The Introduction And Background Of Sime Darby Finance Essay

The inst bothation And Background Of Sime Darby Finance EssayThe Sime Darby in 1910 got the develop from two European business partners by name William Sime and Henry Darby. William Sime, a traveler and adventurer from Scotland, ventured to Malaysia when he was in his slow 30s. Sime Darby Berhad is the oversizest conglomerate in Malaysia and unriv completelyed and only(a) of the largest in Southeast Asia . Within its territory are more than 270 operating companies in 23 countries, plot of ground foreign operations in Hong Kong of which account for 25% of revenues, Singapore (14 %), and Australia (11%). The play along generates 38 pct of its revenues domestically. Its broadly speaking diversified activities include a wide range of industries, with the core businesses being orchards including anele palm and the callers master business, rubber, tire manufacturing, heavy equipment and motor fomite distribution, property development, power generation, and engineering service s.Natural rubber man-made rubber was still being developed and had just been introduced to the country from Brazil. Sime and new(prenominal) entrepreneurs at the time accepted that the climate of Malaysias jungle region was similar to that of Brazils. Therefore, rubber could just as easily be grownup in that country and sold non only in Malaysia but without Southeast Asia and the world.However, Sime Darby encountered adversary to its venture from locals, who were fighty of outsiders coming in to operate a plantation in Malacca, in edict to overcome this, Sime and Darby forged friendships with several members of the Chinese business community.The federation expanded, becoming a manager for owners of other plantations and then moving into the calling end of the sedulousness. Sime set up a branch office in Singapore in 1915 and shortly thereafter established a marketing office in London. crave for rubber eventually outstripped Sime Darbys production capacity, and by the la te 1920s the telephoner make up it necessary to make up more jungle. To do so, Sime Darby barter ford Sarawak Trading Company in 1929. Sarawak (later renamed Tractors Malaysia) held the dealership for Caterpillar heavy earthmoving equipment. That important secure signaled Sime Darbys expansion into the heavy equipment business, which would eventually become a major component of its expansive network. In 1936 the companys transfer office was relocated from Malacca to Singapore.Sime Darby made a fortune in the global rubber industry during the 1920s and 1930s. Growth in the industry began to fade, however, as natural rubber was gradually supplanted by artificial rubber. Sales of natural rubber boomed during World War II as warring nations purchased all procurable supplies. The war, however, also led to meaning(a) advancements in synthetic rubber technology. A good deal of it was employ to acquire other companies, thereby expanding Sime Darbys reach into several other indust ries. Much of Sime Darbys achievement during that period was imputable to its acquisition of the teras Seafield Estate in 1971 and the establishment of Consolidated groves Berhad that same(p) year. Through Consolidated groves, which became the companys of import plantation subsidiary, Sime Darby became a leading force in the regions thriving agricultural arena. In addition to outgrowth the oil palms and cocoa, the company began processing the crops into finished products for sale throughout the world.As its sales and shekels spiraled upwards during the early and mid-1970s, Sime Darby became a shiny feather in Britains cap. To the surprise and chagrin of the British stockholders, however, the company was w placidityed from their operate on by the Malaysian government late in 1976. The intriguing events leading up to the takeover began in the early 1970s. During that time, Sime Darbys master(prenominal) executive, Denis Pinder, began investment funds the companys immediat e payment in new subsidiaries throughout the world. The companys stock price soared as Sime Darbys sales spiraled upward. At the same time, some observers supercharged that Sime Darby was engaged in corrupt business practices (with critics coining the language Slime Darby).Allegations of corruption were confirmed in the eyes of some detractors when, in 1973, Darbys outside auditor was found stabbed to death in his bathtub. The Singapore police ruled the death a suicide, but Pinder still stop up in prison on misdemeanor charges. Pinders successor took up where he left off, investing in numerous ventures, most of which were located in Europe. Unfortunately, many of those investments quickly soured. Some Malaysians felt that Sime Darby was pickings profits from its successful domestic operations and investing them unwisely overseas. So, in 1976 the Malaysian government trading office bought up Sime Darby shares on the London stock exchange. It effectively gained control of the compa ny and installed a venire made up mostly of Asians.Also in 1976, Asian and British instrument panel members were able