CEO's Review

Extracted from Annual Report 2015

Dear Shareholder,

As we complete our first full year of operations since listing, we have once again proven our resilience with a sound profit despite the challenging year it has been for the commodities sector.


Boustead Plantations Berhad's profit for the year under review stood at RM95 million compared with the previous year's RM90 million.

The Group's results for this year included gains on disposal of non-core land amounting to RM57 million. The disposal was part of our continuous drive to unlock the value of our land bank which is nonessential to our core business.

Operationally, the Group's results for the year were mainly impacted by lower palm product prices.

We are committed to enhancing shareholder value and to this end, we will be paying out a total dividend of 13 sen per share for the financial year. This represents a cumulative pay-out of RM208 million.

Earnings per share ended at 4.9 sen and net assets was RM1.36 per share, while market capitalisation as at 31 December 2015 was RM2.4 billion. Our gearing ratio stood at 0.4 times.


Commencing the year at RM2,283 per metric tonne (MT), CPO prices hovered between RM2,076 and RM2,400 throughout the first half of the year before dropping sharply to RM1,834 per MT in August.

CPO prices were impacted by the abundance of edible oil globally combined with strong CPO production from Malaysia and Indonesia, demand deceleration, inability to achieve biodiesel consumption objectives and the milder than expected El Nino phenomenon.

CPO prices rallied to a high of RM2,445 per MT in October as a result of a moderate increase in export demand. The increase was attributed to consumer reaction to the predicted dry weather cutting down output throughout Southeast Asia.

Rounding off the year, CPO prices ended at RM2,485 per MT. Average CPO price for the year stood at RM2,153 per MT.

The Group achieved an average net CPO price of RM2,148 per MT, representing a 11% decline when compared with RM2,401 in 2014. Palm kernel prices dropped by 9% to average at RM1,533 per MT for 2015.


At the close of the year, our operations spanned over 41 estates located in Peninsular Malaysia, Sabah and Sarawak with a combined land bank of 83,200 ha.

Area under cultivation stood at 65,700 ha comprising 59,100 ha of mature palms and 6,600 ha of immature palms. Area under cultivation excludes 12,800 ha for buildings and infrastructure, unplanted areas and reserves. For the financial year, the Group has further excluded 4,700 ha, as the area was unproductive resulting from the native disputes in Sarawak.

We completed the disposal of non-core land during the year which consisted of 121 ha of primarily quarry land in Kulai, Johor. Additionally, 9 ha of land was acquired by the Government for TNB transmission lines in Kota Tinggi, Johor.

The average age profile of our oil palms is approximately 14 years. As part of our yield improvement efforts, we replanted 2,200 ha using clonal and semi-clonal planting materials comprising 700 ha in Peninsular Malaysia and 1,500 ha in Sabah.

Fresh fruit bunches (FFB) production was stable at 1,037,000 MT for 2015. Yield per ha recorded an improvement to 17.6 MT per ha from 16.2 last year.

With a total processing capacity of 425 MT FFB per hour, we processed 1,120,000 MT, of which 87% comprised fruits from our own estates. This was a slight reduction compared with 2014's volume of 1,135,000 MT.

Our FFB production costs averaged at RM297 per MT (2014: RM306) due to effective cost control measures, while milling costs increased by 5% to RM67 per MT FFB as a result of higher operational costs. Palm oil production cost stood at RM1,471 per MT compared with RM1,435 last year.

CPO production of 245,000 MT was marginally lower compared with the previous year's production of 247,000 MT as a result of the lower FFB processed.

Average oil extraction rate (OER) for the Group on the other hand was maintained at 21.9% compared with 21.8% attained in 2014, making it higher than the Malaysian Palm Oil Board's(MPOB) national average of 20.45%.

Palm kernel production stood at 51,000 MT, lower than last year's production of 52,000 MT while our average palm kernel extraction rate increased to 4.6% compared with 2014's average of 4.5%. However, it was lower than MPOB's national average of 5.04%. This is mainly due to smaller nuts in the FFB fruit composition given the selected characteristic of our planting material.

In alleviating labour shortage issues as well as rising costs, we continued with efforts to mechanise our field operations.

