EKA Noodles to close flagship manufacturing plant - Business News | The Star Online


EKA Noodles to close flagship manufacturing plant

KUALA LUMPUR: EKA Noodles Bhd has decided to close its flagship rice and sago sticks (vermicelli) manufacturing plant in Kuala Ketil, Kedah, and cease its operations by middle of next week.

The company, which fell into Practice Note 17 status in August last year, told Bursa Malaysia that this cessation of the operations of Kilang Bihun Bersatu Sdn Bhd (KBBSB) and EKA Foodstuff Sdn Bhd (EFSB) from Jan 18 would entail an assets disposal.

EKA noted that it now had eight months to submit its regularisation plan and said the proposed assets disposal was an opportunity to unlock the value of these assets to repay the liabilities of KBBSB and EFSB, which have suffered losses for the past several years and were not expected to turn around in the near future.

However, EKA added there was no guarantee that the group would be able to realise a higher value of these assets to be disposed of

The net book value of the assets as at Nov 30, 2016, totalled RM35.7mil.

Its original cost of investment in KBBSB had been RM31.66mil while the cost of investment in marketer EFSB was RM2.

According to the company, the proposed cessation is expected to result in cost savings (in term of salaries and wages, utilities, etc) of up to RM200,000 per month and interest savings of about RM8.4mil per annum.

KBBSB, which is a major subsidiary, posted a net loss before tax of RM3.37mil for the 18-month financial period ended Dec 31, 2015.

For the financial year ended June 30, 2014, its net loss was larger at RM13.9mil. This was mainly due to higher production cost incurred such as in the price of raw materials (broken rice and sago starch), increase in electricity tariff and implementation of minimum wages of RM900.

EKA also attributed the loss to allowance of impairment losses of trade debtors totalling about RM5.39mil.

The proposed cessation of operations will affect 96 employees (49 at KBBSB and 47 at EFSB), who will be made redundant. 

Based on the preliminary review, the employees redundancy and other related costs are estimated at about RM690,000.

EKA pointed out that the proposed cessation would not result in complete cessation of the group’s manufacturing and marketing activities.

EKA triggered the PN17 criteria in August last year as its shareholders’ equity on a consolidated basis was 25% or less of its paid-up capital and was less than RM40mil in its unaudited interim financial results for the second quarter ended June 30, 2016.

The group incurred losses before tax of RM15.5mil for the 18-month financial period ended Dec 31, 2015 -- a smaller loss compared with RM37.2mil for the preceding financial year ended June 30, 2014. For the first nine months of last year, the company continued to suffer losses (unaudited pre-tax loss of RM14.52mil).

Recently, three of the company’s shareholders requested for an EGM to remove all its board members except for group managing director Datuk Seri Chin Seak Huat. The EGM is yet to be held, but the board has indicated it will proceed with the proposed meeting.

Corporate News , EKA Noodles Bhd