Mitrajaya Holdings Berhad: Annual Report 2017

Transcription

1. MITRAJAYA HOLDINGS BERHAD 0 30 270 0 24 90 60 120 180 0 21 12 0 24 0 13 23 0 0 14 0 15 0 22 0 14 0 0 15 0 21 160 200 160 170 180 190 170 190 180 180 200 190 170 21 0 31 50 0 22 0 40 200 160 21 0 15 0 30 0 60 260 270 280 29 0 0 3 25 0 00 24 31 0 0 3 2 110 250 0 0 0 23 0 13 90 270 100 260 90 100 1 1 0 12 13 0 24 0 12 80 80 280 0 30 30 0 290 70 30 70 290 3 0 70 30 60 250 110 60 0 30 40 90 1 2 20 280 80 30 0 270 90 20 4 32 0 0 12 260 100 10 30 33 0 60 180 1 150 15 0 14 0 15 0 22 160 0 14 0 0 15 0 21 160 200 180 170 180 170 190 www .mitrajaya.com.my 0 90 12 0 60 13 23 0 0 Tel : (603) 8060 9999 Fax : (603) 8060 9998 E-mail : mhb@mitrajaya.com.my ANNUAL REPORT 2017 12 0 24 0 0 No. 9, Blok D, Pusat Perdagangan Puchong Prima, Persiaran Prima Utama, Taman Puchong Prima, 47150 Puchong, Selangor Darul Ehsan. | 90 270 110 250 0 13 MITRAJAYA HOLDINGS BERHAD (Company No. 268257-T) 100 260 90 100 1 1 0 12 90 0 12 90 12 0 60 80 60 0 30 30 80 280 70 30 70 290 60 0 0 32 0 33 350 340 20 340 50 50 60 0 30 40 0 32 0 4 0 33 30 340 20 10 350 50 0 31 30 4 32 0 0 50 0 31 20 30 33 0 350 10 (Company No. 268257-T) 15 10 20 340 MITRAJAYA HOLDINGS BERHAD (Company No. 268257-T) 0 10 350 0 0 180 15 0 150 0 0 ANNUAL REPORT 2017 180 180
2. 002 Mitrajaya In The News 023 Sustainability Report 003 Corporate Information 044Corporate Governance Statement 004 Corporate Structure 005 Board of Directors 006 Directors ’ Profile 008 5 Years Financial Highlights 010 Chairman’s Statement 012Management’s Discussion And Analysis 052 Audit Committee Report 055 Nomination And Remuneration Committee Report 057 Statement On Risk Management And Internal Control 062 Reports And Financial Statements 170 Shareholding Analysis 173Warrantholding Analysis 176 List Of Properties 181 Notice Of Annual General Meeting 060 Other Information contents Form Of Proxy
3. mitrajaya holdings berhad ANNUAL REPORT 2017 MITRAJAYA IN THE NEWS 002
4. ANNUAL REPORT 2017 mitrajaya holdings berhad CORPORATE INFORMATION Board of Directors General Tan Sri Ismail Bin Hassan (R) Tan Sri Dato’ Seri Mohamad Noor Bin Abdul Rahim Independent Non-Executive Chairman Independent Non-Executive Director Tan Eng Piow Ir Zakaria Bin Nanyan Group Managing Director Independent Non-Executive Director Foo Chek Lee Roland Kenneth Selvanayagam Executive Director Independent Non-Executive Director Cho Wai Ling Executive Director SECRETARY PRINCIPAL BANKERS SOLICITORS Leong Oi Wah (MAICSA No. 7023802) Absa Bank Limited (South Africa) Al Rajhi Banking & Investment Corporation (Malaysia) Bhd Ambank Islamic Berhad Ambank (M) Berhad Cimb Islamic Bank Berhad Hong Leong Bank Berhad Hong Leong Islamic Bank Berhad Hsbc Amanah Malaysia Berhad Malayan Banking Berhad Maybank Islamic Berhad ocbc Al-Amin Bank Berhad Ocbc Bank (Malaysia) Berhad Rhb Islamic Bank Berhad United Overseas Bank (Malaysia) Berhad Joseph Ting & Co. REGISTERED OFFICE No. 9, Blok D, Pusat Perdagangan Puchong Prima, Persiaran Prima Utama, Taman Puchong Prima, 47150 Puchong, Selangor Darul Ehsan. Tel : (603) 8060 9999 Fax : (603) 8060 9998 Lio & Partners B-9-4, Setia Walk, Persiaran Wawasan, Pusat Bandar Puchong, 47160 Puchong, Selangor Darul Ehsan. Tee Bee Kim & Partners AUDITORS Baker Tilly Monteiro Heng (AF 0117) Baker Tilly MH Tower, Level 10, Tower 1, Avenue 5, Bangsar South City, 59200 Kuala Lumpur. Suite 12, 13 & 14, 6th Floor, IOI Business Park, No.1, Persiaran Puchong Jaya Selatan, Bandar Puchong Jaya, 47170 Puchong, Selangor Darul Ehsan. SHARE REGISTRAR Tricor Investor & Issuing House Services Sdn Bhd Unit 32-01, Level 32, Tower A, Vertical Business Suite, Avenue 3, Bangsar South, No. 8, Jalan Kerinchi, 59200 Kuala Lumpur. Tel : (603) 2783 9299 Fax : (603) 2783 9222 No. 21-4, Jalan PJU 1/42, Dataran Prima, 47301 Petaling Jaya, Selangor Darul Ehsan. Van Der Merwe Du Toit Brooklyn Place, Cnr Bronkhors and Dey Streets, Brooklyn, Docex 110 Pretoria, Republic of South Africa. STOCK EXCHANGE LISTING Main Market of Bursa Malaysia Securities Berhad Stock Name : MITRA Stock Code : 9571 003
5. mitrajaya holdings berhad ANNUAL REPORT 2017 CORPORATE STRUCTURE MITRAJAYA HOLDINGS BERHAD Company No . 268257-T 100% 100% 100% 72% 100% Mitrajaya Development Sdn Bhd Pembinaan Mitrajaya Sdn Bhd Mitrajaya Homes Sdn Bhd Skyway Development Sdn Bhd Daya Asfalt Sdn Bhd 60% 100% Mitrajaya Warisan Sdn Bhd Dutawani Sdn Bhd (formerly known as Mitrajaya Equipment Resource Sdn Bhd) 100% 100% Kemajuan Sekim Baru Sdn Bhd Kina-Bijak Sdn Bhd 100% 60% Leo Vista Sdn Bhd Centennial March Sdn Bhd 100% Mitrajaya SA (Pty) Ltd 100% 100% Awana Prisma Sdn Bhd Primaharta Development Sdn Bhd 60% 100% Eminent Earnings Sdn Bhd Mitrajaya Development SA (Pty) Ltd 100% Maha-Mayang Sdn Bhd 35% Maha-Mayang Quarry Sdn Bhd 100% 100% Kyalami & Mitrajaya Civil Engineering (Pty) Ltd Construction 100% Property Development Blue Valley Golf & Country Club (Pty) Ltd Kyalami & Mitrajaya SA (Pty) Ltd Quarry Operations Others 004
6. ANNUAL REPORT 2017 mitrajaya holdings berhad BOARD OF DIRECTORS Sitting (from left to right): Tan Eng Piow (Group Managing Director) General Tan Sri Ismail Bin Hassan (R) (Independent Non-Executive Chairman) Foo Chek Lee (Executive Director) Standing (from left to right): Ir Zakaria Bin Nanyan (Independent Non-Executive Director) Roland Kenneth Selvanayagam (Independent Non-Executive Director) Tan Sri Dato’ Seri Mohamad Noor Bin Abdul Rahim (Independent Non-Executive Director) Cho Wai Ling (Executive Director) 005
7. mitrajaya holdings berhad ANNUAL REPORT 2017 DIRECTORS ’ PROFILE GENERAL TAN SRI ISMAIL BIN HASSAN (R) Independent Non-Executive Chairman General Tan Sri Ismail Bin Hassan (R), aged 75, was appointed as an Independent Non-Executive Director of Mitrajaya Holdings Berhad (“MHB”) on 9 August 2000. He was appointed the Chairman of the Company on 26 November 2009. He is a member of the Audit Committee and the Nomination and Remuneration Committee. He is also a Director of Pembinaan Mitrajaya Sdn Bhd. He graduated from the Universiti Sains Malaysia with a Bachelor of Social Sciences Degree (Hons in Politics). In the Military Professional Education, Tan Sri Ismail graduated from Command and General Staff College, Fort Leavenworth, Kansas, USA (on Commandant’s List) in 1975, from Joint Services Staff College Canberra, Australia, in 1982 and he is also a graduate of the National Defense University, Washington, DC, USA in 1987. Later he was inducted into the NDU International Fellows Hall of Fame, in recognition of outstanding achievement accorded to the graduates of the University who had achieved the highest rank/ appointment in their respective Service. Prior to joining MHB, Tan Sri Ismail has served as a Commission Officer in the Malaysian Army for 36 years and he held many key appointments at Field Command, Training Command and the Ministry of Defence levels before retiring as Chief of Army in December 1997. Currently, he also holds directorships in Simbiotik Ventures Sdn Bhd and Alfa Venture Sdn Bhd. TAN ENG PIOW Group Managing Director Tan Eng Piow, aged 64, was appointed as Group Managing Director of MHB on 9 September 1994. He is one of the founding members of Pembinaan Mitrajaya Sdn Bhd. He holds a Bachelor of Civil Engineering (Honours) degree from University of Malaya, which was obtained in 1977. He is also a Member of the Institution of Engineers Malaysia. He began his career as Works Engineer with Jabatan Kerja Raya – JKR (Public Works Department) from 1977 to 1979. From 1980 till 1985, he was a Project Manager with Perkuat Kuari Sdn Bhd (Quarry Operation). He has over 35 years of extensive technical and management experience in the construction industry and has been actively involved in the management and operations of the MHB Group. He also oversees the Group’s development, growth and expansion. FOO CHEK LEE Executive Director Foo Chek Lee, aged 63, was appointed a Director of MHB on 1 August 1995. Currently, he is an Executive Director of MHB. He is also the Managing Director of Pembinaan Mitrajaya Sdn Bhd. He graduated from University Technology Malaysia in 1978 with a Bachelor of Civil Engineering (Honours) degree. Prior to joining MHB, he served with Jabatan Kerja Raya (Public Works Department) for a period of 14 years. He last served as Assistant Director of Roads, JKR Kelantan Darul Naim from 1989 to 1991, after which he joined Pembinaan Mitrajaya Sdn Bhd as General Manager. He has over 35 years of extensive technical and management experience which includes all aspects of civil engineering construction and project management. He is a board member of Construction Industry Development Board (CIDB) and NIOSH Certification Sdn Bhd. He also serves as President of Master Builders Association Malaysia and Council Member for both International Federation of Asian and Western Pacific Contractors’ Associations (IFAWPCA) and Asean Constructors Federation (ACF). CHO WAI LING Executive Director Cho Wai Ling, aged 45, was appointed as an Executive Director of MHB on 1 September 2014. She graduated from University of Malaya in 1998 with a Bachelor of Accountancy (Honours) degree and has been a member of the Malaysian Institute of Accountants since 2001. She started her career with MHB in 1999 as an Executive in the Finance & Accounts Department and rose from rank and file to managerial position and in 2005 was promoted to Group Finance Manager. She heads the Finance & Accounts Department and handles all corporate matters of the Group. In her position as Executive Director, her role was expanded to cover investor relations function and to assist the Group Managing Director on strategic management responsibilities. 006
