OPERATIONAL & FINANCIAL MATTERS

Question 1

In relation to the Lay Hong Berhad and its subsidiaries’ (“Group”) 4 open house farms (page 8 of
Annual Report 2021 (“AR2021”)), what are the Group’s plans in terms of converting the remaining
open house farms into environment-controlled house?

Answer

These 4 open house farms are for the production of table eggs and they are all over 2 decades old and
fully depreciated to date. Three of them are located in Peninsular Malaysia and one is in Sabah.
Depending on the Group’s availability of financial resources, there are already plans in place to
convert these farms into modern automated closed house. It will be done progressively over a period
of 5 years. In fact, the one located in Jasin, Malacca, the conversion is currently in progress. Based on
current exchange rate, it will cost up to RM20 million to replace an old farm with a new fully
automated which can produce 300,000 eggs per day, depends on the amount of automation built in.

Question 2

In financial year ended 31 March 2021 (“FY2021”), the Group harvested a total of 40.29 million
kilogram (“kg”) (2020: 45.51 million kg) of broilers due to lower productivity at some of the older
farms in Tanjong Karang, Selangor and Kampong Serusup in Kota Kinabalu, Sabah. Due to this, the
sales had accordingly recorded a decline of 5.07% or RM10.26 million from RM202.36 million to
RM192.10 million (page 8 of AR2021).

(a) To what extent will sales of broilers be affected going forward, if the older farms continue as
they are?

Answer

Older farms will definitely be less efficient, but with good preventive maintenance of the
existing aged equipment plus good farm management practices put in place, the feed
conversion ratio (“FCR”) will continue to be favourable. Therefore, the sales of broilers
going forward for these older farms will not defer much if left in the current form.

(b) What are the Group’s plans to improve productivity? Are there plans to upgrade or modernise
the older farms in Tanjong Karang, Selangor and Kampong Serusup in Kota Kinabalu, Sabah?

Answer

Improving productivity is a continuing process in the Group. The research and development
team will also try out alternative breed. Last year, the Group changed the popular
“COBB/ROSS” brand with that of “INDIAN RIVER” as to try out their productivity on FCR.
The Company is also continuously improving the feed formulation by substituting with better
feed additives and supplements.

Yes, one of the existing older closed house farm broiler farm located in Tanjong Karang is
currently in the advanced stage of rebuilt from a “deep litter” farming concept to a fully
automated. This new farming method not only reduce labour cost but also increase the
harvesting productivity by additional 5-10% at every cycle of 60 days.

Question 3

The Group’s retail business revenue had increased to RM230.6 million (2020: RM215.3 million),
while total contribution to group profit during the financial year was RM1.9 million compared to a
loss of RM1.4 million recorded in the previous year (page 10 of AR2021).

(a) Given that the on-going pandemic has changed the shopping behaviour of consumers and
contributed to the increase in daily sales of the Group’s retail business, is the profit
contribution from the retail business sustainable, going forward?

Answer

It is hard to predict. It is all depends on the government ability to contain the deadly COVID-
19 pandemic over the ensuing 12 months.

(b) Are there any expansion plans for the Group’s retail business?

Answer

There were no expansion plans for the Group’s retail business.

Question 4

Based on the Statement of Cash Flows for FY2021, there was a loss on disposal of quoted investment
amounting to RM24,318 (2020: Nil) (page 65 of AR2021).

(a) To which quoted investment do the loss relate to? Why did the Board decide to dispose the
quoted investment at a loss?

Answer

The quoted investment is Rhone Ma Holdings Berhad. The shares were offered to Lay Hong
Berhad during their Initial Public Offering (IPO) exercise as part and parcel of their
placement out to their loyal customers. We decided to sell the stock as it has not shown any
upside since its listing and hardly traded.

(b) During the year, the Group purchased quoted shares in Malaysia amounting to RM1.6 million
(2020: Nil) (Note 9, page 107 of AR2021). What is the rationale for purchasing the quoted
shares?

Answer

Due to timing issue of cash flow between settling loan repayments due or suppliers’ payment,
it is often that there are surplus cash floating around the group. It is the Group’s policy to
maximise its cash flow to its optimum usage by temporary investing either in blue chip stocks
or liquid unit trust instruments.

(c) What is the Board’s decision making/approval process in relation to the purchase of quoted
shares in Malaysia?

Answer

Presently, there is no standard operating procedures (SOP) in regard to purchase of shares as
the Group is not in the business of investing.

Question 5

Bad debts written off increased significantly to RM5.9 million (2020: RM0.6 million) (page 65 of
AR2021).

(a) What was the reason for the huge increase in bad debts written off?

Answer

The increase in the bad debt written off was due to the accumulation from a few years of
provisions already made and was written off in one go as to clean up the balance sheet.

