A N N U A L R E P O R T 2 0 1 9 Balance Attaining
This year’s cover depicts MSM Malaysia Holdings Berhad’s diverse product offerings within a balanced layout to reflect the Group’s commitment to seek new market opportunities to optimise on its current expanded production capabilities. Challenged by increased competition due to the liberalisation of the country’s sugar industry and increased market supply conditions, MSM is steadfastly realising its global and domestic expansion plans and activating key strategies towards achieving a fortified and more balanced value chain. These include diversifying into newproduct lines and emerging a more strategic downstream presence through merger and acquisition explorations. MSM’s Board of Directors and Senior Management, has approved the contents of this Annual Report, guided by the requirements of the MCCG 2017, Companies Act 2016, the Main Market Listing Requirements of Bursa Malaysia and Sustainability Guidelines. The financial report and statements have been audited by PricewaterhouseCoopers PLT and is approved free of qualifications. The Board acknowledges responsibility for ensuring the integrity recommendations of the annual report, following recommendation by the Audit Committee, responsible for oversight of the integrated annual report. MSM’s integrated reporting process is intended to move beyond compliance to generate meaningful and inclusive discourse with our stakeholders with the aim of informing our strategy and building trust. We value feedback and welcome questions or comments on our reports. To share feedback, please contact our Investor Relations unit at +603 2181 5018 or e-mail us at investor.relations@msmsugar.com. Certain statements in this report regarding MSM’s operations may constitute forward-looking statements. These statements can be identified by key words such as “believes”, “estimates”, “anticipates”, “expects”, “intends”, “may”, “will”, “plans”, “outlook” and other words of similar meaning in connection with a discussion of future operating or financial performance.These statements relate to the plans, objectives, goals, strategies, future operations and performance of MSM. Actual results and outcomes may differ materially from those projected in any forward looking statements due to various events, risks, uncertainties and other factors. We neither intend to nor assume any obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise. The aim of MSM’s Annual Report is to provide a transparent, balanced and accessible narrative and analysis of our strategy, performance and prospects in relation to material, financial, economic, social, environmental and governance matters. Our reporting encompasses all material developments concerning MSM up until the approval of the annual financial statements. It focuses on MSM as a Group and encompasses our operating subsidiaries, i.e. MSM Prai Berhad, MSM Perlis Sdn Bhd, MSM Logistics Sdn Bhd and MSM Sugar Refinery (Johor) Sdn Bhd. Financial and non-financial data from our subsidiaries are consolidated for ease of reference. We have also included pertinent information that should assist stakeholders in making an informed assessment of MSM and how we are able to strategically create and sustain long-term stakeholder value. The material matters and developments which are covered in the report were determined by taking into account the following considerations: • Quantitative and qualitative criteria and factors in relation to MSM’s business and operations • Matters critical to achieving our strategic objectives and creating longterm value for our stakeholders • Matters covered in reports submitted to the Board of Directors for discussion or approval • Material risks identified by our risk management process • Key stakeholders’ interests All material matters and developments thereof for the reporting year under review can be found within Shaping Material Matters on page 10 and Management Discussion & Analysis (MD&A) from page 21 onwards. ABOUT THIS REPORT This report has been compiled in accordance with the concepts, guiding principles and content elements contained in the IIRC framework. This framework employs a reporting approach to create short, medium and long-term value as well as the connectivity and interdependencies of the six capitals, namely human, natural, manufactured, financial, intellectual, and social & relationship capital. The report provides a complete and balanced review of MSM and its subsidiaries on the Economic, Environmental and Social (EES) performance within the context of its strategy, risks and opportunities for the period of 1 January 2019 to 31 December 2019. This report adheres to the guidelines laid down within Bursa Malaysia Securities Berhad’s (Bursa Malaysia) Main Market Listing Requirements and Sustainability Guidelines. It also complies with requirements for EES reporting as outlined under the Global Reporting Initiative (GRI). Compliance with Malaysian legal requirements under the Companies Act 2016 and Malaysian Code on Corporate Governance 2017 (MCCG 2017) has also been adhered to. SCOPE AND BOUNDARIES ASSURANCE AND APPROVAL FEEDBACK FORWARD LOOKING STATEMENTS DETERMINING MATERIALITY
A key element of our integrated report is our business model which explains how we leverage our six capitals (as categorised by the IIRC) to create value for our stakeholders. Our six identified capitals are the various relationships and resources we depend on in order to develop, deliver and sustain growth of our business. Our business strategies revolve around maximising positive outcomes within these capitals, being mindful of the trade-offs between capitals, and mitigating negative impacts. Scan this QR code to view the MSM Annual Report 2019 microsite Raw sugar and fuel are the natural capitals of our industry. We depend on reliable access to these to maintain smooth operations. Price of raw sugar has a great impact on our profit margin as we have no direct control on pricing. We build trusted relationships with raw sugar suppliers and exercise hedging strategies to optimise on better deals. We are mindful of our impact to the environment and are committed towards conducting business in an environmentally responsible and sustainable manner. We are guided by Environmental Management System by which we continue to record improvements in waste and greenhouse gases emissions as well as water and energy consumption through our