board of directors - Petron

The Retail business benefited significantly from thereduction in product costs during the year and the relatedpositive lag effects previously mentioned. The Retailbusiness also launched several new programmes andefficiency initiatives during the year, which furtherimproved results. In October, the Company launched thenew Synergy Fuel System which included Synergy F-1(Unleaded 97 Ron), Synergy Regular (Unleaded 92 Ron)and Synergy Diesel. Each of these new products was wellreceived by our customers. Several new service stationswere commissioned in 2001, mainly at strategic highwaylocations. A new standard license agreement was alsoimplemented for all Company Owned Dealer Operatedservice stations during the year. Consistent withExxonMobil's global strategy of achieving a new brighter,safer and refreshed image, a site re-imaging programmewas completed in the Klang Valley, Johor Bahru andButterworth markets.In the Industrial and Wholesale sector, the Companyrecorded strong results. LPG sales volumes increased in2001 supported by several innovative LPG promotionalprogrammes. In Industrial Fuels, the Company continuedto be well positioned in the reseller and power-generationsectors.In the Lubes and Specialties business, sales volumes werelower than 2000 associated with a contraction in industrydemand for lubricants and the Company's de-emphasis oflow margin products. Business conditions were weakthroughout the year and margins were pressured as majorcompetitors sought to maintain market positions.Asphalt sales, however, nearly doubled due to an increasein new accounts despite weak demand in the constructionand infrastructure industries. In April, the Companyintroduced Mobil 1, the premium synthetic engine oil, inEsso retail stations which helped to increase overall sales.Capital and lease expenditures in 2001 were RM183million, up significantly from RM68 million in 2000. Theincrease was mainly due to the Company's final paymentfor its 20% participating interest in the Multi-ProductPipeline/Klang Valley Distribution Terminal andassociated facilities. The Company also made additionalinvestments to expand its high quality service stationnetwork. The improved financial results during the yearand associated cash generation allowed the Company tofinance its capital expenditures without a significantincrease in debt levels.Safety, Health and Environment continued to be managedwith the highest priority. The Port Dickson Refinery hadan excellent safety performance in 2001 and was awardedthe ExxonMobil Refining & Supply President’s Award forsafety and operational excellence. The Refinery alsoachieved its fifth consecutive year without a lost timeinjury. In an effort to further protect the environment, theCompany expanded its Underground Risk Managementprogramme to an additional 20 service stations during theyear. This program provides for the installation of doublewall underground tanks, flexi-piping, spill containmentsystems and electronic leak detection systems to greatlyreduce the possibility of leaks in service station tankage.The Company has long recognised the importance ofgiving back to the communities in which it does business,and as a result, has a strong tradition of supportingcommunity projects. Through these projects, theCompany strives to improve the quality of life for those inneed. During 2001, management, employees and familymembers participated in several community events.These events not only benefited the recipients, but alsoprovided opportunities for employees and their familiesto work together as a team to help others.Business OutlookIn 2002, the Malaysian economy is expected to grow at arate somewhat higher than that of 2001. Petroleumproduct demand is expected to grow as well, although,pressure on margins will likely continue. The outlook forthe retail business remains promising, although it is notexpected to benefit as it did in 2001 from the positive lageffects on margins. Refining margins are expected toremain weak in light of excess regional supply capacity.Given this challenging and uncertain businessenvironment, the Company will continue to focus on "selfhelp"measures such as reducing operating costs,improving efficiency and selectively investing in our mostprofitable business lines.Board MattersIn December 2001, Y. Bhg. Dato' Kamaruddin Mohd Jamalretired from the Company and resigned from the Board ofDirectors after 27 years of service. On behalf of the Boardof Directors, I express my gratitude for his contributionsand services during his career with the Company.On behalf of the Board, I also thank our employees fortheir dedication and efforts. The Company's successdepends on their skills, abilities and never-endingcommitment to improve business results. I also expressmy appreciation to our stockholders, dealers andcustomers for their continued support.Richard M. KrugerChairmanFebruary 27, 2002ANNUAL REPORT & ACCOUNTS 20013