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TABLE OF CONTENTS

1.0 INTRODUCTION.............................................................................................................. 4

2.0 STRATEGY ISSUE OR PROBLEMS............................................................................. 6

2.1 LABOUR SHORTAGE ................................................................................................. 6

2.2 DEBT ............................................................................................................................... 7

2.3 CORRUPTIONS ............................................................................................................ 8

2.4 CORPORATE SOCIAL RESPONSIBILITY (CSR) ............................................... 13

2.4.1 FGV Enhances Sustainability Commitment ....................................................... 13

2.4.2 The Rights and Welfare of the Workers ............................................................. 14

2.4.3 The Rights of Local People and Their Communities ......................................... 14

2.4.4 Open-ended Interview for Young Entrepreneurs FGV Program..................... 14

2.4.5 Tree Planting Programme at FRIM .................................................................... 15

2.4.6 Our Planet : Ethical Business Works Best .......................................................... 15

2.4.7 FGV Donated to Flood Victims ............................................................................ 15

2.4.8 FGV contributes for MERCY Malaysia’s Humanitarian Assistance to

Rohingya Refugees ......................................................................................................... 16

3.0 STRATEGIC AUDIT ...................................................................................................... 17

3.1 INTERNAL FORCES.................................................................................................. 17

3.1.1 Company Background .......................................................................................... 17

3.1.2 Company Industry Characteristic ....................................................................... 19

3.1.3 Vision ...................................................................................................................... 21


3.1.4 Mission .................................................................................................................... 21

3.1.5 Objective ................................................................................................................. 23

3.1.6 Strategies ................................................................................................................ 23

3.1.7 Board of Directors ................................................................................................. 24

3.1.8 Top Management Team ........................................................................................ 26

3.1.9 Organizational Structure ................................................................................ 27

3.1.10 Financial Analysis ................................................................................................ 30

3.2 EXTERNAL FORCES ................................................................................................ 37

3.2.1 Social-cultural ........................................................................................................ 38

3.2.2 Technological ......................................................................................................... 40

3.2.3 Economic ................................................................................................................ 42

3.2.4 E cological ............................................................................................................. 44

3.2.5 Political ................................................................................................................... 46

4.0 THE FIVE FORCES MODEL BY MICHAEL PORTER .......................................... 49

4.1 THREAT OF NEW ENTRANTS ............................................................................... 51

4.2 BARGAINING POWER OF SUPPLIES ................................................................... 54

4.3 BARGAINING POWER OF BUYERS ..................................................................... 56

4.4 THREAT OF SUBSTITUTE PRODUCT.................................................................. 56

4.5 RIVALRY AMONG COMPETING FIRMS ............................................................ 58

5.0 SITUATIONAL ANALYSIS/ STRATEGIC TOOLS .................................................. 62

5.1 SWOT Analysis ............................................................................................................ 62


5.1.1 Strengths ................................................................................................................. 63

5.1.2Weaknesses .............................................................................................................. 68

5.1.3 Opportunities ......................................................................................................... 73

5.1.4 Threats .................................................................................................................... 79

5.2 TOWS Analysis ............................................................................................................ 83

5.2.1 Strengths-Opportunities Strategies...................................................................... 85

5.2.2 Weaknesses-Opportunities Strategies.................................................................. 87

5.2.3 Strengths-Threats Strategies ................................................................................ 88

5.2.4 Weakness-Threats Strategies................................................................................ 89

6.0 BEST STRATEGY OR RECOMMENDATION .......................................................... 90

8.0 BIBLIOGRAPHY ........................................................................................................... 96

9.0 APPENDIX ..................................................................................................................... 104

9.1 Calculation Financial Analysis.................................................................................. 104


1.0 INTRODUCTION

In this assignment, we are assigned to do strategic audit report by selecting a Malaysia’s

company which is operating in food and beverage sector. We decided to choose FGV

Holdings Berhad, (formerly known as Felda Global Ventures Holdings Berhad) is

Malaysia’s leading global agribusiness and is the world’s largest producer of crude palm

oil (CPO) which operates in Malaysia’s food and beverage industry for conducting the

strategic audit. The purpose of conducting this strategic audit is to review FGV Holdings

Berhad’s business plan and their strategies thoroughly in order to determine whether the

company is in good position to execute its strategy. Furthermore, it is conducted with the

intention of analysing how successfully the company is operating and how well it use the

resources to work towards to achieve the company goals over time. A successful strategic

audit is beneficial to the company as it enables a successful development of a company and

keeps the company moving in the right path and direction.

FGV Holdings Berhad is a leading Malaysian-based global agricultural and Agri-

commodities company. With operations worldwide, FGV produces oil palm and rubber

plantation product, soybean and canola products, oleo-chemicals and sugar products. The

company was founded by Datuk Wira Azhar Abdul Hamid. Its origin was founded in 19

December 2007 when the first headquarters was established under the name of FELDA

Global Ventures Holdings Berhad at Kuala Lumpur. Its initial public offering in 2012 was

the third largest in the world and it is the third largest palm oil company in the world by

planted acreage. They have operations in more than 11 countries across Asia, North

America and Europe. It is listed on the Malaysia Stock Exchange Since June 2012, their

focus spans in three core business sectors which are Plantation Sector, Logistic and Support

Business Sector and Sugar Sector. FGV is the world’s largest palm oil producer and oil
palm plantation operator, based on planted hectares. It incorporated in Malaysia as a private

limited company 2007. FGV initially operated as the commercial arm of Federal Land

Development Authority (FELDA). On 28 June 2012, the company was listed on the main

market of Bursa Malaysia Securities Berhad as Felda Ventures Holdings Berhad. As at 31

December 2016, their market capitalisation is RM5.65 billion. With more than 19000

people in the group from their subsidiaries as well as joint-venture companies and

associated. FGV aspire to be one of the top 10 agri-business conglomerate in the world by

2020.

To complete this assignment, we first need to identify the strategic issues or problems

that arise in FGV Holdings Berhad current situation. The strategic issues can be either

derived from internal or external environment of the company. It is very essential for us to

identify what are the current strategic issues of the company, so that we can have a better

understanding on the company business market position and find the best solution to solve

the strategic issues. Then, we will analyse the internal organization or internal forces of

FGV Holdings Berhad. The internal forces that we analyse in this assignment have included

the company’s background, company’s industry, vision, mission, objectives, strategies as

well as organization structure.

Apart from examining FGV Holdings Berhad’s internal forces, we will also analyse its

external environment or external forces that are beyond the company control. In external

environment analysis, we proceed with the environment scanning to study the general

environment and industry environment, with the purpose of understanding the environment

trends and their implications to the company as well as factors and conditions that influence
company’s profitability within the industry. STEEP analysis will be conducted to analyse

the social-cultural, technology, economy, ecology and politic segment of the company’s

general environment. In additions, we also will use Porter’s five forces of competitive

position analysis to study and examine the industry environment of the company.

Last but not least, we will proceed with the situational analysis. We use the strategic

tools such as SWOT and TOWS analysis to propose the best strategy and recommendation

for the management of the company. Perhaps, the strategy that we will recommend may

help FGV Holdings Berhad to enhance its competitive position and future strategic and also

the company financial performance.

2.0 STRATEGY ISSUE OR PROBLEMS

2.1 LABOUR SHORTAGE

FGV Confident Of Resolving Labour Shortage Issue At Its Estates

Felda Global Ventures Holdings Berhad (FGV) is optimistic about overcoming its estates’

labor shortage which could cost RM1 billion in losses to the plantation company. Datuk

Khairil Anuar Aziz which is FGV officer in-charge state that the intensive programme

carried out by it to overcome the shortage at its plantations has seen positive results. The

programme is progressing smoothly and workers from Bangladesh and Indonesia have

begun to arrive in stages this month to cover the current shortage of about 8,000 workers.

They also have hired almost 600 foreign workers and this labor shortage problem is being

addressed immediately within the next few months and this is a top priority for FGV to

ensure optimum production from their plantations. (New Straits Times Business, 2017).
Khairil state that FGV will always ensure every entry process of its foreign workers is in

compliance with both countries’ laws and policies. They are also committed to the

standards set by the Roundtable on Sustainable Palm Oil (RSPO) on the employment hiring

process. FGV operates over 450,000 hectares of plantations across the country including

Sabah and Sarawak. The plantation sector contributes 70 percent towards the main source

of FGV’s income, making it among the world’s major crude palm oil producers. (New

Straits Times Business, 2017).

The effort to strengthen the plantation workforce would positively impact the company and

maximize returns to its shareholders including FELDA settlers. Khairil also state that FGV

is actively conducting research and development for the plantation sector especially in the

areas of mechanization to ease the workload and efficiency of day-to-day operations. Then,

the undertaken by plantation workers is now assisted by mechanical equipment as well as

high technology machineries compared to the past, thus, FGV is also actively promoting

this career opportunity amongst locals. FGV recently was launched a nationwide

recruitment drive to hire plantation workers. (New Straits Times Business, 2017).

2.2 DEBT

MACC investigation into FGV and delayed payment by Afghan, Safitex

The Malaysian Anti-Corruption Commission (MACC) is focussing on six key issues in its

investigations into alleged graft and abuse of power related to crisis-hit Felda Global

Ventures Holdings Bhd (FGV). Deputy chief commissioner(operations) of MAAC, Azam

Baki express the agency would call witnesses soon following the seizure of documents

from the company’s office in Menara Felda in Kuala Lumpur. The MACC confirms that it

has started investigations related to the FGV issue which involves several individuals in
the organisation and its officers are currently in the process of reviewing the documents

that were seized during the raid for evidence. (Free Malaysia Today News, 2017).

Besides, the investigation is focused on six issues involving FGV which will all be

looked into in detail to determine whether there are any elements of corruption and abuse

of power before further action is taken in accordance with the provisions of the law. The

MACC also deployed 40 enforcement officers led by senior officer Nazrul Sazreen to

remove documents in four boxes, three drop bags and some plastic wrappings from the

office. (Free Malaysia Today News, 2017).

On June 2017, FGV president and CEO Zakaria Arshad was asked by the company’s

board of directors to take leave with immediate effect to allow investigations to take place

on the issue of a delayed payment by Afghan company Safitex to FGV subsidiary Delima

Oil Products Sdn Bhd. In a letter to FGV, Zakaria had defended himself against accusations

of wrong doing related to payments involving Safitex. Besides Zakaria, FGV’s chief

financial officer Ahmad Tifli Mohd Talha, Delima Oil Products senior general manager

Kamarzaman Karim and FGV Trading CEO Ahmad Salman Omar were also asked to go

on leave. (Free Malaysia Today News, 2017).

2.3 CORRUPTIONS

Felda Global Ventures Holdings and Felda Investment Corporation in corruption issue

The Felda subsidiary's fiasco started when chief executive officer Datuk Zakaria and three

other top management were forced to go on leave pending an internal inquiry on their
transaction with Afghan company Safitex. MACC's probe into FGV had unraveled

evidence of possible corruption and power abuse on Felda Investment Corporation Sdn

Bhd, FIC's hotel purchases in London and Sarawak. FIC was reported to have bought a

four-star hotel in Kensington, London, for about RM330 million in December 2014, which

to be far above the original price, and alleged to have suffered millions of ringgit in losses

as a result. (New Straits Times, 2017).

As for the purchase of the Kuching hotel, also in 2014, which features 213 guest rooms

and apartment suites, it is alleged that FIC paid between RM40 million and RM50 million

more than the actual market value of the hotel. FGV’s chairman Tan Sri Isa Samad was

arrested on August 2017 to assist investigations on FIC's questionable purchases of the

two luxury hotels. (New Straits Times, 2017).

What really going on in FGV Holdings Berhad

Felda Global Ventures Holdings Bhd (FGV) and most of it is being disseminated by the

Federal Land Development Authority (FELDA), its largest shareholder with a 33.67%

stake. A plantation company official state that a needed for FGV’s to keep stock depressed.

So this is one of bad news and suppressing FGV’s price, besides nobody really knows what

is going on at FGV. On July 2017, FELDA’s plan for Indonesian billionaires Martua

Sitorus and Peter Sondakh to buy into FGV had been suspended. The tycoons were

supposedly in advanced discussions with FGV and FELDA to buy into the former. In

addition, a deal could have boosted FGV’s finances and given it a chance to reverse at least

some of the 70% declines seen in its share price since its IPO in 2012. Indeed, FGV’s
initial public offering in 2012 was done at RM4.55 a share and the stock closed at RM1.70.

(The Edge Markets, Malaysia, 2017).

But the talks with the Indonesians were never confirmed and their buying into FGV

was never a sure thing. So, it seems premature to conclude that the suspension of the deal

impacted FGV adversely. However, The Wall Street Journal quoted FELDA chairman Tan

Sri Shahrir Abdul Samad as saying that “FELDA has no plans to sell its stake in FGV to

anybody”, more or less confirming that the talks with the Indonesians were off. While,

Shahrir had described the feud between FGV’s management and board as a “crisis”, which

does not bode well for the company. Besides, FGV’s board had issued show-cause letters

to president and CEO Datuk Zakaria Arshad and chief financial officer Ahmad Tifli Mohd

Talha, among others, with regard to long outstanding debts owed by Afghan outfit, Safitex

Trading LLC, to Delima Oil Products. (The Edge Markets, Malaysia, 2017).

Then, Zakaria and Ahmad Tifli are understood to have replied to the show-cause letters

and to be waiting for a verdict. The surprising is that domestic enquiry is expected to take

two months. A senior official of a plantation company scoffs at the time frame, but the

evidence and all the relevant investigations should already have been gathered. Its a simple

process now and merely a yes or no process. So, why would it take two months and it

indicates how seriously they want to make right what’s wrong at FGV. Coming back to

FGV, the feud saw chairman Tan Sri Isa Samad leave the company. But this led to the

washing of FGV’s dirty linen in public and much of what came out indicated bad

governance. The dispute between Isa and Zakaria also resulted in the Malaysian Anti-
Corruption Commission coming in and confiscating documents, which further spooked

investors. (The Edge Markets, Malaysia, 2017).

Shahrir has been bashing FGV since he was appointed FELDA chairman but some of

his allegations against FGV are misplaced. In an interview with a business daily in mid-

June 2017, Shahrir talked about FGV buying hotels in London after its IPO but these

acquisitions were undertaken by Felda Investment Corp Sdn Bhd, under FELDA.

Ironically, Shahrir says he just want FGV to get its act right and get it together and that

was not his only blunder. In end-April 2017, Shahrir was quoted by a news portal as saying

that he wanted to end a land leasing arrangement with FGV and take back FELDA’s land

banks. About 335,000ha are leased to FGV for a fixed annual payment of RM250 million

and it is worth noting that 15% of FGV’s annual profit is derived from the leased land

bank. Signed in 2012, the lease is valid for 99 years. (The Edge Markets, Malaysia, 2017).

