FGV Annual Report 2016

FELDA GLOBAL VENTURES HOLDINGS BERHAD 142 FINANCIAL REPORT GROUP CHIEF FINANCIAL OFFICER'S STATEMENT FINANCIAL PERFORMANCE The Group recorded total revenue of RM17.24 billion for 2016 (2015: RM15.56 billion). The increase of 11% is due primarily to the higher average price of CPO, increase in our sugar sales volume and the higher average price of CPKO and RBKPO. FFB production fell 15% to 3.91 million MT from 4.63 million MT during the year as a result of the drought stemming from the El Nino weather phenomenon. The Group recorded Profit after Tax and Minority Interest (PATAMI) of RM31.47 million (2015: RM182.32 million) mainly due to the following factors: • Higher CPO production cost due to lower utilisation factor • Higher cost of raw sugar due to the weaker Ringgit • Write-downs of assets stemming from our rationalisation programme • Losses from our share of results from Felda Iffco Sdn Bhd due to misappropriations at its subsidiary STREAMLINING OUR COSTS The year under review saw FGV recognise cost savings of RM131.37 million. The bulk of our cost savings stemmed from the cessation of M&A activities thereby ending all related activities, e.g. asset searches, due diligences conducted, etc. Meanwhile, we have also implemented a number of other administrative cuts elsewhere in the company. The consolidation of our core business and rationalisation of our non- performing assets is a key part of our SP20 agenda to develop operational excellence in our business. ENHANCING OUR SYSTEMS AND PROCESSES We introduced a number of improvements into our existing systems and processes in 2016 to better optimise internal operational efficiency which is a key priority under the SP20. Three (3) initiatives, in particular, stand out as achievements for the year under review: i. Introducing counter-measures to volatility ii. Implementing a bidding system for our treasury operations iii. Increasing usage of centralised shared services by the Group The last year also saw us changing the accounting policy for bearer plants to be in line with FRS116 where expenditure on new replanting and replanting of bearer plants are capitalised at cost and amortised over its economic useful lives. Further information about the impact of the adoption of these Standards can be found in Note 58 of our financial statements. Introducing Counter-Measures To Volatility We introduced greater flexibility into our forex hedging operations in 2016 to mitigate some of the volatility in the market. Prior to the implementation of our initiative in 2016, our hedging policy called for our forex positions to be hedged within 48 hours. As this can work adversely against us in periods of volatility, we have amended our hedging policy allowing our traders to leave a portion of our position unhedged during times of volatility. This new policy is expected to help us mitigate the impact of sudden changes in the exchange rate. Additionally, FGV introduced a policy in 2017 to stop trading in external oil. As a result of this policy, our traders will no longer purchase CPO from external sellers for trading purposes until CPO markets settle. In previous year, we purchase a total of 1,055,000 MT oil from external sellers for trading purposes. Bidding System for Treasury Operations We implemented a bid system in relation to our placement of funds in 2016 to obtain the best terms for our operations. This includes both our deposit placements and our forex operations. Under this system, we will seek real-time terms from a panel of banks through our banking terminals and decide on the bank that provides terms that best suit our needs. This system will help us with rate discovery and contributes to our commitment towards greater transparency in our operations. Increasing the Use of Central Shared Services We increased the utilisation of central shared services by our subsidiaries in the areas of Finance and HR. The consolidation of our services through a central channel will ensure greater savings from the reduction in cheque use and to take advantage of the rates provided by our central shared services provider. Our target is to have 70% of all transactions in our Accounts Payable and Accounts Receivable go through shared systems.