ANNUAL REPORT 2 0 1 7 - MalaysiaStock.Biz...2018/04/16 · TALIWORKS CORPORATION BERHAD (6052-V) I annual report 2017 3 COMPANY SECRETARIES Ms. Tan Bee Hwee (MAICSA 7021024) Ms. Queck

ANNUAL REPORT 2 0 1 7

Building Solid Results

REVENUE

368.6M

MARKET CAPITALISATIONas at 31 March 2018

997.8MTOTALSHAREHOLDERS’ EQUITY1,054M

PROFIT FOR THEFINANCIAL YEAR

42.1M

02 Corporate Information 04 Corporate Profile10 Corporate Milestones 14 Corporate Structure 16 Corporate and Financial Events 2017

17 5-Year Financial Highlights 19 Share & Warrant Performance Highlights

20 Board of Directors22 Directors’ Profile26 Chairman’s Statement 30 Management Discussion and Analysis

55 Sustainability Statement 75 Statement on Risk Management and Internal Control 82 Corporate Governance Overview Statement111 Audit and Risk Management Committee Report 121 Additional Compliance Information

123 Audited Financial Statements

258 Analysis of Shareholdings 258 List of Thirty Largest Shareholders 260 List of Substantial Shareholders 261 Analysis of Warrant Holdings 261 List of Thirty Largest Warrant Holders263 List of Directors’ Holdings in Shares & Warrant 264 Notice of Annual General Meeting

Form of Proxy

CORPORATEINFORMATION

PERFORMANCE REVIEW

FINANCIALSTATEMENTS

THE MANAGEMENT

GOVERNANCE

OTHERINFORMATION

contents

2 TALIWORKS CORPORATION BERHAD (6052-V) I annual report 2017

BOARD OF DIRECTORS

Senior Independent Non-Executive ChairmanTan Sri Dato’ Seri Ong Ka Ting

Executive DirectorDato’ Lim Yew Boon

Independent Non-Executive DirectorsMr. Soong Chee KeongDato’ Sri Amrin Bin AwaluddinRaja Datuk Zaharaton BintiRaja Dato’ Zainal Abidin

Encik Ahmad Jauhari Bin Yahya

Non-Independent Non-Executive DirectorsMr. Lim Chin SeanMr. Vijay Vijendra Sethu

AUDIT AND RISK MANAGEMENTCOMMITTEE

Chairman Mr. Soong Chee Keong

Members Mr. Lim Chin Sean Dato’ Sri Amrin Bin Awaluddin

NOMINATING COMMITTEE

Chairman Tan Sri Dato’ Seri Ong Ka Ting

Members Mr. Vijay Vijendra Sethu Encik Ahmad Jauhari Bin Yahya

REMUNERATION COMMITTEE

Chairman Raja Datuk Zaharaton Binti Raja Dato' Zainal Abidin (re-designated as Chairman on 13 February 2018) Tan Sri Dato’ Seri Ong Ka Ting (resigned on 13 February 2018)

Members Mr. Soong Chee Keong Mr. Lim Chin Sean (appointed on 13 February 2018)

CorporateInformation

3TALIWORKS CORPORATION BERHAD (6052-V) I annual report 2017

COMPANY SECRETARIES

Ms. Tan Bee Hwee (MAICSA 7021024)Ms. Queck Wai Fong (MAICSA 7023051)

REGISTERED OFFICE

Unit 30-01, Level 30, Tower AVertical Business SuiteAvenue 3, Bangsar SouthNo 8, Jalan Kerinchi59200 Kuala Lumpur, MalaysiaT + 60 3 2783 9191F + 60 3 2783 9111

PRINCIPAL OFFICE

Level 19, Menara LGBNo. 1, Jalan Wan KadirTaman Tun Dr. Ismail60000 Kuala Lumpur, MalaysiaT + 60 3 2788 9100F + 60 3 2788 9101E [email protected] www.taliworks.com.my

SHARE REGISTRARS

Symphony Share Registrars Sdn. Bhd.Level 6, Symphony HousePusat Dagangan Dana 1Jalan PJU 1A/46, 47301 Petaling JayaSelangor Darul Ehsan, MalaysiaT + 60 3 7849 0777 (Helpdesk)F + 60 3 7841 8151/52 E [email protected]

AUDITORS

Deloitte PLT (LLP0010145-LCA)Chartered Accountants (AF 0080)Level 16, Menara LGBNo. 1, Jalan Wan KadirTaman Tun Dr. Ismail60000 Kuala Lumpur, MalaysiaT + 60 3 7610 8888F + 60 3 7726 8986

PRINCIPAL BANKERS

AmBank (M) BerhadAmIslamic Bank BerhadCIMB Bank BerhadHSBC Bank Malaysia BerhadHong Leong Bank BerhadUnited Overseas Bank (Malaysia) Berhad

STOCK EXCHANGE LISTING

Main Market Bursa Malaysia Securities Berhad

Stock & Code:TALIWRK & 8524 (Trading/Services)TALIWRK-WB & 8524WB(Warrants)

AGM HELPDESK

Contact Person:Ms. Catherina Yeoh / Ms. Denise NgCorporate Communications T +603 2788 9100E [email protected] [email protected]

CorporateProfile


BACKGROUND HISTORY

Taliworks Corporation Berhad (“Taliworks” or the“Company”) is listed on the Main Market of BursaMalaysia Securities Berhad under Trading/ServicesSector (Name & Code: TALIWRK & 8524).Taliworks is a pure-play infrastructure companyand is involved in four core business sectors asabove.

WATER TREATMENT,SUPPLY AND

DISTRIBUTION

ENGINEERING AND CONSTRUCTION

WASTE MANAGEMENT

HIGHWAY TOLL CONCESSIONAIRE,

OPERATIONS AND MAINTENANCE

OPERATOR

CORE BUSINESS

ACTIVITIES


Taliworks’ subsidiaries started out in the water management sector in1987 as pioneers in the privatisation of potable water treatment andsupply in Malaysia and today, the water treatment, supply and distributionsegment leads as the main core business activity of Taliworks. In 2004,Taliworks diversified into the waste management business in the People’sRepublic of China (which it subsequently disposed of in 2016). Thereafter,it expanded into the highway toll concessionaire, operations andmaintenance sector in 2007.

In 2016, Taliworks completed the realignment of its strategic businessfocus towards mature operational cash-generating utilities/infrastructurebusinesses to support its general dividend policy by disposing of its entirewaste management business in the People’s Republic of China andsimultaneously acquiring a 35% equity interest in SWM EnvironmentHoldings Sdn. Bhd. (“SWMH”). SWMH is an investment holding companywhose subsidiaries are principally involved in managing and carrying onthe business of solid waste collection and public cleansing managementand other related activities in the Malaysian states of Negeri Sembilan,Malacca and Johor under a 22-year concession agreement with theFederal Government.

FOCUS ON MATUREOPERATIONAL

CASH-GENERATINGUTILITIES/

INFRASTRUCTUREBUSINESSes


Corporate Profile

Water Treatment, Supply and Distribution

One of Taliworks’ core businesses is in the privatised water supply sector. It comprisesan operation and maintenance (“O&M”) contract for the Sungai Selangor Phase 1Water Treatment Plant (“SSP1”) that supplies treated potable water to large parts ofSelangor and Kuala Lumpur, and the water treatment, supply and distribution systemfor the entire Pulau Langkawi in Kedah. The O&M contract for SSP1, which is for aduration of 30 years, is undertaken by Sungai Harmoni Sdn. Bhd. (“Sungai Harmoni”)and expires in January 2030.

The water treatment, supply and distribution system in Pulau Langkawi is managed byTaliworks (Langkawi) Sdn. Bhd. (“Taliworks Langkawi”) under a 25-year concessionending in October 2020. Taliworks Langkawi has been granted an authorisation underSection 192(5) of the Water Services Industry Act 2006 by the National Water ServicesCommission (“SPAN”) to undertake and carry out operation and maintenance activitiesunder the Langkawi Water Supply Privatisation Agreement dated 7 October 1995 andthe Supplemental Agreements dated 4 August 1999, 22 July 2001 and 1 August 2004effective from 1 February 2013 to 31 October 2020.

These two companies manage a total of 6 water treatment plants with a combineddesign operating capacity of 1,037.2 million litres per day (Sungai Harmoni: 950 millionlitres per day; Taliworks Langkawi: 87.2 million litres per day).


Taliworks first ventured into highway ownership and toll operations when it acquired a 55% equity interest in Cerah Sama Sdn. Bhd. (“Cerah Sama”)in 2007. Cerah Sama is the holding company for Grand Saga Sdn. Bhd. (“Grand Saga”)(http://www.grandsaga.com.my), a company that ownsand operates the concession for the Cheras-KajangHighway until September 2045. The highway is one ofthe first four-lane dual carriageways in Malaysia and itmeasures approximately 11.5 km in length, stretchingfrom the Connaught Interchange, Cheras to SaujanaImpian, Kajang. Whilst plying the densely populated andfast growing Cheras-Kajang vicinity, it eases trafficcongestion and minimises travel time for daily commuters.The highway concession comprises two toll plazas (withtoll collection at one bound) i.e. the Batu 9 toll plaza(Kajang bound) and the Batu 11 toll plaza (Kuala Lumpurbound), one rest and service area and eight interchanges.

