MISC Integrated Annual Report 2020

// Key Messages / Highlights / Strategic Review / Sustainability / Financial Review ////// MISC Berhad / Integrated Annual Report 2020 4 64 MISC Berhad / Integrated Annual Report 2020 4 65 ////// Financial Review / Sustainability / Strategic Review / Highlights / Key Messages // Section Section OUR STRATEGIC FOCUS MISC2020 is the Group’s corporate strategy for FY2016-FY2020 that was developed with the aim to ensure that MISC has a sustainable level of recurring income to remain resilient even during the most difficult times. At the time that MISC2020 was conceived, in late 2015, MISC was faced with tough market conditions. The plunge in oil prices since 2014 and the ensuing CAPEX cuts by oil majors posed major challenges for the Offshore Business and Heavy Engineering segments, an oversupply of LNG vessels were a bane for the LNG Asset Solutions segment, while the Petroleum & Product Shipping segment was relatively exposed to the volatile spot market. Against this backdrop, MISC was facing the prospect of diminishing profits due to the approaching expiry of long-term contracts. Hence there was an urgent need to grow secured income business, build new sustainable streams of secured profit, reduce the exposure to cyclical revenues, and focus on cost management. These imperatives formed the basis of MISC2020’s primary objectives, namely: • To achieve a sustainable level of secured profit by 2020; and • To achieve a sustainable return on average capital employed (ROACE) of more than 10% by 2020. Achieving a sustainable level of secured profits by 2020 meant achieving a sustainable stream of secured profit large enough to absorb all fixed costs and overheads as well as losses from cyclical business segments during the worst of cycles. With this target, MISC would not fall into the red in the worst of times. To deliver a sustainable ROACE of more than 10% by 2020 meant focusing efforts on instilling the discipline to spend wisely and make the right investment decisions. As we have reached the conclusion of our five-year MISC2020 journey, we set out the results in achieving our strategic goals in Delivering Our Strategy section on pages 90 to 101. Little did we expect that as we were reaching the end of our MISC2020 journey, we would enter yet another oil price slump, this time together with an unprecedented health cum economic crisis. This time around however, MISC is on a much firmer footing. With the success over the last five years in winning new contracts, the secured income strategy has proven itself, and has indeed boosted our resilience during a tumultuous 2020. In the near term, the Group’s areas of focus include: • Ensuring the successful execution and delivery of the sizeable projects that have recently been won, while the market recovers • Striving for operational excellence and improving performance, efficiency and cost-effectiveness • Enhancing capability and capacity of human capital and strengthening people development, culture and values • Embarking on organisational transformation including digitalisation to improve competitiveness and agility to meet evolving market needs • Being more selective on projects to pursue The next phase in our long-term strategy is moving towards a decarbonised future. Decarbonisation trends in the long term presents both risks and opportunities. Changes in oil market fundamentals and rising environmental activism pose the greatest risk impacting our industry post-COVID-19. However, this also presents opportunities for industry players to sustain or reinvent our roles in the energy value chain by adapting to this changing landscape. The energy transition is expected to open up new products and services, business models, and opportunities for value creation over the long term to those who are willing to embrace change and innovation. Industry players, including oil majors and maritime players are transitioning towards the low-carbon future. The trend for ‘greener’ ships is expected to accelerate as the industry moves towards meeting the aspiration of IMO 2050 which aims to reduce greenhouse gas emissions from international shipping by at least 50% by 2050 compared to 2008 levels. MISC is already a pioneer in green shipping through our LNG dual-fuel vessels. Looking forward, MISC’s contribution in a carbon neutral economy is to offer low-carbon and eventually zero-carbon emissions transport solutions. Given the emerging trends that are expected to gradually but profoundly transform our industry over the coming decades, we are carefully assessing the potential implications of these long- term trends, and we are in the midst of developing our long-term strategy to ensure that we remain relevant and sustainable long into the future and we will provide more details once we have finalised the plan. We are continuing our endeavour in sustainability commitments as we believe that good sustainability practices will bring long term value to our organisation. With this in mind, we have refreshed our five-year MISC Sustainability Strategy which constitutes five pillars, namely Financial, Environment, Social, Governance and Stakeholder Engagement. More details can be found in Anchoring Sustainability @ MISC section on pages 117 to 123. Sustainability is an integral component of MISC’s operations, from the way we conduct our business, manage our employees, reduce impact on the environment, deliver sustainable returns to our investors and shareholders, and strive to exceed the expectations of our customers, to the way we create positive impact for the local communities. We have completed our 2016-2020 strategy and since we began taking a more focused approach towards managing our sustainability performance these five years, we have made good progress. Our key sustainability milestones and achievements are laid out in Delivering Our Strategy section on pages 90 to 101. TO CONSISTENTLY PROVIDE BETTER ENERGY RELATED MARITIME SOLUTIONS AND SERVICES VISION BEYOND 2020 Near term Medium to long term MISC2020 SUSTAINABILITY STRATEGY 2021-2025 SUSTAINABILITY STRATEGY 2016-2020 A five-year master plan to achieve sustainable performance Our sustainability vision is to deliver long term shareholder value by operating safely, sustainably and responsibly to sustain positive impacts for the environment and society Continue with proven secured income strategy Focus on project execution and delivery while positioning for market recovery Set course to navigate our way to a carbon-neutral economy and a sustainable future