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This article first appeared in The Edge Financial Daily, on May 17, 2016.

 

FGV-Quarterly_FD_17May16_theedgemarketsKUALA LUMPUR: Felda Global Ventures Holdings Bhd (FGV) is embarking on a reorganisation plan, that includes divesting loss-making assets and cutting down production costs, which the group hopes will improve its bottom line by the end of the year.

The move comes just 46 days after Datuk Zakaria Arshad took over as FGV chief executive officer from Datuk Mohd Emir Mavani Abdullah, who embarked on an acquisition spree during his tenure.

Zakaria said his main focus now is the group’s cost of production, adding that FGV is also ready to sell assets that are not contributing to the group.

“We are readjusting our investments. If it is not making money, we will close it down,” he said at the press briefing yesterday.

“Revenue is important, but we really want to focus on profits,” he said. Last year, FGV said it would dispose of its oilseeds crushing and refining plant in Canada to Viterra Inc for C$190 million (RM608.2 million) in cash.

However, Zakaria said the group will not lay off workers and instead will redeploy them.

He said the group is also expecting the El Nino phenomenon to shave off 17% of its palm oil output this year.

He estimates that crude palm oil (CPO) prices would increase to between RM2,600 and RM2,800 per tonne by August, which would offset FGV’s drop in production.

One of the issues plaguing FGV is its old-age tree profile. Zakaria said the group would continue its plan to replant 15,000ha a year, which it had embarked upon over the past two years.

He also said FGV has more than 70,000ha of young and immature plantation area that will be contributing to the group’s bottom line in two to three years’ time.

FGV saw its net profit decline 64% to RM117.12 million or 3.2 sen a share for the financial year ended Dec 31, 2015 (FY15), from RM325.49 million or 8.9 sen a share a year ago, on lower average CPO prices, lower fresh fruit bunch production and lower contribution from its trading, marketing and logistics segment, which was impacted by a weakened ringgit against the US dollar last year.

Revenue increased 2.69% to RM15.67 billion, from RM15.26 billion in FY14.

Zakaria also announced that FGV is putting on hold any mergers and acquisitions (M&As) for the short term, saying the group will be focusing on capitalising on and rationalising its existing assets, besides concentrating on its core business.

“We can grow through the existing business,” he said. “We have a pause on M&As, we are stopping that a while until the end of this year, following which, we will discuss.”

However, Zakaria said negotiations for the acquisition of a stake in Indonesia’s PT Eagle High Plantations Tbk from PT Rajawal Corpora are ongoing.

“I cannot answer you now because there are a few parties involved — FGV, Rajawali, Eagle High,” he said.

“But for me, from my structure, there is no focus on M&As for now,” he added.

FGV’s acquisition of a stake in Eagle High was proposed at a time when it was grappling with depressed palm oil prices and a deteriorating balance sheet.

The deal, initiated under Mohd Emir, initially involved the acquisition of a 37% stake for US$680 million.

Analysts and substantial shareholder Employees Provident Fund had criticised the deal for its expensive valuation, while opposition lawmakers had described the deal as politically-motivated.

Mohd Emir, however, had defended the deal, saying FGV was not overpaying for the stake. He argued that the group would not be taking on too much debt and that the deal was being pursued purely for commercial reasons.

The initial deal was later scrapped due to a change in market conditions.

The Edge weekly, quoting sources, had reported that FGV was out of the deal to buy the equity interest in Eagle High and other businesses from Rajawali, and that Felda Investment Corp will instead buy the 37% stake in Eagle High, as well as Rajawali’s sugar cane plantations and mills.

Just a week after Zakaria took over the position from Mohd Emir on April 1, the group announced that it would scrap a deal to purchase a 55% stake in China-based Zhong Ling Nutril-Oil Holdings Ltd for RM976.25 million due to unfulfilled conditions.

FGV announced on Feb 26 that it had inked two agreements with Zhong Hai Investments Holdings Ltd and other vendors for the transfer of 26.4% and 28.6% stakes in Zhong Ling for RM537.05 million and RM439.2 million respectively.

On the withdrawal of its Roundtable for Sustainable Palm Oil (RSPO) certificates, FGV operations strategy head Denys Collin Munang reiterated that the group has a three-year plan to get all its smallholders to comply with the RSPO principles and criteria.

“Not every settler recognises the need to be compliant with RSPO,” he said.

“There are issues that we need to address. For example, the handling and disposal of chemical waste,” he added.

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