SIME Darby Bhd - 2008

MARC has affirmed its AAAID /MARC -1ID and MARC-1ID ratings to the RM1.5 billion Murabahah Commercial Paper/Medium Term Notes programme (CP/MTN) and RM150 million Murabahah CP programme respectively of Sime Darby Berhad (Sime Darby) and maintained a stable outlook on the ratings. Both facilities had been novated to Sime Darby following the completion of its merger exercise in November 2007. The affirmed ratings reflect the group’s post-merger enlarged scale of operations for its core businesses of oil palm plantation and property development and its strong balance sheet. These positives should temper impact of current unfavourable market conditions and allow Sime Darby’s credit measures to remain in line with its rating category. The stable ratings outlook incorporates the group’s significantly lowered earnings guidance for the year to June 30, 2009 (FY2009). The group has revised its net profit after tax and minority interests (PATAMI) Key Performance Indicator (KPI) to RM1.9 billion, almost half its original announced KPI of RM3.7 billion. The revised KPI is mainly to reflect the lower palm oil prices which have fallen sharply from historic high levels as well as the softer demand outlook for its property and motors-related businesses.

Sime Darby is the world’s largest listed oil palm plantation group with 633,607 hectares of plantation land. It also owns 8,700 acres of strategically located landbank held for property development, making it possibly the country’s largest property developer. Sime Darby’s other core businesses are motors, industrial, energy and utilities. It is the third largest automobile dealer group globally for German automaker, BMW, and one of the world's largest dealers for heavy equipment maker, US-based Caterpillar Inc. The geographical diversity of Sime Darby’s operations and the range of customers and industries served reduce its exposure to downturns in specific sectors. Major challenges facing the enlarged group include post-merger integration, avoiding diseconomies of scale and maintaining strong post-merger profitability. 

The enlarged Sime Darby group reported revenue and pre-tax profit of RM34.0 billion and RM5.2 billion in FY2008 on the back of strong performances in almost all divisions with the exception of the property, energy and utilities businesses. The plantation division contributed 71.3% of the group’s profit before interest and tax (PBIT) on account of high crude palm oil prices in 2007 and the first half of 2008. The industrial and property divisions emerged as the second and third largest contributors of PBIT, respectively. For the six months ended December 31, 2008 (1HFY2009), pre-tax profit dropped by 24% to RM1.6 billion (1HFY2008: RM2.2 billion) on account of lower crude palm oil prices in the plantation division. The group’s revised KPI for full-year FY2009 reflects a 46% reduction in its PATAMI compared to RM3.5 billion in FY2008. The group continued to maintain a low debt leverage with a debt-to-equity ratio of 0.28 times as of December 31, 2008.   

The group’s cash and cash equivalents, although has declined to RM2.6 billion as of December 31, 2008 from RM5.1 billion as of September 30, 2008, implies an adequate liquidity profile vis-à-vis near term debt maturities and short-term borrowings. MARC expects the group to sustain adequate cash flow measures for its rating category at reduced levels of earnings on account of its conservative balance sheet and expected moderation in its working capital and capital expenditure requirements.

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