Ge-Shen Corporation Berhad: Annual Report 2017

Transcription

1. (Company No. 633814-X) GROWING TOGETHER GE-SHEN CORPORATION BERHAD (633814-X) (Company No. 633814-X) ANNUAL REPORT 2017 Corporate headquarters: Unit No. 13-05 & 13-07, Menara MBMR No. 1 Jalan Syed Putra Utara, 58000 Kuala Lumpur Tel: 03-2785 0975 Johor Address: No. 11, Jalan Riang 23, Taman Gembira, 81200 Johor Bahru, Johor Tel: 07-3355196 Fax: 07-3357799 w w w . g s corp . co m . m y 2017 ANNUAL REPORT
3. TABLE OF CONTENTS Corporate Information 4 Corporate Structure5 Our Philosophy 6 7 Our Culture Main Subsidiaries 8 Financial Highlights 10 Chairman ’s Statement12 Directors’ Profile 14 Key Management Team 19 Our Journey 24 25 Management Discussion & Analysis 32 Sustainability Reporting Geographical Footprint 42 Manufacturing Capabilities 44 46 Corporate Governance Statement Statement on Risk Management and Internal Control 58 Audit and Risk Committee Report 62 Statement of Directors’ Responsibilities 66 in The Preparation of Financial Statements
5. Investing FOR THE LONG TERM
6. 4 GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 CORPORATE INFORMATION BOARD OF DIRECTORS SA ’ADON BIN SAMADIIndependent Non-Executive Chairman CHAN CHOONG KONGManaging Director TEO CHIN SWEEExecutive Director TEE BOON HINIndependent Non-Executive Director Chew Hoy Ping Independent Non-Executive Director (Appointed on 28 June 2017) Teo Hin Guan Independent Non-Executive Director (Resigned on 11 May 2017) Company Secretaries Chua Siew Chuan (MAICSA 0777689) Mak Chooi Peng (MAICSA 7017931) Registered Office Level 7, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Damansara Heights, 50490 Kuala Lumpur. Tel : 03-2084 9000 | Fax : 03-2094 9940 / 03-2095 0292 Corporate Headquarters Unit No.13-05 & 13-07, Level 13, Menara MBMR, No.1, Jalan Syed Putra Utara, 58000 Kuala Lumpur. Johor Office No. 11, Jalan Riang 23, Taman Gembira, 81200 Johor Bahru, Johor Registrar Securities Services (Holdings) Sdn. Bhd. (Company No: 36869-T) Level 7, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Damansara Heights, 50490 Kuala Lumpur. Tel : 03-2084 9000 | Fax : 03-2094 9940 / 03-2095 0292 Principal Bankers Al Rajhi Banking & Investment Corporation (Malaysia) Berhad Affin Bank Berhad Alliance Bank Berhad CIMB Bank Berhad Malayan Banking Berhad Public Bank Berhad RHB Bank Berhad Website www.gscorp.com.my Stock Exchange Listing Bursa Malaysia Securities Berhad (Main Market) Auditors Crowe Horwath AF 1018 Chartered Accountants E-2-3 Pusat Komersial Bayu Tasek, Persiaran Southkey 1, Kota Southkey, 80150 Johor Bahru, Johor, Malaysia. Tel : 07-2886 627 | Fax : 1700 813 460
7. GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 CORPORATE STRUCTURE Listed on Bursa Malaysia in 2004 Stock Code : 7197 | Bloomberg Ticker: GSCB:MK 100% 100% Ge-Shen Plastic (M) Sdn. Bhd. (1995) Ge-Shen (Vietnam) Co. Ltd. (2006) Johor 100% Polyplas Sdn. Bhd. (1988) Penang 100% Polyplas Medical Sdn. Bhd. (1995) Penang Hanoi 100% 70% Ezec Technology (M) Sdn. Bhd. (2000) Johor Demand Options Sdn. Bhd. (1997) Johor 100% GS Lapis Labs Sdn. Bhd. (2001) Kuala Lumpur *Formerly known as GWJ Precision Mould (M) Sdn. Bhd. 40% DOSB Technology Pte. Ltd. (2004) Singapore 5
8. 6 GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 OUR Philosophy We are a company that looks forward and embraces change , redesigning ourselves to face tomorrow’s big issues. Our core principles of Integrity, Transparency, Ownership, Respect and Speed continues to guide our growth and maintain our success. We focus on bringing our customers’ ideas to life. Facing a highly demanding environment, well-engineered manufacturing solutions are critical for smooth delivery of products to the marketplace. With our engineering expertise, Ge-Shen Corporation Berhad aims to deliver a hassle-free uncompromised experience, letting our customers focus on designing and selling their products. Our vision is to be a global components manufacturer that provides the best customer experience.
9. GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 OUR Culture I NT EGR IT Y Maintain high levels of personal and professional values in business interactions and decisions TRA N S PA R E N CY Uphold honesty and openness without compromising the truth to enable better analysis and decision making OWN ER SHIP Being responsible and accountable for actions , products, services, decisions, and policies made RE S P E C T Respect for the individuals we interact with and the environment that we operate in (internally and externally) and committing to being responsible in all our actions   SP EED Accelerating value creation in fulfilling customers’ requirements and business goals. 7
10. 8 GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 MAIN SUBSiDIARIES POLYPLAS SDN . BHD. No. 2056, Mukim 14, Lorong IKS Bukit Minyak 5, Taman IKS Bukit Minyak, 14100 Bukit Mertajam, S.P.T Pulau Pinang, Malaysia From left to right: Cindy Ang, Anbarasu, Malveen, Allan Vincent, SM Wong, SL Teoh, James, Maggie, Ismail, Kopal, Haracharan, Govinsamy, CC Bong GE-SHEN PLASTIC (M) SDN. BHD. EZEC TECHNOLOGY (M) SDN. BHD. No. 11, Jalan Riang 23, Taman Gembira, 81200 Johor Bahru, Johor Darul Takzim, Malaysia From left to right (front row) Daniel Wong, Abdul Rahman, Mohd Rafie, Justin Yin, CK Lee, YL Goh, YW Tay, KH Tew From left to right (middle row) Janet Lee, Murukan, Jamalul, Irene Goh, Wendy Liew, TA Koo, BH Ooi, KT Chong From left to right (back row) KP Ong, Yiss Toh, YC Lee
11. GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 MAIN SUBSiDIARIES GE-SHEN (VIETNAM) CO. LTD. Dai An Industrial Zone, Hai Duong City, Hai Duong Province, Vietnam From left to right: Nguyen Thi Lam Son, Pham Thi Phuong, Bui Quy Tuan, Pan Yan Sin, Deng Tu Hua, Lim Kwee Guan, Wen Guanghua, Goh Eng Yau, Jason Teo Sing Hua, Nguyen Huy Thuc, Vu Thi Hoan, Bui Thanh Thom, Nguyen Thi Thao DEMAND OPTIONS SDN. BHD. No. 6 & 8, Jalan Mahir 5, Kawasan Perindustrian Desa Cemerlang, 81800 Ulu Tiram, Johor Darul Takzim, Malaysia From left to right (standing) Cheong Kin Wai, Tan Kok Kheong, Kong Kai Ho, Haw Lee Fern, Lai Bee E, Satia Tang, Betty Yrawati, Ooi Peck Koon, Chan Bee Hoon, Foong Mow Yuh, Tan Wee Keck, Lim Boon Tat From left to right (sitting) Renante Dudas Quito, Tan Sook Wee, Mok Wai Sum, Lim Ee Teow, Har Yeow Cheong, Chan Kah Weng, Lee Kooi Huat 9
12. 10 GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 FINANCIAL HIGHLIGHTS FINANCIAL YEAR ENDED 31 DECEMBER 20132014201520162017 FINANCIAL PERFORMANCE (RM’000) (i)Revenue 80,384 85,000137,441185,510228,389 (ii)Profit before tax 6,919 8,41820,78422,61916,077 (iii)Profit attributable to Owners of the Company 2,197 2,544 12,692 15,232 10,556 FINANCIAL POSITION (RM’000) ASSETS (i)Total tangible assets 73,413 68,007107,845171,161190,866 (ii)Net assets43,63546,56488,23790,736 102,599 (iii)Current assets37,19239,07663,29187,67995,519 LIABILITIES AND SHAREHOLDERS’ FUNDS (i)Current liabilities25,24618,90037,45273,14676,112 (ii)Paid-up share capital40,00040,00040,00040,00045,643 (iii)Shareholders’ funds43,56346,56474,67185,15196,780 PER SHARE (i)Basic earnings (sen)* Continuing Operations 6.30 8.46 15.59 18.52 12.44 Discontinued Operations (3.44) (5.16)N/AN/AN/A Overall Basic earning (sen)* 2.86 3.30 15.59 18.52 12.44 (ii)Diluted earnings (sen)** Continuing Operations N/A N/A13.1214.4910.02 Discontinued OperationsN/AN/AN/AN/AN/A (iii)Net assets (RM) *0.570.610.971.111.26 * Based on weighted average number of shares issued (‘000)76,90876,90876,90876,90876,911 ** Based on weighted average number of shares, assumption on conversion of the remaining Redeemable Convertible Preference Shares (“RCPS”) N/A N/A *** Based on number of shares issued (‘000) 80,000 80,000 98,442 106,908 107,333 80,000 80,000 80,019 FINANCIAL RATIOS (i)Return on total tangible assets (%) 3% 4% 14% 10% 6% (ii)Return on shareholders’ funds (%) 5% 5% 17% 18% 11% (iii)Current ratio (times)1.472.071.691.201.25 (iv)Debt-to-equity ratio (times)-0.12-0.24-0.05 0.48 0.52
13. GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 REVENUE (RM’000) 228,389 137,441 PROFIT BEFORE TAX (RM’000) 185,510 20,784 22,619 16,077 80,384 85,000 8,418 6,919 2013 2014 2015 2016 2017 2014 2015 OVERALL BASIC EARNING (SEN) PROFIT ATTRIBUTABLE TO OWNERS OF THE COMPANY (RM’000) 12,692 2013 15,232 15.59 2016 18.52 10,556 2,197 2013 NET ASSETS (RM’000) 43,635 12.44 2,544 2014 2015 2016 2017 102,599 88,237 90,736 2.86 3.30 2013 2014 2015 NET ASSETS PER SHARE (RM) 0.97 2016 1.11 2017 1.26 46,564 0.57 2013 2017 2014 2015 2016 2017 2013 0.61 2014 2015 2016 2017 11
14. 12 GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 Chairman ’s Statement Dear Shareholders, On behalf of the Board of Directors, I am pleased to present the Annual Report and Audited Financial Statements of Ge-Shen Corporation Berhad (“GSCorp”) for the financial year ended 31 December 2017 (“FYE 2017”). Financial Performance The Group recorded a revenue of RM228.39 million representing an increase of 23% from RM185.51 million in the preceding financial year. The higher revenue was a result of Group consolidation of the full 12 months results of a newly acquired subsidiary, Demand Options Sdn. Bhd. in the current FYE 2017 as compared to 5 months results in the preceding financial year. Higher revenue was also driven by an increase in sales demand from existing and new customers. The Group’s profit before tax fell from RM22.62 million in the preceding financial year to RM16.08 million in the current FYE 2017. The drop was due to higher raw material cost, employee benefits expenses, higher depreciation arising from additional capital expenditure and higher foreign exchange loss. As at FYE 2017, GSCorp has cash and cash equivalent of RM8.54 million, its net assets per share stood at RM1.26 and Shareholders’ Funds was RM96.78 million. A more detailed review of the Group’s performance is covered under the section on “Management Discussion and Analysis” in this Annual Report.
15. GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 Chairman ’s Statement Business Plan and Prospects The Group is progressing towards automation and new technologies. Additional CAPEX to increase the Group’s manufacturing capacity and the enhanced level of automation will continue to drive the Group’s overall prospects. Automation enables the Group to reduce operating cost, improve productivity and quality to meet growing demand and gain more sales. Furthermore, automation will hedge the risk of future increases in labour cost. The Group is looking towards factory expansion across its subsidiaries to increase factory space and manufacturing assets to improve sales, improve cost structure and gain economies of scale. The new facility in Vietnam is expected to be fully operational in the 2nd quarter of 2018 which is expected to improve cost structure and increase production capacity. The proposed acquisition of land and building by Ge-Shen Plastic (M) Sdn. Bhd. allows Management to make long term plans for a more efficient factory. Corporate Governance The Group recognises the importance of good corporate governance in the creation of shareholders’ value. To this effect, we will ensure that management processes are enhanced and that the corporate structure remains responsive and transparent. We have measures in place including stringent risk management and internal control procedures to ensure transparency, accountability and integrity are maintained in managing the Group’s businesses. Appreciation On behalf of the Board of Directors, I would like to express our sincerest appreciation to our valued shareholders, customers, business partners, government authorities and other stakeholders for their continued guidance and support. I also wish to extend my heartfelt gratitude to the Board members, management team and staff for their commitment and contribution towards the growth of the Group. I am confident that GSCorp will continue to prosper and look forward to a fruitful year in 2018 with the continued support from all our stakeholders. 13
16. 14 GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 Directors ’ ProFIle SA’ADON BIN SAMADI Age 66, Male, Malaysian, (Independent Non-Executive Chairman) Encik Sa’adon Bin Samadi was appointed to the Board on 2 May 2013. He was subsequently appointed as the Independent Non-Executive Chairman of the Company and also the Chairman of the Nomination and Remuneration Committee on 31 May 2013. He was appointed as Audit and Risk Committee member on 22 July 2016. Effective 11 August 2016, he was appointed as the Chairman of the Employees’ Share Options Scheme Committee. Encik Sa’adon started his career as a Market Research Officer in 1975 with the Malaysian Investment Development Authority (MIDA), a Malaysian government agency responsible for the promotion and coordination of the manufacturing and service sectors in the country. During his service in MIDA, he was assigned to various divisions involved in approvals for manufacturing licenses, incentives and import duty exemption; policy, research and planning; international cooperation; investment promotion; and coordination with the Federal and State government agencies. Between 1990 and 1995, he was posted to MIDA Tokyo as Deputy Director to promote and facilitate investment to Malaysia from Japan. He also held the position of director of MIDA in Johor and MIDA Headquarters in Kuala Lumpur from 2003 until his retirement in 2008. After retirement, he joined HSBC Bank Malaysia Berhad as a Director of Strategic Business Development, South Region for a year. Currently, Encik Sa’adon is engaged in some consultancy and advisory assignments with a few private and listed corporations. Encik Sa’adon obtained his Master of Business Administration (MBA) from Sam Houston State University, Texas, USA in 1986 and a Bachelor of Science in Business Administration (Marketing) from the University of Louisiana, Louisiana, USA in 1984. He has recently attended various courses conducted by Bursa Malaysia Securities Berhad and relevant international conferences. Encik Sa’adon does not hold directorships in other public companies and listed issuers. He does not have any family relationships with any member of the Board or major shareholder of the Company. He does not have any conflict of interest with the Company and neither has he been convicted of any offence within the past 5 years (other than traffic offences, if any), nor any public sanction or penalty imposed by regulatory bodies during the financial year.
17. GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 Directors ’ ProFIle CHAN CHOONG KONG Age 56, Male, Malaysian (Managing Director) Mr. Chan Choong Kong was appointed to the Board on 23 April 2015 as an Executive Director. On 9 September 2015, he was appointed as Joint Managing Director and was subsequently redesignated as Managing Director on 29 February 2016. He is a member of the Nomination and Remuneration Committee of the Company. Effective 11 August 2016, he was appointed as a member of the Employees’ Share Options Scheme Committee. Mr. Chan obtained his BA in Economics from Trinity College, Cambridge University, England in 1984. He started his career in the First National Bank of Boston, Hong Kong from 1984 to 1985 in the Shipping and International Banking division. Subsequently, he joined Wardley Investment Services (Hong Kong) Ltd. (presently known as HSBC Asset Management) in 1985, and his last position in HSBC Asset Management when he left in 1992 was Director and Chief Regional Strategist (Asia ex Japan markets). In 1993, he established the Asian business of TCW Asia Limited, a US based asset management company where he was responsible for introducing the Asian and Emerging markets capability to the US pension funds. In 1996, he left Hong Kong and returned to Malaysia to establish Gadek Asset Management where he built the company into a full fledge asset management company with multi asset class capabilities. Gadek Asset Management was later sold to Phileo Allied Bank and he continued to manage the business as Managing Director until 1999. In 1999, he co-founded Pan Asia Capital Management Ltd., a Pan Asia private equity firm that has offices in Kuala Lumpur, Hong Kong, Seoul and Bangkok. He was the Co-Principal and Director of the firm until 2006. At the same time in 2002, he co-founded Sakura Management Limited (based in Hong Kong), a private equity business that focused on Japanese real estates. He has since exited these businesses to concentrate on his Malaysian based activities. He founded Opus Asset Management Sdn. Bhd. in 2006. Presently, Mr. Chan is the Non-Executive Chairman and principal shareholder of an asset management company in Malaysia that specialises in the management of fixed income assets; he is also an adviser to a Malaysian based private equity management company. Aside from these, he is also a director of several other private companies but not of any public listed companies either in Malaysia nor elsewhere. He has no conflict of interest with the Company and neither has he been convicted of any offence within the past 5 years (other than traffic offences, if any), nor any public sanction or penalty imposed by regulatory bodies during the financial year. 15
18. 16 GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 Directors ’ ProFIle TEO CHIN SWEE Age 57, Male, Malaysian (Executive Director) Mr. Teo Chin Swee, was appointed to the Board on 3 June 2004 and he is one (1) of the pioneers of the Group. He started his career in Fuyu Mfg Singapore Pte. Ltd. from 1979 to 1984. Subsequently, he joined Technology Plastronics (S) Pte. Ltd. and was promoted to Production Director in 1990. He joined Precision Plastic Industries (M) Sdn. Bhd. as Operation Director in 1992 to 1995. He founded Ge-Shen Plastic (M) Sdn. Bhd. in 1995. Mr. Teo does not hold directorships in other public companies and listed issuers. He does not have any family relationships with any member of the Board or major shareholder of the Company. He has no conflict of interest with the Company and neither has he been convicted of any offence within the past 5 years (other than traffic offences, if any), nor any public sanction or penalty imposed by regulatory bodies during the financial year.
19. GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 Directors ’ ProFIle TEE BOON HIN Age 56, Male, Malaysian (Independent Non-Executive Director) Mr. Tee Boon Hin was appointed to the Board on 20 April 2009. He was appointed as the Chairman of the Audit and Risk Committee on 31 May 2013. He is also a member of the Nomination and Remuneration Committee of the Company. Mr. Tee is an Approved Tax Agent and Approved Company Auditor. Mr. Tee graduated with a Bachelor of Commerce Degree from the University of Canterbury, New Zealand in 1985. He was trained and qualified as a Chartered Accountant with the international firm, KMG Kendons in New Zealand where he received extensive experience in the audit of Trusts and the retail industry. He then continued his working experience in New Zealand with the international firm, BDO Hogg Young Cathie where he gained substantial exposure to the hospitality industry. He returned to Malaysia to join Pricewaterhouse Coopers (“PwC”) where he gained further experience in corporate advisory services in valuation and raising of finance (listing) and audits or securities, hospitality, manufacturing, fabrication and retail industries. In 1993, he commenced public practice under the name of Tee & Partners providing audit, tax and corporate advisory services. He also specialises in financial modelling and managing tax risk for small and medium enterprises in property development and construction, and the retail sectors. He is also actively involved in his local Parents Teachers Association where he helped raised funds for the construction of the multipurpose hall of the primary school in 2015. Mr. Tee is an Associate of the Chartered Accountants of Australia and New Zealand, an Associate of the Governance New Zealand Incorporated, a Chartered Accountant of the Malaysian Institute of Accountants and a Fellow of the Chartered Tax Institute of Malaysia. Mr. Tee is currently sitting on the Board of Directors of Paragon Globe Berhad (formerly known as Goh Ban Huat Berhad) as an Independent Non-Executive Director and as an Alternative Director of the Board of Al-Ikhsan Sports Sdn. Bhd. He was formerly an Independent Non-Executive Director Eco World Development Group Berhad for 14 years. He does not have any family relationships with any member of the Board or major shareholder of the Company. He does not have any conflict of interest with the Company and neither has he been convicted of any offence within the past 5 years (other than traffic offences, if any), nor any public sanction or penalty imposed by regulatory bodies during the financial year. 17
20. 18 GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 Directors ’ ProFIle CHEW HOY PING Age 61, Male, Malaysian (Independent Non-Executive Director) Mr. Chew Hoy Ping was appointed to the Board on 28 June 2017. He is also a member of the Nomination and Remuneration Committee and Audit and Risk Committee. He is a member of Malaysian Institute of Certified Public Accountants (MICPA). Mr. Chew had a professional career with Pricewaterhouse Coopers (“PwC”) commencing in 1976 and spanning 30 years, including 15 years as a partner of the firm. Whilst at PwC, he was involved in a diverse range of professional services including auditing, corporate finance and business recovery. He held several leadership roles in PwC including Asia Pacific Chairman of Financial Advisory Services, Risk Management & Independence Leader, Deputy Chairman of the Governance Board, and a member of the Country Management Team. He also served work experiences with PwC Houston, Texas (1982-1984) and Bank Negara Malaysia (1986-1988). He was the Chief Financial Officer of Southern Bank Berhad (subsequently acquired by CIMB) for about a year until 2006. Mr. Chew is currently an Independent Non-Executive Director of Mulpha International Berhad (MIB), Carlsberg Brewery Malaysia Berhad and Mudajaya Group Berhad (MSC) where he is the Chairman of the respective Audit Committees. He does not have any family relationships with any member of the Board or major shareholder of the Company. He does not have any conflict of interest with the Company and neither has he been convicted of any offence within the past 5 years (other than traffic offences, if any), nor any public sanction or penalty imposed by regulatory bodies during the financial year.
21. GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 Key Management Team CHAN CHOONG KONG Nationality / Age / Gender Malaysian / 56 / Male Date of Appointment 23 April 2015 Academic / Professional Qualification(s) BA in Economics from Trinity College, Cambridge University, England Present Directorship(s) Ge-Shen Corporation Berhad Listed Entity Nil Other Public Companies Nil Working Experience He started his career in First National Bank of Boston, Hong Kong from 1984 to 1985 in the Shipping and International Banking division. Subsequently, he joined Wardley Investment Services (Hong Kong) Ltd. (presently known as HSBC Asset Management) in 1985, and his last position in HSBC Asset Management when he left in 1992 was Director and Chief Regional Strategic (Asia ex Japan markets). In 1993, he established Asian business of TCW Asia Limited. In 1996, he left Hong Kong and returned to Malaysia to establish Gadek Asset Management until 1999. In 1999, he co-founded Pan Asia Capital Management Ltd. and was Co-Principal and Director until 2006. At the same time, he co-founded Sakura Management Ltd. until 2006. He founded Opus Asset Management Sdn. Bhd. in 2006. He joined Ge-Shen Group in April 2015 as an Executive Director. In September 2015, he was appointed as Joint Managing Director and subsequently redesignated as Managing Director in February 2016. TEO CHIN SWEE Nationality / Age / Gender Malaysian / 57 / Male Date of Appointment 3 February 1996 (Ge-Shen Plastic (M) Sdn. Bhd.) 3 June 2004 (Ge-Shen Corporation Berhad) Academic / Professional Qualification(s) Completed Secondary Education Present Directorship(s) Ge-Shen Corporation Berhad Listed Entity Nil Other Public Companies Nil Working Experience Joined Fuyu Mfg Singapore Pte. Ltd. from 1979 to 1984. Subsequently, he joined Technology Plastronics (S) Pte. Ltd. and was promoted to Production Director in 1990. He joined Precision Plastic Industries (M) Sdn. Bhd. as Operation Director in 1992 to 1995. He founded Ge-Shen Plastic (M) Sdn. Bhd. in 1995 and was subsequently appointed to the Board of Ge-Shen Corporation Berhad on 3 June 2004. 19
22. 20 GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 Key Management Team LOUIS LAU PUONG KIET Nationality / Age / Gender Malaysian / 32 / Male Date of Appointment 1 April 2015 Academic / Professional Qualification(s) Bachelor of Commerce from University of Western Australia Present Directorship(s) - Listed Entity Nil Other Public Companies Nil Working Experience Joined CIMB Investment Bank Berhad in 2008 as a Management Trainee and was attached in CIMB Private Equity & Venture Capital from 2009 until 2012. He was with CMS Opus Private Equity from 2012 to 2015. He joined Ge-Shen Group in April 2015 as Head of Group Strategy & Monitoring team and currently sits on various subsidiary Board. YIN SIEW PENG Nationality / Age / Gender Malaysian / 53 / Male Date of Appointment 16 January 2012 Academic / Professional Qualification(s) Master of Business Administration from Akamai University, USA Present Directorship(s) - Listed Entity Nil Other Public Companies Nil Working Experience Joined Ernst & Young in 1989. Moved to Danone Group as Financial Accountant from 1994 to 1996 and joined Leekee Industries (M) Sdn. Bhd. from 1996 to 2001 in various positions. His last position was Managing Director before he left in 2011. He joined Ge-Shen Corporation Berhad in 2012 as Chief Financial Officer. He also serves as CEO of Ge-Shen Plastic (M) Sdn. Bhd.
23. GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 Key Management Team WONG YEE KEH Nationality / Age / Gender Singaporean / 60 / Male Date of Appointment 3 February 1996 Academic / Professional Qualification(s) Completed Secondary Education Present Directorship(s) - Listed Entity Nil Other Public Companies Nil Working Experience Joined Sincere Home Appliances Pte. Ltd. in 1974 and subsequently moved to Fuyu Mfg Singapore Pte. Ltd. from 1979 to 1984, Kay Kay Plastic Singapore Pte. Ltd. from 1985 to 1987 and Unitech Plastic Pte. Ltd. from 1987 to 1989. He went on to work in Technology Plastronics (S) Pte. Ltd. as Operation Director from 1989 to 1993 and subsequently worked for Precision Plastic Industries (M) Sdn. Bhd. as Managing Director from 1993 to 1995. He founded Ge-Shen Plastic (M) Sdn. Bhd. in 1995. He was appointed as the Managing Director of Ge-Shen Corporation Berhad on 3 June 2004 but retired from the post of Managing Director on 29 February 2016. He continues to serve as a Director in Ge-Shen Plastic (M) Sdn. Bhd. now. TAKEO YAMAMOTO Nationality / Age / Gender Japanese / 73 / Male Date of Appointment 1 September 2004 Academic / Professional Qualification(s) Bachelor of Engineering in 1964 from Kyoto Institute of Technology Present Directorship(s) - Listed Entity Nil Other Public Companies Nil Working Experience He worked in various plastic injection moulding company for 38 years before he joined Ge-Shen Plastic (M) Sdn. Bhd. in 2004 with the title of Marketing Director. 21
24. 22 GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 Key Management Team ALAN ANTHONY A /L WENSENT @ VINCENT Nationality / Age / Gender Malaysian / 43 / Male Date of Appointment 23 July 2009 Academic / Professional Qualification(s) Degree from German Malaysia Institute Present Directorship(s) - Listed Entity Nil Other Public Companies Nil Working Experience His carrier started at CS Metal Ind. (M) Sdn. Bhd. in 1997 as a Manufacturing Engineer; a metal stamping and sheet metal fabrication industries and moved to JPK (Malaysia) Sdn. Bhd. group of companies in 2004; a precision plastic injection moulding company. He was attached to Sales Marketing & Group Project Management Division as a Senior Manager. He joined Polyplas Sdn. Bhd. on 23 July 2009, and held a few positions including Engineer Manager and Chief Technical Officer before being appointed as Chief Executive Officer in 2017. HAR YEOW CHEONG Nationality / Age / Gender Malaysian / 49 / Male Date of Appointment 11 September 1997 Academic / Professional Qualification(s) MBA in 2014 from Nottinghamshire Of New University Present Directorship(s) - Listed Entity Nil Other Public Companies Nil Working Experience Joined Stamping Industries Pte. Ltd. in 1988 and moved on to Stamping Technology Pte. Ltd. in 1989 to 1993. He joined GP Manufacturing Pte. Ltd. in 1993 until 1998. He founded Demand Options Sdn. Bhd. in 1997. MOK WAI SUM Nationality / Age / Gender Malaysian / 49 / Male Date of Appointment 11 September 1997 Academic / Professional Qualification(s) Institute of Technical Education Singapore in 1993 Present Directorship(s) - Listed Entity Nil Other Public Companies Nil Working Experience Joined Stamping Industries Pte. Ltd. in 1988 and moved on to Stamping Technology Pte. Ltd. in 1989 to 1995. He then continued his career in Case Engineering Pte. Ltd. in 1993 before leaving in 1998. He founded Demand Options Sdn. Bhd. in 1997.
25. GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 Key Management Team LIM EE TEOW Nationality / Age / Gender Singaporean / 61/ Male Date of Appointment 11 September 1997 Academic / Professional Qualification(s) Institute of Technical Education Singapore in 1993 Present Directorship(s) - Listed Entity Nil Other Public Companies Nil Working Experience He worked in various metal stamping and fabrication company for 26 years. He founded Demand Options Sdn. Bhd. in 1997. IAN CHAN TZE LIANG Nationality / Age / Gender Malaysian / 28 / Male Date of Appointment 1 April 2015 Academic / Professional Qualification(s) BS in Economics and Finance from University of Bristol Present Directorship(s) - Listed Entity Nil Other Public Companies Nil Working Experience He has experience working as an investment manager for a boutique London based investment fund covering UK wide assets. He joined Ge-Shen Group in April 2015 as a Vice President and was appointed as the director for GS Lapis Labs Sdn. Bhd. in 2017. Notes: 1. Family Relationship with Director and/or Major Shareholder Mr. Ian Chan Tze Liang is the son of Mr. Chan Choong Kong, a major shareholder and Managing Director of Ge-Shen Corporation Berhad. He is also a Director of Pelita Niagamas Sdn. Bhd., a major shareholder of Ge-Shen Corporation Berhad. Save as disclosed herein, none of the Key Management team members have any family relationships with any other Director and/or major shareholder of Ge-Shen Corporation Berhad. 2. Conflict of Interest None of the Key Management team members have any conflict of interest with Ge-Shen Corporation Berhad. 3. Conviction of Offences None of the Key Management team members have been convicted of any offences (excluding traffic offences) within the past 5 years and there were no public sanctions or penalties imposed by the relevant regulatory bodies during the financial year. 23
26. 24 GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 OUR Our journey 1988 JOURNEY Polyplas Sdn . Bhd. was incorporated Ge-Shen Plastic (M) Sdn. Bhd. was incorporated 1997 1995 Demand Options Sdn. Bhd. was incorporated Ezec Technology (M) Sdn. Bhd. was incorporated with ‘Pioneer Status’ 2001 2000 GWJ Precision Mould (M) Sdn. Bhd. was incorporated Ge-Shen Corporation Berhad was incorporated 2004 Listed on Bursa Malaysia Ge-Shen (Vietnam) Co. Ltd. was incorporated 2015 2003 2006 Acquired Polyplas Sdn. Bhd. Acquired Demand Options Sdn. Bhd. 2016 GWJ Precision Mould (M) Sdn. Bhd. was renamed to GS Lapis Labs Sdn. Bhd.
27. GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 MANAGEMENT DISCUSSION AND ANALYSIS Managing Director ’s Message The journey for Ge-Shen Corporation Berhad (‘GSCorp’) as we seek to transform from a manufacturing business with two locations and approximately RM85mil in turnover during the financial year ended 2014 to one today which is spread over four locations and turnover in excess of RM200mil can be best described as challenging and progress has to be fought for, carefully and slowly. The need for scaling up of our business was discussed quite extensively in my discussion last year and this has really to do with risk diversification and also achieving economies of “scale” to allow for greater operational flexibility and profitability. The transformation that the management of GSCorp is seeking is not just to have revenues of RM200mil, but the ambition is to be pushing the needle further along and embrace more modern manufacturing methods as well as increasing our capabilities as we move along the path to be multi component manufacturer in the consumer electronics, industrial, healthcare and possibly greater presence in the automotive and aerospace sector as well. CAPITAL EXPENDITURE: EXPANDING OUR CAPACITIES This necessarily involves us in increasing our capacity as manufacturing at our level is still determined by our ability to have capacity in order to generate turnover. To this end, since the last annual report we have contracted to buy into additional factory space or vacant land in Penang and Johor and the building up of the facility in Vietnam. The facility in Vietnam is going to be an interesting one, as we have transformed our operations from a cramped and under invested rented factory, to one which is designed in a modern and more catered towards future use. It is currently being fitted out as a better designed facility for injection moulding and secondary processes such as spray painting. The total square footage of the new factory is approximately 100,000 sq ft which is an increase by a factor of about 42% from the previous facility. A better factory layout with modern facilities will allow us to be manufacturing with greater efficiency and effectiveness thereby delivering quality products to our customers, which is very much the holy grail for manufacturers. As we are writing this report, the factory in Vietnam is in the final stages of fitting out and already enquiries from customers (new and existing) have increased, so we are hopeful of its success. We have also announced our intention to buy over a factory space in Johor which was previously rented, as by having ownership of the space allows us to have the security of tenure in order to make long term operational improvement to the layout of the whole manufacturing facility. Elsewhere the additions were less significant in terms of size and are of the opportunistic nature (for example, due to adjoining land) or for operational improvement. We do, however, believe that this pace of physical expansion may be slower in the coming two to three years as we try to use these resources more intensively. All in all, the square footage of factory space increased from approx. 90,000 sq ft in 2014 to over 360,000 sq ft in 2017. We expect this to be approx. 470,000 sq ft in Dec 2018. We have over the past 12 months: • In progress, the construction of a new block of warehouse/factory by Ge-Shen (Vietnam) Co. Ltd. (Figure 1) on the long term subleased land (announced 8 December 2016) for eventual complete transition (Figure 2). • Completed renovation of annexed three-storey office and warehouse (Figure 3) by Ge Shen Plastic (M) Sdn. Bhd. on the freehold industrial land (announced 18 November 2016). • Proposed acquisition of land (Figure 4) by Polyplas Sdn. Bhd. which is currently empty. • Proposed acquisition of land together with one unit of detached factory (announced 12 February 2018) GeShen Plastic (M) Sdn Bhd which is currently rented. • Completed acquisition of Land and Building (Figure 5) by Demand Options Sdn. Bhd. which is now extended to existing facility (Figure 6). 25
