FGV Annual Report 2018

40 REMAINED FOCUSED ON VALUE CREATION FGV HOLDINGS BERHAD MANAGEMENT DISCUSSION & ANALYSIS Under our Downstream segment, we operate nine refineries, of which we owned five while four are operated through joint ventures. The combined refining capacity of all refineries amounts to close to 4 million MT per year. In 2018, we refined around 26% of our owned CPO to produce oils and fats for industrial usage and domestic consumption. In addition to our domestic business, we export our products to countries including Thailand, Myanmar, Bulgaria, Kazakhstan and Syria. The Downstream Cluster registered marginally lower sales volume in the oils and fats segment due to a 5% decline in our FMCG sales volume. This is attributed to the government’s decision to reduce its subsidy allocation for cooking oil by 20% monthly and a significant increase in the number of repackers in the non-subsidised range of products in the domesticmarket. The influx of repackers has led to an increase in the market share for 1.14% Shell Recovery Rate (%) 2017: 1.0% OER (%) 10 5 15 20 25 2016 2017 2018 20.68 19.83 20.49 KER (%) 3 2 1 4 5 6 2016 2017 2018 5.19 5.09 5.23 Under the Mill Transformation Initiative, several measures have been implemented, including tightening process controls to minimisemilling oil losses, intensifying FFB sourcing to increase mill utilisation and enhancing planning and supervision to control variable and fixed costs in the milling area. Results from these efforts are expected to be reflected from 2019 onwards. In addition to our core processed products, we also produced varieties of by-products such as empty fruit bunch, Palm Kernel Shell (PKS), sludge oil and biogas. As these by-products are readily available at zero cost, we introduced a ‘ Waste-to-Wealth ’ initiative to expand the revenue contribution from the by-products. This initiative aims to develop direct market access for PKS and conduct aggressive marketing for the other by-products. In 2018, we recorded a 14% improvement in the Shell Recovery Rate (SRR) to 1.14%, producing 150,011 MT of PKS for export to markets such as Japan and Korea. Despite the higher PKS volume, the slow off-take of PKS from the buyer interrupted the progress to generate higher revenue. To further promote higher PKS production, we undertake an annual SRR campaign in all of our mills, and rewarded five mills with highest SRR recorded. PK PRODUCTION (MILLION MT) 0.2 0.4 0.6 0.5 0.3 0.1 0.7 0.8 2016 2017 2018 0.67 0.77 0.72 MANUFACTURED CAPITAL