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(extracted from Annual Report 2015)

Dear Valued Shareholders

On behalf of the Board of Directors, it is our pleasure to present to you the Annual Report of Naim Holdings Berhad for the year ended 31 December 2015.

2015 also marked the celebration of our 20th year of operations as a property developer and contractor. The celebration provided us with an excellent opportunity to look back and reflect, and also to look forward.

OUR JOURNEY

Our 20-year journey was both memorable and a remarkable learning experience. From our early years in Tudan, Miri, Sarawak in 1995, we had our fair share of challenges, which included two periods of recession. With the support of our customers, clients, workforce and stakeholders, we have managed to weather the storms, and triumphed.

We have emerged as one of the leading developers and contractors in this region, with net assets (NA) of about RM1.3billon. As a developer, we have built more than 20,000 units of property for the Sarawak community. As a contractor, we have completed more than RM4bil worth of construction contracts, excluding internal development projects. Some of our notable projects are the Sarawak State Legislative Assembly building with our partner, the CMS Group, Majma' Tuanku Abdul Halim Muadzam Shah complex in Kuching, Phase 1 of the Kuching Flood Mitigation project, and the Waito-Wailotua Road in Fiji which received commendation from the Fiji Government.

We also had the opportunity to collaborate with reputable global players with Samsung Engineering Co. Ltd. for our Sabah Oil and Gas Terminal project secured in 2010 and JGC Corporation, Japan, one of the four largest LNG specialists globally) for the Bintulu LNG Train 9 project secured in 2013. In 2012, we became the first East Malaysian contractor to be awarded two stations packages under the Klang Valley Mass Rapid Transit (KVMRT) Line 1 project in Peninsular Malaysia.

Besides the business fronts, our growth was also reflected by the expansion of our workforce-from a handful of staff, our workforce has increased to more than a thousand currently. In addition, we have put in place, a set of internal processes, incorporating best practices to facilitate the Group's sustainable growth.

REVIEW OF FINANCIAL PERFORMANCE

2015 saw the emergence of several global macro risks which could result in long and deep impact on the world economy. Back home, it was similarly a challenging year, with factors such as ringgit depreciation, unfavourable crude oil prices, tighter monetary policy, political uncertainty and the imposition of the Goods and Services Tax (GST) leading to a slowdown in the economy.

As we celebrated our 20th year of operations, one philosophy serves as our driving force during such turbulent times - when the going gets tough, the tough gets going.

By staying alert to the dynamics of the economy and remaining responsive to it, this has enabled us to manage the impact of these challenges and become more resilient.

For the year under review, we achieved revenue of RM594.4million. Profit before tax was RM44.2million, while profit attributable to shareholders was approximately RM34.3million. Earnings per share stood at 14.5sen. Overall, the results were disappointing, even after excluding the extraordinary gains of RM122.2million from 2014's results, but not altogether unexpected, in view of the harsh business environment.

In terms of segmental contributions to overall revenue, our Property, Construction and Others segment contributed 26% (RM156.4million), 67% (RM398.7million) and 7% (RM39.3million) respectively.

Apart from revenue, other contributions to profit included a share of the results of our associates amounting to RM50.3million and share of the results of joint ventures of RM1.5million.

Property

Our Property Division was not spared from the economic slowdown, recording a revenue of RM156.4million as compared with RM247.2million posted in 2014. There was also a decline in profit from RM75.9million in 2014 to RM12.1million in 2015. The decline was partly due to lower contributions from substantially completed projects and lesser new sales of about RM104million, as compared with about RM200million achieved in 2014. Notwithstanding this, the new sales are expected to progressively contribute positive results to this segment within the next 2 years.

Construction

On the Construction front, the revenue increased from RM353.4million in 2014 to RM398.7million in 2015. The Division also registered a lower level of loss from RM27.1million in 2014 to RM12.6million in the current year under review. The improvement in the Construction Division's performance was mainly due to increased work progress of projects, recovery of costs from construction clients and the write back of certain liquidated and ascertained damages (LAD) provided for in the previous year.

One of the key contributors to the Division's revenue was the Klang Valley Mass Rapid Transit (KVMRT) Line 1 project. We were appointed to build a majority of the stations (6 out of 24 stations in total), at a very competitive contract package and this has taken a toll on us.

Oil and Gas

In terms of our Oil and Gas segment, the revenue by our LNG Train 9 project in Bintulu, Sarawak, a project secured in 2013, has decreased slightly due to reduction in work volume mainly caused by variations in work specifications by the client.

Associate Company - Dayang Enterprise Holdings Bhd.

Meanwhile, Dayang Enterprise Holdings Bhd. (hereinafter known as 'Dayang') recorded a commendable performance in 2015, registering a profit after tax of more than RM170million. The profit included an extraordinary gain of about RM108.9million arising from the re-measurement of investment in Perdana Petroleum Berhad (hereinafter referred to as "PPB") by Dayang upon the acquisition of a controlling stake therein via a mandatory general offer. PPB is a company which provides offshore marine services for the upstream oil and gas industry in the domestic and regional markets. However, this acquisition has increased Dayang's borrowing level substantially, from RM153.8million in 2014 to RM1.81billion in the year under review. As a result, Dayang's gearing ratio as at 31 December 2015 is 1.52 times, as compared with 0.16 times as reported in 2014.

