FGV Annual Report 2017

ANNUAL INTEGRATED REPORT 2017 UNDERSTANDING OUR BUSINESS CONTEXT 25 HIGHLIGHTS Sugar Sector’s profit decreased to RM1.89 million from RM151.81 million in 2016 due to the increase in average raw sugar cost and weakened Ringgit. Logistics and Others Sector’s profit improved to RM45.18 million from RM7.96 million in 2016 as throughput handled and tonnage carried grew in tandem with the increase in CPO production volumes. The performance and details of each Sector will be further elaborated under the Management Discussion & Analysis section on pages 36-56. MESSAGE FROM THE GROUP PRESIDENT/CHIEF EXECUTIVE OFFICER Management Discussion & Analysis Our seed business recorded a sale of 20.60 million seeds (2016: 21.26 million seeds) in the domestic market, maintaining our market share of 42%. We also penetrated the Indonesian market with the first shipment of 72,514 seeds in 2017. Under the ‘Waste to Wealth’ initiative, we have fully commercialised Palm Kernel Shell business, with a shell recovery rate of 1% (2016: 0.52%) producing more than 140,000 MT shells for Japan’s renewable energy industry. Eight complexes have been RSPO- certified and will produce 200,000 MT of Certified Sustainable Palm Oil (CSPO) and 22,000 MT of Certified Sustainable Palm Kernel Oil (CSPKO). We also conducted training programmes for smallholders as well as third-party FFB suppliers and contractors on Good Agricultural Practices (GAP) and yield improvement. We had rationalised three palm oil mills, two rubber processing plants and 2017 HIGHLIGHTS For our Plantation Sector, FFB production rose 9% to 4.26 million MT in 2017 (2016: 3.91 million MT), whilst CPO production increased 12% to 2.99 million MT (2016: 2.66 million MT) at an average CPO production cost (ex-mill) of RM1,592 per MT (2016: RM1,595 per MT). However, the Oil Extraction Rate (OER) fell 4% to 19.83% (2016: 20.68%) due to high water content in the fruit set and lower oil-to-bunch ratio. As a result of our continuous replanting efforts, our oil palm age profile has improved to 14.5 years from 14.9 years in 2016. These efforts put us on track to achieve the ideal age profile of 12.8 years and producing 5.30 million MT FFB in 2020. Faced with severe labour shortage in early 2017, the Management had intensified its recruitment efforts by engaging directly with existing and new supplying countries resulting in new recruits of more than 7,000 foreign guest workers in 2017. FFB Production Million MT CPO Production Million MT OER % Average CPO Production Cost, Ex-mill RM/MT 2017 2016 4.26 3.91 2017 2016 2.99 2.66 2017 2016 19.83 20.68 2017 2016 1,592 1,595 Alignment with the Bursa Malaysia Listing Requirements, the Management Discussion and Analysis (MD&A) focuses on the disclosure of non- financial information such as group business, operations and performance. We have structured this year’s MD&A based on the information required to be disclosed includes: Overview of the Group’s Business and Operations GP/CEO Message Review of Operating Activities Human Capital Plantation Sugar LSB Discussion and Analysis of the Financial Results and Financial Condition GCFO Message Identified Anticipated Risks The Links Between Material Matters, Strategy and Risks Plantation Sugar LSB Forward-looking Statements Plantation Sugar LSB Pages 24-27 Pages 32-35 Pages 36-43 Pages 46-50 Pages 52-55 Pages 28-30 Page 44 Pages 18-19 Page 51 Page 45 Page 56 Page 51 Page 56