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The 45% Drop In First Half Profits Of Telekom In 2005 Of RM 801 Million From RM 1,459 Million In 2004 Reflects Lower Earnings Potential And Requires Telekom Malaysia Bhd To Adopt A New Corporate Culture That Is Results-Driven, Technologically-Based, Ethically-Centred With Corporate Social Responsible(CSR).


Press Statement

by Lim Guan Eng  

(Melaka, Friday): The 45% drop in first half profits of Telekom Malaysia Bhd In 2005 of RM 801 Million from RM 1,459 Million in 2004 reflects lower earnings potential and requires Telekom Malaysia Bhd to adopt a new corporate culture that is results-driven, technologically-based, ethically-centred with corporate social responsible(CSR).

Telekom had claimed that the drop in profits was caused by a one-off cost of a voluntary separation scheme of RM RM 138 million this year and the absence of a one-time gain of RM 622 million from sale of assets last year. Telekom claimed that without these factors, income was 12.2% higher compared to last year.

However such claims do not impress investors who have sold Telekom shares causing its price to drop since the announcement of the 45% drop in first half profits. Looking at the earning potential, we can see that that despite the rise in operating revenue by 3.6%, EBITDA has dropped by 0.3% compared to last year.

Telekomís Financial Performance

1st Half 2005

(RM million)

1st Half 2004

(RM million)

% change

Operating Revenue

6,737.2

6,500.6

3.6

Earnings Before Interest Tax

Depreciation & Amortisation (EBITDA)

2,921.6

2,931.3

(0.3)

EBITDA Margins

43.4%

45.1%

(1.7)

Operating Profit After Finance Cost

1,024.4

924.5

10.8

Profit After Tax (after minority interest)

   800.6

1,459.3

(45.1)

The inability to control increasing operating costs concerns market investors who have sold down Telekom shares this morning. The time has come for a directorsí pay based on performance concept to improve performance of big Government Linked Corporations (GLCs) such as Telekom. For too long the lack of a results-driven approach has hampered the maximization of profits.

Top managers should be on a basic salary subject to a performance bar where they will not be given any allowances and incentives or even sacked if they fail to achieve a certain level of profits or a minimal percentage of rate of return on capital employed.

There is also a necessity for the GLCs such as Telekom to take the lead on technology, to invest in research and development where some reports estimate less than 5% of profits are ploughed back into research and development. Research and development and technology can ensure that Malaysia be more competitive internationally.

At the same time GLCs must be ethically-centred to establish integrity, prevent corruption and avoid scandals causing loss of public confidence. For instance no action has been taken over the MAS scandal even though police reports have been lodged by MAS directors over hundreds of millions of ringgit scandal in the air cargo contract involving the previous management.

GLCs must exercise CSR as they should give back to the society that allows them to make profits. Adequate compensation must be paid to those who are affected by their money-making ventures and the refusal to share the profits is not only unethical but also irresponsible. A good example is the intention of Tenaga to increase tariffs despite increasing its profits by 70% to RM 572.8 million.

Another example is the refusal by Petronas to share its RM 35.5 billion record profits with Malaysians, when Malaysians are forced to pay high prices. This failure to share profits is contrary to the fundamental principle that oil belongs not to Petronas but to all Malaysians, who have the basic right to enjoy the benefits of oil revenue.

For Telekom to improve requires a culture based on four key performance aspects that is:

o       results-driven,

o       technologically-based,

o       ethically-centred; and

o       with corporate social responsibility.

If these corporate reforms are successful over the next five to seven years, then only will the shares values of GLCs such as Telekom rise. To do so, DAP suggests that the government incorporate these 4 key performance aspects to ensure that GLCs not only make money as global champions but contribute positively towards the well-being and a better standard of living for Malaysians.


(26/08/2005)      

                                                       


* Lim Guan Eng, DAP Secretary-General
 

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