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CHAIRMAN |
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Once
again, we present the Annual Report and Financial Statements of Yeo Hiap
Seng (Malaysia) Berhad (YHSM) and its subsidiaries (YHSM Group) of the
financial year ended 31st December 2000.
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As we are on a journey towards
globalisation, the YHSM Group has its vision and strategies in place towards
achieving world class status as a respected Asian Food and Beverage marketer
of the world. Recognising the ever demanding and changing consumer needs, the
YHSM Group will continue to be proactive in executing strategies and initiatives
in order to fulfil our mission of being a frontrunner in the Food and Beverage
industry of Malaysia.
The Malaysian economy rebounded
strongly in the year 2000 after recovering from the sharp output decline in
1998 and early 1999 following the financial crisis. The economic reformation
was initially external sector led, but has since become broad based, driven
by the increase in private sector demand following the impact of expansionary
fiscal and monetary policies. Reflecting these trends, the year 2000 closed
with clear signs that Malaysia had emerged out of a recession and rebounded
firmly with a real Gross Domestic Product (GDP) growth of 8.5 per cent.
This encouraging GDP growth emphasis
the timeliness of the initiatives made by the YHSM Group to make Malaysia the
manufacturing center and to be recognized as a world-renowned Asian Food and
Beverage manufacturer and marketer. Indeed, to effectively transform the YHSM
Group the YHSM Group into a global Asian Food and Beverage company, the 5Cs
programme was introduced in the previous year, encompassing Consumer Focus,
Category Leadership, Channel Management, Cost Control and Confidence. This has
since proven to be successful.
Financial Performance
As a result of the prudent measures introduced in the recent years, we experienced
encouraging improvements in profitability by virtue of our concentration on core
products and termination of non-strategic agency lines. Overall, the YHSM Group
has a healthier balance sheet in particular with short-term borrowings reduced
due to improvements in the control of stock and debt management. This was further
made possible with the trimming of capital expenditures.
Profitability
Profit before tax increased to RM18.69 million in the year 2000 as compared
with a profit before tax and exceptional items of RM11.15 million in 1999. This
67.6 per cent increase in profits was due to effective cost management and margin
improvement efforts. In addition, the establishment of the 5C's programme as
well as the rationalisation of operations and products where required, have
also contributed to this increase in profits.
Turnover
Turnover however contracted to RM446.38 million from RM481.26 million in the
previous year. This 7.25 per cent decline was largely attributed to the discontinuation
of the non-strategic agency lines and the low margin processed meat division.
Another contributing factor is the decline in sales of the sweetened condensed
milk due to keen competition from existing and new markers entrants.
Earning Per Share (EPS)
Consequently EPS registered an encouraging 15.8 sen per share as against a negative
5.9 sen per share in 1999 in line with the increase in YHSM Group profit after
taxation, and minority interest and exceptional items of RM13.3 million in the
year 2000 as opposed to the RM4.97 million THSM Group loss in the previous year.
Dividends
The Board paid out an interim dividend of 2% less tax and is recommending a
final tax exempt dividend of 5% for the financial year ended 31st December 2000,
against a total dividend payout of 4% less tax in the previous year.
Operations Review
 Manufacturing
and Restructuring
A major thrust of the YHSM Group
is to build the Malaysian operations into an international production center
and world-class manufacture. Therefore the YHSM Group is pleased to have secured
the approval, subject to certain conditions, from the Malaysian Securities Commission
(SC) for our proposed acquisition of 128,000 ordinary shares of SCD 1.00 each
representing 100 per cent equity interest in YHS Beverage (International) Pte
Ltd (YHSBI) from YHS (Singapore) Pte Ltd (YHSPL) vide its letter dated 22nd
January, 2001.
