1. Audited Financial Statements ("AFS") for the Financial Year Ended 31 March 2019 together with the Reports of the Directors and Auditors thereon

The Executive Chairman informed that as provided for in Section 340(1)(a) of the Companies Act 2016, it was not required that the AFS be formally approved and therefore the first item of the Agenda was meant for discussion only and is not put forward for voting.

The Executive Chairman informed that The Minority Shareholder Watchdog Group (“MSWG”) had vide its letter dated 18 September 2019 addressed to the Board of Directors (“Board”) sought information and clarification on the Financial Statement for the financial year ended 31 March 2019. On behalf of the Board, the Executive Chairman thanked MSWG for giving the Company notice of their questions to enable the Board to reply officially to their letter.

For the information of the members present, the following questions from and the corresponding replies to MSWG were read out:

STRATEGY / FINANCIAL MATTERS

Question 1

The Board of Directors has recently spent approximately RM1.10 million to install a 216 kilowatt Photovoltaic Diesel Hybrid System on an “experimental basis” in one of Lay Hong's new environmental controlled farms in Jeram, Selangor. With this installation completed in the current financial year, the Group will be able to save some energy cost and cash flow by way of tax incentive given by MIDA (page 6 of the Annual Report 2019 [“AR2019”]).

(a) What is the expected estimated percentage of energy cost saving, going forward?

(b) What is the tax incentive given by MIDA in relation to the installation of Photovoltaic Diesel Hybrid System?

Response to Question 1
(a) The Group spent a total of RM12.44 million in electricity cost for all our farms (for both layer and broiler) for the financial year ended 31st March, 19. Based on actual accounting records extracted, going forward after installing the solar system, the Group will be able to save a total of approximately $145K annually.

(b) The tax incentive given is called investment tax allowance for GREEN TECHNOLOGY PROJECT or (ITA in short). This incentive allows the full cost expended on the project to be set off against 70% of the Company statutory income in the year of assessment. Unutilised allowance can be carried forward to subsequent years Guntil they are fully absorbed.

Question 2

Revenue from food processing-chicken products division decreased by RM80.24 million or 20.98% due to the reduction in sale of frozen chicken meat to distributors and hypermarkets/supermarkets nationwide (page 9 of AR2019).

(a) Does the Company expect revenue from chicken products to decline further, going forward?

(b) What are the Company's plans to address the shift in demand for chicken products?

Response to Question 2
The revenue from this segment will continue to grow with the new frozen chicken products introduced and manufactured from the Joint Venture with Nipponham. These products will be distributed by the Group fully owned subsidiary Company Lay Hong Food Corporation Sdn Bhd.

Question 3

For the financial year ended 31 March 2019, the retail business recorded an increased pre-tax loss of RM1.83 million (2018: pre-tax loss of RM1.56 million) (page 10 of AR2019).

(a) Does the Company expect further losses in financial year ending 2020?

(b) When is the retail supermarket business expected to break-even?

Response to Question 3

(a) The Company has taken remedial steps to mitigate the loss. All continuing non-performing stores have been closed and new ones with smaller outfits in new sub urban areas have opened. Fresh initiatives like concentrating more on fresh products have been introduced and increased internal controls on inventories are stepped up to reduce the level of slow moving products and shrinkages. To reduce rental cost, part of excess retail areas have been sub letted out to third parties.

(b) With the above being implemented, the directors are confident that this retail business will be able to break even soon.

Question 4

In relation to the joint venture with NH Foods Ltd, Japan, the Company has commenced trial production and to-date it has soft-launched seventeen variants of chicken products of Japanese design and flavour to the local populace (page 10 of AR2019).

When will the Company commence full production of the products mentioned above?

Response to Question 4

During this financial year, the Company will concentrate on production for the domestic market only. Quantity planned to produce is 2,700 metric tons with revenue estimated to be RM31.0 million. Next year, 2020, the Company will commence exporting to Japan market for the Tokyo Olympic games. Production will then be enhanced to 4,000 metric tons with estimated revenue of RM46.0 million. On the third year, the Company will achieve full capacity of 7,200 metric tons with 2 shifts.

Question 5

Total borrowings had increased substantially by 22.53%. As a result, the gearing has increased to 0.80 times (2018:0.69 times) (page 12 of AR2019).

What is the Company's optimum gearing ratio?

Response to Question 5

The Board of Directors has guided that the optimum gearing ratio for the Group should not exceed 1.0 time. To address this, the Group has recently monetised a piece idle land (formerly a layer farm in ljok) for RM27.6 million to a third party. With this disposal, the Group will be able to realise cash proceeds to pare down its existing borrowings.

Question 6

The Group’s impairment losses on trade receivables increased significantly to RM9.75 million (2018: RM5.61 million) as disclosed in Note 12 (page 128) of AR2019.

(a) Is the amount recoverable?

(b) How much of the impairment losses on trade receivables have been recovered to-date?

Response to Question 6

During the said financial year, the Group undertake a thorough review of its entire Trade Receivable position. Prudent measures were implemented to mitigate the further increase in the number of days aging and enhancement of litigation processes in particular in the state of Sabah.

The amount of impairment losses recovered to date is approximately RM803K.

Question 7

Bad receivables written-off has increased significantly to RM2.20 million from RM0.75 million in 2018 (Note 29, page 147 of AR2019).

What is the nature of these bad receivables written-off ?

