Annual Report 2022 INSP I R ING BRAVE AMBITIONS
MALAYSIA AIRPORTS HOLDINGS BERHAD ANNUAL REPORT 2022 More information on pages 34 to 70. Our Performance Our Value Creation Strategy Our Leadership Statement More information on pages 149 to 231. Our Governance Supporting national commitments towards achieving the United Nations (UN) Sustainable Development Goals (SDGs). I NSI DE THI S REPORT More information on pages 16 to 33. More information on this report More information on our website www.malaysiaairports.com.my COVER RATIONALE ‘Inspiring Brave Ambitions’ is the remarkable story of Malaysia Airports' journey in 2022, in which we returned to profitability. It speaks of the attitude of an engaged workforce who defied conventional wisdom to reimagine our business through an entrepreneurial lens while leveraging the use of technology. It also tells stakeholders about how we place sustainability concerns alongside business issues in making our decisions and future plans to ensure that we are creating value for the long term. ‘Inspiring Brave Ambitions’ also reflects the extraordinary determination to maintain and sustain the improvements as air traffic grew following Malaysia’s easing of travel restrictions and reopening of international borders to travellers. This is the culmination of the transformative efforts during the pandemic to build a business which is financially strong, lean and efficient, and yet delivers service levels rated among the best globally to benefit our guests who remain at the heart of our business. More information on pages 71 to 148.
1 www.malaysiaairports.com.my INSIDE THIS REPORT PROLOGUE Basis of this Report 2 OUR INVESTMENT CASE Malaysia Airports at a Glance 4 Our Approach to Sustainability 6 Where We Operate 12 Corporate Information 14 Corporate Structure 15 01 OUR LEADERSHIP STATEMENT Chairman’s Statement 16 Managing Director’s Message 24 02 OUR VALUE CREATION STRATEGY Operating Environment and Outlook 34 Stakeholder Engagement 36 Material Matters 44 Value Creation Model 55 Our Strategy 60 Key Enablers 67 03 ADDITIONAL INFORMATION Statement of Workforce 232 Airports Statistics 233 Analysis of Shareholdings 235 Share Price, Volume Traded and Market Capitalisation 239 List of Properties 240 Group Corporate Directory 246 Airport Directory 247 Independent Assurance Statement 248 Notice of 24th Annual General Meeting 251 Statement Accompanying Notice of 24th Annual General Meeting 256 AGM Administrative Details 257 • Form of Proxy • Annual Report Requisition Form 06 OUR GOVERNANCE Board of Directors’ Profile 149 Group Senior Management 160 Subsidiaries Senior Management 174 Corporate Governance Overview Statement 182 Statement on Risk Management and Internal Control 220 Board Audit Committee Report 226 Dividend Policy 230 Additional Compliance Information 231 05 OUR PERFORMANCE Financial Review 71 • Five-Year Financial Summary 74 • Group Five-Year Summary 75 • Group Quarterly Performance 76 • Consolidated Statement of Profit or Loss 77 • Consolidated Statement of Financial Position 78 • Group Segmental Analysis 79 • Statement of Income Distribution 81 • Statement of Financial Position 82 Operational Review 83 • Airport Operations 86 • Non-Aeronautical Business 91 • Non-Airport Operations 96 • Landside Off-Terminal Development 101 Sustainability Review 104 Sustainability Indicators 130 GRI Content Index 146 04
MALAYSIA AIRPORTS HOLDINGS BERHAD ANNUAL REPORT 2022 2 BASIS OF 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 2021 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’. The full report is also available online on our corporate website at www.malaysiaairports.com.my APPLICABLE REQUIREMENTS AND STANDARDS SCOPE AND BOUNDARY ENHANCEMENTS VALUE CREATION MODEL ONLINE VERSION The full reporting suite is also available online on our corporate website at www.malaysiaairports.com.my We have enhanced the integrated reporting in the Annual Report for FY2022 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, we have merged the Sustainability Report with this Annual Report to form an integrated report to provide stakeholders with a better view of our progress on integrating sustainability considerations in our business. Reporting Suite The Reporting Suite for 2022 is similar to previous years and comprises this Annual Report, Financial Statements and Airport Statistics. Our value creation model is disclosed on pages 34 to 70. 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. This report is prepared according to the following regulatory requirements: • 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 2021; and with reference to the voluntary standards for sustainability reporting: • GRI Standards for Sustainability Reporting
3 www.malaysiaairports.com.my BASIS OF THIS REPORT 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. Our strategic responses to these material matters are presented in pages 44 to 54. 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 Review and Indicators Limited assurance • With reference to GRI Standards for Sustainability Reporting 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. This report covers our financial and nonfinancial performance during the period from 1 January 2022 to 31 December 2022. 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. NAVIGATION ICONS Key Stakeholders Material Matters Six Capitals F Financial M Manufactured I Intellectual H Human S Social N Natural P RO LOGU E M1 Airport Capacity M3 Digitalisation M2 Total Airport Experience M4 Airport Safety and Security M7 Transportation and Connectivity M5 Economic Performance M8 Regulatory Compliance M9 Market Presence M10 Procurement Practices M6 Integrity and Anti-Corruption M11 Climate Change M12 Employee Engagement and Development M13 Diversity M17 Energy Efficiency M14 Human Rights M18 Emissions M15 Contributions to Local Community M19 Waste and Effluent Management M16 Cybersecurity M20 Water Management S1 Regulators and Government S3 Airlines S2 Employees S4 Passengers S7 Investors S5 Tenants S8 Local Community S6 Vendors and Service Providers S9 Media
