CEO's Review

Extracted from Annual Report 2018

Dear Shareholder,

Your Group faced considerable headwinds in 2018, driven primarily by volatile commodity prices and turbulent market conditions. Nevertheless, we persevered by building on our established fundamentals.


Boustead Plantations Berhad (BPB) recorded a deficit of RM51 million for the financial year ended 31 December 2018. This was largely due to the sharp downturn in palm product prices and slowdown in production from all regions. The Group posted a revenue of RM584 million. The rehabilitation and system improvements in the newly acquired Pertama Estates along with financing costs also brought down earnings. The MFRS treatment which now requires bearer plants to be depreciated further impacted profitability.

Despite this impacted performance, the Group's commitment to delivering value to our shareholders remains unwavering. Total dividend for the year under review was 7 sen per share, representing a total payout of RM157 million.

Loss per share was 2.3 sen, while net assets stood at RM1.21 per share. Market capitalisation was RM1.7 billion as at 31 December 2018.

The Group successfully completed the acquisition of the Pertama Estates. This saw borrowings increase to RM1.1 billion for the year, resulting in a gearing ratio of 0.41 times.


It was a challenging year for the plantation industry, as most commodity prices plunged to multi-year lows. The crude palm oil (CPO) market was not spared as CPO prices declined significantly from the previous year

To help mitigate this, the Malaysian Government suspended export taxes in the first quarter of 2018. This pre-emptive measure stabilised CPO prices for the short-term, trading within the region of RM2,400 to RM2,600 per metric tonne (MT). However, CPO prices tumbled in March 2018 following an import tax hike by India, which saw CPO tax jumping to 44% from 30%, while refined palm oil tax soared to a decadehigh of 54% from 40%. This significantly impacted palm oil exports to India for the year.

The suspension of export tax in Malaysia which was lifted in May 2018 and depreciating currencies of key importing countries such as India and China continued to put pressure on CPO prices. The trade dispute between the US and China further weighed down soybean and CPO prices. As the USChina trade conflict escalated, China imposed a 25% tariff on US soybeans in July 2018, causing soybean prices to fall to a 10-year low. Coupled with the bumper soybean harvest in the US and Brazil for the 2017/18 season, this had an adverse effect on CPO prices.

In the second half of the year, Indonesia's increased CPO production paired with muted palm oil exports saw palm oil inventories building up in Malaysia and Indonesia. In 2018, Malaysian palm product imports surged by 51% to 841,452 MT, after Indonesian players opted to export their products to Malaysia as they struggled with local tank storages and heavy congestion at their domestic ports. As a result, Malaysia's palm oil stocks grew to a record high of 3.22 million tonnes in December 2018.

The Malaysian Palm Oil Board (MPOB)'s average CPO price for 2018 stood at RM2,239 per MT. This reflects a 19.6% drop compared with the previous year.

Amidst these demanding market conditions, the Group recorded an average CPO price of RM2,261 per MT for the year, 20% lower than last year. Average palm kernel price was RM1,780 per MT, compared with RM2,505 per MT in the previous year.


BPB operates a total of 46 estates spanning across Peninsular Malaysia, Sabah and Sarawak. Our combined land bank stands at 93,300 hectares (ha), up from 81,800 ha in 2017, and we have a total of nine palm oil mills following the closure of Lepan Kabu Palm Oil Mill during the year. Total area under cultivation stood at 75,000 ha, consisting of 68,700 ha of mature oil palm areas and 6,300 ha of immature oil palm areas.

In the year under review, we invested a total of RM39 million in capital expenditure. This was mainly for the routine replacement and new additions of mill machineries, agricultural vehicles, workers' quarters and staff accommodation. In addition, we commenced construction of a CPO washing plant at Trong Palm Oil Mill as part of the collaboration with MPOB to carry out a commercial trial to reduce chloride contaminants in CPO. The project cost RM1 million and we obtained a grant from MPOB for 50% of the project cost. We also undertook replanting efforts for a total of 2,394 ha. Replanting and upkeep of immature fields amounted to a total of RM44 million.

