CHAIRMAN’S MANAGEMENT DISCUSSION & ANALYSIS DISCLOSURES

“On behalf of your Board of Directors, it is my pleasure to present to shareholders, the Annual Report of Johan Holdings Berhad for the financial year ended 31 January 2019 (“FY 2018/2019“) and ManagementDiscussion & Analysis Disclosures.”

 

ECONOMIC AND BUSINESS ENVIRONMENT REVIEW

In 2018, the World economy recorded a moderate growth rate of 3.7%, amid weaker expansion in advanced economies and softer growth in emerging and developed markets. Global economic growth was impacted by the implementation of tariffs by major economies, especially the United States and retaliatory measures taken by others, including China. The increasingly protectionist rhetoric on trade has meant higher uncertainty about trade policy, which weighs on future investment decisions.

The Singapore economy grew by 3.2%, a moderation from the 3.9% growth recorded in 2017. The services producing industries grew by 3.0%, compared to 3.2% growth in 2017. Growth was mainly supported by the finance and insurance, business services and wholesale & retail trade sectors, which expanded by 5.9%, 3.0% and 1.5% respectively.

The Malaysian economy registered a growth of 4.7% during the final quarter of 2018, bringing total GDP for the year to 4.7%. Private sector activity remained the driver for growth, while a rebound in exports of goods and services contributed towards the positive growth of net exports. The services sector was supported by continued strength in consumer spending, particularly in the retail segment. Growth in the manufacturing sector remained driven by the electronics and electrical and consumer related clusters.

 

REVIEW OF GROUP FINANCIAL RESULTS

The challenging market condition continued to persist in 2018. Against this backdrop, for FY 2018/19, your Group recorded revenue from its continuing operations of RM105.88 million, down 13.5% from RM122.485 million for financial year ended 31 January 2018 (“FY 2017/18”).

In respect of continuing operations, your Group recorded a loss before tax of RM104.667 million compared to a profit of RM25.747 million in FY 2017/18. The previous year’s results benefitted substantially from the fair value gain of RM42.46 million from investment in quoted securities recorded by a subsidiary. However due to substantial drop in quoted value of these investment during the financial year under review, a net fair value loss in investment securities amounting to RM64.634 million was recorded for FY 2018/19. The Group loss after tax from continuing operations was RM98.376 million. (FY 2017/18: profit of RM21.965 million).

In respect of discontinued operation, Prestige Ceramics Sdn Bhd (which ceased business at end of FY 2017/18), recorded a profit of RM870,000 compared to loss of RM45.189 million in FY 2017/18. The positive result for FY 2018/19 was attributed to income generated from sale of the scrapped machineries of the Prestige Ceramics plant.

Overall, your Group recorded a loss of RM97.506 million compared to a loss of RM23.224 million for FY 2017/18.

 

OPERATIONS REVIEW

Diners Club (Singapore) Pte Ltd (“DCS”)

DCS is the franchise operator for the Diners Club International charge & credit cards business in Singapore.

During FY 2018/19, DCS continued to focus on card acquisition through existing cobrand partnerships such as Sheng Siong Supermarket Group and Vicom Cobrand Programs, both of which had generated encouraging card number growth and turnover.

DCS had on 22 March 2019 launched a Major Cobrand Partnership with Don DonDonki, a major and popular Japanese Supermarket and discount store in Japan. Currently there are three Don DonDonki outlets in Singapore.

DCS continued its focus on money lending products including Ready Cash and Dcash with more extensive sales channels. New programs were implemented to increase receivables ie capturing large ticket size transactions such as hospitals with BNPL.

On the corporate front, DCS will continue to pursue new opportunities with our electricity billing for Industrial and commercial sectors. With the new deregulation of the consumer electricity market in Singapore, DCS sees more opportunity to increase its autobilling turnover. In the last quarter of FY 2018/19, we introduced a corporate financing facility to SMEs of up to S$80,000.

In addition, Fintech initiative undertaken in FY 2018/19 include developing an online card application system using MyInfo card onboarding as well as e-wallet for Diners cardmembers via QR payment.

 

DinersPay Pte Ltd (“DinersPay”)

DinersPay is in the business of merchant acquiring and payment gateway processing services in Singapore. It began merchant acquisition for AliPay in July 2017 and WeChat in November 2018.

