Messages from Our Leaders Messages from Our Leaders Press Metal Aluminium Holdings Berhad 18 19 Integrated Annual Report 2023 Management Discussion and Analysis by Group CEO Management Discussion and Analysis by Group CEO Lastly, amidst the major macro- and industry-level evolutions taking place, climate change remains a fundamental driver of change for manufacturers. Regulatory pressure has already come in the form of the European Union’s Carbon Border Adjustment Mechanism, which will effectively impose a carbon cost on imports of aluminium and other goods – when its transitional phase concludes at end-2025. Meanwhile, China’s Emissions Trading System is expected to be expanded to include industrial production, including that of aluminium, in the near future. This may benefit aluminium producers outside of China over the short-term by reducing market supply from China as national players adapt to the changes and will ultimately accelerate the industry’s move towards renewable energy and other sustainable production processes. Taken as a whole, these trends illustrate the dynamic nature of the industry, validating our proactive moves to fortify our business and wholeheartedly embrace sustainability across our operations and through the sectors and companies we serve. STRATEGIC FOCUS AREAS Cognisant of the potential impacts of the market dynamics, we have proactively identified strategic focus areas that will collectively enable us to remain on a sturdy growth path and further our reputation as a responsible, sustainable organisation. In our smelting segment, we have continued to invest in growing our capacity for VAPs. These products, which are detailed in the “Updates on Operational Activities” section, deliver higher margins compared to our primary aluminium products while also enabling us to diversify our business and minimise overall risk. In the downstream segment, our focus is on developing product-based extrusion solutions that address specific industry needs. This is illustrated by our extrusion plant in China, which has commenced the supply of aluminium car bumpers and battery casings to car manufacturers in the country. Meanwhile, we have also completed the construction of a 30,000 tonne photovoltaic components extrusion line at our Nilai plant, dedicated exclusively to manufacturing solar panel frames and mounting extrusions to support the solar power sector. These strategic moves into energy transition-related sectors mirror our Group-wide focus on sustainability, which has accelerated over the past years. All our smelters have obtained the ASI Performance Standard certification, showcasing our commitment to sustainable aluminium manufacturing practices and opening the door for us to supply to companies with more stringent standards around sustainable aluminium production. The benefits of our shift towards low-carbon products were evidenced in April 2023 when we secured a long-term export deal for aluminium ingots with Daching Enterprises Ltd (“Daching”), the world’s top three global aluminium foil manufacturers. The deal, which totalled RM110 million in revenue during FYE2023 and will generate a further RM670 million in revenue over the following five (5) years, was enabled in part by the low-carbon content of our ingots, which helped Daching meet its climate commitments. Meanwhile, we seek to expand our market reach, ensuring the resilience of our supply chain becomes more crucial than ever. To this end, we made progress by completing Phase 2 of our associate company, PT Bintan’s plant in Indonesia in 2023. This enables us with a consistent supply of alumina and meeting our smelting operations’ needs. It also unlocks cost savings due to its closer geographical proximity to our smelters, as opposed to relying on sources in other regions which entail higher logistics costs. UPDATES ON OPERATIONAL ACTIVITIES Despite the ongoing challenges affecting aluminium demand and prices, our smelting segment’s forward sales strategy enabled us to consistently deliver commendable profits and returns to our shareholders in 2023, while the decline in raw material and freight costs throughout the year also helped to alleviate overall cost pressures. With an eye towards future growth, we continue to explore opportunities in transport, transmission and other energy transition-related sectors that have shown great promise in replacing the weaker demand for aluminium within traditional sectors and applications. Within the extrusion segment, our focus on productbased extrusion has broadened, with our extrusion plant in China manufacturing aluminium battery casings and car components as well as our new photovoltaic components production line in Nilai currently undergoing testing with potential customers. To drive further growth in the sales of our extrusion products, we are actively on the lookout for opportunities in the renewable energy and EV markets, while seeking to establish opportunities with manufacturers relocating their operations to the ASEAN region. In addition, we continued to invest in the growth of our VAP segment by introducing new casting line for A356 ingots and wire rods. As a result, the segment has increased its share of our total sales volume to 41%, compared to the previous year’s 36%. Across both segments of our business, we took significant strides in enhancing internal operational efficiencies, with a key strategy here being the implementation of resource optimisation initiatives to improve our smelting efficiency. By improving our operational footprint in this way, we are unlocking lower operating costs while driving emissions reductions, thus meeting our business and sustainability goals holistically. REVIEW OF FINANCIAL PERFORMANCE Financial Year Ended 31 December (RM’million) 2023 2022 2021 2020 2019 Revenue 13,805 15,683 10,995 7,476 8,805 EBITDA 2,551 2,768 2,045 1,239 1,229 Profit before tax 1,646 1,952 1,443 655 631 Profit after tax 1,518 1,767 1,295 587 582 Profit attributable to shareholders 1,215 1,407 1,002 460 474 Total assets 15,366 15,316 14,211 11,934 9,661 Shareholders’ funds 6,933 6,637 3,873 3,995 3,666 Total equity 8,396 8,005 4,920 4,890 4,480 Borrowings 4,628 5,093 6,370 5,148 3,861 Net Debt/ Equity Times 0.40 0.56 1.20 0.91 0.78 Net earnings per share* Sen 14.75 17.16 12.41 5.69 5.90 Dividend per share* Sen 7.0 6.0 3.4 2.1 2.6 * Adjusted retrospectively to reflect the 1 for 1 bonus issue exercise completed in April 2021 Revenue We achieved revenue of RM13.8 billion in FYE2023, representing a 12% decrease compared to FYE2022, mainly due to softened aluminium prices during the year. As our smelting segment is the main driver of our revenue and profitability, LME aluminium prices play a vital role in determining our financial performance. Costs Alumina, pre-baked carbon anodes and electricity make up the primary manufacturing costs of our smelting operations. At the start of 2023, alumina market prices surged to an annual peak of USD371 per tonne, an uptick from USD330 per tonne at the end of 2022 which is mainly attributed to supply disruptions in Australia and heightened stockpiling activities. From April 2023 onwards, alumina prices began to normalise, fluctuating within the range of USD325 - USD362 per tonne, due to softer demand stemming from lower aluminium prices. The average market price of alumina for the year was USD343 per tonne – approximately 15.0% of the average aluminium price in 2023. The average price for pre-baked carbon anode moderated substantially during 2023, starting at above RMB7,000 in January 2023 and declined by more than 30% to below RMB5,000 by the end of the year. The price adjustment was mainly due to the easing of raw material prices. The average market price for the entire year was at least 20% lower compared to the average price in 2022. In terms of electricity, we benefit from the location of our smelting plants within the Sarawak Corridor of Renewable Energy. This enables us to receive a stable electricity supply generated predominantly from hydropower, secured by long-term power purchase agreements with the Sarawak state’s power company. Therefore, unlike smelters operating under a floating rate of power purchase agreement involving coal-fired or gas-fired power plants, our financial performance is not influenced by coal and gas price fluctuations. Profitability Tracing our moderated revenue, our profit before tax declined by 15.7% to RM1.6 billion in FYE2023 while our PATAMI for FYE2023 was RM1.2 billion. Dividends A total dividend of RM576.8 million, or approximately 47% of PATAMI, was declared in respect of FYE2023. Moving forward, we will continue to reward shareholders for their steadfast support subject to fulfilling our profitability, capital expenditure and overall liquidity requirements.
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