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KUALA LUMPUR: Sime Darby Bhd, the world’s biggest plantation company, will not revise upwards its key performance indicator (KPI) target for the current financial year ending June 30 (FY09) although the pricing environment for crude palm oil (CPO) has improved.

President and chief executive officer Datuk Seri Ahmad Zubir Murshid said CPO prices had gone up only recently while the company’s KPI target was set last November after taking into account the prices for the entire year.

“The revised KPI had taken into consideration a 12-month duration of CPO prices. So we are not revising the KPI,” he told a media briefing to announce that Sime Darby posted a net profit of RM165.7 million on a turnover of RM7.47 billion for the third quarter ended March 31.

The net profit is down 85% from the RM1.11 billion achieved on a turnover of RM8.64 billion in the corresponding quarter last year.

According to Sime Darby’s revised KPI, it is expected to achieve a net profit of RM1.9 billion for FY09 based on a target return to shareholders’ funds of 8.8%. Before the revision in November, the target return to shareholders’ funds was 16.7% which translates into a net profit of RM3.7 billion.

In its revised KPI, Sime had assumed CPO would trade at an average of RM1,700 to RM2,000 per tonne in the current year.

For the cumulative nine months, the group’s net profit declined 50% to RM1.33 billion from RM2.66 billion a year earlier.

This means that Sime Darby has already achieved 70% of its revised KPI target. Revenue was lower at RM23.48 billion against RM24.92 billion last year.

However, its average CPO selling price in the third quarter is higher than the RM1,700-RM2,000 assumed when setting the revised KPI.

“Our average selling price for CPO is RM2,127. I hope CPO remains strong. Fundamentally, there is a shortage of oil. Weather is another question. But we hope CPO would maintain at this level,” Zubir said.

CPO for August delivery closed RM76 lower at RM2,445 a tonne on the Malaysia Derivatives Exchange yesterday.

Although Sime Darby is not changing its KPI target, the market is expecting the plantation giant to return better numbers. According to Bloomberg’s consensus earnings, Sime Darby is expected to register a net profit of RM2.18 billion for the current year.

For its third quarter, the biggest contributors to the bottom line were the plantation and industrial segments that accounted for more than 70% of the operating profit of RM426.8 million.

But the biggest improvements came from the energy and utilities, and property development divisions. The former  posted a 82% higher operating profit of RM35.2 million while the latter saw a 79% increase to RM83.2 million.   

On plans to list its subsidiary companies, Zubir said Sime Darby was in the expansion phase of its merger exercise where it was focusing on growth and expanding the various divisions.

He said it would review its various operations in two years’ time and only then decide if its subsidiaries were ripe for listing or disposal and whether it could further expand in a particular business.

“We are expanding in the upstream and downstream activities for plantations. For property, we are looking at our Vision Valley. We have long-term project development.

“For the motor industry, we recently acquired the whole rights to Hyundai Malaysia. That is one of the growth areas we are looking at. We are also putting in more to expand our China operations for the industrial side. As for the oil and gas segment, we have already put in our bid for Ramunia.

“So these are the growth strategies we have put in,” he said.

On its industrial division, Zubir said it continued to perform strongly for the first three quarters with revenue increasing 9% to RM5.92 billion. Its orderbook for the coming 12 months was very strong although there has been some 40% cancellations for the 20-month period ahead.

Generally, the CEO of Malaysia’s biggest company said that the outlook is challenging. “The results show that we will not be as good as last year. But going forward, we will be very happy with the current performance,” he said.

Sime Darby rose five sen to RM6.95 yesterday.


This article appeared in The Edge Financial Daily, May 26, 2009.

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