Emerging STRONGER TOGETHER Annual Report 2020
Last year proved to be an arduous year due to the COVID-19 pandemic. We have had to drastically adjust our operations and innovate ourselves by exploring new business models, technologies and developments. Amidst this landscape, Malaysia Airports continued to remain steadfast and resilient to ensure that we continually host joyful connections to guests, passengers and partners. Our commitment was recognised through various accolades, among which was that KL International Airport (IATA Code: KUL) was hailed as one of the world’s top 10 airports in the Airports Council International (ACI) Airport Service Quality (ASQ) ranking. This hard-won achievement would not have been possible without the full support of the whole airport community. Everyone in the community displayed a strong spirit of collaboration and came together as one to elevate the airport service performance as we continue to serve the nation. We are also extremely grateful to all airport frontliners who have tirelessly continued to devote their time and energy towards combating the pandemic while ensuring a seamless airport experience within the new norms. We are humbled by your immense contribution and unwavering support for the benefit of the nation.
2 A b ou t T h i s R e p o r t 6 C h a i rma n ’ s S t a t e m e n t Ou r B u s i n e s s 14 FY2020 Key Highlights 15 At a Glance 18 Where We Operate 20 Corporate Structure 22 Key Milestones Ou r Va l u e C r e a t i o n S t r a t e gy 24 Value Creation Model 30 Operating Environment and Outlook 33 Strategy 46 Key Enablers 54 Sustainability Overview 57 Stakeholder Engagement 66 Material Matters 78 Sustainability Summary Ou r P e r f o rma n c e 80 Management Discussion and Analysis 111 Five-Year Financial Summary 112 Group Five-Year Summary 114 Group Quarterly Performance 115 Consolidated Statement of Profit or Loss 116 Consolidated Statement of Financial Position 117 Group Segmental Analysis 119 Statement of Income Distribution 120 Statement of Financial Position T a b l e o f C o n t e n t s The Malaysia Airports Annual Report 2020 is complemented by the Annual Report Microsite as well as more interactive contents via the Malaysia Airports Augmented Reality App. Enjoy the interactive contents on the app with 6 easy steps: Search for the Malaysia Airports Augmented Reality App on the Apple App Store or Google Play Store with your smart device Click the app and install (Please check your device compatibility before installing) Once installed, launch the Malaysia Airports Augmented Reality App Click the start button in the Malaysia Airports Augmented Reality App to launch the AR scanner Look for the ‘AR Icon’ in the Annual Report and scan it with the AR scanner to enjoy the interactive AR content You can also click on the interactive button to explore additional content F e e d b a c k Malaysia Airports is committed to continuously improve our reporting and we value input from our stakeholders in making these enhancements. Should you have any queries or feedback on this report, please contact us through the following channels: Email : CARE@malaysiaairports.com.my Address : Malaysia Airports Holdings Berhad Malaysia Airports Corporate Office Persiaran Korporat KLIA, 64000 KLIA Sepang, Selangor Darul Ehsan Malaysia
Ou r G ov e r n a n c e 121 Board of Directors’ Profile 133 Group Senior Management 147 Subsidiaries Senior Management 154 Corporate Governance Overview Statement 183 Statement on Risk Management and Internal Control 191 Board Audit Committee Report 195 Investor Relations 197 Dividend Policy 199 Additional Compliance Information A d d i t i o n a l I n f o rma t i o n 200 Corporate Information 202 Awards and Accolades 203 Statement of Workforce 204 Airports Statistics 206 Statement of Shareholdings 210 Information for Shareholders and Investors 211 Share Price, Volume Traded and Market Capitalisation 212 Financial Calendar 213 List of Properties 219 Group Corporate Directory 220 Airport Directory 221 Notice of the 22nd Annual General Meeting 227 Statement Accompanying Notice of the 22nd Annual General Meeting 228 AGM Administrative Details • Proxy Form Scan to view our 2020 Annual Report Microsite C ov e r R a t i o n a l e To ensure the sustainability of MalaysiaAirports’ business in a year during which the aviation industry was badly hit, we took immediate measures to strengthen our ability to ride out the challenging operating environment. Nevertheless, our business operates in an eco-system in which stakeholders are dependent on one another. By advancing strong value propositions and synergistic solutions for stakeholders, we will emerge stronger together, and ready to soar again.
Malaysia Airports Holdings Berhad 2 A b ou t T h i s R e p o r t Introduction This is Malaysia Airports’ third year of integrated reporting. The report has been prepared with reference to the principles of the International Integrated Reporting Framework (<IR> framework) developed by the International Integrated Reporting Council (IIRC). We strive to continuously improve the quality of information available to our stakeholders and reporting practices through adoption of the <IR> Framework, in consonance with the recommendations in the Malaysian Code on Corporate Governance (MCCG) 2017 on integrated reporting. The report aims to provide our stakeholders with transparent, relevant and integrated information of our business strategy, performance, and future prospects in the context of economy, social and environment, leading to the creation of stakeholder value over the short, medium and long-term. We are guided by our vision to be 'A Global Airport Group that Champions Connectivity and Sustainability' and are resolute in our brand promise of 'Hosting Joyful Connections'. Improvements of disclosure in Malaysia Airports’ Integrated Report for FY2020 are as follows: Section FY2020 Improvements Our Value Creation Strategy Operating Environment and Outlook: Whilst the market and environment outlook continues to be challenged by travel restrictions and border closures, our enhanced narrative highlights critical areas discussed with our stakeholders to position the Group towards recovery and growth prospects amidst the challenging landscape.
