MD & A

PERFORMANCE AND FINANCIAL POSITION

Business overall

• Revenue from contracts with customers for the year 2023 amounted to 3,176.1 million baht, a decrease of 2,909.1 million baht or -47.8% from the same period last year.

• Cost of sales and services for the year 2023 was 3,116.5 million baht, representing 98.1% as a percent of revenue. The Group is adjusting its distribution strategy as well as reducing production costs and other expenses.

• Gross profit for the year 2023 amounted to 59 million baht or 1.9% of sales revenue. increasing from the same period last year, which has a loss of -1.1%. The company has negotiated with customers and adjusted the selling price. 

• Selling expenses for the year 2023 amounted to 52 million baht, representing a rate of 1.6% compared to sales revenue, which has increased from the same period of the previous year by 1.2% However, the Group has a policy to continuously manage selling expenses.

• Administrative expenses for the year 2023 amounted to 1,010.4 million baht, representing a rate of 31.8% compared to sales revenue, an increase of 7.98% from the same period last year, due to the reclassification of some depreciation cost into administrative expenses.

• Financial expenses for the year 2023 amounted to 285 million baht, an increase of 3.4 million baht from the same period last year due to the fluctuation of interest date

• The company had a net loss for the year 2023 in the amount of 1,280.9 million baht, representing -40.3% of sales revenue. The loss increased from the same period last year, by (13.3%). The Group is in the process of changing strategies and operating models, including various measures and management policies to be more efficient.

Statement of Financial Position

• Total assets as of 31 December 2023 decreased by Baht 1,935.8 million from 31 December 2022. The decrease was due to a combination of a decrease in inventory and a decrease in noncurrent assets.

• Total liabilities as of 31 December 2023 decreased by Baht 348.3 million from 31 December 2022.

• Total shareholders’ equity as of 31 December 2023 of Baht (676.1) million, a decrease from 31 December 2022 due to the revaluation of assets and operating loss.

        The Group was unable to maintain interest bearing debt to EBITDA plus extraordinary item and non-cash items ratio 5:1 and debt to equity ratio 2.75:1, as specified in the Credit Facility Agreement.

As disclosed in Note 1.2 to the consolidated financial statements, regarding the Group’s ability to continue its operations as a going concern, The Group had net loss from operation in the consolidated statements of comprehensive income for the year period ended 31 December 2023 of Baht 1,281 million (the Company only: Baht 1,589 million). As at 31 December 2023, the Group’s total current liabilities exceeded its total current assets by Baht 3,942 million (the Company only: Baht 4,457 million) and the Group had deficit of Baht 4,442 million (the Company only: Baht 4,008 million). And equity deficit of Baht 676 million (the Company only: Baht 934 million). The major current liabilities of the Group consisted of the bank overdraft and short-term loans from financial institutions amounting to Baht 3,453 million (the Company only: Baht 2,166 million), trade and other payables amounting  to Baht 623 million (the Company only: Baht 1,034 million), and current portion of long-term loans from financial institutions amounting to Baht 1,066 million (the Company only: Baht 1,055 million), which mainly became payable on demand since the Group was unable to repay the long-term loans and unable to maintain certain financial ratios as specified in the Credit Facility Agreement, as described in Note 18. 

In addition, as at 31 December 2023, the Group’s shareholders’ equity was lower than zero. However, the Company’s Securities have been marked with “CB” (Business) sign since May 2023, as a result of the Group’s shareholders’ equity was less than 50% of paid-up share capital. 

Management approach

The Group’s management has implemented various plans, including negotiating with financial institutions to restructure debts, and to obtain new credit facilities from both financial institutions and directors/ shareholders. In addition, the Group has adjusted the production and distribution strategies and reducing manufacturing costs and other expenses to increase the Group’s liquidity.

Management approach long term

The Group is working on strategic plans and distribution plans, that will reduce production costs and other expenses.  In additional the Group is working to accelerate the delivery of products to customers to generate additional revenue and profits for the company.

Liquidity and sufficiency of capital

Liquidity ratios

On 31 December 2023, the Company had a liquidity ratio of 0.24 times, a decrease from that of  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 for many years. Due to a good relationship and good of the compressor industry, both financial institutions continue to support the Company in using credit as working capital for continued business operations.

Average inventory turnover and average inventory period

On 31 December 2023, the average inventory turnover of the Company is 3.16 times which is lower than 4.51 of last year.  The average inventory period increased from 80 day to 114 days.

Gross Profit Margin

On 31 December 2023, the gross profit margin of the Company is 1.87% which was better than last year which was a loss of 1.08%.  This was due to continuously reduced the manufacturing cost and other expenses.

Net Profit Margin

On 31 December 2023, the net profit margin of the Company is (38.85%) which was lower than last year at (13.17%). 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 2023, the debt-to-equity ratio of the Company is 8.57 times comparted to the last years which was 6.74 times. The Company has higher current liabilities compare to current assets at Bath 3,941.7 million baht (subsidiaries: baht 3,905 million baht) and total accumulated loss of 4,442 million (subsidiaries:  4,144 million baht).

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’s 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 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 1,613 million in the separate financial statements (More details described in the notes to the financial statements no. 12). 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.