KMTB: PLANNING FOR STAND AGAIN

ABSTRACT

Keretapi Tanah Melayu Berhad (KTMB) is the main rail operator in

Peninsular Malaysia. The company was incorporated in 1992, but remains
wholly owned by the Malaysian government. The company has been loss-
making since its corporatization in 1992. Facing a total loss of RM240.161
million in 2012 triggers the president to conclude whether or not to turnaround
the company. Having problems with the management makes it hard to decide.
Due to some reasons, the employees started to complaint about the
managements role; or to be specific, the President of the company himself.
They started to question the presidents roles and demand his ouster.

Other than that, there are some flaws lies in its daily operations such as
breakdown of the system that caused the delayed schedule of the trains and
insufficient of infrastructures. The poor financial performance also contributes
to the losses of KTMB.

The President of KTMB, Dato Elias bin Kadir; needed to consider the best
steps and methods to be taken in order to turnaround the company without
incurring any more losses in the future.

PROLOGUE

It was the first working day of the week, Monday on 5th May 2014. After entered to
his office after lunch, Salina, the President's secretary called him via intercom. Encik
Azman, Dato' demands your presence at the meeting room, immediately. Encik Azman
replied, I thought they are having a meeting with the Board?

The meeting is over about an hour ago. You better hurry. Seems like something is
not right. Salina said. Encik Azman rushes to the meeting room without knowing what are
the reason that he'd been called so urgently like that. Without preparation to face the big boss,
he entered the meeting room.

1
 Do you aware of what had happened in our company? The first question comes out
from Dato' Elias shaken Encik Azman by lot. As far as I'm concerned, the most serious
issue arise is about the consecutive losses since the past three years. What is the matter,
Dato'? How can I help you? Dato' Elias then said that he was pushed by the Board to
provide a complete report to brief on what are the problems that trigger the issue. The Board
was in complete shocked upon being chased by the reporters and media regarding the picket
issue by KTMB employees last month.

Encik Azman then briefs a little bit regarding the problems in the company. I
acknowledge that there were trainings for our staffs upon received the funding from the
government. I don't think we should waste such funding for something that is not really
urgent and unimportant. Again, if I could mentioned, this training costs too much for a
company that facing a consecutive losses. As for management, I heard from our staffs that
there are lots of customers and passengers complaining about our transportation system.
They claimed that the trains often break down in the middle of its operation and caused
delayed in schedule. We are also received so many negative comments in our webpage.
However, I will try my very best to dig further about these problems. said Encik Azman.

I want the report to be presented to me latest by the end of this week. The sooner the
better. We need to figure this out immediately. Gather our skilled employee to brainstorming
on how to overcome these matters. Dato Elias said.

After coming out from the meeting room, Encik Azman asked his assistant; Hidaya,
to gather the head of departments to discuss about the issue. He called upon Encik Hilmi
from technical department, Cik Hazalina from financial department, Encik Mahendran from
business and operational department, and Encik Amzar from corporate service and training
department.

2
 COMPANY HISTORY

The Federated Malay States Railways (FMSR)1 was a consolidated railroad operator in
British Malaya (present day Peninsular Malaysia and Singapore) during the first half of the
20th century. Named after the then recently formed Federated Malay States in 1896 and
founded five years after the formation of the federation, the company acquired various
railways that were developed separately in various parts of Malaya, and oversaw the largest
expansion and integration of the colonies' rail network encompassing the Federated Malay
States, the Un-federated Malay States (except Terengganu) and the Straits Settlements, with
lines spanning from Singapore to the south to Padang Besar to the north.

KTMB is a non-listed; Limited Liability Company incorporated on 2nd October 1991.

The company reported an accumulated loss amounted to RM1.45 billion up to the year 2008
and that affected the railway transportation company that owned by the government could not
cover its own operational costs as well as its liabilities.

