FAQs
Evergreen's financial year end is December
| Type of Meeting | AGM |
| Indicator | Notice of Meeting |
| Description | Notice of 28th Annual General Meeting |
| Date of Meeting | 24/05/2019 |
| Time | 09:00 AM |
| Venue | Forest City Phoenix International Golf Hotel, Jalan Persiaran Golf 5, Forest City Golf Resort, 81550 Gelang Patah, Johor Bahru Takzim, Malaysia |
Year 2018
Final single Tier dividend of 1.92% at 0.48 cents for financial year of 2018 ( to be paid on 16 Aug 2018)
Year 2017
Final single Tier dividend of 5.52% at 1.38 cents for financial year of 2017 ( to be paid on 17 Aug 2018)
Year 2016
Interim dividend of 4% at 1 cent for financial year of 2015 ( to be paid on 20th Apr 2016 )
Final dividend of 8% at 2 cents for financial year of 2016
Dividen Payment HistoryWorld top 30 MDF manufacturer with capacity of 1.3M cubic meter per year & Largest MDF manufacturer in South East Asia based on installed capacity.
EFB has 10 MDF production lines and 1 particleboard production line with total capacity for MDF of 1,200,000 m3 and particleboard of 120,000 m3 per annum.
Presently, our products are distributed to over 40 countries with a total of 500 over customer base.
Major risk to growth are raw material pricing, currency, interest rate fluctuation, market over capacity & MDF & Particleboard Price Drop. The risks are being managed and controls are in place to mitigate these risks as much as possible that are within the group's control.
Around 21% over past 7 years from 2010-2003
Around 15% over past 7 years from 2011-2004
Around 12% over past 7 years from 2012-2005
10.17% in FY 2003, 17.56% in FY 2004 , 14.4% in FY 2005, 13.23% in FY 2006, 22.00% in FY 2007, 12.45% in FY 2008, 12.04% in FY 2009, 13.92% in FY 2010, 7.66% in FY 2011, 12.84% (Restated) in FY 2010, 7.75% (Restated) in FY 2011, 3.78% in FY 2012
QUESTIONS RAISED BY MSWG IN 21ST AGM.
OPERATIONS & FINANCIAL PERFORMANCE
a) How was the operation in Indonesia (51% owned) which recorded an increased segmental revenue of RM39.62 million from RM8.35 million, but a loss of RM10.16 million (2010 loss of RM7.62million). How soon does the Board expect to turn around the operations?
For year 2012, the management was able to resolve most of the technical and operational issues as well as improve machines efficiency. With recent months operation performance, and the Board expect a turnaround in its Indonesian in the 3Q 2012.
b) Is the Thailand operations back to normal and if not, what steps have been taken by the board?
Yes our Thailand Operations has been back to almost normal since January 2012.
2. As disclosed in Note 42 (b), a complaint / legal suit for damages of up to US50 million (RM152 million) had been files against EFB by Dynea Chemicals OY (Dynea), a Joint Venture (JV) partner of EFB for alleged b reach of their JV agreement and breach of a technology transfer agreement. Kindly brief shareholders on the nature of the JV agreement given that there was no information / disclosure on the JV in the annual report.
Dynea Krabi is a company incorporated in Thailand and was initiated by Plaintiff 1, a company incorporated in Finland with the other plaintiffs for the purpose of manufacturing and supply of Resins to, inter alia, Plaintiff 4 by way of a Joint Venture Agreement dated 8th May 2002 (“Joint Venture Agreement”). Dynea Krabi is licensed with technology and product process by Dynea Singapore Pte Ltd, a company duly registered under the law of Singapore and related to Plaintiff 1 (hereinafter called “DSP”) through Technology Transfer Agreement made between DSP and the Dynea Krabi (hereinafter called the “Technology Transfer Agreement;
EFB became a shareholder of Dynea Krabi through the execution on 6 May 2005 of Addendum 2 to the Joint Venture Agreement (“JVA”) with the Plaintiffs. The commercial basis of the joint Venture is that EFB shall subscribe up to 25% equity interest of Dynea Krabi and EFB is to procure its wholly owned subsidiary in Thailand, Siam Fibreboard Co., Ltd., (hereinafter called “SFC”) to purchase 100% of SFB’s resin requirements (“Resin”) from Dynes Krabi. The price of the Resin in this agreement shall be reviewed after the period of five (5) years from the date of the commencement of the sales. Notwithstanding the above provisions, SFB shall be entitled to purchase the Resin from other third party, if:
(i) the price of the Resin is not competitive when comparing to the price of the third party, provided that such low price of the third party shall not be a case of one-time discount ;or
(ii) the Company cannot fulfill or give priority on the purchase order made by SFB; or
(iii) the Company cannot produce the Resin complying with SFB’s specifications and quality.
