SPURR I NG BOLD AC T I ON Annual Report 2021
INSIDE THIS REPORT Value Creation Model 20 Operating Environment and Outlook 26 Our Strategy 29 Key Enablers 42 Sustainability Overview 50 Material Matters 56 Sustainability Summary 68 Stakeholder Engagement 69 OUR VALUE CREATION STRATEGY About This Report 2 Chairman’s Views 4 PROLOGUE S0 S2 COVER RATIONALE 2021 was a year of dynamic change. As the world adapted itself to the ‘new normal’ and began the transition to endemicity, the aviation industry, particularly in the Asia Pacific region, continued to be impacted by travel restrictions. At Malaysia Airports, our challenge was to build a sustainable business with the agility to navigate the current changes and the resilience to withstand future shocks and challenges. This called for the courage to challenge conventional wisdom and to take bold action. To put us in a prime position to capitalise on growth opportunities as borders reopen, we changed our mindset and adopted an entrepreneurial approach with the propensity to create value and unlock growth opportunities. In this annual report, in addition to the narrative and financials, stakeholders are also given a visual description of the year’s milestones and activities from the selected photographs. To better depict the vast untapped prospects within Malaysia Airports, our cover visual combines photographs and vectors, with the latter denoting the potential opportunities which are already taking shape, and with courage, conviction and imagination, will come to fruition for the benefit of stakeholders. ‘Spurring Bold Action’ encapsulates this watershed year at Malaysia Airports.
Board of Directors’ Profile 117 Group Senior Management 128 Subsidiaries Senior Management 140 Corporate Governance Overview Statement 148 Statement on Risk Management and Internal Control 178 Board Audit Committee Report 185 Investor Relations 189 Dividend Policy 191 Additional Compliance Information 193 FY2021 Key Highlights 13 At a Glance 14 Where We Operate 16 Corporate Structure 18 OUR BUSINESS OUR GOVERNANCE Management Discussion and Analysis 76 Five-Year Financial Summary 107 Group Five-Year Summary 108 Group Quarterly Performance 110 Consolidated Statement of Profit or Loss 111 Consolidated Statement of Financial Position 112 Group Segmental Analysis 113 Statement of Income Distribution 115 Statement of Financial Position 116 OUR PERFORMANCE Corporate Information 194 Statement of Workforce 196 Airports Statistics 197 Statement of Shareholdings 199 Share Price, Volume Traded and Market Capitalisation 203 Financial Calendar 204 List of Properties 205 Group Corporate Directory 211 Airport Directory 212 Notice of 23rd Annual General Meeting 213 Statement Accompanying Notice of 23rd Annual General Meeting 219 AGM Administrative Details 220 • Proxy Form • Requisition Form ADDITIONAL INFORMATION S1 S3 S5 S4
The full report is also available online on our corporate website at www.malaysiaairports.com.my REPORTING SUITE The Reporting Suite for 2021 is similar to previous years and comprises this Annual Report, Financial Statements, Sustainability Report and Airport Statistics. ABOUT THIS REPORT INTRODUCTION This Integrated 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) and the recommendations in the Malaysian Code on Corporate Governance 2017 on integrated reporting. This report aims to provide our stakeholders with transparent, relevant and integrated information of our business strategy, performance, and future prospects as well as environmental social and governance (ESG) considerations, 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’. APPLICABLE REQUIREMENTS AND STANDARDS They are prepared according to the following regulatory requirements and the voluntary standards for sustainability reporting: • 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 ONLINE VERSION The full reporting suite is also available online on our corporate website at www.malaysiaairports.com.my SCOPE AND BOUNDARY This report covers our financial andnon-financial performance during the period from 1 January 2021 to 31 December 2021. 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. ENHANCEMENTS We have enhanced the integrated reporting in the Annual Report for FY2021 in the Operating Environment and Outlook section to enable stakeholders to understand better how we tackled the challenges of the year, and how we position ourselves for future growth and resilience. In addition, a new section on ESG Highlights and Achievements which summarises key points from the Sustainability Report aims to provide stakeholders with a better view of our progress on integrating sustainability considerations in our business.