3 Annual Report 2020 Reporting Suite and Framework Frameworks applied: • Main Market Listing Requirements of Bursa Malaysia Securities Berhad • Malaysian Financial Reporting Standards • International Financial Reporting Standards • Companies Act 2016 • Malaysian Code on Corporate Governance 2017 • Global Reporting Initiative (GRI) Standards for Sustainability Reporting - Core Option The full report is also available online on our corporate website at www.malaysiaairports.com.my Scope and Boundary This report covers our financial and non-financial performance during the period from 1 January 2020 to 31 December 2020. Information presented relates to the principle activities of the Group and all its subsidiaries, unless stated otherwise. Detailed information on investments in which Malaysia Airports has no controlling interest is not included. Through this report, we hope to give a comprehensive and holistic overview of the matters that influence our ability to create value, including market challenges, risk management, strategies, governance, initiatives and key developments. EmErging STRONGER TOGETHER Annual Report 2020 EMERGING STRONGER TOGETHER Financial Statements 2020 EmErging STRONGER TOGETHER Sustainability Report 2020 Airports Statistics 2020 A n n u a l R e p o r t Provides a holistic assessment of our ability to create sustainable value in the short, medium and long-term Sets out the Group’s full audited annual financial statements, including the Independent Auditor's Report F i n a n c i a l S t a t e m e n t s Provides detailed disclosures of our management of sustainability risks and opportunities within the Economic, Environment and Social parameters S u s t a i n a b i l i t y R e p o r t Contains data on the Group’s total traffic movements including passenger, aircraft and cargo A i r p o r t s S t a t i s t i c s
Malaysia Airports Holdings Berhad 4 Concept of Value Creation and Materiality Value Creation Our focus on value creation is driven by championing connectivity as a global airport group and sustainability of airport communities that we serve. We relentlessly strategise on the mobilisation of our six capitals to coordinate, educate, support and collaborate with our stakeholders and monitor value creation outcomes to enhance resiliency. As we navigate ongoing transformation towards progressive recovery, our goal is to enhance interaction with stakeholders, providing material insights that consider inter-relatedness and dependencies between factors that drive our value creation journey. Our value creation model is further disclosed on pages 24 to 79. Materiality Malaysia Airports applies the principle of materiality to determine the content of our integrated report and defines materiality as matters that substantially affect the Group’s ability to create and sustain value over the short, medium and long-term. These matters were identified, prioritised and validated via a materiality assessment described in page 66. Our key stakeholders were engaged during this process, and this has enabled the Group to incorporate their inputs into our business perspective. Our strategic responses to these material matters are presented in pages 66 to 77. Forward Looking Statement This report contains forward looking statements, for example, Malaysia Airports’ future direction, strategies, and potential opportunities for growth. These statements are based on various assumptions and are subject to a number of risks, uncertainties and contingencies, many of which are beyond the control of the Group. Unanticipated events and actual future events may differ materially from current expectations due to new business opportunities, changes in priorities by the Group and other factors. Assurance Malaysia Airports obtained independent third-party assurance for the following information: Content Assurance Framework Annual Financial Statements Reasonable assurance • Companies Act 2016 • Malaysian Financial Reporting Standards • International Financial Reporting Standards Statement on Risk Management and Internal Control Limited assurance • Bursa Malaysia Securities Berhad Listing Requirements Sustainability Report Limited assurance • GRI Standards for Sustainability Reporting – Core Option Information on Exclusions Malaysia Airports’ disclosure appetite guides the limitations of information available in this report. As we strive to provide a balance between positive and negative information, several requirements of the <IR> Framework have been excluded due to the unavailability of reliable information or specific legal prohibitions. A b ou t T h i s R e p o r t
5 Annual Report 2020 Legends Throughout this report, this following navigation icons are used to link our six capitals, key stakeholders, strategic themes and enablers to material matters, risks, and performance. Regulators and Government Vendors and Service Providers Employees Investors Airlines Local Community Passengers The Media Tenants Airport Capacity Economic Performance Total Airport Experience Integrity and Anti-Corruption Digitalisation Transportation and Connectivity Airport Safety and Security Regulatory Compliance Survivability Fixing the Basics Horizontal Expansion Digitalisation Critical Asset Replacement Operational Excellence and Innovation Communications and Branding Governance and Process Human Capital C A P I T A L S s t r a t e g i c t h e m e s e n a b l e r s s t a k e ho l d e r s Ma t e r i a l ma t t e r s Financial Manufactured Intellectual Human Social Natural
Malaysia Airports Holdings Berhad 6 C h a i rma n ’ s S t a t e m e n t Dear Stakeholders, In an unprecedented year and amidst the most challenging business conditions that the entire aviation industry has ever faced globally, Malaysia Airports had adopted a positive mindset throughout the year. This positive mindset which has shaped our pandemic response is underpinned by four underlying factors – readiness, clarity, speed and empathy. Dato’ Seri Diraja Dr. Zambry Abd Kadir Chairman
7 Annual Report 2020 Our approach in handling the pandemic was to be agile, decisive and methodical with the objective of finding synergistic solutions that would benefit the Group and all its stakeholders. This holds true at every level of the Group, from the Board to the Management, from frontliners to support staff in the back office. Although this financial year was the first loss-making year in the history of Malaysia Airports, we remain heartened by the progress we had made on several fronts. In this regard, Malaysia Airports, together with our stakeholders, are on the right track towards preparing for the resumption of air travel when travel restrictions are eased. That is why we have chosen ‘Emerging Stronger Together’ as the theme to encapsulate this unprecedented year. Readiness As an airport operator, readiness is a byword in the business. We constantly strive for the highest level of preparedness, meticulously planning for any eventuality. The Airport Emergency Plans for our airports contain detailed contingency plans including responses to health threats – taking the cue from other deadly viral outbreaks such as the Severe Acute Respiratory Syndrome (SARS) in 2003 and the global H1N1 flu pandemic in 2009. We had also been on high alert for the Middle East Respiratory Syndrome (MERS) in 2013, Ebola in 2014, and Zika in 2016. The Airport Emergency Plans are regularly tested in airport emergency exercises, which are safety exercises that involve simulations of emergency scenarios designed to assess the efficacy of the planned response, the readiness of our people and the inter-agency coordination to respond effectively in different emergency scenarios. Therefore, as early as January, we activated the Airport Emergency Plan so that operationally, we could coordinate the response to the growing spread of the COVID-19 virus. Consequently, the KUL COVID-19 Committee was formed in January with stakeholders such as the National Disaster Management Agency (NADMA), the Ministry of Health, the Royal Malaysian Police (PDRM), the Malaysia Civil Defence Force (APM), Special Malaysia Assistance and Rescue Team (SMART), Fire and Rescue Department of Malaysia (Jabatan Bomba), The People’s Volunteer Corps (RELA), The Royal Malaysian Customs and Immigration Department. The Committee met weekly to formulate, implement, review and improve operational processes in line with the Standard Operating Procedures (SOPs) prescribed by the National Security Council. This has been pivotal in maintaining a robust and dynamic response to the pandemic at the nation’s gateways – ensuring the safety of passengers and the airport community while maintaining service levels at the airports and protecting the nation against imported cases of COVID-19.
