Chairman’sStatement
Dear Shareholders,
On behalf of the Board of Directors, I am pleased to present the Annual Report and Audited Financial Statements of Equine Capital Berhad Group for the financial year ended 31 March 2009 ("FY2009").
The year under review has been a challenging period for the Group's operations in view of the developments in the global economies which have caused adverse impacts to the Malaysian economy. Business activities in the local economy during this period were marred by surging fuel prices, runaway inflationary pressure on materials prices, employment losses and contracting consumer spending. The developments in 2008 have culminated in reports of negative growth in the economy in the first quarter of 2009, signalling the possibility of an economic recession. There remains uncertainty as to where the local economy will be heading.
The economic climate which prevailed in 2008 presented unattractive operating conditions to the Group and this has discouraged the Group from embarking on any significant property development activity. The Group had emphasized the need to exercise extreme caution in the evolving business environment and that any plan on new project launches had to be carefully assessed, with due consideration of the project's chances of success and its critical timing in an unstable economic situation. On prudence, the Group launched only one new project during the financial year, in May 2008 in Cheras known as "Palomino" which comprised 54 units of two-storey link houses with an estimated GDV of RM25.2 million. While deferring its decision on new major project launches to future years, the Group had during the financial year 2009 focused on progressing works toward the completion of its existing projects in Seri Kembangan and Batu Kawan. These efforts culminated in the completion of several projects in Seri Kembangan during the financial year, namely the Eminence two and half storey link houses in July 2008, Permai Place shop offices in November 2008, Sovereign semi-detached houses in January 2009 and the Rise Bungalows in March 2009.
Financial Review
In view of the delay in completion of several existing projects, the Group had focused on expediting works to complete these projects to stem compensation for delayed delivery. The tail-end of these projects, however, commanded the usual low percentages for progress billings, and coupled with the lack of new projects, the Group's revenue for the financial year ended 31 March 2009 declined by 20% from previous year's RM108.97 million to RM86.1 million.
Of the Group's total revenue generated from property development division in FY2009 of RM85.5 million, RM57.8 million was generated from properties in Seri Kembangan (68%), RM22.7 million from Cheras (26%) and RM5.0 million from Batu Kawan (6%). The major contributors to revenue for the current financial year were :
- projects completed during the financial year : two and half storey link houses of the Eminence in July 2008, shop offices of Permai Place completed in November 2008, semi-detached houses of the Sovereign in January 2009 and the Rise bungalows in March 2009; and
- projects under construction: Cahaya Permai's medium cost apartments in Seri Kembangan and Mestika Square shop offices in Cheras, low cost houses in Crescentia Park in Batu Kawan.
Profit margins in FY2009 fell significantly as a result of the weak revenue base in FY2009, compounded by write-off of development expenditure related to building structures on land sold, provisions for write back of previous years' profits arising from potential sale cancellation and provision for foreseeable losses. Operating losses before tax deteriorated to RM46.6 million in FY2009 from RM34.9 million in FY2008, hence, representing a decline of 34%.
The pre-tax loss for FY2009 has included a fair value adjustment gain of RM3.3 million (nil in FY2008) following the reclassification of two properties from Land Held for Property Development to Investment Property at fair values of RM31.7 million.
With the benefit of deferred tax credits, the Group's loss after taxation for the current financial year was registered at RM45.2 million, which exceeded preceding year's net loss of RM28.8 million by 57%. Consequently, net loss per share of the Group deteriorated to RM(0.21) in FY2009 compared against FY2008's RM(0.17), while the net asset per share declined to RM0.96 in FY2009 from RM1.16 in FY2008.
Review Of Operations
The Group's key area of focus for property development activities rests in the landbanks in Seri Kembangan. The development activities during the financial year had been centred on completing the Group's existing projects in this location as the construction progress of the majority of these projects had fell behind schedule. Some of these projects were incurring compensation for late delivery and hence, draws the urgency to complete these projects as soon as possible to stem losses, besides fulfilling the Group's obligations as a property developer. These efforts resulted in the completion of several projects during the financial year - Sovereign's semi-detached houses, Permai Place's shop offices and Rise bungalows, all located at Pusat Bandar Putra Permai, Seri Kembangan. The on-going construction on medium cost apartments of Cahaya Permai in Seri Kembangan progressed to 81% as at 31 March 2009 and will be completed in the next financial year.
Meanwhile, construction work continue to progress well in projects in Cheras with progressive stages of work achieved in Taman Mestika. In Batu Kawan, the development progress on Phases 1, 2 and 3 of Crescentia Park comprising mainly low-cost housing, has progressed to 95/% as at 31 March 2009; the target completion of these phases is towards the end of 2009. Works on Phase 4 involving Callisia two storey terrace houses are progressing in their early stages.
In summary, the projects completed during the financial year are as follows :
The on-going projects of the Group are as follows :
Due to poor sales response and the uncertainty of developments in the local economy, the Group has decided to suspend the construction of Permai Central which was launched in the preceding financial year, FY2008. Permai Central was intended to be a commercial centre with a transportation hub in the Group's Pusat Bandar Putra Permai township development which features mixed development of retail outlets, shop offices and office space fronting a transport hub.
