PMCorp : Annual Report 2009

FINANCIAL PERFORMANCE

For the financial year ended 31 December 2009, the Group recorded a revenue of RM72.9 million compared with RM125.0 million in the previous financial year. The decline in revenue was mainly due to the discontinuation of products by the Group’s food and confectionery business that did not fit with its direction or had low margins or slow sales. The rationalization of its product portfolio coupled with the rebranding of key house brands resulted in a temporary drop in revenue.

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Despite the lower revenue, the Group had achieved improved results, posting a marginal pre-tax loss of RM0.1 million compared with a pre-tax loss of RM36.2 million in the previous year. The improvement was due to significantly lower finance cost and also the stabilization of the global economy as well as strong recovery of Malaysia’s economy in the fourth quarter. The economic recovery enabled the Group to record gains on foreign exchange and a much lower allowance for diminution in value of investments compared with significant losses or allowances in the previous year. For the financial year, the Group’s results were affected by higher advertising and promotion expenditure incurred for its product rebranding exercise.
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The Group had in December 2008 and January 2009 repaid a substantial amount of its banks borrowings. This improved the financial position of the Group, thus placing the Group in a better position to focus and channel its resources on expanding its food and confectionery business.
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REVIEW OF OPERATIONS
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The Group is primarily engaged in the manufacturing, marketing and distribution of food and confectionery products through its wholly-owned subsidiary company, Network Foods International Ltd (NFIL). The Network Foods group operates out of Malaysia, Singapore and Hong Kong and exports to more than 50 countries.
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Malaysia
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In Malaysia, the Group’s operations are undertaken by two NFIL subsidiaries, Network Foods Industries Sdn Bhd (NFI) and Network Foods (Malaysia) Sdn Bhd (NFM).

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NFI manufactures chocolate and confectionery products under established brands such as Tudor Gold, Crispy, Tango, Kandos and Kiddies.

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During the year under review, NFI’s revenue decreased by 30.1% to RM47.5 million due to weak market sentiments in the domestic market. However, exports continued to increase and contributed 50% of its total sales.
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During the year, the company undertook a major rebranding exercise for several of its products. This undertaking, which involved the improvement of product quality, taste and packaging, successfully elevated their brand positioning and greatly improved market acceptance.

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For the financial year under review, the company recorded a reduced profit of RM3.2 million. The lower profit was due to the significantly higher advertising and promotion expenditure that was necessary to relaunch the upgraded products.

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As part of the company’s continual effort to grow its markets, NFI will strive to secure ISO22000:2005 standards so as to be able to export to Britain and European Union countries. ISO22000:2005 is a Food Safety Management System in the International Organization for Standardization and will be used in tandem with our existing ISO9001:2008 and HACCP certifications.

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NFM is the marketing and distribution arm of the Network Foods group and also acts for other agency lines in the distribution of their products.

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For the financial year under review, NFM recorded a lower revenue of RM32.9 million due to temporary market disruptions resulting from product rationalization undertaken by the company as well as its ongoing exercise to improve product quality, taste and packaging. Consequently, NFM suffered a loss before tax of RM4.3 million. During this transitional period, NFM continued to relaunch some existing house brands while adding new agency lines, and creating new house brands on other food items. It expects to return to profitability in this financial year.

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NFI completed the acquisition of the piece of property adjoining its existing factory in Shah Alam. The enlarged site will allow for the Group’s manufacturing, sales and distribution divisions to be situated in one central location. This will result in improved efficiencies and better synergies in the operations of the two companies as well as making adequate allowance for future growth in manufacturing and warehousing capacity. Construction is expected to commence in the second half of 2010.
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Singapore and Hong Kong
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The operations of the Group in Singapore and in Hong Kong are undertaken by Network Foods Distribution Pte Ltd (NFD) and Network Foods (Hong Kong) Ltd (NFHK) respectively. During the year under review, NFD undertook aggressive marketing to establish the revamped Tudor Gold and Crispy brands. This has led to an improvement in revenue and profitability in the fourth quarter of 2009. Despite operating under a difficult economic environment in Hong Kong, NFHK performed satisfactorily in 2009 and managed to record revenue and profit which are comparable to the previous year.
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