Sime Darby makes record RM684 mil impairment to give pure plays a clean start

KUALA LUMPUR (Aug 26): Sime Darby Bhd, which is set to list its plantation and property arms — Sime Darby Plantation Bhd (SD Plantation) and Sime Darby Property Bhd (SD Property) — separately on Bursa Malaysia by November, has undertaken a record impairment at the group level to provide a clean sheet for their financials, moving forward.

Sime Darby, which announced its financial year 2017 results for the 12 months ended June 30 today, charged a full-year impairment of RM684 million to its books, where the two businesses have been listed as "discontinuing operations". This leaves it with the industrial, motors and logistics businesses under its continuing operations.

Sime Darby president and group chief executive Tan Sri Mohd Bakke Salleh said the amount was the largest impairment the group has booked, to date.

"Following an intense and very detailed review and evaluation of the respective assets [of the group], we decided it was appropriate to come up with the close to RM700 million impairment provision.

"We are looking forward to start the pure plays with a bang," he told reporters at a media briefing yesterday in conjunction with the release of the group's financial results.

Consequently, its final quarter of the year reported a 53.4% year-on-year slump in net profit to RM571 million from RM1.22 billion, after accounting for some RM605 million in impairments and provisions during the quarter across its divisions.

This included a RM202 million charge in its plantation division in respect of its Liberia operations due to the Ebola outbreak setback, and another RM214 million for Bucyrus' distribution rights in its industrial division due to a downturn in the Australian mining sector.

The group's motors division in Vietnam also saw a goodwill impairment of RM19 million. And with the soft property market, the group also made a provision for RM70 million for unsold stocks, mainly at the East Residence in Bukit Kiara and The Glades, Putra Heights.

Revenue for 4QFY17 grew 6.1% y-o-y to RM8.2 billion from RM7.7 billion.

For the full FY17, Sime Darby's net profit inched up to RM2.44 billion from the RM2.42 billion it posted a year ago, while revenue climbed 5.5% to RM31.09 billion from RM29.45 billion.

The group recently announced its leadership line-up for the pure plays, with Bakke slated to take on the role of executive deputy chairman and managing director (MD) at SD Plantation, while Jeffri Salim Davidson will be the new president and group chief executive of Sime Darby. SD Property will be led by Datuk Amrin Awaluddin as the new MD.

Bakke set to retire in two years
Bakke said he will stay on as MD of SD Plantation for two years before retiring.

"I have decided to stay on [as] I want to see through the completion of this exercise and then take the plantation business through this transitional period.

"After that, there will be the passing of baton to a younger individual. We are looking at someone in the mid- or late 40s or early 50s — that individual will have a good 10 to 12 years to helm [Sime Darby] plantation," he said.

To carve out the two businesses to create three standalone entities, the group is currently undergoing an internal restructuring involving its borrowings, transfer of assets and the settlement of intercompany loans.

The final terms
On borrowings, Sime Darby has novated its US$1.5 billion multi-currency and RM3 billion perpetual subordinated sukuk programmes to SD Plantation, with an outstanding principal amount of US$172 million (RM740 million) and RM2.2 billion, respectively.

As for its Islamic Medium Term Note (iMTN) programme, an early redemption of RM300 million and RM400 million — with maturity dates of Dec 9, 2022 and Dec 10, 2027 respectively — have been completed.

As for asset transfers, SD Property and Kumpulan Sime Darby Bhd (KSDB), a wholly-owned subsidiary of Sime Darby, have each entered into separate sale and purchase agreements with SD Plantation to acquire lands in Labu, Seremban, which have been earmarked for the Malaysia Vision Valley (MVV) project.

This entails the transfer of 8,793 acres to KSDB and 1,944 acres to SD Property, with an aggregate sale value of RM3.2 billion. SD Plantation will then leaseback and manage existing oil palm estates on the designated MVV land until the commencement of the MVV project.

Meanwhile, net intercompany loans owing to Sime Darby by SD Plantation will be capitalised via the issuance of new SD Plantation shares amounting to RM500 million in value, leaving a balance cash settlement of RM310 million.

SD Property will also issue new shares for RM4.4 billion in value to Sime Darby, with the remaining balance to be settled via cash of RM424 million.

Post restructuring, SD Plantation's issued shares will increase from 600 million to 1.1 billion, which will then be subdivided into 6.8 billion shares so that it is similar to Sime Darby.

The share split for SD Plantation and the share issuance by SD Property for the settlement of intercompany loans will ensure Sime Darby's shareholdings in the new pure plays are distributed such that entitled shareholders will get stakes in both entities that are equal to their shareholding in Sime Darby.

Sime Darby shares slid 10 sen or 1.1% to settle at RM9.13 yesterday, which valued the group at RM62.09 billion. —

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