Managing Director
Khazanah Nasional Berhad

Welcome to The Khazanah Report 2017 (TKR2017), the sixth annual edition of The Khazanah Report since its inaugural publication in 2013. The theme of TKR2017 is Building True Value Towards A Globally Competitive Malaysia, which incorporates two key elements that encapsulate what we do as the strategic investment fund of the Government of Malaysia. To elaborate further, Khazanah endeavours to deliver financial, strategic and societal returns (which we define as true value) for the nation and the rakyat, and in so doing, we play our part in enhancing Malaysia’s overall competitiveness. This is our vision and mission, which you can find out more of in the section that explains the Khazanah mandate in detail.

The theme is reflected in the design and the elements that constitute the report, which we hope you will find useful and informative. We’ve also introduced several new features for TKR2017 to help make the information and content more accessible. These features include a 3-minute video clip on who we are, what we do, our performance and achievements. You can view TKR2017 video clip by simply scanning the QR code above with your mobile device.

Long-term value creation

Alhamdulillah, Khazanah was able to deliver strong financial performance in 2017. Our portfolio Net Worth Adjusted (NWA) rose to a record high of RM115.6 billion as at 31 December 2017, a 13.2% increase from the RM 102.1 billion posted the previous year. This represents long-term growth of 9.6% per annum (CAGR) in portfolio value since 2004, on the back of asset cover of 3.1 times over liabilities. In addition, our profit before tax (PBT) increased 81.3% to RM2.9 billion, bringing the cumulative PBT since 2004 to RM28.0 billion. We also declared dividends of RM1.0 billion for 2017, with cumulative dividends declared since 2004 amounting to RM10.11 billion.

Long-term value creation is integral to our efforts in helping to enhance Malaysia’s global competitiveness. In seeking opportunities across the world, we have broadened our overseas footprint, beginning with our first regional office in Beijing in 2008 to the four others that we have opened since then, the latest being in London in 2016. In addition, we continue to drive the regionalisation and internationalisation of our investee companies, some of whom are now among leaders in their respective industries. Examples include edotco Group Sdn Bhd, which operates 26,000 telecommunication towers across six countries, Axiata Group Berhad, which serves 350 million customers in 11 countries, and IHH Healthcare Berhad, which is one of the largest healthcare groups in the world by market capitalisation. Notably, last year IHH Healthcare saw through the start of operations of new hospitals in Hong Kong and Istanbul, and broke ground for new hospitals in Shanghai and Kuala Lumpur.

Khazanah also makes long-term investments that leverage regional complementarities that benefit both Malaysia and the countries we invest in. A prime example of such strategic investments is our joint development with Temasek Holdings (Private) Limited of the Marina One and DUO projects in Singapore, which were both officially launched in early 2018 and combined, have a total gross development value of SGD11 billion. As you can see in the following pages of this year’s TKR as well as the reports we have issued in the previous years, Khazanah strives to create and deliver financial, strategic and societal value across the geographies that we invest and operate in, be it on the domestic front or overseas.

Through our presence overseas, we have been able to progressively internationalise our investment portfolio, with the overseas exposure of our Realisable Asset Value (RAV) currently accounting for approximately 44.5%. This includes investments that we made in 2017, such as in e-commerce enabler Koubei in China, leading European used car marketplace Auto1 Group, and Internet-of-Things connectivity service provider Sigfox based in France. We also harvested value created from earlier overseas investments, including divestments from asset management company China Huarong, BDO Unibank in the Philippines, and cloud services provider VeloCloud.

On the domestic front, our investee companies were involved in several key projects last year, including the operationalisation of Tenaga Nasional Berhad’s (TNB) Manjung 5 power plant; the launch of Telekom Malaysia Berhad’s (TM) Iskandar Puteri Data Centre at Nusajaya Technology Park, Johor; the joint venture between Malaysia Airports Holdings Berhad (MAHB) and Cainiao Smart Logistics Network to develop an e-commerce hub in KLIA Aeropolis; and partnership between Touch n’ Go, a subsidiary of CIMB Group Berhad (CIMB), with Alipay for mobile wallet solutions. There was also continued progress at Malaysia Airlines Berhad (Malaysia Airlines), which is now into the fourth year of its restructuring plan.

