14/10/2008 (The Star Online), Kuala Lumpur - Sime Darby Bhd, the world’s largest listed planter, will be hurt by lower crude palm oil (CPO) prices but it plans to offset that by targeting a 5% improvement in its CPO production, increasing exports to China and cutting costs, said president and group chief executive officer Datuk Seri Ahmad Zubir Murshid.

He did not elaborate on how Sime Darby planned to cut costs.

The group had increased its yield of fresh fruit bunches by two tonnes per hectare in the past nine months but would suffer from a drop in the price of CPO, he told reporters after the RSPO (Roundtable on Sustainable Palm Oil) certification award ceremony yesterday.

“Our (earnings) numbers will be affected as part of it is palm-oil based but we could leverage the exposure via our multi core businesses,” he said.

In the last four months, CPO prices have plunged, from a high of over RM4,000 per tonne. Yesterday, CPO prices close up RM60 to RM1,833.

Over 80% of the group’s palm trees are below 20 years, which are more productive, and the plantation business contributed about 70% of earnings for fiscal year ended June 30, according to the company.

Zubir said plantation operations remained profitable even with CPO at RM1,800 per tonne as production costs were between RM1,100 and RM1,200 per tonne.

The group had a replanting policy of 4% and would seek to balance between greenfield development and replanting, he said.

Sime Darby Plantation Sdn Bhd managing director Datuk Azhar Abdul Hamid said the group planned to be a significant player in China.

“We hope to supply about three million tonnes of olein to China over the next three years from the current half a million,” he said, adding that Chinese consumption of palm oil would grow to 10 million to 12 million tonnes in the same period.

On alleged trading losses in China, Zubir clarified that Sime Darby was not into futures trading.

“It’s not futures trading. It’s just that prices have come down drastically and customers are deferring delivery. Every company is facing the same situation,” he said, adding that Sime would discuss with Chinese buyers to honour the orders.

Yesterday, Sime Darby unit Sandakan Bay was given the coveted RSPO certification.

The RSPO standard was set up to ensure that the rapid expansion in the palm oil industry is done in a sustainable manner.