Datuk Sabri Ahmad was appointed the group president and CEO of Felda Global Ventures Holdings Sdn Bhd and managing director of Felda Holdings Bhd in July last year. He was then already a Felda board member.

Sabri has spent more than 20 years in the plantation industry, mostly with Golden Hope Plantations Bhd. He was the chairman of the Malaysian Palm Oil Board before his appointment to Felda Global Ventures and Felda Holdings. 

In an interview with The Edge, Sabri talks about his plans for the Felda group’s business entities.

The Edge: In the last four years, Felda’s commercial side has been through a lot of restructuring, with the global business put under Felda Global Ventures and the domestic business under Felda Holdings. What are your plans for Felda from here?
Datuk Sabri Ahmad: You must look at this restructuring in the context of Felda, which has been around for over 50 years. The first phase of the Felda programme was completed and achieved its goal for the first 50 years. If you read the text of the late Tun [Abdul] Razak, Felda at the time was touted as ‘good land for good people’. The first 50 years were very successful; we had successful programmes converting landless rural poor into settler farmers with decent income. In fact, the present income of some Felda settlers is higher than that of the average Malaysian. So, the first part is done.

Now, the restructuring done in 2006 is looking at the next 50 years. How to transform Felda for the next era? That’s why there was restructuring. Your question on Felda Global and Felda Holdings is about organisation structure. There are still areas we can fine-tune in terms of the corporate structure to make it more efficient, to make sure there is a leaner organisation. That part, I think, is always being reviewed.

The business part is already in place ... I think the corporate structure, there are opportunities to fine-tune, to make it more efficient.

What are your plans as the new CEO?
In the last five months I’ve been here, what we did was to have a strategy lab for one month, like Pemandu labs, where all the senior management sat for one month looking at the strategy, the businesses that we should do to the next level of excellence. The lab was from Sept 20 to Oct 15. We came up with 45 initiatives focusing on the upstream, midstream and downstream businesses, and strengthening the corporate centre.

For example, we had programmes on how to increase the yield from the current level of about 19.8 tonnes to about 25 tonnes per hectare per year. In fact, that became my KPI, how to increase the OER (oil extraction rate) from 19.8% to about 23% and to also look at diversifying our income stream. We say that for the group’s KPI, we have to look at 30% revenue, at least, from oleo derivatives other than just commodities.

That translates to doubling profit from the current level of about RM420 million (for Felda Global Ventures) to RM1 billion within five years. So, that is the group’s five-year KPI.

Can you elaborate on some of the 45 initiatives?
In terms of corporate structure, we have now got the transformation management office. So, if you look at the initiatives, first look at the multicrops — oil palm, rubber, sugar. Some 90% of our income comes from oil palm, so [for] oil palm, there are many programmes to increase productivity. One specific example is loose fruit collection, to collect more loose fruit and increase the OER.

What does Felda need to do to increase the OER and FFB (fresh fruit bunches)?
Basically, the challenge in Felda today is that our age profile [of the oil palms] is a bit skewed; more than 47% are above 18 years old, which is a bit on the high side. So the massive replanting is to correct the age profile, which means we won’t see the results in the next three years but beyond the fourth year — the yield will increase significantly once you correct the age profile. On milling efficiency, we also have various projects to undertake.

The key thing in oil palm is to make sure you harvest the right fruit bunches and collect the loose fruit. We are going back to basics to ensure tighter supervision, an incentive scheme for the managers and workers. Of course, with that there is the carrot and the stick. Discipline must be maintained; not that I’m saying there is no discipline, but to tighten further.

In Sahabat, Sabah, (we have) 120,000ha. During this period, when it rains, we cannot use big tractors so we are bringing back the buffalo to help carry the fruits to the road. We are bringing back the cutter-carrier system where the husband harvests and the wife collects; that is quite effective. Buffaloes can be trained not to move if there is still loose fruit on the ground.

It’s also about ensuring good agricultural practices.

Our salary scheme is on the low side compared with other companies, having evolved from a public entity, so we have to have another system of incentives to motivate our managers.

