Management Discussion and Analysis

Operating Results for the year ending December 31, 2017

During 2017, the Company had total revenues of Baht 1,551 million which consisted of;

  • Baht 1,493 million on Sales which increased by Baht 84 million or 5.96% from the previous year. The comprises of Baht 270 million on body care products, Baht 373 million on facial skin care products, Baht 793 million on cosmetics, Baht 15 million on accessories, Baht 20 million on furniture, marketing tools and other, Baht 11 million on food and beverage section.
  • Income from warehouse rental and warehouse services amounted to Baht 20 million which increased from the previous year by Baht 1 million or 5.26%
  • Other incomes totaled of Baht 37 million, increased from the previous year by Baht 19 million or 105.55% which comprises of interest of Baht 11 million, gain on currency exchange Baht 16 million, gain on security Baht 2 million, rent income Baht 3 million and others of Baht 5 million.

During the year 2017, The Total Expenses was Baht 1,179 million which comprises of;

  • Cost of sales amounted to Baht 673 million which increased from the previous year by Baht 46 million or 7.33%. The cost of sales is directly proportional to the Sales Revenue. The gross profit margin was 54.92% which was similar to the previous year.
  • Cost of warehouse rentals and warehouse services were Baht 1 million.
  • Selling and Administrative expenses totaled of Baht 504 million which increased from the previous year by Baht 15 million or 3.06%, directly proportionate to the Company’s business expansion. The selling expenses increased by Baht 5 million mainly on public relation. The administration expenses increased by Baht 10 million due to the increase Baht 16.00 million for salary and employee benefit, decrease Baht 7 million in allowance for doubtful accounts.
  • Financial cost of the Company on the interest expenses totaled of Baht 10 million which decreased from the previous year by Baht 3 million or 23.07%
  • Income tax expenses of Baht 71 million increased from the previous year by Baht 15 million or 26.31%.

During the year 2017, the Company had 18.85% net profit of sales which increased from the previous year 0.74% as the Company had selling expenses increased from the previous year by Baht 5 million mainly for the Company products promotion, administrative expenses increased from the previous year Baht 10 million due to the employee benefit expenses.

The business operation profit during the year 2017 resulted in the rate of return on equity at 33.83% in the previous year 34.82%

Financial Status as at December 31, 2017.

1. Composition of Assets

The total assets at the year end 2017 was Baht 1,347 million which increased from the previous year by Baht 111 million or 8.98%.

1.1 Current Assets amounted to Baht 796 million, increased by Baht 80 million or 11.17% from the previous year. The details are as follows;
  • Cash and cash equivalents of Baht 11 million which increased from the previous year by Baht 1 million because Net cash from operating activities increased Baht 146 million, net cash used in investing activities decreased Baht 68 million and net cash used in financing activities decreased Baht 218 million.
  • Trade accounts receivable and other account receivable at Baht 344 million, increased from the previous year by Baht 68 million or 24.63% due to the Company had increased the sales in many channels, including added more modern trade accounts.
  • Short-Term Loans to an related company amounted to Baht 56 million, increased from the previous year by Baht 1 million to the Iconic Property Company Limited which carried interests at a rate of 1.5 percent per annum.
  • Short-Term Loans to unrelated person and party Baht 18 million increased from the previous year Baht 13 million or 41.93% loans to Triple P Asset Company Limited which carried interests at a rate of 15% per annum.
  • Current portion of long - term loans to unrelated person and party Baht 10 million, increased from the previous year by Baht 10 million or 100% to Large Asia company limited which carried interests at a rate of 15.00 percent per annum.
  • Inventory of Baht 305 million which comprises on consumer products and raw material which decreased from the previous year by Baht 10 million or 19.04%
  • Deposit for purchase of investments in a subsidiary Baht 4 million increased from the previous year by Baht 4 million or 100% . On 22 November 2017, the Company entered into the Memorandum of Agreement to buy and sell 800,000 common shares of Ruenrom Food and Beverage Co., Ltd., (or 80% of the total 1,000,000 issued and paid-up shares).
  • Deposit for purchase of Land Baht 12 million increased from the previous year by Baht 12 million or 100% on 23 November 2017, the company has entered in to a purchase and sale agreement with the company. Land price is Baht 69 million. Land area 1260 square meters at soi phetchakasem 54, phasicharoen and 3 buildings Baht 33 million. It is expected that the transaction and transfer of owner ship will be completed by May, 2018.
  • Other Current Assets of Baht 36 million, increased from the previous year by Baht 8 million or 28.57%

