INDUSTRY TRENDS AND DEVELOPMENT
"For the first half of calendar year 2016, the retail sales growth rate was 0.5%, as compared to the same period a year ago, which was significantly below market expectations.
A major portion of the Groupís revenue is derived from the department store sub-sector and the sub-sector is reported to have bounced back with a small growth to date after experiencing negative growth during the past one year. However, the department store operators are expecting their businesses to dip with a negative growth rate for the current year in view of weaker consumer demand. In view of the current weak economy and more increases expected in prices of retail goods and services before the end of this year, Malaysian consumers are expected to continue to stay cautious in their spending. While recent macroeconomic conditions may have a temporary adverse impact on the retail market, strong market drivers are expected to provide long term sustainability to the retail and apparel markets.
In addition, the Group has diversified its risks by expanding into the distribution of ICT products & services, and products offering Internet of Things (IoT) related solutions and services.
IoT has been hailed as the next big digital revolution, connecting millions of everyday objects using inexpensive microsensors so that things like thermostats, cars, door locks and even pet trackers have network connectivity. Aided by LoRa technology, we hope to pioneer the building of an IoT network in Malaysia with the help of our business partners.
Turnover for the Group for the year saw a slight improvement of 6.6% to RM37.0 million as compared to the turnover of RM34.7 million achieved in the previous year. The increase in turnover was contributed by our new venture into the ICT industry. Market sentiment for the apparel division during the year continues to be lacklustre and the Group was unable to achieve any growth as consumers affected by their reducing purchasing power turns cautious in making purchases of non-essential goods.
Loss before tax for the Group was RM14.4 million which was higher than the loss before tax of RM4.8 million incurred in the previous year. The loss incurred for the year was higher than that recorded for the previous year as the reported yearís results was mainly affected by impairment of intangible assets and inventories totalling RM8.8 million.
REVIEW OF OPERATIONS
The Groupís revenue increased by approximately RM2.3 million or 6.6% from RM34.7 million in the previous financial year to RM37.0 million achieved in the financial year ended 31 July 2016. The increase in revenue was contributed by the new ICT business which commenced operations during this reported year and generated revenue of RM10.2 million. However, the increase was partially offset by lower revenue derived from the apparel business by RM7.9 million (drop in revenue from RM34.7 million last year to RM26.8 million in financial year 2016). Loss before tax suffered of RM14.4 million was partly caused by the drop in revenue as well as the impairment of intangible assets and inventories amounting to RM8.8 million due to depressed business conditions. In addition, the weakening Ringgit has resulted in higher production and procurement costs for the Groupís products, causing reduced gross margins.
To mitigate the depressed apparel division, the Group has taken the bold step of diversifying into the ICT business in January 2016. The achievement of the division has been encouraging with a turnover of RM10.2 million. Although it has yet to make any meaningful contribution to the bottomline, we expect further growth in the future.
On 31 December 2015, the Company announced the acquisition of the entire equity interest of VLT Wholesale Sdn Bhd, now renamed Atilze Digital Sdn Bhd ("AtilzeĒ). Atilze is principally involved in the sales of the ICT equipment, devices, wholesale voice and IOT products and services. The acquisition of Atilze was to minimize the reliance of Yen Global on its apparel business and to diversify its risks by expanding into the ICT business.
Atilze had on 24 March 2016 entered into a Distributorship Agreement with Gemtek Technology Co. Ltd ("GemtekĒ) for Atilze to be the distributor of Gemtek to promote, market and sell Gemtek Techís ICT related products in the area of broadband, long-term evolution and Internet of Things ("IoTĒ). Gemtek is a public company listed on the Taiwan Stock Exchange. As Gemtek is primarily involved in the ICT business, the Group hopes to tap into their expertise and network in this sector to expand into the ICT business which is a growth sector. The acquisition of Atilze was to minimize the reliance of Yen Global on its apparel business and to diversify its risks by entering into the ICT business.
On 9 June 2016, the Company has completed a private placement of 12,500,000 new ordinary shares of 50 sen each at an issue price of 52 sen each representing 10% of the issued and paid-up share capital of Yen Global to Gemtek Investments Co., Ltd, a subsidiary of Gemtek. The private placement by Yen Global has put the Group on a stronger financial footing.
For its apparel business, the Group has implemented several measures to lower its operating costs, including reducing headcount to support current levels of operations and reducing outsourcing costs through improvement in its procurement process. These measures are expected to improve the efficiency of the Group to obtain a competitive edge in the market. Additional funds will be allocated for advertising and promotion activities to increase market awareness of our brands. More outlets will be opened at strategic locations to increase our revenue base.
Yen Global Group has ventured into the ICT business through Atilze in order to generate additional sources of revenue. The Group intends to expand its involvement in the ICT industry and its prospects are expected to be favourable, taking into consideration the positive overview and outlook of the ICT industry. The Group will continue its efforts to improve and enhance its range of ICT services, products and solutions, and continue its conservative approach to build the market locally and with regional expansion plans for the Companyís services. In view of the above, Yen Global Groupís increasing involvement in the ICT industry is expected to improve the Groupís financial performance in the current financial year.
The Board does not recommend payment of any dividend for the financial year.
On behalf of the Board, I wish to express our heartfelt thanks to our bankers, suppliers and customers for their continued support to the Group. In addition, I also wish to thank our team of loyal employees who have continued to serve the Group with utmost efforts and dedication all these years.
Goh Kok Beng