Felda Global Ventures Holdings Bhd (FGV) listed on June 28, 2012 with much pomp and ceremony at RM5.30 per share. The euphoria over being the world’s largest listing since Nasdaq’s Facebook that year lasted less than two weeks when shares hit a peak of RM5.50. Now it’s trading at half that price. In the first of a four part series, KiniBiz looks at the politics behind FGV.
Following FGV’s 2014 financial results announced two weeks ago that saw pre-tax profits plunge 47%, the stock dropped even further, continuing on the downward trend it has been on for the past three years.
When asked to answer to shareholders for the massive drop in profits and the fact that the share price has yet to regain any of its listing lustre, FGV CEO Mohd Emir Mavani Abdullah told KiniBiz: “I think the share price is very volatile at the moment because we are a pure plantation company and follow closely crude palm oil (CPO) prices.”
Strange, because while CPO prices have indeed dipped and the sector has suffered, no other big planter has registered such see-sawing in profits as FGV. Since listing in mid-2012, its financial performance could only be described as erratic.
In 2012, pre-tax profit dropped 42% from RM1.9 billion to RM1.1 billion. For 2013, it rose 28% to RM1.5 billion. In 2014, this fell 47% to RM813.2 million. In two years, FGV’s pre-tax profit has fallen 27%.
For Jan 1 to Dec 31 last year, compared to FGV’s 47% pre-tax profits drop, only IOI Corporation lost more at 53%, while fellow large cap planters Sime Darby and Kuala Lumpur Kepong both saw 22% slumps.
FGV has resisted being compared with diversified planters.
Last November, chairman Isa Samad said it was unfair to compare the company’s performance with diversified conglomerates, adding that plantations contribute 70% to FGV’s revenue.
Besides KLK, pure planters like United Plantations meanwhile saw earnings rise 4% and Ta Ann bucked the trend with a jump of 49%. But Ta Ann has a huge timber component in its profits.
How much of this consistent loss in profits is attributable to fluctuating commodity prices, and how much to the legacy issues FGV inherited from Felda and retains as part of Felda Group?
FGV insists it is a corporate animal answerable to shareholders, but has the plantations giant really cut its governmental ties?
It’s not personal, it’s just Isa
Politics were behind its hyped up listing with backing from none other than Prime Minister Najib Razak, and politics remains an integral part of its management structure.
Since 2012, FGV has sought to distinguish itself from Felda and Felda Investment Corporation (FIC), a newly-minted investment vehicle of the Felda Group.
FGV maintains that it is a pure commercial plantations player, basing its decisions towards maximising shareholder value, but take a look at its management structure, and you’ll find many political ties still firmly in place.
FGV shares a chairman with both Felda and FIC in Isa Samad, former Negeri Sembilan long-term menteri besar who remains Umno Teluk Kemang division chief. Yes, the same Isa Samad who was convicted of money politics, stripped of his vice presidency and suspended for three years – from his own party – in 2005.
Felda remains FGV’s largest shareholder with a 34% stake, and in turn, FGV wholly owns Felda Holdings Bhd (FHB) which ‘manages the internal flow of assets across FGV’s business’, according to the FGV website.
Simply put, FHB is the transport, trading and logistics arm of FGV, and you only have one guess as to who is its chairman. Yes, Isa. If FGV truly is a pure commercial entity beholden to its shareholders, chairman Isa being in all these places doesn’t lend much credence.
At the Felda Expo in January, he told Bernama that the authority will aggressively promote products manufactured by FGV and its settlers in an effort to encourage buying of Malaysian-made products.
Referencing Najib’s January address asking government-linked companies (GLCs) to pare down foreign investments to slow down ringgit outflows, he said Felda would follow suit.
Does this extend to FIC, FGV, and FHB? Did Isa remember which chairman’s hat he was wearing?
In the same article, the FGV (et al.) chairman remembered his Umno obligations, expressing confidence in the prime minister to manage Malaysia’s economy.
This reference to Najib belies just one of many links the prime minister has with FGV leadership.
PM’s hand still strong
Recall that Felda was initially under the now-defunct Land and Cooperatives Ministry, but was moved to the Prime Minister’s Office (PMO) in 2004 and is directly answerable to the prime minister.
It has been Najib’s baby and a core Barisan Nasional-voting base, so much so that he announced the FGV listing – seen as a way for settlers to get involved in the global market – in his Budget 2012 speech.
Ex-New Straits Times editor Kadir Jasin’s call for Najib to explain FGV’s plunging share price is not entirely unwarranted, as the prime minister’s hand remains evident in the plantations giant’s board of directors.
