MISC Integrated Annual Report 2020

// Key Messages / Highlights / Strategic Review / Sustainability / Financial Review ////// MISC Berhad / Integrated Annual Report 2020 4 62 MISC Berhad / Integrated Annual Report 2020 4 63 ////// Financial Review / Sustainability / Strategic Review / Highlights / Key Messages // Section Section FINANCIAL OUTCOMES • Sustained strong cash flows despite challenging environment, due to secured income from long-term charter contracts • Dividend payout of 33 sen per share for 2020 (2019: 30 sen with a special dividend of 3 sen) • Maintained strongest credit rating in marine transport sector by Moody’s Investors Service and S&P Global Ratings as at 31 Dec 2020 • Multiple long-term charter contracts won with total capex value of USD2.8 billion (2019: USD1.1 billion) • Share price decreased by 18% in 2020, resulting in market capitalisation decreasing to USD 7.7 billion • Loss after tax of RM169.8 million, mainly attributable to unfavourable GKL arbitration outcome and COVID-19 impact OPERATIONAL OUTCOMES • Consistently maintained high vessel availability and utilisation of more than 98% for our fleet • Excellent floating asset performance with uptime of more than 99% • Multiple first achievements for the Group: - Secured first major deepwater FPSO project in Latin America - Diversified into China and the ethane transport industry with the acquisition of six VLECs on long-term charters - Marked its maiden foray as the commercial operator and ship manager of Southeast Asia’s first dual-purpose LBV • Onshore and offshore operations continued its business as usual despite the pandemic, with some interruptions in yard operations • Ability to scale up DPST operations within a short period of time, with the delivery and operationalisation of six DPSTs in 2020 adding to the four DPSTs already in service HUMAN CAPITAL OUTCOMES • Developmental opportunities and progression: Enhanced leadership programme and succession planning with more senior positions filled (2020: 96% MC and critical positions filled; 2019: 93% MC and critical positions filled) • Appointment of three new Board members and establishment of new Board Governance and Risk Committee to inject new and fresh insights to oversee governance and guide strategic direction of the Group • RM1.8 billion spent on employee costs, no change from 2019 • RM47.7 million spent on training and development, (2019: RM63.7 million) • 16% female in decision making role and 25% female in total shore employees (2019: 16% female in decision making role and 26% female in total shore employees) • Reduction in LTIF at 0.04 and TRCF at 0.18 (2019: LTIF 0.10; TRCF 0.26) SOCIAL AND RELATIONSHIP OUTCOMES • Strong reputation and effective engagements that led to favourable outcomes in winning more contracts and securing new customers • Conducted customer engagement survey with key customers with overall satisfaction of 89% (2019: no survey conducted) • Compliance with regulations and international standards with zero fines and penalties with regards to health, safety and environment • Established partnership with NGO and academic institution on conserving reef and sea turtles as well as public marine biodiversity programmes • Contribute to the growth of the nation's maritime and oil and gas industries through our well-established programmes in ALAM that promote education and awareness amongst the youth • Contributed RM7.5 million for COVID-19 national pandemic response and COVID-19 related aids ENVIRONMENTAL OUTCOMES • Energy efficiency and carbon emissions reduction initiatives: - 9% reduction in vessel fuel consumption resulting in avoidance of approximately 500,000 tonnes of total vessel carbon emissions (12% reduction) from a baseline of 2016, minimising the impacts of climate change (2019: 8%, 300,000 tonnes, 7% reduction) - 18%, 10% and 5% carbon reduction for our LNG, petroleum and product fleet from 2016 baseline (2019: 16%, 13% and 9% for LNG, petroleum and product fleet) - 7% of revenue came from our environmentally-friendly vessels that contribute to cleaner environment and support decarbonisation aspirations of the maritime industry - Secured more contracts for LNG dual-fuel vessels and ventured into LNG bunkering business as part of the move towards decarbonising the maritime industry • Pollution control: Reduction of 88% SOx and 8% NOx intensity across all vessel types through the use of cleaner fuels and emission control systems in 2020 (2019: 35% SOx, 10% NOx) • Natural resources management: Through freshwater generation system onboard our vessels, about 328,000 m 3 freshwater withdrawal from land was avoided in 2020 (2019: 322,000 m 3 ) • Waste management: Hazardous waste from shore-based operations were 100% recycled, reused or recovered in 2020 (2019: 99%), minimising impact to natural resource depletion • Biodiversity: - Established marine biodiversity conservation flagship programme through protection of coral reef and taking positive actions to prevent plastic litter in our oceans - Established sea turtle conservation programme to protect and preserve sea turtles CONTRIBUTIONS TO UNSDG STAKEHOLDERS TO WHOM WE PROVIDE VALUE OUTCOMES TRADE-OFFS CAPITALS