Scomi Energy Services Bhd ( A) Level 17, 1 First Avenue Bandar Utama Petaling Jaya Selangor Darul Ehsan Malaysia

Transcription

1 Scomi Energy Services Bhd ( A) Level 17, 1 First Avenue Bandar Utama Petaling Jaya Selangor Darul Ehsan Malaysia Telephone Facsimile

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3 CONTENTS 002 Key Financial Indicators 003 Key Financial Highlights 004 Corporate Structure 006 Corporate Statement 007 Corporate Information 010 Board of Directors 016 Chairman s Statement 020 Management Review of Operations 026 Corporate Social Responsibility 030 Statement on Corporate Governance 040 Statement on Risk Management and Internal Control 046 Audit and Risk Management Committee Report 049 Additional Information 051 Statement of Directors Responsibility 054 Financial Statements 142 Analysis of Shareholdings 145 List of Properties 147 Corporate Directory 149 Notice of Annual General Meeting Form of Proxy

4 KEY FINANCIAL INDICATORS RM 000 RM 000 Revenue 1,560,239 1,415,994 EBITDA 233, ,252 Depreciation (86,707) (81,681) Finance costs (28,427) (33,436) Share of loss in associated companies (124) (247) Share of profit from joint ventures 1,117 5,310 Profit before tax 117, ,919 Taxation (42,587) (46,988) Profit after tax 75,282 80,931 Non-controlling interests 1, PAT after non-controlling interests 77,142 81,875 Number of shares assumed in issue ( 000) 2,341,630 2,341,630 Weighted average number of shares used to compute diluted earnings per share ( 000) 2,341,630 2,341,630 Basic and diluted - Net EPS (sen) Total assets 1,797,251 1,662,096 Net tangible assets 666, ,030 Shareholders Fund 782, ,362 Net assets per share (sen) Scomi Energy Services Bhd

5 KEY FINANCIAL HIGHLIGHTS Revenue (RM Million) Total Assets (RM Million) ,560, ,797,251 1,662, ,415,994 Earnings per share (Basic) Profit before tax (RM Million) ,869 Net Tangible Assets (RM Million) , , ,030 Shareholders' fund (RM Million) PAT after non-controlling interests (RM Million) , , ,142 Net Assets per share (Attributable to owners of the Company) , Annual Report

6 CORPORATE STRUCTURE SCOMI ENERGY SERVICES BHD 1 Scomi D&P Sdn Bhd 50% Transenergy Shipping Management Sdn Bhd 50% LABUAN Transenergy Shipping Pte Ltd 30% Ophir Production Sdn Bhd Trans Advantage Sdn Bhd 51% LABUAN Marineco Limited Scomi Oiltools Sdn Bhd AUSTRALIA Scomi Oiltools Pty Ltd 48% 50% Scomi Platinum Sdn Bhd SINGAPORE Scomi Marine Services Pte Ltd 21.08% VIETNAM Southern Petroleum Transportation Joint Stock Company 4% Scomi KMC Sdn Bhd Scomi Sosma Sdn Bhd TEXAS, USA Scomi Equipment Inc THAILAND Scomi Oiltools (Thailand) Ltd % 50% INDONESIA PT Rig Tenders Indonesia Tbk2 70% FRANCE Scomi Anticor S.A.S3 BRUNEI Scomi (B) Sdn Bhd SINGAPORE Scomi Oiltools (S) Pte Ltd NETHERLANDS KMC Oiltools BV 6 SINGAPORE Rig Tenders Offshore Pte Ltd SINGAPORE Rig Tenders Marine Pte Ltd SINGAPORE CH Ship Management Pte Ltd INDIA KMC Oiltools India Pte Ltd5 95% INDONESIA PT Multi Jaya Persada 95% INDONESIA PT Scomi Oiltools 95% INDONESIA PT Inti Jatam Pura 95% SINGAPORE Grundtvig Marine Pte Ltd INDONESIA PT Batuah Abadi Lines RUSSIA Scomi Oiltools (RUS) LLC SINGAPORE CH Logistics Pte Ltd LABUAN Scomi Vessels Pte Ltd 49% BRITISH VIRGIN ISLANDS King Bridge Enterprises Limited (BVI) 004 Scomi Energy Services Bhd

7 BERMUDA Scomi Oilfield Limited 49% Emerald Logistics Sdn Bhd 51% Gemini Sprint Sdn Bhd KMCOB Capital Berhad CAYMAN ISLANDS Scomi Oiltools Ltd 51% OMAN Scomi Oiltools Oman LLC CAYMAN ISLANDS Scomi Oiltools (Cayman) Ltd CAYMAN ISLANDS Scomi Oiltools (Africa) Limited 50% ENGLAND & WALES Vibratherm Limited 60% GABON Oiltools Gabon SA 96% NIGERIA Wasco Oil Service Company Nigeria Limited Key 1 Listed on the Bursa Malaysia Securities Berhad. 2 Listed on the Indonesia Stock Exchange. 3 Includes 1 preferential share each held by 2 different individuals. 4 Includes 1 Class A share each held by Scomi Oiltools Ltd and Scomi Oiltools (Cayman) Ltd. 5 Includes 1 share held by Scomi Oiltools Ltd. 6 The Company has been placed under members voluntary liquidation. Notes Except as otherwise expressly stated, all companies in this corporate structure are incorporated in Malaysia. Except as otherwise expressly stated, all companies in this corporate structure are wholly owned by their respective holding companies. Annual Report

