FGV Annual Report 2016

FELDA GLOBAL VENTURES HOLDINGS BERHAD 42 CLUSTER PERFORMANCE: SUGAR We remain concerned about the weakness of the Ringgit with no clear catalysts for its recovery in 2017. Collectively, these factors will result in another challenging year, particularly if the ceiling price of wholesale sugar in Malaysia remains at the status quo. While we expect revenue to remain strong, profitability will either stay flat or decline further due to greater margin compressions. The fundamentals of the Cluster remain strong and our business is well- positioned to weather another challenging year. Meanwhile, we will continue working towards attaining greater operational excellence in line with the Group's overall strategy, and have implemented cost savings initiatives as well as other process-based improvements. This is also reflected in our factory and equipment maintenance regime and our talent management policies. We have kept close watch on our capex spend and thoroughly reviewed all projects in the pipeline to determine their necessity. MSM Holdings is the largest standalone sugar refiner in Malaysia with approximately 60% domestic market share and has a superior reputation in the ASEAN region for the quality of its products and services. We aspire to turn MSM Holdings into a top 10 global sugar player by 2020 with an annual refining capacity of 2.45 million MT and trading volume of 1.30 million MT. In 2016, the Cluster produced its highest production output. Enhance regional market presence to balance the saturated local market. Strengthen trading policies and capabilities to ensure performance on the back of raw sugar price volatility and adverse forex movements. Intensify efforts to produce special grade refined sugar. Expedite commencement of new plant in Johor and rationalise overcapacity and uneconomic assets. SUGAR CLUSTER Aspiration: To be top 10 global sugar player CHALLENGES STRATEGIES 2020 TARGETS Volatility of raw sugar prices and forex movement. Saturated local market with limited expansion opportunity. High entry barriers in other countries to protect local players. Ensuring Johor plant progresses within stipulated time and budget. 100% dependent on importation of raw sugar. Refined Sugar Volume: 2.45 million MT Trading Volume: 1.30 million MT KEY RISKS TO THE CLUSTER The Cluster faces a number of challenges ranging from volatile exchange rates to local regulations governing the sale of sugar. A discussion of the key risks affecting our business is published in our SORMIC. MANAGEMENT DISCUSSION & ANALYSIS More information about the key risks is available on pages 136-137