PETALING JAYA: FGV Holdings Bhd, which hopes announce its new group CEO in the next few days, expects to save at least RM150 million this year from plugging leaks and addressing inefficiencies, said its chairman Datuk Wira Azhar Abdul Hamid.
In a letter to shareholders today, Azhar said operational processes are being improved as part of its transformation plan and the improvements include intensifying crop recovery, cost reduction in estates, implementing mechanisation and enhancements of agricultural practices.
FGV’s new management team is almost fully in place with the appointment of a new group CFO, chief procurement officer, COO of the plantation operations and chief human resource officer.
Azhar said FGV’s fresh fruit bunch (FFB) yield for 2018 is forecasted at 16.9 MT/ha, whereas the industry average for Malaysia is 19 MT/ha. This year, it expects to close the gap with yields at 19.4 MT/ha.
For 2018, the group expects average crude palm oil (CPO) production cost (ex-mill) at RM1,666 per MT and for 2019, it is targeting average CPO production cost at RM1,469 per MT.
“FGV will correct its legacy issues and restore operational integrity. It is estimated that at an average CPO price of RM2,500 per MT, FGV should be able to earn profit before tax of RM1 billion a year. All shareholders, especially Felda will stand to benefit,” he said.
He said in the last few months, one of the startling revelations is the scale of leakages and inefficiencies that have permeated the company. He said FGV may be losing millions of ringgit a year due to inefficient procurement processes.
“Several initiatives are being implemented including a group-wide review of procurement policies and practices. We are also reviewing our capital structure and financing costs. Additionally, the group is looking at rightsizing our manpower requirements,” he added.
On the issue of replanting, he said it is a legacy issue that will be corrected over the next few years. FGV still has about 33,000ha of land with trees that are above 30 years old.
Azhar said the depletion of FGV’s financial resources was evident when it impaired a total of RM788 million in the third quarter of 2018. Moving forward, the group will now decide how best to extract some value from some of its assets and investment.
The group is also rectifying its internal organisational structures to maximise shareholder value and reviewing certain underperforming joint ventures.
In addition, FGV has identified several non-core businesses and assets with an estimated value of RM350 million for disposal. It has also identified several areas for the development of strategic alliances or partnerships to capitalise on its strengths and plug capacity gaps.
Azhar noted that a culture change in FGV is long overdue. He said the group has identified the human resource gaps and priorities, and will put in place a people building programme.
“Over the last 12 months or so, several changes have been made to the board. With the new board in place and several new members of senior management taking over the reins of key portfolios in the company, I am confident that FGV will be able to address the issues and challenges that we are facing,” he said.
