PETRONAS GAS BERHAD GOING BEYOND FINANCIAL REPORT

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2 PETRONAS GAS BERHAD GOING BEYOND FINANCIAL REPORT 2016

3 ABOUT OUR REPORTS Annual Report Regulations Complied Primary source of information on our Group s financial and non-financial performance for FY2016 and outlook for FY2017 across our operations in Malaysia Bursa Malaysia Main Market Listing Requirements Companies Act 2016 Navigation icons IR Integrated Reporting cross-referencing Financial Report Regulations Complied Annual Report 2016 Summary of financial information and full set of Group s Audited Financial Statements Bursa Malaysia Main Market Listing Requirements Companies Act, 1965 Malaysian Financial Reporting Standards Refer to website RATIONALE The journey continues for PETRONAS Gas Berhad (PGB) as we strive to attain sustainable world class standards befitting our role as A Leading Gas Infrastructure and Utilities Company. Our approach is focused on changing mindsets and pushing boundaries to take the Company s performance beyond expectations. Our steadfast focus on improving Company-wide safety and operating efficiencies through our ongoing 3ZERO100 Transformation programme will also serve to enhance our overall sustainability and profitability. We are continuously working towards our goal of becoming a high performance organisation by completely transforming our work culture and mindset. We will continue in this vein to sustain our legacy of high performance, strong leadership and value creation for our shareholders. In line with this year s theme, Going Beyond, the cover image depicts PGB s commitment towards achieving results that exceed the norm.

4 INSIDE AT A GLANCE 2 Facts At A Glance Key Highlights 6 5-year Financial Summary PERFORMANCE REVIEW THIS REPORT 8 5-year Group Financial Analysis 10 5-year Group Financial Information 11 Group Quarterly Performance 12 Key Performance Indicators 14 Simplified Group Statement on Financial Position and Segmental Analysis 18 Key Interest Bearing Assets and Liabilities 18 Statement of Value Added 19 Distribution of Value Added OUR RIGHT RESULTS 22 Statement of Directors Responsibility in relation to the Financial Statements 23 Audited Financial Statements

5 PETRONAS GAS BERHAD FACTS AT A GLANCE OPERATING 300MW Power Plant in Kimanis, Sabah MORE THAN 2,000mmscfd processing capacity through SIX GAS PROCESSING PLANTS Supply of INDUSTRIAL UTILITIES to petrochemical and industrial customers in Kertih and Gebeng PAGE: 2 MORE THAN 2,500km GAS TRANSMISSION PIPELINE across Malaysia

6 ANNUAL REPORT mmscfd LNG REGASIFICATION TERMINAL Sungai Udang, Melaka UNDER CONSTRUCTION 490 mmscfd LNG Regasification Terminal Pengerang, Johor Air Separation Unit (ASU) Pengerang, Johor Oxygen 41,000 Nm3/hr Nitrogen 25,900 Nm3/hr OUR STRENGTH PETRONAS Gas Berhad (PGB) has been in business for more than three decades and is still growing strong PAGE: 3

7 PETRONAS GAS BERHAD +3% DIVIDENDS RM : 62 sen/share 2015: 60 sen/share billion +2% REVENUE RM : RM4.5 billion billion +15% TOTAL ASSET RM : RM14.4 billion billion 2016 KEY HIGHLIGHTS PROFIT AFTER TAX RM : RM1.7 billion* -0.4% billion MARKET CAPITALISATION -6% RM42.1billion 2015: RM44.9 billion * Based on normalised FY2015, excluding tax incentives and unrealised foreign exchange of RM243.2 million. PAGE: 4

8 ANNUAL REPORT 2016 PGB TRANSFORMATION Completion of 3ZERO100 Transformation which focuses on improvement of asset integrity, people & culture and system & process EXCELLENT LIQUID PLANT EXTRACTION PERFORMANCE Achieved 12 months Performance Based Structure income of RM69 million LNG REGASIFICATION TERMINAL PENGERANG PROJECT Advancing well at 75% completion and on track to achieve commercial operations by quarter four of 2017 AIR SEPARATION UNIT PROJECT AT PENGERANG (ASU) Achieved Final Investment Decision of USD172 million Pengerang Gas Solutions Sdn Bhd was incorporated in August 2016, a joint venture with Linde Malaysia Sdn Bhd to undertake the ASU project EXTERNAL FINANCING Secured USD500 million term loan from Mizuho Bank Ltd PAGE: 5

9 PETRONAS GAS BERHAD 5-YEAR FINANCIAL SUMMARY Year Revenue (RM million) 3, , , , ,561.3 Profit after tax (RM million) 1, , , , ,736.3 Dividends per share (sen) Earnings per share (sen) Total assets (RM million) 12, , , , ,553.6 Total equity (RM million) 9, , , , ,161.2 Market capitalisation (RM million) 38, , , , ,147.0 Share price (RM) , , , , , , , , , , Revenue (RM million) Profit After Tax (RM million) Earnings Per Share (EPS) (sen) PAGE: 6

10 ANNUAL REPORT , , , , , , , , , , Total Equity (RM million) Total Assets (RM million) , , , , ,147.0 Dividends Per Share (sen) Market Capitalisation (RM million) Share Price (RM) PAGE: 7

