ANNUAL REPORT 2016 PETRONAS CHEMICALS GROUP BERHAD (459830-K)
EXCELLENCE. DYNAMIC GROWTH
E X C E L L E N C E . D Y N A M I C G R O W T H
T H E P U R S U I T O F E XC E L L E N C E I S A D R I V I N G F O R C E AT P E T R O N A S C H E M I CA L S G R O U P B E R H A D ( P C G ) .
I T S PA R K S O U R C R E AT I V I T Y, E M B E D S O U R C O M M I T M E N T TO S A F E T Y, A N D F U E L S A D E S I R E TO C R E AT E
VA L U E I N E V E RY T H I N G W E D O. T H I S A L L OW E D U S TO R I D E OV E R Y E T A N OT H E R C H A L L E N G I N G Y E A R .
F O C U S I N G O U R E N E R G I E S O N S T R E N GT H E N I N G O U R B A S I C P E T R O C H E M I CA L S B U S I N E S S , W H I L E
D I V E R S I F Y I N G I N TO D E R I VAT I V E S , S P E C I A LT Y C H E M I CA L S A N D S O L U T I O N S , W E N OT O N LY OV E R CA M E
M A R K E T U N C E R TA I N T I E S , W E S E T N E W B E N C H M A R K S I N 2 0 1 6 . O P E R AT I O N A L E XC E L L E N C E R E S U LT E D I N
9 6 % P L A N T U T I L I S AT I O N , S U R PA S S I N G WO R L D - C L A S S S TA N DA R D S . T H I S , C O M B I N E D W I T H C O M M E R C I A L
A N D I N N OVAT I O N E XC E L L E N C E , L E D TO O U R H I G H E S T E B I T DA M A R G I N S I N C E O U R L I S T I N G. L E V E R AG I N G
O N O U R U N D E R S TA N D I N G O F M A R K E T D E M A N D, W E H AV E I N T H E P I P E L I N E A N U M B E R O F G R OW T H
P R OJ E C T S T H AT D R I V E O U R S T R AT E G I C V I S I O N . W I T H T H E P E N G E R A N G I N T E G R AT E D C O M P L E X ( P I C ) A S
A K E Y CATA LYS T, T H E S E P R OJ E C T S W I L L C R E AT E G R E AT E R VA L U E F O R O U R C U S TO M E R S , S H A R E H O L D E R S ,
E M P L OY E E S , B U S I N E S S PA R T N E R S A N D C O M M U N I T I E S . T H E H E X AG O N S O N T H E C OV E R R E P R E S E N T
T H E M O L E C U L A R S T R U C T U R E O F T H E C H E M I CA L S W E P R O D U C E . T H E I R L I N K AG E D E P I C T S T H E M A N Y
R E L AT I O N S H I P S W E H AV E B U I LT W I T H O U R VA R I O U S S TA K E H O L D E R S W H I C H C O N T R I B U T E TO O U R O N G O I N G
DY N A M I C G R OW T H .
E X C E L L E N C E . D Y N A M I C G R O W T H
T H E P U R S U I T O F E XC E L L E N C E I S A D R I V I N G F O R C E AT P E T R O N A S C H E M I CA L S G R O U P B E R H A D ( P C G ) .
I T S PA R K S O U R C R E AT I V I T Y, E M B E D S O U R C O M M I T M E N T TO S A F E T Y, A N D F U E L S A D E S I R E TO C R E AT E
VA L U E I N E V E RY T H I N G W E D O. T H I S A L L OW E D U S TO R I D E OV E R Y E T A N OT H E R C H A L L E N G I N G Y E A R .
F O C U S I N G O U R E N E R G I E S O N S T R E N GT H E N I N G O U R B A S I C P E T R O C H E M I CA L S B U S I N E S S , W H I L E
D I V E R S I F Y I N G I N TO D E R I VAT I V E S , S P E C I A LT Y C H E M I CA L S A N D S O L U T I O N S , W E N OT O N LY OV E R CA M E
M A R K E T U N C E R TA I N T I E S , W E S E T N E W B E N C H M A R K S I N 2 0 1 6 . O P E R AT I O N A L E XC E L L E N C E R E S U LT E D I N
9 6 % P L A N T U T I L I S AT I O N , S U R PA S S I N G WO R L D - C L A S S S TA N DA R D S . T H I S , C O M B I N E D W I T H C O M M E R C I A L
A N D I N N OVAT I O N E XC E L L E N C E , L E D TO O U R H I G H E S T E B I T DA M A R G I N S I N C E O U R L I S T I N G. L E V E R AG I N G
O N O U R U N D E R S TA N D I N G O F M A R K E T D E M A N D, W E H AV E I N T H E P I P E L I N E A N U M B E R O F G R OW T H
P R OJ E C T S T H AT D R I V E O U R S T R AT E G I C V I S I O N . W I T H T H E P E N G E R A N G I N T E G R AT E D C O M P L E X ( P I C ) A S
A K E Y CATA LYS T, T H E S E P R OJ E C T S W I L L C R E AT E G R E AT E R VA L U E F O R O U R C U S TO M E R S , S H A R E H O L D E R S ,
E M P L OY E E S , B U S I N E S S PA R T N E R S A N D C O M M U N I T I E S . T H E H E X AG O N S O N T H E C OV E R R E P R E S E N T
T H E M O L E C U L A R S T R U C T U R E O F T H E C H E M I CA L S W E P R O D U C E . T H E I R L I N K AG E D E P I C T S T H E M A N Y
R E L AT I O N S H I P S W E H AV E B U I LT W I T H O U R VA R I O U S S TA K E H O L D E R S W H I C H C O N T R I B U T E TO O U R O N G O I N G
DY N A M I C G R OW T H .
E X C E L L E N C E . Efficiency, reliability and safety are at the heart of everything we do. Sound management
and the drive for excellence continues our pursuit for greater heights across all of our
operating units.
Customised value propositions and reliability are valuable differentiators to our success.
Leveraging on our marketing acumen, we are able to sustain as well as expand our
network and capabilities.
Innovation is an integral part of the company that differentiates and allows us to adapt
to changing market landscapes. We are able to connect the dots for our customers from
a wide range of industries and fortify our market position.
INNOVATIVE SOLUTIONS
• Connectwithourcustomers’specificbusinesschallengesandfortifyourmarket position through differentiation.
• Pursue collaborative efforts between customers and various innovation networks to deliver focused applications of products and process technologies.
INNOVATIVE CULTURE
• Cultivate innovation mindset to deliver breakthrough performance through establishment of ideas and innovation management platform accessible throughout the Group.
• Position innovation as a key leadership attribute.
PLANT RELIABILITY
• Performinternalreliabilityandefficiencyenhancementprogrammes.
• Invest in technical capabilities of our people.
• Maintain consistent top quartile world-class plant performance and Health, Safety & Environment (HSE) performance at all our operating units.
TURNAROUND MANAGEMENT
• Centralised our turnaround functions and installed tighter controls to deliver flawlessplantturnarounds;executedsafely,effectivelyandonschedule.
• Coordinate downtime plans of all our facilities at optimum level through centralised management.
SUPPLIER RELATIONSHIP MANAGEMENT
• Collaborate across the value chain through various improvement programmes resulting in higher feedstock volume and better feed composition from upstream with higher recovery and more reliable utilities supply.
CUSTOMER FOCUS
• Develop innovative customised solutions and channel towards high value applications.
• Offer effective technical support to serve our customers better.
SUSTAIN & ENHANCE MARKET POSITION
• FocusondomesticandkeymarketsintheAsiaPacificregionwherewehavegeographical advantage.
• Ensure unyielding reliability in delivery and product quality, as well as establish strategic collaborations with customers to develop solutions.
• Strengthen our regional presence with overseas marketing subsidiaries in Thailand, China and Indonesia.
CX CAPABILITIES
• Improve our market savviness capabilities with the right systems and tools to capture better value.
• Develop internal expertise to enhance our competitive edge and resilience.
O P E R A T I O N A L E X C E L L E N C E I N N O V A T I O N E X C E L L E N C E C O M M E R C I A L E X C E L L E N C E
H I G H LY R E AC T I V E
P O LY I S O B U T E N E
( H R - P I B )
D Y N A M I C G R O W T H
S A B A H A M M O N I A
U R E A ( S A M U R )
P E N G E R A N G
I N T E G R A T E D
C O M P L E X ( P I C )
INTEGRATED
AROMA
INGREDIENTS
COMPLEX
/LOCATION/
Sipitang, Sabah
/LOCATION/
Pengerang, Johor
/LOCATION/
Gebeng, Pahang
/LOCATION/
Gebeng, Pahang
/LOCATION/
Gebeng, Pahang
/CUMULATIVE CAPACITY/
5.1 million mtpa primarily contributed by SAMUR and PIC
/PRODUCT APPLICATION/
Granular urea fertiliser for agriculture and industrial applications such as adhesives and moulding powder
/PRODUCT APPLICATION/
Polymers - Feedstock for manufacturing plastic products, including packaging films, wires, cables and ducting
Glycols - Feedstock for manufacturing polyester fibres, resins and oil & gas chemicals
/PRODUCT APPLICATION/
Aroma ingredients are sold to the flavour and fragrance industry, mainly in home and personal care products and in the food industry as well as pharmaceutical applications
/PRODUCT APPLICATION/
Chemical intermediate used as a compound, in the production of synthetic lubricants, as well as oil additives, functional fluids like automotive coolants and other applications in various industries
/PRODUCT APPLICATION/
Intermediate product for the manufacturing of high-performance fuel and lubricant additives
/PROGRESS STATUS/
Successfully produced on-specification urea and in the process of ramping up for full commercial operations in 2017
/PROGRESS STATUS/
The project is progressing on schedule. Achieved the final investment decision (FID) for flexi polyethylene (Flexi PE) plant
/PROGRESS STATUS/
Within the range of start-up schedule and expect Citral production in 2017. The production units for Citronellol and L-Menthol will come on-stream in phases in 2017
/PROGRESS STATUS/
The plant came on-stream as planned with the successful production of on-specification 2-EHAcid in late 2016
/PROGRESS STATUS/
Construction underway and expected to start production in the fourth quarter of 2017
/POSITION/
PCG becomes second largest urea producer in Southeast Asia
/POSITION/
PCG becomes the largest glycols and polypropylene (PP) producer as well as the second largest HDPE producer in Southeast Asia
/POSITION/
First plant in Asia Pacific to produce intermediates for flavours and fragrances, marking PCG’s foray into derivatives, specialty chemicals and solutions
/POSITION/
The first and only 2-EHAcid plant in Southeast Asia paving the way for PCG to diversify into specialty chemicals
/POSITION/
The first and only HR-PIB plant in Southeast Asia allowing PCG to further diversify into specialty chemicals
/EMPLOYMENT OPPORTUNITIES/
Some 400 high-value direct jobs are created from this investment, in addition to spin-off opportunities for local support and services providers
/EMPLOYMENT OPPORTUNITIES/
An approximately 50,000 - 60,000 workers at peak project phase
/EMPLOYMENT OPPORTUNITIES/
Some 140 high-value direct jobs are expected to be created from these three investments, in addition to providing spin-off opportunities for over 1,000 local contractors
UREA 2-EHACIDPOLYMERS
& GLYCOLS
CITRAL,
CITRONELLOL
& L-MENTHOL
HR-PIBSAMUR PIC Integrated Aroma Ingredients Complex 2-EHAcid HR-PIB
2 - E T H Y L H E X A N O I C
AC I D ( 2 - E H AC I D )
OUR VISION
1
2
LOYALTY
INTEGRITY
SHAREDVALUES
3
4
PROFESSIONALISM
COHESIVENESS
The preferredCHEMICAL COMPANY
providing innovativecustomer solutions
PETRONAS CHEMICALS
GROUP BERHAD
AR16
1
Sectionone
02 THE LEADERSHIP
25 The Value Our Board Brings 26 ProfileofBoardMembers34 ManagementCommittee36 ProfileofManagementCommittee
OUR STRATEGIC PERFORMANCE 03
41 ManagementDiscussion&Analysis • ManagingDirector/CEO • ChiefFinancialOfficer • HeadofManufacturing • HeadofCommercial53 KeyGlobalMegatrends54 MarketOutlook56 StrategicIntent58 HowWeTreatRisks60 InvestorRelationsandSharePerformance63 FinancialCalendar64 OurAchievements66 PCGintheNews68 CalendarofEvents
01 ABOUT PETRONAS CHEMICALSGROUP BERHAD
3 AboutThisReport4 OurReportingSuite5 ALeadingChemicalPlayerintheRegion6 WhyInvestinUs8 OurPerformanceHighlights12 OurMilestones14 OurOperations16 OurReach18 GroupStructure20 CorporateInformation21 OrganisationalStructure22 ProductPortfolio
04 OUR RESPONSIBILITIES
75 SustainabilityatPETRONASChemicalsGroupBerhad • TheBoundariesatOurReporting • HowSustainabilityisGoverned • IdentifyingourSustainabilityFocusAreas • ReportingonOurFocusAreas • OurWayForward
05 HOW WE ARE GOVERNED
90 StatementonCorporateGovernance • BoardAuditCommitteeReport • NominationandRemunerationCommitteeReport116 StatementonRiskManagementandInternalControl
128 Directors’Report132 StatementbyDirectors133 StatutoryDeclaration134 StatementsofFinancialPosition135 StatementsofProfitorLossandOtherComprehensive
Income136 StatementsofChangesinEquity139 StatementsofCashFlows141 NotestotheFinancialStatements197 IndependentAuditors’Report201 ListofProperties205 AnalysisofShareholdings209 CorporateDirectory211 NoticeofAnnualGeneralMeeting(AGM)214 AdministrativeDetailsofPETRONASChemicals
GroupBerhad19thAGM• ProxyForm
06 OUR NUMBERS
WHAT’S INSIDE
T h i s s e c t i o n p r o v i d e s a c o m p r e h e n s i v e a c c o u n t o f
w h o w e a r e , h o w w e c r e a t e v a l u e f o r o u r v a r i o u s
s t a k e h o l d e r s , a n d t h e d o m a i n s w h e r e w e o p e r a t e .
I t a l s o e x p l a i n s w h a t w e i n t e n d t o a c c o m p l i s h
t h r o u g h t h i s a n n u a l r e p o r t a n d p r o v i d e s d e t a i l s
o f w h e r e s u p p l e m e n t a r y i n f o r m a t i o n o n t h e
C o m p a n y c a n b e f o u n d .
CONTENTS
3 AboutThisReport
4 OurReportingSuite
5 ALeadingChemicalPlayerintheRegion
6 WhyInvestinUs
8 OurPerformanceHighlights
12 OurMilestones
14 OurOperations
16 OurReach
18 GroupStructure
20 CorporateInformation
21 OrganisationalStructure
22 ProductPortfolio
*Thecross-referencingiconsreferreadersto
informationelsewhereinthisreport
ABOUT
PETRONAS
CHEMICALS
GROUP
BERHAD
PETRONAS CHEMICALS GROUP BERHAD
AR16
3
Sectionone
ABOUT THIS REPORT
AS THE LEADING INTEGRATED CHEMICALS PRODUCER IN MALAYSIA AND ONE
OF THE LARGEST IN SOUTHEAST ASIA, PCG HAS AN EXTENSIVE NUMBER OF
STAKEHOLDERS WHO ARE IMPACTED BY OUR BUSINESS, NOT ONLY BY OUR
FINANCIAL PERFORMANCE BUT ALSO THE WAY WE CONDUCT OUR BUSINESS.
WE APPRECIATE THAT THIS LARGE AND VARIED GROUP NEEDS TO UNDERSTAND
OUR COMMITMENTS AND POLICIES, OUR DIRECTIONS AND STRATEGIES, AND
OUR CURRENT AS WELL AS FUTURE PROSPECTS TO BE ABLE TO PLACE THEIR
TRUST IN US.
FORWARD-LOOKING STATEMENTS
Certain statements in this document are
forward-looking.Typically,theycontainwordssuch
as ‘anticipates’, ‘estimates’, ‘expects’, ‘projects’,
‘believes’,‘intends’,‘plans’,‘may’,‘will’and‘should’,
or similar expressions. Such statements relate
to the plans, objectives, goals, strategies, future
operationsandperformanceofPCG.Theyarenot
guarantees of future operating, financial or other
results and involve certain risks, uncertainties
and assumptions. Actual results and outcomes
may therefore differ materially from those
expressed or implied. We make no express or
impliedrepresentationorwarrantythattheresults
anticipated by such forward-looking statements
willbeachieved.Thesestatementsrepresentoneof
manypossiblescenariosandshouldnotbeviewed
asthemostlikelyorstandardscenario.Wearenot
obligated to update the historical information or
forward-lookingstatementsinthisdocument.
Althoughweprovidevariousreportsthroughouttheyear[see‘OurReportingSuite’onpage4],ourAnnualReport is intended topresentaclearandcomprehensivesummaryofthewayinwhichwehavecontinuedtocreatefinancialandnon-financialvalue forour stakeholdersover the12months.This year’sAnnualReportmarksasharpdeparture fromourpreviousreportsaswehavestrivedtocreategreatertransparencyinthecontentdisclosedaswellasthemannerinwhichitispresented.ThisisinlinebothwiththelatestreportingguidelinesforlistedcompaniesbyBursaMalaysiaSecuritiesBerhad(BursaMalaysia),aswellasourowndesiretoproduceareportthatisrelevant,readableandresponsible.
We have introduced a new section 'How We Treat Risks' see page 58 whichprovides an insight into our efforts to contain andmanage current risks.Wehave also restructured what was previously our Sustainability Report intodisclosureof‘OurResponsibilities’seepages75to88thatismorealignedwithourstakeholders’interests,focusingonareasthatarerelevanttothem.
Our financial statements, audited by KPMG PLT, have been prepared inaccordance with the Malaysian Financial Reporting Standards (MFRS),International Financial Reporting Standards (IFRS) and requirements of theCompanies Act, 1965 in Malaysia. Our non-financial statements reflect localandinternationalreportingguidelines,namelyMainMarketListingRequirement(MMLR)ofBursaMalaysia,theMalaysianCodeonCorporateGovernance2012(MCCG2012),BursaMalaysiaSustainabilityReportingGuidelines,InternationalIntegratedReportingFramework,aswellastheFTSE4Goodrecommendations.
WehavemadeeveryefforttoensurethisAnnualReportpresentsabalancedandaccessibleassessmentofourstrategy,performance,governanceandprospects.The issues and developments included were determined by quantitativeand qualitative considerations that have an impact on our current and futureperformance.
PETRONAS CHEMICALS
GROUP BERHAD
4
Sectionone
OUR REPORTING SUITE
Ourannualreportservesasthemostcomprehensivereportweproduceforourshareholdersandotherstakeholders.Inadditiontoprovidinganaccountofourfinancialperformance,italsodescribesthewayinwhichweupholdcorporategovernanceandsafeguardoursustainability.Itissupplementedwithonlinedisclosuresofourquarterlyfinancialresults,analystbriefings,Bursaannouncementsandmediareleases.
Report Reporting frameworks Assurance/Approval
ANNUAL REPORT
Ourprimaryreportforcommunicatingtoourshareholdersandotherstakeholders
� CompaniesAct,1965inMalaysia� MalaysianFinancialReportingStandards
(MFRS)� InternationalFinancialReporting
Standards(IFRS)� MainMarketListingRequirements(MMLR)
ofBursaMalaysia� MalaysianCodeonCorporateGovernance
2012(MCCG2012)� InternationalIntegratedReporting
Framework� BursaMalaysiaSustainabilityReporting
Guidelines� FTSE4Goodrecommendations
� Internalcontrolsandmanagementassurance
� Complianceandinternalauditreviews� ExternalauditbyKPMGPLTonfinancial
statements� Boardapprovalongovernanceand
financialinformation
QUARTERLY FINANCIAL STATEMENTS
Financialstatementsonourperformanceeveryquarter
� CompaniesAct,1965inMalaysia� MalaysianFinancialReportingStandards
(MFRS)� InternationalFinancialReporting
Standards(IFRS)� MainMarketListingRequirements(MMLR)
ofBursaMalaysia
� Internalcontrolsandmanagementassurance
� Complianceandinternalauditreviews� LimitedreviewbyKPMGPLTonfinancial information*� Boardapprovaluponendorsementbythe
BoardAuditCommittee
ANALYSTS AND STAKEHOLDERS BRIEFINGS
PresentationsontheGroup’sperformanceandkeyactivities
� Internalcontrolsandmanagementassurance
BURSA ANNOUNCEMENTS
AnnouncementsmadetoBursaMalaysiaonmaterialinformation
� MainMarketListingRequirements(MMLR)ofBursaMalaysia
� Internalcontrolsandmanagementassurance
� Boardapproval
MEDIA RELEASES
Announcementsmadetothemediaonkeycorporate,social,environmentalandfinancialeventsandactivities
� Internalcontrolsandmanagementassurance
Toaccessmoreinformationonourannouncements,logontowww.petronaschemicals.comorscantheQRcode
* ReportedtotheBoardanddoesnotcoverPartB,OtherExplanatoryNotesofQuarterlyReporttoBursaMalaysia
AR16
5
Sectionone
A LEADING CHEMICAL PLAYER IN THE REGION
PCG OPERATES A NUMBER OF WORLD-CLASS PRODUCTION SITES, WHICH ARE FULLY VERTICALLY INTEGRATED FROM FEEDSTOCK TO DOWNSTREAM END PRODUCTS.Withatotalcombinedproductioncapacityof10.8millionmetrictonnesperannum(mtpa),itisinvolvedprimarilyinmanufacturing,marketingandsellingadiversifiedrangeofchemicalproducts,includingolefins,polymers,fertilisers,methanolandotherbasicchemicalsandderivativeproducts.ListedonBursaMalaysiaandwiththreedecadesofexperienceinthechemicalsindustry,PCGisestablishedaspartofthePETRONASGrouptomaximisevaluefromMalaysia’snaturalgasresources.
PCGisoneofthetop10companiesintheFTSE4GoodBursaMalaysia(F4GBM)Index,outof200largestcompaniesrankedbymarketcapitalisation.ItiscommittedtoensuringthatitsbusinesspracticesareinlinewithgloballyrecognisedstandardsforEnvironment,Social&Governance(ESG)practices.
A TOTAL COMBINED PRODUCTION CAPACITY OF
10.8 MILLIONMETRIC TONNES PER ANNUM
THE LEADING INTEGRATED
CHEMICALSPRODUCER
IN MALAYSIA
OPERATES A NUMBER OF
WORLD-CLASS PRODUCTION SITES
DIVERSIFIED RANGE OF
CHEMICALPRODUCTS
OVER
THREE DECADESOF EXPERIENCE IN THECHEMICAL INDUSTRY 30
YEARS
PETRONAS CHEMICALS
GROUP BERHAD
6
Sectionone
WHY INVEST IN US
PCG IS THE INDUSTRY LEADER FOR HIGHLY ATTRACTIVE VALUE CREATION OPPORTUNITIES
FOR INVESTORS. WE HAVE MARKET LEADERSHIP ACROSS PRINCIPAL PRODUCTS BESIDES
GAS FEEDSTOCK ADVANTAGE AND FULLY INTEGRATED PRODUCTION FACILITIES. OUR CLOSE
PROXIMITY TO KEY GROWTH MARKETS HAS ENABLED US TO FORGE STRONG PARTNERSHIPS
WITH LEADING CHEMICALS AND ENERGY MAJORS.
BackedbytheparentageandsupportofPETRONASGroup,ourcompetitivestrengthsalsoincludeanattractivefinancialprofileandanexperiencedleadershipteam.
SECURE AND COMPETITIVE GAS BASED FEEDSTOCK SUPPLY
PC FERTILISER KEDAH, GURUNMethanebased KERTIH IPC
Ethane&methanebased
PC METHANOL, LABUANMethanebased
PC FERTILISER SABAH, SABAH Methanebased
ABF, BINTULUMethanebased
GEBENG IPCPropane&butanebased
PeninsularGasUtilisationpipelinenetwork
Gasfields
FULLY INTEGRATED FACILITIES AND INFRASTRUCTURE RESULTING IN LOWER COST, OPTIMUM YIELDS AND GREATER FLEXIBILITY
l Minimisemoleculeloss
l Maximisesproductionefficiency&margins
PCG VALUE CHAIN
Feedstock DerivativesBasicProducts
DownstreamDerivatives
IncreaseMarginCapture
AR16
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Sectionone
Why Invest in Us (Cont’d)
MARKET LEADERSHIP WITH ATTRACTIVE GROWTH MARKETS AND RETURNS
3RD
1ST
2ND
MTBE, BUTANOL, BGE ÐANOLAMINES PRODUCER IN SEA*
AMMONIA, UREA & BUTYL ACETATE PRODUCER IN SEA*
ETHOXYLATES, MEG & LDPE PRODUCER IN SEA*
LARGESTMETHANOL PRODUCERIN ASIA PACIFIC AND4TH LARGEST INTHE WORLD
CAPACITYGROWTHWITH WORLD-SCALE PLANTS
PORTFOLIOEXPANSIONWITH LEADING EDGE TECHNOLOGY
LARGE-SCALE ANDDIVERSIFIED PRODUCT PORTFOLIO LEADING TO ECONOMIES OF SCALE AND SPREADING MARKET RISKS
* by capacity
PROXIMITY TO KEY GROWTH MARKETS WHICH ENABLES US TO OPTIMISE INVENTORY AND HAVE COMPETITIVE STORAGE AND DISTRIBUTION
l Closetokeygrowth marketsinAsiaPacific
19days
6days
PETRONAS CHEMICALS
GROUP BERHAD
8
Sectionone
l HIGHEST PLANT UTILISATION OF 96% SINCELISTING
l IMPROVED PLANT RELIABILITY RESULTINGFROMEFFECTIVEASSETMANAGEMENT
l IMPROVEDFEEDSTOCKSUPPLYTHROUGHCLOSE RELATIONSHIP WITH SUPPLIERS
PLANT UTILISATION RATE
2014
2014
1.9
2015
2015
2.6
3.3
1.8
2013
2013
2016
2016
2012
2012
0.5
83%78% 80%
85%
CAPITAL EXPENDITURE ALLOCATED FOR EXISTING ASSETS AND FUTURE GROWTH
CapitalExpenditure(RMBillion) OPERATIONS CAPEX consistsofreliabilityandintegrityprojects,turnaroundactivities,valueimprovementprojectsandotheroperationalrequirements
GROWTH CAPEX mainlyforSAMUR,IntegratedAromaIngredientsComplex,2-EHAcid,HR-PIBandPIC
1.1
0.7 0.7
0.3
0.7
OUR PERFORMANCE HIGHLIGHTS
96%85%WORLDCLASS
REVENUE
billion
2016
RM13.9
EBITDA MARGIN
38%TOTAL DIVIDENDEBITDA
19senper ordinary share
RM5.3 billion
PROFIT AFTER TAX
RM3.2 billion
AR16
9
Sectionone
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME ITEMS:
RMMillion(unlessotherwisestated)12monthsended
2012 2013 2014 2015 2016
Revenue 16,599 15,202 14,597 13,536 13,860
ProfitBeforeTax 4,550 4,547 3,551 3,833 4,110
ProfitBeforeTaxas%Revenue 27% 30% 24% 28% 30%
ProfitAfterTax 3,837 3,504 2,726 3,091 3,222
ProfitAfterTaxas%Revenue 23% 23% 19% 23% 23%
EarningsperShare(sen)-Basic 44.0 39.3 30.8 34.8 36.7
EBITDA 5,778 5,076 4,644 4,660 5,291
EBITDAMargin 35% 33% 32% 34% 38%
STATEMENT OF FINANCIAL POSITION ITEMS:
RMMillion(unlessotherwisestated)Asat31December
2012 2013 2014 2015 2016
TotalAssets 25,920 27,731 28,463 30,833 31,948
TotalEquity 21,906 23,389 24,477 26,590 28,313
TotalLiabilities 4,014 4,342 3,986 4,243 3,635
NetTangibleAssetperShare(RM) 2.54 2.72 2.84 3.10 3.38
Our Performance Highlights (Cont’d)
PETRONAS CHEMICALS
GROUP BERHAD
10
Sectionone
Our Performance Highlights (Cont’d)
PROFIT (RM Million) & MARKET PRICE (USD/MT)
2012ProfitBeforeTax
12monthended
ProfitAfterTax AverageMarketPrice(USD/MT)2013 2014 2015 2016
4,550 4,547
3,5513,833
4,1103,837
3,504
2,7263,091 3,222
PROFIT AS % REVENUE
12monthended
2012 2013 2014 2015 2016
27%30% 30%
24%
28%
23% 23%
19%
23% 23%
ProfitBeforeTax ProfitAfterTax
REVENUE (RM Million)
16,599
2012 2013
15,202
2014
14,597
2015
13,53613,860
2016
12monthended
12monthended
EARNINGS PER SHARE-BASIC (SEN)
2012 2013 2014 2015
36.7
44.0
39.3
30.8
34.8
2016
REVENUE INCREMENT
comparedto2015
2016 2%+PROFIT AFTER TAX INCREMENT
comparedto2015
2016 4%+
809 820 759
557 467
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11
Sectionone
Our Performance Highlights (Cont’d)
TOTAL ASSETS (RM Million)
25,92027,731 28,463
30,83331,948
2012
Asat31December
2013 2014 2015 2016
Asat31December
TOTAL EQUITY (RM Million)
21,90623,389
24,47726,590
28,313
2012 2013 2014 2015 2016
TOTAL LIABILITIES (RM Million)
4,014
4,342
3,986
4,243
3,635
Asat31December
2012 2013 2014 2015 2016
NET TANGIBLE ASSETS PER SHARE (RM)
2.542.72
2.843.10
3.38
Asat31December
2012 2013 2014 2015 2016
TOTAL ASSETS INCREMENT
comparedto2015
2016 4%+TOTAL EQUITY INCREMENT
comparedto2015
2016 6%+
PETRONAS CHEMICALS
GROUP BERHAD
12
Sectionone
1992 Commencedproductionof
propylene,polypropyleneandMTBEatGebengComplex.
AcquisitionofmethanolplantinLabuan.
1999 Commencedproductionofurea,ammoniaandmethanolinGurun.
2004 ExpandedproductioncapacitiesofureaandammoniainBintulu.
2006 ExpandedproductioncapacitiesofureaandammoniainGurun.
2000 CommencedproductionofacrylicacidatBASFPETRONASChemicals
SdnBhd,Gebeng.Commencedproductionofbenzene,paraxylene,ammonia,vinylchloridemonomer,polyvinylchlorideandaceticacidat
KIPC.
1995 Commencedproductionofethyleneandpolyethyleneat
KertihIntegratedPetrochemicalComplex(KIPC).
2009 CommissioningofmegamethanolplantinLabuan.
AcquiredinterestinPETRONASChemicalsOlefinsSdnBhd,
PETRONASChemicalsGlycolsSdnBhdandPETRONAS
ChemicalsDerivativesSdnBhdfromDowChemicals.
2002 Commencedproductionof
olefins,glycolsandderivativesatKIPC.CommencedproductionofpolyvinylchlorideinBaria-Vung
Tau,Vietnam.
1997 CommencedproductionofstyrenemonomerinPasir
Gudang.
1985 Commencedproduction
ofureaandammoniain Bintulu.
OUR MILESTONES
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13
Sectionone
Our Milestones (Cont’d)
2012 TookovermarketingofchemicalsandperformancechemicalsinIndonesiaandSingaporefromDowChemicals.Decisiontodiscontinuevinylbusiness.
2014 CompleteddivestmentofPhuMyPlastics&ChemicalsCoLtdpursuanttodecisiontodiscontinuevinylbusiness.
2016 Producedon-specificationureafor
SAMUR.Producedon-specification2-EHAcid
atBASFPETRONASChemicalsSdnBhd.
Sanctioneddevelopmentandconstruction
ofFlexiPEprojectatPRPCPolymersSdn
BhdinPengerang.Incorporatedoverseas
marketingsubsidiaryinIndonesia-PT
PCMKimiaIndonesia.
2014 SecuredlicenseforPETRONAS
ChemicalsMarketing(Labuan)LtdasLabuanInternationalCommodityTradingCompany.Incorporated
overseasmarketingsubsidiariesinThailand-PCM(Thailand)CoLtdand
China-PCM(China)CoLtd.
2015 Sanctioneddevelopmentand
constructionof2-EHAcidandHR-PIBprojectsatBASFPETRONASChemicalsSdnBhdinGebeng.Acquired100%equityinPRPCPolymersSdnBhd,PRPCGlycols
SdnBhdandPRPCElastomersSdnBhdwhichwillundertakepetrochemical
projectsaspartofPengerangIntegratedComplexin
Pengerang.
2013 SanctioneddevelopmentandconstructionofAsiaPacific'slargestIntegratedAroma
IngredientsComplexatBASFPETRONASChemicalsSdnBhd
inGebeng.
2010 AcquiredinterestinPETRONAS
ChemicalsEthyleneandPETRONASChemicals
PolyethylenefromBP.ListedonMainMarketofBursaMalaysia.
2011 Sanctioneddevelopmentandconstructionofanewworld-
scalefertiliserplantinSipitang,Sabah(SAMUR).
PETRONAS CHEMICALS
GROUP BERHAD
14
Sectionone
OUR OPERATIONS
FEDERAL TERRITORYOF LABUANFederal Territory of Labuan• Methanol
SABAHSipitang• Ammonia• Urea
SARAWAKBintulu• Ammonia• Urea
KEDAHGurun• Ammonia• Methanol• Urea• NPKFertilisers*
JOHORPasir Gudang• StyreneMonomer*
PAHANGGebeng IntegratedPetrochemical Complex• MethylTertiaryButylEther(MTBE)• n-Butane• Propylene• Acrylics*• Butanediol*• Oxo-alcohols*• 2-EHAcid*
TERENGGANU Kertih Integrated Petrochemical Complex• Ammonia• Benzene• Butanol• ButylAcetate• CarbonMonoxide• Ethanolamines• Ethoxylates
• Ethylene• EthyleneGlycols• GlycolEthers• Oxogas• Paraxylene• Polyethylene• Propylene• AceticAcid*
PETRONAS CHEMICALS GROUP is headquartered in the
PETRONAS TWIN TOWERSKualaLumpurCityCentre.TheGroupcomprises30subsidiaries,jointventuresandassociatecompanies,producingandmarketingawiderangeofchemicalproducts.
*Productsproducedbyjointventureandassociatecompanies
AR16
15
Sectionone
Our Operations (Cont’d)
4.9PRODUCTION OFOLEFINS & DERIVATIVESFROM
5.9PRODUCTION OFFERTILISER & METHANOL FROM 11 5PLANTS PLANTS
CURRENT TOTALPRODUCTION CAPACITY OF
MILLIONMETRIC TONNES PER ANNUM (MTPA)10.8
MILLIONMTPA
MILLIONMTPA
• PCMTBE• PCDerivatives• PCGlycols• PCPolyethylene• PCOlefins• PCEthylene• PCAromatics
• PCMethanol• ABF• PCFertiliserKedah• PCAmmonia• MalaysianNPKFertilizerSdnBhd
• PCLDPE• BASFPETRONAS ChemicalsSdnBhd• IdemitsuSM(Malaysia)SdnBhd
• BPPETRONASAcetylsSdnBhd
PETRONAS CHEMICALS
GROUP BERHAD
16
Sectionone
OUR REACH
WearephysicallypresentinThailand,China,Indonesia,India,VietnamandthePhilippinesthroughouroverseassubsidiariesandrepresentativeoffices.
Intotal,41%ofourvolumeissold inSoutheastAsia(excludingMalaysia)marketswhile30%isbeingconsumedbytheMalaysianmarket.TheremainingofourtotalvolumearebeingchanneledtootherkeygrowthchemicalmarketsinNortheastAsiasuchasChina,Japan,SouthKorea,TaiwanandHongKong.
WE MARKET A WIDE RANGE OF CHEMICAL
PRODUCTS TO CUSTOMERS IN 30 COUNTRIES
WORLDWIDE PARTICULARLY IN ASIA PACIFIC. BESIDES
MALAYSIA, OUR KEY MARKETS INCLUDE THAILAND,
INDONESIA, SINGAPORE, VIETNAM, THE PHILIPPINES,
NORTHEAST ASIA, INDIA SUBCONTINENT, NORTH
AMERICA AND AUSTRALASIA.
USA
AR16
17
Sectionone
OURREACH
Our Reach (Cont’d)
INDIA
THAILAND
MALAYSIA
SINGAPORE
INDONESIA
AUSTRALIA
NEWZEALAND
VIETNAM
PHILIPPINES
CHINA
SOUTHKOREA JAPAN
TAIWAN
PETRONAS CHEMICALS
GROUP BERHAD
18
Sectionone
Wholly-ownedsubsidiaries Majority-ownedsubsidiaries Jointventuresandassociates
* Wholly-ownedsubsidiaryasremainingshareholdingisheldthroughothersubsidiarieswithinPCG** SubsidiarypursuanttoMalaysianFinancialReportingStandard10
64.35%
100%PETRONASChemicalsMethanolSdn Bhd(PCMethanol)
100%PETRONASChemicalsMTBESdn Bhd (PCMTBE)
100%PETRONASChemicalsDerivativesSdn Bhd(PCDerivatives)
100%PETRONASChemicalsGlycolsSdn Bhd(PCGlycols)
100%PETRONASChemicalsPolyethyleneSdn Bhd(PCPolyethylene)
100%PETRONASChemicalsAmmoniaSdn Bhd(PCAmmonia)
100%PETRONASChemicalsFertiliserSabahSdn Bhd(PCFertiliserSabah)
20%MalaysianNPKFertilizerSdn Bhd
PETRONAS CHEMICALS GROUP BERHAD
Manufacturing
GROUP STRUCTURE
88%PETRONASChemicalsOlefinsSdn Bhd(PCOlefins)
87.5%PETRONASChemicalsEthyleneSdn Bhd(PCEthylene)
70%PETRONASChemicalsAromaticsSdn Bhd(PCAromatics)
63.5%ASEANBintuluFertilizerSdn Bhd(ABF)
60%PETRONASChemicalsLDPESdn Bhd(PCLDPE)
100%PETRONASChemicalsFertiliserKedahSdn Bhd(PCFertiliserKedah)
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19
Sectionone
100%PRPCPolymersSdn Bhd(PRPCPolymers)
100%PRPCElastomersSdn Bhd(PRPCElastomers)
100%PETRONASChemicalsMarketingSdn Bhd(PCMarketing)
100%KertihPortSdn Bhd(KPSB)
100%VinylChloride(Malaysia)Sdn Bhd(VCMSB)
100%PolypropyleneMalaysiaSdn Bhd(PPMSB)
0.01%PCMChemicalIndiaPrivateLimited**
100%PETRONASChemicalsMarketing(Labuan)Ltd(PCMarketingLabuan)
100%PCM(China)CompanyLimited(PCMarketing China)
99.99%*
PCM(Thailand)CompanyLimited(PCMarketing Thailand)
40%BASFPETRONASChemicalsSdn Bhd
30%IdemitsuSM(Malaysia)Sdn Bhd
30%BP PETRONASAcetylsSdn Bhd
40%KertihTerminalsSdn Bhd
Marketing & Sales Services
Group Structure (Cont’d)
99.67%*
PTPCMKimia(Indonesia)(PCMarketingIndonesia)
100%PRPCGlycolsSdn Bhd(PRPCGlycols)
PETRONAS CHEMICALS
GROUP BERHAD
20
Sectionone
CORPORATE INFORMATION
* BankingrequirementsaremanagedcentrallybyPETRONASIFSSCtoenablemoreefficientbankingmanagementfortheGroupandtheCompany
DIRECTORS
MD ARIF MAHMOOD
(Chairman)
DATUK SAZALI HAMZAH
(ManagingDirector/ChiefExecutiveOfficer)
VIMALA V.R. MENON
CHING YEW CHYE
DONG SOO KIM
DATUK TOH AH WAH
ZAKARIA KASAH
FREIDA AMAT
BOARD AUDIT COMMITTEE
Vimala V.R. Menon (Chairman)
Ching Yew Chye
Dong Soo Kim
Datuk Toh Ah Wah
Freida Amat
NOMINATION & REMUNERATION COMMITTEE
Ching Yew Chye (Chairman)
Vimala V.R. Menon
Dong Soo Kim
COMPANY SECRETARIES
Noor Lily Zuriati Abdullah
Kang Shew Meng
REGISTRAR
SymphonyShareRegistrarsSdnBhdLevel6,SymphonyHousePusatDaganganDana1JalanPJU1A/4647301PetalingJayaSelangor,DarulEhsanMalaysiaTel:(+603)78418000Fax:(+603)78418151
REGISTERED OFFICE
Tower 1PETRONASTwinTowersKualaLumpurCityCentre50088KualaLumpurMalaysiaTel:(+603)20515000Fax:(+603)23311747
BUSINESS ADDRESS
Level15,Tower1PETRONASTwinTowersKualaLumpurCityCentre50088KualaLumpurMalaysiaTel:(+603)20515000Fax:(+603)20513888
BANKING SERVICES PROVIDER
PETRONASIntegratedFinancialSharedServiceCentre(IFSSC)*
STOCK EXCHANGE LISTING
MainMarketofBursaMalaysiaSecuritiesBerhad
AUDITORS
KPMGPLT
WEBSITE
www.petronaschemicals.com
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21
Sectionone
ORGANISATIONAL STRUCTURE
BOARD AUDIT COMMITTEE
NOMINATION AND REMUNERATION COMMITTEE
COMPANY SECRETARY
BOARD OF DIRECTORS
CHAIRMAN
MANAGING DIRECTOR/CHIEF EXECUTIVE OFFICER
MANAGEMENT COMMITTEE
PETRONAS CHEMICALS
GROUP BERHAD
22
Sectionone
PRODUCT PORTFOLIO
Withinnovation,moreusesarebeingfoundforpetrochemicals
tomakelifebetter.Theykeepenrichingtheworldwelivein.And
weareproudtobeapartofthisevolution.
OUR PRODUCTS ARE ALL
AROUND YOU – IN AND OUT OF
YOUR HOME, IN THE OFFICE, THE
MALL AND CINEMA. BECAUSE
OF THEIR COMPOSITION AND
PROPERTIES, PETROCHEMICALS
HAVE APPLICATIONS IN A WIDE
RANGE OF ITEMS THAT WE USE
DAILY. THEY’RE FOUND IN WHAT
WE WEAR, OUR SKIN AND HAIR
PRODUCTS, AND IN ALMOST ALL
PACKAGING OF GOODS WE BUY.
AR16
23
Sectionone
OLEFINS,GLYCOLS & DERIVATIVES
AR OMATICS & MTBE
AMMONIA & FERT IL ISERS
POLYMERS
METHANOL
Product Portfolio (Cont’d)
PETRONAS CHEMICALS
GROUP BERHAD
22
Sectionone
PRODUCT PORTFOLIO
KEY PRODUCTS DESCRIPTION FEEDSTOCK APPLICATION
Ethylene A two carbon molecule colourless gas converted from natural gas
Ethane Feedstock for production of polyethylene, ethylene glycol, ethylene oxide (EO) and derivatives of EO
Propylene A three carbon moleculecolourless gas converted from natural gas
Propane Feedstock for the production of acrylic acids, acrylic esters and oxo-alcohols
MonoethyleneGlycol (MEG)
A colourless hygroscopic liquid derived from ethylene glycol
Ethylene Oxide
Feedstock for manufacturing polyester fibers, polyethylene terephthalate resins (PET) and an ingredient of antifreeze products
Diethylene Glycol (DEG)
A colourless hygroscopic liquid derived from ethylene glycol
Ethylene Oxide Ingredient in printing ink, pigments and dyes
PerformanceChemicals
Colourless liquids derived from ethylene oxide
Ethylene Oxide,Ammonia,Fatty Alcohol
Surfactants, gas treating solvents and personal care products
OLEFINS, GLYCOLS& DERIVATIVES
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23
Sectionone
Product Portfolio (Cont’d)
Petrochemicals are found in a wide range of cleaning agents, from shampoos and soaps to dishwashing liquids, and detergents used to wash your clothes. They remove grit and grime from your home, keep your clothes spotless, and your own body feeling fresh and clean.
WE KEEP YOU AND YOUR SURROUNDINGS CLEANPetrochemicals are found in a wide range of cleaning agents, from shampoos and soaps to dishwashing liquids, and detergents used to wash your clothes. They remove grit and grime from your home, keep your clothes spotless, and your own body feeling fresh and clean.
PETRONAS CHEMICALS
GROUP BERHAD
22
Sectionone
POLYMERSKEY PRODUCTS DESCRIPTION FEEDSTOCK APPLICATION
Polyethylene(LLDPE, HDPE,LDPE)
Solid resins produced from the polymerisation of ethylene
Ethylene Feedstock for manufacturing plasticproducts, including packaging films, wires, cables and ducting
AR OMATICSKEY PRODUCTS DESCRIPTION FEEDSTOCK APPLICATION
Paraxylene A six-carbon ring structure molecule, which is a colourless, flammable liquid
Naphtha Production of terephthalic acid, used in the manufacture of polyester for packaging applications, drink bottles and textiles
Benzene A six-carbon ring structure molecule, which is a colourless, flammable liquid
Naphtha Feedstock for manufacturing polystyrene used for packaging
KEY PRODUCTS DESCRIPTION FEEDSTOCK APPLICATION
Methyl TertiaryButyl Ether (MTBE)
A five-carbon molecule colourless liquid
Butane,Methanol
Gasoline additive to boost octane level to improve burning of fuels and reduce emissions
MTBE
PRODUCT PORTFOLIO
AR16
23
Sectionone
Not only do we produce fertilisers that enhance food production, our petrochemicals are also used in the manufacture of plastics and packaging materials that ensure fresh food maintains all its goodness until it reaches your table, and that cooked or processed food can be kept till needed.
WE MAKE SURE YOU HAVE FRESH, NOURISHING FOOD
Product Portfolio (Cont’d)
PETRONAS CHEMICALS
GROUP BERHAD
22
Sectionone
PRODUCT PORTFOLIO
METHANOLKEY PRODUCTS DESCRIPTION FEEDSTOCK APPLICATION
Methanol Simplest organic alcohol and is a colourless flammable liquid
Methane Production of formaldehyde, acetic acid, chloromethanes and methyl methacrylate, which in turn are used in the production of resins, adhesives, paints, plastics, flavourings, silicones and plexiglass
KEY PRODUCTS DESCRIPTION FEEDSTOCK APPLICATION
Ammonia A nitrogen and hydrogencompound colourless gas with a characteristic pungent odour
Methane,Hydrogen,Nitrogen
Feedstock for the production of urea and other industrial applications, including use as refrigerant and latex anti-coagulant
Urea A high nitrogen-content organic solid
Ammonia,Carbon Dioxide
Fertiliser used for the supply of nitrogen to crops and raw material for manufacturing adhesives, moulding powders, varnishes and foams
AMMONIA & FERT IL ISERS
AR16
23
Sectionone
Product Portfolio (Cont’d)
WE ADD COLOURTO YOUR LIFE All the colours you see around you – the paint on walls and works of art; the interesting patterns on garments; hair dyes and even cosmetics – they contain petrochemical products that have been refined and are safe to use.
PETRONAS CHEMICALS
GROUP BERHAD
22
Sectionone
KEY PRODUCTS DESCRIPTION FEEDSTOCK APPLICATION
Acrylics Crude Acrylic Acid (CAA): Colourless liquid with a strong smell. It is flammable and corrosive
Glacial Acrylic Acid (GAA): Clear, colourless liquid with a pungent odour. It is corrosive and is flammable Butyl Acrylate (BA): Flammable, colourless liquid with a "fruity" smell 2-Ethylhexyl Acrylate (2-EHA): Clear, colourless liquid with a "fruity" smell
Propylene Primarily used in the production of superabsorbent polymers (SAP) used in diapers, in the production of acrylic esters and in the manufacturing of plastic resins, coatings and adhesives Primarily used in the production of superabsorbent polymers (SAP) used in diapers, in the production of acrylic esters and in the manufacturing of plastic resins, coatings and adhesives Mainly used in the manufacture of resins, coatings, adhesives and plastics
Mainly used in the manufacture of resins, coatings, adhesives and plastics
Oxo-Alcohols 2-Ethylhexanol (2-EH): Flammable, clear liquid with a distinctive smell n-Butanol (n-Bol): Flammable, colourless liquid with an alcoholic smell iso-Butanol (i-Bol): Flammable, colourless liquid with an alcoholic smell Iso-butyraldehyde (i-BA): Toxic, flammable, colourless to yellow liquid with a strong smell Oxo Oil: Flammable, yellowish liquid with pungent odour
Propylene Mainly used for the production of plasticisers
Mainly used as a solvent in the paint industry and for the production of PVC plasticisers
Mainly used as a solvent in the paint industry and for the production of PVC plasticisers Chemical intermediate or raw material used to make different types of solvents and resin intermediates for the paint and ink industries Mainly used as an auxiliary in floatation processes in the mining industry (coal, copper, silver, gold and phosphorus, etc) and as a defoamer in the aluminium industry
JOINT VENTURE & ASSOCIATE PRODUCTS
PRODUCT PORTFOLIO
AR16
23
Sectionone
KEY PRODUCTS DESCRIPTION FEEDSTOCK APPLICATION
Butanediol 1,4-Butanediol (BDO): Colourless and almost odourless liquid
Tetrahydrofuran (THF): Colourless, water-miscible liquid with an ether-like odour
gamma-Butyrolactone (GBL): An industrial chemical with excellent solvency, little toxicity and few environmental hazards
n-Butane Butanediol and its derivatives are used in a broad spectrum of applications in the chemical industry; amongst others in the manufacturing of technical plastics, polyurethanes, solvents, electronic chemicals and elastic fibres Mainly used in the production of a polymer used to manufacture elastomers and fibers. THF is also a versatile solvent with applications in areas such as adhesives, vinyl films and cellophanes, industrial resins, elastomers, coatings and printing inks Used in the production of clinical needs, for filtering beverages and cleaning auxiliaries. GBL is also used for applications in conductor wafer cleaning in the electronics industry or high-tech industry as well as an intermediate for the synthesis of other chemicals
2-EHAcid Colourless to yellow liquid with a faint odour
2-ethylhexenal (2-EHol)
Chemical intermediate used in esters for Polyvinylbutyral (PVB) film plasticisers and synthetic lubricants, in metal salts for paint dryers, in automotive coolants, PVC stabilisers, cosmetics and various other applications. In cosmetics, 2-EHAcid is used to produce emollients. Other applications include corrosion inhibitors in automotive coolants, catalyst for polymer production, raw material for acid chloride and fragrances
Styrene Monomer A clear, colourless, flammable liquid with a distinctive aromatic odour
Benzene,Ethylene
Production of polystyrene which is used in packaging containers and high impact plastic such as acrylonitrile butadiene styrene (ABS), latex paints and most synthetic rubber
Acetic Acid Chemical intermediate in theform of colourless liquid
Methanol,CarbonMonoxide
Precursor for making various vinyl acetate, metal acetate and cellulose acetate. Vinyl acetate is used for coatings and adhesives, metal acetate is used in printing, and cellulose acetate is used to make film for photography. Also used in the production of esters used as solvents in many commercial products, such as inks and paints
Various NPK Grades of Fertilisers
Clear colourless granules with a characteristic odour
Urea, Ammonia, Phosphates, Potassium
End fertilisers of high yield growth for paddy fields and oil palms
Product Portfolio (Cont’d)
PETRONAS CHEMICALS
GROUP BERHAD
22
Sectionone
WE’RE ALL AROUND YOU
ENRICHING YOUR LIVESEVERYDAY, IN EVERY WAY
PRODUCT PORTFOLIO
AR16
23
Sectionone
ENRICHING YOUR LIVESEVERYDAY, IN EVERY WAY
Product Portfolio (Cont’d)
PETRONAS CHEMICALS
GROUP BERHAD
22
Sectionone
www.petronaschemicals.com
PRODUCT PORTFOLIO
AR16
23
Sectionone
AR OMATICS & MTBE
AMMONIA & FERT IL ISERS
POLYMERS
METHANOL
Product Portfolio (Cont’d)
OLEFINS,GLYCOLS & DERIVATIVES
THE
LEADERSHIP
PETRONAS CHEMICALS GROUP BERHAD
The Group is led by a s trong and highly exper ienced
management team with broad exper ience of var ious
aspects of the oi l and gas industr y. They are in turn guided
by a values-dr iven and diverse Board of Directors wi th
international industr y exper t ise as wel l as professional
exper ience in other corporate sectors .
CONTENTS
25 The Value Our Board Brings
26 ProfileofBoardMembers
34 ManagementCommittee
36 ProfileofManagementCommittee
*Thecross-referencingiconsreferreadersto
informationelsewhereinthisreport
THE VALUE OUR BOARD BRINGSOureightDirectorsonaveragerepresentmorethan30yearsofexperienceintheoilandgas
industry,coveringvariousengineeringdisciplines,operations,corporateplanningand
development,financial,globalpetrochemicalconsultancy,commercial,informationtechnology,
humanresourceandeconomics.Theirtop-levelmanagementandtechnicalskillscombined
withregionalaswellasinternationalcorporateexperienceservetheGroupwellaswestrivefor
dynamicgrowthtoachieveourvisionofbecomingthepreferredchemicalcompanyintheregion.
BOARD COMPOSITION
8 directors 4Independent Non-ExecutiveDirectors3
Non-Independent Non-ExecutiveDirectors1
ExecutiveDirector
EXPERIENCESKILLS MATRIX
KEY FEATURES OF OUR BOARD
• TheBoardcomprisesabalance of Independent Directors
• TheChairmanisaNon-Independent Non-Executive Director
• TheroleoftheChairmanandManagingDirector/ChiefExecutiveOfficeraredistinct
30*
YEARS OFEXPERIENCE
MORE THAN
*onaverage
Oil and Gas Industry Finance/Audit Econo mics Engineering Commercial/Marketing Op
erations
Corp
orat
e Pla
nnin
H
uman
Res
ourc
e
Info
rmat
ion
Tech
nology
Global Petroc
hemical
10skillsand D
evelopm
ent
Consultancy
26
Sectiontwo
PETRONAS CHEMICALS
GROUP BERHAD
MD ARIF MAHMOODMalaysian,age54,Male,MalayChairman, Non-Independent Non-Executive Director
Board Skills Matrix
Engineering
CorporatePlanningandDevelopment
Operations
Commercial/Marketing
IndustryExperience -OilandGas -Regional/International
Listed Entities:• PETRONASChemicalsGroup
Berhad• PETRONASDaganganBerhad
Other Public Company:• Nil
Directorships
Present Appointments:• Chairman,PETRONASChemicalsGroupBerhad• Chairman,PETRONASDaganganBerhad• ExecutiveVicePresidentandChiefExecutiveOfficeroftheDownstreamBusiness,PETRONAS• Member,PETRONASExecutiveLeadershipTeam• Member,PETRONASPeopleDevelopmentCommittee• Member,PETRONASTalentCouncil• Member,IndustryAdvisoryPanelofUniversitiTeknologiPETRONAS(UTP)• Chairman,variouscompanieswithinPETRONAS
Past Experiences:• Director,PETRONAS• SeniorVicePresidentofPETRONASCorporateStrategy• VicePresidentofPETRONASOilBusiness• ManagingDirector/ChiefExecutiveOfficerofASEANBintuluFertilizerSdnBhd• SeniorGeneralManagerofRetailBusinessDivision,PETRONASDaganganBerhad• GeneralManager(GasProcessingPlantB),PETRONASGasBerhad
Working Experience
• NofamilyrelationshipwithanyDirector/MajorShareholder• NoconflictofinterestwithPETRONASChemicalsGroupBerhad.Hehasneverbeenchargedfor
anyoffencewithinthepast5yearsotherthantrafficoffences,ifany
Declaration
• BachelorofScienceinElectricalEngineering(summacumlaude),BostonUniversity,USA
• MastersofBusinessAdministrationfromMassachusettsInstituteofTechnology,USA
Qualifications
PROFILE OF BOARD MEMBERS
MD ARIF MAHMOOD BRINGS TO THE BOARD EXTENSIVE EXPERIENCE IN THE OIL AND GAS INDUSTRY. HE HAS MORE THAN 30 YEARS OF ENGINEERING AND STRATEGIC MANAGEMENT EXPERIENCE IN VARIOUS COMPANIES WITHIN THE PETRONAS GROUP.
Date appointed to Board
1 May 2015
Number of Board meetings attended in 2016
6 out of 7
Length of service(as at 17 February 2017)
1 year and 10 months
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27
Sectiontwo
Listed Entities:• PETRONAS Chemicals Group
Berhad
Other Public Company:• Nil
Directorships
Present Appointments:• ManagingDirector/ChiefExecutiveOfficer,PETRONASChemicalsGroupBerhad• VicePresident,PETRONAS• BoardofInstitutionofChemicalEngineersUK,Malaysianbranch• Chairman,variouscompanieswithinPETRONAS
Past Experiences:• ManagingDirector/ChiefExecutiveOfficer,PETRONASPenapisan(Melaka)SdnBhd• SeniorGeneralManager,GroupTechnologySolutionsPETRONAS• Head,ProjectManagementandDeliveryPETRONAS• Variousseniormanagementpositionsthroughrolesintherefineryandpetrochemicalbusiness
withinPETRONAS
Working Experience
• NofamilyrelationshipwithanyDirector/MajorShareholder• NoconflictofinterestwithPETRONASChemicalsGroupBerhad.Hehasneverbeenchargedfor
anyoffencewithinthepast5yearsotherthantrafficoffences,ifany
Declaration
DATUK SAZALI HAMZAHMalaysian,age50,Male,MalayManaging Director/Chief Executive Officer
• Bachelor of Chemicals Engineering,LamarUniversity,USA
• Advanced Management Programme,TheWhartonSchool,UniversityofPensylvania,USA
• CharteredFellowoftheInstitution of Chemical Engineers(IChemE)
Qualifications
Board Skills Matrix
Engineering
Operations
Commercial/Marketing
Industrial Experience - Oil and Gas -Shipping/Logistics - Regional/International
Profile of Board Members (Cont’d)
DATUK SAZALI HAMZAH SPEARHEADS PCG'S OVERALL GROWTH AND EXPANSION STRATEGIES. HE OVERSEES AND ENSURES A GOOD BALANCE BETWEEN DRIVING CORE EXCELLENCES AND STRONG GOVERNANCE TO DELIVER SUSTAINABLE LONG TERM VALUE.
Date appointed to Board
8 May 2014
Number of Board meetings attended in 2016
7 out of 7
Length of service(as at 17 February 2017)
2 years and 2 months
28
Sectiontwo
PETRONAS CHEMICALS
GROUP BERHAD
Malaysian,age62,Female,IndianSenior Independent Director
Profile of Board Members (Cont’d)
VIMALA V.R. MENON
Finance/Audit
Corporate Planning and Development
InformationTechnology
Industrial Experience -BankingandFinance -Commercial/Marketing - Regional/International
Board Skills Matrix
Present Appointments:• Chairman,BoardAuditCommittee,PETRONASChemicalsGroupBerhad• Chairman,BoardAuditCommittee,PETRONASDaganganBerhad• Chairman,BoardAuditCommittee,Cycle&CarriageBintangBerhad• Member,AuditandRiskCommittee,Digi.ComBerhad• Member,NominationandRemunerationCommittee,PETRONASChemicalsGroupBerhad• Member,NominationCommittee,Cycle&CarriageBintangBerhad• Member,RemunerationCommitte,Cycle&CarriageBintangBerhad
Past Experiences:• Director,FinanceandCorporateAffairs,ProtonHoldingsBerhad• ExecutiveDirector,FinanceandCorporateServices,EdaranOtomobilNasionalBerhad• Director,EONBankBerhad• Director,JardineCycle&CarriageLimited• Director,PTAstraInternationalTbk,Indonesia• Deloitte KassimChan
Working Experience
• NofamilyrelationshipwithanyDirector/MajorShareholder• NoconflictofinterestwithPETRONASChemicalsGroupBerhad.Shehasneverbeenchargedfor
anyoffencewithinthepast5yearsotherthantrafficoffences,ifany
Declaration
Listed Entities:• PETRONAS Chemicals Group
Berhad• PETRONAS Dagangan Berhad• Cycle&CarriageBintangBerhad• DiGi.ComBerhad
Other Public Company:• Nil
Directorships
• FellowoftheInstituteofChartered Accountants in EnglandandWales
• MemberoftheMalaysianInstitute of Accountants
Qualifications
IN ADDITION TO MORE THAN 30 YEARS' EXPERIENCE IN FINANCIAL AND CORPORATE PLANNING, VIMALA V.R. MENON LEADS THE GROUP TO REFLECT AN UNWAVERING COMMITMENT TO PROMOTING GOVERNANCE AND DEMONSTRATING A CULTURE OF INTEGRITY.
Date appointed to Board
13 August 2010
Number of Board meetings attended in 2016
7 out of 7
Length of service(as at 17 February 2017)
6 years and 6 months
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29
Sectiontwo
Malaysian,age63,Male,ChineseIndependent Non-Executive Director
Profile of Board Members (Cont’d)
CHING YEW CHYE
InformationTechnology
Commercial/Marketing
Finance/Audit
IndustrialExperience -BankingandFinance -Regional/International
Board Skills Matrix
• BachelorofScience(Honours),UniversityofLondon,UK
Qualifications
Listed Entities:• PETRONASChemicalsGroup
Berhad• GentingPlantationsBerhad
Other Public Company:• AIABerhad
Directorships
Present Appointments:• Chairman,NominationandRemunerationCommittee,PETRONASChemicalsGroupBerhad• Member,BoardAuditCommittee,PETRONASChemicalsGroupBerhad
Past Experiences:• ManagingPartnerfortheSouthAsiaRegion,AccenturePLC• GeographicCouncilChairman-Asia,AccenturePLC• ManagingPartneroftheFinancialServicesIndustryGroup-Asia,AccenturePLC• SciconConsultancy,UK
Working Experience
• NofamilyrelationshipwithanyDirector/MajorShareholder• NoconflictofinterestwithPETRONASChemicalsGroupBerhad.Hehasneverbeenchargedfor
anyoffencewithinthepast5yearsotherthantrafficoffences,ifany
Declaration
AS A GLOBAL MANAGEMENT CONSULTANT WITH CLOSE TO 40 YEARS OF EXPERIENCE, CHING YEW CHYE ENRICHES THE BOARD'S COMPETITIVE EDGE, CONTRIBUTING HIS EXPERTISE IN CORPORATE STRATEGY AND ENHANCING BUSINESS PERFORMANCE.
