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:
- 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.
- 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.
- 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.
- 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.
Back to top