Jerash Holdings (US), Inc. — Form 10-K Summary
Business context and reporting period
This annual report covers the fiscal year ended March 31, 2019, with fiscal 2018 as the comparable period. Although the request identifies 2018 Q4, this filing reports full fiscal-year results; it does not provide a clear standalone Q4 financial summary. Jerash manufactures and exports customized knitted sport and outerwear from Jordan. Its reported business is one operating segment.
The company reported approximately 8.0 million pieces of annual capacity at existing facilities. It depends heavily on VF Corporation: sales to VF were 79.4% of fiscal 2019 revenue, and substantially all of those products were sold under The North Face brand.
Financial performance and position
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Revenue | $85.0 million | $69.3 million | +23% |
| Gross profit / margin | $18.8 million / 22% | $18.0 million / 26% | Profit +5%; margin down 4 percentage points |
| Operating income | $6.35 million | $11.83 million | Down approximately 46% |
| Net income | $5.11 million | $10.40 million | Down approximately 51% |
| Basic / diluted EPS | $0.46 / $0.45 | $1.07 / $1.07 | Lower year over year |
| Operating cash flow | $9.78 million | $5.16 million | Higher year over year |
Gross margin pressure reflected more lower-priced contract and sample orders and lower-margin orders intended to build warm-weather product sales. SG&A and share-based compensation totaled $12.43 million, versus $6.12 million in FY2018; FY2019 included $3.59 million of stock-option compensation and higher listing, compliance, professional and expansion costs.
Cash was $27.18 million at March 31, 2019, versus $8.60 million a year earlier; restricted cash was $0.65 million, versus $3.60 million. Current assets were $55.35 million and current liabilities $7.59 million, for a reported current ratio of about 7.3. Total equity was $50.26 million. Cash flow from investing was a use of $1.60 million; financing provided $7.47 million, including approximately $8.93 million of net IPO proceeds and $1.13 million of dividends.
Balance-sheet credit facilities totaled $648,711 at year-end: $360,401 under HSBC facilities and $288,310 under Standard Chartered Bank Hong Kong financing. Facilities are short-term and subject to lender review or renewal; the HSBC facilities include guarantees and collateral provisions. The company said it expected available cash and operating cash generation to support working capital for the next 12 months.
Material changes and notable items
- Revenue growth came mainly from expanded business with a major customer, higher-value product types, new customers and continued U.S. market activity. U.S. sales were 83% of revenue, down from 88% in FY2018; sales to Jordan rose to 16% from 11%.
- Jordan moved the operating area from its prior tax-incentive regime to Development Zone status effective January 1, 2019. The subsidiaries became subject to 5% corporate income tax; the sales-tax purchasing exemption was extended to February 15, 2020. The filing estimates FY2019 tax savings from the Jordan exemption of approximately $1.62 million.
- The U.S. transition-tax liability was finalized at approximately $1.7 million, with $0.2 million paid in FY2019, $0.1 million payable in FY2020 and $1.4 million payable thereafter. The company elected to treat GILTI tax as a current-period expense.
- The May 2018 IPO issued 1.43 million shares at $7.00 per share and generated approximately $8.93 million in net proceeds. Two FY2019 dividends of $0.05 per share were paid; the board stated it expected comparable quarterly dividends subject to its discretion. A further $0.05 dividend was approved after year-end.
- On June 18, 2019, the company completed its acquisition of Paramount for $980,000, including a $380,000 deposit paid by March 31. The transaction was accounted for as an asset acquisition. The facility is expected to add 1.5–1.8 million pieces of annual capacity.
Outlook, risks and contingencies
No formal revenue or earnings guidance is provided. Management projected approximately $15 million of capital expenditures in each of FY2020 and FY2021 to expand capacity. A 54,000-square-foot workshop in Al-Hasa was expected to be completed in September 2019, alongside a dormitory project. The company described potential obligations of JOD250,000 (about $353,000) for noncompliance with the workshop agreement and separately disclosed a guarantee of up to JOD125,000 (about $176,000); the precise applicability of these amounts should be checked against the underlying agreements.
- Customer concentration is a principal risk: VF represented 79% of revenue in both years, there are no long-term customer contracts or minimum purchase commitments, and one end-customer accounted for 96% of receivables at March 31, 2019.
- Other key exposures include apparel-industry cyclicality and seasonality, competition and pricing pressure, dependence on Jordanian facilities and political conditions, trade-agreement and tax-policy changes, foreign exchange, labor and delivery requirements, and supplier concentration.
- Related-party arrangements include consulting agreements totaling $600,000 annually and a Hong Kong office lease with an affiliate. The filing identifies potential conflicts of interest.
- No material legal proceedings were reported. The company reported effective disclosure controls and internal control over financial reporting as of March 31, 2019; its auditor did not provide an internal-control attestation. The auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether VF and other customers maintain order volumes, pricing and payment terms, and whether customer diversification reduces concentration.
- Whether gross margins recover as product mix and expansion costs change, and how recurring operating results compare after excluding the $3.59 million stock-compensation charge.
- Progress, costs and expected utilization of the Paramount facility and Jordan workshop projects, including compliance with employment commitments and potential penalties.
- Renewal terms and availability of HSBC and Standard Chartered facilities, and the extent of guarantees, collateral and short-term repayment obligations.
- Cash accessibility and concentration by bank and country; the filing reports substantial deposits in Jordan and Hong Kong, including Jordan deposits not covered by deposit insurance.
- Jordan tax treatment, the remaining U.S. transition-tax payments, and future GILTI tax expense.
- Potential dilution from outstanding options and warrants, and the board’s discretion over future dividends.
- Employee-count disclosures differ: the filing cites approximately 3,600 workers in some sections and approximately 3,000 employees as of March 31, 2019 elsewhere.