While the economy recuperates from the ravages of the world economic crisis, the world was struck another blow with the September 11 terrorist attacks in the United States. Against this extremely challenging economic backdrop, growth for Malaysia 2001 was recorded at 0.4%. Despite these bleak economic conditions in Financial Year 2001, Yeo Hiap Seng (Malaysia) Berhad (" YHSM") has emerged profitable and I am proud to present you a healthy set of financial statements. This achievement has been the result of careful planning and well-executed measures and strategies embarked upon to maintain the profitability of our business.

I am pleased to announce that in the year under review, all approvals required for the Proposed Acquisition of YHS Beverage (International) Pte Ltd (" YHSBI") have been received from the relevant authorities. Following the completion of the Proposed Acquisition of YHSBI, YHSM was also informed by YHS (Singapore) Pte Ltd (" YHSPL") that the proposed acquisition of 33,515,500 YHSM shares by YHSPL from Yeo Hiap Seng Ltd (" YHSL") was completed on 21st August, 2001. Consequently, YHSPL now holds 77,811,041 YHSM shares representing approximately 60.7% equity interest in YHSM.

Having consolidated and aligned our resources, YHSM is well positioned to meet the challenges of the coming years.

Financial Performance

Profitability
Profit before tax increased to RM21.40 million in Financial Year 2001 from RM18.69 million in Financial Year 2000. This 14.50% increase in profits was due to the introduction of high margin products, increased export sales, more favourable overhead recovery and higher income from the sale of excess assets in line with the rationalisation efforts of the Group's operations.

Turnover
Total Malaysia Group sales in Financial Year 2001 increased by 4.07% to RM464.55 million from RM446.38 million in Financial Year 2000. The Group has performed better due to the introduction of higher margin products and the increase in exports to Singapore and its international markets. Soya products, a core product category, recorded an encouraging 21% increase in sales in Financial Year 2001 compared to Financial Year 2000.

The Group has maintained overall margin due to its focus on the core product groups in Financial Year 2001 and increased focus on higher margin products. In addition, inter-company export volume has contributed to the improved economies of scale through the sharing of existing factory overheads.

Earnings Per Share (EPS)
Based on the weighted average of the number of shares issued, EPS registered a 4.43% increase to 16.5 sen per share in Financial Year 2001 from 15.8 sen per share in Financial Year 2000. This is consistent with the 22.90% increase in YHSM Group net profit to RM16.26 million in Financial Year 2001 from RM13.23 million in Financial Year 2000.

Dividends
The company paid out an interim dividend of 2.16 sen net of Malaysian income tax per ordinary share. The Board is recommending a final tax exempt dividend of 6.5 sen, making a total of 8.66 sen for the financial year ended 31st December, 2001, against a total dividend payment of 6. 44 sen per ordinary share in the previous year. 15

 

Operations Review

Manufacturing & Restructuring
In the year under review, the Malaysian retail sector has performed relatively poorer than the preceding year. This is due to the regional and global economic slowdown. Under such challenging market conditions, YHSM recognises the need to strategically adapt to environmental changes and expand market share to sustain growth.

As such, YHSM will continue to adhere strictly to its Sales and Operations Planning process, managed by Supply Chain Management, to create an efficient control system for business plans and effective usage of resources through Discipline, Communication & Teamwork.

YHSM recognises that consumer needs are ever demanding and changing, and in this regard, the Group will continue to be proactive in executing strategies and initiatives in order to fulfil the Group's mission of being a forerunner in the Food & Beverage industry in Malaysia.

As part of its current consolidation of resources to decrease logistic costs and increase production efficiency, the Group is continuing with its plans to rationalise its five manufacturing plants into one or two sites in the longer term. The Group is also reviewing its plans to outsource logistics and warehousing services in order to achieve cost and related efficiencies.

Brand Building & Marketing
In Financial Year 2001, increased emphasis on brand building in the Group's efforts to increase sales volume has led to a corresponding increase in advertising and promotion investments.

YHSM's status as a leading Asian Food & Beverage manufacturer and marketer is further strengthened by our strategy to focus our marketing efforts on functional food and beverages products. During the year, advertising and promotional activities were strategically launched for SOYRICH High Protein Soya Milk, Soya Bean drink, CINTAN Instant Noodles with Natural Ginseng and YEO'S Campur. Key advertising efforts were catered for these products in line with YHSM's positioning as a manufacturer of healthy food and beverage products. In line with two of the 5C's, namely Consumer focus and Category Championship, YHSM's advertising and promotions campaigns placed increasing emphasis on building consumer loyalty and further enhanced brand equity.

Response to the SOYRICH Healthy Heart Campaign, in conjunction with World Heart Day, far exceeded expectations. This promotion with the Malaysia Heart Society was aimed at creating awareness of the SOYRICH brand and its functional benefits towards heart health.

For the Cooling Range of products, an aggressive awareness campaign for YEO'S Campur was launched. The campaign was held during the Hari Raya Puasa period. This Campaign consisted of a 30-second television commercial, Billboard and Shelf Vision advertisement at supermarkets to wish our Muslim consumers "Selamat Hari Raya".

The Channel Intelligence Centre (" CIC") was set up to meet the challenges of competition and sophistication at the channel level. In-house trade and channel research efforts were conducted throughout the year to study consumers' buying habits at all channels in order to formulate marketing strategies for the various trade channels. The various research studies were carried out during festivals and at a number of locations such as eating places and convenience stores. These have made significant contributions to our marketing efforts.

