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Management Discussion And Analysis ("MD&A")
 
 
Introduction

The purpose of this MD&A is to provide supplemental information to the audited financial statements within the Hai-O Enterprise Berhad Annual Report for the Financial Year ended ("FY") 30 April 2018, including further information in relation to the financial performance and financial position of Hai-O and its subsidiaries ("Hai-O Group" or "Group").


Through this MD&A, shareholders are informed about the Group's overall business strategy, targets and how we strive to achieve them through operational, marketing and sales initiatives. The information in this MD&A may contain forward looking statements - that is, statements relating to the future, not past, including statements regarding the Group's aspirations, belief or current expectations within the Hai-O Group's business, results of operations and financial condition.

Operating Structure

During FY2018, there were no major changes to the Group's fundamental business and focus. The growth of the Group continues to be driven by the existing businesses that can be segregated into 3 major reportable segments, comprising:

Nationwide Presence across the Country


Our headquarter is located along Jalan Kapar, Klang, Selangor, which houses the Sales Operations, Warehouse, Accounts & Finance, Information Technology, Administration and Human Resources services. Apart from the headquarter in Klang, we also maintain a corporate office in the heart of Kuala Lumpur City at Jalan Bukit Bintang, which was recently refurbished with façade enhancement.


The Group has a nationwide presence with MLM branches, stockists and sales points, retail chain stores, franchises and manufacturing facilities across Malaysia and Brunei.


During the FY2018, MLM branch network expanded with the opening of a new MLM branch in Penampang, Sabah. The MLM division now has 35 branches, stockist and sales points, out of which 3 are distribution centres ("DC") to cater for distribution of e-commerce orders. Under the Retail segment, we have 56 retail chain stores (including 7 franchises), out of which 3 are located in East Malaysia. Apart from retail shops, we also own 2 international-standard manufacturing facilities with certification from ISO, HACCP, GMP and US FDA. One of the plants has also obtained a HALAL certification from JAKIM. Both the manufacturing plants are located at Jalan Kapar, Klang, Selangor, which primarily carry out TCM contract manufacturing, manufacturing of health food and food supplements for the products required by the MLM and Retail segments.


While most of our products are distributed locally, we also export our products to countries such as Indonesia, Brunei and Singapore which are distributed through a subsidiary company in Indonesia and other overseas sales offices. Revenue and profits generated from the overseas markets were minimal and insignificant to the Group for FY2018.

FY2018- Delivering Returns To Our Shareholders

Our aim is to deliver earnings and assets growth with the objective to provide capital returns and consistent dividend payment to shareholders who have believed in us. Our approach to deliver continuous returns to shareholders is firstly backed by the Group’s strong financial position which the Management has diligently preserved, but at the same time maintaining the flexibility to achieve cost of capital advantage. The constant growth in the Group’s balance sheet was contributed by the Group's capabilities to generate cash flow from its core business supported by cost efficiency and discipline. In addition to the dividends distributions, our shareholders have also enjoyed capital appreciation driven by underlying businesses.


The Malaysian economy rebounded in 2017 supported by the recovery of global financial markets and a 5.9% (2016: 4.2%) growth in the world trade. However, consumer spending was not in tandem with this positive development which eventually resulted in subdued consumer confidence and spending. Despite ongoing business challenges, the Group demonstrated resilience in its financial performance. The Group continues to register growth in the financial results for FY2018, sustained by the Group's competitive strengths and effective strategies built over the years.


Revenue


The Group advanced strongly into FY2018 with a growth in revenue for the first half of FY2018 and slowed down slightly in the second half of the year. The Group closed FY2018 with an increase of 14.2% in revenue of RM461.7 million (FY2017: RM404.2 million). We are pleased to witness the growth in revenue for FY2018 which was contributed by all our major business segments, i.e. MLM, Wholesale and Retail, and this is a positive sign as other business segments started to contribute to revenue; unlike in the previous financial year where the growth in revenue was contributed solely by the MLM segment. However, the MLM segment remained as the main driver of revenue growth for the Group in FY2018. Although other operating business registered a minor drop in revenue primarily due to the cessation of advertising services by a subsidiary company, Sea Gull Advertising Sdn Bhd during the year under review, the reduction has minimal financial impact to the overall Group's results.


