Unaudited Financial Statements And Dividend Announcement For The Second Quarter Ended 30 June 2019
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For the 3 months ended 30 June 2019 (“2Q2019”) and 6 months ended 30 June 2019 (“1H2019”)
Consolidated Statements of Comprehensive Income
Review of Performance
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Review of Group’s performance for the 3 months ended 30 June 2019 (“2Q2019”) as compared to the 3 months ended 30 June 2018 (“2Q2018”)Revenue
The Group’s 2Q2019 revenue decreased by approximately RM10.9 million, or 17.3% as compared to 2Q2018. This was mainly attributable to the decrease in the number of container loaded with products (“40-ft containers”) sold from 1,295 40-ft containers in 2Q2018 to 1,031 40-ft containers in 2Q2019 mainly due to a drop in demand from the Group’s customers in the United States of America (“US”).
However, the average selling price per 40 ft-container has increased slightly from RM49,000 in 2Q2018 to RM50,000 in 2Q2019 due to the strengthening of the USD against RM. The increase was offset by the following:
- discounts being offered on some of the products (mainly veneer laminated) to our customers due to the drop in demand for such products in the market; and
- different product mix whereby the Group sold more paper laminated products which have lower selling prices as compared to veneer laminated and/or spray-painted products.
Cost of sales and gross profits
The cost of sales increased slightly by approximately RM0.04 million, or 0.1%, despite the decrease of revenue of the Group, mainly due to fixed costs components of certain direct costs such as labour costs, depreciation and utility charges.
As a result of the above and coupled with the discounts being offered on some of the models to our customers, the gross profit decreased by approximately RM10.9 million, or 84%. The overall gross profit margin also decreased from 20.6% in 2Q2018 to 4.0% in 2Q2019.
Other income comprised mainly sales of timber, boards, hardware and scrap; charges for services provided such as transportation; rental received and gain on disposal of property, plant and equipment.
Other income decreased by approximately RM1.7 million, or 59.8% mainly due to the Company selling lesser boards to LP Global Resources Sdn Bhd (“LP Global”) to manufacture front drawer for most of our models (including lamination services) in 2Q2019 as compared to 2Q2018 due to the drop in demand from the Group’s customers.
Selling and administrative expenses
Selling and administrative expenses decreased by approximately RM2.0 million, or 27.2% mainly due to the decrease in directors’ remuneration and wastage disposal costs.
Loss for the period
As a result of the foregoing, the Group reported net loss of RM1.9 million for 2Q2019.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Review of the Group’s financial position as at 30 June 2019 as compared to 31 December 2018
Property, plant and equipment increased by approximately RM6.7 million, or 5.6% mainly due to the purchase of machinery and equipment and motor vehicles during the 6 months period ended 30 June 2019 (“6M2019”).
Leasehold land decreased by approximately RM0.2 million, or 1.3% due to the amortisation of the leasehold land.
Intangible assets of approximately RM3.8 million consist of trademarks and goodwill arising from provisional purchase price allocation from the completion of the Acquisition of Business (as defined under Section 10 below) on 25 January 2019.
Right-of-use assets of approximately RM2.3 million comprised the right to use the properties by the Group over the respective lease period.
Inventories decreased by approximately RM0.2 million, or 0.5% mainly due to the overall improvement in inventory management by the Group.
Trade and other receivables of approximately RM17.9 million comprised trade receivables, receivables from related parties, deposit and other receivables. The decrease in trade and other receivables by approximately RM5.5 million, or 23.6% was mainly due to the decrease of sales towards the end of 1H2019.
Contract assets of approximately RM6.5 million comprised the right to consideration for goods produced but not yet billed as at 30 June 2019 for sale of goods. The decrease in contract assets by approximately RM4.3 million, or 39.7% was mainly due to the decrease in the completion of goods produced but not yet delivered in second quarter of 2019.
Prepaid operating expense of approximately RM0.8 million comprised mainly of expenses paid in advance as at 30 June 2019. The decrease in the prepaid operating expense as at 30 June 2019 as compared to 31 December 2018 was due to expenses paid in advance being expensed off to the income statement as at 30 June 2019.
Advance tax of approximately RM1.3 million comprised of tax paid in advance by the Malaysian subsidiaries for the Year of Assessment 2019.
Current liabilities and non-current liabilities
Loans and borrowings comprised of obligations under finance leases and bankers’ acceptance. The decrease in loans and borrowings by approximately RM0.6 million, or 16.7% was mainly due to the decrease in the usage of bankers’ acceptance towards the end of 1H2019.
Trade and other payables of approximately RM28.9 million comprised trade payables, amount due to related parties and sundry payables. The increase in trade payables and other payables of RM6.2 million, or 27.2% was mainly due to the increase in purchase of raw materials towards the end of 1H2019.
Lease liabilities of approximately RM2.3 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 RM0.2 million comprised accrued operating expenses. The decrease in accrued expenses of RM0.3 million, or 56.0% was mainly due to lower accrued expenses as at 30 June 2019 as a result of lower allowances and performance incentives being provided.
REVIEW OF THE GROUP'S CASH FLOW STATEMENT
Review of the Group’s cash flow statement for 2Q2019 as compared to 2Q2018
The Group recorded net cash flows from operating activities of approximately RM5.1 million in 2Q2019 which was higher as compared to approximately RM1.1 million in 2Q2018 mainly due to the increase in the trade and other payables and decrease in income tax paid of the Group during the 2Q2019.
The Group recorded net cash flows used in investing activities of approximately RM3.6 million mainly due to the purchase of new and used machineries as well as motor vehicles.
The Group recorded net cash flows used in financing activities of approximately RM7.0 million mainly due to the repayment of loans and borrowings as well as payment of dividend in 2Q2019 offset by the proceeds from short term financing.
- Our exports to US have reduced in the financial year ended 31 December 2018 as many US customers have exercised more caution in their purchases due to the uncertainties in the trade war between China and US. As the trade war is still on–going, there is still uncertainty as to how this trade war will impact our Group in the financial year ending 31 December 2019 ("FY2019").
- We had on 20 December 2018, through our wholly–owned subsidiary, Leyo Holdings Sdn. Bhd. ("Leyo Holdings"), entered into an asset purchase agreement ("APA") with Cubo Sdn. Bhd. ("CSB"), a company incorporated in Malaysia, and Mr Ng Teck Lai ("NTL") (collectively referred to as "Vendors"), pursuant to which the Vendors have agreed to sell the assets comprising intellectual properties, plants & machineries, fixed assets and other assets (the "Assets") to Leyo Holdings in accordance with the terms and conditions as stipulated in the APA ("Acquisition"). The Acquisition was completed on 25 January 2019.
Concurrently with the signing of the APA on 20 December 2018, we had also entered into a shareholders’ agreement ("SHA") with Lebo Design Sdn. Bhd. ("Lebo Design") and Leyo Holdings to give effect to our and Lebo Design’s intentions to co–operate with each other to carry on business to manufacture, sell, market and distribute furniture under the brand names EZBO and CUBO ("Business") and to regulate their relations inter se and in the conduct of the business and affairs of Leyo Holdings.
Through the Acquisition, we are expanding into a new business involved in the original brand manufacturing ("OBM") of furniture products. As the trade names are new in the market, we intend to further promote them in various countries and thus far, the response from potential customers has been positive.