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Second quarter ended 31 August 2017 ("2Q FY2018") vs Second quarter ended 31 August 2016 ("2Q FY2017")
The Group recorded a revenue of RM148.3 million in 2Q FY2018, representing a decrease of 5.5% or RM8.7 million, over the revenue of RM157.0 million in 2Q FY2017. The drop was largely due to lower demand from customers for certain products as well as the imposition of Goods and Services Tax at the border outlets and duty free zones with effect from 1 January 2017.
Changes in inventories
Changes in inventories comprised the difference in the value of inventories at the beginning and at the end of the financial period reported on. In 2Q FY2018, the value of the closing inventories was lower than the value of the opening inventories by RM24.5 million. In 2Q FY2017, the value of the closing inventories was lower by RM1.6 million. This resulted in a variance of RM22.9 million for 2Q FY2018 vis-à-vis 2Q FY2017, which was mainly due to timing differences in purchases and consumption of inventories in the respective quarters.
Inventories purchased and material consumed
Inventories purchased and material consumed decreased by 26.6% or RM28.4 million, from RM106.8 million in 2Q FY2017 to RM78.4 million in 2Q FY2018. This was mainly due to lower purchases as compared with the corresponding quarter of the previous financial year.
Other operating income
Other operating income increased by RM0.9 million from RM2.7 million in 2Q FY2017 to RM3.6 million in 2Q FY2018. The increase was mainly due to increase in interest income of RM0.4 million as well as higher rental income from advertisement space of RM0.5 million.
Total professional fees increased by RM1.3 million or 143.7%, from a positive position of RM0.9 million in 2Q FY2017 to an expense charge of RM0.4 million in 2Q FY2018. The positive position for 2Q FY2017 was mainly due to a reclassification of referral fee relating to share issuance expenses amounting to RM1.1 million to equity account.
Gain arising from changes in fair value of option
Gain arising from changes in fair value of option was RM1.6 million in 2Q FY2018. The fair value was in relation to the call option issued which gives Heinemann Asia Pacific Pte Ltd the option to acquire a maximum of 15% additional equity interest in DFZ Capital Berhad, a subsidiary of the Company.
Other operating expenses
Other operating expenses in 2Q FY2018 decreased by 16.0% or RM1.0 million, from RM6.4 million in 2Q FY2017 to RM5.4 million in 2Q FY2018, mainly due to decrease in donations of RM1.0 million and transportation costs of RM0.7 million. However the decrease in expenses was partly offset by increase in management fee of RM0.2 million and inventory written down of RM0.3 million as compared to 2Q FY2017.
The rest of the expenses on the Group's profit and loss account remained largely unchanged in 2Q FY2018 as compared to 2Q FY2017.
Profit before income tax
The Group reported a profit before income tax of RM21.5 million for 2Q FY2018, which was 0.7% or RM0.1 million higher than the profit before income tax of RM21.4 million recorded in 2Q FY2017. The increase was mainly due to decrease in donations and transportation costs as well as recognition of gain arising from changes in fair value of option as mentioned above.
Half year ended 31 August 2017 ("1H FY2018") vs Half year ended 31 August 2016 ("1H FY2017")
The Group reported a profit before income tax of RM43.5 million for 1H FY2018, representing a decrease of 6.4% or RM3.0 million as compared to RM46.5 million recorded in 1H FY2017. The decrease in profit was mainly due to the decrease in revenue, net loss in foreign exchange of RM5.7 million as compared to RM1.9 million net foreign exchange gain in 1H FY2017. The adverse impact of the above was partially offset by lower financial expenses of RM0.8 million, lower donations of RM1.0 million, lower transportation costs of RM2.1 million and also recognition of gain arising from changes in fair value of option amounting to RM7.5 million for the period under review.
Non-current prepayments decreased by RM4.9 million, from RM49.3 million as at 28 February 2017 to RM44.4 million as at 31 August 2017 which were mainly related to utilisation of rental paid in advance for the Group's retail outlets.
Trade and other receivables
Trade receivables increased by RM2.5 million, from RM6.5 million as at 28 February 2017 to RM9.0 million as at 31 August 2017, which was mainly due to timing differences in trade-related collections. In addition, sundry receivables also increased by RM1.8 million, from RM6.2 million as at 28 February 2017 to RM8.0 million as at 31 August 2017.
Inventories decreased by RM50.9 million, from RM200.0 million as at 28 February 2017 to RM149.1 million as at 31 August 2017, mainly due to a decrease of overall purchases during the period.
Other than Cash and Bank balances which increased by RM7.0 million from RM272.2 million to RM279.2 million, the rest of the asset items on the Group's statement of financial position remained largely unchanged as at 31 August 2017 vis-à-vis 28 February 2017.
Trade and other payables
The decrease in trade and other payables was mainly due to a decrease in trade payables by RM28.3 million, from RM69.4 million as at 28 February 2017 to RM41.1 million as at 31 August 2017 and absence of dividends payable to ordinary shareholders by the Company of RM47.0 million and dividend payable to non-controlling interests by a subsidiary amounting to RM3.7 million in FY2017. The aforesaid decrease in trade payables was due to lower purchases during the period and also timing differences in the settlement of payables.
Derivative financial liabilities
Derivative financial liabilities of RM1.5 million as at 31 August 2017 was mainly in relation to the fair value of call options issued which gives Heinemann Asia Pacific Pte Ltd ("HAP") the option to acquire a maximum of 15% additional equity interest in DFZ Capital Berhad ("DFZ"), a subsidiary of the Company.
Total borrowings decreased by RM0.8 million, from RM7.1 million as at 28 February 2017 to RM6.2 million as at 31 August 2017, mainly due to decrease in trade facilities utilisation of RM0.6 million.
As at 31 August 2017, the Group was in a positive working capital position of RM436.5 million.
Total equity increased by RM49.5 million, from RM552.3 million as at 28 February 2017 to RM601.8 million as at 31 August 2017, mainly due to profit for the period of RM29.1 million, a net increase in share capital of RM39.8 million pursuant to the issuance of new ordinary shares, and an increase in non-controlling interests of RM3.0 million, partially offset by purchase of treasury shares of RM7.4 million as well as dividends paid of RM15.1 million.
The Group generated operating cash flow of RM36.0 million for 2Q FY2018. Net cash generated from investing activities was RM1.7 million for 2Q FY2018, mainly arising from interest received of RM1.8 million and partially offset by purchase of plant and equipment amounting to RM0.2 million. Net cash used in financing activities for 2Q FY2018 of RM22.8 million was mainly due to dividend payout of RM15.1 million and purchase of treasury shares of RM7.4 million. Overall, the cash and cash equivalents of the Group increased by RM14.9 million for 2Q FY2018, ending the period with cash and cash equivalents of RM270.4 million.
Given the current economic condition, with the volatile Ringgit Malaysia against the US Dollar and the competitive business environment, the retail industry in which the Group operates is expected to remain challenging. The Group will continue its efforts to focus on its core business, broaden its customer base and products and strengthen its operational efficiency and cost control measures in order to remain competitive and profitable in the remaining quarters of the financial year ending 28 February 2018.