Chemical Company of Malaysia Berhad Annual Report 2019

For the year in review, our margins eroded as a result of the decline in the average selling prices of chlor-alkali products which was mainly attributable to the general slowdown globally amid economic uncertainty and the ongoing trade dispute between the world’s largest economies, the United States of America (US) and China. The sum of all these factors led to a 28% decline in caustic soda prices. There were also several unexpected events that took place in 2019 that affected the Group’s overall performance. Following our success in securing a three-plus-one-year contract from PETRONAS for the supply of caustic soda to its RAPID site at the Pengerang Integrated Complex in Johor, we were all set to commence supply from 15 April 2019 onwards. The successful drawdown of this caustic soda supply would have strengthened the Group’s overall revenue streams seeing that caustic soda contributes 40% of CCM’s revenue. However, due to a fire incident at the RAPID site on April 2019, our expectation of a caustic soda supply to PETRONAS pursuant to the contract did not materialise as planned and expected to delay further towards the end of 2020. Pursuant to our capacity expansion drive, our mothballed Pasir GudangWorks 1 (PGW1) facility was supposed to be reactivated by end of Quarter 3 2019. However, due to stringent requirements imposed by the authorities following some environmental incidents that took place in Pasir Gudang vicinity, the plant was only able to commence its testing and commissioning in December 2019. The said delay derailed our targeted operational date thus affecting our objective of optimising margins from the chlor- alkali segment. Given the challenging market conditions that took place over the financial year, particularly the sharp decline in average selling prices of chlor-alkali products, the CCM Group recorded revenue of RM385.2 million in FY 2019, a marginal decline of 2.7% from the RM395.9 million recorded in the preceding year. Both our Chemicals and Polymers businesses recorded higher volume sold during the financial year as compared to FY 2018. However, despite the higher volume, the Group reported a lower net profit of RM16.1 million in FY 2019, comprising a recurring net profit of RM19.7 million and a non-recurring net expense of RM3.6 million. The Group net profit fell 48% against a net profit of RM30.7 million in FY 2018, comprised of recurring net profit of RM23.8 million and a non-recurring net income of RM6.9 million. More details of the Group’s financial performance can be found in the Group Managing Director’s Management Discussion and Analysis (MD&A) section of this Annual Report. WELL POSITIONED FOR FUTURE GROWTH Despite the multitude of challenges that surfaced in FY 2019, we maintained a steadfast focus throughout the year and laid down strong foundations which have positioned us for future growth. We are ready to seize opportunities when the market recovers. Several elements stand us in good stead. Primed to Benefit from Capacity Expansion Back in FY 2018, we began to roll out a host of transformation strategies one of which centred on a RM89.5 million capacity expansion drive. This strategy sought to strengthen our Chemicals and Polymers businesses, enhance operational efficiencies, drive organic growth and improve our competitive advantage. Following the reactivation of the Chemical segment’s PGW1 facility at end 2019, our total chlor-alkali production at our Pasir Gudang plant has increased by an additional 50% (since early 2020) and is set to become CCM’s main earnings driver. The Group’s Calcium Nitrate (CN) facility in Shah Alam, which is now operational following its relocation and expansion, is well positioned to meet the increasing demand for CN in the country, especially from the burgeoning rubber gloves industry. The Group’s capacity expansion drive also encompasses the Polymers business which is making good headway on the back of increasing global demand for gloves. According to the Malaysian Rubber Glove Manufacturers Association (MARGMA), global demand for gloves is projected to grow between 8%-10% per annum over the next two years. To meet this demand, the Polymers business has been implementing debottlenecking exercise to increase production volume as well as automating the process to enhance cost efficiencies and improve product quality. 11 ANNUAL REPORT 2019 BUSINESS OVERVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION