FGV Annual Report 2016

ANNUAL INTEGRATED REPORT 2016 29 MOVING FORWARD INTO 2017 In 2017, we expect our plantation yield and the Group's overall performance to moderately recover. Greater operational efficiency is expected from our activities from the foundations laid in 2016 and the implementation of our Strategic Plans for the year. We have identified nine (9) priorities for 2017 in line with the aims of our new SP20. More information about the SP20 is available on pages 52-53 MANAGEMENT DISCUSSION & ANALYSIS GROUP PRESIDENT/ CHIEF EXECUTIVE OFFICER'S MESSAGE ACKNOWLEDGEMENTS It gives me great honour and privilege to pen this address in my inaugural year as FGV's GP/CEO. I would like to thank the members of the Board for their invaluable advice and guidance throughout the year, as well as my colleagues and fellow staff members who are responsible for all our achievements. It has been a challenging time for FGV and there will be more obstacles ahead, but I believe that with perseverance and teamwork, we shall overcome these difficult times in reaching the lofty ambitions we have set for ourselves. To our Shareholders, and especially to our Felda communities, we express a great debt of gratitude for your continued support. Our present situation is not ideal at present, but we are a company of great potential. The initiatives and actions that we have taken today to unlock that potential will yield fruit soon and I believe we are well on our way towards that goal. Finally, our appreciation goes out to our other Stakeholders - from our regulators and media partners, to our suppliers and our partners from around the world. I would like to take this opportunity to remind ourselves that we are building something great together, and it is my hope that we will continue to build our relationships for the mutual benefit of all. Thank you, and I look forward to exciting times ahead for all of us. Dato' Zakaria Arshad Group President/Chief Executive Officer 29 March 2017 Priorities Expected 2017 Outcomes Core Business • FFB production to increase to 4.5 million MT representing a 15% increase from 2016 • Reduce average CPO ex-mill production cost by 9% to RM1,450/MT • Replant 15,000 Ha to reduce the proportion of old age palms to 37%, focusing on our estates in Sabah • Planting Inspectorate to report directly to GP/CEO to provide independent advice, feedback and report on a regular basis • Increase in-field mechanisation to improve yield & productivity, expand irrigation to dry areas and continues fertiliser application as per agronomic recommendation Strengthen Financial Position • Increase our cash reserves to RM2.0 billion from RM1.8 billion through prudent working capital and cash flow management • Better manage the Group's liquidity and forex through the formation of a Treasury Management Committee (TMC) Trading and Downstream • Tighten trading activities to contain commodity risks through: - Focusing on internally produced oil - Reducing paper trading except for hedging purposes • Review terms of oil supply with key customers • Develop new business models for key destination markets such as India, China and MENA • Establish a downstream R&D facility to accelerate the development of food-based products Sugar Business • Ensure the construction of the Johor sugar refinery is on track • Expand to new export markets Priorities Expected 2017 Outcomes Rationalisation • Rationalise assets including four (4) palm oil mills, two (2) rubber processing plants and a palm oil refinery to increase utilisation factor and reduce processing cost • Divest and liquidate identified non-core and non-performing businesses in 2017 Growth in Adjacent Field • Optimise our logistics assets and capabilities to generate more external business • Grow our logistics-related assets in Pakistan to capitalise on our leadership position Governance and Sustainability • Strengthen terms with JV companies to enhance participation, supervision and governance • Establish more stringent criteria for future collaborations • Strengthen engagement with smallholders and external suppliers to achieve RSPO full supply chain certification • Ethical treatment of our foreign guest workers People • Consolidate our business into three (3) main sectors: Plantation, LO and Sugar to: - Improve focus, clarity and reporting accountability - Create synergies by operating within a fully integrated palm value chain • Rationalise and right-size our workforce towards optimising productivity Corporate Social Responsibility (CSR) • Organise CSR programmes to nurture future generations on their well-being and life skills