CONTENTS

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

Ambitious 7th Annual General Meeting Ballroom 3, First Floor Sime Darby Convention Centre 1A, Jalan Bukit Kiara 1 60000

15 June 2009, Monday, 2 p.m. 2 GROUP BHD ANNUAL REPORT 2008

KEY FINANCIAL INDICATORS AND KEY FINANCIAL HIGHLIGHTS

In RM’000 2008 2007 2006 2005 2004

Turnover 2,106,140 1,995,530 1,577,495 1,067,972 590,457

EBITDA 291,364 441,277 253,129 271,031 103,146 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 6,429 114 Share of profit from jointly controlled entities – – – 19 1,000

PBT 140,213 286,416 120,722 186,812 74,603 Taxation (3,928) (4,261) (12,982) (13,937) 5,571

PAT 136,285 282,155 107,740 172,875 69,032 Minority interests 19,732 25,026 15,326 21,184 (7,538)

PAT after minority interests 116,553 257,129 92,414 151,691 61,494

Number of shares assumed in issue (‘000) 1,021,839 1,019,705 1,005,352 992,080 894,134 Weighted average number of shares assumed in issue (‘000) 1,006,342 1,004,806 995,025 972,877 884,598 Weighted average number of shares used to compute diluted earnings per share (‘000) 1,016,009 1,037,091 1,017,507 1,015,833 932,431 Basic – Net EPS (RM)** 11.58 sen 25.59 sen 9.29 sen 15.59 sen 7.0 sen Fully diluted – Net EPS (RM)@ 11.47 sen 24.79 sen 9.08 sen 14.93 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 years. @ 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. 2004 – 2006 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. SCOMI GROUP BHD ANNUAL REPORT 2008 3

Total Assets (RM Million) 2008 RM2,944 mil 2007: RM2,707 mil / 2006: RM2,593 mil

Earnings per Share (Basic) 2008 11.6 sen 2007: 25.6 sen / 2006: 9.3 sen

Revenue (RM Million) Net Tangible Assets (RM Million)

2008 2,106 2008 2007 1,955 2006 1,577 2005 RM531 mil 1,068 2004 590 2007: RM442 mil / 2006: RM92 mil

Profit before Tax (RM Million) Shareholders’ Fund (RM Million) 2008 2008 140 2007# 286 2006 121 RM918 mil 2005* 187 2007: RM802 mil / 2006: RM600 mil 2004 75

Net Assets per Share Profit after Tax after Minority Interests (RM Million) (Attributable to equity holders of the parent)

2008 117 2008 2007# 257 2006 92 88 sen 2005** 152 2004 61 2007: 77 sen / 2006: 59 sen

Notes * This includes the exceptional gain arising from the disposal of the machine shops amounting to RM151.447 million. ** This includes the exceptional gain arising from the disposal of the machine shops amounting to RM139.005 million. # This includes the exceptional gain arising from the divestment of 19.9% shareholding in Scomi Oilfield Limited (Bermuda) amounting to RM140.046 million. 4 SCOMI GROUP BHD ANNUAL REPORT 2008

SCOMI GROUP CORPORATE LEGAL STRUCTURE as at 30 April 2009

SCOMI GROUP BHD

43%# 60% 80%

SCOMI MARINE BHD SCOMI OILSERVE SDN BHD Bermuda SCOMI OILFIELD LIMITED 51% Gemini Sprint Sdn Bhd Labuan, Bermuda Oilserve (L) Berhad Scomi Oiltools Bermuda Limited Emerald Logistics Sdn Bhd Australia 51% Labuan, Malaysia Scomi Oiltools Pty Ltd Marineco Limited Labuan, Malaysia New Zealand 40% Trans Advantage Sdn Bhd SCOMI CAPITAL LIMITED Scomi Oiltools (NZ) Pty Limited

Singapore Algeria Scomi Marine Services Pte Ltd KMC Oiltools Algerie EURL SCOMI SOLUTIONS SDN BHD 49% British Virgin Islands Alexandria Free Zone, Egypt King Bridge Enterprises Scomi Oiltools Egypt SAE Limited 50%* Nigeria British Virgin Islands Titan Tubulars Nigeria Limited Singapore SCOMI ECOSOLVE LIMITED Goldship Pte Ltd 51% Oman Scomi Oiltools Oman LLC Singapore CH Ship Management Jersey Pte Ltd Scomi Oiltools (Africa) Limited • 60% Nigeria Singapore Wasco Oil Service Company Grundtvig Marine Pte Ltd Nigeria Limited • 95 % Indonesia PT Batuah Abadi Lines • 96% Gabon Oiltools Gabon SA 81% Indonesia PT Rig Tenders Indonesia Tbk1 Scotland Scomi Oiltools (Europe) Limited 29% Singapore • Russia CH Offshore Ltd2 Scomi Oiltools (Rus) Limited Liability Company Singapore CH Logistics Pte Ltd Thailand Scomi Oiltools (Thailand) Ltd • Singapore Sea Master Pte 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 SCOMI GROUP BHD ANNUAL REPORT 2008 5