Subsequently in 2014, the Employees Provident FundBoard (“EPF”) acquired an effective 49% equity interest in Cerah Sama whilst Taliworks’ effective equityinterest in Cerah Sama was reduced from 55% to 51%. The purpose of the collaboration with EPF is toposition TEI Sdn. Bhd. (“TEI”), the immediate holdingcompany of Cerah Sama, as the flagship vehicle throughwhich both parties will engage in the business of acquiringand operating mature cash-generating utilities/infrastructure assets in Malaysia and in developedcountries.

In December 2014, Taliworks through its indirect joint-venture, Grand Sepadu (NK) Sdn. Bhd. (“GrandSepadu”) acquired the assets and concession rights tothe New North Klang Straits Bypass Expressway(“NNKSB Expressway”) from Lebuhraya ShapaduSdn. Bhd. (In Liquidation) for a cash consideration ofRM265 million with the 18-year concession ending inDecember 2032.

NNKSB Expressway, whose tolling operationscommenced in 2002, is a 17.5 km two-lane dual andthree lane carriageway highway which links NorthPort to Bukit Raja, Klang. The NNKSB Expressway ispartly parallel to the old tolled North Klang StraitsBypass (which became a non-tolled road afterNNKSB Expressway became operational) and islinked to the Federal Highway, the New Klang ValleyExpressway (“NKVE”) and in future, the upcomingWest Coast Expressway, which will connect Bantingin Selangor to Taiping in Perak.

In 2015, EPF acquired a 50% equity interest inPinggiran Muhibbah Sdn. Bhd. (“Pinggiran Muhibbah”),a company that owns 75% equity interest in GrandSepadu and a 90% economic interest in the NNKSBExpressway. This partnership resulted in EPF effectively owning 37.5% equity interest in GrandSepadu and 45% economic interest in NNKSBExpressway and this marks the second partnershipbetween Taliworks and EPF.

Highway Toll Concessionaire, Operations and Maintenance Operator


Corporate Profile

Waste Management

In May 2016, Taliworks disposed of itsentire investment in the wastemanagement companies in the People’sRepublic of China and simultaneouslyacquired a 35% equity interest in SWMH.

SWMH is an integrated waste management and publiccleansing service provider in the southern region, namelyJohor, Negeri Sembilan and Melaka. SWMH’s wholly ownedsubsidiary, SWM Environment Sdn. Bhd. (“SWME”), is theconcession owner for the provision of solid wastecollection and public cleansing services, serving thesouthern region until 31 August 2033. Its business covers atotal geographical region of approximately 27,650 km2 andserves a population of over 5.1 million. It services 27 localauthorities with over 8,000 staff and 500 sub-contractorswho collectively manage approximately 4,500 to 5,000tonnes of waste per day.

As an integrated waste management and public cleansingservice provider, SWMH, through SWME, servicesmunicipal authorities, as well as commercial and industrialsectors in the southern region of Peninsular Malaysia. Thecollection and transportation of domestic waste, gardenwaste, bulky waste and recyclables form the crux of thecompany’s business. Currently, the company manages a fleet

of over 800 collection vehicles and a workforce of 3,000dedicated employees to provide scheduled and timelycollection services. SWME averages a collection of 103,000tonnes of waste a month with an approximate total of 1.2million tonnes of waste collected for the year 2017.

The public cleansing service, which includes grass cutting,drain cleaning, street sweeping, wet/dry market cleaningand beach cleansing, is an important part of the company’sscope of work and plays a critical role for the benefit ofthe general public. A fleet of over 500 cleansing vehicles,machines and a workforce of over 5,000 employees aredeployed for the cleaning services.

Engineering and Construction

Taliworks’ engineering and construction activitiesare mainly undertaken by a wholly ownedsubsidiary, Taliworks Construction Sdn. Bhd.(“Taliworks Construction”). Taliworks securedits first project in 2002 and has undertaken

several other projects in the infrastructure space since. Some of themore notable projects include the RM120 million Projek Bekalan AirKedah Tengah on a turnkey basis, the RM149 million design and buildPadang Terap Water Supply Project in Kedah and the RM339 millionMengkuang Dam Expansion Project which comprise site clearance,earthworks, construction of reinforced concrete structures and pipelaying works. Taliworks is ISO9001 certified and is registered with theConstruction Industry Development Board of Malaysia (“CIDB”) andholds the highest grade, Grade G7, issued by the CIDB.


Business Focus and Strategies

The water treatment, supply and distribution business inMalaysia accounts for the bulk of Taliworks’ revenue andprofitability. Taliworks remains focused on its corebusinesses to support its dividend payout ratio of not lessthan 75% of its consolidated profit after tax (excludingexceptional items), backed by the existing mature and long-term concessions in water treatment, supply anddistribution; toll highway operations and wastemanagement which provide stable income and cashflow toTaliworks.

Taliworks has a team of knowledgeable management withmore than twenty-five years’ experience in the infrastructureindustry with privatisation, project management, construction,corporate and funding skillsets. Hence, any projectconceptualisation and potential merger and acquisitionopportunities are scrutinised thoroughly so that the targetstrategic assets and outcomes are value-accretive toshareholders.

Leveraging on its strengths, Taliworks is a strategic investorwith the objective of growing and expanding into matureoperational cash-generating utilities/infrastructure businessesboth domestically and in foreign developed markets and inthat process positioning itself as a leading pure playinfrastructure projects company in the region.

Taliworks has a team of knowledgeable management withmore than twenty-five years’ experience in theinfrastructure industry with privatisation, projectmanagement, construction, corporate and funding skillsets.


1968Carpet Manufacturing changed its name to F&TCarpets (Malaysia) Sdn. Bhd. (“F&T Carpets”)(November).

1974F&T Carpets was renamed to CarpetsInternational Malaysia Sdn. Bhd. (“CarpetsInternational”) (February).

1982Carpets International was converted into apublic company and assumed the name CarpetsInternational Malaysia Berhad (“Carpets”)(December).

1992Carpets was listed on the then Second Boardof the Kuala Lumpur Stock Exchange (nowknown as Bursa Malaysia Securities Berhad(“Bursa Securities”) (July).

2000• Carpets completed the acquisition of 100%

equity interest in Sungai Harmoni andTaliworks (Langkawi) (July).

• Carpets was transferred to the Main Boardof Bursa Securities (which has since beenmerged with the Second Board into a singleboard known as the Main Market) (October).

• Carpets was renamed to TaliworksCorporation Berhad (November).

2002• Taliworks ceased the operations of

designing, manufacturing, distributing andlaying of carpets and rugs.

• Taliworks was named Forbes magazine’s 100best smaller-sized enterprises in the AsiaPacific.

• Taliworks secured its maiden project for thedesign, construction and supervision forwater supply works to the Northern Areaof the Central Kedah Water Supply Schemefor RM120 million.

CorporateMilestones 1965

Taliworks was incorporated in Malaysia as a private limited company under thename of The Carpet Manufacturing Company (Malaysia) Limited (“CarpetManufacturing”) (August).


2003Taliworks was named Forbesmagazine’s 100 Best Smaller-SizedEnterprises in the Asia Pacific andKPMG/The Edge Shareholders ValueAwards (ranked no. 21 out of top 100companies and ranked 2nd within theInfrastructure Grouping).

2004• Taliworks diversified its business

interests to include wastemanagement in the People’sRepublic of China.

• Taliworks was ranked no. 85 outof the top 100 companies for theKPMG/The Edge ShareholdersValue Awards.

2005• Tianjin-SWM (M) Environment Ltd

Co, a 90% owned subsidiary ofTaliworks, commenced operationsin the Tianjin Panlou Municipal SolidWaste Transfer Station (January).

• Taliworks was ranked no. 78 forThe Edge Top 100 Best Companiesin term of return (3 years).

• Taliworks was ranked no. 40 out ofthe top 100 companies for theKPMG/The Edge ShareholdersValue Awards.

• Taliworks issued 70,440,000warrants 2005/2010 pursuant to arights issue of warrants on the basisof 1 warrant for every 5 ordinaryshares of RM0.50 each held afterthe split of every 1 ordinary shareof RM1.00 each into 2 ordinaryshares of RM0.50 each(September).

• Taliworks adopted a generaldividend policy of distributing notless than 50% of its net earnings asgross dividends for the next threeyears commencing from thefinancial year 2006.

2006• Taliworks was ranked no. 124 out

of 200 public listed companiesbased on market capitalisation asat 31 December 2005 under theCorporate Governance SurveyReport 2006 published jointly bythe Minority ShareholderWatchdog Group and TheUniversity of Nottingham –Malaysia Campus.

• Taliworks was ranked amongst thetop 212 main board companiesselected based on marketcapitalisation as at 31 December2005 under the Dividend Survey2006 published jointly by theMinority Shareholder WatchdogGroup and Universiti TeknologiMARA.

• Taliworks issued 17,000,000 newplacement shares of RM0.50 eachat RM1.35 per share pursuant toa private placement of shares(May).

• Air Kedah Sdn. Bhd., a 60% ownedsubsidiary, received the Letter ofAcceptance to implement thePadang Terap Water SupplyScheme from the Kedah StateGovernment for RM149 million(July).

2007• Taliworks diversified its business

interests to highway tolloperations and maintenancethrough the acquisition of 55%interest in the then JV Company,Cerah Sama.

