Chairman's Statement

Dear Shareholders,

On behalf of the Board of Directors of Knusford Berhad ("KB" or "the Group" or "the Company"), I am pleased to present the Annual Report and Audited Financial Statements for the Group for the Financial Year Ended 31 March 2023 ("FYE 2023"). FYE 2023 is the first full year for KB in its revised financial year which now ends in March. The last financial period consists of 15 months results from January 2021 to March 2022 ("FPE 2022").

The Group has completed the following corporate exercises during the FYE 2023:

  1. On 22 July 2022, a wholly-owned subsidiary of the Company, Knusford Resources Sdn Bhd ("KRSB") has entered into a conditional Sale and Purchase Agreement ("SPA") with Success Straits Sdn Bhd ("SSSB"), a wholly-owned subsidiary of Iskandar Waterfront City Berhad ("IWCB"), a related company for the proposed acquisition of a parcel of freehold vacant land held under Geran Hakmilik No. 90571, Lot No. 726, Mukim of Pulai, District of Johor Bahru, State of Johor ("Subject Property") at the purchase consideration of RM53.24 million ("Proposed Acquisition").

    The Purchase Consideration will be satisfied via a settlement arrangement, wherein a total amount of RM50.76 million, being the sum due and payable by IWCB and its subsidiaries (collectively, the "IWCB Group") to the Company and its subsidiaries (collectively, the "Knusford Group" or the "Group") ("Settlement Sum") shall be set-off against the Purchase Consideration. Meanwhile, the remaining balance of RM2.48 million ("Differential Amount") will be satisfied entirely in cash.

    In conjunction with the Proposed Acquisition, the Company had on the even date entered into a conditional settlement agreement ("Settlement Agreement") with IWCB to settle the Settlement Sum by way of set-off against the Purchase Consideration for the Proposed Acquisition ("Proposed Settlement").

    The Proposed Acquisition is conditional upon the following conditions precedents being fulfilled not later than three months from the date of the SPA, or such other date as the parties may mutually agree upon in writing (SPA Cut-Off Date)-:

    1. SSSB having obtained the approval of the shareholders of IWCB at a general meeting for amongst others (1) the disposal of the Subject Property by SSSB in favour of KRSB in accordance with the terms and conditions of the SPA; and (2) the Proposed Settlement in accordance with the terms and conditions of the Settlement Agreement; and

    2. KRSB having obtained the approval of the shareholders of the Company at a general meeting to be convened for amongst others (1) the acquisition of the Subject Property by KRSB in accordance with the terms and conditions of the SPA; and (2) the Proposed Settlement in accordance with the terms and conditions of the Settlement Agreement.

    At the Extraordinary General Meeting ("EGM") held on 23 November 2022, the shareholders of the Company approved the resolution in relation to (ii) above.

    The conditions precedent under the SPA and Settlement Agreement have been fulfilled, and that the Acquisition and Settlement was completed on 7 December 2022.

  2. On 28 October 2022, the Company announced that its wholly-owned subsidiary, D-Hill Sdn. Bhd., had on 28 October 2022 entered into a Sale and Purchase Agreement ("SPA") with L.K.C Ventures Sdn. Bhd., for the disposal of all that piece of freehold vacant commercial land held under H.S.(D) 165685, PT 41696, Bandar Batu 18, Semenyih, Daerah Ulu Langat, Negeri Selangor Darul Ehsan measuring 6,630.33 in square meters for a total cash consideration of RM14.63 million.

    The disposal was completed on 13 February 2023 and the gain before tax of approximately RM10.75 million was recognised during the financial year ended 31 March 2023.

  3. On 30 March 2023, the Company announced that its wholly-owned subsidiary D-Hill Sdn. Bhd., had on 30 March 2023 entered into a Sale and Purchase Agreement ("SPA") with Sin Siang Hin (M) Sdn. Bhd., for the disposal of all that piece of freehold commercial land with a single storey building erected thereon, held under H.S.(D) 102446, PT 17588, Mukim Semenyih, Daerah Ulu Langat, Negeri Selangor Darul Ehsan measuring 4,065 in square meters for a total cash consideration of RM11.90 million.

    Barring any unforeseen circumstances, the Proposed Disposal is expected to be completed in the second (2nd) quarter of financial year ending 31 March 2024.

Industry Landscape

The Malaysian construction sector has yet to recover fully from the impact of the Covid-19 pandemic, which has brought significant repercussions to the construction sector and the economy as a whole. Supply chain disruptions, mounting building raw material prices, labour shortages, inflationary pressure as well as rising interest rates continue to have a detrimental influence on the construction industry. The cost of operations is expected to increase and economic pressure, especially rising inflation and interest rates globally, is unavoidable, which may lead to a global economic slowdown.

The Russia/Ukraine war has resulted in major commodity prices skyrocketing, especially for building materials such as steel, aluminium and copper. Although prices for major building materials have shown signs of cooling down but still remain relatively high compared to 2 years ago. This posed huge obstacles for construction players when bidding for infrastructure/building projects from developers, as they had to bear a certain amount of the rising costs, if not all, to stay competitive and win the bid.

In addition to the above, the Malaysian construction sector relied heavily on foreign labour. Labour shortages have always been an issues in the Malaysian construction sector as the locals lack interest to work in the construction industry mainly due to an unfavourable working environment compared to the other sectors. When the cost of living goes up, so do wages. Labour shortage drives up the cost of labour as employers have no choice but to pay more to get workers, which in turn, raises the price of construction projects.