Besides Umno strongman Isa, its current CEO Emir Mavani previously spent three years in the PMO, prior to his FGV posting.
In 2010, the oil and gas man was made director in charge of the oil, gas and energy; financial services National Key Economic Areas at the Performance Management and Delivery Unit (Pemandu).
A year later, he was appointed CEO of Malaysia Petroleum Resources Corp, a unit created under the PMO tasked at making Malaysia an oil and gas hub by 2017.
FGV director Omar Salim is a long-time civil servant, having served in the PMO for decades. He is also the current head of the Felda Regulatory Unit, reporting directly to Najib.
Another director Nozirah Bahari has also spent her entire career in government, largely with the Finance Ministry. She retains her deputy secretary-general post there, which Najib heads up as well.
Former Felda overseer under the PMO and current Kota Tinggi MP Noor Ehsanuddin Mohd Harun Narrashid joined the board in July 2013, while Sulaiman Mahbob, who joined last March was previously director-general with the Economic Planning Unit – yes, under the PMO.
In fact, the only board member with substantive plantations experience is Faizoull Ahmad, who doubles up as Felda director-general.
The current CEO, Emir’s appointment two years ago was wrought with controversy due to his allegedly unaccredited PhD, but also largely because Felda settlers objected to his lack of plantations expertise.
Their call for the top two management positions be filled by someone who came up the ranks is not out of place either.
Emir’s compatriots in Kuala Lumpur Kepong, United Plantations, Ta Ann, Sime Darby Plantations, IJM Plantations are all planters with decades of experience in the business.
In July, his contract runs out and to date, there has been no indication whether it will be renewed. Both Emir and his rumoured replacement Ismee Ismail -who is currently CEO of shareholder Tabung Haji – have kept mum on the issue.
Asked if he would be representing FGV at next year’s conference, Mohd Emir said: “Why not?”, and regarding developments on his contract renewal, only added, “Surprise me.”
Ismee’s finance background is a big departure from Emir’s oil and gas experience, but changing its CEO at this stage – when plantations is a long-term sector – may put FGV’s rapid expansion and consolidation plans on hold.
Settlers’ lawsuits abound
It is the settlers’ continued distrust and questioning of FGV management that has dogged the company since its listing.
However commercial FGV may be, the fact remains that one in five of its 19,000 workers are descendants of Felda settlers-smallholders.
The company remains none too aware of its settlers-shareholders, too via the umbrella co-operative of Felda settlers’ co-operatives Koperasi Permodalan Felda Malaysia (5.8% stake in FGV) and other Felda associates.
The company’s 2013 annual report noted that FY13 total dividend payment of RM583.7 million is ‘expected to benefit approximately 50,000 shareholders, including 112,635 Felda settlers who are FGV shareholders via Felda Asset Holdings Company Sdn Bhd.
Last July, it was revealed that FGV’s board of directors had moved to deny dividends to Felda settlers who have taken legal action against the company or have illegally sold their Felda-allocated land to a third party.
These payments – Hari Raya aid and dividends promised to Felda settlers by Najib – were later clarified by Felda to not be from FGV shares held by the settlers but from a special trust fund.
Thus far, seven lawsuits filed by 4,458 Felda settlers across the country are still on going against FGV-linked companies, totalling RM136.2 million for 2008 only, all on alleged fraud and manipulation of the palm oil extraction rate.
In its quarterly report on earnings in the quarter ended Dec 31, 2014 (4Q14), FGV noted these ongoing lawsuits, all filed against Felda and Felda Palm Industries Sdn Bhd, through which FGV owns the most palm oil mills in Malaysia.
It said no provisions were made in the financial statements, as FGV directors are of the view that there is a reasonable chance of defending all the claims, based on available information and legal advices.
The most outspoken of FGV detractors within the settlers’ communities is the National Felda Settlers’ Children’s Association (Anak), who opposed the company’s listing.
Last December, Anak president Mazlan Aliman was quoted by the Malaysian Insider, telling Isa to step down as Felda chairman for the poor performance of FGV’s stock.
The settler lawsuits are only the tip of the iceberg as FGV continues to reconcile its market competitiveness against planter peers and the legacy issues it inherited from the 59-year-old Felda.
In the next part of this issue, KiniBiz looks at the seesawing land lease agreement (LLA) payments and matured lands and aging palm FGV inherited from Felda, and how these have played havoc with the company’s financials since listing.
Tomorrow: Felda legacy, a boon or bane?