(b) What are these bad debts related to? Are the bad debts written off arising from external
customers or related parties?

Answer

All were trade debts with external customers.

(c) What were the measures taken to recover the RM5.6 million prior to being written-off?

Answer

Appropriate legal actions have already being taken up to the stage of either winding up or
bankruptcies instituted. Debts are only written off after all legal avenues have been exhausted
and recommended by our external lawyer that such debts are irrecoverable.

Question 6

Impairment losses on revaluation on land and building was RM1.7 million (2020: Nil) (page 65 of
AR2021). To which land and building do these impairment losses relate to? What is the reason for the
impairment losses on revaluation on land and building?

Answer

This impairment relates to a piece of land with building in Sadao, Thailand. The reason for the
impairment losses was due to the different basis being used by the current valuer with that of the
previous valuer.

Question 7

Staff cost – salaries, wages and bonus increased to RM84.1 million (2020: RM69.1 million) (Note 25,
page 121 of AR2021).

What was the reason for the significant increase, given that the defined contribution plans for the year
remains fairly the same at RM6.7 million (2020: RM6.4 million)?

Answer

The significant increase in staff cost was due to a classification error where the foreign workers’ costs
was inadvertently being classified as staff cost. In actual fact, the net increase in this class was only
RM940,000 between financial year ended 31 March 2020 and FY2021.

Dato’ Chairman then proceeded to the Agenda for the Meeting.

Subsequent to the above, Dato’ Chairman then proceeded with the Question and Answer (“Q&A”)
session for the Board and Management of the Company (“Management”) to deal with the questions
from the shareholders.

The following questions was raised by shareholders and the responses made by the Board and
Management:-

Question 1

Shareholders asked if there is any e-vouchers given to shareholders as a token of appreciation for
attending the 37th AGM.

Response to Question 1

Dato’ Chairman responded that there will be no e-vouchers but will consider giving e-vouchers to
shareholders in future meetings.

Question 2

Shareholder enquired on the impact of the current high U.S corn and soybean prices compared to past
few years and the actions to be taken on this issue. Since the cost is higher and most of the small
poultry players may not be able to sustain their business, will the Company take this opportunity to
increase the Company’s market share. Furthermore, what is the average selling price for eggs in order
to maintain a profitable level.

Response to Question 2

Dato’ Chairman responded that the commodities price of products such as corn and soybean fluctuate
from time to time. The Company expects the prices will continue to be volatile in the short term but
would probably normalise in the near term. The Management has taken proactive measures to
optimise the costs to run the business. The selling prices of eggs are dictated by market forces and
with the volatility of the commodities prices, the Company is unable to provide the estimated selling
price to maintain profitability. The Management would look into the ways to increase market share.

Question 3

Shareholder enquired on the confidence level of the Company in returning to profit this year or any
signs of going back to a normal level. Furthermore, what is the Management’s view on the cost of
feedstock in near future.

Response to Question 3

Dato’ Chairman responded that the commodities price of products such as corn and soybean fluctuate
from time to time. The Company expects the price will continue to be volatile in the short term but
would probably normalise in the near term. The Management has taken proactive measures to
optimise the cost to run the business. The selling prices of eggs are dictated by market forces and with
the volatility of the commodities prices, the Company is unable to provide the estimated selling price
to maintain profitability. The Management would look into the ways to increase market share.

Question 4

Shareholder asked whether the Company has obtained any assistance from the COVID-19 economic
stimulus package implemented by the Government?

Response to Question 4

Dato’ Chairman answered that the Company is not eligible for the COVID-19 economic stimulus
package as the Company does not meet the required criteria.

Question 5

Shareholder asked whether the Company will raise more capital via a rights issue exercise to sustain
the business since the Company has been making losses the past two quarters. Furthermore,
shareholder also enquired on the plans to turn around the Company from loss to profit making and
expectations for the forthcoming quarterly results.

Response to Question 5

Dato’ Chairman responded that the gearing of the Group has been reduced from 0.89 times in
financial year ended 31 March 2020 to 0.72 times in FY 2021. Hence, the debts level of the Group is
still manageable. Due to the current challenges posed by the increase in commodities prices and the
imposition of various movement control orders, the Company foresee that the business will be
challenging and the Management will strive hard to ensure that business sustainability meets the
expectations of stakeholders.

Question 6

Shareholder enquired on how Lay Hong expects to achieve growth in sales when there is shortage of
products? The supply chain was short of stock so how can the issue be overcomed in the long run.
Although the new factory is functioning but yet there insufficient supply. Will the Company suffer
loss of sales? And would this cause a decline in the business partner’s support of the business?

Response to Question 6

The Board will address this in the forthcoming Board meeting.