This was formalized through the execution of a Supply Agreement entered into between Dynea Krabi and SFC on 1st June 2006 under which similar terms were adopted in relation to the supply and purchase of Resin. It is provided in the Supply Agreement that the term is for a period of 5 years and maybe extended with the agreement of both parties and parties are to negotiate and agree on the terms of extension and other conditions to be provided thereto. In event of any dispute between the parties, it shall be settled by arbitration pursuant to Arbitration Rules of the Ministry of Justice, Thailand.
EFB and SFC has prior to the expiry of the Supply Agreement negotiated with the Chairman of Dynea Krabi on the pricing and the negotiation failed due to the parties not agreeing on the price. An open Tender was called by SFC in order to secure the best price for SFC’s resin supply. Amongst other Tenderers, Dynea Krabi was also invited to tender its best price but they refuse to participate in this tender citing not necessary and not appropriate. Upon closure of tender, it was made known to Dynea Krabi to send in their best price but they fail to do so again and SFC awarded EACG who participated in the open Tender, the supply contract for 2 (two) years.
In order to reduce cost and to secure reliability of the supply of Resin and as it was not restricted in the Joint Venture Agreement, EFB’s wholly owned subsidiary Evergreen Adhesive & Chemical Sdn. Bhd was set up in Parit Raja, Johor to manufacture and supply Resin which commence production in 2008 and in 2010, another wholly owned subsidiary Evergreen Adhesive & Chemicals (Gurun) Sdn. Bhd. was set up in Gurun, Kedah to manufacture and supply Resins as well. Both plants used Metal Oxide technology and is licensed from Cal Polymers, Inc USA. which is different from that of Dynea Krabi using Silver technology. Since 2008, there was never any notification or complaint received by EFB or SFC or its employees from any of the Plaintiffs or Dynea Krabi, written or oral, of any breach of technology or of the setting up of the manufacturing and supply of Resins . It is also not specified or particularized in the Complaint as to what technology has been allegedly breached by EFB.
3. During the year, the company acquired 50% interest in Evergreen Agro Sdn. Bhd (EASB) to carry out planting works, and 100% interest in Evergreen Plantation Resources Sdn. Bhd. (EPR) which was to acquire 100% interest in Jasa Wibawa Sdn. Bhd. (JWSB) for the purpose of embarking on the business of replanting of rubber trees as a form of upstream venture. How was the financial performance of JWSB since the award of the rights to extract and replant timber latex clones on a piece of land / forest measuring 4410 acres in 2007.
Since the award of right in year 2007, Jasa Wibawa has cumulative loss of 730k which is caused by unsuccessful of replanting by the previous owners. However, cumulative losses is insignificant compared to the future benefits which is able to derive from the land.
4. What is the nature of the land use rights of RM17.46million (2010:RM16.05 million) (see Note 16) and other intangible assets amounting to RM237,628 (2010: Nil) (See Note 15).
In Accounting Standards, leasehold land that Group owns are to be categorized under "Land use right". Other intangible assets refer to license of software program obtained during the year.
5. As at 31 December 2011, has sufficient credit in the 108 balance and tax exempt profit to pay franked dividends amounting to RM116,970,000 (2010:RM115,072,000) out of its retained earnings (see Note 35). How does the Board propose to utilize the Section 108 tax credit before the end of the transitional period?
The Group will utilized majority of it for future franked dividend.
CORPORATE GOVERNANCE
MSWG is promoting standards of Corporate Governance best practices in PLCs. In this regard, we hope the Board would give consideration to address the following issues:-
The Board takes note of the issue highlighted and will consider the changes needed.
2. Include in the Annual Report, the Group’s 5-Year Financial Highlights as such information / data are very useful to shareholders and potential investors.
The Board takes note of the recommendation for its future annual reports.
3. We note that the Board had identified a Senior Independent Non-Executive Director (INED) to whom concerns may be conveyed. We would encourage the Board to provide the contact details of the Senior INED for shareholders to raise their concerns and queries, including whistle blowing.
Senior INED Contact :
Mr Yong Kok Fong
Mobile No: 019-7797777
Email address: kokfong@hotmail.comSTRATEGIC & FINANCIAL MATTER
1) We noted that the Group’s revenue declined by 2.8% and the profit after taxation also dropped by 49.4% for FY 2012. The Group’s latest unaudited financial performance for the 1st quarter of FY 2013 had also turned into losses after taxation of approximately RM10.7million. What concrete measures have been taken to address the Group’s deteriorating financial performance and when is the group expected to turn profitable again?
