Business Overview

6. INFORMATION ON OUR GROUP 6. INFORMATION ON OUR GROUP 6.1 Our Company MHB was incorporated in Malaysia on 18 February 1989 under the Companies Act as a private limited company under the name of MSE Holdings Sdn Bhd. On 14 June 2010, our Company was converted into a public company. On 15 June 2010, our Company changed its name from MSE Holdings Berhad to Malaysia Marine and Heavy Engineering Holdings Berhad, which is its present name. We are a leading Malaysian heavy engineering and marine services provider, primarily focused on the oil and gas sector. We offer a wide spectrum of engineering and construction, marine conversion and marine repair services from our yard in Pasir Gudang, Johor, Malaysia and the yard we operate and manage in Kiyanly, Turkmenistan on behalf of PCTSB. Our Company is the parent company of MMHE, and we offer our services primarily under the “MMHE” brand. Our engineering and construction business offers a full range of oil and gas construction and engineering services, from detailed engineering design and procurement to construction, installation, hook-up and commissioning. We specialise in the construction of various facilities for the offshore and onshore oil and gas industry. Completed and ongoing projects include the construction of oil and gas platforms, jackets, topsides, process modules, turrets, SPARs, semi-submersibles, mooring buoy systems, living quarters and substructures. The Pasir Gudang yard is the only yard in Malaysia that has constructed complex deepwater structures for the oil and gas industry. Our marine conversion business offers a one-stop centre for converting vessels such as VLCCs, Aframax tankers and offshore ·oil rigs into floating structures for the offshore oil and gas industry such as FPSOs, FSOs, MOPUs and MODUs. We provide a comprehensive range of marine conversion services from engineering design to fabrication, installation and commissioning of these structures. We operate the only yard in Malaysia that has completed FPSO/FSO conversions, our first, being the FPSO Perintis, was completed in March 1999. Other services offered by our marine conversion business include the construction of new­built structures, including tender rig barges, and “jumboisation” works, which are complex engineering operations to increase a vessel’s length, breadth or both dimensions. Our marine repair business offers repair, refit and refurbishment services to a wide range of vessels, with afocus on energy-related vessels such as ULCCs, VLCCs and other petroleum tankers, chemical tankers; offshore oil rigs, gas carriers, and other offshore support vessels. We provide maintenance, technical solutions and refurbishment services for LNG carriers at our yard in Pasir Gudang. We market these services for LNG carriers through a joint venture with Samsung Heavy Industries. Our Pasir Gudang yard is a comprehensive and integrated facility for all segments of our business on a strategically located 150.6 hectare complex with a 1.8 km seafront. The facility includes two dry-docks, five fabrication areas, three skid-tracks and two bulkheads, 35 workshops, one shiplift, two landberths, seven quays and one LNG carrier repair facility. We began implementing the Yard Optimisation Programme at this facility in 2006, and we expect to complete this programme in 2014. The programme is intended to increase the yard’s efficiency and expand the range of projects that the yard can undertake. We do not own the Kiyanly yard in Turkmenistan: The fabrication yard that we _operate and manage in Kiyanly, Turkmenistan, on behalf. of PCTSB, a subsidiary of PETRONAS, has an area of 43.6 hectares and undertakes projects for PCTSB, on an EPCIC basis, in connection with the Turkmenistan Block 1, Phase 1 gas development project granted to PCTSB.
6. INFORMATION ON OUR GROUP (Cant’e/) , As of 30 June 2010, our Group had total assets of RM4,298.7 million and shareholders’ equity excluding minority interests of RM1 ,308.6 million. For the FYE 31 March 2010, we generated revenue of RM6,147.0 million and PAT of RM284.1 million. As of 30 June 2010, our orderbook was RM5,951.9 million. Our orderbook is made up of the total stated contract value of orders not yet delivered minus the portion of sales already recognised in respect of such orders using the stage-of-completion method. On 21 January 2008, we entered into a conditional sale and purchase agreement (“Conditional SPAn) with Ramunia Holdings Berhad (“Ramunian) for the reverse take-over (uRTon) of Ramunia via the disposal of our entire equity interest in MMHE comprising 100 million ordinary shares of RM1.00 each in MMHE for a total sale consideration of RM3.2 billion. The RTO exercise was supposed to enable MISC to achieve a separate listing status for MMHE via Ramunia. which would have allowed MMHE to tap the capital markets for its future expansion plans. However,’ we sUbsequently terminated the Conditional SPA (as supplemented by the supplemental agreement dated 30 September 2008) on 25 November 2008 with immediate effect due to unsatisfactory due diligence findings. Notwithstanding the above, it has always been our holding company, MISC’s objective to seek a separate listing for MHB or MMHE. In relation thereto, we. are now undertaking the IPO exercise to facilitate the Listing. An overview of our Group structure based on Scenario A is set out below: 6. INFORMATION ON OUR GROUP (Cont’d)

An overview of our Group structure based on Scenario B is set out below:
Notes: (1) Ajoint venture company with Samsung Heavy Industries, which is a jointly controlled entity. (2) A joint venture company with Technip Geoproduction (M) Sdn. Bhd., which is a jointly controlled entity. 6.2 Share capital and changes in share capital As at 23 September 2010, the authorised share capital is RM2,500,OOO,000 comprising 5,000,000,000 ordinary shares of RMO.50 each. Our current issued and paid-up share capital is RM669,000,OOO comprising 1,338,000~000 MHB Shares. Details of the changes in our issued and paid-up share capital since our incorporation up to 23 September 2010 are as follows: No. of Cumulative issued Date of ordinary Par and paid-up share allotment shares value Consideration capital RM RM 18.02.1989 2 1.00 Cash 2 17.07.1991 1 1.00 Cash 3 11.10.1991 16,219,997 1.00 Cash 16,220,000 23.09.2010 32,440,000 0.50 Share split 16,220,000 23.09.2010 1,305,560,000 0.50 Bonus shares 669,000,000
6. INFORMATION ON OUR GROUP (Cont’d) 6.3 Subsidiaries and jointly controlled entities As at 23 September 2010, our subsidiaries and jointly controlled entities, and their principal activities are as follows: Date and Issued and country of paid-up share Effective Name incorporation capital interest Principal activities RM % Direct subsidiaries of MHB MMHE 18.05.1973 755,000,000 100.00 Oil and gas engineering and Malaysia construction works, marine conversion and marine repair MTSB 22.06.1977 200,000 100.00 Dormant and has ceased Malaysia operations since 31 December 1991 Direct subsidiaries of MMHE MSEC 27.06.1978 100,000 100.00 Under members’ voluntary Malaysia liquidation MSLNG 06.04.2006 3,700,000 70.00 Provision of repair services and Malaysia dry docking of LNG carriers TISB 05.08.1994 10,000,000 100.00 Sludge disposal management Malaysia Jointly controlled entities of MMHE MMHE-ATB 14.07.1994 5,600,000 40.00 Manufacturing of pressure vessels Malaysia and tube heat exchangers MMHE-TPGM 28.01.2008 300,000 60.00 Provision of engineering, Malaysia procurement, construction, installation and commissioning Set out below are further information on our subsidiaries and jointly-controlled entities: 6.3.1 Direct subsidiary of MHB (a) MMHE (Company No. 14558-P) (i) History and business MMHE was incorporated in Malaysia under the Companies Act on 18 May 1973 as a private limited company under the name of MSE. It subsequently changed its name and assumed its present name on 15 April 2005. MMHE commenced business in September 1976. The principal activities of MMHE are oil and gas engineering and construction works, marine conversion and marine repair.

 

6. INFORMATION ON OUR GROUP (Cont’d) (ii) (iii) Share capital As at 23 September 2010, the authorised share capital of MMHE is RM2,500,OOO,000 comprising 2,500,000,000 ordinary shares of RM1.00 each. The issued and paid-up share capital of MMHE is RM755,000,000 comprising 755,000,000 ordinary shares of RM1.00 each. . The changes in the issued and paid-up share capital of MMHE since its incorporation up to 23 September 2010 are as follows: Cumulative  No. of  issued  Date of  ordinary  Par  and paid-up  allotment  shares  value  Consideration  share capital  RM  RM
19.06.1973 2 1.00 Cash 01.01.1974 8,000,000 1.00 Cash 8,000,002 19.03.1974 1,999,998 1.00 Cash 10,000,000 25.07.1974 2,000,000 1.00 Cash 12,000,000 29.08.1974 2,000,000 1.00 Cash 14,000,000 03.10.1974 2,000,000 1.00 Cash 16,000,000 16.11.1974 2,000,000 1.00 Cash 18,000,000 25.01.1975 2,000,000 1.00 Cash 20,000,000 08.12.1978 10,000,000 1.00 Cash 30,000,000 01.10.1979 4,900,000 1.00 Cash 34,900,000 12.11.1979 7,550,000 1.00 Cash 42,450,000 22.12.1979 17,550,000 1.00 Cash 60,000,000 13.05.1980 10,000,000 1.00 Cash 70,000,000 30.07.1980 30,000,000 1.00 Cash 100,000,000 23.09.2010 655,000,000 1.00 Dividend-in­755,000,000 specie(1) Note: (1) The interim dividend of RM655,000,000 was declared in the form of dividend-in-specie by MMHE on 23 September 2010 and was satisfied by the issuance of 655,000,000 new ordinary shares of RM1.00 each in MMHE to MHB. Substantial shareholders MMHE is a wholly-owned subsidiary of our Company.

