By Khairie Hisyam
Confectionary maker London Biscuits Bhd (LBB)’s latest annual audited accounts recorded yet another year of significant property, plant and equipment (PPE) acquisition cost, raising questions over its PPE expenditure which now averages RM63.64 million in the last five years.
KiniBiz has emailed queries to LBB regarding its PPE expenditure following the release of its 2013 annual audited accounts last week but the company has not responded at publication time.
According to its annual audited accounts ending June 30, 2013 released last week, in 2013 LBB incurred an aggregate cost of RM55.23 million for PPE purchases, of which RM33.21 million was via hire purchase and term loans.
Overall, LBB has seen an annual average PPE acquisition cost of RM63.64 million between 2009 and 2013, with an annual average of RM19 million financed via hire purchase of term loans.
It must be noted that the average PPE acquisition cost within that period was pushed up to some extent by RM115.41 million incurred in 2012 for PPE acquisition.
In comparison, the company saw RM8.5 million in proceeds from PPE disposals in 2013, which brings the annual average PPE disposal proceeds between 2009 and 2013 to RM11.9 million.
Additionally, the company has seen a net loss from PPE disposals for the past five years, recording a loss of RM1.76 million in 2013. Since it was listed in 2002, LBB has only seen a net gain from PPE disposals once in 2008, recording RM501,284.
While the details of LBB’s 2013 PPE dealings are not yet available, its 2012 annual report shows that the RM115.41 million in PPE capital expenditure for 2012 was spent on additions to the company’s assets.
Of the RM115.41 million spent, RM94.12 million was for plant and machinery while another RM19.47 million was for plant and machinery under installation. The remaining amount was spent for motor vehicles, renovations and electrical fittings, office and laboratory equipment as well as furniture and fittings.
In 2012, the company had RM477.4 million in net book value in property, plant and equipment, of which RM288.32 million is in plant and machinery.
At 5pm, LBB closed unchanged at 68.5 sen on thin volume after briefly dipping by half a sen in the afternoon
Growing debts and trade receivables
In addition to significant PPE expenditure, LBB’s high liabilities also raises questions given its relatively small cash reserves.
Based on its annual audited accounts released last week, LBB posted a net profit of RM15.08 million against RM289.98 million in revenue for 2013, representing a margin of 5.2%.
On the cash reserves front, the company has RM27.21 million in terms of deposits, cash and bank balances as of June 30, 2013.
In comparison, the company has RM241.62 million in short-term borrowings in 2013, which adds up to RM320.15 million in total liabilities. LBB’s stated finance costs for 2013 is RM8.85 million.
The emerging trend is LBB’s short-term debt figures appear to be growing over the years, contributing to the general upward trajectory of its total borrowings.
In contrast, LBB’s cash reserves appear to be moving sideways with the current RM27.21 million the closest it has gotten to its previous high of RM28.21 million in 2008.
Additionally, the past seven financial years has also seen the company’s trade receivables grow steadily. Notably, in the same period LBB’s net profit margin seems to be reducing, going from 10.11% in 2007 to 5.20% in 2013.
At publication time, the company has yet to respond to KiniBiz queries regarding its financial position and how the company plans to address the unsustainable trend.
LBB was established as a privately owned enterprise in 1981 in Tampoi, Johor and was subsequently acquired by the Liew family in 1993 before going on to list in Bursa Malaysia in 2002.
Among the company’s products are the London Roll confectionaries, London layer cakes as well as the Hiro chocolate-coated cakes.
Its acquisition of Kinos Food Industries Sdn Bhd was completed effective May 1, 2005 and therefore the company did not post annual audited accounts for 2004.
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