MALAYSIA AIRPORTS HOLDINGS BERHAD ANNUAL REPORT 2022 4 SEC 01 03 02 04 05 06 MALAYSIA AIRPORTS AT A GLANCE A Global Airport Group that Champions Connectivity and Sustainability Hosting Joyful Connections OUR VISION BRAND PROMISE Globally, Malaysia Airports is one of the world’s largest airport operator groups, based on the total number of passengers handled Managing a total of 39 airports throughout Malaysia The Group also owns and manages 1 international airport in Istanbul, Türkiye. RM16.5 million RM266.6 million RM288.9 million RM29.2 million RM72.5 million Equity Invested EBITDA EBITDA Total Revenue Total Revenue 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 Securities since November 1999, Malaysia Airports’ market capitalisation stood at RM10.9 billion at the end of 2022. We are a constituent of the FTSE4Good Bursa Malaysia Index and the FTSE4Good Bursa Malaysia Shariah Index. 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. 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 Türkiye. DUTY FREE AND NON-DUTIABLE GOODS Operate duty-free outlets and provide management services for food and beverage outlets at designated airports Number of Retail Outlets Number of Employees Retail Area 2022 39 2021 42 2022 620 2021 677 Number of Employees 2022 642 2021 835 2022 12,826 sqm 2021 12,822 sqm PROJECT AND REPAIR MAINTENANCE Offer consultancy, facility management services and maintenance of information and communication technology business ventures and provision of mechanical and electrical engineering 5 international airports, 17 domestic airports, 17 STOLports
5 OUR I NV E S TMENT CA S E www.malaysiaairports.com.my MALAYSIA AIRPORTS AT A GLANCE Integrity, Customer-Centricity, Accountability, New Ideas More information on our website www.malaysiaairports.com.my. CORE VALUES RM4,419.3 million RM92.7 million RM74.3 million RM19.1 million RM2,829.7 million RM1,070.4 million Equity Invested Equity Invested EBITDA EBITDA AIRPORT SERVICES Manage, operate and maintain airports, and provide airport-related services to ensure that airports operate efficiently, safely and securely with high service levels Total Revenue RM52.4 million RM20.2 million EBITDA Total Revenue Total Revenue Group Passenger Traffic Movements Malaysia Türkiye 52.7 million 31.2 million 2022 2021 10.7 25.4 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.9 globally for >40 mppa in the 2022 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. Breakdown of rooms Oil Palm Planted Area Fresh Fruit Bunches 2022 6,247.1 ha 2022 41,888.0 MT HOTEL Manage and operate hotels Number of rooms 720 Number of Hotels 4 592 128 Malaysia Türkiye AGRICULTURE AND HORTICULTURE Cultivate and manage oil palm and other agricultural products, and undertake horticulture activities, primarily landscaping services and products
MALAYSIA AIRPORTS HOLDINGS BERHAD ANNUAL REPORT 2022 6 SEC 01 03 02 04 05 06 OUR APPROACH TO SUSTAINABILITY Malaysia Airports recognises that to achieve our corporate vision to be a ‘A Global Airport Group that Champions Connectivity and Sustainability’, we need to do more than just create economic value for shareholders. Rather, there is a need to balance profit-making and operational excellence with conducting our business in a manner that is responsible and sustainable. In the journey to becoming a sustainable business for the long term, our operations must be built on the foundations of good governance while considering environmental and social factors. Recognising the importance of ESG considerations in creating long-term sustainable value for stakeholders, we constantly work to embed these sustainability factors in the Company’s value creation model and value chain. The Board of Directors provides strategic direction with regards to Malaysia Airports’ ESG model through the Company’s Sustainability Policy and Framework. The Senior General Manager, Strategy of Malaysia Airports is responsible for ensuring the ESG model is translated into actionable tangible initiatives by business and support units in line with the Sustainability Policy and Framework. ESG GOVERNANCE The incumbent is a member of the Management Executive Committee (EXCO), chaired by the Group's Managing Director, and comprises the top management of Malaysia Airports. The incumbent also chairs the Group’s Sustainability Committee, a management committee which is responsible for highlighting and reporting on sustainability matters to the EXCO, and where relevant, to the Board of Directors. The Sustainability Unit assists the Senior General Manager, Strategy in the day-to-day running and management of Group-wide sustainability initiatives, engages stakeholders and provides consulting services to them on all sustainability matters. OVERVIEW This section informs stakeholders on how Sustainability works within Malaysia Airports, and summarises the key Environmental, Social and Governance (ESG) achievements and performance highlights. That is followed by a discussion of the materiality process and how the material matters are determined and reviewed. We also outline our engagement with key stakeholders.