28. 26 GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 MANAGEMENT DISCUSSION AND ANALYSIS Figure 1 Figure 2 Figure 3 Figure 4 Figure 5 Figure 6 INVESTING IN CAPABILITIES Much as we like to discuss about the more visible aspect of the expansion , the other aspect which is less visible is about the investment in modern manufacturing methods such as better Enterprise Resource Planning (ERP) capabilities as well as Manufacturing Execution Systems (MES) which will form the platform or foundation for the future scaling up of our production capabilities in the future. The future of manufacturing is also about the need to embrace more automation and hence manufacturing information systems is a prerequisite for automation. Moreover as our principals push for Industry 4.0 capabilities themselves, we as supporting industries are incumbent to follow as well, otherwise we will be left behind and we are not able to support these first tier principals. We also need to invest in these systems as future growth in capacity and capability will be difficult to organize and scale resulting in the organisation taking on risks that we may not be aware of or being able to manage. Very often the challenge of adopting new methods is the organisational preparedness and also the ability to transcend the inertia and comfort that has been inherent in an undisturbed environment for a long time. The challenge is also to adapt the necessary systems to our own manufacturing methods and customize the solutions to provide the needed information that is pertinent to the management in order to be able to have the kind of control and risk awareness for the business to be effectively managed. Investment in skilled manpower and manufacturing process is also another important investment which we must continuously focus on otherwise the business would stagnate and slide down the capability curve; hence training and selective hiring is part of the ongoing process of upgrading our skill set. IMPACT ON FINANCIAL PERFORMANCE All these investments naturally come at a cost, some of which is very visible and impacts upon our bottom line, such as the need to pay for the capital expenditure and the resulting depreciation that comes along with it as well as increased interest costs that needs to be borne and in other cases the distraction of management time. Therefore when judging the reported profitability of GSCorp, regard must be given to the increased investments and the depreciation that is incumbent with any piece of capital expenditure and also the financing cost that is incurred. The increase in depreciation was a significant factor which went from RM5.0mil in 2014 to RM9.5mil for the reported 2017 accounts. The financing costs in terms of interest payments also seen a similar increase from RM0.4mil in 2014 to RM3.4mil in 2017. Therefore if we were to judge the business on the operational profitability prospective, EBITDAF (earnings before interest, taxation, depreciation, amortisation, and forex changes) went from RM11.2mil in 2014 to RM31.7mil in 2017. For this period of intensive investment, it is gratifying for us to able to generate such a significant increase in cashflow. In terms of other matrices which are deemed important is the overall gearing of the GSCorp, we have endeavoured to maintain gearing at a reasonable level of below one time (currently at 0.67 times) and also Debt Service Cover Ratio of above 2 times (currently at 2.92 times), meaning that debt servicing is not excessive and kept under control.
29. GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 MANAGEMENT DISCUSSION AND ANALYSIS Borrowings 41 % 59% Long Term Short Term + Overdrafts Before moving on a discussion on the financial performance, I would like to touch on a bit of the macro aspect of the business environment. Manufacturing is a global business and the global trends as at now is showing a bit of a mixed picture. The much discussed trade friction between America and her trading partners is a potential spanner in the works and we do not know how it will impact us in South East Asia. Generally speaking, any trade barriers is bad for global businesses so the natural reaction is that it will be negative to us. However, if we were to examine the issues carefully and be so bold as to suggest that the US tariff is a more direct tilt at China, then the shift in global supply chain out of China may serve to benefit manufacturers in South East Asia. In reality how this plays out is something that is too early to speculate on, but we remain vigilant in facing up to the changes. The competitive shift in the landscape is also forcing us to react very quickly as product mix and product life cycle changes quickly, therefore impacting us on our capacity utilization hence impacting our revenues firstly and consequently on our profitability as well. Summary of Group Financial Performance 2014 2015 2016 2017 Revenue 85,000 137,441 185,510 228,389 Earnings before Interest, Tax, Depreciation, Amortisation & Forex (EBITDAF) 11,225 21,679 29,289 31,720 Profit & Loss (RM’000) Profit before Tax (PBT) 8,418 20,784 22,619 16,077 Profit after Tax (PAT) 6,510 14,993 16,967 10,846 Profit after Tax and Minority Interest (PATMI) 2,544 12,692 15,232 10,556 8.46 15.59 18.52 12.44 68,007 136,571 202,356 222,061 7,463 12,355 55,275 64,445 46,564 74,671 85,151 96,780 2.07 1.69 1.20 1.25 27.51 27.00 13.72 9.48 7.33 8.49 4.03 2.92 13.21% 15.77% 15.79% 13.89% Net Margin (%) 7.66% 10.91% 9.15% 4.75% Gearing (times) 0.16 0.17 0.65 0.67 Earnings per share (sen) Balance Sheet (RM’000) Total Assets Total Borrowings Equity attributable to owners of the Company Financial Ratios Current Ratio (times) Interest Cover Ratio (times) Debt Service Coverage Ratio (times) EBITDAF Margin (%) Asset Turnover (times) Return on Equity (%) 1.25 1.01 0.92 1.03 5.46% 17.00% 17.89% 10.91% 27
30. 28 GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 MANAGEMENT DISCUSSION AND ANALYSIS In terms of financial performance , we had a year of two halves.The first half when the quarterly reports showed that we were enjoying good profitability and then the second half when it showed that we were struggling with our profitability and margins under pressure. The first half would have been the normal course of events when an increase in turnover would naturally result in us being able to enjoy higher profitability; however what happened in the second half would need a little bit more explanation. In the second half the largest item of negative impact was the foreign exchange movement when the strengthening of the Malaysian Ringgit created an adverse impact of close to RM2.8mil on our profitability. While we are transitioning our billings to a Ringgit regime, we are still subjected to our customers’ preference and also raw materials pricing which is still to a certain extent USD based. This negative impact is something which we are a little bit powerless to control and would just have to accept as a normal course of operating a business in an international environment with leads and lags inherent in the manufacturing process. In addition, the Group incurred employee benefits expenses of RM1.48mil for the Employee Share Option Scheme (“ESOS”) in 2017. Year-on-year, the Group’s revenue has grown by RM42.9 million (+23%) to RM228.4 million from RM185.5 million in FY2016. This upsurge is largely attributable to consolidation of the full 12 months results of the newly acquired subsidiary, Demand Options Sdn Bhd (“DOSB”) in the current financial year ended 31 December 2017 as compared to 5 months results in FY2016. Higher revenue was also driven by an increase in sales demand from existing and new