70% SCOMI CHEMICALS SDN BHD SCOMI ENGINEERING BHD

Scomi Sosma Sdn Bhd Scomi Barite Sdn Bhd Scomi Transportation Systems Sdn Bhd

51% KMC All Star Chemical Sdn Bhd 50% Brunei Scomi Rail Bhd Sosma (B) Sdn Bhd Alberta, Canada Scomi Coach Sdn Bhd Scomi Oiltools Canada Inc 93% France • Scomi Coach Marketing Sdn Bhd Scomi Anticor SA Texas, USA Scomi Special Vehicles Sdn Bhd Scomi Oiltools Inc Scomi Trading Sdn Bhd KMCOB Capital Berhad Scomi OMS Oilfield Holdings Sdn Bhd Cayman Islands Scomi Oiltools (Cayman) Ltd SCOMI ENERGY SDN BHD Scomi OMS Oilfield Services Sdn Bhd • Kish Island, Iran 70% Saudi Arabia Scomi Oiltools Kish Limited 70% Scomi NTC Sdn Bhd Scomi OMS Oilfield Services Scotland Scomi Enviro Sdn Bhd Arabia Ltd Scomi Oiltools (Europe) Limited India • Russia Urban Transit Private Limited Scomi Oiltools (Rus) Limited Liability Company Singapore Scomi OMS Oilfield Services Pte Ltd British Virgin Islands Scomi Oiltools South America Limited 95% Indonesia • Venezuela PT Scomi OMS Oilfield Services Scomi Oiltools De Venezuela SA Thailand • Venezuela Scomi OMS Oilfield Services Premium Industrial Machining SA (Thailand) Ltd

Mauritius Australia Scomi Oiltools Overseas Scomi OMS Oilfield Services (M) Limited 4% 48% (Australia) Pty Ltd Scomi Oiltools Sdn Bhd SCOMI KMC SDN BHD British Virgin Islands Scomi OMS Oilfield Services Ltd Singapore Scomi Oiltools (S) Pte Ltd • 95 % Indonesia PT Scomi Oiltools

• Mexico Notes Oilfield Services de Mexico S de RL de CV * Does not include 0.20% owned by Wasco Oil Service Company Nigeria Limited. # Includes 0.05% held by Scomi Energy Sdn Bhd. • Mexico 1 This corporate structure does not include the associated companies of PT Rig Tenders Indonesia Tbk. Scomi Oiltools de Mexico S de RL de CV 2 This corporate structure does not include the subsidiaries of CH Offshore Ltd. Public Listed Entity. • , India KMC Oiltools India Private Limited • 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. 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. 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. 8 SCOMI GROUP BHD ANNUAL REPORT 2008

CORPORATE INFORMATION

DIRECTORS REGISTRAR Tan Sri Datuk Asmat Bin Kamaludin (Chairman) Symphony Share Registrars Sdn Bhd Tan Sri Nik Mohamed Bin Nik Yaacob Level 26, Menara Multi-Purpose Datuk Hamzah Bin Bakar Capital Square Datuk Haron Bin Siraj No. 8, Jalan Munshi Abdullah Dato’Mohammed Azlan Bin Hashim 50100 Kuala Lumpur, Malaysia Dato’Mohamed Azman Bin Yahya Tel : +603 2721 2222 Foong Choong Hong Fax : +603 2721 2530 / 31 Sreesanthan A/L Eliathamby Shah Hakim @ Shahzanim Bin Zain ADVOCATES & SOLICITORS Albar & Partners AUDIT AND RISK MANAGEMENT COMMITTEE Advocates & Solicitors Dato’Mohammed Azlan Bin Hashim (Chairman) 6th Floor, Faber Imperial Court Tan Sri Nik Mohamed Bin Nik Yaacob Jalan Sultan Ismail Foong Choong Hong 50250 Kuala Lumpur, Malaysia Sreesanthan A/L Eliathamby COMPANY SECRETARIES OPTIONS COMMITTEE Chong Mei Yan (MAICSA 7047707) Datuk Hamzah Bin Bakar (Chairman) Ong Wei Leng (MAICSA 7053539) Datuk Haron Bin Siraj Shah Hakim @ Shahzanim Bin Zain AUDITORS PricewaterhouseCoopers (AF: 1146) NOMINATION AND REMUNERATION COMMITTEE Chartered Accountants Tan Sri Datuk Asmat Bin Kamaludin (Chairman) Level 10, 1 Sentral Dato’Mohamed Azman Bin Yahya Jalan Travers, Kuala Lumpur Sentral Datuk Hamzah Bin Bakar PO Box 10192, 50706 Kuala Lumpur Malaysia REGISTERED OFFICE Suite 5.03, 5th Floor PRINCIPAL BANKERS Wisma Chase Perdana CIMB Bank Berhad Off Jalan Semantan Lot P 5.5, Persiaran Perbandaran Damansara Heights Bangunan UMNO, Section 14 50490 Kuala Lumpur, Malaysia 40000 Shah Alam, Selangor Darul Ehsan Malaysia Tel : +603 2080 5080 Fax : +603 2080 5131 United Overseas Bank (Malaysia) Berhad Level 18, Menara UOB ADMINISTRATIVE & CORRESPONDENCE ADDRESS Jalan Raja Laut Suite 5.03, 5th Floor 50350 Kuala Lumpur, Malaysia Wisma Chase Perdana Off Jalan Semantan STOCK EXCHANGE LISTING Damansara Heights Main Board of Bursa Malaysia Securities Berhad 50490 Kuala Lumpur, Malaysia Stock Name: Scomi Tel : +603 2080 5080 Stock Code: 7158 Fax : +603 2080 5131 Email : [email protected] CURRENCY www.scomigroup.com.my Ringgit Malaysia (RM) SCOMI GROUP BHD ANNUAL REPORT 2008 9