1.2 Non-Current Asset amounted to Baht 551 million which decreased by Baht 31 million or 5.96% from the previous year as follows;
  • Long-Term Loan to unrelated persons and parties-net of current portion Baht 28 million increased from the previous year by Baht 3 million which carried interests at a rate of 15% per annum. The Long-Term Loan will be due within September 2020.
  • Investment in joint venture Baht 0.34 million decreased from the previous year by Baht 2 million of 100% on 20 January 2016, the Company paid for an investment in Karmarts Vietnam Company Limited, registered and established in Vietnam, in a total of USD 98,000 or approximately Baht 3.56 million. As a result, the Company holds 49% of issued and paid-up shares of USD 200,000 in this company. The Company has recorded the investments in this company as investment in joint venture since the investment date. This company’s operation period is 50 years, starting from the date of incorporation, October 9, 2015. During the years, the Company has recognized its share of loss from investments in joint venture in the consolidated financial statements amount Baht 1.98 million.
  • Investment in the subsidiary of Baht 63 million, decreased from the previous year because the Company share of loss from investments in associate by Baht 7 million or 10% in The Iconic Property Company Limited.
  • Properties Investment was at Baht 118 million, decreased from the previous year by Baht 1 million or 0.84% because the investment properties of the Company represent land and building used for providing warehouse service. Their fair value has been determined based on the valuations performed by an accredited independent valuer, using the income approach.
  • Property, Plant and Equipment - net amounted to Baht 293 million with an increase from the previous year by Baht 38 million or 14.90% because the Company acquisitions land Baht 5 million, transfer in building Baht 57 million, motor vehicles Baht 4 million, machinery and equipment Baht 15 million increased depreciation Baht 19 million. Assets under installation and construction in progress decreased Baht 24 million from transfer of the completed building.
  • Land awaiting for future development Baht 8.28 million. The Company had land awaiting for future development amounting to Baht 8.28 million. The Company has placed land with net book value by Baht 3.2 million as collateral for short-term and long-term credit facilities granted by commercial banks.
  • Intangible Assets - net at Baht 10 million because acquisitions computer software under installation and amortization during the year.
  • Deferred Tax Assets was Baht 8.45 million because the Company allowance for doubtful accounts Baht 0.78 million allowance for diminution in value of inventories Baht 4.46 million provision for long-term employee benefits Baht 3.21 million.
  • Other Non-Current Assets was Baht 20 million decreased from the previous year by Baht 3 million or 13.04% because on December 22, 2014, the Company entered into an agreement to sell all of the inventories, that are related to the project to upgrade the 470MHz Mobile Telephone Network to CDMA2000 1X to a non-related party at a price of Baht 28.1 million (including VAT). This agreement requires the buyer to make payment to the Company in monthly installments, within 10 years. As at December 31, 2017, the Company had such account receivable balance of Baht 20.37 million (December 31, 2016 : Baht 21.30 million) with the portion due in over 12 months amounting to Baht 16.7 million (December 21, 2016: Baht 18.70 million) and classified as other non-current assets in the statements of financial position.

2. Quality of Assets

In 2017 trade and other receivables Baht 346 million or 25.66% of total assets. Account receivable average collection period was 77 days, increase from the previous year 11 days. (66 days in 2016) due to the fact that the cash sales for consumer goods had decreased, and instead increased on modern trade channels credit sales with 30 - 90 days term of payment.

An adequate reserve was set according to the prediction of non-collectable debt. The reserve for the year 2017 non-collectible debt was budgeted at 1.62% of the outstanding account receivable at the year-end.

Inventories Baht 305 million or 22.64% of total assets. Average inventory turnover of 121 days as same as the previous year (108 days in 2016).

Investment properties Baht 118 million or 8.76% of total assets by an accredited independent valuer, using the income approach. Key assumptions used in the valuation include discount rate, yield rate and long-term growth in rental rate.

1. Cash flows

In 2017, the Company’s net cash flows cash and cash equivalents was Baht 11 million, compared to 2016 which was Baht 10 million, decreased by Baht 1 million net cash from operating activities Baht 287 million as the Company decreased net profit, net cash used in investing activities Baht 68 million as the Company long term loans to unrelated persons and parties, deposit for purchase of invesments in a subsidiary and deposit for purchase of land, net cash used in financing activities Baht 218 million as the Company dividend paid.

