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Chairman's Statement

Dear Shareholders,

On behalf of the Board of Directors ("Board"), I am pleased to present to you the Group's Annual Report and Financial Statements for the financial year ended 30 April 2020 ("FY2020").

FY2020 was a tough financial year for the Hai-O Group as we faced unprecedented challenges from both the external and domestic front. Global economic growth moderated from 3.6% in 2018 to 2.9% in 2019 in the face of rising trade tensions. In tandem, the Malaysian economy expanded by a slower pace at 4.3% in 2019 (2018: 4.7%), registering an uneven growth across economic sectors amidst sluggish consumer spending. The Group posted lower revenue and profit across all business segments as a result of subdued consumer and business sentiments, escalating costs of operation and the sudden onslaught of the coronavirus disease ("COVID-19") crisis towards the end of the financial year. Backed by our solid foundation, the Group remained profitable in FY2020 and continued to bring sustainable returns and long-term growth to our shareholders.

Delivering Resilience in a Challenging Year

The Group reported revenue and profit before taxation ("PBT") of RM255.2 million and RM41.5 million respectively in FY2020, down 22.3% and 34.5% from RM328.4 million and RM63.4 million in the financial year ended 30 April 2019 ("FY2019").

Generally, the Group's financial results for the first three quarters of the financial year were impacted by the moderation in growth of trade activities which was mainly due to the prolonged trade disputes between US and China that affected business sentiments. During these financial quarters, we experienced consumer spending aversion which dampened sales, in particular for the MLM segment. For the last quarter of the financial year, the results were mainly reflecting the significant uncertainties surrounding the rapid spread of COVID-19 virus which suppressed economic activities from the imposition of Movement Control Order by the Malaysian Government to control the global health crisis.

The Group's balance sheet and liquidity remained strong. As at the end of FY2020, the closing cash and cash equivalents and other investments in the form of financial assets stood at RM95.9 million, marginally higher than the previous year. The Group is in a net cash position with no borrowings, which gives us great flexibility and resilience towards risks and opportunities from severe market disruptions such as the COVID-19 crisis. The equity attributable to shareholders as at the end of FY2020 was RM299.6 million (FY2019: RM310.2 million) or RM1.03 per share (FY2019: RM1.07), which was slightly lower than the previous financial year due to higher dividend payout ratios in FY2019 and FY2020.

A quick snapshot of the Group's financial performance and financial position is as follows:

Sustaining Long-Term Returns to Shareholders

As a commitment to bring sustainable returns to shareholders, the Group has continued to reward shareholders via dividends. Based on the performance of the Group in FY2020, the Board had declared a first single tier interim dividend of 3 sen which was paid on 5 March 2020. Following this, a second single tier interim dividend of 3 sen was declared by the Board and was paid on 16 June 2020. Coupled with the proposed final dividend of 4 sen which is subject to the shareholders' approval at the forthcoming Annual General Meeting ("AGM"), the total dividend in respect of FY2020 is 10 sen per share (FY2019: 13 sen). The total dividend in respect of FY2020 was decided upon by the Board after taking into account the capital discipline and prudent balance sheet management. The dividend payout ratio was increased from 80% in FY2019 to 90% in FY2020 as we recognize that shareholders value stable dividends, more so during a time of economic crisis due to the COVID-19 pandemic.

Hai-O has historically delivered consistent cash dividends to shareholders. In 2006, we formalised our dividend policy with a payout ratio of not less than 50% of the Group's profit after taxation. Our average dividend payout ratio of 72% between FY2011 and FY2020 has noticeably exceeded the stipulated minimum of 50%.

Bracing for Further Challenges Ahead

Looking forward, another difficult year is in sight with expectations for a synchronized global recession. We note that rising trade tensions as a big negative undercurrent while the world adjusts to a "new normal" to manage protracted challenges from COVID-19. Furthermore, the extended regime of low interest rates has created pockets of bubbles, vulnerability and risks across the world, and there seems no respite as central bankers continue to rely on liquidity for crisis management.

According to Bank Negara Malaysia, the baseline projection for Malaysia"s economic growth is between 0.5% and -2.0% in 2020 (2019: 4.3%), setting a challenging backdrop for the Group's consumer-centric businesses. We expect consumer demand to remain subdued as the recovery for economic activities and employment will be gradual. In addition, we see further cost pressures arising from supply disruptions due to COVID-19.

The Hai-O Group is bracing for further storms and will continue to direct efforts towards strengthening our foundation by undertaking various initiatives for business sustainability while preserving the strength of the Group's balance sheet. We will continue to step up efforts and responsiveness to face any foreseeable and unexpected challenges. This includes fast tracking the digitalisation for both business and operations, future-proofing our talents to operate under the "new normal", rationalising operating costs without retrenching, and also working to widen products lines focusing on basic and essential goods. These initiatives are expected to strengthen sustainability across all business segments, backed by the Group's strong foundation and our established image as a premier healthcare company. We see a crisis year marked by heightened uncertainties, but in the Chinese language, the word "crisis" is made up of "risk" and "opportunity". We strive to turn "risk" into "opportunity" with the right positioning and strategy as we face and manage the "new normal" with our highly dedicated team of Management, employees and MLM distributors/members.

Board Changes

I would like to take this opportunity, on behalf of my fellow directors, to thank Mr. Chow Kee Kan @ Chow Tuck Kwan, who has resigned from the Board on 4 May 2020 due to other business and work commitments. Mr. Chow has served for 9 years since April 2011, and his wise counsel has been invaluable to the Group. With sincere gratitude, we wish Mr. Chow all the best in his future business undertakings.

Update on Sustainability Commitment

Our objective of providing satisfactory returns to shareholders goes hand-in-hand with our focus on the interests of employees, customers, suppliers, the environment and the communities in which our businesses operate. We strongly believe that our business visions and strategies to seek operational efficiencies and profits should be grounded in our fundamental core values which include social philanthropy. We regularly review and reassess the impact of our businesses on the economy, environment, society and overall governance of the Group. The Group's inaugural Sustainability Statement was first published in August 2018 and has since been updated on an annual basis.

Our approaches to sustainability as embedded in our strategies, values and cultures are set out in the Sustainability Statement on page 29 to 63 of this Annual Report.

Appreciation and Acknowledgement

The Group has weathered this difficult environment with resilience and we hope to emerge stronger as we brace for further challenges ahead. I would like to thank the Management and employees for their commitment and hard work to bring sustainable returns to shareholders. My deepest appreciation also goes to our incredible MLM distributors/members whose hard work and dedication has continued to drive the Group to greater heights. I am grateful to my fellow Directors for their contribution and guidance which has helped to steer the Group through this challenging financial year. Last but not least, I would like to conclude this review by thanking all shareholders, on behalf of the Board, Management team and all employees, for your continued support.

Tan Kai Hee

Group Executive Chairman

3 August 2020