The contributions of revenue by the respective segments are set out below:


Profitability


The Group continues to achieve profitability and registered a profit before taxation (“PBT”) of RM96.5 million (FY2017: RM78.3 million) which represented a PBT growth of RM18.2 million or 23.2% as compared to FY2017. For FY2018, all our business segments were profitable with MLM segment being the main driver of the profit followed by Wholesale and Retail segments. MLM segment recorded PBT of RM70.3 million while Wholesale and Retail segments recorded RM20.3 million and RM1.5 million respectively. During the FY2018, the Company has granted a total of 2,189,000 Options pursuant to the employees' share option scheme ("ESOS"), which was fully implemented from May 2017 onwards. In line with the ESOS exercise, the Group recognised ESOS expenses of RM2.6 million and this forms part of the employees' retention plan to reward our people who have persistently delivered and performed. We wish to highlight that the ESOS expenses incurred during the financial year had no impact on the Group's cash flow.


PBT contribution by each segment is set out below:


Review of financial position


The Group's strong balance sheet is reflected from the continuous growth in shareholders’ funds. As at 30 April 2017, equity attributable to owners of the Company was RM284.8 million. As at 30 April 2018, it increased to RM307.9 million, which represents an increase of RM23.1 million or 8.1%. The improvement in equity attributable to owners of the Company was primarily contributed by the profit earned by the Group during FY2018 of RM72.5 million. However, an amount of RM58.2 million from this profit was deployed to reward shareholders as dividend. The movements in equity attributable to owners of the Company were also affected by the resale and purchase of treasury shares by the Company and exercise of ESOS options by the employees and directors. The Group had recorded a one-off gain on disposal of treasury shares of RM2.0 million which has been accounted for in distributable retained earnings during the FY2018. A total of 1,610,000 new Hai-O shares was issued and listed during the financial year as a result of the exercise of the ESOS options by employees and directors. The equity attributable to owners of the Company per share (or net assets) of the Group is equivalent to RM1.06 per Hai-O share as at the close of FY2018 (FY2017: RM0.98).


During the financial year, we incurred capital expenditure for the acquisition of investment properties, upgrading of warehouse in Klang, enhancement of façade in the building in which our KL office is located and two (2) shoplots which are now being used as our retail outlets. The Group in total incurred approximately RM20.5 million for the said capital expenditure. The Group's inventory holding was higher at RM91.2 million (FY2017: RM71.7 million) partly to meet the demand for higher sales expectations and partly due to the wider product range offered by the Group during FY2018. As a result, the total assets of the Group increased by RM31.7 million to RM396.0 million as at 30 April 2018.


The Group's total liabilities comprised of trade and other payables and short-term borrowings was RM77.1 million as at the end of the financial year (FY2017: RM68.1 million). The increase in liabilities was due to higher trade and other payables. The short-term borrowings as at 30 April 2018 was RM1.4 million as compared to RM3.0 million a year ago which were banking facilities drawndown for working capital purposes in the form of trade financing.


Capital Resources and Cash Management


The Group maintained cash and cash equivalents and short-term investments of RM126.6 million as at the end of the financial year (FY2017: RM135.0 million). The Group is involved in cash generating businesses and the Group's source of cash inflows are mainly generated from sales recorded by MLM, Wholesale and Retail segments. The Group also received cash inflows from rental income from investment properties and manufacturing activities. Apart from cash used in the operations, the main cash outflow of the Group for FY2018 was payment of dividend to shareholders of RM49.5 million. During FY2018, there was a one-off cash inflow from resale of treasury shares of RM3.3 million, in addition to the proceeds received from new shares issued on the exercise of ESOS options by the directors and employees of RM5.8 million. The slight drop in cash held by the Group as at the end of the financial year was primarily due to capital expenditure incurred for acquisition, refurbishment and upgrading of property, plant and equipment and investment properties which amounted to approximately RM20.5 million.