6. INFORMATION ON OUR GROUP (Cont’d) (iv) Subsidiaries, jointly controlled entities and associated companies The subsidiaries and jointly controlled entities of MMHE as at 23 September 2010 are shown in Section 6.3.2 below. As at 23 September 2010, MMHE does not have any associated company. (b) MTSB (Company No. 33284-0) (i) History and business MTSB was incorporated in Malaysia under the Companies Act on 22 June 1977 as a private limited company under the name of Malaysia Tank Cleaning Company Sdn Bhd. It subsequently changed its name and assumed its present name on 12 February 2008. MTSB commenced business in June 1977. MTSB is currently dormant and has ceased its operations since 31 December 1991. (ii) Share capital As at 23 September 2010, the authorised share capital of MTSB is RM500,OOO comprising 500,000 ordinary shares of RM1.00 each. The issued and paid-up share capital of MTSB is RM200,000 comprising 200,000 ordinary shares of RM1.00 each. The changes in the issued and paid-up share capital of MTSB since its incorporation up to 23 September 2010, are as follows: Cumulative No. of issued Date of ordinary Par and paid-up allotment shares value Consideration share capital RM RM 22.06.1977 2 1.00 Cash 2 01.12.1977 199,998 1.00 Cash 200,000 (iii) Substantial shareholder MTSB is a wholly-owned subsidiary of our Company. (iv) Subsidiary and associated company As at 23 September 2010, MTSB does not have any subsidiary or associated company. 6. INFORMATION ON OUR GROUP (Cont’d)
6.3.2 Subsidiaries of MMHE (a) MSEC (Company No. 40259-W) (i) History and business MSEC was incorporated in Malaysia under the Companies Act on 27 June 1978 as a private limited company under the name of MSE-Aman Maritim.e Services Sdn Bhd. It subsequently changed its name and assumed its present name on 8 September 1987. MSEC commenced business in January 1989. The principal activity of MSEC is processing of copper grit. As at 23 September 2010, MSEC is under members’ voluntary liquidation. (ii) Share capital As at 23 September 2010: the authorised share capital of MSEC is RM100,OOO comprising 100,000 ordinary shares of RM1.00 each. The issued and paid-up share capital of MSEC is RM100,000 comprising 100,000 ordinary shares of RM1.00 each. The changes in the issued and paid-up share capital of MSEC since its incorporation up to 23 September 2010. are as follows: Cumulative No. of issued Date of ordinary Par and paid-up allotment shares value Consideration share capital RM RM 27.06.1978 2 1.00 Cash 2 14.12.1979 49,998 1.00 Cash 50,000 14.12.1988 50,000 1.00 Cash 100,000 (iii) Substantial shareholder MSEC is a wholly-owned subsidiary of MMHE. (iv) Subsidiary and associated company As at 23 September 2010, MSEC does not have any subsidiary or associated company. (b) MSLNG (Company No. 729348-U) (i) History and business MSLNG was incorporated in Malaysia under the Companies Act on 6 April 2006 as a private limited company_ MSLNG commenced business on 6 April 2006. The principal activity of MSLNG is provision of repair services and dry docking of LNG carriers. . 61 6. INFORMATION ON OUR GROUP (Cont’d) (ii) Share capital As at 23 September 2010, the authorised share capital of MSLNG is RM11,100,000 comprising 3,000,000 ordinary shares of RM3.70 each. The issued and paid-up share capital of MSLNG is RM3,700,000 comprising 1,000,000 ordinary shares of RM3.70 each. The changes in the issued and paid-up share capital of MSLNG since its incorp·oration up to 23 September 2010, are as follows: Cumulative No. of issued Date of ordinary Par and paid-up allotment shares value Consideration share capital RM RM
06.04.2006 1,000,000 3.70 Cash 3,700,000 (iii) Substantial shareholder MSLNG is a 70%-owned subsidiary of MMHE. The remaining 30% is held by Samsung Heavy Industries. (iv) Subsidiary and associated company As at 23 September 2010, MSLNG does not have any subsidiary or associated company. (c) TIS8 (Company No. 310571-H) (i) History and business TISB was incorporated in Malaysia under the Companies Act on 5 August 1994 as a private limited company under the name of MSE­CWM Co-Generation Sdn Bhd. It subsequently changed its name and assumed its present name on 20 October 1994. TISB commenced business in May 1995. The principal activity of TISB is sludge disposal management. (ii) Share capital As at 23 September 2010, the authorised share capital of TISB is RM10,OOO,000 comprising 10,000,000 ordinary shares of RM1.00 each. The issued and paid-up share capital of TISB is RM10,000,000 comprising 10,000,000 ordinary shares of RM1.00 each. 6. INFORMATION ON OUR GROUP (Cont’d) The changes in the issued and paid-up share capital of TISB since its incorporation up to 23 September 2010, are as follows: Cumulative No. of issued Date of ordinary Par and paid-up allotment shares value Consideration share capital RM RM 05.08.1994 2 1.00 Cash 2 19.12.1994 999,998 1.00 Cash 1,000,000
05.06.1995 9,000,000 1.00 Cash 10,000,000 (iii) Substantial shareholder TISB is a wholly-owned subsidiary of MMHE. (iv) Subsidiary and associated company As at 23 September 2010, TISB does not have any subsidiary or associated company. 6.3.3 Jointly controlled entities of MMHE (a) MMHE-ATB (Company No. 307771-X) (i) History and business MMHE-ATB was incorporated in Malaysia under the Companies Act on 14 July 1994 as a private limited company under the name of Titan Heavy Equipment Sdn Bhd. It subsequently changed its name to MSE-ATB Sdn Bhd on 23 February 2000 before assuming its present name on 28 November 2005. MMHE-ATB commenced business in 2000. The principal activities of MMHE-ATB are manufacturing works of pressure vessels and tube heat exchangers. (ii) Share capital As at 23 September 2010, the authorised share capital of MMHE­ATB is RM15,000,000 comprising 15,000,000 ordinary shares of RM1.00 each. The issued and paid-up share capital of MMHE-ATB is RM5,600,000 comprising 5,600,000 ordinary shares of RM1.00 each. 6. INFORMATION ON OUR GROUP (Cont’e/) The changes in the issued and paid-up share capital of MMHE-ATB since its incorporation up to 23 September 2010, are as follows: Cumulative No. of issued Date of ordinary Par and paid-up allotment shares value Consideration share capital RM RM 14.07.1994 2 1.00 Cash 2 30.08.1994 4,999,998 1.00 Cash 5,000,000 04.08.2000 600,000 1.00 Cash 5,600,000 (iii) Substantial shareholder MMHE-ATB is our 40% jointly controlled entity. The remaining 60% is held by ATB Riva Calzoni SpA. (iv) Subsidiary and associated company As at 23 September 2010, MMHE-ATB does not have any subsidiary or associated company. (b) MMHE-TPGM (Company No. 804467-U) (i) History and business MMHE-TPGM was incorporated in Malaysia under the Companies Act on 28 January 2008 as a private limited company under the name of Vital Start Sdn Bhd. It subsequently changed its name to its present name on 18 June 2008. MMHE-TPGM has not commenced operations as at 23 September 2910. The principal activities of MMHE-TPGM are provision of engineering, procurement, construction, installation and commissioning. (ii) Share capital As at 23 September 2010, the authorised share capital of MMHE­TPGM is RM500,000 comprising 500,000 ordinary shares of RM1.00 each. The issued and paid-up share capital is RM300,OOO comprising 300,000 ordinary shares of RM1.00 each. 6. INFORMATION ON OUR GROUP (Cont’d) The changes in the issued and paid-up share capital of MMHE­TPGM since its incorporation up to 23 September 2010, are as follows: Cumulative  No. of  issued  Date of  ordinary  Par  and paid-up  allotment  shares  value  Consideration  share capital  RM  RM  28.01.2008  2  1.00  Cash  2  10.11.2008  99,998  1.00  Cash  100,000  11.02.2009  200,000  1.00  Cash  300,000
(iii) Substantial shareholders MMHE-TPGM is our 60% jointly controlled entity. The remaining 40% is held by Technip Geoproduction (M) Sdn. Bhd. (iv) Subsidiary and associated company As at 23 September 2010, MMHE-TPGM does not have any subsidiary or associated company. Our subsidiaries and jointly controlled entities do not have any outstanding warrants, options, convertible securities and uncalled capital 23 September 2010. [The rest of this page is intentionally left blank] 6. INFORMATION ON OUR GROUP (Cont’d) 6.4 Material capital expenditures and divestitures The following table sets forth our capital expenditure and divestitures (which include property, plant and equipment) for the past three (3) FYE 31 March 2010: Three-Month Description FYE 31 March FPE 30 June 2008 2009 2010 2010 —–(RM’million) Investment Buildings, dry-docks and waste plant…. 42.5 0.2 0.4 0.2 Plant, machinery and electrical installations . 7.2 4.6 33.3 11.3 Construction-in-progress . 199.6 155.8 234.5 36.1 Others(1) . 1.6 2.0 0.9 0.3 Divestment Buildings, dry-docks and waste plant…. 3.7 0.5 0.3 Plant, machinery and electrical installations . 0.7 0.9 1.7 1.1 Construction-in-progress . 5.3 Others(1) . 1.0 3.7 2.8 0.1 Note: (1) Comprises fumiture and office equipments, boats, vehicles and transport equipment and loose tools. On 1 April 2010, our Group disposed of 1,120,000 ordinary shares of RM1.00 each in MMHE­ATB for a sale consideration of RM6,000,000 or RM5.35 per share. This effectively reduced our Group’s equity interest in ATB from 60% to 40%. The disposal was completed on 20 August 2010. [The rest of this page is intentionally left blank] 7. BUSINESS OVERVIEW 7.1 Overview We are a leading Malaysian heavy engineering and marine services provider, primarily focused on the oil and gas sector. We offer a wide spectrum of engineering and construction, marine conversion and marine repair services from our yard in Pasir GUdang, Johor, Malaysia, and the yard we operate and manage in Kiyanly, Turkmenistan on behalf of PCTSB. Our Company is the parent company of MMHE, and we offer our services primarily under the “MMHE-brand. We are Malaysia’s main fabricator of offshore structures and we have the second largest aggregate amount of fabrication capacity among Malaysian companies. We are one of seven licensed contractors of offshore structures that are eligible to bid for engineering and construction contracts tendered by PSC operators in Malaysia. We also operate the country’s largest repair shipyard by dry-dock capacity. We believe we are well positioned, in terms of experience and facilities, to benefit from current and future demand from the oil and gas industry in Malaysia and the Southeast Asian region, as well as in the Caspian region. We were the first Malaysian company to construct a deepwater SPAR, the Kikeh Dry Tree Unit Truss SPAR, completed in 2006. This was the first SPAR platform installed outside the GUlf of Mexico, and it is the deepest SPAR platform installed in Asian waters. Our principal shareholder is MISC, a leading international maritime company primarily focused on energy transportation and logistics and other energy related businesses, which is listed on the Main Market of Bursa Securities. As at LPD, MISC is a 62.7% owned subsidiary of PETRONAS, the national oil and gas company ofMalaysia. MMHE, our principal subsidiary, was incorporated in 1973, and has built up a track record of projects in onshore and offshore engineering and construction, marine conversion and marine repair, primarily serving clients in the oil and gas industry. We were appointed as the EPCIC contractor by PCTSB in Turkmenistan in 2004, and these operations now contribute a substantial percentage of our revenue. We have three core businesses: engineering and construction, marine conversion and marine repair, and we divide our businesses into two operating segments: the engineering and construction segment and” the marine conversion and marine repair segment. Our engineering and construction business offers a full range of oil and gas construction and engineering services, from detailed engineering design and procurement to construction, installation, hook-up and commissioning. We specialise in the construction of various facilities for the offshore and onshore oil and gas industry. Completed and ongoing projects include the construction of oil and gas platforms, jackets, topsides, process modules, turrets, SPARs, semi­submersibles, mooring buoy systems, living quarters and substructures. The Pasir Gudang yard is the only yard in Malaysia that has constructed complex deepwater structures for the oil and gas industry. For the FYE 31 March 2008, 20m:) and 2010, our engineering and construction business accounted for RM1,014.9 million, RM3,042.0 million and RM5,603.8 million, or 58.3%, 75.7% and 91.2%, respectively, of our total revenues. For the three-month FPE 30 June 2010, our engineering and construction business accounted for RM1,060.0 million, or 90.4% of our total revenue. 7. BUSINESS OVERVIEW (Cont’dj Our marine conversion business offers a one-stop centre for converting vessels such as VLCCs, Aframax tankers and offshore oil rigs into floating structures for the offshore oil and gas industry such as FPSOs, FSOs, MOPUs and MODUs. We provide a comprehensive range of marine conversion services from engineering d~sign to fabrication, installation and commissioning of these structures. We operate the only yard in Malaysia that has completed FPSO/FSO conversions, our first, being the FPSO Perintis, was completed in March 1999. Other services offered by our marine conversion business include the construction of new-built structures, including tender rig barges, and “jumboisation” works, which are complex engineering operations to increase a vessel’s length, breadth or both dimensions. Our marine repair business offers repair, refit and refurbishment services to a wide range of vessels, with a focus on energy-related vessels such as ULCCs, VLCCs and other petroleum tankers, chemical tankers, offshore oil rigs, gas carriers, and other offshore support vessels. We provide maintenance, technical solutions and refurbishment services for LNG carriers at our yard in Pasir Gudang. We market these services for LNG carriers through a joint venture with Samsung Heavy Industries. Our Pasir Gudang yard is a comprehensive and integrated facility for all segments of our business on a strategically located 150.6 hectare complex with a 1.8 km seafront. The facility includes two dry-docks, five fabrication areas, three skid-tracks and two bulkheads, 35 workshops, one shiplift, two landberths, seven quays and one LNG carrier repair facility. We began implementing the Yard Optimisation Programme at this facility in 2006, and we expect to complete this programme in 2014. The programme is intended to increase the yard’s efficiency and expand the range of projects that the yard can undertake. We do not own the Kiyanly yard in Turkmenistan. The fabrication yard that we operate and manage in Klyanly, Turkmenistan, on behalf of PCTSB, a subsidiary of PETRONAS, has an area of 43.6 hectares and undertakes projects for PCTSB, on an EPCIC basis, in connection with the Turkmenistan Block 1, Phase 1 gas development project in the Caspian Sea granted to PCTSB under a production sharing contract executed between PCTSB and the government of Turkmenistan. / As of 30 June 2010, our Group had total assets of RM4,298.7 million and shareholders’ equity excluding minority interests of RM1,308.6 million. For the FYE 31 March 2010, we generated revenue of RM6,147.0 million and PAT of RM284.1 million. As of 30 June 2010, our orderbook was RM5,951.9 million. Our orderbook is made up of the total stated contract value of orders not yet delivered minus the portion of sales already recognised in respect of such orders using the stage-of-completion method. 7.2 Key milestones and achievements The table below includes the dates and a description of significant events in our corporate history: Date Description May 1973 July 1973 August 1976 September 1976 November 1976 Incorporation of MMHE (under the name MSE). The Malaysian Govemment’s Minister of Finance, Inc., Sumitomo Heavy Industries Ltd., Kuok Brothers Sdn Bhd and LM.C. (Overseas) Inc. Liberia (“IMe”) became the shareholders of MMHE. We completed our first dry-dock. Our marine repair business commenced when we received our first ship for dry-docking, the Japan Acacia, a 122,484 dwt bulk carrier owned by Japan Lines. Official opening of the Pasir Gudang yard by the late YAB Tun Hussein Onn, the then Prime Minister of Malaysia. 68 7. BUSINESS OVERVIEW (Conf’d) Date Description July 1978 May 1980 February·1989 July 1991 January 1992 July 1996 May 1997 March 1999 July 1999 October 2000 March 2004 April 2005 July 2006 September 2006 March 2007 March 2007 January 2008 September 2008 Ongoing Our engineering and construction business commenced with the fabricationofourfirstoil and gas·structure,aset oflivingquarters. Our former shipbuilding business delivered its first vessel, MV Tanjong Pinang, for the Marine Department of Malaysia. Our Company was incorporated pursuant to the Companies Act (under the name MSE Holdings Sdn Bhd). Our two ordinary shares of RM1.00 each (under the name MSE Holdings Sdn Bhd) were transferred from two individual shareholders to IMC Enterprises Incorporated and Kuok Brothers Sdn Bhd and one new ordinary share of RM1.00 was allotted and issued to MISC. Our Company became the sole shareholder of MMHE. MISC Enterprises Holding Berhad (“MEW), a wholly-owned subsidiary of MISC, acquired the shares held by MISC in our Company. A shiplift system was installed at the Pasir Gudang yard. The system is able to lift and transfer to landberth vessels and structures up to 50,000 dwt. Our first FPSO conversion was completed ~hen we converted the MV Hitra into the FPSO Perintis. We completed our first LNG carrier repair on MISC’s Tenaga Satu. We completed our first “jumboisation” project, the T-6 Robray, for Varia Perdana Sdn..Bhd. We built and delivered our first tender drill barge Tioman T-9 for Smedvig Rig AS. Tioman T-9 was the first in a series of four tender drill barges. Tioman T-10 was built and delivered to Crest Tender Rigs Pte Ltd in August 2007, whilst Seadrill T-11 and Seadriff T-12 were built and delivered to Seadrill Tender Rig Ltd in April 2008 and February 2010 respectively. MSE changed its name to MMHE. IMC Enterprises Incorporated and Kuok Brothers Sdn Bhd transferred their entire shareholdings in our Company to MISC. We completed the construction of the first SPAR installed outside of the Gulf of Mexico, and our first deepwater structure, the Kikeh Dry Tree Unit Truss SPAR, for Malaysia’s first deepwater oil and gas field. We commenced operations at the Kiyanly fabrication yard in Turkmenistan. We completed the conversion of our first deepwater FPSO facility, the FPSO Kikeh, constructed to provide offshore production and storage capacity for the Kikeh field. .MEH transferred its entire shareholding in our Company to MISC. We completed our first LNG refurbishment project, on MISC’s LNG carrier, the Tenaga Tiga. We are currently constructing Asia’s first deepwater FPS, the Gumusut­Kakap FPS, which is approximately 38,000 mt and is to be deployed offshore of Sabah, Malaysia. 7. BUSINESS OVERVIEW (Cont’dj 7.3 Competitive strengths 7.3.1 Complementary core businesses creating operational synergies Our core engineering and construction, marine conversion and marine repair busiQesses possess the experience, capabilities and expertise developed during our 30-year operating history to deliver an integrated portfolio of complementary heavy engineering and marine services to our customers, thereby enhancing our competitiveness and the value we provide to our customers. For owners of offshore oil and gas production facilities, our engineering and construction business is able to design, build and install a variety of offshore drilling and production platforms, while our marine conversion business converts vessels and rigs into floating processing and storage facilities for the hydrocarbons produced at offshore sites. Our marine repair business repairs energy-related vessels as well as offshore oil rigs and other facilities used by the offshore oil and gas industry. The construction and repair capabilities and engineering expertise we accumulate from our projects are shared among our core businesses to enhance the quality and increase the scope of the services we provide to our customers. With each project we .complete, we continue to hone our extensive project management and risk’ management skills which allow us to mitigate the risks inherent in our projects and thus enhance our ability to deliver our products and services in a timely and cost effective manner. Our engineering and construction business has evolved from being a fabricator of various offshore structures into a full-service provider, having been entrusted by our customers with not only the construction phase, but also the engineering, procurement, installation and commissioning phases in major projects such as the Turkmenistan Block 1, Phase 1 gas development project. Our engineering and construction business also has proven capabilities in the growing market for complex deepwater structures, having built the Kikeh Dry Tree Unit Truss SPAR, which was the first SPAR platform installed outside the Gulf of Mexico, and we are currently constructing the Gumusut­Kakap FPS, which is expected to be the Asia-Pacific region’s first deepwater FPS. Our marine repair business has built upon our core capabilities in general vessel repairs to focus on more complex and more profitable repair and refurbishment projects such as those for LNG carriers and offshore oil rigs. Leveraging our expertise in building offshore floating structures and our experience in refitting and repairing energy-related vessels, our marine conversion business has established a track record of FPSO and FSO conversions. We are the only yard in Malaysia that has completed FPSO and FSO conversions, and our ability to provide this capability allows us to capture an important part of the offshore oil and gas market while enabling us to diversify our revenue source. 7. BUSINESS OVERVIEW (Cont’d) 7.3.2 A leading position in markets poised for further growth The Asia Pacific region is forecasted to remain the largest market for offshore oil and gas production facilities in the near and medium term, with over one third of global expenditures on offshore field development and pipeline construction expected to be devoted to this region. Malaysia has the third largest proven oil reserves in the Asia Pacific region and is expected to account for a considerable portion of the spending on offshore exploration and production activities in the region as there are six major deepwater projects in Malaysia that will require floating production facilities to be installed over the next three to five years. Furthermore, there are 16 additional deepwater oil and gas fields that have been discovered in offshore Malaysia that have the potential to result in field development projects requiring floating production facilities. Of the seven licensed contractors for offshore structures that are eligible to bid for engineering and construction contracts in Malaysia, we are the only yard with an established track record and capability for building offshore structures used in deepwater projects. We are thus well positioned to capitalise on future projects to develop deepwater fields in Malaysia, including the Malikai, Jangas, Ubah Crest, Kamunsu and Pisagan fields. The Caspian countries have 45.0% of the world’s gas reserves, amounting to 3,010 trillion cubic feet of gas, and exploration and production activities in these countries are expected to increase in the medium to long term. We were an early entrant into Turkmenistan when we were appointed by PCTSB with effect from 2004 as the EPCIC contractor for Phase 1 of the Block 1 gas development project in Turkmenistan. We operate the only topsides fabrication yard in Turkmenistan and are one of five companies in the Caspian region with experience manufacturing offshore facilities. In light of the potential increase in exploration and production activities in the region, including the next phases of the Turkmenistan Block 1 gas development project, and the limited number of competitors operating in the region, we believe we are well positioned to capture engineering and construction contracts from the PETRONAS Group, as well as other oil and gas companies operating in or entering the region if our request for permission to use the Kiyanly yard on projects for such companies is granted by the Turkmenistan government and PETRONAS. 7.3.3 Large scale, well-equipped, integrated, and strategically located yard Our Pasir Gudang yard is a comprehensive and integrated facility, strategically located to benefit from its proximity to main shipping lanes and from being in a marine hub. We have the second largest oil and gas fabrication yard capacity among the seven licensed contractors for offshore structures in Malaysia, representing 27.3% of the country’s total annual tonnage capacity. Our Pasir Gudang yard in Malaysia has an area of 150.6 hectares and can simultaneously accommodate the construction of structures with total tonnage of 69,700 mt. The Pasir GUdang yard has comprehensive on-site facilities to handle a variety of tasks for our core businesses. We have one of the world’s largest shiplift systems, which is capable of lifting and transferring vessels and structures up to 50,000 dwt to our landberths. We have one of the largest dry-dock spaces in Southeast Asia, with the ability to service vessels up to 450,000 dwt, allowing us to repair, refit and refurbish large vessels such as ULCCs, VLCCs and LNG carriers. We have 35 well-equipped workshops, including metal cutting shops and subassembly shops, which allow on-site work to be performed by our subcontractors and which are covered areas that permit work to continue during adverse weather conditions. 71 7. BUSINESS OVERVIEW (Cont’dj Our integrated yard allows us to fully control all essential aspects of our projects. We have the flexibility to make timely and informed changes on the allocation of the yard’s various facilities and resources to current projects in cases where there are changes to a project’s specifications due to customer requests or otherwise. In addition, the integrated nature of our yard allows us to capitalise on shared maintenance and overhead costs, thereby improving our cost structure. The yard is strategically located in the southern part of Peninsular Malaysia, close to the main regional and international shipping lanes and in a marine hub with several yards in the vicinity. The yard’s proximity to shipping lanes makes our yard a more convenient destination for scheduled and unscheduled vessel repairs compared to yards located in other parts of Asia, such as Vietnam and China, which for many vessels may require a longer voyage away from their regular routes. Being located in a marine hub also gives us access to a pool of skilled labour and materials and service providers to support our operations. 7.3.4 Strong orderbook and customer base Our orderbook was RM5,951.9 million as of 30 June 2010, providing earnings and cash flow visibility through 2012. A substantial portion of this orderbook is derived from projects in Malaysia and Turkmenistan that are important to the development of the oil and gas industry of those countries. A large portion of our existing heavy engineering contracts are on a cost-plus basis, mitigating our exposure to price escalations and cost overruns, further improving our earnings visibility. These contracts typically provide for an advance payment from our customers of 5% to 15% of the contract price, thus alleviating the adverse financial effects of project cancellations and non-payment. Our customer base for our engineering and construction and marine conversion businesses includes major international oil and gas companies and national and independent oil and gas companies, such as PETRONAS, MISC, Exxon Mobil Corporation (“ExxonMobil”), Royal Dutch Shell pic (“Shell”), Woodside Petroleum Ltd (“Woodside;’) and Technip as well as leading offshore structure owners such as MISC and SBM Offshore NV. (“SBM Offshore”). Our major customers for our marine repair business are well known vessel owners such as MISC, Teekay Corporation, Allseas Engineering b.v., CPC Corporation, Taiwan and Hyundai Merchant Marine. These customers have been with us for years and provide us with repeat businesses. Their strong credit quality reduces default and credit risks and has contributed to our strong cash flows from operations over the past years. rrhe rest of this page is intentionally left blank] 7. BUSINESS OVERVIEW (Cont’cI) 7.3.5 Strong relationship and support from the PETRONAS Group We are part of the PETRONAS Group and represent an important component of the value chain within this fully integrated international oil and gas group. By completing complex deepwater structures and facilities, as well as FPSO and FSO conversions, for MISC and PCTSB and repairs for LNG and other energy-related vessels owned by MISC, we have developed our core business capabilities and project management skills which we apply to projects for all of our customers. By undertaking various projects for companies in the PETRONAS Group, we have also gained a deep understanding of industry trends and the needs of our customers in our core businesses. The PETRONAS Group’s decision to award contracts is merit-based, thus our track record of successfully completed projects for the group demonstrates the competitive technical capabilities that we have established in the industry. However, we are also mindful of the need for us to continue to improve our capabilities to compete effectively for future contracts from the PETRONAS Group. As the PETRONAS Group continues to diversify its operations into various regions of the world, we have leveraged our enhanced knowledge and expertise to participate in its overseas expansion. For example, we have entered the Caspian region by operating the only topsides fabrication yard in Turkmenistan and acting as the EPCIC contractor for the gas development project being operated by PCTSB. We enable PETRONAS to provide an integrated value proposition when it bids for development rights in various oil and gas projects overseas. By contracting with us for its oil and gas development projects, the PETRONAS Group js able to minimise the revenues lost to third party service providers, and thereby enhance its returns on its projects. 7.3.6 Well-entrenched Health, Safety and Environment culture We have a well-entrenched HSE culture and track record. Our established HSE culture and track record has helped us to attract major international oil and gas companies, such as ExxonMobil and Shell, and independent oil and gas companies, such as Woodside, Talisman Energy Inc., SBM Offshore and Technip, as our customers. These companies seek a reliable contractor for their projects and impose stringent HSE rules. Our track record as the contractor on projects involving these companies, some of whom we have serviced for over five years, demonstrates our proven ability to adhere to strict HSE standards. Our emphasis on service quality and HSE has led to a decline in lost time due to injury over the last three years even though the number of man­hours worked has increased significantly during the same period. Our LTIF has declined from 0.39 in the FYE 31 March 2008 to 0.36 in the FYE 31 March 2009 and to 0.20 in FYE 31 March 2010. As HSE continues to be a key focus for our customers, our strong HSE culture and track record will play an important role in us winning new projects. 7.3.7 Solid financial standing with financial flexibility from low gearing We have demonstrated strong financiai performance through our resilient revenue and profit growth as well as our ability to generate high cash flows. Over the three (3)-year period ended 31 March 2010, our revenues increased at a CAGR of 87.9%, from RM1,741.9 million to RM6,147.0 million, and our PAT increased at a CAGR of 20.8%, from RM194.6 million to RM284.1 million. This financial performance was achieved despite the challenging operating conditions during the global financial crisis in 2008 and 2009. 7. BUSINESS OVERVIEW (Cont’d) Net cash generated from operating activities in FYE 31 March 2008, 2009 and 2010 were RM56.5 million, RM108.9 million and RM1,243.3 million, respectively. Our marine repair business provides a stable base of revenue as ships are subject to regular docking requirements imposed by maritime regulations. Revenues from our engineering and construction business and marine conversion business are less predictable, but in periods of high offshore oil and gas activity such as in recent years, our revenues can increase substantially due to the much larger scale and longer duration of the projects in these businesses. Also contributing to our positive levels of operating cash flow are the strong credit quality of our customers and our ability to negotiate directly with customers to ensure their timely payment of invoices. In addition, as of 31 March 2010 and 30 June 2010, our gearing ratio, calculated by dividing total interest-bearing debt by shareholders’ equity, was 0.25 time and 0.002 time respectively. Our financial performance and track record of positive cash flow, coupled with low gearing and strong visibility from our orderbook, provide us with the financial flexibility to undertake more projects concurrently compared to our competitors in the region and also pursue selective acquisitions. 7.4 Business strategies and future plans Our aim is to further strengthen our competitive position in the heavy engineering and marine services industry for the oil and gas sector. We intend to achieve our aim through the following strategies: 7.4.1 Enhance our engineering and technical capabilities to focus on high value-added projects in growing markets We intend to enhance our engineering and technical expertise in high value-added projects to capitalise on growth opportunities in our core businesses. We are focused on increasing our work in the deepwater offshore engineering and construction business, which we expect will grow significantly in the Asia Pacific region, and particularly in Malaysia, in the near to medium term. We plan to further develop and enhance our in-house engineering capabilities to strengthen our EPC and EPGIC offerings, as the engineering portion of such projects will enable us to better control the entire value chain, which leads to better project and cost management resulting in higher margins. Furthermore, we can market our engineering capabilities without being dependent on our capital expenditures or yard capacity. In the marine conversion business, we plan to pursue new, high value-added projects in the offshore market that require specialised technical capabilities. Thus, in addition to FPSO conversions, some of the projects we are considering include FLNG, FLPG, FSRU (Floating Storage Regasification Unit). In addition to enhancing our in-house engineering capabilities, we will continue to explore opportunities for strategic alliances, joint ventures and acquisitions to gain access to new technologies and engineering expertise for use in offshore oil and gas projects to further establish our presence in this growing market. 7. BUSINESS OVERVIEW (Cont’d) 7.4.2 Strengthen our procurement capabilities We plan to strengthen our procurement operations to further ensure that quality materials and services well suited to our projects’ needs are delivered to us in a timely manner at competitive prices. Having an effective procurement capability plays an important role in allowing us to complete our projects to our customers’ satisfaction at attractive margins to us, especially when performing under fixed-price contracts. A strong procurement capability will also contribute to our efforts to win additional EPCIC and EPC contracts in the future. We will continue to enter into arrangements with our major materials suppliers to receive the most competitive prices they offer and to ensure a stable supply of materials to us, especially during periods of tight supply. We . also intend to improve how we manage our panel of sub-contractors with an emphasis on promoting consistent levels of high quality service. 7.4.3 Increase our share of high-margin projects in the marine repair business In the marine repair business, we intend to expand our volume of high-margin repair projects such as LNG carrier repairs and refurbishments of offshore oil rigs. Our joint venture with Samsung Heavy Industries, a leading builder of LNG carriers, has been instrumental in providing us with the expertise for LNG carrier repairs and refurbishments. In addition, we are using this joint venture to market our LNG carrier repair services by tapping Samsung Heavy Industries’ insights about the owners for whom they have built LNG carriers. We have succeeded in procuring repair orders from prominent LNG carrier owners, and plan to leverage further on this joint venture to achieve our aim of becoming the regional leader for LNG carrier repairs in Southeast Asia. We believe the market for refurbishing offshore oil rigs will present us with attractive opportunities to grow the volume of our marine repair business. When oil rigs currently used in offshore sites are decommissioned, these rigs can be refurbished and modified for deployment in new offshore production sites at costs that are lower than the cost of building new oil rigs. We have recently entered the market for oil rig refurbishments and aim to increase our work on such projects. We believe our capabilities in marine repairs and the planned expansion of our Pasir Gudang yard capacity place us in a strong position to bid for oil rig refurbishment projects that become available in the future. 7.4.4 Increase yard capacity, competitiveness and efficiency through our Yard Optimisation Programme We embarked on a Yard Optimisation Programme at our Pasir Gudang yard in 2006 in order to: • rationalise the yard’s existing workshops by optimising materials flow to improve efficiency and productivity while making additional space available for fabrication of larger and more complex engineering and construction structures and projects;
• increase the capacity for high-value marine conversion and marine repair projects by expanding and improving the facilities to conduct LNG and offshore rig repairs;
• construct specialised, sophisticated enclosed work areas for increased production (including process automation eqUipment) with less weather-related down-time; and
• purchase and construct new equipment needed for the construction of bigger, more complex structures.