VALUE CREATION MODEL Our value creation model is disclosed on pages 20 to 75. It outlines our focus on value creation which is driven by championing connectivity as a global airport group and sustainability of airport communities that we serve. The strategies for mobilisation of our six capitals to create value for stakeholders and the outcomes of the value creation initiatives are also included. MATERIALITY The content of our integrated report is dependent on the principle of materiality, namely we include matters that substantially affect the Group’s ability to create and sustain value over the short, medium and long-term. These matters are identified, prioritised and validated through a materiality assessment process that is described in this report which includes engagement of key stakeholders to seek their input. Our strategic responses to these material matters are presented in pages 56 to 67. 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 limitation of information available in this report. Several requirements of the <IR> Framework have been excluded due to the unavailability of reliable information or specific legal prohibitions. NAVIGATION ICONS Six Capitals Human Financial Social Manufactured Natural Intellectual Airport Capacity Airport Safety and Security Total Airport Experience Economic Performance Transportation and Connectivity Digitalisation Integrity and Anti-Corruption Regulatory Compliance Material Matters Regulators and Government Tenants Airlines Investors Employees Vendors and Service Providers Passengers Local Community Media Key Stakeholders
MALAYSIA AIRPORTS HOLDINGS BERHAD 4 CHAIRMAN’S VIEWS 2021 WAS A PIVOTAL POINT FOR MALAYSIA AIRPORTS. Having undergone a steep learning curve since the onset of the pandemic, we were determined to translate the lessons learnt into tangible results and a more sustainable future. To succeed in the ‘new normal’, we challenged conventional wisdom, and took a more entrepreneurial approach so that we can create value and unlock growth opportunities. This puts Malaysia Airports in good stead for the future particularly as we look to capitalise on opportunities following the reopening of Malaysia’s international borders on 1 April 2022. The theme ‘Spurring Bold Action’ encapsulates this year of dynamic change in Malaysia Airports. DATO’ SERI DIRAJA DR. ZAMBRY ABD KADIR Chairman
5 ANNUAL REPORT 2021 Prologue S0 S1 S2 S3 S4 S5 CHAIRMAN’S VIEWS In the ‘new normal’, we are pivoting to an entrepreneurial mindset. IN A NUTSHELL This opens up opportunities for new revenue stream and further growth. We are primed for the reopening of Malaysia’s borders. Malaysia Airports’ revenue of RM1,673.0 million was 10.4% lower YoY. Passenger movements at SAW grew a promising 47.4% YoY. SAW was the second fastest- recovering airport in Europe in 2021 and ended the year ranked sixth busiest among European airports. Malaysia Airports reported EBITDA of RM220.3 million for 2021, a significant improvement compared to the negative RM1.2 million recorded in 2020. OPERATING ENVIRONMENT CONTINUED TO BE CHALLENGING At the start of the pandemic, aviation markets globally were impacted by varying degrees of border control and travel restrictions. In the course of 2021, we had seen continued easing of travel restrictions, but the timing and conditions for rolling back the restrictions were determined individually by governments, with vaccinations and the capacity of public health systems being the main considerations. These uncertainties dampened air traffic, particularly international passenger traffic. In 2021 also, we had seen the economy beginning to recover from the pandemic. Under normal operating conditions, this would have been a significant growth factor for Malaysia Airports because Gross Domestic Product (GDP) growth in our home markets of Malaysia and Türkiye and in key passenger markets overseas fuels demand for business travel while the increase in disposable income results in higher demand for leisure travel. However, as travel restrictions continued to be imposed in Malaysia and other key markets for the better part of 2021, this impeded our ability to fully capitalise on the desire and pent-up demand for travel and the improving economic environment. On the domestic front in Malaysia, we had witnessed a surge in domestic travel in Malaysia with the lifting of travel restrictions from 11 October 2021 onwards, and in December 2021, the total monthly passenger traffic for the Group had passed 5.0 million for the first time in the year. On the international front, many of our key markets continued to impose travel restrictions. Apart from initiatives such as the Langkawi International Travel Bubble, the restoration of Umrah travel and the Vaccinated Travel Lane between Malaysia and Singapore, international passenger traffic for airports in Malaysia was mostly subdued in 2021. MALAYSIA’S AIR TRAFFIC NUMBERS WERE SUBDUED, BUT A ROBUST RECOVERY WAS UNDERWAY IN TÜRKIYE Malaysia Airports’ network including Istanbul Sabiha Gökçen International Airport (IATA Code: SAW) in Türkiye recorded 36.1 million passengers in 2021, representing a contraction of 16.0% YoY. The contraction was due to passenger movements for operations in Malaysia declining by 58.3% YoY. By contrast, passenger movements at SAW grew a promising 47.4% YoY. International passenger movements totalled 10.3 million while domestic passenger movements totalled 25.8 million. In the case of Malaysia, for most of 2021, our international borders remained closed to travellers except in limited circumstances. The National Recovery Plan to lead the country out of the pandemic placed inter-state travel and domestic tourism in Phase Four, the final stage of the plan. Inter-state domestic travel resumed on a limited basis for fully vaccinated travellers in September with the launch of the Langkawi Domestic Travel Bubble followed by the lifting of inter-state travel restrictions in October when Malaysia’s vaccination target of 90% of adults fully vaccinated was reached. International travel was restored in a pilot programme for fully vaccinated travellers with the launch of the Langkawi International Travel Bubble on 15 November while the MalaysiaSingapore Vaccinated Travel Lane began operating on 29 November.
