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Key Matters - 59th AGM

Pursuant to Paragraph 9.21(2)(b) of the Main Market Listing Requirements, a listed issuer must publish a summary of key matter matters discussed at the annual general meeting, as soon as practicable after the conclusion of the annual general meeting.

All ordinary resolutions that were tabled at the 59th Annual General Meeting were duly approved by the Shareholders through poll voting. The Shareholders also received the Audited Financial Statements of the Company and of the Group, along with the Directors Reports of Directors and Auditors for the financial period ended 31 December 2016.

The results of the poll, which were announced by the Scrutineer, Boardroom Business Solutions Sdn Bhd, are as follows:
Voted in favour Voted against Total votes casted
No. of shares % No. of shares % No. of shares %
Ordinary Resolution 1
Declaration of a first and final single-tier dividend of 4.0 sen per share in respect of the financial year ended 31 December 2016
294,607,695 99.99 36,600 0.01 294,644,295 100.00
Ordinary Resolution 2
Approval of the payment of Directors’ Fees amounting to RM554,000 to Directors of the Company in respect of the financial year ended 31 December 2016
244,211,241 83.24 49,158,654 16.76 293,369,895 100.00
Ordinary Resolution 3
Approval of the payment of benefits of up to RM500,000 to the Non-Executive Directors of the Company for the financial year ending 31 December 2017
202,255,541 68.95 91,102,154 31.05 293,357,695 100.00
Ordinary Resolution 4
Re-election of Director, Dato’ Mah Siew Kwok who retires pursuant to Articles 104 and 104A of the Company’s Articles of Association
241,188,441 82.60 50,821,754 17.40 292,010,195 100.00
Ordinary Resolution 5
Re-election of Director, Dato’ Dr. Syed Hussain Bin Syed Husman, J.P. who retires pursuant to Article 104 of the Company’s Articles of Association
242,542,941 83.06 49,455,654 16.94 291,998,595 100.00
Ordinary Resolution 6
Appointment of Messrs BDO, Chartered Accountants, as Auditors of the Company and to authorise the Directors to fix their remuneration
290,068,770 98.46 4,549,525 1.54 294,618,295 100.00
Ordinary Resolution 7
Proposed authority to Directors to allot and issue shares pursuant to Sections 75 and 76 of the Companies Act, 2016
245,908,576 83.46 48,730,219 16.54 294,638,795 100.00
Ordinary Resolution 8
Proposed renewal of authority for the Company to purchase its own shares
248,544,876 84.35 46,096,719 15.65 294,641,595 100.00
Ordinary Resolution 9
Proposed renewal of mandate for the Company and its subsidiaries to enter into recurrent related party transactions of a revenue or trading nature
142,708,970 96.91 4,549,525 3.09 147,258,495 100.00
Ordinary Resolution 10
Proposed new mandate for the Company and its subsidiaries to enter into additional recurrent related party transactions of a revenue or trading nature
139,649,435 94.85 7,589,060 5.15 147,238,495 100.00

The Shareholders raised questions during the 59th AGM, which were duly answered and clarified by the Group Chief Financial Officer. The salient questions raised by the Shareholders are as follows:
Q1 During the year under review, the Cartons Division had recorded an increase in revenue by 10.8% year-on-year. Despite the increase in revenue, the division suffered a significant decline in profit by approximately 95% from RM11.7 million in FY2015 to RM530,000 in FY2016.

What are the measures taken by the Board to improve the profitability of the division and address the challenges of the increase in the cost of various types of paper rolls in Malaysia as mentioned in the Management Discussion and Analysis (MD&A)?
A1 The drop in profit for the Cartons Division should be temporary as it was due mainly to the aging of the machinery in Malaysia plants and the increase in cost as mentioned in the MD&A section.

This Division under Box-Pak (Malaysia) Bhd. ("Box-Pak") has embarked with the following strategies to address the cost pressure faced:
  1. Box-Pak will continue to work closely with the paper roll suppliers and procure new paper suppliers locally and overseas to bring down overall paper cost;
  2. The Management has embarked on a study to automate part of the production process to reduce labour headcount and hence, labour cost;
  3. A Rights Issue exercise was undertaken to raise RM113 million. Part of the proceeds was used to pare down borrowings and hence, finance cost; and
  4. As stated in the Annual Report, Box-Pak’s plants in Malaysia are quite old and Box-Pak is facing some teething issues associated with old machineries. Increasing production efficiency by bringing in new machineries with latest technology will help to bring down the production overheads. This was made possible with the proceeds raised from the Rights Issue with Warrants exercise recently.
Box-Pak cannot expect immediate results from the strategies mentioned above as it had just completed the Rights Issue exercise and fabrication of machinery takes time. But it cautiously anticipates a positive outcome in the second half of FY2017.
Q2 Compared to the previous year, the revenue structure of Tin Cans Division in 2016 had changed drastically with revenue from external customers dropped by more than 30%. However, the revenue from inter-segment saw a sudden increase by more than 100%.