Dayang also has call out contracts of more than RM3billion to last at least until 2018.

Employee Incentive - Long Term Incentive Plan (LTIP)

As part of our efforts to be an employer of choice, we have put in place a Long Term Incentive Plan (LTIP), which was approved in the last annual general meeting held on 26 May 2015. The purpose of the LTIP is to provide equity incentives to executives, directors and employees in order to align their interests with the long-term stock holder interest, motivate and reward them to facilitate the achievement of long-term results, as well as to retain key executives and employees amidst the competitive market for talent. No grants have been issued as at to date.

OUR MILESTONES

Awards and Accolades

Staying true to our vision to be a top notch global property player and infrastructure builder, we are again honoured and humbled by the various industry recognitions garnered in 2015.

We were adjudged the "Outstanding Developer – East Malaysia" by the Malaysia Property Insight Prestigious Developer Awards (PIPDA) 2015, which brings together the creme de la creme of Malaysia's property development industry.

We stamped our pole position as East Malaysia's leading developer by being the only East Malaysia-based property developer to be ranked one of Malaysia's Top 20 property developers by The Edge Malaysia's Top Property Developers Awards 2015, two years in a row.

We were also honoured to be chosen as an award recipient for practising the productivity inked wages system (PLWS) by the Department of Industrial Relations, Ministry of Human Resources, Malaysia in the year under review, in line with our aspiration to be the BEST PLACE TO WORK on earth.

The awards instil in us, a need to continuously improve so that we not only meet but exceed the expectations of our customers, workforce and stakeholders. The awards are also a testament of our continued commitment to maintain a culture of excellence and develop quality products.

Core Values Revisited

One of the significant enhancement initiatives was the revamp of our vision and mission statements, and the formulation of our S.P.I.R.I.T.E.D. core values, which are:

S for Service-Oriented

P for Performance, Professionalism and Passion

I for Integrity

R for Respect

I for Innovation

T for Teamwork

E for Empowerment and Engagement

D for Discipline, Determination and Decisiveness

Our new vision and mission statements, and core values will be our inspiration and serve as a guide for our operations henceforth. More importantly, this will make us more resilient in weathering the challenges in the ever changing business environment in time to come.

They also reflect one important reality - that each and every one of our workforce has a role to play, and needs to play that role actively and effectively. In other words, each and every one of our staff is a partner of the Group, as whatever we do is critical to the survivability of the Group as a whole. Henceforth, our workforce will no longer be known as our staff, but as Valued Partners. This is not merely a name change but also entails a change in the way we interact with, engage and reward our team members.

The downturn has also afforded us an opportunity to take a step back to consolidate our operations, 'right size' our businesses, strengthen our internal processes and procedures, retrain our best talents and embark on innovation in operations and products, in preparation for the better times to come as they surely would.

With all such initiatives, we will be better equipped and are committed to meet our long term goals and maintain the culture of excellence, by BUILDNG VALUE IN EVERY WAY, with you and for you. We are committed to our S.P.I.R.I.T.E.D. journey forward!

LOOKING AHEAD

Economic Situation

As we enter a new financial year, the global economy is still expected to be on shaky ground due to increasing indebtedness in a large number of developed as well as emerging market economies (Malaysia included). There is also uncertainty and enhanced volatility in the global financial markets. These factors combined, are expected to affect not only presently "distressed economies" such as Greece in the euro area and Puerto Rico in the US dollar zone, but also extending to emerging market economies, such as Brazil, Russia, India and China, which is the world's second biggest economy and also global manufacturing powerhouse, absorbing substantial amount of resource-based materials from other developing countries, particularly in Africa, Asia and the Middle-East.

As the external environment becomes more challenging due to weaker global economic growth and increased volatility in the global financial markets, Malaysia continues to be susceptible to both unanticipated and anticipated external shocks. Domestic infation is expected to increase in 2016, partly due to price increases and a low base effect caused by weak oil prices. The effects of the Goods and Services Tax (GST) are also expected to continue. With economic growth expected to be moderate due to weak commodity prices, ringgit depreciation and rising cost of living, consumer sentiment is expected to remain sluggish.

Property

We expect the property market to remain challenging due to factors such as rising costs of doing business, increased competition, tighter monetary policy and weak buying sentiment attributed to rise in living costs alongside the weaker stock market, currency and imposition of the Goods and Services Tax (GST).

