Integrated Annual Report 2023 NAVIGATING A SUSTAINABLE FUTURE TOGETHER
NAVIGATING A SUSTAINABLE FUTURE TOGETHER Scan this QR code to view it online or visit https://www.miscgroup.com/ THEME RATIONALE Navigating a Sustainable Future Together, reflects our belief that building a better world is not just a goal but a journey we embark on collectively with stakeholders, employees, and the communities we operate in. It harmoniously intertwines our 55-year legacy as a global maritime conglomerate with a visionary roadmap to foster a just energy transition and shape a sustainable world for the next generation. In the next chapter of our journey, we aim to embrace and lead transformative changes that will propel us toward a more sustainable and responsible future. To us, success is not merely measured by cargo tonnage but by the profound impact on people, the environment, and society at large. What’s Inside 8 Who We Are 10 What We Do 14 How We Move Energy 2 ABOUT MISC 4 Overview 5 MISC’s 2023 Integrated Reporting Suite 1 ABOUT THIS REPORT 3 KEY MESSAGES 18 Chairman’s Message 22 President/Group Chief Executive Officer’s Message 26 Vice President’s Message Corporate Planning & Group Finance 4 HIGHLIGHTS 32 Key Highlights 2023 34 A Look Back at 2023 5 VALUE WE CREATE 42 Our Integrated Approach to Value Creation 44 Value Creation Business Model 46 Key Capitals 48 Engaging with Stakeholders 6 STRATEGIC REVIEW 54 Our Operating Environment 62 Our Material Matters 66 Our Risks and Mitigation Strategies 70 Delivering Our Strategy and Its Focus 7 BUSINESS REVIEW 80 Gas Assets & Solutions 83 Petroleum & Product Shipping 86 Offshore Business 89 Marine & Heavy Engineering 92 Marine Services 96 Maritime Education & Training 11 LEADERSHIP 130 Our Board at a Glance 131 Our Board of Directors 132 Profiles of the Board of Directors 136 Our Management Committee 138 Profiles of the Management Committee 12 GOVERNANCE 146 Corporate Governance Overview Statement 165 Board Nomination & Remuneration Committee Report 172 Board Audit Committee Report 181 Board Sustainability & Risk Committee Report 185 Statement on Risk Management & Internal Control 199 Statement of Directors’ Responsibility 199 Additional Compliance Information 13 ADDITIONAL INFORMATION 202 Properties Owned by MISC Berhad and Its Subsidiaries 204 Statistics on Shareholdings 207 Corporate Information 208 List of Abbreviations 212 Notice of Annual General Meeting 216 Administrative Notes Relating to the 55th Annual General Meeting Form of Proxy 14 ANNUAL GENERAL MEETING FINANCIAL REVIEW 9 108 Group Financial Review 111 Financial Calendar 112 Five-Year Group Financial Performance 114 Statement of Value Added & Value Distributed 10 ANCHORING SUSTAINABILITY 118 Sustainability Governance 120 ESG Risk Management 121 Sustainability Strategy and Its Key Progress in 2023 123 Contributing to the Sustainable Development Goals (SDGs) 124 Memberships and Associations 125 Climate-Related Financial Disclosures 126 Bursa Malaysia Common Sustainability Matters and Indicators CORPORATE ENABLERS 8 102 People Development 103 Operating Safely & Sustainably 104 Operating Responsibly NAVIGATION ICONS Material Matters Stakeholders Key Capitals Physical Capital P Human Capital H Natural Capital N Financial Capital F Intellectual Capital I Social & Relationship Capital SR SDGs Risks Geopolitical Instability Increasing ClimateRelated Regulations and Requirements Shift in Stakeholders’ Preference Towards New Energy and Low-Carbon Solutions Technology Developments Project Management Asset Availability, Utilisation and Marketability Governance and Integrity Health and Safety Cybersecurity Talent Development and Retention Health and Safety Climate Change Energy Management Financial Performance Values, Governance and Business Ethics Human Rights Sustainable Supply Chain Ocean Health Security Talent Development and Retention Waste Management Diversity and Inclusion Digitalisation Cybersecurity Community Investment Employees Customers Business Partners/ Suppliers & Vendors Government/ Regulators Shareholders/ Investors/ Financial Services Providers www.miscgroup.com miscweb@miscbhd.com www.miscgroup.com/ our-solutions Business Solutions www.miscgroup.com/ investor-relations investor.relations@ miscbhd.com Investor Relations www.miscgroup.com/ sustainability misc.sustainability@ miscbhd.com Sustainability www.miscgroup.com/ about-us/corporategovernance Corporate Governance Communities Media Industry Peers Academic Organisations Trade Associations/ NGOs
We are pleased to present MISC Berhad’s (“MISC” or “the Group”) Integrated Annual Report 2023. The purpose of this report is to provide a balanced and fair assessment of how we create value for our diverse stakeholders. This report presents a factual narrative of our material matters, business strategies, risks, corporate governance as well as financial and non-financial performance. It also seeks to underscore our relentless drive towards innovation and low-carbon solutions, creating value for our shareholders and stakeholders alike. MISC BERHAD INTEGRATED ANNUAL REPORT 2023 www.miscgroup.com Overview MISC’s 2023 Integrated Reporting Suite Reporting Scope and Boundaries This Integrated Annual Report (IAR) provides disclosures on MISC Berhad, its subsidiaries, associates and joint ventures, which are referred to as MISC or the Group throughout the report. It covers the full calendar year from 1 January to 31 December 2023, unless stated otherwise. The report also includes any material events that occurred after this date up to the date of publication. The information presented relates to the Group’s business activities and operations which cover Gas Assets & Solutions, Petroleum & Product Shipping, Offshore Business, Marine & Heavy Engineering, Marine Services and Maritime Education & Training. Materiality The information presented in this IAR is based on material matters that are most important to our business and stakeholders. In determining our material matters, we took into consideration issues that impact our ability to deploy our strategies or create shared value and long-term financial and non-financial performance; the risks identified; and the interests of our key stakeholders. Demonstrating Our Integrated Thinking We provide an overview of the Group’s ability to create value by implementing corporate and sustainability strategies. We identified the linkages, impacts and synergies between our financial and non-financial capitals, material topics, stakeholder expectations, strategic objectives, risks and opportunities. Sustainability Risks and Governance In all markets where we operate, material economic, environmental, social and governance (EES&G) principles are taken into consideration when creating our strategies, policies and initiatives. We have also integrated EES&G risk management approaches into our performance modelling. Assurance The financial