investments in green technologies within our Penang and Johor plants. We were established to ensure national self-sufficiency in sugar, and have since become the flagbearers of Malaysia’s sugar industry. As such, our social and relationship capital are the relationships of trust we build with our stakeholders – our employees, customers, suppliers, investors, communities, regulators, the government, industry partners and the media. We contribute to national and community development through the payment of taxes and zakat, as well as create employment opportunities by maintaining profitable operations. Our skilled employees and experienced management team are our greatest assets.We have 1,249 employees which are considered skilled industry experts who provide us a competitive edge in helping us maintain market leadership. Via training and skill enhancement initiatives such as Staff Mobility Programme, we seek to maintain a good quality talent pool within the Group. We produce the highest quality sugar with assured certifications. We also ensure availability of refined sugar through effective stock management. With our recent opening of the MSM Sugar Refinery (Johor) Sdn Bhd plant, we have increased production capacity to 2.25 million tonnes per annum with potential to deliver up to 1.25 million tonnes of refined sugar. Our financial capital enables us to provide salaries for our employees, dividends for our shareholders and investment in communities while driving sustainable growth through reinvestments to maintain and grow our business. Our investors’ funds are wisely invested to increase our operational efficiency as well as to initialise operations in our plants. Our strong brand, expertise, capabilities and established technologies steer our business success. We have over 50 years of industry expertise and our Gula Prai brand currently ranks as the No. 1 selling sugar brand in Malaysia. These have ensured our domestic market share dominance of 61%. Our production is anchored on quality certified management processes and systems. MANUFACTURED CAPITAL FINANCIAL CAPITAL NATURAL CAPITAL INTELLECTUAL CAPITAL SOCIAL & RELATIONSHIP CAPITAL HUMAN CAPITAL OUR 6 CAPITALS 1 4 2 5 3 6
2MSM OVERVIEW 14 Corporate Profile • Vision, Mission and Values • Key Highlights 15 Corporate Milestones 16 Corporate Structure 17 Organisational Structure 18 Corporate Information 19 Key Moments 20 Awards & Certifications 1 CONTENT HIGHLIGHTS pg. 4 Chairman’s Statement pg. 21 Group Chief Executive Officer Review pg. 48 Sustainability Report pg. 63 Profile of Directors About This Report 4 Chairman’s Statement DELIVERING VALUE 8 Six Capitals 9 Strategic Performance 10 Shaping Material Matters 12 Linking the Capitals & Material Matters to Strategy, Sustainability & Risks THIS REPORT INSIDE
3 5 8 4 6 9 7 MANAGEMENT DISCUSSION & ANALYSIS 21 Strategic Review 21 Group Chief Executive Officer Review 24 MSM Strategy 26 Key Risks & Mitigations 28 Stakeholders Engagement 29 Global Presence 30 Market Landscape 31 GROUP FINANCIAL REVIEW 33 BUSINESS Review 33 Raw Sugar Sourcing & Procurement 34 Raw Sugar Refining 36 Sales & Marketing 38 Supply Chain Management & Distribution 40 Plantation GROUP FINANCIAL REPORT 41 5-Year Financial Summary 42 Statement of Financial Position 43 Quarterly Financial Performance 43 Statement of Value Added 44 Segmental Analysis 45 Sales Analysis 46 Investor Relations 47 Financial Calendar SUSTAINABILITY REPORT 48 Our Sweet EES Journey 49 Economic Sustainability 51 Environmental Sustainability 54 Social Sustainability EFFECTIVE LEADERSHIP 63 Profile of Directors 66 Profile of Company Secretary 67 Profile of Senior Management CORPORATE GOVERNANCE 70 Corporate Governance Overview Statement 83 Audit Committee Report 89 Nomination and Remuneration Committee Report 95 Additional Compliance Information 96 Corporate Integrity 98 Statement on Risk Management and Internal Control 103 Internal Policies, Procedures and Guidelines 104 Business Continuity Management FINANCIAL STATEMENTS 105 Statement on Directors’ Responsibilities 106 Directors’ Report 110 Statement by Directors 110 Statutory Declaration 111 Independent Auditors’ Report 116 Statements of Comprehensive Income 118 Statements of Financial Position 120 Consolidated Statement of Changes in Equity 121 Company Statement of Changes in Equity 122 Statements of Cash Flows 127 Notes to the Financial Statements ADDITIONAL INFORMATION 225 Analysis of Shareholdings 228 Summary of Properties Owned 231 Summary of Properties Leased 232 List of Top 10 Properties Owned 233 Group Corporate Directory
CHAIRMAN’SSTATEMENT Dear Valued Stakeholders, MSM Malaysia Holdings Berhad (MSM) is today the eighth largest sugar refiner in the world by capacity, with the commercialisation of MSM Sugar Refinery (Johor) Sdn Bhd (MSM Johor) in April 2019. Whilst this may have been an advantageous situation under different circumstances, the truth of the matter is, in the prevailing market and with persistent national and industry-related challenges, this expanded capacity has not as yet delivered positive value to the Group and its stakeholders. The main reasons for this are, the continued sugar surplus in the global market which has adversely affected prices, and intensified competition within the domestic market as a result of the issuance of several approved import permits (APs) to non-refiners. Keeping the situation in mind, your Board and Management are focused on Attaining Balance to strengthen MSM’s position as market leader and to build future sustainability. In this regard, key progress was made in redirecting investments and efforts towards opportunities in the export market. Also, new controls have been put in place to ensure that speculative decision-making and previous errors of judgement will not be repeated. 2019 MARKET CHALLENGES As predicted, the issue of new APs and the liberalisation of the local market has resulted in stiff competition, taking its toll on MSM’s financial performance in 2019. Revenue dropped 9% to RM2 billion in Financial Year (FY) 2019 from RM2.2 billion in FY 2018, while the Group registered a net loss of RM299.77 million in FY 2019, compared to a profit of RM35.66 million a year ago. Both the nation’s sugar players experienced overcapacity in production levels as a result of new entrants flooding the local market. As running plants at an optimum level would have led to a stock build-up and an unnecessary tie-up of working capital, MSM focused on enhancing its business platform by seeking a strategic balance in the export market. This will also help to secure a more sustainable future for the Group going ahead. SHAPING NEW STRENGTHS As a result of the new operating challenges, the Group was able to reshape its thinking and approach, thus resulting in new achievements. In the second half of 2019, MSM Johor succeeded in the development of value-added products such as premix and liquid sugar. This extends the Group’s capabilities, increases product offerings and opens up new markets for growth. REVENUE RM2 billion MSM Malaysia Holdings Berhad | Annual Report 2019 4
