6. INFORMATION ON OUR GROUP 6. INFORMATION ON OUR GROUP 6.1 History and background of our Group Our Company was incorporated in Malaysia under the Act as a private company limited by shares on 27 April 1993 under the name of Steadfast Equity Sdn Bhd and on 1 August 1994, our Company changed its name to Klang Multi Terminal Holdings Sdn Bhd. Our Company then changed its name to Westport Holdings Sdn Bhd on 4 January 1995 and subsequently assumed the name of Westports Holdings Sdn Bhd on 14 November 2007. We commenced our business on 1 August 1994 and converted from a private company limited by shares to a public company limited by shares on 26 April 2013. We are principally involved in investment holding and the provision of management services to our subsidiaries, namely, WMSB and VTCM. The principal activity of WMSB is port development and management of port operations whilst VTCM is in the process of being voluntarily wound up. Our current Group structure is set out below:
6.2 Pre-Listing Exercise Prior to our IPO, our Company had implemented and completed a Pre-Listing Exercise which comprised the following: 6.2.1 Bonus Issue We undertook a bonus issue involving the issuance of 183,000,000 Bonus Shares, which were credited as fully paid-up, on the basis of approximately 1.56 Bonus Shares for every one (1) Pre-subdivided WHB Share held by capitalising a total of RM183,OOO,OOO from our audited retained earnings and share premium as at 31 December 2012 of RM149,OOO,OOO and RM34,OOO,000 respectively. The Bonus Issue was completed on 29 August 2013. Upon completion of the Bonus Issue, our issued and paid-up share capital increased from 117,000,000 Pre-subdivided WHB Shares to 300,000,000 Pre-subdivided WHB Shares. 6.2.2 Subdivision of Shares Upon completion of the Bonus Issue, we undertook a subdivision of one (1) Presubdivided WHB Share into ten (10) WHB Shares, which were credited as fully paidup. The Subdivision of Shares was completed on 29 August 2013. In consequence thereof, our authorised share capital of RM500,000,OOO comprised 5,000,000,000 WHB Shares whilst our issued and paid-up share capital of RM300,OOO,OOO comprised 3,000,000,000 WHB Shares. 6. INFORMATION ON OUR GROUP (cont’d) 6.2.3 Special Dividend After the completion of the Bonus Issue and Subdivision of Shares, we had on 29 August 2013 paid a special cash dividend of RM738,OOO,000 which was funded by the dividend income which we had received from WMSB. 6.2.4 Shares Subscription In view that we will not be raising any proceeds from our IPO, PRSB and SPIH had on 29 August 2013 subscribed for 246,000,000 new WHB Shares and 164,000,000 new WHB Shares respectively at an issue price of RM1.80 for each WHB Share. The proceeds arising from the Shares Subscription were applied towards meeting the working capital requirements and general operating purposes of WMSB. For the avoidance of doubt, these new WHB Shares were not entitled to the Special Dividend. 6.3 Share capital As at the date of this Prospectus, our authorised share capital is RI\II500,000,OOO.00 comprising 5,000,000,000 Shares whilst our issued and paid-up share capital is RM341 ,000,000.00 comprising 3,410,000,000 Shares. As at the date of this Prospectus, our Group does not have any outstanding warrants, options, convertible securities or uncalled capital. None of our Shares and shares in our subsidiaries were issued and allotted at a discount or have any special terms or instalment payment terms. Our issued Shares and issued shares in our subsidiaries are fully paid-up. Details of the changes to our issued and paid-up share capital since the date of our incorporation up to the date of this Prospectus are as follows: Cumulative issued Par Consideration (Cash and paid-up share Date of allotment No. of shares value or otherwise) capital RM RM 27 April 1993 2 1.00 Cash 2.00 23 September 1994 89,999,998 1.00 Cash 90,000,000.00 23 September 1994 10,000,000 1.00 Cash 100,000,000.00 21 December 2000 17,000,000 1.00 Otherwise than cash(‘) 117,000,000.00 29 August 2013 183,000,000 1.00 Otherwise than cash(2) 300,000,000.00 29 August 2013 410,000,000 0.10(3) Cash(4) 341,000,000.00 Notes: (1) In relation to the conversion of 51,000,000 units of ICULS in accordance with the deed poll dated 9 September 1996, the supplemental deed poll dated 29 June 1999, the second supplemental deed poll dated 15 April 2000, and the third supplemental deed poll dated 23 October 2000.
(2) In conjunction with the Bonus Issue.
(3) In conjunction with the Subdivision of Shares.
(4) In conjunction with the Shares Subscription.
6. INFORMATION ON OUR GROUP (cont’d) 6.4 Our subsidiaries The details of our subsidiaries as at the date of this Prospectus are set out below: 6.4.1 WMSB (Company No.: 192725-V) (i) History and business WMSB was incorporated in Malaysia under the Act as a private limited company under the name of Kelang Multi Terminal Sdn Bhd on 24 January 1990 and assumed its present name on 29 December 2006. The principal activity of WMSB is port development and management of port operations. WMSB commenced its business on 1 September 1994. (ii) Share capital The authorised share capital of WMSB is RM1,OOO,OOO,001.00 comprising 1,000,000,000 ordinary shares of RM1.00 each and one (1) Special Share, of which 893,000,000 ordinary shares of RM1.00 each and one (1) Special Share are issued and fully paid-up. Details of the changes to the issued and paid-up ordinary share capital of WMSB for the past three (3) years preceding the date of this Prospectus are as follows: Cumulative issued and paid-up Date of Par ordinary share allotment No. of shares value Consideration capital RM RM 29 August 493,000,000 1.00 Cash 893,000,000.00 2013 (iii) Shareholders As at the date of this Prospectus, WMSB is our subsidiary. The Special Share is held by the MOF Inc. on behalf of the GOM. For further details on the Special Share, please refer to Section 6.5 of this Prospectus. (iv) Subsidiary and associated company As at the date of this Prospectus, WMSB does not have any subsidiary or associated company.
6. INFORMATION ON OUR GROUP (cont’d) 6.4.2 VTCM (Company No.: 374058-H) (i) History and business VTCM was incorporated in Malaysia under the Act as a private limited company under the name of Pleasant Matrix Sdn Bhd on 16 January 1996 and changed its name to Vehicle Terminal Centre (Malaysia) Sdn Bhd on 28 March 1996. VTCM assumed its present name on 11 June 1996. The principal activity of VTCM is providing storage and transhipment of imported and exported vehicles. It commenced business on 10 September 1996. VTCM has ceased operations in year 2009 and has been dormant since then. VTCM is in the process of being voluntarily wound up. (ii) Share capital The authorised share capital of VTCM is RM10;000,OOO.00 comprlsmg 10,000,000 ordinary shares of RM1.00 each, of which 7,500,000 ordinary shares of RM1.00 each are issued and fully paid-up. There has been no change to the issued and paid~up share capital of VTCM for the past three (3) years preceding the date of this Prospectus. (iii) Shareholder As at the date of this Prospectus, VTCM is our wholly-owned subsidiary. (iv) Subsidiary and associated company As at the date of this Prospectus, VTCM does not have any subsidiary or associated company. 6.5 Special Share held by the MOF Inc. The terms of the Special Share per the Articles of Association of WMSB are as follows: (i) the Special Share may be held only by or transferred only to the MOF Inc. or its successors or any Minister, representative or any person acting on behalf of the GOM;
(ii) the Special Shareholder shall be entitled to nominate one (1) director to be on the board of directors of WMSB;
(iii) the Special Shareholder or any person acting on behalf of the Special Shareholder shall be entitled to receive notice of and to attend and speak at all general meetings or any other meeting of any class of shareholders of WMSB, but the Special Share shall carry no right to vote nor any other rights at any such meeting; (iv) in a distribution of capital in a winding up of WMSB, the Special Shareholder shall be entitled to repayment of capital paid-up on the Special Share in priority to any repayment of capital to any other shareholder. The Special Share shall confer no other right to participate in the capital or profits of WMSB;
(v) the Special Shareholder may be subject to the provisions of the Act, require WMSB to redeem the Special Share at par at any time by serving written notice upon WMSB and delivering the relevant share certificate; and
6. INFORMATION ON OUR GROUP (cont’d) (vi) each of the following matters shall be deemed to be a variation of the rights attaching to the Special Share and shall accordingly only be effective with the consent in writing of the Special Shareholder: (a) the amendment, or removal, or alteration of the definitions of “Special Share” and “Special Shareholder” as contained in the Articles of Association of WMSB;
(b) a proposal for the voluntary winding-up or dissolution of WMSB;
(c) issuance of any new ordinary shares of WMSB (when aggregated with all other existing issued shares of WMSB, carry the rights to cast on a poll more than 10% of the right to vote of all members at a general meeting of WMSB);
(d) any substantial disposal of assets by WMSB which alone or when aggregated with any other disposal or disposals forming part of, or connected with the same or a connected transaction, constitutes a disposal of the whole or a material part of the assets of WMSB; and
(e) any proposals affecting the interests of the GOM or the national interest.
(The rest of this page has been intentionally left blank) 7. BUSINESS OVERVIEW 7.1 Overview We are the operator of Westports. We handle container and conventional cargo, and also provide a wide range of port services, including marine services, rental services and other ancillary services. In the Straits of Malacca, the main ports which handle Import/Export and/or transhipment container cargo and compete with Westports are namely Northport, Port of Tanjung Pelepas and Port of Singapore. All these ports are located in close proximity to the main shipping route along the Straits of Malacca. Other than Northport, these ports have natural deep water berths which allow them to accommodate large vessels. The southern approach into Port Klang where Westports is located, has a channel of at least 17 metres, which is deeper than the northern approach where Northport is located, which is only 12 metres deep. According to Drewry Maritime Advisors, the deviation of Port Klang, Port of Tanjung Pelepas and Port of Singapore from the main shipping route along the Straits of Malacca is approximately 12, 15 and nine (9) nautical miles, respectively. The lower the deviation, the more suitable a port’s location is to operate as a transhipment hub. The location of Westports and its competitors along the Straits of Malacca can be seen below:
As shown above, there are two (2) port operators in Port Klang, namely WMSB and the operator for Northport and by virtue of their location, WMSB and the operator for Northport also provide container services for Import/Export and conventional cargo from the central Peninsular Malaysia hinterland. Our container business has grown rapidly in the last decade, from handling approximately 2.0 million TEUs in 2002 to approximately 6.9 million TEUs in 2012, representing a CAGR of 13.2%, compared with a CAGR of 8.3% in global gross container throughput over the same period, according to Drewry Maritime Advisors. For the six (6) months ended 30 June 2013, we handled 3.6 million TEUs of container cargo. 7. BUSINESS OVERVIEW (cont’d) Since we began operations in 1996, we have grown our market share to 69% of container traffic and 79% of the transhipment traffic in Port Klang in 2012 and 33% of container traffic in Malaysia in 2012, according to Drewry Maritime Advisors, with transhipment of containers comprising a majority of our traffic. Apart from our strategic position at the south of Port Klang and the natural deep water channel that we benefit from which makes us attractive to MLOs sailing large container ships, with our deep natural harbour and container berths in a contiguous straight line, we can flexibly berth and handle containers for the largest vessels in the world with capacities of up to 18,000 TEUs. The growth in our market share is also enabled by our relative operating efficiency and reliability as our container terminals routinely exceed 35 Moves Per Hour per crane for large vessels (vessels over 300 metres in length). Further, we offer established global and regional connectivity to more than 350 ports around the world with approximately 75 main line services calling at our port, complemented by approximately 65 feeder services, all of which are independently operated by 48 lines. Our port facilities include a total of 25 berths with an aggregate length of approximately 6,642 metres, of which 18 berths are contiguously connected in a straight line extending to approximately 4,800 metres. The straight line arrangement of the berths allows for greater flexibility in berthing vessels, thus resulting in higher berth utilisation. It also allows for the ability to handle large vessels (vessels over 300 metres in length). We are expanding our facilities further with an additional container terminal CT7. We have also commenced land reclamation and development work for two (2) additional container terminals, CT8 and CT9, respectively. With the completion of construction and commencement of operations in all areas of CT6 in March 2013, we currently have a handling capacity of approximately 9.5 million TEUs per annum, which is expected to increase to approximately 11.0 million TEUs per annum in 2015 once CT7 is fully operational. We also have the potential to increase our handling capacity to approximately 16.0 million TEUs per annum upon the completion of CT8 and CT9. Our conventional terminals handled approximately 10.2 million tonnes and 5.3 million tonnes of bulk cargo in 2012 and the six (6) months ended 30 June 2013, respectively (excluding RORO cargo). For the years ended 31 December 2010, 2011 and 2012, we generated total operational revenue (total revenue eXcluding Construction revenue) of RM975.0 million, RM1, 115.3 million and RM1,226.2 million, respectively, and PAT of RM284.9 million, RM316.5 million and RM361.0 million, respectively. For the six (6) months ended 30 June 2012 and 2013, we generated total operational revenue of RM600.5 million and RM642.8 million, respectively, and PAT of RM161.9 million and RM198.4 million, respectively. 7. BUSINESS OVERVIEW (cont’d) 7.2 Competitive strengths We believe that we are well positioned to maintain both our position as one of the largest and most efficient ImporUExport ports into Peninsular Malaysia and our industry-leading operational excellence, as well as increase our market share as a key container transhipment hub in the strategically important Straits of Malacca principally as a result of the following competitive strengths: 7.2.1 Strategically located to handle both transhipment traffic in the Straits of Malacca serving Asia-Europe and intra-Asia shipping lanes, as well as Import/Export traffic for Peninsular Malaysia We are located at Port Klang approximately 12 nautical miles from the Straits of Malacca shipping trade lane, with a sailing time of approximately an hour from the main shipping lane to our pilot station. According to Drewry Maritime Advisors, at least 50,000 vessels sail through the Straits of Malacca annually. There are more than 800 container shipping services calling at major ports in the Straits of Malacca, with approximately a quarter of these services, by total ship capacity, calling at Port Klang. Port Klang’s strategic location along the Asia-Europe and intra-Asia shipping lanes within the Straits of Malacca positions it well as a key transhipment hub in this region. Primarily as a result of an increase in transhipment volumes at Port Klang (which accounted for 63.0% of total container throughput in 2012 versus 52.7% in 2005), Port Klang has grown to become the 12th busiest port globally in terms of volume of containers handled and second in Southeast Asia behind the Port of Singapore in 2012, according to Drewry Maritime Advisors. Southeast Asia is the third busiest region in the world by container activity with 87.2 million TEUs handled in 2012, after the Far East (243.6 million TEUs) and Western Europe (94.7 million TEUs), according to Drewry Maritime Advisors. Total container throughput in Southeast Asia has been growing at a CAGR of 7.7% from 2002 to 2012, and Drewry Maritime Advisors expects this growth to continue at a CAGR of 5.4% between 2012 to 2015, resulting in Southeast Asia to likely surpass Western Europe in total containers handled by 2015. Historically, container ports in Southeast Asia have demonstrated capacity utilisation of approximately 75% according to Drewry Maritime Advisors, which estimates that with strong growth in the region, capacity utilisation is expected to be well above 85%, reflecting a positive demandsupply dynamic for container port operators. We believe we are well positioned to continue supporting the growth of transhipment activities at Port Klang, given Port Klang’s strategic location, our industry-leading handling productiVity, our natural deep water berths and our expansion plans to increase handling capacity. We have steadily enlarged our share of the transhipment market in the Straits of Malacca, growing from virtually zero in 1996 to approximately 12% in 2012, according to Drewry Maritime Advisors. 7. BUSINESS OVERVIEW (cont’d) Besides handling transhipment traffic from the region, including Bangladesh, India, Indonesia, Malaysia (East Malaysia, Penang, Johor), Myanmar, Singapore, Thailand and Vietnam, Port Klang is the gateway for Import/Export cargo for our immediate hinterland of the Klang Valley (including Kuala Lumpur and the state of Selangor) and the central part of Malaysia including the states of Negeri Sembilan and Pahang. This hinterland is estimated to have a population of approximately 10 million (34% of Malaysia’s total population) based on July 2010 population figures from the Malaysia Department of Statistics. Klang Valley is the heartland of Malaysia’s industry and commerce with hubs of industrial and commercial activity such as Shah Alam, Petaling Jaya, and the PKFZ. Port Klang’s location within the Klang Valley ensures a stable and growing flow of Import/Export cargo through the port, providing an attractive base load of demand for shipping lines calling at Port Klang. In 2012, 3.7 million TEUs of Import/Export containers and 17.8 million metric tonnes of conventional Import/Export cargo were handled through Port Klang, according to Drewry Maritime Advisors. 7.2.2 Advantageous geographic attributes We benefit from a natural deep harbour and a total of 25 berths with an aggregate length of approximately 6,642 metres, of which 18 berths are contiguously connected in a straight line extending to approximately 4,800 metres, proViding the maximum usable quay length and flexibility in berthing vessels. The channel fronting our berths is a protected harbour, naturally sheltered by Pulau Che Mat Zin, which buffers our terminal from strong currents as well as against possible damage from potential tsunamis. This natural shelter eliminates the need to construct costly artificial breakwaters. The southern approach into Port Klang has a deeper channel (at least 17 metres) than the northern approach, which is only 12 metres deep. Hence, larger ships calling at Port Klang requiring a channel deeper than 12 metres have to enter Port Klang using the southern approach. The PKA has also announced that it is committed to deepening the entrance channel to our port and is in the process of increasing the current depth of the access channel from 17 metres to 18 metres. These larger ships travel a shorter distance from the Straits of Malacca to our terminal and we estimate that it saves approximately an hour each way coming into and departing from our terminals, compared to terminal in the northern part of Port Klang. Our strategic position at the south of Port Klang and the natural deep water channel make us attractive to MLOs sailing large container ships, which provide us with more opportunities to handle transhipment containers. Additionally, with the completion of CT6, our deepest berth is now able to handle the largest container ship currently in operation. Immediately adjacent to, and running along the entire length of our container berths is an extensive container yard area covering 137.7 hectares. This area provides ample space for the efficient manoeuvring, storage and retrieval of containers, which is integral to our terminal operations. Westports enjoys easy and convenient access to PKFZ, an integrated 405 hectare customs-free commercial and industrial zone next to the port where international cargo distribution and consolidation, procurement, export manufacturing and other cargo value added services are undertaken. Besides being customs-free, PKFZ attracts investors through various investment incentives such as tax exemptions and subsidies and incentives for research and development, training and export. Aside from the PKFZ, there is also adequate land surrounding Westports that supports the operations of a well-established ecosystem of shippers, freight forwarders and thirdparty logistics service providers and affords them room for future growth as well. 73