Date appointed to Board
13 August 2010
Number of Board meetings attended in 2016
7 out of 7
Length of service(as at 17 February 2017)
6 year and 6 months
30
Sectiontwo
PETRONAS CHEMICALS
GROUP BERHAD
Korean,age70,Male,KoreanIndependent Non-Executive Director
Profile of Board Members (Cont’d)
DONG SOO KIM
Engineering
Operations
CorporatePlanningandDevelopment
GlobalPetrochemicalConsultancy
IndustryExperience -OilandGas -Regional/International
Board Skills Matrix
• BachelorofScienceinChemicalEngineering,UniversityofCalifornia,USA
• MasterofScienceinChemicalEngineering,UniversityofIdaho,USA
Qualifications
Present Appointments:• Member,BoardAuditCommittee,PETRONASChemicalsGroupBerhad• Member,NominationandRemunerationCommittee,PETRONASChemicalsGroupBerhad• Advisor,SamsungSDICoLtd• Partner-Coach,KoreanCoachingManagementInstitute
Past Experiences:• Advisor/CoachtoPETRONASDownstreamBusiness• Advisor,DuPontAsiaPacific• President,DuPontAsiaPacific• VicePresidentandGeneralManager,GlobalNon-WovensBusiness,E.IDuPont• CorporateOfficerofE.IDuPont• GlobalFluoroproductOperationDirector,DuPontKorea• VariousseniormanagementpositionswithinDuPontKorea
Working Experience
• NofamilyrelationshipwithanyDirector/MajorShareholder• NoconflictofinterestwithPETRONASChemicalsGroupBerhad.Hehasneverbeenchargedfor
anyoffencewithinthepast5yearsotherthantrafficoffences,ifany
Declaration
Listed Entities:• PETRONASChemicalsGroup
Berhad
Other Public Company:• Nil
Directorships
DONG SOO KIM'S MORE THAN 30 YEARS CAREER IN THE CHEMICALS INDUSTRY HAS BEEN NOTHING LESS THAN STERLING. THE CONVERGENCE OF HIS SKILLS, KNOWLEDGE AND EXPERIENCE IS WHAT LEADS THE BOARD TO STEP UP TO THE 'CALL TO ACTION' AND DRIVE OPERATIONAL EXCELLENCE.
Date appointed to Board
13 August 2010
Number of Board meetings attended in 2016
7 out of 7
Length of service(as at 17 February 2017)
6 years and 6 months
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31
Sectiontwo
Malaysian,age59,Male,ChineseIndependent Non-Executive Director
Profile of Board Members (Cont’d)
DATUK TOH AH WAH
Commercial/Marketing
CorporatePlanningandDevelopment
Finance/Audit
Economics
IndustrialExperience -Regional/International
Board Skills Matrix
• BachelorofCommerce,ConcordiaUniversity,Canada
Qualifications
Listed Entities:• PETRONASChemicalsGroup
Berhad• Tien Wah Press Holdings Berhad
Other Public Company:• Nil
Directorships
Present Appointments:• Member,BoardAuditCommittee,PETRONASChemicalsGroupBerhad• Chairman,Risk&FinanceCommittee,TienWahPressHoldingsBerhad• Member,BoardAuditCommittee,TienWahPressHoldingsBerhad• Member,BoardNominationCommittee,TienWahPressHoldingsBerhad• CouncilMember,BadmintonAssociationofMalaysia
Past Experiences:• ManagingDirector,BritishAmericanTobaccoMalaysiaBerhad• AreaDirectoroftheIndonesianClusterandtheRegionalProjectManagerofBritishAmerican
TobaccoAsiaPacificRegionLimited,HongKong.• ManagingDirector/ChiefExecutiveOfficer,PakistanTobaccoLimitedandAreaDirectorSouth
AsiaArea• ManagingDirector,BritishAmericanTobaccoNewZealand• BusinessDevelopmentDirectorChinaforBritishAmericanTobaccoAsiaPacificNorth• VariousseniormanagementpositionswithinRothmans
Working Experience
• NofamilyrelationshipwithanyDirector/MajorShareholder• NoconflictofinterestwithPETRONASChemicalsGroupBerhad.Hehasneverbeenchargedfor
anyoffencewithinthepast5yearsotherthantrafficoffences,ifany
Declaration
DATUK TOH AH WAH CONTRIBUTES A HIGH LEVEL OF EXPERTISE IN MARKETING AND REGIONALISATION DERIVED FROM 32 YEARS' EXPERIENCE WITH BRITISH AMERICAN TOBACCO. HIS COMMERCIAL FINESSE HELPS TO NAVIGATE THE GROUP TOWARDS BUILDING GREATER SYNERGY WITH CUSTOMERS AND ACCELERATE PROFITIBALITY FOR LONG TERM GROWTH.
Date appointed to Board
13 June 2014
Number of Board meetings attended in 2016
7 out of 7
Length of service(as at 17 February 2017)
2 year and 8 months
32
Sectiontwo
PETRONAS CHEMICALS
GROUP BERHAD
Malaysian,age52,Male,MalayNon-Independent Non-Executive Director
Profile of Board Members (Cont’d)
ZAKARIA KASAH
Engineering
Operations
CorporatePlanningandDevelopment
IndustryExperience -OilandGas -Regional/International
Board Skills Matrix
• BachelorofMechanicalEngineering,GeorgeWashingtonUniversity,USA
• LeadershipManagement,HenleyBusinessSchool,UK
Qualifications
Present Appointments:• VicePresident,PETRONASGroupDelivery,ProjectDelivery&Technology• Member,StudentDevelopmentAdvisoryCouncilforUniversitiTeknologiPETRONAS• Director,variouscompanieswithinPETRONAS
Past Experience:• VicePresident,PETRONASTechnology&Engineering,DownstreamBusiness• VicePresident,PETRONASUpstreamBusiness• ChiefExecutiveOfficer,MalaysiaLNGGroupofCompanies• VariousseniormanagementpositionsinPETRONASGasBerhad,EgyptianLNGandMalaysiaLNG
GroupofCompanies
Working Experience
• NofamilyrelationshipwithanyDirector/MajorShareholder• NoconflictofinterestwithPETRONASChemicalsGroupBerhad.Hehasneverbeenchargedfor
anyoffencewithinthepast5yearsotherthantrafficoffences,ifany
Declaration
Listed Entities:• PETRONASChemicalsGroup
Berhad
Other Public Company:• Nil
Directorships
ZAKARIA KASAH'S ENGINEERING BACKGROUND AND EXTENSIVE PROJECT DELIVERY EXPERIENCE SET THE BOARD TOWARDS THE SUCCESSFUL DELIVERY OF OUR GROWTH STRATEGIES.
Date appointed to Board
31 July 2015
Number of Board meetings attended in 2016
6 out of 7
Length of service(as at 17 February 2017)
1 years and 7 months
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Sectiontwo
Malaysian,age48,Female,MalayNon-Independent Non-Executive Director
Profile of Board Members (Cont’d)
FREIDA AMAT
Finance/Audit
Commercial/Marketing
IndustryExperience -OilandGas
Board Skills Matrix
• BachelorofScienceinAccountingandFinance,LondonSchoolofEconomics&PoliticalScience,UniversityofLondon,UK
• FellowoftheAssociationofCharteredCertifiedAccountants(ACCA)
Qualifications
Listed Entities:• PETRONASChemicalsGroup
Berhad
Other Public Company:• Nil
Directorships
Present Appointments:• Member,BoardAuditCommittee,PETRONASChemicalsGroupBerhad• SeniorGeneralManagerofFinance&AccountsServicesDepartment,PETRONAS• Director,variouscompanieswithinPETRONAS
Past Experience:• GeneralManager,CorporateFinanceDepartment• GeneralManager,Finance&AccountsServices,MalaysianInternationalTradingCorporationSdn.Bhd.• VariousseniormanagementpositionswithinPETRONAS
Working Experience
• NofamilyrelationshipwithanyDirector/MajorShareholder• NoconflictofinterestwithPETRONASChemicalsGroupBerhad.Shehasneverbeenchargedfor
anyoffencewithinthepast5yearsotherthantrafficoffences,ifany
Declaration
FREIDA AMAT LENDS THE BOARD A BROAD UNDERSTANDING OF CORPORATE FINANCE, FINANCIAL REPORTING AND TREASURY, STEERING THE GROUP TOWARDS EFFECTIVE CAPITAL MANAGEMENT AND EFFICIENCY.
Date appointed to Board
31 July 2015
Number of Board meetings attended in 2016
7 out of 7
Length of service(as at 17 February 2017)
1 year and 7 months
34
Sectiontwo
PETRONAS CHEMICALS
GROUP BERHAD
MANAGEMENT COMMITTEE
from right to left: ABDUL AZIZ OTHMANHead of Strategic Planning&Ventures
AKBAR MD THAYOOBHead of Commercial
IR MOHD YUSRI MOHAMED YUSOFHead of Manufacturing
from right to left: DATUK SAZALI HAMZAHManaging Director/Chief Executive Officer
RASHIDAH ALIASChief Financial Officer
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35
Sectiontwo
Management Committee (Cont’d)
from right to left:
AHMAD ZAKI DAUDHeadofHealth,Safety&Environment
SITI AZLINA ABD LATIFHeadofCorporateAffairs&Administration
from right to left:
MOHAMAD ISKANDAR BAKERIHeadofProjectDirectorate
NOOR LILY ZURIATI ABDULLAHHeadofLegal&CorporateSecretariat
from right to left:
DATIN ZARINA ZAKARIA @ MOHAMADHead of Human Resource Management
DR ROSS FORREST GILMOURChiefInnovation&TechnologyOfficer
36
Sectiontwo
PETRONAS CHEMICALS
GROUP BERHAD
PROFILE OF MANAGEMENT COMMITTEE
DATUK SAZALI HAMZAHMalaysian, age 50, Male, MalayManaging Director/Chief Executive Officer
RASHIDAH ALIAS Malaysian, age 44, Female, MalayChief Financial Officer
Current role- Responsible for the management of all
financial and fiscal aspects of PCG and its subsidiariesaswellasriskmanagement,supply chain management, investorrelationsandinformationsystems
- Sits on the Board of several PETRONAS companies
Employment history1994 ArthurAndersen-Audit&advisory1998 PETRONAS - Various posts in areas
of corporate planning, accountingand shared services; and managing specialised assignments involving initial public offerings, corporatebond issuance, corporate strategyimplementation and groupwideprocess transformation
2010 PETRONAS-SeniorGeneralManager,Finance&AccountsServices
2013 PETRONAS-SeniorGeneralManager,GroupTreasury
Academic/Professional Qualifications- Bachelor of Commerce in Accounting,
UniversityofNewSouthWales,Australia- AdvancedManagementProgram,Harvard
Business School - Fellow of the Chartered Accountants
AustraliaandNewZealand- Member of the Malaysian Institute of
Accountants
Competency
TEC
HN
ICA
L S
KIL
LS A
ND
EX
PER
IEN
CE
Accounting
Corporate governance
Finance
Human Resource
Industryexperience
Law
Riskmanagement
Strategicmarketing
Strategydevelopmentandimplementation
Technology
Current role- Responsiblefortheoveralloperational,financialandsustainablemanagementofPCGand
itssubsidiaries- Sits on the Board of PCG and several PETRONAS Companies
Employment history1990 JoinedPETRONASasprocesstechnologistandprogressedthroughvariousroles in
therefineryandpetrochemicalbusiness.HeldseveralseniormanagementpositionsatPETRONASPenapisan(Terengganu)SdnBhd,PETRONASPenapisan(Melaka)SdnBhd,PETRONASGroupTechnologySolutions,andProjectManagementofTechnology&EngineeringDivisionofPETRONAS.Involvedintheimplementationandcommercialoperation of several major PETRONAS projects such as Kertih Aromatics Project,MelakaBaseOilPlant,MelakaRefineryRevamp,andCo-GenerationPowerPlant.
2003 Selected asmember of PETRONASCorporate Strategic Study and Implementation,and led a change programme that enhanced plant performance and operational excellence.
2010 Ledahighlyspecialisedteam,providingtechnicalservicesandsupporttoalloperatingplantsinPETRONAS,subsequentlyheadingProjectManagementDeliveryDivisionandoverseeingPETRONASdownstreamprojectsofhighcapitalvalue.
2012 AppointedasPETRONASPenapisan(Melaka)SdnBhd-ManagingDirector/CEO2014 AppointedasPresident/CEOofPETRONASChemicalsGroupBerhad2015 AppointedasResultManagerfortheTechnologyWorkstreamofPETRONAS’special
initiative,ProjectCACTUS2016 AppointedasPETRONASVPandPCGMD/CEO Academic/Professional Qualifications- BachelorofChemicalsEngineering,LamarUniversity,Texas,USA- AdvancedManagementProgram,TheWhartonSchool,UniversityofPennsylvania- CharteredFellowoftheInstitutionofChemicalEngineers(IChemE),UK
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37
Sectiontwo
Profile of Management Committee (Cont’d)
IR MOHD YUSRI MOHAMED YUSOFMalaysian, age 50, Male, MalayHead of Manufacturing
Current role- ResponsibleforPCG'soveralloperational
excellance- SitsontheBoardofseveralPETRONAS
companies
Employment history
1989 PETRONAS-HSEexecutive1992 Ethylene&PolyethyleneMalaysia-
Variousrolesinproject,technicalandoperation
2004 DowChemicals(Pacific)Ltd,HongKong-Productionengineer
2006 OptimalGroupofCompanies-Manager,PlantTechnicalServices
2008 PETRONASGroupStrategicPlanning-ManagerofStrategyandPortfolio(OilBusiness)
2009 PETRONASChemicalsEthyleneSdnBhd-GeneralManager
2012 PETRONASChemicalsOlefinsSdnBhd, PETRONASChemicalsGlycolsSdnBhd, PETRONASChemicalsDerivativesSdnBhd-CEO
2014 PCG-HeadofManufacturing
Academic/Professional Qualifications
- BachelorofScienceinChemicalEngineering,OklahomaStateUniversity,USA
- AdvancedManagementProgram,TheWhartonSchool,UniversityofPennsylvania,USA
- CharteredFellow,InstitutionofChemicalEngineers(IChemE),UK
- RegisteredProfessionalEngineer,BoardofEngineersMalaysia
AKBAR MD THAYOOBMalaysian, age 53, Male, MalayHead of Commercial
Current role- ResponsibleforPCG‘soverall
commercialexcellence- CEOofPETRONASChemicalsMarketing
Sdn Bhd- CEOofPETRONASChemicalsMarketing
(Labuan)Ltd- SitsontheBoardofseveralPETRONAS
companies
Employment history1987 PETRONAS-Variousproject
engineeringandcorporateplanningroles
2004 PhuMyPlastics&ChemicalsCoLtd,Vietnam-GeneralDirector/CEO
2008 PETRONASChemicalsLDPESdnBhd-CEO
2010 PETRONASDownstreamBusiness-HeadoftheOfficeoftheExecutiveVicePresident
2012 PETRONASDaganganBerhad-HeadofRetailBusiness
2014 PCG-HeadofCommercial
Academic/Professional Qualifications- BachelorofScienceinCivilEngineering,
UniversityofWestVirginia,USA- PremierBusinessManagementProgram,
HarvardBusinessSchool
ABDUL AZIZ OTHMANMalaysian, age 51, Male, MalayHead of Strategic Planning & Ventures
Current role- ResponsibleforPCG'soverallstrategic
planning,businessdevelopmentandventuresmanagement
- SitsontheBoardofseveralPETRONAScompanies
Employment history1987 PETRONASGasBerhad-
Mechanicalengineer2000 PETRONAS-Head,
Strategy&BusinessPlanning,GasBusinessUnit
2005 PETRONASGasBerhad- GeneralManager(CentralisedUtilitiesFacilities)
2009 VinylChlorideMalaysiaSdnBhd-CEO
2011 PCG-HeadofStrategicPlanningandVentures
Academic/Professional Qualifications- BachelorofScienceinMechanical
Engineering,GeorgeWashingtonUniversity,USA
- SeniorExecutiveProgram,LondonBusinessSchool
38
Sectiontwo
PETRONAS CHEMICALS
GROUP BERHAD
NOOR LILY ZURIATI ABDULLAH Malaysian, age 58, Female, MalayHeadofLegalandCorporateSecretariat
Current role- ResponsibleforPCG'slegalaffairsand
companysecretarialservices- SitsontheBoardofseveralPETRONAS
companies
Employment history1991 PETRONAS-Legalservicescovering
jointventures,plantconstructions,projectfinancing,plantoperations,time-charterpartyandLNGsales
2002 PETRONASDaganganBerhad -SeniorLegalCounsel,Legaland
CorporateSecretariatServices2009 PETRONASInternational
CorporationLimited(Egypt)- Head,Legal&CorporateAffairs
2011 PETRONASGasBusinessUnit-HeadLegal(Project)
2014 PETRONASTechnology&EngineeringDivision-GeneralCounsel/HeadofLegalforTechnology,EngineeringServicesandIntellectualProperty
2016 PCG-GeneralCounsel/HeadLegal&CorporateSecretariat
Academic/Professional Qualifications- BachelorofLaws,UniversityofLondon,UK- SijilAmalanGuamanLembagaKelayakan
ProfessionUndang-Undang,Malaysia,- LicensedCompanySecretary
Profile of Management Committee (Cont’d)
DR ROSS FORREST GILMOURAustralian, age 56, Male, CaucasianChiefInnovation&TechnologyOfficer
Current role- ResponsibleforPCG'sproduct
improvement,technicalsupport,regulatoryandstewardshipfunctionstodeliverinnovativecustomersolutions
- DirectorofPETRONASResearch Sdn Bhd
Employment history1985 DepartmentofAgriculture,Western
Australia-ResearchProgrammeLeader
1995 ForBioAsiaPtyLtd(Malaysia)-RegionalDirectorforSEAsia
2000 GrainsResearchandDevelopmentCorporation-InvestmentManager
2003 BSESLimited(Australia)-R&DManager
2009 E.IduPontdeNemoursandCompany,USA-ProgrammeLeader,AgriculturalBiotechnology
2013 PCG-ChiefInnovation&TechnologyOfficer
Academic/Professional Qualifications- BachelorofAgricultureinPlantBreeding
andGenetics,UniversityofQueensland,Australia
- PhDinAgriculturalScience,UniversityofQueensland,Australia
MOHAMAD ISKANDAR BAKERI Malaysian, age 50, Male, MalayHead of Project Directorate
Current role- Responsibleforthedeliveryand
executionofPCG’skeyprojects
Employment history1989 ASEANBintuluFertilizerSdnBhd - Heldvariouspositionsfrom
AreaEngineer,SeniorEngineerandSectionHeadinvariousdisciplinesofMachinery,Maintenance,Inspection,Reliability&IntegrityandPlantTurnaround.
2006PETRONASChemicalsFertiliser(Kedah)SdnBhd-SeniorManagerEngineering
2008 ASEANBintuluFertilizerSdnBhd-GeneralManager
2010 ASEANBintuluFertilizerSdnBhd-MD/CEO
2012 PETRONASChemicalsFertiliser(Sabah)SdnBhd- HeadPre-Operations/CEO
2016 PCG-HeadofProjectDirectorate
Academic/Professional Qualifications- BachelorofScienceinMechanical
Engineering,UniversityofArizona,USA- ManagementProgramme,INSEAD- RegisteredProfessionalEngineer,Board
ofEngineersMalaysia
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39
Sectiontwo
Profile of Management Committee (Cont’d)
DATIN ZARINA ZAKARIA @ MOHAMADMalaysian, age 49, Female, MalayHead of Human Resource Management
Current role- ResponsibleforPCG’speoplestrategies,
talentdevelopmentandmanagement,aswellashumanresourceservices
Employment history1992 PETRONASDaganganBerhad-
SystemAnalyst2008 PETRONAS-SeniorManagerof
PeopleStrategyDesignandPilot2009 PETRONASCarigaliSdnBhd-Head
ofPeopleStrategyandPlanning2012 PETRONASCarigaliSdnBhd-Head
ofHumanResourceManagement(MalaysiaOperation)
2014 PCG-HeadofHumanResourceManagement
Academic/Professional Qualifications- BachelorofScienceinBusiness
Administration,UniversityofSouthernCalifornia,USA
AHMAD ZAKI DAUDMalaysian, age 44, Male, MalayHeadofHealth,Safety&Environment
Current role- ResponsibleforPCG'soverallHSE
performance,processsafetyandsustainabledevelopment
Employment history1997 PETRONASSecondEthylene
CrackerProject-ElectricalMaintenanceEngineer
2001 PETRONASChemicalsDerivativesSdnBhd-ElectricalProductionEngineer
2009 PETRONASChemicalsDerivativesSdnBhd-UtilitiesManager
2012 PETRONASChemicalsGlycolsSdnBhd-HeadofEthyleneOxideGlycols
2014 PCG-HeadofOperationWorkProcess
2015 PCG-HeadofHSE
Academic/Professional Qualifications- BachelorofScience(Hons)inElectrical
Engineering,UniversityofBrighton,UK
SITI AZLINA ABD LATIFMalaysian, age 45, Female, MalayHeadofCorporateAffairs&Administration
Current role- Responsibleforplanning,development
andimplementationofallPCG’scorporatebranding,stakeholderandmediamanagement,communicationandreputationmanagement
Employment history1997 PETRONASDaganganBerhad
-Financeandaccounts,complementarybusiness,retailsalesandbrandcommunications
2007 PETRONASDaganganBerhad-HeadofBrandCommunications
2013 PCG-HeadofCorporateCommunications&Administration
2016 PCG-HeadofCorporateAffairs&Administration
Academic/Professional Qualifications- BachelorofArtsinAccounting,
UniversityofPortsmouth,UK- MastersofBusinessAdministration,
CardiffUniversity,UK
OUR
STRATEGIC
PERFORMANCE
PETRONAS CHEMICALS GROUP BERHAD
W h a t i s t h e s t a t e o f t h e p e t r o c h e m i c a l s i n d u s t r y ?
W h a t a r e t h e c h a l l e n g e s a n d r i s k s f a c e d ? F i n d
o u t b y r e a d i n g t h i s s e c t i o n , a n d d i s c o v e r t h e
s t r a t e g i c d i r e c t i o n w e a r e t a k i n g t o l e v e r a g e o n
o u r s t r e n g t h s t o m a i n t a i n o u r l e a d i n g e d g e . I n
t h e f o l l o w i n g p a g e s , w e a l s o d i s c l o s e h o w w e l l
w e p e r f o r m e d d u r i n g t h e y e a r .
CONTENTS
41 ManagementDiscussion&Analysis
• ManagingDirector/CEO
• ChiefFinancialOfficer
• HeadofManufacturing
• HeadofCommercial
53 KeyGlobalMegatrends
54 MarketOutlook
56 StrategicIntent
58 HowWeTreatRisks
60 InvestorRelationsandSharePerformance
63 FinancialCalendar
64 OurAchievements
66 PCGintheNews
68 CalendarofEvents
*Thecross-referencingiconsreferreadersto
informationelsewhereinthisreport
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41
Sectionthree
MANAGEMENT DISCUSSION & ANALYSIS Managing Director/CEO
DEAR SHAREHOLDERS,
IT GIVES ME GREAT PLEASURE TO PRESENT AN OVERVIEW OF PCG’S PERFORMANCE FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016. FOR THE PERIOD UNDER REVIEW, WE CONTINUED TO FOCUS INTENTLY ON OUR OPERATIONAL, COMMERCIAL AND INNOVATION EXCELLENCE, AND FORGED AHEAD WITH OUR GROWTH PLANS. THE END RESULTS HAVE BEEN VERY POSITIVE AS WE FURTHER CEMENTED OUR POSITION AS A LEADING PETROCHEMICALS PLAYER IN THE REGION, CREATING ADDED VALUE FOR YOU.
It is by no means the best of times for the petrochemicals industry, with low oil prices and soft global demand suppressing the margin of our products. Within this scenario, PCG continued to secure strategic markets in the Asia Pacific region with optimised cost. Combined with improved feedstock supply and enhanced plant reliability, we pulled together an impressive performance for the year.
PCG continued to focus on the Asia Pacific region to leverage on the benefits of reduced transport costs as well as hot spots of demand. The price of ethylene, a basic product which serves as a barometer of petrochemical commodities for Olefins and Derivatives (O&D) market, increased in the first half of the year due to several plant shutdowns and turnarounds in the region. However, upon completion of these turnarounds, ethylene flooded the market once again, pushing down prices towards year end. On average, the price of ethylene was 6% lower in 2016 than it was in 2015.
42
Sectionthree
PETRONAS CHEMICALS
GROUP BERHAD
Management Discussion & Analysis (Cont’d)Managing Director/CEO
DemandwasnoticeablysofterincomparisonwithsupplyintheFertilisersandMethanol(F&M)market.Theaccompanyingdecreaseinpriceofproductswasreflectedinthoseforureaandmethanolwhichdroppedby25%and16%respectivelyin2016comparedto2015.
Whilesuchmacro-economicfactorsandthedynamicsofsupplyanddemandarebeyondourcontrol,Iamproudthatinareaswherewecanmakeadifference,wehavedoneso.PCGcontinuedtoperseverewithourtwo-prongedstrategyofstrengtheningbasicpetrochemicalswhileselectivelydiversifyingintoderivatives,specialtychemicalsandsolutions.Underpinnedbyourfocusedeffortstoenhanceouroperationalandcommercialefficiencies,theresultsweregratifyingintermsofkeyfinancialandoperationalparameters.
Operationally,werecordedourhighestplantutilisationof96%sinceincorporation,surpassingworld-classbenchmarkof85%,thussettingasolidfoundationforourgrowth.Withrecordproductionandsalesvolumesaswellasvariousmeasurestoenhanceefficiencies,theGroup’srevenueincreased2%fromRM13.5billionin2015toRM13.9billion.Meanwhileearningsbeforeincometax,depreciationandamortisation(EBITDA)grewmarkedlyfromRM4.7billiontoRM5.3billion,providingusanEBITDAmarginof38%.Mostsignificantlyforourshareholders,werecordedaprofitaftertax(PAT)ofRM3.2billlionandahigherreturnonaveragecapitalemployed(ROACE)(3yearsaverage)of12%fortheyear.
ON TRACK IN OUR JOURNEY TO EXCELLENCE
Operationalexcellenceisimperativeforthesuccessofourbusiness.Oureffortstoachieveworld-classbenchmarkinplantperformancethrougheffective implementation of internal reliability and efficiency enhancement programmes, supportedby reliable feedstock andutilities supply,wererewardedwithexceptionalresults.Weachieved100%utilisationrateinthethirdquarterandaveraged96%fortheyear.Thiswasespeciallysignificantasincreasedcapacityglobally,combinedwithsubdueddemand,hasnegativelyimpactedtheutilisationrateofmanyplayers.
PCGcouldafford to runat itshighest capacity, secure in theknowledgeof a readymarket forourproducts, becauseof effective salesandmarketinginitiatives.Whilestrengtheningourrelationshipwithmorethan1,000existingcustomers,ourteamhasbeenproactiveinleveragingsaleschannelsforhigh-valueapplications,ridingonPCG’sestablishedreputation.Yearsoftrulyvaluingourcustomersandensuringwemeettheirexpectationsateverysingleopportunityhavegonealongwaytowardsopeningmanydoorsforus.
For further discussion on our fiscal policies and recognition of our financial risks please turn to pages 46 to 47.
PCMTBE
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Sectionthree
Management Discussion & Analysis (Cont’d)Managing Director/CEO
REVENUE EBITDA PROFIT AFTER TAX
RM
13.9 billion
RM
5.3 billion
RM
3.2 billion
Looking at things from our customers’ lens has enabled us to offer compelling value proposition ranging from innovative customised solutions to effective sales support in delivering the right customers experience. PCG has also been continuously improving our logistics efficiencies by using the most appropriate logistic arrangements to accommodate customers’ needs.
To further elevate our regional presence and increase understanding of our customers’ needs and requirements, we have incorporated a marketing subsidiary in Indonesia to add to our existing marketing subsidiaries in Thailand and China as well as regional representative offices in Vietnam and the Philippines. All these efforts have resulted in the achievement of our highest EBITDA margin and strong cash generation amidst a challenging market.
44
Sectionthree
PETRONAS CHEMICALS
GROUP BERHAD
Management Discussion & Analysis (Cont’d)Managing Director/CEO
HSE: ALWAYS A PRIORITY
In a competitive industry, achieving top numbers is a priority. But when it comes to HSE, PCG aims for zero. Zero incident and zero injury. We invest significantly in creating a strong HSE culture among all our employees and our contractors’ employees, and keep reinforcing safe behaviours via programmes, communiques and training.
Our HSE procedures are guided by global best practices and have been recognised with accolades from both local and international organisations such as Chemical Industry Council of Malaysia (CICM), Malaysian Society for Occupational Safety and Health (MSOSH) and Royal Society for the Prevention of Accidents (RoSPA).
The two fatalities during the year involving contractors’ workers at the Sabah Ammonia Urea (SAMUR) project were a stark reminder of the high level of risk that face personnel at our plants throughout an operating day. Although we have the best safety systems and processes, we recognise the need to keep reinforcing strict adherence to set procedures at every stage along the operational chain. We were deeply saddened by the incident, which was unacceptable, and have redoubled our HSE and risk management efforts to safeguard everyone at work and around the areas where we operate.
GROWING INTO A DYNAMIC FUTURE
Our two-pronged growth strategy focuses on strengthening basic petrochemicals to increase our volume-play advantage as a competitive regional player; and selectively diversifying into derivatives, specialty chemicals and solutions which in turn will allow us to harness value-play from higher margin products. With this in mind, PCG has invested in five key projects with a total CAPEX of RM10.1 billion, which will add 5.1 million mtpa to our nameplate capacity.
The investments include SAMUR, an ammonia and urea plant in Sipitang, Sabah, which will increase our current capacity of 10.8 million mtpa by 18%, establishing us firmly as a leading supplier of fertiliser in the region. We were very excited to see SAMUR successfully producing on-specification urea and we are now in the process of ramping up the plant for full commercial operations.
While SAMUR strengthens our basic petrochemicals portfolio, we are also deepening our footprints in the derivatives, specialty products and solutions portfolio. We are undertaking three projects with BASF through our associate company, BASF PETRONAS Chemicals Sdn Bhd, at its plant in Gebeng, Pahang. These projects will produce aroma ingredients, as well as 2-EHAcid and HR-PIB. Demand is expected to continue to increase in the long term driven by global economic growth, and increasing wealth in the Asia Pacific region. We are well within the range of start-up schedule and expect Citral production in 2017. The production units for Citronellol and L-Menthol will come
on-stream in phases in 2017. We also saw the successful production of on-specification 2-EHAcid in late 2016. Work on the production facility for HR-PIB is progressing well, and we expect this facility to be commissioned in 2017, as planned.
Finally, upon acquisition of PRPC Polymers and PRPC Glycols in November 2015, PCG is proud to be part of the Pengerang Integrated Complex (PIC) in Pengerang, Johor. Through the two plants, we will spearhead the petrochemicals component of PIC, enjoying the benefits of integrated feedstock supply from PRPC’s refinery and cracker, located within the same complex.
This project is progressing well whereby to date, we have awarded the engineering, procurement, construction and commissioning (EPCC) for the polypropylene (PP), ethylene oxide/ethylene glycol (EO/EG), and linear low-density polyethylene (LLDPE) plants. This year itself, we achieved the final investment decision (FID) and awarded EPCC for flexi polyethylene (Flexi PE) plant.
Once completed in 2019, our total production capacity will increase by a further 20%. Our investments in PIC provide us a solid foundation to diversify our feedstock source for business sustainability while pursuing our presence in the derivatives and specialty chemicals sectors. SERVING OUR PEOPLE & COMMUNITY
Our focus on growth is finely balanced by our commitments to the people whose lives we impact in ways that may not be directly related to our business, namely our employees and the larger communities in which we operate.
As an employer, PCG aims to create a dynamic work environment that truly engages our people and inspires them to develop their true potential, promoting a greater sense of well-being through a high level of job satisfaction. Our HR focuses on identifying individual talents and skills, and enhancing these for career advancement. Every employee
Find out more about our HSE practices in our Sustainability Statement from pages 82 to 84.
AR16
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Sectionthree
receives comprehensive on-the-job training which is supplementedby formal trainingprogrammes that include leadershipdevelopment.Atthesametime,werespecttheneedforgoodwork-lifebalanceandofferameasureofflexibility inworkinghoursandannual leavewhileprovidingourfemalestaffwithvariousfacilitiestohelpthemmanagetheirprofessionalandfamilycommitments.
Within our local communities, PCG is dedicated to developingmeaningful programmes thathaveasustainable impacton the liveswetouch.Mostofoureffortsarecentredonnarrowingtheeducationgapaswellaselevatingthewell-beingoftheunderprivileged.Throughone of our flagship initiatives, Program Sentuhan Ilmu PETRONAS(PSIP),weadoptschoolswherewehelptoimprovestudentcapabilitiesincoresubjectssuchasEnglish,ScienceandMathematics.Anothersignature outreach programme is Sentuhan Kasih, which serves toempowermarginalisedpocketsof thecommunity throughdonationsandactivities.
Aspartofourcorporatesocialresponsibility(CSR)wealsogetinvolvedwiththecommunitytoconservetheenvironment.Since2005,wehavebeen running an ecoCare programme together with the MalaysianNatureSociety(MNS)thatseekstocreateawarenessoftheimportanceofpreservingmangrovehabitats.Underthisprogramme,wehavesetupanecoCareEnvironmentalEducationCentre(ecoCareEEC)inKertihwhichrunsvariousactivitiestorehabilitatethemangroveecosystemalong the banks of Kertih River. To date, over 11,000 squaremetresof the mangrove forest have been replanted with more than 10,000seedlings.
These initiatives,whichstemfromadeepdesire tooperateethically,serve also to reinforce our sustainability by strengthening ourstakeholderrelationships.Itgivesmepridetoseeoureffortstosustainour financial performance with a healthy environmental, social andgovernance (ESG) scorecard gainmomentum. This year, as you willobserve from our Sustainability Statement, we are adopting a morestrategic approach in terms of engaging with our stakeholders andcreating greater transparency in our operations. We believe theseefforts, together with robust financial performance, will contributeto enhanced investors’ confidence. For a fuller account of our ESGconsiderations,pleaserefertoourSustainabilityStatementonpages75-88.IampleasedtosharethatourESGeffortshavebeenrecognisedwithPCGbeingnamedoneofthetop10companiesasrankedbymarketcapitalisationlistedintheFTSE4GoodBursaMalaysia(F4GBM)Index.
OUTLOOK
All indicatorspointtoanotherchallengingyearin2017.Althoughthepriceofoilandglobaleconomyareexpectedtopickup,theincreaseis forecast to be slight, and demand for petrochemicals is likely tocontinuetobedwarfedbysupply.Fromthenumberofprojectsplannedbetween2016and2020,worldethylenecapacityisanticipatedtogrowby3.7%annuallywhiledemandisexpectedtoaverage3.5%inthesameperiod.
Within this environment,we remainoptimistic of continuing to bringaddedvaluetoyou.Ourstrategicposition inthecentreofSoutheastAsia, oneof the fastest growing regions in theworld, aswell asourworld-class operational and commercial excellence,will stand us onastrong footing to face thesoftenvironment.Most important forusis to continue to focus on our growth planswhile strengthening ourfundamentals.ThesewillcontinuetobekeydrivingforcesatPCGandwillenableustofurtherenhanceour inherentvalue,andourvaluetoyou.
Oursteadyperformanceinthesetryingtimesisthecombinedresultofanumberofpeople,whomIwouldliketoacknowledge.TheyincludeourBoardofDirectors,particularlyourChairman,whohavecontinuedtoguidePCGwithgreat industry insightandentrepreneurialwisdom;mycolleagueson theManagementCommittee,manyofwhomhaveputintimebeyondtheircallofdutytoensureweachieveourgoals;andallouremployeeswhotrulyaretheengineofgrowthofPCG.ThankyouforyourcommitmentanddedicationtoPCG.
At the same time, I would like to thank our shareholders for yourcontinuedsupport;ourcustomers,fortheirtrustinourproducts;andallotherstakeholders forhelping tocreate thecompany thatwearetoday. All your contributions are highly valued and, on behalf of themanagement,wewouldliketosayacollective‘terimakasih’.
Management Discussion & Analysis (Cont’d)Managing Director/CEO
46
Sectionthree
PETRONAS CHEMICALS
GROUP BERHAD
RASHIDAH ALIAS
CHIEF FINANCIAL OFFICER
Management Discussion & Analysis (Cont’d)Chief Financial Officer
IN THE CURRENT ENVIRONMENT OF LOW CRUDE OIL PRICES AND SUBDUED DEMAND FOR PETROCHEMICAL PRODUCTS, INDUSTRY PLAYERS HAVE HAD TO TIGHTEN THEIR BELTS, AND PCG HAS BEEN NO DIFFERENT.
We have had some significant successes on this score for 2016, thanks to various cost optimisation initiatives, not least of which has been our focus on operational excellence which has significantly increased our plant utilisation thus reducing our unit production cost. This has been further supported by reduced repair and maintenance expenses, efficiencies in our supply and distribution and a keen eye on optimising our day-to-day operating expenses.
Our plant utilisation hit a record level of 96%, up from 85% in 2015, due largely to improved ethane and methane supplies as well as a lower level of turnaround activity across the Group. Along with higher plant utilisation, we saw an increase in production and sales volumes. This, together with a stronger US Dollar against the Malaysian Ringgit, enabled us to record an increase in revenue despite lower prices of products on average. Our Group revenue surged by RM324 million or 2% to RM13.9 billion.
The efficiencies brought about by increased production volume and lower unit cost, together with a favourable foreign exchange environment, allowed us to mitigate the impact of thinner spreads to record 14% growth in earnings before income tax, depreciation and amortisation (EBITDA) by RM631 million to RM5.3 billion.
Accordingly, profit after tax (PAT) increased by 4%, or RM131 million, to RM3.2 billion. Excluding the assets write-off amounting to RM244 million (or USD59 million) due to cancellation of the elastomers project during the year, our PAT would have been RM3.5 billion, which is a 12% increase from the previous year.
SEGMENTAL REVIEW
Olefins and DerivativesWhile there were scheduled turnarounds undertaken at the propane dehydrogenation (PDH) and aromatic plants, we still achieved 100% utilisation rates in the Olefins and Derivatives segment, up from 93% in the previous year. This contributed to a 3% increase in revenue from RM9.5 billion to RM9.8 billion. Further supported by a strengthening US Dollar, EBITDA grew by RM596 million or 19% to RM3.8 billion. Segmental PAT grew by 8% to RM2.2 billion. Excluding the elastomers write-off, PAT for the segment would have amounted to RM2.4 billion, marking an increase of 21% from the RM2.0 billion achieved in 2015.
Fertilisers and MethanolPlant utilisation rate similarly grew in the Fertilisers and Methanol segment, from 80% to 93%, mainly due to better methane supply. The increase in production more than compensated for the price decrease of methanol due to lower demand for fuel additives, as well as that for urea and ammonia due to oversupply in the market from new capacity. Complemented by the strong US Dollar, the segment recorded slight increase of 1% in revenue.
Nevertheless, EBITDA and PAT were slightly lower by RM19 million or 1% to RM1.5 billion and RM60 million or 6% to RM999 million respectively on lower spreads.
FINANCIAL POSITION
Total AssetsDuring the year, our total assets grew by 4% from RM30.8 billion to RM31.9 billion along with an increase in our Property, Plant and Equipment (PPE). The value of our PPE grew by 12% to RM18.5 billion with RM3.0 billion in additions during the year under review, comprising RM1.8 billion for petrochemical projects under the PIC project, RM557 million for the SAMUR Project, and RM337 million for other plant operational CAPEX. Depreciation charges for the year, stood at RM1.3 billion.
Total LiabilitiesOur total liabilities decreased by 14% from RM4.2 billion to RM3.6 billion as a result of lower trade and other payables. The group has minimal borrowings as at 31 December 2016 of RM23 million relating to a facility taken for working capital purposes by one of its subsidiaries.
Cash FlowAlthough the Group’s cash and cash equivalents was lower by 15% from 2015, it remained at a very healthy RM7.4 billion. We incurred a higher cash outflow for financing due to higher dividends paid to shareholders and non-controlling interest. Cash flow from investing activities, meanwhile stood at RM2.8 billion mainly reflecting investments made for growth projects. Cash flow from operating activities for the year remains strong at close to RM4 billion.
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Sectionthree
Management Discussion & Analysis (Cont’d)Chief Financial Officer
CASH FLOW GENERATION AND UTILISATION
We are rigorous in monitoring cash flow throughout the Group. Today, as we are gearing for growth, we strive to maintain optimal level of working capital at our subsidiaries to enable the repatriation of dividends to PCG as the holding company for ongoing and future projects. Based on their respective working capital needs, our subsidiaries prepare regular and robust cash flow forecasts which is then used to manage all receivables and payables including short term financing with overall direction and oversight at Group level.
CORPORATE FINANCIAL POLICY
The management of our cash flows, as well as other financial aspects of the Group’s operations that could pose a risk to our business, is guided by our Corporate Financial Policy. This serves as a foundation upon which our financial risk management is built and the resultant risk exposures identified, managed and mitigated. The policy promotes effective information flow for proactive and integrated financial risk management, and improves the quality of decision-making throughout the Group.
DIVIDEND POLICY The Group has a dividend policy that is subject to the discretion of the Board and final approval from the Shareholders. The policy takes into consideration a number of factors, which include, the Group's earnings, capital requirements, general financial condition, its distributable reserves and other factors considered relevant by the Board. The Board intends to adopt a policy of active capital management. The Board proposes payment of dividends through cash generated from the Group's operations after setting aside necessary funding for capital expenditure and working capital needs. As part of this policy, the Group targets a payout ratio of around 50% of its consolidated PAT under Malaysian GAAP in each calendar year, subject to the confirmation of the Board and to any applicable law, licence and contractual obligations and provided that such distribution would not be detrimental to the Group's cash needs or to any plans approved by the Board.
TOWARDS STRONGER GOVERNANCE During the year, we undertook a review of PCG's Group Limits of Authority to delegate greater responsibility to members of our senior management in terms of making operational decisions. This has the dual benefits of enhancing efficiencies in our decision-making process as well as enabling our Board to focus on more strategic and high-impact matters. As a result, we have been able to execute our plans more efficiently and quickly than we did previously whilst ensuring proper governance is in place. KEY FINANCIAL RISKS AND UNCERTAINTIES AFFECTINGOUR PERFORMANCE
Looking ahead, our mid-term goals will entail further enhancing our cash and liquidity management. This will ensure we are able to efficiently service our growth projects.
During the year, a total of RM3.3 billion was invested in five ongoing growth projects namely SAMUR, the polymers and glycols plants in PIC, and three further projects with our partners.
Our performance in 2016 was achieved in the midst of slower economic growth and financial market volatility. It attests to the resilience of our business, which is underpinned by multiple growth engines, a solid balance sheet and prudent cash management. With a sound foundation, we will be able to face 2017 from a position of strength.
RISKS HOW ARE WE MANAGING IT?
TAX RISKS The Group has adopted PETRONAS’ Corporate Financial Policy which details guidelines on tax administration in respect of tax compliance and planning. The guidelines cover corporate income tax, tax audit and investigation, withholding tax and indirect tax, transfer pricing and tax planning. The Group’s tax administration, as well as that of our subsidiaries, is monitored and reported to PETRONAS Group Tax Division.
FOREIGN EXCHANGE RISKS
We adhere to the foreign exchange (forex) management guidelines in PETRONAS’ Corporate Financial Policy, which help us identify, measure and manage our forex exposure. The guidelines encompass functional currency considerations, currency netting, currency matching and hedging. We also conduct forex exposure analysis prior to making decisions on any business with forex risk.
REGULATORY CHANGES
The Group keeps abreast of regulatory changes by PETRONAS and statutory bodies, and complies with these.
48
Sectionthree
PETRONAS CHEMICALS
GROUP BERHAD
Group Company
2015 2016 2015 2016
RMmil RMmil RMmil RMmilRevenue 13,536 13,860 2,796 4,401Purchaseofgoodsandservices (8,090) (7,708) (64) (70)Valueaddedbythecompanies 5,446 6,152 2,732 4,331OtherExpenses (391) (196) (6) (267)OtherIncome 733 289 346 860Financingcosts (11) 47 2 60Shareofprofitaftertaxofequityaccountedassociateandjointlycontrolledentity 87 17 - -
Valueaddedavailablefordistribution 5,864 6,309 3,074 4,984
DISTRIBUTION
Toemployees Employmentcosts 817 862 127 100
Togovernment Taxation 742 888 14 50
To shareholders Dividends 1,280 1,360 1,280 1,360 MinorityInterest 146 815
Retainedforreinvestmentandfuturegrowth Depreciation,amortisationandimpairment 1,279 1,337 3 3 Retainedprofit 1,600 1,047 1,650 3,471
5,864 6,309 3,074 4,984
14%
38%
14%
34%
2016GROUP
13%
14%
49%
24%
2015GROUP
• ToEmployees • ToGovernment • To Shareholders • RetainedforReinvestmentandFutureGrowth
Management Discussion & Analysis (Cont’d)Chief Financial Officer
Value Added Available for Distribution (RM Million)
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IT HAS BEEN A VERY ENCOURAGING YEAR FOR THE MANUFACTURING DIVISION. COLLABORATIVE EFFORTS TO ENHANCE OUR PERFORMANCE LED TO OUR HIGHEST EVER PRODUCTION VOLUME.
Management Discussion & Analysis (Cont’d)Head of Manufacturing
IR MOHD YUSRI MOHAMED YUSOF
HEADOFMANUFACTURING
Plantutilisationisdependentonanumberoffactors,keyamongstwhicharereliabilityoftheplantsandfeedstocksupplyaswellastheabilitytoconductturnaroundswithminimumdisruptiontooperations.IampleasedtosharethatPCGmademarked improvements in theseareasas a result of rigorousoperational excellencepracticesandmodusoperandithatfacilitatescollaboration,cooperation,andcollectivedecisionmakingacrossthevaluechain.
Improvement in asset management practices such as preventive maintenance and effective Bad Actormanagement,focusingonitemsthatimpactplantreliabilityensuresourplantsareavailablethroughouttheyear.Byengagingmorecloselywithsuppliersoffeedstockaswellasutilitiesinplanningandoperations,wewereabletoreapthebenefitsofgreatersecurityinthevolumesofmethaneandethanereceived,aswellasutilitiessupply.
Methane supplywas further secured by commissioning of the Dalak pipeline in the first quarter of the year,addingtosupplyfromKikeh.WithDalakfeedingmethanetoourmethanolfacilityinLabuan,totalproductionofthisplant increased45%comparedto2015.Atthesametime,ethyleneproductiongrewby15%asaresultofmorereliablegasplantsandcrackersperformancethroughouttheyear.
WITH DALAK FEEDING METHANE TO OUR
METHANOL FACILITY IN LABUAN, TOTAL
PRODUCTION OF THIS PLANT INCREASED
45% COMPARED TO 2015. AT THE SAME
TIME, ETHYLENE PRODUCTION GREW
BY 15%.
50
Sectionthree
PETRONAS CHEMICALS
GROUP BERHAD
Therewerethreescheduledturnarounds–atPCMTBE(PDHPlant)in Gebeng, Pahang; PC Aromatics in Kertih, Terengganu and ABFinBintulu, Sarawak–all ofwhichwereplanned in great detail andexecutedsystematically,withbettercoordinationamongthepartiesinvolved.Withthebenefitofexperience,ourinternalteamhasaclearunderstanding of running these programmes, and managing ourcontractors, to ensure theymeet expected levels of competency inallfunctionalareas,includingsafety.Asourturnaroundcompetencyincreases every year, we were able to shorten the duration of theprogrammes. In 2016, not only did we have more compressedturnaroundschedules,wealsoexceededourtargetsby7%.
Integral to our efforts to achieve operational excellence is tooptimise production at the lowest cost. This involves minimisingfeedstocklossandbeingenergyefficient.Asexamples,anyexcessethane fromGas Processing Kertih to PC Ethylene is re-routed toPC Olefins; while flaring of surplus fuel at PC Olefins during highplantloadingisreducedbyexportingthesurplusfueltosurroundingplants.Similarly,excesssteamgeneratedbytheplantisre-routedtoourbutanolplant.Theseinitiativeshelpedustooperateatahigherlevelofenergyefficiencyascomparedto2015.
Thepursuitofoperationalexcellenceencompasseshavingastrongfoundation on safety. Safety is our top priority and is reinforcedbyour leadership’s commitment tobuildonour safety framework,guided by PETRONAS’ HSE Policy. We ensure all our employees
Management Discussion & Analysis (Cont’d)Head of Manufacturing
adheretothestandardsandoperatingpracticesofthisPolicyandabidebyourZeroTolerance (ZeTo)Ruleswhichserve to inculcatesafebehaviorandcultivatethegenerativeHSEmindset.
During the year, we appointed ZeTo ambassadors to ensurecompliancewithallZeToRules.Wealsoplacednumerousbannersand buntings carrying safetymessages in strategic places at ourplants. I am pleased to share that these initiatives have had apositiveeffectintermsofcompliancewiththeZeTorules.
We also reinforced our process safety assurance by conductingvariousemergencyreadinessexercisesandupskillingouremployeestotherequiredtechnicalstandardsinmanagingourfireprotectionsystem.
Oursafetyculture isextended tocontractorswithwhomweshareourHSEexpectationsand requirements.Wealsoprovide trainingstotheirworkersonoursafetysystemsandtechnicalstandards,andcomplementthisbyregularbriefingsonsafeworkprocedures.Asalargenumberofcontractorsareinvolvedinourplantturnarounds,wecontinuouslystrengthenourHSEplanspecificallyforthis.Toensuresafety requirements are adhered to,members of themanagementteamregularlyconductwalkaboutsandaudits.
Looking ahead,wewill strive tomaintain existing plant utilisationbeyond theworld-classbenchmark, rampupoperationsatSAMURtofullcapacity,whilefocusingfurtheronoperationalefficiencies.
PCEPE
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Sectionthree
AKBAR MD THAYOOB
HEAD OF COMMERCIAL
2016 WAS CERTAINLY A GOOD YEAR FOR THE COMMERCIAL DIVISION, AS WE CELEBRATED OUR HIGHEST SALES VOLUME TO DATE. IT IS PARTICULARLY GRATIFYING TO SEE OUR SALES AND MARKETING EFFORTS BEAR FRUIT AT A TIME WHEN THE MARKET WAS VERY CHALLENGING. THERE CAN BE NO DOUBT THAT THE 17% INCREASE IN SALES ACHIEVED WAS A DIRECT RESULT OF HARD WORK AND DETERMINATION BY THE ENTIRE TEAM TO ATTAIN OUR ‘GOLD STANDARD’ – COMMERCIAL EXCELLENCE – WHICH IS ONE OF THE THREE DRIVING FORCES OF PCG AS WE SEEK DYNAMIC GROWTH.
Management Discussion & Analysis (Cont’d)Head of Commercial
One of the key functions of the team is to monitor the global petrochemicals market and keep track of fluctuations in the supply demand situation. Last year, we were able to channel our additional volume into Southeast Asia where manufacturing activity was more intense than other regions, resulting in greater need for our products. We were also able to strategically shift some volume to a higher value market and increase our sales to end users by 4%. These efforts had contributed to a better overall commercial performance.
We further enhanced our profitability by optimising our cost-to-serve. Logistics cost is a significant component in our cost structure, especially for long distance deliveries. Our location at the heart of Southeast Asia gives us a natural edge, one which we are further enhancing by optimising effective vessel arrangements. Smaller vessels were deployed to Southeast Asia destinations that have limitation to accommodate large parcel size. Whenever possible, shipments were planned to utilise larger vessel to take advantage of co-loading or co-mingling opportunities to lower our logistics cost. Aided by efficient integrated delivery planning and channel management, we were able to shave off 11% from our cost-to-serve as compared to 2015.
Our company also created new sales channels during the year by incorporating a new subsidiary in Indonesia in August, while commencing full operations at our subsidiaries that had been set up earlier in Thailand and China. These establishments enable us to strengthen our relationships with key customers and enhance our presence in the focus markets.
We have more than 1,000 active customers around the world; and as an indicator of their loyalty, more than 80% of our business comes from customers who have been with us for more than 10 years. This has a strong basis on the fact that customers truly come first at PCG. We make an effort to understand our customers’ needs, and even greater effort to meet them.
AIDED BY EFFICIENT DELIVERY PLANNING
AND CHANNEL MANAGEMENT, WE
WERE ABLE TO SHAVE OFF 11% FROM OUR COST-TO-SERVE AS
COMPARED TO 2015.
52
Sectionthree
PETRONAS CHEMICALS
GROUP BERHAD
Recognising the importance of prompt and efficient deliveryto enable a smooth flow of customer operations, our companyconsistentlyachievedtopclassorderfulfilmentreliabilitythroughoutthe year. This was supported by an efficient management ofinventorywhichallowedus toconsistently keepanoptimum levelofstockandenhanceourreputationasareliablesupplier.Anotheruniquepropositionthatweareabletoofferistoadaptourproductspecificationstosuitcustomers’changingneeds.BackedupbytheInnovationandTechnologyteam,weworkcloselywithcustomerstodeterminethesolutionstheyrequireandareabletocommercialisetheseinnovativeproductstimely.
Duringtheyear,ourcompanyproducedtwonewsolutions,namelylow freezing grade glycol (LFG MEG) which serves as a hydrateinhibitorinoilandgasapplications,andaspecialchemicalblendforuseinbrakefluids.Bothsolutionshavebeenwellreceived,leadingto new applications to our product slate. To further reinforce ourrelationships,weengageregularlywithourcustomers,bothdomesticandinternational.Wealsoconductedaproductstewardshipsessionin thePhilippines,wherewehave just startedexportingglycols inbulkandcontainer.
Internally,ourcompanyisbuildingcapabilitiestoensureourpeoplehavetheknowledgeandskillstosupportbusinessexpansion.Thisis
beingachievedthroughenhancedprofessionaldevelopmenttrainingand programmes. During the year, we strenghtened our capabilitydevelopment efforts, and enhanced our Capability DevelopmentSteering Committee and Working Committee to spearhead ourtraining initiatives. Thus far, we have certified another 32 pricingsystemexpertsthisyearontopofthe20certifiedin2015.
Healthandsafetycontinuetobegiventoppriority.Underliningourcommitmenttoensurethehighestsafetystandardsinoursalesanddistributionactivities,wecollaboratecloselywithCICMtodevelopindustry guidelines for safe transportation of petrochemicals. Onour own effort, we gathered our transport providers for a safetyforuminPadangBesar,PerlisinMarch;andheldasimilareventinKertih,TerengganuinNovember.Atbothevents,theemphasiswason safe behaviours of the truck drivers to prevent road incidents.Our company also engages with vendors and third-party serviceproviders to increase awareness of our HSE requirements andprocedures.
Now that we have savoured ameasure of success from our hardwork, we are determined to keep the momentum going and haveoutlinedournextcourseofactiontoachieveour2017goals.WithCXasourguidingprinciple,ourmissionisnotmerelytosurvive,buttothriveindeliveringthebestvaluetoourstakeholders.
Management Discussion & Analysis (Cont’d)Head of Commercial
Open here
for more
AR16KEY GLOBAL MEGATRENDS
FORECASTING A SURGEIN THE GLOBAL MIDDLE CLASS
2005 2010 2015 2020 2025 2030
Billionof people
Poor
MiddleClass
Rich
Nor
th
Amer
ica
Euro
pe
Cent
ral &
So
uth
Amer
ica
Asia-Pacific
Sub-
Saha
ran
Afric
a
Mid
dle
East
&
Nor
th A
fric
a
Billionof people
Middle class: size and distribution (millions of people, global share)
Global rise in the middle class predominantly from Asia Pacific
18%
36%
10%
22%
7%
14%
10%8%
6%
28%
54%
2% 2% 2% 6%5%
5%
2010
2020
2030
WE HAVE ALIGNED OUR MID TO LONG-TERM STRATEGIES TO CAPITALISE ON MALAYSIA’S STRATEGIC LOCATION IN ASIA PACIFIC, WHICH PROVIDES US AN ADDED EDGE TO LEVERAGE ON GLOBAL MEGATRENDS.
MALAYSIA ISSTRATEGICALLYLOCATED IN ASIA PACIFICCentrally located within the region with:• more than 4 billion population• growing middle class
5
4
3
2
1
POPULATION GROWTH IN ASIA PACIFIC EXCEEDS OTHER REGIONS
1980 1990 2000 2010 2020 2030
Asia Pacific
Middle East & North Africa
EuropeLatin AmericaNorth AmericaCentral Africa
ASIA PACIFIC
MALAYSIA
Billion of people
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
ASIAPACIFIC
66%
54
9
8
7
6
5
4
3
2
1
0
52
Sectionthree
PETRONAS CHEMICALS
GROUP BERHAD
Recognising the importance of prompt and efficient deliveryto enable a smooth flow of customer operations, our companyconsistentlyachievedtopclassorderfulfilmentreliabilitythroughoutthe year. This was supported by an efficient management ofinventorywhichallowedus toconsistently keepanoptimum levelofstockandenhanceourreputationasareliablesupplier.Anotheruniquepropositionthatweareabletoofferistoadaptourproductspecificationstosuitcustomers’changingneeds.BackedupbytheInnovationandTechnologyteam,weworkcloselywithcustomerstodeterminethesolutionstheyrequireandareabletocommercialisetheseinnovativeproductstimely.
Duringtheyear,ourcompanyproducedtwonewsolutions,namelylow freezing grade glycol (LFG MEG) which serves as a hydrateinhibitorinoilandgasapplications,andaspecialchemicalblendforuseinbrakefluids.Bothsolutionshavebeenwellreceived,leadingto new applications to our product slate. To further reinforce ourrelationships,weengageregularlywithourcustomers,bothdomesticandinternational.Wealsoconductedaproductstewardshipsessionin thePhilippines,wherewehave just startedexportingglycols inbulkandcontainer.
Internally,ourcompanyisbuildingcapabilitiestoensureourpeoplehavetheknowledgeandskillstosupportbusinessexpansion.Thisis
beingachievedthroughenhancedprofessionaldevelopmenttrainingand programmes. During the year, we strenghtened our capabilitydevelopment efforts, and enhanced our Capability DevelopmentSteering Committee and Working Committee to spearhead ourtraining initiatives. Thus far, we have certified another 32 pricingsystemexpertsthisyearontopofthe20certifiedin2015.
Healthandsafetycontinuetobegiventoppriority.Underliningourcommitmenttoensurethehighestsafetystandardsinoursalesanddistributionactivities,wecollaboratecloselywithCICMtodevelopindustry guidelines for safe transportation of petrochemicals. Onour own effort, we gathered our transport providers for a safetyforuminPadangBesar,PerlisinMarch;andheldasimilareventinKertih,TerengganuinNovember.Atbothevents,theemphasiswason safe behaviours of the truck drivers to prevent road incidents.Our company also engages with vendors and third-party serviceproviders to increase awareness of our HSE requirements andprocedures.
Now that we have savoured ameasure of success from our hardwork, we are determined to keep the momentum going and haveoutlinedournextcourseofactiontoachieveour2017goals.WithCXasourguidingprinciple,ourmissionisnotmerelytosurvive,buttothriveindeliveringthebestvaluetoourstakeholders.
Management Discussion & Analysis (Cont’d)Head of Commercial
AR16
53
Sectionthree
Focusing on addressing globalKEY MEGATRENDS and CHALLENGES
Increasing global population and affluent consumers drive the demand for various manufactured goods
2010 2015 2020 2030
6.9 7.4 7.8 8.5
1.8 2.5 3.2 4.9
53 66 82 117
211 283 375 574
1,000 1,400 1,600 2,000
374 453 530 770
Middle ClassPopulation
(Bil)
PlasticPackaging Sales
(USD Bil)
Motor Vehicle Sales
(Mil Unit)
Personal Care Consumption
(USD Bil)
GlobalPopulation
(Bil)
PolyesterProduction
(Mil MT)
The growing population amidstdecreasing arable land andresources necessitates effectivefood production
Less arable LAND (hectares/capita)
0.45
1960 1980
0.33
2000
0.27
2050
0.19
Lower resources FRESHWATER Availability (m3/capita)
13,500
1960 1980
10,000
2000
7,000
2050
4,500
Higher AGRICULTURE WATER withdrawal (km3/year)
1,500
1960 1980
2,200
2000
2,600
2050
3,100
VSHigher Food Consumption (kcal/person/day)
2,100
1960 1980
2,400
2000
2,600
2050
3,000
Sources: Organization for Economic Cooperation and Development
The World Bank, PCI Wood Mackenzie, PlasticsToday, Platts, Euromonitor, World Resources Institute and Food and Agriculture Organization of the United Nations (FAO).
Key Global Megatrends (Cont’d)
...amidst less arable land and less resources
Increase in populationfrom
6.9 BILLIONpeople (2010) to
8.5BILLIONpeople (2030)
The world will face challenges....
Leading to higher demand for...
4.9BILLIONpeople (2030)
More middle class population...from
1.8BILLIONpeople (2010) to
FOOD
PERSONALCARE
PRODUCTS
EFFICIENTTRANSPORTATION
PACKAGING
54
Sectionthree
% change YoY (2017 vs. 2016) Down No Change Up
Latin America & CarribeanA
Real GDPIndustrial Production
1.2 0.3 2.6
A
B
C
United States Eurozone Asia PacificB D
Real GDP Real GDP
Chemical Production
Industrial Production
Industrial Production
1.5 1.5 1.2 4.7 4.3 4.8
Middle East & AfricaC
Real GDPIndustrial Production
2.7 1.3 4.4
United Kingdom
Real GDPIndustrial Production
1.4 1.3 0.0
India
Economic indicators point to another challenging year in 2017 particularly in Asia Pacific.
