2.

0 ORGANIZATIONAL ANALYSIS

2.1 SWOT ANALYSIS

SWOT Analysis for Sime Darby Berhad

STRENGTH WEAKNESSES

 Diversified business activities  Declining in revenew and PBIT

 World largest listed oil palm plantation  Shortage of workers in plantation
 Environmental friendly practises industry
 High skilled and talented team  Depends heavily on upstream operation
 Lack of skill plantation labour

OPPORTUNITIES THREATS

 Increasing Demand for CPO  Price fluctuation of CPO could lead to

 Availability of land in Indonesia
 Support by both government
 Emerging biofuel market
lower demand of palm oil
 Land ownership issues
 Stiff competitionrelated to plantation
expansion
 Minimum wages enforce by Malaysian
government
 2.1.1 STRENGTH

1. DIVERSIFIED BUSINESS ACTIVITIES

Sime Darby is involved in five main sectors namely plantation, industry, equipment,
motor, property and energy & utilities. The company does not rely on one type of
business to make profits and retain business but they take on other sectors such as
third-placed plantation in contributing revenue in 2014 while motor and industrial sectors
in first and second place. Research by Jiang, Ma, and An (2013) has revealed that by
diversifying the business on new markets, there is a huge benefit to be pursued to
pursue this type of strategy. Therefore, the diversification strategy used by Sime Darby
involving in five business sectors may result in a decrease in operational risk. Sime
Darby's business structure includes the palm oil industry from upstream to downstream
operations. Recently, Sime Darby has a new refinery in Borneo Island in Indonesia. With
this new facility, they expect its contribution to be higher. In addition, the Sime Darby
industrial sector is involved in the mining sector in Australia and in 2011, Sime Darby has
acquired part of the former Bucyrus distribution business. Sime Darby has the
opportunity to strengthen their presence and provide products and services to customers
involved in the mining sector in Australia. In addition, Sime Darby is also a supplier of
heavy equipment and engines, providing rental services, and buying second hand
machines. For the motor sector, Sime Darby has acquired KIA gathering and distribution
stations in Taiwan, and is involved in BMW operations in Brisbane, Australia and
Vietnam. Subsequent to the property sector, higher profit contribution was generated
from Taman Pasir Putih and Bandar Elmina.

(Diagram 2.1.2 Sime Darby (Diagram 2.1.3 Sime darby

Industry) Energy & Utilities)

 2. WORLD LARGEST LISTED OIL PALM PLANTATION

Sime Darby is Malaysia's largest plantation company. Sime Darby Estate is capable
of producing about 2.47 million tonnes, which is 5% of the world's crude palm oil annually
(Sime Darby Estate, 2014). The plantation sector is able to achieve high profitability with
the appropriate strategy because of the many uses available in palm oil. Currently, the
plantation sector generates a revenue of RM 10,953.5 million in 2014 which is equivalent
to 24.9% of total revenue from all segments and with market capitalization of RM58.6
billion (Sime Darby Berhad, 2014). Therefore, investors are attracted to high market
capitalization as it points out that this organization has a high value in the market. Sime
Darby Plantation has focused on research & development to increase palm oil
production and to explore the biodiesel industry. In 2014, oil extraction rates increased
slightly over the year 2013 and they have planted more palm trees in Liberia (Sime
Darby Berhad, 2014). Sime Darby can benefit from economies of scale as it can hold the
world's largest palm oil producer. Consequently, it will assist in the negotiation process to
get the best price. However, it does not depend on the size of the business alone.

3. ENVIRONMENTAL FRIENDLY PRACTISES

Sime Darby is committed to having plantation sustainability to sustain business in the long
run. Therefore, Sime Darby believes that the environment must be preserved. This effort can
be seen through Sime Darby's annual report where there are many initiatives that show their
concern for the environment. One of these practices focuses on carbon emissions from
agriculture. Sime Darby laid down biogas power plants for the purpose of reducing carbon
emissions. In 2014, the performance was quite good where Sime Darby managed to reduce
11% in the upstream carbon emissions of the plantation. Additionally, Sime Darby shows a
very strong commitment to conserve the forests. There are several efforts undertaken to
conserve the forests ie zero combustion for the replanted area, it is prohibited to create new
plants in peat soils and also prohibit clearing areas with high conservation value. In addition,
Sime Darby also maintains an ecosystem by hosting programs such as program tree and
Cirey Island wildlife sanctuaries.