Malaysia Airports Holdings Berhad 8 C h a i rma n ’ s S t a t e m e n t In addition, we activated the COVID-19 Corporate Crisis Management Team (CCMT) in March, chaired by the Group Chief Executive Officer and included members of the Executive Committee. The CCMT is part of our business continuity plans and its role is to provide strategic direction and communications pertaining to the recovery and sustainability of Malaysia Airports business operations, maintenance of service levels and engagement with stakeholders throughout the COVID-19 pandemic. The CCMT met weekly in 2020, a testament to the intensity of our response and the importance of a hands-on approach by the Management. Clarity Our positive approach was also bolstered by the clarity we had about the threats we were facing, the solutions and the action plan. Through extensive stress-testing and scenario-planning, it was clear to us that the most serious threat faced by Malaysia Airports were that of cash flow and liquidity. This was because the aeronautical business which was our main revenue driver was experiencing severe disruptions due to travel restrictions as globally nations closed their borders and imposed quarantine requirements to curb the spread of COVID-19. Following that, Malaysia Airports formulated a COVID-19 Recovery Plan, a group-wide response to navigate through the crisis and mitigate its impact. The plan was presented to the Board and was approved in March, setting out three main strategies – cost containment, cash preservation and cash recovery. The plan called for capital expenditure to be reduced by 80% through the prioritisation of maintenance capital expenditure for critical projects, while deferring other development projects. The plan also targeted to reduce operating costs by at least 20%. As a result of this, we proceeded with only several mission critical projects which required capital expenditure – the replacement of the Baggage Handling System and Aerotrain Track Transit System, runway rehabilitation, the completion of the washroom refurbishment at KUL, the Single Token Journey initiative to enable a contactless journey for passengers from check-in to boarding, and the on-going Commercial Reset. To reduce operating costs, a series of Cost Labs were held to examine our operations, employing Lean Six Sigma approach towards containing costs while achieving operational excellence. We challenged ourselves to rethink the way we operate, to consider changing even the most entrenched ways of doing business and to embrace new ways in which we could achieve sustainable cost containment. The plan does not only address what we foresee as our near-term outlook in the next two years i.e. the ‘Survival and Recovery’ phase, it also outlines a ‘Growth and Transformation’ phase to position and prepare Malaysia Airports for future growth. In preparing for the plan, a series of Transformation Labs were held between March and July during which High Impact Projects and Transformational initiatives were identified and presented to a Transformation Steering Committee. The groundwork has enabled Malaysia Airports to produce ‘Future F.I.T.’, a 5-Year Strategy and Transformation Plan which sets out the Group’s strategic direction for the next five years from 2021 to 2025. Premised on three pillars – Financially sustainable, Impact driven and Technology focused - the roadmap comprises Phase 1 from now till 2022 which sets out the direction for survival and recovery, and Phase 2 (20232025) which positions Malaysia Airports for future business growth and sustainability. The Board approved Future F.I.T. in November, and it is currently being implemented.
9 Annual Report 2020 Speed Speed was of the essence for the successful execution of our pandemic response. It was important for us to engage immediately with key stakeholders and to assure them that we had a solid plan in place and to seek their cooperation to execute it. First, we needed to communicate with our people to obtain their buy-in and support for what was to be a radical departure from business as usual. In early April, a townhall was held in which our Group Chief Executive Officer addressed all employees to present to them the new reality. In doing so, he explained to our people how the pandemic would potentially impact Malaysia Airports and the immediate steps that we had to take to ensure the continued survival of the Group, and its recovery from this crisis. Most importantly, he made it clear that everyone at Malaysia Airports had a role in ensuring the survival and recovery of the Group, and that by remaining united and steadfast in our efforts, we will emerge stronger together from this crisis. As a result of this, we are heartened to see that our employees have stood united with the Group and given their wholehearted support and effort in ensuring a brighter future for Malaysia Airports and our stakeholders. We had also conducted extensive engagements with other key stakeholders to kickstart the execution of the COVID-19 Recovery Plan. They include airport owners such as the government of Malaysia, the Turkish Ministry of Defence and the management of Hamad International Airport (IATA Code: DOH) in Doha, Qatar as we sought payment deferrals and leeway in the terms of the operating and concession agreements. Also included among the key stakeholders were the lenders who had provided the syndicated term loan for the Istanbul Sabiha Gökçen International Airport (IATA Code: SAW) concession, our bankers in Malaysia as well as sukuk holders of Malaysia Airports’ Islamic Medium Term Notes. We also engaged with investment analysts and the rating agencies to assure them that we had a solid plan in dealing with the demands and constraints of the situation, and how we are also preparing for the Group’s future growth and sustainability. The early engagement with key stakeholders yielded crucial results. The government of Malaysia agreed to defer the payment of user fees due under the Operating Agreements (OAs) in 2020 to April 2021 and further agreed to relaxation of Marginal Cost Support (MARCS) claims for 2020. The government also expedited the payment of previous MARCS and tax refunds claimed by Malaysia Airports. For operations in Turkey, the Turkish government had agreed to defer indefinitely the utilisation fee for SAW of EUR114.8 million originally due in January 2021. In relation to the syndicated loan, the lenders agreed to rearrange the facility, extending the loan tenure by two years to 2025, and granting a payment holiday for loan repayments due in December 2020 and June 2021. As a result, only EUR10 million is due for repayment in 2021. Despite the challenges of the operating environment, Malaysia Airports maintained its credit ratings by Rating Agency of Malaysia (RAM) andMoody’s. The strong credit ratings enabled the Group to take advantage of the prevailing low interest rate environment to redeem the existing Islamic Medium Term Notes of RM1.0 billion which carried a 4.55% annual profit rate in August, and in November to tap the Sukuk market to raise funds under the Senior Sukuk programme. We succeeded in raising RM700 million through the issuance of two tranches of new Senior Sukuk of RM480 million (7-year tenure) and RM220 million (10-year tenure) with annual distribution of 3.3% and 3.6% respectively, marking the longest ever tenure and lowest ever profit rates under the Senior Sukuk programme.