MALAYSIA AIRPORTS HOLDINGS BERHAD 6 CHAIRMAN’S VIEWS In Türkiye, travel restrictions were rolled back earlier in the year with the relaxation of domestic and international borders. Its successful vaccination programme and the mutual recognition of the European Union’s Digital COVID-19 certificate and the Turkish national vaccination certificate restored air connectivity within the country and with international destinations in Europe, the Middle East and Africa. SAW was the second fastest-recovering airport in Europe in 2021 and ended the year ranked sixth busiest among European airports. However, the path to recovery was not a linear progression. While we were buoyed by the rollout of vaccination programmes in Malaysia, Türkiye and other key markets, we faced setbacks with the emergence of new variants of concern such as Beta, Delta and Omicron. In the delicate balancing act between economic and public health concerns, our path to recovery required us to pause or even take a step back in order to be able to advance. FINANCIAL PERFORMANCE HAD IMPROVED Malaysia Airports’ revenue of RM1,673.0 million was 10.4% lower YoY. On a segmental basis, revenue from airport operations contracted by 12.8% YoY to RM1,466.6 million. Aeronautical revenue declined by 9.9% YoY to RM798.1 million while non-aeronautical revenue decreased by 16.0% YoY to RM668.5 million. Revenue from non-airport operations increased YoY by 12.3% or RM22.6 million due to higher revenue from agriculture driven by higher commodity prices, and higher demand in our project and repair maintenance and hotel businesses. Malaysia Airports reported EBITDA of RM220.3 million for 2021, a significant improvement compared to the negative RM1.2 million recorded in 2020. This was largely due to financial discipline with core operating costs reducing by a further 11.2% or RM172.3 million in 2021 on top of the 26.1% or RM575.5 million reduction achieved in 2020. The Group also reported an operating cash flow surplus of RM271.1 million compared to a deficit of RM67.2 million in 2020. It was imperative for Malaysia Airports to build resilience, create sustainable pathways for revenue and growth and improve our capability to withstand future shocks and stresses. The Group’s loss before taxation (LBT) narrowed to RM1,040.9 million, an improvement as compared to LBT of RM1,763.9 million in the prior year. The Group’s LBT was however mitigated by the recognition of deferred tax asset recognised arising from the current year business losses. Accordingly, the Group recorded loss after taxation of RM766.4 million. CHALLENGING CONVENTIONAL WISDOM The uncertainties affecting passenger traffic had become part of the new normal in the aviation industry, and the dramatic change in operating conditions called for bold action. It was imperative for Malaysia Airports to build resilience, create sustainable pathways for revenue and growth and improve our capability to withstand future shocks and stresses. Pre-pandemic, the conventional wisdom was that our key segments – aeronautical and non-aeronautical businesses – were therevenueengines.Aeronautical revenues
7 ANNUAL REPORT 2021 Prologue S0 S1 S2 S3 S4 S5 CHAIRMAN’S VIEWS were a function of air traffic, primarily aircraft and passenger movements, while the non-aeronautical business which covers the commercial and retail arms would mainly be driven by passenger movements. Conventional wisdom also dictated that operating expenditure was largely fixed given that airports require a certain level of operations, services and staffing. Challenging conventional wisdom, first, we questioned the notion of fixed levels of operating expenditure as we contained core costs, and more importantly, also demonstrated the sustainability of the lower rebased costs. Secondly, we stuck to our guns and pursued all possible options to retrain, reskill and redeploy our staff, which resulted in the Group maintaining zero retrenchments and zero salary cuts throughout the pandemic. Although these moves were unconventional, Malaysia Airports has had a solid track record in corporate governance, integrity and delivering growth to stakeholders, and as such, we had the confidence that this was the right direction for the Group to prepare for future growth. Finally, to sustain long term growth, we unlocked potential revenue streams which were previously untapped, both within the airport and beyond. Contain and sustain rebased core costs Although we had taken measures to contain costs throughout the pandemic, I would like to highlight the importance of our work in containing core operating costs and sustaining the rebased core costs even as air traffic began picking up in Q4 2021. Core costs which are largely made up of staff, utilities and maintenance costs, generally increase in tandem with the scale of operations. However, in 2021, we successfully lowered core costs by 11.2% year-on-year (YoY) or RM172.3 million, on top of the 26.1% reduction already achieved in 2020. In Q4 2021, core costs continued to hold at the lowered base despite a rise in passenger traffic. This can be attributed to the on-going effort to rethink, reconfigure and radically change our operations for greater efficiency, leveraging on partnerships and new technology. For example, in the case of utilities, our joint venture with Tenaga Nasional Berhad, TNB Engineering Corporation Sdn Bhd, went into operations in July 2021 to modernise the district cooling plant for KUL. When the transformation is completed, the modernised plant will run fully on electricity and contribute at least RM50 million in cost savings annually. Gaining an engaged and reskilled workforce Despite staff costsmaking up a substantial portion of our core costs, we had made the strategic decision in 2020 to retrain, reskill and redeploy our people wherever possible, and not retrench staff or introduce salary cuts. We maintained the policy throughout 2021, driving our average training hours from 13 to 39 hours across our operations in Malaysia, an increase of 200% YoY. Among the employees redeployed were 354 Aviation Security personnel who had been retrained for vacancies in other divisions within Malaysia Airports. 88 of them were trained to fill Airport Fire Rescue Service vacancies in 2021, ensuring fresh opportunities for our people while maintaining requisite levels of manpower and rescue and fire fighting capabilities. On my walkabouts to meet our staff, many of them including union representatives have expressed their appreciation for the Group standing firm on this matter, recognising the tightrope that we walked to balance competing demands for use of
