Annual Report 2019.Pdf
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TABLE OF CONTENTS Letter to Stakeholders and Management Discussion & Analysis 4 Group Financial Highlights 12 Group Operation Structure 13 Corporate Information 16 Profile of Directors 18 Key Senior Management & Country Heads 24 Sustainability Report 28 Corporate Governance Overview Statement 83 Additional Compliance Information 95 Audit Committee Report 97 Statement on Risk Management and Internal Control 101 Financial Statements 105 List of Properties 266 Analysis of Shareholdings 268 Notice of Annual General Meeting 273 Proxy Form Press Metal Aluminium Holdings Berhad 4 Letter to Stakeholders and Management Discussion & Analysis Annual Report 2019 Letter to Stakeholders and Management Discussion & Analysis 5 Cont’d LETTER TO STAKEHOLDERS AND MANAGEMENT DISCUSSION & ANALYSIS DEAR STAKEHOLDERS, In 2019, the industry witnessed a challenging year with lower aluminium prices compared to 2018 and this was exacerbated by macroeconomic uncertainties and volatile raw material prices during the fi rst half of the year. Despite this, Press Metal Aluminium Holdings Berhad (“Press Metal” or the “Group”) delivered a commendable set of results and closed the year with revenue of RM8.80 billion and profi t before tax of RM631.22 million. During the year, we received several accolades from The Edge’s Billion Ringgit Club including being conferred the coveted Company of the Year of 2019 award, which we attribute to all our stakeholders for their support and our employees for their hard work. We are encouraged by our achievements and will continue to strive towards excellence as we step further into the global stage as a key player in the aluminium industry. Several signifi cant expansion milestones were achieved during the year under review, which will cumulate towards building a stronger foundation for the years to come. This includes securing additional long-term power contracts which enabled us to expand our smelting operations and the conclusion of signifi cant investments into upstream assets aimed at securing raw materials for our smelters. KEY DEVELOPMENTS IN 2019 Expansion of Aluminium Smelting Operations We embarked on our next phase of growth when we signed a new 15-year Power Purchase Agreement (“PPA”) with Syarikat Sesco Berhad, Sarawak on 31 July 2019 which will provide us long term access up to approximately 500MW of electricity for our proposed third aluminium smelting plant (“Phase 3 Smelter”), located adjacent to our existing Phase 1 and 2 smelting plants in Samalaju Industrial Park of Sarawak. Upon completion of the Phase 3 Smelter with annual capacity of up to 320,000 tonnes, our total smelting capacity will increase by 42% from the current 760,000 tonnes to 1,080,000 tonnes. We envisage that our Phase 3 smelter will begin operations by early next year. This expansion will further entrench the Group’s position as the largest Southeast Asia aluminium producer and a key global player in the aluminium industry. Press Metal Aluminium Holdings Berhad 6 Letter to Stakeholders and Management Discussion & Analysis Cont’d Upstream investments Apart from the horizontal expansion in our smelting operations, our Group has also ventured vertically upstream by completing several acquisitions to further secure raw materials, namely alumina and carbon anode. 1) Alumina asset investment We successfully completed the acquisition of 50% equity interest in Japan Alumina Associates Pty. Ltd. (“JAA”) in February 2019 for a total cash consideration of AUD259.9 million. JAA holds 10% interest in the Worsley Alumina Unincorporated Joint Venture (“Worsley UJV”) located in Australia, one of the world’s largest and lowest-cost alumina producers. Through this investment, the Group is entitled to a supply of 230,000 tonnes of alumina per annum. In November 2019, our Group also entered into an agreement to subscribe for 25% equity interest in PT Bintan Alumina Indonesia (“PT BAI”) and the transaction was subsequently completed in February 2020 for a total cash consideration of USD80.23 million. PT BAI is principally involved in alumina production and is currently in the midst of constructing an alumina refi nery plant with total annual capacity of 2 million tonnes in Galang Batang, Indonesia. The refi nery will be constructed in two phases, with each phase earmarked for 1 million tonne of alumina production. Phase 1 operation is expected to start commissioning by end 2020 and Phase 2 will follow subsequently. This subscription will provide the Group with long-term supply of alumina via the purchase of not less than 50% of alumina before completion of the entire 2 million tonne project and up to 1.5 million tonnes upon full completion. With our investments in JAA and PT BAI, the Group will be able to secure approximate 80% of our alumina requirements on our enlarged smelting capacity of 1,080,000 tonnes per annum. This will serve to enhance the stability of our Group’s aluminium operations by reducing reliance on third party suppliers and shielding us against supply disruptions. 