Felda Holdings is a very important company for the group because all the mills are under it. Felda Holdings’ turnover is more than RM11 billion. Felda Global and Felda Holdings do not own the land; we manage it. The land is owned by the Felda authority. So our profit is not from the sales of CPO. It’s from the commission obtained from managing the plantations owned by the Felda authority. We get about 3.5% profit sharing plus RM100 per hectare management fee, and income from the milling operations — 40% from outside crops and 60% from Felda schemes. So, the return per hectare for Felda is not the same as for other companies. 

Of the over 700,000ha, 306,000ha are owned by the Felda authority and managed by Felda Plantations Sdn Bhd. Some 400,000ha are owned by settlers where they sell the fruits to oil mills belonging to Felda Holdings and they get income.

We see Felda as one group. The Felda authority is the government body and the commercial arm is Felda Global and Felda Holdings.

For example, in 2010, returns on the plantation land owned by the Felda authority was about RM1.5 billion so we get 3.5% of that. That’s why when you read in the blog and they say how come Felda is only getting RM3,000 per hectare, you can’t take the PBT and divide it by hectarage. It’s not right.

What is the rate of replanting?
This year alone, we will do 36,633ha — a bit accelerated. Yearly, we do more than 5% replanting because as I said, the age profile of our plants — over 47% of our plants are over 18 years old.

Do you see any problems in the best practices filtering through?
Yes and no. On some of the settlers’ land, we encourage them to replant. In some areas where they have ownership, they may not want to replant, especially if commodity prices are good. Even though it’s a block scheme, you still have to ask permission to replant. We have to work with them. But they have done a lot of replanting there too. So far, settlers have replanted nearly 170,000ha. For the 300,000ha under Felda’s control, it’s okay. Maybe if we do this accelerated replanting over five years, our age profile will be more balanced. What we need in oil palm is 5% immature, 5% old and the rest prime.

Will you be looking at more foreign acquisitions? There have been a few in the past four years. 
If you see Felda’s business segment, upstream is very big, midstream slightly smaller and downstream very little. With the current price of CPO at RM4,000 per tonne, upstream is making good money. The danger is that you’re so complacent in terms of big margins and sometimes to go downstream, the margin is not there. Sometimes, it could be negative margins.

It’s a different ball game. You have to do research, branding and marketing. To do organic growth is slow and difficult. In the past four years, previous management acquired operations. For example, in the US and in other countries, we have joint ventures with the IFFCO group. It’s a very big group based in Dubai. They have a lot of downstream blending items and are very strong in trading.

We have a 50:50 joint venture (with IFFCO) in Felda IFFCO Sdn Bhd. We are now in China, Turkey, Australia, Indonesia (Batam), Cincinnati and South Africa. With that, it is sort of leapfrogging Felda’s presence overseas. The strategy is to go into the refining business but to go further downstream, into margarine, bakery fats, ice cream fats, ingredients rather than just selling RBD palm oil or RBD olein. So far, in the last two years, it has been a start-up company; we’ve been upgrading the investment and capacity, focusing on the current business, which is still refining. The margin is still negative. We are focusing on going further downstream through Felda IFFCO.

Acquisitions — at this stage, we are open. If there are good opportunities, good companies, with good R&D, good branding, we are open to it. But at the same time, we want to remain focused on our core business, which is plantations. We are also expanding in Indonesia and looking at other countries.

Are you satisfied with where Felda is in midstream?
I think there are more opportunities. We should focus on the downstream business, looking at not just commodities but value-added items, not necessarily going into retail business competing with Unilever or Procter and Gamble but looking at ingredient suppliers — bakery fats — custom-made for Unilever, Procter and Gamble — margarine, shortening, ice-cream fats. This requires a lot of R&D. We are also focusing on R&D. Also, Blue Ocean projects involving micro-nutrients from palm oil.

The joint venture with IFFCO has been for two years. It was profitable in the first year, in the second year it was negative margins and in 2010 it just about broke even. Hopefully, this year, when the margins are better, we should be turning around.

