Unaudited Financial Statements And Dividend Announcement For The Six Months Ended 30 June 2021
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Condensed Interim Consolidated Statement of Profit or Loss and Other Comprehensive Income
Review of Performance
CONDENSED INTERIM CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
Review of Group's performance for 6 months ended 30 June 2021 ("1H2021") as compared to the 6 months ended 30 June 2020 ("1H2020")Revenue
The Group’s revenue decreased by approximately RM11.6 million, or 10.8%. This was mainly attributable to a decrease in the number of containers loaded with products ("40- ft container") sold from 1,947 40-ft containers in 1H2020 to 1,725 40-ft containers in 1H2021 as a result of the following:
- On 7 January 2021, Kementerian Kesihatan Malaysia (i.e., the Ministry of Health of Malaysia) ("KKM") had issued notices ordering to close 11 of the Group's factories/warehouses until 16 January 2021. In addition, KKM has also verbally sought the closure of 2 additional factories/warehouses. The Group complied with the requirements of KKM by closing 13 of its factories/warehouses (including those requested by KKM verbally). The closure was a result of the Group's foreign workers having to be quarantined and isolated when some of the employees were infected with COVID-19;
- FMCO implemented by the Government of Malaysia in response to the COVID-19 pandemic which led to the temporary closure of the Group's operations for the period between 1 June 2021 and 26 August 2021; and
- Shortages of containers that have impeded the delivery of finished goods to the Group's customers.
However, this was partially offset by an increase in the average selling price per 40- ft container from approximately RM55,000 in 1H2020 to approximately RM56,000 in 1H2021 as a result of the different product mix sold by the Group.
Cost of sales and gross profits
The cost of sales decreased by approximately RM7.4 million, or 7.6%, mainly due to the decrease in labour costs as a result of reduced overtime and subcontractors’ costs in tandem with the slow down in operational activities due to the temporary closure of our factories/warehouses in January 2021 and the temporary closure of the Group's operations for the period between 1 June 2021 and 26 August 2021.
As a result of the lower percentage decrease in cost of sales as compared to our revenue, our gross profit decreased by approximately RM4.2 million, or 43.2%. The overall gross profit margin also decreased from 9.0% in 1H2020 to 5.8% in 1H2021.
Interest income decreased by approximately RM0.1 million, or 79.9%, mainly due to lower cash placements in short term fixed deposits in the bank account maintained in Malaysia and coupled with the reduced overnight interest rate offered.
Distributions from short-term investment security
Distributions from short-term investment security of approximately RM1,000 were income received for funds placed with a Money Market Fund during 2H2020. The Group had disposed the investment during 1H2021.
Other income comprised mainly government grants, sale of timber, boards, hardware and scrap as well as charges for services provided such as transportation and rental received.
Other income increased by approximately RM0.2 million, or 8.7%, mainly due to receipt of government grants from the Government of Malaysia during COVID-19 to promote the creation of quality jobs, reduce unemployment and financial assistance paid to employers for each employee.
Selling and administrative expenses
Selling and administrative expenses increased slightly by approximately RM0.3 million, or 3.1%, as the Group’s staff cost, directors' remuneration, professional fees and insurance costs were lower in 1H2020 due to more cost cutting measure effected in 1H2020.
Depreciation expenses increased by approximately RM0.7 million, or 18.8% mainly due to the purchase of machineries and leasehold land and building in 1H2021.
Finance costs increased by approximately RM0.4 million or 168.9%, mainly due to the interest charged on the new term loans that were drawdown towards the end of the financial year ended 31 December 2020 and in 1H2021.
Other expense increased by approximately RM2,000, or 100.0% mainly due to more fixed assets being written off in 1H2021 as compared in 1H2020.
Loss for the period
As a result of the lower revenue and higher costs and expenses, the Group reported a net loss of approximately RM2.4 million in 1H2021 as compared to a net profit of approximately RM1.3 million in 1H2020.
CONDENSED INTERIM STATEMENTS OF FINANCIAL POSITION
Review of the Group's financial position as at 30 June 2021 as compared to 31 December 2020
Property, plant and equipment increased by approximately RM3.2 million, or 2.1% mainly due to the purchase of machineries and leasehold land and building during 1H2021.
Right-of-use assets increased by approximately RM4.3 million, or 19.9%, comprised the right to use the properties and land use rights by the Group over the respective lease period.
Intangible assets of approximately RM3.0 million consists of trademarks and goodwill arising from business combination as announced on 28 January 2019.
