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Scan the QR code by following theSe Simple StepSnew featuRe in thiS annual RepoRtThe PDF version of Hengyuan Refining Company Berhad’s 2017 Annual Report and 2017 Sustainability Report are available on our website. Please visit www.hrc.com.my or scan the QR Code to download these reports. We value your feedback and welcome any comments to improve our future reports.

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Powering a SuStainable Future

It has been an empowering year for Hengyuan Refining Company

Berhad (HRC), driven by the hard work and commitment of our

team. Together we transformed challenges to strengths, and

worked hard to realise opportunities that presented itself as

market dynamics for the refining sector improved. Our new era

of operations as HRC commenced and continues on solid footing

as we build confidence in the market and strengthen business

relationships through increased engagement. We stayed true

to our strategies and delivered on set goals. Working as one,

the HRC team is on track to deliver on our refreshed vision of a

sustainable future that balances business benefits with those of

our people, our communities and our planet.

Thursday 24 May 201810:00 am

59tH

annual general Meeting

Ballroom 2Sime Darby Convention Centre, Kuala Lumpur

a StRongeR team

16 Board of Directors

17 Board of Directors’ Profiles

20 Management Team

21 Management Team’s Profile

RealiSing ouR ViSion

04 Our Heritage

05 Corporate Information

06 General Business Principles

08 Financial Calendar

09 Notice of 59th Annual General Meeting

anchoRed on ReSponSibility

50 Sustainability Statement

54 Corporate Governance Overview Statement

59 Board Audit Committee Report

63 Statement on Risk Management and Internal Control

on a poSitiVe tRack

26 Chairman’s Statement

30 Management Discussion & Analysis

financial RepoRtS

70 Directors’ Report

73 Statement by Directors

74 Statutory Declaration

75 Independent Auditors’ Report

80 Statement of Comprehensive Income

81 Statement of Financial Position

82 Statement of Changes In Equity

83 Statement of Cash Flows

85 Notes to the Financial Statements

otheR infoRmation

125 Company Properties

128 Analysis of Shareholdings

131 Additional Corporate Governance Disclosures

136 Recurrent Related Party Transactions

Proxy Form

ContentS

realiSing our ViSionRELIABILITY

Operational Availability

2017

97.4%2016

82.1%

SAFETY QUALITY

Million Exposure Hours Worked without Lost Time Injury (LTI)

ZeRo fatality record since 1963

Product Quality Incidents (PQI):1 minor pQi + 1 waivers

ZERO Major Customer Complaints2017

2 million

20161.34 million

about hengyuan Refining company berhadHengyuan Refining Company Berhad (“HRC”or “Company”) was incorporated in 1960 and listed on the Main Board of the then Kuala Lumpur Stock Exchange (now known as the Main Market of Bursa Securities) in 1962.

HRC’s refining operations began in 1963 with a single crude distiller operating at a capacity of 20,000 barrels per day. Following several key debottlenecking and growth investments, today, our Company’s licensed capacity allows the refinery to produce up to 156,000 barrels per day, making us the second largest refinery in Malaysia. Operating in Port Dickson, HRC boasts a team of more than 450 employees comprising our own and direct contract employees excluding contractors and suppliers.

HRC entered into a new phase of growth after a shareholder transition exercise on 22 December 2016 and the Company’s name was changed from Shell Refining Company (Federation of Malaya) Berhad to Hengyuan Refining Company Berhad.

For the financial year ended 2017, HRC registered a commendable revenue of RM11.6 billion, a 38% increase from RM8.4 billion last year. This solid performance is a testament to our Company’s continuing efforts to enhance operational reliability and capture commercial opportunities throughout our value chain.

Reflecting our vision to be the top performing and most admired refinery in Asia, we have approved Final Investment Decision (FID) for two (2) major upgrading projects totalling USD160 million (approximately RM700 million*).

The first project, EURO 4M Mogas, allows the refinery to produce EURO 4M Mogas economically and subsequently, EURO 5, both of which are required to meet specifications mandated by the Malaysian authorities.

The second project, ATLAS II, enables the continued and efficient operation of the top dome and catalyst separation system of the Long Residue Catalytic Cracker Unit’s (LRCCU) regenerator reactor, which will be reaching its end-of-life parameters in 2018.

Work for ATLAS II will commence during the scheduled major statutory turnaround (MTA) in August 2018. The MTA is undertaken in compliance with the legislative requirements of the Department of Occupational Safety and Health (DOSH) Malaysia and will focus on ensuring the refinery’s competitiveness, safety and reliability.

Both the MTA and ATLAS II projects, which are expected to be completed by the second half of 2018, are integral to HRC’s contribution towards nation building as well as to fuel our Company’s growth in a dynamic and sustainable manner.

about Shandong hengyuan petrochemical company limitedShandong Hengyuan Petrochemical Company Limited (SHPC)was incorporated in 1997 as an independent oil refinery based in Linyi County, Dezhou City, Shandong Province, China. SHPC operates an independent oil refinery with a production capacity of 3.5 million tonnes per year.

SHPC develops, produces, processes and markets diesel oil, liquefied gas, propylene, propane, polypropylene, tert-butyl alcohol, oil slurry, asphalt, tert-pentene, ethybenzene, and other petroleum-related products. SHPC is one of the Top 100 Leading Enterprises in Shandong and one of the Top 500 Chinese Chemical Enterprises, achieving multiple accolades over the years. SHPC’s Chairman and General Manager, Mr Wang YouDe, was also named ‘One of Ten Outstanding Entrepreneurs in Shandong Province’ and received the ‘Outstanding People Award of National Advancements in Productivity’, amongst many other awards.

Since the successful acquisition of a 51% equity stake in HRC via Malaysia Hengyuan International Limited in December 2016, the synergy between the SHPC Group and our Company has been good. HRC’s business complements the SHPC Group’s existing portfolio, which enables SHPC to establish a strategic presence in Southeast Asia. SHPC continues to support HRC through their experience and technical expertise to ensure that our Company continues to deliver high-performance products and enhance profitability.

our Heritage

* The actual amount may differ depending on the latest currency exchange rate.