8 CORPORATE STATEMENT With a presence in 38 locations across 20 countries, the Scomi Energy Services group of companies is a global technology enterprise in the energy and logistics industries. We are a global technology enterprise. Our global reach, capabilities and talent provide us with the necessary resources to develop and own new technology in all areas of our business. We focus on Energy & Logistics. All our businesses are focused on the Energy and/or Logistics sectors with the ability to compete globally. All of us in the Scomi family should remember that any new initiatives we undertake will focus on these areas of business. We provide innovative solutions. We innovate to respond to an evolving environment. Our products and operations meet today s needs while anticipating tomorrow s. We are committed to developing competitive and innovative solutions to create efficiency, add value and grow with our customers to shape our future. We aim to realise potential for our stakeholders. Our customers: We will develop and offer customers innovative and competitive products and services that help them grow their business. Our shareholders: We are committed to providing long-term superior returns to our shareholders. Our people: We aim to provide our employees with developmental opportunities so they can succeed on personal and professional levels. Our suppliers: We will treat our suppliers as our partners in the mutual interest of business growth. Our society / environment: As a good corporate citizen, we will give back to the communities we operate in, worldwide. 006 Scomi Energy Services Bhd

9 CORPORATE INFORMATION DIRECTORS Tan Sri Nik Mohamed Bin Nik Yaacob (Chairman) Dato Sri Meer Sadik Bin Habib Mohamed Dato Jamelah Binti Jamaluddin Liew Willip Lee Chun Fai Ravinder Singh Grewal A/L Sarbjit S Shah Shahzanim Bin Zain AUDIT AND RISK MANAGEMENT COMMITTEE Liew Willip (Chairman) Dato Sri Meer Sadik Bin Habib Mohamed Lee Chun Fai Ravinder Singh Grewal A/L Sarbjit S NOMINATION AND REMUNERATION COMMITTEE Tan Sri Nik Mohamed Bin Nik Yaacob (Chairman) Dato Jamelah Binti Jamaluddin Liew Willip REGISTERED OFFICE Level 17, 1 First Avenue Bandar Utama Petaling Jaya Selangor Darul Ehsan, Malaysia ADMINISTRATIVE AND CORRESPONDENCE ADDRESS Level 17, 1 First Avenue, Bandar Utama Petaling Jaya Selangor Darul Ehsan, Malaysia Tel : Fax : info@my.scomienergy.com Website : REGISTRAR Symphony Share Registrars Sdn Bhd Level 6 Symphony House Pusat Dagangan Dana 1 Jalan PJU 1A/ Petaling Jaya Selangor Darul Ehsan, Malaysia Helpdesk Tel No : Fax : /52 COMPANY SECRETARIES Chong Mei Yan (MAICSA ) Ong Wei Leng (MAICSA ) AUDITORS Messrs KPMG (AF: 0758) Level 10, KPMG Tower, 8, First Avenue, Bandar Utama, Petaling Jaya, Selangor Darul Ehsan Malaysia PRINCIPAL BANKERS Standard Chartered Bank Malaysia Berhad Level 13, Menara Standard Chartered, 30 Jalan Sultan Ismail, Marina Bay Financial Centre Tower 1, Kuala Lumpur, Malaysia. OCBC Bank (Malaysia) Berhad Menara OCBC, 18 Jalan Tun Perak Kuala Lumpur, Malaysia Malayan Banking Berhad Level 37, 100 Menara Maybank, Jalan Tun Perak, Kuala Lumpur, Malaysia. HSBC Bank Malaysia Berhad 3rd Floor, North Tower, No. 2, Leboh Ampang, Kuala Lumpur, Malaysia. Al Rajhi Banking & Investment Corporation (Malaysia) Berhad 6th Floor, West Block, Wisma Selangor Dredging 142-C, Jalan Ampang, Kuala Lumpur, Malaysia. Hong Leong Bank Berhad Level 1, Wisma Hong Leong, 18 Jalan Perak Kuala Lumpur, Malaysia CIMB Bank Berhad Level20, Menara CIMB, Jalan Stesen Sentral, KL Sentral, Kuala Lumpur, Malaysia PT Bank Internasional Indonesia Sentral Senayan 3, Jl. Asia Afrika No. 8 Senayang Gelora Bung Karno Jakarta 10270, Indonesia PT Bank Mandiri (Persero) Tbk Plaza Mandiri, Jl. Jend. Gatot Subroto Kav Jakarta 12190, Indonesia STOCK EXCHANGE LISTING Main Market of Bursa Malaysia Securities Berhad Stock Name : Scomies Stock Code : 7045 CURRENCY Ringgit Malaysia (RM) Annual Report

