Sime Darby revises downwards FY15 net profit target

KUALA LUMPUR: Sime Darby Bhd has revised its net profit target for financial year ending June 30, 2015 (FY15) downwards on lower crude palm oil (CPO) price as well as weak performance of the industrial and motor divisions, its president and group CEO Tan Sri Mohd Bakke Salleh said.
"We're looking at hitting anywhere between 80% and 85% of our target because right up till end of April, we have achieved RM1.5 billion. If we stick by the earlier key performance index (KPI) target of RM2.5 billion net profit, then we have another RM1 billion to achieve for the last two months of the year.
"Obviously it is not going to happen, looking at the performance right up till today and how we see the market for the remaining weeks of the current financial year. I'm looking, hopefully, to close the year anywhere between RM2 billion and RM2.1 billion," he told reporters at a briefing on its third quarter results last Friday.
Mohd Bakke said its KPIs for FY15 of RM2.5 billion net profit and 8.5% return on equity were set based on its projected CPO price of RM2,350 per tonne for FY15.
For the nine months ended March 31, 2015, the group's average CPO price was at RM2,171 per tonne compared with its forecast of RM2,350 per tonne while productivity was affected by severe weather.
The group expects CPO prices to average between RM2,200 and RM2,400 per tonne until end of 2015.
Its CFO Datuk Tong Poh Keow said its industrial division saw lower equipment deliveries and product support sales in the nine-months period due to the continuing weak mining sector, which saw mining companies scaling back while the motors division saw lower profit contribution from Malaysia due to the implementation of the Goods and Services Tax.
She said these two divisions were affected by lower coal and mineral prices combined with the strengthening of the US dollar, especially its operations in Australasia and China.
The group is planning to reduce its workforce in Australasia and China by nearly 2,000 staff. However, the job cuts will not affect its operations in other countries, including Malaysia.
Mohd Bakke said its Malaysian operations are "pretty much diversified" and has performed well, and the group does not foresee any problems here thus there is no compelling reason to reduce headcount.
"Whereas in the case of Australia, you can see the significant dip in terms of profit contribution. Once upon a time, the Australian operation, coming out of Australia itself, from Queensland, contributed around 70% of the industrial division's profits. Today, it has dropped by a hefty percentage. Malaysia has been very consistent, every year contributing anywhere between RM50 million and RM100 million," he said.
For the third quarter ended March 31, 2015 (Q1), its net profit fell 55% to RM386 million from RM852.5 million a year ago while revenue fell 1% to RM10 billion from RM10.1 billion a year ago.
For the nine months ended March 31, 2015, net profit fell 39% to RM1.32 billion from RM2.16 billion a year ago while revenue fell 2% to RM30.86 billion from RM31.39 billion a year ago.
The group registered lower pre-tax profits across all its divisions except the property and energy and utilities divisions.
Tong said it incurred a total capital expenditure (capex) of RM1.7 billion during the nine-month period against a forecasted capex of RM2.6 billion.
She said it will implement a phasing of capex by prioritising investment spending that is underlined by strong strategic impact and appropriate market timing while looking at cost control initiatives.