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Focus Hotel: Performing well to be a Shariah Compliant Hotel

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 Asian Journal of Case Research (AJCR)

Volume 9 No. 2 2016

Contents

Focus Hotel: Performing well to be a Shariah Compliant Hotel? 69

Noor Haslina Yusoff, Noormuthaah Mohamad Ali Adaha and
Che Musa Che Omar

Management Challenges of a Small Family-owned Business Enterprise: 90

SnF Software Sdn. Bhd.
Foong Soon Yau and Tan Sin Lin

Managerial Recipes for Strategic Success: Shangri-La Hotels 106

(Malaysia) Berhad
Haim Hilman and Narentheren Kaliappen

Managing Corporate Image of an Organization Means Managing its 130

Life Blood Cells!
Shahenshaha and Hossein Nezakati

Trojan Express Sdn. Bhd.: Keeping the Ship Afloat 141

Syairazi Mohd Yunus, Ahmed Razman Abdul Latiff and
Devika Nadarajah
 C A S E 1
Asian Journal of Case
Research
9(2): 69 – 89 (2016)

Focus Hotel: Performing well to be a Shariah

Compliant Hotel?

Noor Haslina Yusoffᵃ*, Noormuthaah Mohamad Ali Adahaᵇ

and Che Musa Che Omarᶜ

Abstract
Established in 1999, Focus Hotel¹ is a 3-star boutique hotel with 97 guest
rooms, situated nearby KLCC; a strategic location for travellers to stay
during their stopover in the city centre for shopping, sight-seeing or
business purposes. The management has decided to transform the hotel
to become a Shariah compliant hotel, thus appointed Ibrahim Basheer²,
a successful entrepreneur with vast experience in the service industry,
to spearhead the mission. A thorough analysis of the operations and
financial positions and performances of the company are needed to
ensure that the hotel is successful and sustainable as an Islamic hotel.

Keywords: Hotel, Shariah Compliant Hotel, financial performance,

non-financial performance, management

PROLOGUE
“Good morning Encik Ibrahim. It’s so good to see you,” Mariam Mohammed
said, ushering Ibrahim Basheer towards a seat in the small private conference
room adjacent to her office. “Oh, no, Cik Mariam, the pleasure is most certainly
all mine,” said Ibrahim.
“Well,” Mariam said, trying to regain control of the interview, “I spoke to Encik
Amin Shariff over at Bestari Sdn Bhd, and he couldn’t have recommended you in
any stronger terms. I don’t know what you did for him, but you clearly made a
big impression on him.”
“I am sure Encik Amin was just being kind,” Ibrahim said, “It was really
nothing.”
¹Name of company has been disguised
²
Name of characters have been disguised
ᵃUniversity Kuala Lumpur Business School, 1016 Jalan Sultan Ismail, 50250 Kuala Lumpur, WP
ᵇGraduate student from UniKL Business School
ᶜUniversity Kuala Lumpur Business School
*Corresponding author: E-mail: [email protected]

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 Asian Journal of Case Research (AJCR)

“No, on the contrary, I am sure you’re just being modest, Encik Ibrahim,”
Mariam blurted, surprised how fast the words seemed to fly out of her mouth.
“Your credentials are very impressive,” she said. “Let’s see, you were head of
financial division for Salam Hotel in Dubai, COO of Ibnu Battuta Productions in
Salalah, vice president of Hamidiah Holdings in Edinburg, CFO for Al Khamees
Incorporation in Riyadh , COO at one of the Islamic hotels in Malaysia for a couple
of years and, of course, CEO of Kelola Muamalat, your own company here. I see
that you even worked with a number of public universities on something called
Project Shariah Compliant in Hotel Room Operations in Malaysia. That must
have been interesting and causative. Frankly, with credentials like this, I’m not
sure why we would not want you to come and work for us.”
“May I be frank, Cik Mariam?” Ibrahim asked, a supplicant begging for the
most minor of sins. “It’s true I’ve travelled the world and held, what I’m sure
from the outside, appear to be a host of fascinating positions. And it’s true that my
own firm, it does scratch that entrepreneurial itch I’m sure we all feel from time to
time. But the problems are endless. I’m anxious to get back in the harness, work
with a team, and be part of something bigger than myself. I miss the solidarity of
like-minded souls chasing a common goal. I‘m sure you understand”
In fact, Mariam Mohammed did not understand. If she didn’t work for
Encik Amin’s brother-in-law, she wouldn’t have been interviewing a prospective
candidates for the VP of Shariah Compliance Hotel Operations position, a new
post created by the company recently. This position was established when the
Board of Directors decided that it is timely for Focus Hotel to transform to become
a fully Shariah Compliant hotel.
“I have to confess, Encik Ibrahim, I‘m rather new at all this Shariah compliant
hotel business, however, here we are Focus Hotel is moving into becoming a full
Shariah compliant hotel.” said Mariam.
“Aren’t we all,” cooed Ibrahim. “The truth is, it’s all rather simple. You
see, Shariah compliant hotel means that all aspects of hotel services, facilities
and delivering services shall comply with the Shariah principles. The concept of
Islamic or Halal hotel was exposed and commercialised since 2000. It is a niche
and lucrative market for the Islamic country. In Malaysia, this concept was first
introduced in 2008 by the well-known De Palma Hotel in Ampang. However,
currently, the Shariah compliant hotels are mushrooming well in this country.”
Encik Ibrahim continued, “The emergence of Shariah Compliant hotel was
impacted by the incident of World Trade Centre September 11 attack where a
number of Middle East tourists to UK and USA decreasing gradually and shifted
to the Muslim countries. Malaysia becomes one of their favourite destinations
due to the easy access to halal foods, praying facilities, security and shopping.”

70
 Focus Hotel: Performing well to be a Shariah Compliant Hotel?

“I see,” said Mariam. “Tell me, Encik Ibrahim, would you consider accepting
the position?” “And, together, we could transform Focus Hotel into an Islamic
hotel.” Mariam continued earnestly.
“Why, of course, Cik Mariam,” Ibrahim said. “Now, please update me
about the company’s operations and its performances. I will visit the financial
department soon, then I will consider if Focus Hotel can be cultivated into a
sustainable Shariah Compliant hotel timely. We have one model of a successful
hotel practising Shariah requirements in its operations and has won the Halal
Journal Award and being recognised as the pioneer of Shariah Compliant hotel
in Malaysia”

HOTEL INDUSTRY
Malaysia is one of the favourite destinations to many tourists around the world.
This is clearly highlighted by the upsurge number of tourist arrivals visiting
Malaysia since 2005 as illustrated in Table 1.

Table 1  Tourist Arrival and Receipts to Malaysia by Year

Year Arrivals Receipts(RM)

2015 25.70 million 69.1 billion
2014 27.44 million 72.0 billion
2013 25.72 million 65.4 billion
2012 25.03 million 60.6 billion
2011 24.71 million 58.3 billion
2010 24.58 million 56.5 billion
2009 23.65 million 46.1 billion
2008 22.05 million 49.6 billion
2007 20.97 million 53.4 billion
2006 17.55 million 36.3 billion
2005 16.43 million 32.0 billion
Source: Tourism Malaysia, 2016

Moreover, there are an increasing number of Muslim travellers shifting their

preferred destination to this country rather than going to the United States or
Europe (after the September 11 attack of the World Trade Centre in New York) due
to the stability and security of the country, easy access to halal foods, availability
to prayer facilities, Muslim friendly services in hotels and best shopping centres.

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 Asian Journal of Case Research (AJCR)

The influx of Arabs and Muslim travellers and their purchasing power are the key
factors driving the growth of Shariah compliant hotels in Malaysia over the year.
Shariah compliant hotel is a niche and lucrative market for the Islamic
country. A number of terms are being used to address Shariah compliant hotel,
for instance, alcohol-free hotels, halal hotel, Muslim-friendly hotel and Islamic
hotels. Demand for Shariah compliant hotel industry is increasing well. The
business is contributing a huge percentage to Malaysian economic growth as it is
attracting high spender tourists from many Islamic countries.
Hotel is a residence for travellers. The rooms in the hotels are accommodations
for tourists and guests. Thus, hotels must ensure that they are managed such
that their guests who are the travellers and tourists are willing to pay for the
good services and adequate facilities away from home. Consequently, a Shariah
compliant hotel is that which provides services, facilities, financial and operations
according to Shariah principles. Previously, few terms were used to highlight
the Islamic hotel concept, such as, Halal hotel, Muslim friendly hotel as well as
Shariah compliant hotel. Table 2 lists the various terms and definitions of Islamic
hotel concept.

Table 2  Various Terms and Definitions for so-called Islamic Concept Hotels

No. Term Definition

1. Shariah compliant hotel Hotel that served services and
financed the hotel completely
accordance to Shariah principles
which not limited to halal food
and beverages but in all aspects
including health, environment and
safety to all hotel guests.
2. Halal hotel Hotel that certified as halal
in accordance to the Islamic
characteristics in terms of hotel
structure, management and services.
3. Muslim-friendly hotel Hotel with Islamic characteristics
which provide basic facilities which
are friendly to the Muslim guests.
4. Islamic hotel A hotel concept following Islam as
part of their services but not fully
comply with Islamic rules and
regulations.
Source: Kamri et al., 2015

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 Focus Hotel: Performing well to be a Shariah Compliant Hotel?

Following that, Henderson (2010) and Rosenberg (2009) have suggested that
Shariah compliant hotel must have the following attributes as shown in Figure 1.
Lately, further additions on the guidelines for Shariah compliant hotel on the size
of the prayer room which must be appropriate for congregation prayer, Islamic
staff dress code, printed prayer schedule in every room, playing Qur’an recitation
and nasyid at the hotel lobby and public area, training on Islamic code of conduct
to the staff and Islamic product shop is available in the hotel.

Figure 1  Attributes of Shariah Compliant Hotel

(Source: Henderson (2010) and Rosenberg & Choufany (2009)

The demand for Shariah compliant hotel is increasing tremendously amongst the
guests of hotels in Malaysia. It was found that Shariah compliant hotel is the
current trend for hotel market and a lucrative service industry (Kamri et al., 2015).
In Malaysia, the number of hotels moving forward as Shariah compliant hotels is
increasing gradually as a fast rate. As at 2015, there were fifteen hotels moving
forward as Shariah compliant hotel in Malaysia. Table 3 shows the list of hotel
moving toward as Shariah compliant hotel in Malaysia.

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 Asian Journal of Case Research (AJCR)

Table 3  List of Hotels Moving forward as Shariah Compliant Hotel

No. Name of Hotel Location

1. De Palma Hotel Ampang Jalan Ampang, Kuala Lumpur
2. De Palma Hotel Shah Alam Jalan Nelayan, Shah Alam,
Selangor
3. De Palma Hotel Kuala Selangor Jalan Tanjung Keramat, Kuala
Selangor
4. Grand Blue Wave Hotel Shah Alam Seksyen 14, Shah Alam, Selangor
5. Tabung Haji Hotel Kelana Jaya Jalan SS6/1, Petaling Jaya,
Selangor
6. Tabung Haji Penang Jalan Dato’Ismail Hashim, Bayan
Lepas, Pulau Pinang/
7. Tabung Haji Hotel and Convention Jalan Lapangan Terbang, Kg
Centre Terengganu Telaga Batin, Kuala Terengganu
8. Tabung Haji Hotel and Convention Mukim Titi Gajah, Kepala Batas,
Centre Alor Star Kedah
9. Tabung Haji Hotel Kinabalu Jalan Sembulan, Kota Kinabalu,
Sabah
10. Putra Hotel Kuala Lumpur Jalan Tun Razak, Kuala Lumpur
11. Klana Beach Resort, Port Dickson Port Dickson, Negeri Sembilan
12. Grand Puteri Kuala Terengganu Jalan Masjid Abidin, City
Center, Kuala Terengganu
13. PNB Darby Park Suites Kuala Jalan Binjai, Kuala Lumpur
Lumpur
14. Pantai Puteri Hotel Malacca Mukim Tanjung Kling, Malacca
15. Regency Seri Warisan Hotel Jalan Convent, Taiping, Perak
Taiping
Source: De Palma hotel website, 2014; Yayasan Waqaf Malaysia website, 2014, THH
website, 2015 and PNB hotel Website, 2015, Tourism Malaysia, 2015

The Operations of Focus Hotel

Focus Hotel is a 3-star boutique hotel located strategically very near to KLCC
building and other popular city centre attractions. It is managed and owned by
Bestari Sdn. Bhd., a 100% bumiputra company. Currently, it has 97 lavished and
attractive designed non-smoking rooms for its guests. The average size of rooms

74
 Focus Hotel: Performing well to be a Shariah Compliant Hotel?

is 27 square metre. The hotel guests are enjoying the facilities such as Wi-Fi
in public areas, outdoor pools, ball and seminar rooms and clean prayer room.
The hotel also offer a one stop centre wedding service with various packages for
clients. Currently, the proportion of Muslim and non-Muslim guests at the hotel is
60:40 respectively. Table 4 summaries the hotel’s guest profile for 2015.

Table 4  Hotel’s Guest Profile in 2015

Average annual household income of guest: RM93,900

Average spending (per person, per day) RM175
First time visitors: 27.5%
Travelling with children 18.7%
Gender: Male =54%
Female =46%
Race: Muslim = 60%
Non-Muslim = 40%
Nationality: Malaysian = 52%
Others = 48%
Average age: 42 years old
Average nights in hotel: 3.6 nights
Average total length of current trip: 4.6 nights
People per room: 2
Used Internet in planning trip: 73%
Rental Car 25%
Arrived by air: 80%
Primary reason for visit (% of all hotel 40% Leisure
guest) 35% Convention
20% Transient business
3% Other

The hotel was launched in 1999, and currently moving toward becoming a Shariah
compliant hotel. During the year of 2015, many promotions were carried out
to enlighten prospective guests and tourists about the conversion of the hotel to
become an Islamic hotel. Table 5 presents the monthly statistics for the operation
of Focus Hotel in 2014.

75
 Table 5  Monthly Operating Statistic: Year 2014

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
No. of 97 97 97 97 97 97 97 97 97 97 97 97
Rooms
Occupancy 40.14 55.49 70.53 77.35 78.22 87.46 91.98 95.01 92.25 90.65 62.28 69.78
(%)

76
Revenue/ 326.57 332.50 446.91 556.29 568.65 668.72 777.01 779.63 680.02 583.33 343.48 439.06
available
room($)
Total 31,677 32,252 43,350 53,960 55,159 64,866 75,370 75,624 65,962 56,583 33,318 42,589
Rooms
Asian Journal of Case Research (AJCR)

Revenue
 Focus Hotel: Performing well to be a Shariah Compliant Hotel?

Beginning 2015, the hotel operator attempts to apply basic Islamic practices in
the operations and management of the hotel. Appropriate staff, especially the
housekeepers, were sent to Islamic hospitality trainings to ensure that the staff
are aware and carry out activities in accordance to the Shariah practices in hotel
management and following Shariah Standard of Operating Procedure.
Meanwhile, the facilities in this 3-star hotel are adequate and appropriate to
welcome Muslim guests. For example, the beds and furniture in the rooms are
placed such that they are not blocking the qiblat direction (the qiblat signage is
also provided in each room), the rooms are calm and quite while curtains in the
rooms preserved the privacy of the occupants. In addition, rooms are furnished
with separate bathroom and toilet due to the usage of sliding door. Appendix 1
provides checklists to make sure that the hotel satisfied the Shariah compliance
test. The checklist was prepared by the Head of Facilities Management for the
Board meeting held last month.

The Financial Situation

Ibrahim Basheer went to see the Head of the Financial Services Department
(FSD) of the company on his first day of reporting at work. Melissa Roberts, a
qualified accountant, has been leading the department for almost four years, with
8 staff reporting to her. She gave a short presentation about FSD, then introduced
all her staff to him. Later, he was provided with the most recent management
report of the department and the latest financial statements of the hotel. Soon after
examining those documents, he was not satisfied with the general performance of
the company.
Exhibits 1, 2 and 3 provide the excerpt of the company’s Balance Sheet, the
Cash Flow and the Income statement of the company for the year 2015. Overall,
the revenue was relatively higher as compared to previous year, it seem that the
company managed to make a turnaround after a big lost in 2014. However, he
found that large amount of money was spend on the administration expenses
rather than on the operations.
Ibrahim need to probe more into the situation. It is not an easy task as what he
expected earlier. Is Focus Hotel really fit to become a Shariah compliant Hotel?
Or even fit to sustain and survive in the hotel industry? He has to collect enough
information to be able to prepare a good report for the next Board meeting that
shall be held two months for today. He needs to sit down and discuss with the
Head of Financial Department in earnest.

77
 Asian Journal of Case Research (AJCR)

Epilogue
“Good afternoon Encik Ibrahim. It’s so good to see you again,” Mariam
Mohammed said cheerfully.
She continued, “This is Datin Salmah, one of our Directors. She’s here for
the Board meeting today. The other directors and our Executive Chairman will
be here shortly.”
“Come in. Come in,” called Ibrahim, as the two ladies were entering into
the conference room. “And, we shall wait for the others to arrive in a while”
said Ibrahim with a smile. He dressed well that day for the meeting and he had
prepared a complete presentation for them. Will Focus Hotel able to change
to become a sustainable boutique Islamic hotel? What are the suggestions and
recommendations that Focus Hotel need to do to boost its performance? Will the
directors be happy with Ibrahim’s presentation in that Board meeting?

