Sime Darby Plantation Bhd's (SDP) group managing director Mohamad Helmy Othman Basha said the group anticipates improved fresh fruit bunch (FFB) production this year with the easing of the labour shortage in Malaysia.

He is also optimistic of achieving improved productivity through the group’s intensive mechanisation, automation and digitalisation efforts.

He said the group was giving the highest priority to “factors under its control”, namely, the rehabilitation of its upstream operations in Malaysia and the initiative to reduce dependence on manual and foreign workers.

“These efforts will be the foundation of more sustainable, productive and efficient operations for us in the future, as we continue to recover our productivity and reinvent our plantation operations this financial year,” Mohamad Helmy said in a statement yesterday.

SDP announced a net profit of RM69mil for the first quarter of its financial year ended March 31, 2023 (1Q23), which was a sharp decline from the net profit of RM718mil it made in 1Q22.

The decline in profit was mainly owing to lower year-on-year (y-o-y) average realised prices on crude palm oil (CPO) and palm kernel (PK) and lower FFB production.

Earnings per share for the quarter fell to one sen from 10.4 sen in 1Q22. Revenue for the quarter dropped to RM4.07bil from RM4.38bil in 1Q22.

The plantation group, which also has upstream operations in Indonesia, Papua New Guinea and Solomon Islands, added profitability was also affected by higher finance costs with increased benchmark interest rates.

Over 1Q23, realised CPO prices averaged RM3,887 per tonne, a y-o-y decline of 13% compared to RM4,465 per tonne the year before.

Average realised PK prices declined significantly by 56% y-o-y to RM1,794 per tonne. The group’s overall FFB production declined 5% y-o-y as its Malaysian upstream operations continued to be impacted by the lingering effects of the prolonged acute labour shortage, resulting in an 11% decline.

Its downstream operations under Sime Darby Oil registered a profit before interest and tax of RM68mil in 1Q23 as compared to RM161mil in the previous year due to lower sales volumes and margins in its Asia-Pacific bulk and differentiated operations.

Its European operations, however, recorded an improved performance in both sales volumes and margins.

SDP generally expects a challenging year with CPO prices to trade at current levels in the near term and depends very much on the supply outlook of competing oils, as well as Indonesia’s palm oil export policies.

There are also other concerns such as slowing growth and high interest rates limiting the upside potential of commodity prices.

The lower demand and higher stockpiles in major exporting countries could pose as further challenges to CPO prices this year.