Chairman’sStatement
Dear Shareholders,
On behalf of the Board of Directors, I have great pleasure in presenting the Annual Report of the Company and the Group for the financial year ended 31 March 2011.
Overview
The global economic recovery has been gradual until it was affected by the development of events of geopolitical tensions in the Middle East and North Africa in 2010, and aftermath of earthquakes in Japan in March 2011. In addition, the sovereign debt issues of European countries continue to cause concerns in parts of the European economy with cascading effects on the world economy. In the meantime, economic issues in the US in 2010 caused major currencies to consolidate against the USD while emerging currencies appeared to progress their appreciation trend.
As the consequences of these events affect the global economic recovery process, economic growth was highly uneven across regions of the world. Although growth has remained strong with support from overall robust domestic economic activity, global inflation has crept in due to escalating prices of crude oil and commodities.
Despite these developments, the Malaysian economy made a remarkable recovery in 2010 registering an overall GDP growth of 7.2% against prior year's -1.7%. Growth was supported by continued firm expansion in domestic demand with private consumption spending continue to benefit from the favourable labour market conditions. The Government's roll-out and implementation of a series of construction and infrastructural activities under the Economic Transformation Programme (ETP) served to provide the impetus to the growth momentum in private investment, besides stimulating and encouraging economic activities on the domestic front. Domestic inflation has been on the rise due to higher fuel and food prices caused by supply factors.
With the improving Malaysian economy, the labour market has enhanced, resulting in increased consumer spending as market confidence improved. However, with the issues governing external supply factors of fuel and food, domestic demand continues to exert inflationary pressure on the economy.
Financial Review
Moving in tandem with the recovery of market sentiments since 2009, the Group launched a new residential property project, Villa Avenue, in Seri Kembangan in March 2010 which complemented the advancing progress of an existing commercial development project, Equine Boulevard, launched earlier in 2009. The progress achieved on both projects' construction activities during the current financial year contributed significantly to the operating profits of the Group. Coupled with the completion of three transactions of strategic land sales during the financial year, for which sale profits were recognised in the financial year, the level of operating profits was further enhanced.
Construction works at Batu Kawan's low cost housing projects progressed significantly in 2010 and with their prolonged delay in delivery, additional provisions for liquidated ascertained damages (LAD) have impacted the overall performance of the Group for the financial year to a certain extent. However, the physical completion of the low cost housing in July 2011 has finally stemmed further provision for LAD.
Consistent with the Group's business continuity plans, the Group proceeded with efforts to source for land which culminated in strategic partnerships of two joint development agreements with land owners for a mixed development project, da:men in USJ Subang and commercial shop office project, EQuator in Seri Kembangan. Despite not being direct acquisitions of land, the essence of procuring land via strategic alliances with land owners is in alignment with the Group's strategy of procuring land banks for property development purposes. While works have not commenced on these projects as at 31 March 2011, the commencement of development activities and subsequent construction progress are expected to have a positive impact on the results of the following and subsequent financial years.
The Group registered a net profit for the current financial year on the back of higher level of progress of project development activities and the recognition of profits for completion of past years' strategic disposals of land. The positive results, being the culmination of efforts of all strategic measures undertaken by the Group in the recent years, marked a significant change in financial position of the Group after three consecutive financial years of losses. The positive results are expected to lay a solid foundation for the Group's businesses besides charting a new direction for growth to improve future earnings of the Group.
Corporate Highlights
The Group's efforts to secure land bank to undertake future property development activities culminated in the successful execution of a joint development agreement with the land owners in January 2011 for a mixed development project of a parcel of freehold land measuring 8.98 acres in USJ Subang, Selangor Darul Ehsan known as da:men with an estimated Gross Development Value ("GDV") of RM1.0 billion. The project's development activities commenced in early March 2011 and are expected to be completed within the next three years.
As part of its on-going efforts to increase its land banks, the Group entered into a sale and purchase agreement (SPA) in August 2009 to acquire a parcel of leasehold land measuring 16 acres in Seri Kembangan for RM47.4 million for the development of commercial properties. However, in view of prolonged delay in fulfilment of conditions precedent, the SPA was terminated and replaced by a joint development agreement with the land owner which was executed on 27 January 2011; this arrangement being in continuance with the Group's intentions to procure land, albeit in a different legal manner, for development, particularly in the strategic land area within the Group's principal development area in Taman Equine, Seri Kembangan.
