zebra logging that improves logging efficiency and minimises impact to environment, brought about a higher log production.

Transcription

1 ANNUAL REPORT 2014 I 21 REVIEW OF OPERATIONS BY THE GROUP MANAGING DIRECTOR Our investment in a revised logging technique, zebra logging that improves logging efficiency and minimises impact to environment, brought about a higher log production. INTRODUCTION A combination of strong demand for logs, modest recovery in plywood market and increased fresh fruit bunches ( FFB ) and crude palm oil ( CPO ) sales generated earnings growth for both timber and palm oil sectors in the year Our investment in a revised logging technique, zebra logging that improves logging efficiency and minimises impact to environment, brought about a higher log production. The ban of log export by Myanmar from April 2014 reduced the supply of logs and created a surge in log price in 2014, as more Indian buyers shifted purchase of logs from Myanmar to Malaysia. During the year, our plywood mill raised plywood production to meet the higher demand of Japanese plywood market.

2 22 I TA ANN HOLDINGS BERHAD ( K) The Group commissioned its second CPO mill in the first quarter of 2014, which mainly accounted for the Group s CPO production and sales rising by 63% in the year under review. The Group commissioned its second CPO mill in the first quarter of 2014, which mainly accounted for the Group s CPO production and sales rising by 63% in the year under review. Growing palm maturity and additional 2,146ha of palms becoming mature in 2014 increased FFB production. During the year, 2,261ha of new areas were planted with oil palms. Changes expected to be implemented for timber and oil palm divisions are as follows: The Group will be undertaking forest certification once our proposal to the State Government to restructure our timber licences and licences for planted forests into a forest management unit of 60 years term is approved by the authorities. Future timber resource for the Group will be a combination of sustainably harvested timber from natural forests and tree plantation. This will ensure the sustained supply of logs from legal source to our mill for our plywood mill and sawmill processing. Scheduled commissioning of plywood mill in Tasmania in mid-2015 to process the eucalyptus veneer presently produced by the Group s two (2) veneer mills in Tasmania into plywood products for the local Australian market is aimed to reduce the cost and capture the Australia niche market. A new timber certification division has been set up in 2014 to prepare for certification of our forests and Malaysian Sustainable Palm Oil certification of our oil palm estates and CPO mills. PRODUCTION VOLUME BY DIVISION (2014 vs 2013) Directors initiating the first rolling tipper during TP Palm Oil mill soft opening ceremony. SALES VOLUME BY DIVISION (2014 vs 2013) 600, , , , , , , , , , , ,000 0 Plywood (m 3 ) Oil Palm (mt) Logging (m 3 ) Sawmilling (m 3 ) 0 Plywood (m 3 ) Oil Palm (mt) Logging (m 3 ) Sawmilling (m 3 )

3 ANNUAL REPORT 2014 I 23 Discussed further are details of our operating units performance in the year under review. LOGGING DIVISION PLYWOOD DIVISION SAWMILLING DIVISION OIL PALM DIVISION Reforestation Division Page 24 Page 27 Page 29 Page 30 Page 32

4 24 I TA ANN HOLDINGS BERHAD ( K) LOGGING DIVISION HIGHLIGHTS Enhanced harvesting efficiency resulted from our zebra logging boosted log production volume by 26% compared to Higher export logs tonnage by 19% and average USD export selling price by 9%, led to a better profit of the division compared to Submitted our proposal to the State Government to amalgamate our 4 timber licences and 2 licences for planted forests into a Forest Management Unit with a tenure of 60 years to facilitate forest certification. Sales Volume (m 3 ) EXPORT LOG SALES VOLUME AND PRICE (2014 vs 2013) 220, , , , , , ,000 80,000 60,000 40,000 20, Year Sales Volume (m 3 ) Log Prices (USD/m 3 ) Log Prices (USD/m 3 ) Directors and top management visiting zebra logging site AVERAGE EXPORT LOG PRICE MOVEMENT (2014 vs 2013) FOB Sales Prices (USD/m 3 ) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Month

