THE YEAR IN REVIEW
There were several extraordinary events that occurred in 2017- the fallout of the United Kingdom to leave the European Union and the results of the US presidential election which caused global uncertainty due to the policy changes which had caused reverberations across the international landscape. Domestically, our economy saw a steady growth of 5.9% in 2017 underpinned by private consumption and domestic demand.
For the Group, I am pleased to inform you that to date, both the power plants, the Libaran Power Station (“Libaran Plant”) and the Sungai Kenerong Hydroelectric Power Station (“Sungai Kenerong Plant”) are operational (after a period of non-continuous generation due to the rectification works being carried out) and have achieved more than half of its installed capacity. Most of the recommissioning works for both plants were completed in 2017 towards the second half of the year where the full recommissioning is expected to be completed by 2018. Being the main contributor for the Group, the recommissioning resulted in a marked improvement for the Energy Sector resulting in an increase of revenue by 67%. The Food and Beverage (“F&B”) and Tourism Sector, driven by the Tourism segment continued to contribute positively to the Group. In the restaurant segment, we had rationalised and ceased the operations of the non-profitable outlets, given their loss making record and lack of contribution to the Group, which had resulted in savings in operational expenses. However, the Manufacturing Sector saw a decline in revenue due to the lower local sales demand from the construction sector.
Operationally, the Group had performed better in FY 2017 compared to Fiscal Year 2016 (“FY 2016”) in registering a Loss after Tax (“LAT”) of RM18.56 million in FY 2017 compared to LAT of RM20.41 million in FY 2016. With the continued efforts to ensure that both power plants are fully operational, the Group is poised for a better year ahead.
The Group recorded revenue of RM53.2 million in FY 2017 compared to RM51.28 million recorded in FY2016. Despite the marginal increase in revenue, the Group had recorded lower Loss Before Tax (“LBT”) by 21.3% year on year (“y-o-y”) registering a LBT of RM12.91 million in FY 2017 compared to RM16.41 million in the preceding year due to the partial recommencement of operations in both power plants from the second quarter of 2017. The lower operating expenses in the FY 2017 resulting from the significant reduction in the impairment losses on the Group’s assets by RM12.9 million y-o-y, had further contributed towards the financial performance of the Group. The F&B and Tourism sector had also experienced an improvement of RM0.32 million in Profit Before Tax (“PBT”) to record PBT of RM8.02 million for FY 2017 resulting from the savings in operational expenses due to the cessation of non-profitable outlets. Despite the reduction in revenue for the local sales, the export sales of low voltage switchgear items and Light Emitting Diode (“LED”) had increased in FY 2017 as more projects were secured for the year.
The Group had overcome several challenges during the year in recommissioning both its power plants after the power plants were adversely affected by the major disruptions over the last three (3) financial years mainly due to the much needed repair, overhaul and replacement of the assets and equipment at the Libaran Plant and Sungai Kenerong Plant.
OPERATIONAL REVIEW (CONT’D)
To date, two (2) out of the four (4) diesel engines of the Libaran Plant have been recommissioned, whilst the remaining replacement, restoration, overhaul and maintenance works on the Libaran Plant is targeted to be completed by the third quarter of 2018.
At the end of 2014 and early 2017, the operations of the Sungai Kenerong Plant were severely affected by the flood in Kelantan which had subsequently caused in major landslides, affecting amongst others, the sub-station, pipelines, fibre optic cables, communications system and the access roads that link the power houses and the intake stations.
The Group had over the years, taken several measures to rectify the issues that include, amongst others, the repair and overhaul of the turbine engines of the power plant, procuring mechanical and electrical components of the power plant including the pumps, turbine bearings, generators, switchgears, control systems, standby generators and transformers; and the repair of damaged bridges and access roads. The Group expects that the recommissioning of the four (4) turbine engines of the Sungai Kenerong Plant to be completed no later than the second quarter 2018.
The replacement, restoration, overhaul and maintenance works will continue subsequent to the recommissioning of the both the power plants to ensure optimal performance.
The Tourism segment continues to be the main driver for the F&B and Tourism Sector and was the main contributor to the performance of the Group in FY 2017 via the ticketing sales as well as the revenue generated from the retail outlets. For the F&B segment, the Group continued to rationalise the loss making outlets within the restaurant segment and took a prudent decision to cease the operations of these entities, which resulted in savings in operational expenses.
The Manufacturing Sector continues to increase the contribution of its LED business. More research and development was carried out during the year to improve the specifications of the LED products that is currently being offered.
Global economic growth is expected to edge up to 3.9% as the recovery in investment, manufacturing and trade continues. Malaysia’s economy is expected to expand between 5.0% and 5.5% (2017: 5.9%), on the back of healthy consumer spending and private investments. In view of the moderate growth in the global economy, the Group expects the Malaysian economy to be able to overcome its economic challenges. The Group will continue to focus on the strategies that have been chartered for the Group which, amongst others is to strengthen the existing businesses whilst ensuring that the Group is in a healthy cash flow position to overcome future challenges.
The Group is definitely in a much more favourable financial position than it was three years ago. With the recommissioning of the power plants, the Group expects an improvement in its financial and business performance. The Group expects the Libaran Plant to remain relevant in the industry as the demand for the East Coast remains a priority to enable less dependency on the supply of electricity from the West Coast of Sabah whereas the Sungai Kenerong plant has a substantial number of years left in its concession.
FUTURE PROSPECTS (CONT’D)
The projected growth in the overall tourism sector is expected to register higher tourist arrivals and rising per capita spending of which Tourism Malaysia targets tourist arrivals to increase to 33.1 million in 2018, from 25.9 million in 2017. The Group expects to benefit from the increased number of tourists to Underwater World Langkawi (“UWL”) coupled with the proposed refurbishment and enhancement of the retail spaces of UWL for food, beverages and merchandises and the enhancement of its exhibition centre to house new exhibits. The F&B segment will continue to strengthen its catering segment in light of the high growth potential in managing halls as well as convention centres.
Due to the smaller margins envisaged in the future for its low voltage switchgear products, the Manufacturing Sector will continue to make inroads on the development and expansion of its LED street light business with improved product specifications.
The sector has identified a big market potential in the supply and installation of LED lighting items. The sector has been actively seeking and securing new retrofit and installation projects for LED lights. Customers are increasingly becoming aware of the benefits of LED lights. The adoption of LED lights will see increasing rate of adoption in the lighting market as product quality improves and cost decreases. The sector will continue to pursue and secure opportunities in the LED market.
Based on the above, the Group expects to show improvement in its performance primarily driven by the Energy Sector upon the full recommissioning of power plants by the third quarter of 2018.
Despite being at only the developing stages in our sustainability efforts in terms of having comprehensive documentation for the sustainability reporting, the Group is not short of already implementing sustainability measures, particularly in its Energy Sector. We have made more headway in our sustainability initiatives for the Group this year to enable the initiatives to be further embedded in our business processes.
My heartfelt gratitude is extended to the management and staff who have worked tirelessly, with tenacity and drive in this challenging year, and to the Board, for their invaluable counsel and support. As always, we are grateful to our stakeholders; our shareholders, customers, business associates, vendors, relevant authorities and bankers whom have supported us through these years, through these challenging times, thank you for all the support that you have given to the Group and may we all look forward to a better year ahead.