FGV Annual Report 2017

ANNUAL INTEGRATED REPORT 2017 UNDERSTANDING OUR BUSINESS CONTEXT 41 For the year under review, the Group registered a total of 4.26 million MT FFB with average FFB yield of 15.42 MT per Ha, an increase of 9% and 6% from 2016 respectively. The improvement was a result of the maturity of more than 12,000 Ha of oil palm indicating a firm recovery from the previous effects of the El Nino phenomenon. FFB processed during the year jumped 17% to 15.10 million MT as crop production recovered nationwide. This led CPO production to increase by 12% year-on-year to 2.99 million MT, whilst enabling our average CPO production cost (ex-mill) to reduce marginally to RM1,592 per MT. We recorded a reduced Oil Extraction Rate (OER) of 19.83%, due to high water content in the fruit set and lower oil-to-bunch ratio. The Kernel Extraction Rate (KER) also decreased to 5.09% from 5.19% in 2016. These declines were part of a nationwide phenomenon, as evidenced by MPOB’s statistics. During the year under review, the Group fully completed felling for its replanting programme of 13,753 Ha. The total replanted area, however, stood at 10,675 Ha only due to labour shortages faced by the estates and contractors. Labour shortages hampered operations in early-2017, resulting in Management intensifying recruitments efforts and sourcing of workers from countries, mainly from Indonesia and Bangladesh. As at 31 December 2017, we have received more than 80% of our approved 8,000 workers quota. We envisage that our labour status will normalise by the middle of 2018. Our milling operations undertook various initiatives to improve our OER, including monitoring mill operations parameters to minimise oil losses and running FFB campaigns. On 16 March 2017, we organised a campaign at KS Serting Hilir for our internal and external FFB suppliers to increase FFB ripeness standards to more than 95%. Preventive maintenance measures were also carried out regularly to minimise breakdowns and ensure the steady state of our mill operations. Under the ‘Waste to Wealth’ initiative, the Group almost doubled its Shell Recovery Rate (SRR) to 1% from 0.52% in 2016, producing more than 140,000 MT Palm Kernel Shells (PKS), mainly for Japan’s renewable energy industry. This initiative will be continued, adding value from by- products and enabling this to be a viable new revenue stream for the mills. As part of our cost-rationalisation efforts, three mills have been rationalised, namely KS Kechau A, KS Fajar Harapan and KS Bukit Besar. We are closely monitoring the impact of these rationalisation efforts to ensure that this initiative meets its objectives before proceeding further. As a result of our continuous replanting efforts, our average oil palm age profile has improved to 14.5 years in 2017. OUR PERFORMANCE BY SECTOR: PLANTATION Management Discussion & Analysis FGV will enhance mechanisation in the areas of harvesting and in-field collection to improve labour productivity.