Dear Esteemed 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 31st December 2022 (“FY2022”).
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 comprise 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.
Our 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, our network has grown to seventy-two (72) 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 and have 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.
Our wide-reaching retail network is supported by a fully integrated supply chain consisting of a feed mill, 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, our retail network benefits by being integrated with the poultry segment. Much like the retail network, CCK’s farm operations are also located in Sarawak and Sabah. On a blended basis, fresh dressed chicken and chicken parts make up approximately 20% of our retail stores’ products. The other 80% of our stores’ products comprise house-brand and third-party frozen products, seafood products, fresh fruits, and
vegetables.
In FY2022, we expanded our retail network as follows –
- One (1) CCKLocal supermarket in Sarawak in Sibu.
The acquisition of PT Bonanza was completed in July 2022. 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.
The acquisition has proven to be synergistic to our existing seafood business and has complemented the Group’s export-oriented prawn products and added size and scale to the prawn segment.
The prawn segment benefitted from a significant increase in export volume especially to Japan and Taiwan, largely contributed by PT Bonanza. Our traditional markets in Australia and Japan were also encouraging whilst sales to local customers through our CCK retail network in Sarawak also improved.
Manufacturing operations in Indonesia benefitted 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 Group’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 and also 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 continued focus on shareholder returns, the Board is pleased to announce a first and final single-tier dividend of 3.5 sen per share for the financial year ended 31 December 2022.
With Covid-19 and movement restrictions firmly behind us, consumer sentiment has recovered as all sectors of the economy returned to normal. This is expected to have a positive direct impact on all our business segments as the flowthrough effects of a complete reopening is realised.
That said, the volatility of the US dollar against the Malaysian Ringgit remains a concern as it leads to fluctuations in prices of corn and soy. This is further exacerbated by heightened inflation that has led to an overall increase in raw material input costs as well as along the supply chain. This phenomenon is likely to persist into the coming financial year and will affect the cost structures of both the retail and poultry segments.
Expansion of the retail network will continue to be carried out strategically. Increasing economies of scale and the efficiency of our fully integrated supply chain continues to remain a key priority and focus.
On the Indonesian front, we are increasingly optimistic as the demand for our in-house manufactured brands of sausages and nuggets continues to be robust. The commencement of operations of our new facility in Pontianak, Indonesia in January 2021 boosted the production of sausages which allowed us to cater for increasing demand. Further expansions and capital expenditure will be invested when required to remove production bottlenecks as demand catches up with production capacity.
Feed prices constitute a significant portion of the poultry segment’s costs which in-turn make up about 40% of our retail segment’s sales. We will try to mitigate the adverse impact of higher feed prices by economies of scale and a gradual increase in selling prices of our chicken products as and when necessary. Additionally, our vertically integrated business model allows for a more efficient cost pass through mechanism and cost savings along the supply chain.
The Board and Management teams are taking proactive steps to mitigate the risks in this challenging and fast changing operating environment whilst optimising efficiency and productivity across all our key business segments.
Taking into account the above, the Board is cautiously optimistic with regards to 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 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 as we navigate this period together.