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PETRONAS GAS BERHAD (101671-H)
Tower 1, PETRONAS Twin Towers, Kuala Lumpur City Centre50088 Kuala LumpurTel : (03) 2051 5000 • Fax: (03) 2051 6555
www.petronasgas.com
PETRONAS GAS BERHAD
BEYONDFINANCIALREPORT 2016
GOING
An
nu
al R
epo
rt 2
016
ABOUT OUR REPORTS
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.
Annual Report Regulations Complied
Regulations CompliedFinancial Report
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
• Bursa Malaysia Main Market Listing Requirements
• Companies Act, 1965
• Malaysian Financial Reporting Standards
Summary of financial information and full set of Group’s Audited Financial Statements
Refer to websitewww.petronasgas.com
Integrated Reporting cross-referencing
IR IR
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THIS REPORTINSIDE
AT A GLANCE
2 Facts At A Glance4 2016 Key Highlights6 5-year Financial Summary
PERFORMANCE REVIEW
8 5-year Group Financial Analysis10 5-year Group Financial Information11 Group Quarterly Performance12 Key Performance Indicators14 Simplified Group Statement on Financial Position and
Segmental Analysis18 Key Interest Bearing Assets and Liabilities18 Statement of Value Added19 Distribution of Value Added
OUR RIGHT RESULTS
22 Statement of Directors’ Responsibility in relation to the Financial Statements
23 Audited Financial Statements
MORE THAN
2,000 mmscfd
SIX GAS PROCESSING PLANTS
processing capacity throughSupply of
INDUSTRIAL UTILITIES
to petrochemical and industrial customers in Kertih and Gebeng
MORE THAN
2,500across Malaysia
kmGAS TRANSMISSION PIPELINE
FACTS AT A GLANCE
OPERATING
300MW
Power Plant in Kimanis, Sabah
PAGE: 2
PETRONAS GAS BERHAD
PETRONAS Gas Berhad (PGB) has been in business for more than three decades and is still growing strongOUR STRENGTH
UNDER CONSTRUCTION
Air Separation Unit (ASU) Pengerang, Johor490 mmscfd
LNG Regasification Terminal Pengerang, Johor
Oxygen
Nitrogen
41,000 Nm3/hr
25,900 Nm3/hr
530mmscfd
LNG REGASIFICATION
TERMINALSungai Udang, Melaka
PAGE: 3
ANNUAL REPORT 2016
PAGE: 4
PETRONAS GAS BERHAD
DIVIDENDS
RM1.22016: 62 sen/share
billion
+3%
2015: 60 sen/share
MARKET CAPITALISATION
RM42.1billion
2015: RM44.9 billion
-6%
REVENUE
RM4.62015: RM4.5 billion
billion
+2%
TOTAL ASSET
RM16.62015: RM14.4 billion
billion
+15%
PROFIT AFTER TAX
RM1.72015: RM1.7 billion*
billion
-0.4%
2016 KEY HIGHLIGHTS
* Based on normalised FY2015, excluding tax incentives and unrealised foreign exchange of RM243.2 million.
PAGE: 5
ANNUAL REPORT 2016
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
EXCELLENT LIQUID PLANTEXTRACTION PERFORMANCE
Achieved 12 months Performance Based Structure income of RM69 million
EXTERNAL FINANCING
Secured USD500 million term loan from Mizuho Bank Ltd
PGB TRANSFORMATION
Completion of 3ZERO100 Transformation which focuses on
improvement of asset integrity, people & culture and system & process
LNG REGASIFICATION TERMINALPENGERANG PROJECT
Advancing well at 75% completion and on track to achieve commercial
operations by quarter four of 2017
2016 KEY HIGHLIGHTS
PAGE: 6
PETRONAS GAS BERHAD
Year 2012 2013 2014 2015 2016
Revenue (RM million) 3,576.8 3,892.1 4,391.7 4,455.9 4,561.3
Profit after tax (RM million) 1,404.9 2,078.9 1,842.1 1,985.9 1,736.3
Dividends per share (sen) 50.0 55.0 55.0 60.0 62.0
Earnings per share (sen) 71.0 105.1 93.1 100.4 87.9
Total assets (RM million) 12,438.3 13,222.4 13,260.5 14,382.0 16,553.6
Total equity (RM million) 9,167.2 10,265.5 10,569.0 11,594.9 12,161.2
Market capitalisation (RM million) 38,624.8 48,043.6 43,848.7 44,917.2 42,147.0
Share price (RM) 19.52 24.28 22.16 22.70 21.30
5-YEAR FINANCIAL SUMMARY
‘12 ‘13 ‘14 ‘15 ‘16
3,576
.8
3,892.1
4,391.7
4,455.9
4,561.3
Revenue(RM million)
1,404.9
2,078
.9
1,842.1
1,985.9
1,73
6.3
‘12 ‘13 ‘14 ‘15 ‘16
Profit After Tax(RM million)
71.0
105.1
93.1
100.4
87.9
‘12 ‘13 ‘14 ‘15 ‘16
Earnings Per Share (EPS)(sen)
PAGE: 7
ANNUAL REPORT 2016
50.0 55.0
55.0 60.0
62.0
‘12 ‘13 ‘14 ‘15 ‘16
Dividends Per Share(sen)
9,167.2
10,265.5
10,569.0
11,594.9
12,161.2
‘12 ‘13 ‘14 ‘15 ‘16
Total Equity(RM million)
12,438.3
13,222.4
13,260.5
14,382.0
16,553.6
‘12 ‘13 ‘14 ‘15 ‘16
Total Assets(RM million)
38,624
.8 48,043.6
43,848.7
44,917.2
42,147.0
‘12 ‘13 ‘14 ‘15 ‘16
Market Capitalisation(RM million)
19.52
24.28
22.16
22.70
21.30
‘12 ‘13 ‘14 ‘15 ‘16
Share Price(RM)
PAGE: 8
PETRONAS GAS BERHAD
Item 2012 2013 2014 2015 2016
Profit after tax (RM million) 1,404.9 2,078.9 1,842.1 1,985.9 1,736.3
Normalised profit after tax* (RM million) 1,404.9 1,511.2 1,741.1 1,742.7 1,736.3
2012
1,404.9
2,078.9
1,511.2
1,842.1
1,741.1
1,985.9
1,742.71,736.3
2013 2014 2015 2016
Profit After Tax(RM million)ANALYSIS
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.
2013
• 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 2013.
• 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.
2014
• 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 2014.
• 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.
2015
• 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.
2016
• Compared to 2015, excluding impact of tax incentives and forex, profit remained steady at RM1.7 billion.
* Excluding tax incentives and forex (FY2013: RM567.7 million, FY2014: RM101.0 million and FY2015: RM243.2 million)
5-YEAR GROUP FINANCIAL ANALYSIS
PAGE: 9
ANNUAL REPORT 2016
Item 2012 2013 2014 2015 2016
Total assets (RM million) 12,438.3 13,222.4 13,260.5 14,382.0 16,553.6
12,438.3
13,222.4 13,260.5
14,382.0
16,553.6
2012 2013 2014 2015 2016
Total Assets(RM million)ANALYSIS
Item 2012 2013 2014 2015 2016
Property, plant and equipment 9,777.9 10,611.1 10,858.5 11,323.8 12,807.5
Fixed assets 5,443.6 8,913.8 9,230.6 9,737.9 9,660.8
Project-in-progress 4,334.3 1,697.3 1,627.9 1,585.9 3,146.7
Cash and cash equivalents 912.1 1,706.2 637.7 1,230.8 1,763.1
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.
2013
• Compared to 2012, total assets further strengthened following completion of RGTSU and PRR for GPP2 and GPP3.
2014
• Compared to 2013, total assets remained steady at RM13.3 billion mainly consist of PPE from four business segments: GP, GT, UT and RGT.
2015
• 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.
2016
• 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: 10
PETRONAS GAS BERHAD
Year 2012 2013 2014 2015RM million
2016
Key results Revenue 3,576.8 3,892.1 4,391.7 4,455.9 4,561.3
By segment:Gas Processing 1,511.2 1,497.4 1,480.2 1,533.6 1,557.2 Gas Transportation 1,119.4 1,189.4 1,286.7 1,311.6 1,303.9 Utilities 946.2 867.2 1,008.6 973.6 1,069.1 Regasification – 338.2 616.2 637.1 631.1
By geographical:Peninsular Malaysia 3,559.3 3,873.8 4,365.5 4,428.8 4,545.4 Sabah – – 8.5 8.5 (3.3)Sarawak 17.5 18.3 17.7 18.6 19.2
Interest income 71.5 41.8 36.9 31.8 54.2 Cost of revenue 1,806.8 1,947.3 2,179.5 2,316.5 2,495.4
By segment:Gas Processing 742.5 746.1 778.5 836.6 908.8 Gas Transportation 280.1 287.0 280.0 302.5 328.6 Utilities 784.2 739.5 812.6 837.8 913.2 Regasification – 174.7 308.4 339.6 344.8
Financing costs 20.3 50.1 76.3 90.1 93.9 Administration expenses 156.0 120.0 74.8 89.5 93.1 Operating profit 1,859.6 1,903.7 2,142.1 2,016.9 2,137.1 Earnings before interest, taxes,
depreciation and amortisation 2,463.0 2,628.6 3,180.8 2,837.2 3,023.6 Profit before taxation 1,851.3 1,896.4 2,354.5 2,002.1 2,106.8 Profit for the year 1,404.9 2,078.9 1,842.1 1,985.9 1,736.3 Profit attributables to the shareholders
of the Company 1,405.0 2,078.9 1,843.2 1,987.5 1,739.1
Key statement of financial positionProperty, plant and equipment 9,777.9 10,611.1 10,858.5 11,323.8 12,807.5 Cash & cash equivalents 912.1 1,706.2 637.7 1,230.8 1,763.1 Total assets 12,438.3 13,222.4 13,260.5 14,382.0 16,553.6 Borrowings 1,246.7 841.8 882.3 1,058.3 2,249.5 Total liabilities 3,271.1 2,956.9 2,691.5 2,787.1 4,392.4 Share capital 1,978.7 1,978.7 1,978.7 1,978.7 1,978.7 Reserves 7,188.7 8,287.0 8,555.1 9,460.1 9,988.0 Total equity attributable to the
shareholders of the Company 9,167.4 10,265.7 10,533.8 11,438.8 11,966.7 Non-controlling interests (0.2) (0.2) 35.0 156.1 194.5 Total equity 9,167.2 10,265.5 10,569.0 11,594.9 12,161.2
Share informationEarnings per share (sen) 71.0 105.1 93.1 100.4 87.9 Dividends per share (sen) 50.0 55.0 55.0 60.0 62.0 Net assets (sen) 4.63 5.19 5.32 5.78 6.05 Closing share price 19.52 24.28 22.16 22.70 21.30 Number of ordinary shares (’000) 1,978,732 1,978,732 1,978,732 1,978,732 1,978,732 Market capitalisation (RM million) 38,624.8 48,043.6 43,848.7 44,917.2 42,147.0
5-YEAR GROUP FINANCIAL INFORMATION
PAGE: 11
ANNUAL REPORT 2016
2016In RM Million
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year 2016
Operating revenue 1,130.6 1,119.0 1,157.8 1,153.9 4,561.3
Operating profit 591.9 502.9 542.3 500.0 2,137.1
Profit before taxation 578.8 497.9 546.3 483.8 2,106.8
Profit for the period/year 447.4 403.5 422.1 463.3 1,736.3
Profit attributable to shareholders of the Company 447.3 403.9 422.8 465.1 1,739.1
Earnings per share (sen) 22.6 20.4 21.4 23.5 87.9
Dividends per share (sen) 14.0 14.0 15.0 19.0 62.0
2015In RM Million
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year 2015
Operating revenue 1,101.3 1,083.6 1,134.3 1,136.7 4,455.9
Operating profit 568.4 545.0 415.6 487.9 2,016.9
Profit before taxation 571.3 527.1 415.5 488.2 2,002.1
Profit for the period/year 450.0 817.8 307.2 410.9 1,985.9
Profit attributable to shareholders of the Company 450.0 818.0 305.0 414.5 1,987.5
Earnings per share (sen) 22.7 41.4 15.4 20.9 100.4
Dividends per share (sen) 14.0 14.0 15.0 17.0 60.0
GROUP QUARTERLY PERFORMANCE
PAGE: 12
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.
39.1%
Normalised 2015
Normalised 2015
2015
2015
2015
2015
2015
2016
2016
2016
2016
2016
12.1%
48.0%
52.0%
44.6%
13.8%
45.3%
54.7%
38.1%
10.5%
Sustained within healthy levels. Due to higher operating costs.
Continuous improvement towards assets integrity.
Slightly lower due to higher spending on growth projects yet to generate returns.
Net profit margin is defined as a ratio of net profit after tax to revenue.
Gross profit margin is defined as a ratio of gross profit to revenue.
Cost to Income (CTI) is a measure of cost of revenue divided by revenue.
Return on Asset (ROA) is an indicator that measures the Company’s efficiency in using the total assets to generate profit.
2.3
2.5
Higher attributed to high cash balances.
Current ratio is defined as the Company’s ability to meet its short term obligations.
PAGE: 13
ANNUAL REPORT 2016
Normalised 2015
2015 2015
2015
2016 2016
2016
Normalised 2015 2015 2016 Normalised 2015 2015 2016
sen
sen
88.2
100.4
87.9
In line with steady profit for the year.
Within the industry average of DPR.
Earnings Per Share (EPS) represents the portion of the Company’s distributable income allocated to each equity share.
Dividend Payout Ratio (DPR) is defined as the percentage of earnings paid to shareholders in dividend.
77.0%
59.8%
70.7%
15.2%
17.4%
14.5%
Respectable returns from investments.
Return on Equity (ROE) is defined as profit attributable to shareholders divided by the average shareholders’ equity for the financial year.
60.0
62.0
5.1%
-3.4%
Higher dividend payout in respect of FY2016 in tandem with strong performance of the Group.
Due to decline of share price during the year.
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.
PAGE: 14
PETRONAS GAS BERHAD
SIMPLIFIED GROUP STATEMENT ON FINANCIAL POSITION AND SEGMENTAL ANALYSIS
2015
2016
Total Assets
Total Assets
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%*
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%*
RM14.4 billion
RM16.6 billion
* Insignificant percentage (%)
* Insignificant percentage (%)
PAGE: 15
ANNUAL REPORT 2016
2015
2016
Total Liabilities & Shareholder’s Equity
Total Liabilities & Shareholder’s Equity
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%*
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%*
RM14.4 billion
RM16.6 billion
* Insignificant percentage (%)
* Insignificant percentage (%)
PAGE: 16
PETRONAS GAS BERHAD
Gas Transportation(RM million)
Gas Transportation(RM million)
Gas Transportation(RM million)
Gas Processing(RM million)
Gas Processing(RM million)
Gas Processing(RM million)
2,575.14,376.4
1,009.1697.0
1,311.61,533.6
2,620.14,321.6
975.3648.4
1,303.91,557.2
SEGMENT OPERATING REVENUE
SEGMENT GROSS PROFIT
SEGMENT ASSETS
2015
2015
2015
2016
2016
2016
RM4.6 billion
RM2.1 billion
RM14.2 billion
for the financial year ended 31 December
for the financial year ended 31 December
for the financial year ended 31 December
2016
2016
2016
SIMPLIFIED GROUP STATEMENT ON FINANCIAL POSITION AND SEGMENTAL ANALYSIS
PAGE: 17
ANNUAL REPORT 2016
Regasification(RM million)
Regasification(RM million)
Regasification(RM million)
Utilities(RM million)
Utilities(RM million)
Utilities(RM million)
637.1
297.5
4,389.31,184.5
135.8
973.6
631.1
286.3
5,896.31,317.9
155.9
1,069.1
2015
2015
2015
2016
2016
2016
RM2.1 billion
RM12.5 billion
RM4.5 billion
2015
2015
2015
PAGE: 18
PETRONAS GAS BERHAD
2015 2016
As at 31 December
RM million
EffectiveInterest Rate
%
InterestIncome/
(Expenses)RM million
As at 31 December
RM million
EffectiveInterest Rate
%
InterestIncome/
(Expenses)RM million
Interest earning assets
Cash and cash equivalents 1,230.8 3.9 31.8 1,763.1 3.6 54.2
Interest bearing liabilities
Finance lease liabilities 1,058.3 9.1 (90.1) 1,166.6 9.1 (93.9)
Team loan – – – 795.6 1.7 –*
Loan from corporate shareholder of a subsidary – – – 287.3 6.5 –*
* Interest expenses are being capitalised as part of projects-in-progress.