As a result of the new operating challenges, the Group was able to reshape its thinking and approach, thus resulting in new achievements. In the second half of 2019, MSM Johor succeeded in the development of value-added products such as Premix and Liquid Sugar. This extends the Group’s capabilities, increases product offerings and opens up new markets for growth. During the year, MSM also restructured its borrowings with lenders to more efficiently manage its cash flow. Furthermore, planned measures to streamline operations and strengthen its balance sheet were implemented. As a result, non-core assets or plantation land was monetised to pare down debt. For the year ahead, the Board’s strategic direction for the Group continues to centre around the implementation of transformation plans through diversification into downstream segments. These include potential greenfield investments or mergers and acquisitions in food based businesses to further diversify the Group’s income stream and increase utilisation of MSM Johor’s capacity. These strategic initiatives are expected to gradually bear fruit from 2020 onwards. MANAGING RISKS AND ENSURING BUSINESS CONTINUITY At Board level, focus for the year was directed on strengthening Risk Management and Business Continuity Good governance continues to be a priority and towards this end, MSM has leveraged on governance activities organised by our parent company FGV Holdings Berhad, which allowed us to consolidate resources and limit the overlapping of efforts. The Group’s commitment to good corporate governance for the year culminated in the achievement of the Transparency and Integrity at FGV Group level. For the year 2020, MSM targets to pursue the corporate measures activities to comply with the MACC Section 17A. COMMITMENT TO OUR STAKEHOLDERS In order to protect the stability of the nation’s sugar supply, MSM continued to engage with authorities, to highlight the potential negative impacts of any sugar market liberalisation. These include potentially compromising our nation’s self-sustainability levels and strengths, especially since other countries continue to protect their respective sugar industries. Management (BCM). We sought to improve Risk Management policies, tools and frameworks, taking into account concerns and views of various stakeholders. Various mitigation steps have been taken depending on the type of risks registered in the MSM Risk Register. For example: i) Risk of default due to tight cash flow is mitigated by an agreement to step up principal repayment and debt restructuring. ii) Risk of excess supply of refined sugar is mitigated by revising and improving the Marketing Plan and Strategy. To this end, the sales team is aggressively working on penetrating new markets, optimising product segmentation and at the same time focusing on serving the existing market better. iii) Risk of unfavourable raw sugar price movement continues to be mitigated by constant monitoring, hedging and responsive purchase at achievable profit target price points. 5
CHAIRMAN’S STATEMENT The Board is aware, that if this situation is not managed well, MSM would have to implement alternative measures to safeguard the interests of our stakeholders, without taking into account national interests or Malaysian consumer interests. This will be a difficult decision to make, especially given MSM’s history as Malaysia’s first sugar refiner, one which has grown as part of the nation’s economic fabric since 1964. Meanwhile, we have been actively engaging with fund managers, institutional shareholders and lenders to explain the change in the Group’s focus and to present our strategies moving forward. We also actively engaged our customers to understand better how we could meet their needs and help with their challenges, and to improve service levels. As we enter new markets, we are also forging new relationships with different target segments to understand niche product requirements better. LOOKING AHEAD At the time of writing, the coronavirus (COVID-19) pandemic has taken its toll on global and domestic economy, has reached unprecedented heights. Many industries have been negatively impacted, particularly the travel and hospitality. The prolonged impact is yet to be determined, however, timely fiscal measures by the government, and the banking industry have been unleashed to help mitigate impact to the livelihoods going forward. As MSM is a recognised producer of an essential item, impact on our refineries have been minimal at this stage. Trade remains unaffected and we have an ample stock at hand to tide over any disruptions to the supply chain. Going forward, MSM’s first priorities are profitability and returning value to shareholders which we expect to achieve by optimising the expanded capacity we now have at hand with MSM Johor. If our traditional domestic market continues to present operating challenges, we must shift our focus towards the strategic optimisation of our resources to new markets and market segments. We are already working on healthy sweetener products in line with the change in consumer demand. That gives us a broader platform to enhance MSM’s business position. Some of these new products are expected to be launched in the second quarter of 2020. On the operational front, as growth opportunities in the near future are primarily linked to MSM Johor’s capacity for expansion of value added products, the intention moving ahead is to rationalise Group-wide capacity through consolidation of production in MSM Johor. ACKNOWLEDGEMENTS We have heard it said often enough that adversity offers us the opportunity to become more competitive and to prioritise differently. Over the last couple of years, that is exactly what you have seen the people in MSM do – they have reassessed the situation and recalibrated their objectives. While creating and providing value to all stakeholders will always be our main goal, the course we have set to reach these goals is now different. Our capacity to deliver will rest on the commitment and dedication of our people. They are the drivers of the turnaround as MSM responds to new market opportunities. Onthe operational front, as growth opportunities in the near future are primarily linked to MSM Johor’s capacity for expansion of value added products, the intention moving ahead is to rationalise Group-wide capacity through consolidation of production in MSM Johor. MSM Malaysia Holdings Berhad | Annual Report 2019 6