PROFILE OF DIRECTORS

Tan Sri Datuk Asmat Tan Sri Nik Mohamed Bin Kamaludin Bin Nik Yaacob

Chairman, Independent Non-Executive Director Independent Non-Executive Director

YBhg Tan Sri Datuk Asmat, 65, a Malaysian, is an Independent YBhg Tan Sri Nik Mohamed, 59, a Malaysian, is an Independent Non-Executive Director and the Chairman of the Company. Non-Executive Director of the Company and was appointed to the He was appointed to the Board on 3 March 2003. Board on 13 July 2004.

YBhg Tan Sri Datuk Asmat holds a Bachelor of Arts (Honours) degree YBhg Tan Sri Nik Mohamed holds an Engineering Degree from in Economics from the University of Malaya and also a Diploma in Monash University and a Masters in Business Management from the European Economic Integration from the University of Amsterdam. Asian Institute of Management.

YBhg Tan Sri Datuk Asmat has vast experience in various capacities in He served as the Group Chief Executive of Sime Darby Berhad from the public service and his last position was as the Secretary-General of 1993 until his retirement in June 2004, and also served on the Boards the Ministry of International Trade and Industry, a position he held of many of the Sime Darby group companies during this time. Other from 1992 to 2001. He has served as Economic Counsellor for Malaysia Malaysian public companies in which he is a director are Perbadanan in Brussels and worked with several international bodies such as Nasional Berhad, GuocoLand (Malaysia) Berhad, Bolton Berhad, Scomi ASEAN, the World Trade Organisation and the Asia-Pacific Economic Marine Bhd and Kencana Petroleum Berhad. YBhg Tan Sri Nik Corporation, representing Malaysia in relevant negotiations and Mohamed is also the Executive Director of Yayasan Kepimpinan agreements. YBhg Tan Sri Datuk Asmat has also been actively involved Perdana (Perdana Leadership Foundation). in several national organisations such as Permodalan Nasional Bhd, Johor Corporation, the Small and Medium Scale Industries Corporation YBhg Tan Sri Nik Mohamed is a member of the Audit and Risk (SMIDEC) and the Malaysia External Trade Development Corporation Management Committee of the Board. He attended 4 out of the (MATRADE) while in the Malaysian Government service. YBhg Tan Sri 6 Board Meetings held in the year ended 31 December 2008. 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 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. 10 SCOMI GROUP BHD ANNUAL REPORT 2008

Datuk Hamzah Bin Bakar Datuk Haron Bin Siraj

Independent Non-Executive Director Independent Non-Executive Director

YBhg Datuk Hamzah, 65, a Malaysian, is an Independent YBhg Datuk Haron, 64, a Malaysian, is an Independent Non-Executive Non-Executive Director of the Company and was appointed to Director of the Company and was appointed to the Board on the Board on 17 March 2003. 17 March 2003.

YBhg Datuk Hamzah holds a Bachelor of Science with Honours in YBhg Datuk Haron graduated from the University of Manchester, Economics from The Queen’s University of Belfast, United Kingdom United Kingdom with a Bachelor of Arts with Honours in Economics, and a Masters Degree in Public Policy and Administration from the and also holds a Masters Degree in Development Economics from University of Wisconsin, Madison, United States of America. Williams College, United States of America.

