TASEK CORPORATION BERHAD: MANAGING THE SUSTAINABILITY IN A

HIGHLY COMPETITIVE MARKET

PROLOGUE

Despite likelihood of mega construction projects, revenue comes under pressure from
competition and overcapacity. The cement industry is predominantly dependent on activities in
the construction sector. So when the Government unveils the 11th Malaysian Plan (11MP) in
the second quarter of 2015 that includes several key mega projects, cement industry players
will stand to benefit. Generally, the domestic demand for cement is anticipated to be healthy
this year, but if the players are continuously facing the risks of stiff pricing competition,
overcapacity, increase in coal prices and other tariffs, can they sustain their earnings growth in
the long term?

HISTORY

Tasek Corporation Berhad is a company with primary involvement in the cement-

manufacturing industry. It is one of Malaysia's largest cement producers and was incorporated
in 1962 as Tasek Cement Limited. Tasek began its cement production in 1964 at its plant in the
Tasek Industrial Estate, Ipoh, which is still in operation today and had then an annual rated
production capacity of 250,000 tonnes. Today, the company is listed on the Main Board of
Bursa Malaysia Securities Berhad and is a 74.28% owned subsidiary of Hong Leong Asia Ltd.
Together with other members of the Cement and Concrete Association of Malaysia or the
C&CA, Tasek is an active major contributor towards determining the direction of the Malaysian
cement industry. While cement-manufacturing is still being done at its plant in Ipoh (which
operates 24 hours a day), Tasek has been launching internal projects with the aim to keep up
with the demand the cement industry which included the upgrading of technologies designed
to annually produce up to 2.3 million tonnes of clinker efficiently.

Post-manufacturing, the cement will then be transported either by road or by rail to the end-
users. Should the cement product requires packing and distribution, it will be sent to the
terminal at Sungai Buloh for storage, packing, and eventually channelling to strategic
distribution centres and to end-users in the central and southern regions.

For the financial year ending December 2014, Tasek Corporation Berhad reported total sales
of RM656.06 million. This represented an increase of 13.7% compared to a total sales volume
of RM577.01 million in 2013. Additionally, sales of cement also saw an increase of 16.8% in
2014 - an improvement from RM410.94 million to RM479.81 million.

VISION, MISSION AND VALUES

Tasek Corporation vision is to be a leading manufacturer in the cement industry, operating in

harmony with the environment and exceeding customer expectations. Meanwhile, the mission
is to achieve an acceptable margin per tonne in the industry thorough cost competitiveness,
optimizing the utilizing of the company's resources and enhancing a safe, challenging and
rewarding work environment for all employees. Tasek Corporation will systematically
incorporate the latest technology and be innovative, in order to improve capacity, quality and
be recognized as environmentally friendly.

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The values of a company are intended to become the compass for the actions undertaken by all
of its employees and as such, six (6) core values such as integrity, accountability & ownership,
teamwork, customer focus, embracing change and innovation. All employees of Tasek Corp
are expected to carry out their duties with full honesty and strong intrinsic moral principles.
Accountability differs from responsibility which is generally delegated by the superior, the
organization, or by virtue of position. Accountability is having an intrinsic sense of ownership
of the task embedded to it together with the willingness to face the consequences that come
with a success or failure.

The concept of the whole is greater than the sum of the parts is defined by an excellent practice
of teamwork. The employees are trained to believe in acting together as a team in order to fulfil
the company's vision and missions. All aspects of the company's production and product-
delivery are directed by the best interests of the customers. Tasek believes in a customer-centric
philosophy whereby the customer is always right and that their concerns and feedbacks are to
be taken seriously.

The willingness to embrace change is one of the key characteristics of an exemplary

organization. The employees of Tasek recognize the need for change and are able to lead change
when the situation arises. Tasek strives to constantly seek for better solutions that meet existing
and new market requirements Innovation means that Tasek intends to be at the cutting-edge of
technology and processes.

CORPORATE GOVERNANCE

`Board of Directors
The Board is collectively responsible for the long-term success of the company. Its role is
essentially to provide leadership, to oversee management and to ensure that the company
provides its shareholders and stakeholders with a balanced and understandable assessment of
the Company's current position and prospects for long-term shareholder value and stakeholders'
interests.

