Sime Darby Plantation revealed it has entered talks with three suitors over the disposal of its Liberia operations, as it unveiled a plunge in profits, blamed on weaker palm oil prices.
Mohamad Helmy Othman Basha, managing director at Sime Darby, the world’s top palm oil group by plantation size underlined the group’s determination to quit Liberia, saying it was a matter of “when we leave, not if”.
He added that “we want to ensure the party that takes over will act responsibly”, with three potential acquirers currently in discussions, expected to be finalised by the end of the year.
As a “last option”, the 220,000 hectares of land that Sime Darby controls in Liberia, under a 63-year concession, taken out in 2009, would be returned the land to the West African country’s government.
The comments come six months after Sime Darby revealed its was mulling the disposal of its Liberian operation, on which it has spent $200m according to the country’s government.
The operation has seen its performance improve - with its palm oil extraction rate of 24.5% in the April-to-June quarter the best of any of Sime Darby’s four geographical units.
The group noted “crop quality improvement and continuous efforts to minimise oil loss”.
However, production remains constrained by the dearth of progress the group has made in developing its concession, of which just 10,500 hectares has been planted, mainly to oil palms, with some 100 acres of rubber.
Fresh fruit bunch output for the quarter, while up 8% year on year, remained modest, at 25,000 tonnes – out of a group total of 2.43m tonnes for the quarter.
Sime Darby’s determination to exit Liberia represents a setback to the country’s ambitions to tap into the early-decade palm oil boom which saw rapid expansion in Indonesia and Malaysia prompt a shortage of further sites, spurring producers to look elsewhere.
With oil palms suitable for cultivation only in a narrow band of land around the equator, West Africa, as well as parts of South America, became new frontiers for palm groups.
However, the expansion drive has been undermined by factors including an environmental backlash, and concerns over oil palm plantation prompting the clearance of rainforests, with in some cases controversy over claims of the ousting of indigenous peoples.
Mr Mohamad Helmysaid that Sime Darby was “cognisant that the negative perception on palm oil due to deforestation has contributed to the decline of CPO [crude palm oil prices”, flagging the group’s own commitments to “no deforestation, no peat, no exploitation” standards.
He added that the group forecasts palm oil trading at about 2,200 ringgit per tonne from now until December, suggesting a flat market. Kuala Lumpur futures closed on Friday at 2,221 ringgit per tonne, for the benchmark November contract.
For the April-to-June period, the group reported operating profits of just 1m ringgit, down from 189m ringgit a year, saying the quarter “continued to be adversely affected by weak crude palm oil and palm kernel prices”.
Revenues fell by 6.8% to 2.88bn ringgit, reflecting a 15.0% drop to 2,021 ringgit per tonne in the average price achieved for palm oil, with palm kernel values slumping by 30%.
These price declines hit operating profits by the equivalent of 262m ringgit, Sime Darby said.
All but one of the four plantation divisions, Malaysia, ran at a loss, with the Papua |New Guinea arm, which includes the New Britain Palm Oil business bought four years ago, seeing an operating loss of 76m ringgit, compared with a profit of 77m ringgit a year before.
While group earnings dropped by a modest 10% to 27m ringgit, this reflected boosts from lower finance costs and the recognition of deferred tax assets.
Sime Darby Plantations shares closed up 2.1% at 4.98 ringgit in Kuala Lumpur on Friday.