REFERENCES
De Palma Hotel website (2014) http://www.depalmahotelonline.com
Henderson, J.C. (2010). Sharia-Compliant Hotels. Tourism and Hospitality Research,
Vol. 10, No. 3 (2010), pp 246 -254.
Kamri, Nor Äzzah, Sarif, S., Ali, N.A., Che Omar, C.M., & Bahri, S. (2015). Konsep
Hotel Hotel Patuh Syariah: Analisis Literatur. In Suhaili Sarif, Mohd Abd Wahab
Fatoni Mohd Balwi, NorÄzzah Kamri, Ahmad Sufyan Che Abdullah (Ed.) (2015).
Perspektif Industri Halal Perkembangan and Isu-Isu. Kuala Lumpur: Universiti
Malaya Publisher. Pp. 24 – 40.
PNB website (2015) http://www.pnb.com.my
Rosenberg, G. & Choufany, H.M. (2009). Spiritual Lodging – The Sharia-Compliant
Hotel Concept. Dubai: HVS Global Services.
Tabung Haji Hotel website (2015) http://www.tabunghaji.gov.my
Tourism Malaysia (2016). Number of hotels and room supply: http:mytourismdata.tourism.
gov.my/statistics
Yayasan Wakaf Malaysia (2015). Hotel Wakaf. http://www.ywm,gov.my

78
 Focus Hotel: Performing well to be a Shariah Compliant Hotel?

Exhibit 1: The Balance Sheet

FOCUS HOTEL
BALANCE SHEET AS AT 31ST
DECEMBER 2015
2015 2014

FIXED ASSET 35,842,879 40,720,492

INTEREST IN SUBSIDIARY 9,488,748 13,427,421
COMPANIES

CURRENT ASSET:-
Stocks of consumables 5,957,300 6,325,606
Trade debtors 62,755,444 66,094,370
Amount owing by related company 8,798,880  
Amount owing by a holding company 328,969 442,444
Retention money receivable - 13,274,743
Other debtors 7,867,838 12,833,501
Sundry deposits and prepayments 1,379,181 4,725,727
Fixed deposits with licensed banks 6,833,548 12,424,714
Short term money market placements 2,177,080 2,108,940
Cash and bank balances 4,572,334 14014,343
100,670,574 132,244,388
CURRENT RELIABILITIES AND PROVISIONS:-
Trade debtors 61,165,815 57,389,487
Amount owing by related company - 10,582,202
Amount owing by a holding company - -
Retention money payable 13,586,923 18,738,988
Other creditors and accruals 16,432,307 12,965,669
Amount owing to holding company   -
Amount owing to a director   -
Dividend payable 2,880,000 2,880,000
Hire purchase creditors 460,332 664,094
Bank borrowings 14,166,900 81,598,958

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 Asian Journal of Case Research (AJCR)

108,692,277 184,819,398
NET CURRENT ASSETS / (8,021,703) (17,772,934)
(LIABILITIES)
37,309,924 49,657,097
Representing:-
SHARE CAPITAL:-
Authorised
10,000,000 ordinary shares of RM1 50,000,00 50,000,000
each

Issued and fully paid

10,000,000 ordinary shares of RM1 30,000,000 30,000,000
each

UNAPPROPRIATED PROFIT/ 2,325,747 13,974,964

(LOSS)

LONG TERM LIABILITIES:-

Hire purchase creditors 463,652 43,500
Provision for retirement benefits 2,000,000 1,500,000
Bank borrowing 2,520,525 4,138,632
4,984,177 5,682,132

37,309,924 49,657,096

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 Focus Hotel: Performing well to be a Shariah Compliant Hotel?

EXHIBIT 2: The Cash Flow of 2015

FOCUS HOTEL
CASHFLOW STATEMENT FOR THE
YEAR ENDED 31ST DECEMBER 2015
2015 2014
CASH FLOWS FROM OPERATING RM RM
ACTIVITIES
Profit/(loss) before taxation 37,087,483 (37,888,633)
Adjustments for:-
Provision of retirement benefits 500,000 -
Depreciation of property, plant and 7,582,709 10,074,837
equipment
Interest expenses 4,771,695 6,637,741
Interest income (711,599) (507,920)
Gain on disposal of property, plant and (59,227) (135,882)
equipment
Operating profit/(loss) before working   53,171,061 (21,819,857)
capital changes

Decrease/(increase) in current assets:-

Stocks of consumables 368,306 (743,020)
Trade debtors 3,338,926 19,827,068
Amount owing by related company (8,798,880) 836,209
Amount owing by holding company 113,475 (200,696)
Amount owing by subsidiaries 3,938,673 (7,810,360)
Retention money receivable 13,274,743 -
Other debtors 965,663 339,754
Sundry deposits and prepayments 3,346,546 925,759

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 Asian Journal of Case Research (AJCR)

Increase/(decrease) in current liabilities:-

Trade creditors 3,776,328 37,522,555
Amount owing to a related company (10,582,202) 267,615
Retention money payable (5,152,065) (141,917)
Other creditors and accruals 3,466,638 3,515,629
Amount owing to a director - (701,000)
Cash generated from operations 61,227,212 31,817,739

Interest paid (4,771,695) (6,637,741)

Tax paid - (3,567,745)
Net cash from operating activities 56,455,517 21,612,253

CASH FLOWS FROM INVESTING

ACTIVITIES
Investment in shares in a subsidiary - (4,999,998)
Proceeds from transfer of property, plant
and
equipment to subsidiary - 16,207,492
Proceeds from disposal of property, plant 97,112 186,088
and equipment
Interest income 711,599 507,920
Purchase of property, plant and equipment (2,742,981) (15,044,738)
Net cash used in investing activities (1,934,270) (3,143,236)

2015 2014
RM RM
CASHFLOWS FROM FINANCING
ACTIVITIES
Term loan released 326,165 -
Repayment of bank borrowings (69,376,330) (8,560,183)
Hire purchase creditors (436,117) 288,205
Net cash used in financing activities (69,486,282) (8,271,978)

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 Focus Hotel: Performing well to be a Shariah Compliant Hotel?

Net (decrease)/increase in cash and cash (14,965,035) 10,197,039

equivalent
Cash and cash equivalents at the beginning 28,547,997 18,350,958
of year
Cash and cash equivalents at the end of year 13,582,962 28,547,997

Cash and cash equivalents comprise:-

Cash and bank balances 4,572,334 14,014,343
Fixed deposits with licensed bank 6,833,548 12,424,714
Short term money market placements 2,177,080 2,108,940
13,582,962 28,547,997

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 Asian Journal of Case Research (AJCR)

EXHIBIT 3: INCOME STATEMENT

FOCUS HOTEL

INCOME STATEMENT
FOR THE
YEAR ENDED 31ST
DECEMBER 2015
2015 2014
RM RM
Revenue 214,633,416 187,623,786

Direct costs (128,887,074) (132,109,031)

Gross profit 85,746,342 55,514,755

Other operating income 24,069,785 6,603,943

109,816,127 62,118,698

Administering expenses (56,374,240) (53,268,176)

Other operating expenses (40,101,414)
(7,582,709)
Profit/(loss) from
operations 45,859,178 (31,250,892)

Finance costs
(4,771,695) (6,637,741)
Profit/(loss) before taxation
41,087,483 (37,888,633)
Taxation (4,000,000) -
Profit/(loss) after taxation 37,087,483 (37,888,633)

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 Focus Hotel: Performing well to be a Shariah Compliant Hotel?

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31ST DECEMBER 2015

Share Unappropriated
capital profit/ Total
(Accumulated
loss)
RM RM RM
Balance at 31 December 10,000,000 33,126,897
2013 23,126,897
Amount capitalised as
bonus
shares issue 20,000,000 -
(20,000,000)
Net loss for the year - (37,888,633)
(37,888,633)
Balance at 31 December 30,000,000 (4,761,736)
2014 (34,761,736)

Net profit for the year - 37087483 37,087,483

Balance at 31 December 30,000,000 32,325,747
2015 2,325,747

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 Asian Journal of Case Research (AJCR)

APPENDIX 1

Checklist 1: Shariah Requirement on Hotel Room Facilities

No. Aspects
1. Provision of Halalan and Thoiyibban Food & Beverages (including coffee
maker).
2. Provision of waste-bin in the room and bathroom.
3. Provision of Muslim to conduct prayer (Prayer mat, ablution tap, etc.)
4. Prayer spaces
5. Provision of prayer information (prayer schedule, prayer facilities, etc.)
6. Qiblat direction signage in the rooms
7. Lighting for readings
8. Curtains provide enough total privacy to the occupants
9. Availability of safety box in the room
10. Provision of Halalan and Thoiyibban toiletries (shower gel, toothpaste, soap,
etc.)
11. Orientation of toilet bowls not against qiblat direction
12. Door position is not facing qiblat
13. Provision of bathroom slippers
14. Separation of bathroom and toilet
15 Bath which cater bandi for women

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 Focus Hotel: Performing well to be a Shariah Compliant Hotel?

Checklist 2: Muslim Guest Needs in Room Facilities

No. Aspects of Room Facilities
1. Praying spaces
2. Praying amenities (prayer mat, prayer schedule, etc)
3. Prayer direction that is easily noticeable
4. Call for prayer (azan) is broadcasts in the room
5. Variety of TV channels provided
6. Provision of ablution tab in bathroom (with necessary height)
7. Bathroom with cater bandi for women
8. Provision of waste-bin in room & bathroom
9. Provision of free wifi
10. Provision of Halalan & Thoiyibban coffee-maker
11. Provision of Halalan & Thoiyibban toiletries
12. Provision of bathroom slippers
13. Provision of seats in the room for recitation
14. Availability of safety box in the room
15. Curtains provide enough total privacy to the occupants

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 Asian Journal of Case Research (AJCR)

Checklist 3: Shariah Requirements in Room Operation Training

No. Aspects of Training Requirements
1. Greeting Salam
2. Knocking or ringing the door maximum three times
3. Take off shoes
4. How to clean the impure things

Checklist 4: Shariah Principles in Hotel Rooms Operations

No. Aspects Shariah Compliant Hotel
1. Safety & Privacy in the room The door position is not facing qiblat.
Curtains provide enough total privacy to
the occupants.
Room is quite and calm
2. Room Ventilation Good air ventilation.
Room temperature is comfortable
3. Room Size and Spaciousness Minimum standard room size is 11.5
sq.m.
Ceiling height of room is not less than
2.5m high.
Good room circulation (space).
Provision of seats in the room for
recitation.
4. Bed & Furniture in the room The bed is not blocking the qiblat
direction
Provision of seats in the room for
recitation
5. Bathroom and toilet facilities in Separation of bathroom & toilet.
the room Provision of bathroom slippers.
Provision of Halalan & Thoiyibban
toiletries.
Orientation of toilet bowls not against
qiblat.
Bathroom cater for women istinja’
(bandi).
6. Décor: Wall, Ceiling and Appearance of Arabesque/Calligraphy
Paintwork arts in the room.
Decorations not resemble living
creatures.

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 Focus Hotel: Performing well to be a Shariah Compliant Hotel?

Checklist 4 (cont)
No. Aspects Shariah Compliant Hotel
7. Telecommunications Internet – High speed internet access.
8. Entertainment Variety of TV channels provided.
9. Facilities Qiblat direction sign in the rooms.
Provision of Halalan & Thoiyibban F
& B.
Provision of waste-bin in room &
bathroom.
Call for prayer (azan) is broadcast in the
room.
Lighting for readings.
Availability of safety box in the room.
Provision for Muslim to conduct prayer
(prayer mat, prayer veils, Al-Quran with
translation etc.).
Provision of prayer information (prayer
schedule).
10. Housekeeping Staff Housekeeper is always punctual.
Housekeeper is very friendly.
11. Cleanliness The room is clean.
Room is nice and tidy.
Regulatory of housekeeping (bed linen
is changed daily).

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 C A S E 2
Asian Journal of Case
Research
9(2): 90 – 105 (2016)

Management Challenges of a Small Family-owned

Business Enterprise: SnF Software Sdn. Bhd.

Foong Soon Yaua* and Tan Sin Lina

ABSTRACT
SnF Software Sdn. Bhd. was small family-owned company that
developed accounting software and provided professional consulting
and technical support services to its customers. Just before the planned
launching of its new accounting software, the founder of SnF Software
was surprised to find that the new features in its new software had
already been incorporated into one of its competitor’s newly launched
accounting software. After a thorough investigation, one of his senior
programmers had been identified as having sold the company’s R&D
information to its competitor because the programmer needed cash
for his father’s heart surgery. Additionally, the CEO was alerted
by a major customer of the unsatisfactory technical support service
provided by his support unit staff, and only then, he realised there
was a 35% decline in the fee income from renewals of annual service
maintenance contracts. The CEO of SnF Software was considering
how best to handle the theft committed by its employee and whether
the assistant manager of the support unit should be replaced.

Keywords: management challenges; family-owned business; security

lapses; fraud; human resource management.

A VERY DISTURBING MORNING

On December 4, 2013, Edison Goh, the CEO of SnF Software Sdn Bhd, which
specialized in accounting software development, arrived at his office that was
located in Serdang, Selangor with a copy of his competitor’s newly launched
accounting software. He bought the software to ascertain what new features
had been incorporated into his competitor’s newly launched software to enable

a
Putra Business School, 43400 UPM Serdang, Selangor
*
Corresponding author: E-mail: [email protected]

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 Management Challenges of a Small Family-owned Business Enterprise: SnF Software Sdn. Bhd.

him to think what other useful new features he would introduce to enhance his
forthcoming new accounting software. After he had run the competitor’s newly
launched software, he was very surprised to note that the features that he had
earlier planned for his forthcoming software had already been incorporated into
the competitor’s newly launched software. Edison was shocked and stunned
for a minute. He knew the additional revenue of RM150,000 expected from the
forthcoming launch of his new software would not be possible. He immediately
called his assistant manager, David James, to his room.

Edison : David, something has gone wrong!

David : What has happened?

Edison : The new features that we have planned for our

new accounting software had already been leaked
to our competitor and it has incorporated those
new features in its newly launched accounting
software.

David : What? Edison, I should have told you earlier

about Rohani. I suspect Rohani was the person
who had leaked our ideas on the new features to
the competitor.

Edison : Why do you say so? She has already resigned.

David : Yes. I know. She was at your briefing on the

proposed changes to our forthcoming new
accounting software. There were only three of us
in the room. Do you remember? After the briefing,
she resigned by giving us only a two-week notice,
saying that the company which had offered her the
job needed her service urgently. During her last
day at the office, I saw her deleting some files and
copying other files onto her thumb drive.

Edison : David, can you please investigate this matter

immediately? Let me know of your findings as
soon as possible.

David : Noted, Edison.

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 Asian Journal of Case Research (AJCR)

A few minutes after David had left, the phone rang and Edison picked up
the phone. It was a call from the accountant, Alina, of SC Bhd, one of his major
customers, which had been contributing about 25% of SnF’s annual sales in the
past few years.

Alina : Good morning, Mr Edison. I’m Alina from SC

Bhd.

Edison : Good morning Ms Alina. How are you? What can

I do for you?

Alina : Mr Edison, I am quite disappointed with your

support team. My junior accountant called your
support unit on November 22 to ask for help to
resolve certain technical matters relating to your
software. One of your support department staff
answered the call and he promised to call back
with the solution. But we have not received any
call from your support staff and that technical
problem has affected our operations in the past 2
weeks.

Edison : I am sorry about that. I will check with my support

staff immediately and revert to you as soon as we
can.

Alina : Thank you. I look forward to your call. Bye.

Edison : Thank you for your understanding. Bye.

Edison became concerned of the quality of service rendered to his customers.

He immediately asked for the service maintenance report and the customer
feedback report from the Administration Department and the Customer Service
Department, respectively. After he had gone through the two reports, Edison was
extremely unhappy because the renewal contract for maintenance service had
declined by 35% in 2013 from that in 2012, and the customer feedback report
indicated most of the customers complained that the company’s quarterly technical
support and follow-up services were very slow and unsatisfactory; the support
department staff seldom returned calls to customers to help them to resolve their
technical problems.

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 Management Challenges of a Small Family-owned Business Enterprise: SnF Software Sdn. Bhd.

Edison called for an urgent meeting with his management team to discuss his
concerns for the declining number of renewals of maintenance service contracts
and the need for strict privacy of the company’s R&D information.

SnF SOFTWARE SDN. BHD.

SnF Software Sdn Bhd was a small family-owned accounting software company,
founded by Edison Goh in 2003. The company developed accounting software
for sale and it also rendered consultancy and technical support services to its
customers. SnF Software, which was located in the Klang Valley, also had a sales
representative office in the Philippines.
The company had a strong commitment to R&D and had been regularly
launched new software applications with updated features to help users to meet
their increasingly complex and challenging business needs. The SnF accounting
software package was a comprehensive package that had incorporated modules
such as financial accounting, billing, purchasing, inventory, payroll and even
cloud computing solution. SnF business applications were designed for businesses
operating in a networking environment. All of SnF software applications had
incorporated the most advanced search engine and the report writer for users
to generate unlimited customized reports. Its professional services included
consulting, project management, technical training and support.
SnF Software had a group of qualified software professionals who meticulously
developed business software solutions for different types of industries that they
served.

Organisational Structure
The organizational chart, as shown in Figure 1, indicates that SnF Software had
four departments and each was headed by a manager.

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 Asian Journal of Case Research (AJCR)

Figure 1  Organisational Chart of SnF Software Sdn. Bhd.

The CEO
Edison Goh was the founder and the chief executive officer (CEO) of SnF
Software. He established SnF Software after obtaining his Bachelor of Accounting
and Computer Science from an Australian university 10 years ago. He also acted
as the manager of the R&D Department.

The Sales & Marketing Manager

Jacky Wong was the sales & marketing manager and had been working for SnF
Software for almost 8 years. He was Edison’s best friend.

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 Management Challenges of a Small Family-owned Business Enterprise: SnF Software Sdn. Bhd.

The Human Resource Manager

Sally Goh was Edison’s sister and she was appointed as the human resource
manager of SnF Software 5 years’ ago, immediately after the completion of her
Bachelor of Business, majoring in human resource management graduation from
a local university.

The Admin, Support, Accounts and Customer Service Manager

Selina Lee was the admin, accounts, support and customer service manager
of SnF Software. Previously, she served as the admin, accounts and customer
service manager and was also in-charge of the human resource department until
5 years ago, when Sally Goh was recruited in by her brother to head the human
resource department. In October 2012, Selina Lee was also told to head the
Support Department after the resignation of the previous support manager. She
was Edison’s wife

The R&D Manager

Besides being the CEO of SnF Software, Edison also acted as the manager in-
charge of the R&D department, assisted by his assistant manager, David James.