Malaysia Airports Holdings Berhad 10 C h a i rma n ’ s S t a t e m e n t Empathy While it is important that we survive the pandemic and strengthen our capabilities and capacity for future growth, Malaysia Airports operates in an ecosystem which is both inter-connected and inter-dependent – globally, regionally and domestically. This has come into sharp focus during the pandemic, which demonstrated how dependent stakeholders are on one another. Lending a helping hand to other stakeholders who had been affected by the pandemic has been a key feature of our pandemic response. Internally, for our employees, many of whom brave the frontlines of the pandemic, we have maintained the employment of all our people, with the only exceptions being employees leaving due to retirement and other natural attrition, and poor performance. We have also retrained our staff for other roles, particularly airport staff such as aviation security officers. As the airport business is highly specialised, the key material matters of our business such as regulatory compliance and airport safety and security make it necessary to maintain staffing for us to scale our operations as and when travel restrictions are lifted. We have also extended assistance to commercial partners such as airport retailers and tenants. For airport retailers, we extended a six-month rental moratorium and structured a New Rental Model moving forward. This has helped them to ease their cashflow in 2020, as well as to keep costs in line with revenue for 2021. In these initiatives, we have prioritised the small and medium enterprises as they are more vulnerable to a sudden loss of business from circumstances beyond their control. We also reached out to our airline partners to prepare for the resumption of flights to and from our network of airports when air travel picks up. The Network Reconnecting Programme offers a win-win proposition for airlines by reducing various airport charges for those who had formally stated their intention to resume flights to and from our airports. We also extended the credit terms and worked out instalment schemes to enable airlines to make payments of sums owed to Malaysia Airports taking into consideration cash flow issues. Keeping the growth momentum In addition to shaping our pandemic response, our positive mindset also ensured that the Group kept on a positive trajectory in critical business areas, achieving its goals and scoring several key wins. Maintaining public confidence in the safety of airports The safety of passengers, employees and the airport community is our paramount consideration to build public confidence in the safety of our airports and enable our employees and members of the airport community working on the frontlines of the pandemic to have peace of mind at work. The new SOPs at airport terminals incorporate public health measures including physical distancing, the use of face masks, contact tracing, temperature checks at terminal entrances and the availability of hand sanitisers throughout the terminal. We also installed new safety equipment at the airports including state-of-the-art thermal scanners, security scanners as well as sneeze guards. We ensured that public areas were regularly sanitised and used ultra-violet technology to sterilise handrails at walkalators and escalators, disinfect washrooms and disinfect all arriving baggage at KUL. In this regard, we also leveraged on Malaysia Airports’ prior investments in technology and digitalisation capabilities. We were therefore able to deploy our Airports 4.0 digitalisation initiatives for a contactless experience to airport users. For example, with the introduction of the Single Token
11 Annual Report 2020 Journey initiative, passengers are able to navigate the airport’s touchpoints from check-in to boarding with a single identification verification coupled with facial recognition technology. Other contactless measures include self check-in, self bag-drop, contactless security screening, and the use of e-wallets or mobile payment services at retail and food and beverage outlets. Top 10 global ranking for KUL One of our proudest achievements of the year was the return of KUL to the top 10 airports in the world in the above 40 million passengers per annum (mppa) category as ranked by the Airports Council International through its Airport Service Quality (ASQ) rankings. Considering that the top 10 is traditionally dominated by newer airports, KUL at the age of 22 years making the top 10 is a testament to the hard work and outstanding effort put in by all our employees and the other members of the KUL airport community. KUL’s overall score of 4.98 out of a possible 5.0 for the full year was a big jump from 4.76 in 2019 when we ranked #17. This achievement was driven primarily by several factors - fulfilling our brand promise of ‘Hosting Joyful Connections’ as well the impact of the host culture transformation programme to improve service quality among frontline workers at the airport, the refurbishment of the washrooms at the airport as well as the many enhancements that have been implemented through the #1improvement1week initiative, all of which have been in progress since 2017 onwards. Over and above that in 2020 alone, we implemented new safety measures at our own cost amounting to RM15.0 million at KUL and other airports as part of the new normal in air travel and to build confidence among passengers on the safety of air travel. Our determination and persistence in making the holistic improvements needed to stand among the top 10 airports in the world have certainly paid off, despite the additional challenges posed by the pandemic. E-commerce joint venture with Alibaba takes off It was also a proud moment for us when the Cainiao Aeropolis eWTP Hub became operational in November, covering over 100,000 sqm at KLIA Aeropolis. The facility which is a joint venture (JV) between e-commerce titan Alibaba and Malaysia Airports, is the first e-fulfilment hub for Alibaba located outside of China. Despite disruption of works during the Movement Control Order, the eWTP hub was successfully completed on schedule. This is also a game changer for Malaysia Airports in boosting our cargo business as well as for the nation towards becoming a significant player in the fast-growing e-commerce sector. Management contract for DOH renewed In the project and repair maintenance business, through Malaysia Airports Consultancy Services Middle East LLC (MACS ME), we secured the extension of the contract to provide management services at Doha International Airport, Qatar (IATA Code: DOH) for another five years from December 2019 to December 2024. This is notable because we first secured the contract for an initial three years beginning December 2014, and it had previously been extended for a second term from December 2017 till December 2019. The renewal for a third term for a further five years is testament to our performance and operational excellence in delivering the contractual obligations and support services effectively at DOH, a five-star airport.