RELEVANT MATERIAL MATTERS HOW WE CREATE VALUE Financial capital We recognise that increasing our financial capital over time is key to sustaining growth across all other capitals. To this end, we take a disciplined approach in allocating financial capital towards meeting current needs, investing for the future and distributing dividends. A large portion of our financial capital is dedicated to physical capital. In the short and medium term, incurring new capital expenditure will reduce our financial capital. However, as our newbuild assets are constructed and deployed to service against a long-term customer contract, they will produce secured income which in turn will grow our financial capital over the long term. Physical capital Our vessels require sizeable financial capital to construct. Investment in physical capital is critical not only to pursue our growth objectives, but also to rejuvenate our fleet through replacement of our old vessels, thereby sustaining our business in the long run. Investing in newbuild assets with modern and green technology may incur higher cost, but they will help to improve customer service through enhanced efficiency and safety, and also reduce our environmental footprint, thus benefitting our social and relationship, human and natural capitals. Intellectual capital In 2020, the COVID-19 pandemic sped up technological transformation, bringing the digital agenda front and centre as a game changer that will benefit the maritime industry by harnessing the possibilities offered by digital technologies, artificial intelligence and automation. To embrace this change, we are investing financial and human capital into improving intellectual capital by driving transformation in finance, procurement and other processes, implementing technical solutions for offshore assets, digitalising our fleet and further tapping on Industry 4.0 technologies. This is a trade-off that will add positively to all our capitals in the long run. Human capital In pursuit of our goal to become a major player in the Brazilian FPSO market, we expanded our headcount in the Offshore Business segment. We carried out a large-scale capability building exercise which required high investment in hiring diverse talent with the right skill set and experience to execute complex deepwater FPSO contracts, thus affecting our financial capital. Our ongoing investment in various HR capability development and leadership programmes depletes our financial capital. However, this investment is necessary to retain the right people who are able to achieve the Group’s business goals and targets, which will positively impact all other capitals over time. At the same time, the growth of our employees’ skills is augmenting our intellectual and social and relationship capitals. Natural capital Emissions and wastes from our physical capital negatively impact upon natural capital. In line with our long-term strategies to reduce our carbon footprint and to promote circular economy practices and manage natural resource consumption, we are investing heavily in more modern and efficient technologies such as LNG dual-fuel vessels in our operations which will lead to a short term decrease in our financial capital. However, in the longer term, besides mitigating the business impact on natural capital through the reduction of GHG emissions, the utilisation of enhanced technology will benefit our intellectual capital and the new technical skills acquired will improve our human capital. Social and relationship capital In the longer term, MISC’s investment in social and relationship capital through our stakeholder engagements promotes the growth of our financial capital. However, in the short term, both financial and human capitals are affected through expenditures and hours spent on social engagements, community investment and collaboration with industry players to cultivate positive relations with all stakeholders and ensure compliance with regulations and international standards. Our client-centred engagements leverage on the strong relationships we have built over the years, to effect partnerships that bring mutual benefit and which create new business opportunities, thus positively impacting our financial capital. Our community engagements strengthen our social license to operate, and elevates our brand recognition, thus boosting our social and relationship capital in the long run. Our investments in community-based environmental awareness initiatives also improves our social and relationship capital, while offsetting our impacts on natural capital. In the longer term, the resources expended will boost our financial capital and build the stocks of our human and intellectual capitals. CUSTOMERS EMPLOYEES COMMUNITY COMMUNITY CUSTOMERS REGULATORS REGULATORS SHAREHOLDERS FINANCE PROVIDERS Project and financial performance Risk management Skilled workforce Diversity and inclusion Business knowledge and expertise Customer satisfaction Values and governance Climate change Ocean health Digitalisation and innovation Skilled workforce Digitalisation and innovation Business knowledge and expertise Customer satisfaction Digitalisation and innovation Climate change