4. HIGH SKILLED AND TALENTED TEAM

Safety training and safety leadership training to employees to reduce possible workplace
accidents are provided by Sime Darby. Through Sime Darby's annual report in 2011 to 2014
the rate of lost time injury rate shows a decrease. This demonstrates effective effectiveness.
Sime Darby monitors their performance twice a year and identifies their weaknesses so they
can plan actions to close the performance gap of each employee. Sime Darby also
emphasizes on continuous learning by providing excellent leadership skills and customer
service development programs to their employees. Thus, skilled workers can be sustained
and Sime Darby's performance will increase. At present, the number of employees in Sime
Darby for 2014 is 103,507 people.

2.1.2 WEAKNESSES

1. DECLINING IN REVENEW AMD PBIT

Sime Darby's revenue has fallen from 2012 to 2014. There are many reasons for the
decline in revenue. One of the consequences is that commodity prices are changing. Palm
oil prices may increase significantly when other countries like Indonesia impose a tax on
crude palm oil but are only temporary. As stated by Abdulla, Arshad, Bala, Noh, & Tasrif
(2014), there are some purposes of imposing tax on exports ie to increase government
revenue, encourage downstream operations and any changes in export tax rates and it will
affect Malaysia and Indonesia. For example, if the export tax rate in Indonesia is lower than
Malaysia, then other countries will buy from Indonesia as the price is cheaper. As a result of
these factors, it will reduce the volume of palm oil purchases from Malaysia and influence
the financial performance of the organization.

Sime Darby recorded their income that in 2012 was RM46,630.50 million, RM46,109
million in 2013 and RM43,908 million in 2014 (Sime Darby Berhad, 2014). This situation
clearly shows that Sime Darby has experienced a decline in revenue over the past 3 years. If
no change is made by Sime Darby's top management towards preventing a sudden drop in
revenue, revenue will continue to decline next year. Profit before interest and tax or PBIT
also decreased by 9% in 2014 compared to the previous year. One of the factors
contributing to this decline is lower plantation revenue.

2. SHORTAGE OF WORKERS IN PLANTATION INDUSTRY

Labor can be considered as the backbone of a company to carry out an operation.

Employees who lack skills and labor shortage problems will cause a firm not to work well. If
demand for palm oil increases in the market, demand for workers working in this sector also
increases. Typically, the presence of foreign workers will fill the shortage of workers in the
local market but it will cause problems when all these workers return to their respective
countries. Due to the shortage of workers, Malaysian growers face difficulty in deciding to
pay more to keep their employees (Raghu, 2014). Lack of labor will cause delays in the
process of cutting oil palm fruits and leaving the fruits unprepared roots at a predetermined
time. Consequently, it will result in a low quality of palm oil. In addition, many Indonesian
workers returning to their country are due to better salary offerings to growers in Indonesia
(Chooi, 2012).

3. DEPENDS HEAVILY ON UPSTREAM OPERATION

There are several upstream operations of Sime Darby which include palm oil
plantations where there are 525,290 hectares planted, farm management, milling of fresh
fruit bunches, pink guards and for downstream operations, Sime Darby is involved in the
manufacture of oil and fat products, biodiesel based on coconut oil palm, producing pink
guava juice, biogas and oleochemical plants (Sime Darby Berhad, 2014). Different skills and
knowledge than upstream activities are required for some downstream activities. For
example, Sime Darby Plantation still hires Indonesian workers who do not have higher
education to cut temporary transplants for biodiesel. Therefore, Sime Darby requires
professional workers to improve their company's produce. This situation examines the
company's ability to adapt to changing environment and change in the labor market.

Depending on the plantation will be a problem if the price of palm oil drops
dramatically. Sime Darby only had higher returns from this sector when palm oil prices were
high on the market. Among the major causes of yield decline in 2014 is that the volume of
palm oil output is weak, low fresh fruit lunch, peak crop and dry weather delays (Sime Darby
Berhad, 2014).

