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Quarterly Report For The Financial Period Ended 31 December 2019

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Condensed Consolidated Statements Of Profit Or Loss And Other Comprehensive Income
For The Quarter Ended 31 December 2019 - unaudited

Income Statement Ended 31 December 2019

The above condensed consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the audited financial statements for the year ended 31 December 2018 and the accompanying explanatory notes attached to these interim financial statements.

Condensed Consolidated Statements Of Financial Position
As At 31 December 2019 - unaudited

Balance Sheet Ended 31 December 2019

The above condensed consolidated statement of financial position should be read in conjunction with the audited financial statements for the year ended 31 December 2018 and the accompanying explanatory notes attached to these interim financial statements.

Operating Segments Review

Statement of Financial Position

The Group's financial position remains robust as at 31 December 2019 with shareholders' funds settling at RM1.3 billion, cash and cash equivalents together with other investments amounting to RM349.0 million and net cash position (=cash and cash equivalents + other investments – bank borrowings) of RM277.3 million.

During the financial year, the Group applied the MFRS 16 for Leases. In applying MFRS 16, the Group's leasehold land asset, which were previously recognized as prepaid lease payments and operating lease are now classified and recognised as Right-of-Use asset. These lands were measured at fair value to be in line with the Group's accounting policy by applying revaluation model for the land and buildings. This consequently enabled the Group to recognize a revaluation surplus of RM31.7 million as at 31 December 2019.

The net assets per share of the company increased by 3.2% to a healthy RM6.51 from RM6.31 in 2018, mainly due to the revaluation surplus mention above.

Statement of Cash Flow and Capital Expenditure

Cash flows generated from operating activities stood at RM73.4 million, representing a decrease of 20.9% compared to last year. The reduction in cash from operating activities was largely in respect of changes in working capital (higher trade receivables and payment of trade payable due to higher sales during the last quarter of financial year).

During the year, the Group made net repayment of RM9.8 million in bank borrowings compared to net drawdown of RM12.7 million in 2018, resulting in an increase in cash used in financing activities.

As at 31 December 2019, the Group's capital commitment stood at RM62.1 million, mainly due to investments in tooling, development costs and upgrade of production facilities. This capital commitment is funded by internally generated funds and/or bank borrowings.

The Group recognizes that sufficient cash reserves are essential in the pursuit of growth and expansion. Thus, the Group's liquidity remains intact as the Islamic Commercial Papers Programme and Islamic Medium Term Notes of up to RM1.5 billion in nominal value can be utilized for future capital investment, if and when required.

Analysis of Performance of All Operating Segments
Q4'19 vs. Q4'18

The Group's revenue rose marginally by 1.0% in Q4'19 from RM382.6 million to RM386.3 million mainly due to higher demands from OEM customers of the Interior and Plastic Division, driven by the commencement of supply of new parts for new model launch in Q4'19.

In contrast, the Group's Profit Before Tax ("PBT") dropped to RM16.9 million, a dip of 30.7% from RM24.4 million in Q4'18. The reduction in PBT was mainly due to the impairment loss on investment in associate in Indonesia in view of the significant losses sustained by them. The bulk of these losses is attributable to the costs associated with staff retrenchment and restructuring exercises undertaken by our associate in Indonesia and the provision of stock obsolescence and higher operating costs.

Year-to-date 2019 vs. Year-to-date 2018

For the financial year ended 31 December 2019 and led by its Interior and Plastics Division, the Group's overall revenue grew by 12.2% to RM1.5 billion, compared to the preceding year of RM1.3 billion. The growth was attributed to the increase in the demand for Original Equipment Manufacturer ("OEM") parts following the supply of new parts for localization content and new model launches since the end of 2018 and second half of 2019.

However, despite such revenue growth, the Group's PBT was lower by 11.1% at RM68.8 million compared to RM77.4 million a year ago. This was mainly due to fragmented export sales coupled with rising production costs (especially raw material price in the first half of the year and energy cost) in Suspension Division. Higher operating costs incurred by our operations outside of Malaysia coupled with sustained losses by our associate in Indonesia and impairment loss (as explained earlier) also contributed to a lower Group's PBT.

Suspension Division

Total Industry Production ("TIP") for the commercial vehicle for Q4'19 and for the year declined by 25.9% and 15.6% from 13,252 units and 44,445 units to 9,826 units and 37,517 units respectively compared to last year (Source: Malaysian Automotive Association or "MAA").