Review of Segment Operations
MLM SEGMENT

FY2018 was a momentous year for the MLM segment as Sahajidah Hai-O Marketing Sdn Bhd (“SHOM”), the subsidiary that anchors the MLM operations turned 25-year-old. 25 to SHOM is a symbol of maturity, excellence and reliability. Year-round events and activities were rolled out during the financial year to celebrate and honour the milestone of a 25-year journey.

The Bonanza 25 grand sales promotion was held in conjunction with the 25-year anniversary celebration during the 1st half of FY2018 to reward our distributors. The Bonanza 25 "Buy & Win" Lucky Draw Contest which came with attractive prizes including a luxury German sedan car and other prizes worth of RM250,000 contributed to the improvement in revenue of 14.1% or RM43.6 million under the MLM segment. In addition, wider product choices following the introduction of new products and product range have also contributed to the improvement in sales.


The operating PBT for the FY2018 under MLM segment has correspondingly increased by 12.3% which is equivalent to RM7.7 million. The PBT registered by the MLM segment for FY2018 is RM70.3 million.


The PBT margin of the segment decreased slightly by 0.4% due to, firstly, marketing development cost increased by approximately RM4.5 million and secondly, ESOS expenses of RM0.6 million.


The above financial performance was achieved on the back of the key initiatives that were implemented during the FY2018:

DEEPENED PRODUCTS OFFERING IN FASHION, BEAUTY AND LIFESTYLE


In terms of product offerings, we have one of the most exciting years under the MLM segment with more new products being launched during the FY2018. Some of the products launched created inroads to new market penetration and expansion. For instance, the full roll-out of the Infinence X RR Designer Hijab in May 2017 marked the expansion of our MLM products into fashion line. Following the success of the Infinence X RR Designer Hijab, we have also launched the Infinence Designer Shoes and bags. The Infinence Designer Shoes were launched in consultation with Y. Bhg. Prof. Datuk Dr. Jimmy Choo who remains deeply engaged in the expansion of the fashion products under the MLM segment.

We know that Malaysians love food. During the FY2018, we launched 4 SKU (stock keeping units) under the D’chef food range for the first time including Briyani Paste, Beef Rendang Paste, Tumeric with Garlic Paste and Asam Pedas Paste. These products were well received by our members and distributors and hence, 2 other SKU, namely D’Chef Ready to Eat Sambal Nasi Lemak and D'Chef Hainanese Chicken Rice with Chili Sauce were also launched in February 2018 to leverage on the momentum of the D'Chef cooking paste.


Learning from our success in one of our best-selling products, the Min Kaffe mineral coffee, we introduced the "Min Cha Teh Pracampur dengan Garam Buluh" during the financial year under review. To complement with the mineral tea and coffee, the Min Kaffe Cookies with Chocolate Chips was also introduced and launched.


Under the skincare and beauty, and personal care range of products, we launched a total of 6 SKU in FY2018 including the Marine Essence hair-care and the Cozuma Blush Palette. As at the end of the FY2018, we have more than 220 SKU in health food & supplements, skincare and beauty, personal care and households products apart from fashion and lifestyle series which came with multiple designs and colours.


FOCUSSED AND CONNECTED TEAM OF DISTRIBUTORS


Under the MLM segment, we have approximately 153,000 valid and active distributors/members, which represents an increase of approximately 9.0% year-on-year. The continuous growth in distributors was supported by ongoing engagement activities, skills development workshops and training programs organised by SHOM. Some of the major events organised by SHOM to ensure that our people remains engaged, committed and realised their potential are set out below:


SHOM turned 25 and we are honoured to have more than 11,000 distributors from all over Malaysia, Indonesia, Singapore and Brunei to celebrate the occasion together in Malawati Stadium Shah Alam, Malaysia. The celebration was officiated by the Domestic Trade, Cooperative and Consumerism Minister with special guests appearance by, Datuk Dr. Jimmy Choo, our consultant and a renowned local artist Nur Fazura who is also the ambassador of SHOM. The Company took the opportunity to recognise outstanding distributors during the Silver Jubilee celebration. During the FY2018, 87 leaders progressed to Crown Diamond Manager ("CDM"), the highest status recognition in SHOM's entrepreneurial hierarchy.


