7th Annual General Meeting Ballroom 3, First Floor Sime Darby Convention Centre 1A, Jalan Bukit Kiara Kuala Lumpur

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2 CONTENTS 2 Key Financial Indicators and Key Financial Highlights 4 Corporate Legal Structure 6 Our Corporate Statement 8 Corporate Information 9 Profile of Directors 14 Key Management Team 16 Chairman s Statement 20 Management s Review of Operations 31 Corporate Social Responsibility 34 Statement on Corporate Governance 44 Statement of Internal Control 48 Audit and Risk Management Committee Report 54 Additional Information 55 Statement on Directors Responsibility 56 Financial Statements 140 Analysis of Shareholdings 143 List of Properties 146 Corporate Directory 148 Notice of Annual General Meeting 150 Statement Accompanying the Notice of Annual General Meeting Form of Proxy Ambitious

3 7th Annual General Meeting Ballroom 3, First Floor Sime Darby Convention Centre 1A, Jalan Bukit Kiara Kuala Lumpur 15 June 2009, Monday, 2 p.m.

4 2 SCOMI GROUP BHD ANNUAL REPORT 2008 KEY FINANCIAL INDICATORS AND KEY FINANCIAL HIGHLIGHTS In RM Turnover 2,106,140 1,995,530 1,577,495 1,067, ,457 EBITDA 291, , , , ,146 Depreciation 74,524 65,987 53,984 (41,848) (17,640) Finance costs 75,168 87,946 78,207 (42,181) (12,017) Share of profit in associated companies 28,040 23,570 30,084 6, Share of profit from jointly controlled entities 19 1,000 PBT 140, , , ,812 74,603 Taxation (3,928) (4,261) (12,982) (13,937) 5,571 PAT 136, , , ,875 69,032 Minority interests 19,732 25,026 15,326 21,184 (7,538) PAT after minority interests 116, ,129 92, ,691 61,494 Number of shares assumed in issue ( 000) 1,021,839 1,019,705 1,005, , ,134 Weighted average number of shares assumed in issue ( 000) 1,006,342 1,004, , , ,598 Weighted average number of shares used to compute diluted earnings per share ( 000) 1,016,009 1,037,091 1,017,507 1,015, ,431 Basic Net EPS (RM)** sen sen 9.29 sen sen 7.0 sen Fully diluted Net EPS sen sen 9.08 sen sen 6.6 sen Notes ** Based on PAT after minority interests and on the weighted average number of shares assumed to be issued in the respective Based on PAT after minority interests and on the weighted average number of shares assumed to be issued in the respective years after taking into consideration the dilutive effect of unexercised ESOS The financial highlights on pages 2 and 3 reflect the actual audited results of Scomi Group Bhd, with certain numbers restated to reflect retrospective effects as a result of adoption of new or revised Financial Reporting Standards in the respective years.

5 SCOMI GROUP BHD ANNUAL REPORT Total Assets (RM Million) 2008 RM2,944 mil 2007: RM2,707 mil / 2006: RM2,593 mil Earnings per Share (Basic) sen 2007: 25.6 sen / 2006: 9.3 sen Revenue (RM Million) Net Tangible Assets (RM Million) ,068 1,577 2,106 1, RM531 mil 2007: RM442 mil / 2006: RM92 mil Profit before Tax (RM Million) Shareholders Fund (RM Million) # * RM918 mil 2007: RM802 mil / 2006: RM600 mil Profit after Tax after Minority Interests (RM Million) Net Assets per Share (Attributable to equity holders of the parent) # ** sen 2007: 77 sen / 2006: 59 sen Notes * This includes the exceptional gain arising from the disposal of the machine shops amounting to RM million. ** This includes the exceptional gain arising from the disposal of the machine shops amounting to RM million. # This includes the exceptional gain arising from the divestment of 19.9% shareholding in Scomi Oilfield Limited (Bermuda) amounting to RM million.

6 4 SCOMI GROUP BHD ANNUAL REPORT 2008 SCOMI GROUP CORPORATE LEGAL STRUCTURE as at 30 April 2009 SCOMI GROUP BHD 43% # SCOMI MARINE BHD 51% Gemini Sprint Sdn Bhd Emerald Logistics Sdn Bhd 51% Labuan, Malaysia Marineco Limited 40% Trans Advantage Sdn Bhd Singapore Scomi Marine Services Pte Ltd 49% British Virgin Islands King Bridge Enterprises Limited Singapore Goldship Pte Ltd Singapore CH Ship Management Pte Ltd Singapore Grundtvig Marine Pte Ltd 95 % Indonesia PT Batuah Abadi Lines 81% Indonesia PT Rig Tenders Indonesia Tbk 1 29% Singapore CH Offshore Ltd 2 Singapore CH Logistics Pte Ltd Singapore Sea Master Pte Ltd 60% SCOMI OILSERVE SDN BHD Labuan, Malaysia Oilserve (L) Berhad Labuan, Malaysia SCOMI CAPITAL LIMITED SCOMI SOLUTIONS SDN BHD British Virgin Islands SCOMI ECOSOLVE LIMITED 80% Bermuda SCOMI OILFIELD LIMITED Bermuda Scomi Oiltools Bermuda Limited Australia Scomi Oiltools Pty Ltd New Zealand Scomi Oiltools (NZ) Pty Limited Algeria KMC Oiltools Algerie EURL Alexandria Free Zone, Egypt Scomi Oiltools Egypt SAE 50%* Nigeria Titan Tubulars Nigeria Limited 51% Oman Scomi Oiltools Oman LLC Jersey Scomi Oiltools (Africa) Limited 60% Nigeria Wasco Oil Service Company Nigeria Limited 96% Gabon Oiltools Gabon SA Scotland Scomi Oiltools (Europe) Limited Russia Scomi Oiltools (Rus) Limited Liability Company Thailand Scomi Oiltools (Thailand) Ltd Scomi Oiltools (Kemanan) Sdn Bhd Scotland Scomi Oiltools (Shetland) Limited The Netherlands KMC Oiltools BV Cayman Islands Scomi Oiltools Ltd Scomi OBM Terminal Sdn Bhd

