Case Studies Presentation

Faizal Bin Shariff Udin (2008729247)

Md Hifni Abd Samad (2008529055)
Abd Razak Bin Kassim (2008554789)
Ruhiyati Idayu Binti Abu Talib (2008354043)

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 Corporate Information

• Sime Darby was incorporated in 1910 as a small British company managing

500 acres of rubber estates in Malacca.
Malacca.

• Today, Sime
Sime Darby
Darby is
is a key
key player
player in
in the
the Malaysian
Malaysian economy as well as
as aa
diversified multinational involved in key growth sectors

•For the past 100 years, its business divisions seek to create positive benefits in
the economy,
economy, environment
environment and
and society
society

• With a workforce of over 100,000

100,000 employees
employees in in over
over 2020 countries,
countries, Sime Darby
is committed to building a sustainable future for all its stakeholders.

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 History
• On 17 October
October 1910,
1910, European
European businessmen
businessmen William
William Sime
Sime and
and Henry
Henry Darby
Darby
established Sime, Darby & Co.

• On 11 September
September 1978,
1978, Sime
Sime Darby
Darby Berhad was incorporated in Malaysia

• In November
November 2007,
2007, Kumpulan
Kumpulan Sime
Sime Darby
Darby Berhad merged with plantation
plantation
giants Golden
Golden Hope
Hope Plantations
Plantations Berhad and Kumpulan Guthrie
Guthrie Berhad.
Berhad.

• The newly
newly merged
merged entity
entity was
was renamed
renamed Sime
Sime Darby
Darby Berhad
Berhad with
with leading
leading
positions in key growth sectors.

• The synergy from the merger has yielded

yielded great
great benefit
benefit and
and Sime
Sime Darby
Darby is
is
today a major
major player
player in
in plantations,
plantations, property, heavy equipment distribution,
motor vehicle distribution, energy & utilities and healthcare businesses.

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Sime Darby Business Units

2–4
Top Shareholding Company
Source: Annual Report 2009

38.76%

13.17%

12.43%

35.64%

TOTAL 100%
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 Issue : Cost Overrun on Project

• In October 2009, the Board of Directors of Sime Darby Berhad had established
a Board Work Group to review the operation of its Energy & Utilities Division.

•The purpose of the workgroup was to assess the corporate governance and
performance of the Division.

•The Work Group reviewed in particular the 4 core project in Energy & Utilities
Division. The issues that were the key findings of the Board were the cost
overrun on all key project.

•The Energy & Utilities division had reported an operating loss of RM1,019
million in the first nine month of the year. This was after recording provisions for
the oil & gas and engineering sub-segment in 3QFY2010 amounting to RM964
million that was announced on 13 May 2010.

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 Issue : Cost Overrun
Issue on Project

•The breakdown in the provision totaling RM964 million was as follows :

RM200 million for the Bulhanine Mahzam project with Qatar Petroleum
(QP) Project
RM159 million for the Maersk oil Qatar (MOQ) Project
RM155 million for the Marine Project ( a project concerning the
construction of vessels for use in the MOQ Project).
RM450 million for the Bakun Hydroelectric Dam Project.

•The President & Group Chief Executive (GEC), Dato’ Seri Ahmad Zubir
Murshid, has been asked to take leave of absence prior to the expiry of his
contract on 26 November 2010.

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Issue : Cost Overrun
Issue on Project

The QP Project

The MOQ Project

The Bakun Project

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Causes of The Issue

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 Causes of The Issue
1. Project Delays

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CausesIssue
of The Issue

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 CausesIssue
of The Issue
2. Corporate Governance
•Corporate governance is an important theme to ensure the accountability of
certain individuals in an organization through mechanisms that try to reduce or
eliminate the principal-agent problem.

•In Sime Darby, the Board Work Group had been established to review its
Energy & Utilities Division to assess the corporate governance and performance
of the Division.

•Apart from the current issue, the CEO’s departure comes almost two years after
Sime fired CFO Razidan Ghazali and second executive following a RM 120
million trading loss at a refining division. The unit lost the money on future
between October 2006 and August 2007.