In addition to the anniversary celebration above, annual Sales Manager ("SM") / Senior Sales Manager ("SSM") Awards Ceremony and Diamond Night were also held during the financial year. 212 distributors who progressed to Double Diamond Manager ("DDM") and 896 distributors who progressed to Diamond Sales Manager ("DSM") were honoured during the SM/SSM Award Ceremony and Diamond Night.


During the FY2018, we are pleased to witness the growth in productivity of our distributors as evidenced by a higher number of progressions among our distributors as summarised below:

In harnessing our distribution sales force, we adopt an uncompromising standard of integrity and professionalism to preserve trust and confidence of our distributors. Regular interactive workshops, training programs, get together sessions were organised. These events were organised to keep our distributors up-to-date with product information. The events also provided opportunities for distributors to share their valuable views and concerns over the products and the Company.


SHOM's key principles to foster productive, highly-skilled and agile team of distributors to meet the emerging needs in the future are as follows:


It is not new that the MLM segment has established short and long-term incentive plans that are aligned to drive sales growth. During the FY2018, 2 incentive trips were held to reward to distributors who have worked towards the sales targets. A total of 554 distributors qualified for the incentive trip to Gold Coast, Australia while a total of 785 distributors qualified for the incentive trip to Korea. The incentive trip to Korea had in total 1,147 participants which represented the largest incentive trip organised by SHOM. Taking into account the large number of Muslim travellers visiting Korea during the incentive trip, distinctive activities, gifts and gala dinner were co-sponsored by the Korea Tourism Organisation ("KTO"). The incentive trip also attracted media coverage from Korea.


Trailing on the successful launch of our fashion products, SHOM also participated in the Gaya Koleksi Raya 2018 to introduce and promote our fashion brand "Infinence". The Gaya Koleksi Raya 2018 is a 4-day celebration that showcased Malaysian fashion designers and brands in conjunction with the Hari Raya Aidilfitri season and to bring together Malaysian fashion designers and to feature their best collections for the festive season which was aligned with our objective to promote local talents.


ICONIC BRANDING, ADVERTISING AND PROMOTIONAL ACTIVITIES


As we conceptualised the expansion into fashion products under the MLM segment, one of the objectives we had in mind was to nurture local talents in the fashion industry. "Infinence", an inspiration from the words "Infinite" and "Excellence", is the brand for our fashion range of products which include designer clothing, matching scarves and brooches, leather shoes and leather handbags. The scarves and brooches are the creation of renowned local designers Rizman Ruzaini while the leather shoes and handbags are developed in consultation with the international fashion icon Datuk Dr. Jimmy Choo.


Nur Fazura, a renowned local artist was appointed as the SHOM ambassador to promote the Infinence range of products and to ensure that it gets the right coverage. Many promotional activities were organised to feature Nur Fazura as our ambassador, including special appearance at the SHOM Jubilee Anniversary celebration, SM/SSM Recognition Ceremony and Min Cha mobile interactive video.


We expect to yield more revenue in the fashion products as the full range of the fashion products are still in the development stage with the first series of Infinence Shoes to be made available in the market only from April 2018.


DIGITAL AND CONVENTIONAL NETWORK EXPANSION


Digitising operating platforms has been discussed in our past annual reports. We acknowledged the importance of digitalisation and we need to serve our increasingly "connected" distributors/members with customers to create performance driven, personalised and convenient shopping experiences. The Group continues to make strategic investments in digital assets in MLM segment to improve productivity and customer experience. To cater for the growth of the MLM segment, we have invested approximately RM3 million to refurbish and upgrade our warehouse in Klang, Selangor to achieve greater efficiencies in logistics to support our distributors.


We started digitalising the MLM processes way back in 2016 using the Solucis System which is a back-end application to primarily combine digital support and performance tracking for the distributors. We constantly upgrade the Solucis System to cater for a wider scope of back-end services. During the financial year, the Solucis System was further upgraded to support real time tracking of distributor's performance, downline's sales performance, status of distributor’s hierarchy progression and incentive trip points. In addition, the usage of Solucis System also expanded to support membership registration and printing of e-voucher to reduce complexities on membership registration process.


During the FY2018, further initiatives were taken in digitising the operating platforms to create new ways for our distributors to interact with their customers to achieve greater efficiencies. The Bizumer e-Commerce platform was launched in March 2018 which allows customisation of individualised e-shop by each distributor to further foster entrepreneurial spirit and ownership of their respective "business networks". The Bizumer encourages online business among our distributors with just a few simple steps. At the moment, some of the enablers that Bizumer provides are:

  • expansion of market with minimum cost;
  • convenience of interacting with SHOM for products purchases;
  • provide more business opportunities to newly sponsored business partners / down-lines; and
  • e-Registration for new distributors as downline.

Concurrent with the launch of Bizumer in FY2018, SHOM introduced the "Go Live" mobile marketing platform to cater for our distributors who are always on the go. The "Go Live" mobile platform currently serves as a social media tool to achieve the following objectives:

  • deliver up-to-date information about SHOM;
  • allow distributors access of latest promotional activities and news; and
  • dissemination of products information.

Our investments in digitising the MLM processes yielded encouraging results for transactions made via e-Commerce platforms. The number of sales transacted through e-Commerce platforms increased by 156.8% from 44,700 transactions to 114,800 transactions. Similarly, sales recorded through e-Commerce also increased by 56.5% from RM14.7 million to RM23.0 million. Sales transacted through e-Commerce platforms represented approximately 6.5% of the total sales generated by the MLM segment. With continuous enhancement of the e-Commerce platforms, we expect to gain greater market penetration and better interaction with our distributors.


In respect of physical MLM branches expansion, we have opened 1 branch in Penampang, Sabah in October 2017 to cater for the growing business in East Malaysia. With this addition, the MLM segment now has in total 35 MLM branches, stockist and sales points.

 
WHOLESALE SEGMENT

FY2018 was an exceptional year for the Wholesale segment with an increase in revenue and PBT of 21.1% and 113.7% respectively. The Wholesale segment closed the financial year with a revenue contribution of RM63.7 million and PBT of RM20.3 million to the Group.


The revenue and PBT of the Wholesale segment was sustained by the inter-segment sales to MLM and Retail segments. The improvement in the financial performance of the Wholesale segment during FY2018 was primarily attributable to the increase in sales of products with higher margins, particularly the premium Chinese medicated tonics, patented medicine and vintage Pu-Er tea.


The encouraging results of the Wholesale segment was achieved with the implementation of the following business initiatives:


Making available a variety of products for distribution by both the MLM and Retail segments is pivotal for the success of the Wholesale segment. We continue to focus on promoting our bestselling Chinese medicated tonics while expanding the market for non-alcoholic products to further penetrate the younger consumers market. During the FY2018, we imported and introduced 2 new product brands from China and Korea, "Hao Xiang Ni" jujube products and Korean Red Ginseng products for the younger consumer market. The champignon mushroom granules and Tianqi Ginseng granules were the two other key products promoted during the financial year. These products share 1 common characteristic, convenience, which cater for the "on-the-go" lifestyle of young consumers. In terms of medicated tonics, we added a lower range of “bai jiu” to cast a wider net to capture more consumers of medicated tonics.


Recognising that there are more synergies that can be created between the Wholesale and Retail segments, more marketing initiatives were undertaken with the support of the Retail segment for inter-segment mutual benefits. For new products launching, we tapped onto the retail branch networks to set up promotional pop-up counters to gain visibility and consumers’ attention. Currently, the Wholesale segment has pop-up counters at 10 of the Hai-O Raya retail outlets for sampling of various types of granules introduced during the year.


Based on the market feedback, Chinese medicated tonics are deemed as an "acquired taste" product despite its proven health benefits. Many consumers were not accustomed to the strong medicated tonics taste, particularly the female consumers. To overcome this resistance, we collaborated with one of the popular cooking magazines and published a 44-pages recipe book using Hai-O products, focusing on tonics to change consumers' perception. The recipe book also introduced usage of Chinese medicated tonics in cooking. Many of these recipes were also featured on social media networks and homepages of the Hai-O Group in a regular basis.


