The Practice of Investor Relations: A Case Study at Konsortium

Transnasional Berhad

Zainol Abidin Ahmad, USIM

Introduction

For years, investor relations (IR) was considered by many to be an

euphemism for the clubby chats that top executives had with their brokers or the

telephone calls made from boiler rooms (McAllister, 2000). But IR professionals

will tell you that is no longer the case and it is now a legitimate enterprise. Scott

(2004) in his article defined Investor relations as the link between a company and

the financial community, providing information to help the financial community

and investing public evaluate a company. One method of providing information is

via printed material such as the annual report and accounts. Malaysian

companies however go further than this by allowing certain groups, typically

analysts and fund managers, access to the company directors and managers.

Meetings are held where a number of delegates from different organizations may

listen to a presentation and ask questions. One-to-one meetings and site visits

are also organized for the more important analysts and fund managers.

Company officials, including board directors, talk to analysts and fund managers

on the telephone and offer guidance on analysts' research reports and profits

forecasts.

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Investors relations is not just a neutral process concerned with the

provision of information to assist users. It may also be concerned with managing

information flows in the best interests of the organization. Vahouny (2004)

suggest that investor relations has strategic importance and that by creating

closer links with investors it can help the company to develop strategies that will

be welcomed by shareholders. Peterson and Martin (1996) discuss the

importance of a company's information disclosure strategy and suggest that

voluntary disclosure strategy should be aimed at minimizing investors' surprises,

particularly the negative ones.

Definitions of Investor Relations

The US National Investor Relations Institute (NIRI) define IR as “a

strategic management responsibility using the disciplines of finance,

communication and marketing to manage the content and flow of company

information to financial and other constituencies to maximize relative valuation”

(NIRI, 2003).

Meanwhile, according to Bursa Malaysia (2007), IR is defined as the

process through which a public listed company organizes and conducts itself in

effective two-way communications with its shareholders, the financial community

and other stakeholders with the objective of accurately representing the

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company, achieving a fair market value for the company’s securities and

ultimately lowering its cost of capital.

Alternatively, the UK Investor Relations Society (IRS) describe IR as the

means whereby companies maintain a dialogue with existing shareholders and

potential investors. Its purpose is to present an accurate picture of corporate

performance and prospects, thus allowing the investment community, through an

informed market, to determine a realistic share price. Bollen et. al. (2008)

suggests that as a result of above said activities; IR can have a positive impact

on a company's market value and cost of capital relative to its industry sector and

the overall economic climate.

Both definitions imply that the objective of IR is not only to service the

information demands of current and potential stakeholders (for example,

investors, lenders, the general public) but to manage this service in a manner

advantageous to the company. According to Marken (2004), the nature of IR

information typically provided extends beyond the financial reports including

share price data, analyst reports, press releases and financial and non-financial

data on future prospects, strategy, intangible assets and management quality.

IR is said to have originated as a response to corporate failures and

hostile takeover bids in the 1970s and 1980s where directors were keen to

establish relationships with their institutional shareholders (Ettredge & Gerdes,

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2005). Where previously corporate communications were generally private and

inert, the post World War II growth in financial institutions and their globalization

in holding international portfolios, had led to the need for more open

communications with these generally more proactive shareholders. Geerings et.

al. (2003) argue that increasing globalization of capital markets will lead to a

strengthening and expansion of IR activities as companies need to attract more

foreign investors in the face of greater competition for capital. Furthermore,

larger institutions can often not easily sell large tracts of shares as their response

to poor performance, without putting downward pressure on the share price

causing associated problems for the company, and perhaps wider incidental

effects in the broader market. As such, they are more likely to be active in

communicating their expectations to company management (IRS, 2003).

In addition to this changing profile of company shareholders, tighter

regulation imposed on companies on the disclosure of price sensitive information

has focused on the role of IR. The growth of interest in, and influence of,

corporate governance has led to companies maintaining more transparent and

wide-ranging communications with their stakeholders. A recent survey by Dolphin

(2003) covering the 500 largest companies in Europe, found that 93% of

companies now have a formal IR strategy with an average annual budget of

£780,702.

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History and introduction of Konsortium Transnasional Berhad (KTB)

Following the merger/reverse takeover of eight subsidiary companies of

Kumpulan Kenderaan Malaysia Berhad (KKMB) that operate “Transnasional”

stage and express buses with Park May Berhad that operates “Cityliner” stage

buses, “Plusliner” economy express and “Nice” executive coaches on June 15,

2007, the entire transport operations of the two group of companies had been

consolidated under one holding company and known as Konsortium

Transnasional Berhad (KTB). From then on, all stage buses belonging to KKMB

are re-branded as “Cityliner” starting from new buses to clearly segment the

usage profile of stage buses. The “Transnasional” brand remains as the “cross-

country express” whilst “Plusliner” is dubbed as the “most frequent highway

express” followed by “Nice”, the executive and luxury coaches, regardless of

original subsidiary company titles/permit holders of the buses/coaches.

