FGV has no more room for error
THE resumption of duties by Datuk Zakaria Arshad as president and chief executive of Felda Global Ventures Holdings Bhd (FGV) next week brings to an end one of the most dramatic boardroom tussles in recent times.
Normally, a professional manager is at the losing end of any boardroom fight.
But in the case of FGV, it is the board that has changed while the management has remained intact.
The fast changing dynamics within FGV saw Tan Sri Mohd Isa Abdul Samad replaced as chairman of the plantations giant within weeks. Subsequently, several directors also resigned from the board.
Zakaria will return and find two new directors at the board led by new chairman Datuk Wira Azhar Abdul Hamid who also announced that the return of Zakaria did not mean it’s business as usual.
He said there was a need for a new man- agement structure to strengthen the organisation and to execute the strategic plans of the board.
Azhar hinted at further board changes that would be made in due course to unleash the potential of the sprawling plantations group.
“Being one of the biggest oil palm plantation companies, FGV must aspire to be the industry leader in terms of productivity and financial returns. So, any factors hindering us from achieving these objectives must be addressed immediately,” he said in a statement on Monday.
News of Zakaria’s return sent the stock up from RM1.72 to RM1.83, the highest price since June 19.
The spurt in the share price is probably down to investors hoping that the past problems on how the group was managed would improve with the ongoing shake-up.
Investors might have a reason to be a little more optimistic on the future of FGV, given how the company had performed since it was listed in 2012.
Since its listing, FGV burned through its cash pile of more than RM5bil that has dropped to RM1.87bil as of March 31 this year. Between January 2013 and 2016, when Mohd Isa was the chairman and Datuk Mohd Emir Mavani Abdullah was the president and CEO, FGV made seven acquisitions.
The purchases has not translated to FGV seeing a jump in profitability.
In FGV’s first year as a listed company, it made a profit of RM805.8mil. In its last financial year, it posted a profit of RM29.6mil.
Zakaria too knows that it is imperative that FGV improves on its financial performance.
Poor financial results in the past have been cannon fodder for criticism against the group.
On this score, Zakaria’s execution of the plans laid out in its 2020 Strategic Plan to revive the performance of FGV will be crucial in winning over detractors that have discounted the plantation giant in favour of other better-run companies on the stock exchange.
While the uplift in the stock price must be pleasing to shareholders of FGV, the urgency to improve its financial standing will be important because FGV has got some stiff competition coming up.
Sime Darby Plantations is slated to be listed as a pure plantation play by end of the year and has dangled the carrot of a 50% payout of its net profit as dividend to shareholders.
The size of Sime Darby Plantations easily makes it comparable to FGV as another large plantation company.
It will likely be an index stock on the FBM KLCI and will funnel in a lot of big money into the counter, money that other plantations companies such as FGV will be fighting for.
With Azhar a former executive vice-president of Sime Darby’s plantations business, he will know first hand the strengths and weaknesses of the company.
His knowledge, and that of the new management of FGV, will be important in drawing up plans that can not dispel the poor perception of by investors of FGV but institute an important turnaround that must improve the languishing financial performance of the group.
Now there is no more room for error.