•Therefore, Sime Darby should always strengthen their corporate governance

issue as they are one of the biggest Government Link Company (GLC) that give
big effect on the local economic environment.

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 CausesIssue
of The Issue

•For example, in the Bakun Hydro Project, it was given to Sime Darby and
Chinese partner at RM1.8billion and the cost overruns in the project amounting
to RM900 million. On top of that, the Government has already compensated
Sime Darby with about RM700 million. So, the total cost overruns would be
almost equal to the bided price of RM 1.8 billion.

•In this case, the engineer and consultant in Sime Darby must be able to identify
at the early stage if they can’t be able to build a dam at RM1.8billion. Therefore,
the responsibility for the cost overruns should be share and not only the CEO is
responsible.

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 CausesIssue
of The Issue
3. Ineffective Business Practice
•It was due to the advantages of size and economies of scale that Sime Darby,
Guthrie and Golden Hope decided to merge. It is clearly that the benefits of
merger in Sime Darby have so far not outweighed the disadvantages.

•The merger brought about the huge conglomerate with great financial prowess
that could take up to RM2bil losses at its energy and utility division, which
gobbled up all the great profits made at its other divisions.

•The strength of Sime Darby was used to get into projects in which it had limited
or no expertise – big mistake.

•If energy and utilities had been a company listed on its own, this probably would
not happen, because no one would have given it a job that big based on its
value.

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 CausesIssue
of The Issue
4. Lack of Expertise and Experience
•The 100-year-old-company, has diversified into business ranging from
plantation and shipbuilding to property development.

•Set up in 1910 as an operator of rubber plantations, Sime also made an

unsuccessful foray into banking in the 1990s. The company sold control of Sime
Bank in 1999 after posting a loss of RM540.9 million the previous year, its first
losses in two decade.

•Therefore, it shows how Sime Darby decision on the investment that they are
not expert in, will contribute as a big losses to the company.

•Sime Darby should leave to the other GLC to handle on other diversified
business that they are not expert in, and work hand in hand with other firm to
lower their risk in any new investment division.

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 SWOT Analysis

Internal External
Strengths Opportunities
Analysis

Internal External
Weaknesses Threats

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 STRENGTH-THREAT Analysis
1. Price of raw materials increased
2. Cost escalation on engineering project
3. Global financial crisis
4. CPO price volatility during the economy crisis
STRENGTHS
5. Unfavorable weather conditions and biological
•• Cost
Cost escalation
escalation on on engineering
engineering project
project (S)
tree stress
•• Price
Price of
of raw
raw materials
materials increased
increased
6. Negative sentiment in Indonesia against
•• Additional
Additional requirements
requirements fromfrom regulatory
regulatory
Malaysian Company & people
authorities
authorities
7. Stiff competition from other industry player
•• Escalating
Escalating cost
cost of
of design
design and
and analysis
analysis software
software
especially in property & healthcare industry
•• Global
Global financial
financial crisis
crisis
8. Inconsistent policies in foreign country 1. Financially sound
•• CPO
CPO price
price volatility
volatility
9. Resistance by indigenous native and 2. Abundant professional with diverse expertise
•• Unfavourable
Unfavourable weather
weather conditions
conditions andand biological
biological
environmentalist 3. Able to secure long term contracts in domestic
•• tree stress
tree stress
10. Frequent government intervention and international mega projects
•• Unstable
Unstable political
political situation
situation in
in Indonesia
Indonesia
11. Boycott against palm oil by US soy bean 4. Joint venture with established companies in
•• Resistance
Resistance by by indigenous
indigenous native
native and
and
industry domestic and overseas
•• environmentalist
environmentalist
12. Vulnerable to information leakage due to weak IT 5. Merger synergy initiative with giant plantation
monitoring company
13. Alarming trend of global cyber crime 6. Diversified conglomerate which do not depend
14. Trade union continuous demand on certain industry
7. Good track record and project accomplishment
8. World’s largest palm-oil producer
9. Second largest company by market value in
Bursa Malaysia after Maybank
10. Excellent back up and support by Malaysian
THREAT(T)
THREATS Government
(T) 11. Excellence in Corporate Social Responsibility
Government (GLC)
12. Excellent employee fringe benefit