THE COMPETITORS
SnF Software had two major competitors, AABB Software Sdn Bhd. and DLC
Software Sdn. Bhd. One of AABB software products was AABB Accounting,
which handled processing of sales, purchase, tracking receivables and payables,
had won an award for being able to assist user through automation of data
processing and easy tracking of accounting records. The accounting software of
DLC Software Sdn. Bhd could be customized to user’s requirements. The software
consisted of seamlessly integrated modules that allowed real-time processing.
A comparison of the annual sales of accounting software of SnF Software, AABB
Software and DLC Software is presented in Table 1 below:

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 Asian Journal of Case Research (AJCR)

Table 1  Comparison of Annual Sales of Accounting Software, 2010-2012

2010 2011 2012

RM RM RM
SnF Software 246,000 300,000 338,000
AABB Software 300,000 243,000 220,000
DLC Software 186,000 237,000 279,000

THE R&D DEPARTMENT

The R&D department was responsible for planning and development of new
software that involved software and process design, structure analysis, prototyping
and performance checks. The department had 7 staff that included the manager,
assistant manager, 2 senior programmers and three junior programmers.
SnF Software had invested substantially in R&D to sustain its performance
in the competitive accounting software development sector. It was the company’s
policy to continue launching new software applications every year. There were
three versions of each new software application to be tested and approved by
different “evaluators”; the Alfa version by the R&D staff, followed by the Beta
version by the support staff and the final version by SnF’s dealers. The new
software would be launched only after being tested and approved by these internal
and external stakeholders. The similar development process was applied for
product enhancement.
At least 35% of SnF Software’s revenue was derived from launches of new
accounting software applications, and R&D activities were crucial for product
innovations to ensure its competitiveness in the extremely dynamic IT industry.

The Support Unit

The support unit was responsible for providing technical support, conducting
trouble shooting and training to customers of SnF Software.
Winnie Chan was the manager in-charge of the support unit until September
2012 when she resigned to migrate to Australia with her family. Winnie was prompt
in responding to any customer’s queries and often was able to resolve customers’
problems efficiently. When some of the customers’ complex problems could not
be resolved immediately, she would always discuss with the R&D personnel to
provide some temporary solutions to the customers, while awaiting the R&D
personnel to solve the major technical software problems. In addition, she often

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 Management Challenges of a Small Family-owned Business Enterprise: SnF Software Sdn. Bhd.

conducted training for staff in the support unit to improve their familiarity of the
company’s accounting software applications.
Before Winnie Chan resigned, Izzati was a staff in the support unit. She was
promoted by Selina Lee, the Admin, Accounts, Support and Customer Service
manager, to become the assistant manager in the support unit after Winnie left
SnF Software because Izzati had served almost 5 years in the support unit and
was the most senior among the other staff in the support unit. Unlike Winnie,
Izzati preferred to work by herself in isolation and seldom interacted with other
colleagues in the company. Once in February 2013, a customer from Singapore
had sent Izzati an email regarding a technical problem of his accounting software.
Izzati did not reply his email and when the customer called, she did not answer
his call, instead another support staff had to attend to that customer’s complaint.
After Izzati became the assistant manager in the support unit, she remained
unwilling to answer calls from customers and to directly take charge of customers’
problems. She also seldom monitored the progress of customers’ cases referred
to the support unit by using the company’s customer relationship management
system. Izzati did not know how to conduct proper training for the support staff
and was unable to guide the staff on the proper procedures for providing support
services to customers. Many of the staff in the support unit became demotivated
and frustrated, and several of them had resigned.
To replace those support unit staff who had resigned, Sally Goh, the human
resource manager, would place advertisements on newspapers and conduct
interviews of job applicants. Most of the candidates who came for the interviews
were fresh graduates. Due to her lack of knowledge on software support services,
Sally would merely ask the job applicants to complete a general questionnaire
and selected those applicants whom she opined had given the most appropriate
responses to the items in the questionnaire. Sally, liked her brother, trusted the
information provided by the job applicants and did not verify the information
provided with their referees. Due to the lack of applicants with good work
experience, most of the newly recruited staff members in the support unit were
fresh graduates with little experience of dealing with customers’ queries and
complaints.

An Urgent Management Meeting

At 10 am, December 4, 2013, the same day that Edison found leakage of the
R&D information for development of his new accounting software, Edison held
an urgent management meeting to inform his management team of the leakage
and the need to delay the launching of the company’s new accounting software.

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 Asian Journal of Case Research (AJCR)

Sally : How could that happen? Did you suspect who did
it?

Edison : Yes, I suspect one person, but I do not want to pre-

judge before getting the report of the investigation
from David tomorrow.

Sally : What can you do? Our company does not require
our programmers to sign any Non-Disclosure
Agreement because you trust others too much.

Edison : Hmmm.. that was my fault. I should not have

trusted others too much.

Sally : I will contact our company lawyer and discuss

this problem with him on the action to take.

Edison : Thank you, Sally.

Selina : I will need to revise our budget and estimate our

losses due to the delay in launching of our new
accounting software.

Edison agreed and knocked his head.

Jacky : Edison, I will also have to meet my team to

re-schedule our promotion activities for the
launching and will update you later.

After informing the management team of the leakage of the R&D information, he
continued by expressing his concern on the declining rate of renewal of the annual
maintenance service contracts by the company’s existing customers. The annual
fee income from annual maintenance service contracts had been on a declining
trend; the amount declined from RM243,000 in 2009 to RM112,000 in 2013. He
also highlighted the number of customers’ complaints had increased from 50 in
2011 to 500 in 2012, and then to 2,000 in 2013.

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Management Challenges of a Small Family-owned Business Enterprise: SnF Software Sdn. Bhd.

Edison : Selina, are you aware of this? The number of

customers’ complaints has increased 4-fold from
2012 to 2013. Didn’t you monitor the situation?

Selina : I did not know that the maintenance fee income had
declined so much and the number of customers’
complaints has also gone up 4-fold after Winnie
left us. I do not know much about maintenance
service and how to manage the support unit.
Since Izzati has 5 years of experience working
in the support unit, I promoted her to become the
assistant manager after the previous manager,
Winnie, resigned.

Edison turned to Sally Goh, the human resource
manager.

Edison : What do you think, Sally?

Sally : Selina had earlier asked me to recruit a manger

to take charge of the support unit, but there was
no qualified candidate. So, I agreed to Selina’s
decision to promote Izzati since she is the most
senior staff member in the support unit. I think
we shall send her to attend some management
training courses to improve on her management
skill.

Edison : That is what you think. Now, we have an urgent

problem of stopping the decline of our fee
income from maintenance service contracts. The
increasing number of customers’ complaints
suggests that the staff in the support unit had not
been attending to our customers’ problems quickly
and effectively. What has happened?

Jacky : Yes. I received many complaints from customers

about the slow response to or even no follow-up
on their requests.

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 Asian Journal of Case Research (AJCR)

Edison : Why is no one taking these complaints seriously

(in an angry tone)?

Selina : I will meet the staff members of the support unit

this afternoon to discuss this matter.

Edison : Ok. We will have another meeting tomorrow

morning and let me know of the action plans to
improve the situation.

Immediately after the management meeting, Edison called Izzati to inform her of
Alina’s complaint and to find out who was handling the SC Bhd’s case. Izzati told
Edison that June was handling the SC Bhd’s case, and June was called to Edison’s
office.

Edison : June, why did you not help to resolve Alina’s staff
technical problem?

June : The problem involves debugging and error

correction. I have already waited for more the 7
days, the expected duration for debugging-related
problem, for the R&D to provide the solution. The
R&D staff told me that they are still working on it.

Edison : Why didn’t you call Alina to inform her that her
problem is still being investigated by our R&D
team?

June : Sorry, it’s my mistake. I’ll call Alina and update

her on this.

After June left his office, Edison examined the R&D response schedule
and the support service response schedule. He found that the sequence listing of
customers’ problems and the support service response schedule had to be revised.
Customers’ problems and enquiries must be properly prioritized. He decided to
discuss this matter with his management team tomorrow.

MEETING THE SUPPORT UNIT

Selina went straight to the support unit after the management meeting ended. She
gathered the staff to have a quick discussion.

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 Management Challenges of a Small Family-owned Business Enterprise: SnF Software Sdn. Bhd.

Selina : Izzati, do you know that the number of customers’

complaints has increased 4-fold from last year?

Izzati just remained quiet.

Selina : Can someone tell me what has happened in this

unit?

Wani : Actually, it is not our fault for not able to resolve the
customers’ problems quickly. The programmers at
the R&D department are giving us the solutions
late.

Selina : Why didn’t you inform me earlier? You should

inform me of the late response from R&D so that
I can ask the programmers to provide us with
some temporary solutions while they are trying
to resolve the major technical errors. From now
on, please inform me of your problem. Izzati, you
must take note of all customers’ complaints and
ensure these complaints are handled quickly and
effectively.

Izzati : Alright, Selina (in a very soft voice).

THE INVESTIGATION
After his meeting with Edison, who informed him of the R&D information
leakage, David quickly returned to his office and spend the rest of the day checking
the computer that had been used by Rohani before she resigned. David suddenly
realized that there was one security control locked transaction that needed to
be “unlocked”. He made several attempts to “unlock” the security controlled
transaction, but he failed. David remembered his best friend, Edward Tan, who
was an IT forensic expert and he immediately called him for help.
David told Edward what had happened and requested Edward to come to his
office as soon as he could. While awaiting Edward to arrive, David traced the files
that had been earlier been downloaded and delated by Rohani, but he found those
files were not related to the leaked information. David became confused and was
curious who else could have access and leaked the information. He had to wait for
Edward to arrive before he could continue his investigation.

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 Asian Journal of Case Research (AJCR)

An hour later, Edward arrived and David briefed him on what he had done
and his failed attempts to lock the transaction. Edward started to configure the
network and the authority that issued the password needed to “unlock” the
transaction. Edward finally succeeded to “unlock” the transaction and he found
a hidden IP. David was shocked when Edward traced the IP to one of the staff
members of SnF Software. It was already 8.00pm, but David had to call Edison
to inform of the finding.

David : Edison, I have identified the person who had

leaked our R&D information. I do not know why
he did that.

Edison : Are you saying it was not Rohani? Who was that
guy?

David : It was not Rohani. It was Kent Hu, who is out

senior programmer in charge of developing our
software prototype. He had hacked into Rohani’s
computer and transferred the files to his computer
based on the hidden IP that we found.

Edison : (Shocked) ….Let us discuss the matter tomorrow

morning.

David : Okay. Good night.

After his call to Edison, David asked Edward to help him to lock into Kent’s
computer to search for addition evidence. They saw a suspicious folder in Kent’s
hard disk and opened it. The folder contained the files related to the to-be launched
new accounting software, including the process flows planned for the software
development. David then checked on Kent’s emails, and found three suspicious
e-mails. David had more surprises awaiting him. The first e-mail was Kent being
offered to work as a part-time programmer for AABB Software Sdn Bhd by its
HR manager, and Kent had replied he accepted the offer. The second e-mail was
from Kent’s brother informing Kent that the family urgently needed RM100,000
for their father heart surgery, and the third e-mail was AABB’s offer to buy the
R&D information on SnF’s new accounting software fo RM150,000, to which
Kent replied he accepted by attaching the “stolen” files from Rohani’s computer

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 Management Challenges of a Small Family-owned Business Enterprise: SnF Software Sdn. Bhd.

to AABB. David compiled and documented these pieces of strong evidence to

support his investigation findings that he planned to present to David tomorrow
morning.

An Emergency Meeting
At 8.00 am on December 5, 2013, Edison was in his office and called David to
his room.

Edison : Have you completed your investigation? Are your

findings supported by strong evidences?

David : Yes. Here is the complete report. Kent had worked

as a part-time programmer for AABB Software.
AABB Software had offered a huge sum of money
to Kent for details of our to-be launched new
accounting software, and Kent gave the company
the information because he urgently needed the
money for his father’s heart surgery.

Edison : What?? I did not know all these!!! He did not tell
me his father was in the hospital.

David : What’s our next step? Should we report this to the

police?

Edison : Hmm…let me think about this first. David, you’ve

done a good job. Thank you.

David nodded with a smile and he left the room. After David had left, Edison
called members of his management team to meet at the Board room for an urgent
meeting.

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 Asian Journal of Case Research (AJCR)

Edison : I received the complete report from David. It was

Kent Hu, our senior programmer, who leaked our
R&D information.

Sally : See….I told you not to trust others too much. I had
contacted our lawyer yesterday. Once we have
gathered adequate evidence, he will help us to sue
the culprit. But we did not ask the person to sign
any Non-Disclosure Agreement. Can we sue the
person?

Edison : Thank you Sally. I need to think what the best

option for SnF Software is. Kent did it because he
needed the money for his father’s heart surgery,
but he should have discussed with us.

Everyone in the room was quite. Edison turned to
look at the support service report.

Edison : I went through the R&D response schedule and the

support service response schedule yesterday and
found the sequencing of priorities in responding
to customers’ complaints is not appropriate.
Customers’ problems should be given priorities
and at least a temporary solution should be given
to the customer quickly while we work on resolving
the fundamental errors. This must be conveyed to
the R&D and the support unit staff members. Both
the R&D and the support service schedules must
be revised.

Selina : Noted. I’ll re-look at the two schedules. One more

matter that I need your opinion. After my meeting
with the staff members from the support unit, I
felt that Izzati could not be an effective assistant
manager for the support unit. This is because she
could not provide answers to many of my questions
about the support unit operations and neither is

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 Management Challenges of a Small Family-owned Business Enterprise: SnF Software Sdn. Bhd.

she aware of the customers’ complaints that we

have received. Should we recruit someone who is
more appropriate?

Edison : Hmmm…. I think we could give Izzati a chance

to improve by coaching and training her. Is that
okay, Selina?

Selina : Okay, Edison.

CONCLUSION
After the meeting, Edison felt rather tired and he pushed back his chair to stand
up. In his mind, he was thinking whether he should take action against Kent Hu
since there was strong evidence of the theft and a breach of trust had occurred. He
was worried that the legal action would be damaging to Kent’s future. As for the
increasing number of customers’ complaints and the significant drop in number
of renewals of annual service maintenance contracts, he was concerned whether
Izzati was the right person to lead the support team to ensure customers’ requests
would be attended to promptly and satisfactorily.

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 C A S E 3
Asian Journal of Case
Research
9(2): 106 – 129 (2016)

Managerial Recipes for Strategic Success:

Shangri-La Hotels (Malaysia) Berhad

Haim Hilmana and Narentheren Kaliappena*

PROLOGUE
In spite of growing rivalry in the domestic and global market, strong guests’
demands, fast progression of technologies and on-going economic uncertainties,
Shangri-La Hotels (Malaysia) Berhad (SHMB) is still poised for success. The
outlook of Shangri-La hotels businesses for 2014 appears to be encouraging. In a
highly competitive industry, Shangri-La hotels continually honoured worldwide
recognition for their extraordinary service and Asian hospitality. For instance, in
2015 Shangri-La Hotel Kuala Lumpur was named the Top Hotels in Malaysia,
Top Hotels for Romance, Top Luxury Hotels and Top Hotels for Service by
TripAdvisor Travellers’ Choice Awards.
Furthermore, Shangri-La Kuala Lumpur has once again retained the position
as one of the best eco-friendly hotels in Asia by winning the ASEAN Green Hotel
Award 2014-2016 for the fourth time running, having previously been awarded
the awards in 2008-2010, 2010-2012 and 2012-2014. Three other SHMB such
as Shangri-La Tanjung Aru Resort & Spa, Kota Kinabalu, Shangri-La Rasa Ria
Resort & Spa, Kota Kinabalu and Shangri-La Rasa Sayang Resort & Spa, Penang
were also honoured with this award.
During the twelve months to 31 December 2014, SHMB registered marginal
increase in the revenue to RM513.679 million from RM511.225 million recorded
in 2013. Specifically, Shangri-La registered higher revenue of RM487,458 from
hotels and resorts segment in 2014 compared to RM485,487 in 2013. Throughout
2014, SHMB generally enjoyed more favourable market condition as leisure and
business travel continued to grow at a healthy pace.
The reinforcement of its leadership position and competitiveness within
the industry by maintaining and enhancing the quality of its portfolio through
on-going capital investment programmes, underpinned by product and service

a
School of Business Management, UUM, Sintok
*
Corresponding author: E-mail: [email protected]

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 Managerial Recipes for Strategic Success: Shangri-La Hotels (Malaysia) Berhad

innovation, while maintaining unrelenting focus on delivering the highest

standards of service to guests definitely improved the financial performance and
operational effectiveness.
The reinforcement of its leadership position and competitiveness within
the industry by maintaining and enhancing the quality of its portfolio through
on-going capital investment programmes, underpinned by product and service
innovation, while maintaining unrelenting focus on delivering the highest
standards of service to guests definitely improved the financial performance and
operational effectiveness.

