PRG Holdings Berhad Annual Report 2019

ANNUAL REPORT 2019 19 FUTURE PROSPECTS The outbreak of COVID-19 pandemic at the beginning of this year has led to a sharp decline in global demand as major cities around the world entered into lockdown or partial lockdown in order to curb the spread of the virus. As most health experts expect that a vaccine is likely only available in about a year’s time, global economic growth is likely to take a hit as the virus spread has shown no signs of slowing down. The uncertainty in the market has led to a sharp fall in the global stock market and the volatile environment has affected businesses, capital markets, foreign currency exchanges, and even commodity prices. While we initially expected that the concluded US-China Phase One trade deal will lift some of the pressure from the economy and our businesses, the uncertainty in the market amidst the pandemic could hurt our business operations far more than what we have seen in the last few years. The Manufacturing Division, after having felt the impact from the disruption of supply chain from the shutdown in the PRC due to COVID-19 outbreak, is currently facing a very challenging environment due to the unprecedented various forms of lockdown and movement restrictions order by various countries across the world which has affected consumption severely. A United Nations’ study stated that 81% of the world’s workforce of 3.3 billion people had their place of work fully or partly closed because of the outbreak and have to stay at home during the period. The Movement Control Order implemented in Malaysia by the government has also disrupted our operations where our plants are closed. The low visibility in demand, unresolved trade war, volatility in currency and the intensifying regional business competition have also made our operating environment to be extremely challenging. International Monetary Fund also reported that the COVID-19 crisis is the Worst Economic Crisis since 1930s depression. Global economy is expected to be much weaker in 2020 resulted from the unprecedented crisis. In view of the rapid change of global economy, the Manufacturing Division has taken a step back to review its business strategies, revisit the market demand that is severely impacted by global supply disruption and rationalise the pricing strategies and cost structure, overhead costs and expenses to ensure long term sustainability of the businesses. The Group is also constantly reviewing its portfolio and will continue to divest non-profitable entity if required to enhance its overall profitability and cash flow. Notwithstanding that, the Group will also evaluate any opportunities in investing into new potential business that may arise in this crisis. Property market outlook in Malaysia for 2020 is also going to be affected by the overall market sentiment as investors brace for potentially trillions of losses in the economy amidst the pandemic outbreak. Consumer sentiment is also going to remain weak as employment risks become higher with small businesses being affected by the partial lockdown in the country. Fear over the impact of the pandemic on the economy is also delaying big-ticket item purchases as consumers take a wait- and-see approach. The property overhang condition in the country is also a concern especially for development in the high-end segment. In view of these challenges, the Group has shifted its focus to affordable property development. With our focus on the Embayu project which targets the middle-income households, we think that demand will pick up as sentiment improves and genuine home buyers take advantage of the low interest rate environment to purchase their home. The retail sector is suffering from further headwinds with the outbreak of COVID-19 pandemic. Visitor arrivals and overall consumption have deteriorated, the retail outlook is expected to be extremely challenging. The situation has worsened since the announcement of circuit breaker period by Singapore government from 7 April to 1 June 2020 and declaration of soft lockdown by Thailand government on 24 March 2020. During the current adverse climate, the Retail Division has negotiated with landlords for rental concessions, shorten store operational hours, getting more marketing support for both retailer-driven promotions and mall-wide marketing initiatives. The Group hopes that with the holistic support from landlords as well as from Philipp Plein’s principal, exploring different sales channels such as digital retailing and social medias as well as cost-saving strategies would overcome this challenging time. The Group has also been constantly reviewing potential opportunities to enhance its income stream beyond its current revenue base in order to improve the Group’s financial performance. The Group shall closely monitor and take the necessary steps to sustain the performance of the existing business ventures. OUTLOOK It is expected that the market condition in Malaysia and globally will remain challenging as COVID-19 pandemic has resulted many countries’ economies entering into recession. The key focus of the Group is to continue to strengthen its existing businesses in order to embrace the challenges ahead. The Group will also continue to review and evaluate existing business segments and may look to divest non-profitable entity if the business outlook is not promising as a result of the COVID-19 pandemic. With a well-diversified business strategy and plan, we are committed to deliver and enhance the shareholders’ value in the long term. MANAGEMENT DISCUSSION AND ANALYSIS cont’d