Site plot plan highlighting HRC’s major project sites in 2018.

ANNUALREPORT 2017

HENGYUAN REFINING COMPANY BERHAD

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REALISINGOUR VISION

CorPorate inForMation

board of directors

wang youdeChairmanNon-Independent Non-Executive Director

wang ZongQuanDeputy ChairmanNon-Independent Non-Executive Director

lim tau kienSenior Independent Non-Executive Director

alan hamzah SendutIndependent Non-Executive Director

fauziah hishamIndependent Non-Executive Director

liang kok SiangIndependent Non-Executive Director

board audit committee1. Alan Hamzah Sendut (Chair)2. Lim Tau Kien3. Fauziah Hisham4. Liang Kok Siang

board nominating and Remuneration committee1. Lim Tau Kien (Chair)2. Wang YouDe3. Fauziah Hisham

board Risk management committee1. Wang ZongQuan (Chair)2. Alan Hamzah Sendut3. Liang Kok Siang

board projects Review committee1. Wang YouDe (Chair)2. Wang ZongQuan3. Lim Tau Kien

board tender committee1. Wang YouDe (Chair)2. Wang ZongQuan3. Lim Tau Kien4. Fauziah Hisham

Secretarieslim hooi mooi MAICSA 0799764

ong wai lengMAICSA 7065544

auditorspricewaterhousecoopers plt1 Sentral, Jalan RakyatKuala Lumpur Sentral P.O. Box 1019250706 Kuala LumpurTel : 03-2173 1188Fax : 03-2173 1288

Share Registrartricor investor & issuing house Services Sdn bhdUnit 32-01, Level 32, Tower A Vertical Business SuiteAvenue 3, Bangsar SouthNo 8, Jalan Kerinchi 59200 Kuala LumpurTel : 03-2783 9299 Fax : 03-2783 9222

agm help desktricor customer Service centreUnit G-3, Ground Floor Vertical PodiumAvenue 3, Bangsar SouthNo 8, Jalan Kerinchi 59200 Kuala Lumpur

Stock exchange listingMain Board ofbursa malaysia Securities berhadStock Name : HENGYUANStock Code : 4324Sector : IND-PROD (Industrial Products)

Registered officeUnit 30-01, Level 30, Tower A Vertical Business SuiteAvenue 3, Bangsar SouthNo 8, Jalan Kerinchi59200 Kuala LumpurTel : 03-2783 9191 Fax : 03-2783 9111

business addressBatu 1, Jalan Pantai71000 Port DicksonNegeri SembilanTel : 06-647 1311

ANNUALREPORT

2017


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general buSineSS PrinCiPleS

PRIncIPLE 1Economic

Long-term profitability is essential to achieve our business goals and to assure our continued growth. It is a measure of both efficiency and the value customers place on HRC’s products and services. It supplies the necessary corporate resources for the continuing investment that is required to develop and produce future energy supplies to meet customer needs. Without profits and a strong financial foundation, it would not be possible to fulfil our responsibilities. Criteria for investment and divestment decisions include sustainable development considerations (economic, social and environmental) and an appraisal of the risks of the investment.

PRIncIPLE 2competition

HRC supports free enterprise. We seek to compete fairly and ethically and within the framework of applicable competition laws; we will not prevent others from competing freely with us.

PRIncIPLE 3Business Integrity

HRC insists on honesty, integrity and fairness in all aspects of our business and expects the same in our relationships with all those with whom we do business. The direct or indirect offer, payment, soliciting or acceptance of bribes in any form is unacceptable. Facilitation payments are also bribes and must not be made. Employees must avoid conflicts of interest between their private activities and their part in the conduct of Company’s business. Employees are also required to declare any potential conflicts of interest. All business transactions on behalf of HRC must be reflected accurately and fairly in the accounts of the company in accordance with established policies and procedures and are subject to audit and disclosure.

PRIncIPLE 4Political Activities

a. of company

HRC acts in a socially responsible manner within the laws of the countries in which we operate in pursuit of our legitimate commercial objectives. HRC does not make payments to political parties, organisations or their representatives. HRC does not take part in party politics. When dealing with government, HRC has the right and the responsibility to make our position known on any matters which affect us, our employees, our customers, our shareholders or local communities, in a manner which is in accordance with our core values and our Business Principles.

b. of employees

Where individuals wish to engage in activities in the community, including standing for election to public office, they will be given the opportunity to do so where this is appropriate.

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ANNUALREPORT 2017

HengYuan reFining CoMPanY berHaD

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realiSingour ViSion

PRIncIPLE 5Health, Safety, Security and Environment

HRC has a systematic approach to health, safety, security and environmental management in order to achieve continuous performance improvement. To this end, we manage these matters as critical business activities, set standards and targets for improvement, and measure, appraise and report performance externally. We continually look for ways to reduce any negative environmental impact of our operations, products and services.

PRIncIPLE 6Local communities

HRC aims to be a good neighbour by continuously improving the ways in which we contribute directly or indirectly to the general wellbeing of the communities within which we work. We manage the social impact of our business activities carefully and work with others to enhance benefits to local communities and to mitigate any negative impact as a result of our activities. In addition, HRC takes a constructive interest in societal matters directly or indirectly related to our business.

PRIncIPLE 7communication and Engagement

HRC recognises that regular dialogue and engagement with our stakeholders is essential. We are committed to reporting our performance by providing full relevant information to legitimately interested parties, subject to any overriding considerations of business confidentiality. In our interactions with employees, business partners and local communities, we seek to listen and respond honestly and responsibly.

PRIncIPLE 8compliance

We comply with all applicable laws and regulations of the countries in which we operate.