11 PETRONAS GAS BERHAD 5-YEAR GROUP FINANCIAL ANALYSIS Item Profit after tax (RM million) 1, , , , ,736.3 Normalised profit after tax* (RM million) 1, , , , ,736.3 * Excluding tax incentives and forex (FY2013: RM567.7 million, FY2014: RM101.0 million and FY2015: RM243.2 million) 2, , , , , , , , ANALYSIS Profit After Tax (RM million) 2012 Profit of RM1.4 billion was contributed by three business segments comprising Gas Processing (GP), Gas Transportation (GT) and Utilities (UT). Compared to 2011, the Group results increased due to gain on partial disposal of investment in an associate, Gas Malaysia Berhad of RM100.0 million through initial public offering Profit of RM2.1 billion was contributed by four business segments comprising GP, GT, UT and newly commissioned operations, Regasification (RGT). Achieved commercial operations of Malaysia s First LNG Regasification Terminal in Sg Udang, Melaka (RGTSU) in May Compared to 2012, the Group results improved due to recognition of deferred tax assets (DTA) arising from investment tax allowances (ITA) granted by Malaysian Investment Development Authority (MIDA) amounting to RM626.4 million. Excluding impact of DTA, profit sustained at RM1.5 billion Signing of new Gas Processing Agreement (GPA) and Gas Transportation Agreement (GTA) with PETRONAS for 20-year period. Kimanis Power Plant achieved full commercial operations in November Compared to 2013, excluding impact of DTA on ITA from RGTSU and Kimanis Power Sdn Bhd (KPSB), the Group s profit increased attributable to profit contribution from KPSB, full year contribution from RGTSU and strentghening of GT revenue base under new GTA Completion of the last series of plant revamp and rejuvenation project (PRR) for GP segment (PRR for Gas Processing Plant (GPP) 2 and 3 was completed in 2013 and PRR for GPP4 was completed in 2015). Compared to 2014, the Group s profit increased as a result of recognition of tax incentives arising from ITA and reinvestment allowances granted by MIDA on PRR totalling RM443.1 million. This was partially offset by unrealised foreign exchange (forex) loss on USD finance lease liabilities totalling RM199.9 million due to weakening of the Ringgit. Excluding impact of tax incentives and forex, profit remained strong at RM1.7 billion Compared to 2015, excluding impact of tax incentives and forex, profit remained steady at RM1.7 billion. PAGE: 8

12 ANNUAL REPORT 2016 Item Total assets (RM million) 12, , , , , , , , , , ANALYSIS Total Assets (RM million) Item Property, plant and equipment 9, , , , ,807.5 Fixed assets 5, , , , ,660.8 Project-in-progress 4, , , , ,146.7 Cash and cash equivalents , , ,763.1 ANALYSIS 2012 Total assets of RM12.4 billion mainly consist of plant, property and equipment (PPE) from the three business segments: GP, GT and UT Compared to 2012, total assets further strengthened following completion of RGTSU and PRR for GPP2 and GPP Compared to 2013, total assets remained steady at RM13.3 billion mainly consist of PPE from four business segments: GP, GT, UT and RGT Compared to 2014, total assets of the Group increased was mainly attributed to higher PPE arising from completion of PRR for GPP4 and higher cash balances Compared to 2015, total assets surged to RM16.6 billion as the Group embarked into Malaysia s Second LNG Regasification Terminal and Air Separation Unit plant projects in Pengerang, Johor. PAGE: 9

13 PETRONAS GAS BERHAD 5-YEAR GROUP FINANCIAL INFORMATION Year RM million 2016 Key results Revenue 3, , , , ,561.3 By segment: Gas Processing 1, , , , ,557.2 Gas Transportation 1, , , , ,303.9 Utilities , ,069.1 Regasification By geographical: Peninsular Malaysia 3, , , , ,545.4 Sabah (3.3) Sarawak Interest income Cost of revenue 1, , , , ,495.4 By segment: Gas Processing Gas Transportation Utilities Regasification Financing costs Administration expenses Operating profit 1, , , , ,137.1 Earnings before interest, taxes, depreciation and amortisation 2, , , , ,023.6 Profit before taxation 1, , , , ,106.8 Profit for the year 1, , , , ,736.3 Profit attributables to the shareholders of the Company 1, , , , ,739.1 Key statement of financial position Property, plant and equipment 9, , , , ,807.5 Cash & cash equivalents , , ,763.1 Total assets 12, , , , ,553.6 Borrowings 1, , ,249.5 Total liabilities 3, , , , ,392.4 Share capital 1, , , , ,978.7 Reserves 7, , , , ,988.0 Total equity attributable to the shareholders of the Company 9, , , , ,966.7 Non-controlling interests (0.2) (0.2) Total equity 9, , , , ,161.2 Share information Earnings per share (sen) Dividends per share (sen) Net assets (sen) Closing share price Number of ordinary shares ( 000) 1,978,732 1,978,732 1,978,732 1,978,732 1,978,732 Market capitalisation (RM million) 38, , , , ,147.0 PAGE: 10

14 ANNUAL REPORT 2016 GROUP QUARTERLY PERFORMANCE 2016 In RM Million First Quarter Second Quarter Third Quarter Fourth Quarter Year 2016 Operating revenue 1, , , , ,561.3 Operating profit ,137.1 Profit before taxation ,106.8 Profit for the period/year ,736.3 Profit attributable to shareholders of the Company ,739.1 Earnings per share (sen) Dividends per share (sen) In RM Million First Quarter Second Quarter Third Quarter Fourth Quarter Year 2015 Operating revenue 1, , , , ,455.9 Operating profit ,016.9 Profit before taxation ,002.1 Profit for the period/year ,985.9 Profit attributable to shareholders of the Company ,987.5 Earnings per share (sen) Dividends per share (sen) PAGE: 11

