KUALA LUMPUR: FGV Holdings Bhd is on track to becoming a high performing company as it improves its operational performance and ensure the creation of much value as possible, its chairman Datuk Wira Azhar Abdul Hamid said.
In his second letter to all shareholders on Friday to provide an update on the progress of the group-wide transformation plan, he said it had been business as usual at FGV after the tabling of the Federal Land Development Authority's (Felda) White Paper in April.
"We are focused on improving operational performance and ensuring that we create as much value as possible,” he said.
In the letter, Azhar highlighted issues including:
* Land lease agreement (LLA) with the Felda smallholders;
* Speeding up the development of downstream businesses, creating value from plantations by year-end and to unlock the potential in the downstream cluster;
* Reduce funding for long term capex using short term financing to ensure more effective capital management.
Azhar acknowledged that regarding the LLA, there was some “residual uncertainty surrounding Felda's intention vis-a-vis the LLA issue" which had to be addressed.
(FGV has a total landbank of 439,725 hecatres, of which around 351,000ha is leased from Felda or the Felda under the LLA. FGV has committed to paying Felda RM248mil a year to lease the land of which 291,000 ha was planted with oil palm.)
“However, we have reviewed the situation and we are confident that even if FGV's other shareholders do agree to give the land back to Felda for a suitable compensation, FGV will remain a high performing company,” he said.
Azhar said there were several reasons for this and the three main ones were:
1. FGV owns all the mills and refineries, as they are not part of the LLA agreement and would remain with FGV. As its mils and refineries were near the land under the LLA. Hence, for logistical and economic reasons, fresh fruit bunches (FFB) from the land under the LLA would still have to be processed at FGV's mills.
2. Two-thirds of FFB processed in FGV's mills are sources from independent third parties and smallholders, including Felda settlers. Thus consistency of suppy is secure.
FGV's biggest cost components for FGV are its upstream operation. Staff costs accounted for RM998mil or 61% of the group's total staff cost; RM248mil fixed fee for land under the LLA and RM300mil replanting cost.
3. FGV's current plans to develop its downstream businesses can be accelerated and scaled up. He said FGV can take a leaf from other, much bigger and more successful companies which have chosen to focus on downstream activities. This is a step FGV is prepared to take, should the need arise, he pointed out.
Azhar emphasised the transformation office at FGV was working hard on the operational turnaround and also a strategic plan to allow FGV to realise its ful potential.
Importantly, he said FGV could not depend solely in earnings from crude palm oil (CPO) sales and remain helpless due to price fluctuation.
Also FGV was aware of the plight of the smallholders and third parties which produced the FFB and the impact of the low CPO prices on their livelihood.
To recap, FGV has committed to paying Felda RM248mil a year to lease the land of which 291,000 ha was planted with oil palm.
Azhar said to mitigate the impact of the annual RM248mil cash outflow, FGV could not depend only on the earnings from CPO sales and “remain helpless in the face of price fluctuations”.
He said FGV was looking at how to create more value and by year-end, it would make key announcements to the market to paint a clear picture of the way ahead.
Azhar also said FGV's commitment to replant 15,000 ha of its palm trees every year was on track.
“We are also taking steps, both commercial and legal, to address other legacy issues. These include ongoing legal action and forensic probes into several acquisitions and investment,” he said.
He added FGV was working to reduce the funding for long-term capital expenditure using short term financing so as to result in more effective capital management.
“We have also put greater emphasis on improving FGV's improving capital through better collection of trade debts, tighter credit terms and reducing inventory turnover days,” he said.
As for the culture change and human resource planning, he said FGV when hiring people, would always look for capability, experience and integrity.
“However, there are three other qualities that are important for any organisation to succeed: diversity, teamwork and the right attitude to work,” he said.
He also said FGV had no room for non-performers and anyone who cannot or will not work for the betterment of FGV.