HISTORY
The Shangri-La story began in 1971 with the first deluxe hotel in Singapore.
Inspired by the legendary land featured in James Hilton’s 1933 novel, Lost
Horizon, the name Shangri-La encapsulates the serenity and service for which the
hotels and resorts are renowned worldwide. Today, Hong Kong-based Shangri-La
Hotels and Resorts is Asia Pacific’s leading luxury hotel group.
The hotel is also regarded as one of the world’s finest hotel ownership and
management companies with over 85 hotels and resorts throughout Asia Pacific,
North America, the Middle East, and Europe. In addition, new hotels are under
development in Mainland China, Hong Kong, India, Mongolia, Myanmar,
Philippines, Singapore, Qatar, Sri Lanka and South Africa.
Today’s Shangri-La Hotels are known as five-star luxury hotels and located
in premier city addresses across Asia Pacific, North America, the Middle East, and
Europe. “To treat a stranger as one of our own” characterizes the hospitality one
can expect from Shangri-La. Discerning travellers will enjoy world-class service
amidst tranquil surroundings, coupled with inspired architecture and design. The
finest dining experiences at every hotel and resort ensure that every palate is
pampered.
But what makes each stay truly memorable is something more exquisite and
rare Shangri-La’s special kind of hospitality. Shangri-La Resorts offer travellers
and families a relaxing and engaging vacation in some of the world’s most exotic
destinations. The guests can choose from a range of vibrant cultural experiences,
recreational and rejuvenation activities amidst the natural splendour of a tranquil,
tropical retreat. Besides world-class five-star service, expect the finest culinary
delights that will please the most discerning palates.
Shangri-La has three major brands under its family; Traders, Kerry and Jen.
Traders Hotels are the practical choice for both business and leisure travellers
which located in the business hubs of Australia, Asia and the Middle East. Traders

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Hotels cater to savvy and passionate travellers who appreciate smart functionality
and getting things done. Guests will enjoy a blend of thoughtful simplicity and
the warmth and sincerity of Asian hospitality. Each Traders hotel is, therefore, a
vibrant yet professional environment, designed to complement guests at work,
rest or play.
Kerry Hotels is a new five-star brand in the Shangri-La family. It was
launched in Shanghai and Beijing in 2011. Kerry Hotels are vibrant and buzzing
with life and activity. Each Kerry hotel is defined by a spirited style and a careful
attentiveness that bestows a sense of individuality to all guests. With unique,
functional designs and enthusiastic, intuitive service, Kerry Hotels are places for
a luxurious stay and inspirational experiences.
The Traders brand has had 30 years of success history in generating solid
business, carving out a niche amidst a highly competitive industry and building
a loyal base of customers. However, based on extensive consumer research and
insight into the way its target market lives and travels, including talking and
listening to its customers, they recognised and responded to the global travel
trends and particular needs of this new generation travellers. This will keep them
relevant and competitive for the next 20 years to come. So, Shangri-La launches
new brand, Hotel Jen which rebrands existing Traders.
Hotel Jen is a diverse collection of mid-range hotels in the best locations
across Asia Pacific. The first Hotel Jen launched with the opening of Hotel Jen
Orchard gateway Singapore on September 15, 2014. The brand is the brainchild
of virtual persona Jen, a professional hotelier and all-time lover of life, travel and
discovery. Jen’s unique brand of style and service delivery appeals to what she
calls a “New Generation” of travellers.
The hotel is certainly delivers quality, comfort, convenience and value,
but what makes it special is the way Jen makes people feel: excited and happy,
respected and cared for, and as valued members of a group of likeminded
adventurers in life. Jen’s dream is for every stay to start with anticipation and end
on a high. Hotel Jen is Jen’s own inspiration and she can’t wait to share it with
you. So stay with Jen and experience “That Jen Feeling” for yourself soon.

SHANGRI-LA CULTURE
Through the years, Shangri-La’s philosophy has been “Shangri-La Hospitality
from a caring family.” Shangri-La has always believed in the unique characteristics
encapsulated by Asian hospitality. The group is committed in providing guests
with distinctive Asian standards of hospitality and service enables them to stand
out amongst their peers. This quality remains the cornerstone of its reputation as

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a world-class hotel group. “Pride without arrogance” is of particular importance

to the group.
The hotel take pride in every achievements, while remaining outwardly
humble. In striving to delight customers each and every time they stay with them,
the hotel aims to exceed expectations through consistent quality and value in
every product and service offered. That’s why Shangri-La looks for trend setters
and professionals who are motivated by innovation and driven by achievement.

Overview of Shangri-La Hotels (Malaysia) Berhad

Shangri-La Hotels (Malaysia) Berhad (SHMB) is an investment holding company
which incorporated with limited liability and traded on Bursa Malaysia Securities
Berhad. SMHB engaged in the operation of hotels, beach resorts, golf course,
clubhouse, property management and commercial laundry. In Malaysia, the
hotel properties include Shangri-La Rasa Ria Resort, Kota Kinabalu, Shangri-La
Tanjung Aru Resort and Spa, Kota Kinabalu, Putrajaya Shangri-La, Shangri-La
Kuala Lumpur, Traders hotel, Kuala Lumpur, Hotel Jen, Penang, Golden Sands
Resort, Penang, Shangri-La Rasa Sayang Resort and Spa, Penang and Hotel Jen,
Puteri Harbour Johor.

Vision and Mission

SHMB vision is “To be the first choice for guests, colleagues, shareholders and
business partners.” Meanwhile, the mission is “To delight our guests every time
by creating engaging experiences straight from our heart.” In addition to the vision
and mission statements, SHMB is guided by its high standards, which includes the
following guiding principles:
●● Ensure leadership drives for results
●● Make guest loyalty a key driver of our business
●● Enable decision-making at the guest contact point
●● Be committed to the financial success of our own unit and of our company
●● Create an environment where our colleagues may achieve their personal and
career goals
●● Demonstrate honesty, care and integrity in all our relationships
●● Ensure our policies and processes are guest and colleague-friendly

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●● Remain deeply committed to our social responsibility by making a positive

contribution to our communities, environment, colleagues, guests and business
partner.

Corporate Governance
Board of Directors
The Board of Directors is currently made up of nine members, comprising
seven non-executive directors and two executive directors. Figure 1 illustrates
the Organizational Chart of SHMB (See Exhibit 1). The names and biographical
details of each director in office as of 31st December 2014 were as follows:
Tan Sri A. Razak bin Ramli (age 65) was appointed to the Board of SHMB on
1st November 2004 and became Board Chairman on 19th May 2005.
Madam Kuok Oon Kwong (age 67) is joined the Board on November 14,
1996 and was appointed as Managing Director on November 16, 1998. She is
the Chairman of the Policy Implementation Committee and in her capacity as
Managing Director, she oversees business operations.
Datin Rozina Mohd Amin (age 54) is Company Secretary and Non-
Independent Executive Director. She was appointed as an Executive Director
on June 1, 1998. She also has been a member of the Policy Implementation
Committee since 1996.
Dato’ Haris Onn bin Hussein (age 47) is Independent Non-Executive Director.
He was appointed to the Board on October 17, 2006.
Dato’ Seri Ismail Farouk Abdullah (age 68) is Independent Non-Executive
Director. He was appointed to the Board on June 23, 1979. He is also Chairman
of the Company’s Audit Committee and is Member of the Nomination &
Remuneration Committee.
Dato’ Khoo Eng Min (age 72) was appointed to the Board on 10 June
2008. On 23 February 2015 SHMB announced the resignation of Dato’ Khoo
Eng Min as Non Independent & Non-Executive Director of the company, due
to health conditions. Mr. Tan Yew Jin (age 72) has been Non-Independent Non-
Executive Director since October 17, 2006. He is Member of the Company’s
Audit Committee.
Datuk Supperamaniam a/l Manickam serves as Independent Non-Executive
Director. He was appointed to the Board on January 3, 2005 and is Member of the
Audit Committee and Nomination & Remuneration Committee.

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Dato’ Dr. Tan Tat Wai (age 67) is Independent Non-Executive Director. He
was appointed to the Board on June 6, 1995 and is currently Chairman of the
Nomination & Remuneration Committee.
The board has made tremendous contribution to the company and always
committed to high standards of corporate governance. The Board recognises
effective governance as fundamental to SMHB to deliver a sustainable growth in
return for its shareholders over the long term. The Board also strives to maintain
the highest levels of accountability, integrity and business conduct through
SMHB’s core values and Code of Ethics, which fully embedded in every part of
the organization.
In accordance to the Listing Requirements of Bursa Malaysia Securities
Berhad (Bursa Malaysia), this statement describes the way in which the company
has applied the principles and recommendations set out in the Malaysian Code
on Corporate Governance 2012 (the 2012 Code). Exhibit 2 shows the top
management of SHMB that leads Shangri-La Rasa Ria Resort, Kota Kinabalu,
Shangri-La Tanjung Aru Resort and Spa, Kota Kinabalu, Putrajaya Shangri-La,
Shangri-La Kuala Lumpur, Shangri-La Rasa Sayang Resort and Spa, Penang,
Traders hotel, Kuala Lumpur, Hotel Jen, Penang, Golden Sands Resort, Penang,
and Hotel Jen Puteri Harbour Johor.

Risk Management and Internal Control Processes

SHMB has an established framework of procedures and internal controls of which
each operating business unit are required to comply. All its hotel and resort are
required to maintain systems of internal control in accordance to the nature and
scale of their business activities and to address all significant operational, financial
and compliance risk.
Organizational structure with key responsibilities such as the board, the board
committees and executive management of the group’s major operating units are
well defined at SHMB. Specifically the audit committee of the board currently
comprise three non-executive directors; two of them are independent and has
full access to both the internal and external auditors. Furthermore, key policies
and control procedures regulating financial and operating activities are clearly
documented in manuals for hotel operating units.
To ensure its competitiveness, the company has established policy
implementation committee (PIC) that is responsible to look in detail the annual
budgets and strategic matter such as business strategies, financial and operating
targets, performance indicators and capital expenditure process. SHMB
comprehensive financial reporting system has enable the executive management

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of major operating units, the executive directors and the board to make better
decisions.
Detailed management accounts are prepared by each operating unit based on
an annual budget with monthly reports are compared against budget analysis of
significant variances as well as key performance indicators. The group has clear
procedures for the appraisal of major capital expenditure, asset disposal and major
business transactions which must be approved by the board as well as detailed
procedures and authority levels relating to all other expenditure.
SHMB gives great emphasis on communicating information relating to
business plan and performance to employees as to encourage participation and to
create awareness of the financial and economic factors affecting the group.
Internal audit plays a critical role in the objective assessment of SHMB’s
business process by providing the audit committee of the board with reasonable
independent assurance on the effectiveness and integrity of SHMB internal
control system.
To enhance total good governance, SHMB has whistle blowing and whistle
blower protection policy to demonstrate its commitment to conducting its business
according to the highest standards of openness, probity and accountability as well
as enable employees and business associates to report suspected wrongdoing as
soon as possible.

Corporate Social Responsibility

SHMB is fully committed to sound principles of Corporate Social Responsibility
(CSR). CSR is integral to the hotel in conducting its business and underpins their
long-term growth strategy. SHMB places a strong focus on engagement with
stakeholders at all levels including employees, customers, shareholders and local
communities.
This is supported through SHMB commitment when working closely and
participates in extensive dialogue with local authorities and government bodies at
both national and local levels on environment related issues to deliver common
goals and objectives. Specifically, CSR committee oversees the on-going
development and implementation of the Group’s CSR policies and practices
as well as to monitor progress in the key areas of environmental management,
employment, health and safety, community support and supply chain management.

Environmental Sustainability
SHMB is acknowledged by the government on its responsibilities for managing
and reducing the impact of its businesses on the environment and committed to

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making continuous improvement in environmental performance. Thus, SHMB

follow an Environmental Management System (EMS) Manual, which helps to
identify and address the immediate and long-term impact of the hotel’s operations
on its local environment.
This has enabled all SHMB’s hotels having attained ISO 14001 accreditation
and international standard of environmental management. SHMB has also made
significant investment in initiatives to improve efficiency in the use of resources
including energy and water.
Furthermore, SHMB continue to roll out energy saving measures such as
replacing older equipment with energy efficient alternatives like at Shangri-La
Hotel Kuala Lumpur, which all its lifts and escalators have been upgraded with
modern technology such as built-in sensors, converted the use of LPG to natural
gas for the boilers and energy saving LED bulbs.
In addition, SHMB’s hotels and resorts use new environmentally friendly
CFC free high efficiency chillers, guestrooms electronic control systems, high
efficiency lighting, water saving flush system, other water saving devices and
water purification system. SHMB also explored opportunities to improve its
waste management programmes through the recycling of waste such as glass
bottles, papers, plastics, metal and used cooking oil via segregation and recycling
programmes.
SHMB also gives importance to conservation and biodiversity, so each of
their resorts has a “Sanctuary” and “Shangri-La Care for Nature Project”. For
example, Rasa Ria Resort Sabah has the “Orangutan Care Project” and at Rasa
Sayang Resort and Golden Sand has the “Turtle Care Project”.

Human Resources Sustainability

The company believes employees are central to the continued success of their
business and reputation for service excellence. SHMB embraces diversity
and operates a non-discriminatory employment policy by providing equal
opportunities in all aspects of employment. Specifically, SHMB provides working
environment that fosters continuous development and innovation of employees at
all levels. These enable SMHB to maximise their potential and capabilities from
within. Every hotel employee is required to participate in the Shangri-La Care
Programme which is designed to promote the understanding and daily practice of
the Group’s core values and code of ethics.
The programme consists of four modules called Shangri-La Hospitality from
a Caring Family, Delighting and Engaging with Guests, Taking Ownership and

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Recovering to Gain Loyalty. SHMB also operate a wide range of service and
functional skills training activities for employees of all levels, including training
programmes and internal training courses to develop and improve the management
and leadership skills of top talent and high potential employees.
The group has in place four core development programmes for managerial
employees with potential that create pathway for internal promotion, namely
the Corporate Service Executive Training Programme, the Corporate Executive
Trainee Programme, Corporate Management Trainee Programme and Corporate
Trainee Programme. Furthermore, the group provides opportunities for selected
employees to attend training at the Shangri-La Academy in China for its
certificate, diploma and management development programmes. In 2014, a total
of 35 employees from Group’s hotels and resorts attended the Academy.
The group has cultivated special skills by creating employment opportunities
of people with disabilities (PWDs). The group targeted 2% of each hotel’s staff to
be PWDs that are working in various divisions and as at the end of 2014 Shangri-
La Hotel Kuala Lumpur and Hotel Jen Penang have exceeded the target while the
other three hotels are making good progress to achieve the target. Rasa Ria resort
has also received a Gold Award from the Social Security Organization (SOCSO)
for its initiative in employing PWDs under the Return to Work programme.
Besides that, employee feedback and suggestions are encouraged through its staff
opinion surveys, speak-up programmes, team meetings and two way dialogue
sessions. Employees are kept informed of business developments through a
variety of communication channels.

Health and Safety Sustainability

SHMB places a strong emphasis on ensuring the highest level of food safety
and on managing food safety risk under the stringent Shangri-La Food Safety
Management System (SFSMS). The SFSMS is a comprehensive system covering
the receiving, preparing, cooking and serving of food items and safeguard against
the cross-contamination of products. More significantly, four of their hotels and
resorts have now attained Hazard Analysis and Critical Control Point System
(HACCP) certificate.

HACCP is global food safety standard system and is one of the most sought
after accreditations in the hospitality industry. Furthermore, four hotels obtained
Occupational Health and Safety Management System (OHSAS 18001). OHSAS
18001 is an international occupational health and safety management system
which helps organizations to control and manage the health and safety risks
associated with its business activities.
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The Community Sustainability

SHMB is conscious on its responsibility to act as a good corporate citizen and
encourage its hotels to engage with local communities in their area of operation.
“Embrace, Shangri-La Care for People Project” aims to build, strengthen and
sustain local communities through various specific education and health projects,
infrastructural support, fundraising, corporate donations, living skills training
and hotel apprenticeship. SHMB provides not only positive economic benefits
through employment opportunities but also significant training support for
developing the capabilities of many locals so as to groom them for senior roles.
Its provide practical training on various aspects of hotel operations for students
from local higher learning institutions, which include community programmes
like Young Enterprise Programme, Embrace Gift of Life Project, Embrace Gift of
Limb Project and Embrace Shangri-La’s Care for People Project.

Supply Chain Sustainability

To remain competitive, SHMB provides CSR guidelines for its major suppliers.
Specifically, in accordance with SHMB Corporate Purchasing Policy, suppliers
are required to comply with its supplier code of conduct, which is included as an
appendix to every supplier contract and regularly reviewed to ensure compliance.
The code is closely aligned with SHMB’s core values and incorporates recognised
international best practices in the area of labour and human rights, health and
safety, environment impact, ethics and management commitment.

FINANCIAL POSITION
Revenue
In the twelve months to 31 December 2014, SHMB registered a marginal increase
in revenue to RM513.679 million from RM511.225 million reported in 2013, as
higher contributions mostly from Rasa Ria Resort and Golden Sands Resort, were
largely offset by a fall in revenue at Rasa Sayang Resort due to the disruption
caused by the renovation programme of all its Garden Wing guestrooms for the
most part of 2014. The Group pre-tax profit for 2014 dropped to RM119.497
million, 29% lower than last year’s profit of RM168.181 million.
Correspondingly, net profit attributable to shareholders for 2014 fell by 39%
to RM79.340 million, compared with the RM130.367 million earned in 2013.
The 2013 result included a reversal of an impairment provision of RM29.744
million related to investments in Myanmar. Earnings per share for 2014 were

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18.03 sen, down from 29.63 sen in 2013. Excluding the impact of non-operating
items, the Group net profit for 2014 was RM87.127 million, a decrease of 8%
from RM94.397 million recorded in the previous year, principally as a result of a
significant reduction in contribution from Rasa Sayang Resort.

Net Asset
At the end of 2014, net assets attributable to shareholders stood at RM954.979
million, representing a net asset value per share of RM2.17, the same level as at
end of 2013.

Cash Flow
At 31 December 2014, the Group had a consolidated net debt position of
RM29.211 million, while net gearing was 3% of shareholders’ equity, compared
to 2% at the previous year end. The healthy balance sheet and financial capacity
enabled SHMB to take advantage of investment opportunities, and allow pressing
on with its initiatives for further growth.

Dividend
Given these results, the Board of Directors are recommending a final single-tier
dividend of 9 sen per share which, together with the interim single-tier dividend
of 3 sen per share paid in November last year, brought the full year dividend for
2014 to 12 sen per share. In the financial year 2013, a total single-tier dividend of
18 sen per share was paid, made up of a final of 10 sen per share and an interim of
3 sen per share, plus a special dividend of 5 sen per share.

MANAGEMENT STRATEGIES
SHMB is determined to build strong marketing capability and cost performance,
while driving service and product improvements in response to the challenging
operating environment. This enables to further bolster the competitive position and
to achieve higher returns. SHMB sets up marketing programmes and activities so
as to maximise revenue opportunities in key leisure and corporate travel markets.
Simultaneously, SHMB implements more innovative marketing initiatives,
promotions and packages aimed at stimulating demand and aggressively
increasing market penetration in emerging markets with high growth potential.

