Ni Hsin Berhad Annual Report 2018

Annual Report 2018 Ni Hsin Resources Berhad (653353-W) 9 (iii) Clad Metal Clad Metal Division’s revenue decreased in FY2018 by RM2.69 million to RM5.45 million compared with the revenue achieved in FY2017 of RM8.14 million due mainly to decreased orders from Asia Pacific and Europe resulting from stiff competition from overseas rivals. The revenue for the Clad Metal Division by geographical market for the period is as follows: FY2018 RM’000 FY2017 RM’000 Increase/ (Decrease) RM'000 % Japan 2,324 2,474 (150) (6.1%) Asia Pacific (exclude Japan) 1,774 2,756 (982) (35.6%) USA &Canada 62 - 62 - Europe 1,293 2,912 (1,619) (55.6%) 5,453 8,142 (2,689) (33.0%) RISK FACTORS i) Few Major Customers Sales to our ten (10) largest customers accounted for approximately 59% of our total revenue in FY2018. Although we enjoy a good rapport with them, there can be no assurance that these customers will continue to procure the Group’s products. We attempt to mitigate any loss of customers by having integrated manufacturing capabilities to offer exclusive product design to our OEM/ODM customers and adhere to stringent production and operational standards which are subjected to audits by our customers. We also continually seek new customers, broaden our products range and develop a more diversified market both locally and overseas. We have also developed our own brand of premium stainless steel multi-ply cookware, PENTOLI, for the local and overseas markets. ii) Competition from Overseas Players In recent years there has been an increasing trend of outsourcing high-end stainless steel cookware to manufacturers in Asia, especially Malaysia, the People’s Republic of China and South Korea, due to lower operating costs in these countries thus increasing the competition. We believe our competitive strengths which include synergistic operations in the manufacturing of our raw materials – our own proprietary multi-ply clad metal, strategic partnerships with our customers via our OEM/ODM strategies, strong R&D capabilities, experienced management team, consistent high product quality, innovative designs, competitive pricing, prompt delivery and efficient production play a significant role in mitigating the risk of competition. iii) Shortage or Increase in Prices of Raw Materials We purchase our raw materials, mainly stainless steel and aluminium, from a pool of suppliers who have an established track record and are able to provide constant supply at competitive prices promptly, thus mitigating the risk of shortage of raw materials. We are also exposed to the risk of increase in prices of raw materials. Notwithstanding this risk, we may still be able to maintain reasonable margins by passing the increase in cost to our customers who are familiar with raw material price fluctuations. iv) Foreign Exchange Fluctuations We are exposed to the foreign exchange risk through our exports to other countries such as Japan, USA, Europe, Australia and the Asia Pacific. Our exports to these countries are mostly denominated in USD. Our purchases of imported raw materials are also denominated in USD. As such, we have a natural hedge against foreign currency exposure. Management Discussion And Analysis (continued)