Dear valued shareholders,
The Management Discussion and Analysis (“MD&A”) is intended to provide the reader with operational and financial highlights of CCK Consolidated Holdings Berhad (“CCK” or “The Group”) for the financial year ended 31 December 2019.
The MD&A should be read together with the audited financial statements of the Group and Company.
CCK is principally involved in retailing and poultry farming. Our fully integrated supply chain consists of feed mill, breeder farms, hatchery, broiler farms, layer farm, abattoirs and retail stores. The businesses are carried out primarily in Sarawak, Sabah and Indonesia (Jakarta and Pontianak).
Since the opening of the first retail store in Sibu in 1970, our network of more than 55 retail stores now spans across Sarawak and Sabah. Fresh dressed chicken and chicken parts make up approximately 60% of our stores products. The remaining 40% of our stores’ products comprise frozen products, table eggs and fresh fruits and vegetables.
As Sarawak’s largest integrated poultry supplier, our retail network is strongly supported by the poultry segment. CCK’s farm operations are also located in Sarawak and Sabah.
❖ For financial year ended 31 December 2019, the Group recorded a total revenue of RM651.314m, an increase of 5.93% when compared to financial year ended 31 December 2018. The revenue contribution from our Indonesian operations towards the Group revenue remained at 16.2% as chicken prices in Indonesia in 2019 were generally lower than in 2018. Our retail network ended the years with 62 stores (2017 : 57 stores).
❖ Profit before taxation was recorded at RM42.891m, an increase of 24.81% over 2018. The actual increase in the Group’s profit before tax for 2019 was 39% as there were insurance compensations received of RM3.5 million in 2018.
Taking into consideration last year’s insurance compensation effect, the retail segment showed a net increase in profit before tax and interest of 46% in 2019. This is attributed to a better performance by our network of retail stores in Malaysia.
❖ Other income decreased by 25.45% in 2019 compared 2018 mainly due to insurance compensations received for a fire that occurred at one of our subsidiary’s plant in 2018.
❖ Share of results in associate improved by 28.1% over 2018 as our associate company, Gold Coin Sarawak Sdn. Bhd. recorded an improvement in performance in 2019.
❖ The Group’s property, plant and equipment increased in 2018 by 9.79% when compared to 2018. This was mainly due to the construction of a new factory in Pontianak, Indonesia which is expected to be completed in 2020.
❖ Cash and cash equivalents increased by 43.65% in line with the increase in revenue.
❖ A first and final single tier dividend of RM7.8m was paid out to shareholders on 28 June 2019.
❖ The prawn segment’s revenue for 2019 improved by 4.1%. The segment re-commenced culturing and selling black tiger prawns this year, in addition to their current production of vannamei.
❖ In 2019, the retail network expanded with the opening of new stores in Sibu Jaya in Sibu, BDC Commercial Centre in Kuching, Bandar Sandakan in Sabah, Limbang in Northern Sarawak, The Federal Territory of Labuan and Permai in Sibu. In order to improve the efficiency of our network, 2 stores were closed ie in Putatan, Sabah and Sungai Merah, Sibu, Sarawak.
The Group ended the year with 62 stores in Sabah and Sarawak.
❖ The Group’s Indonesian operations is continuing to expand with the construction of a new factory and logistics centre in Pontianak, Indonesia. The complex will be completed in 2020 and will comprise a coldroom, chicken abattoir and downline food processing of sausages, burgers, meatballs etc.
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 a dividend policy of paying up to 30% of the profit after taxation and minority interests and also considering the level of available funds, the amount of retained earnings, capital expenditure commitments and other investment planning requirements.
In line with our continued focus on shareholder returns, the Board is pleased to announce a first and final single-tier dividend of 1.25 sen per share for the financial year ended 31 December 2019.
On 28 March 2020, the International Monetary Fund (IMF) declared that the world was in recession amidst the ongoing global covid-19 pandemic. Citing the uncertainties on the duration and impact of the pandemic, the World Bank has projected a negative economic growth of -0.1% for Malaysia in 2020, but said the country is likely to recover in the fourth quarter of the year before bouncing back into smoother momentum in 2021.
Despite being an essential industry and required to continue operations during the pandemic, the Group’s business has been affected particularly as our corporate clients, our restaurant customers and other food businesses experience sluggish or even no demand.
The Group had planned to open 2 supermarkets in the second quarter of 2020, one in Kuching and one in Kota Kinabalu. However, with the growing uncertainties, the Group will now proceed with the planned projects once the situation has stabilised.
I would like to record my profound appreciation to my fellow directors on the Board, the management teams and the staff of the CCK Group of Companies for all their hard work and dedication. Their commitment and their tireless work have made CCK the success it is today. I would also like to acknowledge the support of our shareholders, business partners, suppliers and customers and thank you for your continued belief in CCK.