10 Driven by vision and conviction

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12 board of directors Tan Sri Nik Mohamed bin Nik Yaacob Chairman, Independent Non-Executive Director Tan Sri Nik, 66, a Malaysian, is the Chairman and Independent Non-Executive Director of the Company. He was appointed as a member of the Board on 16 May 2013 and was designated as the Chairman of the Board on 31 May Tan Sri Nik holds a Diploma in Mechanical Engineering, a B.E.(Hons) Degree from Monash University and a Masters in Business Management from the Asian Institute of Management. He also completed the Advanced Management Programme at Harvard University in the United States. He served as the Group Chief Executive of Sime Darby Berhad from 1993 until his retirement in June He was Sime Darby Berhad s Director of Operations in Malaysia prior to his appointment as the Group Chief Executive in He also served on the Boards of many of the Sime Darby group companies during this time. He was also the Chairman of the Advisory Council of National Science Centre and Chairman of the Board of UITM and served as a member of the INSEAD East Asian Council, National Council for Scientific Research and Development, Co-ordinating Council for the Public-Private Sectors in the Agricultural Sector, National Coordinating Committee on emerging Multilateral Trade Issues and the Industrial Coordinating Council. He was a representative for Malaysia in the Apec Business Advisory Council and the Asia-Europe Business Forum. The other Malaysian public companies in which he is a Director are Scomi Group Bhd, GuocoLand (Malaysia) Berhad and Symphony Life Berhad. Tan Sri Nik Mohamed is also an Executive Director of Yayasan Kepimpinan Perdana (Perdana Leadership Foundation). Tan Sri Nik is the Chairman of the Nomination and Remuneration Committee of the Board. He attended all the 6 Board Meetings held in the financial year ended 31 March Dato Sri Meer Sadik bin Habib Mohamed Independent Non-Executive Director Dato Sri Meer Sadik, 52, a Malaysian, is an Independent Non-Executive Director of the Company. He was appointed to the Board on 19 November Dato Sri Meer Sadik graduated from Wichita State University, United States of America, with a Degree in Business Administration, and later qualified as a gemmologist from the Gemmological Institute of America. Dato Sri Meer Sadik is currently the Managing Director of the Habib Group of Companies which today is involved in retailing, manufacturing and microfinancing. Dato Sri Meer Sadik is a Past President of the Young Entrepreneurs Organisation (YEO) and was the Governor of the Alice Smith School. Dato Sri Meer Sadik has been serving as the Honorary Secretary of Malaysian Retailers Association in The other Malaysian public company which he is a Director is Yayasan Habib, which was established in 2008 to undertake corporate social responsibility activities for the Habib Group. Dato Sri Meer Sadik is a member of the Audit and Risk Management Committee. He attended all the 6 Board Meetings held in the financial year ended 31 March Scomi Energy Services Bhd

13 Dato Jamelah Binti Jamaluddin Independent Non-Executive Director Dato Jamelah, 58, a Malaysian, is an Independent Non-Executive Director of the Company. She was appointed as a member of the Board on 15 November Dato Jamelah holds a Diploma in Business Studies, a BBA (Finance) Degree from Western Michigan University, Michigan, USA and a Masters in Business Administration from Central Michigan University, Michigan, USA. Dato Jamelah served as the Managing Director of Kuwait Finance House (Malaysia) Labuan Berhad from March 2013 to September She was the Chief Executive Officer ( CEO ) of Kuwait Finance House (Malaysia) Berhad from February 2010 to March She also served RHB Islamic Bank Berhad as Managing Director from August 2007 to January Her previous working experience including as (i) the Deputy CEO of Kuwait Finance House (Malaysia) Berhad from November 2006 to August 2007; (ii) Chief Operating Officer ( COO ) of RHB Sakura Merchant Bankers Bhd from January 2004 to November 2006; and (iii) Division Director of Macquarie Malaysia (M) Sdn Bhd and Macquarie Bank Limited (Labuan Branch) from August 1999 to November Her directorships in other public companies include Small Medium Enterprise Development Bank Malaysia Berhad, Kumpulan Jetson Berhad, Edra Global Energy Berhad (formerly known as 1MDB Energy Group Berhad), PMB Tijari Berhad and Weida (M) Berhad. Dato Jamelah is a member of the Nomination and Remuneration Committee of the Board. She attended 5 out of 6 Board Meetings held in the financial year ended 31 March Mok Yuen Lok Independent Non-Executive Director (Resigned on 30 May 2014) Mr Mok, 54, a Malaysian, is an Independent Non-Executive Director of the Company. He was appointed to the Board on 29 March 2002 and resigned on 30 May Mr Mok graduated in 1981 with a Bachelor of Science from Heriot Watt University, Edinburgh, and joined Ernst & Whinney (now Ernst & Young) in 1982, where he trained and qualified as a Chartered Accountant. He co-founded Crowe Horwath in Malaysia in 1990 and is currently the Regional Executive Director of Crowe Horwath International for the Asia Pacific region, overseeing 27 countries. He is also Audit Committee Chairman of another public listed company. Mr Mok is a member of the Young Presidents Organization, Malaysian Chapter, where he has served various Board positions. He has also been actively involved with Hospis Malaysia, a charitable organization which renders free palliative care to residents in the Klang Valley diagnosed with life-limiting conditions. Other Malaysian public companies which he is a Director are Goodway Integrated Industries Bhd and Yayasan Habib. Mr Mok chaired the Audit and Risk Management Committee, and was also a member of the Nomination and Remuneration Committee of the Board. He attended the only one Board Meeting held in the financial year ended 31 March 2015, before his resignation on 30 May Annual Report

