KUALA LUMPUR: ATA IMS Bhd has received notices of termination of contract from Dyson Manufacturing Sdn Bhd and Dyson Operations Pte Ltd
In a filing with Bursa Malaysia, ATA said JABCO Filter System Sdn Bhd and Winsheng Plastic Industry Sdn Bhd (WSP) had received the notices of termination dated Dec 12 and Dec 22 from Dyson Manufacturing and Dyson Operations.
“The effective date of the terminations shall be March 31, 2023, or such later termination date as may be agreed by the parties in writing,” ATA said.
ATA noted that the contracts were terminated without cause and with notice. The company is 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 said sales of products related to the customer represent 100% of JABCO’s revenue, while sales of products related to the customer represent approximately 82% of WSP’s revenue.
The collective sales of the customer’s products by JABCO and WSP represent approximately 42% of the group’s revenue for the six months ended Sept 30.
“The financial impact is therefore material in all aspects arising from the termination of the contracts,” it said.
For the six months ended Sept 30, JABCO contributed a profit before tax of RM33.9mil to the group’s loss before tax of RM10.8mil, while WSP contributed a loss before tax of RM4.9mil.
ATA said it would discuss with the customer to purchase back all stocks used for the customer amounting to approximately RM60mil as at Sept 30 to ensure all stocks can be cleared before March 31, 2023.
It added that an impairment test of the goodwill on consolidation of RM76.4mil discounted cash flow and a sensitivity test would need to be performed on the new projection with the termination of the customer contract.
ATA said the net book values of property, plant, and equipment which are currently used for the customer’s orders are estimated to be approximately RM80mil.
“The management is in the process of identifying the property, plant, and equipment that were acquired specifically for the orders of the customer and which could be subject to impairment, and also to identify those assets that can be modified and used for other customers’ orders or for new business opportunities,” it said.
In addition, the company is working with the customer and suppliers to identify any purchase orders raised by the company for materials and components that are non-cancellable for a delivery date beyond March 31, 2023.
Due to the termination of contracts, certain tenancy agreements for leasing of production plant, warehouse, and hostel may need to be reviewed for downsizing purpose.
“We are in process of estimating the write down of right-of-use of assets as a result of the early termination of tenancy agreements,” it said.
ATA said it has net current assets amounting to RM439mil, and cash less borrowings of RM90mil respectively as at Sept 30, and will be able to meet its financial obligations when they become due.
However, the company will need to undertake further downsizing and cost-cutting measures, and step up efforts to secure new customers and new business opportunities in response to the termination of contracts to ensure sustainability.