4. LACK OF SKILLED PLANTATION LABOUR

After Indonesia introduced an attractive salary with Malaysia to their citizens, there was
a substantial reduction in the number of workers working in Malaysia. This is because the
minimum wage in Indonesia is now almost equal to the minimum wage in Malaysia. With
that, it will make it easier for them to find income without having to come to another country.
Sime Darby also provides other benefits such as home, medical services and current daily
necessities such as oil and rice to retain Indonesian skilled workers (Chew, 2014). Typically,
Sime Darby hires workers from Indonesia, Myanmar, Nepal and Bangladesh for their
plantation sector (Choo, 2014). One of the reasons why Indonesian workers are a priority is
not other countries because they are faster cutting, harvesting and collecting oil palm fruits.
The reduction in Indonesian workers will affect the performance of the company, especially
in terms of quantities of palm oil that can be collected as local workers who are less
interested in working in the plantation sector.
 2.1.3 OPPORTUNITIES

1. INCREASING DEMAND FOR CPO

Based on the source of export percentage analysis since 2010 from Malaysian Palm
Oil Board, PPO export percentage compared to MSM Malaysia Holding Berhad's production
at 98.1% with MSM production at 16.99 million tonnes and exported Preferred Provider
Organization by 16.66 million tonnes. In 2011, PPO exports totaled 17.99 million tonnes and
CPO production at 18.91 million tonnes with PPO export percentage at 95.1%. In 2012, CPO
production showed that 18.79 million tonnes and PPO exports by 17.56 million tonnes or
representing 93.5% of CPO production. Annual report 2014 also showed an increase of
5.8% in crude palm oil for 2014 as compared to 2013. Thus, the behavior of CPO prices is
more than the world demand factor relative to the domestic factor itself. In fact, there is a
reason why demand for MSM is increasing. This is because vegetable oil costs compete
with soybean oil, sunflower oil and corn oil. When these vegetarian oil producers lower their
production due to bad weather, it will help increase CPO prices.

2. AVAILABILITY OF LAND IN INDONESIA

In April 2001 the minimum Plantation Oil represented by Sime Darby Plantation in
Indonesia was established and its headquarters located in Jakarta. It has a presence in eight
provinces with a total land area of 280,274 hectares where 203,845 is planted with oil palm,
representing almost 73% of the total planted area (As of January 2015). In addition, with 71
farms and 23 Minamata upstream operations (SOU) located in Sumatra, Kalimantan and
Sulawesi, Minamas's upstream operations produced 4,145 million metric tons of fresh fruit
bunches (FFB) and 927,803 metric tons of crude palm oil during the 2013/2014 financial
year.24 PT from 25 PT in Indonesia has received a Roundtable on Sustainable Palm Oil
(RSPO) certification, while others have been audited for certification. Minamas plantations
produce 869,912 tonnes of sustainable palm oil and certified 184,815 tonnes of certified
palm oil and 201,476 Ha (Sime Darby Estate, 2014). Therefore, with the presence of land in
Indonesia given the opportunity for Sime Darby Plantation to increase their profits in this
sector and to further develop Sime Darby's company to the world.
3. SUPPORT BY BOTH GOVERNMENT.

Based on the 2014 annual report, operating statistics proving that not only does
Malaysia make production in this sector, but other government support such as Indonesia
and Liberia. Sime Darby is one of Sime Darby Group's agribusiness weapons. As an
integrated plantation company, Sime Darby Plantation is involved in the full spectrum of oil
value chain. Most of the oil palm cultivation, harvesting and grinding are the upstream
operations that spread throughout the growing area of 534,245 hectares in Malaysia,
Indonesia and Liberia. The land bank of the Company is currently located at 860,454
hectares in these three countries (Malaysia, Indonesia and Liberia) .Oleochemicals, palm oil
based biodiesel and other palm oil derivatives, as well as sales and marketing activities of
these products involve the production of oil and fat products from the business downstream.
In addition to oil palm, Sime Darby Company is also involved in other agribusiness activities,
rubber cultivation as well as in consumer goods sector, producing cooking oils and fruit
juices, among others (Sime Darby Berhad, 2014). Sime Darby Estate is the world's largest
certified palm oil producer (CSPO). Hence, it is the leader in plantation development, with
93% annual palm oil and 94% annual RSPO certified oil palm production in FY2014. As a
co-founder of RSPO, the approved and independent certification scheme in Hulu (plant and
factory) and downstream operations (censorship) around the World is fully committed by the
Plantation Division.