However, a month later, Shahrir said FELDA had not finalized any decision on the

termination of the land lease agreement. Besides, Shahrir also state that they do not have

a date or timeline that they are working for because they have to refine this issue so that

the benefits can be enjoyed by both FELDA and FGV. Now, a little more than a month

later, all the talk of the land lease termination has subsided. It seems the plan to privatize

FGV was merely an option after Felda Lab (led by Pemandu) analyzed the company’s

business operations and came out with a proposal. But the point is should FGV’s corporate

strategies and proposals being shared with the world. (The Edge Markets, Malaysia, 2017).
Other decisions border on the comical. In a much - publicized move, Datuk Seri Idris

Jala of Pemandu fame was tasked with coming up with a solution for FGV, although in

such cases, most listed companies would discreetly hire an accounting firm to come up

with a solution so as not to shake investor confidence. Shockingly, Jala had a report ready

in just seven days on how to tackle the issues at FGV. Besides, one of market watcher says

that if Jala could have a thorough report ready in one week on a giant company like FGV,

maybe he should run it. The way FGV is being hammered, one would think the rest of

FELDA was in great shape. But all the entities in FELDA’s stable are performing poorly.

(The Edge Markets, Malaysia, 2017).

FIC Properties Sdn Bhd has not had a CEO since March this year since the last one was

investigated for graft. As at end-December 2015, FIC Properties was not generating

revenue. Property developer Encorp Bhd, in which FELDA holds a 70.82% stake, closed

at 75.5 sen last Thursday. FELDA had paid RM1.55 per share or RM306.11 million for

the block in 2014. Then, Encorp was profitable in FY2016, registering a net profit of

RM28.53 million on revenue of RM360.82 million. However, in FY2013, it had registered

a net profit of RM61.13 million on revenue of RM538.71 million. (The Edge Markets,

Malaysia, 2017).

As for IRIS Corp Bhd, FELDA had bought into the company at 26 sen and 28 sen a

piece or for a total of more than RM130 million. The stock is currently trading at 17.5 sen.

FELDA, which now owns 21.33% of IRIS, had sold large blocks of the company’s shares

at below cost. In its financial year ended March 31, 2017, IRIS posted a net loss of

RM318.95 million on revenue of RM422.48 million. Meanwhile, FELDA’s acquisition of


a 37% stake in PT Eagle High Plantations Tbk from the Rajawali group is supposedly a

done deal, which would mean that Peter Sondakh is now flush with cash. But according to

Shahrir, FGV is not for sale. (The Edge Markets, Malaysia, 2017).

2.4 CORPORATE SOCIAL RESPONSIBILITY (CSR)

FGV Holdings Berhad continues to maintain initiative in their Corporate Responsibility

activities. FGV also hold 28% in CSR/ESG Ranking compared with 18553 companies

(Mohamad, 2018). From all the Corporate Social Responsibilities (CSR) that has been done

by FGV Holdings Berhad, the benefits that can be seen is that FGV is committed to the

principles of sustainable development and continuous improvements. They will continue

to engage all their stakeholders in an open and transparent manner to bring the greatest

benefit to their stakeholders, which includes civil society organizations, their original

FELDA settlers and their dependent families, impoverished rural communities, our

customers and the environment that sustain them. The example of the CSR that has been

done as follow:

2.4.1 FGV Enhances Sustainability Commitment

FGV Group President and Chief Executive Officer, Dato’ Zakaria Arshad said FGV

takes the Group’s sustainability efforts seriously to fulfil the needs of all stakeholders

– the environment, workers, businesses and the local community. The improvements

made such as no deforestation, no peat and no exploitation (NDPE) Policy. FGV also

adopted the High-Carbon Stock Approach (HCSA) in current areas of potential

development. It takes into consideration both environmental and social aspects in

determining suitable areas for new development.


2.4.2 The Rights and Welfare of the Workers

FGV is a responsible company that upholds the rights and welfare of its workers. FGV

is constructing safety deposit boxes in easily accessible locations in every state

operation across the group. FGV has also implemented a grievance mechanism

procedure that ensures all complaints will be acted upon promptly. Furthermore, to

reinforce their strong commitment to their workers’ well-being, they are finalising their

Social Compliance and Human Rights (SCHR) policies that will expand upon their

commitments to human rights, foreign guest workers recruitment processes and

grievance redress.

2.4.3 The Rights of Local People and Their Communities

FGV is establishing a transparent and independent multi-stakeholder engagement

mechanism that will include local communities and members of civil society groups, to

offer local communities a platform to raise their concerns in an open forum. Through

this mechanism, it is hoped that those without a voice will be able to speak out about

the impact of their decisions on them.

2.4.4 Open-ended Interview for Young Entrepreneurs FGV Program

FGV Holdings Berhad hold open-ended interview sessions for Young Entrepreneurs

Program aimed at producing young entrepreneurs who will be involved in the plantation

industry and become vendors to FGV in the future. They also open job opportunities to

the community to help them generate income while preserving their welfare. From this

program, FGV has born 49 young entrepreneurs of the industry.


2.4.5 Tree Planting Programme at FRIM

About 100 FGV staff including 30 children hiked into FRIM forest to plant saplings

such as Cengal, Meranti, Merbau and Balau whilst enjoying the flora and fauna and

also learning about the origins and different species along the way. This programme

demonstrates FGV’s commitment to sustainable practices, not only at our plantations.

Besides, they also want to instill the attentive nature of the environment by creating a

green and healthy environment.

2.4.6 Our Planet : Ethical Business Works Best

FELDA and FGV take environmental crime seriously. They putting in extra effort to

ensure they comply with all relevant laws and regulations. They take every step to

ensure that land is not cultivated at the expense of local communities or the environment

through obtaining approvals from the Land Department of Agriculture to ensure soil

suitability and from the Department of Forestry and Geology to ensure no sensitive area

is touched.

2.4.7 FGV Donated to Flood Victims

Group President and Chief Executive Office of FGV visited families that affected in

floods in Kampung Badok, Pahang. FGV has mobilized its support personnel and assets

to provide on-site assistance to all affected communities and to ease their burden.
2.4.8 FGV contributes for MERCY Malaysia’s Humanitarian Assistance to

Rohingya Refugees

In response to tragic reports on Rohingya refugees, FGV has made a contribution to

support the on-going aid operations efforts through MERCY Malaysia. MERCY

Malaysia, a non-profit organization focusing on providing medical relief, sustainable

health-related development and risk reduction activities for vulnerable communities in

both crisis and non-crisis situations, has begun providing relief aid to the Rohingya and

Bangladeshi refugees in the Belantik Immigration Depot, Kedah.

FGV Holdings Berhad is making a great effort in enhancing the socioeconomic

benefits and creating a positive social impact via the voluntary contributions in form of

cash donations, sponsorship and contributing energy in raising self-awareness. The

company also strives to enhance the lives of the communities via Corporate Social

Responsibility (CSR) initiatives. These initiatives include all the programs that have

been done. In order to achieve the company mission, the company has to implement a

community based on CSR, which indicates that business work with other organizations

to improve the quality of life of the people in the local community. Based on the CSR

program, the company is able to maintain a long term future for its business due to the

increased number in amount of satisfied customers which lead to more and higher

business opportunities.
3.0 STRATEGIC AUDIT

3.1 INTERNAL FORCES

Nowadays, has many factors that taken place in the operation of running business that give

impact to the organization in internally. That need the managers take proactive action in order

to address the problems. However, in business perspective, the internal environment of an

organization usually refers to events, factors, people, systems, structures, and conditions inside

the organization that are generally under the control of the company. That is will effect to the

organizational activities, decision and attitude of employees (Sherri Hartzell, 2018)

3.1.1 Company Background

Federal Global Ventures Holdings Berhad that normally known as FGV is one of the

global agriculture and agricultural commodity company of Malaysia and is a wholly-owned

subsidiary of the Federal Land Development Authority (FELDA) on 19 December 2007 to

operate as the commercial arm of FELDA for overseas investments in upstream and

downstream palm oil businesses as well as other agribusinesses. Besides, FGV also is a

world largest in produce of crude palm oil in the world that operations are more than 11

countries across Asia, North America and Europe.

As the world’s third largest palm oil operator, FGV operates 135 estates covering

343,521 hectares of oil palm plantation estates mainly in Malaysia. It also owns significant

interest in Felda Holdings Bhd which is the world’s largest producer of palm oil, producing

3.3 million tonnes of Crude Palm Oil (CPO) in 2011. Felda Holdings, in turn, has 44

companies mainly based in Malaysia involved in the whole supply chain of palm oil

activities such as CPO production, replanting activities, palm oil refining & fractionation,

kernel oil production, estate management, research & development, cattle rearing,
marketing & palm oil trading, production and distribution of packed products & cooking

oils and liquid & dry bulk storage. It owns 71 palm oil mills, seven refineries, four kernel

crushing plants, 13 rubber factories, seven bulking installations, manufacturing plants and

several logistic installations.

Through its listed subsidiary, MSM Malaysia Holdings Berhad, FGV is also the largest

refined sugar producer in Malaysia. It produces 57 percent of the country’s refined sugar

products. As a company aspiring to be a globally integrated, diversified multi-national

corporation, FGV is also committed to all three principles of sustainability which is profits,

planet and people. It is pursuing an aggressive, strategic reform and expansion programed

to ensure the vitality of its business. This stood at RM7.47 billion revenues and RM1.37

billion pre-tax profit in fiscal 2011.

An active member of the Roundtable on Sustainable Palm Oil (RSPO) since 2004, FGV

has a time-bound plan to achieve certification for all its mill complexes by 2017. Most

notably, it was the first in the world to attain RSPO certification involving small holder

estates and the first company outside Europe to achieve International Sustainability and

Carbon Certification. In addition, it is at the forefront of renewable energy projects using

oil palm biomass. FGV’s ‘green’ power plant in Sabah is the world’s first utilizing 100

percent oil palm Empty Fruit Bunches (EFB). FGV provides employment to some 23,000

employees, 20 percent of whom are descendants of FELDA settlers-smallholders.

In addition, FGV’s dividend payments seed a trust fund which supports the continued

well-being of the 112,635 settlers. It also contributes yearly to Yayasan FELDA which runs
various health and education programs as well as other philanthropic activities. On 28 June

2012, the company was listed in the main market of Bursa Malaysia Securities Berhad and

during this year FGV also one of the company are listed in the third higher IPO in the world.

3.1.2 Company Industry Characteristic

Federal Global Venture Holding Berhad is operates in agriculture industry, which is a

wholly-owned subsidiary of Felda and highly regulated industry in Malaysia. On 1970,

agriculture industry was the basis of Malaysia economics. The agriculture has two types

which is plantation and food production. Both of this types that has different performance,

where in the plantation sector that give positive sign which the value of palm oil export

(The Edge Market, 2018). Palm oil in Malaysia is the second largest palm oil producing in

the world after Indonesia. According to Abishek Jha (2018), the palm oil factories and

supplier in Malaysia produce around 16.5 million tons of palm oil annually and 2 million

tons palm kernel oil every year to feature in the best list of palm oil companies in Malaysia.

In Malaysia, the company that involve with agriculture of plantation there has six

largest competition of the company. Most of this companies involve to product produces

oil palm and rubber plantation products, soybean and canola products, oleochemicals and

sugar products. In addition, most of the product that there is produce is high demand. Since

that, the companies should compete each other to ensure demand for their product is higher

whether domestic or export. Since that, Malaysia’s palm oil–derived export almost 75

percent in the form of the crude palm oil with products such as oleochemicals, palm kernel

cake, palm kernel oil, and biodiesel making up far smaller percentages (May, 2012).
In order to archive goal to transform Malaysia into a develop nation by 2020, the

government has identified the palm oil industry as 1 of the 12 national key economic areas

to spearhead its economic transformation program. The growth strategy for the palm oil

industry is not to increase the acreage being planted with palm oil, but rather to increase

production to 6 metric tons per hectare per year (National Academic Press, 2018).

According to Trading Economics (2018), the GDP of agriculture in Malaysia decreased

from RM 22,406 million in the first quarter to RM 21,948 million in the second quarter of

2018. Besides, the average of GDP in the year 2010 until 2018 is RM 22626.44 million,

it’s reaching an all-time high of RM 26690 million in the third quarter of 2015 and a record

low of RM 19362 million in the first quarter of 2011. However, the global palm oil

production is expected to rise by 5% to 68.70 million in 2018, while the consumption is

expected to increase by 3%.

The challenges faced by this sector are generally attributed to three factors. The first

factor is labor shortage that resulted in the increase of idle agriculture land. This sector is

dependent on foreign labor. The second factor is the increase of production cost. This factor

is contributed by the increase of wages, the price of agricultural inputs and capital cost. The

final factor that is attributed to low productivity and quality of the agricultural produce.

This sector needs sustainable transformation programs, and this is formulated in the

National Agricultural Policies.


3.1.3 Vision

 To be among the World’s Leading, Integrated and Sustainable Agribusiness that

Deliver Value to Customers and Stakeholders especially the Smallholders. With the

strong vision that build by FGV Holding Berhad will make the company produce

their product that has higher quality in order to gain customers value in long term

periods.

3.1.4 Mission

 The mission of FGV Holding is become a global leader through creating value in

human capital, championing locally invested culture, building an integrated value

chain advantage and cultivating diversification in commodities and geography. The

mission that create will lead FGV to achieve the vision of the company where all of

employees and employers will take this as a guidebook to create good environment,

financial and management.

i. Creating value through human capital

In other to getting the brightest and best people to work for FGV, the recruit and

retain these people need the best environment and management to encourage

innovation, communication, collaboration and commitment. The human capital

is the absolute key to company future, and look to create real tangible value by

the organization superior effort and input, always striving to go way beyond the

concept of “doing the job” with enjoying what their do and the benefits that can

achieve from it. Besides, committing to a long term mutually supportive

relationship.
ii. Championing our locally invested culture

The business operation either home or abroad, the organization always take as

important and responsible in order to force for good in the local society and

economy. Their put down roots for the long term and seek out the best

opportunities to invest – financially as a business, personally as committed

individuals and members of the community and emotionally as human beings.

iii. Building an integrated value chain advantage

The core business strength stems from their historic approach to building an

integrated value chain where they make the most efficient and effective

connections between every aspect of the business, capabilities and people. By

managing each stage of the value chain they ensure sustainably sourced product

quality and volume, optimize total margin and offer to clients the product

specification and innovation that meets their individual requirements.

iv. Cultivating diversification in commodities and geography

Palm oil is business heritage and will always remain their ‘flagship’ product but

future investments will also target for growing rubber and sugar businesses.

