FGV Annual Report 2017

FELDA GLOBAL VENTURES HOLDINGS BERHAD UNDERSTANDING OUR BUSINESS CONTEXT 56 OUTLOOK AND PROSPECTS Market Outlook for 2018 Based on Malaysia’s 2018 Budget, the country is expected to stay on a fiscal consolidation path (target fiscal deficit in December 2018 - 2.80%), which is anticipated to take place in the second half of 2018. The path is expected to support the improvement in Malaysia’s credit rating, which will attract more investments into Malaysia in the long run. The execution of several mega-projects that have been announced, such as the Kuala Lumpur-Singapore High-Speed Rail (2018-2026), East Coast Rail Link (2017-2023), and expansion of several major ports includingKuantan Port Consortium in conjunction with China’s Belt and Road Initiative to enhance regional connectivity, remains on track. In addition, as part of the efforts to enhance cross-border trading with Thailand, both the Bukit Kayu Hitam Immigration, Customs, Quarantine and Security complex as well as Keretapi Tanah Melayu Berhad’s (KTMB) facility in Padang Besar will be expanded to facilitate higher volumes of cargo movement. As Malaysia continues to provide a robust and attractive environment for the infrastructure segment, we expect the Sector’s growth to remain stable at an average of 5.80% per annum over the next five years. Factors like the strengthening of foreign and private investment, as well as a string of ongoing high-value infrastructure projects create opportunities for us to expand our Multimodal Transport Operator (MTO) business, whilst penetrating other logistics business areas, such as inland port operations and cross- border logistics. The Government’s Logistics and Trade Facilitation Masterplan, which aims to further improve Malaysia’s logistical productivity and competitiveness in the domestic and international markets, presents another source of opportunities to our Sector. A notable initiative under this plan is the Digital Free Trade Zone (DFTZ), located in the proximity of Kuala Lumpur International Airport that involves integrated logistics, warehousing, e-commerce, ICT and engineering projects. This opportunity could be capitalised on by the Sector through involvement in the activities and logistics needs of the booming e-commerce industry. We expect Malaysia’s palm oil supply to grow by 3% from 19.90 million MT to 20.50 million MT, as plantation estates continue to recover from the dry weather conditions of 2015’s El Nino . This mirrors the anticipated increase in production of edible oils in the year ahead. Malaysia’s exports are also expected to grow by 5.10% to 17.40 million MT this year. These potential developments could translate into higher income for our bulking and transportation of edible oil products. UNDERSTANDING THE RISK ENVIRONMENT SECTOR CHALLENGES IN 2017 MITIGATION ACTIONS TAKEN Dependence on palm production performance Progressively reviewed and strengthened our marketing strategy and approach. We also embarked on innovation of products to diversify our income stream. Increasing industry competitiveness (external business) Continuously upgraded facilities to improve efficiency and confidence. Limited business opportunities within FELDA Group and FGV Group Diversified external income by participating in ICT and logistics for mega-projects such as ECRL, MRT2 and LRT3. Fluctuations in raw material prices and foreign exchange rates Filled up production capacity, trading activities put on hold and applied a strict hedging policy to reduce exchange rate exposure through specific hedging mechanisms. Controls and monitoring oversight framework are in place to ensure risk on foreign exchange transactions are consistently and actively managed. OUR PERFORMANCE BY SECTOR: LOGISTICS AND SUPPORT BUSINESSES Management Discussion & Analysis Our bulking and storage facilities handle around 30% of Malaysia’s palm oil exports.