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AnnualReport 2014Shell Refining Company(Federation of Malaya) Berhad (3926-U) (Incorporated in Malaysia)

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pany (Federation of M

alaya) Berhad (3926-U) (Incorporated in M

alaysia)A

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eport 2

01

4

1 Shell Refining Companyin Port Dickson

2 Vision, Mission, Objective3 Corporate Information4 Financial Calendar5 Notice of the 56th

Annual General Meeting7 Board of Directors Profile12 Management Team13 Chairmans Statement15 Managing Directors Review

19 Financial Summary21 Corporate Social Responsibility22 Corporate Governance Statement36 Statement on Risk Management

& Internal Control38 Audit Committee Report43 Financial Statements88 Company Properties92 Analysis of Shareholdings Proxy Form

CONTENTS

ShEll REfiNiNg COmpaNy iN pORT DiCkSON

The Companys oil refinery produces a comprehensive range of petroleum products, some 90 per cent of which are consumed within Malaysia, with a licensed production capacity of 156,000 barrels per day.

In 1999, the Company completed its RM1.4 billion investment in Malaysias first Long Residue Catalytic Cracker (LRCC), thereby transforming from a medium-sized simple refinery into a modern complex refinery with the capability to process 125,000 barrels

per day. The LRCC quadrupled the refinerys LPG production and doubled its motor gasoline output. It had also enabled the refinery to manufacture propylene for the first time a highly valued feedstock for the petrochemical industry.

2013 marked the completion of the Companys diesel procession unit in Port Dickson, which is one of Shell Malaysias three Entry Point Projects for the countrys Economic Transformation Programme announced in January 2011.

Shell Refining Company (Federation of Malaya) Berhad (the Company) was incorporated in 1960 and its refining operations began in 1963.

The diesel processing unit was successfully commissioned with no lost time injury and achieved its first commercial production in the first quarter of 2013. The unit enables the refinery to vary its feedstock options while increasing its diesel production and improving refining margins.

Whilst striving for maximum returns to its shareholders, the Company believes in giving equal attention to caring for the environment and contributing to social development within the community in which it operates. This commitment underscores the Companys involvement in numerous corporate social responsibility initiatives and practices.

1SHELL REFINING COMPANY(Federation of Malaya) Berhad (3926-U)

(Incorporated in Malaysia)

ViSiON TO BE THE TOP PERFORMING AND MOST ADMIRED REFINERY IN ASIA

miSSiONTo continuously deliver shareholder value by: Manufacturing and supplying

oil products and services that satisfy the needs of our customers

Constantly achievingoperational excellence

Conducting our business in a safe, environmentally sustainable and economically optimum manner

Employing a diverse, innovative and results-oriented team motivated to deliver excellence

OBJECTiVEWe are committed to deliver sustainable excellence in business performance by focusing on the following: Benefit to our shareholders

Realise the potential of our people

Meet our customer requirements

Maximise refinery margins

Safeguard asset integrity

Deliver structural cost reductions

Sustain a robust management system

Deliver continuous sustainable Health, Safety, Security and Environmental excellence

2 ANNUAL REPORT 2014

Board of Directors

iain John loChairman Non-Independent and Non-Executive Director Member of Remuneration Committee and Nominating Committee

amir hamzah bin abu BakarManaging Director and Executive Director

arnel lamco SantosNon-Independent and Non-Executive Director

Dato Seri Talaat bin haji husain DDSA, SPMP, DPCM, DPMP, JSD, PJK, PJMSenior Independent and Non-Executive Director Chairman of Nominating Committee Member of Audit Committee and Remuneration Committee

Datuk Zainun aishah binti ahmad KMN, PMP, DPMP, JSM, PJN Independent and Non-Executive Director Chairperson of Remuneration CommitteeMember of Audit Committee and Nominating Committee

Datuk Seri Saw Choo Boon SMW, DSNSIndependent and Non-Executive Director Chairman of Audit Committee Member of Remuneration Committee and Nominating Committee

David lau Nai pekIndependent and Non-Executive Director Member of Audit Committee

Datuk yvonne ChiaIndependent and Non-Executive Director Member of Audit Committee

michael John CareyNon-Independent and Non-Executive Director Member of Audit Committee

CORpORaTE iNfORmaTiON

SECRETaRiESWendy Chin Ngeok mui (MAICSA 7003178)

Tia hwei ping (MAICSA 7057636)

auDiTORSmessrs. pricewaterhouseCoopers (AF 1146)1 Sentral, Jalan RakyatKuala Lumpur SentralP.O. Box 1019250706 Kuala LumpurTel : 03-2173 1188Fax : 03-2173 1288

ShaRE REgiSTRaRSymphony Share Registrars Sdn Bhd (378993-D)Level 6, Symphony HousePusat Dagangan Dana 1Jalan PJU 1A/4647301 Petaling JayaSelangor Darul EhsanTel : 03-7849 0777Fax : 03-7841 8151/8152

STOCk ExChaNgE liSTiNgMain Board ofBursa malaysia Securities BerhadStock Name : SHELLStock Code : 4324Sector : IND-PROD

(Industrial Products)

REgiSTERED OffiCELevel 8, Symphony HousePusat Dagangan Dana 1Jalan PJU 1A/4647301 Petaling JayaSelangor Darul EhsanTel : 03-7841 8000Fax : 03-7841 8199

BuSiNESS aDDRESSBatu 1, Jalan Pantai71000 Port DicksonNegeri SembilanTel : 06-647 1311Fax : 06-647 4622

agm hElp DESkSymphony Share Registrars Sdn Bhd (378993-D)Tel : 03-7849 0777Fax : 03-7841 8151/8152E-mail : [email protected] hours: Monday Friday

8.30 a.m 5.30 p.m.



2014

2015

fiNaNCial CalENDaR

17 february Unaudited consolidated results for the4th quarter ended 31 December 2014

18 may Unaudited consolidated results for the1st quarter ended 31 March 2015

29 may Notice of 56th Annual General Meeting

30 June 56th Annual General Meeting

27 may Unaudited consolidated results for the1st quarter ended 31 March 2014

14 august Unaudited consolidated results for the2nd quarter ended 30 June 2014

12 November Unaudited consolidated results for the3rd quarter ended 30 September 2014


NOTiCE Of ThE 56Th aNNual gENERal mEETiNg

NOTiCE iS hEREBy giVEN that the Fifty-Sixth Annual General Meeting of Shell Refining Company (Federation of Malaya) Berhad (the Company) will be held on Tuesday, 30 June 2015 at 10.30 a.m. at Nexus Ballroom 2 & 3, Connexion@Nexus, Bangsar South City, No. 7, Jalan Kerinchi, 59200 Kuala Lumpur to transact the following business:

agENDa

aS ORDiNaRy BuSiNESS

1. To receive the Audited Financial Statements of the Company for the financial year ended 31 December 2014 and the Reports of the Directors and Auditors thereon.

(Refer to Notes to the Agenda)

2. To re-elect the following Director who is retiring in accordance with Article 81(2) of the Companys Articles of Association and being eligible, offers himself for re-election:a. Mr Michael John Carey

Ordinary Resolution 13. To re-elect the following Directors who are retiring in accordance with Article 81(3) of the

Companys Articles of Association and being eligible, offer themselves for re-election:a. Mr Iain John Lob. Dato Seri Talaat Bin Haji Husain

Ordinary Resolution 2Ordinary Resolution 3

4. To re-appoint Messrs. PricewaterhouseCoopers as auditors and to authorise the Directors to fix the auditors remuneration.

Ordinary Resolution 4

aS SpECial BuSiNESSTo consider and, if thought fit, pass the following ordinary resolution:5. proposed Renewal of the Existing Shareholders mandate for Recurrent

Related party Transactions of a Revenue or Trading NatureThaT pursuant to paragraph 10.09 of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad, approval be and is hereby given for the Renewal of the Existing Shareholders Mandate for the Company to enter into and give effect to the category of the recurrent arrangements or transactions of a revenue or trading nature from time to time with the Related Parties, as specified in Section 2.2 of the Circular to Shareholders dated 29 May 2015 provided that such transactions are:i. recurrent transactions of a revenue or trading nature;ii. necessary for the Companys day-to-day operations;iii. carried out in the ordinary course of business on arms length basis and normal

commercial terms which are not more favourable to the Related Parties than those generally available to the public; and

iv. not to the detriment of minority shareholders,(the Proposed Shareholders Mandate);ThaT such authority shall commence upon the passing of this resolution and shall continue to be in force until:i. the conclusion of the next Annual General Meeting of the Company following the

Annual General Meeting at which such mandate was passed, at which time it will lapse, unless the authority is renewed by a resolution passed at the general meeting;

ii. the expiration of the period within which the next Annual General Meeting of the Company is required to be held pursuant to Section 143(1) of the Companies Act, 1965 but shall not extend to such extension as may be allowed pursuant to Section 143(2) of the Companies Act, 1965; or

iii. revoked or varied by resolution passed by the shareholders in a general meeting;whichever is the earlier.aND fuRThER ThaT the Directors of the Company be authorised to complete and do all such acts and things (including executing all such documents as may be required), as they may consider expedient or necessary to give effect to the Proposed Shareholders Mandate.

