AGM Key Matters

 

DOMINANT ENTERPRISE BERHAD (221206-D)

(Incorporated in Malaysia)

               

SUMMARY OF KEY MATTERS DISCUSSED AT THE 28TH ANNUAL GENERAL MEETING HELD ON MONDAY, 28 SEPTEMBER 2020

 

At the 28th Annual General Meeting of Dominant Enterprise Berhad held on 28 September 2020, all the resolutions as set out in Notice of the 28th Annual General Meeting dated 27 August 2020 were duly passed by way of poll by the shareholders and proxies present thereat.

 

During the AGM, the Chairman had informed the members present that the Company and the Board had received a letter dated 11 September 2020 from the Minority Shareholder Watch Group (“MSWG”) raising questions in relation to the Strategy/Financial and Corporate Governance of the Group.

 

The Chairman invited the Managing Director, Mr. Owee Geok Choon (“Mr. Owee”) to read the questions and the Board’s corresponding replies for the MSWG. The questions and replies were also projected to the members simultaneously. The corresponding replies by the Board to the Shareholder were set out below: -

 

1. Revenue from the distribution segment, which constitutes 75% of group revenue, fell by 13.7% to RM506.4 million (FY2019: RM586.6 million).

 

(i) What is the main cause for the drop in revenue of the distribution segment ?

Response:

The significant slowdown in market demand due to uncertainty in the global economic environment was the main reason for the drop in revenue of the distribution segment. The imposition of Movement Control Order (“MCO”) in Malaysia, as well as the restrictive movement controls in other countries like Singapore and Thailand also contributed to this fall in revenue.

 

(ii) What are the prospects for this segment for FY2021?

Response:

We remain cautiously optimistic about the prospects of our distribution segment. We are constantly reviewing market trends and needs to optimise our product mix. At the same time, we are also sourcing for new supplies and developing new and niche markets where we can achieve better profit margins.

In addition, we will continue to leverage on our competitive advantage of economies of scale, as well as our relationship with our suppliers to lower our costs, to capture a bigger market share in the industries that we are currently serving.

 

2. The construction of the Company’s Dengkil factory is expected to be completed by late 2020.

 

(i) What are the key products to be manufactured in this factory?

Response:

The products to be manufactured in the new Dengkil factory would be flat laminated wood panel products.

 

(ii)    What is the expected increase in production capability upon completion?

Response:

We expect an increase of 5% (or approximate increase of 12,000 cubic meter annually) in overall Group production once production starts in the new Dengkil factory.

 

3. The Company strives to be environmentally responsible. What is the status of exploring the use of solar energy for the manufacturing plants?

 

Response:

We have just finalised the project for the installation of solar panels in one of our manufacturing plant in Kulai, Johor. The installation will be completed in the first quarter of 2021 and once up and running, is expected to supply approximately 20% of the electricity required by the factory.

We will continue to roll out the use of solar energy in our other manufacturing plants by phase, as part of our continuous effort to be environmentally responsible.

 

4. During FY2020, DEB made a RM19.9 million purchase of property, plant and equipment cash payments (FY2019: RM7.7 million) (Note 7). What items of property, plant and equipment did the Company purchase? Why was the purchase by cash given the risks associated with such large cash transactions?

 

Response:

The breakdown of the RM19.9 million is as follows:

 

 

 

There is minimal risk associated with the construction transactions as payments to the contractors are in phases, according to the progress of the projects.

 

Reply from MSWG:

Ms Hin Juat Chin, the representative from MSWG queried on whether the RM19.9 million should be reflected in the cash flow of the Group. In her opinion, the RM19.9 million should be broken down into RM 7.7 million cash term payment, and RM12.2 million which is financed by term loans.

The Company’s auditors replied that this was a matter of presentation and classification, but they take note of MSWG’s comment.

 

5. For penetration of the Thailand market, DEB set up a representative office in 2011. The Company also set up a subsidiary namely FWTCL in 2013 to establish a firmer foothold in the country. What is DEB’s future expansion plan in term of geographical presence?

 

Response:

We are currently exploring setting up of another branch in Thailand in the Chon Buri/Rayong province, which is approximately 2-hour drive away from Bangkok. This will allow us to achieve greater economies of scale in Thailand and at the same time, to more effectively capture the market in the outskirts of Bangkok.

We see the potential in the Thai market and intend to grow our business in Thailand through the setting up of branches in various provinces going forward, similar to our operations in Malaysia.

 

6. As stated in the CG Report, DEB departed from Practice 4.1 of Malaysian Code of Corporate Governance (“MCCG”) which stipulates that at least half of the board comprises independent directors. For Large Companies, the board comprises a majority independent directors. The Board currently has 9 members. Out of the 9 members, 3 of them are independent representing 33% of the Board. The Board has stated that it is satisfied with the current Board composition and is of the view that the composition fairly reflects the interest of the minority shareholders of the Company. Nevertheless, the Board will continue to review this Practice annually.

The MCCG requires the disclosure of the target date of adoption of a Practice. When is the target date for adoption?

 

Response:

Out of the 9 Board members, 3 are independent representing 33% of the Board, satisfying Bursa’s listing requirements 15.02(1) which states that “a listed issuer must ensure that at least 2 directors or 1/3 of the board of directors of a listed issuer, whichever is the higher, are independent directors.