Tan Sri Azman together with Deputy Managing Directors Ahmad Zulqarnain Onn (second left) and Tengku Dato’ Sri Azmil Zahruddin Raja Abdul Aziz (second right), Jiv Sammanthan (far right), Executive Director and Head of Managing Director’s Office and Faridah Bakar Ali (far left), Director, Finance and Chief Financial Officer, at the Khazanah Annual Review 2018 media briefing

Overall, Khazanah and our investee companies continue to support domestic growth, enhance internationalisation, and tap into new growth opportunities, such as innovation and technology. As the strategic investment fund of Malaysia, we continue to play the role of active shareholder in our companies. On the back of the successful Government-Linked Companies Transformation (GLCT) Programme, we are taking a step forward by embarking on Transformation 2.0 (T2.0) to ensure that our investee companies lead their regional peers in performance. T2.0 also serves to transform them to meet challenges of the future, including the disruptive forces that come with the advent of globalisation and rapid technological change namely the 4th Industrial Revolution.

In line with T2.0, we introduced the TIDE (Trending, Innovation, Disruption and Entrepreneurship) Programme last year to further drive the performance of our investee companies. The multi-year programme is a collaborative approach aimed at creating awareness and encouraging the adoption of innovation, disruption and entrepreneurship in company cultures. Besides TIDE Programme for our investee companies, we also launched the Khazanah Nasional Entrepreneurship Outreach (KNEO) to help unearth entrepreneurial Malaysian talent nationwide. More than 700 applications were received for this initiative, which we plan to do on an annual basis. You can find out more about KNEO at www.khazanahneo.com.my. In addition, we continue to further drive responsible investing, specifically through Project Chronos, which seeks to measure the societal impact of our investments in addition to their financial and economic value. You will hear more of this initiative as we roll it out in the near future.

Delivering societal returns

As you well know, Khazanah’s value distribution activities is a key component of our overall mandate, primarily through Corporate Responsibility initiatives undertaken by Yayasan Hasanah as well as Khazanah itself. In 2017, Khazanah and Yayasan Hasanah spent a total of RM233.5 million on CR initiatives, bringing the total spent to RM1.2 billion since 2006. These initiatives include 110 scholarships awarded by Yayasan Khazanah, the Khazanah-Skim Latihan 1Malaysia (SL1M) programme, which saw 4,220 graduates trained in 2017, and the further roll-out of the Yayasan AMIR Trust School Programme to 64 more schools. We also issued a second tranche of RM100 million seven-year Sustainable and Responsible Investment Sukuk, of which RM5 million was designated as a retail portion.

The Sukuk proceeds were used to fund the Trust School Programme. Other social inclusion initiatives implemented in 2017 included the commitment of RM24.0 million towards the execution and delivery of social development initiatives in affordable housing, entrepreneurship development, capacity building and liveability enhancement within Iskandar Malaysia, Johor.

In addition, 2017 saw the establishment of Amanah Warisan Negara, a national trust under which Taman Tugu Project will be placed. Furthermore, the Government allocated an additional 25 acres of adjacent land for the Taman Tugu Project, bringing its total land area to 91 acres. You can follow the progress of the project at www.tamantuguproject.com.my.

(From left) Khazanah Research Institute Managing Director Dato’ Charon Mokhzani; Tan Sri Azman; Datuk Seri Johari Abdul Ghani; and Khazanah Deputy Managing Director Tengku Dato’ Sri Azmil Zaharuddin at the launch of the Khazanah Nasional Entrepreneurship Outreach (KNEO) programme during KMF2017

Tan Sri Azman and students from SK Tabuan at the Hasanah Bersama Rakyat event in Santubong, Sarawak. SK Tabuan is a school under the Trust Schools Programme

A visitor making a pledge to do good deed during the Hasanah Bersama Rakyat event in Iskandar Malaysia

We also held the inaugural Hari Hasanah on 3 September 2017 to encourage Malaysians to contribute time and effort to do good deeds for others, as part of Khazanah’s “Negaraku, Negara Kita” campaign celebrating 60 years of Malaysia’s independence. Over 30,000 people were impacted through more than 300 Hari Hasanah initiatives, including initiatives that were undertaken by our staff, all of whom participated individually or in groups. 2017 also saw the roll-out of Hasanah Bersama Rakyat (HBR), a Hari Hasanah outreach programme for B40 communities in selected regions. The HBR has been held in Iskandar Puteri in Johor, Santubong in Sarawak, Jeli in Kelantan, and Jerlun in Kedah.

