FGV Annual Report 2018

25 PRACTICED LEADERSHIP BY EXAMPLE 01 02 05 03 07 06 04 08 09 ANNUAL INTEGRATED REPORT 2018 STATEMENT FROM THE CHAIRMAN Against this backdrop, a review of the operations was undertaken in September and October 2018, which led to the development of FGV’s Transformation Plan. THE TRANSFORMATION PLAN The first phase of the plan has been implemented and group-wide performance tracking is on-going. Several priority areas have been identified and work is underway to ensure that quick wins are realised as expeditiously as possible. Thus far, as at March 2019, 62% of FGV’s estates have successfully achieved or surpassed their yield targets, while a further 27% of estates are just shy of their targets. The targets were set based on oil palm age profile and site yield potential. During the year, the Group recorded an 8% increase in CPO production cost (ex-mill) to RM1,737 per MT from RM1,601 per MT in 2017 as a result of lower Fresh Fruit Bunches (FFB) processed and lower CPO production. However, the Oil Extraction Rate (OER) improved to 20.49% from 19.83% in 2017, due to a higher oil-to-bunch ratio and better FFB quality. The OER also exceeded the nationwide average of 19.95%. With our Transformation Plan firmly in place, we target to improve our FFB yield to be in line with other large players in the industry and reduce CPO production cost (ex-mill) in 2019. Our total workers stood at 31,853 in 2018, comprised mainly of foreign guest workers. Following aggressive recruitment measures, we obtained an 88% fulfilment of worker requirement mainly due to abscondment or the return of foreign guest workers to their home countries. We will continue our efforts to achieve 100% worker requirements in 2019. The Transformation Plan is multi-pronged and include efforts to enhance efficiency and improve quality. FGV’s harvesting systems are being revised and there is a renewed emphasis on good agricultural practices and clear quality targets have been set. Furthermore, FGV continues to invest in correcting the age profile of our oil palm trees. In 2018, we completed felling for our replanting programme of 15,039 Ha, with a total replanted area of 13,119 Ha. Currently, 22% of our plantations can be classified as prime areas, whilst 28% of our hectarage is over 25 years. These trees are lower yielding and more difficult to harvest. Another 19% of our hectarage is classified as immature. As we improve the management of our plantation operations, we target for 40% of our hectarage to be classified as prime. While this exercise will be costly, we must bite the bullet now to ensure the recovery of value from our plantation operations. In addition to restructuring our plantation operations, we have identified several non-core and non-performing assets with an estimated value of RM350 million to be disposed off. The disposal of these assets is not only aimed at realising financial gains, but will also enable Management to focus on FGV’s core operations to harness value for our Shareholders. While these are still early days for FGV’s turnaround, the Board is satisfied that we have embarked on the crucial first steps needed to rejuvenate the Group, to set it back on track. Although we concluded the year 2018 on a low note, we are optimistic for the future. ENSURING SUSTAINABILITY FGV is a relatively young organisation but its genesis lies in the vision of our founding fathers. In 1956, when the Federal Land Development Authority (FELDA) was established, it started a scheme, which assisted thousands of economically underprivileged families to own land for cultivation of rubber and oil palm. We partner and support to sustain 112,635 FELDA Settlers who sell their FFB to us. In 2018, around 46% of our production was sourced from FELDA Settlers, with the remaining 24% sourced from third parties. During the year, FGV was found to have been in violation of the Roundtable Sustainable Palm Oil’s (RSPO) commitments, resulting in the suspension of our Serting mill’s certification. Efforts are underway to take all corrective steps necessary to address the issues at hand. These include our engagement of external consultants to verify and endorse a number of measures we are introducing tomeet the RSPO’s requirements. Additionally, we are in the process of establishing an Independent Advisory Panel to the Board. The Panel will publish two independent reports every year on our progress in relation to addressing the RSPO’s requirements. The progress updates will be published on our website until all issues are resolved.