Sime Darby Berhad Business Information, Profile, and History

Company Perspectives:

Sime Darby is fully committed to the development and progress of the Asia-Pacific region, dedicated to the pursuit of excellence, and the realisation of its corporate objectives, while consistently upholding its longstanding values of integrity and professionalism.

History of Sime Darby Berhad

Sime Darby Berhad is the largest conglomerate in Malaysia and one of the largest in southeast Asia. Within its orbit are more than 270 operating companies in 23 countries, with its most extensive foreign operations in Hong Kong (which accounts for 25 percent of revenues), Singapore (14 percent), and Australia (11 percent). (The company generates 38 percent of its revenues domestically.) Its broadly diversified activities include a wide range of industries, with the core businesses being plantations (including oil palm and the company's original business, rubber), tire manufacturing, heavy equipment and motor vehicle distribution, property development, power generation, and engineering services. Other business operations include paint manufacturing, refrigeration product manufacturing, travel and tourism services, hospitals, and golf courses.

Focus on Rubber in the Early Years

The moniker 'Sime Darby' was contrived in 1910 from the names of two European business partners: William Sime and Henry Darby. William Sime, a traveler and adventurer from Scotland, ventured to Malaysia when he was in his late 30s. Natural rubber--synthetic rubber was still being developed--had just been introduced to that country from Brazil. Sime and other entrepreneurs at the time recognized that the climate of Malaysia's jungle region was similar to that of Brazil's. Therefore, rubber could just as easily be grown in that country and sold not only in Malaysia but throughout southeast Asia and the world. Sime suggested to his friend Henry Darby, an English banker, that they start a rubber plantation there. Darby agreed to help fund the effort and together they formed Sime, Darby & Co., Ltd.

Sime Darby initially encountered stiff opposition to its venture from locals, who were wary of outsiders coming in to operate a plantation in Malacca. To quell their contempt, Sime and Darby forged friendships with several members of the Chinese business community. The most notable of those business leaders was Tun Tan Cheng Lock. Lock would later lead the Malaya independence movement--in the 1990s, the Malay Peninsula was made up of parts of Burma, Thailand, and Malaysia. Among other distinctions, Lock ultimately was crowned a Knight Commander of the British Empire and also received Malaysia's highest award, which is called 'Tun.' With the help of Lock and other business leaders, Sime and Darby were able to procure about 500 acres of rubber plantations in the dense jungles of Malacca.

Rubber markets surged during the 1910s and Sime Darby enjoyed healthy sales. The company expanded, becoming a manager for owners of other plantations and then moving into the trading end of the industry. Sime set up a branch office in Singapore in 1915 and shortly thereafter established a marketing office in London. Demand for rubber eventually outstripped Sime Darby's production capacity, and by the late 1920s the company found it necessary to clear more jungle. To do so, Sime Darby purchased Sarawak Trading Company in 1929. Sarawak (later renamed Tractors Malaysia) held the franchise for Caterpillar heavy earthmoving equipment. That important purchase signaled Sime Darby's expansion into the heavy equipment business, which would eventually become a major component of its expansive network. In 1936 the company's head office was relocated from Malacca to Singapore.

Sime Darby made a fortune in the global rubber industry during the 1920s and 1930s. Growth in that industry began to fade, however, as natural rubber was gradually supplanted by synthetic rubber. Sales of natural rubber boomed during World War II as warring nations purchased all available supplies. The war, however, also led to significant advancements in synthetic rubber technology.

Diversification and Malaysianization in the 1960s and 1970s

By the 1960s, then, Sime Darby Holdings--the company was incorporated in the founders' home country of England in 1958 and its name was changed to Sime Darby Holdings Ltd.--was forced to begin looking elsewhere for revenues. To that end, Sime Darby became one of the first rubber plantations in the region to convert to the production of palm oil and cocoa oil.

