MISC Annual Report 2019

We view the banks as our key financial partners for growth. The strong relationship that we have nurtured with the banks comes from them knowing how meticulously we assess each project. In the process of doing so, we also de-risk it for the banks as they know that we have studied all the aspects, which gives them the confidence that we can honour our loans. We are in this fortuitous position today as a result of careful preparation and forward planning, which is something that we have inculcated as a mindset in MISC that has allowed us to seize opportunities when they come along. Building A Virtuous Cycle of Growth One area we have deliberately chosen not to play in a significant way, is the short-term market or what we would fondly call the spot charter market. Too large an exposure in the short-term charter markets poses a risk of mismatch in the cash that we can generate with certainty against our fixed financial obligations to banks and our ecosystem of vendors and suppliers. Having zero presence in the short-term market is not healthy either, as it will not allow us some room to exploit any short-term euphoric runs in the charter markets. Getting the balance is important but suffice to say, the bulk of our charters will always be long-term in nature. A highly predictable source of cash flow for MISC for a sustainable period carries many benefits. Firstly, we provide confidence to our banking partners and vendors/suppliers of our ability to meet our obligations. Confidence begets more confidence in each other that will strengthen our partnerships. Secondly, a predictable cash flow annually allows us to repeatedly and consistently reward our shareholders in terms of dividend payment. Thirdly, we will have predictability in the amount of financial resources that we are able to channel towards new investments that will generate future cash flow for MISC. As a discipline, our annual appetite for growth is sized by our investable cash flow for the year. For opportunistic investments and acquisitions, we consistently carry a cash reserve annually so that we are always ready for the right opportunity at the right moment. The better we are able to reinvest and pursue new investment opportunities, the greater is our ability to grow the annual cash flow engine of MISC. It is no surprise therefore internally, we measure our growth by the size of the annual secured and recurring cash flow we generate. If we have been generating a billion USD of cash flow in the past, we would like to target generating perhaps an additional, say USD100 million in the next 2-3 years and we repeat this in a step function manner. In other words, visualise MISC’s growth in the form of a staircase – every step is a step up in our level of secured and recurring cash flow. As long as we have the financial resources to reinvest and as long as we do not run out of growth opportunities, the staircase will continue to move to a higher level consistently into the future. Hence, I would encourage our investors and shareholders to see MISC as a high yielding investment/stock. Appreciation in our stock price will not be driven by conventional multiples of income. Instead, stock price appreciation will be driven by our ability to generate higher absolute dividend pay-out over time, which we believe will drive a natural appreciation in the stock price. Judge us not by the short-term sentiment in the stock markets globally. Just as we build our strategy around long-term fundamental drivers and inflexion points, and avoid the pitfalls of paying too much attention to the short-term business and economic turmoil which may not impact the longer term prospects of the Group, I urge our shareholders and investors to take a longer view of MISC and join us in subscribing to our sustainable and repeatable long-term value creation philosophy. Sustainability – The Need to Self-Perpetuate In addition, MISC is also a member of the Getting to Zero Coalition, which is a partnership between the Global Maritime Forum, the Friends of Ocean Action, and the World Economic Forum. The coalition is a powerful global alliance of more than 70 public and private organisations which is committed to developing zero-emission vessels by 2030 and leading the push for international shipping’s decarbonisation in line with the IMO’s aspirations. All these efforts will require considerable amount of time and resources invested to make the mission a reality. Through global collaboration and partnership with strategic partners who are leaders in the respective fields, we hope we can provide leadership and inspire others in the maritime ecosystem to undertake such environmental projects that will all collectively contribute towards a zero carbon environment for the future. Sometime in the coming year, MISC will also be launching its biodiversity initiatives, specifically crafted on the theme of clean seas and oceans. We believe what we take from the oceans for our economic gains, we will need to put back to preserve and safeguard it for the next generation. Another important facet of sustainability for MISC is the need to uphold the integrity of doing business. Fair play, human rights, code of business ethics, to name a few themes. At MISC, we believe it is everyone’s responsibility to practice good ethics which is essentially doing business the right way. This cannot be better represented by our internal campaign, aptly named the ‘See.Speak.Support.’ programme. In this programme, we reinforce the culture of integrity throughout the organisation through collaborative initiatives such as awareness sessions and talks from internal and external experts on topics related to ethics and integrity. We want our employees to feel empowered to speak up, seek support and to keep an eye on unethical behaviours or practices throughout the company. President/Group CEO’s Review Sustainability is a big buzz word in today’s corporate world. If you are a sceptic, it is easy to dismiss this as a fad. A theme that is hot today may be forgotten tomorrow. For some, the word sustainability is associated with the environment - the need for the world to reduce its carbon footprint, to rid the world of plastics and the list can go on and on. Still, for some, it is another set of rules that regulators and authorities impose such as the United Nation’s Sustainable Development Goals (UNSDGs). For us at MISC, sustainability is both a philosophy and a culture. A way of life. It is anchored around the belief that we need to perpetuate our existence. We need to ensure that this world continues to be a liveable place for generations to come. We need to leave this world in a better place for the next generation than when we inherited it. When applying this philosophy to MISC as a group and from a business perspective, it means leaving the global maritime space in a healthier state for the next generation of businesses to operate in compared to today. To do so, we need to perpetuate the well-being of the maritime ecosystem to ensure that future business and economic activities within the maritime space remains healthy for future generations. There are many facets of sustainability. First and most publicly recognised facet - the environment. As a Strategic Partner of the Global Maritime Forum, where the aspiration is to become the equivalent of the World Economic Forum for the global shipping industry, we are able to find kindred spirits who share our aspiration of working collaboratively in keeping the environment cleaner with the reduction of harmful greenhouse gases (GHGs). In January 2020, MISC, together with Samsung Heavy Industries, Lloyd’s Register and MAN Energy Solutions, announced that we will work together on a joint development project for an ammonia-fuelled tanker to support shipping’s drive towards a decarbonised future. The goal is to have commercially viable zero-carbon emission deep sea-going vessels available to the global maritime industry by 2030. 23 22 THE YEAR IN REVIEW MISC BERHAD PEOPLE. PASSION. POSSIBILITIES ANNUAL REPORT 2019