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Message from CEO
Message from Group Chief Executive Officer
The year 2016 saw Bintulu Port Holdings Berhad (the Group) strengthening its position as a world-class LNG port and one of the most modern and efficient multi-purpose ports in the region. We leveraged on good business fundamentals, a meticulous management approach and robust operational efficiencies to deliver solid operational and financial performance. Our efforts were all more noteworthy given that this was achieved amidst a highly challenging operating environment. While macroeconomic developments on the global and domestic fronts to some extent impacted our businesses in one way or another, our key subsidiaries Bintulu Port Sdn Bhd (BPSB), Biport Bulkers Sdn Bhd (BBSB) and Samalaju Industrial Port Sdn Bhd (SIPSB), all made good strides forward in their respective segments.
For the year under review, BPSB registered a steady growth in cargo throughput while securing a number of important contracts in a new area of opportunity. Construction works also progressed smoothly on the Samalaju Industrial Port over the course of 2016 with the port moving closer towards the commencement of operations by the first half of 2017. Meanwhile, BBSB registered a record throughput in 2016, its best performance to date.
Even as we have steadfastly grown from strength to strength over the years, our success comes on the back of the many productive partnerships we have with the diverse stakeholders within the Bintulu Port community. We take pride in being a responsible operator and a good corporate citizen and are committed to meeting the needs of the Bintulu Port community in ways that are economically, environmentally and socially responsible. Going forward, the Group is strongly poised to build upon the good momentum we have achieved to date and to be a key player in Sarawak’s economic success story.
STEADY OPERATIONAL PERFORMANCE
Despite a challenging market environment, all major cargo categories at Bintulu Port recorded increases in 2016 over the preceding year’s figures. The year saw the overall cargo throughput handled by the Group increase by 3.7% from 44.81 million tonnes in 2015 to 46.45 million tonnes in 2016.
The volume of liquefied natural gas (LNG) cargo handled also increased marginally by 0.6% to 25.24 million tonnes in 2016 as compared to 25.09 million tonnes handled in 2015. This was mainly attributable to an increase in LNG exports to South Korea (from 3.2 million tonnes to 3.7 million tonnes) and Taiwan (2.3 million tonnes to 2.5 million tonnes) to support their utilities industries. Going forward, the handling of LNG vessel calls and cargoes is still expected to be the largest revenue contributor for the Group, backed by palm oil, container, bulk fertiliser and alumina cargoes.
Non-LNG cargo handled registered an increase of 7.56% from 19.72 million tonnes in 2015 to 21.21 million tonnes in 2016. This mainly contributed by the increase of 1.7% and 12.2% increase in other liquid bulk and dry bulk cargoes respectively. Other liquid bulk cargo increased from 9.26 million tonnes in 2015 to 9.42 million tonnes in 2016, while dry bulk cargo increased from 4.10 million tonnes in 2015 to 4.61 million tonnes in 2016.
The positive growth for other liquid bulk cargo was mainly attributable to palm oil exports to China and India in support of their local food and beverages and biodiesel industries; crude oil movements to refineries in Peninsular Malaysia; and gas-to-liquids exports mainly to Singapore for their wax, candles and food coating activities.
The increment in dry bulk cargo was primarily a result of the importation of raw materials such as alumina, silica quartz, manganese ore, semi coke and iron ore by Samalaju Industrial Park players. In addition, fertilizer imports also increased from 0.63 million tonnes to 0.65 million tonnes with the maturing of more palm oil estates. The export of woodchip for the pulp and paper industry also recorded an increase of 33% to 0.16 million tonnes.
Meanwhile break bulk cargo rose from 1.35 million tonnes in 2015 to 1.74 million tonnes in the year under review. Break bulk experienced a slight increase in the export of wood-based products to Asian countries such as Japan, South Korea and Philippines to support their housing and construction activities.
The year saw a 14% increase in the number of containers handled, from 243,699 TEUs in 2015 to 277,711 TEUs in 2016. The total increment in container activities was the result from export (15%), import (21%) and transhipment (3%). The total increase at Bintulu International Container Terminal (BICT) came on the back of the export of laden containers (carrying Samalaju cargoes, timber and Shell MDS products) and the import of laden containers (carrying fertilizer, rice, project cargoes, and consumable products).