15 PETRONAS GAS BERHAD KEY PERFORMANCE INDICATORS The financial indicators assess the Group s current year performance as compared to the corresponding year. GROUP PERFORMANCE RATIOS All analysis below is after excluding impact of tax incentives and unrealised foreign exchange. Gross profit margin is defined as a ratio of gross profit to revenue. Net profit margin is defined as a ratio of net profit after tax to revenue. 45.3% 48.0% 38.1% 39.1% 44.6% Normalised Due to higher operating costs. Sustained within healthy levels. Cost to Income (CTI) is a measure of cost of revenue divided by revenue. 54.7% 52.0% Current ratio is defined as the Company s ability to meet its short term obligations. Continuous improvement towards assets integrity. Return on Asset (ROA) is an indicator that measures the Company s efficiency in using the total assets to generate profit % 12.1% 13.8% Normalised Higher attributed to high cash balances. Slightly lower due to higher spending on growth projects yet to generate returns. PAGE: 12

16 ANNUAL REPORT 2016 Return on Equity (ROE) is defined as profit attributable to shareholders divided by the average shareholders equity for the financial year. Earnings Per Share (EPS) represents the portion of the Company s distributable income allocated to each equity share. 14.5% 15.2% 17.4% Normalised Respectable returns from investments. sen Normalised In line with steady profit for the year. Dividend Payout Ratio (DPR) is defined as the percentage of earnings paid to shareholders in dividend. 59.8% 70.7% 77.0% Normalised Within the industry average of DPR. Dividends Per Share (DPS) is dividends declared for the shareholders divided by the number of ordinary shares issued. Total Shareholder s Return (TSR) is measure of share price performance and dividends paid during the year, divided by the opening share prices % % 2015 sen Higher dividend payout in respect of FY2016 in tandem with strong performance of the Group. Due to decline of share price during the year. PAGE: 13

17 PETRONAS GAS BERHAD SIMPLIFIED GROUP STATEMENT ON FINANCIAL POSITION AND SEGMENTAL ANALYSIS 2016 Total Assets RM16.6 billion Property, Plant and Equipment 77% Cash and Cash Equivalents 11% Investment in Joint Ventures 4% Trade and Other Receivables 4% Deferred Tax Assets 3% Investment in Associate 1% Long Term Receivables 0% * Tax Recoverable 0% * Trade and Other Inventories 0% * * Insignificant percentage (%) Total Assets RM14.4 billion 2015 Property, Plant and Equipment 79% Cash and Cash Equivalents 9% Investment in Joint Ventures 4% Trade and Other Receivables 4% Deferred Tax Assets 3% Investment in Associate 1% Trade and Other Inventories 0% * * Insignificant percentage (%) PAGE: 14

18 ANNUAL REPORT Total Liabilities & Shareholder s Equity RM16.6 billion Reserves 60% Non-Current Borrowings 13% Share Capital 12% Deferred Tax Liabilities 7% Trade and Other Payables 6% Non-Controlling Interests 2% Deferred Income 0% * Current Borrowings 0% * Taxation 0% * * Insignificant percentage (%) Total Liabilities & Shareholder s Equity RM14.4 billion 2015 Reserves 66% Share Capital 14% Non-Current Borrowings 7% Deferred Tax Liabilities 6% Trade and Other Payables 6% Non-Controlling Interests 1% Deferred Income 0% * Current Borrowings 0% * Taxation 0% * * Insignificant percentage (%) PAGE: 15

19 PETRONAS GAS BERHAD SIMPLIFIED GROUP STATEMENT ON FINANCIAL POSITION AND SEGMENTAL ANALYSIS SEGMENT OPERATING REVENUE for the financial year ended 31 December 2016 RM4.6 billion 1, , , ,311.6 Gas Processing (RM million) Gas Transportation (RM million) SEGMENT GROSS PROFIT for the financial year ended 31 December 2016 RM2.1 billion ,009.1 Gas Processing (RM million) Gas Transportation (RM million) SEGMENT ASSETS for the financial year ended 31 December 2016 RM14.2 billion 4, , , ,575.1 Gas Processing (RM million) Gas Transportation (RM million) PAGE: 16

20 ANNUAL REPORT RM4.5 billion 1, Utilities (RM million) Regasification (RM million) 2015 RM2.1 billion Utilities (RM million) Regasification (RM million) 2015 RM12.5 billion 1, , , ,389.3 Utilities (RM million) Regasification (RM million) PAGE: 17

21 PETRONAS GAS BERHAD KEY INTEREST BEARING ASSETS AND LIABILITIES As at 31 December RM million Effective Interest Rate % Interest Income/ (Expenses) RM million As at 31 December RM million Effective Interest Rate % Interest Income/ (Expenses) RM million Interest earning assets Cash and cash equivalents 1, , Interest bearing liabilities Finance lease liabilities 1, (90.1) 1, (93.9) Team loan * Loan from corporate shareholder of a subsidary * * Interest expenses are being capitalised as part of projects-in-progress. STATEMENT OF VALUE ADDED 2015 RM million 2016 RM million Revenue 4, ,561.3 Purchase of goods and services (1,300.2) (1,386.8) Value added by the Company 3, ,174.5 Other income and expenses (32.9) Financing costs (90.1) (93.9) Share of profit after tax of equity accounted associate and jointly controlled entity Value added available for distribution 3, ,308.5 PAGE: 18

22 ANNUAL REPORT 2016 DISTRIBUTION OF VALUE ADDED 2015 RM million 2016 RM million To employees Employment costs To government Taxation To shareholders Dividends 1, ,187.2 Non-controlling interest (1.5) (2.8) Retained for reinvestment and future growth Depreciation and amortisation Deferred tax expense/(income) (55.7) Retained profit , , % 11% 2% 36% 10% 3% FY2015 FY % Retained for reinvestment and future growth To shareholders To employees To government 51% Retained for reinvestment and future growth To shareholders To employees To government PAGE: 19