The Board also centres its governance of the company on the core values of integrity,
accountability and ownership, teamwork, customer focus, embrace change and innovation. The
Board provides leadership and strategic direction, which involves working with management
to set corporate values and to develop strategy including deciding which risks it is prepared to
take in pursuing its strategic objectives for the company within the framework of internal
controls. The Board is headed and led by the chairman while the Executive Director/Group
Chief Executive Officer has a dual role to play as a member of the Board and as a leader of the
executive management team.

A clear division of responsibility exists between the Chairman, who is non-executive, and the
Executive Director/Group Chief Executive Officer. The Chairman's primary responsibility is
to lead the Board, to ensure it has a common purpose, is effective and productive as a group
and at individual director level and that the Board upholds and promotes high standards of
integrity, probity and corporate governance. He is also responsible for ensuring that the Board
is the link in the chain of authority between the shareholders and the Executive Director/Group
Chief Executive Officer and that the shareholders' interests are safeguarded.

The Executive Director/Group Chief Executive Officer has day-to-day management

responsibility for the overall performance and operation of the Company and its Group. He

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provides leadership to the executive management team to enable the successful planning and
execution of the objectives and strategies agreed and set by the Board. In executing his
responsibilities, the Executive Director/Group Chief Executive Officer is supported by the
Group Chief Operations Officer/Chief Financial Officer for ensuring that high quality
information is provided to the Board on the Company and Group's financial and strategic
performance.

Table 1 Senior management

CEO / Executive Director Mr. Philip Ting Sit Tien
Group Chief Operating Officer / Chief Financial Controller Mr. Lian Ka Siew
General Manager (Plant Operations) -
Deputy General Manager (Plant Operations) Mr. Wong ChooHuat
General Manager (Corp Services / Company Secretary) Mr. Vincent Chow Poh Jin
General Manager (Marketing) Mr. Steven Ng Seng Pang
Group Financial Controller Mr. James Loo Wai Wing
Group HR Manager Mr. Benc Cha PohOnn
Chief Internal Auditor Mr. Lee EngChoon

MANAGING SUSTAINABILITY

Tasek Corporation considers CSR as a significant part of its operation. The CSR projects which
have been undertaken by Tasek include, amongst others, the since 2012 sponsoring of the
Bursary programme for primary school students from selected schools within Ipoh and the
sponsorship of the SekolahMenengah Anderson school hockey team. Apart from that, the
company also has an undergraduate scholarship programme to provide financial assistance to
students enrolled in undergraduate engineering courses.

Social responsibility also means that Tasek continues to maintain its various certifications for
environmental management system, occupational health and safety management system,
testing and calibration laboratories system, in addition to its commitment to the safety and
health of employees, and expanding engagement with the surrounding community. It has been
a core commitment and a key challenge to continue a company-wide effort to improve
workplace and community safety. The management has been tasked with identifying and
reducing any safety risks associated with operations by reinforcing safe behaviour and health
among the employees while strengthening their accountability for safe behaviour.

INTERNAL ENVIRONMENT

Tasek Corporation is one of the top cement producers in Malaysia, which aims to become the
market leader of the Malaysian cement-industry. There are six shared-values, which were
chosen by Tasek for inculcation across its organization. The corporate structure of Tasek
Corporation Berhad may be described as functional since the organization of role-assignments
was made based on the functional quality. The firm has several important systems in place
within the organization. These deal primarily with product knowledge and product
development. The company is a major producer of cement in general and that of Ordinary

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Portland Cement, masonry cement, and clinker in particular. The style for the organization is
defined as innovative, flexible and team- orientated.

EXTERNAL FACTORS

The government has indirectly been benefitting the cement industry via the carrying out of
large scale infrastructure projects under the 10th Malaysia Plan and its successor 11th Malaysia
Plan. Decline in oil price may affect the Government's fiscal policy and thus cutting down on
large-scale infrastructure projects. Bank Negara Malaysia's announcement of 6% GDP growth
achieved for 2014 augurs well for the nation. The government has projected a GDP growth rate
of 4.5% to 5.5% for 2015 despite the uncertainties faced by the international economy.
Competition in the domestic cement market is experiencing intense price competition in the
domestic market for cement had in 2014 caused lower profit margins than the corresponding
quarters of previous year. Increasing costs of raw materials, transportation, and energy made
the cost, the overall cost of cement-production increased. The Malaysian Ringgit is currently
weak against USD.