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SHMB develops and maintain both strong sales and marketing network and
close business relationships with existing and potential major suppliers and key
customer accounts and these further increase its brand and product awareness. It
also builds and improves the capabilities of sales and marketing teams to sharpen
market execution and performance. In 2014, SHMB was focusing on revenue-
enhancing programmes and its effective rate strategies had led to healthy market
share gains of its individual hotel markets.
In the phase of increasing cost pressures, SHMB focuses on generating
sustainable growth in operating margins by driving their planned efficiency
programmes, raising labour productivity and their work processes, while keeping
costs under tight control. Concerted efforts in these areas during 2014 ensured
that the majority of its businesses achieved good increases in operating margins.
SHMB also take prudent and disciplined approach to capital expenditure.
In 2014, the capital expenditure was mainly deployed on the renovation of the
Garden Wing guestrooms at Rasa Sayang Resort and the completion of the new
extension project at Rasa Ria Resort. The group also increased its investments for
new or upgrades IT equipment as the management believes advanced technology
would boosts operational effectiveness.
SHMB continues to invest in maintaining and enhancing the high quality and
standards of its existing products and facilities to strengthen and fortify leadership
in the hotel industry.
This is backed by a strong programme of innovative products and dining
concepts as continually responds to changing customer trends and expectations.
SHMB also continuously focuses on improving its customer service
capabilities across all business activities and on becoming ever more responsive to
customer needs. Meanwhile, to further reinforce their operational capability and
to support its growth ambitions, the hotels continued to prioritise the development
of its people at every level of the organisation.
This involves not only upgrading the skills, core competencies and productivity
but uplifting its performance via well-embedded training, management and
leadership programmes. As it also regard staff wellbeing as of paramount
importance, in 2014, SHMB introduced a number of fresh initiatives to promote
safety and health. Building its commitment to product quality, in April 2014, the
hotels embarked on a programme to comprehensively refurbish the Garden Wing
guestrooms at Rasa Sayang Resort. With the newly renovated rooms, the resort
is better placed to compete well in the local market. The project had successfully
completed in April 2015 after a 24-month construction period has been very well
received in the marketplace.

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This major undertaking has consolidated the Sabah hotel market as well as
providing the resort with significant growth opportunities in the years ahead.
As a responsible business entitiy, SHMB has strong commitment to business
sustainability. Its market-leading brands and high quality assets, combined with
financial strength and operational expertise had enable SHMB to position itself
better to withstand the challenges ahead and to benefit from any improvements in
market conditions.

CONTEMPORARY BUSINESS ENVIRONMENT

The government of Malaysia has sound vision and plan for the country. Specifically,
the government strengthens its macroeconomic policies by introducing New
Economic Model (NEM), Economic Transformation Program (ETP), National
Key Economic Areas (NKEA), Strategic Reforms Initiatives, 1 Malaysia concept,
Government Transformation Program (GTP), 10th Malaysia Plan 2011-2015,
five economic growth corridors and existing Vision 2020 which could transform
Malaysia to be high income nation.
Furthermore, the government gives some tax deduction or exemption for
pioneer status, overseas promotion, approved trade fair, tour operators and stamp
duty. In addition, they provide Investment Tax Allowance (ITA) for new hotel
construction or renovation.
From 1st April 2015, Malaysian government implemented 6% of Good and
Services Tax (GST) replaced its 10% Sales Tax and 6% Services Tax. The GST
implementation is part of the government’s tax reform programme to enhance the
capability, effectiveness and transparency of tax administration and management.
It is very clear that the government invested back most of the tax collected for
infrastructure development that support more industries including hospitality
sector.
Notably, Malaysia is rapidly developing economy in Asia Pacific region. In
the first quarter of 2015, the GDP expanded by 5.6% over a year earlier. The
service sector contributed 54% for the GDP. Malaysian government’s forecast of
growth for 2015 from 5-6% previously to now 4.5-5.5%. Malaysian Investment
Development Authority (MIDA) highlighted that there are wide investment
opportunities in Malaysia.
Investment climate in Malaysia is growing and attracting many investors
to invest in this country. Recently, Foreign Direct Investment (FDI) Confidence
Index study shows that Malaysia is 10th most attractive destination. In 2014, the
Asia Pacific Investment Climate Index shows that Malaysia ranked at 9th from the
20 countries. These scenarios positively affect hotel and tourism sectors.

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Based on the report of Department of Statistics, Malaysia in May 2015,

Malaysia’s population recorded as 30.5 million. Malaysia’s population comprise
of Malays 50.4%, Chinese 23.7%, Indian 7.1 %, Indigenous 11% and others 7.8%.
Furthermore, 72% of total population lived in urban areas. Every single citizen is a
prospect to boost local tourism industry. Furthermore, in 2014 Malaysia recorded
27.4 million foreign tourist arrivals.
Malaysia is considered as upper middle income nation. The 2014 household
income survey found that average monthly income of Malaysian household rose
from RM 5000 in 2012 to RM 5900 in 2014. Due to rising household income
and educational level the lifestyle and customer buying behavior or patterns have
changed. Currently, Malaysians become more sophisticated and cosmopolitan
and looking for greener, healthier and beautiful lifestyles.
From religious perspectives, halal certificate given by Jabatan Kemajuan
Islam Malaysia (JAKIM) is crucial for hotels to possess if they intend to attract
Muslim community. Such halal certificate will not attract Muslim guests only
but non-Muslims too. On the other hand, Statistics Department said Malaysia’s
unemployment rate rose 0.1% to 3.2% in February 2015 from 3.1%. This situation
will somehow affect Malaysia economy and it certainly requires government and
firms to be more creative in creating new jobs.
Recent survey of TripAdvisor Inc shows that 93% of Malaysian travellers
used online resources to plan their trip. Current technology development in
Malaysia could be seen from the use of SOTA (Smart Online Travel Assistant) and
SoLoMo (Social, Local & Mobile). Specifically, SoLoMo assists the travellers
in making better decisions. Furthermore, the TripBarometer survey found that
35% of Malaysian travellers booked their accommodations via online and this
development has endorsed the important of e-commerce in today’s business
environment.
Generally people used more social media such as websites, Facebook,
twitter and mobile applications to survey and book the hotels. Good transporation
infrastructure also important in tourism industry. Airline industry plays a key role
in hotel business development. In Malaysia there are several local based airlines
such as Malaysia Airlines System (MAS), Air Asia, Firefly and Malindo. Air Asia,
Firefly and Malindo provide cheapest flights for travellers.
Besides local airlines, there are approximately 52 airline companies operating
in Malaysia airports which give ample service for the tourists. Unfortunately, the
Malaysian airlines tragedies in 2014 had declined visitor arrivals to Malaysia.
Malaysia’s newly constructed electrified double track railway would create
better growth prospect for the sector. Furthermore, the Land Public Transport

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Commission (SPAD) and Ministry of Tourism implementing Taxi Transformation

Plan and Taxi Ambassador Program to advance the local transportation. All these
would boost the tourism sector further.
No doubt that tourism industy effects ecosystem. Water pollution, air
pollution, wastage problems, deforestation, soil erosion, species endangering
and natural disasters are among common issues associated to unethical business
conducts. Lately, Malaysia regularly faces haze problem where the Air Pollution
Index (API) reached almost 746.
Malaysia through Department of Environment, Ministry of Natural
Resources and Environment is responsible for implementation and monitoring
of Environmental Quality Act 1974 besides various environmental policies such
as water quality management, air quality management, waste management,
environment and climate change, reduction of greenhouse gases and so on.
Malaysia also has great diversity of ecosystem. National Biodiversity Policy 1998
is one of the important local agenda of Department of Environment. Thus, the
quality environment is a key asset for the tourism areas.
In Malaysia, there are lot of hotels and resort, strategically located in various
places. The statistic shows that, currently Malaysia has 475 of 3 to 5 star hotels.
Among major competitors in the sector are Marriot, Intercontinental, Sheraton,
E&O, The Westin, Hyatt, Le Meridian, The Ritz Carlton and Hilton. Competition
is more on competitive pricing, promotion, advertising activities to attract more
customers and most of them offer almost the same quality services. From time to
time, there are new hotels entering the luxury hotel market.
The competition is shaped up by national plan in which Malaysia focuses to
increase number of 4 and 5 star hotels under NKEA agenda. Therefore, under the
2012 budget, Ministry of Finance had approved investment tax allowance and
pioneer status for new 4 and 5 star hotels. In 2012, an additional 3648 new 4 star
and 5 star hotel rooms were completed.
Hotels need lot of suppliers to run their day to day business operation. The
amount of suppliers is high and this enable the market to remain competitive.
Besides competition among themselves, the hotels are facing pressures of
alternatives from homestay program. Currently, there are 219 homestay in
Malaysia registered under Ministry of Tourism. It only requires low capital and
maintenance cost to maintain the homestay and also encouraged by Ministry of
Tourism, Malaysia. Customers sometimes tend to look for more alternatives which
fulfil their requirement. Overall, it shows that there are numerous challenges in
general and industry environments.

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EPILOGUE
The outlook for hotel businesses is expected to be more challenging during 2016
onwards in an uncertain operating environment and with heightened competition
in certain marketplaces. In response to the challenging operating environment,
SHMB determined to build their strong marketing capability and cost performance,
while driving service and product improvement.
This further bolsters its competitive position and to achieve higher returns
from its businesses. Thus, with the right strategies building and sustaining
competitive advantage initiatives, SHMB is truly competent enough to overcome
the hurdles in 21st centuries. SHMB needs to continually use strategic planning
so it will be successful in the competitive industry of hospitality.

REFERENCES
Shangri-La Hotels (Malaysia) Berhad Annual report. (2014). Retrieved from http://
ir.shangri-la.com/ir/en/reports/annualreports/my/ /2014/20140427.pdf
Department of Statistics, Malaysia. (2015). Malaysian population. Retrieved from https://
www.statistics.gov.my/
Overview of the National Key Economic Areas. (2015). Retrieved from http://etp.
pemandu.gov.my/Sectors_in_Focus-@-Overview_of_NKEAs.aspx
Saieed, Z. (2015, April 24). Unemployment rate higher in February in Malaysia.
Retrieved from http://www.thestar.com.my/Business/Business-News/2015/04/24/
Unemployment-rate-higher-in-February-in-Malaysia/?style=biz
Shangri-La hotels and resorts. (2015). Retrieved from http://www.shangri-la.com/
Survey results of Malaysian travellers. (2014). Retrieved from http://www.thestar.com.my/
Travel/Malaysia/2014/09/30/Survey-results-of-Malaysian-travellers/
Tripadvisor’s metasearch to power hotel price comparison on bing. (2013). Retrieved from
http://ir.tripadvisor.com/releasedetail.cfm?releaseid=808893

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EXHIBITS
Exhibit 1: Organizational Chart

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 Managerial Recipes for Strategic Success: Shangri-La Hotels (Malaysia) Berhad

Exhibit 2: Top Management

1. Shangri-La Rasa Ria Resort, Kota Kinabalu

Jean-Marc Michel
General Manager

Suzaini Ghani
Director of Sales & Marketing

Tina Goh
Director of Communications
2. Shangri-La Tanjung Aru Resort and Spa, Kota Kinabalu
Andrew den Oudsten
General Manager

Michele Ma
Director of Sales & Marketing

Claudina Wong
Director of Communications

Putrajaya Shangri-La

Atiq Rehman
General Manager

Rodziah Salleh
Director of Sales and Marketing

Shangri-La Kuala Lumpur

Manfred Weber
General Manager

Cheah Keat Fui

Director of Sales and Marketing

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 Asian Journal of Case Research (AJCR)

Rosemarie Wee
Area Director of Communications
Shangri-La Rasa Sayang Resort and Spa, Penang

Elaine Yue
General Manager

Alex Pasion
Director of Sales

Suleiman Tunku Abdul Rahman

Director of Communications
Traders hotel, Kuala Lumpur

Christian Nannucci
General Manager

Tammy Khoo
Director of Sales & Marketing

Theresa Goh
Communications Manager

Hotel Jen, Penang

Gavin Weightman
General Manager

Golden Sands Resort, Penang

Keith Tomkies
General Manager

Alex Pasion
Director of Sales

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 Managerial Recipes for Strategic Success: Shangri-La Hotels (Malaysia) Berhad

Suleiman Tunku Abdul Rahman

Director of Communications
Hotel Jen, Puteri Harbour Johor

Sigi Bierbaumer
General Manager

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 Exhibit 3: Income Statement
Income statement
Year Ending December 31 2010 2011 2012 2013 2014
Revenue (RM’000) 422,002 479,731 469,572 511,225 513,679

Operating profit before exceptional - - 102,760 129,716 120,473

item
Exceptional item - - - 29,744 -
Operating profit 95,626 82,890 102,760 159,460 120,473
Interest income 262 408 444 1,312 2,438
Interest expense (5,057) (3,018) (1,920) (1,416) (2,092)
Share of results of associated 451 558 1,186 8,825 (1,322)

126
companies
Profit before tax 91,282 80,838 102,470 168,181 119,497
Tax expense (11,785) (15,514) (30,373) (28,373) (33,705)
Asian Journal of Case Research (AJCR)

Net income 79,497 65,324 72,097 139,808 85,792

Profit attributable to:

Shareholders of the Company 69,959 60,564 67,389 130,367 79,340
Non-controlling interests 9,538 4,760 4,708 9,441 6,452
Profit for the year 79,497 65,324 72,097 139,808 85,792
Basic earnings per ordinary share 15.9 13.8 15.32 29.63 18.03
(sen)
 Managerial Recipes for Strategic Success: Shangri-La Hotels (Malaysia) Berhad

Exhibit 4: Balance Sheet

Balance Sheet
Year Ending 2010 2011 2012 2013 2014
December 31
RM’000)
Assets
Non-current
assets
Property, 745,351 731,059 730,885 707,788 757,829
plant and
equipment
Investment 266,846 266,899 269,280 280,860 285,630
properties
Investments - - - - -
in subsidiaries
Interests in 10,291 10,291 50,726 152,154 128,484
associates
Property 12,240 12,240 12,286 12,286 12,286
development
expenditure
1,034,728 1,026,967 1,065,304 1,153,088 1,184,229
Current
assets
Inventories 8,754 8,809 8,911 8,440 8,527
Trade 24,796 23,938 29,138 27,533 26,563
and other
receivables,
prepayments
and deposits
Tax 3,246 1,765 1,061 434 3,062
recoverable
Cash and cash 17,200 21,655 27,605 93,719 56,595
equivalents
53,996 56,167 66,715 130,126 94,747
Total assets 1,088,724 1,083,134 1,132,019 1,283,214 1,278,976

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 Asian Journal of Case Research (AJCR)

Exhibit 4 (cont.)
Year Ending 2010 2011 2012 2013 2014
December 31
RM’000)
Equity
Share capital 440,000 440,000 440,000 440,000 440,000
Reserves 351,834 382,698 428,932 514,839 514,979
Total equity 791,834 822,698 868,932 954,839 954,979
attributable
to
shareholders
of the
Company
Non- 78,610 82,530 86,314 94,712 100,164
controlling
interests
Total equity 870,444 905,228 955,246 1,049,551 1,055,143

Liabilities

Non-current 46,258 5,306 - - -

liabilities
Retirement 12,878 13,404 15,058 17,864 19,676
benefits
Deferred tax 16,845 18,664 15,540 16,423 21,932
liabilities
75,981 37,374 30,598 34,287 41,608

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 Managerial Recipes for Strategic Success: Shangri-La Hotels (Malaysia) Berhad

Exhibit 4 (cont.)
Year Ending 2010 2011 2012 2013 2014
December 31
RM’000)
Current
liabilities
Short-term 81,441 75,887 60,054 111,482 85,806
borrowings
Trade and 59,952 63,892 83,042 86,077 96,125
other payables
Current tax 933 753 3,079 1,817 294
liabilities
142,299 140,532 146,175 199,376 182,225
Total 218,280 177,906 176,773 233,663 223,833
liabilities
Total equity 1,088,724 1,083,134 1,132,019 1,283,214 1,278,976
and liabilities

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 C A S E 4
Asian Journal of Case
Research
9(2): 130 – 140 (2016)

Managing Corporate Image of an Organization

Means Managing its Life Blood Cells!

Shahenshahaa and Hossein Nezakatia

ABSTRACT
This Zealous Airlines attempts to throw light on, and propose resolution
of, the specific issues of Corporate Image and ranking in airline
industry that cause success or failure. This study also opens door of
opportunity for airline industry’s personnel to recognize, anticipate,
and resolve certain issues at hand, and enjoy lofty corporate image
giving rise to rank of their airlines despite the challenges of this rapidly
expanding and challenging competitive world of opportunities and
threats. This Zealous Airlines also opens opportunity for researchers
to explore further dimensions of corporate image and rank fluctuation.

Keywords: Corporate Image, Marketing Communications, Internet

Marketing, Video Marketing Efforts,

Special Note
The organizations, the personnel, the characters, and venders as well as stake
holders (in any appearance) are an imitation, and don’t represent any real character
or organization. If some coincidence occurs and resemblance conflicts with any
real character or an airline or any organization, this should be known that it is not
done on purpose as the writers of this Zealous Airlines acknowledge the respect
and importance of the anonymity and privacy of each individual relevant in any
respect.

a
Faculty of Economics and Management, UPM
*
Corresponding author: E-mail: [email protected]

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 Managing Corporate Image of an Organization Means Managing its Life Blood Cells!

Factious Names that are used in this Zealous Airlines:

1. Zealous Airlines
2. Zesty Airlines
3. Shine Airlines
4. Optimizer de Air (evaluators of airlines)
5. Fresh Travels (tourism service provider)
6. Malaysian International Show
7. Ms. Jonna (main character)
8. Mr. Ahmed (mentor)

BACKGROUND
Zealous Airlines
Zealous Airlines is a world-famous airline, and has made a great prestige over
the decades. People blindly trust it because of its ranking and services. It has
its offices all over the world. People do like to travel by Zealous Airlines. The
food and the luxury services have been the most competitive over the past ten
years. The aircrafts of Zealous Airlines have been the latest aircrafts. They are
also the most expensive aircrafts in the world. The staff is proud of working in
this organization. The prices are also very competitive. Thus, this airline has given
a tough time to other airlines in the world. That’s one of the reasons that it has
been No.1 in the world for many consecutive years. Currently, during the last two
years, suddenly the rank of Zealous Airlines has unexpectedly fallen from No.1 to
No. 7, and it has raised a lot of questions in the minds of its travelers.

