This article first appeared in The Edge Financial Daily on August 29, 2018

KUALA LUMPUR: FGV Holdings Bhd revealed yesterday that forensic investigations initiated in January this year into six transactions and investment decisions undertaken previously had exposed the group to significant financial loss.

Out of the six transactions, FGV said the forensic investigators have completed the probe on four, including the RM628 million acquisition of Asia Plantations Ltd (APL) in 2014, investment in FGV Cambridge Nanosystems Ltd and the acquisition of luxury condominiums at The Troika in the Kuala Lumpur City Centre.

“The investigations reveal adverse findings,” FGV, formerly known as Felda Global Ventures Holdings Bhd, said in a filing with Bursa Malaysia yesterday.

Apart from the six transactions, FGV said its board of directors had also undertaken an internal probe into six other matters that were lumped under three categories.

The first category is related to open credit lines, poor purchasing trading practices, and poor palm oil sales that have resulted in bad debts of approximately RM100 million.

The second category is related to the direct award of procurement contracts, which was deemed to be in breach of best corporate practices.

The third category is linked to the labour shortage between May 2016 and April 2018, which resulted in financial losses exceeding RM170 million.

FGV said its board is reviewing all the findings and has sought legal advice on the possible legal recourse, adding that it will make further announcements on the next course of action after it has been duly advised.

“FGV needs to refocus on its core competencies and to ensure that we restore the integrity of our operations. Furthermore, the board is committed to ensuring that the highest principles of corporate governance are instilled in all the group’s employees, at all levels. Thus, while the board resolves the issues surrounding past investments and transactions that have depleted FGV’s cash resources, it will simultaneously strive to ensure that this critical turnaround plan is implemented,” FGV chairman Datuk Wira Azhar Abdul Hamid added.

FGV also said it had established a Transformation Office (TO) in April 2018 to assess the group’s unfavourable performance, and the TO is in the process of finalising audits into estate and mill operations and downstream processes, and the final report will be submitted to the board of directors in the next few weeks.

“Early findings reveal serious issues at multiple levels within the organisation, ranging from poor work discipline, operational inefficiencies to leakages that need to be addressed immediately,” it added.

Additionally, on July 5, 2018, a three-member Special Board Committee (SBC), headed by Azhar and two other directors — Datuk Dr Salmiah Ahmad and Dr Mohamed Nazeeb Alithambi, was set up.

FGV said the creation of the SBC was in view of the many operational shortfalls and the inability of management to offer convincing explanations, solutions or strategic plans for the company.

FGV said the SBC was tasked with four mandates: to closely monitor the group’s performance; engage directly with the group president and chief executive regularly on the progress of key result areas; ascertain the sufficiency of steps being taken and planned, for the attainment of such key result areas, and to make such recommendations and give directions to the management where appropriate.

Not long after its set-up, FGV said the SBC has identified five immediate key recommendations, some of which include reviewing the group’s entire procurement function by the Board Tender Committee led by Datuk Siti Zauyah Mohd Desa, the current deputy secretary-general of policy at the finance ministry.

In addition, FGV said the SBC is empowered to appoint key individuals to several critical management functions, restore operational integrity and ensure the implementation of best management practices in all the group’s business units.

FGV said SBC’s recommendations were approved by the board of directors in a meeting yesterday.

Meanwhile, FGV said its board of directors has committed to undertake several steps, which include transparent and timely disclosures of the findings, and review the group’s non-core businesses with a view to unlocking value and to redirect resources towards the core businesses

FGV said the board will also announce in due course, an operational turnaround plan which is performance-centric, focused on profitability and returns, with clear and measurable deliverables.

“It is the board’s view that with a performance-centric management team, FGV will be able to extract much more value from its assets than it has in the recent past,” Azhar said.

“Right now, there are several leaks that have to be plugged and process improvements, which when implemented, will lead to immediate bottom-line improvement,” he added.