to entertain that Tun Tan Chen Locks son, Tun Tan Siew Sin, would be an acceptable replacement as president of Sime Darbys progress. In 1978 Sime Darby was rein somaticd in Malaysia as Sime Darby Berhad. Its headquarters was moved to Kuala Lumpur the following year.Staggering in the Early mid-eighties Rebounding in the youthful mid-eighties and Early 1990sSime Darby jettisoned some of its poorly performing assets during the late 1970s and early mid-eighties under Locks leadership. But it also continued investing in new ventures. It purchased the tire-making operations of B.F. Goodrich Philippines in 1981, for example, and secured the franchise rights to sell Apple Computers in southeast Asia in 1982. The addition of B.F. Goodrich Philippines marked the companys entrance into the tire manufacturing sector also in 1981 came the establishment of Sime Darby Inte rnational Tire Company, which in 1988 was renamed Sime Darby Pilipinas, Inc. In 1984 the company purchased a large stake in a Malaysian real estate development company, United Estates Berhad, and used it to beat developing plantation lands. This company later was renamed Sime UEP Properties Berhad. In Malaysia, Sime Darby acquired the franchises for BMW, Ford, and Land bird of passage vehicles.By the early 1980s Sime Darbys push to diversify had given it a place in almost every industry, from agricultural and manufacturing to finance and real estate. Although it did diversify into heavy equipment, real estate, and insurance businesses, new management also plowed significant amounts of cash into the companys traditional commodity and plantation operations. Sime Darby became a favorite of investors looking for a safe bet. Indeed, the mammoth enterprise tended to minimize risks after the investment mistakes of the early 1970s and seemed content to operate as a slow-growth multination al behemoth that could withstand any market downturns. Even if something did go wrong, the company had a war chest of in effect(p)ly a half billion U.S. dollars from which it could draw.Unfortunately, Sime Darbys staid strategy negatively impacted its hindquarters line. Sales dipped to M $2.78 billion in 1992 before plunging to M$2.17 billion in 1983. Sime Darby lumbered through the mid-1980s with annual sales of less than M$2.5 billion, and net income skidded from around M$100 zillion in the early 1980s to a low M$59 one thousand thousand in 1987. To turn things some, Sime Darbys visiting card promoted Tunku Ahmad Yahaya to chief executive. Ahmad was a veteran of the companys executive ranks and was a favorite nephew of Malaysias starting prime minister, Tunku Abdul Rahman. Under Ahmads direction, the giant corporation began a slow turnaround. Significantly, Ahmad was instrumental in luring Tun Ismail to Sime Darbys wit. Ismail was a highly influential central confide gove rnor and the chairman of Sime Darbys biggest shareholder. Ismail became nonexecutive chairman of the company following the death of Tun Tan Siew Sin in 1988.During the late 1980s and early 1990s Ahmad invested much of Sime Darbys cash hoard into a bevy of new companies and ventures. Sime became a relatively big player in the global reinsurance business, for example, and tried to boost its activities furbish upd to heavy equipment and vehicle manufacturing. Most notably, Sime began pouring one million millions of dollars into property and tourism in report growth areas of Malaysia in an effort to pee in on the development and tourism boom that began in that nation in the late 1980s. The success of that division prompted the company to invest as well in tourism overseas. Through its UEP subsidiary, for instance, Sime Darby bought a full-service doctor with condominiums in Florida (Sandestin Resorts) and a hotel in Australia, among other enterprises. As the company dumped its cas h into expansion and diversification, sales and profits bolted. Revenues climbed from M$2.53 billion in 1987 to M$4.98 billion in 1990 to M$6.20 billion in 1992. During the same period, net income soared from M$85 million to M$353 million.Sime Darby realized a stunning 65 percent average annual growth in earnings during the late 1980s and early 1990s. Despite its gains, though, critics charged that the company had concentrated too heavily on traditional commodity industries and had failed to move into the 1990s with the rest of Malaysia. In fact, Sime Darby continued to garner rough 43 percent of its sales from commodity trading activities in 1993 and only 18 percent from manufacturing. The rest came from heavy equipment distribution, insurance, and its property/tourism holdings. Although building strength in those businesses had added to the companys sales and profits during the late 1980s and early 1990s, the strategy had caused Sime Darby to drop dead behind more forward-looki ng holding companies in the region that were participating in booming high-tech, gaming, brokering, and manufacturing sectors. Many company insiders believed that Sime Darby would have to eliminate its heavy reliance on commodity industries if it wanted to sustain long-term