With the Group's limited remaining land banks in Seri Kembangan, the development plans on these parcels of land have been re-evaluated and revised for a more up-market commercial development. This revision in development plan has resulted in the Group's decision for the sale of a parcel of land in Taman Equine, Seri Kembangan, originally intended for the Drive Thru Mall and Gourmet Deck properties, to Tesco Stores (Malaysia) Sdn. Bhd. It is the Group's expectation that the revised development plan for this area will enhance the overall commercial layout of the area which will generate better returns to the Group. With the aim of capitalising on market improvement in the area, the potential of property development has been assessed on the land banks in the vicinity and new projects involving commercial properties are being planned for launch in the near future.
Meanwhile, in Batu Kawan, the Group is progressing discussions in advanced stages with state authorities to expedite the delivery of additional parcels of land for development committed under contracts previously made. Upon securing these additional parcels of land, the Group will shift its focus to higher end property development activities in medium to luxurious housing and commercial properties which will generate attractive yields and returns.
The Group acknowledges that the availability of suitable and sizeable land banks is vital to the continued future of property development activities of the Group. One of these efforts resulted in the purchase of a parcel of land measuring 16 acres in Taman Equine, Seri Kembangan for a total consideration of RM47.4 million, which although is small in area, provides a strategic component in the commercial development of that area. At the date of this report, the signing of the sale and purchase agreement is pending. Conscious of the necessity of having a sizeable land bank, the Group will continue to identify and evaluate suitable and strategic land for opportunities to increase the land bank of the Group.
Corporate Highlights
On 26 August 2008, the then remaining Irredeemable Convertible Unsecured Loan Stocks 2003/2008 ("ICULS") totalling 34,933,756 units were converted to new ordinary shares of the Company. These new shares rank pari passu with the then existing ordinary shares. As a result of this conversion, the Company's share capital was enlarged from 192,404,565 ordinary shares of RM1.00 each as at 31 March 2008, to 227,338,321 ordinary shares of RM1.00 each as at 26 August 2008 and 31 March 2009.
The Group entered into a share sale agreement with a third party on 20 October 2008 to dispose of its 25% equity interest in an associated company, Abad Naluri Sdn. Bhd. for a cash consideration of RM2.0 million. The completion of this transaction is pending the fulfilment of the condition precedent relating to the approval of the relevant authorities for the transaction.
On 29 October, 2008, the extension of time granted by the Securities Commission for the approved Proposed Private Placement exercise to issue up to 22,733,832 new ordinary shares of RM1.00 each representing up to ten percent (10%) of the enlarged issued and paid-up share capital of the Company, expired as the Company did not seek any further extension of time.
Two of the Group's subsidiary companies entered in a sale and purchase agreement with Tesco Stores (Malaysia) Sdn. Bhd. on 2 April 2009 for the sale of a parcel of leasehold land in Seri Kembangan measuring approximately 10.05 acres.
Prospects
While the present economic situation is not encouraging, the Group took the opportunity to rationalise its businesses. The Group plans to :
- dispose of non-core assets to streamline the Group's operations as well as enhancing cash flows
- dispose of parcels of land which either contributes strategic catalytic impact to spur future development of existing land bank or those land with low development value or low returns
- reduction of Group's borrowings to reduce financing costs with overall impact of improving Group's profitability
- increasing existing land bank for business continuity
- strategise timing of new project launches and ensure good returns
- commit to completing projects on time
These measures are intended to sustain the operations of the Group during a difficult trading period while preparing for the anticipated recovery in the economy. With these measures, the Group hopes to strengthen its foundation for growth to yield better returns to its stakeholders.
With the foregoing considerations, the Group is planning to launch a few projects in the next financial year. In Seri Kembangan, plans have been drawn up for new launches of 408 units of semi-detached houses with a total GDV of approximately RM260.0 million while the Mestika Jaya project in Cheras will see an additional 22 units of shop offices with estimated GDV of RM8.0m. The Group's project at Crescentia Park in Batu Kawan will find itself elevating to higher class housing development from its present low cost housing with the target launches of a total of 259 units of two storey terrace houses and 172 units of semi-detached houses with a combined GDV of RM150.0 million. Besides these new project launches, the Group will also be progressing works towards delivery of 10.05 acres land which was sold in early 2009. These new project launches, together with the land development works, will be the forefronts to progress further development activities to bring better returns to the Group in the near future.
Acknowledgement
The Group witnessed a major change in the Board of Directors during the year under review with the departure of the Executive Chairman, Datuk Patrick Lim Soo Kit in October 2008. Under Datuk Patrick Lim's leadership, the Group's businesses have flourished and expanded to their present day status from its humble beginnings as private business entities. The Group pays tribute to the Group's achievements under Datuk Patrick Lim's leadership and guidance, and on behalf of the Group, I wish to record the Group's appreciation for his contributions.
On behalf of the Board, I wish to extend a warm welcome to Mr. Chin Kok Sang and Encik Othman bin Mohamad who were appointed to the Board in August 2008 and October 2008 respectively.
While we expect the coming financial year to be difficult and full of challenges, I believe that our solid foundation built over the years will assist us in overcoming this difficult period. I am also confident with the Group's dedicated and committed staff, the Group will rise up to the challenges that will bring the Group to its next level of success.
I would also like to thank all our customers, shareholders and business associates for their trust and confidence in us. To our dedicated employees, I look forward to your unwavering commitment in delivering value and quality products and services to our customers, and to continue with all your good work to take the Group to greater heights.