Ordinary Resolution 5

6. To transact any other business for which due notice has been given.

By ORDER Of ThE BOaRD

Wendy Chin Ngeok Mui (MAICSA 7003178) Tia Hwei Ping (MAICSA 7057636)Company Secretaries

Kuala Lumpur29 May 2015 5SHELL REFINING COMPANY

(Federation of Malaya) Berhad (3926-U)(Incorporated in Malaysia)

Notes Relating to proxy

1. Pursuant to Article 72 of the Companys Articles of Association, a Member of the Company who is entitled to attend and vote at the meeting may appoint ONly ONE (1) proxy to attend, vote and speak instead of the Member at the Meeting.

2. A proxy need not be a Member of the Company and the provisions of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. There shall be no restriction as to the qualification of the proxy.

3. The instrument appointing a proxy shall be in writing and signed by the appointor or by his attorney who is authorised in writing. In the case of a corporation, the instrument appointing a proxy or proxies must be made under seal or signed by an officer or an attorney duly authorised.

4. The signature to the instrument appointing a proxy or proxies executed outside Malaysia must be attested by a solicitor, notary public, consul or magistrate.

5. The instrument appointing a proxy and the power of attorney or other authority (if any) under which it is signed or notarised must be deposited at the Companys Share Registrar Office, Symphony Share Registrars Sdn Bhd, Level 6, Symphony House, Pusat Dagangan Dana 1, Jalan PJU 1A/46, 47301 Petaling Jaya, Selangor Darul Ehsan, not less than forty-eight (48) hours before the time for holding the Meeting or adjourned meeting.

6. Only an original proxy form deposited at Symphony Share Registrars Sdn Bhd, will entitle the proxy holder to attend and vote at the Meeting. photocopiesof proxy form will not be accepted for the purposes of the Meeting. Additional original proxy forms are available to Members upon request in writing tothe Company.

7. Where a Member of the Company is an exempt authorised nominee which holds ordinary shares in the Company for multiple beneficial owners in one securities account (Omnibus Account), there is no limit to the number of proxies which the exempt authorised nominee may appoint in respect of each Omnibus Account it holds.

8. The Date of Record of Depositors for the purpose of determining Members entitlement to attend, vote and speak at the Meeting is 24 June 2015.

Notes to the agenda:

audited financial Statements for financial year ended 31 December 2014

1. Pursuant to Sections 169(1) and 174(1) of the Companies Act, 1965 and Article 124 of the Companys Articles of Association, this agenda item is intended for discussion only as under Section 169(1) of the Companies Act, 1965 does not require a formal approval of the shareholders and hence, is not put forward for voting.

Re-election of Director who retires by rotation in accordance with article 81(2)

2. Re-election is conducted pursuant to Article 81(2) of the Companys Articles of Association which a newly appointed director to hold office only until the next Annual General Meeting but shall be eligible for re-election.

Re-election of Directors who retire by rotation in accordance with article 81(3)

3. Re-election is conducted pursuant to Article 81(3) of the Companys Articles of Association, which requires the rotation of one-third of the Directors to retire from office at the first Annual General Meeting and at the Annual General Meeting in every subsequent year provided always that all Directors shall retire from office once at least in each three (3) years, but shall be eligible for re-election.

In line with Recommendation 3.1 of the Malaysian Code on Corporate Governance 2012, the Board has conducted an assessment on the Independent Director, Dato Seri Talaat bin Haji Husain, based on a set of criteria as developed by the Nominating Committee.

appointment of auditors

4. Pursuant to Section 172(2) of the Companies Act, 1965 and Article 127 of the Companys Articles of Association.

Explanatory notes to Special Business:

5. Proposed Renewal of the Existing Shareholders Mandate for Recurrent Related Party Transactions of a Revenue or Trading Nature

On 18 May 2015, the Board announced to Bursa Malaysia Securities Berhad that the Company would like to seek approval of its shareholders to renew the Existing Shareholders Mandate, obtained on 30 June 2014, which will expire at the conclusion of the forthcoming Fifty-Sixth Annual General Meeting to be held on 30 June 2015. For further information on the Recurrent Related Party Transactions, please refer to the Circular to Shareholders dated 29 May 2015 which is despatched together with the Companys Annual Report 2014.

NOTiCE Of ThE 56Th aNNual gENERal mEETiNg (CONTiNuED)


BOaRD Of DiRECTORS pROfilE

Iain John Lo, Malaysian, aged 53, has been the Chairman of your Company since 1 July 2012 and is also the Managing Director of two other private companies within the Shell group of companies in Malaysia, namely Sarawak Shell Berhad and Sabah Shell Petroleum Company Limited.

He holds a Bachelor of Science in Civil Engineering from the University of California, Los Angeles (UCLA) in 1987 and Master of Science in Civil Engineering from UCLA in 1988.

Dato Seri Talaat Bin Haji Husain, Malaysian, aged 64, was appointed a Director of your Company on 1 June 2007.

He graduated from Universiti Sains Malaysia with a degree in Social Sciences and later went to Cornell University, USA for his Masters in International Planning. He also attended the Senior Executive

A proven leader who has worked in Shells exploration and production, gas and downstream businesses, Iain Los extensive experience over the past 20 years has seen him hold a broad range of roles in both Malaysia and abroad.

He joined Sarawak Shell Berhad as a Field Engineer in 1990 before moving on to undertake various engineering, economics and corporate roles based in Malaysia, The Hague and Singapore. His areas of responsibility have included LNG joint ventures in Malaysia and the commercial governance of Shells Sakhalin Joint Venture in Russia. Prior to becoming Chairman of your Company, he was the Global Vice President for New Business Development and Ventures for Shell Chemicals in Singapore.

Programmes at London Business School and Harvard Business School.

Dato Seri Talaat served the Malaysian Government for 34 years in various positions. Since his first appointment in Penang in 1973, he had served in the Prime Ministers Department, National Institute for Public Administration, the National Palace, the Ministry of Education and as the Mayor of Ipoh City. Before retiring, he held the positions of Secretary General of the Ministry of Youth and Sports and the Ministry of Domestic Trade and Consumer Affairs. During his tenure in the government, he held the positions of Chairman of Companies Commission of Malaysia and as a Board Member of Malaysian Intellectual Property Corporation and Sepang International Circuit.

Dato Seri Talaat is an Independent Director in another two public companies namely High-5 Conglomerate Berhad (f.k.a. Silver Bird Group Berhad) and Mizuho Bank (Malaysia) Bhd (f.k.a. Mizuho Corporate Bank (Malaysia) Bhd).

Dato Seri Talaat has no family relationship with any other Director and/or major shareholder of your Company. He has no conflict of interest with your Company and never been charged for any offence.

Dato Seri Talaat attended all Board meetings and all Audit, Nominating and Remuneration Committee meetings held in 2014.

He was appointed a board member to the Singapore Economic Development Board in 2009. He chairs the Asian Talent Council for Royal Dutch Shell Plc which focuses on the development of staff from the region.

He has no family relationship with any Director and/or major shareholder of your Company. He has no conflict of interest with your Company and has never been charged for any offence.

He attended seven out of eight Board meetings and all Nominating and Remuneration Committee meetings held in 2014.

iain John loChairman, Non-Independent Non-Executive DirectorMember of Remuneration Committee and Nominating Committee

Dato Seri TalaatBin haji husainDDSA, SPMP, DPCM, DPMP, JSD, PJK, PJMSenior Independent Non-Executive Director Chairman of Nominating CommitteeMember of Audit Committee and Remuneration Committee



Datuk Zainun Aishah Binti Ahmad, Malaysian, aged 68, was appointed a Director of your Company on 1 June 2010.

Datuk Zainun graduated from the University of Malaya with an Honours Degree in Economics. Datuk Zainun began her career with Malaysian Industrial Development Authority

Datuk Seri Saw Choo Boon, Malaysian, aged 68, was appointed a Non-Independent Non-Executive Director on 23 February 2006. He was the Chairman of your Company from 18 May 2006 to 12 May 2010. Following his retirement from Shell Malaysia, the Board on 24 February 2011, appointed him as an Independent Non-Executive Director, Member of Audit Committee, Remuneration Committee and Nominating Committee of your Company.

Datuk Seri Saw holds a Bachelor of Science (Hons) in Chemistry from University of Malaya. He joined Shell in 1970 as a Refinery Technologist in your Company. He

(MIDA), the Malaysian governments principal agency for the promotion and coordination of industrial development in the country where she worked for 35 years. In her years of service, Datuk Zainun held various key positions in MIDA as well as in some of the countrys strategic councils, notably her pivotal role as National Project Director in the formulation of Malaysias first Industrial Master Plan. She was the Director General of MIDA for 9 years after being the Deputy Director General for 11 years.

