Shaped By High Standards Of Governance 166 FGV HOLDINGS BERHAD Links to FGV’s Strategic Thrusts Statement on Risk Management and Internal Control Volatility in Foreign Exchange Movements Key Mitigations To mitigate the effects, FGV closely monitors the market for news, data, events and trends that may affect USD/MYR, plans new hedging strategies and executes foreign exchange hedging cautiously, quotes higher foreign exchange rates in industrial sales contracts and uses more USD proceeds from export sales to pay for raw sugar. FINANCIAL Description The Russia-Ukraine conflict is taking place in regions that are rich in natural resources such as oil and gas as well as grain and wheat. The conflict has caused high inflation in many countries that were navigating their way through the COVID-19 pandemic aftermath, including the US. In order to combat the inflationary effects, the US Federal Reserve increased the basis points for fund rates multiple times during the year, resulting in adverse impacts on countries importing commodities in USD. FGV’s Sugar Sector suffered direct financial exposure from unfavourable USD movements as it relies heavily on imported raw sugar. New Growth Areas Product & Market Penetration Financial & Capability Building Operational Improvement Volatility of CPO Prices Key Mitigations To mitigate the risk of CPO market uncertainty, FGV has implemented several measures. These include diversifying its revenue streams by expanding into other markets, increasing the efficiency of its supply chain to minimise disruptions, closely monitoring government policies and regulations, investing in sustainable practices to address environmental concerns and hedging against commodity price and currency exchange rate volatility. Additionally, FGV is constantly monitoring market trends and conducting market research to identify emerging opportunities and adapt its business strategy accordingly. By taking a proactive and comprehensive approach to risk management, FGV aims to minimise the impact of market uncertainty on its revenue, profitability and shareholder value. TRADING Description The trading of Crude Palm Oil (CPO) is subject to significant uncertainty, which poses a risk to FGV’s profitability. Factors contributing to this uncertainty include fluctuations in global demand, disruptions in the supply chain, changes in government policies and regulations, and environmental concerns. Additionally, the volatility of commodity prices and currency exchange rates further exacerbates the risk. FGV’s exposure to this risk is significant, given its reliance on CPO as a primary revenue stream. Failure to effectively manage this uncertainty could result in a decline in revenue, profitability and shareholder value. Rising Energy and Fertiliser Commodity Prices Key Mitigations To manage the impact of the volatile fertiliser and energy markets, FGV has implemented a range of measures. These include improving bulk shipment arrangements, seeking alternative sources for purchases, developing stronger relationships with reliable and reputable manufacturers and traders, and closely monitoring global prices. In addition, FGV has implemented a diligent hedging mechanism to guard against potential upward movements in Brent Crude Oil prices, with clear guidance provided by the Trading Committee. Foreign exchange movements are also closely monitored to inform decision-making. To further offset these challenges, FGV is leveraging US Dollar (USD) proceeds from export sales to mitigate the impact of geopolitical tensions on the natural gas market. MARKET Description Rising energy and fertiliser prices are significant challenges in the production of Fresh Fruit Bunches (FFB). Nitrogen, Phosphorus and Potassium (NPK) are critical components of fertilisers, and the prices of these minerals fluctuate as they are sourced from various regions worldwide. The geopolitical tensions resulting from the Russia-Ukraine conflict in 2022 have tightened the global supply of key mineral-based macronutrients, leading to a significant increase in fertiliser prices. The conflict has also disrupted the global supply chain of natural gas, which is a crucial source of fuel for powering sugar refineries. The resulting shortage has led to price spikes, directly impacting the cost of FFB production.
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