By Khairie Hisyam
Sime Darby’s plantation division expects 3-4% lower fresh fruit bunches (FFB) output this financial year as dry weather hits Malaysia and Indonesia, said president and group chief executive Mohd Bakke Salleh today.
Mohd Bakke Salleh
Speaking at media briefing on Sime Darby’s 2Q14 results this afternoon, Mohd Bakke said that with four months to go before the current financial year ends, total production is likely lower compared to the previous financial year.
“In Indonesia the drop will be sharper,” said Mohd Bakke, noting for Malaysia the drop is expected around 2%.
Executive vice president of Sime Darby’s plantation division Franki Anthony Dass added however that in the second half of FY14 the group expects to catch up and narrow the deficit in production against the previous year.
For 1H14, Sime Darby’s plantation division saw a total of 5.04 million metric tonne (MT) in FFB output, a 14.2% drop from 5.88 million MT in 1H13.
Sime Darby’s total FFB output for FY13 was 10.14 million MT and the group is expecting total output for FY14 to be around the 10 million MT mark.
For 2Q14, Sime Darby’s plantation division recorded a profit before interest and tax (PBIT) of RM507.5 million, 3% lower than RM522 million in 2Q13.
Mohd Bakke attributed the 3% PBIT drop year-on-year (y-o-y) to a 13% drop in FFB production mainly caused by a cropping pattern change in Indonesia.
“The lower crop production was mitigated by 9.5% improvement in the average crude palm oil (CPO) price realised from RM2,207 per tonne in 2Q13 to RM2,416 per tonne in 2Q14,” added Mohd Bakke.
At 5pm, Sime Darby was 7 sen lower at RM9.11.
Earnings pressure in 1H14, but on track to net profit KPI
Save for its property segment, all of Sime Darby’s business divisions saw earnings come under pressure in FY14 so far, with two quarters to go before the financial year ends.
The property division saw 18% higher earnings in 2Q14 at RM72.2 million compared to RM61.2 million in 2Q13, bringing up year-to-date earnings to RM137.7 million which is 5% higher from 1H13.
For the first half of FY14, earnings for plantation dropped 36% y-o-y at RM762.1 million in 1H14 compared to RM1.19 billion in 1H13. This was attributed to 14% lower FFB production in 1H14 as well as lower CPO sales volume, which declined 9% y-o-y.
Additionally, the motors division was affected by adverse market sentiments, changes in government legislation in Singapore as well as economic slowdown in Thailand. Consequently Sime Darby Motors saw earnings drop 20% y-o-y in 1H14 at RM260 million compared to RM325.9 million in 1H13.
Similarly, Sime Darby’s industrial and energy and utilities divisions saw 12% and 16% y-o-y earnings decline respectively, posting RM588.7 million and RM109.3 million for 1H14. In 1H13 Sime Darby Industrial posted RM667.4 million while Sime Darby Energy and Utilities recorded RM130.3% million in earnings.
Overall, Sime Darby group recorded 24% lower PBIT for 1H14 at RM1.88 billion compared to RM2.43 billion in 1H13, with net profit dropping 23% over the same period at RM1.3 billion in 1H14 compared to RM1.69 billion in the previous corresponding period.
“The group has undergone a challenging six months as the global economic and business environment continue to be volatile,” said Mohd Bakke. “Nonetheless we remain resolute in our focus on improving operational efficiencies across the group and ensuring that each division addresses their challenges.”
Despite clocking in a lower net profit for 1H14 compared to the previous corresponding period, however, Mohd Bakke said that Sime Darby is on track to achieving its key performance indicator (KPI) target of RM2.8 billion net profit for FY14.
“The plantation segment, which has been the main contributor of about 50% of the company’s net profit, is expected to improve further, with the increase in the average price of CPO in the second quarter this year,” said Mohd Bakke, adding that the dynamics of the industry point towards prices firming up.
“However, we still have to look into the dynamism of the business and natural surrounding plus weather as our businesses would thrive based on these factors,” he added.
When asked whether it is now time to spin-off Sime Darby Property as a separately listed entity, Mohd Bakke said it is not time yet.
“We are working on it,” said Mohd Bakke although he declined to give a definite timeline. “I cannot commit anything (on the matter), that is an honest answer.”
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