CEO Outlook - Three sons driving growth


  • Business
  • Thursday, 11 Dec 2003

Wong Sulong, Star Biz editor says: It's a pleasure for me to feature the three corporate captains in today's CEO Outlook series. 

Datuk Nazir Razak of CIMB, Datuk Lee Oi Han of Kuala Lumpur Kepong Bhd (KLK) and Carl Bek-Nielsen of United Plantations Bhd (UP), are scions of Malaysia's most prominent families. 

As a reporter, I have had the privilege of interviewing their fathers – the late Tun Abdul Razak, the late Tan Sri Lee Loy Seng and Tan Sri Borge Bek-Nielsen, all great pioneers of Malaysia's development. 

Bek-Nielsen has become a good friend. 

Razak, Loy Seng and Bek-Nielsen shared a common trait – their love and attachment for the land. 

Razak, the country's second Prime Minister, was Malaysia's Master Planner. He was the architect of the Felda land schemes, one of the world's most successful rural poverty eradication projects. He was an indefatigable leader, traversing the land to keep track of the progress of rural projects. 

Taking over as Prime Minister after the racial riots of 1969, he launched the New Economic Policy (NEP) – a formula for wealth distribution among the various communities. The NEP provided the political stability for the country's progress. 

Loy Seng's family was in tin mining, but he fell in love with rubber. His big opportunity came after the 1969 racial riots. British estate owners were desperate to cash out and Loy Seng was moving up and down the peninsula picking up estates at rock bottom prices. In this way, he vastly expanded KLK. 

Bek-Nielsen came to Malaysia to work in United Plantations in 1951, at the height of the Communist Emergency. Over time, he became the biggest shareholder of UP, and built it up into arguably the most profitable palm oil company in the world. 

Coming back to the sons. All have done their fathers proud. Pedigree shows. 

Nazir is open and articulate. Under him, CIMB has grown rapidly to become Malaysia's largest merchant banking group. It was listed in January and its share price has since risen by more than 150%. 

Oi Hian, like his father, is unassuming, courteous, and shrewd. He took over the helm of KLK from his father and has taken it to greater heights. The group's oil palm expansion is going on at a clip pace (about 20% of its acreage is still under immature palms) and its diversification through Crabtree & Evelyn is bearing fruit. 

Carl is determined and has the bearing of a leader but has some way to go before coming into his own. So far he has shouldered his responsibilities well. Bek-Nielsen, 77, has commanded his two sons – Carl, 30, and Martin, 28 – not to fight over the UP empire. Both sons are executive directors, with Carl taking on the vice-chairmanship as well. 

DATUK NAZIR RAZAK Chief executive officer CIMB 

The outlook for the global economy appears to be much brighter than it was a year ago. What do you see are the challenges and prospects for Malaysia's economy in 2004? 

We forecast gross domestic product to grow by 5.4% next year, higher than our 4.7% estimate for 2003, primarily due to the anticipated US and global economic recovery, which will translate into stronger trade and (foreign and domestic) investment flows. 

What is more important for next year though is seeing the private sector return to the driver's seat, as the government begins to consolidate its fiscal position. The new administration has signalled its intent to be a facilitator rather than provider of business. This means the 'end of entitlement' for some companies and more opportunities for others. 

I think this could accelerate the development of better companies and boost competitiveness of our private sector; but this has to happen quickly as the global economy will not wait for us. 

I am also anxious about the shift in policy towards attracting services based foreign direct investment as mentioned in the national budget. If successful, this would provide much needed momentum for our move towards a knowledge-based economy. 

Malaysia's financial sector has undergone considerable consolidation since the Asian financial crisis. What’s the outlook for the industry next year? 

The banking industry is now very resilient with banking groups much bigger and financially healthier than they have ever been. For 2004, against the backdrop of an improving economic environment, equity markets and consumer sentiment, we will see stronger loan growth and recoveries. We can also hope for further deregulation that will enable us to profit from launching more products. 

We are likely to see banks continue to focus on capital management with more issuance of hybrid capital instruments. There could also be further corporate restructuring within banking groups in response to new regulations and changing business models. 

Although I still think that we are moving towards having five or six banking groups eventually, conditions may not be right for further consolidation as this tends to require weak equity markets. 

What will be the focus for your company/group in 2004? 

Since we became a publicly listed company, we have become much more conscious of shareholder value maximisation. So, one of our priorities will be optimal capitalisation of the firm. 

For earnings, we will continue to focus on our core business of intermediating Malaysia's capital markets, debt, equities and advisory as well as related activities like CIMB Islamic, private equity and private banking. We are intending to make a bigger mark in the retail segment where we have only a small presence. 

