MISC Annual Report 2019

CAPTAIN RAJALINGAM SUBRAMANIAM President & CEO, AET Tanker Holdings Sdn. Bhd. The pioneering spirit that we started out with will always inspire us, but it is the passion and commitment of our people that will create possibilities in the future to move energy to build a better world The year 2019 saw AET undergoing a successful transformation and it was a year of positive progress despite a challenging external environment. What we achieved during the year was the result of the solid commitment, passion and determination of our people that has brought the company to where it is today. When we set sail in the beginning of the year, we faced global uncertainties due to geopolitical tensions, sanctions being implemented on certain countries and incoming regulatory and legislative changes, as well as an unclear financing market. However, there was also a lot of positivity and tailwinds that came our way resulting in a better-than-expected performance in terms of financial returns, capital expenditure and opportunities for the decade ahead. We realised that we needed to expand our horizons and strengthen our business portfolio. This was done by mitigating market falloffs and placing ourselves in the position to take on any market recoveries. We were also cautiously optimistic that the second half of the year would be more positive and the results were in line with our expectations. Throughout this period, we managed our cashflow very carefully and strengthened our balance sheet as we were coming out of a financially challenging period from the previous year. What we did in 2019 included tactical manoeuvres to capitalise on opportunities and mitigate the risks while focusing on assets that would give us better premiums. While MISC has a meticulous risk assessment approach, our risk management approach depends on what is our appetite in terms of client risk, geographical operational areas and ultimately, the returns that we expect. What we will not do, however, is compromise on our standards in the risks that we take as we pride ourselves on our operational standards that are second to none. We got to where we are today by focusing on our strategic priority to secure more long-term time charter contracts with a premium by working with top-tier clients and expanding niche market assets such as the shuttle tanker market. We have also replicated business models that have proven successful in other growth areas for the new markets that we entered, in compliance with local legislation. The client portfolio was also prioritised in terms of returns and we offered them integrated solutions. As a result, our select clients and stakeholders now have even more confidence in us. We also made efforts to meet the environmental targets in compliance with the IMO’s 2020 sulphur cap regulations as well as the 2030 and 2050 carbon emission reduction targets. When we took the initiative to switch our tankers to LNG dual fuel back in 2017, we were one of the first in the tanker space to do so and while most of the industry was looking at 2020 compliance, we were already preparing for 2030. That required us to take on a fuel supply security risk, but we transformed that into a price risk which fortunately, turned out positive as LNG fuel prices were within our estimated forecasts. Therefore, we are very proud of our two pioneering newbuild LNG dual-fuel Aframax vessels that we delivered in early 2019 as this marks our entry into the LNG dual-fuel sector. We are determined to lead the industry in the use of LNG as a marine fuel wherever practicable. Additionally, in our efforts to reduce environmental emissions from our fleet, we witnessed the momentous occasion of the naming ceremony for our two ships, which are the most energy efficient LNG dual- fuel DPSTs ever built in the world. These are among the wins that primed AET for success over 2018 and 2019. These vessels are proof that environmental sustainability and commercial viability can coexist. Looking ahead, as far as our fleet portfolio is concerned, when considering new vessels or projects, we are looking at what is going to bring the IMO 2030 greenhouse gas emissions targets within our striking distance. We are prioritising projects that have an LNG dual-fuel element. With significantly lower emissions, widespread availability and assurance of supply as well as proven commercial viability for a wide range of vessels and trades, LNG is the best option we currently have before zero-carbon fuelling solutions become viable for all shipowners. Our lightering business continues to be a core service in the US Gulf and also in Latin America, where we are now an emerging player in Brazil. We continued to maintain our service delivery standards and on-time performance in this region by replicating the business model we used in the US Gulf for other growth areas. Our VLCC and Suezmax fleet with a global footprint continues to serve a wide range of customers worldwide. The Product fleet employed on short to long term charters reinforces our commitment to delivering end- to-end solutions for customers worldwide. On the social and relationship aspect, building relationships with banks and other international finance houses has always been one of our key focus areas. We are very fortunate that we have a very good relationship with our banks who trust us, appreciate and understand how we work and how we de-risk our ventures. Our relationship is further bolstered by the fact that we have a strong balance sheet, our gearing ratio is relatively low when compared to the industry and we have good visibility over our cash flow - all enabling us to get very competitive long-term rates for our financing purposes. But the major focus has always been on our people – the success of 2019 was mainly due to the dedication and perseverance of our team, who have experienced both failure and success, as they worked cohesively to focus on how we could convert our passion, possibilities and opportunities into contracts. I am also very proud of the gender diversity in the team across all corporate functions and front-line business, with one fourth of middle management being women, all of whom are appointed purely on merit. The world has to be more inclusive and give equal opportunities for all genders and that is one of AET’s key philosophies. We ended the year on a high note with the announcement of the award for three long- term charter contracts from Shell to provide and operate three Suezmax-class DPSTs. The award for long-term charter contracts by Brazil’s Petrobras for three-Suezmax class DPSTs soon followed suit in February 2020 and all these newbuilds will be delivered in 2022 for operations in international and Brazilian waters. It was certainly a great year in 2019 and an exciting start to 2020 with such great momentum. We are exhilarated with the awards won and we are honoured once again that AET has won new valued contracts from premium clients in the energy segment. These long-term time charter contracts will reinforce our position as one of the global market leaders in the niche DPST market. It will also strengthen our position as being among the world’s leading international petroleum shipping solutions providers. AET was once ranked seventh in the shuttle tanker space but with the contracts that we have won in recent years, we will be ranked third in the world by 2020. We currently operate in Brazil and alongside the other big players in the North Sea, but we believe we have the potential to do more. Therefore, for 2020 and beyond, we are preparing ourselves for the next phase of the energy business; evaluating and prioritising opportunities. We are also looking at growth through joint ventures because while we know there is growth potential in that space, we also realise that we will not be able to do everything on our own. We will continue to experience geopolitical uncertainties and oil price fluctuation. However, despite these challenges, I see a lot of opportunities ahead and I am confident that our clients will continue with us on our journey as they have seen our strengths and the eco-system within which we operate. The broader agenda is to create value to build a better world and AET will be contributing its part in the maritime space as we take on a larger global role. AET has come a long way in the past 25 years during which we have developed and grown from a boutique lightering company operating exclusively in the US Gulf into the global entity that we are today. The pioneering spirit that we started out with will always inspire us, but it is the passion and commitment of our people that will create possibilities in the future to move energy to build a better world. CAPTAIN RAJALINGAM SUBRAMANIAM President & CEO AET Management Discussion & Analysis Petroleum & Product Shipping P R E S I D E N T & C E O ’ S R E M A R K S 97 96 OUR BUSINESS PERFORMANCE MISC BERHAD PEOPLE. PASSION. POSSIBILITIES ANNUAL REPORT 2019