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Integrated Annual Report 2021
Financial Report 2021

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Group Managing Director’s Review

2021 challenged the world’s preparedness for climate change amidst the ongoing pandemic. More than ever, we believe that actions towards becoming a responsible and sustainable business begin now.

Group Managing Director

2020: 323 acres

RM 1,008

2020: RM32 billion

RM 33

2020: RM21.7 billion

RM 27.3

The pandemic control measures and supply chain disruptions contributed to a slowdown of the operations and derailed business plans across most industries and sectors.

  • Year in review

    The year 2021 has proven to be as challenging, if not more so than the previous year, as the pandemic and its subsequent waves of infections once again disrupted economies and threatened livelihoods. The way the year turned out had also run counter to the narrative that the ongoing global vaccination drive would tame the pandemic to a point where a solid economic recovery could take root as normalcy returned. This was due to the emergence of more transmissible variants, which slowed the recovery momentum as many countries, including Malaysia, went into lockdowns to contain the spread of the virus. The discovery of the Omicron variant in late 2021 also threatened to send many countries into further restrictions in 2022.

    In Malaysia, strict COVID-19 movement restrictions were reinstated between the months of June and August 2021 and were more severe than those which took place in 2020, resulting in the closure of whole swathes of the economy, including the construction sector. The impact from the closure of construction sites was fully felt in the third quarter of 2021, which saw a 21% contraction in construction activity despite the low base recorded the year before. At MRCB, while we were better prepared to manage the disruptions to our business considering the pandemic was no longer an “unprecedented” event, it was nevertheless very challenging as movement restrictions prevented us from operating our construction sites for almost 10 weeks. Even when our project sites were reopened, we were impacted by lower productivity in order to comply with Government-mandated restrictions.

    In addition to these challenges, the construction sector continued to be impacted by supply chain related issues that resulted in delays in obtaining building materials, rising prices of materials that impacted costs, as well as shortage of workers due to border restrictions - all of which posed a threat to MRCB’s business. However, we prepared for the reopening of our construction sites by organising a Vaccination Drive to fully vaccinate 1,000 of our employees, and closely monitoring the vaccination status of our remaining employees, resulting in a 100% vaccination rate by the end of 2021. A Booster Drive was also organised for 177 employees, to ensure continued protection against the virus and its variants. We further ensured the safety of our employees by adhering to the Standard Operating Procedures (SOPs), conducting audits at our work sites, and running regular health screenings by distributing Antigen Rapid Test Kits (RTKs) to employees.

    Amidst managing the challenges brought on by the pandemic, the world was also gravely reminded of the urgent need for climate action as a slew of extreme weather disasters hit several countries, leaving many displaced and destitute. In Malaysia, we saw floods destroy towns normally invulnerable to such disasters, with scientists predicting more changes in the size and frequency of heavy precipitation events in the future. We reached out to some of the flood victims, including our employees who were affected, by donating more than RM180,000 in cash and essential items in kind, and sending 150 employees as volunteers to assist in food distribution and cleaning efforts, which involved the mobilisation of lorries, backhoes and water jets to the Johan Setia and Taman Sri Muda areas.

    Apart from efforts to assist flood victims, we also continued to help the poor and the vulnerable hit by the pandemic by contributing approximately RM2.9 million through our charitable arm Yayasan MRCB and MRCB’s corporate social responsibility initiatives to various community development programmes in the year under review.

    During 2021, we continued to push forward our sustainability agenda and set in motion more systemic changes to ensure the Group is driven by transformational change towards creating sustainable value to all stakeholders in the future. This is not only aligned to new requirements introduced in the Malaysian Code on Corporate Governance 2021 (MCCG 2021), but also aligned to the Glasgow Climate Pact announced at the 26th UN Climate Change Conference (COP26), which aims to turn the 2020s into a decade of climate action and support, and which Malaysia has committed to.

