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Sime’s first quarterly loss since mega-merger

The following news story is written by my colleague, Zaidi Ismail. 

Sime Darby Bhd has made its first-ever quarterly loss since the mega-merger, dragged by delays and cost overruns at its energy and utilities division.

The government-linked Sime Darby merged with the then Golden Hope Plantations Bhd and Kumpulan Guthrie Bhd in November 2007.

Sime Darby, one of the world’s top three listed plantation companies, sank into the red with a net loss of RM308.6 million in its third quarter ended March 31 2010 compared to a net profit of RM150.5 million in the same quarter last year.
 
The energy and utilities arm alone made an operating loss of over RM1 billion in the nine months ended March 31 2010.
 
Acting group chief executive Datuk Azhar Abdul Hamid said the conglomerate was hopeful of positive fourth quarter and full year results, banking on its other business divisions spearheaded by plantation, property, industrial and mining.
 
“Due to the energy and utilities issues, we will not meet our target by year-end and anyone can tell that is a no brainer. But our revenue target will not be that far off and I hope that the fourth quarter can make some ground,” Azhar told reporters in Kuala Lumpur yesterday when unveiling the group’s financial results.
 
Sime Darby reported net profits of RM2.2 billion in fiscal year 2009 and RM3.5 billion in 2008. Earlier this month, it announced cost overruns for four of its major projects and made a RM964 million provision for the losses.
 
Sime Darby also asked its group chief executive officer Datuk Seri Ahmad Zubir Murshid to go on a leave of absence while the company conducts an internal probe into the losses. Inclusive of the four projects, the group’s total provision for the nine months to March 31 2010 has reached RM1.3 billion.
 
Azhar said that only the Bakun dam project was causing it to bleed, while the account books for Qatar Petroleum and Marine Qatar have been closed and will not impact the group’s earnings any further. He added that if it had not been for the issues at the problematic energy and utilities division, the third quarter would have been its best quarter ever.
 
Azhar said that it would be hard to quantify any further provisioning in future until the ongoing internal probe was completed. It is expected to wrap up by the end of financial year ending June 30 2010.
 
Azhar said the probe was entering the second phase and had been extended to all six business divisions. The five others are plantation, property, automotive, healthcare and industrial. He also said that there were no plans to divest the energy and utilities division because it was not a new business to the group and had a good track record and capable team to handle future projects.
 
On the search for a new group chief executive to replace Ahmad Zubir, Azhar said an announcement was expected to be made by the end of the group’s financial year.
 
Azhar said he had met up with officers from the Malaysian Anti-Corruption Commission (MACC) and answered several questions, but had no idea of what would happen next. “Sime Darby will give its fullest cooperation to the agency to identify issues. Let them do their work while we do ours to generate business and enhance value,” he said.
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