MISC Annual Report 2018

RISKS & IMPACT KEY MITIGATION Reduction in long term secured income due to charter contract expiry, leading to lower overall profitability • Utilise LNG vessels in spot trading business upon contract expiry • Expand capabilities in new LNG asset-based solutions such as FSRUs, LNG bunkering and integrated LNG-to-Power projects, which continue to provide long term charters Stiffer market competition due to emergence of new LNG players and ship owners building vessels speculatively. This could lead to an oversupply of vessels and owners willing to accept lower returns • Continue to focus on building vessels backed by long term contracts and not participate in speculative newbuilds • Expand capabilities and new business in LNG asset-based solutions as a diversification from the competitive LNG shipping market In addition, we intensified our efforts to enlarge our market presence by participating in pre-qualifications and tenders for LNG shipping and non-conventional LNG solutions in several locations including Singapore, Spain, Australia, Lebanon, Myanmar and Indonesia. Some of the tendering processes continue in 2019. The charter for LNG Lerici and LNG Portovenere commenced in December 2018 and January 2019 respectively. This has boosted MISC’s capacity to support the growing LNG demand worldwide with an increasing footprint in Europe. Furthermore, it also enhances MISC’s capacity in third party business and in the niche mid and small- scale LNG vessel market. In line with the IMO 2020 Sulphur cap regulations which require all vessels to burn fuel with a sulphur content of 0.5% or less, we have completed four ultra-low sulphur fuel oil modifications and three low sulphur marine gas oil modifications on our vessels. The remaining vessels will be modified progressively according to their dry docking schedules. MOVING FORWARD The year ahead will continue to see shifting market dynamics and LNG players must remain agile to compete in an evolving landscape. As the global ramp up of new LNG liquefaction plants continues, demand for LNG carriers is likely to rise in the near term. While demand growth is expected to be healthy, the LNG market will also grow increasingly competitive with a continued stream of newbuild LNG carriers being delivered to owners, charterers’ growing preference for shorter and more flexible contracts as well as preference for newer more fuel-efficient LNG carriers. Our aim is to ensure sustainability in our cash flow generation from existing long-term business in conventional LNG shipping, coupled with growing our presence in the non-conventional LNG asset-based solutions market. We will intensify our efforts in exploring non-conventional LNG opportunities, including FSRUs, LNG bunkering vessels, small scale LNG carriers and LNG-to-Power projects, for niche markets in pursuit of long term sustainable returns. We also intend to expand our third party business and grow our business footprint in the Atlantic Basin, Europe and North America and Southeast Asia. MANAGEMENT DISCUSSION & ANALYSIS LNG ASSET SOLUTIONS 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 97 MISC BERHAD ANNUAL REPORT 2018 96