Malaysia Airports Holdings Berhad 12 Gold sustainability rating In terms of Malaysia Airports’ sustainability practices and initiatives as well as the impact of the Group in the environment, social and governance spheres, an independent review by RAM Sustainability resulted in the Group achieving an overall gold rating, the highest of three available ratings. Malaysia Airports also received a gold rating for the social and governance spheres as well as for positive impact. For the environment sphere, we received a silver rating. The rating reflects Malaysia Airports’ strong overall sustainability performance after taking into consideration its environment, social and governance and positive impact attributes. The rating also recognises that our sustainability performance is driven by robust governance and its positive impact on the economy and society. Among other matters, the rating report also highlights our dedication towards integrity and anti-corruption as shown by the adoption of the ISO 37001: Anti-Bribery Management Systems. Board Activities and Corporate Governance The Board of Directors of Malaysia Airports has played a critical role in the Group’s response to the pandemic. The Board members have brought their expertise and decades of experience to the table and engaged in in-depth discussions, offering multitudes of opinions and approaches so that as a collective body, we will arrive at the best solutions for the Group. The Board met 16 times this year and has worked closely with Management to strengthen the Group as we steered our way through the year’s turbulence. Regulatory compliance In the area of Corporate Governance, the Board is pleased to note that the stakeholders of the Group in reviewing the material matters for our business has maintained ‘Regulatory Compliance’ at the highest band of priority. Regulatory compliance has always been a corporate governance priority for Malaysia Airports because we operate within a highly regulated industry, in which we are subject to international and national laws and regulations, including environmental, social and operational regulations. The Board monitors closely the compliance with all applicable laws and regulations to maintain the confidence of stakeholders in the integrity of the Group, the safety of operations as well as to protect against legal liability and harm to our reputation. C h a i rma n ’ s S t a t e m e n t New and emerging risks The Board also monitors the new and emerging risks that the Group may face. In addition to risks which came to the fore in the year such as pandemic and liquidity risks, a key development in this regard is the coming into force of the new Section 17A of the Malaysian Anti-Corruption Commission Act 2009 (MACC Act) on 1 June which introduces corporate liability on commercial organisations in Malaysia. The effect of Section 17A is that a company such as Malaysia Airports may be liable to legal proceedings for corruption offences committed by persons associated with the Group. The Guidelines on Adequate Procedures issued by the MACC on Section 17A of the MACC Act provides guidance in formulating and implementing procedures to prevent corrupt practices. Consequently, we have conducted a risk assessment of our operations and addressed the vulnerabilities. Guidelines on Anti-Corruption Due Diligence have also been developed to guide the relevant companies and divisions in the Group on fulfilling the requirements of the MACC Act. To ensure wide-spread awareness on the new provisions of the law, we developed online learning modules for employees to learn about these anti-corruption provisions, with 100% of employees having completed the e-learning course in 2020. Thank you I would like to extend a warm welcome to our newest Board members, Dato’ Mohamad Nasir Ab Latif who was appointed on 1 October 2020, and Puan Normah Osman who was appointed on 26 April 2021. The Board would also like to thank our former Chairman, Tan Sri Datuk Zainun Ali, as well as two other Board members, Dato’ Jana Santhiran Muniayan and Hajah Jamilah Dato’ Hashim, who resigned in 2020. On behalf of the Board, I would like to record our appreciation for their contribution towards the Group. In addition, the Board wishes to thank our employees who have put up a brave front facing the trials and tribulations of the pandemic, forming a strong and united workforce for the Group. We acknowledge their many sacrifices during this challenging year. As Malaysia Airports is categorised as a provider of essential services, many of our employees served