He was previously attached to the Economic Planning Unit of the YBhg Datuk Haron started his career as an Assistant Controller with Prime Minister’s Department where he served in various positions the Ministry of Commerce and Industry. He subsequently served as within that department for 12 years. Thereafter, he joined the the Principal Assistant Secretary, and later as the Under Secretary, in Petroliam Nasional Berhad group of companies where he served for the Ministry of Primary Industries until 1980. Subsequently, he served 20 years until his retirement in June 2000. Other Malaysian public as the Minister Counsellor (Economic Affairs) of the Permanent companies in which he is a director are Bumiputra-Commerce Mission of Malaysia in Geneva, Switzerland and returned to Malaysia Holdings Berhad, SapuraCrest Petroleum Berhad and CIMB to join the Ministry of International Trade and Industry, holding Investment Bank Berhad. various directorship positions and was later appointed as Deputy Secretary-General (Trade) in 1990. YBhg Datuk Haron subsequently YBhg Datuk Hamzah is a member of the Nomination and Remuneration served as Ambassador Permanent Representative of Malaysia to the Committee and the Chairman of the Options Committee of the Board. United Nations and other International Organisations (including the He attended 4 out of the 6 Board Meetings held in the year ended GATT and the WTO) and Specialised Agencies in Geneva, Switzerland 31 December 2008. from September 1992 to December 1996. On his return, he was appointed as the Secretary-General of the Ministry of Primary Industries where he served until 2000. He served as the Chief Executive Officer of the Malaysian Palm Oil Promotion Council from 2000 until his retirement in January 2006. 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. SCOMI GROUP BHD ANNUAL REPORT 2008 11

Dato’ Mohamed Azman Dato’ Mohammed Azlan Bin Yahya Bin Hashim

Non-Independent Independent Non-Executive Director Non-Executive Director

YBhg Dato’Azman, 45, a Malaysian, is a Non-Independent YBhg Dato’Azlan, aged 52, Malaysian, is an Independent Non-Executive Director of the Company and was appointed to Non-Executive Director of the Company and was appointed to the Board on 17 March 2003. the Board on 13 July 2004.

He holds a First Class Honours Degree in Economics from the London YBhg Dato’Azlan graduated with a Bachelor of Economics from Monash School of Economics and Political Science, and is a member of the University and is qualified as a Chartered Accountant in Australia. Institute of Chartered Accountants of England and Wales, the Malaysian Institute of Accountants and is a Fellow of the Malaysian He has extensive experience in the corporate sector. YBhg Dato’Azlan Institute of Banks. is the Chairman of D & O Ventures Berhad and SILK Holdings Berhad (formerly known as Sunway Infrastructure Berhad). He also serves as YBhg Dato’Azman is a Director and the Group Chief Executive of a Non-Executive Director of Khazanah Nasional Berhad and the Symphony House Berhad and the Executive Chairman of Bolton Employees’Provident Fund. During his career, he served in various Berhad. Prior to this, he was appointed by the Government of Malaysia capacities in the financial services industry and investment holding in 1998 to set-up and head Danaharta Nasional Berhad and companies, including as Chief Executive, Bumiputra Merchant Bankers subsequently became its Chairman until 2003. He was also the Berhad, Group Managing Director, Amanah Capital Malaysia Berhad Chairman of the Corporate Debt Restructuring Committee until its and Executive Chairman, Bursa Malaysia Berhad Group (formerly closure in 2002. His previous career appointments include auditing known as the Kuala Lumpur Stock Exchange). with KPMG in London, finance with the Island & Peninsular Group and investment banking with Amanah Merchant Bank. Outside his YBhg Dato’Azlan chairs the Audit and Risk Management Committee professional engagement, YBhg Dato’Azman is active in public service. of the Board. He attended 5 out of the 6 Board Meetings held in the He sits on the boards of a number of Government-linked Companies, year ended 31 December 2008. 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.

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. 12 SCOMI GROUP BHD ANNUAL REPORT 2008

Foong Choong Hong Sreesanthan A/L Eliathamby

Non-Independent Independent Non-Executive Director Non-Executive Director

Mr Foong, 48, a Malaysian, is a Non-Independent Non-Executive Mr Sreesanthan, 48, a Malaysian, is an Independent Non-Executive Director of the Company and was appointed to the Board on Director of the Company and was appointed to the Board on 17 March 2003. 18 April 2006.

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

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. SCOMI GROUP BHD ANNUAL REPORT 2008 13

Shah Hakim @ 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 2003.

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 2008.