Inventories increased by approximately RM17.8 million, or 18.5%, mainly due to the following:
- Increase in finished goods due to shortages of containers which impeded the delivery of finished goods to the Group’s customers. This included finished goods which required further improvements on customers’ request and pending the customers’ acceptance for which the Group has already received consideration from such customers totalling RM23.7 million as at 30 June 2021. The consideration is classified as contract liabilities under current liabilities. The container shortage situation has affected the Group’s delivery of finished goods since the last quarter of FY2020.; and
- Increase in raw materials and work-in-progress as (i) the Group purchased more raw materials to meet the orders received in respect of the following quarters; (ii) the Group has also stocked up more raw materials in case of delay in receipt of raw materials due to container shortages; and (iii) a higher work-in-progress due to longer production lead time as shipments from suppliers were also affected by the container shortages.
Trade and other receivables of approximately RM11.0 million comprised trade receivables, receivables from related parties, deposit and other receivables. The decrease in trade and other receivables by approximately RM7.8 million, or 41.6%, was mainly due to the decrease of sales towards the end of 1H2021.
Contract assets of approximately RM1.0 million comprised the right to consideration for goods produced but not yet billed as at 30 June 2021 for sale of goods. The decrease in contract assets by approximately RM3.8 million, or 78.3%, was mainly due to the FMCO implemented by the Government of Malaysia in response to the COVID-19 pandemic which led to the temporary closure of the Group’s operations for the period between 1 June 2021 and 26 August 2021.
Prepaid operating expense of approximately RM1.7 million comprised mainly expenses paid in advance as at 30 June 2021.
Tax recoverable, being prepaid current income tax of approximately RM3.9 million comprised tax paid in advance by the Malaysian subsidiaries for the Year of Assessment 2021.
Current liabilities and non-current liabilities
Loans and borrowings comprised financing arrangements, short-term trade financing, bankers’ acceptance and long-term loans. The increase in loans and borrowings by approximately RM10.8 million, or 25.0% was mainly due to the increase in the usage of short-term financing and drawdown of new term loans of approximately RM11.4 million and approximately RM14.6 million respectively towards the end of 1H2021. However, the increase is offset by the decrease in the usage of bankers’ acceptances by approximately RM14.9 million.
Trade and other payables of approximately RM29.5 million comprised trade payables, amount due to related parties and sundry payables. The decrease in trade payables and other payables of approximately RM9.8 million, or 25.0% was mainly due to the decrease in purchase of raw materials towards the end of 1H2021.
Contract liabilities of approximately RM23.8 million comprised the Group’s obligation to transfer finished goods or services to customers for which the Group has received consideration from customers in advance as at 30 June 2021.
Lease liabilities of approximately RM7.4 million comprised the liabilities that the Group has to pay over the life of the leases for the use of the properties.
Accrued expenses of approximately RM0.4 million comprised accrued operating expenses.
REVIEW OF THE GROUP'S CASH FLOW STATEMENT
Review of the Group’s cash flow statement for 1H2021 as compared to 1H2020
The Group recorded net cash flows used in operating activities of approximately RM2.5 million in 1H2021 which was higher as compared to RM0.05 million in 1H2020 mainly due to the increase in inventories of the Group during 1H2021. However, it was slightly offset by the decrease in trade and other receivables and contract assets. The reasons for the increase in inventories and the decrease in trade and other receivables and contract assets can be found in the review of the Group’s current assets set out above.
The Group recorded net cash flows used in investing activities of approximately RM10.6 million in 1H2021 mainly due to the purchase of new machineries and leasehold land and building.
The Group recorded net cash flows generated from financing activities of approximately RM9.5 million in 1H2021 mainly due to proceeds from short term and long term loans and borrowings offset by the repayment of loans and borrowings.
- Since the last quarter of FY2020, there has been a worldwide container shortage problem that has affected international container cargo shipments. This has also affected the Group in the following ways:
- The Group’s ability to export its manufactured products on time has been affected.
- There is an increased need for warehouses to store the unshipped finished goods.
- There are difficulties in planning and maintaining an efficient production schedule.
- Our import of raw materials from overseas has been delayed.
- Since FY2020, we have begun the expansion of our revenue base to include other categories of wooden products such as the millwork products. Nevertheless, the expansion is also currently affected by the worldwide container shortage as mentioned above.
- As disclosed in the Company’s announcement dated 23 February 2021, the Group’s operations in the first quarter of the current financial year have been disrupted by (i) the two-week closure of the Group's factories/warehouses in January 2021; and (ii) the movement control order imposed by the Malaysian government ("MCO") between 13 January 2021 and 4 March 2021 to curb the soaring number of COVID-19 cases in Malaysia. In addition, the Group had operated at lower capacity for the period between 25 May 2021 and 31 May 2021 and had temporary closure between 1 June 2021 and 26 August 2021 as disclosed in the Company’s announcements dated 27 May 2021, 1 June 2021 and 30 August 2021. While the Group has partially resumed operations as at the date of this announcement, the Malaysian government may implement further measures to curb the spread of COVID-19 given that the COVID-19 situation in Malaysia is still evolving.