Other agricultural commodities where their do not have a major presence today

also offer significant future opportunities as do the rapidly developing,

profitable, downstream areas such as oleochemicals and specialty fats. While

demand for products is already international, the market for cultivation,

processing and trading of agricultural commodities requires the organization to

be ever more physically present globally.


3.1.5 Objective

FGV Holding Berhad’s objective to maximizing effectiveness in responding to

developments in the operating environment and minimizing the environmental impact of

operations. In order to minimizing environment impact, FGV Holding Berhad take action

along the value chain include suppliers, vendors and other associated entities. Other that,

FGV also build the one group that know as environment initiative in other to managing

potential of environment risk in the operations.

3.1.6 Strategies

The strategic that used by FGV Holding Berhad is based on the SP20 that consist four

strategies which is:

Operational Excellence

 4.85 million MT of FFB production and average CPO production cost of RM1,562 per

MT

 Workers’ retention programme by building 527 blocks of new housing to

accommodate 14,000 workers

 Replanting target of 5-6% (~15,000 Ha) of our total mature area to improve age profile

 Enhance mechanization in the areas of harvesting and in-field collection to improve

labor productivity

 Consolidate the Palm Kernel Shell business for the export market and improve the shell

recovery rate to 1.20%

 28 mills to be ready for RSPO certification

 Rationalize two mills to increase mills’ utilization factor and reduce processing costs
Moving Down Value Chain

 Increase number of key wholesalers (KWS) for cooking oil by 20% from the current

base of 200 KWS nationwide

 Develop higher yielding and quality oil palm seeds

 Obtain kosher certification through koshered fractionation system in the US

oleochemical plant

Growth Through Portfolio Balancing

 Opportunistic value accretive landbank expansion

 Synergistic strategic alliances in key consumption countries

 Commence operation of Johor sugar refinery by mid-2018 and increase sugar refining

volume by more than 0.30 million

 Grow logistics and support businesses’ capabilities to generate external opportunities

Optimize Financial and Human Capital

 Divestment of non-core and non-performing assets/investments

 Manpower optimization and talent development

 Enhance terms of existing joint venture agreements

 Manage perception through engaging with Stakeholders

3.1.7 Board of Directors

The Board is collectively responsible for the overall conduct of FGV Group’s business

and takes full responsibility for the performance of the company and the group. The headed

of the board directors of FGV Holding Berhad’s is Datuk Wira Azhar Abdul Hamid, who
is the Chairman and Chief Executive Officer (CEO) of the company. The main

responsibility and role is presidents over meetings of directors and ensure smooth

functioning of the Board in the interest of good corporate governance. Besides, he plays a

pivoted role in ensuring that matters that have been delegated to management are efficiently

governance. He is assisted by 11 board members that has broad knowledge, experience and

skills. That is the current members of Board of Directors FVG Holding Berhad’s:

Table 3.1: Board of Directors FGV Holdings Berhad’s

Name Tittle

Encik Mohd Hassan Bin Ahmad Non-Independent Non-Executive Director

Dato' Dr Othman Bin Omar Non-Independent Non-Executive Director

Dr. Mohamed Nazeeb P. Alithambi Independent Non-Executive Director

Datuk Dr. Salmiah Ahmad Independent Non-Executive Director

Datin Hoi Lai Ping Independent Non-Executive Director

Dato' Yusli Bin Mohamed Yusoff Senior Independent Non-Executive Director

Dato’ Yahaya Abd Jabar Independent Non-Executive Director

Dr. Nesadurai Kalanithi Independent Non-Executive Director

Datuk Mohd Anwar Yahya Independent Non-Executive Director

Dato' Mohamed Suffian Awang Independent Non-Executive Director

In conclusion, based on the table above the structure of board directors FGV is good structure.

Firstly, it is because all of the board has the various experiences in the work and qualification

to hold this position. Next, in the list of the board of directors we can clearly see that three race
involve in the organization. In other words, all of the board members not has racism and

discrimination against the nation.

3.1.8 Top Management Team

The Chief of Operating of FGV Holding Berhad’s by three persons of every

sector which is for plantation sector is appointed by Syed Mahdhar Syed Hussain, while

Azman Ahmad is Chief Operating Officer for logistics & support business sector and

for the sugar sector by Dato’ Khairil Anuar Aziz. The table above shows the top

management that related with organization.

Name Tittle

Syed Mahdhar Syed Hussain Chief Operating Officer of the Plantation Sector & Head of

Palm Upstream Cluster

Azman Ahmad Chief Operating Officer of Logistics & Support Business

Sector (LSB) & Acting Chief Procurement Officer

Dato’ Khairil Anuar Aziz Chief Operating Officer of Sugar Sector and Executive

Director of MSM Malaysia Holdings Berhad

Fakhrunniam Othman Chief Investment Officer

Aznur Kama Azmir Acting Group Chief Financial Officer (Acting GCFO) &

Head of Group Finance Division

Ida Suryati Datuk Ab. Rahim Chief Counsel

Zalily Mohamed Zaman Khan Chief Internal Auditor

Koo Shuang Yen Company Secretary

Table 3.2: Top Management Team FVG Holding Berhad’s


3.1.9 Organizational Structure
The type of organizational structure for FGV Holding Berhad is strategic business unit

(SBUs) and related diversification. A strategic business unit also known as a fully-functional

unit of a business that has its own vision and direction. Usually, a strategic business unit operates

as a separate unit, but it is also an important part of the company (The Economic Times, 2018).

Besides, company also used related diversification provides more synergistic benefits, it also

creates greater coordination costs than unrelated diversification. Interdependencies in production

processes contribute to both synergies and coordination costs. With increasing interdependencies,

coordination costs may rise faster than potential synergies and set limits to the related

diversification strategy (Yue Maggie Zhau, 2007)

FGV Holding Berhad wholly-owned subsidiaries are including Felda Global Venture

Plantations Sdn Bhd, Felda Global Venture Downstrean Sdn Bhd, Felda Global Venture Sugar

Sdn Bhd and other business. Besides, the organization structure also shows that has eleven

associate company such as Felda Holding Bhd, Felda Technoplant Sdn Bhd and others. Based on

the organizational structure, FGV Holding Berhad is able to manufacturing their product in the

high quality product to fulfill their demand towards products that there are produce whether for

domestic and exports markets. Besides, with the own logistics that them has to carry out them

product it will makes the business activities are run smoothly.

Hence, we can conclude that FGV Holding Berhad type of organizational structure is

relevant with its current business operation. The strategies unit allow FGV Holding Berhad to

concentrate on the target audience and provide cost leadership to the company.
3.1.10 Financial Analysis

Financial analysis is a vital part of the company analysis. It enables investors,

stakeholders and the management of the company to evaluate the financial condition and

operating results of the company as well as to compare those results to historical data. With

the adoption of financial ratio, we will have a better understanding on the Federal Global

Venture Holding Berhad financial ratio in terms of liquidity, leverage, profitability, asset

management and common stock ratio. The calculation of the financial ratio is attached in

Appendix 1.

i. Liquidity Ratio

Liquidity Ratio
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2015 2016 2017

Current Ratio Quick Ratio

Figure 3.1: Liquidity Ratio


Liquidity Ratio 2015 2016 2017

Current Ratio 1.38 1.17 1.11

Quick Ratio 0.98 0.81 0.75

Table 3.3: Liquidity Ratio

Based on the graph and table above, we can see that the FGV Holding Berhad is poor

performance in terms of liquidity. It is because liquidity ratio for current and quick ratio indicates

a decrease from 2015 until 2017. However, for the current ratio even that is slightly decrease, it is

still in the good ratio because the current ratio that is above than 1 times is considered good. Even

thought, FGV Holding Berhad should take actions to ensure liquidity in term of current asset

became increasing for the following year. It is because the current ratio is measure the ability of

company to pay its current liabilities from its current assets. While, quick ratio there has been a

consecutive decline of three years from 0.98 times to 0.75 times and it also below than 1. This

means the FGV Holding Berhad cannot meet its short term debt obligations without selling their

inventory. Besides, if see both of liquidity ratio for the past three years, the company does not have

enough liquidity and the company also may face with solvency problems.
ii. Leverage Ratio

Gearing Ratio
50.00%
49.50%
49.00%
48.50%
48.00%
47.50%
2015 2016 2017

Gearing Ratio

Figure 3.2: Leverage Ratio

Leverage Ratio 2015 2016 2017

Gearing Ratio 48.30% 49.06% 49.51%

Table 3.4: Leverage Ratio

Leverage ratio is used in other to evaluate company debt levels. Based on the gearing ratio,

that shows FGV Holding Berhad is not good leverage ratio. It is because the gearing ratio are

keep increasing from 48.30% on 2015 to 49.51% on 2017. That is also the company involved with

high financial risk due used or make more financing in running their business. According to FGV

Holding Berhad Annual Report 2017, net debt is slightly increase from RM 5,443 709 in 2015 to

RM 5,497,704 in 2017. Since that, that is carrying a bigger burden in the sense that principal and

interest payments take a significant amount of the company's cash flows and a hiccup in financial

performance or a rise in interest rates could result in default.


iii. Profitability Ratio

Profitability Ratio
5.00%

4.00%

3.00%

2.00%

1.00%

0.00%
2015 2016 2017

Profit Margin ROA ROE

Figure 3.3: Profitability Ratio\

Profitability Ratio 2015 2016 2017

Profit Margin 2.36% 0.39% 1.23%

Return on Asset 1.77% 0.32% 1.23%

Return on Equity 4.40% 0.81% 2.65%

Table 3.5: Profitability Ratio

FGV Holding Berhad had poor performance profitability ratio by looking at it profit margin,

ROA and ROE. Based on the table 3.5, the profit margin of FGV Holding Berhad had reduced by

1.13% from 2.36% in 2015 to 1.23% in 2016. It same goes with the return on asset and return on

equity which both of this occur decreased at 0.54% and 1.75%. The decreasing of three ratios in

the profitability ratio is due to decreased amount in net profit after tax RM 367,124,000 in 2015 to

RM 208,046,000 in 2017. However, the company still generated or increase in small amount of
income in year 2017 since that in year 2016 the net profit after tax is RM 66,459,000 to RM

208,046,000. Since that, the company less efficient in utilizing its asset and equity to generate

sufficient income to its shareholders. Besides, FGV Holding Berhad also are not good monitoring

in term of used more money in their expenses. However, according to CEO of FGV Datuk Zakaria

Arshad, say that during the year 2016 the first quarter ended March 2016, FGV slipped into the

red with RM70.35 million in losses, compared with RM72.88 million pre-tax profits a year ago.

The lose that faced by companies during this year due to the lower oil palm fruit harvest at the

estates. Even thought, he said FGV will maintain their policy to paying out half of net profits to

shareholders (Ooi Tee Ching, 2016).

iv. Asset Management Ratio

Total Asset Turnover


0.9

0.85

0.8

0.75

0.7
2015 2016 2017

Total Asset Turnover

Figure 3.4: Total Asset Turnover


Chart Title
60
50
40
30
20
10
0
Inventory Turnover Trade Receivable Turnover

2015 2016 2017

Figure 3.5: Inventory Turnover and Trade Receivable Turnover

Asset Managemant Ratio 2015 2016 2017

Total Asset Turnover 0.75 0.82 0.82

Inventory Turnover (days) 56 days 51 days 52 days

Trade Receivable Turnover (days) 44 days 37 days 30 days

Table 3.6: Asset Management Ratio

FGV Holding Behad poor performance in its asset management turnover. The total asset

turnover of FGV Holding Berhad is increase from 0.75 times in 2014 to 0.82 times in 2016, and

for the following year to 2017 the ratio of total asset turnover is constant at 0.82 times. It shows

that the company is efficient in utilizing its total asset to generate revenues.

The inventory turnover of FGV Holding Berhad was not consistent. However, it is still shows

good performance in term of inventory turnover because days of selling the inventory is reducing

from 56 days in 2015 to 52 days in 2017. According to Investopedia inventory turnover can help
businesses make better decisions on pricing, manufacturing runs, how to leverage promotions to

move excess inventory, and how and when to purchase new inventory.

However, in term of trade receivable turnover of FGV Holding Berhad is performance well in

its ratio. The trade receivable turnover shows decreasing trend for the past three years. If we looked

at graph, we can see that the collection is decrease from 44days in 2015 to 30days in 2017. That

means, the company are efficient in collecting their debt from their credit sales.

v. Common Stock Ratio

EPS
6

0
2015 2016 2017

EPS

Figure 3.6: Common Stock Ratio

Common Stock Ratio 2015 2016 2017

Earnings per share (cent) 5.0 0.9 3.9

Table 3.7: Common Stock Ratio


FGV Holding Berhad is decrease or not consistent in diluted earnings per share by

observing financial performance from year 2015 until 2017. The high EPS showed that the

company has more profitable. In year 2015, the company profit around RM37 million translated

into earning of 5.0 cent for each share of its stock. That means, during this year the company had

more profit to distribute to its shareholder, but that is not consistently increase because for the

following year EPS of the company is decrease to 0.9 cent which the profit only RM 66 million.

3.2 EXTERNAL FORCES

Currently, Malaysia is second in palm oil production after Indonesia with its overall production

accounting for 39% of the global production, while its palm oil exports account for around 44%.

Malaysia is the leading exporter of the palm oil with its primary importing countries being the

European Union, Pakistan, China, the US, and India (Benjamin Elisha Sawe, 19 July 2018). FGV

Holdings Berhad is one of the companies that involve in the production of palm oil in Malaysia.

There are several issues regarding the palm oil industry that have been hardly debate worldwide

for several decades until now which is more the less affect the FGV Holdings Berhad directly or

indirectly. Basically, the external environment is more diverse and complex than the internal

environment. In this section, we will discussing about the external force from the STEEP Analysis

which are sociocultural, technological, economic, ecological and political-legal.


3.2.1 Social-cultural

Malaysian life expectation.

According to the FGV Group President and Chief Executive Officer, Dato Zakaria

Arshad, same as others, currently FGV also faces the labor shortages problem. Based on

the statistic, every year, over 200,000 students graduate from institutions of higher learning

but shockingly, 1 out of 5 graduates remain unemployed, with the majority being Degree

holders and these graduates make up 35% of those who are unemployed (Michelle Leo, 29

June 2018). This is due to the fact that youth especially the graduates are too choosy in

finding job even though, there are many job opportunity in Malaysia (Daily Express, 9

October 2015). This prove that Malaysia’s youth do have high level education but due

to their attitude, most of them are unemployed. If these youth generation are not too choosy

with the job, probably FGV won’t face this kind of problem since based the survey, palm

oil can do a lot to help Sarawak alleviate the pockets of poverty in the state (New Straits

Times, 14 September 2018).

Malaysian living wages.

