I AM PLEASED TO PRESENT TO YOU THE ANNUAL REPORT, INCORPORATING THE FINANCIAL STATEMENTS OF THE GROUP AND THE COMPANY, FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2020.
The Malaysian economy recorded a contraction in Gross Domestic Product ("GDP") of 5.6% in 2020 mainly due to the COVID-19 pandemic. The trade war between US and China had a significant effect worldwide, resulting in the weakening of timber prices as well as other commodities which had a negative impact on Malaysia.
The Government's increased expenditure for infrastructure development coupled with cash distribution relief to the people, helped boost domestic demand which had the effect of halting and subsequently reversing the negative impact which the weak global conditions had on the domestic economy earlier in the year under review.
During the financial period under review, the Group posted a Revenue of RM18.3 million compared to RM28.3 million in the corresponding period of 2019. The decline was mainly due to the global COVID-19 pandemic which resulted in the decrease in timber demand and also the selling price.
Ever since the Sabah State Government announced an export ban on logs in May 2018, the Company had to focus on the domestic market and collaborate with local mills to export sawn timber as a change in its business strategy.
The Group showed a Loss from Operations of RM0.1 million (2019: Profit RM5.3 million) after taking into account the fair value loss on Biological Assets and Investment Properties.
The Company had engaged Messrs. Smith Gore Sabah to conduct a fair valuation on Biological and Intangible Assets and Investment Properties in accordance with the MFRS 141 and MFRS 140 respectively. The Net Present Value ("NPV") derived from the valuation report dated 31 December 2020 are summarised as per the tables below:
1. Biological and Intangible Assets
The approach and method of the Biological Assets have met the criteria of the MFRS 141 and thus, the fair value derived from the Biological Assets is reflected in the financial report accordingly. However, the approach of the Intangible Assets does not fulfill the entire criteria and therefore the fair valuation of Intangible Assets will be used for impairment testing purposes and will not be incorporated in the financial results. The fair value on Biological Assets has the effect of Loss by 0.42 Sen (2019: Gain 2.50 Sen) contributing to the decrease in net assets per share of the Company for 2020 to 57.86 Sen (2019: 58.66 Sen).
2. Investment Properties
The approach and method of the Investment properties have met the criteria of the MFRS 140 and thus, the fair value derived from the Investment Properties is reflected in the financial report accordingly. The fair value on Investment Properties has the effect of Loss by 0.25 Sen (2019: Gain 0.26 Sen) contributing to the decrease in net assets per share of the Company for 2020 to 57.61 Sen (2019: 58.92 Sen)
Due to the nature of our business, which is heavily dependent on timber prices, coupled with a challenging environment during the period under review, the Management had put in place a programme to maintain the development of our Forest Management Unit (“FMU”) to enable additional revenue to be generated.
In the timber segment, the Company had been granted a Sustainable Forest Management Licence for 100 years commencing 1997 over an area of 71,293 hectares in Lingkabau Forest Reserve in Sabah. The Company, with the permission of State Government of Sabah, is able to plant, rehabilitate and harvest forest in the sustainable forest management concession area, which is marked for Natural Forest Management (“NFM”), Conservation and Industrial Tree Plantation (“ITP”).
On 12 April 2018, the Company and the Chief Minister of the State of Sabah had entered into a Supplemental Agreement to amend the Principle Agreement; Sustainable Forest Management Licence Agreement (“SFMLA”) dated 10 September 1997. The amendments involve rezoning a New License Area, Rezoned Area and Excised Area. The New License Area saw an increase in the ITP areas from 15,156.15 hectares (after excluding the community forest zone of 273.76 hectares) to 30,125.38 hectares. The amendments may enhance the Company’s long-term prospect as it will enable the Company to enhance its production capacity and area for planting.
To-date, the industrial tree plantation area is planted with various tree species including mahogany and rubber with the Group’s concerted effort on enrichment planting, silvicultural treatment, upkeep and maintenance of the sustainable forest management concession area.
Apart from this, various steps have also been taken by Management and the Board of Directors to transform the Company into a lean and dynamic organisation. With other measures which will be initiated in the coming months, we are confident that the Company will be poised to take advantage of any upturn in the timber market.
ACHIEVEMENT AND ACCOMPLISHMENT
The Company remain committed to the Timber Legality Assurance System (“TLAS”) criteria against the European Union Forest Enforcement Governance and Trade (“FLEGT”) for the management of its forest area though the Assessment was deferred due to numerous constraints.
In recognition of the continuous efforts by the Management and the Board of Directors, the Company was informed by the Forestry Department on the 26 April 2020 that the Company attained the Compliance Certificate, for its achievement of the overall performance in accordance with AWP2019.
Further to the compliance achieved by the Company, the proposed 2020 Annual Work Plan of the Company was also approved.
The Board does not recommend any dividend payment for the year.
OUTLOOK AND PROSPECT
Amid the more challenging external environment, Malaysia’s economy is projected to experience a steady pace of growth in GDP of between 3% - 4% in 2021. Domestic demand is expected to remain resilient and will continue to be the anchor for growth.
The Group will be able to pursue better operational performance at lower costs through its continued prudent cost control measures and improvement in efficiency. It is the commitment of the Group to improve its earnings growth to ensure the Group’s sustainability.
The Board of Directors is cautiously optimistic that the Group will continue to improve its performance for the financial year ending 31 December 2021.
I would like to express my heartfelt thanks to the Management and staff for their continuous commitment and invaluable contribution to the Group, as well as my Board colleagues for their dedication, invaluable advice and undivided support over the past year.
My sincere appreciation also goes to our shareholders, customers, bankers, business associates, partners, suppliers and the media for their unwavering support and confidence in our Group.
Last but not least, I would also like to take this opportunity to express the gratitude of the Group to the Sabah Forestry Department, various government agencies and regulatory authorities for their continued trust and confidence in us.
Dato' Seri Abdul Azim bin Mohd Zabidi
Independent Non-Executive Director
22 February 2021
Note: The Chairman during the financial year under review is Dato’ Seri Abdul Azim bin Mohd Zabidi who has resigned on 22 February 2021.