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Chairman's Statement

Dear Shareholders,

The financial year ended 30 April 2019 ("FY2019") was a year marked by many changes and turbulences in the domestic and global landscape.

Despite the trying times that we faced, the Group continued to operate profitably as we strived to maintain business momentum while addressing the operating environment challenges. On behalf of the Board of Directors ("Board"), I am pleased to present to you the Group's Annual Report and Financial Statements for FY2019.

Based on Bank Negara Malaysia's 2018 Annual Report, the Malaysian economy expanded by a moderate rate of 4.7% in 2018 (2017: 5.9%), with a noticeable slowdown particularly in the second half of the year. The slower pace of growth reflected the impact of various external and domestic challenges including the historic change of government in Malaysia and the associated policy and political shifts, as well as escalating global trade tensions which took a toll not only on global trade but even more on market sentiment and consumer confidence. The resilience of the domestic economy was commendable in the face of adversities, but the high level of uncertainties inevitably affected overall business activity including that of the Group.

The Group posted weaker earnings in FY2019 compared to the previous financial year but managed to further strengthen our balance sheet. Against the backdrop of a subdued economy, I believe the Group has delivered a satisfactory performance underscoring our resilience in the challenging business environment.

Financial Performance

Our financial year, which commenced from 1 May 2018, almost coincided with the bearish turn in market sentiments in mid-2018. The Group closed FY2019 with a revenue of RM328.4 million and profit before taxation ("PBT") of RM63.4 million, which represented a decrease of 28.9% and 34.3% respectively as compared to the previous financial year. This was attributed to lower sales across all three of the Group's major business divisions, i.e. MLM ("Multi-Level Marketing"), Retail and Wholesale, with MLM taking the hardest hit. The change in tax regime from Goods and Services Tax ("GST") to Sales and Service Tax ("SST") had a pronounced impact on the MLM division as purchase decisions were deferred amidst the transitional uncertainties.

Despite the subdued earnings performance, the Group's balance sheet remained strong. Backed by our profitable businesses and good working capital management, the equity attributable to owners of the Company as at the end of FY2019 stood at RM310.2 million (FY2018: RM307.9 million) that translated into a net asset per share of RM1.07 (FY2018: RM1.06).

The closing cash and cash equivalents and other investments in the form of financial assets as at end-FY2019 stood at RM95.1 million (FY2018: RM126.6 million). The decrease was primarily due to higher cash dividend paid, the increase in inventory holding, as well as investments in property, plant and equipment during the year. The Group remained in a net cash position which gave us significant funding flexibility. The Group had minimal borrowings which was incurred for trade financing purposes as at end-FY2019.

The key performance measurements used to assess profitability, balance sheet strength and shareholder return, are outlined below:

Sustainable Return to Shareholders

The Hai-O Group seeks to maintain a payout ratio that is sustainable over the long term as we endeavour to reward our shareholders for their continued support to the Company through cash dividends, while retaining sufficient working capital for growth with a strong balance sheet position.

Subject to the approval of shareholders at the forthcoming Annual General Meeting, the Board has recommended a final dividend of 9 sen per share, bringing the total dividend for the year ended 30 April 2019 to 13 sen per share. This represents a dividend payout ratio of 80% of profit after taxation ("PAT"), or a total of RM37.7 million for our shareholders for FY2019. This is above our targeted payout ratio of not less than 50% of the Group's PAT, due to the Group's strong balance sheet position and funding flexibility.

Looking Ahead

Looking ahead, the global and domestic economic uncertainties are expected to continue into the next financial year. In 2019, the global economy is projected to post slower growth across both advanced and emerging nations. Against this backdrop, the Malaysian economy is expected to register a growth of 4.3% - 4.8% in 2019 (2018: 4.7%), but with potential downside risks. Private sector activity will continue to cushion growth amid continued rationalisation in the public sector.

To manage the prevailing uncertainties, the Hai-O Group will leverage on technology to achieve cost optimisation. Our digital transformation journey will continue to be our key strategic initiatives moving forward. This will enable the Group to provide better service to our MLM members who is in excess of 120,000 members as well as our 136,000 Hai-O Friendship members in Retail segment.

I am confident that the Group's strong fundamentals established over the years will continue to sustain the Group's businesses and uphold our commitment to provide returns to our shareholders. The Board and the management team are diligent and well positioned to meet the challenges and opportunities ahead. I am glad to have the support of a good management team to execute business strategies that will create sustainable value for our shareholders, customers and employees.

Board Changes

I would like to take this opportunity to acknowledge the significant contributions of Y.Bhg. Datin Seri Sunita Mei-Lin Rajakumar ("Datin Seri Sunita") to the Board of Hai-O over the last 10 years. Datin Seri Sunita has resigned from the Board in March 2019 due to other business and work commitments. On behalf of the Board, I would like to thank Datin Seri Sunita for her friendship and her valuable contributions to the Board's deliberations, and I wish her all the best.

To our newly appointed Independent Director - Mr. Ng Chek Yong ("Mr Ng"), a warm welcome to the Board. Mr. Ng is a literary veteran and also an active online analyst of politics, current affairs and market trends. Mr. Ng has a strong background in mass communications, economic and cultural connectivity, backed by more than 38 years' experience in the media industry. I look forward to working together and leveraging on Mr. Ng's expertise in the media industry to take Hai-O Group to greater heights.

Commitment to Sustainability

Our strategy and approach to sustainability are integral to how we operate and fulfil our responsibility as a good corporate citizen. During the financial year, we undertook periodical assessments of our sustainability responsibilities and identified the core areas of focus for our business in order to deliver positive change to the Hai-O Group and to our stakeholders. Our objective is to seek a win-win balance between financial goals and the well-being of society and the environment. As we undertake business activities which yield financial benefits, we also strive to add values towards a better society and the environment.

In this Annual Report, we have included the Sustainability Statement on pages 29 to 60. I invite you to review the full statements, and thank you for your interest.

Appreciation and Acknowledgement

On behalf of the Board, I would like to express our gratitude to all stakeholders who have contributed towards the Group's success. A big thank you to all our customers, distributors, business partners, government agencies and shareholders for your continued support. To our employees and distributors, we thank you for your unwavering dedications which make it possible for the Hai-O Group to sustain profitability and returns to shareholders.

My sincere appreciation to all Board members for their invaluable support and guidance in fulfilling their fiduciary responsibilities and providing strategic business directions to the Hai-O Group while observing the highest standards of governance, ethics and integrity at all times.

Thank You.

Tan Kai Hee

Group Executive Chairman

8 August 2019