Professional Documents
Culture Documents
Ar2008 Cover Pg47ity
Ar2008 Cover Pg47ity
Ar2008 Cover Pg47ity
an unwavering commitment
Annual Report
08
contents
4 5 6 9 vision, mission & objective corporate information notice of the 50th annual general meeting statement accompanying notice of the 50th annual general meeting 18 19 20 12 shell general business principles reliability performance awards & recognition 2008 major turnaround 24 26 30 board of directors directors profile management team
34 35 36 40
50 70 72 76 84
corporate social responsibility highlights of the year audit committee report corporate governance statement statement of internal control
87
financial statements
126 company properties 130 analysis of shareholdings proxy form bahasa malaysia version (cd rom)
vision
mission
To continuously deliver shareholder value by:
Manufacturing and supplying oil products and services that satisfy the needs of our customers Constantly achieving operational excellence Conducting our business in a safe, environmentally sustainable and economically optimum manner Employing a diverse, innovative and results-oriented team motivated to deliver excellence
objective
We are committed to deliver sustainable excellence in business performance by focusing on the following:
Benefit our shareholders Realise the potential of our people Meet our customer requirements Maximise refinery margins Safeguard asset integrity Deliver structural cost reductions Sustain a robust management system Deliver continuous sustainable Health, Safety, Security and Environmental excellence
corporate information
Board of Directors
Chairman, Non-Independent and Non-Executive Director Y. Bhg. Dato Saw Choo Boon Managing Director and Executive Director YM Raja Ahmad Murad Bin YM Raja Bahrin Senior Independent and Non-Executive Director, Member of Audit Committee Y. Bhg. Tan Sri Datuk Clifford Francis Herbert
PSM, PSD, JSM, KMN
Company Secretary
Pn. Rodziah Binti Zainudin
(LS 0008034) DSNS
Registered Address
Bangunan Shell Malaysia Changkat Semantan, Damansara Heights, 50490 Kuala Lumpur. Tel No: Fax No: 603-2095 9144 603-2091 2099
Auditors
Messrs PricewaterhouseCoopers
(AF 1146)
1 Sentral, Jalan Travers, Kuala Lumpur Sentral, P.O.Box 10192, 50706 Kuala Lumpur.
Business Address
Batu 1, Jalan Pantai, 71000 Port Dickson, Negeri Sembilan. Tel No: Fax No: 606-647 1311 606-647 4622
Share Registrar
Symphony Share Registrars Sdn Bhd (378993-D) Level 26, Menara Multi-Purpose, Capital Square, No. 8, Jalan Munshi Abdullah, 50100 Kuala Lumpur. Tel No: Fax No: 603-2721 2222 603-2721 2530 603-2721 2531
Independent and Non-Executive Director, Chairman of Audit Committee Y. Bhg. Dato Jaffar Indot DSNS, SMS Independent and Non-Executive Director, Member of Audit Committee Y. Bhg. Dato Seri Talaat Bin Haji Husain
DDSA, SPMP, DPCM, DPMP, JSD, PJK, PJM
Non-Independent and Non-Executive Director Y. Bhg. Dato Mohzani Bin Abdul Wahab DPSJ, SMP, ASDK Non-Independent and Non-Executive Director Mr. Mark Owen Stevens Non-Independent and Non-Executive Director, Member of Audit Committee Mr. Thomas Michael Taylor Executive Director Tuan Haji Rozano Bin Saad
notice of the
50th
NOTICE IS HEREBY GIVEN that the Fiftieth Annual General Meeting of Shell Refining Company (Federation of Malaya) Berhad (the Company) will be held on Thursday, 7 May 2009, at 11.00 a.m. at Sime Darby Convention Centre, 1A Jalan Bukit Kiara 1, 60000 Kuala Lumpur to transact the following business:
1. To receive the Audited Financial Statements of the Company for the financial year ended 31 December 2008 and the Reports of the Directors and Auditors thereon. 2. To approve the declaration of a final dividend of Thirty Sen (RM0.30) less Malaysian Income Tax at 25% per unit of ordinary share of RM1.00 each for the year ended 31 December 2008 as recommended by the Directors. 3. To re-elect Tuan Haji Rozano Bin Saad, who is retiring in accordance with Article 81(2) of the Company's Articles of Association and being eligible, offers himself for re-election. 4. To re-elect the following directors who are retiring in accordance with Article 81(3) of the Company's Articles of Association and being eligible, offer themselves for re-election: a. Y. Bhg. Dato' Saw Choo Boon b. Y. Bhg. Dato' Seri Talaat Bin Haji Husain c. Mr. Mark Owen Stevens 5. To re-elect Y. Bhg. Tan Sri Datuk Clifford Francis Herbert, who is retiring in accordance with Article 81(9) of the Companys Articles of Association and being eligible, offers himself for re-election. 6. To consider and if thought fit, pass the following ordinary resolution pursuant to Section 129 of the Companies Act 1965: That Y. Bhg. Dato Jaffar Indot, a Director who retires in accordance with section 129 of the Companies Act, 1965, be and is hereby re-appointed as a Director of the Company to hold office until the conclusion of the next Annual General Meeting. 7. To appoint Messrs. PricewaterhouseCoopers as auditors and to authorise the Directors to fix the auditors remuneration. 8. As SPECIAL BUSINESS, to consider and, if thought fit, pass the following ordinary resolution: Proposed Renewal of the Existing Shareholders Mandate and Proposed New Shareholders Mandate for Recurrent Related Party Transactions of a Revenue or Trading Nature Resolution 1
Resolution 2
Resolution 7
Resolution 8 Resolution 9
THAT subject to the Companies Act, 1965, the Memorandum and Articles of Association of the Company and the Listing Requirements of Bursa Malaysia Securities Berhad, (a) approval be and is hereby given for the Renewal of the Existing Shareholders' Mandate for the Company to enter into and give effect to the category of the recurrent arrangements or transactions of a revenue or trading nature from time to time with the Related Parties, as specified in Section 2.2 of the Circular to Shareholders dated 10 April 2009; and (b) a New Shareholders' Mandate be and is hereby granted for the Company to enter into additional recurrent related party transactions of a revenue or trading nature from time to time with the Related Party, namely as specified in Section 2.2 of the Circular to Shareholders dated 10 April 2009, provided that such transactions are:(i) recurrent transactions of a revenue or trading nature; (ii) necessary for the Company's day-to-day operations; (iii) carried out in the ordinary course of business on normal commercial terms which are not more favourable to the Related Parties than those generally available to the public; and (iv) not to the detriment of minority shareholders; (the "Mandate"); That such authority shall commence upon the passing of this resolution and shall continue to be in force until: (i) the conclusion of the next Annual General Meeting of the Company following the Annual General Meeting at which such mandate was passed, at which time it will lapse, unless the authority is renewed by a resolution passed at the meeting;
(ii) the expiration of the period within which the next Annual General Meeting is required to be held pursuant to Section 143(1) of the Companies Act, 1965 but shall not extend to such extension as may be allowed pursuant to Section 143(2) of the Companies Act, 1965; or (iii) revoked or varied by resolution passed by the shareholders in a general meeting; whichever is the earlier; And further that the Directors of the Company be authorised to complete and do all such acts and things (including executing all such documents as may be required), as they may consider expedient or necessary to give effect to the Mandate. By order of the Board
Pn. Rodziah Binti Zainudin (LS 0008034) Company Secretary Kuala Lumpur 10 April 2009
(continued)
1. Director who is standing for re-election at the Fiftieth Annual General Meeting of the Company pursuant to Article 81(2) of the Companys Articles of Association is: a. Tuan Haji Rozano Bin Saad
(Refer to page 29 of Directors profile)
Name of Directors (a) Y. Bhg. Dato Saw Choo Boon (b) Y. Bhg. Tan Sri Saw Huat Lye
(Resigned wef 15 May 2008)
2. Directors who are standing for re-election at the Fiftieth Annual General Meeting of the Company pursuant to Article 81(3) of the Companys Articles of Association are: a. Y. Bhg. Dato Saw Choo Boon
(Refer to page 26 of Directors profile)
2 out of 2 meetings 5 out of 5 meetings 5 out of 5 meetings 5 out of 5 meetings 5 out of 5 meetings 5 out of 5 meetings 5 out of 5 meetings
b. c.