7 OUR I NV E S TMENT CA S E www.malaysiaairports.com.my OUR APPROACH TO SUSTAINABILITY • Board Nomination and Remuneration Committee Social S • Engineering Environment Committee Environmental E • Board Audit Committee • Board Finance and Investment Committee • Board Risk Management Committee • Board Procurement Committee • Whistleblowing Committee Governance G In addition, Board and management committees also monitor sustainability targets and initiatives, and track the progress towards achieving these targets. These Board and management committees include:
MALAYSIA AIRPORTS HOLDINGS BERHAD ANNUAL REPORT 2022 8 SEC 01 03 02 04 05 06 OUR APPROACH TO SUSTAINABILITY SUSTAINABILITY POLICY AND FRAMEWORK SUSTAINABLE DEVELOPMENT GOALS MATERIAL MATTERS SUSTAINABILITY PILLARS 17 20 5 SUSTAINABILITY FRAMEWORK Malaysia Airports has been guided by a Sustainability Policy since 2010. The policy was updated in 2021 to align the Group’s business decisions and strategies with ESG considerations and stakeholders’ concerns. Additionally, as a governmentlinked company (GLC), Malaysia Airports supports the Malaysian government’s national commitments towards the United Nations (UN) Sustainable Development Goals (SDGs). The Group has also set out five Sustainability Pillars which underpin its sustainability agenda, namely Practising Sensible Economics, Environmental Consciousness, Creating an Inspiring Workplace, Community-Friendly Organisation and Memorable Airport Experience. To amplify the Sustainability Policy, a Sustainability Framework has been established, linking the Sustainability Pillars to the Group’s material matters and to the SDGs. The Framework also illustrates that the Group’s ability to create long term value for its stakeholders is dependent on both business and ESG considerations. 1 2 PILLAR PILLAR Practising Sensible Economics Generate sustainable returns from business activities by strengthening and optimising revenue streams. • Airport Capacity • Digitalisation • Economic Performance • Procurement Practices Environmental Consciousness Manage and reduce the impact on the environment from business activities. • Waste and Effluent Management • Carbon Emission • Climate Change • Regulatory Compliance • Market Presence • Cybersecurity • Water Management • Energy Efficiency
9 OUR I NV E S TMENT CA S E www.malaysiaairports.com.my OUR APPROACH TO SUSTAINABILITY 3 PILLAR Creating an Inspiring Workplace Value our employees, provide development opportunities and embed good governance. • Integrity and Anti-Corruption • Employee Engagement and Development • Diversity • Human Rights 4 PILLAR Community-Friendly Organisation Support and strengthen community engagement and efforts to develop programmes to meet the needs of local communities. • Contributions to Local Community 5 PILLAR Memorable Airport Experience Enhance the travel experience of airport guests to support our brand promise of hosting joyful connections. • Airport Safety and Security • Total Airport Experience • Transportation and Connectivity In addition to the Sustainability Policy, the following policies, procedures and guidelines also serve to embed the ESG model in Malaysia Airports’ operations and are available on our corporate website: KUL Sustainability Charter The KUL Sustainability Charter was introduced in 2019, creating a leadership role for Malaysia Airports in sustainability matters within the airport community at KUL. The charter reflects new and evolving matters of concern to Malaysia Airports and its stakeholders, both internal and external namely employees, regulators, airline companies, investors, airport tenants, vendors, passengers, the local community and the media. Through stakeholder consultation, we identified material matters, set goals and identified key initiatives to form the basis of the charter. Each of these are aligned to the Sustainability Pillars and SDGs. • Anti-Bribery and Corruption Policy Statement • Code of Ethics • Conditions of Use • COVID-19 Vaccination Policy • Environmental Management Policy • Energy Policy • Fraud Policy • Gift Policy • No Smoking Policy • Occupational Health and Safety Policy • Policy on Prevention and Eradication of Drug and Alcohol Abuse in the Workplace • Privacy Notice • Privacy Notice for Shareholders • Procurement Manual • Risk Management Policy Statement • Sexual Harassment Policy • Stop-Work Policy • Terms and Conditions • Sustainability Policy
MALAYSIA AIRPORTS HOLDINGS BERHAD ANNUAL REPORT 2022 10 SEC 01 03 02 04 05 06 OUR APPROACH TO SUSTAINABILITY United Nations Sustainable Development Goals The United Nations had identified 17 SDGs, representing a call for action by all countries to promote prosperity while protecting the planet. Ending poverty must go hand-in-hand with specific goals and strategies that build economic growth and address a range of social needs including education, health, social protection, and job opportunities while tackling climate change and environmental protection. Malaysia Airports has aligned its material matters, Sustainability Pillars and the KUL Sustainability Charter with all 17 SDGs. On-going Initiative to Improve Sustainability Framework In 2022, Malaysia Airports began an exercise to improve its current Sustainability Framework and address climate change. In this regard, there is a transition in its sustainability reporting as the Group moves towards reporting its performance with regards environmental, social and governance indicators and targets, as opposed to its five Sustainability Pillars previously. Malaysia Airports is also developing a strategy and roadmap towards net zero carbon emissions which will be launched in 2023. A sustainability review is provided in this report together with data tables on sustainability performance indicators. The Group intends to make available more comprehensive information on sustainability initiatives and progress on its corporate website: www.malaysiaairports.com.my
