CHAIRMAN’S MANAGEMENT DISCUSSION & ANALYSIS

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 2020 ( “FY 2019/20”) and Management Discussion & Analysis as follows:-

 

 

ECONOMIC AND BUSINESS ENVIRONMENT REVIEW

Global growth for Year 2019 recorded its weakest pace since the global financial crisis a decade ago, reflecting common influences across countries and country-specific factors. Rising trade barriers and associated uncertainty weighed on business sentiment and activity globally.

Malaysia’s economy, measured by GDP, expanded 4.3% in 2019, from 4.7% registered in 2018. The 4.3% was the lowest since the global financial crisis in 2009, according to Bank Negara Malaysia. This was attributed to lower output of palm oil, crude oil and natural gas and a fall in exports amid the US-China trade war. While resilient private consumption and continued expansion in the services and manufacturing sectors were bright spots, supply disruptions in the commodity sectors detracted from growth.

The Singapore economy grew by 0.7% in 2019. The wholesale & retail trade contracted by 1.9% year on year, moderating from the 3.5% decline in the 3rd quarter. The accommodation & food services sector posted growth of 2.5%, faster than the 1.9% achieved in the 3rd quarter. Both the accommodation and food services segment expanded. The former grew in tandem with an increase in international visitor arrivals, while the latter expanded due to higher sales at restaurants, and other food outlets.

 

 

REVIEW OF GROUP FINANCIAL RESULTS

For FY2019/20, your Group recorded Revenue of RM97.023 million, down 8.4% from RM105,880 million achieved for FY2018/19. Loss before tax was RM13.199 million, an improvement of 87.4% when compared to the loss of RM104.667 million recorded for FY 2018/19.

The better performance for FY 2019/20 was attributed mainly to positive contributions from (i) other Income of RM10.193 million, (ii) net fair value gain on revaluation of investment properties of RM15.273 million, and (iii) net foreign exchange gain of RM2.190 million. Lower provision for net fair value on investments securities of RM4.954 million against the same provision of RM64.634 for FY 2018/19 was also a major contributing factor. Total Group marketing, distribution and administrative expenses of RM99.104 million was only marginally lower than RM104.935 million incurred for FY 2018/19.

As a result, Group Loss for the financial year under review was reduced to RM17.294 million, compared to loss of RM102.737 million for FY 2018/19.

 

 

OPERATIONS AND PERFORMANCE REVIEW

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

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

During the financial year under review, DCS continued to focus on card acquisition through existing local cobrand partnership such as Sheng Siong and Vicom. Together with Don Don Donki cobrand partnership, a major popular Japanese supermarket and discount store, DCS was able to grow its card base by 11.7% .

DCS launched a Charge and Win program (“C&W”) in November 2019 to encourage higher spending by its cardmembers. The C&W have a quarterly draw prize of 25 units Samsung Galaxy Note 10 and a Grand draw prize in the year of a two-carat diamond.

In the Fintech space, DCS also launched its online card application using MyInfo for card onboarding in September 2019. This platform to allows DCS to give nearly instantaneous approval thereby increasing card application and improving customer experience.

In addition, DCS will be launching its own Diners SG Pay wallet to be used at hawker stalls and other retailers. DCS has now entered the digital space. The transactions are encrypted and no data is stored on the phone. Customers simply scan the QR Code, keys in transaction amount and pay. As of end May 2020 there are about 2,000 hawker stalls enabled to accept Diners QR payments at hawker centres. There are a total of 1,949 users who has downloaded and registered with Diners SG Pay App. We target to have an official launch before end of 2nd Quarter 2020.

Under Phase II, commencing in the 4th quarter of the current financial year we plan to onboard Retail merchants that covers both the Retail & F&B sector for the QR acceptance using Diners SG Pay wallet as a payment method.

 

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 2019/20, DinersPay continued to successfully acquire additional key merchants such as Thomson Medical Centre, Mandarin Orchard Hotel, Q&M Dental Group, Courts, Prada, Rimowa, etc.

We will be acquiring for Liquid Pay for the regional consortium of major wallets. Diners acquiring team may use Diners own terminal or LP terminals to support the dynamic QR Code transactions. Diners have shared LP’s specification document with our terminal vendors for the integration of the Apps into their terminals.

