MISC Annual Report 2018

Operating Profit RM1.47 billion $ $ Total Assets RM52.07 billion billion Shareholders’ Equity RM35.35 PRESIDENT/GROUP CEO’S REVIEW Dear Valued Shareholders, We had a very special year in 2018, as we stepped forward to shape our future in the global maritime industry, whilst also looking back at our roots as we celebrated MISC’s 50 th anniversary on 6 November 2018. Back in 1968, when MISC started trading with two general cargo vessels, our future growth must have seemed very hard to imagine. Five decades later, continual improvement, resilience and determination have transformed MISC into one of the top global players in the energy and maritime industry. We are now building on the foundations of this success to prepare for greater sustainable growth into the future. I often share a particular quote with my fellow employees to inspire them towards greater unity and team work. If we dream our dreams alone, the dream will remain a dream. However, if we dream our dreams together, the dream can become a reality. And we can create previously unimagined possibilities through the combined passion of our people. People. Passion. Possibilities - it took the man to the moon. People, Passion, Possibilities - it may soon take man to Mars. People, Passion, Possibilities - I believe it will boldly take MISC to where we have not gone before in the next 50 years. Hence, it is so befitting that we chose the theme of People, Passion, Possibilities for our 50 th anniversary celebrations and our Annual Report for 2018. As we acknowledge our greatest asset - our people - we affirm our passion, and the possibilities we created in the past and are shaping for our future. CREATING VALUE I cannot stress enough that the past 50 years of value creation at MISC have been driven by our people, who have consistently overcome obstacles with collaboration and innovation to provide better solutions and services to our customers. This spirit of creativity and collaboration was in great display by our people over 2018. I will cite with pride the example of a business situation which we encountered during the year. Through sheer creativity and a partnering spirit, we were able to successfully resolve a commercial deadlock precipitated by a unique geopolitical situation, and reach an agreement that helped a client to overcome their internal challenges while safeguarding our commercial interests. Our commitment towards developing our people and harnessing their passion remains strong as we look to the future. True to our vision of striving to be consistently better all the time, we will continue to upgrade our skill sets and invest in our talent pipeline in order to build the right bench strength of MISC leaders for the future. We are already laying the foundations for MISC’s next 50 years with our MISC 2020 corporate strategy, which articulates our twin targets of achieving a sustainable level of secured profit and a sustainable return on average capital employed. In simple terms, this means we seek to continuously grow our base of secured income, so that we have greater stability and predictability in our ability to generate operating cash flow, no matter how depressed or buoyant the external markets may be. For the year under review, the MISC Group committed approximately USD900 million of capital expenditure in long-term projects, which will generate a significant recurring and predictable income base when all the investments are commissioned. These projects were won through competitive bidding and were mostly in new and developing markets outside Malaysia. At the same time, we maintained our moderate leverage and high cash balance in 2018, providing the basis for a sustainable dividend yield and further capital expenditure to drive profit growth. In recognition of our discipline in financial management, we also registered the strongest credit in the maritime sector with Moody’s Investors Service affirming a Baa2 issuer rating and S&P Global Ratings affirming a BBB+ long-term corporate credit rating. In addition, we participated in the inaugural annual summit of the Global Maritime Forum (GMF) as one of six strategic industry partners, as we seek to play an active role in shaping the future of maritime trade. We are fully committed to ambitious goals for the decarbonisation of shipping and addressing other major issues facing the industry. GLOBAL INDUSTRY IN 2018 As I reflect on the year that has passed, I have to label 2018 as one of the most chaotic and volatile years since the global financial crisis. Geopolitical developments including major power trade wars and the United Kingdom’s planned withdrawal from the European Union threw up many uncertainties. Increased interest rates also led to higher costs of borrowing. At the same time, there were some positive developments as oil prices started to stabilise within a band that allowed oil and gas majors to look again at upstream investments previously curtailed by the oil price crash of 2014. We saw some signs of green shoots emerging in the form of new tenders for offshore floating assets and Dynamic Positioning Shuttle Tankers (DPST). Conversely, the petroleum shipping sector remained in the doldrums and had one of its most challenging years in a decade. In addition to vessel oversupply, the sector was hobbled by relatively lacklustre demand, production cutbacks and concerns over compliance with the International Maritime Organisation (IMO) 2020 Sulphur Cap. Although this regulation enforcing lower sulphur emission levels has been on the cards for several years, many ship owners have been grappling with the cost of compliance at a time when the industry is already struggling with depressed charter rates. Low sulphur fuels are expected to be more expensive and less easily accessible, and the alternative option of installing scrubbers to deal with sulphur gas emissions is costly and potentially creates another environmental problem in effluent discharge. YEE YANG CHIEN President/Group CEO 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 87 MISC BERHAD ANNUAL REPORT 2018 86