FGV Annual Report 2017

FELDA GLOBAL VENTURES HOLDINGS BERHAD UNDERSTANDING OUR BUSINESS CONTEXT 50 OUR PERFORMANCE BY SECTOR: SUGAR Management Discussion & Analysis We are on track to complete the Johor sugar refinery by mid-2018. The increased sugar ceiling price by RM0.11 per kg to RM2.95 per kg in 2017 helped to offset the impact of domestic market challenges. The year under review was indeed challenging. Global sugar and foreign exchange market volatility magnified in the adverse impact on the Sector’s growth. Factored with subdued global and regional macroeconomic conditions, these phenomena affected MSM’s trading activities, particularly their ability to hedge foreign exchange exposure at an advantageous position. As over 80% of MSM’s production cost is based on foreign exchange (USD) and the NY#11 market price of raw sugar, coupled with its heavy dependency on imports of raw sugar – these factors heavily impact the current year’s performance. On average, MSM spends around USD457 million on raw sugar purchases per year. The trading risk on the futures market again exposes the Sector to exchange rate volatility. As USD rate peaked at RM4.43 in January 2017, against the average market rate of RM4.15 in 2016, this exacerbated MSM’s bottom line further. Bearing witness to an extremely volatile global raw sugar commodity market, the average price of raw sugar spiked by 20% compared to 2016. Exposure to the price fluctuations has significantly affected the Sector’s margins. In 2017, the Sector’s refined sugar production stood at 1.02 million MT, of which 139,540 MT were for the export market, and around 0.86 million MT catered for domestic comsumption. As part of its costs containment exercise, we managed to draw out RM15 million in operational cost savings due to improved operational and equipment efficiencies, together with numerous general and administrative cost cuts amounting RM19 million were implemented across the Sector.