According to the report from 2006 to 2008, presented by Head of National Audit; Tan
Sri Ambrin Buang said, the financial performance of KTMB shows the unsatisfactory stage
due to the losses incurred for three consecutive years. KTMB also indemnified a total loss of
RM118.19 million in 2008 compared to RM82.81 million in previous year. Therefore, from
the year 1994 until 2008, KTMB has to get financial support in a form of injection of cash
funding amounted to RM760 million from Malaysian government. The increase of total
losses RM36.60 million or 44.5% in 2008 was due to the drastic increase in its operational
costs amounted to RM49.03 million. The increase was 9.6% higher than the total operational
costs for the year 2007.

1
Former name of Keretapi Tanah Melayu Berhad (KTMB)

3
 KTMB is still unable to pay the matured interest payment in July 2005 from five
loans amounted to RM880.5 million that acquired from federal government until December
2008. The company also did not make any payment for its liabilities ever since two to eight
years ago. This means that the interest payment should be made in 2010 and this situation
leads to outstanding of total interest payment increased to RM703 million. The payment will
end latest by the year of 2025. This leads to the payment of cash flow amounted to
RM1.43billion.

CORPORATE STRUCTURE

The chairman of KTMB is Dato Ir Hj Nawawi Hj Ahmad who also the Non-Executive
Chairman. He was appointed to the Board on 24 February 2014. He is the Member of
Parliament for Langkawi in Kedah.

The top management team comprise of Hj Hilmi Mohamad as SVP Technical,

Hazalina Abdul Rahman as SVP Finance, Mahendran a/l Suppiah as SVP Business &
Operations, and Afzar Zakariya as SVP Corporate Services & Planning.

4
Board of Directors

Director
Y.BHG.IR DATUK NAWAWI AHMAD
Y.BHG. DATUK ELIAS BIN KADIR
Y.BRS. PUAN NORAZURA BINTI
TADZIM
Y.BRS. PUAN RUHAIZAH BINTI
MOHAMED RASHID
Y.BRS. ENCIK SELVARAJOO A/L
MANIKAM
Y.BHG. DATO SRI ZAKARIA BIN HJ.
BAHARI
Y.BRS. TUAN HAJI ROSLI BIN
ABDULLAH
Y.BRS. ENCIK HARUN BIN HJ. JOHARI
Y.BHG. DATUK KAMARUZAMAN BIN
HJ. MOHD NOOR
Y.BRS. SR. AHMAD ZAINUDDIN BIN HJ.
JAMALUDDIN
Role
Chairman
President
Non-independent, non-executive directors
Non-independent, non-executive directors,
Independent non-executive directors
Non-independent, non-executive directors
Independent, non-executive directors
Independent non-executive directors
Independent non-executive directors
Independent non-executive directors
Independent non-executive directors

Top Management Team

Top management Role

HJ HILMI MOHAMAD SVP Technical

HAZALINA ABDUL RAHMAN SVP Finance
MAHENDRAN A/L SUPPIAH SVP Business & Operations
AFZAR ZAKARIYA SVP Corporate Services & Planning

Audit Committee

Mohd Ezane Zainen

Figure 1 Organization Table (After Revision)

DAILY OPERATION

Keretapi Tanah Melayu Berhad (KTMB) has several units that operate beneath the
KTM Intercity, KTM Cargo, KTM Commuter and KTM Distribution. It operates every day,
form Monday to Sunday.

5
 The 1,000 mm (3 ft 3 38 in) gauge railway network in Peninsular Malaysia which is
controlled by KTMB consists of two main lines and several branch lines. Which the two main
lines are West Coast line and East Coast line. There are several branch lines running from
two main lines such as Intercity & Freight, Commuter & Freight, Freight only, Depot and
Disused.

En. Azman wondered why the loss occurred consecutively in financial performance.
The use of KTM Commuter during peak hours had reached 1.4 times the passenger limit as
the commuter coach could only carry 150 passengers but now it had to carry 200 passengers
at any given time. Of these, this causes discomfort to the passengers and also resulted in
several other problems cropping up including maintenance, delays in scheduling and the
cancellation of services. Perhaps, consumers may choose to option for their private vehicles
as mode of transport for daily tasks.