There was a 2.0% rise in the number of vessel calls to Bintulu Port from 7,350 vessels in 2015 to 7,497 vessels in 2016. The increase was due to additional number of calls at SIPSB and the oil and gas passenger/supply boats at Bintulu Port.
The year under review also saw us actively exploring new areas of opportunity to increase our revenue stream whilst maintaining prudent cost management. I am pleased to say that the Group was successful in securing contracts for the provision of base support services to oil and gas related companies such as PCSB, PFLNG and Murphy Oil Sarawak. These contracts are of significance as they serve as stepping stones to further develop and expand this business segment as well as add a new long-term revenue stream for the Group. We also endeavoured to provide more efficient marine services to PETRONAS MLNG, our anchor customer.
COMMENDABLE FINANCIAL PERFORMANCE
As the Group implemented the measures to drive strong operational performance amidst 2016’s challenging operating environment, this was reflected in our steadfast financial performance for the year under review.
For the financial year ended 31 December 2016, the Group generated total operating revenue of RM583.62 million, 6.62% or RM36.26 million increase over 2015’s operating revenue of RM547.36 million. The higher revenue was primarily attributable to handling of cargoes and vessel calls for LNG, palm oil, ferro-alloy cargoes, alumina, container and general cargoes.
We turned in a profit before taxation (PBT) of RM200.98 million, a commendable 19.29%orRM32.5 million hike over 2015’s PBT of RM168.48 million. The higher PBT was mainly due to the result of higher operating revenue generated from the port’s services. Return from investment of fund in 2016 is RM27.76 million which is higher by RM15.24 million compared to RM12.52 million in 2015.
The Group registered profit after taxation (PAT) of RM149.84 million, some 17.46% or RM22.27 million higher than the PAT of RM127.57 million registered in 2015.
As at 31 December 2016, the Group’s shareholders’ fund stood at RM1,157.68 million as against RM1,117.24 million in 2015.
After reviewing cargo throughput, port operational requirements and productivity, the Group has decided to reschedule several planned capital expenditure (CAPEX) projects for the next five (5) years. These include the planned construction of a 400 m general cargo wharf and 300 m bulk fertilizer wharf at the Second Inner Harbour, as well as the conversion of 300 m general cargo wharf for container operations. The estimated CAPEX for these projects is RM527.0 million which will be utilised in the next five (5) years.
PERFORMANCE OF BUSINESS UNITS
Geographically situated midway between Kuching, Sarawak and Kota Kinabalu, Sabah, along the busy sea lanes of Intra Asia Trade with a deep sea harbour, Bintulu Port is an important import and export gateway for Sarawak region. As the operator of a world class LNG Port, the Group is committed to providing quality port services that meet customers’ expectations and to ensure a competitive return on investment for the benefit of our shareholders and other stakeholders. Today, the port’s operations are carried out by our three (3) main subsidiaries each playing their respective roles in ensuring the smooth running of the port.
Bintulu Port Sdn Bhd (BPSB)
BPSB is responsible for the provision of a host of port-related services at Bintulu Port, East Malaysia’s largest container port and the nation’s sole LNG export gateway. This deep sea port, which is also the third largest port in Malaysia, has built a reputation for being one of the most efficient multi-purpose ports in the region. It boasts modern infrastructure and has one of the deepest drafts compared to any other berthing facility within Borneo. Located within the Bintulu waters, the port is strategically located to meet oil and gas industry demands.
To date, the port handles a growing volume of general cargoes, containerised cargoes, palm oil products, liquid and dry bulk cargoes. Its all-year-round service offering includes pilotage, towage, mooring, stevedoring and handling as well as fresh water supply, bunkering, security, diving, repair and on-dock maintenance services.
The year saw Bintulu Port facing several external challenges. Low export demand for timber products as a result of volatile supply-demand dynamics and regulatory limitations; increasingly high lease rental payments for the operation of the port; and the high cost of operation due to the weakened ringgit – all impinged on the port’s operations.