14 BOARD OF DIRECTORS Liew Willip Independent Non-Executive Director Mr Liew, 47, a Malaysian, is an Independent Non- Executive Director of the Company. He was appointed to the Board on 21 February Mr Liew is a commerce graduate of the University of Melbourne and a Chartered Financial Analyst. Upon graduation, Mr Liew worked with international accounting firm KPMG as an auditor. Subsequently, he joined a local stockbroking company as an investment analyst, and later, moved to the Kuala Lumpur office of an international investment bank, Barclays dezoete Wedd, where he was the senior equity analyst. In 1996, Mr Liew was hired to set up the Malaysian equity research operations of another international investment bank, NatWest Markets, where he was the Director and Head of Research. In 1998, Mr Liew joined the national asset management company, Pengurusan Danaharta Nasional Berhad ( Danaharta ), where he was among the pioneer staff members. At Danaharta, Mr Liew was the Assistant General Manager/Head of Research unit (Corporate Services Division). After leaving Danaharta in 2000, Mr Liew co-founded an independent investment advisory company, and a consulting company that specializes in financial and investor communications. Mr Liew is currently the Managing Director of a company providing consulting services. Mr Liew chairs the Audit and Risk Management Committee, and is also a member of the Nomination and Remuneration Committee of the Board. He attended 5 out of the 6 Board Meetings held in the financial year ended 31 March Lee Chun Fai Non-Independent Non-Executive Director Mr Lee, 44, a Malaysian, was appointed to the Board as Non-Independent Non-Executive Director on 17 May He holds a Bachelor of Accountancy (Honours) degree from University Utara Malaysia (1995) and a Master of Business Administration from Northwestern University (Kellogg) and The Hong Kong University of Science & Technology (2012). He started his career with a public accounting firm. In October 1995, he joined Road Builder (M) Holdings Bhd ( RBH Group ) and was the Head of Corporate Services Division of RBH Group prior to the acquisition of RBH Group by IJM Corporation Berhad ( IJM ) in Currently, he is the Deputy Chief Executive Officer and Deputy Managing Director of IJM and has served as the Deputy Chief Financial Officer and Head of Corporate Strategy & Investment of the IJM Group. His directorships in other public companies include Scomi Group Bhd, Scomi Engineering Bhd, Kumpulan Europlus Berhad and IJM Land Berhad. He is also an Alternate Director in Road Builder (M) Holdings Bhd. Mr Lee is a member of the Audit and Risk Management Committee of the Board. He attended 5 out of the 6 Board Meetings held in the financial year ended 31 March Scomi Energy Services Bhd

