Message to Shareholders
In 2019, the Group reached a very significant milestone – our listing on the Catalist Board of the Singapore Exchange Securities Trading Limited on 13 May 2019 after completing the reverse takeover of Lereno Bio-Chem Ltd. (“RTO”) on 18 February 2019. Following the completion of the RTO, we are pleased to present our 2019 Annual Report, reflecting our first full year on our own.
Since our listing, we have managed to both optimise and expand our operations. However, with geopolitical uncertainties and trade tensions continuing to persist, and disruption arising from the escalation of the outbreak of COVID-19 around the world, we have since taken a cautionary position with regards to our expansion plans.
Our First Full Year in Review
One of the highlights of the year was the commencement of operations at our new textile manufacturing facility in July. This facility, which has a production capacity of 200,000 kg per month, is involved in the knitting, dyeing, and finishing of customised fabric. Situated close to our existing apparel manufacturing factory in Batu Pahat, Malaysia, this textile manufacturing facility will allow us to produce textiles according to our specific requirements, which will in turn significantly reduce production lead time and enhance quality control for our apparel manufacturing business.
By streamlining our operations, we are now able to position ourselves as a one-stop integrated textile and apparel manufacturer with both upstream and downstream capabilities. Additionally, with our new textile manufacturing facility, we are able to explore a potential revenue source from selling excess fabric to third-party buyers. This is also in line with the Group’s expansion plans. We are hopeful that we will be able to grow sales from this avenue in the future.
During the year, we also made tangible progress towards optimising our existing apparel manufacturing operations at our factory in Malaysia and two facilities in Cambodia. We continued working towards incorporating greater automation in our processes, upgrading some of our existing machinery and purchasing new equipment to achieve more efficient production. This resulted in increased production efficiency at all three facilities, which consequently led to a rise in our gross profit margin for the financial year ended 31 December 2019 (“FY2019”).
For FY2019, the Group recorded a net loss of S$1.9 million due mainly to a one-off non-cash charge for transaction and acquisition costs arising from the RTO of S$2.5 million. Excluding this expense, the Group would have registered a net profit of S$0.6 million compared to a net profit of S$1.6 million in FY2018.
Revenue declined by 14.6% to S$87.6 million, following the adoption of a new marketing strategy to focus on sales contracts with higher margin. This new strategy, along wih the reduction in work sub-contracted to other parties, led to the 19.9% jump in gross profit to S$13.5 million. Consequently, the Group’s gross profit margin for the year improved by 4.4% to 15.4%. As at 31 December 2019, the Group reported net assets of S$15.4 million, which translates into a net asset value per share of 9.06 Singapore cents.
The Group is bracing itself for more challenging times ahead. In the coming year, we will continue to contend with uncertainties brought about by COVID-19, Brexit, US-China trade tensions, as well as the European Union’s partial withdrawal of Cambodia’s preferential trade status. Amidst these volatile global conditions, the Group will cautiously explore opportunities for sustainable long-term growth, while building on our strengths as an integrated textile and apparel manufacturer.
The Group plans to develop and launch our own direct-to-consumer apparel brand. With our new textile manufacturing abilities, we have been able to embark on research and development initiatives, hone our expertise in fabric technology, and produce innovative materials, some of which can be used for our own brand. Moreover, with the future of retail leaning towards online platforms, the Group is hoping to capitalise on this shifting trend by marketing our apparel through e-commerce channels. Our overall strategy for our upcoming brand is to design, manufacture, and sell technologically-sustainable everyday apparel, tapping into a new customer base consisting of online shoppers.
We are also planning to add more machinery to our textile manufacturing operations to achieve our target production capacity of 600,000 kg per month by 2022. With the progressive upgrading of our machinery, we will be able to increase our production output
in the long run. With regards to our existing apparel manufacturing operations, we will continue to leverage on our established track record, strong reputation, and newly integrated abilities to seek out new business opportunities and diversify our customer base.
In light of the recent COVID-19 outbreak which has cast uncertainty on the global economic landscape, the Group will vigilantly monitor the situation and assess the repercussions of the outbreak as they evolve. In March 2020, we had temporarily shut down our Operations Head Office, Textile and Apparel Manufacturing Facilities located in Batu Pahat, Malaysia, following the Government of Malaysia’s Movement Control Order. On 29 April 2020, we had resumed full operations following conditional approval from the Government of Malaysia. At this juncture, the Company expects that its cash flows, financial position and earnings per share for the current financial year ending 31 December 2020 to be negatively affected, but is still assessing the extent of impact of both the suspension of operations and the overall COVID-19 pandemic. The Board would like to assure shareholders that steps are taken to tighten cost controls,
conserve the Group’s cash flow and manage the working capital during this period.
Since the outbreak, there has been increased disruption in the supply of textiles and apparel from China. The Group recognises this as an opportunity to position itself as an alternative source of supply for customers moving away from China-based operations, especially with our new capabilities in integrated textile and apparel manufacturing.
Moving forward, we will focus on improving our business processes with the aim of improving our cost efficiencies, as well as developing our upcoming direct-to-consumer apparel brand in line with our goal of pursuing sustainable growth.
Embracing Corporate Social Responsibility
KTMG has consistently given back to the community over the years. As part of our ongoing outreach to the community, we have embarked on corporate social responsibility initiatives in order to support the less privileged in society. Last Christmas, we donated garments and apparel to students at Don Bosco Technical School in Phnom Penh, Cambodia, just as we had done the year before. We intend to turn this into a yearly tradition, allowing us to establish deeper relationships with our wider community in Cambodia.
In such economically uncertain times, the Board is of the view that it would be prudent to conserve cash. As such, we have not proposed any dividend in respect of FY2019’s performance.
On behalf of our Board, we would like to express our appreciation to our business partners and customers for their continued support. We would also like to extend our gratitude to our staff and management for their hard work and commitment. We would also like to thank our fellow Board members, for their guidance and invaluable advice.
We will continue to work hard and take KTMG to greater heights. We are grateful for the support of our shareholders and look forward to walking the rest of our growth journey with you.
Lim Siau Hing
Damien Lim Vhe Kai
Executive Director and Chief Executive Officer