OPCOM HOLDINGS BERHAD
(Company No. 322661-W)
(Incorporated in Malaysia)
TWENTY-FIRST ANNUAL GENERAL MEETING
KEY MATTERS DISCUSSED
1. Overall, the Company performed better than last year but how would the Company address the issue of low share price and higher capital appreciation vs margin of return?
The Company embarked on its plan to diversify its business from fibre optic cable few years ago with the objective of reducing the Company’s risk in terms of single customer risk. The Group had ventured into the upstream and downstream activities of fibre optic by manufacturing thixotropic gel for the fibre optic cable and engineering services.
The Engineering services division was set up November 2015 and the manufacturing plant for thixotropic gel commenced its operation in March 2016.
All these diversification initiatives of the Company had resulted in higher assets, higher payables and lower cash flow for the financial year ended 31 March 2016, with returns/revenue to be captured only in the following financial year(s).
Currently, the Group was on track for its supply of thixotropic gel from Malaysia to overseas markets and would expect positive contribution to the topline of the Company over the next two (2) years. The Company was optimistic of the future performance of the Company.
2. The challenges of the Company in the context of political headwind and business environment?
The Company had established cordial relationship with TM through smart partnership. Currently, the contract value in hand with TM was about RM210.0 million. The Company was also gradually securing services contract for fiber optic.
The Group would constantly look for business opportunities with TM and any other project that could generate positive return to the Group. The business prospect of the Group would be good for as long as there was presence of growing demand for fibre optic.
3. Why there was a refund of excess payment made on investment in associate company payment of investment and impairment loss on investment in associated companies of RM3,202,214?
It was explained that the refund was not an actual “excess payment” per se but merely accounting entries due to the application of the relevant applicable accounting standards.
On 5 November 2014, the group completed the acquisition of 40% shares in Unigel (UK) Limited (“UUK”) and its subsidiary company in the USA, Unigel Incorporated (“UI”), for a total consideration of USD3,675,388.
The Group has set performance targets for UUK and UI for the subsequent 24 months after the completion of the Sale and Purchase Agreement (“SPA”), as the purchase consideration. Subject to achieving the performance targets, the Group was required to pay second and final tranches of payment to the vendors. No payment shall be made if the relevant measurement target was not met. If the profit before tax of the associate companies exceeded the relevant measurement target, only the consideration payable for the relevant measurement period shall be payable.
During the financial year, the Group had reversed the contingent consideration totaling RM4,528,384 as the first measurement target for UUK and UI was not met, in line with the requirement of MFRS 3 Business Combinations.
As for the impairment of investment in associated companies, it was due to the recoverable amount of the investment in UUK and UI was less than the carrying value, based on the assumption that the second measurement target set might not be achievable by UUK and UI in view of the less conducive economic and business conditions in general.
More elaborate explanations were provided under Notes 4 and 14 of the audited financial statements.
4. What causes the increase in high administrative and other expenses, on group basis, as compared to the financial year ended 31 March 2015?
The increase in administrative expenses of RM10,054,160 (2015: RM8,053,099) and other expenses of RM3,939,576 (2015: RM2,057,681), on group basis was due to establishment of more subsidiaries and investment overseas.
5. What is the reason for the low margin of oil based industrial materials despite higher revenue and how would the Company address the issue ?
The sales of oil based industrial materials fluctuated depending on the demand of the overseas customers. Further, the drop in the unit price of the oil based industrial materials was not in tandem with the drop in oil price, but more.
Currently, efforts had been taken by the Company to address the low margin such as :
a. ride on lower oil price whereby to produce the value-add product in Malaysia and sale in USD.
b. re-allocation of customers by supplying the oil based industrial materials for certain clients of Unigel (UK) Limited from Malaysia rather than from overseas subsidiaries; and
c. source for cheaper raw materials
6. To explain what causes the difference in figures reported under Operating Segments for the same year in the financial year ended 31 March 2015 and 31 March 2016?
The difference in the segmental figures for the financial year ended 31 March 2015 and 31 March 2016 was due to the re-classification of the segmental reporting for clarity and for better monitoring of the performance of each segment.
The re-classification did not and would not affect the performance results of those segments.
The Board however noted the comments and suggestion of shareholders to improve on the presentation of its future financial reporting for better understanding by inserting explanatory notes.