11 OUR I NV E S TMENT CA S E www.malaysiaairports.com.my OUR APPROACH TO SUSTAINABILITY SUSTAINABILITY RATINGS SUSTAINABILITY REPORTING Malaysia Airports’ efforts in sustainability receive independent ratings from local and international organisations which score the Group’s impact in the environmental, social and governance spheres. These are the latest ratings assigned to Malaysia Airports. As Malaysia Airports progresses in integrated reporting, it has taken a decision in 2022 to merge its annual report and sustainability reports. This enables stakeholders to understand the business of the Group in a more comprehensive manner in line with the Group’s corporate vision to be ‘A Global Airport Group that Champions Connectivity and Sustainability’. The sustainability reporting in this report has been prepared with reference to the following frameworks: In addition, the sustainability information contained in this report has been audited by SIRIM QAS International Sdn Bhd, an independent party. Further information regarding the Group’s sustainability efforts and results is available at our corporate website: www.malaysiaairports.com.my RAM Sustainability Rating Gold GRI Standards on Sustainability Reporting Sustainalytics Rating 21.5 Bursa Malaysia’s Sustainability Reporting Guide FTSE4Good 3 out of 4 stars Bursa Malaysia’s Main Market Listing Rules on Sustainability Reporting MSCI BBB FTSE Russell FTSE4Good Criteria
MALAYSIA AIRPORTS HOLDINGS BERHAD ANNUAL REPORT 2022 12 SEC 01 03 02 04 05 06 WHERE WE OPERATE Kota Bharu (KBR) 1.5mppa Sibu (SBW) 1.8mppa Bintulu (BTU) 1.0mppa Kuala Terengganu (TGG) 1.5mppa Kuantan (KUA) 0.5mppa Melaka (MKZ) 0.5mppa Subang (SZB) 1.5mppa Pulau Redang (RDN) Pulau Pangkor (PKG) Pulau Tioman (TOD) Ipoh (IPH) 0.5mppa Langkawi (LGK) 4.0mppa Alor Setar (AOR) 1.5mppa Istanbul Sabiha Gökçen International Airport (SAW) 41.0 mppa 100% shareholding Rajiv Gandhi International Airport (HYD) 25.0 mppa 11% shareholding Kuching (KCH) 5.0mppa Penang (PEN) 6.5mppa Sandakan (SDK) 1.4mppa Labuan (LBU) 2.2mppa Limbang (LMN) 0.07mppa Marudi (MUR) Mulu (MZV) 0.05mppa Tawau (TWU) 1.5mppa Semporna (SMM) Long Banga (LBP) Lahad Datu (LDU) 0.1mppa KL International Airport (KUL) Terminal 1 30.0mppa Terminal 2 45.0mppa Kota Kinabalu (BKI) 9.0mppa Lawas (LWY) Miri (MYY) 2.0mppa Mukah (MKM) 0.3mppa Kapit (KPI) Belaga (BLG) Türkiye India Long Seridan (ODN) Long Pasia (GSA) Long Semado (LSM) Bakelalan (BKM) Bario (BBN) Long Lellang (LGL) Long Akah (LKH)
13 OUR I NV E S TMENT CA S E www.malaysiaairports.com.my More information on our website www.malaysiaairports.com.my. INTERNATIONAL AIRPORTS SHORT TAKE-OFF AND LANDING PORTS (STOLPORTS) AGRICULTURE AND HORTICULTURE HOTELS DUTY FREE AND NON-DUTIABLE GOODS DOMESTIC AIRPORTS PROJECT AND REPAIR MAINTENANCE MALAYSIA • KL International Airport (KUL) • Kota Kinabalu International Airport (BKI) • Kuching International Airport (KCH) • Langkawi International Airport (LGK) • Penang International Airport (PEN) TÜRKIYE • Istanbul Sabiha Gökçen International Airport (SAW) INDIA • Rajiv Gandhi International Airport (HYD) • KL International Airport (KUL) • Kota Kinabalu International Airport (BKI) • Kuching International Airport (KCH) • Langkawi International Airport (LGK) • Penang International Airport (PEN) • KL International Airport (KUL) • Bintulu Airport (BTU) • Miri Airport (MYY) • Sibu Airport (SBW) Airports • KL International Airport (KUL) • Langkawi International Airport (LGK) • Penang International Airport (PEN) • Sultan Abdul Aziz Shah Airport, Subang (SZB) • Hamad International Airport (DOH) Buildings • Airbus Helicopters Malaysia • Bank Negara Malaysia • Cainiao Aeropolis eWTP Hub • Malaysia Airports Corporate Office Four locations in and around KUL and SAW: • KLIA Terminal 1 landside • KLIA Terminal 1 airside • KLIA Terminal 2 airside • SAW landside • 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) • Mukah (MKM) • Mulu Airport (MZV) • Sibu Airport (SBW) • Labuan Airport (LBU) • Lahad Datu Airport (LDU) • Sandakan Airport (SDK) • Tawau Airport (TWU) • 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) • Kudat (KUD) • Long Pasia (GSA) • Semporna (SMM) • Malaysian Research Accelerator for Technology & Innovation (MRANTI) • Maxis Tower • Mitsui Outlet Park KLIA • Persada PLUS • Petronas Precinct Buildings - KLCC Twin Towers - KLCC Tower 3 - KLCC common estate & common facilities - Masjid As-Syakirin KLCC - Menara ExxonMobil - Menara Permata Sapura - Petronas Digital Collaboration Center • Sime Darby Plantation • SPIRIT Aerosystems Malaysia Airport Services