2015RM million
2016RM million
Revenue 4,455.9 4,561.3
Purchase of goods and services (1,300.2) (1,386.8)
Value added by the Company 3,155.7 3,174.5
Other income and expenses (32.9) 164.3
Financing costs (90.1) (93.9)
Share of profit after tax of equity accounted associate and jointly controlled entity 75.2 63.6
Value added available for distribution 3,107.9 3,308.5
KEY INTEREST BEARING ASSETS AND LIABILITIES
STATEMENT OF VALUE ADDED
PAGE: 19
ANNUAL REPORT 2016
2015RM million
2016RM million
To employees
Employment costs 326.9 324.5
To government
Taxation 71.9 113.7
To shareholders
Dividends 1,147.8 1,187.2
Non-controlling interest (1.5) (2.8)
Retained for reinvestment and future growth
Depreciation and amortisation 778.9 877.2
Deferred tax expense/(income) (55.7) 256.8
Retained profit 839.6 551.9
3,107.9 3,308.5
10%
3%
51%
FY2016
36%
Retained for reinvestment and future growth
To shareholdersTo employees
To government
11%
2%37%
FY2015
50%
Retained for reinvestment and future growth
To shareholdersTo employees
To government
DISTRIBUTION OF VALUE ADDED
OUR RIGHT RESULTS
22 Statement of Director’s Responsibility in relation to the Financial Statements
FINANCIAL STATEMENTS23 Directors’ Report28 Statement by Directors28 Statutory Declaration29 Consolidated Statement of
Financial Position30 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 Position35 Statement of Profit or Loss and
Other Comprehensive Income36 Statement of Changes in Equity37 Statement of Cash Flows38 Notes to the Financial Statements106 Independent Auditors’ Report
to the Members of PETRONAS Gas Berhad
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
PETRONAS GAS BERHAD
STATEMENT OF DIRECTOR’S RESPONSIBILITY IN RELATION TO THE FINANCIAL STATEMENTS
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 2016.
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 Company
RM’000 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 2016.
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 2016.
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 2017.
PAGE: 23
ANNUAL REPORT 2016
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 AbdulDato’ Ab. Halim bin Mohyiddin Yusa’ bin HassanEmeliana Dallan Rice-Oxley (appointed on 1 September 2016)Wan Shamilah binti Wan Muhammad Saidi (appointed on 1 September 2016) Heng Heyok Chiang @ 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 Chiang @ 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 1.1.2016 Bought Sold 31.12.2016
Dato’ Ab. Halim bin Mohyiddin 5,000 – – 5,000
PAGE: 24
PETRONAS GAS BERHAD
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 DECEMBER 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 1.1.2016 Bought Sold 31.12.2016
Dato’ Ab. Halim bin Mohyiddin 5,000 – – 5,000
Number of ordinary shares of RM0.10 each in PETRONAS Chemicals Group Berhad
Balance at
Name
1.1.2016/at appointment
date Bought SoldBalance at 31.12.2016
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
ANNUAL REPORT 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
PETRONAS GAS BERHAD
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 DECEMBER 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 Directorsin accordance with a resolution of the Directors:
Datuk Mohd Anuar bin Taib
Yusa’ bin Hassan
Kuala Lumpur, 23 February 2017
PAGE: 27
ANNUAL REPORT 2016
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 Directorsin accordance with a resolution of the Directors:
Datuk Mohd Anuar bin Taib Yusa’ bin Hassan
Kuala Lumpur, 23 February 2017
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, 1960.
Subscribed and solemnly declared by the above named Aida Aziza binti Mohd Jamaludin at Kuala Lumpur in Wilayah Persekutuan on 23 February 2017.
BEFORE ME:
PAGE: 28
PETRONAS GAS BERHAD
STATEMENT BY DIRECTORS
STATUTORY DECLARATION
31.12.2016 31.12.2015
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 6 130,162 128,063
Investment in joint ventures 7 605,990 547,647
Deferred tax assets 8 408,042 456,360
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 12 711,914 644,389
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 16 194,469 156,137
TOTAL EQUITY 12,161,249 11,594,936
LIABILITIES
Borrowings 17 2,216,869 1,029,596
Deferred tax liabilities 8 1,131,032 922,594
Deferred income 18 5,907 6,852
TOTAL NON-CURRENT LIABILITIES 3,353,808 1,959,042
Trade and other payables 19 1,006,007 796,539
Borrowings 17 32,568 28,664
Taxation – 2,826
TOTAL CURRENT LIABILITIES 1,038,575 828,029
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
ANNUAL REPORT 2016
CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAT 31 DECEMBER 2016
2016 2015
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 179,345 172,213
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) 25 87.9 100.4
The notes set out on pages 38 to 105 are an integral part of these financial statements.
PAGE: 30
PETRONAS GAS BERHAD
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2016
Attributable to shareholders of the Company
Non-distributable
Share capital
Share premium
Hedging reserve
Foreign currency
translationreserve
Note RM’000 RM’000 RM’000 RM’000
Balance at 1 January 2015 1,978,732 1,186,472 12,546 –
Net movement from exchange differences – – – 42,314
Share of cash flow hedge of an equity-accounted 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 – 31.12.2014 interim 24 – – – –
Dividends – 31.12.2015 interim 24 – – – –
Total transactions with shareholders of the Company – – – (5,943)
Balance at 31 December 2015 1,978,732 1,186,472 41,485 36,371
Balance at 1 January 2016 1,978,732 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 equity-accounted 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 – 31.12.2015 interim 24 – – – –
Dividends – 31.12.2016 interim 24 – – – –
Total transactions with shareholders of the Company – – – –
Balance at 31 December 2016 1,978,732 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
ANNUAL REPORT 2016
CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2016
Attributable to shareholders of the Company
Distributable
Retainedprofits Total
Non– controlling
interestsTotal
equity
Note RM’000 RM’000 RM’000 RM’000
Balance at 1 January 2015 7,356,128 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 equity-accounted 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 – – 102,833 102,833
Dilution of equity shareholding in a subsidiary 26 (177) (6,120) 6,120 –
Dividends – 31.12.2014 interim 24 (296,810) (296,810) – (296,810)
Dividends – 31.12.2015 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 2015 8,195,739 11,438,799 156,137 11,594,936
Balance at 1 January 2016 8,195,739 11,438,799 156,137 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 equity-accounted 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 – 31.12.2015 interim 24 (336,384) (336,384) – (336,384)
Dividends – 31.12.2016 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 2016 8,747,553 11,966,780 194,469 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
PETRONAS GAS BERHAD
CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2016
2016 2015
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 478 368
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 30,323 102,833
Net cash used in financing activities (239,015) (1,157,506)
NET INCREASE IN CASH AND CASH EQUIVALENTS 531,919 600,395
NET FOREIGN EXCHANGE DIFFERENCE 383 (7,326)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 1,230,815 637,746
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
ANNUAL REPORT 2016
CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE YEAR ENDED 31 DECEMBER 2016
31.12.2016 31.12.2015
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 7 212,843 192,250
Long term receivables 10 794,642 –
TOTAL NON-CURRENT ASSETS 11,604,535 10,653,903
Trade and other inventories 11 66,140 44,197
Trade and other receivables 12 554,523 553,519
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 17 795,602 –
Deferred tax liabilities 8 1,131,032 922,594
Deferred income 18 5,907 6,852
TOTAL NON-CURRENT LIABILITIES 1,932,541 929,446
Trade and other payables 19 422,477 550,796
Taxation – 2,826
TOTAL CURRENT LIABILITIES 422,477 553,622
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
PETRONAS GAS BERHAD
STATEMENT OF FINANCIAL POSITIONAT 31 DECEMBER 2016
2016 2015
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 435,185 532,260
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
ANNUAL REPORT 2016
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2016
Attributable to shareholders of the Company
Non-distributable Distributable
Sharecapital
Sharepremium
Retainedprofits Total
Note RM’000 RM’000 RM’000 RM’000
Balance at 1 January 2015 1,978,732 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 – 31.12.2014 interim 24 – – (296,810) (296,810)
Dividends – 31.12.2015 interim 24 – – (850,854) (850,854)
Total distribution to shareholders of the Company – – (1,147,664) (1,147,664)
Balance at 31 December 2015 1,978,732 1,186,472 7,719,888 10,885,092
Balance at 1 January 2016 1,978,732 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 – 31.12.2015 interim 24 – – (336,384) (336,384)
Dividends – 31.12.2016 interim 24 – – (850,854) (850,854)
Total distribution to shareholders of the Company – – (1,187,238) (1,187,238)
Balance at 31 December 2016 1,978,732 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
PETRONAS GAS BERHAD
STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2016
2016 2015
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 241,717 384,217
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 478 368
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 490,122 624,067
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 1,116,541 492,474
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
ANNUAL REPORT 2016
STATEMENT OF CASH FLOWSFOR THE YEAR ENDED 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 Centre50088 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 2017.
1.2 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
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
1. 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
ANNUAL REPORT 2016
2. 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.
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PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.1 Basis of consolidation (continued)
Loss of control
Upon the loss of control of a subsidiary, the Group derecognises the assets and liabilities of the former subsidiary, any non-controlling interests and the other components of equity related to the former subsidiary from the consolidated statement of financial position. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the former subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently, it is accounted for as an equity-accounted investee or as an available-for-sale financial asset depending on the level of influence retained.
2.2 Associate
An associate is an entity in which the Group has significant influence including representation on the Board of Directors, but not control or joint control, over the financial and operating policies of the investee company.
Associate is accounted for in the consolidated financial statements using the equity method. The consolidated financial statements include the Group’s share of post-acquisition profits or losses and other comprehensive income of the equity accounted associate, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases.
The Group’s share of post-acquisition reserves and retained profits less losses is added to the carrying value of the investment in the consolidated statement of financial position. These amounts are taken from the latest audited financial statements or management financial statements of the associate.
When the Group’s share of post-acquisition losses exceeds its interest in an equity accounted associate, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the associate.
When the Group ceases to have significant influence over an associate, it is accounted for as a disposal of the entire interest in that associate, with the resulting gain or loss being recognised in profit or loss. Any retained interest in the former associate at the date when significant influence is lost is re-measured at fair value and this amount is regarded as the initial carrying amount of a financial asset.
When the Group’s interest in an associate decreases but does not result in a loss of significant influence, any retained interest is not re-measured. Any gain or loss arising from the decrease in interest is recognised in profit or loss. Any gains or losses previously recognised in other comprehensive income are also reclassified proportionately to the profit or loss if that gain or loss would be required to be reclassified to profit or loss on the disposal of the related assets and liabilities.
Unrealised profits arising from transactions between the Group and its associate are eliminated to the extent of the Group’s interests in the associate. Unrealised losses on such transactions are also eliminated partially, unless cost cannot be recovered.
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ANNUAL REPORT 2016
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.3 Joint arrangements
Joint arrangements are arrangements of which the Group has joint control, established by contracts requiring unanimous consent for decisions about the activities that significantly affect the arrangements’ returns.
Joint arrangements are classified as either joint operation or joint venture. A joint arrangement is classified as joint operation when the Group or the Company has rights to the assets and obligations for the liabilities relating to an arrangement. The Group and the Company account for each of its share of the assets, liabilities and transactions, including its share of those held or incurred jointly with the other investors, in relation to the joint operation. A joint arrangement is classified as joint venture when the Group has rights only to the net assets of the arrangements. The Group accounts for its interest in the joint venture using the equity method as described in note 2.2.
2.4 Property, plant and equipment and depreciation
Freehold land and projects-in-progress are measured at cost less any accumulated impairment losses and are not depreciated. Other property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.
Cost includes expenditure that are directly attributable to the acquisition of the assets and any other costs directly attributable to bringing the assets to working condition for their intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. The cost of self-constructed assets also includes the cost of materials and direct labour. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.
When significant components of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.
The cost of replacing a component of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will flow to the Group or the Company, and its cost can be measured reliably. The carrying amount of the replaced component is derecognised in the profit or loss. The costs of the day-to-day servicing of property, plant and equipment are recognised in the profit or loss as incurred.
Buildings are depreciated over 50 years or over the remaining land lease period, whichever is shorter.
Depreciation for property, plant and equipment other than freehold land and projects-in-progress is recognised in the profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment. Property, plant and equipment are not depreciated until the assets are ready for their intended use.
Lease properties are depreciated over the lease term or the estimated useful lives, whichever is shorter. Leasehold land is depreciated over the lease term.
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PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.4 Property, plant and equipment and depreciation (continued)
The estimated useful lives of the other property, plant and equipment are as follows:
Plant and pipelines 5 – 55 years
Office equipment, furniture and fittings 6 – 7 years
Other plant and equipment 3 – 7 years
Computer hardware and software 5 years
Motor vehicles 4 years
Plant turnaround/major inspection 3 – 6 years
The depreciable amount is determined after deducting residual value. The residual value, useful life and depreciation method are reviewed at each financial year end to ensure that the amount, period and method of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. The difference between the net disposal proceeds, if any, and the net carrying amount is recognised in the profit or loss.
2.5 Leased assets
A lease arrangement is accounted for as finance or operating lease in accordance with the accounting policy as stated below. When the fulfilment of an arrangement is dependent on the use of a specific asset and the arrangement conveys a right to use the asset, it is accounted for as a lease in accordance with the accounting policy below although the arrangement does not take the legal form of a lease.
Finance lease
A lease is recognised as a finance lease if it transfers substantially to the Group and the Company all the risks and rewards incidental to ownership. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. The corresponding liability is included in the statement of financial position as financial lease liabilities.
Minimum lease payments made under finance leases are apportioned between the finance costs and the reduction of the outstanding liability. The finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are recognised in the profit or loss and allocated over the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability for each accounting period.
Contingent lease payments, if any, are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.
Leasehold land which in substance is a finance lease is classified as property, plant and equipment.
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ANNUAL REPORT 2016
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.5 Leased assets (continued)
Operating lease
All leases that do not transfer substantially to the Group and the Company all the risks and rewards incidental to ownership are classified as operating leases and, the leased assets are not recognised on the Group’s and the Company’s statement of financial position.
Payments made under operating leases are recognised as an expense in the profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as a reduction of rental expense over the lease term on a straight-line basis. Contingent rentals are charged to profit or loss in the reporting period in which they are incurred.
Leasehold land which in substance is an operating lease is classified as prepaid lease payments.
Prepaid lease payments
The payment made on entering into a lease arrangement or acquiring a leasehold land are accounted for as prepaid lease payments that are amortised over the lease term in accordance with the pattern of benefits provided.
Leasehold land is classified into long lease and short lease. Long lease is defined as a lease with an unexpired lease period of 50 years or more. Short lease is defined as a lease with an unexpired lease period of less than 50 years.
2.6 Investments
Long term investments in subsidiaries, associate and joint ventures are stated at cost less impairment loss, if any, in the Company’s financial statements, unless the investment is classified as held for sale. The cost of investment includes transaction costs.
The carrying amount of these investments includes fair value adjustments on shareholder’s loans and advances, if any.
2.7 Intangible asset – goodwill
Goodwill arising from business combinations is initially measured at cost as described in note 2.1. Following the initial recognition, goodwill is measured at cost less any accumulated impairment loss. Goodwill is not amortised but instead, it is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.
In respect of equity accounted associate, the carrying amount of goodwill is included in the carrying amount of the investment. The entire carrying amount of the investment is reviewed for impairment when there is objective evidence of impairment.
2.8 Financial instruments
A financial instrument is recognised in the statement of financial position when, and only when, the Group or the Company becomes a party to the contractual provisions of the instrument.
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PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.8 Financial instruments (continued)
(i) Financial assets
Initial recognition
Financial assets are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments or available-for-sale financial assets, as appropriate. The Group and the Company determine the classification of financial assets at initial recognition.
Financial assets are recognised initially at fair value, normally being the transaction price plus, in the case of financial assets not at fair value through profit or loss, any directly attributable transaction costs.
Purchases or sales under a contract whose terms require delivery of financial assets within a timeframe established by regulation or convention in the marketplace concerned (regular way purchases) are recognised on the trade date, i.e. the date that the Group and the Company commit to purchase or sell the financial asset.
Fair value adjustments on shareholder’s loans and advances at initial recognition, if any, are added to the carrying value of investments in the Company’s financial statements.
Subsequent measurement
The subsequent measurement of financial assets depends on their classification as follows:
Financial assets at fair value through profit or loss
Fair value through profit or loss category comprises financial assets that are held for trading, including derivatives (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument), contingent consideration in a business combination and financial assets that are specifically designated into this category upon initial recognition.