7. BUSINESS OVERVIEW (cont’d) 7.2.3 Leading market position in Port Klang, with secured long-term concession and strong expansion potential Our ability to accommodate the largest vessels, coupled with our relative operating efficiency and reliability, have led us to consistently grow our market share within Port Klang to command 79% of the transhipment traffic in Port Klang, and an overall market share of 69% in 2012 for both transhipment and ImporUExport volumes, according to Drewry Maritime Advisors. The concession under the Privatisation Agreement we have entered into may be extended to 2054 (subject to meeting certain conditions as set out in Sections 7.4 and 7.23(i) of this Prospectus), provides us the assurance to make further long-term investments in port infrastructure and enhances customers’ confidence in our ability to support their operations and growth. We also have expansion potential, both in terms of additional yard area and quay length with sufficient berth depth to handle the largest container vessels. We expect to be able to handle containers for the largest vessels in the world with capacities of up to 18,OOO-TEUs since CT6 became fUlly operational. The expansion plans for CT7 to CT9 is expected to extend the total quay length for container berths by approximately 1.8 kilometres from 4.0 kilometres to 5.8 kilometres, and more than double our total container area from 137.7 hectares to 307.2 hectares. Our handling capacity is approximately 9.5 million TEUs per annum since CT6 became fully operational in March 2013. Our container handling capacity is expected to further increase to 11.0 million TEUs per annum in 2015 once CT7 is fully operational. We have the potential to increase our capacity to approximately 16.0 million TEUs per annum upon the completion of CT8 and CT9. This scope for expansion allows us to accommodate the growth in volumes from existing customers as well as attract customers from other ports in the region that are operating near full capacity. 7.2.4 Established global and regional connectivity We have connections to more than 350 ports around the world, providing customers an efficient global and regional connection point along major trade routes. We are able to provide such connectivity through approximately 75 main line services calling at our port which are complemented by approximately 65 feeder services, all of which are independently operated by 48 lines. Numerous intermodal connections within Peninsular Malaysia and with neighbouring countries have also contributed to our positioning as a preferred gateway for ImporUExport cargo. In particular, we have good connectivity via links to the NorthSouth Expressway, North-South Expressway Central Link, Shah Alam Expressway and South Klang Valley Expressway. The North-South Expressway runs from Bukit Kayu Hitam at the Malaysia-Thai border to the Johor Causeway in the south, covering a distance of 772 kilometres. This expressway along the western side of Peninsular Malaysia together with the New Klang Valley Expressway and the Federal Highway Route 2, play an important role in the distribution of cargo between Port Klang and its hinterland. We are linked by rail to Port Klang’s South Port and to inland container depots such as Ipoh Cargo Terminal in Perak, Nilai Inland Port in Negeri Sembilan, Padang Besar (at the Malaysia-Thailand border) and Segamat Inland Port in Johor. In addition, a 4.4-kilometre link from Northport to Westports has reduced travel time between the two (2) ports. We are also linked to Malayan Railway’s rail network, with direct connections to Penang and Bangkok to the north and Singapore to the south. 74 7. BUSINESS OVERVIEW (cont’d)
Port Klang is located approximately 75 kilometers away from Kuala Lumpur International Airport, which is Malaysia’s main international airport and a major airport in Southeast Asia. 7.2.5 Strong track record of operational excellence and financial profitability We have a strong track record of operational excellence and financial profitability. Our container throughput has consistently grown in all years since inception, except for 2009 when it fell by 10%, in line with an overall drop in global container throughput due to the global financial crisis. Supported by an increasingly diversified customer base across a spectrum of cargo types handled, we have been growing our operational revenues by an average CAGR of 11.0% between 2003 and 2012 and have been profitable since inception (with the exception of 1998, due to the Asian financial crisis). In terms of quay crane operations, we seek to maintain a high level of productivity for our cranes and routinely exceed 35 Moves Per Hour per crane for larger vessels. We have received numerous accolades and awards for operational excellence including, most recently, the Brand Laureate Award for logistics by Asia Pacific Brands Foundation in January 2012, the Platinum Award for Technology and ICT, Platinum Award for Community, Silver Award for Environment, Gold Award for Best Employer and the Best-in-class achievement for Productivity, Customer Service, Terminal Practices and Container International Award under the STAR Outstanding Business Awards in November 2011, and the Corporate Social Responsibility of the Year award at the Containerisation International Awards in 2011. Our all-weather capabilities allow us to provide the full range of port services round the clock all year-round, with minimal costs, delays and damages. Our range of services includes conventional, container and container value-added services. Our consistent performance, both operationally and financially, is enabled by: (i) our leading infrastructure
We continually invest in our infrastructure to improve work flow and productivity. We believe we utilise some of the most advanced equipment, such as twin-lift quay cranes with up to 24-row outreach, which is amongst the longest outreach for ship-to-shore gantry cranes currently available.
(ii) advanced IT
We believe we are eqUipped with advanced IT solutions to improve our productivity, operational efficiency and capacity, as well as maintain a high level of safety and security, and enhance customer service. Our container terminal operations system, COSMOS, used by leading ports around the world, is a customisable system that expedites and automates the day-to-day management and operation of container terminals. We use it for the entire scope of terminal operations, tightly coupling berth, ship, yard and rail planning with quay, yard, rail and gate operations. This integration of planning and real-time operations monitoring enables us to optimise equipment utilisation and resource allocation and maximise productivity and throughput capacity. We also utilise our NGCCS to fully computerise all non-containerised cargo activities, from wharf operation to billing.
7. BUSINESS OVERVIEW (cont’d) We also support comprehensive EDI which enables fast exchange of information between us and our customers to facilitate paperless documentation for shipping agents, freight forwarders and hauliers. In addition, our comprehensive and interactive customer portal developed inhouse, e-Terminal Plus, enables our customers and other users of Westports to obtain real-time information at their convenience and also easily exchange information with us. The integration of e-Terminal Plus with our container terminal operations system and the Customs’ system has streamlined and automated many work processes, creating a simplified and paperless environment, minimising waiting times and the need for agents to be physically present at our terminal. For example, we launched e-Gate Pass in 2012, whereby port users can print the gate pass at their offices without the need to come to the port to collect it from our documentation centre. This saves travelling time and costs for our port users. We have also implemented an e-bidding, e-procurement and e-billing system to facilitate our business transactions. We won the Gold Award for IT as the most efficient e-terminal port chosen among 50 ports worldwide by the IAPH in May 2007. (iii) efficient, customer-focused operational processes with the flexibility to cater to special requirements We believe that throllgh our integrated planning and investment approach whereby we pro-actively manage our capacity growth and utilisation, we have been able to minimise operational bottlenecks and supply chain inefficiencies, and achieve efficient operational processes. This allows us to offer our customers berthing on arrival or short waiting time to berth, fast loading or unloading, and short port stay time for vessels. We also have the flexibility and capacity to cater to special requests from our customers. For example, we have, on many occasions, allocated additional handling resources to accelerate loading or unloading for vessels that were behind schedule, which in turn assisted the vessels to meet their schedule at their next port of call. We are also able to support ‘hot connections’, Le. the transferring of containers directly between vessels with short overlaps in their berthing times, to avoid delaying the departing vessel or containers missing their connecting vessel. (iv) best-in-class workforce We believe we have one of the best workforces in the industry with positive employee relations and strong employee loyalty. The average length of employment of our existing workforce is approximately six (6) years, with approximately 26% of our employees having been with us for over 11 years. We have a stable workforce which is not organised under any recognised unions and almost all of our employees are local. We are also able to provide our employees with long-term career prospects within our Group and job rotation opportunities to develop mUltiple skills. We believe our productivitydriven reward structure motivates our employees to reach our competitive productivity standards. We were awarded the Gold Award for Best Employer under the Star Outstanding Business Awards in November 2011. 7. BUSINESS OVERVIEW (cont’d) 7.2.6 Long-term relationships with customers and other stakeholders, and differentiated quality service ensuring customer satisfaction and loyalty We have established a strong and well-recognised reputation for being “Proven, Trusted, Friendly” due to our reliable track record in delivering quality service to container shipping lines in the Straits of Malacca. We have good long-standing relationships with our customers and regard them as long-term business partners. Our ability to offer shipping lines berthing on arrival or short waiting time to berth, and fast loading or unloading allows them to better manage their vessel schedules and minimise costs. Our partnership approach has been demonstrated on many occasions, for example, through our willingness to deploy additional resources to accelerate the unloading or loading and minimise the time at berth for ships that are behind schedule to enable them to catch up on their schedules and save costs. We serve more than 30 main shipping lines, with blue-chip anchor customers like the CMA CGM Group, China Shipping Line Limited, United Arab Shipping Corporation and Gold Star Line Limited, among other shipping lines. Our hub clients include what we believe to be among some of the fastest growing lines in the world and they have been our customers for more than ten (10) years. Our top two (2) customers, CMA CGM Group and China Shipping Line Limited, have grown together with us over the years, with the former becoming one (1) of the three (3) largest shipping lines globally and the latter becoming one of the leading shipping lines in China, according to Drewry Maritime Advisors. We also offer shippers and logistics service providers fast gate clearance and streamlined processes with e-documentation, which result in shorter end-to-end cycle times for cargo movements compared to other ports in Port Klang. We believe this allows them to optimise the utilisation of their vehicles and personnel, hence scheduling more trips into a single day. We believe that our ability to offer one-stop services through our electronic customer portal, e-Terminal Plus, high productivity, shorter turnaround times and consistent reliability to our customers helps ensure customer satisfaction and loyalty. Our differentiated, quality service offerings and competitive pricing relative to regional competitors have enabled us to attract and retain customers over the years. Security and safety is a top priority at our port and extensive measures are taken to secure the port and cargoes, and provide protection for our customers, employees and other third parties. We also have positive relationships with our stakeholders, and engage in extensive corporate social responsibility activities that support community development in the surrounding local area. Our ongoing projects include programmes to eliminate poverty, reduce crime and improve English language skills in the community living in Pulau Indah, where we are located. We also believe we have strong government support, affirmed by the GOM and PKA’s agreement to extend our concession period for another 30 years to 2054 (subject to meeting certain conditions as set out in Sections 7.4 and 7.23(i) of this Prospectus), after the initial 30-year concession expires in 2024. 7. BUSINESS OVERVIEW (cont’d) 7.2.7 Experienced management team with proven track record, backed by reputable shareholders We are led by our Non-Independent Executive Chairman, Tan Sri Datuk Gnanalingam a/I Gunanath Lingam since we signed the Privatisation Agreement in 1994. He is also a director and shareholder of PRSB, a major shareholder of WHB. Under his stewardship, we have become one of the preferred ports of call for several major shipping lines. We have a highly experienced management team that has served our Group for an average of 11 years. With a large pool of home grown talent, our management team is well tuned to the domestic, regional and global dynamics of the industry. Our management team has a proven execution track record in project management, infrastructure development and phased expansion, and we have consistently been on target or ahead of schedule for all our expansion projects. For example, CT6 was completed ten (10) months ahead of schedule. Representatives of our major shareholders on our Board bring an invaluable set of expertise and relationships to guide our long-term strategic growth. HPH is a leading global port operator with strong relationships with shipping lines globally and has deep commercial, technical and operational expertise in managing container terminals, providing us the opportunities to enhance our network of shipping line customers and to learn the best practices from their network of ports around the world. 7.3 Strategies and future plans We aspire to maintain our leadership in Port Klang and grow our market share in the Straits of Malacca. We are executing the following strategies to continue our growth and increase revenue, profitability and returns to our shareholders. 7.3.1 Increase throughput to our port (i) Capitalise on continued growth in container traffic through the Straits of Malacca We will expand our container handling capacity to meet the growth in Southeast Asia container traffic which is considered as one of the fastest growing regions in the world. Our handling capacity is expected to increase from approximately 9.5 million TEUs to approximately 11.0 million TEUs upon the expected completion of CT7 in 2015. We believe this increase in handling capacity will further enhance our competitive edge against other regional ports and we will be able to benefit from the fast growing demand for container handling services in this region. (ii) Attract transhipment activities of key shipping line customers and grow the regional feeder network to further improve connectivity and drive growth in transhipment volumes We maintain frequent and close dialogue with key shipping line customers to keep ourselves abreast of the latest developments within the shipping industry. This close rapport gives us an earlier and better reading of potential changes in the shipping industry and enables us to react faster in improving our service offerings to meet shipping lines’ evolving requirements. 7. BUSINESS OVERVIEW (cont’d) As a supply-driven port, we continue to enhance our operational efficiency through consistent investments in new terminals, equipment and employee productivity. With our ongoing terminal expansion, designed to handle the largest vessels in the world with capacities of up to 18,000 TEUs coupled with our high productivity in loading and discharge of containers, we intend to continue delivering reliable and fast turnaround of vessels, thereby maintaining our attractiveness for key shipping line customers to undertake more transhipment activities at our terminal. As one of the leading hub ports in Southeast Asia, we have developed an extensive feeder network with the connectivity to serve the demands of our MLO customers. To further enhance our feeder connectivity, we have a dedicated team analysing our MLO customers’ feeder network requirements. Based on the information gathered from our customers, we provide feedback to the feeder operators and also facilitate dialogues between our customers and feeder operators to evaluate the feasibility of launching additional feeder services. To facilitate the launch of new feeder services to penetrate new sectors or increase our market share of targeted sectors, we may consider offering more attractive terms to feeder operators during the start-up period. We believe that with the growth and increasing connectivity of our feeder network, we will be able to attract additional transhipment cargo through our terminal. (iii) Strengthen our position as the preferred gateway of Malaysia We seek to streamline customs processes to shorten processing time for Import/Export cargo. We are establishing a centralised inspection centre which will allow Customs and other GOM agencies to conduct inspection activities in one (1) location on both dry van and reefer cargoes. We also regularly liaise with our shippers, third party logistics service providers, freight forwarders, Customs and other GOM agencies to further streamline our business processes through introducing new features to our port community portal, e-Terminal Plus, to better serve our customers, reduce their cost of doing business and improve our competitiveness. For example, we introduced e-ISP, a module which allows Customs and other GOM agencies to pre-notify us the containers required for inspection, so that the containers can be appropriately positioned, cutting down the cycle time for the customs request, positioning and clearance of the containers to be taken out of the port by the importer. With the aim of providing a one-stop solution for the clearance of cargo for both importers and exporters, our Business Centre houses the operations of teams from seven (7) government agencies inclUding Customs, Immigration, Health, Marine Department, MAQIS, Puspakom and SIRIM, enabling our customers and port users to procure the necessary clearances for their cargo and personnel at our port. We are working with the local authorities to improve transportation links to the Klang Valley and the rest of Peninsular Malaysia. We are currently in negotiations with the relevant authorities to approve additional funding to expand the access road to Pulau Indah from the current two (2) lanes to three (3) lanes in each direction. We have also requested for an additional motorcycle lane and are exploring the possibility of establishing a second link between Pulau Indah and the mainland. Once completed, the improvements are expected to reduce the time taken to transport cargo to and from the port.
