Corporate Perspective


Management Discussion and Analysis


The following Management Discussion and Analysis ("MD&A") of the operating performance and financial condition of Timberwell Berhad ("the Company") should be read in conjunction with the Financial Statements for the year ended 31 December 2020 and related notes thereto.

The MD&A is a mandate to advance the measurement and reporting of organisational performance. This MD&A, in combination with the financial statements, provides the opportunity for the Company to communicate the effectiveness of the stewardship of resources and to further progress towards the stated strategic objective.

The information presented in the MD&A is presented in accordance with Malaysian Financial Reporting Standards ("MFRS") and to correspond to the amendments Main Market Listing Requirement ("MMLR") of Bursa Malaysia Securities Berhad in relation to the Disclosure and Corporate Governance requirements unless otherwise noted.


OVERVIEW

The Company has been granted a Sustainable Forest Management Licence Agreement (SFMLA 06/97) for 100 years commencing 10 September 1997 over an area of 71,293 hectares in Lingkabau Forest Reserve in Sabah. The State Government of Sabah granted permission to the Company to plant, rehabilitate and harvest forest in the principles of sustainable forest management and environmental conservation for economic, environmental purposes in the licenced concession area.

Subsequently, the Company had on 12 April 2018 entered into a Sustainable Forest Management Licence Agreement (“Supplemental”) under SFMLA06/97 for conversion of 15,438.30 hectares into Protection Forest Reserve (“Class One”) and excise 10,195.28 hectares for socio-economic purpose.

The entire concession area is zoned into Natural Forest Management (“NFM”), Industrial Tree Plantation (“ITP”), and Community Forest as indicated in the following table:

Land useRM
Industrial Tree Plantation30,125.38
Natural Forest Management15,260.28
Community Forest273.76
Total Area 45,659.42

FINANCIAL REVIEW

Since the Sabah State Government has announced on the logs export ban in May 2018. The Company has then focused in domestic market and work with the local mill to export sawn timber as a change in its business strategy. The weakening timber market due to the global COVID-19 Pandemic since year 2020 resulted in the decrease in timber demand and selling price and the Group has maintained few business strategies and strict controls on capital management, including the following:

▸ Limited on capital nature expenditure, reduce of non-operating expenditure spending, focusing on key priority and revenue generation.
▸ Closer monitoring on inventory and debtor management.
▸ Cost control measures, focusing on enhancing operational efficiencies.

The Group is mindful that the economic uncertainties and difficult market conditions are expected to prevail into the new financial year in our major operating markets. The Group will continue with aggressive cost containment measures and rollout more innovative approaches in its operations to drive greater cost efficiency and productivity. The Group generated a revenue of RM18.3 million in year 2020 which has decreased RM10 million as compared to the year 2019 (RM28.3 million). The revenue reduced marginally by 35%. The decline in revenue is mainly due to the operation disruptions from 18 March 2020 to 3 May 2020 as the Government has implemented restricted movement measures to contain the COVID-19 outbreak.

The loss after tax figure of RM0.7 million was arrived at after taking into account the fair value loss derived from Biological Assets (“BA”) amounting to RM0.4 million (2019: Gain RM2.2 million).

The Company continued to appoint Messrs. Smiths Gore Sabah to conduct a fair valuation exercise on BA in accordance to MFRS 141 for the financial year ended 31 December 2020. The methods and approaches as the basis of the valuation of the following areas in the FMU 3 are Discounted Cash Flow and Income methods.

▸ Biological Assets (“Planted trees”) at the ITP area.
▸ Intangible Assets (“IA”) (Natural unharvested standing trees) at the NFM and ITP area.

The summary of the valuation report dated 31 December 2020 are shown in the table below:


Net Present Value (“NPV”)
31 December 2020
RM’000
31 December 2019
RM’000
Biological Assets24,820 24,520
Intangible Assets59,550 82,770
Total 84,370 107,290

The Fair Value Loss derived from BA are illustrated as per table below:



Particulars
NBV as at
31 December 2020
RM’000
NPV as Valuation Report
31 December 2020
RM’000

Fair Value Loss
RM’000
Biological Assets25,193 24,820 (373)
Total 25,193 24,820 (373)

The Fair Value Loss of RM0.3 million derived from BA was reflected in the Audited Financial Results for the financial year ended 31 December 2020.

The fair value of RM60 million derived from the valuation of IA as stated in the Valuation Report is for the purpose of impairment testing and will not be incorporated into the financial results of the Company for the financial year ended 31 December 2020.

The net assets per share of the Company as at 31 December 2020 after taking into account the fair valuation of BA were illustrated below:-



Particulars
Audited result as at
31 December 2020 before
fair valuation of BA

Effect of the fair
valuation
Audited result as at
31 December 2020 after
the fair valuation of BA
Equity Attributable to the owners of the Company (RM“000”)51,899(373) 51,526
No. of shares (‘000)89,05189,05189,051
Net Assets per share (sen)58.28 (0.42)57.86

The Group has also carried out a valuation exercise on the Property, Plant and Equipment ("PPE") during the financial year ended 31 December 2020. The valuation is conducted in accordance with MFRS 116 in respect of the fair value measurement of PPE and also to ascertain the carrying value of PPE of the Group for impairment purposes.