2. Liquidity Ratios

Current ratio (current asset/current liabilities) in 2017 was 2.27:1 which shows high liquidity as the Company’s current assets can be easily cashed in a short period of time such as short-term cash or cash equivalents 0.82%, account receivables 25.66%, inventories 22.64% of total assets.

The company average debt collection period was between 77 days. Average inventory turnover of 121 days as same as the previous year due to the fact that Karmart products had a higher turnover.

3. Collection and Payment Periods

Average debt collection period was 77 days while average account payment period was 167 days. This is because the Company at present has selected the payment option by issuing the letter of credit through the commercial banking and prolonging the credit term around 120 - 180 days through the bank’s granted Trust Receipt.

During the year, the Company had in capital expenditures was mainly from the land, equipment, intangible assets at Baht 72 million. Land awaiting for future development, Land Others would be machines bought to manufacture the Company products, and the motor vehicles for supporting the business growth.

1. Capital Structure

In 2017, Debt/Equity Ratio was 0.55:1 against 0.55:1 in the previous year. The company had bank overdrafts and short-term loans from bank Baht 175 million decreased from the previous year Baht 86 million because the Company import finished goods reserve to support increase sales and long-term loans from financial institutions Baht 80 million increased from the previous year Baht 80 million to expand the factory and warehouse.

2. Shareholders’ Equity

In 2017, shareholders’ equity increased by Baht 72 million to Baht 869 million from the operating profit during the year of Baht 281 million while the dividend payment was Baht 210 million.

3. Liabilities

The Company’s total liabilities was Baht 478 million, increased by Baht 40 million or 9.13% from the previous year.

Current Liabilities was Baht 352 million, decreased by Baht 26 million or 6.87% from the previous year. The Details are as follows:

    • Bank overdrafts and Short-term loan from bank was Baht 175 million, decreased by Baht 86 million from the Company’s goods payment.
    • Trade and other payables of Baht 103 million, increased by Baht 18 million
    • Current portion of Liabilities under financial lease agreements due within 1 year and Liabilities under financial lease agreements – net of current portion was Baht 11 million which increased by Baht 2 million or 22.22% the Company finance lease for transportation
    • Current portion of long-term loans from financial institution Baht 18 million increased from the previous year of Baht 18 million or 100% a long-term of the Company under credit facilities of Baht 80 million, both principal and interest, is monthly repayable in 60 installments. The loan carries interest at a rate of 4.5% per annum.
    • Income Tax Payable at Baht 38 million, increased from the previous year of Baht 21 million due to the Company’s increase in net profit.
    • Other Current Liabilities was Baht 13 million due to the withholding tax from the dividend payment and the accrued value added tax.

Non-current liabilities was Baht 60 million, increased by Baht 2 million or 3.33% from the previous year, The Details are as follows:

  • Long-term loans from financial institution-net of current portion Baht 62 million increased from the previous year of Baht 62 million or 100% a loan-term a long-term of the Company under credit facilities of Baht 80 million, both principal and interest, is monthly repayable in 60 installments. The loan carries interest at a rate of 4.5% per annum.
  • Provision had been made for long-term employee benefits of Baht 16 million, which increased by Baht 3 million or 23.07% from the previous year due to the new standard of accounting for employee benefit reservation No.19 had taken effect.
  • Deferred Tax Liabilities at Baht 41 million, decreased by Baht 2 million or 4.65% from surplus of fair value from book value of investment properties Baht 21 million surplus on revaluation of land Baht 10 million and surplus of fair value from book value of land and building transferred from investment properties Baht 10 million.

The Executive Committee set up annual business plan and strategic actions to achieve its annual goals. These ensure that the Company is able to adjust its management style in a flexible manner to cope with significant factors which may affect the Company as listed below.

Main Factors
  1. Sufficient procurement of products and changes in product trend and fashion
  2. Human Resources Development
  3. The Price of products and Wages
  4. Financial Assistant to Associated or Subsidiary companies and Contingent Liabilities in the future.
Action Plan
  1. The Company is capable of product adjustment to cope with the changing trend of product popularity and its procurement system can manage inventory level to service the changing demand and changing trend and fashion.
  2. The Company supports Human Resources Development by providing adequate both internal and external training to increase employee skills and proficiency.
  3. The Company has a special unit and system of procurement of raw material finished products from quality sources with competitive prices.
  4. In case of rendering financial assistant to the Associated or Subsidiary company, the Company completely and transparently follows the rules and regulations of SET and able to be audited. The independent directors are to review and monitor the Company’s operations closely, for the most benefit of investors and stakeholders.