• Taliworks acquired a 56% stake inPuresino (Guanghan) Water Co.Ltd. (April) and subsequentlycommenced commercialoperations of the Guanghan SanXin Dui wastewater treatmentplant in September.

• Taliworks was ranked no. 87 out of 350 main board companiesunder the Corporate GovernanceSurvey Report 2007 publishedjointly by the Minority ShareholderWatchdog Group and TheUniversity of Nottingham –Malaysia Campus.

• Taliworks was ranked amongst thetop 500 public listed companiesselected based on marketcapitalisation as at 31 December2006 under the Dividend Survey2007 published jointly by theMinority Shareholder WatchdogGroup and Universiti TeknologiMARA.

• Taliworks issued 5-year convertiblebonds with a nominal value ofRM225 million.


2008Taliworks was ranked no. 45 out of960 public listed companies under theCorporate Governance SurveyReport 2008 published jointly by theMinority Shareholder WatchdogGroup and The University ofNottingham – Malaysia Campus.

2009Taliworks was ranked amongst the top100 public listed companies under theMalaysian Corporate GovernanceReport 2009 published by theMinority Shareholder WatchdogGroup.

2011• Taliworks was awarded the sub-

contract of the Mengkuang DamExpansion Project for a projectsum of RM339 million(September).

• Taliworks (Yinchuan) WastewaterTreatment Co. Ltd., a wholly-owned subsidiary of Taliworks,completed the takeover of theoperation of four municipalwastewater treatment plants withrecycled water facilities in Yinchuan(December).

2012• Taliworks was awarded the

Brandlaureate Best Brand Awards2011-2012- Best Brands inIndustrial - Water Treatment.

• Taliworks’ joint-venture with LGBEngineering Sdn. Bhd. wasawarded a contract by the StateGovernment of Selangor for theconstruction and completion ofRaw Water Pumping Main andInter-connection at Matang PagarReservoir for a contract sum ofRM20.3 million (February).

2013• Cerah Sama issued RM420 million

Islamic Medium Term Notes(Sukuk Musharakah) under theSukuk Programme of up toRM750 million in nominal value(January).

• Taliworks (Langkawi) was grantedan authorisation by the NationalWater Service Commission toundertake and carry out theoperations and activities under the Langkawi Water SupplyPrivatisation Agreement (October).

• Taliworks was listed among theTop 100 Malaysian Public ListedCompanies (“PLC”) by theMinority Shareholder WatchdogGroup as per the ASEAN CGScorecard methodology on 862PLC companies.

2014• Taliworks gained control over

Cerah Sama which subsequentlybecame Taliworks’ subsidiary as aresult of an internal re-organisation exercise (June toAugust).

• EPF acquired 31.85% equityinterest in Cerah Sama, whilstTaliworks’ effective equity interestin Cerah Sama reduced to 28.05%from 55%.

• The consortium of LGB-TaliworksJV was awarded the SSP3 PackagePipeline, involving the supplyingand laying of 11km of 1,200 mmdiameters of steel pipes with acontract value of RM30.6 million(June).

• Taliworks announced a DividendPolicy of declaring a dividendpayout ratio of not less than 75%of its consolidated profit after tax(excluding exceptional items)commencing the financial yearending 31 December 2015(September).

• Grand Sepadu executed aNovation Agreement and aSecond Supplemental ConcessionAgreement to take over the NewNorth Klang Straits BypassExpressway for cash considerationof RM265 million (December).

Corporate Milestones


2015• Grand Sepadu issued a RM210

million Sukuk Murabahah.• TEI acquired 35% equity interest

in Cerah Sama from a shareholderof Cerah Sama - SEASAF HighwaySdn. Bhd., resulting in Taliworks’sequity interest in Cerah Samaincreasing from 28.05% to 51%.

• LGB Taliworks Consortium Sdn.Bhd. (“LGBTC”), Taliworks 20%associate company, was awardedthe SSP7 Project contract byPengurusan Aset Air Berhad witha contract sum of RM75.9 million(September).

• Taliworks undertook an internalre-organisation to rationalise thegroup structure such that thegroup’s investment in its highwayconcessionaires are held underseparate immediate holdingcompanies – Cerah Sama is 51%owned by TEI while Grand Sepaduis wholly owned by PinggiranMuhibbah.

• Taliworks issued 43,980,000 newplacement shares of RM0.50 eachat RM3.20 per share pursuant toa private placement of shares(October).

• Taliworks issued 241,897,790Warrants 2015/2018 on the basisof 1 Warrant for every 5 ordinaryshares held after the share splitcomprising the subdivision of every2 existing ordinary shares ofRM0.50 each into 5 ordinary sharesof RM0.20 each (November).

• Taliworks completed the 2nd

partnership with EPF via thedisposal of its 50% equity interestin Pinggiran Muhibbah to EPF(December).

• Taliworks was included in theMSCI Global Small Cap Indexesfor Malaysia.

• Taliworks was ranked no. 91 outof the Top 100 Overall CGCompanies – Disclosures withROE Performance by the MinorityShareholder Watchdog Group.

2016• In line with Taliworks’ new business

strategy to focus on matureoperational cash-generatingutilities/infrastructure businessesto support its dividend policy,Taliworks completed the disposalof its entire waste managementoperations in the People’sRepublic of China and theacquisition of 35% equity interestin SWMH. This marks Taliworks’3rd partnership with EPF whereEPF held 35% equity interest inSWMH (May).

• A consortium comprising ofTaliworks and Ikatan GemajayaSdn. Bhd. was awarded theGanchong Water TreatmentWorks from the East CoastEconomic Region DevelopmentCouncil with the total contractsum of RM73.1 million(September).

• SWME, a 100% owned subsidiary of SWMH, wasawarded the Brandlaureate SMEsBESTBRANDS Award 2015-2016- Signature Brand Services –Integrated Solid WasteManagement.

• Taliworks was awarded the IEM2016 Award for WaterManagement in Malaysia.

• Taliworks was ranked no. 44 out ofthe Top Malaysian 100 PLCs withGood Disclosures by the MinorityShareholder Watchdog Group.

• Taliworks was ranked no. 29 outof the Top 100 Malaysian PLCs forOverall Corporate Governanceand Performance by the MinorityShareholder Watchdog Group.

2017• Taliworks was ranked no. 45 out

of the Top Malaysian 100 PLCswith Disclosures by the MinorityShareholder Watchdog Group.

• Taliworks was ranked no. 26 outof the Top 100 Malaysian PLCs forOverall Corporate Governanceand Performance by the MinorityShareholder Watchdog Group.

• SWME was awarded the BestEmployer Branding Awards (3rd

Edition) by Employer BrandingInstitute (India) in Malaysia.

• SWME was awarded Gold Award(Private Sector) for the HR Award– Employer of Choice category bythe Malaysian Institution of HumanResource Management.

• SWME was awarded Gold Award(Head of Department) for the HRLeader category by the MalaysianInstitution of Human ResourceManagement.


Corporatestructure

SUBSIDIARIES

Sungai HarmoniSdn. Bhd.

100%Taliworks

(Langkawi)Sdn. Bhd.

100%

Taliworks Construction

Sdn. Bhd.

100%

5%

TEI Sdn. Bhd.

51%

Trinitywin Sdn. Bhd.

100%

Taliworks Technologies

Sdn. Bhd.

100%

Cerah Sama Sdn. Bhd.

90%

Europlex ConsortiumSdn. Bhd. #

100% 100%Peak

SynergySdn. Bhd. #

Trupadu Sdn. Bhd.

100% 100%Grand Saga Sdn. Bhd.

Taliworks Meruan

(Sarawak) Sdn. Bhd. #

55%

10%

TE OverseasVenturesSdn. Bhd.

100%

TE Overseas Ventures Pte. Ltd.

100%

As at 16 March 2018


Investment Holding Company/others Highway Toll Concessionaire, Operations and Maintenance Operator

Engineering and Construction

Waste Management

Water Treatment, Supply and Distribution

JOINT VENTURE ASSOCIATES

HydrovestSdn. Bhd. #

40%Aqua Flo Sdn. Bhd.

24%

LGB Taliworks Consortium

Sdn. Bhd.

20%

LGB & TCB JV Sdn. Bhd.

49%

SWM Environment

Holdings Sdn. Bhd.

35%Pinggiran MuhibbahSdn. Bhd.

50%

Grand Sepadu (NK) Sdn. Bhd.

75%

# Companies in the process of members’ voluntary winding-up and/or striking off


Corporate and FinancialEvents 2017

Unaudited interim resultsfor the 4th Quarter ended31 December 2016.FEB

16

Audited financial statementsfor the financial year ended31 December 2016.APR

28

Unaudited interim resultsfor the 1st Quarter ended31 March 2017.MAY

22

Unaudited interim resultsfor the 2nd Quarter ended30 June 2017.AUG

16

Unaudited interim resultsfor the 3rd Quarter ended30 September 2017.NOV

28

Fourth interim single-tier dividend of 2.0sen per ordinary share in respect of thefinancial year ended 31 December2016, paid on 31 March 2017.

FEB16

First interim single-tier dividend of 2.0sen per ordinary share in respect of thefinancial year ended 31 December2017, paid on 14 July 2017.