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24 OUR RIGHT RESULTS 22 Statement of Director s Responsibility in relation to the Financial Statements FINANCIAL STATEMENTS 23 Directors Report 28 Statement by Directors 28 Statutory Declaration 29 Consolidated Statement of Financial Position 30 Consolidated Statement of Profit or Loss and Other Comprehensive Income 31 Consolidated Statement of Changes in Equity 33 Consolidated Statement of Cash Flows 34 Statement of Financial Position 35 Statement of Profit or Loss and Other Comprehensive Income 36 Statement of Changes in Equity 37 Statement of Cash Flows 38 Notes to the Financial Statements 106 Independent Auditors Report to the Members of PETRONAS Gas Berhad

25 PETRONAS GAS BERHAD STATEMENT OF DIRECTOR S RESPONSIBILITY IN RELATION TO THE FINANCIAL STATEMENTS The financial statements of the Group and of the Company as set out on pages 29 to 105, are properly drawn up so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2016 and of the results of its operations and cash flows for the year ended on that date. The Directors consider that in preparing the financial statements of the Group and of the Company: appropriate accounting policies have been used and consistently applied; reasonable and prudent judgements and estimates were made; all Malaysian Financial Reporting Standards and the Malaysian Companies Act, 1965 have been followed; and are prepared on a going concern basis. The Directors are responsible for ensuring that the accounting and other records and registers required by the Malaysian Companies Act, 1965 to be retained by the Company and its subsidiaries have been properly kept in accordance with the provisions of the said Act. The Directors also have general responsibilities for taking such steps that are reasonably available to them to safeguard the assets of the Group and the Company, and to prevent and detect fraud and other irregularities. PAGE: 22

26 ANNUAL REPORT 2016 DIRECTORS REPORT FOR THE YEAR ENDED 31 DECEMBER 2016 The Directors have pleasure in submitting their report and the audited financial statements of the Group and of the Company for the financial year ended 31 December PRINCIPAL ACTIVITIES The principal activities of the Company in the course of the financial year remain unchanged and consist of separating natural gas into its components and storing, transporting and distributing such components thereof for a fee and the sale of industrial utilities. The principal activities of the subsidiaries, associate and joint ventures are as stated in note 5, note 6 and note 7 to the financial statements respectively. RESULTS Group RM 000 Company RM 000 Profit for the year 1,736,301 1,784,854 Attributable to: Shareholders of the Company 1,739,052 Non-controlling interests (2,751) DIVIDENDS During the financial year, the Company paid: (i) a fourth interim dividend of 17 sen per ordinary share amounting to RM336,384,000 in respect of the financial year ended 31 December 2015 on 23 March 2016; (ii) a first interim dividend of 14 sen per ordinary share amounting to RM277,022,000 in respect of the financial year ended 31 December 2016 on 8 June 2016; (iii) a second interim dividend of 14 sen per ordinary share amounting to RM277,022,000 in respect of the financial year ended 31 December 2016 on 8 September 2016; and (iv) a third interim dividend of 15 sen per ordinary share amounting to RM296,810,000 in respect of the financial year ended 31 December 2016 on 2 December The Directors had on 23 February 2017 declared a fourth interim dividend of 19 sen per ordinary share amounting to RM375,959,000 in respect of the financial year ended 31 December The financial statements for the current financial year do not reflect the declared interim dividend. The dividend, will be accounted for in equity as an appropriation of retained profits in the financial statements for the financial year ending 31 December PAGE: 23

27 PETRONAS GAS BERHAD DIRECTORS REPORT FOR THE YEAR ENDED 31 DECEMBER 2016 RESERVES AND PROVISIONS There were no material movements to and from reserves and provisions during the year other than as disclosed in the financial statements. DIRECTORS OF THE COMPANY Directors who served since the date of the last report are: Datuk Mohd Anuar bin Taib (appointed on 1 January 2017) Habibah binti Abdul Dato Ab. Halim bin Mohyiddin Yusa bin Hassan Emeliana Dallan Rice-Oxley (appointed on 1 September 2016) Wan Shamilah binti Wan Muhammad Saidi (appointed on 1 September 2016) Heng Heyok Heng Hock Cheng (appointed on 1 January 2017) Datuk Rosli bin Boni (resigned on 1 September 2016) Pramod Kumar Karunakaran (resigned on 1 September 2016) Dato N. Sadasivan N.N. Pillay (resigned on 1 January 2017) Lim Beng Choon (resigned on 1 January 2017) Tan Sri Dato Seri Shamsul Azhar bin Abbas (resigned on 1 January 2017) In accordance with Article 93 of the Company s Articles of Association, Habibah binti Abdul will retire by rotation from the Board at the forthcoming Annual General Meeting, and being eligible, offers herself for re-election. In accordance with Article 96 of the Company s Articles of Association, Datuk Mohd Anuar bin Taib, Emeliana Dallan Rice-Oxley, Wan Shamilah binti Wan Muhammad Saidi and Heng Heyok Heng Hock Cheng who respectively were appointed to fill casual vacancies on the Board, will retire at the forthcoming Annual General Meeting, and being eligible, offers themselves for re-election. In accordance with Section 129(6) of the Companies Act, 1965, Dato Ab. Halim bin Mohyiddin is retiring at the forthcoming Annual General Meeting. Dato Ab. Halim bin Mohyiddin offers himself for re-appointment and is eligible to be re-appointed. DIRECTORS INTERESTS The Directors in office at the end of the year who have interests in the shares of the Company and of its related corporations other than wholly owned subsidiaries (including the interests of the spouses and/or children of the Director who themselves are not Directors of the Company) as recorded in the Register of Directors Shareholdings are as follows: Number of ordinary shares of RM1.00 each in the Company Balance at Balance at Name Bought Sold Dato Ab. Halim bin Mohyiddin 5,000 5,000 PAGE: 24

