RISKS EXPOSURE AND MITIGATION
The Group operates within the plantation industry that is
generally exposed to the following embedded risks that
may have a material effect on the Group’s operations,
performance, financial conditions and liquidity:
a)
Volatility in palm oil commodity prices as well as
foreign currency exchange rate;
b)
Fluctuation in production of FFB due to seasonal
cyclical as well as weather factors such as El Nino
phenomenon;
c)
Demand in palm oil products that may be adversely
affected by supply of alternative oils and fats
worldwide;
d)
Policies of major importing and exporting
countries;
e)
Shortage in skilled labour in plantation sector; and
f)
Increase in operation cost partly caused by upward
trend of minimum wages as well as increased
recruitment cost for foreign workers.
There have been no significant changes in the abovementioned risks since the previous financial year. Having
said that, challenges pertaining to recruiting sufficient
local and/or foreign workers continue to persist and are
some of the key industry-wide issues.
With the progression of COVID-19 pandemic into an
endemic, the Management continues to be vigilant of
the potential adverse impact the virus may pose on its
operations. Due care will be exercised in dealing with
any development relating to COVID-19 to mitigate and,
where possible, avoid disruption in the Group’s business
whilst safeguarding the well-being of employees and
affected stakeholders.
The Management constantly monitors the movements in
palm oil commodity prices and may take necessary steps
to mitigate unfavourable movements in commodity prices
to reduce impacts on the Group’s financial performance.
To achieve this, the Group may use derivatives such as
Futures and Swap contracts to hedge against potential
cash flow risks faced by the Group arising from volatile
commodity prices.
While the plantation is still a labour-intensive industry, the
Group has made every effort to manage its operations
with limited labour force, and where possible, to invest in
mechanization and automation in its plantations as well
as palm oil milling operations to reduce dependency on
labour.
The Group observes industry best practices in managing
its plantation and milling operations such as adhering
to requirements under MSPO certification scheme,
manuring programmes recommended by Agronomists,
and strict control to minimize oil loss, so as to achieve
optimal operational efficiency in terms of both production
quantity and quality.
DEVELOPMENT AND PROSPECTS
Plantation operations:
In order to achieve a long-term sustainable production
and palm age profile, the Group will resume major
replanting activity from the second half of 2023 onwards
with a projected replanting program of 1,000 hectares
per year.
To support our plantation operations in Sarawak, the
Group will continue with its efforts to secure a milling
licence and set up a palm oil mill in Sarawak.
For the financial year ending 31 January 2024, the
Management forecasts the FFB production to be about
15% higher than that achieved in FY2023 on account of
more replanted areas coming into maturity and better
age profile of young palms productive areas.
The Management is of the view that the Group’s
plantation operations will continue to benefit significantly
if the average CPO price stays above the RM4,000 per
MT level for the financial year 2024.
Milling operations:
The Management targets to achieve a total processing
throughput of 1.5 million MT of FFB for the financial year
2024. In addition, the Management targets to maintain
its milling oil extraction efficiency in the financial year
2024 considering wet weather conditions in February to
March 2023 have negatively impacted on oil quality and
extraction rate.
As the biogas plant at Keningau has commenced supply
of power to SESB’s grid since December 2022, the plant
could start contributing positively in terms of revenue
and profit in the financial year 2024 after obtaining
certification of plant efficiency by SEDA.
As for the FiT project at our Telupid mill which has been
approved for a net export capacity of 1.5 MW, we expect
this biogas plant to commence operations in the second
half of the financial year 2024.
As the palm oil prices are still volatile in general, the
Management expects the milling operations to perform
satisfactorily on the grounds of good production
efficiency as well as competitive pricing for sourcing
FFB supply. In general, palm oil milling business is less
sensitive to volatility of palm oil prices as compared to
a plantation.
General:
The plantation industry outlook remains challenging
given the price volatilities, labour shortages, inflationary
pressures on cost, persisting weather extremities, and
biofuel policy changes in Indonesia, amongst other
developing issues, on a backdrop of an oncoming global
economic downturn.
Given the above, the Management will continue to be
vigilant in monitoring the development of all the key
risks facing the Group and will endeavor to mitigate
any adverse impact on its operations and deliver a
satisfactory performance for the financial year 2024.
MANAGEMENT DISCUSSION
AND ANALYSIS
