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Chairman's Statement

On behalf of the Board of Directors of Knusford Berhad ("KB"), I am pleased to present the Annual Report and Audited Financial Statements for the Group for the Financial Period Ended 31 March 2022 ("FPE 2022").

Corporate Development

The Company had on 22 July 2022 announced that Knusford Resources Sdn Bhd ("Knusford Resources" or the "Purchaser"), a wholly-owned subsidiary of the Company, had on 22 July 2022 entered into a conditional sale and purchase agreement ("SPA") with Success Straits Sdn Bhd ("SSSB" or the "Vendor"), a wholly-owned subsidiary of Iskandar Waterfront City Berhad ("IWCB"), 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") for a purchase consideration of RM53,240,000.00 ("Purchase Consideration") ("Proposed Acquisition").

The Purchase Consideration will be satisfied via a settlement arrangement, wherein a total amount of RM50,764,575.38, being sum due and payable by IWCB and its subsidiaries (collectively, the "IWCB Group") to Knusford 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 RM2,475,424.62 ("Differential Amount") will be satisfied in cash.

In conjunction with the Proposed Acquisition, the Company had on 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").

Industry Landscape

Since the year 2020, the Malaysian Government imposed multiple variations of the Movement Control Order ("MCO") as an effort to curtail the spread of the COVID-19 virus in Malaysia. During MCO 2.0, Controlled MCO and MCO 3.0, we were allowed to carry out site works under strict standard operating procedures ("SOP") as the construction industry was part of the five essential economic sectors authorised to operate.

However, from June 2021 till end-July 2021, a nationwide full MCO was implemented to combat the rampant spread of COVID-19 within the country. During this period, multiple restrictions were imposed such as strict travel restrictions, closure of non-essential services, reduction of operating hours and work force, and measures that affected our business activities.

With the implementation of restricted movement and stringent standard operating procedures, the construction industry in Malaysia recorded negative growth in the year 2021.

The spikes in building material prices in the last 2 years have impacted the construction sector which has threatened the viability of construction projects of infrastructure and residential sectors. Other challenges include labour shortage and supply chain disruption. Contractors are suffering badly and may have dropped out of business. In view of the uncertainty and challenges, construction contracts as well as new property launches may be delayed. Consequently, fewer construction projects are available in the market for tender. The impact would likely be apparent to Knusford as its building materials segment substantially relies on the performance of the construction and property development industries.

Overview of Financial Performance

For the FPE 2022, the Group reported a lower revenue of RM305.01 million as compared to RM325.93 million attained in the previous financial year 31 December 2020 ("FYE 2020"). By applying a proportional adjustment to annualise the 15-month results, there is a 25% decrease in revenue, which is mainly due to lesser contribution from the trading and construction sectors.

The decrease in revenue was mainly due to lower revenue contribution by the trading and construction sectors. The Group's revenue has decreased mainly due to the lower construction work done on its on-going projects as a result of the various MCO implemented by the Government of Malaysia. In addition, the suspension of work during MCO has resulted in supply chain disruption in the entire construction industry, which has also impacted our construction progress.

Our trading division which depended on the activities in the construction industry, has also been affected by this Covid-19 pandemic. Nevertheless, we have taken all possible steps and measures to mitigate the adverse impact to the Group.

The Group reported a loss before tax of RM3.13 million during the FPE 2022 as compared to profit before tax of RM3.19 million reported for FYE 2020.

The loss incurred in the FPE 2022 was mainly due to additional impairment on its receivables.

Moving Forward

Looking ahead in the financial year ending 31 March 2023 ("FYE 2023"), The Group anticipates that business conditions will remain challenging, even with the economic recovery stimulus and financial aid initiatives which have been implemented by the Government. The road to economic recovery is expected to be in a slow but progressive manner.

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

The Group's construction division has contributed a revenue of RM247.56 million, the largest revenue contributor for the FPE 2022, and we will continue to tender and bid for more construction and building 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 RM352 million as at 31 March 2022 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 will also continue to be the second largest revenue generator for the Group. Though the market in trading industry is expected to be sluggish in 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 maintain our performance in the coming financial year.

The property development sector remains subdued due to weak economic conditions. The industry saw a decline in the number of home seekers, and the property sales and purchase process were halted due to poor market sentiment, inflation, increase in interest rate and difficulty faced by the purchasers to secure financing from the banks. For the FYE 2023, the Group anticipated the local property market expected to remain challenging and decided to concentrate its efforts on selling its completed unsold units. The Group current plan upcoming project will be constructing 315 units for phase 1 of affordable homes in Kajang, as mandated by the state government Selangor. The Group expects that these affordable homes project may result in significant losses for Knusford. 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 investment 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 economic and uncertainties, inflation and supply chain disruption resulting price hike of the construction materials and political situation, the Group expects the coming financial year to be as challenging as the current financial period.

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.

In the period under review, the Group has conducted independent assessments of the Anti-Bribery and Corruption Policy that was rolled out in 2020 to assess the effectiveness of its implementation and to identify areas for improvement. The Corporate Governance Overview Statement is also prepared to provide an overview of the CG practices adopted by the Group in achieving the intended outcomes as set out in the Malaysian Code on Corporate Governance 2021 ("MCCG 2021") issued by the Securities Commission of Malaysia.

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: 20 July 2022