MANAGEMENT DISCUSSION AND ANALYSIS
DEAR VALUED SHAREHOLDERS,
On behalf of the Management, I am pleased to present the Management Discussion and Analysis of Wellcall Holdings Berhad (“the Company”) and its subsidiary company (“Wellcall” or “the Group”) for the financial year ended 30th September,
2018 (“FYE 2018”).
OVERVIEW
In FYE 2018, our performance was commendable and we managed to sail through our challenging journey amidst the
volatility of the global market sentiment. Nevertheless, the fundamentals of demand for our industrial rubber hose remain
strong resulting from the gradual recovery of both the emerging and developed countries. We are confident that, we are
able to perform and deliver our results through our solid base and to position ourselves to meet the surge in demand arising
from the recovery of global economy.
BUSINESS AND OPERATIONS REVIEW
The principal activity of the Company is investment holding, while the principal activity of a wholly-owned subsidiary
company is manufacturing industrial rubber hose for customers who are mainly in the business of distributing rubber hose
to original equipment manufacturers. Therefore, the Group’s business segment mainly comprises the manufacture and sale
of rubber hose and related products, which is confined to a single business and by geographical segment.
Our export market accounted for approximately 89% of the Group's revenue covering over 70 countries while the remaining
of approximately 11% was derived from domestic market. Hence, the market sentiment in the global economy plays an
important role in driving the demand for rubber hose especially for replacement demand as well as product variations
and penetration to new markets. Our geographical market segment is as disclosed in Note 27 of the FYE 2018 financial
statements.
We have been continuously leveraging on our extensive customer network, improved productivity, quality services and our
product range in FYE 2018. We will continually strive to enhance our competitive strengths in these areas to stay ahead
of market trends. With the completion of our third plant, the additional capacity is timely in serving and sustaining our
longer-term growth specially to cater for the global demand surge.
Our track record of more than 20 years in the rubber hose industry and over 40 years of industry knowledge have served
a concrete platform for our presence in the rubber hose industry globally. Our product quality and reputable customer
service have also aided us to expand our customer base to more than 200 customers. Besides product quality and reputable
customer service, the Group has a strong research and development capability teamed by experienced personnel to deliver
improved and innovative products and new processes.
The Group has also expanded its products range to various application markets ranging from air and water, oil and gas,
welding, automotive, ship building, abrasion, food and beverages and chemical applications. Additionally, the Group
possess the ability to customise its manufacturing to suit its customers' product requirements in terms of rubber hose
sizes, pressures and temperature resistance. Our products are accredited by independent third party for product quality
assurance and recognition such as SGS, Lloyd's Register, Flinders Cook, SIRIM QAS International and Malaysia Rubber Board.
Nevertheless, the Group continues to strive to perform well and to maintain its dividend pay-out ratio of at least 50% of
the net profit for the year. Increasing our base of customers and revenue coupled with operational efficiencies are the key
drivers of the Group to achieve its profitability. The Group's revenue and purchases are primarily traded in foreign currency
and it is the Group's practice to keep the foreign currency exposure to an acceptable level.
To deepen the Group's talent pool, we continue to recruit or engage professionals and more experienced personnel from
various fields to cater for future expansion. In-house trainings have been conducted for employees to assist them in applying
relevant information into their daily tasks. The Group continuously reviews its human resource policies and practices to
ensure staff welfares are well taken care of.
We trust that with the Group's strength, capabilities and sound underlying fundamentals, the Group would be able to step
forward positively in an uncertain and challenging global economy.
FINANCIAL PERFORMANCE REVIEW
Revenue Surpassed the RM159 Million Mark
The Group recorded revenue of RM171 million, representing an increase of RM12 million or approximately 8% as compared to
RM159 million in last financial year ended 30 September, 2017 (“FYE 2017”). The increase in revenue was mainly attributable
to the continuation of recovery in global demand for industrial rubber hose and fairly benefited from the increase in selling
price as well as volume for some hoses.
