Aerial view of Ladang Lekir, Perak, Malaysia
MANAGEMENT DISCUSSION & ANALYSIS
PLANTATION AREA STATEMENT
AGE IN YEARS
2020 2019
HECTARES
% UNDER CROP
% OF TOTAL PLANTED
AREA HECTARES
% UNDER CROP
% OF TOTAL PLANTED AREA OIL PALM
4 to 9 53,706 25 51,914 24
10 to 18 69,526 33 71,193 33
19 and above 54,478 25 57,976 28
Mature 177,710 83 79 181,083 85 81
Immature 35,701 17 16 32,294 15 14
Total 213,411 100 95 213,377 100 95
RUBBER
6 to 10 716 7 994 9
11 to 15 2,348 22 2,094 19
16 to 20 2,076 20 2,357 21
21 and above 2,767 26 3,055 28
Mature 7,907 75 4 8,500 77 4
Immature 2,646 25 1 2,577 23 1
Total 10,553 100 5 11,077 100 5
TOTAL PLANTED AREA 223,964 100 224,454 100
Plantable Reserves 13,604 15,899
Conservation Areas 30,819 29,026
Building Sites, etc. 6,104 6,049
Grand Total 274,491 275,428
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MANAGEMENT DISCUSSION & ANALYSIS
SEGMENTAL FINANCIAL PERFORMANCE
CPO prices were on a rallying trend between December 2019 to January 2020, trading at RM2,800/mt to RM3,100/mt before taking a downturn to below RM2,000/mt in April 2020 to May 2020 during the peak of the pandemic. With demand returning from key consumption countries such as China, India and Pakistan and outpacing supply during the FY, prices have since recovered to above RM3,000/mt. The sudden accelerated pace of the price rally took everyone by surprise but was supported by the continued resilience of import demand for oil consumption and low CPO output from Malaysia and Indonesia caused by the logistical difficulties associated with heavy rains and fears of continual wet periods of La Nina. Lower-than expected supply of other edible oils, particularly rapeseed and sunflower oils, also had a spill-over effect onto CPO prices as well.
Indonesia and Malaysia have also continued to support B30 and B20 biodiesel programmes, respectively, despite subdued biodiesel consumption during the COVID-19 pandemic mainly due to the movement control orders as well as the wide palm oil and gas oil (“POGO”) spread.
Accordingly, our Plantation segment managed to register RM725.2 million in pre-tax profit for the FY, 84% higher than FY2019 of RM394.6 million primarily due to the higher prices achieved for the FY. However, compared to market average, our overall plantations result has slightly underperformed to the industry mainly due to the forward hedging strategy adopted prior to the sudden market rally as mentioned above.
Average Selling Prices
Palm Product FY2020 FY2019 Change
(RM/mt ex-mill) (RM/mt ex-mill) RM/mt %
CPO
- Group 2,344 1,924 420 22
- Malaysia 2,431 2,045 386 19
- Indonesia 2,280 1,830 450 25
Price Disparity (Indonesia vs Malaysia) (151) (215) - -
Despite averaging lower selling prices in Indonesia, the Group has benefitted from executing a hand-to-mouth sales policy, riding on a rising market during the FY. The prevailing progressive exports tax and levy (incremental rates pegged to CPO prices) remains the key reason for the wide discount achieved for our CPO prices. Refineries in the country will continue to benefit from lower raw material cost at the expense of upstream producers. Notwithstanding, our Indonesian operations were able to contribute RM351.0 million of pre-tax profit, representing 48% of the profits for the segment.
The much-improved realised prices for the Group boosted operations profits to RM705.6 million, a 88% increase from RM375.8 million recorded last FY. Palm products accounted for the entire profits, with a corresponding Group average profit per matured hectare at RM3,610/ha (FY2019 : RM1,912/ha).
Our processing and trading businesses achieved a commendable contribution of RM92.9 million (FY2019: RM55.6 million) as it benefited from timely execution of procurement and sales strategy in a rising market. Healthy refining margin during a good part of the FY also helped boost our performance in this division.
As palms were recovering from the drier weather conditions experienced in FY2019 especially for Malaysia coupled with intermittent disruptions in Sabah with the enforcement of varying levels of Movement Control Order (“MCO”) restrictions due to COVID-19, overall Group fresh fruit bunches (“FFB”) production dropped by 4% to 3.929million mt (FY2019 : 4.10 million mt). FFB yield was stagnant at 22.01 mt/ha as yield improvements from prime-aged fields in Indonesia was able to offset the lower yields recorded in both Peninsular Malaysia and Sabah. Our oil extraction rate remained consistent at 21.87%, whilst our CPO yield per hectare was disappointingly lower at 4.81 mt/ha. Despite the challenges faced during COVID-19, we were able to contain our CPO production cost at RM1,465 mt/ha.
