ATA IMS flags impairment risk, capacity cut on Dyson contract termination

KUALA LUMPUR (Dec 28): ATA IMS Bhd is looking to undertake an impairment exercise and slash its operating capacity, following the termination of contracts by British home appliance maker Dyson announced last week.

In a filing with Bursa Malaysia, ATA IMS said it will provide the estimate “as soon as possible”, which will include early termination of certain tenancy agreements for leasing of its production plant, warehouse and hostel.

“The company is in the process of assessing which of the leased facilities that may need to be terminated, and also estimating the write down of right-of-use of assets as a result of the early termination of tenancy agreements,” it said.

The electronics manufacturing service (EMS) provider also pointed to potential impairment from the acquisition of IMS Group it made in 2018, which includes a RM76.4 million goodwill it recognised earlier.

“Arising from this acquisition, the group recognised goodwill of RM76.4 million. Goodwill is not amortised, but tested for impairment annually based on projected revenues, profit and loss accounts, and the discounted cash flows of the various cash generating units within the group.

“The company is in the process of discussions with customers and working out the new projections to assess the impact on goodwill on consolidation, and will provide an estimate of the impairment, if any, as soon as possible,” ATA IMS said.

Last Friday, ATA IMS had received termination notices for various contracts from Dyson Manufacturing Sdn Bhd and Dyson Operations Pte Ltd.

ATA IMS said its units JABCO Filter System Sdn Bhd and Winsheng Plastic Industry Sdn Bhd (WSP) had received the notices of termination in relation to the referred supplier contract for components/materials supply, a framework agreement for goods/services supply, and equipment loan contracts.

The effective date of the termination is March 31, 2023, “or such dates as agreed by the parties”.

ATA IMS said product sales represented 100% of JABCO’s revenue and 82% of WSP’s. Collectively, Dyson product sales made up about 42% of the group's revenue for the six months ended Sept 30, 2022.

It will discuss with Dyson to purchase back stocks amounting to RM60 million as of Sept 30 to ensure that they can be cleared before March 31, and identify purchase orders for materials and components that are non-cancellable for a delivery date beyond that.

Shares in ATA IMS closed unchanged at 24.5 sen apiece. On a year-to-date basis, its share prices had dropped 60% from 61 sen on Jan 3. At its last close, the group had a market capitalisation of RM289.17 million.

ATA IMS posted a net loss of RM18.31 million in the first half ended Sept 30, 2022 (1HFY23), from a net profit of RM12.21 million in the same period a year ago due to the termination of contracts by its major customer in one of the subsidiaries, resulting in under-utilisation of production capacity.

Its revenue for the period fell more than half to RM607.79 million compared with RM1.49 billion previously.