Emir: ‘The beauty of FGV is that it is already an integrated player having almost the entire palm oil supply chain.’

14/12/2013 (The Star) - Being a government-linked company (GLC) with political connotations means there is a bull’s eye on the company and its top management at all times.

Most of its corporate moves were closely analysed and criticised. There is no escape especially if the company touches the livelihood of a big group of people seen as a vote bank in politics.

Thus, when Felda Global Ventures Holdings Bhd (FGV) makes a move, it has to thread on eggshells. And now, when the plantation conglomerate is spending cash to grow, the magnifying glass will be brought out to scrutinise every minute detail of a deal.

Case in point was its recent move to buy 100% stake in Pontian United Plantations Bhd for RM1.2bil or RM140 per share in July. Critics say FGV paid too much for the Sabah-based plantation company but FGV group president and chief executive officer Mohd Emir Mavani Abdullah has firmly defended the group’s move.

“FGV see this as a window of opportunity because crude palm oil (CPO) price has come down to RM2,300 per tonne during most part of this year and that is the time you will see a lot of mergers and acquisitions (M&As) going on.

FGV has steadily utilised part of its initial public offering (IPO) proceeds of RM4.5bil for major deals this year. Apart from the Pontian United deal, FGV has invested RM35mil in a100-tonne-per hour biodiesel plant in Pahang, and paid RM44.2mil to buy a 95% stake in two plantation companies with 21,037ha oil palm estates in West Kalimantan.

Buy at a low, sell at a high

Emir maintains that FGV paid a fair value to buy Pontian United. His assertion has been shared by many analysts who track the plantation sector.
Plantation Division In Malaysia, FGV manages about 355,864ha of land leased from the Federal Land Development Authority (FELDA)In Indonesia, FGV owns 42,000ha of palm oil plantations in East and Central Kalimantan via Trurich (a 50-50 joint venture with Lembaga Tabung Haji) and 14,385 hectares of land in West Kalimantan via its 90% subsidiary PT Citra Niaga.The Group acquired another 21,037ha of land in West Kalimantan via PT Temila Agro Abadi and PT Landak Bhakti Palma, which are both 95 percent owned by FGV this year.


FGV is on an aggressive growth mode and plans to push the boundaries of its upstream plantation businesses to the next level of dynamism.

“Just imagine if the CPO price was at RM3,000 per tonne. Which plantation company do you think would want to sell their plantations? There is no way we will get Pontian United for a price tag of RM1.2bil.

“So do we want to lose this opportunity? Obviously not. FGV is happy with the deal.”

FGV appears to have dodged criticism with the Pontian United deal, and is now waiting to close another much anticipated business deal. This time, it involves buying 51% of its associate company Felda Holdings Bhd (FHB) for RM2.2bil cash from Koperasi Permodalan Felda (KPF), a cooperative owned by Felda settlers.

Some quarters expect more fireworks but Emir is prepared for that as he does not foresee any obstacles to conclude FHB deal by the end of this year. “The proposal has received the approval of KPF’s shareholders at their recent AGM, the sales and purchase agreement has been signed and now we are only waiting for the approval from FGV shareholders at the upcoming EGM this Dec 27.”

Emir points out that the entry of FHB as a wholly owned subsidiary of FGV would see the consolidation of palm oil sales and earnings, help reduced the structural complexity of the company as well as allowing FGV to gain control of the processing and logistics business.

According to market analysts, FHB is definitely the jewel in the crown for FGV if the deal is secured.

FHB is currently the world’s largest CPO producer, producing 3.3 million tonnes or 8% of the total world production. It manages 138 Felda Land Development Authority-owned estates, 71 palm oil mills, seven refineries, four kernels crushing plants, nine rubber factories, manufacturing plants and several logistics and bulking installations spread throughout Malaysia and overseas.

FHB to date has 49 subsidiaries, associate companies and joint-venture companies operating in Malaysia and four other countries.

Acquisitions spree continues

While there will be no more major M&As to be concluded for 2013 after the acquisitions of Pontian United, Indonesian plantations and the recent proposed acquisitions of FHB which is subject to the approval of FGV’s shareholders at FGV’s forthcoming EGM by year end, Emir says FGV is hoping to close in on a couple of new deals by first quarter of 2014.

Despite on-going criticism over FGV’s acquisitions spree, he points out that M&As in the upstream plantation ventures will continue to be the group’s mainstay next year.

“Bear in mind that FGV is not only focusing on oil palm but also aggressively looking at rubber and sugar land bank assets in the region for further growth. Our upstream expansion will comprise land bank assets in oil palm, rubber and sugar,” adds Emir.

The group’s future M&As will be both greenfield and brownfield plantation land in Malaysia, Indonesia, Papua New Guinea (PNG), Myanmar, Cambodia and Africa.

