Integrated Annual Report 2021

HOW WE CREATE VALUE STRATEGIC REVIEW MISC provides Core Business Solutions and Capabilities Across the Energy Value Chain 4 CORE BUSINESSES 3 KEY ENABLERS KEY ACTIVITIES OUTCOMES OUTPUTS TRADE-OFFS INPUTS EXTERNAL ENVIRONMENT We analyse our operating landscape to identify current trends, challenges and opportunities that shape our value creation ability VISION AND MISSION We ensure that our identification and analysis of all the matters above are aligned with our Vision and Mission to create sustainable value for all GOVERNANCE We have embedded robust governance processes to ensure that our strategy execution is enabled by an effective organisational structure and an accountable decision-making structure STRATEGY AND RESOURCE ALLOCATION We are guided by our clearly-defined corporate and sustainability strategies which address both the short to medium term and the long-term time horizons, which are responsive to the value creation drivers we have identified for our business IDENTIFICATION AND ASSESSMENT OF: • RISKS & OPPORTUNITIES – We identify and analyse internal and external risks, both current and emerging, along with prevailing and future opportunities to ensure our ability to create value over time • OUTLOOK – We identify both positive and negative outlooks within our business context which inform our business priorities • STAKEHOLDERS – We seek to understand the needs of our key stakeholders and align our business priorities against their expectations in order to create value for both MISC and our stakeholders • MATERIAL MATTERS – We identify the material matters that impact our ability to create value in the short, medium and long term, and take them into consideration in the development and execution of our strategy LONG-TERM TRENDS We identify long-term trends that are shaping our macro environment POSITIVE OUTPUTS Energy resource transportation • LNG carriers transported 6.1% of the world’s LNG which provides cleaner energy globally (2020: 6%) • Petroleum and product tankers transported an estimated 115 million tonnes of crude, petroleum products and chemicals to global customers (2020: 110 million tonnes) • Eaglestar provided safe and reliable ship operations and successfully conducted crew change for 10,864 seafarers (2020: 7,767 crew changes) Offshore oil production and storage • Our floating assets processed and stored approximately 32.8% of Malaysia’s crude oil (2020: processed 26% and stored 29%) Heavy engineering and marine repairs • MHB’s Heavy Engineering segment sailed away one project (2020: completed 2 projects and 1 sail away) • MHB’s Marine segment completed 97 vessel repair and maintenance jobs and secured 111 jobs (2020: 64 vessels and 61 jobs) Port management and maritime services • MMS provided pilotage and loading master services to ports and terminals in Terengganu, Melaka, Sabah and Sarawak and its accredited inspectors and engineers performed more than 5,000 vessels screenings, about 800 inspections, world-class marine operations, consultancy and assurance services (2020: more than 7,000 vessels screening, about 800 inspections) Seafarer education • ALAM enrolled 384 students for cadet and ratings programmes; 290 students completed the cadet and ratings programme (2020: enrolled 408 students for cadet and ratings programmes; 203 completed these programmes) • ALAM maintained 100% cadet employability for 2021 with 28 eligible candidates securing employment with shipping companies locally and regionally (2020: 100% cadet employability and 61 eligible candidates securing employment) Asset expansion and fleet rejuvenation • Took delivery of 5 VLECs • Took delivery of 2 newbuild LNGCs • Took delivery of 1 DPST • Disposed of 6 Aframaxes, 2 MOPUs, 1 LNGC and 1 VLCC • Ongoing construction of 6 DPSTs, 5 VLCCs, 2 LNGCs and 1 FPSO Environmentally-friendly and safe operations • Zero incident of major spills to the environment from all operations since 2013 • Delivered one eco-friendly DPST for operations in international waters (2020: 2 LNG dual-fuel and 4 eco-friendly DPSTs) • Zero fatality in our shipping operations (2020: 1 fatality) NEGATIVE OUTPUTS Business operations • Delays on project progress and increased ship operating costs as a result of the COVID-19 pandemic Environment • 4.19 million tonnes of GHG emissions (2020: 4.18 million tonnes) • 38,763 tonnes NOx and 3,922 tonnes SOx emissions into the atmosphere (2020: 38,289 tonnes NOx and 3,352 tonnes SOx) • 20,366 tonnes of hazardous and general waste from non-shipping created (2020: 25,733 tonnes) • 658,153 m3 freshwater withdrawal consumption (for non-shipping activities) (2020: 635,686 m3) • Our financial capital is key to ensure our business continuity and sustain the growth of all our other capitals. In 2021, we allocated a significant portion of our financial capital to the operations and maintenance of our fleet and other assets, ongoing project requirements, new capex investments and purchasing new assets. While this has reduced our financial capital in the short term, it will build our base of physical capital for the longer term. With long-term customer contracts in place for our newbuild and purchased assets, we have ensured long-term secured income streams, which will grow our financial capital into the future. • We also utilised our financial capital to invest in new digitalisation initiatives to drive operational and organisational efficiencies. While this has reduced our financial capital in