IOI’s 2Q18 net profit surges to RM595m on currency exchange

The surge is due to net forex gain on US dollar-denominated borrowings and fair value gain


IOI Corp Bhd’s net profit surged to RM595.9 million in the second quarter ended Dec 31, 2017, of the financial year 2018 (2Q18) against RM15.6 million in 2Q17.

The integrated global palm oil player attributed the higher net profit for the period under review to net foreign currency translation gain on foreign currencydenominated borrowings and fair value gain on derivative financial instruments from the resource-based manufacturing segment.

Its revenue saw a marginal decrease of 4.3% to RM2.39 billion in 2Q18 compared to RM2.51 billion recorded in the preceding year of the corresponding quarter.

The plantation segment’s profit for 2Q18 was RM340.9 million — 5% lower than 2Q17’s profit of RM357.9 million due to crude palm oil (CPO) and palm kernel (PK) prices realised, despite higher fresh fruit bunches (FFB) production.

The average CPO and PK prices realised for 2Q18 were RM2,644/metric tonne (MT) (2Q17 — RM2,768/MT) and RM2,621/MT (2Q17 — RM2,882/MT) respectively.

The resource-based manufacturing segment reported a profit of RM128.3 million for 2Q18 compared to RM71.9 million in 2Q17. This is excluding the fair value gain/ loss on derivative financial instruments; the underlying profit for resource-based manufacturing segment of RM62.2 million for 2Q18 — 47% lower than the underlying profit of RM118.4 million in 2Q17 — due to loss reported from the merchandising activities, mitigated by better performance from the oleochemical sub-segment.

In an exchange filing last Friday, the firm said the resilient CPO price and the continued recovery of FFB production from the low production in the previous financial year would bolster the performance of the plantation segment during the next three months.

“As for the resource-based manufacturing segment, both the oleochemical and specialty fats sub-segments are expected to perform well during the next six months as the global and regional economies continue their steady growth.

“The divestment of the 70% equity interest in Loders Croklaan Group BV, our specialty fats business, is expected to be completed in the 3Q18,” it said.

The group also said the reduction in earnings arising from this divestment will be partly offset by the savings in interest expense from the reduction in borrowings and interest income from the balance of divestment proceeds pending new investment opportunity.

Additionally, the ringgit- US dollar exchange rate, which has strengthened considerably in recent months, has resulted in a substantial foreign-exchange (forex) translation gain from our US dollardenominated borrowings.

“The outlook for ringgit will remain positive during the next three months, which will reduce the risk of forex translation loss from these borrowings,” it said.