8. ANNUAL REPORT 2017 mitrajaya holdings berhad DIRECTORS ’ PROFILE (cont’d) TAN SRI DATO’ SERI MOHAMAD NOOR BIN ABDUL RAHIM Independent Non-Executive Director Tan Sri Dato’ Seri Mohamad Noor Bin Abdul Rahim, aged 73, was appointed as Independent Non-Executive Director of MHB on 26 February 2002. He is the Chairman of the Audit Committee and the Nomination and Remuneration Committee. He graduated with a Bachelor of Arts (Honours) from University of Malaya and joined the Malaysian civil service in 1968. He has held positions in the Government including State Secretary of Pulau Pinang, Kelantan Federal Development Director (Prime Minister’s Department), Perak State Financial Officer, Director General of Kuala Lumpur City Hall, Under Secretary for Ministry of Defence and Ministry of Finance and Secretary General of Ministry of Domestic Trade and Consumer Affairs. His last post in the civil service was as the Secretary General of the Ministry of Home Affairs from 1998-2000. Currently, he is Chairman of Prinsiptek Corporation Bhd and TSR Capital Berhad. He is also Independent NonExecutive Director of Pinehill Pacific Bhd. He is currently the President of the Malaysian Petanque Association and Council member of the Malaysia Golf Association. IR ZAKARIA BIN NANYAN Independent Non-Executive Director Ir Zakaria Bin Nanyan, aged 75, was appointed as Independent Non-Executive Director of MHB on 26 February 2002. He is also a member of the Audit Committee and the Nomination and Remuneration Committee. He graduated with B.Sc in Mechanical Engineering from the University of Strathclyde U.K. in 1972 and later obtained Masters of Science in Industrial Hygiene from the University of Pittsburgh USA. He is a Professional Engineer and a Member of The Institution of Engineers Malaysia. Prior to his appointment to the MHB Board, he was the Director General of the Department of Occupational Safety and Health Malaysia, a position held from 1992 to 1998. He holds directorships in Pressure Care Sdn Bhd. He is currently serving as Chairman of the Board of Examiners for the Site Safety Supervisors Course conducted by The Master Builders Association Malaysia. ROLAND KENNETH SELVANAYAGAM Independent Non-Executive Director Roland Kenneth Selvanayagam, aged 61, was appointed an Executive Director on 23 April 1998. From 1 July 2008, he was redesignated as Non-Executive Director as he left full time employment to start his own business. On 28 March 2011 where having met the Listing Requirements criteria for Independent Director, the Board re-designated him to be an Independent Non-Executive Director of the Company. He is also a member of the Audit Committee. He is a professionally qualified accountant with over 35 years post qualifying commercial experience. Prior to his involvement with the MHB Group, he was employed variously within the British American Tobacco Group, Sears Roebuck Group and the PT Mayora Indah Group – where he was the pioneer General Manager for their Malaysian operations. He was President of the Malaysian Division of the Chartered Institute of Management Accountants from June 1996 - May 1998. He is a recipient of the Institute’s Bronze medal – awarded in recognition of services rendered to the Institute and the profession at large. At various times, he has held directorships (listed & unlisted companies) in various countries including South Africa, Sri Lanka, Singapore, Thailand and Australia. Notes: - All Directors of MHB are Malaysian and do not have any conflict of interest with MHB. - They have not been convicted for offences within the past five (5) years other than traffic offences, if any. - There is no family relationship amongst the Directors and major shareholders of MHB. 007
9. mitrajaya holdings berhad ANNUAL REPORT 2017 5 YEARS FINANCIAL HIGHLIGHTS Financial Year Ended 31 December 2017 2016 2015 2014 2013 Revenue RM ’000 1,164,202 966,171 890,731 520,205 338,444 - Construction RM’000 994,208 845,573 767,225 370,674 215,006 - Property Development RM’000 144,899 89,641 55,186 98,718 82,254 - South Africa Investment RM’000 24,696 30,957 39,283 22,438 17,293 - Others RM’000 399 - - - - - Healthcare RM’000 - - 29,037 27,317 20,624 - Manufacturing and Trading RM’000 - - - 1,058 3,267 Profit Before Taxation RM’000 101,930 160,132 124,876 72,482 40,296 Profit After Taxation RM’000 72,849 121,266 86,969 53,285 28,652 Profit Attributable to Owners of the Company RM’000 80,350 118,683 86,575 53,769 29,316 Share Capital RM’000 381,213 334,862 321,085 198,766 198,766 Total Assets RM’000 1,394,193 1,236,873 1,020,952 639,857 560,044 Shareholders’ Funds RM’000 687,672 618,558 500,500 394,418 349,655 Total Borrowings RM’000 323,529 254,937 162,480 102,011 81,613 Cash and Bank Balances RM’000 25,760 58,180 39,831 23,919 19,101 Gearing Ratio % 47.05 41.21 32.46 25.86 23.34 Net Gearing Ratio % 43.30 31.81 24.51 19.80 17.88 Basic Earnings Per Share sen 11.85 18.10 13.85 13.64 7.43 Net Assets Per Share sen 109 92 78 99 88 Net Dividend Per Share sen 2.00 5.00 5.00 5.00 2.00 Year High RM 1.46 1.47 2.08 1.17 0.58 Year Low RM 0.74 1.02 0.80 0.47 0.40 Share Performance 0.97 1.26 1.20 0.98 0.51 Trading Volume Shares (’000) 375,061 358,233 593,906 771,360 114,423 Market Capitalisation RM’000 668,797 843,850 770,603 389,581 200,754 Year Close 008 RM
10. ANNUAL REPORT 2017 mitrajaya holdings berhad 5 YEARS FINANCIAL HIGHLIGHTS (cont’d) 2013 2015 2013 2017 2016 40,296 2013 2016 2015 560,044 2014 2013 BASIC EARNINGS PER SHARE (SEN) 2014 2013 2017 7.43 11.85 349,655 13.85 18.10 2015 394,418 500,500 618,558 687,672 SHAREHOLDERS’ FUNDS (RM’000) 2017 2014 639,857 1,394,193 2014 29,316 53,769 2016 2015 13.64 2017 2016 TOTAL ASSETS (RM’000) 86,575 80,350 118,683 PROFIT ATTRIBUTABLE TO OWNERS OF THE COMPANY (RM’000) 72,482 101,930 2017 1,020,952 2014 124,876 160,132 2015 1,236,873 2016 338,444 520,205 2017 PROFIT BEFORE TAXATION (RM’000) 890,731 966,171 1,164,202 REVENUE (RM’000) 2016 2015 2014 2013 009
11. mitrajaya holdings berhad ANNUAL REPORT 2017 CHAIRMAN ’S STATEMENT On behalf of the Board of Directors, I would like to present the Annual Report and Financial Statements of Mitrajaya Holdings Berhad (“the Company” or “MHB”) and its subsidiary companies (“the Group” or “Mitrajaya Group”) for the financial year ended 31 December 2017 (“FYE 2017”). OVERVIEW Revenue for the financial year ended 31 December 2017 crossed the RM1.0 billion mark for the first time, hitting a record high of RM1.16 billion. This is an increase of RM198.03 million from the revenue of RM966.17 million in the preceding financial year (“FYE 2016”). The Construction Division continue to be the major revenue contributor as it brought in 85.4% (FYE 2016: 87.5%) of the Group’s revenue. While the Group saw growth of 20.5% in revenue, the bottom line retreated by 36.3% to RM101.93 million in FYE 2017 from the Group’s profit before tax (“PBT”) of RM160.13 million in FYE 2016. This was due to the lower margin contracts undertaken and higher operating cost. The Construction Division contributed PBT of RM42.56 million, 41.8% of Group’s PBT in FYE 2017 as compared to its previous year’s contribution of 68.5%. In FYE 2017, the Property Division increased its PBT contribution from RM26.61 million to RM48.42 million, 47.5% of Group’s PBT. In FYE 2016, the Property Division contributed only 16.6% of Group’s PBT. Our property projects in South Africa continue to make a lower contribution to the Group’s earnings in FYE 2017. This division contributed RM24.70 million, 2.1% (FYE 2016: 3.2%) of Group’s revenue and PBT of RM8.88 million, 8.7% (FYE 2016: 9.5%) of Group’s PBT in FYE 2017. 010