13 Annual Report 2020 on the frontlines of this pandemic, risking their lives for the greater public interest. Each of our employees scaled a steep learning curve during the year and I hope, emerged stronger, for their experience. We also express our sincere appreciation to shareholders and all other stakeholders - the various ministries, government agencies, airline partners, retail partners, vendors and all other business partners - for their support and contribution and walking alongside us in facing the challenges and hurdles of 2020. I would also like to make a special acknowledgement of the role of the government of Malaysia in advancing our discussions on the renewal of our Operating Agreements, which form the basis for Malaysia Airports’ licence to operate the 39 airports in Malaysia. While the Cabinet’s approval in principle had been obtained for the extension of the OAs till 2069, the details of the agreements are being finalised with the relevant government agencies. We have made tremendous progress thanks to the spirit of mutual cooperation and understanding that has prevailed, and the willingness of government stakeholders to balance and marry the interests of Malaysia Airports and our stakeholders with government policies on the aviation industry. In this regard, we believe the formal renewal of the OAs will be the catalyst for further development and investment in the network of airports in Malaysia. Although this year has brought tremendous challenges, our positive approach has influenced the course and direction of stakeholder engagements. With the appreciation that ‘we are all in this together’, we have arrived at win-win outcomes for the Group and its stakeholders. Therefore in 2020, despite the pressing concerns brought on by the pandemic, Malaysia Airports continued to make a tangible difference for stakeholders and discharged our duties as guardians of the nation’s gateways. Dato’ Seri Diraja Dr. Zambry Abd Kadir Chairman
Malaysia Airports Holdings Berhad 14 >> Our Business F Y 2 0 2 0 K e y H i g h l i g h t s Scope FY2020 FY2019 FY2018 Group Financial Performance Revenue (RM'mil) Group 1,866.3 5,213.1 4,851.7 EBITDA (RM'mil) Group 21.6 2,292.0 2,383.5 Profit for the Year (RM'mil) Group (1,116.2) 537.0 727.3 Total Equity (RM'mil) Group 8,099.3 9,325.4 9,140.7 Airport Performance Group Passenger Movements (mil) Group 43.0 141.2 133.2 Group Aircraft Movements Group 600,073 1,281,000 1,232,735 Group Cargo Movements (metric tonnes) Group 834,718 1,003,000 1,037,370 KUL ASQ rank (> 40 mppa category) KUL 10 17 14 KUL ASQ score KUL 4.98 4.76 4.70 Total Direct Destinations KUL 166 166 >120 SAW 130 >160 >160 Sustainability Performance Energy Consumption (kWh/passenger) Airports in Malaysia 15.9 5.1 5.3 SAW 3.8 2.2 2.2 Solar Power Generated (MWh) KUL 16,949 18,763 18,284 Water Consumption (litre/passenger) Airports in Malaysia 365.5 104.7 127.3 SAW 12.8 10.2 10.1 Total Waste Generated (kg/passenger) KUL 0.36 0.23 0.27 SAW 0.27 0.14 0.13 Recycling Rate (%) KUL 8.3 13.8 5.7 SAW 33.3 50.5 47.1 Total Employees Group 10,333 10,724 10,799 Percentage of Female Employees (%) Group 34.2 34.6 33.4 Community Investment (RM) Group 417,839 1,066,847 1,373,919
15 Annual Report 2020 >> Our Business A t a G l a n c e Globally, Malaysia Airports is one of the world’s largest airport operator groups, based on the total number of passengers handled, managing in total 39 airports throughout Malaysia (five international airports, 16 domestic and 18 STOLports). the Group also owns and manages one international airport in Istanbul, Turkey. Our Malaysia operations comprises five key business activities which are airport services, duty free and nondutiable goods, hotel, project and repair maintenance and agriculture and horticulture. For overseas operations, in addition to ownership and management of Istanbul Sabiha Gökçen International Airport (IATA Code: SAW) in Istanbul, Turkey, we also provide services for operations and maintenance of airports and airport-related services. Listed on the Main Market of Bursa Malaysia since November 1999, at the end of 2020, Malaysia Airports’ market capitalisation stood at RM9.8 billion. We are a constituent of the FTSE4Good Bursa Malaysia Index and as a signatory to the Aviation Industry Commitment to Action on Climate Change, we strive to create a pathway to carbonneutral growth and a carbon-free future. Malaysia Airports also holds memberships in the Airports Council International (ACI) and the ACI Asia Pacific Regional Environmental Committee. B R A N D P R OM I S E Hosting Joyful Connections C o r e Va l u e s Integrity Customer-Centricity Accountability New Ideas OU R V I S I O N A Global Airport Group that Champions Connectivity and Sustainability Competitive advantage • Malaysia is located in a strategic location – in the heart of ASEAN, surrounded by high growth markets such as China and India. • Competitive aeronautical and passenger charges - one of the lowest in the world. • Well-equipped airports with safety standards certified by global bodies such as ISO, British Standards Institution, and ACI. • Our flagship, KUL, is ranked within the Top 10 airports globally for >40 mppa under ACI’s Airport Service Quality rankings. • KUL’s two terminals have a combined capacity of 75 mppa. • KUL’s three independent runway system facilitates efficient flight operations. • 100km2 land bank surrounding KUL allows for aviation-related and commercial development. • SAW's strong hub position within the region, evidenced by its consistent ranking as one of Europe's busiest airports. Post COVID-19 pandemic, Malaysia Airports is well-positioned to benefit from the recovery of the aviation industry through the strong hub advantage of leading low-cost carriers while also leveraging on the connectivity and network of home-based full-service carriers for both its operations in Malaysia and Turkey.