While the handling of LNG vessels and cargo remained the key revenue contributor to this business in 2016, BPSB also expanded its offering by commencing base support services to oil and gas companies such as PCSB, PFLNG & Murphy Oil Sarawak. This involved the provision of storage areas (warehouse and open space), material handling equipment, cargo handling equipment, passenger handling, pilotage, supply of container carrying units and other services.
While the port’s revenue contributions are still expected to come from handling activities for LNG vessels and cargoes, moving forward, BPSB will continue to focus on other key growth sectors and enhance its efficiency in the handling of specific cargoes that will serve as potential income generators particularly palm oil, container, fertilizer, woodchips, palm kernel product sand biomass.
Biport Bulkers Sdn Bhd (BBSB)
BBSB is involved in the provision of bulking installation facilities and services for palm oil products. Its facility today is the leading palm oil bulking installation terminal with the biggest storage capacity in Sarawak. It is also the main export point for edible oil products in Sarawak, handling more than 90% of Sarawak’s crude palm oil (CPO) storage. Located within the Bintulu Port area, BBSB’s facility boasts water frontage with excellent berthing facilities and sufficient draft for large vessels in comparison to the conditions of riverine ports. There is also room for expansion with ample land and facilities to accommodate current and future growth of CPO production and shipment in the State.
Biport Bulkers also enjoyed a record throughput in 2016 despite the prolonged dry weather conditions and below average rainfall in the first half of 2016 which impacted the Malaysia oil palm industry. These conditions led to final production of crude palm oil in Malaysia amounting to only 17.32 million tonnes compared to the projected figure of 19.96 million tonnes.
BBSB’s major customers are Wilmar which is a leading global palm oil concern, and also Sarawak’s main palm oil companies, namely Sime Darby, Sarawak Oil Palms and Kirana. They operate and use the facilities for the export of their crude and refined products. In 2016, 95% of palm oil products were handled via Biport Bulkers.
Despite 2016’s drop in CPO production, BBSB’s final throughput for the year was 3.65 million tonnes, the highest achievement since it commenced operations in 2004 and marginally better than 2015’s results. BBSB also underwent International Sustainability and Carbon Certification (ISCC) in 2016.
In line with the Malaysian Palm Oil Board’s projection for 2017, we foresee a better year ahead for CPO production as world demand for palm oil products increases with the rising population. However, we remain mindful of supply limitations that may arise as a result of weather phenomenon. We also believe there is much room for growth for Sarawak’s CPO production based on the state’s target of 2.0 million hectares for oil palm plantation. As of 2016, the total acreage for oil palm cultivation stood at 1.5 million hectares which will augur well for BBSB in the near future.
Samalaju Industrial Port Sdn Bhd (SIPSB)
SIPSB undertakes the provision of port services for industries in the Samalaju Industrial Park (SIP) and the port hinterland. The Samalaju Industrial Port is a purpose-built port which provides dry bulk cargo services for heavy industries located within the SIP. A total of RM1.9 billion has been earmarked for the development of the port's interim and first phases which cover an area of 156 hectares out of the 393 hectares allocated for the entire port project. The port has been partially operational since April 2014 following the completion of its interim phase.
Given the port’s proximity to the industries within the SIP and its strategic location between Miri and Bintulu, it makes material handling activities a straightforward process. Moreover, with its host of high-tech facilities, including a conveyer belt system, it enables fast vessel turnaround time and enhances the overall productivity of port operations.
Samalaju Industrial Port has been identified by the state authorities as one of the key factors that will drive the development of the Sarawak Corridor of Renewable Energy or SCORE (the hub for high energy intensive industries) and facilitate regional economic growth. Currently in its interim phase of operations, the port has the capacity to handle cargo ships carrying loads weighing 8,000 DWT (deadweight tonnage) which will increase to 50,000 DWT once all phases of development are completed. It offers marine services such as pilotage, towage, mooring, stevedore, handling and storage.
For year 2016, the total port’s cargo performance increased to 450,019 tonnes with imports and exports contributing 403,944 tonnes and 49,074 tonnes respectively compared to 2015’s total of 71,183 tonnes. The port also managed to successfully attract a number of major SIP investors to use its facilities through special incentives for its tariff charges.