5 ANNUAL REPORT 2014 I 25 LOG PRODUCTION VOLUME Year 2014 Year 2013 Growth (m³) (m³) (%) Licensed Area 415, , Forest Plantation Area 95,627 57, Total 511, , PRODUCTION VOLUME FOR LOGGING DIVISION (2014 vs 2013) Monthly Log Volume (m 3 ) 60,000 50,000 40,000 30,000 20,000 10,000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total 550, , , , , , , , , ,000 50,000 Annual Log Volume (m 3 ) Logging Activity

6 26 I TA ANN HOLDINGS BERHAD ( K) LOG SALES VOLUME Year 2014 Year 2013 Growth (m³) (m³) (%) Export Logs 209, , Milling Logs 290, , Total 500, , LOG EXPORT By Destination (vol) 2014 LOG EXPORT By Species (vol) 2014 India 80% Taiwan 10% Japan 6% China 3% Others 1% Meranti 49% Selangan Batu 13% Keruing 11% MLH 10% Kapur 9% Others 8% Post-zebra logging area

7 ANNUAL REPORT 2014 I 27 PLYWOOD DIVISION HIGHLIGHTS Plywood production increased by 17% as demand rose in the Japanese plywood market. Strategic marketing, resource availability, market focused production and stringent cost management contributed to the better profit of the division. Good response received from Australian market to our plywood products with STANDARDSMARK certification. Scheduled commissioning of a new plywood mill in Smithton, Tasmania in first half STANDARDSMARK certified plywood product for Australian market PLYWOOD EXPORT By Destination (vol) 2014 Japan 92% Australia 4% Taiwan 2% Singapore 1% Others 1% TASMANIA OPERATION Veneer Line Year 2014 Year 2013 Growth (m³) (m³) (%) Production Volume 71,550 68, Sales Volume 97,151 45, MALAYSIA OPERATION Plywood Line Year 2014 Year 2013 Growth (m³) (m³) (%) Production Volume 207, , Sales Volume 207, ,

8 28 I TA ANN HOLDINGS BERHAD ( K) PLYWOOD SALES CONTRIBUTION Plywood Sales Sales Sales Volume Contribution (m 3 ) (RM 000) Malaysia plywood 174, ,481 PEFC Certified Eco Plywood 32,942 59,545 Total 207, , AVERAGE EXPORT PLYWOOD PRICE MOVEMENT (2014 vs 2013) FOB Sales Prices (USD/m 3 ) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Month Putting Repairing Line

9 ANNUAL REPORT 2014 I 29 SAWMILLING DIVISION HIGHLIGHTS Availability of right input material facilitated production growth in Production focus in moulding products for the Australian market. PRODUCTION VOLUME Year 2014 Year 2013 Growth (m³) (m³) (%) Sawn Timber 9,586 8, Total Rough Sawn 9,586 8, Year 2014 Year 2013 Growth (m³) (m³) (%) Moulding Products 3,360 3, Dressed Sawn and Sangi 2,305 1, Total Processed Stock 5,665 4, SALES VOLUME Year 2014 Year 2013 Change (m³) (m³) (%) Sawn Timber* 3,455 3, Moulding Products 2,979 3, Total 6,434 6, * Includes sales of Dressed Sawn Timber and KD Rough Sawn MOULDING TIMBER Export Destination 2014 (by vol) SAWN TIMBER Export Destination 2014 (by vol) Australia 60% Korea 20% Japan 16% Local/Others 3% Singapore 1% Japan 45% China 31% Singapore 11% Korea 8% Local/Others 5%