75 7. BUSINESS OVERVIEW (Cont’d) Upon completion of our Yard Optimisation Programme, we expect to have greater flexibility to undertake concurrently a larger number of projects with high margins. For example, the improvements to our yard will allow us to simultaneously construct deepwater structures of up to 40,000 mt, concurrently carry out repair works for two LNG carriers and four VLCCs, and carry out conversion works on three FPSOs, FSOs or rigs at the same time. We intend to complete our Yard Optimisation Programme by 2014. We believe this Programme will allow our Pasir Gudang yard to compete even more effectively with other regional yards, including those in Singapore and Korea. 7.4.5 Expand and diversify our customer base and geographic focus We expect that the PETRONAS Group will continue to be a major customer for our core businesses. As we expand our yard capacity, we aim to attract more customers by building on our established track record, our expertise in deepwater structures and our ability to provide one-stop services across our core businesses. We plan to build upon our success in the Malaysian market where we believe we have cemented a leading position in the heavy engineering and marine services industry. We intend to expand our geographic focus to include the Australasian region where we believe our enhanced yard facilities, our relative proximity to the region and our proven capabilities in deepwater projects will allow us to tap into a growing market for platforms and other structures to be used in deepwater oil and gas fields in that region. We believe we are well-positioned to cater to this demand by building and integrating pre-fabricated structures at our Pasir Gudang yard, taking advantage of the on-going improvements resulting from our Yard Optimisation Programme. We believe that these efforts to diversify our customer base and geographic focus will contribute to an expansion of our business as well as a reduction in concentration risks. 7.4.6 Continuous efforts to maintain a strong Health, Safety and Environment culture Customers in the oil and gas industry are demanding more stringent HSE practices from their contractors as a result of increasing regulations and recent, high-profile accidents and spills at deepwater oil production facilities. We have met and complied with the high HSE standards of a number of international oil and gas companies that we have worked with, such as ExxonMobil and Shell. As we expand our businesses overseas, we hope to differentiate ourselves from other yards based on our strong HSE culture and compete more effectively in markets where higher HSE standards prevail. [The rest of this page is intentionally left blank] 7. BUSINESS OVERVIEW (Cont’d) 7.5 Our corporate structure The chart below illustrates our corporate structure as at LPD, with percentages of ownership noted.
60% MMHE-TPGM (2) Notes: 11} A joint venture company with Samsung Heavy Industries, which is a jointly controlled entity. 12} A joint venture company with Technip Geoproduction (M) Sdn. Bhd., which is a jointly controlled entity. 7.6 Business activities The following table sets forth our revenues by segment and related percentage data for the periods indicated: Three-Month FYE 31 March FPE 30 June 2010 2008 % 2009 % 2010 % 2010 % (in RM millions, except for percentages) Engineering and 1,014.9 58.3 3,042.0 75.7 5,603.8 91.2 1,060.0 90.4 Construction . Marine 718.5 41.2 960.4 23.9 540.0 8.8 112.6 9.6 Conversion and Repair . ——,-=c-,..–,,-0.5 18.7 0.5 0.4Other(1) 8.5 3.2 1,741.9 100.0 4,021.1 100.0 6,147.0 100.0 1,172.9 100.0Total _—.;~_ Notes: Insignificant. 11} Includes sludge disposal management and manufacturing ofpressure vessels and tube heat exchangers: As the data in the table above demonstrate, in recent years the relative portion of our revenue derived from our engineering and construction segment has increased significantly. 7. BUSINESS OVERVIEW (Cont’d) Notable projects Our notable completed and ongoing projects are as follows: Completed: • Kikeh Dry Tree Unit Truss SPAR In September 2006, we completed the first SPAR installed outside the Gulf of Mexico. Construction of the platform involved 4,660,000 man-hours with no lost time to injury. The Kikeh Dry Tree Unit Truss SPAR is currently the deepest oil and gas platform operating in Asia, operating at a water depth of 1,326 metres. • FPSOKikeh We completed construction of the Kikeh FPSO, a VLCC conversion, in March 2007. This was the first VLCC FPSO to service Malaysia’s first deepwater field and the Kikeh Dry Tree Unit Truss SPAR. Our work on this project included construction of the topside and turret by our engineering and construction segment and the conversion of a VLCC by our marine conversion and marine repair segment. • FPSO Ruby /I We delivered the FPSO Ruby /I in March 2010, an Aframax tanker conversion to service Block 01 and Block 02 of the Ruby field offshore of Vietnam. The project included the conversion of the Aframax tanker by our marine conversion business and the construction of the turret and the topside by our engineering and construction segment. Our Group completed our first LNG carrier repair on MISC’s Tenaga Satu in July 1999. Our Group also built and delivered our first tender drill barge, Tioman T-9, in March 2004 for Smedvig Rig AS. Tioman T-9 was the first in a series of four tender drill barges. Tioman T-10 was built and delivered to Crest Tender Rigs Pte Ltd in August 2007, whilst Seadrill T-11 and Seadri/l T-12 were built and delivered to Seadrill Tender Rig Ltd in April 2008 and February 2010 respectively. In October 2000, our Group completed our first “jumboisation” project, the T­6 Robrayfor Varia Perdana Sdn Bhd. . Ongoing: • Gumusut-Kakap FPS We are currently constructing the Gumusut-Kakap FPS, an approximately 38,000 mt deepwater semi-submersible for MISC. The Gumusut-Kakap FPS is designed to process 150,000 bbl/d from 19 subsea wells and operate in water depth of up to 2,300 metres. It is expected to be the Asia Pacific region’s first deepwater FPS and is intended to operate offshore of Sabah, Malaysia. • Turkmenistan Block 1, Phase 1 Gas Development Project We were appointed as the EPCIC contractor by PCTSB for Phase 1 of its Block 1 gas development project in Turkmenistan with effect from 2004. The Kiyanly yard is the only topsides fabrication yard in Turkmenistan. • Kinabalu Non Associated Gas (NAG) Topside We are currently constructing the Kinabalu NAG Topside for PETRQNASCarigali, our first high-temperature, high-pressure gas production topside. 78 7. BUSINESS OVERVIEW (Cont’dj Engineering and construction Our engineering and construction segment constructs facilities for the offshore and onshore oil and gas industry. We offer a full range of construction and engineering services, from detailed engineering design and procurement to construction, installation, hook-up and commissioning. We are focused on the fabrication, building and upgrading of deepwater vessels, drilling platforms and other oil and gas facilities. Many of these services are delivered in the context of EPCIC projects and EPC projects, which now contribute a substantial percentage of our revenue. In particular, we have recently derived substantial portion of our revenue from EPCIC contracts for the Turkmenistan Block 1, Phase 1 gas development and the Gumusut-Kakap FPS projects. The table below presents heavy engineering works completed by our engineering and construction segment: Number of Projects Work Type Description Completed
Modules. Platforms • Modules are any of various modular sets of equipment 62 and Topsides designed to perform one or more functions and be installed (including living on an offshore platform. Quarters) • Platforms are structures built for offshore oil production from which oil and gas wells are drilled. • Topsides are the portion of any offshore platform above water including the exploration or production plant. living quarters and modules.
• Living quarters are modules designed to provide living space for personnel working on an offshore platform.

