Page 36 - MSM_AR2020

CHAIRMAN’S DELIVERING MSM
STATEMENT VALUE
GROuP FINANCIAL
REVIEW
FY2020 was a challenging
year for the global sugar
industry in general and
MSM in particular as
Malaysia implemented
an official movement
control order (MCO) from
March 2020 causing
34 a major shut down
of the local food and
MSM MALAYSIA HOLDINGS BERHAD Annual Report 2020
beverage industry for
several months. Export
supply chains were also
disrupted, leading to the
lowest point of the global
sugar industry cycle. Thus
financial performance was
pressured and impacted
by the prolonged lower
sugar consumption in
the domestic wholesale
segment and industry
segment.
Despite these pandemic-
related impacts, MSM
stayed steadfastly on
track of strategies to
record a revenue increase
of 9% from RM2.01 billion
to RM2.18 billion mainly
contributed from the
overall growth of export
sales.
MANAGEMENT DISCUSSION GROUP FINANCIAL
OVERVIEW & ANALYSIS REPORT
By staying on course of hedging strategies, MSM gained a foothold of assurance
within an uncertain environment. FOREX movements were volatile with the value
of ringgit (RM) against the US dollar (USD) peaking in May and then trading lower
till December. The NY#11 price of raw sugar in 2020 was generally favourable to
the Group as prices weakened in March when consumption slumped due to the
sudden global lock down and shutting down of food manufacturing industries
during the first major wave of the COVID-19 pandemic. Then prices stabilised
between USD11.00 – 15.00 cents per pound as a result of high production in India
and Brazil which balanced out the shortage caused by Thailand’s extreme drought.
MSM managed to hedge its raw sugar price at USD12.70 cents per pound and
trade on USD/MYR at 4.196.
Other strategies towards maximising profitability for the year include the
discontinuation of non-strategic operations, optimisation of the utilisation
factor between our refineries, focus on growth in export sales, expansion into
new value-added products, and the successful continuation of our raw sugar
procurement agreement with a reputable sugar trader through the Just-In-Time
method.
As a result, year-on-year loss after tax (LAT) narrowed by 76% from a LAT
of RM299.78 million in 2019 to a smaller LAT of RM71.23 million in 2020.
The losses, however, were mainly due to one-off impairment of the bearer
plant on plantation land in Chuping, Perlis. Excluding discontinuing operations,
MSM registered a profit before tax (PBT) of RM35.85 million, a 112% improvement
from 2019. The improvements were mainly contributed from our key strategic
initiative to streamline our operations by ceasing the sugar refinery operations
in MSM Perlis and consolidating production volume between MSM Prai and
MSM Johor to optimise overall refining costs.
FINANCIAL SCORECARDS
For ease of comparisons and to reflect continuity in reporting framework, our FY2020
financial scorecards are outlined below:
Production Costs:
Total cost of goods sold for 2020 reduced by 1.24% due to lower raw sugar cost
and the strengthening Ringgit. This was complemented by the reduction of average
refining cost per tonne by 2.65% which was due to lower gas tariff which reduced
from RM35.20 per MMBtu to RM33.99 per MMBtu; and the improved utilisation
factor of our refineries as a result of the consolidation of production volume from
MSM Perlis to MSM Prai and MSM Johor.
Assets:
Total assets of the Group reduced by 7.06% as a result of impairment of bearer plant
assets. However, total cash and bank balance improved to RM195.29 million from
RM170.54 million in 2019 mainly from better net cash generated from operation
activities and lower inventory levels.