12. ANNUAL REPORT 2017 mitrajaya holdings berhad CHAIRMAN ’S STATEMENT (cont’d) DIVIDEND The Board is pleased to recommend a first and final single tier dividend of 2 sen per ordinary share for the FYE 2017 to be approved at the forthcoming Annual General Meeting by the shareholders. The estimated dividend payment based on the enlarged share capital after issuance of the Rights and Bonus Shares will amount to RM17.91 million. This year’s approximate payout ratio of 22% is slightly lower than the previous year’s ratio of 29% as the Board decided to focus on the future growth. CORPORATE DEVELOPMENT On 13 October 2017, the Company announced a corporate proposal of a renounceable rights issue of up to 157,483,898 new ordinary shares (“Rights Shares”) on the basis of one (1) Rights Share for every five (5) existing MHB ordinary shares, together with up to 78,741,949 free detachable warrants (“Warrants E”) and an attached bonus issue of up to 78,741,949 new ordinary shares (“Bonus Shares”) on the basis of one (1) Warrant E and one (1) Bonus Share for every two (2) Rights Shares subscribed (“Rights Issue Exercise”). This Rights Issue Exercise is expected to enhance capital base of the Company, and at the same time Bonus Shares and free Warrants E are expected to provide, an incentive to the entitled shareholders subscribing to the Rights Shares. The bonus issue of new ordinary shares was by way of utilising the credit amount in the share premium account and retained profits. The new ordinary shares and Warrants E (2018/2023) were issued and listed on Bursa Malaysia Securities Berhad on 25 April 2018. The estimated net proceeds from the Rights Issue Exercise of RM79.64 million after netting off Rights Issue Exercise expenses will be utilised for repayment of bank borrowings of our wholly-owned subsidiary, Pembinaan Mitrajaya Sdn Bhd (“PMSB”). This will effectively reduce PMSB’s gearing ratio and position PMSB to a better footing for bidding and undertaking future projects. MARKET OUTLOOK AND PROSPECTS The outlook for the Construction sector in the first half of 2018 is expected to be challenging. The rolling out of new projects from both public and private sector are very slow as a consequence of the 14th General Election. Nevertheless, Mitrajaya Group remains positive to secure some new projects in the second half of 2018. Apart from building projects, we are looking forward to secure some packages of the infrastructure projects such as the East Coast Rail Link and KL- Singapore High Speed Rail project. The Malaysian property market outlook in 2018 will continue to be soft in view of a great mismatch between the demand and supply of residential units as well as office space in the country. As such, the Board will be cautious when planning our future upcoming property projects. We will focus on undertaking affordable housing developments to meet current market demand. Our property development in South Africa is expected to make a lower contribution in 2018 and 2019 as nearly all the bungalow lots in the current development project have been sold whilst the on-going development plan to build and sell the bungalow houses on the remaining residential land is at the initial stages and approvals from the various authorities will take some time to come in. We are of the view that our new products of bungalow houses and serviced apartment to be built within the gated and secured residential housing estates will be of great demand to the local market there. ACKNOWLEDGEMENT On behalf of the Board, I would like to express our appreciation to the management team and employees for their commitment and dedication. Also our appreciation to our shareholders, business associates, clients, bankers and various government agencies for their continued support. My appreciation is also extended to my fellow Board members for their guidance and counsel. GENERAL TAN SRI ISMAIL BIN HASSAN (R) Independent Non-Executive Chairman 011
13. mitrajaya holdings berhad ANNUAL REPORT 2017 MANAGEMENT ’S DISCUSSION AND ANALYSIS OVERVIEW The following commentary and analysis of the consolidated results of the operations and financial information of Mitrajaya Holdings Berhad (“Mitrajaya” or “the Company”) should be read in conjunction with the Company’s financial year ended 31 December 2017 (“FYE 2017”) consolidated financial statements and notes. Mitrajaya Group’s revenue increased by RM198.03 million (20.5%) to RM1.16 billion for FYE 2017 as compared to RM966.17 million in the previous financial year. The increase was mainly due to the higher recognition of work progress in the Construction division by RM148.64 million and increase of revenue in the Property division by RM55.26 million. However, the Group’s profit before tax (“PBT”) declined by RM58.20 million (36.3%) from RM160.13 million to RM101.93 million in FYE 2017. The Construction division has contributed a significantly lower PBT of RM42.56 million. This is RM67.10 million (61.2%) reduction as compared to FYE 2016. Correspondingly, profit after tax (“PAT”) showed a reduction of RM46.90 million (39.2%) to RM72.85 million from RM119.75 million in FYE 2016. During the FYE 2017, the Group’s revenue included a compensation sum of RM15.95 million (FYE 2016: RM19.59 million) received from the compulsory land acquisition of our project land located at Mukim Pengerang, Johor. This compulsory land acquisition contributed a profit after tax of RM10.60 million to the Group in FYE 2017 (FYE 2016: RM13.40 million). If the one-off item was excluded, the Group’s PAT would have been RM62.25 million, RM44.10 million (41.5%) lower as compared to the previous year’s PAT of RM106.35 million. The Group had acquired a substantial number of construction equipment for a total amount of RM132.8 million during FYE 2015 and 2016. In FYE 2017, the Group’s capital expenditure (“CAPEX”) was lower at RM25.36 million as most of the CAPEX requirements had been fulfilled in the previous years. Presently, our CAPEX requirement will be incurred on a need basis for newly secured construction projects. Based on the 2-year hire purchase tenure, the outstanding hire purchase financing has reduced substantially from RM56.12 million to RM33.01 million as at 31 December 2017. As at the end of 2017, the Group’s borrowings of RM323.53 million saw an increase of RM68.59 million (26.9%) from RM254.94 million as at 31 December 2016. The net gearing ratio increased from 0.32 times to 0.43 times as at 31 December 2017. The increase in borrowings was mainly due to higher amounts of short term borrowings drawndown to finance on-going projects. As at 31 December 2017, the Group’s cash reserves reduced from RM77.78 million in the previous year to RM25.76 million. The cash reserves were utilised for payment of land acquisitions of 335.53 acres for consideration of RM185.42 million under the joint venture agreement entered with Gema Padu Sdn Bhd in February 2017. Mitrajaya’s commitment is 60% of the total land value for an amount of RM111.25 million. Total cash outlay of approximately RM60 million was paid in FYE 2017 after partial settlement from properties purchased by the vendors and setting off construction cost of infrastructure projects for the vendors. The current ratio as at 31 December 2017 has reduced slightly to 1.61 times from 1.68 times as at the end of the previous financial year end. 012
14. ANNUAL REPORT 2017 mitrajaya holdings berhad MANAGEMENT ’S DISCUSSION AND ANALYSIS (cont’d) FORWARD-LOOKING INFORMATION The information in this Management’s Discussion and Analysis includes certain forward-looking statements. Although these forward-looking statements are based on currently available competitive, financial and economic data and operating plans, they are subject to risks and uncertainties. In addition to general economic events outside Mitrajaya’s control, there are factors which could cause actual results, performance or achievements to vary from those expressed or inferred herein including risks associated with an investment in the shares of Mitrajaya and the risks related to Mitrajaya’s business. Risk factors are discussed in greater detail in the section on “Risk Factors” later in this MD&A. Forward looking statements include information concerning possible or assumed future results of Mitrajaya’s operations and financial position, as well as statements preceded by, followed by, or that include the words “believes”, “expects”, “anticipates”, “estimates”, “projects”, “intends”, “should” or similar expressions. Other important factors, in addition to those discussed in this document, could affect the future results of Mitrajaya and could cause its results to differ materially from those expressed in any forward-looking statements. Mitrajaya assumes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. OPERATIONS REVIEW Construction Division The Group’s core business, Construction division has further increased its revenue contribution by RM148.64 million (17.6%) to RM994.21 in FYE 2017 from RM845.57 million in the previous financial year. However, this division has contributed a significant lower profit before tax (“PBT”) of RM42.56 million in FYE 2017 as compared to RM109.66 million recognised in FYE 2016. This was mainly due to lower profit margins from our on-going construction projects and additional costs incurred for compliance to the stringent construction requirements imposed by PETRONAS on the infrastructure facilities at the Pengerang Integrated Complex project. As a result thereof, the gross profit eroded by RM71.14 million (46.9%) from RM151.64 million (gross margin: 17.9%) to RM80.50 million (gross margin: 8.1%) in FYE 2017. Residensi 22 consisting of 2 blocks of 40-storey and 39-storey condominiums This division completed and handed over the following major projects during FYE 2017: a) MACC Headquarters in Precinct 7, Putrajaya b) Residensi 22 at Mont Kiara, Kuala Lumpur; and c) Infrastructure works for Pahang Technology Park, Gambang During the FYE 2017 and early 2018, PMSB successfully replenished approximately RM1.0 billion worth of orders by securing the following major projects: a) A Centre of Excellence in Kuala Lumpur for STF Resources Sdn Bhd b) Asia School of Business Residential Buildings for ASB Management Sdn Bhd c) Asia School of Business Academic Buildings for ASB Management Sdn Bhd d) 35 stories of condominiums at Precinct 15, Putrajaya for Setia Putrajaya Sdn Bhd; and e) 404 units of public apartments for Perumahan Penjawat Awam 1 Malaysia (“PPA1M”) at Precinct 17, Putrajaya for Putrajaya Homes Sdn Bhd. We expect the Construction division to continue driving the revenue of our Group on the back of the current strong order book. As at 31 March 2018, our Construction division’s order book is approximately RM1.66 billion, of which approximately RM1 billion new contracts were secured in 2017 and in January 2018, and this will provide earnings visibility for the next two (2) years. 013
