Kimbles Managing Director Disposal Of Shares

Published on The Edge, 19-08-2008: Kimble defaults on RM149m debts

The following are the interesting statements from that article.

• Kimble Corporation Bhd has defaulted on a total of RM149.18 million in principal and interests owed to seven financial institutions as of last Friday.
  
  Kimble's default, which amounted to RM141.47 million in principal and RM7.7 million in overdue interests, comprised overdrafts, trade debts, loans and hire-purchase loans that date back to December 2007.
  
  The creditor banks are OCBC Bank (Malaysia) Bhd (RM50.76 million), Hong Leong Bank Bhd (RM41.49 million), RHB Islamic Bank Bhd (RM33.08 million), Export-Import Bank Malaysia Bhd (RM10.37 million), Malayan Banking Bhd (RM6.41 million), AmBank (M) Bhd (RM2.98 million) and RHB Bank Bhd (RM4.08 million).
  
  Kimble's announcement to Bursa was in compliance with Practice Note No 1/2001 (PN1) of the Listing Requirements of Bursa Malaysia Securities Bhd.
  
  In addition to its outstanding borrowings, Kimble also incurrred a loss of RM74.3 million last year, which included a RM33 million writeoff for doubtful debts.
  
  Two weeks ago, its group managing director Datuk Yao Bor Bin sold down his stake in the company to about 0.06%. He owned about 20.78% stake in the company two years ago.

How nice!

Company was losing money before the company goes into the PN1 sector and announces its defaults in loans, the company's managing director had sold down most of his stake to a mere 0.06%!!!!!

A rm33 million write off for doubtful debts? Makes one really wonder yes?

It was just last year, on 24th May 2007, there was a huge article on Business Times titled, Kimble Furniture banks on RM900m Ikea deal. That same article can be viewed http://www.scandasia.com/viewNews.php?coun_code=my&news_id=3295

Let me reproduce it here.

• EVERY time furniture giant Ikea sells an Ensta or Jokkmokk dining set in Malaysia, Datuk Kimble Yao hears cash registers ring.
  
  One in three pine dining sets Ikea Damansara sells in its Petaling Jaya store is made in Kimble Furniture Corp Bhd’s 10-hectare factory in Bukit Rambai, Malacca.
  
  And he is banking on the company improving profit with an impending RM900 million contract to supply the Swedish group more of such sets over the next three years.
  
  Ikea, which owns 250 stores worldwide, is due to place purchase orders worth e200 million (RM912 million) for bedroom and dining furniture, said Yao, the company’s managing director and founder.
  
  Malaysia’s fourth largest furniture exporter, Kimble Furniture will be signing a memorandum of understanding (MOU) with its European client at the end of this month, he said.
  
  Kimble Furniture’s operational profit fell 27 per cent last year to just over RM9 million. Net profit plunged to just under RM900,000, from RM5.2 million, due to trade financing costs which more than doubled.
  
  This year, the company could see a net profit of RM7.2 million, according to a note by TA Securities made available to the Business Times.
  
  Since Ikea rang up cumulative sales of 3.5 billion euros (RM15.96 billion) in 2006 worldwide, (outside Europe), “we foresee excellent potential for Kimble Furniture to secure more orders as one of Ikea’s vendors in South-East Asia,” it said.
  
  Yao said by the end of the year, its exports to Europe would swell by 55 per cent to RM351.4 million, most of them going to Ikea. The Swedish group is Kimble Furniture’s largest client on retainer in medium to low range pine wood furniture.
  
  “At the moment, about 30 per cent of pine furniture sold in Ikea Malaysia is produced by Kimble Furniture Corp Bhd,” he said.
  
  “We know that Ikea is a fast- growing European furniture chain and has stores not only in Europe, but in the North America, Middle East, and the Asia- Pacific region as well.
  
  “We have been dealing with Ikea since 1991 and the MOU will increase our business worth,” said the managing director.
  
  Kimble Furniture imports wood and timber, including pine, to make dining and bedroom sets for export to the US and European markets.
  
  Yao began supplying Ikea furniture in the 1980s through another company, Ta Wu Wood Enterprise, but lost the business when Ikea changed its sourcing policy. Last year, Ikea put in an order for RM15 million worth of dining sets.
  
  “Ikea is fast-growing and needs more furniture supply. It trusts our ability to help mass produce quality products. That is why we managed to stay as its vendor,” he said.
  
  Ikea’s orders are expected to reduce the company’s dependence on the US market, which contributes about 60 per cent to its revenue currently, he said.
  