Answer:-
We believe you are referring to the 4th quarter of FY 2012.
The prolonged European debt crisis and the civil unrest in the Middle East countries have affected the demand for our products. Additional capacities from new plants and/or additional lines from competitors in Indonesia, Thailand and Vietnam had further impacted the prices and all this has therefore created a price war within the same industry worldwide.
The increase in cost of our raw materials and the currency fluctuation had all seriously affected profit margins of the Group.
In this situation, the Group has embarked on a strategy of having to reduce the cost of production to be able to be competitive in the current market. Therefore, a tight budget has been placed across the group and all capital expenditures have been put on hold for the time being.
Nevertheless, the Group can only strive to stay competitive in such a weak market but the profitability is very much depended on the worldwide demand of our products.
2) What was the reason for the Group to make advance payments to suppliers in FY 2012 up to approximately RM88.2million which was 203.8% higher than the advance payments to suppliers of RM29.0million made in FY 2011?
Answer:-
The advance payments were made for log concession projects (our main raw material) which we normally obtain from open tender bidding. This is to secure a consistent supply on majority of our log requirements. As to the increase between FY2011 & FY 2012, there were many areas open for tender in 2012 and we managed to secure the volume needed for the coming 1-2 years and therefore this has resulted in the increase of advances in year 2012.
3) The segmental result in Indonesia has never shown profitability since the Company started its operation in Indonesia in FY 2007. What steps have been taken by the Board and how soon does the Board expect to turn around the operation in Indonesia? Did the Board consider exiting the operation in Indonesia to stop any further losses?
Answer:-
As mentioned in our previous reply, the management had managed to resolved majority of the technical and operational issues as well as improved the machines efficiency in 2012. However, our Board’s expectation for a turnaround in the 3Q 2012 was not realized due to some quality issues of which has since been overcome and the drop in market demand for MDF in the 3Q. Nevertheless, our Indonesian operation issues have all been resolved and their performance has since turn positive.
4) We noted that the Company had acquired additional shares in Evergreen Plantation Resources Sdn. Bhd. (“EPRSB”) for a cash consideration of RM37, 999,900 on 19 December 2012. Kindly enlighten shareholders on the following:-
(i) What are the principal activities of Evergreen Plantation Resources Sdn. Bhd?
(ii) What were the percentage ratios for this transaction in accordance to the definitions of Section 10.02(g) of Bursa Malaysia’s (“Bursa”) Main Market Listing Requirements?
(iii) Was the transaction a related party transaction?
(iv) Was an announcement required to be released on Bursa’s website?
(v) Was shareholders’ approval required for this transaction?
Answer:-
(i) Evergreen Plantation Resources Sdn. Bhd principal activities are Managing of Plantation and is a wholly owned subsidiary of the Company.
(ii) The percentage ratios for this transaction were below 5%.
(iii) No, it was not a related party transaction in accordance to Bursa Main Market Listing Requirements but purely a transaction between the holding company and its wholly owned subsidiary.
(iv) No announcement was required as it was a subsequent increase in paid up capital of a wholly owned subsidiary of the Company.
(v) No Shareholders’ approval was required.
** Transactions between holding & wholly own subsidiary are excluded from the scope. Please refer to 10.02 (l) & (iii).
CORPORATE GOVERNANCE
MSWG is promoting certain standards of Corporate Governance best practices in PLCs. In this regard, we hope the Board could address the following:-
1) As in our previous letter to the Company, we had stated our view that where a resolution such as the proposed Resolution 6 tabled is in advance for shareholders’ approval, the basic rights of shareholders to deliberate on the Directors’ fees once a year would be disenfranchised. The Board replied that the view of MSWG had been noted without any further explanation.
In view of the above, MSWG would like to urge the Board to explain the rationale for the Board to seek approval for the payment of Directors’ fees for FYE 31 December 2013 in advance (see Resolution 6)?
Answer:-
The Board had deliberated on this matter and due to the changes in the Board of Directors we have decided to seek shareholders’ approval in advance for this FYE 31 December 2013.
We refer to your letter dated 20th May 2014 and hereby append below our explanation to the questions being raised.
STRATEGIC & FINANCIAL MATTER
1) Question : -
Could the Board outline the strategies on controlling the production and logistic cost as these two costs has contributed to the group’s losses in FYE 2013? How much would the Board expect the cost savings to be and what would be the expected savings to drive the Company to profitability.
Answer:-
The increase in cost of production was mainly due to the decrease in our volume of production due to the lower demand of our products while the increase in the logistic cost was due to the further distance new markets / country that our finish products were exported. Therefore, the near to normal cost of production will only be seen once we increase our production volume to the maximum when the demand increases. As for the logistic cost, we need the global market for our exports and will be able to export to nearer markets/country if and when demand of our products increases in these markets.