Prospects for Samalaju Industrial Port are closely dependant on the growth of the SIP as an integrated entity. Cargo is projected to steadily increase from 450,019 tonnes in 2016 to 11,234,858 tonnes in 2019 when all the industries achieve maximum throughput. The port will continue to improve operational efficiency in order to maintain its competitive edge. To cater to the needs of new industries in SIP, it will also look into developing port facilities based on customers’ requirements.
The port is expected to formally commence Phase 1 of operations in June 2017 where it is targeting to handle 2,136,870 tonnes of bulk cargo with a total of 145 vessel calls. The Group’s longer-term prospect hinges on Samalaju Industrial Port as it will potentially stimulate economic activities in Sarawak on the back of SCORE growth.
The Group continues to grow steadfastly and demonstrate its resiliency amidst a highly challenging operating environment. As we venture forth, we are aware of certain risks that the Group is exposed to, particularly as a result of global uncertainties that could impact our operational and financial performance. As such we have put in place a risk management framework and instituted several initiatives to mitigate these risk factors. We outline our key strategic and financial risks below as well as the respective risk mitigation strategies.
|Heavy reliance on key customers especially in the newly developed area at Samalaju Industrial Park can affect the operating and financial performance of the Company
- Development of multi-purpose terminals and storage areas to optimise the utilisation of the port facilities
- Implementation of marketing strategies to enhance the scope of port services to non-SIP investors
- Setting up of a Distribution Centre by a third party logistic operator at Samalaju Industrial Park
||Application to increase non-LNG tariffs not approved in a timely manner
||The application to implement the new non-LNG tariffs has an impact on BPSB’s non- LNG financial performance as few service lines and cargo type are operating below cost
- Joint consultation between the port authority and port operator to finalise and pursue the tariff implementation
- To seek Government intervention to support the implementation of the revised non-LNG tariff
OUTLOOK AND PROSPECTS
According to the International Monetary Fund, global growth is expected to touch 3.4% and 3.6% in 2017 and 2018 respectively in comparison to 3.15% growth in 2016. The advanced economies are projected to register modest gains, while activities in emerging market and developing economies will continue to drive global growth. However, global risks overall remain sizeable and difficult to forecast. Reservations about US policy under the new President, the risks from chaotic Brexit negotiations, as well as the uncertainty over several upcoming leadership elections in the Eurozone, all lend to the air of ambiguity. Together with China’s structural slowdown and Japan’s struggle with deflation – the global outlook is indeed muted. Nevertheless, there is still some optimism that things can turn around for the better should policies that promote sustainable and inclusive growth as well as cooperation and coordination be brought into play.
Moving forward, the Malaysian economy is forecasted to grow moderately between 4.4% and 4.8% in 2017 and 2018 respectively (with 2016 at 4.2%)
on the back of gradual economic recovery as well as resilient domestic demand. Domestic demand in turn is expected to be supported by accommodative monetary policy and sustained infrastructure spending from the vast array of government-driven mega infrastructure projects. The good momentum gained here is expected to be further fuelled by several catalysts under the 11th Malaysian Plan (2016-2020). All these positive developments bode well for the Group. As a key gateway to the nation’s economic growth, we are in a position to focus on specific identified cargoes, develop new businesses and enhance our capabilities and capacities for long-term sustainable growth.
Taking into consideration the macroeconomic factors and our current position of strength, the Group is confident of its prospects for the new financial year. By adhering to prudent and proactive financial management as well as by leveraging on specific business strategies, we believe that we will be able to capitalise on the many opportunities made available to us and overcome all challenges.
STRATEGIES FOR SUCCESS
While the handling of LNG vessel and cargoes will remain the mainstay of the Group’s business for the short-term, as part of our longer-term strategy, we will employ four (4) specific strategic thrusts to achieve our business objectives and sustainable growth over the next five (5) years.
The first strategic thrust will see us expanding port capacities and capitalising on key growth market sectors and profitability
This will involve implementing planned CAPEX projects for the Group in a timely and efficient manner; developing new land and facilities at Samalaju Industrial Port for high value or high demand activities; strengthening our customer base by providing sufficient port and terminal capacities and facilities; as well as implementing better vacant land planning and usage.