During FY 2018/19, DinersPay was successful in acquiring merchants such as LVMH, Mustafa, SISTIC, Harvey Norman, OG Department Store, ShengSiong Supermarket including government agencies such as Singapore General Hospital. We are close to acquiring several key merchant outlets popular with tourists from the People’s Republic of China.

In addition, DinersPay is looking at strengthening its merchant acquiring capability with major payment Apps and major card schemes. DinersPay also collaborated with Liquid Pay, a eWallet aggregator as part of SGQR initiative.

 

Diners World Travel Pte Ltd (“DWTS”)

DWTS operates air ticketing & travel management business in Singapore.

DWTS faced increased competition from Global Travel Management Company in respect of clients that requires global corporate ticketing support. DWTS was accredited Silver Tier Status for Year 2019 by Discover The World for its achievement in 2018. In April 2019, DWTS was recognised by Wonderful Indonesia Tourism as one of their destination specialists to be included in their sales missions in Singapore and Indonesia and FAM trips to new destinations in Indonesia.

DWTS will continue to focus on building corporate ticketing business in the SME and local business segment and have seen some successes. Margin improvement initiatives were undertaken seeking SME and Corporate fares with key airline partners and promoting ancillary services such as hotel booking, travel insurance and travel gadgets.

 

Diners World Travel (Malaysia) Sdn Bhd (“DWTM”)

DWTM operates air ticketing & travel management business in Malaysia.

DWTM continued to face weak demand for air ticketing and MICE as a result of reduced spending pattern by major corporate clients. Despite the tough operating environment with intense pricing competition, we will focus to recruit new sales staff to build and expand our existing client base to enable us to further increase our revenue stream and to stay competitive in the market.

 

Lumut Park Resort Sdn Bhd (“LPR”)

LPR owns and operate The Orient Star Resort Hotel in Lumut, with land bank in the vicinity of Lumut town, for property development.

For FY 2018/19, the operating environment for the Orient Star Resort Lumut (“OSRL”) business was tougher compared to previous years, due to weak demand from core market segment such as Oil and Gas and Government agencies. In addition, the lower level of business was reflective of the softer domestic leisure demand and mushrooming of budget hotels and home stay accommodations, offering competitive room rates across Malaysia. Currently the supply of rooms is higher than the demand, coupled with the Airbnb players actively promoting and signing up private properties for tourism accommodation.

Revenue for OSRL was down by 10.27% for FY 2018/19 compared to the previous year, as average occupancy declined due to more rooms coming onstream. Total gross operating income was lower by 8.32%, mainly attributed by lower sales from the hotel core market segment.

Moving forward, we have stepped up efforts to improve our customers’ satisfaction via providing quality food and beverages in our F&B outlet and room facilities. This is to strengthen our competitiveness to tap into improved demand from Oil and Gas segment as there are now indicative signs of resumption of Oil and Gas construction and related activities within the region of Manjung, Perak. We will continue with our efforts to build and expand our revenue stream from other segments through Online Travel Agents (OTA), Association and Leisure Clubs with provision of an event organiser for corporate team building, incentive tours and family day.

 

DIVIDEND

Your Board does not propose to declare any dividend for the financial year under review.

 

PROSPECTS AND OUTLOOK

The outlook for the years ahead remains challenging. The current trade war caused by the United States imposing tariffs on imports from China and the retaliatory measures taken by the European Union and other countries will eventually have the effect of reducing global trade. Whilst your Group is not currently experiencing effects of these retaliatory and protective measures, any protracted impasse will bring about adverse impact to operating environment to your Group’s operations.

We will continue to exercise discipline on capex expenditure and to further tighten cost control measures to enhance productivity to stay competitive in a constantly changing environment. Our plans and strategies are still focussed to enhance the growth of the Group’s operations, especially the Diners Group cards and payment gateway business in Singapore, at the same time aggressively exploring opportunities to venture into new core businesses for the Group.

As reported in last year’s Annual Report, we ceased the loss making ceramic tiles manufacturing operation of Prestige Ceramics Sdn Bhd at end of FY 2017/18. In view of the current downturn in the property development sector, your Board is exploring all options in respect of the proposed development of the now vacant 27.8 acres freehold land in Puchong.

 

ACKNOWLEDGEMENT

On behalf of your Board of Directors, I wish to thank our valued customers, suppliers, business partners and shareholders for their continued support; to all our employees for their efforts, dedication and loyalty; and to my fellow colleagues on the Board for their counsel and support throughout the year.

 

TAN SRI DATO’ TAN KAY HOCK

Chairman

Date: 6 May 2019