7 SCOMI GROUP BHD ANNUAL REPORT Scomi Barite Sdn Bhd 51% KMC All Star Chemical Sdn Bhd Alberta, Canada Scomi Oiltools Canada Inc Texas, USA Scomi Oiltools Inc KMCOB Capital Berhad Cayman Islands Scomi Oiltools (Cayman) Ltd Kish Island, Iran Scomi Oiltools Kish Limited Scotland Scomi Oiltools (Europe) Limited Russia Scomi Oiltools (Rus) Limited Liability Company British Virgin Islands Scomi Oiltools South America Limited Venezuela Scomi Oiltools De Venezuela SA Venezuela Premium Industrial Machining SA Mauritius Scomi Oiltools Overseas (M) Limited Scomi Oiltools Sdn Bhd Singapore Scomi Oiltools (S) Pte Ltd 95 % Indonesia PT Scomi Oiltools 4% 48% SCOMI CHEMICALS SDN BHD Scomi Sosma Sdn Bhd 50% Brunei Sosma (B) Sdn Bhd 93% France Scomi Anticor SA SCOMI ENERGY SDN BHD 70% Scomi NTC Sdn Bhd Scomi Enviro Sdn Bhd SCOMI KMC SDN BHD 70% SCOMI ENGINEERING BHD Scomi Transportation Systems Sdn Bhd Scomi Rail Bhd Scomi Coach Sdn Bhd Scomi Coach Marketing Sdn Bhd Scomi Special Vehicles Sdn Bhd Scomi Trading Sdn Bhd Scomi OMS Oilfield Holdings Sdn Bhd Scomi OMS Oilfield Services Sdn Bhd 70% Saudi Arabia Scomi OMS Oilfield Services Arabia Ltd India Urban Transit Private Limited Singapore Scomi OMS Oilfield Services Pte Ltd 95% Indonesia PT Scomi OMS Oilfield Services Thailand Scomi OMS Oilfield Services (Thailand) Ltd Australia Scomi OMS Oilfield Services (Australia) Pty Ltd British Virgin Islands Scomi OMS Oilfield Services Ltd Mexico Oilfield Services de Mexico S de RL de CV Mexico Scomi Oiltools de Mexico S de RL de CV Mumbai, India KMC Oiltools India Private Limited Notes * Does not include 0.20% owned by Wasco Oil Service Company Nigeria Limited. # Includes 0.05% held by Scomi Energy Sdn Bhd. 1 This corporate structure does not include the associated companies of PT Rig Tenders Indonesia Tbk. 2 This corporate structure does not include the subsidiaries of CH Offshore Ltd. Public Listed Entity. Except as otherwise expressly stated, all companies in this corporate structure are incorporated in Malaysia. Except as otherwise expressly stated, all companies in this corporate structure are wholly-owned by their respective holding companies.

8 OUR CORPORATE STATEMENT With a presence in 68 locations across 31 countries, the Scomi group of companies is a global technology enterprise in the energy and logistics industries.

9 We are a global technology enterprise. Our global reach, capabilities and talent provide us with the necessary resources to develop and own new technology in all areas of our business. We focus on Energy & Logistics. All of our 4 business units are focused in the Energy and/or Logistics sectors with the ability to compete globally. All of us in the Scomi family should remember that any new initiatives we undertake will focus on these areas of business. We provide innovative solutions. We innovate to respond to an evolving environment. Our products and operations meet today s needs while anticipating tomorrow s. We are committed to developing competitive and innovative solutions to create efficiency, add value and grow with our customers to shape our future. We aim to realise potential for our stakeholders. Our customers: We will develop and offer customers innovative and competitive products and services that help them grow their business. Our shareholders: We are committed to providing long-term superior returns to our shareholders. Our people: We aim to provide our employees with developmental opportunities so they can succeed on personal and professional levels. Our suppliers: We will treat our suppliers as our partners in the mutual interest of business growth. Our society / environment: As a good corporate citizen, we will give back to the communities we operate in worldwide.

10 8 SCOMI GROUP BHD ANNUAL REPORT 2008 CORPORATE INFORMATION DIRECTORS Tan Sri Datuk Asmat Bin Kamaludin (Chairman) Tan Sri Nik Mohamed Bin Nik Yaacob Datuk Hamzah Bin Bakar Datuk Haron Bin Siraj Dato Mohammed Azlan Bin Hashim Dato Mohamed Azman Bin Yahya Foong Choong Hong Sreesanthan A/L Eliathamby Shah Shahzanim Bin Zain AUDIT AND RISK MANAGEMENT COMMITTEE Dato Mohammed Azlan Bin Hashim (Chairman) Tan Sri Nik Mohamed Bin Nik Yaacob Foong Choong Hong Sreesanthan A/L Eliathamby OPTIONS COMMITTEE Datuk Hamzah Bin Bakar (Chairman) Datuk Haron Bin Siraj Shah Shahzanim Bin Zain NOMINATION AND REMUNERATION COMMITTEE Tan Sri Datuk Asmat Bin Kamaludin (Chairman) Dato Mohamed Azman Bin Yahya Datuk Hamzah Bin Bakar REGISTERED OFFICE Suite 5.03, 5th Floor Wisma Chase Perdana Off Jalan Semantan Damansara Heights Kuala Lumpur, Malaysia Tel : Fax : ADMINISTRATIVE & CORRESPONDENCE ADDRESS Suite 5.03, 5th Floor Wisma Chase Perdana Off Jalan Semantan Damansara Heights Kuala Lumpur, Malaysia Tel : Fax : info@scomigroup.com.my REGISTRAR Symphony Share Registrars Sdn Bhd Level 26, Menara Multi-Purpose Capital Square No. 8, Jalan Munshi Abdullah Kuala Lumpur, Malaysia Tel : Fax : / 31 ADVOCATES & SOLICITORS Albar & Partners Advocates & Solicitors 6th Floor, Faber Imperial Court Jalan Sultan Ismail Kuala Lumpur, Malaysia COMPANY SECRETARIES Chong Mei Yan (MAICSA ) Ong Wei Leng (MAICSA ) AUDITORS PricewaterhouseCoopers (AF: 1146) Chartered Accountants Level 10, 1 Sentral Jalan Travers, Kuala Lumpur Sentral PO Box 10192, Kuala Lumpur Malaysia PRINCIPAL BANKERS CIMB Bank Berhad Lot P 5.5, Persiaran Perbandaran Bangunan UMNO, Section Shah Alam, Selangor Darul Ehsan Malaysia United Overseas Bank (Malaysia) Berhad Level 18, Menara UOB Jalan Raja Laut Kuala Lumpur, Malaysia STOCK EXCHANGE LISTING Main Board of Bursa Malaysia Securities Berhad Stock Name: Scomi Stock Code: 7158 CURRENCY Ringgit Malaysia (RM)