MALAYSIA AIRPORTS HOLDINGS BERHAD ANNUAL REPORT 2022 14 SEC 01 03 02 04 05 06 CORPORATE INFORMATION BOARD OF DIRECTORS Tan Sri Datuk Zainun Ali (Chairman) (Non-Independent Non-Executive) Dato’ Iskandar Mizal Mahmood (Managing Director) (Non-Independent Executive) Datuk Johan Mahmood Merican (Non-Independent Non-Executive) Dato’ Normah Osman (Non-Independent Non-Executive) Wong Shu Hsien (Non-Independent Non-Executive) Rohaya Mohammad Yusof (Non-Independent Non-Executive) Datuk Azailiza Mohd Ahad (Senior Independent Non-Executive) Tan Sri Mohamad Salim Fateh Din (Independent Non-Executive) Dato’ Ir. Mohamad Husin (Independent Non-Executive) Ramanathan Sathiamutty (Independent Non-Executive) Cheryl Khor Hui Peng (Independent Non-Executive) REGISTERED OFFICE Malaysia Airports Corporate Office Persiaran Korporat KLIA 64000 KLIA, Sepang Selangor Darul Ehsan Tel : +603-8777 7011 Fax : +603-8777 7512 E-mail : zawardi@malaysiaairports.com.my SHARE REGISTRAR Securities Services (Holdings) Sdn Bhd Level 7, Menara Milenium Jalan Damanlela Pusat Bandar Damansara Damansara Heights 50490 Kuala Lumpur Tel : 603-2084 9000 Fax : 603-2094 9940/2095 0292 AUDITORS Messrs. Ernst & Young PLT Level 23A, Menara Milenium Jalan Damanlela Pusat Bandar Damansara 50490 Kuala Lumpur Tel : 603-7495 8000 Fax : 603-2095 9076/78 STOCK EXCHANGE LISTING Listed on Main Market of Bursa Malaysia Securities Berhad Listing Date : 30 November 1999 Stock Name : AIRPORT Stock Code : 5014 Stock Sector : Transportation & Logistics WEBSITE www.malaysiaairports.com.my PRINCIPAL BANKERS Malayan Banking Berhad HSBC Bank Malaysia Berhad RHB Bank Berhad BOARD AUDIT COMMITTEE Cheryl Khor Hui Peng (Chairman) (Independent Non-Executive) Wong Shu Hsien (Non-Independent Non-Executive) Datuk Azailiza Mohd Ahad (Senior Independent Non-Executive) Dato’ Ir. Mohamad Husin (Independent Non-Executive) BOARD PROCUREMENT COMMITTEE Dato’ Ir. Mohamad Husin (Chairman) (Independent Non-Executive) Datuk Johan Mahmood Merican (Non-Independent Non-Executive) Dato’ Normah Osman (Non-Independent Non-Executive) Tan Sri Mohamad Salim Fateh Din (Independent Non-Executive) Ramanathan Sathiamutty (Independent Non-Executive) COMPANY SECRETARY Zawardi Salleh SSM Practising Certificate No. 202008003088 MAICSA 7026210 GROUP FINANCE Mohamed Rastam Shahrom Group Chief Financial Officer BOARD NOMINATION AND REMUNERATION COMMITTEE Datuk Azailiza Mohd Ahad (Chairman) (Senior Independent Non-Executive) Wong Shu Hsien (Non-Independent Non-Executive) Ramanathan Sathiamutty (Independent Non-Executive) BOARD FINANCE AND INVESTMENT COMMITTEE Tan Sri Mohamad Salim Fateh Din (Chairman) (Independent Non-Executive) Wong Shu Hsien (Non-Independent Non-Executive) Rohaya Mohammad Yusof (Non-Independent Non-Executive) Datuk Azailiza Mohd Ahad (Senior Independent Non-Executive) BOARD RISK MANAGEMENT COMMITTEE Ramanathan Sathiamutty (Chairman) (Independent Non-Executive) Dato’ Normah Osman (Non-Independent Non-Executive) Rohaya Mohammad Yusof (Non-Independent Non-Executive) Dato’ Ir. Mohamad Husin (Independent Non-Executive) Cheryl Khor Hui Peng (Independent Non-Executive)
15 OUR I NV E S TMENT CA S E www.malaysiaairports.com.my Segi Astana Sdn Bhd 30% Airport Cooling Energy Supply Sdn Bhd 23% İstanbul Sabiha Gökçen Uluslararası Havalimanı Yatırım Yapım ve İşletme A.Ş. 20% SGC Havalimanı İşletmeleri Ticaret ve Turizm A.Ş. 20% CORPORATE STRUCTURE Alibaba KLIA Aeropolis Sdn Bhd 30% GMR Hyderabad International Airport Limited 11% İstanbul Sabiha Gökçen Uluslararası Havalimanı Yatırım Yapım ve İşletme A.Ş. 40% SGC Havalimanı İşletmeleri Ticaret ve Turizm A.Ş. 40% Kuala Lumpur Aviation Fuelling System Sdn Bhd 20% Cooling Energy Supply Sdn Bhd 30% Malaysia Airports Consultancy Services Middle East LLC 49% Malaysia Airports (Sepang) Sdn Bhd Malaysia Airports Sdn Bhd Malaysia Airports Holdings Berhad Malaysia Airports Consultancy Services Sdn Bhd Malaysia International Aerospace Centre Sdn Bhd Malaysia Airports Capital Berhad KLIA Aeropolis Sdn Bhd Malaysia Airports (Niaga) Sdn Bhd Malaysia Airports Cities Sdn Bhd Malaysia Airports International Sdn Bhd MA Elogistics Sdn Bhd MAHB (Mauritius) Private Limited Malaysia Airports (Labuan) Private Limited Malaysia Airports (Properties) Sdn Bhd Airport Ventures Sdn Bhd Malaysia Airports (Subang) Sdn Bhd MFMA Development Sdn Bhd 30% Eraman (Malaysia) Sdn Bhd 100% Urusan Teknologi Wawasan Sdn Bhd 100% K.L. Airport Hotel Sdn Bhd 100% MAB Agriculture-Horticulture Sdn Bhd 100% İstanbul Sabiha Gökçen Uluslararası Havalimanı Yatırım Yapım ve İşletme A.Ş. 40% SGC Havalimanı İşletmeleri Ticaret ve Turizm A.Ş. 40% Malaysia Airports Technologies Sdn Bhd 100% BP Malaysia Airports Subang Aerotech Sdn Bhd 100% Malaysia Airports MSC Sdn Bhd 100% BPMA HS Sdn Bhd 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
MALAYSIA AIRPORTS HOLDINGS BERHAD ANNUAL REPORT 2022 SEC 01 03 02 04 05 06 16 TAN SRI DATUK ZAINUN ALI Chairman CHAIRMAN’S STATEMENT THIS WAS A YEAR OF INSPIRING BRAVE AMBITIONS AT MALAYSIA AIRPORTS. Fortified by a solid foundation from progressive improvements over the past two years, our people rose to the challenge and returned the Group to profitability in 2022. The year presented Malaysia Airports with both challenges and opportunities as globally, the world transitioned to a new normal, and entered a phase of endemicity with regards to COVID-19. Group-wide passenger movements reached 83.9million an increase of 132.4% compared to 2021.
