Chairman's Statement

On behalf of the Board of Directors of Knusford Berhad ("KB" or "the Group" or "the Company"), I am pleased to present the Annual Report and Audited Financial Statements for the Group for the financial year ended 31 March 2024 ("FYE 2024").

The core activities of the Group are trading of building materials, construction, property development and investment. The Group is also involved in landscape construction and maintenance services as well.

Performance Overview

The Group recorded revenue of RM148.80 million and a profit before tax of RM13.63 million in FYE 2024, compared to revenue of RM159.57 million and a profit before tax of RM2.37 million in financial year ended 2023 ("FYE 2023"). The decrease in revenue was mainly due to lower contributions from the trading and property development sectors. The increase in profit before tax was primarily attributed to gains from the disposal of investment properties, development lands and the recalibration of margins for projects nearing completion.

An in-depth review of the financial performance is presented under the Management Discussion and Analysis ("MD&A") section on pages 27 to 30.

Corporate Development

  1. The wholly-owned subsidiary of the Company, D-Hill Sdn. Bhd., had on 30 March 2023, entered into a Sale and Purchase Agreement ("SPA") with Sin Siang Hin (M) Sdn. Bhd., for the disposal of all that piece of freehold commercial land with a single storey building erected thereon, held under H.S.(D) 102446, PT 17588, Mukim Semenyih, Daerah Ulu Langat, Negeri Selangor Darul Ehsan measuring 4,065 in square meters for a total cash consideration of RM11.9 million.

    The disposal was completed on 7 August 2023.

  2. On 27 September 2023 whereby the Company had on even date received a letter dated 27 September 2023 ("Proposal Letter") from Tan Sri Dato' Lim Kang Hoo ("TSDLKH"), a major shareholder of the Company and the Group Executive Chairman and a major shareholder of Ekovest Berhad ("Ekovest"), requesting the Company to consider participating in a reorganisation, rationalisation and merger proposal comprising, amongst others, the proposed merger of the construction and construction-related businesses of Ekovest and the Group through the acquisition of the entire issued share capital of Ekovest Construction Sdn. Bhd. ("ECSB") (i.e. a wholly-owned subsidiary of Ekovest, being the existing construction arm of Ekovest) by the Company ("Proposed Knusford-ECSB Merger").

    Following thereto, the Board of Directors of Knusford ("Board") wishes to announce that the Company had on 27 October 2023 entered into a binding heads of merger agreement ("HOA") with Ekovest to exclusively explore and negotiate further on the Proposed Knusford-ECSB Merger via the proposed acquisition by the Company of the entire equity interest in ECSB from Ekovest for an indicative purchase consideration of RM450 million ("Purchase Consideration"), which was arrived at on a willing-buyer, willing-seller basis, after taking into account the audited net assets of ECSB as at 30 June 2023.

    The Parties shall use their best endeavours and efforts to negotiate in good faith and execute the Definitive Agreement within four (4) months following the date of the HOA, with an automatic extension of three (3) months upon the expiry of such four (4) months period, or such further extended date as the Parties may mutually agree upon ("Expiry Date").

    On 27 May 2024, the parties have mutually agreed to extend the HOA from 28 May 2024 to 27 uly 2024.

    On 26 July 2024, the Parties have mutually agreed for a futher extension of 6 months from 28 July 2024 to 27 January 2025, to grant more time for the Parties to assess, evaluate and deliberate the Proposed Knusford-ECSB merger in detail.

  3. The Company had on 27 March 2024, entered into a conditional SPA with Emerald Plan Sdn. Bhd. to dispose a freehold land together with the buildings erected thereon held under HSD 51799, PT 43447, Mukim and District of Klang, Selangor with a provisional land area of 25,625.48 square metres (approximately 275,832 square feet) bearing postal address of No. 8, Jalan Kecapi 33/2, Taman Perindustrian Elite, Seksyen 33, 40350 Shah Alam, Selangor Darul Ehsan for a cash consideration of RM28.0 million.

    The Shareholders of the Company had approved the proposed disposal during the Extraordinary General Meeting held on 28 June 2024.

    The completion of the proposed disposal is pending the fulfilment of the conditions precedent of the SPA.

Industry Landscape

Malaysia's economy is estimated to have grown by 3.9 percent in the first quarter of 2024 compared to the previous year, driven primarily by growth in the services sector. All main sectors experienced positive growth, with the services sector leading the way with a 4.4 percent year-on-year increase. This growth was supported by the wholesale and retail trade, transport and storage, and business services sub-sectors. The government and central bank expect full-year economic growth of 4 to 5 percent in 2024.

