CAHYA MATA SARAWAK ANNUAL REPORT 2016

A N N U A L R E P O R T 2 0 1 6 Section 03 P E R F O RMA N C E 2 0 1 6 13 Cahya Mata Sarawak Berhad STEADFAST FINANCIAL PERFORMANCE Amidst this backdrop, the Group posted total revenue of RM1.55 billion and profit before tax profit (PBT) of RM302.14 million for the financial year ended 31 December 2016 (FY 2016). This was a 13% and 22% drop in revenue and PBT respectively in comparison to the preceding year’s (FY 2015’s) record revenue of RM1.79 billion and record PBT of RM388.60 million. Year-on-year, the Group registered profit after tax and non-controlling interests (PATNCI) of RM169.18 million for FY 2016, which was 32% lower than the PATNCI of RM248.15 million reported previously. The main contributors to the Group’s revenue were the Construction Materials & Trading, Cement, as well as Construction & Road Maintenance Divisions. These three Divisions made a combined contribution of 92% to Group revenue, similar to the combined contribution the year before. The substantial reduction in the PBT and PATNCI was attributable to the Group’s share of substantial losses in its associates and lower earnings by the Construction & Road Maintenance Division. In FY 2016, the Construction & Road Maintenance Division together with the Construction Materials & Trading and Cement Divisions contributed 101% (FY 2015: 89%) of the Group’s PBT. The Board is satisfied with the progress made by all our core Business Divisions, particularly amidst the year’s macro challenges. Their steadfast focus on tackling challenges in a prudent manner, capitalising on opportunities and optimising cost structures continues to hold them in good stead. Their resolute performance is also a reflection of Sarawak’s own resolve to rise above a lacklustre economic environment to return to higher growth levels. KEY CORPORATE DEVELOPMENTS For 2016, several key developments took place that cemented the Group’s position as one of the best proxy- listed investments for Sarawak’s dynamic growth. In February 2016, our associate Malaysian Phosphate Additives (Sarawak) Sdn Bhd (MPAS), inked a Power Purchase Agreement (PPA) with Sarawak Energy Berhad through its wholly-owned subsidiary Syarikat SESCO Berhad to provide electricity to the largest integrated phosphate additives plant in Southeast Asia. This was followed by the award for Engineering, Procurement and Construction (EPC) activities for the plant to SCEGC Equipment Installation Group Company Ltd and Norther Heavy Industries Group Co. Ltd in May 2016. The PPA and EPC signings underscore the Group’s commitment towards investing RM2.20 billion for the development of a phosphate additives plant at the Samalaju Industrial Park. It is a commitment CMS is making due to the huge potential contribution this project will bring to Malaysia and Sarawak in terms of Gross National Income and employment. The Plant also has enormous downstream potential and the scalability to be the largest phosphate- chemical hub in the region with competitive costs, giving us the edge over others. Another major milestone was achieved when the Group together with Bina Puri Holdings Berhad received and accepted a Letter of Award from Lebuhraya Borneo Utara Sdn Bhd in July 2016 for the proposed development and upgrade under Phase 1 of the Pan Borneo Highway in Sarawak. The RM1.36 billion contract involves the construction of roads and bridges from Sg. Awik to Bintangor Junction. Our success in securing this major project can be attributed to a combination of prudent pricing and margin strategies, our solid infrastructure development track record and our extensive local knowledge. It presents an exciting and important achievement especially for the Cement Division in view of the anticipated massive demand for cement. CMS has also been gearing up to ensure that it is able to meet the construction materials needs of contractors for the mega highway project and is in a competitive position to do so given the commencement of operations of our new integrated cement plant and the expansion of our other construction materials supply capabilities. In November 2016, our Cement Division officially launched East Malaysia’s first Integrated Cement Plant in Mambong. By integrating the Division’s largest cement plant together with its adjoining clinker plant into a single entity, the new facility will help meet rising demand for cement as the State undergoes rapid development with mega infrastructure projects such as the Baleh Dam and the Pan Borneo Highway in the offing. With the new integrated plant within its asset portfolio, the Group now has sufficient manufacturing and distribution capacity to meet the State’s growing cement requirements for the long-term. The Plant also provides the Group a significant reserve production capacity to materially reduce the risk of supply disruptions in the State, extend our supply into nearby markets and produce more than one type of cement. SHAREHOLDER VALUE CREATION In FY 2016, the Group’s basic earnings per share (EPS) stood at 15.75 sen in comparison to EPS of 23.31 sen in FY 2015. For the year in review, the Group turned in a Return on Equity (ROE) of 8.00% as compared to a ROE of 12.96% in FY 2015. CMS’ dividend policy provides for a net pay-out ratio of 40% of its annual consolidated PATNCI to shareholders subject to a minimum of 2.0 sen per share. This is subject to the level of available cash and cash equivalents, ROE and retained earnings, projected levels of capital expenditure (CAPEX) and other investment plans. On the Board’s part, we will endeavour to do our best to observe our dividend policy as we understand how reliant many of our shareholders are on us consistently following through this policy in a consistent manner. Chairman’s Statement