15. mitrajaya holdings berhad ANNUAL REPORT 2017 MANAGEMENT ’S DISCUSSION AND ANALYSIS (cont’d) OPERATIONS REVIEW (CONTINUED) Local Property Development Division The Property development division contributed a higher revenue of RM144.90 million in FYE 2017. It represents an increase of RM55.26 million (61.6%) compared to RM89.64 million in FYE 2016. Consequently, profit before tax increased by RM21.81 million (82.0%) from RM26.61 million to RM48.42 million in FYE 2017. The improvement in the financial performance was mainly due to higher revenue recognition from the Wangsa 9 Residency project. Besides this, the division also recognised an additional compensation sum of RM15.95 million (FYE 2016: RM19.59 million) for the compulsory acquisition of our project land held in Pengerang, Johor. This one-off transaction contributed a PBT of RM13.96 million in FYE 2017 (FYE 2016: RM17.63 million). If this one-off transaction was excluded from both financial years, this division would have reported revenue of RM128.95 million for FYE 2017, RM58.89 million (84.1%) higher than the previous year’s revenue of RM70.05 million. With the finance cost lowered by RM4.01 million from RM7.94 million to RM3.93 million in FYE 2017 and coupled with a slightly better profit margin from the on-going development projects, the PBT increased by RM25.48 million (283.9%) from RM8.98 million to RM34.45 million in FYE 2017. Wangsa 9 Residency The Wangsa 9 Residency project comprises of 3 tower blocks of 565 units of high-rise condominiums with an estimated Gross Development Value (“GDV”) of RM744.61 million. The development which is situated at a strategic location in Kuala Lumpur, right opposite the Wangsa Walk and within close proximity to the Sri Rampai LRT Station was launched in 2014. Phase 1 consisting of Block B & C (338 units) has a take up rate to-date of 72.8%. Current unbilled sales stands at RM120.84 million. We expect significant contribution will be recognised from phase 1 in FYE 2018 as it is in the advanced construction stage now and expected to be handed over to purchasers in early 2019. Furthermore, we have just launched the final block (Block A) consisting of 227 units recently. The show units and mock-up units as well as the outdoor facilities such as the mini water theme park, children’s playground situated at the podium level are ready and open for viewing. Block B&C in advanced construction stage Affordable Homes “Rumah Selangorku” – Pangsapuri Akasia In line with the Selangor State Government’s commitment to build more affordable homes in Selangor, Mitrajaya has launched an affordable home development under the “Rumah SelangorKu” programme at Puchong Prima. This development, comprises of 408 units of apartments with selling price fixed by the Lembaga Perumahan dan Hartahan Selangor (LPHS) at RM180,000 for a basic unit with a built up area of 900 sq ft. All the units have been taken up and the current unbilled sales standing at RM61.00 million is expected to be recognised during 2018 and 2019. The expected completion date for this project is first quarter of 2020. Kiara 9 Residency (Completed in July 2011) During the financial year 2017, this completed project consisting of high-end condominiums and garden villas had sold 6 units and contributed a revenue of RM13.13 million (FYE 2016: RM18.87 million – 9 units). The unsold units have reduced to 22 units to-date. The current soft local property market and capital control imposed by the Chinese government has seriously affected the sales of the balance of the completed units. There were no new sales concluded in the second half of 2017. Nevertheless, we are working on various promotion package with property agents to boost sales and managed to conclude one new sale in January 2018. 014
16. ANNUAL REPORT 2017 mitrajaya holdings berhad MANAGEMENT ’S DISCUSSION AND ANALYSIS (cont’d) OPERATIONS REVIEW (CONTINUED) 280 Park Homes (Completed in April 2016) This project consists of 11 blocks of 280 units of 6-storey duplex apartments with lifts, within a gated and guarded complex with clubhouse facilities. This project sold 4 units in 2017 and recognised revenue of RM3.88 million in FYE 2017. Total sales to-date is 116 units equivalent to a 41.4% take up rate. The low take-up rate is mainly due to the remaining units are of larger sizes, ranging from 2,529 sq ft to 4,370 sq ft per unit. This has resulted in a high absolute selling price of at least RM800,000 per unit. The Division is undertaking aggressive marketing strategies such as attractive promotion packages, rent-to-own schemes and marketing events to boost sales. 280 Park Homes - Chinese New Year marketing event Compulsory land acquisition – Pengerang, Johor In relation to the Rapid Project and the massive development coming up in Pengerang, Johor, the Johore State Government imposed a compulsory land acquisition on additional 2 lots measuring 1,327.06 sqm for RM1.77 million in FYE 2017. This has made the total lots acquired 124 lots (out of a total 198 lots). We have accepted the compensation sum offer under objection and registered our objection to the sum offered. The compensation sum offered was RM33.22 million and full payment was received in FYE 2017. Besides this, the High Court has awarded additional compensation sum for 123 lots. Proposed Mixed development project – Puchong Prima An upcoming project is the mixed development located in Taman Puchong Prima, Selangor. The development comprises of a retail mall, offices, service apartments and affordable service apartments on a 14.5 acre freehold, commercial land. This Transit Adjacent Development (TAD) will be directly connected to a LRT station via a fully covered pedestrian link bridge. We target to submit for Development Order by first half of 2018 and to commence earthworks by end of 2018. The GDV for this project is approximately RM 1 billion. We are conscious of the current slowdown of the retail, office and property market and as such we had reviewed the project to align it with the current economic sentiments for more affordably priced housing. We will also be utilising the office space for our new Corporate Headquarters. Further, concept for the retail mall will be a neighbourhood mall as there is a sizable catchment from the surrounding matured township of Taman Puchong Prima as well as from close to 3,000 apartment units within the development itself. New land acquisition In early 2017, the Group entered into a joint venture with Gema Padu Sdn Bhd for the acquisition of land comprising 335.53 acres for RM185.42 million strategically located in the prime location of Kuala Lumpur’s southern corridor development. Mitrajaya’s commitment is 60% of the total land value for an amount of RM111.25 million. The Group will continuously review the market conditions for the planning of the development projects for these land. Property Development in South Africa Our overseas property project in South Africa, Blue Valley Golf & Country Estate, has contributed lower revenue and profits for the FYE 2017. This Division reported a revenue of RM24.70 million, a reduction of RM6.26 million (20.2%) as compared to RM30.96 million reported in the previous financial year. Correspondingly, profit before tax also decreased by RM6.27 million (41.4%) from RM15.15 million to RM8.88 million for FYE 2017. This Division reduced its contribution to the Group’s earning since FYE 2016 as limited vacant bungalow lots were available for sales since 2016. All the vacant bungalow lots were fully sold in FYE 2017. 015
17. mitrajaya holdings berhad ANNUAL REPORT 2017 MANAGEMENT ’S DISCUSSION AND ANALYSIS (cont’d) OPERATIONS REVIEW (CONTINUED) Property Development in South Africa (Continued) We expect this Division will have a lower contribution to the Group’s earnings for 2018 and 2019 because during this period, the Division will be in its planning and regulations approval stages for building 260 units of bungalow houses and target for completion progressively from 2019 until 2022. Since 2014, this Division has embarked on building houses instead of just selling the lots as land parcels. To date, there are 21 units of bungalow houses sold out of 22 completed units. There will be another 18 units to be completed in the third quarter of 2018. Neighbourhood shopping mall In respect of the commercial development, the construction of the neighbourhood shopping mall was completed recently and it will start operation and generate recurring rental income in May 2018. The Division is working on the planning approval for the proposed development plan for high-end serviced apartments and an office block. Its contribution will only be seen in the subsequent years. For the 215 acres of land acquired in 2015, we are currently working on the initial planning stage of a development of an Eco Park Residential Estate, with at least 3,000 units of medium to high density cluster/apartment homes. This will further strengthen our position and ensuring continuity of our operations in South Africa. RISK FACTORS (a) Risk relating to Construction Division (i) The Malaysian construction industry is highly competitive, and our Group faces intense competition from various construction companies, both local and international companies. Competitive position is based on various factors such as pricing, financial position and strength, ability to obtain adequate financing, reputation for safety, quality and track record for timely completion of project. Due to such competitive pressures, our Group’s financial performance may be affected by highly competitive pricing in the process of securing a construction contract. This may, in turn lead to lower project profit margin and hence, lower profitability to our Group. Furthermore, some of the new construction contracts payments are based on a longer milestone payments. As such, we would require a higher capital outlay at the initial stage of the project and hence, this would increase the finance cost of the project and reduce our competitiveness in pricing the tender bids. (ii) Delay in the completion of projects 016 Competition from other construction players Timely completion of construction projects is dependent on many external factors, some of which may be beyond the control of our Group such as obtaining various regulatory approvals as scheduled, sourcing and securing quality construction materials, weather conditions and satisfactory performance of our sub-contractors who are appointed to complete the construction or development projects. Any failure or delay in completing the projects within the timeframe agreed with our customers may expose our Group to additional cost and potential claims which may impact our profitability. Such claims may also affect our Group’s reputation and financial performance. (iii) Cost Overrun Our Group carries out internal cost and budgeting estimates of raw material, labour costs, sub-contracting costs and overheads based on the indicative pricings given by our suppliers and subcontractors, as well as our own estimates of costs for tender for construction projects. As our construction contracts usually take up to 3 years to complete, we are subject to unforeseen circumstances during the contract period which may cause project cost to overrun such as fluctuation in prices of raw materials, increase in minimum wages of foreign workers, increase in prices of subcontractor service, unfavourable weather conditions or unanticipated construction constraints at the worksite or, additional costs which are not previously factored into the costing, may arise.
18. ANNUAL REPORT 2017 mitrajaya holdings berhad MANAGEMENT ’S DISCUSSION AND ANALYSIS (cont’d) RISK FACTORS (CONTINUED) (a) Risk relating to Construction Division (Continued) (iv) Defect liability Our construction contracts commonly stipulate a defects liability period for work done of up to 24 months from the date of official hand-over of the completed projects, depending on the nature of the contract. This makes the contractor liable for the work carried out and for any repairs, reconstruction or rectification of any faults or defects which may surface or be identified during the defects liability period. Nevertheless, by working closely with our customers to ensure the work specifications are met, coupled with the experience and expertise of our Group, we aim to reduce the defects of our works to a minimal level. (b) Risk related to Property Development Division (i) Performance of the property market Our property development business is largely dependent on the performance of the property market in Malaysia. Any material developments affecting the property markets such as changes in demographic trends, employment and income level, economic uncertainties, the deterioration in property demand and the property rental market may have an impact on our business operations and financial performance. Furthermore, the performance of the property market is also affected by the regulatory environment. The Government has introduced several cooling measures to curb speculation in the property market in its effort to promote a more stable and sustainable property market as follows:- (1) Real Property Gains Tax (“RPGT”) was reinstated in 2010. The effective maximum RPGT rates were raised 5% in 2010 to 30% in 2014; (2) Prohibition of acquisition by foreigners of properties valued less than RM500,000 per unit, which threshold was revised upwards to RM1,000,000 under the Guideline on the Acquisition of Properties issued by the Economic Planning Unit of the Prime Minister’s Department (which was effective 1 March 2014); (3) In 2010, BNM announced a maximum loan-to-value ratio of 70% for third home purchases by consumers; and (4) Banks can no longer provide financing for projects with developer interest bearing scheme, wherein interest payments on the loan obtained by the buyers are borne by the property developers until the property has been completely constructed. Any further introduction of cooling measures by the Government as well as tightening of lending criteria by the banks may lead to an imbalance of supply of, and demand for properties in Malaysia which can cause property overhang. As such, the above measures may affect the demand for our properties which in turn may negatively impact our property development business. (ii) Scarcity of commercially viable land banks for development We rely to a large extent on our existing land bank, as well as on our ability to identify and acquire suitable land banks with development potential to deliver sustainable growth and profitability. However, we also face competition from other property developers in identifying and acquiring strategically located land banks at commercially viable prices. The competition among industry players has to a certain extent, created scarcity for strategically located land. This may result in higher land acquisition cost, which may potentially affect our profitability and prospects. 017
19. mitrajaya holdings berhad ANNUAL REPORT 2017 MANAGEMENT ’S DISCUSSION AND ANALYSIS (cont’d) RISK FACTORS (CONTINUED) (b) Risk related to Property Development Division (Continued) (ii) Scarcity of commercially viable land banks for development (Continued) (iii) Competition risk Our Group experiences competition from other property developers in Malaysia. Competitive pressures may arise in terms supply of raw materials and labour, pricing of the property as well as the sale and marketing of the property. Future success will depend significantly on the ability of our Group to respond to the ever changing economic conditions and market demands, the launch of the property development projects of our Group and marketing strategies that will be able to fulfil the needs and requirements of the target markets of our Group. We expect to remain competitive despite the increased competition due to our established brand name, track record and promotional campaigns. Our Group will continue to take measures to mitigate competition risks such as conducting market intelligence surveys to understand home buyers’ needs, monitoring and adjusting development products and implementing innovative marketing strategies in response to changing economic conditions and market demands. While we seek to remain competitive in terms of pricing, design, quality and strategic marketing, there is no assurance that such measures can effectively mitigate the potential adverse effects of competition on our future financial performance and position. (iv) Project completion risk Timely completion and hand-over of our projects is critical in ensuring costs are contained and our Group’s reputation is safeguarded. However, delays in completion could result from unforeseen circumstances such as shortage of construction materials, adverse weather conditions, major labour disputes, unfavourable credit terms, delays in obtaining the necessary approvals from local authorities, major changes in local authorities’ approval policies and/or other unforeseen circumstances. If any of the abovementioned circumstances occur for a prolonged period, our Group may incur substantial additional costs such as liquidated and ascertained damages payable to purchasers, rectification costs to repair defects or higher material/labour costs and these may result in our financial performance being materially impacted. 018 There can be no assurance that we will be able to continue to identify new land banks on commercially viable prices and on suitable terms. In the face of competition, it would also be more challenging to secure opportunities to jointly develop lands with land owners on commercially viable profit sharing terms and with good development potential to spur our growth. (v) Compulsory land acquisition by the Government There is an inherent risk that our Group’s land held for development may be compulsorily acquired by the Government for public use or due to public interest. If all or any portion of our development or project lands are compulsorily acquired by the Government at any point in time, the amount of compensation paid to our Group may be less than the market value of the lands and/or the purchase consideration that we have paid in acquiring such lands. Accordingly, our Group’s business, financial condition, results of operations and prospects could be adversely affected.
