MD & A
FINANCIAL AND OPERATING RESULTS ANALYSIS (MD&A)
1. Operating Results for the year ending December 31, 2016
1. Total revenues
During 2016, the Company had total revenues of Baht 1,453 million which consisted of;
- Baht 1,409 million on Sales which increased by Baht 246 million or 21.14% from the previous year. The comprises of Baht 251 million on body care products, Baht 424 million on facial skin care products, Baht 662 million on cosmetics, Baht 21 million on accessories, Baht 40 million on furniture and marketing tools and Baht 11 million on food and beverage section.
- Income from bus service operator amounted to Baht 1 million which decreased from the previous year by Baht 3 million.
- Income from warehouse rental and warehouse services amounted to Baht 19 million which increased from the previous year by Baht 1 million or 5.26%
- Gain from a fair value adjustment of properties investment amounted to Baht 4 million which decreased from the previous year by Baht 6 million or 60% as the Company had properties re-evaluated on December 26, 2016.
- Other incomes totaled of Baht 18 million, increased from the previous year by Baht 10 million or 125% which comprises of interest of Baht 8 million, gain realize and unrealized on securities Baht 2 million, rent income Baht 3 million and others of Baht 5 million.
2. Cost of sales, Selling and administrative Expenses
During the year 2016, The Total Expenses was Baht 1,118 million which comprises of;
- Cost of sales amounted to Baht 627 million which increased from the previous year by Baht 98 million or 18.52%. The cost of sales is directly proportional to the Sales Revenue. The gross profit margin was 55.50% which was similar to the previous year.
- Cost of bus service operator was Baht 2 million.
- Cost of warehouse rentals and warehouse services were Baht 1 million.
- Selling and Administrative expenses totaled of Baht 489 million which increased from the previous year by Baht 88 million or 21.94%, directly proportionate to the Company’s business expansion. The selling expenses increased by Baht 115 million mainly on public relation. The administration expenses decreased by Baht 27 million due to the decrease in allowance for doubtful accounts and allowance for impairment of assets of subsidiaries.
- Financial cost of the Company on the interest expenses totaled of Baht 13 million which increased from the previous year by Baht 2 million or 18.18%
- Income tax expenses of Baht 57 million increased from the previous year by Baht 10 million or 21.73%.
During the year 2016, the Company had 18.71% net profit of sales which increased from the previous year 0.69% as the Company had selling expenses increased from the previous year by Baht 87 million mainly for the Company products promotion, increase of employment which included the employee benefit expenses to support the growth of the business, administrative expenses decreased from the previous year Baht 27 million due to the in allowance for doubtful accounts and allowance for impairment of assets of subsidiaries.
4. Rate of Return on Equity
The business operation profit during the year 2016 resulted in the rate of return on equity at 34.82% in the previous year 31.04%
2. Financial Status as at December 31, 2016.
- Composition of Assets
The total assets at the year end 2016 was Baht 1,236 million which increased from the previous year by Baht 235 million or 23.48%.
1.1 Current Assets amounted to Baht 716 million, increased by Baht 178 million or 33.09% from the previous year. The details are as follows;
- Cash and cash equivalents of Baht 10 million which decreased from the previous year by Baht 6 million because Net cash from operating activities increased Baht 146 million, net cash used in investing activities decreased Baht 88 million and net cash used in financing activities decreased Baht 64 million.
- Current investments of Baht 0.3 million decreased from the previous year by Baht 77 million because the Company investments in trading securities – net Baht 27 million and special savings deposit 8 month Bath 50 million which carried interests at 1 – 6.5 percent per annum due date and returned to the Company.
- Trade accounts receivable and other account receivable at Baht 277 million, increased from the previous year by Baht 54 million or 24.32% due to the Company had increased the sales in many channels, including added more modern trade accounts.
- Short-Term Loans to an related company amounted to Baht 55 million, increased from the previous year by Baht 51 million to the Iconic Property Company Limited which carried interests at a rate of 1.5 percent per annum.
- Short-Term Loans to unrelated person and party Baht 31 million increased from the previous year Baht 31 million or 100% loans to Triple P Asset Company Limited which carried interests at a rate of 15% per annum.