We will also be paying some attention to Indonesia's capital markets, where we have just purchased CIMB-Niaga Securities, and also helping Malaysian entities raise non-ringgit funding via CIMB Labuan. 

Do you expect your group to do better or worse in 2004, compared with 2003? 

We had a very good 2003. We exceeded our prospectus profit forecast after six months and our all-time profit record in nine months. So the 'bar' has been set pretty high. 

Nevertheless, during our recent annual planning dialogue, our managers showed a lot of optimism that we will do better next year by strategising for quite different market conditions. For instance, the equity market is expected to perform better than the bond markets in 2004. And we are ready for it, having invested considerably on a stronger equities franchise. 

Malaysia's capital market is not only growing rapidly in size but also in product diversity. We want to capitalise on both. We intend to launch more new products next year. As we saw with Khazanah warrants, the market is ready to accept more sophisticated investment instruments. 

China's economy continues to power ahead. Is China an important factor in the management of your operations? 

Not really, although China has attracted a lot of portfolio investment away from our country. Malaysia must clearly articulate why and how it will be a major beneficiary of China’s ascension as a world economic power and how we should be No. 1 in every “China-plus-1” plan of potential investors. 

Datuk Seri Abdullah Ahmad Badawi has taken over as Malaysia’s fifth Prime Minister. In your views, what should be his priorities? 

So far, so good. He has hit the ground running on the themes of public sector efficiency and integrity. I think that the improvement in public sector delivery system will have significant impact on economic productivity. 

On the macro-economic front, I think he will focus on balancing the national budget and enhancing long-term competitiveness of our companies and economy as a whole. 

In terms of the capital market, one of his priorities should be to strengthen the ringgit bond markets. The severe drop in activity following the turn in interest rates is a setback to the long-term development of our bond market and is evidence of structural weaknesses that have to be addressed by the regulators and industry participants. 

He should consider reviving the National Bond Market Committee. 

Stock Watch On CIMB 

 DATUK LEE OI HIAN Executive chairman Kuala Lumpur Kepong Bhd  

Challenges and prospects for Malaysia's economy in 2004? 

The prospects are bright for Malaysia's economy to grow at a faster rate in 2004, with buoyant commodities prices, accumulation of trade surpluses and most of the developed economies in a growth mode. 

The sustenance of a friendly investor climate by a fair, just and strong government that promotes racial harmony and religious tolerance are key to the recent encouraging direct investments growth. Our challenge is to create environment for businesses, be it in primary production, manufacturing or the services sector, so that they can enhance their competitive advantage to compete globally. 

This may include educated workforce with the right skill sets, a safe living environment, maintaining the excellent ringgit purchasing parity, reviewing bureaucratic procedures. 

We are living in a turbulent period in world affairs. Vigilance against potential violent shocks caused by terrorism, trade disputes, and etc. is the order of the day. 

What's the outlook for the plantation industry next year? Do you expect your group to do better or worse in 2004, compared with 2003? 

Palm oil and other edible oils are enjoying favourable prices, with strength going into the first half 2004. 

Sustainability of this level of prices is dependent on the weather affecting the South American soybeans crop now being cultivated. 

Fortunately, the downside of palm oil is supported by the substantial discount to soya oil prices and the world’s tight edible oil stocks. 

We are fortuitous to have rubber prices in a similar position.  

Thus, plantations companies should continue to fare well. 

For KLK, we are in line with the industry. The contributions from our plantations with increasing maturity of our Indonesian areas, will offset the lower manufacturing facing from margin pressures. 

What will be the focus of your company/group in 2004? 

The focus of our group is to develop internal management, both in the width and depth of their skill sets. This is also the challenge for the plantations industry, as many of the pioneers responsible for our global competitive strength in this sector are in their golden years or retired.  

We also need to focus on recruiting new blood to cater to our planned expansion in the property, manufacturing and Indonesian plantations. 

Is China an important factor in the management of your operations? 

China will be the economic powerhouse of Asia and already the major customer of our primary products and oleochemicals. KLK is in the midst of expanding its operations in China, which will include a fatty acid plant. 

In your view, what should the new Prime Minister's priorities be? 

Having been specially groomed, Datuk Seri Abdullah Badawi has won the widespread support of all components in Malaysia. His priorities include the migration to a balanced budget which will involve improving the efficiency of implementation and instilling a stronger corporate governance.  

His motivation of and the engaging the government agencies to work with him is most encouraging. 

