Quarterly Report For The Financial Period Ended 31 December 2016

Financials Archive

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Unaudited Condensed Consolidated Income Statement For the quarter ended 31 December 2016

Income Statement

Unaudited Condensed Consolidated Statement of Financial Position As at 31 December 2016

Balance Sheet

Performance Review

Overall, the Group posted an increase of 74.15% to RM102.64 million in net profit after tax for the financial year ended 31 December 2016 from RM58.94 million previously. Group revenue double to RM143.35 million from RM71.35 million a year ago.

The higher revenue was due to the growth in water-related trading business of Aqua Flo Sdn Bhd ("Aqua-Flo"), as well as first time contributions from the newly acquired manufacturing and licensing businesses of Century Bond Berhad ("CBB") and Kaiserkorp Corporation Sdn Bhd ("Kaiserkorp"), respectively.

a) Current quarter against previous year corresponding quarter

Continuing Operations

Group revenue increased significantly to RM63.38 million compared with RM17.56 million for the corresponding quarter 2015, representing an increase in revenue by 261% or RM45.82 million. This was largely attributable to higher sales in the trading business of Aqua Flo Sdn Bhd ("Aqua-Flo") by RM8.11 million, as well as contributions from the newly-acquired manufacturing and licensing businesses of CBB with revenue of RM26.32 million and Kaiserkorp with revenue of RM9.61 million respectively.

For the current quarter ended 31 December 2016, the Group registered a loss before tax of RM24.47 million as compared to a profit before tax of RM1.16 million for the preceding year corresponding quarter 2015. Losses in the current quarter was mainly due to share of losses of associates of RM3.98 million as compared to share of profit of associates of RM43.14 million in the corresponding quarter 2015. In addition, the Group has provided provision in diminution for investment in Ceres Telecom Sdn Bhd of RM9.64 million in accordance with FRS 136- Impairment of Assets.

Performance of the respective operating business segments for the fourth quarter ended 31 December 2016 as compared to the preceding year corresponding quarter is analysed as follows:

1. Manufacturing

Arising from the completion of acquisition in CBB on 8 November 2016, the Group has consolidated two months' results of CBB with revenue and profit contributions of RM26.32 million and RM4.94 million respectively. 77% or RM20.37 million of the sector's revenue was from paper packaging and the remaining was from plastic packaging and others.

2. Trading

Trading sector revenue of RM23.65 million was 52% or RM8.11 million higher than the corresponding quarter's revenue of RM15.54 million. The significant increase in revenue was attributed to supply of chemicals to PNSB Water Sdn Bhd, a new contract which Aqua Flo secured in May 2016.

Correspondingly, on current quarter against corresponding quarter 2015 comparison, profit before tax for the current quarter was higher by RM0.30 million in line with increase in revenue. However, the profit margin has slightly deteriorated due to increase in raw material prices.

3. Licensing

The licensing sector posted RM9.61 million revenue to the Group during the current quarter. During the period under review, the Group has reviewed the amortisation policy of the intangible assets namely the trademarks and patents of King Koil Licensing Company (Inc), a subsidiary of Kaiserkorp. Arising thereto, the Group has written off certain trademark and patents that were no longer in use amounting to RM2.06 million. In addition, the sector also incurred high sales and marketing cost of RM3.51 million in the current quarter in preparation for the Winter 2017 Las Vegas Market that was held from 22 January to 26 January 2017. Consequently, the sector recorded a loss before tax of RM2.09 million in the current quarter.

4. Infrastructure and utilities

For the current quarter, infrastructure and utilities sector recorded a loss of RM7.52 million as compared to the corresponding year quarter's profit of RM41.91 million, an adverse variance of RM49.44 million. Higher losses recorded in the current quarter was mainly due to higher share of losses of Syarikat Pengeluar Air Selangor Holdings Berhad ("SPLASH Holding"), a 30% associated company. The share of losses from SPLASH Holdings for the current quarter was RM8.53 million as compared to share of profit of RM39.43 million in Q4 2015 and was due to impairment loss on trade receivables and accounting impact of IC 12.

5. Oil and gas

For the current quarter, NGC Energy Sdn Bhd ("NGC Energy") registered a higher profit after tax of RM7.79 million as compared to a profit of RM5.67 million in the corresponding quarter of 2015. Higher profit recorded during the current quarter as there was no fair value adjustment on derivatives as compared to Q4 2015 of RM2.29 million. Thus, the Group's share of profit was higher at RM3.12 million as compared to a share of profit of RM0.74 million in the corresponding quarter 2015.

6. Telecommunication

The Group's share of profit from Ceres Telecom Sdn Bhd ("Ceres") for the current quarter was RM0.43 million as compared to a share of profit of RM0.49 million for the corresponding quarter of 2015.