information in this report is based on the consolidated Audited Financial Statements for the year ended 31 December 2023, audited by Ernst & Young PLT. Fuel consumption and vessel data have undergone third-party verification by DNV, ensuring compliance with the Ship Energy Efficiency Management Plan (SEEMP) and MARPOL Convention Regulation 22A. Exclusions The information is guided by our appetite for disclosure. We have withheld information that falls within the following categories: • Information that would jeopardise our strategic and competitive advantage; • Information that we are contractually precluded from sharing; and • Information which we are unable to verify. Forward-Looking Statements This IAR incorporates forward-looking statements that represent the Group's expectations of its future value creation prospects. These forward-looking statements involve a marked degree of uncertainty, given the dynamic nature of the operating environment and the inherent uncertainties within the industry in which MISC operates. Actual outcomes may deviate from the projections outlined in the forward-looking statements. 4 5 Key Frameworks Applied IAR SR FR International <IR> Framework issued by the IFRS Foundation in 2021 √ Main Market Listing Requirements (MMLR) issued by Bursa Malaysia √ √ Companies Act 2016 (CA 2016) √ √ Malaysian Code on Corporate Governance 2021 √ √ Corporate Governance Guide (4th Edition) issued by Bursa Malaysia √ Malaysian Financial Reporting Standards (MFRS) √ √ International Financial Reporting Standards (IFRS) √ √ Bursa Malaysia Sustainability Reporting Guide √ Global Reporting Initiative (GRI) Standards √ Sustainability Accounting Standards Board (SASB) Standards √ Dow Jones Sustainability Indices (DJSI) √ Carbon Disclosure Project (CDP) √ FTSE4Good Bursa Malaysia Index √ Task Force on Climate-related Financial Disclosures (TCFD) √ AA1000 Stakeholder Engagement Standard √ United Nations Global Compact Guiding Principles √ United Nations Guiding Principles on Business and Human Rights √ Principles of Climate Governance by World Economic Forum √ United Nations Sustainable Development Goals (UNSDGs) √ Morningstar Sustainalytics ESG Risk Ratings √ MSCI ESG ratings √ For 2023, we have provided disclosures based on the following reporting frameworks: INTEGRATED ANNUAL REPORT (IAR) 2023 Offers shareholders and stakeholders a balanced and comprehensive overview of our financial and non-financial performance. It includes insights into the external environment, our business model, strategy, achievements, financial statements, material matters, corporate governance and risk management. SUSTAINABILITY REPORT (SR) 2023 Details our initiatives, outcomes and performance in key Environmental, Social and Governance (ESG) areas, enhancing transparency in our ESG efforts. This report also encompasses our Task Force on Climate-related Financial Disclosures Report. FINANCIAL REPORT (FR) 2023 Provides detailed financial disclosures, including the Directors’ Report, Audited Financial Statements and Independent Auditors’ Report, catering to shareholders, investors, analysts and other interested parties. Responsibility Statement The Board of Directors acknowledges its responsibility in ensuring the integrity of the MISC Berhad Integrated Annual Report 2023. In the Board’s opinion, this report has addressed all material issues and matters and fairly presents the Group’s performance for the year 2023. This report has been prepared in accordance with the International Integrated Reporting <IR> Framework. Approved by the Board of Directors on 26 February 2024 and signed on behalf of the Board: DATUK ABU HURAIRA ABU YAZID Chairman CAPTAIN RAJALINGAM SUBRAMANIAM President/Group Chief Executive Officer SECTION 1 ABOUT THIS REPORT
6 7 MISC BERHAD INTEGRATED ANNUAL REPORT 2023 www.miscgroup.com ABOUT MISC Section 2 8 Who We Are 10 What We Do 14 How We Move Energy
8 MISC BERHAD INTEGRATED ANNUAL REPORT 2023 www.miscgroup.com ABOUT MISC SECTION 2 Who We Are Who We Are 9 Our Mission Our Vision To consistently provide better energy-related maritime solutions and services To be consistently better, we strive to: • Exceed the expectations of our customers • Promote individual and team excellence of our employees • Create a positive difference to the lives of communities • Care for the environment and operate responsibly • Drive sustainable value for our shareholders Sustainable partnerships with key industry players Stable cash flow with strong discipline in risk and financial management Integrated commercial viability and ESG priorities in our business operations Highly experienced leaders, operating within a strong governance framework Diversified business portfolio and track record of operational excellence MISC Berhad is a world leading provider of international energy-related maritime solutions and services. The Group’s principal businesses comprise energy shipping and its related activities, owning and operating offshore floating solutions, marine repair and conversion, engineering and construction works, integrated marine services, port management and maritime services, as well as maritime education and training. Our extensive global footprint allows us to deliver a wide range of solutions that cater to various areas within the maritime-related energy value chain. At the heart of MISC Group’s success is our modern and diversified fleet of vessels and floating assets, complemented by the expertise of our diverse global workforce at sea and shore. Global Operations* Operating presence in 11 countries globally, moving energy across 6 continents Strong Track Record 55 years of sterling track record in delivering energy-related maritime solutions and services Market Strength Market Capitalisation: RM32.8 billion Fleet Strength Modern fleet of 104 LNG, Petroleum and Product vessels Reputable Floating Production System Owner-Operator with 13 assets Among the world’s leading shipping conglomerates Strong Credit Ratings in the marine transport sector Moody’s Ratings Baa2 (Stable) S&P Global Ratings BBB+ (Stable) Our Key Highlights Our Strengths Our Shared Values Loyalty Integrity Professionalism Cohesiveness Loyal to corporation Honest and upright Strive for excellence United, trust and respect for each other Over 10,000 sea and shore employees from over 40 diverse nationalities * For more information on where we operate, please refer to MISC's corporate website at https://www.miscgroup.com/about-us/where-we-operate
