Sime Darby

Sime Darby is a very big government linked company (GLC), which is among the top, who compete with the PETRONAS, Maybank, TNB, CIMB and so on. The Sime Darby that we see today is a result of gigantic merger between the old Sime Darby, Golden Hope and Guthrie in 2007, which give birth to the world’s largest plantation based corporation. 

However, this company has also developed many business divisions instead of the core plantation and this including Energy and Utilities, Property, Healthcare, Automotive and Industrial. Sime Darby is now a massive company with having around 100,000 employees working in 20 different countries worldwide. So don’t be surprised if u get to know that the CEO of this company, Dato’ Ahmad Zubir Mursyid, is among the highest paid CEO in Malaysia which salary is RM2millions annually.

Unfortunately, there are a lot of talks about Sime Darby lately regarding to losses of huge sum of money which is amount RM1.6billions, where RM1billions is expected to book from the losses in its third quarter result. These losses was regarding to the projects in the Middle East as well as the Bakun hydroelectric dam project in Sarawak. This project is under conglomerate’s energy and utilities division.

The CEO, Dato’ Ahmad Zubir Mursyid has been ordered to take leave of absence until his contract end of this year. Rumour has been said that his contract will not be renew. Well, some may symphatized with the CEO, but professionally, I think it’s all just about business. I mean, u are the CEO, in other word u are the brain of the company, u are the one who control the company in every details, so if the company gain profit, congratulation to u, u did a great job, u were rewarded with handsome salary for ur great job, but if the company having problem or losses like in this case, u, the CEO, sorry to say, but u have to go. U have to take the responsibility. This is not a mercy case or what, this is all about business, nothing personal.

Well, some may say that Sime have nothing to do with us, it’s none of our business, so why should we bother to know what’s happening. Well, for those who say this, think again. Do u invest in Amanah Saham Bumiputera, Amanah Saham Malaysia, Amanah Saham Wawasan 2020 or Amanah Saham Didik?

All of these unit trusts are under Permodalan Nasional Berhad (PNB), which holds about 41 percent of Sime according to 2009 annual report. PNB alone also hold another 13.2 percent directy.

Another one, if u have saving in the Employees Provident Fund, the pension fund holds about 12.3 percent while Lembaga Tabung Haji, the Muslis pilgrims saving fund, has another 1.82 percent.

So what this means is that these investment funds could be affected by losses in Sime. If the group profits shrinks, it may not be able to pay as much dividends to its shareholder. If that happens, the funds may not be able to pay as much as it did.  

One could argue that PNB has a huge group of companies and others who are doing well, like Maybank Berhad, could offset lower dividend payout from Sime. But on the flipside, if Sime didn’t make these losses, it could pay higher dividends and PNB could declare even higher payouts. So it’s always better if none of these companies having losses, right?

The losses are huge and Sime owes it to its shareholders to reveal what exactly happened after it finished its investigations. And by shareholders it means the average Malaysian who saves in ASB, EPF and other investment funds that have stake in it. In other words, they owes explanation to us!

But don’t worry, the chairman of Sime, Tun Musa Hitam already gives assurance that this case will be investigate transparently, where the ordinary people who are the majority shareholders of Sime Darby will get to know everything and nothing will be swept under the carpet. How far the truth will be, no one knows, well at least better than keep silent.

Even with all this problems, it still has very interesting points about it. First, as we all know Sime is one of the top government linked company (GLC), which the government really depend to help drive the country’s economic growth. The government even set up the GLC Transformation Manual and KPIs or key performance indicators for the GLC companies to follow so that the they can maintain the grow of GLCs.  It’s an impressive effort because all the major government funds are involved. So it would be very interesting to find out how Sime could be saddled with such losses if they had followed the transformation problem. If Sime follow all the recommendations, does it mean the manual needs to be tweaked? Well, in this case, have to ask the Financial Minister which is our Prime Minister because he the one who chaired the GLC High Performance Committee.

The second interesting question is, is Sime is too big to handle? Or should it be necessary to broken up into smaller units?

Critics have been saying that one of the reason why Sime having these huge losses because they are very big size of company. Well, for a 100 000 employees, working in 20 countries around the world, yes, everyone would say it’s very big. This number is more than double number of Maybank employees, even Maybank now is the country’s biggest company in term of market value. Maybe Sime should only manage on their plantation unit which contributed 70 percent of group profit last year, so that they can be more focus and efficient?

Well, this question is quite relevant to ask because investors who buy Sime are also buying into the risk of their other business units like energy and utilities, industrial equipment and motor vehicles.

But there are also arguments against breaking up Sime. A big successful company is better than a small successful company, simple. It just a matter of how well they manage the company. A conglomerate structures provide a safety nets to its shareholder. This means that if one business does not doing so well, other business would be able to offset that. So it should be okay for them to be big.

Sime structure is fine and it can even be bigger, that is, if it grows on its own or buy rivals within the same business. Having the large company will benefits the country growth and the country popularity, and also benefits small companies because Sime could support smaller companies keen to be a global player.

And the expensive value here is, in this Sime case, it could be a case study to other GLCs who want to make it in the big league. They can learn from Sime. Never forget that smart people learn from his mistake, but smarter people learn from others mistake. But whatever it is, Sime need to solve all off their internal problem first, and they need to do it quick. 

Good luck SIME DARBY.  =)