KUALA LUMPUR: FGV Holdings Bhd saw its operating profit climb by 30.4% to RM102.28mil in the second quarter ended June 30, 2019 but a jump in finance costs pushed its bottomline into the red.
It reported on Wednesday its operating profit had risen from RM78.41mil a year ago. However, fair value changes in the land lease agreement (LLA) liability jumped to RM78.90mil from RM28.23mil, weighing on its profitability.
This saw operating profit after the LLA slump by 53.4% to RM23.38mil from RM50.17mil a year ago. However, finance costs doubled to RM77.56mil from RM37mil and this saw its loss before zakat and taxation at RM56.78mil compared with profit before zakat and taxation of RM876,000. FGV's net losses widened to RM52.19mil from RM23.43mil a year ago.
As for its revenue, there was a 4.6% decline to RM3.28bil compared with RM3.43bil a year ago despite the steep 19% drop in crude palm oil (CPO) price. Loss per share was 1.4 sen compared with 0.6 sen.
Elaborating on the results, FGV said its financial performance was affected mainly by losses in the sugar sector and the fall in CPO price realised for the period under review of RM1,955 per metric tonne, compared to average CPO price of RM2,419 per metric tonne for 2Q2018.
However, the early impacts of the group’s transformation plan resulted in a 15% increase in fresh fruit bunch (FFB) production to 1.15 million MT and a 19% improvement in FFB yield to 4.76 MT/ha compared to the previous year.
“Also, efficiency improvements were evident in increased utilisation factor (UF) of 24% and significantly lower ex-mill cost at RM1,455 per MT,” it said.
For the first half, FGV posted a profit before interest and tax (PBIT) of RM102mil on revenue of RM6.56bil compared with the PBIT of RM146mil on a revenue of RM7.04bil. Net losses widened to RM55.57mil from RM22.30mil.
FGV group CEO Datuk Haris Fadzilah Hassan said FGV’s operational performance has improved significantly, with higher yields and much lower operating costs.
“However, overall performance was affected by a number of factors, chief among which are softer CPO prices and the poor showing in the sugar business. This is the main reason why we are reviewing FGV’s sugar business, because we believe the current structure is suboptimal and does not consider policy shifts or industry trends,” he added.
In the upstream segment, the FFB production of 1.15 million MT was 15% higher than 990,000 MT a year ago.
The 19% FFB yield increase to 4.76 MT/ha compares a 3.97 MT/ha a year ago. Oil extraction rate gropped by 2% due to lower quality FFB processed arising from rainfall after a long dry season, whilst total CPO production increased 21% to 787,000 MT, compared to 652,000 MT previously.
He added that continuous enhancements on operational effectiveness and efficiencies resulted in lower ex-mill costs in Q2, 2019 of RM1,455 per metric tonne, 23% lower than RM1,884 per metric tonne a year ago.
FGV's downstream segment registered a profit before zakat and tax (PBZT) of RM22mil, compared to RM6mil previously.
“This is primarily due to higher sales volume in the oleo chemical business and higher margin in the palm kernel processing business,” it said.
As for the logistics and others sector recorded a PBZT of RM43mil for the period, a significant increase, compared to RM15mil before.
FGV said the better performance was due to 17% increase in transport volume, improved tank utilisation rates by 33%, and a 34% increase in the bulk/storage volume. Additionally, the improved performance is also due to a reversal of impairment of RM20mil.
As for the sugar sector, it was affected by higher finance cost from MSM Sugar Refinery (Johor) Sdn Bhd, the newly commissioned refinery in Tanjung Langsat, as well as lower sales volume and sales price for the period.