PART A: EXPLANATORY NOTES IN COMPLIANCE WITH FRS 134, PARAGRAPH 16
A1. Basis of preparation of interim financial report
The interim financial report is unaudited and has been prepared in accordance with the reporting requirements as set out in Financial Reporting Standards (‘FRS’) No. 1342004: Interim Financial Reporting and paragraph 9.22 of Bursa Malaysia Securities Berhad (“Bursa Malaysia”) Listing Requirements and should be read in conjunction with the Company’s audited financial statements for the year ended 31 December 2006.
The same accounting policies and methods of computation as disclosed in the audited accounts for the year ended 31 December 2006 have been adopted in the preparation of the third quarter ended 30 September 2007 condensed financial statements, except for the adoption of the following new and revised FRS issued by Malaysian Standards Board (“MASB”) that are effective for the Group for the financial period beginning 1 January 2007 :
FRS 6 Exploration for and evaluation of mineral resources
FRS 117 Leases
FRS 124 Related party disclosures
The adoption of all FRS mentioned above does not have significant financial impact on the Group. The current period’s presentation of the financial statements is based on the revised requirements of FRS 101, with the comparatives restated to conform with the current period’s presentation.
A2. Audit report
The audited financial statements for the Group and the Company for the financial year ended 31 December 2006 were not subject to any qualification.
A3. Seasonal and cyclical factors
The disposal foodwares business, being the main contributor to the Group for the current quarter and financial year to date is subject to factors affecting the disposal food wares industry. The performances of startup automotive parts manufacturing and automotive sales businesses are affected by the seasonality and cyclicality factors of the automotive industry. The other business segments are not affected by the seasonal or cyclical factors.
A4. Unusual and extraordinary items
There were no unusual items affecting assets, liabilities, equity, net income or cash for the current quarter and financial period ended 30 September 2007, however, included in the cost of sales is an unidentified stock loss of RM2.7 million which is pending investigation.
A5. Changes in estimates
There were no changes in estimates of amounts reported in prior interim periods of the current financial year or prior financial year that have a material effect in the current interim period.
A6. Issuance and repayment of debt and equity securities
There were no issuances, cancellations, repurchases, resale and repayments of debt and equity securities in the third quarter and financial period ended 30 September 2007.
A7. Dividends paid
There was no dividend paid during the current quarter and financial period ended 30 September 2007.
A8. Segmental reporting
9 months ended 30 September 2007
Business segment Revenue
- Disposable food wares 53,268 (8,596)
- Automotive parts 4,253 (5,548)
2 Mining of refined kaolin 12,503 291
3 Automotive sales and services
4. Investment holding - (169)
Unallocated corporate expenses - (891)
Total 79,004 (16,449)
No segmental information is provided on a geographical basis as the Group’s activities are conducted wholly in Malaysia.
A9. Valuation of property, plant and equipment
The valuation of property, plant and equipment has been brought forward without any amendment from the audited financial statements for the year ended 31 December 2006.
A10. Material events subsequent to the balance sheet date
On 6 November 2007, Success Profile Sdn Bhd, a wholly owned subsidiary of the Company was disposed given rise to a gain on disposal to the Group of RM4.07 million (based on 30 September 2007 management accounts).
Except for the above, there were no other material events subsequent to the end of the quarter and financial period-to-date up to the date of this report,
A11. Changes in composition of the Group
On 6 August 2007, Greatpac Sdn Bhd (‘GPSB’) a wholly owned subsidiary of the Company acquired 2 ordinary shares of RM1.00 each in the capital of Greatpac Trading Sdn. Bhd. (“GTSB”), representing 100% of the issued and paid-up share capital of GTSB.
On 6 November 2007, the Company entered into a Share Sale Agreement to dispose of the entire issued and paid up capital in Success Profile Sdn Bhd, a wholly owned subsidiary of the Company consisting of 19,000,000 ordinary shares of RM1.00 each for a total consideration of RM1.00.
A12. Contingent liabilities
Contingent liabilities of the Company include the following:-
9/11/07 As at
Corporate guarantees for credit facilities of subsidiaries
A13. Capital commitments
Capital commitments as at 30 September 2007 are as follows:
Property, plant and equipment
- Approved and contracted for 8,087
A14. Related party transactions
There were no significant related party transactions entered into by the Group during the financial quarter under review.