10 11 MISC BERHAD INTEGRATED ANNUAL REPORT 2023 www.miscgroup.com ABOUT MISC SECTION 2 What We Do What We Do Please refer to Petroleum & Product Shipping Business Review on page 83 for more information. Petroleum & Product Shipping We own and operate a diverse fleet of conventional tankers and specialised assets in all key geographies to deliver services to global energy companies, refiners and traders. Our product fleet transports a wide range of petroleum products and our specialised assets provide support to the oil and gas industry. We remain at the forefront of advancing shipping solutions across the industry with modern and eco-efficient vessels including LNG dual-fuel vessels. 02 Please refer to Gas Assets & Solutions Business Review on page 80 for more information. Gas Assets & Solutions Our Gas Assets & Solutions (GAS) segment specialises in transporting liquefied natural gas (LNG) and ethane while continuously looking into new opportunities for gas asset-based solutions. We prioritise operational excellence, backed by strong track record of timely deliveries. Our continuous investments in modern, fuel-efficient LNG carrier (LNGC) vessels and new technologies reinforce our competitive edge. 01 Fleet Strength • 40 vessels • 14 vessels under construction LNG Bunker Vessel (LBV) An LBV supplies LNG as marine fuel (bunker) to LNG-fuelled vessels via ship-to-ship transfer operations. Floating Storage Unit (FSU) An FSU is a flexible LNG storage solution and an alternative to land-based facilities. Very Large Ethane Carrier (VLEC) A VLEC is a specialised gas carrier that transports liquefied ethane at -94° celsius in membrane tanks for over long distances. The vessel is equipped with dual-fuel propulsion and reliquefaction systems. Moss-type LNGC The Moss-type vessel has self-supporting spherical tanks that is robust and reduces sloshing. Membrane-type LNGC The membrane-type system has a higher capacity than Moss-type vessel with space efficient containment systems. 26 vessels 5 vessels Suezmax Tanker A suezmax tanker has a capacity of shipping approximately one million barrels of crude oil, with the flexibility to do longer-haul cargo as well as shorter, regional trades. Very Large Crude Carrier (VLCC) A VLCC has the capacity to transport approximately two million barrels of crude oil over long distances to facilitate inter-regional trades. 13 vessels 6 vessels 1 vessel 2 vessels 6 vessels Fleet Strength Please refer to Offshore Business Review on page 86 for more information. Offshore Business We are owners and operators of floating production systems across various locations globally, offering a comprehensive suite of services tailored to meet the dynamic floating solutions needs of the offshore business landscape from shallow to ultra-deepwater field developments. 03 Fleet Strength • 13 offshore floating solutions Semi-Submersible Floating Production System (Semi-FPS) A Semi-FPS is equipped with a production facility that separates fluids received from a subsea reservoir through risers into crude oil, natural gas, water and impurities. The extracted oil is exported via a pipeline to an oil and gas terminal, operating at a depth of approximately 1,400 meters. 1 Unit Floating Production, Storage And Offloading (FPSO) An FPSO is a vessel-type production system that is designed to stay on location for 20 years or more of continuous operations. It is equipped with production facilities that separate fluids received from a subsea reservoir. Processed crude oil is stored in tanks and offloaded onto tankers for further refining onshore. 7 vessels Floating Storage And Offloading (FSO) Simpler than an FPSO, an FSO unit does not have production processing capabilities. It is normally integrated with other production systems such as fixed platforms, mobile offshore production units and tension leg platforms. An FSO is also equipped to store and offload crude oil to a tanker. 5 vessels • 64 vessels Long Range 2 (LR2) Tanker An LR2 tanker is a coated tanker with the capacity to transport approximately 0.7 million barrels and able to carry both clean and dirty products in regional trades. Lightering Support Vessel (LSV) An LSV transports equipment and crew to conduct ship-to-ship cargo transfer operations. Dynamic Positioning Shuttle Tanker (DPST) A DPST utilises dynamic positioning technology to load crude from remote offshore production facilities and transports it to the shore for storage or distribution. Aframax Tanker An aframax tanker has the capacity to transport approximately 0.7 million barrels of crude oil. Used to carry crude oil or dirty products such as fuel oil in mainly regional trades. * Includes 2 modular capture vessels (MCVs). 17 vessels 18 vessels* 8 vessels 2 vessels As at 1 March 2024 As at 1 March 2024
12 13 MISC BERHAD INTEGRATED ANNUAL REPORT 2023 www.miscgroup.com ABOUT MISC SECTION 2 What We Do What We Do Please refer to Marine & Heavy Engineering Business Review on page 89 for more information. Marine & Heavy Engineering Our Marine & Heavy Engineering segment operates one of the largest fabrication yards in Southeast Asia. We specialise in energy offshore construction including deepwater facilities, marine repair, conversion services and marine refurbishment, with a niche focus on LNGCs. Leveraging our expertise, we construct carbon capture facilities, advanced offshore wind farm substations and provide fabrication services for green hydrogen facilities. 04 Please refer to Marine Services Business Review on page 92 for more information. Marine Services We provide a comprehensive range of solutions including ship management, technical advisory services and various maritime services such as port and terminal management, maintenance, ship vetting, vessel inspection, marine assurance and consultancy. Our services are designed to cater to the evolving needs of our diverse clientele and anticipated shifts in the industry. 05 Please refer to Maritime Education & Training Business Review on page 96 for more information. Maritime Education & Training Our maritime education and training institution, Akademi Laut Malaysia (ALAM), offers a spectrum of maritime courses including nautical and marine engineering programmes, maritime and offshore safety courses, simulator-based courses and maritime management programmes, as well as research and consultancy services. 06 Key Assets • We have the largest fabrication area by tonnage capacity in Malaysia, to provide engineering, procurement, construction, installation and commissioning (EPCIC) of complex structures for offshore and onshore facilities Heavy Engineering Assets • Our well-equipped yard includes three drydocks, land berths, quays and a shiplift. These facilities enable us to perform repair works, maintenance, marine conversion and refurbishment for a wide range of vessels Marine Business Assets Services Performed Services Performed Heavy Engineering Assets Marine Business Assets • Ship management, engineering and procurement • Project management: Supervision and consultancy service for dry docking and newbuilding of vessels Integrated Marine Services • Port and Terminal Management: Port and terminal operations, pilotage, mooring master, loading master and marine controller, jetty maintenance and single point mooring maintenance • Marine Services: Ship vetting, offshore vessel inspection, marine assurance and consultancy (ship screening, Tanker Management Self-Assessment, Offshore Vessel Management and Self-Assessment and Roving Marine Marshall Services) Port Management & Maritime Services • We provide a broad spectrum of maritime education and training, beyond Standards of Training, Certification and Watchkeeping (STCW) Pre-Sea Diploma, Post-Sea, Ratings and Modular Programmes • Through our research and consultancy experts we provide flexible solutions encompassing the total lifecycle of port development Research and Consultancy Services Integrated Marine Services Pre-Sea Diploma, Post-Sea, Ratings and Modular Programmes Research & Consultancy Services Port Management & Maritime Services
