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Government Linked Companies Transformation (GLCT) Programme MALAYSIA

Presenter:Abdul Aziz Abu BakarCEO, Malaysian Directors Academy (MINDA)ICPE High Level Meeting – Ljubljana, Slovenia

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Sypnosis of GLC Transformation - MalaysiaSypnosis of GLC Transformation - Malaysia

Government Linked Companies (GLCs) are an integral part of the Malaysian economic engine. They provide mission critical services, catalyse developments in strategic sectors and employ hundreds of thousands of workers.

However, GLCs historically underperformed the broader Malaysian market, both financially and operationally, a trend that risk derailing our efforts towards Vision 2020. In 2004, we thus launched the GLC Transformation (GLCT) Programme with the dual aims of enhancing economic performance and accelerating the country’s social and economic developments.

The journey to date has been challenging. We had to address old mentalities. We are already starting to see tangible results following the successful launch of all the 10 initiatives. We have built strong economic fundamentals, and improved GLC governance and transparency. We have increased our focus on Human Capital development. We have also seen the successful execution of turnaround programmes in situations once thought impossible.

Vision 2020 is on the horizon…there is still much more to be done.

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AGENDAAGENDA

1. GLCT overview

2. Progress to date

3. The way forward

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DEFINITION OF GLC - IN THE CONTEXT OF GLCT DEFINITION OF GLC - IN THE CONTEXT OF GLCT PROGRAMMEPROGRAMME

• The Programme only covers GLCs held by Federal Level GLICs

• GLCs are companies where

- GLICs are either the majority or single largest shareholder

- GLICs have ability to exercise and influence e.g. Appointment of Boards and Senior Management (via NRC) Nominee Directors of Ministry of Finance Inc. Remuneration and Benefits (KPIs based for EDs) Award of tenders and contracts (via Board) M&A, divestment, strategy, restructuring and financing, etc.

Source: GLC Transformational Manual, July 2005

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1951EPFestablished

1957

1969Maybank becomes government owned

1972LTATestablished

1979Sime Darby is Malaysianised

1962LTHestablished

1978PNB established

1983

1985Proton launch first model

1987Jabatan TelekomCorporatised

1992Malaysian Airport and Postal Department provatised

1994KNB began operations1994

1997 2000 CURRENT

1999Bank Bumiputra merger withCommerce Bank

Industrialisation and moving up the value chain

Rapid economic growthand privatisation

FinancialCrisis

Recovery and

restructuring

GLCTProgramme

2002MAS widespread assetunbundling exercise

2001Financial Sector Masterplanannounced1970

Launch of New Economic Policy(NEP)

1981Launch of HeavyIndustrialisation Programme

1990Lembaga Letrik NegaraCorporatised

1998Danaharta established

2005

Malaysianised GLCsValue adding to

Malaysia’s Natural resources

Corporatised Providing Essential

Public ServicesRecapitalised and

Restructured Recovering from the

CrisisFinancial Institutions

Becoming internationally

competitive

HISTORY AND EVOLUTION OF GLCsHISTORY AND EVOLUTION OF GLCs

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PCG

GLICs

GLCT Programme is driven byGLCT Programme is driven byThe Putrajaya Committee On GLC High Performance (PCG) The Putrajaya Committee On GLC High Performance (PCG)

GLCs

Prime Minister as Chair

TH Plantations Berhad

Khazanah is PCG Secretariat

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GLCs ARE MAJOR CONTRIBUTORS TO THE NATION GLCs ARE MAJOR CONTRIBUTORS TO THE NATION

95%

5% GLCs

Non-GLCs

64%

36%33 Public

listed GLCs

Approx. % to Companies listed at Bursa Malaysia

Approx. % contribution to Bursa’s total Market Capitalisation (USD 440

Billion)

GLCs

Non-GLCs

National workforce

GLCs account for around 5% of the national workforce

(400,000 employees)

Significant part of the economy

Mission critical service

provider TransportationTelecommunications EnergyBanking &

Financial Services

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GLC Transformation Programme is now in its 7GLC Transformation Programme is now in its 7thth year year

