MANAGEMENT DISCUSSION AND ANALYSIS
DEAR VALUED STAKEHOLDERS,
It is my honour to present the Annual Report and audited financial statements of
Wellcall Holdings Berhad (“the Company”) and its subsidiary company (“Wellcall”
or “the Group”) for the financial year ended 30th September, 2020 (“FYE 2020”).
OVERVIEW
The financial year under review was challenging not only to the Group but to all industries across Malaysia and
globally. As the novel coronavirus (“Covid-19”) pandemic severely impacted economies globally, the global
demand and supply chain had been disrupted by the worldwide lockdowns and travel restriction. In Malaysia,
the government initially implemented Movement Control Order (“MCO”) on 18 March 2020 and extended it to 9
June 2020, later, moving to a Conditional MCO (“CMCO”) and finally to a Recovery MCO (“RMCO”) to mitigate the
spread of Covid-19. These restrictions adversely affected the Group’s operations as the MCO lockdown required
temporary closure and cessation of its operations during that period. However, with the approval from the Ministry
of International Trade and Industry (“MITI”) the Group was able to recommence its operations during the MCO,
operating under strict guidelines set by the National Security Council, Ministry of Health and MITI.
MCO and Covid-19 pandemic has had an profound effect on the operations of many of our customers, both
locally and overseas, and thus our financial performance was somewhat adversely impacted but thankfully, not
significantly.
The Management has coped well and will continue to prioritise protecting our workers and their families against
Covid-19 as well as having contingency plans to deal with the various possible scenarios arising from the pandemic.
BUSINESS AND OPERATIONS REVIEW
The principal activity of the Company for FYE 2020 is investment holding, while the principal activity of a whollyowned
subsidiary company is manufacturing industrial rubber hose for customers who are mainly in the business
of distributing rubber hose to original equipment manufacturers and property investment. 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.
We export our products to overseas covering over 70 countries where the export market accounted for
approximately 90% of the Group’s revenue with the balance, from local market. Hence, the market sentiment in
the global economy plays an important role in driving the demand for rubber hose especially for replacement as
well as product variations and penetration to new markets. Our geographical market segment is as disclosed in
Note 28 of the FYE 2020 financial statements.
We have been continuously leveraging on our extensive customer network, improved productivity, quality services
and our product range in FYE 2020. We will continually strive to enhance our competitive strengths in these areas
to stay ahead of market trends. Our vast experience in the rubber hose industry have served as a concrete platform
for our presence in the rubber hose industry globally. Our product quality and reputable customer service have also
aided us to maintain long term relationship with our esteemed customers. The Group also has a strong research
and development team consisting of experienced personnel to deliver improved and innovative products and new
processes. This value-added services and products customisation according to the customer’s specification are
provided to our customers in order to meet their requirements.
The Group’s products range has expanded to various industry applications ranging from air and water, oil and
gas, welding, automotive, ship building, abrasion, food and beverages and chemical applications. 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.
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 training has 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 welfare are well taken care of.
FINANCIAL PERFORMANCE REVIEW
Review on Statements of Comprehensive Income
The Group reported revenue of RM 135 million with a slight decrease of RM 35 million, representing reduction
of 21% as compared to preceding financial year ended 30th September, 2019 (“FYE 2019”). The export and
local market contributed approximately 90% and 10% respectively to the Group’s annual revenue. The decrease
in revenue over the year was mainly due to the outbreak of Covid-19 pandemic followed by the imposition of
“lockdowns” by the various countries.
Despite a slight decrease in revenue for FYE 2020, the Group managed to achieve a higher gross profit margin at
38% compared to 36% for FYE2019. The impact of higher in gross profit margin was due to operational efficiency
arising from effective costs management and productivity.
The following tables highlight the Group’s key financial performance for FYE 2020:-
| RM'mil |
FYE 2020 |
FYE 2019 |
Change (%) |
| Revenue: |
|
|
|
| (a) Export market |
122 |
154 |
-21 |
| (b) Local market |
13 |
16 |
-19 |
| Total |
135 |
170 |
-21 |
| RM'mil |
FYE 2020 |
FYE 2019 |
Change (%) |
| Revenue |
135 |
170 |
-21 |
| Expenses |
98 |
123 |
-20 |
| Other Operating Income |
3 |
3 |
- |
| Gross Profit |
51 |
62 |
-18 |
| Profit Before Taxation |
39 |
50 |
-22 |
| Profit After Taxation |
29 |
37 |
-22 |
| |
|
|
|
| Gross Profit Margin |
38% |
68% |
6 |
| Pre-Tax Margin |
29% |
29% |
- |
| Net Profit Margin |
21% |
22% |
-5 |
The Group recorded a lower profit before taxation (“PBT”) of RM 39 million for FYE 2020 compared to PBT of RM
50 million recorded in FYE 2019, representing a decrease of RM 11 million, approximately of 22%. Despite with
the lower PBT, the Group was able to sustain its Net Profit Margin at 21% which has slightly decrease by 1% as
compared to FYE 2019.
