KUB looks for another fresh start

-A +A

Despite its reputation as an Umno-linked company, KUB Malaysia Bhd has had a difficult time living up to its pedigree. Loss-making for a number of years despite a fairly steady stream of government contracts, it was at times unclear what the company’s core business was.Even its current managing director, Datuk Mohd Nazar Samad, admits frankly that the company was previously lacking in direction. “It was the lack of focus that affected KUB. To project it as a big company was wrong and costs money. There is no need for extra frills,” he says, in an interview with The Edge.Now, after two years of intensive restructuring, Nazar says the company has managed to narrow its scope to three defined areas.“Our main segments now are information and communications technology (ICT), property, engineering and construction (PEC) and food-related. Everything else is non-core, most of which we are in the process of disposing of,” he says.During those two years, the company sold its interests in Universiti Tun Abdul Razak, KUB Tekstil Sdn Bhd and Tele Dynamic Sdn Bhd.While the aggressive streamlining of KUB has resulted in the company returning to the black in its FY2008 ended Dec 31, enhancing the strength of the company’s books remains Nazar’s main concern.“For me, the most important achievement is that the company is now operationally profitable,” he says. For FY2008, KUB managed to post an operating profit of RM18.7 million compared with a loss of RM78.4 million the year before.Nazar is also quick to point out that the disposals have left KUB with a decent cash pile for the first time in years. As at the end of last year, KUB’s cash and cash equivalents came up to RM213 million, while its short and long-term debts totalled RM128 million.Although it is clear that KUB has managed to turn a corner, the question now is whether it will be able to sustain its momentum. Going forward, Nazar says the company is planning to use its cash to enhance each of its core segments as well as to move away from its traditional project-based earnings model. At the moment, around 70% of KUB’s revenue comes from ICT and PEC projects. “What we are trying to do now is find a niche within each of our three core businesses that will give us a recurring income stream. Ideally, we would like to see an equal split between the two,” says Nazar.The niche he refers to includes offering facilities management services for buildings constructed under its PEC segment and managed services for its ICT clients.In fact, it was the search for a steady income stream that was the reason behind KUB pulling back its decision to dispose of its food-related business, which comprises fast-food franchise A&W (M) Sdn Bhd and plantations in Johor and Sarawak.The decision not to sell A&W, in particular, came as a surprise as KUB had been open about seeking a buyer for the flagging franchise for a number of years. Even more eyebrows were raised when the company decided to keep its plantation business as crude palm oil prices turned volatile.However, Nazar defends his decision to keep KUB’s food segment, saying that both provide the company with sustainable income. “It was clear to me that these two businesses could be built up and contribute positively to the group in the long-term. So I managed to convince the board to reverse its decision and keep both,” he says.KUB has already beefed up efforts to build up the A&W brand by refurbishing its existing 31 outlets, with plans to open another six outlets by this year, despite the economic downturn putting a damper on consumer spending.“Despite the bleak conditions, it’s actually a good time to build up the business as raw materials have become cheaper. We now can afford a wider choice of locations,” says Nazar.Also, while he admits that although KUB’s small plantation size of less than 8,000ha leaves the company neither “here nor there” as a plantation player, he expects to see improved contributions from the sector in just one to two years.“We are planning to invest in some decent infrastructure that will help to improve the yield,” he says.As for KUB’s two other businesses, Nazar expects PEC to be the main contributor for the group in the near term, banking on its newly-acquired expertise in industrialised building system (IBS) to give it an edge.“Now that the government has specified that all its new buildings will be outfitted with IBS, it gives us an advantage,” he says. At the moment, KUB’s contracts in hand for its PEC units are worth some RM300 million.Nazar is also cautiously positive on increasing its order book for its ICT division, citing its established track record.“Currently, our ICT contracts are worth RM120 million and we have a few more in the pipeline. While the value of each project is admittedly small, it does add up. We are targeting a revenue of just over RM1 billion for FY2009,” he says.However, Nazar does not mince words when he says KUB still has miles to go, not only in turning around its performance but also changing investors’ perception of the group.  Even with the restructuring, critics still say the three segments are too broad and that the group’s businesses are still too scattershot.“It’s a slow start, but a start regardless,” says Nazar.

This article appeared in the Corporate page, The Edge Malaysia, Issue 745, March 9-15, 2009