Sime Darby's Vision Valley to proceed despite weak results

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KUALA LUMPUR: Sime Darby Bhd's weaker performance in its second quarter would not impact its plans for its Sime Darby Vision Valley (SDVV) project, said its president and group chief executive officer Datuk Seri Ahmad Zubir Murshid.

Zubir said SDVV was a long-term project in line with the Kuala Lumpur Conurbation plan spanning 20 years, which was still in the planning stages. As a result, the recent downturn should not have any significant impact on it."What we have is just a masterplan and we are inviting strategy partners to come and invest," Zubir told reporters at a briefing on its latest quarterly results yesterday.

On whether the cancellation of the Labu airport project would jeopardise SDVV, Zubir said its plans to develop an "aeropolis" in SDVV would go ahead whether the new low-cost carrier terminal (LCCT) was built in Labu or Sepang.

Sime Darby’s net profit in the second quarter (2Q) fell 65.2% to RM278.6 million from RM800.3 million a year ago, due to weaker earnings from the plantation division.

The group is now bracing for more challenging times ahead.

"We know the CPO (crude palm oil) price has declined drastically. Our average CPO price compared to last year dropped by almost 28%, but we're fortunate our industrial division performed strongly," Zubir said.

He was confident that Sime Darby would achieve its revised key performance index (KPI) for its fiscal year ending June 30, 2009 (FY09). This was based on the expectation that CPO would trade at RM1,700 to RM2,000 for the rest of the fiscal year.

Last November, Sime Darby revised its earnings target for FY09 to RM1.9 billion from RM3.7 billion previously.

Offsetting the plantation loss was its industrial division, which performed strongly in 2QFY09 despite the weak global economy and the negative impact of the weak Australian dollar.

The division’s operating profit increased by 23% to RM436 million, mainly due to the strong Southeast Asian and Australasia operations. Revenue in 2QFY09 fell 10% to RM7.29 billion from RM8.1 billion. It declared a dividend of five sen per share.

For the first half, its net profit fell 18.2% to RM1.14 billion from RM1.4 billion in the previous corresponding period. Revenue fell 2% to RM16 billion from RM16.28 billion a year ago. Basic earnings per share fell to 19.06 sen from 24.29 sen.

Bank balances, deposits and cash were reduced to RM2.98 billion as at Dec 31, 2008 from RM5.99 billion on June 30. Long–term borrowings rose to RM3.42 billion from RM3.19 billion during the period.

Moving forward, Sime Darby will be looking at reducing its operational costs by reducing inefficiencies, which would include revisiting its motor division, Zubir said.

While Sime Darby would be "keeping an eye on capex (capital expenditure)" owing to the current environment, it would nonetheless remain open to acquisitions should the opportunities present themselves.

Plans in the pipeline included expanding the company's downstream capacity with respect to its plantation sector, developing the 80,000-acre SDVV, and the construction of another healthcare unit, Zubir said.