D
Chemical Production
Chemical Production
Real GDPIndustrial Production
6.5 5.8 6.3
China
Chemical Production
Chemical Production
Chemical Production
Japan
Real GDPIndustrial Production
1.1 2.7 -0.9Chemical Production
Real GDPIndustrial Production
7.3 2.6 6.4Chemical Production
Real GDPIndustrial Production
Chemical Production
2.3 1.5 3.3
PETRONAS CHEMICALS
GROUP BERHAD
MARKET OUTLOOK
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55
Sectionthree
Market Outlook (Cont’d)
Olefins Totals
MEG Totals
Polyolefins Totals
Methanol Totals
Paraxylene Totals
Urea Totals
9,534
1,047
6,641
2,831
1,429
11,104
13,983
2,183
12,241
3,236
2,379
9,304
2016Total
2016Total
2016Total
2016Total
2016Total
2016Total
2017Total
2017Total
2017Total
2017Total
2017Total
2017Total
Net Capacity Expansion by Region (in thousands of metric tonnes)
AsiaPacific Europe MiddleEast NorthAmerica
AsiaPacific
AsiaPacific Europe MiddleEast NorthAmerica
AsiaPacific Europe NorthAmerica
SouthAmerica
AsiaPacific MiddleEast NorthAmerica
Source: IHS and Fertecon
Global Chemical Production Outlook by Segment (% change YoY)
2016
2017
AgriculturalChemicals
BasicChemicals
BulkPetrochemicals& Organics
OtherChemicals(excludingpharmaceuticals)
Coatings
ConsumerProducts
Man-madeFibers
PlasticResins
Specialties
TotalChemicals
0 2 4
1.92.1
2.1 2.7
2.42.9
2.2 2.8
5,471
1,047
3,273
453
1,152
9,095
2,183
8,490
3,097
1,8212,0641,640
2,213
665
5,529
3,291
500
2,782
2,128
2,967
1,881
0
6650 0
120
2,656
1,360
146
6751,914
1,228
-39
157
2,232 2,391
-47
-11785500
204
0 0
40
1.5 2.6
1.7 3.0
3.03.1
2.42.7
2.6 3.3
2.2 2.9
Petrochemical market will continue to be challenging despite improving demand as capacity additions continue to be strong.
Africa AsiaPacific
Europe MiddleEast
NorthAmerica
SouthAmerica
56
Sectionthree
PETRONAS CHEMICALS
GROUP BERHAD
STRATEGIC INTENT
ABDUL AZIZ OTHMANHEADOFSTRATEGICPLANNING&VENTURES
PETROCHEMICAL LANDSCAPE Thepetrochemicalindustryisagrowingindustrydrivenbyincreaseddemandforplastics, textiles,automotive,healthcare, foodandagriculture in tandemwith population growth and increasing affluence of developing nations.AccordingtotheWorldBank,worldpopulationisexpectedtoreach8.5billionby2030,andincreasefurtherto9.7billionby2050.Inlinewiththisgrowth,theglobalmiddleclasswillexpandfrom1.8billionin2010to3.2billionby2020and4.9billionby2030.MostofthisgrowthwillcomefromAsia,withtheregionrepresenting 66% of the global middle-class population by 2030. In Chinaalone,thenumberofuppermiddle-classandaffluenthouseholdsisforecasttodoubleto100millionby2020.Theresultisincreasingconsumptionoffoodpercapita.Thegrowingconsumptionoffoodamidstdecreasingarablelandand resourcesnecessitateseffective foodproduction.Furthermore, the riseofmiddleclass incomepopulation leadstohigherend-customerpreferencetowardshighqualityandluxuryproducts.
ACCORDING TO THE WORLDBANK, WORLD POPULATIONIS EXPECTEDTO REACH
8.5BILLIONBY 2030 ANDINCREASE FURTHER TO9.7 BILLION BY 2050
Saferanddurablepackagingduetothe increasinghealthconsciousness
Morevehiclesownershipduetoaffordabilityandhighermobilityrequirements
Changesinlifestyleandhealthtrendstowardshigherconsumptionofpersonalcare
UREAMETHANOL,
ETHANOLAMINES AND ETHOXYLATES
MTBEGLYCOLS AND PARAXYLENE
POLYMER
Inthefaceofincreasingshortageofarableland,ourureacontributestoincreasedcropyields
whichsupportsmoreefficientfoodproductionforthegrowingpopulation.
Ourmethanol,ethanolaminesandethoxylatescapturethehugedemandgrowthfromtheexpandingmiddleclassforcosmeticsandotherpersonalcareproducts.
OurMTBEcaterswelltotherapidriseintheautomotiveindustryfueledbytheincreasedaffluenceof
consumersinthisregion.
Ourglycolsandparaxyleneareusedintheproductionofpolyesterin
textilesindustrytocaterforincreasingurbanconsumers
preferenceforqualityclothes.
Ourpolymerscanbecustomisedtomeettherobustgrowthofautomotiveindustryandthegrowing higher
mobilityrequirementforlightandsmart
packaging.
Strengthenbasicpetrochemicals
Selectivelydiversifyingintoderivatives,specialtychemicalsandsolutions
OUR TWO-PRONGED STRATEGY Ourtwo-prongedstrategyisaboutfurthersolidifyingtheintent tomeet these needs. The growth projects underimplementation today will further cement our regionalmarket leadership position. Our strategy allows us toleverageon theeconomiesofscale from the increasedvolumeofbasicpetrochemicalsandenablesustoderivegreater margins from value-added products, which willalso serve as a buffer against market cyclicality andvolatility.
GLOBAL MIDDLE CLASSWILL EXPAND FROM
1.8 BILLION IN 2009 TO
3.2 BILLION BY 2020 AND
4.9BILLION
BY 2030
OUR UNIQUE STRATEGIC POSITIONING
BasicPetchem
DerivativesSpecialtyChemicals
Global
Regional
Local
CORPORATE VISIONThePreferredChemicalCompanyProvidingInnovativeCustomerSolutions
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Sectionthree
Strategic Intent (Cont’d)
Operational Excellencehasreachedworld-classlevelsin2016.Movingforward,we look to sustain theutilisationof assets at 90%andabove, underpinnedbysustainable best practice of HSE Excellence. The continuous strengtheningandinternalisingofHSEvaluesamongstallouremployeesandcontractorsareprerequisiteinbuildingastrongHSEculture.
Our Commercial Excellence has enabled us to gain additional value byembarking on several initiatives such as optimizing product mix, logistics& inventory and focusing on higher value markets. We have successfullyoperationalised our overseas subsidiaries in Thailand and China and haverecentlyincorporatedasubsidiaryinIndonesia.
Thisispartofourstrategytobeclosertoourmarketsandgaininsightsinordertoenhanceourmarketposition.Movingforward,thekeyfocuswillbetoexecuteactivities,suchasroute-to-marketforchosenproductsfromPIC.Thiswillensurethatwestrengthenourmarketleadershipposition.
Integrated business model.
Provide synergy with our existingproducts with large scale for
commodity and niche for specialty chemicals. The potential product slate
will be selected to meet the trend as mentioned in the megatrends.
By 2019, upon completion of our sanctioned projects,PCGwilladdabout47%ofadditionalcapacitybringingPCGcapacitytoover15millionmtpa.ThecompletionoftheprojectswillalsofurtherstrengthenPCG'spositionasfollows:
Petrochemical projects in PIC will propel PCGto become the largest producer for monoethylene glycols (MEG) & polypropylene (PP) and 2nd largestproducerforHDPEinSoutheastAsia.
SAMUR will position PCG as the 2nd largest urea producerinSEA.
CollaborationwithBASFwilldiversifyPCG'sportfoliointonichespecialty chemicals.
LOOKING AHEAD We continue to explore other significant growthopportunities in the production of ethylene, propyleneand butadiene derivatives, and specialty chemicals atPIC, whilst taking into consideration the availability ofexcess ethylene, propylene and butadiene molecules.In addition, we are constantly assessing furtherdownstreamopportunitiesforourpolymersandglycolsthatnotonlywouldenhancePCG'sproductofferingsbutalsocomplementourexistingproductslates. TheseeffortsareinlinewithPCG'saspirationstopursuedynamic growth projects to keep ourselves at parwithour peers.With our strong cash generation, wewill beabletopursuegrowthopportunitiesinlinewithourtwo-prongedstrategy.
Fundamentaltoourtwo-prongedstrategyisthecontinuedeffortstostrengthenourOperationalExcellence,CommercialExcellenceandInnovationExcellence.
Since2013,wehaveconstantlypursuecollaborativeeffortswithourcustomersinviewofmeetingtheirneeds.Todate,wehavesuccessfullydevelopedten(10)Innovative Customer Solutions;
Echoing this success, we are continuously identifying and developing ourcustomers’ needs and requirements, especially in food and agriculture,automotiveandpersonalcare.
Innovation Excellencewillbekeytostrengtheningourcapabilitiesinviewofoffering tailor-madeapplicationsandsolutions tomeetourcustomers’needs.As we expand our innovation capabilities, we will be able to develop morespecialisedsolutions,thustrulysettingPCGapartintheindustry.
CF45Solarpanelcuttingfluid
CF S1Enhancementofsolarpanel
cuttingfluid
REMCOATInsulationforpipecoating
Tergitol 26L-1.6Non-ionicsurfactantforhousehold
&personalcareapplication
B-260 BFBrakefluidapplication
C170X enhancementExtrusioncoatinggrade
forpackaging&laminationapplication
C170XLDPEextrusioncoatinggradeforpackaging&laminationapplication
HD5301Processabilityimprovement
forblownfilmforcarrierbags&thincounterbags
HD5201Processabilityimprovementfor
blowmoldingjerrycanforpalmoilindustry
LFG MEG 90 & 95LowfreezinggradeMEGforoilfieldchemicalapplication
58
Sectionthree
PETRONAS CHEMICALS
GROUP BERHAD
HOW WE TREAT RISKS
Wedetermineourrisksbasedontheconsiderationsofthecomplexities,hazardsandintegratednatureofourmanufacturingprocessesaswellastheexposurestothecyclicalnatureofthepetrochemicalindustrywithitsvolatilemarketandcompetitiveenvironment.
TheidentifiedrisksarecloselymonitoredandmanagedtoensureanyadverseimpactstoPCGbottomlineandgrowthstrategiesareminimised.
1
2
RISKS HOW DOES IT AFFECT US? HOW ARE WE MANAGING IT?
Disruptions
toplant
operations.
ThisriskisinherenttoPCGduetothe
complexityandintegratednatureofPCG
manufacturingprocess.Whilebeing
integratedinoperationprovidesadvantage
andsynergy,PCGisexposedtointerruptions
ofitsoperationsifoneormoreplantsinthe
integratedchainfailedtooperatereliably.
Interruptionstoplantoperationscanbe
causedbyseveralkeyfactorssuchasinherent
hardware/softwaredesigndeficiencies,
equipmentfailure,aswellasdisruptionin
feedstockandutilitiessupply.
Furtherenhanceoperationalexcellence
through:
• Structuredtechnicalcompetencies
programmes.
• AssetLifeManagementprogramto
maximiseassetavailabilityatminimumcost.
• TurnaroundManagement,wheretheplantis
shutdownforinspectionandoverhaulfora
plannedtimeframe.
• Regularplantmaintenanceandinspection
programmes.
• Relevantassuranceandauditprogrammes.
• Closecollaborationwithourfeedstockand
utilitiessupplierstoensurereliablesupplies
toourplants.
BusinessRecoveryPlan(BRP)andBusiness
ContinuityPlan(BCP)arealsoinplaceto
restoretheplanttonormaloperationsand
businesscontinuityrespectively,shoulda
prolongedinterruptionoccur.
MajorHSE
incidents
impacting
people,
environment
andassets.
Ouroperationsentailtheuseofcomplex
manufacturingprocessesandhandling
ofhazardouschemicals.Thus,majorHSE
incidentisaninherentriskforPCGplantsand
facilities.
ContinuouseffortstostrengthenHSEinPCG
areperformedthrough:
• FocusedexecutionofProcessSafety
Management(PSM).
• StrengthenedHSEgovernance.
• EnhancedHSEcommunicationtoallPCG
staffandcontractors,withtrackedaction
plans.
• Productstewardship.
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Sectionthree
How We Treat Risks (Cont’d)
RISKS HOW DOES IT AFFECT US? HOW ARE WE MANAGING IT?
3
4
Cyclicalityof
petrochemical
industryand
volatilityof
productprices.
Cyclicalnatureofpetrochemicalindustryis
aninherentriskforPCG,influencedbymarket
demandandsupplyaswellasthestateofthe
globaleconomy.
Thedecliningofcrudeoilpricesoftensthe
pricesanddemandofseveralPCGproducts.
PCGoperatesinahighlycompetitivemarket,
againstcompetitorswithlargerscaleof
operations,greaterfinancialreservesandmore
operatingflexibility.Mostofourproductsare
commoditybasedandfacepricecompetition.
• Ensureoperationalexcellenceforcost
competitiveness.
• Ensureprudentfiscalmanagement.
• Continuouslystrengthenournetwork,
nurturerelationshipsandunderstand
customers’needs.
Inabilityto
realisegrowth
projects,
hinderingPCG
fromachieving
itsvisionand
aspirations.
Withseveralcapitalprojectscommitted,PCG
needstoensureitsprojectsarecompleted
attherightscopeandwithinscheduleand
budget,tocapturemaximumvalue.
Somecriticalfactorsthatcanensureproject
targetsaremetincludegoodperformance
bycontractorsandsub-contractors,effective
projectmanagement,effectiveoperation
readinessprogrammeandgoodcontrolofthe
joint-ventureprojectmanagement.
• Implementedseveralinitiativestostrengthen
projectandcontractormanagement.
• Ensurecompliancetotheprescribedproject
managementframeworkandguidelines.
• Projectmonitoringatvariouslevels,upto
Boardlevel.
• LeverageonPETRONAS'expertiseinproject
managementanddelivery.
60
Sectionthree
PETRONAS CHEMICALS
GROUP BERHAD
INVESTOR RELATIONS AND SHARE PERFORMANCE
DevelopmentswithintheUS,UKandChinaaffectedemergingmarketssentiment.ReservationsfollowingPresident-electDonaldTrump’swinin early November and fears over an expected US rate hike as wellas changes in tradepolicy renewedpressure on regional currencies.Overall,theMalaysianRinggitcontinuedtodepreciate,althoughitwasbuoyed to an extent by the increase in crude oil price following theOrganisationofthePetroleumExportingCountries(OPEC)’sagreement.ItclosedtheyearatRM4.89againsttheUSDollar,down4.5%fromitsopeningofRM4.29.
TheFTSEBursaMalaysiaKualaLumpurCompositeIndex(FBMKLCI)wasverymuchimpactedbythemovementofbothcrudeoilpricesandtheMalaysianRinggitagainsttheUSDollar.Openingat1,693points,theindexplungedtoitslowestat1,601pointsinJanuarypulleddownbyoilandgasstocks.Theindexthenreacheditshighestat1,728pointsinmid-April,spurredbysignsofChina’seconomicrecovery,astabilisingRinggit and crude oil prices before easing slightly at the end of themonth. The followingmonths saw the index loseground, alongwithregionalpeers,uponanMSCI rebalancingexercise thatsaw reducedweightageonASEANmarketsinMay,andUK’ssurprisevotetoleavethe European Union in June. The index saw some support towardsthe end of the year, along with the OPEC agreement and improvedsentimentsovertheChineseeconomy.Atthetailendoftheyear,theFBMKLCIdeclined3%fromitsinitialopening,tocloseat1,642pointson31December.
PCG’s share pricewas on a downtrend in the early part of the year,affectedby thecrudeoilpriceandabearishmarket.OursharepricefelltoitslowestofRM6.22mid-yearintandemwiththeFBMKLCI,thenbegantomoveupfollowingtheannouncementofoursecondquarterresults,supportedbyourstrongoperationalandfinancialperformance.TheimprovementincrudeoilpriceslentfurthersupporttotheupwardmomentumasthestockoutperformedtheFBMKLCItocloseatRM6.98atyearend,just4%belowitsopeningofRM7.27.
Our Average Daily Traded Volume (ADTV) for 2016was 6.22millionunits,higherthanthe4.63millionrecordedin2015.
2017startedonapositivenote,withmostmajoreconomiesregisteringexpansionandgrowth.TheBrentcrudepricehasclimbedandremainedaboveUSD50perbarrel,supportedbytheOPECagreement.Thelocalboursehasseensomeactivetradealongsideregionalbourses,thoughacautioussentimentprevailswithcontinued focusandconcernsontheUSrate increaseand theoutcomesofnewpoliciesandchangesbeingimplementedbythenewadministration.Nonetheless,oursharepricehasremainedstrong,closingatRM7.50on17February2017andremainingamongthetop10countersoftheFBMKLCIwithamarketcapitalisationofRM60billion.
INVESTOR RELATIONS
2016 PROVED TO BE AN EVENTFUL YEAR, WITH LANDMARK DECISIONS AFFECTING THE GLOBAL ECONOMY AND, SUBSEQUENTLY, THE CAPITAL MARKET. UNCERTAINTIES SURROUNDING THE PRICE OF CRUDE OIL, ALWAYS A SIGNIFICANT ECONOMIC INDICATOR, CONTINUED TO AFFECT MAJOR MARKETS. THE BENCHMARK PRICE OF BRENT HIT ITS LOWEST AT USD26 PER BARREL IN JANUARY ON NEWS OF HIGH US STOCKPILE INVENTORY, FOLLOWING WHICH IT CLIMBED SLOWLY BASED ON PRODUCTION OUTAGES AND TALK OF REGULATING PRODUCTION TO MANAGE THE OVERSUPPLY. WITH THE COMMITMENT BY EXPORTING COUNTRIES TO CUT PRODUCTION ANNOUNCED IN NOVEMBER, BRENT CRUDE SURGED TO CLOSE AT USD57 PER BARREL BY END 2016, AVERAGING USD45 PER BARREL FOR THE YEAR.
PCGrecognisestheimportanceofhavinganeffectivecommunicationchannelbetweentheCompany,ourshareholdersandthegeneralpublic.Assuch,wehavestructuredourInvestorRelationsprogrammeinlinewithourInvestorRelationspolicy,thatservestopromotethesharingofaccurateinformationinatransparentandtimelymanner,inaccordancewithBursaMalaysia'srequirementsandguidelines.
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Sectionthree
Wearecommittedtoprovidingrelevantinformationtoourshareholdersand stakeholders, while being mindful of the legal and regulatoryframework governing the release of material and price sensitiveinformation. The Investor Relations team strives continuously toimprovePCG’svisibilityinboththedomesticandinternationalcapitalmarkets,andaddressinvestorinterestsandconcernsinatimelyandappropriatemanner.
In 2016, PCG held about 100 engagement sessions with keyshareholders, analysts and fund managers, through face-to-facemeetings, conference calls, analyst briefings, investor events, plantvisits,participationinroadshowsandcorporateconferences.
QUARTERLY ANALYST BRIEFINGS
The timely release of financial results on a quarterly basis providesthecapitalmarketswithup-to-dateinformationandanalysisofPCG’sperformance and operations. In conjunction with the release of ourquarterlyfinancialannouncementstoBursaMalaysia,wehostanalystbriefings for both local and foreign participants via webcast andconferencecalls.This facilitates timelymanagementdiscussionandanalysisofthequarterlyresults,aswellasquestionsandanswersforthebriefingparticipants.
Presentation materials for the briefings are made available on ourcorporatewebsiteonthesameday,whilethetranscriptsareverifiedbyathirdpartybeforebeinguploaded.
INVESTOR ENGAGEMENTS AND CORPORATE EVENTS
Asoneof the largest public listed companies inMalaysia, PCG fullysupports events and initiatives organised by Bursa Malaysia in itsefforts toshowcaseMalaysiaasanattractivemarketplace.Assuch,Invest Malaysia conferences have always been among key eventson our calendars. In 2016, we participated in InvestMalaysia KualaLumpur,withaseriesofone-on-oneandgroupmeetingshostedbyourMD/CEOandCFO.
PLANT VISITS
We recognise the need for analysts and investors to appreciate thenatureofourbusiness,henceorganiseregularvisitstoourplants.Thisyear,wehostedourretailshareholdersatPCLDPE,situatedintheKIPC,where presentations on our business, plantmanagement and safetyprocesseswereconducted.Thevisitwaswellreceivedandenabledourshareholders to gain first-hand experience of a plant environment. ItalsoheightenedtheirawarenessofourcommitmenttoEnvironmental,SocialandGovernancepractices.
CAPITAL MARKET FEEDBACK
PCG is well covered with regular reports from around 20 researchhouses.Ourwebsitecontinuestoserveasanimportantlinkwithourinvestors.Interestedstakeholderscanaccessourquarterlyandannualreports, Bursa Malaysia announcements, corporate presentations,analyst briefing transcripts and other relevant corporate news andinformation on the website. We strive continuously to improve ourwebsitetoenhancetheuserexperiencewhilepromotingtransparencyofinformationinlinewithBursaMalaysia’srequirementsandguidelines.ShareholdersarewelcometoraisequeriesbycontactingtheCompanyatanytimethroughouttheyear.
InvestorRelationscanbecontactedat:•Email:[email protected]•Website:www.petronaschemicals.com
Investor Relations and Share Performance (Cont’d)
62
Sectionthree
PETRONAS CHEMICALS
GROUP BERHAD
Investor Relations and Share Performance (Cont’d)
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
50
45
40
35
30
25
20
15
10
5
0
1,800
1,750
1,700
1,650
1,600
1,550
1,500
1,450
1,400
PCGSharePrice(RM)
PCGTradedVolume
(Million)
FBMKLCI
ADTV(Million) PCGSharePrice(RM) FBMKLCI
Closing Price RM Date
High 7.55 8January2016
Low 6.11 9May2016
Average Daily Traded Volume (ADTV)
6,224,044
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Sectionthree
FINANCIAL CALENDAR
20 FEBRUARY Announcementofunauditedquarterlyreportofconsolidatedresultsforthe4thQuarterEnded31December2016
7 MARCH Dateofentitlementofthe2ndinterimdividendforFinancialYearEnded31December2016
21 MARCH Dateofpaymentofthe2ndinterimdividendforFinancialYearEnded31December2016
23 FEBRUARYAnnouncementofunauditedquarterlyreportofconsolidatedresultsforthe4thQuarterEnded 31December2015
9 MARCHDateofentitlementofthe2ndinterimdividendforFinancialYearEnded31December2015
23 MARCHDateofpaymentofthe2ndinterimdividendforFinancialYearEnded31December2015
30 MARCHDateofNoticeofAnnualGeneralMeetinganddateofissuanceofAnnualReport2015
28 APRILDateof18thAnnualGeneralMeeting
9 MAYAnnouncementofunauditedquarterlyreportofconsolidatedresultsforthe1stQuarterEnded31March2016
9 AUGUSTAnnouncementofunauditedquarterlyreportofconsolidatedresultsforthe2ndQuarterEnded30June2016
24 AUGUSTDateofentitlementofthe1stinterimdividendforFinancialYearEnded31December2016
7 SEPTEMBERDateofpaymentofthe1stinterimdividendforFinancialYearEnded31December2016
2 NOVEMBERAnnouncementofunauditedquarterlyreportofconsolidatedresultsforthe3rdQuarterEnded 30September2016
28 MARCH DateofNoticeofAnnualGeneralMeetinganddateofissuanceofAnnualReport2016
26 APRIL Dateof19thAnnualGeneralMeeting
2016
2017
64
Sectionthree
PETRONAS CHEMICALS
GROUP BERHAD
OUR ACHIEVEMENTS
AS A LEADING CHEMICALS PRODUCER,
PCG constantly strives to operate in a safe manner. In fact, we
strongly believe that something is worth doing only when it is done
in accordance to our HSE culture built on principles that safeguard
the wellbeing of our people as well as the communities and
environment where we operate.
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65
Sectionthree
Our Achievements (Cont’d)
PETRONAS CHEMICALSGLYCOLS SDN BHD
PETRONAS CHEMICALSFERTILISER KEDAH SDN BHD
PETRONAS CHEMICALS METHANOL SDN BHD
PETRONAS CHEMICALS MTBE SDN BHD
• Laboratory Excellence Award (InstitutKimiaMalaysia)
• Gold Class 1 Award –Occupational,SafetyandHealth(MSOSH)
• Silver AwardinEmployeeHealth&Safety(CICMResponsibleCareAward)
• Merit AwardinProcessSafety(CICMResponsibleCareAward)
• Excellence AwardinPetroleumandPetroleumProduct,MonoethyleneGlycolsandPolyethylene(InstitutKimiaMalaysia)
• 4 Gold Medal AwardsinMiniConventionofUtilities,MNTC,Derivatives&Glycol(MPC)
• Innovative Circle & Creative (ICC) MudaTerbaikinMiniConventionofDerivatives(MPC)
• 6 Gold Medal AwardsinRegionalConventionofUtilities,MNTC,Derivatives,Glycol,Laboratories&Olefins(MPC)
• 3 Star Gold Medal Awards in AnnualProductivity&InnovationConferenceandExposition(APIC)
PETRONAS CHEMICALS ETHYLENE SDN BHD
ASEAN BINTULUFERTILIZER SDN BHD
PETRONAS CHEMICALSAMMONIA SDN BHD
PETRONAS CHEMICALS LDPE SDN BHD
• Gold AwardinDistributionCode(CICMResponsibleCareAward)
• Gold AwardinCommunityAwareness&EmergencyResponseCode(CICMResponsibleCareAward)
• Gold AwardinEmployeeHealth&SafetyCode(CICMResponsibleCareAward)
• Gold AwardinProductStewardshipCode(CICMResponsibleCareAward)
• Gold MeritinOccupational,SafetyandHealthAward(MSOSH)
• Gold AwardforHealthandSafety (RoSPA)
• Occupational Safety & Health Grand Award (MSOSH)
• Silver AwardinEmployeeHealth&SafetyCode(CICMResponsibleCareAward)
• Silver AwardinPollutionPreventionCode(CICMResponsibleCareAward)
• Silver AwardinProcessSafetyCode(CICMResponsibleCareAward)
• Silver AwardinCommunityAwareness&EmergencyResponseCode(CICMResponsibleCareAward)
• Silver AwardinDistributionCode(CICMResponsibleCareAward)
• Silver AwardinProductsStewardship(CICMResponsibleCareAward)
• Gold Merit –ExcellenceinOSHPerformance(MSOSH)
• Silver AwardinPollutionPreventionCode(CICMResponsibleCareAward)
• Merit AwardinCommunityAwareness&EmergencyResponseCode;ProcessSafetyCode;EmployeeHealthandSafetyCode(CICMResponsibleCareAward)
• Gold Award–TeamExcellence Convention,Regional(MalaysianProductivityCorporation)
• Gold Award–InternationalConventiononQualityControlCircle(ICQCC)
• Laboratory Excellence Award (InstitutKimiaMalaysia)
• Gold Award–HealthandSafety(RoSPA)
• Gold Class 1 Award–Occupational,SafetyandHealth(MSOSH)
• Silver AwardinPollutionPreventionCode(CICMResponsibleCareAward)
• Silver AwardinProcessSafetyCode(CICMResponsibleCareAward)
• Merit inCommunityAwareness&EmergencyResponseCode(CICMResponsibleCareAward)
• Highly Commended Award in ProcessSafetyFocusedLearning
• Laboratory Excellence Award in WaterandHydrocarbonAnalysis(InstitutKimiaMalaysia)
• Anugerah Sumbangsih 2015 (JabatanPendidikanNegeriKedah)
• Anugerah Sumbangsih 2015 (PejabatPendidikanDaerahKualaMuda/Yan)
• Silver AwardinCommunityAwarenessandEmergencyResponseCode(CICMResponsibleCareAward)
• Silver AwardinProcessSafetyCode(CICMResponsibleCareAward)
• Silver AwardinEmployeeHealthandSafetyCode(CICMResponsibleCareAward)
PCG in the newsPETRONAS CHEMICALS SAYS OIL SLUMP WON'T DERAIL SPENDING PLAN
Petronas Chemicals Bhd., a unit of Malaysia’s state energy company, willspend $4 billion over the next five years to mostly invest in a refinery andpetrochemicals complex spearheaded by its parent in Johor state, borderingSingapore.
Thecompanypredictsa “tougher”2016becauseofaplunge incrudeandanoversupply that’s pushed down product prices, Chief Executive Officer SazaliHamzahsaid inan interviewviae-mail.PetronasChemicals typicallybenefitsfrom higher oil which drives up petrochemical-product prices. The industry’soutlook this year is cloudedby volatility in theoilmarketandslowerChinesedemand,hesaid.
“Manycompanieswill tend tobackoff fromcapital investments,stoppingorshelvingsomeoftheirprojects,”Sazalisaid.“Withourstrongcashposition,wehavetheadvantagetofundourexistingprojectsandgrowthprojectsaswell.”PetroliamNasionalBhd.,theparentcompany,isproceedingwiththe$27billionintegratedrefineryandpetrochemicalscomplexevenasitdeferssomeotherprojects.Petronas,asthecompanyisknown,planstolowercapitalandoperatingexpenditurebyasmuchas20billionringgit($4.8billion)in2016.It joinsglobalpeerssuchasRoyalDutchShellPlc incuttingspendingastheindustrycontendswiththeworstcrudedownturninageneration.
SharesofPetronasChemicalsrose0.3percentto6.82ringgitonWednesday.Theyhaverisen24percentinthepastyear,comparedwitha7.4percentdeclineinthebenchmarkFTSEBursaMalaysiaKLCIIndex.
by Pooi Koon Chong
March 2, 2016, 7:00 AM
68
Sectionthree
PETRONAS CHEMICALS
GROUP BERHAD
18 CNY DINNER WITH VALUED
CUSTOMERS
JAN
15 PCG SIGNS AGREEMENT TO SUPPLY
METHANOL TO CELANESE SINGAPORE
FEB
16 & 17 PCG HOSTS CHINESE
MEDIA & BFM RADIO TO CNY DINNER
11 PCG SIGNS AGREEMENT TO SUPPLY
AMMONIA TO DAEWOO INTERNATIONAL
CORPORATION
5-7 PCG TAKES UTP STUDENTS ON AN
INDUSTRIAL TRIP TO ecoCare EEC & KIPC
MAR
CALENDAR OF EVENTS
23 VOLUNTEERS & LOCALS RID KERTIH
BEACH OF 2 TONNES OF RUBBISH
08 SABAH CHIEF MINISTER VISITS
SAMUR SITE
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69
Sectionthree
28 PCG SIGNS THREE-YEAR UREA DEAL
WITH YVP FERTILIZER CO. LTD
23 PCM SIGNS MEG SUPPLY AND
DELIVERY CONTRACT WITH PETRONAS
CARIGALI SDN BHD
11March-9 April
VOLUNTEERS SPRUCE UP CHILDREN’S
HOME UNDER KEMBARA KEBAJIKAN
1MALAYSIAAPR
20 MEDIA NETWORKING WITH THE STAR
17 GROUNDBREAKING CEREMONY FOR
HR-PIB PLANT
31March-1April
TRANSPORTER FORUM TO ENSURE SAFE
TRANSPORT OF PETROCHEMICALS
Calendar of Events (Cont’d)
12 MEDIA VISITS SAMUR SITE BEFORE
COMMERCIAL OPERATIONS BEGIN
MAY
28 MORE THAN 1,000 SHAREHOLDERS
ATTEND PCG'S 18th AGM
70
Sectionthree
PETRONAS CHEMICALS
GROUP BERHAD
Calendar of Events (Cont’d)
27 PCG HOSTS 600 STAKEHOLDERS AT
AIDILFITRI OPEN HOUSE
24 CELEBRATING AIDILFITRI WITH
SIPITANG MP AND COMMUNITY
JULY
24 PC FERTILISER KEDAH RECOGNISED
WITH THIRD ANUGERAH SUMBANGSIH
24 CELEBRATING GAWAI WITH THE
COMMUNITY IN BINTULU
27-28 ecoCare EEC TAKES
INSTITUT TEKNOLOGI PETRONAS
MANAGEMENT BACK TO NATURE
8 &10 PCG'S DIRECTORS GAIN
FIRST-HAND UNDERSTANDING OF SAMUR
JUN
28 HOSTING EAST COAST MEDIA TO
IFTAR IN KUANTAN
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Sectionthree
Calendar of Events (Cont’d)
06 GOLFING WITH REGIONAL
CUSTOMERS AND STAKEHOLDERS
AUGSEPT
21 AWARENESS PROGRAMME ON
RESPONSIBLE PLASTIC USAGE FOR PCG
STAFF
08 PCG PARTICIPATES IN BURSA BULL
CHARGE RUN 2016
25 SHAREHOLDERS TAKEN ON A TOUR
OF LDPE PLANT IN KERTIH
05 PC ETHYLENE/POLYETHYLENE
SWEEPS MSOSH GRAND AWARD
23 FOUR GOLD AWARDS FOR PCG AT
ICQCC, BANGKOK
17 MECHANICAL COMPLETION AND
PROJECT HANDOVER OF 2-EHACID PLANT
AT BASF PETRONAS CHEMICALS
72
Sectionthree
PETRONAS CHEMICALS
GROUP BERHAD
Calendar of Events (Cont’d)
27-29 ENGAGEMENT WITH PCG'S
CUSTOMERS IN JAPAN
03 PREPARING LABUAN CHILDREN FOR
NEW ACADEMIC YEAR
NOV20 PCG PROMOTES ENVIRONMENTAL
AWARENESS TO SCHOOLCHILDREN
THROUGH ecoCare
14 MEDIA FAMILIARISATION TRIP TO
BASF PETRONAS CHEMICALS SDN BHD'S
PROJECT SITE
20 SCHOOL BASICS AND SCIENCE &
MATHS WORKSHOPS FOR KERTIH
PRIMARY KIDS
06 SCHOOL BASICS, AND SCIENCE
& MATHS WORKSHOPS FOR SIPITANG
PRIMARY KIDS
OCT
28 PCG PARTICIPATES AT CICM RUN
2016
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73
Sectionthree
12 PROMOTING RIVER CONSERVATION
FOR KUANTAN COMMUNITY
17&18 ENGAGEMENT WITH PCG'S
CUSTOMERS IN CHINA
10&11 ENGAGEMENT WITH PCG'S
CUSTOMERS IN INDIA
30 BASF PETRONAS CHEMICALS
SDN BHD DELIVERS FIRST BATCH OF
2-EHACID TO CHINA CUSTOMER
09 PCG BAGS 24 AWARDS IN THE
PETROCHEMICALS CATEGORY AT THE CICM
RESPONSIBLE CARE AWARDS
DEC
03 PCG WINS SIX IChemE AWARDS
Calendar of Events (Cont’d)
OUR
RESPONSIBILITIES
PETRONAS CHEMICALS GROUP BERHAD
W e u n d e r s t a n d t h a t w e h a v e a m u c h w i d e r
r e s p o n s i b i l i t y t o o u r s t a k e h o l d e r s t h a n m e r e l y
t o m a k e p r o f i t s . I n d e e d , w e b e l i e v e t h a t c a r i n g
f o r o u r s t a k e h o l d e r s – a n d t h e e n v i r o n m e n t – i n
w a y s t h a t a r e n o t d i r e c t l y r e l a t e d t o o u r b u s i n e s s
m a k e s g o o d s u s t a i n a b l e s e n s e . H o w w e d o t h i s i s
o u t l i n e d i n t h i s s e c t i o n .
CONTENTS
75 SustainabilityatPETRONASChemicalsGroupBerhad
76 HowSustainabilityisGoverned
78 IdentifyingourSustainabilityFocusAreas
79 ReportingonOurFocusAreas
88 OurWayForward
*Thecross-referencingiconsreferreadersto
informationelsewhereinthisreport
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75
Sectionfour
SUSTAINABILITY TO US IS ABOUT CREATING VALUE FOR YOU, OUR STAKEHOLDERS. IT IS ABOUT UNDERSTANDING THE IMPACT WE HAVE ON THE PEOPLE WHOSE LIVES WE TOUCH AND ENSURING WE ACHIEVE OUR BUSINESS OBJECTIVES IN A MANNER THAT CREATES THE MOST POSITIVE OUTCOMES FOR EVERYONE. THIS INCLUDES LEAVING AS SMALL AS POSSIBLE AN ENVIRONMENTAL IMPRINT, AS OUR NATURAL SURROUNDINGS ARE CRITICAL TO THE WELL-BEING OF COMMUNITIES THAT LIVE AROUND US.
Sustainabilityhasalwaysbeenintegraltoourbusinessphilosophy.Bygrounding our financial success on ethical environmental and socialconsiderations,we implicitly put in place structures that allowus tomanage potential challenges and risks. Equally as important, ourefforts to engagewith stakeholders serve to build a strong networkofrelationshipsbasedontrust.Managingourconsumptionofnaturalresourcesfurtherprolongsthesustainabilityofourbusinessinthelongterm, while ensuring sufficient resources are conserved tomeet theneedsoffuturegenerations.
Steeredbyfirmprinciplesofcorporategovernance,andagenuinedesiretosecureapositivefutureforourlocalcommunitiesandsocieties,oursustainabilityeffortsgobeyondmerecompliancewithregulations.
Itensureswecreatethemostconduciveworkenvironmentthatallowsouremployeestorealisetheirtruepotential.Anditallowsustoempowerlocalcommunitiesviathecreationofemploymentopportunitiesaswellasthroughthesupportoflocalbusinesses.
Whilewehavealwaysbeendrivenbysoundprinciplesofsustainability,in 2016we adopted amore structured approach to our efforts. Thisyear’ssustainabilityreportingfulfillsBursaMalaysia’srecentlyreleasedsustainabilityframeworkandgoesfurthertofocusonindustryeffortsin sustainability through referencing IPIECA’s* ‘Oil and Gas IndustryGuidance on Voluntary Sustainability Reporting’. Essentially, theseelevatetheeffectivenessofsustainabilityreporting,furtherenhancingourtransparencyandallowingustopresenttoourstakeholdersaclearpictureofwhatwearedoinginmattersthatcount.
THE BOUNDARIES OF OUR REPORTING
This Report comprises sustainability information from subsidiarieswherePCGhasoperationalcontrol,namelycompaniesinwhichwehavemorethan50%ownership.Thesesubsidiariespractiseourapproachinmanagingsustainabledevelopmentissues.
SUSTAINABILITY AT PETRONAS CHEMICALS GROUP BERHAD
*IPIECAistheglobaloilandgasindustryassociationforenvironmentalandsocialissues
76
Sectionfour
PETRONAS CHEMICALS
GROUP BERHAD
Sustainability at PETRONAS Chemicals Group Berhad (Cont’d)
HOW SUSTAINABILITY IS GOVERNED
In early 2016, we set up a Sustainable DevelopmentWorking Committee (SDWC) to guide us on our new sustainability reporting strategy.Thecommittee isalso responsible foroverseeingvarioussystems implemented tomonitorand reportonoursustainabilityperformance,viarepresentationinalltherelevantdepartmentswithinPCG.Inaddition,SDWCmembersworkcloselywiththeircounterpartsateachsubsidiarytoensurestakeholders'valuecreationacrosstheGroup.AlldecisionsbytheSDWCarevettedandapprovedbyourManagementCommittee(MC)andBoardofDirectorswhich,ultimately,takesresponsibilityforthesustainabilityoftheorganisation.
OUR GOVERNANCE STRUCTURE FOR SUSTAINABLE DEVELOPMENT
STRUCTURE
BOARD OF DIRECTORS
SUSTAINABLE DEVELOPMENT WORKING COMMITTEE
SUBSIDIARIES
CHAIRMANHead of Health, Safety and Environment
SECRETARY Technical Professional
(Environmental Management)
MANAGEMENT COMMITTEE
MANUFACTURINGHeadofOperationsManagement
INNOVATION & TECHNOLOGYHeadofProductStewardship&RegulatoryAffairs
CORPORATE AFFAIRS & ADMINISTRATIONHeadofCorporateSocialResponsibility
HUMAN RESOURCE MANAGEMENTHeadofRemuneration&EmployeeRelations
FINANCE-SUPPLY CHAIN MANAGEMENTHeadofSupplyChainManagement
FINANCE-INVESTOR RELATIONSHeadofInvestorRelationsPerformanceManagement
COMMERCIALHeadofPerformancePlanning
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Sectionfour
OPERATIONAL EXCELLENCE MANAGEMENT SYSTEM
HEALTH, SAFETY & ENVIRONMENT POLICY
PCGhasadoptedasinglecommonmanagementsystem,knownas theOperationalExcellenceManagementSystem(OeXMS), todeliversustainableresultsforallouroperations.LeveragingonaPlan-Do-Check-Actcycle,OeXMScombinesourPeople,DocumentsandAssuranceProcessesintoanintegratedmanagementsystem.
Itsimplementationenablesthecontinuousimprovementofouroperationsbyensuring:• Relevantproceduresaredeveloped• Adequateresourcesareallocated• Activitiesareimplementedtoachievespecifiedobjectives• AuditsandinspectionsarecarriedouttoensurecompliancetoPCGrequirements• Managementreviewsareconductedonthesystem’seffectiveness
Inaddition,OeXMSallowsourmanufacturingsitestoattaininternationallyrecognisedmanagementsystemscertificationssuchastheISO9001(forQualityManagement),ISO14001(forEnvironmentalManagement)andOHSAS18001(forOccupationalSafetyandHealthManagement).Thelistofmanufacturingsiteswithsuchcertificationisshownonourwebsiteat:www.petronaschemicals.com.my/HSE/Pages/HSE-Certification.aspx
OurHealth,SafetyandEnvironment(HSE)PolicyoutlinesourHSEaspirationsandcommitments,whichformsasignificantcomponentofoursustainabilityefforts.Guidedbythispolicy,westrive tobe in thetopquartileofHSEperformanceglobally,aimingforzeroincidentsandzerooccupationalillnessorinjury.Thepolicycommitsusto:• ContinuouslyimproveourHSEperformance• Operateourbusinessaccordingtoindustrialbestpracticesandlegalrequirements• CommunicatewithourkeystakeholdersonHSEmatters• RecognisethatHSEiseveryone’sresponsibility
OurHSEPolicycanbeviewedinitsentiretyat:www.petronaschemicals.com.my/HSE/Pages/HSE-Policy.aspx
Sustainability at PETRONAS Chemicals Group Berhad (Cont’d)
PETRONAS HSE MANDATORY CONTROL FRAMEWORK AND PETRONAS TECHNICAL STANDARDS
OurHSEmanagementisgovernedbyPETRONAS’HSEMandatoryControlFramework(MCF)whichspecifieskeyrequirementsthatmustbeimplementedinordertosafeguardourworkforce,thepublicandenvironment.WealsoleverageonPETRONASTechnicalStandards(PTS) tomanageHSEand issuesrelatedtosustainabledevelopment.PTSprovidesclearstandardsandguidelinesformanagingkeyactivities,includingthoserelatedtosustainabledevelopment.
Oursustainabledevelopmentisfurthersupportedbythefollowingsystems,policiesandrequirements:
78
Sectionfour
PETRONAS CHEMICALS
GROUP BERHAD
IDENTIFYING OUR SUSTAINABILITY FOCUS AREAS
KeytothedevelopmentofasustainabilityreportingstrategywastodeterminesustainabilityissuesthathavethegreatestimpactonbothPCGaswellasourstakeholders.TheSDWCundertookthetaskbyconductingamaterialityassessmentbasedonthefollowingstructuredapproach:
ITEM SUSTAINABILITY FOCUS AREAS FOCUS AREAS CATEGORIES
Energyuseandgreenhousegasemissions
EnvironmentFreshwaterconsumption
Emissionstoairandwater
Wastegeneration
Occupationalsafety&health
Health&SafetyProcesssafetyandspills
Productstewardship
Corporatesocialinvestment
SocietyAnti-corruption
Workforcediversityandinclusion
Workforcetraininganddevelopment
Sustainability at PETRONAS Chemicals Group Berhad (Cont’d)
Our Sustainability Materiality Assessment Matrix
Sign
ificanc
etoStakeho
lders
SignificancetoPCG
Low
Low
Med
Med
High
High
STEP 1:Identification of Sustainability Issues
TheSDWCidentifiedsustainabilityissuesthatarerelevanttothepetrochemicalandoil&gasindustry.ThislistofissueswereobtainedfromIPIECA’s‘OilandGasIndustryGuidanceonVoluntarySustainabilityReporting’.
STEP 2:Assessing the Significance of Each Issue to Stakeholders
Eachsustainabilityissuewasassessedtodeterminetheirsignificancetoourstakeholders.Thiswasdonebyevaluatingeachissuebasedonvariouscriteria,including:
a) opinionsofexternalexperts;b) thelevelofstakeholder
interest;c) relevancetoourindustry;d) governmentalinterest.
STEP 3:Assessing the Significance of Each Issue to PCG
Subsequently,theissueswereassessedtodeterminetheirsignificancetoPCG.Thecriteriausedforthisassessmentinclude:
a) significanceoftheriskposedbytheissue;
b) importanceoftheissuetoourcompany’sgrowth;
c) ourabilitytocontributetotheissue;
d) alignmentwithourcompany’svalues,goalsandpolicies.
STEP 4:Prioritisation of Sustainability Focus Areas
Eachsustainabilityissuewasthenplottedonasustainabilitymaterialityassessmentmatrix.TheissuesthatfallwithintheshadedareasofthematrixwereprioritisedforinitialreportingastheyaresignificanttobothPCGandourstakeholders.
TheseissuesrepresentPCG’sSustainabilityFocusAreas,andaredescribedindetailinsubsequentsectionsofthisReport.
3
3
11
11
4
4
7
7
5
5
2
2
10
10
8
8
6
6
1
1
9
9
SustainabilityIssues
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79
Sectionfour
Sustainability at PETRONAS Chemicals Group Berhad (Cont’d)
ENERGY USE AND GREENHOUSE GAS EMISSIONS
Our energy consumption is closely linked with our greenhouse gas(GHG)emissions.Morethan75%ofourtotalGHGemissionsoriginatesfromourfuel,steamandelectricityconsumption.Asthecostofenergyrisescontinuously,efficientenergymanagementhelpstooptimiseouroperatingcosts,whileconservingnaturalresourcesandmitigatingourimpactonclimatechange.Thisisalsoalignedwithincreasingglobalconcernonclimatechange.
Our energy consumption and GHG emissions are managed throughan Energy & Loss Management System (ELMS), which providesstandardisedrequirements,bestpracticesandworkprocessestailoredtotheenergyneedsofeachmanufacturingsite.Eachmanufacturingsitehasitsowntargetsandinitiativestoreduceitsenergyconsumption.ThesearemonitoredbydedicatedELMSengineers.
Our Energy Intensity andGHGEmissions Intensity improved in 2016from2015duetobetterplantutilisationsupportedbyongoingenergyefficiencyinitiatives.
ENVIRONMENT
REPORTING ON OUR FOCUS AREAS
Energy Efficiency at PC OlefinsAsuccessstoryinenergymanagementrecentlyhasbeenseenatPCOlefins.Beginningin2015,PCOlefinshassignificantlyimproveditsenergyefficiencybyimplementinginitiativestoconservefuelgasandsteam.
PCOlefinsgeneratesfuelgasaspartoftheolefinsmanufacturingprocess. Most of this fuel gas is consumed internally, whilethe excess is flared. To reduce flaring, PC Olefins conducted athorough evaluation of the overall fuel gas system, andmodifieditsplantprocessestoallowthesurplus fuelgas tobedistributedtosurroundingplants. Inaddition,excesssteamgeneratedbyPCOlefins is re-routed toPCDerivativeswhere it isused forprocessheating.
Theseenergymanagementstrategieshelpedtoreduceourenergyconsumption by 1,200,000 gigajoules (GJ) during the year underreview. It also reducedCO2 emissions by 81,000 tonnes,which isequivalenttoremoving17,000carsofftheroadsannually*.
* AscalculatedusingtheUnitedStatesEnvironmentalProtectionAgency’sGHGEquivalenciesCalculator.
2015 20162014
Whatitallmeans:i. Direct GHG Emissions:GHGemittedfromassetsthatare
ownedorcontrolledbyPCGii. Indirect GHG Emissions: GHG emitted to generate
electricityand/orsteampurchasedbyPCGiii. GHG Emission Intensity:TotalGHGemissionsperunitof
productioniv. CO2e:Carbondioxideequivalent
0.91 0.870.76
GREENHOUSE GAS EMISSION
DirectEmissions(MillionTonnesofCO2e)
IndirectEmissions(MillionTonnesofCO2e)
GHGIntensity(TonnesofCO2e pertonneofproduct)
1.35
4.39 4.60
1.32 1.31
4.54
ENERGY INTENSITY (GJ of Energy Consumed per Tonne of Product)
17.61 17.0615.91
2015 20162014
EMISSION REDUCTION
EQUIVALENT TO REMOVING
17,000 CARSOFF THE ROADS ANNUALLY
80
Sectionfour
PETRONAS CHEMICALS
GROUP BERHAD
FRESHWATER CONSUMPTION
We use significant amounts ofwater to generate steam required byourplantsaswellasforcoolingandcleaningpurposes.However,wecloselymonitor all activities involving water as we recognise it is avitalandlimitednaturalresource.Startingfrom2016,ourplantshaveadoptedPETRONAS’GuidelinesonWaterPracticeswhichdefinestheoperatingconditionsandmaintenancepracticesforefficientwateruse.
Ourwaterwithdrawalintensityimprovedin2016asaresultofincreasedplantutilisation.Thismeansweusedlesswaterpertonneofproductduringtheyearunderreview.
Sustainability at PETRONAS Chemicals Group Berhad (Cont’d)
EMISSIONS TO AIR AND WATER
ThemanagementofourairandwateremissionsisguidedbyourHSEPolicy,whichcommitsustosafeguardtheenvironmentinareaswherewe operate.Wemanage our emissions by reducing them at source,andthroughtheuseofpollutioncontrolequipment.Wealsomonitortheambientairqualityandwaterqualityofsurroundingriversorseatoensurecompliancewithregulatorylimits.OureffortsareguidedbyPETRONASTechnicalStandards.
OneofourkeyairpollutantsareNOx,whicharegeneratedduringfuelcombustionforenergygeneration.NOxarealsogeneratedwhenwaste
Whatitallmeans:NOx:Nitrogenoxides,acommonairpollutantSOx:Sulphuroxides,acommonairpollutantAir Emission Intensity: Total emission of air pollutants (intonnesofNOxandSOx)perunitofproduction.
EMISSIONS TO AIR
14.54
0.12
2.33
1.84
2.30
0.13
15.46
0.28
13.87
2015 20162014
NOxEmissions(Thousand Tonnes)
SOxEmissions(Thousand Tonnes)
AirEmissionIntensity(TonnesofAirEmissions
perthousandTonnesof
Product)
Whatitallmeans:Freshwater:Non-brackishwater,includingpotablewaterandriverwater.Freshwater Withdrawal:ThevolumeoffreshwaterremovedfrommunicipalwatersuppliesandothersourcesbyPCG.Freshwater Withdrawal Intensity:Totalfreshwaterwithdrawnperunitofproduction.
FRESHWATER WITHDRAWAL
29.73
4.73
4.274.58
31.27 32.31
2015 20162014
QuantityofFreshwaterWithdrawn(MillionCubicMeter)
FreshwaterWithdrawalIntensity(CubicMeterperTonne
ofProduct)
Our air emissions intensity reduced in 2016 as a result of increasedplantutilisationandareductioninflaring.
gascontainingammoniagasisflared.OurSOxemissionsarerelativelylowbecauseweuseprocessedfuelgas,whichislowinsulphur.
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Sectionfour
WASTE GENERATION
Westrivetominimisehazardouswastegenerationatourmanufacturingsites,whilemaximisingopportunitiestorecycle,reuseorrecover(3R)wasteatoffsitefacilities.Forexample,someofourwasteisconvertedinto fuels and lubricants, while other forms of waste are sent tospecialisedfacilitieswherepreciousmetalsarerecoveredfromthem. We quantify, inventorise and store all hazardous waste in dedicatedareas within each manufacturing site. The waste is then sent togovernmentlicensedwastefacilitiesfor3Rordisposal.Properwastemanagement is integral toourefforts tominimise theenvironmentalimpact of our operations. Minimising waste generation conservesnatural resources and improves our bottom line, while 3R reducesconsumptionofnaturalresources.
In2016,wemaintainedouraveragewasterecyclingrateatabove80%.Movingforward,wewillcontinuetostrivetoreduce,reuse,recycleandrecoverourhazardouswaste.
Sustainability at PETRONAS Chemicals Group Berhad (Cont’d)
WemonitortheChemicalOxygenDemand(COD)ofourwastewater,whichtellsushowmuchorganicmatterisreleasedintosurroundingwaters. Our COD discharges were higher in 2015 due to a minormethanolleakageatourmethanolplant,whichdidnotresult inanynoticeableenvironmental impact tocoastalwaterssurrounding theplant.Theleakwasrectifiedandadditionalpreventivemeasureswereimplemented,whichhelpedtonormaliseourCODdischargesin2016.
WASTEWATER DISCHARGES
852
0.14
2014
0.21
1,430
2015
0.12
924
2016
WastewaterDischarges(TonnesofCOD
Discharged)
CODDischargeIntensity(TonnesofCODper
ThousandTonnesof
product)
Whatitallmeans:Generated: Quantityofhazardouswasteproduced3R:Quantityofhazardouswastesentforrecycling,reuseorrecoveryFinal Disposal:Quantityofhazardouswastethatislandfilled,incineratedordisposedwithnofurtherbeneficialuse
HAZARDOUS WASTE
20162014 2015
Generated(ThousandTonnesofWaste)
FinalDisposal(ThousandTonnesofWaste)
3R(ThousandTonnesofWaste)
PercentageofWastesentfor3R
80.3%
24.920.0
4.5
22.0
4.4
21.3
5.0
81.3%
27.1
81.3%
26.2
Reducing Acid Waste GenerationABF, our urea manufacturing facility in Bintulu, embarked on aninitiative to reduce the hazardous waste generated during thecleaningofitsammoniastripper.Theammoniastripperisusedtoremove ammonia from ABF’s wastewater. Previously, hazardousacid waste was generated when the stripper was cleaned withhydrochloricacid.Thiswastewassubsequentlysenttoalicensedoffsitefacilityfordisposal.
In 2015, the hydrochloric acid was substituted with an acidicwastewaterproducedbyABF’sownoperations.ABFalsomodifieditsstrippertoreduceexposuretohazardouschemicalsduringthecleaningprocess.Oncethestripperisclean,theacidicwastewateristreatedinternallyatABF’sownwastewatertreatmentplant.
Thenewcleaningprocesseliminatesthegenerationofacidwaste,whichinthepastamountedto38.4tonnesperyear.
82
Sectionfour
PETRONAS CHEMICALS
GROUP BERHAD
HEALTH & SAFETY
OCCUPATIONAL SAFETY AND HEALTH
Because we value our workforce, we place the highest priority onoccupationalsafetyandhealth.GuidedbyourHSEPolicy,wetakeeveryreasonablesteptoeliminatetheriskofinjuryandprotectthewell-beingofourworkforceandthepublic.
Ourworkforcewhichcomprisesouremployeesaswellasthoseofourcontractorsreceiveallthenecessarytrainingsinorderforthemtocarryouttheirworksafely.Thisincludesspecifictrainingsonsafetysystemsrelated to chemical handling, working at height, energy isolation,excavationandconfinedspaceentry.
To maintain good HSE performance, we engage regularly with ourworkforce.Forexample,beforeanyspecificjobbeginsataworksite,weholdsafetymeetingscalledtoolboxtalks.Theseshortmeetingsfocusonpotentialhazardsofthejobandreinforcesafeworkpracticesamongourworkers.HSECommittees,comprisingemployeesandmanagementrepresentatives, are also established at all our manufacturing sites.Thesecommitteesdevelop,promoteandevaluatemeasurestoensurethesafetyandhealthofouremployees.
Unfortunately,wehad two fatalitiesduring theyearasa resultofanammonialeakageatSAMURduringtheproject'scommissioning.Havingidentifiedtherootcausesoftheleak,wehavefurtherstrengthenedthesafetyproceduresatallourplantstopreventanyrecurrenceofsimilarincidents.
Whatitallmeans:TRC: Total Recordable Case - refers to the number ofworkplaceinjuriesthatrequiremedicaltreatmentbeyondfirstaidTRCF:TotalRecordableCaseFrequency-thenumberofTRCspermillionman-hoursLTI:LostTimeInjury-thenumberofworkplaceinjuriesresultinginlossofproductiveworktimeLTIF:LostTime InjuryFrequency - thenumberofLTIspermillionman-hours
EMERGENCY EXERCISEWecarriedoutamajoremergencyresponseexerciseon22September2016 involving four plants in the KIPC. Simulating an explosion andfire resulting froman ethylenepipeline leak, the exercise enabled ustoevaluateour readiness tomanageemergencies. Italso testedourinternalcommunicationsaswellasourlinkswithrelevantgovernmentagenciessuchastheFireandRescueDepartment,PoliceDepartment,CivilDefenceForceandlocalmedicalfacilities.
WewereencouragedbytheefficientwayinwhichourCorporateCrisisManagementTeam,theplants’EmergencyManagementTeamsandallpartiesinvolvedcooperatedinthisexercise.Lessonslearnthavebeenusedtofurtherenhanceouremergencypreparedness.
In addition to this exercise, three other manufacturing sites alsoconductedfull-scaleemergencyexercisedrillsin2016.
OCCUPATIONAL SAFETY INCIDENTS - OPERATIONS
0.43
0.16
2015
0.60
0.11
2016
0.10
0.83
2014
OCCUPATIONAL SAFETY INCIDENTS - SAMUR
00
2015
0.65
0.39
2016
0.56
0
2014
Sustainability at PETRONAS Chemicals Group Berhad (Cont’d)
1.5
* AverageTRCFforpetrochemicalcompaniesintheUSAwithmorethan1000employeesin2014 Source:USBureauofLaborStatistics
LTIF(LTIpermillionman-hours)
TRCF(TRCpermillionman-hours)
IndustrialBenchmark*
LTIF(LTIpermillionman-hours)
TRCF(TRCpermillionman-hours)
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Sectionfour
PROCESS SAFETY AND SPILLS
OurHSEPolicyextendstoensuringthesafetyofourplantprocesses.Byguardingagainstfire,explosionsormaterialreleases,wesafeguardourpeople,localcommunitiesandourassetswhilepreventingunplannedshutdowns.
In 2015we established aProcessSafety FocusGroup to spearheadourprocesssafetymanagementstrategy.ComprisingProcessSafetymanagers from the different manufacturing sites, the Focus Groupresolves any process safety challenges faced within PCG. It alsodevelops competency programmes to ensure our Process Safetypractitionerskeepsharpeningtheirskillsinthisfield.
TheFocusGroup is supportedby aPETRONAS-wideProcessSafetyCommunity of Practice (CoP), which continuously raises the bar inbest practices via knowledge sharing among CoPmembers, and bycoachingandmentoringjuniorstaff.
There was a reduction in process safety incidents in 2016, none ofwhichresultedinspillsthatcausedsignificantenvironmentalimpacts.
Whatitallmeans:Significant Process Safety Incidents: Unplanned release ofsignificantquantitiesofhazardousmaterialsfromaprocess
Sustainability at PETRONAS Chemicals Group Berhad (Cont’d)
PRODUCT STEWARDSHIP
WeembraceProductStewardship,which is theactofsystematicallyassessing, controlling and communicating HSE and social impactsof all our products and packaging throughout their life cycle, whilemaximising theireconomicbenefits.Wehavemadeaconsciousandvoluntary decision to implement Product Stewardship programmes,knowing this has great impact on our stakeholders, includingemployees,suppliers,retailersandconsumers.
Our commitment to product HSE is codified through endorsementof the chemical industry’s Responsible Care® programme. We alsoengagewithprofessionalswithinthe industryandtradeassociationstokeepabreastwithtrends,andfeelprivilegedtobeabletoshareourknowledge with government agencies to help shape new laws andregulations.
OurProductStewardshipfocusesonthefollowingpriorityareas,whicharebasedonbusinessandindustryrequirements:
1.ProductRegulatoryCompliance• We meet all product regulatory requirements in the countrieswhereourproductsaremadeandsold,andareable to respondappropriatelytocustomerenquiries.
• This includes global chemical management, dangerous goodstransportation, banned/restricted chemical management andHalalAssuranceSystems.
2.ProductRiskCharacterisationandManagement• Weensurenewandexistingproductsaresafeforuseandhandlingthroughouttheentiresupplychain.
• Productrisksaremanagedappropriatelyduringbusinessplanning,R&D, product realisation, distribution, application, disposal andrecycling(ifany).
NUMBER OF SIGNIFICANT PROCESS SAFETY INCIDENTS
3
2015
1
2016
0
2014
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PETRONAS CHEMICALS
GROUP BERHAD
CORPORATE SOCIAL RESPONSIBILITY
OUR ACHIEVEMENTS TO DATE:
• We confirmed our polymer products – LDPE (5 grades),LLDPE(5grades)&HDPE(3grades)–complywiththeUSFood and Drug Administration Federal Regulations USFDA21CFR177.1520,CFR178.2010.
• WehavereceivedHalalcertificationformorethan80ofourproductsasof2016.
• WereportedourcomplianceunderKoreaREACHregulations&Taiwan-TCSCAregistrationforexports.
• Weconductedproductstewardshipsessionswithchemicalsbuyersinvariouscountries,mostrecentlyinthePhilippines.
• We committed to complete GPSS for selected products.Five of the summaries are accessible to the public onthe International Council of Chemical Association’s GPSChemicalsportal(http://icca.cefic.org/).
3.ProductSafetyDocumentation&Communication• ProductHSEinformationisprovidedtoallstakeholdersinvolvedin theentire lifecycleofourproducts.This includessafetydatasheets (SDS), labels, safe handling instructions, product safetysummaries,productdossiersanddeclarations.
• SDS,labelsandhazardclassificationaremanagedbyanefficientSAPsystemsupportedbyadedicatedtoxicologyteamandproducttesting.Wealsoengage regularlywithcustomers,suppliersanddistributorsbyorganisingsitevisits,seminarsandtrainings.
4.ProductSustainability• Productsustainabilityprogrammesprovideenvironmental,socialandeconomicbenefitswhilemanagingaproduct’sHSEimpactsthroughout its lifecycle, fromthesourcingof feedstockuntil itsfinal disposal. Awareness of safer chemicals substitution andcarbonfootprintanalysisarebeingconsideredforfutureaction.
OneofourkeyProductStewardshipprogrammesisthedevelopmentofGlobalProductSafetySummaries(GPSS)forselectedproducts.EachGPSS provides information on the typical applications of a product,its physical and chemical properties, and effects on health and the
SOCIETY
Sustainability at PETRONAS Chemicals Group Berhad (Cont’d)
environment.Written foreasycomprehension, theseGPSSenableourcustomersandthepublictounderstandhowourproductscanbeusedinasafeandenvironmentallyresponsiblemanner.
We take pride in being able to share some of our success with thecommunitiesthatliveinthevicinityofouroperations.Overtheyears,we have developed some meaningful programmes that strive toempowerthecommunitieswhereweoperate.
OurCSRprogrammesfocusoneducation,communitywell-beingandtheenvironment.In2016,theseprogrammesincludedBack-to-School,Program Cintai SungaiandecoCare.