14 15 MISC BERHAD INTEGRATED ANNUAL REPORT 2023 www.miscgroup.com ABOUT MISC SECTION 2 How We Move Energy MISC plays a pivotal role in the energy value chain by efficiently transporting commodities over vast distances and supplying maritime assets for offshore extraction activities related to oil and gas resources. We are actively transitioning towards clean energy solutions to minimise emissions and ensure alignment with evolving local and international maritime regulations. By embracing innovation, sustainability and operational excellence, we aspire to contribute to a more resilient and responsible energy future. How We Move Energy MISC’s Businesses & Activities Related Activities On Oil and Gas Value Chain Complete/Full Range Offshore Platform EPCIC Services for Offshore & Onshore Construction Marine Conversion Works Comprehensive Marine Repair & Refurbishment Ship Management
16 MISC BERHAD KEY MESSAGES Section 3 17 INTEGRATED ANNUAL REPORT 2023 www.miscgroup.com 18 Chairman’s Message 22 President/Group Chief Executive Officer’s Message 26 Vice President’s Message Corporate Planning & Group Finance
MISC BERHAD INTEGRATED ANNUAL REPORT 2023 www.miscgroup.com KEY MESSAGES SECTION 3 18 19 Chairman’s Message Chairman’s Message Transitioning to a low-carbon industry requires collaborative efforts to drive sector-wide change. By partnering with like-minded stakeholders including financial institutions who share our aspirations to achieve a lower carbon future, we aim to build a supportive ecosystem that advances environmental objectives while ensuring the economic viability of our operations. The MISC Group secured a Sustainability-Linked USD527 million Senior Secured Term Loan for six VLECs, marking MISC’s first foray into sustainability-linked financing. This 11-year non-recourse loan was recognised as the “Sustainability-Linked Deal of the Year for Asia” by Marine Money. Delivering Value to our Shareholders with Strong Profit Growth Our approach to business at MISC is grounded on the principle of creating sustainable value, for our diverse stakeholders. In FY2023, MISC continued to create value for our shareholders. Dear Stakeholders, In 2023, MISC continued to face a vulnerable landscape with a combined threat of geopolitical conflicts, inflation, energy security and climate crisis. Geopolitical tensions disrupted supply chains and escalated costs, compounded by the rapid energy transition and lingering impacts of the pandemic. Despite these challenges, as a leader in the shipping industry, we have demonstrated our ability to adapt and lead with agility and foresight. Our approach during these uncertain times is to remain steadfast in our performance and delivery. We recognise these challenges as opportunities to emerge as an industry leader in a low-carbon economy, while ensuring that we continue to meet current energy demands. By balancing our core energy business with low-carbon ventures, we strive to forge a path towards a more resilient future, benefitting both our business and the communities we serve. The Dynamic Landscape of 2023 This year, we navigated through a complex landscape shaped by concerns related to climate, conflict, cost and credit – each presenting MISC with unique challenges and opportunities. The ongoing Russia-Ukraine conflict, in particular, has significantly impacted our operations by disrupting supply chains and increasing costs. Recent tensions in the Middle East which triggered the Red Sea crisis, could potentially escalate to other countries in the region and disrupt international shipping routes. These geopolitical developments are also affecting trade and economic stability. We maintained our steer to meet our stakeholders’ commitment with minimal operational disruptions and stability in the face of these global challenges. Concurrently, the climate urgency was evident in the rapid and extensive energy transition, with the maritime sector evolving in tandem. A notable enhancement this year was the establishment of emissions reduction targets by the International Maritime Organization (IMO), aiming for substantial greenhouse gas (GHG) reductions by 2030 and 2040. The global energy transition also rippled into Malaysia, exemplified by the launch of Malaysia’s National Energy Transition Roadmap (NETR). At MISC, we embraced these global and national developments, shaping our GHG emissions reduction target of 50% by 2030 and pursuing Net-Zero emissions by 2050. A major milestone in our decarbonisation journey was the establishment of MISC’s Internal Carbon Pricing (ICP) Framework in 2023. Although this was not mandated by regulation, the ICP Framework underscores our proactive approach to sustainability and our ambition to exceed mere compliance. The economic implications of the operating environment, particularly those associated with the energy transition, require substantial financial commitments to decarbonise the shipping sector. Consistent with the economic and environmental forces shaping the world, MISC will be allocating a portion of our capital expenditure (CAPEX) towards clean energy solutions with the approach of balancing investments in new asset solutions while maintaining our strong credit ratings from S&P and Moody’s. We recorded a profit before tax of RM2,093.7 million (11.7% year-on-year growth). The Board declared a higher total dividend of 36 sen per share compared to 2022. We distributed a larger dividend equivalent of RM1,606.9 million to share our achievements with our shareholders. Our Significant Achievements We successfully delivered two dual-fuel VLCCs in 2023 and another one in early 2024. This marks a significant stride in our journey towards long-term investments in clean energy solutions and MISC’s strong commitment towards our decarbonisation journey. Another significant achievement was the FPSO Marechal Duque de Caxias sail away in February 2024 with no critical non-conformances and a safety record of 28 million man-hours with zero lost time injury (LTI). These accomplishments reflect our capability to continue to execute complex projects and operate effectively towards achieving our strategic business goals. DATUK ABU HURAIRA ABU YAZID Chairman
MISC BERHAD INTEGRATED ANNUAL REPORT 2023 www.miscgroup.com KEY MESSAGES SECTION 3 20 21 Chairman’s Message Chairman’s Message Driving a Sustainable Future Testament to our value creation ability, MISC was honoured to attain the Green Ship status for our two LNGCs, Seri Daya and Seri Damai, making them the second and third vessels within the Group, following our first dual-fuel VLCC, Eagle Valence in 2022. Our commitment to value creation extends beyond our operational boundaries to include the wider ecosystem of communities. Through strategic community investments such as cadet sponsorships at ALAM and other maritime education scholarships, we are dedicated to nurturing the next generation of maritime professionals. As the industry undergoes transformation, it is essential to equip a skilled workforce capable of embracing emerging challenges. In 2023, we invested RM29.6 million in cadet sponsorships for current and new students at ALAM, totalling 829 cadets. This reaffirms our commitment to cultivating the future leaders of the maritime sector. Strong Governance & Leadership In 2023, MISC’s Board of Directors (Board) adopted a balanced and dynamic approach, building upon insights from the 2022 Board Effectiveness Evaluation (BEE). The Board rigorously challenged existing business models, assessed the future prospects of underperforming assets and actively looked at new opportunities amid the global energy transition and decarbonisation efforts. Building on this foundation, MISC’s leadership emphasised the importance of adaptability and future-proofing, particularly in response to emerging trends such as climate change and digital transformation. The Board Nomination & Remuneration Committee (BNRC) facilitated ongoing training programmes and conducted an annual skill matrix analysis to ensure our leadership team remained versatile, knowledgeable and diverse. Collaborating with external niche-industry leaders enables us to integrate specialised knowledge in areas such as cybersecurity and digital transformation into our strategy. Moving Forward With the development of unconventional energy sources, we see structural changes to the maritime industry scene globally. In response to these multifaceted challenges, MISC is strategically balancing our conventional business with aggressive decarbonisation efforts across our business segments. Apart from partnering with like-minded stakeholders, MISC will pursue selective investments with a balanced approach to optimise the returns of our portfolio while staying aligned with the evolving energy market. Our efforts will be supported by the enhancement of our organisational culture and behaviour and the adoption of a broader international mindset while we continue to invest in the reskilling and upskilling of our workforce to meet the challenges of tomorrow. Acknowledgement & Appreciation On behalf of the Board of MISC, I would like to express our sincere appreciation to everyone who has supported us through the dynamic challenges and opportunities in 2023. We acknowledge the valuable services of Datuk Nasarudin Md Idris and Dato’ Rozalila Abdul Rahman, who retired on 1 September 2023, as well as Dato’ Ab. Halim Mohyiddin and Dato’ Sekhar Krishnan, who retired on 15 January 2024. Our past Independent Non-Executive Directors have made lasting contributions to our company and we are grateful for their dedication and guidance. To our stakeholders – our dedicated employees, loyal customers, supportive vendors, committed shareholders and all partners who have stood by us – your continued trust and support have been fundamental to our progress. The path to sustainability is not a solitary pursuit but a collaborative effort, requiring the collective strength and commitment of all our stakeholders. With your continued partnership, we are confident that the years to come will be marked by growth, innovation and shared success. Once again, thank you for your steadfast support and trust. Together, we forge ahead, committed to creating a sustainable legacy that will resonate for generations to come. DATUK ABU HURAIRA ABU YAZID Chairman
MISC BERHAD INTEGRATED ANNUAL REPORT 2023 www.miscgroup.com KEY MESSAGES SECTION 3 22 23 President/Group Chief Executive Officer’s Message President/Group Chief Executive Officer’s Message We achieved a significant milestone with the sail away of FPSO Marechal Duque de Caxias from Yantai, China to the Mero field of the Santos Basin in offshore Brazil. This FPSO is our Group’s first ultra-deepwater asset and is amongst the largest of its kind, with first oil scheduled in the second half of 2024. Our team navigated the significant challenges of the COVID-19 pandemic and the consequent supply chain issues and completed the construction phase, safely with 28 million man-hours LTI free. I commend them for their relentless focus on project execution and excellence. We successfully delivered two new LNGCs and two new eco-friendly LNG dual-fuel VLCCs into long-term charters, with the third delivered to our client in early 2024. These vessels will bolster our secured income profile and reinforce our commitment to reducing our carbon footprint. Through MHB, we successfully secured a contract for an Offshore Submersible High Voltage Direct Current (HVDC) project. This marked a notable milestone for the Group as we venture into the renewable energy sector. Additionally, we entered into a binding Heads of Agreement with Pengerang LNG (Two) Sdn. Bhd. for the supply, operation and maintenance of an FSU for a 20-year period, repurposing and extending the operational lifespan of our nominee vessel, Puteri Delima Satu, securing future cash flows, while supporting the national energy transition in Malaysia using LNG as a transitionary fuel. Prioritising HSSE At MISC, safety is paramount. Throughout the year, we launched several initiatives aimed at enhancing workplace safety, preserving the environment and upholding regulatory compliance. Whilst our group cultural maturity survey results have improved, we have experienced unfortunate Health, Safety, Security and Environment (HSSE) related incidents and injuries. We have conducted an exhaustive review of our frontline processes and reinforced the “Tone at the Top” throughout the group. The HSSE management of our contracting partners is an area of focus for the coming years. Sustainable Maritime Leadership It is our priority to deliver the energy the world needs today in a responsible manner that minimises our carbon footprint and impact on tomorrow. We continue to advocate internationally for tangible action towards delivering an equitable and resilient transition. In 2023, we were able to provide a voice for Malaysia, Southeast Asia and our industry at several events including the launch of the Clean Energy Marine Hubs at the G20 in Goa and the Shaping the Future of Shipping Summit at COP28. In addition to these engagements, we remain active in several industry bodies such as the Global Maritime Forum, INTERTANKO and SIGTTO. Our leaders have been involved in a number of these industry bodies, which allows MISC to address industry issues as well as provide our input in shaping industry policies. 