MANAGEMENT DISCUSSION AND ANALYSIS
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. We specialize 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), Extra Low Voltage System, Smart Home System, Home Alarm and Intercom System. Our business operations are primarily located in Malaysia with offices in Shah Alam, north and south of Peninsular Malaysia and East Malaysia.
Our top 3 customers are Mass Rapid Transit Corporation Sdn Bhd, Samsung C&T (KL) Sdn Bhd and WCT Construction Sdn Bhd, where we undertake projects in Building Management System, Extra Low Voltage System, Building Automation System and Building Control System.
Our top 3 suppliers are Schneider Electric Industries (M) Sdn Bhd, Electplus Industry Sdn Bhd and United U-Li (M) Sdn Bhd.
MESB used to be the market leader in Building Management System before 2012, and capture about 80% of the market share then. During 2012 to 2013, there was major changes in Board composition which resulted in diversification of business ventures. This was followed by shift of business directions into property development, fertilizer and distribution of healthcare equipment. As a result of the shift of direction, majority of the senior management staff resigned.
With the recruitment of new management and financial professionals in 2015, we began our recovery process in project delivery for all commercial project and MRT. Backlog for MRT of RM13 million which was 9 months behind schedule was executed and recovered within 6 months. The receivables in 2014 of RM65.8 million were reduced substantially to RM27.4 million in 2015 and to RM18.2 million in 2016 which shows management’s increased effort in recovering outstanding debts. The new management is also focused on project delivery and cleaning up of unprofitable investment activities and operations.
The Group also faced difficulty to perform due to substantial financial support provided to our property developments undertaken by subsidiary company M One Country Development Sdn Bhd in relation to the Kuala Krai development project and Cheras lands acquisition which are entirely cash funded internally.
As a result of the above factors, came another challenge, which is to retain skilled management personnel and engineers, as we are skilled intensive industry. Continuous effort and measures are undertaken to maintain our talent pool in anticipation of securing major projects ahead.
Other challenges such as GST implementation requires prudent cash flow management while currency depreciation increased the overall cost of material and operations.
REVIEW OF FINANCIAL RESULTS AND FINANCIAL CONDITION
The Group revenue increased from RM36.3 million in 2015 to RM48.1 million in 2016, being an increase of 32.5%. The increase is mainly contributed by over 60 projects successfully closed and completed during the current financial year with revenue recognition of RM10.3 million. Increase in staff productivity and organizational efficiency plus good supply chain management were also contributing factors towards the increase in overall gross profit margin from 38% in the previous year to 44% in the current year. In the same manner, substantial clean up to the books was done for a leaner and more efficient management of projects.
It was at the beginning of the current financial year that the Group launched an incentive driven performance scheme to achieve its desired budgeted results tying in performance with rewards which saw the above actual results materialize for the year.
The Group suffered a loss before tax of RM0.9 million in the current financial year compared to a profit before tax of RM3.5 million in the previous year. In fact the Group was already enjoying a cumulative profit before tax of 9 months ending 30 September 2016 of RM6.3 million when its fourth quarter result dipped by RM7.2 million due mainly to non-operational factors, which otherwise would have reflected a relatively steady growth in revenue and profits during the current year.
REVIEW OF OPERATING ACTIVITIES
Technology products and solutions are the driving factors behind the performance of our core business. Therefore the need to upgrade our technical skill and maintain a competent team to stay competitive and provide innovative solutions remains crucial to our business.
The Group also need to invest in human capital development while retaining technical key staff. The research and development team is also important to provide development of new products and solutions to interface with more devices and internet of things (IOT).
The success of this business depends on the above factors.
ANTICIPATED OR KNOWN RISKS
The Group is currently exposed to the following risks:
Currency risk fluctuation.
Reducing construction and infrastructure projects due to economic environment.
Exodus of key personnel to become competitor.
Lower success rate in securing tender due to obsolete technology and increase in tender cost plus competitive pricing among competitors as well as delivery and performance.
Plans to mitigate risks:
Setting up a Research and Development center to create better BMS solution and reduce product cost. The center will also play a pivotal role in creating more functions and interfacing with more devices and internet of things (IOT).
Provide training, certification and incentive for more competent and skilled team as well as charting a career path for employees.
Attract talented staff by changing working environment to a more conducive and corporate image, and adopting latest technology to improve efficiency and productivity of staff.
The market size in BMS business is increasing due to high impact open tender rail infrastructure projects such as MRT Line 2 and LRT 3, and also high profile construction project such as Lot K which we are targeting for BMS and ELV project. Out of the total available tenders in the market worth approximately RM700 million, we have already submitted tenders for RM210 million while the remaining balance is awaiting for the tender process.
Based on our new initiative to mitigate the risks, with our combined experience, financial resources and technical strength, we are optimistic once again to secure more contracts and regain our market share and leadership position in this engineering and technology solutions provider industry.
We are continuously exploring and assessing opportunities and growth prospects to increase shareholder value.