2) Question :-
In the Chairman’s Statement, it was mentioned that the drop in the selling price of the Company’s products was partly due to additional capacity from the regional producers in
Indonesia, Thailand and Vietnam. Would the Board consider any Acquisition or Merger (M&A)
to mitigate competition and have better economies of scale?
Answer:-
Acquisition or Merger with regional producers will no doubt mitigate competition and we are always open to any good deals. However the Board is of the view that the sudden influx of additional capacity will required a period of time for it to be absorbed by the current markets and hopefully with the European debt crisis over plus the mellowing of the civil unrest in the Middle East Countries, this additional capacity could be easily absorbed by these markets.
3) Question :-
Could the Board explain whether the additional capacity and the drop in selling price are expected to prevail in the next few years and what is the outlook for this year?
Answer:-
As mentioned above, the sudden influx of additional capacity will require a period of time for the market to absorb while the selling price will move in tandem with the supply and demand of the markets. Nevertheless, prices are seen on a slow and steady rise in our 2Q.
4) Question :-
Could the Board inform the shareholders the nature of the fine for offences on violation of the Environment Act and Factory & Machinery Act? Could the Board explain the measures taken to mitigate the risks from recurring?
Answer:-
The nature of fines are mainly due to fine dust emission, water contents at point of discharge to public drains not meeting requirements by the Department of Environment and Unsafe Acts or Lack of Supervision that may have caused industrial accident within the group of companies. Measure such as repairs to environment control equipment and machineries has been done. However, minor offences cannot be entirely mitigated due to the nature of the group’s core operations which is the wood industry.
5) Question :-
Please provide the major components of the “Other Expenses” amounting to RM4.96 million and explain the reasons for the significant increase when compared with FYE 2012.
Answer:-
Major components in the “Other Expenses” consist of unrealized foreign exchange losses amounting to RM4.2million and on the other hand, in the “Other Income” consist of realized foreign exchange gains of RM3.5million.
CORPORATE GOVERNANCE
MSWG is promoting certain standards of Corporate Governance best practices in PLCs. In this regard, we would like the Board to address the following:-
1) Question :-
In accordance with the Malaysian Code on Corporate Governance 2012 (“MCCG 2012”) Recommendation 3.3, the Board must provide justification and seek shareholders’ approval in the event it retains an Independent Director who has served in that capacity for more than nine (9) years.
We noted that in the case of one of the Directors who had served 10 years based on the disclosure in the Annual Report as an Independent director, there is neither any justification nor any resolution tabled to shareholders for approval of his retention as an independent director. Please explain.
Answer:-
The Company was listed on the Main Board in March 2005 and this Director was appointed an Independent Director upon our listing. He would have therefore completed his 9th year service as an Independent Director on March 2014 and will be retiring at this coming AGM in accordance with Recommendation 3.3 of the Malaysian Code on Corporate Governance 2012.
2) Question:-
We hope and encourage the Board to publish the Minutes or the Summary of Minutes of the General Meetings on the Company’s website to be in line with the spirit of transparency and good corporate governance practices based on the ASEAN CG Scorecard which is being used to assess the level of CG Standards of PLCs in Malaysia by MSWG.
Answer:-
Yes we will publish the summary of minutes of the annual general meeting on our company’s web site.
We refer to your letter dated 15th May 2015 and hereby append our reply to the questions being raised.
STRATEGIC & FINANCIAL MATTER
1) Question : -
The Group reported a profit after tax of RM1.5million in FY 2014 compared to a loss of RM45 million in FY 2013. The turnaround was due to a rise in demand from the global MDF market and lower cost of sales. What is the global outlook of MDF market 2015 and how the group positions itself in the current market condition? What measures would be taken by the Group to further improve its profit?
Answer:-
The Global outlook of the MDF market in 2015 in terms of increase in demand and selling prices is slow and steady. The Group has position itself into strengthening its operation efficiency for an effective cost control throughout the group and together with the current appreciation of the US dollar will therefore further improve profits.
2) Question :-
Could the Board explain the cost control measures taken in FY 2014 that could in some way help the Group to turn around from a loss position to profitability?
Answer:-
Some of the cost control measures taken by the Group in FY 2014 that help in the turnaround was restructuring of non- preforming operation, carrying out automation and modernization of machineries to enhance cost and productivity .
3) Question :-
What was the reason for the Group to dispose its subsidiary, Evergreen Hevea Resources Sdn. Bhd. (“EHR”) for a cash consideration of RM10. Please explain the basis in arriving at the sales consideration and what would be the impact to the Group’s financial position?
