Hitting the reset button for corporate Malaysia

Corporate restructuring

TWO years ago, video conferencing was a tool used by only a few. Company officials preferred meetings in person even if it meant travelling abroad to seal a deal, or go through lengthy negotiations.

Staff meetings were mostly in the office, and face-to-face. Today, almost all of that is conducted online.


Despite a partial return to normalcy as we know it, video conferencing does look like it is here to stay. It has proven to be an effective and cheap means of communication.

But what the Covid-19 pandemic brought was to force organisations to adapt to changes. It has been a litmus test of resilience. Companies are facing not only changes in the way they conduct day-to-day business but also how they face an economic crisis.

Consumer behaviour has changed and so too has the mindset of investors and stakeholders. For some time now, investors have been opting to put their money into companies with strong environmental, social and governance (ESG) credentials.

A huge amount of money is going into ESG-related funds. According to S&P Global, in 2020, ESG funds in the United States reached US$51bil (RM212.64bil) in assets under management, doubling from 2019 and a 10-fold jump from 2018.

Key issues: A man works at a construction site in Seremban. The pandemic, coupled with recent ‘climate disasters’, has exacerbated social challenges such as rising inequality, growing human rights abuses in supply chains and collapsing social safety nets. — BernamaKey issues: A man works at a construction site in Seremban. The pandemic, coupled with recent ‘climate disasters’, has exacerbated social challenges such as rising inequality, growing human rights abuses in supply chains and collapsing social safety nets. — Bernama

It is expected that ESG funds globally would surge to US$53 trillion (RM220.98 trillion) by 2035.

“Companies are taking matters surrounding ESG and digitalisation more seriously based on the recognition of the risk of fading into oblivion if they fail to be forward-looking in their approach,” says KPMG Malaysia head of sustainability Kasturi Nathan.

She points out that economic disruptions during the ongoing pandemic have brought to light the urgency towards more sustainable consumption and production life cycles.

“We’ve seen how companies are pushed to the limits of operational viability when they continue to utilise scarce and non-renewable resources, prioritise sales of new products, and fail to collaborate, innovate or adapt.

“In contrast, a company with a sustainable or circular economy mindset will be well insulated from value chain disruptions because it will have engineered a way to extract limitless value from its resources,” Kasturi adds.

Berjaya Corp Bhd (BCorp) CEO Abdul Jalil Abdul Rasheed says ESG adoption by corporations like Berjaya is a natural progression.

“Sustainable investing is no longer a fringe subject and is very much here to stay. It is critical not just because of the obvious ‘green’ issues but because strong performances across the pillars of ESG suggest that a business commands some level of resilience,” he tells StarBizWeek.

While the ESG concept is not new, it is brought into focus after large Malaysian corporations such as Top Glove Corp Bhd, FGV Holdings Bhd and Sime Darby Plantations Bhd were alleged to have questionable labour practices.

It took more than a year for Top Glove to resume selling its glove products to the US after it was banned by the US Customs and Border Protection last July.

Another palpable change taking place in corporate Malaysia is the efforts being taken by giants such as national oil company Petroliam Nasional Bhd and utility provider Tenaga Nasional Bhd to lead the way by announcing their commitment to have net-zero carbon emissions by 2050.

Technology turbo-charged

Jalil of BCorp notes that the prerequisite for post-pandemic success is agility, namely the ability to pivot and make business decisions quickly, a process that traditionally took longer.

And that the adoption of technology is no longer a competitive advantage but an “absolute necessity.”

“Covid-19 has presented itself as an opportunity for the Berjaya Group to identify our core strengths while putting a spotlight on areas of distress.

“One of our first objectives is to streamline the business so as to create clarity, synergy and greater transparency,” he says.

In the next two years, he reckons that BCrop will be focusing on mining the value of its assets that will eventually turn it into a strong and agile investment holding company.

BCorp is a diversified conglomerate, with 109 subsidiaries, associated companies and joint ventures.

Under its new strategic plan, BCorp plans asset divestments worth RM2bil over two years and RM5bil over five years and a reduction of its debt level from RM5bil to RM2.5bil over three years. It is also implementing a dividend policy for all operating companies.

Forecasting mega trends

Ernst & Young PLT Malaysia turnaround and restructuring strategy leader Datuk Stephen Duar says many corporations were “woefully underprepared” when the pandemic emerged.

This was despite the fact that “infectious diseases” was cited as one of the top 10 global risks in the World Economic Forum’s (WEF) Global Risks Report 2020.

Hitting reset buttonsHitting reset buttons

“As we have witnessed during the pandemic, most corporates and businesses have limitations in forecasting mega trends, which are trends and forces outside their usual scope of analysis, and understanding what the drivers are for long-term risk and opportunity,” he says.

Duar says the pandemic has revealed inherent weaknesses in many business models.