15 BOARD OF DIRECTORS Ravinder Singh Grewal A/L Sarbjit S ( Ravinder ) Independent Non-Executive Director Ravinder, 45, a Malaysian, was appointed to the Board as Independent Non-Executive Director on 21 May Ravinder holds a Bachelor of Commerce from the University Of New South Wales, Australia and is an Australian Certified Practising Accountant. Ravinder has over 20 years of experience in corporate finance and private equity. His corporate finance deals have included IPOs and bond issues in Singapore, merger & acquisition transactions in South-East Asia as well as debt restructuring transactions in Malaysia and Indonesia. His private equity deals have included buy-out and development capital investments in South-East Asia and Australia. He previously worked for DBS Bank in Singapore and Standard Chartered Bank, with his last position as a Managing Director in the private equity division of Standard Chartered Bank. Ravinder is a member of the Audit and Risk Management Committee of the Board. He attended all the 6 Board Meetings held in the financial year ended 31 March Shah Shahzanim bin Zain Chief Executive Officer/ Non-Independent Executive Director Encik Shah Hakim, 50, a Malaysian, is the Chief Executive Officer/ Non-Independent Executive Director of the Company and was appointed to the Board on 23 September Encik Shah Hakim started his career as an auditor with Ernst & Young and was subsequently promoted as Consulting Manager, responsible for servicing large corporations. He went on to be appointed as Executive Director of a regional packaging manufacturer in 1992, with direct operational responsibility. He currently sits on the Board of Scomi Group Bhd, Scomi Engineering Bhd and KMCOB Capital Berhad. He attended all the 6 Board Meetings held in the financial year ended 31 March Loong Chun Nee Alternate Director to Encik Shah Shahzanim bin Zain (Resigned on 29 July 2015) Madam Loong, 57, a Malaysian, was appointed as an Alternate Director to Encik Shah Shahzanim bin Zain on 27 February She graduated with a Bachelor of Arts in Economics and Social Studies from the University of Manchester, United Kingdom. Madam Loong was previously with the Renong Group of companies for a total of 11 years covering companies including Projek Lebuhraya Utara- Selatan Berhad ( ) and United Engineers (Malaysia) Berhad ( ) and HBN Management Sdn Bhd (Group Management Office) ( ). She left the Renong Group in late 1999 to join Tan Sri Dato (Dr) Rozali Ismail as Financial Advisorfor Puncak Group of companies before being appointed as the Finance Director to the Board of Puncak Niaga Holdings Bhd in January 2005 (2000 June 2005). She then joined Scomi Group Bhd in July 2005 as Senior Vice President of Corporate Finance Division/Chief Financial Officer of Scomi Energy Services Bhd. Thereafter, she was transferred to Scomi Group Bhd as Group Chief Financial Officer in August In early 2008, she was redesignated as Chief Investment and Performance Officer. Madam Loong has vast experience in financial advisory matters specialising in the areas of corporate debt restructuring, corporate finance and project financing for privatisation projects. Notes: Save as disclosed, none of the Directors have: any family relationship with any other Director and/or major shareholder of Scomi Energy Services Bhd; any conflict of interest, or any personal interest in any business arrangement, involving Scomi Energy Services Bhd; and any conviction for offences within the past ten (10) years (other than traffic offences, if any). Annual Report

16 Transforming challenges into solutions

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18 CHAIRMAN S STATEMENT Dear Stakeholders, For the financial year ended 31 March 2015 (FY2015), Scomi Energy Services Bhd (SESB or the Company) has turned in a commendable performance. Despite the less than favourable business environment, SESB was able to record growth in both Oilfield Services (OFS) and Marine Services. Our strategy of growing core business, expanding product line and building integration capability has enabled us to withstand challenging market conditions. As a technology-based company, SESB continues to leverage on technology and innovation to remain resilient amidst various market challenges. Towards this end, SESB has successfully introduced new products that provide us with an edge over our competitors. Our graphene-enhanced products, for example, have gained the acceptance from our customers due to its superior performance compared to the current offerings in the market. The Company also achieved a significant milestone when PETRONAS Carigali Sdn Bhd (PCSB) awarded a Risk Service Contract (RSC) to a consortium, of which SESB is a 30% shareholder. The contract is to develop the Ophir marginal field, off Peninsular Malaysia. This marked the beginning of our foray into the development and production (D&P) segment which is in line with our strategy to build integration capabilities. Our Marine Services, which caters to the logistic needs of oil and gas companies as well as shipping of coal, recorded higher growth in spite of the downturn in the oil and gas industry. This is due to an increase in the amount of coal transported under the coal affreightment contract with an energy company in Malaysia. FINANCIAL OVERVIEW The subdued oil, gas and coal environments affected SESB s overall performance. While the Company achieved a 10% increase in revenue from RM1.42 billion in FY2014 to RM1.56 billion, our profit after tax (PAT) decreased by 7.0% from RM80.93 million in FY2014 to RM75.28 million in the financial year under review. Of the two operating divisions, OFS continued to be the major contributor of our income, at 82% of the total. Looking at our financial results, it gives me pleasure to note that efforts to increase cost efficiencies have borne fruit. Our operating expenses (OPEX) have reduced from 13.8% of revenue in the last financial year to 13.0% in FY2015. Our balance sheet has also been strengthened, with reduced borrowings and increased cash balance while holding our debtor days steady and achieving a slight improvement in inventory days. 016 Scomi Energy Services Bhd

19 CREATING VALUE FY2015 saw concerted efforts by SESB to strengthen our businesses and gain market share. Recognising that our products, processes and people are key value creators for SESB, much focus has been concentrated on: Developing a range of cutting-edge products that offer customers the advantages of superior performance; Streamlining and further enhancing the efficiency of all our business processes; and Identifying the competencies needed to continuously develop our talent. A key achievement during the year was our venture into D&P of the upstream oil and gas sector. Besides our existing drilling and completion offerings, we have progressed up the value chain and are now able to offer more comprehensive packages to key customers including subsurface and production management services as well as facilities, operation and maintenance services. At the same time, we are building our brand value by intensifying our research and development (R&D) activities, especially in the area of graphene-enhanced solutions. Graphene has been described as a gamechanging material due to its incredible strength, thinness (it is only onemolecule thick) and flexibility. These cutting-edge chemicals offer customers cost-effective solutions for the entire value chain of upstream operations. In addition, our solutions are also environmentally-friendly and satisfy global environmental standards. Although efforts to commercialise these products are in the early stages, we have already garnered very positive response and are looking to introduce these in more markets, especially the Middle East where upstream activity is still vibrant. BOARD ACTIVITIES The Board of Directors of SESB continues to play an active role in guiding the strategic direction of the Company. During the financial year, the Board met six times and spent a considerable amount of time reviewing various new policies developed by the Management. In total, we deliberated on and approved seven new policies, namely: Global Finance Policy; Global ICT Policy; Global People Policy; Procurement Management Policy; Global QHSE Policy; Workplace Management Policy; and Anti-Corruption Policy. With these updated policies, all our country operations will be supported by a framework of best practices. Annual Report

