OVERVIEW OF THE GROUP’S BUSINESS AND OPERATIONS
Metronic Global Berhad (“MGB” or “the Group”) through its wholly owned subsidiary, Metronic Engineering Sdn Bhd (“MESB”), is a total solution provider company having been in the industry since 1984 and considered to be one of the local pioneers in the engineering business. MESB specializes in design, supply, install, testing and commissioning, and service and maintenance of Intelligent Building Management System (IBMS), Building Management System (BMS), Energy Management System (EMS), Security System (Card Access, CCTV System, Guard Tour and Car Parking System), Information and Communication Technology System (ICT) and Extra Low Voltage System (ELV). The business operations are primarily located in Malaysia with offices in Shah Alam, north and south of Peninsular Malaysia.
MESB was the market leader in BMS even before 2012, and capture about 80% of the market share then. During 2012 to 2015, there was major changes in Board composition which resulted in diversification of business into property development, fertilizer and distribution of healthcare equipment.
In early 2017, the Group undergone another round of change at Board level as well as management team. The new team then, upon review of the Group’s operation and outcome from special audit, has discovered several irregularities and pursued legal proceedings against the responsible parties. During the financial year, significant time and resources were placed towards attending the issues due to prolongation of the cases.
The Group, as part of the measure to address working capital constraint, undertook series of funds raising exercises included a rights issue with free warrants and Employees Share Option Scheme (“ESOS”). The exercises were successfully completed in April 2019 and June 2019 respectively.
For the financial year 2019, the Group continue to face various challenges mainly the slowdown in the construction industries. The project owners and contractors delaying their launches and awards due to unfavorable economic conditions whilst new Government, as part of the effort to consolidate its fiscal position, had reviewed some of the policies as well as restraining execution of several large-scale projects. The situation had indirectly deteriorated the industry’s performances and impacted the Group’s performance to secure new contract to replenish order book while the on-going works experienced a slow-down. Similarly, the property sector remains lackluster and has no sign of improvement in the immediate term. The situation has dampened the Group’s property development project that is presently stalled.
Being involved in the construction services industry, the retention of skilled and experienced personnel and engineers remains key challenges despite continuous effort and measures being undertaken.
|FPE 30 June 2019
|FPE 30 June 2018
|Revenue (continuing operation)||27,204||43,664|
|Gross profit (continuing operation)||8,895||22,178|
|Loss before taxation (continuing operation)||(14,202)||(3,386)|
|Net loss after tax||(14,901)||(4,227)|
|Net asset per share (sen)||7.42||7.37|
REVIEW OF FINANCIAL RESULTS
The Group changed its financial year from 31 December 2017 to 30 June in 2018 in the preceding financial period. The review of results for 2019 is therefore a comparison of results between a 12-month period against an 18-month period. For the 12-month period ended 30th June 2019, the Group recorded a revenue of RM27.2 million against RM43.7 million in 2018. However, it should be highlighted that the financial period ended 30th June 2018, was over a period of 18 months. On an adjusted 12-month prorated basis, Group revenue for 2019 decreased by 6.5%.
The unfavorable performance recorded mostly due to lower revenue from engineering contracts mainly resulted from the completion of its key project - Project Mass Rapid Transit Sungai Buloh - Kajang Line (MRT SBK Line 1) in the previous year whilst the RM50 million contract for Projek Mass Rapid Transit Laluan 2 Sungai Buloh - Serdang Putrajaya (MRT SSP) secured in February 2018 is at the preliminary stage. The Group’s performance also impacted by the delay of some of its on-going key projects whereby as a contractor for the Building Management System, the Group’s revenue is very much dependent on the site progress undertaken by other contractors.
During the current financial year, the Group recorded lower Gross Margin of 32% as compared with 51% previous year due to inclusion of RM7.1 million additional revenue recognized from variation order claims in 2018.