  “The US currency is weakening and material costs are increasing in Malaysia. There is no way we could compete with the price offered by Vietnam and China in the current American market,” he added.
  
  TA Securities estimated that every 1 per cent rise in the ringgit against the US dollar would mean a 0.9 per cent drop in Kimble Furniture’s sales.
  
  In addition, competition in the American segment is driving Kimble Furniture to consider going downstream. It is planning to acquire a furniture chain with 70 stores in the North American region.
  
  “We are in the process of negotiating,” said Yao.
  
  He declined to reveal the name of the chain, but expects the acquisition to cost about US$30 million (RM101 million).
  
  He expects the acquisition to be completed next year, bringing in an annual revenue of US$370 million.
  
  “Our factory in Bukit Rambai, Malacca, will remain as the production base,” said Yao.

Such an optimistic article.

Of course, Kimble was queried by Bursa: ARTICLES ENTITLED: (i) "KIMBLE EXPECTS DOUBLE-DIGIT REVENUE GROWTH" (II) "KIMBLE FURNITURE BANKS ON RM900M IKEA DEAL

1) "Kimble Corporation Berhad expects its revenue to grow by 10% to 15%"

The Company wishes to clarify that the quoted statement represents Management’s expectation for revenue growth for the year of 2007 after taking into consideration of the current orders situation and the expected upcoming orders based on the current business development programme. The quoted statement is not in any way intended to refer to any financial estimates, forecasts or projections of the Company.

2) "Kimble Furniture will be signing a memorandum of understanding (MOU) with its European client at the end of this month"

We wish to inform that the Company’s wholly-owned subsidiary, Kimble Furniture Corporation (M) Sdn Bhd ("KFC") is currently in negotiation with its client for the design, manufacture and supply of furniture products. An announcement would be made in due course when the terms of the MOU are agreed upon by both parties.

3) ".....planning to acquire a furniture chain with 70 stores in the North American region."
"..... expects the acquisition to cost about US$30 million (RM101 million)."

We wish to inform that it has always been the Company’s strategy to continue penetrating and expanding the Company’s business operations in order to maintain its competitiveness in the industry. The Company is exploring working towards a strategic partnership with a party which owns 70 furniture chain stores in North America region. The cost of about USD30 million is an estimates made by Management based on the financial information provided. Preliminary discussions and information gathering are still ongoing. An appropriate and timely announcement would be made to Bursa Securities upon concrete agreement by both parties.

4) In addition, we wish to clarify that the statement appearing in the New Straits Times which states that "the company could see a net profit of RM7.2 million" was incorrect and purely speculative.

A week later, it announced its earnings: Quarterly rpt on consolidated results for the financial period ended 31/3/2007

It reported an earnings of only 40 thousand. Trade receivables were at an insane 60 million plus! (Makes you wonder, eh?)

Feb 2008, Quarterly rpt on consolidated results for the financial period ended 31/12/2007

Kimble reported losses of more than 12 million! Trade receivables were around 59 million!

Company said:

• Losses of RM12.0 million was reported for this year ended Dec 2007 as compared to the profit reported of RM780,000 of the preceding year ended Dec 2006. The significant decrease in the Group's turnover was mainly due to the reduction in orders received for the quarter ended Dec 2007. Lower orders and inability in adjustment in selling prices coupled with increase in the raw material prices and appreciation of Ringgit Malaysia against US Dollar have badly affected the performance of the Group for the year ended Dec 2007.

( Makes one wonder about that fancy Ikea article published back in May 2007!)

Then came the shocking announcement in May 2008. Deviation between Unaudited Quarterly Results and Audited Financial Statements for the financial year ended 31 December 2007

And the Managing Director was selling down his shares! 07-08-2008: Kimble MD ceases as substantial shareholder

• In an announcement to Bursa Malaysia here yesterday, Kimble said Yao had disposed of the stake comprising 8.7 million shares via the open market between July 31 and Aug 1. This effectively reduced his shareholding in the company to 3.1%.
  
  Yao has been steadily paring his stake in the wooden furniture-making company since early July.

And according to that said article, Ann Joo was dragged in.

• Subsequently, Ann Joo Corp Sdn Bhd — majority shareholder of Main Board steel company Ann Joo Resources Bhd — has become Kimble’s largest shareholder with a 7.2% stake in the company.
  
  Ann Joo had on July 28 pared its stake in Kimble to about eight million shares after disposing of 100,000 shares in the company.

Given these chain of events, what do you think of the Managing Director disposal of shares?

PS: On 24th May 2007, the day Business Times published that Kimble/Ikea article, Kimble closed at 74 sen. Kimble is now trading at 6.5 sen!!!!