Deepwater FPS  •  Deepwater floating production systems include all types of  4  (FPSO. SPAR. FSO)  floating production units, FPSOs. semi-submersibles, SPARs.  also known as deep draught caisson vessels (“DDCVs”). and  FSOs.
Jacket and  •  Oil  and  gas jackets  are  steel  structures  that support the  35  Substructures  above water or “topside” structures of an offshore platform.  •  Substructures  are  structures  that  support  topsides  that  -normally  contain  space  for  storage  and  well-control  equipment.
Jacket with either • Oil and gas jackets are steel structures that support the 10 Topsides or Modules above water or “topside” structures of an offshore platform. • Topsides are the portion of any offshore platform above water including the exploration or production plant. living quarters and modules.
• Modules are any of various modular sets of equipment designed to perform one or more functions and be installed on an offshore platform.

Turrets • Turrets are rotating structures used with FPSOs to attach 15 lines to the unit, allowing the lines to remain connected when the unit moves; some turrets are internal to the unit while others are external. 15Other • Various structures and projects including a single point mooring buoy, fin fan units, fired heaters. a shiploader, convection boxes, air coolers and a MOPU storage tank. 7. BUSINESS OVERVIEW (Cont’d) Current projects The table below provides selected information on major projects being undertaken by our engineering and construction segment as of 30 June 2010: Project  Contract Value  Revenue Recognised(21  Customer  Commencement Date  Contract Period(3)  Type of Contract  (Cost-Plus,  (in RM millions)  (in RM millions}  (months)  Fixed-Price or Combination}l41
EPC/EPCIC: Gumusut-Kakap …………… 5,640.2 (1) 3,725.0 MISC November 2006 63 Combination
Turkmenistan Block 1 Phase 1 …………………….. 8,104.3 (1) 4,998.8 PCTSB November 2004 72 Cost-plus Topside: PETRONAS Kinabalu Topside………….. 750.8 (1) 75.8 Carigali September 2008 43 Combination Tangga Barat PETRONAS Topside……………………… 848.2(1) 613.9 Carigali September 2008 25 Combination Turret: BP Angola External Turret ………………………… 32.6 23.0 Sofec Inc. October 2008 24 Fixed-Price Notes: (1) Contract value includes cost estimates for cost-plus arrangements.
(2) As of30 June 2010, we had recognised RM9,436.5 million ofrevenue for the above projects.
(3) The contract period is based on contractual dates, updated in certain cases based on agreements with customers to extend the contract period.
(4) ·Cost-Plus” contracts involve customers paying the costs of inputs with the addition of an agreed percentage ofprofit to us. “Fixed-Price” contracts involve fixed revenue amounts being received upon the achievement of certain milestones. ·Combination” contracts are a hybrid of both cost-pIus and fixed-price billing methods. Please refer to Section 7.12 of this Prospectus for further information on the price terms of contracts.

Notable engineering and construction projects currently in progress by our engineering and construction segment include the following: • Gumusut-Kakap FPS We are constructing the Gumusut-Kakap FPS, an approximately 38,000 mt deepwater semi-submersible FPS, for MISC. The Gumusut-Kakap FPS is designed to process 150,000 bbl/d from 19 subsea wells and operate in water depth of up to 2,300 metres. It is expected to be the Asia Pacific region’s first deepwater FPS and is intended to operate offshore of Sabah, Malaysia, in water depth of up to 1,200 metres. Parts of the project, including materials procurement, have been contracted on a cost-plus basis while other portions have been contracted on a fixed-price basis. The platform will be operated by Shell (which has a 33% interest in the venture), on behalf of its joint venture partners ConocoPhilips Company (33%), PETRONAS (20%) and Murphy Oil Corporation (14%). For the FYE 31 March 2008, 2009 and 2010, revenue from the Gumusut-Kakap project contributed RM310.6 million, RM947.5 million and RM2, 195.2 million, or 17.8%, 23.6% and 35.7%, respectively of our total revenue. For the three-month FPE 30 June 2010, revenue from the Gumusut-Kakap project contributed RM240.1 million, or 20.5% of our total revenue. 80 7. BUSINESS. OVERVIEW (Cont’d) • Turkmenistan Block 1, Phase 1 Gas Development Project We were appointed as the EPCIC contractor by PCTSB for Phase 1 of its Block 1 gas development project with effect from 2004. PCTSB has been granted operating rights to develop and produce the oil and gas fields under Block 1 in the Caspian Sea; this block is approximately 80 kilometres southwest of Turkmenbashy, Turkmenistan. Our EPCIC contract for this project consists of several project packages including the Magtymguly Drilling Platform-A, Magtymguly Collection Riser-A (a collector and riser platform), Owez Drilling Platform-A (a single mooring system), the Kiyanly fabrication yard, a f1oatover barge, an onshore gas treatment terminal and the offshore and onshore pipelines connecting the treatment plant to the oil and gas fields. Our relationship with PCTSB for this project is governed by an agreement between MMHE and PCTSB. The project is being conducted and funded under a cost-plus arrangement, where cash flow needs are forecasted and provided in advance to enable the procurement of materials and services. On 2 August 2010, MMHE-TPGM obtained its branch registration in Turkmenistan. The registration is not subject to any conditions imposed by the Turkmenistan’s Ministry of Economy and Development. We intend to transfer the EPCIC contract for the Turkmenistan Block 1, Phase 1 gas development project (which is currently being held by MMHE) to MMHE-TPGM by novation. ‘ For the FYE 31 March 2008, 2009 and 2010, the Turkmenistan Block 1, Phase 1 gas development project contributed RM300A million, RM1,301.2 million and RM2,563.8 million, or 17.2%, 3204% and 41.7%, respectively, of our total revenue. For the three­month FPE 30 June 2010, revenue from the Turkmenistan Block 1, Phase 1 gas development project contributed RM684.5 million, or 5804% of our total revenue. • Tangga Barat We are·constructing the topside and jacket for a central processing platform to be used by PETRONAS Carigali in the Tangga Barat Cluster gas fields off the coast of Terengganu, Malaysia. The 14,505 mt platform will accommodate all processing facilities, booster compression equipment, an acid gas removal system, a main power generator, utilities and living quarters for the field operation. We completed the jacket for this project in April 2010. The project. is being conducted under a partial cost-plus arrangement, where certain materials are procured on a cost-plus arrangement. For the FYE 31 March 2009 and 2010, the Tangga Barat project contributed RM49.0 million and RM548A million, or 1.2% and 8.9%, respectively, of our total revenue. For the three­month FPE 30 June 2010, revenue from the Tangga Barat project contributed RM72.0 million, or 6.1 % of our total revenue. Current orderbook Our orderbook as of any date is made up of the total stated contract value of orders not yet delivered excluding the portion of sales already recognised in respect of such orders using the stage-of-completion method. For contracts involving cost-plus arrangements, these contract values include cost estimates. We do not include projects in our orderbook until a contract has been signed, except in the case of arrangements with PETRONAS Group of companies, where the amounts are included in the orderbook on the basis of letters of intent or letters of award that do not prohibit the customer from cancelling these projects.” If these projects were to be cancelled, we may only be able to recover expenses incurred up to the date of cancellation. 7. BUSINESS OVERVIEW (Cont’d) The make up of our orderbook as of any date may not be representative of our future projects, as certain types of future projects are more likely to be included in the orderbook than others. This is in part because of the timeframe for these projects and the way in which they are contracted. Our engineering and construction segment often undertakes large, long-term projects that remain on our orderbook for a number of years. For example, the Turkmenistan Block 1, Phase 1 gas development project has been on our orderbook since 2007. Projects conducted by the marJne conversion and marine repair segment, in contrast, generally take only a few weeks to a few months to complete and may be reflected on our orderbook for only a short period of time. The following table sets forth, as of 30 June 2010, our orderbook for engineering and construction projects by type of project in terms of the number of projects, orderbook value and the related percentage data: As of 30 June 2010 Number of Projects (in RM millions) % EPC/EPCIC . 2 5,020.7 84.4 Topsides . 2 909.2 15.3 Turrets . 1 9.6 0.2 5,939.5 100.0TotaL 5 Customers Our engineering and construction segment’s customers are mainly companies involved in the oil and gas industry, such as offshore exploration, development and production of oil and gas and marine contractors engaged in the infrastructure of such projects. A significant portion of our revenue from our engineering and construction segment is derived from projects for the PETRONAS Group, such as PETRONAS Carigali and PCTSB. Our top five (5) engineering and construction customers “in terms of the percentage of aggregate revenue contribution for the periods indicated are as follows: Length of Relationship as Three-Month Top 5 Customers of 30 June 2010 FYE31 March FPE 30 June 2008 2009 2010 2010 (year) (in % of total revenue) PCTSS(1) .. >5 17.2 32.4 41.7 58.4 MISC(1) . >5 18.9 27.6 37.7 20.5 PETRONAS Carigali(1) .. >5 2.9 7.6 9.7 10.2 Shell Sarawak , . >5 4.8 5.2 1.3 0.5 Woodside Energy Ltd . 4 5.7 0.6 49.5 73.3 90.4 89.5Total . Notes: Insignificant. (1) These transactions are related-party transactions. 7. BUSINESS OVERVIEW (Cont’d) Competition and market share There are currently 17 fabrication yards in the Asia Pacific region that have significant offshore oil and gas engineering capacity. Our primary engineering and construction competitors outside of Malaysia include Hyundai Heavy Industries Co., Ltd. (KHHI”), Daewoo Shipbuilding & Marine Engineering Co. Ltd. (“DSME”), Keppel Corporation Ltd. (“Keppel”), Sembcorp Marine (“Sembcorp”), J. Ray McDermott, Inc. (“J. Ray McDermott”), CNOOC Engineering (Qingdao) Co. Ltd., Samsung Heavy Industries, Hyundai Vinashin Shipyard Co., Ltd. and DryDocks World-Dubai. These companies compete with us across our full range of engineering and construction services. In Malaysia, we are one of only seven companies that have a licence to fabricate oil and gas structures. Among the other six PETRONAS-licensed companies, we consider Sime Darby Berhad (“Sime Darby”) and Kencana Petroleum Berhad (“Kencana”) to be our main competitors. In the Caspian region, we are one of only five companies with experience manufacturing offshore oil and gas topsides. The AMEC-Tekfen-Azfen Consortium, J. Ray McDermott, and Keppel have yards in Azerbaijan. Keppel also has a yard in Kazakhstan, and Caspian Energy Group Ltd. operates a yard in Russia. We operate the only topsides fabrication yard in Turkmenistan capable of constructing offshore oil and gas topsides. Our Malaysian competitors are involved primarily in shallow-water topside modules, jackets and appurtenances. Our facilities at our Pasir Gudang yard are the only ones in Malaysia that have constructed complex deepwater structures for the oil and gas industry, such as FPSOs and SPARs. For turret fabrication, Kencana is our only competitor in Malaysia. Our Pasir Gudang yard is the single largest Malaysian topsides fabrication yard, with 27.3% of the total annual tonnage capacity in the country. We have one of the world’s largest shiplift systems, designed to lift and transfer vessels and structures up to 50,000 dwt to landberths, and skid-tracks able to transfer vessels and structures of up to 40,000 mt to landberths, the largest maximum tonnage for skid-tracks in Malaysia. These capabilities, particularly our skid­track capacity, are one of the reasons we are the only company in Malaysia with experience fabricating deepwater units for the offshore industry. . For the period from 2003 to 2010, we were one of 16 companies in the world that constructed hulls or topsides for semi-submersibles, with our work on the Gumusut-Kakap FPS prOViding us with a 6.2% share of the global semi-submersible construction market (based on the number of projects). Also, the Kikeh Dry Tree Unit Truss SPAR was one of only 11 SPARs constructed worldwide during the period from 2003 to 2010, providing us with a 9.1 % global market share of SPARconstruction during this period (based on the number of projects). Project execution process Most of our engineering contracts are EPC contracts, EPCIC contracts or variations of these structures.. The engineering element of projects using EPC or EPCIC contracts may be performed by the customer, a design house or by us. In our experience, the engineering and .procurement elements of these contracts provide higher margins and we are working to expand our work in these areas, including through expansion of our facilities and the hiring of appropriate staff. Following the award of a contract, our EPC and EPCIC work typically involves the steps described below. 7. BUSINESS OVERVIEW (Cont’d) The chart below illustrates the major steps in the execution of our engineering and construction projects:
Project execution planning After a project is awarded, the project manager develops a project costing and project execution plan that includes plans for risk management, resource management, schedule . management, procurement and subcontracting, scope management and quality management. The project finance team ·creates a project number and determines the appropriate accounting codes for use on the project. De~gnandengmeering When project design is part of the project award, our design department or an external design consultant produces the appropriate engineering and design documents based on the specifications and requirements of the client. For more complex projects, our engineering department may collaborate with an external design house that has a proprietary design for the project. Our engineering department reviews and verifies the design documents and the verified design is re-produced as an “issue-for-construction” drawing which is utilised for procurement and construction activities. For procurement purposes, a “material take-off” list is produced based on the issue-for-construction drawing. 7. BUSINESS OVERVIEW (Cant’d) Procurement and subcontracting After the requisition details are produced, the procurement and subcontracting department commences sourcing activities based on the procurement plan. These sourcing activities include enquiry, technical and commercial bid evaluation, contracting and the issuance of purchase orders, tracking and expediting, and delivery and inspection. Materials delivered to our warehouse are inspected and verified by the warehouse department, the quality control department and the project management team. Fabrication & installation After the delivery and acceptance of the materials at the warehouse, the project management team commences construction and fabrication activities. These activities typically include welding, painting, non-destructive testing, hydro-testing, cleaning and flushing, heat treatment, reinstatement test and installation. The testing we perform is recorded and jointly verified by representatives from the project management teams and the client. A representative from our quality assurance department is also at the site to monitor and ensure quality compliance in accordance with the project’s quality management plan. Pre-commissioning Pre-commissioning activities focus on sub-system and system operations, including how various pieces of equipment interact with each other. These activities typically include instrument loop checks, panel function tests, energising electrical equipment and specialist equipment hydraulic systems, flushing and running motors and piping reinstatement leak tests. Commissioning Commissioning activities are done by the hook-up team, either onshore or offshore, in the presence of the project owner or operator. These activities are normally performed after structures and equipment have been installed and pre-commissioned for production use. These activities are intended to verify the functionality of the equipment and its integration with other systems and faCilities, and to ensure that the equipment operates in accordance with project requirements. Commissioning activities are not always required by our clients. Handover Once all systems are commissioned, if required, and accepted by the project owner or operator, the project management team finalises all project documents and acceptance certificates for the hand-over process. Quality assurance/Quality control Our quality assurance/quality control department operates as an independent unit to ensure the quality of work performed. The work of the quality assurance/quality control department runs in parallel with all stages of the project execution process. For construction work, that portion of the project is considered complete only once clearance from the quality assurance/quality control department is obtained. In addition, documentation of quality assurance/quality control e is required for mechanical acceptance by the client. 7. BUSINESS OVERVIEW (Cont’dj Marine conversion and marine repair Our marine conversion and marine repair businesses constitute one operating segment, as we manage these two businesses together based on the shared personnel and facilities employed by the two businesses. (i) Marine conversion Our Pasir Gudang yard is a one-stop centre for the conversion of vessels such as VLCCs, Aframax tankers and offshore rigs into floating structures for the offshore oil and gas industry including FPSOs, FSOs, MOPUs and MODUs. We provide a comprehensive range of conversion services from design, engineering and procurement to fabrication, installation, commissioning and delivery. We also offer “jumboisation” works and have an established track record in newly built self-erecting tender rig barges, which we have constructed since 2004. Our dry-dock facility for marine conversion is one of the largest in the Southeast Asian region in terms of tonnage, and our capacity for marine conversion is currently limited by our available facilities at the Pasir Gudang yard, which we share with our marine repair business. Our Pasir Gudang yard can currently handle only three projects concurrently, either a combination of one VLCC and two Aframax tankers or three Aframax tankers. Our Pasir Gudang yard is the only yard in Malaysia that has completed FPSO and FSO conversions. Since completing the conversion of the FPSO Perintis in March 1999, we have completed an additional four FPSO and four FSO conversion projects. These include the conversion of our first deepwater FPSO facility, the FPSO Kikeh, in March 2007. Other projects completed by our marine conversion business include four new-build self-erecting tender rig barges. [The rest of this page is intentionally left blank] ICompany No. 178821-X I 7. BUSINESS OVERVIEW (Cont’d) Revenue contribution The table below sets forth the revenue from the marine conversion business (by vessel type) for the periods indicated: FYE 31 March Three-Month FPE 30 June 2008 2009 2010 2010 No. of Total No. of Total No. of Total No. of Total Vessels(ll Revenue % Vessels(l) Revenue % Vessels(11 Revenue % Vessels(ll Revenue % (in RM millions, except for number of vessels and percentages) FSO, FPSO and MOPU ….  5  131.3  49.6  8  207.0  56.6  6  123.2  53.8  2  17.8  95.9  Newbuilds  and others …..  3  133.4  50.4  4  158.4  43.4  1  105.8  46.2  2  0.8  4.1
8 264.7 100.0 12 365.4 100.0 7 229.0 100.0 4 18.5 100.0Total ………..
Note: (1) Reflects the number of vessels that contributed revenue during this period, not the number ofprojects secured or completed in that financial year or financial period. [The rest of this page is intentionally left blank] 87 7. BUSINESS OVERVIEW (Cont’d) The table below sets forth our completed FPSO and FSO conversion projects: Completion Project Customer Date FPSO: FPSO Perintis M3nergy FPSO Perintis Sdn Bhd March 1999 FPSO Bunga Kertas…………. MISC December 2003
FPSO Kikeh Malaysia Deepwater Floating Terminal (Kikeh) Limited March 2007 FPSO Ruby II Vietnam Offshore Floating Terminal (Ruby) Ltd. March 2010 FSO: FSO Angsi MISC August 2005 FSO Abu MISC June 2007 FSO Cendor MISC September 2007 FSO Orkid Malaysia Vietnam Offshore Terminal (l) Ltd. February 2009 Newbuilds: T-9 drill tender barge Smedvig Rig As. March 2004 T-10 drill tender barge Crest Tender Rigs Pte Ltd. August 2007 T-11 drill tender barge Seadrill Tender Rig Ltd. April 2008 T-12 drill tender barge Seadrill Tender Rig Ltd. February 2010 As of 30 June 2010, our marine conversion orderbook included projects valued at RMO.1 million, consisting of the Dana 256, a MOPU. Our orderbook for marine conversion as of any date may not be representative of our future revenue. Projects conducted by our marine conversion business often take only a few months to complete and may be reflected on our orderbookfor only a short period of time. Our top five (5) marine conversion customers in terms of the percentage of aggregate revenue contribution for the periods indicated are as follows: Length of Relationship Three-as of 30 June Month FPE Top 5 Customers 2010 FYE 31 March 30 June 2008 2009 2010 2010 (year) (in % of total revenue) MISC(l) ……………………….. >5 6.2 5.0 1.2 0.9 Seadrill Tender Rigs Pte Ltd(2) …………………………. >5 3.7 1.8 Seadrill Asia Limited(3) …… >5 6.8 0.2 Malaysia Offshore
Mobile Production (labuan) Ltd(ll ……………. 2 0.7 0.7 Smedvig Asia Ltd …………. >5 1.6 Total ……………………….. 14.6 9.0 3.6 1.6 7. BUSINESS OVERVIEW (Cont’d) Notes: Insignificant. (1) These transactions are related-party transactions.
(2) On 2 November 2009, MMHE, Seadrill Tender Rigs pte Ltd and Seadrill Tender Rig Ltd executed a deed of novation whereby with effect from 2 November 2009, Seadrill Tender Rigs pte Ltd assigned and transferred to Seadrill Tender Rig Ltd all of its rights and obligations under the building contract originally executed between MMHE and Seadrill Tender Rigs pte Ltd for the construction of the Seadrill T-12 drill tender barge.
(3) On 17 January 2008, MMHE, Seadrill Asia Limited and Seadrill Tender Rig Ltd executed a deed of novation whereby with effect from 17 December 2008, Seadrill Asia Limited assigned and transferred to Seadrill Tender Rig Ltd all of its rights and obligations under the building contract originally executed between MMHE and Seadrill Asia Limited for the construction of the Seadrill T­11 drill tender barge.