Sime Darby's diversification turned out to be a smart move. Demand for its oils and other agricultural products surged during the late 1960s and 1970s, and the company began to accumulate excess cash. A good deal of it was used to acquire other companies, thereby expanding Sime Darby's reach into several other industries. Much of Sime Darby's success during that period was attributable to its acquisition of the giant Seafield Estate in 1971 and the establishment of Consolidated Plantations Berhad that same year. Through Consolidated Plantations, which became the company's main plantation subsidiary, Sime Darby became a leading force in the region's thriving agricultural sector. In addition to growing the oil palms and cocoa, the company began processing the crops into finished products for sale throughout the world.

As its sales and profits spiraled upward during the early and mid-1970s, Sime Darby became a shiny feather in Britain's cap. To the surprise and chagrin of the British stockholders, however, the company was wrested from their control by the Malaysian government late in 1976. The intriguing events leading up to the takeover began in the early 1970s. During that time, Sime Darby's chief executive, Denis Pinder, began investing the company's cash in new subsidiaries throughout the world. The company's stock price soared as Sime Darby's sales spiraled upward. At the same time, some observers charged that Sime Darby was engaged in corrupt business practices (with critics coining the phrase 'Slime Darby').

Allegations of corruption were confirmed in the eyes of some detractors when, in 1973, Darby's outside auditor was found stabbed to death in his bathtub. The Singapore police ruled the death a suicide, but Pinder still ended up in prison on misdemeanor charges. Pinder's 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 taking 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 company and installed a board made up mostly of Asians.

Also in 1976, Asian and British board members were able to agree that Tun Tan Chen Lock's son, Tun Tan Siew Sin, would be an acceptable replacement as chairman of Sime Darby's board. In 1978 Sime Darby was reincorporated in Malaysia as Sime Darby Berhad. Its headquarters was moved to Kuala Lumpur the following year.

Staggering in the Early 1980s; Rebounding in the Late 1980s and Early 1990s

Sime Darby jettisoned some of its poorly performing assets during the late 1970s and early 1980s under Lock's leadership. But it also continued investing in new ventures. It purchased the tiremaking 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 company's entrance into the tire manufacturing sector; also in 1981 came the establishment of Sime Darby International 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 begin developing plantation lands. This company later was renamed Sime UEP Properties Berhad. In Malaysia, Sime Darby acquired the franchises for BMW, Ford, and Land Rover vehicles.

By the early 1980s Sime Darby's 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 company's 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 multinational behemoth that could withstand any market downturns. Even if something did go wrong, the company had a war chest of nearly a half billion U.S. dollars from which it could draw.

Unfortunately, Sime Darby's staid strategy negatively impacted its bottom 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 about M$100 million in the early 1980s to a low M$59 million in 1987. To turn things around, Sime Darby's board promoted Tunku Ahmad Yahaya to chief executive. Ahmad was a veteran of the company's executive ranks and was a favorite nephew of Malaysia's first prime minister, Tunku Abdul Rahman. Under Ahmad's direction, the giant corporation began a slow turnaround. Significantly, Ahmad was instrumental in luring Tun Ismail to Sime Darby's board. Ismail was a highly influential central bank governor and the chairman of Sime Darby's 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 Darby's cash horde 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 related to heavy equipment and vehicle manufacturing. Most notably, Sime began pouring millions of dollars into property and tourism in key growth areas of Malaysia in an effort to get 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 resort with condominiums in Florida (Sandestin Resorts) and a hotel in Australia, among other enterprises. As the company dumped its cash 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 about 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 company's sales and profits during the late 1980s and early 1990s, the strategy had caused Sime Darby to fall behind more progressive 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.

Mid-1990s and Beyond: Aggressively Expanding, Then Retrenching Following Financial Crisis

Ahmad, the successful chief executive, also recognized the need for change at Sime Darby. The company's 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 Mohamed's first moves was to initiate the merger of the company's plantation assets, organized as Consolidated Plantations, and the parent company, Sime Darby (Sime Darby had owned 51 percent of Consolidated, which was publicly traded). 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 company's historical emphasis on commodities and reflected Mohamed's desires to increase activity in manufacturing, high-tech, financial services, and other fast-growth businesses and reduce Sime Darby's bureaucracy.