growth.The CrisisThe companys stock price began to fall in 1993 and its rapid revenue and profit growth began to subside in comparison with late 1980s levels. In 1993 Ahmad stepped back from control of the company when he named Nik Mohamed Nik Yaacob to serve under him as chief executive. Among Mohameds first moves was to initiate the merger of the companys plantation assets, organized as Consolidated Plantations, and the parent company, The company also bolstered its regional insurance business in 1993 by joining forces with AXA of France for its insurance operations in Malaysia and Singapore. These efforts signaled an end to the companys diachronic emphasis on commodities and reflected Mohameds desires to inc rease activity in manufacturing, high-tech, financial services, and other fast-growth businesses and reduce Sime Darbys bureaucracy.The turn around after the crisisThe company began increasing investments in businesses such as power generation, oil and gas, and heavy equipment exporting. In heavy equipment, Sime Darby bought the Australian distributor of Caterpillar equipment, Hastings Deering (Australia) Ltd., in 1993. In power generation, a key move came in 1994 when Sime Darby took a 40 percent intimacy in Port Dickson office staff Sdn. Bhd., an free-lance power producer in Malaysia. That same year, the company acquired U.K.-based Lec Refrigeration plc, which was involved in the manufacturing, marketing, and servicing of infrigidation equipment and related products. At the same time, Mohamed worked to absorb the flurry of acquisitions conducted during the previous several years and streamline the company into some sort of cohesive whole. Despite restructuring activities, Sim e Darby managed to boost sales to US$3.15 billion in 1994, about US$186 million of which was netted as income.In 1995 Sime Darby stepped up its acquisition drive through the purchase of a controlling 60.4 percent interest in United Malayan Banking potoration from Datuk Keramat Holdings Berhad. The US$520 million purchase deepened the companys involvement in the countrys fast-growing financial services sector. United Malayan, which was the fourth largest bank in Malaysia in terms of assets, soon was reorganized as Sime Bank Berhad, with the companys brokerage arm becoming a subsidiary of Sime Bank under the name Sime Securities Sdn. Bhd.For the fiscal year ending in June 1997 Sime Darby posted point net income of M$835.8 million (US$322.9 million) on record revenues of M$13.24 billion (US$4.35 billion). Sime Bank and SimeSecurities played a key role in these stellar results (accounting for 30 percent of pretax earnings), but the eruption of the Asian financial crisis in July 1997 q uickly proved that the acquisition of United Malayan had been ill-timed, if not also ill-advised. The severity of the crisis in Malaysia, which included a steep decline in the Malaysian stock market and a hasty depreciation of the ringgit (the nations currency), led Sime Bank to post the largest acquittance in Malaysian banking historyM$1.6 billion (US$431 million) for the six months to celestial latitude 1997. In turn, Sime Darby posted its first loss in decades for the same six-month period, a loss of M$676.2 million ($172.7 million). With other Sime Darby units being hit hard by the crisis as well, the company posted the first full-year loss in its close to 90-year history in the 1998 fiscal year, a net loss of M$540.9 million (US$131 million).Subsequently ,it beat a hasty retreat from its aggressive expansion, determining that the prudent course would be a return to the companys core areas plantations, property development, tire manufacturing, heavy equipment and motor vehicle distribution, and power generation. In June 1999 Sime Darby sold Sime Bank and its SimeSecurities subsidiary to Rashid Hussain, who merged it with RHB Bank to form the second largest commercial bank in Malaysia. During the 1999 fiscal year, the company also sold Sandestin Resorts for US$131 million. In 1999,it returned to the b miss with net earnings of M$821.8 million (US$216.3 million) on revenues of M$9.91 billion (US$2.61 billion). A further pull-back from the financial services sector came in March 2000 when Sime Darby sold its interest in Sime AXA, its insurance joint venture with AXA of France.Meantime, an area of growing interest was emerging at the turn of the millennium as Sime Darby increased its interest in Port Dickson Power to 60 percent, giving it majority control and turning Port Dickson into a company subsidiary. Flush with cash from the sale of its financial services units, Sime Darby appeared poised to make additional forays into the power generation sector. Give n the near disaster of its aggressive moves into financial services, however, the company was likely to proceed with much caution in all of its future expansionary endeavors in a return to its traditional style of conservative management.Business activitiesPlantation Plantation is Sime Darby largest revenue generator with about 70% of the conglomerate profits come from this segment. The company operates palm