Sime Darby’s 4Q net profit down 53% on impairments

The impairments and provisions spanned across 4 of Sime Darby’s 5 major divisions 


SIME Darby Bhd’s move to relist its plantation and property divisions has seen the group absorb nearly RM700 million in impairments and provisions within a year. 

The world’s largest producer of palm oil by land size saw its net profit for the fourth-quarter (4Q) halved to RM571 million or earnings per share (EPS) of 8.4 sen, from RM1.2 billion net profit or EPS of 19.4 sen in 4Q16, due to multiple impairments and provisions taken to ensure that group pure demerged entities (or pure plays) can start on a clean sheet. 

“It is the largest impairment the group has taken. We’re looking forward to start with a bang,” president and group CEO Tan Sri Mohd Bakke Salleh said to a media briefing in Kuala Lumpur last Friday. 

The impairments and provisions spanned across four of Sime Darby’s five major divisions, bringing the total value to a massive RM684 million. 

Impairment of assets in the plantation division totalled RM241 million and RM247 million for the industrial division, while impairments and provisions in the motors and property divisions stood at RM37 million and RM149 million respectively. 

“It is important that we explain and clarify this impairment exercise that we had reviewed. It was a very thorough deliberation among the divisions and also by our board of directors,” said group CFO Datuk Tong Poh Keow. 

Fourth-quarter revenue rose 7% year-on-year (YoY) to RM8.2 billion, effectively lifting its return on average shareholders’ equity to 7% and higher than its target of 6.4%. The improved performance was overshadowed by a RM4 million loss in the industrial division. 

In a filing to Bursa Malaysia last Friday, Sime Darby noted the industrial division was the only segment to report a loss, due to a hefty RM214 million impairment charge for the distribution rights of Bucyrus and the provision for onerous contracts worth RM43 million for the leasing of Bucyrus equipment. 

Without the charges, the division still underperformed as profit declined by 26% to RM253 million compared to the previous year.

The adverse show was largely attributed to lower engine deliveries to oil and gas sector, as well as marine sector in Singapore, project delays in Hong Kong and the intense competition in Australaia. 

The stabilisation of global coal prices failed to uplift the value of the commodity in Australasia as low prices continued to be the preferred strategy among competitors in the region. 

Nonetheless, lower contribution from the company’s overseas ventures was offset by better performance locally, driven by the construction sector. 

Profit from the group’s logistics division dropped 38% YoY due to the recognition of a RM19 million government grant and a gain on disposal of 50% equity interest in Weifang Sime Darby Liquid Terminal Co Ltd of RM18 million in the previous year, vis-à-vis a gain of RM10 million on the disposal of a 50% equity interest in Weifang Sime Darby West 

Port Co Ltd in the current year. Sime Darby’s motors division performed decently for the year with a 26% YoY rise in profit to RM633 million due to better sales in Malaysia, China and New Zealand, despite the challenging and competitive sentiments in the respective markets.

The division’s Malaysian  business saw higher contribution from BMW, Hyundai and the group’s car rental business, while strong demand for super-luxury cars and profit from truck operations drove income for its China and New Zealand businesses respectively. 

In addition to improved contribution from its healthcare business, the group also gained RM35 million from the partial disposal of its interest in Eastern & Oriental Bhd during the current financial year. 

On a full-year basis, Sime Darby posted a 0.8% YoY jump in net profit to RM2.44 billion for the financial year ended June 30, 2017 (FY17), while turnover grew 6.5% YoY to RM31.1 billion. 

A final dividend of 17 sen per share has been proposed for FY17, which takes the total dividend for the year to 23 sen per share compared to EPS of 36.7 sen. 

Commenting on the proposed distribution and the subsequent listings of its entire shareholdings in Sime Darby Plantation Bhd and Sime Darby Property Bhd, the group noted the proposal is “progressing on schedule” and is expected to be completed in 4Q this year.