affecting overall palm oil yield The yield of Fresh Fruit Bunch (FFB) depends on the age and maturity of oil palms, which reach their prime productive period at years 10 through 20 after planting. To ensure continuous long term efficient production and sustainable yields, it is advisable for plantation company to do replanting approximately every 25 years. However, newly planted oil palms do not yield FFB until they reach harvestable age, which is at least 36 months after planting, and the yield of young trees is significantly lower than the yield of mature trees. Our replanting programme has a short to medium term impact on the FFB produced which in turn may affect our revenue and margins. Our replanting programme is structured on a rolling basis to minimise the effect on FFB production in any given year. The programme has commenced since 2009 and will continue until the age profile of our plantation is fully corrected. Fluctuation of local and international commodity prices affecting prices of FFB, CPO and other palm oil based products Fluctuating Crude Palm Oil (CPO) prices which sometimes lower than breakeven point resulting to lower and decreasing in profit. A significant and prolonged low price for CPO would have a material adverse effect on FGV cash flows and profits. To mitigate during periods of depressed CPO prices, Cost Control Unit was established at Headquarters to monitor estate costs and a steering committee for costs saving initiative was formed. Erratic weather conditions impacting operation Adverse weather such as prolonged hot weather in early part of the year and flooding which occurred in the year end affected the supply of FFB which in turn will affect FGV sales. A Task Committee was set up to specifically look into the matter. FGV implemented Best Management Practices and increased the maintenance of the estate infrastructure. The estates also explore new methods such as piping systems to mitigate drought conditions. High dependence on foreign labour FGVPM is highly dependent on foreign workers especially from Indonesia for its plantation operations. Additionally, policy changes, increased competition and intensified scrutiny of labour management may result in delay in operations, which in turn leads to decrease in sales and profit. The Company has taken several initiatives to improve the relationship with local and foreign authorities so that we will be viewed as preferred employer. As a measure to reduce dependency on human labour, in 2015, the Company has implemented increased mechanization techniques.