oil and rubber plantations in Malaysia and Indonesian islands of Sumatera, Kalimantan and Sulawesi. With a land bank of over 633,000 hectares, including 300,000 hectares in Indonesia, it is one of the largest plantation company in the world.Property The company is involved in the property development business in eight countries, namely Malaysia, Singapore, Indonesia, Philippines, Vietnam, PeopleHYPERLINK http//en.wikipedia.org/wiki/Peoples_Republic_of_ChinaHYPERLINK http//en.wikipedia.org/wiki/Peoples_Republic_of_Chinas Republic of China, Australia and United Kingdom.Industrial and Monitoring The company is involved in the purchasing, leasing and marketing of industrial equipment such as Caterpillar Inc. heavy duty trucks and tractors.. it has partnership with Ford, it sells Fords cars and trucks together with the Land Rover brand. It is also a major BMW dealer in Singapore, Australia and Thailand. In Southern China, the company sells BMW and Rolls-Royce. In addition, Sime Darby co-owns Inokom Corp Bhd, a joint-venture with Hyundai Motor Company which assembles and sells Hyundai vehicles in Malaysia.Energy Utilities The company is an Oil and Gas services company which provides equipment for exploring oil and gas assets in the South East Asia region. The company is also an independent power provider in Malaysia and Thailand. The company also provides engineering services in the system integration and sales sectors, protective covering and oil gas sectors.Healthcare The company owns hospital named Sime Darby Medical Centre Subang Jaya Sdn. Bhd ,SDMC For merly k directn as Subang Jaya Medical Centre, and college formerly known as SJMC Academy of Nursing and Health Sciences which was established in 1995 and now is known as Sime Darby Nursing and Health Sciences College.Other businesses The company has a port utility company named Weifang Sime Darby Port Co Ltd. Other businesses that the company is involved in include healthcare, aerospace (divested from Asian Composites Manufacturing (ACM) in 2009), bedding, consumer and industrial products, logistics and packing.The company also owns the 30% of the Malaysian arm of Tesco stores.Sustainable Practices Sime Darby plantations implemented Zero Burning pose Techniques Techniques (ZBPT), a practical and environmentally sound technique of replanting, in 1989.The Board of director and audit commission profileCompany ProfileBhg Dato Mohd Bakke, was chosen on13th May 2010 as the new president and group chief executive (PGCE) and formerly group president/CEO of Felda Global ventures Holdings SDN Bhd, he has necessary experience in incarnate restructuring exercises as well as in management expertise in the plantation.Dato Azhar Abdul Hamid, Chairman,board of Directors and Managing Director of Sime Darby Plantation Sdn Bhd. He is head of the Sime Darby Groups Plantation and Agri-business DivisionInternal and External Audit Duties and commentsTo say that the group had processes in place its just that they had not been implemented properly certainly laughable because it is all toofamiliar. If one was to seriously respond to this excuse, it would be that is why you have internal and external auditors. And when the internal auditors brocaded the red flag in August 2008, it was conveniently swept under the carpetIf the excuse was that, the non-executive independent directors were make to give the benefit of the doubt to management, the external auditors, Price Waterhouse Coopers (PWC) certainly had no such obligation or professional reason to do so This was their red flag to delve into the issue of monetary value over-runs including its convalescence of such costs. This is no more an ordinary run of the mill statutory audit. PWC had been put on dubiousness and were obliged to look into the concern meticulously.The question to be answered is that, what did PWC do? They signed off the accounts of Sime Darby for 2008 and 2009 with a bonny audit report Not even an emphasis of matter especially on the possible cost over-runs and its recoverability The fact that official media had highlighted these matters, besides the media report prior to the finalization of the 2008 and 2009 accounts speak volumes about the role (or lack of it) of PWCThe official media currently has been quite polite about this latest incident .yes, they have been polite relatively speaking, but if you read in between the lines, the insinuation is the total collapse in the check and brace roles of the other parties involved with Sime Darby notably the auditors and members of the Audit Committee headed by the ex-chairman of PWC. Andrew Sheng, a proponent of noticeable corporate governance is unfortunately embroiled in this mess as director and he cannot easily unscramble himself out of this especially when he was appointed in 2007.He has to regain credibility by insisting wide and fundamental changes to the way things are done in the Malaysian corporate world in common and Sime Darby in particular.The audit deputationIn April 2008, for example, there were news reports that Sime Darby Engineering Sdn Bhd had incurred cost overruns