On behalf of the Board of Directors, I wish to thank our management team and to commend them for striving towards operational excellence at all production levels, even as the operating environment became tougher. I also take this opportunity to thank my fellow directors for their insights, guidance and support through this exigent year. We offer our thanks and well-wishes to Dato’ Ab. Ghani Mohd Ali (NonIndependent Non-Executive Director) for his dedicated service since 2018. Encik Anuar Malek (Non-Independent Non-Executive Director) has replaced him since 13 August 2019 as the new representative from our shareholder; Koperasi Permodalan Felda (KPF). We extend a warm farewell and our appreciation to Independent NonExecutive Directors Dato’ Hajjah Rosni Haji Zahari and Dato’ Zainal Haji Ismail as well, as they completed their term of service on 25 March 2020. We also acknowledge all our performing employees for their commitment and contribution throughout the financial year. As announced earlier, I will be retiring from the Board at the end of May 2020. During my tenure, I was privileged to work with a good team of people, along with my fellow board members, to steer them in a new direction that will deliver sustainable results for MSM. I have always believed that when change is the constant, we cannot afford to stand still; the good people at MSM are certainly not standing still. Finally, I would like to thank all our shareholders, customers, business partners and all our other stakeholders, for their confidence and continued support. MSM is in on a stronger footing because of all of you. Thank you. DATUK WIRA AZHAR ABDUL HAMID Chairman Non-Independent Non-Executive Director 7
SIXCAPITALS Inputs outputs highlights FINANCIAL CAPITAL • Deposit, cash and bank balance • Equity capital • Total assets • Policy incentives • Operating costs • Production costs • Liability basket • RM2.0 billion revenue • RM3.0billion total assets • (18.1)% return on equity • (42.64) sen earnings per share • RM2.36 assets per share • 9% decrease in revenue • 18% decrease in total assets MANUFACTURED CAPITAL • Refineries • Warehouses/Distribution Centres • National sugar security • Property, plant, equipment and infrastructure efficiencies • 1,073,888 tonnes annual production output • Wholesale sales volume of 448,347 tonnes • Industry sales volume of 415,602 tonnes • Export sales volume of 83,341 tonnes • 93% achievement rate for on time delivery • 48% capacity utilisation INTELLECTUAL CAPITAL • IT infrastructure • Software licenses • Processes • Brand value • Product certifications and compliance • RM0.6million IT CAPEX expenses • 61%domestic market share • Brand value of RM627.5 million NATURAL CAPITAL • Water Consumption • Energy Consumption • Greenhouse Gas (GHG) Emissions • 3,341,358 m3 of water consumed • 47,788,573 kWh of electricity used • 4,858,897mmBTU of natural gas usage • 360,800 litres of diesel consumed • 33,165.27 tonnes of CO 2 emissions from electricity consumption • Reduce CO 2 from air travel by 30.4% • Reduce CO 2 from electricity consumption by 35.5% • Electrical consumption decreased by 31.2% HUMAN CAPITAL • Number of Employees • Job Opportunities • Women in Management • Employee Training • Lost Time Injury • Incident Rate • 1,249 employees • 69:16male to female ratio at manager level • 10,311.6 training hours • 29.46% incident rate • ZERO fatal accidents • 47%decrease in employee’s training hours SOCIAL & RELATIONSHIP CAPITAL • Employee volunteer hours • Spending on CSR Programmes • 2,000 volunteer hours • RM48,989.44was spent for CSR Programme MSM Malaysia Holdings Berhad | Annual Report 2019 8
STRATEGICPERFORMANCE SOLIDIFY GOOD GOVERNANCE & RISK EXPOSURE Increased production yield and utilisation by producing value-added sugar products e.g. Liquid Sugar and Premix Achieved commercialisation of MSM Johor in April 2019 and MSM is now ranked No 8 largest sugar refiner in the World by capacity Increased total production by 11% On-going effort on divestment of MSM’s non-core business On-going research and development (R&D) effort on food and non-food sugar related products e.g. Low-Calorie Sucralose, Mudcake and Molasses for fertiliser Capacity utilisation decreased by 29.2% following low capacity utilisation rate in MSM Johor Monetising non-core assets – Sale or lease of plantation land in Chuping, Perlis Ended the old-contracted and high-priced freight in 2019 Procuring raw sugar and hedging FOREX as per the Group’s policy allowable time frame Implementing measures to reduce refining cost e.g. Embark on Biomass effective from mid-2021 onwards Restructuring borrowings with the lenders to provide breather to the Group’s cash flow Revenue decreased by 9% Placed No 38 and 60 in the List of Top 100 Companies for CG Disclosure and Overall CG & Performance in the MSWG-ASEAN Corporate Governance Awards Seven new and revised policies were established and subsequently endorsed by BGRMC and approved by the Board in 2019 The content of the Risk Management policies, tools and framework were improved by having discussion with all the stakeholders to assess whether all the points raised were prevalent and applicable Reviewing the Business Recovery Strategy of relevant departments or divisions to ensure validity of the current Business Continuity Plan (BCP) Constantly monitoring world sugar price and only purchasing at desirable and achievable profit target to mitigate risk on unfavourable raw sugar price movement Reduced CO 2 emissions from air travel by 30.4% Decreased electricity consumption by 31.2% Reduced CO 2 emissions from electricity by 35.5% Maintaining 2,000 volunteer hours since 2013 for community programme Water usage increased by 14.9% Female representation at the management level reduced to a ratio of 69:16 STRENGHTHEN CORE OPERATIONS IMPROVE SUSTAINABLE VALUES STRONG FINANCIAL MANAGEMENT Hint: Key On-Going Non-performance 9 DELIVERING VALUE 01