- Inventory of Baht 315 million which comprises on consumer products and raw material which increased from the previous year by Baht 117 million or 59.09% because the Company reserve to support increased sales.
- Other Current Assets of Baht 28 million, increased from the previous year by Baht 6 million or 27.27%
1.2 Non-Current Asset amounted to Baht 520 million which decreased by Baht 58 million or 12.55% from the previous year as follows;
- Long-Term Loan to unrelated persons and parties-net of current protion Baht 25 million increased from the previous year by Baht 24 million which carried interests at a rate of 15% per annum. The Long-Term Loan will be due within May 2019.
- Investment in joint venture Baht 2 million increased form the previous year by Baht 2 million of 100% on 20 January 2016, the Company paid for an investment in Karmarts Vietnam Company Limited, registered and established in Vietnam, in a total of USD 98,000 or approximately Baht 3.56 million. As a result, the Company holds 49% of issued and paid-up shares of USD 200,000 in this company. The Company has recorded the investments in this company as investment in joint venture since the investment date. This company’s operation period is 50 years, starting from the date of incorporation, October 9, 2015. During the years, the Company has recognized its share of loss from investments in joint venture in the consolidated financial statements amount Baht 1.23 million.
- Investment in the subsidiary of Baht 70 million, decreased from the previous year because the Company share of loss from investments in associate by Baht 1 million or 1.41% in The Iconic Property Company Limited.
- Properties Investment was at Baht 119 million, increased from the previous year by Baht 4 million or 3.48% because the investment properties of the Company represent land and building used for providing warehouse service. Their fair value has been determined based on the valuations performed by an accredited independent valuer, using the income approach.
- Property, Plant and Equipment – net amounted to Baht 255 million with an increase from the previous year by Baht 26 million or 11.35% because the Company acquisitions land Baht 4 million, assets under installation and construction in progress Baht 30 million, motor vehicles Baht 10 million and equipment Baht 1 million increased depreciation Baht 19 million.
- Land awaiting for future development Baht 8 million increased from the previous year by Baht 8 million or 100%. The Company had land awaiting for future development amounting to Baht 8.28 million. The Company has placed land with net book value by Baht 3.2 million as collateral for short-term and long-term credit facilities granted by commercial banks.
- Intangible Assets – net at Baht 10 million increased by Baht 1 million or 11.11% because acquisitions computer software under installation and amortization during the year.
- Deferred Tax Assets was Baht 8 million decreased from the previous year by Baht 3 million or 27.27% because the Company decrease in allowance for doubtful accounts.
- Other Non-Current Assets was Baht 23 million decreased from the previous year by Baht 2 million or 8% because on December 22, 2014, the Company entered into an agreement to sell all of the inventories, that are related to the project to upgrade the 470MHz Mobile Telephone Network to CDMA2000 1X to a non-related party at a price of Baht 28.1 million (including VAT). This agreement requires the buyer to make payment to the Company in monthly installments, within 10 years. As at December 31, 2016, the Company had such account receivable balance of Baht 21.3 million (December 31, 2015 : Baht 24.0 million) with the portion due in over 12 months amounting to Baht 18.7 million (December 21, 2015: Baht 21.3 million) and classified as other non-current assets in the statements of financial position.
- Quality of Assets
In 2016 trade and other receivables Baht 277 million or 22.00% of total assets. Account receivable average collection period was 66 days, which was the same as previous year (68 days in 2015) due to the fact that the cash sales for consumer goods had decreased, and instead increased on modern trade channels credit sales with 30 – 90 days term of payment.
An adequate reserve was set according to the prediction of non-collectable debt. The reserve for the year 2016 non-collectible debt was budgeted at 2.96% of the outstanding account receivable at the year-end.
Inventories Baht 315 million or 25% of total assets. Average inventory turnover of 108 days as same as the previous year (104 days in 2015).
Investment properties Baht 119 million or 10% of total assets by an accredited independent valuer, using the income approach. Key assumptions used in the valuation include discount rate, yield rate and long-term growth in rental rate.
