GROUP FINANCIAL REVIEW FINANCIAL REVIEW RAJA AZLAN SHAH RAJA AZWA Vice President, Finance Despite these challenges, MISC recorded higher revenue by 13.5% mainly contributed by the recognition of revenue from the conversion of an FPSO in the Offshore Business segment and deliveries of six Very Large Ethane Carriers (VLEC) since the fourth quarter of 2020 in the Gas Assets & Solutions segment. MISC also reported a profit before tax of RM1.8 billion in 2021, as compared to a loss before tax of RM123.6 million in 2020 mainly due to the impact of the adverse decision on arbitration proceedings in the corresponding year. 2021 has proven to be another challenging year. Even though we saw an increase in economic activities as the world adapted to the pandemic, petroleum freight rates remained low, border restrictions persisted, and global supply chains were disrupted. MISC has been fortunate as our overall financial performance and financial position have remained strong. The year ended with a healthy cash position, improved profits and vessel deliveries that will continue to improve MISC’s secured income. MISC remained resilient in adapting to the COVID-19 pandemic. Both the Gas Assets & Solutions and Offshore Business segments remain largely unaffected as the majority of the assets are on long-term charter contracts. However, the constraints from the “new normal” and border restrictions worldwide continued to affect the Marine & Heavy Engineering segment’s performance. The Petroleum & Product Shipping segment’s results were also affected by low tanker freight rates due to weak global oil demand caused by the pandemic. Despite these challenges, MISC recorded higher revenue by 13.5% mainly contributed by the recognition of revenue from the conversion of an FPSO in the Offshore Business segment and deliveries of six Very Large Ethane Carriers (VLEC) since the fourth quarter of 2020 in the Gas Assets & Solutions segment. MISC also reported a profit before tax of RM1.8 billion in 2021, as compared to a loss before tax of RM123.6 million in 2020 mainly due to the impact of the adverse decision on arbitration proceedings in the corresponding year. However, MISC reported a slightly lower operating profit by 3.4% mainly due to lower margin on freight rates and lower earning days in the Petroleum & Product Shipping segment, and additional cost provisions recognised for on-going projects in the Marine & Heavy Engineering segment. The Group recorded cash flows generated from operating activities of RM2,908.6 million for the year, which included cash payments of RM1,126.1 million for the conversion of an FPSO in the current period. Excluding the said payments, the Group generated an operating cash flow of RM4,034.7 million, which is lower by 27.8% compared to RM5,587.9 million recorded in the corresponding year. The decrease was mainly due to a one-off charter prepayment received from a customer in the Petroleum & Product Shipping segment in the corresponding year and the lower operating cash flow in the Offshore Business and the Petroleum & Product Shipping segments in the current year. However, the Group’s cash balance remains healthy at RM7,952.3 million, mainly supported by the steady cash flow generated from the Gas Assets & Solutions segment’s portfolio of long-term contracts. MISC’s balance sheet has also remained healthy in 2021 with an increase in our Cash and Bank Balances and Total Assets by 16.0% and 11.0% respectively. Despite an increase in our borrowings, our gearing ratio of 0.49 remains to be one of the lowest in the industry. The strength of our balance sheet is demonstrated by the Group’s stable credit ratings despite the external headwinds. In 2021, S&P Global Ratings, Moody’s Investor Service and MARC reaffirmed their ratings for MISC, at BBB+, Baa2 and AAAIS respectively. MISC’s strategy for 2021 was to slow down our pursuit of new projects coming off from a number of contract wins in 2020. This allowed MISC to focus on ensuring the successful execution of our ongoing projects. In line with our strategy, MISC only secured one time charter contract with Shell for three newbuild LNG dual-fuel Very Large Crude Carriers. In terms of project execution, we took deliveries of the remaining five out of our six VLECs, two LNG Carriers, and one dynamic positioning shuttle tanker. We’ve also made steady progress on the Brazilian FPSO project, which is expected to be delivered in 2024. We also secured contract renewals on four floater assets, bolstering MISC’s secured income. VICE PRESIDENT’S REMARKS MISC continues to enjoy strong support from our existing group of banks which provides access to various financing options at competitive rates. MISC has successfully closed financing for the construction of an FPSO to be deployed in deepwater Brazil, being MISC Group’s maiden foray into a major deep-water project in Latin America. The financing of this project won the Best Syndicated Loan under the Country Award category by the Asset Triple A Awards. This milestone is a strong testament to the Group’s credit worthiness and confidence the lenders have in the Group. Further fortifying MISC’s sustainability and resilience, MISC embarked on our Task Force on Climate-related Financial Disclosures (TCFD) journey in 2021. As part of our 2021-2025 Sustainability Strategy, we have developed a TCFD Roadmap and are incorporating climate-related risks and opportunities into our annual strategic and financial planning process. The aim is to progressively provide more TCFD aligned disclosures on climate related risks and opportunities, with the end goal of full compliance by 2023 reporting year. This will ensure that MISC remains relevant as investors and bankers become more focused on climate change concerns. MISC will also be continuing our internal transformation and digitalisation efforts in the areas of finance, procurement and document management towards becoming a data-driven organisation. We are currently in the execution phase, where MISC as a group is working closely with our partners to ensure smooth and seamless delivery of our transformation projects. The prolonged impact of the COVID-19 pandemic has shown that our dedicated pursuit of long-term contracts with reputable clients provide MISC with sustainable secured income even through trying times, and our contract wins and asset deliveries in 2021 will contribute towards replenishing and growing our secured income in the future. RAJA AZLAN SHAH RAJA AZWA Vice President, Finance MISC Berhad 108 Integrated Annual Report 2021 MISC Berhad Integrated Annual Report 2021 109
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