Page 37 - HRC_AR2020

HENGYUAN REFINING COMPANY BERHAD I 35

h2gEN Project BRENT OIL PRICE
The H2GEN project is developed to produce hydrogen by Price in US dollars per barrel
taking natural gas from the national oil and gas company, as
feedstock. This is in anticipation of a heightened need for 70.00 63.50
hydrogen upon the start-up of the Euro 4M and Euro 5 Gasoil 60.00 55.44
projects when hydrogen will be needed to desulphurise Mogas 50.00 43.35 44.82 42.66 49.86
and Gasoil components. 40.00 40.07 40.81 40.15
31.83
30.00 28.98
CURRENT STATUS:
20.00 18.54
Despite challenges, we have managed to catch up on the
project slippage and the project is currently on track to 10.00
complete as per schedule to coincide with the Euro 4M and 0.00 0
Euro 5 Gasoil specification completion date. Jan 20 Feb 20 Mar 20 Apr 20 May 20 Jun 20 Jul 20 Aug 20 Sep 20 Oct 20 Nov 20 Dec 20

STRATEGIC DIRECTION 2:
Strengthen Internal Work Processes In FY2020, the price of Brent crude oil averaged
at USD42 / bbl, USD22 / bbl lower than its FY2019 average.
Initiatives implemented in FY2020 under this strategy included:
Brent crude oil traded within relatively narrow price ranges
• Introduction of a dynamic Office Automation Portal, to throughout the year, with the lowest at USD19 / bbl and the
improve our internal work processes. highest at USD64 / bbl. This was mainly caused by the pandemic,

• Review of existing work processes to ensure that they are which triggered an unprecedented demand shock in the
lean and effective. oil industry and led to a historic market collapse in oil prices.
The demand for oil reduced significantly as governments
around the world shuttered businesses, issued stay-at-home
mandates and restricted travel. However, oil prices began to
FINANCIAL REvIEW rebound towards the end of mid-2020 as nations emerged
from lockdown coupled with the effect of OPEC’s agreement
mARgIN AND FINANCIAL PERFORmANCE
to significantly cut crude oil production. By year end, optimism
In the year under review, HRC posted a profit after tax of over the possible rollout of multiple COVID-19 vaccines buoyed
RM251.0 million, a six-fold increase from the profit after tax the market and oil prices started to increase.
of RM35.0 million recorded in FY2019. Refining margins and Stockholding gains for FY2020 (including the effects of
crude prices continued to remain volatile during the year, commodity swaps) were USD5.25 / bbl (FY2019: USD1.17 / bbl).
resulting in a full year average Current Cost of Stock margin
(CCS) of USD5.23 / bbl (FY2019: USD2.49 / bbl) and First-In, The hedging strategy undertaken by the Company has
First-Out (FIFO) margin of USD2.68 / bbl (FY2019: USD3.32 / bbl) protected the Company’s FIFO margin from eroding although
including the effects of crack swaps. the Company faced internal and external factors such as plant
operational issues and market volatility. Effects of crack swaps
Further analysis of the financial performance is as follows: for FY2020 helped to uplift the gross profit margin by an average
of USD5.75 / bbl.
Revenue and gross margin Business improvement tactics delivered a value of USD36.3
million (FY2019: USD52.9 million). This was attributed to
HRC recorded a revenue of RM7.2 billion in FY2020, lower crude optimisation of USD10.1 million, product optimisation
by 43.2 per cent compared to the revenue of RM12.6 billion of USD18.6 million, refinery process improvement of USD6.5
in FY2019. This was mainly caused by lower sales volume of million and spend optimisation of USD1.1 million.
35.1 million bbls in FY2020 (FY2019: 41.9 million bbls),
coupled with lower product selling prices which averaged at Average CCS margin for the year was USD5.23 / bbl compared
USD48 / bbl in FY2020 (FY2019: USD76 / bbl), as a result of to USD2.49 / bbl in FY2019. The Company’s CCS margin has
the implementation of lockdown and travel restrictions by moved to positive territory, contributed by improved products
numerous countries in order to curb the spread of COVID-19. cracks as global markets recovered.