10 30 I TA ANN HOLDINGS BERHAD ( K) OIL PALM DIVISION HIGHLIGHTS Production of FFB was higher by 6% to 560,875mt from 528,496mt in Average yield per mature hectare for 2014 was 18.48mt/ha (2013: 18.74mt/ha). Commissioning of the second palm oil mill in Igan estate raised overall processing capacity. For the year 2014, CPO production rose significantly by 63% compared to Mechanical harvesting is applied in larger areas of our estates as a part of our strategy to reduce labour intensity. Completed planting of the Group s existing peat land bank. Loose Fresh Fruit Bunches OIL PALM ESTATES Year 2014 Year 2013 Land Bank Gross Area (ha) 98,000 98,000 Planted Area (ha) 39,527 37,267 Mature 30,355 28,209 Immature 6,602 5,993 Young 2,570 3,065 FFB Production (mt) 560, ,496 MILL PERFORMANCE Manis Palm Oil Mill Crude Palm Oil Production (mt) 95,904 93,407 Sales Volume (mt) 96,463 93,761 Palm Kernel Production (mt) 20,708 17,402 Sales Volume (mt) 20,735 17,190 Average Oil Extraction Rate (%) Average Kernel Extraction Rate (%) TP Palm Oil Mill Crude Palm Oil Production (mt) 56,791 - Sales Volume (mt) 56,318 - Palm Kernel Production (mt) 9,546 - Sales Volume (mt) 9,340 - Average Oil Extraction Rate (%) Average Kernel Extraction Rate (%)

11 ANNUAL REPORT 2014 I 31 Estate Palm Age Yield Per Mature Hectare Range (MT) as at (years) Naman Daro Terus Graph showing FFB production pattern (Year ) for three (3) estates: NAMAN PLANTATION (Deep Peat) 34,000 FFB Production (mt) 32,000 30,000 28,000 26,000 24,000 22,000 20,000 18,000 16,000 14,000 12,000 10,000 8,000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec ,000 DARO PLANTATION (Coastal Peat) 12,000 FFB Production (mt) 10,000 8,000 6,000 4,000 Mechanised Harvesting 2,000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec TERUS PLANTATION (Coastal Peat) 6,000 FFB Production (mt) 5,000 4,000 3,000 2,000 1,000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

12 32 I TA ANN HOLDINGS BERHAD ( K) Reforestation Division HIGHLIGHTS Total planted area reached 36,044 ha in Kelampayan zebra planting achieved a total gross hectarage of 4,682 ha, while 31,362 ha had been planted with Acacia mangium in the first and second rotation industrial tree planting under LPF/0010. Cummulative Planted Area (ha) 38,000 36,000 34,000 32,000 30,000 28,000 26,000 PLANTING PERFORMANCE ( ) Year Transplanting in progress Temporary shades for young kelampayan

13 ANNUAL REPORT 2014 I 33 Tree species planted are as follows: Area Planted To-Date (ha) Other Species Total Reforestation Unit (Kelampayan/ Area Sawi/ Planted benuang/ To-Date Acacia Engkabang) (ha) First rotation Woodley 6, ,929 Pasin 10,030 1,418 11,448 Rejang Trading 5,958-5,958 Raplex 5,048 1,473 6,521 Melekun ,259 Zumida 3, ,633 31,066 4,682 35,748 Second rotation Woodley Pasin Total 31,362 4,682 36,044 Healthy kelampayan trees Kelampayan tree planted at Naman estate

