Sime Darby posts record profits

KUALA LUMPUR: Plantation giant Sime Darby Bhd appears to be going in the right direction after its fiasco last year, posting record profits for FY11 ended June largely boosted by an impressive showing across all business divisions in its final quarter.

For 4Q ended June 30, Sime Darby posted net profit of RM1.3 billion compared to net loss of RM77.4 million in the previous corresponding quarter. The turnaround was due to higher contribution from the plantation, property and industrial divisions as well as a reversal of fortune in its energy and utilities (E&U) business, which suffered huge losses in 2Q, 3Q and 4Q of FY10. Revenue grew 43% year-on-year to RM13.1 billion from RM9.1 billion previously.

For the full year, Sime Darby’s net profit totalled RM3.7 billion, a big leap from net profit of RM726.8 million in FY10. Revenue rose 29% to RM41.9 billion from RM32.5 billion.
The group said its record performance was primarily due to sterling results of the plantation, industrial and motors divisions.

Sime Darby surpassed its FY10/11 key performance indicators’ (KPI) net profit target of RM2.5 billion by 48%. It also registered return on shareholders’ funds of 16.5%, against its KPI target of 11.5%.

Sime Darby’s previous record earnings was achieved in FY07/08 when it posted a net profit of RM3.5 billion after the completion of the mega merger that propelled Sime Darby to become the largest listed planter by landbank.

The group was put in the spotlight last year after the issue of cost overruns at its E&U division emerged. Sime Darby reported total losses of RM1.96 billion from its projects including the Maersk Oil Qatar and the Bakun Hydroelectric projects.

However, its E&U unit has since turned around and seems to be on better footing chalking up operating profit of RM313 million in FY11 thanks to stronger performance of the ports and utilities businesses in China as well as a RM98.5 million write-back from the Maersk Oil Qatar project.

The group’s largest contributor was still its core plantation business. The segment brought in operating profit of RM3.3 billion, a 56% increase from the previous year supported by higher realised average crude palm oil (CPO) prices of RM2,906 per tonne compared with average CPO price of RM2,311 per tonne in FY10.

The group also noted that production of its fresh fruit bunches improved from the previous year as yields in both its Malaysian and Indonesian plantations recovered.
However, note that CPO prices have been tapering off lately after a strong uptrend in the first half of the year.

“We will be happy if CPO prices remain at current level of about RM3,000. Demand is still strong coming out of China and India as well as Pakistan,” group president and chief executive Datuk Mohd Bakke Salleh said at a briefing yesterday.
Its motor and industrial divisions have also seen impressive results during the year.

The motor division, which distributes various brand vehicles such as BMW and Ford, reported an operating profit of RM633 million or a 64% increase from the previous year as strong demand was seen across all regions, especially in China. The group noted that sales of its premium brands did very well during the year.

According to chief financial officer Tong Poh Keow, the motor division still has a big orderbook in hand with some of its models seeing large increases in demand.
As for the industrial division, it made its highest-ever operating profit of RM1.1 billion for FY11. The 41% increase from a year earlier was mainly attributable to strong sales in Australia/Pacific Islands, China and Malaysia, as well as better price realisations across all regions.

Its property unit, however, saw a decline for the year due to an impairment of RM78 million for overseas properties. The division posted operating profit of RM456 million.
While Sime Darby has posted a sterling performance in FY11, Bakke noted that its operations would be affected by external factors in the next year.
“With what is unfolding globally, that will certainly have a bearing on the businesses that we are in particularly those that are in the distribution of motor vehicles and other equipment. This also applies to property launches and the take- up rate in the market.

‘We cannot run away from the fact that the conditions from the economic scenario would certainly have an impact on demand for the relevant products,” Bakke said.
The group is expected to announce its KPI for FY12 in November. It has increased its capital expenditure budget to RM6 billion from FY12 compared with RM5 billion in FY11, which would be deployed to various divisions.

Sime Darby proposed a final dividend of 22 sen, bringing total dividends for the year to 30 sen per share.

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