Answer:-
“EHR” has ceased its business operation since 4Q 2014 with no material assets and furthermore it does not contribute to the Group’s profitability. The basis in arriving at the sales consideration was on a willing buyer willing seller by taking into account the value of the net liabilities in “EHR” and the potential counter claim. The impact to the Group will be on the provision made for Doubtful Bad Debts approximately RM2.3 million.
4) Question :-
As mentioned on Note 39 of the Annual Report, EHR has meritorious counterclaim against Naza Industries Sdn. Bhd., the plaintiff. What is the latest position of the claim and was this fact taken into consideration for the disposal of EHR?
Answer:-
The latest position on the case is that its pending for a date on trial by the High Court .Yes, all facts, figures and risk analysis were taken into consideration prior to the decision made by the Board to dispose “EHR”.
CORPORATE GOVERNANCE
Request :-
MSWG is promoting standards of Corporate Governance best practices in PLCs. In this regard, we would hope the Board could publish a summary of minutes of the general meetings on the Company’s website to be in line with the spirit of transparency and good corporate governance practices based on the ASEAN CG Scorecard to assess the level of CG standards of PLCs in Malaysia.
Reply:-
Yes we shall publish the summary of minutes of the annual general meeting on our company’s web site.
Request :-
We would appreciate if the Board could present the points raised here and their related answers, for the shareholders present at the AGM.
Reply:-
Yes the Board will present all points raised in our coming AGM for shareholders present and for the benefit of other shareholders, points will also be posted on our website.
Strategic & Financial Matters
1) Question : -
As reported in the Chairman’s Statement, In FY15, the management embarked on a series of internal restructuring initiatives to improve the Group’s performance.
Please share on the results and what further steps to be taken as well as the timeframe to complete the exercise?
Answer:-
There are four main parts to the internal restructuring that the Group has and are going through in as to enable the Group to improve its performance. They were:
a) Modernization and Automation of the Chipper & Finishing Line in our Batu Pahat Plant has been completed in 4Q of 2015. The objective of this project was for a cost reduction in terms of reduced manpower that will eventually have a reduction in cost of production being realized in the 1Q 2016 performance;
b) Increase in Production Volume of our Ready to Assemble (RTA) Furniture by installation of a fully automated production line and the objective of this project was to be able to have a reduction of manpower and a lower cost of production from the increase of production volume. The installation of this fully automated production has been completed end April 2016 and is in the stage of trial production. Profits contributed from this project will only be seen in the 3Q ~ 4Q of 2016;
c) Relocation / refurbishment of our existing Medium Density Fibreboard Plant in Masai, Johor is in the process of being relocated to Segamat, Johor and refurbishment work is currently being carried out. It is expected to be completed in the 3Q 2016 and will start contributing to the Group’s revenue and profits in 4Q 2016 ~ 1Q 2017; and
d) Last but not least, the upgrade of our Particle Board Plant in Segamat is currently on-going and is expected to be completed in the 4Q 2016 ~ 1Q 2017 and will start contributing to the group’s revenue and profits in 1Q 2017 ~ 2Q 2017.
2) Segmental Reporting ( Page 127 of the Annual Report 2015/AR2015)
Question:-
In FY2015, almost 30% of Malaysia’s revenue was from Internal –segment, is there any plan to source for the revenue from external customers? What is the targeted revenue mix contribution of the external customers and Internal-segment for the next few years?
Answer:-
The revenue from Internal –Segment is mainly from the Glue Plant which was originally set up for that capacity to supply to all our subsidiaries in order to have control over our quality of Medium Density Fibreboard produce as glue is one of the main and important components. As for our raw Medium Density Fibreboard being sold internally is for the purpose of Lamination process which is carried out by some of our subsidiaries. Hence, we do not foresee any plans to source for external customers on this portion of revenue.
3) Question :-
The Group will be looking into producing higher premium products which will enable it to have higher profit margins particularly on the Ready to Assemble (RTA) Furniture. Currently, the contribution of RTA to the Group’s total revenue is less than 5%.
a) What is the current production volume for RTA and to what level that the production volume has been targeted to achieve in the long run?
Answer:-
The Current production volume for RTA is 30 ~40 containers a month and we target to achieve approximately 80 containers a month in the long run.
b) What would be the future revenue contribution (in percentage) of RTA to the Group’s total revenue, targeted profit margin as well as the geographical market segment?