Datuk Zainun was a Director of Tenaga Nasional Berhad, Kulim Hi-Tech Park and Malayan Banking Berhad. Currently, Datuk Zainun is a Director in four other public listed

companies namely Degem Berhad, Scomi Engineering Bhd, Berjaya Food Bhd, and British American Tobacco (Malaysia) Berhad. Datuk Zainun also sits as the Chairperson of Pernec Corporation Bhd, a public company.

Datuk Zainun has no family relationship with any other Director and/or major shareholder of the Company. She has not been charged for any offence during her tenure as a Director of your Company.

Datuk Zainun attended all Board meetings and all Audit, Nominating and Remuneration Committee meetings held in 2014.

then served in various capacities in manufacturing, supply, trading and planning in Malaysia, Singapore and the Netherlands. In 1996, he was appointed Managing Director of Shell MDS (Malaysia) Sendirian Berhad. In 1998 to 1999, he assumed the positions of Managing Director for Oil Products (Downstream) Shell Malaysia and Managing Director of your Company. In 1999, with the globalisation of the Shell Oil Products business, Datuk Seri Saw was appointed the Vice-President of the Commercial business in the Asia-Pacific region. In 2005, he managed Shells global marine products business. On 18 May 2006, he became the Chairman of Shell Malaysia until his retirement on 30 June 2010, after forty years of continuous service.

Currently, Datuk Seri Saw is an Independent Director of three other listed companies namely Digi.Com Berhad, RHB Capital Berhad (Chairman of Audit Committee) and Guinness Anchor Berhad (Chairman of the Board). Datuk Seri Saw is a Non-Executive Chairman of Phoenix

Petroleum (M) Berhad, a Director of Integrated Petroleum Berhad; both public companies. He is also an Independent Director of two public companies RHB Investment Bank Berhad and Ranhill Holdings Berhad.

In addition, he is the co-chair of the Governments Public-Private Sector Special Task Force on Facilitating Business (PEMUDAH), President of the Federation of Malaysian Manufacturers Council (FMM) and a director on the Socio-Economic Research Centre (SERC) Board of the Associated Chinese Chambers of Commerce and Industry Malaysia.

Datuk Seri Saw has no family relationship with any Director and/or major shareholder of the Company. He has not been charged for any offence during his tenure as a Director of your Company.

Datuk Seri Saw attended all Board meetings and all Audit, Nominating and Remuneration Committee meetings held in 2014.

Datuk Zainun aishah Binti ahmadKMN, PMP, DPMP, JSM, PJNIndependent Non-Executive Director Chairperson of Remuneration CommitteeMember of Audit Committee and Nominating Committee

Datuk Seri Saw Choo BoonSMW, DSNSIndependent Non-Executive Director Chairman of Audit Committee Member of Nominating Committee and Remuneration Committee

BOaRD Of DiRECTORS pROfilE (CONTiNuED)


David Lau Nai Pek, Malaysian, aged 62, retired from Shell Malaysia in August 2011 after serving the Shell Group for 30 years in various locations and business segments of the Group. He was appointed a Director of your Company on 8 May 2009 and was re-designated to Independent Non-Executive Director on 26 February 2014.

David Lau holds a Bachelor of Commerce from the University of Canterbury, New Zealand. He is a member of the Malaysian Institute of

Datuk Yvonne Chia, Malaysian, aged 62, was appointed a Director of your Company on 13 August 2013 and member of the Audit Committee on 26 February 2014.

Datuk Yvonne Chia holds a Bachelor of Economics from University Malaya. She is also a Certified Risk Professional (CRP) and a Fellow of Asian Institute of Chartered Bankers. Datuk Yvonne Chia has over 30 years experience in the

Accountants and also a member of the New Zealand Institute of Chartered Accountants.

He has led financial organisations in Shell businesses in Australia, Brunei, China, Malaysia, New Zealand, the Netherlands and the United Kingdom. His notable assignments include the Finance Director for Shell Malaysia, Finance Director for Shell China, Global Controller for the Exploration & Production business sector of Shell, and Vice-President Finance for Shell International Exploration and Production B.V., the Netherlands.

David Lau is currently an Independent Non-Executive Director and Chairman of the Audit Committee of Axiata Group Berhad, and an Independent

Non-Executive Director of KKB Engineering Bhd; all public listed companies. He is also on the board of four other non-listed companies three companies within the Axiata Group, and Malaysian Airline System Bhd. David Lau is also a member of the Investment Panel of the Malaysian Employees Provident Fund.

He has no family relationship with any Director and/or major shareholder of your Company. He has no conflict of interest with your Company and has not been charged for any offence during his tenure as a director of your Company.

He attended seven out of eight Board meetings and all Audit Committee meetings held in 2014.

financial services industry, having held leading positions in both foreign and local institutions. She started her career in Bank of America and held various roles in Asia. She was appointed as the Chief Executive Officer of RHB Bank Berhad (listed on Bursa Securities) in 1996 and subsequently in 2003 joined as Group Managing Director/Chief Executive Officer of Hong Leong Bank Berhad a position she held until her retirement in June 2013. She is an independent non-executive director of Astro Malaysia Holdings Berhad, a public listed company.

She is also on the Board of Trustees for Pemandu Corporation, Prime Ministers Office.

Datuk Yvonne Chia has no family relationship with any Director and/or major shareholder of your Company. She has no conflict of interest with your Company and has not been charged for any offence during her tenure as a director of your Company.

Datuk Yvonne Chia attended seven out of eight board meetings and three out of four Audit Committee meetings held in 2014 as she was appointed as member of Audit Committee on 26 February 2014.

David lau Nai pekIndependent Non-Executive Director Member of Audit committee

Datuk yvonne ChiaDPMWIndependent Non-Executive Director Member of Audit Committee



Arnel Lamco Santos, Filipino, aged 43, was appointed a Director of your Company on 21 January 2014.

He holds a Bachelor of Science in Chemical Engineering (Cum Laude) from University of the Philippines. He joined Shell in 1991 and served the Pilipinas Shell Petroleum Corporation in various positions in technology, engineering and operations. Subsequently, he joined Shell Eastern Petroleum Limited Pulau Bukom

Michael John Carey, New Zealander, aged 48, was appointed a Director of your Company on 6 February 2015 and a member of Audit Committee on 17 February 2015.

He holds a Masters in Applied Finance from the University of Melbourne, Australia, a Bachelor of Business Studies from Massey University New Zealand and is a Chartered Accountant.

Michael Carey is presently the Vice President, Finance of the Integrated Gas business at Shell.

Refinery from 2002 to 2005, as Senior Technologist before appointed as Production Unit Support Manager in 2004.

In 2007, he served as General Manager Distillation, Thermal Conversion and Lights Ends in Shell Global Solutions International B.V., the Netherlands before rising to his post of General Manager Shell Tabangao Refinery/VP Manufacturing Board in Pilipinas Shell Petroleum Corporation in 2009. He then assumed the positions of General Manager Shell Scotford Upgrader for Shell Canada Limited in 2012. Currently, Arnel Santos is the Vice President of Manufacturing East.

He has solid experience in leading a diverse team in different countries delivering strong top quartile performance amidst very challenging business conditions.


He attended seven out of eight board meetings held in 2014 in view of his appointment being effective on 21 January 2014.

His prior roles include Vice President, Finance (Global Commercial), Vice President Strategy and Finance for Shells Exploration and Production business in Australia and Shells Chief Financial Officer in Australia as well as being the Head of Mergers and Acquisitions, based in The Hague, Vice President Finance, Strategy & Portfolio, for Shells Global Downstream Manufacturing and Marketing businesses and Chief Financial Officer of Shells Global Future Fuels and CO2 division, the division accountable for research and development of bio fuels, hydrogen fuels and CO2 abatement and sequestration developments.

Earlier in his career, Michael Carey held various roles in finance and business development throughout Shells businesses in the Asia

Pacific and Middle East region with assignments in Singapore, Malaysia, Australia and New Zealand. He was the Financial Controller of Shells Malaysian Manufacturing and Marketing divisions in the period of 1998-2000.

He has no family relationship with any Director and/or major shareholder of your Company. He has no conflict of interest with your Company and has never been charged for any offence during his tenure as a Director of your Company.

He has not attended any Board meetings in 2014 as he was only appointed as Director of your Company on 6 February 2015.

arnel lamco SantosNon-Independent Non-Executive Director

michael John CareyNon-Independent Non-Executive Director Member of Audit Committee

BOaRD Of DiRECTORS pROfilE (CONTiNuED)


Amir Hamzah Bin Abu Bakar, Malaysian, aged 46, was appointed an Executive Director and Managing Director of your Company on 2 April 2014.