3. Director who is standing for re-election at the Fiftieth Annual General Meeting of the Company pursuant to Article 81(9) of the Companys Articles of Association is: a. Y. Bhg Tan Sri Datuk Clifford Francis Herbert
(Refer to page 26 of Directors profile)
(d) Y. Bhg. Dato Jaffar Indot (e) Y. Bhg. Dato Seri Talaat Bin Haji Husain (f) YM Raja Ahmad Murad Bin YM Raja Bahrin (g) Y. Bhg. Dato Mohzani Bin Abdul Wahab (h) Mr. Mark Owen Stevens (i) Mr. Thomas Michael Taylor
4. Director who is standing for re-election at the Fiftieth Annual General Meeting of the Company pursuant to Section 129 of the Companies Act 1965 is: a. Y. Bhg. Dato Jaffar Indot
(Refer to page 27 of Directors profile)
7. The 49th Annual General Meeting of the Company for the financial year ended 31 December 2007 was held at Sime Darby Convention Centre, 1A Jalan Bukit Kiara 1, 60000 Kuala Lumpur, Malaysia. The date, time and purpose of the Annual General Meeting held was as follows: Date Time Purpose
5. The place, date and hour of the forthcoming Fiftieth Annual General Meeting: i. Place: Sime Darby Convention Centre, 1A Jalan Bukit Kiara 1, 60000 Kuala Lumpur, Malaysia. ii. Date: Thursday, 7 May 2009. 11.00 a.m. iii. Hour: 6. Details of Attendance of Directors at Board Meetings. Five Board of Directors Meetings were held during the financial year ended 31 December 2008. Details of attendance of Directors at the Board Meetings are as follows:
11.00 a.m. To pass the Ordinary Thursday 15 May 2008 Resolutions including Special Business for the Proposed Renewal of Existing Shareholders Mandate and Proposed New Shareholders Mandate for Recurrent Related Party Transactions of a Revenue or Trading Nature.
delivering responsibility
Our shared core values of honesty, integrity and respect for people, underpin all the work we do and are the foundation of our Business Principles.
We conduct our business in strict adherence to the Shell General Business Principles which is underpinned by a comprehensive set of assurance procedures. By complying to these principles, we ensure continued success in delivering stakeholder expectations.
12
SHELL
13
Introduction The Shell General Business Principles govern how each of the Shell companies which make up the Shell Group* conducts its affairs. The objectives of the Shell Group are to engage efficiently, responsibly and profitably in oil, gas, chemicals and other selected businesses and to participate in the search for and development of other sources of energy to meet evolving customer needs and the worlds growing demand for energy.
We believe that oil and gas will be integral to the global energy needs for economic development for many decades to come. Our role is to ensure that we extract and deliver them profitably and in environmentally and socially responsible ways. We seek a high standard of performance, maintaining a strong long-term and growing position in the competitive environments in which we choose to operate. We aim to work closely with our customers, partners and policy-makers to advance more efficient and sustainable use of energy and natural resources.
* Royal Dutch Shell plc and the companies in which it directly or indirectly owns investments are separate and distinct entities. But in this publication, the collective expressions Shell and Shell Group may be used for convenience where reference is made in general to those companies. Likewise, the words we, us, our, and ourselves are used in some places to refer to the companies of the Shell Group in general. These expressions are also used where no useful purpose is served by identifying any particular company or companies.
Our Values
Shell employees share a set of core values honesty, integrity and respect for people. We also firmly believe in the fundamental importance of trust, openness, teamwork and professionalism, and pride in what we do.
Responsibilities
Shell companies recognise five areas of responsibility. It is the duty of management continuously to assess the priorities and discharge these inseparable responsibilities on the basis of that assessment. a. To shareholders To protect shareholders investment, and provide a longterm return competitive with those of other leading companies in the industry. To customers To win and maintain customers by developing and providing products and services which offer value in terms of price, quality, safety and environmental impact, which are supported by the requisite technological, environmental and commercial expertise.
Sustainable Development
As part of the Business Principles, we are committed to contributing to our sustainable development. This requires balancing short and long-term interests, integrating economic, environmental and social considerations into business decisionmaking. b.
14
(continued)
c.
To employees To respect the human rights of our employees and to provide them with good and safe working conditions, and competitive terms and conditions of employment. To promote the development and best use of the talents of our employees; to create an inclusive work environment where every employee has an equal opportunity to develop his or her skills and talents. To encourage the involvement of employees in the planning and direction of their work; to provide them with channels to report concerns. We recognise that commercial success depends on the full commitment of all employees.
Business Integrity Shell companies insist on honesty, integrity and fairness in all aspects of our business and expect the same in our relationships with all those with whom we do business. The direct or indirect offer, payment, soliciting or acceptance of bribes in any form is unacceptable. Facilitation payments are also bribes and should not be made. Employees must avoid conflicts of interest between their private activities and their part in the conduct of company business. Employees must also declare to their employing company potential conflicts of interest. All business transactions on behalf of a Shell company must be reflected accurately and fairly in the accounts of the company in accordance with established procedures and are subject to audit and disclosure.
Principle
d.
To those with whom we do business To seek mutually beneficial relationships with contractors, suppliers and in joint ventures and to promote the application of these Shell General Business Principles or equivalent principles in such relationships. The ability to promote these principles effectively will be an important factor in the decision to enter into or remain in such relationships. To society To conduct business as responsible corporate members of society, to comply with applicable laws and regulations, to support fundamental human rights in line with the legitimate role of business, and to give proper regard to health, safety, security and the environment.
Principle
Political Activities a. Of companies Shell companies act in a socially responsible manner within the laws of the countries in which we operate in pursuit of our legitimate commercial objectives.
e.
Economics Long-term profitability is essential to achieving our business goals and to our continued growth. It is a measure both of efficiency and of the value that customers place on Shell products and services. It supplies the necessary corporate resources for the continuing investment that is required to develop and produce future energy supplies to meet customer needs. Without profits and a strong financial foundation, it would not be possible to fulfill our responsibilities.
Principle
Shell companies do not make payments to political parties, organisations or their representatives. Shell companies do not take part in party politics. However, when dealing with governments, Shell companies have the right and the responsibility to make our position known on any matters, which affect us, our employees, our customers, our shareholders or local communities in a manner, which is in accordance with our values and the Business Principles. b. Of employees Where individuals wish to engage in activities in the community, including standing for election to public office, they will be given the opportunity to do so where this is appropriate in the light of local circumstances.
Principle
Competition Criteria for investment and divestment decisions include sustainable development considerations (economic, social and environmental) and an appraisal of the risks of the investment.
Health, Safety, Security and The Environment Shell companies have a systematic approach to health, safety, security and environmental management in order to achieve continuous performance improvement.
Principle
Shell companies support free enterprise. We seek to compete fairly and ethically and within the framework of applicable competition laws; we will not prevent others from competing freely with us.
To this end, Shell companies manage these matters as critical business activities, set standards and targets for improvement, and measure, appraise and report performance externally. We continually look for ways to reduce the environmental impact of our operations, products and services.
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Principle
6
which we work.
Local Communities Shell companies aim to be good neighbours by continuously improving the ways in which we contribute directly or indirectly to the general well being of the communities within
We manage the social impacts of our business activities carefully and work with others to enhance the benefits to local communities, and to mitigate any negative impacts from our activities. In addition, Shell companies take a constructive interest in societal matters, directly or indirectly related to our business. Communication and Engagement Principle Shell companies recognise that regular dialogue and engagement with our stakeholders is essential. We are committed to reporting of our performance by providing full relevant information to legitimately interested parties, subject to any overriding considerations of business confidentiality.
In our interactions with employees, business partners and local communities, we seek to listen and respond to them honestly and responsibly.
Principle
Compliance We comply with all applicable laws and regulations of the countries in which we operate.
Jeroen van der Veer Chief Executive Royal Dutch Shell plc August 2005
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assuring reliability
We maintained our record of Zero Lost Time Injury (LTI) which means there were no incidents of work related injury, and as a result, we have achieved more than 9.7 million man hours LTI-Free since 21 May 2001.
We place a strong focus on building a reliability mindset among our people and emerging reliability led strategies. Working in teams, we mitigate threats to reliability and achieve optimal performance at all times. Tactics include monitoring operating parameters, planning our projects with foresight, developing contingency plans and targeting world-class Turnarounds.
18
reliability performance
3.71
7.59
3.70
2 1 0
2.29
2006
2.90
2007
2008
We create a reliability mindset to improve our reliability and execute world-class turnarounds and projects that are completed safely, on time and on budget. Reliability is having the equipment available to run as planned to meet customer demands at optimal economics within the physical potential of the equipment. An improved reliability performance leads to improved performance in the areas of process safety, cost, energy and margin. A reliable plant has fewer process safety incidences. A reliable plant is more energy efficient and results in less unplanned releases to the environment. A reliable plant produces more consistent product quality. A reliable plant has the ability to achieve higher utilisation. A reliable plant has lower reactive maintenance costs along with higher utilisation and lower unit costs, making it more competitive. A reliable plant has the stability that makes margin optimisation possible, thereby realising the full potential of the asset.
A measure of your Companys reliability is reflected in the Unplanned Downtime performance: Year 2006 2007 2008 Unplanned Downtime (%) 2.29 7.59 2.90 Target (%) 3.71 3.70 3.28
During the year, we achieved significant improvement on Unplanned Downtime and sustaining this improved performance will remain a priority. Central to our approach is to put focus on a reliability led strategy. Core to this strategy is ensuring that all functional teams in our organisation progress together in mitigating reliability threats, complying to good practices that would enable us to manufacture products efficiently, and imprinting the reliability mindset at all levels of our organisation. Towards this, our organisation works within a Reliability Management Framework where Area Reliability Teams and the Reliability Steering Team drive reliability improvement. The Reliability Management section is tasked with coordinating all reliability related activities, including communicating the reliability mindset via trainings, bulletins and organising activities such as the Reliability Day. This has resulted in improved operational efficiency, allowing us to achieve our desired financial and operational performance through our first quartile reliability over the long term.
3.28
19
20
21
Your Company had successfully completed its 2008 Major Turnaround (MTA) on 27 July 2008, delivering it in record time, 2 days ahead of plan. The 38 day turnaround involved the maintenance and inspection of the Long Residue Catalytic Cracker (LRCC) complex, Crude Distiller Unit-2 (CDU-2) Hydrotreater-2 (HDT-2), Mild Vacuum Unit (MVU) and Platformer-2. The premise of this Turnaround was to ensure your Company continues to operate in compliance with statutory requirements, achieve zero overdue inspection and assure equipment integrity for reliable operation until the next MTA. Your Company had delivered a flawless Turnaround within budget, with zero flaws and zero significant incidents. Achieved Goal Zero targets (zero harm to people, zero significant safety incidents, zero flaws, zero delay and zero cost overrun). Fully integrated turnarounds, projects, operations and maintenance strategy and implementation as per Shell Downstream Turnaround Process resulted in approval from the Department of Occupational, Health and Safety (DOSH) on statutory inspection interval from the conventional frequency of 3 years to 6 years on specific scope. The effective management of risks relating to all the planned activities, particularly activities that lay on the critical path using the Potential Problem Analysis, ensured no unforeseen circumstances came about during the execution.
Capital projects and plant changes were also executed during the 2008 MTA, including the upgrade of expansion Joint Bellow, de-bottlenecking of the Propane and Propylene (PP) Splitter, upgrade of Platformer-2 Reactor Centre Pipe and Platformer-2 catalyst change-out. Prior to this major event, detailed preparation activities were carried out. The activities included scope and schedule development and optimisation, establish and execute contract strategy including timely procurement of materials, HSSE planning, engineering work package preparation, operation shutdown and start up planning as well as establishing cost control processes. The table below summarises the key achievements in the 2008 MTA: Key Performance Areas HSSE Lost Time Injury Total Recordable Case Duration LRCC Platformer-2 Flawless Incident leading to Shutdown Target 0 1 (max) 40 29 0 Actual 0 1 38 27 0
The 2008 MTA scope included LRCC Reactor cyclones erosion lining repair, regenerator swirl vane tubes replacement, Reactor and Regenerator (R&R) maintenance work, Platformer-2 Reactors scallop repair, heat exchangers cleaning, column internal inspection, vessel internal inspections and refractory repairs.
During the preparation phase, your Company had actively worked with local authorities and DOSH, to adopt the risk-based inspection methodology as a way forward to regulate statutory shutdown intervals and scope of statutory inspection. As a result, your Company had been successful with the application to increase statutory inspection interval from conventional frequency of 3 years to 6 years on specific scope. The success indicates DOSHs confidence in your Companys equipment integrity management.
creating unity
We subscribe to workplace diversity as an equal opportunity employer, which mirrors the communities in which we operate, enabling us to better understand and build relationships with our stakeholders and optimising the positive impact of our presence.
We aspire to deliver results through effective leadership at every level, by defining clear accountabilities and driving results through a shared vision. Through collaboration, we continue to work towards improving our performance and enhancing our growth.
24
board of
Y. Bhg. Tan Sri Datuk Clifford Francis Herbert Senior Independent and Non-Executive Director, Member of Audit Committee Y. Bhg. Dato Saw Choo Boon Chairman, Non-Independent and Non-Executive Director
Y. Bhg. Dato Seri Talaat Bin Haji Husain Independent and Non-Executive Director, Member of Audit Committee Mr. Mark Owen Stevens Non-Independent and Non-Executive Director
directors
25
Y. Bhg. Dato Jaffar Indot Independent and Non-Executive Director, Chairman of Audit Committee YM Raja Ahmad Murad Bin YM Raja Bahrin Managing Director and Executive Director
Mr. Thomas Michael Taylor Non-Independent and Non-Executive Director Member of Audit Committee Y. Bhg. Dato Mohzani Bin Abdul Wahab Non-Independent and Non-Executive Director
26
directors profile
DSNS
Chairman, Non-Independent and Non-Executive Director Dato Saw Choo Boon, Malaysian, aged 62, is the Chairman of Shell Malaysia, a post that he has held since 1 March 2006. He was appointed a Director on 23 February 2006 and subsequently as Chairman of Shell Refining Company (Federation of Malaya) Berhad (SRC) on 18 May 2006. Dato Saw holds a B.Sc. Hons (Chemistry) Degree from University of Malaya. He joined Shell in 1970 as a Refinery Technologist in SRC. He then served in various capacities in manufacturing, supply, trading and planning in Malaysia, Singapore and the Netherlands. In 1996, he was appointed Managing Director of Shell MDS (Malaysia) Sendirian Berhad. In 1998 1999, he assumed the positions of Managing Director for Oil Products (Downstream) Shell Malaysia and Managing Director of SRC. In 1999, with the globalisation of the Shell Oil Products business, he was appointed the Vice-President of the Commercial business in the Asia-Pacific region, and in 2004, he became the President of Shell Oil Products East. In 2005, he managed Shells global marine business. Currently, Dato Saw chairs the Board of 13 Shell Malaysia companies: Shell Malaysia Limited, Shell MDS (Malaysia) Sendirian Berhad, Shell Timur Sdn Bhd, Shell Malaysia Trading Sendirian Berhad, Shell Information Technology International Sdn Bhd, Shell Gas (LPG) Malaysia West Sdn Bhd, Sarawak Shell Berhad, Shell Sabah Selatan Sdn Bhd, Sabah Shell Petroleum Company Ltd, Shell Treasury Malaysia (L) Ltd, Shell New Ventures Malaysia Sdn Bhd, Provista Ventures Sdn Bhd and SRC. Dato Saw is also a director of Malaysia LNG Dua Sdn Bhd.
Dato Saw attended all five Board meetings which were held in 2008.
Senior Independent and Non-Executive Director, Member of Audit Committee Tan Sri Datuk Clifford Francis Herbert, Malaysian, aged 67, was appointed as a Director of Shell Refining Company (Federation of Malaya) Berhad on 1 June 2008. Tan Sri Datuk Clifford holds a Bachelor of Arts (Hons) Degree from University of Malaya and a Masters of Public Administration from University of Pittsburgh, United States of America. Tan Sri Datuk Clifford joined the Administrative and Diplomatic Service of the Malaysian Civil Service in 1964, serving as an Assistant Secretary in the Public Services Department from 1964 to 1968 and as Assistant Secretary in the Development Administration Unit, Prime Ministers Department from 1968 to 1975. Subsequently, he served in the Ministry of Finance from 1975 to 1997, rising to the post of Secretary General to the Treasury. He retired from the civil service in 1997. During Tan Sri Datuk Cliffords tenure in the civil service, he sat on the Board of Pepper Marketing Agency, Tourist Development Corporation, Advisory Council of the Social Security Organisation (SOCSO), Aerospace Industries Malaysia Sdn Bhd, Malaysian Highway Authority, Malaysian Rubber Development Corporation (MARDEC), Port Kelang Authority, Kelang Container Terminal Berhad, Bank Industri Malaysia Berhad, Malaysia Export Credit Insurance Ltd., National Trust Fund (KWAN), Kumpulan Khazanah Nasional Bhd, Malaysia Airline System Berhad (MAS), Petroliam Nasional Berhad (PETRONAS), Bank Negara Malaysia and Multimedia Development Corporation Sdn Bhd. He also served as Chairman of the Inland Revenue Board in 1997. Tan Sri Datuk Clifford is also the Chairman of Montfort Boys Town and is a trustee of Yayasan Nanyang and the National Kidney Foundation. He is also a Vice President of the Federation of Malaysian Manufacturers. Tan Sri Datuk Clifford was instrumental in establishing the Securities Commission of which he was a member from 1993 to 1994 and was also a Board member of the Institute of Strategic and International Studies (ISIS) from 1989 to 1997. As Secretary General in the Ministry of Finance, he was also appointed as alternate Governor to the World Bank. Tan Sri Datuk Clifford was Chairman of KL International Airport Bhd (KLIAB) from 1993 to 1999. In 2000 he was appointed as Executive Chairman of Percetakan Nasional Malaysia Berhad (PNMB) and was Chairman of PNMB from 2002 to 2006. Tan Sri Datuk Clifford at present sits on the Boards of Resorts World Berhad, AMMB Holdings Berhad, AmInvestment Bank Berhad, AmIslamic Bank Berhad and AmBank (M) Berhad. Tan Sri Datuk Clifford attended all two Board meetings and Audit Committee meetings held from June 2008 to December 2008, following his appointment on 1 June 2008.
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DSNS, SMS
Independent and Non-Executive Director, Chairman of Audit Committee Dato Jaffar Indot, Malaysian, aged 74, has been a Director of Shell Refining Company (Federation of Malaya) Berhad (SRC) since 1981. Dato Jaffar joined Shell in 1956 and retired in 1989 after 33 years of service. During this time, he worked for Shell in Japan and London, where he served in various capacities in international oil trading, business development and public affairs. In 1980, he returned to Malaysia as Executive Director and Director of Public Affairs for Shell Malaysia, and in 1983 was appointed Managing Director of SRC, Shell Malaysia Trading Sdn Bhd and Shell Timur Sdn Bhd. He was the Chairman of Shell Timur Sdn Bhd from August 1989 to December 1997. He attended the Harvard Business School International Senior Managers Programme, Vevey, Switzerland in 1983. Dato Jaffar is a director on the Boards of Guinness Anchor Bhd, Sycal Ventures Bhd, M3nergy Berhad and Melewar Industrial Group Berhad. He is also a director of several private companies involved in HP Financing as well as Fire Protection and Training. Dato Jaffar attended all five Board meetings and Audit Committee meetings held in 2008.
28
directors profile
(continued)
Independent and Non-Executive Director, Member of Audit Committee Dato Seri Talaat Bin Haji Husain, Malaysian, aged 58, was appointed a Director of Shell Refining Company (Federation of Malaya) Berhad (SRC) since 1 June 2007. Dato Seri Talaat obtained his early education at the Malay College Kuala Kangsar. He holds a Bachelor of Social Sciences (Political Science) from University of Science Malaysia, a Masters in Professional Studies (International Planning) from Cornell University, USA and attended the Executive Programme at London Business School and Harvard Business School. He joined the Malaysian Civil Service in 1973 and started as an Assistant State Secretary in Penang, and subsequently holding positions in the Prime Ministers Department, National Institute for Public Administration (INTAN), the National Palace and the Ministry of Education. He has also served as Mayor of Ipoh City before becoming the Secretary General of the Ministry of Youth and Sports. Prior to his retirement, he held the position of Secretary General of the Ministry of Domestic Trade and Consumer Affairs. Whilst in the Government Service, he held the positions of Chairman of Companies Commission of Malaysia, and Board Member of Malaysian Intellectual Property Corporation, Malaysian Communication and Multi-Media Corporation as well as Sepang International Circuit. Besides holding the position of Chairman in several private limited companies, Dato Seri Talaat is also an Independent Director of Silver Bird Group Berhad and Konsortium Logistik Berhad. He is also currently a Board Member of Outward Bound Trust of Malaysia. Dato Seri Talaat attended all five Board meetings and Audit Committee meetings held in 2008.