Contributions from the rubber operations was marginal at RM0.3 million with rubber prices improving slightly to RM7.20/kg (FY2019 : RM7.13/kg). Rubber prices had remained depressed in the first nine months of 2020 despite buoyant demand for disposable gloves. However, latex price has staged a significant rally in October 2020 and November 2020 powered by persistent strong demand for gloves and PPEs. Shortage of synthetic latex was another bullish factor. Price of latex spiked from the low of about RM7.90/kg in September 2020 to reach a high of RM13.00/kg in November 2020, currently stabilising at around RM10/kg level. The lead time for spot purchase of gloves, in a typical sellers’ market, stretches one and a half (1½) to two (2) years. The demand for latex is expected to sustain through the next two (2) to three (3) years.
With the mass availability of vaccine starting in First Half of 2021, many pandemic restricted industries such as air travel, tourism and entertainment could revive and recover earlier than expected. By the same extension, global economy should rebound stronger next year. Prospect for rubber in general, latex in particular, looks brighter for 2021.
OIL PALM PLANTED AREA/FFB PRODUCTION
RUBBER PLANTED AREA/RUBBER PRODUCTION Hectares
Hectares
‘000 mt
‘000 kg 2016
2016
2017
2017
2018
2018
2019
2019
2020
2020 250,000
200,000
4,200
15,000 16,000
150,000
3,150
11,250 12,000
100,000
2,100
7,500 8,000
50,000 1,050
3,750 4,000
0 0
0 0
FFB Production (’000 mt)
Planted Area – Immature (hectares) Planted Area – Mature (hectares)
Rubber Production (’000 kg) Planted Area – Immature (hectares) Planted Area – Mature (hectares)
29,7422,657 29,7662,699 35,2952,709 32,2942,577
175,73010,405
3,496
16,007
3,874
12,975
3,929
10,807
4,104
10,786
3,929
10,354
181,2759,556 178,5399,074 181,0838,500 35,7012,646 177,7107,907
OIL PALM PLANTED AREA/FFB PRODUCTION
RUBBER PLANTED AREA/RUBBER PRODUCTION
MANAGEMENT DISCUSSION & ANALYSIS
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5-YEAR PLANTATION STATISTICS
MANAGEMENT DISCUSSION & ANALYSIS
5-YEAR PLANTATION STATISTICS
2020 2019 2018 2017 2016
OIL PALM FFB Production
- Own estates (mt) 3,929,426 4,103,861 3,928,616 3,873,805 3,495,931
- Sold (mt) 75,428 142,960 139,455 85,964 58,461
- Purchased (mt) 715,423 716,642 800,014 791,128 715,644
- Total processed (mt) 4,569,421 4,677,543 4,589,175 4,578,969 4,153,114
Weighted Average Hectarage
- Mature (ha) 178,562 183,108 181,559 181,139 176,391
- Immature (ha) 45,061 41,308 41,996 33,686 35,183
Total planted area (ha) 223,623 224,416 223,555 214,825 211,574
FFB yield per mature hectare (mt/ha) 22.01 22.41 21.64 21.39 19.82
CPO yield per mature hectare (mt/ha) 4.81 4.90 4.72 4.64 4.42
Mill Production
- CPO (mt) 999,219 1,023,484 999,981 992,524 925,421
- PK (mt) 192,139 197,147 200,576 199,157 187,986
Oil Extraction Rate
- CPO (%) 21.87 21.88 21.79 21.68 22.28
- PK (%) 4.20 4.21 4.37 4.35 4.53
Cost of Production
- FFB (RM/mt ex-estate) 260 260 244 240 244
- CPO (exclude windfall profit levy and Sabah
sales tax) (RM/mt ex-mill) 1,465 1,456 1,370 1,389 1,381
Average Selling Prices
- CPO (RM/mt ex-mill) 2,344 1,924 2,335 2,735 2,270
- PK (RM/mt ex-mill) 1,374 1,210 1,967 2,534 1,881
Average profit per mature
hectare (RM) 3,610 1,912 4,769 6,815 4,014
RUBBER Production
- Own estates (’000 kg) 10,354 10,786 10,807 12,975 16,007
Weighted Average Hectarage
- Mature (ha) 8,061 8,640 9,047 9,746 10,305
- Immature (ha) 3,115 3,243 3,367 3,309 3,364
Total planted area (ha) 11,176 11,883 12,414 13,055 13,669
Yield per mature hectare (kg/ha) 1,284 1,248 1,194 1,331 1,553
Cost of Production (sen/kg ex-estate) 476 484 467 420 382
Average Selling Prices
(net of cess) (sen/kg) 720 713 803 895 667
Average (loss)/profit per
mature hectare (RM) (486) (233) (868) 3,256 974
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.