SHAPINGMATERIAL MATTERS MACROECONOMIC CONDITIONS • Exposed towards fluctuations in commodity and raw sugar price • Trading risks involved in futures market • Adverse FOREX movements • Raw sugar price influenced by global climate, economy and political factors • Legal and regulatory changes • Trade wars and protectionist policies • Investors, Analysts & Media • Customers & Industry Players • Suppliers/ Business Partners • Employees • Work closely with regulators and stakeholders to protect the interests of shareholders, customers and partners. • Integrating business model, hedging mechanisms and value chain to diversify earnings risk from the volatility of commodity prices, additional restrictions imposed by other countries and adverse FOREX movements. • Produce better margins via greater focus on high value markets and niche products. • Proactive monitoring of changes in macroeconomic landscape and development of adaptable response mechanisms. • Market monitoring for global sugar trend and outlook hence minimise the exposure of the volatility by strategic hedging. • Practice back-to-back hedging for industry and export sales and hedging based on budgeted target profit level for local wholesales. • Enhance robust governance framework to manage overall risk exposure. Refer to pages 24, 26, 30, 33 OPERATIONAL PERFORMANCE • Optimise asset utilisation • Unplanned factory shutdown time and production downtime • Operate in a scalable and sustainable manner • Consistent supply and product quality • Improve manufacturing capability • Efficient production and maintenance practices • Investors, Analysts & Media • Customers & Industry Players • Suppliers/ Business Partners • Employees • Communities • Dedicated performance monitoring units to monitor operational performance. • Focus on innovation to improve productivity, optimise efficiency of processes and enhance quality of products and services. • Leverage on MSM Johor refinery for volume growth and increase export sales. • Enhance capacity planning versus demand growth. • Continuous monitoring of critical and non-critical equipment upgrades/replacements. • Ensure cost management programme continues with target to become low-cost producer. Refer to pages 24, 26, 36, 38-39 FINANCIAL MANAGEMENT • Sustained financial, dividend and share performance • Responsible investment in new business strategy, mergers and acquisition • Strengthening risk and governance policies to ensure financial and trading frameworks are honoured, protected and inculcated as a check and balance mechanism • Optimising our funding strategy and gearing ratio • Prudent capital expenditure (CAPEX) allocation • Maintain healthy cash balance • Investors, Analysts & Media • Customers & Industry Players • Suppliers/ Business Partners • Employees • Communities • Disciplined approach in capital allocation and cash flow management. • Optimise our capital structure to ensure competitive cost of capital which includes balancing debt and equity levels by putting in place appropriate dividend and financing policies. • Maintain strong financial position for ready access to capital market. • Diversify revenue streams. • Expand presence in sugar value chain on a value enhancement opportunity in export and upstream. • Ensure cost savings and operational improvements focusing on freight cost, external warehouse for refined sugar, average group refining cost and finance cost. Refer to pages 24, 26, 31-32, 40, 41-45, 105224 MATERIAL MATTERS AFFECTED STAKEHOLDERS MITIGATION STRATEGY FOR MORE INFORMATION MSM Malaysia Holdings Berhad | Annual Report 2019 10
MANAGING REGULATORS • Regulated under the Price Control and Anti-Profiteering Act 2011 • Ensure compliance and effective applications of regulations • Protects and enacts the domestic sugar policies and local players • Government, Regulatory Agencies & Statutory Bodies • Customers & Industry Players • Suppliers/ Business Partners • Communities • Enhance policies, procedures and risk practices in line with regulatory standards. • Close monitoring of industry and regulatory developments worldwide. • Active engagement with related agencies to collaborate on APs, compliance, smuggling, safety and environmental matters. Refer to pages 26, 98-102, 103 TALENT DEVELOPMENT • Availability of skilled and adequate manpower in the sugar industry • Increase in minimum wage policies • Succession management plan • Long learning cycle for technical entry level employees • Investors, Analysts & Media • Employees • Communities • Supervisory and technical training programmes for executives & non-executives, i.e. Graduate Management Trainee (GMT) programme and Staff Mobilisation programme. • Mechanisation and productivity enhancement initiatives to reduce dependence on labour. • Robust development and training programmes to fill capability gaps in sustaining long-term performance. • Invest in learning and training development. Refer to pages 26, 54-58 SOCIAL & ENVIRONMENTAL EMPOWERMENT • Reputational risks concerning issues of integrating Economic, Environmental and Social (EES) and UN-SDGs standards within our operations and throughout our supply chain • Government, Regulatory Agencies & Statutory Bodies • Investors, Analysts & Media • Customers & Industry Players • Suppliers/ Business Partners • Employees • Communities • Flawlessly implement EES sustainability standards in accordance to UN-SDG’s. • Ensure local and international product certifications and compliance, in line with stakeholder expectations. • Manage supply chain risks by fostering traceability, sustainability and engagement with suppliers. • Engagement and inclusion of stakeholders with collaborations, e.g. volunteerism etc • Foster socio-economic development in Penang, Perlis and Johor. Refer to pages 49-53 OCCUPATIONAL SAFETY & HEALTH (OSH) • Adhering to safety and health industry standards to reduce fatalities, injuries, accidents and illnesses of our employees, their families, contractors and customers • Government, Regulatory Agencies & Statutory Bodies • Investors, Analysts & Media • Customers & Industry Players • Suppliers/ Business Partners • Employees • Communities • Excellent implementation of Occupational Safety and Health (OSH) Systems and Standards. • Continuous improvement of our OSH systems with a goal of achieving Zero Harm and minimal Lost Time Injury (LTI). • Yearly testing of Business Continuity Plan (BCP) and development of Crisis Communications Plan (CCP) to ensure business continuity. • Increase awareness and accountability by implementing and monitoring Health, Safety and Environment (HSE) campaigns and activities. • Develop a proactive HSE culture by ensuring continuous reporting cycle via bi-monthly HSE meetings. • Implement mandatory safety briefings. Refer to pages 60-62 MATERIAL MATTERS AFFECTED STAKEHOLDERS MITIGATION STRATEGY FOR MORE INFORMATION 11 DELIVERING VALUE 01