28 ANNUAL REPORT 2016 DIRECTORS INTERESTS (CONTINUED) Number of ordinary shares of RM0.50 each in Malaysia Marine and Heavy Engineering Holdings Berhad Balance at Balance at Name Bought Sold Dato Ab. Halim bin Mohyiddin 5,000 5,000 Number of ordinary shares of RM0.10 each in PETRONAS Chemicals Group Berhad Name Balance at / at appointment date Bought Sold Balance at Tan Sri Dato' Seri Shamsul Azhar bin Abbas 20,000 (20,000) Dato Ab. Halim bin Mohyiddin own 5,000 5,000 others 5,000 5,000 Wan Shamilah binti Wan Muhammad Saidi 6,000 6,000 None of the other Directors holding office at 31 December 2016 had any interest in the ordinary shares of the Company and of its related corporations during the financial year. DIRECTORS BENEFITS Since the end of the previous financial year, no Director of the Company has received nor become entitled to receive any benefit (other than the benefit included in the aggregate amount of emoluments received or due and receivable by Directors as shown in the financial statements or the fixed salary of a full time employee of the Company or of related corporations), by reason of a contract made by the Company or a related corporation with the Director or with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest. There were no arrangements during and at the end of the financial year which had the object of enabling Directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate. ISSUE OF SHARES There were no changes in the issued and paid up capital of the Company during the financial year. OPTIONS GRANTED OVER UNISSUED SHARES No options were granted to any person to take up unissued shares of the Company during the financial year. PAGE: 25

29 PETRONAS GAS BERHAD DIRECTORS REPORT FOR THE YEAR ENDED 31 DECEMBER 2016 OTHER STATUTORY INFORMATION Before the financial statements of the Group and of the Company were made out, the Directors took reasonable steps to ascertain that: (i) there are no bad debts to be written off and adequate provision has been made for doubtful debts; and (ii) any current assets which were unlikely to be realised in the ordinary course of business have been written down to an amount which they might be expected so to realise. At the date of this report, the Directors are not aware of any circumstances: (i) that would render it necessary to write off any bad debts or provide for any doubtful debts; or (ii) that would render the value attributed to the current assets in the financial statements of the Group and of the Company misleading; or (iii) which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate; or (iv) not otherwise dealt with in this report or the financial statements that would render any amount stated in the financial statements of the Group and of the Company misleading. At the date of this report, there does not exist: (i) any charge on the assets of the Group or of the Company that has arisen since the end of the financial year and which secures the liabilities of any other person; or (ii) any material contingent liability in respect of the Group or of the Company that has arisen since the end of the financial year. No contingent liability or other liability of any company in the Group has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group and of the Company to meet their obligations as and when they fall due. In the opinion of the Directors, the financial performance of the Group and of the Company for the financial year ended 31 December 2016 have not been substantially affected by any item, transaction or event of a material and unusual nature nor has any such item, transaction or event occurred in the interval between the end of that financial year and the date of this report. PAGE: 26

30 ANNUAL REPORT 2016 SIGNIFICANT EVENT DURING THE FINANCIAL YEAR There were no significant events during the financial year other than as disclosed in the financial statements. SUBSEQUENT EVENTS There were no material events subsequent to the end of the financial year. AUDITORS The auditors, KPMG PLT, (converted from a conventional partnership, KPMG, on 27 December 2016) have indicated their willingness to accept re-appointment. Signed on behalf of the Board of Directors in accordance with a resolution of the Directors: Datuk Mohd Anuar bin Taib Yusa bin Hassan Kuala Lumpur, 23 February 2017 PAGE: 27

31 PETRONAS GAS BERHAD STATEMENT BY DIRECTORS In the opinion of the Directors, the financial statements set out on pages 29 to 104, are drawn up in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company at 31 December 2016 and of their financial performance and cash flows for the year ended on that date. In the opinion of the Directors, the information set out in note 36 on page 105 to the financial statements has been compiled in accordance with the Guidance on Special Matter No.1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosures Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, issued by the Malaysian Institute of Accountants, and presented based on the format prescribed by Bursa Malaysia Securities Berhad. Signed on behalf of the Board of Directors in accordance with a resolution of the Directors: Datuk Mohd Anuar bin Taib Yusa bin Hassan Kuala Lumpur, 23 February 2017 STATUTORY DECLARATION I, Aida Aziza binti Mohd Jamaludin, the officer primarily responsible for the financial management of PETRONAS GAS BERHAD, do solemnly and sincerely declare that the financial statements set out on pages 29 to 105 are, to the best of my knowledge and belief, correct and I make this solemn declaration conscientiously believing the declaration to be true, and by virtue of the Statutory Declarations Act, Subscribed and solemnly declared by the above named Aida Aziza binti Mohd Jamaludin at Kuala Lumpur in Wilayah Persekutuan on 23 February BEFORE ME: PAGE: 28