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). 14 SCOMI GROUP BHD ANNUAL REPORT 2008

KEY MANAGEMENT TEAM

1 2 3 4 5 SCOMI GROUP BHD ANNUAL REPORT 2008 15

1. Shah Hakim Zain 7. Hilmy Zaini Zainal Group Chief Executive Officer President – Energy & Logistics Engineering Division

2. Loong Chun Nee 8. Kanesan Veluppillai Chief Investment & Performance Officer Senior Vice President – Group Marketing

3. Syahrunizam Samsudin 9. Mastura Mansor Group Financial Officer Vice President – Human Resource

4. Mukhnizam Mahmud 10. Zubaidi Harun President – Energy Logistics Division Vice President – Head of CEO’s Office

5. Steve Bracker 11. Saleha Mohd Ramly President – Oilfield Services Division Vice President – Group Legal & Secretarial

6. Chris Pianca Director – Scomi Oilfield Limited

6 7 8 9 10 11 16 SCOMI GROUP BHD ANNUAL REPORT 2008

CHAIRMAN’S STATEMENT

TAN SRI DATUK ASMAT BIN KAMALUDDIN Chairman SCOMI GROUP BHD ANNUAL REPORT 2008 17

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 Group profit before tax (“PBT”) was RM140.2 million compared to the Annual Report of Scomi Group Bhd (“Scomi”, “the Company”or RM146.4 million recorded in the year 2007 (excluding the disposal “the Group”) for the financial year ended 31 December 2008. gain) due to certain provisions and write-offs being made on inventories and doubtful debts during the year. GROUP FINANCES The bulk of Group revenue came from the OFS division, which made The Group is pleased to report a net profit of RM116.6 million for the up 72.9% or RM1.53 billion of the total. This was followed by a 20.6% year, marginally lower by 0.4% compared to the fiscal year 2007’s net contribution from the Transportation division, operating via its profit, which excludes an extraordinary gain on disposal of RM140 subsidiary Scomi Engineering Bhd, whose revenue rose by 18% to million. A slow start to the year was balanced by an outstanding RM434.4 million. fourth quarter, where net profit jumped 45% to RM40.86 million against the corresponding period in 2007. In terms of product lines, Drilling Waste Management (“DWM”) and Drilling Fluids (“DF”) remained the Group’s main revenue contributors. Group revenue for the year grew by 8% to RM2.11 billion; fuelled by The latter grew 32% during the year due to strong chemical sale in the 18% growth in the Transportation division and 6% expansion of the MENAT and Asean regions. The increased DF sales saw its contribution Oilfield Services (“OFS”) division. rise to 23.1% from 18.8% in the previous year, at the expense of DWM, which eased to 45.1% from 49.5%. Taking into account the results, as well as the Group’s investment obligations and working capital requirements, and at the same time, Under the OFS division, about 62% of the revenue for the year under the need to provide attractive returns for shareholders, the Board review was attributed to DWM, although the division itself eased by is recommending a single-tier tax-exempt dividend of 5% for the 1.6%, while the DF segment accounted for 31%. financial year ended 31 December 2008. The proposal will be tabled for approval at the upcoming Annual General Meeting (“AGM”). Other product lines that recorded gains were the Rail unit and Machine Shop (“MS”) segments, both under the Transportation division. The STEADY PERFORMANCE AMID GLOBAL RECESSION former segment’s revenue went up 165%, from 2007 due to the increased recognition of the Putra LRT fleet extension and the While the overall results were commendable given the weak economic upgrading of the electrical and mechanical (“E & M”) systems for environment, the provisions of inventory, closure and debtors in OFS, the Kelana Jaya line. 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. 18 SCOMI GROUP BHD ANNUAL REPORT 2008

CHAIRMAN’S STATEMENT cont’d

PROSPECTS

The World Bank has projected global GDP growth to decline drastically The Group will remain stringent in managing costs and simultaneously, to 0.9% in 2009 from 2.5% in 2008, which would put the world economy prioritise our focus on technology, R & D and human capital in recession. Many are still uncertain of the length and breadth of the development. Throughout the year under review, we have introduced crisis, and the volatility has directly affected our economy with the various talent development programmes with strong emphasis on Government projecting the country’s 2009 GDP to contract to a range maximising leadership effectiveness and potential. These included the of -1% to 1% from 4.6% in 2008. Management Trainee Programme (“MTP”), Executive Management Programme (“EMP”) and the Management Leadership Development Understandably, corporations are taking a cautious approach for the Programme (“MLDP”). fiscal year ahead. But despite the uncertainties, the world and domestic economy will bounce back sooner or later, and the local oil and gas ACKNOWLEDGEMENTS industry players, Scomi included, can expect brighter days ahead once again. Notwithstanding the current negative sentiments, prospects for I would like to record my appreciation to my fellow Board members the Group remain encouraging with our outstanding order book for their service to the Group. And on behalf of the Board, I would also currently in excess of RM2.3 billion, of which more than half is in OFS. like to extend our thanks to all shareholders and employees, past and The order book was further boosted by the recent award of the Mumbai present, for their loyalty and dedication throughout the highs and project, which is targeted for completion in 2011. lows of our corporate history.

