Industry Overview - The vertical farming industry is still relatively new and subject to many uncertainties, with no guarantee of profitable operations despite favorable market conditions [29]. - High startup costs are a significant concern for market entrants in the Controlled Environment Agriculture (CEA) vertical farming industry, which includes substantial investments in infrastructure and high electricity costs [30]. - The global agricultural technology market is projected to grow from USD 18.24 billion in 2024 to USD 43.37 billion by 2029, representing a CAGR of 16.63% [148]. - The global indoor farming market is expected to increase from USD 45.97 billion in 2024 to USD 138.09 billion by 2033, with a CAGR of 13% [148]. - The vertical farming market in the Asia Pacific region reached USD 2.43 billion in 2023 and is projected to grow at a CAGR of 29.2% from 2024 to 2030 [149]. - The Malaysian agricultural production is projected to grow at a CAGR of 0.6% from 2021 to 2026, reaching USD 24.9 billion by 2026 [150]. - Agriculture contributed approximately 8.93% to Malaysia's GDP in 2022, making it the third-highest contributor [150]. - The Malaysian government supports technology and innovation in agriculture, which is expected to enhance the vertical farming market [154]. Company Operations - The company operates a 10,021 square foot indoor CEA vertical farm in Kota Damansara and a 5,239 square foot EduFarm at AEON Mall Alpha Angle, recognized as the largest indoor vertical farm in a shopping mall in Malaysia [94]. - The EduFarm received recognition from the Malaysian government for meeting Malaysian Good Agricultural Practices (myGAP.PF) standards, being pesticide-free, and covering 20 types of vegetables [94]. - The company focuses on designing, constructing, and managing large-scale indoor CEA vertical farms, aiming to improve food safety, security, and sustainability [89]. - The company provides comprehensive farm solutions, including design, construction, operation, and management of CEA vertical farms [101]. - The company has established itself as a fully vertically integrated agricultural technology provider, offering design, operation, and fresh produce services, a status not held by any other company in Malaysia or Southeast Asia [118]. - The company has successfully grown 50 different crops and is currently selling 21 varieties, with key distribution to major retailers like AEON and Village Grocer in Malaysia [111]. - The company utilizes Controlled Environment Agriculture (CEA) methods, achieving approximately 3 tons of green produce per year for every 300 square feet of space, using only 5% of the water and nutrients compared to conventional farming [122]. Financial Performance - Total revenue for the fiscal year 2024 reached MYR 40,860,882 (approximately USD 9,142,159), a significant increase from MYR 18,471,272 in 2023, representing a growth of 121% [194]. - Gross profit for the fiscal year 2024 was MYR 14,815,172 (approximately USD 3,314,726), compared to MYR 8,263,498 in 2023, indicating a growth of 79% [194]. - The company generated revenue from third parties amounting to MYR 39,427,866 (approximately USD 8,821,538) in 2024, up from MYR 12,998,053 in 2023, reflecting a growth of 204% [194]. - Operating profit for the fiscal year 2024 was MYR 8,019,120 (approximately USD 1,794,187), compared to an operating profit of MYR 6,320,993 in 2023, showing an increase of 27% [194]. - Revenue for the 2024 Fiscal Year was MYR 40,860,882 ($9,142,159), representing a 121.2% increase from MYR 18,471,272 in 2023 [195]. - Revenue from design services increased from MYR 8,412,500 in 2023 to MYR 17,434,500 ($3,900,772) in 2024 [195]. - Vegetable sales surged from MYR 2,058,772 in 2023 to MYR 20,026,208 ($4,480,637) in 2024, an increase of MYR 17,967,436 [195]. - Costs of revenue rose from MYR 10,207,774 in 2023 to MYR 26,045,710 ($5,827,433) in 2024, driven by increased fresh produce sales [198]. - General and administrative expenses increased significantly from MYR 1,475,338 in 2023 to MYR 6,099,464 ($1,364,685) in 2024 [203]. - Professional fees surged from MYR 503,556 in 2023 to MYR 2,955,710 ($661,307) in 2024, primarily due to audit fees for the prospective IPO [206]. - Wages and benefits increased from MYR 315,762 in 2023 to MYR 1,128,559 ($252,502) in 2024, reflecting an increase in staff from 9 to 14 [208]. - Total assets increased from MYR 22,603,384 in 2023 to MYR 51,059,883 in 2024, indicating a growth of approximately 126% [221]. - Total equity rose from MYR 5,366,031 in 2023 to MYR 13,734,937 in 2024, reflecting an increase of about 156% [221]. - Trade receivables increased significantly from MYR 15,159,115 in 2023 to MYR 36,316,854 ($8,125,486) in 2024, primarily due to higher outstanding amounts from farm solutions and fresh vegetable sales [222]. Risks and Challenges - Agroz Group is currently not in compliance with certain regulatory requirements in Malaysia, which could result in fines up to MYR 500,000 (approximately $111,820) if not resolved by June 2025 [34]. - The company faces strong competition in the agricultural technology and vertical farming industries, with competitors potentially having greater resources and market presence [44]. - Disruptions to transportation channels used for product distribution may adversely affect margins and profitability, leading to increased costs and reduced sales [49]. - The success of the company's products depends on accurately anticipating changes in market demand and consumer preferences, which may not always be achieved [40]. - The company may incur unexpected costs and delays in building and managing CEA vertical farms due to reliance on third parties for construction and supply chains [41]. - The company cannot assure that it can maintain a steady labor supply of personnel with the necessary expertise to operate CEA vertical farms, which may negatively impact financial performance [31]. - There is a risk of litigation related to intellectual property rights, which could result in substantial costs and resource diversion [53]. - The company may face challenges in enforcing judgments obtained against it due to its operations being primarily outside the United States [73]. - The company is exposed to potential disruptions from unforeseen disasters, which could adversely affect operations and financial condition [59]. Governance and Compliance - Management has identified material weaknesses in internal controls, including lack of effective IT general controls and insufficient financial reporting personnel [55]. - The company plans to hire experienced IT and finance staff to strengthen internal controls and governance processes [56]. - The company has not identified any current legal proceedings that are likely to have a material adverse effect on its business [63]. - There are inherent limitations in the company's disclosure controls and procedures, which may not prevent all errors or fraud [71]. - The company is classified as an emerging growth company, allowing it to take advantage of reduced reporting requirements under the JOBS Act [87]. - The company is exempt from certain provisions applicable to U.S. domestic public companies, resulting in less extensive and timely information being available to investors [85]. Technology and Innovation - The Agroz OS integrates hardware and software solutions to enhance productivity and quality of produce, supported by Microsoft Azure and Microsoft Azure AI [104]. - The company aims to fully integrate advanced software solutions, including an AI agent system and Agroz ERP, into Agroz OS by 2025, enhancing operational efficiency and data management [141]. - A strategic partnership with AEON allows the company to operate Malaysia's largest indoor CEA vertical farm, known as "EduFarm," which also serves as an educational platform for the public [124]. - The company is leveraging advanced technologies such as IoT, big data science, and AI to transform agriculture and improve sustainability [112]. - The company has launched a pilot rollout for Agroz Copilot, a generative AI application aimed at assisting human vertical farm operators, although an official launch date is still pending [139]. - The company employs rigorous quality control measures to ensure the safety and health of its produce, which is grown without harmful chemicals [123].
Agroz(AGRZ) - 2024 Q4 - Annual Report