Although earnings for its fourth quarter (4Q) ended June 30 eased 3.6% to RM984 million from RM1 billion a year ago, Sime Darby’s president and group chief executive officer Datuk Seri Ahmad Zubir Murshid said he was happy with the performance of the group, given the operating environment.

“I am pleased with the performance of the group, especially since we are emerging from a very challenging business environment in a relatively strong position,” he said at a press conference here yesterday. “Our performance is a further testament of our conglomerate business model.”

Sime Darby’s quarterly revenue also fell year-on-year to  RM7.54 billion in 4Q09 from RM9.12 billion in 4Q08.

For the full year, the conglomerate’s earnings came in at RM2.28 billion, down 35% from RM3.51 billion in FY08.

“We exceeded our KPI for 2009 of RM1.9 billion by 20%, and the group’s return on shareholders’ funds by 1.8 percentage points,” he said, adding that contributions from the other divisions had offset losses in the plantation business.

As for corporate actions going forward, Zubir said Sime Darby was in the process of raising some RM4.5 billion, most likely in the form of sukuk. He said the exercise would likely be completed this fiscal year.

On how the proceeds would be spent, he said they were looking at several possibilities.

“We are looking at all possibilities. There is (the matter of) refinancing our existing bonds, and we are also looking at our capital expenditure (capex). Our capex (planned) for this year is about RM7 billion,” he said.

According to a Sime Darby official, the RM7 billion in capex would be spent over the next two to three years. Actual capex for FY09 came in at RM2 billion. Zubir said Sime Darby was currently in an expansionary phase, which explains the RM7 billion earmarked for spending.

Meanwhile, Sime Darby has disposed of more than 30 non-core assets, raising more than RM3 billion since 2005, which marked the start of its consolidation phase. Zubir said there were “two or three” more assets earmarked for disposal, and Sime Darby was currently looking for buyers.

The decline in Sime Darby’s fortunes was mainly driven by lower contributions from its plantation division owing to lower prices of crude palm oil (CPO). The group achieved an average CPO price of RM2,177 a tonne against average CPO futures price of RM2,198 during the 12 months ended June 30, 2009. In FY08, it realised an average CPO price of RM2,885.

Another factor was slightly poorer palm production owing to inclement weather conditions and tree stress. Fresh fruit bunch (FFB) and CPO production declined 5% and 4.1%, respectively, in FY09.

In FY09, its Malaysian operations saw FFB yield declining to 22.9 metric tonnes per hectare (MT/ha) compared with 23.4 MT/ha the year before while in Indonesia, the decline was more severe, falling from 18.9 MT/ha to 16.6 MT/ha.

Overall, the plantation division registered a 56% decline in operating profit to RM1.7 billion (from RM3.9 billion) in FY09. Zubir said he expected contribution from plantations to pick up, as the price of CPO was presently quite strong.

“I believe this will last until the end of this calendar year but we forecast a slight drop in CPO price next year,” he said.

He expected CPO to trade between RM2,000 and RM2,200 per tonne for the remainder of its fiscal year ending June 2010.

At the same time, Zubir dismissed any talk that Sime Darby might be relisting its plantation division as a separate entity, saying that its priority was to grow all aspects of its plantation business, including mid-stream and upstream businesses.

“We took the trouble to merge three companies (Sime Darby, Golden Hope Plantations Bhd and Guthrie Plantation) and the reason we merged the companies was to realise the synergy value of the three companies. I don’t see us listing back our plantation division in the near future,” Zubir said.

The biggest increase was in Sime Darby’s industrial division, which posted earnings growth of 24% to RM862.1 million from RM696 million, driven by higher sales and better margins generated in Australia, coupled with higher demand from the marine and oil & gas sectors in Singapore.

The operating profit of Sime Darby’s property division grew 4% y-o-y to RM462 million while the motor division posted growth of 13% to post an operating profit of RM178.5 million.

Meanwhile, the energy and utilities division recorded a drop of 82% in operating profit “due to cost escalation incurred on fabrication and engineering projects as a result of higher offshore costs driven largely by volatile oil prices”.

Its healthcare and other divisions,  shrunk by 91% to post profits of RM9.9 million compared with RM104.5 million due to lower gains from disposal of non-core businesses compared to the year before.

The group proposed a final single-tier dividend of 15.3 sen for FY09, bringing total gross dividend for the fiscal year to 20.3 sen.

This article appeared in The Edge Financial Daily, August 28, 2009.