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Third Quarter Financial Statement And Dividend Announcement for the Year Ended 30 November 2017

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Third Quarter And Nine Months Ended 30 November 2017

Consolidated Income Statement

Income Statement

Consolidated Statement of Comprehensive Income

Comprehensive Income Statement

Balance Sheet

Balance Sheet

Review of Performance

Statement of Comprehensive Income

Third quarter ended 30 November 2017 ("3Q FY2018") vs Third quarter ended 30 November 2016 ("3Q FY2017")

Revenue

The Group recorded a revenue of RM133.5 million in 3Q FY2018, representing a slight increase of 0.4% or RM0.5 million, over the revenue of RM133.0 million in 3Q FY2017. The improvement was mainly due to increase in demand for certain products and sales mix.

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 3Q FY2018, the value of the closing inventories was higher than the value of the opening inventories by RM17.7 million. In 3Q FY2017, the value of the closing inventories was higher by RM0.4 million. This resulted in a variance of RM17.3 million for 3Q FY2018 vis--vis 3Q 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 increased by 24.9% or RM21.8 million, from RM87.8 million in 3Q FY2017 to RM109.6 million in 3Q FY2018. This was mainly due to higher purchases as compared with the corresponding quarter of the previous financial year.

Other operating income

Other operating income increased by RM0.7 million from RM2.4 million in 3Q FY2017 to RM3.1 million in 3Q FY2018. The increase was mainly derived from an increase in interest income of RM0.5 million.

Gain arising from changes in fair value of option

Gain arising from changes in fair value of option was RM0.4 million in 3Q 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 Sdn Bhd (formerly known as DFZ Capital Berhad), a subsidiary of the Company.

Net foreign exchange (loss)/gain

Net loss in foreign exchange in 3Q FY2018 was RM7.5 million as compared to RM9.6 million net foreign exchange gain in 3Q FY2017. This was mainly due to the currency translation to Ringgit Malaysia of the Group's deposits in financial institutions of SGD2.8 million and USD43.7 million as at 30 November 2017, whereby the Ringgit Malaysia had strengthened against Singapore Dollar by approximately 3.5% from RM3.14 as at 31 August 2017 to RM3.03 as at 30 November 2017 and US Dollar by approximately 4.2% from RM4.27 as at 31 August 2017 to RM4.09 as at 30 November 2017.

The rest of the expenses on the Group's profit and loss account remained largely unchanged in 3Q FY2018 as compared to 3Q FY2017.

Profit before income tax

The Group reported a profit before income tax of RM8.5 million for 3Q FY2018, which was 67.7% or RM17.8 million lower than the profit before income tax of RM26.3 million recorded in 3Q FY2017. The decrease was mainly due to net loss in foreign exchange of RM7.5 million in 3Q FY2018 as compared to RM9.6 million net foreign exchange gain in 3Q FY2017 as mentioned above coupled with increase in travelling expenses of RM0.2 million and inventory written down of RM0.2 million.

Nine months ended 30 November 2017 ("9M FY2018") vs Nine months ended 30 November 2016 ("9M FY2017")

The Group reported a profit before income tax of RM52.0 million for 9M FY2018, representing a decrease of 28.5% or RM20.8 million as compared to RM72.8 million recorded in 9M FY2017. The decrease in profit was mainly due to the net loss in foreign exchange of RM13.3 million as compared to RM11.4 million net foreign exchange gain in 9M FY2017 as the Ringgit Malaysia had strengthened against Singapore Dollar by approximately 3.8% from RM3.15 as at 28 February 2017 to RM3.03 as at 30 November 2017 and US Dollar by approximately 7.9% from RM4.44 as at 28 February 2017 to RM4.09 as at 30 November 2017. The adverse impact of the above was partially offset by lower financial expenses of RM1.0 million, lower professional fees of RM1.0 million, lower transportation costs of RM2.4 million and also recognition of gain arising from changes in fair value of option amounting to RM8.0 million for the period under review.

Statement of Financial Position

Assets

Non-current prepayments

Non-current prepayments decreased by RM7.4 million, from RM49.3 million as at 28 February 2017 to RM41.9 million as at 30 November 2017 which were mainly related to rental paid in advance for the Group's retail outlets.