20. ANNUAL REPORT 2017 mitrajaya holdings berhad MANAGEMENT ’S DISCUSSION AND ANALYSIS (cont’d) RISK FACTORS (CONTINUED) (c) Risks relating to the Group as a whole (i) Political, economic, market and regulatory risk Our property development business in Malaysia and South Africa is subject to the jurisdiction of various governmental agencies and/or ministries in Malaysia and South Africa. Any adverse developments in political, economic, regulatory and social conditions in Malaysia and South Africa where our Group operates could materially affect the financial and business prospects of our Group. Such uncertainties that could unfavourably affect our Group include changes in political leadership, war, economic downturn, changes in monetary and fiscal policy, changes in foreign currency regulations or introduction of new rules or regulations, financial crisis, expropriation, nationalisation, re-negotiation or nullification of existing contracts, changes in interest rates and methods of taxation. While we strive to continue to take precautionary measures such as implementing prudent business, financial and risk management policies, much of the above changes are beyond our Group’s control and there can be no assurance that any adverse developments will not materially affect the operational conditions and performance of our Group. MARKET OUTLOOK AND PROSPECTS Construction Division The construction sector is projected to grow 7.5% in 2018 (2017: 7.6%), primarily supported by the ongoing civil engineering infrastructure projects such as the East Coast Rail Link, MRT Sungai Buloh-Serdang-Putrajaya Line, Electrified DoubleTrack Gemas-Johor Bahru, Setiawangsa-Pantai Expressway, Pan Borneo Highway and Bokor Central Processing Platform. Meanwhile, the residential subsector is expected to expand further with several new planned township by private developers. In addition, the subsector will also benefit from various affordable housing programmes by the Government such as 1Malaysia Housing Projects for Civil Servants (PPA1M), MyBeautiful New Home and 1Malaysia People-Friendly Houses. On the contrary, the non-residential subsector is forecast to grow moderately following property overhang, particularly in the shop segment. Structural works at a cooling tower in RAPID Pengerang - SAFETY FIRST (Source: chapter 3, Economic Performance and Prospect, 2018 Economic Report, Ministry of Finance Malaysia) With our intention to adopt the latest construction technology especially for high rise building and infrastructure works, the Construction division is exploring various options in setting up the Industrialised Building System (“IBS”) in line with the Government’s initiative to make the IBS compulsory for building construction. By adopting the Building Information Modelling (“BIM”) with the aid of IBS, all of our construction projects will be managed in a more efficient and organised manner thus allowing for shorter construction time and reducing abortive work. Our Construction division has currently more than 30 employees in its engineering and BIM team. We believe that our adoption of BIM technology and investment in modernising the machineries and equipment will allow us to be more competitive in securing new projects. Leveraging on our track record in affordable housing development project and expertise as a total construction solution provider, we believe we are well-positioned to secure more projects in line with the Government’s initiatives to provide affordable housing which is expected to drive more tender invitations from the industry players. 019
21. mitrajaya holdings berhad ANNUAL REPORT 2017 MANAGEMENT ’S DISCUSSION AND ANALYSIS (cont’d) MARKET OUTLOOK AND PROSPECTS (CONTINUED) Local Property Development Division From the latest statistical report for 2017, the residential subsector continued to expand 4.7% supported by firm demand for affordable housing in choice locations with easy access. Housing starts rebounded significantly by 12.1% to 67,662 units. Condominium and apartments accounted for 42.9% of total housing starts in line with the increasing demand, especially for high rise units in major cities. However, the increase was offset by a decline in incoming supply at 3.4% to 485,433 units as developers were cautious in launching new projects to prevent accumulation of unsold properties. Likewise, new approvals declined 2.8% to 43,133 units as developers reviewed their future plans in response to market situation. In view of the challenges facing the Malaysian property market, the Group is now more cautious on new property project planning and launching. Furthermore, the Division is undertaking various aggressive marketing strategy to boost sales for our completed projects especially Kiara 9 Residency and 280 Park Homes. Property Development in South Africa After three years of slowing annual average house price growth, First Nation Bank (“FHB”) of South Africa forecasts that 2018 could see a slightly stronger growth rate, 5% as compared to 3.7% in 2017. However, it is much depend on the political and government policy environment, with 2018 being the run-up to the 2019 general election. From a housing perspective, the fact is there is a pent-up demand from a groundswell of aspirant buyers wanting to acquire a foothold in the property market, while others in the marketplace - both first-time buyers and existing homeowners - are seeking homes to buy or rent as career and lifestyle changes dictate a change in address. Living within a secure and gated housing estate has become increasingly popular in South Africa in recent years with residents appreciating the facilities, sense of community and high levels of security on offer. Our residential golf estate - Blue Valley Golf and Country Estate (“BVGCC”) - is highly ranked in South Africa and played host to the World Amateur Golf Tournament 2016. We are confident that our investment in South Africa to develop more residential units within BVGCC will continue to make a positive contribution to the Group. Acknowledgement On behalf of the management team, I would like to express my gratitude and sincere appreciation to our shareholders, various government departments, regulatory authorities, customers, bankers, consultants and business associates for their continued trust and support to the Group. I would like to thank our Board members and employees for their strong commitment and dedication towards the continued success of the Group. Tan Eng Piow Group Managing Director 020
22. ANNUAL REPORT 2017 mitrajaya holdings berhad Sales event in Wangsa 9 sales gallery Actual show units Mini water theme park Skate park 021
23. mitrajaya holdings berhad Actual show units 022 ANNUAL REPORT 2017
24. ANNUAL REPORT 2017 mitrajaya holdings berhad SUSTAINABILITY REPORT GROUP MANAGING DIRECTOR ’S MESSAGE Dear Shareholders, This Sustainability Report 2017 is our inaugural Sustainability Report. However, sustainability has always been Mitrajaya’s underlying priority in order to bring the Group to where we are today. In the short term, our goals are to meet all regulatory and standards compliance and also to meet our shareholders’ expectations. To date we are on track, as we have in place our integrated management system that drives our quality, environmental, and health and safety strategies and action plans. Among the significant events of the year was the successful completion and handover of the Malaysian AntiCorruption Commission (MACC) design and build project. As testimony to our commitment to quality, safety and health, Mitrajaya achieved awards in 2017, such as the Safety & Health Award in The Malaysian Construction Industry Excellence Awards 2017 for the MACC project, amongst others. Additionally, Mitrajaya was recognised in 2017 by HR Asia as one of the best companies to work for. For these and the other awards and recognitions we have received today we are grateful for the efforts of our dedicated management team and staff. As our first year of sustainability reporting, we are satisfied with being on target with our projects in meeting all regulatory and client compliance requirements. We are not sitting on our laurels and we aim for continuous improvements in years to come whereby we will meet our targets for medium and long term. In the medium term, Mitrajaya will aim to strengthen our Corporate Social Responsibility initiatives in order to fulfill our role as a responsible corporate citizen. For the long term, we strive to be the clients’ contractor of choice, the property developer of choice and the employer of choice. In this regard, our business strategies take into account the sustainability policies that govern the property development and construction industry. For instance, there is the Government policy that requires the establishment of Industrialised Building System (IBS) for construction work. This would produce less construction waste, with less labour required. We also note and take into account the Green Building initiatives on property development mooted by the authorities. The property and construction industry in Malaysia faces many other challenges and issues such as growing scarcity of prime land for development, rising costs of land and building materials, more stringent control on property loans and borrowings. The fluctuations of international policies and foreign exchange also affect the availability and costs of imported building materials. Notwithstanding these challenges, Mitrajaya moves forward into our sustainable future with confidence. Having our sustainable business strategies in place, with the continued energetic and dedicated efforts of our Board of Directors, our management team and our staff, we can assure our shareholders and investors that we will continue to deliver on sustainable opportunities for Mitrajaya Group and our stakeholders. Group Managing Director OUR SUSTAINABILITY PHILOSOPHY We believe that a business organisation, while in pursuit of profit, should fulfill its role as an agent of progress and discharge its moral and corporate responsibility for sustainability to society, employees and the environment. We strive to harmonise our precious human resources and the operating environment whereby professionalism, teamwork, total commitment and loyalty could be cultivated and nurtured to become our corporate culture and ethics. We are able to combine our resources and technology to create the synergy for the growth and sustainability over the years. Our track record has proven our ability to provide superior service to meet all the needs of our clients from initial planning to management of the completed project. 023