Financial assets categorised as fair value through profit or loss are subsequently measured at their fair value with gains or losses recognised in the profit or loss. The methods used to measure fair value are stated in note 2.22.
Loans and receivables
Loans and receivables category comprises debt instruments that are not quoted in an active market. Subsequent to initial recognition, financial assets categorised as loans and receivables are measured at amortised cost using the effective interest method as described in note 2.8(vi).
Held-to-maturity investments
The Group and the Company did not have any held-to-maturity investments during the year ended 31 December 2016 and the year ended 31 December 2015.
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ANNUAL REPORT 2016
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.8 Financial instruments (continued)
(i) Financial assets (continued)
Available-for-sale financial assets
Available-for-sale category comprises investment in equity and debt securities instruments that are not held for trading.
Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost. Other financial assets categorised as available-for-sale are subsequently measured at fair value with unrealised gains and losses recognised directly in other comprehensive income and accumulated under available-for-sale reserve in equity until the investment is derecognised or determined to be impaired, at which time the cumulative gain or loss previously recorded in equity is reclassified to the profit or loss.
All financial assets, except for those measured at fair value through profit or loss, are subject to review for impairment (see note 2.9(i)).
(ii) Financial liabilities
Initial recognition
Financial liabilities are classified as financial liabilities at fair value through profit or loss and borrowings (i.e. financial liabilities measured at amortised cost), as appropriate. The Group and the Company determine the classification of financial liabilities at initial recognition.
Financial liabilities are recognised initially at fair value less, in the case of financial liabilities measured at amortised cost, any directly attributable transaction costs.
Subsequent measurement
The subsequent measurement of financial liabilities depends on their classification as follows:
Financial liabilities at fair value through profit or loss
Fair value through profit or loss category comprises financial liabilities that are derivatives (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument), contingent consideration in a business combination and financial liabilities that are specifically designated into this category upon initial recognition.
Financial liabilities categorised as fair value through profit or loss are subsequently measured at their fair values with the gain or loss recognised in profit or loss.
Loans and borrowings
Subsequent to initial recognition, loans and borrowings are measured at amortised cost using the effective interest method as described in note 2.8(vi).
Gains and losses are recognised in the profit or loss when the liabilities are derecognised, as well as through the amortisation process.
PAGE: 46
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.8 Financial instruments (continued)
(iii) Hedge accounting
Cash flow hedge
A cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction and could affect the profit or loss. In a cash flow hedge, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in other comprehensive income and the ineffective portion is recognised in profit or loss.
Subsequently, the cumulative gain or loss recognised in other comprehensive income is reclassified from equity into profit or loss in the same period or periods during which the hedged forecast cash flows affect profit or loss. If the hedge item is a non-financial asset or liability, the associated gain or loss recognised in other comprehensive income is removed from equity and included in the initial amount of the asset or liability. However, loss recognised in other comprehensive income that will not be recovered in one or more future periods is reclassified from equity into profit or loss.
Cash flow hedge accounting is discontinued prospectively when the hedging instrument expires or is sold, terminated or exercised, the hedge is no longer highly effective, the forecast transaction is no longer expected to occur or the hedge designation is revoked. If the hedge is for a forecast transaction, the cumulative gain or loss on the hedging instrument remains in equity until the forecast transaction occurs. When the forecast transaction is no longer expected to occur, any related cumulative gain or loss recognised in other comprehensive income on the hedging instrument is reclassified from equity into profit or loss.
(iv) Derivative financial instruments
The Group and the Company use derivative financial instruments such as forward currency contracts to manage certain exposures to fluctuations in foreign currency exchange rates.
Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
Any gains and losses arising from changes in fair value on derivatives during the year, other than those accounted for under hedge accounting as described in note 2.8(iii), are recognised in the profit or loss.
An embedded derivative is recognised separately from the host contract and accounted for as a derivative if, and only if, it is not closely related to the economic characteristics and risks of the host contract and the host contract is not categorised as fair value through profit or loss. The host contract, in the event an embedded derivative is recognised separately, is accounted for in accordance with policy applicable to the nature of the host contract.
In general, contracts to sell or purchase non-financial items to meet expected own use requirements are not accounted for as financial instruments. However, contracts to sell or purchase commodities that can be net settled or which contain written options are required to be measured at fair value, with gains and losses recognised in the profit or loss.
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ANNUAL REPORT 2016
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.8 Financial instruments (continued)
(v) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.
(vi) Amortised cost of financial instruments
Amortised cost is computed using the effective interest method. This method uses effective interest rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial instrument to the net carrying amount of the financial instrument. Amortised cost takes into account any transaction costs and any discount or premium on settlement.
(vii) Derecognition of financial instruments
Financial assets
A financial asset is derecognised when the rights to receive cash flows from the asset have expired, or the Group and the Company have transferred their rights to receive cash flows from the asset or have assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement without retaining control of the asset or substantially all the risks and rewards of the asset. On derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognised in equity is recognised in the profit or loss.
Financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expired. On derecognition of a financial liability, the difference between the carrying amount of the financial liability extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in the profit or loss.
2.9 Impairment
(i) Financial assets
All financial assets (except for financial assets categorised as fair value through profit or loss, investment in subsidiaries, investment in associate and investment in joint ventures) are assessed at each reporting date to determine whether there is any objective evidence of impairment as a result of one or more events having an impact on the estimated future cash flows of the asset. Losses expected as a result of future events, no matter how likely, are not recognised. For an investment in an equity instrument, a significant or prolonged decline in the fair value below its cost is an objective evidence of impairment. If any such objective evidence exists, then the impairment loss of the financial asset is estimated.
An impairment loss in respect of loans and receivables is recognised in profit or loss and is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account.
PAGE: 48
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.9 Impairment (continued)
(i) Financial assets (continued)
An impairment loss in respect of available-for-sale financial assets is recognised in profit or loss and is measured as the difference between the asset’s acquisition cost (net of any principal repayment and amortisation) and the asset’s current fair value, less any impairment loss previously recognised. Where a decline in the fair value of an available-for-sale financial asset has been recognised in other comprehensive income, the cumulative loss in other comprehensive income is reclassified from equity to profit or loss.
An impairment loss in respect of unquoted equity instrument that is carried at cost is recognised in profit or loss and is measured as the difference between the financial asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.
Impairment losses recognised in profit or loss for an investment in an equity instrument classified as available for sale is not reversed through profit or loss.
If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed, to the extent that the asset’s carrying amount does not exceed what the carrying amount would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal is recognised in profit or loss.
(ii) Other assets
The carrying amounts of other assets, other than inventories, deferred tax assets, non-current assets and financial assets, are reviewed at each reporting date to determine whether there is any indication of impairment.
If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset or the cash-generating-unit to which it belongs exceeds its recoverable amount. Impairment losses are recognised in the profit or loss.
A cash-generating-unit is the smallest identifiable asset group that generates cash flows from continuing use that are largely independent from other assets and groups. An impairment loss recognised in respect of a cash-generating-unit is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to reduce the carrying amounts of the other assets in the unit on a pro-rata basis.
The recoverable amount of an asset or cash-generating-unit is the greater of its value in use and its fair value less costs of disposal. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash-generating-unit. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating-unit to which the asset belongs.
An impairment loss in respect of goodwill is not reversed in the subsequent period. In respect of other assets, impairment losses recognised in prior periods are assessed at the end of each reporting period for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Reversals of impairment losses are credited to the profit or loss in the year in which reversals are recognised.
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ANNUAL REPORT 2016
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.10 Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and bank balances, and deposits with licensed financial institutions and highly liquid investments which have an insignificant risk of changes in value. For the purpose of statement of cash flows, cash and cash equivalents are presented net of bank overdrafts and deposits restricted, if any.
2.11 Inventories
Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
Cost of material stores and spares consists of the invoiced value from suppliers and import duty charges and is determined on a weighted average basis.
Cost of liquefied gases and water is determined on a weighted average basis.
2.12 Provisions
A provision is recognised if, as a result of a past event, the Group and the Company have a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future net cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Where discounting is used, the accretion in the provision due to the passage of time is recognised as finance cost.
The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation at the reporting date. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate.
Possible obligations whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events, not wholly within the control of the Group, are not recognised in the financial statements but are disclosed as contingent liabilities unless the possibility of an outflow of economic resources is considered remote.
2.13 Employee benefits
Short term benefits
Wages and salaries, bonuses and social security contributions are recognised as an expense in the year in which the associated services are rendered by employees of the Group and of the Company.
Defined contribution plans
As required by law, companies in Malaysia make contributions to the state pension scheme, the Employees Provident Fund (EPF).
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PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.14 Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the profit or loss except to the extent it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax
Current tax is the expected tax payable on the taxable income for the year, using the statutory tax rates at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax
Deferred tax is provided for, using the liability method, on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts in the financial statements. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised for all deductible temporary differences, unabsorbed capital allowances, unutilised reinvestment allowances, unutilised investment tax allowances, unutilised tax losses and other unused tax credits to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences, unabsorbed capital allowances, unutilised reinvestment allowances, unutilised investment tax allowances, unutilised tax losses and other unused tax credits can be utilised.
Deferred tax is measured at the tax rates that are expected to apply in the period when the assets is realised or the liability is settled, based on the laws that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, where they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
Deferred tax asset is reviewed at each reporting date and is reduced to the extent that it is no longer probable that the future taxable profits will be available against which the related tax benefit will be realised.
Unutilised reinvestment allowance and unutilised investment tax allowance, being tax incentives that is not a tax base of an asset, is recognised as a deferred tax asset to the extent that it is probable that the future taxable profits will be available against which the unutilised tax incentive can be utilised.
2.15 Foreign currency transactions
In preparing the financial statements of individual entities in the Group, transactions in currencies other than the entity’s functional currency (foreign currencies) are translated to the functional currencies at rates of exchange ruling on the transaction dates.
Monetary assets and liabilities denominated in foreign currencies at reporting date are retranslated to the functional currency at the exchange rate at that date.
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ANNUAL REPORT 2016
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.15 Foreign currency transactions (continued)
Non-monetary assets and liabilities denominated in foreign currencies are not retranslated at reporting date, except for those that are measured at fair value, are retranslated to the functional currency at the exchange rate at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in foreign currency are not retranslated.
Gains and losses on exchange arising from retranslation are recognised in the profit or loss.
On consolidation, the assets and liabilities of subsidiaries with functional currencies other than Ringgit Malaysia, are translated into Ringgit Malaysia at the exchange rates ruling at the reporting date, except for goodwill and fair value adjustments arising from business combinations before 1 April 2011 which are treated as assets and liabilities of the acquirer company pursuant to the adoption of MFRS framework.
The income and expenses are translated at the exchange rates at the date of transactions or an average rate that approximates those rates. All resulting exchange differences are taken to the foreign currency translation reserve within equity.
2.16 Borrowing costs and foreign currency exchange differences relating to project-in-progress
Borrowing costs which are directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to be prepared for their intended use or sale, are capitalised as part of the cost of those assets.
The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the assets is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress.
Capitalisation of borrowing costs ceases when all activities necessary to prepare the qualifying asset for its intended use or sale are completed.
The capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation is the weighted average of the borrowing costs applicable to borrowings that are outstanding during the year, other than borrowings made specifically for the purpose of financing a specific qualifying asset, in which case the actual borrowing cost incurred on that borrowing less any investment income on the temporary investment of that borrowings, will be capitalised.
Exchange differences arising from foreign currency borrowings, although regarded as an adjustment to borrowing costs, are not capitalised but instead recognised in the profit or loss in the period in which they arise.
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PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.17 Revenue
Revenue from gas processing services is recognised in the profit or loss based on actual and estimates of work done in respect of services rendered for separating natural gas into its components.
Revenue from gas transportation services is recognised in the profit or loss based on services rendered for transporting and distributing the processed gas.
Revenue from sale of industrial utilities is recognised in the profit or loss based on utilities distributed to the buyer at pre-determined rates.
Revenue from regasification of liquefied natural gas is recognised in the profit or loss based on actual and estimates of work done in respect of services rendered for conversion of natural gas from liquid to gas.
2.18 Financing costs
Finance costs comprise interest payable on borrowings.
All interest and other costs incurred in connection with borrowings are expensed as incurred, other than capitalised in accordance with the accounting policy state in note 2.16. The interest component of finance lease payments is accounted for in accordance with the policy set out in note 2.5.
2.19 Deferred income
Deferred income is recognised in the profit or loss on a time proportion basis over the agreed contract period or applicable period.
2.20 Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares.
Basic EPS is calculated by dividing the profit and loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period.
Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding during the period, for the effects of all dilutive potential ordinary shares, if any.
2.21 Operating segments
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components, and for which discrete financial information is available. All operating segment’s operating results are reviewed regularly by the chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance.
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ANNUAL REPORT 2016
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.22 Fair value measurements
Fair value of an asset or a liability, except for lease transactions, is determined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The measurement assumes that the transaction to sell the asset or transfer the liability takes place either in the principal market or in the absence of a principal market, in the most advantageous market.
Financial instruments
The fair value of financial instruments that are actively traded in organised financial markets are determined by reference to quoted market bid prices at the close of business at reporting date. For financial instruments where there is no active market, fair value is determined using valuation techniques. Such techniques may include using recent arm’s length market transactions; reference to the current fair value of another instrument that is substantially the same; discounted cash flow analysis or other valuation models.
Non-financial assets
For non-financial asset, the fair value measurement takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
When measuring the fair value of an asset or a liability, the Group/Company uses observable market data as far as possible. Fair value are categorised into different levels in a fair value hierarchy based on the input used in the valuation technique as follows:
• Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.• Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices).• Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable input).
The fair value of an asset to be transferred between levels is determined as of the date of the event or change in circumstances that caused the transfer.
PAGE: 54
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
3. PROPERTY, PLANT AND EQUIPMENT
Group At 1.1.2016 AdditionsDisposals/ write-offs
31.12.2016 RM’000 RM’000 RM’000
At cost
Freehold land 4,504 – –
Leasehold land 539,602 1,785 –
Buildings 342,123 – (43)
Plant and pipelines 19,357,895 89,619 (64,400)
Office equipment, furniture and fittings 39,993 385 (1,550)
Other plant and equipment 285,089 2,305 (641)
Computer hardware and software 99,657 48 (3,217)
Motor vehicles 28,664 2,555 (2,592)
Plant turnaround/major inspection 541,757 50,014 (139,142)
Projects-in-progress 1,585,944 2,209,411 –
22,825,228 2,356,122 (211,585)
Group At 1.1.2016Charge for
the yearDisposals/ write-offs
31.12.2016 RM’000 RM’000 RM’000
Accumulated depreciation & impairment losses:
Freehold land – – –
Leasehold land 123,544 6,865 –
Buildings 123,711 7,224 (8)
Plant and pipelines 10,678,904 693,285 (64,278)
Office equipment, furniture and fittings 29,830 2,652 (1,550)
Other plant and equipment 93,729 11,253 (638)
Computer hardware and software 81,047 8,107 (3,215)
Motor vehicles 23,451 2,660 (2,592)
Plant turnaround/major inspection 347,164 145,038 (139,141)
Projects-in-progress – – –
11,501,380 877,084 (211,422)
continue to next page.
PAGE: 55
ANNUAL REPORT 2016
3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
GroupTransfers/
adjustment
Translationexchange
difference At 31.12.2016
31.12.2016 RM’000 RM’000 RM’000
At cost
Freehold land – – 4,504
Leasehold land – – 541,387
Buildings 11,502 – 353,582
Plant and pipelines 57,032 – 19,440,146
Office equipment, furniture and fittings 925 – 39,753
Other plant and equipment 127,342 – 414,095
Computer hardware and software 7,593 – 104,081
Motor vehicles 129 – 28,756
Plant turnaround/major inspection 448,968 – 901,597
Projects-in-progress (680,326) 31,636 3,146,665
(26,835)* 31,636 24,974,566
GroupTransfers/
adjustment
Translationexchange
difference At 31.12.2016
31.12.2016 RM’000 RM’000 RM’000
Accumulated depreciation & impairment losses:
Freehold land – – –
Leasehold land – – 130,409
Buildings – – 130,927
Plant and pipelines (3,554) – 11,304,357
Office equipment, furniture and fittings (5) – 30,927
Other plant and equipment – – 104,344
Computer hardware and software – – 85,939
Motor vehicles – – 23,519
Plant turnaround/major inspection 3,559 – 356,620
Projects-in-progress – – –
– – 12,167,042
continued from previous page.
* Relates to transfer to inventory and project costs recovered from customers and joint venture amounting to RM10,469,000 and RM16,366,000 respectively.
