Chairman's letter to shareholders
Dear Shareholders,
On behalf of the Board of Directors, it is my pleasure to present to you the Annual Report and Audited Financial Statements of Scanwolf Corporation Berhad (“SCB”) and its Group of Companies for the financial year ended 31 March 2009.
THE YEAR IN REVIEW
In my statement in the previous financial year, I cautioned that the year ahead, that is, the current financial year would be a challenging one in view of international economic uncertainties. Indeed the year 2008 proved to be even more turbulent for the global economies than earlier envisaged. Emanating from the severe financial crisis in the United States of America, reportedly even worse than that of the US 1930s depression, it soon impacted vitually all the economies around the globe, including Malaysia.Such is the severity that in the first quarter of 2009, Malaysia’s GDP contracted by 6.2 per cent and for the whole year 2009, the Government expects a decline of between 4 to 5 per cent. However, with the stimulus packages put in earlier by the Government, it is positive that the second half of 2009 will begin to see improvements in our economic performance.
It is under this trying and volatile economic environment that Scanwolf Corporation Berhad Group had to operate in for the three quarters of 2008 and the first quarter of 2009 which make up our financial year. The beginning of the year 2008 saw the prices of fuel and energy rising to record levels which resulted in a steep rise in every aspect of our cost of production. Raw material cost rose to unprecedented levels and the Ringgit strengthened to its strongest level since 1997. All these factors led to a substantial increase in the cost of our products making them less competitive in terms of pricing and consequently had a severe impact on the financial performance of SCB.
In the face of the challenging market conditions in 2008, your management took various proactive steps to manage our resources more efficiently during the year. Some of these initiatives include refining the production process for quality improvements and tightening controls in all areas of production and administration to optimize the utilization of resources. With the implementation of these initiatives, the Group was able to achieve substantial cost-savings per month improving our cash resources.
Besides the improvement of resource management, your management also actively pursued new initiatives to expand its customer base particularly in the international marketing space. During the year, we participated in three (3) exhibitions, which included the Interzum Guangzhou 2009 held in Guangzhou, China, Index Dubai 2008 held in Dubai, UAE and the Malaysian International Furniture Fair held in Kuala Lumpur. Our Group markets our products locally and currently, also exports to 34 countries worldwide, in the ratio of 37 percent local sales to 63 percent foreign sales The Group’s wide geographical coverage has made us less dependent on a single market and country.
On other corporate matters, the lease of land of 28,000 square metres of industrial land in Vietnam for future expansion of its business as previously highlighted is still ongoing. However, after the handover of the land now expected to be in 2010, your management will do a thorough evaluation of the prevailing economic and business conditions before proceeding with the construction of the proposed new factory to expand our production capacity.
Aside from business issues, during the financial year under review, your management continues to adhere strictly to the principles and best practices of good corporate governance which we have reported in greater details under our Statement On Corporate Governance.In particular, we are pleased to highlight the attention given to improving the skills of our human resources, the setting up of a management committee to better manage our foreign exchange exposure and the year-end financial support given to staff with school-going children to help mitigate their household expenses in the current difficult financial situation which has greatly increased staff morale.
FINANCIAL PERFORMANCE
Despite the deepening economic uncertainty, the Group has remained profitable for the financial year ended 31 March 2009 although its financial performance was not able to match that achieved in the previous financial year. Group revenue eased by 12.5 % to RM 36.95 million from RM42.25 million chalked up in the financial year 2008.
The Group pre-tax profit showed a decline of 73.9% to RM2.12 as compared to RM8.12 million recorded in the previous financial year. Profit after tax attributable to shareholders in 2009 amounted to RM1.33 million, a decrease of 81.8% from RM7.32 million previously.
The less than satisfactory result achieved in 2009 was largely due to the increase in production cost and the strengthening of the Ringgit. Export sales contributed 62.6% of the total revenue amounting to RM23.11 million as compared to RM28.47 achieved in 2008, decreasing by 18.8%. However, local sale grew by 0.4 % to RM13.84 million from RM13.78 million recorded in the previous financial year.
At the close of the financial year ended March 31, 2009, shareholders’ fund stood at RM47.51 million. The cash flow and working capital situation remains at a healthy level as we move into the new financial year.
MOVING FORWARD – PROSPECTS AND OUTLOOK
With the World Bank projecting a global GDP growth of less than 1.0 percent in 2009 from 2.5 per recorded in 2008, many economies around the world will be struggling against the threat of prolonged recession. Malaysia’s own GDP is expected by the Government to decline by 4 to 5 percent for the whole of 2009, although there are reports that the second half of 2009 will see improved economic performance. However, there are also some optimistic reports that some asian countries like China and India are showing signs of gradual economic recovery. Against these uncertain background, the financial year ahead is expected to continue to be challenging for SCB.
Amidst the uncertain global financial and economic crisis, furniture manufacturing and property development activities in Malaysia and countries that we export to are expected to slow down further in 2009.
Despite the challenging circumstances, the Group continues to be fundamentally strong with healthy financials and we will strive to remain competitive moving forward. Our Group will continue its strategies of further entrenching our products across all furniture and building material market segments, to further expand our geographical reach both in the domestic and international markets, as well as to introduce more new products to serve our existing and new customers.
The Group’s main strategy for 2009 is to build on our existing markets in Asean, Middle East and the Indian Continent. Our key emphasis for the year will be on strengthening our market position in these regions and also locally with the main focus on improving product quality and efficient service. Noting the improved contribution of the domestic sales over this financial year, more marketing resources will be put in place to tap local sales. In addition, our Group will continue to explore new potential foreign markets by participating in international trade fairs for our products.
In view of the current global financial and economic crisis, the Group will continue to practice prudent management, ensure cost effectiveness, improve staff development and productivity and implement good business practices and strategies to meet the challenges ahead.
The Board of Directors and the Management is confident that the Group will be able to weather through this severe global crisis and believe that we will emerge stronger after this turbulent economic cycle. While the Group’s businesses will be affected, the Group is expected to remain profitable in the coming financial year.
DIVIDEND
In spite of the challenging year and the lower profit performance, we pleased to be able to continue to reward our loyal shareholders.
For the financial year 2009, the Group has paid an interim tax-exempt dividend of 1 sen per ordinary share of RM0.50 each amounting to RM0.8 million on 18th January 2009. The Board of Directors is pleased to recommend a final tax-exempt dividend of 2 sen per ordinary of RM0.50 each amounting to RM1.6 million in respect of the financial year ended 31 March 2009, bringing the total dividend declared for the year to 3 sen per ordinary of RM0.50 each amounting to RM2.4 million. The final dividend is subject to shareholders’ approval at the forthcoming Annual General Meeting.
ACKNOWLEGEMENT
The Board of Directors would like to express our sincere appreciation to the management and staff for their continued dedication, commitment and loyalty to the Group.
The commitment of the management, staff and Board of Directors as well as the co-operation and support of customers and shareholders will be the foundation for the Group to meet new challenges in the years ahead.
The Board of Directors would also like to express our sincere appreciation to our customers, shareholders, business associates, government authorities and bankers for their continued confidence and support in SCB.
Last but not least, my personal vote of thanks to my fellow Directors for the fine team work, cooperation, assistance and advice which makes my job as Chairman both pleasant and productive.
NEOH CHOO KEAN
Independent Non-Executive Chairman