of between RM120mil and RM150mil in its offshore engineering, procurement, construction, installation and commissioning project for Maersk Oil Qatar (MOQ).In February 2009, a report also alleged that there had been costs overruns in the same project, but this time, the figure mentioned was far bigger. At a media brief on Feb 4, Zubir dismissed this Theres no such thing as the RM800mil losses. The Minority Watchdog Group (MSWG) wrot e to Sime Darby chairman Tun Musa Hitam in March 2009 on issues in the energy and utilities division. At the companys AGM last November, the MSWG also raised questions about the divisions shrinking bottom-line. Moreover, it has been reported that Sime Darbys internal auditor has come up with reports highlighting the divisions losses and that old independent auditors PricewaterhouseCoopers (PwC) had delayed signing off Sime Engineerings 2008 accounts.Boardroom strength The former executive director of a Big Four firm says When PwC does not sign off the accounts of a significant subsidiary of listed company and yet signs off the parent companys accounts. It is understood that the auditors could issue an unqualified audit opinion on the Sime Darby accounts scorn not doing so for Sime Engineering because the issue in dispute at the Sime Engineering level was not material on a group basis.The current public discussions about accountability and the suggestions that more heads mustiness roll at Sime Darby are making the headlines, but the core underlying issue is quite various How could this mess have happened in spite of the conglomerates governance structure and controls? Going by the information in the annual report 2009, Sime Darbys system of checks and isotropys at the boardroom and top management level is sturdy and robust, befitting its status as a sprawling multinational corporation.Beside Ahmad Zubir, Sime Darby has 12 directors. Half of these are independent directors and all 12 are non-executive directors. Together, they form a team with deep and varied experience and knowledge. Among the independent board members are stalwarts such as Musa, genus Raja Tan Sri Arshad Raja Tun Uda, Datuk Seri Panglima Andrew Sheng and Tan Sri Dr Ahmad Tajuddin Ali.You cant accuse the board of being sleepy. There are some heavyweights there, says the research head of a foreign investment house. Yet, the directors have missed the extent of Sime Darbys project woes until , reportedly, PwC went to Musa last year to express its concerns over the energy and utilities division.In the financial year 2009, there were 12 board meetings. Not many listed companies in Malaysia hold these meetings this frequently. In addition, there are seven board committees and they each meet several times a year. supra all, Sime Darby has supervisory committees that were set up to assist the board in the oversight of the respective divisions (of the company). The board has identify certain non-executive directors to sit on these committees.Definitely, this is not a geek of the directors having limited exposure to the companys management and affairs. So how is it that the many warning signs had not prompted the board to initiate a probe until October last year, when it established a board work group to review the energy and utilities divisions operations? The boards defenders say the management convinced the directors that in spite of the auditors concerns and the rumors, t he situation was under control. The argument here is that the board has to constantly maintain a balance between objectivity and the ability to work well with the management. In other words, in the absence of strong evidence to the contrary, the board saw no reason to doubt the information provided by the management. That is why, it took a place of time for the Sime Darby board to get into full swing once it became clear that it must investigate the corporate governance and performance of the division. The directors have to shift from a position of trust to skepticism to disbelief and finally, to outrage, says a corporate insider Rajawas executive chairman and senior partner for 18 years, retired from PwC in June 30, 2005. Raja Arshad was appointed to the board of the pre-merger Sime Darby on July 1, 2007 exactly two years later, thus fulfilling the criterion for boardroom independence at Sime Darby.Raja Arshad was not necessarily the best choice to head Sime Darbys audit committee , PwC insisted that his position in the audit committee does not change how the firm conducts its audit of Sime Darby. Therefore, what is PwCs part in the Sime Darby fiasco? The four key findings tell by Sime Darby on May 13 was that , only one decision to reverse revenue of RM200mil for the Qatar vegetable oil project relates to a matter taken up in accounts already audited. The other three relate to items that have only surfaced in the current financial year. This means PwC could not have known about these figures until it begins auditing Sime Darbys 2010 accounts. Nevertheless, some in the accounting fraternity say this may be a test case for the newly constituted Audit Oversight Board.