MISC Annual Report 2018

This section describes the key risks that the Group is facing at present. MISC has an established Risk Management Framework that includes an Enterprise Risk Management process to guide the identification, assessment, treatment, monitoring and review of risks. More details on our Risk Management Framework and risk management processes can be found in the Statement of Risk Management and Internal Control KEY RISKS & MITIGATION RISKS & IMPACT MITIGATION BUSINESS CYCLICALITY AND VOLATILITY The highly cyclical and volatile nature of our markets makes it a challenge to generate predictable cash flows and earnings. At the same time our business is also highly capital intensive, requiring relatively stable cash flows to sustain our borrowings The Group’s operating cash flow and earnings continue to be underpinned by our portfolio of long-term charters and contracts. Our strategic focus has been on growing the proportion of assets that generate stable long-term income while maintaining some flexibility to capture the upside when the cycles turn in our favour GEOPOLITICAL RISKS Geopolitical risks such as the ongoing USA-China trade tensions and the uncertainty surrounding Brexit may lead to a slowdown of the global economy. The re-introduction of economic sanctions on Iran, political instability in Venezuela and planned production cuts by OPEC and Russia could reduce the amount of oil to be traded. All of these have the potential to reduce demand for our energy shipping businesses We monitor global developments and regularly review our commercial strategy accordingly. We have also been growing our long-term secured income base to reduce exposure to short-term volatility OIL PRICE VOLATILITY A low and volatile oil price environment would reduce the likelihood of the approval of new upstream oil and gas projects The Offshore Business segment is expanding its reach and building its capability to capitalise on the ample opportunities in the Atlantic basin, while the Marine and Heavy Engineering segment is developing new recurring businesses to diversify its revenue stream INCREASING COMPETITION IN LNG SHIPPING Increased competition in the LNG shipping market could lead to a reduction in long-term secured income from our LNG Business segment The LNG Business segment is developing new LNG asset-based solutions to address a changing market TONNAGE OVERSUPPLY Tonnage oversupply in the crude oil, product and chemical tanker markets could place downward pressure on charter rates, reducing earnings from our tanker fleets The Petroleum and Product Shipping segment’s strategy is to place more vessels on fixed rate long term charters. It is also focused on winning more secured income projects such as Dynamic Positioning Shuttle Tanker contracts RISKS AND IMPACT MITIGATION ASSET AVAILABILITY AND UTILISATION A low availability and utilisation of our vessels, floating assets or facilities would affect our earnings With well-trained crew and by applying stringent operations and maintenance policies and procedures, we have been achieving commendable levels of vessel availability and floating asset uptime rates MAJOR HSSE INCIDENTS, FATALITIES AND INJURIES Any major incidents involving any one of our assets may result in injury or loss of life, asset or environmental damage or reputational impact The Group’s Health, Safety, Security and Environment (GHSSE) Council monitors all HSSE related risks and events. The GHSSE Council places high priority on ensuring that relevant regulations are complied with and best practice safety standards are applied across the Group IMO 2020 SULPHUR CAP The implementation of the International Maritime Organisation (IMO) 2020 Sulphur Cap may require modifications to our vessels for compliance, and also creates market uncertainty in relation to the availability, quality and pricing of marine fuels Dedicated teams have carried out detailed analysis on the regulation and its multi-faceted implications and we are actively implementing the plan to ensure cost-effective compliance. MISC’s strategy is to use compliant fuel except for a limited number of vessels where scrubbers will be installed DEVELOPING AND RETAINING TALENT Not having the right people and next generation leaders to effectively implement our business strategies could affect our competitiveness Our Human Resources division has implemented various succession planning and competency development initiatives to ensure that a sustainable pipeline of talent is available to meet the Group’s requirements BREACH OF ICT SYSTEMS Breach of MISC’s information systems could result in disruption to our business or loss of confidential or sensitive information MISC has engaged independent experts to review and test our information systems’ susceptibility to attacks. Improvements from the review are being implemented 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 67 MISC BERHAD ANNUAL REPORT 2018 66