PAGE: 56
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Group At 1.1.2015 AdditionsDisposals/ write-offs
31.12.2015 RM’000 RM’000 RM’000
At cost
Freehold land 4,504 – –
Leasehold land 538,876 726 –
Buildings 264,561 – (74)
Plant and pipelines 18,453,586 1,246 (184,602)
Office equipment, furniture and fittings 36,318 282 (549)
Other plant and equipment 243,561 11,047 (11,199)
Computer hardware and software 92,908 821 (120)
Motor vehicles 28,915 2,199 (2,460)
Plant turnaround/major inspection 532,160 – (43,407)
Projects-in-progress 1,627,856 1,206,072 –
21,823,245 1,222,393 (242,411)
Group At 1.1.2015Charge for
the yearDisposals/ write-offs
31.12.2015 RM’000 RM’000 RM’000
Accumulated depreciation & impairment losses:
Freehold land – – –
Leasehold land 116,683 6,855 –
Buildings 93,635 30,148 (74)
Plant and pipelines 10,223,024 643,076 (182,547)
Office equipment, furniture and fittings 27,377 2,745 (549)
Other plant and equipment 93,859 5,833 (11,065)
Computer hardware and software 74,427 6,736 (120)
Motor vehicles 23,178 2,722 (2,460)
Plant turnaround/major inspection 312,601 78,703 (43,407)
Projects-in-progress – – –
10,964,784 776,818 (240,222)
continue to next page.
PAGE: 57
ANNUAL REPORT 2016
3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
GroupTransfers/
adjustment
Translationexchange
difference At 31.12.2015
31.12.2015 RM’000 RM’000 RM’000
At cost
Freehold land – – 4,504
Leasehold land – – 539,602
Buildings 77,636 – 342,123
Plant and pipelines 1,087,665 – 19,357,895
Office equipment, furniture and fittings 3,942 – 39,993
Other plant and equipment 41,680 – 285,089
Computer hardware and software 6,048 – 99,657
Motor vehicles 10 – 28,664
Plant turnaround/major inspection 53,004 – 541,757
Projects-in-progress (1,327,687) 79,703 1,585,944
(57,702)* 79,703 22,825,228
GroupTransfers/
adjustment
Translationexchange
difference At 31.12.2015
31.12.2015 RM’000 RM’000 RM’000
Accumulated depreciation & impairment losses:
Freehold land – – –
Leasehold land 6 – 123,544
Buildings 2 – 123,711
Plant and pipelines (4,649) – 10,678,904
Office equipment, furniture and fittings 257 – 29,830
Other plant and equipment 5,102 – 93,729
Computer hardware and software 4 – 81,047
Motor vehicles 11 – 23,451
Plant turnaround/major inspection (733) – 347,164
Projects-in-progress – – –
– – 11,501,380
continued from previous page.
* Relates to adjustments upon finalisation of cost previously accrued and reimbursement of project cost amounting to RM18,631,000 and RM39,071,000 respectively.
PAGE: 58
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Company At 1.1.2016 AdditionsDisposals/ write-offs
Transfers/ adjustment At 31.12.2016
31.12.2016 RM’000 RM’000 RM’000 RM’000 RM’000
At cost
Freehold land 4,504 – – – 4,504
Leasehold land 539,602 1,785 – – 541,387
Buildings 326,334 – (43) 11,504 337,795
Plant and pipelines 16,001,601 1,747 (64,400) 57,774 15,996,722
Office equipment, furniture and fittings 30,787 336 (1,550) 925 30,498
Other plant and equipment 254,548 2,305 (641) 121,989 378,201
Computer hardware and software 98,802 27 (3,217) 5,755 101,367
Motor vehicles 28,575 2,554 (2,593) 129 28,665
Plant turnaround/major inspection 524,270 155 (139,141) 448,968 834,252
Projects-in-progress 816,771 763,156 – (673,879) 906,048
18,625,794 772,065 (211,585) (26,835)* 19,159,439
Company At 1.1.2016Charge for
the yearDisposals/ write-offs
Transfers/ adjustment At 31.12.2016
31.12.2016 RM’000 RM’000 RM’000 RM’000 RM’000
Accumulated depreciation & impairment losses:
Freehold land – – – – –
Leasehold land 123,544 6,865 – – 130,409
Buildings 123,500 6,804 (8) – 130,296
Plant and pipelines 10,221,612 513,488 (64,278) (3,554) 10,667,268
Office equipment, furniture and fittings 26,405 1,259 (1,550) – 26,114
Other plant and equipment 88,340 8,801 (638) (5) 96,498
Computer hardware and software 81,004 7,625 (3,215) – 85,414
Motor vehicles 23,426 2,638 (2,592) – 23,472
Plant turnaround/major inspection 329,677 141,029 (139,141) 3,559 335,124
Projects-in-progress – – – – –
11,017,508 688,509 (211,422) – 11,494,595
* Relates to transfer to inventory and project costs recovered from customers and joint venture amounting to RM10,469,000 and RM16,366,000 respectively.
PAGE: 59
ANNUAL REPORT 2016
3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Company At 1.1.2015 AdditionsDisposals/ write-offs
Transfers/ adjustment At 31.12.2015
31.12.2015 RM’000 RM’000 RM’000 RM’000 RM’000
At cost
Freehold land 4,504 – – – 4,504
Leasehold land 538,876 726 – – 539,602
Buildings 264,561 – (74) 61,847 326,334
Plant and pipelines 15,057,418 1,223 (184,602) 1,127,562 16,001,601
Office equipment, furniture and fittings 27,590 264 (549) 3,482 30,787
Other plant and equipment 245,136 10,957 (11,199) 9,654 254,548
Computer hardware and software 92,876 803 (120) 5,243 98,802
Motor vehicles 28,823 2,199 (2,460) 13 28,575
Plant turnaround/major inspection 514,665 – (43,407) 53,012 524,270
Projects-in-progress 1,437,203 640,530 – (1,260,962) 816,771
18,211,652 656,702 (242,411) (149)* 18,625,794
Company At 1.1.2015Charge for
the yearDisposals/ write-offs
Transfers/ adjustment At 31.12.2015
31.12.2015 RM’000 RM’000 RM’000 RM’000 RM’000
Accumulated depreciation & impairment losses:
Freehold land – – – – –
Leasehold land 116,683 6,855 – 6 123,544
Buildings 93,635 29,938 (74) 1 123,500
Plant and pipelines 9,940,442 466,865 (182,547) (3,148) 10,221,612
Office equipment, furniture and fittings 25,303 1,389 (549) 262 26,405
Other plant and equipment 91,441 4,366 (11,065) 3,598 88,340
Computer hardware and software 74,425 6,695 (120) 4 81,004
Motor vehicles 23,176 2,700 (2,460) 10 23,426
Plant turnaround/major inspection 309,102 64,715 (43,407) (733) 329,677
Projects-in-progress – – – – –
10,674,207 583,523 (240,222) – 11,017,508
* Relates to adjustments upon finalisation of cost previously accrued amounting to RM149,000.
PAGE: 60
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Group Company
Carrying amount Carrying amount
2016 2015 2016 2015
RM’000 RM’000 RM’000 RM’000
Freehold land 4,504 4,504 4,504 4,504
Leasehold land 410,978 416,058 410,978 416,058
Buildings 222,655 218,412 207,499 202,834
Plant and pipelines 8,135,789 8,678,991 5,329,454 5,779,989
Office equipment, furniture and fittings 8,826 10,163 4,384 4,382
Other plant and equipment 309,751 191,360 281,703 166,208
Computer hardware and software 18,142 18,610 15,953 17,798
Motor vehicles 5,237 5,213 5,193 5,149
Plant turnaround/major inspection 544,977 194,593 499,128 194,593
Projects-in-progress 3,146,665 1,585,944 906,048 816,771
12,807,524 11,323,848 7,664,844 7,608,286
Included in additions to project-in-progress of the Group is finance cost capitalised during the year of RM12,642,000 (2015: RM Nil) at effective interest rate of 1.2%.
Restrictions of land title
The titles of certain land are in the process of being registered in the Company’s name.
Leased floating storage unit
The Group leases certain plant and pipelines under a finance lease agreement with a net book value of RM810,036,000 (2015: RM768,670,000). During the year, there was addition amounting to RM87,861,000 (2015: RM Nil) to the leased floating storage unit amount.
Leasehold land
Included in the carrying amounts of leasehold land are:
Group Company
2016 2015 2016 2015
RM’000 RM’000 RM’000 RM’000
Leasehold land with unexpired lease period of more than 50 years 130,288 288,977 130,288 288,977
Leasehold land with unexpired lease period of less than 50 years 280,690 127,081 280,690 127,081
410,978 416,058 410,978 416,058
PAGE: 61
ANNUAL REPORT 2016
4. PREPAID LEASE PAYMENT
Group At 1.1.2016 Additions
Translation exchange difference At 31.12.2016
31.12.2016 RM’000 RM’000 RM’000 RM’000
At cost
Leasehold land
– long lease 4,547 – 202 4,749
Group At 1.1.2016Charge for
the year
Translation exchange
difference At 31.12.2016
31.12.2016 RM’000 RM’000 RM’000 RM’000
Accumulated amortisation
Leasehold land
– long lease 29 68 7 104
Group At 1.1.2015 Additions
Translation exchange
difference At 31.12.2015
31.12.2015 RM’000 RM’000 RM’000 RM’000
At cost
Leasehold land
– long lease – 4,133 414 4,547
Group At 1.1.2015Charge for
the year
Translation exchange
difference At 31.12.2015
31.12.2015 RM’000 RM’000 RM’000 RM’000
Accumulated amortisation
Leasehold land
– long lease – 26 3 29
Carrying amount
2016 2015
Group RM’000 RM’000
Leasehold land
– long lease 4,645 4,518
PAGE: 62
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
5. INVESTMENT IN SUBSIDIARIES
Company
2016 2015
RM’000 RM’000
Investment at cost:
– unquoted shares
At beginning of the year 2,776,901 2,514,767
Additional investment during the year 78,839 262,134
At end of the year 2,855,740 2,776,901
Details of the subsidiaries are as follows:
Name of entity Principal activitiesCountry of
incorporationEffective ownership and
voting interest
2016 2015
% %
Pengerang LNG (Two) Sdn. Bhd. Intended to manage and operate LNG regasification terminal
Malaysia 65 65
Regas Terminal (Sg. Udang) Sdn. Bhd.
Manage and operate LNG regasification terminal
Malaysia 100 100
Regas Terminal (Pengerang) Sdn. Bhd.
Dormant Malaysia 100 100
Regas Terminal (Lahad Datu) Sdn. Bhd.
Dormant Malaysia 100 99
6. INVESTMENT IN ASSOCIATE
Group Company
2016 2015 2016 2015
RM’000 RM’000 RM’000 RM’000
Investment at cost:
– quoted shares in Malaysia 76,466 76,466 76,466 76,466
Share of post-acquisition profits and reserves 53,696 51,597 – –
130,162 128,063 76,466 76,466
Market value of quoted shares 469,325 456,024 469,325 456,024
PAGE: 63
ANNUAL REPORT 2016
6. INVESTMENT IN ASSOCIATE (CONTINUED)
Details of the associate are as follows:
Name of entity Principal activitiesCountry of
incorporationEffective ownership and
voting interest
2016 2015
% %
Gas Malaysia Berhad Selling, marketing, distribution and promotion of natural gas
Malaysia 14.8 14.8
Although the Group has less than 20% of the ownership in the equity interest of Gas Malaysia Berhad, the Group has determined that it has significant influence over the financial and operating policy of the associate through representation on the associate’s board of directors.
2016 2015
RM’000 RM’000
Group’s share of results
Share of total comprehensive income for the year 18,763 17,693
Other information
Dividends received 16,664 21,965
7. INVESTMENT IN JOINT VENTURES
Group Company
2016 2015 2016 2015
RM’000 RM’000 RM’000 RM’000
Investment at cost:
– unquoted shares 212,843 192,250 212,843 192,250
Share of post-acquisition profits and reserves 393,147 355,397 – –
605,990 547,647 212,843 192,250
The Group’s involvement in joint arrangements are structured through separate vehicles which provide the Group rights to the net assets of these entities. Accordingly, the Group has classified these investments as joint ventures.
PAGE: 64
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
7. INVESTMENT IN JOINT VENTURES (CONTINUED)
2016 2015
RM’000 RM’000
Group’s summarised financial information
As at 31 December
Non-current assets 1,981,721 1,882,842
Current assets 315,481 347,668
Non-current liabilities (1,015,201) (1,020,364)
Current liabilities (272,321) (297,167)
Net assets 1,009,680 912,979
Included in the net assets are:
Cash and cash equivalents 194,988 231,719
Non-current liabilities (excluding other payables and provisions) (1,015,201) (1,020,364)
Current liabilities (excluding trade and other payables and provisions) (131,228) (99,790)
Group’s share of net assets 605,990 547,647
2016 2015
RM’000 RM’000
Year ended 31 December
Profit for the year 75,335 99,140
Other comprehensive income 13,145 48,233
Total comprehensive income for the year 88,480 147,373
Included in the total comprehensive income are:
Revenue 249,724 252,774
Depreciation and amortisation (895) (367)
Interest income 88,834 90,508
Interest expense (55,355) (58,725)
Tax (expenses)/income (2,515) (5,725)
RM’000 RM’000
Group’s share of results
Share of profit from continuing operations 44,863 57,509
Share of other comprehensive income 7,887 28,939
Share of total comprehensive income 52,750 86,448
Other information
Dividends received 15,000 7,200
PAGE: 65
ANNUAL REPORT 2016
7. INVESTMENT IN JOINT VENTURES (CONTINUED)
Group’s share of the net assets and results is significantly contributed by Kimanis Power Sdn. Bhd. Details of the joint ventures are as follows:
Name of entity Principal activitiesCountry of
incorporationEffective ownership and
voting interest
2016 2015
% %
Kimanis Power Sdn. Bhd.* Generation and sale of electricity Malaysia 60 60
Kimanis O&M Sdn. Bhd.* Provision of operation and maintenance services
Malaysia 60 60
Pengerang Gas Solutions Sdn. Bhd.* Construction, ownership and operations of an air separation plant
Malaysia 51 –
Industrial Gases Solutions Sdn. Bhd. Selling, marketing, distribution and promotion of industrial gas
Malaysia 50 50
* Although the Group has more than 50% of the ownership in the equity interest of these entities, the Group has determined that it does not have sole control over these entities considering that strategic and financial decisions of the relevant activities of these entities require unanimous consent by all shareholders.
8. DEFERRED TAX
The components and movements of deferred tax liabilities and assets during the year prior to and after offsetting are as follows:
Group At 1.1.2016
Charged/(credited) to profit
or loss At 31.12.2016
31.12.2016 RM’000 RM’000 RM’000
Deferred tax liabilities
Property, plant and equipment 1,218,480 120,800 1,339,280
Deferred tax assets
Deferred income 16,911 (18,556) (1,645)
Unutilised investment tax allowance (769,157) 154,512 (614,645)
(752,246) 135,956 (616,290)
Net deferred tax 466,234 256,756 722,990
PAGE: 66
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
8. DEFERRED TAX (CONTINUED)
Group At 1.1.2015
Charged/(credited) to profit
or loss At 31.12.2015
31.12.2015 RM’000 RM’000 RM’000
Deferred tax liabilities
Property, plant and equipment 1,110,201 108,279 1,218,480
Deferred tax assets
Deferred income 16,684 227 16,911
Unutilised investment tax allowance (604,998) (164,159) (769,157)
(588,314) (163,932) (752,246)
Net deferred tax 521,887 (55,653) 466,234
Company At 1.1.2016
Charged/(credited) to profit
or loss At 31.12.2016
31.12.2016 RM’000 RM’000 RM’000
Deferred tax liabilities
Property, plant and equipment 1,060,149 72,528 1,132,677
Deferred tax assets
Deferred income 16,911 (18,556) (1,645)
Unutilised investment tax allowance (154,466) 154,466 –
(137,555) 135,910 (1,645)
Net deferred tax 922,594 208,438 1,131,032
Company At 1.1.2015
Charged/(credited) to profit
or loss At 31.12.2015
31.12.2015 RM’000 RM’000 RM’000
Deferred tax liabilities
Property, plant and equipment 1,016,637 43,512 1,060,149
Deferred tax assets
Deferred income 16,684 227 16,911
Unutilised investment tax allowance – (154,466) (154,466)
16,684 (154,239) (137,555)
Net deferred tax 1,033,321 (110,727) 922,594
PAGE: 67
ANNUAL REPORT 2016
8. DEFERRED TAX (CONTINUED)
Deferred tax liabilities and assets are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same tax authority. The amounts determined after appropriate offsetting are as follows:
Group Company
2016 2015 2016 2015
RM’000 RM’000 RM’000 RM’000
Deferred tax assets
Deferred tax liabilities 206,603 158,331 – –
Deferred tax assets (614,645) (614,691) – –
(408,042) (456,360) – –
Deferred tax liabilities
Deferred tax liabilities 1,132,677 1,060,149 1,132,677 1,060,149
Deferred tax assets (1,645) (137,555) (1,645) (137,555)
1,131,032 922,594 1,131,032 922,594
Net deferred tax 722,990 466,234 1,131,032 922,594
9. DERIVATIVE
Group Group
Nominalvalue
Carrying amount
Nominalvalue
Carrying amount
2016 2016 2015 2015
Note RM'000 RM'000 RM'000 RM'000
Derivative assets held for trading at fair value through profit or loss
Forward foreign exchange 9,298 15 18,200 112
Derivative liabilities held for trading at fair value through profit or loss
Forward foreign exchange – – (121,131) (998)
Included within:
Trade and other receivables 12 – 15 – 112
Trade and other payables 19 – – – (998)
PAGE: 68
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
9. DERIVATIVE (CONTINUED)
Company Company
Nominalvalue
Carrying amount
Nominalvalue
Carrying amount
2016 2016 2015 2015
Note RM'000 RM'000 RM'000 RM'000
Derivative assets held for trading at fair value through profit or loss
Forward foreign exchange 12 7,261 12 – –
In the normal course of business, the Company enters into derivative financial instruments to manage the Company’s normal business exposures in relation to foreign currency exchange rates consistent with its risk management policies and objectives.
