Chemical Company of Malaysia Berhad Annual Report 2019

| Group Managing Director’s | Management Discussion and Analysis Financial Position and Liquidity As at 31 December 2019, the Group’s total assets increased by 5.4% to RM606.4 million from RM575.3 million as at 31 December 2018. The growth of our asset portfolio came on the back of the expansion of our production capacity mainly that relating to the Chemicals Division. As of 31 December 2019, our debt to equity ratio was slightly lower at 0.60 times in comparison to 0.61 times as at 31 December 2018. As at 31 December 2019, our cash andcashequivalents stood at RM111.8 million in comparison to RM136.3 million the year before. Our efforts to continuously improve our working capital management cycle has translated into an improvement in the cash generated from our operations i.e. an increase to RM76 million in FY 2019 from RM64.6 million in FY 2018. During the year, wemainly deployed cash for capital expenditure, namely for capacity expansion at our Pasir Gudang Works 1 and Calcium Nitrate plants, as well as the new R&D laboratory for the Polymers Division. Over the course of FY 2019, we also utilised RM38.5 million of our cash to repay term loans, of which RM21.5 million of the cash was from the sale proceeds received from the disposal of our land in Nilai. PERFORMANCE BY BUSINESSES CHEMICALS DIVISION Market Review Throughout FY 2019, CCM Chemicals Sdn Bhd or CCMC’s chlor-alkali business continued to contend with caustic soda price volatility. This was primarily the result of unbalanced trade dynamics between Southeast Asia and Northeast Asia (comprising markets such as Japan, China, Taiwan and Korea – all major exporters of caustic soda). The effects of the US-China trade war, sluggish global economic growth and several other factors contributed to the year’s fluctuating prices. The year 2019 was a volatile year for caustic soda prices with the price of caustic soda kicking off at some USD346 per dry metric tonne at the start of the year. Several major events took place in the first half of the year that caused this price volatility. This included a supply disruption in China due to a chemical explosion and a temporary shutdown at two major alumina facilities in June due to a mud spill incident. By the second half of 2019, caustic soda prices had eased downwards as integrated chlor-alkali vinyl producers maintained a high run rate to take advantage of the higher vinyl netback thus creating surplus inventory in the market. By the year’s end, prices had eased to USD310 per dry metric tonne. All in all, these led to the average selling price of caustic soda declining by some 28% in 2019. Seeing that caustic soda contributes more than 50% of Division’s revenue, the price volatility and softening of the prices had impacted our 2019 performance. Although the margins of industry players dropped from an average of 30% to below 20% over the course of the year, Pasir Gudang production achieved a 9.5% increased beyond name-plate capacity with higher efficiency. The higher capacity saw us increasing our market share for caustic soda supported by traded caustic soda which increased by 84% to 88,300 metric tonnes (MT) in comparison to 48,114 MT in FY 2018. Today, the Division’s chlor-alkali business customer base is well diversified. We supply to diverse industries including the water supply and water treatment, food, cleaning, plastic and soap, as well as steel product industries. This diversification accords enhanced stability to the chlor-alkali business in the face of economic uncertainty and price volatility. Performance Review In FY 2019, the Chemicals Division registered revenue of RM289.2 million, some 5.3% lower than revenue of RM305.4 million registered in the preceding year. The Division’s PBT fell by 46.8% to RM26.9 million, as compared to a PBT of RM50.6 million previously. The lower revenue and PBT was attributable to the dip in global caustic soda prices despite selling higher volume. The volume for the Chemical business came in primarily from the caustic soda trading business whereby we kept a close watch on and took advantage of the price volatility. The volume traded also encompassed some 15,000 MT of caustic soda supplied to PETRONAS’ RAPID project before the commencement of the three-plus-one-year contract. 20 CHEMICAL COMPANY OF MALAYSIA BERHAD