MAY22

Second interim single-tier dividend of2.0 sen per ordinary share in respect ofthe financial year ended 31 December2017, paid on 21 September 2017.

AUG16

Third interim single-tier dividend of 2.0sen per ordinary share in respect of thefinancial year ended 31 December2017, paid on 10 January 2018.

NOV28

RELEASE OF FINANCIAL RESULTS

DECLARATION OF DIVIDEND PAYMENT

MAY22 The Twenty-Sixth Annual General Meeting ofthe Company was successfully concluded with

all proposed resolutions duly adopted.


5-YearFinancial

Highlights 2013 2014 2015 2016# 2017 RM MIL RM MIL RM MIL RM MIL RM MIL

PROFITABILITYRevenue 281.8 353.9 410.9 304.9 368.6 EBITDA(i) 71.1 373.0 196.0 130.9 101.0 Profit Before Taxation 39.1 317.2 109.7 84.9 49.7 Profit for the Financial Year 25.1 303.2 91.6 93.3 42.1

KEY AMOUNTS IN THE STATEMENT OF FINANCIAL POSITION

Total Assets 1,050.9 2,797.9 2,914.5 2,456.0 2,371.7 Total Borrowings 336.3 741.1 827.0 486.4 416.7 Total Shareholders' Equity 605.6 851.8 1,146.6 1,121.0 1,053.5 No of Shares in issue 1,091.2* 1,091.2* 1,209.5 1,209.5 1,209.5

BREAKDOWN OF REVENUE AND PROFIT BEFORE TAXATION

Revenue- water treatment, supply

and distribution 149.9 175.8 175.5 169.5 226.0 - waste management @ 47.1 55.0 70.7 - - - construction 84.0 99.3 101.9 39.6 51.7 - toll highway - 23.2 62.8 92.7 85.6 - others 0.8 0.6 0.0 3.0 5.3 281.8 353.9 410.9 304.9 368.6

Profit Before Taxation- water treatment, supply

and distribution 60.0 63.9 71.1 44.8 35.6 - waste management @ (23.0) (9.9) (18.2) - - - construction 4.1 5.5 5.6 2.6 2.8 - toll highway - (1.7) 12.2 24.2 27.7 - others (11.2) 254.5 38.9 0.7 (20.3)

29.9 312.3 109.6 72.3 45.8 - share of results of joint venture 10.0 3.8 (0.9) 0.3 2.7 - share of results of associates (0.8) 1.1 1.0 12.2 1.2 39.1 317.2 109.7 84.9 49.7

KEY FINANCIAL RATIO

Gross dividend per share (sen) 0.40* 2.00* 8.00 8.00 8.00 Net Assets per share (sen) 55.49* 78.06* 94.80 92.68 87.11 Earnings per share (sen) - basic 2.57* 27.61* 7.76 10.54+ 2.40 - fully diluted 2.57* 27.60* 7.75 10.54+ 2.40 Return on Equity (%)(ii) 4.28 41.60 9.16 13.07++ 3.87 Return on Assets Employed (%)(iii) 2.47 15.75 3.21 5.52++ 1.74 Dividend payout ratio (%)(iv) 17.40 7.20 100.62 65.32++ 229.94 Net Debt to Equity ratio (%) 44.06 44.88 33.43 13.89 19.22

* adjusted for theeffects of asubdivision of fivenew shares ofRM0.20 each forevery two sharesof RM0.50 each(implemented inFY15)

# except for theKey FinancialRatio, thefinancialinformation ofFY16 exclude theresults fromdiscontinuedoperations.

@ represents thecontribution fromthe wastemanagementsegment whichhas beendisposed in FY16.

+ calculated onprofit attributableto owners of theCompany ofRM127.428million.

++ calculated onprofit for thefinancial year ofRM148.135million includingprofit fromdiscontinuedoperations.


5-Year Financial Highlights

(i) EBITDA is defined asearnings before financecosts, taxation,depreciation andamortisation costs (andexcludes share of resultsof associate and jointventure).

(ii) Return on Equity iscalculated by dividing theprofit for the financialyear with the average ofthe opening and closingshareholders’ equity.

(iii) Return on AssetsEmployed is calculatedby dividing the profit forthe financial year withthe average of theopening and closing totalassets employed.

(iv) Dividend payout ratio iscalculated by dividing thetotal net dividends forthe particular financialyear with the profit forthe financial year.

PROFIT BEFORE TAXATION(RM’million)

’14 ’16’13 ’17

317.2

109.7

49.7

’15

84.9

39.1

0

50

100

150

200

250

300

350

BASIC EARNINGS PER SHARE(Sen)

’14 ’16’13 ’17

27.61

7.76

2.40

’15

10.542.57

0

4

8

12

16

20

24

28

32

TOTAL ASSETS(RM’million)

’14 ’16’13 ’17

2,79

7.9

2,91

4.5

2,37

1.7

’15

2,45

6.0

1,05

0.9

0

500

1,000

1,500

2,000

2,500

3,000

SHAREHOLDERS’ EQUITY(RM’million)

’14 ’16’13 ’17

851.8

1,14

6.6

1,05

3.5

’15

1,12

1.0

605.6

0

200

400

600

800

1,000

1,200


Share & WarrantPerformance

Highlights

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

0.05

0.10

0.15

0.20

0.25

0.30

0.35

TALIWORKS DAILY WARRANT-WB PRICE AND VOLUME

Warrant Price Volume

(RM) (Warrants)

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

TALIWORKS DAILY SHARE PRICE AND VOLUME

Share Price Volume

(RM) (Shares)


board ofdirectors


01 Tan Sri Dato’ Seri Ong Ka Ting

02 Dato’ Lim Yew Boon

03 Raja Datuk Zaharaton Binti Raja Dato’ Zainal Abidin

04 Encik Ahmad Jauhari Bin Yahya

05 Dato’ Sri Amrin Bin Awaluddin

06 Mr. Vijay Vijendra Sethu

07 Mr. Lim Chin Sean

08 Mr. Soong Chee Keong

01 0203

0405

06

0708

TAN SRI DATO’ SERIONG KA TING

Chairman/Senior Independent

Non-Executive Director

Nationality / Age / GenderMalaysian / 61 / Male

Date of appointment16 April 2014

Tan Sri Dato’ Seri Ong Ka Ting serves as aChairman of the Nominating Committee.On 13 February 2018, he resigned as theChairman of the RemunerationCommittee.

Tan Sri Dato’ Seri Ong holds a Bachelor ofScience (Honours) Degree and a Diplomain Education from University of Malaya,Malaysia. He also holds an HonoraryDoctor of Laws Degree from CampbellUniversity in December 2008.

He is currently the Chairman of theMalaysia-China Business Council. He hasheld various senior appointments in theMalaysian Government Administrationfrom November 1986 until his retirementin March 2008 including the positions ofParliamentary Secretary for the Ministry ofHealth, Parliamentary Secretary for theMinistry of Home Affairs, Deputy Ministerfor the Ministry of Home Affairs andMinister for the Ministry of Housing and

Local Government. He was the Presidentof Malaysian Chinese Association from2003 to 2008, Chairman of Tunku AbdulRahman College Council from June 2004to September 2011 and Member ofParliament for Pontian, Tanjong Piai andKulai constituencies in Johor since October1990 to April 2013. He was appointed asthe Malaysian Prime Minister’s SpecialEnvoy to the People’s Republic of Chinafrom November 2011 to December 2017.

He has no family relationship with anydirectors and/or major shareholders of thelisted issuer and has no conflict of interestswith the listed issuer. He has not beenconvicted for any offences within the past5 years and no public sanction or penaltyimposed by the relevant regulatory bodiesduring the financial year.

He has attended all the Board meetingsheld during the financial year of theCompany.

DATO’ LIM YEW BOON

Executive Director


Date of appointment1 March 2010

Dato’ Lim Yew Boon holds a diploma inCivil Engineering and started his career inthe field of construction with consultantengineers. With over twenty five years ofvaried corporate and managementexperience, he has wide in-depth exposurein various key industries coveringconstruction, manufacturing, propertydevelopment and public utilities.

Apart from Taliworks, Dato’ Lim also sits onthe boards of Amalgamated Industrial SteelBerhad, a company listed on the MainMarket of Bursa Malaysia Securities Berhad,as an Executive Director and severalprivate limited companies, namely GrandSaga Sdn Bhd, SWM Environment Sdn Bhdand a few others. Prior to his appointmentto the Board, he served as the Group Chief

Operating Officer in the LGB Group ofCompanies.

Dato’ Lim is the cousin to both Mr. LimChin Sean, a director and majorshareholder of the Company and Dato’ LimChee Meng, another major shareholder ofthe Company. He has no conflict of interestwith the listed issuer and has not beenconvicted for any offences within the past5 years other than traffic offences. He hasno public sanction or penalty imposed bythe relevant regulatory bodies during thefinancial year.

Dato’ Lim has attended all the Boardmeetings held during the financial year ofthe Company.

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directors’ profiles

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RAJA DATUKZAHARATON

BINTI RAJA DATO’ZAINAL ABIDIN

Independent Non-ExecutiveDirector

Nationality / Age / GenderMalaysian / 69 / Female

Date of appointment2 July 2015

Raja Datuk Zaharaton Binti Raja Dato’ ZainalAbidin was re-designated as Chairman of theRemuneration Committee on 13 February 2018.

