Fraud in Felda Global Ventures

(The Star) – Felda Global Ventures Holdings Bhd (FGV) has discovered fraud in its 50%-owned unit in Turkey, which has incurred a stock loss of RM57mil. This contributed to FGV’s net loss for its third quarter ended Sept 30 widening to RM94.86mil from RM33.9mil a year ago.

FGV shares plunged 11% at yesterday’s close, while its warrants suffered bigger losses.

“In line with my call for greater transparency and good governance, we will continue our ‘clean-up’ efforts and provide for potential impairments if any, going forward,” chief executive officer Datuk Zakaria Arshad said in a statement.

He assumed the position in March and has set out to improve FGV’s bottomline and save RM100mil in costs by the end of the year.

“We had started reviewing and communicating with management of the said subsidiary that suffered the stock losses in the third quarter. Subsequent to this, potential fraudulent acts were uncovered in the said subsidiary and these acts are currently a subject of forensic audit,” Zakaria said.

He did not identify the subsidiary.

It is believed that the fraud was discovered in the middle of this year and that the matter is now the subject of a forensic investigation.

“The fraud entails the manipulation of stock figures and the forgery of signatures of board members,” a source said, adding that the units involved are Felda-Iffco Sdn Bhd and its unit Felda Iffco Gida Sanayi.

Felda-Iffco is a major supplier of baking fats and is a 50:50 joint venture (JV) with Dubai-based IFFCO International.

The source added, “There were serious discrepancies in the financial report submitted by the company in question. The chief operating officer of the said company had left and FGV was not aware of the problems until after he left.”

According to reports, when the JV was first initiated in 2009, the investment by FGV was RM66mil.

Felda-Iffco had then invested RM60mil to develop its margarine and fats business.

FGV earlier this year had abandoned plans to acquire assets overseas, as it focuses on consolidating its core operations.

Zakaria said yesterday this would mean taking a comprehensive and systematic approach to rationalise its operations.

This may “unfortunately” cause the group to suffer financial impairments or losses in order to address inherent structural and financial issues.

“Nevertheless, I believe there are still tough decisions to be made before the end of this year, as we begin the first phase of our new strategic plan,” he said.

“As I promised in my transition plan, we will not be sentimental about our assets. Where we don’t see a meaningful return, we shall cut our losses. I believe we will come out stronger as a result of these tough decisions,” Zakaria said.

In a related development, it was also reported yesterday that the Federal Land Development Authority or Felda (a related entity under the same group but separate from FGV) lost millions of ringgit due to poor planning and execution of projects.

These include the procurement of the Light Detection and Ranging (LiDAR) data collection services for replanting programmes, the implementation of a broadband project and three other ventures.

The 2015 Auditor-General’s Report (Series 2) said the audit carried out between January and June this year revealed that the planning, implementation, monitoring and management of projects by Felda and its subsidiaries were unsatisfactory, while not meeting the stipulated objectives.

FGV’s shares and its warrants plunged yesterday on very active trading after it reported that losses had widened in its third-quarter financial statements.

The financial results were released prior to market close, while the fraud was made known after the market closed yesterday.

FGV said the losses were due to a higher fair value charge on a land lease agreement of RM105mil compared to RM12mil previously and the unusual stock loss by the Turkish subsidiary.

FGV’s shares closed 20 sen lower to RM1.69, while its warrants FGV-C16 plunged 2.5 sen (27.8%) to 6.5 sen.

FGV-C19 also fell 3.5 sen (33%) to four sen, while FGV-C17 also declined 3.5 sen (36.8%) to six sen.

Revenue for the quarter dropped by 7.1% to RM4.19bil from the RM4.51bil reported last year.

Despite the challenges faced in the third quarter, FGV said it is determined to continue improving its overall performance for 2016.

Zakaria also said that the transition plan revealed in the previous quarter had shown positive outcomes.

“For this quarter, the group’s crude palm oil production recorded an increase of 19% to 783,000 tonnes in tandem with the increase in the fresh fruit bunch (FFB) yield from 3.97 tonnes/ha in the preceding quarter to 4.14 tonnes/ha in the current quarter.

“Our oil extraction rate (OER) also increased to 20.95% in the current quarter compared to 20.40% in the preceding quarter. This strong FFB growth and improvement in the OER is a result of the improvement in FGV’s age profile,” he added.

“We have reduced our administration cost by 4% this quarter compared to the previous quarter and 32% compared to the same quarter last year through several austerity measures implemented throughout the organisation. As a result, we are on track to achieve the target of RM100mil cost savings by end-2016,” Zakaria said.