FGV to make strategic shift to become a major downstream player


FGV Holdings Bhd said although oil palm would continue to play an important role in the company’s future, it is now studying closely the tremendous potential of the downstream cluster, which has more room for growth.

“I am of the view that with the current leadership in place, FGV will be able to make the strategic shift to become a major player in the sector,” chairman Datuk Wira Azhar Abdul Hamid said in a letter to shareholders filed with Bursa Malaysia today.

FGV, he said, would want to take a leaf from other, much bigger and more successful companies which have chosen to focus on downstream activities.

Even in the area of oil palm cultivation, he said FGV is currently reviewing its position.

“We cannot continue to be price takers, always at the mercy of international commodity pricing. Instead, we have to look at how we can create more value with the product we produce in such abundance,” he said.

Additionally, the company cannot solely depend on earnings from crude palm oil (CPO) sales and remain helpless in the face of price fluctuations, he said.

“FGV is fully aware of the plight of the smallholders and third parties who produce two-thirds of the fruits we process. In an environment of low CPO price, these small farmers suffer more than anyone else.”

Hence, Azhar said by year-end, FGV would make key announcements on the way forward.

“I am excited at the prospects and opportunities that lie ahead. We will, of course, tread cautiously, mindful of our mandate to create value for all our shareholders,” he said in the six-page letter.

On operational improvement, Azhar said it was very much on track to achieve all the targets that we set at the beginning of the year, among others, procurement savings of RM150 million for the year.

As of May 2019, he said RM60.7 million or 40.5 per cent of target had been identified for cost savings through cost control and rationalisation exercise.

Other targets are fresh fruit bunches (FFB) production of 4.79 million tonnes (as of May 2019: 1.82 million tonnes) and FFB yield of 19.43 tonnes per ha (6.35 tonnes/ha).

FGV, he said, was also working to reduce the funding for long-term capital expenditure using short-term financing, which would result in more effective capital management.

“We have also put greater emphasis on improving FGV’s working capital through a better collection of trade debts, tighter credit terms and reducing inventory turnover days,” he said.

The plantation company is also taking steps, both commercial and legal, to address some legacy issues, which includes ongoing legal actions and forensic investigations into several acquisitions and investments.

Without going into the details, Azhar said forensic investigations into several other investments were still ongoing due to the expanded scope of investigations.

As for the feedback on changes that have been taking place and human resources planning, Azhar said there were those who welcomed the prospect of change and were anxious to see improvement quickly.

“They are ready to contribute and are eager to step up to the plate. I am pleased that many of these are young people, who will no doubt one day become the kind of leaders FGV will need.”

However, Azhar said on the opposite end of the spectrum, there were also others who are resistant to change, digging their heels in, or trying to “avoid detention.”

“We have had to take a hard line. There is no room for non-performers and for anyone who cannot or will not work for the betterment of FGV,” he stressed.