Management Discussion & Analysis

Management Discussion & Analysis

Extracted from Annual Report 2018

OVERVIEW OF GROUP’S BUSINESS AND OPERATIONS

Company profile

The Group is divided into two main divisions, namely the Edible Oil Products Division and the Tap and Sanitary Ware Division. The former focuses on exporting consumer-packed edible oil products while the latter is mainly involved in manufacturing, trading and distribution of sanitary ware and tap fittings to the property development market.

Edible Oil Products Division

The Edible Oil Products Division consists of Continental Resources Sdn. Bhd. (“CRSB”) and the Palmtop Group.

CRSB has two plants based in Banting, Klang equipped with 18 packing lines with a rated packing capacity of 260,000 metric tonnes of edible oils per annum and 31 oil tanks with a total tankage capacity of 2,800 metric tonnes.

CRSB also has 8 jerry can molding machines with a monthly production capacity of 500,000 jerry cans in various sizes, i.e. 3kg, 5kg, 10kg, 18kg, 20kg & 25kg.

As CRSB manufactures its own packaged material jerry cans, there are cost savings of about 3% to 5% in terms of expenses incurred for the purchase of packing materials and its logistics costs. In addition, CRSB also packs high quality jerry cans resulting in very minimal rejections and customer complaints. This places CRSB in a more competitive position among its peers in the industry in a bid to increase profitability and market share.

The Palmtop Group in turn operates two packing plants in Pasir Gudang, Johor which comprises of Palmtop Vegeoil Products Sdn. Bhd., PNC Oil Factory (Malaysia) Sdn. Bhd. and Continental Palms Pte Ltd, a sales & marketing office based in Singapore.

Tap and Sanitary Ware Division

The Tap and Sanitary Ware Division currently has one manufacturing plant in Senawang, Negeri Sembilan. It also has a sales and marketing headquarter located in Damansara Utama, Petaling Jaya which also functions as a distribution centre.

The division is committed to service and promote business partnerships with its retail outlets nationwide, leverage Original Equipment Manufacturer (“OEM”) partnerships with local and overseas brands and work closely with major developers and government agencies to secure orders. It will also emphasise on building material to increase revenue and focus on stringent control on quality for OEM/trading items.

Vision

The Group strives to develop, enhance and create a comprehensive portfolio of consumer brands to enable the generation of sustainable profit growth and reasonable investment returns to the shareholders.

Principal Activities of Our Group
  • Blending and packing of vegetable-based edible oils.
  • Marketing, branding and merchandising of various consumer-packed edible oil products in the domestic and international market.
  • Manufacturing and trading a broad range of tap and sanitary ware products.
Key markets

Asia (including Australasia), Africa and the Middle East regions.

Strategies in Creating Value
  • Leveraging core competencies and areas of strategic advantage.
  • Identifying compelling market opportunities by maintaining abreast of market developments and evolving customer needs.
  • Offering a broad and compelling portfolio of products and brands tailored to customer needs/wants.
  • Continual optimization of business processes.
  • Providing opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate.
Highlights Of Our Group’s Financial Information For The Past 5 Financial Years management discussion and analysis management discussion and analysis

REVIEW OF FINANCIAL RESULTS AND FINANCIAL CONDITION

Revenue

The Group's revenue increased by 20% to RM2.6 billion from RM2.18 billion for the financial year under review as compared to the previous financial year, mainly due to the following:

  • Increase in shipments of full container loads ("FCLs") and tonnage sold.
  • Increase in the total number of customers to 746 and exported countries to 103.
  • Total FCL sold for FYE2018 increased by 7,251 FCLs or 24% as compared to FYE2017.
  • Total tonnage sold this year had increased by 180,000 MT or 26% from 690,000 MT in FYE2017 to 870,000 MT in FYE2018.
PBT & Expenses (costs)

The Group's profit before tax decreased by 11% from RM51 million in the previous year to RM45 million for the current year.

Operating expenses increased from RM66 million to RM85 million during the year, a 30% increase as compared to the previous year. This is largely due to bad debts written off during the year.

Meanwhile, total finance costs which rose by 51% from RM8.7 million to RM13 million during the year was in line with the increase in borrowings primarily used to fund purchases of palm olein and packaging materials and for capital expenditure at both facilities in Banting, Klang and Pasir Gudang, Johor.

