MD & A

PERFORMANCE AND FINANCIAL POSITION

       During the outbreak of the COVID-19 pandemic which shows a huge impact in most businesses and industries. This includes the business activities of the Company mainly in the supply chain system and delayed operations which has a significant impact on the financial position, company’s performance, both current and forecast cash flow as well as the financial ratios of the Company. The management team has been continually following the outbreak situation closely and currently assessing its impact on the financial statements which the effect can be changed depending on the circumstances that may happen in the future.

     In 2021, revenue from contracts with customers of Bath 6,670.3 million slightly decreases by 19.5% YoY or Baht 1,090.2 Million. Due to the reducing sales volume of compressors for refrigerator/freezer by 32.0% while sales volume of air-conditioning compressor was increased by 5.5%, especially, the sales revenue from Hongkong increased by 44.0%, However, in the third quarter and four quarter of 2021, the Company was also again affected by the outbreak of the COVID-19 virus.  In terms of sales, operations and the supply chain of raw materials and components. Subsidiaries’ sales volume consisting of enameled wire, steel sheet and steel coil center also declined as well as many customers have been affected from the unforeseen situation of Coronavirus disease (COVID-19)


   Nevertheless, the cost of sales and services for Bath 6,515.8 million which was 97.7% of revenue shows a continuously improvement comparing to 96.9% of revenue in the past year. The Company have validated the multiple price adjustments in 2021. The sale and service expenditures maintained the same amount compared to the previous year.  The results indicated some success of more effective and uptight cost management, even though raw materials’ price including copper, iron and etc. in the market has sharply risen since the second quarter. Again, the administrative expenditure of 41.1 million Baht reduced from 43.1 million Baht in 2020 which is about 9.5% declined.

Total assets as of 31 December 2021 decreased by Bath 11.4 million from 31 December 2020.

           Total liabilities as of 31 December 2021 increased by Bath 477.1 million from 31 December 2020, due to an increase in trade payables in the amount of Baht 253 million and accrued expenses 94 million bath.

         Long-term liabilities The Company has entered into negative pledge memorandums, which are part of the short-term credit facility agreements with 3 financial institutions. Under the agreements, the Company is required to comply with certain conditions including maintaining interest-bearing debt to EBITDA plus extraordinary item and non-cash items ratio not exceeding 5:1 for the consolidated financial statements and debt to equity ratio for the consolidated financial statements not exceeding 2.75:1. The Company is not allowed to dispose of, transfer, mortgage or provide any lien on their assets, both existing and to be acquired in the future, except to use as collateral for the syndicated loan to pay off the debt to those financial institutions.

          During the year 2020, the Company entered into the Amendment Agreement to the Credit Facility Agreement to extend the repayment period of the outstanding principal for one year, starting from 31 March 2020. Therefore, the financial maturity date of the loan which had been drawn down in 2016 and 2018 shall be repaid within the years 2022 and 2024, respectively.

           The loan is subject to interest at the rate with reference to THBFIX+3%, and interest is to be paid on a monthly basis.

          Under the loan agreement, the Company has to comply with certain conditions including maintaining interest-bearing debt to EBITDA plus extraordinary item and non-cash items ratio for the consolidated financial statements not exceeding 5:1 and debt to equity ratio for the consolidated financial statements not exceeding 2.75:1, based on the financial statements as at 30 June and 31 December.

          As of 31 December 2019, the Company was unable to maintain interest-bearing debt to EBITDA plus extraordinary item and non-cash items ratio and debt to equity ratio as specified in the Credit Facility Agreement, resulting in the long-term loan becoming payable on demand. The Company, therefore, classified the total balance of the loan as the current portion due within one year. The classification of such liabilities as of 31 December 2019 to current liabilities is in accordance with Thai Financial Reporting Standards.

        In December 2020, the Company received a waiver letter from three financial institutions, approving a waiver for certain financial conditions including waiver maintenance of the interest-bearing debt to EBITDA plus extraordinary items and non-cash items ratio and debt to equity ratio for the year ended 31 December 2020.