20 CHAIRMAN S STATEMENT 018 Scomi Energy Services Bhd

21 CHAIRMAN S STATEMENT BOARD CHANGES On 29 July 2015, Madam Loong Chun Nee, who was the Alternate Director to Encik Shah Shahzanim bin Zain, resigned from the Board of Directors. On behalf of my colleagues, I would like to extend our warmest appreciation to her for the many years of invaluable contribution to the Company, and wish her the very best for the future. OUTLOOK All indicators point to FY2016 being another challenging year. The price of oil is expected to reach USD80 per barrel, way below the USD100 mark that the industry became accustomed to over the last few years before the recent slide. The price of coal is also expected to remain relatively low. However, in this regard, there are signs that the Indonesian Government is stimulating its local industry by promoting the use of coal in power plants and supporting the construction of infrastructure for the export of the fuel. Moving forward, we will continue with building on our unique strengths to reinforce our resilience and prepare for a recovery in the oil, gas and coal industries. Our strategies will remain: to grow our business, expand our product range and build our integration capability. Accordingly, we will seek to expand market share, with a particular focus on growing our Oilfield Services business in the Middle East. This is the only market globally that has seen heightened activities since the onset of a slide in oil price. ACKNOWLEDGEMENTS SESB continues to maintain its performance despite a bearish environment and this is testimony to the strength of our management, the commitment of our employees and the support of various other stakeholders. I would like to take this opportunity to thank all the parties who have contributed to our many achievements. I would also like to acknowledge our external stakeholders our customers, associates, partners and investors for their continued support and trust in SESB. To our customers, let me say that we strive constantly to better understand your operations and support your core businesses. As for our associates and partners, we are grateful for your cooperation and hope to extend our mutually beneficial collaborations. To our investors and shareholders, we thank you for your support and hope you will remain with us during this challenging time. Most of all, I would like to express my heartfelt gratitude to the entire SESB family from my colleagues on the Board of Directors to the Management and every employee in the company for your guidance, your vision, hard work and dedication. As we continue to work together to realise the potential of our Company, I have every confidence that SESB will continue to progress and prosper. We will also explore the possibility of entering into partnerships to further expand our range of specialist products for the upstream market. Finally, with a new production D&P team in place, we intend to enter into more joint ventures to develop assets and to provide more comprehensive solutions to customers in this sector. While we are channelling much of our resources into D&P, we will maintain our asset-light structure as this affords us the flexibility of investing in a wider range of projects in diverse markets, spreading our risks while also keeping our capex at manageable levels. We are confident of building a stronger customer base as we ride out the current industry downturn as we constantly focus on delivering service quality. Essentially, we will continue to build on our value drivers to strengthen our position, and to ensure our shareholders will see a reasonable return on their investment. Tan Sri Nik Mohamed Bin Nik Yaacob Chairman Annual Report

22 MANAGEMENT REVIEW OF OPERATIONS Dear Stakeholders, The financial year ended 31 March 2015 (FY2015) was a mixed bag for Scomi Energy Services Bhd ( SESB or the Company ). The year started promisingly with high oil prices and a projected increase in exploration and production activities. However, it ended with the industry experiencing an unprecedented drop in oil price in a matter of months from a high of over USD115 in June 2014 to a low of under USD59 in December Amidst this challenging backdrop, SESB still managed to grow its revenue albeit with lower profit margins. The year also marked a milestone for our Oilfield Services (OFS) division, which expanded into the development and production of oil and gas via participation in a Risk Service Contract (RSC) with our consortium partners. Our Marine Services division, which caters to the vessel needs of oil and gas companies, was also impacted by the downturn in the industry. However, its performance was cushioned by improvement in the coal transportation segment. OVERVIEW For the first half of 2015, there was steady demand for the products and services offered by our OFS division, namely the provision of drilling fluids, drilling waste management and other chemicals that enhance production. From the third quarter onwards, however, plunging oil prices caused a slowdown in the upstream sector of the oil and gas industry. In two of our key markets Malaysia and Nigeria there was a marked reduction in rig count. Fortunately, there was sufficient drilling activity in other markets to buoy SESB s overall performance. None of our clients have cancelled any projects, although there were a few delays in terms of project implementation and tender awards. Our Western Hemisphere markets of Africa and Russia began the financial year on a particularly strong note but gradually wound down along with the price of oil as the year progressed. Although Russia witnessed a stable rig count, exchange rate losses from a weakened Ruble against the US Dollar meant margins were impacted. In West Africa, despite the challenging marketplace, we secured a significant multi-year waste management contract in Congo in the fourth quarter of 2014 from a major international oil corporation. Of all our major markets, the Middle East has been the least affected. Oil and gas players in that region have been maintaining a high level of production. SESB currently has a presence in Qatar, Oman, the United Arab Emirates and Saudi Arabia. This allows the Company to capitalise on the opportunities in this region as other markets experience a slowdown. In fact, there was an increase in rig count in this region during the first half of In addition, we made considerable progress in research and development (R&D) as well as commercialisation of environmentally-friendly products that help our customers enhance their drilling, completion and production operations. Cutting-edge graphene enhanced fluids, introduced in the last financial year, has gained greater traction with our customers in Myanmar, Thailand and Malaysia. We have also advanced our development of internal capabilities to provide integrated development and production (D&P) services in upstream sector by putting together an experienced team of technical experts. This team, together with our two consortium partners secured a RSC from PETRONAS to develop the Ophir oilfield offshore in Peninsular Malaysia in June Scomi Energy Services Bhd

