MISC Annual Report 2018

RISKS & IMPACT KEY MITIGATION Inability to secure new order intake impacts financial performance and the company’s share price • Diversifying our strategy to venture into new business that provides recurring orders • Improving our marketing strategy to bring in new clients • Conducting structured analysis on unsuccessful bids to identify improvements for future bids Delay in project execution results in lower operational profitability • Addressing areas of improvement from previous project execution in terms of productivity and quality to safeguard timeliness and project delivery MOVING FORWARD Oil prices, new regulations and global economic and political stability remain important catalysts for the sustainability of our business growth. While we are optimistic that oil prices could improve over the year, we will remain vigilant with our spending and cautious in managing our business segments. The number of sanctioned offshore projects is expected to increase on the back of improving oil prices, cost cutting exercises by the industry and improving outlook in some regional markets. Nevertheless, due to price fluctuations, we expect most oil players especially in some regions will still be cautious with their capital expenditure (CAPEX) spending. However, we see active commitments in the Middle East for production demands as the current oil price is acceptable for their CAPEX program. Thus we are expanding our efforts in this market. We are also diversifying our product focus to explore opportunities in onshore refineries and petrochemical plant modulars and offshore wind farm fabrication. Both products are increasing in demand as energy demand grows, either from fossil or renewable base. We believe the capabilities within our workforce would be able to produce attractive value propositions for our new targeted clientele concentrated in the Middle East, the Americas as well as the Far East. MANAGEMENT DISCUSSION & ANALYSIS MARINE & HEAVY ENGINEERING In late 2018, we were awarded with a frame agreement for the provision of engineering, procurement and construction of fixed offshore structure works by PETRONAS. The ‘call-out’ agreement is valid for six years and covers fixed offshore structure development projects for all oil and gas blocks within Malaysia under PETRONAS’ Petroleum Agreement Contractors. In consortium with TechnipFMC, we have signed an agreement with Saudi Arabian Oil Company (Saudi Aramco) for the provision of EPCIC work for offshore facilities within the Kingdom of Saudi Arabia’s territorial waters for a fixed period of six years. In the Marine Business segment, we have successfully delivered two conversion projects, namely Floating, Storage and Offloading (FSO) Benchamas 2 for MISC and FSO Bergading for E.A Technique (M) Berhad. The scope of work includes the provision of demolition, refurbishment and conversion of vessels into FSO facilities for production at Benchamas field, offshore Thailand and offshore North Malay Basin, respectively. We also secured four en bloc agreements for marine repair jobs with various international shipping management companies. The agreements were from both existing and new clients, with repair windows of between one and two years. The construction of our Dry Dock No. 3 is currently at 50% progress. The target completion of the dry dock is expected to be by 2020. Upon completion, we will be able to take up more dry docking activities, especially for LNG vessels and tankers. Tembikai Non-Associated Gas from Vestigo Petroleum Sdn. Bhd. Upon completion the OWF will be installed at Tembikai-Chenang Cluster, offshore Terengganu, Malaysia. We are also undertaking an EPCIC contract for the Pluto Water Handling Module for TechnipFMC. Upon completion the module will be installed on Woodside Energy Limited’s Pluto Alpha Gas Production Platform, offshore Western Australia. In addition, we delivered a total of 73,000 manhours on plant maintenance and turnaround work for several processing and petrochemical plants, a new business we have expanded into since late 2017. Despite the challenging environment, our efforts to ensure order book sustainability have borne fruit. We have received a work order for EPCIC of offshore wellhead facilities (OWF) for Global LNG trade is expected to expand firmly, driven by increased exports from the US and Australia to Asia. The firm gains in rates and rise in LNG shipbuilding orders ascertain LNG growth potential in 2019. Significant LNG demand in Asia will increase LNG fleet volume in the Straits of Malacca and South China Sea routes. Furthermore, in view of requirements to comply with IMO rules and regulations, we anticipate more vessels coming into our yard for dry docking to install and retrofit scrubbers and Ballast Water Management Systems. However, uncertainty will continue in the tanker market next year mainly due to OPEC production cuts as well as substantial tanker deliveries scheduled for next year. 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 115 MISC BERHAD ANNUAL REPORT 2018 114