           As of 31 December 2020, the Company was able to comply with all conditions as specified in the waiver letter and the loan agreement. The above long-term loans from financial institutions are secured by mortgage of the Company’s properties and plant thereon

           Total shareholders’ equity as of 31 December 2021 of Bath 501.6 million decreased from 31 December 2020 by Bath 489.5 million because of Operation loss.

Liquidity and sufficiency of capital

Liquidity ratios

           On 31 December 2021, the Company shows a similar liquidity ratio, 0.53 times, as last year. The Company has made credit facility agreements with 2 financial institutions which are the same financial institutions that provide long-term loans which the Company has used financial services from both financial institutions for many years. Due to a good relationship and both financial institutions have well knowledge and understanding of the compressor industry, so, this is the reason that both financial institutions continue to support the Company in using credit as working capital for their continued business operations.

Average inventory turnover and average inventory period

                On 31 December 2021, the average inventory turnover of the Company is 6.97 times which better than last year at 1.2 times. It shows that the company has more efficient inventory management due to a decrease in the average inventory period last year from 62 to 52 days which means the average inventory period has decreased by 16.1%.

Gross Profit Margin

                On 31 December 2021, the gross profit margin of the Company is 2.31% which worse than last year at 3.31 % due to continuously increase for the cost of raw materials.

Net Profit Margin

                On 31 December 2021, the net profit margin of the Company is (7.81%) which better than last year at (11.4%). The Company is in the process of adjusting the strategy and future operating plans, and looking for a new opportunity for additional funding sources.

Debt to Equity ratio

                    On 31 December 2021, the debt to equity ratio of the Company is 12.39 times which better than last year, 5.79 times. The Company has higher current liabilities compare to current assets at Bath 2,447 million (subsidiaries: Bath 2,833 million) and total accumulated loss at Bath 2,794 million (subsidiaries: Bath 1,947 million).

Credit Policy

                The Company manages the risk by adopting appropriate credit control policies and procedures and therefore does not expect to incur material financial losses. Outstanding trade receivables are regularly monitored and any shipments to major customers are generally covered by letters of credit or other forms of credit insurance obtained from reputable banks and other financial institutions. In addition, the Company does not have high concentrations of credit risk since it has a large customer base.

                An impairment analysis is performed at each reporting date to measure expected credit losses. The provision rates are based on days past due for Company ings of various customer segments with similar credit risks. The Company classifies customer segments by customer type and rating, and coverage by letters of credit and other forms of credit insurance. Letters of credit and other forms of credit insurance are considered an integral part of trade receivables and taken into account in the calculation of impairment. The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Generally, trade receivables are written-off if past due for more than 210 days and not subject to enforcement activity.

Allowance for diminution in inventory value

                The management needs to exercise judgment and especially make estimates determining the allowance for diminution in inventory value for the products that their net value is lower than the cost and obsolete or aging goods. This depends on a detailed analysis of the life cycle of the product, fluctuation of raw material prices, market competition, economic conditions, and industrial conditions. This may create a risk to the allowance for diminution in inventory value.

Methods and assumptions used by management in determining the allowance for diminution in inventory are as follows:

·  Comparing the holding period and the movement of inventories to identify Company’ s products that indicate slower turnover

·  Analyzing the net amount proceeds received from the sales of goods after the date record in the financial statements with the cost of the inventories                                                                                                                          

·  Consider the actual loss from sales and write-off of inventories from the account incurred during the year compared with the allowance for diminution in the inventory value recorded at the end of the preceding year

Investments in subsidiaries

                The Company recorded an allowance for impairment of investments in subsidiaries amounting to Baht 1,543 million in the separate financial statements (More details described in the notes to the financial statements no. 13). The determination of the allowance for impairment of investments is a critical accounting estimate. Which management team has to use high discretion to forecasting the future performance of subsidiaries including determining the discount rate and important assumptions. This will cause a risk associated with the value of investments in subsidiaries.