Email This Print This

Extracted from Annual Report 2016

Dear Valued Shareholders,

On behalf of the Board of Directors of Freight Management Holdings Bhd ("FMHB"), it gives me great pleasure once again to present to you our Annual Report and the Audited Financial Statements of the FMHB Group for the financial year ended 30 June 2016 ("FY2016").


The weak economic landscape of the past few years had persisted throughout FY2016. During this period, the global economy was affected by a myriad of factors, including softer demand, financial instability, weak commodity prices and a continued decline in confidence, which was further exacerbated by unsettling events such as "Brexit" and ongoing geo-political issues. As a logistics service provider, we are inevitably exposed to this difficult economic environment, which has led to a slowdown in global trading activities. Nonetheless, I am pleased to report that FMHB has responded admirably to this challenge and once again turned in a positive and generally satisfactory financial performance in FY2016.

Financial Performance

In view of the difficult market conditions, it comes as no surprise that we reported a slight 1.5% year-on-year ("y-o-y") decline in revenue to RM413.7 million in FY2016. This was mainly due to generally lower freight rates and flattish volume handled by the Group. Furthermore, lower activities reported by our Tug & Barge and Customs Brokerage divisions also contributed to the fall in revenue.

Despite the overall lower revenue, we were able to achieve a higher Gross Profit Margin of 28.4% in the financial year under review (FY2015: 25.9%), as we rigorously employed cost efficiency and improvement processes. This has lifted our profit performance and resulted in a 2.1% increase in our Group Profit before Tax, which rose to RM24.8 million from RM24.2 million previously. Profit after Tax and Noncontrolling Interests, however, fell marginally to RM19.9 million, compared to the previous year's RM20.1 million.

The financial position of the FMHB Group remains robust with shareholders' funds of RM224.7 million (FY 2015: RM207.4 million) and net assets per share of 126 sen (FY2015: 120 sen) as at 30 June 2016. Whilst our borrowing level has increased due to the acquisition of an industrial property in Shah Alam worth RM50.0 million, we are currently generating an encouraging yield from this investment. We intend to re-develop this strategically located asset into a logistics facility in the future as part of our long-term growth plan.

Segment Performance

chairman statement

Sea freight remained as the largest revenue contributor to FMHB Group's total revenue, as it recorded revenue of RM262.9 million in FY2016, up a modest 1.2% from RM259.8 million in FY2015. Notably, thanks to better cost management and the excellent sales efforts of our team, we have lifted the Gross Profit for this segment by a commendable 15.5% y-o-y. Not to be left behind, our Land freight and Air freight segments also recorded significant growth in Gross Profit of 12.2% and 14.0% respectively.

As a leading integrated logistics solutions provider in the Southeast Asia Region, we are constantly improving and expanding on our suite of services and assets in order to serve our customers better and provide them with more value-added solutions. To this end, we have been investing significantly to enhance our Third-party Logistics ("3PL") operations. This includes the completion of our advanced 140,000 square feet new warehouse facility ("Lot 37B"), the refurbishment of warehouse Lot 24 to incorporate temperature control storage, and the conversion of our Butterworth warehouse to a bonded facility. With these initiatives, FMHB Group is well-positioned to provide various types of value-added cargo storage and management solutions for a variety of customers. Reflecting these measures, our Third-party Logistics & Warehousing services ("3PL") segment managed to record a 7.8% y-o-y growth in revenue in FY2016 to RM42.7 million. This segment is now the second largest revenue contributor to the FMHB Group.

Whilst our core freight businesses performed well, our supporting divisions such as Customs Brokerage and Haulage were affected by the softer volume. Our marine business, as represented by our Tug & Barge operations, also underperformed in FY2016, as it was significantly affected by lower demand and intense competition, which led to a 29.6% y-o-y fall in revenue. Unscheduled maintenance and repair expenses further impacted its performance, resulting in this division reporting losses for the year. Going forward, we will continue to monitor this division closely and exercise stringent cost controls, whilst raising the utilisation rate of our fleet of vessels, in order to return this division to profitability soonest possible.

Regional Contribution

Our regional operations generally performed well, with the exception of our Tug & Barge business, which is based in Singapore. Regional operations contributed a total of RM106.6 million in revenue in FY2016 (FY2015 : RM104.9 million). This represents approximately 25.8% of total FMHB Group revenue (FY2015 : 24.9%).

