Profit improvement analysis a case study of Air Kelantan Sdn Bhd

Air Kelantan Sdn Bhd (AKSB) is the sole operator for treated water supply company in
Kelantan. Total privatization was exercised in the year 1995. Being among the earliest
company in Malaysia to be privatized in water industry, AKSB is supposed to progress
and excel. Ironically, a company that is supposed to be a 'bench mark' in the water
privatization concept has been lagged behind in terms of management and technology to
later company such as Syarikat Air Johor Holding (SAJH), SYABAS, PUAS etc.
The annual profit before tax was significantly reduced year after year. Year 2008 has
been a dismal year for AKSB as the profit was diminished to 70 per cent compared to
what AKSB has obtained in 2007. The income has soaring with the amount of almost RM
10 million from previous year but the profit before tax has shrank to a nasty figure.
Therefore the biggest challenge for AKSB management now is to inflate the profit
despite the rising operation costs.
The analysis shows that AKSB suffers from its high operational costs, lost of income due
to Non Revenue Water (NRW), low tariff and bad debts. This project studied the
structure of AKSB and most importantly analyzing the NRW problem. AKSB is
suffering the NRW at an average of 49 per cent which is among the highest rate in
Malaysia. 1 per cent of NRW is equivalent to RM 1.80 million worth of money. In terms
of Water Treatment Plant (WTP), the rising of operational costs is partly due to less
efficiency of the plants where the production is reduced because of plants ageing. Some
plants have to run on over capacity due to budget constraint on upgrading works.
From the finding, AKSB has to resolve the NRW problem, as this issue will deteriorate
the profitability further. Probably the restructuring process shall be exercised at
management level in order to avoid the conflict among the top management and
superintendents. The billing and collection units have to be efficient so that the bad debts and ageing collection can be improved. The productivity of employees is another crucial
factor that determines the increment in profitability. Most of the employees in AKSB
used to work with Jabatan Bekalan Air Kelantan. Working style as government servant is
very much different with private employee. Even though AKSB has been privatized and
exist more that 10 years ago, the attitude and working style has not been changed and the
employees have difficulty to adapt to privatization. So in this case, AKSB has to shift the
paradigm in order to remain competitive and able to generate significant profit.