Trade and other receivables

Trade and other receivables increased by RM1.2 million, from 56.7 million as at 28 February 2017 to RM57.9 million as at 30 November 2017. Sundry receivables increased by RM1.9 million, from RM6.2 million as at 28 February 2017 to RM8.1 million as at 30 November 2017. The aforesaid increase was partially offset by a decrease in trade receivables of RM0.3 million, from RM6.5 million as at 28 February 2017 to RM6.2 million as at 30 November 2017.

Inventories

Inventories decreased by RM33.5 million, from RM200.0 million as at 28 February 2017 to RM166.5 million as at 30 November 2017, mainly due to a decrease of overall purchases during the financial year under review.

Other than Cash and Bank balances which increased by RM4.2 million from RM272.2 million to RM276.4 million, the rest of the asset items on the Group's statement of financial position remained largely unchanged as at 30 November 2017 vis-à-vis 28 February 2017.

Liabilities

Trade and other payables

The decrease in trade and other payables was mainly due to an absence of dividends payable to ordinary shareholders by the Company of RM47.0 million and decrease in other payables of RM4.2 million, from RM24.2 million as at 28 February 2017 to RM20.0 million as at 30 November 2017. However, the decrease were partially offset by increase in trade payables by RM2.1 million as well as increase in dividend payable to non-controlling interests by a subsidiary amounting to RM1.2 million as compared to 28 February 2017. The aforesaid increase in trade payables was due to higher purchases during the period and also timing differences in the settlement of payables.

Derivative financial liabilities

Derivative financial liabilities of RM1.3 million as at 30 November 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 Sdn Bhd (formerly known as DFZ Capital Berhad) ("DFZ"), a subsidiary of the Company.

Borrowings

Total borrowings decreased by RM5.8 million, from RM7.1 million as at 28 February 2017 to RM1.3 million as at 30 November 2017, mainly due to decrease in trade facilities utilisation of RM5.5 million.

As at 30 November 2017, the Group was in a positive working capital position of RM415.5 million.

Equity

Total equity increased by RM25.7 million, from RM552.3 million as at 28 February 2017 to RM578.0 million as at 30 November 2017, mainly due to profit for the period of RM32.4 million, a net increase in share capital of RM39.8 million pursuant to the issuance of new ordinary shares, and a decrease in non-controlling interests of RM4.3 million, partially offset by purchase of treasury shares of RM10.0 million as well as dividends paid of RM40.8 million.

Statement of Cash Flows

The Group generated operating cash flow of RM32.9 million for 3Q FY2018. Net cash generated from investing activities was RM1.0 million for 3Q FY2018, mainly arising from interest received of RM1.9 million and partially offset by purchase of plant and equipment amounting to RM0.9 million. Net cash used in financing activities for 3Q FY2018 of RM28.5 million was mainly due to dividend payout of RM20.8 million, purchase of treasury shares of RM2.6 million and repayment of short term borrowings of RM4.9 million. Overall, the cash and cash equivalents of the Group increased by RM5.5 million for 3Q FY2018, ending the period with cash and cash equivalents of RM267.6 million.

Commentary

  1. Given the current economic condition, with the volatile Ringgit Malaysia against the US Dollar coupled with the competitive business environment and weak consumer sentiment, the retail industry in which the Group operates is expected to remain challenging. The Group will continue to manage its business risks prudently as well as improving operational efficiency and cost control measures in order to remain competitive and profitable in the remaining quarter of the financial year ending 28 February 2018.

  2. On 30 November 2017, the Company announced that Heinemann Asia Pacific Ltd ("HAP") exercised the Second Tranche Call Option in which 5% of the issued and paid-up share capital of DFZ Capital Sdn Bhd (formerly known as DFZ Capital Berhad) ("DFZ") was sold to HAP for a consideration of EUR9,850,000. The exercise of the call option was in accordance with the sale and purchase agreement ("SPA") dated 17 March 2016 between the Company and HAP. Under the terms of the SPA, in addition to the initial 10% equity interest and one share in DFZ that HAP acquired for a consideration of EUR19,700,000 on 1 June 2016, HAP has additional call options to acquire up to 15% of the issued and paid-up share capital of DFZ. Following the exercise of the Second Tranche Call Option mentioned above, HAP's equity interest in DFZ is now 15% plus one share.

    For detailed information in relation to the above, please see announcements on the Company website.