Although we expect some degree of slowdown in the take-up of our products in general, we will continue to focus on our three flagship developments, namely Bintulu Paragon integrated development (Street Mall, Small Office Versatile Office (SOVO) and 'The Peak' condominium), Kuching Paragon integrated development (Sapphire on the Park condominium) and SouthLake Permyjaya integrated township development (a range of landed residential properties) in Miri. Various initiatives such as pricing strategies, attractive product packaging, other value-added features and innovative sales strategies will help to sustain demand for these properties. Plans are also in the pipeline to launch more medium range and affordable products. In-depth study of the market's buying behaviour will continue to be one of our key activities this year, to facilitate better product development for the market. We will also adopt a more cautious approach towards product launches in 2016, by scheduling launches based on market dynamics.

Nevertheless, it is hoped that Sarawak's long term development plans such as the Sarawak Corridor of Renewable Energy (SCORE) designed to accelerate its economic growth, will continue to create a bustling business environment, to help sustain market demand in the State.

As part of our long term plans, we continue to actively seek opportunities to acquire strategic land banks in Sarawak, Sabah and Peninsular Malaysia to further strengthen the growth of our property segment in terms of sales, profit and market share. The slow down in the economy, which is expected to continue in the next few years, could also give rise to the opportunity in acquiring land at bargain prices.

Construction

On the Construction front, we have managed to secure cumulatively, about RM150million new order book in 2015, which should sustain our short term earnings growth.

For the short to medium term, a number of sizeable construction tenders has been submitted, including that for the Pan Borneo Highway mega project in Sarawak, and we are cautiously optimistic to secure some to replenish our order book.

In addition, our involvement in the Klang Valley Mass Rapid Transit (KVMRT) Line 1 project which was the first for our Group, has opened our eyes to challenges in implementation of such complex projects such as that relating to site operations, performance by sub-contractors and procurement. Valuable lessons have been learnt, strengthening our capability in such project implementation in the future.

We will continue to implement improved measures to better facilitate efficiency and enhance monitoring of operational costs. At the same time, we will continue to strictly monitor the progress of projects to ensure they are implemented on schedule, improve risk management and embark on tightening of internal controls for this segment.

Oil and Gas

In terms of the Oil and Gas segment, our collaboration with reputable global industry players namely Samsung Engineering Co. Ltd. and JGC Corporation, Japan has given us a valuable insight and lesson in world class project management system by virtue of 'transfer of knowledge'. This will put us in good stead in terms of our involvement in the Oil and Gas industry, against the backdrop of the challenging business environment brought about by the uncertainty in the oil and gas market, reduction in oil and gas projects and also an increasing number of players in the industry.

Other Division

For our Other segment, we are still continuing to improve the quarry and premix operations by putting various measures to market and sell the products to achieve economies of scale and improve the segment's performance in the near term. The rolling out of the Pan Borneo highway project in Sarawak is also expected to have positive impact on this segment.

In addition to construction materials, our venture into retail property, Permy Mall has also spurred us to embark on similar developments in Bintulu, Miri and Kuching in the near future. We will also be embarking on other types of commercial properties for example hotel in Bintulu Paragon for recurring income.

Associate Company - Dayang Enterprise Holdings Bhd.

We expect Dayang to continue to contribute positively to our results in the near future.

Human Resources Processes and Other Improvements

In the relentless pursuit of the culture of excellence, we will continue to strive for the highest standards of business integrity, take steps to review and uphold the best practices, and maintain an exemplary corporate governance framework within the organization.

To facilitate further growth, we will intensify our efforts in relation to human capital cultural transformation, to drive our Valued Partners towards building a workforce of higher confidence, optimism, greater tenacity and enthusiasm. With the recruitment of a new Head of Group Human Resources who possesses more than 20 years' of related work experience with multinational companies across the region, this will put us in good stead in our continuous efforts to instil a winning performance culture through various fronts including greater staff engagement, communicating KPIs from the beginning of the year, more intense learning and development activities to build competencies, and optimization of manpower to build an effective and efficient workforce.

Focus will also be given to the creation of a Computer-Based Training platform and contents to facilitate better understanding of our Group's Standard Operating Procedures and Best Practices among our Valued Partners.

Corporate Social Responsibility

As a responsible corporate citizen, we remain committed to our Triple Bottom Line of PEOPLE, PLANET and PROFIT. Our increased efforts in this regard are a testimony to our enduring commitment to balance overall environmental, social and economic goals towards building a sustainable future, for the benefit of future generations.

ACKNOWLEDGEMENTS

Finally, we would like to thank all our stakeholders - our shareholders, customers, clients, Valued Partners and their families, Directors, joint venture partners, subcontractors, consultants, financiers, associates, Ministries, Departments, Statutory Bodies and Regulatory Agencies for the support extended to our Group. We would also like to welcome our new Director Mr Chin Chee Kong, and we greatly look forward to his kind guidance to propel Naim to greater heights in time to come.

Indeed we feel truly blessed to be a part of you these past 20 years.

We are honoured for your confidence, support and friendship, and it has been our privilege to have played a part in building your memories throughout the years. Rest assured we are here to build value in every way, and will continue to do so, with you and for you.

We look forward to serving you for many decades to come.

Once again, thank you and our warmest regards.

Datuk Amar Abdul Hamed Bin Haji Sepawi
Chairman

Datuk Hasmi Bin Hasnan
Managing Director