FGV earnings down, closing 4 palm oil mills, 2 rubber factories, 1refinery

Zakaria: ‘The volume sold during the quarter was lower compared with last year.’ – Bernama

KUALA LUMPUR: Felda Global Ventures Holdings Bhd (FGV) reported its lowest full-year net profit since its initial public offering in 2012 on account of several rationalisation costs and one-off recognitions made during the final quarter.

These recognitions dragged down FGV’s overall net profit for the financial year ended Dec 31, 2016 (FY16) to RM29.61mil compared with RM188.79mil a year ago. Its full-year revenue amounted to RM17.28bil, a considerable improvement from RM15.55bil in FY15.

It is notable that the group reported a lower year-on-year net profit for the fourth quarter (Q4’16), which was a period of strong gains in the price of crude palm oil (CPO). Settlement prices for the commodity rose from RM2,741 to RM3,202 per tonne during the quarter, according to the Malaysian Palm Oil Board data.

FGV’s Q4’16 net profit amounted to RM110.6mil, a decrease from RM140.7mil the year before. The stronger selling prices for CPO was instead reflected in its revenue of RM5.2bil for the quarter, or a 25% increase from RM4.15bil a year ago.

Among others, the group recognised commodity losses of RM36.95mil from its trading operations and RM60.38mil in other operating expenses. In comparison, it restated RM3.37mil in operating expenses back into its books, while it reported net commodity gains of RM67.36mil during the same period a year ago.

During a media briefing in Kuala Lumpur on Tuesday, FGV group president and chief executive officer Datuk Zakaria Arshad explained the reasons behind the lower profits.

“We made some impairments during the fourth quarter, including the closure of some mills. The volume sold during the quarter was also lower compared to last year in spite of the higher realised CPO selling price of RM2,835 per tonne,” he said.

While the group did not declare a dividend following the release of its results yesterday, Zakaria clarified that FGV may still consider a payout in the near future.

“We have actually not decided yet on this (decision on dividends). The board will deliberate on this once our fully audited numbers are out. The decision will be made in March (after the audit),” he said.

Meanwhile, the group also confirmed previous reports that it plans to rationalise part of its workforce through a mutual separation scheme (MSS). This will affect 3% of FGV’s current 18,000-strong workforce, or about 540 jobs.

“The MSS exercise is expected to incur about RM12mil in one-off costs,” Zakaria said.

The scheme is linked to the rationalisation of several of FGV’s assets, he said. The group is in the process of closing four palm oil mills, two rubber factories and a refinery as part of its rationalisation exercise.

On the other hand, FGV noted that it had successfully achieved its cost reduction target after reporting RM127.4mil in cost savings for FY16, exceeding its initial target of RM100mil.

Additionally, Zakaria confirmed the group expects to recover about 75% of its share of losses amounting to RM57mil from the operations of its Turkish associate Felda Iffco Gida. It has already written back RM37mil as part of the losses occurred outside its FY16.

“The net impact to our books is about RM20mil. We also have an insurance claim on top of that, but it is not in the books yet,” he said.

For 2017, the group estimates an additional 600,000 tonnes of fresh fruit bunch production, leading to a total volume of 4.5 million tonnes. Additionally, it expects the average CPO production cost (ex-mill) to decline to RM1,450 per tonne, or a 9% reduction from last year.

As for the CPO price outlook, Zakaria said he expects CPO prices to range between RM2,600 and RM3,000 per tonne up until the second quarter of this year prior to the high production season.

On its ongoing rationalisation exercise, Zakaria said the closure of the mills and other facilities would increase its overall utilisation factor and reduce processing costs. FGV will also continue to undertake divestments and liquidation of non-core and non-performing assets this year, Zakaria said.