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Key Matters - 60th 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 60th 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 Reports of Directors and Auditors for the financial year ended 31 December 2017 (“FYE 2017”).

The results of the poll, which were verified by the Scrutineer, Quantegic Services 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
Approval of the payment of Directors’ Fees amounting to RM808,000 to Directors of the Company in respect of the financial year ended 31 December 2017.
243,126,357 83.42 48,324,349 16.58 291,450,706 100.00
Ordinary Resolution 2
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 2018.
243,476,357 83.54 47,974,349 16.46 291,450,706 100.00
Ordinary Resolution 3
Re-election of Director, Yeoh Jin Hoe who retires pursuant to Article 104A of the Company’s Articles of Association.
226,214,232 77.61 65,275,734 22.39 291,489,966 100.00
Ordinary Resolution 4
Re-election of Director, Y.A.M. Tunku Zain Al-‘Abidin Ibni Tuanku Muhriz who retires pursuant to Article 104 of the Company’s Articles of Association.
251,256,937 86.20 40,233,029 13.80 291,489,966 100.00
Ordinary Resolution 5
Re-election of Director, Chee Khay Leong who retires pursuant to Articles 104 and 104A of the Company’s Articles of Association.
236,354,882 81.09 55,135,084 18.91 291,489,966 100.00
Ordinary Resolution 6
Re-appointment of Messrs BDO, Chartered Accountants, as Auditors of the Company and to authorise the Directors to fix their remuneration.
251,992,157 99.20 2,032,855 0.80 254,025,012 100.00
Ordinary Resolution 7
Proposed authority to Directors to allot and issue shares pursuant to Sections 75 and 76 of the Companies Act 2016.
250,742,037 99.66 864,900 0.34 251,606,937 100.00
Ordinary Resolution 8
Proposed renewal of authority for the Company to purchase its own shares.
250,702,777 99.66 864,900 0.34 251,567,677 100.00
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.
104,571,277 99.18 864,900 0.82 105,436,177 100.00
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.
105,436,177 100.00 0 0.00 105,436,177 100.00

The Minority Shareholder Watchdog Group ("MSWG") raised the following issues via its letter dated 17 April 2018 during the 60th AGM, which were duly answered by the Group Chief Financial Officer ("CFO"):

Strategic & Financial Matters
Q1 As stated in the Management Discussion And Analysis on Page 16 of the Annual Report, the Group is in the midst of setting up a cans manufacturing plant and a corrugated cartons manufacturing plant in Myanmar which is a new emerging market within the ASEAN region.
  1. Could the Board share with shareholders their views/thoughts on the future prospect of the Myanmar’s operation and what are the sovereign risks they would be facing?
  2. What is the budgeted CAPEX for Myanmar’s operations in 2018?
  3. Please enlighten shareholders on the estimated gestation period for the Myanmar operations to break-even and to reach their peak operations?
A1 Kian Joo has addressed this issue in its Management Discussion and Analysis disclosure ("MD&A") in its Annual Report (“AR”) 2016 and AR 2017.

Myanmar is a relative young democratic country with 55 million populations. More importantly, the adult population between 15 to 54 years old makes up 60% of its population with 25% more below 14 years old.

Not only is there a large pool of productive labour to tap on, there is also a big market potential for consumer products packed in our packaging materials. This is especially so as Myanmar has been registering an impressive Gross Domestic Product (“GDP”) growth rate of exceeding 5% per annum since 2010 and the purchasing power of its population will continue to grow.

Besides, Myanmar has several free trade agreements with ASEAN countries and with its surrounding countries like India via Mekong-Ganges free trade area.

On the sovereign risks, Kian Joo will continue to monitor such risks. The Thilawa Special Economic Zone where our factories are located is developed by Japanese conglomerate and backed by Japanese and Myanmar Governments. International banks who have stringent risk assessment process like Mizuho Bank, Bank of Tokyo, OCBC Bank, UOB Bank etc. have set up their full fledge banking services there. In terms of Malaysian banks, Malayan Banking Berhad has a branch there since 2015 and CIMB Bank and RHB Bank have also set up their representative offices there.

The total budgeted cost of Kian Joo and its subsidiaries ("the Group")’s Myanmar plants (as in Page 16) is USD100 million of which USD30 million has been incurred up to 31 December 2017. A further USD70 million has been committed.

