i love this quote "As a closing statement, he stated that both he and Tun Dr Mahathir wish

to register their interest to buy Lotus for one British pound, or more

than one pound, if and when it is for sale. Their rationale is that a

precedent has been set (through the sale of Agusta for one euro)."

read on….

Former Proton CEO Tengku Tan Sri Mahaleel Ariff today spoke out in

defence of the purchase of MV Agusta, which was carried out when he was

CEO of the company, as well as questioned the sale of the Italian

motorcycle manufacturer. He explained at a press conference this morning

that the purpose of his action was two-fold: firstly, because Proton’s

board had decided not to respond to questions earlier posed [concerning

the Agusta sale for one euro] by Tun Dr Mahathir, who is Proton’s

advisor, and by himself and secondly, to respond to allegations that his

decision to purchase Agusta was a bad one which had put Proton at risk.

"By not replying in itself is a transparency of falsehood contrary to the

wishes of the Government and transparent for all to see," he said,

referring to the issues that had been raised earlier, namely the process

of the sale of Agusta, that the sale had been part of its divestment of

non-core assets, and that Proton’s current losses are being attributed to

losses of Agusta. Tengku Mahaleel said that his statements at the press

conference today were also shared by Tun Mahathir who was unable to

attend as he was overseas. In continuing to seek answers from Proton,

Tengku Mahaleel explained that it was a matter of public interest since

Proton is a national company and ‘for the sake of good ethical

practices’.

By his calculation, the sale of Agusta for just one euro had lost Proton

69.999 million euros plus fees to consultants and Italian court

administrators which added another 6 million euros for a total loss of

75.99 million (RM340 million). “For this money, 11,000 Malaysian

fisherman could each have been given a boat,” he said.

The former CEO then went on to provide an insight into Proton’s internal

management processes and control systems and questioned if the processes

were followed prior to selling off Agusta. He also wanted to know the

positions taken by certain board members who had earlier approved the

purchase of the Italian company, and why they had seen reasons to sell it

off.

Recalling that it took some 14 months to deliberate on the purchase of

Agusta, Tengku Mahaleel expressed surprise that selling it off took just

two months to decide. According to him, the 14-month period began in

December 2002 when Agusta was identified for acquisition. When asked if

Tun Dr Mahathir had, at that time, been briefed on the intention to make

the acquisition and whether he was positive about it, Tengku Mahaleel

said he had been told all the pros and cons and the risks and had been

agreeable as well.

Tengku Mahaleel also questioned the declaration by Proton’s board that

Agusta was a ‘non-core business’, hence the need to sell it off. In his

view, Agusta should not be seen as a mere ‘motorcycle company’ but as an

automotive company which has the full scope of activities of any

automotive manufacturer. Therefore, in selling off Agusta, he sees it as

having sold off a core asset of Proton.

On why he had supported the decision to buy Agusta (and obviously still

supports it), he said that it was ‘a strategic acquisition to ensure

Proton’s future’ particularly as that future seems uncertain with auto

policies that are inconsistent and sometimes not transparent.

“With the changing Malaysian auto policy, Proton’s future cashflows will

not be sustainable as its domestic market share falls below 30%. Shocking

as it may be, Proton’s Q2 operating profit is a negative (-RM7 million)

well before the forecast of 2008 of severe competition,” he said. “So it

is even more urgent that it has to find ways of gaining new profits to

maintain its level of operations and R&D investment. This means the

combination of Lotus and MV Agusta is crucial for Proton.”

He said that the combined income – from 2008 – would be able to fund

Proton’s need of RM500 million annually to maintain its level of

investments for new products and market expansion and that around half of

that had been forecast to be contributed by Lotus and Agusta.

"Of course, this also depends on Proton’s management skills to turn

around and introduce new products quickly," he added.

