MISC Integrated Annual Report 2020

Introduction / Who We Are / Key Messages / Highlights / Strategic Review //////// MISC Berhad / Integrated Annual Report 2020 44 MISC Berhad / Integrated Annual Report 2020 45 //////// Strategic Review / Highlights / Key Messages / Who We Are / Introduction 2 2 Section Section THRIVING DESPITE PREVAILING CHALLENGES I am happy to share the key highlights of each of our major business and operating subsidiaries/divisions. Our LNG Asset Solutions segment had another good year in capturing growth projects, by acquiring six of the world’s largest ethane carriers which forms the thrust of our venture into the growing ethane trade. Lauded by the Maritime Reporter and Engineering News as one of the ‘Great Ships of 2020’, we took delivery of the first of these VLECs, Seri Everest , in October 2020 and recently its sister vessel, Seri Erlang, in January 2021. These six new VLECs will enable us to gain a strong foothold in this niche segment to cater to increasing future demand. The Petroleum & Product Shipping segment went through a rollercoaster market. It was a year of two halves, with high earnings in the first half, and low returns in the second, but we ended with an improved operating profit overall over the previous year. We continue to take bolder steps in line with our sustainability aspirations by expanding our fleet of green and eco-friendly tankers. We secured time charters for two LNG dual- fuel very large crude carriers (VLCCs) from TOTAL as well as three Suezmax second-generation dynamic positioning shuttle tankers (DPSTs) from Petrobras. These successes, together with the delivery of two LNG dual-fuel DPSTs and four eco-friendly DPSTs during the year, all on long-term charters with international energy companies, clearly demonstrates the potential of combining commercial viability and environmental sustainability in ensuring that we deliver our business objectives and at the same time reduce our carbon footprint. As I highlighted earlier, the Offshore Business segment’s award by Petrobras of our first major deepwater project in Brazil, the Mero 3 FPSO project, has been one of the high notes of the year. We worked towards securing this contract through focused investments on people, processes, partners and technology. The aim was to strengthen our competitive position in bidding for larger international offshore projects with higher complexity in the likes of the Mero 3 FPSO project. Our team has demonstrated tremendous dedication and commitment to make this a reality. Our achievement on this front has ushered in a new era for MISC, denoting our ability to take on a complex project with a huge investment that will ultimately lay the foundation for future international projects. The lockdown and restrictions imposed by the Malaysian government in March 2020 to stem the spread of the COVID-19 pandemic in the country had adversely impacted the Marine & Heavy Engineering segment due to the closure of their yard operations for almost a month to ensure the safety of their workers. Once the restrictions were lifted, MHB initially resumed their yard operations at limited capacity and then ramped it up to full capacity soon thereafter. Despite these disruptions, the segment closed the year by completing Dry Dock 3 which commenced operations in December 2020. The addition of another dry dock to our existing facilities of two dry docks THE GREAT ENERGY TRANSITION AND THE THREAT TO OUR VERY EXISTENCE In last year’s message, I explained the meaning of sustainability at MISC. Sustainability is both a philosophy and culture for us – the need to perpetuate our existence into the future and for the next generation. Besides the need for financial sustenance which I have explained in great detail, this future also demands that we address all aspects of social responsibilities, environmental considerations and good corporate governance. These are the expectations of our multiple stakeholders. In the maritime space, the focus is on sustainable shipping for a sustainable planet. The entire value chain is taking sustainability on board and subsuming its principles into their respective businesses. Our customers are seeking greener products and services and have extended this expectation to vendors in our value chain. Our investors and banking partners are putting greater emphasis on environmental, social and governance (ESG) considerations when evaluating businesses and institutions that they wish to invest or do business with. To ensure the long-term viability and relevance of our businesses, MISC needs to address these critical concerns. It is time we translate our philosophy and culture of sustainability to address and tackle all these concerns head on in terms of the very actions that we take as a Group in the years to come. Beyond the expectations of our stakeholders, we face a greater challenge at our doorstep. We cannot ignore the double threats of the energy transition to the very existence of MISC. The first threat is to our portfolio of existing assets. Our ships run on the very hydrocarbon fuel that is a source of greenhouse gas (GHG) emissions that contribute to climate change. We need to address our choice of fuel for our vessels that is consistent with a future net zero carbon era. Secondly, the cargoes that we transport around the world, specifically oil, is facing an unavoidable structural reduction in demand over time as the world moves away from oil-based fuel sources. To ignore these structural shifts (long-term fundamental trends) is to risk our very own relevance in the future. We have not sat still and did nothing, waiting for others to show the way forward. Rather, we believe it is our duty to determine our own fate during this energy transition. Over the last few years, the Group has already begun to respond in a few different ways. Firstly, we placed stronger emphasis on greener shipping solutions as evidenced by our pioneering investments in LNG dual-fuel technology and eco-friendly vessels. As we believe strongly in greater stakeholder collaborations in the maritime industry, we decided to join forces with our shipping peers via the Global Maritime Forum (GMF). GMF has pioneered many global alliances workings towards the future welfare of the global maritime industry and one of the priorities is the decarbonisation of shipping. Through the GMF, we signed up to be a member of the Getting to Zero Coalition which is a partnership between GMF, the Friends of Ocean Action and the World Economic Forum. It is through this network of peers who share a vision of sustainable shipping in a green future, that we were able to form a Joint Development Project a year ago with Samsung Heavy Industries, Lloyd’s Register and MAN Energy Solutions to develop a commercially viable zero-emission vessel (ZEV) by 2030. The coalition has been further expanded in February 2021, with two new partners namely the Maritime and Port Authority of Singapore (MPA) and Yara International ASA (Yara). With the addition of MPA and Yara, the now six-partner coalition represents a complete representation from all key stakeholders of the maritime ecosystem that we truly believe can help make a ZEV fuelled by ammonia, a reality. We do not have all the answers today but over the course of the next few years, the coalition will address each challenge one by one. We proudly named the coalition ‘The Castor Initiative’. We chose this name as Castor is a star system, comprising six stars that shine brightly in unison. These six stars represent the six partners. and one floating dock has built up our regional capabilities to conduct repair and refurbishment services on vessels and other marine and oil and gas facilities. Our three strategic enabler business segments continued to support our four core businesses, despite the various challenges they had to contend with in their own operations. Our Integrated Marine Services segment steadfastly upheld the highest levels of operational excellence and efficiency, thanks to the diligent efforts of its people despite various COVID-19 restrictions and regulations imposed by global authorities. With their strong industry reputation and credibility that has been built over several decades, Eaglestar is now poised to take their business to the next level by offering their services to third-party customers. Our Port Management & Maritime Services segment also had to deal with the challenges of COVID-19 which disrupted their vessel inspection operations. MMS responded by accelerating the digitalisation of its operations and processes, and successfully launched its mobile-based application for the Vessel Inspection System (VIS) and the Offshore Support Vessel Inspection System (OSVIS). MMS also charted a new milestone which strengthened its industry position through its official recognition as a member of the Oil Companies International Marine Forum (OCIMF). The COVID-19 has forced the closure of educational institutions to limit infections and ensure student safety. In response, our Maritime Education & Training segment was able to continue its activities by providing online remote learning options for its students. Some limited onsite education was also provided for certain courses, especially practical courses, that were allowed by the respective authorities. Details on the performance of each business segment can be found in their respective sections on pages 136 to 189 of this Integrated Annual Report. PRESIDENT/GROUP CEO’S REVIEW