FGV’s man­age­ment un­der probe

Group plunges into the red due to op­er­a­tional in­ef­fi­cien­cies

The Star Malaysia - StarBiz - - Front Page -

PE­TAL­ING JAYA: The man­age­ment of FGV Hold­ings Bhd is un­der probe as the plan­ta­tion com­pany, which cov­ers 52 par­lia­men­tary seats in the Malay heart­land, slipped into the red in the sec­ond quar­ter.

FGV reg­is­tered a net loss of RM23.23mil in the sec­ond quar­ter ended June 30, 2018, due to lower pro­duc­tiv­ity, ris­ing production cost, higher share of losses from joint ven­tures and as­so­ciate com­pa­nies as well as lack of op­er­a­tional ef­fec­tive­ness and ef­fi­cien­cies.

The board did not mince its words as it ac­knowl­edged that the man­age­ment needed to take steps to en­hance op­er­a­tional ef­fi­cien­cies and fell short of tar­gets that were set by them­selves in­ter­nally.

“A com­par­i­son with FGV’s peers demon­strates this. Fur­ther­more, the com­pany’s per­for­mance falls short of mar­ket ex­pec­ta­tions and the tar­gets that were in­ter­nally set by man­age­ment,” said FGV in the notes ac­com­pa­ny­ing its re­sults.

The board is in­ves­ti­gat­ing six mat­ters on FGV’s op­er­a­tions that fell un­der three broad cat­e­gories. They are:

> Open credit lines, poor pur­chas­ing trad- ing prac­tices and poor palm oil sales that have re­sulted in bad debts of about RM100mil;

> Di­rect awards of pro­cure­ment con­tracts in breach of best prac­tices and

> The crit­i­cal short­age of work­ers be­tween May 2016 and April 2018 that re­sulted in fi­nan­cial losses ex­ceed­ing RM170mil over the pe­riod.

FGV said the tar­gets set by man­age­ment at the be­gin­ning of this fi­nan­cial year had taken into ac­count un­prece­dented labour short­ages

and the age pro­file of its trees.

“Cur­rently, out of a planted area of 342,420ha, about a third, or 131,470ha, is 20 years old and above. A fur­ther 144,991ha is cat­e­gorised as young and im­ma­ture,” FGV said.

The FGV man­age­ment is headed by its pres­i­dent and chief ex­ec­u­tive Datuk Zakaria Ar­shad, who was at log­ger­head with for­mer chair­man Tan Sri Isa Ab­dul Sa­mad, who re­signed in June 2017.

Three months later, Datuk Wira Azhar Ab­dul Hamid was named chair­man of FGV.

Un­der Azhar, FGV ap­pointed foren­sic in­ves­ti­ga­tors to look into six trans­ac­tions and in­vest­ments of the past man­age­ment, of which four were com­pleted.

“The in­ves­ti­ga­tions re­veal ad­verse find­ings,” said FGV.

The in­ves­ti­ga­tions were into the ac­qui­si­tion of Asia Plan­ta­tions Ltd, FGV’s in­vest­ment in FGV Cam­bridge Nanosys­tems Ltd and the ac­qui­si­tion of the Troika con­do­mini­ums lo­cated near the Petronas Twin Tow­ers. All the deals were done when Isa was the chair­man and Datuk Mohd Emir Ma­vani Ab­dul­lah was the chief ex­ec­u­tive.

FGV said the board was re­view­ing all the above-men­tioned find­ings and has sought le­gal ad­vice on the pos­si­ble le­gal re­course.

Fur­ther an­nounce­ments on the next course of ac­tion will be made af­ter the board has been duly ad­vised.

FGV’s losses for the quar­ter were a sharp con­trast to the net profit of RM37.25mil re­ported by the world’s largest crude palm oil (CPO) pro­ducer in the cor­re­spond­ing pe­riod last year.

Dur­ing the quar­ter in re­view, FGV saw its rev­enue de­cline 18.4% to RM3.44bil from RM4.21bil in the pre­vi­ous cor­re­spond­ing quar­ter. The group reg­is­tered a loss per share of 0.64 sen com­pared with an earn­ings per share of 1.02 sen pre­vi­ously.

In a fil­ing with Bursa Malaysia, FGV said its plan­ta­tion sec­tor recorded a loss of RM6.53mil in the sec­ond quar­ter of 2018, which was a steep de­cline from a profit of RM159.88mil in the pre­vi­ous cor­re­spond­ing quar­ter.

FGV also said the lower av­er­age CPO price of RM2,419 per tonne, 13.5% lower than the RM2,796 per tonne recorded in the pre­vi­ous cor­re­spond­ing quar­ter, con­tributed to the losses.

FGV noted that dur­ing the quar­ter in re­view, the fair value charge in the land lease agree­ment with Felda rose to RM28.24mil from RM23.06mil charged in the pre­vi­ous cor­re­spond­ing quar­ter.

Go­ing for­ward, FGV said it ex­pected the group’s fresh fruit bunch (FFB) yields to rise above 20 tonnes per hectare in 2019, as a re­sult of im­prove­ments in agri­cul­tural prac­tices and ag­gres­sive re­plant­ing.

But for 2018, the group’s FFB yields were fore­cast to fall short at 17 tonnes per hectare, com­pared with its ini­tial in­ter­nal tar­get 17.5 tonnes per hectare. For the six months to June 2018, its FFB yields stood at 7.23 tonnes per hectare.

The group said it ex­pected 2018 to be a challenging year, given the bear­ish CPO price out­look, op­er­a­tional in­ef­fi­cien­cies and un­re­alised re­turns from in­vest­ments.

It would bank on its trans­for­ma­tion pro­gramme to re­v­erse pos­i­tively and over­come the chal­lenges faced by the group.

“FGV needs to re­fo­cus on its core com­pe­ten­cies and to en­sure that we re­store the in­tegrity of our op­er­a­tions,” Azhar said.

“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,” he added.

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