the short term, it will enhance our intellectual capital in the long term. • Our physical capital comprises mainly of our vessel fleet, floating assets, yards and infrastructure. In recent years, we have focused on our investments in eco-friendly newbuilds to provide greener shipping solutions. Our ability to provide our clients with an eco-friendly fleet that features enhanced efficiency and safety measures allows us to improve our customer service, thus boosting our social and relationship capitals. The lower emissions of our rejuvenated fleet also positively impacts our natural capital. • At the same time, we are disposing our older assets through green ship recycling initiatives which benefits our natural capital. While this will reduce our physical capital in the short term, in the longer term it enables us to refine our business development in line with energy transition and climate change to ensure our long-term sustainable growth. • Our ability to manage our intellectual capital by rejuvenating our fleet with the latest technologies and investing in new digital start-ups geared towards building smart ships, is driven by our human capital and funded by our financial capital. This trade-off will ultimately improve our natural capital through lower emissions, enhance our human capital with new knowledge and skills, and boost our social and relationship capital by improving customer satisfaction. • The technical solutions we have developed for our floating assets, coupled with new technologies incorporated for port management, vessel inspections and yard operations have reduced our financial capital in the short run. However, in the long run it will enable us to integrate IR4.0 technologies across our maritime value chain, thus boosting our intellectual capital. The internal transformations we are driving through our digital strategy is geared towards becoming a data-driven organisation. • Our human capital’s capabilities, skills and knowledge has augmented our intellectual capital. By paying them salaries and wages, we are utilising our financial capital to sustain our human capital. Towards enhancing and upskilling our people in line with the objectives of our five-year business plan and longer range MISC 2050 strategies, we have invested our financial capital to develop robust talent development programmes for employees at all levels. • As we have improved our intellectual capital by incorporating new technologies across our vessels and operations, we have concurrently developed our human capital capabilities to effectively use these technologies to drive operational efficiencies. While all our efforts have reduced our financial capital, it is essential to further build our human capital. Relying on their newly acquired skills and knowledge, our employees will be able to respond to clients’ needs and exceed customer expectations, which in the long run augments our social and relationship capital. • We invest our financial capital to expand our social and relationship capital in the form of ongoing engagements conducted with all our stakeholders. These include engagements with governments and regulators, community initiatives including environmental awareness programmes, industry collaborations, customer relations management, and ongoing discussions with our business partners, vendors and sub-contractors, as well as with the investment community and financiers. As these engagements are conducted by our employees, it affects our human capital in the form of manhours spent. While the expenses of these engagements reduces our financial capital in the short term, in the longer term it enables the growth of our social and relationship capital. • Our community initiatives give us the social license to operate, our regulatory engagements ensure we comply with all legal requirements, and our industry collaborations enable us to chart new paths towards sustainable future growth. All of these are key to the continuous building of our social and relationship capital. Our industry collaborations which focus on the development of zero-emission vessels and our community-based environmental awareness programmes have positive impacts on our natural capital. Collectively the strengthening of our social and relationship capital builds our industry reputation, which in turn contributes to the growth of our financial capital in the longer term by enabling us to continuously maintain and grow our customer base. • Our physical capital’s emissions and waste have a negative impact on our natural capital. If left unmitigated, in the medium and long term it will impact our ability to sustain business growth, thus negatively affecting our financial capital. Towards reducing our carbon footprint, and in line with energy transition, climate change and industry decarbonisation, we have outlined our commitment towards net-zero GHG emissions by 2050 and the MISC 2050 longer range strategy to explore opportunities in the renewable energy and waste-to-value value chains. • This move will improve our natural capital in the longer term, although our efforts to diversify into these value chains will reduce our financial capital in the shorter term, and impact on our human, intellectual and physical capital. It will also improve our social and relationship capital, as we will be viewed as industry players who are committed to bringing about a greener and more sustainable future. In the longer term, our decision to improve our natural capital by