KUALA LUMPUR: A massive restructuring exercise is on the cards for conglomerate Sime Darby Bhd and it would like to start hiring bankers to advise on the group restructuring.
Its president/group chief executive Tan Sri Mohd Bakke Salleh told Bloomberg that being a conglomerate with hefty wide ranging interests may not be the best structure for market valuations.
Sime Darby’s core businesses are plantation, industrial equipment, motor, property and logistics.
The plan, said Bakke, was to create one or two industry-focused companies for separate listings.
He said the restructuring was long overdue after its merger nine years ago.
Bakke singled out the plantation division as possibly being “the right choice” due to better crude palm oil (CPO) prices and the sector’s long-term fundamentals.
He reckoned the potential listing of its plantation division could probably take place within the next 12 months.
Sime Darby is one of the largest listed palm oil producers in the world by market value.
Its property division could also be a “suitable” candidate for a separate Bursa listing but this would be “at a later stage,” Bakke said.
The weak ringgit has also been a challenge for the sprawling conglomerate, especially to the motor division.
Purchase cost will be higher, Sime’s chief financial officer Tong Poh Keow said at the same briefing.
The strengthening of the US dollar would, however, impact CPO price favourably.
Said Bakke: “We will need to sit down and discuss with our financial and strategic advisors to think through the process and look at all the different options and how we can cuff off a good business journey for Sime Darby.”
Earlier at the same event, the group announced that it has set its key performance indicator (KPI) target of RM2.2bil in net earnings for financial year ending June 30, 2017 (FY17). This is based mainly on the average crude palm oil price of RM2,650 per tonne. The KPI was also based on other key parameters.
“Among them were subdued demand for engines from the oil and gas, marine and shipyard sectors, weaker ringgit resulting in higher cost of imported inputs and strict lending policies as well as cautious consumer sentiment,” he said.
Bakke said Sime Darby has taken into considerations and possibilities in terms of likely events and looked on what it has achieved since October this year.
“We are not being conservative, just being realistic of what could happen and essentially that is how we came up with the RM2.2bil and how the respective division will perform,” he said.
The plantation division is the biggest earnings contributor of around 40% to the group.
For the first quarter ended Sept 30, 2016, the plantation division’s pre-tax profit fell 9.6% to RM273 mil, mainly due to lower fresh fruit bunch production, lower oil extraction rate and lower crude palm oil sales volume.
Bakke said the lingering effects of the Super El Nino continued to impact production, particularly in South Kalimantan and Sabah.
The company reported a net profit of RM443mil for its first quarter ended Sept 30, 2016, an increase of 37% from a year ago.
Revenue declined to RM10.10bil from RM10.17bil previously.
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