BACK-TO-SCHOOLThroughthisprogramme,wehelptoimprovetheacademicperformanceofruralschoolchildreninsubjectssuchasscienceandmathematics,in addition to providing them with school supplies. In 2016, weorganisedBack-to-SchoolprogrammesinSipitang,KertihandLabuanwhichsawusprovide1,175underprivilegedschoolchildrenwithbagsandstationerybeforethestartofthenewacademicyear.Forthefirsttime,wealsocollaboratedwithMalay-languagedaily,Berita Harian,torun science andmathematics workshops for students and teachersfrom44primaryschools.
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Sustainability at PETRONAS Chemicals Group Berhad (Cont’d)
PROGRAM CINTAI SUNGAIOursubsidiary,PCMTBE,runsanannualriverconservationinitiativecalledProgram Cintai Sungai.Thisyear,itwasorganisedatJetiNelayanKampungBalokPantaiinKuantan.Collaboratingwithlocalgovernmentauthoritiesandcommunityrepresentatives,weraisedawarenessamongthelocalcommunityandschoolchildrenoftheneedtokeepBalokRiverclean.Weworkedwiththecommunitytopickuprubbishfromtheriverbanksandrelease‘pollution-absorbingmudballs’into the river, inaddition tocarryingout fun-filledReduce,ReuseandRecycle (3R)activities.Wealsohelped localboatownerspaint theirboatsandgave themfreemedicalcheckups toenhancetheirlivelihoodandwell-being.
ecoCareecoCareisoursignatureenvironment-basedCSRprogramme,conductedincollaborationwiththeMalaysianNatureSociety.Nowinits11thyear,theprogrammeinvolvesreforestationandrehabilitationofmangrovehabitatsalongKertihRiver.Toincreasepublicawarenessoftheimportanceofmangroveconservation,in2013wesetupanecoCareEnvironmentalEducationCentre(EEC),whichhashelpedtogarnergreaterparticipationintheprogramme.Todate,250organisationsandschools,aswellas12,200individualshavevisitedthecentre.Intotal,10,469mangroveseedlingshavebeenplantedonalldegradedpatchesrehabilitatingmorethan11,000squaremetresofareaalongtheKertihRiver.
Thisyear, for thefirst time,weorganiseda two-dayecoCareCommunityProgramme inconjunctionwithMalaysianEnvironmentWeek2016.Duringtheprogramme,membersofthecommunity,students,localauthoritiesandPETRONASstafftookpartinplantingmangroveseedlings.TheyalsoattendedatalkonrecyclingandresponsibleusageofplasticsbytheMalaysianPlasticsManufacturersAssociation.
ecoCareEnvironmentalEducationCentre
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Sectionfour
PETRONAS CHEMICALS
GROUP BERHAD
WORKFORCE DIVERSITY AND INCLUSION
We value people fromdifferent backgrounds and age groups for thefresh perspectives and insights they bring to our company. This isespecially important as we operate in an increasingly globalisedenvironment. We therefore strive to bring together a diverse groupoftalentswhoarerecruitedbasedonmerit,andwhoaregivenequalopportunitiestogrowandcontributetoourdynamicteam.
Asanequalopportunityemployer,wecreateaworkenvironmentthatiswomen-friendly.Womenwithchildrencanavailofourflexibleworkinghourstobalancetheirjobcommitmentswithpersonalresponsibilities.Westrive toaccommodate requests fromwomen tomove from jobsinourplantstoanofficeenvironment, formoremanageableworkinghours.Withinourheadquartersandplants,wehaveallocateddedicatedroomswithconducivefacilitiesformothers.
Ourwomenexecutivesarefurtherencouragedto jointhePETRONASLeading Women Network to benefit from role-modelling for theirprofessionaldevelopment,andnetworkingopportunitieswith leadersandpeers.
Company-wide,femaleemployeesmakeup18%ofourtotalworkforce.Thisisinfluencedbythelargelymaledominatedrepresentationinourplants. At the seniormanagement level, gender balance is amplifiedwithwomenmakingup27%ofourManagementCommittee.
GENDER DIVERSITY - TOTAL
18.8%
81.2%
19.5%
80.5%
18.0%
82.0%
2015 20162014
Female
Male
GENDER DIVERSITY - BOARD OF DIRECTORS
2015 20162014
Female
Male20%
80%
20%
80%
20%
80%
Diversity is also reflected at the Board level. During the year, a newBoardDiversityPolicywasdevelopedwhichunderlinesitscommitmenttoensureasuitablemixofmembers’profilesastoachieveeffectivestewardship and management. The new policy also reiterates theBoard’saimtohaveatleast30%representationofwomendirectors.
Sustainability at PETRONAS Chemicals Group Berhad (Cont’d)
To find out more about PETRONAS’ CoBE and Whistle-Blowing Policy please refer to pages 94, 107 and 124 in Our Governance section.
ANTI-CORRUPTION
WehavezerotoleranceforanyformofbriberyorcorruptionandingrainallouremployeeswithPETRONAS’CodeofConductandBusinessEthics(CoBE)toensureeveryoneupholdsahighlevelofprofessionalismandintegrity.
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Sustainability at PETRONAS Chemicals Group Berhad (Cont’d)
EMPLOYEE RETENTION & CONTRACT STAFF
Asaresultofincreasedfocusonempoweringourfull-timeemployeesandreducingourdependencyoncontractstaff,thenumberofthelatteratPCGdroppedfrom8.6%in2015to5.1%in2016.Atthesametime,ourturnoverratefor2016remainslowat1%.
2015 20162014
7.8%
8.6%
5.1%
PERCENTAGE OF STAFF THAT ARE ON CONTRACT
2015 20162014
EMPLOYEE TURNOVER RATE
1.8% 1.8%
1.0%
WORKFORCE TRAINING AND DEVELOPMENT
Our employees determine the effective execution of PCG’s businessstrategyandoperations.Toensuretheyhavethecapabilitiesrequired,we provide continuous training and development for everyone at alllevelsintheCompany.
LEADERSHIP DEVELOPMENT PROGRAMME
Leadership programmes at the entrance level are designed aroundhelpingindividualsdevelopleadershipskillsandcontinueuntilthelevelof leadingtheself, i.e.becomingcommittedtoowngoals,managingchallengesandrisks,andrecognisingownstrengthsanddevelopmentareas.
Toassistournewmanagersmakethetransitionintoleadershiproles,conditioning programmes are introduced to enhance self-awareness,
equipthemwithessentialknowledgeaswellaskeyskillstoeffectivelyleadthemselvesandotherstoeffectchangeinthebusiness.Ultimately,ourleadersaretrainedtomaketheefficienttransitionintostrategicimplementers.
CAPABILITY DEVELOPMENT PROGRAMMES
Ouremployeedevelopmentprogrammesarefocusedontechnicalandnon-technicalemployees,guidedbyPETRONAS’competencyframework.
Theleadershipteamisheavilyinvolvedinourtraininganddevelopmentprogrammestoensurewehaveapipelineofcompetentstaff.In2015, aspecialcommitteewassetuptosteerourcapabilitiesdevelopmentdirectionanditsexecution.
Variouscompetency-enhancingprogrammesandassessmentshavebeenimplemented,including:
1. DownstreamGroundingProgramme(DGP)thatprovidesnewtechnicalexecutivesandnon-executivesstructuredandsystematicon-the-job-trainingforanoverallperspectiveofthePETRONASDownstreambusiness.Throughtheprogramme–whichrunsforoneyearfortechnicalexecutivesandsixmonthsfornon-executives–theygainknowledgeandskillsinoperations,engineeringandtechnology.
2. AcceleratedCompetencyDevelopment (ACD) thatdevelops technicalexecutives inspecialiseddisciplines toensure targetedcompetencylevelsareachieved.Theyareassignedwithcoachesandprovidedon-the-jobaswellasclassroomtraining. In2016,about1,080technicalexecutives underwent ACD assessments conducted by certified assessors to identify their competency levels and to serve as input forindividualdevelopmentplans.
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PETRONAS CHEMICALS
GROUP BERHAD
EMPLOYEE TRAINING
8.7
10.512.0
6.1
2015
8.5
7.4
2016*2014
Training Investment(ThousandRMperEmployee)
Training Man-daysperEmployee
During the year, we spent more on training per employeealthoughtheaveragenumberofdaysspentontrainingdippedslightly from that in 2015. This was due to more efficientfocus on meeting individual needs and filling competencygaps,especiallyinspecialisedareas.
As part of our CSR, in 2016we provided industrial trainingopportunities in both technical and non-technical areasto approximately 275 undergraduates. The students wereassignedtoareasrelatedtotheiracademicbackgrounds.
OUR WAY FORWARD
PCGviewssustainabilityasanongoingjourney,whichrequiresourcontinuousimprovementtomeetfuturechallengesandopportunities.Movingforward,wewillcontinuetostrengthenoursustainabilitystrategyby:
Sustainability at PETRONAS Chemicals Group Berhad (Cont’d)
3. DownstreamTechnicalManagersCapabilityAssessment(TMCA)whichassessesthefunctionalcapabilitiesoftechnicalmanagersincarryingouttheirroleinplants.Atotalof25technicalmanagerswereassessedin2016.
4. PETRONASCompetency-basedAssessmentSystem(PECAS)whichascertainsthecompetencyofournon-executivetechnicalemployees,whohavetoundergotheprogrammewithin2.5years.In2016,about1,200staffwereinvolvedinvariousphasesoftheprogramme;andbytheendoftheyear,about350staffhadcompletedit,80%ofwhomcompleteditwithinthe2.5-yeartimeframe.
5. A Capability Development Framework (CDF) for the Commercial teamwas established to provide a structured approach in developing aversatilecommercialteamwithoverallexposuretocriticalrolesinbusiness,leadershipandspecialisedareas.Meanwhile,afeasibilitystudyonaProfessionalCareerPathfortheMarketing&Salesteamwasconducted.
SUCCESSION MANAGEMENT
Successionplanningiscriticalforthecontinuityofourbusinessoperations,ensuringwehavereadyandcredibletalenttofillinleadershipgapsinatimelymanner.OurtalentpoolisnotlimitedtoPCG’sownworkforcebutextendstosuitableleaderswithinthePETRONASGroup.
Incorporating sustainability elements into more sections of PCG’s business
Further strengthening our governance and processes related to sustainability
Enhancing our stakeholder engagement process
Expanding our sustainability reporting to include additional sustainability issues
Periodically reviewing our sustainability materiality assessment
HOW WE ARE
GOVERNED
PETRONAS CHEMICALS GROUP BERHAD
W e b e l i e v e i n o p e r a t i n g a t t h e h i g h e s t l e v e l o f
i n t e g r i t y a n d t r a n s p a r e n c y, a n d a r e g u i d e d t o d o
s o b y o u r p r i n c i p l e s o f c o r p o r a t e g o v e r n a n c e .
H e r e , w e p r o v i d e a t r a n s p a r e n t a c c o u n t o f w h a t
c o r p o r a t e g o v e r n a n c e m e a n s t o u s a n d h o w w e
e n h a n c e o u r v a l u e t o s t a k e h o l d e r s b y h a v i n g i n
p l a c e a s t r o n g s y s t e m o f c h e c k s a n d b a l a n c e s .
CONTENTS
90 StatementonCorporateGovernance
• BoardAuditCommitteeReport
• NominationandRemunerationCommitteeReport
116 StatementonRiskManagementandInternalControl
*Thecross-referencingiconsreferreadersto
informationelsewhereinthisreport
90
Sectionfive
PETRONAS CHEMICALS
GROUP BERHAD
STATEMENT ON CORPORATE GOVERNANCE
CHAIRMAN’S OVERVIEW
MD ARIF MAHMOOD
CHAIRMAN
DEAR SHAREHOLDERS,
EFFECTIVE CORPORATE GOVERNANCE IS INTEGRAL TO THE SUCCESSFUL DELIVERY OF BUSINESS GOALS FOR OUR MANY AND DIVERSE STAKEHOLDERS, HOW WE WORK IS AS IMPORTANT AS WHAT WE DO. PCG OPERATES UNDER A WELL-DEVELOPED GOVERNANCE FRAMEWORK DESIGNED TO FOSTER TRANSPARENCY, INTEGRITY AND AN INFORMED APPROACH TO RISK MANAGEMENT ACROSS OUR WORLDWIDE BUSINESS. WE HAVE CLEAR STANDARDS OF BEHAVIOUR WE EXPECT FROM EVERYONE WHO WORKS WITH US.
The Board’s role is to review and guide the strategyfor theGroup,appoint the right leadershipandensureeffective implementation whilst monitoring businessperformance and ensuring the timely and effectiveassessment and management of business risks. Ourgoal is to build an enduring and profitable businessadmired by customers and other stakeholders, whilstachievingstrongreturnsforourshareholders.Thiswasa year of excellence for PCG and the Board played aleadingroleinsteeringmajortransactionsdescribedintheManagementDiscussionandAnalysisonpages41to52.AstheGroup’sstrategycontinuestoevolve,theBoard is focused on ensuring that the Group remainson course in achieving its target and long term valuecreation.
IamfortunateasChairmantobeabletocallonabroadand diverse range of skills and perspectives aroundthe boardroom table. In its current composition, ourBoardconsistsofeightDirectors,withvastleadershipexperience across numerous industrial sectors. Withtwofemaledirectors, Iampleasedtosaythatwearewell on our way to achieving the nation's target of30% of Board roles held bywomen.Wewill continuethe pursuit of female directors to ensure continueddiversityintheBoard.
Whilst theBoard isconfident thatPCG iswell-placedto continue to reward shareholders for their supportfor our strategy, we expect operating conditions toremain challenging in a number of our key marketsovertheyearahead.Tothisend,wewillhavealinearfocus on ensuring the Group maintains a rigorousand analytical approach to the management of riskwhilstseekingtoencouragetheentrepreneurshipandinnovationnecessarytodriveperformanceexcellenceanddynamicgrowthacrosstheportfolio.
Md Arif MahmoodChairman
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Sectionfive
Statement on Corporate Governance (Cont’d)
OUR APPLICATION OF THE MALAYSIAN CODE ON CORPORATE GOVERNANCE 2012
ThetablebelowsetsouttheobservanceofPCGwiththeprinciplesandrecommendationsofMalaysianCodeonCorporateGovernance2012inrespectof2016.
Principle/Recommendation Page No. Remarks
Principle 1 – Establish Clear Roles and Responsibilities
1.1 TheBoardshouldestablishclearfunctionsreservedfortheBoardandthosedelegatedtomanagement.
94-96,104,118
1.2 TheBoardshouldestablishclearrolesandresponsibilitiesindischargingitsfiduciaryandleadershipfunctions.
95,114
1.3 TheBoardshouldformaliseethicalstandardsthroughacodeofconductandensureitscompliance.
94
1.4 TheBoardshouldensurethattheCompany’sstrategiespromotesustainability.
75-88
1.5 TheBoardshouldhaveprocedurestoallowitsmembersaccesstoinformationandadvice.
104
1.6 TheBoardshouldensureitissupportedbyasuitablyqualifiedandcompetentcompanysecretary.
104,115
1.7 TheBoardshouldformalise,periodicallyreviewandmakepublicitsBoardCharter.
95
Principle 2 – Strengthen Composition
2.1 TheBoardshouldestablishaNominatingCommitteewhichshouldcompriseexclusivelyNon-ExecutiveDirectors,amajorityofwhommustbeindependent.ThechairoftheNominatingCommitteeshouldbetheSeniorIndependentDirector.
111-113
TheNominationandRemunerationCommitteeischairedbyanIndependentDirector,ChingYewChye,whoisnottheSeniorIndependentDirectoridentifiedbytheBoard.TheSeniorIndependentDirector,VimalaV.R.Menon,iscurrentlytheChairmanoftheBoardAuditCommittee.TheCompanyelectstohavedifferentchairmanshipsinBoardAuditCommittee,andNominationandRemunerationCommitteesoastoleverageonthedifferentperspectivesanddynamicswhichemanatesfromsucharrangements,aswellastoensurethateachindependentdirectorhasequitablerolesandresponsibilitiesrespectively.TheCompanyintendstomaintainthecurrentarrangement.
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PETRONAS CHEMICALS
GROUP BERHAD
Statement on Corporate Governance (Cont’d)
Principle/Recommendation Page No. Remarks
2.2 TheNominatingCommitteeshoulddevelop,maintainandreviewthecriteriatobeusedintherecruitmentprocessandannualassessmentofDirectors.
97, 104-105,
112
2.3 TheBoardshouldestablishformalandtransparentremunerationpoliciesandprocedurestoattractandretainDirectors.
101-102
ApolicyiscurrentlybeingdevelopedandwillbeputtotheBoardforapprovalinduecourse.AtpresentBoardremunerationremainscompetitiveandisbenchmarkedagainstindustrystandards.
Principle 3 – Reinforce Independence
3.1 TheBoardshouldundertakeanassessmentofitsIndependentDirectorsannually.
104-105,112
3.2 ThetenureofanIndependentDirectorshouldnotexceedacumulativetermofnineyears.Uponcompletionofthenineyears,anIndependentDirectormaycontinuetoserveontheBoardsubjecttotheDirector’sre-designationasaNon-IndependentDirector.
26-33,98
3.3 TheBoardmustjustifyandseekshareholders’approvalintheeventitretainsasanIndependentDirector,apersonwhohasservedinthatcapacityformorethannineyears.
98
3.4 ThepositionsofChairmanandChiefExecutiveOfficershouldbeheldbydifferentindividuals,andtheChairmanmustbeaNon-ExecutivememberoftheBoard.
26-27,96,114
3.5 TheBoardmustcompriseamajorityofIndependentDirectorswheretheChairmanoftheBoardisnotanIndependentDirector.
96
TheChairmanoftheCompanyiscurrentlyaNon-IndependentNon-ExecutiveDirector.ThisispremisedonthehighlevelofintegrationwithPETRONAS’business.TheBoardcurrentlyhasfourIndependentNon-ExecutiveDirectors,threeNon-IndependentNon-ExecutiveDirectorsandoneExecutiveDirector.ThecurrentBoardcompositionisbalancedandcomplieswithParagraph15.02oftheMMLR,as50%oftheBoardmembersareIndependentDirectors.TheCompanyintendstomaintainthecurrentBoardcomposition.
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Sectionfive
Principle/Recommendation Page No. Remarks
Principle 4 – Foster Commitment
4.1 TheBoardshouldsetoutexpectationsontimecommitmentforitsmembersandprotocolsforacceptingnewdirectorships.
95,104
4.2 TheBoardshouldensureitsmembershaveaccesstoappropriatecontinuingeducationprogrammes.
98-99
Principle 5 – Uphold Integrity in Financial Reporting
5.1 TheAuditCommitteeshouldensurefinancialstatementscomplywiththeapplicablefinancialreportingstandards.
108-109
5.2 TheAuditCommitteeshouldhavepoliciesandprocedurestoassessthesuitabilityandindependenceofExternalAuditors.
-
ApolicyiscurrentlybeingdevelopedandwillbeputtotheBoardforapprovalinduecourse.AtpresenttheBoardAuditCommitteecontinuestoreviewandmonitorthesuitabilityandindependenceofexternalauditors.
Principle 6 – Recognise and Manage Risks
6.1 TheBoardshouldestablishasoundframeworktomanagerisks.
94, 116-121
6.2 TheBoardshouldestablishaninternalauditfunctionwhichreportsdirectlytotheAuditCommittee.
109-110
Principle 7 – Ensure the Timely and High Quality Disclosure
7.1 TheBoardshouldensuretheCompanyhasappropriatecorporatedisclosurepoliciesandprocedures.
106
7.2 TheBoardshouldencouragetheCompanytoleverageoninformationtechnologyforeffectivedisseminationofinformation.
104,106
Principle 8 – Strengthen Relationship between Company and Shareholders
8.1 TheBoardshouldtakereasonablestepstoencourageshareholderparticipationatgeneralmeetings.
106
8.2 TheBoardshouldencouragepollvoting.
106
Effective2017,generalmeetingswillbeconductedviae-polling.IndependentScrutineersandPollAdministratorwillbeappointedtoconductthepollingprocessandverifytheresultsofthepoll.
8.3 TheBoardshouldpromoteeffectivecommunicationandproactiveengagementswithshareholders.
106
Statement on Corporate Governance (Cont’d)
94
Sectionfive
PETRONAS CHEMICALS
GROUP BERHAD
HOW WE APPROACH OUR GOVERNANCE
Webelieveeffectivegovernancebeginsatthetop.TheBoardprovidesguidanceandoversight,whilemanagementdefinesandexecutesstrategyandsimultaneouslymanagesrisks.SuccessattheBoardandmanagementlevelatPCGinvolvessettingtherightpriorities,havingtheappropriateteammembersinplace,evaluatingourselves,continuingoureducationandcommunicatingwithourstakeholders.
OUR GOVERNANCE FRAMEWORK
Goodcorporategovernanceenhances thecredibility and reputationof theCompany, aswell aspromotingandsafeguarding the interestsofshareholdersandotherstakeholders.MaintainingagoodandsolidframeworkofcorporategovernancehasbeenandremainsoneofPCG'stoppriorities.
WeuseaCorporateGovernanceFrameworktoidentifyallthekeyparticipantsingoodgovernance,thewaysinwhichtheyrelatetoeachotherandthecontributioneachmakestotheapplicationofeffectivegovernancepoliciesandprocesses.
Assurance providers:
InternalAudit
ExternalAuditBoard
AuditCommittee
ManagementCommittee
NominationandRemunerationCommittee
OUR ETHICS AND STANDARDS
TheGroupadopts andpractises thePETRONASCodeofConduct andBusinessEthics (CoBE)which emphasises andadvances theprinciplesofdiscipline,goodconduct,professionalism,loyalty, integrityandcohesivenessthatarecriticaltothesuccessandwell-beingoftheGroup.TheCoBEcontainsdetailedpolicy statementson thestandardsofbehaviourandethical conduct expectedof each individualof theGroup.TheGroupalsorequiresthatcontractors,sub-contractors,consultants,agentsandrepresentatives,andothersperformingworkorservicesfororonbehalfoftheGrouptocomplywiththerelevantpartsoftheCoBEwhenperformingsuchworkorservices.TheCoBEexpresslyprohibitsimpropersolicitation,briberyandothercorruptactivitiesnotonlybyemployeesanddirectorsbutalsobythirdpartiesperformingworkorservicesfororonbehalfofcompaniesintheGroup.
TheCoBEisaccessibletothepublicforreferenceontheCompany’sofficialwebsiteatwww.petronaschemicals.com.
Statement on Corporate Governance (Cont’d)
Shareholders(viatheAGMandAnnualReport)
ManagingDirector/CEO
BoardofDirectors
RiskMan
agem
ent
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Sectionfive
Statement on Corporate Governance (Cont’d)
BOARD OF DIRECTORS
The Board CharterTheBoardCharterassignsresponsibilityforstrategicdirectionandcontroloftheGrouptotheBoard.TheBoardexercisesthiscontrolbywayoftheGroup'sgovernanceframework,whichincludesdetailedreportingtotheBoardanditscommittees,andasystemofassurancesoninternalcontrols.TheBoardregularlyreviewstheBoardCharter,whichincludesthosemattersreservedforboarddecision-makingandapprovesthedelegationofauthority tomanagement inspecifiedmatters.Our lastBoardCharter review,heldon20February2017, resulted in theapprovalofaprovisionexplainingtherolesoftheChairman,ManagingDirector/CEO,Non-ExecutiveDirectorsandSeniorIndependentDirectorinadditiontothedutiesandresponsibilitiesoftheBoard,BoardaccountabilityandBoardprocesses.
TheBoardChartersetsoutthepracticesandprocessesadoptedtoenabletheBoardtodischargeitsresponsibilities.TheBoardCharterisavailableontheCompany’swebsite,www.petronaschemicals.comtogetherwiththetermsofreferenceofallitscommittees.TheBoardissatisfiedthatitfulfilledthesedutiesandobligationsduringtheyearunderreview.
The Board’s Responsibilities and DutiesTheBoardischargedwithpromotingthesuccessoftheGroupbydirectingandsupervisingitsaffairsinaresponsibleandeffectivemanner.EachDirectorhasadutytoactingoodfaithandinthebestinterestoftheCompany.TheDirectorsareawareoftheircollectiveandindividualresponsibilitiestoallshareholdersforthemannerinwhichtheaffairsoftheCompanyaremanaged,controlledandoperated.
ThediagrambelowshowsthekeyareasoffocusfortheBoardwhichappearasitemsontheBoard’sagendaatrelevanttimesthroughouttheyear.ConcentrateddiscussionoftheseitemsassiststheBoardinmakingtherightdecisionsbasedonthelong-termopportunitiesforthebusinessanditsstakeholders.
KEY AREAS OF FOCUS FOR THE BOARD
04EnsurethatthereisanappropriatesuccessionplanformembersoftheBoardandKeyPersonnel
05Reviewtheadequacyandintegrityofinternalcontrolsystemsandmanagementinformationsystems,includingsystemsforcompliancewithapplicablelaws,regulations,rules,directivesandguidelines
06Reviewandapprovefinancialstatements
01Review,approveandmonitorannualcorporateplan,
whichincludesoverallcorporatestrategy,operationalplan,marketingplan,humanresourcesplan,financialplan andbudget,riskmanagementplanandinformation
technologyplan
02Overseeandreviewtheperformanceofthebusiness,andto
evaluatewhetherbusinessisbeingproperlymanaged
03Identifyprincipalrisksandensuretheimplementationofappropriatesystemstomonitorandmanagetheserisks
96
Sectionfive
PETRONAS CHEMICALS
GROUP BERHAD
PROVIDING SOUND LEADERSHIP
Board Balance and CompositionThe Board comprises eight Directors as at 31December2016,ofwhomoneisanExecutiveDirectorandsevenareNon-ExecutiveDirectors.25%ofthedirectorsarewomen.
The Board has determined that four of theNon-Executive Directors are independent inaccordancewiththeMMLRofBursaMalaysia.TheBoardisoftheviewthatallNon-ExecutiveDirectors exercise independent judgement atalltimes.
TheNominationandRemunerationCommitteetakesintoaccountcorporateleadershipskills,experience and expertise required to advancethe strategic direction of the Company whenappointments to the Board are considered.TheBoardensuresthatithastherightbalanceof skills, experience, independence andbusiness knowledge necessary to dischargeitsresponsibilities inkeepingwiththehigheststandards of governance. In the Board’sassessment,allDirectorshavetheknowledge,skills and experience to make a meaningfulcontributiontothebusinessoftheCompany.
The positions of Chairman and ManagingDirector/CEO are held separately by MdArif Mahmood and Datuk Sazali Hamzahrespectively. This segregation ensures aclear distinction between the Chairman’sresponsibility to manage the Board andthe Managing Director/CEO’s responsibilityto manage the Company’s business. Therespective responsibilities of the ChairmanandManagingDirector/CEOaremorefullysetoutonpage114.TheManagingDirector/CEOisassistedby theManagementCommittee inmanagingthebusinessonaday-to-daybasis,whichheconsultsregularly.TheManagementCommitteeensureseffectivesystems,controlsandresourcesareinplacetoexecutebusinessstrategies and decisions taken by the Boardand/ortheManagingDirector/CEO.
Refer to pages 26 to 33 for the profiles of the Directors.
Attendance of Board and Board Committee meetings are provided on page 103.
Right balance of skills and experience to make a meaningful contributionto the business of the Company
BOARD SKILLS AND DIVERSITY
The Board consists of Directors with a diverse range of experience including oil and gas,engineering,financeandcommercial.
BOARD OF DIRECTORS
Non-Independent Non-Executive Director
• MdArifMahmood
• ZakariaKasah
• FreidaAmat
Executive Director
• DatukSazaliHamzah
Independent Non-Executive Director
• VimalaV.R.Menon
• ChingYewChye
• DongSooKim
• DatukTohAhWah
Oil and Gas Industry
Finance/Audit
Economics
Engineering
Commercial/Marketing
Operations
Corporate Planning and Development
Human Resource
Information Technology
Global Petrochemical Consultancy
SKILLS
TENURE4 to 7 years
2 to 4 years
0 to 2 years
3 Directors
2 Directors
3 Directors
Statement on Corporate Governance (Cont’d)
Management CommitteeManagementstaffoftheCompanyaresecondedfromPETRONAS.Theirtrainingandsuccessionplanning are aligned to PETRONAS’ Human Resource Policies and Strategies. The BoardensuresthatonlyappropriatepersonnelwiththerelevantskillsandexperienceareappointedtomanagementpositionsoftheCompany.
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Statement on Corporate Governance (Cont’d)
BOARD DIVERSITY POLICY
PCGhasadiversitypolicytoensurethatthemixandprofilesofourBoardmembers,intermsofage,ethnicityandgender,providethenecessaryrangeofperspectives,experienceandexpertiserequiredtoachieveeffectivestewardshipandmanagement.WebelievethatatrulydiverseandinclusiveBoardwill leveragedifferences in thought,perspective,knowledge,skill, regionaland industryexperience,culturalandgeographicalbackground,age,ethnicityandgenderwhichwillensurethattheCompanyretainsitscompetitiveadvantage.
Inthisregard,theNominationandRemunerationCommittee(NRC)isempoweredtoreviewandassessthecompositionandperformanceoftheBoardannually,aswellasidentifyingqualifiedcandidatestooccupyBoardpositions.AsforthecompositionoftheBoard,theNRCwilldeterminethebenefitsofdiversityinordertomaintainanoptimummixofskills,knowledgeandexperienceoftheBoard.
TheNRCwillcontinuetofocusondiversitywhenrecommendingnewcandidatesforBoardmemberships,aswellasevaluatingtheperformanceoftheBoardanditsindividualmembers.InconnectionwithitsefforttocreateandmaintainadiverseBoard,theNRCwill:
a) Adheretotherecruitmentandsourcingprocessthatseekstoincludediversecandidates,includingwomeninanydirectorsearch.
b) Assesstheappropriatemixofdiversityincludinggender,ethnicity,age,skills,experienceandexpertiserequiredontheBoardandaddressgaps,ifany.
• Male
• Female
• Male
• Female
• Male
• Female
• Oil&GasIndustry
Commercial/Marketing
CorporatePlanningandDevelopment
Finance/Audit
Engineering
Operations
Economics
HumanResource
InformationTechnology
GlobalPetrochemicalConsultancy
Board Audit Committee
Skills Matrix
Gender
Nomination andRemuneration Committee
40%
60% 67%
33%
14% 20%
17%
11%11%
11%
6%
3%3%
3%
75%
25%
2016
2016
2016 2016
40-49
50-59
Above60
Age
2016 50%
12%
38%
Malay
Chinese
Indian
Korean
Ethnicity
201650%
24%
13%
13%
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GROUP BERHAD
c) Make recommendations to theBoard in relation to theappointmentsandmaintainanappropriatemixofdiversity, skills, experienceandexpertiseontheBoard.
d) PeriodicallyreviewandreporttotheBoardonrequirementsinrelationtodiversityontheBoard,ifany.
TheBoardsupportsthecountry’saspirationaltargetof30%representationofwomendirectors.
TheNRCwillreviewannuallythecompositionoftheBoardinrespecttogender,experience,skills,ageandknowledge.Atanygiventime,theBoardmayseektoimproveoneormoreaspectsofitsdiversityandmeasureprogressaccordingly.
RE-ELECTION OF DIRECTORS
UnderArticle93oftheConstitutionoftheCompany,ateveryAnnualGeneralMeeting(AGM),one-thirdoftheDirectorsshallretirefromofficebyrotationandmayofferthemselvesforre-election.TheConstitutionsoftheCompanyalsoprovidethatallDirectorsaresubjecttoretirementbyrotationatleastonceineverythreeyearsandshallbeeligibleforre-election.DirectorswhoareappointedbytheBoardduringtheyeararesubjecttore-electionbyshareholdersatthenextAGMheldfollowingtheirappointments.
AsperRecommendations3.2and3.3ofMCCG2012,thetenureofanindependentdirectorshouldnotexceedacumulativetermofnineyears.Uponcompletionofthenineyears,anindependentdirectormaycontinuetoserveontheboardsubjecttothedirectors’re-designationasanon-independentdirector.Theboardmustjustifyandseekshareholders’approvalintheeventitretainsthedirectorasanindependentdirector.
Currently,noneoftheIndependentNon-ExecutiveDirectorsoftheCompanyhasservedtheBoardformorethannineyears.
DIRECTORS' CONTINUING DEVELOPMENT PROGRAMME
AlltheDirectorshaveattendedtheMandatoryAccreditationProgrammeasrequiredundertheMMLRofBursaMalaysia.
TheDirectorsareregularlyupdatedontheGroup’sbusinessesandthecompetitiveandregulatoryenvironmentinwhichtheGroupoperates.AsanintegralpartoftheorientationprogrammefornewDirectors,theCompanyprovidescomprehensivebriefingsontheGroup’soperationsandfinancialperformanceaswellassitevisitstotheGroup’sfacilities.
TheDirectorsobservePrinciple4ofMCCG2012andrecognisetheimportanceandvalueofattendingconferences,trainingprogrammesandseminarsinordertokeepthemselvesabreastwiththedevelopmentandchangesintheindustriesinwhichtheGroupoperates,aswellastoupdatethemselvesonnewstatutoryandregulatoryrequirements.Duringtheyearunderreview,theDirectorshaveattendedandparticipatedinprogrammes,conferencesandforumsthatcoveredtheareasofcorporategovernance,financial,relevantindustryupdatesandglobalbusinessdevelopmentswhichtheyconsideredasusefulincontributingtotheeffectivedischargeoftheirdutiesasDirectors.TheDirectorsalsoparticipatedinfamiliarisationvisitstotheGroup’splants.
Duringtheyear,theDirectorsparticipatedinseminarsandtrainingprogrammesinvariouscapacitiessuchasdelegatesand/orspeakersasperdetailsbelow:
Directors Training/Conferences Date
MDARIFMAHMOOD •PETRONASDownstreamDigitalWorkshop•PETRONASDownstreamCommercialExcellence•BainSoutheastAsiaTransformationLeadersForum•PETRONASCulturalBeliefsWorkshop•OffshoreTechnologyConferenceAsia2016•VopakGlobalMindsConference•DownstreamOperationalExcellenceForumandAward
19-20January20165February20162March20168March201622March20165October201617October2016
Statement on Corporate Governance (Cont’d)
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Directors Training/Conferences Date
DATUKSAZALIHAMZAH
•StrategicConversationWorkshop•DownstreamCommercialExellenceTransformation•PCGTownhall2016•AsiaRefiningTechnologyConference(ARTC)2016• 9thReliability,AssetManagementandSafetyAsia2016•VisittoPICProjectSite,Pengerang
12January201627January201611March201620April201625April20168August2016
VIMALAV.R.MENON
•NewAuditor'sReport-SharingtheUKExperience•CorporateGovernanceBreakfastSeries-ImprovingBoardRiskOversightEffectiveness
•EnsuringOrganisation'sSustainabilitythroughIntegratedStrategicCorporateRiskManagementPrograms
•SitevisittoPICProjectSite,Pengerang,Johor•BusinessSustainability•GeneralandDetailedSustainabilityStatementsinAnnualReport2017•BestPracticesforBoardExcellence• 5thPETRONASBoardAuditCommitteeForum
13January201626February2016
11July2016
23July201615July201625July20163August201616August2016
CHINGYEWCHYE •BursaMalaysia/MIA-MICPA-FutureofAuditorReporting:TheGameChangerforBoardroom
•McKinsey&CompanyLeadingtheDigitalandAnalyticsRevolution• ReviewofSecuritiesCommissionDraftMalaysianCodeofCorporateGovernance2016•VisittoPICProjectSite,Pengerang•MAICSA&BursaMalaysia:HowtoLeverageonAGMsforBetterEngagementwithShareholders
9March2016
2June20166June20168August201621November2016
DONGSOOKIM •WhatDoesItTaketoWininGlobalEnvironment?•LeadersMakeItHappenThroughPeople•ClimateChangeisReal:WhatistheRoleofaLeader?•LeadershipintheGlobalBusinessandImpacttotheCompetitiveness•VisittoPICProjectSite,Pengerang
6March20169April20165June201614July20168August2016
DATUKTOHAHWAH •VisittoPICProjectSite,Pengerang•EmbracingtheBoard’sRoleinCorporateTransformation
8August201612October2016
ZAKARIAKASAH •BestPracticesforBoardExcellence 3August2016
FREIDAAMAT •TheAGM-ThePracticalInsightandManagingShareholders’Expectation•VisittoPICProjectSite,Pengerang• 5thPETRONASBACForum•TheInsideStoryoftheAnnualReport:WhatDirectorsMustKnow
21June20168August201616August201623September2016
Statement on Corporate Governance (Cont’d)
Aside from the attendance of training and conferences, during the year under review, the PCG Board had an independent sessionwith thecommercialteam,tofurtherunderstandcommercialexcellenceinitiativesandcommercialkeyoperationalactivities.
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Overview of various agenda items on the Board and Board Committees meetings 2016
• Q42015BusinessPerformanceandAuditedFinancialStatements
• FY2015AnnualReportStatements• Q42015InternalAuditStatusReport• BoardEffectivenessEvaluationFY2015• FY2016KPIsforManagingDirector/CEO
• Update/approvalonvariousPCGprojects
• ReviewStrategiesandImplementationProgressofCommercialExcellence
• Q12016BusinessPerformanceandQuarterlyResults• Q12016CorporateRiskProfileMonitoringUpdate• Q12016InternalAuditStatusReport• ProgressStatusofInternalAuditPlanFY2016• FY2016KPIsforHeadofInternalAuditDepartment• Update/approvalonvariousPCGprojects/
agreements• InternalSelectionCriteriaofIndependentBoard
Member
• Q22016BusinessPerformanceandQuarterlyResults• Q22016CorporateRiskProfileMonitoringUpdate• Q22016InternalAuditStatusReport• ProgressStatusofInternalAuditPlanFY2016• Update/approvalonvariousPCGprojects/agreements• FY2016PeriodicPerformanceReviewandDevelopment
PlanofPCGKeyPersonnel
• Update/approvalonvariousPCGprojects/agreements
• BoardDiversityPolicy&SeniorExecutivePolicy
JAN FEB MAR APR MAY JUNE
JUL AUG SEP OCT NOV DEC
BoardBoardAuditCommitteeNominationandRemuneration Committee
BoardBoardAuditCommitteeNominationandRemuneration Committee
Statement on Corporate Governance (Cont’d)
• Q32016BusinessPerformanceandQuarterlyResults• Q32016CorporateRiskProfileMonitoringUpdate• Q32016InternalAuditStatusReport• ProgressStatusofInternalAuditPlanFY2016• Update/approvalonvariousPCGprojects/agreements• BusinessPlansandBudgetFY2017-2021• CorporateRiskProfileReviewforFY2017• SustainableDevelopmentStrategy• IndependentDirectors’Feedbackontheperformance ofPCGKeyPersonnel• Re-electionofDirectors• BoardSelectionCriteria• BoardSkillMatrix
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DIRECTORS' FEES
TheapproachtoDirectors'feesisalignedwithourstrategicobjectives,allowsustoattract,motivateandretainhighcalibertalent,andaspartof our risk framework, does not promote excessive risk-taking. Thedesignofourfeesarchitecturecomplieswithregulatoryrequirements,embraces market practices and trends, and provides attractive andbalancedrewards.
Non-Executive DirectorsOurfeesstructureforNon-ExecutiveDirectorsaredesignedtoattractandretainhighcaliberBoardmemberswhoareappropriatelypaidfortheirtimeandeffort.ThefeesstructureofNon-ExecutiveDirectorsoftheCompanyisasfollows:
• Fees for duties as Directors and additional fees for undertakingresponsibilitiesasChairmanoftheBoard;and
• Meetingallowancesforeachmeetingattended.
ThefeesforNon-ExecutiveDirectorsaredeterminedbytheBoardandsubjecttotheapprovaloftheshareholdersoftheCompanyattheAGM.MeetingallowancesforalltheNon-ExecutiveDirectorsaredeterminedby theBoard. The shareholders at theCompany’sAGMheld in 2013approvedfortheCompanytopayDirectors’ feesuptoRM1.5millionperannum.
TheDirectors’feesandmeetingallowancesforcertainNon-IndependentNon-Executive Directors who are also employees of PETRONAS andholding positions of Vice President and above are paid directly toPETRONAS. The presence and participation of the Non-IndependentNon-Executive Directors who are employees of PETRONAS give theBoardadeeperinsightintoPETRONAS'operations.
AnnualFees
Board - RM108,000(Chairman)- RM432,000(Non-ExecutiveIndependentDirectors)
- RM144,000(Non-ExecutiveNon-IndependentDirectors)
MeetingAllowances(BoardandallBoardCommittees)
Board - RM24,000(Chairman)- RM98,000(Non-ExecutiveIndependentDirectors)
- RM39,000(Non-ExecutiveNon-IndependentDirectors)
BoardAuditCommittee - RM17,500(Chairman)- RM52,500(Non-ExecutiveIndependentDirectors)
- RM10,000(Non-ExecutiveNon-IndependentDirectors)
NominationandRemunerationCommittee
- RM17,500(Chairman)- RM35,000(Non-ExecutiveIndependentDirectors)
AnnualGeneralMeeting - RM4,000(Chairman)- RM14,000(Non-ExecutiveIndependentDirectors)
- RM6,000(Non-ExecutiveNon-IndependentDirectors)
TheCompanyalsoreimbursesallexpensesincurredbytheDirectors,whererelevant,inthecourseofcarryingouttheirdutiesasDirectors.
Executive DirectorTheremunerationpackagefortheExecutiveDirectoroftheCompanyis balanced between fixed and performance-linked elements. Aportionof theExecutiveDirector’scompensationpackage isvariableinnatureand isKPI-based,which includes theGroup’sperformance.AsanExecutiveDirector,heisnotentitledtoreceivedirectors’feesormeetingallowances.
DatukSazaliHamzah,ManagingDirector/CEOandanExecutiveDirectoroftheCompany,isanemployeeofPETRONASandissecondedtotheCompany.Inconsiderationforhisservice,theCompanyisrequiredtopay PETRONAS a fee to cover all payroll related costs and benefitsordinarilyincurredbyhiminthecourseofhisemployment.Duringtheyear, the Company paid RM1,164,000 for his services as ManagingDirector/CEOoftheCompany.
Statement on Corporate Governance (Cont’d)
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Fortheyearunderreview,thebreakdownoftheDirectors’remunerationisasfollows:
Nominationand
Board Audit RemunerationBoard Committee Committee
Directors’ Meeting Meeting MeetingFee Allowance^ Allowance* Allowance* Total
Name of Directors (RM) (RM) (RM) (RM) (RM)
Executive Director
DatukSazaliHamzah Nil Nil Nil Nil Nil
Non-Executive Directors
MdArifMahmood 108,000 28,000 - - 136,000**
VimalaV.R.Menon 72,000 28,000 17,500 17,500 135,000
ChingYewChye 72,000 28,000 17,500 17,500 135,000
DongSooKim 216,000 28,000 17,500 17,500 279,000
DatukTohAhWah 72,000 28,000 17,500 - 117,500
ZakariaKasah 72,000 21,000 - - 93,000**
FreidaAmat 72,000 24,000 10,000 - 106,000
Total 684,000 185,000 80,000 52,500 1,001,500
^ IncludingAGM'sattendance* MeetingallowancespaidarebasedonthenumberofmeetingsattendedbytheDirectors**FeespaidtoPETRONAS
TheDirectors’remunerationisbroadlycategorisedintothefollowingbands:
Range of RemunerationNumber of Directors
Executive Non-Executive
RM50,000andbelow - -
RM50,001toRM100,000 - 1
RM100,001toRM150,000 - 5
RM150,001toRM300,000 - 1
RM700,000andabove 1^ -
^ ExecutiveDirector'spayrollrelatedcostsandbenefitspaidtoPETRONAS
Statement on Corporate Governance (Cont’d)
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OUR GOVERNANCE PROCESSES
Board and Board Committee AttendancePCGBoardmeetsinpersonatleastquarterlyperannumandonotheroccasionswhenaBoarddecisionisrequiredonmajorissues.DetailsofDirectors’attendanceattheGeneralMeetings,BoardandBoardCommitteemeetingsheldin2016aresetoutinthefollowingtable.TheoverallattendancerateofDirectorsatBoardmeetingswas96%(2015:95%).
Directors Meetings Attended/Held
Name of Directors BoardBoard Audit Committee
Nomination & Remuneration
Committee AGM
Executive Director
DatukSazaliHamzah 7/7 - - 1/1
Non-Executive Directors
MdArifMahmood 6/7 - - 1/1
ZakariaKasah 6/7 - - 1/1
FreidaAmat 7/7 5/5 - 1/1
Independent Non-Executive Directors
VimalaV.R.Menon 7/7 5/5 5/5 1/1
ChingYewChye 7/7 5/5 5/5 1/1
DongSooKim 7/7 5/5 5/5 1/1
DatukTohAhWah 7/7 5/5 - 1/1
Statement on Corporate Governance (Cont’d)
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PETRONAS CHEMICALS
GROUP BERHAD
KEEPING THE BOARD INFORMED
PriortoeachBoardmeeting,theagendaandasetofBoardpapersencompassingqualitativeandquantitativeinformationrelevanttothebusinessofthemeetingarecirculatedtoallDirectorsnotlessthanfivebusinessdaysbeforethemeetingdates.ThisenablestheDirectorstohavesufficienttimetoperusetheBoardpapersandseekclarificationsorfurtherdetailsfromthemanagementortheCompanySecretarybeforeeachmeetingtoensurepreparednessforthemeeting.AnyDirectormayrequestmatterstobeincludedintheagenda.Urgentpapersmaybepresentedandtabledatmeetingsundersupplementalagenda.Boardpaperspreparedarecomprehensiveandincludesobjectives,background,criticalissues,implications, risks,strategicfit (applicableonly for investmentdecisionpapers), recommendationsandotherpertinent information toenableinformeddecisionmakingbytheBoard.
Presentationsandbriefingsbythemanagementandrelevantexternalconsultants,whereapplicable,arealsoheldatBoardmeetingstoadvisetheBoardandfurnishrelevantinformationandclarificationfortheBoardtoarriveataconsidereddecision.
Access toBoardpapersandother relevant informationarecarriedoutonline throughacollaborativesoftwarewhichallows theDirectors tosecurelyaccessBoarddocumentsandcollaboratewithotherBoardmembersandtheCompanySecretaryelectronically.TheonlineaccessibilityfacilitatestheDirectorstoreadandreviewdocumentsorcommunicatewithothermembersduringtheBoardmeetingsoratanyothertime.
TheDirectorshavedirectaccesstotheSeniorManagementandhaveunrestrictedaccesstoanyinformationrelatingtotheGrouptoenablethemtodischargetheirduties.TheDirectorsalsohavedirectaccesstotheadviceandservicesoftheCompanySecretaryandareregularlyupdatedonnewstatutoryandregulatoryrequirementsrelatingtothedutiesandresponsibilitiesoftheDirectors.TheDirectors,whetherasafullboardorintheirindividualcapacity,mayseekindependentprofessionaladviceattheCompany’sexpenseinfurtheranceoftheirduties.
THE BOARD AND ITS COMMITTEES
ThefollowingchartexplainstheresponsibilitiesandtheworkthateachBoardCommitteeundertookonbehalfoftheBoardin2016uptothedateofthisreport(theperiod).ThetermsofreferenceandmembershipofallBoardCommitteesaredisclosedinfullonthewebsitesofPCG and Bursa Malaysia.TheyarealsoavailableinwritinguponrequesttotheCompanySecretary.
BOARD
BoardAuditCommittee
Nominationand RemunerationCommittee
DetailsoftheBoardAuditCommittee,includingitsmembershipandworkdoneduringtheperiodaresetoutintheBoardAuditCommitteeReportonpages108to110ofthisAnnualReport.
Details of the Nomination and Remuneration Committee, includingits membership and work done during the period are set out in theNominationandRemunerationCommitteeReportonpages111to113ofthisAnnualReport.
BOARD EFFECTIVENESS EVALUATION (BEE)
TheNRCisresponsibletoassisttheBoardtoassesstheeffectivenessofindividualDirectors,theBoardasawholeanditscommitteesandthecontributionofeachindividualDirectors.Thisisundertakenuponthecompletionofeveryfinancialyear.
SinceDecember2010,PCGhasbeenconductingeffectivenessevaluationsforitsBoardandSub-Committees.In2016,PCGappointedaconsultanttoassistintheBEE.TheevaluationscompriseaBoardEvaluation,aCommitteeEvaluation,BoardSkillsandExperienceMatrixandIndividualDirectorSelfandPeerEvaluation.ThepurposeoftheseevaluationsaretomeasuretheeffectivenessandperformanceoftheBoardandSub-CommitteesaswellasaddresstheareasforimprovementindischargingtheirroleasDirectorsoftheCompany.
Statement on Corporate Governance (Cont’d)
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Thequestionnaireon theBEEareprepared incorporatingapplicablebestpractices.The indicators for theperformanceof theBoard includeamongotherstheBoard’scomposition,planning,process,conduct,communicationwiththemanagementandstakeholdersaswellasstrategyandplanningfortheCompany.TheperformanceindicatorsforindividualDirectorsincludetheDirectors’roles,leadershipandcontributiontotheCompany.
TheChairmanoftheNRCisactively involvedthroughouttheBEEprocess.TheChairmanoftheNRChasthe libertytoholddiscussionswithappointedconsultantandtheChairmanoftheBoard.
Statement on Corporate Governance (Cont’d)
BOARD EFFECTIVENESS EVALUATION
OUR PROCESS
DISTRIBUTION OF QUESTIONNAIRE
INDIVIDUAL ENGAGEMENT
SUMMARY OBSERVATIONS AND CONCLUSIONS
GroupDynamicsandEffectiveness
StructureandComposition
Communication
NRC DISCUSSION
BOARD DISCUSSION
ACTION PLAN INITIATIVES
Fortheyearunderreview,theresultsweresatisfactoryandconformtoindustrybenchmarks.
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Statement on Corporate Governance (Cont’d)
COMMUNICATING EFFECTIVELY WITH SHAREHOLDERS/INVESTORS
The Board understands the importance of effective dialogue withshareholdersand investors.Webelieve thatcommunicationwithourshareholdersisatwo-wayprocess.Welistencarefullytotheviewsandfeedbackwereceivefromallofourshareholders.Inthepastyear,theManagingDirector/CEOtogetherwiththeChiefFinancialOfficerandtheCompany’s InvestorRelationsUnit conducted regular dialogueswithits institutionalshareholdersandanalysts,andheldquarterlyanalystbriefingstofurtherexplaintheGroup’squarterlyfinancialresults.TheeffectofthisresultedinbetterunderstandingoftheGroup’sfinancialperformanceandoperations.Periodically,visitstotheGroup’sfacilitiesorplantsarealsoorganisedtofacilitatebetterappreciationandinsightintotheGroup’sbusinessesandoperations.
In addition, the Company actively updates its website (www.petronaschemicals.com) with the latest information on thecorporate and business aspects of the Group. Press releases,announcements to Bursa Malaysia, analyst briefings and quarterlyresultsof theGrouparealsomadeavailableonthewebsiteandthisserves to promote accessibility of information to the Company’sshareholders and all other market participants. Communicationand feedback from investors can also be directed to email [email protected] or alternatively, it can beaddressedto:
SAFARAH ZEBA M SALIMHeadofInvestorRelationsPerformanceManagement
PETRONAS CHEMICALS GROUP BERHAD Level14,Tower1,PETRONASTwinTowers,KualaLumpurCityCentre,50088KualaLumpur
Inaddition,mattersofconcerntotheGroupfromshareholdersorotherstakeholderscanbeaddressedtoSeniorIndependentDirectorwhoisalsotheChairmanoftheBoardAuditCommittee,VimalaV.R.Menonatvimala.menon@petronas.com.myordirectedtothefollowingaddress:
VIMALA V.R. MENONSeniorIndependentDirector
PETRONAS CHEMICALS GROUP BERHAD Level15,Tower1,PETRONASTwinTowers,KualaLumpurCityCentre,50088KualaLumpur
THE ANNUAL GENERAL MEETING (AGM)
TheAGM is the principal forumof open dialoguewith shareholders.The notice and agenda of AGM together with Forms of Proxy aregiven to shareholders at least 21 days before theAGM,which givesshareholderssufficienttimetopreparethemselvestoattendtheAGMortoappointproxiestoattendandvoteontheirbehalf.EachitemofspecialbusinessincludedinthenoticeoftheAGMwillbeaccompaniedbyanexplanatorystatementontheeffectsoftheproposedresolution.
At each AGM, shareholders are encouraged and given sufficientopportunityaswellastimebytheBoardtoraisequestionsonissuespertaining to theAnnualReport, resolutions being proposed and thebusiness of the Company or the Group in general prior to seekingapproval from members and proxies on the resolutions. The Board,seniormanagement,externalauditorsandotheradvisors,asapplicableare present at the AGM to provide answers and clarifications toshareholders.TheChairman informson theavailabilityofpoll votingby shareholders onmatters raised during the AGM. An independentscrutineer is appointed to oversee the AGM process. Starting from2017,allgeneralmeetings'resolutionswillbedecidedviaane-pollingplatform.
TheminutesoftheAGMareaccessibletothepublicforreferenceonPCG'sofficialwebsiteatwww.petronaschemicals.com.
ACCOUNTABILITY AND AUDIT
Financial ReportingThe Board is committed to provide a fair and objective assessmentof the financial position and prospects of theGroup in the quarterlyfinancial results,annualfinancialstatements,AnnualReportsandallother reports or statements to shareholders, investors and relevantregulatoryauthorities.
TheStatementofResponsibilitybyDirectorsinrespectofpreparationoftheannualauditedfinancialstatementsissetoutonpage132ofthisAnnualReport.
Related Party Transactions and Conflict of Interest SituationsTheCompanyhasestablishedpoliciesandproceduresonrelatedpartytransactions and conflict of interest situations, including recurrentrelatedpartytransactions,toensurethattheyareundertakenonnormalcommercial terms and are not to the detriment of the Company’sminorityshareholders.
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All related party transactions, except for recurrent related partytransactionswhicharewaivedbyBursaMalaysiafromcomplyingwiththerequirementofParagraph10.09oftheMMLR,arereviewedbytheBoardAuditCommitteeandapprovedbytheBoard.
The Statement on Risk Management and Internal Control includesan overview of the Group’s policies and procedures on related partytransactions,includingrecurrentrelatedpartytransactions,assetoutonpage124ofthisAnnualReport.
Whistleblowing PolicyTheCompanyhasadoptedthePETRONASWhistleblowingPolicywhichprovidesanavenuefortheGroupemployeesandmembersofthepublictodiscloseanyimproperconductinaccordancewiththeproceduresasprovidedunderthepolicy.
Under the Whistleblowing Policy, a whistleblower will be accordedwithprotectionofconfidentialityof identity, to theextent reasonablypracticable. An employee who whistleblows internally will also beprotectedagainstanyadverseanddetrimentalactionsfordisclosingany improper conduct committed or about to be committed withinthe Group, to the extent reasonably practicable, provided that thedisclosure ismadeingoodfaith.Suchprotectionisaccordedeveniftheinvestigationlaterrevealsthatthewhistleblowerismistakenastothe facts, rules and procedures involved. The process is undertakenbyPETRONAS'WhistleblowingCommittee.ThepolicyandproceduresareaccessibletothepublicforreferenceontheCompany'swebsiteatwww.petronaschemicals.com.
Risk Management and Internal ControlThe Board continues to maintain and review its risk managementprocessesand internalcontrolprocedurestoensureasoundsystemof riskmanagement and internal control to safeguard shareholders’investmentsandtheassetsoftheCompanyandtheGroup.
The Statement on Risk Management and Internal Control whichprovides an overview of the state of risk management and internalcontrolswithintheGroupissetoutonpages116to126ofthisAnnualReport.
Trading on Insider InformationTheBoardandprincipalofficersofPCGareprohibitedfromtradinginsecuritiesbasedonpricesensitiveinformationandknowledgeacquiredbyvirtueoftheirpositionswhichhasnotbeenpubliclyannounced.
NoticesontheclosedperiodfortradinginPCG’ssharesaresenttotheDirectorsandprincipalofficersonaquarterlybasisasareminderontheprohibitiontotradeduringtheidentifiedtimeframewhentheDirectorsandtheprincipalofficersareprohibitedfromdealinginPCG’sshares.
Duringtheyearunderreview,neithertheBoardnortheprincipleofficershavebreachedtheaboveruling.
Selection of VendorsPCG has adopted the PETRONAS tendering process and governingprinciples that are embedded in the PETRONAS Supply ChainManagementPolicyforvendors’selection.Generally,themainselectioncriteriaisbasedontechnicallyacceptableandcommerciallylowestbid.PCG has established Tender Committees to carry out independentassessmentonbidders’ proposalsand to ensure tenderingactivitiesarecarriedoutaspertheTenderCommittees’TermsofReference.
Thetenderingprocessisasfollows:
Statement on Corporate Governance (Cont’d)
Tender Plan Approval
Technical Evaluation
Commercial Evaluation
Award Recommendation
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GROUP BERHAD
Senior Independent Director
VimalaV.R.Menon
Independent Non-Executive Directors
ChingYewChyeDongSooKim
DatukTohAhWah
Non-Independent Non-Executive
DirectorFreidaAmat
CompositionTheBoardhasestablishedtheBoardAuditCommitteewithmembersasfollows:
OURWORKCONTINUEDTOFOCUSONTHEINTEGRITYOFTHEGROUP’SFINANCIALREPORTING,THERIGOUROFTHEEXTERNALANDINTERNALAUDITPROCESSESASWELLASTHEEFFECTIVENESSOFTHEGROUP’SMANAGEMENTOFRISKANDINTERNALCONTROLS.
BOARD AUDIT COMMITTEE REPORT
Terms of ReferenceThe terms of reference sets out the authority, dutiesand responsibilities of the Board Audit Committee.The terms of reference, which can be found on www.petronaschemicals.com, are consistent with theMMLRofBursaMalaysiaand theMCCG2012.All therequirements under the terms of reference are fullycompliedwith.
The Committee and its WorkWearepleased topresentour report for thefinancialyearended31December2016incompliancewithParagraph15.15oftheMMLRofBursaMalaysia.
ThemembershipoftheCommitteehasbeenselectedwiththeaimofprovidingthe wide range of financial and commercial expertise necessary to meet itsresponsibilities. Additionally, in compliance with Paragraph 15.09 (1)(b) of theMMLR of BursaMalaysia and theMCCG 2012 all five Board Audit CommitteemembersareNon-ExecutiveDirectors includingfour IndependentDirectorswhofulfilthecriteriaofindependenceasdefinedintheMMLRofBursaMalaysia.NoneoftheIndependentDirectorshaveappointedalternatedirectors.
The Chairman of the Board Audit Committee, Vimala V.R. Menon and FreidaAmat are both qualified accountants. Vimala V.R. Menon is a Member of theMalaysianInstituteofAccountantsandalsoaFellowoftheInstituteofCharteredAccountants in England andWales (ICAEW) whilst Freida Amat is a Fellow ofthe Association of Chartered Certified Accountants (ACCA). In this regard, theCompanyisincompliancewithParagraph15.09(c)(i)undertheMMLRofBursaMalaysiawhichrequiresatleastonememberoftheBoardAuditCommitteetobeaqualifiedaccountant.
VimalaV.R.Menon,whosatisfiestheprescribedcriteriaofaSeniorIndependentDirector (SID), has been appointed as the SID to act as the representative oftheBoard towhomanyconcernspertaining to theGroupmaybeconveyedbyshareholdersandotherstakeholders.Since2011,shehasbeenthefocalchannelbetween the Independent Directors and the Chairman onmatters thatmay bedeemedtobesensitiveaswellasachannelfortheshareholdersandstakeholderstoconveytheirissuesandconcerns,ifany.
Under Paragraph 15.20 of the MMLR of Bursa Malaysia, the performance ofthe Board Audit Committee is assessed through an annual Board CommitteeEffectivenessEvaluation.
MeetingsTheBoardAuditCommitteemetfivetimesduring theyearended31December2016.DetailsofattendanceoftheBoardAuditCommitteemembersareasfollows:
Name of Members No. of meetings attended
VimalaV.R.Menon 5/5
ChingYewChye 5/5
DongSooKim 5/5
DatukTohAhWah 5/5
FreidaAmat 5/5
Byinvitation,theManagingDirector/CEO,ChiefFinancialOfficer,HeadofInternalAuditandexternalauditorsareinvitedtoattendBoardAuditCommitteemeetingstoappropriatelybriefandfurnishthemembersoftheBoardAuditCommitteewithrelevantinformationandclarificationtorelevantitemsontheagenda.
At the conclusion of each meeting, recommendations are made for themanagement to improve the internal controls, procedures and systems of theCompanyandtheGroup,whererelevant.
Statement on Corporate Governance (Cont’d)Board Audit Committee Report
VIMALA V.R. MENON
CHAIRMAN
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Statement on Corporate Governance (Cont’d)Board Audit Committee Report
The Board Audit Committeemeets at least quarterly with additionalmeetings convened as andwhen necessary. BoardAudit Committeemeetings for 2016 were scheduled in November 2015 to allow theDirectors to plan ahead and fit the meetings into their respectiveschedules.
The agenda and a set of meeting papers encompassing qualitativeandquantitative information relevant to thebusinessof themeetingaredistributedviaelectronicapplicationtotheBoardAuditCommitteemembersnotlessthanfivebusinessdaysfromthemeetingdates.
AllproceedingsofBoardAuditCommitteemeetingsareduly recordedin theminutes of eachmeeting. Signedminutes of eachBoardAuditCommitteemeeting are properly kept by the Company Secretarywhoactsas theBoardAuditCommittee’sSecretary.ThedraftBoardAuditCommittee minutes are circulated to the Board Audit CommitteememberssubsequenttotheBoardAuditCommitteemeetingbutpriortotheBoardmeeting.ThisassiststheBoardAuditCommitteeChairmantoeffectivelyconveytotheBoardmattersdeliberatedattheBoardAuditCommitteemeeting.
During the year under review, the Board Audit Committee had twoprivatesessionswiththeexternalauditorswithoutthepresenceofthemanagement.
SUMMARY OF ACTIVITIES OF THE BOARD AUDIT COMMITTEE
Duringtheyearended31December2016,theBoardAuditCommitteecarried out the following activities in discharging its functions andduties:
External Audit»ReviewedandrecommendedthetermsofengagementandfeesofexternalauditorsfortheBoard’sapproval.
»Reviewedandapprovedtheexternalauditors'auditplanandscopefortheyearunderreview.
»Reviewedtheexternalauditreport.
»Reviewedtheindependenceandobjectivityoftheexternalauditorsandtheeffectivenessofservicesprovided.