32 ANNUAL REPORT 2016 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER Note RM 000 RM 000 ASSETS Property, plant and equipment 3 12,807,524 11,323,848 Prepaid lease payment 4 4,645 4,518 Investment in associate 6 130, ,063 Investment in joint ventures 7 605, ,647 Deferred tax assets 8 408, ,360 Long term receivables 10 47,905 TOTAL NON-CURRENT ASSETS 14,004,268 12,460,436 Trade and other inventories 11 68,468 46,367 Trade and other receivables , ,389 Tax recoverable 5,865 Cash and cash equivalents 13 1,763,117 1,230,815 TOTAL CURRENT ASSETS 2,549,364 1,921,571 TOTAL ASSETS 16,553,632 14,382,007 EQUITY Share capital 14 1,978,732 1,978,732 Reserves 15 9,988,048 9,460,067 Total equity attributable to the shareholders of the Company 11,966,780 11,438,799 Non-controlling interests , ,137 TOTAL EQUITY 12,161,249 11,594,936 LIABILITIES Borrowings 17 2,216,869 1,029,596 Deferred tax liabilities 8 1,131, ,594 Deferred income 18 5,907 6,852 TOTAL NON-CURRENT LIABILITIES 3,353,808 1,959,042 Trade and other payables 19 1,006, ,539 Borrowings 17 32,568 28,664 Taxation 2,826 TOTAL CURRENT LIABILITIES 1,038, ,029 TOTAL LIABILITIES 4,392,383 2,787,071 TOTAL EQUITY AND LIABILITIES 16,553,632 14,382,007 The notes set out on pages 38 to 105 are an integral part of these financial statements. PAGE: 29

33 PETRONAS GAS BERHAD CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER Note RM 000 RM 000 Revenue 20 4,561,280 4,455,955 Cost of revenue 20 (2,495,424) (2,316,526) Gross profit 20 2,065,856 2,139,429 Administration expenses (93,086) (89,468) Other expenses (15,029) (205,211) Other income 179, ,213 Operating profit 21 2,137,086 2,016,963 Financing costs 22 (93,943) (90,055) Share of profit after tax of equity-accounted associate and joint ventures 63,626 75,202 Profit before taxation 2,106,769 2,002,110 Tax expense 23 (370,468) (16,240) Profit for the year 1,736,301 1,985,870 Other comprehensive income Item that may be reclassified subsequently to profit or loss Net movement from exchange differences 30,743 55,955 Cash flow hedge (51,703) Share of cash flow hedge of an equity-accounted joint venture 7,887 28,939 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,723,228 2,070,764 Profit/(loss) attributable to: Shareholders of the Company 1,739,052 1,987,452 Non-controlling interests 16 (2,751) (1,582) PROFIT FOR THE YEAR 1,736,301 1,985,870 Total comprehensive income attributable to: Shareholders of the Company 1,715,219 2,058,705 Non-controlling interests 8,009 12,059 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,723,228 2,070,764 Basic and diluted earnings per ordinary share (sen) The notes set out on pages 38 to 105 are an integral part of these financial statements. PAGE: 30

34 ANNUAL REPORT 2016 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2016 Attributable to shareholders of the Company Share capital Non-distributable Share premium Hedging reserve Foreign currency translation reserve Note RM 000 RM 000 RM 000 RM 000 Balance at 1 January ,978,732 1,186,472 12,546 Net movement from exchange differences 42,314 Share of cash flow hedge of an equityaccounted joint venture 28,939 Profit for the year Total comprehensive income for the year 28,939 42,314 Issuance of shares to non-controlling interest Dilution of equity shareholding in a subsidiary 26 (5,943) Dividends interim 24 Dividends interim 24 Total transactions with shareholders of the Company (5,943) Balance at 31 December ,978,732 1,186,472 41,485 36,371 Balance at 1 January ,978,732 1,186,472 41,485 36,371 Net movement from exchange differences 19,983 Cash flow hedge (51,703) Share of cash flow hedge of an equityaccounted joint venture 7,887 Profit for the year Total comprehensive income for the year (43,816) 19,983 Issuance of shares to non-controlling interest Dividends interim 24 Dividends interim 24 Total transactions with shareholders of the Company Balance at 31 December ,978,732 1,186,472 (2,331) 56,354 continue to next page. The notes set out on pages 38 to 105 are an integral part of these financial statements. PAGE: 31

35 PETRONAS GAS BERHAD CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2016 Attributable to shareholders of the Company Distributable Retained profits Total Non controlling interests Total equity Note RM 000 RM 000 RM 000 RM 000 Balance at 1 January ,356,128 10,533,878 35,125 10,569,003 Net movement from exchange differences 42,314 13,641 55,955 Share of cash flow hedge of an equityaccounted joint venture 28,939 28,939 Profit for the year 1,987,452 1,987,452 (1,582) 1,985,870 Total comprehensive income for the year 1,987,452 2,058,705 12,059 2,070,764 Issuance of shares to non-controlling interest 102, ,833 Dilution of equity shareholding in a subsidiary 26 (177) (6,120) 6,120 Dividends interim 24 (296,810) (296,810) (296,810) Dividends interim 24 (850,854) (850,854) (850,854) Total transactions with shareholders of the Company (1,147,841) (1,153,784) 108,953 (1,044,831) Balance at 31 December ,195,739 11,438, ,137 11,594,936 Balance at 1 January ,195,739 11,438, ,137 11,594,936 Net movement from exchange differences 19,983 10,760 30,743 Cash flow hedge (51,703) (51,703) Share of cash flow hedge of an equityaccounted joint venture 7,887 7,887 Profit for the year 1,739,052 1,739,052 (2,751) 1,736,301 Total comprehensive income for the year 1,739,052 1,715,219 8,009 1,723,228 Issuance of shares to non-controlling interest 30,323 30,323 Dividends interim 24 (336,384) (336,384) (336,384) Dividends interim 24 (850,854) (850,854) (850,854) Total transactions with shareholders of the Company (1,187,238) (1,187,238) 30,323 (1,156,915) Balance at 31 December ,747,553 11,966, ,469 12,161,249 continued from previous page. The notes set out on pages 38 to 105 are an integral part of these financial statements. PAGE: 32

