Sunday, May 30, 2010

The Sime Darby fiasco - the biggest scandal in Malaysia's corporate history

I have a gut feeling that Sime Darby Berhad, the world's biggest oil palm plantation company, is going to make history soon - for all the wrong reasons.

With an overzealous management, with some executives corrupt to the core and a Board of Directors which knew nothing about the things happening around it, the fiasco in Sime Darby is poised to become the biggest corporate scandal in Malaysia's history.

Therefore, those probing the financial scandal should not confine their investigations to the cost-overruns in Qatar and Bakun. There's more to it than meets the eye.

There are many other questionable deals which took place prior and after Sime Darby's merger with Golden Hope Plantations Berhad and Kumpulan Guthrie Berhad in November 2007.

I have some questions begging for answers:

1. What happened to the trading loss in China which had reached RM80 million at one stage? The Chinese buyers had refused to accept palm oil which was ordered when the price was high but fell when the shipment reached China? Why is palm oil being sold cheaper in China than it is in Malaysia? What is the actual quantum of investments of Sime Darby in China? Utilities Divison's Weifang operations, Jinning Port, Motor operations, property investments, etc. Has Sime Darby evaluated the country risks? Did Sime Darby over-expose itself in China? Was there a risk management report on China before all these investments took place? Were money paid to middlemen to secure projects?

2. What happened to the two AHTS (Anchor Handling Tugs) and one DLB (Derrick Lay Barge) which Sime Darby awarded to MLC Shipbuilding Sdn Bhd to build. Were these ships, worth RM155 million, ever delivered. Or was the RM155 million written off? Did Sime Darby call for tender before awarding the project to MLC? Does MLC, owned by one Redzuan Goh, have the expertise to build ships?

3. Why invest in plantations in Liberia? Is it worth taking the risk going to Liberia? Could Sime Darby have generated more money expanding/developing estates in Malaysia (ie Sabah/Sarawak) - less risk and still plenty of fertile land? Isn't it easier to deal with Sabah/Sarawak Government than the Liberian Government? What's the economic rationale of going to Liberia? This is despite the known fact that Guthrie started the Liberian project but got out of it twice due to civil wars. The Liberian Government is fragile. What if a new regime takes over and nationalises the Sime Darby project?

4. What is this special relationship with Brunsfield Group that enables it to secure many projects from Sime Darby. Among others, Brunsfield was given the contract to renovate KLGCC, to build Sime Darby's World Headquarters in Bukit Kiara, and The Oasis in Ara Damansara where the Divisional headquarters will be located. The total contract awarded to Brunsfield could actually be billions.

5. The sale of the land at USJ Elite Exit (now being developed by a private company - MCT). At what price was this land sold and what was its price when Sime Darby bought it? What is the market price now? Why was the land sold anyway? Is it to show income in an attempt to make losses elsewhere look smaller?

6. The Kuala Lumpur Golf and Country Club in Bukit Kiara now sits on a land leased from City Hall. Apparently, the Sime Darby management had agreed to buy the land from City Hall without the approval of the Board. To rectify the situation, a paper was submitted to the Board last week to approve the sales and purchase of the land in retrospect. It will be silly for the Board to do so, especially now when the Malaysian Anti-Corruption Commission is carrying out an investigation on Sime Darby. How much is the new facelift of the KLGCC going to cost?

I wonder if the Board is aware of all these things I have mentioned.

Friday, May 28, 2010

Sime Darby's losses reach RM1.3 billion

The provisions for losses incurred by Sime Darby Berhad's Energy and Utilities Division have now been raised to RM1.3 billion.

Announcing the company's third quarter results for Financial Year 2009/2010, its acting Group Chief Executive Datuk Azhar Abdul Hamid said the figure was not a final one.

The excerpts of the Press Statement issued yesterday:

The Energy & Utilities division had reported an operating loss of RM1,019 million in the first nine months 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.