MALAYSIA AIRPORTS HOLDINGS BERHAD 8 CHAIRMAN’S VIEWS workshops to assist the subsidiaries in preparing their ABMS manuals, and dissemination of the ABMS awareness video to all employees. The Group also continued to roll out the Malaysia Airports Anti-Corruption Plan. 74 divisions and departments Group-wide were assessed for corruption risks in 2021. 61 high level risks were assessed in Q1 2021 and they were mitigated to medium and low-level risks by Q4 2021. As part of risk management, corruption risks are reviewed and registered in the Malaysia Airports Risk Scorecard System, covering all of the Group’s companies in Malaysia. Our solid track record was also acknowledged by stakeholders. The rating agencies, RAM Holdings Berhad and Moody’s, maintained Malaysia Airports’ credit ratings in 2021 at AAA and A3 respectively despite the challenging operating conditions. In the debt markets, our fundraising exercise through the issuance of new Senior Sukuk Wakalah raised RM800.0 million. In the course of book building, we upsized the issuance from the initial target issue size of RM500.0 million in response to investor demand. This reflects the confidence of the markets in our strong fundamentals, business direction and track record of prudent financial management and disciplined use of financial resources which pre-dated the pandemic, but had become even more critical in the past two years. Unlock and realise untapped potential revenue Looking beyond the airport and growing nonaeronautical revenue was a focus area in 2021. With an overall target to increase nonaeronautical revenue to 60-70% from selected airports compared to 50% pre-pandemic levels, this will enable the Group to reduce its reliance on aeronautical revenues which are highly regulated. At the doorstep of KL International Airport (IATA Code: KUL) and Sultan Abdul Aziz Shah Airport, Subang (IATA Code: SZB), there lies remarkable potential for off-terminal Aeropolis development. Our average training hours across our operations in Malaysia increased 200% YoY from 13 to 39 hours. Among the employees redeployed were 354 Aviation Security personnel who had been retrained for vacancies in other divisions within Malaysia Airports. the limited financial resources during the year. In addition to maintaining an engaged workforce, keeping our staff intact also enables us to scale up rapidly as air traffic grows. We were therefore primed for the resumption of interstate travel in Malaysia in October 2021 and for the reopening of international borders on 1 April 2022, with our people eagerly anticipating the busy days ahead and relishing the opportunity to make positive contributions towards the Group’s progress. A solid track record in governance and integrity fuelling our growth Our courage to act on our convictions and challenge the status quo stemmed from a solid track record of governance, reliability and delivering on promises. In terms of governance, the Board of Directors has steered Malaysia Airports through a period of volatility and worked in tandem with Management to keep abreast of developments impacting our operating environment. We have scrutinised proposals from Management and deliberated them thoroughly, encouraging all boardmembers to freely voice their opinions. It is important for us to understand one another’s concerns and to address those concerns so that we know that our decisions were made with a collective voice. In this regard, the Board as a collective body and in committee had a full schedule of 50 meetings in 2021. Stakeholders can be assured that our efforts remained unchanged in upholding corporate governance and oversight in what was otherwise a year of changing conditions. We also made progress in upholding integrity and implementing anti-corruption measures. We continued the implementation of the ISO 37001: 2016 Anti-Bribery Management Systems (ABMS) and in 2021, three subsidiaries – Malaysia Airports (Niaga) Sdn Bhd, Urusan Teknologi Wawasan Sdn Bhd and K.L. Airport Hotel Sdn Bhd – had undergone documentation readiness towards ABMS certification. This included
9 ANNUAL REPORT 2021 Prologue S0 S1 S2 S3 S4 S5 CHAIRMAN’S VIEWS We enhanced our Aeropolis development by announcing several large investments totalling over RM600.0 million by established global logistics and aviation players including DHL Express, Asia Digital Engineering, Dassault Aviation and Collins Aerospace. Their commitments are testament to the value proposition that Malaysia Airports offers to investors by way of Aeropolis development. We made progress on discussions with the government to finalise the Land Lease Agreement and Development Agreement for the 100 square kilometres landbank around KUL. The finalisation of the long-term lease of 99 years will enable Malaysia Airports to improve the value proposition offered to investors at the KLIA Aeropolis. Our travel retail arm, Eraman, took a different slant on the idea of looking beyond the airport. Traditionally, it relied on passenger throughput at the airport for sales, particularly international travellers. In a bold break from the past, Eraman challenged traditional thinking by moving beyond the airport and travellers. It recognised that even though consumers could not travel, their demand for travel retail products was nonetheless unabated. Eraman reached out to potential customers through new channels, including our own shopMYairports online retail platform and the KLIA Crazy Sale held at the landside concourse of KUL. Eraman has also ventured to set up sales events at corporate offices, and tapped sales online channels through social media and the growing group of personal shoppers on Shopee. At the airport, Eraman uses pop-ups and mobile carts to set up stalls where there is passenger demand. Its personnel also receive a sales incentive upon targets being met. These tactics have generated RM39.9 million in sales for Eraman under the most challenging operating conditions. We left no stone unturned in maximising the lettable areas. Commercial space at the airport commands a premium, and the total lettable area forms the basis of non-aeronautical commercial revenues. Under our Commercial Reset initiative, passenger flow at the terminal was reconfigured to optimise lettable areas. As a result, we have enlarged the commercial floor space by 14,355 square metres (sqm) on top of the existing 67,252 sqm. RAM Holdings Berhad and Moody’s, maintained Malaysia Airports’ credit ratings in 2021 at AAA and A3 respectively despite the challenging operating conditions.
