MANAGEMENT DISCUSSION & ANALYSIS BY GROUP CEO Cont’d Revenue Our Group’s smelting segment is the main driver of our revenue and profitability. Aluminium prices as traded on the London Metal Exchange (“LME”) plays a vital role in determining our performance. We achieved a revenue of RM15.68 billion in FYE 2022, an increase of 42.6% as compared to FYE 2021. This was supported by higher average aluminium prices during the year, a stronger US Dollar (“USD”) and increased production output. Our sales volume increased year-on-year as this was the first full year of commissioning our Phase 3 Samalaju smelter. It is our practice to hedge a portion of our aluminium production for a period of up to three years, at the Company’s discretion and depending on market prices from time to time. Manufacturing costs Alumina, pre-baked carbon anodes and electricity are the primary manufacturing costs for our smelting operations. Alumina and Carbon Anode Alumina prices increased strongly at the beginning of the year following the onset of the Russian-Ukraine tensions reflecting heightened supply risk, reaching an annual high of over USD530 per tonne in the middle of March 2022. Prices trended down during the second quarter and ended at an average of USD319 for the final quarter of the year. Carbon anode prices rose steadily since the start of the year due to rising calcined petroleum coke and pitch prices as the increasing global energy demand is driving the growth of the petroleum coke industry and anode materials have benefited from thriving downstream activities. Over the year, prices reached a peak of over RMB7,900 per tonne in November 2022 compared to RMB5,500 at the beginning of the year. Electricity Our smelters are located in Sarawak, a state blessed with high and consistent rainfall and abundant rivers, where the state has built substantial hydropower assets. Our Group’s smelting plants in Bintulu receive a stable electricity supply generated predominantly from this hydropower, secured by long-term power purchase agreements with the Sarawak State’s power company. Unlike smelters operating under a floating rate of power purchase agreement which depends on coal-fired or gas-fired power plants, we are not subjected to coal and gas price fluctuations. Profitability Profit after tax (“PAT”) increased by 36.4% to RM1.77 billion in FYE 2022 as compared to the preceding financial year, stemming from higher revenue during the year and increased contributions from associated companies. This was partially offset by higher raw material and freight costs, and provision for taxes during the year. Total assets Total assets increased by 7.8% from RM14.21 billion in FYE 2021 to RM15.32 billion in FYE 2022. This was mainly due to an increase in cash balances on the back of higher retained earnings as well as higher trade receivables which increased in tandem with higher aluminium prices and higher output. Borrowings, finance cost, debt-to-equity ratio and shareholders’ equity Total borrowings decreased by 20.0% from RM6.37 billion in FYE 2021 to RM5.09 billion in FYE 2022. The decrease in borrowings resulted from accelerated repayment of borrowings on the back of stronger cash flow generation from operations and proceeds from our private placement exercise. In April 2022, we completed a private placement exercise of 163.4 million shares at the price of RM5.94 per share, raising total proceeds of RM971 million. RM120.0 million from the total proceeds raised was used to partially retire bank borrowings. As a consequence, debt-to-equity ratio reduced from 1.20 times in FYE 2021 to 0.56 times in FYE 2022. PRESS METAL ALUMINIUM HOLDINGS BERHAD 17
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