Highway Holdings Limited — FY2021 Form 20-F
Reporting period: Fiscal year ended March 31, 2021, with comparisons to FY2020. Although the request metadata refers to 2020 Q4, this filing is an annual report, not a standalone quarterly filing. Amounts below are U.S. dollars; financial statement amounts are generally in thousands unless noted.
Business context
Highway Holdings manufactures metal, plastic and electronic parts, components and assemblies for OEM customers. It operates through Hong Kong-based administrative and sales functions, an automated manufacturing and engineering facility in Shenzhen, China, and an 84%-owned manufacturing subsidiary in Yangon, Myanmar. Europe generated 79.3% of FY2021 revenue; the Myanmar facility generated 46% of revenue, according to the risk disclosures.
Key financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $9.168 million | $12.558 million |
| Gross profit / margin | $2.707 million / 29.5% | $4.153 million / 33.1% |
| Operating income (loss) | ($616,000) / (6.7%) | $747,000 / 5.9% |
| Net income (loss) attributable to Highway Holdings shareholders | ($461,000) / (5.0% of revenue) | $686,000 / 5.5% |
| Operating cash flow | ($104,000) | $442,000 |
| Cash and cash equivalents at year-end | $7.757 million | $8.827 million |
| Working capital | $7.517 million | $8.235 million |
FY2021 investing cash outflow was $78,000 and financing cash outflow was $902,000, including $981,000 of cash dividends paid, partly offset by $79,000 from option exercises. Cash declined by $1.084 million. The company reported no bank loans and no bank borrowing facilities. It said available working capital and expected operating cash generation should support operations for at least 12 months. The working capital ratio was 2.90:1.
Year-end total assets were $15.486 million and total liabilities were $5.713 million. Operating lease liabilities were $1.963 million. Accrued employee termination benefits were $1.304 million. The company recorded a $125,000 inventory write-down in FY2021; inventory was $2.238 million at year-end.
Changes versus FY2020
- Revenue fell 27.0% ($3.390 million), reflecting lower orders from major European customers, difficulty winning new business amid pandemic-related travel restrictions, Myanmar disruption, and shortages of raw materials and electronic components.
- Gross margin declined to 29.5% from 33.1%. Management said FY2020 margin benefited from unusual items: a $148,000 Shenzhen rent subsidy, a $7,000 electricity rebate, $141,000 of sublease income, and use of inventory previously impaired. Excluding these items, management said margins were substantially unchanged.
- Gross profit fell $1.446 million. SG&A decreased 2.4% to $3.323 million, but rose to 36.2% of revenue as sales contracted. The company swung from operating income of $747,000 to an operating loss of $616,000.
- Currency results moved from a $7,000 gain to a $60,000 loss. The company does not hedge foreign-exchange exposure.
- Cash fell from $8.827 million to $7.757 million, principally due to advance raw-material purchases and dividends. Receivables declined to $973,000 from $2.008 million, while inventory rose to $2.238 million from $2.000 million.
Outlook, risks and unusual items
No specific financial guidance was provided. Management identified the outlook as dependent on the course of COVID-19, Myanmar political conditions and supply-chain shortages. It said easing disruptions could support factory activity and output; continued unrest or customer restrictions on Myanmar production could reduce or halt operations. A large game-console order was delayed into FY2022 because chips and other components were unavailable.
- Myanmar: The February 2021 military takeover triggered unrest, a temporary factory closure and interruptions to imports and exports. Operations had resumed by the report date, but future effects were uncertain. The Kyat had weakened, and customers may object to production in Myanmar on political or reputational grounds.
- Customer concentration: Five largest customers accounted for 91.1% of FY2021 revenue; two customers alone accounted for 72.5%. The largest customer represented 46.6% and the second largest 25.9%.
- Supply and execution: Shortages of steel, copper, aluminum, plastics, resins and electronic components constrained production. The company had purchased approximately $1 million of raw materials for a customer and warned that failure to receive the expected orders could leave unusable excess inventory.
- Controls: Management concluded internal control over financial reporting and disclosure controls were ineffective at March 31, 2021. Material weaknesses involved cash controls in Myanmar, inadequate U.S. GAAP-skilled accounting staffing, and insufficient accounting policies and procedures there. Remediation was ongoing.
- Other exposures: China operating costs, regulatory burdens and the Shenzhen lease expiring in February 2023; foreign-exchange movements; accrued China severance obligations; and the absence of committed bank credit. The company also disclosed PCAOB inspection limitations relating to China-based audit work and related potential U.S. listing risks.
- Dividends and accounting: The company declared dividends of $0.10, $0.06 and $0.02 per share in FY2021; the last was paid April 8, 2021. Future dividends are discretionary and not assured. The auditor issued an unmodified opinion on the financial statements and identified long-lived-asset impairment assessment as a critical audit matter; no long-lived-asset impairment was recorded in FY2021.
Investor verification priorities
- Verify the audited financial statements and reconcile the FY2021 $454,000 consolidated net loss with the $461,000 loss attributable to shareholders.
- Assess whether Myanmar operations, customer permissions and logistics have stabilized, given the facility’s reported revenue contribution and political risks.
- Review progress and evidence of remediation for the disclosed internal-control material weaknesses, especially Myanmar cash handling and accounting oversight.
- Test customer concentration, order forecasts and the recoverability or alternative use of the approximately $1 million customer-related raw-material purchase.
- Confirm cash needs, lease and severance obligations, dividend policy, and access to funding if sales or collections deteriorate.