As stated in the MDNA, the project is expected to yield positive results within 5 years from its commencement of operations. It will probably take 7 to 8 years to reach its peak operations based on the current set-up.
Q2 We refer to Note 4 on Page 86 of the Annual Report, the tin cans division has suffered a setback in its profit before taxation in FYE 2017, mainly due to higher cost of tin plate.
  1. How would the Group address the higher cost of raw materials to maintain its profit margin?
  2. What is the Group’s cost transfer policy and how long does it usually take to pass on the incremental cost to its customers?
A2 Please refer to Page 7 on the MD&A where the financial performance of Tin Cans Division has been fully explained. Apart from foreign exchange (“Forex”) losses, other reasons contributing to the drop in profit are the Forex loss and the fact that in 2016, there was a reversal of impairment loss.

If you remove those factors, the drop in profit is not that significant.

Anyhow, tin plate cost has increased by 17% on average and depending on our contract terms and the market sentiment, the Company will attempt to renegotiate with customers for price increase as soon as the Company is made aware of the impending price increase.
Q3 As reported in Page 12 of the Annual Report, the gross profit margin of the carton division has been negatively affected by escalating raw material prices and intense competition in Malaysia and Vietnam markets. What measures have been taken by the management to mitigate the negative impact and when would the division be expected to turnaround?
A3 As further discussed in the MD&A, the key issue for the loss incurred in 2017 was due mainly to escalating paper cost. Paper cost made up more than 80% of Box-Pak (Malaysia) Bhd (“BPMB”) group of companies (“BPMB Group”) production cost and has been on an increasing trend since the end of 2016.

The testliners and medium paper in Malaysia had rose 20 to 22% on average compared to 2016. The increase was rapid and steep. However, BPMB Group is not able to adjust the selling price to its customers as rapidly as the rate of increase in paper cost. Furthermore, BPMB Group faced strong resistance from customers when we proposed for price increase.

Several strategies have been formulated to deal with the increasing manufacturing cost.
  1. BPMB Group attempted to increase the selling price of its products to its customers to cover for the increase in paper cost. To a certain extent, BPMB Group has dropped a few customers who do not want to entertain its request to share the burden of cost increase.
  2. With the proceeds raised from the rights issue, BPMB Group has invested in new and modern corrugator and converting machines in Johore. The project is expected to be completed anytime now. With the new machines, BPMB Group hopes to increase production efficiency and reduce headcount.
  3. BPMB Group has also engaged consultants to relook at ways to look at process engineering and to look into opportunity to automate to cut down reliance on labour.
With these strategies, we expect to reverse the deteriorating financial performance by end of the year.
Q4 We noted in Note 28 on Page 128 of the Annual Report, the Group recorded a higher write-off of inventories amounting to RM13 million in FYE 2017, compared to RM3.1 million in FYE 2016. Please explain.
A4 The main write off came from Aluminium Cans Division (RM9 million) followed by Tin Cans Division (RM3 million).

The total amount written off was actually a small fraction of the Group’s revenue, about 0.7%.

The amount written off were recovered through other means such as scrap sales. Some were also recovered from customers, as some of these were covered with their purchase order.

The amount was lower in FYE 2016 due to timing and difference in method of recognising such write-offs.
Corporate Governance

MSWG is promoting corporate governance best practices in PLCs. In this regard, we hope the Board could address the following:
Q1 We noted from the Company’s website on 13 April 2018 that there was no publication of the “Key Matters Discussed” at the Company’s 59th Annual General Meeting held on 25 April 2017 as required under Chapter 9, Paragraph 9.21(2) of the Main market Listing Requirements of Bursa Malaysia (“MMLR”).

Why has the Company not complied with the MMLR?
A1 We took note of your comment and wish to inform we have since posted the “Summary of Key Matters” discussed at the AGM in 2017 on Kian Joo’s website.
Q2 Practice 4.3 of the Malaysian Code on Corporate Governance 2017 ("MCCG") The Company on Page 12 of the Corporate Governance Report ("CGR") - Disclosure on MCCG stated that is has adopted Practice 4.3 - Step Up. However, in its Corporate Governance Overview Statement on Page 49 of the Annual Report, it is stated that “If the Board continues to retain the Independent Director after the twelfth (12th) year, the Board must seek shareholders’ approval annually through a two-tier voting process.

This is contrary to Step-Up 4.3 of the MCCG which does not provide for any extension of tenure beyond the 9-year tenure of INEDs.

