MARKET DEVELOPMENT
Reinventing Felda Global Ventures
Reinventing Felda Global Ventures
01/08/2016 (The Star) - As the third chief executive officer in four years to take the reins of Felda Global Ventures Holdings Bhd (FGV), Datuk Zakaria Arshad has wasted no time in distinguishing himself from his predecessors.
He seems well-qualified for the task, having spent some three decades within the Federal Land Development Authority or Felda group of companies. The second-generation settler says that his vision for FGV is to prioritise the betterment of the settlers, some of whom have expressed reservations in the past as to how the company is being run.
“I came from the rank and file, so my track record is there for everyone to see. Having grown up among the settlers, I understand the ways and challenges involved that will enable us to be close to the settlers’ community again. So far, their response has been very positive,” he says.
In his first four months as CEO, he has repeatedly advocated a back-to-basics approach and has shunned mergers and acquisitions (M&As) for the time being.
He says that his mission is clear-cut: to take immediate steps to improve the group’s bottom line and improve investor confidence in its shares.
“The number one focus is on improving our plantation yields. We also need to improve the oil extraction rate from our plants and lastly is to contain administrative costs. These are clearly fundamental issues, but now we need to be more focused on the plantation practices. There is so much more that can be done on the upstream side,” he explains.
The root of the problem lies in the old trees, or plants that are 20 years old and above, which currently make up 43% of the group’s total planted land bank of 332,000 ha. The group’s current average tree age profile is 15.8 years.
“We have a massive crop replenishment exercise going on, with 15,000 ha per year of replanted trees over the past few years. By next year, we will be able to extract the fruits from the new trees so you will definitely see it reflected (in FGV’s financials),” he says.
Zakaria had previously laid out an ambitious plan to achieve RM100mil in cost savings by the end of this year. The target is particularly striking since he has just under six months’ time to achieve it.
“It can definitely be done. In the past, we were faced with high due diligence costs arising from M&A activities using outside counsel. Now, we do everything in-house. From that part alone, we can save a substantial amount of money,” he says.
Another core focus for the group now is on the consolidation of its existing assets in a bid to improve utilisation. For example, the group plans to shut down some mills which have become redundant following the improvements in road infrastructure, Zakaria notes.
“This year, we plan to consolidate two out of our 71 palm oil mills, as well as some of our rubber factories. Additionally, sometimes, our raw materials are not enough for two factories. So why not we have just one?” he says.
The group still has a slew of non-core assets to be monetised, including stakes in companies said to be worth hundreds of millions of ringgit.
Beyond M&As and Eagle High
However, there are some exceptions such as FGV’s logistics business, which the group is keen to grow. Zakaria says one of the group’s options is to acquire outside businesses to develop its logistics network, which could potentially extend beyond the agri-commodities segment.
“This is because it is essential for us to be able to control our supply chain. We already have the in-house capabilities and a fleet of 300 trucks, so we will continue with this endeavour,” he says.
One criticism directed at the group previously was its penchant for undertaking big-name acquisitions at the expense of its existing assets and operations.
In one closed-door meeting with the group in the past, a representative of one of the group’s largest institutional shareholders openly questioned the increasing costs and time involved with M&A activities when there were more pressing matters at home.
Zakaria acknowledges that FGV had encountered perception issues in the past, which has directly impacted its share price. Its stock has lost 59% in value since making its high-profile debut on Bursa Malaysia back in June 2012.
“We want to undertake future growth agendas more efficiently and effectively. This includes maximising profitability from our core operations in a sustainable manner and helping to elevate investor confidence in FGV’s shares,” he says.
One of the main talking points throughout the past year is FGV’s involvement in the stake acquisition of Indonesia’s PT Eagle High Plantations Tbk. Zakaria confirms that the deal is now being finalised by other parties.
“As far as Eagle High is concerned, FGV is no longer involved in that discussion. Right now, I would like to reiterate that our focus is not on M&As and all our decisions are made in the best interest of the shareholders,” he says.
Having risen through the ranks at FGV as a downstream specialist, one of his major decisions since taking over is to scrap the proposed acquisition of a 55% stake in Chinese edible oils firm Zhong Ling Nutril-Oil Holdings Ltd in an RM976mil deal.
Zakaria says the group now plans to undertake a joint venture to enter the Chinese edible oils market, which is a more cost-effective option compared to the proposed investment in Zhong Ling.