23 Q What was FY2015 like in terms of SESB s financial performance? Q What are some of the new developments for SESB s product expansion? A Q A SESB as a group achieved a 10% increase in revenue from the preceding financial year to RM1.56 billion, 82% of which was contributed by OFS. The division earned RM1.28 billion in revenue compared to RM1.24 billion in FY2014. The increase was attributable to strong performances in Indonesia, Thailand, Myanmar, Turkmenistan and Australia especially in the first half of the year. This helped buffer the significant reduction in rig count in both Malaysia and West Africa. Meanwhile, the Company s earnings before income tax, depreciation and amortisation (EBITDA) was RM233.2 million and profit before tax (PBT) stood at RM117.9 million. Our Marine Services division recorded a 54.9% revenue hike mainly contributed by the full-year impact of its coal affreightment contract from 2014 which was awarded by TNB Fuel Sdn Bhd (TNBF), a wholly-owned subsidiary of Tenaga Nasional Berhad. The division s gross profit also almost doubled to RM21.9 million, driven primarily by increased cost efficiencies. SESB engaged in stringent cost management practices throughout FY2015 in anticipation of the challenging business climate. Various initiatives were implemented to reduce direct costs, leading to a drop in our Opex, which as a percentage of revenue has fallen to 13.0% in FY2015 compared to 13.8% in the preceding year. What were some of the new contracts won in FY2015? In terms of growing our core business, we were successful with several tenders we participated in during FY2015. OFS won more than RM675 million worth of new contracts in FY2015, mainly in the Middle East, West Africa and Southeast Asia regions including awards from international oil companies such as PETRONAS, ENI, PTT Exploration and Production, and Lundin. Meanwhile, Marine Services received a boost with the TNBF coal affreightment award. The contract is for a period of two years with an option for TNBF to extend it for another year. For the full three-year duration, the contract is valued at approximately RM175.4 million. Under this contract, we are expected to transport approximately 1.2 million metric tonnes of coal per annum. A Over the years, we have been diligently working on expanding our drilling fluids product line. Today, SESB s offerings include a full suite of drilling and completion fluids, production enhancement chemicals, enhanced oil recovery (EOR) solutions, water treatment and, well enhancement and stimulation solutions. During the year, we focused on four specific products: a nanographene enhanced lubricant, HyPR Graph Lube; a biodegradable base oil, Plat-Drill; a nanoemulsion, Confi-N-Surf; and an enzyme breaker system for water-based mud. This new enzyme breaker system is a cutting-edge product that won us an award from an international oil company for its superior performance in the second half of HyPR Graph Lube was tested successfully with a client in Thailand, where it delivered a better rate of penetration (ROP). It has proven to provide stability in terms of thermal temperature and lubricity, reducing friction by about 70%. Following the positive wellbore test, we have begun to market HyPR Graph Lube in Thailand, Dubai, India, Malaysia and Myanmar. Various tests were also conducted using Plat-Drill, with successful outcomes. Following this, we have started commercialising the product and have submitted a bid for a four-year project using Plat-Drill in Myanmar. Meanwhile, Confi-N-Surf is currently undergoing field tests with our customers in Thailand. Given the encouraging performance of these products, our team has intensified efforts to market them to existing as well as new customers. The team is focusing especially on the Middle East market, where there is much potential to develop our drilling fluids business as our business there mainly involves drilling waste management. Meanwhile, we have filed more than 10 patents for other graphene applications and will be working on testing and commercialising those to further strengthen our range of innovative and cost-effective products. Annual Report