The project is expected to lead the Group’s charge The trying circumstances and challenges we faced in 2008 would in 2009, with the Rail unit aggressively pursuing other monorail have been catastrophic for the Group, had it not been for the projects locally and overseas with its new product – Scomi Urban dedication and professionalism of the Management and the Transit Rail Application or SUTRA. Thanks to the Mumbai contract, the employees, across all divisions and levels. The Board is proud to state Group has received a lot of interest to develop monorail systems that their drive have contributed substantially to the Group’s top and across India, the Middle East and Nigeria. bottom lines, and we will continue to promote a performance culture driven by excellence, as guided by the strategies outlined in the Our future direction, to a large extent, will be guided by Formula Formula 2011 initiative. 2011. This 3-year blueprint sets out our strategies from 2009 – 2011 to grow returns, initiate technological innovation and gain customer Last, but not least, I would like to express our gratitude to our principals, recognition. In other words, the initiative has been designed to equip partners and associates, as well as the Government for their unwavering us for survival and prepare us to cope better with the multiple support that has transformed the Group to what it is today. challenges we face today, and in the future. Thank you. 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 Sincerely, overheads, direct operating costs, headcount, closure and redundancies, is expected to result in sizeable savings moving forward.

TAN SRI DATUK ASMAT BIN KAMALUDDIN Chairman SCOMI GROUP BHD ANNUAL REPORT 2008 19 MANAGEMENT’S REVIEW OF OPERATIONS 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. 22 SCOMI GROUP BHD ANNUAL REPORT 2008

Enthusiasm

SUTRA – India’s First Monorail 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 2008. 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 Provisions for inventory, closure and doubtful debts in OFS, as well as under review. The global economy was reeling from the continuing the recognition of research and development (“R & D”), in addition to fallout of the sub-prime credit crisis, rising commodity prices, project cost in Transportation had impacted the Group’s performance. declining US dollar and high oil prices that almost breached the This was made worse by erosion in margins due to significantly higher US$150 mark per barrel before easing in the second half of 2008. transport and material costs.

The oil and gas industry was not spared either. The lower crude oil The Group profit before tax (“PBT”) was RM140.2 million compared to prices, as well as the economic and financial crisis had led to further RM146.4 million recorded in the year 2007 (excluding the disposal gain) delays in planned drilling programmes. Continued difficulties in the due to certain provisions and write-offs being made on inventories and world supply chain made the business environment challenging. doubtful debts during the year. Despite the setbacks, the Group was still able to register steady revenue growth, although profit margins continued to be under pressure. The bulk of Group revenue came from the OFS division (72.9%), followed by the Transportation division with a 20.6% contribution. Overall, in 2008 the Group’s recorded growth in revenue in its main Revenue for the Transportation division, which operates via subsidiary business divisions but suffered translation loss from the weaker US Scomi Engineering Bhd, rose 18% to RM434.4 million. dollar, which affected the outcome of the Group’s results. In terms of product lines, Drilling Waste Management (“DWM”) and The Group registered a net profit of RM116.6 million for the year, a Drilling Fluids (“DF”) remained the Group’s top contributors. In Ringgit nominal decrease of 0.4% compared to the year 2007 that excluded terms, 62% of the OFS revenue for the year came from DWM, an extraordinary gain on disposal of RM140 million. The net profit for although the segment itself eased by 1.6%. The DF segment the fourth quarter, however, jumped 45% to RM40.86 million against accounted for 31% of the revenue in the OFS division. RM28.25 million in the corresponding period in 2007, mainly due to the recognition of certain deferred tax assets in the Oilfield Services Breaking by regions, Asia continued to be the OFS division’s top (“OFS”) division. performer. During the year, the Asian region grew 25% on the back of increased businesses in Myanmar, Malaysia and Thailand. The Group revenue for the year grew by 8% to RM2.11 billion from Americas and West African regions posted commendable growths as RM1.96 billion in the previous year, driven by 18% growth in the well, but MENAT and Europe experienced contractions particularly in Transportation division and 6% expansion of the OFS division. the last quarter. MANAGEMENT’S REVIEW OF OPERATIONS cont’d