During the financial year under review, PCG engaged KPMGPLT, theexternalauditors,fornon-auditservices.Totalfeespaidtotheexternalauditorsareasfollows:
Particulars RM Million
Totalstatutoryauditfees2016 775
Totalnon-auditfeesfor2016 582
Percentageofnon-auditfeesoverstatutoryauditfees 75%
Non-audit fees paid to the external auditorsmainly relate to limitedreviewsontheGroup'squarterlyfinancialresults.
Internal Audit »Reviewed and approved the annual internal audit plan to ensureadequacyofresources,competenciesandcoverageofentitiesbasedonriskassessment.
»Reviewedinternalauditreportsontheeffectivenessandadequacyof governance, risk management, operational and complianceprocesses.
»Reviewed the adequacy and effectiveness of agreed correctiveactions undertaken bymanagement on significant and secondaryissuesraised.
»Reviewed the adequacy of resources and competencies of staffwithin the Internal Audit Department to execute the internal auditplan.
»Reviewed thestatusofagreedcorrectiveactions for internalauditissuesonaquarterlybasis.
»Reviewed the Key Performance Indicators (KPIs) of the Head ofInternalAudit.
Financial Results»Reviewed thequarterlyfinancial resultsprior to theapprovalby theBoard, to ensure compliance to the MMLR of Bursa Malaysia, theapplicable financial reporting standards as well as other relevantlegal and regulatory requirements. The review and discussionwereconductedwith theManagingDirector/CEOand theChiefFinancialOfficeroftheCompany.
»ReviewedtheauditedfinancialstatementsfortheyearunderreviewpriortotheapprovalbytheBoard,toensurethattheywerepreparedin accordance with the provisions of the Companies Act, 1965 inMalaysiaandtheapplicablefinancialreportingstandards.ThereviewanddiscussionwereconductedwiththeManagingDirector/CEOandtheChiefFinancialOfficeroftheCompany.
» Reviewed and deliberated specific key areas affecting the Group’sfinancial results, and endorsed recommendations made byManagement.Thekeyareasdeliberatedincludeassessmentsonthefollowingareas:
a) Impairment indicators on property, plant and equipment anddetailedimpairmenttesting.
b) Recognitionofdeferredtaxassetsandtheprobabilityoffutureutilisation.
c) Recognition of provisions including provisions fordecommissioningandrestorationcosts.
d) Carryingvalueofinventoriesandanywrite-offsthereon.
e) Revenueandexpensesrecognition.
Corporate Governance»Reviewed the impact of relevant regulatory changes and ensuredcompliancebytheCompanyandtheGroup.
Related Party Transactions (RPT)/Recurrent Related Party Transactions (RRPT)»ReviewedRPTs/RRPTsforapprovalorendorsementbytheBoardtoensurecompliancetotheCompany’spoliciesandprocedures.
TheStatementonRiskManagementandInternalControlincludesanoverview of the Group’s policies and procedures on RPTs, includingRRPTs,assetoutonpage124oftheAnnualReport.
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PETRONAS CHEMICALS
GROUP BERHAD
e) AuditonplantmaintenancemanagementatPCOlefins,PCGlycolsandPCDerivatives.
f) AuditonmanagementofecoCareProgramme.g) AuditonlegalandcorporatesecretariatactivitiesfortheGroup.h) AuditoncashandbankmanagementatPCGsubsidiaries.i) AuditoninformationsecurityoftheprocesscontrolnetworkatPCG
plants.i) AuditonGoods&ServicesTaximplementationfortheGroup.j) AuditonplantmaintenancemanagementatPCAromatics.k) AuditonindirectandwithholdingtaxesmanagementfortheGroup.l) Audit on procurement, inventory and warehousemanagement at
PCGsubsidiaries.
Key control issues, positive observation, risks and relevantrecommendations for improvement, alongwith the agreed correctiveactions are highlighted to theBoardAudit Committee in the internalaudit reports.TheIADalsomonitorstheprogressofthesecorrectiveactions and reports the status to the Board Audit Committee on aquarterlybasis.
SubsequenttotheBoardAuditCommitteereview,theresultingreportsfromtheauditswereforwardedtothemanagement.Themanagementis responsible for ensuring that agreed corrective actions areimplementedwithintherequiredtimeframe.TheprogressandstatusofthesecorrectiveactionsarereportedtotheBoardAuditCommitteeonaquarterlybasis.
The Group continues its commitment to equip the internal auditorswith adequate knowledge and proficiencies to discharge theirduties and responsibilities. Annually, internal auditors go throughindividual functional competency assessment to determine learningand development programmes necessary to further enhance theircompetencies.ThefunctionalcompetencyassessmentadoptedbyIADispartofPETRONAScapabilitydevelopmentprogramme for internalauditors. The assessment takes into consideration the Institute ofInternal Auditors Global Internal Audit Competency DevelopmentFramework’scorecompetenciesincluding:
- Internalauditdelivery- Personalskills- Technicalexpertise- Internalauditmanagement- Professionalethics
ThetotalcostsincurredbytheinternalauditfunctionoftheCompanyandtheGroupforthefinancialyearwasRM4,200,000.
REPORTING TO THE EXCHANGE
The Board Audit Committee is of the view that the Group is not inbreachoftheMMLRofBursaMalaysiathatwarrantsreportingtoBursaMalaysia.
Vimala V.R. MenonChairmanBoardAuditCommittee
Risk Management»Reviewedandendorsedallpolicies,frameworks,guidelinesandotherkeycomponentsofriskmanagementforimplementationwithintheCompanyandthroughouttheGroup.
»ReviewedandendorsedthecorporateriskprofilefortheGroup.
»Reviewed the progress of ongoing risk management activities toidentify, evaluate, monitor and manage critical risks including theCompany’sBusinessContinuityManagementPolicyandFramework.
Annual Reporting»The Board Audit Committee reviewed the Board Audit CommitteeReportandStatementonRiskManagementandInternalControlforthefinancialyearended31December2016toensurethattheywereprepared in compliance with the relevant regulatory requirementsandguidelines.
Internal Audit FunctionThe Board Audit Committee is supported by an in-house internalaudit function, the InternalAuditDepartment (IAD), indischarging itsgovernance responsibilities stated in the Board Audit Committee’sTermsofReference.TheIADundertakesasystematicanddisciplinedapproachtoevaluateandimprovetheeffectivenessofgovernance,riskmanagementandcontrolprocesseswithintheGroup.
Zulaini Ahmad, the Head of IAD reports directly to the Board AuditCommittee. The Board Audit Committee approves the internal auditplan and the KPIs of Head of IAD and reviews IAD’s annual budgetandresourcerequirements.Quarterly,theHeadofIADcommunicatesthe results of internal audit engagements performed to the BoardAuditCommittee,aswellasreportsonIAD’sperformanceagainsttheapprovedinternalauditplan.
The IAD adopts the Institute of Internal Auditors’ InternationalProfessionalPracticesFramework(IPPF)whichincludestheDefinitionofInternalAuditing,theCodeofEthics,andtheInternationalStandardsfor the Professional Practice of Internal Auditing. In performing theaudit engagements, the internalauditorsadhere to IAD’sestablishedproceduresandguidelines,aswellasrelevantpoliciesandproceduresadoptedbytheGroup.
TheIADcontinuestoadoptarisk-basedapproachtoensurethattheauditplansareprioritisedbasedontheGroup’skey risks. Inderivingthe audit plan, inputs are gathered from various sources includingtheriskprofileoftheGroup,businessplansandstrategies,pastauditissues and feedback from external auditors, Board Audit CommitteeandManagement.
Duringtheyearunderreview,theIADperformedreviewsonvariouskeybusinessandriskareasoftheGroupaspertheapprovedinternalauditplan andpresented the reports for the followingaudits to theBoardAuditCommittee:a) Audit on the operations of international subsidiaries and
representativeoffices.b) AuditonsalesandmarketingactivitiesofCommercialDivision.c) Audit on plant operations and maintenance management at PC
FertiliserKedahd) AuditonbusinesscontinuitymanagementfortheGroup.
Statement on Corporate Governance (Cont’d)Board Audit Committee Report
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MeetingsTheNomination andRemuneration Committeemet five times during the yearended 31 December 2016 and details of attendance of the members are asfollows:
Name of Members No. of meetings attended
ChingYewChye 5/5
VimalaV.R.Menon 5/5
DongSooKim 5/5
The Managing Director/CEO and Head of Human Resource Management areinvitedtoattendthemeetingstoappropriatelybriefandfurnishthemembersoftheNomination andRemunerationCommitteewith the necessary informationandclarificationtorelevantitemsontheagenda.
At a meeting of the Nomination and Remuneration Committee held on 25November2016whereperformanceofthekeymanagementpersonnelweredeliberated, Datuk Toh Ah Wah, an Independent Non-Executive Director whoisnotamemberof theNominationandRemunerationCommitteewas invitedto provide his input and views on the performance of the key managementpersonnel.
TheNominationandRemunerationCommitteemeetingsfor2016werescheduledinNovember2015tofacilitatetheDirectorstoplanaheadandfittheNominationandRemunerationCommitteemeetingsintotheirrespectiveschedules.Thisisalsotoprovidethememberswithamplenoticeofthemeetings.
Theagendaandasetofmeetingpapersrelevanttothebusinessofthemeetingaredistributedviaelectronicapplication to theNominationandRemunerationCommitteemembersnotlessthanfivebusinessdaysfromthemeetingdates.
AllproceedingsoftheNominationandRemunerationCommitteemeetingsaredulyrecordedintheminutesofeachmeeting.SignedminutesofeachNominationandRemunerationCommitteemeetingisproperlykeptbytheSecretarywhoactsastheNominationandRemunerationCommittee'sSecretary.Thedraftminutesof meetings are circulated to the Nomination and Remuneration CommitteememberssubsequenttoaCommitteemeetingbutpriortoBoardmeeting.Thisassists theNomination andRemunerationCommitteeChairman to effectivelyconveytotheBoard,mattersdeliberatedattheNominationandRemunerationCommittee meeting. The minutes of the Nomination and RemunerationCommitteemeetingsarealsodistributedtomembersoftheBoardofDirectorsfortheirnotation.
THENOMINATIONANDREMUNERATIONCOMMITTEECONTINUESITSWORKOFENSURINGTHEBOARDCOMPOSITIONISOPTIMUMANDTHATOURGOVERNANCEISEFFECTIVE.
NOMINATION AND REMUNERATION COMMITTEE REPORT
CompositionThe Board has established the Nomination andRemunerationCommitteewithmembersasfollows:
The composition of the Nomination and RemunerationCommitteecomplieswiththerequirementsof theMCCG2012where its members are exclusively non-executive directors.MCCG 2012 requires a majority to be independent. AllmembersoftheNominationandRemunerationCommitteeareindependentdirectorswhofulfilthecriteriaofindependenceasdefinedinParagraph15.08AoftheMMLRofBursaMalaysia.
Independent Non-Executive DirectorChingYewChyeDongSooKim
Terms of ReferenceThe summary terms of reference of the Nominationand Remuneration Committee as set out on www.petronaschemicals.com are consistent with theMMLRofBursaMalaysiaandtheMCCG2012.Alltherequirements under the terms of reference are fullycompliedwith.
Statement on Corporate Governance (Cont’d)Nomination and Remuneration Committee Report
CHING YEW CHYE
CHAIRMAN
Senior
IndependentDirector
VimalaV.R.Menon
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GROUP BERHAD
Board Appointment ProcessThe Company practises a formal and transparent procedure forappointmentofnewdirectors.NominationofdirectorstotheBoardismadeeitherbyPETRONASbeingthemajorityshareholderorthroughengagement of a professional recruitment firm to find suitablecandidates to fill the positions of the Independent Non-ExecutiveDirectors.
AllnomineestotheBoardarefirstconsideredbytheNominationandRemunerationCommittee,takingintoconsiderationthemixofskills,competencies, experience, integrity, time commitment and otherqualitiesrequiredtoeffectivelydischargehisorherroleasadirector.Boarddiversityisimportanttofacilitateoptimaldecisionmakingbyharnessingdifferentinsightsandperspectives.
Board Effectiveness EvaluationEvery year, under thepurviewof theNominationandRemunerationCommittee,aBoardEffectivenessEvaluationisundertakentoassesstheeffectivenessofthefollowing:
»TheBoardasawholeandthevariousBoardCommittees.
»Contributionofeachindividualdirector.»Independenceoftheindependentdirectors.
Pursuant to Paragraph 15.20 of the MMLR of Bursa Malaysia, theNomination and Remuneration Committee had at its meeting heldon25November2016,reviewedtheperformanceoftheBoardAuditCommitteeand is satisfied that theBoardAuditCommitteeand itsmembers discharged their functions, duties and responsibilities inaccordancewithitstermsofreference.
On15February2017,theNominationandRemunerationCommitteereviewedtheresultsofthelatestBoardEffectivenessEvaluationandnotedonareaswhichnecessitatefurtherimprovements.
Directors’ Re-ElectionThe Nomination and Remuneration Committee is responsible forrecommending to theBoard, directorswho are eligible to stand forre-electionattheAGMoftheCompany.Therecommendationisbasedonamongothers,theperformanceofthedirectors,contributiontotheBoard,skills,experience,qualities,levelofindependenceandabilitytoactinthebestinterestoftheCompany.
The directors may seek re-election at the AGM of the CompanypursuanttoArticle93andArticle99oftheCompany’sConstitution.
Article 93 of the Company's Constitution provides that one third ofthedirectorsoftheCompanyshallretirebyrotationattheAGMandbeingeligiblemayoffer themselves for re-election.With thecurrentcompositionofeightdirectors,twodirectorsaretoretireatthenextAGMpursuanttothisArticle.
TheNominationandRemunerationCommitteeatitsmeetingheldon25 November 2016, recommended the re-elections of the followingDirectorswhohadexpressedtheirintentiontoseekforre-electionattheforthcomingAGMforapprovaloftheBoard:
»ChingYewChye»DatukTohAhWah
There is no new appointment of Directors during the year underreview. Hence, the retirement of newly appointed director and re-electionthereonpursuanttoArticle99oftheCompany'sConstitutionisnotapplicable.
Statement on Corporate Governance (Cont’d)Nomination and Remuneration Committee Report
1
2
3
4
5
6
7
8
CircumstancesgivingrisetotheappointmentofDirectors
Deliberateselectioncriteriacombiningcompetenciesandattributesrequired
Searchforcandidates
Interviewcandidates
NRCendorsecandidateforBoardapproval
Boardapproval
Orientation/Induction
Continuoustrainingandannualperformanceassessment
TheprocessflowforBoardappointmentisdepictedbelow:
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SUMMARY OF ACTIVITIES OF THE NOMINATION AND REMUNERATION COMMITTEE
Duringtheyearended31December2016,theNominationandRemunerationCommitteecarriedoutthefollowingactivitiesindischargingitsfunctionsandduties:
» Board Effectiveness Evaluation• Assessed theperformanceof theBoardasawhole, itssub-committeesand itsmembers through theBoardEffectivenessEvaluationexercise.
» Board Membership• ReviewedtheBoardSkillsMatrixandcompetencyoftheBoardmembers.• RecommendedBoardmembersstandingforre-electionattheAGM.• RecommendedtheBoardselectionprocess.• ReviewedBoardSelectionCriteria.
» Performance Management• Reviewed2016PerformancePlanningandKeyPerformanceIndicatorsforManagingDirector/CEO.• Reviewed2016PerformancePlanning,KeyPerformanceIndicatorsandDevelopmentPlansforKeyPersonnel.• ReviewedtheDirectors’professionaldevelopment.
Ching Yew ChyeChairmanNominationandRemunerationCommittee
Statement on Corporate Governance (Cont’d)Nomination and Remuneration Committee Report
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GROUP BERHAD
THE DIVISION OF ROLES BETWEEN THE CHAIRMAN AND THE MANAGING DIRECTOR/CEO
ThereisacleardivisionofresponsibilitiesbetweentheChairmanandManagingDirector/CEO.
Roles of the ChairmanThe Chairman is primarily responsible for the orderly conduct andfunctionoftheBoardandensuresitseffectivenessonallaspectsofitsroles.
i) LeadingtheBoardinsettingthevaluesandethicalstandardsofPCG.
ii) ChairingtheBoardmeetingsandstimulatingdebatesonissuesandencouragingpositivecontributionsfromeachDirector.
iii) ConsultingwiththeCompanySecretaryinsettingtheagendaforBoardmeetingsandensuringthatallrelevantissuesareontheagenda.
iv) Maintaining a relationship of trust with and between theManagingDirector/CEOandNon-ExecutiveDirectors.
v) Ensuringtheprovisionofaccurate,timelyandclearinformationtoDirectors.
vi) Ensuring effective communication with shareholders andrelevantstakeholders.
vii) Conducting performance assessment of Board members, itsCommittees and individual Directors, including assessment oftheindependenceofIndependentDirectors.
viii) FacilitatingeffectivecontributionofNon-ExecutiveDirectorsandensuringconstructivediscussionsatBoardmeetings.
ix) Ensuring that all Directors are properly briefed on issuesarising at Boardmeetings and there is sufficient time allowedfor discussion on complex or contentious issues and whereappropriate, arranging for informal meetings beforehand toenablethoroughpreparations.
x) AllowingeveryBoardresolutiontobevotedonandensuringthewillofthemajorityprevails.
xi) Casting his/her votes in accordance with the prescribedCompany'sConstitution.
xii) EnsuringthatallBoardmembers,upontakinguptheiroffice,arefully-briefedonthetermsoftheirappointment,timecommitment,dutiesandresponsibilities,andthebusinessofPCG.
xiii) Acting as liaison between the Board and Management, andbetweentheBoardandtheManagingDirector/CEO.
Statement on Corporate Governance (Cont’d)
Roles of the Senior Independent Director
TheSeniorIndependentDirectoractsasthepointofcontactbetweenthe Independent Directors and Chairman on sensitive issues andhasbeenidentifiedasadesignatedcontacttowhomshareholders’concerns or queriesmay be raised, as an alternative to the formalchannelofcommunicationwithshareholders.
Roles of the Managing Director/CEO
TheManagingDirector/CEOisresponsiblefortheoveralloperationsofthebusiness,organisationaleffectivenessandtheimplementationoftheGroup’sstrategiesandpolicies.HeisassistedbytheManagementCommittee inmanagingthebusinessonday-to-daybasis,whichheconsults regularlyandshallbesupportedby theBoardmembers inundertakingthefollowingresponsibilities:
i) TodevelopandrecommendtotheBoardthelong-termstrategyand vision for PCG that leads to the creation of long-termprosperityandstakeholdervalue.
ii) TodevelopandrecommendtotheBoardtheoperationalplanandbudgetthatsupportPCG'slong-termstrategy.
iii) To foster a corporate culture that promotes ethical practices,encourages individual integrity and the fulfillment of PCG’scorporatesocialresponsibilities.
iv) To maintain a positive and ethical working environment thatis conducive to attracting, retaining and motivating a diverseworkforceatalllevels.
v) To recommend suitable management structure and operatingauthority levelswhich includedelegationsof responsibilities totheManagement.
vi) To ensure an effective Management team and to develop anappropriatesuccessionplan.
vii) To formulate and oversee implementation of major corporatepolicies.
viii) TobeaccountabletotheBoardforthefinancialmanagementandreporting,includingforecastsandbudgetsofPCG.
ix) Tomake reports to theBoardperiodicallyonfinancialposition,KPIs,marketconditionsandbusinessdevelopment.
x) ToserveasspokespersonforPCG.xi) TorefertotheBoardCommitteesonmattersasrequested.
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COMPANY SECRETARY
Both Company Secretaries of PCG are qualified to act as companysecretaryunderSection235oftheCompaniesAct,2016.Oneofthemhasa legalqualificationand theother isaFellowof theMalaysianInstitute of Chartered Secretaries and Administrators. Both act asadvisors to the Board, particularly with regard to the Company'sConstitution,Boardpoliciesandprocedures,anditscompliancewithregulatoryrequirements,legislations,guidelinesandcodes. TheCompanySecretariesensurethatdiscussionsanddeliberationsat the Board and Board Committeemeetings arewell documented,and subsequently communicated to the Management Committeeforappropriateactions.TheCompanySecretariesupdatetheBoardon the follow-up of its decisions and recommendations by theManagementCommittee. TheCompanySecretariesconstantlykeepabreastwiththeevolvingregulatory changes and developments in corporate governancethrough continuous training. The Board is satisfied with theperformance and support rendered by the Company Secretaries indischargingtheirfunctions.
Relationship with External Auditors
TheCompanymaintainsaprofessionalandtransparentrelationshipwithitsexternalauditors,KPMGPLT.TheBoardAuditCommitteemettheexternalauditorseveryquartertoreviewthescopeandadequacyof the Group’s audit process, quarterly results, annual financialstatements and audit findings. In addition to regular quarterlymeetings, the Board Audit Committee held two separate meetingswith external auditors without the presence of the Management.At themeeting, theexternalauditorshighlighted to theBoardAuditCommitteeonmattersthatwarranttheCommittee’sattention.
Statement on Corporate Governance (Cont’d)
The role of the Board Audit Committee in relation to the externalauditors isdescribed in theBoardAuditCommitteeReportonpage109ofthisAnnualReport.
Statement by the Board on Compliance
The Board has deliberated, reviewed and approved this Statement.The Board considers and is satisfied that the Group has fulfilledits obligations under the relevant chapters of the MMLR of BursaMalaysiaandtheMCCG2012oncorporategovernanceandapplicablelawsandregulationsthroughouttheyearended31December2016.
ThisstatementismadeinaccordancewiththeresolutionoftheBoarddated20February2017.
ADDITIONAL COMPLIANCE INFORMATION - MATERIAL CONTRACTS
TherewerenomaterialcontractsorloansenteredintobytheCompanyoritssubsidiariesinvolvingDirectors’ormajorshareholders’interests,either still subsisting at the end of the year ended 31 December2016orenteredintosincetheendofthepreviousperiod,exceptasdisclosedintheauditedfinancialstatements.
Md Arif MahmoodChairman
Datuk Sazali HamzahManagingDirector/CEO
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PETRONAS CHEMICALS
GROUP BERHAD
STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL
PCG HAS INTERNAL CONTROL SYSTEMS AND RISK MANAGEMENT FRAMEWORK IN PLACE TO ENSURE THE SMOOTH RUNNING OF THE BUSINESS. IT IS PCG’S AIM TO MANAGE RISK AND TO CONTROL ITS BUSINESS AND FINANCIAL AFFAIRS ECONOMICALLY, EFFICIENTLY AND EFFECTIVELY SO AS TO BE ABLE TO SEIZE PROFITABLE BUSINESS OPPORTUNITIES IN A DISCIPLINED WAY TO AVOID OR MITIGATE RISKS THAT CAN CAUSE LOSS, REPUTATIONAL DAMAGE OR BUSINESS FAILURE AND ENHANCE RESILIENCE TO EXTERNAL EVENTS. THE STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL IS MADE PURSUANT TO PARAGRAPH 15.26(B) OF THE MMLR OF BURSA MALAYSIA WHEREBY THE BOARD OF DIRECTORS OF PUBLIC COMPANIES ARE REQUIRED TO PUBLISH A STATEMENT ABOUT THE STATE OF THE INTERNAL CONTROL OF THE LISTED ISSUER AS A GROUP.
BOARD ACCOUNTABILITY
The Board acknowledges the importance of maintaining a soundinternal control system and a robust risk management practice forgood corporate governance with the objective of safeguarding theshareholders'investmentandtheGroup’sassets.TheBoardaffirmsitsoverallresponsibilityforreviewingtheadequacyandtheintegrityoftheGroup’s riskmanagementand internalcontrolsystemwhichensurescompliancewithapplicablelaws,regulationsandguidelines. The Group has established a process for identifying, evaluating,monitoringandmanagingsignificant risks thatmaymateriallyaffectthe achievement of corporate objectives. This process is beingimplemented throughout the Group and the Board will continue toreviewthisprocessperiodicallyandenhanceitwhererelevant.
RISK MANAGEMENT
As part of PCG's journey to become proactive and responsive inmanagingrisks,thePETRONASResiliencyModelwasadoptedtofocusonthreekeyfocusareas;namelyEnterpriseRiskManagement,CrisisManagement and Business Continuity Management to strengthenour approach in managing risks to ensure that PCG can effectivelysafeguard its business and respond to a crisis, regardless of itsmagnitude.
KEY FOCUS AREAS
Enterprise Risk Management (ERM)
Astructuredandholisticapproachtoidentify,assess,treat andmonitor risks. The aim is toREDUCE thelikelihoodandimpactofallidentifiedriskstoenhancethe organisation’s ability to achieve its strategicobjectives.
Crisis Management (CM)
A comprehensive set of processes that aims toprepare the organisation toRESPOND andmanagecrises in the risk areas to protect and save people,environment,assetandreputation.
Business Continuity Management (BCM)
A holistic management process that aims to buildthe capability of an organisation to RECOVER and continue delivery of products or services atacceptable predefined levels following a prolongeddisruptiveincident.
Riskisinherentinourbusinessandthemarketsinwhichweoperate.Thechallengeistoidentifyrisksandthenmanagethesesothattheycanbeminimised, accepted, transferredor avoided. This demandsaproactive approach to riskmanagement and an effective group-wideriskmanagementframework.
Our overall risk management process is overseen by the Board asan element of solid corporate governance. We recognise that riskmanagement is the responsibility of everyone within PCG. Ratherthan being a separate and standalone process, risk management isintegrated into business processes including strategy development,business planning, capital allocation, investment decisions, internalcontrolandday-to-dayoperations.
PCGconsidersthesecontrolsystemsareappropriateforthesize,diversityandcomplexityoftheGroup’soperations,andtheiradequacyandintegrity are being reviewed andmonitored by the Board Audit Committee to ensure their compliancewith applicable laws, regulations andguidelines. TheDirectorsrecognisethatsuchsystemscanonlyprovideareasonableandnotabsoluteassurancethatsignificantriskswhichimpacttheGroup’sstrategiesandobjectivesarewithinlevelsappropriatetotheGroup’sbusinessasapprovedbytheBoard.Thekeyelementsoftheprocessbywhichthesystemsofinternalcontrolandriskmanagementaremonitoredaresetoutbelow.
OUR RISK MANAGEMENT PHILOSOPHY
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Sectionfive
Statement on Risk Management and Internal Control (Cont’d)
RISK MANAGEMENT FRAMEWORK
OurenhancedERMFrameworkandrelevantguidelinesaregenerallyalignedwithISO31000:2009,andstandardisedthroughoutPCG.
GOVERNANCE
RISKTREATMENT
CONTEXT SETTING
CONTINUALIMPROVEMENT
RISK ASSESSMENT
RISKMONITORING &
REVIEW
ERM FRAMEWORK
• RiskPolicy• RiskOrganisationandStructure• RolesandResponsibilities
• RiskTreatmentStrategy• RiskTreatmentPlan
• ExternalContext• InternalContext• RiskAppetite• RiskCriteria
• RiskIdentification• RiskAnalysis• RiskEvaluation
• RiskReportingandMonitoring• RiskInformationSystem
• Assurance• SystemMonitoringandReview• CapabilityBuilding
PCG Risk Policy
AllentitiesacrossPCGshalladoptandcommunicatethePCGRiskPolicy:
“PETRONASChemicalsGroupshalladoptandimplementriskmanagementbestpracticesbyidentifying,assessing,treatingandmonitoringrisksaswellaseffectivelyrespondingtocrises.
In theeventofprolongeddisruption,businesscontinuitypracticesshallbeadoptedto restoreandensurecontinuityofPETRONASChemicalsGroup’skeybusinessactivities.”
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GROUP BERHAD
Statement on Risk Management and Internal Control (Cont’d)
PCG RISK OVERSIGHT STRUCTURE
BOARD OF DIRECTORS
Reviewandapproveannualcorporateplan,whichincludesoverallcorporatestrategy,operationalplan,marketingplan,humanresourcesplan,financialplanandbudget,riskmanagementplanandinformationtechnologyplan.
Identifyprincipalrisksandensuretheimplementationofappropriatesystemstomanagetheserisks.
BOARD COMMITTEE LEVEL
BOARD AUDIT COMMITTEE
Toreviewtheadequacyandeffectivenessofriskmanagementpracticesandprocedures. ToreviewriskprofileoftheGrouponaquarterlybasis.
MANAGEMENT LEVEL RISK MANAGEMENT COMMITTEE
ResponsiblefortheoveralloversightoftheGroupriskmanagementactivities.
OPERATIONAL LEVEL MANUFACTURING
Responsiblefortheplantandfacilitiesriskmanagement.
COMMERCIAL
Responsibleforthecommercialriskmanagement.
SharebestpracticesandlessonslearnedwithPCGplantsandfacilitiesriskfraternities.
ReviewandendorsecredittermsforPCG’scustomersandsuppliers.
Sharebestpracticesandlessonslearnedoncommercialrisks.
RISK GOVERNANCE AND OVERSIGHT
Our riskgovernancestructure facilitates risk identificationandescalationwhilstprovidingassurance to theBoard. Itassignsclear rolesandresponsibilities,facilitatesimplementationwithguidelinesandtoolsaswellasconsistsofthedifferent layersofrolesandresponsibilitiesasexplainedbelow:
Inadditiontoourriskgovernancestructures,ourriskmanagementisbackedupbya3-lineDefenceModelthatdistinguishesthethreegroupswhichareinvolvedineffectiveriskmanagement.
1st LINE OF DEFENCE 2nd LINE OF DEFENCE 3rd LINE OF DEFENCE
BusinessLine(RiskOwner) RiskManagementUnitorFunctions InternalAudit
Toestablishtheidentification,assessment,treatmentandmonitoringofrisks
Toestablish,implementandreviewriskmanagementandcontrolsystems
Toprovideforindependentandobjectiveassuranceontheoveralladequacy,integrityandeffectivenessofriskmanagementandinternal
controlsystems
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Sectionfive
RISK MANAGEMENT PROCESS
TheriskprofileoftheGrouphasbeenestablishedbasedonERMconcept.ThecriticalrisksidentifiedareregularlyreviewedwherebythestatusofkeyriskindicatorsandriskmitigationsofcriticalrisksaredeliberatedattheRiskManagementCommitteeandpresentedtotheBoardAuditCommitteeonaquarterlybasis.Eachcriticalriskhasadedicatedownerwhoisresponsiblefortheeffectiveimplementationofcontrolmeasures,monitoringandtrackingofkeyriskindicatorsperformance,identifyingadditionalriskmitigationsandimplementingthesemitigations.Therisksandmitigationsarecommunicatedtothelineonatimelybasistoensureawarenessatalllevels.
PCGsubscribestothefollowingstructuredriskmanagementsystemsandprocesseswhichareinlinewithPETRONAStoshowrigorouspracticesofriskmanagementarebeingappliedinvariousareas:
PETRONAS Health Safety Environment Management System (HSEMS)tomanageHSEriskandensurethatoperationsareintandemwithHSE
regulatoryrequirementsandindustrybestpractices.
Counterparty Risk Assessmenttoensuresystematicidentification,assessmentandmitigationtomanageriskassociatedwithcreditand
performancewhichisinlinewithPETRONASCorporateFinancialPolicyandPETRONASCreditGuidelines.Eachcounterpartiesareassignedwith
creditratingswhicheventuallyfacilitatethebusinessdecisionmaking.
Contractor Risk Assessment (CoRA)toensuresystematicidentification,assessmentandmitigationofcontractors’relatedriskswhicharecritical
totheirperformance.CoRAisundertakenaspartoftheprocurementprocesspriortoselectionofcontractor.
Turnaround Risk Assessment (TaRA) toensuresystematicidentification,assessmentandmitigationofrisksforturnaroundactivitieswhichare
criticalforsmoothexecution.
Project Risk Assessment (PRA) toensuresystematicidentification,assessmentandmitigationtomanageriskassociatedwithprojectswhichisin
linewithPETRONASProjectManagementSystemrequirements.
Statement on Risk Management and Internal Control (Cont’d)
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Sectionfive
PETRONAS CHEMICALS
GROUP BERHAD
COMPLIANCE UNDER OUR RISK MANAGEMENT FRAMEWORK
Theinculcationofcompliancecultureisakeyaspectofaneffectiveriskmanagement.Insupportingcomplianceculture,theGroupacknowledgestheimportanceofriskassuranceprogrammestoprovideassurancetostakeholdersthatthesystemsofriskmanagementandinternalcontrolsareimplementedandcompliedwith.Fortheyearunderreview,theGroupestablished its risk assurance programmes based on an annual riskassuranceplanthatwaspresentedtoPCGRiskManagementCommittee. TheGroupconductedtwoTier1self-assessmentsperyearwherebyallsubsidiariesarerequiredtoperformself-assessmentandvalidationontheircompliancetotherequirementsstipulatedunderERMFrameworkand proposes gap closure actions, if any. The Group also undertookTier 2 risk assurance programmes in which PCG Risk ManagementDepartment validates the implementation of ERM systems andeffectiveness of agreed riskmitigations at PCG subsidiaries. The riskManagementCommitteereviewstheriskassurancereportandmonitorstheappropriatecorrectiveactions tobeclosed timely. Inaddition, thestatusofriskassuranceprogressandgapclosuresarereportedtoRiskManagementCommitteeonquarterlybasis. Tomitigate any riskmanifesting and resulting in prolonged businessdisruption, the Group has established BCM Framework that providesasystematicapproach tocontinuedeliveryofproductsorservices tothecustomers. Theactivitieshavebeendetailedout intoaBusinessContinuityPlan(BCP)andBusinessRecoveryPlan(BRP)thatdescribethe organisation structure, roles and responsibilities of each parties,requiredresourcesandthespecificrecoverystrategies.TheGrouphasestablishedBCP for Product Supply to address abrupt and prolongedoutageofproductsupply,thatcouldaffectproductdeliverytocustomers.Additionally,theGrouphasdevelopedBCPforPETRONASTwinTowerstocater for inaccessibilityofworkplace, failureofcritical ICTsystemsandprolongedunavailabilityofkeypersonnel.
Statement on Risk Management and Internal Control (Cont’d)
CONTROLENVIRONMENT
RISK ASSESSMENT
• Demonstratesacommitmentto integrityandethicalvalues
• The board of directors demonstrates
independence from management andexercises oversight of the development andperformanceofinternalcontrol
• Managementestablishes,withboardoversight,
structures, reporting lines, and appropriateauthorities and responsibilities in the pursuitofobjectives
• Demonstrates a commitment to attract,
develop, and retain competent individuals inalignmentwithobjectives
• Holdsindividualsaccountablefortheirinternal
control responsibilities in the pursuit ofobjectives
• Specifiesobjectiveswithsufficientclaritytoenabletheidentificationandassessmentofrisksrelatingtoobjectives
• Identifies risks to the achievement of its
objectives across the entity and analysesrisksasabasisfordetermininghowtherisksshouldbemanaged
• Considersthepotentialforfraudinassessing
riskstotheachievementofobjectives • Identifiesandassesseschanges thatcould
significantly impact the system of internalcontrol
INTERNAL CONTROL Management is primarily responsible for the design, implementationandmaintenanceof internalcontrols,while theBoardand theBoardAuditCommitteeoverseetheactionsofmanagementandmonitortheeffectivenessof thecontrols thathavebeenput inplace.TheGroupendeavourstoachievethe17principlesoftheCommitteeofSponsoringOrganisations of the Treadway Commission (COSO) Framework oneffectiveinternalcontrolsasillustratedbelow:
Operations, Reporting & Compliance
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SectionfiveCONTROL
ACTIVITIES
MONITORING ACTIVITIES
INFORMATION AND
COMMUNICATION
• Selects and develops control activities thatcontribute to the mitigation of risks to theachievementofobjectivestoacceptablelevels
• Selectsanddevelopsgeneralcontrolactivities
over technology tosupport theachievementofobjectives
• Deployscontrolactivitiesthroughpoliciesthatestablish what is expected and proceduresthatputpoliciesintoaction
• Selects, develops, and performs ongoingand/or separate evaluations to ascertainwhether thecomponentsof internalcontrolarepresentandfunctioning
• Evaluatesandcommunicatesinternalcontrol
deficiencies in a timely manner to thoseparties responsible for taking correctiveaction,includingseniormanagementandtheboardofdirectors,asappropriate
• Obtains or generates and uses relevant,qualityinformationtosupportthefunctioningofinternalcontrol
• Internallycommunicatesinformation,including
objectives and responsibilities for internalcontrol,necessarytosupportthefunctioningofinternalcontrol
• Communicateswithexternalpartiesregarding
matters affecting the functioning of internalcontrol
Statement on Risk Management and Internal Control (Cont’d)
JointventureandassociatecompaniesarenotincludedinourGroupinternal controls as these companies fall under the purview of theirrespective majority shareholders. The interests of the Group aresafeguardedthroughGrouprepresentativestotherespectiveBoardsofjointventureandassociatecompanies,inadditiontotheregularreviewofmanagementaccounts.
INTERNAL AUDIT
Internal audits are undertaken to provide independent assessmentson theadequacy, efficiencyandeffectivenessof theGroup’s internalcontrols. The Group has its own dedicated internal audit functionthatprovidesasystematicanddisciplinedapproach toevaluateandimprovetheeffectivenessofcontrolandgovernanceprocesseswithintheGroup.Itmaintainsitsimpartiality,proficiencyanddueprofessionalcareandreportsdirectlytotheBoardAuditCommittee.
The Group’s internal audit function adopts the Institute of InternalAuditors’InternationalProfessionalPracticesFramework(IPPF)whichincludes the Definition of Internal Auditing, the Code of Ethics, andthe International Standards for the Professional Practice of InternalAuditing.
TheinternalauditfunctionreviewstheinternalcontrolsofselectedkeyactivitiesoftheGroup’sbusinessesbaseduponanannualinternalauditplanwhichispresentedtotheBoardAuditCommitteeforapproval.Theannual audit plan is established primarily on a risk based approach.TheBoardAuditCommittee reviewsaudit reportsand thenecessarycorrectiveactionsasadvisedbytheManagement.TheManagementis responsible for ensuring that corrective actions are implementedaccordingly.Inaddition,thestatusoftheclosuresofauditissuesarereportedtotheBoardAuditCommitteeonaquarterlybasis.
AUDIT COMPETENCIES In 2016, all internal audit activities were performed internally by ateam of 18 internal audit personnel from selected backgrounds andcompetencies,asfollows:
DISCIPLINENO. OF INTERNAL AUDIT
PERSONNEL%
Accounting&Finance 14 78
PlantOperations 3 16
SupplyDistributionOperations 1 6
Todate,fiveofourinternalauditpersonnelhavereceivedprofessionalcertificationfromvariousrecognisedprofessionalbodies.
122
Sectionfive
PETRONAS CHEMICALS
GROUP BERHAD
OTHER KEY ELEMENTS OF INTERNAL CONTROL SYSTEMS
InfurtherancetotheBoard’scommitmenttomaintainasoundsystemofinternalcontrol,theBoardcontinuestomaintainandimplementastrongcontrolstructureandenvironmentfortheproperconductoftheGroup’sbusinessoperationsasfollows:
» Board of Directors TheBoardmeetsatleastquarterlyandhassetascheduleofmatters,whichisrequiredtobebroughttoitsattentionfordiscussion,thusensuringthatitmaintainsfullandeffectivesupervisionoverappropriatecontrols.TheManagingDirector/CEOleadstheManagementinpresentationofboardpapersandensuresManagementprovidesdetailedexplanationofpertinentissues.InarrivingatanydecisionrequiringBoard’sapproval,assetoutintheLimitsofAuthoritymanual,thoroughdeliberationanddiscussionbytheBoardisaprerequisite.Inaddition,theBoardiskeptupdatedontheGroup’sactivitiesanditsoperationsonaregularbasis.
» Board Audit Committee TheBoardhasdelegatedthedutyofreviewingandmonitoringtheeffectivenessoftheGroup’ssystemofinternalcontrolstotheBoardAuditCommittee.
TheBoardAuditCommitteeassumestheoveralldutiesofreviewingwiththeexternalauditorstheirauditplan,auditreport,aswellastheirfindingsandrecommendationspursuanttotheyearendaudit.TheBoardAuditCommitteealsoevaluatestheadequacyandeffectivenessof theGroup’s riskmanagementand internalcontrolsystems through reviewsof internalcontrol issues identifiedby internalauditorsandManagement.Throughouttheyear,theBoardAuditCommitteewasupdatedondevelopmentsinMMLRofBursaMalaysia,MFRSaswellasnewlegalandregulatoryrequirements.
TheBoardAuditCommitteemeetsat leastquarterlyandhasfullandunimpededaccesstotheinternalandexternalauditorsaswellasallemployeesoftheGroup.
FurtherinformationrelatingtotheactivitiesoftheBoardAuditCommitteeissetoutintheBoardAuditCommittee’sreportaspresentedonpages108to110ofthisAnnualReport.
» Organisation Structure and Management Committee Anorganisationalstructure,which isaligned to thebusinessandoperational requirements,andwithclearlydefined linesof responsibility,accountabilityandlevelsofauthority,isinplacetoassistinimplementingtheGroup’sstrategiesandday-to-daybusinessactivities.
TheCompanyhasaManagementCommitteewhichservesinanadvisorycapacitytotheManagingDirector/CEOinaccomplishingthevision,strategiesandobjectivessetfortheGroup.
VariousfunctionalcommitteeshavealsobeenestablishedacrosstheGrouptoensuretheGroup’sactivitiesandoperationsareproperlyalignedtowardsachievingtheorganisationalgoalsandobjectives.
Statement on Risk Management and Internal Control (Cont’d)
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Sectionfive
» Financial Control Framework TheGrouphas implementedaFinancialControlFrameworktoensurekey internalcontrolsystemsareadequateandeffectiveatall times.Theframeworkmandatesstrictprocessestoimprovefinancialreportinganddisclosuresoastoprotectstakeholdersfromthepossibilityofinaccurateaccounting.KeycomponentsoftheFinancialControlFrameworkrequirementsare:
Statement on Risk Management and Internal Control (Cont’d)
» Limits of Authority TheGrouphas establishedLimitsofAuthoritywhichdefine theappropriate approvingauthority to governandmanagebusinessdecisionprocess.TheLimitsofAuthoritysetsoutaclearlineofaccountabilityandresponsibilitywhichservesasareferenceinidentifyingtheapprovingauthorityforvarioustransactionsincludingmattersthatrequireBoard’sapproval.ItprovidesaframeworkofauthorityandaccountabilitywithintheGroupandfacilitatesdecisionmakingattheappropriatelevelintheGroup'shierarchy.
» Group Policies TheGrouphas inplacepolicieswhichgoverntheday-to-dayworkingsof thebusinesssuchasHSE,plantoperationsandhumanresourcemanagement.TheGrouphasalsoadoptedPETRONASCorporateFinancialPolicywhichsetsforththepolicyforfinancialmanagementactivitiesembeddingtheprinciplesoffinancialriskmanagement.TheCorporateFinancialPolicygovernsfinancialriskmanagementpracticesacrosstheGroup.Itprescribesaframeworkinwhichfinancialriskexposureisidentifiedandmanaged.
» Operating Procedures and Guidelines The Group has developed operating procedures and guidelines which covers business planning, capital expenditure, financial operation,performancereporting,HSE,plantoperations,marketingandsales,supplychainmanagement,humanresourcemanagementandinformationsystem.Thesedefinetheproceduresforday-to-dayoperationsandactasguidelinestothepropermeasurestobeundertakeninagivensetofcircumstances.Theproceduresandguidelinesarealsoreviewedonaregularbasistoensurecontinuingrelevanceandeffectiveness.
» Business Plan and Budget TheGroupundertakesanannualbudgetingandforecastingexercisewhichincludesdevelopmentofbusinessstrategiesforthenextfiveyearsandtheestablishmentofKPIsagainstwhichtheoverallperformanceoftheGroup,includingtherespectiveperformanceofbusinesssegmentsandcompanieswithintheGroup,canbemeasuredandevaluated.DetailedoperatingandcapitalexpenditurerequirementsaretabledtotheBoardforapprovalpriortothecommencementofanewfinancialyear.TheGroup’sperformancesarereportedinternallyonamonthlybasistotheManagementCommittee.TheGroup’squarterlyperformancesarealsopresentedtotheBoardwithcomparisontoapprovedplansaswellasagainstpriorperiods.TheGroup’sstrategicdirectionisalsoreviewedthrougharigorousassessmentprocesstakingintoaccountchangesinmarketconditionsandsignificantbusinessrisks.
Certificationontheaccuracyofthereportedfinancialstatementbyseniormanagement.
Establishmentofadequateinternalcontrolsandreportingmethodsaswellasproperdocumentationofallprocesses.
Mandatoryselfandinterdepartmentaltestofcontrols.
Identificationofthecontrolgapsandtherequiredmitigationaction.
124
Sectionfive
PETRONAS CHEMICALS
GROUP BERHAD
» Information and Communications Technology Informationandcommunicationstechnologyisextensivelydeployedin the Group to automate work processes, where possible and toefficientlycollectkeybusinessinformation.TheGroupcontinuestoenhance its information and communication systems in ensuringthat itcanactasanenabler to improvebusinessprocesses,workproductivity and decision making throughout the Group. Systemreviews are conducted periodically to confirm adequate controlsareinplacetoensureadherencetotheGroup’sbusinessobjectives,policiesandprocedures.
» Tender Committee Tender committee structure which comprises cross functionalrepresentativeshasbeenestablishedtoreviewallmajorpurchasesandcontracts.Thetendercommitteesprovidetheoversightfunctionon tendering matters prior to approval by the relevant approvingauthoritiesassetoutbytheLimitsofAuthority.
» Employees Performance Management The Group selects talents for employment through a structuredrecruitment process. The professionalism and competency ofstaff arecontinuously enhanced throughastructured traininganddevelopmentprogramme.AperformancemanagementsystemisinplacewhichmeasuresstaffperformanceagainstagreedKPIsonaperiodicbasis.
» Whistleblowing Policy TheGrouphasadoptedthePETRONASWhistleblowingPolicywhichprovides an avenue for theGroup employeesandmembers of thepublic to disclose any improper conduct in accordance with theproceduresasprovidedunderthepolicy.
Under theWhistleblowingPolicy, awhistleblowerwill be accordedwithprotectionofconfidentialityofidentity,totheextentreasonablypracticable. An employeewhowhistleblows internally will also beprotectedagainstanyadverseanddetrimentalactionsfordisclosingany improperconductcommittedorabout tobecommittedwithinthe Group, to the extent reasonably practicable, provided that thedisclosureismadeingoodfaith.Suchprotectionisaccordedevenif the investigation laterrevealsthatthewhistleblower ismistakenas to the facts, rules and procedures involved. The process isundertaken by PETRONAS' Whistleblowing Committee. The policyand procedures are accessible to the public for reference on theCompany'swebsiteatwww.petronaschemicals.com.
RELATED PARTY TRANSACTION (RPT) AND CONFLICT OF INTEREST (COI)
TheGrouphasestablishedpoliciesandprocedureswithregardstoRPTandCOItoensurefullcompliancetotheMMLRofBursaMalaysia.
Statement on Risk Management and Internal Control (Cont’d)
DirectorsandofficersoftheCompanyanditsGroupshallnot enter into transactions with related parties unlessthesetransactionsarecarriedoutonnormalcommercialtermsandarenottothedetrimentoftheGroup’sminorityshareholders.
1
All sourcing and sales of PCG's products, generalmerchandise shared facilities shall be based on marketnegotiated pricing terms and conditions and/or pricingformulasquotedagainstinternationalpricebenchmarks.
2
Wheneverpracticable,atleasttwootherquotationsshouldbesought,withorganisationsofsimilarstanding.3
All RPTs except for RRPTs which are waived by BursaMalaysia from complying with the requirement ofParagraph 10.09 of the MMLR will be reviewed by theBoardAuditCommitteepriortotheapprovalbyeithertheBoardortheshareholders.
4
TheBoardAuditCommitteeisresponsibletoensurethatthepoliciesandprocedures relating toRPTs/RRPTsandCOI situations are sufficient to ensure thatRPTs/RRPTsarecarriedoutonnormalcommercialtermsandnottothedetrimentoftheGroup’sminorityshareholders.
5
On an annual basis, all Directors and any related partyoftheGroupwilldeclare inwritinganannualdeclarationform, designed to elicit information about potentialrelationshipsand/orCOIsituations,involvingtheirinterest,either directly or indirectly. All Directors and any relatedpartyoftheGroupshallalsonotifyinwritingofanyinterestinRPTorCOIsituationwhenitbecomesknowntothem.
6
The Group’s Legal and Corporate Secretariat performsreviewsonallcommercialcontracts.Systembasedrecordsare maintained to capture the RPTs/RRPTs which havebeen entered into. Processes concerning negotiations,tendering and analysis carried out for transactionsbetweenrelatedpartiesareappropriatelydocumentedandretained tosupportandevidence that such transactionshavebeencarriedoutonnormalcommercialtermsandarenotdetrimentaltotheGroup’sminorityshareholders.
7
The policies and standard operating procedures require the useof various methods to ensure that RPTs are conducted on normalcommercial terms, which are consistent with the Group’s normalbusinesspracticesandpolicies,andwillnotbetothedetrimentoftheGroup’sminorityshareholders.Suchmethods include the reviewanddisclosureproceduresasfollows:
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Sectionfive
TheCompanyhasbeengrantedawaiverfromcomplyingwiththerequirementofParagraph10.09of theMMLRofBursaMalaysia includinghavingtoseekshareholders’approvalinrelationtothesupply,sale,purchase,provisionandusageofcertaingoods,servicesandfacilitieswhichformpartofPETRONASGroupintegratedoperations.
PCGformspartoftheintegratedoilandgasvaluechainofthePETRONASGroup.ThetransactionssuchasthesupplyofrawmaterialsarevitaltoPCG'soperations,andalternativesupplieswillnotbereadilyavailableasPETRONASGroupisamajorsupplierandattimes,thesolesupplierofsuchrawmaterials.DuetotheintegratednatureofPCG'sbusinessoperationswiththePETRONASGroup,thewaiverisofparticularsignificancetoensurePCGdoesnotexperienceanydisruptiontoitsoperations.
ThedetailsoftheRRPTsincurredduringtheyearthatwerewaivedbyBursaMalaysiaarepresentedonpage126ofthisAnnualReport.
MANAGEMENT’S ACCOUNTABILITY
ManagementisaccountabletotheBoardfortheimplementationoftheprocessesinidentifying,evaluating,monitoringandreportingofrisksandinternalcontrolasprescribedabove.TheManagingDirector/CEOhasprovidedtheBoardwithassurancethattheGroupriskmanagementandinternalcontrolsystemisoperatingadequatelyandeffectively,inallmaterialaspects,toensureachievementofcorporateobjectives.InprovidingtheaboveassurancebyManagingDirector/CEO,similarassuranceshavealsobeenobtainedfromManagementCommitteemembersconfirmingtheadequacyandeffectivenessofriskmanagementpracticeandinternalcontrolsystemwithintheirrespectiveareas.
CONCLUSION
Basedon theabove, theBoard isof theview that thesystemof internalcontrol instituted throughoutPCG issoundandprovidesa levelofconfidenceonwhichtheBoardreliesforassurance.Intheyearunderreview,therewasnosignificantcontrolfailureorweaknessthatwouldresultinmateriallosses,contingenciesoruncertaintiesrequiringseparatedisclosureinthisAnnualReport.
TheBoardandManagementwillcontinuetoreviewandstrengthentheGroup’sriskmanagementandinternalcontrolsystemtoensureongoingadequacyandeffectivenessofthesystemofinternalcontrolandriskmanagementpracticestomeetthechangingandchallengingoperatingenvironment.
REVIEW OF THE STATEMENT BY EXTERNAL AUDITORS
TheexternalauditorshavereviewedthisStatementonRiskManagementandInternalControlpursuanttothescopesetoutinRecommendedPracticeGuide(RPG)5(Revised2015),GuidanceforAuditorsonEngagementstoReportontheStatementonRiskManagementandInternalControlincludedintheAnnualReportissuedbytheMalaysianInstituteofAccountants(MIA)forinclusionintheannualreportoftheGroupfortheyearended31December2016,and reported to theBoard thatnothinghascometo theirattention thatcause themtobelieve that thestatementintendedtobeincludedintheannualreportoftheGroup,inallmaterialrespects:
(a) hasnotbeenpreparedinaccordancewiththedisclosuresrequiredbyparagraphs41and42oftheStatementonRiskManagementandInternalControl:GuidelinesforDirectorsofListedIssuers,or
(b) isfactuallyinaccurate.
RPG5 (Revised2015)doesnot require theexternalauditors toconsiderwhether theDirectors’StatementonRiskManagementand InternalControlcoversallrisksandcontrols,ortoformanopinionontheadequacyandeffectivenessoftheGroup’sriskmanagementandinternalcontrolsystemincludingtheassessmentandopinionbytheBoardofDirectorsandmanagementthereon.Theauditorsarealsonotrequiredtoconsiderwhethertheprocessesdescribedtodealwithmaterialinternalcontrolaspectsofanysignificantproblemsdisclosedintheannualreportwill,infact,remedytheproblems.
ThisStatementonRiskManagementandInternalControlismadeinaccordancewiththeresolutionoftheBoarddated20February2017.
Statement on Risk Management and Internal Control (Cont’d)
Datuk Sazali HamzahManagingDirector/CEO
Md Arif Mahmood Chairman
126
Sectionfive
PETRONAS CHEMICALS
GROUP BERHAD
Statement on Risk Management and Internal Control (Cont’d)
RecurrentRelatedPartyTransactionsthatwerewaivedbyBursaMalaysiafromcomplyingwiththerequirementofParagraph10.09oftheMMLR.
Transacting Parties Nature of transactions For Year Ended 31 December 2016
RM ‘000
Integrated Operations of Our Group
PCGGroupandPETRONASanditssubsidiaries(PETRONASGroup)
(i) Supplyoffuelandfeedstock(suchasethane,propane,butane,drygas,naphtha,naturalgas)byPETRONASGroup
4,758,556
(ii) Supplyofutilities,electricityandwaterbyPETRONASGroup 755,382
(iii) UpgradingandpipelineworksontheLabuanGasTerminalbyPETRONASChemicalsMethanol(Labuan)SdnBhd
Nil
(iv) GranttoPETRONASGroupfortherightofusageoffacilitiesandpassageofcommoditiestofacilitatethereceiptanddistributionofpetrochemicalsandrelatedproducts
539
(v) ProvisionofoperatingandmaintenanceservicesbyPETRONASGroup 1,594
(vi) PurchaseofmarinedieseloilfromPETRONASGroup 1,711
Services rendered within the PETRONAS Group
(vii) ProvisionofvesselscreeningservicesbyPETRONASMaritimeSdnBhd Nil
(viii) Provisionoffreight,transportationandwarehousingservicesbyMISCBerhadanditssubsidiaries(MISCGroup)
80,021
Others
(ix) SalesofpetrochemicalproductsandotherrelatedproductstoPETRONASGroup 880,821
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Sectionsix
OUR
NUMBERS
PETRONAS CHEMICALS GROUP BERHAD
T h e f i n a l p r o o f o f o u r p e r f o r m a n c e l i e s i n o u r
f i n a n c i a l r e s u l t s . I n t h e f o l l o w i n g p a g e s w e w i l l
p r e s e n t t o y o u a d e t a i l e d a c c o u n t o f h o w w e
h a v e i m p r o v e d i n a l l t h e k e y p a r a m e t e r s t h a t
c o u n t f r o m o u r r e v e n u e t o o u r p r o f i t m a r g i n s .
W e w i l l a l s o p r o v i d e i n f o r m a t i o n o n o u r a s s e t s ,
l i a b i l i t i e s a n d c a s h f l o w.
CONTENTS
128 Directors’ Report
132 Statement by Directors
133 Statutory Declaration
134 Statements of Financial Position
135 StatementsofProfitorLossandOther
ComprehensiveIncome
136 StatementsofChangesinEquity
139 StatementsofCashFlows
141 NotestotheFinancialStatements
197 IndependentAuditors’Report
201 ListofProperties
205 AnalysisofShareholdings
209 Corporate Directory
211 NoticeofAnnualGeneralMeeting(AGM)
214 AdministrativeDetailsofPETRONASChemicals
GroupBerhad19thAGM
• Proxy Form
128
Sectionsix
PETRONAS CHEMICALS
GROUP BERHAD
TheDirectorshavepleasureinsubmittingtheirreportandtheauditedfinancialstatementsoftheGroupandoftheCompanyforthefinancialyearended31December2016.
PRINCIPAL ACTIVITIES
TheprincipalactivityoftheCompanyinthecourseofthefinancialyearremainedunchangedasinvestmentholding.
Theprincipalactivitiesofsubsidiaries,jointventuresandassociatesarestatedinNote26toNote28tothefinancialstatements.
RESULTS
Group Company
RM Mil RM Mil
Profitfortheyear 3,222 4,831
Attributableto:
ShareholdersoftheCompany 2,932 4,831
Non-controllinginterests 290 -
DIVIDENDS
Duringthefinancialyear,theCompanypaid:
(i) asecondinterimdividendof10senperordinaryshareamountingtoRM800millioninrespectofthefinancialyearended31December2015on23March2016;and
(ii) afirstinterimdividendof7senperordinaryshareamountingtoRM560millioninrespectofthefinancialyearended31December2016on7September2016.
TheDirectorshavedeclaredasecondinterimdividendof12senperordinaryshareamountingtoRM960millioninrespectofthefinancialyearended31December2016whichispayableon21March2017.Thedividendwillberecognisedandaccountedforinequityasanappropriationofretainedprofitsinthesubsequentfinancialyear.
TheDirectorsdonotrecommendanyfinaldividendtobepaidforthefinancialyearunderreview.
RESERVES AND PROVISIONS
Therewerenomaterialmovements to and from reservesandprovisionsduring thefinancial year other thanasdisclosed in thefinancialstatements.
DIRECTORS’ REPORTfor the year ended 31 December 2016
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Sectionsix
DIRECTORS OF THE COMPANY
Directorswhoservedsincethedateofthelastreportare:
MdArifbinMahmoodDatukSazalibinHamzahVimalaa/pV.R.MenonChingYewChyeDongSooKimDatukTohAhWahZakariabinKasahFreidabintiAmat
InaccordancewithArticle93oftheCompany’sArticlesofAssociation,ChingYewChyeandDatukTohAhWahretirebyrotationfromtheBoardattheforthcomingAnnualGeneralMeetingand,beingeligible,offerthemselvesforre-election.
DIRECTORS’ INTERESTS
TheDirectorsinofficeattheendofthefinancialyearwhohaveinterestsinthesharesoftheCompanyandofitsrelatedcorporationsotherthanwhollyownedsubsidiaries(includingtheinterestsofthespousesand/orchildrenoftheDirectorswhothemselvesarenotDirectorsoftheCompany)asrecordedintheRegisterofDirectors’Shareholdingsareasfollows:
Number of ordinary shares of RM0.10 each in the Company
Balance at Balance at
Name 1.1.2016 Bought Sold 31.12.2016
Direct interest
MdArifbinMahmood 20,000 - - 20,000
Vimalaa/pV.R.Menon 20,000 - - 20,000
ChingYewChye 20,000 - - 20,000
DongSooKim 20,000 - - 20,000
ZakariabinKasah 6,000 - - 6,000
FreidabintiAmat 6,000 - - 6,000
Number of ordinary shares of RM1.00 each in PETRONAS Gas Berhad
Balance at Balance at
1.1.2016 Bought Sold 31.12.2016
Indirect interest
FreidabintiAmat 1,0001 - - 1,000
1 Indirect interest in shares held through spouse by virtue of Section 134(12)(c) of the Companies Act, 1965.
NoneoftheotherDirectorsholdingofficeat31December2016hadanyinterestinthesharesoftheCompanyandofitsrelatedcorporationsduringthefinancialyear.
Directors’ Report (Cont’d)for the year ended 31 December 2016
130
Sectionsix
PETRONAS CHEMICALS
GROUP BERHAD
DIRECTORS’ BENEFITS
Sincetheendofthepreviousfinancialyear,noDirectoroftheCompanyhasreceivedorbecomeentitledtoreceiveanybenefit(otherthantheamountofemolumentsorbenefitsincludedintheaggregateamountreceivedordueandreceivablebytheDirectorsasshowninthefinancialstatementsorthefixedsalaryofafull timeemployeeoftheCompanyoroftherelatedcorporations)byreasonofacontractmadebytheCompanyorarelatedcorporationwiththeDirectororwithafirmofwhichtheDirectorisamember,orwithacompanyinwhichtheDirectorhasasubstantialfinancialinterest. TherewerenoarrangementsduringandattheendofthefinancialyearwhichhadtheobjectofenablingDirectorsoftheCompanytoacquirebenefitsbymeansoftheacquisitionofsharesinordebenturesoftheCompanyoranyotherbodycorporate.
ISSUE OF SHARES
Therewerenochangesintheauthorised,issuedandpaidupcapitaloftheCompanyduringthefinancialyear.
OPTIONS GRANTED OVER UNISSUED SHARES
NooptionsweregrantedtoanypersontotakeupunissuedsharesoftheCompanyduringthefinancialyear.
OTHER STATUTORY INFORMATION
BeforethefinancialstatementsoftheGroupandoftheCompanyweremadeout,theDirectorstookreasonablestepstoascertainthat:
i) allknownbaddebtshavebeenwrittenoffandadequateprovisionmadefordoubtfuldebts,and
ii) anycurrentassetswhichwereunlikelytoberealisedintheordinarycourseofbusinesshavebeenwrittendowntoanamountwhichtheymightbeexpectedsotorealise.
Atthedateofthisreport,theDirectorsarenotawareofanycircumstances:
i) thatwouldrendertheamountwrittenoffforbaddebts,ortheamountoftheprovisionfordoubtfuldebtsintheGrouporintheCompanyinadequatetoanysubstantialextent,or
ii) thatwouldrenderthevalueattributedtothecurrentassetsinthefinancialstatementsoftheGroupandoftheCompanymisleading,or
iii) whichhavearisenwhichrenderadherencetotheexistingmethodofvaluationofassetsorliabilitiesoftheGroupandoftheCompanymisleadingorinappropriate,or
iv) nototherwisedealtwithinthisreportorthefinancialstatementsthatwouldrenderanyamountstatedinthefinancialstatementsoftheGroupandoftheCompanymisleading.
Atthedateofthisreport,theredoesnotexist:
i) anychargeontheassetsoftheGrouporoftheCompanythathasarisensincetheendofthefinancialyearandwhichsecurestheliabilitiesofanyotherperson,or
ii) anycontingentliabilityinrespectoftheGrouporoftheCompanythathasarisensincetheendofthefinancialyear.
