ATA IMS expects another 40% drop in revenue for FY23 amid Dyson termination

Friday 19 Apr 2024

KUALA LUMPUR (Nov 29): ATA IMS Bhd is expecting another drop of 40% for the financial year ending March 31, 2023 (FY23), following the termination of its contracts with Dyson, its largest customer, which contributes to about 80% of its revenue.

In a filing with the bourse, ATA IMS said cost-cutting measures will be undertaken in response to the termination of contracts and that the group is working towards maintaining profitability by lowering costs to ensure sustainability.

The termination of the contracts, it said, does not affect its operations, except for the termination of tenancy and organisation-wide cost-cutting measures, and restructuring of bank borrowings for excess facilities, as the group is not required to hold as high levels of stock as before.

For FY22, ATA IMS is expecting revenue to reduce by 30% due to the impact of the Movement Control Order (MCO) and a shortage of workers.

“The major financial impact would be the impairment test of the goodwill on consolidation of RM76.5 million, discounted cash flow, and sensitivity test has been performed on the new projection; with the termination of the customer contract, the company is of the view that there is no material impairment on the goodwill on consolidation, provided the new customers continued to load the company with new orders,” said ATA IMS.

It said the expected losses that could arise from certain excess stock which could be in dispute and could result in a loss to the company, purchase orders raised by the company that are non-cancellable, impairment of property, plant and equipment that were acquired specifically for the orders of the customer, and the write down of right-of-use of assets due to early termination of tenancy agreements.

ATA IMS said the management is still in the midst of studying other potential areas of concern, but added that the group does not expect any other loss due to the termination currently.

Meanwhile, the group said it was only provided with a summary of the audit report on its labour practices following an on-site investigation, in which the findings were inconclusive.

It has made a request for the full audit report, but has yet to receive it.

“The summary of the report, in which the findings were non-conclusive, summarised a number of allegations including poor living conditions, issues around zero-recruitment fee for foreign migrant workers, unethical recruitment practices by agents appointed, use of irregular workers, concerns of retaliation, unpaid allowances and bonus during Covid-19 in 2020, and unlawful deductions for meals.

“The report clearly states that the auditors were unable to conclusively determine whether all allegations are true or false,” said the company.

ATA IMS also highlighted the auditors’ view that the findings are “easily remediable with the commitment of the company’s management” and suggested that the parties involved discuss the findings in detail and develop a comprehensive strategy to address the issues.

It had engaged a professional adviser to review the findings, with the latter expressing the view that a much more detailed and conclusive report should be shared with the company, and that many areas of concern raised in the executive summary were non-conclusive and requiring triangulation.

“The company reiterates that it takes forced labour allegations seriously and had engaged professional advisers to assist the company to review, verify and validate the audit findings.

“The company wishes to highlight that the allegation of physical abuse by the former employee of the company does not form part of the summary of audit made available to the company. Nevertheless, the company has also engaged a law firm in Malaysia to carry out an independent review of this allegation,” it said.

ATA IMS further said that during a workplace conditions audit from June 22 to June 24 by another reputable auditor, the total overall facility score was 89%, which it said is higher than the global average of 81%.

It said the contracts were terminated without cause and with notice, with the company presently taking legal advice on possible recourse available.

“Having regard to the provisions of the contract by which such right of termination without cause is conferred and subject to the legal advice, the company reserves its rights to consider challenging the exercise of a termination right, if such right is arbitrarily or unreasonably exercised,” it said.

ATA IMS shares closed unchanged at 52 sen on Monday (Nov 29), giving the group a market capitalisation of RM626 million.

Edited ByS Kanagaraju

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