FGV Annual Report 2016

ANNUAL INTEGRATED REPORT 2016 137 HOW WE ARE GOVERNED Risk Category Description & Impact Mitigation Measures Cluster Affected Commodity Price Risk: Volatility of raw sugar price The price of raw sugar is volatile and in the recent years is on an increasing trend. A robust hedging policy is adopted and implemented. Sugar Environmental Risk : Erratic Weather Conditions Impacting Operation Our supply of FFB is affected by adverse weather such as prolonged hot weather in early part of the year and flooding at the end of the year. We have formed a Task Committee to specifically look into and address the issue. Our estates practice "Best Management Practices" and we have also increased the maintenance of infrastructure within our estates . Our estates continuously explore new methods and innovation e.g., piping systems were introduced to mitigate drought conditions. Palm Upstream, Palm Downstream & Sugar Human Resource Risk: Our plantation is highly dependent on foreign labour Our plantation is highly dependent on foreign workers especially from Indonesia for its operations. Additionally, policy changes, increased competition and intensified scrutiny of labour management may impact our operations, which in turn leads to decrease in sales and profit. To reduce dependency on human labour, our estates have since 2015, implemented increased mechanization techniques. We have taken several initiatives to improve the relationship with local and foreign authorities so that we are viewed as preferred employer. Palm Upstream Organisation Capability Risk: Ensuring Group has a talent pool with right competency and skill-sets Pool of talent with right skill-sets and competency is necessary to ensure continuous growth of the Group. Apart from external trainings, in-house training programmes were developed for our employees to bridge the competency gap. Group-wide Market Risk: Volatile FOREX movement may result in losses or loss of opportunity gain As a substantial portion of our revenues from CPO trading, sugar exports and raw materials are denominated in USD, fluctuation in exchange rate between USD and Ringgit Malaysia and a weak Ringgit, could have adverse effect on FGV operations and financial condition. As a measure to manage FOREX exposure, FGV implemented a strict hedging policy. The Group also strengthened its controls and monitoring oversight by enhancing the Group FOREX Policy to ensure risks on FOREX transactions are constantly mitigated. Group-wide Compliance & Reputational Risk: Risks related to meeting global sustainability standards and certifications FGV is committed to achieving compliance to RSPO Guidelines, labour laws and other quality standards to achieve excellence in quality management of our businesses. Compliance to these standards will ensure wider market reach with the current demand for sustainable palm oil. However, challenges to keep up with certification requirements for a wide range of businesses and increased allegations on non-conformity may lead to reputational issues that need to be managed. FGV has set up a Sustainability Division in 2016 and the Group Sustainability Policy was approved by the Board on 25 August 2016 to ensure corporate, environmental and other sustainability requirements are determined, structurally implemented and managed. Palm Upstream, Palm Downstream and TMLO Competition Risk: Shrinking market share locally and globally • The palm oil industry is highly competitive. FGV faces competition from palm oil producers both locally and globally. • Our palm oil also competes with other edible oils, such as soya. • Our downstream cluster faces stiff competition from established brands as well as uncertainty of consumer acceptance for new products and uncertain volume growth of current (slow-moving) products. FGV has progressively reviewed and strengthened our marketing strategy and approach. Our Downstream cluster has also embarked on innovation of downstream products. Palm Downstream and TMLO STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL