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50 ANNUAL REPORT 2018 SERBA DINAMIK HOLDINGS BERHAD SERBA DINAMIK HOLDINGS BERHAD ANNUAL REPORT 2018 51

52 History & Milestones

54 Our Business Model

55 Our Business Activities

58 Our Global Presence & Facilities

60 Our Customers & Markets

61 Highlights of Serba Dinamik

62 Awards & Recognitions

ABOUT OURBUSINESS


SHAH ALAM

MUARO JAMBI,INDONESIA

SHAH ALAM, SELANGOR

LONDON & BAHRAIN

MUARO JAMBI, INDONESIA &KOTA MARUDU, SABAH

KUALA LUMPUR, BINTULU, SARAWAK,SHAH ALAM, SELANGOR

& TANZANIA

JOHOR (MALAYSIA) SINGAPORE, UAE, UK & INDIA

PAKA, TERENGGANU

PAKA, TERENGGANU

QATAR

QATARBAHRAIN

BINTULU, SARAWAK

Established first service centre in Bintulu, Sarawak providing MRO services for rotating equipment.

1993

1997

2001

2004

2005

2007

2013

2015

2017

2018

2019

Became aPETRONAS vendor.

First overseas MRO contractfor an LNG Plant in Qatar.

Set up our second service centre including training centre in Paka, Terengganu.

Set up base in Indonesia to address O&G opportunities in Indonesia.

Graduated from PETRONAS Vendor DevelopmentProgramme (VDP).

Established offices in London and Bahrain to service customers in the

United Kingdom and the Middle East.

• Acquired a Compressed Natural Gas (CNG) plant in Muaro Jambi, Indonesia.

• Appointed by MITI to be anchor company for our own VDP. • Acquired 30% stake in a company with combined 29MW

small hydropower plants in Kota Marudu, Sabah.

• Listed on the Main Market of Bursa Securities.• Commenced development of our Bintulu

Integrated Energy Hub in Kidurong, Bintulu.• Acquired a 16-storey office building in Shah

Alam as our new head office.• Expanded into the African continent for the development and operation of a chlor-alkali

plant in Tanzania.

• Commenced development of Pengerang eco-Industrial Park (PeIP) and Pengerang International Commercial Centre (PICC) in southern Johor.

• Establishment of Sukuk Wakalah BI Al-Istithmar of up to MYR1.5 billion• Acquired stake in Green & Smart Holdings PLC, CSE Global Limited, Al - Sagar

Engineering and eNoah iSolution India Private Limited• Serba marked its 25th Anniversary on 11th June 2018

SARAWAK, (MALAYSIA)

• Acquired stake in E&E Gas Sdn. Bhd. for the development of LNG facilities.• Signing of “Onshore Maintenance Construction & Modification Services

(ONMCM)”

DATO’ DR. IR.MOHD ABDUL KARIM ABDULLAHGroup Managing Director/Chief Executive O�cer

ABDUL KADIER SAHIBNon-Independent Non-Executive Director

DATO’ AWANG DAUD BIN AWANG PUTERADeputy Group Managing Director

KOTA MARUDU

BINTULU

PAKA

JOHOR

MUARO JAMBI

INDIA

PERAK

SINGAPORE

KUALA LUMPUR

TANZANIA

UAE

UK KUCHING

HISTORY & MILESTONES


Water & Utilities

Power Generation

Upstream O&G :Production Platforms

Industries Served

Downstream O&G :Oil Refineries

Downstream O&G :LNG Plants

Downstream O&G :Petrochemical Plants

Chemical Plants :Chlor-Alkali Plant

MRO of rotatingequipment

IRM of static

equipmentand structures

O&M

EPCC

OTHERSOTHER PRODUCTS& SERVICES

OPERATION &MAINTENANCE

ENGINEERING, PROCUREMENT

CONSTRUCTION &COMMISSIONING

OUR BUSINESS MODEL

GLOBAL INTEGRATED ENGINEERING SERVICE PROVIDER

OUR BUSINESS ACTIVITIES

Our Operations and Maintenance Services

For FYE2018, our O&M services were focused on maintenance, repair and overhaul (MRO) of rotating equipment, and inspection, repair and maintenance (IRM) of static equipment and structures.

MRO of Rotating Equipment

Rotating equipment is a general classification of machinery and equipment designed to generate reciprocating or circular motion, which is then used to do work. Examples of rotating equipment include gas and steam turbines, internal combustion engines, electric motors, generators, compressors, pumps, blowers and fans.

We are a global energy services group providing engineering solutions to the oil, gas, petrochemical and power generation industries since 1993. Our main business is in operations and maintenance (O&M) services, and engineering, procurement, construction and commissioning (EPCC) works. A small proportion of our business is in related products and services.


Rotating equipment are used in many industries including oil and gas, power generation, manufacturing, processing, mining, marine, transportation and construction. Rotating equipment are also used in commercial applications, including for heating, ventilation and air-conditioning, escalators and elevators.

We are an independent service provider, and therefore we are not restricted in providing MRO services for any specific brand of equipment.

IRM of Static Equipment and Structures

Static equipment refers to objects that are part of a processing or manufacturing process that do not have any mechanical or moving parts. They include process equipment like boilers, pressure vessels, heat exchangers, columns, separators and reactors, and other equipment and structures like storage tanks and silos, piping systems and support structures.

Process equipment are used in many manufacturing and processing plants like crude oil refineries, gas processing plant, petrochemical and chemical manufacturing plants, palm oil refineries, power generation plants and distillation plants.

Operations

Operations are involved in the efficient, effective and safe running of a plant or facility. We currently operate a compressed natural gas (CNG) plant in Muaro Jambi, Indonesia. Some of the operations contracts we have entered recently include small hydropower plants in Kota Marudu, Sabah and a chlor-alkali plant in Tanzania. However, as these plants are still under construction, the operations contracts have yet to commence.

O V E R V I E W O F O U R B U S I N E S S A C T I V I T I E S

Engineering, Procurement, Construction and Commissioning

EPCC is a general term referring to the responsibility to deliver an entire defined project. We carry out EPCC of plants, facilities, road infrastructure and buildings. This includes small hydropower plants, CNG plant, chlor-alkali plant, biogas power plant, water treatment plants, microturbine generators, steel structures, piping system and firefighting system. Additionally, we recently entered into agreements to carry out EPCC works for mid-scale LNG facilities which includes an LNG terminal, regasification plant and road works.

Other products and services

A small proportion of our business includes other business activities such as process control and instrumentation, technical education and training, ICT services, supply of products and parts, as well as provision of logistics services.

O V E R V I E W O F O U R B U S I N E S S A C T I V I T I E S

58 ANNUAL & CORPORATE GOVERNANCE REPORT SERBA DINAMIK HOLDINGS BERHAD

Manama

RasZuwayed

RasAl-Khaimah

Abu Dhabi (Al-Sagar)Engineering Riau

MuaroJambi

Jakarta

AmbonIsland

CNGPaka

BandarPenawar

Bintulu

MiriLabuan

Laos

Pasir GudangSingapore

Klang

ShahAlam

LondonCornwall

EUROPEUnited Kingdom | Netherlands

| Switzerland | Norway*

Corporate Headquarter Service Centre Office

CNG CNG Plant Gas Power Plant

Project

Logistics Centre

■ Malaysia■ Indonesia■ Laos■ Singapore*■ Australia*■ New Zealand*

■ Southeast Asia

■ Qatar■ Bahrain■ United Arab Emirates■ Kingdom of Saudi Arabia■ Oman■ Kuwait

■ US*■ Mexico*

■ MiddleEast

■ Uzbekistan■ Kazakhstan■ Turkmenistan■ India

■ Central & South Asia

■ United Kingdom■ Netherlands■ Switzerland■ Norway*

■ Europe

■ South & North America

■ Tanzania■ Nigeria*

■ Africa

AFRICATanzania

MIDDLE EASTQatar | Bahrain | UAE | Saudi Arabia | Oman | Kuwait

CENTRAL & SOUTH ASIAUzbekistan | Kazakhstan | Turkmenistan | India

SOUTHEAST ASIALaos | Malaysia | Indonesia

MuscatRiyadh

DohaQatar

UAEBahrain

SaudiArabia

Oman

*CSE Global Operational Location

OUR GLOBAL

PRESENCE & FACILITIES

SERBA DINAMIK HOLDINGS BERHAD ANNUAL & CORPORATE GOVERNANCE REPORT 59


OUR CUSTOMERS & MARKETS

As an international company, a substantial proportion of our business is derived from foreign countries.We have a diversified customer base covering Asia, Middle East, Africa and Europe.

Revenue contribution for FYE2018.

■ Europe 0.10%

■ Middle East61.47%

■ Africa 0.91%

■ Central & South Asia 7.35%

■ Southeast Asia 30.17%

Prepared by Esente Communications (M) Sdn. Bhd. ©

DATE : 10 APR 2018 PUBLICATION : NEW STRAITS TIMES SECTION : BUSINESS HEADLINE : SERBA DINAMIK TO JOINTLY DEVELOP PEIP CATEGORY : COMPANY MEASUREMENT : 302.4CM² TONE : NEUTRAL REMARKS : NIL


DATE : 31 AUGUST 2018 PUBLICATION : THE STAR SECTION : SPECIAL EDITION HEADLINE : TAKING A CHANCE ON YOURSELF CATEGORY : COMPANY NEWS MEASUREMENT : 136 CM2

TONE : POSITIVE REMARKS : N/A


DATE : 17 APR 2018 PUBLICATION : THE BORNEO POST (SARAWAK) SECTION : BUSINESS HEADLINE : SERBA DINAMIK’S STAKE ACQUISITION IN CSE GARNERS

POSITIVE REACTIONS CATEGORY : COMPANY MEASUREMENT : 120CM² TONE : NEUTRAL REMARKS : NIL


DATE : 27 OCTOBER 2018

PUBLICATION : UTUSAN MALAYSIA

SECTION : BISNES

HEADLINE : SERBA DINAMIK DAPAT KONTRAK RM512J

CATEGORY : COMPANY

MEASUREMENT : 50.0 CM2

TONE : NEUTRAL

REMARKS : N/A


DATE : 10 APR 2018 PUBLICATION : BERITA HARIAN SECTION : BISNES HEADLINE : PEIP SEDIA KHIDMAT SOKONGAN MINYAK, GAS

PENGERANG CATEGORY : COMPANY MEASUREMENT : 82.9CM² TONE : NEUTRAL REMARKS : NIL


DATE : 25 APR 2018 PUBLICATION : THE EDGE FINANCIAL DAILY SECTION : HOME BUSINESS HEADLINE : SERBA DINAMIK SAYS TANZANIA JV TO RECOGNISE INCOME STARTING MAY CATEGORY : COMPANY MEASUREMENT : 77CM² TONE : NEUTRAL REMARKS : NIL


DATE : 28 AUGUST 2018

PUBLICATION : THE MALAYSIAN RESERVE

SECTION : BUSINESS

HEADLINE : SERBA DINAMIK, MICROSOFT TEAM UP FOR DIGITAL

TRANSFORMATION

CATEGORY : COMPANY

MEASUREMENT : 126CM²

TONE : NEUTRAL

REMARKS : NIL


DATE : 06 DECEMBER 2018 PUBLICATIONS : THE SUN SECTION : BUSINESS HEADLINE : SERBA DINAMIK ACQUIRES 30% OF INDIA'S ENOAH ISOLUTIONS

CATEGORY : COMPANY NEWS MEASUREMENT : 221.44 CM² TONE : POSITIVE REMARKS : N/A


DATE : 2 JUNE 2018 PUBLICATION : THE STAR SECTION : BUSINESS HEADLINE : SERBA DINAMIK BULKING UP CATEGORY : COMPANY MEASUREMENT : 243.8CM² TONE : NEUTRAL REMARKS : NIL


DATE

: 07 MAY 2018

PUBLICATION : THE MALAYSIAN RESERVE

SECTION : CORPORATE

HEADLINE : SERBA DINAMIK IN JV TO EXPAND OFFSHORE BUSINESS

CATEGORY : COMPANY

MEASUREMENT : 70CM²

TONE

: NEUTRAL

REMARKS : NIL


DATE : 26 JUNE 2018 PUBLICATION : THE MALAYSIAN RESERVE SECTION : CORPORATE HEADLINE : SERBA DINAMIK WINS RM465.1M JOBS, ENTERS KAZAKHSTAN CATEGORY : COMPANY MEASUREMENT : 66CM² TONE : NEUTRAL REMARKS : NIL


DATE : 08 FEBRUARY 2019 PUBLICATIONS : THE EDGE FINANCIAL DAILY SECTION : BROKERS CALL HEADLINE : SERBA DINAMIK'S MARGINS FOR MRO CONTRACTS SEEN TO REMAIN HEALTHY CATEGORY : COMPANY NEWS MEASUREMENT : 138 CM² TONE : NEUTRAL REMARKS : N/A


DATE : 22 MARCH 2019

PUBLICATIONS : THE BORNEO POST (SARAWAK)

SECTION : HOME

HEADLINE : S'WAK WELCOMES INVESTORS IN DEVT OF O&G INDUSTRY

CATEGORY : MENTION NEWS

MEASUREMENT : 189 CM²

TONE : NEUTRAL

REMARKS : N/A


DATE : 15 FEB 2018 PUBLICATION : THE STAR SECTION : BUSINESS HEADLINE : SERBA DINAMIK WINS SEVEN CONTRACTS WORTH RM831

MILLION CATEGORY : COMPANY MEASUREMENT : 97.8CM² TONE : NEUTRAL REMARKS : NIL


DATE

: 22 MARCH 2019

PUBLICATIONS : UTUSAN BORNEO (SARAWAK)

SECTION : HORIZON

HEADLINE : SERBA DINAMIK SASAR BIDA KONTRAK BERNILAI RM20 BILION

CATEGORY : COMPANY NEWS

MEASUREMENT : 35.4 CM²

TONE

: NEUTRAL

REMARKS : N/A


DATE

: 27 NOVEMBER 2018


SECTION : BUSINESS

HEADLINE : SERBA DINAMIK ENTERS 2018 FORBES ASIA'S BEST 200 UNDER A

BILLION LIST



TONE

: POSITIVE

REMARKS : N/A


DATE : 06 DECEMBER 2018

PUBLICATIONS : THE EDGE FINANCIAL DAILY

SECTION : HOME BUSINESS

HEADLINE : SERBA DINAMIK BUYS 30% OF INDIA'S ENOAH FOR RM15M



TONE : NEUTRAL

REMARKS : N/A


DATE : 15 MAY 2018

PUBLICATION : NEW STRAITS TIMES

SECTION : BUSINESS

HEADLINE : SERBA DINAMIK EYES RM7.5B ORDER BOOK

CATEGORY : COMPANY

MEASUREMENT : 96.5CM²

TONE : NEUTRAL

REMARKS : NIL


DATE : 27 NOVEMBER 2018


SECTION : BUSINESS

HEADLINE : SERBA DINAMIK ENTERS 2018 FORBES ASIA'S BEST 200 UNDER A

BILLION LIST



TONE : POSITIVE

REMARKS : N/A


DATE : 27 SEPTEMBER 2018 PUBLICATION : UTUSAN BORNEO SECTION : BUSINESS HEADLINE : PENERANGAN.. MENTERI PERDAGANGAN ANTARABANGSA DAN INDUSTRI DARELL LEIKING

CATEGORY : COMPANY NEWS MEASUREMENT : 9.56 CM2 TONE : POSITIVE REMARKS : N/A

HIGHLIGHTS OF SERBA DINAMIK

Source:

News Straits Times, The Edge, The Malaysian Reserve, The Sun, The Star, The Malaysian Reserve, News Straits Times, The Borneo Post


Malaysia InvestorRelations Awards

2018

Anugerah IkonUsahawan Bumiputera

2018

Contractor OutstandingBehaviour and

Recognition Award2019

Forbes Asia’s BestUnder a Billion, Tokyo

2018

The World Business Leader Bizz award,

Prague2018

1000 High-GrowthCompaniesAsia-Pacific

2018

Asia EntrepreneurAlliance Award

2018

The Asset AsianAward2019

The Brand LaureateBest Brands Award

2017/2018

MVCA Annual Dinner& Awards Night

2018

AWARDS & RECOGNITIONS


MANAGEMENT DISCUSSION & ANALYSIS66 Financial Highlights

67 Financial Performance


FINANCIAL HIGHLIGHTS

Serba Dinamik Management is proud to present its review of the Group performance for the Financial Year Ended 2018 alongside an overview of its financial performance for the preceding 5 Financial Years Ended 2014 – 2017. The group has achieved another year of outstanding performance during this financial year, marking its 25th anniversary since its inception on June 1993.

FINANCIAL PERFORMANCE5-YEAR GROUP FINANCIAL SUMMARY

Financial Year Ended 31 December

RM'000 2014* 2015* 2016* 2017 2018

Revenue 755,768 1,402,942 2,168,328 2,722,318 3,283,174

Cost of operations (644,461) (1,170,483) (1,794,611) (2,238,385) (2,700,850)

Gross profit 111,307 232,459 373,717 483,933 582,324

Other operating income 8,151 852 1,073 4,074 7,867

Administrative expenses (33,645) (51,201) (71,845) (73,637) (103,724)

Other Operating expenses - - - (32,271) (13,134)

Results from operating activities 85,813 182,110 302,945 382,099 473,332

Other non-operating income - 2,590 - - -

Finance income 846 2,040 3,963 3,135 12,535

Finance costs (18,974) (27,169) (38,974) (37,071) (62,122)

Net finance costs (18,128) (25,129) (35,011) (33,936) (49,587)

Share of results of equity accounted

associates - - - (2,092) 13,880

PBT 67,685 159,571 267,934 346,071 437,625

Tax expense (312) (3,009) (22,125) (41,279) (44,783)

PAT 67,373 156,562 245,809 304,792 392,842

Other comprehensive income, net of tax

Items that will not be reclassified

subsequently to profit or loss

Remeasurement of employee benefits 18 - - - -

Items that may be reclassified

subsequently to profit or loss

Foreign currency translation differences for

foreign operations 5,816 41,795 35,412 (61,180) 258

Share of other comprehensive income of

equity accounted associates 18 - - - 3,447

Total comprehensive income for the year 73,207 198,357 281,221 243,612 396,547

PAT attributable to:

Owners of the Company 63,881 156,723 246,124 308,087 391,477

Non-controlling interests 3,492 (161) (315) (3,295) 1,365

PAT 67,373 156,562 245,809 304,792 392,842

Total comprehensive income

attributable to:

Owners of the Company 69,715 198,319 280,596 247,664 395,371

Non-controlling interests 3,492 38 625 (4,052) 1,176

Total comprehensive income for the year 73,207 198,357 281,221 243,612 396,547

* The figures and values for FYE2014 - 2016 in this section represent that performance of Serba Dinamik Group Berhad, in order to reflect the performance of the group prior to the incorporation of Serba Dinamik Holdings Berhad and the subsequent acquisition of Serba Dinamik Group Berhad on 26 May 2016. For futher information please refer to our IPO prospectus available on our corporate website.

Cumulative Annual Revenue Growth Rate Cumulative Annual PBT Growth Rate

55.39%44.37%

17.74%20.60%

11.97%

Gross Profit Margin

Revenue Growth

Net Profit Margin

Revenue Gross Profit Net Profit

RM million

582.33

3,283.17

582.33

392.84

0.76

1.40

Revenue

2014 2015 2016 2017 2018

2.72

2.17

RM B

illio

n

0.5

1.0

1.5

2.0

2.5

3.0

3.5 3.28

67.3

7

Profit Before Tax

156.

56

245.

80 304.

79

392.

84

2014 2015 2016 2017 2018

RM M

illio

n

50

100

150

200

250

300

350

400


F I N A N C I A L P E R F O R M A N C E

5-YEAR PERFORMANCE REVIEW

The group recorded a revenue of RM3.28 billion for FYE2018 showing a Year on Year (“YoY”) growth of 20.60% and five(5) year Cumalative Annual Growth Rate ("CAGR") of 44.37% for the period between FYE2014 and FYE2018. This growth is mainly attributable to increased tendering activities both locally and overseas, an increase in O&M activity in the Middle East as well as revenue recognition from EPCC contracts secured through our asset ownership model. The company further recorded revenue from two additional countries being Tanzania and Kazakhstan.

Serba Dinamik’s gross profit from operations improved from RM483.93 million in FYE2017 to RM582.32 million in FYE2018 which translates into a 20.33% growth. This growth is in line with the revenue growth of 20.60% recorded

OUR OPERATIONS Serba Dinamik Holdings Berhad and its subsidiaries a an energy engineering group providing engineering solutions

during the year. Gross profit margin remained stable at 17.74% in FYE2018 against 17.78% last year. Over the past five(5) years, the group's gross profit grew by 51.24% on a CAGR basis. Our operations and maintenance segment was the main profit contributor making up 90.04% of the gross profit for the year while the EPCC segment and other supporting services segment provided 9.60% and 0.36% of the gross profit for the year respectively.

Our profit before and after tax for FYE2018 both grew by 59.46% and 55.39% on a CAGR basis respectively. This growth is mainly attributable to the revenue CAGR of 44.37% for the same period as well as an improvement in efficiency and reduced overheads as a result of economies of scale achieved through our growth. Profit before tax ("PBT") grew by RM91.55 million from RM346.07 million in FYE2017 to RM437.63 million in FYE2018 showing an increase of 26.46%. Similarly, Profit after tax ("PAT") grew RM88.05 million from RM304.79 in FYE2017 to RM 392.84 in FYE2018. The growth of PBT and PAT was slightly higher than the revenue growth of 20.60% as a result of lower overheads resulting in improved PBT and PAT margins of 13.33% and 11.97%, as compared to 12.71% and 11.20% PBT and PAT margins recorded in FYE2017.

0.76

1.40

2.17

2.72

3.28

Revenue

2014 2015 2016 2017 2018

RM B

illio

n

0.5

1.0

1.5

2.0

2.5

3.5

3.0

111.

31

232.

46

373.

72

483.

93 582.

32

Gross Profit

RM M

illio

n

100

200

300

400

600

500

2014 2015 2016 2017 2018

67.6

8

67.3

7

159.

57

156.

56

267.

93

245.

81

346.

07

304.

79

437.

63

392.

84

Profit Before / After Tax

2014 2015 2016 2017 2018

RM M

illio

n

50

100

150

200

250

300

350

400

450

PBT PAT


primarily to the Oil & Gas ("O&G") sector, power generation industries, and water & utilities sector in thirteen (13) countries across five (5) different regions namely, South East Asia, Central and South Asia, Middle East, Africa and Europe. Our business activities include the provision of operation & maintenance services, engineering, procurement, construction and commissioning works, and other supporting products and services, which include technical training, provision of Information & Communication Technology solutions and services, supply of products and parts, and provision of logistics services. We provide our products and services to engineering companies and contractors, O&G operators, gas processing plants, oil refineries, petrochemical manufacturers, independent power producers and utilities and water treatment plants among others. We are also integrating the Asset Ownership Model into our operations as a natural growth step forward. Under the Asset Ownership Model, we acquire minority equity stakes in companies within our scope of expertise to secure long-term income from the EPCC of the projects, the long-term O&M service provision to these assets as well as income streams from the equity stake held by the group.

2018 PERFORMANCE REVIEW

The Group's segmental revenue composition for FYE2018 remains similar to the past years of operation with the O&M segment being the main revenue contributor the group. The O&M segment generated RM2.93 billion revenue during FYE2018 showing an increase of 25.01% as compared to RM2.34 billion during FYE2017. Overall, the segment accounted for 89.20% of the total group revenue in FYE2018 as compared to 86.06% in FYE2017.

The EPCC segment was the second largest revenue contributor in FYE2018 with a contribution of RM346.81 million, slightly lower than FYE2017’s contribution of RM374.27 million. Nevertheless, the EPCC segment’s contribution remains strong with further improvement expected in FYE2019 as activity is expected to pick up in tandem with Oil & Gas market recovery, reduced political uncertainties locally and overseas as well as the contribution expected from our newly secured asset-ownership contracts which are expected to kickstart in the

Operational Segments Review

O&M

The O&M Segment revenue grew by 25.01% from RM 2.34 billion in FYE2017 to RM2.93 billion in FYE2018. The growth in the segment was driven by increased operations and revenue from both the MRO and IRM subsegments which grew by RM474.25 million and RM111.61 million or 21.76% and 68.34% respectively. Margins for the O&M segment remained stable at 17.90% in FYE2018 as compared to 17.91% in FYE2017.

first half of FYE2019. Overall, the EPCC segment’s growth over the period from FYE2014-FYE2018 was 39.84% on a CAGR basis. Other supporting products and services accounted for 0.24% of the total revenue or RM7.81million during FYE2018 as compared to RM5.35 million in FYE2017 showing a growth of 46.02% YoY as the company expanded its operations by introducing new products to the market as detailed in the operational segments section below.

IN DEPTH REVIEW OF OPERATIONS

FYE 2018

O&M EPCC Others

RM7.81 million0.24%

RM 2.93 Billion

million

RM 346.81

89.20%

39.84%

RM 2,653.64 millionRM 274.92 million

Revenue Segmentation (RM million)

MRO

IRM


MRO operations grew by 21.76% in FYE2018 as a result of significant growth in MRO operations in Central Asia and the Middle East which grew by 226.18% and 23.92% respectively. Middle Eastern operations’ growth was spearheaded by UAE’s increase in work volume from existing contracts which grew from RM75.6 million to RM383.38 million, showing an increase of 407.28%. This increase was slightly offset by less volume of work orders received in Oman and Kuwait which collectively showed a decrease of RM121.72 million as compared to FYE2017.

EPCC

Our EPCC segment’s revenue for FYE2018 showed a slight decline of 7.34% from RM374.27 million in FYE2017 to RM346.81 million in FYE2018. The revenue decline was primarily attributed to lower EPCC revenue from the Middle East due to less work orders received as end-users allocated greater portions of their budgets towards maintenance of existing assets.

The gross profit margins for the segment also showed a minor decline from 16.84% to 16.12% as a result of the overall lower contribution from the Middle East region which declined from 49.34% in FYE2017 to 35.72% of the segment’s revenue for FYE2018. The decline in contribution was offset by EPCC revenue being recognised from the newly penetrated African region, through our EPCC project of the construction of a 45 Tonne per Day ("TPD") chlor-alkali plant in Tanzania, as well as an increase in EPCC revenue recognised in Indonesia which contributed 8.60% and 4.89% of the segment’s revenue respectively.


O&M Revenue & Margin

2014 2015 2016 2017 2018

16.20%

16.63%

17.29%

17.91%

17.90%

RM B

illio

n

0.5

1.0

1.5

2.0

2.5

3.0

16.016.416.817.217.618.0

O&M Revenue

Gross Profit Margin

0.60

1.27

1.93

2.34

2.93

IRM MRO

RM B

illio

n

0.5

1.0

1.5

2.0

2.5

3.0

2014 2015 2016 2017 2018

O&M Revenue

0.03 0.

30

0.11

0.16 0.27 0.

57

0.98

1.82 2.

18

2.65

2014 2015 2016 2017 2018

EPCC Revenue & Margin

RM M

illio

n

100

200

300

400

5%

0%

10%

15%

20%

EPCC Revenue

Gross Profit Margin

19.6

9 124.

94 232.

63

374.

27

346.

81

10.65%

15.93% 16.71% 16.84% 16.12%

Other supporting products and services

Other supporting products and services' revenue grew by 46.02% from RM5.35 million in FYE2017 to RM7.81 million in FYE2018. Our other supporing products and services comprise the provision of ICT services and solutions, provision of technical training courses, and supply of products and spare parts. The revenue for this segment for FYE2018, was predominantly derived from the provision of ICT related services and from the provision of technical training programmes which accounted for 57.92% and 28.45% respectively. On the profitability front, the gross profit margin for the segment showed slight improvement to a margin of 26.88% in FYE2018 from 23.90% in FYE2017.

Geographic Segmentation

Serba Dinamik currently operates in five (5) geographic regions being South East Asia, the Middle East, Central & South Asia, Europe, and recently Africa. The Group’s revenue had been predominantly generated from South East Asia, the Middle East, and Central Asia with minor contributions from other regions. The Middle East had been the largest revenue contributor for the past three financial years making up 61.47% of the Group’s revenue for FYE2018 followed by South East Asia and Central Asia


which contributed 30.17% and 7.35% to the Group’s revenue respectively. For a Year on Year ("YoY") comparison, Central Asia was our fastest growing region with a revenue growth of 71.84% as compared to FYE2017, while the Middle East grew by 25.55% during the same period. Our South East Asian revenue experienced moderate growth of 2.11% as compared to FYE2017, while revenue derived from Europe dropped by RM1.05 million or 23.44% as compared to the preceding Financial Year.

2014 2015 2016 2017 2018

Other supporting products and services Revenue & Margin

Other supporting products and services Revenue & Margin

Gross Profit Margin

RM M

illio

n

20

40

60

80

5%

10%

15%

20%

25%

30%

16.87%

17.42%21.73%

23.90% 26.88%

65.4

0

3.09 5.16

5.35 7.81

South East Asia Middle East Central Asia Africa# Europe*

RM B

illio

n

0.5

1.0

1.5

2.0

3.0

2014 2015 2016 2017 2018

Regional Performance

0.57

0.95

0.97

0.99

0.24

0.66

1.11

1.61

2.02

0.12 0.17

0.10

0.14 0.

24

0.03----

0.00

0.00

0.00

0.00

0.00

0.39

* Revenue recognise in Europe was less than RM 0.01 billion, further details in the next section.# Revenue recognition in Africa started in FYE2018, no revenue was recognised from the continent in prior financial years.



South East Asia

The revenue generated in South East Asia grew by RM20.49 million or 2.11% in FYE2018 showing a total revenue of RM990.65 million as compared to RM 970.16 million in FYE2017. Our Malaysian operations were main growth driver showing a revenue growth of RM51.16 million from RM869.09 million in FYE2017 to RM920.25 million in FYE2018. This was slightly offset by a decline in revenue generated from Indonesia from RM101.70 million in FYE2017 to RM70.40 million in FYE2018. Overall, Malaysia was the largest revenue generating country for the group making up 28.03% of the total revenue generated in FYE2018 while Indonesia ranked seventh amongst the countries we operate in with a contribution of 2.14% of the Group's revenue.

Our operations in Malaysia remain strong showing an overall CAGR of 27.26% over the period from FYE2014 to FYE2018 and a growth of 5.89% on a YoY basis. The revenue growth was mainly in the local O&M segment which showed an overall growth of 8.82% on a YoY basis. On the other hand, EPCC operations in the country experienced a temporary slow-down in mid-FYE2018 before resuming at normal pace. However, this caused the EPCC segment revenue to decline by RM11.55 million or roughly 1.26% of the total revenue generated in Malaysia.

On the other hand, revenue in Indonesia showed a CAGR of 15.65% over the past five (5) years while showing a decline of 30.35% on a YoY basis. The revenue drop in Indonesia was a result of less MRO work orders received during the year which declined by RM44.71 million during FYE2018. However, this decline was slightly offset by significant EPCC revenue growth which contributed RM16.96 million in FYE2018, from RM2.92 million in FYE2017.

Middle East

The Middle East region had been our largest revenue contributing region for the past three (3) Financial Years. The region accounted for 61.46% of our Group’s revenue or RM2.02 billion for FYE2018, up from 59.04% or RM1.61 billion in FYE2017. Within the region, Serba Dinamik operates in six countries being Bahrain, Kingdom of Saudi Arabia (“KSA”), Kuwait, Oman, Qatar and the United Arab Emirates ("UAE"). The region is considered the largest oil & gas producing region accounting for approximately 32% of the global crude oil production in 2017. This creates a very large market for Serba Dinamik to penetrate and grow in, which is evident by the region’s contribution growth from 31.82% of the group’s revenue in FYE2014 to 61.46% in FYE2018, showing an overall CAGR of 70.20% over the same period.

Qatar was the largest revenue contributor to FYE2018’s revenue in the region accounting for 20.75% of the group’s revenue for the year. The revenue generated from our operations in the country amounted to RM681.24 million, showing a growth of 38.64% from FYE2017’s revenue of

0.35 0.

49

0.77 0.

87 0.92

2014 2015 2016 2017 2018

Malaysia

RM B

illio

ns

0.2

0.4

0.6

0.8

1.0

50

100

150

200

39.3

5 84.4

0

178.

70

101.

07

70.4

0

Indonesia

RM M

illio

ns

2014 2015 2016 2017 2018


During FYE2018, Bahrain was the third largest revenue generating country in the region with a total revenue of RM327.20 million making up 9.97% of the group’s revenue. This shows a decline of approximately 4.11%

The Kingdom of Saudi Arabia ranked fourth in terms of revenue contribution within the region. The Group generated a revenue of RM275.00 million from KSA in FYE2018, or 8.38% of the Group’s total revenue for the same period. This marks a decline of 9.44% comparing to FYE2017’s performance which marked a revenue of RM303.67 million. The decline in revenue was mainly a result of less work receive from O&M activities in the petrochemicals industry in the country. Overall, revenue recognised in KSA grew by 117.49% on CAGR basis during the period from FYE2014 to FYE2018.

Our revenue in the United Arab Emirates achieved significant growth showing a revenue increase of 133.00% during FYE2018 in comparison to the preceding financial year. Our operations in the country generated a revenue off RM674.92 million, making it the second largest revenue contributor after Qatar in the region. The revenue growth came as a result of a significant increase in work orders received from our existing contracts as well as a newly secured contract in FYE2018. Overall, the country accounted for 20.56% of the revenue for the Group and had a CAGR of 104.37% over the period from FYE2014 to FYE2018.

100

200

300

400

500

600

700

41.5

7

254.

72

348.

81 491.

37

681.

24

Qatar

RM M

illio

n

2014 2015 2016 2017 2018

38.6

9 196.

36

213.

550

289.

66

674.

92

UAE

RM M

illio

n

100

200

300

400

500

600

700

2014 2015 2016 2017 2018

9.85

5.63

164.

10

341.

21

327.

20

Bahrain

RM M

illio

ns

50

100

150

200

250

300

350

2014 2015 2016 2017 2018

12.2

9

15.9

6

279.

70

303.

67

275.

00

Saudi Arabia

RM M

illio

n

50

100

150

200

250

300

2014 2015 2016 2017 2018

RM491.37 million. This increase is inline with the overall revenue growth in the country over the past 5 years which came at a CAGR of 65.15%. Despite the overall perception of regional tensions in the area, the oil & gas market in Qatar remains strong with the political tensions slowly easing as uncertainties fade with time, following no escalations from either side of conflict with other Gulf Cooperation Council ("GCC") countries.

when compared to last year’s contribution of RM341.21 million. The decline was caused by less maintenance work orders received in FYE2018. During the year, Serba Dinamik secured a new IRM contract with Regno International Trading & Services W.L.L. which should contribute positively to the country’s revenue generation. Overall, Bahrain’s revenue growth during the period from FYE2014 to FYE2018 showed a CAGR of 140.07% over the 5-year period, mainly due to low volume of work as well as the nature of work done being consultancy back in FYE2014.



Revenue in Kuwait saw a decline in revenue from RM62.95 million in FYE2017 to RM12.85 million in FYE2018 as a result of less MRO work orders received from our clients and end users during the year. The country’s revenue contribution for FYE2018 came in at about 0.39% of the overall group revenue. The country’s overall growth over the period FYE2014 to FYE2018 shows a CAGR of 7.09%.

Similarly, operations in Oman experienced lower volumes in MRO work orders received as well as the expiry of one of our contracts resulting in lower revenue generated from the country. Our FYE2018 revenue in Oman amounted to RM46.76 million, showing a decrease of 60.50% from the revenue recognised in the country in FYE2017. Oman’s revenue recognised in FYE2018 was also lower than the revenue generated in FYE2014 due to the company changing its focus in the country from supply of spare parts in FYE2014, and FYE2015 to a more O&M service-oriented direction in FYE2016 till FYE2018.

Central Asia

Revenue in Central Asia was derived from our O&M operations in Turkmenistan and the newly penetrated market of Kazakhstan. This region is especially rich with natural Gas resources which are growing at a faster pace than crude oil. The revenue generated in the region accounted for 7.35% of the Group’s revenue for FYE2018 and had grown by 71.84% when compared to FYE2017.

Revenue generated in Turkmenistan in FYE2018 was recorded at RM239.51 million, showing a significant growth of 71.18% as compared to FYE2017. MRO activities accounted for 82.75% of the total revenue in the country showing an increase of 226.18% as compared to FYE2017, while IRM activities declined by 9.90%.

FYE2018 marks our first year of entry to Kazakhstan as we secured our first contract in the second quarter of FYE2018. The revenue generated from the IRM contract amounted to RM1.79 million and contributed 0.05% to the total group revenue

10

2030

4050

60

70

Kuwait

RM M

illio

n

2014 2015 2016 2017 2018

9.77 12

.36

68.0

4

62.9

5

12.8

5

Oman

RM M

illio

n

50

100

150

200

2014 2015 2016 2017 2018

78.3

3

177.

79

39.7

2

118.

38

46.7

6

Turkmenistan

50

100

150

200

250300

RM M

illio

n

2014 2015 2016 2017 2018

123.

69 166.

40

172.

76

139.

92 239.

51

Kazakhstan

0.5

1.0

1.5

2.0

RM M

illio

n

2014 2015 2016 2017 2018

1.79


Africa

Our revenue is Africa is solely generated from our EPCC contract in Tanzania for the construction and commissioning of a 45-TPD Chlor-Alkali plant. The contract was secured in FYE2017 as a part of our asset ownership program is our initial entry point to the continent as we explore more opportunities in the region. During FYE2018, the company generated RM29.82 million and contributed 0.91% of the total group revenue.

Cost of Sales

Our cost of sales increased by 20.66% from RM2.24 billion in FYE2017 to RM2.70 billion in FYE2018. This increase is inline with revenue growth of 20.60% achieved during the same period. Our cost of sales comprises:

Parts consumables and manpower, which refers to the essential machine and equipment, spare parts, bolts & nuts, tools, lubricants, and the manpower required for the installation of the above mentioned items. This is the major component of our cost of sales structure and accounts for 92.19% of the total cost of sales for the year.

Depreciation of plants, machinery, tools and equipment which are our second largest component in the cost of sales and accounted for 3.08% of the total cost of sales for FYE2018.

Professional fees paid to third party service providers for services outsourced made up 1.06% of the costs of sales for the year. These services included technical consultancy, analysis and testing services amongst others.

Personnel expenses refers to wages, benefits and compensations paid to our technical staff that perform the services provided to our clients. These expenses amounted to 1.76% of our total cost of sales for the year.

Other expenses comprise various costs such as levies, hiring charges, other payments to regulatory authorities amongst others. These costs amounted to RM51.25 million or 1.90% of the total costs of sales for the year.

Europe

Our operations in Europe remain predominantly of EPCC and consultancy a nature and are derived from our subsidiary, Quantom Offshore Ltd – UK. The revenue generated for FYE2018 contributed 0.10% or RM3.43 million to the total group’s revenue

1.

Tanzania

10

20

30

40

RM M

illio

n

2014 2015 2016 2017 2018

29.8

2

1.0

2.0

3.0

4.0

5.0

RM M

illio

n

United Kingdom

2014 2015 2016 2017 2018

0.63

2.67 2.71

4.48

3.43

2.

3.

4.

5.



Administrative Expenses

Administrative expenses incurred amounted to RM103.72 million in FYE2018, showing an increase of 40.86% from RM73.64 million. The ratio of administrative expenses to revenue increased from 2.70% to 3.16% mainly as a result of increase number of employees as well as growth in the magnitude of the Group's operations. Personnel expenses incurred during the year amounted to RM43.44 million or 38.08% of the administrative expenses for the year. These expenses include wages, salaries and other compensations paid to employees including statutory contributions to retirement and social security funds. Professional fees paid during the year amounted to RM13.70 million or 13.21% of the total administrative expenses incurred in FYE2018. These include fees paid to third party professional service providers for professional fees such as legal consultancy, secretarial & audit services and other advisory and professional fees. Depreciation of buildings, fixtures and fittings, and motor vehicles during FYE2018 amounted to RM6.62 million or 6.39% of the total administrative expenses for the year.

0.74

0.76

1.40

2.172.72 3.28

1.17

1.79

2.24

2.70

Cost of Sales

Cost of Sales

2014 2015 2016 2017 2018

RM B

illio

n

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Revenue

Depreciation Personnel Expenses Professional Fees

Parts, Consumables & Manpower Others

RM 2.70Billion

92.19%

1.76%1.90%

1.06%3.08%

Cost of Sales


Other administrative expenses during the year amounted to 38.94% of the administrative expenses incurred. Other administrative expenses include office expenses, maintenance, transportation, marketing, levies and rentals and utilities amongst other similar administrative expenses.

Other income & expenses

During FYE2018, the Group received other non-operating income of RM7.87 million. This income mostly consists of foreign exchange income and rental income, which accounted for 42.87% and 28.95% respectively. Furthermore, other operating expenses decreased by RM19.14 million as compared to FYE2017 mainly due to a one-off penalty from the Inland Revenue Board for which was recognised in FYE2017 for prior years tax assessment.

On the other hand, share of results of equity accounted associates showed its first positive year in the period from FYE2014 to FYE2018, with a total income of RM13.88million. This income was generated from our acquisition of a minority stake in CSE Global Ltd. During the year, dividends received from this acquisition amounted to RM10.54 million which contributed positively to the Group’s cash flow.

Tax expenses incurred during the year amounted to RM44.78 million as compared to RM41.28 million recorded in FYE2017 showing an increase of 8.49%. This increase is a result of an increase in profit before tax of 26.46%. However, the Group managed to reduce its Effective Tax Rate ("ETR")from 11.93% in FYE2017 to 10.23% in FYE2018. Our ETR is lower than the statutory corporate tax rate of 24% due to our overseas revenue contribution of 71.97% being tax-free as foreign derived income is deemed to be tax exempt.

RM M

illio

n

RM B

illio

n

20

40

60

80

100

120

1.0

0.5

1.5

2.0

2.5

3.0

3.5



Revenue

2014 2015 2016 2017 2018

33.6

5

0.761.40

2.172.72 3.28

51.2

0 71.8

5 73.6

4

103.

72

38.08%

6.39%

13.21%3.38%

38.94%


Personnel Expenses Depreciation Professional Fees

Foreign Exchange Loss Other Administrative Expenses

RM 103.72Million

8.15

0.85 1.07 4.

07

7.87

2.09

13.8

8

Other Income & Expenses

Other Operating IncomeOther Operating Expenses

Share of results of equity accounted associates

0

5

(5)

10

(10)

15

(15)

(30)

(35)

RM M

illio

n

2014 2015 2016 2017 2018

(13.

13)

(32.

27)

Gross Profit Margin

111.

31

14.73%16.57%

17.24%

17.78%17.74%

232.

46

Gross Profit

2014 2015 2016 2017 2018

RM M

illio

n

100

200

300

400

500

600

700

3.0%

6.0%

9.0%

12.0%

15.0%

18.0%

21.0%

GP Margin

582.

32

373.

72 483.

93



Financing & Liquidity

The Group’s total borrowings as at FYE2018 amounted to RM1.71 billion as compared to RM706.04 million in FYE2017. The increase is mainly a result of the Group’s issuance of RM denominated Sukuk in order to provide working capital as well as to refinance its existing borrowings to ultimately drive down its financing cost and cost of capital. Previously, the Group relied on short term borrowings to finance its activities which are typically priced with a finance cost that averages at about 7.95%. As at the end of FYE2018, our short-term borrowings were recorded at RM603.95 million and accounted for 35.29% of the total borrowings showing a decrease from RM681.28 and 96.49% of our total borrowings in FYE2017 respectively. During the year, the Group issued RM300.00 million worth of Islamic Medium-Term Notes (“IMTN”) with a tenure of 5 years priced at 4.95% and RM500.00 million worth of IMTNs with a tenure of 10 years priced at 5.30% as well as RM10.00 million worth of Islamic Commercial Papers that are of short-term nature. These sukuk issuances are aimed to provide the company with sufficient low-cost funding for its future working capital and investment requirements and to refinance its existing borrowings.

Corporate exercises

On 8 February 2017, Serba Dinamik Holdings Berhad was listed on Bursa Malaysia’s Stock Exchange main market after its Initial Public Offering exercise that was aimed to raise RM407.10 million in equity for various purposes as illustrated in detail in our IPO prospectus issued in December 2016. To date, 74.66% of the funds raised have been utilised as illustrated below:

The Group’s liquidity position remained strong as at FYE2018 with a gross and net gearing ratios of 0.82 and 0.42 times respectively. This comes in higher than FYE2017’s recorded gross and net gearing of 0.51 and 0.27 times due to the issuance of the RM denominated sukuk in the fourth quarter of FYE2018 which added approximately RM810.00 million to our total borrowings before the repayment of existing borrowings. However, our current ratio improved from 1.63 times in FYE2017 to 2.57 times in FYE2018.

RM M

illio

n

10

20

30

40

50

6%

3%

9%

12%

2014 2015 2016 2017 2018

Taxation

TaxationEffective Tax Rate (”ETR”)

0.31

0.46% 1.89%

8.26%

11.93%10.23%

3.01

22.1

3 41.2

8

44.7

82014 2015 2016 2017 2018

10

20

30

40

50

60

200400600800

1,0001,2001,4001,6001,800

RM M

illio

n

RM M

illio

n

Financing

190.43

220.79

331.17

18.13

248.66

25.13

399.77

35.01

375.30

33.94

880.81

49.59

440.93

32.40

623.34

16.23

681.28

24.76

603.95

1,170.60

Short TermBorrowings

Long TermBorrowings

NetBorrowings

Net FinanceCost

* Secondary Axis (right side)

2014 2015 2016 2017 2018

Net Gearing (Times) Gross Gearing (Times)

Current Ratio

0.5

1.0

1.5

2.0

2.5

3.0 0.48

0.78

1.72 0.59

1.00

1.31

0.49

0.78

1.30

0.26

0.51

1.63

0.42

0.82

2.57

Utilisation of IPO proceeds

Workingcapital

Repaymentof bank

borrowings

Estimatedlisting

expenses

Expansion ofbusiness andoperational

facilities

Utilised Unutilised

50100150200250300350

RM M

illio

n

60.0

0

17.8

0

196.

8310

3.17

0.00 0.

00

0.0029

.30


Subsequently, the Group had undergone a private placement fundraising exercise on 30 January 2018 which successfully raised RM427.20 million in equity funding. The proceeds of the raised funds was allocated and utilised as follows:

The utilisation of the proceeds as disclosed above should be read in conjunction with the announcement made by the Company on 9 January 2018.

The utilisation of the proceeds as disclosed below should be read in conjunction with the prospectus of the Company dated 30 December 2016. Post listing, we have utilised a total of RM303.9 million of the IPO proceeds out of which RM196.8 million was used for expansion of our business as follows:

Approximately RM70.0 million was utilised for the establishment of the new MRO and IRM centre in Bintulu Sarawak.

Approximately RM20.0 million was utilised for the establishment of a new facility and upgrading of existing facility in Johor Malaysia.

Approximately RM15.0 million was utilised for upgrading our existing operational facilities in Malaysia and UAE.

Approximately RM30.0 million was utilised for acquiring our corporate office building in Selangor, Malaysia.

Utilisation of Private Placement Proceeds

PengerangIntegrated

CommercialCenter (”PICC”)

Constructionof a

45 -TPD ChlorAlkali Plantin Tanzania

Estimatedlisting

expenses

Pengereng EcoIndustrial Park

(”PeIP”)

Utilised Unutilised

50

100

150

200

250

300

RM M

illio

n

67.5

020

2.99

8.89

29.4

1 27.7

683

.75

7.30

0.00

Approximately RM61.8 million was utilised for investment and acquisition.



RISKS AND MITIGATION

Our financial condition and results of operations have been, and are expected to be affected by, but are not limited to the factors in the list below. We have also provided our mitigation plan for each of the risk factors as per the items below:

RISKS

Approximately 84.40% of our revenue is derived from our Oil & Gas clients locally and overseas. Although costs incurred for our services are not directly affected by the price of oil, during periods of rising oil prices, the O&G exploration, development and production activities are expected to increase.

Meanwhile, prolonged depressed O&G prices will generally lead to a curtailment in O&G activities and spending in the oil and gas industry.

However, certain activities such as maintenance of industrial assets are, to a certain extent, less affected as operations would still have to continue. In general, industrial assets require more maintenance as they age where they progressively accumulate wear and tear. In this respect, O&M services including MRO and IRM services are required to sustain safety, efficiency, and to satisfy regulatory requirements to ensure production facilities are running productively, efficiently and cost effectively.

Our margins are affected by the direct cost of operations which mainly comprises purchases of materials such as machine and equipment parts, consumables, tools and equipment, services provided by suppliers which include a combination of mechanical, electrical and/or instrumentation work, wages and salaries, and professional fees. The above cost components, save for manpower supply services contract costs, depend on the nature of the contracts and our customers.

We are actively diversifying our clientele base to include clients from other industries within our core expertise. Currently, we are targeting the power generation, water reatment and utilities sectors.

The Group is also expanding its business operations to incorporate the asset ownership model which is mainly aimed at providing stable long-term returns.