11 SCOMI GROUP BHD ANNUAL REPORT PROFILE OF DIRECTORS Tan Sri Datuk Asmat Bin Kamaludin Chairman, Independent Non-Executive Director Tan Sri Nik Mohamed Bin Nik Yaacob Independent Non-Executive Director YBhg Tan Sri Datuk Asmat, 65, a Malaysian, is an Independent Non-Executive Director and the Chairman of the Company. He was appointed to the Board on 3 March YBhg Tan Sri Datuk Asmat holds a Bachelor of Arts (Honours) degree in Economics from the University of Malaya and also a Diploma in European Economic Integration from the University of Amsterdam. YBhg Tan Sri Datuk Asmat has vast experience in various capacities in the public service and his last position was as the Secretary-General of the Ministry of International Trade and Industry, a position he held from 1992 to He has served as Economic Counsellor for Malaysia in Brussels and worked with several international bodies such as ASEAN, the World Trade Organisation and the Asia-Pacific Economic Corporation, representing Malaysia in relevant negotiations and agreements. YBhg Tan Sri Datuk Asmat has also been actively involved in several national organisations such as Permodalan Nasional Bhd, Johor Corporation, the Small and Medium Scale Industries Corporation (SMIDEC) and the Malaysia External Trade Development Corporation (MATRADE) while in the Malaysian Government service. YBhg Tan Sri Datuk Asmat also served as Governor representing Malaysia on the governing Board of the Economic Reseach Institute for Asean and East Asia (ERIA). Other Malaysian public companies in which he is a director are UMW Holdings Berhad, YTL Cement Berhad, Permodalan Nasional Bhd, Malaysian Pacific Industries Berhad, Carlsberg Brewery Malaysia Bhd, Lion Industries Corporation Berhad, Panasonic Manufacturing Malaysia Berhad, Symphony House Bhd, Trans-Asia Shipping Corporation Berhad, Compugates Holdings Berhad and The Royal Bank of Scotland Berhad. He also serves on the Board of JACTIM Foundation. YBhg Tan Sri Nik Mohamed, 59, a Malaysian, is an Independent Non-Executive Director of the Company and was appointed to the Board on 13 July YBhg Tan Sri Nik Mohamed holds an Engineering Degree from Monash University and a Masters in Business Management from the Asian Institute of Management. He served as the Group Chief Executive of Sime Darby Berhad from 1993 until his retirement in June 2004, and also served on the Boards of many of the Sime Darby group companies during this time. Other Malaysian public companies in which he is a director are Perbadanan Nasional Berhad, GuocoLand (Malaysia) Berhad, Bolton Berhad, Scomi Marine Bhd and Kencana Petroleum Berhad. YBhg Tan Sri Nik Mohamed is also the Executive Director of Yayasan Kepimpinan Perdana (Perdana Leadership Foundation). YBhg Tan Sri Nik Mohamed is a member of the Audit and Risk Management Committee of the Board. He attended 4 out of the 6 Board Meetings held in the year ended 31 December YBhg Tan Sri Datuk Asmat is a member of, and chairs the Nomination and Remuneration Committee of the Board. He attended all of the 6 Board Meetings held in the year ended 31 December 2008.

12 10 SCOMI GROUP BHD ANNUAL REPORT 2008 Datuk Hamzah Bin Bakar Independent Non-Executive Director Datuk Haron Bin Siraj Independent Non-Executive Director YBhg Datuk Hamzah, 65, a Malaysian, is an Independent Non-Executive Director of the Company and was appointed to the Board on 17 March YBhg Datuk Hamzah holds a Bachelor of Science with Honours in Economics from The Queen s University of Belfast, United Kingdom and a Masters Degree in Public Policy and Administration from the University of Wisconsin, Madison, United States of America. He was previously attached to the Economic Planning Unit of the Prime Minister s Department where he served in various positions within that department for 12 years. Thereafter, he joined the Petroliam Nasional Berhad group of companies where he served for 20 years until his retirement in June Other Malaysian public companies in which he is a director are Bumiputra-Commerce Holdings Berhad, SapuraCrest Petroleum Berhad and CIMB Investment Bank Berhad. YBhg Datuk Hamzah is a member of the Nomination and Remuneration Committee and the Chairman of the Options Committee of the Board. He attended 4 out of the 6 Board Meetings held in the year ended 31 December YBhg Datuk Haron, 64, a Malaysian, is an Independent Non-Executive Director of the Company and was appointed to the Board on 17 March YBhg Datuk Haron graduated from the University of Manchester, United Kingdom with a Bachelor of Arts with Honours in Economics, and also holds a Masters Degree in Development Economics from Williams College, United States of America. YBhg Datuk Haron started his career as an Assistant Controller with the Ministry of Commerce and Industry. He subsequently served as the Principal Assistant Secretary, and later as the Under Secretary, in the Ministry of Primary Industries until Subsequently, he served as the Minister Counsellor (Economic Affairs) of the Permanent Mission of Malaysia in Geneva, Switzerland and returned to Malaysia to join the Ministry of International Trade and Industry, holding various directorship positions and was later appointed as Deputy Secretary-General (Trade) in YBhg Datuk Haron subsequently served as Ambassador Permanent Representative of Malaysia to the United Nations and other International Organisations (including the GATT and the WTO) and Specialised Agencies in Geneva, Switzerland from September 1992 to December On his return, he was appointed as the Secretary-General of the Ministry of Primary Industries where he served until He served as the Chief Executive Officer of the Malaysian Palm Oil Promotion Council from 2000 until his retirement in January Other Malaysian public companies in which he is a director are Kulim (Malaysia) Berhad, Jerneh Asia Berhad and Jerneh Insurance Berhad. YBhg Datuk Haron is a member of the Options Committee of the Board. He attended all of the 6 Board Meetings held in the year ended 31 December 2008.

