Extracted from Annual Report 2018
Since we started in 1976, LY Corporation Limited and its subsidiaries (collectively the "Group") has remained steadfast in our core business value of providing quality products at competitive prices. Over the years, the Group has established itself as one of Malaysia's leading manufacturers and exporters of wooden bedroom furniture.
In 2018, the Group faced headwinds arising from the uncertainty of US-China trade war and the strengthening of the Malaysian Ringgit ("RM") against the United States Dollar ("USD"), which impacted sales from our main market in the United States of America ("US"), which accounts for 77% of our direct sales.
For the financial year ended 31 December 2018 ("FY2018"), the Group achieved net profit of RM14.9 million despite a 23.9% decrease in revenue to RM263.1 million. Excluding the one-off listing expenses of approximately RM6.8 million in FY2018, the net profit would have been RM21.7 million in FY2018 compared to a net profit of RM49.2 million of the financial year ended 31 December 2017 ("FY2017").
The lower revenue is attributable to:
- a decrease in number of laden containers ("40-ft containers") sold from 6,525 in FY2017 to 5,232 in FY2018 as a result of lower demand from customers mainly from the US; and
- a drop in average selling price per container from RM53,000 in FY2017 to RM50,000 in FY2018 due to the strengthening of the RM against the USD by approximately 6.2% in FY2018.
Gross profit decreased by approximately RM32.5 million, or 42.5% to RM43.9 million in FY2018. The gross profit margin fell from 22.1% in FY2017 to 16.7% in FY2018 mainly due to a decline in the average selling price arising from the strengthening of the RM against the USD, and a drop in sales to our customers, which resulted in lower economies of scale.
The Group's financial position remained firm, with a net asset value of RM224.8 million and cash and cash equivalents of RM64.7 million as at 31 December 2018.
Strategy for Growth
As the US-China trade war is still on-going, there is still uncertainty as to how this trade war have a bearing on the Group's growth moving forward. We have strategic plans in place to navigate the challenging environment with the aim of sustainable growth and diversifying beyond our core market in the North American and into the Asia Pacific market.
We are diversifying from our core business such as our expansion into the original brand manufacturing ("OBM") and our growing E-commerce business in China.
In January 2019, the Group acquired the OBM business and assets of Cubo Sdn. Bhd., including the EZBO and CUBO brand names, through our subsidiary Leyo Holdings Sdn. Bhd.. The products under the brand name CUBO focuses on custom-made furniture while EZBO offers a wide range of easy-to assemble, space-saving furniture, including those for living room, kitchen, bedroom and children's room.
The OBM business is complementary to our Group's existing original design manufacturer ("ODM") and original equipment manufacturer ("OEM") businesses and diversifies our revenue stream. The acquisition also widens our product range and gives us greater control in our operations which involves design, marketing and distribution of products, which allows us to widen our customer base.
We believe our OBM products are value for money, and have improved functionality. The DIY concept and our designs are patented innovations which are capable of attracting customers from many countries in different parts of the world, especially in the Asia Pacific region. This will allow us to expand and diversify our clientele base from our major customers who are currently mainly located in the North American.
In July 2018, the Group entered into an exclusive distribution agreement with Hangzhou Feilue Network Technology Co., Ltd, to grow our E-commerce business in China by setting up a virtual furniture store on Tmall/Taobao. While we are still in the initial phase of penetrating and growing our brand in China, we believe the Group is on the right track and is in line with our strategy to diversify our revenue stream.
Looking ahead, as the operating environment is expected to remain challenging, we will continue to adopt a cautious approach in exploring opportunities to expand and diversify our operations through joint ventures, strategic collaborations and/or acquisitions with parties who can provide synergistic value to our business, and access to new markets and customers.
To reward our shareholders, and as a gesture of our confidence in the Group's future, despite the economic uncertainty, the Board of Directors ("Board") has recommended a first and final dividend of 0.41 Singapore cent per ordinary share for FY2018, which is subject to shareholders' approval at the upcoming Annual General Meeting. This represents a dividend payout of 40.2% of our profit after tax.
On behalf of the Board, I would like to express my appreciation to our stakeholders, customers, and business associates and partners, for their trust and confidence in the Group. I would also like to take this opportunity to show my appreciation for my fellow colleagues on the Board, management team and employees for their commitment and dedication as we continue to grow the Group together.
We remain committed to delivering sustainable returns and look forward to all our stakeholders' continuous support as we forge ahead in managing future challenges.
Tan Kwee Chai