Encouragingly, our overseas operations involved in freight services bucked the overall global downtrend and managed to grow their combined revenue by 8.8% y-o-y to RM92.8 million in FY2016. In particular, our operations in Indonesia and Vietnam have performed strongly. The main regional contributors in terms revenue were Australia (7.0% of FMHB Group revenue), Indonesia (6.2%) and Vietnam (3.4%). The smaller and up-and-coming contributors were India (2.3%), Thailand (2.1%) and Sri Lanka (1.4%). Another positive development is our Joint Venture in the Philippines, which turned in a good profit and declared its maiden dividend, after having commenced operations for only two years.

Business Expansion

Whilst we have an operating history of nearly three decades and have established ourselves as a major player in the regional logistics markets, we are acutely aware of the need to constantly invest in our businesses and expand our range of products and services. To this end, I am happy to announce that on 28 March 2016, we incorporated a new subsidiary, FM Hubwire Sdn Bhd ("FM Hub"). FM Hub is a joint venture with our associate company, Hubwire Sdn Bhd, and will spearhead our strategy of expanding into e-commerce logistics and fulfilment activities. FM Hub has commenced operations and offers services such as the provision of an e-commerce distribution platform for online merchants, inventory management, content management, customer service management, marketing support, warehousing and logistics services. FM Hub is beginning to make its mark in the e-commerce industry in Malaysia, and is seeing a progressive increase in the number of merchants that have signed up for its unique end-to-end services.

Rewarding Shareholders

For FY2016, we have declared two interim single-tier dividends totaling 5 sen per share, which represents a payout ratio of approximately 43% of our net profit. The first interim singletier dividend of 1.5 sen per ordinary share was paid on 28 July 2016, while the second interim single-tier dividend of 3.5 sen per ordinary share will be paid on 22 November 2016 to holders of ordinary shares whose names appear in the Record of Depositors at the close of business on 1 November 2016.

Outlook and Future Prospects

The global economy continues to be beset with uncertainty, exacerbated recently by "Brexit" and weaker consumer and investor confidence. Furthermore, dampened by uneven global growth and weak commodity prices, the global economy will continue to face headwinds. According to the International Monetary Fund ("IMF"), it had in July 2016 revised downward its 2016 projected world growth from 3.2% to 3.1%. Positively, however, the IMF expects an uptick in growth in 2017 to 3.4%. As for the emerging and developing Asia region, 2016 and 2017 growth is forecast at 6.4% and 6.3% respectively, noticeably lower compared to recent years. Back in Malaysia, our central bank expects full year 2016 GDP growth of 4.0% to 4.5%.

In term of global trade, the World Trade Organisation ("WTO") has significantly reduced its 2016 projected world trade growth to only 1.7%, composed to 2.8% in 2015. Ominously, in the first quarter of 2016, world trade had declined 1.1% quarter-on-quarter and 1.0% y-o-y. As for 2017, the situation is slightly better with a projected world trade growth of 1.8% and 3.1%, although this is still below the long-term average of 5% p.a. since 1990.

Notwithstanding the ongoing uncertainties in the global economy, FMHB expects its core freight operations to continue to contribute positively in FY 2017, particularly our Sea freight, Air freight and Land freight divisions. Over the years, we have cemented our reputation as a valuable logistics partner to our customers, which has enabled us to handle a sizeable 100,000 twenty-foot equivalent units ("TEU") of cargo annually. Despite this large volume already handled by FMHB, we are confident that there is ample room for growth, as we believe we have less than 1% share of the regional freight market.

We continue to commit to long-term strategic investments and form new ventures both locally and in the region, in order for us to serve our customers better and to enhance our future growth. I am proud to say that, from being just a Malaysiacentric business when we first started, we now have a presence in 12 countries, many of which are emerging markets with excellent growth potential.

In conclusion, I am confident that FMHB will remain profitable in FY 2017, as we leverage on our strengths and take full advantage of an anticipated growth in the level of activities in the markets that we are in. Underpinned by the capable and proven stewardship of our management team, I strongly believe that the objectives set out by the Board of Directors can be successfully achieved and we will have a satisfactory performance in FY 2017.

Appreciation and Acknowledgement

On behalf of the Board, I would like to thank my esteemed colleagues, our management team and all our staff for their continuous commitment, loyalty and dedication to the Company. Our growth and future success will always be due to the combined efforts and team work from all of us.

Finally, I would like to express our sincere appreciation to all our business partners, financiers, vendors, customers and shareholders for your unwavering support over the years and I look forward to meeting our valued shareholders at the forthcoming Annual General Meeting on 29 November 2016.