Types of PPE
NBV as at
31 December 2020
RM’000
NPV as Valuation Report
31 December 2020
RM’000

Fair Value Gain / (Loss)
RM’000
Investment Properties
Leasehold Land4,379 4,408 29
Building6,909 6,498 (411)
Property, Plant and Equipments
Motor Vehicle439 440 1
Plant and Equipment5,237 5,650 413
Building603 657 54
Total17,567 17,653 86

The net assets per share of the Group as at 31 December 2020 will be decreased by 0.25 sen to 57.61 sen upon incorporation of the fair value loss derived from investment properties, net of deferred tax as detailed hereunder:-



Descriptions
Audited result as at
31 December 2020
before fair valuation of
investment properties


Effect of the fair
valuation
Audited result as at
31 December 2020 after
the fair valuation of
investment properties
Equity Attributable to the owners of the Company (RM“000”)51,526(226) 51,300
No. of shares (‘000)89,05189,05189,051
Net Assets per share (sen)57.86 (0.25) 57.61

* Revaluation deficit is net of deferred tax


OPERATION REVIEW

The focal operations of the Company are timber harvesting and area rehabilitation mainly involving Silviculture Treatment and Mosaic Timber Planting. The approved 2020 Annual Work Plan (“2020 AWP”) stipulates the targets for all the activities in the entire year and the achievements are assessed at the end of 31 December 2020.

Figure 1: Areas in hectare for 2020 AWP target and the year ending 2020 achievements.

The Company only managed to harvest about 46% of the targeted area for harvesting in 2020 mainly due to the restrictions during the COVID-19 pandemic.

Figure 2: Comparison of logs production volume for year ending 2019 and 2020.

The market for timber remains challenging in 2020. The state government policy on round logs export ban remain in 2020 and the Company continue focus on domestic timber market. Despite the set-back and the impact of the pandemic especially in the first half of year 2020, the Company managed to produce substantial timber volume in the preceding half of the year.

Apart from the main tasks, other supporting activities carried out by the Company in 2020 are Area surveillance, Community Development and Outreach and Environmental inspection for Environmental Compliance. All the tasks are carried out in full compliance to the approved 2020 AWP.


Achievement & Acomplishment

For year ending 2020, the Company attained the following achievement:



The Forestry Department had on the 3 February 2020 informed that the Company has qualified to get the Compliance Certificate for the previous year achievement. However, the Certificate award was put on hold due to the restrictions enforced during the COVID-19 pandemic. Subsequently the 2020 Annual Work Plan was approved on the 26 April 2020.


Outlook & Prospect

The Management has revised the harvesting goal in 2020 to rationalise with the current health situation and market condition.

The Management is aware of the current health and economic situation and will look to improve productivity and efficiency in-line with the new-normal practiced to contain the pandemic. Within the principles of Sustainable Forest Management, the Management strives to carry out its tasks in a prudent and discreet manner while adapting to any improvement and strategy to address the evolving market, environment and social development.


WORKFORCE

The Company is committed in creating a dynamic workplace that is able to attract, retain and develop talents as an inherent component of maintaining sustainability.

The Group itself have a diverse, multi-cultural workforce consisting of competent industry professionals. Both genders are well represented at all levels of the Group, comprising Technical and Non-Technical staffs and also the Management.

As at 31 December 2020, the workforce is equipped with 57 employees



SUCCESSION PLANNING

The Management has created a precedent for the Company’s Succession Planning to improve organisational succession and talent development programs through the Six (6) Key Elements guidelines.

▸ Core positions leaders are personally involved.
▸ Core positions leaders hold themselves accountable for growing leaders.
▸ Employees are committed to their own self-development.
▸ Workforce data and analysis inform the process.
▸ Leadership competencies are identified and used for selection and development.
▸ A pool of talent is identified and developed early for long term needs.

The Company continued exploring the employee development plans and streamline the strategy into an “executive level” leadership development succession plan that will allow every employee to prepare and develop their future leadership roles in line with the Company’s growth.

The Company’s Succession Planning has been reviewed and assessed accordingly in the Executive Committee Meeting on 5 August 2020.


EMPLOYEE DEVELOPMENT & TRAINING

The Company believes that the people need to be developed, challenged and nurtured to be motivated in delivering the Company’s business goals. With the outbreak of COVID-19 pandemic, the Company continued emphasis in training and developing its employees despite the impediments to physical training brought about by COVID-19 pandemic.

During the year, our workforce has attended series of training and engagements pertaining to compliance awareness, finance, and environment via online platform such as zoom and webinars.

The training comprises both internal and external courses, where the records are maintained in the head office whilst the full list of training in respect to Sustainability are detailed in the Sustainability Statement

No.Continuing Education Programme AttendedDate
1.Sabah Forest and Timber Industry Master Plan17 February 2020
2.Live Webinar COVID-19 Corporate Tax Updates (M'sia) FLPC and Baker Tilly 17 June 2020
3.FPLC Webinar COVID 19 Series: Paradigm Shift in Human Capital Management 15 July 2020
4.Workshop Forest Beyond Timber 29 July 2020
5.The Cooler Earth Sustainability Summit 2020 (Profits with a Purpose) 8 September 2020
6.The Cooler Earth Sustainability Summit 2020 (Environmental Reporting)10 September 2020
7.The Cooler Earth Sustainability Summit 2020 (Building a Sustainable World) 10 September 2020
8.The Cooler Earth Sustainability Summit 2020 (Resilient Cities and Communities)15 September 2020
9.The Cooler Earth Sustainability Summit 2020 (Managing Change for Sustainability24 September 2020
10.The Cooler Earth Sustainability Summit 2020 (Tools for Environmental Risk Management) 2 October 2020
11.The Cooler Earth Sustainability Summit 2020 (Green Finance) 12 October 2020
12.The Cooler Earth Sustainability Summit 2020 (ESG Financing for Business) 15 October 2020
13.Technical Briefing for Company Secretaries of Listed Issuers conducted by Listing Division & Regulations, Bursa Malaysia Berhad 9 November 2020
14.MIA 2021 Budget Seminar 3 December 2020
15.MASB-MFRS Application and Implementation Committee Virtual Awareness Programme 8 December 2020