He holds a Bachelor of Science (Hons) in Manufacturing Engineering (Chemical) from Swinburne Institute

of Technology, Melbourne, Australia (1990) and a Masters of Business Administration from Nottingham Trent University, UK (2003). He began his career with Hoechst Australia Limited as a Project Engineer (1990-1991) and held various positions such as Senior Production Engineer and Senior Manager (Olefins & Aromatics, Polyolefins), Works Director and Vice President of Strategic Projects for the Lotte Chemical Titan group in Malaysia and Indonesia from 1991 to 2009. His foray into Shell began with Shell Eastern Petroleum Limited in 2009 as a Regional Business Improvement

Leader and thereafter with Shell Jurong Island (Singapore) in 2010 as Production Manager till his appointment in your Company.


He attended six out of eight board meetings held during the year in view of his appointment being effective on 2 April 2014.

amir hamzah Bin abu BakarManaging Director and Executive Director



amir hamzah Bin abu BakarManaging Director, MalaysianMBA, Nottingham Trent University, United Kingdom,BEng (Hons) Manufacturing Engineering (Chemical), Swinburne Institute of Technology, AustraliaJoined Shell in 2009

maarten StalsSenior Manager, Operations, DutchBEng (Hons) Chemical Engineering, Technical University of Eindhoven, the Netherlands Joined Shell in 1990

Zulhazmi mohamadSenior Manager, Engineering, MalaysianBEng (Hons) Electrical Engineering, University of Southampton, United KingdomJoined Shell in 1995

Johan JainudinSenior Manager, Technology, MalaysianBEng (Hons) Chemical EngineeringUniversity of Manchester Institute of Science and Technology (UMIST), United Kingdom,Chartered Engineer (The Engineering Council, UK), Chartered Chemical Engineer (Institution of Chemical Engineers, UK)Joined Shell in 2012

Zackaria abdulahQuality & HSSE Manager, MalaysianBSc. (Hons) Environmental Sciences & Management,University of MalayaJoined Shell in 2012

ang Eu SwanManager, Economics & Scheduling, MalaysianBEng (Hons) Chemical Engineering, Universiti Teknologi MalaysiaJoined Shell in 2003

Cecilia NgManager, Finance, MalaysianMBA, Southern Cross University, Australia,BA (Hons) Accounting, Universiti Kebangsaan Malaysia,Chartered Accountant(Malaysian Institute of Accountants)Joined Shell in 2006

isham ismailManager, Human Resources, MalaysianBA (Hons) Management, Universiti Sains MalaysiaJoined Shell in 1993

Thitiporn phansophaSite Lead, Contracting & Procurement, ThaiMBA, University of Colorado, United States of AmericaJoined Shell in 2006

hah Chiew khenManager, Manufacturing Excellence, MalaysianMBA, Universiti Kebangsaan MalaysiaBEng (Hons) Chemical and Process Engineering, Universiti Kebangsaan MalaysiaJoined Shell in 2013

maNagEmENT TEam


Dear Shareholders,

For Shell Refining Company (SRC), 2014 proved to be a challenging year, largely due to the plummeting oil price and increasing global refining capacity.

Your Companys attempts to return to profitability were hindered by high stockholding losses as well as tight refining margins from continued over capacity in the marketplace.

However, SRC continued to advance operational excellence and cost effectiveness whilst maintaining a strong Health, Safety, Security and Environment performance.

fiNaNCial pERfORmaNCE

Your Company posted a net loss after-tax of RM1.19 billion for the year in review compared to an after-tax loss of RM155.9 million in 2013, as a result of stockholding losses of RM625.1 million, impairment losses of RM460.9 million, and operational losses of RM102.6 million.

The impairment which was in respect of the refinery assets and reflects your Boards updated views on future refining margins for the region. We anticipate the future earnings of the company to be affected by the downward outlook in margin and accordingly have taken an impairment charge to the refinery assets to bring it to its recoverable amounts. The impairment loss is a non cash transaction and is further described in the financial statements.

No dividends were declared for the year in review.

2014 iN REViEW

Falling oil prices placed severe strains on refining margins, especially in Asia Pacific, after more than three years of relatively strong and fairly stable oil prices. Brent crude oil price averaged US$99 per barrel in 2014, down from US$109 per barrel in 2013.

However, a 50 percent decline in oil price from June onwards significantly affected your Companys performance. This decline can be attributed to an abundant oil supply from new shale resources, most notably in the US, coupled with a slowdown in China and the persistent economic sluggishness in the Eurozone and Japan.

There was also strong growth in refining capacity in the Middle East, creating an environment of stiffer competition for Asian refiners.

The declining oil price led to a stockholding loss of RM625.1 million in 2014. The loss refers to the difference between the current cost of inventories at the date of sale and the amount charged as the cost of goods sold in computing the historical cost profit.

Your Company also faced reliability issues due to incidents involving the Long Residue Catalytic Cracking Unit and the Crude Distiller Unit, causing a higher unplanned down time, falling short of 2014 business plan target of 1.4 percent. Causal learning investigations have been carried out to identify root causes of the incidents and gain learnings from the incident.

To mitigate the uncertainties of the refining outlook, your Company is committed to driving a strong focus on safety, reliability, cost and people. We will continue to draw on best practices to help us achieve the sought after results.

mOViNg iNTO 2015

The global economy is expected to remain moderate at 3.5 percent growth in 2015 compared to 3.3 percent in 2014, tempered by concerns over the Russian and Eurozone economies, and slowing growth in China.

For Malaysia, the gross domestic product growth in 2015 is expected to be between 4.5 and 5.5 percent (2014: 6 percent), underpinned by resilient domestic activities and strengthening export growth.

Meanwhile, refining margins in the East and Europe are still expected to be challenging with continued refinery capacity oversupply and the US enjoying a low feedstock cost advantage.

Your Companys goal is to continue to optimise and stretch the refinery capabilities with an ongoing focus on its business improvement plan. Strategies include increasing crude optimisation, executing margin uplift tactics, enhancing energy utilisation efficiency and cost optimisation.

You can read about how your Company is responding to our results in the Managing Directors Review in the following pages.

ChaiRmaNS STaTEmENT



STRATEGIC ANALYSIS

A significant challenge was raised in 2014 when the Malaysian Department of Environment confirmed the Euro 4M and Euro 5 implementation timeline, in phases from 2018 to 2025.

This impacts your Company in the longer term as substantial capital investment will be required to meet the fuel specification in that time period. Simultaneously, margins are expected to remain depressed for the rest of the decade.

As at 31 December 2014, your Company has significant outstanding borrowings amounting to of RM1.757 billion representing a rise in your Companys gearing levels to 84 percent, as compared to 53 percent in 2013. These borrowings include a short term loan amounting to RM450 million which was originally due on 15 June 2015, and a long term loan amounting to US$240 million which will be due in September 2016. I would like to highlight to you that your Board had successfully negotiated for a six month extension of the maturity date for the short term loan, to 31 December 2015.

Notwithstanding the extension for the short term loan, the Board is cognisant of the reality that internally generated cash flows will not be adequate to

improve the financial condition of your Company. Given the uncontrollable elements that have adversely affected the financial performance of the Company as mentioned above, the Board is of the view that securing further extensions, alternative borrowings or other sources of funding are vital to your Companys near term future. I assure you that the Board and I are monitoring this with utmost importance and gravity.

The Board commenced a structured review in Q4 last year. In January 2015, we announced the review outcome: refining margins were expected to remain uncertain and the Board is proactively investigating long term options available to your Company.

The review is progressing on track, in addressing the challenges aforesaid. A shareholder vote will be called for once the Board has determined the optimal way forward to benefit your Company and shareholders, when required.

ACKNOWLEDGEMENT

Underlining our commitment to shareholder returns, I would like to reassure you that the Board and I have worked diligently over the course of the year to determine the way forward for your Company.

Our decision-making is driven by the best interest of shareholders, as well as your Companys focus on the areas of safety, reliability, cost and people.

On behalf of the Board, I would like to welcome Michael John Carey as Finance Director. His addition is timely as he brings many years of pertinent experience to your Company.

In closing, I would like to record my utmost appreciation to our shareholders, the Board of Directors, the management, our employees, contractors and all our stakeholders for your continued support, perseverance and dedication in what has been a challenging year and difficult operating environment.

I look forward to your continued support as we respond to challenges in the coming year.

Thank you.

Iain John LoChairman

CHAIRMANS STATEMENT (CONTINuED)


maNagiNg DiRECTORS REViEW

It is a true testament of the employees sheer determination that your Company is prevailing in the face of unprecedented challenges and external factors beyond our control.

Through this period of adversity, your Company embarked on a refinery-wide continuous improvement journey towards delivering positive cash result, through four areas, namely Safety, Reliability, Managing Margins & Costs and People, which I will discuss below.

highlighTS aND lOWlighTS

Your Company achieved some notable highs in safety and energy efficiency in 2014. We received the Malaysian Society for Occupational Safety & Health Grand Award for Superior Occupational Safety and Health for the third consecutive year a clear affirmation for our continued focus on uplifting occupational safety and health standards.

