FGV Annual Report 2018

31 REMAINED FOCUSED ON VALUE CREATION 01 02 05 03 07 06 04 08 09 ANNUAL INTEGRATED REPORT 2018 MANAGEMENT DISCUSSION & ANALYSIS APL has been non-performing since its acquisition due to several challenges faced by the company, in particular its geographical location, worker shortages, weather and crop losses. Due to these factors and a lack of synergy derived since the acquisition of APL, we decided to reorganise its reporting structure. Subsequent to that, an impairment loss of RM513 million relating to goodwill was recognised in the Group’s consolidated Financial Statements. The impairment for FGVGE amounting to RM114 million was recorded in relation to its biodiesel plant which has been facing operational issues, while the impairment for FGVCNS amounting to RM52 million was recorded as the company has not yielded positive returns since its acquisition. Other than the above, there were also impairments recognised on long outstanding receivables due to the application of the new Malaysia Financial Reporting Standards (MFRS) 9 “ Financial Instruments ” . Without the impairments, FGV would have recorded a LBZT of RM74 million for the year compared to a profit in 2017. Other than the above, the performance was also affected by the share of losses from joint ventures and associates recorded during the year. Notwithstanding that, we succeeded in claiming RM62 million in insurance via Felda Iffco Gida Sanayi, our joint venture’s subsidiary in Turkey which partly offset the share of losses. We had also made a provision of RM72 million for a Mutual Separation Scheme (MSS) to right-size our manpower based on our operational needs in line with industry standards. OVERVIEW Our financial position is a key indicator of the financial well-being of our business. Beyond the bottom line, we seek to manage our Financial Capital in a way that creates value by optimising our assets and liabilities. This allows us to prudently reinvest in the Six Capitals to achieve sustainable value creation. MANAGINGOURFINANCIALCAPITALAND ITSOUTCOMES The Group recorded revenue of RM13.46 billion in 2018, a 20% decrease from revenue of RM16.92 billion in 2017. The decrease in revenue was a result of the lower average Crude Palm Oil (CPO) price, a decrease in the sales volume and average selling price in Sugar and Rubber products as well as a decline in the average selling price for fatty acids and kernel related products. The Group registered a Loss Before Zakat and Taxation (LBZT) of RM1.02 billion, attributed to a lower CPO margin as a result of the lower CPO price and higher CPO production cost (ex-mill) due to aggressive worker recruitment and rehabilitation activities. During the year, we carefully examined the Group’s financial position particularly in terms of our past investments which have been unprofitable, in line with accounting standards. Although the impairments dragged down the Group’s 2018 results, the exercise was necessary due to the lower recoverable amount of those investments against their carrying value. The total impairments came in at RM949 million, mainly due to the non-performing investments such as Asian Plantations Limited (APL), FGV Green Energy Sdn. Bhd. (FGVGE), and FGV Cambridge Nanosystems Ltd. (FGVCNS). RM13.46 billion Revenue in FY2018 FINANCIAL CAPITAL In planning for the growth of our business, we consider the resources and relationships with our Stakeholders as vital in order to create value over time. Financial, Natural, Manufactured, Intellectual, Human, and Social & Relationship Capitals represent stores of value that are the basis of the Group’s value creation. The success of the Group does not depend on a single capital. Instead, it should consider the contributions of other capitals in creating value to the Stakeholders. Our performance in delivering value from these Capitals, as well as the impact of our activities in 2018 are discussed in the subsequent sections of this Management Discussion & Analysis (MD&A). LBZT in FY2018 RM1.02 billion We align our Financial Capital with Sustainable Development Goal (SDG):