70 FGV HOLDINGS BERHAD ABOUT FGV MANAGEMENT DISCUSSION & ANALYSIS VALUE CREATION Group Business Review Sugar MITIGATING THE YEAR’S CHALLENGES Challenges Action plans Outcomes Rising raw sugar NY11 and freight costs Prudent hedging was practiced to secure NY11 price towards budget. By securing lower hedged pricing and offsetting increased costs on these vital resources, our sugar business achieved better refining margins for the year MSM managed to hedge a significant portion of its Wholesale requirement in FY2022 at below market price Rising natural gas cost Natural gas cost is a key component of FGV Sugar Sector’s refining cost. The domestic natural gas price is linked to the volatility of Brent Crude Oil futures. MSM is hedging this risk with Brent-linked derivatives like options and futures contracts The risk on rising energy prices is reduced with prudent hedging on Brent-linked derivatives contracts Margins impacted by higher costs Margins were also strengthened through the achievement of higher ASP in the domestic market to compensate for higher cost of production. This was made possible through win-win industry negotiations and addressing price matrix issues with the customer offering lower prices with higher level of offtakes Sustainable revenue and profitability achieved, ensuring adequate operational requirements satisfied and sufficient dividend payout to shareholders Low UF and yield in MSM Johor Refinery operations There was intensified focused towards improving MSM Johor Refinery Sdn Bhd’s (MSM Johor) capacity utilisation to lower refining and production cost. Strategic targets have been set to improve MSM Johor’s financial performance in 2022 with plans to ramp up MSM Johor production after debottlenecking of processes MSM Johor has set strategic targets to improve its overall performance in FY2022 COVID-19 causing operational disruptions There was a temporary plant shutdown at MSM Prai Berhad (MSM Prai) caused by rising of COVID-19 cases. To ensure sustainability of sugar supply and food security, MSM strove for rapid vaccination of its employees at the refineries and increased the level of refined sugar reserves via importation Sustainable domestic supply of sugar is ensured with sufficient level of refined sugar inventory Warehouse space constraints Full warehouses led to slowdown in production and increased operating cost per unit. MSM is building an additional warehouse of 10,000 MT capacity in Johor and currently exploring to establish a Northern Distribution Centre Ample space for refined sugar storage optimising distribution cost and savings on rental expenses Environmental license to operate MSM has taken proactive engagement efforts with the following outcomes: • A trial programme between MSM Johor and FGV Fertiliser Sdn Bhd to turn mudcake into fertilisers was initiated in October 2021, and potential collaborations with third-party and research community to supply and study mudcake are being explored • MSM Prai signed a Certificate of Collaboration with Penang DOE enabling green initiatives and conserving the environment on 13 October 2021 Successful outcomes for the efforts taken: • In FY2021, the DOE agreed and approved that mudcake generated as by-products by the refineries are no longer termed as Scheduled Waste, and thus can be explored to be used as fertiliser • The collaboration with Penang DOE kicked off with a successful mangrove replanting programme alongside the riverbank of Sungai Perai
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