MALAYSIA AIRPORTS HOLDINGS BERHAD 10 TEAMWORK CARRIES THE DAY As we recount our achievements for 2021, I would like to acknowledge the contribution of all Malaysia Airports’ employees. Their hard work and dedication coupled with their willingness to rethink and rework our operations to solve challenges underpin our proudest moments of the year. The achievements are also the result of our close working relationship and engagement with our stakeholders. It was a proud moment for Malaysia Airports when KUL and Langkawi International Airport (IATA Code: LGK) were named ‘Best Airports’ by Airports Council International (ACI) in the global Airport Service Quality (ASQ) awards series for 2021. Competing in the above 40 mppa and 2-5 mppa categories respectively, KUL and LGK had both registered perfect scores of 5 out of 5 in the ASQ results for the year. The success is onewhichwe sharewith the airport communities of both KUL and LGK. The ASQ programme benchmarks the world’s best airports in terms of overall passenger satisfaction based on 33 elements in the passenger journey through the airport. We had engaged our stakeholders on service quality through the ‘Happy Guests, Caring Hosts’ cultural transformation programme since 2018, and the awards are testament to the teamwork and effort that has gone into providing guests with a truly memorable airport experience. Alongside the Ministry of Tourism, Arts and Culture and the Ministry of Transport of Malaysia and other stakeholders, we celebrated the launch of pilot programmes to reopen the country to vaccinated travellers such as the Langkawi Domestic and International Travel Bubbles and the Malaysia-Singapore Vaccinated Travel Lane by Air (VTL-Air). I was present that morning at KLIA1 to welcome the travellers aboard the first VTL flight. Amidst the palpable excitement and the fanfare that greeted the flight which included a water cannon salute as the aircraft approached the gate, I was also grateful for the company of our staff, members of the KUL community and representatives of our stakeholders, who had worked together tirelessly to set up the processes, facilities and passenger flow that enabled the VTL-Air to run smoothly from its onset. CHAIRMAN’S VIEWS
11 ANNUAL REPORT 2021 Prologue S0 S1 S2 S3 S4 S5 CHAIRMAN’S VIEWS An important accomplishment for Malaysia Airports was obtaining the Airport Health Accreditation certification from Airports Council International for six airports – KUL, Kota Kinabalu International Airport (IATA Code: BKI), Kuching International Airport (IATA Code: KCH), LGK, Penang International Airport (IATA Code: PEN) and SAW. This global certification for airports is recognition that the health and safety measures which have been put in place are in accordance with the guidelines and standards for safe travel as determined by ACI and the International Civil Aviation Organization (ICAO) as well as industry best practices. In the area of environmental protection, we received recognition from ACI, which renewed our Airport Carbon Accreditation Level 3 certification following their independent assessment under the global carbon management certification programme for airports. This is an acknowledgment of our efforts in transitioning towards a sustainable, low-carbon future. We also received a Gold Recognition from ACI for our efforts on sustainable carbon management by utilising green energy Ground Power Units (GPUs) at KUL. The project integrates the generation of solar energy from rooftops of the terminal building with new GPUs to supply aircrafts at the apron with power, simultaneously reducing the use of diesel-powered GPUs and of the aircrafts’ Auxiliary Power Units. It is estimated that the amount of 1,970 tCO2 reduction from using the green energy GPUs over three years from 2018-2020 is equivalent to planting 50,520 trees to absorb CO2 emissions which would have otherwise been emitted. Our people have been at the frontlines of the pandemic, and it was important for them to be protected. We collaborated with the Malaysian Ministry of Health to set up a vaccination centre at KUL to prioritise the vaccinations for our employees and the airport community. This has also prepared the airport community for increased traffic while passengers can be more assured of their safety. A CORPORATION WITH A HEART Amidst the business challenges that we faced, I am heartened by the positive impact that Malaysia Airports is making in the community. Throughout 2021, we continued to lend a helping hand to the community, particularly to those whose lives had been impacted by the pandemic. Through our MYAirportCARES initiative, we have provided relief and support to about 4,000 households that either belonged to the B40 group or those affected by natural disasters. The support were in the form of food aid as well as rescue services, temporary shelter and other basic necessities. The Group had distributed RM3.7 million in financial aid to 1,034 employees who were impacted by the floods to help them rebuild their lives. My fellow board members and I are proud that Malaysia Airports employees continue to think of ways to give back to the community. During the fasting month of Ramadan, our staff pooled their contributions to provide breaking of fast meals for 3,100 frontline staff from the airport community showing our appreciation for dedication and service by the frontliners. Recently at an event in which Malaysia Airports provided backto-school kits to children from B40 families, we could see how moved and encouraged the children and their parents were by Malaysia Airports’ contribution of school uniforms, shoes, bags and stationery to equip them for the new school year.
