Mainstream
A blessing in disguise for Nationwide
Lim Cian Yai 
Rosilawati says the plan to turn around Nationwide by FY18 was impeded by the Airpak deal, which took longer to conclude
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NATIONWIDE Express Holdings Bhd’s second attempt at acquiring Airpak Express (M) Sdn Bhd comes as a blessing in disguise as the deal was about half the price of what it intended to pay in the previous negotiations in November.

The current proposal enables Nationwide to cherry pick suitable assets in Airpak that can complement its existing operations, as opposed to acquiring the whole company.

“We thought we needed all [the entire company] but after due diligence, we found there are things we do not need.

“We renegotiated, picked and chose. Subsequently, we managed to reduce the purchase price to an attractive level.

“Now it [the deal] is more palatable for us. We also want to maintain a low gearing level without chalking up a high level of borrowings,” Nationwide managing director Rosilawati Basir tells FocusM.

The previous proposal was valued at RM33.16 mil versus RM17.19 mil for the latest exercise.

The previous bid also entailed a profit guarantee of RM5 mil for each of Airpak’s financial years ended July 31, this year and next. The deal lapsed in May.

This acquisition will be satisfied via RM15 mil cash via bank borrowing, and issuance of 3.01 million new shares at an indicative price of 73 sen each, or RM2.19 mil in total to Airpak.

A lower price tag for it will help ease the burden on Nationwide’s cash flow. For Q1 FY17 ended June 30, its cash and bank balances declined to RM1.89 mil from RM5.34 mil a year ago.

Raising cash via bank borrowings is seen to be a viable move as Nationwide has none at the moment, while its current liabilities stand at RM11 mil as at June 30.

The courier service provider is still in the red in Q1 FY18 but things are looking up for the company.

It managed to trim its Q1 FY18 net loss by 76% to RM503,000 from RM2.06 mil a year ago, despite posting lower revenue of RM19.2 mil versus RM21.26 mil as it saw lower administrative expenses.

Nevertheless, investors may have to wait longer for the company to return to the black.

According to Rosilawati, the initial plan to turn around Nationwide by FY18 was impeded by the Airpak deal, which took longer than expected to conclude.

She expects the full integration of Airpak to only happen in FY19.

A shareholder sees Nationwide’s renewed interest in Airpak as a surprise.

“There was no mention of the company revisiting the deal at its annual general meeting in August,” he says.

He hopes the longer wait is worthwhile and the deal will eventually stem Nationwide’s declining financial performance.

The acquisition is subject to the green light from its shareholders.

Nationwide, which is acquiring Airpak’s courier service business, will take over its clients, resources and infrastructure. Eventually, the assets will be merged with existing ones in the listed firm.

Despite Airpak’s lower price tag, shareholders are concerned over its declining net profit, which fell to RM1.02 mil in FY16 from RM1.65 mil and RM2.27 mil in FY15 and FY14 respectively.

Notably, the company’s turnover has been growing at a compound annual growth rate of 15.49% during FY14 ended July 31, until FY16 when it posted a revenue of RM29.79 mil.

Addressing the concerns, Rozilawati says Airpak’s lower profit in the past two fiscal years was mainly due to bad debt impairments and reporting of under-recorded expenses in the year before.

“These [measures] were in preparation for integration into a listed entity. It has to change its operating methods and eventually we will take over a company with a clean balance sheet,” she says.

 

B2C strength

Rozilawati believes the acquisition of Airpak’s courier operation is vital to Nationwide’s livelihood.

For it to remain relevant in the courier industry, Nationwide has no choice but to join the business-to-consumer (B2C) bandwagon.

“We are not involved in B2C although we are one of the top courier companies in the country,” she says.

The asset injection will allow Nationwide to fast-track its B2C capability without having to build from scratch.

Nationwide is seen as a latecomer to the B2C market, but some analysts believe it is “better late than never” and helps the company to avoid falling into Practice Note 17 (PN17) status.

PN17 companies are usually financially-distressed and loss-making. Listed companies will be categorised as such when shareholders’ equity is equivalent or less than 25% of the company’s total issued and paid-up capital.

As of June 30, Nationwide’s shareholders’ equity amounted to RM39.77 mil, against total paid-up capital of RM60.11 mil.

Nationwide first slipped into losses in FY13. It managed to narrow it to RM164,000 in FY15 from RM2.9 mil in FY13.

Subsequently, it was impacted by the implementation of 6% goods and services tax on April 1, 2015.

Net loss then swelled to RM6.15 mil and RM15.83 mil in FY16 and FY17 respectively.

Rozilawati says Nationwide has been traditionally strong in the B2B segment that delivers parcels and documents for financial institutions and legal firms.

“However with operating cost increases after GST and adoption of a paperless system, the volume in the B2B segment is not as great as before.

“We won five tenders this year, but the combined value was not comparable to five or six years ago,” she says.

It will continue to be a challenging task for Nationwide to operate in the already competitive environment.

As it is, more players are entering the courier industry as the Malaysian Communications and Multimedia Commission (MCMC) issued 24 licences to companies last year.

This brings the total number of such licences to 112 as at the end of last year.

In contrast, the courier services industry’s revenue rose a mere 3.6% to RM2.9 bil last year versus RM2.8 bil previously, according to the MCMC-published Industry Performance Report 2016.

Meantime, more businesses are setting up their own courier and logistics arm.

For instance Lazada Express (M) Sdn Bhd, a logistics company under e-commerce player Lazada Group, was granted courier service licences by MCMC last year.

Others include My EG Services Bhd, which obtained a three-year licence in February last year and foreign firm CJ Korea Express Malaysia.

CJ Korea Express is the largest shareholder in Bursa Malaysia-listed Century Logistics Holdings Bhd with a 31.35% stake.

It is also a delivery partner for CJ WOW Shop, a Media Prima Bhd and CJ O Shopping Co home shopping venture.

Meanwhile, Century Logistics also intends to offer last-mile delivery services by acquiring a mid-sized logistics and parcel delivery company with a presence in major towns.

The company has been granted a three-year licence from MCMC to offer courier services.



This article first appeared in Focus Malaysia Issue 256.