Management Discussion & Analysis

Management Discussion & Analysis

Extracted from Annual Report 2017

OVERVIEW OF GROUP’S BUSINESS AND OPERATIONS

Company profile

Our group is divided into two main divisions, namely the Edible Oil Products Division and the Tap and Sanitary Ware Division. The former focuses on consumer-packed edible oil products while the latter is mainly involved in the property development market.

Edible Oil Products Division

The Edible Oil Products Division consists of Continental Resources Sdn. Bhd. (173543-U) (“CRSB”) and the Palmtop Group.

CRSB has two plants based in Banting, Klang fitted with 17 packing lines with a rated packing capacity of 260,000 metric tonnes of edible oils per annum and 25 oil tanks with a total capacity of 2,360 metric tonnes.

CRSB also has several jerry can molding plants with a monthly production capacity of 240,000 jerry cans in various sizes.

Meanwhile, the Palmtop Group which comprises of Palmtop Vegeoil Products Sdn. Bhd. (266956-P), PNC Oil Factory (Malaysia) Sdn. Bhd. (371637-V) and Continental Palms Pte Ltd, operates two packing plants based in Pasir Gudang, Johor and a sales & marketing office based in Singapore. The Group has 14 packing lines with a packing capacity of 550,000 metric tonnes of edible oils per annum and 20 oil tanks with a total capacity of 1,800 metric tonnes.

The Palmtop Group has a higher capacity and is capable of packing more Full Container Loads (“FCLs”) per annum as compared to CRSB because the Palmtop Group essentially have newer more automated, efficient, faster and productive plant and equipments.

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 headquarters located in Damansara Utama, Petaling Jaya which also functions as a distribution centre.

As a result of the influx of cheap imports and the softening of the property development market, the division has streamlined its operation by collaborating with Original Equipment Manufacturers (“OEM”) for the manufacture of price-sensitive tap and sanitary wares. Additionally, the building materials division has also commenced trading in other materials in the effort to increase revenue and maximise margins.

Vision

Our group strives to create, develop and enhance a comprehensive portfolio of consumer brands to enable the generation of sustainable profit growth with reasonable investment returns to our 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; and
  • manufacturing and trading a broad range of tap and sanitary ware products.
Key markets

Asia (including Australasia), Africa and 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; and
  • 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 revenue increased from RM1.3 billion to RM2.2 billion for the financial year under review, an increase of 67% as compared to the previous financial year.

The increase in revenue was mainly due to the following:

  • increase in shipments of full container loads (“FCLs”);
  • higher selling prices in US$; and
  • the weakening of Ringgit Malaysia.
PBT & Expenses (costs)

The Group’s profit before tax decreased by 2.8% from RM52 million in the previous year to RM51 million for the current year.

Operating expenses decreased by 4.2% to RM66 million during the year as compared to RM69 million in the previous year. This is largely due to payments of stamp duty and legal fees for trademarks applications incurred in the previous year.

Staff costs rose by 12% as the Group continued to focus on talent building and development to support our vision of creating, developing and enhancing a comprehensive portfolio of consumer brands.

Total finance costs which increased by RM3.4 million to RM8.7 million was mainly attributable to the increase in borrowings of RM113 million (from RM135 million as at 30 June 2016 to RM248 million as at 30 June 2017) principally used to fund the purchase of oil and packaging materials.

Assets: Trade Receivables

Trade receivables increased by 84% to RM313 million during the financial year. This was primarily due to higher sales during the current financial year as compared to collection.

Assets: Inventories

There was an increase in inventories to RM56 million from RM44 million at the end of the previous financial year. This is in proportion to the higher revenue recorded in the financial year under review.

Assets: Cash and bank balances

The Group’s bank balances and deposits placed with financial institutions more than doubled to RM146 million from RM71 million and this was primarily due to the higher proceeds of sales received during the year.

Liabilities: Trade and other payables

The Group’s trade and other payables increased by 122% from RM84 million in the previous financial year to RM187 million. This is in tandem with the higher revenue recorded during the year.

Capital structure and capital resources

The Group’s borrowings increased by about 84% from RM135 million at the end of the previous financial year to RM248 million primarily due to fund the purchase of oil and packaging materials.

The Group remains prudent in maintaining a sound financial position that enables the execution of our strategic objectives in creating value over the coming years.

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 profit before interest and taxation (“PBIT”) rose 3% from RM58 million in 2016 to RM60 million in 2017. The increase is in proportion to the higher revenue recorded in the financial year under review.

There are no other significant developments in the operating activities during the financial year. However, as part of the strategies to boost future income stream, the Group plans to expand its plant capacity in the next financial year.

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 contract, wherever possible.

Country Risk

To a large extent, our 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 edible oil operations and with smart partnership tie-up with property developers for the tap-ware and sanitary ware divisions to enhance shareholders’ value.

The Edible Oil Products Division is planning to expand its plant capacity within the next financial year, whereas the Tap and Sanitary Ware Division will remain focused in its collaboration with Original Equipment Manufacturers (“OEM”) and in trading in other materials with the view of increasing revenue and maximising margins.

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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