25. mitrajaya holdings berhad ANNUAL REPORT 2017 SUSTAINABILITY REPORT (cont’d) SCOPE OF REPORT In this inaugural Sustainability Report our sustainability performance, including achievements and challenges, over the period 1 January 2017 to 31 December 2017, are reported, together with highlights of related performances in the recent years that have brought us to where we are in our sustainability journey and status. Unless otherwise stated, the information within this report refers to Mitrajaya Holdings Berhad and its subsidiaries. This Sustainability Report 2017 is prepared according to the requirements of Bursa Malaysia, with incorporation of some core principles of the Global Reporting Initiative (GRI) G4 Guidelines. CORPORATE GOVERNANCE At Mitrajaya Holdings Berhad we continuously endeavor for good governance. This will steer us towards managing our business and operations more sustainably and enable us to fulfill our corporate social responsibility and the committees thereunder. Our Board of Directors and respective committees thereunder constantly review our strategic objectives in line with our commitment towards sustainability for improving performance and better results for the company and our shareholders. Increasingly, more sustainable practices are being implemented company wide, especially for operations at our project sites. We are committed to responsible governance, applying ethics and code of conduct at all levels. In this manner we strive for transparency, accountability and long-term stability to ensure compliance at all times to all regulatory corporate governance requirements. Through our governance structure, Mitrajaya is developing its sustainability strategy across the top management till every operational level from the economic, environmental and social perspectives. In this regard the driver for the sustainability strategy development and implementation is our Sustainability Committee. Members of the Sustainability Committee include: Chairman: Director Secretary: Integrated Management System (IMS) Representative Committee Members, comprising Senior Representatives for • • • • • Corporate Affairs Finance and Accounts Human Resources and Administration Projects Quality, Safety & Health The reporting structure for the Sustainability Committee is as below. Board of Directors Group Managing Director Sustainability Committee 024
26. ANNUAL REPORT 2017 mitrajaya holdings berhad SUSTAINABILITY REPORT (cont’d) Our Achievements In 2017, Mitrajaya was proud and honoured to be recognised for our achievements in health and safety practices at our project on the MACC Headquarters, through the following awards: MITRAJAYA ACHIEVES TOP HONOURS IN SAFETY & HEALTH Pembinaan Mitrajaya Sdn Bhd received The Safety & Health Award in The Malaysian Construction Industry Excellence Awards 2017 for the MACC Headquarters project. HEALTH, SAFETY & ENVIRONMENT RECOGNITION Pembinaan Mitrajaya Sdn Bhd was recognised by Putrajaya Holdings for the design and build project of the MACC Headquarters with two awards - ‘Gold Award for Excellent Achievement of 4 million man hours without Lost Time Injury (LTI)’ and ‘Achievement of Highest Merit Point for Year 2016, High Risk Project Category’. 025
27. mitrajaya holdings berhad ANNUAL REPORT 2017 SUSTAINABILITY REPORT (cont’d) BEST COMPANY TO WORK FOR IN ASIA 2017 BEST UNDER A BILLION AWARDS 2017 HR Asia has recognised Mitrajaya Holdings Berhad as one of the Best Companies to Work For in Asia 2017 (Malaysia edition). Mitrajaya Holdings Berhad was selected by Focus Malaysia, Best Under Billion Awards 2017 - Best Cash Flow from Operations. A PROUD ACHIEVEMENT IN 2017: COMPLETION OF THE MALAYSIAN ANTI-CORRUPTION COMMISSION OFFICE BUILDING DESIGN & BUILD PROJECT Pembinaan Mitrajaya Sdn Bhd successfully completed the MACC Headquarters design & build project. Risk Management The construction and property development industry typically consumes large amounts of resources and energy. This is due to impacts from upstream and downstream activities, namely from material extraction, product manufacturing and assembly, building structure, system maintenance, renovations and waste disposal. These activities contribute to the negative impact of construction and development projects to the environment. The main impact on the environment by the industry’s activities is its contribution to carbon dioxide (CO2) emissions, energy requirements, water usage, solid waste, raw materials consumption and electricity consumption. In addition, the industry generates pollutants that include noise, dust and gaseous emissions, solid wastes and wastewater. 026
28. ANNUAL REPORT 2017 mitrajaya holdings berhad SUSTAINABILITY REPORT (cont’d) Such impacts would affect the local economic, environmental and social dimensions of Mitrajaya’s products and services, and the local climatic conditions and variations. For instance, projects have been affected by floods, landslides, water shortages, polluted water sources, as well as safety and health incidences. The result could be project cost increase, project delays, health and safety issues, community issues, and in the worst case scenario, fatalities. In the light of such risks as mentioned above, Mitrajaya is therefore making every effort to ensure that mitigating measures are in place for every project in order to minimise its economic, environmental and social impacts. This is applied through its integrated management system (IMS) and operational procedures. STAKEHOLDER ENGAGEMENT In a stakeholder exercise with management we were able to identify our significant stakeholders and prioritise their issues as shown in the following matrices. These significant stakeholders are those who have most interdependence and most influence on our operations and activities. They include our Customers, our Employees, Our Board of Directors, Major Shareholders, Minor Shareholders, Assessors, Financiers and the Government agencies, as shown in the prioritisation matrix below. Stakeholders Prioritisation Matrix Stakeholder Influence on the organization Low Influence Some Influence High Influence High Dependence C, E, B, MS S, F, A G M, Y, N Low Dependence Stakeholder Dependence on the organisation No Influence X, MiS Legend B - Board Of Directors N - NGOs C - Customers F - Financiers E - Employees M - Media G - Government X - Communities MS - Majority Shareholders Y - Industry peers MiS - Minority Shareholders A - Assessors S - Suppliers 027
29. mitrajaya holdings berhad ANNUAL REPORT 2017 SUSTAINABILITY REPORT (cont’d) Stakeholder Engagement Methods Having identified our stakeholders, we have engaged with them in the following ways outlined below. • 028 Internal Stakeholders Engagement Methods Employees *Daily operations, *e-mail system, *Festival gatherings *Sports Club – ongoing *Company dinner *Townhall Shareholders *AGM *Media announcements *Annual Reports External Stakeholders Engagement Methods Government Agencies Local Authorities *Compliance and licensing, statutory requirements - ongoing Customers *Contractual engagement- ongoing *Daily operations, quotations, proposals ongoing *Festival gathering *Client Survey Financial Institutions/ Financial analysts *Regular meetings - ongoing *Annual Reviews • Industry Peers & Industry Associations *Standards Compliance, committees - ongoing *Training *Seminars & Conferences Students Scholarship recipients Local Communities *CSR initiatives Suppliers *Contractual engagement - ongoing *Daily Operations, quotations, proposals ongoing *Supplier evaluation Media *Product launch advertisement *Ad hoc interviews Assessors *Yearly audit *Project completion audit Note: Among its industry peers Mitrajaya actively participates as a member of the building industry community. In this respect, our Executive Director, Mr. Foo Chek Lee, is the current President of Master Builders Association of Malaysia for the term 2016/2018.
30. ANNUAL REPORT 2017 mitrajaya holdings berhad SUSTAINABILITY REPORT (cont’d) MATERIALITY Mitrajaya Holdings Berhad holds the views of our stakeholders to be important to our sustainability improvement efforts. Hence we have reviewed the materiality issues in conjunction with our stakeholders’ identification. In analysing our materiality issues, we have taken into account the concerns of our stakeholders as well as that of the Organisation’s vision and mission and strategic objectives, and these are outlined in the figure below. We have also referred to the Global Reporting Index (GRI G4 Guidelines) during the review. Our emphasis is thus on Occupational Safety & Health, Legal Compliance, Quality Control, Project Risk Management, Business Performance, Customer Satisfaction, Employee Development, Energy Conservation & Efficiency Improvement, Pollution Prevention & Management of Construction Waste. As far as possible these issues are addressed within this Sustainability Report. MATERIALITY MATRIX • • Diversity & Equal Employment Opportunity Human Rights • • • • • • • • Importance • • • • Local Hiring CSR Initiatives • Occupational Safety & Health Legal Compliance Quality Control Project Risk Management Business Performance Customer Satisfaction Employee Development Energy Conservation & Efficiency Improvement Employee Development Pollution Prevention & Management of Construction Waste Green Building Influence ECONOMY Market Presence Construction Division Through its principal subsidiary, Pembinaan Mitrajaya Sdn Bhd (PMSB), Mitrajaya Holdings Berhad has created a significant track record of successful projects in the construction and civil engineering-related arena. PMSB is not only an infrastructure contractor, but over the past 30 years has developed into a building contractor. Its major projects have included building construction, such as high-rise and low-rise Residential and Commercial buildings, Industrial buildings, as well as Institutional buildings for Education and Healthcare. PMSB has played a significant role in major national infrastructure projects, including the Kuala Lumpur International Airport (KLIA), KL’s Light Rail Transit System, the CyberJaya Flagship Zone, the Putrajaya Federal Administrative Centre, the East Coast Economic Region, the Iskandar Southern Development Corridor, Refinery and Petrochemical Integrated Development (RAPID) in Pengerang Johor, and many other projects. 029