7. BUSINESS OVERVIEW (cont’d) In addition, the final phase of the South Klang Valley Expressway, which is currently under construction and expected to be ready by 2014, will provide additional access and reduce transportation time for cargo to and from South Klang Valley. We also plan to build a second gate complex which, when completed in the first quarter of 2014, will double the existing 14 lanes currently in operation to 28 lanes. This increase in lanes will further speed up gate clearance, enabling fast and seamless movement of cargo in and out of our port. (iv) Enhance overall customer value proposition and customer satisfaction to promote customer loyalty We maintain close communication with our key hub customers to ensure that our terminal expansion plan is in line with their growth strategies and can support their growth in the region. For example, we plan the construction of our new terminals in line with our hub customers’ expected future throughput, delivery of new vessels, sizes of vessels and cargo type. We believe this proactive approach towards client management has allowed us to maintain long-term relationships with these customers. We also work with the PKA to ensure that our port tariffs remain competitive and attractive relative to our competitors within the region, including Port of Singapore. We believe our relatively lower port tariffs provide us with an advantage in attracting more shipping lines to include us in their port service rotation. With competitive tariffs, fast turnaround of vessels, modern terminal infrastructure, natural deep water, steady cargo volumes from our hinterland, and a wide range of value-added services, we believe we are able to provide a strong value proposition to our customers and promote their continued loyalty in using us as their port of choice. We will continue to work closely with customers to expand our offering of container value-added services such as storage services, reefer services, container freight services, special services, removal services and other valueadded services. We seek to be able to cater to the current and future needs of our customers in a cost-effective manner and assist our customers in managing their overall costs. (v) Anchor distribution hub activities of shippers globally within or near Westports to increase cargo flow To draw more cargo to our port, we are also working with shippers to establish distribution hubs in the vicinity of our ports to take advantage of our connectivity and price-competitiveness to distribute their products into the region. As at the LPD, the LME and Noble Cotton are using our port as the regional distribution centre for metal and cotton. Currently, approximately 25,488 Sq m of warehouse space is being used by Noble Cotton and approximately 37,212 Sq m of warehouse space is being used by LME. We are currently working towards attracting customers from the Middle East, Australia, Europe and other key areas to take advantage of the close proximity of our port to the 405 hectares PKFZ Flagship Halal Zone (within PKFZ) on Pulau lndah and 405 hectares Selangor Halal Hub on Pulau lndah (both accredited Halal Parks certified to handle and produce Halal products), and use our port as the gateway for Halal products for consumption within Malaysia as well as distribution into the region. 80
7. BUSINESS OVERVIEW (cont’d) We are also working with Port of Marseille in Northern Europe to establish ourselves as the hub for procurement and consolidation of halal products from Southeast Asia, to be shipped to Marseille for marketing and distribution into Europe and North Africa. 7.3.2 Increase capacity and improve operational efficiency, financial profitability and long-term sustainability of business (i) Make timely investments in new infrastructure, equipment and technologies to increase throllghput capacity, improve productivity and cost efficiencies, and enhance our capability to handle increasing vessel sizes We intend to continue to make investments to grow our throughput capacity in line with or ahead of the growth of cargo volumes from our shipping line customers. We will seek to time the investments to avoid potential congestion in the port and provide our customers the handling capacity that allows them to plan ahead the increase in the size of vessels and frequency of calls at our port. We plan to continue to invest in the infrastructure (e.g. new deeper berths), equipment and technologies to optimise our quay and yard operations, and handle the largest ships. As at the LPD, we have plans to invest a total of RM828 million in capital expenditure to develop CT7 by 2015. (ii) Focus on optimising operating efficiency and employee productivity to ensure sustainable and profitable growth We intend to continue to optimise our operational efficiency by increasing the productivity at our terminal and lowering operating costs. We hold conferences regularly with our shipping line customers to discuss improvements in planning, work processes and procedures to improve our handling productivity. We also have a culture of requiring all of our teams to periodically review their standard operating procedures and question underlying assumptions, to ensure that our work policies and procedures are consistently re-examined to seek out opportunities for further improvement and areas for cost minimisation. Port improvement opportunities identified are reviewed by a task force and appropriate resources are allocated to ensure that projects approved are implemented expeditiously. We intend to employ more electricity-powered equipment to minimise our energy costs and reduce our carbon footprint. We plan to use hybrid RTGs (which is fuel and electricity-powered) and/or variable speed RTGs for our new container terminals. These hybrid RTGs and variable speed RTGs are expected to save fuel and other operating costs. We may also consider converting our existing fuel-based RTG to hybrid RTGs or variable speed RTGs in a progressive manner. (iii) Achieve a more flexible cost structure through selective outsourcing We plan to reduce the proportion of fixed overhead costs in our cost structure through partial outsourcing of selected operations. For example, we intend to increase the number of outsourced prime movers operating within our container terminal over time. By leveraging on subcontractors, we intend to achieve a more flexible cost structure that better aligns our costs with revenue. 81 7. BUSINESS OVERVIEW (cont’d) (iv) Continue to invest in training and succession planning, and offer excellent career development opportunities to our staff to be the employer of choice in the port industry We strongly believe in developing human capital and nurturing talent among our employees. We have established a dedicated team within our human resources department to ensure all employees within our company are provided with the requisite training to carry out their tasks efficiently. We endeavour to provide regular in-house and external training to ensure all our employees’ skills are kept up-to-date with the latest industry practices and procedures. We encourage our employees to participate in our job rotation programme within our Group and provide our staff with the required exposure in understanding mUltiple aspects of the port and shipping business. We maintain and continue to grow a pool of young and talented executives and managers who are trained to multi-task in managing and handling various aspects of the day-to-day operations of the port. We believe this training will nurture these young executives to be future leaders of our Group to operate, manage and grow our business. We proactively manage succession planning within our organisation to ensure the long-term sustainability of our business as well as provide our employees a clear and visible path for career progression within the organisation. This is intended to motivate employees to adopt a long-term view on their career prospects within our Group and achieve close alignment between our employees’ personal goals and our business objectives. We believe that our success and growth is also tied to our employee’s personal success and growth. (The rest of this page has been intentionally left blank) 7. BUSINESS OVERVIEW (cont’d) 7.4 History and key milestones Our Company was incorporated in Malaysia under the Act as a private company limited by shares on 27 April 1993 under the name of Steadfast Equity Sdn Bhd and is principally involved in investment holding and the provision of management services to our subsidiaries, namely, WMSB and VTCM. On 1 August 1994, our Company changed its name to Klang Multi Terminal Holdings Sdn Bhd. Our Company then changed its name to Westport Holdings Sdn Bhd on 4 January 1995 and subsequently assumed the name of Westports Holdings Sdn Bhd on 14 November 2007. We commenced our business on 1 August 1994 and converted from a private company limited by shares to a public company limited by shares on 26 April 2013. WMSB was incorporated on 24 January 1990 under the Act under the name of Kelang Multi Terminal Sdn Bhd as a private limited company and its principal activity is port development and management of port operations. WMSB changed its name to Westports Malaysia Sdn Bhd on 29 December 2006. Under the terms of the Privatisation Agreement, WMSB attained the right to develop and operate Westports for a period of 30 years until 31 August 2024. The GOM and PKA have agreed to extend this period by another 30 years to 31 August 2054, subject to the fulfilment of the following conditions: (i) the completion of the reclamation of the land and incidental works for CT6 to GT9 on or before 1 January 2014; and
(ii) the completion of construction works for GT6 to be fully operational on or before 1 January 2014.
In March 2013, the construction works for GT6 were completed and GT6 commenced full operations. In September 2012, land reclamation and incidental works for GT7 was completed. Furthermore, as at the LPD, approximately 91 % of the land reclamation and incidental works for GT8 and GT9 have been completed and such works are expected to be fully completed by 31 December 2013. Our key milestones, achievements, awards and recognitions include the following: Year Key milestones I achievements I awards I recognitions 1994 PKA handed over the port to WMSB, pursuant to the privatisation programme implemented by the GOM 1996 Commenced containership operations with one (1) container terminal 1997 Completion of CT2, increasing our capacity to 3.0 million TEUs 1998 Awarded the “Top Ten (10) Container Ports” award at the Asian Freight Industry Awards 1999 Awarded the “Best Emerging Terminal’ award by Lloyd’s List Maritime Asia 2000 Awarded the “FIABCI Award Best Public Sector Development by Federation Internationale des Administrateurs de Bien-Conseils Immobiliers 2001 Completion of CT3, increasing our capacity to 4.5 million TEUs 2002 Awarded the “Super Brand Award’ award by the Malaysian Superbrands Council 2003 Awarded the “National Landscape Award’ award by the Ministry of Housing and Local Government 2004 Awarded the “Best Employer Award’ award by Ministry of Human Resources 2005 Completion of CT4, increasing our capacity to 6.0 million TEUs 2006 Awarded the “Technology Business Review Award’ for excellence in Logistics Port services by BrandLaureate 2007 Awarded the “Gold Award for IT’ as the most efficient e-terminal port chosen among 50 ports worldwide and “Silver Award for Safety’ by IAPH Awarded the “Human Resource Development Award’ by the Human Resources Minister 83
7. BUSINESS OVERVIEW (cont’d) Year Key milestones I achievements I awards I recognitions Awarded the “Excellence in Logistics” award at the Technology Business Review Association of Southeast Asian Nations Awards Awarded the “BrandLaureate Award’ for “Best Brands Award -PortslTerminals” by the Asia Pacific Brands Foundation 2008 Completion of CT5, increasing our capacity to 7.5 million TEUs 2009 Awarded the “BrandLaureate Award’ for “Best Brands in Logistics -Ports” by the Asia Pacific Brands Foundation 2010 Signed a supplemental agreement to extend the concession to 2054 sUbject to fulfilment of certain conditions Awarded the “BrandLaureate Award’ by the Asia Pacific Brands Foundation and “Asia HRD Congress Award’ by the Asia HRD Congress 2011 Awarded the “Platinum Award for Technology and ICT’, “Platinum Award for Community”, “Silver Award for Environmenf’, “Gold Award for Best EmployeI’ and the “Best-in-elass achievement for Productivity, Customer Service, Terminal Practices and Container International Award’ at the Star Outstanding Business Awards Awarded the “Corporate Social Responsibility of the YeaI’ award at the Containerisation International Awards Achieved 734 Moves Per Hour with a nine-crane deployment in March 2011 2012 Awarded the “BrandLaureate Award’ for “Top 10 Master’s Award in Logistics” by Asia Pacific Brands Foundation Awarded the “Corporate Social Responsibility Award’ at the Asia Pacific Young Business Conference Achieved a total of 50 million TEUs handled (since commencement of operations) Received the then largest containership at Westports in November 2012 (CMA CGM Marco Polo which has a capacity of approximately 16,000 TEUs, according to the CMA CGM website) 2013 Completion of CT6 in March 2013, increasing our capacity to 9.5 million TEUs 7.5 Port location Westports is situated on 535.47 hectares of land strategically fronting the Straits of Ma/acca at the port location of Pulau Indah, Port Klang on the west coast of Peninsular Malaysia, the main gateway by sea into Peninsular Malaysia. The Straits of Malacca is a key shipping waterway used by ships plying the Asia-Europe and intra-Asian shipping routes. At least 50,000 vessels sail through the Straits of Malacca annually, carrying an estimated 30% of global goods shipped, according to Drewry Maritime Advisors. Port Klang is a key transhipment port and has grown to become the 1ih busiest port globally in 2012 in terms of volume of containers handled and the second busiest port in Southeast Asia. We began container port operation in 1996 and we have a market share of 69% of container traffic at Port Klang and a market share of 33% of container traffic in Malaysia in 2012, according to Drewry Maritime Advisors. Port Klang is located approximately 40 kilometres west of Kuala Lumpur. The following table shows the growth of Westports’ throughput and market share of Port Klang’s annual container volume for the years indicated:
7. BUSINESS OVERVIEW (cont’d) Year ended 31 December 2001 2004 2007 2010 2012 Throughput (million TEUs)…………………… 1.5 2.6 4.3 5.6 6.9 Market share in Port Klang (1) (0/0)…………. 39 49 61 63 69 Note: (1) According to Drewry Maritime Advisors.