Khazanah Research Institute (KRI) continued to provide support for government policy formation through its research on the pressing issues of the nation. In 2017, KRI issued several publications including “Why Trade Matters: Trade Issues in Non-communicable Diseases, Essential Medicines and Education”, the third in a series of reports on international trade and trade policy. KRI also published “Building Social Capital: The George Town Experiment”, which highlights the benefits of a community development fund in alleviating the pressures of social displacements in top-down urban regeneration development.

Khazanah continued to enhance efforts in strengthening institutional integrity, corporate governance and sustainability by adopting and supporting best practices and standards, both at home and internationally. We are respectively, signatory of the Malaysian Code for Institutional Investors spearheaded by the Institutional Investor Council of Malaysia, of which we are a member; the Malaysian Anti-Corruption Commission’s (MACC) Corporate Integrity Pledge; and the United Nations-supported Principles for Responsible Investment. We are also a member of the International Forum of Sovereign Wealth Funds, and FCLTGlobal (Focusing Capital on the Long Term), a not-for-profit organisation that works to encourage a longer term focus in business and investment decision-making. We are also a member of several World Economic Forum (WEF) bodies, including the Stewardship Board of the System Initiative on the Future of Economic Progress and ASEAN Regional Steering Group. In addition, Khazanah was also recognised by Bretton Woods II in its Leaders List of the top 25 Most Responsible Asset Allocators in 2017. Bretton Woods II is an initiative by some of the world’s leading development institutions to promote social impact, sustainability, and good governance in investments.

Institutional integrity and corporate governance are among the key pillars of our continuing institutionalisation efforts, which also includes succession management. At its meeting in December last year, the Khazanah Board of Directors led by Chairman Dato’ Sri Mohd Najib Tun Abdul Razak approved our succession plan, which saw the appointment of two Deputy Managing Directors, Tengku Dato’ Sri Azmil Zahruddin Raja Abdul Aziz and Ahmad Zulqarnain Onn, effective on 1 January 2018. At this juncture, on behalf of the management and staff, I would like to thank Tan Sri Dato’ Seri Utama Nor Mohamed Yakcop for his leadership, guidance and contributions as a member of the Board of Directors and Khazanah Deputy Chairman over a period spanning 15 years until September 2017. Tan Sri Nor, through his role at Khazanah and previous ministerial positions, was instrumental to the success of numerous initiatives, including the revamp and transformation of Khazanah, the 10-year GLC Transformation Programme, the development of various economic corridors including Iskandar Malaysia, as well as the formation of Yayasan Hasanah and Khazanah Research Institute. I would also like to congratulate and welcome Ms Yeo Kar Peng on her appointment to the Board of Directors in December 2017. Ms Yeo brings with her in-depth experience in the financial and capital markets sectors which I’m sure will benefit Khazanah greatly.

Overall, Khazanah has done much in the past year in our effort to uphold and fulfill the various roles and responsibilities we have been entrusted with. This has been made possible through the hard work and contribution by a great many people, including the Khazanah Board, management and staff, our peers and partners, and indeed, all of our stakeholders both in Malaysia and abroad. I would like to thank all who were involved. There is undoubtedly more that needs to be done, and I look forward to continuing our collective effort to build true value for Malaysia and the rakyat.

Tan Sri Datuk Wira Azman Mokhtar
Managing Director
Khazanah Nasional Berhad

1 May 2018

Khazanah Nasional Consulting (Beijing) Company Limited

Khazanah opened the Beijing office in 2008 to build an investment presence in China and participate in the country’s growth story. The Beijing office was Khazanah’s first office established overseas. It also provides a platform for building closer bilateral economic ties between Malaysia and China.

An Overview of an Institution

Khazanah continues to grow as an institution, underpinned by a robust governance and accountability framework. Our Board of Directors, led by our Chairman, Dato’ Sri Mohd Najib Tun Abdul Razak, guides the efforts of our management in executing our mandate.

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