Management Discussion and Analysis

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Management Discussion and Analysis 022 MANAGEMENT SURIA Capital HOLDINGS BERHAD DISCUSSION AND ANALYSIS SUMMARY OF SURIAGROUP’S STATEMENTS OF FINANCIAL POSITION TOTAL ASSETS (RM’000) 1,000,000 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 - Property, Receivables, plant and Concession deposits and Cash and cash Deferred tax assets equipment assets prepayments equivalents and tax recoverable Other assets 2019 60,000 836,696 294,700 114,813 20,491 49,826 2018 60,668 860,128 294,401 122,292 31,540 48,090 SUMMARY OF SURIAGROUP’S STATEMENTS OF FINANCIAL POSITION TOTAL EQUITY & LIABILITIES (RM’000) 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 - Taxations and Share Payables and deferred tax Concession capital Reserves accruals Borrowings liabilities liabilities 2019 358,825 754,578 56,799 28,149 58,402 118,694 2018 358,825 719,651 64,559 95,032 57,549 121,512 023 MANAGEMENT ANNUAL REPORT 2019 DISCUSSION AND ANALYSIS MANAGING RISK SuriaGroup acknowledges the importance of having a robust risk management system to identify critical risks and formulate mitigation plans to minimise any adverse impact and ensure sustainable business growth. By managing risks well, we believe that we provide greater certainty and confidence to all our stakeholders and shareholders. The following are the details relating to the key risks faced by SuriaGroup and how we had been managing them during the year under review: KEY RISK DESCRIPTION & IMPACT MITIGATION 1) Strategic Risk • At least 80% of SuriaGroup’s • Diversification of business into property segment • High dependency income is derived from port through the development of Jesselton Quay and One on port operations. operation, and thus, exposing Jesselton Waterfront. SuriaGroup to financial risk arising • Continue to research and explore new business from the impact of the global opportunities such as integrated marine and support economic downturn. services for the oil and gas players by leveraging on the existing port operations and infrastructure. 2) Operational Risk • Most of the wharves at the ports • The wharf extension at Sandakan Port was completed • Port operational were built during the 1970s and officially launched in February 2019. The new wharf efficiency. and 1980s. The facilities and extension is an enabler to improve the efficiency of port infrastructure are becoming less operations at Sandakan Port. efficient to cater to the growing • The proposed construction of an additional twin berth demand for port services. jetty facility at Sapangar Bay Oil Terminal is expected to The ageing infrastructure and ease congestion and broaden the opportunity for more machinery could over time, vessels to call at the terminal. contribute to low handling rate at • Continuous and planned operational risk assessment on the ports. moderate and key risk areas will be used as the basis to improve and enhance the current business processes. It is also aimed to provide the basis for SuriaGroup’s Internal Audit in its selection of auditable areas for its risk- based audit plan and exercise. 3) Financial Risk • SuriaGroup is exposed to adverse • SuriaGroup has conducted assets verification exercise • Idle and non- financial impacts arising from to identify non-performing and idle assets followed by performing assets. impairment of assets and higher assets retrofitting and disposal exercises. costs to maintain ageing assets. 4) People Risk • Low productivity and operational • Continuous learning and development programmes • Absence of people effectiveness to drive business were held to enhance employees’ knowledge, with required skills strategic plans and initiatives. capabilities and skills in critical areas. and knowledge • An employee incentive scheme was introduced with and expertise the objective to enhance productivity and operational to execute effectiveness. SuriaGroup’s business strategies and plans. 024 MANAGEMENT SURIA Capital HOLDINGS BERHAD DISCUSSION AND ANALYSIS OUTLOOK AND PROSPECTS gas sector to expand its current business undertakings by providing integrated marine and support services for the oil The economic outlook for the year 2020 is forecasted to and gas players. be more challenging with mounting fears of recession as events and factors from the year 2019 continue to batter EXPANSION PLANS IN THE PIPELINE the markets. These include the ongoing trade tensions between the United States of America and China, post-Brexit The Ports and Logistics segment will remain at the forefront negotiations, political instability, fluctuations in the prices of SuriaGroup and continue to be the main contributor to of crude oil and palm oil, the proposed ban of palm oil by SuriaGroup’s earnings. To keep abreast with changes and the world’s two largest importers, the European countries to meet customer needs, we will continuously focus on and India, as well as the unprecedented outbreak of the enhancing our efficiency and facilities at all our ports. COVID-19 pandemic which caught the world unprepared. The global economy is expected to suffer major economic In achieving its vision to be the Ports of Preference