But the key thing is this — Felda has 3.5 million tonnes of CPO. We must find a home for the raw material. You cannot afford to say, ‘we will sell to the broker’. You must have your own distribution channels in various countries.

Will Felda Holdings or Felda Global acquire any landbank?
Yes, True Rich is the first phase. We are looking at owning land, possibly in Cambodia and Vietnam. I think there is still some land in Indonesia, either greenfield or brownfield.

Would it be for oil palm, rubber or other crops?
For the time being, no other crop (apart from oil palm). But we are big in sugar; we have 68% of the market. We spent about RM1.5 billion on acquiring the business. This year, God willing, contribution could be about RM300 million. It’s a good investment. But in this business, we are very strong downstream and midstream but have nothing upstream because we are importing raw sugar. So we are looking at joint ventures with parties that are already big in the sugar business, in Brazil, Indonesia or Australia, for upstream.

Here in Malaysia, subsidies and controlled prices are a disadvantage because our sugar price is supported by the government. In Indonesia, the price is equivalent to RM3.50 per kg, here it is about RM2 only. If we go to the open market, I think it’s good business. The challenge is that we have no upstream. We have a small sugar plantation — 5,800ha in Cuping, Perlis. Because of local price controls, the returns on investing in sugar plantations are also low unless the government is willing to support and encourage sugar planting. My personal view is that for food security, the government should have at least 10% of the requirements in the domestic market. Now we are importing 98% of raw sugar from Australia and Brazil.

What challenges do you see in realising the 45 initiatives?
Before that, I want to say, we are focusing on our core business but it also includes reinventing the core business. We see potential new revenue for biomass and we are focusing on green technology, how to convert biomass, empty fruit bunches into energy. We have one joint venture with Tenaga (Nasional Bhd) in Jengka, Pahang, called Felda FTJ. The plant is under construction and should generate 10mw. In Sahabat, a plant is in operation, producing 7.6mw, supplying all the complexes in the area and the local residents, and using entirely empty fruit bunches.

In Sahabat, we intend to have another big one, 30mw, involving new technology which is to turn biomass into bio-oil, pyrolisis. It is a joint-venture project. In the Felda group, the new business is to monetise the by-products apart from using them as compost. There are 70 oil mills in the Felda group and every oil mill produces about 2mw from the pond, from methane gas … so 140mw of energy, which we have to do to make sure our palm oil is sustainable. Otherwise, the methane gas from the palm effluents affects the greenhouse gases. So we hope to do that within five years, to convert gas into energy and biomass into energy.

Are you looking at quite a lot of capital expenditure for this?
Yes, for gas we are looking at about RM8 million to RM10 million per mill to generate 2mw of energy, depending on the technology. So 70 mills, about RM700 million, but these are bankable projects. The banks like these projects because you generate electricity; you can sign with Tenaga for the smart grid and it’s good for the environment. As for biomass, we are targeting all our estates, say, 50% (of EFB) back to the soil as compost, 50% for energy. I don’t have the actual figures but we are looking at a substantial new revenue stream. Unlike the independent millers, we have control of the raw material. The biggest challenge for energy from biomass is the raw material. For the Felda group we have an advantage, we have our own raw material.

Challenges ... first is talent management. My predecessors have established strong foundations in terms of processes and systems. What I need to do is bring this to a higher level. We are bringing in new talent; if we can’t get local, we bring in foreigners. We are beefing up our R&D. So, this will be the strategic thrust for us. We have about five thrusts, we’d like to be a global organisation. This is the 10-year transformation programme we need to do.

We also want to strengthen our logistics. We have bulking storage in Pakistan, Pasir Gudang and Palembang. Bulking and logistics are generating about RM100 million of profit. We have the biggest capacity bulking storage in the country and make up over half the capacity in the country. This will be the enablers of our expansion.