Dato Mohzani Bin Abdul Wahab, Malaysian, aged 55, was appointed a Director of Shell Refining Company (Federation of Malaya) Berhad (SRC) on 1 August 2001. He is the Managing Director for Shell Malaysia Trading Sendirian Berhad since 1 November 2001 and on 15 January 2005, he was appointed as the Managing Director of Shell Timur Sdn. Bhd. He also holds the position of Shell Cluster Retail General Manager for Malaysia, Singapore, Brunei and Hong Kong. In Malaysia, he is also the Shell Local Senior Downstream Representative. A graduate in Economics, majoring in Applied Economics from the University of Malaya, Kuala Lumpur, Dato Mohzani joined Shell in 1976. He has held various positions in supply, distribution, brand and communications, marketing and retail management in Shells Downstream sector, including an assignment in the Philippines. He was appointed General Manager of Retail in Malaysia in 2000. Currently, Dato Mohzani sits on the Board of 15 companies: Shell Timur Sdn. Bhd., Shell Malaysia Trading Sendirian Berhad, Superkad Services Sdn. Bhd., Usaha Rawang Sdn. Bhd., Shell Malaysia Limited, Brunei Shell Marketing Company Sdn. Bhd., P S Pipeline Sdn. Bhd., P S Terminal Sdn. Bhd., Pertini Vista Sdn. Bhd., Shell Gas (LPG) Malaysia West Sdn. Bhd., Shell Gas (LPG) Malaysia East Sdn. Bhd., Bonuskad Loyalty Sdn. Bhd., Shell New Ventures Malaysia Sdn. Bhd., Provista Ventures Sdn. Bhd and SRC. He also sits as a Director of the Petroleum Industry of Malaysia Mutual Aid Group (PIMMAG) and a member of the Joint Management Committee. He serves as a member of the Investment Panel in Lembaga Tabung Haji. Dato Mohzani attended all five Board meetings held in 2008.
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management
1. Raja Ahmad Murad Bin Raja Bahrin : Managing Director Position Nationality : Malaysian Education : BEng (Hons) Mechanical Engineering, University of Liverpool, United Kingdom Joined Shell : 1989 2. Rolando Sulit Position : Senior Manager, Operations Nationality : Filipino Education : Bachelor of Science in Chemical Engineering, Adamson University, Philippines Joined Shell : 2005 3. Arnold Teo : Senior Manager, Technology Position Nationality : Malaysian Education : BEng (Hons) Chemical Engineering, National University of Singapore Joined Shell : 1994 4. Khairuddin Bin Tamby Hashim Position : Senior Manager, Engineering Nationality : Malaysian Education : Bachelor of Science in Engineering (Thermal Engineering), Southern Illinois University, Carbondale, USA Joined Shell : 2007
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team
5. Leonardus Biezeman Position : Manager, Economics and Scheduling Nationality : Dutch Education : MSc in Mechanical Engineering, Delft University of Technology, The Netherlands Joined Shell : 2001 6. Bhabhinder Kaur Position : Manager, Finance Nationality : Malaysian Education : Association of Chartered and Certified Accountants (ACCA), United Kingdom, Malaysian Institute of Accountants (MIA), and Malaysian Institute of Taxation (MIT) Joined Shell : 1999 7. Rosly Bin Mohammed Position : Manager, Quality, Health, Safety, Security & Environment Nationality : Malaysian Education : Southend-On-Sea College of Technology, United Kingdom Joined Shell : 1980 8. Islamiah Idris Position : Manager, Human Resources Nationality : Malaysian Education : LLB. Hons, National University Malaysia Joined Shell : 2005 9. Siti Nazrah Ahmad Zaiden Position : Manager, Procurement Nationality : Malaysian Education : BSc in Electrical Engineering (Magna cum laude), University of Bridgeport, USA Joined Shell : 1986
ensuring safety
We secured the coveted MSOSH Grand Award 2007 from the Malaysian Society for Occupational Safety and Health (MSOSH) in 2008 an apt recognition of our exemplary standards in occupational safety and health best practices.
Safety and health is a core focus at our workplace. Workers and visitors at the refinery are required to adhere to strict regulations. This reflects our priority on safety within our premises and also ensures optimum reliability and efficiency in our operations. In 2008, our commitment to safety saw us enhancing our repute for managing a safe working environment with zero lost time injury.
34
financial calendar
08
14 May 14 August 14 August Unaudited consolidated results for the 1st quarter ended 31 March 2008 Unaudited consolidated results for the 2nd quarter ended 30 June 2008 An interim dividend of Twenty sen (RM0.20) per unit of share of RM1.00 each, less 26% Malaysian Income Tax in respect of the financial year ending 31 December 2008 Interim dividend entitlement date Interim dividend payment date Unaudited consolidated results for the 3rd quarter ended 30 September 2008
09
17 February 17 February Unaudited consolidated results for the 4th quarter ended 31 December 2008 Final dividend of Thirty sen (RM0.30) per unit of share of RM1.00 each, less 25% Malaysian Income Tax in respect of the financial year ending 31 December 2008 Notice of 50th Annual General Meeting 50th Annual General Meeting Final dividend entitlement date Final dividend payment date
35
performance at a glance
Financial Highlights Revenue (RM Million) Revenue Profit/(Loss) Before Taxation Profit/(Loss) After Taxation Sales Volume (Thousand Barrels Per Day) Balance Sheet (RM Million) Assets Total Assets Trade and Other Receivables Oil Inventories Oil Inventories Volume (Thousand Barrels) Liability and Shareholders Funds Trade and Other Payables Shareholders Funds Cash Flow (RM Million) Cash Generated From Operations Purchase of Property, Plant and Equipment Per RM1 Unit Of Stock (Sen) Earnings/(Loss) Net Assets Gross Dividends
2008
2007
Growth Rate
2006
2005
2004
663.7 109.8
695.9 26.7
5% 311%
-141.7 42.8
965.0 105.6
437.0 33.8
36
SHELL
in Malaysia
We are part of Shell, a global group of energy and petrochemical companies. With 104,000 employees in more than110 countries, we play a key role in helping to meet the worlds growing demand for energy in economically, environmentally and socially responsible ways.
37
The Shell business strategy is more upstream and profitable downstream. This simply means searching for, and recovering, more oil and gas in our upstream operations, and refining and delivering products to our customers in a profitable and sustainable way in downstream.
