KUALA LUMPUR: Sime Darby Plantation Bhd’s (SD Plantation) third quarter profits ended March 2018 dropped 39 per cent to RM249 million from RM410 million, dragged by lower palm oil prices and volume of oil palm fruits harvested.
In its filing to Bursa Malaysia today, SD Plantation said its third quarter revenue had dipped 16 per cent to RM3.66 billion from RM4.35 billion, previously.
For the nine months ended March 2018, the group reaped RM1.7 billion in profits on the back of RM11.29 billion revenue. The 93 per cent profit increment from RM879 million, previously.
“We are encouraged by our earnings for the financial year to-date notwithstanding the challenging business environment that has impacted the group’s performance in this quarter,” said SD Plantation’s executive deputy chairman and managing director Tan Sri Mohd Bakke Salleh.
He explained the group’s third quarter performance was affected by lower production of oil palm fruits particularly in Indonesia, Papua New Guinea and Solomon Islands.
Coupled with lower average palm oil and palm kernel oil price, the group's profits had shrunk. On the whole, profits were also mitigated by lower finance costs incurred in line with lower borrowings during the quarter.
Following the 14th General Elections earlier this month, a new government was formed and among Pakatan Harapan manifesto is to raise minimum wages from RM1,000 to RM1,500.
When asked to comment, SD Plantation replied that like all plantation companies, it had to contend with rising labour cost over the past few years due to raising the threshold of minimum wages.
“Currently, labour cost make up 26 per cent of our production costs. Should the minimum wages be raised to RM1,500, it would have a major impact. We would see this percentage widen to 35 per cent of our production costs,” he said.
“Planters via our trade bodies are working on a petition to the government to reconsider raising minimum wages,” he added.
On its interest to buy into India’s Ruchi Soya Industries Ltd, Bakke said the group had aborted the plan and the US$35,000 deposit paid had been refunded.
“We are no longer pursuing this this,” he said.
For the past month, the third month benchmark palm oil futures on the Bursa Malaysia Derivatives Exchange had been hovering at around RM2,400 a tonne.
When asked to forecast, he replied palm oil pricing are likely to trade between RM2,400 and RM2,500 per tonne in the immediate weeks while cautioning currency fluctuations and production volume of rival vegetable oils greatly influence price movements.
To another query if SD Plantation was looking to expand its agricultural landbank, Bakke said every other week, his team had come across offers.
“If there're opportunities to buy strategically located brownfields, we would definitely table before our board of directors for their consideration,” he said.
“The investment consideration is far more important because we can always arrange for financing, be it through a combination of internal funding, bank borrowings or rights issue,” he added.