PART B: ADDITIONAL INFORMATION REQUIRED BY THE LISTING REQUIREMENTS OF BURSA MALAYSIA
B1. Review of performance
The Group registered a lower pretax loss of RM5.6 million for the current quarter against a pretax loss of RM7.1 million in the preceding year corresponding third quarter. A marginally higher revenue of RM29.1 mil was registered for the current quarter vis-à-vis RM25.6 million in third quarter last year.
The Group’s performance, mainly driven by the disposable foodwares manufacturing business, was adversely affected by the difficult business environment resulting from the prevalent high prices of petrochemical resin materials, increase in energy and fuel costs and intensified competition. The disposal foodwares business incurred a lower operating loss at RM3.7 million (before other income of RM1.1 million in recovery of trade debt) compared to RM5.3mil pretax operating loss in the preceding year corresponding third quarter, while registering a higher revenue at RM19.4 million (vis-a-vis RM17.9 million in the corresponding third quarter last year). Notwithstanding the prevailing escalations in petrochemical resin materials cost and fuel costs, the improved performance was largely attributable to the implementation of strategic pricing review and cost rationalization exercises in mitigating costs increase. The mining of refined kaolin business contributed a lower pretax profit of RM0.3 million vis-a-vis RM0.7million profit in the third quarter of the preceding year as the margins were affected due to sales mix, increased competition and the rising fuel costs cum energy cost.
Meanwhile, the slow but gradual recovery of the automotive industry and weak market sentiment in domestic car sales have affected the automotive parts manufacturing startups and automotive sales and services businesses. The automotive parts manufacturing business incurred a higher operating loss of RM2.2 million vis-à-vis RM1.6 million in the same quarter last year largely attributable to higher operating expenses and finance cost on the new coach and van air conditioners launched during the quarter. The automotive sales and services division incurred a marginally lower pretax loss of RM0.2 million during the current quarter (compared to RM0.3 million) mainly due to the encouraging sales from the launch of Suzuki Swift Completely Knocked Down (‘CKD’) model since July 2007.
B2. Variation of results against preceding quarter
The Group recorded marginally higher revenue of RM29.1 million for the current quarter over the last preceding quarter’s revenue of RM26.3 million, while registering higher pretax loss of RM5.6 million in the current quarter as compared to pretax loss of RM5.1 million in the preceding quarter.
The higher pretax operating loss at RM6.8 million (before other income of RM1.2 million) for the group vis-à-vis RM5.2 milllion loss (before other income RM0.2 million) in the preceding quarter was largely attributable to the performance of the disposal foodwares business being affected by higher cost of sales arising from an unidentified stock loss (which is being investigated) and temporary shortcomings during the progressive relocation of plants to the new manufacturing facility resulting in production constraints in meeting sales orders. During the quarter under review, the mining of refined kaolin business managed to achieve profitability at lower margins mainly due to further escalation in fuel cost and intensified competition in the export market. The automotive parts manufacturing division generated sales of RM1.9 million, with encouraging orders on coach seat, van and air conditioners sales from the replacement market. Meanwhile, automotive sales and services registered a higher turnover at RM1.9 million (as compared to the preceding quarter of RM1.3 million) in tandem with the higher demand for the Suzuki Swift CKD model.
B3. Current year prospects
The Group will continue to pursue various strategic initiatives to enhance competitive position and to manage operating costs amidst the challenging and complex business environment. With the relocation of its existing two plants into the new manufacturing facility (which is expected to be completed by the end of fourth quarter 2007). With the additions of new machineries, the disposable food wares business will be able to increase its export market reach and expand into new range of products. The mining of refined kaolin business targets to contribute further profits to the Group as measures will continue to be taken in mitigating the escalating fuel cost. Meanwhile, the automotive parts manufacturing division expects to generate higher revenue with increasing coach seat and air conditioners sales from Replacement Market. The Group expects to reduce the loss in the current financial year.
B4. Variance of actual and forecast profit
This is not applicable as there is no profit forecast or guarantee issued.
B5. Income tax expense
Current year quarter
RM`000 Preceding year
RM`000 Current year to date
RM`000 Preceding year corresponding period
Current tax :
1 23 1 23
The effective tax rate is lower than the statutory tax rate due to the availability of capital and reinvestment allowances.
