KUALA LUMPUR: FGV Holdings Bhd posted net losses of RM1.08bil in the financial year ended Dec 31, 2018 as it was impacted by impairments and provisions of RM1bil.
It announced on Thursday this was in contrast with the net profit of RM130.93mil in FY17. Its revenue declined by 20.4% to RM13.46bil from RM16.92bil a year ago.
“For FY18, FGV's loss before zakat and tax (LBZT) was RM1bil compared with profit before zakat and tax (PBZT) of RM403mil the previous year, due in large part to impairments and provisions totaling RM1.038bil. The decline in average crude palm oil (CPO) price during the period in review also affected performance at both top and bottomline,” it said.
Its plantation sector posted a loss of RM959.56mil for FY18 compared to a profit of RM520.69mil in previous year. The sector was significantly impacted by the impairment losses in the goodwill that arose from the acquisition of Asian Plantation Ltd (APL) of RM513mil.
The sector’s result was brought down by lower average CPO price realised of RM2,282 per tonne compared to RM2,792 per tonne in previous year.
This was further compounded by declining margin in kernel crushing and refining business, lower volume and margin achieved in planting materials.
Fresh fruit bunches (FFB) production weakened by 1.2% to 4.21 million tonnes in 2018 with a yield of 16.90 tonne per hectare.
“Notwithstanding the above, OER was higher at 20.49% compared to 19.83% achieved in the previous year due to various measures done following the turnaround initiatives,” it said.
Sugar Sector registered an improvement from a loss of RM1.88mil in FY18 compared to profit of RM58.67mil due to lower raw sugar material costs and strengthening of the ringgit Malaysia. The higher profit was partly affected by lower sugar volume due to aggressive competition in domestic sugar market resulting in lower average selling price.
The logistics and shipping business sector saw a 35% decline in profit of RM44.39mil mainly due to the absence of the one-off gain on disposal of long term investment amounted to RM73.13mil recognised in previous year.
Excluding this gain from the previous year’s result, the sector registered a better profit due to improved contribution from commodities marketing business.
In the fourth quarter (Q4 FY18), it posted net losses of RM208.79mil compared with net profit of RM50.44mil a year ago.
Its revenue fell by 24% to RM3.23bil from RM4.25bil due to a decline in CPO prices. CPO prices averaged at RM2,053 per tonne in Q4 FY18 which was 24.6% lower than the average of RM2,723 in Q4 Fy17.
Loss per share were 5.7 sen compared with earnings per share of 1.4 sen.
“Without the impairments and provisions, FGV recorded PBZT of RM101mil for the period”, it said, compared with RM253mil a year ago.
FGV group chief executive officer Datuk Haris Fadzilah said in Q4 FY18, the plantation operatiuons were focused on plugging leaks, revising processesand implementing new controls to bring its estate performance in line with other large players in the industry.
“Some of the initiatives are already starting to bear fruit, but the improvementss will be morevisible in 2019,” he said.
The plantation sector's FFB production fell by 3% to 1.15 million tonnes from 1.19 million tonnes. FFB yield fell to 4.62 tonnes per hectare from 4.76 tonnes.
FGV's sugar sector recorded loss of RM13mil compared with RM24mil a year ago. The logistics and support businesses sector posted profit of RM19mil but this was a steep decline from a profit of RM109mil a year ago.
As for its replanting programme, Haris said it was on track to normalise palm age profile by 2026. For 2019, FGV has targeted to replant 15,000 hectares.
FGV comments on APL
“APL was acquired by FGVH in 2014 for cash consideration of RM568mil, resulted in goodwill on acquisition of RM513mil. At the date of acquisition, the fair value of net assets of APL included external borrowings of RM517 million assumed by FGVH group, which had been subsequently settled by FGVH on APL's behalf.
“The board is of the view that effectively FGVH had paid a total of RM1.081bil for its investment in APL,” it said.
FGV said the goodwill which arose from the acquisition of APL had been assessed for impairment on an annual basis in accordance with MFRS 136 "Impairment" as part of the Palm Upstream group of cash generating units (CGUs), as this group of CGUs is expected to benefit from the synergies of the combination, which represented the lowest level within the group at which goodwill was monitored. On this basis, the goodwill had been assessed as fully recoverable.
FGV also said APL has been loss making since acquisition, despite efforts undertaken by management to improve its performance due to several challenges faced by APL in particular due to its geographical location, labour shortages and weather.
APL had also suffered crop losses over the years, which require significant efforts to rehabilitate the estate assets.
Due to lack of synergy derived since the acquisition of APL, management has decided to reorganize its reporting structure to review APL operations separately from the other Palm Upstream operations with effect from the quarter ended Sept 30, 2018. Accordingly, the goodwill on the acquisition of APL has been retained in APL.
“Based on the impairment assessment performed subsequent to the reorganisation of its reporting structure, an impairment loss of RM513mil has been recognized in the consolidated financial statements for the period ended 30 September 2018,” it said.