FGV Annual Report 2018

35 REMAINED FOCUSED ON VALUE CREATION 01 02 05 03 07 06 04 08 09 ANNUAL INTEGRATED REPORT 2018 We create a positive impact on our Stakeholders by value- adding our natural capital to meet Malaysia’s agribusiness needs and export demand for commodities and hence continue to promote SDG 12: Responsible Consumption and Production. To minimise negative impacts, we are committed to adopting environmental best practices at our workplace and in our plantations, as well as contributing towards the preservation of flora and fauna within our landbank. MANAGING OUR NATURAL CAPITAL AND ITS OUTCOMES Our Upstream Cluster manages a total landbank of 439,725 Ha comprising 201 estates including rubber. 417,147 Ha of this landbank is located in Malaysia (252,903 Ha in peninsular and 164,244 Ha in Sabah & Sarawak) and 22,578 Ha is located in Indonesia. The total landbank is made up of a total planted area of 339,385 Ha of oil palm and 11,267 Ha of rubber. Others crops make up a small portion of 1,603 Ha of the planted area. Out of the total 339,385 Ha of oil palm planted area, 273,883 Ha consists of oil palm that has matured (more than four years old), whilst another 65,502 Ha are categorised as immature area, consisting of oil palm aged below 3 years old. For the year under review, FFB production from our harvested area declined marginally to 4.21 million MT, from 4.26 million MT in 2017. The lower FFB production was due to the lag effect of the El Niño phenomenon in 2016, which reduced the number of bunches, especially from the older palms. However, young and prime palms appeared to perform better and partly compensated the effect with a higher number of bunches. Worker shortages which persisted in Sabah and Sarawak earlier in the year also contributed to the lower FFB production. Although the shortages are negligible, ongoing efforts are underway to achieve 100% estate worker requirement. MANAGEMENT DISCUSSION & ANALYSIS As part of the Transformation Plan introduced in 2018, we exercised the normalisation of unproductive planted matured area and have identified around 25,000 Ha of land based on specific criteria. These criteria consisted of areas with limited accessibility, rehabilitation areas, areas with low palm stands due to pest and severe Ganoderma infection as well as uneconomic areas. Following this, we recorded a yield of 16.89 MT per Ha. Nevertheless, the implementation of stringent monitoring in the estates, extended working days at times and structured block harvesting introduced in end-2018 are expected to contribute to the higher yield as well. Our activities in the year continued to include our replanting programme, for which we have committed to a disciplined replanting schedule of approximately 15,000 Ha with an allocation of around RM300 million per year. The replanting programme is aimed at correcting our average palm age profile. At our listing in 2012, around 50% of our estates had old palm trees (>20 years) due to insufficient replanting previously. This resulted in an average age profile of 16.3 years at the time. Through our continuous replanting programme, we managed to reduce the old tree age distribution to 34% in 2018. Malaysia’s national replanting rate dropped to below 2% as a result of the bearish CPO prices recorded during the year. Most plantation companies adopt a more conservative replanting approach to manage costs when prices are low. However, FGV does not have this luxury due to our old palm age profile and in 2018 completed felling of 15,039 Ha with a total replanted area of 13,119 Ha. The shortage of around 13% was mainly due to the underperformance of the key contractor, causing a delay in major work. Nonetheless, the Group’s average oil palm age had improved to 14.3 years in 2018. We will continue our replanting plan until we achieve a normalised average age profile of 12.0 years by 2026. In a further effort to improve FFB production and reduce our dependency on manual workers, we have identified a total area of 115,000 Ha suitable for full mechanisation. Another 225,000 Ha will be partially mechanised due to the condition of its terrain. In 2018, an additional 16,500 Ha of area was mechanised, resulting in a total mechanised area of 96,500 Ha. We also purchased 13,119 Ha Total Replanted Area 14.3 years Average Oil Palm Age Profile 16,500 Ha Mechanised Area 2017: 10,675 Ha 2016: 16,320 Ha 2017: 26,000 Ha 2016: 11,700 Ha 2017: 14.8 years 2016: 15.0 years For further details on our workers and how we manage them, please refer to Human Capital and Social & Relationship Capital in this MD&A. NATURAL CAPITAL