We also executed our largest ever multi-scenario oil spill and major emergency response exercise, involving 400 personnel from Shell and government agencies. The success of the two-day exercise validated our ability to respond with speed and efficiency in the event of a crisis.

Our focus on energy efficiency paid off as your Companys Hydro Desulphuriser (HDS HIJAU) unit was named in the top three most energy efficient units in the Shell manufacturing portfolio in 2014. Your Company improved on its Energy Intensity Index (EII) 2014 by 4.2 points, compared to EII of 116.4 in 2013.

Nonetheless, your Company also faced several setbacks. On the forefront is the ending of our 13-year run of non loss-time injury (LTI) performance when

2014 was undoubtedly one of your Companys toughest years in recent times, testing the mettle of even the most resilient workforce.

an employee tripped while walking on a platform, and subsequently injured his heel.

Additionally, multiple reliability issues in the Long Residue Catalytic Cracking Unit (LRCCU) and Crude Distiller Unit resulted in a reduced availability from 97.7 percent in 2013 to 94.8 percent in 2014, thus impacting the site overall production throughput.

Your Company continued to push its business improvement plans by sharing and implementing learnings from these incidents.

SafETy

In ensuring a safe workplace for our people, your Company has continued to routinely schedule safety campaigns, training programmes, Be Well health programmes, HSSE walkabouts as part of the annual HSSE plan. Key interventions include re-energising the 12 Life-Saving Rules, H2S (hydrogen sulphide) awareness road show, Safety Day and series of structured positive safety stand downs aimed to proactively engage our people on safety.

Your Company regretfully recorded 23 Loss of Primary Containments (LOPC) incidents in 2014 (2013: 14 cases).

For these incidents, immediate corrective actions have been taken and followed through. Deeper Causal Learning type investigations were done for all significant incidents ensuring that we have proper identification of systemic causes and clear actions to address and prevent recurrence. We remained steadfast on our focus to strengthen critical work processes and shaping the right behaviours on-site, striving towards operational excellence.

Nevertheless, your Company has improved on the environmental metrics in which we attained Zero Spill and Zero Environmental Non-Compliance, an improvement compared to previous year.

The journey on safety leadership development continued on via implementation of Supervising for Safety Workshops. More than 100 employees and contractors successfully completed the workshop, aimed to equip our frontline leaders with the right skill sets, to enable them to lead effectively on safety.

We have also successfully implemented the three tier structure for our site HSSE Committees starting in the 3rd Quarter, with an aim of providing more HSSE leadership, autonomy and accountability at the different levels of the organisation.

Another proud moment for the site was the successful execution of our largest Tier-3 multi-scenarios Oil Spill and Major Emergency Response exercise involving 400 personnel from Shell, various government agencies and mutual aid partners. The exercise allowed us to test our organisational preparedness in managing crisis, at the same time allowing all parties to seek opportunities for improvement.

We ended the year with the End Well 2014 and Start Well 2015 campaign last December to uphold chronic unease amongst the workforce. The session also allowed us to reinforce the message to our people that the journey towards Goal Zero remains a top priority for the site, and it requires continuous effort by everyone to make it achievable.



REliaBiliTy

With plant availability at 94.8 percent in 2014 (Figure 1), your Company has stepped up efforts to manage and improve the overall reliability performance by looking at four main focus areas:

figure 1 SRCs Refinery availability

Firstly, targeted effort and focus on improving the site Asset Integrity programme, particularly in the areas of corrosion management.

The main efforts on this key focus area include corrosion impact assessment on critical corrosion loops, redefining and strengthening integrity operating window management and execution of proactive integrity field related programmes such as corrosion under insulation programme, deadleg programme and low silica suphidic corrosion programme. The site asset integrity programme is closely linked to your Companys effort in reducing the number of LOPC incidents.

Secondly, strengthening critical work processes maturity by delivering continuous improvement tactics particularly for work processes which are supporting the site reliability management framework, namely Ensure Safe Production (ESP) work process, Pressure Equipment Integrity (PEI) work process and Reliability

Centred Maintenance (RCM) work process. Maturing these processes will enable the site to have a more robust structure in the areas of managing Operating Windows, integrity of pressure equipment, and proactive maintenance programmes.

Thirdly, embedding increased ownership and accountabilities to the site reliability management framework through structural changes in the reliability management system and behaviour to drive improvement in mitigating reliability threats. Major improvements include structural changes in the site Reliability Steering and Area Reliability Teams meetings charters to provide more autonomy and accountability at the working level.

In Q4 2014, your Company has fully mitigated eight reliability threats which include three threats in the sites top 20 reliability threats. Moving forward, we are expecting to fully mitigate a further 51 reliability threats in 2015 as compared to 22 reliability threats mitigated throughout 2014.

Finally, we continue to strengthen the technical capability of site engineers through the ongoing support and technical coaching programmes from the Shell Projects & Technology and the global Manufacturing Excellence teams.

maNagiNg maRgiNS

2014 was marked by the sharp fall in oil prices, where crude prices crashed from a height of US$108 per barrel at the start of the year to US$55 per barrel at the close. As can be seen by Figure 2 the market continued to be influenced by the rise in US shale production and a rebalancing of the global oil demands.

In view of the challenging market environment, your refinery implemented strategic tactics targeted towards uplifting cash and affordable spending. This means stretching the refinery to take in cheaper feedstocks, increasing the value of products made, leveraging

on tightened operation discipline to drive business optimisation. With a focus on affordability, the refinery prioritised projects that delivered value in the shorter term and with immediate returns. Through this lens, the refinery launched the DRIVE initiative (Deliver Robust Integrated Value and Enhancement) where targeted tactics were executed, bringing additional value to the refinery of RM77 million on top of the base plan.

Crude is the single largest cost to the refinery. The procurement of crude is driven by its relative economic attractiveness to ensure that we optimise our refining margin. In 2014, five new crudes were secured and added to our crude basket. The refinery used its advantage in having a high crude flexibility, coupled with the new HIJAU asset, to capture US$37.4 million in crude optimisation in 2014.

figure 3 SRC Sources of Supply

figure 2 Crude and product prices

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Mogas Diesel Crude (Brent)

98.8

%

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% 98.

8%

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%

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94.8

%

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0.7%

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5.06

%1.

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Actual Target

2% LCO/HCO

3% Tops3% Propylene

42%Gasoil

9%Jet Fuel

6%LPG

35%Motor Gasoline

32%Far East,Middle East & Africa

33%Russia

35%Malaysia

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98.8

%

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% 98.

8%

97.7

%

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94.8

%

14

10 11 12 13 14

0.7%

3.1%

3.0%

2.4%

1.0%

1.7%

2.2%

1.5%

5.06

%1.

4%

Actual Target

2% LCO/HCO

3% Tops3% Propylene

42%Gasoil

9%Jet Fuel

6%LPG

35%Motor Gasoline


33%Russia

35%Malaysia

maNagiNg DiRECTORS REViEW (CONTiNuED)

Q114 Q214 Q314 Q4141

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98.8

%

83.7

% 98.

8%

97.7

%

10 11 12 13

94.8

%

14

10 11 12 13 14

0.7%

3.1%

3.0%

2.4%

1.0%

1.7%

2.2%

1.5%

5.06

%1.

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Actual Target

2% LCO/HCO

3% Tops3% Propylene

42%Gasoil

9%Jet Fuel

6%LPG

35%Motor Gasoline


33%Russia

35%Malaysia


In line with maximising utilisation for profitable units, your refinery also expanded the feedstock basket, purchasing 65 kilo tonnes (KT) of residue feedstock, including our very first parcel of Hydrowax, increasing the annual LRCCU utilisation by 3 percent. This means that the LRCCU hit the maximum throughput of 6.3 KT/day at the end of November 2014 capturing the higher margins for Mogas at the end of the year.

For products, your refinery also stretched Mogas production to 110 percent of its base capacity by debottlenecking the blending facilities, producing 150KT ULG95 through the introduction of in-line blending. We also reinstated ULG97 production in order to capture the market for the premium Mogas grade.

figure 4 SRC Sales Turnover (by product)

maNagiNg COSTS

In 2014, our operational expenditure was RM469 million (2013: RM450 million), the increase in spending were mainly attributed to three areas: higher catalyst spend, extraordinary maintenance due to reliability issues and asset integrity, and financing costs.

In our continuous pursuit to optimise spending, we have concentrated our effort on improving margins and cash flow performance through various initiatives that played to our strengths. At the fore front, we scrutinised third party costs in terms of scope, specifications and demand, which includes active re-negotiation of contracts and subsequently realised a saving of RM14.7 million (US$4.2 million) in 2014.

At the LRCCU, for example, we gained significant benefits through a catalyst reformulation, which maximised gasoline yields for every unit of catalyst consumed. The distinctive reformulated catalyst also allowed for reduction in the use of fresh catalyst for the generation of similar yields.