In the area of rail transportation, KTMB has undertaken many mega railway projects
with the assistance of the Government that will bring long term development both in terms of
economic growth as well as significant improvement in rail transportation both in passengers
and cargo services. In terms of passenger conveyance, KTMB has over the years through
Government funding introduced new services such as Electric Train Service (ETS) and Six
Car Sets (SCS) Commuter services to improve the frequency of trains to fulfill the demand
from the general public.

On 8 March 2012, the government had invested RM1.9 billion to acquire 38 sets of
sophisticated MyKomuter trains which would be absorbed into the KTMB services in stages.
KTMB increased its trains passenger capacity with additional six-car train sets, which are
twice the length of its current three-car trains sets used for the Commuter service. This
initiative would not stop at the Klang Valley but would be extended throughout the country.

6
 It also reduced the waiting time from 30 minutes to 15 minutes in 2012 during the
peak hours. Punctuality of commuter services also increased in 2012. All these trains had
passed the stringent standards set by the international commissioning agency, namely the
TUV2 (Technical Inspection Association).

Members of the public using MyKomuter service would receive free coupons to board
the train worth RM2 which could be used for a six-month. However, KTMB also provided a
50% discount for the purchase of weekly tickets, and free transport for student wearing
uniforms, the handicapped, and senior citizens for six months.

FINANCIAL PERFORMANCE

Since it was corporatized in 1992, KTMB had faced serious losses because of higher
operating cost from its operating such as freight, intercity, and commuter train services, and
property and advertisement. However, KTMB have made the profits between RM 9 million
and RM 15 million from 1993 to 1995.

At the office, En.Azman feels wondering and really anxious because think about
companys poor financial performance. KTMB is currently loss-making and they are hope
that they will find ways to increase revenue and decrease their operational expenses which
are increasing time by time. KTMB want to maintain low fares to passengers and it causes
KTMB face higher operating costs and maintenance cost.

Besides that, in 2012 KTMB had launched new services Electric Train Service (ETS)
and Six Car Sets (SCS) Commuter services in order to improve the frequency of trains to
fulfill the demand from the general public. KTMB also organized training and teambuilding
for its employees. So, all of these is lead to the high cost and contribute to the lost on that
time.

2
TVs (short for Technischer berwachungs-Verein, Technical Inspection Association in English) are German
organizations that work to validate the safety of products of all kinds to protect humans and the environment
against hazards. As independent consultants, they examine plants, motor vehicles, energy installations, devices
and products (e.g consumer goods) which require monitoring. The many subsidiaries of the TVs can also act
as project developers for energy and traffic concepts, as problem solvers in environmental protection, and as
certification bodies. Many of the TV organizations also provide certification for various international
standards, such as ISO9001:2008 (quality management system) and ISO/TS16949 (automotive quality
management system).

7
 The financial statements show that KTMB obtain losses of RM103,486 million in
2011, RM240,161 million in 2012 and RM219,032 million in 2013. This indicates that
KTMB failed to increase the revenue since they faced losses in prior years. The performance
of the financial statements of company show unsatisfactory level due to the losses incurred by
them. Therefore, En.Azman needs to find a way to turn around the company.

The loan made by KTMB in previous years has led an increase in interest of loan and
the amount of interest accrued up to RM703 million. Therefore, KTMB had to get financial
funding amounting to RM760 million from the government.

MANAGEMENT

On April 2013, the management of the KTMB Komuter service was deliver on what was
promised, that is to upgrade the facilities to contribute to improve the citys public transport
system. However, there is still room for improvement such as the upgrading the signages,
park-and-ride facilities, more disable-friendly facilities and passenger information system.
KTM union workers expressed disappointment with the contract extension of Dato
Elias Bin Kadir as KTMB president for two years from 1st August 2011 to 31st July 2013.
This is because of ineffective leadership and he is not performing his jobs well in generating
a good income and has led to a loss for KTMB.

