First Half Financial Statement and Dividend Announcement for the Period ended 30 June 2020
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Profit & Loss
Statement of group comprehensive income
Review of Performance
Revenue for the first half ended 30 June 2020 ("1H2020") was US$132.9 million, a year-on-year ("yoy") decrease of 4.0% compared with the US$138.5 million revenue recorded in 1H2019. The Group's net profit after tax increased 1.1% to US$13.2 million for 1H2020.
Revenue by Markets (US$'000)
In 1H2020, revenue in the Group's largest market, Russia, decreased by 11.2% to US$48.3 million as compared to US$54.4 million in 1H2019 mainly due to approximately 12 weeks of severe disruption caused by Covid-19 pandemic, which resulted in a national lockdown for most of 2Q2020. The disruption in the form of movement restrictions of population led to lower footfall of consumers in retail outlets, as well as widespread logistical and supply chain challenges to our distributors across many regions. The sudden fall in oil prices also caused a depreciation of the Russian Ruble against the US dollar that further affected revenue during the 2nd quarter. The average exchange rate was 68.7 Ruble per US dollar in 1H2020 as compared to 65.1 Ruble per US dollar in 1H2019.
In the Group's Ukraine, Kazakhstan and CIS markets, revenue increased by 3.3% from US$32.7 million in 1H2019 to US$33.8 million in 1H2020 in spite of moderate Covid-19 related disruptions and lockdowns across these regions. Revenue in the Group's Kazakhstan market increased mainly due to higher sales volume and selling price partly offset by the depreciation of the Kazakhstan Tenge against the US dollar. The average exchange rate was 379.3 Tenge per US dollar in 1H2019 as compared to 400.5 Tenge per US dollar in 1H2020.
In the Group's South-East Asia market, revenue increased by 3.4% from US$38.3 million in 1H2019 to US$39.6 million in 1H2020 in spite of moderate Covid-19 related disruptions and lockdowns. This was largely due to higher revenue contribution from the Group's non-dairy creamer plant and snacks manufacturing facility in Malaysia and the Group's Vietnam market, which was partly offset by the closure of its Myanmar market at the end of 2019.
In the Group's South Asia market, revenue decreased by 29.3% from US$4.4 million in 1H2019 to US$3.1 million in 1H2020 mainly due to lower revenue contribution from the Group's coffee plant in India which has been negatively affected by Covid-19 disruption in production and also faced cancellation/ postponement of orders from customers due to Covid-19 lockdowns in their respective countries.
Revenue in the Group's Other Markets decreased by 6.5% from US$8.8 million in 1H2019 to US$8.2 million in 1H2020 mainly due to lower revenue contribution from the Group's Africa and Europe markets partly offset by the Group's Middle East market. All these markets were also affected negatively by disruption caused by Covid-19 pandemic and national lockdowns during the 2nd quarter.
At the beginning of 2nd quarter of FY2020 with national lockdowns being imposed by respective Governments across our core markets, the main focus of the Group was to optimise sales and rationalise sales related expenses as promotions during the Covid-19 lockdown period may not be effective due to lower traffic at retail outlets and other restrictions. To mitigate the devaluation of currencies of core markets added steps were taken by Management to adjust selling prices in stages in the markets that were affected.
For 1H2020, this has resulted in Group's net profit after tax to increase 1.1% to US$13.2 million mainly due to lower expenses as a result of tighter cost controls.
For 1H2020, selling and marketing expenses decreased by US$0.2 million from US$19.7 million in 1H2019 to US$19.5 million. The decrease was mainly due to lower manpower cost.
For 1H2020, general and administrative expenses decreased by US$2.0 million from US$18.9 million in 1H2019 to US$16.9 million. The decrease was mainly attributed to lower transportation, travelling and manpower cost.
For 1H2020, the profitability was achieved in spite of weakening of currencies in most of the core markets of Russia, Ukraine and Kazakhstan markets. Russian Ruble weakened from 61.9 Ruble per US dollar on 31 December 2019 to 69.9 Ruble per US dollar on 30 June 2020. Over the same period Ukrainian Hryvnia weakened from 23.7 Hryvnia per US dollar on 31 December 2019 to 26.7 Hryvnia per US dollar on 30 June 2020 and Kazakhstan Tenge weakened from 381.7 Tenge per US dollar on 31 December 2019 to 403.2 Tenge per US dollar on 30 June 2020.
Balance Sheet & Cashflow
Trade payables and accruals decreased US$5.7 million to US$29.3 million as at 30 June 2020 mainly due to lower procurements and VAT payables.
Interest-bearing loans and borrowings decreased from US$50.0 million as at 31 December 2019 to US$46.1 million as at 30 June 2020 mainly due to lower utilisation of the revolving credit by the Group's India and Vietnam operations.
Trade receivables decreased US$2.6 million to US$33.3 million as at 30 June 2020 mainly due to lower translated USD receivables in view of the depreciation of the Russian Ruble against the US dollar coupled with lower receivables from the Group's non-dairy creamer plant manufacturing facility in Malaysia.
Inventories decreased US$2.0 million to US$53.9 million as at 30 June 2020 due to lower stock holding from the Group's Vietnam market.
The Group's net operating cash inflow decreased from US$14.9 million in 1H2019 to US$14.1 million in 1H2020 mainly due to higher working capital requirement. The Group's cash and cash equivalents was US$46.6 million as at 30 June 2020, compared to US$54.7 million as at 31 December 2019.
The Group's net assets as at 30 June 2020 were US$204.3 million. The net asset value per ordinary share (excluding non-controlling interests) as at 30 June 2020 was 38.32 US cents as compared to 38.57 US cents as at 31 December 2019.
The Group has demonstrated business resilience against early challenges posed by the first wave of the Covid-19 pandemic. National lockdown imposed by some governments, like Russia was very severe and lasted for most of the 2nd quarter of FY2020. The national lockdown has since been lifted but local restrictions continue to exist in certain regions. In Kazakhstan, the country is currently facing a second wave of Covid-19 infections and its government has reintroduced lockdown restrictions.
As the Group enters into the second half of 2020, it expects business activities to pick up with the gradual easing in most markets, although general operating environment will remain uncertain with the spectre of a second or third wave of infections raising the possibility of further, albeit more modest and intermittent lockdowns. Such lockdowns, together with rising unemployment brought about by the recessionary impact of Covid-19, may have a negative but limited impact to the Group. However, it is confident that its businesses will remain sustainable, backed by strong brands, experienced management team and a strong balance sheet.
The Group's reporting currency is USD but Group's subsidiaries in some of its largest markets such as Russia, Ukraine and Kazakhstan report in their local currencies and are exposed to foreign exchange risk. Russian Ruble may be affected by oil prices or other political conflicts. Similarly, the Ukrainian Hryvnia and Kazakhstan Tenge are susceptible to regional politics, oil prices and fluctuations of the Russian Ruble. Nonetheless, the Group has proven over the past years that in spite of devaluations of local currencies, it possesses strong brands and experienced management teams to overcome such potential short term risks.
The second Instant Coffee plant project, which is initially scheduled to commence production in middle of FY2020, will be delayed until international travel restrictions are lifted for overseas OEM suppliers to test and commission the plant. India is currently facing severe disruptions in various states and cities due to Covid-19 pandemic and strict overseas travel restrictions are in place. The Group will work with all parties involved closely to ensure that the plant can be completed and be operationally ready as quickly as possible.