KUALA LUMPUR: Sime Darby Bhd closed its financial year 2024 (FY24) with a net profit that more than doubled over the previous year and remains bullish over its long-term prospect in China.
The group's impressive earnings were more or less blighted by losses of its motor operations in mainland China.
Sime Darby said it will shut down some unprofitable branches there, in response to the excess production by auto manufacturers which had led to an oversupply situation.
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.
The demand for cars in China was still relatively strong, which he noted that the problem there was more of a supply issue.
"You hear about China's economic situation but it has less to do with demand. There are too many cars being built in China, and that has created an imbalance and huge discounting has been going on amongst the car players in China, which has affected our profits quite significantly."
The group had made "a bit of" a provision in June, Jeffri added.
"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 think it's going to be a long way from profitability in view of the situation.
"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," Jeffri said at its full-year results briefing today.
Sime Darby posted a net profit of RM3.31 billion for the 12 months ended June 30 2024, up from RM1.46 billion in FY23, thanks largely to a RM2 billion gain from selling Ramsay Sime Darby Health Care in December 2023.
Excluding one-off items, Sime Darby' earnings remained 14 per cent higher at RM1.3 billion.
This was driven by higher profits from its industrial business in Australia, the strong performance from the motors businesses in Malaysia, Singapore and Taiwan, as well as the maiden profit contribution from the UMW division.
Group revenue grew 39 per cent, rising from RM48.3 billion to RM67.1 billion.
Sime Darby declared a second interim of 10 sen per share for the fourth quarter of FY24, bringing the total dividend payout for the year to 13 sen a share or RM886 million.
Elaborating on the results, the group said its net profit from continuing operations was slightly lower by 1.9 per cent at RM1.26 billion for the year, mainly due to lower profit from the motor business.
Discontinued operations include UMW Komatsu Heavy Equipment Sdn Bhd group and its healthcare and logistics' segments.
Sime Darby, in its filing with Bursa Malaysia, said profit before interest and tax (PBIT) from the motors division was down 44.5 per cent to RM584 million for the year due to one-off impairments and provisions of RM229 million and the absence of a RM179 million gain on disposal of property posted in FY23.
Excluding these one-off items, PBIT decreased by 6.9 per cent, primarily due to the losses recorded in mainland China and lower dividend income of RM142 million against RM194 million in the previous corresponding period.
For the fourth quarter of financial year 2024, the group posted a 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 mainland China operations, higher finance costs and deferred tax provisions.
Jeffri said despite facing considerable challenges during the year, its performance was solid, demonstrating the resilience and robustness of its diverse business portfolio across the various markets.
He said the industrial division in Australia experienced higher profits mainly due to increased sales of equipment and product support.