MSM Malaysia Holdings Berhad Annual Report 2020

GROUP CHIEF EXECUTIVE OFFICER REVIEW During the year, MSM also made good strides on executing planned key strategic initiatives. Raw sugar procurement through the Just-In-Time method was set towards improving the Group’s cash position from minimal raw sugar stockholding, lowering Banker’s Acceptance (BA) interest cost and reducing external warehouse rental expenses. The Board has approved this initiative’s continuation through 2021 and 2022. We completed MSM Johor’s LS and FS capacity upgrade to 12,000 tonnes/month. The upgraded FS lines were successfully installed in November 2020 while LS lines were completed in December 2020. The upgraded lines are projected to contribute up to 14% utilisation factor (UF) to MSM Johor. At present, the largest LS and FS importer is China with Indonesia and Philippines also identified as potential markets. Current existing world suppliers are refiners in Thailand, Vietnam, UAE and Malaysia. Another initiative that started in 2020 is to increase MSM Johor’s yield. The yield factor is critical to the sugar refining process as it determines the amount of sugar loss during the production. MSM Prai, being a mature plant, has been recording a yield of 96.5% from minimal loss on sugar polarisation and molasses. At present, MSM Johor’s yield hovers around 90% and management has been rectifying this through spillage recovery and re-melt of off-specs sugar into LS. We target to achieve a yield above 93% in 2021. As part of the Group’s capacity rationalisation efforts, operations at MSM Perlis refinery ceased in June 2020. The production has been gradually transferred to MSM Johor to maximise the Johor plant’s UF by up to 12%, based on MSM Perlis’s previous production trends. Since the closure and subsequent capacity rationalisation, the Group’s the Refining Cost (RC) reduced by 3% against the prior year. Last but not least, the tender exercise for Trucking Outsource by Refinery Location was concluded in March 2020 and we expect distribution cost savings of up to 10% from this outsourcing initiative. NY11 RAW SUGAR PRICE 2020 AND 2021 At macro level, global agricultural markets are stable as food trade has remained more resilient than the overall trade. Despite the pandemic, NY11 prices in 2020 has been generally favourable for the Group, trending between USD11.00 – 15.00 cents/lb. The stable prices were a result of high production in Brazil 1 which balanced out the shortage caused by Thailand’s extreme drought. MSM managed to close the year at an average price of USD12.70 cents/lb against the market average of USD12.89 cents/lb. In 2021, global sugar trade flow is projected to be in deficit of 0.5 million tonnes with a more bullish price outlook ranging from USD14.00 – 19.00 cents/lb 2 as the dry-weather in Thailand is expected to prolong to 2022, reducing the sugar supply in the region and the world by about 7 million tonnes and shifting the supply risk to Brazil as the single largest raw sugar exporter for 2021. The increase in crude oil prices will also have an impact on Brazilian sugar production as millers will be motivated to produce more ethanol instead of sugar from the sugarcane crop. We also expect to see similar ethanol related influence similar to Brazil for Indian producers. 1. High raw sugar production in Brazil due to low ethanol price, weak real and good sugarcane crop 2. Source: Wilmar MSM MALAYSIA HOLDINGS BERHAD Annual Repor t 2020 24 CHAIRMAN’S STATEMENT DELIVERING VALUE MSM OVERVIEW MANAGEMENT DISCUSSION & ANALYSIS GROUP FINANCIAL REPORT