Sime Darby says "There'll be No More!"

Another thing my Granny always taught me is to learn from those that are more successful than me!!

Learn their tricks and most important learn from their mistakes!

A couple years ago, this rich man (and surely one that is more successful than me (LOL!)) , Datuk Tan, mentioned the following in his book!

• “I am already thinking about writing a book containing my favourite jokes about business and life. A couple of them are already in Never Say I Assume! For example, in an explanation of my book title, it really ought to be Never Say I Ass-u-me! because when you assume anything in business you make an 'ass' out of 'u' and 'me.' Don’t assume that there is a market for a product. Do the necessary work in advance to find out. Make sure there are enough mice before building a better mousetrap.”

Can I learn from it?

Can I?

Sure can!

In the stock market, there are so many things one cannot simply ass-u-me!

This morning, I see that Sime Darby CEO made the following press statement.

• SIME Darby Bhd's chief executive officer Ahmad Zubir Murshid ruled out further writedowns from unregulated futures trading at the Malaysian palm oil producer after the firing of the company’s finance chief.
  
  Sime Darby said on June 10 it fired chief financial officer Razidan Ghazalli and a second executive after a RM120 million trading loss at a refining division. Traders at the Golden Jomalina Food Industries unit lost the money between October 2006 and August 2007, before Kuala Lumpur-based Sime Darby bought the business in November 2007.
  
  “There’ll be no more,” Ahmad Zubir said in an interview in Kuala Lumpur today at the World Economic Forum on East Asia. “I’m a very conservative guy.”
  
  Sime Darby, formed in 1910, merged with Golden Hope Plantations Bhd and Kumpulan Guthrie Bhd in November last year to create a palm oil producer controlling about 8 per cent of global output. Golden Jomalina was owned by Golden Hope at the time of the losses.
  
  Traders broke internal rules at the unit and Sime Darby made provisions for the loss in the first half of the financial year, Ahmad Zubir said. - Bloomberg

Hmmm....

Last week the following article was posted on BTimes.

• Sime Darby’s RM120m loss: Trader goes missing
  
  By Zaidi Isham Ismail Published: 2008/06/12
  
  Company officials say the trader was one of 20 to 30 futures traders hired to sell Golden Hope’s premium crude palm oil in the open market to make higher profit
  
  SIME Darby Bhd’s RM120 million futures trading loss may have been the work of a single rogue trader who made the wrong bet and was poorly supervised.
  
  Existing and former company officials said the trader in question has since quit the company.
  
  Sime Darby has declined to comment on the matter. The trader could not be contacted.
  
  On Tuesday, Sime Darby fired two top executives after carrying out an inquiry into the trading losses at Golden Jomalina Food Industries, a subsidiary of Golden Hope Plantations Bhd.
  
  Golden Hope has since last year been merged with Kumpulan Guthrie Bhd and Sime Darby Bhd.
  
  Company officials said the trader was one of 20 to 30 futures traders employed by the company to sell Golden Hope’s premium crude palm oil (CPO) in the open market to make a higher profit.
  
  The company then buys standard quality CPO from the open market at a lower price so that it can make a better profit margin when used at its oleochemical division.
  
  That division processes CPO into value-added products like cooking oil, detergent and soap.
  
  This is a normal practice by almost all plantation companies in Malaysia to protect themselves from the vagaries of CPO’s fluctuating price.
  
  “However, he made a mistake by betting against the market since the end of 2006 by locking CPO’s selling prices at more than RM1,000 a tonne, thinking prices would go down.
  
  “Until August, however, CPO prices more than doubled and he tried to cover up the losses by counter trading but was unable to do so. As a result, the company accumulated trading losses right until the run-up to the merger late last year,” one of the officials said.
  
  Realising the loss, the rogue trader who has been a Golden Hope staff for 10 years, left without giving notice. Officials said attempts to locate him failed as the address listed in the company’s records turned out to be bogus.
  
  A former official said futures traders were poorly supervised.
  
  For instance, they did not have a limit that stopped them from trading when a certain level of loss was incurred

Hmm . the following statement in that article...

• This is a normal practice by almost all plantation companies in Malaysia to protect themselves from the vagaries of CPO’s fluctuating price.

