MISC Annual Report 2018

innovative technology. In this regard, AET has equipped two Aframax tankers, Eagle Brasilia and Eagle Bintulu with LNG dual-fuel systems. These vessels were delivered in early 2019 and are amongst the first LNG dual-fuelled vessels in the industry. In addition, the two newbuild DPSTs contracted to Equinor and under construction by Samsung Heavy Industries Co. Ltd. will also be equipped with LNG dual-fuel systems. As part of AET’s ongoing fleet rejuvenation, we also took delivery of two Suezmax tankers namely Eagle San Francisco and Eagle San Jose and two Aframax tankers, namely Eagle Barcelona and Eagle Brisbane in 2018. These four green vessels are equipped with optimised hull design and modern, energy efficient engines and machinery. During the year, AET sold eight of its older Aframax tankers for scrapping, bringing down the average age of our fleet to about nine years as of 31 December 2018 as compared to about 10 years in 2017. With our new additions in 2018 replacing this tonnage, AET will continue to provide better solutions and services to our customers with a more modern and efficient fleet. The segment’s focus on delivering highly efficient and sustainable operations resulted in several notable accolades in 2018. These included AET being named “Tanker Operator of the Year” 2018 at the Lloyd’s List Global Awards event in London and the 2018 Industry Leader award by Tanker Shipping & Trade also held in London. These two awards reflected industry recognition of AET’s accomplishments and our ability to differentiate ourselves from tough competition with a solid commitment to quality, innovation and sustainability. These achievements are also timely as AET comes together to celebrate our 25 th Anniversary in 2019. Additionally, AET also took on the Chairmanship of Chamber of Shipping of America (CSA) in 2018. In the US Gulf, our fleet of Lightering Support Vessels (LSV) achieved more than 1,000 days of zero lost time injury by the end of the year. On top of this, 45 vessels and four LSVs were recognised with the CSA Jones F. Devlin Safety Achievement Award while the CSA also accorded 49 of our vessels and four LSVs the Annual Environmental Achievement Awards in 2018. Meanwhile in Brazil, our DPST Eagle Paraiba received the Brazilian Navy Award for Safety at Sea during the year. In quality management, we achieved ISO 9001:2015 certification, highlighting our ability to consistently provide services that meet customer and regulatory requirements. MOVING FORWARD For AET, 2019 is projected to be a year with both challenges and opportunities. Growth in seaborne trade is projected to continue but the rate of growth could be impacted by OPEC-led production cuts and geopolitical uncertainties, namely US-China trade negotiations, US sanctions on Venezuela and other ongoing sanctions on Iran. US crude oil exports are projected to grow further in 2019 and this would likely generate both export ship-to-ship (STS) demand and longer tonne miles on VLCCs and mid-size tankers. IMO 2020 Sulphur Cap regulations are also expected to drive demand for refined product flows to key bunkering hubs in Asia, Europe and the Middle East. This is projected to be positive for gradual improvements in product shipping tonne miles. In 2019, tanker supply and demand growth is expected to be balanced. Beyond this, in 2020, tanker supply growth is projected to be slower, while at the same time demand is forecasted to grow strongly on the back of the IMO 2020 Global Sulphur Cap regulations. AET will continue to strategically strengthen its balance sheet, leveraging on its strong track record as a quality shipowner/ operator with clientele from oil majors, national oil companies and major oil traders. Our focus will be on the delivery of the seven DPSTs in 2019 and 2020, that have been secured with long-term recurring income, on top of securing new STS contracts in Latin America and improving the quality of recurring income in other segments of the business. AET has been successful in improving our recurring income portfolio and will continue to do so in 2019, to ensure sustainable profitability to our shareholders. As a responsible shipowner and operator, our environmental sustainability agenda will remain a key part of AET’s long-term business plan. This is also consistent with the agenda of our clients and stakeholders. We will continue to partner, innovate and invest in asset classes that are congruent with the IMO’s 2050 greenhouse gas reduction aspirations. RISKS & IMPACT KEY MITIGATION Tonnage oversupply across all sectors could pose a risk to overall financial performance. With a sizable fleet trading in the spot market, AET is exposed to the volatility of the tanker freight market To minimise exposure, AET intends to fix more vessels on fixed rate long term charters and contracts with a floor rate, and acquire more secured income projects Bunker price volatility impacts AET’s vessel trading in the spot market. An increase in bunker prices could result in increased voyage expenses which could impact overall financial performance Management continues to monitor the bunker market and formulate appropriate procurement strategies Compliance with IMO 2020 Sulphur Cap could result in uncertainty regarding availability, quality and pricing of marine fuels AET’s compliance strategy is largely based on using compliant fuels and scrubber solutions where requested by clients. A significant part of AET’s mid-size tanker fleet currently operates in Emission Control Areas and therefore already complies with more stringent sulphur cap requirements An increase in geopolitical tensions or global economic uncertainty could impact demand for crude oil, products and chemicals increasing volatility in freight markets and depressing freight rates AET proactively monitors global developments and regularly reviews its commercial strategy. AET aims to grow its long-term secured income base in order to reduce exposure to market volatility MANAGEMENT DISCUSSION & ANALYSIS PETROLEUM & PRODUCT SHIPPING HIGHLIGHTS OF THE YEAR OUR BUSINESS OUR LEADERSHIP OUR PERFORMANCE OUR COMMITMENT TO SUSTAINABILITY OUR GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 50 TH ANNUAL GENERAL MEETING 103 MISC BERHAD ANNUAL REPORT 2018 102