Zesty Airlines
Zesty Airlines is not an equal competitor of Zealous Airlines, yet it has suffered
the same fate during last two years. This is considered to be among the world’s
top 10 airlines. During last ten years, it has maintained its reputation as world’s
top ten airlines. It has never been at the top, but at the same time it has never
gone below number 10. People of its area are proud of their airline. In many
areas, it surpasses even the world’s top airlines, that is, in luxury A Class, and
in Business Class. The fare is not very competitive. The flights are excellent and
brand new, but the airport services are often criticized. People don’t take a great
notice of airport services since they find the in-flight services as one of the best

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services. Zesty Airlines has, during last two years, faced a shock of rank drop,
and of course, corporate image loss. This has raised some serious questions in the
minds of its loyal passengers, and has affected its sales as well as name.

Optimizer de Air (evaluators of airlines)

Optimizer de Air is an organization that is world famous, and it conducts
international surveys for all the airlines every year. These surveys are conducted
on the bases of public (passengers’) opinions based on their current and recent
experiences with the certain airlines. Optimizer de Air are famous for their just and
fair surveys and their truthful and reliable results throughout the world. Most of
the airlines in the world have appointed one of their chief officers to be a volunteer
member and supporter of this organization so as to build better reputation and
relationship with it. However, it only helps them understand the techniques and
standards of measurements of ranking of airlines. Every year, Optimizer de Air
selects a country for the air show, and then announces its results: Most probably
during the end or beginning of the year.

Fresh Travels (tourism service provider)

Fresh Travels is a private organization that serves as a truism service provider. This
organization has been the most reliable station for people to book their tickets, and
collect travel and airlines’ information. Fresh Travels also provides home service
and travel packages to corporate customers. The most important thing people love
about this organization is that their fares are lesser and competitive as compared
to any other travel service providers. Even if people book online themselves,
Fresh Travels competes the fares in the shape of services and refund packages.
Because of these competitive edges, Fresh Travels has been considered to be a
market leader in the world of tourism service provider as a private organization.
Almost all the airlines of the world give special packages to Fresh Travels as they
help their business grow much better with their services.

Ms. Jonna (main character)

Ms. Jonna is an executive marketing manager in Fresh Travels. She has been
working in this organization for 9 years. She has known the business very well,
and she can, now, predict very well about the near future of airline industry, and
its’ famous airlines. Her skills and intellect in this context has not only developed
because of her number of years spent in the organization, but also because of

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 Managing Corporate Image of an Organization Means Managing its Life Blood Cells!

her deep interest in the field. She likes to investigate the and predict the most
competitive services of different airlines so as to add value to her organization
and serve the customer with the best possible and competitive services. Ms. Jonna
is an enthusiastic lady, and works very diligently, professionally, and untiringly.
This passion of hers has made her reach one of the leading positions in the
organization. She keeps her eyes on the airlines’ graphs each year, and passengers’
buying behavior data statistics each month. Many authorities of different airlines
consult her regarding customer behavior and their choices. In this way, she has
been a very important figure in the current market – serving as a main bridge
between customers and airlines.

Mr. Ahmed (mentor of Ms. Jonna)

Mr. Ahmed is a senior person with a lot of knowledge and experience related to
marketing and airline industry. He has had his PhD in Marketing in 1973 from
Cambridge, and has served in Zealous and many other prestigious airlines as a
CEO. Now a days, he is not a member of any airlines, however, he writes his
reviews, gives his opinions on critical marketing matters on TV and radio. His
opinions are rigorously sought by professionals of the relevant field. Mr. Ahmed
is the mentor of Ms. Jonna as well. He is impressed by her dedication and passion
and marketing intelligence. Similarly, Ms. Jonna doesn’t let any opportunity go
waste in meeting and discussing with him the current affairs of airlines industry.

PROLOGUE
It was a very thrilling morning when Optimizer de Air was going to announce
its results about the best airline of the year. As Ms. Jonna has been a frequent
flyer with different airlines, a senior executive at the head office of Fresh Travels,
she had had also a great curiosity to know the results by this news. Her children
tried to seek her attention for petty tasks, but Ms. Jonna would talk to them with
no proper focus. She had been waiting impatiently for these results, and was
personally expecting that the results will be in favour of Zealous Airlines - that
she personally likes a lot. On the other hand, of course, the Zealous Airlines’ heads
and other managers associated to different jobs must be more curious as well. Ms.
Jonna was curious for two reasons: First for her personal interest, second for her
clients’ response related to her company. Finally, the time came and the results
were announced in Malaysian International Show by Optimizer de Air. The news
was astonishing and the crown of No.1 was headed on Shine Airlines. Wow! This
was the word from almost every concerned mouth “Wow, I expected so!” The

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 Asian Journal of Case Research (AJCR)

question here arises in the mind of Ms. Jonna that what about the other airlines
that have also been very prestigious (especially the Zealous and Zesty); why were
they not considered for this by the majority of people to vote? “This is interesting
to know that what makes an Airline enjoy a lofty rank, and what makes people
vote for a certain airline and make it reach this level”, sprang in Ms. Jonna’s mind.
But, how this is changed dramatically in people’s mind? How can we lift it? Ah!
I must investigate about it.
Now, how can an Airline firm raise and then maintain its rank? Why does it
lose it once it has been achieved? Highly reputed airlines like Zealous Airlines
and Zesty Airlines, and others are not an exception of that fluctuation. When we
compare the Optimizer de Air (year wise awards), the question arises that why
do these highly reputed airlines lose their place despite their efforts. This directly
affects the business. There should be clearly defined tools to re-build it.

BACKGROUND OF THE CASE-ORGANIZATION STUDIED

Though this problem if faced by many of organizations (even almost all
organizations) yet, we have taken a case of Zealous Airlines from the hottest spot,
because this is an iconic airline and rapidly growing its repute as well as its market
share.
Fresh Travels (tourism service provider) was established in 1859. In 1884
Zealous Airlines and Zesty Airlines was launched. In 1895 P Airlines agreed to
wet-lease Zealous Airlines few aircrafts. The industry started from grass-root
level and kept on moving to higher levels. 1n 1899 Zealous Airlines and Zesty
Airlines’ workforce became higher. Zealous Airlines & Zesty Airlines’ Sky Cargo
opens in 1901 (with a capacity to handle many more tons a year. In 1905 Zealous
Airlines and Zesty Airlines workforce became even higher from 124 countries of
the world. In 1913 Zealous Airlines achieved the award of number 1 as well.

DILEMMA OF MS. JONNA AND ROUT TO RESOLUTION

Ms. Jonna couldn’t hold patience and went to meet mentor “Mr. Ahmed1” to
discuss about the results.

1
A Business Professional and Researcher

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 Managing Corporate Image of an Organization Means Managing its Life Blood Cells!

Ms. Jonna : Did you see the report of “S”?

Mr. Ahmed : Yea, sure! I was expecting so!

Ms. Jonna : Really!

Mr. Ahmed : Obviously! Why did you expect other results?

Ms. Jonna : (Smiling) Yea because I have been a loyal

customer of ZEALOUS AIRLINES as well.
And if you see the overall reputation and
success history of this organization, you
would definitely say that it’s going to be No.1
again.

Mr. Ahmed : Ms. Jonna; the ranking totally depends on

customers’ experience and their opinions.
And corporate image can change overnight
in customers’ mind.

Ms. Jonna : What are the major reasons that change

customers’ mind immediately?

Mr. Ahmed : A bundle of reasons (smiling), even a

thousand of reasons.

Ms. Jonna : Ah thanks! Now you seem busy, I will visit

you again and talk to you later (God Willing)

Mr. Ahmed : My pleasure! Most welcome! Good Luck!

CASE INVESTIGATION BY MS. JONNA

Ms. Jonna had a lunch break and she ate some snacks but didn’t eat well as she
was more into investigating the issue she was interested in.
She immediately logged on to her computer and started browsing to read the
opinions in the blogs about peoples’ experiences and reflections. She was amazed
to read the reflections how the people were openly reflecting. She has been
dealing with all kinds of international customers face to face and by telephone,
and sometimes she faces the problems. of irate customers as well, yet, the way
customers reflect on blogs opened her eyes.

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Break
She was tired of the whole day work, plus her mind continuously working on
this question: She closed her office as it was time to go home. She reached home
and had a nice time with her family. At mid night she woke up again as this
overwhelming question didn’t let her sleep. Her husband asked her to kindly
take rest and leave the office work at office. At this she replied, “Dear husband,
this is not the office work only I am conscious, rather it’s become my passion to
investigate this issue and find the solution for the whole industry.” Her husband
laughed and slept.
Ms. Jonna kept on reading through the lines of customers who had filled
the questionnaire before her. Also, the reflections of the blogs were also lurking
in her mind. She was getting deep and deep into the real issue and feelings of
the customers that emerge by their attitudes resulting from their experiences and
finally expressed in their actions.

Next day
Ms. Jonna spent her next day as a normal routine day and she kept on observing
customers’ expressions and their views. After she finished her work, she visited a
senior manager of ZEALOUS AIRLINES2 who welcomed her and was ready to
answer her questions with willingness.
Discussion between Ms. Jonna and the ZEALOUS AIRLINES manager went
on and she discovered some solutions by brain storming with him as a result of
many questions she had asked him. They drank coffee and she said good bye to
him and thanked him for his time and valued responses. He was also happy to
answer her good questions and after all he was also a senior manager of Zealous
Airlines (it must be interesting for him).

Next Day She Meets Mr. Ahmed

Ms. Jonna: Mr. Ahmed, I had a chance to talk to one of the senior managers of
Zealous Airlines, and I had a detailed interview with him.
Mr. Ahmed: Fabulous!

2
Senior Manager Zealous Airlines (UAE) Dubai

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Managing Corporate Image of an Organization Means Managing its Life Blood Cells!

Ms. Jonna : Thanks! Here you are the questions and

answers list I asked him.

Mr. Ahmed : Ms. Jonna, you are very vigilant. Wow! Great
job!

Ms. Jonna : Thank you sir for encouraging. But, what I need
is your reflections on this interview. Please help
me reach some sound conclusions.

Mr. Ahmed : Hmmm lets read!

Mr. Ahmed : See Ms. Jonna, these answers reflect very

realistic approach. However, there are other
causes also there around that affect the
corporate image and rank of certain airlines.

Ms. Jonna : Yea true! But which ones?

Mr. Ahmed : (He tells)

Ms. Jonna : Hmmm sir! Correct!

Ms. Jonna : What can be these?

Mr. Ahmed : These can be related to customers’ facilities.

Now a days marketers are working very
creatively on generating facilities for customers
as values and these values they also manage at
low cost. When a customer finds such services
with an acceptable price or value, he or she
builds a very positive image for such an airline.
On the contrary, if an airline is not responding
to such competition, its customers will never
rank it number 1. Because immediately they
will compare the value they receive from the
other competitors.

Ms. Jonna : Very well!

Mr. Ahmed : But, that is only one basic example. Marketing

experts also convey very well what they need

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 Asian Journal of Case Research (AJCR)

it to be considered by their customers, that is,

they convey the message very well that how
they have greater value for them thanothers.
For example if Airline A conveys its value well
than Airline B which is providing better value,
customers will still vote for Airline A because
they have communicated well.

Ms. Jonna : Very true sir! That’s what I discovered while

learning the importance of videos as the most
important tool of marketing communication.

Mr. Ahmed : Yea! Realization of value is very important. In

the otherwise the value is treated as nothing.
And in this way competitors get the competitive
advantage very easily.

Ms. Jonna : Exactly sir. Thank you so very much for your
visionary insights.

Mr. Ahmed : Most welcome Ms. Jonna. Good Luck!

What Next
She was happy that she had reached considerable understanding of the root of the
problem and she had seen its different dimensions. She was not to find out some
solution so that she could stay confident in the industry as a respectful officer
as well as she could satisfy herself (because she thinks that it’s easy to find out
problems but it’s really difficult to present practical solutions). Following figure
was all she understood from her overall work:
●● Her findings about the causes behind rank landing of zealous air
●● Her findings about solutions (best marketing tool of current time)

She discovered amazing facts. What can be those facts?

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 Managing Corporate Image of an Organization Means Managing its Life Blood Cells!

EPILOGUE
Ms. Jonna was very happy to go through all these experiences of learning and
developing a solid and concrete opinion about the reasons of fluctuation of ranks
of airlines as well as the reasons behind corporate image landing. ow believed that
for an Airline, to maintain or achieve a lofty rank in the industry, there are certain
challenges related to “changing trends of business in the airline industry”. Why
is she happy? What do you think she will do? What kind of letter she intends to
write to Zealous Airlines?

REFERENCES:
Argenti, P. A. (2007). Corporate Communication. (4th ed.). Singapore: McGraw Hill
Bernstein, D. (1984), Company Image and Reality: A Critique of Corporate Communications,
Eastbourne, Holt, Rinehart & Winston Ltd.
Chen, C.-F., & Tseng, W.-S. (2010). Exploring customer-based airline brand equity:
evidence from Taiwan. Transportation Journal.

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http://edition.cnn.com/2013/05/22/travel/consumer-reports-airlinesurvey/index.
html?iref=allsearch
http://gulfnews.com/business/aviation/aviation-sector-makes-significant-contribution-to-
global-economy-1.1032178
http://gulfnews.com/business/aviation/etihad-airways-named-best-long-haul-
airline-1.1107534
http://gulfnews.com/business/aviation/etihad-airways-reports-record-flight-
bookings-1.1036238
http://m.gulfnews.com/business/aviation/find-out-which-is-the-best-airline-in-the-
world-1.1361023
http://www.dailymail.co.uk/travel/article-2672025/Flight-crisis-Japan-Tourism-booming-
airlines-struggle-meet-demand-pilot-shortage-caused-ageing-poulation.html
http://www.iata.org/pressroom/pr/Pages/2014-04-03-01.aspx
http://www.slideshare.net/mobile/chafikyahou/world-tourism-organization-annual-
report-2012
http://www.zealous airlines247.com/news/zealous airlines-etihad-win-world-s-best-
airline-awards-for-2013-2013-06-19-1.510970
Michael Wieneke 2014. “another airline” Air Lines: High Value Customer-Centric
Business Model. Published by ProQuest LLC (2014)
Murcko, T. (Ed.). (2014, January 1). Business Dictionary. Retrieved September 13, 2014.
One more Airlines (2014). One more Airlines Named ‘Best Airline in Europe’ for Fourth
Consecutive Year at 2014 “S” World Airline Awards
The Free Dictionary by Farlex (2008). Zealous Airlines. Retrieved September 11, 2014
Yin, R. K. (1984). Zealous Airlines research: Design and methods. Newbury Park, CA:
Sage.

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 C A S E 5
Asian Journal of Case
Research
9(2): 141 – 174 (2016)

Trojan Express Sdn. Bhd.: Keeping the Ship Afloat

SYAIRAZI MOHD YUNUSa,

AHMED RAZMAN ABDUL LATIFFb* AND DEVIKA NADARAJAHb

ABSTRACT
The case article starts off with the introduction of Trojan Express Sdn.
Bhd. (TESB) as a freight forwarding company operating in Malaysia.
The case explores the current situation of TESB whereby it has been
in the red for two years. The airfreight industry where TESB was
operating in is volatile whereby its profits were mainly dependent on
uncontrollable factors rather than the internal factors of the company
itself. Although the industry had forecasted a growth of 5.0% in year
2014, the early signs are not promising. The related operational and
financial performances of the company were meticulously analyzed
to understand what factors contribute to the ever increasing operating
costs of TESB. In order to solve the issues, the management was
considering various cost saving initiatives which includes venturing
into alternative refueling locations, liquidating or leasing out freighters
and changing internal working policies. This is provided that TESB
sticks to the evaluated alternative solutions, the company shall be able
to return to the black in 2014 itself.

Keywords: Business turnaround, human resource management,

relevant costing, internal control, financial reporting

Prologue
“A lot of companies have come and gone and this company shall face the same
fate if we do not act now!” expressed the Chairman of Trojan Express Sdn.
Bhd. (TESB) after a feisty Annual General Meeting (AGM) that lasted for four
hours on 5th May 2014. The CEO of TESB, Awang Aqil, described the event as a
“nightmare”. The hotly debated topic was the unsatisfactory financial results for

a
PBS Graduate
b
Putra Business School
*
Corresponding author: E-mail: [email protected]

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 Asian Journal of Case Research (AJCR)

FY2012 and FY2013 which he had to take full responsibility of. The company’s
abysmal overall performance was also thoroughly analyzed. TESB has been in
the red for the past two years and patience amongst the stake-holders was running
thin.
Awang Aqil took helm of the company in 2011 after the previous CEO stepped
down in the aftermath of a massive bribery and corruption scandal. Having worked
in the Company for the past 15 years, he seemed to be the perfect candidate to
turn things around for TESB. At the AGM he was given a stern warning to at
least break even in 2014 and make profit for the following years ahead or risk
being terminated for non-performance. Otherwise, TESB will be liquidated if it
continues to bleed cash. TESB has the history of terminating CEOs due to non-
performance as Awang Aqil is the 4th CEO in charge for the past 8 years.
Insurmountable pressure lies ahead for him and 1,000 employees of TESB.
Along with the Division heads of Operations, Finance, Revenue Management,
Human Resource and Sales, they had to go back to the drawing board to relook
into TESB’s strategy. Each aspect of the business plan was scrutinized and the
group vowed not to leave any stones unturned in the exercise. So long as he gets
the undivided support from the team, Awang Aqil believes that he may be able to
identify the right formula for the survival and sustainability of the Company.