He says digital and technological disruptions have already been underway in recent years but the pandemic has intensified its pace.

“For example, the prolonged movement control order (MCO) has forced many corporations to rethink their business delivery model in response to shifts in consumer purchasing behaviour.”

He adds that the pandemic, coupled with recent “climate disasters”, has exacerbated social challenges such as rising inequality, growing human rights abuses in supply chains and collapsing social safety nets, especially in developing countries.

“For example, calls for action against labour abuses, such as insufficient health and safety measures and wage cuts amid the Covid-19 pandemic, has resulted in companies having to issue public statements on their practices and making commitments on better employment practices.

“As more issues are being mainstreamed and openly discussed, more companies are beginning to understand that considering ESG risks and opportunities is not just good business but an imperative strategy to maintain the social licence to operate, regardless of sector or industry,” Duar says.

This week, British American Tobacco (M) Bhd laid out its sustainable strategy dubbed “A Better Tomorrow” with the aim of reducing risks associated with smoking cigarettes as part of its new strategy focusing on sustainability.

“We will work to reduce the health impact of our business and at the same time champion environmental, social and governance excellence.

“We believe this will drive the company’s long-term business sustainability and create shared value for consumers, society, employees and our shareholders,” BAT Malaysia legal and external affairs head Nicholas Booth said at a press conference on Tuesday.

The tobacco company also said it will be benchmarking itself against the FTSE4Good Bursa Malaysia ESG rating.

The FTSE4Good index is used to measure companies that meet ESG compliance set by FTSE Russel. Right now, there are only 76 companies listed in the index out of 933 listed companies on Bursa Malaysia.

Facing a difficult situation

Some companies are also facing declining earnings and tight cashflow due to the pandemic, which are driving them to restructure.

Take the case of Boustead Holdings Bhd. While the company has announced its digitalisation plan, it is also in the race to sell its assets and non-core businesses to improve its depleting cash and pare down its huge debt that stands at RM7.5bil.

Boustead, however, has not elaborated on its digitisation efforts, which has drawn some criticism from the market as the group is very much a brick-and-mortar company trying to shake off some legacy issues.

The aviation industry has also been hit. Driven by the bleak outlook, AirAsia has been quick to enhance digitalisation, pivoting into e-commerce, ride-hailing, food delivery and growing its logistics arm Teleport.

AirAsia is also raising funds to keep its airlines business afloat.

Since the pandemic, the company has gone through almost various means to raise funds including private placements, rights issues and government-guaranteed loans.

AirAsia’s digitalisation efforts started in 2016 and are starting to pay off. AirAsia expects its non-airline revenues to contribute up to half of group revenue in the next three to five years, and gradually overtake the airline revenue.

The group is now working on creating what it calls an Asean super app, which aims to offer all its services on one platform.

Deloitte Malaysia CEO Yee Wing Peng notes that there could be a significant cut in air travel post-pandemic as more companies embrace technology and digitalisation.

“As an international firm with global offices worldwide, Deloitte also recognises the impact of our carbon footprint. In April 2021, we launched the Deloitte WorldClimate initiative, where we pledged to achieve net-zero carbon emissions by 2030, and one of the key initiatives is to cut air travel,” he says.

He expects more “distress-related” mergers and acquisitions to take place in the hospitality, aviation, retail, wholesale and automotive sectors.

He reckons that companies now have changed their strategies, moving from “acquiring for growth” to “acquiring to transform”, with technology being the main focus.

“Companies that take advantage of this can implement new business and operating models for a combined or separate entity, and drive significant revenue growth and sustainable margin improvement,” he says.

According to PwC Malaysia deals leader Victor Saw, at the onset of the pandemic, many companies in Malaysia adopted the “wait-and-see” approach believing that they had sufficient cash reserves to sustain themselves through the pandemic.

“Clearly, many thought the pandemic would only last for a few months. The continuous lockdowns, however, have put a significant strain on their cash reserves and as the economy begins to open up, the demand for working capital has never been more critical.

“We are seeing a greater number of companies wanting to divest their non-core assets in order to shore up liquidity and allocate their resources towards their core business as government assistance and moratoriums come to an end,” he says.

Based on PwC Malaysia’s 2021 “Act Now To Recover” survey on business recovery among Malaysian business leaders and owners, he says about 65% of respondents have used a rapid cost-reduction programme to help relieve operational and liquidity pressures.

In the short term, he believes that corporations may want to place greater scrutiny on their cash and working capital requirements to be more agile.

“The journey to recovery is certainly challenging yet it also presents an opportunity for businesses to reinvent themselves to continue to stay relevant to the market’s needs.

“This may mean that corporations need to continuously reassess their business model amid significant disruption caused by the pandemic to not only stay afloat but to survive and thrive,” Saw says.

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