Wah Seong Corporation Berhad Annual Report 2018

Discussion of anticipated or known risks that may have a material effect on, among others, the sustainability of the group’s results or operations, financial condition or liquidity WASCO places strong emphasis on Health, Safety & Environment (“HSE”). Non-compliance tostandardsor amajor HSE incident in the two operations would affect the Group’s business and its reputation. In mitigation of the risk, policies andprocedures are established, communicated and implemented at all our operations. Audits and inspections are conducted periodically to ensure compliance. Awareness campaigns and on-going trainings are conducted and management does safety walkabout regularly at the sites. Target Key Performance Indicators (“KPI”) are also set to create greater accountability. The global economic, political and social factors largely remain beyond WASCO’s control. Deferred project awards due to delays in financial investment decision (“FID”) and the lack of funding continues to be the key theme plaguing the industry. Industry players remained cautious and continue to assess outlook prior to committing to further investments. WASCO’s Pipeline Services and Engineering Services business are independent of each other, and have different target market in the oil and gas value chain. This in itself is a conscious strategic decision made by WASCO to mitigate risk of being overly reliant on a specific market. The management team conducts strategy meetings and business strategies reviews during the year to ensure operational sustainability. WASCO continues to hold engagement sessions with customers and partners to identify new opportunities. Steps are also undertaken to pre-qualify WASCO in new markets to establish a competitive presence. WASCO today is operational in 17 locations worldwide and the business of the Company could be exposed to the risk of litigation action by customers, vendors and other parties. Such litigation actions may have a material effect on the Company’s results. In mitigation of this risk, the Company has a robust system in place to review contracts and agreements to govern contractual obligations with all parties. Discussion on expectations of future results The most positive development over the past one year has been the recovery of oil prices to the USD60 levels, at which the industry has been gradually able to resume investments. This development came about through a combination of OPEC’s success in maintaining production discipline through its pact with Russia and non OPEC producers as well as the collapse of oil production in Venezuela and Libya. The low oil prices experienced during the 2016 and 2017 also fueled the demand for growth despite the growing US Shale production. The US sanctions on Iran further puts on a lot of stability in the oil price. Whilst unconventional resources and geopolitics aided to the oil price stability, efficiency gains in offshore exploration and development costs have also led to resumption of new offshore development activity in the Gulf of Mexico, Brazil, West Africa and elsewhere. In Asia, the Asian LNG growth continue to be led by China, with front end work for many of the proposed gas projects that has been put on hold, or in slow mode for the past two years finally resuming. Whilst the investments are planned across the oil and gas value chain which resulted in higher levels of enquiries and bidding activities, there will be a lag between improving industry landscape and the scope of WASCO’s products and services. In this climate, WASCO will be maintaining a sharp focus on cost control and will be embarking on innovation in a significant way to improve its product and service offerings whilst focusing on for operational efficiencies with process automation. 2019 is expected to be a challenging year for WASCO with an expected lower level of activities in both its pipelines and engineering business despite the on-going execution of order backlog on hand. However, WASCO is expecting project awards and order book replenishment during the year. Market trends from tendering and bidding activities shows a strong comeback post 2019 with significant project awards towards the end of 2019 and early 2020 with projects coming from Australasia and the European markets. MANAGEMENT DISCUSSION AND ANALYSIS RM2.0 Billion Oil & Gas segment revenue 2018 RM481.7 Million Industrial Trading & Services segment revenue 2018 RM335.8 Million Renewable Energy segment revenue 2018 Zero LTI The Oil & Gas segment recorded 22,611,854 Man-hours without Loss Time Injury in 2018 ANNUAL REPORT 2018 25