 

Diners World Travel Pte Ltd (“DWTS”)

During FY 2019/20, the weak economic situation in Singapore dampened corporate travel and most of the SME were affected. Competition was more intense among many agents, reducing their transaction fees. With already very thin margin in corporate travel, our gross profits were reduced. Online booking offers were very prevalent among carriers, leading to self-booking mostly among SMEs. Particularly in the last quarter of this FYE, our results were adversely impacted with the clash of an early CNY period

in January 2019 together with the festive season holiday period in December which reduced corporate travel.

On the positive side, despite the drop in total revenue by 22.5%, sales of airline tickets and revenue from outbound tour sales improved by 17.5% and 41.3% respectively. Since then we have attained the elite Gold Status moving up from Silver last FY in the Expedia TAAP Program.

In a difficult business environment, we have taken cost cutting measures to reduce cost expenditure, renegotiated with many airlines for better incentive pay-out. Additionally, we also renewed and re-negotiated for our corporate clients, better corporate fares that enable us to have better margins in terms of mark-ups. We had enhanced our service level quality, in terms of faster response to booking enquiries and higher conversion of sales.

 

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

DWTM operates air ticketing & travel management business in Malaysia.

For FY 2019/2020, DWTM’s revenue was 29% higher than the preceding financial year. Resulting from aggressive marketing approach to pitch more businesses from MICE and ticketing corporate clients together with continuous streamlining measures taken to reduce operating cost.

During the financial year under review, DWTM strengthened its strategic partnership with airline companies and hoteliers to enable us to provide more choices and cost efficiency travelling products to our clients. As a result, DWTM was awarded the top agent of Royal Brunei Airline for Year 2019.

The travel business environment has been challenging due to slow economy activities and weakening of Ringgit Malaysia which had resulted many corporations had streamlining to cut their travelling budgets and using direct online booking platform to save operating cost. We also faced several hurdles in corporate bidding processes especially in respect of lower pricing was concerned.

Despite the weak market conditions DWTM had put in more efforts to boost our core markets segments from Corporate ticketing, corporate incentive trips, MICE and diversify revenue stream by offering custom made private trips and ground arrangement packages in to countries such as Japan, Korea and South East Asia to cushion the negative impact from weak market condition.

 

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 held for property investments and/or development.

For FY 2019/20, the operating environment for The Orient Star Resort Lumut (“TOSRL”) business was better compared to previous years, due to increase in demand from core market segment such as Oil and Gas and Government agencies after May 2019. Although the revenue was better, we still faced the challenge of the softer domestic leisure demand and mushrooming of budget hotels and home stay accommodations, offering competitive room rates across Malaysia, coupled with the Airbnb players actively promoting and signing up private properties for tourism accommodation.

Revenue for TOSRL was up by 23.4% for FY 2019/20 compared to the previous year, as average occupancy increased due to more aggressive efforts from our sales team to bring in more events and functions. Refurbishment of rooms also increased rooms occupancy and allowed TOSRL to attract big group events. Total gross operating loss was lower by 25.3%, mainly attributed by higher 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.

 

CORPORATE DEVELOPMENT

At the Extraordinary General Meeting of your Company held n 13 May 2020, approval was obtained from shareholders for the disposal by Prestige Ceramics Sdn Bhd of its 28 acres freehold land in Puchong, Selangor Darul Ehsan for a total consideration of RM127 million. This is to be satisfied by the Purchaser by payment of RM108 million in cash and the balance of RM19 million to be satisfied in kind by conveying and delivering 3 units of completed 3 storey terrace factory lots located at Gravitas, Shah Alam and 4 units of completed retail lots located at USJ One, Subang Jaya. These 7 properties will be retained for investment purposes, to generate recurring rental income and /or to realise capital

gain should any of these properties are able to be disposed at a higher sale price moving forward.

 

 

CORPORATE GOVERNANCE

Your Company is dedicated to safeguarding the interests of our stakeholders. Our Board of Directors continues to embody this principle and are tasked with ensuring that best corporate governance practices are upheld in Johan Holdings Berhad.

The Board works closely with our Management to ensure our core values of integrity, excellence, teamwork and customer focus remain firmly entrenched at all levels. These values are crucial for the sustenance of fair, transparent and ethical work practices.