The Group also realises that non-financial performance measurement is equally essential for an organisation as it
helps to establish a connection between strategies and daily tasks. The following are non-financial performance
measurements for the Group :-
Customer Retention
In order to maintain customer retention, our Marketing team plays a vital role as they have to maintain regular
contact with customer to ensure that all issues are addressed and followed up on a timely basis. The team has
also performed data analytics on customers purchases in an attempt to predict their purchasing behaviour. The
team regularly attempts to engage with inactive or dormant customers in order to win them back. Nevertheless,
our Production team also play an important role in customer retention by providing the right products as per
customers’ requirements on a timely basis.
Customer Satisfaction
The Marketing team manages the feedback received from customers professionally and timely in order to keep
and maintain the long-term relationship with our esteemed customers. All enquiries received from customers will
be handled by the respective marketing person in charge on a timely basis in order to understand the customers’
expectation on our products.
On Time Delivery
The Group practices order flexibility for customers in terms of order quantities as well as variety of product types.
The Group also maintains a short sales lead time from placing of orders to delivery of goods. This is an essential
requirement to customers by meeting the delivery time agreed upon during the order. On time delivery is essential
for the Group to maintain its long-lasting relationship with customers as time factor is always key to the customer.
Review on Statements of Financial Position
| RM'mil |
FYE 2020 |
FYE 2019 |
Change (%) |
| Total Assets |
140 |
138 |
1 |
| Total Liabilities |
20 |
22 |
-9 |
| Total Equity |
121 |
116 |
4 |
| Total Borrowings |
- |
- |
- |
| Cash and Bank Balances |
56 |
53 |
6 |
| |
|
|
|
| Net Asset Per Share (sen) * |
24.27 |
23.38 |
4 |
| Basic Earnings Per Share (sen) * |
5.90 |
7.39 |
-20 |
| Dividend Per Share (sen) * |
5.00 |
5.60 |
-11 |
* 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.
The Group’s total assets recorded at RM 140 million for FYE 2020 compared to RM 138 million for FYE 2019.
The increase was mainly due to increase in cash and cash equivalents from RM 53 million for FYE 2019 to RM
56 million for FYE 2020. Despite increase in cash and cash equivalents amounted to RM 3 million, inventories
and trade receivables were decreased by RM 4 million for FYE 2020 compared to FYE 2019 due to more effective
controls in stockholding period and credit controls for trade receivables. In addition, there was a purchase of
investment property amounted to RM 3 million during the financial year under review.
Total liabilities have slightly decreased from RM 22 million to RM 20 million mainly due to reduce in trade and other
payables.
The Group’s financial position remains positively strong with net assets per share of 24.27 sen per share for FYE
2020 (FYE 2019: 23.38 sen per share) while basic earnings per share in FYE 2020 was 5.90 sen per share as
compared to 7.39 sen per share in FYE 2019.
With the Company on sound financial footing, the Company has been declaring consistent dividend pay-out
to reward its shareholders. The total dividend paid out of 5.00 sen per share for FYE 2020 is slightly lower as
compared to FYE 2019 of 5.60 sen per share.
Review on Statements of Cash Flow
The Group recorded a net cash from operating activities of RM 38 million for FYE 2020, representing a reduction of
RM 11 million, representing 22% decrease compared to FYE 2019. This is mainly due to the reduction in revenue
for FYE 2020 which eventually led to a reduction in profit before taxation. The decrease in net cash from operating
activities was the net off effect of decrease in net change in working capital changes and decreased in tax paid
amounted to RM 10 million for FYE 2020 compared to RM 12 million for FYE 2019.
Net cash flow used in investing activities was amounted to RM 9 million for FYE 2020 compare to RM 6 million
for FYE 2019. The investing activities mainly include the purchase of property, plant and equipment, investment
property and investment in associate company for the financial year under review.
The Group’s net cash used in financing activities amounted to RM 25 million for FYE 2020 compared to RM 28
million for FYE 2019. The difference was due to lower dividends paid out.
Capital Expenditure
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 efficiency and
productivity. In this respect, the Group had invested substantial capital in its property, plant and equipment in
previous financial years. During the financial year, the Group’s spent total of RM 1.33 million on property, plant
and equipment which relate mainly to maintenance and upgrading of older production lines to further improve our
productivity. An addition of RM 3.56 million on investment property was incurred to acquire a land and building at
Mukim Belanja, Kinta.
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, Code of Conduct and Ethics
for Company Directors, Fraud Policy, Anti-Bribery and Corruption Policy, Whistle Blowing Policy, Enterprise Risk
Management Policy, Succession Planning Policy and Emergency.
The Board of Directors’ responsibilities for preparing the annual audited financial statements are disclosed in the
Directors’ Responsibilities Statement set in this Annual Report 2020.
The audited financial statement of Wellcall is not subject to any qualification as disclosed in the Independent
Auditors’ Report to the Members.