The lack of new large-scale contracts planned in the new budget 2023 other than more clarifications from the existing ongoing mega projects. In view of the uncertainty and challenges, new property launches may also be delayed. Consequently, fewer construction projects are available in the market for tender. The impact would likely be apparent to the Group as its trading division substantially relies on the performance of the construction and property development division.

Overview of Financial Performance

For the FYE 2023, the Group reported a lower revenue of RM159.57 million as compared to RM305.01 million attained in the FPE 2022. By applying a proportional adjustment to annualise the 12-month results, there is a 35% or approximately RM84.44 million decrease in revenue, which was mainly due to lower contribution from the construction sector.

The Group’s revenue has decreased mainly due to slower work progress resulted from shortage of labour and supply chain disruption in the construction industry, which has impacted our construction progress.

D-Hill Sdn. Bhd., a wholly owned subsidiary of the Company completed the sale of a piece of vacant land in the 4th quarter FYE 2023, resulting in a gain before tax of approximately RM10.75 million. The net proceeds from disposal of RM14.63 million have been fully settled in cash, as described in item 2- Corporate Development.

The Group reported a profit before tax of RM2.37 million during the FYE 2023 as compared to loss before tax of RM3.13 million reported for FPE 2022. The profit was mainly derived from the one-off gain of RM10.75 million from the disposal of a piece of undeveloped land at Kajang, partly offset by the net impairment loss of RM4.11 million on its receivables.

Moving Forward

Looking ahead to the financial year ending 31 March 2024 ("FYE 2024"), The Group anticipates that business conditions will remain challenging, the road to economic recovery is expected to be in a slow but progressive manner.

The Group will remain focused on its core business segments encompassing trading of building materials, civil construction and building works, property development and landscape works.

The construction and property industries will continue to face challenges such as geopolitical uncertainties, supply chain disruption, adoption of the new minimum wage policy, inflation and raising interest rate, and recently, the removal of electricity tariff subsidy, which increases the cost of business. Nonetheless, with the emergence of the new normal, it is hoped that FYE 2024 will see an improvement in the construction sector as a whole.

The Group’s construction division has contributed a revenue of RM64.52 million, the second largest revenue contributor for the FYE 2023, and we will continue to tender and bid for more construction projects to further improve this income stream. Any improvement in the construction division is also expected to strengthen the revenue for the Group’s trading division. Our order book of RM283 million as at FYE 2023 is expected to keep the Group busy for the following financial year whilst continuing with our immense efforts to secure new order books. The Group will continue to take all proactive measures in order to deliver and complete all on-goings projects in hand.

Trading division was the largest revenue generator in FYE 2023. Though the market in trading industry is expected to be sluggish in the coming year resulting from the constraints in construction and development activities after the Covid-19 pandemics, the Group will take all relevant measures and strategies to enhance our operational efficiency and optimise cost efficiency in order to improve our performance in the coming financial year.

The market outlook for the property development sector remains subdued due to weak economic conditions. The affordable residential housing sub-segment should record a better performance with the introduction of stamp duty exemption for the purchase of first residential house. The overall residential property will primarily involve local buyers and the majority will be first-time buyers and purchasers who have been eyeing the opportunity to upgrade for owner-occupation and capital appreciation. Nevertheless, the industry is facing several issues particularly the ongoing interest rate hikes which directly affect buyers’ discretionary income and affordability. Buyers and investors will remain cautious and this may have an impact on purchases and investing activities. The local property market is expected to remain challenging and the Group decided not to launch any property development project in the near term. The Group upcoming plan will be constructing 315 units for phase 1 of affordable homes in Kajang, the Group expects that these affordable home projects, which are mainly driven by corporate social responsibility, may result in significant losses for the Group. We are aware of the inherent risks involved and have provided for the loss.

The Group will continue to practise prudent spending and efficient management of its cashflow while leveraging on its experienced management team to pursue new projects and investments that match our business objectives. We will adopt a cautious approach to enhance our order book by exploring new business opportunities. We will stay focused with our key emphasis to improve project delivery and stringent project financial management in order to weather through the current challenging business environment.

Moving forward, in view of the current sluggish economy and uncertainties, interest rate hikes, inflation and supply chain disruption resulting in price hikes of the construction materials and political situation, the Group expects the coming financial year to be as challenging as the current financial year.

The Board is mindful of the competition and operation risk that could impact its financial results and will continue to take all proactive measures to ensure the existing business remains sustainable, resilient and focused on delivering and completing all its projects in hand within the budgeted cost and on agreed time frame.

Corporate Governance

The Board of Directors recognises the importance of maintaining good corporate governance and is committed to meet all applicable rules, regulations, norms and standards that will meet the expectations of the stakeholders.

The principles of integrity, transparency and accountability are embedded in its Code of Ethics and Conduct. Measures are put in place and constantly tested and reviewed to ensure that they stay relevant and effective in the environment of the Company’s operations. The compliances and practices adopted by the Company in pursuance of good corporate governance are as reported in the Corporate Governance Overview Statement and the Corporate Governance Report. The latter report is to be submitted to Bursa Securities and shall be available on the Company website at www.knusford. com.my.

In the year under review, the Group has conducted the Anti-Bribery and Corruption assessment gives the Group a systematic and prioritised view of where the significant inherent bribery risks lie.

Acknowledgment

On behalf of the Board, I would like to express my gratitude to all our valued customers, employees, bankers, business associates and partners and the shareholders for their continuous support and confidence in the Group.

DYAM Tunku Ismail Ibni Sultan Ibrahim
Chairman

Date: 18 July 2023