13 SCOMI GROUP BHD ANNUAL REPORT Dato Mohamed Azman Bin Yahya Non-Independent Non-Executive Director Dato Mohammed Azlan Bin Hashim Independent Non-Executive Director YBhg Dato Azman, 45, a Malaysian, is a Non-Independent Non-Executive Director of the Company and was appointed to the Board on 17 March He holds a First Class Honours Degree in Economics from the London School of Economics and Political Science, and is a member of the Institute of Chartered Accountants of England and Wales, the Malaysian Institute of Accountants and is a Fellow of the Malaysian Institute of Banks. YBhg Dato Azman is a Director and the Group Chief Executive of Symphony House Berhad and the Executive Chairman of Bolton Berhad. Prior to this, he was appointed by the Government of Malaysia in 1998 to set-up and head Danaharta Nasional Berhad and subsequently became its Chairman until He was also the Chairman of the Corporate Debt Restructuring Committee until its closure in His previous career appointments include auditing with KPMG in London, finance with the Island & Peninsular Group and investment banking with Amanah Merchant Bank. Outside his professional engagement, YBhg Dato Azman is active in public service. He sits on the boards of a number of Government-linked Companies, namely Khazanah Nasional Berhad, Malaysia Airline Systems Berhad, PLUS Expressways Berhad and Pharmaniaga Berhad. Dato Azman also serves as a member of the Bursa Malaysia Securities Market Consultative Panel, the National Council for Scientific Research and Development, the National Innovation Council, PEMUDAH, the Special Task Force to Facilitate Business and the Malaysian Economic Council. YBhg Dato Azlan, aged 52, Malaysian, is an Independent Non-Executive Director of the Company and was appointed to the Board on 13 July YBhg Dato Azlan graduated with a Bachelor of Economics from Monash University and is qualified as a Chartered Accountant in Australia. He has extensive experience in the corporate sector. YBhg Dato Azlan is the Chairman of D & O Ventures Berhad and SILK Holdings Berhad (formerly known as Sunway Infrastructure Berhad). He also serves as a Non-Executive Director of Khazanah Nasional Berhad and the Employees Provident Fund. During his career, he served in various capacities in the financial services industry and investment holding companies, including as Chief Executive, Bumiputra Merchant Bankers Berhad, Group Managing Director, Amanah Capital Malaysia Berhad and Executive Chairman, Bursa Malaysia Berhad Group (formerly known as the Kuala Lumpur Stock Exchange). YBhg Dato Azlan chairs the Audit and Risk Management Committee of the Board. He attended 5 out of the 6 Board Meetings held in the year ended 31 December Dato Azman is a member of the Nomination and Remuneration Committee of the Board. He attended 5 out of the 6 Board Meetings held in the year ended 31 December 2008.

14 12 SCOMI GROUP BHD ANNUAL REPORT 2008 Foong Choong Hong Non-Independent Non-Executive Director Sreesanthan A/L Eliathamby Independent Non-Executive Director Mr Foong, 48, a Malaysian, is a Non-Independent Non-Executive Director of the Company and was appointed to the Board on 17 March Mr Foong holds a post-graduate degree in Management Studies, majoring in Finance from Middlesex University, United Kingdom. He also holds a Masters in Business Administration from the Irish International University. Mr Foong started his career with Robert Fleming Merchant Bank in the United Kingdom as an Economist responsible for South-East Asian markets, as well as an adviser for European and British pension funds and insurance companies on investments in South-East Asia and the Far East. Mr Foong returned to Malaysia to develop a joint venture company with Powers Supermarkets (UK), a then wholly-owned unit of Associated British Foods, a public listed company, to develop a far eastern sourcing house based in Malaysia. Mr Foong is a Certified Financial Planner and a Fellow of the Chartered Management Institute (UK). He also plays an advisory role in the Investment Committee of several multi-national companies for the identification of investments and development of business opportunities. He is currently the Managing Director of Asian Asset Group Sdn Bhd and a director of Asian Asset Management Sdn Bhd. Mr Sreesanthan, 48, a Malaysian, is an Independent Non-Executive Director of the Company and was appointed to the Board on 18 April Mr Sreesanthan obtained his undergraduate law degree from the University of Malaya and his post graduate degree in law from the University of Oxford, United Kingdom. Mr. Sreesanthan is an Advocate & Solicitor and a Partner with the legal firm of Messrs. Kadir, Andri & Partners. He was formerly a legal assistant and later a Partner with the legal firm of Messrs. Zain & Co. Subsequent to that, he was a Partner in the legal firm of Messrs. Zul Rafique & Partners. Mr Sreesanthan is also a member of the Investment Committee of Amanah Saham Wawasan 2020 Fund, Bursa Malaysia Listing Committee and a member of the Investigating Tribunal Panel of the Advocates and Solicitors Disciplinary Board. He currently sits on the Board of Chemical Company of Malaysia Berhad and Guinness Anchor Berhad. Mr Sreesanthan is a member of the Audit and Risk Management Committee of the Board and had attended all of the 6 Board Meetings held in the year ended 31 December Mr Foong is a member of the Audit and Risk Management Committee of the Board. He attended 5 out of the 6 Board Meetings held in the year ended 31 December 2008.

