This article first appeared in The Edge Financial Daily, on November 17, 2015.

KUALA LUMPUR: Palm oil giant IOI Corp Bhd plunged into the red, posting a net loss of RM719 million or 11.38 sen per share for the first financial quarter ended Sept 30, 2015 (1QFY16), compared to a net profit of RM176.7 million or 2.78 sen per share in 1QFY15, hit by foreign currency translation and fair-value losses.

 Revenue for the quarter rose 3% to RM3.09 billion, from RM2.99 billion a year earlier.

According to its statement to the exchange, the group posted a net foreign currency translation loss of RM853.9 million due to the strengthening of the US dollar against the ringgit, and also a fair-value loss on derivative financial instruments of RM202.8 million.

In its notes to accounts, IOI Corp said during 1QFY16, the US dollar strengthened against the ringgit by 18%, resulting in a non-cash flow net foreign currency translation loss of RM853.9 million on the group’s foreign currency denominated borrowings.

“Excluding the aforesaid net foreign currency translation loss and the fair-value loss on derivative financial instruments of RM202.8 million, the underlying pre-tax profit of RM402.7 million for 1QFY16 is 22% higher than the underlying pre-tax profit of RM331.3 million for 1QFY15, attributed mainly to improved performance from our resource-based manufacturing segment,” it explained.

Its resource-based manufacturing business reported a segmental loss of RM8.8 million compared to a profit of RM108.8 million a year ago, mainly due to a fair-value loss on derivative financial instrument of RM198.5 million in 1QFY16.

Meanwhile, its plantation segment’s profit for the quarter fell 8% to RM258 million, due to lower crude palm oil price (CPO) realised.

In 1QFY16, the average CPO realised was RM2,119 per tonne compared with RM2,258 for 1QFY15.

The group expects its operating performance for the remaining quarters to be satisfactory, as it expects better performance from its two segments.

“Despite the current high inventory level, palm oil fundamentals are positive with CPO prices likely to sustain at the prevailing level and possibly moving higher during the low seasonal production months in first quarter of calendar year 2016.

“Overall, our plantation segment is expected to perform satisfactorily in the remaining quarters of this financial year,” said the group.

For its resource-based manufacturing segment, the group sees better performance ahead, as a high proportion of its revenue is denominated in US dollar. However, the volatility in currency exchange rates will continue to affect its medium- to long-term US dollar denominated borrowings.

Meanwhile, the group’s property arm, IOI Properties Group Bhd (IOIPG) fared better during the quarter, reporting a net profit of RM115.48 million or 3.07 sen per share for 1QFY16, up 14% from RM101 million or 3.08 sen per share in 1QFY15.

The better financial results for the quarter were supported by a 59% jump in revenue to RM595.26 million, from RM375.52 million a year ago.

In a statement to the exchange, IOIPG said its three segments, namely property development, property investment and leisure, hospitality and other operations had all performed better during the quarter.

Its property development segment saw a 41% increase in operating profit to RM174.7 million, due to a higher sales take-up rate in its Singapore-based Trilinq project, its maiden residential projects in IOI Palm City, Xiamen, in China, and steady increase in progress works from ongoing development projects. Its property investment division posted an operating profit of RM29.8 million, soaring 74% from the previous year, driven by growth in the retail segment.

Meanwhile, its leisure, hospitality, and other operations also saw improved performance, contributed by Fourpoint by Sheraton in Puchong, and its amusement park District 21 and Icescape Ice Rink at IOI City Mall in Putrajaya.

The company expects a challenging operating environment in the near term, as the local property market remains slow. “The domestic property market sentiment remained relatively subdued as the industry continues to experience slower overall take-up rate at new property launches. This is mainly attributed to cautious consumer spending and tighter lending policies.

“Barring any unforeseen circumstances, the group’s performance is expected to be satisfactory,” it said.

IOI Corp closed three sen or 0.72% higher at RM4.17, with a market capitalisation of RM26.08 billion, while IOIPG closed unchanged at RM2.09, with a market cap of RM7.87 billion.