Raja Datuk Zaharaton holds a BachelorDegree in Economics from University ofMalaya and a Masters in Economics in 1979from the University of Leuven, Belgium.

She has served the Government of Malaysiain various capacities for 34 years from 1971to 2005. Principally her main task has beenpolicy analyses and financial evaluation. Herlast post in Government was DirectorGeneral of the Economic Planning Unit(EPU), Prime Minister’s Department.

Upon retirement, the Government of Malaysiaappointed her as Chairman of Technology ParkMalaysia Corporation Sdn Bhd from January2006 to December 2008. Subsequent to that,the Government appointed her as Chairmanof Ninebio Sdn Bhd from January 2009 for atwo year period. She was appointed as

Chairman of Global Maritime Ventures Berhad,a subsidiary of Bank Pembangunan MalaysiaBerhad from June 2014 to April 2017. She wasappointed as the director of Yinson HoldingsBerhad on 11 August 2016.

She also currently sits on the boards of MediaPrima Berhad’s subsidiaries namely, Big TreeOutdoor Sdn Bhd and Primeworks Studios SdnBhd. She is also a Director of her family ownedcompany Kumpulan RZA Sdn Bhd and itssubsidiary Raza Sdn Bhd.

She has no family relationship with any directorsand/or major shareholders of the listed issuerand has no conflict of interests with the listedissuer. She has not been convicted for anyoffences within the past 5 years and no publicsanction or penalty imposed by the relevantregulatory bodies during the financial year.

She has attended four (4) out of six (6)Board meetings held during the financialyear of the Company.

ENCIK AHMADJAUHARI BIN YAHYAIndependent Non-Executive

Director


Date of appointment2 July 2015

Encik Ahmad Jauhari Bin Yahya serves as amember of the Nominating Committee ofthe Company.

Encik Ahmad Jauhari holds a Bachelor ofScience (Hons) Degree in Electrical andElectronic Engineering from University ofNottingham, United Kingdom.

He started his career with ESSO MalaysiaBerhad (1977-1979) and worked in TheNew Straits Times Press (M) Berhad (1979-1991), Time Engineering Berhad (1992) andMalaysian Resources Corporation Berhad(1993). In 1994, he joined Malakoff Berhadto lead its growth to become Malaysia’sleading independent power producer. Heretired from Malakoff in 2010.

He was appointed Group Chief ExecutiveOfficer of Malaysia Airlines on 19September 2011 and was a member of theBoard Tender Committee and sat on theboards of several subsidiaries within the

Malaysia Airlines group of companies. Heresigned as the Group Chief ExecutiveOfficer and directors of subsidiaries ofMalaysia Airlines in April 2015 but remainsas a director in Malaysia Airlines until 31December 2015. He became a Director ofMalaysia Airport Holdings Berhad(“MAHB”) and Chairman of DestinationResorts and Hotel Sdn Bhd prior to hisappointment at Malaysia Airlines. Heresigned from MAHB in 2011.

He has no family relationship with anydirectors and/or major shareholders of thelisted issuer and has no conflict of interestswith the listed issuer. He has not beenconvicted for any offences within the past5 years other than traffic offences and nopublic sanction or penalty imposed by therelevant regulatory bodies during thefinancial year.

He has attended all the Board meetings heldduring the financial year of the Company.


directors’ profiles

MR. VIJAY VIJENDRASETHU

Non-Independent Non-Executive Director

Nationality / Age / GenderAustralian / 54 / Male


Mr. Vijay Vijendra Sethu serves as a memberof the Nominating Committee.

Mr. Sethu holds a Master of BusinessAdministration from Auckland University. Heis a fellow of the Chartered Association ofCertified Accountants, United Kingdom, anassociate of the New Zealand Society ofChartered Accountants and a graduate ofthe Chartered Institute of ManagementAccountants, United Kingdom.

Mr. Sethu has over 30 years’ experience ininvestment banking industry across Asia,Australia, United Kingdom and the Americas.Currently, Mr. Sethu is a non-independentnon-executive Chairman/ Director of the 4Fingers Group of Companies headquarteredin Singapore.

He was formerly an independent Chairman/Director of International Medical University, aboard member of Malakoff Berhad, CerahSama Sdn. Bhd., Don Muang Tollway andInfraco Asia. He was also formerly thefounding CEO of CSSAA, an emerging

markets focused infrastructure fund manager,an Executive Director and Head of Projectand Structured Finance for Asia for ANZInvestment Bank, Singapore, the Vice Presidentand Head of Mergers and Acquisitions forEnron Asia Pacific, Singapore. He was alsoformerly an employee of ANZ InvestmentBank in Melbourne, London and New Yorkfocusing on infrastructure and resourceproject financing, KPMG in New Zealand,Exxon in Malaysia and lectured onaccountancy and finance in a Malaysian college.

Mr. Sethu is a substantial shareholder of theCompany. He has no family relationship withany directors and/or major shareholders ofthe listed issuer and has no conflict ofinterests with the listed issuer. He has notbeen convicted for any offences within thepast 5 years other than traffic offences andno public sanction or penalty imposed by therelevant regulatory bodies during the financialyear.

He has attended all the Board meetings heldduring the financial year of the Company.

/////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////

DATO’ SRI AMRIN BINAWALUDDIN



Date of appointment15 September 2014

Dato’ Sri Amrin Bin Awaluddin serves as amember of the Audit and Risk ManagementCommittee of the Company.

Dato’ Sri Amrin holds a Bachelor of BusinessAdministration (Honours) from AcadiaUniversity, Canada and Master of BusinessAdministration (Finance) with Distinction fromUniversity of Hull, England. He is a member ofthe Chartered Institute of ManagementAccountants, United Kingdom.

He is the Group Managing Director of SimeDarby Property Berhad since 1 September2017.

Prior to joining Sime Darby Property Berhad,he was the Group Managing Director ofMedia Prima Berhad. Throughout his workingcareer he holds several key positions atAmanah Merchant Bank Berhad, RenongBerhad, Malaysia Resources CorporationBerhad and Putera Capital Berhad.

He is the Deputy President of Kuala LumpurBusiness Club (KLBC), a Board Advisor ofPusat Sains Negara, Board Members ofYayasan Kelana Ehsan and Enactus EducationFoundation.

Dato' Sri Amrin sits on the board of SimeDarby Property Berhad (appointed since2017). He is also a member of the board ofCIMB Bank Berhad (appointed since 2014).

He has no family relationship with anydirectors and/or major shareholders of thelisted issuer and has no conflict of interestswith the listed issuer. He has not beenconvicted for any offences within the past 5years other than traffic offences and no publicsanction or penalty imposed by the relevantregulatory bodies during the financial year.

He has attended five (5) out of six (6) Boardmeetings held during the financial year of theCompany.

25TALIWORKS CORPORATION BERHAD (6052-V) I annual report 2017 25TALIWORKS CORPORATION BERHAD (6052-V) I annual report 2017

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MR. LIM CHIN SEANNon-Independent

Non-Executive Director


Date of appointment23 May 2011

Mr. Lim Chin Sean serves as a member ofthe Audit and Risk ManagementCommittee of the Company. On 13February 2018, he was appointed as amember of Remuneration Committee.

Mr. Lim holds a Bachelor of ComputerSystem Engineering Degree (Honours)from University of Kent, United Kingdom.

He joined the LGB Group of Companiessince September 2003 and is currentlyinvolved in property development,construction projects, manufacturing and ITadvisory services.

He presently sits on the boards ofAmalgamated Industrial Steel Berhad, as anExecutive Director and several privatelimited companies.

Mr. Lim is a major shareholder of theCompany and cousin to Dato’ Lim YewBoon, the Executive Director of theCompany. He is also the younger brotherof Dato’ Lim Chee Meng, a majorshareholder of the Company. He has aconflict of interest with the Company as heis a director and major shareholder of LGBEngineering Sdn Bhd (“LGBE”), which isinvolved in the construction industry. LGBEhas a 0.06% in the Company.

He has not been convicted for any offenceswithin the past 5 years other than trafficoffences and no public sanction or penaltyimposed by the relevant regulatory bodiesduring the financial year.


MR. SOONG CHEEKEONG




Mr. Soong Chee Keong serves as aChairman of the Audit and RiskManagement Committee and as a memberof the Remuneration Committee of theCompany.

Mr. Soong is the member of the Associationof Chartered Certified Accountants andthe Malaysian Institute of Accountants.

He started his career in financial audit in1993 at BDO Binder. In 1995, he joined theCorporate Finance Department ofBumiputra Merchant Bankers Berhad andwas involved in advising on mergers andacquisitions, initial public offers, equityrestructuring and project feasibility studies.

Mr. Soong then joined Abric Berhad inFebruary 1999 as the General Manager ofCorporate Finance and was subsequentlyappointed to the Board of Abric Berhad on

16 February 2000 as an Executive Director.He resigned from the said company on 31May 2017.

He also sits on the board of WonderfulWire & Cable Berhad, a non-listed publiccompany.

He has no family relationship with anydirectors and/or major shareholders of thelisted issuer and has no conflict of interestswith the listed issuer. He has not beenconvicted for any offences within the past5 years other than traffic offences and nopublic sanction or penalty imposed by therelevant regulatory bodies during thefinancial year.



