The company that we choose and analyze is the Sime Darby Berhad. 1.1 CompanySime Darby Berhad is one of the Malaysia’s biggest multinational corporations (MNCs) that conduct the trade and service sector. Sime Darby was established in year 1910 by business partner named William Sime, a traveler and adventurer from Scotland and Henry Darby, an English banker. Sime Darby is one of the largest companies that listed on Bursa Malaysia and has a market capitalization of RM57.91 billion as at 20 June 2014. The beta of the Sime Darby is 1.14, which indicated the stock price will be more volatile than market. It will offer the possibility of a high rate of return, but at the same time also posing more risk. Moreover, the company has the workforce of over 100000 employees over 20 countries. Tan Sri Dato’ Mohd Bakke Salleh is CEO at Sime Darby Berhad since 27 November 2010. 1.2 Company Activities & Industry
Sime Darby Berhad was broadly diversified multinational engaged in a wide range of industries which included plantation, tire manufacturing, heavy equipment and motor vehicle distribution, property development, power generation and engineering services. Its plantation segment is initially engaged in production and marketing of rubber in Malacca and later diversified in crude palm oil, palm kernel, fresh fruit bunches and refining and marketing of palm oil related products. Its property segment develops and markets residential, commercial and industrial properties and development land and management and provision of golf and other recreational facilities and services. Industrial segment is engaged in sales, rental and servicing of heavy equipment. Its Energy & Utilities is conducted in engineering, power generation and supply of treated water and ownership management of port facilities.
Besides their core businesses, Sime Darby also engaged in other business which is joint venture with others. Tesco stores (Malaysia) Snd Bhd is a joint venture between Sime Darby and Tesco to deal with the consumer products services. Its inception in 2011 and holding 30% stake in the joint venture. The Sime Darby also engaged in the healthcare business. The company is namely Ramsay Sime Darby Health Care, is collaboration of Sime Darby and Ramsay Health Care. The joint venture was announced on the 26 March 2013with the intention to expand the healthcare business in Southeast Asia. In addition, they also engaged in the insurance brokerage business. Sime Darby Lockton Insurance Brokers Snd Bhd is licensed and regulated by the Bank Negara Malaysia. It is a one of Malaysia’s leading professional risk services firms specializing in and delivering risk management, insurance and takaful solutions. The diversifications of their business have given them the ability to meet the dynamic business environment and to contribute to the creation of a sustainable future. 1.3 Board Structure
There are 12 Board of Directors within the Sime Darby which include Malaysian and British national. The Board of Sime Darby is also known as Main Board and has overall responsibility for the Group. The Main Board is supported by Flagship Subsidiary Boards (FSBs). The FSBs officially formed January 2011 and meets on a quarterly basis, prior to the main Board meeting. It was subject to the oversight and counsel of the Main Board. The matters reserved for the Main Board are include divisional strategy, plan and budget, acquisition and disposals and transactions exceeding the authority limits of FSBs, changes to senior Divisional management and changes to key policies, procedures and delegated authority limits of the Group. 1.4 Marketing
Sime Darby is among six leading Malaysian Companies with the best perception among the investors. Sime Darby also is the world’s top oil palm planter and their property business is ranked No.1 in Malaysia’s Most Valuable Brands (MMVB) in Property & Infrastructure category. They increase in brand value with the biggest growth with 82.6%. It also placed in the Top Ten Developers in the BCI Asia Awards 2014. Sime Darby in different areas has different achievement in the market. Undoubtedly, this will help them to build up their favorable stand within the market. They recognizes the importance of balancing economic performance with a sustainable future.
Chapter 2: Content
Chapter 2.1: Source of financing
Source of finance defined as important sources which is the method that the company earns the money as capital which uses to generate the company. A company would select from among various sources of finance depending on the amount of capital required and the term for which is needed. (UKESSAYS.com, 2014) Chapter 2.1.2: Share capital
One of the sources of finance that used by Sime Darby is share capital. Share capital can be defined as the equity financing. It is refers to the funds that it is rising by the issuing shares in return for cash or other considerations. The share capital can be divided in 2 types of shares. There are ordinary shares and preference shares. Based on the annual report of Sime Darby, we observe that the company has only issued ordinary shares. In 2013, the company has issued 8000million units ordinary shares. The ordinary shares prices are selling RM0.50 for 1 unit and the nominal value for the ordinary shares are RM4000millions.
The company realizes that the share capital is the best way for the company able to make more profit or raise their capital due to the ordinary share has not any maturity date. Besides that, this source of finance is not so costly comparing to loans which have to pay a fixed interest from time to time. The only thing is company may have to pay some dividends to the existing share’s holder if they make good profits. Chapter 2.1.2: Long terms loan
Other than that, other source of financing that used by the company would be long term loans. Loan can be divided in long term period and short term period. Long term loan is defined as a type of financing that repayment period can be more than 12 months. The long term loan could provide solution for the company entities that face a shortage of capital. (UKESSAYS.com, 2014) Term loan also can be divided as the secured loan and unsecured loan. Normally secured loans with collateral the risk to banks would be lower, because the bank can gain some recovery payment if they sell the collateral in terms of default in the loans.
Therefore, the loans interests are usually lower compared to the unsecured loans which with higher risk to the banks because banks don have any assets pledge by borrower. Generally longs terms loans are used to finance for some projects or non-current assets. For examples: Company A borrows long term loans to finance their purchase for high cost machinery that help the company to generates products and services. In addition, Sime Darby also has issue sukuk to get financing. Sukuk is the Islamic equivalent of a bond but created to comply with the principles of Shariah law which bans paying or receiving interest. (Finance-investment-business-glossary.com, 2014) Chaper 2.1.3: Short term loan
However, the last source of finance is short term loan. Short term loan means that a form of financing that used to provide to the borrower that must be repay the loan within a short time period or less than one year. Usually, the company borrows short term loan is to finance their temporary cash flows difficulties or shortage in a small amount to finance certain projects. Examples of short terms loans are bank overdrafts, Islamic commercial paper and so on. Bank overdrafts is a short term approval loan to the current account holder to get financing more than the amount they have deposited in the account with a specific chargeable interest basis on the repayment.
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