14 34 I TA ANN HOLDINGS BERHAD ( K) ACTION PLANS FOR YEAR 2015 LOGGING DIVISION To leverage on sustainable forest management by proactively pursuing a forest certification through a new Forest Management Unit. To continue with zebra logging methodology especially at high terrains progressively replacing conventional logging as a part of our sustainable forest management. To align log resource allocation with strategic marketing planning for best use of log resources. PLYWOOD DIVISION To focus production on fast moving products such as SP, CP, CCP and HCCP. To adhere strictly to producing quality and environmentally friendly products with specifications meeting Japanese customer s expectation and requirements. To explore and engage effectively with local Australian business networks to establish strong customer base in Australian market for Bracing Plywood and Form Plywood. Continual review of processing to drive unit cost down, and improve work effectiveness and productivity. SAWMILLING DIVISION To focus on producing premium moulding and niche market products such as Beam and Post to enhance profit margin. Closer supervision to raise workers efficiency and productivity. OIL PALM DIVISION Stringent control over FFB input quality and FFB grading standard for better OER achievement at CPO mills. Emphasise on creating values, improving livelihoods and social culture to retain foreign workers. To maintain/upgrade road infrastructure for smoother and higher efficient operations. To continually fine tune operational efficiency, keep cost down and progressively step up mechanisation of infield FFB evacuation with the long term aim to reduce labour intensity. To implement necessary operational measures to enhance palm growth for better FFB yield per hectare. To continue pursuing land bank expansion. REFORESTATION DIVISION To monitor planted tree growth and evaluate planting methodology through continuous research and development so as to achieve optimal survival and growth rates of the planted trees. Continuing research and development initiatives on kelampayan planting at peat lands. To monitor closely planted forest harvesting to improve yield recovery, reduce site disturbance and lower operating costs. To continue kelampayan terrace planting in LPF coupes and enrichment planting at post-logging blocks. To focus kelampayan planting at Melekun, Pasin and Naman areas. To strictly enforce the Group s forest policy in the division s operating procedure.

15 ANNUAL REPORT 2014 I 35 PROSPECT FOR YEAR 2015 LOGGING DIVISION The tight log supply resulted from Myanmar log export ban is expected to sustain demand from the main log export markets. Year 2015 will see more uptrend in logs production with the deployment of additional machineries for zebra logging. PLYWOOD DIVISION Prospect of Tasmanian operation will depend on improvement in Australian construction sectors, the strength of Australian dollar, the recovery of Japanese housing market and the success of developing new quality hardwood plywood products markets in Australia. An increasing market share in Australia is anticipated as the double certification of our Form Plywood product is building its sales steadily in Australia. The division is also confident of receiving continuous inflow of plywood product orders from Japan given that our product quality and specifications meet Japanese customers expectation and requirements. The weakening yen which makes Japanese export cheaper and the on-going infrastructure and construction preparation for Tokyo 2020 Olympics will sustain plywood demand from Japan. SAWMILLING DIVISION Demand for moulding products remains strong from Australian market. The division will continue to explore new markets while developing higher-value-added products for existing niche market. OIL PALM DIVISION Effective implementation of harvesting plan should result in fruitful FFB production as more palms go into maturity. Coupled with anticipated higher CPO output from the two palm oil mills, the division expects a better performance in REFORESTATION DIVISION Trial kelampayan planting on peat land has been carried out at our oil palm estates with encouraging results in survival and growth rates. Zebra planting methodology is progressively enforced at all planting sites to minimise environmental impacts on the ground.

16 36 I TA ANN HOLDINGS BERHAD ( K) CONCLUSION The Group s policy and practice to use only logs from legal source for our plywood mill and sawmill have proved to be a correct move as several large construction contractors in Japan use only legal products for their projects. Continuing legal verification of our forest licensed areas and wood tracking programme Chain of Custody Standard for our plywood mill and sawmill are undertaken by an independent verifier, GFS Legal Verification Services engaged by the Group to verify the logs supplied are from legal sources. In November 2014, the Group signed a Corporate Integrity Pledge initiated by the Sarawak State Government to promote transparency and good governance, which are being practised by the Group. In January 2015, the Group conducted a workshop for plywood buyers in Tokyo and Osaka on legal compliance and sustainable forest management re-affirming the Group s policy to use only logs from legal source for our plywood and sawmill processing. The Group is well poised to take up challenges of 2015 and weather changes in the operating environment. Focus of the Group management will be to step up operation fine tuning, enhance operation efficiency and efficacy, implement more stringent cost control and devise strategy to raise competitive advantage. At the same time the Group will be also looking for new oil palm plantation landbank for the continued growth of the sector. Natural forest, Borlin