The exercise of re-arranging according to brands, routes and their

geographical responsibility was necessary in managing the bus operations in

order to remain focus on brand attributes, be more productive, cost efficient and

fully accountable. Although the re-organization into regions was planned from the

birth of KTB, the process was fully completed towards the 1st quarter of 2008

and accepted by all levels of staff including the unionized employees who are

employed directly under various subsidiary companies. Beginning 2008, all four

brands that is Cityliner, Transnasional, Plusliner and Nice were already geared to

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have their own profit and loss statements by brands and management territories.

The enlarged KTB Group is now expanded to a holding fleet capacity of

approximately 1,670 buses/permits comprising of approximately 930 stage

buses/permits and 740 express buses/permits respectively.

Regardless of subsidiary name, or permit holder, all new stage buses

under KTB are painted with “Cityliner” brand liveries since 2007. In addition,

“Cityliner” had also rationalized their operations by determining the right size of

buses and frequency for each route. Double-decker, mini and midi sized buses

were since introduced to compliment the normal length buses. Headed by a

Head of Division, the “Cityliner” operations are further divided into five

regions/territories as follows:

Cityliner Region Previously operated by Subsidiary of Permits / fleet size

Kelantan Operations Syarikat Kenderaan Melayu Kelantan Berhad KKMB 270 buses

Northern Operations(Seberang Perai and Kedah)

The Min Sen Omnibus Company Sdn BhdSam Lian Omnibus Sdn BhdCentral Province Wellesley Trasport Company Sdn BhdKenderaan Langkasuka Sdn Bhd

Park MayPark MayPark May

KKMB

185 buses

Selangor Operations Citiliner Sdn BhdThe K. Lumpur, Klang & Port Swettenham Omnibus Co BhdThe Kuala Selangor Omnibus Company BerhadTanjung Karang Transportation Snd BhdKenderaan Klang Banting Berhad

Park MayPark May

Park May

Park MayKKMB

225 buses

Eastern Syarikat Kenderaan Melayu Kelantan BerhadTanjong Keramat Temerloh Utara Omnibus Sdn BhdTransnasional Express Sdn Bhd

KKMBKKMB

KKMB210 buses

Southern Transnasional Express Sdn BhdKenderaan Labu Sendayan Sdn BhdSyarikat Rembau Tampin Sdn Bhd

KKMBKKMBKKMB

165 buses

Overall 590 buses

(Source: KTB Annual report 2008)

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For all new Cityliner buses, a repair & maintenance contract is signed with

original chassis manufacturers for a set period and kilometers. Well trained

manufacturer’s mechanics using OE spare parts are being deployed to service,

maintain and repair these buses while the operations team focuses on revenue

generation. For existing buses in Kelantan and Negeri Sembilan Operations, the

chassis repair and maintenance is also outsourced to a third party contractor

using similar formula above. The resulted maintenance cost is made stable and

this system can be regarded as self regulated when both parties only benefit if

buses are on the road earning kilometers. The chassis manufacturer cum

contractor ensures that service and maintenance are of quality and the

breakdown frequency minimized. Other regions are being planned to follow this

concept soon. At the same time, a prepaid card e-ticketing technology called

“Fast Pass” was introduced towards the end of 2007 to increase passenger

loyalty and minimize cash handling thus, minimizing the risk of fraud/leakages.

The same technology was also installed on certain routes in Selangor

Region beginning May 2008. It is planned that all regions will utilize this prepaid

card e-ticket technology by the end of 2008. To combat escalating diesel fuel

cost which had risen thrice over the last three years without revenue

compensation from Government’s controlled passenger fares, Cityliner

operations in Selangor and Negeri Sembilan had pioneered the use of

Compressed Natural Gas (CNG) buses since June 2007. To date, 68, 15 and 7

CNG buses are already operating in Selangor, Negeri Sembilan and Seberang

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Perai respectively. The plan is to add a further 220 midi sized CNG buses in

three regions above by end 2009 which is constrained by limited high-speed

CNG refueling stations suitable for heavy and commercial vehicles like buses

unlike taxis. The use of CNG does not only save fuel cost, it also protects the

environment due to its “greener” emission hence reducing pollution and costs

associated with public health.

