Sasbadi Annual Report 2018

09 MANAGEMENT DISCUSSION AND ANALYSIS ANNUAL REPORT 2018 Overview of Operations Sasbadi Holdings Berhad (“Sasbadi Holdings” or “the Company”) is an investment holding company while the Group (i.e. Sasbadi Holdings and its subsidiaries) is an education solutions provider. Further details on the Group’s subsidiaries are available in the Corporate Structure section of this Annual Report. The Group’s history began with the incorporation of Sasbadi Sdn Bhd (“SSB”) in 1985 which commenced its operations as a publisher of printed educational materials within the same year. In order to meet the needs of learning and teaching in the 21st century, the Group evolved from being mainly an educational print publisher to a provider of diverse education solutions including technology that enables online learning, digital education products, applied learning tools that facilitate Science, Technology, Engineering and Mathematics (“STEM”) education, education services, and a network marketing business, all of which complement our print publishing business. On 23 July 2014, the Company was listed on the Main Market of Bursa Malaysia Securities Berhad. The Group’s premises include our Head Office in Kota Damansara, Petaling Jaya, Selangor, an office in Sungai Buloh, Selangor where Sanjung Unggul Sdn Bhd (“SUSB”) and its subsidiaries (“SUSB Group”) operate, an office in Sri Petaling, Kuala Lumpur where United Publishing House (M) Sdn Bhd (“UPH”) and its subsidiaries (“UPH Group”) operate, and an office in Cova Square, Kota Damansara, Petaling Jaya, Selangor where MindTech Education Sdn Bhd (“MindTech Education”) operates. The Group’s operations are divided into the following segments: (i) Print publishing, which is further divided into the following: (a) Academic print publishing focusing on both national and national-type (Chinese) schools and also early childhood education; (b) Non-academic print publishing which includes comic books, novels and other general titles. (ii) Digital/online and technology-enabled solutions; (iii) Applied learning products and STEM education services; and (iv) Network marketing business. Financial Review The Group’s revenue growth was challenged by weak retail market conditions which persisted throughout the past two years. The Group recorded a drop in revenue of RM5.212 million (equivalent to 5.6%) from RM93.053 million for the preceding financial year to RM87.841 million for the current financial year. However, it is to be noted that the revenue for the preceding financial year included revenues from the non-recurring contract of RM3.850 million for the supply of robotics sets to the Ministry of Education Malaysia (“MoE”) and the delayed textbook reprint orders of approximately RM2.530 million from the MoE. The delayed textbook reprint orders were delayed from the fourth quarter of FYE 31 August 2016 to the first quarter of FYE 31 August 2017. If these two (2) revenue items were excluded, the revenue of the Group for the preceding financial year would have been RM86.673 million and the Group would have recorded a slight increase in revenue of RM1.168 million (equivalent to 1.3%) for the current financial year. The increase in revenue was mainly attributed to the growth achieved by the Group’s digital and network marketing segments, and partly offset by the decline in the print publishing segment. The Group’s applied learning products (“ALP”) segment’s revenue decreased from RM7.376 million for the preceding financial year to RM3.638 million for the current financial year mainly due to the non-recurring contract for the supply of robotics sets to the MoE as mentioned above. The Group recorded a profit before tax (“PBT”) of RM4.210 million for the current financial year vis-à-vis PBT of RM11.451 million for the preceding financial year, representing a decrease of RM7.241 million (equivalent to 63.2%). The decrease in PBT was mainly due to higher finance costs and lower revenue as explained above, partly offset by lower distribution, administrative and other operating expenses incurred by the Group. Lower gross profit was mainly due to the provision for impairment of inventories of RM4.045 million. A detailed analysis of the operating segments is provided below. The equity attributable to owners of the Company was RM156.267 million as at 31 August 2018 vis-à-vis RM145.383 million as at 31 August 2017. The increase in equity was mainly attributed to the increase in revaluation reserve. During the year, the Group carried out a revaluation of its properties which was conducted by an external independent professional valuer. Revaluation surplus of RM8.888 million has been recognised in other comprehensive income and accumulated in equity under the revaluation reserve. The Group’s debt-to-equity ratio was 0.27 times as at 31 August 2018 vis-à-vis 0.25 times as at 31 August 2017. The increase in the Group’s debt-to-equity ratio was mainly due to the additional bank borrowings used by the Group to finance the acquisition of paper to cater for the higher value of textbook tenders secured for academic year 2019 and for working capital purposes. The increase in bank borrowings also resulted in the decline in current ratio from 3.58 times as at 31 August 2017 to 3.10 times as at 31 August 2018. During the financial year, the Group did not incur any other major capital expenditure.