No more room for error in FGV

FGV president and CEO Datuk Zakaria Arshad returns to his duties at the start of next week

WHEN Felda Global Ventures Holdings Bhd (FGV) announced on Monday that its president and CEO Datuk Zakaria Arshad was returning to his duties at the start of next week, the news brought to an end one of the most volatile episodes of a boardroom fight in recent times.

The fast changing dynamics within FGV meant that the constitution of the key positions within the board of directors has changed after a boardroom tussle that saw Tan Sri Mohd Isa Abdul Samad replaced as chairman of the plantations giant.

Zakaria will return and find two new directors at the board led by a new chairman Datuk Wira Azhar Abdul Hamid who on Monday too announced that the return of Zakaria does not mean its business as usual.

He said there was a need for a new management structure to strengthen the organisation and to execute the strategic plans of the board.

Azhar hinted at further board changes that would be made in due course and  that is to realise the potential of the sprawling plantations group.

“Being one of the biggest oil palm plantation companies, FGV must aspire to be the industry leader in terms of productivity and financial returns. So, any factors hindering us from achieving these objectives must be addressed immediately,” he said in a statement on Monday.

News of Zakaria’s return sent the stock up from RM1.72 to RM1.82, the highest price since June 19. 

The spurt maybe down to investors hoping that the past problems, which was generally put down to how the group was run, would improve with the ongoing shakeup in the group.

Investors might have a reason to be a little more optimistic on the future of FGV given how the company had performed since it was listed in 2012. 

Since its listing, FGV burned through its cash pile of more than RM5bil that has dropped to RM1.87bil as of March 31 this year.

Between January 2013 and 2016, when FGV’s president and CEO Datuk Mohd Emir Mavani Abdullah and Mohd Isa as its chairman, FGV made seven acquisitions which has not translated to a bump in profitability. 

In FGV’s first year as a listed company, it made a profit of RM805.8mil. In its last financial year, it posted a profit of RM29.6mil.

Zakaria too knows that it was imperative that FGV improves on its financial performance. 

Poor financial results in the past have been cannon fodder for criticism against the group and executing the plans laid out in its 2020 Strategic Plan to revive the performance of FGV will be crucial in winning over detractors that have discounted the plantation giant in favour of other better-run companies on the stock exchange.

While the uplift in the stock price must be pleasing to shareholders of FGV, the urgency to improve its financial standing will be important as Bursa Malaysia is set to see the listing of Sime Darby Plantations which has dangled the carrot of a 50% payout of its net profit as dividend to shareholders.

The size of Sime Darby Plantations, which is to be listed by the end of the year on Bursa Malaysia, means that there will be another large, pure play plantations company being listed on Bursa Malaysia.

It will likely be an index stock on the FBM KLCI and will funnel in a lot of big money into the counter, money that other plantations companies such as FGV will be fighting for.

With Azhar a former executive vice-president of Sime Darby’s plantations business, he will know first hand the strengths and weaknesses of the company. 

His knowledge, and that of the new management of FGV, will be important in drawing up plans that cannot dispel the poor perception by investors of FGV but institute an important turnaround that must improve the languishing financial performance of the group.
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