We hope the Board would take note of this.
A2 We took note of your comment and would like to state that none of the members in the current Board of Kian Joo has exceeded the 9-year tenure. We have also revised our CG Report accordingly.
Q3 Practice 4.5 of the MCCG

We noted there was no disclosure of the Company’s gender diversity policy on Page 50 of the Annual Report. Practice Note 4.5 of the MCCG requires the Board to disclose in its annual report the company’s policies on gender diversity, its targets and measures to meet those targets
A3 We would like to stress that the Board is of the view that the selection of a candidate for the Board should be dependent on the candidate’s skills, expertise, experience, integrity, character, commitment and other qualities in meeting the requirements of the Company, regardless of gender.

Female representation is to be considered when suitable candidates are identified underpinned by the overriding primary aim of selecting the best candidate to support the Group’s objectives.
Q4 Practice 12.3 of the MCCG

The Company had on Page 37 of its CGR stated that it had applied Practice 12.3 of MCCG. Practice 12.3 refers to facilitating or providing a platform for shareholders to vote remotely without being physically present at the Company’s AGM. Based on the Company’s explanation on the application of Practice 12.3, the Company has not correctly applied the Practice.

We hope the Board would take note of this.
A4 We took note of your comments but we would like to stress that the general meetings of Kian Joo have always been held in venues which are easily accessible and at reasonable hours. Shareholders who do not intend to attend the meeting are encouraged to vote via their proxies. Nevertheless, the Company will explore the use of technology to facilitate voting in absentia and/or remote shareholders’ participation at general meetings after taking into consideration, the accuracy and stability of such technologies, applicable laws and regulations, and resources required in relation to the benefits.
Other questions raised from the floor which were duly answered by the Group Managing Director and Group CFO were as follows:
Q1 What is the expected rate of returns from the Myanmar project? It was mentioned in Page 16 of the Annual Report 2017 that it will be partially funded by Rights Issue with Warrants. Does it mean that the Company will carry out a corporate exercise to raise funds? How many local can and carton manufacturers are already there in Myanmar?
A1 For our investment in Myanmar, over a 15-year period, the Management expects the rate of returns to be in the range of 8% to 0% per annum.

The Rights Issue with Warrants in Page 16 refers to the fund raising exercise carried out by BPMB which has been completed in financial year 2017. Kian Joo has no plan at this junction to carry out any corporate exercise to raise funds.

Oji Paper has a plant in Myanmar. There are also few small local corrugated carton manufacturers in Myanmar.

For aluminium cans, our competitors, Ball Group and Crown, are in the process of setting up their plants in Myanmar.
Q2 Will the aluminium and steel tariffs announced by the United States Government impact the Group?
A2 The tariff has no significant impact on the aluminium and tin plate costs. However the recent sanction announced by the United States on a United Co. Rusal have caused aluminium price to spike.

The tariffs has no impact on BPMB.
Q3 On Note 34 of the Audited Financial Statements, the Group has a capital commitments of RM344 million. Can you please let us know what are those for?
A3 Most of the capital commitment is in respect of Myanmar project.
Q4 On Note 35, the Group has total contingent liabilities of RM404 million. Can you tell us the contingent liability is for which subsidiary?
A4 All our 15 active subsidiaries have borrowings. Instead of pledging our assets to secure those borrowings, we offered corporate guarantee to the banks to secure these facilities.
Q5 In the income statements, we noted that the profit has declined. Can the Company share with us what is the cost structure of the Group’s products? Are you looking into automation?
A5 Almost 70% to 80% of the manufacturing cost is for raw materials, namely paper rolls, tin plate and aluminium. Labour cost is between 10%-12%, followed by depreciation and other manufacturing overheads.

Yes we are looking into automation.
Q6 Will there be higher dividend payout going forward?
A6 The profit has dropped in FYE 2017 but Kian Joo is still maintaining the payout of 4 Sen per share. Meantime, Kian Joo has to conserve cash to fund the capital expenditures and extensions with the hope of generating more profits to pay higher dividends in future.
Q7 Why is BPMB not performing when other carton manufacturers such as Orna, are performing well?
A7 Carton manufacturers which have their own paper mills are not affected by the price increase. BPMB do not own a paper mill but have to purchase papers from them, the price of which is beyond its control. In 2017, BPMB has also spent heavily on new machinery and on repairs to run the old machines efficiently.
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