In addition to Westports’ central location on the densely populated west coast of Peninsular Malaysia, strong intermodal connections within Peninsular Malaysia and with neighbouring countries have also ensured Westports’ success as an ImporUExport port. In particular, Westports has good connectivity to Port Klang’s hinterland via links to the North-South Expressway, North-South Expressway Central Link, Shah Alam Expressway and South Klang Valley Expressway. The North-South Expressway runs the length of Peninsular Malaysia from Bukit Kayu Hitam at the Malaysia-Thai border to the Johor Causeway in the south, covering a distance of 772 kilometres. This expressway along the west coast of Peninsular Malaysia together with the New Klang Valley Expressway and the Federal Highway Route 2, plays an important role in the distribution of ImporUExport cargo via Port Klang. The industrial hinterland surrounding Port Klang, including the Shah Alam Industrial region as well as the PKFZ, is a key source and destination for cargoes moving through Westports. Westports is also linked by rail to Port Klang’s South Port and to inland container depots such as Ipoh Cargo Terminal in Perak, Nilai Inland Port in Negeri Sembilan, Padang Besar (at the Malaysia-Thailand border) and Segamat Inland Port in Johor. In addition, a 4.4-kilometre link from Northport to Westports has reduced travel time between the two (2) ports. Westports is also linked to Malayan Railway’s rail network, with direct connections to Penang and Bangkok to the north of Malaysia and Singapore to the south of Malaysia. Port Klang is located approximately 75 kilometres away from Kuala Lumpur International Airport, which is Malaysia’s main international airport. The following map shows Westports’ primary and secondary hinterlands: \ ~/ ~. Kuantan Port Kuanta~ I 7. BUSINESS OVERVIEW (cont’d) 7.6 OUf services Our primary services are (i) container cargo services; (ii) conventional cargo services; (iii) marine services; and (iv) rental services. The chart below summarises our primary services and certain statistics of our services:
Container Services Terminal Handling Services I-• Handling of transhipment and ImporUExport cargo Throughput (for the year ended 31 December 2012) • 4.9 million TEUs of transhipment cargo
• 2.0 million TEUs of ImporVExport cargo
yValue-Added Services I • Comprise of storage services, reefer services, special services, removal services, container freight services, other value-added services I WMSB •I Conventional Services l Dry Bulk Services • Handling and storage of edible and non-edible dry bulk commodities Break Bulk Services
• Handling of iron and steel products, machinery, Iinerboard and wood pulp HLiquid Bulk Services I • Handling of petroleum and petrochemical products and bunkering services HRORO Services • Port services for ImporUExport of vehicles yCement Services • Handling of bulk cement cargo t
Marine Services • Provision of tug boat and pilotage services Total quantity of cargo handled (for the year ended 31 December 2012) • 10.2 million tonnes and 0.2 million units for RORO 86 t
Rental Services • Rental of land, storage facilities and office space 7. BUSINESS OVERVIEW (cont’d) The following table shows our revenue breakdown for the periods indicated, in absolute terms and expressed as a percentage of total operational revenue, based on our primary services: Year ended 31 December Six (6) months ended 2010 2011 2012 30 June 2013 (RM ‘ODD) (‘Yo) (RM ‘ODD) (‘Yo) (RM ‘000) (‘Yo) (RM ‘ODD) (‘Yo) Container………………………. 788,960 80.9 914,651 82.0 1,009,247 82.3 524,434 81.6 Conventional …………………. 96,790 9.9 104,868 9.4 122,698 10.0 67,201 10.4 Marine ………………………….. 57,022 5.9 64,557 5.8 64,134 5.2 35,365 5.5 Rental …………………………… 32,182 3.3 31,254 2.8 30,086 2.5 15,758 2.5 Total operational revenue … 974,954 100.0 1,115,330 100.0 1,226,165 100.0 642,758 100.0 Construction(l)………………… 23,594 272,044 266,097 107,326 Total revenue ………………… 998,548 1,387,374 1,492,262 750,084
Note: (1) Construction revenue represents the revenue related to the construction of porl-related infrastructures under the Privatisation Agreement and is recognised based on the stage of completion of the work performed. We have approximately 75 main line services calling at our port which are complemented by approximately 65 feeder services, all of which are independently operated by 48 lines, with links to more than 350 ports around the world. 7.6.1 Container services Container services accounted for approximately 81.6% of our total operational revenue for the six (6) months ended 30 June 2013. With the completion of construction and commencement of full operations of CT6 in March 2013, our container terminals currently have the ability to accommodate a total handling capacity of approximately 9.5 million TEUs per annum, and can support the largest vessels in the world with capacities of up to 18,000 TEUs. Our container terminal facilities, which commenced operations in May 1996, are currently equipped with, among others, 47 quay cranes and 125 RTGs. Approximately 24.3 hectares of container yard space is allocated to each 600-metre terminal for maximum flexibility in operations and logistics. The terminal facilities operate 24 hours a day and seven (7) days a week (except for a few hours during Eid ul Fitr, an annual religious holiday in Malaysia) and have a 24-hour customs clearance facility with an electronic data interchange system. A summary of our container terminal facilities and their operations is as follows: Type Remarks Berth length Capacity Area 14 berths with an aggregate length of 4,000 metres Approximately 9.5 million TEUs per annum 137.7 hectares consisting of: CT1 -16.2 hectares CT2 -24.3 hectares CT3 -24.3 hectares CT4 -24.3 hectares CT5 -24.3 hectares CT6 -24.3 hectares 7. BUSINESS OVERVIEW (cont’d) Type Remarks Area (cont’d) Planned development for approximately 169.5 hectares consisting of: CT7 -approximately 52.3 hectares (expected completion in 2015) CT8 -approximately 58.5 hectares CT9 -approximately 58.7 hectares Equipment 47 quay cranes (all twin lifts) (1) 125 RTGs (2)(3) 15 empty stackers (3) 13 reach stackers (3) 332 prime movers 347 trailers Additional features 15.0 to 17.5 metre berth depth 1,236 reefer points(4) 29,985 total ground slots Productivity Routinely exceeding 35 Moves Per Hour per crane for large vessels (vessels over 300 metres in length) Routinely achieving 70 to 100 Moves Per Hour per vessel on main line vessels Routinely exceeding 50 Moves Per Hour per vessel on feeder vessels Notes: (1) Currently. only 45 quay cranes are in operation as the remaining two (2) quay cranes are not being utilised and are in the process of being disposed off..
(2) Currently, only 115 RTGs are in operation as the remaining ten (10) RTGs are not being utilised and are in the process of being disposed off.
(3) Reach stackers, empty stackers and RTGs are types ofyard cranes.
(4) Reefer points relate to electricity plug points used for the storage of cargo that requires refrigeration.
(i) Terminal handling services WMSB’s container cargo services cover two (2) main areas: terminal handling services and value-added services. The following table shows our revenue for the periods indicated, in absolute terms and expressed as a percentage of total container revenue, based on our main areas of container cargo services: For the year ended 31 December For the six (6) months 2010 2011 2012 ended 30 June 2013 (RM ‘000) (%) (RM ‘000) (%) (RM ‘000) (%) (RM ‘000) (%) Terminal handling charges … 707,199 89.6 815,734 89.2 891,804 88.4 463,366 88.4 Value-added services ……….. 81,761 10.4 98,917 10.8 117,443 11.6 61,068 11.6 Total container revenue …….. 788,960 100.0 914,651 100.0 1,009,247 100.0 524,434 100.0
Our terminal handling services primarily consist of lifting containers onto and off vessels, storage of containers in the storage yard and facilitating the delivery and receipt of containers. Our container handling volume for the years ended 31 December 2010,2011 and 2012 were 5.6 million TEUs, 6.4 million TEUs and 6.9 million TEUs, respectively. For the six (6) months ended 30 June 2013, our container handling volume was 3.6 million TEUs. In addition, our container terminals routinely exceeds 35 Moves Per Hour per crane for large vessels (vessels over 300 metres in length). 88 7. BUSINESS OVERVIEW (cont’d) (a) Transhipment and Import and Export throughput The two (2) main categories of throughput are transhipment and Import/Export, which is also referred to as gateway or general throughput. Container services contributed approximately 81.6% of our total operational revenue for the six (6) months ended 30 June 2013 with approximately 69.4% of our gross throughput from transhipment and 30.6% of our gross container throughput from Import/Export. The following tables set forth the breakdown of our revenue and throughput by quantity for the periods indicated, in absolute terms and expressed as a percentage of the total: Transhipment refers to the transfer of containers from one vessel to another at the terminal en route to a final destination. There are broadly two (2) types of transhipment flow: (i) vessel-to-vessel transhipment, which involves the transfer of containers from one deep-sea container vessel to another; and (ii) vessel-to-barge transhipment, which involves the transfer of containers from deep-water container vessels to barges and feeders, or vice versa. Transhipment throughput is critical to utilisation, particularly to ports located in a region with high volume vessel access, such as the Straits of Malacca. The flow of transhipment containers is illustrated below: Vessell barge
I ~ Quayside 4
Storage yard Vessell~ Quayside
r–. barge 7. BUSINESS OVERVIEW (cont’d) (bb) Import/Export ImporUExport throughput includes containers originating from and destined to the ports’ hinterland and differs from transhipment throughput. As ImporUExport throughput is usually handled by a terminal close to the point of consumption or production, ImporUExport throughput is generally less likely to be lost to competitors and is less price-sensitive than transhipment throughput. ImporUExport generally provides higher tariffs per move than transhipment and provides better margins for the container terminal operator. In addition, there is also the potential for earning incremental revenue from ancillary services such as delivery, cleaning and repair for ImporUExport containers. Westports’ container market share in Malaysia in 2012 was approximately 33% and its container market share at Port Klang was approximately 69% in 2012, according to Drewry Maritime Advisors, with a market share of 79% for transhipment and 53% for ImporUExport in Port Klang. • Import of containers Import containers are unloaded from vessels by quay cranes and placed on trailers which operate within our terminals. These trailers transport the containers to the yard, and the containers are placed by yard cranes into temporary storage. The containers remain in storage until the yard cranes retrieve them for collection by hauliers, or external trailers, in service of the shippers, which transport these containers out of our terminals. The flow of import containers is illustrated below: Retrieval pickup by Unloading from vessel customer
Hauliers Hauliers Trailer Quay crane 7. BUSINESS OVERVIEW (cont’d) • Export of containers
(b) Arrival at terminal and storage Annual berth utilisation rate (TEU/metre of quay at end of period) . TEU/Crane . TEU/Hectare . Capacity utilisation rate (TEU
throughput/capacity at end of period) . Note: Export containers generally follow the same sequence as import containers but in reverse. The containers arrive on hauliers through the terminal gate and are held in temporary storage until their designated vessel arrives. Thereafter, they are retrieved from storage, taken by trailers to the berth and loaded by the quay cranes onto vessels. The flow of export containers is illustrated below: I I I I Retrieval and loading onto I I vessel I I, I I I I
Terminal gate Storage
—. r—-.yard Quayside Vessel
r—I I IHauliers Hauliers I Trailer QuayI I crane I I I I I I I I Container operations productivity Certain productivity data in relation to our container operations are set out below. Year ended 31 December 2010 2011 2012 1,637 163,705 49,256 1,731 169,271 52,926 1,867 169,559 57,104 0.78 0.76 0.77
Six (6) months ended 30 June 2013(1) 1,797 167,122 52,187 (1) Calculated based on annualised TEU throughput According to Drewry Maritime Advisors, based on 2011 data, our annual berth utilisation rate is one of the highest in Asia at 1,731 TEUs handled annually per metre of quay. 7. BUSINESS OVERVIEW (cont’d) (c)
Turnaround time Our container gate system and streamlined customs processes enable hauliers to enter and exit our terminals in approximately 20 minutes on average. In addition, IT solutions play important roles in ensuring operational efficiency. COSMOS, our container terminal operations system, allows us to integrate planning and real-time operations monitoring to expedite and automate the day-to-day management and operation of container terminals and it is used for the entire scope of terminal operations, tightly coupling berth, ship, yard and rail planning with quay, yard, rail and gate operations. We also support comprehensive electronic data interchange which enables fast exchange of information between us and our customers. E-Terminal Plus allows our customers and other users of the port to obtain real-time information at any time at their own convenience and also easily exchange information with us. The seamless integration of e-Terminal Plus with our container terminal operations system and the Customs’ system has streamlined and automated many work processes, creating a simplified and efficient operation process, minimising waiting time and the need for agents to be physically present at our terminals. Our NGCCS is utilised to fully computerise all non-containerised cargo activities, from wharf operation to billing. Crane productivity We routinely achieve 70 to 100 Moves Per Hour per vessel on main line vessels, which are mainly large vessels (vessels over 300 metres in length), and routinely exceed 50 Moves Per Hour per vessel on feeder vessels. We routinely exceed 35 Moves Per Hour per crane for large vessels (vessels over 300 metres on length). Notably, our operations team achieved a record of 734 Moves Per Hour with a nine-crane deployment on a single vessel. The following table sets forth certain information on notable achievements in terms of our crane productivity. Record Moves Per Crane Year Vessel Hour deployment 2011 CSCL Pusan 734 9 cranes 2009 CMA CGM Orfeo 665 9 cranes 2006 CMA CGM Rossinni 421 7 cranes 2006 CMA CGM Puccini 452 8 cranes 2006 CMA CGM Bizet 456 8 cranes
7. BUSINESS OVERVIEW (cont’d) (ii) Value-added services Our container value-added services comprise storage services, reefer services, container freight services, special services, removal services and other value-added services. Storage and reefer services have historically been the largest revenue generators among our value-added services. The following table shows our revenue for the periods indicated based on our main areas of value-added services, in absolute terms and expressed as a percentage of the total: Year ended 31 December Six (6) months ended 2010 2011 2012 30 June 2013 (RM ‘000) (%) (RM ‘000) (%) (RM ‘ODD) (%) (RM ‘ODD) (%) Storage services……… 23,888 29.2 27,552 27.9 35,556 30.3 16,615 27.2
Reefer services……….. 16,594 20.3 23,331 23.6 29,377 25.0 18,594 30.4
Special services………. 15,333 18.8 16,434 16.6 16,293 13.9 7,305 12.0
Removal services ……. 6,932 8.5 9,006 9.1 12,689 10.8 6,542 10.7
Container freight services …………………. 7,325 9.0 9,968 10.1 10,561 9.0 5,476 9.0
Other value-added services …………………. 11,689 14.2 12,626 12.7 12,967 11.0 6,536 10.7
Total value-added 81,761 100.0 98,917 100.0 117,443 100.0 61,068 100.0service revenue ……….
(a) Storage services The storage of containers on behalf of our customers for varying periods of time within our terminals represents an additional income stream and is based on charging an amount per TEU based on the size of container, up to the maximum tariff fees. Actual rates charged depend on several factors such as whether the container is laden or empty, the duration of storage and the type of storage, Le. open-air or covered. Fees from this service are expected to grow in line with the growth of our container terminal capacity. (b) Reefer services We provide refrigeration, or “reefer”, storage and transportation services for container customers for certain cargo that is perishable or requires refrigeration. We have 1,236 reefer points spread out among our current container terminals. Reefer care is supported by our 24hour support teams. Our reefer care support teams are capable of handling all types of refrigerated cargo and have the capability to provide specialised services such as controlled atmosphere or nitrogen injection. In addition, our reefer platforms provide good infrastructure for electricity cabling and allow staff easy access to attend to plug-in and plug-out operations. Customers are also able to monitor the status of their reefer units via our e-terminal facilities. For details on our IT and operating systems, refer to Section 7.22 of this Prospectus. 7. BUSINESS OVERVIEW (cont’d) (c)
Special services Revenue for container services is primarily generated by the handling of the movement of containers from a vessel to the container yard, which is regarded as one (1) “move”. A customer may request Westports to change the shipping information submitted to Westports which in many circumstances result in re-planning and/or extra handling movements to be handled by Westports. In such circumstances, the customer is required to pay additional fees for such special services request. Removal services Removal charges will be incurred if local laden containers exceed the allocated free days in the container yard and thus need to be moved to the long lying yard, where containers may remain on a longer term basis. Container freight services We play an intermediary role in the global distribution of cargos by providing facilities for shipping lines and their customers for cargo consolidation and break-bulking activities within the free commercial zone. The CFS which encompasses 120,000 square feet of covered warehouse, cater for services such as: • providing a transit point for global cargo distribution plying international and regional shipping routes;
• deventing of cargos within the terminal for distribution to multiple local consignees;
• providing a bonded service facility for cargo consolidation and break-bulking activities;
• trans-loading due to restriction imposed by receiving countries on the certificate of origin; and
• acting as a regional distribution centre to provide value~ added services such as labelling and repackaging.