What were the reasons for the drastic change in the revenue structure and what would be the targeted revenue mix contribution for Tin Cans Division moving forward?
Q3 Trading Division had recorded a sharp increase in revenue in FY2016 from both the external customers and inter-segment. What is the outlook for the Division in the next few years? Would the performance be sustainable?
A2 & A3 The Trading Division was formed in mid 2015 for tax planning and to achieve administrative efficiency.

About 2 years ago, the Senior Management team had reviewed the way of conducting business across all divisions and felt that the existing structure was not efficient enough to drive the top line growth of the Group. The sales team based at the respective factory was too product centric and only concentrating on selling products manufactured by the factory they represented. Packaging products or sizes which they do not sell, will be passed or refer to other manufacturers.

The Senior Management decided to move the sales and marketing team from the factory and establish the Trading Division, a profit centre that is independent from the manufacturing facility. The change brought a paradigm shift on the sales and marketing team such that they are now more customer centric.

For products that Kian Joo manufactures, the sales team will continue to sell. For products that Kian Joo doesn’t have, the sales team will address the customers’ requirement by either outsourcing it to the Company’s friendly competitors until the customer hits a critical mass or Kian Joo could buy and sell to the customers, in a true trading sense.

This was done for both domestic and overseas customers and this division will continue to grow.
Q4 As stated in the MD&A page 12 of the Annual Report 2016, aluminium price on the LME has been on the increasing trend since the second quarter of FY2016. The Group manages the cost pressure by transferring the cost increase to the customers and through hedging mechanism. The Group further stated that the profit of Aluminium Cans Division would be affected if the rising cost of the aluminium coil is not properly managed?

How would the Board manage the risks that may affect the profit of the Division?
A4 The good thing about aluminium can business is that aluminium price is transparent and everybody can follow the aluminium price traded on London Metal Exchange (LME).

For major customers, the Company will issue the invoice based on an agreed price formulation which takes into accounts the aluminium price based on LME and appropriate foreign currency exchange rate.

For the medium and smaller size customers, the Company will hedge the aluminium price risks when entering into fixed price contract.

Kian Joo’s supply chain team is well staffed and well trained to handle these tasks.
Q5 We noted that the Group has several inactive companies as listed on pages 78-79 of the Annual Report 2016. Could the Board share the Group’s plan for these companies?
A5 Some of the older subsidiaries such as Kian Joo Packaging Sdn Bhd, still own a factory building. Box-Pak (Johore) Sdn Bhd still has some tax losses that can be utilised in future.

Other dormant companies are quite new and will be activated sometime in the future. The Company will take action to strike off or wind up unwanted companies from time to time.
Q6 As reported on page 14 of the Annual Report 2016, several entities in the Group suffered losses in FY2016. Please elaborate on the measures and actions taken by the Group to turn around these entities?
A6 The entities that were making losses are actually from the Cartons Division, which were addressed just now.

The Management will not hesitate to take the hit in the profit and loss if indeed there was an impairment where the same practice has been performed in FY2013.

The impairment loss provided for in FY2013 was reversed in FY2016 after Kian Joo has nursed the subsidiary concerned back to profit.
Q7 The gearing level of the Group had increased to 27% in FY2016 from 22% in FY2015. In view that the Group would further expand its operations in Malaysia and Myanmar, what would be the Group’s gearing policy? What is the optimal gearing level that the Board planned to maintain?
A7 The gearing ratio computed in page 15 takes into accounts the payables. If the payables be removed, the gearing ratio will be only 18%.

If analyse further, you will notice the following:
  1. The Company has adequate cash in hand to settle half the short term borrowings
  2. More than 30% of the borrowings are long term in nature to match the Company’s ability to generate cash from operations
Although Kian Joo does not has a written gearing policy, the banks would not have any concern to increase lending to the Company so long as the banks are comfortable with the Company’s ability to generate cash to settle debts as and when they fall due.

After taking into consideration the proceeds raised from Box-Pak’s minority shareholders during its Rights Issue exercise early this year, the gearing ratio will be further reduced.
Q8 Under the Resolution 3, the Group is seeking shareholders’ approval for the payment of benefits of up to RM500,000 to the Non-Executive Directors for the financial year ending 31 December 2017. In FY2016, we noted that there is no benefits paid to the Non-Executive Directors as disclosed on page 111 of the Annual Report 2016.

Please provide the breakdown of these benefits amounting to RM500,000 payable to the Non-Executive Directors.
A8 A Non-Executive Director is entitled to a meeting allowance of RM1,500 per day and travelling package of RM30,000 per annum.