The Group’s earnings per share (EPS) based on the profit earned after Asia remained the division’s top revenue contributor, growing 41% taxation and minority interest was 11.6 sen per share compared to year-on-year in the fourth quarter alone. The Asian region accounted 11.7 sen achieved in 2007 (excluding the RM140.0 million gain on for 29% of revenue during the period, followed by MENAT (25%), disposal). With total assets growing by 8.8% from RM2.71 billion at the Americas (21%), Europe (19%) and West Africa (6%). 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 The division partly benefitted from higher DWM and DF sales that grim global economic landscape. resulted from a higher number of rigs on drilling mode in Malaysia, the PTT Siam project in Thailand and the PTTEP1 project in Myanmar. Group shareholders’funds continued to register a hefty growth of 15%, standing at RM918.2 million at end-2008 compared to the Transportation and Machine Shops RM801.9 million as at the end of the preceding year. The division’s business, undertaken through subsidiary Scomi Engineering Bhd (“Scomi Engineering”), recorded a revenue of PERFORMANCE BY DIVISIONS RM434.4 million during the year, representing an 18% increase over 2007. PAT stood at RM12.4 million, but would have been much higher Oilfield Services (“OFS”) if not for a one-off non-performance adjustment for the provisions of Although 2008 was a very challenging year for OFS, the division still the inventory and recognition of R & D and project costs, which was contributed the bulk of Group revenue. At 72.9%, it generated RM1.53 offset by a small net tax credit adjustment. billion to the total revenue. The division grew 6% during the year, slower than the 25% expansion achieved in 2007. On a quarterly basis, The MS unit contributed 61% of the total revenue, while the remaining it rose by a stronger 13% in comparison to the fourth quarter over the 39% by the Transportation unit. The latter unit is broken into Rail, same corresponding period in 2007. Coach and Special Purpose Vehicles (“SPV”).

The division’s PBT was adversely affected by a sizable one-off provision Scomi Engineering currently operates one of the most extensive on inventory, closure and bad debt. At profit after tax (“PAT”) level, the network of Machine Shops in the Asia-Pacific region – three in Malaysia division had recognised certain tax assets that were partly offset by the (Labuan, Kemaman and Johor Bahru), two in Indonesia and one each reversal of deferred tax in the US and higher withholding taxes in in Australia, Brunei, Singapore, Thailand and Saudi Arabia. Indonesia and West Africa. Despite declining demand on the back of volatile prices for drilling and 62% of the division’s revenue for the year under review was attributed production activities, the unit’s revenue rose 15% due to sales generated to DWM, although the segment itself eased by 1.6%. The DF segment from MS in West Papua (formerly known as Irian Jaya) and Johor Bahru, accounted for 31% of the revenue after it grew 31% mainly due to and the enhanced and expanded facilities in Labuan and Kemaman. strong performance in Asia and MENAT. The MS units’sales during the year was softened by other challenges Scomi Marine Bhd (“Scomi Marine”), recorded a net profit of RM19.6 including declining gross margins, slow start-up in new machine million for the fourth quarter alone, up from RM14.6 million net profit shops, namely in Saudi Arabia, and escalating operating costs. achieved in the same period in 2007. Our 42.7% stake in Scomi Marine translated into a net profit contribution of RM8.4 million for the quarter. The Singapore MS retained its position as the main revenue contributor However, for the whole year, Scomi Marine posted a 20% increase in net for the MS unit, attributable from its export of connectors to the Middle profit to RM65 million, with our share of the profit being RM27.8 million. East, China, India and Saudi Arabia. The higher quarterly profit from Scomi Marine was due to increased Overall, the Transportation division’s revenue growth was mainly from contribution from its 29.07% associate company, CH Offshore Ltd. The the Rail unit, besides the MS business. The former’s revenue grew 165% Singapore-based company accounted for 85% of Scomi Marine’s PAT, on the back of increased recognition of the Putra LRT fleet extension as the offshore support vessel market remained active. and the upgrading of the electrical and mechanical (“E & M”) systems for the Kelana Jaya line during the year. The strong showing by CH Offshore was attributable to the improved operational performance with the delivery of deepwater vessels, The Rail operations received a big boost from the recent award by which was augmented by the gain on disposal of vessels as it Mumbai Metropolitan Region Development Authority (“MMRDA”) continues with the fleet rationalisation exercise. This, however, was for the Mumbai monorail project in India, which is targeted for partly offset by a 9% decline in gross profit due to higher bunker (fuel) completion in 2011. India’s first monorail project is being undertaken and docking costs, as well as higher re-charter vessel fees. with consortium partner Larsen & Toubro, India’s largest engineering and construction group. The RM1.85 billion project covers the design, Production Enhancement development, construction, manufacturing, supply, testing and The division registered a 6% increase in revenue for the year to commissioning of the monorail system stretching 19.54 km from the RM84.6 million, accounting for 4% of Group turnover. The increase west side of Mumbai city at Gadge Maharaj Chowk (Jacob’s Circle) came purely from the Gas unit due to the higher recognition of the heading northeast to Chembur through Wadala. In addition, the gas separation contract in Thailand. Sales of the Production Chemical project will include the supply and operation for a fleet of 15 train unit, the division’s other unit, was flat. sets, comprising four cars per set.