 

Quality Assurance
YHSM's operations in Shah Alam and Ipoh were awarded the HACCP Certificate by the Ministry of Health. This is based on the adoption by the Joint Food & Agriculture Organisation of United Kingdom (FAO) and World Health Organisation (WHO) Codex Alimentarius Commission. HACCP, an acronym for Hazard Analysis Critical Control Point, is a preventive food safety programme to assess the inherent risk attributed to a product or a process, and to determine the necessary steps to control the identified risks. The Ministry of Health's HACCP certification is an endorsement that allows us to strengthen our competitive edge and it further establishes us as a market leader in the Asian Food & Beverage Industry. The Group is striving to attain the same achievement for our operations in Petaling Jaya, Johor Bahru and Kuching.

YHSM's policy in Quality Assurance is to work Towards Zero Defects. With this mindset strongly ingrained, YHSM is able to ensure the integrity of products. Consequently, staff will enjoy a cleaner and safer working environment, and this will further reinforce our consumers' loyalty to the YHS brand name.

Information Technology (IT)
In the midst of the Information age, the Group has stepped up efforts in using information, communications and technology to improve productivity cost-effectiveness and efficiency.

The company has implemented the Material Resource Planning (MRP) system in the beverage manufacturing for planning of materials and to ensure products and raw materials are available when they are needed. The MRP system has also assisted the operations to be more cost-effective and to focus on lead times for raw materials, purchase orders and stock levels for components and raw materials. The implementation of computerized systems has improved employees' skill and enforces closer collaboration within the Supply Chain.

The company has implemented business tools for sales, marketing analysis and profit performance measurement. This enables management to track sales, revenue and margins in the high volume distribution of food and beverage products. In addition, the sales and profit management system provides management with the ability to measure productivity from a single customer or product. Timeliness of the information empowers management to make speedy business decisions for continuous profit improvement. It also enhances productivity, giving both the company and individual managers a precise and continuous accountability of their business results.

The company has implemented an intranet to provide cost-effective distribution of information throughout the organization and facilitate communication, collaboration, and coordination among departments. Voice over IP (VoIP) has been implemented at YHS Petaling Jaya to lower costs associated with overseas and inter-state phone calls. The company will be deploying VoIP to other branches to enable cost-effective voice communications and moving towards a cost-effective global data and voice network. The company has improved the management information systems and will be using technology to work smarter, better and faster to enhance productivity, improve customer services, cost-effectiveness and overall efficiency.

Human Resources
YHSM's employees remain a priority for the Group. Human Resource development remains a foremost concern for the Group. Courses and training workshops were conducted throughout the year to ensure positive thinking and enhance the knowledge and skills of staff in preparing them for future challenges.

One such high profile staff training event was the Regional Sales Conference.

This event helped to encourage and motivate sales growth as well as achieving targets. 138 staff from various departments were involved in this training session.

Expedition programmes for Management were conducted in May, June and July of 2001. The objectives were to train and develop skills as well as build teamwork.

Processing Facilities
The projects at Johor Bahru and Petaling Jaya, aimed at increasing production capacity, were successfully completed during the year. These projects, which involved the upgrading of production capabilities, enabled the Group to double the production capacity of one-litre packs and increase the capacity of 250ml slim packs by 75%. Efforts are also underway to increase production capacity for tea extraction and processing, as well as to streamline soya extraction capacities.

Associated Companies
WY Company Ltd in Thailand has not been able to improve performance in the year under review due to world trading conditions. The Group is in the process of exploring business opportunities in Thailand to help the Company grow.

Senawang Edible Oil Sdn Bhd recorded lower profits due to lower palm product prices. Sarawak Coconut Enterprise Sdn Bhd recorded lower losses.

The Group is still in the process of reviewing its investment portfolio in these companies.

Towards Globalisation
As part of the Group's efforts to increase market share and strive towards globalisation, YHSM set up Yeo Hiap Seng (Middle East) Co. Ltd. E. C. (" YHSME") in the year under review. YHSME is a 100% owned limited liability subsidiary of YHSM with a paid-up capital of BD20,000 (RM202, 600). YHSME's marketing efforts will be focused primarily on Gulf countries. Backed by a vast market of opportunities for HALAL food and beverage products, extending its distribution network to the Middle East represents a strategic move for YHSM in terms of opportunities for HALAL food & beverage products.

Prospects
Our strategies for growth are well positioned and directed at placing us as the market leader in the Asian Food & Beverage industry.

In view of the slower economy, cautious consumer spending and market uncertainties, we expect the level of competition in all retail segments to be extremely keen.

The Group is mindful of the challenging environment in which it operates and is cautious that the slowing global and Malaysian economy may affect Group performance in Financial Year 2002. However, with the ongoing efforts in brand building, introduction of value added new products and aggressive marketing initiatives, the performance of the Group for Financial Year 2002 is expected to improve. Nevertheless, the current global and Malaysian economic slowdown is likely to have an impact on Group profits.

Acknowledgements On behalf of my fellow Board members, I would like to thank the management for their dedication, the staff for their hard work and commitment, and our business partners, associates and shareholders for their unstinting support during the past year. We look forward to their continued and invaluable support as we push forth and strive towards greater success in the current year.

Dato'Borhan bin Kuntom
Chairman