199601024340 (396692-T)
Dear Esteemed Shareholders,
The Management Discussion and Analysis (“MD&A”) is intended to provide the stakeholder with operational and financial highlights of CCK Consolidated Holdings Berhad (“CCK” or “The Group”) for the financial year ended 31st December 2023 (“FY2023”).
The MD&A should be read together with the audited financial statements of the Group and Company as set out in this Annual Report.
CCK’s business comprises of four (4) segments, namely; retail, poultry, prawn and food service. Business operations are carried out primarily in Sarawak, Sabah and Indonesia (Jakarta, Pontianak and Tarakan). The Group employs a total of approximately 2,800 employees across all business segments.
The Group’s mainstay and core business is the retail segment, which operates retail stores, supermarkets and wholesale stores. Since the opening of the first retail store in Sibu in 1970, CCK’s network has grown to seventy-five (75) touch points comprising of retail stores and supermarkets across East Malaysia (Sarawak and Sabah). Retail stores are operated under the CCK Fresh Mart brand and supermarkets under the CCKLocal brand.
CCK Fresh Mart retail stores cater to both businesses and households, carrying a smaller range of strategically selected stock keeping units (“SKU”) which are specifically targeted to certain locations and buyer demographics. CCK Fresh Mart retail stores are typically smaller format stores located in both urban and rural areas.
CCKLocal supermarkets typically occupy a larger footprint and offer households a wide range of SKUs ranging from local and imported food items to general household items.
CCK’s wide-reaching retail network is supported by a fully integrated supply chain consisting of a feedmill, layer farming, poultry farming and processing, prawn farming and processing, and the manufacturing of house-brand food products.
As Sarawak’s largest integrated poultry supplier, CCK’s wide-reaching retail network benefits from being vertically integrated with the poultry segment. Much like the retail network, CCK’s farm operations and processing facilities are also located in Sarawak and Sabah. On a blended basis, fresh dressed chicken and chicken parts make up approximately 15% of CCK Fresh Mart retail stores’ products. The other 85% of CCK Fresh Mart retail stores’ products comprise house-brand and third-party frozen products, seafood products, fresh fruits, and vegetables.
In the previous financial year (“FY2022”), CCK completed the acquisition of PT Bonanza Pratama Abadi (“PT Bonanza”). PT Bonanza operates out of Tarakan, Indonesia and processes shrimp for local and export sales. Principal products include frozen raw shrimp, frozen cooked shrimp and frozen Nobashi Ebi shrimp. The acquisition has proven to be synergistic, adding size and scale to the Group’s prawn segment and export-oriented prawn products.
In FY2023, we expanded our retail network as follows –
- Three (3) CCK Fresh Mart stores; one (1) in Kuching, Sarawak, one (1) in Telipok, Sabah and one (1) in Kota Kinabalu, Sabah.
To recap, the acquisition of PT Bonanza was completed in July 2022, during the previous financial year. Established for the past 22 years, PT Bonanza operates out of Tarakan and is engaged in the processing of shrimp for local and export markets. PT Bonanza’s key products are frozen raw shrimp, frozen cooked shrimp and frozen Nobashi Ebi shrimp.
As evidenced by the performance of the prawn segment in FY2023, the acquisition has augmented our seafood business and increased the size and scale of our export-oriented prawn products. Specifically, the prawn segment benefitted from a full year of contribution from PT Bonanza which boosted export volumes to Japan, Taiwan. Thailand and The People’s Republic of China.
Manufacturing operations in Indonesia continued to benefit from an overall increase in production capacity due to the addition of Pontianak’s facility that was commissioned in January 2021. This additional production capacity supported the higher sales volumes of our own in-house brands of sausages, nuggets and other processed products.
Sausages continue to be the CCK’s best seller in Indonesia whilst the sales of nuggets continue to gain momentum. All products from our two (2) factories in Jakarta and Pontianak are sold to our network of six (6) locally partnered Freshmart outlets in Pontianak as well as to third parties in Jakarta and Pontianak.
CCK practises a policy of dealing with creditworthy customers based on careful evaluation of each credit customer’s financial standing and credit history. This practice mitigates the risk of financial loss from possible default payments. The Group has also in place a credit monitoring process which regularly monitors the status and payments of our credit customers.
