Dear Valued Shareholders,
This 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 31st December 2017.
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 50 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 31st December 2018, the Group recorded a total revenue of RM639.490m, an increase of 3.85% when compared to financial year ended 31st December 2017. The revenue contribution from our Indonesian operations improved with increased production and sales of sausages in Jakarta and Pontianak. We ended the year with 57 outlets (2017 : 55 outlets).
❖ Despite the growth in revenue, the Group recorded a lower profit before taxation of RM34.365m, a decrease of 12.71% over 2017. This was mainly due to the weaker USD/MYR in 2018 which increased the price of feed and
imported frozen products. This is also evidenced in our increasing cost of sales and lower gross profit.
❖ Other income increased by 66.67% over 2017 mainly due to insurance compensation received for a fire that occurred at one of our subsidiary’s plant in 2017.
❖ Share of results in associate declined by 11.48% over 2017 as our associate company, Gold Coin Sarawak Sdn. Bhd. recorded a decline in performance in 2018.
❖ The Group’s property, plant and equipment increased in 2018 by 6.16% when compared to 2017. This was mainly due to –
• Construction of one new breeder farm in Lundu, Sarawak
• Installation of a nugget line in Jakarta
• Extension of chicken abattoir line in Kuching
❖ Inventories decreased by 6.16% over 2017 mainly due to a decrease in stocks of frozen beef and lamb.
❖ Cash and cash equivalents declined by 15.25% over 2017. Additions to property, plant and equipment amounted
❖ A first and final single tier dividend of RM9.4m was paid out to shareholders on 29 June 2018.
CCK strives to remain competitive and continously seeks to improve its market share. Three new outlets were opened in 2018 - Malihah and Roban in Sarawak and Sandakan in Sabah. In order to improve operational and financial efficiencies, the Betong wholesales department was integrated with the retail outlet. The Group ended the year with 57 outlet (2017 : 55).
❖ In its continuing efforts to support the retail segment, the poultry segment constructed a new breeder farm in Lundu, Sarawak.
❖The Jakarta operations installed a nugget producing line in our factroy in Cikupa, Jakarta in September 2018. The addition of the nugget line will increased the range of items produced in our factory thereby offering a wider choice for our Indonesian customers.
In October 2018, CCK ventured into the food and beverage industry with the opening of its first F&B outlet, Hawker Times.
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 2018.
The International Monetary Fund (IMF) estimated the global growth for 2018 was 3.7%, with weaker performances from European and Asian economies. Amidst trade tensions between the US and its trading partners, the global economy is showing signs of moderation. The global economy is projected to grow at 3.5% for 2019.
In 2018, the Malaysian economy grew at a moderate pace of 4.7%. Bank Negara Malaysia expects growth to be sustained in 2019 driven by domestic demand.
The Group intends to expand its retail network in Sarawak and Sabah by opening a maximum of 6 stores in 2019. We will continue re-vamping our existing outlets by providing comfortable shopping environments and increasing the variety of fruits, vegetables, small packs of meat and chicken for the convenience of our customers. The focus is to make the CCK outlets the choice shopping locations for households’ daily meal requirements. To support the retail segment’s plans, the poultry segment would also be expanding the broiler farms in both Sarawak and Sabah.
The Indonesian operations performed well in 2018 and is expected to continue its uptrend in 2019. The strength of our Indonesian subsidiary is in the production of value-added products ie sausages and nuggets.
In view of the above plans, the Board of Directors is cautiously optimistic about the prospects for the coming financial year.
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 tieless 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.