Business Context and Reporting Period
Company: Agroz Inc. (Cayman Islands exempted company)
Reporting Period: Fiscal year ended December 31, 2024
Business Overview: Agroz is a vertically integrated agricultural technology (AgTech) company focused on designing, building, operating, and managing Controlled Environment Agriculture (CEA) vertical farms. The company operates two primary facilities in Malaysia: a 10,021 sq. ft. farm in Kota Damansara and a 5,239 sq. ft. "EduFarm" inside AEON Mall Alpha Angle. Revenue streams include farm design/construction, farm sales, operation/management services, and the sale of fresh produce.
Accounting Basis: International Financial Reporting Standards (IFRS)
Key Financial Metrics (Fiscal Year 2024)
| Metric | 2024 (MYR) | 2024 (USD) | 2023 (MYR) |
|---|---|---|---|
| Total Revenue | 40,860,882 | 9,142,159 | 18,471,272 |
| Gross Profit | 14,815,172 | 3,314,726 | 8,263,498 |
| Gross Margin | 36.3% | 36.3% | 44.7% |
| Operating Profit | 8,019,120 | 1,794,187 | 6,320,993 |
| Net Profit (Loss) | 3,512,168 | 785,807 | 3,754,385 |
| Net Cash from Operations | 941,271 | 210,597 | (3,409,287) |
| Cash and Equivalents (End of Period) | 390,500 | 87,370 | 109,161 |
| Total Assets | 51,059,883 | 11,424,072 | 22,603,384 |
| Total Liabilities | 37,324,946 | 8,351,035 | 17,237,353 |
| Redeemable Convertible Preference Shares (RCPS) | 9,590,370 | 2,145,737 | 6,483,536 |
Note: USD conversions based on exchange rate of MYR 4.4695 = USD 1.00.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 121.2% to MYR 40.9 million (USD 9.1 million), driven by a 107% increase in design services revenue and a 872% surge in fresh produce sales.
- Profitability: While operating profit increased to MYR 8.0 million, net profit decreased slightly to MYR 3.5 million (USD 785,807) compared to MYR 3.8 million in 2023. This was due to higher finance costs (MYR 1.67 million vs. MYR 0.51 million) and increased income tax expenses.
- Cash Flow: The company generated positive net cash from operating activities (MYR 0.94 million) in 2024, reversing a significant cash outflow (MYR 3.4 million) in 2023.
- Balance Sheet: Trade receivables increased significantly to MYR 36.3 million (USD 8.1 million), largely due to outstanding amounts from farm solution sales and produce sales. Trade payables also rose to MYR 14.1 million.
Guidance, Outlook, Risks, and Contingencies
Going Concern Warning
The independent auditor has issued an explanatory paragraph regarding substantial doubt about the Company's ability to continue as a going concern. As of December 31, 2024, the company held only MYR 390,500 (USD 87,370) in cash against a liability of MYR 9.6 million (USD 2.1 million) for redeemable convertible preference shares (RCPS) that shareholders can request to be redeemed. Management plans to seek additional financing and improve operational efficiency, but there is no assurance of success.
Material Weaknesses in Internal Controls
Management identified material weaknesses in internal control over financial reporting, including:
- Lack of effective IT general controls.
- Insufficient financial reporting personnel with IFRS/SEC expertise.
- Inadequate segregation of duties regarding sales and customer data.
- Lack of formal internal control policies.
Key Risks
- Regulatory Compliance: The operating subsidiary (Agroz Group) is currently not in compliance with certain Malaysian Occupational Safety and Health Act (OSHA 1994) requirements, facing potential fines up to MYR 500,000 (USD 111,820) or imprisonment for management if not resolved by June 2025.
- Related Party Transactions: Significant transactions exist with related parties, including a MYR 1.4 million (USD 313k) sale of farm solutions to Agroz Vertical Farms and a MYR 6.3 million (USD 1.4 million) prepayment for AI software to Braiven Co., Ltd. (influenced by the CTO).
- Intellectual Property: Two trademark applications for the tagline "Freshness You Can See, Hear and Taste" were provisionally rejected by the Malaysian Intellectual Property Office (MyIPO) for lacking distinctive character.
- Capital Structure: RCPS holders have priority over ordinary shareholders for dividends (10% per annum) and liquidation proceeds. Ordinary shareholders do not expect dividends in the foreseeable future.
Investor Verification Checklist
- Liquidity Status: Verify the company's ability to meet the MYR 9.6 million RCPS redemption obligation given the low cash balance of MYR 390,500.
- Receivables Quality: Assess the collectability of the MYR 36.3 million in trade receivables, noting that 95.9% is concentrated in the five largest debtors and credit loss allowances increased to MYR 743,860.
- Related Party Terms: Review the pricing and necessity of the MYR 6.3 million prepayment to Braiven Co., Ltd. and other significant related party transactions.
- Regulatory Remediation: Confirm progress on achieving OSHA 1994 compliance by the June 2025 deadline to avoid operational disruption or management liability.
- Internal Controls: Monitor the implementation of remedial measures for the identified material weaknesses in financial reporting and IT controls.