Q1. As
reported in the Management Discussion And Analysis, the Group has three (3)
palm oil mills with a total capacity of 926,640 tonnes per year. In FY2016,
523,775 MT of FFB was processed by these mills. The plant utilization rate was
57%.
(a)
What is the optimum plant utilization rate in terms
of plant efficiency and would the Company be able to achieve the optimum rate
in near future?
Reply
:
Group Managing Director Kwan
Ngen Chung informed that the optimum plant utilization rate in terms of plant
efficiency would be approximately 80%, but this would be subjected to the
seasonal or cyclical factors that will affect the production of Fresh Fruit
Bunches from the estates in the near future. The Group could only achieve plant
utilization rate of 57% in FY2016 because of the effect of the prolong drought
El Nino weather phenomenon.
(b) Would improvement in the utilization rate
reduce the cost of production from RM1,107
per MT recorded in YE2016?
Reply :
Group Managing Director Mr Kwan Ngen Chung
commented that improvement in the utilization rate would certainly reduce the
cost of production.
Q2. Note 17
showed a non-trade receivable of RM9.3 million as the consideration paid for
purchase of land. The transaction is expected to be finalized by end of next
financial year.
(a)
Could the Board provide the details of the land such
as the purpose of the land, the crops on the land (if any), the hectarage, etc?
Reply
:
Group Managing Director Mr
Kwan Ngen Chung reported that the land is a green field agricultural land
located adjacent to the Group¡¯s plantation land in Kalimantan, Indonesia and
was acquired for purpose of ensuring easy accessibility to the river port. The
said land has a total area of approximately 7,500 hectares and has not yet
commenced planting.
(b)
Is there any balance of the consideration to be
paid?
Reply
:
Group Managing Director Mr
Kwan Ngen Chung informed that there is no balance of consideration to be paid
for the said land.
(c)
Would the land expect to contribute towards the
Group¡¯s revenue? If yes, when?
Reply
:
Group Managing Director Mr
Kwan Ngen Chung informed that the Group has yet to complete its land
acquisition process before planting activities could be commenced. Also, the
planting activities will depend on the availability of financing facilities.
Planting would certainly contribute revenue to the Group after the palms
maturity.
Q3. As
disclosed in Note 36(b) to the Financial Statements, there is a claim against a
wholly-owned subsidiary of the Company amounted to RM66.9 million for alleged
breach/repudiation of agreements. The Directors are of the opinion that the
Company has a good prospect of succeeding and accordingly no further provision
for liability has been made in the Financial Statements.
Could the Board share with
the shareholders the opinion of the Company¡¯s solicitor on the case?
Reply
:
Group Managing Director Mr
Kwan Ngen Chung presented a letter dated 29th November 2016 from the
legal Counsel advising that the wholly-owned subsidiary of the Company has a
good prospect of succeeding on the ground that the claim made by the Plaintiff
Inno Integrasi Sdn Bhd for alleged breaches of two (2) agreements are frivolous
and therefore the claim will be dismissed. The trial of the abovementioned suit
is scheduled to commence before the High Court in Sandakan, Sabah from 6th December 2016 to 15th December 2016. Judgement should be expected in
the early months of 2017. Hence, it is with that reason no further provision
was made in the Financial Statements FY2016 of the Group.
The PKF Audit Partner, Mr
Chau Man Kit further commented that as part of their audit process on whether a
provision is necessary, an earlier dated letter from the legal Counsel to the
same effect had also been sighted by them. On this basis, the external auditor,
Messrs PKF is of the view that the provision of liability is not necessary.
Q4. We
noted that 80% of the Group¡¯s revenue were derived from Singapore and The
People¡¯s Republic of China.
With the economy of both countries
are expected to remain sluggish in 2017, what would be the measures taken by
the Board to ensure sustainable revenue and earnings for the Group?
Reply
:
Group Managing Director Mr
Kwan Ngen Chung reported that although most of the Group¡¯s revenue were derived
from Singapore and China, it is worthy to note that revenue derived from
Singapore was mainly from international trading houses which have their offices
located there. The palm products purchased by these trading houses were mainly
for India, China and European market.
The economy for China is
expected to be sluggish in 2017, however he is hopeful that their buying
interest could be sustained. On the other hand, the economic climate in India
is encouraging. An increase in demand from India may be expected. He added that
traditional palm oil buyer would still prefer palm oil as it remains the most
competitive priced vegetable oil in the world compared to other types of oil
products, therefore having an upper hand over its rivals.
The following measures have
been adopted by the Group to ensure sustainable revenue and earnings :-
i)
More concerted marketing effort to promote and
selling of oil palm products;
ii)
Competitive in terms of pricing and sales services
rendered;
iii)
Observing strict product quality standard; and
iv)
Controlling its operating cost in ensuring wastage
was kept to the minimum. Various measures were also taken to improve the
production yield.
Other
Issue - Corporate Governance
We noted that the cost
incurred for the internal audit function of the Group for FY2016 amounted to
RM100,000 was substantially lower than the amount for FY2015 amounted to
RM284,337. The headcount of the Internal Audit Department was reduced from four
to three with the Internal Audit Manager position has yet to be filled.
(a)
When was the Internal Audit Manager left the Company
and would the position expected to be filled soon?
Reply
:
Executive Director Dato¡¯
Chong Kan Hiung informed that the Internal Audit Manager left the Company in
October 2015 and the Company is in the process of looking for the right and
calibre candidate to fill the position. Additional Senior Audit staff have been
recruited. He is hopeful that the vacancy of the Internal Audit Manager can be
filled up soon.
(b)
With no Internal Audit Manager, how would the Board
ensure sufficient audit works done and thus, effectiveness of the work?
Reply
:
Even
without the Internal Audit Manager, Executive Director Dato¡¯ Chong Kan
Hiung
commented that the current internal audit team still continues
carrying out the Internal
Audit Programmes as approved by the Audit
Committee. Audit Committee will monitor
and provide more support to the current
internal audit team. Meantime, the following
measures have also been taken :-
(i) Additional audit
personnel been recruited; and
(ii) More aggressive
recruitment exercises including offering attractive remuneration
package to the qualified candidate
Additional
Query
Apart from the above questionnaires raised
by MSWG, Mdm Hoo Ley Beng also raised
her concern over the breach
of financial covenants of a bank which remained a challenge to the Group in
FY2016 although the bank has extended the waiver on these financial covenants
until 30th June 2017. She enquired if the monetization of the
Group¡¯s assets in China that was proposed in FY2015 has materialized.
Executive Director Dato¡¯
Chong Kan Hiung informed that the Group has been in negotiation with few
parties to monitise not only the Group¡¯s assets in China but also other assets
in Malaysia. The Board is mindful of the current predicament and is taking
every possible measures to improve the overall financial position of the Group.
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