Directors’ Report (Cont’d)for the year ended 31 December 2016
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Nocontingentliabilityorother liabilityofanycompanyintheGrouphasbecomeenforceable,or is likelytobecomeenforceablewithintheperiodoftwelvemonthsaftertheendofthefinancialyearwhich,intheopinionoftheDirectors,willormaysubstantiallyaffecttheabilityoftheGroupandoftheCompanytomeettheirobligationsasandwhentheyfalldue.
IntheopinionoftheDirectors,thefinancialperformanceoftheGroupandoftheCompanyforthefinancialyearended31December2016havenotbeensubstantiallyaffectedbyanyitem,transactionoreventofamaterialandunusualnaturenorhasanysuchitem,transactionoreventoccurredintheintervalbetweentheendofthatfinancialyearandthedateofthisreport.
AUDITORS
Theauditors,KPMGPLT(convertedfromaconventionalpartnership,KPMG,on27December2016),haveindicatedtheirwillingnesstoacceptre-appointment.
SignedonbehalfoftheBoardofDirectorsinaccordancewitharesolutionoftheDirectors:
MD ARIF BIN MAHMOOD DATUK SAZALI BIN HAMZAHDirector Director
KualaLumpur,Date:20February2017
Directors’ Report (Cont’d)for the year ended 31 December 2016
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PETRONAS CHEMICALS
GROUP BERHAD
IntheopinionoftheDirectors,thefinancialstatementssetoutonpages134to195,aredrawnupinaccordancewithMalaysianFinancialReportingStandards,InternationalFinancialReportingStandardsandtherequirementsoftheCompaniesAct,1965inMalaysiasoastogiveatrueandfairviewofthefinancialpositionsoftheGroupandoftheCompanyasat31December2016andoftheirfinancialperformanceandcashflowsforthefinancialyearendedonthatdate.
IntheopinionoftheDirectors,theinformationsetoutinNote38onpage196tothefinancialstatementshasbeencompiledinaccordancewiththeGuidanceonSpecialMatterNo.1,Determination of Realised and Unrealised Profits or Losses in the Context of Disclosures Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, issuedbytheMalaysianInstituteofAccountants,andpresentedbasedontheformatprescribedbyBursaMalaysiaSecuritiesBerhad.
SignedonbehalfoftheBoardofDirectorsinaccordancewitharesolutionoftheDirectors:
MD ARIF BIN MAHMOOD DATUK SAZALI BIN HAMZAHDirector Director
KualaLumpur,Date:20February2017
STATEMENT BY DIRECTORS
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STATUTORY DECLARATION
I, Rashidah binti Alias@Ahmad, the officer primarily responsible for the financialmanagement of PETRONASChemicalsGroupBerhad, dosolemnlyandsincerelydeclarethatthefinancialstatementssetoutonpages134to196,aretothebestofmyknowledgeandbelief,correctand Imakethissolemndeclarationconscientiouslybelievingthedeclarationtobetrue,andbyvirtueoftheStatutoryDeclarationsAct,1960.
SubscribedandsolemnlydeclaredbytheabovenamedRashidahbintiAlias@AhmadatKualaLumpurinWilayahPersekutuanon20February2017
BEFOREME:
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PETRONAS CHEMICALS
GROUP BERHAD
Group Company
2016 2015 2016 2015
Note RM Mil RM Mil RM Mil RM Mil
ASSETS
Property,plantandequipment 3 18,543 16,597 12 13
Investmentsinsubsidiaries 4 - - 16,881 16,188
Investmentsinjointventuresandassociates 5 1,363 1,280 1,159 1,075
Intangibleassets 6 3 5 - -
Longtermreceivables 7 83 8 7,011 -
Deferredtaxassets 8 462 389 - -
TOTAL NON-CURRENT ASSETS 20,454 18,279 25,063 17,276
Tradeandotherinventories 9 1,383 1,404 - -
Tradeandotherreceivables 10 2,639 1,692 553 4,381
Taxrecoverable 69 129 - 7
Fundinvestments 12 - 622 - 622
Cashandcashequivalents 13 7,403 8,707 1,254 1,793
TOTAL CURRENT ASSETS 11,494 12,554 1,807 6,803
TOTAL ASSETS 31,948 30,833 26,870 24,079
EQUITY
Sharecapital 14 800 800 800 800
Reserves 15 26,242 23,983 25,693 22,222
Total equity attributable to shareholders of the Company 27,042 24,783 26,493 23,022
Non-controlling interests 16 1,271 1,807 - -
TOTAL EQUITY 28,313 26,590 26,493 23,022
LIABILITIES
Deferredtaxliabilities 8 874 814 1 2
Otherlongtermliabilitiesandprovisions 17 308 355 76 165
TOTAL NON-CURRENT LIABILITIES 1,182 1,169 77 167
Borrowings 18 23 30 - -
Tradeandotherpayables 19 2,208 2,902 292 890
Current tax payables 180 142 8 -
Dividendpayable 42 - - -
TOTAL CURRENT LIABILITIES 2,453 3,074 300 890
TOTAL LIABILITIES 3,635 4,243 377 1,057
TOTAL EQUITY AND LIABILITIES 31,948 30,833 26,870 24,079
STATEMENTS OF FINANCIAL POSITION as at 31 December 2016
Thenotessetoutonpages141to196areanintegralpartofthesefinancialstatements.
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STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME for the year ended 31 December 2016
Group Company
2016 2015 2016 2015
Note RM Mil RM Mil RM Mil RM Mil
Revenue 20 13,860 13,536 4,401 2,796
Costofrevenue (8,536) (8,989) - -
Gross profit 5,324 4,547 4,401 2,796
Sellinganddistributionexpenses (704) (615) - -
Administrationexpenses (667) (582) (173) (194)
Otherexpenses (196) (391) (267) (6)
Otherincome 289 798 860 346
Operating profit 21 4,046 3,757 4,821 2,942
Netfinancingincome/(costs) 22 47 (11) 60 2
Shareofprofitofequity-accountedjointventures andassociates,netoftax 17 87 - -
Profit before taxation 4,110 3,833 4,881 2,944
Taxexpense 23 (888) (742) (50) (14)
Profit for the year 3,222 3,091 4,831 2,930
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Foreigncurrencytranslationdifferences 641 362 - -
Shareofothercomprehensiveincomeof equity-accountedjointventuresandassociates 46 197 - -
Total other comprehensive income for the year 687 559 - -
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 3,909 3,650 4,831 2,930
Profit attributable to:
ShareholdersoftheCompany 2,932 2,782 4,831 2,930
Non-controllinginterests 290 309 - -
PROFIT FOR THE YEAR 3,222 3,091 4,831 2,930
Total comprehensive income attributable to:
ShareholdersoftheCompany 3,619 3,341 4,831 2,930
Non-controllinginterests 290 309 - -
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 3,909 3,650 4,831 2,930
Basicearningsperordinaryshare(sen) 24 36.7 34.8 - -
Thenotessetoutonpages141to196areanintegralpartofthesefinancialstatements.
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PETRONAS CHEMICALS
GROUP BERHAD
STATEMENTS OF CHANGES IN EQUITY for the year ended 31 December 2016
Attributable to shareholders of the Company
Non-distributable Distributable
Group
Sharecapital
(Note 14)RM Mil
Sharepremium
RM Mil
Foreigncurrency
translationreserve
(Note 15)RM Mil
Mergerreserve
(Note 15)RM Mil
Otherreserves(Note 15)
RM Mil
RetainedprofitsRM Mil
TotalRM Mil
Non-controlling
interestsRM Mil
Totalequity
RM Mil
Balance at 1 January 2015 800 8,071 74 (204) 138 13,843 22,722 1,755 24,477
Foreigncurrency translationdifferences - - 362 - - - 362 - 362
Shareofothercomprehensiveincome ofequity-accounted
jointventuresandassociates - - - - 197 - 197 - 197
Totalothercomprehensiveincomefortheyear - - 362 - 197 - 559 - 559
Profitfortheyear - - - - - 2,782 2,782 309 3,091
Total comprehensive income for the year - - 362 - 197 2,782 3,341 309 3,650
Redemptionofredeemablepreferencesharesinsubsidiaries - - - - 152 (152) - (111) (111)
DividendstoshareholdersoftheCompany (Note25) - - - - - (1,280) (1,280) - (1,280)
Dividendsto non-controllinginterests - - - - - - - (146) (146)
Total transactions with equity holders of the Group - - - - 152 (1,432) (1,280) (257) (1,537)
Balance at 31 December 2015 800 8,071 436 (204) 487 15,193 24,783 1,807 26,590
Thenotessetoutonpages141to196areanintegralpartofthesefinancialstatements.
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Attributable to shareholders of the Company
Non-distributable Distributable
Group
Sharecapital
(Note 14)RM Mil
Sharepremium
RM Mil
Foreigncurrency
translationreserve
(Note 15)RM Mil
Mergerreserve
(Note 15)RM Mil
Otherreserves(Note 15)
RM Mil
RetainedprofitsRM Mil
TotalRM Mil
Non-controlling
interestsRM Mil
Totalequity
RM Mil
Balance at 1 January 2016 800 8,071 436 (204) 487 15,193 24,783 1,807 26,590
Foreigncurrency translationdifferences - - 641 - - - 641 - 641
Shareofothercomprehensiveincome ofequity-accounted
jointventuresandassociates - - - - 46 - 46 - 46
Totalothercomprehensiveincomefortheyear - - 641 - 46 - 687 - 687
Profitfortheyear - - - - - 2,932 2,932 290 3,222
Total comprehensive income for the year - - 641 - 46 2,932 3,619 290 3,909
Redemptionofredeemablepreferencesharesinsubsidiaries - - - - 17 (17) - (11) (11)
DividendstoshareholdersoftheCompany (Note25) - - - - - (1,360) (1,360) - (1,360)
Dividendsto non-controllinginterests - - - - - - - (815) (815)
Total transactions with equity holders of the Group - - - - 17 (1,377) (1,360) (826) (2,186)
Balance at 31 December 2016 800 8,071 1,077 (204) 550 16,748 27,042 1,271 28,313
Statements of Changes in Equity (Cont’d)for the year ended 31 December 2016
Thenotessetoutonpages141to196areanintegralpartofthesefinancialstatements.
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PETRONAS CHEMICALS
GROUP BERHAD
Statements of Changes in Equity (Cont’d)for the year ended 31 December 2016
Attributable to shareholders of the Company
Non-distributable Distributable
Company
Sharecapital
(Note 14)RM Mil
Sharepremium
RM Mil
Mergerrelief
(Note 15)RM Mil
RetainedprofitsRM Mil
Totalequity
RM Mil
Balance at 1 January 2015 800 8,071 7,176 5,325 21,372
Profitandtotalcomprehensiveincomefortheyear - - - 2,930 2,930
DividendstoshareholdersoftheCompany(Note25) - - - (1,280) (1,280)
Balance at 31 December 2015 800 8,071 7,176 6,975 23,022
Balance at 1 January 2016 800 8,071 7,176 6,975 23,022
Profitandtotalcomprehensiveincomefortheyear - - - 4,831 4,831
DividendstoshareholdersoftheCompany(Note25) - - - (1,360) (1,360)
Balance at 31 December 2016 800 8,071 7,176 10,446 26,493
Thenotessetoutonpages141to196areanintegralpartofthesefinancialstatements.
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STATEMENTS OF CASH FLOWS for the year ended 31 December 2016
Group Company
2016 2015 2016 2015
Note RM Mil RM Mil RM Mil RM Mil
CASH FLOWS FROM OPERATING ACTIVITIES
Cashreceiptsfromcustomers 13,443 13,591 90 140
Cashpaidtosuppliersandemployees (8,946) (8,883) (168) (104)
4,497 4,708 (78) 36
Interestincomereceived 260 350 75 91
Taxationpaid (799) (724) (36) (21)
Net cash generated from/(used in) operating activities 3,958 4,334 (39) 106
CASH FLOWS FROM INVESTING ACTIVITIES
Increaseininvestmentsinsubsidiaries - - (1,398) (662)
Increaseininvestmentsinanassociate (84) (284) (84) (284)
Financialassistancetoasubsidiary - - (24) (76)
Redemptionofpreferencesharesinsubsidiaries - - 460 309
Dividendsreceivedfrom:
-subsidiaries - - 4,043 2,642
-jointventuresandassociates 64 154 62 154
Purchaseofproperty,plantandequipment (3,428) (2,858) (5) (7)
Proceedsfromdisposalofproperty,plantandequipment 2 3 - -
Withdrawal/(Placement)ofIslamicdeposits 622 (622) 622 (622)
Net cash (used in)/generated from investing activities (2,824) (3,607) 3,676 1,454
CASH FLOWS FROM FINANCING ACTIVITIES
Dividendspaidto:
-PETRONAS (875) (824) (875) (824)
-others(thirdparties) (485) (456) (485) (456)
-non-controllinginterests (773) (146) - -
Paymenttonon-controllinginterestsonredemptionofsharesbyasubsidiary (11) (111) - -
Drawdownofrevolvingcreditfacility 8 30 - -
Balance carried forward (2,136) (1,507) (1,360) (1,280)
Thenotessetoutonpages141to196areanintegralpartofthesefinancialstatements.
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PETRONAS CHEMICALS
GROUP BERHAD
Group Company
2016 2015 2016 2015
Note RM Mil RM Mil RM Mil RM Mil
CASH FLOWS FROM FINANCING ACTIVITIES (continued)
Balancebroughtforward (2,136) (1,507) (1,360) (1,280)
Repaymentof:
-financeleaseliabilities (55) (55) - -
-revolvingcreditfacility (16) - - -
Loantoasubsidiary - - (2,481) (1,771)
Loanrepaymentbysubsidiaries - - - 7
Interestincomefromloanstosubsidiaries - - 220 108
Paymentforsettlementofforwardforeign exchangecontract (4,366) - (4,366) -
Proceedfromsettlementofforwardforeign exchangecontract 3,811 - 3,811 -
Net cash used in financing activities (2,762) (1,562) (4,176) (2,936)
Net cash flows from operating, investing and financing activities (1,628) (835) (539) (1,376)
Effectofforeigncurrencytranslationdifferences 294 (383) - -
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,334) (1,218) (539) (1,376)
NET FOREIGN EXCHANGE DIFFERENCES ON CASH HELD 30 118 - -
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 8,707 9,807 1,793 3,169
CASH AND CASH EQUIVALENTS AT END OF THE YEAR 7,403 8,707 1,254 1,793
CASH AND CASH EQUIVALENTS
Cashandbankbalancesanddeposits 13 7,403 8,707 1,254 1,793
Statements of Cash Flows (Cont’d)for the year ended 31 December 2016
Thenotessetoutonpages141to196areanintegralpartofthesefinancialstatements.
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NOTES TO THE FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
1.1 Statement of compliance
ThefinancialstatementsoftheGroupandoftheCompanyhavebeenpreparedinaccordancewithMalaysianFinancialReportingStandards(MFRS),InternationalFinancialReportingStandardsandtherequirementsoftheCompaniesAct,1965inMalaysia.
ThesefinancialstatementsalsocomplywiththeapplicabledisclosureprovisionsoftheListingRequirementsoftheBursaMalaysiaSecuritiesBerhad.
Asof1January2016,theGroupandtheCompanyhaveadoptedamendmentstoMFRSandICInterpretations(collectivelyreferredtoas“pronouncements”)thathavebeenissuedbytheMalaysianAccountingStandardsBoard(MASB)asdescribedfullyinNote33.
The adoption of these pronouncements does not have anymaterial impact to the financial statements of the Group and of theCompany.
MASBhasalsoissuednewandrevisedpronouncementswhicharenotyeteffectivefortheGroupandtheCompanyandtherefore,havenotbeenadoptedforinthesefinancialstatements.ThesepronouncementsincludingtheirimpactonthefinancialstatementsintheperiodofinitialapplicationsaresetoutinNote34.NewandrevisedpronouncementsthatarenotrelevanttotheoperationsoftheGroupandoftheCompanyaresetoutinNote35.
ThesefinancialstatementswereapprovedandauthorisedforissuebytheBoardofDirectorson20February2017.
1.2 Basis of measurement
ThefinancialstatementsoftheGroupandoftheCompanyhavebeenpreparedonhistoricalcostbasisexceptforcertainitemswhicharemeasuredatfairvalueasdisclosedinaccountingpoliciesbelow.
1.3 Functional and presentation currency
TheindividualfinancialstatementsofeachentityintheGrouparemeasuredusingthecurrencyoftheprimaryeconomicenvironmentinwhichtheentityoperates(“thefunctionalcurrency”).TheGroup’sandtheCompany’sfinancialstatementsarepresentedinRinggitMalaysia(RM),whichistheCompany’sfunctionalcurrency.Allfinancialinformationhavebeenroundedtothenearestmillion,unlessotherwisestated.
1.4 Use of estimates and judgments
The preparation of financial statements in conformity with MFRS requires management to make judgments, estimates andassumptionsthataffecttheapplicationofaccountingpoliciesandthereportedamountsofassets,liabilities,incomeandexpenses.Actualresultsmaydifferfromtheseestimates.
Estimatesandunderlyingassumptionsarereviewedonanongoingbasis.Revisionstoaccountingestimatesarerecognisedinthe
yearinwhichtheestimatesarerevisedandinanyfutureyearsaffected.
Inparticular,informationaboutsignificantareasofestimationuncertaintyandcriticaljudgmentsinapplyingaccountingpoliciesthathavethemostsignificanteffectontheamountsrecognisedinthefinancialstatementsaredescribedinthefollowingnotes:
(i) Note3 : Property,plantandequipment;(ii) Note8 : Deferredtax;and(iii) Note17 : Otherlongtermliabilitiesandprovisions.
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PETRONAS CHEMICALS
GROUP BERHAD
Notes to the Financial Statements (Cont’d)
2. SIGNIFICANT ACCOUNTING POLICIES
TheaccountingpoliciessetoutbelowhavebeenappliedconsistentlytoallperiodspresentedinthesefinancialstatementsandhavebeenappliedconsistentlybytheGroupandtheCompany,unlessotherwisestated.
2.1 Basis of consolidation
(i) Subsidiaries
SubsidiariesareentitiescontrolledbytheCompany.TheGroupcontrolsanentitywhenitisexposedto,orhasrightsto,variablereturnsfromitsinvolvementwiththeentityandhastheabilitytoaffectthosereturnsthroughitspowerovertheentity.Potentialvotingrightsareconsideredwhenassessingcontrolonlywhensuchrightsaresubstantive.TheGroupconsidersithasdefactopoweroveraninvesteewhen,despitenothavingthemajorityofvotingrights,ithasthecurrentabilitytodirecttheactivitiesoftheinvesteethatsignificantlyaffecttheinvestee’sreturn.
ThefinancialstatementsofsubsidiariesareincludedintheconsolidatedfinancialstatementsoftheGroupfromthedatethatcontrolcommencesuntilthedatethatcontrolceases.
SubsidiariesthatwereacquiredfromPETRONASuponInitialPublicOffering(IPO)areconsolidatedusingthemergermethodofaccounting.Othersubsidiariesareconsolidatedusingtheacquisitionmethodofaccounting.
Underthemergermethodofaccounting,theresultsofentitiesorbusinessesundercommoncontrolareaccountedforasiftheacquisitionhadoccurredatthedatethatcommoncontrolwasestablished.Theassetsandliabilitiesacquiredarerecognisedatthecarryingamountsintheconsolidatedstatementsoffinancialposition.Thedifferencebetweenthecostofacquisitionandthenominalvalueofthesharesacquiredtogetherwiththesharepremiumaretakentomergerreserve(oradjustedagainstanysuitablereserveinthecaseofdebitdifferences).TheothercomponentsofequityoftheacquiredentitiesareaddedtothesamecomponentswithintheGroup.
All intercompany transactions are eliminated on consolidation and revenue and profits relate to external transactions only.
Unrealisedlossesresultingfromintercompanytransactionsarealsoeliminatedunlesscostcannotberecovered.
Business combinations
Abusinesscombinationisatransactionorothereventinwhichanacquirerobtainscontrolofoneormorebusinesses.Businesscombinationsareaccountedforusingtheacquisitionmethod.Theidentifiableassetsacquiredandtheliabilitiesassumedaremeasuredattheirfairvaluesattheacquisitiondate.Thecostoftheacquisitionismeasuredastheaggregateofthefairvalueoftheconsiderationtransferredandtheamountofanynon-controllinginterestintheacquiree.Non-controllinginterestsarestatedeitheratfairvalueorattheproportionateshareoftheacquiree’sidentifiablenetassetsattheacquisitiondate.
Whenabusinesscombinationisachievedinstages,theGroupremeasuresitspreviouslyheldnon-controllingequityinterestintheacquireeatfairvalueattheacquisitiondate,withanyresultinggainorlossrecognisedintheprofitorloss.IncreaseintheGroup’sownershipinterestinanexistingsubsidiaryisaccountedforasequitytransactionswithdifferencesbetweenthefairvalueofconsiderationpaidandtheGroup’sproportionateshareofnetassetsacquiredrecogniseddirectlyinequity.
TheGroupmeasuresgoodwillastheexcessofthecostofanacquisitionandthefairvaluesofanypreviouslyheldinterestintheacquireeoverthefairvalueoftheidentifiableassetsacquiredandliabilitiesassumedattheacquisitiondate.Whentheexcessisnegative,abargainpurchasegainisrecognisedimmediatelyinprofitorloss.
Transactioncosts,otherthanthoseassociatedwiththeissuanceofdebtorequitysecurities,thattheGroupincursinconnectionwithabusinesscombinationareexpensedasincurred.
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Notes to the Financial Statements (Cont’d)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.1 Basis of consolidation (continued)
(i) Subsidiaries (continued)
Non-controlling interests
Non-controllinginterestsattheendofreportingperiod,beingtheportionofthenetassetsofsubsidiariesattributabletoequityintereststhatarenotownedbytheCompany,whetherdirectlyorindirectlythroughsubsidiaries,arepresentedintheconsolidatedstatementsoffinancialpositionandstatementsofchanges inequitywithinequity,separatelyfromequityattributabletotheshareholdersoftheCompany.Non-controllinginterestsintheresultsoftheGrouparepresentedintheconsolidatedstatementsofprofitorlossandothercomprehensiveincomeasanallocationoftheprofitorlossandtotalcomprehensiveincomefortheyearbetweenthenon-controllinginterestsandshareholdersoftheCompany.
Lossesapplicabletothenon-controllinginterestsinasubsidiaryareallocatedtothenon-controllinginterestsevenifdoingsocausesthenon-controllingintereststohaveadeficitbalance.
TheGrouptreatsallchangesinitsownershipinterestinasubsidiarythatdonotresultinalossofcontrolasequitytransactionsbetweentheGroupanditsnon-controllinginterestholders.AnydifferencebetweentheGroup’sshareofnetassetsbeforeandafterthechange,andanyconsiderationreceivedorpaidisadjustedtooragainstGroupreserves.
Loss of control
Uponlossofcontrolofasubsidiary,theGroupderecognisestheassetsandliabilitiesoftheformersubsidiary,anynon-controllinginterestsand theothercomponentsofequity related to the formersubsidiary from theconsolidatedstatementsoffinancialposition.Anysurplusordeficitarisingonthelossofcontrolisrecognisedinprofitorloss.IftheGroupretainsanyinterestintheprevioussubsidiary,thensuchinterestismeasuredatfairvalueatthedatethatcontrolislost.Subsequently,itisaccountedforasanequity-accountedinvesteeorasanavailable-for-salefinancialassetdependingonthelevelofinfluenceretained.
(ii) Joint arrangements
JointarrangementsarearrangementsinwhichtheGrouphasjointcontrol,establishedbycontractsrequiringunanimousconsentfordecisionsabouttheactivitiesthatsignificantlyaffectthearrangements’returns.
Jointarrangementsareclassifiedaseitherjointoperationorjointventure.AjointarrangementisclassifiedasjointoperationwhentheGrouportheCompanyhasrightstotheassetsandobligationsfortheliabilitiesrelatingtoanarrangement.TheGroupandtheCompanyaccountforeachof itsshareoftheassets, liabilitiesandtransactions, including itsshareofthoseheldorincurredjointlywiththeotherinvestors,inrelationtothejointoperation.AjointarrangementisclassifiedasjointventurewhentheGrouportheCompanyhasrightsonlytothenetassetsofthearrangement.TheGroupaccountsforitsinterestinthejointventureusingtheequitymethodasdescribedinNote2.1(iii).
(iii) Associates
AssociatesareentitiesinwhichtheGrouphassignificantinfluenceincludingrepresentationontheBoardofDirectors,butnotcontrolorjointcontrol,overthefinancialandoperatingpoliciesoftheinvesteecompany.
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PETRONAS CHEMICALS
GROUP BERHAD
Notes to the Financial Statements (Cont’d)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.1 Basis of consolidation (continued)
(iii) Associates (continued)
Associates are accounted for in the consolidated financial statements using the equitymethod. The consolidated financialstatementsincludetheGroup’sshareofpost-acquisitionprofitorlossandothercomprehensiveincomeoftheequity-accountedassociates,afteradjustmentstoaligntheaccountingpolicieswiththoseoftheGroup,fromthedatethatsignificantinfluencecommencesuntilthedatethatsignificantinfluenceceases.
TheGroup’sshareofpost-acquisitionreservesandretainedprofitslesslossesisaddedtothecarryingvalueoftheinvestmentintheconsolidatedstatementsoffinancialposition.Theseamountsaretakenfromthelatestauditedfinancialstatementsormanagementfinancialstatementsoftheassociates.
WhentheGroup’sshareofpost-acquisitionlossesexceedsitsinterestinanequity-accountedassociate,thecarryingamountofthatinterest(includinganylongterminvestments)isreducedtonilandtherecognitionoffurtherlossesisdiscontinuedexcepttotheextentthattheGrouphasanobligationorhasmadepaymentsonbehalfoftheassociate.
WhentheGroupceasestohavesignificantinfluenceoveranassociate,itisaccountedforasadisposaloftheentireinterestinthatassociate,withtheresultinggainorlossbeingrecognisedinprofitorloss.Anyretainedinterestintheformerassociateatthedatewhensignificantinfluenceislostismeasuredatfairvalueandthisamountisregardedastheinitialcarryingamountofafinancialasset.
WhentheGroup’s interest inanassociatedecreasesbutdoesnotresult in lossofsignificant influence,anyretained interestisnot re-measured.Anygainor lossarising fromthedecrease in interest is recognised inprofitor loss.Anygainsor lossespreviouslyrecognisedinothercomprehensiveincomearealsoreclassifiedproportionatelytotheprofitorlossifthatgainorlosswouldberequiredtobereclassifiedtoprofitorlossonthedisposaloftherelatedassetsandliabilities.
UnrealisedprofitsarisingfromtransactionsbetweentheGroupanditsassociatesareeliminatedtotheextentoftheGroup’sinterestsintheassociates.Unrealisedlossesonsuchtransactionsarealsoeliminatedpartially,unlesscostcannotberecovered.
2.2 Property, plant and equipment and depreciation
Itemsofproperty,plantandequipmentarestatedatcostlessaccumulateddepreciationandaccumulatedimpairmentlosses,ifany.Projects-in-progressisstatedatcostlessaccumulatedimpairmentlosses,ifany,andisnotdepreciated.
Costincludesexpendituresthataredirectlyattributabletotheacquisitionoftheasset.Thecostofself-constructedassetsincludes
thecostsofmaterialsanddirect labour,anyothercostsdirectlyattributable tobringing theassets toworkingcondition for theirintendeduse,andthecostsofdismantlingandremovingtheassetsandrestoringthesiteonwhichtheyarelocated.Forqualifyingassets,borrowingcostsarecapitalised inaccordancewiththeaccountingpolicyonborrowingcosts.Purchasedsoftwarethat isintegraltothefunctionalityoftherelatedequipmentiscapitalisedaspartofthatequipment.
When significant components of an itemof property, plant and equipment have different useful lives, they are accounted for asseparateitems(majorcomponents)ofproperty,plantandequipment.
Thecostofreplacingacomponentofanitemofproperty,plantandequipmentisrecognisedinthecarryingamountoftheitemifitisprobablethatthefutureeconomicbenefitsembodiedwithinthecomponentwillflowtotheGrouportheCompanyanditscostcanbemeasuredreliably.Thecarryingamountofthereplaceditemofproperty,plantandequipmentisderecognisedwithanycorrespondinggain or loss recognised in profit or loss accordingly. The costs of the day-to-day servicing of property, plant and equipment arerecognisedinprofitorlossasincurred.
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Notes to the Financial Statements (Cont’d)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.2 Property, plant and equipment and depreciation (continued)
Depreciationforproperty,plantandequipmentotherthanprojects-in-progress, isrecognisedintheprofitor lossonastraight-linebasisovertheestimatedusefullivesofeachcomponentofanitemofproperty,plantandequipment.Property,plantandequipmentarenotdepreciateduntiltheassetsarereadyfortheirintendeduse.
Buildingsaredepreciatedovertheirusefullivesorovertheremaininglandleaseperiod,whicheverisshorter.
LeasedassetsaredepreciatedovertheshorteroftheleasetermandtheirusefullivesunlessitisreasonablycertainthattheGroupwillobtainownershipbytheendoftheleaseterm.
Theestimatedusefullivesofproperty,plantandequipmentforthecurrentandcomparativeyearsareasfollows:
Leaseholdland 30-99yearsBuildings 14-66yearsPlantandequipment 3-67yearsOfficeequipment,furnitureandfittings 5-7yearsComputersoftwareandhardware 5yearsMotorvehicles 3-5years
Thedepreciableamount isdeterminedafterdeducting residualvalue.The residualvalue,useful lifeanddepreciationmethodarereviewed at the end of each reporting period to ensure that the amount, period andmethod of depreciation are consistentwithpreviousestimatesandtheexpectedpatternofconsumptionofthefutureeconomicbenefitsembodiedintheitemsofproperty,plantandequipment.
Anitemofproperty,plantandequipmentisderecognisedupondisposalorwhennofutureeconomicbenefitsareexpectedfromitsuseordisposal.Thedifferencebetweenthenetdisposalproceeds,ifany,andthenetcarryingamountisrecognisedintheprofitorloss.
2.3 Leased assets
Aleasearrangementisaccountedforasfinanceoroperatingleaseinaccordancewiththeaccountingpolicyasstatedbelow.Whenthefulfilmentofanarrangementisdependentontheuseofaspecificassetandthearrangementconveysarighttousetheasset,itisaccountedforasaleaseinaccordancewiththeaccountingpolicybelowalthoughthearrangementdoesnottakethelegalformofalease.
(i) Finance lease
A lease is recognised as a finance lease if it transfers substantially to theGroup or theCompany all the risks and rewardsincidentaltoownership.Uponinitialrecognition,theleasedassetismeasuredatanamountequaltothelowerofitsfairvalueandthepresentvalueoftheminimumleasepayments.Subsequenttoinitialrecognition,theassetisaccountedforinaccordancewiththeaccountingpolicyapplicabletothatasset.Thecorrespondingliabilityisincludedinthestatementsoffinancialpositionaslongtermliabilitiesandotherpayables.
Minimum lease payments made under finance leases are apportioned between the finance costs and the reduction of theoutstandingliability.Financecosts,whichrepresentthedifferencebetweenthetotalleasingcommitmentsandthefairvalueoftheassetsacquired,arerecognisedintheprofitorlossandallocatedovertheleasetermsoastoproduceaconstantperiodicrateofinterestontheremainingbalanceoftheliabilityforeachaccountingperiod.
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Notes to the Financial Statements (Cont’d)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.3 Leased assets (continued)
(i) Finance lease (continued)
Contingentleasepayments,ifany,areaccountedforbyrevisingtheminimumleasepaymentsovertheremainingtermoftheleasewhentheleaseadjustmentisconfirmed.
Leaseholdlandwhichinsubstanceisafinanceleaseisclassifiedasproperty,plantandequipment.
(ii) Operating lease
All leases thatdonot transfersubstantially to theGroupand theCompanyall the risksand rewards incidental toownershipareclassifiedasoperatingleases,andtheleasedassetsarenotrecognisedontheGroup’sandtheCompany’sstatementsoffinancialposition.
Paymentsmadeunderoperatingleasesarerecognisedasanexpenseintheprofitorlossonastraight-linebasisoverthetermofthelease.Leaseincentivesreceivedarerecognisedasareductionofrentalexpenseovertheleasetermonastraight-linebasis.
Leaseholdlandwhichinsubstanceisanoperatingleaseisclassifiedasprepaidleasepayments.
2.4 Investments
Longterminvestmentsinsubsidiaries,jointventuresandassociatesarestatedatcostlessimpairmentlosses,ifany,intheCompany’sfinancialstatements,unlesstheinvestmentsareclassifiedasheldforsaleordistribution.Thecostofinvestmentsincludestransactioncosts.
Thecarryingamountoftheseinvestmentsincludesfairvalueadjustmentsonshareholder’sloansandadvances,ifany(Note2.6(i)).
2.5 Intangible asset
Intangibleasset,whichcomprisesalicenseobtainedfromathirdparty,ismeasuredoninitialrecognitionatcost.
Following initial recognition, intangible asset is carried at cost less accumulated amortisation and any accumulated impairmentlosses.
Amortisationforintangibleassetisrecognisedintheprofitorlossonastraight-linebasisovertheestimatedeconomicusefullife.Theamortisationmethodandtheusefullifeforintangibleassetarereviewedateachreportingdate.Intangibleassetisassessedforimpairmentwheneverthereisanindicationthatitmaybeimpaired.
Theestimatedusefullifeforthecurrentandcomparativeyearsis10years.
Subsequent expenditure on intangible asset is capitalised onlywhen it increases the future economic benefits embodied in thespecificassettowhichitrelates.Allotherexpendituresarerecognisedinprofitorlossasincurred.
2.6 Financial instruments
Afinancialinstrumentisrecognisedinthestatementsoffinancialpositionwhen,andonlywhen,theGrouportheCompanybecomesapartytothecontractualprovisionsoftheinstrument.
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Notes to the Financial Statements (Cont’d)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.6 Financial instruments (continued)
(i) Financial assets
Initial recognition
Financialassetsareclassifiedasfinancialassetsatfairvaluethroughprofitorloss,orloansandreceivables,asappropriate.TheGroupandtheCompanydeterminetheclassificationoffinancialassetsatinitialrecognition.
Financialassetsarerecognisedinitiallyatfairvalue,normallybeingthetransactionpriceplus,inthecaseoffinancialassetsnotatfairvaluethroughprofitorloss,anytransactioncoststhataredirectlyattributabletotheacquisitionorissueofthefinancialinstrument.
Purchasesorsalesunderacontractwhichtermsrequiredeliveryoffinancialassetswithinatimeframeestablishedbyregulationorconvention inthemarketplaceconcerned(“regularwaypurchases”)arerecognisedonthetradedate i.e. thedatethattheGrouportheCompanycommitstopurchaseorsellthefinancialasset.
Fair value adjustments on shareholder’s loans and advances at initial recognition, if any, are added to the carrying value ofinvestmentsintheCompany’sfinancialstatements.
TheGroup’sandtheCompany’sfinancialassetsincludecashandcashequivalents,fundinvestments,tradeandotherreceivables,loansandadvances,andderivativefinancialinstruments.
Subsequent measurement
Thesubsequentmeasurementoffinancialassetsdependsontheirclassificationasfollows:
Financialassetsatfairvaluethroughprofitorloss
Fairvaluethroughprofitorlosscategorycomprisesfinancialassetsthatareheldfortrading,includingderivatives(exceptforaderivativethatisafinancialguaranteecontractoradesignatedandeffectivehedginginstrument)andfinancialassetsthatarespecificallydesignatedintothiscategoryuponinitialrecognition.
Financialassetscategorisedasfairvaluethroughprofitorlossaresubsequentlymeasuredattheirfairvaluewithgainsorlossesrecognisedintheprofitorloss.ThemethodsusedtomeasurefairvaluearestatedinNote2.7.
Loans and receivables
Loans and receivables category comprises debt instruments that are not quoted in an activemarket. Subsequent to initialrecognition,financialassetscategorisedasloansandreceivablesaremeasuredatamortisedcostusingtheeffectiveinterestmethod(Note2.6(v)).
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Notes to the Financial Statements (Cont’d)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.6 Financial instruments (continued)
(ii) Financial liabilities
Initial recognition
Financial liabilitiesareclassifiedasfinancial liabilitiesat fair value throughprofitor loss,orfinancial liabilitiesmeasuredatamortisedcost,asappropriate.TheGroupandtheCompanydeterminetheclassificationoffinancialliabilitiesatinitialrecognition.
Financial liabilities are recognised initially at fair value less, in the case of loans and borrowings, any directly attributabletransactioncosts.
The Group’s and the Company’s financial liabilities include borrowings, trade and other payables, and derivative financialinstruments.
Subsequent measurement
Thesubsequentmeasurementoffinancialliabilitiesdependsontheirclassificationasfollows:
Financialliabilitiesatfairvaluethroughprofitorloss
Fairvalue throughprofitor losscategorycomprisesfinancial liabilities thatarederivativesfinancial instrument (except foraderivativethatisafinancialguaranteecontractoradesignatedandeffectivehedginginstrument)andfinancialliabilitiesthatarespecificallydesignatedintothiscategoryuponinitialrecognition.
Financialliabilitiescategorisedasfairvaluethroughprofitorlossaresubsequentlymeasuredattheirfairvaluewithgainsorlossesrecognisedintheprofitorloss.
Financial liabilities measured at amortised cost
Subsequentto initial recognition,financial liabilitiesaremeasuredatamortisedcostusingtheeffective interestmethod(seeNote2.6(v)).
Gainsandlossesarerecognisedintheprofitorlosswhentheliabilitiesarederecognisedaswellasthroughtheamortisationprocess.
(iii) Derivative financial instruments
TheGroupusesderivativefinancialinstrumentssuchasforwardratecontractstomanagecertainexposurestofluctuationsinforeigncurrencyexchangerates.
Derivativefinancialinstrumentsareinitiallyrecognisedatfairvalueonthedateonwhichaderivativecontractisenteredintoandaresubsequentlyremeasuredatfairvalue.Derivativesfinancialinstrumentsarecarriedasfinancialassetswhenthefairvalueispositiveandasfinancialliabilitieswhenthefairvalueisnegative.
Anygainsorlossesarisingfromchangesinfairvalueonderivativesfinancialinstrumentsduringtheyeararerecognisedintheprofitorloss.
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Notes to the Financial Statements (Cont’d)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.6 Financial instruments (continued)
(iii) Derivative financial instruments (continued)
Anembeddedderivativeisrecognisedseparatelyfromthehostcontractandaccountedforasaderivativeif,andonlyif,itisnotcloselyrelatedtotheeconomiccharacteristicsandrisksofthehostcontractandthehostcontractisnotcategorisedasfairvaluethroughprofitorloss.Thehostcontract,intheeventanembeddedderivativeisrecognisedseparately,isaccountedforinaccordancewiththepolicyapplicabletothenatureofthehostcontract.
Ingeneral,contractstosellorpurchasenon-financialitemstomeetexpectedownuserequirementsarenotaccountedforasfinancial instruments. However, contracts to sell or purchase commodities that can be net settled orwhich containwrittenoptionsarerequiredtoberecognisedatfairvalue,withgainsandlossesrecognisedintheprofitorloss.
(iv) Offsetting of financial instruments Financialassetsandfinancialliabilitiesareoffsetandthenetamountisreportedinthestatementsoffinancialpositionif,and
onlyif,thereisacurrentlyenforceablelegalrighttooffsettherecognisedamountsandthereisanintentiontosettleonanetbasisortorealisetheassetsandsettletheliabilitiessimultaneously.
(v) Amortised cost of financial instruments
Amortisedcostiscomputedusingtheeffectiveinterestmethod.Thismethoduseseffectiveinterestratethatexactlydiscountsestimatedfuturecashreceiptsorpaymentsthroughtheexpectedlifeofthefinancialinstrumenttothenetcarryingamountofthefinancialinstrument.Amortisedcosttakesintoaccountanytransactioncostsandanydiscountorpremiumonsettlement.
(vi) Derecognition of financial instruments
Financial assets
Afinancialassetisderecognisedwhentherightstoreceivecashflowsfromtheassethaveexpiredor,theGrouportheCompanyhastransferreditsrightstoreceivecashflowsfromtheassetorhasassumedanobligationtopaythereceivedcashflowsinfullwithoutmaterialdelaytoathirdpartyundera“pass-through”arrangementwithoutretainingcontroloftheassetorsubstantiallyalltherisksandrewardsoftheasset.
Onderecognitionofafinancialasset, thedifferencebetweenthecarryingamountandthesumoftheconsiderationreceived(includinganynewassetobtainedlessanynewliabilityassumed)andanycumulativegainorlossthathadbeenrecognisedinequityisrecognisedintheprofitorloss.
Financial liabilities
Afinancialliabilityisderecognisedwhentheobligationundertheliabilityisdischarged,cancelledorexpired.Onderecognitionofafinancialliability,thedifferencebetweenthecarryingamountofthefinancialliabilitiesextinguishedortransferredtoanotherpartyandtheconsiderationpaid,includinganynon-cashassetstransferredorliabilitiesassumed,isrecognisedintheprofitorloss.
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Notes to the Financial Statements (Cont’d)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.7 Fair value measurements
Fairvalueofanassetoraliability,exceptforleasetransactions,isdeterminedasthepricethatwouldbereceivedtosellanassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipantsatthemeasurementdate.Themeasurementassumesthatthetransactiontoselltheassetortransfertheliabilitytakesplaceeitherintheprincipalmarketorintheabsenceofaprincipalmarket,inthemostadvantageousmarket.
Thefairvalueoffinancialinstrumentsthatareactivelytradedinorganisedfinancialmarketsisdeterminedbyreferencetoquotedmarketbidpricesatthecloseofbusinessattheendofreportingdate.Forfinancialinstrumentswherethereisnoactivemarket,fairvalueisdeterminedusingvaluationtechniques.Suchtechniquesmayincludeusingrecentarm’slengthmarkettransactions,referencetothecurrentfairvalueofanotherinstrumentthatissubstantiallythesame,discountedcashflowanalysisorothervaluationmodels.Wherefairvaluecannotbereliablyestimated,assetsarecarriedatcostlessimpairmentlosses,ifany.
Fornon-financialasset,thefairvaluemeasurementtakesintoaccountamarketparticipant’sabilitytogenerateeconomicbenefitsbyusingtheassetinitshighestandbestuseorbysellingittoanothermarketparticipantthatwouldusetheassetinitshighestandbestuse.
Whenmeasuringthefairvalueofanassetoraliability,theGrouportheCompanyusesobservablemarketdataasfaraspossible.Fairvaluesarecategorisedintodifferentlevelsinafairvaluehierarchybasedontheinputusedinthevaluationtechniqueasfollows:• Level1 – Quotedprices(unadjusted)inactivemarketsforidentifiableassetsorliabilities.• Level2 – Inputs other than quoted prices includedwithin Level 1 that are observable for the asset or liability, either directly (i.e.asprices)orindirectly(i.e.derivedfromprices).
• Level3 – Inputsfortheassetorliabilitythatarenotbasedonobservablemarketdata(unobservableinput).
The Group and the Company recognise transfer between levels of fair value hierarchy as of the date of the event or change incircumstancesthatcausedthetransfers.
2.8 Impairment
(i) Financial assets
Allfinancialassets(exceptforfinancialassetscategorisedasfairvaluethroughprofitorloss,andinvestmentsinsubsidiaries,joint ventures andassociates) are assessedat each reportingdate to determinewhether there is anyobjective evidenceofimpairmentasa resultofoneormoreeventshavingan impactontheestimatedfuturecashflowsof theasset. Ifanysuchobjective evidence exists, then the financial asset’s recoverable amount is estimated. Losses expected as a result of futureevents,nomatterhowlikely,arenotrecognised.
Animpairmentlossinrespectofloansandreceivablesisrecognisedinprofitorlossandismeasuredasthedifferencebetweentheasset’scarryingamountandthepresentvalueofestimatedfuturecashflowsdiscountedattheasset’soriginaleffectiveinterestrate.Thecarryingamountoftheassetisreducedthroughtheuseofanallowanceaccount.
If,inasubsequentperiod,thefairvalueofadebtinstrumentincreasesandtheincreasecanbeobjectivelyrelatedtoaneventoccurringaftertheimpairmentlosswasrecognisedinprofitorloss,theimpairmentlossisreversed,totheextentthattheasset’scarryingamountdoesnotexceedwhatthecarryingamountwouldhavebeenhadtheimpairmentnotbeenrecognisedatthedatetheimpairmentisreversed.Theamountofthereversalisrecognisedinprofitorloss.
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Notes to the Financial Statements (Cont’d)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.8 Impairment (continued)
(ii) Other assets
The carrying amounts of other assets, other than inventories anddeferred tax assets, are reviewedat each reportingdatetodeterminewhetherthereisanyindicationof impairment.Thecarryingamountsarereviewedmorefrequentlyifeventsorchangesincircumstancesindicatethatthecarryingvaluemaybeimpaired,asdescribedintherespectiveassets’accountingpolicies.
Ifanysuch indicationexists, theasset’s recoverableamount isestimated.An impairment loss is recognised if thecarryingamountofanassetor thecash-generatingunit towhich itbelongsexceeds its recoverableamount. Impairment lossesarerecognisedintheprofitorloss.
Acash-generatingunitisthesmallestidentifiableassetgroupthatgeneratescashflowsfromcontinuingusethatarelargelyindependentfromotherassetsandgroups.Animpairmentlossrecognisedinrespectofacash-generatingunitisallocatedfirsttoreducethecarryingamountofanygoodwillallocatedtotheunitandthentoreducethecarryingamountsoftheotherassetsintheunitonapro-ratabasis.
Therecoverableamountisthegreateroftheasset’sfairvaluelesscostsofdisposalanditsvalueinuse.Inassessingvalueinuse,theestimatedfuturecashflowsarediscountedtotheirpresentvalueusingapre-taxdiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheasset.Foranassetthatdoesnotgeneratelargelyindependentcashinflows,therecoverableamountisdeterminedforthecash-generatingunittowhichtheassetbelongs.
An impairment loss in respectofgoodwill isnot reversed in thesubsequentperiod. In respectofotherassets, impairmentlossesare reversed if therehasbeenachange in theestimatesusedtodetermine the recoverableamount.An impairmentlossisreversedonlytotheextentthattheasset’scarryingamountdoesnotexceedthecarryingamountthatwouldhavebeendetermined,netofdepreciationoramortisation,ifnoimpairmentlosshadbeenrecognised.
Reversalsofimpairmentlossesarecreditedtotheprofitorlossintheyearinwhichthereversalsarerecognised.
2.9 Inventories
Inventoriesarestatedatthelowerofcostandnetrealisablevalue.Costincludesrawmaterialcostsandproductionoverheadsandisdeterminedonaweightedaveragebasis.
Netrealisablevalueistheestimatedsellingpriceintheordinarycourseofbusiness,lesstheestimatedcostsofcompletionandthe
estimatedcostsnecessarytomakethesale.
Costofstores,sparesandothersconsistsoftheinvoicedvaluefromsuppliersandimportdutychargesandisdeterminedonaweightedaveragebasis.
2.10 Cash and cash equivalents
Cashandcashequivalentsconsistofcashonhandandbankbalances,depositswithlicensedfinancialinstitutionsandhighlyliquidinvestmentswhichhaveaninsignificantriskofchangesinfairvaluewithoriginalmaturitiesofthreemonthsorless,andareusedbytheGroupandtheCompanyinthemanagementoftheirshorttermcommitments.Forthepurposeofthestatementsofcashflows,cashandcashequivalentsarepresentednetofbankoverdraftsanddepositsrestricted,ifany.
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Notes to the Financial Statements (Cont’d)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.11 Provisions
Aprovisionisrecognisedif,asaresultofapastevent,theGrouportheCompanyhasapresentlegalorconstructiveobligationthatcanbeestimatedreliably,andit isprobablethatanoutflowofeconomicbenefitswillberequiredtosettletheobligation.Futureoperatinglossesarenotprovidedfor.Provisionsaredeterminedbydiscountingtheexpectedfuturenetcashflowsatapre-taxratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheliability.Wherediscountingisused,theaccretionintheprovisionduetothepassageoftimeisrecognisedasfinancecost.
Theamountrecognisedasaprovisionisthebestestimateofthenetexpenditurerequiredtosettlethepresentobligationatthereportingdate.Provisionsarereviewedateachreportingdateandadjustedtoreflectthecurrentbestestimate.
Possibleobligations,whoseexistencewillonlybeconfirmedby theoccurrenceornon-occurrenceofoneormore futureeventsnotwhollywithinthecontroloftheGroup,arenotrecognisedinthefinancialstatementsbutaredisclosedascontingentliabilitiesunlessthepossibilityofanoutflowofeconomicresourcesisconsideredremote.
2.12 Employee benefits
(i) Short term employee benefits
Wagesandsalaries,bonusesandsocialsecuritycontributionsarerecognisedasanexpenseintheyearinwhichtheassociatedservicesarerenderedbyemployeesoftheGroupandtheCompany.
(ii) Defined contribution plans
Asrequiredbylaw,companiesinMalaysiamakecontributionstothestatepensionscheme,theEmployeesProvidentFund(EPF).Suchcontributionsarerecognisedasanexpenseinprofitorlossasincurred.
2.13 Taxation
Taxontheprofitorlossforthefinancialyearcomprisescurrentanddeferredtax.Incometaxisrecognisedintheprofitorloss.
(i) Current tax
Currenttaxexpenseistheexpectedtaxpayableonthetaxableincomeforthefinancialyear,usingthestatutorytaxratesatthereportingdate,andanyadjustmenttotaxpayableinrespectofpreviousfinancialyears.
(ii) Deferred tax
Deferredtaxisprovidedfor,usingtheliabilitymethod,ontemporarydifferencesatthereportingdatebetweenthetaxbasesofassetsandliabilitiesandtheircarryingamountsinthefinancialstatements.Inprinciple,deferredtaxliabilitiesarerecognisedfor all taxable temporary differences and deferred tax assets are recognised for all deductible temporary differences,unabsorbedcapitalallowances,unusedreinvestmentallowances,unusedinvestmenttaxallowances,unusedtaxlossesandotherunusedtaxcreditstotheextentthatitisprobablethatfuturetaxableprofitwillbeavailableagainstwhichthedeductibletemporarydifferences,unabsorbedcapitalallowances,unusedreinvestmentallowances,unusedinvestmenttaxallowances,unusedtaxlossesandotherunusedtaxcreditscanbeutilised.
Deferred tax isnot recognised for the initial recognitionofgoodwill and the initial recognitionofanassetor liability inatransactionwhichisnotabusinesscombinationandthataffectsneitheraccountingnortaxableprofitnorloss.
Deferredtaxismeasuredatthetaxratesthatareexpectedtoapplyintheperiodwhentheassetisrealisedortheliabilityissettled,basedonthelawsthathavebeenenactedorsubstantivelyenactedbytheendofthereportingperiod.
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Notes to the Financial Statements (Cont’d)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.13 Taxation (continued)
(ii) Deferred tax (continued)
Deferredtaxassetsandliabilitiesareoffsetifthereisalegallyenforceablerighttooffsetcurrenttaxliabilitiesandassets,andtheyrelatetoincometaxesleviedbythesametaxauthorityonthesametaxableentity,orondifferenttaxentities,wheretheyintendtosettlecurrenttaxliabilitiesandassetsonanetbasisortheirtaxassetsandliabilitieswillberealisedsimultaneously.
Deferredtaxassetisreviewedattheendofeachreportingdateandisreducedtotheextentthatitisnolongerprobablethatthefuturetaxableprofitwillbeavailableagainstwhichtherelatedtaxbenefitcanberealised.
2.14 Foreign currency transactions
InpreparingthefinancialstatementsofindividualentitiesintheGroup,transactionsincurrenciesotherthantheentity’sfunctionalcurrency(foreigncurrencies)aretranslatedtothefunctionalcurrenciesatratesofexchangerulingonthetransactiondates.
Monetaryassetsand liabilitiesdenominated in foreigncurrenciesat the reportingdatehavebeenretranslatedto the functionalcurrencyatratesrulingonthereportingdate.
Non-monetaryassetsand liabilitiesdenominated in foreigncurrencieswhicharemeasuredat fair valueare retranslated to the
functionalcurrencyattheforeignexchangeratesrulingatthedatewhenthefairvaluewasdetermined.Non-monetaryitemsthataremeasuredintermsofhistoricalcostinforeigncurrencyarenotretranslatedatthereportingdate.
Gainsandlossesonexchangearisingfromretranslationarerecognisedintheprofitorloss,exceptfordifferencesarisingontheretranslationofavailable-for-saleequityinstruments,whicharerecognisedinequity.
Onconsolidation,theassetsandliabilitiesofsubsidiarieswithfunctionalcurrenciesotherthanRinggitMalaysiaaretranslatedintoRinggitMalaysiaattheexchangeratesrulingatreportingdate.
Theincomeandexpensesaretranslatedattheexchangeratesatthedatesofthetransactionsoranaverageratethatapproximatesthoserates.Allresultingexchangedifferencesaretakentotheforeigncurrencytranslationreservewithinequity.
In theconsolidatedfinancialstatements,whensettlementofamonetary itemreceivable fromorpayable to theGroup’s foreignoperationisneitherplannednorlikelyintheforeseeablefuture,foreignexchangegainsandlossesarisingfromsuchamonetaryitemareconsideredto formpartofanet investment ina foreignoperationandare reclassifiedtoothercomprehensive incomeand presented under foreign currency translation reserve in equity. Upon disposal of the investment, the cumulative exchangedifferencespreviouslyrecordedinequityarereclassifiedtotheconsolidatedprofitorloss.
2.15 Revenue
Revenuefromthesaleofpetrochemicalproductsandtheirrelatedproductsinthecourseofordinaryactivitiesismeasuredatfairvalue of the consideration receivedor receivable, net of returns and allowances, tradediscounts and volume rebates.Revenueisrecognisedwhenpersuasiveevidenceexists,usually intheformofanexecutedsalesagreement,thatthesignificantriskandrewardsofownershiphavebeentransferredtothecustomer,recoveryoftheconsiderationisprobable,theassociatedcostsandpossiblereturnofgoodscanbeestimatedreliably,thereisnocontinuingmanagementinvolvementwiththegoods,andtheamountofrevenuecanbemeasuredreliably.Ifitisprobablethatdiscountswillbegrantedandtheamountcanbemeasuredreliably,thenthediscountisrecognisedasareductionofrevenueasthesalesarerecognised.
Dividendincomeisrecognisedintheprofitorlossonthedatetherighttoreceivepaymentisestablished.
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Notes to the Financial Statements (Cont’d)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.15 Revenue (continued)
Revenuefromservicesrenderedisrecognisedintheprofitorlossbasedontheactualandestimatedthroughputvolumeandportcharges.
2.16 Interest income
Incomearisingfromassetsyieldinginterestarerecognisedonatimeproportionbasisthattakesintoaccounttheeffectiveyieldontheassets.
2.17 Financing costs
Finance costs comprise interest payable on borrowings and profit sharemargin on Islamic financing facilities, as well as anyaccretioninprovisionduetothepassageoftime.
All interestandothercosts incurred inconnectionwithborrowingsareexpensedas incurred,otherthanborrowingcostdirectlyattributabletotheacquisition,constructionorproductionofqualifyingassets(assetsthatnecessarilytakeasubstantialperiodoftimetogetreadyfortheirintendeduseorsale),whicharecapitalisedaspartofthecostofthoseassets.
Thecapitalisationofborrowingcostsaspartofthecostofaqualifyingassetcommenceswhenexpenditurefortheassetsisbeingincurred,borrowingcostsarebeingincurredandactivitiesthatarenecessarytopreparetheassetforitsintendeduseorsaleareinprogress.Capitalisationofborrowingcostsissuspendedorceaseswhensubstantiallyalltheactivitiesnecessarytopreparethequalifyingassetforitsintendeduseorsaleareinterruptedorcompleted.
Investmentincomeearnedonthetemporaryinvestmentofspecificborrowingspendingtheirexpenditureonqualifyingassetsisdeductedfromtheborrowingcostseligibleforcapitalisation.
2.18 Equity instruments
Instrumentsclassifiedasequityaremeasuredatcostoninitialrecognitionandarenotremeasuredsubsequently.
(i) Issue expenses
Costsdirectlyattributabletotheissueofinstrumentsclassifiedasequityarerecognisedasadeductionfromequity.
(ii) Ordinary shares
Ordinarysharesareclassifiedasequity.
2.19 Basic earnings per ordinary share
TheGrouppresentsbasicearningspersharedataforitsordinaryshares. BasicearningspershareiscalculatedbydividingtheprofitorlossattributabletoordinaryshareholdersoftheGroupbytheweighted
averagenumberofordinarysharesoutstandingduringtheyear.
2.20 Operating segment
AnoperatingsegmentisacomponentoftheGroupthatengagesinbusinessactivitiesfromwhichitmayearnrevenuesandincurexpenses(includingrevenuesandexpensesthat relatetotransactionswithanyof thecomponentsof theGroup,andforwhichdiscretefinancial information isavailable)whoseoperatingresultsarereviewedregularlybythechiefoperatingdecisionmaker,whichinthiscaseistheManagingDirector/ChiefExecutiveOfficer(MD/CEO),tomakedecisionsaboutresourcestobeallocatedtothesegmentsandtoassesstheperformanceoftheGroup.
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Notes to the Financial Statements (Cont’d)
3. PROPERTY, PLANT AND EQUIPMENT
Group2016
At 1.1.2016
RM MilAdditions
RM Mil
Disposals/write-offs
RM MilTransfers
RM Mil
Translationexchange
differenceRM Mil
At 31.12.2016
RM Mil
At cost:
Leaseholdland 291 - - - - 291
Buildings 1,396 1 - 47 2 1,446
Plantandequipment 22,159 42 (20) 552 2 22,735
Officeequipment,furnitureandfittings 102 1 (1) 13 1 116
Computersoftwareandhardware 276 2 (1) 29 2 308
Motorvehicles 41 1 (1) 3 - 44
Projects-in-progress 7,193 2,996 (244) (644) 484 9,785
31,458 3,043 (267)^ - 491 34,725
^ Includedindisposals/write-offsofprojects-in-progressarewrite-offsrelatingtothecancellationofelastomersprojectwhichwaspartoftheRefineryandPetrochemicalsIntegratedDevelopment(RAPID)projectinPengerang,JohoramountingtoRM244million.
At 1.1.2016
RM Mil
Chargefor the year
RM Mil
Disposals/write-offs
RM Mil
Impairmentloss
RM MilTransfers
RM Mil
Translationexchange
differenceRM Mil
At 31.12.2016
RM Mil
Accumulated depreciation and impairment losses:
Leaseholdland 77 4 - - - - 81
Buildings 582 30 - - - - 612
Plantandequipment 13,906 1,265 (15) 5 - - 15,161
Officeequipment,furnitureandfittings 78 8 (1) - - - 85
Computersoftwareandhardware 183 26 (1) - - - 208
Motorvehicles 35 2 (2) - - - 35
14,861 1,335 (19) 5 - - 16,182
Includedintheaccumulateddepreciationandimpairmentlossesofproperty,plantandequipmentareimpairmentlossescarriedforwardofRM271million.
156
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PETRONAS CHEMICALS
GROUP BERHAD
Notes to the Financial Statements (Cont’d)
3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Group2015
At 1.1.2015
RM MilAdditions
RM Mil
Disposals/write-offs
RM MilTransfers
RM Mil
Translationexchange
differenceRM Mil
At 31.12.2015
RM Mil
At cost:
Leaseholdland 291 - - - - 291
Buildings 1,396 1 (9) 8 - 1,396
Plantandequipment 21,445 121 (42) 635 - 22,159
Officeequipment,furnitureandfittings 91 2 (1) 10 - 102
Computersoftwareandhardware 243 4 (5) 34 - 276
Motorvehicles 36 6 (1) - - 41
Projects-in-progress 4,376 2,760 (1) (687) 745 7,193
27,878 2,894 (59) - 745 31,458
At 1.1.2015
RM Mil
Chargefor the year
RM Mil
Disposals/write-offs
RM MilTransfers
RM Mil
Translationexchange
differenceRM Mil
At 31.12.2015
RM Mil
Accumulated depreciation and impairment losses:
Leaseholdland 73 4 - - - 77
Buildings 553 32 (3) - - 582
Plantandequipment 12,728 1,207 (29) - - 13,906
Officeequipment,furnitureandfittings 69 10 (1) - - 78
Computersoftwareandhardware 165 23 (5) - - 183
Motorvehicles 35 1 (1) - - 35
13,623 1,277 (39) - - 14,861
Includedintheaccumulateddepreciationandimpairmentlossesofproperty,plantandequipmentwereimpairmentlossescarriedforwardofRM266million.
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Sectionsix
Notes to the Financial Statements (Cont’d)
3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
2016 2015
Group RM Mil RM Mil
Carrying amount:
Leaseholdland
-withunexpiredleaseperiodofmorethan50years 77 78
-withunexpiredleaseperiodoflessthan50years 133 136
210 214
Buildings 834 814
Plantandequipment 7,574 8,253
Officeequipment,furnitureandfittings 31 24
Computersoftwareandhardware 100 93
Motorvehicles 9 6
Projects-in-progress 9,785 7,193
18,543 16,597
Includedintheproperty,plantandequipmentoftheGroupareplantandequipmentwithcarryingamountofRM128million(2015:RM162million)underfinanceleasearrangements.
Impairment review
Duringtheyear,duetothedeclineinsalepricesofproducts,animpairmenttestwasperformedononeoftheGroup’smethanevaluechainwhichcomprisesaplantcurrentlyundercommissioningandclassifiedasprojects-in-progresswithacarryingvalueamountingtoRM6,893million(2015:RM6,108million).Therecoverablevalueofthisplantwasarrivedatusingvalue-in-usemethod,determinedbydiscountingfuturecashflowsprojectedtobegeneratedbytheplantbasedonvariousassumptions.Whiletheestimatedrecoverablevalueishigherthanthecarryingvalueoftheplant,thereareinherentuncertaintiesovertheassumptionssincetheplantiscurrentlyatcommissioningstage.
Theassumptionsincludeprojectedproductionandsalesvolume,andpricewhichareparticularlysensitive,uncertainorrequiresignificant
judgmentandhence,havesignificantriskswhichcouldresultinanimpairmentlosstothecarryingamountoftheplantwithinthenextfinancialyear.Inparticular:
i. Adeclineofmorethan13%oftheprojectedsalesvolumewouldtriggeranimpairmentloss;and
ii. Adeclineofmorethan13%oftheprojectedpricewouldtriggeranimpairmentloss.