Palm oil as the driving force for rural Malaysia. Through this industry, the rural

area able to gain the better infrastructure and boost the community economy. As according

to our ex-Minister of Plantation Industries and Commodities, Datuk Seri Mah Siew Keong,

palm oil industry have transform rural Malaysia a lot especially through government

sponsored schemes like FELDA, FELCRA and SALCRA. For instance, Teluk Intan’s
economy relied heavily on palm oil as close to 70% of Teluk Intan’s land mass is planted

with oil palm (The Star Online, 10 September 2018).

Global life style influenced by palm oil product.

Nutella is Europe's favourite breakfast chocolate and hazelnut spread with some

235,000 tonnes produced annually by Italian company Ferrero and in France alone, it is

believed about 100 million jars of Nutella are consumed yearly and Malaysia’s palm oil

production as their largest supplier (The Star Online, 20 November 2012). During 2012,

we have heard a lot about the Nutella tax. Nutella tax is charge on the palm oil since Nutella

is make-up of chocolate, hazelnut and 20% of palm oil for smooth texture and shelf life

purpose. This tax is introduced by France since they believe that palm oil can cause

obesity and cancer to the consumers. This statement is strongly against by the Nutella

maker.

Malaysian life style.

Others than palm oil plantation, FGV is also known as the producer of the basic

food ingredients such as sugar, cooking oil and margarine. Mostly, these ingredients are

used in the local food. As we know, these ingredients will cause the obesity if been

consumed in huge quantity. Malaysia is popular as the food paradise especially for the local

community. According to the New Straits Time (7 June 2017), Malaysia has the dubious

honour of having the highest obesity prevalence in Southeast Asia which the prevalence

of obesity was at 13.3 per cent, while overweight was at 38.5 per cent. There are factors
like Malaysians’ love for food and their strong culture of entertaining guests with food

that contributed to the obesity problem. This scenario might good for FGV business but at

the same time, it do give negative effect toward the nation health quality.

3.2.2 Technological

Government spending on palm oil industry R&D

According to our ex-Minister of Plantation Industries and Commodities, Datuk Seri

Mah Siew Keong, government has allocated RM50 million to make Malaysian palm oil

among the safest and most nutritious oils globally due to the palm oil industry had remained

be as the backbone of Malaysian economy for 100 years during the year of 2017. The new

fund would be given out as matching grants to undertake research and development (R&D)

to improve the safety and quality of Malaysian palm oil and palm oil products as the

country was in the process of increasing productivity and sustainability of palm oil, it was

just as concerned with the environment and these scientific research would focus on

eliminating contaminants in palm oil (The Online Star, 8 March 2017). Thus, Malaysian-

owned palm oil mills and refineries based in Malaysia like FGV can apply for this scheme

to improve their palm oil production quality.

Focus of palm oil industry R&D field

According to Sarawak Chief Minister, Datuk Patinggi Abang Johari Tun Openg,

through research and development (R&D), the palm oil industry can be more productive

since the palm oil industry in the state is one of the leading agro-based industries. Currently,
more than 10 different projects in R&D are being carried out in collaboration between

planters in Sarawak and Malaysian Palm Oil Board (MPOB), the authority on oil palm in

the country which include the studies on pollinating weevils on oil palm fruit set,

biological control agents and chemical insecticides to control bunch moth,

management of termites, investigation into premature frond desiccation, study on

poor fruit set formation and soil studies (Borneo Post Online, 6 October 2017). For

instance, MPOB has conducted a seminar on pests and diseases in 2016 in Sarawak

focusing on issues plaguing the state’s oil palm industry. In future, they plan to have

research on Tirathaba attack and Ganoderma disease in the palm oil estates. Hence, better

understanding of these issue will ensure the industry continue to progress and realise its

potential.

Technology involvement in operation

According to The Edge Malaysia (7 July 2017), FGV wholly-owned subsidiary

Felda Prodata Sdn Bhd and plantation consortium Sinergi Perdana Sdn Bhd have

collaborated to embark on a full private cloud software `ProTruz Cloud’ which could

increase their agility in addressing changing business requirements. Driven by the need to

transform its operations digitally, this implementation is the faster and easier way to access

mission critical applications such as finance, logistics and human capital management

delivered in the cloud as managed services. Financially, it foresees the optimization of cash

flow due to the conversion of capital expenditure to operating expenditure. Hence, by

having this new software, FGV operation management will be more systematic and

organize
3.2.3 Economic

Malaysian unemployment level

According to the FGV Group President and Chief Executive Officer, Dato Zakaria

Arshad, same as others, currently FGV also faces the labour shortages problem. While,

based on the research, the youth unemployment rate in Malaysia was estimated to have

reached 10.8% in 2017, more than three times higher than the national unemployment rate

of 3.4% and from this statistic, it shows that Malaysia have the highest youth

unemployment rate among other Asean countries (The Star Online, 6 August 2018). This

is due to the fact that youth especially the graduates are too choosy in finding job even

though, in fact, there are many job opportunity in Malaysia (Daily Express, 9 October

2015). If these youth generation are not too choosy with the job, probably FGV won’t face

this kind of problem since based the survey, palm oil can do a lot to help Sarawak alleviate

the pockets of poverty in the state (New Straits Times, 14 September 2018).

Currently market - crude palm oil price.

Recently, Malaysia had suspend export taxes on crude palm oil for a three-month

period starting on January 8 and was supposed to end on April 7 but it had expand until

April 30 due to the damp flow in the Malaysia’s crude palm oil, CPO industry.

According to our ex-Minister of Plantation Industries and Commodities, Datuk Seri Mah

Siew Keong, the implementation of this scheme is to reduce CPO stocks and strengthen

the prices since there have sharp monthly decline exports in November and he expected

CPO stockpiles to grow in 2018. Palm shed nearly 20% of its value in 2017, and was last
up 0.9% at RM2,609 yesterday afternoon (The Star Online, 6 January 2018). However, the

export duty exemption could be lifted earlier if the domestic CPO stock falls to below 1.6

million tonnes. Thus, more the less, this scheme have help the Malaysia palm oil production

company like FGV to stay competitive even though during the damp flow.

Currently market - sugar price.

According to the New Straits Times (12 July 2018), sugar is gazetted under the

Price Control and Anti-Profiteering Act 2011 and sugar price in Malaysia is amongst the

cheapest in the world with current ceiling price for coarse grain sugar (Gula Pasir Kasar)

is set at RM2.95 per kg and fine granulated sugar (Gula Pasir Halus) is set at RM3.05 per

kg. Other that palm oil plantation, FGV also involve in the sugar sector. MSM, a subsidiary

of FGV Holdings Bhd and Central Sugars Refinery Sdn Bhd, a unit of Tradewinds (M)

Bhd, are the two major players dominating the domestic sugar market, with MSM

commanding a 58% market share (The Star Online, 23 July 2018) have reaffirmed that

there is no sugar monopoly in Malaysia. These two organization are responsible to

ensure a steady sugar supply to Malaysian consumers while maintaining a decent sugar

stockpile for the nation. Besides that, based on The Star Online (23 July 2018), MSM plans

to enter new markets, African and Chinese markets for the higher margins and venture

into the downstream business this year due to the tough environment in the domestic sugar

market.
3.2.4 E cological

Natural Physical Environmental Causes

FGV Holdings need to make a yield improvement, but due to erratic weather

conditions, it is disrupting the growth of palm oil fruits. In order to settle this problems,

FGV Holdings focus efforts on best practices in the maintenance of FGV’s estates

infrastructure including using innovative irrigation methods to mitigate the impact of

harsh weather. Plus, ageing oil palm profile have affecting the whole palm oil yield. FGV

Holdings come out with the replanting program starting year 2009 and will continue

until the age profiles of their plantations reach an ideal levels.

FGV Holdings Bhd endure by the Environmental Quality Act 1974 and all

applicable local laws and regulations in jurisdictions where FGV Holdings Bhd bans open

burning. During severe dry weather or season, small fires may require inflame in some

regions. To overcome the issues, FGV Holdings Bhd mitigate action plan on fire

management which is the establishment of Emergency Response Teams (ERT),

firefighting training and exercises, fire safety inspections and fire safety awareness

programmes.

Waste Management

FGV Holdings Bhd practice the triple rinsing method in order to properly clean

their agrochemical receptacles prior to sending them for recycling. After a pesticide
container recycling program, which have endorsed by the Department of Environment

(DOE) and the Pesticide Board.

FGV Holdings Bhd have been established Empty Fruit Bunches (EFB) in order to

better utilize the by-products of the milling process and produce a high-quality compost.

The company also give a nutrient-rich organic fertilizer to feed the palms. Furthermore,

FGV Holdings Bhd have converting EFB from a low-value waste to high-value

environmental friendly renewable product.

Reduce Emissions

Majority of the emissions are in the form of biogas, which forms naturally when

Palm Oil Mill Effluent (POME) decomposes in the absence of oxygen. To strengthen

sustainability efforts, FGV Holdings Bhd reduce GHG emission such as methane which

released from palm oil processing activities. The capture of biogas from POME is a priority

for FGV Holdings Bhd to reduce their overall GHG emissions. FGV Holdings Bhd capture

and utilize the methane gas released from their wastewater anaerobic treatment facilities at

their mills. The company have been successfully utilized the captured methane for rural

electrification and as grid-connected electricity supply under their renewable energy

projects.
3.2.5 Political

Foreign trade regulation

Starting from 2017 and onward, Malaysia’s palm oil industry being startled by the

EU Resolution news and its proposal to ban palm oil into Europe. The EU is Malaysia’s

third biggest palm oil customer, and much of it is imported to make biofuels. The farmers

and Felda fear the resolution would be just the first step towards banning palm oil outright

in the EU and surprisingly, Iceland supermarket has already said it will not use palm oil in

its own-brand goods (Petersen Hannah Ellis, 25 April 2018). The two resolutions are about

to impose a single certified sustainable palm oil (CSPO) scheme for Europe-bound palm

oil exports after 2020 and to phase out palm oil from the EU biofuel program by 2020 (The

Star Online, 23 Dec 2017). After that, EU’s plan to phase out biofuel use in transport fuel

by 2030 (The Edge Malaysia, 17 July 2018). Hence, on the plight of Felda’s over 112,000

smallholders likely to be affected by the EU action (The Star Online, 23 December 2017)

as well as the FGV business.

Besides that, before this resolution was being issued by the EU, we had heard a lot

about the “Nutella tax”. This tax was being introduced on 2012 by France, one of the EU

members. During this time, in France, the attacks against palm oil have come in two major

forms; The “Sans Huile de Palme” (palm oil free in French) logos prominently stamped on

many food cartons and the “Nutella tax” which will see a 400% increase in tax imposed on

palm oil (The Star Online, 20 November 2012). Basically, from this “Nutella tax”, France

impose a €300 per tonne tax on palm oil but this tax was abolished on 2016 after strong
protest from the Malaysian and Indonesian governments, the palm oil production countries

(The Edge Malaysia, 20 April 2017).

Labor And Social Compliance

FGV Holdings recruitment practices of foreign guest workers in estates. In order to

avoid any issues regarding foreign employees, FGV Holdings translated their pay slips and

employment contract to their languages such as Bengali, Tamil, Nepal, Tagalog and

Indonesia. Social compliance and human rights action plan initiatives to mitigate foreign

employees issues based on 5 aspects which is forced and bonded labour, employment

contract, unethical recruitment, minimum wages, and health and safety. FGV Holdings

have installed almost 1 750 safety boxes for foreign guest workers passport keeping project

in 10 estates. (Sustainability Report FGV Holdings Berhad, 2016/2017)

The Immigration Act 1959/63 governs the admission into and departure from

Malaysia, entry permits, procedures on arrival in Malaysia, removal from Malaysia,

offenses and special provision for east Malaysia. For immigration rules and regulations,

FGV Holdings need to follow Passport Act 1966 and Immigration (Exemption) Order

1963. (Laws Of Malaysia : Immigration Act 1959/63)


FGV Holdings developing supplier guidelines to foreign guest workers for

responsible business conduct. Hence, FGV Holdings make an enforcement and control

them by doing monthly report.

Environmental Protection Laws

FGV Holdings issued some environment case which is open burning in Ladang

Tawai, Perak. FGV Subsidiary practiced open burning during replanting of rubber estates

and the occurrence of active fires correlates with the clearance of over-nature rubber trees.

This case was a violation towards The Malaysian Environmental Quality Act 127, 1974

and also break the rules and regulations of FGV’s own sustainability.

3.2.5 Ecological

Natural Physical Environmental Causes

FGV Holdings need to make a yield improvement, but due to inconsistent weather

conditions, it is disrupting the growth of palm oil fruits. In order to settle this problems,

FGV Holdings focus efforts on best practices in the maintenance of FGV’s estates

infrastructure including using innovative irrigation methods to mitigate the impact of harsh

weather. (Sustainability Report FGV Holdings Berhad, 2016/2017)


Plus, ageing oil palm profile have affecting the whole palm oil yield. FGV Holdings

come out with the replanting programme starting year 2009 and will continue until the age

profiles of their plantations reach an ideal levels.

4.0 THE FIVE FORCES MODEL BY MICHAEL PORTER

Porter’s five forces of competitive position analysis is developing by Michael Porters as a

simple framework to assess and evaluate competitive and position of a business organization. In

this chapter, this model is used in other to understanding the current competition intensity and

attractiveness of FGV Holding Berhad.

Five Forces Model Level Details

1. Threat of new entrants Low  The palm oil industry is a highly regulated

industry due to the very strict and rigid

government policies. Besides that, the initial

capital to penetrate the industry also high and

very expensive. Hence, when the entry barrier

is high, the threat of new entrants will be low.

 There are several barriers that discourage the

new entrants to penetrate the industry such as

unstable economies of scale, high capital

requirements, high access to distribution


channels and tight government policies and

cost disadvantages independent of size.

2. Bargaining Power Of High  A buyer or a group of buyers is powerful if

Supplies industry is dominated by a few companies, such

FGV Holdings Berhad is the largest company of

palm oil in Malaysia, and its produce unique

products which is different from others and

FGV also has ability to do forward integrate.

3. Bargaining Power Of Low  There may be five different groups of buyers

Buyers which is innovators, adopters, early majority,

late majority and excessive traditionalist.

4. Threat Of Substitute Moderate  The threat of substitute product tend to be

Products moderate because there has several product that

can replace with the same functions to the

customers.

