KEY MESSAGES PRESIDENT/GROUP CEO’S REVIEW MISC Berhad 30 Integrated Annual Report 2021 MISC Berhad Integrated Annual Report 2021 31 The other areas of focus were the various internal transformations we had identified as critical to our future success – our Finance Transformation, Procurement Transformation and Document Control Transformation. Our internal transformation agenda has a clear objective in mind – to make us into a more data-driven organisation that makes decisions based on facts and analysis, and not just instinct. At the same time, we focused on our human capital proposition by strengthening, widening and deepening our leadership bench strength. We have various training programmes to enhance the skills and capabilities of everyone in the MISC Family, from the most junior to the most senior employee. The leadership appointments we made in the Group during the year is a clear testament to the strength of our leadership bench, reflecting our commitment to nurture the individual and team excellence of our employees as well as to cultivate the growth of our diverse talent pool. FURTHER INTEGRATING SUSTAINABILITY INTO OUR CORE COVID-19 was not the only topic dominating the headlines in 2021. It was also a pivotal year with global communities coming together to discuss taking serious action on climate change. At COP26, the International Maritime Organisation (IMO) highlighted the need for the shipping industry to elevate its ambition and raise its environmental targets. More financial institutions are taking a firmer stance on environmental, social and governance (ESG) and whom they are prepared to conduct transactions with. When it comes to sustainability, MISC has consistently embedded ESG matters into our strategy and business operations. I have emphasised before how sustainability is both a philosophy and culture for us. Integrating sustainability is about building our resilience for the new paradigm the world is moving towards, namely a circular and net-zero economy. Our efforts on this front which have seen us stepping up on our sustainability commitments year on year have gained the attention of the international investor domain. I am proud to share that last November, MISC debuted on the Dow Jones Sustainability Emerging Markets Index. We scored a first as the only Malaysian transportation sector company and one of the three Malaysian companies listed on this index globally. Our inaugural listing has led to us being acknowledged as one of the companies demonstrating best-in-class ESG practices in the world and is a testament to our ability to deliver on our strategy which embeds sustainability-related issues and considerations. In 2021, we made good on many promises on the sustainability front. Our standalone Sustainability Report (SR), which should be read in conjunction with our Integrated Annual Report (IAR), provides a deep dive into all our initiatives within our five Sustainability Pillars of Financial, Environmental, Social, Governance and Stakeholder Engagement, and the value we have created for all our stakeholders as a result of these efforts. OUR FINANCIAL FITNESS REPORT CARD So, how did we fare against the stress test that was thrown at us in 2021? It was a year that provided us with the ultimate financial fitness test and therefore an assessment of the effectiveness of our financial discipline. At MISC, we have always been consistent on what our financial ethos is, namely our dual financial discipline of prioritising the generation of secured and recurring cash flow from our operations/assets and high grading the quality of our cash flow as measured by the cash flow return on assets. Our strict investment risk assessment framework which provides us with the discipline to apply consistent and frequent quality checks of having the right counterparties, right contractual terms and focusing on the right quality of investment projects, keeps us on the straight and narrow path. Previously fondly known as MISC2020, this financial strategy has transcended from a set of twin financial goals into a discipline and mantra for us. We do not need reminding of the goals. It is now part of our DNA as an organisation. The proof of the pudding, of course, is in the eating. Let me share two examples of the fruits of our labour over the past years. First exhibit - our Petroleum & Product Shipping segment had to contend with persistently low spot rates as seaborne trade volumes remained at below pre-pandemic levels amid tanker oversupply. Charter rates were flirting with cycle lows. In previous cycles, the cash-generating capacity of this business segment would have dipped with the cycles. Not in 2021. Despite accounting profits being weak and coming in below our budget, the cash generating capacity of the business decoupled from the reported statutory profits and remained healthy, in excess of USD300 million. Second exhibit - despite the Group’s overall operating cash flow generation falling below our expectations for the year, the sheer robustness of the Group’s financial core continue to allow us to defend our credit strength with the credit rating agencies, meeting all our financial commitments and funding all our growth projects under execution and most significantly, funding our commitment to rewarding our shareholders with consistent dividend pay-outs. We were never, at any point in time, perturbed by the shortfall in operating cash flow in 2021. So, did we pass the financial fitness test? My answer – a resounding YES! I will proudly declare that the trials and tribulations of a world that continued to be plagued by a global pandemic in 2021 did not break us. Rather, it validated our strength and resilience. And I dare say that we, as the MISC Group, passed with flying colours. OUR FINANCIAL REPORT CARD FOR THE FINANCIAL YEAR 2021 Against another challenging economic and business backdrop in 2021, I am pleased to report that the Group’s overall financial performance and position have remained solid with better operating results for the year. Group revenue rose 13.5% to RM10,671.7 million compared to RM9,401.2 million in FY2020. Profit before tax (PBT) stood at RM1,774.6 million in FY2021, which was in line with PBT of RM1,771.8 million in FY2020, had we excluded the one-off impact of the unfavourable decision in relation to the GKL arbitration proceedings the previous year. In 2021, we made good on many promises on the sustainability front. Our standalone Sustainability Report (SR), which should be read in conjunction with our Integrated Annual Report (IAR), provides a deep dive into all our initiatives within our five Sustainability Pillars of Financial, Environmental, Social, Governance and Stakeholder Engagement, and the value we have created for all our stakeholders as a result of these efforts. Our inaugural Task Force on Climaterelated Financial Disclosures (TCFD) Report is also a key feature in our SR. The TCFD Report shares the outcomes of the work we have done in identifying our climate-related risks and opportunities, conducting scenario analysis and developing a roadmap to further integrate climate-related risks into our strategic planning and risk management process. Our actions on this front have seen us taking a significant step forward in building resiliency and future-proofing the Group as we move towards a decarbonised future. As a consequence of our deliberate and methodological approach in plotting our decarbonisation strategy, in February 2022, we stepped up on our climate change commitment by pledging to achieve net-zero GHG emissions by 2050. We have identified clear pathways on how we intend to get there, and the entire MISC Family is deeply motivated to realising a better future for all by putting in the hard work required. We are already making contributions through our collaboration in The Castor Initiative, where we are working with other likeminded global industry players to develop ammonia-fuelled zero-carbon emissions vessels (ZEV). Our target is to go into commercialisation of the project as early as 2024 and make ZEVs commercially viable by 2030. I believe the entire MISC Family is deeply passionate about delivering on our promise of a sustainable future and reaffirming our commitment to putting in the hard work required to achieve our ambition.