158
Sectionsix
PETRONAS CHEMICALS
GROUP BERHAD
Notes to the Financial Statements (Cont’d)
3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Company2016
At 1.1.2016
RM 000Additions
RM 000
Disposals/write-offs
RM 000Transfers
RM 000
At 31.12.2016
RM 000
At cost:
Officeequipment,furnitureandfittings 996 43 - 29 1,068
Computersoftwareandhardware 13,801 213 - 103 14,117
Motorvehicles 369 - - - 369
Projects-in-progress 3,554 3,995 (3,155) (132) 4,262
18,720 4,251 (3,155) - 19,816
At 1.1.2016
RM 000
Charge forthe yearRM 000
Disposals/write-offs
RM 000Transfers
RM 000
At 31.12.2016
RM 000
Accumulated depreciation and impairment losses:
Officeequipment,furnitureandfittings 148 208 - - 356
Computersoftwareandhardware 4,786 2,798 - - 7,584
Motorvehicles 369 - - - 369
5,303 3,006 - - 8,309
2015
At 1.1.2015
RM 000Additions
RM 000
Disposals/write-offs
RM 000Transfers
RM 000
At 31.12.2015
RM 000
At cost:
Officeequipment,furnitureandfittings 27 59 - 910 996
Computersoftwareandhardware 12,485 - - 1,316 13,801
Motorvehicles 369 - - - 369
Projects-in-progress 3,518 12,098 (9,836) (2,226) 3,554
16,399 12,157 (9,836) - 18,720
At 1.1.2015
RM 000
Charge forthe yearRM 000
Disposals/write-offs
RM 000Transfers
RM 000
At 31.12.2015
RM 000
Accumulated depreciation and impairment losses:
Officeequipment,furnitureandfittings 1 147 - - 148
Computersoftwareandhardware 2,142 2,644 - - 4,786
Motorvehicles 323 46 - - 369
2,466 2,837 - - 5,303
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Sectionsix
Notes to the Financial Statements (Cont’d)
3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
2016 2015
Company RM 000 RM 000
Carrying amount:
Officeequipment,furnitureandfittings 712 848
Computersoftwareandhardware 6,533 9,015
Motorvehicles - -
Projects-in-progress 4,262 3,554
11,507 13,417
4. INVESTMENTS IN SUBSIDIARIES
2016 2015
Company RM Mil RM Mil
Investmentsinunquotedshares,atcost 17,402 16,430
Less:Impairmentlosses (521) (242)
16,881 16,188
Duringtheyear,theGroupcancelledanelastomersprojectwhichwastobeundertakenbyasubsidiaryaspartoftheRAPIDprojectinPengerang,Johor.Consequently,theCompanyhasimpairedthetotalinvestmentinthesubsidiaryamountingtoRM255million.
Summarisedfinancialinformationofnon-controllinginterestshasnotbeenincludedasthenon-controllinginterestsofthesubsidiariesarenotindividuallymaterialtotheGroup.
DetailsofsubsidiariesarestatedinNote26tothefinancialstatements.
5. INVESTMENTS IN JOINT VENTURES AND ASSOCIATES
Group Company
2016 2015 2016 2015
RM Mil RM Mil RM Mil RM Mil
Investmentsinunquotedshares,atcost 1,028 944 1,159 1,075
Shareofpost-acquisitionprofitsandreserves 335 336 - -
1,363 1,280 1,159 1,075
SummarisedfinancialinformationhasnotbeenincludedasthejointventuresandassociatesarenotindividuallymaterialtotheGroup.
DetailsofjointventuresandassociatesarestatedinNote27andNote28tothefinancialstatementsrespectively.
160
Sectionsix
PETRONAS CHEMICALS
GROUP BERHAD
Notes to the Financial Statements (Cont’d)
6. INTANGIBLE ASSET
Group
At 1.1.2015
RM Mil
Addition/charge for
the yearRM Mil
At 31.12.2015/
1.1.2016RM Mil
Addition/charge for
the yearRM Mil
At 31.12.2016
RM Mil
Licence:
-Atcost 23 - 23 - 23
-Accumulatedamortisation 16 2 18 2 20
2016 2015
RM Mil RM Mil
Carryingamount 3 5
7. LONG TERM RECEIVABLES
Group Company
2016 2015 2016 2015
RM Mil RM Mil RM Mil RM Mil
Prepayments 83 8 - -
Loansduefromsubsidiaries - - 7,011 -
83 8 7,011 -
IncludedintheCompany’sloansduefromsubsidiariesareloansamountingtoRM7,011millionorUSD1,563million(2015:Nil),whichbearinterestratesrangingfrom1.74%to4.52%(2015:Nil)perannum.Settlementoftheloansisnotexpectedwithinthenexttwelvemonths.
8. DEFERRED TAX
Deferred tax liabilitiesandassetsareoffsetwhen there isa legallyenforceable right tosetoffcurrent taxassetsagainstcurrent taxliabilitiesandwhenthedeferredtaxesrelatetothesametaxationauthority.Theamountsdeterminedafterappropriateoffsettingareasfollows:
2016 2015
Group RM Mil RM Mil
Deferred tax assets
Deferredtaxliabilities 456 408
Deferredtaxassets (918) (797)
(462) (389)
Deferred tax liabilities
Deferredtaxliabilities 1,310 1,387
Deferredtaxassets (436) (573)
874 814
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Sectionsix
Notes to the Financial Statements (Cont’d)
8. DEFERRED TAX (CONTINUED)
Thecomponentsandmovementsofdeferredtaxliabilitiesandassetsduringtheyearpriortooffsettingareasfollows:
Group2016
At 1.1.2016
RM Mil
Charged/(Credited) toprofit or loss
(Note 23)RM Mil
Translationexchange
differenceRM Mil
At 31.12.2016
RM Mil
Deferred tax liabilities
Property,plantandequipment 1,795 (30) - 1,765
Others - 1 - 1
1,795 (29) - 1,766
Deferred tax assets
Property,plantandequipment (67) 4 - (63)
Unusedreinvestmentallowances (8) 1 - (7)
Unusedinvestmenttaxallowances (1,043) 123 - (920)
Unusedtaxlosses (116) 1 - (115)
Unabsorbedcapitalallowances - (6) - (6)
Pre-commencement expenses (45) (100) (10) (155)
Others (91) 3 - (88)
(1,370) 26 (10) (1,354)
425 (3) (10) 412
IncludedintheabovenetdeferredtaxassetisanamountofRM251million(2015:RM252million)whichhasbeenrecognisedbasedontheassumptionthatcertainsubsidiarieswillgeneratesufficientprofitsupontheimplementationoftollingarrangementswithintheGroup’sintegratedvaluechain.
Thedeferred taxassetsonpre-commencementexpensesare in relation to taxbenefitswhichhavebeenapprovedby theMinistryofFinance.
162
Sectionsix
PETRONAS CHEMICALS
GROUP BERHAD
Notes to the Financial Statements (Cont’d)
8. DEFERRED TAX (CONTINUED)
Group2015
At 1.1.2015
RM Mil
Charged/(Credited)to profit or loss
(Note 23)RM Mil
Translationexchange
differenceRM Mil
At 31.12.2015
RM Mil
Deferred tax liabilities
Property,plantandequipment 1,867 (72) - 1,795
Others 2 (2) - -
1,869 (74) - 1,795
Deferred tax assets
Property,plantandequipment (68) 1 - (67)
Unusedreinvestmentallowances (8) - - (8)
Unusedinvestmenttaxallowances (1,078) 35 - (1,043)
Unusedtaxlosses (160) 44 - (116)
Unabsorbedcapitalallowances (15) 15 - -
Pre-commencement expenses - (41) (4) (45)
Others (74) (17) - (91)
(1,403) 37 (4) (1,370)
466 (37) (4) 425
Unrecognised deferred tax assets
Nodeferredtaxhasbeenrecognisedforthefollowingitems(statedatgross):
2016 2015
Group RM Mil RM Mil
Unusedtaxlosses 603 492
Unusedinvestmenttaxallowances 115 38
Unabsorbedcapitalallowance 21 -
739 530
Theunusedtaxlosses,unusedinvestmenttaxandcapitalallowancesdonotexpireunderthecurrenttaxlegislation.Deferredtaxassetshavenotbeenrecognisedinrespectoftheseitemsbecauseitisnotprobablethatfuturetaxableprofitwillbeavailableagainstwhichthesubsidiariescanutilisethebenefits.
Company2016
At1.1.2016
RM Mil
Charged/(Credited)to profit or loss
(Note 23)RM Mil
At31.12.2016
RM Mil
Deferred tax liabilities
Others 2 (1) 1
2015
At 1.1.2015
RM Mil
Charged/(Credited)to profit or loss
(Note 23)RM Mil
At 31.12.2015
RM Mil
Deferred tax liabilities
Others 2 - 2
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Sectionsix
Notes to the Financial Statements (Cont’d)
9. TRADE AND OTHER INVENTORIES
2016 2015
Group RM Mil RM Mil
Petrochemicalproducts:
Rawmaterials 19 14
Finishedgoods 574 530
Stores,sparesandothers 790 860
1,383 1,404
10. TRADE AND OTHER RECEIVABLES
Group Company
2016 2015 2016 2015
Note RM Mil RM Mil RM Mil RM Mil
Tradereceivables 10.1 1,475 1,220 - -
AmountduefromPETRONAS 10.2
-Non-trade 40 108 3 1
Amountduefromsubsidiaries 10.3
-Non-trade - - 140 81
-Loansandadvances 11 - - - 4,215
-Dividendreceivable - - 296 -
Amountduefromjointventuresandassociates 10.3
-Trade 184 83 - -
-Non-trade 2 2 - 1
Amountduefromrelatedcompanies 10.3
-Trade 152 103 - -
-Non-trade 106 6 99 1
Otherreceivables,depositsandprepayments 665 162 14 82
Derivativeassets 11 15 9 1 -
2,639 1,693 553 4,381
Less:Impairmentlosses
-Otherreceivables,depositsandprepayments - (1) - -
2,639 1,692 553 4,381
10.1 IncludedintradereceivablesisanamountduefromcorporateshareholderofasubsidiaryofRM61million(2015:RM55million).
10.2 IncludedinamountduefromPETRONASisGSTrecoverableofRM22million(2015:RM61million)fortheGroupandRM3million(2015:RM1million)fortheCompany.
10.3 Tradeamountisunsecuredandundernormaltradeterms.Non-tradeamountisunsecuredandrepayableondemand.
Therewerenotradereceivablesandtradepayablesthatweresetoffforpresentationpurposes.
164
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PETRONAS CHEMICALS
GROUP BERHAD
Notes to the Financial Statements (Cont’d)
11. DERIVATIVE ASSETS/(LIABILITIES)
Group Company
2016 2015 2016 2015
Note RM Mil RM Mil RM Mil RM Mil
Derivative assets
Current
Forwardforeignexchangecontracts 15 9 1 -
Included within:
Tradeandotherreceivables 10 15 9 1 -
Derivative liabilities
Current
Forwardforeignexchangecontracts (17) (720) (1) (715)
Included within:
Tradeandotherpayables 19 (17) (720) (1) (715)
Inthepreviousyear, includedintheGroup’sandtheCompany’sderivative liabilitiesareforwardforeignexchangecontractsenteredinrelationtoaloanduefromasubsidiaryamountingtoRM4,215million(Note10).
Inthenormalcourseofbusiness,theGroupandtheCompanyenterintoderivativefinancialinstrumentstomanageitsnormalbusinessexposuresinrelationtoforeigncurrencyexchangeratesinaccordancewiththeGroup’sandtheCompany’sriskmanagementpoliciesandobjectives.
12. FUND INVESTMENTS
Group Company
2016 2015 2016 2015
RM Mil RM Mil RM Mil RM Mil
Loans and receivables
Islamicdepositswithlicensedfinancialinstitutions - 622 - 622
Inthepreviousyear,fundinvestmentsarosefromplacementswithgovernmentrelatedfinancial institutionswithoriginalmaturitiesofmorethanthreemonths.
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Sectionsix
Notes to the Financial Statements (Cont’d)
13. CASH AND CASH EQUIVALENTS
Group Company
2016 2015 2016 2015
RM Mil RM Mil RM Mil RM Mil
Islamicdepositswithlicensedfinancialinstitutions - 309 - 309
CashwithPETRONASIntegratedFinancialSharedService Centre(IFSSC) 7,230 8,368 1,254 1,484
Cashandbankbalances 173 30 - -
7,403 8,707 1,254 1,793
TheGroup’sandtheCompany’scashandbankbalancesareheldinanIn-HouseAccount(IHA)managedbyPETRONASIFSSCtoenablemoreefficientcashmanagementfortheGroupandfortheCompany.
Included in cashwith PETRONAS IFSSC and cash and bank balances for the Group and the Company are interest-bearing balancesamountingtoRM7,331million(2015:RM8,395million)andRM1,254million(2015:RM1,484million)respectively.
14. SHARE CAPITAL
Group and Company
2016 2015
RM Mil RM Mil
Authorised:
15,000,000,000ordinarysharesofRM0.10each 1,500 1,500
Issued and fully paid:
8,000,000,000ordinarysharesofRM0.10each 800 800
15. RESERVES
Merger reserve
Group
Merger reserve arose fromdifferences between the nominal value and share premiumof ordinary shares issued by the Company asconsideration for the acquisitionof companies that are accountedusing themergermethodof accountingand thenominal valueofordinarysharesandsharepremiumofthecompanies.
Company
MergerreliefoftheCompanyispremiumarisingfromissuanceofsharesfortheacquisitionofsubsidiariesthatfulfilledtheconditionsofSection60(4)oftheCompaniesAct,1965inMalaysia.
Foreign currency translation reserve
ForeigncurrencytranslationreservecomprisesallforeigncurrencydifferencesarisingfromthetranslationofthefinancialstatementsofsubsidiarieswhosefunctionalcurrenciesarenotRinggitMalaysia,andtheGroup’snetinvestmentinforeignoperations.
166
Sectionsix
PETRONAS CHEMICALS
GROUP BERHAD
Notes to the Financial Statements (Cont’d)
15. RESERVES (CONTINUED)
Other reserves
Otherreservescompriseprimarilycapitalredemptionreservecreateduponredemptionofpreferenceshares,andtheGroup’sshareofitsjointventureandassociatecompanies’reserves.
16. NON-CONTROLLING INTERESTS
Thisconsistsofthenon-controllinginterests’proportionofequityandreservesofpartly-ownedsubsidiaries.
17. OTHER LONG TERM LIABILITIES AND PROVISIONS
Group Company
2016 2015 2016 2015
Note RM Mil RM Mil RM Mil RM Mil
Finance lease liabilities 17.1 137 183 - -
Provisions 17.2 162 162 76 165
Otherpayables 9 10 - -
308 355 76 165
17.1 Finance lease liabilities
Group
2016 2015
Note
Minimum leasepayments
RM MilInterestRM Mil
PrincipalRM Mil
Minimum leasepayments
RM MilInterestRM Mil
PrincipalRM Mil
Lessthan1year 19.1 55 9 46 55 11 44
Between1to2years 55 7 48 55 9 46
Between2to5years 95 6 89 142 13 129
Morethan5years - - - 8 - 8
205 22 183 260 33 227
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Sectionsix
Notes to the Financial Statements (Cont’d)
17. OTHER LONG TERM LIABILITIES AND PROVISIONS (CONTINUED)
17.2 Provisions
2016 2015
Group Note RM Mil RM Mil
Non-current 162 162
Current 19 38 45
200 207
Themovementofprovisionsisasfollows:
RM Mil
At 1.1.2016 207
Provisionsmade 87
Provisionsreversed (63)
Provisionsutilised (41)
Unwindingofdiscountfactor 10
At 31.12.2016 200
TheGroup’sprovisionscomprise:
i. Provisions fordecommissioningactivitiesandonerouscontracts in relation to thediscontinuationof theGroup’svinylandpolypropylenebusinesses.
Provision for decommissioning activities includes dismantling/demolishing and removal of equipment, structures andfoundation,aswellassiteremediation.
Provisionforonerouscontractsisinrelationtoterminationofcontractualobligationwithcommittedcharges.
Theprovisionshavebeenmadebasedonpresent valueofestimateddecommissioningamountandnegotiatedsettlementamountpayableoveraperiodrangingfrom2to5years(2015:2to6years)usingadiscountrateof8.6%(2015:8.6%).
ii. Provisionfordecommissioningofproperty,plantandequipmentinrelationtoasubsidiary’sobligationtodecommissionandremove all property, plant and equipment, and to restore land subleased to its original condition upon expiry in 2040. Thecorrespondingassetof anamount equivalent to theprovision is alsocreatedandwill bedepreciatedover the termof thesublease.
Theprovisionhasbeenmadebasedonpresentvalueofestimateddecommissioningamountusingadiscountrateof4.8%.
2016 2015
Company Note RM Mil RM Mil
Non-current 76 165
Current 19 32 32
108 197
168
Sectionsix
PETRONAS CHEMICALS
GROUP BERHAD
Notes to the Financial Statements (Cont’d)
17. OTHER LONG TERM LIABILITIES AND PROVISIONS (CONTINUED)
17.2 Provisions (continued)
Themovementofprovisionsisasfollows:
RM Mil
At 1.1.2016 197
Provisionsreversed (74)
Provisionsutilised (24)
Unwindingofdiscountfactor 9
At 31.12.2016 108
TheCompany’sprovisioncomprisesprovisionforfinancialassistanceinrelationtoissuanceofredeemablepreferenceshares(RPS)tomeetasubsidiary’sobligationinrespectofdecommissioningactivitiesandotherrelatedexpenses.Theprovisionhasbeenmadebasedonpresentvalueofestimatedfundingrequirementsfordecommissioningcostsandsettlementofonerouscontractsoveraperiodof5years(2015:6years)usingadiscountrateof8.6%(2015:8.6%).
18. BORROWINGS
2016 2015
Group RM Mil RM Mil
Revolvingcreditfacility-unsecured 23 30
Revolvingcreditfacilityrelatestoafacilitygrantedbyalicensedfinancialinstitutiontoasubsidiary,whichbearsinterestatanaveragerateof4.36%(2015:4.45%)perannum.
19. TRADE AND OTHER PAYABLES
Group Company
2016 2015 2016 2015
Note RM Mil RM Mil RM Mil RM Mil
Tradepayables 66 155 - -
Otherpayables 19.1 1,112 956 128 43
AmountduetoPETRONAS 19.2
-Trade 345 288 - -
-Non-trade 118 240 19 58
Amountduetosubsidiaries 19.2
-Non-trade - - 111 37
Amountduetorelatedcompanies 19.2
-Trade 329 258 - -
-Non-trade 183 240 1 5
Provisions 17.2 38 45 32 32
Derivativeliabilities 11 17 720 1 715
2,208 2,902 292 890
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Sectionsix
Notes to the Financial Statements (Cont’d)
19. TRADE AND OTHER PAYABLES (CONTINUED)
19.1 IncludedinotherpayablesfortheGroupisthecurrentportionoffinanceleaseliabilitiesamountingtoRM46million(2015:RM44million).
19.2 Tradeamountisunsecuredandundernormaltradeterms.Non-tradeamountisunsecuredandrepayableondemand.
20. REVENUE
Group Company
2016 2015 2016 2015
RM Mil RM Mil RM Mil RM Mil
Salesofpetrochemicalproducts,net 13,808 13,490 - -
Dividendincome - - 4,401 2,796
Others 52 46 - -
13,860 13,536 4,401 2,796
21. OPERATING PROFIT
Group Company
2016 2015 2016 2015
Note RM Mil RM Mil RM Mil RM Mil
Includedinoperatingprofitarethefollowingcharges:
Auditors’remuneration* 2 3 1 1
Amortisationofintangibleassets 6 2 2 - -
Depreciationofproperty,plantandequipment 3 1,335 1,277 3 3
Lossonforeignexchange:
-realised - 374 3 6
-unrealised 2 67 - -
Lossondisposalofproperty,plantandequipment 4 13 - -
Rentalof:
-plant,machinery,equipmentandmotorvehicles 49 50 3 2
-landandbuildings 43 49 15 15
Staffcosts:
-wages,salariesandothers 758 714 84 109
-contributionstoEmployeesProvidentFund 104 103 16 18
Impairmentlosseson:
-property,plantandequipment 3 5 - - -
-investmentsinsubsidiaries - - 255 -
Inventorieswrittendowntonetrealisablevalue 2 21 - -
Property,plantandequipmentwrittenoff 3 244 5 - -
Provisionforplantdecommissioning 17 4 - - -
170
Sectionsix
PETRONAS CHEMICALS
GROUP BERHAD
Notes to the Financial Statements (Cont’d)
21. OPERATING PROFIT (CONTINUED)
Group Company
2016 2015 2016 2015
Note RM Mil RM Mil RM Mil RM Mil
andcredits:
Gainonforeignexchange:
- realised 17 361 - -
- unrealised - 36 416 2
Dividendincome:
- subsidiaries - - 4,339 2,642
- jointventuresandassociates - - 62 154
Interestincome:
- others 261 360 64 101
- subsidiaries - - 220 108
Managementfee - - 77 66
Reversalof:
- impairmentlossesoninvestmentinasubsidiary - - - 40
- provisionsforplantdecommissioning andonerouscontracts 17 63 65 - -
- provisionforfinancialassistancetoasubsidiary 17 - - 74 29
Gainondisposalofproperty,plantandequipment - 2 - -
Gainonderivativefinancialinstruments - 5 - -
* Theauditors’remunerationincludesthefollowing:
Group Company
2016 2015 2016 2015
RM 000 RM 000 RM 000 RM 000
Statutoryaudit
KPMG 775 761 150 150
Otherauditors 616 497 - -
Non-auditfees
KPMG 582 650 540 650
Otherauditors 140 1,000 118 103
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Sectionsix
Notes to the Financial Statements (Cont’d)
22. NET FINANCING (INCOME)/COSTS
Group Company
2016 2015 2016 2015
RM Mil RM Mil RM Mil RM Mil
Unwindingofdiscountfactorforotherlongtermliabilitiesandprovisions 21 29 9 16
Unrealisedlossonforwardforeignexchangecontract - 618 - 618
Netrealisedgainonforwardforeignexchangecontract (160) - (160) -
Unrealisedforeignexchangegainonloantoasubsidiary - (636) - (636)
Realisedforeignexchangelossonloantoasubsidiary 91 - 91 -
Interestonrevolvingcreditfacility 1 - - -
(47) 11 (60) (2)
Unrealisedand realisedgainor losson forward foreignexchangecontractarose from forward foreignexchangecontractsentered inrelationtoloanduefromasubsidiary.
23. TAX EXPENSE
Group Company
2016 2015 2016 2015
RM Mil RM Mil RM Mil RM Mil
Current tax expenses
Current year 913 841 52 28
Overprovisioninprioryear (22) (62) (1) (14)
891 779 51 14
Deferred tax expenses
Originationandreversaloftemporarydifferences (64) (74) (1) -
Underprovisioninprioryear 61 37 - -
(3) (37) (1) -
888 742 50 14
172
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PETRONAS CHEMICALS
GROUP BERHAD
Notes to the Financial Statements (Cont’d)
23. TAX EXPENSE (CONTINUED)
Areconciliationofincometaxapplicabletoprofitbeforetaxationatthestatutoryincometaxratetoincometaxexpenseattheeffectiveincometaxrateisasfollows:
2016 2015
Group % RM Mil % RM Mil
Profitbeforetaxation 4,110 3,833
TaxationatMalaysianstatutorytaxrate 24 986 25 958
Non-deductibleexpenses,netofnon-assessableincome 1 60 2 61
Taxexemptincomeandincentives (1) (61) (2) (83)
Effectofchangesintaxrates* - - - (5)
EffectoflowertaxrateunderGlobalIncentiveforTrading(GIFT) (4) (170) (3) (114)
Effectofnetdeferredtaxbenefitsnotrecognised 1 50 - 3
Recognitionofpreviouslyunrecognisedtaxlosses (1) (60) (1) (27)
Others 1 44 (1) (26)
21 849 20 767
Under/(over)provisioninprioryears,net 39 (25)
Taxexpense 888 742
* Inthepreviousyear,effectofchangesintaxratesarosefromthedifferencebetweencorporateincometaxrateof25%anddeferredtaxrateof24%beingtheratesubstantivelyenactedbytheGovernmentinBudget2014announcement.
2016 2015
Company % RM Mil % RM Mil
Profitbeforetaxation 4,881 2,944
TaxationatMalaysianstatutorytaxrate 24 1,171 25 736
Non-deductibleexpenses,netofnon-assessableincome (2) (122) - 8
Taxexemptincome (20) (998) (24) (716)
2 51 1 28
Overprovisioninprioryears (1) (14)
Taxexpense 50 14
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Sectionsix
Notes to the Financial Statements (Cont’d)
24. BASIC EARNINGS PER ORDINARY SHARE
Basic earnings per ordinary share
Thecalculationofbasicearningsperordinaryshareforyearended31December2016wasbasedontheprofitattributabletoshareholdersoftheCompanyandnumberofordinarysharesoftheCompanyasfollows:
Group 2016 2015
In RM million
ProfitfortheyearattributabletoshareholdersoftheCompany 2,932 2,782
In millions of shares
Numberofsharesissuedat31December 8,000 8,000
In sen
Basicearningsperordinaryshare 36.7 34.8
Diluted earnings per ordinary share
Nodilutedearningspershareisdisclosedinthesefinancialstatementsasthereisnodilutivepotentialordinaryshare.
25. DIVIDENDS
Sen per share Total amount Date of payment
Group and Company RM Mil
2016
Secondinterimordinaryforfinancialyearended31December2015 10 800 23 March 2016
Firstinterimordinaryforfinancialyearended31December2016 7 560 7 September 2016
1,360
2015
Secondinterimordinaryforfinancialyearended31December2014 8 640 24March2015
Firstinterimordinaryforfinancialyearended31December2015 8 640 9 September 2015
1,280
Afterthefinancialyearend,thefollowingdividendwasapprovedbytheDirectors:
Sen per share Total amount
RM Mil
Secondinterimordinaryforfinancialyearended31December2016 12 960 Thedividendwillberecognisedandaccountedforinequityasanappropriationofretainedprofitsinthesubsequentfinancialyear.
TheDirectorsdonotrecommendanyfinaldividendtobepaidforthefinancialyearunderreview.
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Notes to the Financial Statements (Cont’d)
26. SUBSIDIARIES AND ACTIVITIES
TheGroupincludesthefollowingsubsidiaries:
Name of companyEffective ownership
interest (%)Country of
incorporation Principal activities2016 2015
PETRONASChemicalsAmmonia Sdn.Bhd.*
100 100 Malaysia Productionandsaleofammonia,syngasandcarbonmonoxide.
PETRONASChemicalsDerivativesSdn.Bhd.*
100 100 Malaysia Production and sale of ethylene oxide derivatives,propylenederivativesandrelatedchemicalproducts.
PETRONASChemicalsFertiliserKedahSdn.Bhd.*
100 100 Malaysia Productionandsaleofurea,ammoniaandmethanol.
PETRONASChemicalsFertiliserSabahSdn.Bhd.
100 100 Malaysia Production and sale of ammonia and urea. Thecompanyiscurrentlycommissioningitsplant.
PETRONASChemicalsGlycols Sdn.Bhd.*
100 100 Malaysia Productionandsaleofethyleneoxide,ethyleneglycolandotherrelatedby-products.
PETRONASChemicalsMarketing Sdn.Bhd.
100 100 Malaysia Marketingofpetrochemicalproducts.
PETRONASChemicalsMarketing(Labuan)Ltd.
100 100 Malaysia Marketingofpetrochemicalproducts.
PCM(Thailand)CompanyLimited* 100 100 Thailand Marketingofpetrochemicalproducts.
PCM(China)CompanyLimited** 100 100 China Marketingofpetrochemicalproducts.
PETRONASChemicalsMethanol Sdn.Bhd.
100 100 Malaysia Productionandsaleofmethanol.
PETRONASChemicalsMTBE Sdn.Bhd.
100 100 Malaysia Production and sale of methyl tertiary butyl ether(MTBE),propyleneandn-butane.
PETRONASChemicalsPolyethyleneSdn.Bhd.
100 100 Malaysia Processingofethyleneintopolyethylene.
KertihPortSdn.Bhd.* 100 100 Malaysia Owning, operating and managing Kertih MarineFacilities.
PolypropyleneMalaysiaSdn.Bhd. 100 100 Malaysia Production and sale of polypropylene and itsderivatives.Thecompanyhasceasedproduction.
VinylChloride(Malaysia)Sdn.Bhd.* 100 100 Malaysia Productionandsaleofvinylchloridemonomer(VCM)and polyvinyl chloride (PVC). The company hasceasedproduction.
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26. SUBSIDIARIES AND ACTIVITIES (CONTINUED)
Name of companyEffective ownership
interest (%)Country of
incorporation Principal activities2016 2015
PRPCGlycolsSdn.Bhd. 100 100 Malaysia Thecompanyhastransferreditsassetsandliabilitiesto a related company and remained dormantthereafter.
PRPCPolymersSdn.Bhd. 100 100 Malaysia Productionandsaleofproductswithinethane,propanechainsandethanederivatives.Thecompanyhasyettoconstructitsplant.
PRPCElastomersSdn.Bhd. 100 100 Malaysia The company has ceased operation and remaineddormantthereafter.
PTPCMKimiaIndonesia 100 - Indonesia Marketing of petrochemical products. The companyhasnotcommencedoperationduringtheyear.
PETRONASChemicalsOlefins Sdn.Bhd.*
88 88 Malaysia Productionandsaleofethylene,propyleneandotherhydrocarbonby-products.
PETRONASChemicalsEthylene Sdn.Bhd.
87.50 87.50 Malaysia Processingofethaneintoethylene.
PETRONASChemicalsAromatics Sdn.Bhd.
70 70 Malaysia Productionandsaleofparaxylene,benzeneandotherby-products.
ASEANBintuluFertilizerSdn.Bhd. 63.47 63.47 Malaysia Processingofnaturalgasintoureaandammonia.
PETRONASChemicalsLDPESdn.Bhd.*
60 60 Malaysia Production and sale of low-density polyethylenepellets(LDPE).
PCMChemicalIndiaPrivateLimited* 0.01 0.01 India Marketingandbusinesspromotionalservices.
* AuditedbyfirmsofauditorsotherthanKPMG.** AuditedbyamemberfirmofKPMGInternational.
Duringtheyear,theCompany,viaitswholly-ownedsubsidiary,PETRONASChemicalsMarketingSdn.Bhd.,incorporatedawholly-ownedsubsidiary,PTPCMKimiaIndonesia(PCMI)inIndonesia.
During the year,PETRONASChemicalsEthyleneSdn.Bhd. andPETRONASChemicalsPolyethyleneSdn.Bhd. changed their principalactivitiesfromproductionandsalesofethylenetoprocessingofethaneintoethylene,andfromproductionandsalesofpolyethylenetoprocessingofethyleneintopolyethylenerespectively.
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Notes to the Financial Statements (Cont’d)
27. JOINT VENTURES AND ACTIVITIES
TheGroupincludesthefollowingjointventures:
Name of companyEffective ownership
interest (%)Country of
incorporation Nature of relationship2016 2015
KertihTerminalsSdn.Bhd. 40 40 Malaysia ProvidesbulkchemicalstorageandhandlingservicestotheGroup.
BPPETRONASAcetylsSdn.Bhd. 30 30 Malaysia PurchasescarbonmonoxidefeedstockfromtheGroupforproductionandsaleofaceticacid.
28. ASSOCIATES AND ACTIVITIES
TheGroupincludesthefollowingassociates:
Name of companyEffective ownership
interest (%)Country of
incorporation Nature of relationship2016 2015
BASFPETRONASChemicalsSdn.Bhd. 40 40 Malaysia Purchasespropyleneandn-butanefeedstockfromtheGroupforproduction,marketingandsaleofacrylic,oxoandbutanediolproducts.
IdemitsuSM(Malaysia)Sdn.Bhd. 30 30 Malaysia Purchases ethylene feedstock from the Group forproduction,marketingandsaleofstyrenemonomer.
MalaysianNPKFertilizerSdn.Bhd. 20 20 Malaysia PurchasesureafeedstockandutilitiesfromtheGroupforproductionandsaleofNPKfertiliserproducts.
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Notes to the Financial Statements (Cont’d)
29. CAPITAL COMMITMENTS
Outstandingcommitmentsinrespectofcapitalexpenditurenotprovidedforintheconsolidatedfinancialstatementsattheendofthereportingyearare:
2016 2015
Group RM Mil RM Mil
Property, plant and equipment
Approvedandcontractedfor 6,216 7,843
Approvedbutnotcontractedfor 4,719 9,401
10,935 17,244
IncludedinthecapitalcommitmentsareRM9,302million(2015:RM14,666million)relatingtodevelopmentofpetrochemicalplantswhicharepartoftheRAPIDprojectinPengerang,JohorandRM864million(2015:RM1,458million)forthenewworldscalefertiliserplantinSipitang,Sabah.
30. RELATED PARTIES DISCLOSURES For thepurposesof thesefinancialstatements,partiesareconsidered tobe related to theGroupor theCompany if theGroupor the
Companyhastheability,directlyorindirectly,tocontrolorjointlycontrolthepartyorexercisesignificantinfluenceoverthepartyinmakingfinancialandoperatingdecisions,orviceversa,orwheretheGrouportheCompanyandthepartyaresubjecttocommoncontrol.Relatedpartiesmaybeindividualsorotherentities.
Relatedpartiesalsoincludekeymanagementpersonneldefinedasthosepersonshavingauthorityandresponsibilityforplanning,directingandcontrollingtheactivitiesoftheGroupeitherdirectlyorindirectly.ThekeymanagementpersonnelincludealltheDirectorsoftheGroup,andcertainmembersofseniormanagementoftheGroup.
TheGroup’sandtheCompany’srelatedpartiesincludesubsidiaries,jointventures,associatesaswellastheGovernmentofMalaysiaanditsrelatedentities.
(a) Key management personnel compensation
2016 2015
Group and Company RM 000 RM 000
Directors remuneration:
- Fees 773 718
TheCompanypaidmanagementfeestotheholdingcompanyinrelationtoservicesofkeymanagementpersonneloftheCompanyasdisclosedinNote30(b).
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Notes to the Financial Statements (Cont’d)
30. RELATED PARTIES DISCLOSURES (CONTINUED)
(b) Significant transactions with related parties
Inadditiontothetransactionsdetailedelsewhereintheconsolidatedfinancialstatements,theGrouphadthefollowingtransactionswithrelatedpartiesduringtheyear:
Group Note2016
RM Mil2015
RM Mil
PETRONAS:
Purchaseofprocessedgasandnaturalgas (3,176) (3,075)
Managementfees 30.1 (9) (10)
Centralisedmanagementservices (39) (39)
Securitycharges (17) (16)
Information,communicationandtechnologycharges (73) (61)
Rentalofofficespace (21) (22)
InterestincomefromPETRONASIFSSC 250 328
Projectexpenses (20) (401)
Subsidiaries of PETRONAS:
Salesofpetrochemicalproducts 881 1,037
Purchaseofheavynaphtha (1,458) (1,706)
Purchaseofprocessedgasandnaturalgas (125) (82)
Purchaseofutilitiesandmaterialsandsupplies (755) (663)
Traininganddevelopmentrelatedcosts (20) (28)
Purchaseofwarehouseandtransportationservices (80) (76)
Provisionofoperatingandmaintenanceservices 2 3
Purchaseofmarinediesel (2) (5)
Technicalretainerfee (56) (61)
Projectexpenses (355) (273)
Joint ventures and associates of the Group:
Salesofpetrochemicalproducts 1,312 1,316
Renderingofservices 17 14
Purchaseofpetrochemicalproducts (28) (34)
Purchaseofwarehouseandtransportationservices (161) (144)
Corporate shareholder of the Group: 30.2
Salesofpetrochemicalproducts 552 594
Purchaseofpetrochemicalproducts - (10)
Managementfees (1) (1)
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Notes to the Financial Statements (Cont’d)
30. RELATED PARTIES DISCLOSURES (CONTINUED)
(b) Significant transactions with related parties (continued)
Group2016
RM Mil2015
RM MilNote
Government related entities:
Salesofpetrochemicalproducts 94 104
Interestincome 16 13
Purchaseofelectricity (105) (100)
30.1ManagementfeespaidtoholdingcompanyrelatetopaymentforservicesofcertainkeymanagementpersonneloftheGroup.
30.2 Alltheamountsoutstandingareunsecuredandexpectedtobesettledwithcash.Thebalancesmayalsobesubjectedtointerestrateat8.15%(2015:8.35%)perannum.
Company Note2016
RM 0002015
RM 000
PETRONAS:
FeesforrepresentationontheBoardofDirectors 30.3 (229) (229)
Managementfees 30.4 (1,282) (1,513)
Centralisedmanagementservices (2,495) (753)
Information,communicationandtechnologycharges (7,377) (5,682)
Rentalofofficespace (14,847) (14,307)
InterestincomefromPETRONASIFSSC 55,151 68,168
Subsidiaries:
Interestincome 219,906 107,920
Dividendincome 4,338,772 2,642,570
Managementfeeincome 77,435 66,350
Loanandadvances (2,480,573) (1,771,119)
Joint ventures and associates:
Dividendincome 62,081 153,699
Government related entities:
Interestincome 15,581 13,359
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Notes to the Financial Statements (Cont’d)
30. RELATED PARTIES DISCLOSURES (CONTINUED)
(b) Significant transactions with related parties (continued)
30.3 FeesforrepresentationontheBoardofDirectorspaiddirectlytoholdingcompanyrelatetopaymentoffeesforDirectorswhoareappointeesoftheholdingcompany.
30.4 ManagementfeespaidtoholdingcompanyrelatetopaymentforservicesofcertainkeymanagementpersonneloftheCompany.
Informationregardingoutstandingbalancesarisingfromrelatedpartytransactionsasat31December2016isdisclosedinNotes10,13,17and19.
TheDirectorsoftheCompanyareoftheopinionthattheabovetransactionshavebeenenteredintointhenormalcourseofbusinessandhavebeenestablishedonacommercialbasis.
OtherrelatedpartytransactionshavenotbeenincludedasthetransactionsarenotsignificanttotheGroup.
31. OPERATING SEGMENTS
Formanagementpurposes,theGrouphastworeportablesegments,asdescribedbelow,whicharetheGroup’sstrategicbusinessunits.Thestrategicbusinessunitsofferdifferentproductsandservices,andaremanagedseparatelybecausetheyrequiredifferenttechnologyandmarketingstrategies.ThefollowingsummarydescribestheoperationsineachoftheGroup’sreportablesegments:
• OlefinsandDerivatives–activitiesincludemanufacturingandmarketingofawiderangeofolefinandpolymerproducts,whichareusedasbasicfeedstockforotherproducts,tointermediateproductsincludingbasicandhighperformancechemicals.
• FertilisersandMethanol–activitiesincludemanufacturingandmarketingmethanolandarangeofnitrogen,phosphateandcompoundfertilisers.
Managementmonitorstheoperatingresultsofthebusinessunitsseparatelyforthepurposeofmakingdecisionsaboutresourceallocationandperformanceassessment.Segmentperformanceisevaluatedbasedonoperatingprofitor lossandismeasuredconsistentlywithoperatingprofitorlossintheconsolidatedfinancialstatements.
Performance ismeasuredbasedonsegmentprofitafter taxas included in the internalmanagement reports thatare reviewedby theMD/CEO,whoistheGroup’schiefoperatingdecisionmaker.Segmentprofit isusedtomeasureperformanceasmanagementbelievesthatsuchinformationisthemostrelevantinevaluatingtheresultsofthesegmentsrelativetootherentitiesthatoperatewithintheseindustries.
Transferpricesbetweenoperatingsegmentsareestablishedinamannersimilartotransactionswiththirdparties.
Other non-reportable segment comprisesoperations related to investmentholding companyandport serviceswhichprovideproductdistributioninfrastructuretotheGroup,whichonlycontributes0.4%(2015:0.3%)oftheGroup’srevenueandrepresents13.0%(2015:9.0%)oftheGroup’sassets.
Segment assets
Thetotalofsegmentassetsaremeasuredbasedonallassetsofasegment,as included inthe internalmanagementreportsthatarereviewedbytheMD/CEO.Segmenttotalassetisusedtomeasurethereturnofassetsofeachsegment.
Segment liabilities
TheGroupsegmentliabilitiesaremeasuredandmanagedonagroupbasisandarenotallocatedtooperatingsegments.
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Notes to the Financial Statements (Cont’d)
31. OPERATING SEGMENTS (CONTINUED)
Group
Olefins and Derivatives
RM Mil
Fertilisers and Methanol
RM MilOthersRM Mil
Elimination and adjustment
RM MilTotal
RM Mil
2016
Segment profit 2,159 999 64 - 3,222
Includedinthemeasureofsegmentprofitare:
Revenuefromexternalcustomers 9,744 4,063 53 - 13,860
Inter-segmentrevenue 13 165 45 (223) -
Depreciationandamortisation (804) (514) (19) - (1,337)
Property,plantandequipmentwrittenoff (244) - - - (244)
Interestincome 148 46 287 (220) 261
Financing(costs)/income (19) (3) 69 - 47
Shareof(loss)/profitofjointventuresandassociates (30) 15 32 - 17
Taxexpense (754) (71) (63) - (888)
Segment assets 13,752 13,923 4,293 (20) 31,948
Included in the measure of segment assetsare:
Investmentsinjointventuresandassociates 1,152 119 92 - 1,363
Additionstonon-currentassetsotherthanfinancialinstrumentsanddeferredtaxassets 2,089 801 153 - 3,043
2015
Segment profit 1,993 1,059 39 - 3,091
Includedinthemeasureofsegmentprofitare:
Revenuefromexternalcustomers 9,495 3,995 46 - 13,536
Inter-segmentrevenue 12 192 40 (244) -
Depreciationandamortisation (800) (459) (20) - (1,279)
Property,plantandequipmentwrittenoff - - (5) - (5)
Interestincome 158 98 212 (108) 360
Financing(costs)/income (25) (4) 18 - (11)
Shareof(loss)/profitofjointventuresandassociates 32 13 42 - 87
Taxexpense (645) (75) (22) - (742)
Segment assets 14,808 13,279 2,780 (34) 30,833
Included in the measure of segment assetsare:
Investmentsinjointventuresandassociates 1,072 110 98 - 1,280
Additionstonon-currentassetsotherthanfinancialinstrumentsanddeferredtaxassets 896 1,985 13 - 2,894
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31. OPERATING SEGMENTS (CONTINUED)
Geographical information
Geographical revenue isdeterminedbasedon locationofcustomers.Theamountspresentedfornon-currentassetsarebasedonthegeographicallocationoftheassetsanddonotincludefinancialinstruments(includinglongtermreceivables,investmentinjointventuresandassociates)anddeferredtaxassets.
GroupRevenue
RM Mil
Non-current assetsRM Mil
2016
Malaysia 4,530 18,543
Asia:
-China 3,010 1
-Indonesia 1,895 -
-Thailand 1,388 2
-Others 2,778 -
Restoftheworld 259 -
13,860 18,546
2015
Malaysia 4,989 16,599
Asia:
-China 2,179 2
-Indonesia 1,599 -
-Thailand 1,261 1
-Others 3,111 -
Restoftheworld 397 -
13,536 16,602
Major customers
Noneofthecustomersindividuallycontributestomorethan10%oftheGroup’srevenue.
32. FINANCIAL INSTRUMENTS
Categories of financial instruments
Thefollowingtablesprovideananalysisoffinancialinstrumentscategorisedasfollows:
(i) Loansandreceivables(L&R);(ii) Fairvaluethroughprofitorloss(FVTPL)
-Heldfortrading(HFT);and(iii) Financialliabilitiesmeasuredatamortisedcost(FL).
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Notes to the Financial Statements (Cont’d)
32. FINANCIAL INSTRUMENTS (CONTINUED)
Categories of financial instruments (continued)
2016 2015
Group Note
L&R/(FL)
RM Mil
FVTPL- HFT
RM Mil
TotalcarryingamountRM Mil
L&R/(FL)
RM Mil
FVTPL- HFT
RM Mil
TotalcarryingamountRM Mil
Financial assets
Tradeandotherreceivables* 10 2,092 15 2,107 1,576 9 1,585
Fundinvestments 12 - - - 622 - 622
Cashandcashequivalents 13 7,403 - 7,403 8,707 - 8,707
9,495 15 9,510 10,905 9 10,914
Financial liabilities
Otherlongtermliabilities* 17 (216) - (216) (345) - (345)
Borrowings 18 (23) - (23) (30) - (30)
Tradeandotherpayables* 19 (2,175) (17) (2,192) (2,146) (720) (2,866)
Dividendpayable (42) - (42) - - -
(2,456) (17) (2,473) (2,521) (720) (3,241)
*ThesebalancesexcludebalanceswhicharenotwithinthescopeofMFRS139,Financial Instruments: Recognition and Measurement.
2016 2015
Company Note
L&R/(FL)
RM Mil
FVTPL- HFT
RM Mil
TotalcarryingamountRM Mil
L&R/(FL)
RM Mil
FVTPL- HFT
RM Mil
TotalcarryingamountRM Mil
Financial assets
Longtermreceivables 7 7,011 - 7,011 - - -
Tradeandotherreceivables* 10 552 1 553 4,298 - 4,298
Fundinvestments 12 - - - 622 - 622
Cashandcashequivalents 13 1,254 - 1,254 1,793 - 1,793
8,817 1 8,818 6,713 - 6,713
Financial liabilities
Tradeandotherpayables* 19 (259) (1) (260) (143) (715) (858)
*ThesebalancesexcludebalanceswhicharenotwithinthescopeofMFRS139,Financial Instruments: Recognition and Measurement.
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Notes to the Financial Statements (Cont’d)
32. FINANCIAL INSTRUMENTS (CONTINUED)
Financial risk management
TheGroupandtheCompanyareexposedtovariousfinancialrisksthatareparticulartoitscorebusinessofpetrochemical.Theserisks,whichariseinthenormalcourseoftheGroup’sandtheCompany’sbusiness,comprisecreditrisk,liquidityriskandmarketriskrelatingtointerestrates,foreigncurrencyexchangeratesandprices.
The Group adopts PETRONAS Group RiskManagement Framework and Guideline that sets the foundation for the establishment ofeffectiveriskmanagementacrosstheGroup.
Risk taking activities are undertakenwithin acceptable level of risk or risk appetite,whereby the risk appetite level reflects businessconsiderations and capacity to assume such risks. The risk appetite is established at Board level, where relevant, based on definedmethodologyandtranslatedintooperationalthresholds.
TheGroup’sandtheCompany’sgoal in riskmanagement is toensure that themanagementunderstands,measuresandmonitors the
variousrisksthatariseinconnectionwiththeiroperations.Policiesandguidelineshavebeendevelopedtoidentify,analyse,appraiseandmonitorthedynamicrisksfacingtheGroupandtheCompany.Basedonthisassessment,eachbusinessunit/Companyadoptsappropriatemeasurestomitigatetheserisksinaccordancewiththebusinessunit’s/Company’sviewofthebalancebetweenriskandreward.
Credit risk
CreditriskisthepotentialexposureoftheGroupandtheCompanytolossesintheeventofnon-performancebycounterparties.TheGroup’sandtheCompany’sexposurestocreditriskariseprincipallyfromitsreceivablesfromcustomersandintercompanyloansandadvances.CreditrisksarecontrolledbyindividualoperatingunitsinlinewithPETRONASGroupRiskManagementFrameworkandGuideline.
Intercompany loans and advances
TheCompanyprovidesunsecuredloansandadvancestosubsidiaries.TheCompanymonitorstheresultsofthesubsidiariesregularly.Asattheendofthereportingperiod,themaximumexposuretocreditriskisrepresentedbytheircarryingamountsinthestatementsoffinancialposition.
Receivables
TheGroupminimisescreditriskbyensuringthatallpotentialcounterpartiesaresubjecttocreditassessmentandapprovalpriortoanytransactionbeingconcluded.Existingcounterpartiesarealsosubjecttoregularreviews,includingre-appraisalandapprovalofgrantedlimits.Thecreditworthinessofcounterpartiesisassessedbasedonananalysisofallavailablequantitativeandqualitativedataregardingbusinessrisksandfinancialstanding,togetherwiththereviewofanyrelevantthirdpartyandmarketinformation.ReportsarepreparedandpresentedtothemanagementthatcovertheGroup’sandtheCompany’soverallcreditexposureagainstlimitsandsecurities,exposurebysegmentandoverallqualityoftheportfolio.
Dependingonthetypesoftransactionsandcounterpartycreditworthiness,theGroupfurthermitigatesandlimitsrisksrelatedtocreditbyrequiringcollateralorothercreditenhancementssuchascashdeposits,letterofcreditorbankguarantees.
Exposuretolossesincreaseswithconcentrationsofcreditriskwhichmayexistwhenanumberofcounterpartiesareinvolvedinsimilaractivitiesoroperate inthesameindustrysectororgeographicalarea,whichmayresult intheirabilitytomeetcontractualobligationsbeingimpactedbychangesineconomic,politicalorotherconditions.
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Notes to the Financial Statements (Cont’d)
32. FINANCIAL INSTRUMENTS (CONTINUED)
Credit risk (continued)
Receivables (continued)
TheGroup’ssignificantconcentrationofcreditriskforreceivablesattheendofthereportingdatebysegmentisasfollows:
Group2016
RM Mil2015
RM Mil
OlefinsandDerivatives 1,525 1,133
FertilisersandMethanol 522 349
Others 45 94
2,092 1,576
Asattheendofthereportingyear,themaximumexposuretocreditriskarisingfromreceivablesisequaltothecarryingamount.TheGroupusesageinganalysistomonitorthecreditqualityoftradereceivables.TheGrouphastakenreasonablestepstoensurethatreceivablesthatareneitherpastduenorimpairedarestatedattheirrealisablevalues.
TheageingoftradereceivablesandamountduefromPETRONAS,relatedcompaniesandassociateswhicharetradeinnatureasattheendofthereportingyearisanalysedbelow:
Group2016
RM Mil2015
RM Mil
At net
Current 1,809 1,406
Pastdue1to30days 2 -
1,811 1,406
WithrespecttotheGroup’stradereceivables,therearenoindicationsasofthereportingdatethatthedebtorswillnotmeettheirpaymentobligations,otherthanthosethatareimpaired.
Liquidity risk
LiquidityriskistheriskthattheGroupandtheCompanywillnotbeabletomeetitsfinancialobligationasastheyfalldue.TheGroup’sandtheCompany’sexposuretoliquidityriskarisesprincipallyfromitstradeandotherpayablesandborrowings.Inmanagingitsliquidityrisk,theGroupmonitorsandmaintainsalevelofcashandcashequivalentsdeemedadequatebymanagementtofinancetheGroup’sandtheCompany’soperationsandtomitigatetheeffectsoffluctuationsincashflows.
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Notes to the Financial Statements (Cont’d)
32. FINANCIAL INSTRUMENTS (CONTINUED)
Liquidity risk (continued)
Maturity analysis
The table belowsummarises thematurity profile of theGroup’s andCompany’s financial liabilities as at the reporting date basedonundiscountedcontractualpayments:
Group
CarryingamountRM Mil
Contractualinterest rates
per annum%
Contractualcash flows
RM Mil
Within1 year
RM Mil1-2 years
RM Mil2-5 years
RM Mil
More than5 yearsRM Mil
2016
Financial liabilities
Finance lease liabilities 183 5.00 205 55 55 95 -
Provisions 117 - 132 37 67 28 -
Borrowings 23 4.36 23 23 - - -
Tradeandotherpayables 2,091 - 2,091 2,091 - - -
Dividendpayable 42 - 42 42 - - -
Derivativeliabilities 17 - 17 17 - - -
2,473 2,510 2,265 122 123 -
2015
Financial liabilities
Finance lease liabilities 227 5.00 260 55 55 142 8
Provisions 207 - 236 46 131 45 14
Borrowings 30 4.45 31 31 - - -
Tradeandotherpayables 2,057 - 2,057 2,057 - - -
Derivativeliabilities 720 - 720 720 - - -
3,241 3,304 2,909 186 187 22
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32. FINANCIAL INSTRUMENTS (CONTINUED)
Liquidity risk (continued)
Maturity analysis (continued)
Company
CarryingamountRM Mil
Contractualinterest rates
per annum%
Contractualcash flows
RM Mil
Within1 year
RM Mil
2016
Financial liabilities
Tradeandotherpayables 259 - 259 259
Derivativeliabilities 1 - 1 1
260 260 260
2015
Financial liabilities
Tradeandotherpayables 143 - 143 143
Derivativeliabilities 715 - 715 715
858 858 858
Market risk
Marketrisk istheriskoruncertaintyarisingfromchanges inmarketpricesandtheir impactontheperformanceof thebusiness.Themarketprice changesarising fromfinancial instruments that theGroupand theCompanyare exposed to includes interest ratesandforeigncurrencyexchange rates thatcouldadverselyaffect thevalueof theGroup’sand theCompany’sfinancialassets, liabilitiesorexpectedfuturecashflows.
Interest rate risk
TheGroup’sandtheCompany’svariablerateinstrumentsareexposedtoariskofchangeincashflowsduetochangesininterestrateswhilstfixedrateinstrumentsareexposedtoariskofchangeintheirfairvalueduetochangesininterestrates.Shorttermreceivablesandpayablesarenotsignificantlyexposedtointerestraterisk.
Inmanaginginterestraterisk,theGroupandtheCompanymaintainabalancedportfoliooffixedandfloatingrateinstruments.AllinterestrateexposuresaremonitoredandmanagedproactivelybasedonadoptedPETRONASGroupRiskManagementFrameworkandGuideline.
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32. FINANCIAL INSTRUMENTS (CONTINUED)
Market risk (continued)
Interest rate risk (continued)
TheinterestrateprofileoftheGroup’sandtheCompany’sinterest-bearingfinancialinstrumentsbasedoncarryingamountasatreportingdateisasfollows:
Group Company
2016 2015 2016 2015
RM Mil RM Mil RM Mil RM Mil
Fixed rate instruments
Financial assets 101 958 5,527 5,146
Financial liabilities (183) (227) - -
(82) 731 5,527 5,146
Floating rate instruments
Financial assets 7,230 8,368 2,738 1,484
Financial liabilities (23) (30) - -
7,207 8,338 2,738 1,484
TheGroup’sandtheCompany’sfinancialassetsandliabilitiesaremeasuredatamortisedcost,anyreasonablepossiblechangeininterestrateisnotexpectedtohavematerialimpactontheGroup’sandtheCompany’sprofitorloss.
Foreign exchange risk
The Group and the Company are exposed to varying levels of foreign exchange risk when they enter into transactions that are notdenominatedintherespectivecompanies’functionalcurrenciesandwhenforeigncurrencymonetaryassetsandliabilitiesaretranslatedatthereportingdate.ThemainunderlyingeconomiccurrenciesoftheGroup’sandtheCompany’scashflowsareRinggitMalaysiaandUSDollar.
TheGroup’sandtheCompany’sforeignexchangemanagementpoliciesaretominimiseeconomicandsignificanttransactionalexposuresarisingfromcurrencymovements.TheGroupmainlyreliesonthenaturalhedgegeneratedbythefactthatsomeoftheir revenueandexpensesaredenominatedinUSDollar.Inaddition,theGroup,whereapplicable,hedgeusingderivativeinstrumentsinrespectofcurrentandforecastedtransactions.
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Notes to the Financial Statements (Cont’d)
32. FINANCIAL INSTRUMENTS (CONTINUED)
Market risk (continued)
Foreign exchange risk (continued)
TheGroup’sandtheCompany’ssignificantexposuretoforeigncurrencyrisk,basedoncarryingamountsasatthereportingdateisasfollows:
Group
Denominated in
USDRM Mil
EURORM Mil
JPYRM Mil
2016
Financial assets
Tradeandotherreceivables 633 - -
Cashandcashequivalents 16 - -
649 - -
Financial liabilities
Tradeandotherpayables (30) (14) -
Derivativeassets/liabilitiesatnominalvalue (561) - -
Net exposure 58 (14) -
2015
Financial assets
Tradeandotherreceivables* 5,373 - -
Cashandcashequivalents 5 - -
5,378 - -
Financial liabilities
Tradeandotherpayables* (558) (7) (4)
Derivativeassets/liabilitiesatnominalvalue (4,751) - -
Net exposure 69 (7) (4)
*Theseamountsincludeforeigncurrencyriskexposurearisingfromintra-groupbalances.
Most of theGroup’s foreign denominated financial currency financial instruments are inUSDollar and since the net exposure is notmaterial,anyreasonablepossiblechangeintheexchangerateinUSDollarisnotexpectedtohaveamaterialimpactontheGroup’sprofitorloss.
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GROUP BERHAD
Notes to the Financial Statements (Cont’d)
32. FINANCIAL INSTRUMENTS (CONTINUED)
Market risk (continued)
Foreign exchange risk (continued)
Company
Denominated in USD
2016RM Mil
2015RM Mil
Financial assets
Longtermreceivables 7,011 -
Tradeandotherreceivables 9 4,215
7,020 4,215
Financial liabilities
Tradeandotherpayables (10) -
Derivativeliabilitiesatnominalvalue - (4,215)
Net exposure 7,010 -
Thefollowingtabledemonstratestheindicativepre-taxeffectsontheprofitorlossofapplyingreasonableforeseeablemarketmovementsonthenetexposureatthereportingdateinthefollowingcurrencyexchangerate:
2016Appreciation in foreign currency rate
%Profit/(Loss)
RM Mil
USD 10 701
A decrease in change in currency rate abovewould have had equal but opposite effect, on the basis that all other variables remainconstant.
Price risk
TheGroupisexposedtopricerisksthatincludefeedstockandproductpriceriskandbasisriskwhichmayaffectthevalueoftheGroup’sassets,liabilitiesorexpectedfuturecashflows.Priceriskistheriskoffinanciallossduetofluctuationandvolatilityoffeedstockpricesonpurchasesandproductpricesontrades.Basisrisk,ontheotherhand,istheriskoffinanciallossasaresultofdifferentpricingtermoftrades.
TheGroupisguidedbyindustrypracticesandminimisesitspriceriskexposurebyproactivelyandcontinuouslyidentifying,measuring,monitoring,mitigatingandreportingpriceriskwithinthecontextofacomprehensiveriskmanagementframework.
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Notes to the Financial Statements (Cont’d)
32. FINANCIAL INSTRUMENTS (CONTINUED)
Fair value information
Thecarryingamountsofcashandcashequivalents,andshorttermreceivablesandpayablesreasonablyapproximatetheirfairvaluesduetotherelativelyshorttermnatureofthesefinancialinstruments.
Thefollowingtableanalysesfinancialinstrumentscarriedatfairvalueandthosenotcarriedatfairvalueforwhichfairvalueisdisclosed,togetherwiththeirfairvaluesandcarryingamountsshowninthestatementsoffinancialposition.
Fair value of financial instruments carried at fair value
Fair value of financial instruments
not carried at fair valueCarrying amount
GroupLevel 2RM Mil
TotalRM Mil
Level 3RM Mil
TotalRM Mil
TotalRM Mil
2016
Financial assets
Forwardforeignexchangecontracts 15 15 - - 15
Financial liabilities
Forwardforeignexchangecontracts (17) (17) - - (17)
Finance lease liabilities - - (136) (136) (137)
(17) (17) (136) (136) (154)
2015
Financial assets
Forwardforeignexchangecontracts 9 9 - - 9
Financial liabilities
Forwardforeignexchangecontracts (720) (720) - - (720)
Finance lease liabilities - - (183) (183) (183)
(720) (720) (183) (183) (903)
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Notes to the Financial Statements (Cont’d)
32. FINANCIAL INSTRUMENTS (CONTINUED)
Fair value information (continued)
Fair value of financial instruments carried at fair value
Fair value of financial instruments
not carried at fair valueCarrying amount
CompanyLevel 2RM Mil
TotalRM Mil
Level 3RM Mil
TotalRM Mil
TotalRM Mil
2016
Financial assets
Longtermreceivables - - 7,011 7,011 7,011
Forwardforeignexchangecontracts 1 1 - - 1
1 1 7,011 7,011 7,012
Financial liabilities
Forwardforeignexchangecontracts (1) (1) - - (1)
2015
Financial liabilities
Forwardforeignexchangecontracts (715) (715) - - (715)
Forward foreign exchange contracts
The fair value of forward foreign exchange contracts is based on the fair value difference between forward exchange rates and thecontractedrates.
Finance lease liabilities
Thefairvalueoffinanceleaseliabilitieswhichisdeterminedfordisclosurepurposesiscalculatedbasedonthepresentvalueoffutureprincipalandinterestcashflows,discountedatthemarketrateofinterestattheendofthereportingperiod.
Long term receivables
Thefairvalueoflongtermreceivablesiscalculatedbasedonthepresentvalueoftheprojectedrepaymentofloans,discountedatthemarketrateofinterestattheendofthereportingperiod.
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Notes to the Financial Statements (Cont’d)
32. FINANCIAL INSTRUMENTS (CONTINUED)
Income/(expense), net gains and losses arising from financial instruments
2016 2015
Group
Interest incomeRM Mil
Interest expense
RM MilOthersRM Mil
TotalRM Mil
Interest incomeRM Mil
Interest expense
RM MilOthersRM Mil
TotalRM Mil
Loansandreceivables 261 - (47) 214 360 - 707 1,067
Financial instruments atfairvaluethroughprofitorloss -Heldfortrading - - 93 93 - - (608) (608)
Financial liabilities measuredat amortisedcost - (1) 38 37 - - (120) (120)
261 (1) 84 344 360 - (21) 339
2016 2015
Company
Interest incomeRM Mil
Interest expense
RM MilOthersRM Mil
TotalRM Mil
Interest incomeRM Mil
Interest expense
RM MilOthersRM Mil
TotalRM Mil
Loansandreceivables 284 - 325 609 209 - 636 845
Financial instruments atfairvaluethroughprofitorloss -Heldfortrading - - 150 150 - - (618) (618)
Financial liabilities measuredat amortisedcost - - 7 7 - - (4) (4)
284 - 482 766 209 - 14 223
Othersrelatetogainsandlossesarisingfromfinancialinstrumentssuchasimpairmentloss,realisedandunrealisedforeignexchangegainsorlosses,andfairvaluegainsorlosses.
