MANAGEMENT DISCUSSION & ANALYSIS
OIL PALM
FFB Production, Yields & Extraction Rates
As mentioned above, impact from drier weather and intermittent disruptions in our Sabah have slowed down the anticipated crop production growth for the Group.
We only managed to achieve 3.929 million mt of FFB for the FY (FY2019 : 4.104 million mt), a slight reduction of 4%. The severity of labour shortage in Malaysia is slowly creeping in, causing some crop losses as repatriation of guest workers is allowed and has commenced without corresponding replacements as our Malaysian borders are still closed to non-citizens. We were not severely affected as our 10% labour shortage was partly mitigated by our on-going mechanisation efforts which were implemented aggressively in late 2017 taking cognisance of KLK’s high dependency on guest workers.
Indonesia’s operations bucked the trend with 2.265 million mt FFB production which was quite similar as that of last FY whereas Peninsular Malaysia and Sabah was lower by 6% and 15% respectively. FFB production in our Malaysian operations suffered most from the drier weather conditions owing to its older age profile whereas in Indonesia, the age profile is younger and reacted less to the drier conditions.
The lower FFB production in Malaysia had a consequential effect on yields with Peninsular Malaysia at only 22.72 mt/ha and Sabah at 18.84 mt/ha as compared to Indonesia at 23.48 mt/ha. This has resulted in the Group’s average yield per hectare at 22.01 mt/ha.
The oil extraction rate (“OER”) has stagnated at 21.87%, producing 4.81 mt/ha of CPO for the FY despite efforts to improve the ripeness standards and drive towards productivity and efficiency. These efforts were hampered in part by the repatriation of skilled harvesters with no replacements in sight. This is another setback in our aim to achieve 6mt/ha of CPO.
Nevertheless, the New Normal has created and provided new opportunities for KLK to re-emphasise its Good Agricultural Practices (“GAP”) and inculcate traits of a Planter such as being more detailed in observation and increasing the frequency of walking in the fields which coincidentally was enhanced during the MCO period as travel restrictions in place meant more time could be spent within the estates by the Planters.
We will persist in our efforts to pursue our target to achieve 6 mt/ha and with this aim, the drive on productivity and efficiency will receive more impetus. Mechanisation and innovations will remain our main focus.
Replant area at Ladang Bornion in Lahad Datu, Sabah, Malaysia
MANAGEMENT DISCUSSION & ANALYSIS
Replanting
We experienced a slight delay in our replanting programme while operating under the New Normal, covering an area of approximately 12,500 hectares or 90% of our 14,000 hectares target for FY2020. Replanted areas were mainly in the Lahad Datu region (Sabah), Peninsular Malaysia, Riau, Belitung Island and North Sumatra accounting for 96% of the total replant.
The remaining 1,500 hectares will be brought forward to form part of the Group’s replanting target area of 10,000 hectares for FY2021.
We have also commenced our second-generation planting in Belitung Island, Indonesia. This replanting process of over 17,200 hectares is planned to be carried out over the next eight (8) years.
Mechanisation
We have to-date mechanised our in-field FFB collection of our harvesting operation over 92% of 166,537 hectares of identified mature area. We have also implemented mechanised upkeep works over 82% of 208,161 hectares of planted areas.
The strategic decision to mechanise aggressively in late 2017 after taking into consideration the high dependency of guest workers and difficulties to engage Malaysians to work in plantations was timely amidst the labour shortages caused by the COVID-19 pandemic.
Examples of machines introduced include Longstar, power barrow and smart automated fertiliser spreaders.
Longstar for infield FFB evacuation
Power Barrow for FFB evacuation at terraced areas
Mechanised process for empty fruit bunches mulching Mechanised Pest and Disease (“P&D”) spraying Longstar for semi mechanised manuring
Smaller version of Verion mechanised fertiliser spreader from Argentina
MANAGEMENT DISCUSSION & ANALYSIS
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Costs
Despite the stagnated yields and intermittent disruptions from COVID-19 preventive measures, both the Group’s FFB and CPO cost remained similar to that of last FY at RM260/mt ex-estate and RM1,465/mt ex-mill respectively.
Site
KL-Kepong Edible Oils Facility
3-monochloro-propanediol esters (“3-MCPDE”) &
glycidyl esters (“GE”) Mitigation Plant Purpose
To achieve low levels of 3-MCPDE and GE substances which can form during refining process at high temperature.
Status
Site work started in late 2019. Mechanical installation was delayed due to the implementation of MCO, limiting work to be done. Plant is expected to be commissioned by First Quarter 2021.
Site
P.T. Putra Bongan Jaya Facility
Pam Oil Mill Planted hectarage 7,400 hectares Capacity 60 mt/hr Status
Construction work has started.
Expect to commission in July 2021.
Site
P.T. Perindustrian Sawit Synergi Facility
Refinery, KCP and jetty (a 80:20 joint-venture project with IJM Plantations Berhad)
Capacity 2,000 mt/day Status
Regulatory approvals obtained, construction work for jetty has started.
Target completion by August 2022.
New palm oil mill in East Kalimantan under construction
New 3-MCPDE and GE mitigation plant at Pasir Gudang, Johor LOCATION
Pasir Gudang, Johor, Malaysia
LOCATION
East Kalimantan, Indonesia New Facilities (Highlights)
MANAGEMENT DISCUSSION & ANALYSIS
COMMUNITY WORKPLACE
ENVIRONMENT MARKETPLACE
For more details, please refer to our Sustainability Statement and Report from pages 50 to 91 of this Annual Report.