OUR L EADERSH I P S TAT EMENT www.malaysiaairports.com.my 17 CHAIRMAN’S STATEMENT WE SAW CHALLENGES AND OPPORTUNITIES In terms of challenges, global economic growth had moderated to 3.4% in 2022 compared to 6.2% in 2021 according to estimates by the International Monetary Fund (IMF). Across the world, inflation was a matter of grave concern. Prices had risen sharply as the flow of goods and services faced interruptions due to pandemic-related lockdowns and supply chain disruptions, which were further compounded by the Russia-Ukraine conflict. Monetary policy measures to manage inflation which include interest rate hikes had dampened growth. Despite the dampened global economic conditions, the Malaysian economy was resilient, growing by 8.7% in 2022 compared to 3.1% in 2021, according to Bank Negara Malaysia. One of the key drivers of economic growth in Malaysia was the gradual recovery in tourism activities. In Türkiye, the economy is estimated to have grown by 5.6% in 2022. Passenger movements for operations in Malaysia grew 390.8% year-on-year to 52.7million Passenger movements for operations in Türkiye grew 23.0% year-on-year to 31.2 million There was evidence of strong pent up demand globally for air travel with the further reopening of international borders and relaxation of travel restrictions in 2022. Malaysia’s borders reopened in April 2022 to international travellers, in line with other countries in Southeast Asia. When pandemic travel restrictions were rolled back, public health measures that were in place and a relatively benign COVID-19 situation helped bolster public confidence in air travel. Passenger traffic in Malaysia performed better than the regional average and reached 50.0% of 2019 levels in 2022 following the reopening of its borders. Air traffic continued to climb throughout the rest of the year following further relaxation of quarantine and other restrictions in May and the dropping of remaining travel restrictions in August which effectively restored prepandemic ease of travel. In the case of Türkiye, the country had removed pandemic travel restrictions earlier in line with the rest of Europe, and in 2022, air travel had returned to 86.7% of 2019’s levels.
MALAYSIA AIRPORTS HOLDINGS BERHAD ANNUAL REPORT 2022 SEC 01 03 02 04 05 06 18 CHAIRMAN’S STATEMENT We were well prepared Since 2020, Malaysia Airports had been systematically transforming itself to address the downturn in air travel. The Group had progressed on many fronts to become nimble and agile in navigating future challenges and in seizing new growth opportunities. From cost containment measures initiated to ride out the pandemic, we had successfully rebased our core costs comprising largely staff, utilities and maintenance costs, to a lower baseline. By thinking out of the box to reconfigure our facilities, passenger flow and work processes, this had resulted inaGroup-wideworkflow transformationprogramme which increased productivity and efficiency, enabling the Group to achieve more while using less resources. From our people adopting a more entrepreneurial mindset, there has been a distinct pivot towards a propensity to generate revenue across business units. In working closely with airline partners throughout the pandemic to focus on international routes, the Group was able to recover a sizeable part of its network connectivity in terms of airlines and routes. For the Group’s non-aeronautical business, our strategy of assisting commercial tenants and streamlining tender and leasing processes while adopting a multi-channel approach enabled commercial revenues to grow quickly. Our efforts to realign Eraman, our travel retail arm, streamline its operations and staffing as well as reach customers outside of the airports saw its strategy working. Service quality at our airports also came under the Group’s scrutiny. We had embarked on a multi-year project to refurbish its washrooms at KL International Airport (IATA Code: KUL) and completed the refurbishment work in early 2022. This would assist in maintaining the perfect 5.00 scores that KUL and Langkawi International Airport (IATA Code: LGK) had achieved in the Airports Council International’s (ACI) Airport Service Quality Awards in 2021 which had placed both airports at #1 position among their global peers within their size categories. Over at Istanbul Sabiha Gökçen International Airport (IATA Code: SAW) in Türkiye, airlines operating at the airport had seen the potential of the airport to cater to larger numbers of international passengers. As such, the airlines had switched to larger aircraft and converted their slots to operate more international routes from SAW. The Group converted eight domestic gates to international gates and expanded its commercial spaces around these new gates to seize the opportunity to increase revenue. The appointment of Dufry, the leading global travel retailer, in 2020 as the operator of duty free and retail stores at SAW had also seen its non-aeronautical revenues growing. In addition, the opening of the Pendik metro station directly beneath the terminal building at SAW in October providing a convenient metro link between the airport and downtown Istanbul was another game changer. Over and above the visible improvements, was the united and engaged workforce at Malaysia Airports. During the pandemic, the Group had maintained a policy of zero retrenchments and zero pay cuts despite facing financial pressures. The Group invested in retraining and redeploying staff as needed to fill vacancies internally. As such we entered 2022 with a full complement of high-spirited employees who were ready for action, eagerly anticipating the reopening of Malaysia’s borders. In short, Malaysia Airports was well prepared. We were inspiring brave ambitions, ready to navigate the challenges of 2022 and seize the opportunities that the year presented.