  • Key Business Highlights

    In 2021, the Group delivered revenue of RM1.4 billion and a profit before tax of RM61 million compared to a revenue of RM1.2 billion and a loss before tax of RM154 million recorded in 2020. While the year saw a generally weaker operational performance compared to 2020 due to longer mandated construction site closures and restrictions, the higher revenue and profit was largely due to the consolidation of Setia Utama LRT3 Sdn Bhd (SULSB) (formerly known as MRCB George Kent Sdn Bhd), which allowed the Group to recognise 100% of the revenues and profits from the project in the fourth quarter of 2021. In addition, we also saw contributions recorded under other operating income of RM123.7 million in relation to 661.3 acres of land injected into Seri Iskandar Development Corporation Sdn Bhd (SIDEC) as part of a settlement with Perbadanan Kemajuan Negeri Perak, and RM9.9 million, being the net impact arising from the remeasurement of the investment in the LRT3 joint venture and provisional negative goodwill in relation to the acquisition of SULSB.

    Our acquisition of SULSB on 13 October 2021 was a noteworthy achievement, and will allow us to continue to recognise all revenues and profits for the remainder of the project, which is scheduled to be completed in 2024. In 2021, LRT3 contributed profits of RM14.0 million on a consolidated basis in the fourth quarter of 2021 and RM18.8 million in aggregate on an equity accounting basis in the first three quarters of 2021 when it was only 50% owned, and managed to achieve 67% physical construction progress as at 31 December 2021.

    Despite the promising progress of our LRT3 project, our construction sites experienced sporadic closures due to various movement restrictions within the first nine months of 2021, resulting in a complete halt in construction activity. Even when the construction sites were eventually reopened, our Engineering, Construction & Environment Division could only operate at sub-optimal levels due to a lower cap imposed on workforce capacity. Nevertheless, we are targeting to complete the Mass Rapid Transit Line 2 (MRT2) Package V210, Sungai Besi-Ulu Kelang Elevated Expressway (SUKE) and Damansara-Shah Alam Elevated Expressway (DASH) projects in 2022.

    These ongoing restrictions and the general market sentiment have also led to softening prices, and as the property market goes through this market correction we will continue to monitor the situation before any large scale launches are undertaken. This has led us to focus on marketing our portfolio of existing completed unsold units of RM536 million and unsold units under construction from our ongoing projects of RM1 billion as at 31 December 2021. Nevertheless, as the economy continued to suffer in 2021, we continued to see high sales cancellation rates resulting from the negative wealth effect brought about by the uncertainties of COVID-19 and its growing number of variants. This was exacerbated by the banks taking a more stringent approach to credit approvals, leading to many buyers being unable to secure the margin of financing they required. As a counter-measure, we continued to repurpose our marketing budget into assistance packages to assist buyers in becoming homeowners.

    Our ongoing residential developments such as Sentral Suites in KL Sentral, the 9 Seputeh mixed development in Jalan Klang Lama, and Alstonia in Bukit Rahman Putra continued to contribute to our revenue and profit in 2021. We also continued to recognise revenue and profit from our 1060 Carnegie development in Melbourne, Australia, albeit at a much lower rate as the bulk of the units were sold and financially settled in 2020. While our sales galleries were affected by the Government-mandated closures, we continued our strategy of reaching potential customers through our virtual gallery, which saw approximately 9,500 visits, as well as a digital media campaign that leveraged on live webinars and social media. We also continued to engage with our other various stakeholders, managing to reach over 100,000 stakeholders via digital platforms as well as through controlled physical meetings.

    Overall, while 2021 presented us with many challenges, we believe that MRCB is in a good position to move forward, backed not only by a strong balance sheet with a net gearing of 0.28 times, but immediate plans to enhance cashflow by monetising our unsold completed units from our property developments and focusing on construction projects in hand. To date, MRCB continues to have a strong pipeline of property projects with a GDV of RM33 billion across 1,008 acres, and unrecognised future revenue (unbilled sales) worth RM923.0 million that will be recognised in tandem with construction progress of our ongoing property development projects. Our long-term external client construction order book has also expanded by RM5.6 billion following the acquisition of the LRT3 project joint venture company SULB to RM27.3 billion, in which more than 70%, or almost RM20 billion, remains unbilled.

