FGV Annual Report 2017

ANNUAL INTEGRATED REPORT 2017 UNDERSTANDING OUR BUSINESS CONTEXT 51 OUR PERFORMANCE BY SECTOR: SUGAR Management Discussion & Analysis OUTLOOK AND PROSPECTS Market Outlook for 2018 Global raw sugar production is expected to remain above average of 169 million MT over the past five years contributed from higher production in major sugar producing countries due to favourable weather leading to above average yield. This will also be supported by strong crop revivals in Thailand, following weather-related shocks during the previous harvest and strong output growth in the EU as producers seek to capitalise on the newly liberalised sugar regime. Sugar consumption for 2018 is expected to expand slightly by an average of 1.20% per annum. This pattern will continue to be underpinned by the rising incomes in the emerging markets, where urbanising populations are gradually adopting the food-drink habits of developed countries. A steady shift towards synthetic sweeteners and a growing supply of starch-based sweeteners in both Asia and Europe will dampen consumption growth in the coming years. The price outlook for 2018 will depend heavily on supply dynamics. After peaking at over USD0.23 per lb. in late 2016, the global raw sugar price is expected to stabilise at USD0.15 per lb. in 2018. Favourable weather conditions in key producing markets are fuelling expectations of global oversupply in the coming years. Modest growth in consumption is expected to ensure raw sugar prices remain stable. • Complete Johor sugar refinery for commencement of operations by mid-2018 • Increase sugar refining volume by more than 0.30 million MT for domestic and export growth • Accelerate growth by partnering with local players in target countries • Optimise operational efficiencies to improve cost savings in existing refineries by up to RM5 million STRATEGIES IN CREATING VALUE UNDERSTANDING THE RISK ENVIRONMENT SECTOR CHALLENGES IN 2017 MITIGATION ACTIONS TAKEN Competitive sales which could potentially impact market share and profit margins We constantly monitor global sugar prices and obtain industry feedback for a favourable pricing on back-to-back basis for domestic sales or forward buying. Exposed to unfavourable price movements due to high dependency on imported raw sugar We actively monitor the foreign exchange market to capture the downward trend of MYR/USD, hence gradually averaging down the cost of buying USD to ease in for new hedging strategies for the Group‘s 2018 requirements. Operational and service reliability due to aging machinery in the existing refineries Foreign exchange fluctuations on RM against USD We have established a consistent schedule of maintenance and servicing of our refining machinery and we have replaced aging machinery with upgraded machines. We diligently monitor market demands and industry activities to ensure reliable supply and convenient delivery of high quality sugar.