FGV Annual Report 2016

ANNUAL INTEGRATED REPORT 2016 35 MOVING FORWARD We will continue to pursue our replanting programme to improve our age profile with high yielding planting materials. Our replanting target for 2017 is 15,000 Ha and this shall further reduce the proportion of old trees to 37% from 40%. This is a key initiative that will ensure sustainable growth for our Group as stipulated in our SP20. We aim to increase our FFB production to 6.25 million MT by 2020 from 3.91 million MT in 2016. As the effects of the El Nino drought are tapering off, we anticipate 2017 will be a year with moderate recovery, with about 10-15% increase in FFB production compared to 2016. CPO price for first half of 2017 is expected to be supportive in the range of RM2,600 - RM3,000 per MT as palm oil supplies remain tight. For second half of 2017, CPO price is forecasted to be in the range of RM2,400 - RM2,600 per MT in anticipation of production recovery. CLUSTER PERFORMANCE: PALM UPSTREAM FFB Yield: 20.50 MT/Ha FFB Volume: 6.25 million/MT FFB Processed: 18.15 million MT CPO Volume: 3.99 million MT OER: 21.98% Age Profile: 12-13 years old Operational improvements through GAP, production efficiency and strong plantation management. Robust replanting execution and management to achieve timely desired age profiles. Rehabilitation of sub-optimal assets and rationalisation of non-performing assets. Value adding through new usage and commercialisation of by-products such as green chemicals and palm kernel cake. Mechanisation and automation to improve efficiency and overcome labour problems. Aspiration: To be a respectable agribusiness player focusing on operational excellence CHALLENGES STRATEGIES 2020 TARGETS Unfavourable age profile requires aggressive replanting activities in the next few years. Labour shortage, logistic shortfall, escalating labour and fertiliser cost. Harmonisation between plantations and mills to obtain best oil yield. Estate management and supervision. Operational and structural issues in newly acquired assets. The Cluster continues to be our single largest revenue contributor and will always remain as a core business for FGV. However, volatility in the external environment and availability of resources have required that we adapt our strategy to better align our Cluster with our strategic vision. The table below provides an overview of the SP20's targets for the Cluster. To further streamline our operations and enhance value across the palm value chain, the Cluster will be grouped under the Plantation Sector, together with the Palm Downstream Cluster, RD&A Cluster as well as the FGVT businesses. With these clusters under the same Sector, we believe this will improve the synergy and enhance decision making process throughout the palm value chain. KEY RISKS TO THE CLUSTER The Cluster faces a number of challenges ranging from weather phenomena and planting conditions to other issues related to the milling process. A discussion of the key risks affecting our business is published in our SORMIC. MANAGEMENT DISCUSSION & ANALYSIS PALM UPSTREAM CLUSTER More information about the key risks is available on pages 136-137