Executive Summary Our research on Padini Holdings Berhad reveals its overall position and MYHISTORYS!!! in the retail industry since 1971 as well as its vision and mission established to the accomplishment of their corporate goals. On top of that, the financial and strategic objectives set by the management to meet its goals are also outlined in the body of the report. Through the analysis of the financial statements, the liquidity position of the group can be gauged by using a number of measures like the trade receivables and payables period, current and quick ratio, and also its working capital cycle.
Collectively, these measures indicate that the group is relatively liquid in nature. Besides, an analysis of the capital structure of the group shows that there is a lack of equity funding as compared to debt funding in the past three years while the group moves to a more conservative approach in managing its debts. On the other hand, while its gearing ratio increases slightly as compared to the past year, it still meets the industry average ratio and hence poses no threat to the going concern of the group.
In terms of the share price, it is noted that there is a significant decrease in share price of the group in year 2011 due to a share split involving subdivision of its existing shares to enhance its share liquidity. However, due to the fact that its growth rate in dividend is increasing annually, its share price is expected to increase in future periods. Introduction Purpose of report This research is carried out to enable us have a better understanding on the financial statements and business direction of Padini Holdings Berhad. Background of Padini Holdings Berhad
Padini Holdings Berhad is a Malaysia-based investment holding company that sells both mens’ and ladies’ shoes and accessories, garments, ancillary products, children’s garments, maternity wear and accessories where goods are exported mainly to Asian countries. Padini and Vincci are its most prominent brands. Its’ operation began as Hwayo Garments Manufacturers Company in 1971 and was affiliated in garment manufacturing and wholesaling and entered the retail industry in 1975 with flagship brand Padini. Other brands like Vincci Miki, Seed, P&Co. , PDI and Padini Authentics labels are established in following decades.
In 1991, Home Stores Sdn Bhd was launched to hold all the companies involved in the Group’s retail, wholesale and manufacturing businesses. It was subsequently renamed to the present Padini Holdings a year later. In 1995, Padini Holdings Sdn Bhd was converted to a public company limited by shares and adopted the name, Padini Holdings Berhad are soon listed on the Second Board of the Kuala Lumpur Stock Exchange. The year 2000 witnessed the establishment of Padini Dot Com Sdn Bhd to provide electronic business services and solutions for the group.
Padini Holdings was transferred to the Main Board of the KLCI Bursa Malaysia in 2005. A) Goals and objectives of Padini Goals Padini’s vision is ‘To Be The Best Fashion Company Ever’, and mission which is ‘To Exceed Customers’ Expectations And Our Brand Promise’. Nevertheless, Padini also introduced the ‘Caring from the heart’ as their core value.  The vision shared by everyone in Padini is to be the best fashion company ever and be the market leader in the retail industry. They are committed to achieve this goal through hard work, discipline and creative endeavor.
Objectives i) Financial Objectives Padini Holdings Berhad is involved in investment holding and provision of management consultancy services to its subsidiaries.  It has a concept where educated customers nowadays focus in seeking for value in the products which reflect self-esteem, personalities and lifestyle. Hence, prices are set affordable for this segment of customers which will definitely attract their attentions. On top of that, Padini also exports its products to Thailand, Brunei, India and other countries with their Made-in-Malaysia stamp. ii) Strategic Objectives
Padini focuses in providing best products that cater to customer needs along with their guarantee on its products through a mix and match strategy. Improvement in its management setting and product innovation is continuously done so as to remain as the top fashion company. High quality products along with high standard of designs are maintained by Padini through the payment of lump sum bonus as a motivation to employees if targeted sales were achieved. B) Working Capital / Liquidity Position of the Company Through the analysis, we can see that the trade receivables days increase steadily from 9 days in 2009 to 13 days in 2011.
As most of Padini’s sales are retailing which made in cash or credit card, the trade receivable days is exceptionally short.  Since the increase in the trade receivable days is in line with the increase in sale, it will not result in collection problem and will not impose significant pressure on Padini’s cash flow. The increase in payables period may be a good sign as it shows that suppliers have confidence with its payback ability by granting longer credit period. The group takes the full advantage of credit facilities by using the interest free loan to finance its daily operation and subsequently improve its performance. 4] Padini’s current ratio remains relatively steady over these 3 years and with slight increase in 2011. There is a clear indication that inventory made up a large proportion of Padini’s current assets as current ratio is much higher than quick ratio. The decrease in quick ratio in 2011 to 1. 30 times is due to storing of goods to combat banning of India’s cotton export. However, the quick ratio of greater than 1 indicates that the group is in relatively good short-term financial standing and will be able to pay its current obligations in time when they fall due.