The breakdown in the provisions totaling RM964 million is as follows:

RM200 million for the Qatar Petroleum (QP) project;
RM159 million for the Maersk Oil Qatar (MOQ) project;
RM155 million for the Marine project;
RM450 million for the Bakun project;

Inclusive of the above provisions, the total provision for the four projects at the end of the third quarter amounted to RM1.3 billion. These provisions are based on the current best judgment of the forecast cost to completion of each of the projects. The QP project was completed and handed over in August 2009. The MOQ project is expected to be completed by the end of the year. Negotiations on cost recovery in all four projects are ongoing.

NEXT: What really happened to Sime Darby's investments in China

Wednesday, May 26, 2010

MACC probes Sime Darby

I am glad that the Malaysian Anti-Corruption Commission has started its probe on Sime Darby Berhad as reported in the New Straits Times today:

I hope they read my two previous postings on Sime Darby while doing so. Here is the full story in the NST:

MACC steps in
Probe under way into Sime Darby’s huge losses
By Farrah Naz Karim
PUTRAJAYA: The Malaysian Anti-Corruption Commission (MACC) has taken a proactive step by initiating investigations into the massive losses suffered by Sime Darby.
Investigations will start with a probe focusing on the internal inquiry being carried out by the conglomerate. The company’s internal investigation, believed to have started some eight months ago, is to determine the real extent of the
losses in its energy and utilities division and whether they were anything beyond just making bad investment calls.

There may also be probes into other divisions and projects. MACC investigations director Mustafar Ali confirmed that the commission had started investigations.

“We will be identifying areas that have elements of corruption,

misappropriation and abuse of power.

“Like all cases, we’ll deal with this one with urgency, not only because this probably involves billions of ringgit but also the interests of the people,” he told the New Straits Times yesterday.

MACC had last week offered Sime Darby its expertise in detecting elements of graft but the country’s oldest and largest conglomerate had to date not approached the antigraft body for help in facilitating its investigation.

Until last week, MACC said it would let Sime Darby complete its investigation and would only open an investigation file into the financial affairs of the governmentlinked company if any element of corruption was suspected in its
massive losses.

Sime Darby recently confirmed the market’s worst fears when it announced that it would have to post massive losses suffered in projects in the Middle East as well as the Bakun hydroelectric dam project in Sarawak.

It is expected to post close to RM1 billion losses in its third quarter results,
which are expected to be released tomorrow. Sime Darby is also expected to disclose tomorrow the findings of the task force set up to investigate its
energy and utilities operations.

The cost overrunswere discovered by a board work-group formed in October last year to “assess the corporate governance and performance” of Sime Darby’s energy and utilities division. The work-group members are Datuk Seri Andrew Sheng, a member of the National Economic Advisory Council, Tan Sri Wan Mohd Zahid Mohd Noordin and Datin Paduka Zaitoon Othman.

In announcing the losses, Sime Darby also ordered its group chief executive, Datuk Seri Ahmad Zubir Murshid, to take leave of absence. The company has appointed Datuk Azhar Abdul Hamid acting group CEO for the interim period, while the government has assured transparency in any investigation into the company.

This is not the first time the anti-graft body started an investigation
into a GLC. In 1996, MACC, which was then known as Anti-Corruption Agency,
launched investigations into Perwaja Steel after it was declared insolvent,
with debts and losses totalling RM10 billion.

This led to the arrest of its managing director, the late Tan Sri Eric Chia, in February the same year, where he was charged with embezzlement. He was acquitted in 2007 after the Sessions Court ruled that the prosecution had failed to establish a prima facie case against him.

Tuesday, May 25, 2010

V. Sivapathasundaram (1942-2010)

For lack of a better word V.Sivapathasundram, a former teacher at Tunku Besar Secondary School (TBS), Tampin and hockey coach who passed away on Sunday at the age of 68, is simply a LEGEND.

Being as mischievous as I was growing up, I was often the subject of punishment by this man. Those were the days when teachers had special permission from parents, including mine, to use the rod, even outside the school.

There have been many ocassions when I was slapped so hard that I literally saw stars. I was then in my teenage years and played hockey for the school, Tampin district and the State of Negri Sembilan. Siva was my teacher-cum coach.

One particular incident which I shall never forget took place when I was in Form Five. It was a hockey-training day and I was given the duty of picking up hockey balls. When my team mate Amarjit and I got to the PE store, there wasn't a single ball. We later realised that the girls' team beat us to it.

