2018 UEM Edgenta Annual Report

MARKET REVIEW The global economy expanded by 3.7% 1 in 2018, lower than the earlier forecast of 3.9% 1 by the International Monetary Fund, reflecting the elevating policy uncertainties stemming from escalating trade tensions and outflows of capital from emerging economies. Although global growth was less synchronised with mixed developments in advanced economies, emerging economies in Asia performed favourably well. The new Malaysian Government focused on raising the economic well- being of the people, restoring fiscal health and implementing various institutional reforms to improve accountability and transparency as well as the state of the labour markets. Despite the external and domestic headwinds, the Malaysian economy fared reasonably well with a full-year GDP of 4.7% 2 in 2018, with market sentiments generally positive and both consumer confidence and demand remaining fairly strong. The structural changes are aimed at ensuring sustainable growth, the stability of the capital market and the monetary sector but raised concerns on public sector spending in mega-development projects. In the Malaysian Government’s effort to ensure value for money in all of its projects, several planned mega-projects were reviewed, including the High-Speed Rail (HSR), East Coast Rail Link (ECRL), Mass Rapid Transit 3 (MRT3), Light Rail Transit Line 3 (LRT3) and the Pan Borneo Highway in East Malaysia. Following the review, the total cost of LRT3 was reduced by 47% from RM31.7 billion to RM16.6 billion, while the other projects were deferred or put on hold. 1 2018 WAS AN INTERESTING YEAR FOR MALAYSIA, IN WHICH WE SAW A CHANGE IN THE NATION’S GOVERNMENT ADMINISTRATION, THE FIRST IN MORE THAN 60 YEARS. FROM AN OVERALL PERSPECTIVE, UEM EDGENTA WAS NOT SIGNIFICANTLY AFFECTED BY THE TURN OF EVENTS, SAVE FOR SEVERAL KEY INFRASTRUCTURE PROJECTS WHICH DID NOT MATERIALISE ON THE BACK OF THE COUNTRY’S FISCAL AUSTERITY DRIVE. THE COMPANY STAYED THE COURSE WITH RESPECT TO ITS STRATEGY OF FOCUSING ON OPERATIONAL EXCELLENCE TO IMPROVE ITS PROFIT MARGINS, WHICH PAID OFF WELL. From an overall perspective, UEM Edgenta was not significantly affected by the turn of events, save for several key infrastructure projects targeted by Infrastructure Services and Asset Consultancy divisions which did not materialise. Furthermore, the Company faced delays in the awarding of new consultancy work packages for the Pan Borneo Highway project in Sabah and Sarawak. The focus on cost efficiency in public spending filtered through to the private sector and to this end, the Company stayed the course with respect to its strategy of focusing on operational excellence to improve profit margins. This strategy has paid well, wherein net profit grew 21.8% on a year-on-year basis in FY2018, notwithstanding revenue challenges on the back of the deferment and delays faced with key infrastructure projects. Our ongoing initiatives in operational excellence provided the basis for not just cost savings to the Company, but new business wins as well as improved delivery of services and increased value-add to our clients. Examples of such initiatives include the implementation of LEAN framework to build capabilities across the Company via process improvements and training as well as roll-out of technology and innovation-centric programmes via the Innovation Garage to tackle high-impact operational areas, coupled with group-wide efficiencies cost savings. 1 Economic Outlook 2019 (Ministry of Finance) 2 Bank Negara Malaysia website Management Discussion & Analysis UEM Edgenta Berhad Annual Report 2018 About UEM Edgenta Chairman’s Statement 86