Upgrader Plant
Refinery Gas to Liquids Plant Biofuels Plant Refined Oil Products (Bio) Fuels Lubricants Bitumen Liquefied Petroleum Gas
On and Offshore Oil And Gas Gas and Electricity Industrial Use Domestic Use
Power Station LNG Liquefaction Plant LNG Regasification Terminal Wind Turbines
38
shell in malaysia
(continued)
Meeting the growing world demand for energy in ways that minimise environmental and social impact is a major challenge for the global energy industry. Shell is committed to improving energy efficiency in its own operations and supporting customers in managing their energy demands. Shell Malaysia engages in three main revenue generating business sectors, namely Exploration and Production, Gas and Power and Downstream Oil Products. We aspire to be the Top performer of first choice by operating our businesses efficiently, responsibly and profitably. Shells Exploration and Production business commenced in Malaysia in 1910. We search for, find and produce crude oil and natural gas. We also build and operate the infrastructure needed to deliver hydrocarbons to market. Today, under production sharing contracts with PETRONAS, we are the largest natural gas producer in Malaysia. Shells Gas and Power business converts natural gas to liquid hydrocarbon products via Shell Middle Distillate Synthesis technology and markets the products globally. We operate the worlds first commercial Gas to Liquids (GTL) plant of its kind in Bintulu, Sarawak, exporting GTL products to over 40 countries. Shells Downstream Oil Products business refines crude oil and markets lubricants and other petroleum products, and has over 900 stations nationwide in Malaysia. Shell is the only petroleum retailer in the country to offer a premium fuel, Shell V-Power Racing, and a fuel-efficient diesel product, Shell Diesel with Fuel Economy formula. Shell has also established several regional and global hubs, which provide services and expertise on technology, consulting and engineering solutions, IT applications development and SAP support services, as well as finding HR professional services, among others.
Shell Refining Company (Federation of Malaya) Berhad is the sole public listed company within Shell in Malaysia. It operates the countrys largest refinery on a single site at Port Dickson, supplying key petroleum products to Shells Downstream business in Malaysia. Your refinery aspires to be the Top performing and most admired refinery in Asia. While we continue our path to grow profitably, we also have a commitment to contribute to Sustainable Development. This commitment underscores our involvement in corporate social responsibility activities and practices. In Shell, this means we are committed to finding and delivering energy products that help meet the growing need for affordable, convenient and cleaner energy. It is also a commitment to responsible operations: building our projects, running our facilities and managing our supply chain safely and in ways that reduce negative impacts and create positive benefits. This commitment corresponds directly to our involvement in the social development of the communities where we operate. Apart from hiring and building the skills of local staff, we also actively encourage and support social investment projects, with a focus on capacity building, environmental conservation and community development. Shell aspires to establish a long-term presence among the communities we operate in. In this regard, we are committed to helping our stakeholders improve their quality of life, while simultaneously contributing to Malaysias advancement and its Vision 2020 goals.
39
Our Blueprints scenario is disorderly at first, as local initiatives result in a patchwork of different policies and approaches to deal with the challenges of economic development, energy security and climate change. These efforts become harmonised relatively quickly, as individual initiatives succeed and others adopt them more widely. A global policy framework and with it a global cost of emitting CO2 emerges that spurs innovation, increases energy efficiency, limits the impact of rising energy demand and global warming, and helps maintain steady economic growth. With its far reaching policy response and global costs for emitting GHGs, Blueprints results in significantly lower GHG emissions than Scramble and shows the direction that efforts to meet the energy challenge need to take. We also believe that, in the long term, Blueprints offers a better world for Shell to do business in. We are advocating the policies the Blueprints scenario describes and working on a number of the technology improvements needed.
Landmark discussion
In September 2007, we organised the first Malaysian Energy and Climate Change Dialogue. The event brought together various experts and over 200 delegates from corporations, non-governmental organisations, academics and government agencies. The agenda was to discuss the worlds growing need for energy and the resulting impact of energy-related CO2 emissions on climate change, from a Malaysian perspective. The dialogue covered government policy, the resulting impact of climate change as well as innovative energy solutions. At the event, we stressed the importance of creating the climate for change, collaboration and action. The Government must take the lead in providing direction through a regulatory framework on a national and international basis. Industries must fast-track climate-conscious approaches to operations and promote energy efficiency as a first option.
40
chairmans statement
41
Dear Shareholders, In 2008, we witnessed a severe global financial crisis affecting the local and international economies. In addition, we also saw the oil prices soaring to an unprecedented high in July only to plummet down 75% by December as a consequence of the deepening crisis. These events marked a turbulent year, and amidst such uncertainty and instability, your Company continued to drive growth through a focus on high reliability, cost efficiencies and margin optimisation as well as a continued emphasis on health, safety, security and environment initiatives. Against this economic environment, I would like to report on behalf of your Board of Directors, your Companys performance for the past year.
Headline inflation moderated to 5.9% in Q4 from a high of 8.4% in Q3, resulting in a full year inflation of 5.4% . The downward trend in inflation is expected to continue in 2009 as confirmed by the drop to 3.9% in Jan 2009. Whilst global demand decreased, the effect on domestic demand was not felt till late 2008, and the full impact will probably emerge in 2009. As shown in Figure 1, demand of oil products grew by 2% in Malaysia with a shift in demand from commercial to retail consumers.
98
97
80
60
42
43
38
20
14 13 US$/bbl 12 12 13
Retail
Commercial
38
39
40
97
98
100
104
LPG
Source: The figures for 2008 and 2007 are from Metrix Research Sdn Bhd while the figures for 2004 2006 are from AC Nielsen Quarterly Petroleum Sales Report. Figure 2 SRC 2008 Financial Performance against Tapis
RM Million
120
2004 2005
2004 2006 2005 2007 2006 2008 2007 2008
98
97
42
98
97
80 60 60 40
97
98
100 80
97
98
120 100
42
43 43
38
42
chairmans statement
(continued)
38
38
40 20 20 0 0
38
39
39
14
13 13 US$/bbl US$/bbl
12
14
12
Retail
Commercial
LPG
Financial Performance
Your Company incurred losses for the year under review registering an after tax loss of RM330 million compared to a profit after tax of RM593 million in 2007. This is due to stockholding losses from the sharp decline in oil prices as illustrated in Figure 2. The stockholding gains in the first half of the year of RM308 million was beset by stockholding losses of RM952 million in the second half of 2008. This resulted in a full year stockholding loss of RM644 million compared with a gain of RM295 million in 2007 when oil prices were on an increasing trend. Stockholding gains or losses are a consequence of the accounting method and oil price trends and volatility.
Figure 2 SRC 2008 Financial Performance against Tapis
RM Million RM Million
200 150 200 100 150 50 100 0 50 -50 0 -100 -50 -150 -100 -200 -150 -250 -200 -300 -250
12
NIAT (Net Income After Tax) (RM Million) Stockholding Loss/Gains (Net of Tax) (RM Million) NIAT (Net Income After Tax) (RM Million) Tapis (US$/bbl) Stockholding Loss/Gains (Net of Tax) (RM Million)
Refining Margins
Average crude prices (measured by Means of Platts Singapore or MOPS) for Tapis (Malaysia), Minas (Far East) and Dubai (Middle East) rose to US$105, US$101 and US$94 per barrel respectively against US$78, US$73 and US$68 per barrel in 2007 as shown in Figure 3. Product prices in MOPS for U97 gasoline and gasoil averaged US$107 and US$120 per barrel respectively against US$86 and US$85 per barrel in 2007 as, shown in Figure 4. The decline in oil prices, from July to December 2008, impacted the carrying values of inventories resulting in significant stockholding losses in 2008. Earnings when restated to exclude the uncontrollable stockholding impact are measured on a current cost of supplies (CCS) basis, a global reporting benchmark used by oil majors.