The International Monetary Fund ("IMF") and economists are optimistic about Malaysia's economic growth, expecting it to remain resilient through 2025. This outlook is supported by increased consumer spending driven by withdrawals from the Employees Provident Fund's ("EPF") Akaun Fleksibel and a salary increase for civil servants, although the impact of these factors might be felt later.

In the construction sector, analysts anticipate an annual average growth rate of 5.7 percent between 2025 and 2028. This growth will be supported by an increase in both foreign and domestic investment, as well as the acceleration of work on various infrastructure and energy projects.

However, the Board views the construction and property industries remain challenging due to rising construction costs and fierce competition, which will impact the performance of the Group's building materials trading sector. The increasing commodity prices (e.g., copper, cement) heighten the risk of project cost overruns and reduce earnings margins. Inflation is expected to rise further in 2024/2025.

The government's intention to review price controls and subsidies will affect the inflation outlook, and energy costs are likely to remain elevated. Additionally, the industries face other challenges such as the depreciation of the Malaysian Ringgit ("Ringgit"), increasing construction overheads, and a shortage of skilled labour, which could affect project delivery.

In a highly competitive construction market, contractors often seek to minimise costs to win bids. This cost-cutting pressure trickles down to building materials suppliers, who may have to lower prices to remain competitive, thereby squeezing their profit margins.

Economic uncertainty significantly impacts the availability and initiation of new construction projects and property launches. The construction market is highly competitive, with numerous firms vying for the same projects, making it harder for contractors like us to secure new projects with appropriate profit margins. Timely payments from clients are crucial for maintaining cash flow and taking on new projects. Payment delays or defaults can create financial stress, limiting a company's ability to bid for new projects and effectively replenish its order book.

Moving Forward

The Board anticipates that the economic outlook will remain challenging in the near-term due to ongoing inflation, rising interest rates, and a weakening Ringgit, which are affecting the construction and property industries. The Construction Division expects a less favorable outlook and a more competitive tender environment, driven by limited infrastructure projects and high building material costs. To address this, the Group is adopting a highly selective approach to tendering, prioritising projects with sufficient margins to mitigate inflationary pressures and strategically replenish its order book.

In light of the challenging business environment and depleting order books, the Board believes that the near-term prospects will remain difficult. Consequently, we anticipate that the financial performance of the construction and trading sectors for the financial year ending 31 March 2025, may be adversely impacted.

The Group will stay focused on its core business segments, which include the trading of building materials, civil construction and building works, property development, and landscape works.

The rising prices of building materials are expected to drive up property prices, while ongoing interest rate hikes may directly affect buyers' discretionary income and affordability, leading to cautious behaviour among buyers and investors. Consequently, the local property market is anticipated to remain challenging.

Due to these factors, the Group has decided not to launch any new property development projects in the near-term, other than the mandatory development of 315 units for phase 1 of affordable homes in Kajang. It's anticipated that this project will result in significant losses for the Group. However, we have fully provided for the loss and are aware of the inherent challenges involved.

The Board remains aware of the competition and operational risks that could impact financial results and will continue to take proactive measures to ensure the sustainability and resilience of existing businesses. We are committed to delivering and completing all projects within budget and on schedule.

The Group will continue to practice prudent spending and efficient cash flow management while leveraging the expertise of our experienced management team to pursue new projects and investment opportunities. Additionally, the Group will adopt a cautious approach to enhancing our order book by exploring new business opportunities, with a key emphasis on improving project delivery and stringent financial management to navigate the current challenging business environment.

Corporate Governance

The Board recognises the importance of maintaining good corporate governance and is committed to meet all applicable rules, regulations, norms and standards that will meet the expectations of the stakeholders.

The principles of integrity, transparency and accountability are embedded in its Code of Conduct and Ethics. Measures are put in place and constantly tested and reviewed to ensure that they stay relevant and effective in the environment of the Company's operations. The compliances and practices adopted by the Company in pursuance of good corporate governance are as reported in the Corporate Governance Overview Statement and the Corporate Governance Report. The latter report is to be submitted to Bursa Securities and shall be available on the Company website at www.knusford. com.my.

In the financial year under review, the Group has conducted the Anti-Bribery and Corruption assessment which gives the Group a systematic and prioritised view of where the significant inherent bribery risks lie.

Sustainability

At KB, we continue to recognise the importance of conducting our business in a sustainable and responsible manner focusing on sustainability values based on Environmental, Social and Governance framework. An update on our approach towards sustainability is included in our Sustainability Statement section on pages 48 to 64.

Acknowledgment

On behalf of the Board, I would like to express my gratitude to all our valued customers, employees, bankers, business associates and partners and the shareholders for their continuous support and confidence in the Group.

DYAM Tunku Ismail Ibni Sultan Ibrahim
Chairman

Date: 25 July 2024