Azhar : “Sime Darby Must Grow 100% In Five Years”

By Syed Akbar Ali

Last nite we were able to meet the acting CEO of Sime Darby Berhad Dato Azhar Abdul Hamid again. This was after Sime Darby had announced its third quarter pre audited results yesterday evening – after the markets had closed. The markets wont open again until Monday. This is the one with the RM964 million cost overruns in Qatar and the Bakun Dam being factored in.

You can also read BigDog’s take on the meeting with Azhar at his Blog here. Plus Rocky’s mention of the same at his Blog here.

For a quick overview of Sime’s third quarter results this is from The Star:

• Sime Darby’s E&U division has incurred cost overruns on four projects over the last few years, involving the building of oil and gas installations in Qatar, the Bakun hydro-electric project and a marine project involving the construction of vessels for use in the Qatari project.

• (after) making provisions to the tune of RM964mil in the third quarter ended March 31, Sime Darby suffered its first quarterly loss since the 2007 mega merger.

• the third quarter net loss totalled RM309mil

• power and utilities division had registered an operating profit of RM149mil in the first nine months due to better operating results from the power plants in Thailand

• core unit, its plantations division, recorded a 45% rise in operating profit to RM1.7bil for the nine months from a year before. Sime attributed this both to improvements in its Indonesian operations

• Downstream operations for its palm oil division also performed well, registering a profit of RM141mil from a loss previously.

• property division’s operati ng profit for the nine months increased by 69% to RM375mil

• motors division posted a 71% rise in operating profit to RM233mil in the nine months driven by strong BMW sales in Singapore and China.

BigDog records that “the value of net assets per share dropped from RM 3.56 to RM 3.49.”

Well the deed has been done. Sime is trying its best to come clean on the matter. As an immediate action, Sime may change their reporting method where the CEO will also be assisted by the COO and the CFO to report to the Board. This ‘troika’ serve as a check and balance. Seeing that the CEO is actually the man in charge and accountable, it may be one way of keeping the CEO true to the path.

The MACC went to Sime yesterday and it is possible that wrongdoing may be punished. A couple of fish seem to be getting away. You can read Rocky’s again to get an indication.

Its water under the bridge now. At a time of crisis, tribulation, uncertainty and confusion, we need someone to reassure people, to calm things down, to reorganise and to move forward. We need leadership. Someone must step up confidentally and say ‘I know what to do. OK everyone just follow me’.

Tun Dr Mahathir did this brilliantly during the 1998 Asian Financial Crisis. Standing alone, against all odds, against the whole international financial community, against the IMF, the World Bank and against a severely psychologically disturbed ‘homo” sapien, Dr Mahathir was able to lead us out of some very difficult times, keeping the country and our economy quite intact.

Few people lost their jobs (not on the scale of Thailand) and no one jumped out the window (on the scale of Thailand).

I was pleasantly surprised to listen in quite some depth, to Dato Azhar Abdul Hamid, 49, the acting CEO of Sime Darby. An unassuming sort of person (tak ada ‘eksyen’ lah) he is very confident of Sime Darby’s future. He seems quite ready to step up to the plate and swing the bat. (This is a baseball phrase lah – he is ready to take the lead).

Dato Azhar Abdul Hamid, acting CEO of Sime Darby Bhd.

He has clear ideas about what Sime Darby can achieve.

It is not without reason that Azhar is the acting CEO. Sime folks say that Azhar was being groomed to take over from Zubir anyway. A British trained accountant, he has a long history in plantations, trading and industry and is an old Sime Darby hand. Folks sing praises when he handled heavy machinery at Tractors Malaysia Bhd and when he was ‘sent over’ to Pernas to turn the company around.

He dropped quite a bombshell when he said that ‘Sime Darby must grow 100% in five years’. It was not a ‘should grow’, ‘can grow’ or ‘try our best to grow’. A very clear ‘must grow 100% in five years’. Sime is presently doing annual sales of about RM45 Billion. That means a sales level of RM90.0 Billion in five years.

Firstly this is not an impossible idea. Look at the Star report above. The plantation division saw a 45% jump in operating profit, the property division went up 69% while the motor division saw a whopping 71% increase in operating profit.

To achieve 100% growth in five years, sales and profits need only grow a steady 15% - 16% per annum. Azhar believes it can be done. He has done it once before when he was running Tractors Malaysia.

He says that there are many things going for Sime. One of them is funds or money. Sime has vast resources to funds, be it their own reserves, capital, inter-company or debt. Sime is still an excellent credit.

Azhar also talks of leveraging on ‘negative working capital’. This simply means venturing into “cash businesses” that can pivot off supplier credits. Other peoples’ money. It will certainly improve Sime’s returns on investments.

With so much resources at their disposal, Azhar feels that Sime can generate a higher rate of growth. “Sime can be a much bigger company than it is today”, he says. He says the recent cost overrun fiasco was a case of “glaring incompetence”. “Lets not repeat this again”.

If he gets his wish, it will also rest on the shoulders of the five Division Heads too. Can they do it? Here is the answer : ‘If they dont do it, there will be a new guy there”. Oh Oh !

Being a little specific, he says that the Property Division is now the largest seller of homes in Malaysia (by volume). Sime has access to cheap land. So the profit margins can be better (its about 20% now). Sime is big in township development. This requires massive infusion of funds, often up front. He is pondering new product lines including investment in malls and complexes that can generate higher margins.

For the Plantation Division, Sime owns almost 1 million hectares including land in Indonesia and Africa. However organic growth from greenfield projects will take time.

He says that Sime’s downstream refining capacity (beyond extracting crude palm oil) could exceed their own supply of CPO. This may make Sime a buyer of CPO to feed its refineries (of which three new ones are being planned at about RM300 million a pop). So Azhar is pondering ‘brownfield’ projects – buying up more plantation acreage to expedite growth.

Sime also sells cars. Azhar says the margins in just selling cars is low. The real money is in the after sales service. He has a point here. But in Malaysia, the car dealers often cannot match the lower pricing of your round-the-corner mechanic for regular tune ups and servicing of cars. It always costs a bundle to service my Ford Ranger with Sime. My regular mechanic does the same job and charges much less.

N’theless, Sime’s car division has to do more than just sell cars. The word is go. 100% growth in revenue and profit in five years.

Do they have the people? Human capital is another resource that Sime appears to have in some quantity. Azhar says we should all get fed up with “losing good people to jobs overseas because they are not given opportunities to prove themselves.” So if he has his way, Sime’s acting CEO will be making available some of those opportunities.

I asked Dato Azhar if I could write all this. He said, ‘Yes you can’. This means he is making a statement. This is stepping up to the plate, bat in hand and ready to swing. He seems quite ready and willing to lead. This is what we need in huge quantities – folks who can lead. I say lets give him a shot. And lets watch him closely too.