Extracted from Annual Report 2022
While more countries around the world are easing COVID-19 measures and moving COVID-19 to an endemic phase, the recovery path to the pre-pandemic level remains fraught with much uncertainty. In addition, the Group continued to contend with an increasingly volatile global business environment brought about by the Russia-Ukraine war, which led to high energy prices, supply chain disruptions and food shortages, all contributing to rising inflation, economic uncertainty and tighter global financing conditions. Despite all these challenges, we remained focused on strengthening our Group and businesses and will continue to develop more strategies and explore more measures to build a stronger foundation for growth and sustainable profitability.
The Year in Review
We are gratified that the Group has performed resiliently in the financial year ended 31 December 2022 (“FY2022”). The Group achieved a net profit attributable to shareholders of RM12.4 million in FY2022, reversing a net loss of RM7.2 million for the financial year ended 31 December 2021 (“FY2021”). This was achieved on the back of a 23.9% rise in revenue to RM234.5 million, mainly due to an increase in the average selling price per laden container (“40-ft container”) from RM59,000 in FY2021 to RM73,000 in FY2022 as a result of a different product mix sold and the strengthening of United States dollars (“USD”) to Ringgit Malaysia (“RM”). In addition, the number of 40-ft containers sold rose slightly to 3,220 in FY2022 as compared to 3,207 in FY2021.
However, the Group’s overall performance was moderated by a net foreign exchange loss of RM2.4 million arising from USD loans due to the strengthening of USD against RM. Excluding the net foreign exchange loss, the Group would have registered a net profit attributable to shareholders of RM14.8 million in FY2022.
In December 2022, we completed an internal restructuring exercise to rationalise and streamline the Group’s manufacturing operations by consolidating all the manufacturing activities under LY Furniture Sdn Bhd (“LYFSB”), a wholly-owned subsidiary of the Company. The internal restructuring involved the transfer of the entire share capital of Leyo Manufacturing Sdn Bhd (“LEM”) from Leyo Holdings Sdn Bhd (“LEH”), a 51%-owned subsidiary, to LYFSB at a nominal consideration of RM1. We believe the internal restructuring will be beneficial for the Group as it will allow us to better focus and capitalise on our strengths to increase operational efficiencies.
The millworks business, which accounted for 22.1% of the Group’s revenue in FY2022, has grown steadily over the years as we increased our efforts in promoting and marketing the millworks products and gained new customers during the year.
While we continue with the sub-contracting arrangement to supply the main framework of kitchen cabinets to a local furniture manufacturer, we have also started manufacturing and exporting the kitchen cabinets directly to an overseas customer during the year. We believe that we are well-positioned to grow this new product line in the United States (“USA”) market by tapping into our wide network to promote and distribute this product.
LY Global Hub Sdn. Bhd. (“LYGH”), a wholly-owned subsidiary of the Company, was granted the Principal Hub Incentive (“PH Incentive”) by the Malaysian Investment Development Authority in August 2017. Due to the recent change in economic conditions, we have decided to put on hold our initial plan to centralise our regional procurement under LYGH and will surrender the PH Incentive in 2023.
Commitment to Sustainability
The Group remains steadfast in its commitment to sustainability. As we grow and expand our business, we seek to operate in a way that contributes to a better society, reduces environmental footprint and delivers sustainable business.
As a supporter of a greener and more sustainable future, we are committed to managing and reducing our environmental impact through continuous improvements in our business processes and operations. The Group adopts sustainable manufacturing practices that minimise waste and environmental harm while conserving energy and natural resources, including sustainable sourcing of raw materials, recycling wood waste, and using environmentally friendly materials for our production processes.
To further enhance our sustainability commitments and reduce emissions, we have installed solar photovoltaic systems at several of our manufacturing facilities in Batu Pahat to improve the Group’s energy efficiency. In FY2022, the solar photovoltaic systems generated 3,524.6 megawatt hours of active solar energy. As solar electricity produces no carbon emission, the Group eliminated carbon emissions of approximately 2,062 tonnes, with a total net savings of RM1.4 million in FY2022.
Sustainability-based initiatives across the Group will remain at the forefront of our future planning and operational decision-making. We believe that the effective management and monitoring of our carbon footprint would contribute positively to the Group’s productivity and competitiveness as well as reduce wastage and pollution to the environment.
Moving into 2023, we expect the global economy to slow further as the energy shock triggered by the Russia-Ukraine war continues to spur inflationary pressures, weakening confidence and household purchasing power and increasing risks worldwide. Additionally, interest rates will likely continue to rise as central banks around the world tighten monetary policy to fight soaring inflation.
Given the challenging global business outlook, we are adopting a more cautious approach to operations and investments. We will remain focused on our strategic initiatives to enhance the performance of the Group’s businesses while managing our financial resources prudently and efficiently. We will continue to work hard to sharpen our competitive edge by building new capabilities, broadening our product range, and innovating to create new designs and concepts to meet changing trends.
As we continue to pursue growth in the USA, our key market, we also intend to seek opportunities to expand into new geographical markets to gain access to new prospective customers. With the reopening of borders and easing of travel restrictions, we plan to intensify our marketing efforts by regularly attending and participating in local and international trades and exhibitions fairs to increase the awareness of our products in our current and potential new markets and to keep abreast with market trends and development
While we do not foresee an easy year ahead, as a resilient Group with a proven track record, we are confident that we will be able to weather the challenges and adapt to constantly changing market conditions to capture new opportunities to deliver higher value to shareholders.
We would like to express our sincere appreciation to our fellow members of the Board for their support and strategic counsel and to our management and staff for their unwavering commitment and hard work. Additionally, we would like to thank our shareholders, business partners, customers and stakeholders, for your continued confidence in the Group.
Together, we will hold steady and push forward in the year ahead.
Oh Seong Lye
Chairman/Independent Non-Executive Director
Tan Yong Chuan
Executive Director and Chief Executive Officer