Working capital cycle of Padini decreases from 100 days in 2009 to 52 days in 2010 but subsequently increases to 163 days in 2011 due to significant changes in inventory days. Although the substantially increase in working capital cycle implies cash being tied up for longer duration, it does not necessary reflects the inefficiency in working capital management. When the banning of India’s cotton export takes effect from 5 March 2012, the sudden growth of inventories which doubled from RM76,544 to RM170,955 granted Padini an advantage to sustain in this tough environment by ensuring constant supply of goods for sale.
C) Sources of fund utilized by Padini Equity Funding From the financial statement, we noticed that there is no issuance of new share by Padini for the past three years. There is only a share split involving subdivision of every one existing share of RM1. 00 each into two ordinary shares of RM0. 50 each. The share split is ranked pari passu in all respects amongst themselves.  The share split which increases the number of Padini shares is expected to enhance the liquidity of the ordinary shares of Padini. Debt Funding
Long and medium term funding of Padini is made up of two main categories which are long term loan and hire purchase, finance lease obligation. For long term loan, it shows that there is a continuous increase for the past three years. It has increased from RM1, 726,000 in 2009 to RM9, 426,000 in 2010 and subsequently to RM21, 507,000 in 2011. It indicates that there is a significant increase which contributes to the large percentage of the total long term funding of Padini. As for Padini’s medium term funding, there is a drop in its’ finance lease obligation.
It decreases from RM1,484,000 in 2009 to RM699,000 in 2010 and subsequently to RM644,000 in 2011. Even though there is a drop in its hire purchase, the significant increase of its long term loan has off set the drop and thus constitutes to an increase in total long term loan. In conclusion, Padini has been adopting a conservative approach as their financing policy by using long term source of finance in primarily funding their current assets. By utilising more on long term sources of finance, it benefits Padini with the priority of claim in the event of liquidation and debt interest is tax deductible.
D) Gearing Ratio of Padini Gearing Ratio Both share equity and non-current borrowings increase by RM 30,289,000 and RM 6,915,000 respectively from 2009 to 2010 while current borrowings decrease by RM 2,508,000. This contributes to a slight decrease of the gearing ratio by 0. 1%. From 2010 to 2011, share equity increases by RM 48,345,000, non-current borrowings increased substantially by RM 12,026,000. However current borrowings decreases slightly by RM 1,180,000 which leads to 0. 88% increase of gearing ratio. Although the gearing ratio increases slightly, it meets the industry average ratio.
Thus, it is acceptable. Padini is less vulnerable to downturns in the business cycle and will not face the risk of going concern. The ability to distribute by way of dividends to shareholders is secured. Interest Cover Ratio Although the borrowings amount in 2009 is lower, the interest charges is higher due to the higher interest rate imposed on bankers’ acceptance and revolving credit. The interest cover increases significantly by 34. 54 times from 2009 to 2010, but decreases by 12. 08 times in the subsequent year. 6] The steady increase in PBIT implies that the amount of earnings available to make interest payment has increased as well. Overall, it shows that Padini’s creditworthiness has increased over the past three years. Debt Ratio As we can see from the analysis, the debt ratio of the company has increased slightly in these three years. This indicates that the company’s  borrowing capacity and financial flexibility is lower and thus poses Padini in danger if creditors start to demand repayment of debt. However, the rate of increase from 2010 to 2011 is only approximately half of that in previous year, from 2009 to 2010.
Perhaps the company has noticed this issue and actions have been taken to lower the proportion of a company’s assets which are financed through debt. E) Share price of Padini Holding Bhd Share price for Padini for year ended 2009, 2010 and 2011 are RM3. 79, RM5. 45 and RM1. 09 respectively. The significant drop of the share price in 2011 is due to share split decision made by BOD involving subdivision of each ordinary share of RM0. 50 into five ordinary shares of RM0. 10 each.  The BOD of Padini is of rationale to increase number of share issued by Padini as well as enhance the liquidity of ordinary shares.
It enables the shareholders to have a large number of ordinary shares while maintaining the shareholders’ percentage of equity interest. Besides that, it also increases the marketability of Padini’s share in terms of affordability. Dividend per share (DPS) for Padini is increasing annually, the growth rate in dividend is calculated as 19% (as in appendix). The wealth of the shareholder comes from dividends received and market value of the shares. The share price will also go up with the increase in the dividends received by shareholders.
