FGV’s management under probe

The board is investigating six matters on FGV

PETALING JAYA: The management of FGV Holdings Bhd is under probe as the plantation company, which covers 52 parliamentary seats in the Malay heartland, slipped into the red in the second quarter.

FGV registered a net loss of RM23.23mil in the second quarter ended June 30, 2018, due to lower productivity, rising production cost, higher share of losses from joint ventures and associate companies as well as lack of operational effectiveness and efficiencies.

The board did not mince its words as it acknowledged that the management needed to take steps to enhance operational efficiencies and fell short of targets that were set by themselves internally.

“A comparison with FGV’s peers demonstrates this. Furthermore, the company’s performance falls short of market expectations and the targets that were internally set by management,” said FGV in the notes accompanying its results.

The board is investigating six matters on FGV’s operations that fell under three broad categories. They are:

* Open credit lines, poor purchasing trading practices and poor palm oil sales that have resulted in bad debts of about RM100mil;

* Direct awards of procurement contracts in breach of best practices and

* The critical shortage of workers between May 2016 and April 2018 that resulted in financial losses exceeding RM170mil over the period.

FGV said the targets set by management at the beginning of this financial year had taken into account unprecedented labour shortages and the age profile of its trees.

“Currently, out of a planted area of 342,420ha, about a third, or 131,470ha, is 20 years old and above. A further 144,991ha is categorised as young and immature,” FGV said.

The FGV management is headed by its president and chief executive Datuk Zakaria Arshad, who was at loggerhead with former chairman Tan Sri Isa Abdul Samad, who resigned in June 2017.

Three months later, Datuk Wira Azhar Abdul Hamid was named chairman of FGV.

Under Azhar, FGV appointed forensic investigators to look into six transactions and investments of the past management, of which four were completed.

“The investigations reveal adverse findings,” said FGV.

The investigations were into the acquisition of Asia Plantations Ltd, FGV’s investment in FGV Cambridge Nanosystems Ltd and the acquisition of the Troika condominiums located near the Petronas Twin Towers. All the deals were done when Isa was the chairman and Datuk Mohd Emir Mavani Abdullah was the chief executive.

FGV said the board was reviewing all the above-mentioned findings and has sought legal advice on the possible legal recourse.

Further announcements on the next course of action will be made after the board has been duly advised.

FGV’s losses for the quarter were a sharp contrast to the net profit of RM37.25mil reported by the world’s largest crude palm oil (CPO) producer in the corresponding period last year.

During the quarter in review, FGV saw its revenue decline 18.4% to RM3.44bil from RM4.21bil in the previous corresponding quarter. The group registered a loss per share of 0.64 sen compared with an earnings per share of 1.02 sen previously.

In a filing with Bursa Malaysia, FGV said its plantation sector recorded a loss of RM6.53mil in the second quarter of 2018, which was a steep decline from a profit of RM159.88mil in the previous corresponding quarter.

FGV also said the lower average CPO price of RM2,419 per tonne, 13.5% lower than the RM2,796 per tonne recorded in the previous corresponding quarter, contributed to the losses.

FGV noted that during the quarter in review, the fair value charge in the land lease agreement with Felda rose to RM28.24mil from RM23.06mil charged in the previous corresponding quarter.

Going forward, FGV said it expected the group’s fresh fruit bunch (FFB) yields to rise above 20 tonnes per hectare in 2019, as a result of improvements in agricultural practices and aggressive replanting.

But for 2018, the group’s FFB yields were forecast to fall short at 17 tonnes per hectare, compared with its initial internal target 17.5 tonnes per hectare. For the six months to June 2018, its FFB yields stood at 7.23 tonnes per hectare.

The group said it expected 2018 to be a challenging year, given the bearish CPO price outlook, operational inefficiencies and unrealised returns from investments.

It would bank on its transformation programme to reverse positively and overcome the challenges faced by the group.

“FGV needs to refocus on its core competencies and to ensure that we restore the integrity of our operations,” Azhar said.

“While the board resolves the issues surrounding past investments and transactions that have depleted FGV’s cash resources, it will simultaneously strive to ensure that this critical turnaround plan is implemented,” he added.