FGV Annual Report 2016

FELDA GLOBAL VENTURES HOLDINGS BERHAD 38 CLUSTER PERFORMANCE: PALM DOWNSTREAM Fast Moving Consumer Goods (FMCG) and Retail Segments Open NewMarkets, but Face Increased Competition Our FMCG unit, Delima Oil Products Sdn Bhd (DOP), recorded higher sales volumes in most segments. Meanwhile, DOP managed to increase in exports in several markets in 2016 including Iraq, China, EU, Canada and the US. In line with our Group's strategy to optimise our existing assets, DOP increased its plant utilisation factor in 2016 and is in the process of upgrading its processing facilities. DOP successfully launched three (3) new edible products into the market in 2016, namely Saji Krimer Bandung, Saji Krimer Coklat and Saji Tepung Serbaguna. In regards to our presence in China, FGV China Oils Ltd (FGVCO) expanded its presence in the sales and trading, and bulking businesses in 2016. FGVCO also received its custodian tank status and licence from China Recycle Resources Exchange (CRRE), a subsidiary under ChinaCoOp group. This licence allows us to offer storage services to customers importing palm oil and soy oil into China. Focused on Quality We received ISO 9001:2015 certification for four (4) business units in 2016, namely DOP, Felda Vegetable Oil Products, Felda Kernel Products and FGV Biotechnologies. The ISO 9001:2015 specifies requirements for a quality management system (QMS) in demonstrating its ability to consistently provide products and services that meet customer and applicable statutory and regulatory requirements. It also ensures that the QMS enhances customer satisfaction through the effective application of the system, including processes for improvement and the assurance of conformity to customer and applicable statutory and regulatory requirements. The certification ensures that our certified business units have the appropriate mechanisms in place to ensure that they are focused on quality and excellence in performance. Additionally,allproductsproducedbyDOParecertifiedHalal.Halalcertification provides assurance to all Muslim consumers that the product fulfils Syariah law, which is mandatory for Muslims. For non-Muslims, Halal certification provides a guarantee of the quality of the product as Halal-certified products must meet the Halalan Thoyyiban (Halal and wholesome) standard. As a Halal-certified entity, we comply with Halal-GoodManufacturing Practice (Halal-GMP) and Halal-Hazard Analysis Critical Control Point (Halal-HACCP) requirements. Products certified Halal by Jabatan Kemajuan Islam Malaysia (JAKIM) are safe for consumption or use, nutritious and quality assured. Malaysia's Halal Logo is recognised and accepted worldwide. MOVING FORWARD The Cluster is an essential enabler of the Group's future success by diversifying our source of income and marketable destinations. The Group intends to further develop key synergies between the Upstream, Downstream and Logistics Clusters to fully occupy the palm and palm-derivative value chain. The Cluster will remain on a growth-oriented trajectory focused on organic growth in 2017. Key areas of focus going forward include: • Producing high-margin consumer goods such as premium shortening in the FMCG sector • Further developing the pack segment business in China for sunflower, corn and peanut oil • Producing Kosher and specialised products in the oleo sector • Growing our biodiesel capabilities for both retail (B10) and industrial (B7) use • Developing our Palm Kernel Cake (PKC) animal feed project • Growing storage/bulking business in China by obtaining a Dalian Commodity Exchange (DCE) tender tank licence to develop our DCE overseas tender tank programme While the Group has put a halt on M&A for the foreseeable future, the Cluster has identified potential areas of inorganic growth for future expansion. These targeted areas, in oleo-derivatives and specialty chemicals, are focused on opening new markets and on increasing our capacities in related, adjacent fields. Meanwhile, an announcement by the Ministry of Domestic Trade, Co-operatives and Consumerism to introduce greater liberalisation into the cooking oil market will partially mitigate this issue going forward. Under the new policy, the Cooking Oil Stabilisation Scheme has been amended such that selected packaging cooking oil sizes will be sold at market price to retailers beginning November 2016. The Government also announced in June 2016 that it would raise the biodiesel mandate for the transport sector from B7 (7% biodiesel mix) to B10 (10% biodiesel mix), and introduces the use of B7 in the industrial sector. While the implementation of this programme has been pushed back from its initial launch date of 1 Dec 2016, we remain confident that the programme will eventually be implemented. MANAGEMENT DISCUSSION & ANALYSIS