On 31 March 2011, the Group's wholly-owned subsidiary company, Penaga Pesona Sdn Bhd. (PPSB), through the nomination by a third party, Abad Naluri Sdn. Bhd. (ANSB), acquired a parcel of leasehold land measuring 126.04 acres in Batu Kawan (identified as Parcel 2B) for RM16.7 million for mixed development of commercial and residential properties. Under the terms of the Share Sale Agreement with ANSB entered on 12 February 2007 for the acquisition of the entire equity of PPSB, ANSB agreed to nominate PPSB to accept the transfer of five parcels of leasehold land in Batu Kawan (identified as Parcels 1, 2A, 2B, 3A and 3B) totalling 450 acres, of which two parcels of land, Parcels 1 and 2A) with total land area of 178.62 acres had then been nominated and secured by PPSB. On 31 March 2011, ANSB entered into a Supplemental Agreement with Penang Development Corporation which entitled ANSB to acquire the remaining 145 acres (in Parcels 3A and 3B) upon fulfilment of certain conditions (as detailed in the Group's announcement on Bursa Malaysia on 1 April 2011). The development on this matter has addressed the Group's concerns on the protracted negotiation process of securing these land banks in Batu Kawan.
In 2009, to address the difficult economic environment and to elevate the Group's financial position to a healthy platform, the Group rationalised its businesses by executing several business strategic measures amongst which involved the disposal of non-core assets as well as the disposal of parcels of land which either contributes a strategic catalytic impact to spur future development of existing land bank or those land with low development value or low returns. During the financial year, the Group completed the following disposals of land:
- Parcel of leasehold land in Seri Kembangan measuring 8.47 acres to Meridian Score Sdn Bhd for a total consideration of RM11.1 million - SPA in February 2010; and
- Parcel of leasehold land in Seri Kembangan measuring 6.04 acres to Safetags Solution Sdn. Bhd., a wholly-owned subsidiary of Titijaya Group Sdn. Bhd., for a total consideration of RM19.6 million - SPA in April 2010.
However, the SPA for disposal of a parcel of leasehold land measuring approximately 10.05 acres to Tesco Stores (Malaysia) Sdn. Bhd for a total consideration of RM29.8 million was terminated in October 2010 due to non-fulfilment of conditions precedent.
Subsequent to the financial year end, with the handover of vacant possession to the property in June 2011, the Group completed the disposal of investment property, Wisma KLIH. The SPA to sell Wisma KLIH to Wonderful Vantage Sdn Bhd for a cash consideration up to RM58.0 million was signed in October 2010.
Although the Group have secured rights to purchase land in Batu Kawan, the Group will continue to pursue and explore other opportunities to acquire suitable land, whether through direct acquisition or joint arrangements with land owners, in other strategic locations of economic growth for property development activities.
Prospects
The Malaysian economy is forecast to continue to grow with an average GDP growth rate of 5.0% to 6.0% in the years ahead. The growth is expected to be driven by key initiatives undertaken by the Government which will likely be through the ETPs to improve the infrastructural requirements to spearhead growth of the Malaysian economy. The public sector spending is expected to be supported by the strong labour market and sustained consumers confidence. The manufacturing sectors and commodities exports are expected to complement the Government's initiatives to bring about a cohesive economy for growth.
In cognition of the revitalised economic conditions with a positive effect on the property industry, the Group seeks to establish and re-position itself as an active developer in the property market. As a measure to increase its revenue base as well as for business growth, the Group has planned several new launches in Seri Kembangan and Batu Kawan in the new financial year, FY2012. Amongst the projects launched recently or to be launched are:
- Project da:men in USJ,Subang, Selangor, a mixed commercial and residential development involving 480 units service apartments in two16-storey blocks, 385 units of 5-6 storey commercial shop offices, a 6-storey retail mall and 2 basement car parks with an estimated total GDV of RM1.0 billion.
- 182 units of semi-detached and bungalow houses in Seri Kembangan with estimated GDV of RM203 million;
- 272 units of condominium in Seri Kembangan with estimated GDV of RM65 million;
- 420 units of service apartments/retail shops in Seri Kembangan with estimated GDV of RM128 million
- 259 units of two-storey terrace houses in Batu Kawan with estimated GDV of RM74 million
- 164 units of semi-detached houses in Batu Kawan with estimated GDV of RM95 million.
With the progress of on-going projects as well as the increasing number of projects to be launched and undertaken in the new financial year FY2012, the increased level of activities will propel the growth of the Group's businesses to a higher level. Going forward, barring any unforeseen circumstances, with the higher level of activity, the performance of the Group is expected to be enhanced favourably in the near future.
Acknowledgement
On behalf of the Board, I would like to thank all our customers, shareholders and business associates for their confidence in, and loyal support to, our Group's businesses.
I wish to express my appreciation to the members of the Board, management and staff of the Group for their commitment and dedication in continuing to improve and enhance value to all stakeholders, not just in the quality of our Group's products and services, but also the prospects of future growth of the Group's businesses.
YAM Datuk Seri Tengku Ahmad Shah
Ibni Almarhum Sultan Salahuddin
Abdul Aziz Shah
Chairman