2) Carbon anode investment The Group had on 20 September 2016 entered into an agreement with Sunstone Development Co., Ltd. (“SDCL”) to establish and operate a new company, namely Shandong Sunstone & PMB Carbon Ltd., Co (“SSPC”) for the purpose of manufacturing the pre-baked carbon anode, a primary consumable for our smelting operations. The Group’s investment cost for its 20% equity portion was RMB52.8 million (approximately RM32.4 million). SSPC’s annual capacity is 300,000 tonnes, in which Press Metal is entitled to purchase 120,000 tonnes per annum with an option to purchase up to 40,000 tonnes. The plant was commissioned in the fi rst quarter of 2019 and achieved full capacity in the second quarter of 2019. This investment will allow Press Metal to secure approximately 40% of its plants’ current requirement. Fund raising under a Sukuk Programme During the year, we tapped into the debt market to fund our expansion plans and refi nance existing borrowings. Press Metal had in July 2019 established a 30-year Islamic Medium Term Notes programme of up to RM5.0 billion based on the Shariah principle of Wakalah Bi Al-Istithmar (“Sukuk Programme”). The proceeds from the Sukuk Programme will be utilised for corporate purposes including capital expenditure, working capital requirement, investments and refi nancing of the existing borrowings. Annual Report 2019 Letter to Stakeholders and Management Discussion & Analysis 7 Cont’d The Group had on 17 October 2019 issued the fi rst tranche under the Sukuk Programme amounting to RM1.0 billion to repay its existing loans in which the lower fi nancing cost will assist in reducing overall interest expenses and improve the Group’s liquidity by converting its short term borrowings to long term liabilities. OVERVIEW OF PRESS METAL Press Metal is principally engaged in the manufacturing and trading of both upstream and downstream aluminium products. The upstream smelting segment is the Group’s core business and is undertaken by our 80%-owned subsidiaries, Press Metal Sarawak Sdn. Bhd. (“PMS”) and Press Metal Bintulu Sdn. Bhd. (“PMBTU”), operating in Mukah District and Samalaju Industrial Park, Bintulu of Sarawak state. The annual capacity of PMS and PMBTU is 120,000 tonnes and 640,000 tonnes respectively. Currently, PMBTU is undertaking the construction of its Phase 3 smelter in Samalaju which upon completion, will add on an additional 320,000 tonnes capacity per annum and the total smelting capacity will be increased by 42% to 1,080,000 tonnes per annum. Our smelting products include London Metal Exchange (“LME”) certifi ed primary aluminium ingots (P1020), alloy ingots (A356.2), aluminium billets and aluminium wire rods. Press Metal Aluminium Rods Sdn. Bhd. (“PMAR”), acquired in 2018, is the Group’s newest subsidiary with production capacity of 100,000 metric tonnes of wire rods per annum. Through PMAR, we became a regional market leader of wire rods. The Group’s downstream extrusion segment involves the production of a wide range of extrusion products utilised in industries such as construction, automobile, electronic and electrical. The extrusion plants are undertaken by Press Metal’s wholly-owned subsidiaries, Press Metal Berhad (“PMB”) and Press Metal International Limited (“PMI”) with respective annual capacity of 50,000 tonnes and 160,000 tonnes. The operation of PMB is in Klang, state of Selangor while PMI operates in Guangdong province, China. % of Annual Effective Business Capacity Subsidiary Ownership Segment (tonnes) Products Location PMBTU 80% Upstream 640,000 • Primary aluminium ingots P1020 (LME certifi ed) Samalaju, Phase 1 and 2 smelting • Value-added products e.g. alloy ingot A356.2, Sarawak billet and wire rod Phase 3* 320,000 PMS 80% Upstream 120,000 • Value-added product - billet Mukah, smelting Sarawak PMAR 80% Midstream 100,000 • Value-added product - wire rod Johor Bahru, casting Johor PMB 100% Downstream 50,000 • Aluminium extrusion products Klang, extrusion Selangor PMI 100% Downstream 160,000 • Aluminium extrusion products Foshan, extrusion Guangdong * Currently under construction with targeted completion by end of 2020 Press Metal Aluminium Holdings Berhad 8 Letter to Stakeholders and Management Discussion & Analysis Cont’d FINANCIAL REVIEW The following table highlights the Group’s results for the past 5 fi nancial years:- Financial Year Ended 31 December (“FY”) 2019 2018 2017 2016 2015 Revenue RM’000 8,804,572 9,170,122 8,176,131 6,649,451 4,321,271 EBITDA RM’000 1,229,403 1,446,187 1,399,366 1,196,330 585,197