Higher CPO prices bring cheer for Boustead

Boustead Group expects profitability for remainder of this year

RIDING high on favourable market conditions, Boustead Plantations Bhd is banking on improved CPO prices for its current financial year ending Dec 31, 2020 (FY20).

The group expects profitability for the remainder of this year to be driven by its higher fresh fruit bunches (FFB) production, improved CPO selling prices as well as an ongoing transformation programme.

For fourth quarter of FY19, Boustead Plantations sank deeper into the red with a net loss of RM172.73mil ( FY18: RM12.9mil) on the back of RM179.1mil in revenue.

“We foresee our average CPO selling prices to register significant improvement this year.

“This is due to the strong market fundamentals, particularly in the second half of 2020,” says its chief executive officer Ibrahim Abdul Majid.

He points out that the CPO prices rallied to hit RM3,100 per tonne on Sept 21 and “as expected, we have seen some price corrections due to its recent steep upward trend.”

Nevertheless, the outlook for the CPO market is expected to remain favourable, particularly on the weather, after news confirming the arrival of the La Nina weather phenomenon, which brings heavier-than-usual rainfall, until at least the end of this year, Ibrahim tells StarBizWeek via e-mail.

Also, the uncertainties surrounding the global economic recovery from the Covid-19 pandemic outbreak will also likely exacerbate issues on the shortage of labour with foreign worker recruitment remaining restricted.

The recent surge of global Covid-19 cases may need to be closely watched, says Ibrahim, adding that “this could significantly reduce global demand similar to what we saw in the first half of this year.”

He notes that the current low crude oil prices could cap demand from the biodiesel segment unless the Indonesian and Malaysian governments continue to allocate significant subsidies to support their respective biodiesel mandates, given the current huge price spread between palm oil and gasoline oil.

Ibrahim is also optimistic that CPO prices will remain supportive for the rest of this year following the relatively steady palm oil demand from major edible oil importing countries – China, India and Pakistan.

“Fundamentally, if we look at global palm oil production this year, it is estimated to be lower than last year owing to the lack of replanting, the slowdown in terms of the increase in mature areas, reduced fertiliser applications as well as the shortage of workers in many estates.

“Most planters also expect supply constrictions, coupled with a progressive increase in demand for CPO, to positively impact pricing,” explains Ibrahim.

Transformation programme

For Boustead Plantations, some plans in the pipeline will include venturing into new areas of businesses related to agribusiness, apart from oil palm plantations.

“We may look into cultivation of other commercial cash crops such as coconuts in our estates, where oil palm planting is marginally suitable,” he says.

At the same time, the group is already providing mill advisory services where it consults on the construction of palm oil mills across Malaysia and Indonesia.

On Boustead Plantations’ ongoing transformation programme, which kicked-off in October last year, Ibrahim says the group is looking at completing the first phase by the second quarter of next year.

According to Ibrahim, the tangible progress made under the transformation programme includes the streamlining of the group’s estate management.

Boustead Plantations’ land bank spans 98,200ha, of which 79,400ha is cultivated with oil palm. It manages 48 oil palm estates and 10 palm oil mills nationwide.

“We have consolidated all our estates and mills into eight business units, each spearheaded by a head of business unit. The head is accountable for the profit and loss recorded by their business unit,” he adds.

To further support the eight business units, Boustead Plantations has established centralised specialist services to drive strategic initiatives such as replanting, performance management, mechanisation, engineering support and workforce management.

“Now we have better control of our procurement processes and cost as a result of the centralisation of our procurement and vendor management activities,” says Ibrahim.

As part of its transformation initiative, he notes that the group’s tender process is also more transparent, which involves a thorough review by a committee that has been set up to oversee major purchases.

Asked on the difference in the operational structure of Boustead Plantations compared with previously, Ibrahim says: “We are focusing on improving productivity and increasing effectiveness with key initiatives such as mechanisation of operations, increased labour productivity, improved mill utilisation and cost competitiveness.”

Drone technology

Apart from mechanisation, Boustead Plantations is exploring the use of drone technology including for pest and disease control spraying as well as to keep track of its barn owls that play an important role in keeping pests in plantations at bay.

The plantation group is also committed to the welfare of its employees.

“We have put in place several initiatives to attract, retain and reward staff. These include improved living quarters, mechanised operations, optimised employee count by reskilling and multi-skilling and careline personnel to look after the well-being and welfare of our employees.”

For its mill operations, he says one of the efforts to improve productivity is by increasing the purchase of external crops from third parties.

“Until August, about 117,300 tonnes of our crops were external crops, which was an increase of 11% compared with 105,600 tonnes in 2019,” notes Ibrahim.

On the current labour shortage in estates nationwide, Ibrahim says that “clearly labour shortage is a major issue for the plantation sector. The Covid-19 pandemic has only exacerbated it.”

According to Ibrahim, this issue is industry wide and not unique to Boustead Plantations alone.

When the movement control order (MCO) first hit, the shortage of skilled harvesters, which was already a matter of concern, was further aggravated.

“It impacted harvesting operations and caused delays in manuring, weeding, as well as other upkeep work at our estates.

“Given the labour shortage we faced, we moved to channel our resources to priority activities first, which was FFB harvesting and collection” he adds.

One of the ways Boustead Plantations optimises its staff count was by re-skilling and multi-skilling.

So far, the group has successfully redeployed 118 workers from upkeep to harvesting operations.

It also employed contractors to carry out field work such as circle spraying and palm sanitation, which would have been done by general workers who are now redeployed. The group has a workforce of 7,271 employees at its estates.

In line with the government’s efforts to alleviate unemployment post-Covid-19 and to fulfil employment needs, the planter has also ramped up its recruitment process to attract Malaysians to work in the estates.

From January to August, Boustead Plantations successfully attracted 114 locals to join its estates in Peninsular Malaysia.

The planter also has 10 parolees working at its estates from its collaboration with Jabatan Penjara Malaysia to recruit parolees.

On Bursa Malaysia yesterday, Boustead Plantations’ share price closed 0.5 sen higher to 49 sen, giving the group a market capitalisation of RM1.1bil.
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