Loss-making Liberia, low CPO prices drag Sime Darby Plantation’s 3Q19 profit

The weaker performance is attributable to the 11% decline in FFB production


SIME Darby Plantation Bhd posted a net profit of RM32 million for the third quarter ended September 2019 (3Q19) as the upstream division delivered a lower operating profit while Liberia’s losses widened.

Revenues for the quarter stood at RM2.82 billion. There is no comparative performance for the quarter and the nine months ended Sept 30, 2019, due to the change in the financial year-end from June 30 to Dec 31.

The planter said its upstream segment recorded an operating profit of RM76 million, a 65% declined from the corresponding quarter in 2018 due to the lower yield and crude palm oil (CPO) realised prices.

“The group’s upstream continuing operations reported a profit before interest and tax (PBIT) of RM76 million for the current quarter, which declined 65% from RM218 million despite improvement in oil extraction rate (OER) from 0.78% to 21.85%.

“The weaker performance is attributable to the 11% decline in fresh fruit bunches (FFB) production, as well as the lower average CPO and palm kernel (PK) realised prices by 6% and 37% respectively.

“The group also reported weaker profit in its sugar operation in Papua New Guinea in the current quarter,” it said last Friday.

The group’s upstream segment for Malaysia alone posted a 30% decline in PBIT to RM88 million, impacted by the lower average prices for both CPO and PK.

“The average CPO realised price for the quarter of RM2,028 per tonne was 9% lower, while the average PK realised price of RM1,144 per tonne was 35% lower than the previous corresponding quarter.

“The adverse variances were partially mitigated by the 0.93% rise in OER to 21.59% in the current quarter,” it said.

Meanwhile, its downstream operation’s PBIT rose 42% to RM68 million, mainly due to the higher profit from the differentiated businesses and trading operations.

“The improved performance of the differentiated businesses was largely due to higher sales volumes and better margins in Asia Pacific and Europe, compensating for the weaker contribution from the differentiated business in Africa which was impacted by stiff competition.

“The trading operations registered better contribution attributable to higher margins resulting from the zero export duty for both Malaysia and Indonesia for the quarter under review,” it said.

For its underperforming operation in Liberia, the group said the operation reported a higher loss of RM311 million compared to RM158 million a year ago due to the impairment charges on the assets worth RM256 million.

“The joint ventures (JVs) recognised under the discontinuing operation contributed a profit of RM2 million, compared to a loss of RM5 million in corresponding period last year due to the improvement in oleochemical business, which compensated for the impairment of a JV of RM8 million,” it said.

Its group MD Mohamad Helmy Othman Basha (picture) said the group’s performance was adversely impacted by the volatility of commodity prices and unpredictable weather, in addition to its lossmaking plantation in Liberia.

“The results were also largely affected by the impairment charges for our assets in Liberia as we prepare to exit our business there.

“Our operations in Liberia continue to face challenges and uncertainties. It continues to report losses to date since its commencement,” he said.

However, Mohamad Helmy said the group is believed to be more resilient in the future as it embarks on an enhancement measures to overcome the challenges and strive for greater profitability and productivity.

“The group is now even more determined in pursuing our latest strategies to thrive in the prevalent challenging business environment.

“This includes balancing the profit contribution from both our upstream and downstream segments, strengthening our approach to improve operational efficiencies, as well as maintaining disciplined management of our cost and liquidity,” he said.