The Suspension Division (especially leaf spring operation) continued to experience lower revenue growth from both export and local OEM (in line with lower TIP-commercial vehicle), which resulted in the drop of its revenue by 22.5% to RM43.4 million from RM56.0 million same quarter of last year.

Unfavourable product mix, lower revenue and production volume and higher energy costs (there were 2 price increases for natural gas, i.e. in January 2019 by 0.37% and July 2019 by 5.3%) were factors that contributed to a loss of RM1.4 million compared to a profit RM2.0 million registered in Q4'18.

On the year to date basis, the Suspension Division posted RM193.8 million in revenue, which was 12.7% lower than RM222.1 million registered last year. Consequently, the Division recorded a loss of RM1.1 million compared to a profit of RM8.8 million a year ago due mainly to reasons mentioned earlier.

Interior & Plastics Division

For the current quarter compared to last year corresponding quarter, the Interior & Plastics Division experienced growth in both revenue and PBT by 5.1% and 17.7% respectively. The higher demands by certain OEM customers following the supply of new parts for localization content and new model launches since the end of 2018 and 2nd half of 2019 were the major contributors to the Division's improved revenue. The Division's PBT increased in line with the increase in revenue coupled with favorable product mix that generated higher margin.

Likewise, for the whole year, revenue and PBT of the Division increased steadily from RM908.5 million to RM1,117.5 million and RM62.1 million to RM90.7 million respectively, largely due to the reasons mentioned earlier.

Electrical & Heat Exchange Division

The Electrical & Heat Exchange Division's revenue fell by 9.0% to RM32.6 million in the current quarter from RM35.4 million in last year corresponding quarter due to lower demands from certain OEM customers. Correspondingly, the Division's PBT was also lower by 24.5% at RM1.5 million.

Consistent with the above quarterly results, revenue for the 12-month period of 2019 decreased to RM122.9 million from RM133.2 million recorded in the previous year. Similarly, PBT also weakened to RM4.3 million from RM7.1 million registered in previous year. The weakening of Ringgit especially against Thai Baht impacted the Division's profitability for the year.

Marketing Division

The Marketing Division's revenue decreased by 15.7% to RM50.7 million in the current quarter due to lower sales experienced in export market. The soft global economy, ongoing uncertainty in connection with "Brexit" and the continuing trade tension between the US and China have undoubtedly affected our export sales especially our export of leaf spring to OEM customers in Thailand and Australia.

Despite the lower revenue, the Division's PBT increased from RM1.1 million to RM2.1 million in Q4'19. The higher PBT was caused by lower logistic cost (lower export sale) in the current quarter.

On the year-to-date basis, the Marketing Division registered revenue of RM236.2 million, a reduction of 9.1% from RM259.8 million last year due to lower sales for both local REM and export. Local REM especially in East Malaysia experienced decreasing demands resulting from the slowdown in infrastructure projects and logging activities. The soft global economy as explained above affected the export sales significantly. Correspondingly, the Marketing Division's bottom line decreased by 30.3% or RM3.1 million compared to 2018's PBT of RM10.3 million.

Non-reportable segment, Malaysia

This segment comprises mainly operations relating to revenue received from sources that include rental of properties in Malaysia, provision of management services, and engineering and research services for companies within the Group. Revenue from these services and sources form part of inter-segment elimination for the total Group's results (as depicted in Note A9). This segment also comprises the business of casting, machining and assembly of aluminum parts and components and distribution of motor vehicles to internal and external customers.

The Non-reportable segment's revenue increased marginally by 4.9% to RM19.1 million in the current quarter from RM18.2 million in last year corresponding quarter largely due to higher sales from the casting and machining of aluminum parts business and higher inter-group billings of services. Despite the higher revenue, the Division registered a loss of RM0.7 million against a profit of RM3.4 million in corresponding quarter of 2018. The higher PBT recorded in Q4'18 was due to recognition of fair value on investment properties of RM3.5 million compared to RM1.0 million recognized in the current quarter of 2019.

The Division's revenue for whole year of 2019 decreased slightly by 0.4% from RM80.9 million to RM80.6 million, largely due to lower sales from trading of motor vehicle. Trading of motor vehicle business recorded a historical high in Q3'18 as a result of the festive-driven sales campaigns, new model launches and "tax holiday" in Malaysia. As a result of lower revenue, the Division reported a Loss before Tax ("LBT") of RM2.8 million against a PBT of RM2.1 million in 2018. Apart from lower sales, high administrative expenses especially staff costs, lower billing of service fee and lower fair value gain recognized (as explained above) had also impacted the Division's profitability.

