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Chairman's Statement
 
 
Introduction

Dear Shareholders,


On behalf of the Board of Directors ("Board"), I would like to present to you, the Group's Annual Report and financial statements for the financial year ended ("FYE") 30 April 2017.


2016/2017 was another period with disruptions in the overall economy. Slowdown in China economy, unexpected developments in the United Kingdom's European Union Referendum ("Brexit") and the outcome of the United States ("US") presidential election added pressures to the general business operating environment. Despite this, the Group ended the financial year with a remarkable set of results, with an increase of 35.8% in revenue and an increase of 59.5% in profit before tax ("PBT").


The unanticipated political developments in the advanced economies and fundamental shifts in social dynamics have shaken markets around the world. I believe the larger and longer-term impact of these shifts are yet to unfold. Although the Malaysian economy continues to be supported by domestic spending, it is not surprising that the Malaysian economy was affected by these external economic headwinds to a certain extent. The Malaysian economy registered a growth of 4.2% in 2016, a slight reduction from the growth registered in 2015 of 5%. The reported headline inflation remained unchanged at 2.1% (2015:2.1%). Nonetheless, businesses continued to struggle with spending adjustments by households due to higher cost of living and prolonged under performance of the Ringgit.

 
Financial Performance

Despite the challenging business environment, the Group recorded a revenue of RM404.24 million for the FYE 2017, representing an increase of 35.8% as compared to RM297.63 million for the last financial year. PBT for the financial year increased by 59.5% from RM49.07 million to RM78.27 million. Correspondingly, the EPS improved from 12.47 sen to 20.54 sen. The key driver for this performance is the sustainable growth in the MLM segment, which accounted for almost 80% of the Group's revenue and PBT. The Group's upward growth trajectory is also built on the strength of the management.


With the continued growth of the Group, we registered shareholders' fund of RM284.81 million as at 30 April 2017 (2016: RM257.37 million). As the Group is involved in highly cash-generative businesses, we maintained a considerable level of cash and cash equivalents and other short term investments of RM135.04 million (2016: RM107.52 million). The Group's gearing level is negligible which will enable the Group to explore new potential business opportunities as and when they are available.

 
Significant Corporate Developments

It is with great pleasure, I would like to congratulate the management in achieving a milestone in the corporate front by crossing a market capitalisation of RM1 billion during the financial year under review. As at 8 August 2017, being the latest practicable date prior to the printing of this Annual Report, the market capitalisation of the Company was RM1.20 billion. The achieved milestone was partly contributed by investors' confidence in our Company as well as the Bonus Issue exercise on a 1 : 2 basis implemented and completed on 31 March 2017. Coupled with the Group's financial performance for the FYE 2017, the market reacted positively to the Company's gesture in rewarding our shareholders through bonus shares. With the completion of the Bonus Issue exercise, an additional of 96.46 million Hai-O shares were listed which increased the shares in circulation to promote trading liquidity.


Simultaneous to the implementation of the Bonus Issue, the Company also established an Employees' Share Option Scheme ("ESOS") to recognise the contribution of our employees and directors towards the growth of the Group. The ESOS has no financial impact to the Group for the FYE 2017 as the ESOS only came into effect from 3 May 2017. As this is the 2nd time that the Group has implemented a share option scheme for the employees, we have the necessary experience, resources and procedures to ensure smooth implementation of the ESOS.


As in the previous years, based on the renewal of share buy-back mandate granted by the shareholders on 28 September 2016, the Company purchased 368,100 shares from the open market during the FYE 2017. As at 8 August 2017, being the latest practicable date prior to the printing of this Annual Report, the Company held in total 9,262,888 treasury shares which is approximately 3.1% of the total number of shares issued of the Company. The treasury shares will be dealt with in accordance to the mandate provided to the Company and the prevailing rules and regulations. This may include distributing the treasury shares as dividend to shareholders, resell the shares in the open market or transfer the shares for the purposes of ESOS or as purchase consideration for acquisition of businesses/ investments. In any event, the Board is committed to act in the best interest of the Company and shareholders. The share buy-back mandate shall lapse upon the conclusion of the forthcoming annual general meeting ("AGM"), unless otherwise renewed. The Company announced on 29 June 2017, its intention to seek renewal of the share buy-back, where shareholders' approval will be sought at the forthcoming AGM.

 
Dividend

For shareholders, apart from the bonus shares received from the Bonus Issue exercise on a 1 : 2 basis, on 9 March 2017, a total of RM9.65 million in cash was paid out as interim single tier dividend of 5 sen per share (2016: 4 sen).


Based on the Group's outstanding performance this year, the Board is pleased to recommend a final dividend of 11 sen for the FYE 2017 at the forthcoming AGM, bringing the total dividend for the year of 16 sen per share (2016: 15 sen), representing a payout of approximately 70% of the Group's profit after taxation ("PAT") (2016: 80%). Once again, this payout surpassed the Company's dividend policy to distribute at least 50% of the Group's PAT as dividend.


Aligned with the Company's commitment to deliver long term value to shareholders, we have rewarded our shareholders with cash dividends amounting to RM304.56 million since our listing in 1996.

 
Outlook and Prospects

The Malaysian economy is projected to register a growth of 4.3% - 4.8% in 2017 (2016:4.2%). Domestic demand continues to be the principal driver of growth supported by private sector activities. Nonetheless, households are expected to make further adjustments in spending in response to rising inflationary pressures, where headline inflation in 2017 is projected to increase between 3.0% and 4.0% (2016: 2.1%).


We foresee it to be another challenging year ahead for us in light of the persistence of the domestic economic headwinds and new prevailing external risks. But I am confident that Hai-O Group will face these challenges from a position of strength. Our strengths are derived from the Group's healthy financial position, strong team of management and our unconventional ways to sustain growth.


In an era of evolving consumer expectations, we need to reinvent the way we work, redefine the way we manage business operations and how we interact with our customers. Technology will be a key part of our strategies going forward. We are optimistic that the Group will remain profitable in the next financial year. The Group has put in place reasonable measures to mitigate foreseeable business risks for the coming year and with our strong team, the Group will remain resilient even in a challenging environment.

 
Appreciation and Acknowledgement

The FYE 2017 sees changes in the Board composition. We are deeply saddened by the demise of Prof. Dr. Lee Kong Hung and would like to put on record our appreciation for the contribution by Prof. Dr. Lee Kong Hung during his tenure as a Board member.


During the financial year, Y. Bhg. Prof. Datuk Dr. Choo Yeang Keat ("Datuk Jimmy Choo") was also appointed as the Non-Independent and Non-Executive Director. Nevertheless, Y. Bhg. Datuk Jimmy Choo has expressed his intention to retire as a Board member upon the conclusion of the 42nd AGM due to his other personal commitments and busy schedule. The Group has benefited in great length from his experience and acumen in the fashion industry. Despite his retirement as Board member, the Group will continue to work with Y. Bhg. Datuk Jimmy Choo in other form of business arrangement to explore potential fashion related products line-up in the MLM segment.


Finally, on behalf of the Board, I wish to thank and applaud the management team and all employees of the Group for their tremendous efforts, passion and hard work in delivering greater value for our shareholders. To our valued shareholders and stakeholders, thank you for your confidence in our Group. Our appreciation also extends to the relevant government agencies for their support and assistance during the financial year.


Thank You.


Tan Kai Hee

Group Executive Chairman


8 August 2017