MSM Malaysia Holdings Berhad Annual Report 2019

GROUP CHIEF EXECUTIVE OFFICER REVIEW However, on 9 April 2020, we have exercised our rights to rescind the sale and purchase agreement entered on 8 October 2019 since F&N has not fulfilled the first Condition Precedent by the expiry of the Conditional Period as well as the Extended Conditional Period. With this new development, we will continuously lookout for new strategic plan to monetise this asset. Another important plus was the expiry of the previous raw sugar contract in December 2019. This will benefit MSM in terms of strategic raw sugar procurement and potentially reduce our cash outflows and ensure the sustainable supply of best quality raw sugar stocks for all MSM’s refineries. TRANSFORMING CHALLENGES INTO OPPORTUNITIES The COVID-19 outbreak has triggered extreme reactions in the financial markets as it grapples with a cascading effect from business disruptions. Globally, restrictive movements and lockdown measures, factory shutdowns and the collapse of oil prices have been affecting supply chains. Coupled with the risks of escalated trade disputes, the upcoming US presidential elections and the lingering effects of tepid growth in 2019, a scenario of global recession looks very likely. According to Bank Negara Malaysia (BNM), GDP growth is expected to plummet, hovering between 2% and 0.5%, a drastic reduction from pre-Covid 19 forecasts. The overall impact of the outbreak on the Malaysian economy is unprecedented and it is challenging to predict the economic and financial eventualities with a high degree of precision. Currently, at MSM, operations are as usual as sugar is classified as an essential item. Our supply chains are still intact and export possibilities have remained unaffected with no hiccups at ports for export. We are facing an overall slow demand on the domestic front with 10% to 15% reduction; however this is mitigated by increased export enquiries. As we move onwards, management is continuously monitoring the situation and our strategies going ahead have considered mitigation actions to cushion the impact from likely expansion of the national Movement Control Order. In times of adversity, the resilient will seek new opportunities, and that’s exactly what we did. Since committed service to the domestic market no longer serves the Group’s best interest, MSM is now working on sustainable growth strategies that include rationalising our production capacity, downstream product diversification, research and development on food and non-food sugar-related products, initiating cost saving energy projects, and strengthening selling prices for better margins. Strategic transformation kicked off in the second half of 2019 with MSM Johor’s product diversification into Liquid Sugar and Premix for the export market. We have also developed a range of flavoured syrups that will be ready for launch soon. Following closely will be our exploration into the development of healthy sugar variants which are targeted for launch by the second quarter (Q2) of 2020. As a result of emerging trends among customers seeking healthier lifestyle choices, we see a growing market for lower calorie sugar variants domestically and are looking forward to achieving new milestones in the sugar industry with this venture. The current focus on diversification also encompasses potential greenfield investments or mergers and acquisitions (M&A) into food-based businesses to diversify the Group’s income stream and increase utilisation of MSM Johor. This diversification into adjacent segments in the food sector will be the main focus for MSM in 2020. Cost savings initiatives and improved efficiencies have also been prioritised. To reduce refining cost, a Biomass initiative in MSM Johor is set to be the key enabler in lowering fuel costs. It was approved by the Board in the fourth quarter (Q4) of 2019 and the installation of Phase 1 of the Biomass boiler is targeted to be completed in mid-2021 and Phase 2 by end-2021. Anchoring Strengths • 50 years of experience in sugar refining • 8 th largest stand-alone refiner in the world by capacity • Dominant market share in Malaysia – 61% • Strong brand position – “Gula Prai” • Technical and Business know- how in producing high grade refined sugar – ICUMSA 45 • Port-fronting refineries (MSM Prai at Penang Port and MSM Johor at Tanjung Langsat Port) Redefining Opportunities • Diversification into Non-Refined Sugar related business e.g. Confectionary, Condensed Milk, Flavoured Syrup • Consolidate production in MSM Johor to increase utilisation • Strategic Partnership – Equity participation and worldwide market expansion from MSM Johor • Biomass Boiler initiative to lower production cost • Value chain expansion via M&A or JV • New Product Development e.g. Liquid Sugar, Premix, Food (Sucralose, Stevia) • New Business Model e.g. Remove first layer Wholesalers from supply chain, OEM for Wholesale customers and cross border sales • Operational Excellence – optimise cost, efficiency and productivity • Disposal of non-core assets (Land Sales) MSM Malaysia Holdings Berhad | Annual Report 2019 22