ANNUALREPORT

2017


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FinanCial CalenDar

2017

2018

24 may

Unaudited financial results for the

1st quarter ended 31 March 2017

24 may

58th Annual General Meeting

25 august


2nd quarter ended 30 June 2017

30 november


3rd quarter ended 30 September 2017

27 february


4th quarter ended 31 December 2017

25 april

Notice of 59th Annual General

Meeting

24 may

59th Annual General Meeting

ANNUALREPORT 2017


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notiCe oF 59tH annual general Meeting

notice iS heReby giVen that the Fifty-Ninth Annual General Meeting (agm) of Hengyuan Refining Company Berhad (company) will be held at ballroom 2, Sime darby convention centre, 1a, Jalan bukit kiara 1, 60000 kuala lumpur on thursday, 24 may 2018 at 10.00 a.m. for the following purposes:

agenda

oRdinaRy buSineSS

1. To receive the Audited Financial Statements for the financial year ended 31 December 2017 and the Reports of the Directors and Auditors thereon.[Please refer to Note (a)]

2. To re-elect Mr Wang ZongQuan who is retiring as a director in accordance with Article 81(3) of the Constitution of the Company, and who being eligible, has offered himself for re-election.

(ordinary Resolution 1)

3. To re-elect the following Directors retiring in accordance with Article 81(9) of the Constitution of the Company, and who being eligible, have offered themselves for re-election:-(i) Ms Lim Tau Kien(ii) Mr Alan Hamzah Sendut(iii) Puan Fauziah Hisham(iv) Mr Liang Kok Siang

(ordinary Resolution 2)(ordinary Resolution 3)(ordinary Resolution 4)(ordinary Resolution 5)

4. To re-appoint Messrs PricewaterhouseCoopers PLT as Auditors of the Company until the conclusion of the next Annual General Meeting and to authorise the Directors to fix their remuneration.


Special buSineSSTo consider and if thought fit, to pass the following resolutions:-

5. To approve payment of Non-Executive Directors’ fees and benefits of up to RM2,900,000 for the period from 1 January 2018 until 30 June 2019.[Please refer to Note (b)]


6. authoRity to allot and iSSue ShaReS puRSuant to SectionS 75 and 76 of the companieS act 2016

“that pursuant to Sections 75 and 76 of the Companies Act 2016 and subject to approvals from Bursa Malaysia Securities Berhad for the listing of and quotation for the additional shares so issued and other relevant authorities, where approval is necessary, authority be and is hereby given to the Directors to allot and issue shares in the Company at any time upon such terms and conditions and for such purposes as the Directors may in their absolute discretion deem fit provided always that the aggregate number of shares to be issued shall not exceed 10% of the total number of issued shares of the Company for the time being and that such authority shall continue to be in force until the conclusion of the next AGM of the Company.” [Please refer to Note (c)]


ANNUALREPORT

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notiCe oF 59tH


7. pRopoSed authoRity foR ShaRe buy-back

“that subject to the Companies Act 2016, the Main Market Listing Requirements of Bursa Malaysia Securities Berhad and the approval of all relevant governmental and / or regulatory authorities, the Company be and is hereby authorised to purchase such number of ordinary shares in the Company as may be determined by the Board from time to time on Bursa Malaysia Securities Berhad upon such terms and conditions as the Board may deem fit and expedient in the interest of the Company provided that the aggregate number of shares purchased pursuant to this resolution does not exceed 10% of the total number of issued shares of the Company as quoted on Bursa Malaysia Securities Berhad as at the time of purchase(s) and an amount not exceeding the retained profits of the Company based on the latest audited accounts of the Company for the financial year ended 31 December 2017, at the time of purchase(s).

that such authority shall commence upon the passing of this resolution and shall remain in force until the conclusion of the next AGM of the Company unless earlier revoked or varied by ordinary resolution of the shareholders of the Company in a general meeting.

that upon completion of the purchase by the Company of its own shares, authority be and is hereby given to the Directors of the Company, in their absolute discretion to deal with the shares so purchased in such manner as permitted under Section 127 of the Companies Act 2016 and such authority to deal with such shares shall continue to be valid until all such shares have been dealt with by the Directors of the Company.

and that authority be and is hereby given to the Directors of the Company to take all such steps as are necessary (including executing all such documents as may be required) and to enter into any agreements and arrangements with any party or parties to implement, finalise and give full effect to the aforesaid with full powers to assent to any conditions, modifications, variations and/or amendments (if any) as may be imposed by the relevant authorities and to do all such acts and things as the Directors may deem fit and expedient in the interest of the Company.”[Please refer to Note (d)]


8. pRopoSed Renewal of ShaReholdeRS’ mandate foR RecuRRent Related paRty tRanSactionS of a ReVenue oR tRading natuRe

“that subject to the Bursa Malaysia Securities Berhad Main Market Listing Requirements, approval be and is hereby given for the Company to enter into recurrent related party transactions of a revenue or trading nature with the related parties as set out in Section 2.2.2 of the Circular to the Shareholders dated 25 April 2018 which are necessary for day-to-day operations and are carried out in the ordinary course of business on terms which are not more favourable to the related parties than those generally available to the public and are undertaken on arms’ length basis and not to the detriment of minority shareholders.


ANNUALREPORT 2017


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that the authority conferred by such mandate shall commence upon the passing of this resolution and continue to be in full force until:

(a) the conclusion of the next AGM of the Company at which time this shareholders’ mandate will lapse, unless by a resolution passed at the next AGM, the mandate is renewed;

(b) the expiration of the period within which the next AGM is required to be held pursuant to Section 340(2) of the Companies Act 2016 (the Act) (but must not extend to such extension as may be allowed pursuant to Section 340(4) of the Act); or

(c) revoked or varied by resolution passed by the shareholders in a general meeting;

whichever is the earlier;

AND THAT the Board of Directors be and is hereby authorised to complete and do all such acts and things as it may consider expedient or necessary (including executing such documents as may be required) to give effect to the transactions contemplated and/or authorised by this mandate.”

9. To transact any other business of the Company of which due notice shall have been given.

The Ordinary Resolution 11 and Ordinary Resolution 12 have been requisitioned under Section 322 and Section 323(2)(b) of the Companies Act 2016 by shareholders of the Company.