We also convinced our maintenance service contractors to adopt a more efficient and productive ways of working via the LEAN methods, which produced improved work efficiencies, productivity and cost reduction. Moving forward, we have extended these efforts to our tank maintenance contractors, targeting for similar results.

Driven by cost control measures, we adopted a rigorous approach on ensuring efficiency and competitiveness in our activities. We scrutinised our cost model and supply chain and eliminated superfluous elements such as logistics and packaging. The team identified alternative lower priced chemicals used in operations, which produced a reliable and uncompromised performance.

In addition, where relevant, we leveraged the Shell Group negotiated contracts to obtain the best commercial value for your Company.

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0.7%

3.1%

3.0%

2.4%

1.0%

1.7%

2.2%

1.5%

5.06

%1.

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Actual Target

2% LCO/HCO

3% Tops3% Propylene

42%Gasoil

9%Jet Fuel

6%LPG

35%Motor Gasoline


33%Russia

35%Malaysia

The fall in oil prices in 2014, resulted in significant stockholding losses and lower first in first out (FIFO) margins (in accordance to Malaysian Financial Reporting Standards 102). Generally, major oil companies would also consider the current cost of supplies (CCS) margins, as the CCS margins would exclude stockholding impact as it is typically regarded as an uncontrollable factor. Thus, your Companys CCS margin in 2014 of US$2.65 per barrel is higher (2013: US$1.10 per barrel). We recorded stockholding loss of US$4.99 per barrel in 2014 compared to a stockholding gain of US$0.80 per barrel in 2013.

pEOplE

The strength of our people is one of the key drivers to our performance. Recognising this, we continued to focus our effort on human capital development across the organisation with an aspiration of a high performing team and with accountable and empowered individuals.

In 2014, training opportunities were provided equivalent to around 200 employees spending eight workdays in a formal classroom and on-the-job training.

We provided the support and tools for employees to be effective individuals and leaders to run the plant safely and reliably. We focused on multi-skill training to widen employee capabilities, in areas of soft skills and leadership development, quality and compliance, HSSE, plant reliability and maintenance, technical training, and work process improvement (LEAN).

To empower the frontliners, mentoring and coaching was implemented across the site to ensure that knowledge is passed down to the younger workforce, minimising knowledge gap between the experienced and the new. This removed obstacles, allowing frontliners to take initiatives, make decisions and be accountable for their actions.

Your Company also focused on the effort to Engage and Inspire the workforce via various engagement activities done in 2014. These include townhalls, leader walkabouts, stand downs, and departmental team huddles. I personally hosted a series of Coffee with the MD sessions, designed for open and transparent two-way communication between employees and I, in an informal and smaller group setting. Through these engagements, I was able to get better connected to various levels of the organisations, understand their needs, and provide better clarity on the organisational goals and priorities.



There is no denying that a healthy workforce is crucial in ensuring that we run the plant safely and reliably. In making Shell Refining Company a great place to work, we continued the site Be Well programme to help employees adopt and maintain a healthy lifestyle and reduce health risks. The programme offered a series of activities throughout 2014, including weekly Zumba sessions, health screening, chronic disease prevention health talk by IJN, and bone as well as Ear, Nose and Throat (ENT) screening.

In the year ahead, we intend to continue driving performance, promoting honest staff engagement, and rewarding performance in delivering our business plans targets. Mindful of stress and motivation levels, intervention programmes such as Employee Assistance Programme and Resilience Workshops are made available to those in need.

We continue to aim to be a good neighbour and a responsible operator in the Port Dickson community by making sure that our operations are safe and bring no harm to our people, the community and the environment.

Balancing business with social responsibilities, your Company continued to host various community outreach programmes benefitting children and the underprivileged, particularly during festive celebrations.

LOOK AHEAD

Despite better margins in the first quarter of 2015, the overall outlook for Asian refineries remains challenging and uncertain, mostly because of regional geopolitical activities and overcapacity due to start-ups of new refineries.

On supply and balance, the Middle East refineries currently account for around 27 percent of the new refining capacities, and the region is expected to shift from a net gasoil importer to exporter in 2015.

At your Company, safe and reliable operations continue to remain a key must win for everyone. Safety is about working safely and going home to loved ones without any injuries, while reliability is about running the operations steadily and smoothly, simultaneously capturing good margin opportunities.

In addition to safety and reliability, we will continue to focus on margin uplift initiatives such as procuring cheaper feedstocks, yielding improvements, energy efficiency and cost optimisation.

In the third quarter of 2015, your Company will undergo a seven-week maintenance shut down for a major turnaround event. This is a critical event and will be another must win for the site.

Major activities include inspection and maintenance of refinery equipment, as part of the statutory and asset integrity programme requirements to ensure safe and reliable operations.

People are pivotal to our success and undoubtedly, the uncertainties around your Companys future in view of the structured review are impacting the morale and motivation of the staff.

However, the first quarter performance in 2015 has demonstrated the fortitude and the fighting spirit of the organisation as a whole but continuing effort is needed to keep the morale and motivation at a healthy and sustainable levels.

These are uncertain and challenging times, both externally and internally, but we will continue to strive and deliver our best.

Amir Hamzah Bin Abu BakarManaging Director

MAnAging DirEctOrs rEviEw (cOntinuED)


fiNaNCial SummaRymaNagEmENT DiSCuSSiON & aNalySiS

OVERViEW

In the year under review, your Company posted a loss of RM1,188.7 million.

Weak refining margins were amplified by high stockholding losses incurred towards the end of the year due to falling crude prices.

In 2014, the crude oil supply balance hit a correction point with the growth in crude oil production from the United States. Organisation of Petroleum Exporting Countries (OPEC) producers did not reduce quotas in compensation which resulted in a decline in crude prices from heights of US$108 per barrel in early 2014 to US$55 per barrel at the close of the year.

2014 also marked the start of the go-live of the Middle Eastern refineries, with Ruwais in United Arab Emirates first off the block in quarter four. This is expected to add product length in the market when it fully stabilises.

REVENuE aND gROSS maRgiN

Revenue of RM14.3 billion was recorded for your Company in 2014, 3 percent lower than the same period last year. The decrease is attributable to lower product prices in 2014.

The refining margin in 2014 was US$2.65 per barrel on current cost of supplies (CCS) basis in comparison to a lower margin of US$1.10 per barrel in 2013. The margin is further affected by stockholding losses of US$4.99 per barrel in 2014 compared to stockholding gain of US$0.80 per barrel in 2013.

In 2014, your Company processed five new crudes enabling US$4.8 million of crude uplift value. The refinery also managed to source 65 KT of residue feedstock imports, increasing Long Residue Catalytic Cracking Unit (LRCCU) utilisation by 3 percent at a benefit of US$2.6 million.

The Hijau project enabled US$50 million annually of uplift through crude diversification and higher value product slate. With it, your Company managed to increase cheaper sour crude processing to 38 percent and maximised fuel oil upgrading capability to generate further margin benefits.

iNCOmE aND ExpENSES

In 2014, your Company incurred RM35 million lower foreign exchange losses than 2013. However, finance costs were higher by RM16.2 million due to higher interest rates and a net loss of RM9.8 million that was incurred from derivatives as compared to a gain of RM9.6 million in 2013. Depreciation was also higher by RM4.7 million. In addition, the net income was adversely affected by the significant impairment loss of RM461 million recognised during the year. Your Company continues to pursue structural cost reductions where able, to mitigate against the impact of weak margins.

pROfiT

Your Company posted after-tax loss of RM1,188.7 million in 2014 as compared to after-tax loss of RM155.9 million in 2013.

The higher losses in 2014 are mainly contributed by: Stockholding losses of RM625

million due to fall in oil prices (from average dated Brent marker of US$108 per barrel in early 2014 to US$55 per barrel in December 2014).

Impairment losses of RM461 million.

Operating losses of RM103 million is impacted by the weak refining margins due to overcapacities, geopolitical issues, unfavourable exchange rates and global economic slowdown.

TOTal aSSETS aND liaBiliTiES

The total assets of the your Company have reduced by RM1.7 billion to RM2.8 billion in 2014 due to the impairment that was recognised during the year amounting to RM461 million as well as lower inventories of RM585 million. Related party and net trade balances have reduced by RM67 million in 2014. Deferred tax liabilities had been fully utilised during the year thus reducing the liabilities by a further RM35 million.

CaShflOW

Your Company closed the year end with cash balances of RM8.7 million, contributed by: Cash surplus from operations

of RM115.5 million upon management of lower inventories level and lower oil prices.

