MISC Annual Report 2019

Market Review The vessel oversupply situation continued to persist across all sectors in 2019, exacerbated by weak growth in seaborne demand which in turn led to a weak freight market for the tanker industry during most of the year. Crude tanker tonnage demand growth slowed down in 2019 and was lower than 2018 due to factors such as production cuts by OPEC+ (OPEC and its allies), sanctions on Iran and Venezuela, and overall slowing global economic growth. Meanwhile, product tanker tonnage demand barely grew in 2019, reflecting the subdued clean petroleum product shipments into Southeast Asia and Europe, while the global fleet remains structurally oversupplied. In the chemical tanker sector, global seaborne trade growth slowed down amid weak global economic growth, partly due to the ongoing US- China trade war. Vessel supply growth was estimated to have increased by 5.1% in 2019, indicating further oversupply in the market. The tide gradually started to turn towards the end of third quarter 2019 when tanker time charter equivalent rates jumped to astonishing heights, amid an ideal combination of improving fundamentals, geopolitical events and the IMO 2020-related disruptions. While there were higher deliveries and only a few demolitions in 2019 that led to a growth in the global crude tanker fleet, vessel restrictions due to US sanctions compensated for the oversupply situation. Vessel time out of service for scrubber retrofitting also impacted ‘active’ capacity growth in 2019. Key Developments In early 2019, AET delivered Eagle Brasilia and Eagle Bintulu , two of the world’s pioneering LNG dual-fuel Aframax tankers. This marked the commencement of a new income stream using a greener, environmentally friendly shipping solution in line with the Group’s Green Sustainability Agenda. Designed to operate with optimum efficiency and deliver environmental efficiency alongside operational excellence, they are part of the endeavours by AET to minimise our environmental impact and carbon footprint. During the year, AET named its two new LNG dual-fuel DPSTs – Eagle Blane and Eagle Balder , at a naming ceremony held in South Korea. These vessels primed AET’s success in 2018 and 2019 and will be delivered to Norwegian energy company Equinor in the first quarter of 2020. Due to our expertise, strength and reputation that we have established over the years in the DPST market, AET was awarded long-term time charter contracts by Shell in December 2019 to provide a total of three newbuild Suezmax-class specialized DPSTs, for operations in international and Brazilian waters. Subsequently, AET was awarded with long- term charter contracts by Petrobras, an existing DPST customer, for three Suezmax-class DPSTs which were secured in early 2020. All the DPSTs will be delivered in stages in 2022. The contract awards resulted from the continuous focus on our growth strategy to invest and expand in quality assets on demand in niche markets for long term charters to premium customers. The strong recognition of our diverse expertise and capabilities to create solutions for our global customers also demonstrates AET’s resilient strength to compete against the best in the global shipping industry to support energy demand worldwide. Currently, AET has four DPSTs chartered out on long-term contracts to Equinor and Petrobras that made notable contributions to our earnings in FY2019. With the seven newbuilds of DPSTs that are currently under construction and expected to be delivered throughout 2020 together with the additional six on order, the total number of DPSTs that AET owns will increase from four to 17 by 2022. This will further reinforce AET’s position as one of the global market leaders in the niche DPST market in addition to fortifying our position amongst the world’s leading international energy shipping solutions providers. This asset growth is also in line with AET’s strategic priorities to grow our secured income business and expand our niche market assets. During the year, we also continued to strengthen our position in the conventional tanker business by securing new deals and renewing existing ones with energy majors and prominent traders. Leveraging our strong track record and market presence in the US Gulf, we secured new lightering contracts and renewed existing contracts. We were also able to successfully capitalise on the rising US crude exports by performing export lightering operations there and continued to expand our presence in ship-to-ship operations in Latin America in 2019. In line with our strategic portfolio review, we decided to scale back our chemical fleet and seven A-Class vessels were sold during the year, while two L-Class vessels, Bunga Lotus and Bunga Lucerne , were redelivered in 2019. These measures will streamline the business structure, consolidate our position in the crude oil business and bolster our business sustainability. To enable us to service our customers better and strengthen client relationships, we expanded our presence in the North Sea region in 2019 with an office in Stavanger, Norway, where AET has a significant base through our shuttle tanker business. Our solid commitment to delivering highly efficient and sustainable operations resulted in several notable accolades in 2019. AET together with Eaglestar were awarded the Jones F. Devlin Awards by the Chamber of Shipping of America (CSA) in recognition of our outstanding safety records for a combined 60 vessels in 2019. These awards are given to manned merchant vessels that have operated for two full years or more without incurring any lost time injury. A combined 59 vessels from AET and Eaglestar were also recognised by the CSA with Environmental Achievement Awards in 2019, with 18 vessels holding this rank for 10 years or more. These two awards further validated our stringent HSSE policies and reflected industry recognition of our accomplishments. Meanwhile, the DPST newbuild programme at Samsung Heavy Industries achieved 1.5 million manhours with zero lost time injury. These achievements have validated AET’s commitment to the highest international standards of safety, compliance and environmental performance, and build a positive brand experience that ultimately enables us to differentiate ourselves from the competition. Sustainability Our sustainability strategy is governed by a five-year roadmap that guides and encourages us to integrate our thinking and planning across six key pillars: customers, shareholders, governance and business ethics, employees, environment and community. Our drive for continuous evolution to remain relevant and aligned with the changing business needs of our customers was rewarded with the award of a total of six long-term DPST contracts from Shell and Petrobras mentioned earlier. Celebrating our 25th anniversary in 2019, we hosted Customer and Business Partner Appreciation dinners in Houston, Singapore, London and Geneva to appreciate and further strengthen the partnerships we have developed with our customers and business partners. Management Discussion & Analysis CUSTOMERS GOVERNANCE AND BUSINESS ETHICS Diversity and inclusion are fundamental components of talent management at AET to ensure the future success of our business. Gender and nationality are the two areas of diversity where we continue to focus on. Given the global nature of our business, our talent is naturally diverse; coming from some 17 nationalities while the gender distribution ratio between male and female at AET shore currently stands at 56% to 44%, with women representing 25% of the management and above. In the maritime industry this is a commendable achievement with gender diversity across corporate functions and front-line business. AET aims to develop a workplace that values inclusion where employees from different backgrounds and beliefs can flourish, and in 2019 we trained our employees on better self-awareness and mitigation of unconscious biases to develop better inclusion practices by mitigating unconscious biases in recruiting, in talent reviews etc. EMPLOYEES Our Code of Conduct and Business Ethics is embedded as a cultural component within the organisation and to ensure delivery of consistent, practical and purposeful ethics and compliance training to every member of our global team, online training was rolled-out in 2019. Successfully completed by all AET onshore staff, the training covered the topics of anti- bribery and corruption and global data protection and privacy. AET pursues strategies that support long-term goals that are aligned with the growth aspirations of our shareholders in the energy-related maritime sector. We conduct business activities congruent to these strategies and plans, delivering sustainable shareholder values. SHAREHOLDERS Petroleum & Product Shipping 99 OUR BUSINESS PERFORMANCE ANNUAL REPORT 2019 98 MISC BERHAD PEOPLE. PASSION. POSSIBILITIES