Answer:-
The future revenue contribution from the RTA to the Group is targeted to be around 8% with a targeted profit margin of approximately 8%. The targeted geographical market segment is as below:-
Market Segment | % |
Europe | 40% |
South East Asia | 15% |
Far East | 15% |
Oceania | 25% |
Others | 5% |
TOTAL | 100% |
4) Question :-
The Group have budgeted approximately RM106.5 million for CAPEX for FY2016. Please provide the nature and breakdown of the CAPEX.
Answer:-
The Breakdown of CAPEX is as follows:-
RTA Projects - 10%
Relocation of MDF plant to Segamat - 2%
Particle Board Project - 70%
Other machines enhancement from various plants - 18%
Total - 100%
5) Significant Event during the financial year (Page 130 of AR2015)
Question:-
On 7 July 2015, the Company through its wholly-owned subsidiary, Siam Fibreboard Co., Ltd. obtained an operating license for the incorporation of its wholly–owned subsidiary, Siam Furniture (Shanghai) Co., Ltd. in Shanghai, Republic of China.
Please update shareholders on the status of the Company and its operations.
Answer:-
This Company was originally set-up for the purpose of marketing & distributing the semi & finish products of our Thailand subsidiary into the China Market. We are currently in the midst of studying a viable marketing and distribution channel for the Company.
Corporate Governance
Request:-
MSWG is promoting standards of Corporate Governance best practices in PLCs. In this regard, we hope the Board would give due consideration to address the following issues:-
1) The recent amendments to Chapter 9, Paragraph 9.21(2) of the Main Market Listing Requirements requires companies to publish the summary of key matters discussed at the AGMs onto the companies’ website for AGMs held on or after 1 July 2016. In line with this, we hope the Board would publish the summary of proceedings for this AGM on the Company’s website.
Reply:-
Yes we shall publish the summary of key matters discussed in the coming annual general meeting on our company’s web site.
2) Publishing key financial information and analysis e.g. the five year financial highlights, data ratios such a return on assets, return of equity, etc.
Reply:-
Yes we shall publish the key financial information and analysis of five years including data ratios on return of assets and equity as requested.
Request:-
We would appreciate if the Board could present the points raised here and their related answers, for the shareholders present at the AGM.
Reply:-
Yes the Board will present all points raised here in our coming AGM and also on our website for shareholders present and for the benefit of other shareholders. However, in maintaining certain level of confidentiality, information(s) pertaining to the Group’s Strategic Business Plans, will be posted limitedly on our website.
Our Ref : EFB/ADM/0148-2017
Date : 18th May 2017
Badan Pengawas Pemegang Saham Minoriti Berhad (By Fax 03-20709107 & Hand)
Tingkat 11, Bangunan KWSP,
No.3, Changkat Raja Chulan,
Off Jalan Raja Chulan,
50200 Kuala Lumpur.
Dear Sir / Madam,
RE : Twenty-Sixth (26th) Annual General Meeting (AGM) of
Evergreen Fibreboard Berhad (“the Company / Group”)
-------------------------------------------------------------------------------
We refer to your letter dated 16th May 2017 and hereby append our reply to the questions being raised.
Strategic & Financial Matters
1) Chairman’s Statement and Management’s Discussion & Analysis (pages 22-27 of the Annual Report 2016)
Question:
a. During the financial year, the restructuring programme on the Group’s wood products plant, Craft Master Timber Products Sdn. Bhd. had enabled it to reduce losses. The Group foresees a turnaround in 2017 via lease of assets.
i) In terms of cost savings, how much costs had been saved from the restructuring programme and please share on the details of the cost savings.
Answer:
In FY2016, Craft Master Timber Products Sdn. Bhd. (CMTP) reported a net loss of RM7.1million. Included in the net loss are impairment of goodwill, impairment & loss on disposal of plant & equipment amounting to RM4.6millon and depreciation expenses of RM0.8million. For FY2015, CMTP had reported a net loss of RM5million. Upon completion of restructuring at the end of FY2016, CMTP is asset light and generate income from its remaining assets via lease. Lease income is projected to be sufficient to cover the minimal expenses of CMTP.
ii) What are the costs associated with it?
Answer:
There is no other cost incurred aside from those reported in 1) a (i) above as the restructuring CMPT was focus to cut off losses derived from production operations. We have now leased out part of the assets and receiving a fix lease income that is above our minimal expenses currently incurred.
b. The Group has already established its markets in Europe, Australia and Japan for its Ready to Assemble Furniture products and China for its Solid Wood Furniture, alming to increase its production volume in order to gain more market share in these markets and at the same time penetrate into potential new markets.
i) What is the Group’s current total production volume and the targets for FY2017?
Answer:
At the end FY2016, the Group’s total production volume for Ready-To-Assemble Furniture (RTA) products was 422 x 40’containers. For FY2017, the Group is targeted to produce 600 x 40’ containers.
ii) With regard to the market share, we noted that Europe had only contributed 5% to the Group’s total market share. What would be the targeted (in terms of percentage) market share from Europe moving forward?
