MSM Malaysia Holdings Berhad Annual Report 2020

GROUP FINANCIAL REVIEW By staying on course of hedging strategies, MSM gained a foothold of assurance within an uncertain environment. FOREX movements were volatile with the value of ringgit (RM) against the US dollar (USD) peaking in May and then trading lower till December. The NY#11 price of raw sugar in 2020 was generally favourable to the Group as prices weakened in March when consumption slumped due to the sudden global lock down and shutting down of food manufacturing industries during the first major wave of the COVID-19 pandemic. Then prices stabilised between USD11.00 – 15.00 cents per pound as a result of high production in India and Brazil which balanced out the shortage caused by Thailand’s extreme drought. MSM managed to hedge its raw sugar price at USD12.70 cents per pound and trade on USD/MYR at 4.196. Other strategies towards maximising profitability for the year include the discontinuation of non-strategic operations, optimisation of the utilisation factor between our refineries, focus on growth in export sales, expansion into new value-added products, and the successful continuation of our raw sugar procurement agreement with a reputable sugar trader through the Just-In-Time method. As a result, year-on-year loss after tax (LAT) narrowed by 76% from a LAT of RM299.78 million in 2019 to a smaller LAT of RM71.23 million in 2020. The losses, however, were mainly due to one-off impairment of the bearer plant on plantation land in Chuping, Perlis. Excluding discontinuing operations, MSM registered a profit before tax (PBT) of RM35.85 million, a 112% improvement from 2019. The improvements were mainly contributed from our key strategic initiative to streamline our operations by ceasing the sugar refinery operations in MSM Perlis and consolidating production volume between MSM Prai and MSM Johor to optimise overall refining costs. FINANCIAL SCORECARDS For ease of comparisons and to reflect continuity in reporting framework, our FY2020 financial scorecards are outlined below: Production Costs: Total cost of goods sold for 2020 reduced by 1.24% due to lower raw sugar cost and the strengthening Ringgit. This was complemented by the reduction of average refining cost per tonne by 2.65% which was due to lower gas tariff which reduced from RM35.20 per MMBtu to RM33.99 per MMBtu; and the improved utilisation factor of our refineries as a result of the consolidation of production volume from MSM Perlis to MSM Prai and MSM Johor. Assets: Total assets of the Group reduced by 7.06% as a result of impairment of bearer plant assets. However, total cash and bank balance improved to RM195.29 million from RM170.54 million in 2019 mainly from better net cash generated from operation activities and lower inventory levels. FY2020 was a challenging year for the global sugar industry in general and MSM in particular as Malaysia implemented an official movement control order (MCO) from March 2020 causing a major shut down of the local food and beverage industry for several months. Export supply chains were also disrupted, leading to the lowest point of the global sugar industry cycle. Thus financial performancewas pressured and impacted by the prolonged lower sugar consumption in the domestic wholesale segment and industry segment. Despite these pandemic- related impacts, MSM stayed steadfastly on track of strategies to record a revenue increase of 9% from RM2.01 billion to RM2.18 billion mainly contributed from the overall growth of export sales. MSM MALAYSIA HOLDINGS BERHAD Annual Repor t 2020 34 CHAIRMAN’S STATEMENT DELIVERING VALUE MSM OVERVIEW MANAGEMENT DISCUSSION & ANALYSIS GROUP FINANCIAL REPORT