Apart from this, we completed the development of the tissue culture protocol for large-scale production of tissue culture Kacip Fatimah plantlets, a traditional local medicinal herb. Building on this breakthrough success, plans are currently underway for commercial production of Kacip Fatimah for the herbal market. We expect to see commercial returns from this project from the year 2020 onwards.

Fresh fruit bunches (FFB) production was 966,134 MT, consistent with 973,513 MT last year, while average yield per ha dropped to 14.9 MT from 16.7 MT. This shortfall was mainly due to a shortage of harvesters and change in weather patterns, which resulted in much lower yields in the second quarter of 2018, along with ongoing native customary rights land disputes in the Bukit Limau, Kelimut and Maong estates. Another contributing factor was the lower yields from the newly acquired Pertama Estates. With a processing capacity of 405 MT FFB per hour, the Group's mills processed a total of 1,000,367 MT FFB in 2018, of which approximately 85% was from our own estates.

Average FFB production cost rose by 4% to RM327 per MT, attributed to the decline in crops and upkeep of roads, equipment and workers' quarters for the Pertama Estates. Milling cost grew to RM83 per MT, mainly due to lower FFB processed, while cost of CPO production was RM1,664 per MT.

CPO production amounted to 211,847 MT compared with 226,843 MT last year, while palm kernel production stood at 43,601 MT. Average oil extraction rate (OER) increased slightly to 21.2%, higher than 21.0% in the previous year and the MPOB's 2018 national average of 19.9%. Kernel extraction rate (KER) was 4.4%, a marginal improvement from last year.

As part of the Group's efforts to reduce labour dependency, maximise efficiency and optimise productivity, we continued with the mechanisation of our operations. We utilised harvesting tools such as lightweight graphite poles for tall palms across 29,000 ha and motorised cutters for young palms across 12,000 ha in our harvesting operations. Mini tractor grabbers were deployed across 28,000 ha together with bin systems to ensure the quality of FFB transported to our mills. For hilly areas, motorised wheelbarrows were used for FFB evacuation.

During the year, the bin system was implemented at the Boustead Pertama, Boustead Ruku Ruku and Boustead Sapa Payau estates in Labuk and Sugut, Sabah. The system is now utilised at a total of eight estates, comprising 12,700 ha.

We extended the use of smart fertiliser spreaders to the Bebar, Kuala Muda and Bukit Mertajam estates. Fifteen times more productive than conventional methods, these state-of-the-art fertiliser spreaders are capable of applying two types of fertiliser simultaneously. They are also equipped with digital sensors that generate fertiliser application maps, ensuring that the right amount of fertiliser is applied to each palm.

We also utilise precision agriculture and Internet of Things (IoT) technologies for more precise monitoring of our field operations. The use of Geographic Information System and Global Positioning System data coupled with IoT technologies helps to facilitate accurate and timely decision-making.

As a biological control measure, we have more than 200 barn owl nest boxes in Segaria Estate in Tawau, Sabah. This has demonstrated very positive results in curbing the rising population of rats. We will replicate this in our Sungai Segamaha Estate in Sandakan, Sabah in 2019.

The Group remains committed to achieving Roundtable on Sustainable Palm Oil (RSPO) and Malaysian Sustainable Palm Oil (MSPO) certification across our operating units. A total of four business units have received RSPO and MSPO certification, covering 26,300 ha. The remaining business units spanning 55,200 ha are slated to be MSPO certified by end 2019, within the mandatory Government deadline.

All of our mills have also undergone a re-certification and upgrading audit for ISO 9001:2015 carried out by SIRIM QAS International.

Peninsular Malaysia

Our Peninsular Malaysia land bank encompasses 25,800 ha over 19 estates. A total of 24,100 ha are planted with oil palms, with an average age profile of 13 years.