Answer:
Europe constituted 3% of the Group’s total turnover in 2016.
Out of the 3%, 2% constitute RTA products. It is the Group’s strategy to increase its RTA sales to Europe by approximately 10% annually.
MDF makes up the remaining 1% or so of which we do not expect significant change.
iii) Could the Board share the challenges faced by the Group in these markets?
Answer:
Due to the fact that the Group is building up its RTA capacity, the challenges faced so far are orders which are seasonal and design trends that change rapidly.
iv) What other markets that the Group is planning to penetrate into?
Answer:
In respect of RTA, the Group is currently focusing on increasing its market share in our existing markets and plans to penetrate into the US market with higher end products.
c. In terms of operation, what are other improvements expected to be achieved in FY2017.
Answer:
Production Efficiency are our Group’s continuous improvement plans and in addition are to reduce inventory level in the group. Furthermore, with the Group Particle Board (PB) line having commenced trial operations, an increase in the Group’s production volume is expected for FY2017.
d. With the introduction of the state-of-the-art technology Particle Board Line, the Group would focus on penetrating its local market and China’s niche market in order to have a higher profit margin.
i) Please share with shareholders on the special features of the state-of-the-art technology Particle Board Line.
Answer:
The PB Line is designed to run thin PB and cope well with low-emissions PB and this plant is highly automated requiring lesser manpower and handling.
ii) What is the Group’s plant’s current capacity and what would be the expected total capacity to be achieved once the new line comes into operation?
Answer:
The old PB line which ceased operations in 2013, had a capacity of 120,000m3 per annum and the new line will have a capacity in excess of 250,000m3 per annum.
iii) In terms of market share, how many percent of the local and China’s niche markets are being targeted by the Company? Please brief on the China’s niche market and the challenges.
Answer:
In the initial stage of operations, PB will be supplied mainly to the local market which has a shortage of PB and eventually export 30-40% to China. We are yet to see the challenges of exporting to this market.
e. In addition to lowering its production cost, the Group will focus on producing higher premium products that are able to enhance the Group’s profit margins. How much orders for the higher premium products have been received from customers to-date?
Answer:
Currently our orders for Premium products constituted more than 50% of the Group’s MDF orders.
f. What are the key performance areas and financial targets that have been set by the Group for FY2017 and forward?
Answer:
The Group Key Performance Areas for 2017 is on increasing Quality Control, Cost Control, Reduction of inventory holding and penetrating of new markets and Higher financial targets have been set for FY2017.
2) Trade receivables (Amount past due and impairment)
Question:
The Group’s trade receivables that are more than 120 days past due but not impaired had increased significantly by more than 100% from RM197.8k in FY2015 to RM1.3 million in FY2016.
The Group had also impaired RM124k of the receivables at the end of 2016.
Are these amounts recoverable and how much have been collected to date?
Answer:
These amounts are recoverable and a total of RM0.6million has been collected to date.
Corporate Governance Matters
We noted that there is no resolution pertaining to approval of payment of directors’ other benefits pursuant to Section 230 (1) of the Companies Act 2016.
Does it mean that during FY2017, no allowances or benefits-in-kind or any other benefits would be paid to the directors until a resolution is tabled at the AGM in 2018 and shareholders’ approval obtained? Please explain.
Explanation:
Yes, shareholder’s approval will be sought at the AGM in 2018 prior to any payment of allowances or benefits in kind to Directors for FY 2017.
The Company will be presenting the above questions and answers to shareholders at the coming AGM and it will also be posted on our website for the benefit of all shareholders.
Our Ref : EFB/ADM/2018
Date : 24th May 2018
Badan Pengawas Pemegang Saham Minoriti Berhad (By Fax 03-20709107 & Hand)
Tingkat 11, Bangunan KWSP,
No.3, Changkat Raja Chulan,
Off Jalan Raja Chulan,
50200 Kuala Lumpur.
Dear Sir,
RE : Twenty-Seventh (27th) Annual General Meeting (AGM) of
Evergreen Fibreboard Berhad (“the Company / Group”)
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We refer to your letter dated 24th May 2018 and hereby append our reply to the questions being raised.
Strategic & Financial Matters
1) The Group’s geographical market presence spreads to more than 5 continents as listed in the table below:-
Continent FY2017 FY2016
Asia 55.5% 47.5%
Middle East 34.1% 42.0%
United States 5.0% 5.1%
Europe 2.7% 3.0%
Others 2.7% 2.5%
Question:
What was the main reason for the increase of its market share in Asia and the reduction of its market share in Middle East?
