FGV slips into the red in 2Q, sees challenging outlook ahead

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KUALA LUMPUR (Aug 28): FGV Holdings Bhd slipped into the red in the second quarter ended June 30, 2018 (2QFY18), with a net loss of RM23.23 million, compared with a net profit of RM37.26 million a year ago. 

Quarterly revenue dropped 18.42% to RM3.44 billion, from RM4.21 billion previously, the group said in a filing with Bursa Malaysia. 

FGV said the performance falls short of market expectations and was also below the internal targets set by the management. 

“The poor performance was attributable amongst others to lower productivity which missed targets, lower average crude palm oil (CPO) price realized, higher production costs and higher share of loss from joint ventures and associate companies,” said the group formerly known as Felda Global Ventures Holdings Bhd. 

“However, the board of directors does acknowledge that further steps need to be taken by the management to enhance operational effectiveness and efficiencies, in order to produce sustained results under changing market conditions,” it added. 

FGV said it realised a lower CPO price of RM2,419 per tonne in the second quarter, a 13.5% drop from RM2,796 per tonne a year ago, amid a 14.8% increase in the CPO sales volume to 480,738 tonnes, from 421,045 tonnes. 

As for fresh fruit bunch (FFB) production, FGV said it was marginally lower at 993,505 tonnes in the second quarter, as compared to 1.04 million tonnes a year ago. 

At the same time, the CPO oil extraction rate showed improvement to 20.61% from 19.77%, while ex-mill cost rose to RM1,884 per tonne, from RM1,649 per tonne. 

For the first half year ended June 30, 2018 (1HFY18), FGV posted a net loss of RM21.9 million, as compared to a net profit of RM38.96 million a year ago, while revenue declined 17.45% to RM7.04 billion, from RM8.53 billion. 

FGV said the year-to-date weaker performance was mainly pressured by the lower average CPO price, which averaged RM2,447 per tonne during the six months, against RM2,916 in the previous year’s first half. 

“The lower result was also reported in [the] kernel crushing and research and development business, due to lower margin achieved, coupled with reduction in sales volume for fertiliser business. The (plantation) sector’s performance was further eroded by decrease in share of results from a joint venture,” it added. 

FGV said it registered a FFB yield of 7.23 tonnes per hectare, and expects to register a full-year yield of 17 tonnes per hectare in 2018, and more than 20 tonnes per hectare in 2019, as a result of improvements in agricultural practices and aggressive replanting. 

Still, FGV said the expected FFB yield falls below the initial internal target 17.5 tonnes per hectare, which is also below the national industry average. 

“The targets set by management at the beginning of this financial year had taken into account unprecedented labour shortages and the age profile of FGV’s trees,” it added. 

Of the 342,420 hectares of the planted area, FGV said a third or 131,470 hectares is above 20 years old, while the remaining 144,991 hectares is categorised as young and immature. 

On prospects, FGV said it anticipates a challenging year, given the bearish CPO price outlook, operational inefficiencies and unrealised returns from investments. 

“As a result, the company has embarked on a group transformation programme that is expected to reverse positively and overcome the challenges faced by the group,” the filing added. 

Listed on the Main Market, FGV shares dropped five sen or 2.94% to RM1.65 today, for a market capitalisation of RM6.02 billion.