Apart from operations via branding activity, all operating divisions are

focusing on initiatives to continually reduce operating costs, rationalize vehicle

fleet size and routings, concentrate on profitable and high potential routes,

increase efforts to lure more passengers, simplify management control system,

and at the same time provide the best in quality service including vehicle and

passenger safety.

Safety wise, a Geographical Positioning System (GPS) i.e. a tool for fleet

management/monitoring system via satellite are now made available on all “Nice”

executive coaches, “Plusliner” highway economy express and a number of

“Transnasional” coaches since February 2008.

At the same time, KTB had been working closely with the Malaysian

Institute for Road Safety (MIROS) and Jabatan Keselamatan Jalanraya (JKJR)

for the implementation of a new driving/working shift pattern to reduce fatigue

level amongst express drivers. It is proven that reduction in fatigue level helps to

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reduce accidents. So far, all “Nice”, “Plusliner” and selected “Transnasional”

routes are already implementing this new method. A new driver log book

focusing on vehicle thorough inspection at the beginning of driver’s working shift

plus details on driver’s driving and resting hours, was also launched in April

2008. Towards the middle of 2009, a “route log” will be introduced to ensure the

drivers are made familiar with the safety risks along the driven route. To date,

more than 500 express drivers had attended a two-day driving refresher course

conducted by the Automotive Center of Excellence (ACE), an independent party

that is fully recognized by the authority to improve driver’s competency especially

on safe driving. The training is an ongoing process.

KTB with its four leading brands is now the largest private bus operator in

the country and will continue to upgrade its services and standards from time to

time. It is hoped that each of its four brands will continue to be the most preferred

brands in the industry that focuses on providing the best service at the right cost

through innovations, whilst emphasizing professionalism, quality and safety as

pre-requisites in conducting the day-to-day business of transporting passengers

all year round.

Investors Relations Practice at KTB

2008 turned out to be an eventful year for the business community and for

the general public. What started in a housing sector in the US has caused a

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massive loss of confidence in the financial sector. This has crippled credit flow

worldwide. A world-renowned economist has called this crisis “a world economy

teetering on the brink of unprecedented catastrophe”.

Despite the challenging business environment, for the financial year

ended 31 December 2008, the Group recorded approximately RM292 million in

revenue, higher than that in the previous year of RM261 million. Profit after tax

for the financial year was RM3.494 million, representing a 2.2% return on

average shareholders’ funds. The Group’s earning per share for the financial

year ended 31 December 2008 stood at 1.10 cent.

For KTB, the central issue surrounding investor relations is not how to

keep up with investor cries for information, but how to induce potential investors

to want it in the first place. This requires that the company first take the

perspective of the investors it is trying to attract, and then carefully examine itself

in that light to isolate the characteristics that make it a desirable investment.

These are steps that take more commitment than cash. They are also steps that

will make or break any investor relations program.

Investor relations activities at KTB are managed by the Company

Secretary. This unit is in charge of delivering information about that company and

its industry to current and prospective shareholders. This unit has three main

functions as follow:

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1. Maintain effective two-way communication between KTB, the Investor,

Government and other constituencies.

2. Handling inquiries from shareholders and investors, as well as others who

might be interested in a company's stock or financial stability

3. Constant communications with investors thru newsletter and website.

KTB view IR as the important responsibility for the company to the

investor. The company secretary remarked that:

“Information should be released in a manner designed to reach the

widest public audience possible, including the individual investor.

That the reason why KTB take advantage and use multiple

technologies to disseminate information.”

Although Security Commission (SC) requires companies to disseminate

important IR information via press releases, they also specifically encourage

them to use the Internet to accomplish broad and rapid dissemination. Since KTB

made its debut on Bursa Malaysia on June 15, 2007, they have been fulfilling SC

requirement for IR practice and they also accept SC challenge by providing up to

date website portal via its corporate website specifically for investor to

communicate with the company. Hong & Kiousis (2007) and Marston (2003) in

their research found that corporate web sites are especially suitable for

distributing a wide variety of IR data, including analyst conference calls and

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manager presentations, since information can be posted in multiple formats (text,

graphics, audio, and video) and languages.

Clearly, the rapid and widespread distribution of IR information via

technology is desirable, both from the social and corporate perspectives. Use of

corporate Web sites for this purpose is an important activity with a relatively short

history (Ettredge et. al, 2001).

Conclusion

KTB views their investor as an assets to accomplish company objectives

and they has been done very well in keeping the investors well informed about

the company financial activities. Frequent and concise communications is vital as

all these factors contribute to KTB credibility. Credibility is essential for KTB to

survive the economic turmoil and be the top choice of investor’s community.

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Reference

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