LINKING THE CAPITALS & MATERIAL MATTERS TO STRATEGY, SUSTAINABILITY & RISKS STRATEGICTHRUST IMPACTED CAPITALS MATERIAL MATTERS KEY RISKS Strengthen Core Operations Rallying our call to focus on growing the core business and utilising our key assets efficiently for a sustainable future. Manufactured Capital Intellectual Capital Natural Capital • Operational Performance • Occupational Safety and Health (OSH) Performance • Excess refinery capacity • Increase tariff rate of energy and utilities Strong Financial Management To ensure our financial engine grows sustainably against a volatile environment through prudent cost management and value enhancing investment benefitting shareholders and stakeholders. Financial Capital Manufactured Capital • Macroeconomic Conditions • Financial Management • Poor cash reserves • Volatility in foreign exchange (FOREX) • Unfavourable raw sugar price movement Solidify Good Governance and Risk Exposure Together, good governance and risk management will form the bedrock in realising our business discipline in sustaining its positive momentum. Intellectual Capital Social & Relationship Capital • Macroeconomic Conditions • Managing Regulators • Issues of Approved Permits (AP) and market liberalisation Improve SustainableValues We infuse our thoughts and actions towards achieving excellence in sustainability by integrating sustainable practices in line with the Group’s vision, core values and SDGs. Social & Relationship Capital Human Capital • Social and Environmental Empowerment • Talent Development • Manpower turnover • Competency of production staff MSM Malaysia Holdings Berhad | Annual Report 2019 12
MITIGATING MEASURES 2019 PRIORITIES OUTCOMES PAGE REFERENCES • Management to revise and improve marketing plan and strategy • Increase sales activities • Aggressively seek to penetrate new markets/ segmentation/product • Minimise the unit energy cost of production by operating our factories at maximum production rate • Apply alternative energy efficiency such as biomass as new criteria in the selection of new equipment and processes when replacing machinery or adding new capacity • Expand production of valueadded products e.g. Liquid Sugar and Premix for export • Increase production yield and utilisation by producing value added sugar products • Move from Gas to Biomass Boiler • Reduce fuel cost up to 50% upon successful commissioning of Biomass Project in Dec 2021 Refer to pages 4, 9 ,14, 21-24, 34-35, 37 • Enter into new business ventures • Increase production volume and reduce refining cost • Increase sales price • Continuous monitoring on the strength of USD against Ringgit • Tenure to hedge is on quarterly basis with mandate obtained from Management • Continuous monitoring of the world sugar price • Purchase at desirable and achievable profit target • Monetise non-core asset (plantation land) to assist in paring down debts • Procure raw sugar and hedge FOREX as per the Group’s policy allowable time frame • Restructure borrowings with the lenders to provide breather to the Group’s cash flow • Engagement with fund managers and also with the institutional shareholders to clarify position and explain the moving forward strategies Refer to pages 5, 9, 23-25, 32, 40 • Provide assurance that there is optimum capacity of sugar stock for domestic market • Management has discussed with The Ministry of Domestic Trade & Consumer Affairs (KPDNHEP) on the effect of market liberalisation • Management to continuously create good rapport with local authorities • Continuous engagement with the government and relevant ministries to discuss issues related to the sugar industry e.g. sugar AP Refer to pages 4, 21, 28, 50 • To create a more conducive working environment • Offer better packages based on performance and productivity of refinery • Create opportunity for knowledge and experience development • Provide basic sugar process training • To engage well experienced staff from similar industries • Create Training Needs Analysis (TNA) • Continue with Graduate Management Trainee initiative • Focus on training and development initiative to strengthen core competencies Refer to page 57 13 DELIVERING VALUE 01
MALAYSIA’S MOST TRUSTED AND RELIABLE SUPPLIEROF QUALITY SUGAR Ranked NO 8 largest sugar refiner in the World by capacity NO 1 Selling Brand in Malaysia FINANCIAL Revenue RM2.0 billion Total Assets RM3.0 billion OPERATIONAL Annual Production Capacity 2.25 million tonnes Total Refineries 3 Production Output 1,073,888 tonnes Capacity Utilisation 48% TOP 5 EXPORT DESTINATIONS • South East Asia • South Korea • China • New Zealand • Australia Sense of Belonging Winning Attitude Integrity Innovation Teamwork Our products: • White refined sugar of various grain sizes • Soft brown sugar • Sugar premix • Liquid sugar • Molasses Our subsidiaries: • MSM Perlis Sdn Bhd • MSM Prai Berhad • MSM Sugar Refinery (Johor) Sdn Bhd • MSM Logistics Sdn Bhd • MSMTrading & Distribution Sdn Bhd • MSMTrading International DMCC Our customers: • Malaysian households • Beverage and confectionery companies • Hotels • Restaurants and food outlets • Distilleries and producers of ethanol, animal feed and yeast Incorporated on 10 March 2011, MSM has been listed on the Main Market of Bursa Malaysia and has a market capitalisation of RM618.6 million as at 31 December 2019. We are one of the biggest sugar refiners in Asia and we continue to be Malaysia’s leading refined sugar producer with 61% market share. We produce, market and sell refined sugar products under our flagship Gula Prai brand – “The No. 1 Best Selling Brand in Malaysia” since 1964. Today, Gula Prai carries an approximate brand value of RM627.5 million. Apart from household consumers, MSM sells to a wide range of customers in Malaysia and in other countries, directly and indirectly through traders, wholesalers and distributors. VISION To be a world class, cost efficient and high performance organisation with a sustainable business model and diverse portfolio in the food related business. MISSION We seek to enhance our values for the shareholders and optimise growth and achieve a sustainable, balanced and integrated economic, social and environmental performance by transforming our business model and reaping opportunities throughout the food value chain. CORE VALUES KEY HIGHLIGHTS MSM Malaysia Holdings Berhad | Annual Report 2019 14