Malaysia Airports Holdings Berhad 16 >> Our Business H i g h l i g h t s by K e y B u s i n e s s A c t i v i t i e s > A i r p o r t S e r v i c e s Manage, operate and maintain airports, and provide airport-related services to ensure that airports operate efficiently, safely and securely and maintaining high service levels > Du t y F r e e and Non - Du t i ab l e Goods Operate duty-free outlets and provide management services for food and beverage outlets at designated airports > Ho t e l Manage and operate hotels > P r o j e c t a n d R e p a i r Ma i n t e n a n c e Offer consultancy, facility management services and maintenance of information and communication technology business ventures and provision of mechanical and electrical engineering > A g r i c u lt u r e a n d Ho r t i c u lt u r e Cultivate and manage oil palm and other agricultural products, in addition to undertaking horticulture activities, mainly landscaping services and products E qu i t y i n v e s t e d E qu i t y i n v e s t e d E qu i t y i n v e s t e d E qu i t y i n v e s t e d E qu i t y i n v e s t e d T o t a l r e v e n u e T o t a l r e v e n u e T o t a l r e v e n u e T o t a l r e v e n u e T o t a l r e v e n u e FY2020 : RM4,419.3 mil FY2019 : RM4,419.3 mil FY2018 : RM4,419.3 mil FY2020 : RM16.5 mil FY2019 : RM16.5 mil FY2018 : RM16.5 mil FY2020 : RM92.7 mil FY2019 : RM92.7 mil FY2018 : RM92.7 mil FY2020 : RM9.0 mil FY2019 : RM9.0 mil FY2018 : RM9.0 mil FY2020 : RM7.5 mil FY2019 : RM7.5 mil FY2018 : RM7.5 mil FY2020 : RM1,741.9 mil FY2019 : RM4,458.3 mil FY2018 : RM4,096.0 mil FY2020 : RM155.4 mil FY2019 : RM854.5 mil FY2018 : RM834.2 mil FY2020 : RM43.7 mil FY2019 : RM93.3 mil FY2018 : RM92.5 mil FY2020 : RM42.4 mil FY2019 : RM33.9 mil FY2018 : RM36.9 mil FY2020 : RM211.8 mil FY2019 : RM287.1 mil FY2018 : RM240.3 mil Financial Financial Financial Financial Financial
17 Annual Report 2020 >> Our Business E B I T D A E B I T D A E B I T D A E B I T D A E B I T D A G r ou p p a s s e n g e r t r a f f i c mo v e m e n t s N UMB E R O F R E T A I L OU T L E T S * N umb e r o f ho t e l s O i l - p a l m p l a n t e d a r e a ( h a ) N umb e r o f e mp l oy e e s N umb e r o f a i r p o r t s o p e r a t e d R E T A I L A R E A * ( S QM ) N umb e r o f r ooms F r e s h f ru i t b u n c h e s ( M T ) N umb e r o f e mp l oy e e s N umb e r o f e mp l oy e e s N umb e r o f e mp l oy e e s N umb e r o f e mp l oy e e s FY2020 : RM109.8 mil FY2019 : RM2,195.4 mil FY2018 : RM1,974.9 mil FY2020 : RM-89.2 mil FY2019 : RM53.2 mil FY2018 : RM75.5 mil FY2020 : RM2.8 mil FY2019 : RM32.3 mil FY2018 : RM24.0 mil FY2020 : RM10.3 mil FY2019 : RM5.0 mil FY2018 : RM8.1 mil FY2020 : RM40.3 mil FY2019 : RM70.0 mil FY2018 : RM40.3 mil FY2020 : 43.0 mil FY2019 : 141.2 mil FY2018 : 133.2 mil FY2020 : 52 FY2019 : 54 FY2018 : 51 FY2020 : 4 FY2019 : 4 FY2018 : 4 FY2020 : 6,632.1 FY2019 : 6,646.3 FY2018 : 6,646.3 FY2020 : 591 FY2019 : 646 FY2018 : 323 FY2020 : 40 FY2019 : 40 FY2018 : 40 FY2020 : 13,112 FY2019 : 13,745 FY2018 : 14,045 FY2020 : 720 FY2019 : 720 FY2018 : 442 FY2020 : 60,444.0 FY2019 : 62,967.6 FY2018 : 65,917.1 FY2020 : 8,577 FY2019 : 8,664 FY2018 : 9,058 FY2020 : 775 FY2019 : 982 FY2018 : 979 FY2020 : 413 FY2019 : 398 FY2018 : 405 FY2020 : 28 FY2019 : 34 FY2018 : 34 Manufactured Manufactured Manufactured Natural Intellectual Social and Relationship Social and Relationship Social and Relationship Social and Relationship Social and Relationship * Data is in reference to MA(Niaga)
Malaysia Airports Holdings Berhad 18 >> Our Business Airport Services INTERNATIONAL Malaysia • KL International Airport (KUL) • Kota Kinabalu International Airport (BKI) • Kuching International Airport (KCH) • Langkawi International Airport (LGK) • Penang International Airport (PEN) TURKEY • Istanbul Sabiha Gökçen International Airport (SAW) INDIA • Rajiv Gandhi International Airport (HYD) Short Take-Off and Landing Ports (STOLPORTS) • Pulau Pangkor (PKG) • Pulau Redang (RDN) • Pulau Tioman (TOD) • Bakelalan (BKM) • Bario (BBN) • Belaga (BLG) • Kapit (KPI) • Lawas (LWY) • Long Akah (LKH) • Long Banga (LBP) • Long Lellang (LGL) • Long Semado (LSM) • Long Seridan (ODN) • Marudi (MUR) • Mukah (MKM) • Kudat (KUD) • Long Pasia (GSA) • Semporna (SMM) Domestic • Melaka Airport (MKZ) • Sultan Abdul Aziz Shah Airport, Subang (SZB) • Sultan Abdul Halim Airport, Alor Setar (AOR) • Sultan Ahmad Shah Airport, Kuantan (KUA) • Sultan Azlan Shah Airport, Ipoh (IPH) • Sultan Ismail Petra Airport, Kota Bharu (KBR) • Sultan Mahmud Airport, Kuala Terengganu (TGG) • Bintulu Airport (BTU) • Limbang Airport (LMN) • Miri Airport (MYY) • Mulu Airport (MZV) • Sibu Airport (SBW) • Labuan Airport (LBU) • Lahad Datu Airport (LDU) • Sandakan Airport (SDK) • Tawau Airport (TWU) INDIA Rajiv Gandhi International Airport (HYD) Turkey Istanbul Sabiha Gökçen International Airport (SAW) 41.0 mppa 100% shareholding Langkawi (LGK) 4.0 mppa Pulau Pangkor (PKG) Penang (PEN) 6.5 mppa Alor Setar (AOR) 0.8 mppa Ipoh (IPH) 0.5 mppa Subang (SZB) 1.5 mppa Melaka (MKZ) 1.5 mppa KL International Airport (KUL) klia2 45.0 mppa KLIA1 30.0 mppa Kota Bharu (KBR) 1.5 mppa Pulau Redang (RDN) Kuala Terengganu (TGG) 1.5 mppa Kuantan (KUA) 1.3 mppa Pulau Tioman (TOD) Wh e r e We O p e r a t e 25.0 mppa 11% shareholding
