FGV Annual Report 2015

66 Felda Global Ventures Holdings Berhad Annual Integrated Report 2015 Business Operations Review Rubber In line with other commodities, the price of rubber did not perform well in 2015. Global demand for the commodity faltered and put further downward pressure on prices. Rubber prices fell 6% on average over the year to below RM5.20 per kilogramme, the fourth consecutive year of decline. Looking toward 2016, market forecasters are expecting that global demand for natural rubber will begin to stall on the assumption of weakening consumer growth. Experts estimations for natural rubber prices in 2016 linger on the lower end, ranging between RM5.50 to RM6.50 per kilogramme. Growth in a Feeble Market Internally, topline revenue mirrored the unexciting market in 2015. Revenue from the Rubber Cluster shrunk 7% from the previous year to RM686 million. Still, it managed to improve bottom lines in leaps and bounds, narrowing the loss before tax to just RM7.3 million, compared to RM38.9 million in losses the year before. Our turnaround story is backed by efforts under our Transformation Plan that afforded us lower material purchases and rising efficiency at our plants. At our Malaysian operations, we experienced lower production and sales volumes that inadvertently translated into lower trading volumes. This permeated most of our operations, with the Thai division witnessing lower margins, and similarly our Indonesian business suffering from lower production and sales volumes, and consequently lower margins. Despite this, these operations posted growing sales volumes against 2014 at 9%. Overall, the Cluster’s efforts to reduce costs and bolster efficiency at its plants paid off amidst external headwinds. Where revenues are concerned, the Rubber Cluster benefitted in 2015 from its new operations in Cambodia. This unit, FGV-CVC, experienced a six-fold surge in revenue to RM76 million in 2015, compared to RM12 million the year before. Contributions from the Cambodian unit made up the bulk of the Cluster’s revenue growth in 2015. FGV-CVC is a relatively new venture, commencing operations in September 2014 with a rubber processing capacity of 16,000 MT a year. Currently, we are working on a new processing line to triple our existing capacity to 48,000 MT annually. Sustaining Transformative Growth We view the cost savings and efficiency improvements as a direct draw down of our transformational initiatives. As FGV drives its ambitions of becoming a major player in the rubber industry, these activities form the basis of the way it will continue to deliver value to Stakeholders in a sustainable manner. As these developments are entrenched and internalised, we will maintain good agriculture practices in hopes of meeting our targets again. In 2015, yield per hectare rose to 1,311 kilograms, surpassing our 2016 target of 1,260 kilograms per hectare. The Cluster anticipates an increase of 15% in production capacity next year, to be realised by the upgrading of FGV-CVC’s rubber factory in Cambodia from the capacity of 16,000 to 48,000 MT annually. The capacity expansions in Cambodia will enable growing sales volume in time to come. In order to supplement this goal, the Rubber Cluster is expanding its marketing wing and placing more focus on the trading of rubber related products.