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On behalf of the Board of
Directors, I present the
Annual Report of Melewar
Industrial Group Berhad and
its group of companies ("the
Group" or "MIG") for the
financial year ended 30 June
2020 ("FY2020").
FINANCIAL
RESULTS
The Group's principal activity is in the mid and
down-stream sectors of the steel industry, focusing
mainly on the manufacturing of Cold
Rolled Coil ("CRC") steel sheets and Steel Tubes and
Pipes ("Steel Tubes") through its 74.13% interest in
its public listed subsidiary, Mycron
Steel Berhad ("Mycron").
The other businesses of the Group, are conducted
through its 100% owned subsidiaries, Ausgard Quick
Assembly Systems Sdn Bhd
("AQAS") who is in the business of supplying
commercial and residential buildings using the
Industrialised Building System (IBS) to niche
markets, and 3Bumi Sdn Bhd which is involved in
farming and trading of food products.
For the year under review, the Group recorded total
revenue of RM596.5 million, a decrease of RM97.6
million or 14.1% compared to the
preceding financial year.
The Group would have registered a pre-tax profit for
the current financial year had it not been for the
six weeks of business shutdown in
compliance with the Movement Control Order ("MCO")
due to the COVID-19 global pandemic. Prior to the
declaration of the MCO on 18
March 2020, the Group's steel businesses had
outperformed the preceding financial year
period-to-period.
The Group's business resumption in May 2020 proved
challenging, given that administrative compliance of
post-MCO rules, hampered the
Steel Division's customers' business resumption.
Sales and order fulfilment only begun to pick-up in
June with both the CRC and Steel Tube
segments turning-in a positive performance at the
operation level.
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STEEL
DIVISION
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Mycron Steel Berhad encompasses the combined
operations of two subsidiaries, namely Mycron Steel
CRC Sdn Bhd ("MCRC") and
Melewar Steel Tube Sdn Bhd ("MST"). MCRC is involved
in the mid-stream sector of the steel industry,
converting Hot Rolled Coil ("HRC")
steel sheets into thinner gauge Cold Rolled Coil
("CRC") steel sheets. MST is involved in the
down-stream sector, in the manufacture of
Steel Tubes and Pipes, which are made from HRC and
CRC.
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CRC OPERATIONS
REVIEW
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For FY2020, the CRC segment achieved sales revenue
of RM417.7 million, which was RM45.3 million lower
than the preceding year. The
decline is mainly attributable to unfair competition
from Vietnamese CRC producers that were aggressively
price dumping CRC into the
Malaysian domestic steel market during the first
half of FY2020. The latter half of FY2020 was
significantly impacted by the COVID-19
pandemic. The ramifications of this pandemic
impaired CRC's operations during the third and
fourth quarter of FY2020.
CRC's revenue for the first quarter (Q1) was higher
than the preceding quarter with sales tonnage
increasing by 35.3%. As a result, the
segment registered a pre-tax profit of RM0.71
million for the quarter.
In the second quarter (Q2), sales revenue and
tonnage dropped by 10.4% and 5.0% respectively. As a
result, CRC segment registered a
pre-tax loss of RM3.63 million, mainly due to unfair
competition from Vietnamese CRC producers. The
prolonged thin-to-negative spreads,
between the cost of CRC's raw material (HRC), and
imported CRC, severely affected the CRC segment's
sales and margins.
These negative margin spreads (i.e. where the price
of CRC finished goods, is actually cheaper than the
cost of its core HRC raw material)
was caused by direct subsidies (distinguished as tax
rebates), by as much as 16%, given by the China
government, for exported Chinese
CRC. These subsidised Chinese CRC enter Vietnam, and
are physically swapped with Vietnamese made CRC,
which are then exported
to Malaysia. The physical CRC entering Malaysia, may
not be Chinese made, but the Chinese subsidies,
allows Vietnamese CRC to be
shipped to Malaysia, at subsidised prices.
The third quarter (Q3) was a demanding quarter for
the CRC segment. The segment reported a 13.7% drop
in sales tonnage and recorded
a pre-tax loss of RM5.99 million. The loss was due
to a combination factors such as seasonal Chinese
New Year holidays, the beginning of
the COVID-19 outbreak in China, and the
implementation of the MCO by the Malaysian
government on 18 March 2020. The global outbreak
of the COVID-19 virus caused steel prices to slump
during the third quarter.
The fourth quarter (Q4) was an extremely challenging
quarter due to COVID-19's impact on the domestic
economy. The mandatory closure
of manufacturing and business activities
domestically since the start of the MCO,
significantly impaired Mycron's sales and revenue
for Q4.
Even though the CRC segment had healthy book orders,
the CRC segment was not able to deliver during the
months of April and May, as
most sectors of the economy only began resuming
their operations in June. Due to the reasons stated
above, the CRC segment's sales
tonnage during Q4 dropped by 26.7% to 27,520 tonnes,
whilst sales revenue dropped by 23.3% to RM72.9
million. The segment registered
a pre-tax loss of RM3.49 million for the quarter.
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STEEL TUBE OPERATIONS
REVIEW
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The Steel Tube segment's revenue decreased by 21.7%
to RM203.3 million for FY2020 due to slow demand for
steel pipes and the
COVID-19 pandemic impact on its operations. The tube
segment registered a lower pre-tax profit of RM1.61
million for FY2020 compared
to the preceding year.
year.
For the first financial quarter (Q1), the Steel Tube
segment was relatively stable as sales tonnage
recorded a slight increase that translated
to 20,462 tonnes compared to the previous quarter of
20,082 tonnes. However, sales revenue dropped by
2.4% to RM60.0 million.
