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MESSAGE FROM THE MANAGING DIRECTOR

Welcome to The Khazanah Report 2016 (TKR 2016), the fifth annual edition of The Khazanah Report since the inaugural one in 2013. After five years, the publication of the report has become an institutionalised component of our practices in transparency and accountability, as we continue to build true value for Malaysia.

TAN SRI Dato’ Azman Mokhtar
Managing Director
Khazanah Nasional Berhad

The theme of TKR 2016 is Sharing True Value, which takes our value creation activity to its end point of value distribution. The theme is reflected in the design and elements that constitute the report, which we hope you will find useful and informative.

2016 was a volatile year, and in line with weakness in most benchmark equity markets and currencies, Khazanah’s portfolio Net Worth Adjusted (NWA) declined slightly, posting an unrealised decrease of 6.2% to RM102.1 billion as at 31 December 2016. The weak conditions notwithstanding, we recorded stronger Profit Before Tax of RM1.57 billion, an increase of 33% over the previous year. The overall uptrend in our portfolio NWA since May 2004 remained intact, with a compounded annual growth rate (CAGR) of 9.3% per annum. Fundamentally, long-term value creation across our financial, economic, strategic and societal activities progressed unabated. Despite the challenging operating environment, we continued to support domestic growth, drive further internationalisation including among investee companies, and maintain a strong focus on new sources of growth such as innovation and technology. Alhamdulillah.

A major milestone in 2016 was Iskandar Malaysia celebrating its 10th anniversary amidst continued growth and development.

Over the 10 years, there has been much progress to both be thankful for and to serve as inspiration for everyone involved to drive Iskandar Malaysia forward. Our catalytic investments there in the leisure & tourism, education, wellness, creative industries, property development sectors, among others, continued to show further progress. We have also committed RM71 million for social development initiatives in Iskandar Malaysia, in the areas of affordable housing, capacity building, entrepreneurship development and livability enhancement. In conjunction with the 10th anniversary, several events were held including Iskarnival 2016, which comprised three uniquely themed festivals showcasing culture, arts and creativity in Iskandar Puteri.

Tan Sri Azman sharing a light moment with a child during Iskarnival Naratif 2016 at Mall of Medini in Iskandar Puteri, Johor. The event was one of three Iskarnival festivals held in conjunction with the Iskandar Malaysia 10-year Anniversary celebrations.

Additionally on the domestic front, Khazanah’s investee companies launched several key projects, including the launch of KLIA Aeropolis by Malaysia Airports and Telekom Malaysia’s Broadband Improvement Plan. We also further enhanced our support for Malaysia as a centre for Islamic Finance, issuing a USD750 million straight sukuk and a USD399 million sukuk exchangeable into Beijing Enterprises Water Group Limited shares.

In parallel, the five-year 12-point MAS Recovery Plan (MRP) remains on track and on schedule, about half-way through since its launch on 29 August 2014. Another milestone recorded last year was the appointment of Peter Bellew as the Chief Executive Officer of Malaysia Airlines Berhad. There is undoubtedly much to do before Malaysia Airlines can regain its former glory but as it stands, there are encouraging signs that the airline is headed towards full recovery, as both management and employees continue to work hard and hand-in-hand in this great effort.

Globally, Khazanah and our investee companies made further strides in 2016. The Khazanah Europe Investment Limited office in London was officially opened by Prime Minister Dato’ Sri Mohd Najib Tun Abdul Razak. The office extends Khazanah’s international presence, which also includes Beijing, Mumbai, Istanbul and San Francisco. To further create long-term value through multiple sources including new areas of growth, Khazanah made several investments in innovation and technology in the United States, United Kingdom, India, China and Singapore, with funding primarily from recycling gains from our investment in Alibaba Group.

In the drive towards greater performance and enhanced competitiveness, our investee companies also expanded their international reach. These companies include IHH Healthcare, which acquired new healthcare assets in Bulgaria, and is developing new hospitals in Myanmar and China; the completion of Tenaga Nasional’s acquisition of stakes in energy producers in Turkey and Bangladesh; the completion of Axiata’s acquisition of Ncell in Nepal and the merger of Robi Axiata and Airtel Bangladesh in Bangladesh; CIMB Group’s strategic partnership with China Galaxy Securities and the award of a banking license to CIMB Bank (Vietnam) Limited; UEM Edgenta’s acquisition of Asia Integrated Facility Solutions in Singapore; and Themed Attractions Resorts & Hotel’s launch of Kidzania Singapore.

A Tan Sri Azman receiving The Edge Billion Ringgit Club’s Value Creator: Outstanding CEO of Malaysia Award

It was also a busy year in terms of our value distribution activities, in which we continued to deliver societal returns through corporate responsibility efforts, primarily led by Yayasan Hasanah. Last year, the Trust Schools Programme saw the addition of 21 schools, bringing the total to 83 schools in 10 states. Meanwhile, Yayasan Khazanah awarded 111 scholarships under its existing scholarship programmes and launched two new scholarships, Rhodes Scholarship, for Malaysia and the Chevening-Khazanah Scholarship.

Khazanah also launched the Taman Tugu Project, which is a public-private-civil society partnership initiative to develop an urban rainforest park in Kuala Lumpur and stitch the urban fabric of the city. Our involvement in the Skim Latihan 1Malaysia (SL1M) Programme continued in 2016, bringing the total spent on the programme since 2015 to RM89 million.

In the area of knowledge, the Khazanah Megatrends Forum 2016 explored the theme of Geography As Destiny: Reaping the Dividends of Good Stewardship, while the 12th Khazanah Global Lecture in 2016 featured Dame Dr Jane Goodall, who gave an inspiring lecture on Caring for the Earth: Reasons for Hope. Meanwhile, Khazanah Research Institute published The State of Households II, which examines the latest available data on the state of Malaysian households, and Climbing the Ladder: Socio-economic Mobility in Malaysia, a study of inter-generational social mobility in Malaysia.

There has clearly been much hard work put into fulfilling the mandate entrusted upon us, and I thank everyone involved for their efforts and the achievements they have made. Khazanah will continue to build and share true value for the nation, as we move forward in the years to come.

Tan Sri Dato’ Azman Mokhtar
Managing Director
Khazanah Nasional Berhad

10 May 2017

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