The Group imports frozen products for the network of retail stores where the purchases are denominated in US dollars. As such, the Group is exposed to currency fluctuation risk. Any adverse fluctuation in the MYR/USD rate may affect the profitability of the Group. In addition, fluctuations in the MYR/USD will likely affect the cost of feed for the poultry segment.
The Group maintains an adequate level of cash and cash equivalents and banking facilities to ensure sufficient liquidity to meet its liabilities as and when they fall due. The Group’s exposure to liquidity risk arises principally from trade payables, other payables and other bank borrowings (bankers’ acceptances and a revolving credit).
CCK retail stores face increasing risks from existing and new competitors who offer similar products and compete on the basis of pricing. To mitigate this, we are continuously looking at means to improve our competitive edge. The Management not only focuses on pricing of products but also in evolving business models which improve the customers’ shopping experience.
Concerns regarding disease and biosecurity at our chicken farms are constantly high on the agenda. The economic impact of a disease outbreak in any farm can be catastrophic on CCK’s bottom line. Constant monitoring is a compulsory standard operating procedure across all our operations even as we continuously innovate and update our biosecurity measures.
CCK has an internal dividend policy of paying up to 30% of the profit after taxation and minority interests whilst taking into consideration the level of available funds, the amount of retained earnings, capital expenditure commitments and other investment planning requirements.
In line with our commitment to reward shareholders, the Board is pleased to announce a first and final single-tier dividend of 4.25 sen per share for the financial year ended 31 December 2023.
In the fast-paced and increasingly challenging landscape of retail, CCK remains focused in providing essential everyday staple products. Through our extensive urban and rural network of stores, we cater to diverse consumer needs, offering a wide range of products including poultry, fresh produce, seafood, and both house-brand and third-party frozen goods.
Employing a vertically integrated business model, this allows us to exert greater control over our supply chain and operations. This integrated approach, coupled with the nature of our product offerings, gives us the ability to be agile whilst developing a commendable resilience to market fluctuations and challenges.
That said, we continue to operate in a high inflationary environment, exerting pressure on costs throughout the supply chain. This inflationary trend compounds the challenges posed by fluctuating currency exchange rates and rising input costs, further straining our cost structures.
Specifically, the volatility of the US dollar against the Malaysian Ringgit remains a concern as it leads to fluctuations in prices of corn and soy. Feed prices constitute a significant portion of the poultry segment’s costs which in-turn make up about 50% of our retail segment’s sales.
Consequently, we actively employ strategies to address these cost pressures, seeking efficiencies wherever possible while remaining mindful of the impact on pricing and profitability. Our focus remains on mitigating these cost pressures through prudent cost management practices, operational optimisations, and strategic pricing adjustments, ensuring that we maintain our competitiveness while safeguarding our dominant position in the market.
Strategically expanding our retail network remains integral to our growth trajectory, with a concerted focus on optimising economies of scale and enhancing the efficiency of our fully integrated supply chain. This will bolster our capacity to meet evolving consumer demands while maximising operational efficiencies.
In Indonesia, a burgeoning market for our in-house manufactured brands of sausages and nuggets presents a promising avenue for growth. The facility in Pontianak that came on stream in January 2021 has significantly boosted our production capabilities, enabling us to cater to escalating demand. As we continue to witness sustained traction for our products, we are actively looking to invest further in expanding our production capacity.
As we look forward, we remain steadfast in our commitment to proactive risk mitigation and operational optimisation across all key business segments. Whilst we navigate the aforementioned challenges with agility and foresight, we are equally committed to execute our growth plans and strategies.
Taking into account the above, we are therefore cautiously optimistic with regards to the coming financial year.
I would like to extend my heartfelt gratitude to the Board of Directors, Management Team, and dedicated staff of CCK for their unwavering commitment, hard work, and dedication. It is through their collective efforts and steadfast resolve that we have been able to navigate the complexities of the retail landscape and overcome numerous challenges. Their resilience and tireless dedication have been instrumental in driving CCK forward, ensuring our continued growth and success.
Additionally, I would like to express my sincere appreciation to our valued shareholders, esteemed business partners and other stakeholders. I am deeply grateful for your continued collaboration, partnership, and patronage. Your ongoing support fuels our motivation to strive for excellence and reinforces our commitment to delivering exceptional value and service. Together, we look forward to building upon our successes and forging ahead towards a brighter future for CCK.