in setbacks from the widespread of COVID-19, the extent of the BIMP-EAGA and the larger Asian region, Sabah Ports which depends on the severity and duration of the outbreak. will focus on enhancing port efficiency and ensuring the Restrictions on the movement of people and containment implementation of its major projects namely transshipment measures have impacted business travel, tourism, supply hub development at Sapangar Bay Container Port, chains and so on. Sapangar Bay Oil Terminal’s twin jetty construction and the development of the new Sapangar Bay Conventional Cargo As an open economy, it is anticipated that Malaysia will Terminal. experience setbacks especially in trade and domestic businesses. Cargo throughput at Sabah’s ports may also be In the long-run, the transshipment hub will create indirectly affected as a result of lower spending and reduced opportunities for direct connectivity with the international consumption. Nevertheless, it is believed that the economy markets and for mainline operators (MLOs) to make direct and tourist arrivals into the State will eventually recover calls to Sabah. The freight cost will be reduced due to the as soon as the outbreak is contained and under control, economies of scale and this will eventually lower the cost depending on how fast the Government can contain the of logistics and doing business. It would indirectly promote pandemic. industrialisation activities, attract foreign direct investments and create jobs and business opportunities in the State. SuriaGroup will have to relook into its strategic planning for business priorities to mitigate the adverse impacts. Besides Poised to be a new era for the port industry in the State, the implementations of planned projects in 2020, strategic Sabah Ports is open to work with a strategic partner to collaborations or partnerships with major players in BIMP- develop the transshipment hub and shall intensify its EAGA would be part of the new business strategies to foster marketing strategy to realise the aspiration of making the port new business ties and connections within the region that to emerge as the preferred gateway for the region. would ultimately increase cargo movement, expand the export base and tap into unrealised cargo potential. • TRANSSHIPMENT HUB DEVELOPMENT AT SAPANGAR BAY CONTAINER PORT The announcement by the Indonesian government on East Kalimantan as the location of the new capital city of The year 2019 marked an important milestone that Indonesia will provide further opportunities for SuriaGroup to signified continuation of the transshipment hub project explore and establish greater cross-border trade and business by the Federal Government through the Sabah Economic collaborations. Development and Investment Authority (SEDIA) for the commencement of various consultancy studies and design As SuriaGroup is looking closer at new business potentials works. It is expected that construction works for the first in the oil and gas industry, it is important for SuriaGroup phase of the expansion would commence in the second to strengthen its collaborations or partnerships with major half of 2020 with completion period within three (3) years. oil players in the country. Through strategic partnership, SuriaGroup anticipates more participation in the oil and 025 MANAGEMENT ANNUAL REPORT 2019 DISCUSSION AND ANALYSIS The Federal Government had earlier pledged to • JETTY EXTENSION AT SAPANGAR BAY OIL TERMINAL channel RM1.027 billion to fund the development of the transshipment hub at Sapangar Bay Container Port, which With increasing demand and Sapangar Bay Oil Terminal is part of the comprehensive Sabah Ports 30-year Master reaching its maximum handling capacity, Sabah Ports will Plan. With the Federal commitment, Sabah Ports will carry out an expansion project of its jetty in 2020. The invest in cargo handling equipment to complement the extension entails constructing another jetty with two (2) infrastructure expansion. additional berths designed to handle two (2) vessels for further efficiency. The outer berth and the inner berth will The first phase of the expansion works would involve be capable of handling vessels with capacity up to 60,000 expanding the current berth length from 500 meters to 850 DWT and 10,000 DWT respectively. The new jetty will ease meters whereas the container stacking area will be expanded congestion and reduce vessel waiting time while allowing to 34 hectares from its current area of 13 hectares. The plan is maintenance works of the pipelines to be carried out more to eventually increase the handling capacity from the current efficiently without compromising on safety and disrupting 500,000 TEUs to 1.25 million TEUs. operations. The expansion initiative is expected to contribute Sapangar Bay Oil Terminal is the only oil terminal serving significantly to the future development and sustainability fo the West Coast of Sabah and handles an average Sabah’s economy. volume of 1.2 million metric tonnes of bulk oil annually. The existing jetty currently handles one vessel up to a • THE DEVELOPMENT OF SAPANGAR BAY maximum of 30,000 deadweight tonnage (DWT).
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