CORPORATEMILESTONES 1971 Establishment of MSM Perlis Sdn Bhd (MSM Perlis) facility in Chuping, Perlis 1980 MSM Perlis commences import of raw sugar operations 1990 Establishment of MSM Logistics Sdn Bhd (MSM Logistics), the logistical arm of MSM Prai 1992 MSM Prai’s warehouse in Sungai Buloh commences operations with railway connectivity from MSM Prai in Penang 2016 • Launching of MSM Dubai • Ground breaking ceremony for MSM Johor 2018 MSM Johor commences refining operations in Tanjung Langsat, Johor 2019 MSM is ranked the eighth largest sugar refiner in the world by capacity, upon the commercialisation of MSM Johor in April 2019 2002 MSM Prai’s warehouse in Johor Bahru commences operations with railway connectivity from MSM Prai in Penang 2015 Establishment of MSM Sugar Refinery (Johor) Sdn Bhd (MSM Johor) and MSM Trading International DMCC (MSM Dubai) 2010 MSM Prai increases annual refining capacity to 960,000 tonnes. MSM Perlis increases annual refining capacity to 150,000 tonnes 2011 Incorporation of MSM Malaysia Holdings Berhad (MSM) and consequently the successful listing of MSM on the Main Market of Bursa Malaysia 2007 MSM Prai increases its annual refining capacity to 800,000 tonnes 2014 MSM Prai celebrated its 50th Anniversary Golden Jubilee 1959 Establishment of MSM Prai Berhad (MSM Prai) facility in Prai, Penang 1964 MSM Prai commences refining operations in Prai, Penang 1973 MSM Perlis commences milling and refining operations in Chuping, Perlis 1976 MSM Prai embarks on automation of production processes 15 MSM OVERVIEW 02
CORPORATESTRUCTURE AS AT 31 MARCH 2020 MSM PRAI BERHAD MSM PERLIS SDN BHD KOPERASI PERMODALAN FELDA MALAYSIA BERHAD EMPLOYEES PROVIDENT FUND BOARD FGV HOLDINGS BERHAD AMANAHRAYA TRUSTEE BERHAD OTHER SHAREHOLDERS MSM SUGAR REFINERY (JOHOR) SDN BHD MSM TRADING & DISTRIBUTION SDN BHD MSM TRADING INTERNATIONAL DMCC FGV SUGAR SDN BHD MSM LOGISTICS SDN BHD 100% 100% 15.27% 5.52% 10.97% 7.49% 20.72% 100% 100% 100% 40.03% 100% MSM Malaysia Holdings Berhad | Annual Report 2019 16
ORGANISATIONAL STRUCTURE AS AT 31 MARCH 2020 BOARD OF DIRECTORS MSM MALAYSIA HOLDINGS BERHAD BOARD GOVERNANCE & RISK MANAGEMENT COMMITTEE INVESTMENT COMMITTEE GOVERNANCE, POLICIES & RISKS MANAGEMENT SPECIAL OFFICER GROUP CHIEF OPERATING OFFICER (GCOO) CHIEF FINANCIAL OFFICER (CFO) CORPORATE SERVICES NOMINATION AND REMUNERATION COMMITTEE GROUP CHIEF EXECUTIVE OFFICER (GCEO) AUDIT COMMITTEE BUSINESS UNIT SUBSIDIARY OPERATIONS GROUP FINANCE OPERATIONS SALES & MARKETING EXPORT SALES RAW SUGAR PROCUREMENT Business & Product Development and Government Relations SUPPLY CHAIN MANAGEMENT MSM PRAI BERHAD MSM SUGAR REFINERY (JOHOR) SDN BHD MSM PERLIS SDN BHD MSM LOGISTICS SDN BHD GROUP ACCOUNTS, STATUTORY & MANAGEMENT REPORTING TREASURY COMMERCIAL & BUDGETING SHARED SERVICES INVESTOR RELATIONS CORPORATE STRATEGY GROUP HUMAN RESOURCE/ ADMIN LEGAL CORPORATE COMMUNICATION IT SYSTEMS PROCUREMENT CTO OFFICE: TECHNICALTEAM * disbanded on 20 November 2019 17 MSM OVERVIEW 02
CORPORATE INFORMATION DATUK WIRA AZHAR ABDUL HAMID Chairman/Non-Independent Non-Executive Director DATO’ ROSINI ABD SAMAD Independent Non-Executive Director DATUK LIM THEAN SHIANG Independent Non-Executive Director ANUAR MALEK Non-Independent Non-Executive Director (appointed with effect from 13 August 2019) DATO’ HARIS FADZILAH HASSAN Non-Independent Non-Executive Director (appointed with effect from 11 February 2019) DATO’ KHAIRIL ANUAR AZIZ Non-Independent Executive Director (resigned on 23 April 2019) DATO’ AB GHANI MOHD ALI Non-Independent Non-Executive Director (resigned on 13 August 2019) DATO’ ZAINAL HAJI ISMAIL Independent Non-Executive Director (cessation of office on 25 March 2020) DATO’ HAJJAH ROSNI HAJI ZAHARI Independent Non-Executive Director (cessation of office on 25 March 2020) BOARD OF DIRECTORS GROUP CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER AUDITORS STOCK EXCHANGE LISTING INVESTOR RELATIONS AND ENQUIRIES COMPANY SECRETARY REGISTERED OFFICE SHARE REGISTRAR Dato’ Khairil Anuar Aziz (appointed with effect from 23 April 2019) Ab Aziz Ismail (appointed with effect from 1 June 2019) Raja Faridah Raja Ahmad (resigned on 31 May 2019) Messrs. PricewaterhouseCoopers PLT Chartered Accountants Level 10, 1 Sentral Jalan Rakyat Kuala Lumpur Sentral 50706 Kuala Lumpur, Malaysia Tel : +603 2173 1188 Fax : +603 2173 1288 Website : www.pwc.com/my Main Market of Bursa Malaysia Securities Berhad Listed since 28 June 2011 Stock Code : 5202 Stock Name : MSM Level 44, Menara Felda Platinum Park No. 11 Persiaran KLCC 50088 Kuala Lumpur, Malaysia Tel : +603 2181 5018 Fax : +603 2181 5015 Website : www.msmsugar.com Email : investor.relations@ msmsugar.com Koo ShuangYen (MIA 7556) Level 21, Wisma FGV Jalan Raja Laut 50350 Kuala Lumpur Wilayah Persekutuan, Malaysia Tel : +603 2789 0000 Fax : +603 2789 0001 Boardroom Share Registrars Sdn Bhd 11th Floor, Menara Symphony No. 5, Jalan Prof. Khoo Kay Kim Seksyen 13 46200 Petaling Jaya Selangor, Malaysia Helpdesk: +603 7890 4700 Fax : +603 7890 4670 MSM Malaysia Holdings Berhad | Annual Report 2019 18
KEYMOMENTS Integrated Reporting: Leap to Sustainable Value Creation, Deloitte HQ @ KL MSM Annual General Meeting 2019, Menara Felda @ KL Contribution of water coolers to schools around Perlis by MSM Group in conjunction with the 76th birthday of Duli Yang Maha Mulia Tuanku Raja Perlis 42nd Anniversary Dinner Celebration – Persatuan Pemborong-Pemborong Beras Malaysia, The Kuala Lumpur & Selangor Chinese Assembly (KLSCAH) The National Annual Corporate Report Awards, Hotel Majestic @ KL MSM Raya Potluck 2019, MSM HQ, MSM Perlis, MSM Prai & MSM Johor 12 FEBRUARY 14 – 15 FEBRUARY 19 JUNE 8 OCTOBER 16 OCTOBER 25 APRIL 18 MARCH 28 JUNE – 3 JULY 3 SEPTEMBER 3 JULY 2 NOVEMBER 30 OCTOBER 28 NOVEMBER MSMWholesale Customer Appreciation Dinner, Sunway Hotel Seberang Jaya @ Penang MSM Perlis Townhall, Perlis Indonesia Ambassador Visit to MSM Johor, Johor FGV Board Visit to MSM Johor, Johor Analyst Visit to MSM Johor, Johor The Ninth Malaysia Investor Relations Awards, Sime Darby Convention Centre Analyst Visit to MSM Johor, Johor 19 MSM OVERVIEW 02
