Malaysia Airlines would rise further on the flightpath of its business turnaround plan this year. Itscosts would be reduced by RM1bil in the nextfinancial year, said chief financial officer TengkuAzmil Zahruddin. Panasonic Malaysia Sdn Bhd sawbrisk sales of its Plasma TVs and LCD TVs last year.Its managing director Hiroshi Nakamura expectssales of higher end consumer goods to continue tobe strong this year. ACCA director Tay Kay Luansaid the association aimed to provide guidance onbest practices in financial management.
TENGKU AZMIL ZAHRUDDIN
Executive Director/ Chief Financial Officer
Please review your group’s performance since the GLC revamp
The government-linked company (GLC) revamp is part of an ongoing effort by the Government to drive development and grow the economy. In the 2006/2007 annual survey by Malaysian Business, Corporate Malaysia fared much better compared with the previous period. Of the top 10 performers, eight were GLCs.
We were at No. Six, having posted a turnover growth of 46.9%, mainly driven by higher passenger revenue and effective implementation of our business turnaround plan (BTP) involving an extensive operational overhaul that brought us out from near insolvency.
This translated to a stronger bottom line growth. For FY2006, we registered a net loss of RM133.7mil, an improvement of 89.3% from a net loss of RM1.25bil previously. This year, for three quarters only, we hit a net profit of RM610mil, the highest in our 60-year history, even before the end of FY2007.
What else are you looking at beyond Key Performance Indicator (KPI)?
As early as 2005, Malaysia Airlines was one of the two GLCs chosen for a pilot project on KPI implementation. On March 22, 2006, we were among the first GLCs to officially announce a robust set of KPIs to track and measure our success, declaring that the performance of the company as well as myself and the leadership team will be assessed using a KPI scorecard.
I am pleased to inform that we have fared exceptionally well against the scorecard. Through a carefully structured performance-based reward system, we mobilised our workforce to achieve the best financial performance in the company's 60-year history, even beating our target for 2008.
Now we are moving on towards the realisation of another dream – Five-Star Airline @ LCC cost. We have already made radical changes to our operations, simplifying processes to reduce expenses whilst investing in enhancements to our product and services. We now have 426 ongoing initiatives for improving our products and services in order to improve customer experience.
We also aim to further bring down our costs across the network by another 10% by the next financial year that will translate into a cost saving of RM1bil. This will give us greater flexibility and options to grow, build and expand our business.
Does your share price reflect the progress charted by your group?
At the start of 2006, MAS’ share price was trading at RM2.84, which is equivalent to RM2.56 after taking into account of the capital exercise we carried out earlier this year.
Since then, our share price has doubled, having achieved a high of RM5.50 (post-rights issue).
Today, MAS remains among the airlines that offer the best value to investors, trading at a historical price-earnings (PE) ratio of 9.5 times.
We believe that while there has been significant progress from the turnaround and MAS exceeded the KPIs it outlined in the BTP, our PE ratio is below average for the airline industry and therefore, there may be further upside for investors, especially as we roll out the BTP2 in the new year.
What is the next big move that you are planning that will bring more excitement to investors?
We have to build a ship that can weather the storm – in our case, the increasing liberalisation in the industry coupled with the imminent overcapacity in the market.
According to Airbus and Boeing data, some 800-plus new aircraft would be coming to Asia Pacific, South Asia and Middle East in the next two years. This overcapacity, the proliferation of LCCs and the liberalisation of Asean skies, will lead to erosion in prices and margins. To remain a key player, we need to become more competitive – hence, the idea of Five Star Airline @ LCC cost (FSLCC).
There are three phases in the BTP - financial survival in 2006, profit generation in 2007 and profitable growth in 2008. Now that we have achieved the target of profit generation, we will shift our focus to profitable growth by transforming MAS into a FSLCC.
How can we do this? There are five key steps:
Step 1: We will continue to maintain high quality products and services (Five Star);
Step 2:: We must structurally reduce our costs;
Step 3: With a lower cost base, we will be able to offer even lower and more competitive fares to our customers, and still be able to make a profit;
Step 4: With high quality products and services at low/competitive fares, more passengers will fly on MAS and this translates to more revenue;
Step 5:With more revenue and profit, we can invest in growing our network and building our capacity.
The five steps are repeated until we get an upward spiral – we call it the virtuous cycle of profitable growth. Details will be announced in our business transformation plan, which will be launched this month.
Are there new challenges that you foresee and would that affect your revamp plans?
There are two challenges. Firstly, the high oil price is an industry challenge. The price of oil is already at the highest levels ever seen.
