KUALA LUMPUR: Felcra Bhd, which posted a RM187.12 million loss last year, is expected to narrow its loss this year as the new management plans to restructure the entity, raise its competitiveness and ride on rising oil palm prices.
In a recent interview with the New Straits Times, Felcra chief executive officer Mohd Nazrul Izam Mansor said he was optimistic that Felcra was on track to strengthen its financial position from next year.
Felcra is 99 per cent-owned by the Minister of Finance Inc while the balance stake is held by the Federal Land Commissioner.
Nazrul said the recent rise in palm oil prices to the RM3,000 per tonne level and the ongoing business transformation was helping Felcra to narrow its loss this year.
“If palm oil prices continue to strengthen in the next 12 months, we should be able to post profit in 2020. Our business transformation is expected to bear fruit from 2021 onwards,” he added.
Since the change of government in May last year, Felcra has seen a change of guards, too.
In October last year, the government appointed Nazrul to succeed Datuk Zulkarnain Md Eusope.
Trained as an accountant, Nazrul has had working stints at PwC Malaysia, Padiberas Nasional Bhd and Tradewinds Group, as well as in companies involved in heavy engineering, plantation, electricity and facilities management.
On his appointment to lead Felcra and whether he had to take a drastic pay cut from his previous job, Nazrul said: “I was surprised with this job offer, but after deliberating on it, I realised this is the opportunity for me to give back to the country”.
Established in 1966, the Federal Land Consolidation and Rehabilitation Authority (Felcra) scheme was formed to help smallholders of oil palm, rubber and padi achieve economies of scale and become more competitive via amalgamation and rehabilitation.
With more than 250,000ha of land in Malaysia, Felcra is managing land owned by 110,271 participants nationwide. About 90 per cent of the participants are of the B40 (bottom 40 per cent) income group.
Nazrul said Felcra participants were small landowners who had surrendered control of their smallholdings to Felcra for 25 years. Felcra charges 6.5 per cent estate management fees and one per cent marketing fees out of agricultural produce revenue.
“Felcra is not like Felda, although we are both under the purview of Economic Affairs Ministry.
“Felcra provides end-to-end estate management services and the participants are not involved in the day-to-day operations of the land they own,” said Nazrul.
In April, Economic Affairs Minister Datuk Seri Azmin Ali tabled a White Paper in Parliament and received approval from the government to inject RM6.23 billion into Felda as a rescue package.
Nazrul said Felcra may be facing cash-flow problems due to low palm oil prices, operational inefficiencies and slow recovery of receivables amounting RM2.5 billion from its participants.
Since taking the helm, Nazrul has sought to restructure Felcra, which is saddled with debts incurred by the 110,271 participants who own 220,000ha.
His team is also seeking to maximise potential of Felcra’s 30,000ha landholding. They are working towards better transparency, sustained income and continued fulfilment of social obligations to participants.
Nazrul said operational inefficencies, impairment and adoption of the revised Malaysian Financial Reporting Standards 116 and 141 since January last year had resulted in higher depreciation charges and therefore, exacerbated Felcra’s costs.
“Felcra...has been behaving like a mini-bank extending loans, of which repayments are in the form of oil palm fruits and rubber latex sales,” he said.
This structure worked when prices of the commodities were on the rise, but when prices fell and remained depressed for a long time Felcra had to fund loss-making estates belonging to participants and bear their cost of living loans. This dragged Felcra’s financials into the red.
Last Friday, the third-month benchmark palm oil futures on Bursa Malaysia Derivatives Market gained RM67 to close at RM3,072 per tonne.
In the last two months, palm oil prices have started rising from an average of RM2,200 per tonne to the RM3,000 level.
This welcomed blessing is helping ease planters’ cash flow and pare down their debts.
“The price increase will greatly improve the earnings of our participants. Each RM100 increase would translate to RM50 million in profits.
“We are bullish the price will continue to sustain at buoyant levels, in view of higher biofuel mandates by Malaysia and Indonesia in 2020,” Nazrul added.
In Mayr, it was reported Felcra had plans to issue bonds and sell off non-core assets. With palm oil prices having started to improve, Nazrul said his team was still going ahead with the fundraising plan.
The government has been encouraging oil palm planters to embrace Malaysian Sustainable Palm Oil (MSPO) certification, which is aimed at boosting the crop’s profile in the global market.
On Felcra’s progress in getting MSPO-certified, Nazrul said: “We’ve spent RM4.7 million on this initiative. By the end of this month, all our estates and mills will be 100 per cent MSPO-certified”.
On Felcra’s Semarak20 mixed development project delay, here, Nazrul said: “After extensive deliberation with Felcra board and the government, they have decided to continue with it.
“Semarak20 will see good take-up rates because it is strategically located near the Kuala Lumpur City Centre with direct access to Duta-Ulu Kelang Expressway, Ampang-Kuala Lumpur Elevated Highway, Jalan Ampang and Jalan Tun Razak.
“Site works have just resumed early this month. Barring unforeseen circumstances, Semarak20 should be ready for handover in 2022.”