So looking all over the PE store for hockey balls, I remarked:

"There are no hockey balls here, so I guess we'll have to use Siva's BALLS,". Both of us burst out laughing, and that's when we heard his signature cough. As we turned around, we saw Siva standing right behind us. I shall leave the rest of this story to your imagination.

Siva was a dedicated teacher with hockey being his No 1 passion. Like my friend and former colleague Jugjet Singh described in his column in the New Straits Times today, Siva was often pre-occupied plotting the defeat of the other hockey Titan in Negeri Sembilan - the St Paul's Institution. TBS would often meet SPI in the finals. Both had a fair share of winning.

Despite being a strict disciplinarian demanding both academic and sporting excellence from his students, Siva had a soft spot which he chose not to show. He gladly let some of his students to stay in his house for as long as they wanted. These students were poor and could not commute to school from home for hockey training because they lived far away and the hostel could not accommodate them.

A former TBS hockey player, Azlan Harun, recalled his experience staying with Siva. He bought special crockery for the Muslims and catered halal food for them, all at his own expense.

How many teachers we know today would do the same? How many teachers we know today would walk around the school field in the scorching afternoon heat to pluck thorns and line the hockey pitch? How many teachers in the rural areas we know today would take the trouble to go to KL and buy hockey sticks and boots for their students? Siva used to give them away for free to poor students. I was among the beneficiaries.

It will take a whole book for me to describe Siva's contributions to the development of sports in Tampin District, Negeri Sembilan and country. A voice in Sports did a fantastic job, here.

Siva's love for cigarettes landed him in hospital many times. He suffered at least a couple of heart attacks when I was still in Tampin. Two or three days after being discharged from the hospital, he would be back in the field. His deteriorating health never seemed to bother him.

I was told that three weeks before his death, he was still coaching young children under the BAKAT programme. He was coughing away, but that didn't stop him.

Siva was the man behind the scene. If there is a posthumous award for a dedicated teacher and sportsman, I would vote for him over and over again.

Thank you and goodbye, Sir. I am forever indebted to you. And you shall forever remain my favourite teacher, my mentor and my friend.

May you find eternal peace.

Sunday, May 23, 2010

The Sime Darby Fiasco - who else should be held responsible.

In my last posting, I promised to name the senior management executives who should be held accountable for the losses incurred by Sime Darby Berhad.

My argument that the management had contravened the Company's Act and failed to comply to the principles of Corporate Governance is supported by Sime Darby Chairman Tun Musa Hitam in an interview which appeared in Mingguan Malaysia today.

This is what he said, and I quote:

"Semua laporan yang sepatutnya (sampai), tidak sampai kepada pihak Lembaga Pengarah. Kalau ada pun, ia tidak memberi gambaran sebenar. Kami tidak mempunyai laluan untuk maklumat sebenar."

In other words, Tun Musa is admitting that the management had misled the Board of Directors. Besides the President and Group Chief Executive of Sime Darby Datuk Ahmad Zubir Murshid, why were the rest of the management executives in the same chain of command spared? To me, this is mind-boggling.

Let me try and put in perspective what had happened earlier when Golden Hope Plantations Berhad incurred trading losses amounting to RM40 million due to overzealous trading activities by a rogue trader. The matter came to light between 2006 and 2007 and was accounted for in several financial statements. In other words, Golden Hope made it transparent.

Unfortunately due to the high palm oil prices, the amount was inflated to about RM60 million.

But when Golden Hope and Kumpulan Guthrie Berhad were merged with Sime Darby in 2007,the Sime Darby management led by Datuk Seri Ahmad Zubir Mushid insisted on the resignations of the former Group Chief Executive of Golden Hope Datuk Sabri Ahmad (who was absorbed into Sime Darby as Advisor, Plantations Division), the director of Oils and Fats Dr Anhar Suki, the Director of Finance Razidan Ghazalli (who was absorbed into Sime Darby as Group Chief Financial Officer), the General Manager of Trading Azmir Yahya and the General Manager of Golden Jomalina Sdn Bhd Muhammad Mohan Abdullah.

