- Sime Darby Bhd said net profit fell 31% to RM2.3bil for the full year ended June 30
Sime Darby Bhd said net profit fell 31% to RM2.3bil for the full year ended June 30, joining its peers in the plantation sector hit by a slump in commodity prices.
The drop in profit, which was widely expected, was less severe than what the market had predicted. Consensus estimate before the results were released was at RM2.1bil.
Shares in Sime Darby climbed 33 sen, or 4.6%, to close at RM7.45 yesterday, extending a two-day rebound. The stock, on Monday, had hit a six-year low of RM7.02.
Speaking at a press conference yesterday, its president and chief executive officer Tan Sri Mohd Bakke Salleh said the main challenges for the group in financial year 2016 (FY16) remains the same.
“The weak outlook for commodity prices, coupled with cautious consumer spending and stricter monetary policies, will be some of the major headwinds that the group is expected to face,” he said.
He added that the group will focus on implementing strategic cost-saving initiatives on the back of better capital management.
The group, Mohd Bakke said, was weighing several options to strengthen its balance sheet. Sime Darby had a debt amounting to RM18bil as at end-June.
StarBiz on Monday had reported that Sime Darby was considering an equity fund-raising exercise, as the company was seeking to lower its debts by at least a third.
Sime Darby’s debt-to-equity ratio stood at 58% as at end-June. Mohd Bakke said he sees a debt-to-equity ratio of between 30% and 35% as “a more desirable” level for the group.
The task of lowering the group’s debt levels to a more “palatable” level comes at a time when the company is grappling with plunging prices of crude palm oil (CPO).
The benchmark CPO futures contract on Bursa Derivatives yesterday tumbled below RM1,900 a tonne for the first time since March 2009.
“I doubt very much CPO prices will fall below cost,” Mohd Bakke said, adding that the cost of sale for CPO at Sime Darby, including tree replanting expenses, was about RM1,450 a tonne.
The plantation business made up less than 40% of the group’s pre-tax profit in FY15, down from 45% a year ago.
Contribution from the division fell to RM1.15bil from RM1.87bil previously. The average selling price of CPO realised by Sime Darby in FY15 fell to RM2,193 a tonne compared with RM2,451 a year ago.
“Despite persistent downward pressure on CPO prices, long-term fundamentals for palm oil remain strong,” Mohd Bakke said. He did not provide any price prediction for the commodity.
Elsewhere, key divisions, industrials and motors, also posted sharp drops in profits during the year.
Sime Darby’s units in Australia and New Zealand are major suppliers of mining and farming equipment.
The drop in the price of coal, Mohd Bakke said, had affected the group’s business there.
Pre-tax contribution from the industrial division halved to RM521mil in FY15.
Meanwhile, the group’s property division had an exceptionally strong year, boosted by higher sales and one-off gains from disposals of investments, land and a joint-venture entity.
Mohd Bakke said unbilled sales at its property division stood at RM1.28bil.