Huge impairment charge leads to big Q3 net loss for FGV

KUALA LUMPUR: FGV Holdings Bhd has posted its biggest quarterly loss ever in the three months to end-September after forensic investigations determined that it had overpaid for a plantation asset purchased in 2014, forcing the company to make a huge impairment charge on the acquisition in the current quarter.

The world’s largest palm oil producer made a loss of RM849.25mil in the third quarter ended Sept 30, compared to a net profit of RM41.53mil a year ago.

Impairment charges amounted to RM788mil, much of it from Asian Plantations Ltd (APL). Without the impairment, the loss before zakat and taxation for the group was RM123mil.

FGV chairman and interim chief executive officer (CEO) Datuk Wira Azhar Abdul Hamid said the RM514mil impairment from APL would be a one-off thing and expects no more impairments of such a size, moving forward.

“The impairment of APL is the biggest one and we have chosen this quarter to do it. We expect that there shouldn’t be more big impairments,” he told reporters after FGV’s third-quarter results briefing yesterday.

FGV, in 2014, had acquired London-listed APL for a total cash consideration of RM567.9mil and also assumed its liabilities of RM517mil. The voluntary conditional cash offer of £2.20 per share was a 294.7% premium over APL’s net asset value per share as at Dec 31, 2013.

Azhar, who was made chairman of FGV in September and later assumed the post of interim CEO in October following the departure of Datuk Zakaria Arshad, had last week commenced legal proceedings against the company’s previous management and board of directors in a bid to recoup some of the amount paid for APL.

The legal action came about following FGV’s series of forensic investigations involving six transactions and investment decisions, which is expected to be completed by the end of the year.

Out of the six transactions, four investigations have been completed involving acquisitions in APL, investments in FGV Cambridge Nanosystems Ltd and the acquisition of Troika condominiums near the Petronas

Twin Towers.

Azhar said he could initiate more legal action arising from the outcome of the investigations, but did not eleborate, other than saying that the worst was over for the group and it was on a path to recovery.

He described FGV as a patient undergoing a major heart bypass to ”clear the blockages” and was now “closing up the stitches”.

“Hopefully, the ‘patient’ can recover and run around in (good) health soon,” he said.

But FGV’s path to recovery remains challenging amid weakening crude palm oil (CPO) prices, which are hovering at just above RM2,000 a tonne in the futures market.

FGV said the average CPO price realised during the quarter was RM2,224 a tonne compared to RM2,419 in the preceding quarter, although the CPO sales volume inched up by 7.4%.

This contributed to the lower revenue of RM3.19bil compared to RM4.14bil a year ago.

Moving into 2019, Azhar said FGV has forecast the CPO price to trade between RM1,900 and RM2,100 per tonne in 2019.

“The high CPO stockpile would put pressure on the price,” he said, adding that FGV’s average production cost ex-mill in the third quarter stood at RM1,777 per tonne.

The CPO price will have a major impact on the group’s performance in the coming months, but Azhar said the group is committed to its turnaround plan and transformation initiatives to achieve further cost reduction and uplift productivity.

He said FGV is targeting to appoint a CEO by end-January next year.So far, he said the board had narrowed down its choice to two external candidates to fill up the top post, which has currently been assumed by him as interim CEO.

The post has been vacant after Zakaria resigned on Sept 18, following his suspension on Sept 13.

“I will withdraw from my position as the interim CEO of FGV when we make the selection and will remain as the non-executive chairman of the group,” he said.

Additionally, Azhar said the appointment of the group’s chief financial officer would also take place in January. He, however, declined to name the candidates.