Since the announcement of the
Group's proposed acquisition of YHSBI on 27th August 1999, the market price
of YHSM shares has experienced a decline in tandem with the overall performance
of the KLSE. In this connection, the Malaysian Securities Commission Guidelines
allows a revision of up to 20% to the issue price of consideration shares for
acquisitions after the receipt of the SC's approval (but prior to implementation)
to cater for any movements in the share price of listed companies without the
SC's approval. However, any revision in the issue price of consideration shares
for acquisition by more than 20% will require the SC's approval.
In view of the above, YHSPL had
requested for a downward adjustment to the issue price of the consideration
shares to be issued by YHSM in relation to the proposed acquisition of YHSBI
("Consideration Shares"). In this regard, YHSPL and YHSM had on 22nd February,
2001 entered into supplemental agreements to vary the issue acquisition of YHSBI
in order to maintain YHSPL's 60.7% shareholding in YHSM upon completion of the
proposed acquisition of YHSBI.
An application for the said revision
to the issue price and purchase consideration has been made to the relevant
authorities and is pending their approval.
This strategic partnership forged
between synergistic related entities will lead to improved earnings and enable
the YHSM Group to be more product focused in terms of maintaining high volumes.
This will lead to a better cost recovery of fixed overheads. In addition, it
will lead to a better leverage in the group's purchasing power for raw materials
in bulk as well as effective strategic marketing and distribution arrangements.
Brand Building
With the emphasis on strengthening
our market share in our core categories and securing margin improvements, the
YHSM Group's primary focus during the year in review centered on board building.
Although YEO'S has been a household name in the domestic market of decades,
we need to reinforce the YEO'S brand equity as this will help us secure market
share and further improve margins.
On the domestic front various
aggressive promotional initiatives have rolled out to a vibrant start. These
marketing efforts aim at increasing consumer awareness, fostering better relations
with traders and most importantly, being able to reach out to retailers and
consumers effectively.
At the same time, the YHSM Group
is progressing with our global brand-building programme by establishing overseas
marketing offices for the efficacious penetration of consumer markets in the
Middle East especially with the 'halal' certification of our products.
Quality Assurance, Research
and Development
Research and Development, being
the key to any food and beverage company ranks high on our corporate agenda.
As the potential for Malaysia food and beverages lies in the wide variety of
ethnic food, we will press ahead with high quality and safety standard acceptable
to various consumer segments to further strengthen our markets.
To meet consumer demands for a
healthy lifestyle, the YHSM Group will step up efforts in research and development
to further enhance the nutritional benefits of our products. From cholesterol
busters to antioxidants, the YHSM Group's beverages are now recognized as being
more than mere thirst quenchers. The focus on brand building has led YEO'S to
improve and innovate existing products. New methods of consumption are being
developed, for example, the immensely successful "YEO'S CAMPUR" that consists
of a twin-pack of YEO'S Soya Bean and Grass Jelly drink.
Our emphasis will be to develop
functional foods with emphasis on nutritious values. Amongst some of these products
include SOYRICH which is high protein soya milk drink that will help to promote
a healthy heart. Specifically formulated to meet US FDA daily recommended intake
of soya protein, and comprising a breakthrough formulation of soya bean extract
with cane sugar, SOYRICH is the ideal alternative to cow's milk with functional
benefits.
The CINTAN range of wholesome
food products has been broadened synergistically. Manufactured utilising high
protein and top quality flour under strict HACCP practices, the CINTAN range
offers various flavours to cater for all levels of consumers.
We have taken research and development
to greater heights with the introduction of the YEO'S green tea. Packed in 300ml
cans and 250ml packs comprising 100% quality green tea leaves enriched with
vitamin C, this antioxidant based health drink is ideal for consumption anytime
of the day.
Information Technology (IT)
The YHSM Group has placed a priority
on IT. The YHSM homepage which was launched in 1997 is being updated to encompass
a more user friendly approach with well balanced and timely information. To
improve customer service and become more customer-centric, the palm top units
introduced to the sales personnel will be upgraded. This in turn will offer
customer's real time updates and recording of stocks as well as the online placement
of orders. In addition, through the management Information Systems, the finance
department provides timely information and management reports to all departments,
ensuring effective control is maintained.