4. EMERGING BIOFUEL MARKETS

The important fact here is that the biofuel market is very important for economic
growth. This factor has led to an increase in biofuels demand worldwide. According to Kim
and Isma'il (2014), one of the reasons why biofuel demand has increased is that this sector
will create jobs, evaluate new markets, and contribute to the improvement of agricultural
technology. To expand it, the biofuel industry requires many employees to carry out their
operations as examples of workers in production positions and management positions.
Therefore, income opportunities for citizens in this country will increase. Kim and Isma'il also
point out that the biofuel market has a positive impact on the rural areas and promotes a
good local health environment. This is because in the production of biofuels it has become a
priority to reduce the level of greenhouse gases. With that, it will have a positive impact on
the environment.
 2.1.4 THREATS

1. PRICE FLUCTUATION OF CPO COULD LEAD TO LOWER DEMAND OF PALM OIL

There are some of the largest palm oil importers such as China, India and Europe.
Crises that emerge as the global economic downturn and China will lead to a decrease in
palm oil demand as these countries will spend less on imports in these times and result in
the eurozone debt crisis and slow food demand in India. The excess supply of palm oil in
palm oil producing countries such as Malaysia and Indonesia has led to a lack of demand
and it will push crude palm oil prices down.

As a result of the country's import and import policies importing crude palm oil, crude
palm oil prices are affected. For example, Australia. They offer measures to enforce palm oil
as a product and not vegetable oil. If this bill is attainable, consumers who believe that palm
oil is bad because oil palm plantations have led to deforestation, can easily avoid palm oil
products. This can lead to lower demand for palm oil-based products.

2. LAND OWNERSHIP ISSUES

One of the main issues faced by Sime Darby Plantation is a landowner's estate.
Issues pertaining to plantation areas in Indonesia are contrary to local communities
pertaining to land ownership due to lack of clarity on land status and land titles. This land
problem became a classic issue for many years in Indonesia despite efforts taken by
governments, communities and other stakeholders. Therefore, before acquiring a piece of
land to avoid possible land problems in the future, investors need to take cautious checks on
land status.

Another land issue is the restriction on the ownership of the land area of a plantation
company. The Ministry of Agriculture through Article 12 of Regulation No.26 / Permentan /
OT.140 / 2/2007 regarding the Licensing Plantation Guide affirms that a plantation company
may own 100,000 hectares of land in the plantation area or twice if the estates are located in
Papua. However, the practice is subject to the situation, especially in the case of a new
plantation company requiring a piece of land for its plantation area. This is due to other
regulations issued by the Minister of State Agriculture / National Land Agency, No.2 / 1999 in
1999, regarding Location Permit. A plantation company must obtain a Land Office approval
from Land Office before obtaining land for a plantation area based on the above Land
Agency regulation. However, this rule stipulates that a palm plantation company can only
own / control a maximum of 20,000 hectares in one province or twice in Papua province and
100,000 hectares throughout Indonesia.
 3. STIFF COMPETITION RELATED TO PLANTATION EXPANSION

Sime Darby faces fierce competition in the market. Sime Darby needs to compete
with IOI who is also committed to having good palm oil practices. Felda Global Venture also
operates in very diverse businesses such as palm oil and downstream, rubber and sugar.
Golden Agri-Resources located in Indonesia is also an international competitor of Sime
Darby. Sime Darby also has great pressure from this participant as they perform similar
operations and also put pressure on those who have better practices in environmental
responsibility.

4. MINIMUM WAGES ENFORCE BY MALAYSIAN GOVERNMENT

Sime Darby's operating costs will increase as a result of the Minimum wage
Enforcement in Malaysia. This means that if they had previously paid low salaries to their
employees, then Sime Darby had to pay higher salaries to farm workers. According to
Cheah (2015), minimum wage enforcement could affect production costs by 5% and
decrease in income by 10%. So the minimum wage can be a threat to Sime Darby if the
contribution and quality of the work provided by the workers are still at the same level
despite the increase in payroll. This statement is in line with the findings at Carpio, Nguyen,
and Wang (2012) where they use strict data from Indonesia surveys and find that minimum
wages have a negative impact on employment and may result in job losses. However, they
also point out that the negative impact depends on the size of the company and its impact is
felt by small companies rather than large companies and less educated employees will be
implemented when minimum wage enforcement takes place. Although Sime Darby is one of
the big companies, most of its farm workers are ordinary people and have no high education
so that employees are also vulnerable to job loss.