15 SCOMI GROUP BHD ANNUAL REPORT Shah Shahzanim Bin Zain Group Chief Executive Officer / Non-Independent Executive Director Encik Shah Hakim, 44, a Malaysian, is the Group Chief Executive Officer / Non-Independent Executive Director of the Company and was appointed to the Board on 3 March Encik Shah Hakim started his career as an Auditor with Ernst & Young and was subsequently promoted as Consulting Manager, responsible for servicing large corporations. He went on to be appointed as Executive Director of a regional packaging manufacturer in 1992, with direct operational responsibility. He currently sits on the Board of Sapura Industrial Berhad, Scomi Marine Bhd, Scomi Engineering Bhd and KMCOB Capital Berhad. Encik Shah Hakim is a member of the Options Committee of the Board. He attended all of the 6 Board Meetings held in the year ended 31 December Notes None of the Directors have any family relationship with any other Director and/or major shareholder of Scomi Group Bhd. None of the Directors have any conflict of interest with Scomi Group Bhd. None of the Directors have been convicted for offences within the past ten years (other than traffic offences, if any).

16 14 SCOMI GROUP BHD ANNUAL REPORT 2008 KEY MANAGEMENT TEAM

17 SCOMI GROUP BHD ANNUAL REPORT Shah Hakim Zain Group Chief Executive Officer 2. Loong Chun Nee Chief Investment & Performance Officer 3. Syahrunizam Samsudin Group Financial Officer 4. Mukhnizam Mahmud President Energy Logistics Division 5. Steve Bracker President Oilfield Services Division 7. Hilmy Zaini Zainal President Energy & Logistics Engineering Division 8. Kanesan Veluppillai Senior Vice President Group Marketing 9. Mastura Mansor Vice President Human Resource 10. Zubaidi Harun Vice President Head of CEO s Office 11. Saleha Mohd Ramly Vice President Group Legal & Secretarial 6. Chris Pianca Director Scomi Oilfield Limited

18 16 SCOMI GROUP BHD ANNUAL REPORT 2008 CHAIRMAN S STATEMENT TAN SRI DATUK ASMAT BIN KAMALUDDIN Chairman

19 SCOMI GROUP BHD ANNUAL REPORT Dear stakeholder, 2008 has been a very challenging year for the oil and gas industry, but despite the lower crude oil prices and the global economic crisis, the overall sector has not lost its buoyancy with most industry players still experiencing steady revenue growth. On behalf of my fellow Directors, it gives me great pleasure to present the Annual Report of Scomi Group Bhd ( Scomi, the Company or the Group ) for the financial year ended 31 December GROUP FINANCES The Group is pleased to report a net profit of RM116.6 million for the year, marginally lower by 0.4% compared to the fiscal year 2007 s net profit, which excludes an extraordinary gain on disposal of RM140 million. A slow start to the year was balanced by an outstanding fourth quarter, where net profit jumped 45% to RM40.86 million against the corresponding period in Group revenue for the year grew by 8% to RM2.11 billion; fuelled by 18% growth in the Transportation division and 6% expansion of the Oilfield Services ( OFS ) division. Taking into account the results, as well as the Group s investment obligations and working capital requirements, and at the same time, the need to provide attractive returns for shareholders, the Board is recommending a single-tier tax-exempt dividend of 5% for the financial year ended 31 December The proposal will be tabled for approval at the upcoming Annual General Meeting ( AGM ). STEADY PERFORMANCE AMID GLOBAL RECESSION While the overall results were commendable given the weak economic environment, the provisions of inventory, closure and debtors in OFS, as well as the adjustments of inventory; and the recognition of, research and development ( R & D ) and project cost in Transportation, have inadvertently affected the Group s performance. The Group profit before tax ( PBT ) was RM140.2 million compared to RM146.4 million recorded in the year 2007 (excluding the disposal gain) due to certain provisions and write-offs being made on inventories and doubtful debts during the year. The bulk of Group revenue came from the OFS division, which made up 72.9% or RM1.53 billion of the total. This was followed by a 20.6% contribution from the Transportation division, operating via its subsidiary Scomi Engineering Bhd, whose revenue rose by 18% to RM434.4 million. In terms of product lines, Drilling Waste Management ( DWM ) and Drilling Fluids ( DF ) remained the Group s main revenue contributors. The latter grew 32% during the year due to strong chemical sale in the MENAT and Asean regions. The increased DF sales saw its contribution rise to 23.1% from 18.8% in the previous year, at the expense of DWM, which eased to 45.1% from 49.5%. Under the OFS division, about 62% of the revenue for the year under review was attributed to DWM, although the division itself eased by 1.6%, while the DF segment accounted for 31%. Other product lines that recorded gains were the Rail unit and Machine Shop ( MS ) segments, both under the Transportation division. The former segment s revenue went up 165%, from 2007 due to the increased recognition of the Putra LRT fleet extension and the upgrading of the electrical and mechanical ( E & M ) systems for the Kelana Jaya line.