The Wholesale segment achieved an improvement in sales performance of Chinese New Year hampers at the back of the successful partnership with AEON. Some of the products sold were made available at AEON counters to create exclusivity and had received good response from customers. At the same time there were also various promotions offered for Chinese New Year hot selling products such as premium grade mushrooms, Spanish wines and ready-to-eat bird nests.


We continue to expand one of our traditional consumer networks which is the Chinese medicine hall located in the neighbourhoods. Based on past track records, our consumers from Chinese medicine halls have been very responsive to various sales incentives provided by the Wholesale segment, including incentive trips to manufacturers of products distributed by the Wholesale segment. 2 incentive trips cum industry visits were held to reward our customers during the financial year, i.e. Zhaoqing West River and Hangzhou Shaoxing Winery Industry Visits. The positive outcome from the sales incentives initiated by the Wholesale segment was an increase of 84 new customers and higher sales achieved during the financial year.

 
RETAIL SEGMENT

Similarly, the Retail segment has also shown resilience with better results achieved during the financial year. The Retail segment recorded an improvement in revenue of RM3.4 million and an increase in PBT marginally at RM0.1 million, after recognising ESOS expense of RM462,000. The intense competition in the retail business, resulted in high operating cost and low profit margin. Efforts have been made to re-organise workforce, complemented by conventional and digital marketing events to defend segmental sales and profitability despite operating in a high cost environment.


The higher sales recorded by the Retail segment were mainly driven by retail outlets incentive programme and selective product campaigns such as Cordyceps Capsules Sales Campaign, Ming Zhu Bai Feng Wan Sales Campaign and Promotion Collaboration with tea supplier, Chop Aik Seng introduced during FY2018. The incentives programs were well received by our retail outlets employees and the sales campaign for specific products, i.e. Cordyceps Capsules, Ming Zhu Bai Feng Wan and Pu-Er tea as evidenced by an increase in total sales of these products by more than 40% as compared to previous financial year.


Although the Retail segment managed to record higher sales, operating cost for employees' salaries and rental for retail outlets continue to escalate. To counter the effect of escalation of cost in terms of rental, the Retail segment acquired 2 properties which are located at strategic locations, 1 located at Taman Pertama, Kuala Lumpur and the other located in Melaka.


Training for the front liners in retail outlets is a mandatory requirement taking into account that customer service is paramount for our business in Retail segment. We believe by elevating retail staff quality, it would translate into positive outcomes. Training for our retail team undertaken during the year includes Retail Management (fundamental, course 1 and course 2), Chinese Herbal Medicine Course, on the job products knowledge training and 4D-MRA Health Test Machine Testing.


Initiatives targeted to improve the buying experience of the Hai-O Friendship members that were implemented in FY2018 include Hai-O Friendship Day, 1st Day of the month Promotion and Birthday Coupon for Hai-O Friendship members. As at 30 April 2018, there were 128,500 of Hai-O Friendship members, representing an increase of 22.7% year-on-year. The promotional activities initiated during the year were undertaken with efficient use of social media such as WeChat and Facebook, which were effective and cost efficient. In addition, healthcare and wellness information and promotional activities were uploaded and disseminated via social media interfaces.


Other promotional activities undertaken were health related topic roadshows in collaboration with Linton College and sales promotion campaign offered to Public Bank Credit Card holders. Apart from that, the retail outlets launched 2 new food and health supplements products, i.e. Cordyceps Flower Soup Pack and Royal Bee Plus and also upgraded the packaging of 5 of our popular house-branded products, i.e. Hai-O Ginseng Tea, Herby Range of Vinegar, 2 types of oat meal drinks and the ZAN green tea to refresh the products' image.


Currently, the Group has 56 retail outlets (including 7 franchises). To differentiate the products and services, a Chinese physician is stationed at selected retail outlets to provide value added services to our customers in the form of general medical consultation and products knowledge. The consultation services by the Chinese physicians at our retail outlets include general health checks, providing advice on Chinese herbs features, functions and recommended usages. There are 14 retail outlets (FY2017:12) that provide consultation service and we expect to increase the Chinese physician's consultation service to more retail outlets in the future, to provide value added services as well as to educate consumers on the benefits of Chinese herbs.