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STRENGTH-THREAT Strategies

1. Become shareholder in foreign supplier

company(S1,S4,T1,T2)
2. Rebrand & reposition certain divisions & services (S5, S6,
S8,S9, S3,T4,T5,T7)
3. Increases CSR activities domestically &
abroad(S10,S11,T6,T9,T11)
4. Emphasis on talent management & succession
planning(S2,T13, T12,)
5. Increase competitive advantage internationally & domestically
(S7,T3,T8,T10)
6. Maintain harmonious relationship with Trade Union
domestically & internationally (S12,T14)

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Financial Summary
FY ’07-’09

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 Financial Ratios
- Liquidity Ratio -
2009 2008 2007
Currentratios= CurrentAsset
1.70 1.13 0.53
CurrentLiabilities

• 2007 : at risk as ratio <1.0

• 2008 and 2009: can still meet its short-term obligations
• actively manage its operating cash flows and the availability of
funding to ensure that all repayment and funding needs are met
• company’s objectives on liquidity: to maintain sufficient levels of
cash or cash convertible investments to meet its working capital
requirements

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 Financial Ratios
2009 2008 2007
Debt-to-equity Ratio =Total Debt
0.25 0.22 0.81
Total Equity

2009 2008 2007

Debt-to-Total Asset Ratio =Total Debt
0.38 0.38 0.42
Total Asset

• For Leverage ratios, percentage of total funds provided by the creditor

has decreased 4 times from 0.81 to 0.25.

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 Financial Ratios
2009 2008 2007
Profitability Ratio
ReturnOnTotal Asset =Net Income 3.56 3.61 3.15
Total Asset

2009 2008 2007

ReturnOnEquity =Net Income
10.59 18.00 14.57
Equity

2009 2008 2007

EarningPer Share =Net Income
37.94 59.63 44.16
Share Capital

• With regard to profitability ratios, the return on

investment has shown a decline for the latest
financial year of 2009 as compared to two previous
years. The earnings available to the share holder
also shows that every one ringgit one invests, it will
get RM 37.94 return in 2009,a decline compared to
the other 2 years.

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Talent Management

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2 – 24
Sime Darby’s Stakeholder
Spectrum

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 STRENGTH-OPPORTUNITIES
Analysis
OPPORTUNITIES STRENGTHS
(O) (S)

1. Financially sound
2. Abundant professional with diverse expertise
1. Easy penetration into global market
3. Able to secure long term contracts in domestic
2. Technological advances in plantation industry
and international mega projects
3. Political stability particularly in Malaysia
4. Joint venture with established companies in
4. Consumer spending and business confidence
domestic and overseas
have increased lately
5. Merger synergy initiative with giant plantation
5. CPO prices have stabilized due to economic rebound
company
6. Increasing purchasing power for imported cars
6. Diversified conglomerate which do not depend
7. Potential market for consumer goods in Muslim based
on certain industry i.e Energy & Utilization
country especially in Middle East
7. Good track record and project accomplishment
8. Huge potential for health tourism
8. World’s largest palm-oil producer
9. Plenty prospective company for merger & acquisition
9. Second largest company by market value in
10. Collaboration with university for R&D
Bursa Malaysia after Maybank
11. High end market for property has been encouraging
10. Excellent back up and support by Malaysian
12. Potential market in China
11. Excellence in Corporate Social Responsibility
Government (GLC)
12. Excellent employee fringe benefit

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STRENGTH-OPPORTUNITIES
Strategies

• Ready pool of specialized professionals to

capitalize growth in all industries (S2,S12,S9,O9)
• Market expansion toward globalization
(S1,S3,S4,S5,S7,O1,O2,O3,04,O5,O8,O11,O6)
• To segregate the E&U business into China & Non-
China due to potential business with China
(S6,O12)
• Develop R&D capabilities with local universities
(S8,O10)

