Wah Seong Corporation Berhad Annual Report 2020

26 WAH SEONG CORPORATION BERHAD OIL AND GAS (“WASCO”) Discussion of strategies, operational capabilities to achieve the desired business objectives and results During the year, WASCO’s earnings were driven by smaller projects secured as backlogs at the end of 2019. WASCO’s pipe coating, pipe manufacturing and engineering fabrication yard were impacted by the series of lockdown and measures imposed by the respective governments. This resulted in a slowdown of operations during the first half of the year. WASCO’s construction of a coating facility in Qatar also experienced delays as the kingdom went into lockdown and restriction was only relaxed in the second half of 2020. While initially planned to be commissioned in the third quarter of 2020, it is now expected to be ready in 2021. While the year presented WASCO with many challenges, it was also a year that revealed potential business opportunities. During the year, WASCO made several breakthroughs in its energy transitioning strategy to capture new business opportunities as more of its clients began working towards their net-zero carbon emissions target. In September, WASCO signed a Memorandum of Understanding (“MOU”) with MAN Energy Solutions to promote and commercialise Power-to-X (PtX) projects in South-East Asia. This technology converts electricity into carbon-neutral synthetic fuels, gas or liquid for a clean carbon-neutral energy source. During the year, WASCO Australia was awarded its first renewable energy construction contract for Jemena’s Western Green Gas Project. The project will convert solar and wind power into hydrogen gas via electrolysis, which will then be stored for use across the Jemena Gas Network in New South Wales, the most extensive gas distribution network in Australia. The project’s success will potentially put WASCO in a good position to capture further expansion activities across New South Wales. This achievement also marks WASCO’s first foray into the promising hydrogen market. MANAGEMENT DISCUSSION AND ANALYSIS Discussion on Key Financial and Operational Indicators for the segment For the year under review, the oil and gas segment recorded revenue of RM577.0 million and a segment loss of RM286.8 million. This is due to deferment of new capital expenditure by project owners while the pandemic impact is fully understood. The results were also affected by impact of the completion of Nord Stream 2 project in the previous year. The losses were mainly contributed by one-off adjustments of RM235.9 million. Despite the challenging times, the segment still generated an EBITDA of RM78.9 million excluding one-off adjustments. The quarter-on-quarter operational results also showed improvement reflecting the opening of economic activities worldwide with the segment generating a segmental profit of RM12.2 million and EBITDA of RM29.1 million in Quarter 4 of FY2020. The oil and gas segment had an order backlog of RM576.0 million at the beginning of 2020 and ended the year with RM870.2 million. This is expected to have a positive impact on the segment in FY2021. The oil and gas segment recorded 41,850,981 Man-hours without Loss Time Injury (“LTI”) in 2020. WASCO recorded other positive indicators reflecting the effectiveness of the safety culture instituted by the Group. Discussions of Health, Safety and Environment (“HSE”) are set out separately in the Sustainability Development section of the Annual Report on page 16.