FFB production for the region was 385,731 MT, 10% lower than the previous year. The drop was mainly due to the severe crop downtrend during the second quarter of the year, as well as a 500 ha reduction in harvesting area and labour shortages.

Estates in the southern region fared better, producing average yields of 20.2 MT per ha, compared with northern region estates which saw yields averaging 18.2 MT per ha. Young fields in the east coast estates also recorded encouraging yields of 20.8 MT per ha. Top performing estates in the region for the year were Bebar and Telok Sengat, which achieved average yields of 22.4 MT per ha and 22.0 MT per ha respectively.

Average OER for our Peninsular Malaysia mills was higher at 21.5% compared with last year's average OER of 21.1%. This also surpassed the MPOB average of 19.7%. The Sungai Jernih Palm Oil Mill once again recorded the Group's top OER of 23.5%, earning the National Highest OER Achievement Award for 2017/2018 from MPOB, its third consecutive win.


Our operations in Sabah comprise 18 estates with a total land bank of 41,000 ha. Area under cultivation amounts to 37,300 ha, with an average age profile of approximately 15 years.

FFB production for our Sabah estates grew by 10% to 454,332 MT due to the contribution from the Pertama Estates, while average FFB yield per ha stood at 15.3 MT per ha compared with 17.3 MT in the previous year. This was attributable to the weak performance in our Sugut property which was severely impacted by wet weather conditions, resulting in flooding in some of the estates and damages to main access roads and field roads. This subsequently led to problems with evacuation of FFB. Shortage of skilled harvesters also hampered production.

Young mature areas performed positively, particularly for the Lahad Datu District and Sandakan District, boosting production in the Sungai Segamaha, Bukit Segamaha, Nak and Sutera estates. Resort Estate clinched the top performer spot for the region achieving a yield of 22.8 MT per ha, mainly attributable to adequate harvesters and the introduction of new harvesting tools for tall palm areas.

The G&G and Segaria estates also delivered good yields of 21.6 MT per ha and 20.8 MT per ha respectively. Meanwhile, the Pertama Estates have made progress in crop production towards the end of the year following improvements made to access and fields roads, along with repairs to workers' quarters and equipment and stabilisation of the workforce.

Our Sabah mills recorded an average OER of 21.4% compared with 21.3% in the previous year. This exceeded MPOB's average of 20.6% in 2018. Leading this was our Segaria Palm Oil Mill which achieved a commendable OER of 23.1% and was awarded Best Palm Oil Mill for Sabah/Sarawak (Own Crop Supply) for 2017/2018 by MPOB.


The Group operates nine estates in Sarawak with a combined land bank of 26,500 ha. This comprises a total harvesting area of 13,600 ha, with an average age profile of 21 years.

FFB production for the Sarawak estates was 126,071 MT in 2018, a 5% reduction from the previous year. Average yield per ha declined to 9.3 MT from 10.8 MT in 2017. Tough operating conditions continued to be a challenge in Sarawak, including an acute shortage of skilled harvesters and inclement weather causing evacuation issues and hindering harvesting activities. Ongoing issues arising from native customary rights land disputes also affected operations.

Bawan Estate recorded a higher average yield of 14.6 MT per ha. Meanwhile, over 1,900 ha of land in Bukit Limau Estate remained under blockade, while rehabilitation of more than 500 ha of oil palms in Sungai Lelak Estate has been completed, with the balance of approximately 700 ha to be replanted.

On a positive note, efforts to remedy the blockade on Bukit Limau Estate are in progress and we are working closely with the relevant authorities. As a result, we were able to enter the estate and commence harvesting operations on a very small area.

Our mills in Sarawak achieved an average OER of 19.8%, consistent with the previous year and MPOB's average of 19.9%.