Datuk Sabri, Dr Anhar and Azmir chose to resign, but Razidan and Muhammad Mohan stood their ground and refused to do so. As a result, both Razidan and Muhammad Mohan were sacked on the same day. The two then took their case to the Labour Court. Months later, in an apparent admission of guilt, Sime Darby chose to settle the matter out of court and compensated both of them.

The fact is, Golden Hope did not keep the matter under wraps. The loss was reported in all its financial statements, and yet Datuk Sabri, Dr Anhar and Azmir were forced to resign while Razidan and Muhammad Mohan were given the sack. The decision to take action against the five was a Board decision headed by Tun Musa. He has to be consistent, but from what I have observed so far, he is not so.

In contrast to what Golden Hope did, the Sime Darby management tried to hide the losses incurred in Qatar and Bakun. Only one provision was made in the second quarter results of the 2009/2010 Financial Year - to a tune of RM210 million for cost over-runs in the Qatar Maersk Oil project. In actual fact, the amount was much higher.

It also made no mention of the losses incurred in the Bulhanine and Maydan Mahzam project with Qatar Petroleum as well as the cost over-run in the Bakun project.

In other words, not only did Sime Darby go against the principles of good governance but also breached the various laws.

So who among the management should be held responsible:

1. Sekhar Krishnan - The Group Financial Officer when Sime Darby ventured into Qatar and when the whole fiasco began.

2. Hisham Hamdan - The former Head of Group Stategy and Business - he vets through all investments. If he says no go, papers do not go to Board. All projects, including the Qatar projects and Bakun were okayed by him. He did not see the fact that Sime Darby was not ready for the projects in Qatar. It is strange that he is now tasked to lead Energy and Utilities Division.

3. Madam Tong Poh Keow who was appointed the Group Chief Financial Officer of Sime Darby Berhad on June 24, 2008 - She was Group CFO for year end June 2008 and June 2009 accounts - why did she failed to insist on provisions? Why did she sign the Statutory Declaration in the annual report saying that the accounts were correct?
In an Annual Report, the directors sign the Statement of Directors (s169(15)Companies Act). The CFO signs Statutory Declaration (s169(16) Companies Act) in accordance with Statutory Declaration Act 1960. So what is the CFO's legal position in making incorrect statutory declarations? In an Annual Report, the key sections are:
1) Corporate Governance Statement
2) Chairman's Statement - Nothing was mentioned in Tun Musa's statement in June 2008 and June 2009 in relation to E&U Division
3) Audit Committee Report
4) Statement of Internal Control - contains Board responsibility, risk management framework, etc
5) Directors' Report

Were the representations in the above sections accurate or misleading?

Since Annual Reports are tabled at the Annual General Meeting for shareholders, the Sime Darby shareholders, public at large, the Securities Commission, Bursa Malaysia, Minority Shareholders' Watchdog Group, etc were obviously misled. This is an obvious breach of the Companies Act.

4. Nik Muhammad Hanafi Nik Abdullah who was then Sime Darby's Head of Internal Audit. He failed to question the Finance and Accounts Department when it did not make provisions for the losses.

5. Abdul Rahim Ismail, who was then the Chief Financial Officer of the Energy and Utilities Division. He should have known all along the extent of the damage.

Sime Darby must act against those responsible, even if it means instituting legal action. Transferring them to another division like what it did in the case of Nik Muhammad Hanafi and Abdul Rahim, would not solve the problem. The problem will be merely shifted to another division.

Saturday, May 22, 2010

The entire Sime Darby Board must go

The only way to rescue Sime Darby Berhad now is to sack the entire Board, including chairman Tun Musa Hitam and to revamp its top management. To my mind, none of the divisional heads should remain. This is because they were all part of the decision-making process. They are collectively responsible for all the wrong-decisions, unlawful decisions, non-compliance of Corporate Governance, etc.

The Board of Directors of the expanded Sime Darby was appointed just before the Legal Day One of the merged entity on November 27, 2007. (Sime Darby, Golden Hope Plantations Berhad and Kumpulan Guthrie Berhad were merged). In another six months, that would be three years.