“The current market volatility requires us to be more prudent and cautious in our business expansion strategy. It is a good asset, but we decided that the money involved would be better put to use towards improving our plantations,” he says.
He seems well-qualified for the task, having spent some three decades within the Federal Land Development Authority or Felda group of companies. The second-generation settler says that his vision for FGV is to prioritise the betterment of the settlers, some of whom have expressed reservations in the past as to how the company is being run.
“I came from the rank and file, so my track record is there for everyone to see. Having grown up among the settlers, I understand the ways and challenges involved that will enable us to be close to the settlers’ community again. So far, their response has been very positive,” he says.
In his first four months as CEO, he has repeatedly advocated a back-to-basics approach and has shunned mergers and acquisitions (M&As) for the time being.
He says that his mission is clear-cut: to take immediate steps to improve the group’s bottom line and improve investor confidence in its shares.
“The number one focus is on improving our plantation yields. We also need to improve the oil extraction rate from our plants and lastly is to contain administrative costs. These are clearly fundamental issues, but now we need to be more focused on the plantation practices. There is so much more that can be done on the upstream side,” he explains.
The root of the problem lies in the old trees, or plants that are 20 years old and above, which currently make up 43% of the group’s total planted land bank of 332,000 ha. The group’s current average tree age profile is 15.8 years.
“We have a massive crop replenishment exercise going on, with 15,000 ha per year of replanted trees over the past few years. By next year, we will be able to extract the fruits from the new trees so you will definitely see it reflected (in FGV’s financials),” he says.
Zakaria had previously laid out an ambitious plan to achieve RM100mil in cost savings by the end of this year. The target is particularly striking since he has just under six months’ time to achieve it.
“It can definitely be done. In the past, we were faced with high due diligence costs arising from M&A activities using outside counsel. Now, we do everything in-house. From that part alone, we can save a substantial amount of money,” he says.
Another core focus for the group now is on the consolidation of its existing assets in a bid to improve utilisation. For example, the group plans to shut down some mills which have become redundant following the improvements in road infrastructure, Zakaria notes.
“This year, we plan to consolidate two out of our 71 palm oil mills, as well as some of our rubber factories. Additionally, sometimes, our raw materials are not enough for two factories. So why not we have just one?” he says.
The group still has a slew of non-core assets to be monetised, including stakes in companies said to be worth hundreds of millions of ringgit.
Beyond M&As and Eagle High
However, there are some exceptions such as FGV’s logistics business, which the group is keen to grow. Zakaria says one of the group’s options is to acquire outside businesses to develop its logistics network, which could potentially extend beyond the agri-commodities segment.
“This is because it is essential for us to be able to control our supply chain. We already have the in-house capabilities and a fleet of 300 trucks, so we will continue with this endeavour,” he says.
One criticism directed at the group previously was its penchant for undertaking big-name acquisitions at the expense of its existing assets and operations.
In one closed-door meeting with the group in the past, a representative of one of the group’s largest institutional shareholders openly questioned the increasing costs and time involved with M&A activities when there were more pressing matters at home.
Zakaria acknowledges that FGV had encountered perception issues in the past, which has directly impacted its share price. Its stock has lost 59% in value since making its high-profile debut on Bursa Malaysia back in June 2012.
“We want to undertake future growth agendas more efficiently and effectively. This includes maximising profitability from our core operations in a sustainable manner and helping to elevate investor confidence in FGV’s shares,” he says.
One of the main talking points throughout the past year is FGV’s involvement in the stake acquisition of Indonesia’s PT Eagle High Plantations Tbk. Zakaria confirms that the deal is now being finalised by other parties.
“As far as Eagle High is concerned, FGV is no longer involved in that discussion. Right now, I would like to reiterate that our focus is not on M&As and all our decisions are made in the best interest of the shareholders,” he says.
Having risen through the ranks at FGV as a downstream specialist, one of his major decisions since taking over is to scrap the proposed acquisition of a 55% stake in Chinese edible oils firm Zhong Ling Nutril-Oil Holdings Ltd in an RM976mil deal.
Zakaria says the group now plans to undertake a joint venture to enter the Chinese edible oils market, which is a more cost-effective option compared to the proposed investment in Zhong Ling.
“The current market volatility requires us to be more prudent and cautious in our business expansion strategy. It is a good asset, but we decided that the money involved would be better put to use towards improving our plantations,” he says.