36 ANNUAL REPORT 2016 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER Note RM 000 RM 000 CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from customers 4,486,543 4,574,476 Cash paid to suppliers and employees (1,657,332) (1,591,607) 2,829,211 2,982,869 Interest income from fund investments 54,227 31,755 Taxation paid (122,403) (168,987) Net cash generated from operating activities 2,761,035 2,845,637 CASH FLOWS FROM INVESTING ACTIVITIES Dividends received from associate and joint ventures 31,664 29,165 Prepaid lease payment (4,133) Purchase of property, plant and equipment (1,954,614) (1,169,372) Reimbursement of project cost 56,236 Proceeds from disposal of property, plant and equipment Investment in a joint venture (20,593) Loans and advances to a joint venture (47,036) Net cash used in investing activities (1,990,101) (1,087,736) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (1,187,238) (1,147,664) Financing costs paid (114,188) (88,814) Drawdown of term loan 776,078 Drawdown of loan from corporate shareholder of a subsidiary 287,255 Repayment of finance lease liabilities (31,245) (23,861) Proceeds from shares issued to a non-controlling interest 30, ,833 Net cash used in financing activities (239,015) (1,157,506) NET INCREASE IN CASH AND CASH EQUIVALENTS 531, ,395 NET FOREIGN EXCHANGE DIFFERENCE 383 (7,326) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 1,230, ,746 CASH AND CASH EQUIVALENTS AT END OF THE YEAR 13 1,763,117 1,230,815 The notes set out on pages 38 to 105 are an integral part of these financial statements. PAGE: 33

37 PETRONAS GAS BERHAD STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER Note RM 000 RM 000 ASSETS Property, plant and equipment 3 7,664,844 7,608,286 Investment in subsidiaries 5 2,855,740 2,776,901 Investment in associate 6 76,466 76,466 Investment in joint ventures 7 212, ,250 Long term receivables ,642 TOTAL NON-CURRENT ASSETS 11,604,535 10,653,903 Trade and other inventories 11 66,140 44,197 Trade and other receivables , ,519 Tax recoverable 5,865 Cash and cash equivalents 13 1,606,663 1,116,541 TOTAL CURRENT ASSETS 2,233,191 1,714,257 TOTAL ASSETS 13,837,726 12,368,160 EQUITY Share capital 14 1,978,732 1,978,732 Reserves 15 9,503,976 8,906,360 TOTAL EQUITY 11,482,708 10,885,092 LIABILITIES Borrowings ,602 Deferred tax liabilities 8 1,131, ,594 Deferred income 18 5,907 6,852 TOTAL NON-CURRENT LIABILITIES 1,932, ,446 Trade and other payables , ,796 Taxation 2,826 TOTAL CURRENT LIABILITIES 422, ,622 TOTAL LIABILITIES 2,355,018 1,483,068 TOTAL EQUITY AND LIABILITIES 13,837,726 12,368,160 The notes set out on pages 38 to 105 are an integral part of these financial statements. PAGE: 34

38 ANNUAL REPORT 2016 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER Note RM 000 RM 000 Revenue 20 3,930,123 3,818,817 Cost of revenue 20 (2,150,554) (1,976,943) Gross profit 20 1,779,569 1,841,874 Administration expenses (93,854) (89,262) Other expenses (8,756) (2,158) Other income 435, ,260 Operating profit 21 2,112,144 2,282,714 Financing costs 22 (5,139) Profit before taxation 2,107,005 2,282,714 Tax (expense)/income 23 (322,151) 38,834 PROFIT FOR THE YEAR REPRESENTING TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,784,854 2,321,548 The notes set out on pages 38 to 105 are an integral part of these financial statements. PAGE: 35

39 PETRONAS GAS BERHAD STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2016 Attributable to shareholders of the Company Non-distributable Distributable Share capital Share premium Retained profits Total Note RM 000 RM 000 RM 000 RM 000 Balance at 1 January ,978,732 1,186,472 6,546,004 9,711,208 Profit for the year 2,321,548 2,321,548 Total comprehensive income for the year 2,321,548 2,321,548 Dividends interim 24 (296,810) (296,810) Dividends interim 24 (850,854) (850,854) Total distribution to shareholders of the Company (1,147,664) (1,147,664) Balance at 31 December ,978,732 1,186,472 7,719,888 10,885,092 Balance at 1 January ,978,732 1,186,472 7,719,888 10,885,092 Profit for the year 1,784,854 1,784,854 Total comprehensive income for the year 1,784,854 1,784,854 Dividends interim 24 (336,384) (336,384) Dividends interim 24 (850,854) (850,854) Total distribution to shareholders of the Company (1,187,238) (1,187,238) Balance at 31 December ,978,732 1,186,472 8,317,504 11,482,708 The notes set out on pages 38 to 105 are an integral part of these financial statements. PAGE: 36

40 ANNUAL REPORT 2016 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER Note RM 000 RM 000 CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from customers 3,851,396 3,941,100 Cash paid to suppliers and employees (1,592,311) (1,390,395) 2,259,085 2,550,705 Interest income from fund investments 69,699 26,390 Taxation paid (122,403) (168,986) Net cash generated from operating activities 2,206,381 2,408,109 CASH FLOWS FROM INVESTING ACTIVITIES Repayment of advances from subsidiaries 8,710 64,050 Subscription of additional shares in existing subsidiaries (78,839) (262,134) Dividends received from a subsidiary, associate and joint ventures 241, ,217 Investment in a joint venture (20,593) Loans and advances to: Subsidiaries (694,287) Joint venture (47,036) Purchase of property, plant and equipment (704,396) (822,879) Proceeds from disposal of property, plant and equipment Net cash used in investing activities (1,294,246) (636,378) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (1,187,238) (1,147,664) Drawdown of term loan 769,859 Finance costs paid (4,634) Net cash used in financing activities (422,013) (1,147,664) NET INCREASE IN CASH AND CASH EQUIVALENTS 490, ,067 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 1,116, ,474 CASH AND CASH EQUIVALENTS AT END OF THE YEAR 13 1,606,663 1,116,541 The notes set out on pages 38 to 105 are an integral part of these financial statements. PAGE: 37