Interest paid on loans(RM57.4 million)

Repayment of borrowings(RM35.7 million)

Net cash outflow from capital expenditure (RM54.8 million)



fiNaNCial pERfORmaNCE 2010 2011 2012 2013 2014growth

Rate

income Statement (Rm million)

Revenue 10,376 11,213 15,086 14,696 14,263 (3%)Purchases 9,901 11,074 14,901 14,519 14,571 0%Profit/(Loss) before taxation 151 (164) (122) (223) (1,223) 448%Profit/(Loss) after taxation 106 (126) (95) (156) (1,189) 662%Sales volume (thousand barrels per day) 102 85 110 110 111 1%

Balance Sheet (Rm million)

assets

Total assets 3,546 4,204 4,170 4,491 2,811 (37%)Trade and other receivables 1,230 1,234 1,248 1,302 772 (41%)Inventories 1,001 1,315 1,134 1,387 801 (42%)Oil inventories volume (thousand barrels) 3,408 3,494 3,000 3,613 3,350 (7%)

liability and Shareholders funds

Total liabilities 1,454 2,350 2,465 2,977 2,486 (16%)Trade and other payables 838 1,386 1,168 1,191 728 (39%)Shareholders funds 2,092 1,854 1,705 1,513 325 (79%)

Cash flow (Rm million)

Cash generated from/(used in) operations 175 114 (74) (252) 116 (146%)Purchase of property, plant and equipment 172 392 370 165 55 (67%)

per Rm1 unit of Stock (Sen)

Earnings/(Loss) 35 (42) (32) (52) (396) 662%Net assets 697 618 568 504 108 (79%)Gross Dividends 50 40 20 0 0 0

gearing Ratio liquidity Ratios Refinery intake (thousand barrels per day)

Quick RatioCurrent Ratio

Intake Sales

10

18%

31% 41%

53%

84%

11 12 13 14 10 11 12 13 14 10 11 12 13 14

1.091.66 0.96

1.000.79

0.48

2.85

96.9

101.9

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101.7

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1.000.79

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109.68

103.88

110.85

1.95

2.05

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10

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1.66

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fiNaNCial SummaRy (CONTiNuED)


CORpORaTE SOCial RESpONSiBiliTy

maRkETplaCE

Despite the industry challenges that have plagued the overall performance, your Company continues to place great emphasis in cultivating a culture steeped in strong business ethics and values, good corporate governance and excellent product stewardship. The timely and transparent engagement with our stakeholders by effectively communicating accurate and quality information about your Companys operations, developments and financial performance has helped us to receive support and understanding from our stakeholders.

COmmuNiTy

Amidst the tough market environment, our endeavour to be a good neighbour and responsible operator to the community of Port Dickson (PD) remained. We maintained a good balance in our Social Investment or Corporate Social Responsibility by responding to the communitys needs where warranted.

In 2014, we partnered with Port Dickson Residents Association, Port Dickson Women Association, schools and many more in our community outreach programmes. This included extending assistance in the livelihood of communities through provision of fish and prawn seedlings; promoting healthy lifestyle to the community through cycling; a breaking of fast event with underprivileged families from our fenceline communities; contributing to Yayasan Munarah, a charity which supports underprivileged youths in Negeri Sembilan and distributing rations to underprivileged communities during Deepavali.

We also organised a Get to know the community programme by paying a visit to the childrens mini library at Kampung Orang Asli which was set up by your Company in partnership with PD Residents Association and PD Women Association in 2013, utilising a cabin donated from Project Hijau. This is to ensure that we monitor our assistance and contributions and that it benefits the community for the long run.

WORkplaCE

People are your Companys greatest assets and we want everyone who works for us to go home safely every day, more so during this challenging period that we are operating in. Your Company continues to aspire to create a safe and conducive workplace that nurtures collaboration and team work; drives passion and motivation in individuals and provides learning and development opportunities at all levels.

In the aspect of Health, Safety, Security and Environment, we embarked on campaigns to increase knowledge on personal and process safety. We make genuine efforts to organise positive intervention initiatives through periodic walkabouts and safety stand down to encourage safety leadership behaviour and intervention culture.

In the area of learning and development, your Company invests in formal multi-skilling training and semi-formal learning sessions focusing on personal and leadership effectiveness and commercial mindset.

All these are in line with your Companys belief in realising peoples full potential that will help them to stay loyal, feel valued and proudly contribute to the Companys overall performance.

ENViRONmENT

Your Company makes a conscious effort to conduct business in a safe and environmentally sustainable manner. This is apparent through compliance of environmental regulations and Company policies and programmes.

In 2014, we continued to manage emissions, improve energy efficiency, reduce flaring and conserve biodiversity. Our ability in this aspect was regarded as the best practice by the industry when your Company was invited to present at the Prime Minister Hibiscus Award (PMHA) Briefing and Sharing of Best Practices with Minister of Natural Resources and Environment and other industry players.

Our neighbouring communities continue to be our important partners. Through an open feedback channel, members of these communities can report observations of the plant instantaneously. Through timely resolutions of these reports, this channel has improved our awareness of the impact of our operations on the environment.

Your Company continues to be a longstanding partner in the Port Dickson community. This was demonstrated in your Companys Corporate Social Responsibility commitment through activities in the areas of Marketplace, Community, Workplace and Environment.



Your Company has adopted the Shell General Business Principles (SGBP) a governance blueprint developed by Royal Dutch Shell plc, the ultimate holding company of your Company. The SGBP describes the core values, its responsibilities and the principles and behaviours which are key to our business integrity and performance. Royal Dutch Shell plc has developed a governance guide, series of policies, management systems, training modules and reporting mechanisms that are designed to support a robust corporate governance system which has been adopted by your Company.

These principles and practices, supported by existing internal controls and processes, are regularly audited and reviewed, to ensure transparency and accountability. Your Board has strong control and authority over these internal processes and the manner in which such control and authority is implemented and reflected in the Directors Statement on Risk Management and Internal Control on pages 36 to 37.

Your Board confirms that during the year, your Company complied with the requirements of relevant laws and regulations.

pRiNCiplES aND CODES

Shell general Business principles

The SGBP defines how Shell companies are expected to conduct their affairs. These principles include, among other things, Shells commitment to support fundamental human rights in line with the legitimate role of business and to contribute to sustainable development. The SGBP can be found at www.shell.com/sgbp.

The SGBP, which first came into being in 1976, has remained consistent ever since, because the core values on which the Principles were originally based have endured, namely: Honesty Integrity Respect for people

Your Company firmly believes in the fundamental importance of the promotion of trust, openness, teamwork and professionalism, and takes pride in what it does. These underlying corporate values determine your Companys principles. These principles apply to all transactions, large or small, and describe the behaviour expected of every employee in your Company in the conduct of its business. In turn, the application of these principles is underpinned by procedures within your Company, which are designed to ensure that its employees understand the principles and that they act in accordance with them. Your Company recognises that it is vital that its behaviour matches its intentions.

All the elements of this structure values, principles and the accompanying procedures are necessary. It is your Companys firm belief that maintaining the trust and confidence of its stakeholders, namely the shareholders, employees, customers and other people with whom your Company does business, as well as the communities in which your refinery is situated, is crucial to its continued growth and success. Your Company intends to merit this trust by conducting itself according to the standards set out in these principles. These principles have served your Company well for many years. It is the responsibility of Management to ensure that all employees are aware of these principles, and behave in accordance with the spirit as well as the letter of the SGBP.

Your Company provides awareness and knowledge training on the topics covered in the SGBP. This training is designed to raise awareness as well as educate employees on the risks associated with the relevant requirements of the SGBP and the Code of Conduct. Training is split into three categories: mandatory on-line training which is for all employees; awareness training for employees who are exposed to minimum risk; and knowledge training for employees exposed to greater risk. All training

packages address legal and ethical risks associated with the principles of the SGBP.

Mandatory training for all employees: Code of Conduct Conflicts of Interest, Gifts and

Hospitality Register Records Management Information Risk Management/

e-Learning Information Security

Awareness training for exposure to relevant risk: Anti-trust Anti-bribery and Corruption Export Controls Data Privacy Anti-Money Laundering Insider Dealing Disclosure

ShEll CODE Of CONDuCT

Directors and employees are required to comply with the Shell Code of Conduct, which is intended to help them put our business principles into practice through the basic rules and standards we expect them to follow and the behaviour we expect of them. The Shell Code of Conduct is available online at www.shell.com/codeofconduct.

The Code of Conduct crystallises the basic rules, standards and behaviours necessary to achieve those objectives. It provides requirements and guidance, expressed as clearly, concisely and consistently as possible, within a single, company-wide document for all the employees on a number of enterprise-wide risk areas. It is intended to be viewed as an essential guide, rather than merely a set of rules for compliance. In ensuring this intention is realised, the Code of Conduct contains directions to additional detailed materials required to be read in order that a deeper and more holistic understanding of the Code is obtained. The consequences of breaching the Code of Conduct are clearly set out in the Code of Conduct, and this demonstrates our commitment and determination in ensuring that

CORpORaTE gOVERNaNCE STaTEmENT


your Company adheres to the high standards set out in the SGBP. Your Company as part of the Shell Group operates in an ever-changing world. The Code of Conduct is a place to start the search for guidance, advice and answers when employees are faced with questions in their daily work, because it provides a great deal of useful information. For example, for each component of the Code of Conduct, some questions for each employee to address and answers are provided as part of the internal process and methodology to challenge decisions made in respect of issues that may potentially conflict with the principles by which the Shell Group abides.