The domestic economy in Malaysia improved in 2017, despite its susceptibility to the ongoingunpredictability of commodity prices, economic policy uncertainties and geopolitical movements.The economic growth has gained momentum with annual GDP growth recorded at 5.9%,boosted by strong domestic and external demand. According to the recent annual report releasedby the central bank, Malaysia’s economy is anticipated to grow at between 5.5% to 6.0% in 2018,underpinned by robust domestic demand and improving exports on the back of a globaleconomic recovery.

Looking ahead, I am very much delighted to announce that Taliworks has achieved yet anotheryear of good operational performance, grounded by our core businesses, predominantly in ourthree long-term concession assets in (i) water treatment, supply and distribution, (ii) highway tollconcessions, and (iii) waste management businesses.

Financially, our Group reported a higher revenue of RM368.6 million as compared to the revenueachieved last year of RM304.9 million. However, Profit After Tax (“PAT”) was lower at RM42.1million, compared to last year’s PAT of RM148.1 million. This was mainly due to the one-off profitfrom discontinued operations, net of tax, of RM54.8 million from the disposal of the wastemanagement business in China and foreign currency gains of RM17.7 million in the financial yearended 31 December 2016, and the lower contribution from associates and higher operating costsin the water treatment operations in FYE2017. Whilst I am pleased with our operationalperformance, we will need to increase our efforts to improve our financial performance.

Chairman’sStatement

Dear Shareholders,

On behalf of the Board of Directors (“theBoard”) of Taliworks Corporation Berhad(“Taliworks” or “the Company”), it is mypleasure to present to you our AnnualReport and Audited Financial Statementsof the Company and its subsidiaries (“theGroup”) for the financial year ended 31December 2017 (“FYE2017”).


We are disappointed with the on-going delay incompleting the Selangor water restructuring deal.There have been a series of extensions with thelatest deadline now being to 4 July 2018. The sumof outstanding payments owed by SPLASHcontinues to mount and as at 31 December 2017,the gross balance stood at RM616.3 million. Welook forward to the issue being resolved this year,as the payment of the receivables will have asignificant impact on our cash flow position.

On another note, I am proud to share thatTaliworks was recognised by the MinorityShareholders Watchdog Group (“MSWG”) as oneof the Top 100 Companies with high standards ofcorporate governance last year. The recognitionwas awarded based on our adherence to highstandards of corporate governance. Details of ourcorporate governance outline can be found underour Corporate Governance Report.

As a responsible corporate citizen, we are alsoincreasingly aware of the need for sustainabilityinitiatives to be integrated into our business model.Hence, the formulation of Taliworks’ SustainabilitySteering Committee – established last year with the

purpose of facilitating Environmental, Social andGovernance (“ESG”) communication between theworking level and top management to drive ourbusiness towards more sustainability-aligned goals.We endeavour to continuously meet ourconsumers’ demands for environmentally friendlypractices and to respect and serve the interests ofboth our internal and external stakeholders, namelyour shareholders, employees, consumers, suppliers,associate and/or business partners and thecommunities at large. We will continue to enhanceour corporate reputation and standing through ourbusiness sustainability and environmentalstewardship initiatives and working for thebetterment of all our stakeholders in the long run.

We remain steadfast in our commitment to continue deliveringsustainable profits, as well as long-term value to our shareholders.


Chairman’s Statement

GROWING LONG-TERM SHAREHOLDERS’ VALUE

We acknowledge the importance of striking a balancebetween the interests of our businesses and ourshareholders. As such, we remain steadfast in ourcommitment to continue delivering sustainable profits, aswell as long-term value to our shareholders. As a measureto reward our shareholders for their continued supportand confidence in us, the Group has consistently paiddividends of 2 sen per share in every quarter for the yearunder review. This amounted to a total dividend payout of8 sen per share, which is equivalent to RM96.8 million forthe year.

We would not be able to achieve such dividend payout ifnot for our operational performance and our recent shiftin our business strategy that resulted in a one-off gain fromthe disposal of the waste management business in China.While the Group has made good progress in the pastyears, we will continue to target any potential earnings-accretive investment opportunities that will furtherenhance both our profitability and dividend payouts. At thesame time, we hope that the SPLASH issue will be amicablyresolved by this year, with our outstanding receivablesadequately addressed to sustain our current dividend.

FUTURE GROWTH

Our aim in Taliworks is to continuously advocatesustainability creation and continuous growth. Our strategyis underpinned by our dedication towards our clear andfocused business goals as we leverage on our solid businessfoundation.

In view of this, our Group is constantly exploring potential value-accretive opportunities, particularly in themature operational cash-generating utilities/infrastructurebusinesses in Malaysia and developed markets in overseasthat will provide the Group new income streams withrecurring and stable sources of cash flow.

Having a solid business foundation, backed by three strongcomponents, namely our (i) mature operational assets, (ii)sound balance sheet and (iii) partnership with EPF, we areconfident that our growth-oriented Group will be able toreach our goal as a pure-play infrastructure player. We will

Our aim in Taliworks is to continuously advocate sustainability creation and continuous growth.


ensure that our business strategy is engineered towardsgenerating sustainable growth across all our existingbusinesses and through any potential earnings-accretiveinvestment in the near future. I look forward to continuouslystrengthening and enhancing our businesses by unlocking theGroup’s potential value as we move forward.

ACKNOWLEDGEMENT

I would like to convey my deepest appreciation and gratitudeto my fellow Board Members and management for theirinvaluable guidance and outstanding leadership in leading theGroup to where it is today. I would also like to recognise thetireless efforts of the highly effective management team andour pool of talented employees for their diligence,dedication, passion and professionalism in achieving our goals.We are very fortunate to have the right set of skills, talentand agility to realise our goals and aspirations.

Last but not least, on behalf of the Board, I would like to take this opportunity to acknowledge the continuedconfidence and encouragement from all our stakeholders;our shareholders, customers, suppliers, business partners,regulatory authorities and financiers for their unwaveringsupport and trust in Taliworks. We will continue to build ourskills and expertise to further enhance the returns and valuesfor all our stakeholders in our push for growth.

Thank you.

Tan Sri Dato’ Seri Ong Ka TingSenior Independent Non-Executive Chairman

Our strategy isunderpinned by ourdedication towards ourclear and focused businessgoals as we leverage onour solid businessfoundation.


REVIEW OF FINANCIAL PERFORMANCE

For the financial year ended 31 December 2016, the Group disposed of its entire wastemanagement business in the People’s Republic of China (“Discontinued Operations”), netting anexceptional one-off gain of RM54.84 million. For that year, the results of the Group reflected thefinancial performance from both the Continuing and Discontinued Operations.

The following is a summary of the Group’s financial performance for the financial year ended 31December 2017 as compared to the financial year ended 31 December 2016: -

2016 2017

Financial Results(in RM’000)

Continuing Operations

Revenue 304,856 368,640Operating Profit 95,498 68,378Profit before tax 84,902 49,727Profit for the year 93,293 42,080

Discontinued Operations – for the period from 1 January 2016 to 17 May 2016

Revenue 27,562 -Operating Loss (1,590) -Loss before tax (10,432) -Loss for the year (10,944) -

Profit for the year segregated into: -- Continuing Operations 93,293 42,080- Discontinued Operations 54,842# -

Total 148,135 42,080

# Profit for the year is arrived at after accounting for the gain on disposal of the Discontinued Operations ofRM65.786 million

ManagementDiscussionand Analysis


2016 2017

Financial Position(in RM’000) Total Assets Employed 2,456,039 2,371720Shareholders’ Equity 1,120,972 1,053,534 Key Financial Ratio Basic EPS (sen) 10.54 2.40Net Asset per Share (sen) 92.67 87.11Return on Equity (%) 13.1* 3.9Return on Assets Employed (%) 5.5* 1.7Net Debt-to-Equity (%) 13.9 19.2

* calculated based on Profit for the year including Profit from Discontinued Operations

The Return on Equity is calculated by dividing the Profit for the year with the average of the opening and closing balance of Shareholders’Equity.

The Return on Assets Employed is calculated by dividing the Profit for the year with the average of the opening and closing balance of TotalAssets Employed.

Overall Summary of Financial Results

For the current financial year, the Group posted revenue ofRM368.64 million, up from RM304.86 million in the previousyear while profit for the year came in at RM42.08 million,which was a substantial decrease from RM148.14 millionrecorded a year ago. Revenue for the year was recognised asa net amount after taking into account a provision fordiscounting on a deferred payment consideration of RM6.23million (2016: RM62.32 million) arising from the delay incollection of trade receivables from Syarikat Pengeluar AirSungai Selangor Sdn. Bhd. (“SPLASH”).

Basic and diluted earnings per share stood at 2.40 sen/share (2016: 10.54 sen/share) with Continuing Operationscontributing 2.40 sen/share (2016: 6.23 sen/share) and Discontinued Operations contributing NIL sen/share (2016: 4.31sen/share).


