Chemical Company of Malaysia Berhad Annual Report 2019

| Group Managing Director’s | Management Discussion and Analysis With the softening of the global economy as a result of the ongoingUS-China trade dispute, theweakening oil prices and the prolonged impact of the COVID-19 pandemic, we expect chlor-alkali prices to remain bearish and put a downward pressure on margins. We plan to cushion this bymaximising our production and being cost efficient. At the same time, under our portfolio diversification strategy we will continue to explore strategic ventures by way of chlorine derivatives and specialised solutions. In line with our growth aspirations, we will continue to be on the lookout for attractive investment opportunities domestically and regionally to complement our existing business portfolio. POLYMERS DIVISION Market Review The Polymers Division’s products are used by local glove manufacturers and are also exported to other glove producing countries including Thailand, Indonesia and China. In FY 2019, the distribution ratio of our products for the domestic and export markets stood at 66% and 34% respectively. This lines up with the rubber glove supply profile as per the Malaysian Rubber Glove Manufacturers Association or MARGMA’s estimate that approximately 63% of world glove demand is supplied by Malaysian gloves manufacturers followed by glove manufacturers in Thailand (21%) and Indonesia (3%). In 2019, global demand for gloves was slightly lower than MARGMA’s growth forecast of between 8% and 10% per annum over the next two years (with a projected demand of approximately 300 billion pieces of gloves per annum). The lower demand was attributable to US-China trade tensions and lower demand for gloves from the developing countries. Meanwhile, industry players in Malaysia are having to contend with a host of ongoing and new challenges. These include the weakening of the Malaysian ringgit against major foreign currencies and the impact of currency volatility on raw material costs. Industry players also face the issue of not being able to pass cost increments to their customers due to intense competition. Moreover, they are coming up against industry newcomers who are able to offer lower cost glove variants. The Division is in a good position to face these challenges given our strong R&D capabilities which are enabling us to fast-track new product development as well as undertake testing and developmental activities outside of the gloves sector. On top of this, industry players face ever-evolving and demanding application standards and product performance requirements where a huge investment is needed to nurture the right talent, as well as to set up proper facilities that will ensure an effective product introduction cycle and customer acceptance. Stricter regulatory requirements by the DOE are making compliance activities more complex. On the other side of the coin, glove manufacturers are constantly embarking on automation and machinery upgrades to strengthen their productivity and efficiency. This in turn requires industry players to adapt to changes in production processes, manpower requirements, as well as the raw materials involved in the glove manufacturing process. At the same time, glove manufacturers themselves are beginning to pose a threat as they backward- integrate along the supply chain and make inroads into areas traditionally held by polymers players. Performance Review In FY 2019, in line with the growing demand for rubber gloves, the Polymers Division recorded revenue of RM95.8 million, some 6% higher than revenue of RM90.1 million in FY 2018. However, PBT marginally declined to RM16.5 million from RM19.2 million previously. The decrease in PBT was primarily due to RM1.7 million in impairments for bad debt for a long- time customer whose business underwent liquidation as well as an increase in depreciation costs on its new facility in Bangi. Operational Review Back in 2018, to maintain its market share, improve its competitive edge and meet growing demand from rubber gloves manufacturers, the Polymers Division embarked on a debottlenecking exercise. This exercise did much to enhance the plant’s work flow and increase its capacity by an additional 10% from 18,000 MT/pa to 19,800 MT/pa. In FY 2019, the plants ran at almost full capacity to meet market demand for both polymer coatings and cleaners production. Realising that there was still not enough capacity to meet the ever increasing market demand for polymers products, we went on to invest RM20.8 million in a parcel of land and a factory at Bangi to accommodate the relocation of the Division’s 24 CHEMICAL COMPANY OF MALAYSIA BERHAD