We also provide internal drayage services to facilitate movements of containers to and from container yard and on-dock depot to support CFS activities. Other value-added services Other value-added services comprise hatch cover services, gear box services and demurrage services.
7. BUSINESS OVERVIEW (cont’d) (i) Dry bulk services The majority of the dry bulk cargo throughput at Westports comes from international trade, and in particular, dry bulk cargo imports into Malaysia. The type of cargo handled, berthing and de-berthing, the flow of traffic at Westports and the capacity of equipment and storage facilities affect the utilisation of the berths and total cargo throughput. Intra-port transportation for dry bulk cargo from the berths to the customers’ warehouses is done via a 1O,OOO-metre conveyor belt. Dry bulk cargo activities include the piloting and berthing of vessels and the loading, unloading and storage of cargo. Our revenue from dry bulk cargo includes revenue from handling and storage of dry bulk cargo, marine services, berth hire charges, wharfage charges and stevedoring charges. In terms of volumes, maize, soya beans and sugar are the largest edible dry bulk commodities and slag and coal, fertilisers and clinker are the largest nonedible dry bulk commodities handled at Westports. (a) Dry bulk terminal facilities The dry bulk terminal facilities comprise Dry Bulk Terminal 1 which consists of three (3) main berths and Dry Bulk Terminal 2 which consists of one (1) berth, both terminals having an aggregate capacity of 8.9 million tonnes per annum. Our main terminal premises are approximately 850 metres in total berth length and are equipped with two (2) gantry grab unloaders which can discharge up to 300 to 600 tonnes per hour per crane simultaneously. A 10,OOO-metre conveyor belt system connected directly to clients’ warehouses allows for a discharge rate of up to 2,000 tonnes per hour. The dry bulk terminal facilities are also equipped with one (1) grab discharger unit (T-Rex) which is capable of discharging up to 150 to 200 tonnes per hour per crane and mainly cater for non-edible goods such as slag and coal, fertilisers and clinker. (b) Dry bulk productivity We strive to continuously improve our productivity and efficiency in our dry bulk cargo operations. We invest in equipment in order to improve our throughput capacity, which allows us to achieve high discharge or load rates for dry bulk cargo. We have regularly met and surpassed the Fastport Standards for dry bulk handling at both of our terminals. The Fastport Standards for Dry Bulk Cargo Terminal 1 are 500 tonnes per hour for edible free flow cargos and 300 tonnes per hour for edible non-free flow cargos. The Fastport Standard for Dry Bulk Cargo Terminal 2 is 150 tonnes per hour for non-edible cargos. 7. BUSINESS OVERVIEW (cont’d) (ii) (iii) Certain handling data in relation to our dry bulk operations are set out below: Year ended 31 December Six (6) months ended 30 June 2010 2011 2012 2013 Dry bulk terminal 1 Throughput (million tonnes) . 2.93 2.58 2.45 1.14 Vessel calls . 98 83 86 40 Dry bulk terminal 2 Throughput (million tonnes) . 1.02 1.19 1.14 0.60 Vessel calls . 100 101 99 52 Break bulk services Initial shipments of break bulk cargo through Westports commenced in November 1994. The majority of break bulk cargo throughput includes iron, steel products and steel coils, machinery, Iinerboard and wood pulp. Cargo is discharged or loaded by using cranes and loaded onto trailers using a forklift and then transferred to the relevant yard. (a) Break bulk terminal facilities
The break bulk terminal facilities comprise three (3) main berths with an aggregate total berth length of 600 metres. The break bulk terminal facilities are equipped with forklifts, trailers and mobile cranes.
(b) Break bulk productivity
We have regularly met and surpassed the Fastport Standards for break bulk handling in all break bulk categories. The Fastport Standards for break bulk cargo are 50 tonnes per gang per hour for general cargos, 100 tonnes per gang per hour for steel product cargos and 200 tonnes per gang per hour for steel coils cargos. Certain handling data in relation to our break bulk operations are set out below: Year ended 31 December Six (6) months ended 30 June 2010 2011 2012 2013 Throughput (million tonnes) .. 1.01 1.20 1.62 0.86 Vessel calls…….. 236 295 358 196
Liquid bulk services We handle petroleum and petrochemical products, palm oil and fuel oil and diesel at our liquid bulk cargo terminal and offer standard liquid services as well as bunkering services. Cargo is discharged or loaded using a hose pipe or loading arm. 97 7. BUSINESS OVERVIEW (cant’d) (a) Liquid bulk terminal facilities Our liquid bulk terminal is built on 81.6 hectares of land and comprises five (5) berths. The five (5) main jetties and the terminal have a total berth length of 1,307 metres. These facilities can handle up to 90 different types of cargo. Our bunkering facility, which is operated by a third party, contains modern loading arms, pipe racks and tanks which allows for a discharge rate of up to 3,000 tonnes of oil per hour. We charge fees to the operator of the bunkering facility for the use of our liquid bulk pipes to transport fuel to vessels in the bunkering process. (b) Liquid bulk productivity We, and in relation to bunkering services, our third party providers, have regularly met and surpassed the Fastport Standards for liquid bulk handling. The Fastport Standards for liquid bulk cargo are 2,000 tonnes per hour for bunkering cargos and 400 tonnes per hour for non-bunkering cargos. Certain handling data in relation to our liquid bulk operations are set out below: Year ended 31 December Six (6) months ended 30 June 2010 2011 2012 2013 Bunkeringoutgoing only Throughput (million tonnes) . 1.42 1.46 1.04 0.40 Vessel calls . 555528 10 Non-bunkering Throughput (million tonnes) . 2.33 2.91 3.16 1.76 Vessel calls . 573 642 609 348 (iv) RORO services We also offer RORO services to our customers and have engaged third-party operators. Our RORO facilities are designed to accommodate vessels that carry wheeled cargo, such as automobiles. The defining feature of RORO vessels is a built-in ramp, which allows cargo to be efficiently “rolled on” and “rolled off” the vessel when in port. (a) RORO terminal facilities The RORO terminal facilities cater for ImporUExport of vehicles such as cars, trucks and excavators which are not containerised. We have six (6) berths available to RORO operations, which can be used SUbject to berth availability. We currently have a total of six (6) main open yards situated on approximately 21.0 hectares of land to cater for RORO operations. 98 7. BUSINESS OVERVIEW (cont’d) (b) RORO productivity We have regularly met and surpassed the Fastport Standards for RORO. The Fastport Standards for RORO are 100 units per hour for light units and 40 units per hour for high and heavy cargo. Certain handling data in relation to our RORO operations are set out below: Year ended 31 December Six (6) months ended 30 June 2010 2011 2012 2013 Throughput (units) . 154,588 168,325 197,073 55,916 Vessel calls .. 232 250 289 136 (v) Cement services We have a cement jetty to handle bulk cement cargos for one (1) cement cargo operator. We charge these cement cargo operators fees based on cargo tonnage handled and for use of the jetty, with a minimum guaranteed contracted amount. (a) Cement terminal facilities Our cement terminal facilities comprise one (1) berth with a total berth length of 285 metres and is equipped with a pipe line system, through which cargo is pumped to a silo. (b) Cement productivity We, in conjunction with third party operators, have regularly met and surpassed the Fastport Standard for cement cargo of 160 tonnes per hour. Certain handling data in relation to our cement operations are set out below: Year ended 31 December Six (6) months ended 30 June 2010 2011 2012 2013 Throughput (tonnes ‘OOOs) .. 153 256 815 485 Vessel calls .. 162458 38 7.6.3 Marine services Our marine services consist of tug boat services and pilotage services. All vessels that seek to use Westports are required to pay WMSB a fee in order to utilise these pilotage and towage services to guide the vessel into the channel leading to the port. We levy a fee for pilotage from the pilot station to the vessels’ berth, pilotage from the berth back to the pilot station and for towage via tugboat during berthing and unberthing of the vessel. 7. BUSINESS OVERVIEW (cont’d) 7.6.4 Rental services Our rental services are generally used by larger conventional cargo customers, as rental services are charged on a fixed basis rather than based on the amount of cargo stored. We enter into sub-lease contracts with rental customers on both short and long term bases to primarily rent land, storage facilities and office space. Generally, our customers who enter into short term contracts lease warehouse space provided by us or third parties whereas long term contract customers tend to build warehouses on land leased from us. In addition to conventional rental services, we also provide on-dock depot services in which empty containers are repaired and cleaned. The table below shows the size of our rental facilities as of 30 June 2013: Rental land, storage facilities and office and others Area (square feet) Land Break Bulk 487,872 Dry Bulk 3,034,409 Liquid Bulk 6,391,433 RORO 1,959,028 Cement 1,576,648 Other 913,038———,-.,….,.-‘-Subtotal 14–‘,_36_2….:..,4_2_8 Storage Facilities CFS 119,900 Warehouses 375,733 On dock depot 2,245,651 Yard -=–1…,.,.5….:..,9,….,2,…,..0 Subtotal 2…:.,7_5::-::7,:..,,2::-::0-::-4 Office and others 6_5..:….,8_3_3 Total ….•…………•.•.•.•……………•…………………………………………….•… _====17,..;,_18=5==,4=6=5
7.6.5 Tariffs and fees Tariffs are charged for the loading and unloading of containers, storage of containers and conventional cargo and marine services. Other principal fees include fees charged for movements of containers within the terminal. Tariff rates and fees charged to customers may depend on: (i) whether it is transhipment throughput or Import/Export throughput;
(ii) the type of containers or conventional cargo handled; and
(iii) the type of services provided (such as loading and unloading of containers and transfer of containers both within and out of the terminal). 7. BUSINESS OVERVIEW (cant’d) The maximum published tariffs, for both container and conventional cargo, are regulated by the PKA and set by the GaM. Out of all the container handling or moving charges, ship-to-shore handling by the PKA is the largest component. We charge the same rate for the movement of empty containers as for laden containers. Below is a table listing the maximum tariff allowed per move for ImporVExport and transhipment containers: Maximum Published Handling Tariffs Container Size Transhipment Import/Export (RM per move) (RM per move) 20 feet 140 230 40 feet 210 345 > 40 feet 240 420 7.6.6 Capacity expansion plan CT6 became fully operational in March 2013. We intend to continue with the expansion of Westports’ capacity with the construction of three (3) new container terminals, CT7, CT8 and CT9. The land reclamation and incidental works for CT7 were completed in September 2012. As at the LPD, approximately 91 % of the land reclamation and incidental works for CT8 and CT9 have been completed and are expected to be fully completed by 31 December 2013. We expect CT7 to be completed and become fully operational in 2015. The timing and construction of CT8 and CT9 will depend on market conditions. The table below shows certain information on CT7, including the expected commercial operation date, berth length and increase in expected handing capacity of CT7: Expected Berth Increase in expected commercial length Berth depth handling capacity CT operation date (metres) (metres) (million TEUs) 7 (Phase I) Second half of 300 2014
17.5 Approximately 1.5 } }7 (Phase II) 2015 300 (The rest of this page has been intentionally left blank) I Company No.: 262761-A r 7. BUSINESS OVERVIEW (cont’d) The following diagram shows our existing and future container terminals: “‘jr PULAU CHE MAT liN ~~
,TNl ~ FUTURE EXTENSION OF CONTAINER TERMINIl.S ICT 7-CT 91r—————T EXISTING CONTAINER TERMINIl.S ICT 1·CT 6) UQUID BULK TERMINAL 818 ,.._~_ .._~NmM)o CT4 ADMIN CENTRE TOWER BLOCK I BUSINESS CENTRE
102 7. BUSINESS OVERVIEW (cont’d) There are two (2) main types of dredging undertaken at Westports, namely capital dredging of the channel which involves the deepening of the depth of the channel leading up to Westports and dredging works for maintenance of the depth of the channel and the depth of the wharves at Westports. The Group engages a third party to undertake dredging works at its wharves, whereas capital dredging and maintenance dredging of the channel is undertaken by the GOM and the PKA, respectively. The dredging works of the wharves are carried out by Inai Kiara Sdn Bhd (“IKSB”) once every 18 months subject to the requisite surveys being carried out prior to embarking on the dreclging works. The construction and completion of the land reclamation works at CT6, CT7, CT8 and CT9 at Westports (“Reclamation Works”) is being carried out by IKSB for an approximate amount of RM323.6 million, which shall be paid to IKSB progressively based on progress claims submitted by IKSB. The Reclamation Works include capital dredging, procurement of quality sand and construction of revetment. The Reclamation Works for CT6 and CT7 was completed on 17 February 2012 and 25 September 2012, respectively. The Reclamation Works for CT8 and CT9 which was scheduled for completion by 17 December 2012 has been extended to 11 September 2013. In a case where IKSB fails to complete the Reclamation Works by any of the specified completion dates, or any approved extended period, IKSB will be liable for a sum calculated at the rate of RM50,OOO.00 per day as liquidated and ascertain damages applicable to a specified completion date, up to a maximum of 5% of the contract sum. In connection with the Reclamation Works, IKSB had secured the issuance of a performance bond by RHB Bank Berhad (“RHB Bank”) on 12 January 2011 in favour of WMSB. RHB Bank had agreed to guarantee the due performance of IKSB in that if IKSB fails to meet the terms of their contract or commits any breach of its obligations under their contract, then RHB Bank shall upon demand pay to WMSB a sum not exceeding 5% of the contract sum. This guarantee is irrevocable and will be in force and effect from 18 October 2010 until six (6) months after the expiry date of the defects liability period as provided for in their contract (Le. 17 June 2014), and in the case of their contract being terminated, one (1) calendar year after the date of the termination. The construction and completion of CT6 Phase II wharf, CT6 yard zones, CT7 wharf and access bridges and associated works at Westpo\1s (“Incidental Works”) is being carried out by Putra Perdana Construction Sdn Bhd (“PPCSB”) for an approximate amount of RM448.2 million, which shall be paid to PPCSB progressively based on progress claims submitted by PPCSB. The Incidental Works include piling works, the placing of pile caps, construction of a wharf deck and bridge deck and soil investigations. In addition, PPCSB must complete the Incidental Works for CT7 (i) by 21 September 2013 for the first 300 metres length of wharf and (ii) by 21 December 2013 for the second 300 metres length of wharf. The Incidental Works for CT6 Phase II have since been completed. In a case where PPCSB fails to complete the Incidental Works for CT7 by the specified completion date, or any approved extended period, PPCSB will be liable for a sum calculated at the rate of RM50,OOO.00 per day as liquidated and ascertain damages applicable to overall completion, up to a maximum of 10% of the contract sum. 7. BUSINESS OVERVIEW (cont’d) In connection with the Incidental Works, PPCSB had secured the issuance of a performance bond by Alliance Bank Malaysia Berhad (UABMB”) on 5 March 2012 in favour of WMSB. ABMB had agreed to guarantee the due performance of PPCSB in that if PPCSB fails to meet the terms of their contracts or commits any breach of its obligations under their contracts, then ABMB shall upon demand pay to WMSB a sum not exceeding 5% of the contract sum. On 7 November 2012, this guarantee was extended to 22 June 2015. Therefore, any demand under this guarantee must be received by ABMB on or before the expiry date or within 14 days from the expiry date but no later than 6 July 2015. PPCSB had secured the issuance of an additional performance bond by ABMB on 8 November 2012. This guarantee is irrevocable and will be in force and effect from 22 October 2012 until six (6) months after the expiry date of the defects liability period (i.e. 12 months from the issuance of the certificate of practical completion from the overall Incidental Works completion) and in the case of their contract being terminated, one (1) calendar year after the date of the termination, or until 22 June 2015, whichever is earlier. Notwithstanding this, the guarantee shall expire on 22 June 2015. Therefore, any demand under this guarantee must be received by ABMB on or before the expiry date or within 14 days from the expiry date but no later than 6 July 2015. The construction and completion of CT7 yard zones T and U and associated works (UCT7 Yard Works”) at Westports is being carried out by Loh & Loh Constructions Sdn Bhd (ULLCSB”) for an approximate amount of RM129.0 million, which shall be paid to LLCSB progressively based on progress claims submitted by LLCSB. In addition, LLCSB must complete the CT7 Yard Works (i) by 17 December 2013 for CT7 yard (zones T) and (ii) by 17 February 2014 for CT7 yard (zones U). In a case where LLCSB fails to complete the CT7 Yard Works by the specified completion date, or any approved extended period, LLCSB will be liable for a sum calculated at the rate of RM50,OOO.00 per day as liquidated and ascertain damages applicable to overall completion, up to a maximum of 10% of the contract sum. In connection with the CT7 Yard Works, LLCSB had secured the issuance of a performance bond by RHB Bank on 18 March 2013 in favour of WMSB. RHB Bank had agreed to guarantee the due performance of LLCSB in that if LLCSB fails to meet the terms of their contract or commits any breach of its obligations under their contract, then RHB Bank shall upon demand pay to WMSB a sum not exceeding 5% of the contract sum. This guarantee is irrevocable and will be in force and effect from 18 March 2013 until six (6) months after the expiry date of the defects liability period (i.e. 12 months from the issuance of the certificate of practical completion) and in the case of their contract being terminated, one (1) calendar year after the date of the termination or until 17 August 2015, whichever is earlier. Therefore, any demand under this guarantee must be received by RHB Bank within the period of the guarantee or within 14 days from the expiry date. We intend to utilise the amounts available or part thereof under the SMTN Programmes as well as the grant proVided by the GaM pursuant to the Facilitation Fund Agreement to fund the Reclamation Works and the Incidental Works. For further details of the SMTN Programmes and the Facilitation Fund Agreement, refer to Sections 12.2.6(iii), 12.2.14(iii) and 15.6 of this Prospectus. 