customers across the group. REVENUE (RM’mil) 228.39 137.44 31.72 EBITDAF (RM’mil) 185.51 29.29 21.68 85.00 11.23 2014 2015 2016 2017 2014 2015 2016 2017 However, the other part is that there were indeed margin pressures on some segments of our business as we were faced with higher manpower costs and also the impact of some slippages in our manufacturing performance arising from new customers and new product introduction which resulted in a worsened margin position. We were also faced with increased costs in our Vietnam factory as we transition from the old factory to the new factory which was an inefficient use of resources and to a certain extent a duplication of some of our processes and manpower. These costs should be much better under control after the complete shift in 2H2018. As for the one or two of the other factories, the issue is one of growing pains of how to manage the issue of increasing customer requirements against the present capabilities and how we manage the growth in a more efficient manner. The other challenge is that manpower costs have risen quite disproportionately as we are constantly faced with increased cost pressure in wages but also the scaling up of sales also brought along requirements for an increase in number of headcount at the factory floor as well and hence we are faced with the double whammy of both an adverse outcome in unit costs, as well as the absolute number of headcount. Another issue is that in an attempt to stabilise manufacturing rejects, change in the methods are needed and most definitely more costs is likely to be incurred in the future. Costs are likely to increase as we reconfigure our factories layout to be more efficient. And this means that there is short term collateral damage in terms of profitability in the near term. However the fact is that these are all necessary improvements that needs time and effort to be expanded on and we are confident in the full course of events, it will result in us being able to have a more consistent and sustainable increase in revenue, margins and profitability in the future. The Group has implemented policies and procedures to improve its working capital management with
31. GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 MANAGEMENT DISCUSSION AND ANALYSIS Total Financing (RM’000) Total Assets (RM’000) 2016 2017 55,275 64,445 202,356 222,061 Gearing 0.65 0.67 Percentage of Short Term Financing 43% 41% Percentage of Long Term Financing 57% 59% Inventory Days 61 50 Receivable Days 96 88 125 96 Payable Days The Group has implemented policies and procedures to improve its working capital management with the aim of minimizing receivable risks and inventories built up. Receivables and inventory monitoring on a regular basis in addition to understanding our customers’ business activities helps in risk mitigation. Close monitoring resulted in decrease in inventory days from 61 days to 50 days and receivable days from 96 days to 88 days. INVESTORS RELATIONS We always emphasise that shareholders should be investing on a long term basis and that the progress of a company should not be judged purely by the short term share price performance. However, we the management of GSCorp are not insensitive to the sharp movements in the share price over the past 12 months and in particular the period after the fourth quarter 2017 results were announced. The volatility of the share price could be due to a premature judgement that GSCorp might have been successfully transformed and therefore assigned higher Price Earnings valuations (PER) for the company prior to the second half of 2017. However it is rarely that projections goes up in a straight line trajectory as various short term factors comes into the picture as we discussed earlier.The second half results of 2017 seemed to be rather disappointing and the share price reacted badly and abruptly and at one point the traded price was down to as low as RM0.84. At that price, GSCorp was trading well below net asset value which is at 1.26 and on a historic price earnings ratio of 7 times. Movements of share prices are as much driven by emotions as well as rational thought therefore in times of tremendous emotional euphoria and distress, the volatility on both the upside and downside was accentuated. This is further heightened by the fact that we are essentially a small cap stock with limited liquidity. At that same time, the whole manufacturing export sector was similarly faced with similar “bad results” and coupled with the “trade war” scare the whole sector just got de-rated all at the same time. In fact judging by the performance of the shares of similar companies in this “export sector” this derating was quite severe with share price declines ranging from 30% to 60%. It is unfortunate that shareholders have to suffer the white knuckle roller coaster ride but essentially by being listed, we have to be subjected to the forces of the market however rational or irrational it may be. Essentially, from an operational standpoint, the company is recording higher revenues, sales enquiries continuing and solidly backed by its assets with good liquidity ratios, so what we are saying is that as shareholders, please judge the management of the company on a longer time horizon than daily share price movement. 29
32. GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 MANAGEMENT DISCUSSION AND ANALYSIS GSCorp Share Price Movement 3 2 .5 2 1.5 1 0.5 Mar-18 Feb-18 Jan-18 Dec-17 Nov-17 Oct-17 Sep-17 Jul-17 Aug-17 Jun-17 May-17 Apr-17 Mar-17 Feb-17 Jan-17 Dec-16 Nov-16 Oct-16 Sep-16 Aug-16 Jul-16 Jun-16 May-16 Apr-16 Mar-16 Feb-16 0 Jan-16 30 We do however maintain that investor relation is something that we continue to be very conscious of and hence we try to maintain a consistently high level of disclosure both in terms of the numbers as well as the commentary during the quarterly reports. Management time is still very much involved with managing the business and we have not reached the point where we can afford to maintain an IR department to craft presentations to our investors. The Management hence have continued to maintain a policy of no ‘one-on-one’ meeting or private discussions with fund managers, research analysts, institutional investors or private investors on the financial performance of the company and we believe that the fairest and most effective form of communication is our quarterly announcements and annual report. While we have no answer to the question of “what is the fair value of GSCorp”, the Management would like to stress that the Company is managed regardless of its share price: all we can do is to point towards the improvements that the company have undergone in the past years, as well as the vision of the management in shaping the future and hopefully that all shareholders will benefit in the company being able to realise its ambition over the coming years. We hope that this management discussion has been helpful in understanding your company better and we take this opportunity to wish everyone all the best in their endeavours.
33. GE-SHEN CORPORATION BERHAD ANNUAL REPORT 2017 MANAGEMENT DISCUSSION AND ANALYSIS 31