UEM Group to cut staff by year-end

Company plans to offer MSS packages to the employees by November 2019

by NG MIN SHEN / pic by RAZAK GHAZALI

UEM Group Bhd could hive off as many as 220 employees by year-end as the engineering group seeks to cut operational expenses and restructure its operations to synch with its sole shareholder’s “new business ethics”.

A source close to the development said the group plans to offer mutual separation scheme (MSS) packages to the employees by November 2019. The move will see the company, which is solely owned by Khazanah Nasional Bhd, trimming its staff to around 80 people.

“In the meantime, the senior management is already giving a heads-up to the affected staff in order to give them time to find new jobs. Next year, they will roll out the MSS to the group’s subsidiaries. However, Yayasan UEM will not be affected,” the source told The Malaysian Reserve (TMR) under the condition of anonymity due to the sensitivity of the information.

The source said some staff have already been “mobilised to the group’s subsidiaries”.

UEM Group was incorporated in 1966 as United Engineers (M) Bhd. The East Asia financial crisis of 1997/98 left the group with mountains of debts before Khazanah took over, restructured its assets and returned the company on a sound footing.

The group has some 15,500 employees across its various segments, as per Bloomberg data. Its core businesses include highways, township and property development, engineering and construction, asset and facility management, healthcare, information technology, manufacturing and logistics. UEM Group owns a 51% stake in PLUS Malaysia Bhd, Malaysia’s largest toll highway operator.

The source said the downsizing exercise was solely to reduce operational expenses, including salary and benefits.

It is believed the change is also to reflect Khazanah’s new management style which reduces overlapping roles and discards non-critical duties.

Meanwhile, UEM Group, when contracted by TMR, said it is currently undertaking a restructuring exercise which will see it becoming “a more commercially viable investment holding company”.

The company did not deny that the move would involve retrenchment. It said the restructuring exercise will also see UEM Group developing a business model that best suit its capabilities and be in a better position, to deal with the changing markets and expectations.

“Part of the restructuring exercise includes an ongoing assessment of UEM Group’s 235 employees, some of whom will continue their employment within the company, while most will continue their employment at UEM Group’s subsidiaries to undertake support services for each company,” UEM Group said in the statement.

It was last reported that UEM Group had a total assets of US$6.7 billion (RM27.74 billion) and shareholders’ funds in excess of US$2.2 billion as at end-December 2014.

Other subsidiaries within UEM Group are public-listed property developer UEM Sunrise Bhd; asset management and infrastructure solutions company UEM Edgenta Bhd; unlisted UEM Builders Bhd; and Cement Industries of Malaysia Bhd.

The group’s move to emulate Khazanah comes after the fund undertook a restructuring exercise following the sweeping changes at the board level in July last year. Datuk Shahril Ridza Ridzuan was appointed the MD to replace Tan Sri Azman Mokhtar in August last year.

It is believed that the former head of the Employees Provident Fund has been implementing changes at the sovereign wealth fund to fit its new mandate.

Its investment playbook has also been reclassified into separate commercial and strategic funds after it posted its first loss in over a decade. Cost management has been a priority for the fund.

Khazanah recorded a loss before tax of RM6.27 billion last year versus a profit before tax of RM2.89 billion in 2017, largely due to RM7.3 billion impairments — half of which was attributed to national carrier Malaysia Airlines Bhd.

Its portfolio value, as measured by its net worth adjusted, fell 21.6% to RM91 billion on Dec 31, 2018, from RM116 billion a year prior, while its realisable asset value declined to RM136 billion from RM157 billion during the same period, mainly due to market volatility and global economic uncertainty.

TMR recently reported that Khazanah plans to shift its headquarters from the Petronas Twin Towers to Mercu UEM in KL Sentral, in a bid to reduce operational expenses.

The move, planned for the first quarter of next year (1Q20), coincides with the lapsing of the leasing agreement with the owner of the Petronas Twin Towers. Khazanah owns the 29-floor Mercu UEM building via UEM Group.

Its shift to Mercu UEM is seen as part of the fund’s efforts to improve operational and cost efficiencies. Khazanah had already shut down its office in London due to high costs and scaled down its operations in Turkey.

Both UEM Sunrise and UEM Edgenta have attracted the attention of investors, according to several reports. UEM Sunrise’s net profit rose 19% to RM30.09 million in 1Q19 from RM25.29 million a year ago, while earnings for the financial year 2018 (FY18) came in at RM20.08 million versus a net loss of RM50.95 million previously.

UEM Edgenta’s net profit rose 10.5% to RM32.66 million in 1Q19 from RM29.55 million in 1Q18, although its earnings plunged 64.6% to RM148.24 million in FY18 from RM418.19 million due to a one-off gain on disposal recorded the year prior.