The cement-manufacturing industry is similar to the construction industry whereby it is unique

in terms of the marketing of the product. Marketing is not dependent upon the result of
advertising or brand exposure to the public, but rather the reputation which has been built over
the years. Concrete suppliers would prefer to work with cement producers which are able to
fulfill their required order quantity and have efficient delivery.

It can be seen that the dry process rapidly replaces the wet process. It reflects increasing needs
for energy conservation and suggests what the true cement plant of the future should be.
Technological development in the design of cement kiln and furnace can promote use of cement
kiln for utilization of wastes like tires etc. which can help in reducing the usage of costly fuels
like coke, coal etc. thereby reducing the manufacturing cost of cement. Enhanced technology
will be needed to substitute coal with low cost and eco-friendly alternative fuels like fuel from
bio-mass wastes including fruit of Jatropha Carcus, Pongamia and Algae.
Effectively finding the location of limestone reserves and efficient mining practices can lead
to reduction in per tonne cost of limestone. Prohibition of DIBS and enforcement of RPGT to
curb speculation has indirectly caused the construction industry to slow down. Compliance to
ethical manufacturing practices is of major concern to environmentalists and seen as a serious
legal concern.

LaFarge is the largest cement producer in Malaysia, controlling about 44% of the market in
Peninsular Malaysia. YTL and Cement Industries came in second and third. The market tends
to become oversupplied with the coming of new entrants into the market. There was a price
disruption between the fourth quarters of 2012 to the first quarter 2013 as a result of Hume
Cement's entry into the market.
The Ordinary Portland Cement (OPC) price dropped dramatically. Such situation tends to
hinder new entrants. The OPC was traded at its historical peak of RM17.79 per 50 kg bag in
May 2015. There have been campaigns to use timber products in order to replace the traditional
construction method of brick, mortar, and concrete. However, it has hardly gained any traction
in Malaysia since the price of timber is expensive.

EPILOGUE
The nature of the Malaysian cement industry in Malaysia is such that it grows in tandem with
the growth of construction industry. In addition to that, the growth of the construction industry

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has consistently beaten that of the growth of the Gross Domestic Product (GDP) since 2012.
In view of the increasing local competition, however, it would be a prudent step to get out of
the comfort zone and venture out into foreign markets in neighboring South East Asian nations
which are rapidly growing. Prior to do doing that, it has to be understood that the construction
business is largely done based on reputation and past performance - unlike most other products
whose qualities may be marketed and advertised.

In the short term, however, Tasek is to be indulging itself in some large-scale CSR projects
within the vicinity of its operations (e.g. 50 km) such as the organization of a gala dinner to
help raise fund in building a new primary school. This would help to familiarize the community
and local businesses with the company. Such activities are important to build a network of allies
in what would otherwise be 'hostile' territories. Plus, entering into facility-sharing agreements
with allies at this stage could create a synergy of resources.

In the medium term, Tasek is to acquire new technologies which could increase its cost
efficiency and also get business loans to expand its manufacturing base with technologies for
efficiency. Capitalizing upon a possibly still weak Ringgit, the exporting of products to growing
foreign markets would then be undertaken in the long-term. This would possibly be followed
with the setting up of manufacturing base in those foreign countries, dependent upon the results
of due diligence and market study which are to be conducted at this point of time.

As such, the two Key Result Areas (KRAs), 2 strategic objectives, 2 financial objectives are
fulfilled and Tasek Corporation Berhad is thereby poised to become the leading cement-
producer in the Southeast Asian market within a 5-year time frame.

Discussion questions

1. What is the vision, mission and value of Tasek Corporation Berhad?

2. What do you think about corporate governance of Tasek Corporation Berhad?
3. Identify the main issues faced by Tasek Corporation Berhad.
4. Discuss the SWOT analysis for Tasek Corporation Berhad.
5. Suggest strategies to solve main issues in (3) above.