The Group suffered a loss before tax of RM14.2 million in the current financial year compared with a Loss before tax of RM2.4 million in 2018. The losses mainly due to provision for impairments of property, investments in shares and receivables totaling to RM9.1 million. In addition to that, the Group incurred a significant amount of legal costs in its pursuit to protect and defend the Group from legal suits besides professional fees for the corporate exercises undertaken by the Group.
The Group reported higher total assets and equity at the end of the financial year due to proceeds received from the rights issue, warrant exercise and ESOS exercises undertook during the period.
REVIEW OF OPERATING ACTIVITIES
Engineering works continue to remain key source of revenue for the Group. The property development in Kuala Krai, Kelantan undertaken by its wholly owned subsidiary, M One Country Development Sdn Bhd, remained stalled temporarily whilst a detailed feasibility study is still being carried out. Based on the present businesses backdrop, the Group has placed high interest in advance technology and Internet of Things (IoT) and has stepped a major breakthrough into Smart System development.
In February 2018, the Group’s wholly owned subsidiary - MESB has secured a contract RM50 million from Mass Rapid Transit Corporation Sdn Bhd for the Design, Supply, Installation, Testing and Commissioning of Building Management System for Underground Works of Projek Mass Rapid Transit Laluan 2 Sungai Buloh - Serdang Putrajaya (SSP). The project which is spanned over four years, presently on track with works mostly towards planning, designing and documentation. The actual physical works will commence by middle 2020.
During the financial year 2019, MESB was in the progress to complete KLCC Lot 91 ELV and AV packages with contract sum of RM22.5 million and RM6.0 million respectively. The projects have become the main contributor to the Group’s revenue despite experienced slight delayed. The progress of works undertaken by MESB was very much dependent on the site progress undertaken by other contractors for civil and structural, mechanical and electrical works.
MESB, during the financial period, has successfully secured bank facility and fulfilled all conditions precedent for the drawdown. The facility that includes performance bond and trade lines were required to ensure successful execution of the projects.
The Group, in line with its strategic plan towards advance technology and Internet of Things (IOT) business, has ventured into Smart System development. MESB had entered into Memorandum of Understanding (MOU) with Zhuhai Singyes New Material Technology Co Ltd, a subsidiary of China Singyes New Material Holdings Limited - a public listed company in Hong Kong in March 2019. The MOU later followed by a Joint Venture Agreement in August 2019 whereby parties agreed to collaborate for the purpose of developing smart city solutions in Malaysia.
In the financial year, the Group successfully resolved several long outstanding legacy issues includes resolution of disputes with client to finalize the project final accounts, recover long outstanding trade claims as well as resolution of legal claims.
Operational challenges and Improvement initiatives
In the pursuit to propel and remain ahead in the competitive industry, the Group is mindful of the challenges and risks, and has taken appropriate measures to ensure its ability to achieve its operational and financial objectives.
The Group acknowledges the importance of all relevant stake holders and has given high attention to improve its reputation and relationship particularly to the customers and suppliers.
The Group’s financial performance is very much dependent on work order and profitability margin. During the financial year, the construction industry specifically related to building management system has become more competitive with limited opening on the scalable projects coupled with stiff competition between industry existing and entrance of new players. Profitability margin reduced due to increase in cost of equipment whilst suppliers and sub-contractors tightened their contract terms. It was also another challenge to the Company in getting timely payment from Client. Appropriate measures were required to address the challenges and have resulted to a further increase in cost and reduce profitability.
Being involved in the skilled intensive industry, the retention of skilled and experienced personnel and engineers remains key challenges despite continuous effort and measures being undertaken to maintain the talent pool in anticipation of securing more major projects ahead. Efforts have been put to upgrade the employees’ technical skill and maintain a competent team to stay competitive.
During the financial year, the Group continue to place the required resources towards attending several outstanding legacy issues which are foreseen to take time and resources to resolve.
Notwithstanding the above, the Group continues to leverage its long-term strategic relationship with the existing and potential business associates and partners that would enable to smoothen the business process, improve efficiency as well as to improve cost effectiveness. MESB has also engaged into smart partnership with parties for synergistic team to secure more projects.