Commentary on the Performance of Revenue ofthe Group - Continuing Operations

For the current financial year, the Group’s revenue(excluding the provision for discounting on a deferredpayment consideration) increased from RM367.17 millionto RM374.87 million or by 2.1%, mainly attributable tohigher contribution from the construction division whichsaw the division record a revenue of RM51.74 millioncompared to RM39.63 million a year ago. After taking intoaccount the impact from the provision for discounting ona deferred payment consideration, the Group’s reportedrevenue stood at RM368.64 million (2016: RM304.86million), a jump of RM63.78 million as a result of a lowerprovision for discounting on a deferred paymentconsideration of RM6.23 million (2016: RM62.32 million).The contribution of revenue from each of the businessdivisions (except for the waste management division and ajoint venture company involved in the toll highway, both ofwhich are equity accounted) is tabulated below as follows:-

2016 2017 RM’000 RM’000 Water treatment, supply and distribution 231,829 232,220

Construction 39,626 51,740Toll highway 92,672 85,647Others 3,047 5,265 367,174 374,872

Less: Provision for discounting on a deferred payment

consideration (62,318) (6,232) 304,856 368,640

The lower provision for discounting on a deferred paymentconsideration in the current financial year was attributableto the adoption on a new basis, where repayments fromSPLASH were applied to settle current billings over theolder billings, whereas previously repayments were applied to settle older billings over the current billings. Theadoption of this basis resulted in a lower provision being required to discount receivables to be set-off against revenue. Correspondingly, a higher provision fordiscounting of receivables was to be recognised inadministrative and other expenses, as opposed to theprevious basis, where higher provision for discounting onreceivables was included in the revenue and a reversal ofdiscounting of receivables was recognised as otheroperating income. As a result of this, revenue andadministrative and other expenses for the current yearwere higher than the corresponding year, whereas otheroperating income was lower than the corresponding year.This was reflected in the financial results for the currentyear where other operating income was stated at RM8.30million (2016: RM42.13 million) and administrative andother expenses reported at RM94.28 million (2016:RM43.69 million).

At the operating level, revenue from the water treatment,supply and distribution business recorded an increase fromRM231.83 million in the previous year to RM232.22 million,reflecting a marginal increment of 0.2%. Despite the lowermetered sales experienced in both the water treatmentoperations, this segment was still able to register an increasein the revenue due to higher electricity and chemicalrebates. For the Sungai Selangor Water Treatment WorksPhase I (“SSP1”) operated by Sungai Harmoni Sdn. Bhd.(“Sungai Harmoni”), metered sales were lower by 0.7%from 366.45 million m3 to 363.90 million m3. The Langkawioperations operated by Taliworks (Langkawi) Sdn. Bhd.(“Taliworks Langkawi”), also reported lower metered salesby 2.4% i.e. from 20.27 million m3 to 19.78 million m3 inthe current financial year under review. The total revenuefrom the water treatment, supply and distribution businessof RM232.22 million (2016: RM231.83 million) comprisedof RM172.42 million (2016: RM171.47 million) from SungaiHarmoni and RM59.80 million (2016: RM60.36 million)from Taliworks Langkawi, each representing 74% and 26%

Management Discussion and Analysis


respectively. There were no increases in the Bulk Sale Rate(“BSR”) during the year. Instead, the increase took effect on1 January 2018 from RM0.42/m3 to RM0.44/m3 for SSP1,and from RM2.15/m3 to RM2.24/m3 for the Langkawioperations. As in prior years, the water treatment, supplyand distribution business continues to be the biggestcontributor to the revenue of the Group, accounting forclose to 62% (2016: 63%) of the Group’s total revenue,before taking into account the impact of the provision fordiscounting on a deferred payment consideration.

For the construction division, revenue was higher byRM12.11 million from RM39.63 million in the previous yearto RM51.74 million in the current year from the on-goingprojects. This division contributed close to 14% of theGroup’s total revenue.

The revenue contribution from the toll highway division isderived solely from a 51% indirect subsidiary, Grand SagaSdn. Bhd. (“Grand Saga”), which operates the Cheras-Kajang Highway. Revenue was lower at RM85.65 millioncompared to RM92.67 million achieved in the previousyear, primarily due to the receipt of toll compensation inyear 2016 from the Federal Government of RM9.54million. The toll compensation arose as a result of thedeferment of toll rate hike, which was to commence on 1January 2015, but was subsequently deferred to 15October 2015. The total revenue of RM85.65 millioncomprised of revenue from toll highway contributingRM68.97 million (2016: RM65.84 million) and receipt fromgovernment compensation amounted to RM16.68 million(2016: RM26.83 million).

Commentary on Performance of the Profit of theGroup - Continuing Operations

2016 2017 RM’000 RM’000 Water treatment, supply and distribution 44,862 35,632

Construction 2,645 2,824Toll highway 45,175 48,709Others 2,816 (18,787)

Operating profit 95,498 68,378Finance cost (23,152) (22,584)Share of results of joint venture 318 2,748Share of results of associates 12,238 1,185

Profit before tax 84,902 49,727

Profit before tax came in considerably lower at RM49.73million compared to RM84.90 million a year ago, due toseveral factors, namely losses incurred on foreign exchange(both realised and unrealised) amounting to RM7.73million, as compared to a net gain on foreign exchange ofRM17.65 million in the corresponding period, lowercontribution from share of profits from associates andhigher operating costs in both of the water treatmentoperations. In the previous year 2016, the Group heldUSD32.72 million which had since been substantiallyconverted to Malaysian Ringgit (“MYR”) for payment ofdividends and working capital requirements. As at the endof the financial year 2017, the Group held a balance ofapproximately USD5.46 million, which was fully convertedto MYR in year 2018. The holding of USD was from theproceeds raised in year 2016 of USD54.6 million, as a resultof the disposal of the Group’s entire waste managementbusiness in China. Against the Malaysian Ringgit, the USDhas weakened significantly by almost 10% toUSD1.00/RM4.05 (closing rate as quoted from BNM’swebsite) as at the end of the year from USD1.00/RM4.49twelve months earlier.


In terms of the segmental performance, the watertreatment, supply and distribution division contributed anoperating profit of RM35.63 million (2016: RM44.86million). However, stripping out the effects of thediscounting on the deferred payment consideration, theoperating profit would be RM87.12 million (2016: RM94.32million). Despite the higher revenue for the year, theprofitability of the division was impacted by higher unitelectricity costs due to the increases in TNB’s SpecialIndustrial Tariff, which commenced in January 2017, higherrehabilitation and maintenance costs, increases in unitchemical costs and late penalty charged on outstandingelectricity billings.

In arriving at the provision for discounting on a deferredpayment consideration for the year, the Group has madeseveral critical assumptions on the timing of payment fromSPLASH on the gross amount outstanding of RM616.30million (2016: RM502.19 million), reflecting an increase ofRM114.11 million over a period of twelve months. Furtherdetails on the critical assumptions made can be found inNote 25 to the Financial Statements. Over the sameperiod, the total payment received by Sungai Harmoni fromSPLASH amounted to RM68.64 million (2016: RM76.88million). The amount owed by SPLASH has beencontinuously escalating due to only partial payments beingmade to Sungai Harmoni from SPLASH. Since July 2016,the quantum of payments from SPLASH had been reducedfrom about 60% to approximately 34% to 38% of monthlybillings with no indication whether the quantum will beincreased or decreased in the future. The Group has haddiscussions with the Selangor Economic Planning Unit,Pengurusan Air Selangor Sdn. Bhd. and SPLASH, collectivelyand/or individually, to reach a possible settlement on theamount due from SPLASH. Whilst several settlement termshave been discussed, right up to the third quarter of 2017,no final terms have been concluded. The conclusion of theSelangor water restructuring exercise will most likely pavethe way for the amount owing by SPLASH to be addressed.However, if this issue is addressed only in 2018, the finalterms of payment from SPLASH will have a material impact

to the financial results of the Group either favourably orotherwise. As at the end of the financial year, the totalaccumulated provision for discounting of receivables madewas approximately RM175.60 million (2016: RM124.12million), representing almost 28% of the gross receivablefrom SPLASH. If the amount due from SPLASH can beaddressed following the conclusion of the Selangor waterrestructuring exercise, the Group will potentially recogniseback the accumulated provision for discounting ofreceivables into the income statement, based on theassumption that the amount due from SPLASH is paid infull, without any deductions and no deferment of periodover time.

As with the previous year, the possible outcomes from theSelangor water restructuring exercise still remain uncertainand is extremely difficult to ascertain what is the likelyoutcome. Therefore, should this issue remain unresolved,Sungai Harmoni’s financial position in clearly untenable,especially if the quantum of the monthly payments of 34%to 38% does not improve considerably. Consequently, thiswill have an adverse impact on the operations of SungaiHarmoni as the company will be hard pressed to fulfil itspayment obligations to its major suppliers, particularly thesuppliers of electricity and chemicals and provision ofservices for rehabilitation, upkeep and maintenance. As thisis a significant issue to the financial results, the Auditors haveplaced an emphasis of matter in their report on theuncertainty over the collectability of the amount due fromSPLASH, as well as highlighted the assessment of thecarrying amount of the trade receivable due to uncertaintyover the collectability as a Key Audit Matter in their reportto shareholders.

The construction division, meanwhile, contributed RM2.82million, marginally higher than the RM2.64 million achievedlast year. Although the revenue has increased substantiallyduring the current financial year, the operating profitsqueezed by competitively priced margins, was impactedfrom higher overheads, specifically from staff incentivesincurred to secure projects.