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WEAKNESSES-OPPORTUNITIES
Analysis
OPPORTUNITIES
(O) 1. Bidding for projects in which it had limited or no
expertise
2. Low corporate governance
3. Too many diversification
4. Inefficient check & balance system in financial
management
5. Underbid when participate in tender for project
1. Easy penetration into global market (project management)
2. Technological advances in plantation industry 6. Political interference
3. Political stability particularly in Malaysia 7. Corruption such as graft or bribery
4. Consumer spending and business confidence 8. Bureaucracy
have increased lately 9. Office politics
5. CPO prices have stabilized due to economic rebound
6. Increasing purchasing power for imported cars
7. Potential market for consumer goods in Muslim based
country especially in Middle East
8. Huge potential for health tourism
9. Plenty prospective company for merger & acquisition
10.Collaboration with university for R&D
11. High end market for property has been encouraging
12. Potential market in China

WEAKNESSES
(W)

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WEAKNESSES-OPPORTUNITIES
Strategies
1. Merging with project management company with
specialized expertise (W1,W5,O9)
2. To streamline its businesses through the
divestment of unprofitable non-core assets.
(W3,W4,O8,O9,O11,O12)
3. To revert to its original corporate structure by
establishing a wholly owned anchor or flagship
company for each of its six divisions
(W2,W3,W4,W6,W7,W8,W9,O1,O2,O3,O4,O5,O6
,O7,O8,O11,O12)

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Sime Darby Executive Faces Graft

Malaysian Anti Corruption Commission is

prosecuting the ex GM for business development
and investment of Sime Darby Marine for
receiving bribery.

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WEAKNESSES-THREAT Analysis
1. Price of raw materials increased
2. Cost escalation on engineering project
3. Global financial crisis
4. CPO price volatility during the economy crisis
5. Unfavorable weather conditions and biological 1. Bidding for projects in which it had limited or no
tree stress expertise
6. Negative sentiment in Indonesia against 2. Poor corporate governance
Malaysian Company & people 3. Too many diversification
7. Stiff competition from other industry player 4. Inefficient check & balance system in financial
especially in property & healthcare industry management
8. Inconsistent policies in foreign country 5. Underbid when participate in tender for project
9. Resistance by indigenous native and (project management)
environmentalist 6. Political interference
10. Frequent government intervention 7. Corruption such as graft or bribery
11. Boycott against palm oil by US soy bean 8. Bureaucracy
industry 9. Office politics
12. Vulnerable to information leakage due to weak IT
monitoring
13. Alarming trend of global cyber crime
14. Trade union continuous high demand

THREATS
(T)
WEAKNESSES
(W)

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 WEAKNESSES-THREAT
Strategies

• Carry out thorough feasibility study for all the future

undertaking (T1, T2, T3, T4, T5, W1, W3, W4, W5)
• Collaborate with government bodies to combat
against global menace (W6,T6,T7,T8,T9,T11)
• To nurture good corporate culture in providing
harmonious working ambience (T14,W9)
• To have clear guideline on working & business
ethic (T12,T13, W7,W8)

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Sime Darby’s Current Share Price

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 Recommendation
To revert to its original corporate structure by establishing a wholly owned
anchor or flagship company for each of its six divisions

 To streamline its businesses through the divestment of unprofitable non-core

assets.

Merging with project management company with specialized expertise

To segregate the E&U business into China & Non-China due to potential
business with China

Carry out thorough feasibility study for all the future undertaking

Collaborate with government bodies to combat against global menace

To nurture good corporate culture in providing harmonious working ambience

To have clear guideline on working & business ethic

Develop R&D capabilities with local universities

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 Conclusion
Sime Darby is Malaysian based conglomerate company that is financially sound.

Sime Darby is no exception to controversy. Its cost overrun in Qatar oil & gas
project and Bakun hydro-electric dam has operating loss around RM 1.8 billion

Whilst it is good for them to diversify, steering away too far from their core
business, their business strength which is plantation might not be a good idea.
This is due to their inexperience in managing those other businesses.

Based on their current situations, we found out that the problem that they face is
because they lack experience in the project that they bid for and their corporate
governance is ineffective.

After running an analysis of their SWOT, we recommend that they focus back to
their core business and dispose all of the unprofitable non-core business. We also
would like to propose that they revert to their original corporate structure as their
current structure is not suitable for their business operation.

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