Controlled droplet applicators and power sprayers were utilised to address weeds, pests and diseases while we used 'very low volume' knapsack sprayers and 'ultra low volume' spraying equipment to increase workforce productivity. In terms of fertiliser application, mechanical spreaders were utilised. As for in-field FFB collection, we employed a minitractor and grabber system where feasible.

In addition, our utilisation of mechanised harvesting tools continued to be effective in scaling down labour dependence and increasing productivity in the harvesting of medium height palms up to six metres.

For tall palms with heights exceeding six metres, we employed considerably nimbler carbon fibre harvesting poles.

As part of our efforts to speed up FFB evacuation from the fields to the mills within 24 hours after harvesting, the bin transportation system implemented at a selection of our estates and mill complexes is progressing well and has proven effective.

During the year, our Engineering Department provided consultancy services to reputable companies for the construction of three palm oil mills in Keningau, Sabah; Bintulu, Sarawak; and Kalimantan Utara, Indonesia with a processing capacity of 40/60 MT per hour.

In addition, we provided plantation management services for plantations not owned by the Group, totalling 4,800 ha of oil palms in Peninsular Malaysia.

Peninsular Malaysia

We have a land bank of 27,700 ha in Peninsular Malaysia operated by a total of 20 estates. Of this amount, 25,900 ha are planted with oil palms with an average age profile of 13 years.

FFB production for the region stood at 457,000 MT, a 7% increment from the previous year while average FFB yield per ha was 19.8 MT against 2014's average of 18.7 MT.

Yields for the first two months of the year were lower as a result of lingering adverse effects of the severe floods in December 2014.

Our east coast estates namely Lepan Kabu, LTT-Terengganu and Bebar were most affected. This was compounded by dry weather conditions in January and February 2015.

Nevertheless, crop production recovered strongly between March and August, particularly for the northern estates.

The crop production pattern started to trend lower from September onwards. This was attributed partially to the scarceness of skilled harvesters.

Our Peninsular Malaysia mills recorded an OER of 22.1%, an improvement from last year's average of 21.9% as well as the Peninsular MPOB average of 20%. Our Sungai Jernih mill achieved the Group's highest OER for the year of 25.1%.


Our 12 estates in Sabah cover an area of 29,000 ha with 26,500 ha planted with oil palms producing 412,000 MT FFB, 6% lower than last year's production of 438,000 MT.

The average age profile of our oil palm trees in Sabah is 14 years. FFB yield for the region stood at 18 MT per ha, a reduction from last year's yield of 18.7 MT.

This reduction was due to the El Nino phenomenon, which triggered dry weather as we experienced a lower average rainfall level for the most part of the year.

Lack of skilled harvesters especially for our tall palm areas also curtailed production.

As for young mature palms, we achieved a minimum of three harvesting rounds with harvested crop sent to our mills within a 24-hour period.

Our Sabah mills recorded an average OER of 22.5%, an improvement over last year's 22.2% with our Segaria mill recording the highest OER of 24.8% for the region's mills.


Our total land bank in Sarawak stood at 26,500 ha over the span of nine estates. Of this, only 13,300 ha is planted with oil palms which have an average age profile of 18 years.

Our Sarawak operations produced 167,600 MT FFB, 2% lower than the last year's 171,000 MT FFB. Average FFB yield per ha was 12.8 MT compared with 9.6 MT achieved last year.

Prolonged field blockades have affected our operations in Sarawak especially at our Bukit Limau, Sungai Lelak, Kelimut and Maong estates. This is in spite of the fact that the Courts have ruled in favour of the Group that the claimants are not entitled to occupy our land.

In addition, we faced a high turnover of harvesters, extreme rainfall during the extended monsoon season in the fourth quarter, reduced field accessibility in some areas in addition to the acute shortage of tall palm harvesters.

Our mills in the region achieved an OER of 20.0%, which was marginally below last year's rate of 20.5% and the Sarawak MPOB average OER of 20.2%.


Research and development (R&D) efforts led by our associate company, Applied Agricultural Resources Sdn Bhd (AAR) play an important role in the Group's sustainable growth.

AAR's work allows us to look into new ways to increase our efficiency and yields while ensuring our business model remains viable in the long run.

R&D on oil palm breeding remains a key focus as we explore novel ways to develop high yielding planting materials. This area of research has been highly successful for the Group as demonstrated by the results produced by our various planting materials.