7. Investment holding and others

Investment holding and others recorded revenue of RM40.82 million as compared to RM4.66 million in the corresponding quarter 2015 mainly due to higher dividend income by RM34.60 million coupled with higher rental income. This sector recorded a loss before tax of RM26.05 million as compared to a profit of RM2.96 million in the corresponding quarter 2015 mainly due to provision in diminution on investment in subsidiaries of RM22.03 million.

Commentary On Prospects

1. Manufacturing

The acquisition of Century Bond Berhad ("CBB") was completed on 8 November 2016. This new acquisition satisfies the stringent investment criteria as CBB has shown steady financial performance with healthy margins as well as cash reserves. CBB is currently the market leader in cement packaging in Peninsular Malaysia with a 60% market share. It is well known for its reliability and quality of its product and has been supplying to leading cement players in Malaysia for several years. CBB also supply cement bags to neighboring countries such as Singapore, Indonesia and Thailand.

CBB's primary focus would be on growing its cement packaging business in the domestic and international markets. To propel our growth in the Malaysian market, the Group intends to enter new segments by developing new products such as paper packaging for food and fertilizer.

Regionally, the Group hopes to tap into the opportunity of the increasing infrastructure spending and capital projects in South East Asia, which present tremendous growth opportunities.

2. Trading

The Company had on 25 May 2016 entered into agreements with Prismachem Sdn Bhd and Hydrovest Sdn Bhd to enable the Company to directly hold 51% equity stake in Aqua Flo Sdn Bhd ("AFSB") which is involved in the sale of chemicals and equipment for the potable water industry. The prospects for trading sector are positive as AFSB has been recently awarded three (3) new contracts from Konsortium Air Selangor Sdn. Bhd, PNSB Water Sdn Bhd and Konsortium ABASS Sdn Bhd respectively, with a total estimated value of RM98.11 million over a period of two years.

In addition to delivering on these contracts, the company would continue bidding for new contracts for supply of water treatment chemicals and equipment. At the same time, the Group would endeavour to undertake strategic initiatives to enhance future profitability by enhancing operational efficiency and venturing into other water-related businesses.

3. Licensing

The Group had on 23 May 2016 completed the acquisition of 60% equity stake in Kaiserkorp Corporation Sdn Bhd, which wholly-owns King Koil Licensing Company Inc ("KKLC"). KKLC owns King Koil® mattress brand licensing business and other related trademarks registered in the USA and around the world. This acquisition granted the Group access into an established consumer business with exciting opportunities to penetrate high-growth international markets. The Group foresee growing positive contribution to the Group as we implement our Value Creation Plan to increase brand visibility worldwide, expand its geographical presence through our licensees and accelerate the growth of the brand's market share in the United States.

4. Infrastructure and utilities

The outlook for the water services sector is expected to be positive with opportunities arising from the State Government's consolidation exercise to provide a holistic water services in Selangor, Kuala Lumpur and Putrajaya. In the light of this opportunity, the Group through its wholly owned subsidiary Nadi Biru Sdn Bhd ("Nadi Biru"), has ventured into the water pipe rehabilitation business through 51% holding in Smartpipe Technology Sdn Bhd ("SPT"). During the year, SPT had obtained the product certification and C1 license from Suruhanjaya Perkhidmatan Air Negara ("SPAN") and registered as G7 contractor with CIDB which enables the Company to undertake the water and sewerage projects.

Being a new technology in this region, extra effort is required to market and promote the compact pipe technology. As such, SPT is constantly engaging various parties such as Air Selangor and other state water agencies to facilitate further understanding. The Group is encouraged by compact pipe technology's remarkable success in several countries including Hong Kong, where its installation drastically reduced non-revenue water (NRW) levels from 27% in 2000 to 15% in 2015. The Group would hope to replicate this success locally.

With the imminent takeover of Group's holding 30% equity interest in Syarikat Pengeluar Air Selangor Sdn Bhd ("SPLASH") held through Viable Chip (M) Sdn Bhd, a wholly owned subsidiary of the Company, the Group is continuously assessing business opportunities in sectors where it already has existing investments as well as new business sectors or areas to ensure sustainability of the Group.

5. Oil and gas

Future outlook for the oil and gas sector will be challenging due to the weaker Ringgit Malaysia against the US Dollar. However, during the first quarter of 2016, oil prices have recovered from its low of USD29 per barrel in January 2016 to USD54 per barrel in December 2016. The Group remains confident in the long-term prospects of the oil and gas sector as the Group expects an increase in demand for liquefied petroleum gas in the domestic and commercial sectors over the next few years.

6. Telecommunication

For the telecommunication sector, Ceres Telecom Sdn Bhd ("Ceres"), a 34.35% associated company, is currently pursuing several initiatives to streamline its business and improve its financial performance; refocusing of its market segment, introducing new products, extending its network of distributors. Efforts are continuously being pursued in order to ensure that Ceres contributes positively to the results of the Group in the future.