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

Part 2 – is about employees themselves, encompassing their understanding about themselves and what they aspire. SCOMI GROUP BHD ANNUAL REPORT 2008 27 28 SCOMI GROUP BHD ANNUAL REPORT 2008

MANAGEMENT’S REVIEW OF OPERATIONS cont’d

The participants undergo a 1-week programme in partnership 4. CENSUS – The Global Employee Engagement Survey with the Asian Institute of Management, which provides an From 28 November 2008 and 12 January 2009, the Group excellent platform combining theory with the relevant administered this survey called CENSUS through independent management skills, knowledge and business practices needed consulting firm, Towers Perrin-ISR. The survey was opened to all for effective decision making and problem solving, as well as executives and above employees in Scomi, including locations enhancing people skills in managing interpersonal and outside Malaysia, totaling 1,655 employees. A total of 743 communications skills. employees (45%) responded to this online survey, representing 51% and 42% in Malaysia and outside Malaysia respectively. d. Induction Programme A formal 1-day induction programme is conducted for new While the number was relatively lower compared to other employees joining the Company. Carried out 2 to 3 times a year organisations’response rate, which is at 65% – 75% in a similar with the intention to familiarise them with the Company and survey, Scomi’s results were rather encouraging, considering this its diverse businesses, as well as to acquaint them with senior was our first global survey. management including the Group Chief Executive Officer. 5. Project BEST e. Comprehensive Mud School Through the implementation of Project BEST, the Group is Our Drilling Fluid Training Programmes provides intensive standardising various IT-driven systems and processes across its training on DF and overall knowledge on DWM. Conducted at diverse business units and locations into a single global platform. Scomi’s Global Research & Technology Centre, the course lasts 7 Global synergy and systems integration will facilitate our ability to weeks and content is designed to meet API RP 13L requirements. drive strategies down and across the organisation to achieve and/or improve set KPIs (Key Performance Indicators). The majority of participants are drilling fluid engineers with less than one year’s tenure. DWM engineers are also trained as Information generated will be more accurate and timely using a preparation for them to cross over to DF. Scomi also offers an single platform, enabling us to produce a more accurate and reliable advanced drilling fluid seminar designed for experienced measure of our performance outcomes, which will eventually drilling fluid engineers, which is intended as a refresher improve the quality and effectiveness of decision-making. course. Coming up in the future is a customer drilling fluid school, offering courses of 1 – 2 weeks’duration to our Key to achieving the Project BEST objective of streamlining diversified customer base, in order to add value to our DF processes in pursuit of efficiency is the SAP System Implementation product portfolio countries. across the organisation in 2008. 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. SCOMI GROUP BHD ANNUAL REPORT 2008 29

CONCLUSION

The declining outlook of the global economy will continue to impact In OFS, as the market continues to shrink, the challenge is to hasten the Group’s performance in 2009. Nevertheless, we are cautiously the cost cutting initiative to maintain profitability and margins. The optimistic of improved results this year. Group will invest in new waste management technology and DF system especially for deepwater activities, as well as increase R & D The Management will continue to maintain and implement cost and improve processes. saving measures to remain competitive, while focusing on growth and productivity. Cost reduction from overheads, direct operating The Marine division offers a more predictable outlook in 2009, as expenses, headcount, closure and redundancies will result in a Scomi Marine has mostly medium to long-term contracts. This gives sizeable saving. 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 The Group’s diverse businesses are undergoing different business international clients. phases and industry lifecycle. The Transportation division, for instance, is on a strong growth trail mainly from its monorail business. The The fleet renewal programme for the Offshore Support Vessel division Group will continue to extend its monorail technology abroad where is progressing well. In addition, CH Offshore took delivery of 4 we have been presenting proposals in various cities in India, the deepwater AHTS vessels in March, May, September and November Middle East, Nigeria and Brazil. 2008, raising its current fleet to 9 vessels. Whilst, 2 more AHTS will be delivered in 2009 and 2010. The softening in demand of the Coach and Special Purpose Vehicles (“SPV”) products will affect the segment. The performance and In conclusion, during these extraordinary times, we need to stay focused viability of certain product lines are being monitored closely. The and devise a game plan to remain in the course of sustained growth. Coach unit will focus on growing its international business.

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. 30 SCOMI GROUP BHD ANNUAL REPORT 2008