FGV Annual Report 2020

Contribute to the National Food Security Strategy Tap into Premium Market with a Focus on a Healthy Lifestyle Expand Participation in the Business Value Chain Capitalise on FGV’s Competitive Edge INTEGRATED FARMING Integrated Farming represents FGV’s commitment towards embracing the circular economy and efforts towards maximising value from its land assets that exist in the Group’s overall business operations. FGV Integrated Farming is entrusted to achieve the following goals: Integrated Farming focuses on six (6) key business pillars. They are: Animal Feed Palm-based animal nutrition has tremendous growth potential, and FGV has identified it as an important income stream. Derived principally from palm kernel expeller (PKE), this palm waste product is being exported and had low profit margins. Our R&D Division has conducted tests on palm-based animal feed to develop high-quality animal feed products. FGV currently produces 400,000 MT of PKE annually. As an animal feed producer, we are committed towards ensuring that FGV’s animal feed is produced in accordance with the highest standards of quality, safety and productivity to support sustainable livestock farming. Cash Crops Up to 2020, FGV’s cash crop cultivation was limited to intercropping activities, where land meant for replanting of palm oil is utilised for the planting of other shorter life-cycle cash crops. As much as 15,000 hectares of land lies fallow every year during replanting. We are also cultivating Cavendish bananas under a contract farming arrangement, where small farmers are contracted to supply the fruits to FGV to sell in domestic or export markets. Currently, we are testing the business viability of other fruits such as jackfruit and watermelon. We are also testing the potential of biomass from pineapple and banana cultivation to be processed as animal feed. Proj ect s on the Ground Group Strategy & Business Plan Review STRATEGIC BLUEPRINT - FOCUSING ON CONSUMER PRODUCTS D uring the year, the Group officially made Consumer Products an independent business to complement our long established Commodities revenue stream. Previously, it was known as the downstream division of our Plantation Division. Consumer products are not new to FGV – we have already established a strong market presence with our signature Saji brand of food products. Moving forward, we plan to intensify our presence in the consumer products market. While our Consumer Products will initially be palm-based, it will not be exclusively dependent on our upstream resources. It will also explore other high growth food products. Our decision to establish a strong and dynamic presence in the consumer products space is based on the outcome of a detailed strategic review where FGV’s high-level playing field was reassessed taking into account both macro and microeconomic factors to then be able to design a suitable long term growth strategy that is able to deliver sustainable returns for all stakeholders. Based on the mapping exercise, some of the key issues that the Malaysian plantation industry has been facing for the past few years are as follows: • Cost escalation is not due to operational inefficiencies, but due to Malaysia’s continued growth in national income per capita which leads to higher cost structures, thus requiring businesses in Malaysia to be involved in higher value-add economic activities. • Declining margins from commodities as costs continue to escalate while CPO prices are subject to market forces. • In the long run, there is a high chance of Malaysia’s Palm Oil Upstream and Midstream businesses to be undertaken by lower income palm oil producing nations due to their lower cost structures. • High value creation opportunities exist in downstream consumer products that have steadier profit margins, higher returns, and bigger market size. • Malaysia’s huge food import bill of approximately RM60 billion per annum represents a huge import substitution opportunity for local players that are able to produce and sell similar high quality products but at much better prices. In 2020, the Consumer Products Strategic Blueprint was approved by the Board. It represents an extension of the Group’s existing high level Strategy Map to become one of the world’s leading integrated and sustainable agribusiness players. The blueprint provides for the establishment of the Consumer Products Division that is to focus on developing and marketing of higher value-add branded consumer products. They are: • To become a ‘price maker’ to mitigate the impact of long term declining profit margins and returns from the upstream business. • To generate better returns for shareholders and also other key stakeholders. 60 FGV HOLDINGS BERHAD Annual Integrated Report 2020