Sime Darby banks on higher CPO prices

KUALA LUMPUR: Sime Darby Bhd expects lower production from its plantation division but better crude palm oil (CPO) prices to cushion the impact, for this financial year ending June 30, 2014 (FY14).
Its president and group chief executive Tan Sri Mohd Bakke Salleh said its fresh fruit bunch (FFB) output will be 2% lower than FY13 with a sharper drop expected in its Indonesian plantation, mainly due to adverse weather conditions.
"From our perspective, the higher the price, the better it is. But definitely we look at the conditions in terms of the dynamics of the business and the natural surroundings, the weather conditions, all these point towards a firming up of the price," he told reporters at a briefing last Friday.
"In terms of our average price, for the first six months it was a lower figure. Since beginning of the year, the price has moved up so we only have another four months to go. We have sold easily 73% of our Malaysian production. Our Indonesian production we move with the market, we do not engage any forward sales," he said.
Bakke added that the group expects CPO price to hover between RM2,700 and RM2,900 per tonne up till June 30.
For its second quarter ended Dec 31, 2013 (Q2 FY14), the group's net profit rose 15% to RM818 million from RM708 million a year ago, due to reduced taxes.
However, revenue for Q2 FY14 fell 3% to RM10.88 billion from RM11.25 billion a year ago.
For the six months ended Dec 31, 2013, net profit fell 23% to RM1.31 billion from RM1.7 billion a year ago.
Revenue for the period fell 6% to RM21.64 billion from RM23 billion a year ago.
The group announced an interim dividend of 6 sen per share for FY14.
Bakke said the group maintains its key performance indicator of RM2.8 billion profit for FY14.
"The group has undergone a challenging six months as the global economic and business environment continue to be volatile. Nonetheless, we remain resolute in our focus on improving operational efficiencies across the group and ensuring that each division addresses their challenges," he said.
Its plantation division posted a 3% drop in profit before interest and tax (PBIT) of RM507.5 million in Q2 FY14 from RM522 million a year ago due to 13% drop in FFB production to 2.57 million tonnes caused by change in cropping pattern in Indonesia and weather conditions.
The lower crop production was mitigated by 9.5% improvement in average CPO price realised at RM2,416 per tonne in Q2 FY14 from RM2,207 per tonne a year ago.
The group's industrial division saw a 8% drop in PBIT due to lower equipment deliveries and product support sales to the mining sector in Australia.
Its motor division also saw PBIT fall 7% due to changes in government regulation in Singapore and stiff competition in the mass brand vehicle segment which affected performances in Australia and New Zealand.
Its property division however managed an 18% rise in PBIT due to higher sales and higher percentage of completion from project developments in Elmina East and Bandar Bukit Raja.