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.