Half of FGV's oil palm trees ‘unacceptably old’ during listing in 2012

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KUALA LUMPUR (Jan 14): When FGV Holdings Bhd was listed in mid-2012, half of the the group’s estates had oil palm trees that were ‘unacceptably old’, said its chairman Datuk Wira Azhar Abdul Hamid.

In his letter to shareholders filed with Bursa Malaysia today, Azhar said this was because of decisions made before listing to reduce cost by not replanting sufficiently.

“This was an unwise decision that was repeated over a few years, and resulted in FGV’s current sub-optimal age profile. Most unfortunately, the decision to reduce cost by not replanting sufficiently has left lasting and negative impacts on FGV.

“Since its listing, FGV has committed to replanting the old palm trees on a disciplined replanting schedule. Despite this, we still have approximately 33,000 ha of land with trees that are above 30 years old,” he said.

Azhar also noted that due to lower crude palm oil (CPO) prices, the Malaysian national replanting rate has dropped to below 2%, and most plantation companies adopt a more conservative approach to replanting to manage costs when prices are low.

“However, FGV does not have this luxury as too large a proportion of its estates are over 25 years old. A well-managed company would have 4% of its estates at 25 years and nothing more.

“This is a legacy issue, but we will correct it over the next few years. We will take responsible measures that will ultimately bring benefits to shareholders,” he said.

Azhar also said proceeds from FGV’s listing have been whittled away and not all of it was invested wisely.

“The depletion of FGV’s financial resources was evident when in the third quarter of 2018, FGV impaired a total of RM788 million. In other words, we have taken the hit and can now decide how best to extract some value from some of these assets and investments,” he said.

Azhar also pointed out that the ongoing uncertainty over the land lease agreement (LLA) is affecting market perception and needs to be resolved immediately.

“The agreement to lease land in relation to the LLA was signed between Felda and FGV in November 2011. FGV has paid a total of approximately RM2 billion from 2012 to 2017 for the leased land.

“FGV has always met all its obligations under the LLA contrary to what has been reported in the past. FGV has invested billions to replant and rehabilitate the old LLA estates. To deprive shareholders of the potential benefits of their commitment and our hard work would not be equitable,” he added.