31. mitrajaya holdings berhad ANNUAL REPORT 2017 SUSTAINABILITY REPORT (cont’d) Construction Division (Continued) Currently PMSB employs more than 500 employees across Malaysia, and over the years has accumulated assets comprising modern construction machineries and technologies, and has continued to build its capability in cutting edge construction methodologies and the pioneering field of 3D Building Information Modelling. “We believe in delivering our client’s every dream with passion, and that is our pride.” Local Property Development Division Under our Local Property Division, in striving for greater heights, Mitrajaya ventured into property development in 1999. Its first and flagship development was the 250-acre integrated township of Puchong Prima. This is a great example of a comprehensive master plan undertaken by Mitrajaya. This was a carefully planned township that strongly shows our strong commitment to developing a multi-faceted community and not just constructing buildings. Mitrajaya has also achieved Quality & Architectural Excellence through venturing into luxury residential development in the upmarket Mont’ Kiara area. Thus far Kiara 9 Residency has become a benchmark for luxury lifestyle in Kuala Lumpur. It showcases a 41-storey iconic condominium tower and 16 units of 3 ½ storey Garden Villas. Over the years, Mitrajaya has built a solid reputation as a property developer through the brand name Mitrajaya Homes that prides itself in providing quality products and value to its customers. Current projects include Wangsa 9 Residency in Wangsa Maju and Pangsapuri Seri Akasia in Puchong Prima, Selangor. International Division Blue Valley Golf & Country Estate has been the first international venture of Mitrajaya. It is located centrally to Johannesburg, the country’s Business Hub and Capital City, Pretoria and Sandton in South Africa. This successful development has a mixed development of Tuscan Themed Homes, Office Parks, Retail Development and Hotel, with a World Class 18 Hole Golf Course, designed by Gary Player. It embodies the South African affluent lifestyle estate living. Rated as one of South Africa’s TOP 100 golf courses, Blue Valley is testimony to the Group’s capability and expertise. This provides further stimulus for current and future international ventures. Indirect Economic Impacts One of the pillars of sustainable development is economy. While achieving our economic performance targets, Mitrajaya is committed towards the creation of sustainable indirect value and benefits through our economic activities. In our construction and development projects we use local raw materials as much as possible, including recycled construction materials. This helps to reduce our carbon footprint along our value chain. At the same time, it also brings more cost-effective economic benefits to our operations and contributes to the nation’s economic welfare and growth. We thus strengthen the local economy in the following ways: • Our operations and associated activities provide for new employment and job opportunities for people within the community. • Money is transacted and circulates within the local economy to increase wealth for local businesses. In hiring from the local talent pool this signals to our customers and stakeholders that we value our local citizenship in the locations of our operations. Thus we are invested in the growth and the well-being of our citizens, as well as the health of the local economy. In 2017 our total workforce stood at 695 staff. Our recycling and waste reduction programs effectively impact our company’s cost structure in a positive manner. Waste reduction and reuse can also reduce business costs for disposal, provide new sources of materials for the construction, and create local jobs. 030
32. ANNUAL REPORT 2017 mitrajaya holdings berhad SUSTAINABILITY REPORT (cont’d) Thus Mitrajaya is able to contribute both directly and indirectly to the country’s economic growth towards Vision 2020 and beyond. ENVIRONMENT As stated in our Mission, Mitrajaya is committed to exercising due care to the environment. This is a strong factor in providing timely and quality service to our customers. In our commitment we have incorporated a number of initiatives such as monitoring our usage of energy and water at our headquarters. We monitor for our environmental impacts in terms of air emissions, noise, and effluent discharge. We also have a strong commitment towards recycling or reuse of construction wastes at our project sites. At PMSB our integrated Quality, Environmental, Safety and Health Management System (QESHMS) guides and promotes continuous improvement in our practices in these areas. PMSB is certified for ISO 14001 and OHSAS 18001, as well as MS1722 Management System. Energy Since 2015 we had initiated the monitoring of electricity usage at our Headquarters (HQ) in Puchong Prima, Selangor. Referring to the chart, this will serve as the baseline for subsequent results in electricity usage in the years to come. The results over the 3 years showed a reduction in electricity usage per headcount of 31.7% from 2016 to 2017 as head count increased in 2017. Energy efficiency initiatives will be considered among future sustainability objectives, targets and activities at our HQ and at our project sites. Electricity Usage at Mitrajaya HQ, kwh/headcount 5,000 4,000 3,000 2,000 1,000 2015 2016 2017 Water At Mitrajaya’s HQ in Puchong Prima, water consumption monitoring has been initiated since 2015. The data collected so far forms the baseline for subsequent results in the years to come. Water monitoring is important in consideration of water supply and availability, and possible future recyclability. The chart on the left shows the data from 2015 to 2017 at the HQ. There was an increase in water consumption in 2017 to 11.65 m3 per headcount due to an increase of 18.2% in the number of staff compared to 2016, as well as increased facilities such as new pantries and renovations undertaken in 2017. The water consumption will be continuously monitored to consider opportunities for future water conservation efforts. Water Consumption at Mitrajaya HQ, m3/ headcount 15 10 5 2015 2016 2017 Air Emissions At the project sites we are concerned about the dust generated during the site preparation and construction period, as this can be a nuisance to our employees and contractors at site, as well as to the communities in the vicinity of the project site. In this regard we are required to monitor the Total Suspended Particulates (TSP) levels, as required according to project site job scope, which varies from site to site. Monitoring for Total Suspended Particulates at site 031
33. mitrajaya holdings berhad ANNUAL REPORT 2017 SUSTAINABILITY REPORT (cont’d) In 2017, monthly monitoring results for TSP at those projects sites required to conduct TSP measurement showed levels ranging from 26 to 93 μg/m3 from January until October. These results were well within the ambient air quality standard of 260 μg/m3 for TSP, and were thus in compliance with the standard. Measurements were undertaken using High Volume samplers. Noise Noise monitoring was also carried out at site as per specific client’s requirements over the periods of day and night for selected project sites. The results for those project sites that conducted noise monitoring ranged on average from 54.5 dB(A) to 62.7 dB(A) for day and 51.9 dB(A) to 55.0 dB(A) for night. The limits for noise are 65 dB(A) for day and 55 dB(A) for night. Hence the sites were in compliance with the ambient noise standards. The noise monitoring station at 17RM2 project site Effluent At the project sites where the project specifications include effluent streams, the discharge of effluent is subject to the Effluent Regulations under the Environmental Quality Act of Malaysia and has to meet the discharge standards. Monitoring is normally conducted three times over a project cycle, i.e. at the start of a project, midway through the project, and on project completion. Effluent discharges are monitored for Total Suspended Solids (TSS), Dissolved Oxygen (DO), Oil & Grease (O&G), pH, Biochemical Oxygen Demand (BOD5), Chemical Oxygen Demand (COD), E-Coli, and Ammoniacal Nitrogen (NH3-N). Discharges of effluent at site are often erratic, depending on the work cycle and work progress of the project, as well as size of project to accommodate living quarters for workers at site. Effluent discharges may also increase during the rainy days, or there may be no discharges during hot dry days, or when the work cycle does not use water. In 2017 samples were taken for discharges from August to October 2017 at various project sites. At these project sites the discharge quality was in compliance with Standard B Effluent Discharge Standards of the Fourth Schedule of the Environmental Quality (Industrial Effluents) Regulations 2009, as well as the Second Schedule of the Environmental Quality (Sewage) Regulations 2009. Effluent monitoring in progress at 17RM2 site Wastes According to SWCorp Malaysia’s strategic plan 2014-2020, it is estimated that 26,000 tons of construction waste are generated daily. The Construction Industry Development Board (CIDB) estimates that construction waste makes up 30% of total solid waste in Malaysia. In 2017, 11 out of the Mitrajaya’s 19 active project sites generated construction waste totaling more than 6,495 MT. The most active construction waste generating site was that of Contract Works for the Raffles American School in Nusajaya, Johor, which accounted for 28% of the year’s quantity. However, in 2016, there were only 9 project sites generating construction waste, that amounted to a total of 9,622 MT. The highest amount was recorded at the project site for the development of 2 blocks of condominium at Mont Kiara, Kuala Lumpur, which contributed 64% of the year’s construction waste. The construction waste also included timber and debris. 032
34. ANNUAL REPORT 2017 mitrajaya holdings berhad SUSTAINABILITY REPORT (cont’d) PEOPLE It is our corporate philosophy to cultivate and nurture professionalism, teamwork, total commitment and loyalty amongst our staff. We strive to harmonise our precious human resources and the operating environment which they work in. Our efforts towards our people have shown results and we are proud to be awarded as one of the Best Companies to Work For in Asia 2017 by HR Asia. Diversity & Equal opportunity Human resources are our valuable assets. As such, we do not discriminate against race, gender nor age. We hire based on who is best suited for the job from across the various ethnic groups found in Malaysia. The bulk of our employees who are construction workers belong to “Pembinaan Mitrajaya Sdn Bhd (PMSB).” 2016 Workforce by Ethnicity Malay 29% Foreign 55% As PMSB is in a hard-labour intensive industry, we have no choice but to look towards hiring foreign workers due to a lack of locals willing to work in this sector. Illustrated on the right and below is our Workforce by Ethnicity trend from 2015 to 2017. Others 1% Chinese 11% Indians 4% 2017 Workforce by Ethnicity 2015 Workforce by Ethnicity Malay 26% Malay 31% Foreign 46% Foreign 59% Chinese 11% Others 2% Indians 5% Chinese 16% Due to the nature of the work as described earlier, it is inevitable that more men than women are hired. We understand and appreciate the importance of having women in the workforce and strive to hire women wherever possible without discriminating against men. There has been a small increase in the female portion by 3% in 2017. Despite the small proportion of female staff, we have a female on our Board of Directors. The diagrams show our workforce by gender through 2015 to 2017. Others 1% Indians 3% 2016 Local Workforce by Gender Female 30% Male 70% 2015 Local Workforce by Gender 2017 Local Workforce by Gender Female 33% Female 30% Male 70% Male 67% 033