According to an analyst with InsiderAsia, Linda Koh, the domestic consumption is expected to be the primary growth driver of share price. Besides, there is an expectation of continuous increase in the share price. In addition, the growth for Padini is above the industry average growth of 6%. Moreover, further growth is likely, with Padini targeting to open three Brands Outlet stores and three concept stores by the end of its financial year.  The franchise of FJ Benjamin Holdings to operate “Vincci” brand (VNC) in Indonesia and in the midst of revamping franchisee model in Thailand granted the growth to Padini. 10] F) General business direction Padini is expected to maintain and possibly improve its leadership position in Malaysia’s fashion industry through introduction of new brands and increased product diversity. It will continue in upgrading the image of its products while emphasizing value and quality. There are plans to strengthen its dominant position with improved production lines and increased capacity.  Moreover, Padini is looking to expand its outlets over the next three to five years, especially in East Malaysia so as to create stronger brand awareness and become regionally-recognised fashion leaders.
This is to capitalise on Malaysia’s growing affluence as people are able to afford higher priced items, on top of the value products the group offers. Management guided that the group will concentrate mainly on domestic market as the local retail market is an astonishingly dynamic market that holds great promise. As stated in the Economic Transformation Plan (ETP) report, the apparel and footwear industry in Malaysia was worth RM19 billion in 2009, but Padini’s revenue is only at RM520. 9 million. Hence, there is still a lot of room for growth in Malaysia.
Besides, new sales events like 1 Malaysia Malls have been launched by the government as part of Entry Point Projects (EPP) to drive consumption. These would allow Padini to benefit via greater exposure through nationwide retail promotions to widen its footprint.  Although the group does sell in several countries in ASEAN and is aware that the ASEAN market is huge, management remains conservative to venture in overseas for the time being due to the extra capital expenditure and additional risk required to do so.
They need to ensure that all aspects of the business in terms of people, partners and timing are met and in place before expanding overseas aggressively.  Conclusion By carrying out this research, it enables us to have a better understanding on the financial statements and business direction of Padini Holdings Berhad. Through this, we are aware that Padini’s vision is ‘To Be The Best Fashion Company Ever’, and mission is ‘To Exceed Customers’ Expectations And Our Brand Promise’. Prices are set affordable for customers so as to attract their attentions.
Besides, we also learnt that Padini has been adopting a conservative approach as their financing policy by using long term source of finance in primarily funding their current assets. This benefits Padini with the priority of claim in the event of liquidation while debt interest is tax deductible. Furthermore, we also learnt that Padini has not been issuing new shares over the past three years but only a share split. It involves the subdivision of each share into 5 shares. This enhanced the liquidity of shares and has enabled the shareholders to have larger number of shares without dilution of their earnings.
It is proven with the increase in earnings per share and subsequently, the wealth of shareholders. Moreover, through our research, we know that Padini is planning to expand its outlets over the next three to five years, especially in East Malaysia so as to create stronger brand awareness and become regionally-recognised fashion leaders. In addition, through our analysis of Padini’s financial statements, we can conclude that Padini is financially healthy in terms of profitability, liquidity and efficiency as most of their ratios are compatible with that of the sectors’ average.
Moreover, the increase in gearing ratio which is still lower than its industry average ratio indicates that the financial risk of Padini’s capital structure is still acceptable. In conclusion, we can say that Padini Holdings Berhad is financially viable and will not face any going concern difficulties in a few years down the road. ———————–  Padini Holdings Berhad – Our Vision  http://www. scribd. com/doc/58319895/SM-ASS  Days Sales Outstanding  Account Payables Days < http://www. accountingtools. com/accounts-payable-days-formula> Padini General Announcement Reference No.
Ml-101006-56092 http://announcements. bursamalaysia. com/EDMS/edmswebh. nsf/LsvAllByID/482576120041BDAA482577B400381143? OpenDocument&fb_source=message  http://www. qfinance. com/dictionary/interest-cover  http://en. wikipedia. org/wiki/Debt_ratio http://announcements. bursamalaysia. com/EDMS/edmswebh. nsf/LsvAllByID/482576120041BDAA482577B400381143? OpenDocument  http://www. theedgemalaysia. com/in-the-financial-daily/210407-still-upside-potential-for-bonia-padini. html  http://www. osk188. com/adminv2/UserFiles/OSK188-Malaysia/Article/Padini%20Holdings_Rising%20to%20The%20Occasion_20120314_OSK. pdf