For oil palm, FGV’s target will be in Indonesia but Emir says FGV does need to spread its risks to other locations such as PNG, Africa and even Malaysia if there is still plantation land for sale.

The group is also actively looking at buying sugar mills and sugar plantations in Myanmar while Cambodia will ideally be the target destination for FGV’s rubber plantations and mills expansion via smallholders schemes there.

On the downstream side, Emir points out that the group will be looking at improving the efficiencies of its refineries, particularly the oleochemical plant in Boston, the United States, and the canola and soybean crushing plant in Canada.

“We are happy with the results of these two refineries, which have turned around as we have spent quite a bit of time looking into these assets since January this year.”


On the downstream side, FGV will be looking at improving the efficiencies of its refineries.

Meanwhile, to ensure continued sustainable growth of the group’s business empire, Emir says FGV is currently on an aggressive growth mode and plans to push the boundaries of its upstream plantation businesses to the next level of dynamism.

Within the next eight years, FGV is envisaged to be one of the top 10 largest agriculture commodity players in the world, and possibly a global oilseeds trader which will be in the same league as top multinational commodity traders Cargill and Wilmar Group.

“There are very few integrated commodity players in the world. The beauty of FGV is that it is already an integrated player having almost the entire palm oil supply chain from upstream, midstream and downstream activities under its ambit.

“But what is limiting us to become an active international trader right now is that we need to assess our capital strength and human capital capabilities. Just imagine, FGV is already consistently producing CPO at 3.2 million tonnes and fresh fruit bunches (FFB) at 5.1 million tonnes annually – we do possess the mechanism to make this work.

“Therefore, to prepare FGV for this next level of dynamism, there will be an on-going aggressive streamlining of the group’s growth strategy and internal efficiency effectiveness strategy,” explains Emir.

Game plan 2014

Despite plans for expansion and growth, the one sore point for FGV shareholders is that its share price has been below its 2012 IPO price of RM4.55 a share. Of late, its share price has rebounded from the low of RM4.11 to RM4.54 yesterday.

Maybe it’s a perception issue. Or maybe the FGV prospects hasn’t reached everyone but whatever the case, Emir and top management team are going on a roadshow in the first quarter of next year to tell the short and long-term story of the company to major investors worldwide.

“We still have not finalised the overseas destinations but suffice to say it will be in major cities of the world where we can showcase FGV as an attractive long-term plantation investment play. Currently, most of the pension funds locally and overseas are keen to invest with FGV on a long-term basis, but this doesn’t mean that we do not want more hedge funds to come in and invest with us.

“We believe our dividend yields of at least 50% of our net profit will be an attractive selling point. At the end of the day, FGV as a plantation player will need to have a good mix of short and long-term investors to create more liquidity to our stock price,” says Emir when commenting on the current performance of FGV’s share price.

FGV’s strategic focus for 2014 will be three-pronged, namely on operational improvement, high performance and portfolio optimisation. The improvement in operations involves cost management and R&D rollout. These include best management practices, harvesting cycle increase, grading capability enhancement, mill network optimisation and innovation plan, among others.

Improving on high performance focuses on budget discipline such as linking it to KPIs and cost containment and introduction of leading indicators.

“We are also introducing a matrix organisation structure that combines employees in function and product structures, which enables us to move beyond the traditional dotted lines.

“This way we can combine the best of both and leverage on the strengths, as well as make up for the weaknesses, of functional and decentralised forms,” says Emir.


FGV is Malaysia’s largest sugar refiner, producing 920,620 tonnes of refined sugar products or about 57% of the total sugar production in Malaysia.

FGV is also developing strategies for the countries in which it operates namely Myanmar, Indonesia and West Africa as part of its portfolio optimisation.

Another major thrust for FGV to address next year is the cost structure within the group.

“Every single manager from top to bottom has been told to go down to the ground to manage every single value chain in our plantations. This is from the mechanism of replanting, manuring, harvesting, labour and logistics right down to the palm oil mills’ efficiency and the oil extraction rate,” he says.

For FGV to become a top 10 global player within the next eight years, the group will have to be more aggressive and ambitious.

“Therefore, we have set out a clear strategy on what we want to achieve on year-to-year basis,” adds Emir.

Currently, FGV’s average cost of production (COP) ex-mill is still within the Malaysian Palm Oil Board’s range, which is about RM1,500 to RM1,600 per tonne.

“While we do have very efficient mills with COP at RM1,200 to RM1,300 per tonne, there are some of our other mills which recorded lower efficiency rate.”

With 71 palm oil mills nationwide, Emir says: “These mills not only serve our own oil palm plantations but also those that belongs to Felda settlers. FGV also has a strict social obligation to the settlers. That is why FGV will introduce some of its management techniques to further reduce the operational costs within the supply chain.

“I envisage 2014 will be the year where FGV will see major changes in its management style with a lot of efficiency improvement,” Emir concludes.