IT is pouring outside Menara FELDA, Platinum Park in downtown Kuala Lumpur. The atmosphere is chaotic as Prime Minister Datuk Seri Najib Razak has just left after attending the agribusiness giant’s Hari Raya open house.

On the 45th floor, Felda Global Ventures Holdings Bhd (FGV) president and CEO Datuk Zakaria Arshad is in high spirits.

In the early part of the interview, he gets a call. He apologises and answers it, but makes it brief. He turns to us and says, “It’s a very important call — it’s my wife. Any other person I would not have answered.”

Zakaria, in this first interview with The Edge, comes across as a warm person and without the airs and graces corporates tend to have. The 56-year-old is, after all, the son of a Federal Land Development Authority (FELDA) settler, something which has worked to his advantage thus far.

The following are excerpts from the interview:

The Edge: How has it been at the helm thus far?

Datuk Zakaria Arshad: The past month has been a journey of discoveries for me. I feel that it is important to understand what we have on our plate before we decide to take action and move forward. It is inevitable that we need to change and be agile to cope with the changes. But all in all, my journey thus far has been challenging, yet interesting and rewarding.

But you’ve been with the group for a long time ...

I’ve been with FELDA for 32 years now. Previously, I was the chief executive officer of companies under FGV and the head of a cluster of downstream businesses, so I was never really looking at the big picture ... previously, I just had to focus on my area and deliver whatever was needed. Now, I have to look at the big picture, I have to look after the interests of the stakeholders and FELDA settlers. That’s the difference between my previous roles at FGV and now.

So, the first thing you are going to do is tackle the plantation business?

Yes. Because I feel we have to improve our plantation business. It is the most important — about 70% of our income is from plantations. I am also looking at the downstream business because it contributes only 20% to 30% to our revenue, so we have to explore more here.

What are you hoping to bring it up to? How many per cent and by when?

Somewhere around 40% to 45% by 2020, that is our target. We are looking at better margin products, products that can add value as well.

Datuk, we’ve been hearing all this for a long time actually ...

This time, it’s different. We will do it. This time, you will see we will do it … that is going to be the difference.

In fact, your statistics are coming down. In 2015, your FFB and OER (oil extraction rate) were down. Is it because of the weather factor or because you are replanting?

Mainly because we are replanting.

What about your targets this year?

My targets are quite high. I don’t take into account [the] El Niño [phenomenon], so my targets are quite high … My OER target is 20.2%. We’ve achieved the target but we didn’t achieve on yield. Our target for yield is 19-odd, but the best we can achieve is 17 or 18 because we have been affected by [the] El Niño [phenomenon] badly in the first half of the year.

You said the worst is behind you … what about CPO prices?

To me, something seems [to be] wrong with the price now. How is it that when the production is low, the price is also low? You know that there is demand for CPO in China. That is why I say the prices will go up, the prices will pick up anytime.

What went wrong at FGV?

Managing an entity such as FGV will not be without challenges. The significant drop in CPO prices to as low as RM1,970 per MT in August 2015, declining demand from our traditional markets coupled with an ample supply of competing products like soybean and rapeseed put much pressure on our core businesses.

Yes, it’s normal that when we look back, we think of what we could have done, and always feel we could have done more. Everyone is an expert in hindsight, but I’m sure my predecessor had FGV’s best interests at heart. Personally, it’s never a question of what went wrong, but what have we learnt from the past?

So, you won’t be actively looking at any M&A? But then again, you made quite a lot of acquisitions from 2012 to 2016. What happened with Zhong Ling Nutril-Oil Holdings Ltd?

Zhong Ling we decided against, but it was purely a business decision. The current market volatility requires us to be more prudent and cautious.

How do you find some of the acquisitions — Pontian United Plantations, Golden Land Bhd? There was a lot of criticism saying the prices were high, especially Asian Plantations.

Maybe at that point in time, it seemed like a good buy. Now after the acquisitions, we can say a lot of things, but to me [what is] more important is the way forward. We have already purchased the assets, so I have to make use of their full potential.

So, what are your goals now?

Now, we need to be competitive with the rest of our peers. Our costs are slightly higher when compared with others’, so I need to check what is wrong. I need to check the administration costs, the management costs. I’m quite confident I can reduce costs.

What about in the estates?

Actually, I have placed very senior people to head the plantations, so we will be more focused. Previously, we had only two zones, in Peninsular Malaysia and Sabah and Sa-

rawak. Now, we have seven zones, so every zone can be managed better.

From what has been written, your problem is old trees, and your cash pile has also dwindled from over RM6 billion to just above RM2.4 billion now.

We are combating this via our replanting programme, both in quantity, 15,000ha per year, and quality. Our preparation is more for the 75,000ha of oil palm trees that will reach maturity in one to three years, and another 75,000ha to 80,000ha of young trees that will mature in the medium term.

It starts with the planting material. Yangambi, which is our famous planting material, is the best in the market. Also, the ability to mechanise and lower our labour requirement on a per ha basis.

Did you achieve the 15,000ha target last year?

Last year, it was lower because of the dry season. We replanted 12,000ha to 13,000ha, so we have to catch up with the replanting programme.

Your cost of production was RM1,824 (per tonne of CPO) in the first quarter of the year. Is it coming down?

Yes, we are reducing the costs now. Our target is RM1,450 as an average for FY2016. I’m not sure if we can achieve the target but we are heading towards that.

Is it true you had some issues with labour?

Actually, we get 30% [of our FFB] from FELDA, 30% from our own plantations and 30% from smallholders. The labour problem was with FELDA’s contractors. It wasn’t really our problem.

That is why we are having problems with RSPO [and] that is why I withdrew the certification, as I want to solve all these problems.

What is the progress like with the RSPO? Do you have a time frame for when you hope to get back into RSPO?

We have had meetings with RSPO. We explained [the situation] to them. Our issue is not really an environmental one, they are social issues … workers issue. So, we have to correct all these and then reapply again. The issue is how to explain things … the communication.

Our time frame is three years. We target to get certification for 15 of our factories (mills) this year, but it’s subject to the RSPO auditors. Sometimes, there is a problem where there are just too many things to audit.

We have 71 factories and this year, we target to get 15 of them audited. Fifty-eight factories are already certified, 15 this year and subsequently … we have a schedule.
 

How big is the area that your contractors are working on?

We have about 400,000ha. I think it would be about 100,000ha.

There were claims that you develop in high carbon value areas. Is that true?

Pontianak, Indonesia, is a very unique area. What happened is that there are large areas which we developed, and small pockets which we did not. The villagers harassed our managers, asking our people to develop the small pockets. They went to the extent of burning our tractors. If we don’t develop their land, they don’t receive any earnings.

We have already asked the RSPO to look into this. But we have stopped the development in Pontianak.

With the withdrawal of RSPO, how has the impact been?

In FGV, we have a very small, very limited clientele from Europe. Maximum, only 1% or 2% of our revenue is from Europe, but what we are doing is for the future.

I’m sure that later on, the RSPO regulations will go to China, India and this part of the world. It may happen three or five years down the road but we need to be prepared.

So, you are not going to raise funds for M&A purposes as acquisitions are on the back burner? Does that mean you may pay out more dividends?

That is our aim actually — to get more profit and to give more dividends to our shareholders.

How do you see FGV in five years’ time?

I think FGV will be back to its glory days. 

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