Competition and market share Due to the nature of conversion vessels, competition for marine conversion work is not dependent on geographical location. There are, however, companies working in this sector that focus on specific geographic locations, including companies that focus on their domestic market because of regulatory limits on foreign participation in that market. Our principal global competitors for conversion work include DaHan Ocean Shipping Company (“COSCO Dalian”) in China, DSME, HHI and Samsung Heavy Industries in South Korea and Jurong Shipyard Pte Ltd, Keppel and Sembcorp in Singapore. In the Asia Pacific region, marine conversion work is primarily conducted in Malaysia, Singapore, China and South Korea. Our competitive position is strengthened by the fact that we have one of the largest dry­dock facilities in Southeast Asia in terms of tonnage, with the ability to service vessels of up to 450,000 dwt. For the period from 2003 to 2010, we had a 3.8% share of the global FPSO conversion market”{based on the number of projects) and a 12% global market share of the global FSO conversion market (based on the number of projects). Project execution process For our marine conversion projects, the execution process is similar to the project execution process for engineering and construction projects. (ii) Marine repair Our marine repair services include repair, refit and refurbishment services for a wide range of vessels. We focus on energy-related vessels such as ULCCs, VLCCs, petroleum tankers, chemical tankers, offshore oil rigs, gas carriers, and other offshore support vessels. Through a joint venture with Samsung Heavy Industries, we provide maintenance, technical solutions and refurbishment services for LNG carriers at our yard in Pasir Gudang. Our aim is to be the Southeast Asian regional leader for LNG carrier repair. ICompany No. 178821-X I 7. BUSINESS OVERVIEW (Cont’d) Revenue contribution . The table below sets forth the revenue from the marine repair business (by vessel type) for the periods indicated: FYE 31 March Three-Month FPE 30 June 2008 2009 2010 2010 No. of Total No. of Total No. of Total No. of Total Vessels(1) Revenue % Vessels(1) Revenue % Vessels(1) Revenue % Vessels(1) Revenue % (In RM millions, except for number of vessels and percentages-)-­Container and  bulk carrier……..  4  14.7  3.2  16  40.9  6.9  14  38.7  12.5  2  3.6  3.9  Tankers …………..  22  89.5  19.7  28  62.4  10.5  31  67.5  21.7  15  31.0  33.2  Rigs and MOPU..  4  154.0  33.9  9  272.4  .45.8  6  80.4  25.9  3  12.8  13.7  LNG and LPG …..  22  150.1  33.1  18  166.7  28.0  15  107.2  34.5  8  34.1  36.5  Others …………….  5  45.5  10.0  2  52.5  8.8  8  17.0  5.5  2  11.9  12.7  -­ – Total …………..  57  453.8  100.0  73  594.9  100.0  74  310.9  100.0  30  93.4  100.0  Note:
(1) Reflects the number of vessels that contributed to the revenue during the period, not the number of projects secured in that financial year. Our revenue from rig repairs was a significant portion of our revenue from marine repairs in the FYE 31 March 2010, with work sourced mainly from the Nang Nuan 252, Audacia and Lore/ay projects. [The rest of this page is intentionally left blank] 90
7. BUSINESS OVERVIEW (Cont’dj Orderbook As of 30 June 2010, we had a marine repair orderbook valued at RM12.3 million, consisting of RM2.7 million for LNG and LPG vessel repairs, RMO.9 million for repairs of rigs and other facilities and RM8.7 million for tanker repairs. These projects are contracted for completion within the FYE 31 March 2011, although from time to time, customers may delay sending their vessels for maintenance and their completion may be delayed. Due to the high turnover of marine repair projects, the relatively short time these projects are in the Pasir Gudang yard and depending on the facilities and resources available at other yards in the region, it is not unusual for there to be a relatively short time, typically a few weeks, between when a client seeks bids on a project, and when an agreement is reached and the work is actually conducted. As a result, our marine repair orderbook at the beginning of a financial year may not be a meaningful indicator of the amount of work we may conduct during that year. Customers Our top five (5) marine repair customers in terms of the percentage of aggregate revenue contribution for the periods indicated are as follows: Length of Three-Relationship as Month FPE Top 5 Customers of 30 June 2010 FYE 31 March 30 June 2008 2009 2010 2010 (year) (in % oftotal revenue) MISC(1) ……………………….. >5 7.2 3.8 1.5 1.7
Marlin Offshore Services .. 4 3.8 3.4 A1lseas Engineering b.v…. 2 1.2 0.5 1.3 Teekay Navion Offshore Loading Pte. Ltd…………. 5 1.8 0.2 0.2 0.3
CPC Corporation ………….. >5 1.5 0.2 0.1 0.4
14.2 8.8 2.3 3.7Total ………………………..
Notes: Insignificant. (1) These transactions are related-party transactions. In 2006, we formed the joint venture company MSLNG with Samsung Heavy Industries, a leading builder of LNG carriers, to grow our marine repair business in the high-value, high-growth LNG carrier repair and refurbishment business. MSLNG markets the services of our LNG carrier repair and refurbishment facility. Through this joint venture, we have procured repair orders for LNG carriers from MISC, Hyundai-Merchant Marine -Co., Ltd. and Oman LNG LLC. Competition and market share There are a large number of major shipyards in Southeast Asia. For marine repairs, we consider the following companies in Singapore and the Middle East as our direct competition: Keppel, Sembcorp and DryDocks World-Dubai. Yards in Thailand, Indonesia, Vietnam, the Philippines and China are also our competitors to some extent, but since competition in this sector is affected by geographical and trading routes, the Singapore yards comprise the most relevant comparison. We expect to face strong competition from Singapore yards. We face competitors from larger yards that target the same market segment as us, in particular the higher value repairs for tankers, LNG and LPG carriers and oil rigs. –. ­7. BUSINESS OVERVIEW (Cont’d) Our competitive position is strengthened by the fact that we are located adjacent to the Malacca Straits, one of the major shipping passages in the world and that we have one of the largest dry-dock facilities in Southeast Asia in terms of tonnage, with the ability to service vessels of up to 450,000 dwt. Also, the planned enlargement of our VLCC capable Dry Dock Number 2 at the Pasir Gudang yard in 2013 is expected to increase our capacity to repair energy-related vessels, such as LNG carriers and VLCCs, which will provide us with an opportunity to increase our energy-related vessel repair market share. Competition and market share -LNG carrier repair and refurbishment At the end of 2009, there were 367 LNG carriers worldwide, of which MISC operated 29. The market has expanded rapidly in recent years, as LNG carrier capacity world­wide grew at an average rate of 14.7% per year for the period 2000-2009. The increasing demand for LNG carriers in the coming years is expected to create opportunities for LNG carrier repair and refurbishment, a market we are focused on. We enjoy a strong relationship with our parent, MISC, which increases our opportunity to receive their high-value LNG carrier repair projects. Our location adjacent to the Malacca Straits places us in a central and convenient position near or alongside major LNG shipping routes from production fields in the Middle East, Southeast Asia and Australia to major LNG markets in Japan, China and South Korea. In 2009, 64.9% of the global LNG shipping trade passed though the Asia Pacific region. ‘ In 2009, we were one of three companies in the Malaysian/Singapore region to repair or refurbish LNG carriers. Within the Malaysian/Singapore LNG repair and refurbishment market we have an approximate 30% market share. Our local competitors are Sembcorp and Keppel, each of which operates facilities in Singapore. Following the establishment of MSLNG, our LNG carrier repair and refurbishment expertise and capabilities have grown, and the number of LNG carriers we have serviced has increased from 3 vessels in the FYE 31 March 2006 to 13 vessels in the FYE 31 March 2010. Given the limited dry-dock and quay capacity at the Pasir Gudang yard, the aggregate number of vessels of all types that we have repaired has declined, as we focused on the repair and refurbishment of LNG carriers and rigs, which typically require longer docking periods, reducing the amount of space available for other vessel repairs. The aggregate number of vessels of all types that we have repaired has declined since the FYE 31 March 2005, as we focused on the repair and refurbishment of LNG carriers and rigs, which typically require longer docking periods, reducing the amount of space available for other vessel repairs. The aggregate number of vessels of all types serviced by our marine repair business during the FYE 31 March 2005, 2006, 2007, 2008, 2009 and 2010 was 114, 72, 62, 57, 73 and 74, respectively. Due to market conditions brought about by the global financial crisis, we serviced a higher number of container and bulk carriers during the FYE 31 March 2009 and 2010 to fill up yard capacity during this unusual period. This resulted in an increase in the aggregate number of vessels of all types serviced by our marine repair business for FYE 31 March 2009 and 2010 as compared to FYE 31 March 2006, 2007 and 2008, although we do not consider it representative of the long-term trend. 7. BUSINESS OVERVIEW (Cont’d) The table below sets forth the number of container and bulk carriers and the aggregate number of vessels of all types serviced by our marine repair business for the periods indicated: FYE 31 March
2005  2006  2007  2008  2009  2010  –­ Container and bulk carrier  _  37  18  6  4  16  14  Aggregate number of vessels of all types.. … ..__ . …..  114  72  62  57  73  74  Project execution process
We typically divide our marine repair project into the five stages described in the chart and text below:
Job assessment The vessel that requires repair or refurbishment is inspected, and discussions between our project team and the vessel owners are held on the type and scope of the required repair or refurbishment works. In consultation with the vessel owners, our project team then plans and decides on equipment, materials and manpower requirements. Project execution planning The vessel owner confirms the type and scope of work, and our project team procures equipment, parts and materials. The contractors, if required, and our in-house employees undertake the relevant repair or refurbishment works. Vessels that require repairs to be conducted while afloat are carried out alongside the berth space, and those that require dry-dock repairs are dry-docked accordingly. Before the repair or refurbishment works start, a yard safety officer inspects the vessel and issues a permit-to-work clearance, which is the officer’s certification that the repair or refurbishment works can proceed. Project execution After the vessel is berthed or dry-docked, we undertake the required repair or refurbishment works which typically include: • Retrofitting and conversion. These works involve the integration of a structure or piece of equipment that the vessel was not originally fitted with. Examples include firefighting systems, metering and processing systems or the fabrication and installation of a deckhouse or crane. We also perform “jumboisation” works, in which a midship block of a vessel is fabricated and inserted into the mid-section of the vessel to lengthen or broaden it. 7. BUSINESS OVERVIEW (Cont’dj • Renewal and repair works. These works involve the removal and replacement of damaged or worn-out sections of hulls, machinery, electrical and piping systems of a vessel or repairing any defects or shortcomings noted during inspection of the vessel or requested by the vessel’s owner. This includes blasting and painting works. Testing and inspection Following the completion of repair or refurbishment works, vessels are tested for conformity with the customer’s specifications and requirements. If the works we carried out do not conform to the client’s specifications or requirements, we undertake steps to rectify the non-conformity before the vessel is delivered to the customer. Quality inspection and testing Quality control is observed at all stages of the marine repair process. At each stage of the work, the project team liases with the customer’s representatives, contractors, and, as required, surveyors of the classification society, to update them on the progress of the project. 7.7 Sales and marketing Our sales and marketing activities focus on retaining and servicing our existing customer base and seeking new engineering and construction and marine conversion and marine repair customers in Malaysia and abroad. The markets for our services are the oil and gas and the marine repair industries. Our potential customer base is small and consists of sophisticated clients with a clear understanding of their needs and requirements. We believe that we will gain and retain our customers on the basis of our reputation for providing quality services, having sufficient and available capacity and having a good track record for project execution and safety. . Our primary customers, for both our engineering and construction segment and our marine conversion and marine repair segment, are the PETRONAS Group and we have a sales and marketing team devoted to them. We have a second team devoted to developing and maintaining our relationships with the major international oil and gas companies as well as certain national oil and gas companies. The third element of our sales and marketing efforts focuses on our relationships with shipping agents. Our sales and marketing efforts are currently focused on building our presence in new growth areas for us, such as Australia, Southeast Asia and the Caspian region and we are working with companies operating in these regions to achieve this objective. For the marine repair market, we have built and continue to build our customer base through our global network of 22 shipping agents, as of LPD, for ships that are trading east of Suez, in particular in the Southeast Asia region. We rely on our shipping agents for marketing because we believe they offer local knowledge, language abilities and an understanding of the local culture of the markets in which they operate. Shipping agents source vessel repair enquiries and follow up on these enquiries through to the award stage. They also provide periodic market reports within their region and assist us in maintaining good client relationships. 7. BUSINESS OVERVIEW (Cont’d) 7.8 Bidding process Our bidding process for a project typically includes the following steps: .
Pos.t bid Review Markel: Soureins  Clarlflc:atIon and Neeotlatlon lltnderbld Preparation H.ndover toOperation Bid Invitation end ScreenIna: -“‘,……,—~… Bidding Process
Market sourcing We review potential projects through market reports, in-house research and contacts within the oil and gas industry. ,Once a possible project of interest is identified, we express our interest to the potential customer. Bid invitation and screening Once invited to bid on the new project, our management, through our tender bid committee, , reviews the risks and rewards in conducting the project and decides whether to submit a bid. In selecting projects, we consider familiarity with the customer and the product, our capacity and
resources availability and the potential profitability of the project. Tender bid preparation Appropriate personnel from various departments prepare relevant sections of the bid submission. Our operations personnel prepare a technical bid pack (which describes the project’s specifications and our technical abilities and capabilities to conduct the project). Our estimation department prepares a commercial bid pack based on information from our procurement, operations and finance departments. Our in-house legal department reviews and suggests amendments to the proposed contract. We compile a tender bid including the technical bid pack, the commercial bid pack and proposed amendments to the proposed project contract, and it is approved for submissions. Our sales department then completes and presents the bid packs and submits the documentation to the potential customer. 7. BUSINESS OVERVIEW (Cont’e/) Clarification and negotiation After the bid pack is submitted, our sales team communicates with the potential customer and provides assistance with clarifications and queries. Contract award If our bid is accepted, the contract is then negotiated and executed. During this period, there are often further negotiations on technical scope and commercial aspects of the project that are handled by our in-house legal and sales departments. Handover to operations Once the contract is executed, the project is handed over to a project management team. Post bid review After the conclusion of the bidding exercise, we conduct a review of the bid process to seek ways t~ improve our future bids. 7.9 Facilities 7.9.1 Production/operating facilities as of the LPD (i) Pasir Gudang We have comprehensive and integrated facilities in our strategically located 150.6 hectare complex with a 1.8 km seafront in Pasir Gudang, Johor, Malaysia. This yard is located in a sheltered area with access to a 14-metre deep navigational channel. The facility includes one of the largest dry-docks in the Southeast Asian region in terms of tonnage, which can dock vessels of up to 450,000 dwt, and a shiplift system to cater to vessels and structures up to 50,000 dwt. Our five open fabrication areas cover 321,400 square meters and can simultaneously accommodate the construction of large marine structures with a total tonnage of 69,700 mt. In 2009, we constructed structures with a total tonnage of 45,221 mt, which was the largest tonnage processed by our Pasir Gudang yard in a year. Our facilities in Pasir Gudang are supported by 35 fully covered workshops, totalling 99,000 square metres. Our Pasir Gudang yard is used for our engineering and construction, marine conversion and marine repair activities. However, our engineering and construction business uses resources and spaces within the yard that are generally separate from those used by our marine conversion and marine repair businesses. As a result, our engineering and construction segment’s utilisation of these facilities does not affect the capacity of our marine conversion and marine repair segment to accept new projects. Our marine conversion and marine repair businesses generally use the same space, resources and facilities in our Pasir Gudang yard. 7. BUSINESS OVERVIEW (Conf’d) Of the 150.6 hectares of land we occupy at Pasir Gudang, 23.9 hectares of that land was recently leased for a term expiring in May 2051. The new land is being utilised by the engineering and construction segment and is expected to increase that segment’s productive capacity. The following table sets forth the leases for our Pasir Gudang yard. Land Size of Parcel Lessor Tenure Main parcel of 121 .8 hectares Johor State Authority 60 years from 9 June 1980 land Reclaimed land 4.9 hectares Johor State Authority 99 years from 23 February 1976 New land 23.9 hectares Idemitsu Chemicals 42 years from 6 April 2009 (M) Sdn Bhd [The rest of this page is intentionally left blank] land berth 2 (MRC)*  cutting and assembly workshop (common)*  land berth 1  (MRC)*  lease  land  fabrication area 2  (E&C)*  fabrication are~.3·  (E&C)*  (  fabrication aJ:ka 4  (E&C)*  fabrication area 1  (E&C)*  dry-dock 1 (450,000 dwt)  (MRC)*  shiplift platform dry-dock 2 (140,000 dwt) (MRC)*  (50,OOO dwt) fabrication area 5 (E&C)*  (MRC)*  skidtrack  bulkhead (40,000 mt) (E&C)”  (12,OOO mt)  (E&C)*  west finger pier {common}·  bulkhead (12,000 mt)  skidtrack (40,000 mt)  (E&C)*  (E&C)*  Note:
7. BUSINESS OVERVIEW (Cont’d) The diagram below provides an overview of the principal facilities of our Pasir Gudang yard as of LPD. Our engineering and construction projects generally use the areas shown as fabrication area 1 to 5, while our marine conversion and repair projects are generally undertaken in the other parts of the yard. “E&C” refers to facilities utilised for engineering and construction segment. “MRC” refers to facilities utilised for marine conversion and marine repair segment. “common” refers to facilities that can be utilised for all segments. ICompany No. 178821-X I 7. BUSINESS OVERVIEW (Cont’d) The diagram below provides an overview of the principal facilities of the Kiyanly yard, which we manage and operate on behalf of PCTSB, as of LPD. open area water treatment plant fre fab / fabrication area 3 wharf 150m CASPIAN SEA storage area storage pipelinecanteenfabrication area 4 subcontractor office security office MAIN ENTRY
accommodationmain warehouse & main substation projectfabrication area 2 fabrication area 1 storage cluster area fenced storage & genset house utilities & tankage area 99 7. BUSINESS OVERVIEW (Cont’d) The table below sets forth the principal facilities of our Pasir Gudang yard as of LPD: Facility Type Dry-dock 2 dry-docks (up to 450,000 dwt measuring 385 metres x 80 metres x 14 metres and up to 140,000 dwt measuring 270 metres x 46 metres x 12.5 metres) Open fabrication yard 5 fabrication areas totalling 321,400 square metres 3 skid-tracks and 2 bulkheads, one up to 40,000 mt and the other up to 12,000 mt 1 skid-track up to 6,000 mt Workshop 35 workshops covering 99,000 square metres (including a fUlly equipped and covered cutting and assembly workshop, service workshops and production workshops) Shiplift 1 shiplift (188.4 metres x 33.8 metres x 8 metres draft with lift capacity of 50,000 dwt) Landberth 2 landberths (each of 345 metres length) Quay 7 quays (lengths of up to 368 metres) LNG Carrier Repair Facility 1 Global Test Control Room 3 Cryogenic workshop 1 (557.8 square metres) Invar welding training centre 1 (84.28 square metres) Our subsidiary, MMHE, has certain quays, dry-docks, workshops, offices, storage rooms and other miscellaneous erected structures at our Pasir Gudang yard which are currently being. used pursuant to temporary permits issued by the Pasir Gudang local authority pending the issuance of formal certificates of completion and compliance. These temporary permits are valid until 31 December 2011. We are in the process of applying for the formal certificates of Gompletion and compliance and in the event the formal certificates are not issued before the temporary permits expire, we intend to renew the temporary permits. (ii) Kiyanly We operate and manage a fabrication yard in Kiyanly, Turkmenistan. This facility has an area of 436,000 square metres (43.6 hectares) and a total tonnage capacity of 25,000 mt at any single point of time. We do not own the Kiyanly yard in Turkmenistan. Following our appointment by PCTSB as the EPCIC contractor for Phase 1 of its Block 1 gas development project in the Caspian Sea off Turkmenistan in 2004, we are currently operating and managing the fabrication yard on behalf of PCTSB. As part of our arrangement with PCTSB, we have agreed to complete a number of projects related to Phase 1, including the construction of the Kiyanly fabrication facility. 7. BUSINESS OVERVIEW (Cont’d) The Kiyanly facility is located on land that was granted to PCTSB by a presidential decree related to the Block 1 gas development project. The presidential decree permits PCTSB to use 240 hectares of land in the Kiyanly village for petroleum production and the construction of a gas processing plant, an onshore gas terminal and a fabrication yard. The table below sets forth the principal facilities of the Kiyanly yard: Facility Type Covered fabrication yard Main fabrication shop of 86 metres x 25 metres x 11 metres equipped with a 20 mt overhead crane Pipe shop of 86 metres x 15 metres x 11 metres equipped with a 10 mt overhead crane Maintenance workshop of 30 metres x 10 metres x 8 metres equipped with a 10 mt overhead crane Paint store workshop of 20 metres x 10 metres x 5 metres Open blasting and painting area 50 metres x 75 metres 7.9.2 Yard Optimisation Programme We began implementing the Yard Optimisation Programme at our Pasir GUdang yard in 2006 to increase yard efficiency and expand the range of projects that the yard can undertake. The programme is intended to: • rationalise the yard’s existing workshops by optimising materials flow to improve efficiency and productivity while making additional space available for fabrication of larger and more complex engineering and construction structures and projects;
• increase the capacity for high-value marine conversion and marine repair projects by expanding and improving the facilities to conduct LNG and offshore rig repairs;
• construct specialised, sophisticated enclosed work areas for increased production (including process automation equipment) with less weather-related down-time; and
• purchase and construct new equipment needed for the construction of bigger, more cpmplex structures.

