Wednesday, Aug 18, 2004
MARC has upgraded the rating of CNLT (Far East) Berhad’s (CNLT) RM60 million Bank Guaranteed CP/MTN to A(bg)/ MARC-1(bg), reflecting the weakest link rating of the unconditional and irrevocable bank guarantees provided by a consortium of financial institutions.
CNLT, a medium sized manufacturer of yarn, faced a challenging year in 2003. Demand in the international textile market, particularly from the USA, was sharply lower. Around 65% of CNLT’s products are exported while the remaining 35% are sold in the domestic market. The USA’s textile market was overwhelmed by cheap imports from China due to imminent phasing out of the quota system. Domestically, CNLT operates in a highly fragmented and competitive domestic market set against heightened regional competition arising from the implementation of the Asean Free Trade Area (AFTA), where tariffs on textile products will effectively be reduced.
In the near term, CNLT plans to concentrate on local sales, until the global market recovers. Faced with heightened competition within the industry, CNLT plans to shift product mix and marketing strategies; moving downstream and manufacture textiles and apparel in Senegal to benefit from the preferential duty and quota treatment when exported to the United States and the European Union. This move would be synergistic to its yarn production in Malaysia.
Rising cotton prices resulted in a reduction of gross margin by 15.7% in FY2003. Cotton comprises 60% of CNLT’s raw material. However, the group has the flexibility to switch to synthetic cotton during periods of rising cotton prices, hence mitigating somewhat the risk of an upsurge in raw material prices.
Against the adverse operating environment affecting the textile industry, CNLT registered a drop in revenue of 11.7% to RM74.87 million in FY2003, and a pre-tax loss of RM12.70 million (FY2002: 1.72 million profit). CNLT’s cash flow protection measures consequently deteriorated due to the losses suffered coupled with significantly higher financing cost. As a result of eroded shareholders’ funds, CNLT’s debt leverage rose to 1.34x.
CNLT, a medium sized manufacturer of yarn, faced a challenging year in 2003. Demand in the international textile market, particularly from the USA, was sharply lower. Around 65% of CNLT’s products are exported while the remaining 35% are sold in the domestic market. The USA’s textile market was overwhelmed by cheap imports from China due to imminent phasing out of the quota system. Domestically, CNLT operates in a highly fragmented and competitive domestic market set against heightened regional competition arising from the implementation of the Asean Free Trade Area (AFTA), where tariffs on textile products will effectively be reduced.
In the near term, CNLT plans to concentrate on local sales, until the global market recovers. Faced with heightened competition within the industry, CNLT plans to shift product mix and marketing strategies; moving downstream and manufacture textiles and apparel in Senegal to benefit from the preferential duty and quota treatment when exported to the United States and the European Union. This move would be synergistic to its yarn production in Malaysia.
Rising cotton prices resulted in a reduction of gross margin by 15.7% in FY2003. Cotton comprises 60% of CNLT’s raw material. However, the group has the flexibility to switch to synthetic cotton during periods of rising cotton prices, hence mitigating somewhat the risk of an upsurge in raw material prices.
Against the adverse operating environment affecting the textile industry, CNLT registered a drop in revenue of 11.7% to RM74.87 million in FY2003, and a pre-tax loss of RM12.70 million (FY2002: 1.72 million profit). CNLT’s cash flow protection measures consequently deteriorated due to the losses suffered coupled with significantly higher financing cost. As a result of eroded shareholders’ funds, CNLT’s debt leverage rose to 1.34x.