5. Rivalry Among High  Market rivalry tends to be high and more

Competing Firms vigorous because there is high number of

competing firms in plantation and also food and

beverages industry, low product differentiation,

low switching cost, high industry growth rate

and price control on plantation products

Table 4.1: Porter’s Five Forces Analysis


4.1 THREAT OF NEW ENTRANTS

The threat of new entrants for FGV Holdings Berhad is low due to the strict and rigid government

policies since palm oil industry is a highly regulated industry. Basically, to start a palm oil

production company, it need a huge capital which consists of high amount of workers and large

land for the production purpose, large global network since in the local market, people still have

less awareness regarding the palm oil usages, and required a lot of R&G due to the high global

concern toward the industry. There are several barriers that discourage the new entrants to

penetrate the industry such as unstable economies of scale, high capital requirements, high access

to distribution channels, tight government policies and cost disadvantages independent of size.

Hence, when the entry barrier is high, the threat of new entrants will be low.

i. Economies of Scales

The new entrants find it harder to penetrate the market due to the unstable economies of

scales. For instants, when the global market demand is low, the price of the palm oil have to

reduce to increase the demand of global market. This is one of unfavorable factors for most of

the palm oil production because when the price is low, the probability for them to gain high

income during the period is low. Besides that, when the demand is low, they have to reduce

their production and this will lead to human resources management issue. For example, when

the production is low, the firm have to bear high cost and this will affect the palm oil farmers

or Felda’s income indirectly. Hence, this one of the factors that lead the new entrants avoid

from entering the industry.


ii. Capital requirements

Basically, to start a palm oil production company, it need a huge capital. The firm need to

have a lot of worker and land to produce the palm oil, large global network since in the local

market, people still have less awareness regarding the palm oil usages, and required a lot of

R&G due to the high global concern toward the industry. This is the reason why most of FGV’s

competitors are the conglomerate companies such as GAR, Sime Darby Plantation, SOCFIN,

and Genting (Owler Website, 2018) as the FGV is the third largest world’s palm oil production.

Thus, this is one of the unattractive factors for the new entrants from entering the industry.

iii. Access to distribution channels

FGV Holding Berhad have broad and extensive distribution channels since it is a

government linked company, GLC. Malaysian’s palm oil production companies usually will

export their products to the global markets since in the local market, people still have less

awareness regarding the palm oil usages. Mostly, in the local market, people only used the

palm oil in the food and beverage, F&B industry but globally, people used palm oil in the F&B,

cosmetic and biodiesel industry. Thus, to stay sustainable in the industry, palm oil production

have to export their product globally for the broader market and this factors seen as the

barrier for the new entrants to join the industry.

iv. Cost disadvantages independent of size

According to porter (1979), existing firms in an industry often are able to achieve cost

advantages that cannot be efficiently duplicated by new entrants. Factors include the learning

or experience curve, proprietary product technology, business networking, favourable


locations and government subsidies. For instants, FGV already have long experience curve in

handling the palm oil production since it established on December 19, 2007 until now. FGV

also own several proprietary product technology such as breeding palm oil technology and

private cloud software called `ProTruz Cloud’ which is used in the operational management.

FGV have the large business networking globally and own large land for the production

purpose which make them as one of the largest world’s palm oil exporter. Last but not least,

FGV also gain several amount of subsidies from the government for the R&D purpose. Hence,

this will be a cost disadvantage for the new entrants to operate their business as efficient

as FGV Holding Berhad.

v. Government policies

Malaysian palm oil industry is a highly regulated industry. According to the Malaysian

Palm Oil Council, MPOC (2018), currently, the industry is adhered to more than 15 laws and

regulations including the Land Acquisition Act 1960, Environmental Quality Act 1974,

Environmental Quality Act 1978 (Clean Air Regulations), Pesticides Act 1974 (Pesticides

Registration Rules), Occupational Safety and Health Act 1977, and Protection of Wildlife Act

1972. The industry is also complying with Hazard & Critical Control Points, HACCP and the

Environmental Impact Assessment, EIA requirements. Being sensitive and proactive on

current environmental concerns, the industry is actively pursuing ISO 14000 standard series

discussions and formulations notably on climate change, life cycle analysis, LCA, eco-labeling

and Design for the Environment, DfE, environmental communications, and environmental

management system, EMS. Thus, with all these acts and regulations make the new entrants

harder to enter the industry due to the complicate documentation systems.


4.2 BARGAINING POWER OF SUPPLIES

Increasing prices and reduce the quality of the product are the potential means through

suppliers can exert power over firms competing within an industry. A supplier group is

powerful when it is dominated by a few large companies and is more concentrated than the

industry to which it sells or satisfactory substitute products are not available to industry firms

or industry firms are not a significant customer for the suppliers group or suppliers goods are

critical to buyers marketplace success or the effectiveness of suppliers products has created

high switching costs for industry firms of suppliers are a credible threat to integrate forward

into buyers industry (Hitt, Ireland and Hoskisson, 1999; Porter, 1998).

The FGV downstream operations further refine CPO into a variety of palm oil-based

products such as cooking oil, frying fats, industrial and specialty fats. Through their flagship

brand which is SAJI, they managed to capture 35% of the domestic cooking oil market.

(Annual Integrated Report, 2017).

One of the FGV subsidiary in the Fast-Moving Consumer Goods (FMCG) segment, which

is Delima Oil Products Sdn. Bhd. (DOP), undertook several measures to improve SAJI’s

domestic market share, including expanding its high-margin customer base in modern trade

and HORECA (Hotel, Restaurant and Catering). This helped to achieve a gross profit before

advertising and promotions (A&P) of RM76.50 million. DOP is also focused on developing

new food products that provide higher margins and volumes. In 2017, six new products have

been produced, for instance SAJI Kaya Spread, SUNBEAR Hazelnut Chocolate Spread, SAJI
All-Purpose Seasoned Flour, Krimer Jagung, Krimer Tembikai Susu and SAJI Garam Gunung.

(Annual Integrated Report, 2017).

The SAJI branded cooking oil has successfully penetrated the cooking oil market in

Myanmar, Philippines, Laos, Cambodia, Vietnam and Afghanistan. The specialty fats and

FMCG product line continues to grow with the introduction of a variety of consumer products

including instant noodles, mayonnaise, creamer, vanaspati and peanut butter. Palm

Downstream Cluster strives for a leading position globally in industrial fats and regional

heavyweight status in palm-based consumer goods. (FGV Palm Downstream).

The FGV portfolio of consumer goods continues to grow with by both adding to their

already popular products in Fast Moving Consumer Goods (FMCG), as well as entering into

new arenas. Their staple products as example SAJI, TIGA UDANG cooking oils and SERI

PELANGI margarine, are now complemented by new brands such as SUNBEAR peanut

butter, ADELA margarine spread and SAJIMEE instant noodles. (Sustainability Report, 2016-

2017).

So that, the bargaining power of suppliers to FGV Holdings Berhad was very low since

FGV act as the supplier to the various wholesalers and retailers in the market over the country

and worldwide. For instance, FGV directly supply and distribute their products such as SAJI

for cooking oil, creamer flavored, sauce, mayo, instant noodle, rock salt and kaya spread. Then,

the other products from ADELA as example for its soft oil consist of three types such as canola,

sunflower and blended, while ADELA margarine and vanaspati. Next, the another products of
FGV also is SERI PELANGI margarine, while for SUNBEAR products such as peanut butter

with five type of flavor and consist of two type for SUNBEAR chocolate. Besides, TIARA and

TIGA UDANG cooking oil also Allegro Pure and Extra Virgin Olive Oil is the products of

FGV was produces.

4.3 BARGAINING POWER OF BUYERS

Buyers have bargaining power when they are strong enough to be able to put collective

pressure on the companies producing a product or service. This power is highest when buyers

are able to gather together and amount for a large percentage of the producer’s sales revenue

or when there is a number of suppliers providing the same type of product. (Martin, 2014)

FGV’s bargaining power of buyers is low because the demand for palm oil increases and

price being pre-determine by the government. The major buyers are from European Union,

China and India with a little control over price.

4.4 THREAT OF SUBSTITUTE PRODUCT

Based on the Michael Porter’s model, substitute products are good or services from another

industry that offers similar or the same functions to the customer as the product that the industry

produces. In order words, the threat of substitution in an industry will affects the competitive

environment for the organization in that industry and influences the firms’ ability to achieve

profitability.
FGV Holding Berhad is a company that produces product brands Saji, Adela Margarine

and Sunbear Peanut. Under the Saji brands has many types of product like Saji cooking oil,

SajiMee Saji, Saji sweated concentrated and evaporated creamer. However, it is not only this

company that produces this product in industry, there has many firms are produces the same

product where can fulfill the human needs. In addition, most of the company that produce palm oil

have the same procedures or process where there is involved three stage starting with the process

of transporting fresh fruit bunches from the farm to the processing of fresh fruit bunches of oil

palm and so on through the last stage of the filtration process.

However, the substitute product can be classifying into two categories sunflower oil,

canola oil, corn oil and butter. Since, nowadays the growth of health consciousness, many people

that used this in order to replace its usefulness. A great replacement sunflower oil for vegetable

oils that are often processed, sunflower oil is very versatile and can be used for cooking in low to

high temperatures. It is healthy from traditional vegetable oil because it contains less fat and better

fat. The calories that around 120 will give the better alternative for us take care our body.

Next, canola oil is classifying as a one of the healthiest and most versatile oil choices

available. With the neutral taste and a medium to high smoke point, canola oil is suitable for

baking and sautéing. It is considered health because it is an excellent source of heart healthy

monounsaturated and omega-3 fat and is low in saturated fats. While the corn oil is extracted from

the germ of corn and the main use also is for cooking. It is also a key ingredient in margarine and

other processed foods (Dr. Mercola, 2018). Usually the price of this oil is more expensive than

vegetable oil that normally offers in the market. In Malaysia, the substitute product that produces
cooking oil with sunflower oil, canola oil and corn oil such as Natural, Ideal, SunLico, Tesco and

Aliff.

Besides, for the butter and margarine is the same function which both of this may use for

cooking, baking and others. However, the different between butter and margarine is usually people

used butter because the butter give good texture to the consumer in their foods. According to Lily

Thomas (2018), butter which is a dairy product obtained after separating the cream from milk and

it is made up of 80%–82% milk fat, 16–17% water, with 1–2% of milk solids. It is available as

salted butter, sweet, or reduced-fat butter. Butter also contains saturated fats, proteins, calcium,

and phosphorus with some essential fat-soluble vitamins such as vitamins A, D, and E. In Malaysia

the company that manufacturing and supplier butter such as brand ButterCup, Farm Cows Butter,

Tatura and Achor. Based on the analysis above, we can conclude that FGV Holding Berhad is

facing with the moderate threat of substitute product.

4.5 RIVALRY AMONG COMPETING FIRMS

The most powerful element in the five competitive forces is rivalry among competing firms.

The strategies pursued by one firm can be successfully only to the extent that they offer competitive

advantage over the strategies pursued by rivalry firms. Objective of firms are to obtain above

average returns on their investment. This forces firms in an industry to complete each other in

order to improve their market position. The rivalry could be based on price, product innovation or

to her actions to achieve differentiation of product. The company may change its strategies to meet

this rivalry tends to increase in intensity when the company either feel competitive pressure or see

an opportunity to improve their position by using various tactics such as price competition which
including lowering prices, improving qualities, adding attractive features, increasing advertising

battles and product introductions (Ahmad, 2010).

The rapid growth in the plantation industry over the last few years has attracted many new

entries, local and foreign, thus increasing the competition which continues to exert pressure on

profit margin. Although FGV Holdings Berhad seeks to maintain its competitive position through

vertical and horizontal integration, but there is no assurance that FGV Holdings Berhad will not

be affected by the competitive strategy adopted by other companies within the same industry.

According to Porters, the intensity of competitive rivalry is a function of numerous or equally

balanced competitors, slow industry growth, high fixed or storage cost, lack differentiation or

switching costs, capacity augmented in large increments, diverse competitors and high strategic

stakes.

There are several reasons for the high intensity of rivalry among competing firms in

plantation industry especially in food and beverage. First and foremost, there is high number of

competing firms in this industry. The domestic plantation production industry is one of the leading

growing industries in Malaysia. Among Malaysia’s over plantation companies, there are almost

huge number comprise by producers of plantation companies whereas the remaining are typically

producers from outside country. The local planters have over the decades reaped the benefits of

high margins from their sizeable plantations along with a lucrative refining business. The major

competitors of FGV Holdings Berhad are including Sime Darby, IOI Corporation, Kuala Lumpur

Kepong, Genting Plantations and United Plantation (Shah, 2018). Owing to the operating in
competitive industry, FGV Holdings Berhad gravitates toward diversification opportunities that

allow the company to launch new products, gain market share quickly and mitigate risk. For

instance, FGV Holdings Berhad has wider its product in food products such as sugar, cooking oil,

margarine and so on by using the resources that they have. This diversification helps the company

to increase its revenue, expand the business and offset the decline in other business segment.

In addition, market rivalry tends to be more vigorous when there are low product

differentiation and low switching cost. There are almost one third of registered plantations

companies licensed to produce prescription and manufactured it. This figure is not including those

foreign companies that bring in palm oil or palm kernel oil through local distributors. In other

words, there are high numbers of companies develop and launch off other food products under

their own brands as the development of a plantation based product is more calculable venture than

research on new way to produce that because it has more uncertainties. The companies usually

compete on pricing because the product differentiation is low. However, FGV Holdings Berhad

differentiates its products by optimizing the formulations, packaging of their food products, and

make variants in order to ensure that the company can compete with the competitors and no price

war will be erode its company’s margin.

Besides, product that based on plantation such as palm oil usually sells at slightly high in price

because the company do incur in research and development (R&D) costs. In addition, the palm oil

producers also using latest technology at refining and processing the best quality palm oil for food

and industrial purpose to that the company can satisfy the supplier selection criteria of the bulk
buyers of palm oil across the globe. It is forecast that FGV Holdings Berhad will continue to be

one of the company that dominating palm oil producing in the global market for palm oil and also

other industry related. Growth rate is employed as a measure of change in demand. FGV Holdings

Berhad therefore expects that high growth rate should be associated with higher profitability.

However, it has been argued that extreme profitability in one period may contribute to reductions

in profitability in the following period. Growth may also be achieved via pricing strategies which

sacrifice current profitability (Bala Ramasamy, 2005).The proxy measure for growth rate is the

annual percentage change in palm oil related sales revenue over the period. Sales data were

obtained from the segmental information section of the annual reports from the respective the

company.

Lastly, market rivalry tends to be more intense when there is price control on plantation

products as it implemented and it will force palm oil producer like FGV to increase the export

price of crude palm oil. The higher cost will drive less demand for palm oil-based products as their

price will shoot up and consumers will opt for cheaper alternative oils. Malaysia does have a formal

pricing policy on it. The producers, distributors and retailers in Malaysia need to follow the pricing

to be standardize in order to control profit maximization and high prices charged to the buyer. In

other word, the prices of plantations product are regulated in Malaysia and this lead to the element

of price war in the market and thus can control the potential of increasing plantation companies in

the industry. Furthermore, competition will become more intense when rival companies are

tempting to use price cuts or other pricing strategies to boost their sales volume as well as revenues.