Our export sales accounted for approximately 89% of total revenue representing RM152 million while the remaining of
approximately 11% was from local sales capturing RM19 million. Comparatively with FYE 2017, export sales had increased
by RM9 mil (6%) and local sales had also increased by RM3 mil (19%). The overall increase in revenue was mainly resulted
from the continuation of recovery in global demand for industrial rubber hose.
| RM'mil |
FYE 2018 |
FYE 2017 |
Change |
| Revenue: |
|
|
|
| (a) Export market |
152 |
143 |
9 |
| (b) Local market |
19 |
16 |
3 |
| Total |
171 |
159 |
12 |
The Group recorded a profit after taxation (“PAT&rdquo:) of RM32 million for FYE 2018 compared to PAT of RM36 million recorded
in FYE 2017, representing a decrease of RM4 million, approximately of 11%. Lower PAT was mainly due to higher cost of
production resulting from rising cost of material prices.
The table below highlights the Group’s key financial performance for FYE 2018:
| RM'mil |
FYE 2018 |
FYE 2017 |
Change |
| Revenue |
171 |
159 |
12 |
| Expenses |
131 |
114 |
17 |
| Other Operating Income |
3 |
3 |
- |
| Gross Profit |
55 |
59 |
-4 |
| Profit Before Taxation |
43 |
48 |
-5 |
| Profit After Taxation |
32 |
36 |
-4 |
| Gross Profit Margin |
32% |
37% |
-5% |
| Pre-Tax Margin |
25% |
30% |
-5% |
| Net Profit Margin |
19% |
23% |
-4% |
The Group recorded an increase in revenue from RM159 million to RM171 million which was mainly attributable to the
continuation of recovery in global demand for industrial rubber hose and fairly benefited from the increase in selling price
as well as volume for some hoses. Due to pressure from the raw materials prices that continue to fluctuate which has
resulted the Group to incur higher cost of production, the gross profit margin has faced a compression of 5% recorded from
37% to 32%. The Group's pre-tax margin and net profit margin has also reduced to 25% and 19% respectively.
Strong Financial Position with Healthy Cash Flows
| RM'mil |
FYE 2018 |
FYE 2017 |
Change |
| Total Assets |
131 |
129 |
2 |
| Total Liabilities |
23 |
25 |
-2 |
| Total Equity |
107 |
104 |
3 |
| Total Borrowings |
- |
8 |
-8 |
| Cash and Bank Balances |
37 |
39 |
-2 |
| Net Asset Per Share (sen) * |
21.59 |
20.83 |
0.76 |
| Basic Earnings Per Share (sen) * |
6.36 |
7.32 |
-0.96 |
| Dividend Per Share (sen) * |
5.60 |
6.17 |
-0.57 |
* Adjusted to reflect the shares split of every two (2) ordinary shares into three (3) ordinary shares held in the Company.
The issued and paid up capital of the Company is 497,947,555 ordinary shares and prior to the shares split was
331,965,037 ordinary shares.
Total liabilities have decreased from RM25 million to RM23 million was mainly due to repayment of a term loan during the
year under review. Total borrowings (term loans) have reduced by RM8 million was resulted from settlement of a foreign
currency (“USD”) term loan. This has subsequently been off-set against by capital expenditure of RM6 million for the purpose
of upgrading and improving production activities.
The Group is able to sustain its healthy cash flows position at RM37 million, slightly reduced by RM2 million as compared
to FYE 2017 despite settlement of a term loan.
The Group's financial position remains positively strong with net assets per share of 21.59 sen per share for FYE 2018
(FYE 2017: 20.83 sen per share). Basic earnings per share in FYE 2018 was 6.36 sen per share as compared to 7.32 sen
per share in FYE 2017 mainly resulted from higher cost of production due to rising cost of material prices.
Beholding at the sound financial platform, the Company has been declaring consistent dividend pay-out to reward its
shareholders. Total paid out of 5.60 sen per share revealed a lower dividend as compared to FYE 2017 of 6.17 sen per
share. However, the dividend pay-out still falls within the Company’s policy of 50% pay-out ratio.