Human Resources
The success of an organisation
rests in its people. Thus, human resource management remains a key function
towards building a stronger organisation. For an example, in order to fulfil
one of the 5Cs programme of confidence, all YHSM personnel are provided with
the necessary training to build the needed confidence.
The success of an organisation
rests in its people. Thus, human resource management remains a key function
towards building a stronger organisation. For an example, in order to fulfil
one of the 5Cs programme of confidence, all YHSM personnel are provided with
the necessary training to build the needed confidence.
A promotion and merchandising
drive themed the 'Dragon Force 2001' was introduced in conjunction with the
Chinese New Year 2001 which involves the mobilization of staff from all levels
to cover all existing outlets and stores carrying YEO'S products. This greatly
strengthened team spirit and has allowed the non-marketing personnel to appreciate
the impact of the various marketing efforts being implemented.
Other on-going in-house training
programmes, which include appraisal systems and HACCP programmes are constantly
being carried out to meet the demands of the changing working climate and business
front.
Modernisation of Processing
Facilities
YHSM had in October 2000, entered into an interim toll arrangement with the
YHSPL ("Toll Arrangement") to undertake the manufacturing of tetra package carton
drinks, canned drinks and sauces for YHSPL. Pursuant to the Toll arrangement,
YHSPL had relocated some of its plant and machinery to YHSM to enable YHSM to
manufacture the aforesaid products for YHSPL. However, this Toll Arrangement
is a transitional arrangement pending the completion of the proposed acquisition
of YHSBI. Upon completion of the proposed acquisition of YHSBI, the Toll Arrangement
will be mutually terminated.
In the medium term, the YHSM Group
is already committed to rationalise and reduce our current 5 manufacturing plants
into one located at Simpang Renggam in order to decrease logistics costs and
increase production efficiency. Plant and machinery of YHSBI to be acquired
through the Singapore Business Agreement will also be part the rationalisation
plan. Upon, completion of exercise, YHSM will be the hub of manufacturing excellence.
The economies of scale achieved
at this plant will assist the Group in facing new challenges and enable the
Group to become a major manufacturer and exporter of Asian Food and Beverage
products in the region.
Associated Companies
Senawang Edible Oil (Sendirian)
Berhad was able to contribute positively despite the substantial fall in crude
palm oil prices throughout the year. Sarawak Coconut Enterprise Sdn Bhd continued
to make losses but the YHSM Group is reviewing our investment portfolio. W.Y.
Co Ltd in Thailand is unable to improve performance due to a slow recovery of
the Thai economy.
Prospects
With the ongoing development of
brand building, modernisation of manufacturing facilities and the implementation
of the 5C's programme, the YHSM Group is fairly optimistic about the year ahead.
The consolidation of the Singapore and Malaysian operations is expected to further
uplift the manufacturing cost sharing efforts. Armed with the Malaysian manufacturing
center striving towards global excellence and the on-going aggressive international
marketing initiatives which includes the Middle East, we expect to stand in
good stead and enhance our market base. Nevertheless, we are adopting a cautious
stance as regards to the Malaysian economy in light of the downturn off the
US and Japanese economies.
Appreciation
On behalf of the Board, I wish
to thank the dedicated management team and workforce for their hard work and
commitment in the past year. Many thanks to out business partners and associates
for their kind support through these exciting year challenging times. We look
forward to their continued support and co-operation in the years ahead to ensure
our continued success.
Our gratitude is extended to Mr.
George Khoo who retired during the year and we would like to express our warm
welcome to Mr. Jacob Gan onto the Board of Directors during the course of the
year under review.
As we continue on our journey
of globalisation, we will strive together, as a team for the betterment of the
YHSM Group.
Dato'Borhan bin Kuntom
Chairman
23 April 2001
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