RISK RELATING TO OUR BUSINESS
Exposure to Credit Risk
The Group’s exposure to credit risk arises primarily from trade receivables, especially during this Covid-19
pandemic which affected the global economic. Nevertheless, the Group continuously monitor the customers’
credit evaluation and credit control closely in order to mitigate credit risk.
Fluctuation of Raw Materials Costs
The Group is exposed to raw materials costs fluctuation which may adversely affect the cost of sales and gross
profit margin of the Group. Realising this issue, the Group has taken necessary steps to reduce the risk of constant
price fluctuations by plans the raw materials purchases systematically as well as negotiate the prices with the
relevant suppliers before placing orders. The Group shall ensure that these initiatives are carried out without
compromising its products quality.
Competitive Risk
The Group is exposed to competitive risk for its products from other competitors in the aspects of both prices and
quality. In order to minimise this competitive risk, the Group’s Research and Development team has continuously
improved the quality of our products while maintaining a competitive price in order to retain customers.
Economic Risk
The Group’s exposure to economic risk primarily from the world economic downturn which may affect the Group’s
revenue. The economic risk is also associated with credit risk which may affect creditworthiness of customers
and consequently affect the Group’s collection. In order to cope with the economic risk, a sound credit control
procedure is in practice to monitor collections closely.
Covid-19 Pandemic
There are uncertainties on the Covid-19 pandemic and its potential impact to societies, businesses and supply
chain. In order to mitigate the risk, the Group adhere strictly to the Standard Operating Procedures (“SOPs”) and
government regulations to ensure the health and safety of our employees, suppliers, customers and business
associates amidst the pandemic.
INDUSTRY TREND, DEVELOPMENT AND PROSPECT
The demand for industrial rubber hoses will continue to see a gradual recovery from both emerging and developed
economies. However, with the prevailing issues, the Group believes that the outlook for financial year ending 30th
September, 2021 (“FYE 2021”) would be more challenging than previous years. Moving forward, the Group shall
take prudent measures to enhance safety of its employees, mitigate business risks, strengthen internal controls
and among others, to sustain the businesses during this time of uncertainty. In the near term, the Group expects
the raw material prices to continue an upward trend due to limited supply and increasing demand of raw materials
as well as foreign exchange volatility. The USD continues to weaken which often indirectly contributes to higher
inflation for businesses and later impact the Group’s profitability eventually.
Moving forward, the outlook and headwinds of the global economy remains challenging, particularly in the industrial
rubber hose market. Nevertheless, the Group strategies are to focus on leveraging its extensive customer network,
productivity, quality service and product range to enhance its competitive edge. Correspondingly, the Group
continues to remain responsive, resilient and vibrant to sail through and surpass challenges ahead. Barring any
unforeseen circumstances due to Covid-19 crisis, the Board believes that the Group’s prospects in the forthcoming
FYE 2021 continues to remain positive despite challenges ahead
and hopes to achieve a better result than this year. Although, FYE 2020 was characterised by uncertainties, the
Group believes that the overall impact of the pandemic to the global economy is temporary in nature. The Group
will continue to be well positioned to improve our performance in forthcoming FYE 2021, 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.
For the year ahead, the Group will continue its effort in widening the customer base through geographical
expansion. We will continue to expand into existing markets, namely Europe, USA, Canada, Middle East, Asia,
Australia/ New Zealand, South America and Africa. Our experienced and customer-oriented marketing team will
venture into new countries in order to further expand our customer base. All enquiries from potential customers
will be attended to promptly and accurately by team members.
DIVIDEND
For FYE 2020, the Company had:
i) On 26th March, 2020, paid a first single tier dividend of 1.45 sen per share on 497,947,555 ordinary shares
amounting to RM 7,220,242;
ii) On 26th June, 2020, paid a second single tier dividend of 1.10 sen per share on 497,947,555 ordinary shares
amounting to RM 5,477,625;
iii) On 25th September, 2020, paid a third single tier dividend of 1.00 sen per share on 497,947,555 ordinary
shares amounting to RM 4,979,478; and
iv) On 23rd December, 2020, paid a fourth single tier dividend of 1.40 sen per share on 497,947,555 ordinary
shares amounting to RM 6,971,266.
The Group has been consistently paying out dividends over its financial years. The Group has also exceeded its
dividend pay-out ratio over the past six (6) financial years. The Company’s policy is to maintain a dividend pay-out
ratio of at least fifty percent (50%) of its net profit per year. Prior to dividend declaration for approval, the Group
ensures that it meets the provision under the Companies Act 2016 as prescribed by the solvency test as well as
its profit availability test.
APPRECIATION
On behalf of the Management, I would like to take this opportunity to thank all our valued customers, business
partners, bankers and professional advisers for their invaluable contribution, dedication and continued support. Our
appreciation is also extended to our employees for their commitment, dedication, contribution and professionalism
towards the performance of the Group. I would also like to thank our Board of Directors for their valuable advice,
guidance and support rendered the Group.
HUANG SHA, P.M.P
Group Managing Director