The Ordinary Resolution 11 and Ordinary Resolution 12 set out in this Notice are not endorsed by your Directors. your directors consider that ordinary Resolution 11 and ordinary Resolution 12 are not in the best interests of the company as a whole, and recommend that you vote against ordinary Resolution 11 and ordinary Resolution 12 for the reasons set out in the explanatory note (e).

ReQuiSition to moVe and Vote on ReSolutionS ReQuiRing Special notice puRSuant to Section 322 of the companieS act 2016

(i) To approve a final single tier dividend of 43.5 cents per share in respect of the financial year ended 31 December 2017.

(ii) To approve a formal dividend policy of allocating at least 15% of the Company’s profit after tax, excluding exceptional items to be distributed to its shareholders as dividend payment.

[Please refer to Note (e)]



by oRdeR of the boaRd

Lim Hooi Mooi (MAICSA No. 0799764)Ong Wai Leng (MAICSA No. 7065544)Company Secretaries

Dated this 25th day of April, 2018 Kuala Lumpur

ANNUALREPORT

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notes:-

1. Pursuant to Section 334 of the Companies Act 2016, a member of a company shall be entitled to appoint another person as his proxy to exercise all or any of his rights to attend, participate, speak and vote at a meeting of members of the company. A member may appoint more than one (1) proxy in relation to a meeting, provided that the member specifies the proportion of the member’s shareholdings to be represented by each proxy.

2. Where a Member of the Company is an exempt authorised nominee who 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.

3. Where an exempt nominee appoints two (2) or more proxies, the proportion of shareholdings to be represented by each proxy must be specified in the instrument appointing the proxies.

4. A proxy need not be a Member of the Company. There shall be no restriction as to the qualification of the proxy.

5. 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.

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

7. 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 Company’s Share Registrar’s Office situated at Unit 32-01, Level 32, Tower A, Vertical Business Suite, Avenue 3, Bangsar South, No. 8, Jalan Kerinchi, 59200 Kuala Lumpur or its Customer Service Centre at Unit G-3, Ground Floor, Vertical Podium, Avenue 3, Bangsar South, No. 8, Jalan Kerinchi, 59200 Kuala Lumpur not less than 48 hours before the time for holding the AGM or adjourned meeting.

8. Only an originally signed proxy form deposited at Tricor Investor & Issuing House Services Sdn Bhd, will entitle the proxy holder to attend and vote at the AGM. photocopies of signed proxy form will not be accepted for the purposes of the AGM. Additional proxy forms are available to Members upon request in writing to the Company.

9. The Date of Record of Depositors for the purpose of determining Members’ entitlement to attend, vote and speak at the AGM is 17 May 2018.

explanatory notes:

a. agenda no. 1

This item is meant for discussion only. The provisions of Section 340(1)(a) of the Companies Act 2016 require that the audited financial statements and the Reports of the Directors and Auditors thereon be laid before the Company at its AGM. As such, this agenda item is not a business which requires a resolution to be put to vote by shareholders.

b. ordinary Resolution no. 7

This resolution is to facilitate payment of Non-Executive Directors’ fees and benefits for the period from 1 January 2018 to 30 June 2019 (the due date for which the next AGM should be held). In the event the Non-Executive Directors’ fees and benefits proposed are insufficient (e.g. due to more meetings or enlarged Board size), approval will be sought at the next AGM for additional fees to meet the shortfall.

Directors’ benefits include allowances for travel and training programmes for Directors and other emoluments payable to Directors and in determining the estimated total, the Board had considered various factors including the number of meetings for the Board and Board Committees which covers the period from 1 January 2018 to 30 June 2019 (the last date by which the next AGM should be held).

c. ordinary Resolution no. 8

The proposed Resolution No. 8 is to provide flexibility to the Company to issue new securities without the need to convene a separate general meeting or meetings to obtain its shareholders’ approval so as to avoid incurring additional cost and time. The purpose of this general mandate is for any fund-raising exercise or exercises including but not limited to further placement of shares for the purpose of funding current and / or future investment projects,

notiCe oF 59tH


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working capital, repayment of bank borrowings, acquisitions and / or for issuance of shares as settlement of purchase consideration. Should the mandate be exercised, the Directors will utilise the proceeds raised for working capital or such other applications they may in their absolute discretion deem fit.

d. ordinary Resolution no. 9

The proposed Resolution No. 9, if passed, will empower the Directors to purchase, on behalf of the Company, up to 10% of the total number of issued shares of the Company by utilising the funds allocated which shall not exceed the retained profits of the Company. This authority, unless revoked or varied at a general meeting, will expire at the conclusion of the next AGM of the Company.

For further information, please refer to the Share Buy-Back Statement dated 25 April 2018 accompanying the Company’s Annual Report for the financial year ended 31 December 2017.

e. ordinary Resolutions no. 11 and 12

Statement by the board

The Ordinary Resolutions No. 11 and 12 propose to approve a final single tier dividend of 43.5 cents per share in respect of the financial year ended 31 December 2017 and a formal dividend policy of allocating at least 15% of the Company’s profit after tax, excluding exceptional items to be distributed to its shareholders as dividend payment.

Pursuant to Sections 131 and 132 of the Companies Act 2016, the Board wishes to highlight that the distribution of dividend to shareholders can only be made if the following conditions are met:

– the distribution of dividend can only be made out of the Company’s profits available if the Company is solvent;

– the Directors must authorise the distribution of dividend before it is made by the Company to its shareholders; and

– the distribution of dividend can only be made if the Directors are satisfied that the Company will be solvent and is able to pay its debts as and when the debts become due within twelve months immediately after the distribution of dividend is made to its shareholders.

Having considered the proposal and conducted a solvency test on the Company by taking into account the liquidity and cash flow projection of the Company for a period of 12 months, the Board has formed the view that the Company may not be able to satisfy the solvency position within 12 months following the proposed distribution of dividend if it is made to the shareholders and hence, any distribution of dividend of such a quantum will be in contravention of Sections 131 and 132 of the Companies Act 2016.