12 MALAYSIA AIRPORTS HOLDINGS BERHAD CHAIRMAN’S VIEWS THANK YOU I would like to extend a warm welcome to our newest Board members, Puan Rohaya Mohammad Yusof, who was appointed on 1 October 2021, and Dato’ Iskandar Mizal Mahmood who was appointed to the Board as Managing Director on 25 October 2021. The Board would also like to thank our former members, Dato’ Mohamad Nasir Ab Latif, Dato’ Zamzuri bin Abdul Aziz and Dato’ Dr. Amiruddin Muhamed, as well as our former Group Chief Executive Officer, Dato’ Mohd Shukrie Mohd Salleh, who resigned in 2021. 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 served the Group with dedication and courage throughout the year. As Malaysia Airports is categorised as a provider of essential services, many of our employees are unsung heroes who served on the frontlines throughout this pandemic. We acknowledge their many sacrifices and are grateful for their unwavering commitment. 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, contribution and team spirit in sharing the challenges and successes of 2021. I would also like to make a special acknowledgement of the role of the government for continuing to advance our discussions on the renewal of our Operating Agreements, which form the basis for Malaysia Airports’ licence to operate the 39 airports in Malaysia, as well as the Land Lease Agreement and Development Agreement for the KLIA Aeropolis. These agreements are being finalised with the relevant government agencies and we hope to conclude them in the course of 2022. The conclusion of these agreements will serve as a major catalyst in spurring the nation’s economic growth. We look forward to 2022, and have started the year with a new mindset and a renewed sense of purpose to create value for stakeholders. We are ready to capture opportunities for growth and development as we ramp up the preparation at all international airports to ensure a safe and seamless experience for travellers following the reopening of Malaysia’s borders on 1 April 2022. As custodians of the nation’s gateways, we will continue to strive to make a tangible difference and positive impact for stakeholders as we build a sustainable growth business for the future. DATO’ SERI DIRAJA DR. ZAMBRY ABD KADIR Chairman
13 Our Business S0 S1 S2 S3 S4 S5 ANNUAL REPORT 2021 FY2021 KEY HIGHLIGHTS Scope 2021 2020 2019 Group Financial Performance Revenue (RM’million) Group 1,673.0 1,866.3 5,213.1 EBITDA (RM’million) Group 220.3 (1.2) 2,292.0 Profit for the Year (RM’million) Group (766.4) (1,116.2) 537.0 Total Equity (RM’million) Group 7,252.5 8,099.3 9,325.4 Airport Performance Group Passenger Movements (million) Group 36.1 43.0 141.2 Group Aircraft Movements Group 515,388 600,073 1,281,000 Group Cargo Movements (metric tonnes) Group 1,098,850 834,718 1,003,000 KUL ASQ rank (> 40 mppa category) KUL 1 10 17 KUL ASQ score KUL 5 4.98 4.76 Total Direct Destinations KUL 139 166 166 SAW 147 130 >160 Sustainability Performance Energy Consumption (kWh/passenger) Airports in Malaysia 32.6 15.9 5.1 SAW 3.0 3.8 2.2 Solar Power Generated (MWh) KUL 17,399** 16,949 18,763 Water Consumption (litre/passenger) Airports in Malaysia 718.1 365.5 104.7 SAW 9.8 12.8 10.2 Total Waste Generated (kg/passenger) KUL 0.68 0.36 0.23 SAW 0.24 0.27 0.14 Recycling Rate (%) KUL 6.3 8.3 13.8 SAW 50.0 33.3 50.5 Total Employees Group 9,837 10,333 10,724 Percentage of Female Employees (%) Group 35 34.2 34.6 Community Investment (RM) Group 1,279,816 417,839 1,066,847 * KUL - IATA code for KL International Airport SAW - IATA code for Istanbul Sabiha Gökçen International Airport ** Solar power generated in 2021 is for KL International Airport, Kuantan Airport, Melaka Airport and Penang International Airport
14 MALAYSIA AIRPORTS HOLDINGS BERHAD MALAYSIA AIRPORTS AT A GLANCE 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 (5 international airports, 17 domestic airports and 17 STOLports). The Group also owns and manages one international airport in Istanbul, Türkiye. Airport Services Manage, operate and maintain airports, and provide airportrelated services to ensure that airports operate efficiently, safely and securely with high service levels Hotel Manage and operate hotels Project and Repair Maintenance Equity Invested RM4,419.3 million Group Passenger Traffic Movements Number of rooms 720 Malaysia Türkiye Total Revenue RM1,554.9 million EBITDA RM214.3 million 10.7 million 25.4 million Total Revenue RM195.1 million EBITDA RM30.3 million Equity Invested RM92.7 million Total Revenue RM41.7 million EBITDA RM7.7 million Number of Hotels 4 2021 2020 Offer consultancy, facility management services and maintenance of information and communication technology business ventures and provision of mechanical and electrical engineering 592 128 Malaysia Türkiye OUR VISION A Global Airport Group that Champions Connectivity and Sustainability BRAND PROMISE Hosting Joyful Connections Breakdown of rooms 591 642 2021 2020 Number of Employees 25.7 17.2