2023 was a dynamic year. Recent times have unveiled challenges of unprecedented scale, from the impacts of COVID-19, worsening geopolitical tensions to society’s intensifying demand to accelerate the energy transition. In 2023 these challenges prompted a critical reflection – how do we translate our ambition into action? This year has been a testament to such perspective, signifying a pivotal period of strategic recalibration and operational advancement for MISC, as we forge ahead in the shift from emissions to solutions. A year where we have again shown resiliency as a team. A Review of 2023 2023 was a year of project execution, ambition setting and laying the groundwork for future success. A strategic business review was conducted, leading to various structural adjustments within the group. These adjustments are essential for the successful implementation of our strategy, aimed at delivering sustainable financial returns and reducing GHG emissions in line with our ambitious targets. MISC delivered robust financial returns and improved year-on-year performance. Group revenue rose 2.9% to RM14,271.7 million in FY2023 compared to RM13,867.0 million in FY2022, while profit before tax increased by 11.7% to RM2,093.7 million in FY2023, as compared to RM1,874.3 million in FY2022 – improving our returns to shareholders. The Group recorded cash flows from operating activities (CFO) of RM5,696.3 million in 2023. Excluding the CAPEX relating to the MERO 3 Project and the one-off FSU prepayments, MISC would have had an adjusted CFO of RM6,536.1 million in FY2023, a 14.2% increase from 2022. Our balance sheet continues to demonstrate resilience, evidenced by the reduction in our net gearing ratio from 0.28 to 0.25. MISC’s credit rating remains investment grade and is one of the highest in the shipping industry. This recognition reflects the strong financial positions of both our company and our major shareholder. As a result of our healthy financial position and after taking into account our future CAPEX requirements, our Board declared an increased dividend of 36 sen per share for 2023, surpassing that of prior years. Strategic Progress & Highlights As outlined in my message last year, our focus for 2023 was to prioritise project execution while remaining open to opportunistic investments which met our strategic aims and created long-term shareholder value. We completed a strategic business review in 2023, strengthening our foundation for the future. This has led to the development of our MISC 2030 Aspiration. This formed the basis to strengthen our foundation to grow our core business, as well as commence our pivot to support a low-carbon future. We also took the decision to merge two of our divisions, Port Management & Maritime Services and Integrated Marine Services into a unified segment, Marine Services. The merger, which should complete in 2024, will allow our services arm to scale up and enhance our capabilities to support our growing business requirements, for the medium and long-term. In addition, after a successful incubation year, the New Energy and Decarbonisation (NED) unit established in 2023 shall become a full-fledged business division in 2024, amplifying our efforts in this critical area. Dear Stakeholders, CAPTAIN RAJALINGAM SUBRAMANIAM President/Group Chief Executive Officer FPSO Marechal Duque de Caxias sailed away safely in February 2024 with 28 million man-hours LTI free
MISC BERHAD INTEGRATED ANNUAL REPORT 2023 www.miscgroup.com KEY MESSAGES SECTION 3 24 25 President/Group Chief Executive Officer’s Message The Group has introduced the MISC 2030 Aspiration, serving as a rallying call to mobilise our workforce to progress towards a Net-Zero and circular economy as envisaged in our MISC 2050 Vision. In this regard, we have set ourselves ambitious targets to meet our own responsibilities. We are committed to reducing the carbon intensity of our shipping operations by 50% by 2030, with an aspiration to reduce our total GHG emissions by 50% by 2030. These goals are well ahead of those contained in the IMO strategy on reduction of GHG Emissions and represent our commitment to decarbonising responsibly. We aspire to do this while simultaneously increasing our CFO sustainably, from our core and new business solutions across the Group. Achieving these targets and aspirations involves a dual strategy - delivering sustainable financial returns, while actively developing future low-carbon solutions and reducing the carbon footprint of moving energy today with the technology available. 2023 marked significant progress in this respect, with a commendable 24% decrease in GHG emissions intensity and 17% decrease in total emissions compared to the 2008 baseline. Through collaborative initiatives across the industry, we are exploring innovative solutions such as low and zero-carbon emission vessels and carbon capture and storage (CCS) technologies. In 2023, we secured Approval in Principle (AiP) for our innovative Floating CO2 Storage Unit (FCSU) with injection capability (FCSU-I), a dynamic and versatile solution which addresses a critical gap in the CCS value chain by providing seamless transportation and storage solutions to CO2 emitters without access to nearby sequestration sites. Work in developing ammonia-fuelled zero-emission vessels (ZEVs) has also continued through the Castor Initiative. We hope to have our first ammonia ZEVs on the water by 2027. As a Group, we have the capabilities to develop the safety standards, competent staff to manage the vessels and design development capabilities to enable this very significant step for maritime decarbonisation. This is also aligned with our shareholders’ and stakeholders’ aspirations. Recognising our commitment to environmental excellence, two of our latest LNGCs, Seri Damai and Seri Daya were recognised with the Green Ship status by the Singapore Registry of Ships. Further, we successfully implemented Shaft Power Limitation (ShaPoLi) across our fleet to ensure the environmental responsibility and compliance of our older vessels with IMO Energy Efficiency Existing Ship Index (EEXI)/Carbon Intensity Indicator (CII) requirements. Meanwhile, our Offshore Business segment unveiled an innovative design for a Newbuild Floating Production, Storage & Offloading (NBFPSO) Unit with Mega-Module Engineering and Green Architecture (MMEGA) at OTC Houston 2023. This pioneering FPSO has received AiP and the SUSTAIN-1 notation from the American Bureau of Shipping, showcasing a 40% reduction in greenhouse gas emissions compared to similar assets. The Offshore Business segment has also undertaken initiatives to develop designs incorporating OxyFuel Power generation and an ammonia FPSO. These efforts underscore our commitment to minimising carbon emissions per barrel extracted. We also continue to seek innovative green financing deals tailored to support our low-carbon initiatives and decarbonisation efforts. We are honoured to have been awarded the “Sustainability-Linked Deal of the Year for Asia” by Marine Money in 2023, for the USD527 million Senior Secured Term Loan for six VLECs. Elevating Employee Well-being and Talent Optimisation At the core of our organisational ethos lies a steadfast commitment to nurturing employee well-being and fostering a safe workplace environment. We advocate continuous engagement through various initiatives, including regular townhall sessions conducted by our management team throughout the year and we actively encourage employees to participate in one-on-one check-ins with their leaders. President/Group Chief Executive Officer’s Message In alignment with our dedication to cultivating a robust HSSE culture, we have conducted workshops aimed at illuminating the critical importance of managing emotional well-being, including training in mental health first aiders. To meet changing expectations, we have streamlined our talent attraction model and introduced a contingent workforce policy. This strategic move affords us the agility to swiftly and efficiently recruit and onboard a diverse pool of skilled professionals as needed. Recognising the significance of talent mobility in driving organisational growth, we have embarked on enhancing our internal talent mobility programmes. These initiatives are designed to facilitate purposeful development and seamless movement of emerging leaders across our organisation, ensuring both cultural alignment and talent integration at every step of the journey. Additionally, we provide targeted mentoring to identified successors, bolstering their readiness to assume key leadership roles within the organisation. In our commitment to ensuring our workforce remains ahead of the curve, talent upskilling and reskilling remain as pivotal strategies. During the year, we introduced LinkedIn Learning for our employees, providing them accessibility to a variety of learning content at their convenience. Through the continuous and proactive partnership between Marine Services and ALAM, we have spearheaded initiatives to equip our seafarers with essential competencies in navigating towards a low-carbon future at sea or transitioning to a career onshore. Looking Ahead into 2024 As we venture into 2024, continuing uncertainties mean there will inevitably be challenges to overcome. But there will also be opportunities and the shifting landscape underscores the importance of resilience, adaptability and foresight in our operations, as we seek to harness these. The IMO has adopted revised GHG emissions targets, which now serve as a benchmark for change within the industry. As advocates for sustainability, we recognise the imperative to not only meet these targets but exceed them. Through innovation, collaboration and a commitment to environmental stewardship, we aim to position ourselves at the forefront of the energy transition, responsibly driving meaningful change within our industry. In 2023, we undertook a comprehensive reassessment of our business portfolio and strategy, laying the groundwork for these transformative years ahead. As we transition from ambition to action in 2024, I believe we are well-placed to capitalise on emerging opportunities, navigate external uncertainties with resilience and chart a course towards sustainable growth. With a clear vision and determination, we stand ready to embrace the challenges and possibilities that lie ahead, confident in our ability to deliver value to our stakeholders while driving positive change. The pessimist complains about the wind, the optimist expects it to change whilst the realist adjusts the sail. Our team remain optimistic to be positive influencers for change, but realistic to adjust our sails and capture the emerging opportunities for a sustainable future together. Acknowledging Board and Leadership Transitions On behalf of MISC management, I would like to extend our sincere appreciation to Datuk Nasarudin Md Idris and Dato’ Rozalila Abdul Rahman, both of whom retired as Independent Non-Executive Directors (INEDs) of MISC on 1 September 2023. Additionally, we take this opportunity to express gratitude to Dato’ Ab. Halim Mohyiddin and Dato’ Sekhar Krishnan, who retired as INEDs in January 2024. My sincere thanks to all leaders past and present at MISC who have contributed to strengthening the foundation of this organisation and building upon its success. My thanks to our Board members for their continued guidance to the management. We believe we have improved stakeholder and shareholder value. Our thanks for your continued trust and support. We remain committed to do our best as a team for all our stakeholders. CAPTAIN RAJALINGAM SUBRAMANIAM President/Group Chief Executive Officer Seri Daya achieved Green Ship status
MISC BERHAD INTEGRATED ANNUAL REPORT 2023 www.miscgroup.com KEY MESSAGES SECTION 3 26 27 Vice President’s Message Corporate Planning & Group Finance Vice President’s Message Corporate Planning & Group Finance potential incorporation of a joint venture entity to invest in developing Liquefied Carbon Dioxide (LCO2) carriers. Another notable highlight is the AiP from DNV for our innovative FCSU and FCSU-I concept that was jointly developed with Samsung Heavy Industries (SHI). As we progress steadily in our sustainability journey, our achievements include MISC obtaining market recognition for our ESG excellence where we were accorded The Edge ESG Award 2023 - Silver Award under the Equities Category (Transport & Logistics) and The Star ESG Positive Impact Awards 2022 under the Large Companies Tier for the Environmental Category: Sustainable Ecosystems. Another notable achievement is “The Building Trust Awards 2023” by PwC Malaysia for making great strides in stakeholder governance. During the year, as one of the strategic initiatives under MISC 2030 Aspiration, we embarked on a transformative journey that integrated two of our businesses, Port Management & Maritime Services and Integrated Marine Services, into a unified Marine Services segment. This synergistic move, driven by the maritime industry’s evolving dynamics and challenges, aims to expand the depth of service offerings and effectively meet our clients’ and partners’ diverse needs. In addition, in advancing our pivot towards the clean energy segment, the New Energy and Decarbonisation unit, or NED, was established in 2023 and this initiative has enabled the Group to develop feasible clean solutions for commercialisation. Following a successful incubation period, this unit is poised to evolve into