Palm oil price decline dents Sime Darby profits

Sime Darby sounded a cautious note over palm oil prices after blaming the weak market for more than offsetting improved energy and industrial results to foster drop in profits.

The Malaysian-based group, the world's largest oil palm plantation group, with operations in sectors from healthcare to property too, said that its profits from the vegetable oil tumbled 28% to 671.9m ringgit in the July-to-September quarter.

The decline reflected a drop in volumes of palm oil sold, and a weakening to 2,707 ringgit a tonne in the price achieved, down 8.1% year on year.

And Sime Darby chief executive Mohd Bakke Salleh said that the group was "cautious on the outlook for the rest of the financial year", to June 2013, citing weakness in the world economy and "volatility in commodity prices".

Kuala Lumpur palm oil prices slumped by more than one-third from a high of 3,628 ringgit a tonne in April to a three-year low of 2,220 ringgit a tonne earlier this month.

'Conservative assumptions'

Mr Bakke said that Sime Darby was expecting earnings of 3.2bn ringgit in the year to June 2013, lower than many analysts have forecast, a target based on a "prudent" view of key performance indicators given commodity price volatility and a weak global economy.

"Our profit guidance was derived from conservative assumptions on the crude palm oil price to be realised," he said.

However, Sime Darby said that the longer-term prospects for the plantations division remained "resilient", thanks to the prospect of "robust long-term demand, coupled with the group's focus on higher productivity, managing costs and increasing market share for edible oils".

Many palm oil companies have forecast some revival in prices of the vegetable oil, as Malaysian and Indonesian production passes its peak, and with values at a historically large discount to rival soyoil, with which it is interchangeable for many uses.

Production result

Sime Darby said that it overall palm fruit production rose by 5.6%, with a 20% rise in output at its Indonesian plantations offsetting a decline of 1.6% at its bigger Malaysian operations.

However, the impact on palm oil output was eroded in part by a reduction in extraction rates from the fresh palm fruit bunches.

Group earnings for the quarter dipped 7.8% to 990.3m ringgit, on revenues up 6.9% at 11.8bn ringgit.

Sime Darby shares closed down 0.3% at 9.50 ringgit in Kuala Lumpur.

Source: http://www.agrimoney.com/news/palm-oil-price-decline-dents-sime-darby-profits--5264.html

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