Assets: Trade Receivables

Trade receivables decreased by 3%, from RM313 million to RM304 million during the year. This was primarily due to lower crude palm oil ("CPO") and palm olein prices during the period under review.

Assets: Inventories

There was also a decrease in inventories by 25%, from RM56 million to RM42 million. The higher prices of CPO and palm olein in FYE2017 as compared to FYE2018, coupled with lower tonnage during the year (5,000 MT in FYE2018 vs. 8,000 MT in FYE2017) were two major factors affecting the overall decrease in inventories.

Assets: Cash and bank balances

The Group's bank balances and deposits placed with financial institutions decreased slightly by 13%, from RM146.1 million to RM128 million. This was mainly due to better utilisation of cash reserves as against using bank facilities and for dividend payments made during the year.

Liabilities: Trade and other payables

The Group's trade and other payables decreased by 49%, from RM187 million in the previous financial year to RM95 million. This was primarily due to lower CPO and palm olein prices during the period under review.

Capital structure and capital resources

The Group remains prudent in maintaining a sound financial position to enable the execution of strategic objectives in creating value over the coming years. The Group’s borrowings decreased by 2%, from RM248 million to RM243 million during the year.

Known trends and events

The Group’s Edible Oil Products Division has performed well within our expectation. With a steady worldwide demand for vegetable-based edible oil, the division will continue to perform in the foreseeable future and provide a sustainable business to our Group.

Meanwhile, we foresee a challenging business environment for our Tap and Sanitary Ware Division. This is due to the influx of cheap imports into the market and the softening of the property development market which has adversely affected the financial performance of the division.

REVIEW OF OPERATING ACTIVITIES

Operating activities

The Group's Edible Oil Products Division has continued to perform as per expectation, amidst a challenging environment during the year. Some of the main challenges were higher inventory in the destination market and increase in import duty on CPO and refined palm oil, which resulted in a higher supply over demand.

The strengthening of the Ringgit against the US Dollar and the declining of oil prices had taken a toll on the margins. To make matters worse, there was also a spike in freight costs to Africa, which made prices less competitive. However despite these challenges, the division still managed to achieve higher revenue and profit after tax during the year under review.

Tap and Sanitary Ware Division fared better this year. The division managed to improve its bottom line, owing to its strategies in outsourcing key tap fitting components from China and factory costs rationalisation.

Amidst political uncertainty as a result of the change in the Government, many distributors deferred their purchases as soon as the Government announced the GST rate reduction to zero. This impacted sanitary wares division performance whereas the drop in trading business was due to delays of site construction works. Better product mix and aggressive sales efforts in promoting retails segment also helped in boosting the sanitary and tap fittings turnover.

ANTICIPATED OR KNOWN RISKS

Foreign Exchange Risk

The division exports approximately 85% of its products worldwide each year, thereby increasing the risk of exposure to currency exchange. However, this risk is mitigated by way of forward currency contracts, wherever possible.

Country Risk

To a large extent, financial performance is dependent on political, economic and regulatory environment in the importing countries. Any adverse development will result in default of contracts, bad debts and loss of market share. The Group closely monitors the situation of the importing countries to mitigate such risks.

FUTURE PROSPECTS

Possible Trend and Outlook

The Group will continue with its expansion plans for revenue growth for its edibe oil operations and with smart partnership tie-up with property developers for the tap and sanitary ware divisions to enhance shareholders' value.

The Edible Oil Products Division is focusing on expanding its customer base and products range to improve future earnings and margins for the Group. In addition, the division has also initiated cost control measures in its day-to-day operation. It is also looking into reorganising its current production floor layout in order to accommodate increasing demand by improving production efficiency.

The Tap and Sanitary Ware is now focusing its efforts in doing more hospital tap and sanitary ware projects, with orders secured locally and abroad, as well as more potential projects to be secured in the near future.

The division foresees an improved sales from the retail market next year due to the recent business cooperation with one of the largest retail hardware stockists in Malaysia, which has the coverage of 1,100 retail hardware stores nationwide. With current orders placed and more repeat orders expected in every two months, this new venture should provide a steady stream of income for the division.

Dividend Policy

The Group has no dividend policy in place on the account of possible requirements of funds for future expansions and growth.

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