Now I would ass-u-me, such trading still exist in Sime Darby, since these trading activities protects the planters from the fluctuating CPO prices.

Or am I making an ass out of me?

So what should I ass-u-me about Sime CEO Ahmad Zubir's "There'll be no more?"

No more trading or no more massive trading losses?

I am confused?

Macam mana ni?

Given what has happened, surely such a statement is not sufficient, yes?

So no more trading or no more massive trading losses?

And if it's no more massive trading losses, care to explain in detail how the trading activities will be supervised in the future to ensure that such an issue would happen no more?

By the way, last Thrusday, the following was published on Star Business.

• Thursday June 12, 2008
  Sime shines in transparency
  NEWS ANALYSIS
  By HANIM ADNAN
  
  SIME Darby Bhd is pushing the frontier to set higher standards in transparency and corporate governance via its stern action in sacking two senior executives said to be accountable for the RM120mil losses in futures trading at subsidiary Golden Jomalina Food Industries Sdn Bhd.
  
  The newly-merged entity is out to prove that no stones will be left unturned, especially pertaining to the irregularities in its highly-diversified operations.
  
  Most analysts viewed Sime Darby's action positively as the adoption of highest standards of governance was imperative for the protection and enhancement of stakeholders' value and the performance of the group.
  
  Kenanga Research, in its latest note, said: “The move clearly reflects the no-nonsense approach of Sime Darby in accountability of its senior management for their actions.”
  
  The brokerage is also maintaining a “buy” call on Sime Darby with a target price of RM12.90 as it expects the impact of the losses in futures trading to the group's 2008 earnings to be nil as provisions had been made earlier.
  
  Traders, meanwhile, want the Securities Commission to boost its regulatory powers and step up surveillance to curb speculation and prevent price manipulation by participants in the highly sensitive crude palm oil (CPO) futures market.
  
  The regulator must ensure market transparency by insisting on the publication of daily and weekly data showing the proportion of commercial, non-commercial and hedge funds participants to the public.
  
  “This is done in all US derivatives markets,” a trader said.
  
  Citing the losses at Golden Jomalina, he said: “I suspect a certain degree of speculation led the company to take short position to make quick profits but it backfired when the price of CPO continued to hit new all-time highs.”
  
  He said while most plantation companies took active derivatives position, they needed to draw the line on the importance of managing their risk exposure.
  
  The KPMG Forensic division tasked to undertake an investigative review on the trading losses at Golden Jomalina, however, declined to furnish the details of its audit report.
  
  Aseambankers, in its note yesterday, said: “We have cross-checked Sime's second-quarter (ended Jan 31) results and noted that RM71.6mil in losses at its downstream operation were accounted for in the first half.”
  
  The management then explained that the losses were due to higher feedstock costs and losses in its biodiesel division.
  
  For the nine months to March 31, the losses were subsequently reduced to RM22mil.
  
  “Hence, we believe that the RM120mil future trading losses may have been provided for in the first half.”
  
  Nevertheless, Aseambankers said, in the worst case scenario, if these losses were provided for in the fourth quarter, the net impact on its RM3.45bil net profit forecast for the financial year ending June 30 would be a mere 2.5%.
  
  More importantly, Sime Darby needs to address investors in detail at its upcoming briefing on how it can avert the occurrence of similar untoward incidents.
  
  Sime Darby fell 10 sen to RM9 yesterday, the lowest since June 5.

The following statement was most important in my opinion.

• The regulator must ensure market transparency by insisting on the publication of daily and weekly data showing the proportion of commercial, non-commercial and hedge funds participants to the public.

I'll give full marks to KPMG accountants for discovering this mess in Golden Hope and let me say this out loud, "If I was an investor in Golden Hope, there's no way I, the minority investor, would have discovered the potential risk in the trading activities and neither would I discover these losses!"

The following is the link to Golden Hope's last reported quarterly earnings, Quarterly rpt on consolidated results for the financial period ended 30/6/2007.

And here is the link to Sime Darby's latest quarterly earnings in May 2008, Quarterly rpt on consolidated results for the financial period ended 31/3/2008

Would the minority investor in you and I be able to spot these trading activities in both quarterly earnings report?

I simply would not be able too!