Recommendation

For the reasons stated above, the Board considers that the Ordinary Resolution 11 and Ordinary Resolution 12 are not in the best interests of the Company as a whole, and therefore recommends that you vote against Ordinary Resolution 11 and Ordinary Resolution 12.

StateMent aCCoMPanYing notiCe oF annual general Meeting(PURSUANT TO PARAGRAPH 8.27(2) OF THE MAIN MARKET LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD)1. There is no person seeking election as director of the Company at this Annual General Meeting.

2. general mandate for issue of securities

Kindly refer to the Explanatory Notes on Special Business - Authority to Allot and Issue Shares Pursuant to Section 75 and 76 of the Companies Act 2016 under Explanatory Note (c) of the Notes to the Notice of the Fifty-Ninth Annual General Meeting. ANNUAL

REPORT 2017


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a Stronger teaM

18.2% Workforce growth in 2017

Achieved Better Board Composition and Leaner Board with diverse experience

349 Employees in Total at March 2018 (excluding contract staff)

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7 5

2016 2017

Better Female to Male ratio

GrowBuild our reputation

$ SmartManage financial risk,maximise refinery marginsand deliver structuralcost reductions

Safe & ReliableSafeguard asset integrityand deliver continuousand sustainable QHSSE & SP excellence

People FirstBecome an Employer ofChoice by deliveringa complete EmployeeValue Proposition

SustainableFutureDedicate resources to achieveand maintain statutory compliance as well as operational efficiency

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Rise TogetherEngage with stakeholdersclosely and continuously toform new networks and relationships

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STRATEGIc PRIORITIES FOR 2017

boarD oF DireCtorS

aS we enter a new era oF growtH, new DireCtionS HaVe been Set anD new CHangeS MaDe to Create a leaner anD More engageD boarD

mr wang youdeChairmanNon-Independent Non-Executive Director

mr wang ZongQuanDeputy ChairmanNon-Independent Non-Executive Director

ms lim tau kienSenior Independent Non-Executive Director

mr alan hamzah SendutIndependent Non-Executive Director

pn fauziah hishamIndependent Non-Executive Director

mr liang kok SiangIndependent Non-Executive Director

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ANNUALREPORT 2017


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wang youdeChairmanNon-Independent Non-Executive Director Age 55 - Chinese, Male

Date of appointment22 December 2016

Academic Qualification Master’s Degree in Business Management from Nankai University, Tianjin, China.

Experience• ChairmanoftheBoardandGeneralManager,

Shandong Hengyuan Petrochemical Company Limited (2001-present)

• ExecutivePresidentoftheChinaChamberof Commerce for the Petroleum Industry (2017-present)

• VicePresidentoftheChinaChamberofCommerce for the Petroleum Industry (2007-2017)

• DeputyMayor,LinyiCounty(2001-2013)• Representativeofthe12th National People’s

Congress of the People’s Republic of China (2013)

Directorship in other Listed Issuers / Public companies None

Membership of Board committees in HRc:• ChairofBoardProjectsReviewCommittee•ChairofBoardTenderCommittee•MemberofBoardNominatingandRemuneration

Committee

wang ZongQuan Deputy ChairmanNon-Independent Non-Executive Director Age 55 - Chinese, Male

Date of appointment22 December 2016

Academic Qualification Degree in Chemical Machinery, Chengdu Institute of Water Conservancy and Hydropower Survey and Design

Experience• DeputyGeneralManager,ShandongHengyuan

Petrochemical Company Limited (2002-present)• 14yearsofexperienceinrefining,units

installation and management departments of the petrochemical business in Shandong

Hengyuan Petrochemical Company Limited including as Head of the Equipment Control department of an installation engineering company within the Group (1988-2002)

Directorship in other Listed Issuers / Public companiesNone

Membership of Board committees in HRc:• ChairofBoardRiskManagementCommittee•MemberofBoardProjectsReviewCommittee•MemberofBoardTenderCommittee

boarD oF DireCtorS’ ProFile

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0403

alan hamzah SendutIndependent Non-Executive Director Age 58 - Malaysian, Male

Date of appointment25 May 2017

Academic Qualification• BachelorofScience(Honours)Degreein

Accountancy and Computer Science, University of Wales, Aberystwyth, United Kingdom

• QualifiedasaMemberoftheInstituteofCharteredAccountants in England and Wales (1986)

• CharteredAuditCommitteeDirector,TheInstituteof Internal Auditors Malaysia

• MemberoftheMalaysianInstituteofAccountants

Experience• 35 years of finance and business experience

across multiple industries• 25 years in C-Suite/Senior Manager roles

in companies involved in motor and heavy equipment distribution, manufacturing, plantation, corporate strategy, corporate finance, and mergers and acquisitions, including:– Group Finance Director, Tractors Malaysia

Holdings Berhad– Group Finance Director, Consolidated

Plantations Berhad– Executive Vice President, Group Corporate

Finance, Strategy and Business Development, Sime Darby Berhad

– Managing Director, Energy and Utilities (Non China) Division, Sime Darby Berhad

• Served with PriceWaterhouse, London, United Kingdom

Directorship in other Listed Issuers / Public companiesHong Leong Islamic Bank Berhad

Membership of Board committees in HRc:• ChairofBoardAuditCommittee• MemberofBoardRiskManagementCommittee

lim tau kienSenior Independent Non-Executive Director Age 62 - Malaysian, Female

Date of appointment25 May 2017

Academic Qualification• UniversityofGlasgowFacultyofLaw• MemberoftheInstituteofChartered

Accountants of Scotland• MemberoftheMalaysianInstituteofAccountants

Experience•25yearsinSeniorManagementpositionsinthe

Royal Dutch Shell Group, including as Country Chief Financial Officer, Finance Director and Country Controller of Shell Companies of China

•CharteredAccountant,ErnstandYoungUK•FederalAccountant,MinistryofFinanceand

Prime Minister’s Department• VicePresident,InstituteofInternalAuditors

Malaysia and Oil and Gas Financial Management Association Malaysia

Directorship in other Listed Issuers / Public companies• HongLeongFinancialGroupBerhad• MalaysianPacificIndustriesBerhad• UEMGroupBerhad