OUR L EADERSH I P S TAT EMENT www.malaysiaairports.com.my 19 CHAIRMAN’S STATEMENT We delivered results The results for 2022 were outstanding. From a financial standpoint, Malaysia Airports returned to profitability, registering a profit before tax of RM184.6 million compared to a loss before tax in 2021 of RM1,040.9 million. Revenues had risen by 86.9% year-on-year (YoY) to RM3,127.0 million while a reduction in utilisation fees and better share of results from joint ventures and associates also contributed to the Group’s return to the black. Operations in Türkiye registered a breakthrough achievement, returning a profit before tax of EUR136.7 million, to make 2022 the Group’s first profitable year for Türkiye operations, since the pandemic. For operations in Malaysia, loss before tax had narrowed to RM263.2 million, a significant improvement of 66.1% YoY. The Group’s network of airports saw passenger movements increase by more than two-fold with 83.9 million passenger movements in 2022, which was 59.4% of the Group’s recordsetting level in 2019. While Group-wide domestic passenger movements reached 70.1% of 2019 levels, international passenger movements stood at 47.8% of pre-pandemic levels. Notably, international passenger traffic at SAW had surged past its pre-pandemic volumes, recording growth of 10.4% over and above 2019’s figures. The cost and operational efficiencies that the Group had achieved and sustained from initiatives implemented in the previous two years coupled with fresh initiatives to improve processes and workflows also contributed to the bottom line. Therefore in 2022, although revenues grew by 86.9% YoY, the Group’s Core Costs grew by only 15%, a testament to the sustainability of the Group-wide efforts. This resulted in Core Cost per Passenger reducing by 50.5% YoY on the back of operational efficiencies and a larger passenger base. In addition, from the Group-wide workflow transformation, Malaysia Airports gained RM90.4 million in cost avoidance, streamlined 573 jobs and reduced process time by 2,740 hours. The Group’s non-aeronautical revenues increased by 80.5% YoY to RM1,206.5 million, largely due to better contribution of commercial revenue from operations both in Malaysia and Türkiye. Although non-aeronautical revenues grew as passenger traffic recovered, we also laid the groundwork to secure premium brands and first-to-market opportunities at the airports. Sale of duty free and non-dutiable goods in Malaysia through the Group’s retail arm, Eraman, had traditionally correlated closely with the level of international passengers. However, in 2022, Eraman’s sales per ticket bucked the trend and improved in 2022 to RM280 compared to RM233 in 2019, despite lower passenger numbers in 2022. This was achieved on the back of workflow improvements in floor management capabilities and cost efficiencies from redeployment of staff to retail and F&B outlets to match demand. In our operations in Türkiye, duty free rental income grew 82.5% YoY to EUR62.6 million, an all-time high. The increase in international passengers in 2022 by 75.1% combined with the efforts of our duty free partner, Dufry, which capitalised on the growth in international passengers through numerous campaigns including cross sales promotions among different F&B outlets, retailers and duty free shops. In appreciation of the continued trust and support of our shareholders, I am pleased to inform shareholders that the Board has approved a final dividend of 3.91 sen per ordinary share in respect of FY2022. Malaysia Airports returned to profitability, registering a profit before tax of RM 184.6 million compared to a loss before tax in 2021 of RM1,040.9 million Revenues had risen by 86.9 % year-on-year to RM 3,127.0 million
MALAYSIA AIRPORTS HOLDINGS BERHAD ANNUAL REPORT 2022 SEC 01 03 02 04 05 06 20 CHAIRMAN’S STATEMENT We remained true to our values Our brave ambitions and courageous spirit is backed by the Group’s solid track record of governance, reliability and delivering on promises. In terms of governance, the Board of Directors steered Malaysia Airports through the challenges and opportunities in the year, and worked in tandem with Management. The Board scrutinised proposals from Management thoroughly and deliberated them with all board members freely voicing their opinions and concerns. In this regard, the Board and Board Committees held a total of 46 meetings in 2022. Stakeholders can be assured that the Board is committed in upholding corporate governance principles and a culture of integrity while the Group dealt with the challenges and opportunities associated with the sharp rise in air travel. We continued to make progress in upholding integrity and implementing anti-corruption measures. On the rollout of the ISO 37001: 2016 Anti-Bribery Management Systems (ABMS) in 2022, three subsidiaries – Malaysia Airports (Niaga) Sdn Bhd, Urusan Teknologi Wawasan Sdn Bhd and K.L. Airport Hotel SdnBhd – completed their ABMSmanuals and implementation assessments as steps towards formal ABMS certification. Preparation began for next batch of subsidiaries, namely Malaysia Airports Sdn Bhd and MAB Agriculture-Horticulture Sdn Bhd, in drafting their ABMS manuals and documentation. The companies which had already been successfully certified, Malaysia Airports Holdings Berhad and Malaysia Airports (Sepang) Sdn Bhd, were audited and recommended for ABMS recertification indicating their continued fulfilment of the requirements of the ABMS standards. Additionally, the Group completed the mandatory review of its corporate Anti-Bribery and Corruption Policy Statement to ensure compliancewith theMainMarket ListingRequirements of Bursa Malaysia Securities Berhad and the ISO 37001: 2016 Anti-Bribery Management Systems. The Group also communicated extensively with stakeholders, in particular, members of the public given their eagerness to travel in 2022. We communicated extensively with the public and 3,614,588 followers on social media through mainstream media and our social media platforms. The Group issued a total of 48 news releases in 2022 and 3,214 social media posts focusing on topics of interest to the general public such as the reopening of Malaysia’s borders, travel requirements, introduction of new airlines and flight routes, improved airport ranking, and the initiation of the Aerotrain Replacement Programme. We were pleased that our transformation efforts and solid track record were also recognised by stakeholders. Malaysia Airports’ credit ratings by RAM Holdings Berhad and Moody’s were reaffirmed at AAA and A3 respectively. Moody’s also upgraded its outlook on Malaysia Airports to ‘Stable’ in August 2022, from ‘Negative’ previously. Malaysia Airports’ credit ratings were reaffirmed in 2022. RAM Holdlings Berhad AAA Moody’s A3 (Stable)
OUR L EADERSH I P S TAT EMENT www.malaysiaairports.com.my 21 CHAIRMAN’S STATEMENT We are ready for more Amidst inspiring brave ambitions, catalysts for future growth had also emerged. Chief among these was the approval inprinciple from the Government of Malaysia through a cabinet decision on the material terms of the Operating Agreements for Malaysia Airports to operate, manage, maintain and develop 39 airports and STOLports until 2069. We thank the Government of Malaysia for its continued confidence in the Group’s capabilities and experience in managing and operating airports and entrusting us with the management of the nation’s gateways. In November 2022, Malaysia Airports was granted a 99-year lease over 8,537 acres of land in the immediate vicinity of KUL (KLIA Aeropolis Lands) by the Government of Malaysia (GoM). The investor-friendly terms of the lease will strengthen Malaysia Airports' ability to accelerate off-terminal opportunities around KUL and generate long term economic value for the nation. In ACI’s Airport Service Quality Awards for 2022, KUL had scored 4.99 out of a possible 5.00, while LGK achieved a perfect 5.00 in this year’s survey. This placed KUL #9 among global airports of over 40 million passengers per annum (mppa) while LGK was ranked #1 in the 2-5 mppa category. In addition, KUL received awards in all four new categories of the Airport Service Quality Awards, placing it among the top 5% of performers globally in these service quality areas – Airport with the Most Dedicated Staff, Easiest Airport Journey, Most Enjoyable Airport and Cleanest Airport. In the area of corporate responsibility, our community engagement efforts were recognised with the award for the ‘Company of The Year (Aviation & Airport Management) for Excellence in CSR Initiatives’ at the Sustainability & CSR Malaysia Awards 2022. This achievement is testament to Malaysia Airports’ effort in transforming the nation’s socioeconomic landscape through various corporate responsibility initiatives such as the Butterfly Effect programme, #MYAirportCARES Food Aid and Flood Aid, as well as many other programmes that uplift the communities in the areas in which we operate. In addition, ACI through its Airport Carbon Accreditation programme, had in 2022, renewed Malaysia Airports’ Level 3 certification for KUL, following their independent assessment under theglobal carbonmanagement certificationprogramme for airports. This is an acknowledgement of our efforts in transitioning towards a sustainable, low-carbon future.