Therefore, the Board cannot claim ignorance to what Sime Darby has been doing. Legally, having no knowledge is no defence. Sime Darby's investment in Qatar dates back to 2006 and 2007. It only goes to show that the Board failed to keep in check the actions of the management or worst, was by-passed altogether. But one thing for certain, the Board had failed miserably in monitoring the projects entered into by the management.

The proposal to merge Sime Darby, Golden Hope and Guthrie was mooted by Sime Darby, then led by Datuk Seri Ahmad Zubir Murshid. At the point of the merger, all three companies were very profitable. In it's final year, Golden Hope made RM700 million and had embarked on a mission to increase its profits to RM1 billion by this year. That's half the profit the expanded Sime Darby is making now.

The exercise was called a merger because it was a Related Party Transaction. In actual fact, it was a Sime Darby take over. They did not call it a take over, because they would then be required to adhere to the stringent Take Over Code. If it was a take over, Permodalan Nasional Berhad as a major shareholder would not be able to exercise its voting right as it was a RPT.

I was then the General Manager of Group Corporate Affairs cum special Officer to the Group Chief Executive at Golden Hope. Therefore, I was privy to certain information.

I have every reason to believe that Tan Sri Ahmad Sarji Hamid (now Tun) who was then the Chairman of both Sime Darby and Golden Hope, was by-passed when the merger proposal was made to the Government. He was kept in the dark until the very last minute. I may be wrong here, but when confronted by the senior management of Golden Hope Tun Ahmad Sarji denied knowledge of the merger. His facial expression was genuine. It's either that or Tun Ahmad Sarji is a damn good poker player.

Datuk Seri Zubir did not want Golden Hope to know about the merger until after Tun Abdullah Ahmad Badawi, the then Prime Minister approved it. My point is this, if Datuk Seri Zubir could do things without the knowledge of his Chairman and his Board then, could he not do the same now.

The reason for keeping the planned merger a secret was simple. Datuk Seri Zubir knew that Golden Hope and Guthrie would not agree to it. To keep them in the loop would only give rise to messy debate. So the best thing is not to consult them at all. Get the Government to agree to it and then shove it down their throats.

In fact, to this day, most of the ex-Golden Hopers and Guthriens who joined Sime Darby wish the clock can be turned back. The merger was a big mistake. It failed from the very beginning, a non-starter so to speak. It is working against the country and the Government. The number of resignations at the Plantation Division is climbing by the day. Morale among the staff is a big issue.

A few days ago after announcing that Datuk Seri Zubir had been asked to go on leave pending the expiry of his contract in November, Tun Musa treated editors and bloggers to a sumptuous dinner and tried to explain his side of the story. Perhaps also to get them over to his side.

But things don't work that way.

So many things need explanation. They include:

1. Payment made to middlemen in dealing with the Chinese Government/projects in China
2. The projects awarded to the Brunsfield Group of Companies with/without the approval of the Board
3. Encroachment into the High Value Virgin Forest in Kalimantan which incurred the wrath of the Indonesian authorities. What was the total amount of money paid as compensation?
4. The RM18 million paid to one "Azeez". Read this.
5. The lavish lifestyle of certain people, globetrotting with private jet, etc...
6. The sale of the land at USJ Elite Exit (now being developed by a private company - MCT). At what price was this land sold and what was its price when Sime Darby bought it. What is the market price now? Why was the land sold anyway? Is it to show income in an attempt to make losses elsewhere look small?
7. The false statement made in relation to the projects in Qatar in 2008 in response to the posting by "Sime Darby Watch". Sime Darby issued a statement denying the cost over-run. It is now evident that the statement was issued to mislead the authorities including the Securities Commission and Bursa Malaysia as well as the shareholders and the general public.

As an Amanah Saham Nasional account holder, I call upon the Government to set up an independent committee to re-audit the company accounts over the last five years.

I am not at all convinced that the negative impact on Sime Darby's balance sheet this year can be capped at RM964 million. Someone try and convince me please.

And I do hope PNB would not use the Sime Darby loss as an excuse to pay lesser ASN/ASB dividends this year.