Membership of Board committees in HRc:• ChairofBoardNominatingandRemuneration

Committee•MemberofBoardAuditCommittee•MemberofBoardProjectsReviewCommittee•MemberofBoardTenderCommittee

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ANNUALREPORT 2017

HengYUan reFInIng CoMPanY BerHaD

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fauziah hishamIndependent Non-Executive Director Age 62 - Malaysian, Female

Date of appointment1 June 2017

Academic QualificationAssociate member of the Institute of Chartered Secretaries & Administrators, United Kingdom

Experience• Over30yearsofexperienceinthebanking

industry with various leadership roles, including as:– Chairman of the Board of Directors,

J.P. Morgan Chase Bank Berhad (October 2014-March 2018)

– Country Group Representative & Executive Director, Institutional Banking, Australia & New Zealand Banking Group Ltd

– Managing Director, Strategic Client Coverage Group, Standard Chartered Bank Malaysia Berhad

– Chief Executive Officer, J.P. Morgan Chase Bank Berhad (2002-2006)


Membership of Board committees in HRc:•MemberofBoardAuditCommittee• MemberofBoardNominatingandRemuneration

Committee•MemberofBoardTenderCommittee

note: Unless otherwise stated, all Directors have no family relationship with any other Director and/or major shareholder of our Company. They have no conflict of interest with our Company and have not been charged with any offence within the past 10 years.

liang kok SiangIndependent Non-Executive Director Age 62 - Malaysian, Male

Date of appointment1 June 2017

Academic Qualification• BachelorofScience(Honours)Degreein

Chemistry, University of Malaya•MemberofInstitutKimiaMalaysia

Experience• 35yearswithShellMalaysia,includingas:

– Managing Director, Shell MDS (2016) – Director and General Manager, Marketing and

Commercial, Shell MDS (2001-2016).– Founder and General Manager, BonusLink

(1997-2001) – Various commercial leadership positions in

the Retail, Lubricants and Chemicals businesses (1981-1997)


Membership of Board committees in HRc:• MemberofBoardAuditCommittee• MemberofBoardRiskManagementCommittee

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ManageMent teaM

10

07

0805

0309

04 1106

02

01

david keat Chief Executive Officer

foo ai li Chief Financial Officer Chief Human Capital Officer

Zulhazmi bin mohamad Chief Projects Officer

william chen Jung huei Chief Commercial Officer

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03

04

02

Johan bin Jainudin Senior Manager, Technology

Zackaria bin abdulah Manager, Quality and HSSE

Sudhakaran ayyappan Manager, Contracts and Procurement

Shalina binti Sabtu Manager, Human Resource

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07

08

06

low peng peng Chief Assurance Officer Senior Legal Counsel

nur izatul fitri binti hussein Chief Internal Auditor

Surya gunawan bin Suharman Manager, Corporate Affairs and Government Relations

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ANNUALREPORT 2017

HengYUan reFInIng CoMPanY BerHaD

ManageMent teaM’S ProFile

01 david keat Chief Executive Officer Age 57 - New Zealander, Male

appointed with effect from

March 2018

experience

David holds Degrees in Chemical Engineering (Chemical and Materials) and Science (Chemistry) in University of Auckland, New Zealand and has 33 years of experience in the oil and gas industry.

He began his career with Shell in the New Zealand Refining Company Ltd in 1985. Since then, he has held a wide range of operational, technical, project and executive roles in oil refining, gas and Gas to Liquids in New Zealand, Oman, Abu Dhabi, the Netherlands and Malaysia. He was Refining Manager in New Zealand, Vice President Technical Support in a large sour gas plant in Abu Dhabi and SMDS Operations Manager in Bintulu, Malaysia. Other significant roles have been in Operations, Technology, IT, E&S and Major Projects.

He was appointed as Chief Operation Officer on November 2017 before he accepted his current role.

02 foo ai li Chief Financial Officer (CFO) Chief Human Capital Officer (CHCO) Age 42 - Malaysian, Female


February 2017 (CFO) / March 2018 (CHCO)

experience

Ai Li holds a Degree in Accounting from Lincoln University, New Zealand and is a member of the Institute of Chartered Accountants Australia and New Zealand and of the Malaysian Institute of Accountants.

She joined Shell in 2002 after three years of external audit exposure, garnering invaluable experience in six years of regional treasury and five year of statutory reporting, hydrocarbon management and information technology. She also held a global role overseeing 300 staff in Shell’s finance operations managing billing for the Royal Dutch Shell Group. Ai Li was the General Manager, Finance in Shell MDS Sdn Bhd overseeing the finance functions for manufacturing and marketing until she rejoined the Port Dickson refinery in 2016.

04 william chen Jung huei Chief Commercial Officer Age 45 - Taiwanese, Male


April 2017

experience

William holds a Master’s in International Business Management from Soochow University, Taiwan.

He began his career with Formosa Plastics Group, Taiwan in 1999, and has over 18 years of commercial experience including being a crude oil trader, a trading manager of naphtha supply and a general manager of petrochemical feedstocks.

03 Zulhazmi bin mohamad Chief Projects Officer Age 47 - Malaysian, Male


March 2018

experience

Zulhazmi holds a Bachelor of Electrical Engineering (Hons) from the University of Southampton, UK.

He joined the Company in 1994, and has held multiple jobs in projects, engineering, and maintenance over the last 24 years, including the detailed design and construction of the state-of-the-art Long Residue Catalytic Converter Unit (LRCCU) project. He was also involved in the design, construction, commissioning and start-up of HIJAU complex for HRC in Port Dickson. He was the HRC Engineering Senior Manager since 2011 and was appointed as Chief Projects Officer in 2018.

In his current role, he will be overseeing several major projects in HRC such as Project E4M Mogas, Major Turnaround 2018 (MTA 2018), ATLAS II and the Jetty expansion.