The forward foreign exchange contract has maturity of less than one year after the end of the reporting period.
10. LONG TERM RECEIVABLES
Group Company
2016 2015 2016 2015
Note RM'000 RM'000 RM'000 RM'000
USD term loans and advances:
Due from subsidiary 10.1 – – 746,737 –
Due from joint venture 10.2 47,905 – 47,905 –
47,905 – 794,642 –
10.1 Term loans and advances due from subsidiary is unsecured, bears interest at a rate of 6.5% per annum and repayable in tranches at their various due dates from 2018 to 2028.
10.2 Term loans and advances due from joint venture is unsecured, bears interest at a rate of 5.5% per annum and repayable in tranches at their various due dates from 2021 to 2025.
PAGE: 69
ANNUAL REPORT 2016
11. TRADE AND OTHER INVENTORIES
Group Company
2016 2015 2016 2015
RM'000 RM'000 RM'000 RM'000
Liquefied gases and water 4,335 2,144 4,335 2,144
Maintenance materials and spares 64,133 44,223 61,805 42,053
68,468 46,367 66,140 44,197
Recognised in profit or loss:
Inventories recognised as cost of sales 46,189 30,660 44,213 30,265
12. TRADE AND OTHER RECEIVABLES
Group Company
2016 2015 2016 2015
Note RM'000 RM'000 RM'000 RM'000
Current
Trade receivables 14,430 13,933 14,430 13,933
Other receivables 12.1 107,539 28,733 25,089 14,311
Deposits 1,092 1,001 1,076 1,001
Prepayments 16,443 22,045 2,189 252
Derivative assets 9 15 112 12 –
Amount due from:
Holding company 12.2 323,419 350,708 262,755 287,456
Subsidiaries – – – 8,710
Related companies 12.3 209,374 198,390 209,370 198,389
Joint ventures 12.4 695 16,726 695 16,726
Related parties 12.5 38,907 12,741 38,907 12,741
711,914 644,389 554,523 553,519
12.1 Included in other receivables for the year are goods and service tax (GST) receivables amounting to RM82,450,000 (2015: RM14,023,000) for the Group.
PAGE: 70
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
12. TRADE AND OTHER RECEIVABLES (CONTINUED)
12.2 The amount due from holding company relates to:
Group Company
2016 2015 2016 2015
RM'000 RM'000 RM'000 RM'000
Trade 301,903 306,136 245,756 250,658
Non-trade 21,516 44,572 16,999 36,798
323,419 350,708 262,755 287,456
Included in amount due from holding company for the year are goods and service tax (GST) receivables amounting to RM21,320,000 (2015: RM34,169,000) for the Group and RM16,817,000 (2015: RM26,459,000) for the Company.
12.3 The amount due from related companies arose in the normal course of business relates to:
Group Company
2016 2015 2016 2015
RM'000 RM'000 RM'000 RM'000
Trade 136,705 83,268 136,705 83,268
Non-trade 72,669 115,122 72,665 115,121
209,374 198,390 209,370 198,389
12.4 The amount due from joint ventures arose in the normal course of business relates to:
2016 2015
Group/Company RM'000 RM'000
Trade 656 1,786
Non-trade 39 14,940
695 16,726
12.5 The amount due from related parties are trade in nature and is in relation to associates and joint ventures of the holding company.
PAGE: 71
ANNUAL REPORT 2016
13. CASH AND CASH EQUIVALENTS
Group Company
2016 2015 2016 2015
RM'000 RM'000 RM'000 RM'000
Cash with PETRONAS Integrated Financial Shared Services Centre 1,716,979 1,217,024 1,560,525 1,103,983
Cash and bank balances 46,138 13,791 46,138 12,558
1,763,117 1,230,815 1,606,663 1,116,541
The Group’s and the Company’s cash and bank balances are held in the In-House Account (IHA) managed by PETRONAS Integrated Financial Shared Service Centre (IFSSC) to enable more efficient cash management for the Group and the Company.
Included in cash with IFSSC and cash and bank balances are interest-bearing balances (including fund investments) amounting to RM1,762,975,000 (2015: RM1,229,442,000) for the Group and RM1,606,521,000 (2015: RM1,116,399,000) for the Company.
14. SHARE CAPITAL
Company
2016 2015
RM’000 RM’000
Authorised:
2,000,000,000 ordinary shares of RM1 each 2,000,000 2,000,000
Issued and fully paid:
1,978,732,000 ordinary shares of RM1 each 1,978,732 1,978,732
15. RESERVES
Share Premium
Share premium comprises the premium paid on subscription of shares in the Company over and above the par value of the shares.
Hedging Reserve
This reserve records the portion of the gain or loss on hedging instruments in a cash flow hedge that is determined to be an effective hedge in accordance with accounting policy stated in note 2.8(iii).
Foreign Currency Translation Reserve
The foreign currency translation reserve comprises all foreign currency differences arising from the translation of the financial statements of subsidiaries whose functional currency are different from that of the Company’s functional currency as well as foreign currency differences arising from the translation of monetary items that are considered to form part of a net investment in a foreign operation.
PAGE: 72
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
16. NON-CONTROLLING INTERESTS
This consists of the non-controlling interests’ proportion of share capital and reserves of partly-owned subsidiaries.
17. BORROWINGS
Group Company
2016 2015 2016 2015
Note RM'000 RM'000 RM'000 RM'000
Non-current
Secured
Finance lease liabilities 17.1 1,134,012 1,029,596 – –
Unsecured
Term loan 17.2 795,602 – 795,602 –
Loan from corporate shareholder of a subsidiary 17.3 287,255 – – –
Total non-current unsecured borrowings 1,082,857 – 795,602 –
Total non-current borrowings 2,216,869 1,029,596 795,602 –
Current
Secured
Finance lease liabilities 17.1 32,568 28,664 – –
Total borrowings 2,249,437 1,058,260 795,602 –
Terms and debt repayment schedule:
Under 1 1–2 2–5 Over 5
year years years years
Total RM'000 RM'000 RM'000 RM'000
Group
Secured
Finance lease liabilities 1,166,580 32,568 38,719 140,061 955,232
Unsecured
Term loan 795,602 – – 795,602 –
Loan from corporate shareholder of a subsidiary 287,255 – – 287,255 –
1,082,857 – – 1,082,857 –
2,249,437 32,568 38,719 1,222,918 955,232
Company
Unsecured
Term loan 795,602 – – 795,602 –
PAGE: 73
ANNUAL REPORT 2016
17. BORROWINGS (CONTINUED)
17.1 The finance lease liabilities are in relation to charter hire of floating storage units from a related company and are payable as follows:
2016 2015
Minimumlease
payments Interest Principal
Minimumlease
payments Interest Principal
Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Less than one year 129,288 96,720 32,568 124,132 95,468 28,664
Between 1 – 2 years 140,269 101,550 38,719 123,793 92,765 31,028
Between 2 – 5 years 421,189 281,128 140,061 371,718 259,387 112,331
More than 5 years 1,494,912 539,680 955,232 1,443,121 556,884 886,237
2,185,658 1,019,078 1,166,580 2,062,764 1,004,504 1,058,260
17.2 The unsecured term loans bears interest at rates ranging from 1.2% to 2.0% per annum and are due for full repayment in 2021.
17.3 Loan from corporate shareholder of a subsidiary bears interest at a rate of 6.5% per annum and are repayable in tranches at their various due dates from 2018 to 2028.
18. DEFERRED INCOME
2016 2015
Group/Company Note RM’000 RM’000
At beginning of the year 7,839 12,877
Addition 1,507 1,268
Less: recognised in the profit or loss (2,494) (6,306)
At end of the year 6,852 7,839
Analysis of deferred income:
Current 19 945 987
Non-current 5,907 6,852
6,852 7,839
Deferred income mainly relates to the payments received in advance or the right to receive payments from third party amounting to RM Nil (2015: RM41,000) and a related party amounting to RM6,852,000 (2015: RM7,798,000) for the rights given to these parties to use the Company’s properties over a period of time or early termination of supply contract with the Company. The deferred income is subsequently recognised in the profit or loss on a time apportionment basis over the specified period.
PAGE: 74
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
19. TRADE AND OTHER PAYABLES
Group Company
2016 2015 2016 2015
Note RM’000 RM’000 RM’000 RM’000
Other payables and accruals 19.1 822,805 627,692 328,037 402,656
Derivative liabilities 9 – 998 – –
Amount due to:
Holding company 19.2 101,516 69,590 83,407 68,785
Related companies 19.2 80,741 97,272 10,088 78,368
Deferred income 18 945 987 945 987
1,006,007 796,539 422,477 550,796
19.1 Included in other payables and accruals are amounts owing to suppliers and contractors for purchase of property, plant and equipment for the Group of RM553,853,000 (2015: RM279,178,000) and for the Company of RM113,199,000 (2015: RM72,089,000). Also included in other payables is interest payable of RM Nil (2015: RM7,918,000) for the Group.
19.2 The amount due to holding company and related companies are non-trade in nature and arose in the normal course of business.
20. REVENUE AND GROSS PROFIT
Group Company
2016 2015 2016 2015
RM’000 RM’000 RM’000 RM’000
Revenue
– gas processing fees 1,557,175 1,533,622 1,557,175 1,533,622
– gas transportation fees 1,303,877 1,311,611 1,303,877 1,311,611
– sale of industrial utilities 1,069,071 973,584 1,069,071 973,584
– regasification fees 631,157 637,138 – –
Total 4,561,280 4,455,955 3,930,123 3,818,817
Cost of revenue
– cost of gas processing (908,803) (836,669) (908,803) (836,669)
– cost of gas transportation (328,574) (302,465) (328,574) (302,465)
– cost of industrial utilities (913,177) (837,809) (913,177) (837,809)
– cost of regasification (344,870) (339,583) – –
Total (2,495,424) (2,316,526) (2,150,554) (1,976,943)
Gross profit 2,065,856 2,139,429 1,779,569 1,841,874
PAGE: 75
ANNUAL REPORT 2016
21. OPERATING PROFIT
Group Company
2016 2015 2016 2015
RM’000 RM’000 RM’000 RM’000
Included in operating profit are the following charges:
Audit fees 439 395 275 262
Depreciation of property, plant and equipment 877,084 776,818 688,509 583,523
Loss on unrealised foreign exchange 7,766 203,123 6,750 71
Impairment of receivables 353 – 353 –
Property, plant and equipment
– expensed off 365 2,428 365 1,828
– written off 74 2,087 74 2,087
Rental of
– equipment and motor vehicles 15,942 16,644 8,936 9,395
– land and buildings 10,924 10,457 8,338 9,295
Staff costs
– wages, salaries and others 281,798 283,240 273,063 273,416
– contributions to Employees Provident Fund 42,714 43,702 41,458 42,425
and crediting:
Dividend income in Malaysia from
– subsidiary (unquoted) – – 210,053 355,052
– associate (quoted) – – 16,664 21,965
– joint venture (unquoted) – – 15,000 7,200
Gain on realised foreign exchange 12,925 10,931 11,039 1,319
Gain on disposal of property, plant and equipment 389 266 389 266
Interest income from fund investments 54,227 31,755 69,699 26,390
Reimbursement of project cost – 17,165 – –
Rental income on land and buildings 4,673 4,646 5,133 5,108
22. FINANCING COSTS
Group Company
2016 2015 2016 2015
RM’000 RM’000 RM’000 RM’000
Interest expense recognised in profit or loss
– Finance lease liabilities 93,943 90,055 – –
– Term loan – – 5,139 –
93,943 90,055 5,139 –
PAGE: 76
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
23. TAX EXPENSE/(INCOME)
Group Company
2016 2015 2016 2015
RM’000 RM’000 RM’000 RM’000
Current tax expense
– current year 156,312 113,020 156,312 113,020
– over provision in prior year (42,600) (41,127) (42,600) (41,127)
Total current tax expense 113,712 71,893 113,712 71,893
Total deferred tax expenses/(income) 256,756 (55,653) 208,438 (110,727)
Total tax expenses/(income) recognised in profit or loss
370,468 16,240 322,151 (38,834)
Tax expense on share of profit of associate 4,203 4,846 – –
Tax expenses on share of profit of joint ventures 1,304 3,340 – –
Total tax expenses/(income) 375,975 24,426 322,151 (38,834)
A reconciliation of income tax expense applicable to profit before taxation at the statutory income tax rate to total tax expense at the effective income tax rate of the Group and of the Company is as follows:
Group Company
2016 2015 2016 2015
RM’000 RM’000 RM’000 RM’000
Profit for the year 1,736,301 1,985,870 1,784,854 2,321,548
Total tax expenses/(income) 375,975 24,426 322,151 (38,834)
Profit excluding tax 2,112,276 2,010,296 2,107,005 2,282,714
Taxation at Malaysian statutory tax rate of 24% (2015: 25%) 506,946 502,574 505,681 570,679
Non-deductible expenses 14,597 63,860 7,874 1,660
Effect of unabsorbed capital allowance and unutilised tax losses recognised (9,477) (21,012) – –
Income not subject to tax (1,918) (910) – –
Tax exempt income (12,862) (6,297) (70,093) (101,010)
Tax incentives (78,711) (462,933) (78,711) (469,036)
418,575 75,282 364,751 2,293
Over provision in prior year (42,600) (50,856) (42,600) (41,127)
Total tax expenses/(income) 375,975 24,426 322,151 (38,834)
PAGE: 77
ANNUAL REPORT 2016
24. DIVIDENDS
Company
2016 2015
RM’000 RM’000
Ordinary
Interim paid:
2014 – Third interim dividend of 15 sen per ordinary share – 296,810
2015 – First interim dividend of 14 sen per ordinary share – 277,022
2015 – Second interim dividend of 14 sen per ordinary share – 277,022
2015 – Third interim dividend of 15 sen per ordinary share – 296,810
2015 – Fourth interim dividend of 17 sen per ordinary share 336,384 –
2016 – First interim dividend of 14 sen per ordinary share 277,022 –
2016 – Second interim dividend of 14 sen per ordinary share 277,022 –
2016 – Third interim dividend of 15 sen per ordinary share 296,810 –
1,187,238 1,147,664
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 2016.
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 2017.
The net dividend per ordinary share for the respective financial year ended 31 December takes into account the total interim dividends declared for the financial year as follows:
Company
2016Sen
2015Sen
First interim dividend per ordinary share declared and paid – net 14 14
Second interim dividend per ordinary share declared and paid – net 14 14
Third interim dividend per ordinary share declared and paid – net 15 15
Fourth interim dividend per ordinary share declared but not paid – net 19 17
62 60
PAGE: 78
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
25. EARNINGS PER SHARE
Basic earnings per share
The calculation of basic earnings per ordinary share (EPS) at 31 December 2016 was based on the Group’s net profit attributable to shareholders of the Company of RM1,739,052,000 (2015: RM1,987,452,000), over the number of ordinary shares outstanding during the year of 1,978,732,000 (2015: 1,978,732,000).
