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 (“Wellcall”) and its subsidiary company (“Group”) for the financial year ended 30 September 2017 (“FYE 2017”).
OVERVIEW
In FYE 2017, our performance was commendable and we managed to sail through our challenging journey amidst the volatility in 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 economies.
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 the global economy.
BUSINESS AND OPERATIONS REVIEW
The principal activity of Wellcall is investment holding, while the principal activity of a wholly-owned subsidiary 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 90% of the Group's revenue covering over 70 countries while the remaining of approximately 10% was derived from the 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 25 of the FYE 2017 financial statements.
We have been continuously leveraging on our extensive customer network, improved productivity, quality services and our product range in FYE 2017. 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 35 years of industry knowledge 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 expand our customer base to more than 180 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 our 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 profi tability. The Group’s revenue and purchases are primarily traded in foreign currency and it is the Group’s practice to keep its foreign currency exposure to an acceptable level.
To deepen the Group's talent pool, we continue to recruit or engage professionals and experienced personnel from various fi elds to cater for future expansion. The Group continually reviews its human resource policies and practices to ensure staff welfare 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 RM158 Million Mark
The Group recorded revenue of RM159 million, representing an increase of RM24 million or approximately 18% as compared to RM135 million in last financial year ended 30 September 2016 (“FYE 2016”). The increase in revenue mainly attributable to higher sales volume and fairly benefited from the strengthening of the foreign currency translation arising from export sales.
Our export sales accounted for approximately 90% of total revenue representing RM143 million while the remaining of approximately 10% was from local sales capturing RM16 million. Comparatively with FYE 2016, export sales had increased by RM21 mil (17%) and local sales had also increased by RM3 mil (23%). The overall increase in revenue mainly resulting from the continuation of recovery in global demand for industrial rubber hose.
| RM'mil |
FYE 2017 |
FYE 2016 |
Change |
| Revenue: |
|
|
|
| (a) Export market |
143 |
122 |
21 |
| (b) Local market |
16 |
13 |
3 |
| Total |
159 |
135 |
24 |
The Group recorded a profit after taxation (“PAT”) of RM36 million for FYE 2017 compared to PAT of RM31 million recorded in FYE 2016, representing an increase of RM5 million, approximately of 16%. Higher PAT was mainly arising from increased in revenue for the year despite higher cost of operating, increased in expenses for the year under review.
The table below highlights the Group’s key financial performance for FYE 2017:
| RM'mil |
FYE 2017 |
FYE 2016 |
Change |
| Revenue |
159 |
135 |
24 |
| Expenses |
114 |
97 |
17 |
| Other Operating Income |
3 |
2 |
1 |
| Gross Profit |
59 |
52 |
7 |
| Profit Before Taxation |
48 |
40 |
8 |
| Profit After Taxation |
36 |
31 |
5 |
| Gross Profit Margin |
37% |
39% |
-2% |
| Pre-Tax Margin |
30% |
30% |
0% |
| Net Profit Margin |
23% |
23% |
0% |
Notwithstanding with the pressure from the raw materials prices that continue to fluctuate due to global supply and demand and movements in foreign exchange, the Group managed to register and maintain its pre-tax margin and profi t margin of 30% and 23% respectively. The gross profit margin faced a slight compression of 2% recorded from 39% to 37% mainly due to the increase in raw material price off set by a slight increase in average selling price.
Strong Financial Position with Healthy Cash Flows
| RM'mil |
FYE 2017 |
FYE 2016 (Restated) |
Change |
| Total Assets |
129 |
134 |
-5 |
| Total Liabilities |
25 |
36 |
-11 |
| Total Equity |
104 |
98 |
6 |
| Total Borrowings |
8 |
18 |
+10 |
| Cash and Bank Balances |
39 |
37 |
2 |
| Net Asset Per Share (sen) * |
20.83 |
19.66 |
1.17 |
| Basic Earnings Per Share (sen) * |
7.32 |
6.28 |
1.04 |
| Dividend Per Share (sen) * |
6.17 |
6.13 |
0.04 |
* Adjusted to reflect the shares split of every two (2) ordinary shares into three (3) ordinary shares held in Wellcall Holdings Bhd. (“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 RM36 million to RM25 million was mainly due to repayment of a term loan during the year under review. Total borrowings (term loans) have reduced from RM18 million to RM8 million was resulted from settlement of a local currency (“RM”) term loan.
The Group able to sustain its healthy cash flows position at RM39 million, RM2 million above FYE 2016 at RM37 million despite settlement of a term loan.
The Group's financial position remains positively strong with net assets per share of 20.8 sen per share for FYE 2017 (FYE 2016: 19.7 sen per share). Basic earnings per share in FYE 2017 was 7.3 sen per share as compared to 6.3 sen per share in FYE 2016 mainly resulted from increase in earnings for the year.
Beholding at the sound financial platform, the Company has been declaring consistent dividend pay out to reward its shareholders. Total paid out of 6.17 sen per share revealed a higher dividend as compared to FYE 2016 of 6.13 sen per share.
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 2017, most of our capital investment of RM1 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 30 September 2018 (“FYE 2018”) 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 2018, 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 2017.
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 2017.
For FYE 2017, the Company had:
i) On 29th March 2017, paid a first interim single tier dividend of 2.30 sen per share on 331,965,037 ordinary shares amounting to RM7,635,197;
ii) On 22nd June 2017, paid a second interim single tier dividend of 2.30 sen per share on 331,965,037 ordinary shares amounting to RM7,635,196;
iii) On 29th September 2017, paid a third interim single tier dividend of 1.55 sen per share on 497,947,555 ordinary shares amounting to RM7,718,190; and
iv) On 22nd December 2017, paid a special interim single tier dividend of 1.55 sen per share on 497,947,555 ordinary shares amounting to RM7,718,187.
The Group has been consistently paying out dividends with increasing trend 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 confi dence 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 2017 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