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06 Zackaria bin abdulah Manager, Quality and HSSE Age 38 - Malaysian, Male


November 2012

experience

Zackaria holds a Bachelor of Environmental Sciences & Management (Hons) from the University of Malaya, and is a Certified ISO 14001 Lead Auditor by IRCA. He has over 15 years of experience in the field of HSSE and Quality Assurance, with expertise in HSSE regulatory compliance, management systems, incident investigation and emergency response.

Prior to joining HRC, he was with Schlumberger, BP, Accenture and Dutch Lady in various capacities, including senior roles at site level, corporate and consulting.

05 Johan bin Jainudin Senior Manager, Technology Age 40 - Malaysian, Male


February 2012

experience

Johan has a Degree in Chemical Engineering from University of Manchester Institute of Science and Technology (UMIST), UK, and is a Chartered Engineer of the Institution of Chemical Engineers and Engineering Council, UK. He has 19 years of experience in the oil and gas industry.

He started his career with PETRONAS in 1999 and served 17 years in the refining industry with various roles in technical services, production and major project design and commissioning. He also held a strategic planning role for two years where he worked on group-level strategy projects.

07 Sudhakaran ayyappan Manager, Contracts and Procurement Age 54 - Malaysian, Male


June 2016

experience

Sudhakaran joined Shell in 1990 and began his career as a Lab Analyst at the Luboil Blending Plant. After six years, he was made Senior Operations Superintendent and was part of the successful LRCCU start-up team. In 2003, he served in the Contracts and Procurement team overseeing the implementation and improvement of turnaround and maintenance contracts. In 2012, he was made Regional Procurement Manager for Equipment Category overseeing Shell Manufacturing East Sites in Malaysia, Singapore and the Philippines before accepting his current role in 2016.

08 Shalina binti Sabtu Manager, Human Resource Age 45 - Malaysian, Female


December 2015

experience

Shalina holds a Bachelor of Management Information Systems (Hons) from Leeds University, UK.

She joined Shell Malaysia in 1996 as an IT Executive. Her career in Human Resource began when she took on the role as the Local Services Manager, responsible for setting up the HR Shared Services Centre in Kuala Lumpur, managing local services that covered remuneration and benefits for Shell Malaysia. She subsequently joined Shell Malaysia’s Enhanced Oil Recovery Centre as the HR Account Manager before accepting her current role.

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09 low peng peng Chief Assurance Officer (CAO) Senior Legal Counsel (SLO) Age 45 - Malaysian, Female


July 2017 (SLO) / March 2018 (CAO)

experience

Peng has a Master’s Degree in Commercial Law (LL.M) from the University of Wales, College of Cardiff. She has 20 years of experience as a practising lawyer and in-house legal counsel.

She was admitted as a member of the Honourable Society of Lincoln’s Inn and was called to the English Bar in 1996 and is a qualified advocate and solicitor of the High Court of Malaya. She worked as a litigator and due diligence lawyer early in her career, before joining Tanjong Public Limited Company, which was listed on the London Stock Exchange and the Malaysian Stock Exchange, for nearly 10 years with her last position being Senior Manager, Legal. Prior to joining HRC, she was the Legal Counsel of Ranhill WorleyParsons Sdn Bhd, a joint venture company involved in the oil and gas business.

10 nur izatul fitri binti hussein Chief Internal Auditor Age 35 - Malaysian, Female


February 2018

experience

Izatul holds a Bachelor’s Degree in Accountancy (Hons) from Universiti Utara Malaysia. She is a Certified Internal Auditor and Chartered Accountant who has over 12 years of extensive and varied experience in internal and external audits, business process risk, and management audits.

She is a Chartered Member of the Institute of Internal Auditors Malaysia and member of the Malaysian Institute of Accountants. She began her career as a consultant at Ernst & Young Advisory Services Sdn Bhd. She later joined several public listed companies from diverse industries as an Internal Auditor and Risk Management Officer, specialising in financial and operational audit, corporate governance, enterprise risk management, project management review and fraud investigation.

11 Surya gunawan bin Suharman Manager, Corporate Affairs and Government Relations Age 42 - Malaysian, Male


December 2017

experience

Surya holds a Bachelor of Mass Communications (Hons.) from the University Technology of MARA, Malaysia and is a member of the Intelligent Transportation Society of Malaysia. He is a communications professional and corporate planner with over 18 years of experience in corporate development, stakeholder management, and strategic business planning.

He has served UEM Group Berhad, Puncak Niaga Holdings Berhad, DRB-Hicom Group Berhad and CLIQ Energy Berhad in various capacities such as Senior Manager, General Manager and Head of Corporate Communications. Prior to his appointment with HRC, he was Director of Communications for Sedania Innovator Berhad.

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ANNUALREPORT

2017


on a PoSitiVe traCk

Shareholders’ Funds

+77%

Earnings Per Share

+177%

Sales Volume

+5%

Energy Intensity Index Improvement

+2%Production Volume

2017

39.7 mln/bbl2016

37.5 mln/bbl

PRODUcT SLATE

5% LPG

2% Propylene

2% Light Naphtha

31% Gasoline

7% Avation Fuel

45% Diesel

8% Fuel Oil Component

PRODUCTSLATEYIELD

wang YouDeChairman

CHairMan’S StateMent

”2017 was a very positive year for HrC, with higher production numbers and improved plant reliability. our continuous improvement on safety also enabled us to reach 2 million man hours without lost time injury at the end of 2017.”

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ANNUALREPORT 2017

HenGYUan reFininG coMpanY BerHaD

builDing a Stronger teaM

DEAR SHAREHOLDERS,

2017 has been a monumental

year for HRC, surpassing the

previous year’s performance with

an improved yield of close to

40 million barrels and a profit after

tax of RM930 million.

Following the transition in December

2016, the Company’s indirect majority

shareholder, Shandong Hengyuan

Petrochemical Company Limited

(SHPC), has provided critical support

and guidance to HRC through its

local entity to complement the

oversight and governance of the

Board of Directors.