As per our procurement practices and policies, we constantly review market prices and conditions and try to reduce costs via bulk-orders and timely procurement. We were also appointed by MITI as a Vendor Development Anchor company thus enabling us to create our own Vendor Development Program ("VDP"). We actively engage with our vendors and suppliers to ensure efficiency and cost reduction on both sides in a manner that helps us manage our costs and helps our vendors grow

1. Level of activity in the O&G Industry

MITIGATION

We require certified, skilled and experienced technical professionals to execute the projects and contracts awarded to our Group. Due to supply and demand conditions and competition among other engineering-based companies, the number of personnel with the relevant qualifications and experience in the industry may be limited. Our cost ofoperations may be higher if we are required to compete for such skilled and experienced technical professionals.

We source and maintain databases and directories for skilled contract workers in the market and their relevant qualifications so as to be able to recruit the required manpower as and when required. We also have the ability to recruit the graduates of our technical training programmes which are certified by City & Guilds, a vocational education organisation in tile UK offering more than 500 qualifications across more than 80 countries.

2. Impact on margins 4. Dependence on skilled professionals/engineers

We constantly monitor our bidding growth and success rates and compare it to industry and market averages to determine our performance. We currently possess several strength factors that contribute to our competitive advantage in bidding and securing contracts. Our strengths include:

(i) Having 25 years’ experience in the industry;

(ii) Having a growing, profitable, public listed company;

(iii) Supported by prudent financial track record

(iv) Being a PETRONAS licensed company in Malaysia; for our operations; and

(v) Having strong records in HSE and having implemented various safety and quality standards for our operations; and

(vi) Having an experienced management team


RISKS MITIGATION

Our revenue is driven by our ability to secure contracts for our O&M and EPCC segments. Whilst primarily we have built a track record in providing O&M services and EPCC works to customers in the O&G industry in the past, we intend to diversify our customer base to include customers in the power and utilities generation industry. Our revenue growth will depend on our ability to secure both maintenance and EPCC contracts in the O&G, power generation and utilities industries.

3. Our ability to secure and negotiate for projects and contracts



7. Overseas operational risks

8. Implementation of expansion plans to own and operate facilities

The revenue derived from a specific project or work order for a contract can be impaired by a number of factors such as delays in accessing a site, work delays due to geotechnical conditions or variations at site, delay in delivery of materials and parts sourced from overseas, for which may not be within our control.

We are exposed to foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of our Group entities as we do not use any hedging instruments in our daily operations. Significant changes in foreign exchange rates may affect our performance favourably or unfavourably.

Changes in political and economic conditions in these countries could adversely affect our financial results. These political and economic uncertainties include, but are not limited to, the changes in political leadership, expropriation, nationalisation, changes in finance/interest rates or tax rates, risks of war and global economic downturn.

Our current business segments comprise of O&M services, EPCC works; and other products and services. We will continue to expand on our asset ownership business model to own, operate and maintain power plants and water utilities. We expect to generate revenue in the form of sales of power and provision of water treatment and other by-products. In addition, we intend to expand our operational facilities in Malaysia and overseas. A protracted delay in the abovementioned plans may affect the implementation of our business plans and consequently our financial performance.

In order to address the risk of delays, our project management team conducts periodic reviews with our customers during the entire phase of a project/contract. We will also hold periodic progress meetings with our customers' management to continuously manage our customers' expectations, work progress and be proactive to address any anticipated issues that may arise

Our revenue from overseas projects/contracts is typically denominated in USD. We maintain our cash inflow in a USD denominated bank account, where it will be used to settle the portion of our cost of operations which are payable in USD. This provides us with a natural foreign currency hedge. Nonetheless, any unfavourable movements in the USD exchange rate may adversely affect our profitability.

We have expanded our operations across thirteen (13) countries and five (5) regions in an attempt to diversify our portfolio and reduce our exposure to any individual country. We also incorporate significant local participation to leverage on the local expertise and reduce the foreign element thus effectively reducing the risk exposure. We are further expanding our reach via the offices of some of our recently acquired associates such as CSE Global Ltd and eNoah iSolution India Pvt Ltd.

In our asset ownership model, we typically take minority stakes with companies that have the operational experience in each project. By doing so, we leverage on their experience and knowledge as well as our technical know-how to best address delays and other unforeseen events.

5. Delays in completion of a project or work order for a contract

6. Impact of foregin exchange/interest rates on results of operations

RISKS MITIGATION


The Future Ahead

The International Monetary Fund in their recent report projected global growth to be at 3.5% in 2019 and 3.6% in 2020, a decrease of 0.2% and 0.1% for both 2019 and 2020. The revision was due to effects of tariff increases enacted in the United States and China, Germany following the introduction of new automobile fuel emission standards, Italy where concerns about sovereign and financial risks have weighted on domestic demand also weakening financial market sentiment as well as a contraction in Turkey now projected to be deeper than anticipated. On the other hand, regional tensions in the Middle East between Qatar, and its former GCC counterparts are slowly fading as the blockade imposed on Qatar is slowly easing off. Furthermore, recent government initiatives in Central Asian countries that aim to develop their O&G market provide potential opportunities for the Oil & Gas Services and Equipment (“OGSE”) industry. Thus, we believe that the economic and market conditions in countries which the Group is focusing on remain reasonably bullish.

On the domestic front, activities are expected to pick up in 2019, as seen in the PETRONAS Activity Outlook Report for 2019-2021. The report projects a rise in some segments of upstream O&G, such as drilling rigs and supporting services, as well as base activities in maintenance for both onshore and offshore facilities. Malaysia also has a considerable number of assets that have been operating beyond 40 years, Which presents interesting growth opportunities for OGSE players in the years ahead. In addition, the market anticipates that more OGSE companies will look for opportunities to diversify into the downstream sector mainly in the MRO segment with the completion of PETRONAS’ Pengerang Integrated Complex (PIC) in southern Johor. Given the sheer size of the RAPID development by Petronas which is estimated at around USD 27.00 billion, Serba Dinamik took the initiative to develop our Pengerang eco Industrial Park which is planned to strategically place Serba Dinamik on the forefront of service providers for PIC.

Operationally speaking, we are enhancing and expanding our capabilities and track record in the various industries that we serve. In the power generation segment, Serba Dinamik is expanding its hydropower projects and investment by

adding a 30MW EPCC project in Laos in addition to our existing 30MW hydropower plant in Kota Marudu, Sabah. We are also, expanding in the water and utilities front with our existing water treatment plants EPCC project in Terengganu, and our Chlor-Alkali plant in Tanzania. This is aimed to improve the company’s track record thus enabling it to bid more competitively for future projects as well as diversify its end user base so as to not be susceptible to cyclical downturns in certain industries.

Despite uncertainties that temporarily rattled the markets both locally and overseas, the Group achieved its growth targets for the year while simultaneously expanding its pool of opportunities and growing its orderbook. In the near future, the Group will focus on strengthening its foothold in the markets we newly penetrated as well as exploring synergetic opportunities to expand and diversify our operations. Furthermore, the Group is also exploring and investing in the prospects of Industry 4.0 opportunities and its potential. During FYE2018, the Group partnered with Microsoft in order to develop its Augmented Reality/Virtual Reality solutions for industrial applications as well as acquired a 30% stake in eNoah iSolution India Group in order to enhance our IT capabilities.

Finally, the management of Serba Dinamik celebrates its 25th anniversary with this report and for this we would like to express our utmost gratitude to all our stakeholder who have been key to our success throughout this stellar journey.

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