The AA Hybrida IS and AA Hybrida II candidates have achieved 22% and 34% more oil yield respectively than our previous AA.

AAR's Tissue Culture laboratory, through its certified ISO management system routinely produces high yielding ramets while methodically sustaining its production quality. Reclones feature high oil-to-bunch ratios of 34% or 29% OER equivalent.

To date, we have 20,300 ha of oil palms planted with clonal planting materials.

In addition, our genomic selection process allows us expedited breeding selection by no less than two years compared with traditional breeding methods. Genomic selection is a form of molecular marker selection for quantitative traits including oil yield.

Improving fertiliser usage efficiency remains a key focus for our R&D team in order to provide the best growing environment that will promote optimal nutrient uptake and a reduction of surface run-off and leaching losses.

Employing the latest geospatial technology, we are also able to design site-specific drainage systems for oil palms in addition to flood control.

AAR has made significant progress in its study of the correlation between microorganisms and soil fertility as well as plant health. The anticipated benefits from this study include enhanced palm growth and better yields derived from beneficial microbes.

AAR has developed new ways to capture and study insects, enhancing our understanding of the biological diversity within our oil palm ecosystem. This allows us to distinguish between insects that can be beneficial and those that are pests.

Advances were made in our on-going research to contain Ganoderma disease through Ganoderma antagonistic microbes. One of the candidates discovered by AAR to deter and reduce Ganoderma infection, a novel species, Scytalidium parasiticum, has been patented.

During the year, we utilised unmanned aerial vehicles to capture satellite imagery at higher spatial and temporal resolutions. We have been able to utilise these images for mapping and drainage planning in our estates.

We have also been able to develop protocols for use in field assessment and to detect pest and disease outbreak. Moreover, the high resolution images taken are also used to accurately determine the planted hectarage and its density, particularly over challenging topography.


We are fortunate to have a wide talent pool of experts in the plantations sector who are working tirelessly to improve our production and effectively manage the usage of our land bank.

In order to improve our yield per ha, we maintain a replanting programme for palms between the ages of 23 and 25 years old as well as low yielding palms with high oil yielding tissue culture ramets and semi-clonal hybrid DxP seeds. We aim to carry out the replanting of 2,000 ha in 2016.

In line with our strategy to expand our land bank to complement existing operations, we recently acquired 533 ha of a prime mature oil palm plantation adjacent to our estates in the Sugut region.

Optimising the value of our land bank is a foremost consideration. On this score, we expect to complete the disposal of a further 230 ha of non-core land bank, which will allow us to achieve gains of approximately RM120 million in 2016. We will continue to assess the effective usage of our land bank while keeping in mind the objective of staying true to our core business.

Shortage of skilled harvesters is a major concern for the sector. To address this we look to continue advancing the mechanisation of our field operations.

The year under review was a challenging one for the sector. CPO prices have bottomed out and are expected to transact at RM2,200 to RM2,600 per tonne in 2016 as demand is supported by a weaker Ringgit.

CPO prices reaching RM2,600 for a brief period is anticipated if the Ringgit drops to below RM4.50 against the USD. This is not expected to be sustained unless Brent crude oil rises to above USD60 per barrel. Nevertheless, analysts anticipate that competition from soy oil will prevent palm oil from rallying too high.

While analysts are expecting prospects for the sector to improve in 2016, assessing how CPO prices will actually fare remains a complex undertaking.

We are encouraged that the Governments of both Indonesia and Malaysia have introduced measures to assist the palm oil industry. Indonesia is targeting biodiesel consumption of 5.4-7.9 million kilolitres for 2016 under its B20 target.

The Malaysian government targets to implement the B10 biodiesel programme with the aim of one million tonnes of CPO usage per year. This effort is expected to contribute to increased domestic consumption of CPO, a reduction of stock build-up and the strengthening of domestic CPO prices. In addition, Malaysia plans to restrict CPO imports to reduce stocks.

Keeping in mind the need to be focused on our long-term growth plans, we will implement cost-saving measures and heighten productivity while keeping a keen eye for prospects that will benefit the Group holistically.

Fahmy Ismail
Chief Executive Officer

25 February 2016

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