7. BUSINESS OVERVIEW (cant’d) 7.6.7 Security and risk management We are committed to regularly updating and improving our security measures to enhance our position as a leading port operator, while assuring quality service and continued customer satisfaction. Our corporate security policy is designed to protect our personnel, assets, reputation and customers’ interests by employing high corporate, ethical and operational standards that meet our vision of excellence. We have in place a crisis management team which is responsible for determining contingency plans based on various business interruption scenarios, such as environmental disasters, explosions or spillage of cargo or other toxic substances. The crisis management team is also responsible for adopting sophisticated cargo security measures to ensure safety, including 24 hour patrolling by land and sea, closed-circuit television (“CCTV”) coverage, X-ray machines to scan container boxes, a smart card security system for truckers’ entry-exit, an e-secure system for conventional cargo trucks and visitors management systems, container tracking system, secured online customs clearance and a secured online gate pass system to monitor the movement of conventional cargo. We have dedicated strategic security consultants at the corporate level, who proVide expert counsel to our key management and direction to our business. We have established a series of primary security objectives that are designed to implement our corporate security policy across our network of container terminals. Simultaneously, in conjunction with other internal departmental objectives, we are building business resilience capacity in the critical areas of asset protection, corporate governance, information assurance, business continuity, reputation management and crisis management. Our security and business resilience objectives are met through the implementation of a planned set of security initiatives and internal programmes. These are consistent with international security legislation and appropriately recognised and accredited quality management systems. For example, we are in compliance with the ISPS Code, a comprehensive set of measures that enhance the security of ships and port facility, as well as the Mega Port Initiative issued by the U.S. Department of Energy’s National Nuclear Security Administration, which requires us to scan all containers for radioactive substances. Additionally, we cooperate regularly with the U.S. Customs and Border Protection (“CBP”) and were audited by the CBP in 2011 and given validation as a participant in the Customs Trade Partnership Against Terrorism programme. Furthermore, we, as required by law, maintain our own port police force, ambulance service and fire brigade, who collectively also acts as a marine rescue and response team. 7.7 Safety, health and environment and quality assurance We consider safety, health and environment (“SHE”) to be of fundamental importance in every aspect of our operations. We understand and take very seriously the SHE responsibilities that we have to employees, customers, contractors, visitors, government agencies and communities. In addition, under the Privatisation Agreement, WMSB is required to: (i) comply with all relevant laws, standards, criteria and GaM policies on matters relating to the conservation of the existing environment in carrying out WMSB’s business and in all matters relating to the Privatisation Agreement;
(ii) ensure the incorporation of appropriate mitigative, rehabilitative, restorative and enhancement measures in WMSB’s planning, design and implementation works;
7. BUSINESS OVERVIEW (cont’d) (iii) give due consideration to the preservation and social implications of the water and air quality, soil, flora and fauna within Westports; and (iv) ensure that the areas leased to WMSB are appropriately landscaped to enhance visual amenity. The GOM and the PKA reserve the right to determine the cutting, felling or preservation of trees or the replanting thereof on any such areas and WMSB shall comply with any such directives by the GOM and the PKA. We have dedicated SHE resources that provide expert advice for management in exercising our corporate obligations in this critical area. Our management, staff and employees are guided by the safety, health and environment policy (“SHE Policy”). The SHE Policy comprises the following set of primary SHE objectives: (i) to comply with the Occupational Safety and Health Act 1994, the Factories and Machinery Act 1967, the Environmental Quality Act 1974 and other applicable acts, legislations, orders, rules, codes of practices and other requirements to which we subscribe;
(ii) to prevent harm and injury to port users and pollution to environment through continual improvement in the SHE Policy management and performance;
(iii) to provide facilities materials and resources so that all workers can work in a safe and friendly work environment; and (iv) to ensure that all workers are acknowledged, informed, trained and supervised, as regards to the requirements of the SHE Policy, mitigating all risk to themselves, any other person and the environment. We believe that these objectives and the requirements above under the Privatisation Agreement will be achieved through the implementation of a structured set of initiatives, operating procedures and programmes, which are outlined in our Safety, Health and Environment Management System (“SHEMS”), that are consistent with industry-leading practice and internationally-recognised management systems. We regularly review and update our SHEMS to ensure that our operating procedures are effective and in line with changing industry standards. The review of these operating procedures is conducted on an annual basis and involves the input of the business heads of each of the relevant business divisions. We hold ISO 14001 accreditation, which sets forth criteria for an environmental management system and maps out a framework that helps an organisation to improve resource efficiency, reduce waste and drive down costs. Similarly, in accordance with our commitment to quality assurance, we hold the OHSAS 18001 accreditation, which sets forth criteria for a health and safety management system which provides a framework that helps organisations consistently identify and control health and safety risks, reduce the potential for accidents, aid legislative compliance and improve overall performance. . We are committed to achieving the highest industry standards through continuous improvement and adoption of best practices to maintain a healthy and safe working environment and are certified under OHSAS 18001 :2001. 7. BUSINESS OVERVIEW (cant’d) 7.8 Insurance Our operations are subject to normal hazards of operational and geographic risks, including accidents, fire and weather-related perils. We maintain various types of insurance policies to protect against the financial impact arising from unexpected events when the amount of the potential loss would be significant enough to materially affect normal business operations. The purchase of these policies is co-ordinated by an internal insurance division, with applicable limits, coverage, scope and deductibles that we, with the advice of our insurance advisors, believe are reasonable and prudent after all means of controlling or preventing the risk have been considered. For details on risks relating to our insurance coverage, refer to Section 5.1.16 of this Prospectus. We maintain insurance policies covering business interruption and property damage to both our real and personal properties, including but not limited to, assets and equipments material to our business. We also maintain terminal operators’ liability to cover liability to a third party due to any negligence as a port operator. Below is a list of all current insurance policies and related coverage: (The rest of this page has been intentionally left blank) 7. BUSINESS OVERVIEW (cont’d) Policy Asset Protection Industrial All Risk Equipment All Risk Money Liability Terminal Operators’ Liability Business Interruption Industrial All Risk Compulsory Insurance Personal Accident Employer’s Liability Corporate Corporate Liability Miscellaneous Marine Hull Insurance cover Building, office equipment and others Office Machines Crane and Conveyer System CemenUSlag/Container and others Terminals/Pipe Rack Plant and Machinery Prime MoverslTrailers/StackerslTop Loaders Money Port Operators Liability Loss of Revenue Personal Accident Employer’s Liability Director and Officer Hull and Machinery Coverage Coverage of all risk of accidental physical loss of and/or damage occurring during the period of insurance for: (i) All buildings, gatehouses, furniture, fixtures and fittings, contents;
(ii) Cement, slag, container and other terminals, pipe rack;
(iii) Wharves, berths, jetties, piers, catwalks, dolphin and the like; (iv) Office machines;
(v) Rubber tyre gantries, cranes, conveyor system, container ship uploader;
(vi) Other plant & machinery, including accessories; and
(vii) Spare parts Coverage against all risk of loss of or damage occurring during the period of insurance for prime movers, trailers, stackers, forklifts, road sweepers, containers and top loaders Cash in locked drawers/cash register and safe. Cash in transit (Le. cash being carried to and from bank/office) Covers our legal and/or contractual liability against a third party for loss or damage to cargo and loss or damage to containers, equipment, vessels or other property whilst in the insured’s care, custody or control and consequential loss arising from such loss or damage. Covers loss of profit due to an accident Death and dismemberment due to accident Employers liability at law against any employee in respect of injury/disease caused during the period of insurance and arising out of and in the course of hislher employment by the insured in the business Covers against corporate liability or any subsidiary or insured person All risk cover against loss, damage, liability and expenses 7. BUSINESS OVERVIEW (cont’d) 7.9 Major licences, permits, intellectual property and trademarks 7.9.1 Major licences and permits We have obtained various licences and permits for our operations in Malaysia through several agreements entered into, including, among others, the Port Licence, the Privatisation Agreement and the Lease Agreement. For further details of our major licences and permits (including the Port Licence), refer to Section 7.21.2 and Annexure B of this Prospectus. 7.9.2 Intellectual property and trademarks Save as disclosed in Annexure C of this Prospectus, as at the LPD, we do not have any brand names, patents, trademarks, licences, technical assistance agreements, franchises and other intellectual property rights. 7.10 Competition The Southeast Asian container terminal industry, and in particUlar, the West Coast of Peninsular Malaysia and Singapore, is highly competitive. According to Drewry Maritime Advisors, the top ten (10) international terminal operators collectively accounted for more than 63% of global throughput for the year ended 31 December 2011. Industry consolidation has intensified competition for us as other global terminal operators are able to offer their shipping line customers alternative global networks and, in some cases, leverage existing relationships with shipping lines in one (1) region to support growth in other regions. We face competition from container terminal operators in the region, namely operators of Port of Singapore as well as operators of Port of Tanjung Pelepas and Northport in Malaysia, and, to a lesser extent, container terminal operators globally. The main ports competing for transhipment traffic with Westports in the Straits of Malacca are Port of Tanjung Pelepas and Port of Singapore due to their close proximity to the main shipping route along the Straits of Malacca. Westports also competes with Northport for Import/Export traffic as they share the same hinterland given that both Northport and Westports are in close proximity to the capital city of Kuala Lumpur and have a number of industrial parks and suburban zones in the immediate vicinity, and they are also situated in close proximity to each other. However, Westports does not face significant competition from Northport for transhipment traffic as the northern approach into Port Klang, where Northport is located, is only 12 metres deep. MLOs sailing large container ships for transhipment containers which require a channel deeper than 12 metres have to enter Port Klang using the southern approach. The Port of Singapore is the largest port in the Straits of Malacca, according to Drewry Maritime Advisors, and is operated by PSA Singapore with its hinterland including Singapore and southern states in Peninsular Malaysia. The Port of Tanjung Pelepas is located at the southern tip of Peninsular Malaysia, right next to Singapore, thereby competing for the same hinterland as the hinterland of the Port of Singapore. As Westports’ hinterland covers mainly Kuala Lumpur and the central part of Malaysia, it does not generally compete for Import/Export traffic with the Port of Singapore or the Port of Tanjung Pelepas. In addition, a majority of our customers who are shipping lines are increasingly investing in ports and in their own dedicated terminal facilities, thereby reducing the need for shipping lines to use third party terminals in which they have no previous investment or financial relationship. For details on the industry overview, refer to Section 8 of this Prospectus. 7. BUSINESS OVERVIEW (cont’d) 7.11 Seasonality The container port industry has historically experienced monthly variations in revenue as a result of various holiday seasons, with revenue peaking prior to the Christmas season. In the past decade, these variations have resulted in monthly volatility in our operating results with revenues generally growing throughout the year with increases during certain holiday seasons. In 2012, Westports’ throughput has experienced steady growth throughout the year as a result of increased cargo shipments from Asia and the Middle East, which peaked as a result of the Chinese New Year and month of Ramadan, rather than solely as a result of the Christmas season, which in turn had caused an increase in throughput at various times throughout the year. 7.12 Customers Our customers primarily comprise global container shipping lines and general cargo and car carriers. Although we have been diversifying our customer base over the past several years, our largest customer, CMA CGM Group contributed more than 10% of our total revenue for each of the three (3) years ended 31 December 2010, 2011 and 2012 and the six (6) months ended 30 June 2013. Apart from CMA CGM Group, no other customer had contributed 10% or more of our total revenue for the years ended 31 December 2010,2011 and 2012 and six (6) months ended 30 June 2013. The following table shows our revenue from CMA CGM Group for the periods indicated, in absolute terms and expressed as a percentage of our total revenue: Year ended 31 December Customer 2010 (RM ‘000) (%) 2011 (RM ‘000) (%) 2012 (RM ‘000) (%) Six (6) months ended 30 June 2013 (RM ‘000) (%) CMA CGM Group ….. 240,813 24.1 267,417 19.3 279,049 18.7 139,893 18.7