B6. Profits/(losses) on sales of unquoted investments and/or properties
There were no sales or purchases of unquoted investment and/or property during the current quarter and financial period ended 30 September 2007.
B7. Quoted and marketable investments
There were no sales or purchases of quoted and marketable investments during the current quarter and financial period ended 30 September 2007.
B8. Status of corporate proposals
Proposed Par Value Reduction; Proposed Amendments to Memorandum Of Association; & Proposed Rights Issue (collectively referred to as "Proposals")
On 21 March 2007, the Company announced a proposed reduction of the issued and paid-up share capital of the Company involving the cancellation of RM 0.80 of the par value of each existing ordinary share of RM 1.00 each. The capital reserves of up to a maximum of RM 115.6 million created will allow elimination of its accumulated losses. The proposed amendments to the Memorandum of Association of the Company is to facilitate the change in the par value of the ordinary shares from RM1.00 to RM0.20 as a result of the Proposed Par Value Reduction. The Company will then implement its proposed renounceable rights issue of up to 144,482,230 Rights Shares together with up to 72,241,115 new Warrants for free in 2007, on the basis of two (2) Right Shares together with one (1) free Warrant for every two (2) ordinary shares of RM0.20 each of the Company on the entitlement day at an indicative price of RM0.35 per Rights Shares.
The submission of the above proposals to Securities Commission is extended to a later date.
B9. Group borrowings
The Group’s borrowings as at 30 September 2007 are as follows:
Short –term borrowings:-
Secured (a) 8,701
Long term borrowings :
ICULS (liability component) 33
Total Borrowings 71,421
Other payables (b) 2,918
Amount due to substantial shareholder (c )
Total group’s borrowings 95,752
(a) Security for RM4.95 million borrowings included pledge of RM4.95 million fixed deposits from a substantial shareholder of the Company, Wawasan TKH Sdn Bhd.
(b) This is in respect of an amount owing to former shareholders of a subsidiary company. The amount is unsecured, interest free and is classified under current liabilities.
(c) The advances from Wawasan TKH Sdn Bhd bear interest at 8.25% per annum (with effective from 1 January 2007) and are repayable on demand.
(d) Included in the short term borrowings are bank overdrafts outstanding at RM7.470 million.
B10. Off balance sheet financial instrument
The Group does not have any financial instruments with off balance sheet risk as at 9 September 2007 apart from outstanding forward foreign exchange contracts amounting to USD402,000 in foreign currency (i.e. equivalent amount of RM1.4 million) maturing on 1 to 19 November 2007 used for hedging purposes on the Group’s sales and purchases.
There is no credit risk to the financial instruments as these forward foreign exchange contracts are executed with creditworthy financial institutions and the possibility of non-performance by these financial institutions are remote. There is no market risk i.e. the value of the financial instruments will fluctuate as a result of changes in market prices whether those changes are caused by factors specific to the individual security or issuer or factors affecting all securities traded in the market, as the value of the forward foreign exchange contracts are fixed. The cash requirement of these forward foreign exchange contracts will be financed by internal funds.
The related accounting policies are as follows:
“Financial derivatives hedging instruments are used in the Group’s risk management of foreign currency with respect to its financial assets and liabilities. The underlying foreign currency assets and liabilities are translated at their respective hedged exchange rates. Hedging costs are recognised in the income statement as and when incurred.”
The Directors are of the opinion that the risks associated with the said forward foreign exchange contract will not have any material financial impact on the Group since the total amount of such contracts is small.
B11. Changes in material litigation
The Company is not aware of any proceedings against the Company or its subsidiaries that is pending or threatened , or of any fact likely to give rise to any proceedings, which might materially and/or adversely affect the position or business of the Company or any of its subsidiaries as at 9 November 2007.
No dividend was proposed or declared during the current quarter and the financial period ended 30 September 2007.
B13. Loss per share
The basic loss per share for the financial period has been calculated based on the consolidated profit after tax and minority interest divided by the weighted average number of ordinary shares outstanding during the period.
3 months ended
Net loss attributed to shareholders (RM’000) (5,569) (16,450)
Weighted average number of shares (‘000) 143,029 143,023
Basic loss per share (sen) (3.89) (11.50)