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Saturday, January 7, 2012

Balancing profits and social responsibility

StarBizWeek conducted a question and answer session with Selangor State Development Corp (PKNS) general manager Othman Omar recently. Below are excerpts:

How has the PKNS fared in the last two years?

We are grateful to be able to achieve continuous profitability during the last three global economic crises. In fact, during the most recent global economic crisis of 2008/2009, PKNS’s operational profit increased significantly compared to the previous financial year supported by aggressive marketing and rebranding.

We made a profit of RM165mil in 2009, which increased significantly to RM206mil in 2010. We expect our profit to increase to RM480mil for 2011. PKNS’ audited accounts for the year ended Dec 31, 2010 saw a profit before tax of RM196.8mil, an increase of 18.5% or RM30.7mil from RM166.1mil in the previous financial year.

The 2010 figures are purely operational profits, not considering the profits to be generated from our real estate investment trust exercise (estimated cash at RM162mil and profit of about RM82mil) and diversification from Kesas (estimated at RM150mil) which will be posted under 2011.

Othman: ‘Profit is just a means to an end.’

The extensive marketing of our products has helped us to achieve better sales in 2010. For example, we managed to sell RM85mil worth of properties in three days at our Selpex 2010 Property Fair at Shah Alam Convention Centre.

Although 2009 was a tough year for most property developers, considering the global economic crisis and the rise in material prices, we achieved a respectable profit even after making a provision for a RM78 mil loss in the Bukit Botak resettlement project. For 2011, we expect to at least double the profit we made in 2010.

We need to segregate between our economic and commercial projects and social projects so as to get the best use for our land and thus optimise the return on these projects. If we focus only on doing the heavily subsidised affordable and the low cost housing, we will have nothing left to contribute (for the coming years). This balancing act is very important to ensure our continuous profitability, and thus sustainability in delivering our social obligations.

What changes do you want to see in the development of Selangor, and what role PKNS can play in this?

As the most developed state in Malaysia, Selangor needs to set the standards and benchmark in property development and other areas of growth. At the same time, Selangor is saddled with the same problem as most of the states in the country – a disproportionate representation between high-end properties and those which are within reach of the majority of our people.

It is the duty of PKNS to create more affordable housing developments to fill in this void and maintain a balance in the social ecosystem. In line with this, we launched the Section 14 Bangi project early this year and we target 11,000 new concept units in the next five years.

As of this year, the PKNS has developed 11 integrated townships. We realise the importance of integrated township and developments that feed into each other. These industrial components create jobs as well as meet the people’s housing needs while the institutional component fills the need for education. The commercial and retail aspects allow business to flourish within these townships.

Such projects also require additional investment into infrastructure development. This includes the need to build better roads, interchanges and the extension and improvement of public transport system. For example, our projects in Datum Jelatek, PJ Sentral Garden City, Section 14 PJ will be linked with LRT stations while we plan to provide shuttle services to LRT stations in Sports City and PJ Elevated developments.

The mega projects that we are embarking on are currently focused on the concept of urban regeneration while the rest of our developments also have the community in mind.

Q-Cells, the world’s largest solar panel manufacturer with its headquarters in Germany, has been in operation in Selangor Science Park 2 (SSP2) since May 2009. PKNS is also in negotiation with some local and international parties to develop solar and wind in order to promote green renewable energy in SSP2.

UEPE Bhd is also planning to develop three parcels of the lakeside commercial centre and a few residential parcels and a factory outlet complex in SSP2. We have also signed a sales and purchase agreement with the developer of the International Medina University to set up its campus for 20,000 students and we are in negotiation with another internationally renowned university for a similar enterprise.

Would you prefer to build affordable housing or low-medium cost housing or generally townships development?

We need to strike a balance between supply and demand for affordable and low-cost housing and township development especially in terms of location and pricing. There are many low-cost housing in less strategic locations that have been empty for years.

We have built over 50,000 low-cost units in the last 47 years. Although they have served well in terms of providing more affordable housing for the low income group in the last few decades, they have also created problems along the way. Building and maintaining low-cost housing schemes is a very expensive affair as many developers already know. In terms of buying trend, young couples nowadays don’t want to stay in low-cost housing schemes. These are the people who will be our main house-buyers in the future.

The state has since 2009 come up with a new concept of affordable homes that could provide an alternative solution to these low-cost schemes. The new concept focuses not only on the hardware (the architectural and building design), but also the “software” that goes in it (the people, facilities to accommodate a lifestyle). We prefer this new concept as it offers better value, more enhanced facilities and a better quality of life.

In the case of township development, heavy capital outlay is required in constructing the required infrastructure. On average, we spend between RM1bil and RM1.5bil on infrastructure development for each township, which includes the road network and interchanges, earthworks, water reticulation, sewerage system, telecommunication infrastructure and other facilities.

Unless you buy the land cheap, the financing cost over the longer development period can be very substantial. Alternatively, we can parcel out and jointly develop with other private developers to expedite the overall development or share the infrastructure cost like what we did for Kota Damansara, Bangi and Shah Alam. In SSP2 and Bernam Jaya, we synergise with investors, college operators and private developers that can add value to our development.

How does PKNS give back to the community? How much is it involved in corporate social responsibility (CSR)?

Serving the people’s needs is fundamental for us. In line with this, the profits that we make are funnelled back to the rakyat. This comes in the form of building low-cost apartments, affordable homes and subsidising the development of public housing, among others. We also put in place initiatives to support Selangor’s small and medium enterprises (SMEs). SMEs are a large contributor to Selangor’s economy and we assist them by alleviating high overhead costs and catering to their business needs. The PKNS Business Centre and Virtual Office (VIO) at PKNS Bizpoint and PKNS Real Plug n Play based in Cyberjaya provide this assistance.

VIO offers serviced suites and virtual offices to business owners without the expensive set-up costs and overheads. Plug n Play is an ecosystem conducive to the technopreneur community. To add value, we have signed an exclusive agreement with Plug n Play Techcenter of Silicon Valley in California to support and expedite the growth of digital solutions start-up companies in Selangor.

We believe in giving back to the community, and this is something that we have done before CSR was a trend. Recently, we contributed RM5.2mil to Yayasan Selangor’s development of a hostel complex and RM450,000 more for the construction of a school in Kota Damansara in Petaling Jaya.

By The Star

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