KUALA LUMPUR: Sime Darby Bhd says it shut down some unprofitable outlets in China as it responds to the excess production by car manufacturers there which has led to an oversupply.
Group chief executive officer Datuk Jeffri Salim Davidson said the branches involved are going to be a long way from profitability in view of the situation.
"There is a lot of work going on in China, about how we manage the situation. You will notice we made a bit of a provision in June and a lot of it is around a big review of our China operations.
"We operate BMW, Volvo and KIA. So we are looking at each and every operation and really taking a view that we will be shutting down some branches which are not profitable.
"We are making the effort to cut down branches, which means provision, because the cost is going to be incurred so we have taken the cost upfront.
"A lot of it is to do with cost management. Managing our cost in terms of salaries and rental and everything else. I think that's going to be a big part of it," he said at Sime Darby's full-year results briefing today.
Sime Darby more than doubled its net profit for the year ended June 30, 2024 to RM3.3 billion, largely due to a RM2 billion gain from selling Ramsay Sime Darby Health Care in December 2023.
The group posted a net profit of RM1.4 billion in FY23.
Its revenue grew 39 per cent to RM67.1 billion from RM48.3 billion in FY23.
For the fourth quarter, the group posted an 86 per cent drop in net profit from continuing operations due to one off impairments and provisions at the motors division, losses at the motors ,ainland China operations, higher finance costs and deferred tax provisions.
Jeffri said the demand in China for cars is still relatively strong as the problem there is more of a supply issue.
"You hear about China's economic situation but it has less to do with demand. The demand for cars is still relatively strong.
"There are too many cars being built in China, and that has created an imbalance and huge discounting has been going on among the car players in China, which has affected our profits quite significantly," he added.