FGV hit by land lease

KUALA LUMPUR: Felda Global Ventures Holdings Bhd (FGV) posted its first net loss at RM9.33mil for the third quarter ended Sept 30 compared with a net profit of RM22.89mil in the same corresponding period a year ago.

Pre-tax profit, however, rose to 9.6% to RM89.16mil.

A source close to FGV warned that FGV’s profits in the coming quarters were expected to be pulled down by the 99-year land lease agreement (LLA), which FGV had with the Federal Land and Development Authority (Felda) for the right to lease Felda settlers’ land starting from 2012.

Under the LLA, a hefty payment of about RM250mil per year has to be paid to Felda, which FGV has been paying on a quarterly basis.

In addition, FGV is required to pay 15% profit sharing out of its plantation profits to Felda.

“The LLA factor has made the FGV business model to be entirely different from other major local plantation companies such as IOI Corp, Sime Darby and KL Kepong.

“Actually, without the LLA effect, FGV’s plantation profits would have been doubled for the third quarter under review,” the source pointed out.

In the third quarter, FGV recorded a RM98.9mil fair value charge related to its LLA, up 140.9% from the same quarter in 2013 as well as RM105.54mil of commodity realised and unrealised losses linked to forward and future contracts in its downstream operations.

These factors contributed to a 40.6% drop in net profit during the nine months ended Sept 30, which totalled RM286.16mil from 482.33mil in the previous corresponding period. Its pre-tax profit fell 17.5% to RM678.82mil from RM823.40mil previously.

Its main business, the plantation segment, recorded a 13.1% decline in profit compared with the previous year largely attributed by the LLA fair value charge of RM316.59mil in 2014 versus a gain of RM135.46mil last year.

Excluding the LLA effect, the segment’s result was RM745.91mil, higher compared with the same period last year of RM358.59mil.

However, FGV’s revenue for the third quarter ended Sept 30, 2014 jumped 34.3% to RM4.32bil from the same quarter a year earlier.

“This is driven by the consolidation of its former 49% associate company Felda Holdings Bhd (FHB) into a 100% subsidiary of FGV in December last year as well as the acquisition of Pontian United Plantations Bhd (PUP) in October last year.

“Hence, even if FGV’s crude palm oil (CPO) production is declining in the third quarter, the group’s revenue is growing, thanks to the new plantation acquisitions in the past two years,” the source pointed out.

Meanwhile, FGV group president and chief executive officer Datuk Mohd Emir Mavani Abdullah said in a statement that the injection of FHB and PUP had an immediate positive impact on the group’s revenue.

“It also allowed FGV to acquire greater alignment and control of the entire plantation value chain and attain higher operational efficiencies and synergies,” he added.

He said FGV expected CPO prices to improve in the coming quarters, an expectation shared by many analysts, which will have a positive impact on its revenue outlook.