Therefore, FGV Holdings Berhad needs to be aware of the pricing strategies used by the

competitors in order to stay ahead with the competition. FGV Holdings Berhad needs to make sure
that its pricing control strategies used are appropriate for its customers because the company may

not be able to attract and retain their customers if it is unable to maintain and increase the awareness

of its brand and products for the future.

5.0 SITUATIONAL ANALYSIS/ STRATEGIC TOOLS

In this chapter we used the SWOT analysis to identify the strengths, weakness, opportunities and

threats of FGV Holding Berhad. Besides, in this chapter also we recommend the alternative

strategies that can implement by FGV Holding Berhad to improve its current business performance

by using TOWS analysis.

5.1 SWOT Analysis

SWOT analysis is one of the tool that company usually used in order to identifying strengths,

weakness, opportunities and threats for the internal and external environment. With SWOT

analysis it can help the company uncover opportunities that you are well-placed to exploit. In the

same time, it may be understanding the weaknesses of the business, then can manage and eliminate

threats that would otherwise catch the business unawares (Madsen, 2018).

SWOT ANALYSIS

Internal Strengths Weakness

S1: Excellent in plant breeding W1: Uncertainties in the form of

activities managing risks


S2: Third largest palm oil producer in W2: Constraints in manpower

world W3: High percentage of old oil palm

S3: Technology involvement in trees

operation W4: Ineffectiveness in operating costs

S4: Good bargaining power in W5: Weak financial performance

negotiating for contract

S5: Emerging response team (ERT)

External Opportunities Threats

O1: Emerging of biofuel market T1: Economic crisis in the euro zone

O2: Acquisition of Indonesian land T2: Unfavorable legistration and

O3: Government support on government policies in EU

Malaysia’ palm oil industry T3: New Malaysia’s rules and

O4: Huge cash hoard post regulation

O5: Acquisition with Sime Darby T4: High prevalence of obesity

T5: Uncertainties global palm oil

market price

5.1.1 Strengths

S1: Excellent in plant breeding activities

In order to achieve excellent plant breeding activities, FGV Holding Berhad used

strategies like Integrated Pest Management (IPM). Integrated Pest Management is to

managing pest in the flora and fauna. Besides, this technique that used is important component

in oil palm cultivation where with this implementations FGV may reduce or avoid from
chemical usage that will affect to the environment and also oil palm. The major IPM programs

are the control of rhinoceros beetles that usually attacks young palms during their immature

period. With the technique that produces it will be less percentage of damage oil palm from

Oryctes rhinoceros that disturb the plant breeding (Sustainability Report, 2017).

Besides, under FGV R&D Department was develop an Integrated Oil Palm Genomic

Breeding Platform (iOPGBP) to enable data-driven plant breeding, traits selection, data

management and monitoring of breeding programs. The iOPGBP is a web-based application

that hosts all raw and processed breeding data in an integrated database and serves as a single

reference point for creating crosses for breeding research purposes. It has several application

modules to help facilitate the trials and studies. In addition, normally the breeding cycle begins

with the selection of traits from a pool of oil palm germplasms (The Petri Dish, 2017).

S2: Third largest palm oil producer in the world

Sustainability is the way forward at FGV. We engage in best practices, meet world

standards and innovative green initiatives throughout their upstream operations. FGV has

operations in more than 10 countries across Asia, North America and Europe including

upstream and downstream palm oil, rubber, sugar and logistic. As the world’s 3rd largest oil

palm estate operator, the company commit to advancing a greener future. Palm Upstream

Cluster is FGV’s largest revenue earner and forms the core of the company. Palm

Upstream Cluster forms the core of FGV and is their largest revenue earner. It is also the

foundation for FGV’s global growth. FGV can process over 15 million tons of fresh fruit
bunches (FFB) annually, 5 million tons from their own plantations and the balance from

FELDA settlers and independent suppliers. The company also output more than any other

producer worldwide, making them the world’s largest producer of CPO. As the world’s largest

CPO producer and third largest oil palm operator, the company already well placed in the

industry globally. Aligned with their efforts to drive continuous improvements in our

plantations, they are rolling out best management practices. For example in harvesting and

pruning, the company is encouraging the use of new tools such as graphite harvesting poles

and innovative ablation methods and tools.

To date, FGV is at the tail end of upgrading all its mills to meet RSPO and other relevant

world-class certification. The company growth target is that FGV is on track to have the

world’s largest land bank by 2020 and maintain its status as the world’s top CPO producer.

New technologies such as Unmanned Aerial Vehicles (UAV) and a tablet-based Plantation

Micro-Macro Programme (PMMP) will allow the company to enhance estate management.

These innovations assist them to monitor and improve efficiency and productivity in the field

and increase FFB yield, while giving them the edge over those that are using traditional farm

management practices. Furthermore, having embarked on an aggressive replanting programme

in 2007, they can expect that by 2020 the company will achieve their target of 60% prime palm

land thereby improving their yields significantly. FGV is expanding their land bank by

acquiring brownfield plantations both within Malaysia and abroad.


S3: Technology involvement in operation

According to The Edge Malaysia (7 July 2017), FGV wholly-owned subsidiary Felda

Prodata Sdn Bhd and plantation consortium Sinergi Perdana Sdn Bhd have collaborated to

embark on a full private cloud software `ProTruz Cloud’ which could increase their agility

in addressing changing business requirements. Driven by the need to transform its operations

digitally, this implementation is the faster and easier way to access mission critical applications

such as finance, logistics and human capital management delivered in the cloud as managed

services. Financially, it foresees the optimization of cash flow due to the conversion of capital

expenditure to operating expenditure. Hence, by having this new software, FGV operation

management will be more systematic and organize.

S4: Good bargaining power in negotiating for contract

The FGV downstream operations further refine CPO into a variety of palm oil-based

products such as cooking oil, frying fats, industrial and specialty fats. Through their flagship

brand which is SAJI, they managed to capture 35% of the domestic cooking oil market.

(Annual Integrated Report, 2017).

One of the FGV subsidiary in the Fast-Moving Consumer Goods (FMCG) segment, which

is Delima Oil Products Sdn. Bhd. (DOP), undertook several measures to improve SAJI’s

domestic market share, including expanding its high-margin customer base in modern trade

and HORECA (Hotel, Restaurant and Catering). This helped to achieve a gross profit before

advertising and promotions (A&P) of RM76.50 million. DOP is also focused on developing
new food products that provide higher margins and volumes. In 2017, six new products have

been produced, for instance SAJI Kaya Spread, SUNBEAR Hazelnut Chocolate Spread, SAJI

All-Purpose Seasoned Flour, Krimer Jagung, Krimer Tembikai Susu and SAJI Garam Gunung.

(Annual Integrated Report, 2017).

The SAJI branded cooking oil has successfully penetrated the cooking oil market in

Myanmar, Philippines, Laos, Cambodia, Vietnam and Afghanistan. The specialty fats and

FMCG product line continues to grow with the introduction of a variety of consumer products

including instant noodles, mayonnaise, creamer, vanaspati and peanut butter. Palm

Downstream Cluster strives for a leading position globally in industrial fats and regional

heavyweight status in palm-based consumer goods. (FGV Palm Downstream.com).

The FGV portfolio of consumer goods continues to grow with by both adding to their

already popular products in Fast Moving Consumer Goods (FMCG), as well as entering into

new arenas. Their staple products as example SAJI, TIGA UDANG cooking oils and SERI

PELANGI margarine, are now complemented by new brands such as SUNBEAR peanut

butter, ADELA margarine spread and SAJIMEE instant noodles. (Sustainability Report, 2016-

2017).

So that, the bargaining power of suppliers to FGV Holdings Berhad was very low since

FGV act as the supplier to the various wholesalers and retailers in the market over the country

and worldwide. For instance, FGV directly supply and distribute their products such as SAJI
for cooking oil, creamer flavored, sauce, mayo, instant noodle, rock salt and kaya spread. Then,

the other products from ADELA as example for its soft oil consist of three types such as canola,

sunflower and blended, while ADELA margarine and vanaspati. Next, the another products of

FGV also is SERI PELANGI margarine, while for SUNBEAR products such as peanut butter

with five type of flavor and consist of two type for SUNBEAR chocolate. Besides, TIARA and

TIGA UDANG cooking oil also Allegro Pure and Extra Virgin Olive Oil is the products of

FGV was produces.

S5: Emergency response team (ERT)

FGV Holdings Berhad implement an effective Emergency Response Programmes such

as ERT induction and fire drill exercises. They also have an engagement with Fire and Rescue

Department of Malaysia. (Sustainability Report FGV Holdings Berhad, 2016/2017)

Furthermore, FGV’s mitigation action plan on fire management is applied through the

establishment of Emergency Response Team (ERT). They have firefighter training and

exercises for the team, constant fire safety inspections and also fire safety awareness

programmes for all the employees of FGV Holdings Berhad.

5.1.2Weaknesses

W1: Uncertainties in the form of managing risks

Risk management can be defined as choosing among alternatives to reduce the effects of

risk (Harwood, et al., March 1999). Risk management strategies can reduce risk within the
operation, transfer risk outside the operation and build the operation’s capacity to bear risk.

(Kaan)

All updates and issues in this area which related with FGV Holdings Berhad will be

reported to Executive Committee (EXCO) and Board Governance And Risk Management

Committee (BGRMC). BGRMC have to direct and inspect the formulation of the Group’s

overall risk management framework and strategies. They also have to assess and manage risk

to ensure their relevance and appropriateness to the Group’s position and business. Members

of committee shall safeguard all internal communications and treat them as strictly private and

confidential and for use of committee members only.

BGRMC in FGV Holdings Berhad have a lack of predictability arises from insufficient

knowledge on form a well-understood probabilistic process or risks (Whipple, 1986). They

have an inability to predict some circumstances during dry weather or season that will lead

to open burning. The unfavorable environmental conditions including dry spells and the worst

floods in decades at the end and early of the year had compounded the negative impact on the

yields. (Adnan & Sharidan M.Ali, 2015)

W2: Constraints in manpower

During the year under review, the FGV Group fully completed felling for its replanting

programme of 13,753 Ha. The total replanted area, however, stood at 10,675 Ha only due to
labor shortages faced by the estates and contractors. Labor shortages hampered operations

in early-2017, resulting in management intensifying recruitments efforts and sourcing of

workers from countries, mainly from Indonesia and Bangladesh. As at 31 December 2017,

they have received more than 80% of their approved 8,000 workers quota. They envisage that

their labor status will normalize by the middle of 2018. (Annual Integrated Report, 2017)

Labor Shortage Affecting Yield Improvement, their FFB yield is highly contingent on labor

availability, which was sub-optimal in the year under review. Though they had made efforts to

raise their foreign guest workers quota, this process required substantially more time than

expected, resulting in the insufficient supply of workers at their plantations. (Sustainability

Report, 2016-2017).

For instance, FGV embarked on recruitment drives to encourage local workers, especially

the new generation of settlers, to consider a career in the plantation industry and reduce our

dependency on foreign guest workers. Although the initiative had started a few years ago, for

2017, in conjunction with Sambutan Hari Peneroka Kebangsaan, FGV featured a recruitment

booth and campaign, which continued to a few regional levels. (Annual Integrated Report,

2017)

Besides, as part of the FGV Group’s efforts to optimize their manpower, they continued to

offer their Voluntary Early Retirement Scheme (VERS) and Mutual Separation Scheme (MSS)

throughout 2017 with a total of 330 employees taking up these offers. In the fourth quarter of
2017, they offered the Voluntary Separation Scheme (VSS) to all General Manager level

employees and above. Of the 41 applications received, 26 were approved with a total payout of

RM10.96 million with a payback period of 14 months. Through these ongoing initiatives, they

are expected to achieve optimum headcount in the next 2 to 3 years, which in turn, would

improve their HR related expenditure considerably (Annual Integrated Report, 2017).

Felda Global Ventures Holdings Berhad (FGV) is overcoming its estates’ labour shortage

which could cost RM1 billion in losses to the plantation company. FGV officer-in-charge Datuk

Khairil Anuar Aziz said the intensive programme carried out by it to overcome the shortage at

its plantations has seen positive results. (New Straits Times Business, 2017).

W3: High percentage of old oil palm trees

The weakness of FGV Holding Berhad, where almost 50 percent the oil palm is old trees

which is at 21 years and above. Since that the percentage of old oil palm trees is higher the

trees will not able to boost the higher amount of fresh fruit bunch (FFB) and crude palm oil

(CPO) production. Besides, it is also will affect to financial performance of the company due

the old oil palm trees. However, in year 2018 the amount of the old trees is reducing to 33

percent and their expected the percentage will be keep reducing year by year until 25 percent

in year 2020 (The Star,2018).


W4: Ineffectiveness in operating costs

One of the weaknesses for FGV Holding Berhad is the infectiveness in managing its

operating costs. According to Annual Report, the administrative expenses, selling and

distribution costs and other operating expenses is rise from year by year.

Operating Expenses
51,825
OTHER OPERATING EXPENSES 15,825
48,378

982,299
ADMINISTRATIVE EXPENSES 933,698
1,064,388

370,504
SELLING AND DISTRIBUTION COSTS 308,790
302,161

0 200,000 400,000 600,000 800,000 1,000,000 1,200,000

2017 2016 2015

Figure 5.1: Operating Expenses of FGV Holding Berhad

Based on the figure 5.1 above, we can see that the operating costs shows the increasing

trends from the year 2015 until 2017. The total operating FGV Holding Berhad has increased

from RM 1,258,313 year ended 2016 to RM1,404,628 in financial year ended 2017. The

incremental of the operating expenses is largest driven by the rising in the administrative

expenses. Besides, the higher operating cost will cause the decrease profit in the year of

assessment FGV Holding Berhad. Since that the company will have insufficient money and

also faced with financial problems in the next several financial years (FGV Annual Report,

2017). However, on year 2018 FGV do the reduction of the total administrative expenses, lower
raw material costs and favorable foreign exchange rate by 33.0%, quarter-on-quarter (The Star,

2018).

W5: Weak financial performance

The financial performance is a subjective measure how well the firm use their asset from

its primary mode of business and generate revenue. In others words, financial performance is

measure the financial health of overall firm over a given period of time (Investopedia, 2018).

