Sime Darby sees negative impact from cost overruns, chief Zubir told to take leave

PETALING JAYA; Sime Darby Bhd's group chief executive Datuk Ahmad Zubir Murshid was asked to take a leave of absence before his contract expires, as the board of directors announced there will be a “negative impact” of RM964mil on the group's second half results for year ended June 30, 2010 (FY10) due to project delays and cost overruns on contracts secured in Qatar and the Bakun hydro electricity dam project.
In a statement to Bursa Malaysia today, Sime Darby said the group's executive vice president in charge of plantation division Datuk Azhar Abdul Hamid was made acting group chief executive.
Azhar “will work closely with the group chief operating officer, Datuk Abd Wahab Maskan who will be responsible for group operations and also with the group chief financial officer, Tong Poh Keow.
Franki Anthony Dass, currently head, plantation upstream business, has been appointed acting executive vice president - plantation division,'' the statement said.
Zubir's contract was due to expire on Nov 26, 2010.
Shares in Sime Darby, which was suspended today to make way for the announcement, will resume trade on Friday. It was last traded at RM8.65.
The statement revealed that Sime Darby's board of directors had in October last year set up a “work group” to review the operations of its energy & utilities division following its results in FY09.
“The Work Group reviewed in particular: the Bulhanine and Maydan Mahzam project with Qatar Petroleum (QP Project); the Maersk Oil Qatar project (MOQ Project); a project concerning the construction of vessels for use in the MOQ Project (Marine Project); and the Bakun hydroelectric dam project,'' it said.
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 RM500mil, 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 RM200mil 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 RM526mil for FY2010. Of this, RM367mil has already been recognized in the Group's first half FY2010 results and the Board has decided to recognize the remaining RM159mil. 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 RM155mil. 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 RM450mil. 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, Sime Darby said.

tunku : i wonder why it took them such a long time to realize,sime darby is a conglomerate not a ordinary company.the lost is close to a billion.anyway kudos to the government as there's no cover up.it look like the top management had failed at sime darby and it is not enough by asking the ceo to go on leave till his contract finish. other responsible figure should follow the ceo to go on leave till their contract is expired or terminate their contract.the chairman should resign too.it is proven that the chairman and the ceo had failed.the chairman should be replaced.a special team should be appointed to investigate what went wrong with sime darby.