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Consolidating Resources for Future Growth Annual Report 2008 Contents Consolidating Resources for Future Growth Annual Report 2008 Contents 2 Message to Shareholders 4 Ranhill Leadership 5 Group Financial Highlights 6 Corporate Information 7 Board of Directors 8 Directors’ Profi le 12 Our Global Reach 14 Overview 21 Report and Statutory Statements Form of Proxy “From building power plants in Malaysia to constructing residential apartments in Libya; from treating recycled water in China to upgrading oil and gas facilities in Sudan; we’re putting in place the infrastructure that’s propelling nations forward. With a wealth of regional experience and some solid expertise to boot, we keep giving of our best and delivering on our promises. This simple formula has served us well wherever we’ve gone and it’s probably the reason why clients keep coming back to Ranhill.” Ranhill Berhad (430537-K) 1 Message to Shareholders Dear Shareholders, whereby SAJH will surrender its build-operate-transfer concession in Johor in return The year 2008 was both a challenging and opportunistic one for Ranhill. for a license to operate as a water operations and maintenance operator. SAJH will sell We took measures to rationalise our operations and consolidate our resources for off all their assets at a one-time book value and transfer RM2.5 billion of its liabilities future growth. to the Government. The Government will lease the assets back to SAJH. In the 2008 financial year (“FY2008”), we grew our revenues by 30% to a record As such, SAJH will migrate from being an asset heavy utility to becoming an asset of RM1.9 billion and produced a gross profit of RM72.9 million. The Group’s results light company, focused purely on operations and maintenance services to better serve for FY2008 were impaired mostly by the impact of a significant provisions for non- the people of Johor. This will enable us to unlock equity investments in our assets recoverability of cost overruns in respect of the Melut Basin project in Sudan. These at the point of transfer, accelerate cash distribution as well as minimise future lease provisions were attributable to costs that we incurred directly on the project and to rentals and tariffs. All in all, this approach will put us in a stronger financial position shared costs recoverable from our joint venture partner. While we will continue to and will provide better return to our shareholders. pursue recovery of these costs through the earnings from the additional scope of works and negotiations with our joint venture partner, the Board believes that the decision Another major event this year was the commissioning and commencement of to make the provision is both prudent and conservative given the uncertainties in commercial operation of the combined cycle gas turbine (“CCGT”) Ranhill Powertron I recovering these costs. On a positive note, Ranhill has gathered a wealth of experience (“RPI”) power plant in Sabah which was converted to 190MW from 120MW; plus the in one of Africa’s harshest geographic regions and we continue to serve as Malaysia’s commencement of the construction of a second 190MW CCGT due for commercial ambassador to such a challenged area. operation in 2010. When both the 190MW CCGT RPI and RPII plants are completed and online, Ranhill will have a total power generating capacity of 380MW, making us FY2008 was also impacted by losses and provisions amounting to RM78 million the largest independent power producer in Sabah. associated with the decision to exit from active participation in the Oil and Gas exploration business. This decision eliminates the negative cash flow from future In 2008, we restructured the Group into two strategic business units (“SBUs”), the exploration costs, which have risen substantially since Ranhill first entered this sector Infrastructure and Energy SBUs, thus emerging a leaner entity. Our Infrastructure, and through Ranhill’s residual carried interest, preserves the Group’s exposure to Highway, Bridges, Building, Water, Waste Water Engineering, Construction and future upside from exploration success. Operations and Maintenance activities now fall within the ambit of our Infrastructure SBU; while the Oil and Gas, Process, Power Engineering, Construction and Operations CHALLENGES AND OPPORTUNITIES and Maintenance activities now come under the umbrella of our Energy SBU. A very recent development and the most significant event for the Group since our last We envisage that Ranhill’s Water and Power concession businesses within the annual report, is the approval by the Malaysian Government of the migration of Group Infrastructure and Energy SBUs will continue to provide steady and recurring cash subsidiary SAJH’s water business in the state of Johor to the new licensing regime, flows to the Group and we will continue to look for opportunities to expand such 2 Ranhill Berhad (430537-K) concession businesses by capitalising on our existing strengths in these sectors. The ten principles cover four areas, Human Rights, Labour Standards, Ranhill’s recent strategic tie-up with Aqua Resources Limited, a company managed Environment and Anti-Corruption. The principles are: • Principle 1: Businesses by global asset management specialist FourWinds Capital Management, is expected should support and respect the protection of internationally proclaimed human to further strengthen the Group’s foothold in China and enable us to tap into their rights; • Principle 2: Make sure that they are not complicit in human rights abuses; burgeoning water and wastewater markets, while taking on larger scale projects. Our • Principle 3: Businesses should uphold the freedom of association and the effective Energy portfolio will, however, continue to be fuelled by a steady stream of EPC and recognition of the right to collective bargaining; • Principle 4: The elimination of all Engineering, Procurement and Construction Management (“EPCM”) projects with forms of forced and compulsory labour; • Principle 5: The effective abolition of child Ranhill WorleyParsons (“RWP”) leading the way in world class quality, innovation labour; • Principle 6: The elimination of discrimination in respect of employment and and cost effectiveness. occupation; • Principle 7: Businesses should support a precautionary approach to environmental challenges; • Principle 8: Undertake initiatives to promote greater Ranhill is now poised to be in the strongest position it has been since it commenced environmental responsibility; • Principle 9: Encourage the development and diffusion business 35 years ago. Going forward, future revenue and profit are expected to of environmentally friendly technologies; and • Principle 10: Businesses should work be generated equally from within Malaysia and from overseas and equally from against corruption in all its forms, including extortion and bribery. the Infrastructure and Energy SBUs with a good balance between the Assets and Operation and Maintenance businesses, as well as Engineering and Construction By joining this vibrant and practice-oriented global network that offers a variety of business. Continuing strong performances from our Water, Power Generation and opportunities for active engagement, Ranhill will have access to opportunities on a Energy Engineering activities within these SBUs, together with the size of our order global level as well as more than 50 active local networks on the ground. backlog, are also expected to underpin future revenue and profit growth and enhance cash generation. On top of this, the Group’s financial position remains strong with PROSPECTS cash balances at 30 June 2008 in excess of RM900 million and enhanced by the The recent turmoil in financial markets is unprecedented and is likely to lead to many surplus net asset value from the migration of SAJH’s concession. challenges ahead particularly in projects requiring financing. In addition, the rapid rise in commodity prices, in particular oil, and their subsequent decline will impact our BACKLOG Energy business in both EPC and EPCM projects and in the Infrastructure sector. To Over the course of FY2008, we leveraged upon our business restructuring and offset increases in the cost of construction materials, we are working with our clients consolidated resources to complete existing projects and embark on new ones. As to make mutually beneficial price revisions to our current and future construction of 30 June 2008, we had a backlog of contracts valued at approximately RM6 billion contracts. spread throughout South East Asia, China, the Middle East and Africa. The strategy of spreading our backlog across many regions and across diverse sectors has enabled us We continue to invest in Energy and Infrastructure businesses that include operations to mitigate our risk and guard against the caprices of each region and market cycles. and maintenance activities which complement our EPC businesses, and where This is all the more important given the current volatile global economic environment our technical expertise represents a distinctive advantage. This combination of we are operating in. our technical and financial expertise, positions us strongly for future concession investment opportunities. We have developed an excellent track record in both the Around 70% of our backlog falls under the ambit of our Infrastructure SBU while the Infrastructure and Energy business segments and will continue to focus our efforts on remaining 30% is under the Energy SBU. Of our total backlog, some 27% comes from these two areas in the near future. local projects which included the Senai-Pasir Gudang-Desaru Expressway
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