Working to turn FGV around

STARBIZWEEK caught up with FGV Holdings Bhd group chief executive officer Datuk Haris Fadzilah Hasan in his office at Wisma FGV, Kuala Lumpur recently.

Below are excerpts from the interview:

FGV Group posted its fifth quarterly net loss of Rm52.2mil in the second quarter of 2019. Do you expect continued losses in your sugar business and higher cost of production to drag the group’s performance (Q3 & Q4) for the rest of this year?

I’m not allowed to give forward looking statement. But looking at our lower cost of production at RM1,464 per tonne of CPO and the firmer CPO prices, FGV should be able to make some profits after suffering several quarters of losses.

The group is finally getting a grip on the issues in its plantation operation and also gradually disposing of non-core, non-profitable units.

With our CPO cost of production now below RM1,500 per tonne, FGV is comparable with most of the big plantation companies.

But, on the other hand, our main concern is MSM sugar business, which is badly hit by the fall in raw sugar prices. Our sugar unit has also bought long at higher prices for raw sugar under a one-year contract. Then sugar prices came down.

However, the last of MSM’S high sugar purchase will end by this

December. So hopefully by next year, MSM could can get back on a normalised price term.

Then, there is also excess capacity issue at MSM Johor sugar plant. MSM’S total annual capacity stood at at 2.25 million tonnes versus domestic market demand at only 1.6 million tonnes a year. The group is now putting its best efforts to address this issue.

Is FGV still looking for a strategic partner to take up a stake in listed sugar unit MSM Holdings Bhd?

Yes, this is true. Our preference is for a strategic foreign partner with access to its own market and perhaps has the advantage in terms of raw sugar supply or logistics capabilities. Actually there are few with such an access, mainly from China and Indonesia.

To address MSM excess capacity issue, FGV is focusing towards 60%70% of the excess capacity to be exported through a strategic partner.

Mind you that there are no lack of suitors for MSM, it is just how fast we can conclude the deal.

We are already talking to four parties. The negotiations are at two levels – approaching FGV to talk about our 51% stake in MSM and to acquire MSM assets, particularly the Johor sugar plant. My preference is for the MSM assets. Ideally, FGV is willing to sell up to 70% stake in the MSM Johor plant. The company took Rm1bil loan to build the plant, so if we can sell 60%-70% to get Rm600mil to pay for the remaining bank loan, then MSM can be healthy and return to normal.

This is one of our biggest challenges.

Has there been a formal re-negotiation for a fairer deal or a review of FGV’S land lease agreement (LLA) with Felda?

No. As of now there is no agenda between FGV and Felda to talk about the LLA.

In total, FGV has paid Rm2.2bil in LLA payment from 2012-2018.

We have never missed the payment to Felda.

Based on the LLA, Felda would receive a fixed amount payment of Rm248mil per year from FGV plus a 15% share of operating profits from the sale of fresh fruit bunches derived from the estate land leased.

However, there have been talks that the LLA payment to Felda should be much higher. For a fact, when the LLA was signed back in 2012, the CPO price was at RM2,800 per tonne. But over the past two to three years, the CPO prices have not been performing well and has fallen so much that FGV will not be able to fork out such a number.

The LLA agreement is for 99 years but it allows a renegotiation after 20 years upon signing the agreement. The year 2032 can be the first point if both FGV and Felda want to re-negotiate or revise on the new terms.

Also, it allows for termination of the LLA at Felda’s request, by giving an 18-month notice. Once the notice is given, then a series of calculation for compensation to FGV will need to happen. FGV will need to be compensated because we have been making improvement on Felda’s LLA land which comprises mostly palm trees with old age profile.

FGV spend close to Rm300mil on 15,000ha of replanting per year. We also spend close to Rm270mil a year on infrastructure such as housing and Rm300mil a year on fertiliser.

What is the update on the freeze of 2018 remuneration payout of the group’s directors by FGV’S controlling shareholders, Felda, Armed Forces Fund (LTAT) and Koperasi Permodalan Felda?

This is our shareholders’ matter. But I can safely say that there have been good progress so far. All our major shareholders have decided to move forward and there will likely be a positive resolution at our upcoming EGM to be held later this month.

For FGV management, we are glad that our group directors didn’t run away and are still motivated because it can be quite tough if they continue to work for free.

There will be some positive outcome coming soon.

Will FGV be badly affected by the potential boycott from India on local palm oil?

Initially, we were most concerned over this issue as India is quite a big export market for FGV palm products.

We exported about 300,000 tonnes per year, comprising mostly CPO and palm olein to India.

Somehow, the so-called ban or boycott from India did not happen and just fizzled out. And even more surprising is that the CPO prices have gone up instead of coming down after the news broke. We were bracing for the worse, but thankfully it didn’t happen.

If you notice, the Indian government has never issued any official statement on the boycott and it’s only the edible-oil related associations over there that are making noise. India is still business as usual for FGV.

Can you please comment on FGV’S ongoing forensic investigations on its past investments by the previous management?

Personally, I am not very much focused on this matter. There will be other management officials looking at it. I believe a proper announcement will be made in due time once these investigations are completed. I don’t want to be bogged down and keep looking back into the past because that is not my role.

My role is to transform FGV and to bring this company forward.

So far, FGV has taken to court past investments, involving the acquisition of Asian Plantations Ltd and the purchase of Troika condominiums near the KLCC Twin Towers.