KPI 20% increase in labour productivity through introduction of mechanisation Outcome
Achievement in FY2020
• Level of Implementation
• It is still too early to fully gauge the impact of the transition.
However, mechanisation has assisted in mitigating the impact from COVID-19, especially in complying with shorter working hours.
Action Plan
• Continue to shift towards mechanisation for estates, automation in mills and other innovative ideas to improve existing practices in the wake of labour shortage, rising wages and inflationary pressures.
• Input from our associate company, Applied Agricultural Resources Sdn Bhd (“AAR”) to introduce new ideas and prototypes to increase productivity.
Note :
AAR has more than 30-years history in plantation research & development (“R&D”) emphasising on creating the best planting materials, recognising yield limiting factors and overcoming them, identifying and implementing best practices which benefit the plantations and their employees but with the least impact on the environment, as well as working with the industry to address common issues.
In-field collection :
92%
of 166,537 hectares of identified mature area
Upkeep :
82%
of 208,161 hectares of identified planted areaMANAGEMENT DISCUSSION & ANALYSIS
BUSINESS UNDER NEW NORMAL
During the period under review, where we experienced the destructive force of the COVID-19 pandemic, we are thankful we have our entire workforce (from all levels) together, to face this most challenging time with courage and team spirit. There would not be such as fearless attitude if not for the trust and understanding they have been given by the Company. Above all else, the Company had taken actions to ensure their safety and health by instituting relevant standard operating procedures (“SOPs”), provision of proper personal protection equipment and sanitisers; and educating them of the steps to take to stay safe.
As a producer of Certified Sustainable palm products, KLK holds steadfast to its sustainability commitments guided by the Roundtable on Sustainable Palm Oil Principles & Criteria (RSPO P&C”), the foundation of its sustainability practices.
They apply to all palm oil related operations within our management control.
Our sustainability commitments are focused on the following areas:-
RUBBER
Rubber operations made a small profit of RM0.3 million from its break-even position in FY2019 amidst persistent shortage of skilled tappers and poorer weather conditions.
Rubber production stagnated at 10,354 mt with mediocre yield at 1,284 kg/ha, not much of a difference from last FY.
Ex-estate cost was under control at 476 sen/kg as compared to 484 sen/kg for FY2019.
Taking cognisant of the mediocre yields, Management has embarked on a policy to replant rubber to oil palm where it is more suited (in terms of terrain, soils and rainfall) to better manage the concern of persistent shortage and shrinkage of skilled tappers.
OUTLOOK & TARGETS
With the tight global vegetable situation in the world, we expect palm oil prices to remain firm in 2021. The development of La Nina which potentially has a negative impact on soybean production in the southern states of America, combined with the limited supply of sunflower and rapeseed oil from the Black Sea region, would result in higher vegetable oil prices in the first half of 2021. Export/levy duty differentials between refined products (against CPO) and between Malaysia and Indonesia will also continue to present uncertainties to palm prices and refining margins as both countries compete for market share and attempt to balance oil inventories and their respective biodiesel mandates against prices. Imports from the key destinations are expected to grow in 2021, boosted by a gradual pandemic recovery in demand and low inventories too.
Whilst prices are sensitive to the above factors, Management continues to remain focused on improving operational efficiencies to realise the segment’s long-term Key Performance Indicators (“KPIs”) set out below.
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KPI Crop production growth
KPI Good Replants - 20 mt/ha of FFB at 1st year of harvest & Overall 6 mt oil per hectare
Palm producing good bunch show
Drone images utilised to monitor and identify vacancies for supplying during the immature period and pin-pointing palms with smallish canopy for growth correction
Outcome Outcome
Achievement in FY2020
We fell short of our 5% growth target for the FY amidst the pandemic, and due to shortage of skilled harvesters. Crop production was only at 3.929 million mt in FY2020.
Achievement in FY2020
• KLK started its group-wide high standards replant programme in FY2017.
• Earlier trial plots replanted in FY2015 and FY2016 have shown very encouraging results where at least 50% of the planted area is producing more than 20mt/ha at 1st year of harvest.
• Replanted 12,000 hectares spread across Peninsular Malaysia, Sabah, Riau, Belitung Island and North Sumatra.
FY2021 Target
We have targeted 10% increase in FFB production growth for FY2021 taking into account our recovery from a low base in FY2020. The realisation of this target will depend on the seriousness of weather anomalies, especially the development of La Nina, and the availability of harvesters/workers should travel restrictions for non-citizens are uplifted.
Action Plan
• Further refinement of the replanting process with the reinforcement of GAP and re-emphasising high standards of replants to achieve our target of first year yield of more than 20.00 mt/ha.
• We have targeted 10,000 hectares (5% of planted area) for replanting in FY2021.
• We will continue to work together and rely on expertise of AAR on high yielding planting materials that will also have influence oil yields.
TECHNOLOGY Agriculture 4.0
Oil palm plantation industry is expected to gain from advancement in digitalisation and Agriculture 4.0. Potential uses of wireless sensors and trackers, smart dataloggers and cameras and autonomous drones are some promising Internet of Things (“IoT”) being explored with AAR.
In addition to projects with AAR, we will also pursue possible collaborations with start-up companies to adopt practices which are in line with the aspirations of Agriculture 4.0 such as precision agriculture, the IoT and the use of big data to drive greater operation efficiencies.