SCC Holdings Berhad Annual Report 2017

SCC Holdings Berhad (511477-A) | Annual Report 2017 9 The division will continue to source new products to complement its existing range of products to enhance its product portfolio. Foodservice Equipment Division (“FSED”) The segment saw a marginal increase in revenue of approximately 2% from FYE 2016 and contributed 48.5% to the overall revenue of the Group. The increase is mainly due to increased demand for our foodservice equipment and after sales services by our customers. The division continues to secure distribution rights for new brands to command market leadership and products that offer substantial profit margins to further strengthen our product portfolio. It will also streamline non-performing brands/products to ensure that its productivity and resources are beingmaximised. In the second quarter of FYE2017, the Group has implemented its e-commerce platform selling a small range of consumer food products during FYE 2017. The Group intends to step up its foray into this growing area that will provide recurring income to the Group. Food Manufacturing (“SCCFM”) For FYE2017, SCCFMrecorded a 41% decrease in revenuewhich represented 0.4% of total group revenue amid a competitive operating environment. The Group will expand the range of food premixes and improve production efficiency through continuous R&D effort in formulation of new recipes and ingredients to fuel further growth in the segment. ANTICIPATED OR KNOWN RISKS Foreign currency exchange fluctuation The Group is exposed to currency exchange fluctuation as most of the Group’s purchases are denominated in foreign currencies such as US Dollar. In order to minimize exposure to significant fluctuations in the RM to USD, the Group hedges through foreign exchange forward contracts. Besides that, the risk is also mitigated through natural hedge between sales and purchases in USD, albeit to a limited extent. The Management will continue to closely monitor our foreign exchange exposure by keeping abreast of the economic and political situations of the countries that we deal with. Exposure to credit risk The Group’s exposure to credit risk arises primarily from trade receivables. It is the Group’s objective to seek continuous revenue growth while minimising losses from impairment and bad debts by assessing and approving credit terms on a case-by case basis after taking into account customer’s payment track record, financial standing and length of business relationship and size of transaction. Our collections from customers are closely monitored on an on-going basis by the credit control committee. FUTURE PROSPECTS AND OUTLOOK The market sentiments remain uncertain with the upcoming general election and the unpredictable policies of certain influential economic powerhouse that dictate the cost of doing business. Nevertheless, the strengthening of the Ringgit against the US Dollar could bring much relief to the Group. Although faced with uncertainties, Malaysia’s economy is expected to remain resilient in 2018, though real GDP will expand at a slower pace of 5% to 5.5% in 2018 from 5.2% to 5.7% in 2017 as reported by Economic Report 2017/2018. With both agriculture and the services sector growing at a slower pace, the year ahead will be challenging for the Group but having said that, by leveraging from our well established industry foundation with a wide distribution network together with continuous efforts to improve operational efficiency and effective cost management, the Management is confident that the Group would still be able to better its financial performance in the coming year. MANAGEMENT DISCUSSION & ANALYSIS ( CONT’D )