Wah Seong Corporation Berhad Annual Report 2021 40 MANAGEMENT DISCUSSION AND ANALYSIS The production of sustainable, bio-based chemicals has increased as consumers are considering environmentally friendly products and the cost-benefits deriving from plant-based and biodegradable chemicals. To meet these market demands, manufacturers are looking for oleo chemicals as sustainable alternatives in the chemical sourcing industry. The market volume is expected to grow at a steady compounded annual growth rate over the next few years. Historical record high CPO prices coupled with strong crude oil price have encouraged more CAPEX investments by industry players into these related sectors. Despite the recent surge in inquiries and higher order books secured, outlook for 2022 remains cautiously optimistic due to uncertainties in global commodity prices, risk of supply chain disruptions and fluctuations in the currency exchange market. INDUSTRIAL TRADING & SERVICES (‘ITS’) Discussion of strategies, operational capabilities to achieve the desired business objectives and results The ITS segment like most businesses in Malaysia was not spared the operational setbacks due to the on-going Covid-19 pandemic that saw further movement control orders being imposed in the country in 2021. Both ITS units namely the distribution of building materials and the provision of construction equipment and power systems were significantly disrupted. Nevertheless, due to proactive operational changes implemented to enable remote operations during the first year of Covid-19, the segment was able to continue to conduct businesses away from our offices and facilities thereby continuing to meet customer and market requirements during the challenging period. The segment having anticipated a prolonged slowdown due to the pandemic has strategised during the year under review to supplement our core activities by focusing on collection of trade receivables and continuing our efforts to optimise inventory thus ensuring a leaner operational balance sheet. ITS units were also supported by certain critical economic segments that were compelled to continue operating despite the lockdowns such as datacentres and logistic facilities. Global inflationary pressure on cost of commodities, basic materials and shipping rates saw significant rise in the cost of building materials and the specialised equipment that we distribute. Markets remained price elastic in that buyers have been able to continue to absorb the price increases, though this may not necessarily last or be healthy to demand along the supply chain in the longer term. As distributors, the cost increases did not translate to higher margins to the division but if selling prices remain firm even when demand normalises post-pandemic then the situation could result in higher revenue and broader nominal profits. During the year, ITS reinvested RM13.50 million into our associate Spirolite whereby under the direction of the Lesso China Group the business is expected to expand its product offerings into synergistic segments such as PVC pipes and fittings. Margins in the plastic pipes sector continue to remain firm due to shortage of raw materials as well as consolidation in the industry. Meanwhile, the segment will continue to pursue monetisation of non-core assets such as land and properties to further strengthen the Group’s operating cash flows. Discussion on Key Financial and Operational Indicators for the segment Despite a difficult year, the ITS segment recorded revenue of RM278.77 million for the year under review and a segment profit of RM11.38 million, including a one-off gain on disposal of property of RM7.47 million. The segment generated an EBITDA of RM13.99 million, including the said one-off gain.
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