MSM Malaysia Holdings Berhad Annual Report 2019

Operationally, in supply and distribution, a new Wholesale Business Model is in the pipeline to create better supply chain efficiencies and maximise MSM’s domestic sales margin. MSM aims to deliver more sugar directly to customers once it has a better grasp in the domestic sugar supply chain. In addition, plans are in place to optimise logistic cost for effective sugar handling via outsourced trucks based on refinery location (MSM Johor, MSM Prai – Sg Buloh). The addition of barge vessels into the logistics line-up is also being explored to leverage on the prime locations of our port-fronting refineries and to reduce dependence on commercial rail systems. Finally, but just as importantly, we intend to continue to improve raw sugar procurement using the “Just-In-Time” mechanism to enhance the Group’s cash flow and reduce storage costs. By undertaking these strategic initiatives, we expect to return to profit in 2020 and anticipate that the positive momentum from 2020 will translate into a sustainable and improved bottom line especially when the long-term initiatives, such as the Biomass Boiler and food diversification initiatives, churn the desired results. ACCELERATING FORWARD The grey clouds looming over the sugar industry in 2019 seemed to have shifted in early 2020. However, at the time of writing, the world is facing new crises, including the corona virus pandemic, global level trade and market disruptions, and plummeting oil prices. If the spread of the virus is contained sooner rather than later, in 2020, we should be back on track and ready to face the world. The NY11 raw sugar price was in an upward trajectory in Q4 2019 vis-à-vis a downtrend in Q4 2018 due in large part to forecasted reductions in the production by major raw sugar producing countries coupled with lower trade flows of white sugar from Thailand. In general, the global sugar stock balance is expected to be in deficit beginning from the second half of 2020 by around 1.96 million tonnes, mainly as Brazil is increasing ethanol production by the estimated ratio of 60:40. Further, market estimates lower Thailand’s production from 13.0 million tonnes in 2018/19 to 11.0 million tonnes for the 2019/20 season, due to inconsistent weather causing unpredictable droughts and floods. Despite the bullish indicators from Brazilian and Thai producers, the potential for excess sugar in the market from India’s export subsidy programme may deter the market from rallying above USD16 cents per pound. Since NY11 future terminals are currently favourable ranging between USD13 – 15 cents per pound, Management has been hedging on gradual basis for the Wholesale and Industry portion in 2020 between three to six months forward (up to Q2 of 2020). During the year, engagements with fund managers and institutional shareholders have been conducted regularly to clarify MSM’s position and explain the Group’s strategies moving forward. Engagements with lenders have also been carried out to seek their continuous support and to boost cash flow within this challenging interim. The progressive expansion of our production portfolio in the non-refined sugar segment promises to boost earnings and increase MSM Johor’s plant utilisation factor. Meanwhile, te anticipated entry of new healthy variants in Q2 of 2020 will contribute positively to the Group. MSM is also paving a strategic path forward and shaping new horizons of growth. Despite the challenges that lie ahead in this uncertain tale, we are confident that the seeds of this new strategy will take root and bud new possibilities for the Group. For that I am grateful for the steadfast support of our shareholders and stakeholders; as well as the continued commitment from our board, management and employees in enabling the new strategies to expand MSM’s future potential. Finaly, I take this opportunity to record the Group’s utmost appreciation to our Chairman Datuk Wira Azhar Abdul Hamid as he retires from the Board at end of May 2020. His strong principles and commitment to good governance has steered MSM well. Thank you for guiding us through this challenging period. YBHG DATO’ KHAIRIL ANUAR AZIZ Group Chief Executive Officer Supply/Consumption 2013-2020(F) Production Balance Consumption 150,000 160,000 170,000 180,000 190,000 200,000 210,000 220,000 -50,000 -40,000 -30,000 -20,000 -10,000 0 10,000 20,000 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20(F) 178,897 6,468 4,259 10,312 1,050 -6,395 -335 -1,957 180,402 171,377 177,846 191,774 183,813 181,870 172,429 176,143 177,772 178,181 181,462 182,763 183,827 23 MANAGEMENT DISCUSSION & ANALYSIS 03