Indonesia Operations

Indonesia Operations refer to the manufacture of suspension products such as coil springs, shock absorber and leaf springs as well as the Group's investment and participation in joint ventures and associate in Indonesia.

The Indonesia Operations' revenue increased by 9.2% to RM14.2 million from RM13.0 million recorded in Q4'18 mainly due to higher demands for shock absorbers from OEM customers (for their spare parts centre). Our associate in Indonesia suffered significant losses due to lower sales, expenses incurred in connection with staff retrenchment and restructuring exercises, provision of stock obsolescence, and higher operating costs. Hence, LBT of the Indonesia Operations worsen to RM8.8 million from RM3.9 million same quarter of last year.

On year-to-date basis, the Indonesia Operations' revenue declined by 3.0% to RM52.6 million mainly due to lower off-take of coil spring from certain OEM customers and lower export and local replacement market for leaf spring. Coupled with the rising cost of raw materials, lower production volumes and higher operating costs, especially due to depreciation and interest expenses, the Division's bottom line was negatively impacted.

In view of the higher share of associate's losses and impairment loss amounting to RM9.1 million for the year, the Indonesia Operations registered higher LBT of RM23.5 million compared to LBT of RM11.5 million last year.

All Other Segments

This business segment refers to our operations in Thailand, Vietnam, Australia, the United States of America ("USA"), Netherlands and Myanmar ("Operations Outside Malaysia").

Revenue for the Operations outside Malaysia is on an uptrend with growth of 3.7%, quarter on quarter to RM30.2 million dominated by higher sales of air-conditioning products in the Vietnam operations. Despite the improved revenue, LBT of the Division remained stagnant at RM2.0 million mainly due to loss recognised on our joint-venture in Vietnam (due to lower sales).

Similar to the quarterly review, the segment revenue increased from RM122.2 million to RM129.1 million on year-to-date basis, whilst registering a LBT of RM6.7 million compared to a LBT of RM2.0 million a year ago. This was primarily due to the one-off imposition of import duty and penalty by the custom authority on imported raw material resulting from the incorrect application of tariff code by our Vietnam operation. The Division's bottom line was also affected by the increase in personnel costs in our Australia operation and higher operating costs incurred by our USA units (caused by higher staff costs and rental).

Commentary On Prospects and Targets, Strategies and Risk

APM is principally involved in the design, manufacturing, assembly and production of automotive and mobility components. APM's main operation is located in Malaysia but it is also present in various other jurisdictions including United States of America, Netherlands, Australia, Thailand, Vietnam and the Republic of Indonesia.

In general, we expect local and global market conditions in Q1 to soften going into 2020 due to the uncertainty caused by the Covid-19 outbreak. Disruption in the supply chain remains a major concern as many of our plants source for parts and components from China and practise the "Just-in-time" inventory strategy where materials are procured on a need basis to reduce waste and inventory holding costs.

The ongoing friction between the US and China is also another concern for the company even though "Phase One" of a trade agreement has since been signed by the economic powerhouses. We see the simmering tension between these two countries to persist into 2020 as they enter into a second round of talks for "Phase Two" of their trade agreement, which many believe, is more challenging than "Phase One".

However, diversification has always been part of APM's overall strategy to counter global economic uncertainties as we aim to minimize our risks exposure and limit potential losses by not concentrating all our capital and resources solely in one jurisdiction or products, hence, our presence in various international markets.

In this respect, our plant in Bago, Myanmar is due to commence operation soon. Located around 2.6km to the west of Bago River, this plant is approximately 30 acres in size. Phase One of operations will involve the production and assembly of bus seats. This Bago plant is a catalyst enabling our entry into the Indo-China automotive market, which is believed to be currently experiencing rapid growth.

Plans are also underway to enhance our market presence in Indonesia, commencing with the recent acquisition of a strategically located piece of industrial property measuring approximately 25,788 m2 in the first phase Kota Deltamas. This piece of property is located not far from Hyundai Motor's first new USD1.5B manufacturing plant in Indonesia which is reputed to have the capacity of producing up to 250,000 vehicles annually.

Additionally, the much anticipated stimulus package from the Government to dampen the impact of the Covid-19 outbreak in Malaysia should allay fears of an economic meltdown. We share the sentiments with those who believe that the epidemic is temporary and global rebound can be expected in the near future.

Our prospect going into 2020 remains challenging and of concern. The changes in policies and regulations as well as economic and currency uncertainties are the primary factors that could affect APM's performance. In this respect, APM will continue to exercise prudence in its business dealings and emphasis in cost management as well as operational efficiency.