The Group’s Business Transformation Program to strengthen its business foundation and increase competitive advantage is on-going. The program amongst others, identified action plans to improve its capacity, capability, competency and address the operational improvements holistically include the governance structure, policies, work processes, performance management system and other work processes enablers.
ANTICIPATED OR KNOWN RISKS
Following are risks identified which may affect its ability to achieve its operational and financial objectives:
Reducing construction and infrastructure projects due to economic environment
Lower success rate in securing new contract due to competitive pricing among competitors.
Loss of talented and skilled employee.
Plans to mitigate risks, among others:
Collaborate with key players involve in the synergistic works such as ICT, AV etc to increase competitive advantage in the pursuit to bid and participate more scalable contract works.
Collaborate with key equipment suppliers to enhance product features and possess the required certifications to improve bidding competitiveness.
Establish a Research and Development unit to create better BMS solution and reduce product cost. The team will also play a pivotal role in creating more functions and interfacing with more devices and internet of things (IOT).
To place greater focus on staff training and development programs.
To continuously review the Group’s remuneration and benefit scheme as well as to ensure a conducive working environment in order to retain and attract talented staff.
SIGNIFICANT CORPORATE DEVELOPMENTS
During the period, there were several funds raising exercises undertook by the Group to meet the working capital requirements and improve financial standing.
Pursuant to the approval obtained via the Extraordinary General Meeting held on 29 November 2018, the Company has completed its share consolidation of every three (3) ordinary share into one (1) ordinary share on 27 December 2018 by listing and quotation of 320,910,670 ordinary shares which consolidated from 962,737,128 ordinary shares on the Main Market of Bursa Securities.
Rights Issue with Warrants
Pursuant to the approval obtained via the Extraordinary General Meeting held on 29 November 2018, the Company has on 23 April 2019 announced that it has successfully completed its rights issue exercise by listing and quotation of 641,821,340 Right Shares and 481,365,866 Warrants on the Main Market of Bursa Securities. Total proceeds from the right issue exercise was RM41.7 million.
On 14 June 2019, the Group announced that a total of 71,086,890 warrants issued in pursuant to the right issue exercise that is entitled to subscribe 1 new Company’s share at the exercise price RM0.08 per share had exercised the warrants to ordinary shares. The total proceeds from the exercise was RM 5.7 million.
On 7 June 2019, the Company announced that it offered a total of 98,696,593 shares under ESOS at the option price of RM0.0674 to eligible employees of the Company in accordance with the By-Laws of the ESOS. As at 21 June 2019, all the ESOS offered was fully subscribed with the total proceeds of RM6.6 million.
On 8 August 2019, the Group announced its proposal to undertake a private placement of new shares of up to 10% of the total number of issued shares of the Company (excluding treasury shares) or about 156,826,100 to third party investor(s) to be identified later and at an issue price to be determined later. The proposal has been approved by Bursa Securities on 13 August 2019 and completed following the listing and quotations of 113,250,000 placement shares on the Main Market of Bursa Securities on 15 October 2019.
The Group is mindful of the challenges ahead particularly for the construction industry with the intense competition and current economic situation. The recent scaled-down and deferment of mega rail infrastructure projects namely LRT3, ECRL, High-Speed Rail and MRT3 and the slow-down in the construction industries has somehow affected the construction industries overall. The Group however remains optimistic that the prospect in BMS and ELV business continue to grow with the commencement of high profiled construction project such as ECRL, Merdeka KL118 and few other commercial projects.
The Group to-date has submitted tenders totaling RM100 million and identified few in the pipelines which are tenders under preparation. We are optimistic that the experience, financial resources and technical strength coupled with the initiatives undertook under the Group’s Transformation Program, the Group is able to secure more contracts and regain market share and leadership position in this engineering and technology solutions provider industry.
Meanwhile, we are continuously exploring and assessing opportunities and growth prospects to increase shareholder value.