Wah Seong Corporation Berhad Annual Report 2018

OIL AND GAS (“WASCO”) Discussion of strategies, operational capabilities to achieve the desired business objectives and results 2018 marks the final year of the 3 Year Strategic Planning Cycle for WASCO. Wasco has done tremendously well in what it set out to do amidst the oil and gas crisis that plagued the industry for the past three years. Today, WASCO is known to be one of the stronger oil and gas services company in this region. During the year, execution and efficiency became key focus areas for WASCO. A major portion of the earnings were driven by its European pipe coating operations. WASCO’s pipe coating operations in Kotka, Finland and in Mukran, Germany completed the coatings of approximately 1200km of pipes in financial year 2018 for the Nord Stream 2 (NS2) project. This project is expected to finish in the 3 rd quarter of 2019. The transshipment operations progressed during the year with 414km of pipes transshipped to the pipe storage site in Port Hamina Kotka and Port of Karlshamn in Sweden. This activity is also expected to continue into the 2 nd half of 2019. The NS2 Project, is the largest pipeline infrastructure project in the world today and for WASCO it entails the coating of 2,400km of pipes and the project management of logistics of coated pipes at the four storage sites. In Greece, WASCO’s pipe coating operations successfully executed three projects during the year, namely Nobel, William and Baltic which contributed positively to the segment. However, WASCO’s pipe coating operations in Malaysia suffered losses as a result of lower volume of coatings project available in the Asia Pacific. During the year, apart from cost rationalisation, the Malaysian pipe coating operations were also aggressively implementing process improvements to narrow its loss position and improve its operational efficiencies. During the year under review, WASCO’s Engineering Services fabrication business in Batam, Indonesia was busy with execution of few notable contracts, namely Tengizchevroil (TCO) Project awarded by Schneider. The successful project execution increased WASCO’s profile and proved its capabilities to deliver complex low voltage and high voltage substations project globally. The project became an important milestone project as it was the first project delivered for a European client and for the Central Asia environment with extreme climate specification from WASCO’s fabrication yard in Batam, Indonesia. Wasco’s Engineering operations in Dubai also had a good year in 2018. On 16 th March 2018, WSC announced that its indirectly owned subsidiary, Wasco Engineering International Limited secured an order worth USD34million from Basrah Gas Company (BGC), a second award since the successful completion of the Shamiyah Temporary Compression Project in 2017. This contract kept utilisation high at WASCO’s Dubai operations during the year. Discussion on Key Financial and Operational Indicators for the segment For the year under review, the oil and gas segment recorded a revenue of RM2.0 billion as compared with RM1.6 billion in 2017 and segment profit before taxation of RM112.1 million, as compared with RM104.6 million excluding one-off adjustment in 2017. Last year, the segment recognised a one-off gain on disposal of idle assets of RM99.4 million which was offset by RM72.0 million of impairment charge. WASCO’s Pipeline Services Division continues with the execution of order backlogs secured at the end of 2017. The oil and gas segment had an order backlog of RM2.51 billion at the end of 2017, contributed mainly by NS2 contract worth RM2.85 billion secured in 2016. The order backlog as at end of 2018 dropped to RM774.2 million, as a result of lower replenishment of order book due to smaller project awards available in 2018. The oil and gas segment recorded 22,611,854 Man-hours without Loss Time Injury (“LTI”) in 2018. WASCO recorded other positive indicators signifying the effectiveness of the safety culture instituted by the Group. Discussions of Health, Safety and Environment (“HSE”) is set out separately in the Sustainability Development section of the Annual Report on page 13. MANAGEMENT DISCUSSION AND ANALYSIS WAH SEONG CORPORATION BERHAD 24