Case Study: Sime Darby Berhad - Journey in Integrated Reporting
Presentation by Mustamir Mohamad, Group CFO, Sime Darby Berhad | May 17, 2021
About Sime Darby Berhad
- One of Malaysia’s oldest conglomerates, founded in 1910
- Operates in 18 countries and territories
- 20,920 employees
- 2020 revenues RM36.9bn (approx. 9bn USD)
- Four major businesses; industrial, healthcare, motors, and logistics
- Works with premium brands including Caterpillar and BMW
Having recently published their 7th integrated report: Resilience through Diversity, Sime Darby’s Group CFO Mustamir Mohamed joined the IFAC Professional Accountants in Business (PAIB) Advisory Group meeting to share insights into the company’s journey on integrated thinking and reporting.
Sime Darby operates predominantly as a high volume, slim margin business. With four major businesses (industrial, healthcare, motors, and logistics), Sime Darby is exposed to trends such as:
- Commodity price cycle for industrials
- Growing Asian affluence, affecting both motors and healthcare
- Being a proxy to Covid 19 recovery due to pent up consumer demand and infrastructure spend
- Significant expansion opportunties for its healthcare component in Asian markets, adding to its existing premium hospitals in Indonesia and Malaysia
The Integrated Reporting Journey
Sime Darby’s integrated reporting journey first began in 2014 when it was identified by the Malaysian Securities Commission to participate in an integrated reporting pilot program.
To start, the company used external advisors from PwC to undertake a gap analysis of its existing reporting against the International Integrated Reporting (<IR>) Framework. Information around value creation such as how the company generated returns from its shareholders, its five year strategy and the business outlook were already disclosed as part of its investor relations material, but was not integrated into its annual report.
Recognizing the importance of senior management buy-in, the team presented plans to the Group Management Committee, as well as the Governance and Audit Committee and had their support to move forward. Integrated reporting was seen as an opportunity to improve communication with stakeholders.
An <IR> Steering Committee led by the finance and communications departments was set up for the 2014 annual report. The Group CFO at the time was instrumental in leading the change. Efforts in the first year were focused on the “low hanging fruits”, where information already existed such as strategic plan, business model, existing KPIs, financial performance analysis, risk and opportunities and future outlook. The committee then mapped out a 3-year road map for full compliance to the <IR> Framework.
The second phase of the <IR> journey from 2015-2016 was focused on improving the content and connectivity of information in the report, better demonstrating the alignment of strategy to the business model and the six capitals, including more detailed risk management disclosures, improvements to the governance section, and integrating the previously separate sustainability report into the integrated annual report.
The company also sought advisory services from KPMG to support the development of its materiality determination process, undertaking an extensive stakeholder engagement exercise to help identify material issues. This had the benefit of ensuring the report was more concise and focused only on the most material matters to value creation.
From 2017 onwards, under the CFO’s leadership the company has continued to make incremental improvements to the reporting process, and focused on developing its integrated thinking. To strengthen its integrated reporting further, the company linked its 12 material issues to its sustainability pillars, established a risk appetite statement, and mapped <IR> Framework requirements to other mandatory reporting requirements in the Management Discussion and Analysis (MD&A).
The company currently has an integrated reporting content sub-committee, chaired by the Group CFO to coordinate between the various functions across the organization that have a responsibility for writing specific sections of the report. This helps ensure connectivity of information.
For Sime Darby, using the <IR> Framework has helped better structure disclosures in their annual report, helping to better organize what was already there in terms of strategic and budget planning processes. The reporting has not necessarily significantly changed their strategy, but has helped to better report on their business.
The quality of Sime Darby’s corporate reporting has been recognized by multiple national and international corporate reporting awards.
The Challenges and Benefits of Integrated Reporting
This was a presentation to the IFAC Professional Accountants in Business Advisory Group during their March 2021 meeting. See here for the full meeting report: Enabling Purpose Driven Organizations: PAIBs Leading Sustainability and Digital Transformation