KUALA LUMPUR: FGV Holdings Bhd will make key announcements by the end of the year with regard to certain broad measures as the company cannot continue to be price takers, at the mercy of international commodity pricing.
In his second letter to shareholders, FGV chairman Datuk Wira Azhar Abdul Hamid said even as it strives to fix past issues, FGV has to realise its full potential.
“We have to do more with the land. We cannot depend solely on earnings from crude palm oil (CPO) sales and remain helpless in the face of price fluctuations,” Azhar said.
FGV has a total landbank of 439,725 hectares (ha). About 351,000 ha is leased from Federal Land Development Authority (Felda), or Felda under a Land Lease Agreement (LLA).
FGV has committed to pay Felda RM248mil a year to lease the land, of which about 291,000 ha is planted with oil palm.
Azhar said if FGV is to mitigate the impact of this annual RM248mil cash outflow, it has “to do more with the land”.
The constant questions he faces daily are, “how can we generate more value from the same assets?” and “How can we do things differently and better?”
Although Azhar made no mention of the anti-palm oil lobby from abroad, the company will have to resolve internal issues as well as international issues.
Palm oil has been the company’s mainstay for decades and will continue to play an important role in the future, Azhar said.
FGV Holdings Bhd has been faced with a slew of challenges since it was listed in 2012.
Ongoing legal actions and forensic investigations into several acquisitions and investments are underway with “expanded scope of investigations”.
In a low CPO price environment, the small holders and third parties who produce two-thirds of the fruits the company processes “suffer more than anyone else”.
Having considered the company from a broad holistic approach, Azhar said while he is disappointed the company did not post a profit, behind the bottomline numbers, it was clear that there are signs of operational improvement.
As of May 2019, fresh fruit bunches (FFB) production was at 1.82 million tonnes, and was on track to meet its annual target of 4.79 mil tonnes.
FFB yield was at 6.35 tonnes per hectare, with the company on track to reach its target yield of 19.43 tonne per hectare, Azhar said.
Cost of production for crude palm oil (CPO) – excluding the mill – stands at RM1,482 per tonne, which is close to its RM1,469 per tonne target.As at May, the company had savings of RM60.7mil, or 40.5% of the savings target of RM150mil, he said.
Comparing Q1 2019 with a year ago, its key metrics ranging from FFB and their yield, CPO production and average CPO cost, excluding mill, have improved and all these are positive signs, he said.
Going forward, there are reviews for the potential disposal of non-core assets and “the board has already made decisions on the best way forward in most areas.”
The necessary announcements will be made at the appropriate time and the company is ‘on track to realise the value of these assets’, he said.
One sale and purchase agreement has already been signed early this month, and other transactions are in “advanced negotiations,” he said.
There are also discussions with JV partners to review the commercial terms of existing agreements, or the potential for divestments, in order to turn around and maximise investment returns.
But there will have to be a “cultural change” from within the company. “There is no room for non-performers and for anyone who cannot, or will not, work for the betterment of FGV,” he said.