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 33 Cahya Mata Sarawak Berhad pan-State presence, its strong balance sheet and its experienced management team, this risk remains one of the Group’s top risks. Recognisingtheseconstraints,theGrouphas implemented several “detective” controls to minimise the impact of this risk. The Group maintains an active and positive rapport with regulatory authorities and government ministries to monitor new plans, strategies and pertinent political changes through regular multi-tiered engagement with all relevant political, governmental, private sector and community leaders. In addition, the Group has been constantly playing an active role as a socially responsible entity as part of its multi-stakeholder business model, which has helped to improve the Group’s image and positioning in the community generally and in corporate and governmental settings as a valuable partner and ally to the State to achieve its development goals. MOVING FORWARD INTO 2017 AND BEYOND Global economic growth is projected to touch 3.4% and 3.6% in 2017 and 2018 respectively on the back of growth in emerging and developing economies. Amidst the continued weakness of the Malaysian Ringgit against major currencies like the US Dollar, Malaysia’s economic growth rate is expected to grow at a modest 4.4% (2016: 4.2%) spurred by gradual economic recovery and resilient domestic demand. Domestic demand is expected to be supported by sustained infrastructure spending from Government-driven mega infrastructure projects and this positive momentum is expected to be further fuelled by several catalyst projects under the 11 th Malaysian Plan (2016-2020) or 11MP. Sarawak’s 2017 State Budget, will see some 73% of the budget being devoted towards development, with some 23% of this earmarked for rural development. The remaining 27% of the State Budget will be utilised for operational expenditure. This augurs well for the Group given the infrastructure needs of the State andexpectations of a reduction in the urban-rural development gap. This development will include much needed infrastructural projects such as roads, bridges, wharves and jetties, telco infrastructure, drainage and utilities, among others. Taking all these elements into account, we are hopeful that 2017 will be a better year for the Group. As CMS ventures forth to sustain its transformational and sustainable growth plans, we are focused on bolstering the strong foundations laid thus far. Hailed as one of the best proxy-listed investments for Sarawak’s accelerating economic growth, we continue to leverage on two key economic drivers to reinforce our position of strength. The first driver being the State’s promotion of energy-intensive industries under SCORE; and the second, the array of notable infrastructure developments, as well as related services and supply needs that are arising across the State. Given their predominantly long-term outlooks, these drivers are not affected by the low oil price environment but are set to propel the State’s economy and CMS forward along new pathways of prosperity. Despite the external headwinds that buffeted Sarawak in 2016, the State with its strong underlying fundamentals, is back on track to achieve its economic ambitions. Several factors are being brought into play to ensure Sarawak maintains its good growth momentum. One of these is the Sarawak Socio-Economic Transformation Plan or SETP (2016-2030), a comprehensive, integrated and balanced plan, which aims to spur income growth and reduce income disparity across all sectors of the economy. The SETP will focus on creating high-income opportunities in new potential sources rather than diluting attention by focusing on marginal improvements in old industries. Under the SETP, a total allocation of some RM180.00 billion is required to transform the State from all angles. The first phase of SETP will be carried out under the 11MP from 2016 to 2020 with Sarawak’s nominal GDP expected to increase from RM122.50 billion in 2015 to RM171.30 billion in 2020. During the same period, nominal GDP per capita is also expected to increase from RM46,489.00 to RM61,406.00. While macroeconomic headwinds may put a damper on some of the State’s economic ambitions in the short-run, in the long-run, all these developments bode well for the future of Sarawak and SCORE. Via SCORE, Sarawak anticipates it will achieve the following growth milestones by 2030 – a five-fold rise in the State’s GDP and the creation of 1.6 million additional jobs. With RM334.00 billion expected to be injected into Sarawak’s economy by 2030 (approximately 20% from the Government and 80% from the private sector), we are confident that both investment opportunities and demand for the Group’s construction materials, our construction and road maintenance services and our property and township developments, will increase. Eight years on, SCORE is on track with its aspiration of diversifying and strengthening the State’s economy and elevating the per capita income and quality of life of the people of Sarawak. Domestic and foreign equity investment and joint venture projects are on the rise within SCORE, attesting to its draw as an attractive investor value proposition. In view of CMS’ early involvement as a major local private sector participant in multiple areas of SCORE, the Group is in an ideal position to add real value to potential energy-intensive industrial investors looking for a local co-investing partner in SCORE. Given our solid track record, potential partners know they can count on us to strengthen their projects’ appeal given CMS’ strong balance sheet, our unrivalled private sector knowledge of SCORE, our management’s professionalism and bandwidth, plus our synergised portfolio of Sarawak- based businesses. Via our 25% equity stake in OM Materials (Sarawak) Sdn Bhd and OM Materials (Samalaju) Sdn Bhd, and 40% equity stake in Malaysian Phosphate Additives (Sarawak) Sdn Bhd, we expect to secure long-term, sustainable growth and to significantly enhance shareholder value. We also expect our role as a key infrastructure facilitator to strengthen going forward with the Government having identified long-term initiatives such as the RM27.00 billion MANAGement DISCUSSION AND ANALYSIS