Secondly, overcapacity, which will lead to margin erosion. However, we are ready for the challenges as we are positioning ourselves for profitable growth through transforming ourselves into a FSLCC .
To achieve this, we will push our quality, improve our product and service, and at the same time, radically reduce our cost.
Is it time to chart new directions for GLCs?
The GLC Transformation success story in our case came about through focused empowerment. Apart from some external appointments to senior management, the performance improvements have been largely achieved with existing employees. With the right culture, motivation and empowerment, we have been able to get the best out of our people.
Other GLCs too have institutionalised professionalism, hard work, integrity and a deep sense of loyalty and responsibility among their workforce.
Now that a culture of excellence and high performance has been introduced into GLCs, the momentum of transformation has been initiated and there is no turning back.
There is a need to chart new and bold steps to take this positive culture to greater heights that will be able to withstand the challenges of globalisation and shine as respected and worthy icons of Malaysia in the international business fraternity.
Panasonic Malaysia Sdn Bhd
What is your outlook on consumer spending for 2008?
The Malaysian economy has had a progressive projection thus far and Panasonic has contributed as well as benefited from it. With the implementation of the Ninth Malaysian Plan, we anticipate an economic growth rate in 2008 of 6% to 6.5%.
With that in mind, together with the fact that there will be a cut in personal taxes, the implementation of free education in government schools, higher civil servants salaries as well as continual exports and foreign investments, we can expect an increase in consumer spending.
However, optimistic as we may be, several factors may come into play that can obstruct the economic growth progression as well as curb spending. Fluctuating high oil prices, pressure of high inflation and rising interest rates are among the key concerns.
How was consumer spending in 2007?
Last year was generally a steady economic year with consistent growth primarily induced by strong domestic demand.
We have had a 220% increase in Plasma TV sales and 425% increase in LCD TV sales in 2007 as compared with the previous year. We have had similar increases in our home appliance products. Panasonic Malaysia had a turnover estimated at RM1.5bil in 2007 with a growth of 9% thus far as compared with 2006, fuelled by rising consumers buying power.
What is your expectation of spending at the higher end? Please define 'higher end' in your industry.
Panasonic has one of the widest ranges of electrical and electronic products with our primary categories being home appliances and audio-visual products. We perceive all Panasonic products to be high-end products.
However, from consumers' perspective, the “higher-end” products from Panasonic are our Plasma and LCD TVs in our audio-visual category and our top-of-the-line inverter refrigerators, inverter air conditioners, inverter microwave oven that can save up to 50% energy consumption and the high demand on medium-to-large-capacity washing machines.
A review of our increase in Plasma and LCD TV sales among our other products is testimony that consumers do have the spending capability and are opting for such higher-end products to furnish their homes or offices. We expect consumer spending towards these ”higher-end” products to continuously increase in 2008.
How has the tourism dollar helped boost consumer spending? What further measures can be introduced to boost tourism?
The tourism industry has gradually grown over the past few years with tourist dollars being spent in Malaysia for leisure, sports, medical treatments, shopping and even business. This has created the need for more employment and business opportunities in order to cater and accommodate this consistently growing industry. And with the income and revenue generated from tourism, Malaysian consumer spending patterns have increased as a direct result.
It is important for the changes in lifestyle environments in today's society to be seen. More demanding and knowledgeable people are getting connected and absorbing more information. It is essential then to work on this whereby the Government continues to strengthen its focus on traditional advantages.
The industry may assist in being the projector of the nation's voice to the world through various ICT means for tourism-related activities.
What are the new challenges in a time when consumers are said to be spoilt for choice?
The electrical and electronics market is increasingly challenging, especially with so many brands, both local and foreign, getting their footing in the industry and consistently trying to get a bigger piece of the pie.
With market competition at such levels, pricing tends to have a bigger influence on consumers' decisions. Thus, fluctuation of prices cause a tendency to switch brands.
The new challenge is the need to strengthen brand loyalty among consumers. The lack of brand loyalty has opened a gateway for many brands of inferior quality to step in. This, we believe, is temporary as it is just a matter of time before consumers reverse their decisions when the need arises to repurchase similar products.
We intend to prove to them that Panasonic aims to provide consumers with the highest quality products that are value for money.
TAY KAY LUAN
ACCA Asean & Australasia
2007 was the year of increased awareness of accounting standards and professional integrity for corporate Malaysia. In your view, what will the trend be, moving forward?
Activities to raise greater understanding and acceptance of international financial reporting standards are likely to be accelerated, targeting boardroom members and corporate leaders.
