According to shareholders who attended the AGM, issues raised included cost overruns at the energy and utilities (E&U) division for FY2010 ended June 30, which amounted to RM2.1 billion. Some shareholders also expressed disappointment over the board’s inability to release findings from the forensic audit report.
To recap, the board of directors had on May 27 appointed forensic consultants to conduct audits on the four projects undertaken by the E&U division where the cost overruns were incurred. The four projects are known as the Qatar Petroleum, Maersk Oil Qatar, the Bakun Hydroelectric Dam and Marine.
Sime Darby chairman Tun Musa Hitam, who was reappointed as a director of the group, told shareholders in a statement released on Sime Darby’s website on Tuesday, that the findings of the forensic audit could not be tabled or revealed at the AGM, “… because we must follow due process of law and protect the best interests of the group in undertaking the necessary legal claims on behalf of the group”.
He added that civil action is being taken by the company and it is expected that legal proceedings will commence before the end of the year. Also, individuals with prima facie culpability have been identified by the group’s advisors in the forensic report.
On the massive losses incurred at the E&U division, a shareholder who attended the AGM told The Edge Financial Daily that “no clear explanation” was given as to how the matter had escaped the management’s notice.
NEW BLOOD... Five new directors have been appointed to the board of Sime Darby Bhd, replacing seven members in their 60s and 70s, at the conglomerate’s AGM on Tuesday. Datuk Mohd Bakke Salleh (above), Sime Darby’s acting president and group chief executive, was appointed executive director.
Shareholders were told that out of the four projects under its E&U division that incurred cost overruns, only one, known as the Marine Project for India’s Oil and Natural Gas Corp Ltd, is still ongoing.
The rest are close to completion while the Bakun hydro-electric project is expected to be completed by July 2011.
Even so, one minority shareholder complained that there was no specific indications of when Sime Darby aimed to turn around its E&U unit even though this was included in its main four key thrusts to bring the division back to profitability.
Some also questioned whether the loss provision amounting to RM2.1 billion in its E&U unit for FY2010 was adequate. Nevertheless, the auditors PricewaterhouseCoopers countered that the amount was reflective of the information available.
The board added that all impairments, provisions or losses were assessed on a monthly basis. Among the reasons leading to the provision totalling RM2.1 billion was a change in contract terms due to volatile prices of raw materials for the Bakun project, and the failure of its joint venture partner to deliver on the Qatar project.
Some of the minority shareholders expressed dissatisfaction with the briefing on the group’s current performance and strategies moving forward as there was no comparison or benchmarking against peers for each division.
Notably, some said Sime Darby could have fared better by focusing on its core competency, which is plantations.
Observers have said that the Synergy Drive merger to consolidate eight public-listed companies – Sime Darby, Sime Engineering Services Bhd, Sime UEP Properties Bhd, Golden Hope Plantations Bhd, Mentakab Rubber Company (Malaya) Bhd, Kumpulan Guthrie, Guthrie Ropel Bhd and Highlands & Lowlands Bhd - has proven that size alone does not guarantee success.
To recap, market estimates had put a potential capitalisation value of close to RM70 billion for the property to plantations group before it was listed in November 2007. Today, the conglomerate only has a market capitalisation of RM52.88 billion as of Tuesday - a far cry from the RM78.7 billion-market capitalisation it achieved on Jan 11, 2008, the highest since it was listed on Bursa Malaysia on Nov 30, 2007.
The high valuation then may be attributable to soaring crude palm oil (CPO) prices of around RM3,000 per tonne at the end of 2007 and going into 2008. As such, it was reasonable for analysts and investors alike to be upbeat on the counter back then.
Nonetheless, CPO futures are now trading at more RM3,200 per tonne while Sime Darby’s market capitalisation has fallen about 33% from its peak then.
On average, Sime Darby’s plantation business formed 67.75% of the group’s profit before interest and tax (PBIT) between FYs 2007 and 2010 ended June 30.
For FY2010, earnings generated by the plantations division were almost completely offset by the losses incurred in the E&U division. The plantation business contributed RM2.11 billion or 104% of the group’s PBIT for FY2010 while its E&U division made losses of RM1.75 billion.
Its motor business made up 19% or RM386.3 million of the group’s PBIT for FY2010, property at 24% or RM493 million, industrial at 37% or RM758 million and healthcare at 2% or RM33.9 million.
Seven directors stepping down (Subhead)
In a surprising move, six members of the board of directors did not seek re-election while one resigned. This was the first time such a large number of its directors have decided not to seek re-election at the AGM.
Chairman Musa announced at the AGM the resignation of Raja Tan Sri Arshad Raja Tun Uda from the board. Raja Arshad was appointed to the board on Sept 14, 2007. He was the chairman of the board audit committee and a member of the board risk committee.
The six board members who did not seek re-election at the AGM were deputy chairman Tun Ahmad Sarji Abdul Hamid, 72, Dr Arifin Mohamad Siregar, 76, Tan Sri Dr Ahmad Tajuddin Ali, 62, Datuk Seri Mohamed Sulaiman, 72, Datuk Dr Abdul Halim Ismail, 71 and Datin Paduka Zaitoon Othman, 70.
The move by the directors not to seek re-election was not part of the resolutions to be passed at the AGM and came as a surprise to shareholders. The resolutions were also not mentioned in the notice of AGM to shareholders.
Musa then announced that five new directors had been appointed to the board. They are Permodalan Nasional Bhd president Tan Sri Hamad Kama Piah Che Othman, Tan Sri Yusof Basiran, Zaiton Mohd Hassan, Azmi Mohd Ali and Sime Darby acting president and group chief executive Datuk Mohd Bakke Salleh, who was appointed as executive director.
Their appointments would come into effect from Nov 26.
At a press conference after the AGM, Bakke said, “I think they all have their own personal reason as to why they didn’t seek for re-election, more than four of them have passed the age of 70. I can only make a guess but it is not appropriate.”
This article appeared in The Edge Financial Daily, November 18, 2010.
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