As things fall into place, I am now beginning to wonder whether the merger was deliberately planned to "hide" some of Sime Darby's earlier indiscretion/wrongdoings. If the merger did not take place, the losses in Qatar and Bakun, would have impacted Sime Darby in a far greater way. Perhaps, someone saw the merger as the only solution to cushion the impact. According to The Star, Sime Darby's market capitalisation was about RM71 billion in January 2008, two months after the merger. Its Market Capitalisation is now RM52 billion and dwindling.

What Sime Darby is left with now is the cash and assets it took from Golden Hope and Guthrie.

Next posting: The four senior executives who willl have to face the music...

Saturday, May 15, 2010

Wee Choo Keong now an Independent

I congratulate my long-time friend and MP for Wangsa Maju saudara Wee Choo Keong for taking the bold decision to quit Parti Keadilan Rakyat.

Although our views on national politics defer most of the time, Choo Keong and I have been friends for about 20 years now. When I first met him as a cadet reporter with the New Straits Times, he was still a DAP member.

Choo Keong is a non-nonsense, man of principles.

He left DAP when the party deviated from its founding tenets and when the "Lim" family started to practise nepotism. Choo Keong then set up the Malaysian Democratic Party in 1998. He later decided run in the 2008 general election under PKR.

Choo Keong's departure from PKR is a loss the party can never recover.

Good move, saudara Choo Keong.

Friday, May 14, 2010

Re-audit Sime Darby accounts

As an Amanah Bumiputera Berhad account holder, I call upon the Board of Directors of Sime Darby Berhad and the Government to set up an independent audit committee to re-audit the company's accounts over the past five years.

The committee should in particular investigate losses in the energy and utilities, property and the motors divisions.

I am puzzled as to why Sime Darby awarded many big property development projects to Brunsfield Berhad despite the fact that Guthrie, which has expertise in property development, is now part of the enlarged Sime Darby.

The committee should also investigate the disposal of high-value land. I wonder if all these decisions were made with the approval of the Board.

If there are elements of fraud, those responsible must be sent to prison.

Thursday, May 13, 2010

Zubir out, Azhar fills in...temporarily.

Held responsible for the losses in its projects in Qatar and Bakun, The President and Group Chief Executive Officer of Sime Darby Berhad Datuk Seri Ahmad Zubir Murshid has been ordered by the Board of Directors to take leave of absence pending the expiry of his contract on Nov 26.

Datuk Azhar Abdul Hamid, currently the Executive Vice-President, Plantations has been appointed acting Group Chief Executive until a candidate is found to fill the vacancy.

Following is the full statement from Sime Darby:

For Immediate Release
Thursday, 13 May 2010

Sime Darby Addressing Challenges In Its Energy & Utilities Division

KUALA LUMPUR, 13 May 2010 - The Board of Directors of Sime Darby Berhad would like to state that in October 2009 it established a Board Work Group to review the operations of its Energy & Utilities Division (the "Division"). The purpose of the Work Group was to assess the corporate governance and performance of the Division, following its results in FY2009.

The Work Group consists of Datuk Seri Panglima Andrew Sheng Len Tao (Chairman), Tan Sri Wan Mohd Zahid Mohd Noordin and Datin Paduka Zaitoon Dato' Othman. The Work Group has been advised by independent lawyers and accountants.

The Work Group reviewed in particular: the Bulhanine and Maydan Mahzam project with Qatar Petroleum (the "QP Project"); the Maersk Oil Qatar project (the "MOQ Project"); a project concerning the construction of vessels for use in the MOQ Project (the "Marine Project"); and the Bakun hydroelectric dam project. The Board deliberated on the findings of the Work Group on 12 May 2010.

The key findings of the Board were:

1. The QP Project was awarded in April 2006 and was scheduled for completion in August 2008. However, the Division has encountered delays and cost overruns which resulted in losses on the project exceeding RM500 million, which have already been accounted for. The Division is currently in negotiations with the client on the QP Project on claims for the cost overrun. Although negotiations are ongoing, in light of the delay in concluding this matter, the Board has decided to reverse the revenue of RM200 million previously recognized in the Group accounts for FY2009.

2. The MOQ Project was awarded in January 2007 and was due for completion in October 2009. There have been delays and cost overruns in this project which have resulted in foreseeable losses of RM526 million for FY2010. Of this, RM367 million has already been recognized in the Group's first half FY2010 results and the Board has decided to recognize the remaining RM159 million. Again, negotiations are currently underway with the client on the MOQ Project.