20 18 SCOMI GROUP BHD ANNUAL REPORT 2008 CHAIRMAN S STATEMENT cont d PROSPECTS The World Bank has projected global GDP growth to decline drastically to 0.9% in 2009 from 2.5% in 2008, which would put the world economy in recession. Many are still uncertain of the length and breadth of the crisis, and the volatility has directly affected our economy with the Government projecting the country s 2009 GDP to contract to a range of -1% to 1% from 4.6% in Understandably, corporations are taking a cautious approach for the fiscal year ahead. But despite the uncertainties, the world and domestic economy will bounce back sooner or later, and the local oil and gas industry players, Scomi included, can expect brighter days ahead once again. Notwithstanding the current negative sentiments, prospects for the Group remain encouraging with our outstanding order book currently in excess of RM2.3 billion, of which more than half is in OFS. The order book was further boosted by the recent award of the Mumbai monorail project, which is targeted for completion in The Mumbai monorail project is expected to lead the Group s charge in 2009, with the Rail unit aggressively pursuing other monorail projects locally and overseas with its new product Scomi Urban Transit Rail Application or SUTRA. Thanks to the Mumbai contract, the Group has received a lot of interest to develop monorail systems across India, the Middle East and Nigeria. Our future direction, to a large extent, will be guided by Formula This 3-year blueprint sets out our strategies from to grow returns, initiate technological innovation and gain customer recognition. In other words, the initiative has been designed to equip us for survival and prepare us to cope better with the multiple challenges we face today, and in the future. In coping with the current volatile economic environment, the Group has critically reassessed its existing, as well as potential contracts to better manage credit risk across the business. Cost reduction from overheads, direct operating costs, headcount, closure and redundancies, is expected to result in sizeable savings moving forward. The Group will remain stringent in managing costs and simultaneously, prioritise our focus on technology, R & D and human capital development. Throughout the year under review, we have introduced various talent development programmes with strong emphasis on maximising leadership effectiveness and potential. These included the Management Trainee Programme ( MTP ), Executive Management Programme ( EMP ) and the Management Leadership Development Programme ( MLDP ). ACKNOWLEDGEMENTS I would like to record my appreciation to my fellow Board members for their service to the Group. And on behalf of the Board, I would also like to extend our thanks to all shareholders and employees, past and present, for their loyalty and dedication throughout the highs and lows of our corporate history. The trying circumstances and challenges we faced in 2008 would have been catastrophic for the Group, had it not been for the dedication and professionalism of the Management and the employees, across all divisions and levels. The Board is proud to state that their drive have contributed substantially to the Group s top and bottom lines, and we will continue to promote a performance culture driven by excellence, as guided by the strategies outlined in the Formula 2011 initiative. Last, but not least, I would like to express our gratitude to our principals, partners and associates, as well as the Government for their unwavering support that has transformed the Group to what it is today. Thank you. Sincerely, TAN SRI DATUK ASMAT BIN KAMALUDDIN Chairman

21 SCOMI GROUP BHD ANNUAL REPORT

22 MANAGEMENT S REVIEW OF OPERATIONS

23 Formula 2011 this is a 3-year plan that defines the Group s goals and strategy in achieving its objectives faster and more efficiently in an increasingly competitive global race. Only one word can achieve our goal us.

24 22 SCOMI GROUP BHD ANNUAL REPORT 2008 Enthusiasm SUTRA India s First Monorail

25 Dear stakeholder, It is our distinct privilege and pleasure to present the review of Scomi Group Bhd s ( Scomi Group, the Company or the Group ) operations for the year ended 31 December We are pleased to report that the Group chalked up another year of commendable results as it continued to deliver sustained improvements to the Group s overall operations. OVERVIEW The business environment worldwide was volatile during the year under review. The global economy was reeling from the continuing fallout of the sub-prime credit crisis, rising commodity prices, declining US dollar and high oil prices that almost breached the US$150 mark per barrel before easing in the second half of The oil and gas industry was not spared either. The lower crude oil prices, as well as the economic and financial crisis had led to further delays in planned drilling programmes. Continued difficulties in the world supply chain made the business environment challenging. Despite the setbacks, the Group was still able to register steady revenue growth, although profit margins continued to be under pressure. Overall, in 2008 the Group s recorded growth in revenue in its main business divisions but suffered translation loss from the weaker US dollar, which affected the outcome of the Group s results. The Group registered a net profit of RM116.6 million for the year, a nominal decrease of 0.4% compared to the year 2007 that excluded an extraordinary gain on disposal of RM140 million. The net profit for the fourth quarter, however, jumped 45% to RM40.86 million against RM28.25 million in the corresponding period in 2007, mainly due to the recognition of certain deferred tax assets in the Oilfield Services ( OFS ) division. Group revenue for the year grew by 8% to RM2.11 billion from RM1.96 billion in the previous year, driven by 18% growth in the Transportation division and 6% expansion of the OFS division. Provisions for inventory, closure and doubtful debts in OFS, as well as the recognition of research and development ( R & D ), in addition to project cost in Transportation had impacted the Group s performance. This was made worse by erosion in margins due to significantly higher transport and material costs. The Group profit before tax ( PBT ) was RM140.2 million compared to RM146.4 million recorded in the year 2007 (excluding the disposal gain) due to certain provisions and write-offs being made on inventories and doubtful debts during the year. The bulk of Group revenue came from the OFS division (72.9%), followed by the Transportation division with a 20.6% contribution. Revenue for the Transportation division, which operates via subsidiary Scomi Engineering Bhd, rose 18% to RM434.4 million. In terms of product lines, Drilling Waste Management ( DWM ) and Drilling Fluids ( DF ) remained the Group s top contributors. In Ringgit terms, 62% of the OFS revenue for the year came from DWM, although the segment itself eased by 1.6%. The DF segment accounted for 31% of the revenue in the OFS division. Breaking by regions, Asia continued to be the OFS division s top performer. During the year, the Asian region grew 25% on the back of increased businesses in Myanmar, Malaysia and Thailand. The Americas and West African regions posted commendable growths as well, but MENAT and Europe experienced contractions particularly in the last quarter.

