MSM Malaysia Holdings Berhad Annual Report 2019

BUSINESS REVIEW Refinery Performance At a Glance Performance 2019 2018 2017 Production Volume (tonnes) 1,073,888 964,739 1,024,931 Raw Melted (tonnes) 1,101,708 1,015,699 1,075,234 Capacity Utilisation (%) 48 77 90 Cost Saving Initiatives (RM million) 9.3 8.58 15 Customer Complain Rate (%) 0.08 0.07 0.04 Maintaining Market Leadership Growing liberalisation in the sugar market led to lower sugar prices on the domestic front in 2019. With export volume also affected due to stiff competition, overall production of refined sugar was below target. Margins were also challenged by escalating production cost due to lower raw melts, underutilisation and depreciation of MSM Johor facility, increase in gas tariffs and increase in packing cost due to prevalence of demand for 1kg packets. Lower sugar demand and high refined sugar stocks led to lower than budgeted sugar production in 2019. This was however still an increase from the year before at 1.07 million tonnes compared to 964,739 tonnes in 2018. At MSM Prai, production dropped by 9.1% from 821,879 tonnes to 747,008 tonnes. At MSM Perlis, process throughput and yield were affected by low quality of raw sugar from Thailand and waning interest in 50kg packed sugar by wholesale customers, which led to an operational bottleneck. After beginning commercial production on 1 April 2019, MSM Johor achieved 48.5% or 184,098 tonnes of targeted 380,000 tonnes production for the year. This was expected as 2019 was basically a phase dedicated to ramp up the plant and it was also a familiarisation period for our operators. Efforts were dedicated towards fine tuning all process parameters, establishing the auto sequence operation and regulating machinery adjustments based on actual and higher loads. However, significant issues cropped up during this phase and further hampered production for the year. These included several breakdowns and a product contamination incident that required rectification and repairs to key equipment, as well as installation of an additional magnet and filter bags. In addition, the plant was challenged by high manpower turnover because of competitive demand from surrounding new factories, in particular the hyped Petronas RAPID project. As a result, capacity utilisation for MSM Johor was only 18% (KPI 38%) and refining costs increased to RM699.65 per tonnes (KPI RM405 per tonnes). Capacity utilisation for MSM Prai was close to target at 71.1% (KPI 75.36%) while MSM Perlis was higher at 71.4% (KPI 61%). However, refining costs were higher due to the lower production overall and increased fuel costs. Focus for 2020 MSM PRAI: • Reduce finance cost by implementing concept of “Just-in- Time” mechanism of raw sugar. • Compete more effectively by using raw sugar based on current market price. • Rent external refined sugar warehouses to reduce the congestion bottleneck at current refined sugar warehouses. • Sale of fine syrup to increase production volume. MSM JOHOR: • Sale of liquid sugar, fine syrup, premix and others products to increase sale volume. • Additional manpower for ramping up to maximum capacity of up to 3,000 tonnes/day. • Speed up the required knowledge and experience of new process operators. • Installation of two new biomass boilers to reduce fuel consumption and reduce future fuel costs. • Sugar bin chute modification to enable packing of P1S and IGM sugar instead of being used as remelt sugar. MSM PERLIS: • Produce based on customer demand. • Address current limitations in machinery capabilities. RAW SUGAR REFINING The heightened domestic sugar price war, dwindling demand globally as well as higher refining and finance cost made for a challenging environment for sugar refining in 2019. This impacted MSM’s overall production of refined sugar as well as profit margins for the year. MSM Malaysia Holdings Berhad | Annual Report 2019 34