Greater emphasis on the importance of ethics at workplace, improvements to corporate reporting and institutional reforms in corporate governance and developments are likely to be increased.
Capital market regulators should continue to educate and encourage corporations to “walk the talk” more to ensure corporate leaders do what they preach and to be seen as champions of integrity and accountability.
Corporations have a tendency to comply what they are asked. Good international practices require them to do more than that.
To make the capital market more attractive to overseas investors, emphasis should be placed on corporate responsibility leadership that puts professional integrity at the forefront of business. This cuts across investor relations, product development and marketing, customer relations, employee contributions and motivation, environment and minority shareholder engagement.
What are some of the improvements put in place and how should these put the corporate sector in a stronger position?
Recent Minorities Shareholders Watchdog Group surveys on corporate governance practices in the country indicate a high level of compliance among the Malaysian public listed companies.
Noticeable improvements can be seen in the adoption of code of ethics, inclusion of independent non-executive directors, separation of roles and responsibilities between chairman and chief executive, adoption of independent audit committees, corporate governance structure and processes. Compliance is not the same as best practices.
While there have been improvements, these developments are not widespread. The majority of the public listed companies still has a lot of catching up to do.
Improvements in corporate governance structure and processes must continue to take place. This will significantly improve the ranking of Malaysia in corporate governance standards and practice. Indeed, corporations will now have to go beyond compliance and to be ahead of global competition, they are expected to embrace the whole concept and virtues of corporate responsibility.
What should companies do to further enhance corporate responsibility and transparency?
The flat world we live in means two important things – the wider community will require corporations to be more accountable to the wider stakeholders and the interconnected world will demand corporations to be open, transparent and more aware of the power of the knowledge-based environment.
Corporations are therefore expected to fulfil their obligations beyond their financial responsibility by focusing on environmental and social issues and impact of their business operations and transactions.
These will include the need to be more transparent in the way they structure their governance responsibilities and directors' remuneration. They will also need to disclose the non-financial issues on resource extraction, business impact on community, employment matters and supply chain management.
Engagements with stakeholders including non-governmental organisations, employees, consumers and suppliers are also necessary.
Companies will also need to improve on their corporate responsibility reporting, consumer education and improve their communications on issues related to their business transactions – carbon dioxide emission, waste and pollutions, heath issues and product safety marketing.
What are some practices companies in Malaysia have already put in place that will benchmark them among the best in the world?
ACCA’s research has shown that companies in Malaysia now have an active agenda to review their ethical practices and to introduce policies to strengthen performance. ACCA is also encouraging employers in Malaysia to invest in their learning and development strategies as part of their overall approach to recruiting and retaining talented people.
As companies in Malaysia increasingly take advantage of opportunities of economic growth in the South-East Asian region and, more widely, in international markets, they will need to ensure that they offer leading human resource policies and practices.
Furthermore, companies are increasingly broadening their agendas with respect to governance and wider accountability. In particular, ACCA has witnessed an acceleration in companies taking an active interest in sustainability reporting and corporate social responsibility.
Alongside this, an agenda of enhancing governance – internal audit; strengthened audit committees; implementing good practice in relation to directors’ appointments and remuneration – add to the well-being of companies’ overall attractiveness as a prospect for investment, business partner, customers or employees.
Is your organisation planning any events or additional measures to boost monitoring of companies?
ACCA has an active agenda of research and thought leadership to highlight issues, which help companies understand best practice and drive change in their organisations. ACCA already has global programmes to help companies benchmark their learning and development policies and practices to international standards.
This is complemented by a system of global quality assurance, which ensures that all ACCA members adhere to our ethical codes and keep their skills and knowledge up-to-date.
Public conferences and seminars on ethics and professionalism will be included as part of our calendar of development activities for 2008. There will be the roll out of ethic modules within our new professional qualifications, the sharing of research on new standards on social responsibility, the training of directors on non-financial reporting and disclosures, public recognition of best practices in corporate responsibility and development of training modules on improving credibility of corporate responsibility performance of companies.
The suite of capacity building and education activities is to raise the standards of corporate responsibility and ethics among the people entrusted to lead their organisations and to promote public and stakeholder interest as part of their business accountability.
While a case can always be made for boosting monitoring and controls, ACCA’s emphasis will continue to be on a principles-based approach.
We aim to provide guidance to companies on a broad range of issues relating to the employment of finance professionals and best practice in financial management. In this way, companies will be able to monitor their own performance against relevant benchmarks and seek to boost performance through a cycle of continuous improvement.
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