AWARDS &CERTIFICATIONS 1. Halal Jabatan Kemajuan Islam Malaysia (JAKIM) • To be recognised as Halal brand and to meet customer requirement • To identify non-halal hazards and provide a measure to control them 2. Kosher Kushrut London Beth Din (KLBD) • To be recognised as Kosher brand • To meet the requirement of Kosher recognised customers 3. ISO 9001 (Quality Management System) • To ensure the quality of the management system within the company and to meet customer requirement • To cultivate continuous improvement within the organisation 4. HACCP (Hazard Analysis and Critical Control Point) • To demonstrate company’s commitment to ensure the safety and quality of the product 5. ISO 22000 (Food Safety Management System) • To enhance food safety management system and product quality • To meet customer requirement 6. FSSC 22000 (Food Safety System Certification) • To meet growing customer requirements from GFSI recognised supplier and to ensure that the food safety hazards are able to be identified 7. Product Certification Scheme SIRIM • To demonstrate that the products are produced in compliance with national and international standards, eliminating the need of further testing by purchaser or consumer • To provide an independent assurance that products are manufactured under an effective system of testing, supervision and control which should result in improved production efficiency and reduced wastage and rejects 8. Occupational Health & Safety Advisory Services (OHSAS 18001) Occupational Health & Safety Management System (MS 1722) • To demonstrate company’s commitment to ensure the safety and quality of the workplace 9. GMP (Good Manufacturing Practice) • To establish a system for ensuring that the products are consistently produced according to a quality standard 10. Makanan Selamat Tanggungjawab Industri, MeSTI Ministry of Health (MOH) • Complimentary certificate (fast track) after getting HACCP 1. NATIONAL OCCUPATIONAL SAFETY & HEALTH EXCELLENCE AWARDS 2019 – DOSH • Benchmark in Safety & Health 2. FGV AWARDS NIGHT 2019 Path Finder Awards (Sugar Sector): • MSM Prai Berhad - Boiler Efficiency Improvement • MSM Prai Berhad - Optimising Co-Generator Operation • MSM Prai Berhad (Warehouse Sg Buloh) - Utilisation of ASRS • MSM Perlis Sdn Bhd - 1 kg CGS Rebundling • MSM Sugar Refinery (Johor) Sdn Bhd - Liquid Sugar Production 3. President’s FGV Award for Safety 2018/2019 – MSM Perlis i. Best Safety Project – 3rd Place ii. Best Safety & Health Committee – 4th Place MSM Malaysia Holdings Berhad | Annual Report 2019 20
GROUP CHIEF EXECUTIVE OFFICERREVIEW In 2019, the combination of an extended glut in global sugar supply, the weakening ringgit, locked-in high raw sugar contracts and unexpected domestic policy shifts resulting in new competition, caught MSM Malaysia Holdings Berhad (MSM or the Group) off balance leading to weaker exports, production and margins for the year. A net loss of RM299.77 million was posted for the year ended 31 December 2019, from a net profit of RM35.66 million the previous year. However, the tide has turned. Having stabilised cash flow and rationalised Group-wide capacity through consolidation of production in MSM Johor, we are currently turning setbacks into strongpoints for MSM to kick-start a turnaround journey. In the first half of the year MSM Refinery (Johor) Sdn Bhd (MSM Johor) kicked off to a smooth start despite the timing which was not providential. Our expanded production capacity created additional stress as sales orders reduced due to excess sugar supply from Thailand and India, and escalating competition domestically with the continued issuance of approved permits (AP) to import sugar. It also squeezed margins further, as MSM incurred 15% higher production cost due to lower capacity utilisation, start of depreciation, as well as the increase in gas tariffs in January and July 2019. On the sales front, total revenue of RM2 billion for the year fell 9% yearon-year, in tandem with lower average selling price (ASP) and the decline in export volumes throughout the year. The negative margins arising from lower white sugar premium reduced export volume by 24%, however, the intense price competition did not affect our sales volume for wholesale and industry segments as we recorded 3% and 6% increase respectively and we managed to defend our market share of 61% domestically. Against this backdrop, we decided to focus our efforts on ‘Attaining Balance’ which relates to the Group’s various strategic initiatives to achieve balanced cash flow management and production levels. In a bid to retain operational excellence and market leadership, MSM managed to close the year with production output of 1.07 million tonnes, an increase of 11%, compared to output in 2018 of 964,739 tonnes. IDENTIFYING STRENGTHS IN ADVERSITY Though performance was impacted by extraneous factors, a few milestones were achieved during the year. With the commercialisation of MSM Johor in April 2019, MSM is now ranked the eighth largest sugar refiner in the world by capacity. The challenge of optimising this expanded capacity presented new opportunities for expansion into new markets. The team responded quickly, researching and developing value added products such as Premix and Liquid Sugar. It was a feather in our cap when these products were made available by MSM Johor within the second half of 2019. We also further streamlined our business focus with the announced disposal of the Group’s Chuping plantation land parcels during the year, to F&N for RM156 million. ATTAINING Balance on three fronts: Operations With the full year operational availability of MSM Johor in 2019, there was a need to optimise utilisation and manage costs better. Cash Flow We embarked on a cash flow driven approach in 2019 to be able to fulfil our borrowing obligations post commercialisation of MSM Johor in April 2019. Production As MSM has excess capacity for domestic demand from three operating refineries (MSM Johor, MSM Prai, MSM Perlis), production between the refineries had to be agilely balanced, and at the same time we had to secure quality sales from the production. 21 MANAGEMENT DISCUSSION & ANALYSIS 03
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