FGV Annual Report 2016

FELDA GLOBAL VENTURES HOLDINGS BERHAD 136 HOW WE ARE GOVERNED KEY RISK MANAGEMENT ACTIVITIES During 2016, the Group undertook a purposeful shift in howwe approach risk management - a shift that has made us more focused towards achieving vision and mission. This requires an even greater emphasis on strategic risk management. We have begun to better integrate our strategies and risk management, thereby enabling us to take the appropriate mitigation measures to optimise value. Listed below are the key risk management activities undertaken by GRMD in 2016 to inculcate and embed risk management culture in the Group: Quarterly Risk Report for FGV Group Expanded the scope of the Quarterly Risk Report to cover risks from a group wide perspective. The enhanced report highlights new risk segments covering Key Enterprise & Business Risks, Emerging Risks, Project Risks and Reputational Risks FGV Risk Management Framework Review Obtained external views on the comprehensiveness of the Group's Risk Management framework. The recommendations and implementation roadmap was tabled to the Board and duly approved on 24 May 2016. SP20 Risk Analysis The Group challenged the robustness of our SP20 by identifying the risks and formulating related mitigation plans. Policies & Procedure Review The Group reviewed its policies and procedures to better manage risks exposure especially in commodities trading and forex policy. Project/Business Proposal Risk Review Key project/business proposals were considered with a view of related risks and mitigation plans were derived. Risk Appetite Statement GRMD has initiated the formulation of FGV Group Risk Appetite Statement. GRMD is hopeful that FGV Group Risk Appetite Statement will be approved and adopted by the Board by mid 2017. Project/Business Proposal Risk Review Function and Process The Project/Business Proposal Risk Review Function and Process was tabled and duly approved by the Board on 22 November 2016. Training and Awareness 16 risk management, 25 ISO 9001:2015 risks based thinking awareness and 47 BCM training sessions were conducted. In 2016 FGV was accorded the " Continuity Awareness Award 2016 " for its Business Continuity Awareness programmes during the Regional BCM Conference & Awards of Excellence by the Disaster Recovery Institute International. BCM Testing 28 BCM testing exercises were conducted across the Group. RISK PROFILE AND KEY RISKS Our key risks for 2016 are as follows: Risk Category Description & Impact Mitigation Measures Cluster Affected Operational Risk: Escalating operational costs Escalating operational costs due to external factors e.g. weak Ringgit, increase in inflation and interest rates and also due to increase in the size of the Group and commercial undertakings. We apply close monitoring and adherence to the approved budget to keep our costs in check. Group-wide Operational Risk: Inability to achieve optimum oil yield per hectare due to ageing palm tree profile affecting overall palm oil yield The factors that influence the yield of Fresh Fruit Bunch (FFB) are the age and maturity of oil palms. Their prime productive period is at year 10 through 20 after planting. Thus, it is advisable for plantation companies to undertake replanting approximately every 25 years to ensure continuous long term efficient production and sustainable yields. However, newly planted oil palms do not yield FFB until they reach harvestable age, which is about two and a half years 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. We structured our replanting programme on a rolling basis to minimise the effect on FFB production in any given year. We have embarked on the programme since 2007 and will continue until the age profile of our plantation is fully optimised. Palm Upstream Commodity Price Risk: Fluctuation of local and international commodity prices affecting prices of FFB, CPO and other palm oil based products Our profit may be impacted by the fluctuation of CPO prices which sometimes are lower than breakeven point resulting in a lower profit. A prolonged and significant low CPO price would have a material adverse effect on FGV cash flows and profits. Cost Control Unit was established at Headquarters to monitor estate costs and a steering committee for costs saving initiative was formed, to mitigate during periods of depressed CPO prices. Palm Upstream, Palm Downstream and TMLO STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL