Published August 27, 2008

Sime's full-year profit rises 40% to RM3.75b

Earnings boosted by contributions from plantations; lower profit seen this year

By PAULINE NG
IN KUALA LUMPUR

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HEFTIER plantation contributions have boosted Sime Darby's profit by 40 per cent to RM3.75 billion (S$1.57 billion) for the year ended June, but Malaysia's largest conglomerate has cautioned that earnings in the current year are expected to be affected by slower economic growth brought about by higher fuel prices.

Boosted by better yields, merger synergies and strong crude palm oil (CPO) prices, Sime's plantation division registered a 139 per cent increase in operating profit to RM3.9 billion - its contribution more than five times more than the industrial division, its next biggest contributor at nearly RM690 million, the company said in a statement accompanying the release of its unaudited results yesterday.

The group's full-year revenue was up 21 per cent to RM34 billion, while earnings per share amounted to 59.63 sen from 44.16 sen previously.

Re-listed in the last quarter of 2008 following the merger of three plantation groups, the plantations giant exceeded its key performance index (KPI) targets by posting a profit attributable to ordinary equity-holders of RM3.5 billion versus a target of RM3.15 billion. Its return on average shareholders' equity was 18 per cent against a targeted 16.5 per cent.

But in view of the challenges ahead, it plans to review its KPI targets for the current year of RM3.7 billion profit and 16.7 per cent return on shareholders' equity.

Indeed, its fourth-quarter performance was noticeably softer, its pre-tax profit down by 8 per cent against the preceding quarter.

Sime attributed this to lower contributions from plantations despite average CPO prices of RM3,285 per tonne versus RM3,101 per tonne in the third quarter 'mainly due to lower production and sales volume coupled with the higher production costs' as a result of hefty petrol and diesel price hikes of 40 and 60 per cent respectively.

Its weaker Q4 earnings were also in spite of higher profit contributions from its other divisions, property, industrial, energy and utilities.

Reflecting softer earnings expectations, its share price has dropped to about RM6.45, slashing its market capitalisation to less than RM40 billion - a far cry from its listing size of RM66 billion.

Nonetheless, Sime president and group chief executive Ahmad Zubir Murshid said the group would face the challenges from a position of strength and was 'well-placed' to acquire undervalued assets to support its long-term plans. 'The group's balance sheet is currently the strongest it has ever been while its earnings base is well diversified'

In the year under review, the group's motor division managed to double its operating profit to RM203 million from RM63 million in the previous year. But its property division saw a 19 per cent decline in operating profit to RM407 million.

Sime said RM210 million in merger synergies had been realised in the plantation and property businesses in the last fiscal year, which puts it ahead of the RM400 million-RM500 million in earnings before interest and tax synergies targeted by FY2009/10.

In the light of its performance, the board has recommended a final dividend of 34 sen per share and a special final dividend of four sen less tax plus six sen tax-exempt - which would amount to an additional 15 per cent payout on earnings, above its usual 50 per cent payout ratio. Total gross dividend for the year would equate to 49 sen per share.