In addition to this, we will also focus our efforts on specific sectors such as LNG, palm oil, edible oil, container, base support service, fertilizer and the Biomass industry. We will also set our sights on ensuring the profitability of each sector through the development of viable port charges for new services and the review of relevant port tariff. We will also work to ensure effective cost discipline and management, the maximisation of profit margins and efficient project management. We will also focus on ensuring optimal utilisation of resources as well as set out to improve productivity, efficiency and service levels through business process reengineering and innovation. We will only embark upon a new development, business venture or project after conducting a comprehensive feasibility evaluation and risk assessment to ascertain positive returns.
The second thrust calls for us to venture into operating other ports or terminals
We will do this by leveraging on the Group’s expertise in port operations regionally and globally. We will also drive expansion through bidding for new concessions or acquiring existing port operators.
The third strategic thrust will involve developing and providing integrated logistics and maritime services
We will implement this through expansion up or down the logistics value chain (e.g. edible oils transportation), by providing specialised value added services to customers (e.g. supply chain management) and marine services (e.g. tugboat operations) to other ports as an independent operator. This in essence will make us a one-stop service line provider for all maritime-related services.
Last but not least, we will focus our efforts on exploring new business opportunities
To increase our revenue streams, we will supplement and diversify our revenue base through ventures into new business areas that are potentially synergistic.
As we implement these long-term strategic thrusts, the Group will continue to capitalise on near-term key growth markets or sectors such as the provision of base support services to the oil and gas industry. We will also leverage on opportunities in the areas of palm oil, containers, dry bulk and cargo generated from the SIP. Our efforts will see us undertaking continuous improvement in service delivery or even expansion and development of certain identified infrastructure subject to viability.
The Group is working on the possibility of developing a Distribution Park at Samalaju Port which will provide value added services to SIP players and attract cargo beyond the SIP particularly in the northern region of Sarawak. The Distribution Park will offer services such as trucking, barging, stuffing/un-stuffing and warehousing.
Apart from that, we are also exploring the opportunity of providing bunkering services to commercial vessels at Bintulu to diversify the Group’s revenue streams and to cater for the increasing demand for bunkering service within Bintulu Waters. Another effort to diversify the revenue stream in order to maximise profitability is the opportunity to embark on Gassing Up and Cooling Down services for LNG vessels. The current LNG Terminal has the capability to provide such services to other non-PETRONAS LNG vessels. The Group and PETRONAS are now working hand in hand to realise these value added services.
As the Group moves confidently but cautiously forward into another challenging yet opportunistic year, we remain committed to implementing prudent and proactive cost management strategies. We also intend to focus our efforts on strengthening our financial position even further. We are confident that as we execute on our near and long-term strategies, the Group will continue to remain relevant to the market and play an integral role in the success of our customers.
A NOTE OF APPRECIATION & FAREWELL
Many parties continue to play a part in our sustainable growth and we are sincerely appreciative of their worthy efforts. Allow me to firstly convey my sincere gratitude to our loyal customers from the many varied industries and sectors that we serve for their continued support and trust in us. A big thank you goes to the many industry partners, service providers, Government agencies and other authorities whom we work with for their unwavering assistance and cooperation. Everyone, across all levels of our organisation, has played a vital part in ensuring our success. I applaud the team for their commitment and dedication in ensuring we move forward as one despite the challenges present in our operating environment. I also thank the members of the Board for their wise counsel and guidance through the challenges of the year.
It is with a tinge of sadness that I sign off on this, my final annual review of the Group’s performance as the Group’s Chief Executive Officer. I have been at the helm of the company since 2005 and seen it steadfastly grow from strength to strength to become what it is today. Along the way, I have seen the Bintulu Port family strengthen and reach new heights of excellence. We have accomplished much together and I am humbled and elated to have been a part of it all.
As I take my leave, I ask that all stakeholders kindly extend your cooperation and support to Dato Mohammad Medan bin Abdullah, our new but very experienced CEO who comes on board on 1 March 2017. I leave the team in his good hands and trust that he together with our leadership team and dedicated staff will take the Group to new heights of success and a promising future.
Thank you and I bid you all adieu.
DATO MIOR AHMAD BAITI BIN MIOR LUB AHMAD
Group Chief Executive Officer
Bintulu Port Holdings Berhad