MSM Malaysia Holdings Berhad Annual Report 2019

BUSINESS REVIEW Performance At a Glance Performance 2019 2018 2017 Procuring Raw Sugar (tonnes) 923,895 1,144,000 967,842 Physical Trading of White Sugar (tonnes) 88,500 136,497 132,270 Third Party Trading of White Sugar (tonnes) N/A 4,000 7,270 Paper Trading (USD) N/A $810,253 $1,290,856 Maintaining Market Leadership MSM managed the raw sugar volatility by continuing to hedge all sales back-to-back with the current raw sugar cost price (NY11). Raw sugar purchase was hedged to committed sales contracts to avoid lost opportunities in the volatile market. At the same time the team monitored the price movement closely. This strategy resulted in MSM achieving a raw sugar hedging price at USD 13.37 cents per pound which is lower than the budgeted figure at USD 14 cents per pound. To ensure that our sugar products are of the highest quality, MSM continued to carefully select raw sugar suppliers to ensure minimal compromise in the end product. ENSURING CONTINUOUS GROWTH The world sugar surplus number is expected to last until first half of 2020. For the second half 2020 the market is expected to turn to balance or even a deficit at 1.5 million tonnes with the view of non-performance of the Indian export programme. Therefore, moving ahead, MSM will continue to focus on strengthening our position in Southeast Asia, deploy and sustain export sales to the existing premium markets of Hong Kong, South Korea, Australia, New Zealand, Pakistan and Bangladesh for the first half of 2020. Subsequently, we will ready ourselves to fill possible deficit gaps in the second half of the year. ACHIEVING OPERATIONAL EXCELLENCE MSM’s in-house policy for raw sugar procurement was adhered to during the year to ensure every raw sugar price was suitably hedged to achieve a positive result for the Group. In general, the raw sugar price was hedged proportionately on a daily basis six months prior to vessel arrival. At the same time, MSM practiced the back-to-back strategy in order to make sure the cost of sales tallies with the current cost of raw sugar. For cost efficiency, MSM hedged its raw sugar purchase according to the committed sales contract in order to avoid any loss-making. Moving forward, MSM will regularly re-analyse the Group’s raw sugar hedging strategy and align it with the current commodity market scenario. The team will continue to closely monitor price movements and hedging risks will be proactively evaluated to ensure coverage against exposure. At the same time, we intend to sustain the transparency of our operational decision-making process with clear internal communication between all refineries and the MSM trading team. This will be key to our success in ensuring that optimum raw sugar stock is sustained at all times. Focus for 2020 Sustain optimum raw sugar stock by enhancing internal communication between all refineries and the trading team RAW SUGAR SOURCING & PROCUREMENT Sugar supply fell by an estimated six million tonnes, primarily due to lower than estimated yields from India, and also impacted by Brazil diverting about one per cent more of its sugarcane towards ethanol production. Production declines continue to be in the cards for all sugar producing nations except for the European Union (EU). However the sugar glut is expected to continue till mid-2020 and with demand on a growth trend, the challenge is to secure optimal pricing as well as manage costs of raw sugar freight and country premium costs. 33 MANAGEMENT DISCUSSION & ANALYSIS 03