MISC BERHAD 192 INTEGRATED ANNUAL REPORT 2023 193 www.miscgroup.com GOVERNANCE SECTION 12 MISC is committed to become a financially resilient organisation. MISC shall continuously strive to achieve the following: • Capital efficiency in pursuit of business objectives with appropriate balance between risk and reward. • Maintain an investment grade credit rating (if applicable). • Sustain a strong cash repatriation discipline in the most optimal manner. • Uphold strong governance at all times. Adherence to this Policy is everyone’s responsibility. Note: MISC refers to MISC Berhad and its subsidiaries, excluding the joint venture companies and associate companies. The MFP is in alignment with the existing PETRONAS Corporate Financial Policy’s (CFP) guidelines in the areas of liquidity management, cash repatriation, financing, investment, banking, asset-liability management, foreign exchange management, credit, tax, inward financial guarantee and documentary credit and integrated financial risk management. CFP activities carried out by MISC Group during FY2023 include the following: • Conducted counterparty assessments prior to accepting Inward Financial Guarantee and Documentary Credit from vendors. • Monitored trade receivables on a monthly basis. • Managed interest rate risk exposures via interest rate swaps to hedge against cash flow volatility arising from fluctuations in floating rates. Debt Covenant Monitoring The Group monitors its financial and non-financial covenants set out under all its external financing facilities on a quarterly basis, to ensure that the covenants are observed and complied with. MISC Financial Policy The Group has adopted MISC Financial Policy (MFP) which outlines the overarching philosophy of the Group’s commitment towards becoming a financially resilient organisation through robust capital and liquidity management practices. Financial Risk Appetite The Group has established the Financial Risk Appetite Setting (FRAS), which sets out KRIs as a means of monitoring and mitigating against adverse trends in the following financial risk areas: • Interest rate risk appetite limit, where the Weighted Average Cost of Debt (WACD) for the year is set to monitor the overall cost of debt of the Group. • Debt appetite limit, where the debt threshold is set to monitor the Group’s leverage levels. • Minimum liquidity requirement level, to ensure that the Group can meet its immediate operating expenses payables, committed debt service obligation and capital expenditures. In addition to the minimum liquidity requirement, additional cash reserves and credit facilities available for utilisation are maintained to meet contingent payments and opportunistic investments. • Foreign exchange risk appetite, to set out thresholds for net currency exposures to mitigate the financial risk arising from non-functional currency transactions. • Financial institution credit counterparty risk appetite, to mitigate financial exposures arising from failure of financial institution counterparties. The KRIs thresholds are reviewed and refreshed annually. Taxation MISC Tax Policy With the tax policy in place, MISC Group continues to enhance its tax compliance with the required legislations in the countries where it has presence, with the aim for the Group to be a responsible corporate taxpayer and to maintain cooperative relationships with the relevant tax authorities. MISC Group is committed to be a responsible taxpayer by: • Complying in good faith with all applicable tax laws, regulations, guidelines and international tax treaties and settling tax obligations when legally due, as company and employer; and • Maintaining cooperative working relationships with tax authorities. Adherence to this Policy is everyone’s responsibility, by referring all tax related matters to the appropriate parties. Note: MISC refers to MISC Berhad and its subsidiaries, excluding the joint venture companies and associate companies. Statement on Risk Management & Internal Control In addition, overall tax risks of the Group are being managed, among others, through: • Risk Register which sets out KRI in relation to non-compliance events which resulted in penalties being imposed by tax authorities; • Tax Compliance & Control (TCC) Assurance [formerly known as Tax Control Framework] which is designed to enforce effective governance and management of tax risks for both direct and indirect tax areas; and • Performing tax assessment covering contractual, business structure and operational tax risks as part of Project Risk Assessment (PRA). Project Evaluation The Group uses a risk-based evaluation framework to ensure that the returns of any capital investment or project, adequately cover the risks assumed for undertaking such investment or project. The PRA framework has been established to provide a stringent tool in identifying project risks prior to embarking on a new capital-intensive and/or revenue project. The risk-based project feasibility assessment aims to increase the likelihood of achieving project objectives and is used to assess risks associated with a project and identify action plans to mitigate/eliminate each risk exposure. In addition, the PRA advocates and ensures a consistent approach to project prioritisation during the overall planning and budget cycle throughout the Group, whilst promoting investment discipline. Ultimately, the objective of PRA is to ensure that project returns are commensurate with the level of risk taken. Amongst the risk elements considered in the PRA framework are counter-party credit risk, project tenure, commercial risk, overall project economics against risk, assumed level of debt taken to fund the projects and the residual value risk of the assets at the end of the contract period. The PRA framework, which covers a complete project life cycle, also includes the review of project implementation, identification of lessons learnt and evaluation on whether agreed objectives, targets and returns have been achieved. PRA is conducted for capital investments and deliberated at the PRA Sub-Committee (PRASC) and BSRC for endorsement prior to obtaining final approval from MISC Board, as part of the Final Investment Decision (FID) for the projects. The PRA framework is continuously reviewed and refined to ensure the robustness of the risk assessment process. Finance Transformation Programme (FTP) MISC Group has embarked on a FTP. The primary objective of FTP is to shift the role of Finance from transaction processing to becoming strategic business partners, by leveraging analytics and automation to enable data-driven business decisions. The objective will be achieved through re-engineering of financial processes, internal reorganisation, implementation of modernised financial platforms and automation technologies, as well as upskilling of finance practitioners in the Group, whilst ensuring the adequacy and effectiveness of internal controls. The Group has rolled out Wave 1 initiatives and will roll out Wave 2 initiatives in 2024. Procurement The MISC Group Procurement Transformation Programme is focused on: 1) MISC Group Procurement Guidelines relating to Category Management were launched in August 2023 and are in the process of being adopted in all Business Procurement Manuals across the Group; and 2) The digitalisation of procurement processes and policies through a procurement platform which will enforce compliance to Procure to Pay policies and improve visibility of procurement activities. The Source to Contract modules were fully operational across the entire Group from February 2023 and the Procure to Pay modules are progressively being rolled out. Wave 1 went live in September 2023 and Wave 2 is scheduled for implementation in 2024. Contract Management Contract management digital transformation programme based on the agreed scope for the remaining phases involving AET, MMASB (ALAM), MMS and Offshore Business was completed in March 2023. Project Management Project management of GAS Business and AET newbuilds are handled by Project Management and Engineering (PME) department of the Eaglestar Group, whereas the project management for the Offshore Business will be monitored by the Project Delivery and Technology (PD&T) department of the Offshore Business unit. The primary objective of the PME and PD&T departments is to strategise, lead and control shipbuilding/conversion of vessels and newbuild/conversion of floaters respectively, to ensure safe and successful execution of projects within the agreed schedule and allocated budget limits. Statement on Risk Management & Internal Control
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