Industry Overview
Air freight is a growth market whereby it is projected to grow at a rate of 4.5%
annually until 20331. The market growth was reflected on the increased freighter
fleet worldwide. Globally, the freighter fleet was also expected to grow at 1.8
times which increases the fleet from 1,645 aircrafts in 2013 to 2,300 aircrafts in
2033. It was projected that there will be an increasing number of new deliveries
of freighters rather than conversion from passenger planes into freighters. There
were currently 197 airlines operating freighters across the world. This showed
that there was demand for freighters, subsequently showing demand for air freight
in the future. Yet there were 100 large freighters grounded worldwide as a result
of the current industry situation.
The air freight industry was driven mainly by the growth in Asia Pacific
region. Even under immense pressure from the economic slowdown and decreased
trade with North America and Europe, it showed a growth of 5.3% annually for
the past 10 years. Forecast showed that the growth will continue at a rate of 5.0%

1
Airbus (October 2014). Global Market Forecast 2014 Freight. Retrieved from http://www.airbus.
com/company/market/forecast/

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 Trojan Express Sdn. Bhd.: Keeping the Ship Afloat

yearly for the next 20 years. By 2033, it has been projected that Asia-Pacific will
contribute up to 30% of the total traffic worldwide. At KLIA alone, the handled
cargo in 2013 was at 937 million tonnes compared to 886 million tonnes in 2012
which is an increase of 5.7%2.
The success of air freight market was highly correlated with the macro-
economic drivers such as world trade, economic activity, private consumption
and industrial production. Parallel to the economy, air freight market was driven
by emerging market which includes China, India and Brazil. Industrial production
was also expected to double over the next 20 years. The middle class population is
set to reach 3.7 billion people by 2033. A total of 3.5 billion of these middle class
people are living in the Asia-Pacific region, which will boost private consumption
within the region.

Company Background
TESB is a freight forwarding company operating at Kuala Lumpur International
Airport (KLIA) Sepang. The company offers a complete range of freight handling
services from scheduled and chartered air cargo services and ground handling
services. Currently, the company serves more than 30 destinations worldwide
through its own freighter fleet which includes two Boeing 747-400F and four
Airbus A330-200F. Operating from a warehouse in the compounds of KLIA, the
company boasts a connectivity network of up to 100 destinations worldwide.
At the end of 2013, TESB commanded a market share of 1.9% in the airfreight
industry worldwide.
TESB’s main revenue comes from traffic revenue which covers transport
of cargo through its freighters and purchased space from other industry players.
In addition to this, TESB rents out its warehouse space to other players in the
industry. TESB’s 2014 Business Plan is based on five main objectives illustrated
in Figure 1. The main aim was to post an operating profit of RM5 million for
the financial year 2014 through reduced freighter loss and increased market
share. Other steps include exploiting the cost saving initiatives and improving the
purchased space performance.

2
Malaysia Airport Holdings Berhad (2013) Annual Report. Page 311

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Figure 1  Main Pillars of TESB’s 2014 Business Plan

The day after the AGM, Awang Aqil called up his Finance Manager, Baharudin
Bakar, to brief him on TESB’s financial performance in greater details.

AA : Thank you for coming, Baha. I’m really concerned

about our financial performance for the past two
years. Even though I have seen them before, but can
we go through the data again?

BB : Certainly Awang. Let us review the Financial

Summary (depicted in Table 1) first. I have also with
me the Income Statement, Balance Sheet and Cash
Flow (depicted in Appendix 1, 2 and 3 respectively.

AA : I can see that we are still paying the legal settlement

in 2013.

BB : I’m sure you still remember that in 2012 we were

found guilty by the Australian authorities in a price
fixing scandal and were charged on multiple offences.
The fines were RM1.9 million in 2013 and RM28.3
million in 2012. Apart from that, TESB signed an
agreement with an airport operator in Europe
whereby TESB was required to fly its freighters into

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the airport with a certain number of frequency on a

weekly basis. The agreement was inked in 2008 and
in return, TESB had special rates and priorities over
other airlines when operating from the airport. A
year into the contract, TESB terminated the contract
as we were making losses from the flights into the
airport. As a result, TESB was brought to court over
this matter. The case is still on-going and awaiting
verdict which is due later in 2014.

Table 1  Financial Summary

2013 2012
(RM’000) (RM’000)
Traffic Revenue 1,691,140 1,718,391
Warehouse Revenue 156,971 144,686
Other Revenue 82,582 28,919
Total Revenue 1,930,693 1,891,997
Operating Expenditure 1,913,724 1,968,706
Operating (Loss)/Profit from Ops 16,969 (76,709)
Operating (Loss)/Profit Margin (%) 0.88 (4.05)
Unrealized Forex (Loss)/Gain LT Debt (29,268) 16,599
Unrealized Forex (Loss)/Gain Others (9,799) 4,926
Hedging Effects 6,092 1,168
Legal Settlement (1,912) (28,232)
(Loss)/Profit Before Tax (17,918) (82,246)
(Loss)/Profit Margin (%) (0.93) (4.35)

AA : Can I see the performance on a month to month

basis for 2013?

BB : Sure, here it is, please have a look (depicted in

Table 2). The spike in profit back in December
2013 was attributed to the reversal impairment of
an asset by RM77.5 million.

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Table 2  Profit/Loss Performance in 2013

Profit/
Operating Revenue
(Loss) Expenditure
Month Profit/(Loss) (RM
(RM (RM Million)
(RM Million) Million)
Million)
January (22.3) (15.3) 144.0 159.4
February (15.6) (16.4) 134.2 150.6
March (3.5) (1.3) 178.0 179.3
April 6.8 (5.0) 164.8 169.8
May (27.8) (14.3) 152.3 166.6
June (14.9) (8.3) 163.9 172.2
July (2.4) (4.3) 164.6 168.9
August 4.4 5.2 168.4 163.2
September (1.0) (1.6) 168.4 170.0
October 3.7 1.5 175.4 173.8
November (27.8) (16.4) 164.5 180.9
December 89.8 100.5 172.1 71.6

AA : Can you explain the breakdown of our revenue?

BB : The main revenue of TESB comes from the

traffic revenue which is further divided into two
segments, cargo through owned freighter and
through purchased space as illustrated in Figure
2. The definition of cargo through owned freighter
is when the goods are shipped or transported
using TESB’s assets which include aircrafts and
trucks. Although these assets have their own fixed
schedule for transportation, it is more flexible
to cater to customers’ requirements. On the
other hand, there are instances where TESB will
purchase cargo space from other competitors to
ship goods to selected routes. In order to make
profits, the cost of purchased space has to be lower
than the revenue collected from the customers for
the space. At the moment, cargo through purchased

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 Trojan Express Sdn. Bhd.: Keeping the Ship Afloat

space is more profitable compared to the freighters

as the attached costs to transport the cargo belong
to a 3rd party. Other branches of revenue include
warehouse revenue, surcharge, Joint Venture (JV)
and charter services. The surcharges include both
fuel surcharges and security surcharges which
may differ from time to time depending on fuel
price and additional security requirements.

Figure 2  TESB Revenue Structure

AA : Can I see the breakdown of revenue?

BB : No problem Awang. Here it is (depicted in Table

3). The table highlights the breakdown of revenue
which consists of Traffic Revenue, Warehouse
Revenue and Other Revenues. The company also
collects revenue from the rental of office space
at their warehouse premises. The leases are
mostly on long-term agreements and are yet to
be reviewed since the inception of the warehouse
itself.

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AA : I remember that in 2013, we agreed on a JV with a

foreign carrier, whereby both parties collaborated
in sharing routes and cargo space. What happened
to that JV?

BB : The joint venture was a one off initiative which

ultimately resulted in revenue of RM53 million.
Moving forward, we should have many more JVs
to benefit both parties.

Table 3  Revenue Breakdown

2013 (RM’000) 2012 (RM’000)

Traffic Revenue
Cargo Revenue – Freighter 363,333 346,300
Cargo Revenue – Purchased Space 658,903 691,612
Joint Venture 967 578
Mail – Purchased Space 46,153 40,424
Mail – Freighter 1,528 45
Charter Flight 28,743 37,601
Fuel Surcharge 516,952 525,643
Security Surcharge 74,228 76,188
Sub-Total 1,691,140 1,718,391
Warehouse Revenue
Cargo Handling 17,929 17,415
Terminal Charges 77,530 69,122
Storage Charges 7,656 6,115
Express Handling 3,785 4,278
Other Charges 50,071 47,756
Sub-Total 156,971 144,686
Other Revenue
Rental Received 29,469 28,919
Joint Venture 53,113 -
Sub-Total 82,582 28,919
Grand Total 1,930,693 1,891,997

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BB : I would also like to share the performance indicator for

cargo through Purchased Space and Freighter. Here it is
(depicted in Table 4 and Table 5). It is obvious that even
though we have increased the load factor, our yield remains
low.

Table 4  Performance Indicator for Cargo through Purchased Space

2013 2012
Load Tonnes per km 1,209.2 1,190.9
Capacity Tonnes per km 1,642.6 1,675.4
Yield with Surcharges (Sen/ Load Tonnes per km) 80.6 85.2
Yield (Sen/ Load Tonnes per km) 57.5 61.5
Load Factor (%) 73.6 71.1

Table 5  Performance Indicator for Cargo through Freighter

2013 2012
Load Tonnes per km 770.2 693.6
Capacity Tonnes per km 1,110.3 1,013.7
Load Factor (%) 69.4 68.4
Unit Cost (Sen/Load Tonnes per km) 85.3 87.9
Yield (Sen/Load Tonnes per km) 49.5 49.9
Yield with Surcharges (Sen/ Load Tonnes per km) 93.1 95.9
Breakeven Load Factor (%) 92.1 91.6

AA: I want to know more on the costs associated with

freighter. It seems that the freighter operation
have been reporting losses for the past two years.

BB: You can see here the cost details of freighter

operation (depicted in Appendix 4). Fuel and
aircraft hire remain our biggest challenge to make
this operations profitable again.

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AA: Let’s look at these two issues. Can you share with
me the details on aircraft financing?

BB: The aircrafts are fully owned by TESB through a

finance lease with tenure of 12 years. The loans are
taken based on the purchase price of the aircraft.
The aircraft value depreciates 10% yearly on a
straight line for 12 years with a salvage value of
10% at the end of 12th year.

AA: Do we have a standard financing on all of our

aircrafts?

BB : Both B747-400F’s are financed through the same

lender on a fixed monthly commitment of RM4,
017,600 monthly up until 2019 with the loan
currency in Ringgit Malaysia (RM). The current
market price for a B747-400F on the market
is USD32 million3. One of the A330-200F is
financed through a local bank and is on a floating
monthly commitment based on 3-months Kuala
Lumpur Interbank Offered Rate (KLIBOR) rate.
The commitments will increase or decrease based
solely on the KLIBOR rates.Since delivery of the
A330-200F in 2010, the 3-month KLIBOR rate
has been steadily increasing resulting in increased
monthly commitments (depicted in Figure 3).

3
ASCEND Flightglobal Consultancy (n.d.). Aircraft and Engines Valuation. Retrieved from http://
www.ascendworldwide.com/what-we-do/ascend-data/ae-valuations-data/ascend-online-values.html

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Figure 3  Kuala Lumpur Interbank Offered Rate (KLIBOR) 2010-20144

AA : Why did we finance those B747-400Fs in RM? I

thought we would be better off if we purchased in
USD?

BB : I agree that one of the drawbacks of having a loan

commitment in RM is the local banks command
around 1.5% premium over the London Interbank
Offered Rate (LIBOR) as the assets are purchased
in United States Dollar (USD). However, the
advantage of having loans in RM is that TESB’s
receivables are in RM which eliminates the
foreign exchange risk altogether. But I also want
to share here that the other three A330-200Fs
are also under finance leases but under the USD
denomination. The rates are linked to the LIBOR
which historical values are as shown in Figure
4. The rates are high at 1.15% in early 2012
before plunging to a low of 0.5% at the end of

4
Trading Economics (n.d.). Malaysia Three Month Interbank Rate. Retrieved from http://www.
tradingeconomics.com/malaysia/interbank-rate
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 Asian Journal of Case Research (AJCR)

2012. Before each due date, the rates are checked

against the 3-month LIBOR rates and calculated
accordingly with the number of days in the period.

Figure 4  Historical London Interbank Rate (LIBOR) 2010-20145

The LIBOR rates are cheaper compared to the loan commitment based on
KLIBOR rates. However it exposes TESB to the risk of foreign exchange which
has been increasing based on Figure 5. The Ringgit started to strengthen from
the beginning of 2010 to its lowest point at 2.9 in mid-2011. It started to stabilize
throughout the next two years at an average of 3.1. The RM was again at its
strongest in mid-2013 before weakening gradually to a high of 3.5 by end of 2014.
A hedging policy is in place to minimize the risk involved in forex.

5
Trading Economics (n.d.). United Kingdom Three Month Interbank Rate. Retrieved from http://
www.tradingeconomics.com/united-kingdom/interbank-rate

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 Trojan Express Sdn. Bhd.: Keeping the Ship Afloat

Figure 5  USDMYR exchange rate since 20106

AA : OK let’s have a look at the oil prices. Do you know

how much we have been paying for the fuel every
month in 2013?

BB : Yes I do, here it is (depicted in Table 6). You

can see that expenditure on fuel was the highest
in September 2013 whereby the fuel costs were
at the high of RM9.56 coupled with a highest
quantity of fuel consumed. This affected the profit
in that month tremendously. Although TESB has
a 60:40 fuel hedging policy, there were no abrupt
changes to the market which affected TESB. This
is reflected in Figure 6 whereby the prices have
been stable since early 2011 with peaks and lows
up until end of 2013.

6
Trading Economics (n.d.). Malaysia Dollar. Retrieved from http://www.tradingeconomics.com/
malaysia/currency/

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 Asian Journal of Case Research (AJCR)

Table 6  Fuel Uplift and Price for 2013

Quantity Cost Price per Price per

Month (Gallon (RM Gallon Gallon
Million) Million) (RM) (USD)
January 3.4 30.8 9.16 3.00
February 3.0 28.0 9.38 3.11
March 4.2 40.0 9.44 3.04
April 4.0 35.5 8.80 2.82
May 3.6 30.0 8.38 2.77
June 4.0 33.8 8.40 2.78
July 4.0 36.1 8.93 2.81
August 3.8 34.8 9.16 2.87
September 4.2 40.0 9.56 2.91
October 4.2 39.4 9.35 2.92
November 4.3 39.9 9.34 2.95
December 3.9 36.2 9.36 2.94

Figure 6  Brent Crude Oil Prices 2010-20147

7
Trading Economics (n.d.). Brent Crude Oil. Retrieved from http://www.tradingeconomics.com/
commodity/brent-crude-oil

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 Trojan Express Sdn. Bhd.: Keeping the Ship Afloat

AA : What are the measures that we have done to

mitigate the increase of fuel costs?

BB : Apart from hedging, we have introduced a fuel

surcharge charged to the customers. In addition
to that, as compared to other competitor, our
customers are also required to pay an additional
security surcharge. This surcharge is intended
to cover the additional requirements set by the
Transport Security Administration (TSA) which
imposes freight forwarders to tighten up air related
transport security post September 11 attacks in
the United States (US). Failure to comply with
TSA requirements will result in an embargo for
the goods into the US. The security requirements
were adopted by Malaysian authorities and the
costs involved are transferred to the customers.

AA : I think I have enough information on our financial

performance. Thank you for your time, Baharudin.

BB : You are welcome. Let me know if you need further

assistance from me.

The next day, Awang Aqil requested an audience
with Charles Chan who is the Senior Manager of
Revenue Management.

AA: Thank you for coming, Charles. I need your

assistance in understanding the asset utilization of
the company. Recently we bought the newer model
of aircrafts. Can you update me on its utilization?

CC: Certainly. The purchase of four A330-200F

were aimed as a long term replacement to the
ageing B747-400F. The A330-200F can carry
up to 70 tonnes of payload with a range of up to
4,000 nautical miles (nm). The balance between
payload and mileage ensures versatility to TESB’s
operations. The Airbus has the interior flexibility
to carry a wide range of container and pallet

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sizes, which is perfect for interlining activities.

The A330-200F commands a 30% extra volume
compared to any model in its class.

AA : I heard that one of our Directors commented on

one of the Airbus’s program that might have a
greater implication on our assets. Do you think
that his concern is valid?

CC : I think he was referring to the Passenger-To-

Freighter Conversion8 program in 2012 which
offers owners of the A330-200 and A330-300
passenger aircrafts to convert it into freighters.
The aircrafts which are already at their end of
their lifespan can be converted into a freighter.
This has certainly increased demand for old
A330 passenger aircrafts and reduced the value
of the A330-200F. Although the payload is only
at 60 tonnes with the range of 4,000nm, the
introduction of this program has affected the
perceived value of the A330-200F purchased by
TESB. But A330-200F still provides better returns
to us as compared to our B747-400F which is
categorized as a full-sized freighter with a design
range of up to 3,600nm and a maximum payload
of 121 tonnes. This four engine B747-400F is a
fuel guzzler compared to the two engine A330-
200F. Filling up the B747-400F at 100% capacity
is certainly a major hurdle.

AA : What if we replace the B747-400F with the newer

model?

8
Press Release (15 February 2012). Airbus to launch A330P2F cargo conversion programme with
ST Aerospace and EADS EFW. Retrieved from http://www.airbus.com/newsevents/news-events-sin-
gle/detail/airbus-to-launch-a330p2f-cargo-conversion-programme-with-st-aerospace-and-eads-efw/

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CC: The retail price of a brand new B747-800 shall

set TESB back USD368 million9. Boeing has
confirmed that the new 747-800 freighters are
20% more fuel efficient than its predecessor 747-
400F. This looks attractive since fuel cost accounts
for at least 33% of our costs. However, another
war in the Middle East and we could be out of our
jobs.

AA : Baharudin explained to me about load factor. Do

you have anything to share on that?

CC : I’m glad you asked this question. A high load

factor may sound good for the business, but it
does not translate into profits as the load factor
is driven by the unit cost and price. TESB’s fleet
consists of 6 freighters and as you can see in this
table (Table 7), the aircraft utilization which is
defined as block hours, has increased for both
types of aircrafts. This is due to the increased
frequency for the freighters that were completed
throughout the year.

Table 7  Aircraft Utilization

Aircraft Type 2013 2012
B747-400F 8,140 Block Hours 7,990 Block Hours
A330-200F 12,805 Block Hours 11,807 Block Hours

AA : How efficient are we in managing the cargo at our

warehouses?

