KUALA LUMPUR (June 19): FGV Holdings Bhd is still hopeful of posting positive results for the current financial year ending Dec 31, 2020 (FY20) despite a challenging first quarter which saw its plantation segment swing to a loss.
FGV is optimistic despite a projected fall in fresh fruit bunch (FFB) production this year as the group feels the lower output will be offset by its cost-cutting measures and expectations that crude palm oil (CPO) prices will stay afloat.
“We are quite confident to start delivering the targets that we have, and to make sure financially we move to a stronger platform,” FGV chairman Datuk Wira Azhar Abdul Hamid told a virtual press conference after the group’s annual general meeting (AGM) today.
“We are working hard to mitigate the 1Q (first-quarter) loss,” added chief financial officer (CFO) Datuk Mohd Hairul Abdul Hamid.
“I think with improved productivity of the upstream sector and favourable CPO prices, we will be able to deliver positive results,” he said.
Of course, the challenge is partly external, considering the demand risk due to Covid-19.
FGV also has exposure to the sugar business via 51%-owned MSM Malaysia Holdings Bhd, which is struggling to swing to a profit as low volume impacts utilisation.
Ambitious FY20 goal of RM1,600 CPO cost per tonne as output dips
FGV’s plantation segment failed to benefit from a spike in CPO prices in 1QFY20 as FFB production fell 33% to 710,000 tonnes, wider than a 26% decline in the national average.
While production recovered in 2QFY20, Azhar says FGV “may end up with a slight dip” for the full year.
This is opposed to the company's initial target of a 4% to 6% growth this year from 4.45 million tonnes in FY19, when it made a loss of RM242.19 million on a revenue of RM13.26 billion.
Despite that, the optimism for this year stems from FGV’s expectations of reducing CPO cost per tonne to a full-year average of RM1,500 to RM1,600, as opposed to RM2,177 in 1QFY20 — before adding in the cost of a land lease agreement with its parent, the Federal Land Development Authority (Felda).
The cost compares with CPO price estimates of RM2,200 to RM2,400 per tonne for the whole of FY20. The group processed 2.94 million tonnes of CPO last year.
At the time of writing, CPO futures were traded at RM2,400 to RM2,490 for the rest of 2020.
On FGV's cost-cutting measures, chief executive officer (CEO) Datuk Haris Fadzilah Hassan highlighted a goal to reduce costs by RM150 million this year via better production and human labour efficiencies.
“This year, for the first time, I think, we have a higher percentage of young and prime trees,” he said.
As at end-2019, 51% of FGV’s planted area of 339,385ha had trees aged four to 20 years, with an average age profile of 13.8 years.
FGV directors are also playing a part in the cost-cutting exercises. They have agreed to a 20% pay cut for July to December 2020.
The group's senior management has also accepted a 20% cut in car allowance, and two-day unpaid leave each month in the same period.
On the other hand, FGV is also affected by external costs, considering 70% of its FFB supply comes from Felda settlers and third parties.
“From that perspective, even if we are very efficient in managing our own estates, we are still exposed to outside factors. But I think we have internal control in place to ensure quality and utilisation are well managed,” said Haris.