MSM Malaysia Holdings Berhad Annual Report 2019

GROUP FINANCIAL REVIEW Margins were compressed mainly due to refined sugar surplus in the domestic market. This was a result of issuance of approved permits (AP) for sugar import which led to increased competition, and subsequently lowered average selling price (ASP). On the export front too, margins were thin as the industry recorded a global surplus. Though the NY#11 price of raw sugar in 2019 was trending low at USD12-14 cents per pound (cents/lbs), this did not translate into the Group’s bottom line as the Group was hampered by a previously signed raw sugar contract based on a higher price. FOREX volatility also weakened the ringgit (RM) against the US dollar (USD), further heightening MSM’s raw sugar cost. Operational cost increased as the Group had to contend with high interest on borrowings used to construct MSM Johor refinery; gas tariffs increases during the year (RM33.32 to RM33.46/ MMBtu from January 2019 and to RM35.20/MMBtu from July 2019); increased depreciation that set in with the commercialisation of MSM Johor; and low capacity utilisation rate given the reduction in production volume The main order of businesswithinthis competitive landscape wasto maintain market leadership. The Group ramped up marketing strategies and service delivery to maintain domestic market share at 61% amidstthe influx of competitors and actively explored new export market possibilities. 2019 was a testing year for the Group due to the convergence of several challenging factors. The Group registered a net loss of RM299.77 million as revenue dropped 9% from the previous year. The year’s loss in profit was further impacted by a loan modification and repercussion of RM90 million as a result of high price and premium from the previously locked-in raw sugar purchase. A provision of RM140.55 million for impairment of certain assets further strained the financial performance of the Group for the year. Higher production costs were also incurred in 2019 compared to FY 2018 due to lower capacity utilisation and depreciation borne by MSM Sugar Refinery (Johor) Sdn Bhd (MSM Johor), as it began commercial operations in April 2019. for the year due to excess supply in the market and lower export from low premium. Apart from that, the Group incurred massive impairment on assets in relation to the assessment carried out as part of MSM’s synergistic strategy to enhance operational excellence. FINANCIAL SCORECARDS For ease of comparisons and to reflect continuity in reporting framework, our FY 2019 financial scorecards are outlined below: Production Costs: In 2019, total production volume increased by 11% to 1,073,888 tonnes from 964,739 tonnes in 2018 due to the commercialisation of MSM Johor refinery. In spite of this, total cost of goods sold for 2019 decreased by 1.2% despite the heightened raw sugar cost and weakening ringgit while the average refining cost per tonne increased by 15% due to an upward revision of gas tariff from RM33.32 per MMBtu to RM35.20 per MMBtu. 31 MANAGEMENT DISCUSSION & ANALYSIS 03