This article first appeared in City & Country, The Edge Malaysia Weekly on November 14, 2022 - November 20, 2022

No. 4 | Sime Darby Property Bhd

Speaking with Sime Darby Property Bhd group managing director Datuk Azmir Merican, his wish that the company and its people have a clear vision and direction for a sustainable future comes through clearly. He shares during an online interview that in June this year, the group announced its new mission statement, which is “To be a value multiplier for people, businesses, economies and the planet”.

Says Azmir, “This is very important because purpose gives a lot of meaning to why we are here. This new clarity of purpose will set a clear direction vis-à-vis the group’s long-term strategy towards becoming a real estate company.”

He believes with discipline and keen focus on getting the best out of the organisation, the group will transform from a pure property player into a real estate company with various recurring income-generating components.

Azmir also emphasises that he sees the group as a triple bottom line organisation, which takes into account social, environmental and financial results as net income.

Always looking to take the organisation to greater heights, Azmir shares some of his thoughts on its financial year 2021 (FY2021) performance and his desire for a sustainable future.

Datuk Azmir Merican: The turnaround was against FY2020. And 2020 was a different kind of year. In FY2020, we incurred losses of about RM337 million from Battersea Power Station (BPS). On top of that, we reviewed our current projects and markets to ascertain whether our properties were correctly priced. We also looked at problematic portfolios and rationalised the value. We basically took the time to clean up the balance sheet.

The year 2021 was a much welcome one. We thought we would see full recovery from Covid-19 but did not, as we still had problems and shutdowns. The engines started revving at the end of 2020, but got shut down in early 2021.

Nonetheless, sales have been strong. And I think with the Home Ownership Campaign and some pent-up demand, our team capitalised on it — as did other developers — and that drove sales.

We took the position that in 2022, we would look at our cost base again. We looked at efficiency and the right costs we should have, given our size. That kind of helped instil a financial discipline in all our projects. We have minimum ratios for the project guys to present to the management team. The projects have to meet those ratios that we set.

During Covid-19, we took the opportunity to review processes because typically, a process in a large company like ours isn’t reviewed very often. So, we saw the opportunity to simplify things. That kind of helped us rev up the engines for 2022.

In fact, the sales for the first half of this year were pretty strong with RM1.9 billion. We are happy that our guys know the market and where we are, and we continue to hit good sales numbers.

But we are not happy with the fact that we have issues on labour and materials. P&L (profit and loss) benefit from contracts we awarded one to two years ago. Sales benefit from this momentum that we have, but we are going to have to face up to lower margins soon.

To address this, there are a couple of things we can do. For one, look at projects that need less labour. We brought forward some industrial launches, which are a big portion of Sime’s turnover. Thankfully, the demand has been very strong; we know which part of the market there is demand, which part is softening.

Our intelligence in the industrial space has gotten a lot deeper in the last 18 months or so. We did a joint venture with LOGOS SE Asia Pte Ltd (a logistics specialist) and so that will help us.

The second thing is that we have this financial discipline internally for internal numbers; we try to simplify what we can do to be able to achieve these threshold numbers before we can have a project approved. That financial discipline is key — the faster you can do something, the cheaper it is actually.

What we mean by ‘real estate company’ is to have recurring income. Although we have a large landbank, what we see in more mature markets is that recurring income becomes a fundamental factor.

And what we also want to do is to build in a fund management capability in the organisation as a differentiator. Typically, property companies have a REIT (real estate investment trust) but not really a fund manager per se other than just managing your REIT.

For us, we want to be a fund manager and deploy all sorts of products or funds across the value chain, right from a development fund that will develop a project to a stabilisation fund to a mature REIT. So the entire real estate asset management portfolio is something we are looking at.

We have done a couple of things this year that we are proud of. We launched the Elmina Rainforest Knowledge Centre. What we do is collect seeds from the rainforest and then plant them in our nursery. Then we plant the trees in places like the Klang Gates Dam. These are tropical rainforest trees and the seeds are not easy to come by and very valuable.

We are working with a tropical rainforest research centre — Tropical Rainforest Conservation and Research Centre or TRCRC — which is our knowledge partner. And we are going to do a lot more in terms of educating people on what we can do.

What we can do now is to rewild the areas that we have. Two things that we have learnt is that when we plant in our parks, we need to connect the parks. We want nature to flow. And it is important that we do that so that the ecological system is strong. We are looking at rewilding the fringe areas so that we can turn the palm oil land back into having the ‘right’ trees, which are native to where we are. What we are doing is also helping biodiversity.

As a developer, we own a lot of land. For us, it is plantation land, and the soil isn’t very healthy. So the areas that we are not building on, we would like to think we can help the soil become healthy. Healthy soil actually absorbs CO2, while unhealthy soil emits it into the atmosphere. That is very bad. It is actually the simplest, most practical way nature has for us to absorb CO2. So making sure the soil is healthy and has microorganisms in the soil; it can even be a carbon sink.

For the social component, we are looking at housing for the workers — ensuring their basic needs are met. In terms of governance, I think we have to publish how we govern the organisation and we are very serious that this is a well-governed one, second to none.

For context, the UK went through Brexit and Covid-19, and I think for us to bring BPS to this stage [of opening it to the public] and preserving a profit is something that we worked for. For us, especially S P Setia and Sime Darby Property, the credibility of having that track record is enormous. I think we can walk into any place in the UK with this track record, and we want to expand that visibility. Also, it gives us a lot of brand recognition in Britain.

We understand the UK market a little better; what you can get easily, what is difficult and what practices you do here, you don’t want to do there. Basically, understanding the market is quite useful.

We have another 15 years [with BPS], so we need to make sure those 15 years deliver well, because we have a lot of money to bring home. We have invested quite a bit. So I think let’s focus but also, if you ask me, we can go beyond BPS and invest in other projects. We are keeping our eyes open [for opportunities].

KLGCC is our own brand. We like it and the whole KLGCC area is a KLGCC township. So, I think it is very sensible to revert [the name] to KLGCC. For us, that is a brand that we built and we want to build more value into the brand and brand the township. Not only KLGCC but the whole area will undergo a transformation. So for us, yes, it has benefited and enhanced the entire township.

But [the brand] is valuable because it is a brand that we ourselves have and it benefits us also in many intangible ways. Also, almost everyone I spoke to loved it that we brought back the [KLGCC] name.

Additionally, in the middle of next year, we plan to launch a high-end, low-rise development, which is still in the planning stage.

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