Unfavorableforeign exchange cost is another problem encountered by TCMHB. It was also oneof the reasons of poor financial performance. According to annual report 2016,the group continued with program to improve efficiencies and cost effectivenessthroughout the organization to ensure financial sustainability. TCMHB claimedthat the loss suffered was due to the unrealized foreign exchange loss, arisingfrom financing overseas entities denominated in foreign currencies (Tan Chongposts loss for the first time in 17 years, 2016).Transactionexchange gain or loss means decrease or increase in flow of cash caused byexchange rate change of the 2 currencies (The Law Dictionary, n.
d.).Performance of Ringgit is poor in 2016 and 2017, most of the manufacturer whichrelies heavily on imported raw material may significantly affected byperformance of Ringgit. Based on the challenges market situation and currencyRinggit, TCMHB is suffered a lot during these 2 years.
Besides, foreignexchange rate and the weaker ringgit have significantly impact on revenue ofTCMHB. Volatility in the foreign exchange market and weakening of the Malaysianringgit put pressure on profit margins due to its impact on the costs ofimported CKD kits and components. Moreover, weaker ringgit Malaysia isincreasing the production cost. When the material is import from othercountries and at the same time, currency of ringgit is dropping, manufactureris paying more Ringgit to buy foreign raw materials because ringgit isdepreciated against foreign currency. The trading environment continues to becompetitive with new model launches and aggressive sales and marketingcampaigns by other automotive companies (Yimie, 2016).In summary,unfavorable foreign exchange rate is one of the reason to explain the lowerrevenue which also a problem faced by TCMHB.
Slower consumer demand andconsequently lower the earnings before interest, tax, depreciation andamortization as a result of higher completely knocked down (CKD) kit costarising from unfavorable foreign exchange rate compared to previous year. Therevenue of TCMHB when compared with the fourth quarter ended December 2015,fell by 3.0 percent, from RM 1.5 billion to RM 1.47 billion.
Loss before taxwas at RM 36.7 million with net loss of RM 37.2 million. The earnings beforeinterest, tax, depreciation and amortization was at RM 13.7 million due to theunfavorable foreign exchange rate (Tan Chong Motor posts RM37m net loss in Q1,2016).