We also coordinate logistics activities whereby we deal directly with transport companies, shippers and consignees. While we are dependent on CMA CGM Group to a certain extent, other MLOs and customers have also made Westports their regional transhipment hub, namely, China Shipping Line Limited, United Arab Shipping Corporation, Gold Star Line Limited, Compania Sudamericana de Vapores and Emirates Shipping Line DMCEST. We have long-standing relationships with our MLO customers, many of whom have been customers since the commencement of containerised operations at Westports. As the consolidation of the shipping line industry has resulted in a smaller pool of potential customers, we believe that such customer relationships are increasingly important to maintaining a steady revenue stream. The nature of contracts in the container terminal industry can be characterised as long term. Typically, however, these contracts can be terminated at any time without penalty. As a general matter, shipping lines tend to change terminal operators only upon expiration of a contract, if at all, as many ports have limited selection of operators and are often tied to the hinterland served by a particUlar port. 7. BUSINESS OVERVIEW (cont’d) We believe that among the important factors that our customers take into consideration when selecting a terminal operator are commitment to the provision of a fixed day berthing slot and defined crane productivity rates, which we believe we are well placed to deliver because of our operating efficiency. Our aim is to attract customers to longer term contracts by offering higher service efficiencies and faster turnaround time. 7.13 Sales and marketing Our commercial and business development group is responsible for soliciting new customers to Westports and negotiating contracts and for customer service and management, in addition to finding ways to increase revenues from such existing customers. In order to project business demand in terms of volume, our commercial and business development group gathers historical data and communicates with our customers on a regular basis to better gauge and adjust our business demands. In addition, our commercial and business development group has set up a 24-hour customer service team to help solve any issues for our shipping line customers. Our commercial and business development group had an aggregate of 18 employees as of 30 June 2013. 7.14 Suppliers Our main suppliers are those from which we purchase operational equipment, electricity and fuel. While we generally tend to use the same suppliers, we are not obligated to do so and there are numerous alternative suppliers and, as such, our business operations are not dependent on any of our suppliers. Only one (1) of our suppliers, our fuel supplier, Chevron Malaysia Limited (“Chevron”), accounted for approximately 10% or more of our total cost of sales for any of the three (3) years ended 31 December 2010, 2011 and 2012 and six (6) months ended 30 June 2013. The following table shows the amount incurred by us for Chevron’s services for the periods indicated, in absolute terms and expressed as a percentage of our total cost of sales: Naturel Six (6) months Year ended 31 Decembertype of Years of ended 30 June Supplier service relationship 2010 2011 2012 2013 (RM ‘000) (%) (RM ‘ODD) (%) (RM ‘000) (%) (RM ‘000) (%) Fuel Approximately Chevron Supplier 10 years 51,734 11.9 86,286 11.0 75,125 9.1 34,450 8.6 We contract out certain aspects of our operations relating to prime mover maintenance and operation, reefer services, lashing services and stevedoring. For any such contracted service, we ensure that we have at least two (2) contractors available to carry out such services, such that if one (1) contractor is unable to provide services in a manner acceptable to us, the other would be able to take its place. Further, we also believe we have in-house capacity to carry out any contracted operations, if the need arises. 7.15 Research and development We do not have any formal research and development facilities and systems or policies in place. As such, we have not incurred any material research and development expenditure for the years ended 31 December 2010,2011 and 2012 and six (6) months ended 30 June 2013. However, we routinely conduct market research by speaking with our key shipping line customers to further understand the latest developments within the shipping industry which enables us to develop strategies to meet the needs of our customers. Furthermore, we conduct various discussions, programs and training throughout the year to improve the systems and operations of our Company. 7. BUSINESS OVERVIEW (cont’d) 7.16 Corporate social responsibility Our corporate social responsibility programmes are dedicated to improving living standards in Pulau Indah. Port Klang through a four-pronged approach focused on poverty eradication. security and safety. education and recreation for children. We have worked towards these goals through a variety of programmes such as (i) funding subsistence allowance programmes for indigent single mothers, orphans and the elderly; (ii) installing CCTV cameras throughout the community and assisting the local law enforcement and emergency management services by supplementing them with additional staff and vehicles; and (iii) through regular involvement with schools to provide better training for teachers as well as focusing education on subjects that will best position children to become productive members of the local community. In order to manage our corporate social responsibility programmes. we employ an administrator to oversee such programmes. 7.17 Employees As at the LPD, we have 3.826 employees. all of whom are full-time employees. The following table sets out the functional areas of these employees as of the dates indicated: As of 31 December 2010 2011 2012 As at the LPD Container services…………………………… —=-=-=2,850 3,213 3,443 3.141 Conventional services…. 87 100 95 93 Marine services……………………………….. 31 36 37 43 Corporate services……. 416 462 444 467 Finance………………………………………….. 49 49 50 53 Headquarters -Management __–=–=–=-33_=_ 31 29 29 Total employees…………………………….. 3,466 3,891 4,098 3,826
Our employee headcount decreased by 272 to 3,826 employees as at the LPD from 4,098 employees as of 31 December 2012, mainly due to the outsourcing of certain operational activities. Our employee headcount increased by 207 to 4.098 employees as of 31 December 2012 from 3,891 employees as of 31 December 2011, mainly due to an increase in employees for operations related to the anticipated operation of CT6 Phase II in the first quarter of 2013. Our employee headcount increased by 425 to 3.891 employees as of 31 December 2011 from 3,466 employees as of 31 December 2010, mainly due to an increase in the number of crane manning personnel and the number of employees for the corporate services, with the latter increasing mainly due to an increase in the number of port police personnel relating to the completion of CT6 Phase I. Our employees are engaged under a variety of employment arrangements. including mainly direct hires and third-party sourcing. Our workforce is not organised under any recognised union and almost all of our employees are Malaysian (With approximately 78% residing in Port Klang and Klang) and we intend to continue with the trend of hiring mostly local employees. We believe that local hiring is instrumental to our corporate culture and performance and is therefore worth the additional labour costs (compared to the costs incurred if foreign workers were hired instead). We have a motivated workforce which is subject to a productivity driven reward structure. In addition. we aim to help employees build long term careers within the company and also offer job rotation opportunities for employees to develop multiple skills. The average length of employment is approximately six (6) years, with approximately 26% of employees having been with us for over 11 years. 7. BUSINESS OVERVIEW (cont’d) We currently do not have any collective bargaining agreements and we believe that we have a good relationship with our employees and have strong employee loyalty. As part of our initiative in maintaining a good relationship with our employees, we formed the Westport Joint Consultative Council (UWJCCU) in August 2000 to provide a venue for our management to understand our employees’ needs and more importantly, strengthen our employer-employee relationships. WJCC membership is open to all non-executive staff and currently has a membership of over 3,050 members. Among the fundamental areas of WJCC’s focus include staff safety procedures, employee incentives, employee sports and recreational activities, terms and conditions of employment and employee suggestions and complaints. For details on risk relating to work stoppages, refer to Section 5.1.24 of this Prospectus. 7.18 Training and development We provide training for all employees, both executive and non-executive, upon hiring as well as throughout the course of employment. Non-executive employees are regularly trained in order to ensure that they are aware of the latest developments in port technology and operations as well as safety in relation to their positions. Executive employees also participate in continuing education, via a young executive programme and senior management programmes as well as external training programme, such as Harvard Business School programmes offered in Malaysia. 7.19 Legal proceedings There are, and have been, no governmental, legal or arbitration proceedings (inclUding any such proceedings that are pending or threatened of which we are aware) during the 12 months preceding the date of this Prospectus that may have, or have had, a material effect on our financial position or profitability. 7.20 Interruptions to business for the past 12 months There was no interruption to our business and operations which had a significant effect on operations in the 12 months preceding the date of this Prospectus. 7.21 Relevant laws and regulations governing our business The main laws and regulations governing WMSB’s operation and activities are summarised below. The following does not purport to be an exhaustive description of all relevant laws and regUlations of which our business is subject to. The business and operations of WMSB are governed principally by the Port Authorities Act and the Ports Privatisation Act, and are conducted pursuant to and in accordance with the terms and conditions of: (i) the Privatisation Agreement, the description of which is as set forth in Section 7.23 of this Prospectus; and
(ii) the Port Licence.
7. BUSINESS OVERVIEW (cont’d) 7.21.1 Port Authorities Act The PKA is a statutory corporation established on 1 July 1963 under the Port Authorities Act to operate and manage Port Klang. The PKA has the power to do all things reasonably necessary for or incidental to the discharge of its functions, and in particular: (i) to undertake all or any work of every description of or in connection with the loading, unloading and storing of goods or cargo in the port, or authorise by way of licence any company, firm, person or persons to undertake such work, sUbject to such regulations or by-laws as the authority may from time to time make, and such licence may contain conditions which may include a condition that such work shall be undertaken under contract to the authority;
(ii) to construct, maintain, repair and use wharves, docks, piers and bridges within the limits of the lands vested in it, with all necessary and convenient arches, drains, culverts, fences, roads, railways and approaches;
(iii) sUbject to the Port Authorities Act, to levy such port dues and such general charges upon goods or cargo loaded and discharged in the port as it may deem necessary for the maintenance, improvement or development of the port; and (iv) to undertake or grant licence on such conditions as the authority may think fit to any company, firm, person or persons to undertake, any activities in the port as may appear to the authority to be necessary. In this regard, pursuant to the Privatisation Agreement, the GOM and the PKA have agreed (subject to the terms of the Privatisation Agreement and the Port Licence) to grant WMSB the right to: (i) take over, provide and carry out the operation, maintenance, and management of the said port operations from the PKA;
(ii) plan, design, construct, test, commission, operate and maintain Westports;
(iii) charge the port users for the services that are provided and carried out pursuant to the said port operations, for a period of 30 years commencing 1 September 1994 and expiring on the 30th anniversary of 1 September 1994. SUbject to the fulfilment of certain obligations, the concession period may be extended by the Government and PKA for a further period of 30 years. WMSB is also required pursuant to the Privatisation Agreement to comply with the Westports Development Plan and any other policies of the GOM and the PKA, and directives of the GOM. WMSB is also required to ensure that its management and all other employment structure shall be in line with the aspirations of the National Development Policy. 7.21.2 Ports Privatisation Act The Ports Privatisation Act is the principal legislation which regulates the licensing of port operators and only operators licensed under the Ports Privatisation Act, such as WMSB, can undertake or manage port operations. 114 7. BUSINESS OVERVIEW (cont’d) All licences issued under the Ports Privatisation Act stipulate terms and conditions under the licence including, the duration of the licence, the type of services and facilities to be provided by the licensee, the annual licence fee payable by the licensee, the particular duties of the licensee in respect of the services or facilities and any other conditions as the port authority think fit. A breach of any condition of the licence or any failure to comply with any provision of the Port Privatisation Act or any regulations or by-laws made thereunder may result in administrative sanctions, including the suspension or revocation of the licence, prosecution of the licensee and/or the imposition of penalties. Where a licence is suspended or revoked and the port authorities consider that such revocation or suspension would materially affect the operations of the port, the port authority may take temporary possession of the port, manage port operations and in doing so may engage any employee of the operator. Every licensed operator has reporting requirements and is required to submit a report of its operations and financial statements at the end of each financial year. A licensed operator shall also submit any statistical information and cargo forecast as may be required by the port authority and any future development plans relating to any service it is required to provide under its licence. A licensed operator shall also immediately inform the port authority of certain matters affecting its operations such as, amongst others, any industrial accident or mishap involving any employee of the licensed operator, any theft or pilferage within its premises or involving any cargo, any proceedings or claims made against the licensed operator which may affect its ability to perform any condition under the licence. The salient terms attached to the Port Licence issued to WMSB are as follows: (i) The Port Licence shall be personal to WMSB and WMSB shall not either wholly or partly assign any right or obligation granted to WMSB under this Port Licence but without prejudice to the right of WMSB to engage the services of any sub-contractor as WMSB may choose.
(ii) WMSB shall carry on the port operations in a businesslike manner conforming to a management performance standard relating to standard of facilities and services provided in respect of the port operations which shall be as established by the PKA taking into account the standards of world ports for compliance by WMSB. These performance standards which will be reviewed periodically in consultation with WMSB is to ensure that the facilities provided and the services rendered by WMSB is of high standard so as to ensure its attractiveness as an efficient, cost effective and a hub for main line direct calls. For this purpose, WMSB shall submit within 14 days from the date of request all relevant data and statistical information relating to the operation so as to enable the PKA to assess the degree of public benefit and attainment of GOM objectives and management efficiency.
(iii) WMSB shall comply with the Westports Development Plan, policies of the GOM and the PKA, operating standards and pollution control as may from time to time be specified by the GOM and the PKA and any other relevant government authorities applicable to the port and the operations of the port, all laws, bye-laws, regulations, and with all international conventions, ratified by or adhered to by the GOM and applicable to ports or port operations. 7. BUSINESS OVERVIEW (cont’d) (iv) WMSB shall operate in competition with other operators and other ports in Port Klang and ensure that adequate shipping, port services and facilities are provided to all users, diligently market and promote the port, facilitate national trade, and make the port an “Entrepot” and load-centre for the region, and use every reasonable means and effort to ensure that main line vessels and ships call at the port.
(v) WMSB shall maintain all the facilities in the demised property and keep the demised property in good state of repair and condition in accordance with the terms and conditions of the Lease Agreement and the Westports Development Plan.
(vi) WMSB shall not make any alterations or additions to the demised property and underground services or to remove therefrom any of the properties of the PKA therein without the prior written consent of the PKA which consent shall not be unreasonably withheld.
(vii) WMSB shall not permit any unauthorised vehicles, person or persons or agents of any firm or company to be on the demised property. (viii) Except for foreshore charges which shall be payable directly by the shipowners to the PKA, WMSB shall have the right to charge the users of the port for services rendered in accordance with any by-law under the Port Authorities Act and the Ports Privatisation Act. WMSB shall prepare and submit to the PKA a memorandum for any change in the existing structure of charges consistent with the best pUblic interest in respect of the port operations under the Port Authorities Act. (ix) WMSB shall not (whether in respect of the charges or other terms or conditions applied or otherwise) show undue preference to, or exercise undue discrimination against users of the port with regards to the use of the facilities and services provided by WMSB. WMSB may be deemed to have shown such undue preference or to have exercised such undue discrimination if it unfairly favours to a material extent so as to place users at a significant competitive disadvantage. Any question relating to whether any act done or course of conduct pursued by WMSB amounts to such undue preference or such undue discrimination shall be determined by the PKA, but nothing done in any manner by WMSB shall be regarded as undue preference or undue discrimination if done to the extent that WMSB is required to do that thing in that manner by or under any provision of this Port Licence.
(x) WMSB shall immediately inform the PKA of any change in the control of the management and policy of WMSB, industrial disputes and accidents within the demised property, outbreak of fire, incidence of theft of pilferage of cargo in custody and any legal proceedings against WMSB. For this purpose, WMSB may establish a working arrangement with the PKA to facilitate the submission of the required information.
(xi) The conditions of the Port licence shall be subject to review every year or from time to time by the PKA to determine public benefit, degree of attainment of the objectives and efficiency. The PKA may add to, vary or revoke any conditions herein. In reviewing the conditions herein the PKA may, having due regard to the established management performance standard, consult WMSB.