2005 2006 2007 2015

Phase 1: Mobilisation, Diagnosis & Planning

Phase 2: Generate Momentum

Phase 4: Full National Benefit

5/2004

29th July 2005 Transformation Manual

Launch Policy Guidelines Ten 2005/6

Initiatives

14 months 12-17 months2-5 years 5-10 years onwards

2005/2006 Initiatives implemented

Full roll-out in place Key policies endorsed

and executed upon Early fruits of

sustainable improvements

Maintain momentum Tangible & sustained benefits

across GLCs Visible benefits to all stakeholders,

e.g. customers, vendors, employees

Large scale strategic and financial changes made

Material changes to Boards

Several regional champions Most GLCs performing at par

with competitors

Key Performance Indicators (KPIs)

Performance Linked Compensation (PLCs)

Performance contracts

Board composition reform

Revamp of Khazanah GLC leadership

changes

2010

1/2005

Diagnosis of GLCs conducted

Determination of Policy Principles

Initial 2004 Initiatives launched

Outcomes:

2004 Measures PCG formed

2004

Phase 3: Tangible Results

We are here

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THE PROGRAMME IS BASED ON 3 UNDERLYING THE PROGRAMME IS BASED ON 3 UNDERLYING PRINCIPLES AND 5 POLICY THRUSTSPRINCIPLES AND 5 POLICY THRUSTS

Policy Thrust 1: Clarify the GLC mandate in the context of National Development

Policy Thrust 2: Upgrade the effectiveness of Boards and reinforce the corporate governance of GLCs

Policy Thrust 3: Enhance GLIC capabilities as professional shareholders

Policy Thrust 4: Adopt best practices within GLCs

Policy Thrust 5:Implementing the GLCT Programme

UNDERLYING PRINCIPLES OF GLCT:

1.National development foundation

2.Performance focus

3.Governance, shareholder value and stakeholder management

Supported by 10 overarching themes of initiatives (now commonly referred to as coloured books)

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By 2006, all the 10 GLCT Initiatives were launched.By 2006, all the 10 GLCT Initiatives were launched.

Enhancing Board

Effectiveness (GREEN)Apr 2006

1 Strengthening Directors

Capabilities (MINDA)Dec 2006

2 Enhancing GLIC

Monitoring & Management

FunctionsDec 2006

3 Improving Regulatory

Environment(WHITE)Sep 2006

4 Achieving Value Through Social Responsibility

(SILVER)Sep 2006

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Reviewing and Revamping

Procurement Practices (RED)

Apr 2006

6 Optimising Capital Management

Practices (PURPLE)Dec 2006

7 Strengthening Leadership

Development(ORANGE)Dec 2006

8 Intensifying Performance Management

(BLUE)Aug 2005

9 Enhancing Operational

Efficiency(YELLOW)Sep 2006

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Why is Why is

GLC transformation GLC transformation

needed?needed?

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Reason #1Reason #1

They play a significant

role in Malaysia’s

economy

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Reason #2Reason #2GLCs underperforming the

market over past 15 years prior

to 2005

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Reason #3Reason #3Time to Vision 2020 is short

(15 years left when GLCT

started)

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Reason #4Reason #4

Increasing market

liberalisation and competition

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Reason #5Reason #5

Malaysia is caught in the

middle income trap

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AGENDA

1. GLCT overview

2. Progress to date

3. The way forward

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Domesticchampion

Regional champion

Global champion

v3.0

v4.0

v5.0

v2.0

GLC Starting Point

Performance(e.g. Profitability, Growth, Market Share)

Comparable toTop Domestic

Peers

Comparable toTop Regional

Peers

Comparable to Top Global Companies

Examples of Metrics for Success:

Scope(e.g. Geography, No. of Markets)

Capabilities(e.g. Operations, branding, etc.)

Scale(e.g. Revenues)

Majority of Current GLCs

GLCs

[All GLCs by 2015]

[Several GLCs by

2015]

Resilience (e.g. against systemic and non-systemic risk)

v1.0

GLCT ASPIRES TO CREATE REGIONAL CHAMPIONS BY GLCT ASPIRES TO CREATE REGIONAL CHAMPIONS BY 20152015

19Source: G20 Financial Reports, Bloomberg Analyst Consensus Estimates and PCG Analysis

G20 AGGREGATE EARNINGSG20 AGGREGATE EARNINGSRM bn

FY2004 FY2010

17.3bn

9.6bn

17.8% annual growth rate since 2004

Compares favourably to: KLCI EPS growth rate of 6.5%GDP growth rate of 8%over the same period