26 MANAGEMENT S REVIEW OF OPERATIONS cont d The Group s earnings per share (EPS) based on the profit earned after taxation and minority interest was 11.6 sen per share compared to 11.7 sen achieved in 2007 (excluding the RM140.0 million gain on disposal). With total assets growing by 8.8% from RM2.71 billion at the beginning of the year under review to RM2.94 billion, the Group s balance sheet offers a strong testimony of its strength vis-a-vis the grim global economic landscape. Group shareholders funds continued to register a hefty growth of 15%, standing at RM918.2 million at end-2008 compared to the RM801.9 million as at the end of the preceding year. PERFORMANCE BY DIVISIONS Oilfield Services ( OFS ) Although 2008 was a very challenging year for OFS, the division still contributed the bulk of Group revenue. At 72.9%, it generated RM1.53 billion to the total revenue. The division grew 6% during the year, slower than the 25% expansion achieved in On a quarterly basis, it rose by a stronger 13% in comparison to the fourth quarter over the same corresponding period in The division s PBT was adversely affected by a sizable one-off provision on inventory, closure and bad debt. At profit after tax ( PAT ) level, the division had recognised certain tax assets that were partly offset by the reversal of deferred tax in the US and higher withholding taxes in Indonesia and West Africa. 62% of the division s revenue for the year under review was attributed to DWM, although the segment itself eased by 1.6%. The DF segment accounted for 31% of the revenue after it grew 31% mainly due to strong performance in Asia and MENAT. Asia remained the division s top revenue contributor, growing 41% year-on-year in the fourth quarter alone. The Asian region accounted for 29% of revenue during the period, followed by MENAT (25%), Americas (21%), Europe (19%) and West Africa (6%). The division partly benefitted from higher DWM and DF sales that resulted from a higher number of rigs on drilling mode in Malaysia, the PTT Siam project in Thailand and the PTTEP1 project in Myanmar. Transportation and Machine Shops The division s business, undertaken through subsidiary Scomi Engineering Bhd ( Scomi Engineering ), recorded a revenue of RM434.4 million during the year, representing an 18% increase over PAT stood at RM12.4 million, but would have been much higher if not for a one-off non-performance adjustment for the provisions of the inventory and recognition of R & D and project costs, which was offset by a small net tax credit adjustment. The MS unit contributed 61% of the total revenue, while the remaining 39% by the Transportation unit. The latter unit is broken into Rail, Coach and Special Purpose Vehicles ( SPV ). Scomi Engineering currently operates one of the most extensive network of Machine Shops in the Asia-Pacific region three in Malaysia (Labuan, Kemaman and Johor Bahru), two in Indonesia and one each in Australia, Brunei, Singapore, Thailand and Saudi Arabia. Despite declining demand on the back of volatile prices for drilling and production activities, the unit s revenue rose 15% due to sales generated from MS in West Papua (formerly known as Irian Jaya) and Johor Bahru, and the enhanced and expanded facilities in Labuan and Kemaman.

27 The MS units sales during the year was softened by other challenges including declining gross margins, slow start-up in new machine shops, namely in Saudi Arabia, and escalating operating costs. The Singapore MS retained its position as the main revenue contributor for the MS unit, attributable from its export of connectors to the Middle East, China, India and Saudi Arabia. Overall, the Transportation division s revenue growth was mainly from the Rail unit, besides the MS business. The former s revenue grew 165% on the back of increased recognition of the Putra LRT fleet extension and the upgrading of the electrical and mechanical ( E & M ) systems for the Kelana Jaya line during the year. The Rail operations received a big boost from the recent award by Mumbai Metropolitan Region Development Authority ( MMRDA ) for the Mumbai monorail project in India, which is targeted for completion in India s first monorail project is being undertaken with consortium partner Larsen & Toubro, India s largest engineering and construction group. The RM1.85 billion project covers the design, development, construction, manufacturing, supply, testing and commissioning of the monorail system stretching km from the west side of Mumbai city at Gadge Maharaj Chowk (Jacob s Circle) heading northeast to Chembur through Wadala. In addition, the project will include the supply and operation for a fleet of 15 train sets, comprising four cars per set. Scomi Marine Bhd ( Scomi Marine ), recorded a net profit of RM19.6 million for the fourth quarter alone, up from RM14.6 million net profit achieved in the same period in Our 42.7% stake in Scomi Marine translated into a net profit contribution of RM8.4 million for the quarter. However, for the whole year, Scomi Marine posted a 20% increase in net profit to RM65 million, with our share of the profit being RM27.8 million. The higher quarterly profit from Scomi Marine was due to increased contribution from its 29.07% associate company, CH Offshore Ltd. The Singapore-based company accounted for 85% of Scomi Marine s PAT, as the offshore support vessel market remained active. The strong showing by CH Offshore was attributable to the improved operational performance with the delivery of deepwater vessels, which was augmented by the gain on disposal of vessels as it continues with the fleet rationalisation exercise. This, however, was partly offset by a 9% decline in gross profit due to higher bunker (fuel) and docking costs, as well as higher re-charter vessel fees. Production Enhancement The division registered a 6% increase in revenue for the year to RM84.6 million, accounting for 4% of Group turnover. The increase came purely from the Gas unit due to the higher recognition of the gas separation contract in Thailand. Sales of the Production Chemical unit, the division s other unit, was flat. Marine Revenue contribution of the division fell by 14% to RM51 million to make up 2.4% of Group revenue. This was mainly due to planned dry docking for the Anchor Handling Tug Supply ( AHTS ) vessels throughout the year. The Group s 42.7%-owned associate company,