7. BUSINESS OVERVIEW (cont’d) 7.21.3 Occupational Safety and Health Act, 1994 (“OSHA”) Under the OSHA, we have a general duty to our employees to provide and maintain systems of work that are, so far as is practicable, safe and without risks to health, provide information, instructions, training and supervision to ensure, so far as is practicable, the safety and health of our employees at work, and to provide a working environment, which is as far as possible safe, without risks to health, and adequate as regards to facilities for their welfare at work. We also have a duty to ensure, so far as is practicable, that other persons, not being our employees, who may be affected thereby are not exposed to risks to their safety or health. As we employ more than 100 employees, we are obliged under the OHSA to employ a safety and health officer, who is tasked with ensuring the due observance of the statutory obligations as regards to workplace health and safety and the promotion of a safe conduct of work at the place of work. We have set up a health and safety. committee, which we consult in promoting and developing measures to ensure the safety and health at the place of work of the employees and in checking the effectiveness of such measures. We may be subject to fines and penalties jf we fail to comply with any provision or regulation under the OHSA. 7.21.4 Environmental Quality Act, 1974 (“EQA”) The EQA restricts pollution of the atmosphere, noise, pollution, pollution of the soil, pollution of inland waters without a licence, prohibits the discharge of oil into Malaysian waters, discharge of wastes into Malaysian waters without a licence and prohibits open burning. The agency responsible for implementing and monitoring Malaysia’s environmental regulations and policies is the Malaysian Department of Environment and the local environmental authority. If WMSB fails to adhere to provisions of the EQA or any regulations made thereunder, any person who at the time of the commission of an offence was a director, chief executive officer, manager, or other similar officer of WMSB shall be deemed to be guilty of that offence. For example, where a person, unless licensed, deposits any environmentally hazardous substances, pollutants or wastes into any inland waters, that person shall be guilty of an offence and shall be liable to a fine not exceeding one hundred thousand ringgit or to imprisonment for a period not exceeding five (5) years or to both. 7.21.5 Factories and Machinery Act, 1967 (“FMA”) The FMA governs the registration and inspection of cranes and other machinery used by WMSB in their day-to-day operations. WMSB has a duty to ensure that the machineries used in carrying out their operations are in good condition and must be registered under The Factories and Machinery (Notification, Certificate of Fitness and Inspection) Regulations 1970. In this regard, WMSB is not allowed to operate or permit to be operated any machinery in respect of which a certificate of fitness is prescribed, unless there is in force in relation to the operation of that machinery, a valid certificate of fitness issued by the Department of Occupational Safety and Health. Any person who operates machinery without a valid certificate of fitness shall be guilty of an offence and shall be liable to a fine not exceeding RM150,OOO or to imprisonment for a term not exceeding three (3) years or to both. 7. BUSINESS OVERVIEW (cont’d) 7.22 IT and operating systems Our IT systems complement our terminal facilities and infrastructure to facilitate a smooth flow of traffic and transactions. The container terminal operations system, COSMOS, controls every aspect of Westports’ operations, from documentation and EDI system to planning of gate, yard and vessel, and sUbsequently real time assignments of equipment. To supplement COSMOS, we utilise our e-Terminal Plus which provides a comprehensive interface for the entire port community. The e-Terminal Plus portal serves as a gateway to all customers and industry parties to facilitate port operations. For instance, the e-Terminal Plus allows customers to track cargo at Westports and manage various services, such as demurrage, while also making certain processes, such as the issuance of gate passes, more secure and efficient. We also utilise our NGCCS, to cover the full automation of all non-containerised cargo activities, from wharf operation to billing. NGCCS’ comprehensive EDI system also enables fast exchange of information between us and our customers to facilitate paperless documentation for shipping agents, freight forwarders and cargo transporters. To complement our e-Terminal interface, we have also implemented e-bidding, eprocurement and e-billing in our business transactions. We won the “Gold Award for IT” as the most efficient e-terminal port chosen among 50 ports worldwide by the IAPH in May 2007. Although we utilise several IT systems in our daily operations, when any of these systems has temporarily failed in the past, our wharf operations only experienced minor delay as our employees have been trained to be able to operate Westports’ terminals on a manual basis. 7.23 Highly dependent contracts Except as disclosed below, there are no material contracts, agreements, arrangements or other matters which have been entered into by us which we are highly dependent on: (i) The Privatisation Agreement The GOM, PKA and WMSB had entered into the Privatisation Agreement for the development of WestportS in accordance with the Westports Development Plan which include the planning, design, construction, testing, commissioning, operation and maintenance of the facilities in respect of the business of operating, managing, maintaining and providing operational facilities and services to port users with regards to container terminal operations, dry and liquid bulk cargo handling, conventional cargo handling, break bulk cargo handling, fire fighting and prevention services and security services in the Westports areas and also tug operations, marine services at Westports (“Port Business”). Pursuant to the Privatisation Agreement, WMSB was granted the rights and licence to: (a) take over, provide and carry out the operation, maintenance, and management of the Port Business from the PKA;
(b) plan, design, construct, test, commission, operate and maintain Westports;
7. BUSINESS OVERVIEW (cont’d) (c) charge the port users for the services that are provided and carried out pursuant to the Port Business. WMSB may apply to the PKA to amend or introduce charges from time to time in accordance with the provisions of the Port Authorities Act and the Ports Privatisation Act sUbject always to any further regulatory framework as may be established by the GOM, for a period of 30 years commencing 1 September 1994 (“Take Over Date”) and expiring on the 30th anniversary of the Take Over Date (“Concession Period”). The Concession Period may be extended by the GOM and the PKA for a further period of 30 years if the following obligations are met by WMSB: (a) the completion of the reclamation of land and incidental works for CT6 until CT9 on or before 1 January 2014; and
(b) the completion of construction works for CT6 to be fUlly operational on or before 1 January 2014.
(collectively, “Conditions For Extension”) The fulfilment of the Conditions For Extension shall be inspected and verified by the PKA, followed by the issuance of a notice by the PKA (with the concurrence of the GOM) to confirm that the Concession Period has been extended. Following such extension, an agreement supplementalto the Lease Agreement maybe entered into for the purpose of revising the amount of lease rentals payable in accordance with the prevailing market value to be determined by Valuation And Property Services Department and after taking into consideration the cost of facilities financed by the GOM. However, if the Conditions For Extension are not fulfilled within the stipUlated time period, then the Concession Period shall expire on the last day of the 30th anniversary of the Take-Over Date. Upon the expiration of the Concession Period, WMSB is required to hand over the Port Business and all structures and facilities on the demised property at no cost to the PKA in a well maintained and operational working condition (normal fair wear and tear excepted). In consideration of WMSB taking over the Port Business, WMSB is required to pay to the PKA the annual profit sharing calculated at RM1.00 per TEU for containerised cargo and RMO.10 per tonne for conventional cargo handled by WMSB annually. Additional charges at the rate of 8% per annum calculated. on a daily basis may be imposed for late payment. The Privatisation Agreement imposes certain conditions in connection with the shareholding structure of WMSB. For instance: (a) the Privatisation Agreement requires that the Memorandum and Articles of Association of WMSB be amended to ensure that one (1) special share with the attendant right to appoint one (1) director nominated by the MOF Inc. and the right to resolve upon certain important matters be issued to the MOF Inc. who shall hold such share on behalf of the GOM. For further details on the Special Share, please refer to Section 6.5 of this Prospectus.
(b) Further to that, WMSB is also required to maintain certain shareholding structure that may be changed only if the prior approval of the GOM is obtained. The GOM’s approval (through UKAS) is also required if WMSB intends to apply for its shares to be listed and quoted on the Official List of Bursa Securities and to make any change to its shareholding structure for such purpose.
119 7. BUSINESS OVERVIEW (cont’d) The terms of the Privatisation Agreement requires (among others) that the following be complied with by WMSB: (a) WMSB should comply with the Westports Development Plan, policies of the GOM and the PKA, other directives of the GOM and that its management and all other employment structure shall be in line with the aspirations of the National Development Policy.
(b) The GOM and/or the PKA are entitled to conduct operational and financial audits and if the GOM and/or the PKA is of the opinion that the operational and financial audits reveal that the business is not being profitably or effectively managed, then the GOM and/or the PKA may require WMSB to improve the performance of the Port Business to the satisfaction of the GOM and/or the PKA (in consultation with WMSB). Any failure to meet these requirements may be deemed to be a breach of WMSB’s obligations under the Privatisation Agreement.
(c) That the Bumiputera participation in respect of any contracts entered into by WMSB with third parties, both local and international, for supplies, services and works, shall be at least 30% of the aggregate value of such contracts and that the counterparties to such contracts shall not be related or associated directly or indirectly with WMSB or the shareholders of WMSB. Furthermore, WMSB shall not appoint any foreign professionals or foreign companies as consultants unless the GOM is satisfied that the services sought to be procured from such professional or companies as consultants are not presently available in Malaysia.
(d) WMSB, its personnel, servants, agents or employees should not be involved in corruption or unlawful or illegal activities in relation to this Privatisation Agreement or any other agreements that WMSB may have with the GOM. Otherwise, the GOM is entitled to terminate the Privatisation Agreement by giving immediate written notice to that effect to WMSB. Upon such termination, the PKA and the GOM are entitled to all losses, costs. damages and expenses (including any incidental costs and expenses) incurred by the PKA and the GOM arising from such termination.
(e) WMSB is required to comply with all relevant laws, standards, criteria and GOM policies on matters relating to the conservation of the existing environment in carrying out the Port Business and in all matters relating to the Privatisation Agreement. WMSB should take every reasonable precaution which may be expedient or necessary to prevent pollution and adhere to all environmental requirements. terms and conditions pertaining to pollution controls, discharge of effluent and like matters which are required by any act, ordinance, by-laws, regulations and rules.
(f) WMSB should maintain good working and commercial relationship with other ports in Malaysia and shall comply with any understanding or agreement between the GOM and other port authorities in Malaysia on national policies, joint technical, safety and navigation matters.
There are several circumstances pursuant to which the Privatisation Agreement may be terminated. These include: (a) if WMSB is in default or commits any breach of any provision or obligation or covenant or warranty or undertaking under the Privatisation Agreement. the Lease Agreement or the Port Licence (which is not remedied within 60 days from the date they become aware of the default); 120 7. BUSINESS OVERVIEW (cont’d) (b) ifWMSB resolves or proposes to go into voluntary liquidation;
(c) if upon the presentation of a winding-up petition, WMSB knowingly or wilfully refuses to defend such petition (and such petition shall not have been withdrawn within 60 days from the date of the filling of such petition);
(d) if any execution or distress is levied or made against a substantial part of the assets and property of WMSB and not remedied within 60 days of such execution or distress being levied or made; or
(e) if a compulsory winding-up order has been made against WMSB.
In the event of termination pursuant to such circumstances, WMSB may also be required to pay to the PKA, damages for all losses that may be suffered by the PKA. All other moneys paid to, or earned by the PKA pursuant to the Port Licence and the Lease Agreement will be forfeited to the PKA. However, the PKA is not liable for any losses and damages suffered by WMSB arising from the event of default by WMSB under the Privatisation Agreement, the Lease Agreement and the Port Licence. Notwithstanding the foregoing, the Privatisation Agreement allows the GOM to terminate the Privatisation Agreement by giving not less than three (3) calendar months’ notice to that effect to WMSB (Without any obligation to give any reason thereof) if it considers that such termination is necessary for national interest, in the interest of national security or for the purpose of GOM policy or public policy. Upon such termination, WMSB is entitled to compensation as determined by an independent auditor appointed by the GOM after due consultation with the PKA. In this regard, what constitutes “national interest”, “interest of national security”, “government policy” and “public policy” is solely determined by the GOM and such determination is for all intent and purpose final and conclusive and may not be challenged. The GOM and/or the PKA are entitled to indemnity by WMSB, for and against (among others) all actions, suits, claims or demands, proceedings, losses, damages, compensation, costs (including legal costs), charges and expenses made against the GOM and/or the PKA in connection with the Port Business or any omission or act by WMSB, (including its employees, agents or any person authorised by WMSB) in respect of the Port Business. The terms of the Privatisation Agreement are subject to review by the GOM, at least once every five (5) years or any other intervals as the GOM may deem necessary. Following such review, the terms and conditions of the Privatisation Agreement may be modified or amended by the parties. (ii) The Lease Agreement The PKA and WMSB had entered into the Lease Agreement whereby WMSB was granted a lease on all those parcels of land measuring in area approximately 1,202.18 acres in the Daerah of Klang, Mukim Klang/Pulau Indah, Selangor Darul Ehsan for a term of 30 years with effect from 1 September 1994. WMSB has an option to extend the lease (if there is no subsisting breach of any of WMSB’s obligations under the Lease Agreement). However, such option is subject to the PKA’s agreement for such extension. Upon the Concession Period being extended to 2054, we expect that the term of the Lease shall also be extended to follow the term of the extension of the Concession Period. 121 7. BUSINESS OVERVIEW (cont’d) The total lease rentals for the period of 1995 to 2024 are payable in accordance with the payments schedule annexed to the Lease Agreement which is approximately RM1.1 billion. However, in connection with certain land reclamation works that were undertaken pursuant to the Supplementary Privatisation Agreement dated 27 March 1999, the PKA has agreed to grant WMSB moratorium for certain payments of lease rental and land lease rental. There are several circumstances pursuant to w~ich the Lease Agreement may be terminated. Such circumstances include (among others) the following events: (a) If the Privatisation Agreement or the Port Licence is terminated.
(b) If WMSB discontinues the Port Business on the demised property (except where such discontinuance and cessation is brought about by force majeure or event beyond the control of WMSB).
(c) If the PKA in the national interest at any time requires the demised property or any part thereof, then the PKA may at any time during the lease period terminate the lease by giving not le~s than 12 calendar months’ notice in writing to WMSB. In such event, WMSB is entitled to compensations for the remaining period of the unexpired term of the lease and for the fixtures, if any erected or constructed on the demised property (subject to valuation to be agreed upon between the PKA and WMSB).
The PKA is entitled to review the provisions of this agreement once in every five (5) years or at any other intervals as the PKA deems necessary. On the expiry of the lease, all the buildings and fixtures erected by WMSB on the demised property shall, without any payment by the PKA, become the property of the PKA. 7.24 Relationship between our Group and the PKA The PKA’s role as the regUlator of Port Klang derives its authority from and performs its functions in accordance with the Port Authorities Act and the Ports Privatisation Act. In this regard, in tandem with the GOM’s policy to infuse private sector management in various GOM owned or controlled undertakings in the country: (i) the GOM and the PKA have granted WMSB pursuant to the Privatisation Agreement, the rights to take-over, operate, manage and develop Westports; and
(ii) the PKA has granted WMSB a licence under the Ports Privatisation Act, to operate, manage and maintain Westports,
for a concession period of 30 years commencing 1 September 1994 and expiring in 2024. Subject to the fulfilment of certain obligations under the Privatisation Agreement, the concession period may be extended by the GOM and the PKA for a further period of 30 years. In addition, the Privatisation Agreement stipulates that WMSB is to adhere to the Westports Development Plan, which essentially sets out the current and future construction and development milestones for Westports. For further details on the Privatisation Agreement, refer to Section 7.23(i} above. In consideration of the rights granted to it, WMSB agrees to pay the PKA the annual profit sharing calculated at RM1.00 per TEU for containerised cargo and RMO.10 per tonne for conventional cargo handled by WMSB annually. 7. BUSINESS OVERVIEW (cont’d) In connection with the Privatisation Agreement, WMSB has also entered into the Lease Agreement for the lease of the land measuring approximately 1,202.18 acres in the Daerah of Klang, Mukim Klang I Pulau Indah, Selangor Darul Ehsan, for a period of 30 years from 1 September 1994. For further details on the Lease Agreement, refer to Section 7.23(ii) above. 7.25 Properties, plant and equipment Details of the material properties, plant and equipment owned and leased or occupied by our Group are set out in Annexure A of this Prospectus. (The rest of this page has been intentionally left blank)