FRONTKEN CORPORATION BERHAD
(651020-T)
ANNUAL REPORT 2014
12
MANAGEMENT DISCUSSION
AND ANALYSIS
(cont’d)
For year 2014, we saw a further decline in our Singapore engineering business where the revenue from this region
reduced to RM67 million from RM80 million mainly due to the deferment of outages by our power generation
customers. Our business is greatly dependent on our customers securing their orders. In year 2014, there have
been recurring smaller jobs to ease the business but with the absence of more significant orders our revenue was
adversely affected. We continue to strategise on other revenue earning activities while waiting for the turnaround
of our customers.
As stated in my report last year, the year 2014 will likely look the same as year 2013 for our business in Singapore.
We remained optimistic that once the economy picks up again these customers would be expanding and this will
augur well for us. We will fill up the financial gaps with smaller and additional maintenance works to keep us going
in year 2015.
In the Philippines, due to the stiff competition that saw a decline in our service to the power generation industry,
the revenue from the Philippines’ business decreased from RM13.9 million to RM11.5 million, a 17% decrease.
Our Indonesia business unit has obtained the necessary license from SKK Migas to enable us to be involved in
repair and service works for the Indonesia oil and gas industry which saw an increase in our revenue from RM1.7
million (2013) to RM2.1 million (2014).
Operational capabilities
We pride ourselves for being the industry leader in surface metamorphosis solutions and that has been our pillar
of strength to continue to keep pace with the industry requirements. Our strength also lies in our continuous
and conscious needs to maintain a high level of service. We continue to strategise and plan by working with
our customers for the preparation of any major shutdown works. We believe that these efforts will translate to a
reasonable increase in our turnover.
Our key industrial products are gas turbine overhauls, turbo machinery repairs, oil field equipment coatings and
components manufacturing in the refineries and petro chemical complexes. By concentrating our strengths in
capabilities and capacities, we can drive ourselves through higher end thermal spray processes, regional presence
and support.
We have the capabilities rooted in our resources and together with our skilled operators, we maintain our operational
wellbeing by providing the best to our customers while also keeping our standards at work to deliver by keeping
wastages at bay. We will continue to consciously maintain our costs low with each delivery to drive profits up. We
will continue to strengthen our relationship with our customers to understand their needs with our sales engineers
meeting our customers regularly.
Key risks
Our business operates in a competitive and challenging environment where the economy cycle would affect our
financial performance. Our customers impact the way we do our business. In instances when our customers
merge with another customers, the risk of reduction or termination of business will be apparent as with all mergers
and acquisitions, the acquirer-dominant effects would flow down to the supplier of services – us. If we are on the
acquirer’s side, we would anticipate the increase of our business opportunities in view of the growth in the size
of our customers. However, if we are on the side of the target company, this could set our business back as in
all mergers and acquisitions, through time, there would be standardisation of operations with the acquirer having
the upper hand to choose its own suppliers. The need to increase our business to reach a wider customers base
regionally may lessen these effects.
In certain area of our business, we are also highly dependent on our single customer. This presents us with great
risk because the customer could go under, change their pricing structure or find another partner to do business
with, leaving us on the losing end. Most customers keep to their policy of having comparatives quotes which would
affect our pricing in securing jobs. The need to diversify would be the key agenda in our yearly plan in addition to
continue to upgrade our services to differentiate ourselves.