Diluted earnings per share
The Company has not issued any dilutive potential ordinary shares, hence, the diluted EPS is the same as the basic EPS.
26. ACQUISITION OF NON-CONTROLLING INTEREST IN A SUBSIDIARY AND FORMATION OF A JOINT VENTURE
Acquisition of non-controlling interest in Regas Terminal (Lahad Datu) Sdn. Bhd. (RGTLD)
On 10 February 2016, the Company had acquired the remaining 1% equity interest in its subsidiary, Regas Terminal (Lahad Datu) Sdn. Bhd. from a non-controlling party, Sabah Energy Corporation Sdn. Bhd. (SEC) for a purchase consideration of RM1,000 upon termination of the Shareholders Agreement signed between SEC and PETRONAS Gas Berhad. Accordingly, the Group increased its ownership in RGTLD from 99% to 100%. The impact of the above acquisition is not material in relation to the consolidated net profit for the year.
Formation of Pengerang Gas Solutions Sdn. Bhd. (PGSSB)
On 12 August 2016, the Company had entered into a Shareholders Agreement (SHA) with Linde Malaysia Sdn. Bhd. (Linde) for the formation of a joint venture company to undertake the development of an Air Separation Unit Plant (ASU) to be located in Pengerang, Johor.
Pursuant to the terms of the SHA, the Company had on 15 August 2016, acquired 51 ordinary shares of RM1 each representing 51% of the issued and paid-up capital of Pengerang Gas Solutions Sdn. Bhd. (PGSSB) for a consideration of RM51. The other 49% equity interest in PGSSB is owned by Linde.
The Group has classified PGSSB as a joint venture considering that strategic and financial decisions of PGSSB requires unanimous consent from both shareholders.
PAGE: 79
ANNUAL REPORT 2016
27. CAPITAL COMMITMENTS
Outstanding commitments in respect of capital expenditure at the end of the financial year not provided for in the financial statements are:
Group Company
2016 2015 2016 2015
RM’000 RM’000 RM’000 RM’000
Property, plant and equipment
Approved and contracted for
Less than one year 1,162,510 1,237,301 74,268 164,153
Between one and five years 304,787 1,791,391 172,232 327,278
1,467,297 3,028,692 246,500 491,431
Approved but not contracted for
Less than one year 567,372 847,472 462,545 529,605
Between one and five years 1,974,809 966,432 1,929,964 768,915
2,542,181 1,813,904 2,392,509 1,298,520
4,009,478 4,842,596 2,639,009 1,789,951
Share of capital expenditure of joint ventures
Approved and contracted for
Less than one year 133,468 – – –
Between one and five years 128,449 – – –
261,917 – – –
Approved but not contracted for
Less than one year 11,157 4,151 – –
Between one and five years 43,932 5,070 – –
55,089 9,221 – –
317,006 9,221 – –
Total commitments 4,326,484 4,851,817 2,639,009 1,789,951
28. RELATED PARTY DISCLOSURES
Related parties
For the purposes of these financial statements, parties are considered to be related to the Group or the Company if the Group or the Company has the ability, directly or indirectly, to control or jointly control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa or where the Group or the Company and the party are subject to common control. Related parties may be individuals or other entities.
PAGE: 80
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
28. RELATED PARTY DISCLOSURES (CONTINUED)
Related parties (continued)
The Group’s and the Company’s related parties include subsidiaries, associate, joint ventures as well as the holding and the ultimate holding company, Petroliam Nasional Berhad (PETRONAS) and its related entities. The Group’s related parties also include:
(i) Government of Malaysia and its related entities as the Company’s holding company, PETRONAS is wholly-owned by the Government of Malaysia; and
(ii) Key management personnel defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Group either directly or indirectly and an entity that provides key management personnel services to the Group. Key management personnel includes all Directors of the Group.
Key management personnel compensation
Group Company
2016 2015 2016 2015
RM’000 RM’000 RM’000 RM’000
Directors
Fees 652 547 652 547
Other short term employee benefits (including estimated monetary value of benefits-in-kind) 34 29 34 29
686 576 686 576
The Company paid management fee to the holding company in relation to services of key management personnel of the Company as disclosed below.
In addition to the transactions detailed elsewhere in the financial statements, the Group and the Company had the following transactions with related parties during the financial year:
Group Company
2016 2015 2016 2015
RM’000 RM’000 RM’000 RM’000
Government of Malaysia’s related entities:
Tenaga Nasional Berhad
Purchase of electricity (59,909) (82,266) (40,665) (63,214)
Sales of industrial utilities 40,375 69,018 40,375 69,018
TNB Repair and Maintenance Sdn. Bhd.
Provision of repair and maintenance services (16,371) (44,649) (16,371) (44,649)
State Secretary, Johor (Incorporated)
Land acquisition – (4,133) – –
PAGE: 81
ANNUAL REPORT 2016
28. RELATED PARTY DISCLOSURES (CONTINUED)
Group Company
2016 2015 2016 2015
RM’000 RM’000 RM’000 RM’000
Holding company:
Gas processing fee income 1,557,175 1,533,622 1,557,175 1,533,622
Gas transportation fee income 1,303,877 1,311,611 1,303,877 1,311,611
Regasification fee income 631,157 637,138 – –
Interest income from fund investments 53,591 31,661 50,339 26,390
Internal gas consumption and performance incentive 2,326 26,812 2,326 26,812
Agent services fee income 3,738 9,456 3,738 9,456
Reimbursement of project cost – 56,236 – –
Purchase of fuel gas (569,631) (496,533) (569,631) (496,533)
Insurance expense (19,900) (15,171) (14,883) (12,307)
Information, communication and technology charges (35,058) (26,101) (34,307) (25,610)
Corporate security charges (9,872) (10,543) (9,549) (10,309)
Rental of office premises (8,338) (9,295) (8,338) (9,295)
Supply chain and management services (10,537) (11,334) (10,133) (10,679)
Management fees (787) (737) (787) (737)
Internal audit services (1,178) (197) (1,178) (197)
Fees for representation on the Board of Directors (74) (172) (74) (172)
Related companies:
Bekalan Air KIPC Sdn. Bhd.* Purchase of treated water (6,164) (13,153) (6,164) (13,153)
Management fee income 444 888 444 888
CEFS Response Contribution for emergency response services (1,411) (1,223) (1,411) (1,223)
Gas Asia Terminal (L) Pte. Ltd. Time charter services (236,582) (186,293) – –
Lease and rental of building (846) (931) – –
MISC Integrated Logistic Sdn. Bhd.
Transportation services (646) (576) (646) (576)
PETRONAS Carigali Sdn. Bhd. Project management fee income 434 567 434 567
Operations and maintenance services income 68,053 40,793 68,053 40,793
Purchase of pipeline – (61,574) – (61,574)
PETRONAS Chemicals Ammonia Sdn. Bhd. Sale of industrial utilities 131,253 116,398 131,253 116,398
Compressed air maintenance fees (405) (238) (405) (238)
Laboratory services (27) (16) (27) (16)
PETRONAS Chemicals Aromatics Sdn. Bhd. Sale of industrial utilities 47,293 47,784 47,293 47,784
* No longer a related company of the Group effective 1 July 2016.
PAGE: 82
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
28. RELATED PARTY DISCLOSURES (CONTINUED)
Group Company
2016 2015 2016 2015
RM’000 RM’000 RM’000 RM’000
Related companies (continued):
PETRONAS Chemicals Derivatives Sdn. Bhd. Sale of industrial utilities 367,200 313,560 367,200 313,560
PETRONAS Chemicals Ethylene Sdn. Bhd. Sale of industrial utilities 4,470 4,276 4,470 4,276
PETRONAS Chemicals LDPE Sdn. Bhd. Sale of industrial utilities 88,143 81,716 88,143 81,716
PETRONAS Chemicals MTBE Sdn. Bhd. Sale of industrial utilities 130,213 116,541 130,213 116,541
Rental of equipments (159) (155) (159) (155)
Fire water services (157) – (157) –
PETRONAS Dagangan Berhad Fuel card services (641) (856) (633) (850)
Purchase of petroleum products (681) (1,667) (681) (1,667)
PETRONAS ICT Sdn. Bhd. ICT services (8,860) (9,239) (8,655) (8,795)
PETRONAS Management Training Sdn. Bhd. Training and development related costs (4,383) (3,180) (4,326) (3,180)
PETRONAS Penapisan (Melaka) Sdn. Bhd. Lease of land for pipeline route (76) (76) – –
Rental of office premises – (14) – –
Lease of land for office building (11) (11) – –
PETRONAS Penapisan (Terengganu) Sdn. Bhd. Marine facilities income 2,130 1,932 2,130 1,932
PETRONAS Refinery and Petrochemical Sdn. Bhd. Management fee 8,405 7,738 8,405 7,738
PETRONAS Technical Services Sdn. Bhd. Technical consultancy fees (81,616) (52,126) (36,760) (30,021)
PETRONAS Technical Training Sdn. Bhd. Training and development related costs (8,101) (9,506) (7,966) (9,289)
PETRONAS Technology Ventures Sdn. Bhd. Purchase of chemicals (521) (583) (521) (583)
Purchase of software (197) (200) (197) (200)
PrimeSourcing International Sdn. Bhd. Supply of parts and materials (1,803) (36,049) (1,803) (36,049)
Sungai Udang Port Sdn. Bhd. Marine services (6,706) (6,876) – –
Freshwater transfer services (143) (170) – –
Vinyl Chloride (Malaysia) Sdn. Bhd. Sale of industrial utilities 1,318 5,013 1,318 5,013
Voltage Renewables Sdn. Bhd. Sale of industrial utilities 137 137 137 137
PAGE: 83
ANNUAL REPORT 2016
28. RELATED PARTY DISCLOSURES (CONTINUED)
Group Company
2016 2015 2016 2015
RM’000 RM’000 RM’000 RM’000
Subsidiaries:
Regas Terminal (Lahad Datu) Sdn. Bhd. Management fee income adjustment – – – (1,307)
Regas Terminal (Sg. Udang) Sdn. Bhd. Management fee income – – 2,659 5,627
Rental income of warehouse – – 103 103
Pipeline maintenance fee income – – 1,161 1,161
Lab sampling fee income – – 14 20
Annual access right fee income – – 357 357
Pengerang LNG (Two) Sdn. Bhd. Management fee income – – 2,865 2,865
Joint venture:
Industrial Gases Solutions Sdn. Bhd.
Sale of industrial utilities 4,429 3,748 4,429 3,748
Associates and joint ventures of the holding company:
BASF PETRONAS Chemicals Sdn. Bhd. Sale of industrial utilities 146,174 114,246 146,174 114,246
BP PETRONAS Acetyls Sdn. Bhd. Sale of industrial utilities 35,105 36,690 35,105 36,690
Kertih Terminals Sdn. Bhd. Sale of industrial utilities 7,868 6,984 7,868 6,984
Trans Thai-Malaysia (Malaysia) Sdn. Bhd. Access right of way fee income 2,095 2,095 2,095 2,095
Annual operations and maintenance fee income 4,732 5,462 4,732 5,462
PAGE: 84
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
28. RELATED PARTY DISCLOSURES (CONTINUED)
The Directors of the Company are of the opinion that the above transactions have been entered into in the normal course of business and have been established on a commercial basis. The above has been stated at transacted amount.
Included in the fees for representation on the Board of Directors are fees paid directly to holding company in respect of certain directors who are appointees of the holding company.
Information regarding outstanding balances at reporting date arising from related party transactions are disclosed in note 10, note 12, note 17, note 18 and note 19.
29. OPERATING SEGMENTS, PRODUCTS AND SERVICES
The Group has four reporting segments, as described below, which are the Group’s strategic business units. The strategic business units offer different products and services, and are managed separately because they require different technology and marketing strategies. For each of the strategic business units, the Group’s Chief Operating Decision Maker which is the Board of Directors, reviews internal management reports at least on a quarterly basis. The following summary describes the operations in each of the Group’s reportable segments:
• Gas processing – activities include processing of natural gas from gas fields offshore the East Coast of Peninsular Malaysia into salesgas and other by-products such as ethane, propane and butane.
• Gas transportation – activities include transportation of the processed gas to PETRONAS’ end customers throughout Malaysia and export to Singapore.
• Utilities – activities include manufacturing, marketing and supplying of industrial utilities to the petrochemical complexes in the Kertih and Gebeng Industrial Area.
• Regasification – activities include regasification of liquefied natural gas (LNG) for PETRONAS.
Performance is measured based on segment gross profit. Segment gross profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of the segments.
PAGE: 85
ANNUAL REPORT 2016
29. OPERATING SEGMENTS, PRODUCTS AND SERVICES (CONTINUED)
GroupBusiness segments
Gas Processing
Gas Transportation Utilities Regasification Total
31.12.2016 RM’000 RM’000 RM’000 RM’000 RM’000
Revenue 1,557,175 1,303,877 1,069,071 631,157 4,561,280
Segment results 648,371 975,303 155,895 286,287 2,065,856
Unallocated income 71,230
Operating profit 2,137,086
Financing costs (93,943)
Share of profit after tax of equity- accounted associate and joint ventures 63,626
Profit before taxation 2,106,769
Tax expense (370,468)
Profit for the year 1,736,301
Included in the measure of segment profit are:
Depreciation and amortisation (437,465) (83,116) (167,519) (188,576) (876,676)
Unallocated depreciation and amortisation – – – – (408)
PAGE: 86
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
29. OPERATING SEGMENTS, PRODUCTS AND SERVICES (CONTINUED)
GroupBusiness segments
Gas Processing
Gas Transportation Utilities Regasification Total
31.12.2015 RM’000 RM’000 RM’000 RM’000 RM’000
Revenue 1,533,622 1,311,611 973,584 637,138 4,455,955
Segment results 696,953 1,009,146 135,775 297,555 2,139,429
Unallocated expenses (122,466)
Operating profit 2,016,963
Financing costs (90,055)
Share of profit after tax of equity-accounted associate and joint ventures 75,202
Profit before taxation 2,002,110
Tax expense (16,240)
Profit for the year 1,985,870
Included in the measure of segment profit are:
Depreciation and amortisation (346,636) (79,359) (157,186) (193,295) (776,476)
Unallocated depreciation and amortisation – – – – (342)
PAGE: 87
ANNUAL REPORT 2016
29. OPERATING SEGMENTS, PRODUCTS AND SERVICES (CONTINUED)
GroupBusiness segments
Gas Processing
Gas Transportation Utilities Regasification Total
31.12.2016 RM’000 RM’000 RM’000 RM’000 RM’000
Segment assets 4,321,607 2,620,049 1,317,878 5,896,336 14,155,870
Investment in associate 130,162
Investment in joint ventures 605,990
Unallocated assets 1,661,610
Total assets 16,553,632
Included in the measure of segment assets are:
Capital expenditure 372,981 165,429 219,989 1,584,056 2,342,456
Unallocated capital expenditure – – – – 13,666
GroupBusiness segments
Gas Processing
Gas Transportation Utilities Regasification Total
31.12.2015 RM’000 RM’000 RM’000 RM’000 RM’000
Segment assets 4,376,359 2,575,063 1,184,502 4,389,278 12,525,202
Investment in associate 128,063
Investment in joint ventures 547,647
Unallocated assets 1,181,095
Total assets 14,382,007
Included in the measure of segment assets are:
Capital expenditure 425,453 124,587 104,305 565,690 1,220,035
Unallocated capital expenditure – – – – 2,358
Segment results
The total segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated expenses mainly comprises forex gain or loss, other corporate income and expenses.
PAGE: 88
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
29. OPERATING SEGMENTS, PRODUCTS AND SERVICES (CONTINUED)
Segment assets
The total of segment assets are measured based on all assets of a segment, excluding interest bearing assets and corporate assets as these are managed on a group basis.
The segmental information in respect of the associate and joint ventures is not presented as the contribution of the associate and joint ventures and the carrying amounts of investment in the associate and joint ventures have been reflected in the statement of profit or loss and other comprehensive income and statement of financial position of the Group. Details of the associate and joint ventures are disclosed in note 6 and note 7 to the financial statements respectively.
Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.
Products and services segments
2016 2015
Group RM’000 RM’000
Gas processing fee 1,557,175 1,533,622
Gas transportation fee 1,303,877 1,311,611
Utilities
– Electricity 473,604 449,883
– Steam 325,011 293,415
– Industrial gases 205,958 165,517
– Others 64,498 64,769
Regasification fee 631,157 637,138
4,561,280 4,455,955
Geographical information for revenue and non-current assets is not presented as the Group is pre-dominantly operating in Malaysia.