The Code of Conduct provides:

practical advice on how to comply with laws and regulations

requirements and guidance about how an employee should relate to colleagues, customers, shareholders, communities, vendors, competitors and governments

employees with other useful information sources applicable to perform their duties as a Shell employee

explanation on how to get confidential advice

assistance for employees to resolve difficult questions about business conduct

circumstances or situations in which employees are expected to report their concerns

Taking into account the practical reality of conducting business and working, your Company acknowledges that its employees or Directors may be faced with legal or ethical dilemmas in the course of work. It is for this reason that we have ensured that the Code of Conduct is adequately comprehensive in nature, in order to ensure that the concerns and interest of our stakeholders will not be compromised.

All staff are required to perform the mandatory on-line Code of Conduct awareness training. The objective of the course is to create awareness of the requirements set out in the Code and where employees can seek advice for further help. The Directors have attended the Code of Conduct awareness training.

ShEll glOBal hElpliNE

The Shell Global Helpline is available to all employees and stakeholders for reporting of and advice on legal and ethical non-compliance incidents, dilemmas and concerns and the complainant can remain anonymous. The Shell Global Helpline is a worldwide reporting mechanism, operated by a third party, which is open 24 hours a day, seven days a week.

In accordance with the best practice on corporate governance, Dato Seri Talaat bin Haji Husain continues in his role as the Senior Independent Non-Executive Director to whom concerns pertaining to your Company may be conveyed by the shareholders and stakeholders. All concerns relating to the Company may be channelled to [email protected], or by mail to the Companys registered address. The Senior Independent Non-Executive Director will engage Shell Global Helpline upon receipt of such reports, complaints or concerns.

There are two ways of making a report via the Shell Global Helpline:

1. By telephone to an experienced Helpline operator, if necessary via an interpreter. In Malaysia, the local toll free number is 1-800-81-2404; or

2. Via the Global Helpline website at www.shell.com or www.compliance-helpline.com/shell

Cases submitted to the Shell Global Helpline are investigated by an independent team. In cases where the

complaints were found to be valid, the Company would take appropriate action against the wrong-doers. Further information on the Global Helpline is available via the website at www.shell.com

malaysian Code of Corporate governance 2012

Your Board supports the recommendations of corporate governance as set out in the Malaysian Code of Corporate Governance 2012 (MCCG 2012) and is committed to ensuring that the highest standards of corporate governance are implemented and maintained throughout in enhancing shareholders value and the long term value of your Company.

Your Board is pleased to advise that your Company has complied with almost all 26 recommendations, and the outstanding recommendation is the implementation of electronic means for poll voting which your Board will consider when such service attains acceptable performance. For avoidance of doubt, there are no qualitative or quantitative restrictions on proxy voting and poll voting during the Annual General Meeting.

access to information

Your Company is committed to provide accurate, timely, consistent and fair disclosure of corporate information and supports ease of accessibility to information and advice for members. Your Company has in place the following:

1. Corporate Disclosure Guide: This Guide, which was approved by your Board on 16 August 2004 and amended on 17 August 2006 addresses the five pillars of disclosure and transparency, namely, Truthfulness, Completeness, Materiality of Information, Timeliness and Accessibility. Information on the Corporate Disclosure Guide is available in your Companys website www.shell.com/src.



2. The Shell Group works closely with UKs Royal National Institute for the Blind (RNIB) to ensure that your Companys website meets the Web Content Accessibility Guidelines version 2.0 Double-A. The site has been tested by RNIB to ensure that it is compatible with adaptive technologies such as screen readers, Braille output, screen magnification, voice input and text browsers. The website also caters for users with dial-up, older browsers or newer technologies such as mobiles and Personal Digital Assistants.

3. Shell Global Helpline is available to employees, members and stakeholders.

Corporate integrity

The Board is pleased to advise that your Company has signed the Malaysian Corporate Integrity Pledge (Pledge) in July 2011. The effect of signing this Pledge includes the declaration of clear company policies and processes in the event your Company is faced with potential corruption cases, and also this Pledge differentiates your Company from its peers by signifying that its operations do not condone or include costs due to corrupt activities. By signing this Pledge, your Company is currently listed in the registrar of signatories that is carried on the website of the Malaysian Integrity Institute.

The Board Charter

The Board Charter was revised in 2012 and continues to provide reference for Directors in relation to the Boards role, powers and duties and functions. Apart from reflecting element best practices and applicable roles and regulations, the Board Charter also outlines processes and procedures for the Board and its Committees in discharging its stewardship effectively and efficiently. The Board Charter is accessible in your Companys website at www.shell.com/src and any update thereof will be uploaded to the website accordingly.

Directors Code of Ethics

The Directors observe the Directors Code of Ethics established by the Companies Commission of Malaysia and the Code of Ethics for the Executive Directors and Senior Financial Officers. The Code of Ethics is accessible in your Companys website at www.shell.com/src and any update thereof will be uploaded to the website accordingly.

BOaRD Of DiRECTORS

Board Composition and Balance

For the period up to 14 April 2015, your Board comprised the Non-Independent Non-Executive Chairman, Iain John Lo, the Managing Director, Amir Hamzah bin Abu Bakar, and seven other Directors, five (5) of whom are Independent Non-Executive Directors, which is in compliance with paragraph 15.02 of the Listing Requirements of Bursa Malaysia Securities Berhad (Bursa Securities) and the MCCG 2012 which states that the Board must comprise a majority of Independent Directors where Chairman of the Board is not an Independent Director. To-date none of the Independent Directors tenure has exceeded a cumulative term of nine (9) years.

Michael John Carey who was appointed as Non-Independent Non-Executive Director on 6 February 2015 and his position will remain until the 56th Annual General Meeting and his profile is set out on page 10.

Roles of Directors

The roles of the Non-Independent Non-Executive Chairman and the Managing Director are distinct and separate with their responsibilities clearly defined to ensure a balance of power and authority. The Non-Independent Non-Executive Chairman is the Country Chairman of Shell Malaysia and contributes extensive knowledge and experience to your Board. He is responsible for the

leadership and management of the Board and for ensuring the Board and its Committees function effectively. He is also responsible for the integrity and effectiveness of the relationship between the Independent Non-Executive Directors and the remaining Directors. His active interactions with other industry leaders and excellent relationships with key stakeholders as the Chairman of your Company as well as for Shell Malaysia, allows him to provide great insights and invaluable foresight in the strategic planning of your Company.

The Managing Director bears overall responsibility for the implementation of the strategy agreed by the Board, the operational management of your Company and the business enterprises connected with it. His operational responsibilities include plant reliability, safety, profitability, corporate governance and talent development. In addition, the Managing Director has the principal responsibility of reporting, clarifying and communicating matters relating to day-to-day operations of your Company to your Board. He is assisted by the Management Team whose information is set out on page 12.

The Independent Non-Executive Directors, all of whom are persons of high calibre and integrity, respected and experienced present or past business leaders in their own right, play important roles by exercising independent judgment and objective participation in the proceedings and decision-making processes of your Board covering issues of strategy, performance and risk. The presence of the Independent Non-Executive Directors is essential in order to ensure that the interests of other parties, such as the minority shareholders, are properly safeguarded. The Independent Non-Executive Directors do not engage in the day-to-day management of your Company to facilitate them to discharge their duties free from any business or other relationship, which could materially interfere with their independent judgment as defined

CORpORaTE gOVERNaNCE STaTEmENT (CONTiNuED)


under paragraph 1.01 of the Listing Requirements of Bursa Securities and void of any conflict of interest possibilities. They play a significant role in bringing impartiality and scrutiny to Board deliberation and decision making and also serve to stimulate and challenge the Management in an objective manner.

All the Independent and Non-Executive Directors as at the end of 2014 are considered by the Board to be wholly independent of any personal business connection with your Company or Shell companies. All Independent Non-Executive Directors are appointed for an initial tenure of three (3) years and may be renewed subject to merit and performance assessment. The Non-Executive Non-Independent Directors, being senior executives within the Shell Group, also bring with them a wide range of essential business and financial experience relevant to your Company. The independence of the Non-Executive Non-Independent Directors is constantly reviewed and benchmarked against Shell Groups governance requirement and regulatory provisions. Overall, your Board collectively has a broad range of qualification, diversity, experience and expertise considered of benefit to the Company.

Your Directors details for those in office at the date of the Annual Report may be found on page 7 to 11 of the Annual Report.

Conflicts of interest

The Company Secretaries require each Director to complete detailed conflict of interest questionnaire in the Directors Declaration updated annually and if there are any chang

Src Annual Report2014

Documents

Transcript of Src Annual Report2014