MARC has reaffirmed the ratings of Sime Darby Berhad’s (“Sime Darby” or “the Group”) RM1,500 million Al-Murabahah Commercial Papers/ Medium-Term Notes (“MCP/MMTN”) Programme at MARC-1ID/AAAID respectively. The ratings reflect the diversity of the Group’s operations in more than 10 countries; its sound financial profile characterised by respectable capitalization and resilient profitability levels; exceptional financial flexibility and continued commitments to enhance core competencies by focusing on respective core businesses.
 
Founded in 1910, Sime Darby’s first venture into the plantations business helped expand the Group into a conglomerate with five core businesses i.e. plantations, motor vehicle, heavy equipment, property and energy through organic growth, acquisitions and continuous rationalisation. Sime Darby is one of Malaysia’s and Southeast Asia’s largest multinational conglomerates with operations in the Asia Pacific region such as Malaysia, Australia, Singapore, Hong Kong and People’s Republic of China. Over the past five fiscal years, the Group’s operations in Malaysia remained the largest with contributions of more than 30% and 50% to the Group’s revenue and profit before interest and tax respectively.

The motor vehicle and heavy equipment segments continued to be major contributors to the Group’s revenue and profitability respectively. For the three quarters ended 31 March 2006, revenue contribution from the motor vehicle segment was 41.0% while the heavy equipment segment contributed 36.7% to the Group’s profit before interest, tax and corporate expenses.

Strong performances were recorded for FY2005 with revenue and pre-tax profit of RM18.65 billion and RM1.365 billion respectively. Despite the decline in operating profit margin to 7.5% as a result of allowance for doubtful debts, impairments and write-offs, the Group has been able to maintain its pre-tax profit above the RM1.0 billion mark with operating profit margin averaging 8.6% p.a. Revenue and pre-tax profit for the cumulative three quarters ended 31 March 2006 were recorded at RM14.75 billion and RM1.08 billion respectively, higher than previous financial year’s corresponding period aided by contribution from the motor vehicle and heavy equipment segments. As further efforts are undertaken to rationalise non-core businesses and divest non-performing operations, the Group is cautiously optimistic that the results for the remaining quarter of FY2006 will remain satisfactory.

Going forward, Sime Darby’s bottom line is likely to be boosted by the continued strong performance of the heavy equipment division in FY2006. However, the Group’s performance will be moderated by the lacklustre performance of its general trading, services and other segments exacerbated by the hikes in raw material prices and the intense operating environments. Other challenges for the Group include the effects of AFTA on its various business segments, especially the manufacturing, motor vehicle assembly and distribution activities and the softening of the property market.

The Group’s cash flow protection measures continue to be somewhat resilient. Capitalization remained reasonable despite an increase in debt leverage to 0.34x (including minority interest) as at 31 March 2006 (FY2005:0.29x). The increase in borrowings was mainly from the drawdown of the RM500 million MCP/MMTN in December 2005 to finance capital expenditure and acquisitions bringing total issuance of the facility to RM1.0 billion.