-300
Jan 08
Jan 08
08
Feb 08
08
Mar 08
Apr 08
Apr 08
May 08
May 08
Jun 08
Jun 08
Jul 08
Jul 08
Aug 08
Aug 08
Sep 08
Sep 08
Oct 08
Oct 08
Nov 08
Nov 08
Dec 08
Dec 08
40 Jan 08 30
Feb 08
Mar 08
Mar MINAS 08
MINAS
Apr 08
Apr 08
May 08
May
Dubai 08
Jun 08
Jul 08
Aug 08
Sep 08
Oct 08
Nov 08
Dec 08
Dec 08
Dubai
Mar 08
Mar ULG 97 08
ULG 97
Apr 08
May 08
Jun 08
Jul 08
Aug 08
Aug 08
Sep 08
Sep 08
Oct 08
Oct 08
Nov 08
Nov 08
Dec 08
Dec 08
13
150 140 150 130 140 120 130 110 120 100 110 90 100 80 90 70 80 60 70 50 60 40 50 30 40
Retail
Commercial
LPG
12
13
30
43
Mar 08
ULG 97
Apr 08
May 08
Gasoil AVG
Jun 08
Jul 08
ULG 97 AVG
Aug 08
Sep 08
Oct 08
Nov 08
Dec 08
Jan 08
Feb 08
Gasoil
Mar 08
ULG 97
Apr 08
May 08
Gasoil AVG
Jun 08
Jul 08
ULG 97 AVG
Aug 08
Sep 08
Oct 08
Malaysia 42%
Nov 08
Dec 08
course ofMargins the year, refining margins Over 5the SRC Refining 2008 (US$/bbl) Figure
15 13 11 9 7 5 3 1 -1 -3 -5
on a CCS basis remained strong. I am pleased to report that, your Company posted an after tax CCS profit of RM314 million in 2008 against RM298 million in 2007 driven by refining margins of US$6.73 per barrel in 2008 as compared to US$5.79 per barrel in 2007 as illustrated in Figure 5. Your Company did well to exceed the average Singapore complex (shown in Figure 6) refining margin.
Propylene 3% LPG 9%
Nov 08 Dec 08
Your Company was able to maintain healthy refining margins because of its investment in the Long Residue Catalytic Cracker Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec (LRCC) in which repositioned us a complex 08 08 08 1999, 08 08 08has 08 08 08 08 as 08 08 refinery, with the capacity to process a wide range of crudes and AVG = USD6.73/bbl Average Complex Simple Complex the capability to upgrade the 2008 value of products.
Gasoil 37%
Complex Simple Average Complex 2008 AVG = USD6.73/bbl
Dividends
Figure Singapore Refining Margins 2008 (US$/bbl) Your 6 Board has recommended a final dividend
10 8 6 4 2 0 -2 -4 -6 -8 -10 Jan 08 Feb 08
Complex
of 30 sen per RM1 unit share in addition to the interim dividend of 20 sen declared in August 2008, as your Board maintains its intention to sustain an annual dividend level of at least 50 sen per share. In the year under review, developments relating to your Companys share price as shown in Figure 8, were deemed acceptable by the Board. Going forward, your Company will strive to employ business growth strategies that will enhance its performance and profit levels.
Mar 08
Simple
Apr 08
May 08
Jun 08
Jul 08
Aug 08
Sep 08
Oct 08
Nov 08
Dec 08
Apr 08
May 08
Jun 08
Jul 08
Aug 08
5.39
Sep 08
Oct 08
Nov 08
2.67
Figure 1 Sales of Petroleum in Malaysia (million bbls) Figure 7 Products SRC Dividends Per Share (sen)
50
120 110
2004
50
100
100
Figure SRC Dividends Per the Share (sen) Figure 8 7 SRC Price and Bursa Malaysia 1 Share Composite Index (normalised)
Interim
40
98
97
97
98
104
40
2003
2004
2005
2006
2.29
Final
2007
2008
80
80
100
Special Interim
20
20
2008
20
90 80
60
60
38
38
30
30
40
42
43
38
38
39
35
70 40 60
35
20
HSSE
20
Product Quality
20
20
13 20
20
12 14 12
20 50
12
10
12
13
10
Jan 08
Feb 08
Mar 08
Apr 08
May 08
Jun 08
Jul 08
Aug 08
Sep 08
Oct 08
Nov 08
Dec 08
12
0 Retail
2004
Commercial 2005
2006
LPG2007
2008
Composite Index
2004
2005
2006
12
Margin
PEOPLE
2007
2008
Reliability
Figure 9 SRC Sales Volume and Refinery Intake (million bbls) Figure 2 SRC 2008 Financial Performance against Tapis
Million S$/bbl
150 140 50
Sales Volume Refinery Intake
2.90
3.74
Average Complex
4 Simple
Average Complex
7.59
Dec 08
RM Milli
Figure 1
Figure 8
140 130 120 110 100 90
90 80 70 110 100 30 120
42.4
40.9
40.5
100 50 0 -50
98
98
97
97
44
90 80 70 60
0-100
80 70
20
-150
42
38
38
39
0-200
14
13
12
Jan 08
Feb 08
Mar 08
Apr 08
May 08
Jun 08
Jul 08
Aug 08
Sep 08
Oct 08
Nov 08
12
Dec 08
13
-250 0 -300
NIAT (Net Income After Tax) (RM Million) 50 Stockholding Loss/Gains (Net of Tax) Jan Feb (RM Million) Tapis (US$/bbl)
chairmans statement
43
Apr 08 May 08 Jun 08 Jul 08 Aug 08 Sep 08
(continued)
50 Oct
08 40 Nov 08 Dec 08
60
10
60 50
08
08
Composite Index
Mar 08
30
Jan 08
Feb 08
Composite Index
Jul2006 Aug 08 08
Sep2007 Oct 08 08
Retail
Commercial
LPG
9 SRC (US$/bbl) Sales Volume and Refinery Intake (million bbls) Marker Prices Figure 3 CrudeFigure
150 140 Figure 130 120 110 100 90 80 70 60 50 40 30
RM Million
40.9 US$/bbl
40.9
35.0
40.9
36.3
6000
20
Jan 08
TAPIS
Feb 08
MINAS
Dubai
TAPIS AVG
MINAS AVG
Dubai AVG
70
3000
10
NIAT (Net Income After Tax) (RM Million) Stockholding Loss/Gains 0 (Net of Tax) (RM Million) Tapis (US$/bbl)
60 types of crude) In 2008, 25 types of crude (inclusive of 6 new 50 were successfully processed. 2004 2005 2006 2007 2008 40
0
0
7,511
30
2004
2004
2005
2005
2006
2006
2007
2007
0 0 0 0 0 0 0 0 0 0 0 0
9,695
10,887
Malaysia 42%
7,511
9000
Gasoil
ULG 97
Gasoil AVG
ULG 97 AVG
6000
Jan 08
TAPIS
Feb 08
May 08
Dubai
Jun 08
Jul 08
TAPIS AVG
Aug 08
Sep 08
MINAS AVG
Oct 08
Nov 08
Dubai AVG
Dec 08
3000
7,511
9,695
Jan 08
Feb 08
2006
2007
2008
0 2004 2005 2006
15 13 11 9 Figure 4 Product Prices (US$/bbl) 7 Figure 11 SRC Sources of Supply 5 3 1 -1 -3 -5 Jan 08 Feb 08 Mar 08 Apr 08 May 08 Jun 08 Jul 08 Aug 08 Sep 08 Oct 08 Nov 42% Dec Malaysia 08 08
11,415
90 80 70 60 50 40 30
12000
To reflect the current trend of demand, gasoil was the refinerys main product, making up 37% of the sales turnover, followed 9000 by gasoline at 31%. The other 32% consisted of jet fuel, Light Mar Apr May Jun Jul Aug Sep Oct Nov Dec Cycle Oil (LCO), Liquified propylene 08 08 08 08 08 08 Petroleum 08 08 Gas 08 (LPG), 08 and Tops as shown in Figure 12. 6000
11,415 10,887
13,086
30 The procurement of crude is driven by the relative economic Aug Sep Oct Nov Dec attractiveness of each type of crude to ensure that we are able 08 08 08 08 08 08 08 08 08 180 170 to optimise on our refining margin. In 2008, your Companys 160 Figure 10 SRC Sales Proceeds (RM Million) 150 crude diet consisted of 42% Malaysian light crudes, 34% Far 140 15000 130 Figure 3 CrudeEast, Marker Prices (US$/bbl) Australia and Africa crudes and 24% Middle East heavy 120 0 110 crudes as illustrated in Figure 11. 100
2008
12000
2007
2008
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Tops 6%
LPG 9%
Jan 08
Simple
Apr 08
Jul 08
Aug 08
Sep 08
Gasoil
ULG 97
Gasoil AVG
ULG 97 AVG
13,086
35.0
2008
9000
36.3 9,695
40.5
40.9
40
36.5 11,415
36.3
36.3
36.5
42.4
39.6 10,887
Your Company maintained high operational availability Sales Volume processing 35 million barrels of crude in 2008 despite the Refinery Intake 150 40 days statutory shutdown of the LRCC for 38 inspection and maintenance. Sales proceeds grew by 15% or140 RM1.7 billion to 130 RM13.1 billion in 2008 against RM11.4 billion in 2007 (as 30 120 shown in Figure 10) despite the drop in sales volume to 110 36.3 million barrels from 40.9 million barrels in 2007 as 100 20 illustrated in Figure 9. The annual proceeds in 2008 is the 90 Mar Apr May Aug Sep Oct Nov highest ever in Jun yourJul Companys history due Dec to high product 08 08 08 08 08 08 08 08 08 08 80 10 prices in the first half of the year.
