MISC Annual Report 2019

RAJA AZLAN SHAH RAJA AZWA Vice President, Finance The Group’s healthy cash position is supported by the steady cash flow generated from the Offshore and LNG segments’ long term portfolio of contracts Group Financial Review 2019 was overall a very good year for MISC that was defined financially by stronger revenue, profits and cash flows from operations as well as a low gearing ratio and an increase in dividends. The year ended with a healthy cash position, strong balance sheet and recurring cash flows that will continue to support the business in the years to come. We had several major successes in the core business segments, where we secured long-term charter contracts for four LNG carriers, two of which are through our partnership with NYK and Mitsubishi, one LNG Bunkering Vessel contract through our partnership with Avenir, three DPSTs in 2019 and another three DPSTs in 2020, as well as several heavy engineering contracts, which will contribute to our secured income growth for 2020 and beyond. The positive performance and higher profits for 2019 were mainly contributed by our LNG Asset Solutions (LNG) and Petroleum & Product Shipping (Petroleum) segments, from redeployment of vessels previously on charter suspension, and higher freight rates achieved. The higher profits and cash flow from operations were generated despite higher vessel impairments and lower gain on business acquisitions during 2019. An accurate measurement for our performance is cash flow from operations which saw a 36% increase over the previous year. 25% increase in cash flows from operations is contributed by improved operating results as mentioned earlier whereas the additional 11% is coming from cash flow reclassification arising from new accounting standard requirements. However, there are some areas of concern including our ability to sustain MISC’s earnings in the future. Nevertheless, MISC has been able to secure several new long-term contracts in order to replenish as well as to grow our base of secured income. Currently, we have four LNG carriers and 13 DPSTs to be delivered between 2020 and 2023, as well as a RM3.0 billion order book in our Marine & Heavy Engineering (Heavy Engineering) segment. The volatility of the market is also a concern as factors such as geopolitical events has an impact on our charter rates and our revenues. This is one of the reasons why we are moving towards secured income and minimizing our exposures to the spot market volatility. Digital disruption is also something that we must be able to keep up with, and to embrace this change and strive for continuous improvement in our business processes, we have embarked on digital transformation processes in which we strive to improve our efficiency and effectiveness to better service our customers. Last but not least, we hope to be able to retain as well as attract the right talent to support the growth ambitions of the Company. Moving forward, we expect 2020 to be another good year for MISC. With most of our LNG and Offshore assets tied to long- term contracts, we believe that the earnings from 2019 can be sustained in 2020 and with the seven DPSTs that will be delivered in 2020, these will add further growth to our secured income. We will continue to pursue contract opportunities, specifically on non-conventional LNG solutions contracts, and the first Brazilian deepwater FPSO contract for our Offshore Business (Offshore) segment in line with MISC’s strategy to achieve a sustainable level of secured income. RAJA AZLAN SHAH RAJA AZWA Vice President, Finance RM8,962.7 million 2.1% (FY2018: RM8,780.3 million) Revenue for FY2019 RM1,929.3 million 31.6% (FY2018: RM1,466.4 million) Operating Profit for FY2019 RM1,512.3 million 12.5% (FY2018: RM1,344.1 million) Profit Before Tax for FY2019 32.0 sen 8.8% (FY2018: 29.4 sen) Earnings Per Share (Sen) for FY2019 RM1,473.0 million 10.0% (FY2018: RM1,339.1 million) Dividends for FY2019 Highlights of Financial Performance Revenue For the financial year ended 31 December 2019 (FY2019), Group revenue of RM8,962.7 million was 2.1% higher than the financial year ended 31 December 2018 (FY2018)’s revenue of RM8,780.3 million. The increase in revenue was mainly from higher number of operating vessels in the LNG segment following redeployment of vessels previously on charter suspension and acquisition of two LNG carriers, whereby one carrier was acquired in December 2018 and the other carrier was acquired in January 2019. Higher revenue from dry docking services and conversion works from the Heavy Engineering segment also contributed to the higher revenue in the current year. As a result of the increase in cash flow from operations for the year, and after taking into consideration MISC’s forecasted cash flow from operations and future capital expenditure requirements, MISC declared a special dividend of 3 sen which increased the dividends payout this year to 33 sen in total for the year compared to 30 sen in the previous year. Going forward, we will strive to maintain our strong operating cash flow position and create more value for our shareholders. The strong financial health of MISC is a result of the effective and robust execution of financial risk management. We have established a strict project risk assessment process that looks at the contractual, project, execution and financial risks on a very disciplined basis. This then facilitates the matching of the targeted return to the relative risks of the projects which we are quite disciplined and conscientious about. Complementing that is the very good relationship MISC has with the global banks, while operating as a USD company and borrowing in USD provides us with a competitive cost of funds, which allows us to reduce our cost of financing. It is also a very fortuitous time to be part of MISC because we have a very low gearing ratio, with a gross gearing ratio of about 37% and net gearing ratio of about 17%. With this ample debt headroom, we have the financial resources to grow. We are also among the best rated marine shipping companies as a result of the prudent financial management that we practice. All of MISC’s credit ratings were re- affirmed in FY2019 with stable outlook. Our Results V I C E P R E S I D E N T ’ S R E M A R K S 79 78 OUR FINANCIAL PERFORMANCE MISC BERHAD PEOPLE. PASSION. POSSIBILITIES ANNUAL REPORT 2019