Apart from the above, the said Director is entitled for training and seminar expenses on subject relevant to the Director’s roles and is also covered under the insurance cover for Directors and Officers of the Company.
Q9 The Company had expanded and the turnover had improved but profits declined contributed mainly to increase in raw material cost, labour cost, finance cost as well as fluctuation of foreign exchange rates. Some Divisions are generating profits and some Division making losses, whether there’s any mechanism that the profits making Divisions could support the Divisions that making losses ?

Company’s expansion in Myanmar comprised unknown risks and uncertainties towards contribution to the Company as well as the investment in Aluminium Company of Malaysia Berhad. How would the Company manage it and create better value for shareholders?
A9 Kian Joo has inter-company loans. Interests will be charged and captured under borrowings in order to prevent a breach of the transfer pricing ruling. Hence, Divisions that made losses will incur higher finance cost while interest income received from the Divisions that made losses will contribute to higher profits for the Division that gave the loan.

ALCOM which produces roofing, air-cond fin, aluminium foil, etc. is not part of Kian Joo. Kian Joo purchases from ALCOM approximately 5-6 tonnes per month of aluminium foils.
Q10 In respect of the human capital, what is the percentage of workers in Malaysia are foreign workers? How to ensure the foreign workers are contributing in maintaining the Company’s productivity level?
A10 Kian Joo has about 2,000 workers in Malaysia, out of which about 40% are foreign workers. The Company is looking into automation of the manufacturing process to increase the production capacity. Capital expenditure has been provided over the past 3 years for the said purpose and it is a continuous process until the Company achieves the objective.
Q11 In year 2015, foreign exchange rate are favourable to the Company but situation in year 2016 have reversed and the Ringgit Malaysia has been depreciating. In year 2015, money in the Company were keep in United States Dollar (“USD”), to what extend that it affects the Company and how is the scenario?
A11 The Company has to plan for its cash flow and to get the approval from Bank Negara for any plan to invest overseas. Kian Joo’s subsidiaries in Vietnam have positive net asset and have repatriated dividends to Kian Joo in July 2015 in USD term. These were kept until 2015, when the USD exchange rates were on an up trend in year 2015. Hence, the Company posted better performance.

Cash was transferred for investment in Myanmar when the USD exchange rates have dropped and this contributed to the Company’s bottomline in year 2016. In view of the Bank Negara Malaysia’s ruling on the retention of only up to 25% of export proceeds in foreign currency, Kian Joo has gradually move its export business to a subsidiary in Singapore where the proceeds can be kept in foreign currency.
Q12 Employee Provident Fund Board has been continuously increasing its stakes in Kian Joo shares, any going on plan or proposal?

The Sensitivity Analysis of risk management, changes by 3% but not mentioned increase or decrease of borrowing, Ringgit Malaysia depreciated, overall gain or loss to the Company on translation of exchange rates?
A12 The Company has no knowledge nor is it aware of any proposal.

The management is reviewing the currency risk on daily basis and will try to minimise the Company’s currency exchange gap between import and export.
Q13 Referring to the analysis by geographical, what is the revenue contribution by geographical in order to assess how successful the respective subsidiaries on regional basis?
A13 Vietnam and Singapore contributed approximately 30% and 10% respectively to the Group revenue.
Q14 Referring to page 57 of the Annual Report 2016, earnings per ordinary share attributable to owners of the parent and page 5, earnings per share, what are the difference between them?
A14 Both term are the same. The financial statements of Kian Joo have been prepared in accordance with the terminology of the International Financial Reporting Standards (FRS) requirement.
Q15 The Group had not adopted any dividend policy. Should Kian Joo continue doing well in future, would the management consider adopting any dividend policy?
A15 Presently, no dividend policy has been adopted. Kian Joo will look into this matter.
Q16 What is the progress on expansion plan in Myanmar? When would the plant commence operation? What is the production capacity? Kian Joo is expected to incur RM350 million for this project, this amount is budgeted for how long?
A16 Kian Joo has awarded the contract for construction of factory in Myanmar and it will take at least a year or so to build the said factory. The supplier for machineries has started to fabricate the machineries for the Myanmar plant. The Company targets to conduct the test run on Q3, 2018 and commercial run on Q4, 2018.

The capital expenditure of RM350 million is mainly budgeted for construction of factory plant and machineries only as machineries are costly.
Q17 Referring to page 65 - Operating Segments - Trading Division, - Segment Assets recorded with big improvement, what is the reason for this improvement?
A17 The Trading Division took over debtors from other divisions when it was formed.
Q18 What is capital expenditure budgeted for financial year 2017 ? The funding of the capital expenditure is from which area?
A18 RM350 million for construction of factory plant and fabricating the machineries in Myanmar.

For Malaysia - RM60 million with RM51 million raised during the Rights Issue with Warrants by Box-Pak. Tin cans division - RM20 million and Aluminium cans division - RM10 million.

Funding will be mainly from internal generated funds as well as bank borrowings. Average profit is RM150 million and the Company will closely improve collections from debtors to fund the projects.
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