Question 7

Shareholder asked about how much does the Company spent on this virtual meeting and whether any
e-vouchers will be given to shareholders as a token of appreciation for attending the 37th AGM.

Response to Question 7

Dato’ Chairman answered that the physical meeting would be more cost efficient in terms of savings
and there will be no e-vouchers given but will consider giving e-vouchers to shareholders in future
meetings. The total cost is approximately RM68,000.

Question 8

Shareholder requested a printed hard copy of the Annual Report of the Company.

Response to Question 8

The Board asked the shareholders to download the soft copy of the Annual Report from the corporate
website at www.layhong.com.my and Bursa Malaysia Berhad’s website at www.bursamalaysia.com.

Question 9

Shareholder asked why the Company required shareholders to register 2 days in advance before for
the virtual AGM whereas the other public listed companies can login on the same day itself. Does this
comply with the MMLR of Bursa Securities.

Response to Question 9

Pre-registration needs to be done 48 hours before the annual general meeting and extraordinary
general meeting.

Please be informed that the pre-registration needs to be done 48 hours before the general meetings has been stated in the Administrative Guide which has been dispatched together with the notice of
meeting to the shareholders. Share Registrar needs time to verify the eligibility of the shareholders for
attending the general meeting against the General Meeting Record of Depositors of all the listed
issuer.

Question 10

Shareholder enquired on the contribution by the joint venture with the Japanese frozen food company
in respect of market expansion, revenue and profitability growth. He also raised his concern on the
Company’s outlook going forward given the impact of COVID-19 relaxations. Besides that, what is
the realistic expectations on the profitability given the increasing input costs especially the global
grain prices. Lastly, how is the Company coping with rising input costs and what is passed on to the
customers.

Response to Question 10

Dato’ Chairman replied that the joint venture with NHF Manufacturing (Malaysia) Sdn. Bhd. only
accounted for 2% of the Group’s revenue. With the gradual easing of the MCO, the Company
expected the manufacturing and horeca segments will open, thus the Company sales will increase. For
the retail segment, the Company expected the sales will remain as the COVID-19 fear is still
lingering. On the cost side, the Directors have taken proactive measures such as hedging on
commodities price, cost control and mitigation.

Question 11

Shareholder enquired on whether packaging of nutriplus 850g product can be resized in order to
reduce material costing.

Response to Question 11

The Board will look at the suggestion of shareholder.

Question 12

Shareholder enquired as to whether the Board will do a presentation for the shareholders for the next
AGM and when will the Company start to pay dividends to the shareholders.

Response to Question 12

Dato’ Chairman responded that the Company will consider doing a presentation in future AGMs. As
for payment of dividend, the Directors will consider it when the results and cash flow of the group
improve.

Question 13

Shareholder asked how the Company’s business has been affected by COVID-19 pandemic.

Response to Question 13

Dato’ Chairman responded that to a certain extent, the COVID-19 had affected the manufacturing and
horeca business. On the other hand, the retail business has improved.

Question 14

Shareholder asked how will the Company overcome the shortage of supplies of fast selling items as it
would affect the Company’s revenue and the image of the Company thus curtailing efforts of the last
20 years.

Response to Question 14

The Board replied the Company has not encountered this problem before.

Question 15

Shareholder asked how the farming business was affected by the last batch of eggs to Singapore? Has
Singapore reduced imports from Lay Hong Nutriplus? How was export market performance?

Response to Question 15

The Board responded that the Company exports to Singapore had been affected due to the Salmonella
issue. To date, Singapore has not opened for exports. The Company have through the government to
government channels, submitted the application for reinstatement and now awaiting reply.

Question 16

Shareholder enquired on the details on cost savings and automation efforts in the business compared
to the previous quarter.

Response to Question 16

Dato’ Chairman highlighted that this is highly sensitive information, and will not divulge it in a public
forum.

Question 17

Shareholder asked about the immediate actions to be taken by the Company in expanding the business
market in view of the challenging business environment and new high-tech egg farm in Tuas,
Singapore online this year.

Response to Question 17

Dato’ Chairman responded that sales to Singapore is not significant.

Question 18

Shareholder asked whether regional sales manager and areas manager from the Company engaged in
major selling before or during pandemic or at the same time? Did marketing efforts show
improvement in sales strategies? How did the sales teams manager perform since there was
insufficient stock to meet demand?

Response to Question 18

The Board responded that Lay Hong poultry products in the market have already matured due to
successful branding and good quality and adequate supplies to consumer. The Group has a good sales
team to ensure the market is well served at all times.

With that, the Dato’ Chairman concluded the Q&A session for Agenda of the Meeting. All the
resolutions tabled at the 37th AGM for the Company and voted upon by poll were duly passed by the
shareholders.

There being no other business, the Meeting terminated at 11.54 a.m. with a vote of thanks to the
Chairman.