- Cash flows
In 2016, the Company’s net cash flows cash and cash equivalents was Baht 10 million, compared to 2015 which was Baht 16 million, decreased by Baht 6 million net cash from operating activities increased Baht 146 million as the Company decreased net profit, net cash used in investing activities decreased Baht 88 million as the Company increased loans to related, unrelated persons and parties, net cash used in financing activities decreased Baht 64 million as the Company dividend paid.
- Liquidity Ratios
Current ratio (current asset/current liabilities) in 2016 was 1.89:1 which shows high liquidity as the Company’s current assets can be easily cashed in a short period of time such as short-term cash or cash equivalents 1%, account receivables 22%, inventories 25% of total assets.
The company average debt collection period was between 66 days. Average inventory turnover of 108 days as same as the previous year due to the fact that Karmart products had a higher turnover.
- Collection and Payment Periods
Average debt collection period was 66 days while average account payment period was 155 days. This is because the Company at present has selected the payment option by issuing the letter of credit through the commercial banking and prolonging the credit term around 120 – 180 days through the bank’s granted Trust Receipt.
3. Investment Expenditure
During the year, the Company had in capital expenditures was mainly from the land, equipment, intangible assets at Baht 68 million. Land awaiting for future development, Land Others would be machines bought to manufacture the Company products, and the motor vehicles for supporting the business growth.
4. Sources of funds
- Capital Structure
In 2016, Debt/Equity Ratio was 0.55:1 against 0.40:1 in the previous year. The company had bank overdrafts and short-term loans from bank Baht 261 million increased from the previous year Baht 127 million because the Company import finished goods reserve to support increase sales.
- Shareholders’ Equity
In 2016, shareholders’ equity increased by Baht 79 million to Baht 797 million from the operating profit during the year of Baht 264 million while the dividend payment was Baht 185 million.
The Company’s total liabilities was Baht 438 million, increased by Baht 153 million or 53.68% from the previous year.
Current Liabilities was Baht 378 million, increased by Baht 151 million or 66.52% from the previous year. The Details are as follows:
- Bank overdrafts and Short-term loan from bank was Baht 261 million, increased by Baht 127 million from the previous year as the result of the Company’s goods payment method through prolonged credit term commercial bank’s Trust Receipts reserve to support increased sales.
- Trade and other payables of Baht 85 million, increased by Baht 27 million
- Current portion of Liabilities under financial lease agreements due within 1 year and Liabilities under financial lease agreements – net of current portion was Baht 9 million which increased by Baht 1 million or 12.50% the Company finance lease for transportation
- Income Tax Payable at Baht 17 million, increased from the previous year of Baht 6 million due to the Company’s increase in net profit.
- Other Current Liabilities was Baht 10 million due to the withholding tax from the dividend payment and the accrued value added tax.
Non-current liabilities was Baht 60 million, increased by Baht 2 million or 3.33% from the previous year, The Details are as follows:
- Provision had been made for long-term employee benefits of Baht 13 million, which increased by Baht 2 million or 18.18% from the previous year due to the new standard of accounting for employee benefit reservation No.19 had taken effect.
- Deferred Tax Liabilities at Baht 43 million, increased by Baht 3 million or 7.50% from revaluation property and plant investment properties.
5. Factors and main influences which has significant impact on company’s operations or its financial status in the future
The Executive Committee set up annual business plan and strategic actions to achieve its annual goals. These ensure that the Company is able to adjust its management style in a flexible manner to cope with significant factors which may affect the Company as listed below.
- Sufficient procurement of products and changes in product trend and fashion
- Human Resources Development
- The Price of products and Wages
- Financial Assistant to Associated or Subsidiary companies and Contingent Liabilities in the future.
- The Company is capable of product adjustment to cope with the changing trend of product popularity and its procurement system can manage inventory level to service the changing demand and changing trend and fashion.
- The Company supports Human Resources Development by providing adequate both internal and external training to increase employee skills and proficiency.
- The Company has a special unit and system of procurement of raw material finished products from quality sources with competitive prices.
- In case of rendering financial assistant to the Associated or Subsidiary company, the Company completely and transparently follows the rules and regulations of SET and able to be audited. The independent directors are to review and monitor the Company’s operations closely, for the most benefit of investors and stakeholders.