Answer:
a) The Group prefers to diversify its markets to avoid geographical concentration risk. The Group possesses well-established marketing network in all major trading continents, especially in East Asia and Middle East. As such, the Group is able to shift its products to take advantage of trading conditions favourable to the Group at the prevailing times. The reduction in our exposure to the Middle East market is mainly due to the strengthening Ringgit which makes local prices in Malaysia more attractive and this helps to reduce the Group’s exposure to Middle East which poses some degree of geo-political risks. Furthermore, Malaysian sales is bolstered by the sales of particleboard to the local furniture manufacturers.
Which new segment of customers the Group plans to target?
Answer:
b) The Group already has a long-term and established market presence in most markets. The Group fine-tunes its segmental distributions by diversifying into other products such as premium boards, particleboard and its downstream operations.
2. As reported in the Management Discussion and Analysis on page 28 of the Annual Report, due to the slight delay in the completion of refurbishment work on its MDF Line that was moved to Segamat, Johor, the line is now due for commercial run in the 2nd quarter of 2018.
Question :
Has the Group commence the commercial run ?
Answer:
The MDF Line in Segamat, Johor has been fully relocated, refurbished and is undergoing machinery testing. We estimate full commercial run to commence by the 3rd quarter of 2018.
3. The Group’s production efficiency for its panel board has declined due to the shortage of rubber wood supply in the first half of 2017.
What was the production efficiency level before and after the shortage of rubber wood supply?
Answer:
The rubber wood supply shortage due to weather conditions occurred mostly in Malaysia which has resulted in the Malaysian panel board plants’ production efficiency to drop from 85% efficiency during normal period to below 80% during the wood supply shortage period.
4. Amount written off for property, plant and equipment increased significantly by 242% to RM29.271 million in FY2017 from RM8.560vmillion in FY2016.
Please explain the nature of this write-off?
Answer:
The property, plant and equipment written off during FY2017 consists of machinery in our Line 3 Thailand plant which was damaged by a fire incident but was fully covered by insurance, and obsolete & damaged PPE due to restructuring and refurbishment.
5. The Group recorded realised loss on foreign exchange of RM7.285 million in FY2017 compared to a gain of RM7.542 million in FY2016.
(i) What is the reason for the Group to record foreign exchange loss of RM7.285 million?
Answer:
The loss is mainly due to weakening of the United States Dollars against the Malaysian Ringgit.
(ii) What are the control mechanism put in place to mitigate such failures?
Answer:
There is no question of failure. The Group has a policy of not hedging its USD proceeds and converts it at the prevailing rate upon receipt.
Corporate Governance Matters
1) We noted that there is no resolution pertaining to approval of payment of directors’ other benefits pursuant to Section 230 (1) of the Companies Act 2016.
Does it mean that during FY2018, no allowances or benefits-in-kind or any other benefits would be paid to the directors until a resolution is tabled at the AGM in 2019 and shareholders’ approval obtained?
Explanation:
Yes, shareholder’s approval will be sought at the AGM in 2019 prior to any payment of allowances or benefits in kind to Directors for FY 2018.
2) The Company did not disclose the senior management’s remuneration component in bands of RM50,000 as recommended under Practice 7.2 of MCCG and there was no explanation of a suitable alternative practice to meet the intended outcome.
Under Paragraph 3.2A(b), Practice Note 9 of the Main Market Listing Requirements, the Company must disclose the alternatives the Intended Outcome as set out in the MCCG.
Explanation :
As mentioned in our Annual Report 2017, the remuneration and benefit package of our top five Key Officers / Senior Management is not being declared in bands of RM50,000 due to sensitivity reasons in the Company / Group as well as to safeguard our key staffs against being poached by our competitors.
Nevertheless, the Board takes note on recommendation under Practice 7.2 of the MCCG and will look into alternative disclosure that is able to safeguard the interest of the group.
3) While we note that the Company has 2 women directors on board and the Board remains committed in maintaining female representation on Board, there is no policy on gender diversity. Practice 4.5 of MCCG requires that the Board discloses in its annual report the company’s policies on gender diversity, its targets and measures to meet those targets.
Explanation :
The Board is currently reviewing the Policy on Diversity for the Board as well as the Senior Management which will be included as part of the Terms of Reference of the Nomination Committee on Sourcing and Appointment of Directors and Senior Management.
The Company will be presenting the above questions and answers to shareholders at the coming AGM and it will also be posted on our website for the benefit of all shareholders.
Thank you.
Yours Sincerely,
Evergreen Fibreboard Berhad
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Mary Henerietta Lim
(Group Executive Director)