24 MANAGEMENT REVIEW OF OPERATIONS Q A One of SESB s key strategies is to build integration capabilities. Could you please elaborate? A key highlight of the financial year was the setting up of SESB s D&P services unit to offer customers integrated services for the development and production of hydrocarbon assets. Leveraging on SESB s established presence in key markets, the business unit will focus on high-potential niche areas such as small and marginal fields in South Asia and Southeast Asia. The team looks to provide innovative solutions in three core areas namely subsurface and production management, integrated drilling management, as well as facilities operations and maintenance (O&M). With this team of experts, SESB is now able to provide holistic D&P and asset management services including integrated project management and asset integrity management from commissioning to abandonment. The D&P team is currently involved in the development of the Ophir oilfield, located offshore Peninsular Malaysia. SESB, together with its consortium partners, was awarded a seven-year Risk Service Contract (RSC) to develop Ophir. As part of this tripartite consortium, SESB stands to benefit from gaining invaluable development and production expertise which will help to further grow our new portfolio of integrated upstream services. Our D&P services team has also submitted proposals with our partners to develop products and provide services for floating, production, storage and offloading vessels (FPSOs), mobile offshore production units (MOPUs) and mobile water injection facilities. In addition, we are looking into the possibility of converting the tugs and barges in our Marine Services division for use in alternative functions. Q A This strategy is key in our journey towards becoming a fully integrated oilfield service provider. Ultimately we aim to provide our customers with lowest cost per barrel for their production. Underpinning this strategy is the technology that we own and develop in order to deliver superior solutions to our customers. What is SESB doing to promote greater Q&HSE awareness? SESB has always strived to maintain the highest standards for quality and health, safety and environment (Q&HSE). We have adopted best practices to ensure we provide quality products and services that are recognised internationally while operating in a setting where we prioritise the safety of our stakeholders and the environment. In recent years, SESB s operations in Australia, Egypt, Indonesia, Malaysia, Oman, Qatar, Russia and the United Arab Emirates have achieved the Integrated Management System (IMS) certification comprising ISO for environmental protection, ISO 9001 for quality management systems, and ISO for occupational safety and health. Meanwhile, other operations continue to work towards achieving all three certifications in the near future. In addition, the Company frequently organises Q&HSE-related training programmes to ensure all its staff are equipped with relevant knowledge which can be utilised both in and outside of the office. In FY2015, Q&HSE has organised training programmes pertaining to fire & safety awareness, office ergonomics, first aid and journey management, among others. 022 Scomi Energy Services Bhd

25 MANAGEMENT REVIEW OF OPERATIONS OUTLOOK According to the US Energy Information Administration (EIA), the price of Brent Crude Oil will continue to be low throughout the 2015 calendar year, averaging USD60.53 per barrel, rising marginally to USD67.04 in the calendar year 2016 which will impact demand for our upstream oilfield services. Reduced upstream activity would also suppress demand for our offshore service vessels. However, the performance of our Marine Services unit is likely to remain stable given the coal affreightment award from TNBF. Moreover, recent announcements by the Indonesian Government indicate that efforts are being made to promote coal for export and use in power generation. This and the fact that a number of tug and barge vessel operators have exited the market, could translate to a high utilisation rate for us. The Malaysian upstream market is expected to be bearish in the near future. Nevertheless, we foresee there will be pockets of opportunities in areas of rejuvenation, enhanced oil recovery and marginal fields despite the low oil price. These will be our focus areas in the Malaysian market besides our core drilling fluids and drilling waste management solutions. Leveraging on our growing D&P capabilities, we will actively seek out more tenders in these areas as well as projects related to Engineering, Procurement, Construction, Installation and Commissioning (EPCIC) and integrated drilling management. As a Company, we are focused on three critical areas, namely our people, products and processes. We will continue to build on the Key Account Management programme initiated in the last financial year in order to nurture close and stronger relationships with our customers. This helps us to better understand their needs and customise solutions that best meet their requirements. At the same time, we remain committed to developing the technical competencies and soft skills of our people via effective training and development programmes offered by the Scomi Group s Global Learning and Development (GLaD) arm. In FY2015, as part of a Group-wide revamp, SESB reviewed all our systems and processes, and updated these to be more efficient. The exercise culminated in the establishment of a standardised Scomi Management System which has been adopted across the board. While the results of this initiative were manifested in our FY2015 financial performance, we expect to reap even greater benefits of enhanced operational efficiencies and cost savings in FY2016 and beyond. To summarise, although FY2016 is expected to be as challenging as FY2015, we believe that our current strategies coupled with efforts to build our people, processes and products, stand us in good stead to make the most of opportunities, and to ride the wave of recovery when it turns. As far as other markets are concerned, we are optimistic that the Southeast Asia and Middle East markets will continue to have a high level of activities. Driven by national oil companies, these regions are likely to experience growth. We are pleased to share that SESB has been able to mitigate the impact of the industry downturn because of our strategy to remain asset light. This strategy will continue to guide us going forward as we provide our expertise in product and service innovation to help customers better manage their costs and enhance their profit margins. The Company has been on an aggressive drive to reduce costs and will continue to explore better ways to increase our efficiency. Shah Hakim Zain Chief Executive Officer Annual Report

26 Driving positive and dynamic change

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