19 Annual Report 2020 >> Our Business Lawas (LWY) Kudat (KUD) Long Seridan (ODN) Long Akah (LKH) Belaga (BLG) Kapit (KPI) Mukah (MKM) Long Lellang (LGL) Marudi (MUR) Long Pasia (GSA) Long Semado (LSM) Bakelalan (BKM) Bario (BBN) Long Banga Sibu (SBW) 1.8 mppa Miri (MYY) 2.0 mppa Sandakan (SDK) 1.5 mppa Lahad Datu (LDU) 0.1 mppa Tawau (TWU) 1.5 mppa Kuching (KCH) 5.3 mppa Kota Kinabalu (BKI) 9.0 mppa Labuan (LBU) 2.2 mppa Semporna (SMM) Limbang (LMN) 0.3 mppa Mulu (MZV) 0.05 mppa Bintulu (BTU) 1.0 mppa Project and Repair Maintenance Duty Free and Non-Dutiable Goods • KL International Airport (KUL) • Kota Kinabalu International Airport (BKI) • Kuching International Airport (KCH) • Langkawi International Airport (LGK) • Penang International Airport (PEN) • Sultan Abdul Aziz Shah Airport, Subang (SZB) • Istanbul Sabiha Gökçen International Airport (SAW) Agriculture and Horticulture • KL International Airport (KUL) • Bintulu Airport (BTU) • Miri Airport (MYY) • Sibu Airport (SBW) Hotel Four locations in and around KUL and SAW: • KLIA1 landside • KLIA1 airside • klia2 airside • SAW landside Airports • KL International Airport (KUL) • Kota Kinabalu International Airport (BKI) • Kuching International Airport (KCH) • Langkawi International Airport (LGK) • Penang International Airport (PEN) • Sultan Abdul Aziz Shah Airport, Subang (SZB) • Hamad International Airport (DOH) Port • Port of Tg Pelepas Commercial buildings • Airbus Helicopters Malaysia • Cainiao Aeropolis eWTP Hub • Exxon Mobil • Masjid As-Syakirin KLCC • Maxis Tower • Novugen Pharma (Malaysia) • Persada PLUS • Petronas Tower 3 • Sepang International Circuit • SPIRIT Aerosystems Malaysia
Malaysia Airports Holdings Berhad 20 >> Our Business C o r p o r a t e S t ru c t u r e MALAYSIA AIRPORTS HOLDINGS BERHAD 100% Malaysia Airports Sdn Bhd Malaysia Airports (Sepang) Sdn Bhd 30% MFMA Development Sdn Bhd Malaysia Airports Consultancy Services Sdn Bhd 100% Urusan Teknologi Wawasan Sdn Bhd 49% Malaysia Airports Consultancy Services Middle East LLC Malaysia International Aerospace Centre Sdn Bhd Malaysia Airports (Niaga) Sdn Bhd 100% Eraman (Malaysia) Sdn Bhd Malaysia Airports (Properties) Sdn Bhd 100% K.L. Airport Hotel Sdn Bhd 100% MAB Agriculture-Horticulture Sdn Bhd 20% Kuala Lumpur Aviation Fuelling System Sdn Bhd Airport Ventures Sdn Bhd 100% Malaysia Airports Technologies Sdn Bhd 100% Malaysia Airports MSC Sdn Bhd 40% İstanbul Sabiha Gökçen Uluslararası Havalimanı Yatırım Yapım ve İşletme A.Ş. 40% SGC Havalimanı İşletmeleri Ticaret ve Turizm A.Ş. 30% Cooling Energy Supply Sdn Bhd
21 Annual Report 2020 >> Our Business 100% Malaysia Airports Capital Berhad Malaysia Airports Cities Sdn Bhd 40% İstanbul Sabiha Gökçen Uluslararası Havalimanı Yatırım Yapım ve İşletme A.Ş. 40% SGC Havalimanı İşletmeleri Ticaret ve Turizm A.Ş. KLIA Aeropolis Sdn Bhd Malaysia Airports International Sdn Bhd MA Elogistics Sdn Bhd 30% Alibaba KLIA Aeropolis Sdn Bhd (formerly known as Cainiao KLIA Aeropolis Sdn Bhd) Malaysia Airports (Subang) Sdn Bhd 30% BP Malaysia Airports Subang Aerotech Sdn Bhd MAHB (Mauritius) Private Limited Malaysia Airports (Labuan) Private Limited 30% 23% 20% Segi Astana Sdn Bhd Airport Cooling Energy Supply Sdn Bhd İstanbul Sabiha Gökçen Uluslararası Havalimanı Yatırım Yapım ve İşletme A.Ş. SGC Havalimanı İşletmeleri Ticaret ve Turizm A.Ş.
Malaysia Airports Holdings Berhad 22 >> Our Business K e y M i l e s t o n e s B a c k g r ou n d 1 9 9 2 Establishment of Malaysia Airports 2 0 1 5 • Graduation from GLC Transformation Programme • Opening of Mitsui Outlet Park KLIA Sepang 1 9 9 8 Opening of KLIA 2 0 1 5 Full Acquisition of Istanbul Sabiha Gökçen International Airport in Turkey 2 0 1 6 • Launch of KLIA Aeropolis 2 0 1 7 Ground Breaking of KLIA Aeropolis DFTZ Park 2 0 1 8 • Ground Breaking of Subang Aerotech Park • Expansion of Langkawi International Airport In 1991, the Malaysian Parliament passed an act that reshaped the Malaysian aviation industry. The result of that was asset ownership of airports in Malaysia was separated from the regulation of the industry. Following that, Malaysia Airports Berhad was incorporated in 1992 to maintain, manage and operate airports while the Department of Civil Aviation (now known as the Civil Aviation Authority of Malaysia) remained as the regulator. In 1999, Malaysia Airports was listed on the Main Board of the Kuala Lumpur Stock Exchange (now Bursa Malaysia), the first airport operator in Asia, and the sixth in the world, to be publicly listed. Today, Malaysia Airports operates 39 airports in Malaysia including KL International Airport (IATA Code: KUL). It also owns and operates Istanbul Sabiha Gökçen International Airport (IATA Code: SAW) in Turkey. In 2019, the government of Malaysia approved the extension of the Operating Agreements to operate and manage the 39 airports until 2069.
23 Annual Report 2020 >> Our Business 1 9 9 9 Listing of Malaysia Airports on KLSE Main Board (now Main Market of Bursa Malaysia) 2 0 1 4 Opening of KUL’s second terminal, klia2 2 0 0 4 Transfer of 50% Minister of Finance (Inc) stake to Khazanah Nasional 2 0 1 3 Launching of Sama-Sama Hotel 2 0 0 6 Malaysia Airports becomes one of Khazanah Nasional’s top 20 GLCs 2 0 1 0 klia2 Ground Breaking Ceremony 2 0 1 9 Brand refresh for Eraman 2 0 2 0 • Launch of shopMYairports e-commerce platform • Operationalisation of Cainiao Aeropolis eWTP Hub 2 0 1 9 Extension of Malaysia Airports’ Operating Agreements
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