Besides, the financial statement can be measure through balance sheet, income statement and

cash flow. Based on the annual report of FGV Holding Berhad, the balance sheet shows what

the company own and owes. The debt of the company from the year 2015 until 2017, which

debt consist to RM 5.44 billion, RM 5.5 billion and RM 5.49 billion. Besides, the weak of

financial performance also is include with Safitex Trading LLC'S which is long outstanding

debt owing to Felda Global Ventures Holdings Bhd 's (FGV) subsidiary Delima Oil

Products Sdn Bhd increased to RM50 million in year 2016 from RM38 million in the previous

year. This amount is exceeded allocated credit limit per PwC’s statutory financial audit for FY

ended December 2016 (The Star, 2017).

5.1.3 Opportunities

O1: Emerging of biofuel market

FGV also generating power from waste by renewable resources such as biogas plant,

biomass for electricity, utilization of biomass and factory by-products also bio-

compressed natural gas. In addition, to reducing the amount of Greenhouse Gas (GHG) that
their factory emit into the environment, the biogas plants are reducing GHG emissions arising

from the combustion of fossil fuels by generating electricity for domestic use. Two of our biogas

capture plants in their palm oil factories in FPI Umas and FPI Serting Hilir have successfully

generated electricity for the local area since 2013. These plants can generate up to a maximum

of 1.2 megawatts of electricity. In Umas, the electricity is channelled to residential areas,

schools, offices and commercial complexes. Umas residents, prior to the construction of the

plant, depended on power generated from diesel generators. Meanwhile, the electricity

generated by the Serting Hilir plant is being fed back to the national grid. (Sustainability Report,

2016-2017).

Besides, biomass power plants utilize the burning of organic waste to produce electricity

and steam. Their Sahabat Biomass power plant built in Lahad Datu, Sabah, in 2004 is the first

Empty Fruit Bunches (EFB), based Clean Development Mechanism (CDM) project in

Malaysia. It is also the first in the world to run on 100% treated EFB. This Sahabat Biomass

power plant supplies steam and electricity to the neighboring industrial premises, offices,

residential areas and a resort. FGV also garnered another feather in the hat when Felda Plam

Industries(FPI) collaborated with Tenaga Nasional Berhad (TNB) to install and operate FTJ

Biopower Sdn Bhd in Jengka, Maran. This renewable energy power plant successfully achieved

its Commercial Operation Date in October 2016 and produces 10 megawatts of electricity for

the national grid that would otherwise emit 43,560 MT of CO2 equivalent per year if fossil fuels

(diesel) were to be used to generate electricity. This biomass plant is capable of utilizing

300,000 MT of EFB annually for power generation. (Sustainability Report, 2016-2017).


Next, Empty Fruit Bunches (EFB) is suitable for conversion into renewable fuel feedstock.

The biomass residue of EFB is shredded and utilized as solid fuel for the operation of steam

boilers. This utilization of EFB as a fuel for firing steam boilers delivers significant cost savings

because the by-product can be put to economical use rather than becoming a waste product.

FGV is proud to showcase our maiden EFB biofuel plant located in Semenchu, producing a

total of 2729.77 MT pellets since 2015. These pellets are produced using EFB from their palm

oil mills and is commercially sold to third parties for power generation as a replacement for

conventional fossil fuel. (FGV Holdings Berhad, Sustainability).

Additionally, FPI also develops dried long fiber and EFB shredded fiber by converting

EFB as a low value waste to high value environmental friendly renewable products. These dried

long fibers were processed from shredded EFB to be sold as raw material for industrial

applications such as mattress manufacturing. Their composts are derived from aerobic

decomposition of EFB mixed with POME. These composts are very practical for maintaining

soil moisture, preventing soil erosion, and also serve as an effective alternative source of weed

control. Palm oil mills also produce other biomass by-products apart from EFB, they include

Palm Kernel Shell (PKS) and Decanter Cake. PKS is a high grade renewable biofuel resource

and is widely-used as feedstock for boiler, pyrolysis process, gasification process and also

cement manufacturing process. On the other hand, Decanter Cake is the solid sludge separated

from the POME which can be directly used as organic fertilizer or to be blended with EFB fiber

for the production of organic composts. (FGV Holdings Berhad Website, Sustainability).
Then, their research on biogas has led to the establishment of the first commercial scale

palm-based Bio-Compressed Natural Gas (Bio-CNG) plant in Sg. Tengi, Kuala Kubu Baru,

Selangor. A collaboration between Felda Palm Industries Sdn Bhd (FPI), the Malaysia Palm

Oil Board (MPOB) and Sime Darby, the plant demonstrates that biogas can be used on a

commercial scale producing 80,000 million BTUs of Bio-CNG annually. Bio-CNG is a viable

alternative to fossil fuels and commenced commercial production for its first customer in April

2016. (Sustainability Report, 2016-2017).

O2: Acquisition of Indonesian land

FGV is the world’s third largest oil palm estate operator, managing more than 450000

hectares across Malaysia and Kalimantan, Indonesia. In Indonesia, FGV’s activities are focused

in Kalimantan through PT Citra Niaga Perkasa, a company that owns 14385 hectares of land.

Through the company subsidiaries PT Temila Agro Abadi and PT Landak Bhakti Palma, FGV

owns another 21037 hectares of lands in West Kalimantan. Continuous expansion initiatives

are embarked on to secure CPO and feedstock supplies for their downstream objectives. The

company said that its subsidiary FIC Properties Sdn Bhd (FICP) had signed a sale and purchase

agreement (SPA) with Rajawali Group to acquire a 37% stake in Jakarta-listed Eagle High, one

of Indonesia’s largest palm oil companies. FGV explained that its decision to acquire the stake

is in line with its long-term goal of becoming one of the world’s largest palm oil groups (Zakir,

2016).
FGV Holdings Berhad is set to acquire a stake in an Indonesian oil palm company,

expanding the group’s plantation assets in the republic, even as it seeks to exit refining

business in North America. The company can continue to show growth as the company can

expand fast in this growing industry. To get this growth, the company need to venture into new

frontiers as additional plantation land in Malaysia is becoming scarce. Apart from gaining

access to more land bank, the acquisition will also help FGV and its associate companies to

make further inroads into the lucrative and expanding domestic market in Indonesia. FGV

Holding Berhad believes that the acquisition will bring positive development for the industry

and country. The investment in a major palm oil player in Indonesia will act as an impetus and

further cement stronger bilateral ties between Malaysia and Indonesia to move forward the

agenda of the recently established Council of Palm Oil Producing Countries, of which both are

founding members. The company also maintained that mergers and acquisitions would remain

part of the group’s expansion plan in going forward.

O3: Government support on Malaysia’ palm oil industry

According to our ex-Minister of Plantation Industries and Commodities, Datuk Seri Mah

Siew Keong, government has allocated RM50 million to undertake research and

development (R&D) for Malaysia’s palm oil industry to make Malaysian palm oil among

the safest and most nutritious oils globally. These scientific research would focus on

eliminating contaminants in palm oil since the contaminants in palm oil have become a huge

debate worldwide as the cause of obesity. Thus, Malaysian-owned palm oil mills and refineries
based in Malaysia like FGV can apply for this scheme to improve their palm oil production

quality.

O4: Huge cash hoard post

Huge cash hoard post-listing give FGV Holdings Berhad flexibility and bargaining

power to potentially acquire large assets or even already profitable plantation assets,

which other companies may not be able to digest. FGV’s earnings are most sensitive to the CPO

prices compared with its peers because historically, the company have been fully-dependent on

its plantation income. (Adnan & Sharidan M.Ali, 2015)

Since FGV Holdings Berhad going public in June 2012, not only has it live up to its billing

as among the largest the plantation company in the world, FGV had to fulfill a big obligation

beyond the expectations of its shareholders which largely due to it being perceived as an

important political cog to the Government. (Adnan & Sharidan M.Ali, 2015)

O5: Acquisition with Sime Darby

Sime Darby interested in the world’s largest crude palm oil producer could include local

plantation companies looking to expand their landbank and looking to acquire existing local

companies as part of its expansion strategy. As with any other companies, Sime Darby

Plantation is always open to consider all potential opportunities in the interest of

maximizing value for our shareholders. Hypothetically, a takeover or merger of the two
companies which is Sime Darby Plantation and FGV that would create a giant corporation,

possibly the biggest in the global oil palm industry. Sime Darby Plantation is the world’s largest

oil palm plantation company by planted area, while FGV is the world’s largest CPO producer.

(The Star, 2018).

5.1.4 Threats

T1: Economics crisis in the Euro zone

The European debt crisis is the shorthand term for Europe’s struggle to pay the debts it has

built up in recent decades. Five of the region’s countries which is Greece, Portugal, Ireland,

Italy and Spain to varying degrees, failed to generate enough economic growth to make their

ability to pay back bondholders the guarantee it was intended to be (Kenny, 2018).

According to International Monetary Fund Managing Director, Christine Lagarde, the

financial systems in these countries have been little affected by the global financial market

volatility and have continued to channel funds to support economic activities. (Thomas, 2012)

It will give an impact on FGV’s production activity and capacity utilization rates, and also

may prompt businesses to delay investments in new capacity and products. Furthermore, FGV’s

may undertake cost-cutting measures, including shorter working hours, wage cuts, and even

retrenchments.
T2: Unfavorable legislation and government policies in EU

Since going public in June 2012, not only has it to live up to its billing as among the largest

the plantation company in the world, FGV had to fulfil a big obligation beyond the

expectations of its shareholders largely due to it being perceived as an important political

cog to the government. FGV probes past deals. Felda Global Ventures Holdings Berhad which

has obtained approval to change its name to FGV Holdings Berhad is undertaking independent

forensic audit investigations into its past investments, which are likely to be concluded within

the next two months. One of the on-going investigations in London-listed Asian Plantations Ltd

(APL), which is currently being conducted by a legal firm in London and particularly on the

valuation of the land.

The company need to look at the problem from a legal perspective and using domestic and

international resources to undertake the forensic investigations on APL. Over the past three

years, FGV has done a series of major acquisition which include APL and Pontian United

Plantations Bhd for a combined RM1.82 billion. However, FGV chairman denied that the group

was undertaking investigations into Pontian United Plantations. FGV discovered that some

areas of APL’s plantation could not be used for plantation oil palm after personally visiting the

plantation and adding that there is hearsay information that the land also did not belong to APL

but FGV cannot accuse as the investigations still ongoing. FGV need to be through in our

verification because the company had paid around RM1.1 billion for investment in APL.
Besides, in the small farming settlement of Palong in rural Malaysia, the European Union’s

(EU) plan to phase out palm-oil based biofuel from its energy mix from 2021 will not affect

Felda Global Ventures Holdings Bhd (FGV) as its export to the EU is minimal. The crop that

European Parliament harvest is palm oil. The European Parliament has voted overwhelming to

ban the use of palm oil in all European biofuels by 2020, citing environmental concerns. In the

past few years, campaigners have gathered mountains of damning evidence that the growing

demand for palm oil from the EU and China has fueled massive illegal deforestation in

Indonesia and Malaysia by governments and big corporations, forcing several species to the

brink of extinction. Yet for Malaysia’s smallholder farmers, many of whom were rescued from

poverty when the government’s land authority, Felda gave them 10 acres of land to harvest

palm oil in the 80s, the allegations of environmental destruction are baffling. They account for

40% of Malaysia’s palm oil output and yet none engage in any land-grabbing, the slash and

burn or deforestation practices that were pivotal proponent for MEPs voting to ban palm oil

biofuels. FGV productions or sales to the EU is only about two per cent of our business and

(even) without the ban the company still could not sell because of the price wise. Therefore we

only concentrate on the local market (Ellis-Petersen, 2018)

T3: New Malaysia’s rules and regulation

The New Malaysia, a label now popularly used to describe the new Pakatan Harapan

Government after the May 9 general election. With the new government ruling the county,

there have several new rules and regulation that being introduce by our new prime minister,

Tun Dr Mahathir Mohamad. One of them is, Tun Dr Mahathir Mohamad have announced the
restructure of the Malaysia’s government-linked companies, GLC. This is because the new

government believe with more political involvement in the GLC will lead to corruption activity.

As reported by the Reuters on September 4, there are several top executives at Malaysia's

FGV leave amid management shake-up. The shake-up at FGV is seen as part of a wider move

by a new Malaysian government that has pledged to clean up governance and operations of

state-linked entities as the shares of FGV have fallen over 70 percent since its 2012 initial public

offering amid allegations by analysts and investors of poor company management (Reuters, 4

September 2018). Hence, we believe due to this new rules and regulation, the overall FGV

management operation will be affected and may give negative impact toward it business

progression.

T4: High prevalence of obesity

Globally, people are saying that palm oil can cause obesity to the consumers even though,

according to one of Malaysian researchers, Nor Asiah Muhamad (September 13, 2017), based

on the currently available evidence, there is insufficient evidence to suggest that dietary palm

oil intake is a cause of obesity. Due to this negative talks, it will give negative perception about

the palm oil toward others people worldwide. Hence it will affect the palm oil market demand

and the end result, palm oil production companies likes FGV have to bear the losses due to this

global discrimination toward the palm oil industry.


T5: Uncertainties global palm oil market price

Economically, global palm oil price will change according to the market demand.

When the demand is less, the price will drop to reduce the surplus of palm oil in the market.

Due to this, there have high price competition between the palm oil production countries since

Malaysia is not the one and only country that producing this palm oil. Thus, due to this

economic problem, FGV business progression will be directly affect if there have high

frequently changes of the global palm oil price.

5.2 TOWS Analysis

The TOWS Matrix is derived from the SWOT Analysis model, which stands for the internal

Strengths, Weaknesses of an organization and the externa Opportunities and Threats that the

business is faced with. (toolshero, 2013)

TOWS ANALYSIS FOR FGV HOLDINGS BERHAD

Strengths Weaknesses

S1: Excellent in plant Weakness

breeding activities W1: Uncertainties in the

S2: Third largest palm oil form of managing risks

producer in world W2: Constraints in

S3: Technology manpower

involvement in operation W3: High percentage of old

oil palm trees


S4: Good bargaining W4: Ineffectiveness in

power in negotiating for operating costs

contract W5: Weak financial

S5: Emerging response performance

team (ERT)

Opportunities S1O1:Implement W2O5: Recruitment program

O1: Emerging of biofuel market environmental growth for fresh graduate

O2: Acquisition of Indonesian activities. W404: Managing financial

land S4O3:New market resources by involving

O3: Government support on development strategy budget, plan and monitoring

Malaysia’ palm oil industry strategies

O4: Huge cash hoard post

O5: Acquisition with Sime Darby

Threats S1T2: Joint venture with W1T1: Use diversification

T1: Economic crisis in the euro EU countries in R&D strategy

zone S4T5:Restructure the W5T3:Redesign New

T2: Unfavorable legist ration and credit terms Company Policy

government policies in EU

T3: New Malaysia’s rules and

regulation

T4: High prevalence of obesity

T5: Uncertainties global palm oil

market price
5.2.1 Strengths-Opportunities Strategies

S1O1: Implement environmental growth activities

The first SO strategy is related to excellent in plant breeding activities (S1) and

emerging of biofuel market (O1). Plant breeding can provides the best options and

strategies to develop varieties for bioenergy production, like the ones developed in Brazil.

