KEY MESSAGES PRESIDENT/GROUP CEO’S REVIEW MISC Berhad 32 Integrated Annual Report 2021 MISC Berhad Integrated Annual Report 2021 33 The Group recorded an operating cash flow of RM2,908.6 million, which included cash payments of RM1,126.1 million for the conversion of an FPSO. Excluding the latter payment, MISC would have had an operating cash flow of RM4,034.7 million, a reduction of 27.8% from FY2020. This was attributed to a one-off charter prepayment in the Petroleum & Product Shipping segment in FY2020 and lower operating cash flows in the Offshore Business and Petroleum & Product Shipping segments in FY2021. Despite this, the Group maintained a strong cash balance of RM7,952.3 million, mainly supported by the steady cash flow from the GAS Business segment’s portfolio of long-term contracts. MISC’s balance sheet remains healthy, with low gearing ratios and stable credit ratings. A SOBERING LESSON IN STRATEGIC DISCIPLINE, COURAGE AND PATIENCE The proud display of our financial strength and resilience is not a product of chance or luck in picking the right strategy at the right time. While the adoption of MISC2020 was an important step in achieving this financial discipline that we desired, it was also the second step of a multi-year strategy that began back in 2010. A quick stroll down memory lane. To rebuild the financial robustness of the core of the MISC Group, the first step taken was the rebalancing of our business and asset portfolios. Dating back to MISC’s exit from the liner business in 2012, the subsequent exit of our investment in the tank terminal business in 2015 and finally the exit from the land logistics business in 2017, the refocusing of our resources into a few core business areas were the first steps. Each of the exercise to divest and exit the previous business segments require much deliberation and execution excellence. Each consumed much of the Board of Directors, Management and the Group’s time and resources. These were no easy feats nor strolls in the park. This first sequence of activities took almost the first half of the past decade to achieve. The four core business segments of the MISC Group that we see today is the consequence of this deliberate portfolio shift. MISC2020, that was launched in 2015, was the second leg of the multi-year strategy. It has taken us almost a decade to rebuild and fortify the financial core of the MISC Group that we enjoy today. Let it be a reminder to all of us that success does not come cheap and fast but from well-defined visions and goals, translating into clear strategic roadmaps and logical sequencing of execution activities. I have always emphasised the importance of long-term economic and industry fundamentals/trends as the ones we should pay attention to, in identifying our long-term value creation pathway. Short-term trends are fads that will come and go, but a longer-term view allows for a big picture perspective in driving steady and sustainable growth. Ultimately, we need to see the long game and have the patience and fortitude to see the game plan through. This may mean taking setbacks and making sacrifices in the short term for sustainable long-term gains and value creation. Sometimes, it takes corporate courage to take a few steps back in order for us to make that big permanent leap forward. Now that we have built our financial strength and resilience and subjected it to the ultimate fitness test, what’s the next long game, you may ask now? A NEW LONG GAME - MISC 2050 Last year, I touched on the great energy transition that the world is facing and the double threats that the transition poses to our very existence. The threats are real and from the takeaway messages from COP26 in Glasgow last year, the world is running out of time to arrest global warming, if concrete and decisive actions are not taken immediately. The first threat is to our present core portfolio of businesses as our ships operate on fossil fuels. Consumption of fossil fuels is one of the main sources of GHG emissions, the main culprits behind global warming. In risk terms, it means that our portfolio of assets faces a high probability of technical obsolescence if we do not solve the emission problem. Second threat - the cargoes that we transport around the world, specifically crude oil, face structural demand attrition over time as the world attempts to move away from its dependency on fossil fuels. In risk terms, we may face a shrinking marketplace for our present portfolio of assets. Hence, I shared in last year’s message that we are working on a new roadmap to be called MISC 2050, a 30-year journey to reimagine our future, socially and economically, whereby we will thrive in a circular and net-zero economy. MISC 2050 fills us in the MISC Family with excitement as it opens a whole new world of future possibilities which we can realistically achieve. It is based on the simple fact that we cannot ignore climate change and energy transition, and we need to embrace the circular economy of 2050. This transition will result in some traditional businesses, assets, services and solutions either being marginalised or completely losing their relevance. MISC 2050 is our answer to these two fundamental questions – What does this new world offer us? How can we succeed in it? MISC 2050 is the playbook that will guide us in identifying new businesses that will co-exist with our current portfolio. Over the next one to two decades, MISC will be seeding new business ideas and commercialising them in line with our vision of a new clean, green and sustainable future for all. Over time, these new business portfolios will grow in prominence, scale and size, as the world gets closer to achieving the circular economy. The MISC 2050 strategy is premised on turning challenges into opportunities and we have identified two opportunity pillars that are aligned with our capabilities: Renewable Energy and Waste-to-Value. As a maritime conglomerate, MISC possesses capabilities that can be enhanced to support the maritime needs of the renewable energy value chain. At the point of the inception of the asset, we have Marine & Heavy Engineering, Offshore Business and Integrated Marine Services for design, engineering, procurement and construction; for the leasing and operations of those assets we have Gas Assets & Solutions, Petroleum & Product Shipping and Integrated Marine Services; while Port Management & Maritime Services can bridge the on-water assets to shore and Maritime Education & Training, develops and manages the talent required to future-proof our business. This is at the heart of our first opportunity pillar of the Renewable Energy value chain as the building block to manage climate change challenges, with the maritime sector playing a key role. At the same time, we possess the potential capability to repurpose older maritime assets to support the offshore energy renewable energy supply chain. This will give new life to our assets, and in doing so, we are essentially turning something that is waste into value. This is the premise for our second opportunity pillar of the Waste-to-Value chain as critical in tackling resource scarcity and emissions as well as repurposing maritime assets. You can read more on MISC 2050 and how we envision our transformation in the Strategic Review section of our IAR. To reiterate, we will have two parallel growth strategies, the short to medium-term strategy that is premised on the business-as-usual portfolio, and the longer-term MISC 2050 which is built on a new portfolio of businesses. While the former will be our key business driver for the next five to ten years, the latter is expected to be our core growth engine as we approach the year 2050. I have always emphasised the importance of long-term economic and industry fundamentals/trends as the ones we should pay attention to, in identifying our long-term value creation pathway. Short-term trends are fads that will come and go, but a longer-term view allows for a big picture perspective in driving steady and sustainable growth. Ultimately, we need to see the long game and have the patience and fortitude to see the game plan through. This may mean taking setbacks and making sacrifices in the short term for sustainable long-term gains and value creation. Sometimes, it takes corporate courage to take a few steps back in order for us to make that big permanent leap forward.
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