Consequently, Profit Before Tax ("PBT") for the
quarter dropped to RM0.35 million. This is mainly
due to the significant slowdown of
infrastructure projects and construction activities
across Malaysia. The drastic softening of steel
prices also caused buyers to bide their
time in making purchases.
The Steel Tube segment reported a flat second
quarter (Q2) with marginal profit. Total sales
revenue was RM63.3 million, which is 5.5%
higher than the previous quarter. Domestic demand
for pipes remained weak, resulting in a downward
trend throughout the quarter. Steel
Tube segment only managed to achieve a PBT of RM0.15
million in Q2.
The third financial quarter (Q3) was a mixed
quarter. The Steel Tube segment registered a decline
in sales tonnage and revenue due to the
seasonal Chinese New Year holidays and the beginning
of the COVID-19 pandemic. However, it registered a
pre-tax profit of RM3.1 million
due to higher margins achieved.
The Steel Tube segment suffered a weak fourth
quarter (Q4) with significant decline in sales
tonnage, revenue, and profit. This was mainly
due as a consequence of the MCO and mandatory
business closures imposed by the Malaysian
government in March 2020. Sales revenue
dropped by 63.7% to RM21.3 million. Sales tonnage
dropped by 60.5% to 8,200 tonnes and the tube
segment registered a loss before tax
of RM1.99 million.
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ENGINEERING
DIVISION
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Melewar Integrated Engineering Sdn Bhd ("MIE")
operated on its existing Terengganu Silica Project
from the past and has not had any new
engagements. The last outstanding project had not
come into full completion as it strived to secure
the client's final acceptance sign-off.
The disposal of MIE on 14 August 2020, brings this
engineering segment to closure.
AQAS is expected to complete its
pre-commercialisation contract in FY2020 with the
completion of three remaining structures. The vital
data collection, testing, and improvements, executed
during the pre-commercialisation period, have been
incorporated into final versions
of its quick assembly buildings. AQAS endeavours to
secure additional projects for its order book for
fiscal 2020 and beyond.
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ANTI-CORRUPTION
POLICY
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MIG is fully committed toward eradicating
corruption. The Group maintains a strict,
zero-tolerance position against corruption, bribery,
or
any kind of abuse of power. Aligned with this, the
Group had adopted its Anti-Corruption Framework and
Policy on 1 June 2020.
The Group expects its Directors, Senior Officers,
Employees, and Business Partners to operate in full
compliance with the Company's
Policy, with the highest standard of ethical
conduct, integrity, and professionalism. The full
version of the policy is available on the company's
website:
(http://www.melewar-mig.com/corp-gov/anti-corruption-policy.pdf).
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LONG-TERM
OUTLOOK
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The Steel Division has been, and continues to be the
major contributor to the Group in terms of profit.
As reported by Mycron Steel Berhad, the successful
Anti-Dumping petition on CRC imports of more than
1,300mm width from China,
Vietnam, Korea, and Japan, on 24 December 2019,
provided positive support to Mycron's CRC segment.
This measure is effective from
December 2019 until December 2024.
Mycron continues to make efforts to address unfair
trade practices, and to stop CRC price dumping from
Vietnamese CRC producers.
Aligned with that, MCRC has filed a petition to
initiate a review of Anti-Dumping Duty with regards
to imported CRC of 1,300mm width
and below, originating from Vietnam. The Steel
Division is confident of obtaining higher
Anti-Dumping duties against Vietnamese CRC
producers, which will improve the domestic
industry's future outlook.
Holistic development remains crucial for the
substantiality of the Malaysian domestic steel
industry value chain. To address unfair
competition and unjust operating environment from
cheap imports, the Group has been actively engaging
various government ministries by
advocating reforms and developing the way forward
for the industry, by active participation in
reshaping the National Iron and Steel Policy.
The implementation and execution of the new National
Iron and Steel Policy by the end of 2020 will be a
game changer for the domestic
steel industry for the foreseeable future.
The Group is confident that the new policy and
measures, will be implemented, to protect Malaysian
steel manufacturers and their workforce.
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PROSPECTS FOR THE NEW
FINANCIAL YEAR
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The simultaneous restart of domestic economic
activities witnessed pent-up steel demand from the
construction and manufacturing
sectors, and at a time when raw steel material
supplies faced short-term disruptions due to
cross-border logistic and shipping constraints.
Upward trending regional steel prices on the back of
China's growth recovery and robust steel demand,
have also supported domestic
steel demand.
The revival of Malaysia's mega projects such as the
East Coast Rail Link (ECRL), Kuala Lumpur-Singapore
High-Speed Rail (HSR), and
Mass Rapid Transit Line 3 (MRT3) should increase
domestic steel demand, which in turn, would favour
the Group's Steel Division.
Moving into the new financial year, the Group will
be on a lookout for suitable investment
opportunities that may arise during the recovery
phase of the COVID-19 pandemic. The Group intends to
further expand its business in the areas of farming
and food trading. Notwithstanding
external factors, the Group remains resolute in
propelling performance from within through its
various cost rationalisation and operational
efficiency programmes.
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ACKNOWLEDGEMENT AND
APPRECIATION
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On behalf of the Board, I would like to express my
sincere gratitude to the management team and staff
for their commitment, dedication,
and contributions to the Group. To our valued
business associates, customers, suppliers and
shareholders; thank you for your continued
invaluable support, confidence and trust you have
placed in us.
Finally, I would like to thank my fellow Board
members, for their stewardship and contributions to
the Group.
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TUNKU DATO' YAACOB KHYRA
Executive Chairman
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