To support his forecast that Agusta could actually become a profit centre

for Proton, he revealed the 2006 earnings forecast prepared by Price

Waterhouse Coopers, an independent accounting firm, which was said to be

a ‘conservative’ one. In the forecast (before tax), Agusta could be

making RM73 million this year (best case) and even in the worst case,

RM31 million. The forecast for 2010 was RM228 million.

The key technologies which Agusta already has have been presented as one

of the important reasons for acquiring it and he again emphasised them

with more elaboration than before. Being a motorcycle manufacturer,

Agusta has the expertise to make small yet powerful high-tech engines and

could develop 850 cc and 1000 cc engines for Proton models at 50% what it

would cost Proton/Lotus to develop. Such engines would be RM2,500 cheaper

than the engine currently used in the Savvy, and on a production run of

250,000 Savvys over 5 years, it would thus be possible to lower

production costs by RM625 million. This figure, he pointed out, more than

paid for the 70 million euros which Proton had paid to buy over Agusta.

Tengku Mahaleel also revealed that Agusta had a concept for a RM10,000

car using unique manufacturing methods and also had a patented airflow

system which was going to be used for the Campro engines. The Italian

company also has a very unique gearbox which would be valuable to Proton.

Returning to the financial issues, he revealed the purchase conditions

which were agreed upon when Proton bought over Agusta (or more

accurately, acquired the MV Group through a share injection of 70 million

euros). The conditions related to the settlement of Agusta’s debts with

specific terms over a 4-year period, and he claimed that even prior to

purchase, Proton had managed to reduce the debt level to 68 million

euros.

Crucial to the survival of Agusta, which was on the brink of bankruptcy,

was getting working capital and to address this quickly, it was decided

that the unused credit line of 9 million euros available through Proton

UK would be utilised. Also, group purchasing of Japanese parts worth 12

million euros was carried out, optimizing buying power.

Having made a case for a turn-around strategy, Tengku Mahaleel said that

it made no financial sense to sell off the company for one euro and

that ‘the Proton board’s action and intention is difficult to

comprehend’. He revealed that the CEO and CFO of Agusta had attempted to

discuss the matter with Proton’s board but had difficulty doing so and

more puzzling was why the Proton board had chosen to cut off Agusta

(financially) when financial advisors had recommended financial support

to continue at least for the 2005/2006 annual management plan and then

decide what further course of action should be taken.

When asked to comment on the statement by an analyst that Agusta's

creditor banks were on the verge of foreclosing and if that had happened,

Italian law would have held Proton responsible for all Agusta’s

contingent liabilities, he replied: “You can always negotiate [on debt

repayment]. The key point on negotiation is whether you are on target.

Banks would love to lend money to you when they know you have a backer,

but when the backer pulls out, the banks pull out.”

The final part of his presentation aimed to show that Proton’s losses in

Q1/Q2 of its financial year (not the calendar year) are not wholly due to

Agusta – and also nothing to do with him since he had already departed

from Proton. He noted that Proton’s reports of loss during the two

quarters were due to provisions of RM137 million and RM161 million,

respectively, and drew attention to the fact that the provision for

Agusta was only RM45 million in the first quarter. In other words,

Proton’s losses could not be blamed entirely on the Agusta issue.

An interesting fact he produced was that unsold stocks at the end of

October 2005 were 25,000 units which, if valued at RM40,000 each,

amounted to RM900 million. While he said he could not recall what the

stock position was at the beginning of 2005, he did say that he had

understood that there were at least 30,000 units of unsold stocks now and

lamented that 18,000 units of those were 2005 models which would likely

have to be sold at a discount since they are old models.

