FGV takes RM788m impairment hit in Q3

> Bulk of charge is for its investment in Asian Plantation Ltd, group slips into RM849.3m net loss

KUALA LUMPUR: FGV Holdings Bhd expects no more major impairments after being dragged into the red for the third quarter ended Sept 30, 2018, due to a RM788.0 million impairment cost.

FGV reported a net loss of RM849.3 million for the third quarter ended Sep 30, 2018, compared with a net profit of RM41.5 million for the corresponding quarter in 2017.

Of this, its charge for Asian Plantation Ltd (APL) accounted for 65% of the total impairment, with RM513 million.

“The biggest one is APL and we have also added in the rest as well, so there shouldn’t be anymore but under the normal cost of business you will have impairment relating to receivables. That’s the normal cost of business, which every business will experience, but exceptional impairments like these, no,” explained FGV chairman and interim CEO Datuk Wira Azhar Abdul Hamid ( pix).

Last Friday, FGV announced that it was dragging 14 former directors and members of its management team to court for the losses arising from the acquisition of APL or, alternatively, damages for loss from the acquisition to be assessed by the court. FGV is seeking relief against the defendants for damages totalling RM514 million.

Besides APL, FGV also recognised an impairment of RM53 million for the acquisition of FGV Cambridge Nanosystems Ltd in 2013; RM1.22 million for the acquisition of two units of Troika condominiums; and RM102 million for FGV Green Energy Sdn Bhd, which could not commence operations of a biodiesel plant in Kuantan Port for US$22.5 million.

On the current state of its finances, Azhar noted that while profit has been heavily impacted, cash flow is not an issue.

“From Q1 onwards and let’s say if the numbers still don’t stack up the only people we need to look for is the current management. We are quite confident, we know a lot of issues out there and we can see the initiatives we are taking are actually bearing fruit ,” he said.

An immediate plan of three to six months is to optimise costs and efficiency, improve agricultural practices to enhance productivity and improve quality.

FGV has forecast crude palm oil (CPO) to range between RM1,900 and RM2,100 a tonne.

FGV is looking at settlers and third party producers to enhance utilisation of its mills which in turn will potentially increase its CPO production by 10%.

“The objective for FGV moving forward is to minimise our role as a seller of CPO and add value to downstream, looking seriously at what we can do further as far as our downstream operations is concerned, and basically look at our overall integrated value addition,” Azhar said.

FGV continues to focus on correcting its age profile, which at the time of listing was among the worst in the industry with 53% of its trees classified as “old”.

“This is an expensive commitment, but we have no choice. The old trees need to be replaced,” Azhar explained.

He expects much better upstream achievement of 20 tonnes per hectare and a much reduced ex-mill cost of RM1,600 in 2019, with its intiatives.

Commenting on the white paper on Federal Land Development Authority (Felda) to be tabled in the Dewan Rakyat on Dec 10, Azhar said he is not fully aware of it although there has been talk of privatisation, and of Felda taking back the land under the land lease agreement (LLA), doing the rounds.

“If you look at the LLA let’s say as an extreme example. I’m not saying it’s going to happen, but as an example, let’s say we see Felda taking back the estate under the LLA ... there is a compensation formula there as well,” he added.

According to Azhar, status quo is the better option.