As we have projects currently under construction and in our orderbook to fulfil, the Yard Optimisation Programme is being implemented in phases to minimise operational disruption and to enable us to continue with existing projects. ICompanyNo.178821-X I 7. BUSINESS OVERVIEW (Cont’d) New facilities and equipment  The table below describes the principal projects included in the Yard Optimisation Programme:  Categories  Selected Specifications  Details  and  Start Date  Target Completion Date  Estimated Cost(1) RM’milllon  Weightage of the Estimated Cost(2) %  Cost Incurred as at 30 June 2010 RM’miliion  Percentage of Completion as at 30 June 2010(3) %
Workshops. Rationalisation of workshops through automation and construction of specialised enclosed work areas to improve efficiency and productivity for improved turnaround of production and less down time due to outside factors including weather.  Electrical and piping workshop, cutting and assembly workshop/blasting and painting workshop and structural and piping workshop. Projected costs include those to dismantle existing workshop and to set up material receiving facilities.  November 2006  September 2012  575.4  21.1  260.1  10  Capacity Expansion-Engineering and Construction. Installation of new capacity for engineering and construction activities.  Construction of 40,000 mt and 25,000 mt bulkheads and skid-track, concreting of fabrication areas and the additional land leased from Idemitsu Chemicals (M) Sdn Bhd.  January 2007  May 2014  595.8  21.9  163.1  8  Capacity Expansion -Repair Conversion. Installation of facilities for marine conversion marine repair activities.  and new and  Construction of West Finger Pier, enlargement of existing Dry Dock 2 and other marine conversion and marine repair facilities.  July 2008  December 2013  749.8  27.6  135.8  6  Tonnage Capacity Expansion. New and upgraded equipment for higher tonnage capacity  Acquisition and installation of floating crane, block transportation dolly, mechanical and engineering utilities and level luffing cranes.  October 2010  October 2013  329.0  12.1  Genera/. items.  General  facilities  and  other  Infrastructures for mechanical and electrical, drainage, road, centralised storage, sewerage treatment plant and staff/client office building.  February 2006  February 2013  471.5  17.3  25.3  Total  2,721.5  100.0  584.3  24  102
7. BUSINESS OVERVIEW (Cont’d) Notes: Insignificant. (1) Estimated cost includes cost contracted packages approved by our Board and estimated cost to completion which is subject to our Board’s approval.
(2) Estimated cost for each category divided by the total estimated cost of the Yard Optimisation Programme.
(3) The percentage of completion is an internal estimate to gauge. the progress of the Yard Optimisation Programme. The percentage of completion is calculated based on the milestone of each individual project.

Capital expenditure on the Yard Optimisation Programme through 30 June 2010 was RM584.3 million. As of 30 June 2010, we estimated that future capital expenditure on the programme will be approximately RM2,137.2 million. As the work on the Yard Optimisation Programme progresses, RM798.8 million of the remaining estimated cost will be funded from proceeds arising from the Public Issue and the remaining expenditures will be funded by internally generated funds and/or borrowings. Productivity and capacity goals With completion of the Yard Optimisation Programme. we intend to be able to simultaneously conduct the following projects: • Construct deepwater structures (including hull and topside) of up to 40,000 mt on the new skid-tracks and bulkheads. The construction method will be to build and integrate the structure on land before loading the finished structure out using the super-lift;
• Concurrently carry out repair works for two LNG carriers and four VLCCs; and
• Concurrently carry out conversion works on three FPSOs. FSOs or rigs.

