The issue of business sustainability remains a priority on our agenda as evidenced by the MISC Sustainability Strategy receiving formal endorsement by the Board at the end of 2016. This strategy, which constitutes the sustainability pillars of Customers, Shareholders, Governance, Employees, Environment and Community, will serve as our five-year roadmap to guide us further in conducting business as a responsible corporate citizen. With a focus on enhancing MISC’s social integrity, improving our environmental stewardship and creating economic value for our stakeholders, this strategy will also ensure that our material areas and the initiatives we are embarking on all align with our Vision, Mission and the MISC2020 blueprint. Together, all these elements will serve as a guiding light for the Group and our employees as we continue unfalteringly on our journey towards sustainable growth. The details of the Group’s sustainability agenda and the related activities can be found in our Sustainability Statement on pages 117 to 120 of this Annual Report, while the finer details are spelt out in the standalone MISC Sustainability Report 2016. MOVING FORWARD INTO 2017 AND BEYOND According to the International Monetary Fund’s (IMF) World Economic Outlook (WEO) update as of January 2017, following 2016’s lacklustre growth of 3.15%, global economic activity is expected to pick up in 2017 and 2018, touching 3.4% and 3.6% respectively. The advanced economies are forecast to make small steps up, while activities in emerging market and developing economies will continue to drive global growth. However, at the same time, global risks remain significant and difficult to predict. Anxieties about US policy under President Trump, the perils of muddled Brexit negotiations and the apprehension about the outcome of upcoming leadership elections in the Eurozone, all lend to the air of uncertainty. Coupled with China’s structural slowdown and Japan’s struggle with deflation, the outlook for 2017 is indeed rather uncertain. However, amidst all these, there still remains hope that things can turn around for the better should the policies that promote sustainable and inclusive growth as well as cooperation and coordination be brought into play. The global shipping sector is expected to have a subdued outlook in 2017 with all segments continuing to come under pressure. According to Fitch Ratings, muted demand growth will aggravate overcapacity of the shipping sector in 2017, putting pressure on freight rates and driving further consolidation and defaults. The poor freight market and weak outlook across major shipping segments have forced financial institutions to reduce their exposure and the financing available to the shipping sector in general. This will have an impact on companies that are not able to cover their upcoming maturities and definitely has had an impact on the future of newbuild orders. High profile bankruptcies within the shipping sector have further forced financial institutions to reassess the financing landscape and their support for the industry. In the short-to medium-term, more mergers and acquisitions (M&As) as well as financial defaults are expected to take place. However, these are expected only to restore equilibrium and boost freight rates if they prompt capacity reduction. Within the MISC Group, the performance of the Petroleum and Product Shipping segment is expected to come under pressure. Growth may be affected by high fleet growth and potentially lower tonne mile demand as a result of reduced OPEC oil production postJanuary 2017’s quota restriction. However, the impact from the OPEC cut may be offset by higher production elsewhere. Fleet owners are hopeful that the enforcement of the ballast water treatment systems convention from September 2017 onwards will reduce vessel supply even as vessel scrapping is fast-tracked. On the LNG front, global LNG supply is expected to increase by 14% following the completion of new liquefaction plants in 2017. Despite the increased gas supply, demand for LNG shipping is expected to remain sluggish. The tonnage oversupply situation is expected to persist as a result of higher vessel deliveries and lower project absorption. This, however, will not impact the steady performance of the Group’s LNG business segment as most of the vessels are employed under long-term charters. MISC BERHAD • Annual Report 2016 52 CHAIRMAN’S STATEMENT
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