15 Our Business S0 S1 S2 S3 S4 S5 ANNUAL REPORT 2021 Duty Free and Non-Dutiable Goods Operate duty-free outlets and provide management services for food and beverage outlets at designated airports Agriculture and Horticulture Number of Retail Outlets Number of Employees Oil Palm Planted Area Total Revenue RM57.6 million EBITDA RM24.4 million Equity Invested RM16.5 million Total Revenue RM39.9 million EBITDA RM(40.4) million 2021 42 2020 51 2021 677 2021 6,247.1 ha Fresh Fruit Bunches 2021 54,572.9 MT Retail Area 2021 12,822 sqm 2020 13,112 sqm 2020 775 Cultivate and manage oil palm and other agricultural products, in addition to undertaking horticulture activities, mainly landscaping services and products MALAYSIA AIRPORTS AT A GLANCE Our Malaysia operations comprises five key business activities which are airport services, duty free and non-dutiable 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, Türkiye, 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 2021, Malaysia Airports’ market capitalisation stood at RM9.9 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 carbon neutral 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. 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 No.1 globally for >40 mppa in the 2021 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. • 100 km2 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 wellpositioned 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 Türkiye. CORE VALUES Integrity, Customer-Centricity, Accountability, New Ideas
16 MALAYSIA AIRPORTS HOLDINGS BERHAD WHERE WE OPERATE AIRPORT SERVICES INTERNATIONAL DOMESTIC SHORT TAKE-OFF AND LANDING PORTS (STOLPORTS) MALAYSIA • KL International Airport (KUL) • Kota Kinabalu International Airport (BKI) • Kuching International Airport (KCH) • Langkawi International Airport (LGK) • Penang International Airport (PEN) • 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) • Pulau Pangkor (PKG) • Pulau Redang (RDN) • Pulau Tioman (TOD) • Bakelalan (BKM) • Bario (BBN) • Belaga (BLG) TÜRKIYE • Istanbul Sabiha Gökçen International Airport (SAW) INDIA • Rajiv Gandhi International Airport (HYD) Langkawi (LGK) 4.0 mppa Alor Setar (AOR) 0.8 mppa Kota Bharu (KBR) 1.5 mppa Ipoh (IPH) 0.5 mppa KLIA1 30.0 mppa klia2 45.0 mppa Kuantan (KUA) 1.3 mppa Subang (SZB) 1.5 mppa Melaka (MKZ) 1.5 mppa Kuala Terengganu (TGG) 1.5 mppa Penang (PEN) 6.5 mppa Pulau Pangkor (PKG) KL International Airport (KUL) Pulau Redang (RDN) Pulau Tioman (TOD) • Sultan Mahmud Airport, Kuala Terengganu (TGG) • Bintulu Airport (BTU) • Limbang Airport (LMN) • Miri Airport (MYY) • Mulu Airport (MZV) • Kapit (KPI) • Lawas (LWY) • Long Akah (LKH) • Long Banga (LBP) • Long Lellang (LGL) • Long Semado (LSM) • Sibu Airport (SBW) • Labuan Airport (LBU) • Lahad Datu Airport (LDU) • Sandakan Airport (SDK) • Tawau Airport (TWU) • Mukah (MKM) • Long Seridan (ODN) • Marudi (MUR) • Kudat (KUD) • Long Pasia (GSA) • Semporna (SMM) Rajiv Gandhi International Airport (HYD) INDIA 25.0 mppa 11% shareholding Istanbul Sabiha Gökçen International Airport (SAW) Türkiye 41.0 mppa 100% shareholding
17 Our Business S0 S1 S2 S3 S4 S5 ANNUAL REPORT 2021 WHERE WE OPERATE DUTY FREE AND NON-DUTIABLE GOODS PROJECT AND REPAIR MAINTENANCE AGRICULTURE AND HORTICULTURE HOTEL • KL International Airport (KUL) • Kota Kinabalu International Airport (BKI) • Kuching International Airport (KCH) • Langkawi International Airport (LGK) • Penang International Airport (PEN) 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 • KL International Airport (KUL) • Bintulu Airport (BTU) • Miri Airport (MYY) • Sibu Airport (SBW) Four locations in and around KUL and SAW: • KLIA1 landside • KLIA1 airside • klia2 airside • SAW landside Sandakan (SDK) 1.5 mppa Kota Kinabalu (BKI) 9.0 mppa Labuan (LBU) 2.2 mppa Limbang (LMN) 0.3 mppa Miri (MYY) 2.0 mppa Bintulu (BTU) 1.0 mppa Mukah (MKM) 0.3 mppa Sibu (SBW) 1.8 mppa Kuching (KCH) 5.3 mppa Mulu (MZV) 0.05 mppa Lahad Datu (LDU) 0.1mppa Semporna (SMM) Lawas (LWY) Long Pasia (GSA) Long Semado (LSM) Bakelalan (BKM) Bario (BBN) Long Banga Belaga (BLG) Long Akah (LKH) Long Lellang (LGL) Long Seridan (ODN) Marudi (MUR) Kapit (KPI) Tawau (TWU) 1.5 mppa
18 MALAYSIA AIRPORTS HOLDINGS BERHAD CORPORATE STRUCTURE MALAYSIA AIRPORTS HOLDINGS BERHAD Malaysia Airports Sdn Bhd 100% 100% 100% 100% 100% 100% 100% 30% 100% 100% 100% 100% 30% 100% 40% 40% 100% 20% 12.5% 49% Malaysia Airports (Sepang) Sdn Bhd Malaysia Airports Consultancy Services Sdn Bhd Malaysia Airports (Niaga) Sdn Bhd Malaysia Airports (Properties) Sdn Bhd Airport Ventures Sdn Bhd Malaysia International Aerospace Centre Sdn Bhd MFMA Development Sdn Bhd Urusan Teknologi Wawasan Sdn Bhd Eraman (Malaysia) Sdn Bhd K.L. Airport Hotel Sdn Bhd Malaysia Airports Technologies Sdn Bhd Cooling Energy Supply Sdn Bhd Malaysia Airports MSC Sdn Bhd İstanbul Sabiha Gökçen Uluslararası Havalimanı Yatırım Yapım ve İşletme A.Ş. SGC Havalimanı İşletmeleri Ticaret ve Turizm A.Ş. MAB Agriculture-Horticulture Sdn Bhd Kuala Lumpur Aviation Fuelling System Sdn Bhd Gas District Cooling (KLIA) Sdn Bhd Malaysia Airports Consultancy Services Middle East LLC
19 Our Business S0 S1 S2 S3 S4 S5 ANNUAL REPORT 2021 CORPORATE STRUCTURE Malaysia Airports Capital Berhad KLIA Aeropolis Sdn Bhd MAHB (Mauritius) Private Limited İstanbul Sabiha Gökçen Uluslararası Havalimanı Yatırım Yapım ve İşletme A.Ş. Segi Astana Sdn Bhd GMR Hyderabad International Airport Limited 100% 100% 100% 20% 30% 11% 100% 100% 100% 100% 100% 20% 23% 40% 30% 30% 100% 40% Malaysia Airports Cities Sdn Bhd MA Elogistics Sdn Bhd Malaysia Airports (Subang) Sdn Bhd Malaysia Airports International Sdn Bhd Malaysia Airports (Labuan) Private Limited SGC Havalimanı İşletmeleri Ticaret ve Turizm A.Ş. Airport Cooling Energy Supply Sdn Bhd İstanbul Sabiha Gökçen Uluslararası Havalimanı Yatırım Yapım ve İşletme A.Ş. Alibaba KLIA Aeropolis Sdn Bhd BP Malaysia Airports Subang Aerotech Sdn Bhd BPMA HS Sdn Bhd SGC Havalimanı İşletmeleri Ticaret ve Turizm A.Ş.