3. The Marine Project concerns the construction of two tug boats and a Derrick Lay barge for use in the MOQ project. The barge has not yet been delivered and the Board estimates that the project may result in losses of about RM155 million. Management is presently reviewing all available options.

4. The Bakun hydroelectric dam project, in which Sime Engineering Sdn Bhd holds a 35.7% effective interest, was awarded in September 2002 and was initially scheduled for completion in September 2007. However, due to various factors, completion has been delayed and costs have escalated. Management estimates that there could be a potential additional cost attributable to the Group in the FY2010 results of RM450 million. Again, negotiations are in progress with the client and subcontractors on the project. The Group is appointing independent technical advisers on the project.

After negotiations are concluded with the client in each project, further announcements will be made.

As a result of the above, the Group estimates there will be a negative impact of RM964 million on its results for the second half of FY2010. The Group announced a profit of RM1,113 million for the first half of FY2010. The third quarter results of the Group will be announced on 27 May 2010.

The Board has seriously considered the implications of the above with regard to the management and internal controls of the Group and is taking immediate and stringent measures to correct the deficiencies identified.

The President & Group Chief Executive (GCE), Dato' Seri Ahmad Zubir Murshid, has been asked to take leave of absence prior to the expiry of his contract on 26 November 2010. Pending the appointment of a new President & Group Chief Executive, Dato' Azhar Abdul Hamid, currently Executive Vice President - Plantation Division has been appointed Acting GCE. He will work closely with the Group Chief Operating Officer, Dato' Abd Wahab Maskan who will be responsible for Group operations and also with the Group Chief Financial Officer, Madam Tong Poh Keow. Mr Franki Anthony Dass, currently Head, Plantation Upstream, has been appointed Acting Executive Vice President - Plantation Division. Meanwhile, the Board's Nomination Committee has been tasked to search for a new GCE. In making these new appointments, the Board has given instructions to Management to strengthen controls and manage all operations in the most prudent and efficient manner.

As and when further information becomes available, Sime Darby will make the necessary announcements.

Thank you.

Important Announcement at Sime Darby?

Something's brewing at Sime Darby. Heard that there will be a Press conference at the Sime Darby Convention Centre in Bukit Kiara at 2.30pm today.

I wonder if heads will roll for the losses in Qatar and Bakun which exceeded RM2 billion.

When Golden Hope recorded a trading loss of RM40 million before the 2007 merger, the Group CEO Datuk Sabri Ahmad and several others were asked to resign by Sime Darby post-merger.

Two other Golden Hopers Muhammad Mohan Abdullah and Razidan Ghazalli were sacked. Several months later, however, the two were paid off handsomely by Sime Darby, perhaps in an admission of guilt. The two then withdrew their legal action against Sime Darby.

I think the Group CEO of Sime Darby Datuk Seri Ahmad Zubir Murshid and his entire management team should be held responsible for the losses in Qatar and Bakun.

What is RM40 million compared to RM2.76 billion?

Friday, May 7, 2010

CIMB downgrades Sime Darby

Sime Darby Bhd was downgraded at CIMB Investment Bank Bhd as media reports on the Malaysian company incurring cost overruns from building the Bakun hydro-electric project raised concerns it may hurt earnings.

The company was cut to “neutral” from “trading buy” and its share price estimate reduced to RM9.70 from RM10.82, CIMB said in a report today. -- Bloomberg

Sime Darby probes?

KUALA LUMPUR: Malaysia's Sime Darby said today it has set up a task force to investigate its energy and utilities division to address "the tough and challenging situation it is currently facing".

The Star newspaper had cited unnamed sources yesterday as saying Sime Darby has incurred more than RM1 billion in cost overruns for carrying out civil works on the Bakun dam.

"The group would like to confirm that a task force is investigating all aspects of this division's business operations," Sime Darby said in a statement posted on its website.

"The task force has yet to complete its investigations, and once completed, the group will make all relevant disclosures during its third quarterly results announcement on May, 27 2010."