mitigating climate-related risks and executing the MISC 2050 strategy will augment our financial capital as we sustain our business growth for the long-term future. • Project and Financial Performance • Risk Management • Climate Change • Customer Satisfaction • Digitalisation and Innovation • Skilled Workforce • Risk Management • Customer Satisfaction • Digitalisation and Innovation • Business Knowledge and Expertise • Skilled Workforce • Diversity and Inclusion • Business Knowledge and Expertise • Values and Governance • Customer Satisfaction • Climate Change • Digitalisation and Innovation • Ocean Health MATERIAL MATTERS UNSDGs FINANCIAL CAPITAL Internally generated funds and debt financing • Shareholders’ equity of RM34.2 billion • Cash and cash equivalents of RM8.0 billion • Debt of RM17.0 billion PHYSICAL CAPITAL Our universe of physical assets • 30 LNG carriers • 6 VLECs • 1 LBV • 67 Petroleum and product tankers • 2 Floating Storage Units • 12 Floating assets • Marine and heavy engineering facilities • Maritime training facility INTELLECTUAL CAPITAL • Specialist knowledge and experience in ship operation and management, shipto-ship transfers, EPCIC and operations of floating production system, fabrication of complex heavy engineering structures, marine repairs, and operating the only modular capture vessels (MCV) in the world, along with our digitalisation initiatives and innovation capacity HUMAN CAPITAL Our base of dedicated, high performing and specialised personnel at sea and shore • Experienced Board and senior management team • A diverse and inclusive workforce of 8,851 employees from 47 nationalities SOCIAL & RELATIONSHIP CAPITAL Our positive brand reputation and the strategic partnerships we develop, along with trusted relationships fostered with our stakeholders NATURAL CAPITAL Reliance on natural resources such as fuel, water and land FINANCIAL PHYSICAL INTELLECTUAL HUMAN SOCIAL & RELATIONSHIP NATURAL STAKEHOLDERS FINANCIAL CAPITAL • Revenue of RM10.7 billion (2020: 9.40 billion) • PAT of RM1.7 billion (2020: LAT of RM169.8 million) • Cash flow from operating activities of RM2.9 billion (2020: RM5.6 billion) • Dividend payout of 33 sen per share (2020: 33 sen per share) • Credit rating of S&P Global Ratings at BBB+, Moody’s Investor Service at Baa2 and MARC at AAAis (2020: S&P Global Ratings at BBB+, Moody’s Investor Service at Baa2 and MARC at AAAis) • Share price increased by 3% resulting in market capitalisation increasing to RM31.5 billion (2020: Share price decreased by 22%, resulting in market capitalisation reducing to RM30.7 billion) PHYSICAL CAPITAL • Vessel availability of above 97% (2020: >99%) and utilisation rate of above 99% (2020: >99%) • Floating asset uptime performance of above 99% (2020: >99%) • Capex value of new contracts secured USD300 million (2020: USD2.8 billion) INTELLECTUAL CAPITAL • Developed capability to operate new class of vessels - VLECs • Ongoing development of zero-emission vessel together with other partners under The Castor Initiative • Commercialisation of digital ventures • Digital transformation initiatives HUMAN CAPITAL • Enhanced leadership programme and succession planning with 97% MC and critical positions filled (2020: 96% MC and critical positions filled) • RM1.7 billion on employee costs (2020: RM1.8 billion) • RM27.9 million spent on training and development (2020: RM47.7 million) • 17% females in decision making roles and 26% females as total shore employees (2020: 16% females in decision making roles and 25% females as total shore employees) • Zero fatalities. LTIF at 0.15 and TRCF at 0.39 (2020: LTIF 0.04; TRCF 0.18) SOCIAL & RELATIONSHIP CAPITAL • Strong reputation and effective engagements that led to favourable outcomes in winning more contract and securing contract extensions • Continued contribution 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 • Some business segments continued with programmes to help communities through the continuing pandemic • Contributed RM1.4 million to COVID-19 related aids (2020: RM7.5 million) NATURAL CAPITAL • GHG reduction initiatives: » » 15% reduction in our fleet average CO2e intensity (gas and petroleum) compared to 2008 due to improved efficiency and low carbon design of newbuild vessels (2020: 22%) • Pollution control: » » 97% of refrigerant used on our vessels are non-ozone-depleting with zero ozone-depleting potential (2020: 98%) • Natural resources management: » » Through freshwater generation system onboard our vessels, about 315,000 m3 freshwater withdrawal from land was avoided (2020: 328,000 m3) • Waste management: » » Hazardous waste from shore-based operations were 99.9% recycled, reused or recovered (2020: 99.7%), minimising impact to natural resource depletion • Biodiversity : » » Conducted 29 reef sites surveys and 6 reef resilience surveys, established two coral rehabilitation sites and monitored water quality at 10 sites to identify the potential threat to coral reefs and subsequently developed remediation actions » » Support SEATRU by upgrading facilities; 10 bokashi compost sets, consisting of a compost bin, biocatalyst and husk, for waste management as well as equipped the facilities with solar panels Gas Assets & Solutions Petroleum & Product Shipping Offshore Business Marine & Heavy Engineering Integrated Marine Services Port Management & Maritime Services Maritime Education & Training For further details on the Group’s key activities, please refer to Who We Are and What We Do on page 10.