  • Expanding Our Reach

    An important growth principle in our value creation journey is Diversification & Operational Expansion. After years of setting the groundwork to diversify away from the Malaysian market and expanding further into the Australasian market, in March 2021 MRCB was successfully awarded the tender to develop a Transit Oriented Development (TOD) in New Zealand. With a GDV of NZ$452 million, the development comprises a mixture of retail, commercial and residential space that will be built above the City Rail Link Aotea Station in Auckland. This iconic and prestigious project located in a very prime location in Auckland will enable MRCB to leverage its strengths and expertise gained from developing TODs in Malaysia to benefit more than 40,000 residents and the 130,000 people who live and work in the area. Development is set to commence after the completion of the railway station in 2024, and we expect this project to catalyse further growth opportunities for MRCB in New Zealand.

    In further expanding our existing presence in Australia, the Group purchased a 0.766-acre piece of prime land for AUD17 million on the Gold Coast in Brisbane, Queensland with plans to develop a 45-storey high-rise residential apartment development with 280 units. With a GDV of AUD296 million, the development is targeted to commence in the first quarter of 2023 and to be completed in 2025, subject to receipt of all development consents.

    As part of our strategy to move towards sustainable business and leveraging on opportunities brought about by climate change, much research and effort has been put into seeking new markets within the renewable energy space. With the expected growth in household waste and a minimal number of sanitary landfills in Malaysia, which currently only has 21 sanitary landfills, there is an urgent need for alternative ways to treat waste, in an environmentally-friendly manner, and slowly eliminate landfills completely. Waste-to-energy allows us to not only process waste in an efficient and sustainable manner, it also converts waste into a fuel source which is used to generate energy. With landfills requiring large areas of land and releasing methane gas that traps 72 times more heat than CO2, MRCB has earmarked waste-to-energy as a priority area to venture into. As part of our efforts to realise this strategy, we have already identified a suitable project. To date, the technology, which is sourced from Europe and adapted for the higher moisture content in Malaysia’s household waste, has been approved by the Government, and we are awaiting for the service agreement to be finalised.

    In efforts to diversify away from the premium commercial and residential developments we are so synonymous with, we also acquired 22.02 acres of land in Simpang Pulai, Perak, which is 14 km from the city of Ipoh and located next to the Simpang Pulai Rest & Recreation stop along the North-South Expressway. Additionally, 661.3 acres of land was injected into SIDEC on 21 December 2021 as part of a settlement with Perbadanan Kemajuan Negeri Perak (PKNP), bringing the total land size in Simpang Pulai to 683.32 acres. SIDEC was set up in 1997 as a joint venture company between MRCB’s wholly-owned subsidiary, Malaysian Resources Development Sdn Bhd (MRD), and PKNP, with MRD owning 70% equity and PKNP owning the remaining 30%. Subsequently, MRD acquired the 30% equity stake in SIDEC owned by PKNP, making SIDEC a wholly-owned subsidiary of the Group. This land will lay the groundwork for our entry into the industrial and logistics development segment moving forward, a segment of the market where we believe there will be much demand over the next few years from multinational corporations looking for large, strategically located, bespoke developments meeting their sustainability requirements.

    With a rapidly increasing aging population and need for aged-care solutions, MRCB also continues to study building affordable, customised high-rise units specially built to assist the elderly - from safety features to proximity to healthcare and other essential amenities. To date, we have identified sites to pursue this initiative and will continue to work towards developing partnerships to materialise this strategy targeted at this important and growing demographic.

  • Towards Climate Action

    In our 2020 Integrated Annual Report, we announced our resolve to ensure Environmental, Social, and Governance (ESG) matters would be at the forefront of our conversations. We reaffirm this commitment and have worked hard in 2021 to better integrate sustainability into our business. We maintained our standing as a member and active contributor to the United Nations Global Compact (UNGC) CFO Taskforce for the Sustainability Development Goals which is a worldwide body, and expect to play an active part in the forthcoming Malaysian CFO Taskforce which is due to be set up by the UN Global Compact Network Malaysia & Brunei. MRCB also became a member of the CEO Action Network, a closed-door peer-to-peer informal network of CEOs of leading Malaysian businesses focused on sustainability advocacy, capacity building, action and performance. These national and global-level initiatives have aided MRCB in developing its own sustainability strategy by providing insights into best practices from other companies in similar and different industries across the world.

    In ensuring our stakeholders are informed of our ESG initiatives, we also undertook a massive ESG communication plan, in which ESG-specific meetings were arranged for over 500 investors and professionals, and an ESG Brief was made available to the public on our corporate website. These sessions also helped MRCB become more accountable for its sustainability efforts, in that our ESG performance is transparently disclosed to all.