20 MALAYSIA AIRPORTS HOLDINGS BERHAD Malaysia Airports is responsible for the operational safety and security, management and maintenance of the airports. The services and facilities provided are divided into two main sections known as the landside (terminal, carpark and any other public areas on airport land) and the airside (aprons, runways, and taxiways). Malaysia Airports works with the Civil Aviation Authority of Malaysia (CAAM) to ensure the safety and security of airport operations, particularly at the airside through regulations, oversight and monitoring of the technical and safety standards. The Air Traffic Control under CAAM coordinates aircraft navigation and is responsible for the safe movement of aircraft, including take-offs, landings, and taxiing. In ensuring effective and efficient management of our airports, Malaysia Airports collaborates with government agencies such as the Immigration Department of Malaysia and Royal Malaysian Customs Department as well as private entities such as airlines and ground handlers. Malaysia Airports works closely with these parties in key areas and touchpoints such as check-in, immigration, customs checks, and baggage and ground handling. We provide a seamless end-to-end journey for passengers throughout our airports from the onset of their journeys as they arrive by car, taxi, bus and train up until the boarding gates for departure. We also offer a wide of range of retail and food and beverage outlets, operated by Malaysia Airports and its business partners, for passengers, meeters and greeters. OUR POSITION IN THE AIRPORT VALUE CHAIN VALUE CREATION MODEL
21 Our Value Creation Strategy S0 S1 S2 S3 S4 S5 ANNUAL REPORT 2021 VALUE CREATION MODEL Home Transportation Parking MYairports Mobile App by Malaysia Airports Wayfinding Retail Shops Check-in/ Baggage Drop Boarding Pass Check - AVSEC Retail, F&B, Lounge Air Traffic Control Tower Taxiway Available Runway Baggage Handling System Security Check and Screening - AVSEC Passport Check - Immigration Customs Check Retail, F&B, Lounge Cargo and Ground Handling Facilities Cleaning Refuelling Catering Cargo MAHB Departures Transfers Arrivals Baggage Handling System (BHS) handled by MAHB and ground handlers Aircraft handling at aircraft stand Aircraft departs or lands at airport MAHB works with airlines MAHB works with Immigration Department MAHB works with ground handlers and airline staff MAHB works with Royal Malaysian Customs Department MAHB works with CAAM Gate Terminal Aerobridge Fixed electrical ground power Note: The illustration above reflects Malaysia Airports’ operations in Malaysia only, representing the majority of the airports operated by the Group.
22 MALAYSIA AIRPORTS HOLDINGS BERHAD Our value creation model takes inputs from our capitals namely financial, manufactured, intellectual, human, social and natural capitals. We transform them through our business activities and interactions to produce outputs and outcomes that over time have the potential to create value for our business and key stakeholders. The operating environment, risks and opportunities as well as feedback from stakeholder engagements are taken AT MALAYSIA AIRPORTS, OUR VISION IS TO BE A GLOBAL AIRPORT GROUP THAT CHAMPIONS CONNECTIVITY AND SUSTAINABILITY. WE SEEK TO CREATE VALUE FOR OUR KEY STAKEHOLDERS IN A POSITIVE AND SUSTAINABLE WAY. VALUE CREATION MODEL into consideration in developing our strategies and action plans towards achieving overall long-term goals and objectives. In embedding sustainability in our business, Malaysia Airports is guided by its Sustainability Policy and Sustainability Framework. The Framework is also aligned with relevant provisions of the United Nations Sustainable Development Goals (SDGs).
23 Our Value Creation Strategy S0 S1 S2 S3 S4 S5 ANNUAL REPORT 2021 VALUE CREATION MODEL
24 MALAYSIA AIRPORTS HOLDINGS BERHAD VALUE CREATION MODEL HOW WE CREATE VALUE FOR OUR KEY STAKEHOLDERS UNDERPINNED BY OPERATING ENVIRONMENT (PG.26-28) GOVERNANCE (PG.148-177) RISKS AND OPPORTUNITIES (PG.178-184) Financial capital is a vital input in funding our operations and growth. We obtain financial capital from three main sources, namely: equity, debt and operating cash flow generated from business activities. Phase 1 (2021 - 2022) Fixing the Basics Horizontal Expansion Critical Asset Replacement Digitalisation Survivability Developing New Capabilities MATERIALMATTERS SUSTAINABILITY POLICY Ensuring Business Sustainability Maximising Revenue Generation CAPITAL We incur capital expenditure in infrastructure investment for the maintenance and upgrade of our airports to ensure exceptional services are delivered to our passengers and customers. Our experience and reputation has led to our advisory capabilities being sought after by local and international airport companies to aid their development and management. Our employees are the main drivers for our success. We develop a high-performing team by focusing on their development and training, employee benefits and continuous employee engagement. We maintain strong relationships and trust with our stakeholders such as government, regulators, airport community and others through continuous engagement to deliver value to the economy and society surrounding us. We manage our environmental impact through an environmental management system which ensures compliance with environmental legislation. OUR KEY BUSINESS ACTIVITIES Airport services Duty free and non-dutiable goods Hotel Project and repair maintenance Agriculture and horticulture (2023 - 2025) Phase 2 5YEAR STRATEGIC PLAN SUSTAINABILITY PILLARS Practising Sensible Economics Environmental Consciousness Creating an Inspiring Workplace Community-Friendly Organisation Memorable Airport Experience 1 2 3 4 5 Financial Manufactured Intellectual Human Social Natural OUR VISION A Global Airport Group that Champions Connectivity and Sustainability BRAND PROMISE Hosting Joyful Connections • Operational Excellence and Guest Experience • Governance and Process • Communications and Branding • Human Capital • Strategic • Financial • Human Capital • Regulatory Compliance • Operational ENABLERS RISKS Environmental Improving efficiency and mitigating possible negative environmental impact brought on by our operations E S Social Creating a memorable experience for airport guests, fostering an inspiring workplace and strengthening our relationship with local communities G Governance Promoting sound governance practices and a culture of integrity as well as transparency
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