"The Sime Darby management is aware of the difficulties and challenges besetting its energy and utilities division, especially with regard to operational efficiency and project management, and has instituted a new management team at the division."

It said it is addressing the situation by implementing appropriate measures.

- Reuters

Thursday, May 6, 2010

Cost over run at Sime Darby...again!

The Star report on May 6, 2010:

PETALING JAYA: Sime Darby has incurred around more than RM1bil in total cost overruns from carrying out the civil works contract for the Bakun hydro-electric project, sources said.

One estimate puts the total cost overrun figure in the region of a whopping RM1.7bil, almost the same size as the Sime Darby’s actual Bakun contract of RM1.8bil that it had secured back in 2002.

When contacted, Sime Darby did not deny or confirm this.

In an emailed reply, the company merely said that it had made provisions to the tune of RM130mil for its share of the cost overruns in the Bakun project.

The discovery of the more than RM1bil cost overrun in the Bakun project is believed to be among the findings of the special taskforce within the group that was set up late last year to probe losses in its energy and utilities division.

The taskforce is also looking into the reasons for the cost overruns and whether there were lapses in internal audit and whether other improprieties occurred.

It is understood the Government has agreed to reimburse Sime Darby for around RM700mil, leaving Sime Darby with around RM1bil to be dealt with, by some estimates.

Sime Darby’s energy and utilities division recorded an operating loss of RM110mil in the second half of its financial year ended Dec 31, 2009, compared with a profit of RM56.3mil previously. But within this division, its oil and gas and engineering divisions’ losses alone totalled RM201mil.

However, Sime Darby said this loss was due to overruns from another project, namely its RM2.1bil Maersk Oil Qatar (MOQ) project.

“Sime Darby recognised a project loss for MOQ amounting to RM210mil (including the impact of foreign exchange losses). As a result, the oil and gas segment recorded losses of RM201mil in 1HFY2010,” it said in the email to StarBiz.

Assuming the cost overruns have taken place in the Bakun project, the group will still need to deal with a significant amount of provisioning or expensing, which could seriously dent its profits for FY2010.

When asked if Sime Darby will be providing or expensing any amounts this year arising from the Bakun project, Sime Darby said: “As part of its disclosure obligations, Sime Darby regularly reviews its portfolio of projects and if required, makes provisions in accordance with the Group’s accounting policies.”

Assisting the taskforce in its findings were specialists from external accounting, legal and engineering firms, sources said.

To recap, Sime Engineering, a unit of Sime Darby, was awarded the civil works for the Bakun project in September 2002 at a fixed lump-sum price of RM1.8bil. It has been reported that Sarawak Hidro Sdn Bhd has approved a variation order for RM700mil for the Bakun project. Sime Darby did not confirm or deny this.

“As with all such construction projects of this nature, we have received periodic payments and agreed claims from the Government. In the past, some cost overruns were incurred due to increase in material costs and variations in design but these have been dealt with,” Sime Darby said in the email reply.

Sarawak Hidro is a wholly-owned subsidiary of the Ministry of Finance Inc Malaysia and entrusted to develop and manage the Bakun project since May 2000.

Sime Darby had yet to reply to questions posed to it by StarBiz yesterday afternoon.

But in Sime Darby’s press statement when announcing its first-half results, president and group CEO Datuk Seri Ahmad Zubir Murshid said that there were issues with the energy and utilities division.

“We have faced several challenges with the oil and gas business unit especially with operational efficiency and project management. Nevertheless, with a new management team on board, measures have been taken to increase operational efficiency and improve our project management capabilities,” he had said.

A change in leadership at its energy and utilities division had taken place recently, following the resignation of Datuk Mohamad Shukri Baharom

Mohamad Shukri was replaced by Hisham Hamdan, who was previously the executive vice-president for group strategy and business development.

Sime Darby has also said it has been taking steps to prevent a repeat of the cost overruns, including reviewing and re-evaluating systems and processes in the division.

Note: Al-Fatihah to my former Golden Hope colleague Azlin Ariffin who died a few days ago while carrying out her duties and also to the worker who suffered the same fate at Sime Darby's St Helier Estate a few days ago. Both were Class One deaths.