The other (challenge) is that Felda Global is so big; we want to streamline the structure, the companies. We have 88 companies; we want to streamline these so it is more efficient, like shared services, making companies into clusters. Another challenge in terms of Felda is the communications gap. Public perception, like how Felda’s returns are so low, it’s not true. Felda settlers are getting good income but that has not been highlighted. We have the biggest CSR in the country. Yayasan Felda is giving scholarships to the second-generation Felda settlers.

A lot of plantations are facing a labour shortage. Do you have that problem at Felda?
We have nearly 40,000 foreign workers. We are the biggest but we are bringing in the buffalo to help. That’s one way to mechanise. We are doing research to improve the next generation of cantas, so it is more durable and effective, more robust.

What about losses at Twin River Tech (a US-based vegetable oil processor acquired in 2007 fro RM241.4 million)? When do you expect a turnaround?
There are two factories. The new one is in Becancour, Quebec, for crushing canola oil. The commercial operation started only in October last year. So far we are happy with the performance. The factory is going to be scaled up, the crush margin is very good, the management is professional. We are the only one in the Quebec area and we are also using Felda knowledge of agriculture to encourage the Canadian farmers to grow rapeseed in the area. Right now, we are buying from the Midwest but 20,000 farmers are working with us now in planting canola in the area. We have refining there too.

The next stage is to see how we can blend palm oil and canola; you get the best from palm oil and the best from canola. But it’s a start-up company which began commercial operations in October 2010. So far we are happy with the progress. We are also looking at how to strengthen the business model there. We are open to strategic alliances with the big boys there.

The second factory is in Boston, acquired from Procter & Gamble, producing fatty acids. The loss you mentioned was during the 2008 global meltdown. The price of palm oil, from RM4,300 in March 2008, collapsed to RM1,400. And then the banking crisis. So a big part of the losses was because of that situation. In hindsight, of course we could have managed it but this is a very unusual event. Some losses were due to the raw material price. Raw material is crude PK (palm kernel) oil and coconut oil.

Ebitda is positive, that’s all I can tell you. But it’s challenging. It’s a mature business; we have to compete with producers in Malaysia and Indonesia.

Having said that, we have a market. A big portion of that plant is sold to big customers, all the big names — Procter & Gamble, Unilever. If Felda were to go and start a new factory there, it would cost money and to get a customer base is not easy. But I’m not telling you it’s rosy; it’s challenging. But we have managed to reduce the losses.

How do you balance the interests of the various stakeholders — the government, the settlers — to make profit?
The settlers are getting good income. If we can increase productivity, imagine, a 1% increase in OER is additional RM150 million in profit. And we are looking at a 3% increase. We have mills in Jengka already achieving 23%. If you look at the league tables, about 10 Felda mills are above the industry average, better than some of the companies. But being so big, we also have some poor ones like 19%. So the challenge is for us to bring the lower rung into the upper. With this extra profit, I think the settlers’ income will be maintained.

And another thing people don’t realise is that Felda has Koperasi Permodalan Felda and the dividend returns have been an average 13.8% since its inception. So they are getting income from their own plot of land and they also get income if they had put money in Koperasi Felda. Each settler and his children can buy shares. 

Apart from that, there are supplementary activities where they grow vegetables on the land as side income under the Gedung Makanan Negara programme. So our challenge also is how to make the effects spill outside the Felda scheme so that more rakyat can enjoy the benefits. We have to think of strategy. For example, the 70 mills, if we can help bring in the crops of the unorganised smallholders bordering the Felda schemes and assist them in terms of economic practices, then the income of other farmers will improve.

Would you like to comment on claims that Felda is bankrupt?
Actually, a lot has been said ... Felda has a lot of cash and assets. Obviously, it’s not true ...

When people mention Felda, what do you want them to think about five years down the road?
The market leader at least in the agriculture business and creating value, not just commodities. I think the role model is Petronas. The Petronas model is good. We want people to think of Felda as the next Petronas. Can I say that? That’s complimentary, that’s okay (laughs). But our focus, apart from profit is the development of the people.

This article appeared in Corporate, The Edge Malaysia, Issue 842, Jan 24-30, 2011