28 26 SCOMI GROUP BHD ANNUAL REPORT 2008 MANAGEMENT S REVIEW OF OPERATIONS cont d KEY INITIATIVES The global financial crisis and low crude oil prices have severely affected the oil and gas industry. The current adverse sentiment is anticipated to persist for a few more years. Hence, the Group has outlined several key strategic initiatives to reduce cost and manage receivables and human capital more efficiently. Our focus at Group level is on process, people and brand, while at the business unit level, the emphasis is on operational efficiency and financial management. 1. Formula 2011 This is a 3-year plan that defines the Group s goals and strategy in achieving its objectives faster and more efficiently in an increasingly competitive global race. Launched in November 2008, the blueprint empowers employees by clearly communicating corporate strategy and goals, and embeds the Group s philosophy that people drive success by embodying the Scomi brand values: New Ideas, Goal Oriented, Working Together and Customer Responsible. Formula 2011 also reflects our commitment to investing in global technology enterprises in the Energy and Logistics sector that can be nurtured with a clear pipeline of talent to deliver returns in excess of 25% by In the initiative, we also strive to reduce costs by up to US$30 million by 2011, align operating structure and centralise supply chain management. 2. Organisation Plan For Us (OPUS) Introduced in late 2008, it is a guide designed to assist employees in charting their career journey in Scomi. OPUS talks about the organisation, its aspiration towards people development and ensuring the Group has a clear talent pipeline. In a nutshell, there are four parts to OPUS in its book form: Part 1 is about the Company and its strategies, goals and commitment towards employees development. Part 3 is about employees taking charge of their development. Part 4 contains some information on most of the human resource technicalities like job and position descriptors, job grades, competency matrix and training plans. 3. Talent Development and Management Programmes We acknowledge that our employees are key assets to the organisation and we truly desire to continue building a high performance-based culture that will complement each and everyone s skills set. Hence, we have developed various programmes to unlock and realise the full potential of our employees to produce tangible performance and profits. a. Management Trainee Programme ( MTP ) Under this programme, fresh university graduates with the requisite calibre and leadership skills are exposed to different business functions and units over an 18-month period, where they receive formal training in soft skills to eventually qualify them for senior executive positions. b. Executive Management Programme ( EMP ) EMP provides middle level management an opportunity to enhance their leadership skills. It is designed with a focus on leadership, planning and organising, communications and teambuilding skills, as well as management processes. c. Management Leadership Development Programme ( MLDP ) This programme aims to secure the Group s succession pipeline by equipping current managers with diverse management knowledge and skills to handle the challenges of global business. Part 2 is about employees themselves, encompassing their understanding about themselves and what they aspire.

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30 28 SCOMI GROUP BHD ANNUAL REPORT 2008 MANAGEMENT S REVIEW OF OPERATIONS cont d The participants undergo a 1-week programme in partnership with the Asian Institute of Management, which provides an excellent platform combining theory with the relevant management skills, knowledge and business practices needed for effective decision making and problem solving, as well as enhancing people skills in managing interpersonal and communications skills. d. Induction Programme A formal 1-day induction programme is conducted for new employees joining the Company. Carried out 2 to 3 times a year with the intention to familiarise them with the Company and its diverse businesses, as well as to acquaint them with senior management including the Group Chief Executive Officer. e. Comprehensive Mud School Our Drilling Fluid Training Programmes provides intensive training on DF and overall knowledge on DWM. Conducted at Scomi s Global Research & Technology Centre, the course lasts 7 weeks and content is designed to meet API RP 13L requirements. The majority of participants are drilling fluid engineers with less than one year s tenure. DWM engineers are also trained as preparation for them to cross over to DF. Scomi also offers an advanced drilling fluid seminar designed for experienced drilling fluid engineers, which is intended as a refresher course. Coming up in the future is a customer drilling fluid school, offering courses of 1 2 weeks duration to our diversified customer base, in order to add value to our DF product portfolio countries. 4. CENSUS The Global Employee Engagement Survey From 28 November 2008 and 12 January 2009, the Group administered this survey called CENSUS through independent consulting firm, Towers Perrin-ISR. The survey was opened to all executives and above employees in Scomi, including locations outside Malaysia, totaling 1,655 employees. A total of 743 employees (45%) responded to this online survey, representing 51% and 42% in Malaysia and outside Malaysia respectively. While the number was relatively lower compared to other organisations response rate, which is at 65% 75% in a similar survey, Scomi s results were rather encouraging, considering this was our first global survey. 5. Project BEST Through the implementation of Project BEST, the Group is standardising various IT-driven systems and processes across its diverse business units and locations into a single global platform. Global synergy and systems integration will facilitate our ability to drive strategies down and across the organisation to achieve and/or improve set KPIs (Key Performance Indicators). Information generated will be more accurate and timely using a single platform, enabling us to produce a more accurate and reliable measure of our performance outcomes, which will eventually improve the quality and effectiveness of decision-making. Key to achieving the Project BEST objective of streamlining processes in pursuit of efficiency is the SAP System Implementation across the organisation in SAP went live in the Wave 1 countries of Malaysia, Indonesia, Singapore, Thailand, China, Australia and Brunei on 4 August 2008; live in Wave 2 regions of MENAT and Europe in November 2008.

31 SCOMI GROUP BHD ANNUAL REPORT CONCLUSION The declining outlook of the global economy will continue to impact the Group s performance in Nevertheless, we are cautiously optimistic of improved results this year. The Management will continue to maintain and implement cost saving measures to remain competitive, while focusing on growth and productivity. Cost reduction from overheads, direct operating expenses, headcount, closure and redundancies will result in a sizeable saving. The Group s diverse businesses are undergoing different business phases and industry lifecycle. The Transportation division, for instance, is on a strong growth trail mainly from its monorail business. The Group will continue to extend its monorail technology abroad where we have been presenting proposals in various cities in India, the Middle East, Nigeria and Brazil. The softening in demand of the Coach and Special Purpose Vehicles ( SPV ) products will affect the segment. The performance and viability of certain product lines are being monitored closely. The Coach unit will focus on growing its international business. In OFS, as the market continues to shrink, the challenge is to hasten the cost cutting initiative to maintain profitability and margins. The Group will invest in new waste management technology and DF system especially for deepwater activities, as well as increase R & D and improve processes. The Marine division offers a more predictable outlook in 2009, as Scomi Marine has mostly medium to long-term contracts. This gives earnings visibility over the next 1 2 years. Scomi Marine now has a fleet of over 120 vessels to largely transport coals for many local and international clients. The fleet renewal programme for the Offshore Support Vessel division is progressing well. In addition, CH Offshore took delivery of 4 deepwater AHTS vessels in March, May, September and November 2008, raising its current fleet to 9 vessels. Whilst, 2 more AHTS will be delivered in 2009 and In conclusion, during these extraordinary times, we need to stay focused and devise a game plan to remain in the course of sustained growth. The MS segment, meanwhile, will continue to contribute positively in 2009 with the new facilities in Saudi Arabia and Johor Bahru coming into full swing.

32 30 SCOMI GROUP BHD ANNUAL REPORT 2008