The table below describes the incremental improvements resulting from the Yard Optimisation Programme: Existing Area  Planned Area  Selected  Details  and  (in square  (in square  Project  Specifications  metres)  metres)
Fabrication, New fabrication area no. 6 and 321,400 391,400 Assembly and new 25,000 mt skid-track. Erection Area Workshops and New autoblast and primer, blasting 100,400 160,043 Warehouse and painting, MMHE-ATB and structural and piping workshops. New testing laboratory, warehouse and air-conditioned storage. With the completion of the programme, we expect to have the potential to generate higher income from our existing business segments and also have the facilities to expand our offerings of deepwater and floating structure solutions and high-end LNG carrier repairs and refurbishments. . 7. BUSINESS OVERVIEW (Cont’d) 7.10 Quality control Maintaining the quality of our services is a key focus for us, and we give high priority to quality control. As at LPD, we had a quality control team of over 10Q quality control personnel. Our quality assurance programme includes a wide range of quality control assurance procedures at every stage of our operations. MMHE and MMHE-A1B are accredited with the internationally recognised ISO 9001 Quality System Standard awarded by Uoyd’s Register for Quality Assurance. The API has certified MMHE to apply its official “API” monogram on fabricated steel pipes complying with certain of its specifications. MMHE-A1B is a certified fabricator, assembler and manufacturer for certain American Society of Mechanical Engineers coded pressure vessels, power boilers and pressure pipings. 7.11 Raw materials, supplies and sub-contractors We have a large base of suppliers. We are generally not dependent on anyone major supplier and generally purchase from suppliers who are able to offer the most competitive terms and highest quality materials and services. Malaysian .International Trading Corporation (Japan) Sdn Bhd (“MITCO”), a PETRONAS company that has been procuring materials (including steel) on our behalf for the last 14 years, accounted for 10% or more of our purchases for the FYE 31 March 2008, 2009, 2010 and FPE 30 June 2010 accounting for 11.6%, 21.4%, 20.1 % and 11.0% respectively. We use MITCO and its subsidiaries to source a very substantial percentage of our materials from various original suppliers. MITCO is our largest supplier of steel plates. The market for the supply of steel plates is broad-based and competitive, and we therefore do not believe we are overly dependent on MITCO. There are many other local and foreign suppliers from which we can source our steel plates at competitive prices, such as Sumitomo Metal Industries, Ltd., ArcelorMittal and Southern Steel Berhad. We believe that MITCO offers us an advantage compared to other suppliers as it is often able to negotiate better prices because of the quantity of goods it procures for the PETRONAS Group. Steel Steel components, in the form of plates, sheets, pipes, beams and fittings comprised approximately 6.1% of total purchases in the FYE 31 March 2010. We do not have any long­term contracts for the supply of steel. In general, we purchase steel and steel products· . through MITCO in conjunction with other PETRONAS subsidiaries from suppliers. Prices for steel and steel products are determined by prevailing international market prices. The price of steel and steel products has increased in recent years. We have not experienced any significant shortages of steel or steel products. 7. BUSINESS OVERVIEW (Cont’d) Registered suppliers Customers in our industry, particularly the large international oil companies, typically have requirements regarding which service providers and suppliers may provide services or supply materials on their projects. For example. for projects secured from the PETRONAS Group or PETRONAS’ PSC contractors, all our materials and manpower have to be sourced from PETRONAS-Iicenced suppliers and sub-contractors. If such materials or services cannot be obtained from a PETRONAS-Iicensed supplier or sub-contractor or if there are exceptional reasons why we should use another supplier or sub-contractor, we can use alternative arrangements only with PETRONAS’s consent. The top five (5) major suppliers (based on our Group’s aggregate purchases) for the periods indicated are as follows: Length of “rhree-Relationship Month as of 30 June FPE30 Top 5 Suppliers 2010 FYE 31 March June Type of Materials 2008 2009 2010 2010 (year) (in % oftotal purchases)
MITCO(l) > 5 11.6 21.4 20.1 11.0 Steel plates, pipes and high dust filters Tractors Petroleum > 5 9.3 2.7 18.2 Emergency diesel Services Sdn Bhd …. generators, fuel filters and inhibitors
Tuah Nusa Sdn 3 0.1 1.0 1.4 1.6 Flanges, ball valves, teflon Bhd . pads and structural equipments Promat ESM Sdn > 5 0.3 0.8 1.1 0.1 Flanges, pipes and Bhd . structural equipments
PETRONAS >5 0.8 0.8 0.3 . Diesel fuel & lubrication oil Dagan~an Berhad 1) . 12.8 33.3 25.6 30.9Total . Notes: Insignfficant. (1) These transactions are related-party transactions. Panel ofsub-contractors We have a panel list of sub-contractors that supply specific services to us on a regular basis at our Pasir Gudang yard. Whenever the services of a sub-contractor are needed, the project is tendered to our panel members, who are invited to submit bids. If no panel member is available, the work is offered to non-panel members. To be invited to become a panel member, a sub-contractor must be registered as one of our suppliers and have at least a three-year track record at the Pasir Gudang yard. Once placed on a short list to join a panel, the supplier’s technical abilities and financial history are reviewed before a decision is made to add the supplier to a panel. 7. BUSINESS OVERVIEW (Cont’d) Regular feedback from clients is sought on the safety and operational performance of sub­contractors at the Pasir Gudang yard. A formal assessment is conducted during the project and upon completion of a project. If a contractor is not performing as expected, it is removed from the panel. The top five (5) major sub-eontractors (based on our Group’s aggregate purchases) for the periods indicated are as follows: Length of Three-Relationship Month Top 5 Sub-as of 30 June FPE30 Country Type of contractors 2010 FYE 31 March June of Origin Services 2008 2009 2010 2010 (year) (in % oftotal purchases) Gap Insaat 5 3.4 3.8 4.7 1.9 Turkey Construction Yatirim Ve Dis and fabrication TicaretAS………… Ilk Insaat Taahut 4 2.1 1.4 4.5 2.8 Turkey Construction Sanayi Ve and Ticaret………………. refurbishment DPS Bristol (M) 3 2.0 4.3 0.8 Malaysia Manpower Sdn Bhd……………… supply and detail design engineering Technip >5 3.2 1.8 1.4 2.4 Malaysia Consultation Consultant (M) and detail Sdn Bhd ……………. design engineering MISC Integrated 3 0.2 2.4 2.1 1.9 Malaysia Warehouse, LogisticsSdn transportation Bhd(1)………………… and haulage 11.0 13.7 13.6 9.0Total ………………..
Note: (1) These transactions are related-party transactions. 7.12 Contract terms Price terms Orders for projects are typically obtained through a tender process based on invitations from customers. Our projects are generally carried out either on a fixed-price basis according to a defined timetable pursuant to the terms of a delivery contract, or on a cost-plus basis. For some projects, a combination of these two methods is used. Some tenders exclude procurement of materials or services (in whole or in part), and these are instead procured or supplied by the customer. The pricing of fixed-price contracts is crucial to our profitability, as is our ability to quantify the risks we bear and to provide for contingencies in the contract accordingly. If additional expenses arise, these expenses are usually borne by us, and our profit from the project is correspondingly reduced or eliminated. Cost-plus contracts involve customers paying the costs of supplies, facilities, sub-eontractors, employees, and other inputs at the cost that these materials, facilities or services are borne by us, with the addition of an agreed percentage of profit for us. With cost-plus contracts, we invoice the customer for the costs of materials or services at the time these items are ordered or utilised and receive payments within the agreed invoice time period. While this billing method provides us with a defined profit margin over the life of the project, these margins are typically lower than those we obtain for fixed-price contracts. Cost-plus contracts are most typically used for unusual or novel projects (in which cost estimation is difficult) or a project involving completion risk that our client is prepared to accept. 7. BUSINESS OVERVIEW (Cont’dj Contracts can also be a hybrid of fixed-price and cost-plus billing methods. For example, to mitigate the risk of price volatility, we may tender to accept business on a cost-plus basis in relation to the procurement of materials and on a fixed-price basis for other aspects of the project. In some cases, clients require us to utilise certain sub-contractors, in which case we will typically contract to bill these services on a cost-plus basis. Contracts that are on a cost-plus basis or that contain cost-plus portions currently account for a substantial part of our engineering and construction revenue because these types of arrangements are better suited to the risk profile of our major projects in terms of their scale, complexity, geographic location or working conditions. Delivery contracts in the heavy engineering and marine sector typically provide for the customer to pay an advance payment of 5% to 15% of the contract price and for instalment payments of the balance, either periodically or upon completion of discrete construction’ stages, and upon delivery. Most of our fixed-price delivery contracts provide for instalment payments of the balance of the purchase price upon completion of discrete construction stages, typically including upon the initial cutting of steel plates and the launching and delivery of the vessel or product to the customer. We may be liable for liquidated damages in the case of delays in delivery attributable to us. The customer’s final payment to us may be subject to deduction if the vessel, platform or product fails to meet certain performance specifications based on tests conducted by the customer and us prior to delivery. If we are unable to collect an account receivable in the amount we have estimated to be collectible, we must recognise a current charge to our earnings, and this may result in a reversal of previously recorded profits. Our marine repair contracts for customers other than MISC are typically denominated in SGD, revenue from our EPCIC contract in Turkmenistan is denominated in USD and our other contracts are generally denominated in RM. Some of our contracts that are a combination of fixed-price and cost-plus have portions denominated in RM and portions denominated in other currencies, primarily USD. Our customers typically expect that we procure refund guarantees from financial institutions as security for the refund of pre-delivery instalment payments made by the customers if we fail to fulfil our contractual obligations and the failure results in the termination of the contracts. In recent years, we have not had any difficulty in obtaining refund guarantees. We have not experienced any significant problems in respect of late payments of instalments that are due. In accordance with current industry practice, customers generally arrange for their own financing for purchases from us. Cancellation and deferment Our contracts generally include cancellation provisions that provide that if a client cancels a project, the client pays us for all materials or services provided up until the time of cancellation, at cost. Our contracts also generally require clients to reimburse us for potential fees and charges lost when a project is deferred or cancelled, particularly if we have reserved resources for such client and are unable to utilise the resources for another client due to the timing, cancellation or deferment of the project. 7. BUSINESS OVERVIEW (Cont’d) Warranty period We typically grant a warranty of twelve months for the equipment and services we provided, and during the warranty period, we are required to provide corrective services to resolve any problems that may arise from defects. A provision is recognised at the end of each financial year for expected warranty claims based on past experiences of required levels of repairs and returns. If the provision for a warranty is not utilised at the end of a financial year and the warranty has expired, then the unutilised amount is recorded as a write-back of provision in that financial year. Other than these provisions, we have not implemented any special measures to cover the expenses we may incur under these warranties. We have not incurred any material warranty claims to date and our risk of losses is partially mitigated by our ability to retrieve a certain amount of warranty claims from clauses contained in our agreements with our sub-contractors. We typically obtain from our suppliers and sub-contractors a warranty of 12 to 18 months covering defects in equipment supplied and workmanship. We may be able to claim costs incurred in fulfilling a warranty claim from our sub-contractors if the warranty claim resulted from inferior work by the sub-contractor. Sub-contractors may also be the subject of liqUidated damages if their work is not completed on time. Change orders A project’s scope may change during the course of a project due to client instructions or, in the case of marine repair, defects in the vessels or platforms that are discovered during repair and in the case of engineering and construction, due to design changes. Our contracts generally provide for the parties to mutually agree on a revised scope of work with additional fees to be charged for amendments to the original agreed contract amount. . 7.13 Subsidiaries and jointly controlled entities MHB holds 100% direct interest in MMHE. On 9 July 2010, MMHE divested its 100% equity interest in MTSB to MHB. MTSB is currently dormant, having ceased operations in December 1991. We plan to operate our future businesses in Turkmenistan through MTSB. MHB also holds indirect interests in the entities described below. Other than MSLNG, most of the sales generated by these companies are small relative to our overall Group, are largely within our Group, or both. MMHE-ATB Sdn Bhd In 2000, we formed a joint venture company, MSE-ATB Sdn Bhd (subsequently renamed MMHE-ATB) with ATB Caldereria SpA of Italy (later renamed ATB Riva Calzoni SpA (“ATB”», a member of the Trombini Group of Italy. Under the terms of the agreement, we provide factory and open yard space for use in the manufacture and production of pressure vessels and ATB provides commercial and technical advice (including the transfer of technology) in relation to the engineering, manufacturing, marketing and sale of process equipment for petrochemical, oil and gas and power generation plants. ATB has approximately 70 years of experience in the manufacture of sophisticated equipment meeting stringent requirements to withstand extreme pressure, temperature and corrosiveness. We originally held a 60% ownership interest in this joint venture company, but we disposed of 20% of our ownership interest in the company in April 2010 to ATB. The joint venture agreement may be terminated at any time by the mutual written agreement of the parties. Recently the joint venture has expanded into the field of renewable energy with the support of ATB and has delivered mechanical equipment for hydropower projects in Colombia and Laos, and it expects to deliver equipment for a hydropower project in Venezuela. . 7. BUSINESS OVERVIEW (Cont’d) In addition to projects for PETRONAS Group including MISC; MMHE-ATB’s recent customers include LURGI GmbH Germany, ExxonMobil, Sarawak Shell Bhd, Petrobras (Petroleo Brasileiro SA), SAIPEM S.p.A Italy, UOP LLC USA, DPS (Bristol) Ltd. UK and Acergy Singapore Pte. Ltd. For the FYE March 31,2008,2009 and 2010, MMHE-ATB contributed RM8.3 million, RM19.7 million and RM2.2 million, respectively, to our revenue. During the three-month FPE 30 June 2010, MMHE-ATB became our jointly controlled entity. MMHE-SHI LNG Sdn Bhd We formed a joint venture company, MSLNG, with Samsung Heavy Industries of South Korea in 2006. The joint venture markets the services of our LNG carrier repair and refurbishment facility. Under the terms of the joint venture agreement, we agreed to provide yard facilities and manpower for the LNG carrier repair and refurbishment work undertaken by the joint venture and Samsung Heavy Industries agreed to provide marketing and technical support for the joint venture. Revenue and expenses from the marketing of the venture accrue to MSLNG, but revenue from the actual repair of LNG carriers is solely for our benefit. Major customers include MISC, Hyundai Merchant Marine Co. Ltd and Oman Ship Management Company SAO.C. For the FYE March 31, 2008, 2009 and 2010, MSLNG contributed RM136.2 million, RM105.8 million arid RM102.3-million, respectively, to our revenue. For the three-month FPE 30 June 2010, MSLNG contributed RM34.7 million to our revenue. MMHE-TPGM Sdn Bhd In 2007, we entered into a joint venture agreement with TPGM (which holds a 40% interest in the venture), to utilise each party’s technical and commercial expertise and resources and jointly provide EPCIC services for the Turkmenistan Block 1, Phase 1 gas development project. A jointly controlled entity, MMHE-TPGM (with TPGM holding a 40% interest in the venture) was set up with the sole purpose of carrying out works for the Turkmenistan Block 1, Phase 1 gas development project. However, as MMHE-TPGM was initially unable to register itself as a permanent establishment in Turkmenistan, the Turkmenistan Block 1, Phase 1 gas development project was awarded to MMHE, with TPGM agreeing to carry out work for the project for MMHE. In return, MMHE agreed to pay for the work performed by TPGM equivalent to 40% of profits (after Turkmenistan tax) of the project. On 2 August 2010, MMHE-TPGM obtained its branch registration in Turkmenistan. The registration is not subject to any conditions imposed by the Turkmenistan’s Ministry of Economy and Development. We intend to transfer the EPCIC contract for the Turkmenistan Block 1, Phase 1 gas development project (which is currently being held by MMHE) to MMHE-TPGM by novation and we do not anticipate any change to the profit recognised by us upon the novation of the project to MMHE-TPGM. As at LPD, MMHE-TPGM was dormant, and it is considered a “jointly controlled entity” in our financial statements. Pursuant to the joint venture agreement in respect of MMHE-TPGM, the work and responsibilities to be undertaken by each party under the joint venture shall be allocated according to each party’s expertise and resources and on the terms and conditions as agreed between both parties. 7. BUSINESS OVERVIEW (Cont’d) Techno Indah Sdn Bhd The principal activity of TISB is sludge disposal management. It performs this work solely at the Pasir Gudang yard. MSE Corporation Sdn Bhd This company is currently under members’ voluntary liquidation. 7.14 Insurance There are a number of risks associated with the operation of our business, including mechanical failure, third party liabilities, property loss or damage and business interruption. Through our insurance coverage we aim to preserve our assets and operations against risks in conducting our business. Our insurance coverage includes construction all risks insurance, employee benefit insurance, marine cargo insurance, machinery breakdown insurance, business interruption insurance and third party liability insurance. Our insurance covers, among other risks, those related to construction, strikes, riots and civil commotion and resultant damage from defective design. We have not made any such claims in the past. Our policies purchased in Malaysia are made through insurance brokers and are placed with insurance companies licensed by Bank Negara Malaysia. We purchase certain of our insurance ourselves. However, because of the significantly lower prices we obtain through group-level procurement, our general insurance is procured by PETRONAS, which purchases insurance on behalf of companies in the PETRONAS Group. We intend to continue having coverage arranged by PETRONAS after the IPO as long as pricing remains competitive. If we make any insurance claims on the policies purchased by PETRONAS on our behalf, the compensation will be remitted to MHB through PETRONAS since the insurance is taken on MHS’s behalf under the umbrella of group insurance for the benefit of MHB. 7.15 Research and development We maintain a close working relationship with our suppliers of technology. We have not undertaken any proprietary basic research and development in the last three years. 7.16 Regulation The heavy engineering and marine services industries are highly regulated, and we rely on approvals, regulations and gUidelines governing specific subject matters such as those concerning respective licenses and permits relating to our business. In addition, our operations are affected by extensive and evolving environmental protection laws, health and safety laws and numerous other laws and regulations in Malaysia and Turkmenistan. Our Directors are not aware of our non-compliance with any material current applicable health, safety, environmental and security requirements. However, some risk of health, safety, environmental and security costs and liabilities is inherent in our industry. To operate our business in Turkmenistan, MMHE’s Turkmenistan branch is established and registered under Turkmenistan law and is thereby permitted to construct the Kiyanly facility and conduct our EPCIC business. 7. BUSINESS OVERVIEW (Cant’e/) MMHE’s Turkmenistan branch is registered with the Turkmenistan’s Ministry of Economy and Development, which is responsible for the regulation of foreign businesses operating in the country. As part of our strategic plans for our business operations in Turkmenistan, we also intend to seek permission for MTSB to conduct our EPCIC busi~ess in Turkmenistan. MMHE-TPGM’s Turkmenistan branch obtained registration from Turkmenistan’s Ministry of Economy and Development on 2 August 2010. The registration is not subject to any conditions imposed by the T!Jrkmenistan’s Ministry of Economy and Development. 7.17 Environmental issues As a heavy industrial enterprise, we are subject to extensive and changing laws and regulations designed to protect and preserve the environment, including laws and regulations that relate to air, soil, and water, hazardous waste management, limitations on the discharge of pollutants and standards for the treatment, storage and disposal of toxic and hazardous wastes. In Malaysia, the Environmental Quality Act, 1974 and its regulations (“EQA”) and the Petroleum (Safety Measures) Act 1984 and its regulations (“PSMA”) are the principal regulations for the prevention, abatement and control of pollution and the protection of the environment. The EQA and the PSMA provide for both criminal liability and fines for oil spills. Our directors are not aware of the existence of any breach of any such regulations by our Company or its subsidiaries that would have a material adverse effect on us. Before we commence any major projects, such as the Yard Optimisation Programme or the construction of the Kiyanly facility, we are required by our regulators to produce environmental impact assessment reports to assess the environmental impact of the -construction and operation of the new facilities. We have produced environmental impact assessments in relation to the Yard Optimisation Programme, one of which noted a potential adverse impact on a neighbouring property and resulted in the amendment of the programme’s plans. Our sludge waste management business is subject to rigorous government regulations and internal company guidelines in how we treat and dispose of our waste, including emissions. TISB is SUbject to regulation by and reports regularly to the Department of the Environment. As of LPD, there have been no material incidents or costs incurred as a result of the mismanagement of waste operations by TISB. In Turkmenistan, we are subject to environmental laws and regulations issued by the Turkmenistan government. As of LPD, our Directors were not aware of any breach of such regulations that would have material adverse effect on us. 7. BUSINESS OVERVIEW (Cont’d) 7.18 Employees As at LPD, we employed a total of 1,372 permanent staff and 512 contract staff. Of these persons, 1,345 permanent staff and 217 contract staff were located primarily in Malaysia and 27 permanent staff and 295 contract staff were located primarily in Turkmenistan. As of 31 March 2010, 31 March 2009 and 31 March 2008, we employed a total of 1,420, 1,440 and 1,354 permanent staff, 441,312 and 239 contract staff respectively. The following table sets forth our employees by category as of the dates indicated: Number of Employees Category of Employees  31 March 2008  31 March 2009  31 March 2010  30 August 2010  Executive directors  .  3  3  3  1  Managerial and professional  .  604  700  745  718  Technical and supervisory  .  333  369  361  340  Clerical and related  .  85  89  99  107  Sales and marketing  .  27  26  22  23  General workers  (a) Skilled………………………………..  451  468  502  544  (b) Unskilled  __9_0__  97  129  151  Total  _—.;1,_59_3__  1,752  1,861  1,884
In addition to our own employees and contract staff, we engage sub-contractors to provide construction and other services at our Pasir Gudang yard, and the yard we operate and manage in Kiyanly, Turkmenistan on behalf of PCTSB, typically on a project-by-project basis. As at LPD, we engaged 114 sub-contracting firms, which provided the services of an average of 4,694 personnel daily. In addition, we engaged a total of 1,602 contract staff through third party manpower supplier. On average, subcontracted labour represented 49.5% of our cost of sales per financial year for the last three (3) FYE 31 March. We usually obtain firm quotes from our sub-contractors. Generally, a sub-contractor cannot charge a price that exceeds the firm quote they have given us except in circumstances where we change the specifications of the project. We do not provide any benefits, nor have any obligations, to the employees of our sub-contractors, except to provide lunch and tools. The decision on whether to staff a project with our employees or sub-contractors is based upon the type of work conducted, how steady and reliable the stream of work is expected to be and whether there is risk that costs could exceed or fall below expectations. For example, the LNG carrier servicing and repair business uses a high percentage of our employees because it involves a steady stream of work on similar vessels with similar, recurring tasks (allowing labour costs to be predicted with a high level of certainty) and we rely on workers with special skills, who are required to be available on a regular basis. The following table sets forth the number of employees and average number of sub­contractors prOVided in the month of August 2010 by operating segment as at LPD: Number of Employees and Sub-contractor Personnel Segments Employees Sub-contractor Personnel (average) Engineering and Construction  .  832  3,823  Marine Conversion and Repair  .  480  768  Others  .  572  103  Total  ..  1,884  4,694
7. BUSINESS OVERVIEW (Cont’d) As at LPD, 418 or approximately 22.2% of our employees were unionised, the majority of which were members of KPPMMHE. On 21 January 2009 we signed a three-year collective agreement with our unionised employees in Malaysia. We believe we have a strong and healthy relationship with our employees and we have not experienced any strikes or material disruptions due to labour disputes. From time to time, we may have labour disputes with individual employees for alleged dismissal-without just cause or excuse. However, none of the above labour disputes have had any material adverse effect on the Group’s operations, financial and otherwise. We previously had a dispute with KPPMMHE relating to the alleged retrenchment of certain unionised members. The High Court on 28 March 2000 decided the matter in our favour and the Court of Appeal on 10 February 2010 struck-off KPPMMHE’s appeal against the decisions of the High Court. KPPMMHE subsequently made applications to the Federal Court for leave to appeal against the decision of the Court of Appeal. On 31 May 2010, the Federal Court dismissed both applications. Our employees in Malaysia contribute fixed amounts into the Employee Provident Fund, a mandatory employee retirement fund that -is administered by a board appointed by the government of Malaysia. For the current and preceding years, we have no legal obligation to pay further contributions if any of the funds do not hold sufficient assets to pay all employee benefits relating to employee services. We do not maintain any other retirement, pension or severance plans or have any unfunded pension liabilities. Training and development Consistent with our goal of developing the capabilities of our workforce and developing business leadership from within our Group to safeguard our future operational capacity, our employee development programmes focus on three core areas: leadership and mindset, functional skills and HSE. We have recently implemented four structured developmental programmes to build leadership and mindset skills: the Project Management Development Programme, the Professional Certificate in Offshore Structure -Level 1, the Welding Engineer Development Programme and the Planning Engineer Development Programme. Programmes to build specialised skills in our employees include programmes to repair LNG carriers’ cargo containment systems, requiring skills in welding and acoustic emission tests, training in superlift operations, involving a 5-month programme in South Korea, and a structural detailed design course conducted with Universiti Teknologi Malaysia’s School of Professional and Continuing Education. Each year, we accept about 100 persons for an apprenticeship from Malaysian universities and trades schools for onsite programmes in our Pasir Gudang yard. One of these programmes is a welder apprenticeship programme, under which apprentice welders spent one month in our Pasir Gudang yard, culminating in a welder qualifying test, to proVide welders for our sub-contractors. Health, Safety and Environment We strive to improve our HSE performance with in-house targets set against international benchmarks. Each of our employees and all sub-contractor staff are provided with periodic HSE training, and are encouraged and empowered to ·stop work” if they believe the environment is unsafe. MMHE and MMHE-ATB’s Occupational Health and Safety Management System has been certified to OHSAS 18001 since 2005 by the Lloyd’s Register Quality Assurance and the system is accredited by the United Kingdom Accreditation Services (UKAS). In the FYE 31 March 2010, our LTIF declined by 44.4% to 0.2 when compared to FYE 31 March 2009. During the same period we recorded a 29% increase in total man-hours, while TRIF remained low at 0.45. 113

 

 

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