By Emmanuel Samarathisa
FGV Holdings Bhd believes its investment in loss-making integrated dairy company RedAgri Farm Sdn Bhd will help the oil planter prove its animal feed business.
“We produce about 400,000 metric tonnes (MT) of palm kernel cake (PKC) which we have been selling, just like that, 97% of it. So this is a way for us to prove the business or the proof of the pudding. That is why we are developing our own animal feed,” FGV group CEO Datuk Haris Fadzilah Hassan said in a Feb 28 press conference.
PKC, due to its fat content, is known to be an energy feed for livestock. It also contains about 16% fibre, an essential nutrient for dairy cattle.
FGV acquired a 60% stake in RedAgri for RM10 mil on Feb 14, which marks the planter’s move into dairy farming.
RedAgri owns the Bright Cow range of dairy products and is a “complete company”, according to Haris, with both upstream and downstream expertise.
But RedAgri has had uneven earnings. According to company filings, the company posted a net profit of RM21,742 for the financial year ended Dec 31, 2013. But it registered losses of RM1.85 mil and RM861,252 for 2014 and 2015 respectively.
Haris touted the investment in RedAgri as “small” and justified the acquisition as the dairy company’s target market consists of “premium” customers. “If you go to the shops today and buy their products, they are among the most expensive ones,” he said.
According to government estimates, Malaysia’s self-sufficiency level for fresh milk stood at 61.44% as of 2018.
“So the potential is there. That is why we are developing our own animal feed and this will go into our Bright Cow products. And we are eyeing the animal feed side of the business,” Haris said.
FGV returned to the black with a net profit of RM76 mil for its fourth quarter ended Dec 31, 2019 (4Q19) from a net loss of RM209 mil a year ago.
Revenue, however, declined 2.4% to RM3.15 bil for the quarter under review, compared to RM3.23 bil previously.
As for the full year (FY19), FGV’s net loss narrowed to RM242 mil from RM1.08 bil in the previous year.
Revenue for FY19 came in at RM13.26 bil, a touch lower than RM13.46 bil the previous year, although average crude palm oil price realised for FY19 declined 11% to RM2,021 per MT compared to RM2,282 per MT in FY18.
“This is due to improved full-year CPO ex-mill costs which averaged RM1,503 per MT compared to RM1,800 per MT in FY18,” the company said in a Feb 28 statement.
Moving forward, FGV stressed that while it will remain an oil planter with a focus on efficiency, it is moving into integrated farming which includes the production of PKC-based animal feed and dairy cattle farming.
The company will also be venturing into renewables. The segment, which uses various by-products such as palm kernel shells and empty fresh fruit bunches, achieved a revenue of RM109 mil and a profit before tax of RM42 mil last year.
FGV’s shares closed 5.79% lower at RM1.14 on Feb 28.