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G20 MARKET CAPITALISATIONG20 MARKET CAPITALISATION

Source: Bloomberg

RM bn

195

354

15 Jun 11

123% increase

21Source: Bloomberg

G20 TOTAL SHAREHOLDER RETURN GREW BY A G20 TOTAL SHAREHOLDER RETURN GREW BY A COMPOUNDED ANNUAL GROWTH RATE (CAGR) OF 16% COMPOUNDED ANNUAL GROWTH RATE (CAGR) OF 16% OVER THE PAST 7 YEARS, OUTPERFORMING KLCI BY 2.1%OVER THE PAST 7 YEARS, OUTPERFORMING KLCI BY 2.1%

G20

FBM KLCI

90

140

190

240

290

May-04 Dec-04 Jul-05 Feb-06 Sep-06 Apr-07 Nov-07 Jun-08 Jan-09 Aug-09 Mar-10 Oct-10

100 =14/5/04

15 Jun-11

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Transformation Transformation

transactionstransactionsTurnaroundsTurnarounds Regional Regional

GrowthGrowth

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GLCs Have Brought Increasing Benefits To All StakeholdersGLCs Have Brought Increasing Benefits To All Stakeholders

COMMUNITY AND CSR CUSTOMERS

EMPLOYEES & HUMAN CAPITALVENDORS AND SUPPLIERS

GLCs BENEFIT ALL

STAKEHOLDERS

• Study on impact of GLCT on GLC Employees - welfare of G20 employees improved since

Programme began in 2004

• >130 vendors graduated under Vendor Development Programmes

since 2004

• 4349 families have benefited across the nation

• 34 members adopting 222 schools, benefiting 110,000 students

• In 2010, 11.15% straight ‘A’s students from PINTAR schools vs National Average of 10.2%, an increase of 1.53% from 2009

• TNB organises trade mission to promote its vendors’ products overseas & more than 10

vendors have ventured into foreign markets to-date

Source: GLC reports

Source: GLC reportsSource: PCG, GLC reports

Source: PCG, GLC reports

• Proton & CIMB collaborated to provide financial assistance to their dealers

• BIMB, Boustead, Proton, UMW received best product awards

• Axiata, CIMB, MAHB, MAS, Maybank, Pos, TM & TNB received best service provider awards

• TM’s vendor IC Microsystem awarded Malaysia’s Top Most Innovative SME in 2010

with RM 1 Million grand prize

• Over 6,000 unemployed graduates have benefited with 82% employability rate

• G-GLC Cross Fertilisation Programme 2nd Cycle, 32 participants cross assigned

to increase public-private cooperation

• GLC-GLC Cross Assignment Programme 3rd Cycle, 12 participants cross assigned to

develop talent

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AGENDA

1. GLCT overview

2. Progress to date

3. The way forward

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INVEST MALAYSIA 2009INVEST MALAYSIA 2009

• The Govt. is committed to

ensure GLCT continues to be

implemented, if anything with

greater urgency and focus

• GLCs must aspire to greater

heights, whether best in class or

emerging as future regional if not

global champions

Source: Prime Minister’s Keynote Address at Invest Malaysia Conference 2009

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Towards The New Economic Model (NEM)Towards The New Economic Model (NEM)

1 Malaysia - People First, Performance NowPreservation and Enhancement of Unity in Diversity

10th & 11th Malaysia Plan Roll-OutMacroeconomic growth targets & expenditure allocation

Implementation of Government’s Development Programmes

Government Transformation

Programme (GTP)

Efficient Delivery of Government Services

Economic Transformation Programme (ETP)

National Key Economic Areas

Strategic Reform

Initiatives

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5 ROLES OF GLICs AND GLCs IN THE NEW ECONOMIC 5 ROLES OF GLICs AND GLCs IN THE NEW ECONOMIC MODEL (NEM)MODEL (NEM)

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But issues & But issues &

challenges challenges

remain !!remain !!

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The massive gap in

talent, execution skills

and capabilities at

GLCs

Source: GLCT Programme Mid-Term Progress Review, March 2009

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Developmental vs

commercial roles of

GLCs ?

Source: GLCT Programme Mid-Term Progress Review, March 2009

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Continued & broader

support from all

stakeholders

Source: GLCT Programme Mid-Term Progress Review, March 2009

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Need to enhance public

sector transformation in

parallel with GLCT

reforms

Source: GLCT Programme Mid-Term Progress Review, March 2009

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terima kasih !terima kasih !