We are strongly focused on research and development (R&D) to drive the Group forward. Spearheaded by our associate company, Applied Agricultural Resources Sdn Bhd (AAR), we advanced further in our aim to improve productivity by adopting best practices coupled with new technologies and innovations.

High oil-yielding planting materials, good agronomic practices and prudent management are key drivers of productivity for the Group. AA Hybrida II is the latest planting material developed by AAR's oil palm breeding programme. The Group has replanted a total of 23,200 ha to date using superior clonal planting materials.

R&D on breeding of long-stalk bearing palms saw good progress, with one of the three selected families producing high yields on par with the current commercial DxP materials available in the market. AAR's unique planting material produces bunches with longer stalks of 30 to 50 cm compared to the standard 20 cm. This could potentially improve pollination and allow for ease of detection of ripe fruit as well as harvesting. We look forward to large scale commercial planting once this makes further headway.

AAR also successfully developed an improved image-based inventory mapping and palm counting technique. The process uses drones to capture high resolution aerial photographs for planning and monitoring of palm growth. High-speed drones capable of acquiring images two to three times faster will soon be deployed.

As we seek to further minimise dependence on inorganic fertilisers, we are looking into the use of beneficial nitrogenfixing microbes. This can enrich the soil and subsequently improve crop yields.


As a plantation company, the environment is at the crux of our business. As such, sustainability is not only a priority for us, it is a responsibility that we incorporate in all that we do.

Our vision of Achieving Strategic Growth, Safeguarding the Environment, Embracing the Diversity of People continues to propel the Group to fulfill and expand our sustainability efforts, comprising economic, environmental and social commitments. This year, we introduced our inaugural standalone Sustainability Report, extensively covering the various initiatives undertaken and targets achieved in 2018.


While 2018 was indeed challenging, the Group is positive on the prospects for 2019, particularly with the CPO market expected to see some recovery in the first half of the year as we enter into the low crop production season and anticipate improved demand from both food and non-food sectors. Although palm oil inventories remain high currently, the biodiesel mandates of Malaysia and Indonesia will help to trim this down to more manageable levels.

In addition, the Indian government's move to reduce import duties on crude and refined palm oil should further support a recovery in CPO prices. Increased demand from China is also expected to shore up CPO prices.

The Group will place emphasis on increasing overall productivity and focus on cost optimisation to improve our margins going forward.

The Pertama Estates and the proposed acquisition of more than 4,000 ha of adjacent strategically located prime plantation lands with a 75 tonnes per hour palm oil mill will result in a business complex covering over 17,000 ha. This will result in huge cost savings from economies of scale and enhanced operational efficiencies. The proposed acquisition is on track for completion by the first half of 2019.

The Pertama Estates will focus on implementing good agronomic and best management practices as well as the commencement of replanting programme using high yielding oil palm planting materials from 2020 onwards. With these measures in place, we are confident that the Pertama business complex will contribute significantly to the Group's profitability.

We are conscious that some land may have high development potential and as such, we will monetise these assets at an opportune time. To this end, we are set to dispose of 139 ha of the Malakoff Estate located in Seberang Perai Utara, Pulau Pinang and expect to realise a total estimated gain of RM120 million upon completion of the proposed disposal by the first quarter of 2019.

Planned capital expenditure for 2019 is in the region of RM79 million. We have allocated RM17 million for the installation of dust particulate reduction systems in eight palm oil mills, in compliance with Environment Quality (Clean Air) Regulations 2014. Apart from this, we will invest RM4 million in the Pertama Estates, largely for the construction of workers' quarters and two schools.

In addition to this, RM56 million will be invested into replanting efforts targeting over 7,200 ha in 2019.

Looking ahead, the Group is well-prepared to tap on new opportunities on the horizon. As we leverage on our strengths to move forward, we are steadfast in our commitment to ensuring the sustainable long-term growth of the Group.

Chief Executive Officer
11 March 2019

Boustead Plantations Berhad
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