Response to Question 7

Most of the trade receivable written off were from the state of Sabah. These receivables are all more than five years old after going through a lengthy process of many recovery methods implemented that failed. The receivables were made up of sales of fresh table eggs, live and processed chicken sold to small traders and food outlets/caterers all over Sabah. Most of these businesses are either have closed shop and absconded or the owners have been adjudicated bankrupts by the Courts.

AGM

The following queries were raised by shareholders and responses made by the Board members:

Question 1

Shareholder addressed that the Company currently operates one pasteurized liquid egg plant which is located at Meru, Klang. He enquired on what is the expected production of the newly built factory in Iskandar Halal Park, Pasir Gudang, Johor.

YCH replied that the newly built factory is expected to pasteurise up to 300 metric tonnes of eggs per month, RM2.1 million per month.

Question 2

Shareholder enquired on what is the current potential “HALAL” International markets that the Company is targeting.

YCH replied that the joint venture with NH Foods Ltd will propel the Group to grow faster both on the domestic front as well the “HALAL” international markets including Japan.

Question 3

Shareholder commented that the remuneration of Directors stated on page 151 specifies the range and not the breakdown figures and whether in future details of the breakdown can be presented.

Mr. Ng answered that the Bursa Listing Requirements the Company to disclose the remuneration of Directors.

Mr Ng also added that on page 38 of the annual report stated the remuneration of the executive and non-executive directors.

Please explain the different figures.

Question 4

Shareholder requested the Board to consider paying higher dividends to shareholders.

Mr. Ng replied the Company had suffered an abnormal loss during the year due to the voluntary culling of over half a million layer birds at the Temparuli farm in Sabah. The said farm was quarantined for over 4 months. Due to this big loss, the group’s cash flow have been affected thus the ability to pay dividend is restricted.

Question 5

Proxy queried as to how the Company is planning to pay off current loan liability as referred to on page 139 of the Annual Report 2019.

Mr Ng replied that the proceeds generated from the disposal of a piece of land in Ijok for RM27.6 million was used to reduce the debts and the Group is looking at disposal of other idle assets to reduce the debts.

Question 6

Proxy enquired as to the investment of 85 million in which areas and what type of business growth generated after capital expenditure?

Mr. Ng replied the amounts were spent on production facilities which will increase the numbers of layer farms as well as expansion of feed meal capacity which would lead to the growth of Company’s business.

Question 7

Proxy queried on the contributions made from foreign exchange particularly where the gains are derived from sales related to the Euro Dollar.

Mr. Ng replied that the Company does no sales to Europe, 90% of the foreign gain is from the exports of eggs to Singapore.

Question 8

Proxy queried as to whether the Company will consider a right issue or private placement to obtain technical and pay off current loan liability?

Mr Ng replied that once the NHF production has been completed, this will lead to the growth of Company’s cash flow for the next few years. Therefore Company is able to generate cash flow to pay off current loan liability.

Question 9

Shareholder enquired on the ability of the Company/Group to repay the RM175,406,827 loan and borrowings which will mature within one year. Will there be any fund raising corporate exercise?

Mr Ng replied that under the accounting standards/requirements, any borrowings within 12 months is classified as current. This figure basically is considered short terms borrowings, such as banker’s acceptance, these have a tenure from 30 – 180 days and it can be rolled-over when it expires.

The Board did not foresee any difficulties for the rolling over of these debts, because the period of repayment of these debts are derived from sales generated over an average of 90 days and most of the debtors are hypermarkets and corporate entities and minimal debts from individuals and small traders.

The Company is not planning any fund raising exercise at the moment.

Question 10

Shareholder enquired as to why the insurance claim of RM4.67 million stated on page 146 of AR 2019 is so little.

Mr Ng explained that the insurance claim comprised of miscellaneous items happened in the business. In relation to the insurance claim for the farm, diseases cannot be insured but it covers livestock for suffocation.

Question 11

Shareholder enquired the reason of the revenue was not increase proportion of the amount of the capital expenditure spent.

Mr. Ng explained that the revenue decreased mainly due to voluntarily culling of layer birds at farm.

Mr. Ng informed that the production will be normalised to the Group’s capacity of up to 3 million table eggs per day in the 3rd quarter of the financial year ending 31 March 2020 as the DOC will take 21 weeks to mature as to enable them to start laying eggs.

During this period, the Group have to incur all the fixed costs, such as labour costs, interest payment etc.

Question 12

Shareholder asked for the geographic breakdown of the sales (how much is exported?)

Mr Ng answered that 15% of the total egg production is exported (about 3 million eggs).

Recommendation 1

Proxy recommended that the questions and answers of the Minority Shareholder Watch Group (“MSWG”) should present in the slide for easy reading for shareholder.

Recommendation 2

Shareholder suggests that the Management should prepare enough Annual Report and Circular to distribute to shareholders.

Mr. Ng explained that the Annual Report had been sent to every entitled shareholders. The Shareholders be advised that to bring along the AR during the meeting or requested the Share Registrar to provide before the AGM. And for the information, in order to address the cost saving measures, the Company has opted to send the AR by electronic means commencing from the next AGM. Shareholders may request for a hardcopy of the AR at Lay Hong’s office.

Recommendation 3

Shareholder suggests that the statutory report on Page 58 should put a signed copy. The shareholder queried that the statutory report is seemed uncomplete without a complete signature.

Recommendation 4

Shareholder suggests that in the proxy form, it should put an option in taking the selection of the Chairman of the Company.

Recommendation 5

Shareholder suggests that the Management show the image of each Director of the Company in the Annual Report.

The Board noted all the recommendations.