In wrapping up his presentation, he provided an overview of the

management performance ‘before and after’ which were very interesting:

GROWTH BETWEEN 1996 ~ 2004

Turnover : from RM5 billion to RM12 billion

Assets: from RM1.7 billion to RM5.6 billion

Cash/equivalents: from RM450 million to RM2.6 billion

Profits: no losses reported

EXPENDITURES (INTERNALLY FUNDED)

Waja development : RM817 million

Gen2 development: RM500 million

SRM development: RM445 million

Savvy development: RM467 million

ACQUISITIONS

USPD (which became Proton Edar) : RM384 million

Proton Commerce: RM125 million

Lotus: RM503 million

MV Agusta: RM364 million

Tg Malim plant project: RM1.8 billion

Given the strategy that he and his team had formulated, which included

the anticipated revenues from Lotus and Agusta – from 2008 – Tengku

Mahaleel said that Proton would have been able to fully repay its

government loan of RM800 million (which was given when Proton began

business) by 2007. However, in view of what has taken place since the new

management took over, he believes that ‘the sale of Agusta has placed

risk on the company’s future, reduced its ability to increase engineering

capability and also reduced its access to new markets through the Agusta

network and products’.

As a closing statement, he stated that both he and Tun Dr Mahathir wish

to register their interest to buy Lotus for one British pound, or more

than one pound, if and when it is for sale. Their rationale is that a

precedent has been set (through the sale of Agusta for one euro).

Tengku Mahaleel certainly had the right to speak up on the history and

process by which the decision was made to acquire Agusta since it was

done when he was CEO. Understandably, he is disturbed that public opinion

has been influenced by various commentaries that his decision was a bad

one, thus putting his performance as CEO in a negative light. However,

his situation is no different from that of Carly Fiorina (former CEO of

HP), Jurgen Schrempp (former CEO of DaimlerChrysler), Bernd

Pischetsrieder (former CEO of BMW) and Jac Nasser (former President of

Ford Motor Company), all of whom were forced to depart from their

respective companies under controversial circumstances. These CEOs had

all been ‘bright stars’ and seemed to do no wrong, were given a free hand

to buy up other companies and spent billions to execute what they

believed to be sound business plans. Like Tengku Mahaleel, they too

defended all they had done as being ‘the best strategy’ for their

companies; surely none of them would admit that he or she had made a bad

decision?

It is also reasonable to question the motives of Proton’s board in

selling off Agusta but then again, seeing that the company’s profits and

market share were declining, they had to act and in their mind, Agusta

may have been a burden the company could do without. They may have a

different perception of the value of Agusta and the route Proton needs to

take to survive. Can anyone be so certain that his strategy is The Right

One? Only time will tell whose move was the right one because predicting

the future with certainty is a skill which humans do not have.

So, to be frank, i am more to the proton side bcoz the management is new, i want to give them time to prove what they are doing…………….and also bcoz those 2 TMs are no longer in control of the company but still talks to the public and the media like a boss slaming proton, to me, those 2 r like ushering the public to push proton too, which i dun like.

Now I know why TM said he made the right decision because, Euro 70 million is cheap as he don't even bother to remember the RM540 million of unsold stocks sitting at the back yard. But having said that, I do support TM pushing for transparency!!!

Don’t they have a progress report for him to supervised or manage periodically? Or at least the sales or stock department should send him their reports on sales or stocks. Not that CEO need to do/know everything but he has somebody in dispose to do/know it for him, and they all are for him to manage, right.

And to make things more weirdo, after not being a CEO, now only he knows the unsold stocks figures and even told it to the press.

Plus, an experienced public figure/speaker shud nvr spout out figures if they are unsure, TM surely knows the ballpark numbers, he just doesn't want to "agak-agak" things like that.

This from a person who DOESN"T like the guy.

After reading the the Q&A, some how it gives me a feeling that he really fail as being a CEO but some may say that he builds the R&D team and bla bla bla. For me, CEO is responsible for the overall operations of the company and not R&D only. certain figures like stocks, level of cash, sales are important to manage by heart!

Time will proves who is right or wrong. Just 'org besar' playing games infront of public. Like Xoomie said, we only want a quality safe car… plus cheap in price!!!…

The new management of Proton knows nut bout what there are doing?

Proton is turning from bad to worse.

What interest me more is I want it to be closed down!

Rakyat doesnt want a national, only wanted affordable quality safe car!