Notable initiatives include the implementation of HRC’s margins optimisation programmes, the execution of projects for the future sustainability of HRC and loan refinancing with improved terms for the Company’s working capital requirements.

To all our shareholders, I humbly thank you for supporting HRC. We are also pleased to assure our stakeholders of our continuing efforts to meet our economic, environmental and social sustainability goals, whilst optimising our financial position to achieve a sound long-term return on investment.

I would like to share below some of HRC’s experiences and achievements in 2017. Overall, we focused on employee retention, talent management, safe and reliable operations and production improvement. We also worked tirelessly on our projects.

Safety and opeRational peRfoRmanceIn the plant operations, we continued our rigorous focus on Health, Safety, Security and Environment (HSSE) compliance and the improvement of operational reliability and financial resilience to capture good refining margins. We took time to enhance employee awareness and ownership of responsibility and to monitor adherence to safety policies, standards and procedures. Particular attention was paid to highlighting potential incidents and using these as learning experiences for employees and contractors as part of our strategic preventive approach.

PRODUcTIOn & RELIABILITYOperational Availability

MARGIn & FInAncIAL PERFORMAncESales Volume

RETURn On InVESTMEnTEarnings Per Share

97.4%

310sen

41.1million barrels

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ANNUALREPORT

2017


CHairMan’S StateMent

Through the reliability programmes implemented previously, HRC was able to achieve stable production, which enabled us to deliver on our sales volume commitment and more importantly, take advantage of market-driven spikes in refining margins during Quarter 3, 2017. Steps are currently being taken to improve our success further in this area. We were also able to achieve substantial plant reliability improvement by reducing our Unplanned Down Time (UPDT) from 7.2% in 2016 to 2.3% in 2017 as a result of our continued emphasis on process safety, plant reliability and product optimisation.

ouR people, ouR aSSetSDuring the transition period, there were concerns on employment certainty and changes in remuneration. I am pleased to share that in addition to addressing and alleviating these concerns, more than 30 new employees were recruited, mainly in the finance, human resource, contracting and procurement and engineering departments, to further strengthen these functions.

I would like to take this opportunity to record my appreciation of HRC employees who have worked with much determination and dedication to sustain operational and production quality. These great efforts have enabled HRC to deliver an uninterrupted supply of petroleum products to Malaysia and beyond. A more detailed analysis of our performance in 2017 is elaborated in the Management Discussion and Analysis (MD&A) section of our annual report.

Our human resource team continues to focus on talent management to help our employees realise and grow their potential to meet complementing objectives of both individual and Company. In 2017, HRC’s Learning and Development Programme was enhanced to ensure that employees are able to gain access to relevant knowledge, training and experience. All of these resulted in very credible performance results that met our operational and financial Key Performance Indicators (KPIs).

futuRe SuStainabilityDuring the year, we took greater strides towards ensuring the future sustainability of HRC. The Board approved the Final Investment Decision for two major projects, namely Euro 4M Mogas and Atlas II. Both projects, described in further detail in our MD&A, are necessary for HRC to produce products profitably in the years to come

The progress of the Euro 4M Mogas Project is monitored closely with weekly and monthly updates to ensure that challenges are dealt with swiftly.

We have also been preparing for the 2018 Major Turnaround and I am pleased to report that its planning and execution and the associated project tie-in works are on track and will be a major focus area for the Company in 2018.

Other projects being looked into include Euro 5 and the Clean Air Regulation which are necessary to meet future regulatory requirements.

diVidend policy2017’s outstanding financial performance has enabled HRC to reduce its external loans in January 2018 and to prepare for the large cash requirements of the projects mentioned above.

HRC staff conducting safety checks .

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ANNUALREPORT 2017

HenGYUan reFininG coMpanY BerHaD

The Board decided to approve the interim dividend of RM0.02 per share after much consideration and deliberation of all information available. The due diligence process included analysing the utilisation of 2017’s cash from operations, which was partially absorbed into working capital requirements due to the increase of oil prices. The positive cash generated was also used to make a partial repayment of our existing term loans in January 2018, thus lowering HRC’s interest expense. Further, cash balances were ringfenced to secure HRC’s longer-term future, as significant capital expenditure will be required to implement projects for statutory compliance on product quality

The Board also considered whether the solvency test and dividend distribution requirements set by the Companies Act 2016 were met. To fulfil the requirements, HRC has to ensure that its operational cash requirements for the next 12 months after payment of the dividend, including capital expenditure, operational expenses, working capital and loan repayment obligations, are sufficient. Additionally, the Board took cognisance of the uncertainty of oil prices and refinery margins, which have a high impact on our solvency and cash position.

Given these factors and the Board’s duty to ensure the solvency of the Company as well as HRC’s intention to achieve sustainable long-term return to shareholders, the Board decided on an interim dividend of RM0.02 per share for the financial year ended 31 December 2017. The Company has not issued a dividend for a number of years and we see this as a declaration in good faith whilst safeguarding the cash requirements of the Company.

The Board will continue to uphold its responsibility to protect the Company and its stakeholders in its consideration of future dividends.

looking aheadWe expect volatile refining margins in the year ahead. While our hedging policies are aimed at reducing refining margins volatility to a certain extent, we hope to counteract losses and gain momentum by leveraging on the experiences of SHPC and our strategic partners.

I am grateful to our Board, the Management Team and employees, who are the backbone of HRC, for their steadfast dedication, loyalty and trust. Our Integrated People Plan continues to support our human capital development so that we are well prepared for the projects and challenges ahead. We will also proceed with our plans to implement forward-looking strategies, progress critical projects and search for opportunities to grow our business.

The support of our stakeholders, including our shareholders, investors, business partners, regulators, federal and local authorities, neighbours and communities are essential to our ongoing improvement and sustainability.

We are confident that the combination of our history, experience and track record, together with the full commitment of HRC’s Board, Management Team and employees, will allow us to advance unwaveringly in our journey forward.

Warm regards,

wang youdeChairman

HRC Marine Captain overseeing Jetty activities.

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