MISC Integrated Annual Report 2020

MEDIUM TO LONG TERM DEMOGRAPHIC SHIFTS AND RAPID URBANISATION The world’s population is forecasted to grow from 7.7 billion in 2019 to 9.7 billion people by 2050, with India set to overtake China as the world’s most populous country. Today, 55% of the world’s population lives in urban areas, a proportion that is expected to increase to 68% by 2050. A growing urban population and further economic development is expected to lead to increasing consumer purchasing power which would drive greater demand for goods, services and energy in the coming decades. Source: UN Source: UN SHIFT IN GLOBAL ECONOMIC POWER AND GEOPOLITICS A new economic world order is emerging – power is shifting to fast-developing markets, particularly China, as a new middle class rises in emerging markets. China has already overtaken the US as the largest economy based on GDP in purchasing power parity (PPP) terms, and could be the largest economy valued at market exchange rates before 2030. Besides China, countries like India, Russia and Brazil are also emerging as economic powerhouses. Growth in many emerging economies will be supported by relatively fast-growing populations, which will boost domestic demand and the size of the workforce. This shifting balance of economic and geopolitical power between traditional and emerging powers will bring many changes, though it will be challenging to predict exactly how the future will unfold. Source: GMF Source: Nomura/IMF OUTLOOK AND OPPORTUNITIES OUR RESPONSE Demand for energy resources and global maritime transportation services is expected to grow together with population, economic and global trade growth. With its population expected to grow beyond 5 billion by 2050, Asia looks set to retain its position as the epicentre of demand for energy and other resources to power its economy in the coming decades. Additionally, there are long-term societal changes affecting future generations’ consumption, lifestyle and work preferences. Future consumers are likely to have stronger inclination towards sustainably-and-responsibly-sourced products and services. Likewise the future workforce is likely to gravitate towards employers who have a clear social and environmental stance. With greater awareness, society will also influence changes in policies to favour cleaner energy, such as natural gas and renewable energy. MISC will pursue opportunities arising from the increasing demand for energy, including conventional LNG shipping and in emerging and niche markets, for example, non- conventional LNG asset solutions, like floating solutions for LNG transportation, storage, regasification and power generation. We will also be assessing maritime opportunities that are in adjacent or similar markets and those which are in line with the global energy transition. In the meantime, we will continue ongoing efforts to weave environment, social and governance considerations into the fabric of our day-to-day operations, so as to meet the expectations of society and continue to be an employer of choice in the long term. Material Matters Risks The long-term global economic power shift away from the established advanced economies is expected to continue over the period to 2050, as emerging market countries continue to boost their share of world GDP despite recent mixed performance in some of these economies. Chinese economic policy will play a key role in shaping global trade flows, affecting many industries including energy and shipping. China’s rise as an economic superpower has triggered massive expansion of the shipping industry. China will need to secure even more of the world’s natural resources and grow markets for its expanding economy. In terms of geopolitics, the world order is fragmenting. A scenario analysis suggests that the relative influence and leadership of the US and China on the world stage and the bilateral relationship between them would play a major role in defining the international landscape. This scenario analysis found that the highest likelihood outcome for world order in the decade ahead would not be a unipolar order or a bipolar Cold War-style competition, but a loose multipolarity. In the coming years, the shipping industry may face mounting political interference in trade, alongside increasing nationalism and de-globalisation, which could lead to shortening or rationalisation of shipping routes. Sources: CSIS, GMF The continuing rise of China and other fast-growing countries will drive demand for shipping and energy and create opportunities which can benefit MISC in the long term. MISC has entered the Chinese market through its charter of six VLECs to STL, which has provided an avenue to further expand its business in the country. Brazil is growing its oil output and Offshore Business segment’s Mero 3 FPSO project win opens the door to more opportunities in Brazil and the Atlantic Basin. In exploiting these opportunities however, MISC will need to tread carefully to manage risks such as trade or geopolitical disputes. Material Matters Risks 2 3 4 5 6 7 8 9 10 11 12 13 World: Total population 1950 1975 2000 2025 2050 2075 2100 © 2019 United Nations, DESA, Population Division. Licensed under Creative Commons license CC BY 3.0 IGO. United Nations, DESA, Population Division. World Population Prospects 2019. http://population.un.org/wpp Total population (billions) Year 95% prediction interval Medium variant 2020 2025 2030 0 10 20 30 Projections for when China’s GDP will overtake the US to become the world’s biggest China (surpassing in 2028) United States China (surpassing in 2026) GDP (USD trillions) Note: Centre for Economics and Business Research (CEBR)’s projections Nomura’s projections GDP measured in trillions (USD) Risk management Increasing geopolitical instability Climate change Business cyclicality Business disruption Asset availability and utilisation Skilled workforce Values and governance Customer satisfaction OUR OPERATING ENVIRONMENT // Key Messages / Highlights / Strategic Review / Sustainability / Financial Review ////// MISC Berhad / Integrated Annual Report 2020 4 76 MISC Berhad / Integrated Annual Report 2020 4 77 ////// Financial Review / Sustainability / Strategic Review / Highlights / Key Messages // Section Section