Ethanol and methanol may replace fossil fuels as a means of energy storage, fuel and raw

material for synthesis hydrocarbons and their products. Ethanol fuel, produced from sugar

cane can be widely used as a biofuel alternative to gasoline cars. In response to the

petroleum crisis, the principles of environmentally friendly, and renewable bioenergy

gained popularity, FGV Holdings Berhad can take the opportunity to implement

environmental growth activities by using alternative bioenergy sources. This can led to

increasing interest in alternative power or fuel research such as biofuel and plant breeding

is a major venue in making many of the bioenergy alternatives a reality.

Plant breeders can be developed not only for food, feed and fiber, but also for fuel.

Plant breeding can offers opportunities to make biodiesel become reality for a wide range

of agro-ecological conditions. Many of the underutilized crops can be selected for biodiesel

commercial production, such as jatropha and oil palm. These species are adapted to

environments not suitable to grow food crops, making an economic alternative that helps

reduce poverty and rural migration. However, as these species have undesirable traits such

as excessive plant height and heterogeneous maturation, plant breeding is essential in

making them agro-economically more attractive. Implement environmental growth


activities from S1O1 can create crop and market alternatives for resource-poor farmers,

improving the economy and also contributing to environmental preservation.

S4O3: New market development strategy

Next, another major strength of FGV Holdings Berhad is its good bargaining

power in negotiating for contracts or purchase of supplies (S4) which can allow and

helps the company to gain government support (O3) to create new market development

strategy. Based on this SO strategy, we suggest FGV Holdings Berhad to implement new

market using their strength in the power of negotiating for contracts or purchase of supplies

and government support to grab the opportunities on penetrating into new international

markets. Furthermore, the method can be used to achieve international growth

opportunities and can implement new market development strategy at new place. As the

company is targeting on the new market in Myanmar, Pakistan, Cambodia and Africa, so

FGV Holdings Berhad can expand their business by grow international in those countries

(Tan, 2013). For example, the company had expanded its growth in outside country which

is Indonesia and it has succeeded in acquiring the Indonesian land. Since FGV Holdings

Berhad has a clear strategy in their core area which is want to be in the upstream in both

greenfield and brownfield, so this strategy can be implement for their long-term strategy

in the future.
5.2.2 Weaknesses-Opportunities Strategies

W2O5: Recruitment program for fresh graduate

As there is an acquisition with Sime Darby (O5). FGV Holding Berhad, should

take advantage to overcome the problems of constraints in manpower (W2). Hence, we

recommend FGV to make the appropriate recruitment program for fresh graduate. The

recruitment programs for fresh graduate will help the company to overcome the labor

shortage of the company. It is because nowadays, the jobs opportunities for fresh graduates

is limited to them enter the company. Since that, with this programs is like precious

opportunities or win-win situations to both parties. Usually the fresh graduate will work

hard even the salary is lower in order to grow the company and for them to gain experience.

Besides, FGV also might have to give them some training but in the same time it still at

save the cost.

W404: Managing financial resources by involving budget, plan and monitoring strategies

Since FGV Holding Berhad is the huge cash hoard post (O1), FGV Holding

Berhad should overcome the problem of ineffectiveness in managing operating cost

(W4). Hence, we recommend FGV to manage their financial resources by involving

budget, plan and monitoring strategies to meet the huge cash hoard post of potential

acquire large asset in plantation. These strategies will help the companies to predict the

future financial health of the organization. It will also provide the benchmark for reporting

future financial results. Monthly reviews or past history of actual financial results
compared to budgeted amounts will provide the information necessary to react quickly to

variances to the plan for the company.

5.2.3 Strengths-Threats Strategies

S1T2: Joint venture with EU countries in R&D

Recently, economic trend shows that there have some discrimination toward palm

oil production industry especially from EU countries. As we know, FGV is excellent in

plant breeding activities (S1) and currently, there have unfavorable legistration and

government policies in EU (T2), so, to solve this problem, FGV and other palm oil

production companies have to do more joint venture with EU countries in term of R&D

on the palm oil. This is due to, most of the issues that being highly debate by all of these

EU countries are that palm oil usages will give negative effect toward people’s health and

safety and environmental safety. From this joint venture, both parties will able to have a

mutual understanding regarding the issues and solve the problems.

S4T5: Restructure the credit terms

Since FGV have good bargaining power in negotiating for contract (S4) and

there also have uncertainties on global palm oil market price (T5), so we recommended

FGV to restructure their credit terms. As we have discussed previously FGV have issues

debt with their creditor, Safitex trading, so by restructuring their credit terms, FGV able to

gain their money without have to face huge of losses due to unpaid issue by the creditors.
As for the suggestion, FGV may give high percentage of discount toward those creditors

who paid their debt earlier to encourage the creditors to pay back the debts.

5.2.4 Weakness-Threats Strategies

W1T1: Use diversification strategy

Diversification strategy are used to expand the firm’s operations by adding markets,

products, services or stages or production to the existing business (Eukeria & Sebele

Favourate, 2014). FGV Holdings Berhad need to implement a diversification strategy to

overcome their weakness which is uncertainties in the form of managing risks and their

threats which is economic crisis in the euro zone

FGV Holdings Berhad need to do an honest assessment of economic crisis in the

euro zone that can give an impact to the company. They need to have a clear expectations

of the potential that will gain. If the company can balance between the risk and reward, a

marketing strategy of diversification can be highly rewarding.

W5T3 : Redesign New Company Policy

Policies can be defined as principles, rules, and guidelines formulated or adopted

by an organization to reach its long-term goals and typically published in a booklet or other

form that is widely accessible. All the company policy are designed to influence and

determine all major decisions and actions, and all activities take place within the barriers

set by the management (WebFinance.Inc, 2018)


FGV Berhad Holdings should redesign their company policies to reduce the

corruption cases which frequently happen in their company. New policies need to applies

to all employees of FGV Holdings Berhad including the directors (Executive and Non-

Executive). They need to understand and agreed the new rules and regulations which have

been approved by the Board of Directors (BOD).

Company need to investigate further on each of transaction details on account of

top management of FGV Holdings Berhad to decrease the problem of corruption cases.

According to the new policies of the company, any employees who break the rules and

regulations will have a disciplinary actions taken by the company.

6.0 BEST STRATEGY OR RECOMMENDATION

The best strategy that we have find from our observation and analysis towards FGV Holdings

Berhad to recommend for this company is FGV need to implement the recruitment

programme for fresh graduate, restructure the credit terms and redesign the new

company policy in order to resolve and overcome the issues or problems that arise in this

company to be more successful as well-establish organizations in future.

As there is an acquisition with Sime Darby (O5). FGV Holding Berhad, should take

advantage to overcome the problems of constraints in manpower (W2). Hence, we

recommend FGV to make the appropriate recruitment programme for fresh graduate. The

recruitment programs for fresh graduate will help the company to overcome the labor shortage
of the company. It is because nowadays, the jobs opportunities for fresh graduates is limited to

them enter the company. Since that, with this programs is like precious opportunities or win-

win situations to both parties. Usually the fresh graduate will work hard even the salary is

lower in order to grow the company and for them to gain experience. Besides, FGV also might

have to give them some training but in the same time it still at save the cost.

Next, since FGV have good bargaining power in negotiating for contract (S4) and there

also have uncertainties on global palm oil market price (T5), so we recommended FGV to

restructure their credit terms. As we have discussed previously FGV have issues debt with

their creditor, Safitex trading, so by restructuring their credit terms, FGV able to gain their

money without have to face huge of losses due to unpaid issue by the creditors. As for the

suggestion, FGV may give high percentage of discount toward those creditors who paid their

debt earlier to encourage the creditors to pay back the debts.

Besides that, Policies can be defined as principles, rules, and guidelines formulated or adopted

by an organization to reach its long-term goals and typically published in a booklet or other

form that is widely accessible. All the company policy are designed to influence and determine

all major decisions and actions, and all activities take place within the barriers set by the

management (WebFinance.Inc, 2018).

Since, FGV have weak financial performance (W5) and have new Malaysia rules and

regulations (T3), hence we recommend for FGV Holdings Berhad to redesign their

company policies to reduce the corruption cases which frequently happen in their company.
New policies need to applies to all employees of FGV Holdings Berhad including the directors

(Executive and Non- Executive). They need to understand and agreed the new rules and

regulations which have been approved by the Board of Directors (BOD).

Company need to investigate further on each of transaction details on account of top

management of FGV Holdings Berhad to decrease the problem of corruption cases. According

to the new policies of the company, any employees who break the rules and regulations will

have a disciplinary actions taken by the company.

7.0 CONCLUSION

As the conclusion, FGV Holdings Berhad was operates as a Malaysian-based global

agricultural and agro-commodities company covering three mains sectors such as palm oil, sugar

and logistics. As the world’s largest Crude Palm Oil (CPO) producer and the third largest oil palm

plantations operator, FGV acts responsibly towards its shareholders, business partners, employees,

society and the environment. This covers in every one of its business areas, regions and locations

across the globe. Additionally, they are also committed to technologies and products that unite the

goals of customer value and sustainable development.

Their commitment level to sustainability is 110% and they are embedding sustainability

throughout FGV organisation and value chain business partners. Aligning with the global action

towards sustainability, namely Sustainable Development Goals (SDGs), FGV has placed

sustainability at the top priority in their value chain and business practices. This includes
sustainable agriculture, combating climate change, social compliance and human rights,

innovation as well as sustainable production and consumption.

As such, one of FGV key strategies in accelerating their commitment towards sustainability

is the introduction of the Group Sustainability Policy (GSP) which applies to its operations,

subsidiaries and suppliers. Meanwhile, a holistic approach to their business management through

Economic, Environmental & Social (EES) will ensure the sustainability is embedded within their

business as recommended by the Bursa Malaysia.

In their journey to success, they believe the contribution and support from their

stakeholders are pivotal for them to achieve their sustainability goals and targets. Stakeholder

engagement is an integral aspect of their sustainability strategy for continued progress towards

realising their sustainability vision and they intend to achieve this by continuously engaging their

stakeholders at various platforms to understand and address their concerns.

A successful strategic audit is beneficial to the company as it enables a successful development

of a company and keeps the company moving in the right path and direction. Hence, we also have

identify the strategic issues or problems that arise in FGV Holdings Berhad current situation and

derived from internal or external environment of the company, for instance issues in labour

shortage in their estate, delay payment with Safitex trading and corruption issues.
Besides, FGV Holdings Berhad continues to maintain initiative in their Corporate

Responsibility activities. FGV also hold 28% in CSR/ESG Ranking compared with 18,553

companies (Mohamad, 2018). From all the Corporate Social Responsibilities (CSR) that has been

done by FGV Holdings Berhad, the benefits that can be seen is that FGV is committed to the

principles of sustainable development and continuous improvements. They will continue to engage

all their stakeholders in an open and transparent manner to bring the greatest benefit to their

stakeholders, which includes civil society organisations, their original FELDA settlers and their

dependant families, impoverished rural communities, their customers and the environment that

sustain them.

Next, the structure of board directors FGV is good structure because all of the board has the

various experiences in the work and qualification to hold this position. Then, in the list of the board

of directors we can clearly see that three race involve in the organization. In other words, all of the

board members not has racism and discrimination against the nation. We also can conclude that

type of organizational structure for FGV is relevant with its current business operation. The

strategies unit allow FGV Holding Berhad to concentrate on the target audience and provide cost

leadership to the company. We also analyse the internal organization or internal forces of FGV

Holdings Berhad included the company’s background, company’s industry, vision, mission,

objectives, strategies as well as organization structure.

We analyse its external environment or external forces that are beyond the company

control. In external environment analysis, we proceed with the environment scanning to study the
general environment and industry environment, with the purpose of understanding the

environment trends and their implications to the company as well as factors and conditions that

influence company’s profitability within the industry. STEEP analysis was conducted to analyse

the social-cultural, technology, economy, ecology and politic segment of the company’s general

environment. In additions, we also use Porter’s five forces of competitive position analysis to study

and examine the industry environment of the company.

Last but not least, the situational analysis we use the strategic tools such as SWOT and

TOWS analysis to propose the best strategy and recommendation for the management of the

company. The suggestion that we propose for the company to implement such as recruitment

programme for fresh graduate, restructure the credit terms and redesign new company policy.

Perhaps, the strategy that we will recommend may help FGV Holdings Berhad to enhance its

competitive position and future strategic and also the company financial performance.
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9.0 APPENDIX

9.1 Calculation Financial Analysis


2017 2016 2015

LIQUIDITY RATIO

Current Ratio = 6,417,736 = 7,139,309 =7,160,611

Current Aset 5,756,585 6,092,378 5,194,943

Current Liability = 1.11 =1.17 =1.38

Quick Ratio =6,417,736-2,126,893 =7,139,309-2,189,255 =7,160,611-2,078,372

Current Aset - Inventories 5,756,585 6,092,378 5,194,943

Current Liability =0.75 =0.81 =0.98

LEVERAGE RATIO

Gearing Ratio =5,497,472 =5,580,237 =5,443,709

Net Debt 11,104,517 11,274,512 11,271,012

Total Capital + Net Debt =49.51 =49.06 =48.30

ASSET

MANAGEMENT

RATIO

Total Asset Turnover =16,939,704 =17,241,275 =15,558,769

Sales 2,056,618 21,026,686 2,0741,330

Total Asset =0.82 =0.82 =0.75

Inventory Turnover

(days) =365÷14,981,874 = 365÷ 15,671,481 =365÷13,612,650

365÷ COGS 2,126,893 21,026,686 20,178,372


Inventory =51.82 =50.99 =55.73

Trade Receivable

Turnover(days) =365÷16,939,704 =365÷17,241,275 =365÷15,558,769

365 ÷ Sales 1,376,916 1,755,127 1,894,271

Trade Receivable =29.67 =37.16 =44.44

PROFITABILITY

RATIO

Profit Margin =208,046 =66,459 =367,124

Net Profit after Tax 16,939,704 17,241,275 15,558,769

Total Revenue =1.23 =0.39 =2.36

ROA =208,046 =66,459 =367,124

Net Profit after Tax 20,560,618 21,026,686 20,741,330

Total Asset =1.01 = 0.32 =1.77

ROE =208,046 =66,459 =367,124

Net Profit after Tax 7,860,443 81,197,541 8,338,977

Stockholder Equity = 2.65 =0.81 =4.40

COMMON EQUITY

RATIO

EPS (cent) 3.9 0.9 5.0