Various mitigation strategies are employed to address challenges as identified below: Description/Impact Mitigation Measures Link to Capital Stakeholders Impacted Increase in Production Costs • NY11 prices trending higher with bullish outlook for FY2022 • Natural gas makes up 30% of refining cost and rising cost will pose upside risk • Rising freight cost further squeezes margin gains • De-risking NY11 by higher Industry and Export volume. To date, MSM has secured most of Wholesale requirement for FY2022 at 16.5 - 17.0 US cents per pound • Signed Third Party Access (TPA) agreement with Petronas for Pay-Per-Use (PPU) • Updating the government on the need to review the gazetted ceiling price vs higher production cost parity • To mitigate the impact, MSM started to hedge the rising energy risk via Brent link derivatives Warehouse Space Constraints • Limited internal storage. Full warehouses led to slowdown in production and increased operating cost per unit • MSM Johor is currently building an additional warehouse of 10,000 MT capacity • MSM is also exploring to establish a Northern Distribution Centre Imported Refined Sugar • Delay in discharging sugar resulted in Detention & Demurrage (D&D) costs • Increase re-packing rate to improve sales of imported sugar • Negotiation with counterparties to reduce D&D cost Financial Covenants • Compliance with the covenants imposed by lenders • Close monitoring for compliance on a quarterly basis • Continuous communication updating the lenders and negotiation of covenants KEY CHALLENGES & MITIGATIONS Manufactured Capital Intellectual Capital Natural Capital Human Capital Social & Relationship Capital Financial Capital Impact to Capital WHO WE ARE STATEMENT & DISCUSSION BY OUR LEADERS HOWWE OPERATE MSM Malaysia Holdings Berhad ANNUAL INTEGRATED REPORT 2021 74
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