On 29 May 2020, your Board adopted the Anti-Bribery/Corruption Policy & Procedure to ensure our full compliance with Section 17A of the Malaysian Anti-Corruption Commission Act 2009. Section 17A to allow a defence for the organisation by proving it had in place adequate procedures designed to prevent persons associated with it from undertaking acts of corruption.

 

 

DIVIDEND

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

 

 

PROSPECTS AND OUTLOOK

Since the start of the Covid-19 outbreak in November 2019 in China, the outbreak has become more widespread, severe and protracted than anticipated with infections and deaths recorded in many countries around the world, including Singapore and Malaysia. On 11 March 2020 the World Health Organization declared the Covid-19 outbreak a pandemic. This prompted many countries to close their borders, ramp up health screenings and introduce population movement controls to curtail the spread of the virus. In spite of the lockdowns, the total number of cases worldwide surpassed 6 million as at 28 May 2020, with fatalities numbering close to 400,000 (Malaysia recorded 7,619 cases and 115 fatalities, whilst Singapore recorded 32,876 cases and 23 fatalities).

The lockdowns, whether partial or full, come at a tremendous price. The IMF, in its April 2020 World

Economic Outlook, reported that the Covid-19 pandemic is inflicting high and rising human costa internationally. The mitigative measures, whilst necessary, are seriously curtailing economic activity worldwide. Recognising this, some countries are beginning to relax movement controls to enable the resumption of economic activity. Unfortunately, this stroke fears of a second wave of infections around the globe. 

The lockdowns literally shut down the economy of many countries. To help businesses, many countries (including the US, the eurozone bloc and Japan) undertook a range of fiscal and monetary policy actions. These measures, amongst others, encompassed cash payouts, wage and utility subsidies, grants and loans, moratoria on rental and loan payments, training, as well as interest rate cuts, all of which served to support businesses, preserve jobs and boost consumer spending. 

In addition, Japan and some eurozone countries have instituted negative interest rate regimes. There is talk that the United States and United Kingdom are considering the same course of action. This unusual pivot to disincentivise saving does little to assuage prevailing anxieties, however. Further weighing on global economic activity, investor confidence and consumer sentiment are the unresolved oil price volatility and ongoing financial market turmoil.

The confluence of the above factors will see the global economy contracting sharply by –3% in 2020, considerably worse than during the 2008/2009 Global Financial Crisis (GFC), according to the IMF.

For Year 2020, Bank Negara Malaysia’s latest forecast points towards an economic growth for Malaysia in the range of -2% to +0.5%, as the Covid-19 situation continues to weigh on tourism, supply chains and household spending. Impact from the Covid-19 situation in China’s economy will continue to spill over to in the 1st and 2nd quarters of 2020 through lower tourism flows, household spending and varying degrees of supply chain disruptions.

According to the Ministry of Trade and Industry, the Covid-19 outbreak is expected to affect the Singapore economy through several channels, such as manufacturing and wholesale trade, the tourism and transport sectors due to sharp fall in tourist arrivals, and domestic consumption due to cut back on shopping and dining out activities. This will adversely affect firms in the retail and food services segment. Taking into account the weaker-than-expected performance of the Singapore economy in the first quarter, and the sharp deterioration in the external and domestic economic environment since February, the GDP growth forecast for 2020 is further downgraded to “-7.0 to -4.0 per cent”. The wider forecast range is to account for heightened uncertainties in the global economy, given the unprecedented nature of the COVID-19 outbreak, including the public health measures taken in many countries to contain the outbreak.

Against this backdrop, the Diners Club Singapore Group will intensify its marketing efforts for its various businesses, to stimulate card usage with introduction of “Diners SG Pay” e-wallet at Singapore hawker centres.

The cash proceeds of RM108 million generated from the sale of the Prestige land and sale or rental of the 7 completed properties valued at RM19 million will provide working capital to the Group during the current challenging environment. Your Board had allocated RM26 million from the sale proceeds for investment opportunities for new businesses or business collaboration and/or complimentary to the business of your Group.

 

 

ACKNOWLEDGEMENT

On behalf of your Board of Directors, I wish to thank the management and staff at all levels for their commitment, dedication and collective efforts and contribution. I wish to thank our valued customers, suppliers, business partners and shareholders for their continued support.

 

TAN SRI DATO’ TAN KAY HOCK

Chairman

Dated: 29 May 2020