MANAGEMENT DISCUSSION & ANALYSIS BY GROUP CEO Cont’d Carbon Anode Joint Venture Our Group had on 20 September 2016 entered into a joint venture agreement with Sunstone Development Co., Ltd (“SDCL”) to establish and operate a new joint venture company, namely Shandong Sunstone & PMB Carbon Ltd., Co (“SSPC”) for manufacturing of pre-baked carbon anode, a primary consumable for our smelting operations. Currently, we hold 20% equity stake in this joint venture. The plant was commissioned in the first quarter of 2019 and achieved full capacity in the second quarter of 2019. SSPC’s state of the art carbon anode manufacturing plant complies and exceeds environmental compliance and local regulatory requirements. With the 20% stake in SSPC, our Group has access to up to 220,000 tonnes of carbon anode out of the total capacity of 300,000 tonnes per annum. This joint venture allows us to secure up to approximately 40% of our requirements. UPDATES ON OPERATIONAL ACTIVITIES 2022 was the first full year of contribution by our latest Phase 3 smelter at Samalaju Industrial Park, Bintulu which achieved full commissioning towards the end of 2021. With this, our annual smelting capacity increased by 42% to an aggregate of 1,080,000 tonnes, cementing our position as the largest aluminium smelter in Southeast Asia. During this commissioning process, we were simultaneously undertaking the scheduled maintenance of our existing smelters (Phase 1 & 2) and had to re-allocate resources between the existing smelters and the ramp-up schedule for Phase 3. We were operating in a constrained environment with Covid lockdowns impeding the availability of foreign technical expertise. As a result, we experienced less than optimal production volume in 2021, which carried into early 2022. This situation was resolved in the second quarter of 2022. In FYE 2022, our value-added segment constituted nearly 36% of our total sales volume on the back of expanded smelting capacity. We registered a 3% year-on-year volume growth in value-added products, driven by wire rod demand as the world focused on increasing renewable energy capacity. We also completed a new billet casting line, increasing our billet casting capacity by 80,000 tonnes per annum to a total of 300,000 tonnes per annum. On the downstream operations, our China extrusion operations have been actively exploring new applications in the electric vehicles and renewable energy sectors which are touted as the next demand drivers for aluminium. Installation of the first extrusion line for aluminium battery casing was completed and began production in our extrusion facilities in Foshan, Guangdong Province during the year. Our team is also continuously exploring new markets for our extrusion products and researching potential segments relating to renewable energy, other applications in the automotive industry, and product-based extrusion involving more technical resource planning. For our Malaysian extrusion facilities, we are installing an additional capacity of 30,000 tonnes per annum dedicated towards the fabrication of solar frames, targeting to commence production by the second half of 2023. Carrying forward from the previous year, 2022 was similarly a challenging year from a cost perspective. World events influenced raw materials and freight costs, which remained stubbornly high for most of the year. We witnessed some of these challenges dwindling towards the end of the year with global freight cost declining by more than 30% and easing of high carbon anode prices. To partially mitigate the impact of extreme freight costs during the first half of the year, we switched from containers to cargo shipment for delivery of our products to customers which yielded lower delivery cost per tonne. As a further measure to address supply chain disruptions which may interfere with raw material supply, we stocked up on raw materials to ensure that there were no interruptions to our production. Press Metal operated with an intense focus on cost and delivering consistent operational excellence while preserving financial discipline to stay resilient. Our robust cashflow has enabled us to reduce our debts and strengthen our balance sheet. As a testament to this, on 30 December 2022, RAM Ratings upgraded the rating of our RM5.0 billion Islamic Medium Term Notes Programme (2019/2049) from AA3/Stable to AA2/Stable. PRESS METAL ALUMINIUM HOLDINGS BERHAD 15
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