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Chairman's Statement

Dear Shareholders,

The Hai-O Group has again delivered a strong financial performance, guided by the Group's strong management team and solid financial position.

Central to this was our promise to deliver continuous returns to shareholders and sustainability of our business. As the Chairman of the Hai-O Group, it is a great privilege for me to present to you, the Group's Annual Report and Financial Statements for the financial year ended ("FY") 30 April 2018.

The Malaysian economy recorded a better performance in 2017, registering a growth of 5.9% (2016: 4.2%). Like the year before, the growth was anchored by domestic demand, reflecting faster expansion in both private and public-sector spending. The Malaysian economy was also boosted by rebound in exports, mainly due to higher demand by major trading partners such as China, ASEAN, the EU, US and Japan, following the upswing in the global technology cycle, investment expansion in the advanced economies and the turnaround in commodity prices.

The Group's businesses benefited from the improvement in private consumption growth of 7.0% in 2017 (2016: 6.0%), supported mainly by continued wage and employment growth, with additional impetus from Government measures. Some of these measures were enacted to support the economy in March 2016 on account of the more challenging outlook. Although the recovery in consumer sentiments from its lowest level in 2015 contributed to the stronger private consumption growth in 2017, the overall improvement in consumer sentiments remained subdued. Adding on to the pressures was headline inflation, as measured by the annual percentage change in the Consumer Price Index, increased to 3.7% in 2017 (2016: 2.1%), which effectively resulted in lower disposable income for consumers.

The Group has not succumbed itself to the challenges in the business environment and has been relentless in our efforts to harness the strength of our people and make use of technology to chart continuous growth. The FY2018 marked a year of continued growth for the Group across all our major business segments.

Financial Performance

We ended the financial year with a revenue of RM461.7 million and profit after taxation ("PAT") of RM72.5 million. On a year-on-year comparison, this represents an increase of 14.2% and 22.1% respectively. These sound financial outcomes are the result of continued execution of our long-term strategy. Growth continues to be driven by organic growth with existing businesses and ongoing realisation of operation efficiencies. There were no significant fundamental shifts in business focus for the FY2018 and the results generally reflected the underlying performance and strength of our businesses in MLM, Wholesale and Retail segments. For the financial year under review, the Group continues to focus strongly on product development and agent expansion in MLM segment, achieving cost discipline and reduce complexity in Wholesale and Retail segments.

The Group is operating in cash generative businesses and maintain a healthy pool of cash. Borrowings were incurred solely for working capital purposes. Liabilities of the Group as at FY2018 amounted to RM77.1 million were primarily in the form of trade and other payables. Cash and cash equivalents and other short-term investments as at FY2018 was RM126.6 million (2017: RM135.0 million). A lower cash and cash equivalents held by the Group as at the end of the financial year was due to higher investment spending incurred for acquisitions of investment properties and refurbishments and upgrading of property, plant and equipment. In addition, inventories holding increased to meet higher sales expectations and higher dividend payout for the current financial year had also reduced the cash held as at FY2018.

As at FY2018, the Group's shareholders' funds remains strong at RM307.9 million that translates into a net asset value per share of RM1.06 (FY2017: RM0.98).

Healthy Return to Shareholders through Continuous Dividend Payment

Our dividend policy supports the objectives to maintain a strong capital base and safeguard the Group's ability to continue as a going concern to maintain our reputation as a trusted employer and business partner.

We are dedicated to reward our loyal shareholders with not less than 50% of the Group's PAT.

In determining the dividend payable for the financial year, we have balanced the importance of providing consistent returns to shareholders with the long-term strategic direction of the Group. Shareholders will benefit from the strong performance of the Group for the FY2018, with a total dividend for the year of 20 sen per share (2017: 16 sen). The Company had on 8 March 2018 and 13 June 2018 made a total payment of RM17.49 million and RM8.73 million in cash for the first and second single tier interim dividend of 6 sen and 3 sen per share respectively. With the final dividend of 11 sen for the FY2018 which is subject to the approval of the shareholders at the forthcoming Annual General Meeting, the total dividend for the year of 20 sen represents a dividend payout of 80% of the Group's PAT (2017: 70%), a payout ratio that exceeded the Company's dividend policy to distribute at least 50% of the Group's PAT as dividend.

Sustainability reporting

We have the pleasure in presenting to you our first Sustainability Statement. Sustainability of our business is the key to ensure continuous returns to shareholders. The Board is committed and accountable in overseeing the process of identification, monitoring and management of sustainability matters. We have put in place new policies, guidelines and frameworks to ensure our businesses are operating in accordance to or exceed industry and regulatory standards. The new policies, guidelines and frameworks include areas for compliance with government regulations and commitments to continuously improve the health and safety of the workforce as well as minimising impact of our business operations to the environment.

Changes to the Board

In Hai-O, we always strive to uphold corporate governance and provide our best level of transparency to our stakeholders. In line with good corporate governance and with the primary objective to form a robust Board of Directors, on behalf of the Board, I would like to warmly welcome Ms. Tan Beng Ling and Professor Hajjah Ruhanas Binti Harun as Independent Non-Executive Directors to the Board on 16 April 2018 and 2 July 2018 respectively. Ms. Tan brings with her expertise and experience in the fields of financial industry including investment research and fund management, while Professor Hajjah Ruhanas who is currently a Professor at the Department of Strategic Studies at the National Defense University of Malaya, is also a leading expert on Indo-China, specifically on Vietnam.

We look forward to work with Ms. Tan and Professor Hajjah Ruhanas and to benefit from their experiences in their areas of expertise. The appointment of Ms. Tan and Professor Hajjah Ruhanas further strengthened the composition of the Board in accordance with the principles and practices of the new Malaysian Code on Corporate Governance where the Board now comprises a majority of Independent Directors which represents 70% of the Board and also 30% women representation.

Outlook and Prospects

Malaysia is projected to remain on a steady growth path to grow by 5.5% - 6.0% (2017: 5.9%). Growth will be underpinned by continued income and employment growth which is expected to sustain household spending, amid the continuation of measures undertaken by the Government and improving consumer sentiments. The anticipated headline inflation, averaging between 2.0% - 3.0% in 2018 (2017: 3.7%) is expected to be driven by smaller cost passthrough to retail prices as compared to the previous year. The inflationary pressure is also expected to further improve with the reduction of Goods and Services Tax rate from 6% to 0% effective 1 June 2018.

Despite the better performance anticipated on the overall economy, consumer demand is expected to remain unstable in the short term. For the financial year ending 30 April 2019, the key focus is to increase product offerings by the MLM segment and continue to attain cost efficiencies across all business segments. We will continue to digitise operating platforms to create optimum efficiencies in business operations.

I am confident that we have the skills and expertise, accompanied by Hai-O's financial strength, the Hai-O Group is expected to at least retain our trusted position and meet shareholders' expectation for the next financial year.

Appreciation and Acknowledgement

None of the positive outcomes described in this Annual Report could have been achieved without all the employees, our MLM distributors who make up the Hai-O Group and on behalf of the Board, I would like to acknowledge and congratulate our people for their commitment, and who have worked hard to deliver these remarkable results. I would also like to thank my fellow Directors for their support and guidance throughout the year.

In addition, on behalf of the Board, we would like to convey our sincere appreciation to all our shareholders, customers, distributors, business partners, government agencies and other stakeholders for their support and the trust in Hai-O Group.

Thank You.

Tan Kai Hee

Group Executive Chairman

8 August 2018