MISC Integrated Annual Report 2020

///// Sustainability / Financial Review / Business Review / Leadership / Governance /// MISC Berhad / Integrated Annual Report 2020 7 162 MISC Berhad / Integrated Annual Report 2020 7 163 /// Governance / Leadership / Business Review / Financial Review / Sustainability ///// Section Section MARINE & HEAVY ENGINEERING MANAGING DIRECTOR AND CEO’S REMARKS PANDAI OTHMAN Managing Director and CEO, Malaysia Marine and Heavy Engineering Holdings Berhad In 2020, MHB found ourselves in the eye of a perfect storm, as we contended with the twin challenges of the downturn in the oil and gas sector and the COVID-19 pandemic. Our business was impacted by oil majors’ CAPEX cut during the year, which led to the deferment of several large- scale projects. As at December 2020, MHB’s backlog of ongoing offshore projects are stretched out till 2024 which includes a major engineering, procurement, construction, installation and commissioning (EPCIC) works for PETRONAS Carigali Sdn. Bhd. (PCSB)’s heaviest and largest offshore platforms in the region known as the Kawasari Gas Development Project. The government’s imposition of a Movement Control Order (MCO) on 18 March 2020 led to almost a month- long closure of our yard operations to ensure the safety of our workers despite being designated as an ‘essential services’ business. We initially resumed yard operations at limited capacity, and then ramped it up to full capacity soon thereafter. Disruptions in the supply chain led to project delays, as MARKET REVIEW The COVID-19 pandemic caused a drastic drop in global oil demand which led to crude oil prices plummeting. This occurred on the heels of the initial crash in the oil market as a result of the price war between Saudi Arabia and Russia and existing supply glut. Exacerbating the situation were lockdown measures imposed worldwide to curtail the spread of the COVID-19 pandemic. The intensely challenging landscape led to energy majors significantly downsizing their capital spending and revising their investment plans to counteract the negative financial impacts. Global LNG demand and trade were not spared from the ramifications of the COVID-19 pandemic. However, LNG demand fared relatively better compared to oil demand throughout the year. Trade increased in the second half of 2020 especially during the winter to cater to greater demand from Far East consumers. Within the volatile operating environment, MHB focused on resource optimisation to reduce our operating cost and steadfastly pursued business opportunities in other segments to replenish our order book. We intensified our efforts in the execution and delivery of our ongoing projects to ensure competitiveness for ongoing and future bids. KEY DEVELOPMENTS Although there were some initial setbacks off the back of the pandemic and the MCO imposed by the Malaysian government, MHB continued with ongoing contracts and projects, and secured a new contract. During the year, the Heavy Engineering segment was awarded a three-year ‘call-out’ contract from CPOC for the provision of offshore brownfield modification works. The contract is part of an umbrella agreement pertaining to onshore fabrication and offshore modification services for CPOC facilities located within the Malaysia-Thailand Joint Authority (MTJA) area. We continued with EPCIC works on the Kawasari Gas Development Project, and recorded progress of 30.35% for 2020 for PCSB. The project is slated for completion in 2024. Another project which is progressing as scheduled is the Bekok Oil Project, an EPCIC project also for PCSB. Project progress works stood at 58.02% and it is scheduled to be completed in 2021. did border lockdowns which limited our access to foreign specialist workers. Our people navigated a tough year to catch up with time lost during this period to deliver on our key projects for the year. A seminal milestone was the start- up of our new Dry Dock No. 3 (DD3) operations at the end of 2020. The addition of another dry dock that complements our two dry docks and one floating dock has significantly augmented MHB’s capacities to conduct repair and refurbishment services on vessels and other marine and oil and gas facilities. Please refer to the side bar accompanying this Business Review on how DD3 has placed MHB on a path to ensure sustainable future growth. We took advantage of the slowdown in our projects to accelerate our automation and digitalisation initiatives in line with our goal to become a data-driven organisation. MHB was able to swiftly pivot our business to achieve better data- led visibility and insights and drive greater value within the spectrum of marine and heavy engineering related solutions and services we offer. The process and technology improvements we implemented have enabled us to derive significant benefits in terms of time and cost savings. You can read more on our improvements in the Business Review section. As MISC gears up to implement its new Sustainability Strategy 2021–2025, MHB has identified potentially lucrative opportunities within the new growth area of renewable energy in line with the Group’s sustainability agenda. In more recent years, the offshore windfarm sector has gained momentum in tandem with the global energy transition movement. Towards capturing growth opportunities in the offshore windfarm sector, in late 2019 we had entered into a global collaboration agreement with Smulders Projects Belgium NV (Smulders), a leading European offshore windfarm foundations and substations fabricator. Under this partnership, MHB will provide services to fabricate and assemble works in Asia for offshore windfarms. As at end 2020, we have gained traction in the offshore windfarm sector by jointly participating with Smulders in pursuing several projects in Taiwan and Japan. We have stepped up on green initiatives throughout our operations. In particular, we had entered into a Memorandum of Understanding with PETRONAS Power Sdn. Bhd. for the installation of solar rooftop solutions at MMHE West Yard in Pasir Gudang in 2019 as part of our ongoing cost optimisation and energy conservation programme. We progressed with this project in 2020 and have identified seven buildings that will be installed with a total of 8 Megawatt peak (MWp) solar power capacity. Expected to be fully functional in 2021, these solar panels will generate cost savings of RM8.5 million in the next 21-year period. On another front, we encourage our people to adopt the zero-waste lifestyle and to reduce plastic waste generation through the ‘Bring Your Own’ campaign. We have limited the use of polystyrene at our yards by encouraging our people to bring reusable containers and water bottles to work to takeaway food and drink from the canteen instead of using polystyrene or single-used plastic containers. As we move into 2021, we will leverage on our proven strengths and consistent track record to sustain our operations and growth. A key focus will be to catch up on our projects to sustain our business recovery. The addition of DD3 places us in a strong position to secure more projects in the future and we will leverage on our expanded capacity with more competitive offerings in a challenging market. We have in hand a healthy orderbook of projects to look forward to which we expect to deliver on time and on budget. Towards gaining greater cost benefits, we plan to further our investment in equipment and technology upgrades and also in the automation and digitalisation space to enhance our repair and refurbishment services and engineering capacities, as we continue to improve our project deliveries. With regards to the marine side of our business, we are exploring viable opportunities in the industry. We are cautiously optimistic of recovering our footing in 2021, as we steady our course after the passing storm of 2020. We have learnt much from the challenges of the past year and will apply the outcomes of the lessons learnt to drive our operational efficiencies by implementing new and innovative ways of working. Our ability to adapt swiftly will ensure the long-term sustenance of our business. PANDAI OTHMAN Managing Director and CEO, Malaysia Marine and Heavy Engineering Holdings Berhad