Sime Darby Blames Palm Oil Slump for 36% Slide in Profit

Sime Darby Bhd., the world’s biggest listed palm-oil producer, reported a 36 percent drop in second-quarter profit as prices of the commodity slid last year.

Net income dropped to 708.5 million ringgit ($229 million), or 11.79 sen a share, in the three months ended Dec. 31 from 1.1 billion ringgit, or 18.32 sen, a year earlier, Sime said in a stock exchange filing today. The company proposed paying a lower interim dividend of 7 sen per share.

Palm oil lost 23 percent last year after stockpiles reached record levels in Malaysia as the European debt crisis and a slowdown in China’s growth curbed demand. Prices may decline further this year after global oilseed supplies rose and Asian producers boosted acreage which will raise output, Dorab Mistry, a Godrej International Ltd. director who has traded the commodity for more than 30 years, told Bloomberg in comments published yesterday.

“We are confident of riding out the current challenging environment and reaping the benefits in the future when the global economy gets on the recovery path,” Chief Executive Officer Mohd Bakke Salleh said in the statement. “I am confident that we will be able to achieve the targets we have set for the full financial year.”

Palm oil prices may reach 2,700 ringgit to 2,800 ringgit a ton in the second half of this year, Mohd Bakke told reporters in Kuala Lumpur today. Palm oil production may be higher in this financial year as output continues to be on an uptrend.

Sime shares closed unchanged at 9.17 ringgit in Kuala Lumpur today after the earnings announcement. The stock has dropped 3.7 percent this year, tracking a similar decline in the benchmark FTSE Bursa Malaysia KLCI Index.

Increased Output

Palm oil for May delivery rose as much as 1 percent to 2,443 ringgit a ton on the Malaysia Derivatives Exchange and was at 2,429 ringgit at 5:05 p.m. in Kuala Lumpur. Futures dropped to 2,217 ringgit on Dec. 13, the lowest level for the most-active contract since November 2009.

Diversified Sime, which is based in Kuala Lumpur and operates in more than 20 nations, received an average 2,207 ringgit a ton for palm oil in the quarter, compared with 2,804 ringgit a year earlier. Profit from plantations dropped 42 percent to 522 million ringgit due to lower prices and shipments of crude palm oil, even as production of fresh fruit bunches grew 12 percent, according to the filing.

The group’s industrial division posted a 4.3 percent drop in profit to 285 million ringgit on weaker market conditions in Malaysia and Singapore. Earnings from property slumped 54 percent and contributions from energy and utilities dropped by 57 percent from a year earlier, the company said.

Sime’s search for a potential foreign partner to form a joint venture to grow its health-care business across the Southeast Asian region is a “work in progress,” said Bakke, who declined to elaborate further. The group currently has three hospitals under its healthcare division.

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