The Management believes that continuous reinvestment is essential for the Group to be competitive in this volatile market
to ensure sustainable growth in delivering long term value to its stakeholders. The Group is also keeping abreast with
technological changes whereby continuous capital investment are vital to enhance the efficiency and productivity. In this
respect, the Group had invested substantial capital in its property, plant and equipment in previous financial years. For
the FYE 2018, most of our capital investment of RM6 million would relate mainly to maintenance and upgrading of older
production lines to further improve our productivity.
INDUSTRY TREND, DEVELOPMENT AND PROSPECT
Demand for industrial rubber hoses will continue to see a gradual recovery from both emerging and developed economies.
Moving forward, the Group will ensure it stays ahead of market trends, responding swiftly to changes through automation
and research. In the near term, the Group expects the raw material prices to trend at higher levels due to supply and demand
mechanism of raw materials and foreign exchange volatility.
Meanwhile, the additional capacity from plant 3 supports the Group in further strengthening its position in the market
with a wider range of industrial hose. However, the outlook of the global economy remains challenging and uncertain.
Nevertheless, the Group strategies are to focus on leveraging on its extensive customer network, improved productivity,
quality services and product range to enhance its competitive edge.
Barring any unforeseen circumstances, the Board believes that the Group's prospects in the forthcoming financial year
ending 30th September, 2019 (“FYE 2019”) continues to remain positive with challenges ahead and hopes to achieve a
better result than this year. The Group will continue to be well positioned to improve our performance in forthcoming FYE
2019, strive towards maintaining the Group's vision to be the world’s leading manufacturer of quality industrial hoses. We
are also encouraged by our customers for continued growth and expansion in our core business with the support from all
stakeholders.
CORPORATE GOVERNANCE
The Group is committed to implement the best practice of corporate governance to enhance and increase shareholders'
value. The Group has its risk management and internal control procedures to ensure transparency, accountability and
integrity are attained and maintained in managing the Group businesses.
Policies that the Group has officially adopted includes Corporate Disclosure Policy, Fraud Policy, Whistle Blowing Policy,
Enterprise Risk Management Policy, Succession Planning Policy and Emergency Succession Policy, where the Group will
continue to adopt more corporate policies to ensure sustainability of the Group.
The Board of Directors' responsibilities for preparing the annual audited financial statements are disclosed in the Directors'
Responsibilities Statement set in this Annual Report 2018.
The audited financial statements of Wellcall is not subject to any qualification as disclosed in the Independent Auditors'
Report to the Members.
DIVIDEND
The Board of Directors is not recommending any final dividend payment for FYE 2018.
For FYE 2018, the Company had:
i) On 29th March, 2018, paid a first interim single tier dividend of 1.55 sen per share on 497,947,555 ordinary shares
amounting to RM7,718,190;
ii) On 28th June, 2018, paid a second interim single tier dividend of 1.20 sen per share on 497,947,555 ordinary shares
amounting to RM5,975,370;
iii) On 28th September, 2018, paid a third interim single tier dividend of 1.30 sen per share on 497,947,555 ordinary
shares amounting to RM6,473,320; and
iv) On 21st December, 2018, paid a special interim single tier dividend of 1.40 sen per share on 497,947,555 ordinary
shares amounting to RM6,971,266.
The Group has been consistently paying out favourable dividends over the past five (5) financial years. The Group has also
maintained its dividend pay-out ratio over the past five (5) financial years of more than 50%.
APPRECIATION
On behalf of the Management, I wish to express my sincere appreciation and gratitude to all our valued shareholders, business
associates, government agencies, financial institutions, investment analysts, bankers and fund managers, customers,
suppliers and friends for their continued support, co-operation and confidence towards our products and services. Our
appreciation is also extended to our employees for their commitment, dedication, invaluable contribution, skills, energy
and professionalism towards the performance of the Group. The successes of the Group achieved in FYE 2018 could not
have been possible without their efforts. I would also like to thank our fellow Board of Directors for their valuable advice,
guidance and support rendered to the Group.
HUANG SHA, P.M.P
Group Managing Director