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 19 Cahya Mata Sarawak Berhad and emerging markets such as Samalaju and Mukah and their hinterlands, have a consistent and sufficient supply of quality bag and bulk cement to meet their needs. In November 2016, the Cement Division achieved a major milestone when it officially launched East Malaysia’s first Integrated Cement Plant. Through combining the Division’s largest cement plant and its adjoining clinker plant into a single manufacturing entity, the new Plant will ensure our Cement Division meets the 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 pipeline. With the Integrated Plant within its stable, the Group now has sufficient manufacturing and distribution capacity to meet the State’s growing cement requirements for the long-term. The Plant also accords the Group a significant reserve production capacity to materially reduce the risk of supply disruptions, to potentially extend our supply into nearby export markets, as well as to produce more than one type of cement. Located in Mambong, just outside Kuching, the Integrated Plant will increase the Group’s total annual rated cement production capacity by almost 60% to 2.75 MTpa, well above current local demand of around 1.6- 1.8 million MTpa. The new 1.0 million MTpa grinding plant incorporates state-of-the-art European technology comprising a ball mill (with a rated capacity of 150 MT/ hour), a high efficiency separator, two units of 10,000 MT cement silos, four line bulk loaders and a 3,000 bag/ hour packing and palletizing machine. Its performance promises tomaximise efficiency and quality withminimum downtime. The year also saw the Division bolstering its logistical capabilities in 2016 by upgrading its jetty in Kuching to improve imported raw material handling. At the same time, it secured long-term leases for an additional all- weather bulk cement barge for its terminals, as well as for the land at Bintulu Port that can be used in the future to expand storage capacity. CLINKER OPERATIONS The Division’s clinker operations are managed by CMS Clinker Sdn Bhd, Sarawak’s sole clinker manufacturer. CMS Clinker’s operations are located in Mambong, some 30km from the Kuching city centre. The Clinker Plant has a production capacity of 0.90 million MTpa and is able to meet up to 50% of the total clinker demand of the Division. A major strength of the clinker operation is that it has its own adjoining raw material quarries which ensure consistent and sufficient supply of raw materials at low costs. The raw materials reserves are estimated to last for at least the next 50 years. Within the clinker industry, there are three main factors that contribute significantly to a Plant’s performance, namely the stability of manufacturing operations; the ability to maintain continuous full production; and the ability to lower fuel costs. In 2016, CMS Clinker secured ISO 50001, Energy Management System certification attesting to the Division’s continuous efforts to improve efficiencies on the power consumption front and to moderate its carbon footprint by reducing fossil fuel consumption. CMS CONCRETE PRODUCTS The Division’s concrete operations are managed by CMS Concrete Products Sdn Bhd. Established in 1995, CMS Concrete Products has built a reputation for itself as a highly reliable manufacturer of ready-mixed concrete (RMC) and pre-formed concrete products. The Company’s product offerings include various grades of RMC, reinforced concrete square piles (RCP), bridge beams and Industrialised Building System (IBS) products and solutions. The bridge beams are a pioneer product of the Company and have been utilised to construct a great number of bridges throughout Sarawak. The Company prides itself on producing products that comply with all existing construction standards and safety requirements. Via its 70,000 MTpa facility in Kuching, the Company has the capacity to produce a full range of IBS products and solutions, including precast wall panels, beams and columns, as well as half slabs and pre-stressed slabs. CMS Concrete Products offers a complete solution package which includes design services for IBS projects, supply throughout the State over land or by sea and construction services such as pile driving and wall panel installation. The year 2017 will see CMS Concrete Products setting up a manufacturingplant inBintulu toproduce RMCand various pre-formed concrete products. This will greatly strengthen the Division’s concrete position and competitiveness in Northern Sarawak. Plans are also underway to set up an RMC operation in Central Sarawak to supply parts of the Pan Borneo Highway project. MANAGement DISCUSSION AND ANALYSIS