30. HOLDING AND ULTIMATE HOLDING COMPANY
The holding company as well as the ultimate holding company is Petroliam Nasional Berhad (PETRONAS), a company incorporated in Malaysia.
PAGE: 89
ANNUAL REPORT 2016
31. FINANCIAL INSTRUMENTS
Categories of financial instruments
The table below provides an analysis of financial instruments categorised as follows:
(i) Loans and receivables (L&R);(ii) Fair value through profit or loss (FVTPL);
– Held for trading (HFT); and(iii) Loans and borrowings (L&B).
L&R/ (FL)
FVTPL–HFT
Total carrying amount
Group Note RM’000 RM’000 RM’000
2016Financial assets
Long term receivables 10 47,905 – 47,905
Trade and other receivables (excluding prepayments and GST receivables) 12 591,686 15 591,701
Cash and cash equivalents 13 1,763,117 – 1,763,117
2,402,708 15 2,402,723
Financial liabilities
Borrowings 17 (1,082,857) – (1,082,857)
Finance lease liabilities 17 (1,166,580) – (1,166,580)
Trade and other payables (excluding deferred income) 19 (1,005,062) – (1,005,062)
(3,254,499) – (3,254,499)
2015
Financial assets
Trade and other receivables (excluding prepayments and GST receivables) 12 574,040 112 574,152
Cash and cash equivalents 13 1,230,815 – 1,230,815
1,804,855 112 1,804,967
Financial liabilities
Finance lease liabilities 17 (1,058,260) – (1,058,260)
Trade and other payables (excluding deferred income) 19 (794,554) (998) (795,552)
(1,852,814) (998) (1,853,812)
PAGE: 90
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
31. FINANCIAL INSTRUMENTS (CONTINUED)
Categories of financial instruments (continued)
L&R/ (FL)
FVTPL–HFT
Total carrying amount
Company Note RM’000 RM’000 RM’000
2016Financial assets
Long term receivables 10 794,642 – 794,642
Trade and other receivables (excluding prepayments and GST receivables) 12 535,505 12 535,517
Cash and cash equivalents 13 1,606,663 – 1,606,663
2,936,810 12 2,936,822
Financial liabilities
Borrowing 17 (795,602) – (795,602)
Trade and other payables (excluding deferred income) 19 (421,532) – (421,532)
(1,217,134) – (1,217,134)
2015
Financial assets
Trade and other receivables (excluding prepayments and GST receivables) 12 526,808 – 526,808
Cash and cash equivalents 13 1,116,541 – 1,116,541
1,643,349 – 1,643,349
Financial liabilities
Trade and other payables (excluding deferred income) 19 (549,809) – (549,809)
(549,809) – (549,809)
PAGE: 91
ANNUAL REPORT 2016
31. FINANCIAL INSTRUMENTS (CONTINUED)
Financial risk management
The Group and the Company are exposed to various risks that are particular to its core business which consists of separating natural gas into its components and storing, transporting and distributing such components thereof for a fee, the sale of industrial utilities and the regasification of liquefied natural gas for a fee. These risks, which arise in the normal course of the Group’s and the Company’s business, comprise credit risk, liquidity risk and market risk relating to interest rates and foreign currency exchange rates.
The Group has policies and guidelines in place that sets the foundation for a consistent approach towards establishing an effective financial risk management across the Group.
Risk taking activities are undertaken within acceptable level of risk or risk appetite, whereby the risk appetite level reflects business considerations and capacity to assume such risks. The risk appetite is established at Board level, where relevant, based on defined methodology and translated into operational thresholds.
The Group’s and the Company’s goal in risk management is to ensure that the management understands, measures and monitors the various risks that arise in connection with their operations. Policies and guidelines have been developed to identify, analyse, appraise and monitor the dynamic risks facing the Group and the Company. Based on this assessment, the Group and the Company adopt appropriate measures to mitigate these risks in accordance with their view of the balance between risk and reward.
Credit risk
Credit risk is the potential exposure of the Group and of the Company to losses in the event of non-performance by counterparties. The Group’s and the Company’s exposure to credit risk arise from their operating activities, primarily from their receivables from customers and fund investments. The credit risk arising from the Group’s and the Company’s normal operations are controlled by individual operating units in line with PETRONAS’ policies and guidelines.
Receivables
The Group and the Company minimise credit risk by entering into contracts with highly credit rated counterparties. Potential counterparties are subject to credit assessment and approval prior to any transaction being concluded and existing counterparties are subject to regular reviews, including re-appraisal and approval of granted limits. The creditworthiness of counterparties is assessed based on an analysis of all available quantitative and qualitative data regarding business risks and financial standing, together with the review of any relevant third party and market information. Reports are prepared and presented to the management that cover the Group’s overall credit exposure against limits and securities.
Depending on the types of transactions and counterparty’s creditworthiness, the Group and the Company further mitigate and limit risks related to credit by requiring other credit enhancements such as cash deposits and bank guarantees. No collateral or other credit enhancement is required for amounts due from related parties.
As at the reporting date, the maximum exposure to credit risk arising from receivables is represented by the carrying amounts in the statement of financial position. The ageing of trade receivables as at the reporting date is analysed on page 93.
PAGE: 92
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
31. FINANCIAL INSTRUMENTS (CONTINUED)
Credit risk (continued)
Receivables (continued)
Group Company
2016 2015 2016 2015
At net Note RM’000 RM’000 RM’000 RM’000
Current 481,372 410,795 425,225 355,317
Past due 1 to 30 days (455) 839 (455) 839
Past due 31 to 60 days – – – –
Past due 61 to 90 days – – – –
Past due more than 90 days 11,684* 6,230 11,684* 6,230
492,601 417,864 436,454 362,386
Representing:
Trade receivables 12 14,430 13,933 14,430 13,933
Amounts due from holding company 12.2 301,903 306,136 245,756 250,658
Amounts due from related companies 12.3 136,705 83,268 136,705 83,268
Amounts due from joint ventures 12.4 656 1,786 656 1,786
Amounts due from related parties 12.5 38,907 12,741 38,907 12,741
492,601 417,864 436,454 362,386
As at the reporting date, significant receivables relate to amounts due from holding company and amounts due from related companies.
* Included in the amount due more than 90 days is an amount due from a related party amounting to RM11,200,000 which has been agreed to be fully settled in 2017.
Fund investments
The Group and the Company are also exposed to counterparty credit risk from financial institutions through fund investments activities which was managed by IFSSC on behalf of the Group comprising primarily money market placement. These exposures are managed in accordance with existing policies and guidelines that define the parameters within which the investment activities shall be undertaken in order to achieve the Group’s investment objective of preserving capital and generating optimal returns above appropriate benchmarks within allowable risk parameters.
Investments are only made with approved counterparties who met the appropriate rating and other relevant criteria, and within approved credit limits, as stipulated in the policies and guidelines. The treasury function is governed by a counterparty credit risk management framework.
As at the reporting date, the maximum exposure to credit risk arising from fund investments is represented by the carrying amounts in the statement of financial position.
The fund investments are unsecured, however, in view of the sound credit rating of counterparties, management does not expect any counterparty to fail to meet its obligation.
PAGE: 93
ANNUAL REPORT 2016
31. FINANCIAL INSTRUMENTS (CONTINUED)
Liquidity risk
Liquidity risk is the risk that suitable sources of funding for the Group’s and the Company’s business activities may not be available. In managing its liquidity risk, the Group and the Company maintain sufficient cash and liquid marketable assets.
Maturity analysis
The table below summarises the maturity profile of the Group’s and of the Company’s financial liabilities as at the reporting date based on undiscounted contractual payments:
GroupCarrying amount
Contractualinterest/
profit rates per annum
Contractual cash flow*
Within 1year
1 – 2years
2 – 5years
More than5 years
2016 RM’000 % RM’000 RM’000 RM’000 RM’000 RM’000
Term Loan 795,602 1.7 852,474 12,222 12,222 828,030 –
Loan from corporate shareholder of a subsidiary 287,255 6.5 352,155 18,879 99,855 205,687 27,734
Finance lease liabilities 1,166,580 9.1 2,185,658 129,288 140,269 421,189 1,494,912
Trade and other payables (excluding deferred income) 1,005,062 – 1,005,062 1,005,062 – – –
3,254,499 4,395,349 1,165,451 252,346 1,454,906 1,522,646
2015
Finance lease liabilities 1,058,260 9.1 2,062,764 124,132 123,793 371,718 1,443,121
Trade and other payables (excluding deferred income) 795,552 – 795,552 795,552 – – –
1,853,812 2,858,316 919,684 123,793 371,718 1,443,121
* The contractual cash flow is inclusive of the principal and interest payments.
PAGE: 94
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
31. FINANCIAL INSTRUMENTS (CONTINUED)
Liquidity risk (continued)
Maturity analysis (continued)
CompanyCarrying amount
Contractualinterest/
profit rates per annum
Contractual cash flow*
Within 1year
1 – 2years
2 – 5years
More than5 years
2016 RM’000 % RM’000 RM’000 RM’000 RM’000 RM’000
Term Loan 795,602 1.7 852,474 12,222 12,222 828,030 –
Trade and other payables (excluding deferred income) 421,532 – 421,532 421,532 – – –
1,217,134 1,274,006 433,754 12,222 828,030 –
2015
Trade and other payables (excluding deferred income) 549,809 – 549,809 549,809 – – –
549,809 549,809 549,809 – – –
* The contractual cash flow is inclusive of the principal and interest payments.
Market risk
Market risk is the risk or uncertainty arising from changes in market prices and their impact on the performance of the business. The market price changes that the Group and the Company are exposed to includes interest rates, foreign currency exchange rates and other indices that could adversely affect the value of the Group’s and of the Company’s financial assets, liabilities or expected future cash flows.
Interest rate risk
The Group’s and the Company’s investments in fixed rate debt instruments are exposed to a risk of change in their fair value due to changes in interest rates. The Company’s variable rate borrowings are exposed to a risk of change in cash flows due to changes in interest rates. Short term receivables and payables are not significantly exposed to interest rate risk.
All interest rate exposures are monitored and managed proactively in line with PETRONAS’ policies and guidelines.
PAGE: 95
ANNUAL REPORT 2016
31. FINANCIAL INSTRUMENTS (CONTINUED)
Market risk (continued)
Interest rate risk (continued)
The interest rate profile of the Group’s and of the Company’s interest-bearing financial instruments based on carrying amounts as at reporting date is as follows:
Group Company
2016 2015 2016 2015
RM’000 RM’000 RM’000 RM’000
Fixed rate instruments
Financial assets 47,905 12,418 794,642 12,416
Financial liabilities (1,453,835) (1,058,260) – –
(1,405,930) (1,045,842) 794,642 12,416
Floating rate instruments
Financial assets 1,762,975 1,217,024 1,606,521 1,103,983
Financial liabilities (795,602) – (795,602) –
967,373 1,217,024 810,919 1,103,983
Cash flow sensitivity analysis for variable rate instrument
A change of 40 and 50 basis points (b.p.s) in interest rates for financial asset and financial liabilities respectively at the end of the reporting period would have increased pre-tax profit or loss by the amounts shown below. The analysis assumes that all other variables, in particular foreign currency rates, remain constant.
Group Company
2016 2015 2016 2015
RM’000 RM’000 RM’000 RM’000
Changes in interest b.p.s (+/-)
Financial assets 40 b.p.s 50 b.p.s 40 b.p.s 50 b.p.s
Financial liabilities 50 b.p.s 50 b.p.s 50 b.p.s 50 b.p.s
Profit or loss 3,074 6,085 2,448 5,520
For the Group’s and the Company’s interest-bearing financial assets and liabilities that are fixed rate instrument measured at amortised cost, a change in interest rate is not expected to have material impact on the Group’s and the Company’s profit or loss.
PAGE: 96
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
31. FINANCIAL INSTRUMENTS (CONTINUED)
Market risk (continued)
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign currency exchange rates.
The Group and the Company are exposed to varying levels of foreign currency risk when they enter into transactions that are not denominated in the respective companies’ functional currencies or when foreign currency monetary assets and liabilities are translated at the reporting date.
The Group and the Company operate predominantly in Malaysia and transact mainly in Ringgit Malaysia.
The Group’s and the Company’s foreign currency management policy is to minimise economic and significant transactional exposure arising from currency movements. For major capital projects, the Group and the Company perform assessment of potential foreign currency risk exposure at the investment decision phase to determine the appropriate foreign currency risk management strategy. When deemed necessary and appropriate, the Group and the Company will enter into derivative financial instruments to hedge and minimise their exposure to the foreign currency movements.
The Group’s and the Company’s exposure to foreign currency risk (a currency which is other than the functional currency of the Group entities), based on carrying amounts as at the reporting date are as follows:
Group Company
Denominatedin
Denominatedin
Denominatedin
USD MYR USD
2016 RM’000 RM'000 RM’000
Financial assets
Long term receivables 47,905 – 794,642
Trade and other receivables 20,436 – –
Derivative asset 15 – 12
68,356 – 794,654
Financial liabilities
Borrowing (795,602) – (795,602)
Finance lease liabilities (1,166,580) – –
Trade and other payables (101,759) (23,412) (31,114)
(2,063,941) (23,412) (826,716)
Net exposure (1,995,585) (23,412) (32,062)
PAGE: 97
ANNUAL REPORT 2016
31. FINANCIAL INSTRUMENTS (CONTINUED)
Market risk (continued)
Foreign currency risk (continued)
Group Company
Denominatedin
Denominatedin
Denominatedin
USD MYR USD
2015 RM’000 RM'000 RM’000
Financial assets
Trade and other receivables 19,680 – –
Financial liabilities
Finance lease liabilities (1,058,260) – –
Trade and other payables (56,629) (21,481) (35,602)
(1,114,889) (21,481) (35,602)
Net exposure (1,095,209) (21,481) (35,602)
Currency risk sensitivity analysis
Sensitivity analysis for a given market variable provided in this note, discloses the effect on profit or loss as at 31 December 2016 assuming that a reasonably possible change in the relevant market variable had occurred at 31 December 2016 and had been applied to the risk exposures in existence at that date to show the effects of reasonably possible changes in price on profit or loss and equity to the next annual reporting date. Reasonably possible changes in market variables used in the sensitivity analysis are based on implied volatilities, where available, or historical data for equity and commodity prices and foreign exchange rates where relevant. Reasonably possible changes in interest rates are based on management judgment and historical experience.
The sensitivity analysis is hypothetical and should not be considered to be predictive of future performance because the Group’s actual exposure to market prices is constantly changing with changes in the Group’s portfolio of among others, debt and foreign currency contracts where relevant. Changes in fair values or cash flows based on a variation in a market variable cannot be extrapolated because the relationship between the change in market variable and the change in fair value or cash flows may not be linear. In addition, the effect of a change in a given market variable is calculated independently of any change in another assumption and mitigating actions that would be taken by the Group. In reality, changes in one factor may contribute to changes in another, which may magnify or counteract the sensitivities.
PAGE: 98
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
31. FINANCIAL INSTRUMENTS (CONTINUED)
Market risk (continued)
Currency risk sensitivity analysis (continued)
The following table demonstrates the indicative pre-tax effects on the profit or loss of applying reasonably foreseeable market movements in the following currency exchange rates:
Group Company
Appreciation in foreign
currency rateEffect on reserves
Effect on profit/(loss)
Effect on reserves
Effect on profit/(loss)
2016 % RM’000 RM’000 RM’000 RM’000
USD 10 (196,218)* (3,340) – (3,206)
MYR 10 – (2,341) – –
2015
USD 10 – (109,521) – (3,560)
MYR 10 – (2,148) – –
A depreciation in the above foreign currency rates would have had equal but opposite effect, on the basis that all other variables remain constant.
* The effect on reserve relates to USD borrowings used to finance projects undertaken by a subsidiary of the Group which has USD functional currency and foreign currency exposure arising from USD finance lease liabilities recognised in reserves on adoption of hedge accounting as disclosed below:
Hedging activities
The USD finance lease liabilities payments are designated to hedge cash flow risk in relation to future storage fees denominated in USD. The finance lease liabilities payments largely matches the nominal value of the storage fees receipts and are settled on monthly basis.
During the year, a loss of RM51,703,000 (2015: RM Nil) was recognised in equity and no ineffective portion was recognised in the profit or loss that arises from cash flow hedges amounts.