 
OTHER OPERATING ACTIVITIES

There are a few other operating activities carried out by the Group, including manufacturing activities, property investment, credit & leasing and advertising services. Main income drivers under other operating activities are manufacturing and properties investment. During the financial year under review, the Group's manufacturing capabilities were mainly to support the health food and supplements product requirements by the MLM and Retail segments. There was marginal increase to the income generated from investment properties and the Group received a total rental income of RM2.6 million for the FY2018 (FY2017: RM2.5 million). Arising from the cessation of advertising services by a subsidiary company in FY2018, which was previously part of the "other operating activities", the Group recorded a lower revenue of RM4.0 million (FY2017: RM4.5 million) and operating profit of RM4.4 million (FY2017: RM4.8 million) via other operating activities.

Outlook and Prospects

Our business continues to experience intense competition and changes driven by market developments, technological innovation and the evolution of customers' needs and expectations. We expect to continuously grow our core businesses by differentiating the products, promote greater efficiencies and cost discipline. This is coupled with our commitment to increase productivity across our business. Productivity improvements have positive impacts to customers and our business. Focus will also be placed on the use of technology to provide best value products and services to our customers and distributors. For example, the MLM digital platforms have reduced complexity and costs while giving distributors a better interacting experience. Other productivity improvements which are in the pipeline, among others, is the expansion of payment methods such as e-wallets through Alipay and Touch ‘N Go for the retail outlets. Both MLM and Retail segments will continue to promote and expand their e-Commerce activities.


We expect to see some exciting products line-up for our MLM and Wholesale segments. There will be new launches for fashion products such as Infinence Hijab, "Ready-To- Wear" clothing and Infinence bags and shoes under the MLM segment. We have already kick-started new products launches for the next financial year, where 2 new health supplements, the M-Ginkgo and BB+ Glo Mixed Collagen with Blackcurrant Drink were launched in July 2018. Skincare extension series under the Infinence brand are also slated for official launching in August 2018. In addition, there are also other health supplements in the pipe-line for launching during the year. Under the Wholesale segment, canned food will be one of our target product expansion. In addition to the distributorship for luncheon meat and canned sliced meat that are already in our existing sales list, we expect to secure more distributorships to drive growth in the Wholesale segment.


For the immediate term, capital expenditure has been allocated for 2 new MLM branches in Sabah to cater for the growing business of the MLM segment in East Malaysia. The 2 new branches will be located in Sandakan and Tawau and are expected to commence operations in the 2nd quarter of FY2019.


The Malaysian economy is projected to expand by 5.5% - 6.0% in 2018 supported by an accommodating domestic development, where the economy is expected to be driven by domestic demand and private sector activity. The private sector is expected to continuously provide impetus for domestic demand. The expectation of economy growth is also sustained by strengthening global economic conditions. Headline inflation is expected to average between 2.0% - 3.0% in 2018 and may be potentially lower due to the changes made for Goods and Services Tax. Although FY2019 looks promising supported by positive domestic macro-economic statistics, the overall economic performance business sentiments, nevertheless, may be affected by external factors such changes in policy rates in developed countries and the US-China trade tension. A slowdown in private consumption is the main downside risk to the growth affected by exposure to the downward pressures of ringgit exchange rate from external factors and the bloated household debts. We are cautious in implementing business initiatives for the next financial year taking into account the downside external risks which continue to affect businesses and consumer sentiments. However, your Board and the Management are committed to evolve the Group’s business to ensure it is future-fit and can continue to deliver good results for all stakeholders.

Appreciation

The sound financial outcomes for FY2018 are the result of continued execution of our long-term strategy and team work of the Management.


I would like to express my thanks and appreciation to the following persons:

  • To our customers, thank you for allowing us to serve your needs, we will continue our quest to do better every day.
  • To the Hai-O team including our distributors, needless to say, thank you for all your extremely hard work in delivering excellence every year.
  • To all our shareholders, thank you for your staunch support and trust in us, we will do our best to meet your expectations.


Tan Keng Kang

Group Managing Director


8 August 2018