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GROUP BERHAD
Notes to the Financial Statements (Cont’d)
33. ADOPTION OF NEW AND REVISED PRONOUNCEMENTS
Asof1January2016,theGroupandtheCompanyadoptedthefollowingpronouncementsthatareapplicableandhavebeenissuedbyMASBaslistedbelow:
Effective for annual periods beginning on or after 1 January 2016
AmendmentstoMFRS5 Non-current Assets Held for Sale and Discontinued Operations (Annual Improvements 2012-2014 Cycle) AmendmentstoMFRS11 Joint Arrangements – Accounting for Acquisitions of Interests in Joint Operations AmendmentstoMFRS101 Presentation of Financial Statements – Disclosure Initiative AmendmentstoMFRS119 Employee Benefits (Annual Improvements 2012-2014 Cycle) AmendmentstoMFRS127 Separate Financial Statements: Equity Method in Separate Financial Statements AmendmentstoMFRS134 Interim Financial Reporting (Annual Improvements 2012-2014 Cycle)
TheinitialapplicationoftheabovementionedpronouncementsdonothaveanymaterialimpacttothefinancialstatementsoftheGroupandtheCompany.
34. NEW AND REVISED PRONOUNCEMENTS YET IN EFFECT
ThefollowingpronouncementsthathavebeenissuedbytheMASBwillbecomeeffectiveinfuturefinancialreportingperiodsandhavenotbeenadoptedbytheGroupand/ortheCompanyinthesefinancialstatements:
Effective for annual periods beginning on or after 1 January 2017
AmendmentstoMFRS12 Disclosure of Interests in Other Entities (Annual Improvements 2014 – 2016 Cycle) AmendmentstoMFRS107 Statement of Cash Flows: Disclosure Initiative AmendmentstoMFRS112 Income Taxes: Recognition of Deferred Tax Assets for Unrealised Losses
Effective for annual periods beginning on or after 1 January 2018
MFRS9 Financial Instruments (2014) MFRS15 Revenue from Contracts with Customers AmendmentstoMFRS15 Revenue from Contracts with Customers: Clarifications ICInterpretation22 Foreign Currency Transactions and Advance Consideration
Effective for annual periods beginning on or after 1 January 2019
MFRS16 Leases The Group and the Company are expected to apply the abovementioned pronouncements beginning from the respective dates the
pronouncementsbecomeeffective.TheinitialapplicationoftheabovementionedpronouncementsarenotexpectedtohaveanymaterialimpacttothefinancialstatementsoftheGroupandtheCompanyexceptasmentionedbelow:
i. MFRS 9 Financial Instruments MFRS9replacestheguidanceinMFRS139Financial Instruments: Recognition and Measurementontheclassificationandmeasurement
offinancialassets.
ii. MFRS 15 Revenue from Contracts with Customers MFRS 15 replaces the guidance in MFRS 111 Construction Contracts, MFRS 118 Revenue, IC Interpretation 13 Customer Loyalty
Programmes, ICInterpretation15Agreements for Construction of Real Estate, ICInterpretation18Transfers of Assets from Customers andICInterpretation131Revenue – Barter Transactions Involving Advertising Services.
iii. MFRS 16 Leases MFRS16replacesexistingleasesguidanceinMFRS117Leases,ICInterpretation4Determining whether an Arrangement contains a
Lease,ICInterpretation115Operating Leases – Incentives,andICInterpretation127Evaluating the Substance of Transactions Involving the Legal Form of a Lease.
TheGroupandtheCompanyarecurrentlyassessingtheimpactofadoptingtheabovepronouncements.
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Notes to the Financial Statements (Cont’d)
35. NEW PRONOUNCEMENTS NOT APPLICABLE TO THE GROUP AND THE COMPANY
TheMASBhasissuedpronouncementswhicharenotyeteffective,butforwhicharenotrelevanttotheoperationsoftheGroupandtheCompanyandhence,nofurtherdisclosureiswarranted.
Effective for annual periods beginning on or after 1 January 2018
AmendmentstoMFRS1 First-time Application of Malaysian Financial Reporting Standards (Annual Improvements 2014 – 2016 Cycle) AmendmentstoMFRS2 Share-based Payment: Classification and Measurement of Share-based Payment Transactions AmendmentstoMFRS4 Insurance Contracts: Applying MFRS 9 Financial Instruments with MFRS 4 Insurance Contracts AmendmentstoMFRS128 Investments in Associates and Joint Ventures (Annual Improvements 2014 – 2016 Cycle) AmendmentstoMFRS140 Investment Property: Transfer of Investment Property
Effectiveforannualperiodsbeginningonorafteradateyettobeconfirmed
AmendmentstoMFRS10and MFRS128 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
36. CAPITAL MANAGEMENT
TheGroupdefinescapitalasthetotalequityanddebtoftheGroup.TheobjectiveoftheGroup’sandtheCompany’scapitalmanagementistomaintainanoptimalcapitalstructureandensuringavailabilityoffundsinordertosupportitsbusinessandrelatedshareholdersvalue.AsasubsidiaryofPETRONAS,theGroupadoptsPETRONASGroupCorporateFinancialPolicyinmanagingitscapital.
TheGroupmonitorsandmaintainsaprudentleveloftotaldebttototalassetsratiotooptimiseshareholdersvalueandtoensurecompliancewithcovenants.
TherewerenochangesintheGroup’sandtheCompany’sapproachtocapitalmanagementduringtheyear.
UndertherequirementofBursaMalaysiaPracticeNoteNo.17/2005,theGroupisrequiredtomaintainconsolidatedshareholders’equityequaltoornotlessthan25%oftheissuedandpaid-upcapitalandsuchshareholders’equityisnotlessthanRM40million.TheGrouphascompliedwiththisrequirement.
37. HOLDING COMPANY
TheimmediateandultimateholdingcompanyisPetroliamNasionalBerhad(PETRONAS),acompanyincorporatedinMalaysia.
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GROUP BERHAD
Notes to the Financial Statements (Cont’d)
38. SUPPLEMENTARY FINANCIAL INFORMATION ON THE BREAKDOWN OF REALISED AND UNREALISED PROFITS OR LOSSES
ThebreakdownoftheretainedearningsoftheGroupandoftheCompanyasat31December2016intorealisedandunrealisedprofits,pursuanttoParagraphs2.06and2.23ofMainMarketListingRequirementsofBursaMalaysiaSecuritiesBerhad,isasfollows:
Group Company
2016 2015 2016 2015
RM Mil RM Mil RM Mil RM Mil
Totalretainedprofits/(losses)oftheCompanyanditssubsidiaries:
- realised 20,774 19,348 10,031 6,977
- unrealised (492) (518) 415 (2)
20,282 18,830 10,446 6,975
Totalretainedprofits/(losses)fromjointventuresandassociates:
- realised 155 199 - -
- unrealised (26) (19) - -
129 180 - -
Totalrealisedandunrealised 20,411 19,010 10,446 6,975
Less:Consolidationadjustments (3,663) (3,817) - -
TotalGroupretainedprofitsasperconsolidatedaccounts 16,748 15,193 10,446 6,975
The determination of realised and unrealised profits is based on the Guidance on SpecialMatter No.1,Determination of Realised and Unrealised Profits or Losses in the Context of Disclosures Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, issued byMalaysianInstituteofAccountantson20December2010.
ThedisclosureofrealisedandunrealisedprofitsaboveissolelyforcomplyingwiththedisclosurerequirementsstipulatedinthedirectiveofBursaMalaysiaandshouldnotbeappliedforanyotherpurposes.
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INDEPENDENT AUDITORS’ REPORT to the members of PETRONAS Chemicals Group Berhad
(Company No. 459830-K)
(Incorporated in Malaysia)
Report on the Audit of the Financial Statements
Opinion
WehaveauditedthefinancialstatementsofPETRONASChemicalsGroupBerhad(“PCG”),whichcomprisethestatementsoffinancialpositionasat31December2016oftheGroupandtheCompany,andthestatementsofprofitorlossandothercomprehensiveincome,changesinequityandcashflowsoftheGroupandtheCompanyfortheyearthenended,andnotestothefinancialstatements,includingasummaryofsignificantaccountingpolicies,assetoutonpages141to196. Inouropinion,thefinancialstatementsgiveatrueandfairviewofthefinancialpositionoftheGroupandtheCompanyasat31December2016andoftheirfinancialperformanceandtheircashflowsfortheyearthenendedinaccordancewithMalaysianFinancialReportingStandards,InternationalFinancialReportingStandardsandtherequirementsoftheCompaniesAct,1965inMalaysia.
Basis for Opinion
We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. OurresponsibilitiesunderthosestandardsarefurtherdescribedintheAuditors’ Responsibilities for the Audit of the Financial Statements section ofthisreport.Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforouropinion.
Independence and Other Ethical Responsibilities
Weare independentof theGroupandof theCompany inaccordancewith theBy-Laws (on Professional Ethics, Conduct and Practice)of theMalaysianInstituteofAccountants(“By-Laws”)andtheInternationalEthicsStandardsBoardforAccountants’Code of Ethics for Professional Accountants (“IESBACode”),andwehavefulfilledourotherethicalresponsibilitiesinaccordancewiththeBy-LawsandtheIESBACode.
Key Audit Matters
Keyauditmattersarethosemattersthat,inourprofessionaljudgment,wereofmostsignificanceinourauditofthefinancialstatementsoftheGroupandoftheCompanyforthecurrentfinancialyear.ThesematterswereaddressedinthecontextofourauditofthefinancialstatementsoftheGroupandtheCompanyasawhole,andinformingouropinionthereon,andwedonotprovideaseparateopiniononthesematters.
Property, plant and equipment
Refertonote2.2(accountingpolicy)andnote3ofthefinancialstatements.
ThereisariskofimpairmentoftheGroup’sproperty,plantandequipmentasaresultofdecliningpricesofseveralproducts,that,inturnreducestheprofitmargins.Therecoverabilityofthecarryingamountsofproperty,plantandequipmentofthecashgeneratingunitsaredependentupontherecoverablevalues(determinedusingthenetcashflows)ofthecashgeneratingunitsoftheaffectedplants.Thisisoneoftheareasthatourauditfocusesonbecausethereareinherentuncertaintiesandsignificantmanagementjudgmentinvolvedinforecastinganddiscountingfuturecashflowsoftheaffectedcashgeneratingunitstoarriveattherecoverablevalues.Theinherentuncertaintiesamongstothersincludeappropriatenessofsignificantassumptionsanddiscountrates.
Inthisarea,ourauditproceduresincluded,amongstothers:
• evaluatedtheimpairmenttestmodelbycomparingitwiththerequirementsoffinancialreportingstandards;
• assessedtheappropriatenessofthediscountratesusedbycomparingthesewithourexpectationsbasedonourknowledgeoftheindustryinwhichtheGroupoperates;
• assessedthosesignificantandhighlysensitiveassumptions,suchasthelongtermoutlookofpricesforfinishedproductsandrawmaterials,todeterminethatthesewereappropriateandsupportablebycomparingthemwithinternalandexternalsources;
• readthereportofandinterviewedaspecialistengagedbytheGroupinvalidatingtherecoverablevalueofoneofthecashgeneratingunitsoftheaffectedplant;and
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PETRONAS CHEMICALS
GROUP BERHAD
Independent Auditors’ Report (Cont’d)to the members of PETRONAS Chemicals Group Berhad
(Company No. 459830-K)
(Incorporated in Malaysia)
• consideredtheadequacyofthedisclosuresontheimpairmentassessmentforthecashgeneratingunitsofwhichtheassumptionsappliedwereparticularly sensitive, uncertain or required significant judgment andhence, hada significant riskwhich could result in amaterialadjustmenttothecarryingamountoftheplantswithinthenextfinancialyear.
Deferred tax assets
Refertonote2.13(ii)(accountingpolicy)andnote8ofthefinancialstatements.
Wheredeferredtaxassetsarerecognised,managementjudgmentisrequiredtoassesstheutilisationofthebalancebyreferencetoprojectionsoffuturetaxableincome.Theperiodsoverwhichthedeferredtaxassetsareexpectedtoberecoveredcanbeextensive.Thisisoneoftheareasthatourauditfocusesonbecausethereareinherentuncertaintiesinvolvedinprojectingfuturetaxableincome,inparticular,whenthedeferredtaxassetsarerecognisedbysubsidiarieswhichcontinuetobelossmaking. Inthisarea,theauditproceduresincluded,amongstothers:
• assessedtheadequacyoftheauditproceduresperformedbythecomponentauditorstoreviewtherecogniseddeferredtaxassetastwoofthesubsidiariesintheGroupthathadrecognisedsignificantdeferredtaxassetsareauditedbyanotherfirmofauditors;and
• evaluated the likelihood of successful implementation of the proposed tolling arrangements within the Group’s integrated value chaininvolvingtheaforesaidtwosubsidiariesandtheappropriatenessoftheGroup’sassessmentthatitisprobablethatsufficienttaxableincomewouldbegeneratedtoutilisethedeferredtaxassets.
Provision for financial assistance
Refertonote2.11(accountingpolicy)andnote17ofthefinancialstatements.
TheCompanymadeaprovisiontoprovidefinancialassistancetooneofitssubsidiaries.Thisisoneoftheareasthatourauditfocusesonbecausethereareinherentuncertaintiesandsignificantjudgmentinvolvedinforecastinganddiscountingfuturecashflowsoftheobligationtoprovidefinancialassistancetothesaidsubsidiary.
Inthisarea,theauditproceduresincluded,amongstothers:
• assessed those significant assumptions, the extent of the constructive and contractual obligation that is needed to be fulfilled by thesubsidiary,todeterminethatthesewereappropriateandjustifiedbycomparingthemwithinternalandexternalsources;and
• determined theadequacyof theprovisionby reading thefinancialstatementsof thesubsidiaryandassessed itssolvencyandfinancialstanding.
Information Other than the Financial Statements and Auditors’ Report Thereon
TheDirectorsof theCompanyare responsible for theother information. Theother information comprises the information included in theDirectors’ReportandStatementonRiskManagementandInternalControl(butdoesnotincludethefinancialstatementsoftheGroupandoftheCompanyandourauditors’reportthereon),whichweobtainedpriortothedateofthisauditors’report,andtheremainingpartsoftheAnnualReport,whichareexpectedtobemadeavailabletousaftertheauditors’reportdate.
OuropiniononthefinancialstatementsoftheGroupandoftheCompanydoesnotcovertheother informationandwedonotandwillnotexpressanyformofassuranceconclusionthereon.
InconnectionwithourauditofthefinancialstatementsoftheGroupandoftheCompany,ourresponsibilityistoreadtheotherinformationidentifiedaboveand,indoingso,considerwhethertheotherinformationismateriallyinconsistentwiththefinancialstatementsoftheGroupandoftheCompanyorourknowledgeobtainedintheaudit,orotherwiseappearstobemateriallymisstated.If,basedontheworkwehaveperformedontheotherinformationthatweobtainedpriortothedateofthisauditors’report,weconcludethatthereisamaterialmisstatementofthisotherinformation,wearerequiredtoreportthatfact.Wehavenothingtoreportinthisregard.
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Responsibilities of Directors for the Financial Statements
TheDirectorsoftheCompanyareresponsibleforthepreparationoffinancialstatementsoftheGroupandoftheCompanythatgiveatrueandfairviewinaccordancewithMalaysianFinancialReportingStandards,InternationalFinancialReportingStandardsandtherequirementsoftheCompaniesAct,1965inMalaysia.TheDirectorsarealsoresponsibleforsuchinternalcontrolastheDirectorsdetermineisnecessarytoenablethepreparationoffinancialstatementsoftheGroupandoftheCompanythatarefreefrommaterialmisstatement,whetherduetofraudorerror.
InpreparingthefinancialstatementsoftheGroupandoftheCompany,theDirectorsareresponsibleforassessingtheabilityoftheGroupandoftheCompanytocontinueasagoingconcern,disclosing,asapplicable,mattersrelatedtogoingconcernandusingthegoingconcernbasisofaccountingunlesstheDirectorseitherintendtoliquidatetheGrouportheCompanyortoceaseoperations,orhavenorealisticalternativebuttodoso.
Auditors’ Responsibilities for the Audit of the Financial Statements
OurobjectivesaretoobtainreasonableassuranceaboutwhetherthefinancialstatementsoftheGroupandoftheCompanyasawholearefreefrommaterialmisstatement,whetherduetofraudorerror,andtoissueanauditors’reportthatincludesouropinion.Reasonableassuranceisahighlevelofassurance,butisnotaguaranteethatanauditconductedinaccordancewithapprovedstandardsonauditinginMalaysiaandInternationalStandardsonAuditingwillalwaysdetectamaterialmisstatementwhenitexists.Misstatementscanarisefromfraudorerrorandareconsideredmaterialif,individuallyorintheaggregate,theycouldreasonablybeexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisofthesefinancialstatements. Aspart of an audit in accordancewith approved standards on auditing inMalaysia and International Standards onAuditing,we exerciseprofessionaljudgementandmaintainprofessionalscepticismthroughouttheaudit.Wealso:
• IdentifyandassesstherisksofmaterialmisstatementofthefinancialstatementsoftheGroupandoftheCompany,whetherduetofraudorerror,designandperformauditproceduresresponsivetothoserisks,andobtainauditevidencethatissufficientandappropriatetoprovideabasisforouropinion.Theriskofnotdetectingamaterialmisstatementresultingfromfraudishigherthanforoneresultingfromerror,asfraudmayinvolvecollusion,forgery,intentionalomissions,misrepresentations,ortheoverrideofinternalcontrol.
• Obtainanunderstandingofinternalcontrolrelevanttotheauditinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheinternalcontroloftheGroupandoftheCompany.
• EvaluatetheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesandrelateddisclosuresmadebytheDirectors.
• ConcludeontheappropriatenessoftheDirectors’useofthegoingconcernbasisofaccountingand,basedontheauditevidenceobtained,whetheramaterialuncertaintyexistsrelatedtoeventsorconditionsthatmaycastsignificantdoubtontheabilityoftheGrouporoftheCompanytocontinueasagoingconcern.Ifweconcludethatamaterialuncertaintyexists,wearerequiredtodrawattentioninourauditors’report to the relateddisclosures in thefinancialstatementsof theGroupandof theCompanyor, if suchdisclosuresare inadequate, tomodifyouropinion.Ourconclusionsarebasedontheauditevidenceobtaineduptothedateofourauditors’report.However,futureeventsorconditionsmaycausetheGrouportheCompanytoceasetocontinueasagoingconcern.
• Evaluatetheoverallpresentation,structureandcontentofthefinancialstatementsoftheGroupandoftheCompany,includingthedisclosures,andwhetherthefinancialstatementsoftheGroupandoftheCompanyrepresenttheunderlyingtransactionsandeventsinamannerthatgivesatrueandfairview.
• Obtainsufficientappropriateauditevidence regarding thefinancial informationof theentitiesorbusinessactivitieswithin theGroup toexpressanopiniononthefinancialstatementsoftheGroup.Weareresponsibleforthedirection,supervisionandperformanceofthegroupaudit.Weremainsolelyresponsibleforourauditopinion.
WecommunicatewiththeDirectorsregarding,amongothermatters,theplannedscopeandtimingoftheauditandsignificantauditfindings,includinganysignificantdeficienciesininternalcontrolthatweidentifyduringouraudit.
Independent Auditors’ Report (Cont’d)to the members of PETRONAS Chemicals Group Berhad
(Company No. 459830-K)
(Incorporated in Malaysia)
200
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PETRONAS CHEMICALS
GROUP BERHAD
Wealsoprovide theDirectorswitha statement thatwehavecompliedwith relevant ethical requirements regarding independence, and tocommunicatewiththemallrelationshipsandothermattersthatmayreasonablybethoughttobearonourindependence,andwhereapplicable,relatedsafeguards.
FromthematterscommunicatedwiththeDirectors,wedeterminethosemattersthatwereofmostsignificanceintheauditofthefinancialstatementsoftheGroupandoftheCompanyforthecurrentyearandarethereforethekeyauditmatters.Wedescribethesemattersinourauditors’reportunlesslaworregulationprecludespublicdisclosureaboutthematterorwhen,inextremelyrarecircumstances,wedeterminethatamattershouldnotbecommunicatedinourauditors’reportbecausetheadverseconsequencesofdoingsowouldreasonablybeexpectedtooutweighthepublicinterestbenefitsofsuchcommunication.
Report on Other Legal and Regulatory Requirements
InaccordancewiththerequirementsoftheCompaniesAct,1965inMalaysia,wealsoreportthefollowing:
a) Inouropinion,theaccountingandotherrecordsandtheregistersrequiredbytheActtobekeptbytheCompanyanditssubsidiariesofwhichwehaveactedasauditorshavebeenproperlykeptinaccordancewiththeprovisionsoftheAct.
b) Wehaveconsideredtheaccountsandtheauditors’reportsofthesubsidiariesofwhichwehavenotactedasauditors,whichareindicatedinNote26tothefinancialstatements,beingaccountsthathavebeenincludedintheconsolidatedfinancialstatements.
c) WearesatisfiedthattheaccountsofthesubsidiariesthathavebeenconsolidatedwiththeCompany’sfinancialstatementsareinformandcontentappropriateandproperforthepurposesofthepreparationofthefinancialstatementsoftheGroupandwehavereceivedsatisfactoryinformationandexplanationsrequiredbyusforthosepurposes.
d) TheauditreportsontheaccountsofthesubsidiariesdidnotcontainanyqualificationoranyadversecommentmadeunderSection174(3)oftheAct.
Other Reporting Responsibilities
ThesupplementaryinformationsetoutinNote38isdisclosedtomeettherequirementofBursaMalaysiaSecuritiesBerhadandisnotpartofthefinancialstatements.TheDirectorsareresponsibleforthepreparationofthesupplementaryinformationinaccordancewithGuidanceonSpecialMatterNo.1,DeterminationofRealisedandUnrealisedProfitsorLossesintheContextofDisclosurePursuanttoBursaMalaysiaSecuritiesBerhadListingRequirements, as issuedby theMalaysian Institute ofAccountants ("MIAGuidance") and thedirectiveofBursaMalaysiaSecuritiesBerhad. Inouropinion,thesupplementary informationisprepared, inallmaterialrespects, inaccordancewiththeMIAGuidanceandthedirectiveofBursaMalaysiaSecuritiesBerhad.
Other Matter
ThisreportismadesolelytothemembersoftheCompany,asabody,inaccordancewithSection174oftheCompaniesAct,1965inMalaysiaandfornootherpurpose.Wedonotassumeresponsibilitytoanyotherpersonforthecontentofthisreport.
KPMG PLT Thong Foo Vung(LLP0010081-LCA&AF0758) Approvalnumber:02867/08/2018JCharteredAccountants CharteredAccountant
PetalingJaya,Selangor
Date:20February2017
Independent Auditors’ Report (Cont’d)to the members of PETRONAS Chemicals Group Berhad
(Company No. 459830-K)
(Incorporated in Malaysia)
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LIST OF PROPERTIES
No.
Name of registered owner/Beneficial owner:
Acquisition date
Existing use
Land area: Age of Plant & building:
NBV as at 31/12/2016:
Lot. no./Leasehold period (sq metre unless
otherwise stated)
(Years) (RM ‘000)
1 PETRONAS Chemicals Derivatives Sdn Bhd, PETRONAS Chemicals Olefins Sdn Bhd and PETRONAS Chemicals Glycols Sdn Bhd (eacha1/3partowner)
H.S.(D)3385,PTNo.10535,MukimKertih,Kemaman,Terengganu
Leaseholdof60years,expiringon29August2060
H.S.(D)3316,PTNo.9015,MukimKertih,Kemaman,Terengganu
Leaseholdof60years,expiringon29August2060
PajakanNegeriNo.Hakmilik7594,No.Lot8068,MukimKertih,Kemaman,Terengganu
Leaseholdof60years,expiringon 29August2060
30.08.2000
30.08.2000
30.08.2000
Industrialland-TNBsub-station
Industrialland-Wastewaterandtreatment substation
Industrialland-Plantforproductionofethylenederivatives
3,886
260,469
611,075
16
16
16
299,432
2 PETRONAS Chemicals Methanol Sdn Bhd
No.205350607,Kg.Rancha-Rancha, WilayahPersekutuanLabuan
Leaseholdfor99years,expiringon31 December 2082
31.8.2004 Industrialland-Plantforproductionofmethanol
14hectares 12 1,363,625
3 PETRONAS Chemicals Methanol Sdn Bhd
No.206291590,Kg.Rancha-Rancha, WilayahPersekutuanLabuan
Leasefor51years,expiringon30 December 2043
01.06.1992 Industrialland-Plantforproductionofmethanolandadministrationoffice
34 acres 25 467,454
4 PETRONAS Chemicals MTBE Sdn Bhd
H.S.(D)9688P.T.No.4538,MukimSungaiKarang,Kuantan,Pahang
Leaseholdfor66years,expiringon14July2058
17.11.1992 Industrialland-PlantforproductionofMTBE
36hectares 24 126,077
202
Sectionsix
PETRONAS CHEMICALS
GROUP BERHAD
No.
Name of registered owner/Beneficial owner:
Acquisition date
Existing use
Land area: Age of Plant & building:
NBV as at 31/12/2016:
Lot. no./Leasehold period (sq metre unless
otherwise stated)
(Years) (RM ‘000)
5 PETRONAS Chemicals MTBE Sdn Bhd
H.S.(D)34911,No.P.T.15128,MukimSungaiKarang,Kuantan,Pahang
Leaseholdfor99years,expiringon8January2100
09.01.2001 Industrialland-Propanedehydrogenationplant
34 acres 16 493,594
6 PETRONAS Chemicals MTBE Sdn Bhd
H.S.(D)34912,No.P.T.15129,MukimSungaiKarang,Kuantan,Pahang
Leaseholdfor99years,expiringon8January2100
09.01.2001 Emergencyresponsebuilding
15 acres 16 6,632
7 Polypropylene Malaysia Sdn Bhd
H.S.(D)9686,No.LotP.T.4536, MukimSungaiKarang,Kuantan,Pahang
Leaseholdfor66years,expiringon14July2058
15.07.1992 Industrialland-Plantforproductionofpolypropylene
20hectares 24 10,426
8 PETRONAS Chemicals Fertiliser (Kedah) Sdn Bhd
PajakanNegeriNo.Hakmilik1010,No.Lot10750BandarGurun,KualaMuda,Kedah
Leaseholdfor99yearsexpiringon22April2102
01.11.1999 Commercial/industrialland-Plantforproductionofureaandammonia
699,100 17 282,384
9 PETRONAS Fertiliser (Kedah) Sdn Bhd
PajakanNegeriNo.Hakmilik3396-3399,No.Lot174-177,Seksyen6,Gurun,KualaMuda,Kedah
Leaseholdfor99yearsexpiringon12 February 2105
01.11.1999 Commercial/industrialland-Plantforproductionofureaandammonia
201,233 17 81,283
List of Properties (Cont’d)
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Sectionsix
No.
Name of registered owner/Beneficial owner:
Acquisition date
Existing use
Land area: Age of Plant & building:
NBV as at 31/12/2016:
Lot. no./Leasehold period (sq metre unless
otherwise stated)
(Years) (RM ‘000)
10 ASEAN Bintulu Fertilizer Sdn Bhd
No.323,Lot35,Block20,KemenalandDistrict,Bintulu,Sarawak
Leaseholdfor99years,expiringon19 February 2083
01.04.1983 Mixedzone/townland-Plantforproductionofureaandammonia
38hectares 34 199,239
11 ASEAN Bintulu Fertilizer Sdn Bhd
No.321,Lot2233-2239,Block26,KemenalandDistrict,Bintulu,Sarawak
Leaseholdfor60years,expiringon8May2046
08.02.2005 Mixedzone/townland-Dwellinghouse
8,298 12 1,428
12 PETRONAS Chemicals Ethylene Sdn Bhd, PETRONAS Chemicals Polyethylene Sdn Bhd
PajakanNegeriNo.Hakmilik6282,No.Lot8075,MukimKertih,Kemaman,Terengganu
Leaseholdfor51years,expiringon16June2052
02.04.1993 Industrialland-Plantforproductionofethylene/polyethylene
567,800 24 459,446
13 PETRONAS Chemicals Ethylene Sdn Bhd
PajakanNegeriNo.Hakmilik3939,No.Lot5217,MukimKertih,Kemaman,Terengganu
Leaseholdfor60years,expiringon23October2054
31.05.1995 Industrialland-Storagefacilityforwater
191,200 22 4,762
14 PETRONAS Chemicals Ammonia Sdn Bhd*
PajakanNegeriNo.Hakmilik7588,No.Lot8066,MukimKertih,Kemaman,Terengganu
Leaseholdfor60years,expiringon19August2060
01.08.2000 Industrialland-Plantforproductionofammoniaandanyotherrelatedgas
98,490 16 315,187
15 PETRONAS Chemicals Ammonia Sdn Bhd
PT15786,Lot5276,MukimKertih,Kemaman,Terengganu
Leaseholdfor60years,expiringon08January2058
30.12.2011 Industrialland-KIPCSharedFacilitieswhichincludestheadministrative,laboratoryandworkshopbuildings
96,208 5 31,804
List of Properties (Cont’d)
204
Sectionsix
PETRONAS CHEMICALS
GROUP BERHAD
No.
Name of registered owner/Beneficial owner:
Acquisition date
Existing use
Land area: Age of Plant & building:
NBV as at 31/12/2016:
Lot. no./Leasehold period (sq metre unless
otherwise stated)
(Years) (RM ‘000)
16
PETRONAS Chemicals LDPE Sdn Bhd
PajakanNegeriNo.Hakmilik7593,No.Lot8073,MukimKertih,Kemaman,Terengganu
Leaseholdfor60years,expiringon19August2060
20.08.2000 Industrialland-PlantforproductionofLDPE
184,677 16 106,349
17 Kertih Port Sdn Bhd
PajakanNegeriNo.Hakmilik4695,No.Lot7120,MukimKertih,Kemaman,Terengganu
Leasehold for60years,expiringon5March2060
02.08.2000 Industrialland-OperationsofKertihPort(Jettyandmarinerelatedfacilities)
43,100 16 340,827
18 Kertih Port Sdn Bhd
PajakanNegeriNo.Hakmilik4696,No.Lot7121,MukimKertih,Kemaman,Terengganu
Leaseholdfor60years,expiringon5March2060
02.08.2000 Industrialland-Gasandoilpipelines(Reclaimationarealand&CoastalStripLand)
41,400 16 431
19 Kertih Port Sdn Bhd
PajakanNegeriNo.Hakmilik6280,No.Lot8077,MukimKertih,Kemaman,Terengganu
Leaseholdfor51years,expiringon16June2052
31.03.1993 Industrialland-administrationcomplexandotherrelatedfacilities.
58,570 24 17,025
20 Vinyl Chloride (Malaysia) Sdn Bhd
PajakanNegeriNo.Hakmilik3331,No.Lot5276,MukimKertih,Kemaman,Terengganu
Leaseholdfor60years,expiringon8January2055
PajakanNegeriNo.Hakmilik7394,No.Lot6058,MukimKertih,Kemaman,Terengganu
Leaseholdfor60years,expiringon18 December 2056
01.09.1998
01.09.1998
Industrialland-IntegratedPVCmanufacturingplant
Industrialland-IntegratedPVCmanufacturingplant
187,958
121,400
18
18
3,911
List of Properties (Cont’d)
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Sectionsix
ANALYSIS OF SHAREHOLDINGS as at 17 February 2017
ShareCapital : RM800,000,000comprising8,000,000,000sharesClassofShares : OrdinarysharesVotingRights : Onevoteperordinaryshare(onapoll)
Size of HoldingsNo. of
Shareholders% of Total
ShareholdersNo. of
Shares% of
Shareholdings
Lessthan100 157 0.91 1,268 0.00
100-1,000 5,865 33.84 5,178,466 0.06
1,001-10,000 8,949 51.64 37,287,379 0.47
10,001-100,000 1,597 9.21 46,575,214 0.58
100,001tolessthan5%ofissuedshares 761 4.39 1,967,142,330 24.59
5%andaboveofissuedshares 2 0.01 5,943,815,343 74.30
Total 17,331 100.00 8,000,000,000 100.00
LIST OF DIRECTORS’ SHAREHOLDINGSAs at 17 February 2017
No. Name No. of Shares% of
Shareholdings
1 MdArifMahmood 20,000 0.00
2 DatukSazaliHamzah - -
3 VimalaVRMenon 20,000 0.00
4 ChingYewChye 20,000 0.00
5 DongSooKim 10,000 0.00
6 DatukTohAhWah - -
7 ZakariaKasah 6,000 0.00
8 FreidaAmat 6,000 0.00
LIST OF MANAGEMENT’S SHAREHOLDINGSAs at 17 February 2017
No. Name No. of Shares% of
Shareholdings
1 RashidahAlias 6,000 0.00
2 MohdYusriMohamedYusof 6,000 0.00
3 AkbarMdThayoob 6,000 0.00
4 AbdulAzizOthman 6,000 0.00
5 MohamadIskandarBakeri - -
6 NoorLilyZuriatiAbdullah - -
7 DrRossForrestGilmour - -
8 Datin Zarina Zakaria - -
9 SitiAzlinaAbdLatif - -
10 AhmadZakiDaud - -
206
Sectionsix
PETRONAS CHEMICALS
GROUP BERHAD
Category of Shareholders
No. ofShareholders
% ofShareholders
No. ofShares
% ofShareholdings
Malaysian Foreign Malaysian Foreign Malaysian Foreign Malaysian Foreign
Individual 13,755 128 79.37 0.74 59,587,565 1,119,041 0.75 0.01
BodyCorporate- Bank/FinanceCompanies 86 0 0.49 0 776,262,010 0 9.71 0
- InvestmentTrusts/Foundation/Charities 3 0 0.02 0 470,000 0 0.01 0
- Othertypesofcompanies 247 7 1.43 0.04 10,343,000 84,000 0.13 0
GovernmentAgencies/ Institutions 4 0 0.02 0 1,250,000 0 0.02 0
Nominees 2,388 713 13.78 4.11 6,443,628,305 707,256,079 80.54 8.83
Others 0 0 0 0 0 0 0 0
Total 16,483 848 95.11 4.89 7,291,540,880 708,459,120 91.16 8.84
LIST OF TOP 30 HOLDERS
No. Name No. of shares% of
Shareholdings
1 CIMBGROUPNOMINEES(TEMPATAN)SDNBHDEXEMPTANFORPETROLIAMNASIONALBERHAD 5,148,000,000 64.35
2 CITIGROUPNOMINEES(TEMPATAN)SDNBHDEMPLOYEESPROVIDENTFUNDBOARD 795,815,343 9.95
3 AMANAHRAYATRUSTEESBERHADAMANAHSAHAMBUMIPUTERA 266,062,000 3.33
4 KUMPULANWANGPERSARAAN(DIPERBADANKAN) 244,848,800 3.06
5 CARTABANNOMINEES(ASING)SDNBHDEXEMPTANFORSTATESTREETBANK&TRUSTCOMPANY(WESTCLTOD67) 69,198,100 0.86
6 MALAYSIANOMINEES(TEMPATAN)SENDIRIANBERHADGREATEASTERNLIFEASSURANCE(MALAYSIA)BERHAD(PAR1) 51,798,600 0.65
7 AMANAHRAYATRUSTEESBERHADAMANAHSAHAMWAWASAN2020 49,255,100 0.62
8 HSBCNOMINEES(ASING)SDNBHDBBHANDCOBOSTONFORVANGUARDEMERGINGMARKETSSTOCKINDEXFUND 45,559,022 0.57
9 HSBCNOMINEES(ASING)SDNBHDEXEMPTANFORJPMORGANCHASEBANK,NATIONALASSICIATION(U.S.A) 43,076,125 0.54
10 MAYBANKNOMINEES(TEMPATAN)SDNBHDMAYBANKTRUSTEESBERHADFORPUBLICITTIKALFUND 38,000,000 0.48
11 AMSECNOMINEES(TEMPATAN)SDNBHDMTRUSTEEBERHADFORCIMBISLAMICDALIEQUITYGROWTHFUND(UT-CIMB-DALI) 33,251,500 0.42
12 CARTABANNOMINEES(TEMPATAN)SDNBHDPAMBFORPRULINKEQUITYFUND 32,616,600 0.41
13 AMANAHRAYATRUSTEESBERHADPUBLICISLAMICDIVIDENDFUND 28,731,400 0.36
14 CITIGROUPNOMINEES(TEMPATAN)SDNBHDEMPLOYEESPROVIDENTFUNDBOARD(NOMURA) 27,818,500 0.35
Analysis of Shareholdings (Cont’d)as at 17 February 2017
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Sectionsix
LIST OF TOP 30 HOLDERS (CONTINUED)
No. Name No. of shares% of
Shareholdings
15 CITIGROUPNOMINEES(TEMPATAN)SDNBHDEXEMPTANFORAIABHD 24,038,700 0.30
16 AMANAHRAYATRUSTEESBERHADPUBLICISLAMICSELECTENTERPRISESFUND 23,993,200 0.30
17 CARTABANNOMINEES(ASING)SDNBHDGICPRIVATELIMITEDFORGOVERNMENTOFSINGAPORE(C) 23,634,800 0.30
18 MAYBANKNOMINEES(TEMPATAN)SDNBHDMAYBANKTRUSTEESBERHADFORPUBLICREGULARSAVINGSFUND(N140119490100) 16,467,800 0.21
19 CITIGROUPNOMINEES(ASING)SDNBHDEXEMPTANFORCITIBANKNEWYORK(NORGESBANK14) 15,823,200 0.20
20 AMANAHRAYATRUSTEESBERHADAMANAHSAHAMMALAYSIA 15,540,100 0.19
21 CITIGROUPNOMINEES(TEMPATAN)SDNBHDEMPLOYEESPROVIDENTFUNDBOARD(CIMBPRIN) 15,418,500 0.19
22 PERMODALANNASIONALBERHAD 14,980,200 0.19
23 AMANAHRAYATRUSTEESBERHADPUBLICISLAMICEQUITYFUND 14,821,000 0.19
24 AMANAHRAYATRUSTEESBERHADAMANAHSAHAMDIDIK 14,616,400 0.18
25 MALAYSIANOMINEES(TEMPATAN)SENDIRIANBERHADGREATEASTERNLIFEASSURANCE(MALAYSIA)BERHAD(PAR3) 14,004,900 0.18
26 CITIGROUPNOMINEES(ASING)SDNBHDEXEMPTFORANCITIBANKNEWYORK(NORGESBANK9) 12,665,475 0.16
27 CITIGROUPNOMINEES(ASING)SDNBHDLEGAL&GENERALASSURANCE(PENSIONSMANAGEMENT)LIMITED(A/C1125250001) 12,419,549 0.16
28 CITIGROUPNOMINEES(ASING)SDNBHDUBSAG 12,327,136 0.15
29 HSBCNOMINEES(ASING)SDNBHDEXEMPTANFORJPMORGANCHASEBANK,NATIONALASSOCIATION(JPMELABAIFAPG) 12,182,100 0.15
30 HSBCNOMINEES(ASING)SDNBHDHSBCBKPLCFORABUDHABIINVESTMENTAUTHORITY(TRANG) 11,186,800 0.14
Analysis of Shareholdings (Cont’d)as at 17 February 2017
208
Sectionsix
PETRONAS CHEMICALS
GROUP BERHAD
Analysis of Shareholdings (Cont’d)as at 17 February 2017
LIST OF SUBSTANTIAL SHAREHOLDERS
No. Name No. of Shares% of
Shareholdings
1 PETROLIAMNASIONALBERHADSHAREHELDUNDERCIMBGROUPNOMINEES(TEMPATAN)SDNBHD
5,148,000,000 64.35
2 EMPLOYEESPROVIDENTFUNDBOARDSHAREHELDUNDERCITIGROUPNOMINEES(TEMPATAN)SDNBHD:EMPLOYEESPROVIDENTFUNDBOARD 795,815,343EMPLOYEESPROVIDENTFUNDBOARD(NOMURA) 27,818,500EMPLOYEESPROVIDENTFUNDBOARD(CIMBPRIN) 15,418,500EMPLOYEESPROVIDENTFUNDBOARD(AFFIN-HWG) 8,414,800EMPLOYEESPROVIDENTFUNDBOARD(FTEMPLETON) 7,451,300EMPLOYEESPROVIDENTFUNDBOARD(AMINV) 6,250,500EMPLOYEESPROVIDENTFUNDBOARD(AMUNDI) 4,408,000EMPLOYEESPROVIDENTFUNDBOARD(ABERDEEN) 3,205,000EMPLOYEESPROVIDENTFUNDBOARD(F.TEMISLAMIC) 1,870,600EMPLOYEESPROVIDENTFUNDBOARD(ASIANISLAMIC) 1,547,100EMPLOYEESPROVIDENTFUNDBOARD(ABERISLAMIC) 1,495,200EMPLOYEESPROVIDENTFUNDBOARD(ARIM) 1,050,000
795,815,343 9.95
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Sectionsix
CORPORATE DIRECTORY
WHOLLY OWNED SUBSIDIARIES
1. PETRONAS Chemicals Ammonia Sdn Bhd KompleksPentadbiran PetrokimiaPETRONAS KM105,JalanKuantan-KualaTerengganu 24300Kertih,Kemaman TerengganuDarulIman Tel : +6098305000 Fax : +6098305222
2. PETRONAS Chemicals Derivatives Sdn Bhd AdministrationBuilding PETRONASPetroleumIndustryComplex KM106,JalanKualaTerengganu-Kuantan 24300Kertih TerengganuDarulIman Tel : +6098307700 Fax : +6098307759
3. PETRONAS Chemicals Fertiliser Kedah Sdn Bhd KM3,JalanJeniang P.O.Box22 08300Gurun
KedahDarulAman Tel : +6044666666 Fax : +6044685200
4. PETRONAS Chemicals Fertiliser Sabah Sdn Bhd WDT32,PETRONASOffice SAMURProject 89857,Sipitang Sabah Tel : +6087813872 Fax : +6087813852
6. PETRONAS Chemicals Glycols Sdn Bhd AdministrationBuilding, PETRONASPetroleumIndustryComplex KM106,JalanKualaTerengganu-Kuantan 24300Kertih TerengganuDarulIman Tel : +6098307700 Fax : +6098307759
7. PETRONAS Chemicals Marketing Sdn Bhd Level19,Tower2,PETRONASTwinTowers KualaLumpurCityCentre 50088KualaLumpur Tel : +60323315000 Fax : +60323311747
8. PETRONAS Chemicals Marketing (Labuan) Ltd Level19,Tower2,PETRONASTwinTowers KualaLumpurCityCentre 50088KualaLumpur Tel : +60323315000 Fax : +60323311747
9. PCM (Thailand) Company Limited 5thFloor,BangkokCityTower 179SouthSathornRoad KwaengTungmahamek KhetSathornBangkok 10120Thailand Tel : +6626795600 Fax : +6626795511
10. PCM (China) Company Limited Room10-011,10th Floor No.1000LujiazuiRingRoad HangSengBankTower PudongNewArea Shanghai200120
China Tel : +862168871445 Fax : +86211445ext211
11. PETRONAS Chemicals Methanol Sdn Bhd KawasanPerindustrianRancha-Rancha P.O.Box80079 87010FederalTerritoryLabuan Tel : +6087594000 Fax : +6087594979
12. PETRONAS Chemicals MTBE Sdn Bhd Lot111/112 KawasanPerindustrianGebeng 26080Kuantan PahangDarulMakmur Tel : +6095856700 Fax : +6095834090/4743
13. PETRONAS Chemicals Polyethylene Sdn Bhd Lot3834 KawasanBukitTengah,KM105 JalanKuantan-KualaTerengganu 24300Kertih,Kemaman TerengganuDarulIman Tel : +6098302000 Fax : +6098273940
14. Kertih Port Sdn Bhd Lot3633,KawasanBukitTengah KM105,JlnKuantan-KualaTerengganu 24300Kertih,Kemaman TerengganuDarulIman Tel : +6098305648/5796 Fax : +6098305618/5623/5639
15. Polypropylene Malaysia Sdn Bhd Lot111/112 KawasanPerindustrianGebeng 26080Kuantan PahangDarulMakmur Tel : +6095856700 Fax : +6095834090/4743
210
Sectionsix
PETRONAS CHEMICALS
GROUP BERHAD
16. Vinyl Chloride (M) Sdn Bhd Aras1,KompleksPentadbiranPetrokimiaPETRONAS Km105JalanKuantan-KualaTerengganu 24300,KertehKemaman TerengganuDarulIman Tel : +6098305000 Fax : +60323311747
17. PRPC Polymers Sdn Bhd PRPC Glycols Sdn Bhd PRPC Elastomers Sdn Bhd Tower1,PETRONASTwinTowers KualaLumpurCityCentre 50088KualaLumpur Tel : +60328582174 Fax : +60328582444
18. PT PCM Kimia Indonesia Menara165,Lantai14 J1.TBSimatupangKav1 CilandakTimur JakartaSelatan 12560Indonesia Tel : +622129406682 Fax : +622129406683
PARTLY OWNED SUBSIDIARIES
19. PETRONAS Chemicals Olefins Sdn Bhd AdministrationBuilding PETRONASPetroleumIndustryComplex KM106,JalanKualaTerengganu-Kuantan 24300Kertih TerengganuDarulIman Tel : +6098307700 Fax : +6098307759
20. PETRONAS Chemicals Ethylene Sdn Bhd Lot3834,KawasanBukitTengah KM105,JalanKuantan-KualaTerengganu 24300Kertih,Kemaman TerengganuDarulIman Tel : +6098302000 Fax : +6098273940
21. PETRONAS Chemicals Aromatics Sdn Bhd c/oPETRONASPenapisan(T)SdnBhd KM105JalanKuantan-KualaTerengganu 24300Kertih,Kemaman TerengganuDarulIman Tel : +6098303007 Fax : +6098303188
22. ASEAN Bintulu Fertilizer Sdn Bhd KM18,JalanTanjungKidurong P.O.Box482 97008Bintulu,Sarawak Tel : +6086231000/232000 Fax : +6086251043
23. PETRONAS Chemicals LDPE Sdn Bhd Lot9717,PETRONASPetroleumIndustryComplex KM105,JalanKuantan-KualaTerengganu 24300Kertih,Kemaman TerengganuDarulIman Tel : +6098305068 Fax : +6098305858/5990
24. PCM Chemical India Pvt Ltd 704,TolstoyHouse 14-15,TolstoyMarg NewDelhi-110001 Tel : +911123738715 Fax : +911123738712
JOINT VENTURES
25. Kertih Terminals Sdn Bhd Tingkat1,KompleksPentadbiranKPSB Lot3633KawasanBukitTengah KM105,JalanKuantan-KualaTerengganu 24300Kertih,Kemaman TerengganuDarulIman Tel : +6098305788 Fax : +6098305665
26. BP PETRONAS Acetyls Sdn Bhd KompleksPentadbiran PetrokimiaPETRONAS 24300Kertih,Kemaman TerengganuDarulIman Tel : +6098305300 Fax : +6098305321
ASSOCIATES
27. BASF PETRONAS Chemicals Sdn Bhd JalanGebeng2/1 KawasanPerindustrianGebeng 26080Kuantan PahangDarulMakmur Tel : +6095855000 Fax : +6095834623
28. Idemitsu SM (Malaysia) Sdn Bhd PLO408,OffJalanPekeliling PasirGudangIndustrialEstate 81700PasirGudang JohorDarulTakzim Tel : +6072525350 Fax : +6072528281
29. Malaysian NPK Fertilizer Sdn Bhd Batu2,JalanJeniang P.O.Box24 08300Gurun KedahDarulAman Tel : +6044684075 Fax : +6044684619
Corporate Directory (Cont’d)
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Sectionsix
NOTICE OF ANNUAL GENERAL MEETING
Agenda 1. ToreceivetheAuditedFinancialStatementsforthefinancialyearended31December2016togetherwiththeReports
oftheDirectorsandAuditorsthereon.
Please refer to Explanatory Note A. 2. Tore-electthefollowingDirectorswhoretirebyrotationpursuanttoArticle93oftheCompany’sConstitutionand
beingeligible,offersthemselvesforre-election:
a) ChingYewChyeb) DatukTohAhWah
Please refer to Explanatory Note B 3. ToapproveDirectors’ feesofup toRM1.5millionwitheffect from1January2017until thenextAnnualGeneral
MeetingoftheCompanypayabletoNon-ExecutiveDirectors.
Please refer to Explanatory Note C.
4. To approve re-appointment of KPMGPLT, as Auditor of the Company for the ensuing year and to authorise theDirectorstofixtheirremuneration.
Please refer to Explanatory Note D.
5. Totransactanyotherbusinessofwhichduenoticehasbeengiven.
By Order of the Board
Noor Lily Zuriati Abdullah (LS0010101) Kang Shew Meng (MAICSA 0778565)Company Secretaries
KualaLumpur28March2017
(Resolution1)(Resolution2)
(Resolution3)
(Resolution4)
NOTICE IS HEREBY GIVEN THAT the19thAnnualGeneralMeetingoftheCompanywillbeheldatTamingsariBallroom,TheRoyaleChulanHotelKualaLumpur,5JalanConlay,50450KualaLumpur,MalaysiaonWednesday,26thApril2017at10.30a.m.totransactthefollowingbusinesses:
212
Sectionsix
PETRONAS CHEMICALS
GROUP BERHAD
Notes:-1. OnlydepositorswhosenamesappearintheRecordofDepositorsasatTuesday,18April2017shallberegardedasmembersandentitledto
attend,speakandvoteattheMeeting.
2. AmemberoftheCompanywhoisentitledtoattendandvoteatthemeetingisentitledtoappointnotmorethantwoproxiestoattendandvoteinhis/herstead.AproxymaybutneednotbeamemberoftheCompany,anadvocate,anapprovedcompanyauditor,orapersonapprovedbytheRegistrar.
WhereamemberoftheCompanyappointstwoproxies,theappointmentshallbeinvalidunlessthememberspecifiestheproportionofhisshareholdingstoberepresentedbyeachproxy.
3. WhereamemberoftheCompanyisanauthorisednomineeasdefinedundertheSecuritiesIndustry(CentralDepositories)Act,1991,itmayappointatleastoneproxybutnotmorethantwoproxiesinrespectofeachsecuritiesaccountitholdswithordinarysharesoftheCompanystandingtothecreditofthesaidsecuritiesaccount.
4. Theinstrumentappointingaproxyshallbeinwritingunderthehandsoftheappointororofhisattorneydulyauthorisedinwritingoriftheappointorisacorporation,eitherunderitscommonseal,orunderthehandofitsofficeroritsdulyauthorisedattorney.
5. Iftheinstrumentappointingaproxyissignedunderthehandofanofficerdulyauthorised,itshouldbeaccompaniedbyastatementreading“signed as authorised officer under AuthorisationDocumentwhich is still in force, no notice of revocation having been received”. If theinstrumentappointingaproxyissignedbyanattorneydulyappointedunderapowerofattorney,itshouldbeaccompaniedbyastatementreading“signedunderPowerofAttorneywhichisstill inforce,nonoticeofrevocationhavingbeenreceived”.AcopyoftheAuthorisationDocumentor thePowerofAttorney,whichshouldbevalid inaccordancewith the lawsof the jurisdiction inwhich itwascreatedand isexercised,shouldbeenclosedwiththeinstrumentappointingaproxy.
6. TheinstrumentappointingaproxymustbedepositedattheofficeoftheCompany’sShareRegistrar,SymphonyShareRegistrarsSdnBhd,Level6,SymphonyHouse,PusatDaganganDana1,JalanPJU1A/46,47301PetalingJaya,SelangorDarulEhsan,Malaysiaatleast48hoursbeforethemeeting,orifthemeetingisadjournedatleast48hoursbeforethetimefixedfortheadjournedmeeting.
7. Explanatory Notes
Note A TheauditedfinancialstatementsarelaidbeforetheshareholderspursuanttotheprovisionsofSection244(2)(a)oftheCompaniesAct,2016.
Thesameisfordiscussionandnotputforwardforvoting.
Note B Re-election of Directors who retire in accordance with Article 93 of the Company’s Constitution
1. Articles93oftheCompany’sConstitutionprovidesthatone-thirdoftheDirectorsforthetimebeing,oriftheirnumberisnotamultipleof three, thenumbernearest toone-thirdwithaminimumofone,shall retire fromofficeandanelectionofDirectorsshall takeplacePROVIDEDALWAYSthateachDirectorshallretireatleastonceineverythreeyearsbutshallbeeligibleforre-election.ADirectorretiringatameetingshallretainofficeuntilthecloseofthemeetingwhetheradjournedornot.WithcurrentBoardsizeofeight,twoDirectorsaretoretireinaccordancewithArticle93oftheCompany’sConstitution.
2. TheNominationandRemunerationCommittee(NRC)oftheCompanydeterminestheeligibilityofeachdirectorstandingforre-electionattheAGMbasedontheperformanceoftheDirectors,takingintoaccounttheresultsoftheirlatestBoardEvaluation,contributiontotheBoardthroughtheirskills,experience,strengthsandqualities,levelofindependenceandabilitytoactinthebestinterestoftheCompanyindecision-making.
TheprofilesoftheretiringDirectorsaresetoutintheProfileoftheBoardofDirectorsonpages29and31,ofthe2016AnnualReport.TheBoardendorsedtheNRC’srecommendationthattheDirectorswhoretireinaccordancewithArticle93oftheCompany’sConstitutionareeligibletostandforre-election.
Notice of Annual General Meeting (Cont’d)
AR16
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Sectionsix
InviewthattherewasnoDirectorappointedduringthefinancialyearunderreview,thereisnoretirementpursuanttoArticle99oftheCompany’sConstitution.
Note C PursuanttoSection230(1)oftheCompaniesAct2016,thefeesofthedirectors,andanybenefitspayabletothedirectorsincludingany
compensationforlossofemploymentofadirectororformerdirectorofapubliccompanyoralistedcompanyanditssubsidiaries,shallbeapprovedatageneralmeeting.
ThefeesstructureoftheNon-ExecutiveDirectors(NEDs)oftheCompanyisasfollows:• MonthlyfixedfeesfordutiesasDirector/Chairman;• MeetingallowanceforeachBoard/BoardCommitteeattended;and• DirectorsandOfficersLiabilityinsurance.
TheDirectors’feesandmeetingallowanceforMdArifMahmoodandZakariaKasahbeingtheNon-IndependentNon-ExecutiveDirectorswhoarealsoemployeesofPetroliamNasionalBerhad(PETRONAS)andholdingpositionsofVicePresidentandabovearepaiddirectlytoPETRONAS.
Theshareholders,atthe15thAnnualGeneralMeetingheldon22May2013,hasapprovedtheannuallimitoftheDirectors’feesuptoRM1.5millionfromfinancialyearcommencing1January2013.TheactualDirectors’feesamountpaidtoNEDsforthefinancialyearended31December2016isRM1,001,500.
TheDirectors’ feesfrom1January2017until theconclusionof thenextAnnualGeneralMeetingareestimatednot toexceedRM1.5million.TheBoardwillseekshareholders’approvalatthenextAGMintheeventtheDirectors’feesproposedareinsufficient.
DetailsofthefeespaidtotheDirectorsforthefinancialyearended31December2016aredisclosedonpage102oftheStatementon
CorporateGovernanceinthe2016AnnualReport.
Note D TheBoardatitsmeetingheldon20February2017recommendedthere-appointmentofKPMGPLTasexternalAuditorsoftheCompany
forthefinancialyearending31December2017forapprovaloftheshareholders.
KPMGPLThasmetthecriteriaprescribedbyParagraph15.21oftheMainMarketListingRequirementsofBursaMalaysiaSecuritiesBerhad.
KPMGhadconverted its legalentitystatus fromUnlimitedLiabilityPartnershippursuant toPartnershipAct1961 toLimitedLiabilityPartnershippursuanttoSection29oftheLimitedLiabilityPartnershipsAct2012(LLPAct2012)effective27December2016.Accordingly,KPMGhadbeenregisteredinthenameofKPMGPLT.Inthisinstance,PLTmeans“PerkongsianLiabilitiTerhad”.TherewasnochangetothePartnersservingtheCompany.
Inanyevent,pursuanttoSection36oftheLLPAct2012anyagreements/engagementsalreadymadebetweentheCompanyanditsGroupandKPMGwillcontinuetobeinforceasifKPMGPLTwereapartytotheagreements.Accordingly,allengagementletterssignedwithKPMGcontinuetobeinforceuntilthesearesuperseded.
Other Information TheCompanyhasengagedindependentscrutineerstocount,auditandvalidatethevotesforeachproposalpresentedtoshareholders.
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Sectionsix
PETRONAS CHEMICALS
GROUP BERHAD
ADMINISTRATIVE DETAILSPETRONAS CHEMICALS GROUP BERHAD 19TH ANNUAL GENERAL MEETING
Registration
1) Registrationwillstartat8.15a.m.on26April2017infrontoftheTamingsariBallroom,TheRoyaleChulanHotelKualaLumpur,Malaysia.
2) PleaseproduceyouroriginalIdentityCard(IC)totheregistrationstaffforverification.PleasemakesureyoucollectyourICthereafter.
3) Uponverification,youarerequiredtowriteyournameandsignontheattendancelistplacedontheregistrationtable.
4) Youwillalsobegivenanidentificationtag.Nopersonwillbeallowedtoenterthemeetingroomwithouttheidentificationtag.Therewillbenoreplacementintheeventthatyouloseormisplacetheidentificationtag.
5) Nopersonwillbeallowedtoregisteronbehalfofanotherperson,evenwiththeoriginalICofthatperson.
6) Theregistrationcounterwillhandleonlyverificationofidentityandregistration.
Help Desk
7) PleaseproceedtotheHelpDeskforanyclarificationorenquiry.
8) TheHelpDeskwillhandlerevocationofproxy’sappointment.
Parking
9) Pleasetakenotethattransportationisatattendees’owncost.
10) ThereisnodedicatedparkingspaceforAGMattendees.However,youmayparkyourvehicleatparkingarealocatedattheRoyaleChulanHotelKualaLumpur,5JalanConlay,50450KualaLumpur,Malaysia.
Annual Report
11) PCG’sAnnualReportforFinancialYear2016isavailableat:
http://www.petronaschemicals.com http://www.bursamalaysia.com
PROXY FORMPETRONASCHEMICALSGROUPBERHAD(COMPANYNO:459830-K)
No.ofOrdinarySharesHeld
CDSAccountNo.
I/We................................................................................................................................................................................................................................(Full Name In Capital Letters)
of....................................................................................................................................................................................................................................(Full Address)
beingaMember/Members*ofPETRONASCHEMICALSGROUPBERHAD,doherebyappoint:
FullName(inBlock) NRIC/PassportNo. ProportionofShareholdings
No.ofShares %
Address
and/or*
FullName(inBlock) NRIC/PassportNo. ProportionofShareholdings
No.ofShares %
Address
orfailinghim/her,theChairmanoftheMeeting,asmy/our*proxytovoteforme/us*andonmy/our*behalfatthe19thAnnualGeneralMeetingoftheCompanytobeheldatTamingsari Ballroom, The Royale Chulan Hotel Kuala Lumpur, 5 Jalan Conlay, 50450 Kuala Lumpur, Malaysia on Wednesday,26April2017at10.30a.m.andatanyadjournmentthereof.
Pleaseindicatewithan“X”inthespaceprovidedbelowwhetheryouwishyourvotestobecastfororagainsttheResolutions.Intheabsenceofspecificdirections,yourproxywillvoteorabstainfromvotingashe/shethinksfit.
No. Resolutions For Against
1. Re-electionofChingYewChyeasaDirector.
2. Re-electionofDatukTohAhWahasaDirector.
3. Directors’feesofuptoRM1.5millionwitheffectfrom1January2017untilthenextAnnualGeneralMeetingoftheCompanypayabletoNon-ExecutiveDirectors.
4. Re-appointmentofKPMGPLTasAuditors.
PleaserefertotheNoticeofAnnualGeneralMeetingforfulldetailsoftheproposedResolutions.
Aswitnessmy/ourhandthis................................. day................................. 2017.
......................................................................
Signature/CommonSealofShareholder(s)*deletewhichevernotapplicable
Notes:-
1. OnlydepositorswhosenamesappearintheRecordofDepositorsasatTuesday,18April2017shallberegardedasmembersandentitledtoattend,speakandvoteattheMeeting.
2. AmemberoftheCompanywhoisentitledtoattendandvoteatthemeetingisentitledtoappointnotmorethantwoproxiestoattendandvoteinhis/herstead.AproxymaybutneednotbeamemberoftheCompany,anadvocate,anapprovedcompanyauditor,orapersonapprovedbytheRegistrar.
WhereamemberoftheCompanyappointstwoproxies,theappointmentshallbeinvalidunlessthememberspecifiestheproportionofhisshareholdingstoberepresentedbyeachproxy.
3. WhereamemberoftheCompanyisanauthorisednomineeasdefinedundertheSecuritiesIndustry(CentralDepositories)Act,1991,itmayappointatleastoneproxybutnotmorethantwoproxiesinrespectofeachsecuritiesaccountitholdswithordinarysharesoftheCompanystandingtothecreditofthesaidsecuritiesaccount.
4. Theinstrumentappointingaproxyshallbeinwritingunderthehandsoftheappointororofhisattorneydulyauthorisedinwritingoriftheappointorisacorporation,eitherunderitscommonseal,orunderthehandofitsofficeroritsdulyauthorisedattorney.
5. If the instrumentappointingaproxy issignedunder thehandofanofficerdulyauthorised, it shouldbeaccompaniedbyastatement reading “signedasauthorisedofficerunderAuthorisationDocumentwhichisstill inforce,nonoticeofrevocationhavingbeenreceived”. Iftheinstrumentappointingaproxyissignedbyanattorneydulyappointedunderapowerofattorney,itshouldbeaccompaniedbyastatementreading“signedunderPowerofAttorneywhichisstillinforce,nonoticeofrevocationhavingbeenreceived”.AcopyoftheAuthorisationDocumentorthePowerofAttorney,whichshouldbevalidinaccordancewiththelawsofthejurisdictioninwhichitwascreatedandisexercised,shouldbeenclosedwiththeinstrumentappointingaproxy.
6. TheinstrumentappointingaproxymustbedepositedattheofficeoftheCompany’sShareRegistrar,SymphonyShareRegistrarsSdnBhd,Level6,SymphonyHouse,PusatDaganganDana1,JalanPJU1A/46,47301PetalingJaya,SelangorDarulEhsan,Malaysiaatleast48hoursbeforethemeeting,orifthemeetingisadjournedatleast48hoursbeforethetimefixedfortheadjournedmeeting.
foldhere
foldhere
Symphony Share Registrars Sdn BhdLevel6,SymphonyHousePusatDaganganDana1JalanPJU1A/4647301PetalingJayaSelangorDarulEhsanMalaysia
AffixStamphere
www.petronaschemicals.com