a fully operational business division in 2024. Charting the Course for a Low-Carbon Future Acknowledging the changing dynamics of the global maritime sector, we conducted a thorough review of our business portfolio and strategy to lay a strong foundation for a successful transition towards a low-carbon future. The MISC 2030 Aspiration focuses on delivering sustainable financial returns to stakeholders while significantly reducing GHG emissions. The key targets under MISC 2030 Aspiration include a 50% improvement in CFO, with the aim of achieving 25% of CFO from clean energy solutions and a 50% reduction in GHG emissions from shipping operations. We are purpose driven in realising our mission and will continue prioritising our long-term outlook over short-term gains. Industries are entering into the next cycle of transformation, where opportunities to capitalise on this change will be aplenty. In 2024, our pursuit will concentrate on unlocking value and strategically mitigating risks to fuel growth. Our growth strategy involves sustaining and expanding our conventional business operations responsibly while implementing decarbonisation initiatives for existing assets. An integral aspect of the strategy involves optimising portfolio returns, capitalising on selected asset monetisation opportunities, whilst facilitating a transition into the clean energy sector organically and inorganically. We are dedicated to building a supportive ecosystem through collaboration with like-minded stakeholders, including financial institutions, who share our vision for a lower carbon future. The rapidly evolving energy sector offers new opportunities, such as carbon capture and storage, ammonia value chain and the development of ZEVs. To this effect, MISC is well-positioned to progress our development into the clean energy value chain, given the synergistic nature of our business segments. In parallel throughout the next year, we will also continue to leverage on the robust demand for conventional assets and be selective on investments that maximise returns for our portfolio. Our strategic value creation is driven by the sustainability considerations that have been embedded into our business plan. Our Sustainability Strategy ensures that we deliver on the ESG commitments we have made to our stakeholders. In the current year, we implemented the ICP Framework which is a notable progress, enabling us to consider the financial implications of decarbonisation in decision-making and transition risks and opportunities. Furthermore, in 2023, MISC took a significant step forward by establishing the MISC Group Risk Appetite to govern our business strategies and decision-making processes, ensuring effective risk management as the Group pivots into the clean energy segment. Beyond driving growth, we will also continuously improve health and safety practices by embedding a Generative HSSE Culture across all facets of our operations, fostering a mature risk culture and embarking on a transformation journey of our enterprise culture to future-proof MISC. Moving forward, we will remain agile, ready to adapt and innovate in anticipation of industry changes, thereby maintaining our competitive advantage in a swiftly transforming market. Navigating Market Uncertainties and Energy Transition The global economy continued to be affected by geopolitical tensions, particularly supply chain disruptions that led to volatility of global energy markets. Concurrently, the continuing tensions in the Middle East have escalated and disrupted trade flows. In addition China’s sluggish recovery and the tightening of monetary policies which have led to higher interest rates and financing costs, are exposing economic growth to downside risks. The shift to a clean energy economy is gathering momentum, with the peak in global oil and gas demand in sight before the end of the next decade. In an environment heightened by supply demand volatility driven by sudden shifts in the market and accelerated energy transition, we recognise that this will require the industry to collectively address infrastructure challenges in the ecosystem and to ensure concerted initiatives towards the development of clean energy solutions. Additionally, the financing landscape in securing funding for conventional projects has become increasingly challenging. Against this backdrop, we remained resilient in efficiently executing ongoing projects while exercising prudent investment decisions. We placed a greater emphasis on securing long-term contracts with strategic clients to deliver sustainable value by focusing on project delivery and execution excellence, while strengthening our ESG commitments. MISC’s Strategic Initiatives and Achievements in 2023 Our strategic emphasis in 2023 was based on three key pillars – Selective Investments and Project Delivery Excellence, Pacing Growth to Ensure Sustainability and Strategic Business Review. These pillars define our trajectory towards our long-term success, encapsulating our commitment to generate secured and recurring cash flows; pursue sustainable business practices and gradually reshape our business portfolio. This year we intensified our efforts to embed sustainability across all our operations. A notable achievement was the successful delivery of two dual-fuel VLCCs (a third LNG dual-fuel VLCC was delivered in early 2024) and the introduction of the NBFPSO with Mega-Module Engineering and Green Architecture (MMEGA). This innovative solution has the potential to achieve a 40% reduction in GHG emissions compared to similar-sized FPSOs, thus aligning with our Net-Zero commitments. Setting an exemplary leadership in reducing GHG emissions in the shipping industry, Seri Damai and Seri Daya were recognised with the prestigious Green Ship status. In addition, we were awarded the “Alternative-Fuelled Vessel Design of the Year” at the Marine Fuels 360 Awards. In line with our strategy, we actively collaborate with industry partners to combine our strengths and accelerate the development of new opportunities. MISC signed a Term Sheet with PETRONAS CCS Ventures and Mitsui O.S.K. Lines, Ltd. (MOL), for the RAJA AZLAN SHAH RAJA AZWA Vice President, Corporate Planning (effective 1 March 2024) Vice President, Group Finance (until 29 February 2024) STRATEGIC OVERVIEW In the context of our industry’s constantly evolving landscape, the Group faced various challenges that arose from macroeconomic and geopolitical developments. The uncertainties stemming from the Russia-Ukraine and Middle East conflicts amidst an unfavourable global interest rate environment, continue to cast a shadow over the global economic landscape. At MISC, we remain committed in transitioning towards the clean energy sector, leveraging on our core strengths in project delivery and asset optimisation to drive growth. Dear Stakeholders,
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