    As part of our commitment to address climate change, in 2021 we embarked on an assessment of the climate risks and opportunities in relation to our assets in line with the Task Force on Climate-related Financial Disclosures (TCFD) framework. This initiative is onging, and our first report can be found on page 127.

    For years now, MRCB has been a strong advocate of modular construction given its many tangible sustainability benefits that helps improve efficiency, reduce costs, reduce wastage and lessen the construction industry’s unsustainable dependency on unskilled foreign labour, while increasing productivity and quality, and improving the health and safety of workers. In the year under review, we used our proprietary modular construction technology, MRCB Building System (MBS), to great effect by completing our first MBS project in Malaysia awarded by the Ministry of Education, involving the construction of 35 classrooms for five schools in approximately three months, despite considerable disruptions caused by the pandemic. Indicating the attractions of our proprietary technology, to date, we have already licensed it to two international companies for the construction of a 19-storey student residential development and temporary quarantine facility in Hong Kong, as well as a 12-storey nursing home and senior care centre in Singapore.

    We also continued our role as a responsible and sustainable urban developer of our TODs and Green buildings, which places us at an important nexus between development and sustainability. In 2020, we announced our goal to achieve Net Zero Carbon in our Scope 1 & Scope 2 emissions by 2040 and began to disclose and set targets for these emissions. In 2021, we began to lay the groundwork to start addressing Scope 3 emissions, which includes indirect carbon emissions from our supply chain. As measuring Scope 3 emissions involves external parties, many of whom are at a very nascent stage of their sustainability journeys, it will take some time before we are able to begin measuring and reporting these emissions. Nevertheless, we have communicated to our top suppliers our intent to transition to more stringent sustainable procurement criteria. As part of this sustainable procurement strategy, we are embedding human and worker rights into our standard contracts and pre-qualification criteria. We will also enhance existing policies to ensure sustainability principles are embedded at the design stage, and specify the types of materials that can be used and procured to ensure they meet sustainability specifications. Moving forward, we will intensify our engagements with our suppliers in 2022, to work towards developing joint strategies that can help both parties measure and monitor their emissions for greater shared accountability.

  • Transforming Culture

    Our people remain our most coveted asset and a major priority, and as part of our plan to ensure they grow and excel, a programme was launched to equip our employees with the mindset and behaviours to accelerate and sustain organisational transformation. The need for employees to adapt, collaborate, be agile, evolve and thrive in an ever-changing environment have gained in importance after the pandemic and the growing threat of climate change. In 2021, we conducted 10 one-day interactive workshops called the “People Transformation Accelerator Programme” for 348 employees to equip them with practical skills and behaviours that create an open and transparent culture and a working environment that is more purpose driven. The response has been positive and pulse checks continue to be conducted to ensure these behaviours are consistently practiced by our employees. We plan to roll-out the programme to the rest of our employees and will conduct 22 more workshops for our remaining employees in 2022.

    We also subscribe to the belief that a positive work culture can be fostered through open and frequent communication. While the newly launched People Transformation Programme greatly promotes this, MRCB has continued to leverage on electronic digital media (EDM) to share key messages with our employees. Such EDMs are shared not only to announce the publication of new policies and share administrative matters, but also used to educate and remind employees of everyday affairs such as internal COVID-19 SOPs and ways to prevent infection; educating on cybersecurity threats and our zero tolerance of bribery and corruption, and speaking out if they encounter anything which is ethically wrong; and promoting a culture of integrity, accountability and safety in the workplace.

  • Acknowledgements

    The COVID-19 pandemic has definitely changed how we approach our business, challenging us to push boundaries and turning risks into opportunities. It has also made clearer the importance of ESG and working to build a sustainable business. It is with this philosophy that our strategies are built upon, with the hopes to create sustainable value for all our stakeholders well into the future.

    With promising times ahead, I look forward to continuing working closely with all my colleagues. I would like to thank our Board for their wisdom, and the regulators for guiding us to manoeuvre through the difficult pandemic period. Thanks also go to the Senior Management team and all staff for their resilience and strong support. To our business partners and suppliers, we thank you for your support and we look forward to working closely to build a more sustainable tomorrow, together.