As all the non-executive directors have varied background and experience, the Board is of the view that the current size and composition of the Board of majority being non-executive directors are considered adequate to provide an optimum mix of skills, experience and expertise.

With the current Board size, there is no disproportionate imbalance of power and authority within the Board, between the non-independent and independent directors. The Board will continue to monitor and review the Board’s size and composition as needed.

 

7. Practice 4.2 of MCCG states that two tier voting should be adopted for the re-election of independent directors (as independent directors) if their tenure has exceeded 12 years. Mr. Johnson Kandasamy A/L David Nagappan was appointed as Independent Non-Executive Director of the Company in November 2004 and has served as the Independent Non-Executive Director of the Company for a cumulative term of more than 16 years. The Board has sought shareholders’ approval to retain him in the current position based on single tier voting process at the 2020 AGM.

Why has the Board not followed two-tier voting? Does the Board intend to follow two-tier voting?

 

Response:

The Board considered the following factors as recommended by Nominating Committee before making the decision to seek shareholders’ approval to retain Mr Johnson David as INED based on single-tier voting process at the 2020 Annual General Meeting:

 

(a)    Mr. Johnson David has fulfilled the criteria under the definition of ID pursuant to the Listing Requirements;

 

(b)    Mr. Johnson David has actively participated in Board deliberations, gave his opinion in an independent and unfettered manner, discharged his duties with reasonable care, skill and diligent; brought independent thoughts, experience and objectivity in decision making;

 

(c)    Mr. Johnson David long tenure with the Company has neither impaired nor compromised his independent judgement as he is always independent in character, independent of management and free from any relationships or circumstances which would likely affect or could appear to affect his judgment; and

 

(d)    Mr. Johnson David exercised due care in all undertakings of the Group and has carried out his fiduciary duties in the interest of the Group and of the minority shareholders.

 

The aim of the voting process, whether single tier or two tier, is to achieve the same intended outcome, that is:

-       For Mr. Johnson David to continue to act in the best interest of the Company and provide objective and independent challenges and judgement to steer the Company in the right direction

The Company is aware of the MCCG’s recommendation of the two-tier voting process and will consider it for adoption going forward.

 

8. DEB in its Corporate Governance Report states that it has departed from Practice 4.5 which requires the board to disclose in its annual report the company’s policies on gender diversity, its targets and measures to meet those targets. For Large Companies, the board must have at least 30% women directors. Currently, the Company has one female director on the Board. The Board does not have any policy on gender diversity policies and targets. When does the Board plan to disclose in its annual report the company’s policies on gender diversity, its targets and measures to meet those targets?

 

Response:

The Board believes that skills, experience, independence and knowledge are essential criteria in the selection of Board members. However, DEB is aware of the recommendation under the Code for gender diversity and will consider such appointments based on needs and requirements going forward.

 

The following are the key questions that were raised from the floor, which were responded and addressed by the Board and Management:-

 

1. Mr Phua Chu Teng inquired whether DEB will benefit from the recovery stock in the furniture industry?

Mr Owee on behalf of the Board, replied that the Group has benefitted from the current boom in the furniture industry, especially the manufacturing division. Since the gradual re-opening of business operations from June, sales from the Group’s manufacturing division has resumed to, and some branches even exceeded pre-MCO level. The Group managed to capture a larger market share as well as develop new customers, particularly in the furniture export sector.

 

2. Update on when the Dengkil Factory is able to achieve full operation.

In answer to a shareholder’s question on the status of Dengkil factory, Mr. Owee on behalf of the Company, informed that the Dengkil factory is expected to achieve full production capacity in the first quarter of FYE 2022.

 

3.      Mr Phua Hoe Bee posed a question on what are the plans and strategies for the Distribution Division, especially for Southern side as installers are not able to travel to Singapore?

Mr. Owee informed that some Malaysian installers have actually started going over to Singapore and subject themselves to quarantine since the two countries' cross-border travel arrangements kicked in late August 2020. Mr. Owee further added that the sales for distribution division in Johor would pick up in September and October 2020.

 

4. Mr Phua Hoe Bee further posed the following questions:

i.  Are there any expected loss for short-term investments?

ii. What is the return from short-term investments?

iii. Why the Company did not use this short-term investments to cover the interest from overdraft?

Mr Owee informed that the short-term investments are mainly in deposits and money market fund. The money market funds are low-risk funds that seek to preserve capital and no loss was expected. Mr Owee further informed that the return from short-term investments is similar to that of fixed deposit interest. The advantage of these short-term investments is that the return is tax exempted.

In answering why the Company did not use the short-term investments to cover the interest from overdraft as interest is very high, Mr Owee replied that the short-term investments serve as a buffer for the Group, and cushions the Group from unexpected events which may result in the Group being cash strapped. The Covid-19 pandemic further strengthened the Group’s belief that it is important to be prudent and prepared.

At the same time, these funds can be utilized should any good opportunities arise for the Group.

 

5. Mr Phua Hoe Bee posed a question on whether higher provision is expected for the Group’s trade receivables as a result of the Covid-19 pandemic?

Mr Owee answered that the management has been in close contact with customers and is monitoring its collection closely. Hence the Company does not foresee the requirement of a higher provision.

There were no other questions raised by shareholders and proxies at the 28th Annual General Meeting of the Company.