Saturday August 28, 2004 - Sime Darby Bhd's unaudited results for the yearended June 2004 were within expectations. In addition, the management saysearnings for financial year 2005 are likely to grow by an uninspiring 3%to 4%. Naturally, most of the analysts' latest recommendations are equallytepid.

Yet, the research reports seem almost perfunctory. It is as if the numberswere just a side event and that there were bigger things at play.

Part of this can be attributed to last week's avalanche of quarterlyresults and the fact that Sime Darby has lost much of its ability toexcite investors. But perhaps the main reason is that people are moreinterested in how group chief executive Datuk Ahmad Zubir Murshid plans tolead the conglomerate.

Right now, the company's earnings outlook is less relevant than what themanagement is going to do, says an analyst who has been covering SimeDarby for more than four years.

For one thing, Ahmad Zubir is new to the job. Previously the head of thecompany's heavy equipment/power and allied products group, he took overfrom Tan Sri Nik Mohamed Yaacob on June 13. There is the obligatoryquestion: How will the new guy be different from his predecessor?

It takes time to figure out such things, of course. And Ahmad Zubir was inno rush to make public his thoughts on running Sime Darby. The company hadannounced the CEO change three months ago, but it was only last week thathe first spoke to the media (on Tuesday evening) and analysts (onWednesday morning).

Speaking to the press, he started by referring to the numerous requestsfor interviews, all of which had been turned down. I wasn't hiding. Itjust that I was trying to digest, dissect and analyse the things that Ithought needed my immediate attention,he explained.

Considering the breadth of Sime Darby's businesses and the numerouschallenges it faces, a whole lot of learning and thinking must have beencompressed into those three months.

The result is not quite a dazzling and novel strategy, but most observersagree that it is the most sensible way to go. We're putting our householdin order, said Ahmad Zubir. Once that is done, he expects Sime Darby's netprofit to grow by 15% to 20%.

(According to one analyst, this willingness to provide guidance on profitgrowth was, in itself, something new.)

Says another Sime watcher: The message seems to be that the company wantsto clean up its house first. Instead of the practice in the past of havingone or two divisions as the primary focus, it is saying it wants to buildon what it knows best.

That means working harder to grow divisions such as plantation, energy andproperty, and to restructure its general trading and services segment,which houses a vast collection of miscellaneous businesses.

Analysts have long been grumbling that Sime Darby is weighed down by toomany non-core businesses that contribute little to the group'sbottom-line. And the management has long expressed a desire to offloadsome of these under-performers.

Ahmad Zubir stuck to that line but insisted that it's not a repeat of thesame recording over the last three years. He said: My style is that whenwe say we'll do it, we'll do it.

Indeed, there is a difference this time around. He has set an 18-monthtime frame to rationalise Sime Darby's non-core businesses. The idea is toidentify such businesses that have growth potential and that can fit wellinto the group's overall strategy. The rest will be divested. However, hestressed that there would not be a fire sale.

Observers consistently single out hypermarket chain Tesco Stores (M) SdnBhd and the British-based Lec Refrigeration plc as prime for-salecandidates.

The self-imposed deadline is also regarded as unique, particularly in thecontext of the ongoing reform of government-linked companies (GLCs).However, unlike the other huge GLCs such as Telekom Malaysia Bhd andTenaga Nasional Bhd, Sime Darby is involved in an array of industries.This may slow down its restructuring.

Ahmad Zubir's remarks about Sime Darby's strategy for its energy andplantation divisions also drew some attention.

On the former, he said the company wanted to expand its power generatingcapacity from 800 MW to 2,000 MW. The best chance to do this is probablyto go regional. At the same time, he characterised Sime Darby's interestin the past to go into the power business in Australia as a bit bullish.

I don't think we want to put in a lot of money if we only have small partof the business, he added.

Analysts agree with Ahmad Zubir's assessment that it will not be difficultto achieve the 2,000 MW target, but they point out that this must bematched with a readiness to venture into potentially difficult marketssuch as Indonesia, the Philippines and Vietnam.

He also said the company planned to increase its plantation acreage viaacquisitions in Sabah and Sarawak, and Indonesia.

Despite losing the tussle with IOI Corp Bhd for control of Palmco HoldingsBhd (now IOI Oleochemical Industries Bhd), Sime Darby is still keen tomove into the downstream of the plantation industry, such as theoleochemicals business.

We're not just looking at palm oil. We're considering other oils and fatsto counter-balance the cycles. We're looking abroad; we'd like to be wherethe crowds are, he added.

An analyst says that such a move is only logical, but it may be ratherlate in the game because major players such as IOI Corp and Golden HopePlantations Bhd already have a considerable head start. Going downstreamis a positive step for Sime Darby, but it's nothing spectacular, he added.

On Sime Darby's property development activities, under the umbrella of thelisted Sime UEP Properties Bhd, Ahmad Zubir said he noted the criticismthat Sime UEP has not always been as aggressive it ought to be.

Yes, we're probably a bit complacent, he added. Going forward, we will begoing more into the niche, high-end market to build on the Sime UEP brand.

Following major developments, Sime Darby's motor division has been a focalpoint in recent times, but Ahmad Zubir said the company had a lot on itsplate. The strategy now is to digest the acquisitions and allow them toswell the bottom line.

Much of the media briefing was centred on Sime Engineering Services Bhd'sRM77mil provision for foreseeable contract losses relating to a six-monthdelay in the Bakun hydroelectric dam project in Sarawak. Ahmad Zubir saidthe company was working on measures to speed up the works and to mitigateits losses.