The well-being of the plantations sector due to its significant multiplier effect and the high local value-added content is critical to the rural economy.  

Furthermore, 50% of the oil palm plantations are owned directly or indirectly by the small-holders. 

Therefore, it is imperative for the Prime Minister to understand this industry well, in terms of macro aspects, our competitive position, and the development of a floor price in this cyclical industry so that he can make the right policies.  

Stock Watch On KLK 

CARL BEK-NIELSEN Vice-chairman/executive director (corporate affairs) United Plantations Bhd 

Challenges and prospects for Malaysia's economy in 2004? 

There is no doubt the forecasts for global growth and global trade look significantly brighter for 2004 compared with 2003. In fact, we can already feel that the economic wheels are gaining momentum. For instance, just take note of the phenomenal growth the world’s largest economy, the United States, achieved during the third quarter of about 8%, the highest in 20 years. This augurs well for 2004 when the United States gross domestic product (GDP) is expected to grow by at least 3.3% on average. 

The challenges for Malaysia in 2004 will primarily be to exploit the wave of growing economic prosperity in the best possible way by supplying the needs of the increasing demand from our largest and most reliable trading partners. 

Malaysia will also have to confront the brutal facts of globalisation and face up to the increasing competition. Every sector should set targets and systematically work towards increasing productivity and, in a nutshell, become more efficient doing what we are already doing well today, failing which we will lose out to those nations that are more competitive.  

In other words, companies with extra fat should undergo painful surgery! 

Another major double-edged sword will be the development of the US dollar exchange rate which, whether we like it or not, will have an impact on our export figures. With the current slide in the greenback’s value, exports out of America have become very competitive and the same goes for Malaysia. 

There are, definitely, prospects for increasing our trade with the euro zone, which will find our products competitive compared with before. 

What is the outlook for the plantation industry next year? 

Right now the plantation industry is riding on a wave of fortune with the very lucrative palm oil prices. Prospects for 2004 are looking good but one thing is for sure: this price level is not sustainable in the long run and we can most likely expect prices to decline from their current levels in the not too distant future. 

The main challenge for most plantation companies is not to be too greedy by trying to sell their commodities at the very top. 

Another challenge for most plantation companies is to be rid of complacency, which always sets in when things are good. People relax and say, “Hey things are brilliant, why change!” and forget about the tough times. 

What will be the focus of your company/group in 2004? 

The focus of the company will be to continuously strive to be among the most efficient and productive plantation companies in this region and doing this in a sustainable manner. 

United Plantations is constantly trying to rid of complacency – even in good times like now – and preparing itself for the next downturn in commodity prices.  

We will be laying the foundations for our future years in Malaysia and naturally keep a close eye on our costs. 

Cost, in our view, is the goldmine in any company’s backyard that one often fails to see because the paradigm that cost is fixed and uncontrollable blocks our view. Our objective is, therefore, to get everybody together and start digging this goldmine called ‘cost’, which in the end should be every employee’s concern. To be cost competitive is, in the end, to be price competitive. 

Do you expect your group to do better or worse in 2004, compared with 2003? 

The prospects for next year look good and we expect a satisfactory year in 2004 primarily due to the lucrative palm oil/palm kernel prices. 

Is China an important factor in the management of your operations? 

China is indeed a powerhouse and a growing powerhouse absorbing more and more of all the foreign direct investments entering Asia.  

The only way we are connected to China is via their consumption of palm oil in general, which the Chinese rightly have taken a liking to. We do not have any operations in China. 

What do you think should be the new Prime Minister's priorities? 

To look closely at the footprints and paths of his predecessor who transformed this multiracial society into the booming country it is today and to generally focus on transforming Malaysia into an even more reliable and efficient country where peace, political stability, and ethical governance prevails, which will lay the foundation for future investments in Malaysia and ultimately lead to the generation of wealth for all citizens and companies based in this wonderful country. 

 Stock Watch On UTDPLT 

Views from scions of prominent families: Datuk Nazir Razak of CIMB, Datuk Lee Oi Han of Kuala Lumpur Kepong Bhd (KLK) and Carl Bek-Nielsen of United Plantations Bhd (UP

Views from property CEOs: Tan Sri Mustapha Kamal of MK Land Bhd, Datuk Seri Liew Kee Sin of S.P. Setia Bhd and Datuk Jeffrey Ng of Asia Pacific.

Views from banking CEOs: Tan Sri Teh Hong Piow, chairman of PUBLIC BANK BHD, Datuk Amirsham A. Aziz, president and CEO of Maybank group, and Piyush Gupta, head of Citigroup in Malaysia.

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