CC : TESB leverages its warehouse capacity to rake in

revenue from ground handling fees and storage
fees. All cargo upon transport from point A to B is
then handled through the automated warehouse.
The fees are calculated based on the weight of

9
Boeing (n.d.). Commercial Airplanes. Price. Retrieved from http://www.boeing.com/boeing/com-
mercial/prices/

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each item. Apart from that, there are instances

whereby the customers do not pick up the items
as soon as it is ready to be released. TESB will
charge a storage fee on the items. If you refer to
this table (Table 8) you can see the amount of
cargo handled at various locations in Malaysia.

Table 8  Total Handled Tonnage at various locations in Malaysia by TESB

2013 2012
Location
(Tonnes) (Tonnes)
Kuala Lumpur 550,734 545,925
Penang 89,825 94,384
Kota Kinabalu 16,732 15,877
Kuching 13,170 12,042
Johor Baharu 1,579 1,490
Total 672,040 669,718

AA : I think I have the necessary information from you.

Thanks for your time.

CC : You are welcome.

On Friday, Awang Aqil had a meeting with

Dayang Diyana, Human Resource Manager.

AA : Thank you Dayang for coming to see me. Can you

please update me on our staff strength?

DD : Sure. TESB has around 1000 personnel under its

payroll without counting in the general workers
which are employed through a 3rd party contract.
As illustrated in our organization chart (Figure
7), under the Management team, there are a few
functions which include Operations, Revenue
Management, Human Resources, Finances,
Maintenance and Project. The Operations team
covers the day to day operations from warehouse
operations to monitoring of freighter operations.

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 Trojan Express Sdn. Bhd.: Keeping the Ship Afloat

Around 50% of the total manpower is employed

under this function. Revenue Management Team
is the brain of the Company whereby it calculates
and manages the price bookings for cargo space.
The Sales team is part of the Revenue Management
team and is responsible for the RM1.9Billion
revenue accumulated in 2013 alone. Both Revenue
Management and Sales work closely to ensure
each and every single inch of cargo space is filled
up. The other functions such as Maintenance,
Human Resource and Finance utilize around 20%
of the staffs in TESB.

Figure 7  Organization Chart

AA : Can you update me on the Warehouse

Refurbishment Project that we established in
2012?

DD : The project was initiated to increase the handling

capacity of the warehouse from 600,000 tonnes
of cargo to 1,000,000 tonnes of cargo yearly. The
project team was also responsible in upgrading

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the controls and automation of the fully automated

warehouse. One of the achievements of the team
was to be able to save TESB around RM1 million
yearly through the upgrade of the lighting system
in the warehouse. The ROI for the lighting project
was only 1.8 years and the execution of the project
was ahead of the planned time. Their next project
is the upgrade of the IT system which includes the
cargo booking system which was scheduled to be
completed by 2017.

AA : I noticed that our overtime cost is quite significant.

I think overtime costs alone are 40% of the total
manpower costs in 2013 for TESB which is an
increase of 10% from the previous year. Do you
have any explanation for that?

DD : Yes, I am aware of that but you need to understand

our situation. We engage both mandatory and
voluntary overtime as it would be the fastest
and easiest solution to understaffing. I know it
is not a long-term solution as it has led to many
operational issues such as increased medical
leaves among staff and an alarming number of
workplace related injuries. In Year 2013 alone,
there were twenty (20) accidents, an increase of
35% compared to year 2012, which were attributed
to fatigue as a result of working overtime.

AA: But this will breach the compliance with the

Employment Act 1955 right?

DD: I’m aware of that but my hands are tied. The

workers themselves are willing to take up overtime
as it would earn them good money. Some can even
double up their take home pay through overtime.
However, up to date, no one has made an official
complaint to TESB or the authorities on this
matter. The loop hole in the system is due to lack
in supervision. One can easily forge signatures

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for attendance of another person. A Fingerprint

Biometric Time Attendance Management System
was tabled for approval back in 2012 but it was
rejected as the costs were too high and the Return
on Investment (ROI) was not justified.

AA : What is the turnover rate for our staff?

DD : The rate is 19% but we still conduct interviews

for new staff on a regular basis. If you ask my
opinion, it is all about the money. TESB is not
paying enough to retain staff. The industry is
paying 36% more than us. We had fresh graduates
joining us but left in less than a year. Please have
a look at this table which tabulates the salary of
an executive in the industry (depicted in Table 9).

Table 9  Salary Comparison for an Executive

Company Average Pay (Monthly)

TESB RM2,200
Competitor 1 RM3,000
Competitor 2 RM2,800
Industry Average RM3,000

AA : I thought we gave enough opportunity for our staff

to develop their skills and career development?

DD : Actually, that’s part of the reasons why they left.

We planned various trainings for them but it was
not taken up as the staff do not feel it is necessary
to participate in such trainings. They feel that
the trainings do not add value or translates into
increased take home pay. The staff feels that there
is no clear succession plan as majority of the
staffs are above 40 years old. Here are the details
(depicted in Figure 8). This should be a concern
to the management as younger generation of staff
is not retained.

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Figure 8  Age Distribution of Staff

AA : I remember that we have the Employee Productivity

Indicator. What’s the latest status of it?

DD : The Indicator is calculated based on the amount

of revenue divided by the number of staff. In
2013 the employees productivity has gone up to
RM1,816,620 from RM1,796,768 in 2012. So this
is good news really.

AA : Any other issues that I need to be aware of?

DD : We rely heavily on general workers which accounts

to around 200 personnel working at TESB’s
premises. These general workers are involved
for works such as packing, lifting and sorting.
The Malaysian Government has prohibited any
utilization of foreign workers at the airport area
due to safety reasons. This has been a major
stumbling block for us to get any vendor that will
be able to supply manpower for this function. As
a result, we continue to pay a premium for local
manpower and the supply is not enough. Because
of that, there has been insufficient manpower to
load and unload the cargo and due to that, there

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have been cases where the freighter flies off

without the booked cargo on it. The mishandling
rate is shown here (refer to Table 10).

Table 10  Cargo Mishandling Rate

2013 (%) 2012 (%)

January 0.050 0.076
Fabruary 0.059 0.057
March 0.075 0.076
April 0.041 0.065
May 0.040 0.058
June 0.039 0.068
July 0.036 0.075
August 0.063 0.069
September 0.047 0.044
October 0.068 0.022
November 0.035 0.059
December 0.049 0.029

As a result of this, TESB is required to settle claims from customers if deemed

necessary and substantiated. As per Table 11, the total amount of claim settlement
in 2013 alone, is at RM508,000. These claims are not inclusive of claims which
have yet to be finalized and still under investigation.

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Table 11  Cargo Claims and Settlement for 2013

Month Total (RM)

January 19,603.12
February 63,355.87
March 64,927.81
April 17,834.13
May 61,929.85
June 57,769.23
July 45,112.04
August 44,307.16
September 29,498.23
October 26,446.75
November 52,278.38
December 25,174.44
Total (RM) 508,237.01

TESB has currently 19 vendors supplying manpower for various job scopes at the
premises. At the moment 17 out of the 19 contract with the vendors are expired
and all manpower requirements are issued through monthly Purchase Orders
(PO). Some contracts are extended on a monthly basis. An ongoing study is being
conducted to cover all manpower requirements at TESB. This is to ensure that
there will be minimal disruptions to operational activities and there will only be
one focal point for any manpower issues instead of 19.

AA : Thank you Dayang for your explanation. I will

call you again if I need further clarification.

DD : You are welcome.

The next person to see Awang Aqil is Engku
Esfahan, Maintenance Manager. He came together
with Farhan Fauzan, Procurement Manager.

AA : Thank you for coming to see me. Can I see the

status of our equipments?

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 Trojan Express Sdn. Bhd.: Keeping the Ship Afloat

EE : If you refer to Table 12 below, more than 50%

of the motorized equipment in the warehouse is
above 15 years old. This has contributed to the
frequent delays and resulting in dissatisfaction of
customers for the services rendered.

Table 12  Ageing Equipment

No Motorized Equipment Age Units Percentage (%)

1 3-7 years 61 28.37%
2 8-10 years 21 9.77%
3 11-12 years 6 2.79%
4 13-14 years 9 4.19%
5 15-16 years 99 46.05%
6 >18 years 19 8.84%
Total Equipment 215 100.00%

AA : Why didn’t we upgrade them?

EE : I’m sorry for not informing earlier but the

previous CEO was all about saving costs and
proposals to purchase or lease equipment had to
go through rigorous considerations before getting
any approval. I can share that some equipment
which are beyond repair are yet to be written off
in the books.

AA : OK, I will look into this. I heard that in line with

the additional requirements from authorities
on security procedures, we need to buy security
equipment, such as X-ray machines. So Farhan,
what can you update on our procurement policy?

FF : I’m afraid I do not have very good news. 2013

internal report stated that TESB only scored
a compliance level of 70%. Among the issues
highlighted are recurring purchases not formalized
with price/supply agreement, bid evaluation

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 Asian Journal of Case Research (AJCR)

summary not sighted, no validity period stated

on Purchase Orders, approval for the purchases
were not according to the Limits of Authority, sole
source Purchases were not justified and closing
date and time were not consistently specified
in Request for Quotations (RFQ). Of all the 48
tenders being scrutinized, 60% did not comply
with the Procurement Policy.

AA : Engku, I will sit down with you later to finalize the

plan for upgrading the equipment. Farhan, I need
you to prepare a report on how to handle all the
issues that you mentioned just now.

Towards the end of the day, Awang Aqil reviewed
the performance of Trojan Trucking Services
Sdn Bhd (TTSB), a fully owned subsidiary of
TESB. TTSB handles trucking for cargo transfers
between states within Malaysia. Instead of using
an aircraft to ship goods from Kuala Lumpur to
Penang, TESB utilizes these trucks to transport
cargo. This innovative solution was introduced
back in 2008, implemented to reduce shipping
costs compared to using aircraft for the same
route. The trucks also have a scheduled departure
and arrival time and are called truck flights. These
trucks have dedicated flight numbers attached to
it for tracking purposes. However, the subsidiary
is barely breaking even for the past two (2) years.
TTSB is finding it hard to conduct business as
the competitors have the required frequency
and volume to conduct business with the lowest
cost possible. Adding to it, these trucks require
maintenance which is the main reason for the
high operating costs involved. Recently, there was
an inquiry from a potential investor to purchase
the subsidiary at the book price which is at an
estimated value of RM20 million. TESB has yet to
respond to the offer.

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 Trojan Express Sdn. Bhd.: Keeping the Ship Afloat

Eve Epilogue
Awang Aqil, the CEO has managed to detail out all current issues faced by the
company. All he needs now is a plan to combat each and every one of it successfully.
In the short term, changes need to be made drastically to be successful in turning
the company into a profitable one. However, the current business strategy needs
improvement and some tweaks applied to it. Failure to do so may result in his
termination as the head of the TESB.

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 Asian Journal of Case Research (AJCR)

Appendix 1
TESB’s Income Statement
2013
TRAFFIC REVENUE
Cargo Revenue – Freighter 363,666,312
Cargo Revenue – Purchased Space 658,903,091
Joint Venture 966,531
Mail – Purchased Space 46,153,236
Mail – Freighter 1,527,889
Charter Flight 28,743,426
Fuel Surcharge 516,951,698
Security Surcharge 74,227,598
TOTAL TRAFFIC REVENUE 1,691,139,781

WAREHOUSE REVENUE
Cargo Handling 17,929,047
Terminal Charges 77,529,619
Storage Charges 7,656,488
Express Handling 3,784,933
Other Charges 50,070,597
TOTAL WAREHOUSE REVENUE 156,970,684

OTHER REVENUE
Rental Received 29,469,123
Joint Venture 53,113,129
TOTAL OTHER REVENUE 82,582,252

TOTAL REVENUE 1,930,692,717

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 Trojan Express Sdn. Bhd.: Keeping the Ship Afloat

Appendix 1 (cont.)

EXPENDITURE
Staff Pay & Allowances 78,936,869
Staff Expenses 8,917,538
Belly Costs 876,975,147
Fuel & Oil 423,912,658
Cargo/Traffic Handling 69,748,732
Cabin Cleaning/Handling 24,865
Navigation/Flight Services 26,116,597
Landing 23,066,535
Parking 1,622,704
Tech Crew Subsistence 19,322,558
Inflight Meals 1,844,160
Hire of Aircraft 158,489,423
Maintenance of Aircraft 79,693,672
Commission on Sales - Freighter 614,827
Commission on Sales - Purchased Space 2,018,810
GSA - Overriding Commission 9,055,213
Joint Venture Cost 923,113
Aviation Insurance Cargo 317,327
AdvertisiNG & Promotions 1,976,137
Utilities 7,920,176
Cargo Claims 550,975
Allocated Expenses 32,269,277
Hire of Equipment Paid 3,720,671
Professional Fees 4,037,931
Other Expenses 14,906,886
Depreciation of Equipment 3,244,450
Maintenance of Equuipment 13,218,594
Rental of Premises 41,522,609
Maintenance of Premises 1,671,462
Contract Services 26,708,640

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 Asian Journal of Case Research (AJCR)

Appendix 1 (cont.)

Software Support Costs 3,539,816

Royalty for Traffic Rights -
Interest on Loans 29,802,675
Aircraft Amortisation 27,414,024
Finance Cost (797)
OPERATING EXPENDITURE 1,994,104,274

OPERATING PROFIT/(LOSS) FROM

OPERATIONS (63,411,557)
FUEL HEDGE GAIN/LOSS 6,092,332
LEGAL SETTLEMENT (1,911,750)
IMPAIRMENT OF DOUBTFUL DEBT
EXPENSES 6,116,261
IMPAIRMENT OF AIRCRAFT
(REVERSAL) 77,524,205
Realised Forex Gain/(Loss) - Aircraft
Loan 232,183
Realised Forex - Other (1,579,456)
Unrealised Forex Gain/(Loss) - Other (9,798,960)
Unrealised Forex Gain/(Loss) - Aircraft
Loan (29,268,170)
Unwinding Interest (1,910,357)
PROFIT BEFORE TAX (17,915,269)
Less: Tax -
PROFIT AFTER TAX (17,915,269)

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 Trojan Express Sdn. Bhd.: Keeping the Ship Afloat

Appendix 2
TESB’s Balance Sheet
31-12-2013 31-12-2012
(RM) (RM)
AIRCRAFT, PROPERTY, PLANT AND
825,788,935 744,507,535
EQUIPMENT
INTANGIBLE ASSETS 17 467,118
825,788,952 744,974,653
CURRENT ASSETS
Trade Receivables 1,993,401 2,418,121
Other receivables and prepaid expenses 17,631,190 560,102
Amount owing by Holding/related co. - 82,145,299
Tax recoverable 303,234 1,173,696
Cash and Bank Balances 370,667 799,283
20,298,492 87,096,501
CURRENT LIABILITIES
Trade payables 83,668,036 96,831,976
Other payables 6,826,765 10,515,180
Accrued - non trade 32,605,690 41,113,204
Amount owing to Holding/related co. 91,191,496 -
214,291,987 148,460,360

Short term borrowings 50,432,118 47,188,695

Short Term borrowings (finance lease
17,925,699 16,322,555
liability)
68,357,817 63,511,250
282,649,804 211,971,610
NET CURRENT LIABILITIES (262,351,312) (124,875,109)
563,437,640 620,099,544
FINANCED BY:-
Share Capital 125,000,000 125,000,000
General Reserve - -
Accumulated Losses (137,914,815) (119,999,053)

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 Asian Journal of Case Research (AJCR)

Appendix 2 (cont.)

Reserves (137,914,815) (119,999,053)

Shareholder’s Equity (12,914,815) 5,000,947

NON CURRENT LIABILITIES

Long Term Borrowings 359,822,978 396,123,021
Long Term Borrowings (finance lease
188,049,482 192,405,938
liability)
547,872,460 588,528,959
Provision 28,479,996 26,569,639
Deferred tax liabilities - -
576,352,456 615,098,598
563,437,641 620,099,545
Financial Ratio:
Total Assets 846,087,444 832,071,154
Total Liabilities 859,002,260 827,070,208
Total Borrowings 616,230,277 652,040,209
Current Ratio 0.07 0.41
Gearing Ratio 102.14 99.24
Debt/Equity Ratio -66.51 165.38

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 Trojan Express Sdn. Bhd.: Keeping the Ship Afloat

Appendix 3
Cash Flow Statement for the Period Ended 31 December 2013
RM
Profit Before Taxation 89,845,773
Adjustments for:
Depreciation of Property, plant and equipment 237,564
Amortisation of software cost -
Amortisation of Aircraft (75,195,891)
Realised foreign exchange gain from borrowing -
Bad debts recovered -
Provision of Doubtful debts -
Transfer of property, plant and equipment -
Finance cost 2,494,788
Plant and equipment written off 4
Operating loss before working capital changes 17,382,238
Increase in trade and other receivables (16,546,610)
Increase in trade and other payables (12,122,058)
Increase in due to immediate holding company 31,783,679
Net cash generated from operating activities 20,497,249

Cash flow from investing activities

Purchase of property, plant and equipment (12,847,413)
Net cash used in investing activities (12,847,413)

Cash flows from financing activities

Repayment of borrowing (7,521,793)
Net cash used in financing activities (7,521,793)

Net increase in cash and cash equivalents 128,042

Cash and cash equivalents at beginning of period 242,625
Cash and cash equivalents at end of period 370,667

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 Asian Journal of Case Research (AJCR)

Appendix 4
Freighter Operating Result 2013
2013
  (RM’000)
Revenue
Freighter Services 363,333
Fuel Surcharge 234,051
Security Surcharge 31,284
Total Revenue 628,668

Expenditure

Direct Variable Cost

Cargo Commission 3,758
Fuel & Oil 400,773
Cargo/Traffic Handling 76,214
Cabin Cleaning/Handling 19
Navigational Services 26,006
Landing 22,714
Parking 1,517
Tech Crew Subsistence 16,894
Inflight Meals 1,790
Total Direct Variable Cost 549,685

Direct Fixed Cost

Hull Insurance -
Hire of Aircraft 178,886
Maintenance 77,007
Total Direct Fixed Cost 255,893

Other Fixed Cost 49,156

Total Operating Cost 854,735

Operating Profit/Loss (226,067)

174
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(AJCR)

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