As for the toll highway division, whilst revenue was lowerfor the year as a result of toll compensation of RM9.54million received by Grand Saga in 2016, operating profitwas higher at RM48.71 million compared to RM45.18million in the previous year. This was primarily attributableto the recognition of write-back of over-provision for heavyrepairs in the fourth quarter of 2017 due to deferment ofthe schedule of major heavy repairs from 2018 to 2021,based on its re-assessment of pavement conditions at theCheras-Kajang Highway following the substantial pavementrepair works undertaken by MRT Corporation, uponcompletion of the Klang Valley Mass Rapid Transit Line 1 inJuly 2017.

The Group’s share of results of associates amounting toRM1.19 million was markedly lower than the RM12.24million recorded in the previous year. The Group’s shareof results from associates is principally in respect of its 35%equity investment in SWM Environment Holdings Sdn. Bhd.(“SWMH”). Following the completion of the acquisition ofSWMH in May 2016, the Group equity accounted for theresults of SWMH. Although the profit contributioncommenced from the date of completion of theacquisition, the share of results of SWMH for the currenttwelve months was at a loss at RM0.2 million compared toRM11.3 million in the corresponding year. This is mainlyattributable to lower PAT recorded by SWMH due tolower revenue, higher depreciation and financing cost, aswell as higher amortisation of its concession assets. For theyear ended 2017, SWMH reported an audited PAT ofRM148.4 million compared to RM193.3 million achieved ayear ago.

On the other hand, the Group’s share of results from jointventures amounting to RM2.75 million was comparativelyhigher than the RM0.32 million recorded in the previousyear. The Group’s share of results from joint venture is inrespect of its investment in Grand Sepadu (NK) Sdn. Bhd.(“Grand Sepadu”), which operates the New North KlangStraits Bypass Expressway (“NNKSB Expressway”). InOctober 2017, Grand Sepadu received a cash

compensation of RM8.125 million from the Governmentof Malaysia for non-increase in toll rate hike scheduled on1 January 2016. The compensation was in respect of thebalance of the compensation receivable for the year 2016and a 50% advance compensation for 2017.

Statement of Financial Position

As at the end of the financial year, the Group’s net assetsper share decreased to RM0.8711 from RM0.9269 a yearago principally from the depletion of cash reserves used toreward shareholders with dividends. For the year, dividendspaid out amounted to approximately RM72.57 million(2016: RM96.76 million) with another RM24.19 million paidin January 2018. The dividends paid by the Company werederived from the dividend income and management feesreceived from the toll highway, waste management andwater treatment, supply and distribution divisions (exceptfor Sungai Harmoni) as well as the proceeds from theconversion of USD. The Group held deposits, bank andcash balances and available-for-sale financial assets totallingRM214.22 million, down from RM330.72 million in theprevious year. Other than payment of dividends, the cashreserves of the Group had also diminished from the fullrepayment of a revolving credit facility amounting toRM70.0 million, interest payments of RM22.7 million andworking capital requirements. Out of the total deposits,cash and bank balances and available-for-sale financial assets,approximately RM33.0 million was held as securities forbanking facilities secured by the Group, whilst RM105.2million was subjected to restrictions imposed under a sukukissued by a subsidiary, Cerah Sama Sdn. Bhd. (“CerahSama”). There is no foreseeable major capital expenditureexpected to be incurred in the next twelve months. Whererequired, the Group has the capability and flexibility to gearup to undertake any cash acquisitions in pursuance of itsstrategy to acquire infrastructure assets/businesses.Alternatively, the Group has at its disposal, several otheroptions to raise funds, either through a cash call fromshareholders or a private placement of shares, dependingon market conditions.


Although borrowings of the Group have decreased fromRM486.40 million to RM416.73 million, net gearing inchedup slightly from 0.14 times to 0.19 times due to thereduction in the shareholders’ equity. The amount ofshareholders’ equity as at the end of the year was atRM1.054 billion, down from RM1.121 billion from theprevious year. Total assets stood at RM2.372 billion (2016:RM2.456 billion), whereas total liabilities stood at RM1.044billion (2016: RM1.058 billion).

The higher trade receivables, particularly the amount owedby SPLASH continues to be a major concern due to theunresolved Selangor water restructuring exercise. As atthe end of the financial year, the carrying amount of tradereceivables, both current and non-current, increased toRM501.29 million from RM430.25 million in the previousyear, with the provision for discounting at RM175.60 million(2016: RM124.12 million). Other than the provision fordiscounting, no impairment was made as the amount wasnot disputed. The Group is optimistic that the tradereceivables from SPLASH will be adequately addressedonce the Selangor water restructuring exercise is resolved.Consequential to the increase in trade receivables, tradepayables have also increased from RM88.00 million in 2016to RM132.87 million primarily for Sungai Harmoni.

With the new Companies Act 2016 implemented on 31January 2017, the concept of authorised share capital andpar value of share capital were abolished. Consequently, thecredit balance of the share premium account of RM196.66million held in Reserves became part of the Company'sshare capital. As a result, the share capital of the Companyincreased from RM241.90 million to RM438.56 million andcorrespondingly resulted in a decrease in Reserves. Therewas no impact on the number of ordinary shares issued orany relative entitlement of any of the members as a resultthereof. The share capital of the Company comprises of1.209 billion ordinary shares. The Company had also issued241.89 million of outstanding Warrants 2015/2018exercisable at RM1.70, which will expire on 11 November2018. The Warrants, if exercised, will strengthen the capitalbase of the Company.

Key Audit Matter (“KAM”)

In the current financial year, the assessment of impairmentof trade receivables from SPLASH continued to be flaggedout by the Auditors as a KAM. The amount of tradereceivables is significant to the Group and significantmanagement judgement is required in estimating the timingof collection of the receivables, discount rate to be usedand the probability of the outcome. As at 31 December2017, the net carrying amount of receivables owed bySPLASH amounted to RM440.70 million (2016: RM378.08million) compared to the total assets employed by theGroup of RM2.37 billion.

Additionally, the Auditors have also included the assessmenton the impairment of goodwill and intangible assets relatingto Cerah Sama as a KAM. The assets of Cerah Sama aresignificant to the Group and the key bases and assumptionsused in the estimation of the recoverable amount involvea significant degree of management judgement. As at 31December 2017, the carrying amount of goodwill andintangible assets amounted to RM129.39 million andRM1.13 billion respectively compared to the total assetsemployed by the Group of RM2.37 billion.

Review of Business Divisions

The following is a review of the operating and financialperformance of each of the operating business divisions ofthe Group.


WATER AND ENGINEERING DIVISION

The combined production from SSP1, SSP2 andSSP3 for the past five years indicating that thedemand for treated water in Klang Valley is stillrelatively robust and on the uptrend.


:: Sungai Harmoni Sdn. Bhd. ::

Compared to a year ago, the average production from SSP1 decreased by 1.1% from 1,004.3 million litres per day(“MLD”) to 993.8 MLD in the current year. In terms of metered output, the plant produced about 362.73 million m3

over a period of 365 days. In 2016, SSP1 recorded a metered output of 367.59 million m3 over 366 days. Although theaverage production in 2017 was lower than in 2016, nevertheless, it was still higher than the 957.1 MLD recorded in2015. Based on the design capacity of 950 MLD, SSP1 is already over producing by almost 4.6%. Corresponding to thedecline in metered output from SSP1, the combined production from SSP1, SSP2 and SSP3, which are the three majorwater treatment plants operating along the Sungai Selangor river, also saw a decline of about 2.0% (2016: +3.8%) to anaverage of 2,726 MLD compared to the average of 2,783 MLD in 2016 due to the slight decline in consumer demand.Of the total combined production from the three water treatment plants, SSP1 supplied about 36.5%, a tad higher thanthe 36.1% in 2016 of treated water from the Sungai Selangor river basin to Syarikat Bekalan Air Selangor Sdn. Bhd.(“SYABAS”), the concessionaire for the distribution of treated water in the state of Selangor and the Federal Territoriesof Kuala Lumpur and Putrajaya. The following is the historical metered output from SSP1 and the combined productionfrom SSP1, SSP2 and SSP3 for the past five years indicating that the demand for treated water in Klang Valley is stillrelatively robust and on the uptrend.

Significant developments• 2013 – completion of the upgrading of pumping installations to its original design capacity of 950 MLD in March• 2014 – increase in the BSR on 1 January. This has no impact to the production.

* The combined production for SSP1/2/3 was tabulated from internal sources

Average Production in MLD

1,000

1,500

3,000

2,500

2,000

500

02013

934

2,63

0

2014

2,65

3

958

2015

2,68

1

957

2016

2,78

3

1,00

4

2017

2,72

6

994

SSP 1 SSP1/2/3


At the start of the year 2017, both Sungai Tinggi dam andSungai Selangor dam were at critical levels due to thereduction in rainfall over the catchment areas and a higherquantum of releases of raw water to augment the riverflow at Sungai Selangor towards the end of 2016. However,with the proactive measures undertaken by the SelangorState through its agencies, namely the Unit PerancangEkonomi Negeri (“UPEN”) and Lembaga Urus Air Selangor(“LUAS”

Documents

ANNUAL REPORT 2 0 1 7 - MalaysiaStock.Biz...2018/04/16 · TALIWORKS CORPORATION BERHAD (6052-V) I annual report 2017 3 COMPANY SECRETARIES Ms. Tan Bee Hwee (MAICSA 7021024) Ms. Queck