41 PETRONAS GAS BERHAD NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2016 PETRONAS GAS BERHAD is a public limited liability company, incorporated and domiciled in Malaysia and is listed on the Main Market of Bursa Malaysia Securities Berhad. The address of the principal place of business and registered office of the Company is as follows: Tower 1, PETRONAS Twin Towers Kuala Lumpur City Centre Kuala Lumpur The Company is principally engaged in separating natural gas into its components and storing, transporting and distributing such components thereof for a fee and the sale of industrial utilities. The principal activities of its subsidiaries, associate and joint ventures are as stated in note 5, note 6 and note 7 to the financial statements respectively. The holding company as well as the ultimate holding company is Petroliam Nasional Berhad (PETRONAS), a company incorporated in Malaysia. The consolidated financial statements of the Company as at and for the financial year ended 31 December 2016 comprises the Company and its subsidiaries (collectively referred to as the Group ) and the Group s interest in an associate and joint ventures. 1. BASIS OF PREPARATION 1.1 Statement of compliance The financial statements of the Group and of the Company have been prepared in accordance with Malaysian Financial Reporting Standards (MFRS), International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia. These financial statements also comply with the applicable disclosure provisions of the Listing Requirements of Bursa Malaysia Securities Berhad. As of 1 January 2016, the Group and the Company have adopted amendments to MFRS and IC interpretations (collectively referred to as pronouncements ) that have been issued by the Malaysian Accounting Standards Board (MASB) as described fully in note 33. The adoption of these pronouncements do not have any material impact to the financial statements of the Group and of the Company. MASB has also issued new and revised pronouncements which are not yet effective for the Group and the Company and therefore, have not been adopted for in these financial statements. These new pronouncements including their impact on the financial statements in the period of initial application are set out in note 34. New and revised pronouncements that are not relevant to the operation of the Group and of the Company are set out in note 35. These financial statements were approved and authorised for issue by the Board of Directors on 23 February Basis of measurement The financial statements of the Group and the Company have been prepared on the historical cost basis except that, as disclosed in the accounting policies below, certain items are measured at fair value. PAGE: 38

42 ANNUAL REPORT BASIS OF PREPARATION (CONTINUED) 1.3 Functional and presentation currency The individual financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The Group s and the Company s financial statements are presented in Ringgit Malaysia (RM), which is the Company s functional currency. All financial information is presented in RM and has been rounded to the nearest thousand, unless otherwise stated. 1.4 Use of estimates and judgments The preparation of the financial statements in conformity with MFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. In particular, information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in the following notes: (i) Note 3 : Property, plant and equipment; (ii) Note 6 : Investment in associate; (iii) Note 7 : Investment in joint ventures; (iv) Note 8 : Deferred tax; and (v) Note 31 : Financial instruments. 2. SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these financial statements and have been applied consistently by the Group and the Company, unless otherwise stated. 2.1 Basis of consolidation Subsidiaries Subsidiaries are entities controlled by the Company. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Potential voting rights are considered when assessing control only when such rights are substantive. The Group considers it has de facto power over an investee when, despite not having the majority of voting rights, it has the current ability to direct the activities of the investee that significantly affect the investee s return. The financial statements of subsidiaries are included in the consolidated financial statements of the Group from the date that control commences until the date that control ceases. All inter-company transactions are eliminated on consolidation and revenue and profits are related to external transactions only. Unrealised losses resulting from inter-company transactions are also eliminated unless cost cannot be recovered. PAGE: 39

43 PETRONAS GAS BERHAD NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.1 Basis of consolidation (continued) Business combinations A business combination is a transaction or other event in which an acquirer obtains control of one or more businesses. Business combinations are accounted for using the acquisition method. The identifiable assets acquired and liabilities assumed are measured at their fair values at the acquisition date. The cost of an acquisition is measured as the aggregate of the fair value of the consideration transferred and the amount of any non-controlling interests in the acquiree. Non-controlling interests are stated either at fair value or at the proportionate share of the acquiree s identifiable net assets at the acquisition date. When a business combination is achieved in stages, the Group remeasures its previously held non-controlling equity interest in the acquiree at fair value at the acquisition date, with any resulting gain or loss recognised in the profit or loss. Increase in the Group s ownership interest in an existing subsidiary is accounted for as equity transactions with differences between the fair value of consideration paid and the Group s proportionate share of net assets acquired, recognised directly in equity. The Group measures goodwill as the excess of the cost of an acquisition and the fair value of any previously held interest in the acquiree over the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. Transaction costs, other than those associated with the issuance of debt or equity securities that the Group incurs in connection with a business combination, are expensed as incurred. Non-controlling interests Non-controlling interests at the end of reporting period, being the portion of the net assets of subsidiaries attributable to equity interests that are not owned by the Company, whether directly or indirectly through subsidiaries, are presented in the consolidated statement of financial position and statement of changes in equity within equity, separately from equity attributable to the shareholders of the Company. Non-controlling interests in the results of the Group are presented in the consolidated statement of profit or loss and other comprehensive income as an allocation of the profit or loss and total comprehensive income for the year between non-controlling interests and shareholders of the Company. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. The Group treats all changes in its ownership interest in a subsidiary that do not result in a loss of control as equity transactions between the Group and its non-controlling interest holders. Any difference between the Group s share of net assets before and after the change, and any consideration received or paid, is adjusted to or against Group reserves. PAGE: 40