This article first appeared in The Edge Malaysia Weekly on September 18, 2017 - September 24, 2017

WHEN Datuk Richard Curtis steps down as group managing director of Cahya Mata Sarawak Bhd (CMS) on Dec 31 after 11 years, it may seem like a leadership gap is emerging.

CMS had previously said Datuk Isaac Lugun will take over as group chief corporate officer and Datuk Goh Chii Bing will become group chief operating officer after Curtis retires.

So, who will actually be in charge when the time comes?

Curtis tells The Edge that both Isaac and Goh will effectively function as the CEOs of two separate segments, each reporting directly to the board.

“When I joined CMS (in 2006), there was no strategic direction for the company. Many processes and the operational performance were below par. These are now up to par and the strategies are developed and in place. CMS now needs a different style of leadership,” he says.

In his new capacity, Goh will oversee the group’s core business operations, including cement, construction materials and road maintenance. Isaac will manage the group’s corporate strategic investments that include associate companies in smelting, financial services  and telecommunications infrastructure.

Both will work with current group chief financial officer Syed Hizam Alsagoff.

“Everyone thinks you need one CEO but a lot of companies are really too big and sprawling, in a way, to have a single CEO. If things funnel to one guy, that could potentially cause a queue (bottleneck). However, if you split the role into two, there will be less of a queue and the top guy can be closer to the business units below.”

After Dec 31, Curtis will remain a non-independent non-executive director until end-2018. The only remaining executive board member after Dec 31 will be group executive director Datuk Syed Ahmad Alwee Alsree.

Curtis also says he is not concerned about possible strategic continuity issues as Isaac and Goh have a combined 45 years with CMS, including over a decade with Curtis as group managing director.

But with two captains on board, who will call the shots if the group needs to decide between the two sections when it comes to  investments and resources?

For perspective, one section is much larger than the other — in the financial year ended Dec 31, 2016 (FY2016), 92% of the group’s revenue came from the cement, construction materials and road maintenance divisions.

Curtis dismisses this as a non-issue. “Major decisions between the two would have to go to the board. Even I as managing director take [such decisions] to the board.”

While the original leadership succession plan did not include the dual leadership model, Curtis says the change was made because Isaac and Goh were stand-out candidates with complementary strengths that fit each section.

“As both areas of our business need focused attention to realise their considerable potential, it would be best for CMS to retain both the candidates and promote them to fully oversee their respective business sectors and to serve as backup to each other,” he explains.

‘Not a sprawling conglomerate’

With its wide-ranging activities, ranging from the core construction supply chain to property development, financial services, smelting, telecoms infrastructure and education, many would consider CMS as a sprawling conglomerate.

That raises the question as to whether CMS needs to split the leadership burden because it is now too large and too diverse.

“We are not a sprawling conglomerate of interests. We are a synergised portfolio of businesses focused on the Sarawak growth story, namely in two sectors. We work as an ally to the state,” Curtis responds.

The first sector is the energy-intensive industries via its 25%-owned associate OM Materials (Sarawak) Sdn Bhd, which runs a manganese and ferrosilicon alloy smelting plant in the Samalaju Industrial Park (SIP) in Bintulu. It is a joint venture with listed Australian firm OM Holdings Ltd.

SIP is one of five growth nodes under the Sarawak Corridor of Renewable Energy (SCORE) initiative, which, among others, aims to industrialise the state through its cheap energy generation.

CMS is also a 40% shareholder of Malaysian Phosphate Additives (Sarawak) Sdn Bhd, a JV with Malaysian Phosphate Additives Sdn Bhd to build Southeast Asia’s first integrated phosphate complex in SIP. It is expected to be commissioned in 2020.

Curtis says the second sector is infrastructure, which will continue to be developed as Sarawak industrialises. “[The state will] need more cement, more roads built and maintained, more stone, more quarries, more townships, and we do all that.”

But some of its strategic holdings are legacy investments. For example, it holds an effective 25.4% stake in Kenanga Investment Bank Bhd and 20% in steel fabricator KKB Engineering Bhd.

CMS also runs a loss-making international school in Kuching and a 51%-controlled private equity firm called CMS Opus Private Equity Sdn Bhd. In 2015, it bought a 50% stake in Sacofa Sdn Bhd, which holds a concession to provide telecoms towers in Sarawak.

To sharpen its focus, there may be a case to divest some non-core units or even consider spin-off listings, such as its property arm, which has a total undeveloped landbank of 6,800 acres across Kuching and Bintulu.

When asked, Curtis says CMS is waiting for the right opportunity to exit some of these investments, although it is not actively looking to do so. Others, such as the private school, are a way of giving back to the state.

“We do not see it (CMS Education) as something that blunts our focus.”

He believes that breaking up the group would create smaller individual balance sheets, which may lead to lower credit ratings and consequently higher borrowing costs.

“CMS’ rating as a Sarawak growth story will be higher than as a cement business in Sarawak,” says Curtis. “So it’s better to keep them all together at the moment and have it rated as a Sarawak growth story.”

Managing potential conflicts

However, the positioning of CMS as an ally of the state to ride its growth story may present dilemmas down the road. In a nutshell, the development path of the state may not always mirror the ideal corporate direction for the group.

An example is the 43.2km road from Miri to Marudi, which CMS has been upgrading over the past year. Curtis says the group is doing the work at the state’s request without any letter of award and that he is unsure if CMS will be paid eventually.

Isn’t that a conflict between the state’s interests and that of CMS’ shareholders?

“If I walk away from these things because they haven’t filled their paperwork, and governments do struggle with these things sometimes, I won’t be a preferred supplier,” Curtis says. “We want to be seen as giving back and by giving back, you can continue to grow.”

It is technically a facet of client management. Curtis says CMS adopts  a multi-stakeholder approach where CMS is managed not just for shareholders but also for other stakeholders, including the local communities, customers and staff to promote a sustainable business model, he adds.

“And you had better do it from the heart, otherwise, it will fail.”

It is notable that the Sarawak market has a structural disadvantage for CMS.  The state lacks deep-water ports, which hampers any sizeable export push by CMS whose earnings revolve around the construction and building material supply chain.

While this makes it difficult for new players to encroach on CMS’ turf, it also makes it challengin for the group to expand outside Sarawak.

As an example, Curtis says that cement exports are unlikely to amount to more than 2% of annual sales volume, although CMS is continuously looking for opportunities.

Its new RM190 million cement grinding plant, which increases its total output capacity to 2.75 million tonnes per year — well above current local demand of about 1.7 million tonnes per year — illustrates another facet of the multi-stakeholder approach.

Utilisation is now at 60% and is expected to rise to 80% from FY2018 onwards once demand from Pan-Borneo Highway and Baleh Dam construction works peaks, Curtis says, adding that a 20% buffer is necessary to avoid supply disruption from unscheduled breakdowns, given the remote locations of its plants.

On one level, he says, the buffer means any unscheduled breakdowns do not result in potential delays for contractors or daily-wage construction workers going unpaid as they are sent home in the absence of work to do until cement arrives, which may take weeks to import.

“But also [once that happens], someone’s going to say that ‘CMS is not focused on its market, maybe we can come in’. But because I don’t let that happen, then they won’t bother trying.

“So I’m actually preserving CMS’ profits by looking after potentially unimportant stakeholders in the overall scheme of things. I’m actually protecting our big business,” says Curtis.

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