FGV's 1Q loss widens to RM142m on reduced FFB production and lower margins for palm oil, sugar

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KUALA LUMPUR (May 28): FGV Holdings Bhd's net loss widened to RM142.35 million for the first quarter ended March 31, 2020 (1QFY20) from RM3.37 million for 1QFY19, on reduced fresh fruit bunches (FFB) production and lower margins for palm oil and sugar.

Quarterly revenue fell 15.05% to RM2.78 billion from RM3.28 billion in the same period last year, as bad weather conditions impacted FGV's estates and those of smallholders and third party suppliers, which account for 70% of the group's crude palm oil (CPO) production.

Additionally, the Covid-19 pandemic had led to the temporary closure of five FGV mills in April and March, the group said in its earnings results filing with Bursa Malaysia today.

FGV group chief executive officer Datuk Haris Fadzilah Hassan said the first half of 2020 has presented FGV with several challenges, but the group expects the situation to improve in the second half with improved FFB production and overall performance.

"With the India trade restored and the easing of Malaysia's movement control order, sales are expected to pick up in tandem with production, as the impacts of drought and fertiliser adjustments in 2019 wane in the second half of 2020," he added.

FGV said it has secured sales for June and July delivery in India, which is a major importer of CPO. The firm recently signed an agreement with an India-based company to further strengthen its participation in the food products market.

"We have also secured the Certificate of Free Sales (CFS) to meet export requirements to Myanmar and potentially enter the Japanese power plant market as they are focused on renewable energy as their target for a low carbon economy," said Haris Fadzilah.

During the quarter, FGV's FFB production declined 33% to 712,000 tonnes from 1.06 million tonnes in 1QFY19, reflecting the Malaysian Palm Oil Board's assessment of national FFB production trends for the period.

Total CPO production also decreased by 33% to 514,000 tonnes from 762,000 tonnes on lower yield and quality in FGV's supply chain and within its own operations, the group said.

The reduction in production volume has resulted in higher ex-mill costs of RM2,177 per tonne compared with RM1,375 previously.

On its sugar segment, FGV said the bigger net loss was largely attributable to higher refining cost, depreciation and finance cost at the MSM Malaysia Holdings Bhd's Johor Refinery as it was not yet operational in 1QFY19 and had its finance cost capitalised.

Going forward, FGV said it will continue to aggressively offload its non-performing and non-strategic assets and investments that were made in the past to optimise capital structure and strengthen overall balance sheet.

"While divestment initiatives continue to be in progress, FGV is concurrently diversifying its revenue stream by maximising the potential of existing landbanks. The group expects its integrated farming business to be able to generate an EBITDA margin of 15% by 2023," it said.

In a separate filing, the group also updated that the final dividend of 2 sen it declared for FY19 will be paid on July 15, with the entitlement date falling on June 30.

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