39.6
12000
Refinery Intake
41.5
13,086
35.0
36.3
104
36.3
36.5
100
2005
39.6
40.9
40
41.5
0150
SRC Share Price and the Bursa Malaysia Composite Index (normalised)
Refinery Intake
40 30 Jan 08
TAPIS
6000
Feb 08 Mar 08
MINAS
Apr 08
May 08
Dubai
Jun 08
Jul 08
TAPIS AVG
Aug 08
Sep 08
MINAS AVG
Oct 08
Nov 08
Dubai AVG
Dec 08
3000
7,
45
2007 2008
2004
2005
2006
80 70 60 50 40 30 20 10 00 90 80 70 60 50 40 30 Jan 08 Feb 08
15
13
11 9 7 5 3 1 -1 -3 -5 Jan 08 Feb 08
In 2008, your Company continued to win various awards and accolades including the Grand Award from the Malaysian Society for Occupational Safety and Health (MSOSH) for 2007. Receiving this award for the second consecutive year, it is an apt recognition that your Company is consistently demonstrating exemplary standards of safety and health Far East, Australia & Africa Malaysia) 34% are throughout our business activities and (Excluding that our people passionate and committed practitioners of occupational safety and health best practices. Your Company also received the Best Practice Award (for public Figure 12 SRC Sales Turnover (by product) listed companies) from the 2008 National Awards for Tops 6% Management Accounting (NAfMA) and had the privilege of receiving a Certificate of Merit in the National Annual Propylene 3% Corporate Report Awards (NACRA) 2008. In addition, your LPG 9% Company secured the Merit Award in the Malaysian Business CIMA Enterprise Governance Awards.
Gasoil 37% Your Company won the Shell 2008 Manufacturing Executive Vice Presidents Award in the Cost Category, in recognition of our exceptional execution of the statutory having LCO turnaround 6% Jet Fuel 8% achieved a best-in-class flawless turnaround which was also completed 2 days ahead of schedule. Motor Gasoline 31%
Complex
10 8 6 4 2 0 -2 -4 -6 -8 Jan 08 Feb 08
Complex
Reliability Performance
Plant availability is highly dependent on its reliability performance, which means ensuring that the equipment is able to run as planned. An improved reliability performance will naturally lead to improved performance in the areas of safety, cost, energy and margin. A measure of our plants reliability is reflected in our Unplanned Downtime performance and this was Mar Apr May Jun Jul Aug Sep Oct Nov Dec 08markedly 08 08 08 08 08 082.9% 08 as 08 08 improved in 2008 at compared to 7.59% in Average Complex 2008 AVG = USD4.50/bbl Simple 2007 as shown in Figure 13.
Figure 13 Unplanned Downtime (%)
8 7 6 5 4 3 2
10
3.74
5.39
7.59
2.67
1 0
00
40
2003
2004
2005
2006
2.29
2007
2008
80
20
60
20
38
38
40
35
30
HSSE
Product Quality
20
12
10
12
20
20
2.90
46
(continued)
Gasoil 37%
Business Improvement
In response to the challenges we currently face, your Company Motor Gasoline 31% aims to maintain high levels of operational performance while achieving a higher level of efficiency and effectiveness. Since 2007, we focused on 6 priority areas, with specific emphasis on process safety and reliability, in line with the Groups direction as illustrated in Figure 14.
7.59
HSSE: Improving health, safety, security and environment performance Product Quality: Ensuring that fit-for-purpose products are delivered to our customers every time. Reliability: Employing world class reliability and maintenance programmes to deliver high plant availability.
2.67 5.39
Energy/CO2: Developing long term plans to maximise energy efficiency and reduce our carbon footprint.
2003 2004 2005 2006 2007 2008 Margin Enhancing margin capture to maximise profits from our assets.
2.29
Cost: Managing costs by addressing primary components of the cost structure and effective contract management.
2.90
3.74
HSSE
Product Quality
Margin
PEOPLE
Reliability
Energy/CO2
Cost
47
Look Ahead
We witnessed in the second half of 2008, the global financial crisis deepening, as stock markets world-wide tumbled and entered a period of high volatility, with a considerable number of banks, mortgage lenders and insurance companies declaring financial distress. This loss of confidence by investors prompted a substantial injection of capital into financial markets by Governments around the world. Although governing bodies continue to offer fiscal and monetary stimulus packages, analysts expect the crisis to continue in 2009. Growth in East Asia is also expected to decline notably this year, as exports decelerate significantly. Reflecting the worsening external conditions as well as flagging domestic demand, the Malaysia government revised 2009s real GDP growth estimate for the second time to between -1.0% and 1.0% from 3.5% previously. As the global recession continues to impact the Malaysian economy, job security becomes an issue and domestic demand may decrease resulting in sluggishness in most business sectors. Domestic and external demands as well as exports are projected to post a weaker growth in 2009. Energy demand is anticipated to weaken and refining margins are still expected to remain volatile. Concerns over oil prices, crude oil availability, volatility in oil producing areas and heightened geopolitical tensions, are expected to linger.
Going Forward
Your Company is committed to maintaining our competitive edge by a continued focus on operational excellence and realigning our business strategies to meet changing market needs. High reliability as well as strong people excellence and health, safety, security and environmental performance will continue to be our major priorities. In ensuring astute financial management throughout our operations, we will proactively pursue cost optimisation and continuous improvement initiatives. I am pleased to advise that Shell supports the implementation of Euro2M specification as announced by the Government in the Ninth Malaysian Plan and your Company is ready to comply.