To that end, Sime Darby 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 interest in Port Dickson Power Sdn. Bhd., an independent 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 refrigeration 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, Sime 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 Corporation from Datuk Keramat Holdings Berhad. The US$520 million purchase deepened the company's involvement in the country's 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 company's brokerage arm becoming a subsidiary of Sime Bank under the name SimeSecurities Sdn. Bhd.

For the fiscal year ending in June 1997 Sime Darby posted record 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 quickly 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 sharp depreciation of the ringgit (the nation's currency), led Sime Bank to post the largest loss in Malaysian banking history--M$1.6 billion (US$431 million) for the six months to December 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).

Sime Darby subsequently beat a hasty retreat from its aggressive expansion, determining that the prudent course would be a return to the company's 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. Sime Darby returned to the black in 1999, 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. Given 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.

Principal Subsidiaries: Consolidated Plantations Berhad; SD Holdings Berhad; Sime UEP Properties Berhad (51.2%); Tractors Malaysia Holdings Berhad (71.7%); DMIB Berhad (51%); Sime Tyres International (M) Sdn. Bhd.; Kuala Lumpur Golf & Country Club Berhad; Subang Jaya Medical Centre Sdn. Bhd.; Sime Engineering Sdn. Bhd.; Sime Coatings Sdn. Bhd.; Mecomb Malaysia Sdn. Berhad; Puchong Quarry Sdn. Bhd. (85.4%); Sime Inax Sdn. Bhd. (80%); Chubb Malaysia Sendirian Berhad (70%); Sime Rengo Packaging (M) Sdn. Bhd. (70%); Sime SembCorp Engineering Sdn. Bhd. (70%); Port Dickson Power Berhad (60%); Sime Darby Hong Kong Limited (74.9%); Sime Singapore Limited (69.1%); Sime Darby Pilipinas, Inc. (Philippines; 97.2%); Lec Refrigeration plc (U.K.; 98.5%); Sime Darby Australia Limited; Hastings Deering (Australia) Ltd.

Principal Divisions: Plantations & Commodity Trading Division; Insurance Services Division; Tyre Manufacturing Division; Heavy Equipment & Motor Vehicle Distribution Division; Property Development Division.

Principal Competitors: Bridgestone Corporation; The Goodyear Tire & Rubber Company; Harnischfeger Industries, Inc.; HSBC Holdings plc; Hutchison Whampoa Ltd.; Jardine Matheson Holdings Limited; Komatsu Ltd.; Marubeni Corporation; Pacific Dunlop Limited; Sumitomo Corporation; Swire Pacific Ltd.

Chronology

• Key Dates:

• 1910: William Sime and Henry Darby found Sime, Darby & Co., Ltd. to start a rubber plantation in Malaysia.
• 1915: Branch office is opened in Singapore.
• 1929: Acquisition of Sarawak Trading Company propels the company into heavy equipment business.
• 1936: Company's head office is moved to Singapore.
• 1958: Company is incorporated in the United Kingdom as Sime Darby Holdings Ltd.
• 1971: Company takes over Seafield Estate and incorporates Consolidated Plantations Berhad.
• 1976: Malaysian government gains control of the company.
• 1979: The headquarters is moved to Kuala Lumpur.
• 1981: B.F. Goodrich Philippines is acquired, marking the beginning of tire manufacturing for the group.
• 1984: Company moves into property development through the purchase of a large stake in United Estates Berhad.
• 1993: Sime Darby merges with the formerly publicly traded Consolidated Plantations.
• 1994: Company acquires 40 percent interest in Port Dickson Power, a Malaysian power generation firm.
• 1995: Company purchases controlling stake in United Malayan Banking Corporation; the unit is reorganized as Sime Bank and SimeSecurities.
• 1998: Asian financial crisis leads Sime Darby to record the first full-year net loss in its history.
• 1999: Sime Bank and SimeSecurities are divested.
• 2000: Interest in Port Dickson Power is increased to 60 percent; the company's interest in insurance firm Sime AXA is divested.