Carrying Expected Under 1-2 2-5 Over 5
amount cash flow 1 year years years years
RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
31.12.2016
Cash outflows (521,761) (1,166,580) (32,568) (38,719) (140,061) (955,232)
Cash inflows 514,413 1,153,746 34,836 38,138 137,962 942,810
(7,348) (12,834) (2,268) (581) (2,099) (12,422)
PAGE: 99
ANNUAL REPORT 2016
31. FINANCIAL INSTRUMENTS (CONTINUED)
Fair value information
The carrying amounts of cash and cash equivalents, short term receivables and payables and short term borrowings reasonably approximate their fair values due to the relatively short term nature of these financial instruments.
The following table analyses financial instruments carried at fair value and those not carried at fair value for which fair value is disclosed, together with their fair values and carrying amounts shown in the statement of financial position.
Fair value of financial
instruments carried
at fair value
Fair value offinancial
instruments not carried
at fair value Total fair Carrying
Level 2 Level 3 value amounts
Group RM’000 RM’000 RM’000 RM’000
2016
Financial assets
Long term receivables – 47,905 47,905 47,905
Derivative assets 15 – 15 15
15 47,905 47,920 47,920
Financial liabilities
Finance lease liabilities – 1,166,580 1,166,580 1,166,580
Term loan – 795,602 795,602 795,602
Loan from corporate shareholder of subsidiary – 287,255 287,255 287,255
– 2,249,437 2,249,437 2,249,437
2015
Financial assets
Derivative assets 112 – 112 112
Financial liabilities
Finance lease liabilities – (1,058,260) (1,058,260) (1,058,260)
Derivative liabilities (998) – (998) (998)
(998) (1,058,260) (1,059,258) (1,059,258)
PAGE: 100
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
31. FINANCIAL INSTRUMENTS (CONTINUED)
Fair value information (continued)
Fair value of financial
instruments carried
at fair value
Fair value offinancial
instruments not carried
at fair value Total fair Carrying
Level 2 Level 3 value amounts
Company RM’000 RM’000 RM’000 RM’000
2016
Financial assets
Long term receivables – 794,642 794,642 794,642
Derivative assets 12 – 12 12
12 794,642 794,654 794,654
Financial liabilities
Term loan – 795,602 795,602 795,602
The fair value of finance lease liabilities has been estimated using the discounted cash flows method.
The fair value of forward exchange contracts is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based on government bonds).
Income/(expense), net gains and losses arising from financial instruments
Interest income
Interest expense Others Total
Group RM’000 RM’000 RM’000 RM’000
2016
Financial instruments at fair value through profit or loss
– Held for trading – – 2,369 2,369
Loans and receivables 54,227 – 2,437 56,664
Financial liabilities at amortised cost – (93,943) – (93,943)
Total 54,227 (93,943) 4,806 (34,910)
2015
Financial instruments at fair value through profit or loss
– Held for trading – – (861) (861)
Loans and receivables 31,755 – 10,931 42,686
Financial liabilities at amortised cost – (90,055) (202,262) (292,317)
Total 31,755 (90,055) (192,192) (250,492)
PAGE: 101
ANNUAL REPORT 2016
31. FINANCIAL INSTRUMENTS (CONTINUED)
Income/(expense), net gains and losses arising from financial instruments (continued)
Interest income
Interest expense Others Total
Company RM’000 RM’000 RM’000 RM’000
2016
Financial instruments at fair value through profit or loss
– Held for trading – – 1,846 1,846
Loans and receivables 69,699 – 2,090 71,789
Financial liabilities at amortised cost – – – –
Total 69,699 – 3,936 73,635
2015
Loans and receivables 26,390 – – 26,390
Financial liabilities at amortised cost – – 1,248 1,248
Total 26,390 – 1,248 27,638
32. CAPITAL MANAGEMENT
The Group and the Company define capital as its total equity and debt. The objective of the Group’s and the Company’s capital management is to maintain an optimal capital structure and ensure availability of funds in order to meet financial obligations, support business growth and maximise shareholder’s value. As a subsidiary of PETRONAS, the Group’s and the Company’s approach in managing capital is set out in the PETRONAS Group Corporate Financial Policy.
The Group and the Company monitor and maintain a prudent level of total debt to total asset ratio and ensure compliance with all covenants under debt and shareholders’ agreements and regulatory requirements, if any.
There were no changes in the Group’s and the Company’s approach to capital management during the year.
PAGE: 102
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
33. ADOPTION OF NEW AND REVISED PRONOUNCEMENTS
As of 1 January 2016, the Group has adopted the following amendments to MFRSs that have been issued by the MASB as listed below.
Effective for annual periods beginning on or after 1 January 2016
Amendments to MFRS 5 Non-current Assets Held for Sale and Discontinued Operations (Annual Improvements 2012-2014 Cycle)
Amendments to MFRS 7 Financial Instruments: Disclosures (Annual Improvements 2012-2014 Cycle)
Amendments to MFRS 11 Joint Arrangements: Accounting for Acquisition of Interests in Joint Operations
Amendments to MFRS 101 Presentation of Financial Statements: Disclosure Initiative
Amendments to MFRS 116 Property, Plant and Equipment: Clarification of Acceptable Methods of Depreciation and Ammortisation
Amendments to MFRS 119 Employee Benefits (Annual Improvements 2012-2014 Cycle)
Amendments to MFRS 127 Separate Financial Statements: Equity Method in Separate Financial Statements
Amendments to MFRS 134 Interim Financial Reporting (Annual Improvements 2012-2014 Cycle)
Amendments to MFRS 138 Intangible Assets: Clarification of Acceptable Methods of Depreciation and Ammortisation
The initial application of the abovementioned pronouncements do not have material impact to the financial statements of the Group and the Company.
34. PRONOUNCEMENTS YET IN EFFECT
The following pronouncements that have been issued by the MASB will become effective in future financial reporting periods and have not been adopted by the Group and the Company in these financial statements.
Effective for annual periods beginning on or after 1 January 2017
Amendments to MFRS 12 Disclosure of Interests in Other Entities (Annual Improvements to MFRS Standards 2014-2016 Cycle)
Amendments to MFRS 107 Statement of Cash Flows: Disclosure Initiative
Amendments to MFRS 112 Income Taxes: Recognition of Deferred Tax Assets for Unrealised Losses
Effective for annual periods beginning on or after 1 January 2018
MFRS 9 Financial Instruments (2014)MFRS 15 Revenue from Contracts with CustomersClarifications to MFRS 15 Revenue from Contracts with CustomersIC Interpretation 22 Foreign Currency Transactions and Advance ConsiderationAmendments to MFRS 128 Investment in Associates and Joint Ventures (Annual Improvements to MFRS
Standards 2014-2016 Cycle)
Effective for annual periods beginning on or after 1 January 2019
MFRS 16 Leases
PAGE: 103
ANNUAL REPORT 2016
34. PRONOUNCEMENTS YET IN EFFECT (CONTINUED)
Effective for a date yet to be confirmed
Amendments to MFRS 10, Consolidated Financial Statements: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
Amendments to MFRS 128, Investments in Associates and Joint Ventures: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
The Group and the Company are expected to apply the abovementioned pronouncements beginning from the respective dates the pronouncements become effective. The initial application of the abovementioned pronouncements are not expected to have any material impacts to the financial statements of the Group and the Company except as mentioned below:
(i) MFRS 15 Revenue from Contracts with Customers
MFRS 15 replaces the guidance in MFRS 111 Construction Contracts, MFRS 118 Revenue, IC Interpretation 13 Customer Loyalty Programmes, IC Interpretation 15 Agreements for Construction of Real Estate, IC Interpretation 18 Transfers of Assets from Customers and IC Interpretation 131 Revenue – Barter Transactions Involving Advertising Services. The Group is currently assessing the financial impact that may arise from the adoption of MFRS 15.
(ii) MFRS 9 Financial Instruments
MFRS 9 replaces the guidance in MFRS 139 Financial Instruments: Recognition and Measurement on the classification and measurement of financial assets and financial liabilities, and on hedge accounting. The Group is currently assessing the financial impact that may arise from the adoption of MFRS 9.
(iii) MFRS 16 Leases
MFRS 16 replaces the existing guideline in MFRS 117, Leases, IC Interpretation 4 Determining whether an Arrangement contains a Lease, IC Interpretation 115 Operating Leases-Incentives, and IC Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The Group is currently assessing the financial impact that may arise from the adoption of MFRS 16.
35. NEW PRONOUNCEMENTS NOT APPLICABLE TO THE GROUP AND THE COMPANY
The MASB has issued amendments which are not yet effective, but for which are not relevant to the operations of the Group and of the Company and hence, no further disclosure is warranted.
Effective for annual periods beginning on or after 1 January 2018
Amendments to MFRS 1 First-Time Adoption of Malaysian Financial Reporting Standards (Annual Improvements to MFRS Standards 2014-2016 Cycle)
Amendments to MFRS 2 Share Based Payment – Classification and Measurement of Share-Based Payment Transactions
Amendments to MFRS 4 Insurance Contracts – Applying MFRS 9 Financial Instruments with MFRS 4 Insurance Contracts
Amendments to MFRS 140 Investment Property – Transfers of Investment Property
PAGE: 104
PETRONAS GAS BERHAD
NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016
36. DISCLOSURE OF REALISED AND UNREALISED PROFITS
The retained profits as at the end of reporting period consist of:
Group Company
2016 2015 2016 2015
RM’000 RM’000 RM’000 RM’000
Total retained profits/(accumulated losses) of the Company and its subsidiaries:
– realised 9,064,518 8,494,324 9,439,942 8,642,552
– unrealised (706,298) (666,789) (1,122,438) (922,664)
8,358,220 7,827,535 8,317,504 7,719,888
Total share of retained profits/(accumulated losses) from associated company:
– realised 76,584 74,949 – –
– unrealised (22,887) (23,351) – –
53,697 51,598 – –
Total share of retained profits from joint ventures:
– realised 158,812 109,266 – –
– unrealised 184,962 204,645 – –
343,774 313,911 – –
Consolidation adjustments (8,138) 2,695 – –
Total retained profits 8,747,553 8,195,739 8,317,504 7,719,888
The realised and unrealised profits are compiled based on 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 on 20 December 2010.
PAGE: 105
ANNUAL REPORT 2016
Report on the Financial Statements
Opinion
We have audited the financial statements of PETRONAS Gas Berhad, which comprise the statements of financial position as at 31 December 2016 of the Group and of the Company, and the statements of profit or loss and other comprehensive income, statements of changes in equity and statements of cash flows of the Group and of the Company for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 38 to 104.
In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Group and of the Company as at 31 December 2016, and of their financial performance and their cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia.
Basis for Opinion
We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our auditors’ report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion..Independence and Other Ethical Responsibilities
We are independent of the Group and of the Company in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants (“By-Laws”) and the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the Group and of the Company for the current year. These matters were addressed in the context of our audit of the financial statements of the Group and of the Company as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
PAGE: 106
PETRONAS GAS BERHAD
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF PETRONAS GAS BERHAD (COMPANY NO. 101671-H) (INCORPORATED IN MALAYSIA)
Key Audit Matters (continued)
Valuation of property, plant and equipment (RM3,136,288,000)
Refer to Note 2.4 – Significant accounting policy: Property, plant and equipment and depreciation and Note 3 – Property, plant and equipment.
The Group and Company has material property, plant and equipment including projects-in-progress recognised as at the balance sheet date. Due to the softening of the oil and petrochemical related industries in which the Group’s and Company’s customers are operating in, there is a risk that the demands for the Company’s Utilities services may be lowered and thus, a higher risk of impairment of the relevant plants. Similarly, there is risk on impairment of the project-in-progress relating to the construction of a regasification terminal in light of the uncertain economic conditions.
It is a significant area that our audit focuses on because it requires us to exercise judgment in evaluating management's assessment of impact of the softening oil and petrochemical related industries on its valuation of the Group's and Company’s property, plant and equipment.
We performed the following audit procedures, among others:
• considered the status of the major project-in-progress and assessed whether there are indications of cancellation or down-sizing; and
• evaluated and challenged the indicators of impairment in respect of property, plant and equipment in light of the current market challenges faced by the Utilities segment’s customers.
Adoption of cash flow hedge (RM51,703,000)
Refer to Note 2.8 (iii) – Significant accounting policy: Financial instruments – hedge accounting and Note 31 – Financial instruments.
The Group has significant finance lease liabilities denominated in US Dollar (USD). The finance lease liabilities are therefore significantly exposed to the fluctuation of foreign exchange, principally from USD. During the year, the Group adopted cash flow hedge accounting with the view to hedge the variability in cash flow arising from the fluctuation of foreign exchange.
It is a significant area that our audit focuses on because of a heightened risk arising from the new implementation of cash flow hedge in the Group. Hedge accounting is complex and it includes initial assessment of the effectiveness of the hedge relationships; the result of this assessment determines whether or not hedge accounting is permitted. The Group maybe exposed to risk of error due to the complexity involved in the calculation.
We performed the following audit procedures, among others:
• assessed the hedge designations and effectiveness testing retrospectively, at inception and prospectively;
• evaluated the management’s assertion on the highly probable forecast cash flows by agreeing the contractual cash flows to the underlying agreement; and
• tested inputs into the cash flow hedge model by agreeing historical data to underlying documents and agreeing external inputs such as USD foreign exchange rate to independent third party data.
PAGE: 107
ANNUAL REPORT 2016
Information Other than the Financial Statements and Auditors’ Report Thereon
The Directors of the Company are responsible for the other information. The other information comprises the information included in the annual report, but does not include the financial statements of the Group and of the Company and our auditors’ report thereon.
Our opinion on the financial statements of the Group and of the Company does not cover the other information and we do not and will not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements of the Group and of the Company, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Group and of the Company or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditors’ report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Statements
The Directors of the Company are responsible for the preparation of financial statements of the Group and of the Company that give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia. The Directors are also responsible for such internal control as the Directors determine is necessary to enable the preparation of financial statements of the Group and of the Company that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements of the Group and of the Company, the Directors are responsible for assessing the ability of the Group and of the Company to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements of the Group and of the Company as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
PAGE: 108
PETRONAS GAS BERHAD
INDEPENDENT AUDITORS’ REPORTTO THE MEMBERS OF PETRONAS GAS BERHAD (COMPANY NO. 101671-H) (INCORPORATED IN MALAYSIA)
Auditors’ Responsibilities for the Audit of the Financial Statements (continued)
As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial statements of the Group and of the Company, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control of the Group and of the Company.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors.
• Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the ability of the Group or of the Company to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements of the Group and of the Company or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group or the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements of the Group and of the Company, including the disclosures, and whether the financial statements of the Group and of the Company represent the underlying transactions and events in a manner that gives a true and fair view.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial statements of the Group. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Directors, we determine those matters that were of most significance in the audit of the financial statements of the Group and of the Company for the current year and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our auditors’ report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
PAGE: 109
ANNUAL REPORT 2016
Report on Other Legal and Regulatory Requirements
In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following:
(a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiaries have been properly kept in accordance with the provisions of the Act.
(b) We have considered the accounts and the auditors’ reports of all the subsidiaries of which are indicated in note 5 to the financial statements, being accounts that have been included in the consolidated accounts.
(c) We are satisfied that the accounts of the subsidiaries that have been consolidated with the Company’s financial statements are in form and content appropriate and proper for the purposes of the preparation of the financial statements of the Group and we have received satisfactory information and explanations required by us for those purposes.
(d) Our audit reports on the accounts of the subsidiaries did not contain any qualification or any adverse comment made under Section 174(3) of the Act.
Other Reporting Responsibilities
The supplementary information set out in Note 36 is disclosed to meet the requirement of Bursa Malaysia Securities Berhad and is not part of the financial statements. The Directors are responsible for the preparation of the supplementary information in accordance with Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants (“MIA Guidance”) and the directive of Bursa Malaysia Securities Berhad. In our opinion, the supplementary information is prepared, in all material respects, in accordance with the MIA Guidance and the directive of Bursa Malaysia Securities Berhad.
Other Matter
This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.
KPMG PLT ADRIAN LEE LYE WANG(LLP0010081-LCA & AF 0758) Approval Number: 2679/11/17(J)Chartered Accountants Chartered Accountant
Petaling Jaya,Date: 23 February 2017
PAGE: 110
PETRONAS GAS BERHAD
INDEPENDENT AUDITORS’ REPORTTO THE MEMBERS OF PETRONAS GAS BERHAD (COMPANY NO. 101671-H) (INCORPORATED IN MALAYSIA)
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PETRONAS GAS BERHAD (101671-H)
Tower 1, PETRONAS Twin Towers, Kuala Lumpur City Centre50088 Kuala LumpurTel : (03) 2051 5000 • Fax: (03) 2051 6555
www.petronasgas.com
PETRONAS GAS BERHAD
BEYONDFINANCIALREPORT 20
16
GOING
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