MALAYSIA AIRPORTS HOLDINGS BERHAD ANNUAL REPORT 2022 SEC 01 03 02 04 05 06 22 In addition, in February 2023, Malaysia Airports received approval-in-principle for its Subang Airport Regeneration Plan from the Malaysian Cabinet. The regeneration plan positions Sultan Abdul Aziz Shah Airport or Subang Airport as a leading City Airport and Business Aviation Hub in Asia Pacific. The regeneration plan which is centred on three segments – Aerospace Ecosystem, Business Aviation and City Airport – will transform Subang Airport into an integrated mixed development comprising a smart city airport and terminal-linked commercial and high value aerospace industries. This presents a stronger value proposition to foreign aerospace and business aviation operators for establishing their regional operations hub at Subang Airport. The construction of the second runway at SAW is scheduled to complete in 2023, and the Group looks forward to the expansion of SAW’s capacity with new runway going into operations. In this regard, Malaysia Airports would like to thank the Government of Türkiye for undertaking the construction of the new runway. Further, Malaysia Airports would also like to thank the Government of Türkiye for reducing the deferred utilisation fee for the SAW concession for FY2020 by EUR 116.7 million, in recognising the pandemic as a force majeure event. CHAIRMAN’S STATEMENT
OUR L EADERSH I P S TAT EMENT www.malaysiaairports.com.my 23 Thank you I would like to extend a warm welcome to our newest Board members, Datuk Johan Mahmood Merican who joined the Board on 29 June 2022, as well as Tan Sri Mohamad Salim Fateh Din and Madam Cheryl Khor Hui Peng who joined the Board on 25 July 2022. I would like to note here that with its current composition, the Board comprises a majority of women directors, making Malaysia Airports one of the companies in Malaysia with the highest number of women on the Board. However, with China’s reopening at the beginning of 2023, there is potential for more rapid growth. The IMF is projecting the global economy to moderate to 2.8% in 2023 as interest rates remain high to fight inflation and the conflict in Ukraine continues to weigh on economic activity. Bank Negara Malaysia (BNM) expects Malaysia’s economy to grow between 4.0% and 5.0% in 2023 amid a challenging external environment but there is potential for higher tourism activity to cushion the slowdown in growth. Türkiye’s economic growth is expected to moderate to 2.7% in 2023 as weak external demand and persistent geopolitical uncertainties are expected to weigh the economy. The International Air Travel Association (IATA) expects the global demand for air travel to reach 85.5% of 2019 levels in 2023, with air travel inAsiaPacific rising to 70.8% of 2019 levels, driven by the easing of travel restrictions and pent-up demand as well as the reopening of China’s borders. IATA maintains its forecast for overall demand for air travel to return to pre-pandemic levels by 2024. In this regard, Malaysia Airports will continue to position itself to sustain its lower cost base and improved efficiencies while seeking opportunities to spur growth and increase revenues. OUTLOOK Looking ahead, there are uncertainties ahead in the global economy as inflation and geopolitical conflict are likely to dampen growth. The Board would also like to thank our former Chairman, YB Senator Dato’ Seri Diraja Dr. Zambry Abd Kadir and our former members, Datuk Seri Yam Kong Choy, Datuk Zalekha Hassan and Encik Rosli Abdullah who resigned in 2022. On behalf of the Board, I would like to record our appreciation for their contribution towards the Group. The Board, Management and employees of Malaysia Airports would also like to extend our heartiest congratulations to YB Senator Dato’ Seri Diraja Dr. Zambry on his appointment as the Minister of Foreign Affairs of Malaysia. In addition, the Board wishes to thank our employees who served the Group with dedication and commitment throughout the year. We acknowledge their many sacrifices in the course of discharging their duties and are grateful for their unwavering support. We also express our sincere appreciation to the shareholders and all other stakeholders, namely our regulators, the various ministries, government agencies, airline partners, retail partners, vendors and other business partners, for their support and contribution in navigating the challenges and opportunities of 2022. We look forward to 2023, and have started the year with renewed confidence in our ability to create value for stakeholders. We are ready to seize the new opportunities for growth and development while ensuring that our hard fought successes in transforming the Group will be sustained for a brighter future ahead. As custodians of the nation’s gateways, we will continue to strive to create long term value for stakeholders as we develop and build a sustainable business for the future. TAN SRI DATUK ZAINUN ALI Chairman CHAIRMAN’S STATEMENT
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