Since 2011, there were employees unsatisfactory which is ask for increase their salary
to 12% and prolonged until 2014 when they want KTMB replace their current president,
Dato Elias Bin Kadir due to failed to execute his duties effectively and failed to turnaround
the KTMB. Because of that, the KTMB workers run the picket in 2014 and demanding the
ouster of their president.

PUBLIC RAILWAY TRANSPORTATION INDUSTRY

The KTM personnel elaborated about the KTM Hybrid Trains, which consists of a
set of KTM Komuter EMUs, a generator wagon and a diesel locomotive. Since KTM Berhad
did not get new trains, they used every single resource that they have to mitigate the
congestion, especially during morning and evening rush hours.

8
The effort put the KTM workforce and management shows that they have been working
incessantly to ensure the best service experience possible for the customers.

Currently, the addition of ETS trains as well as six-car-sets (SCS), KTM Berhads
workforce can work more efficiently and focus their effort to improve on other aspects of the
service. The improvement on infrastructure has enabled KTM Komuter to stand on par with
other service providers, such as Rapid KL LRT and KL Monorail.

The public transportation system improvement of KTM Berhad had miss of attention
towards future population growth is evident in Puduraya construction, in their planning to
plan really needs to be future-proof resulting in heavy congestion around the area these days.

To moderate the congestion, additional express bus terminals are being constructed such as
Bandar Tasik Selatan Integrated Southern Terminal and Hentian Duta. The Government
should consider having better combination across these terminals in the future in order to
provide smoother transit between bus terminals for added travelers convenience.

Tun Dr. Mahathir Mohamad had stated carefully in his ambitious plan of having KL
International Airport (KLIA) some 60 km away from Kuala Lumpur. Although KLIA is far
from the city centre, the robust integration between KLIA and the city can be seen in the
construction of highways and establishment of KL Sentral as the central terminal in the city
and KLIA Ekspres, a high speed rail service that links KL Sentral and KLIA. A speedy 28-
minute ride between KL Sentral and KLIA makes short-term visits to KL while being in
Malaysia for flight transit more appealing. The added number of tourists in Kuala Lumpur
also means the added amount of cash inflow.

Further information in the overseas situation in the New York City, the existing
building of Grand Central Terminal in Manhattan still stands toughly today although it was
constructed more than 100 years ago. The future-proofing of the planning and designing
process take careful consideration of future population and tourist growth. The end result is
clear; The Grand Central Terminal remains relevant and provides excellent traveling
experience for regular commuters and tourists alike.

The public railway of the KTM Berhad is contracted to the Global Rail. Global Rail
was founded in July 2007 by a group of industry experts having vast experience in railway
projects in Malaysia. It has grown over the years to serve the railway industry in Malaysia

9
with its expertise in the field of electrification, signalling and communication for both metro
and mainline. This scope of expertise also involves design, supply of materials, installation,
testing and commissioning, project management and maintenance. In-house resources have
expertise in various standards and best practices.

Customers needs and adapting the work process important for concentrating on the
achievement results effectively and efficiently is an integral part of our corporate philosophy.
Global Rail strives to provide top quality services at a competitive price. It aims to deliver not
only fast, innovative and total systems solutions, but improved after-sales service that enables
customers to achieve their business goals. We are ISO 9001, 14001, 18001 certified
companies. Our accreditation ensures utmost safety and high quality services. We are
associated with international bodies to constantly monitor the quality of our manpower.

EPILOGUE

En.Azman was thinking to find a new strategy in order to identify the causes for companys
poor financial performance, employee issues and to improve the companys management and
operation. Meanwhile, En.Azman convinced himself that KTMB will fall down if the director
of company is dont be replace and will affects the reputation and image of company. He
knows that the new strategy will be not easy to be implemented because the company is faced
with serious problems.

10