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DEAR VALUED SHAREHOLDERS,

On behalf of the Board of Directors, I am pleased to present the Annual Report and Audited Financial Statements of Wellcall Holdings Berhad (“Wellcall”) and its subsidiary company (“Group”) for the financial year ended 30 September 2016 (“FYE 2016”).


PERFORMANCE REVIEW

The Group recorded revenue of RM134.470 million, representing a decrease of RM23.642 million or approximately 15% as compared to RM158.112 million in the previous financial year ended 30 September 2015 (“FYE 2015”). The overall decline in revenue was mainly attributable to the softening of demand resulted from slower recovery of global demand for industrial rubber hose.

The Group recorded a profit after taxation (“PAT”) of RM31.291 million for FYE 2016 compared to PAT of RM41.325 million recorded in FYE 2015, representing a decrease of RM10.034 million or approximately 24%. Higher PAT in FYE 2015 mainly arising from favourable foreign exchange gain amounting to RM5.574 million and higher tax incentives of RM5.140 million.

Lower PAT for FYE 2016 mainly resulted from decrease in revenue coupled with lower foreign exchange gain of RM1.386 million (included in other operating income) and tax incentives of RM1.065 million. However, this had been compensated by lower operating expenses.

The Group enjoyed lower expenses for FYE 2016 mainly resulted from the operational efficiencies, productivity and better management of expenses during the year although prices of raw materials and foreign exchange were volatile.

The table below highlights the Group's key financial performance for FYE 2016: Please find Table 1

Despite lower revenue and profit generated for FYE 2016, the financial standing of the Group remains strong with sustainable profit before taxation and margin exceeding RM30 million and 20% margin respectively for the past five (5) financial years amidst the competitive and challenging global environment. Please refer Graph 1

STRONG FINANCIAL POSITION WITH HEALTHY CASH FLOWS

Total borrowings stood at RM18.258 million, which has been utilized to fund the new plant and expected to be normalised without any major borrowings. The Group continued generating healthy cash flows with cash and bank balances improving from RM36.483 million (FYE 2015) to RM36.829 million (FYE 2016).

The Management believes that continuous reinvestment is essential for the Group to be competitive in the volatile market to ensure sustainable growth in delivering long term value to its stakeholders. The Group is also keeping up with technological changes whereby continuous capital investment are vital to enhance the efficiency and productivity. Therefore, the Group has continued to upgrade its plant and equipment in FYE 2016 amounting to RM7.433 million.

The Group's financial position remains positive with 22.5 sen net assets per share for FYE 2016 (FYE 2015: 29.3 sen per share). Basic earnings per share in FYE 2016 was 9.4 sen per share as compared to 12.5 sen per share in FYE 2015 mainly resulted from lower earnings for the year. Nevertheless, Wellcall maintains its high dividend payout ratio for the past five years, that was 98% in FYE 2016, 74% in FYE 2015.


OPERATION AND BUSINESS REVIEW

The principal activity of Wellcall is investment holding, while the principal activity of a wholly-owned subsidiary is manufacturing industrial rubber hose for customers who are mainly in the business of distributing rubber hose to original equipment manufacturers. Therefore, the Group's business segment mainly comprises the manufacture and sale of rubber hose and related products, which is confined to one business and by geographical segment.

Our export market accounted for 91% of the Group's revenue covering over 70 countries while the remainder was from local market. Hence, the market sentiment in the global economy plays an important role in driving the demand for rubber hose especially for replacement demand as well as product variations and penetration to new markets.

Please find table 2.

We have been continuously leveraging on our extensive customer network, improved productivity, quality services and our product range in FYE 2016. We will continue to further enhance our competitive strengths in these areas to stay ahead of market trends. The additional capacity installed from our third plant is readily onstream to serve and sustain our longer-term growth especially to cater for the global demand surge.

Our 20 years of track record in rubber hose industry and over 35 years of industry knowledge have serve a concrete platform for our presence in the rubber hose industry globally. Our product quality and reputable customer service have also aided us to expand our customer base to more than 180 customers. Besides product quality and reputable customer service, the Group has a strong research and development capabilities teamed by experienced personnel to deliver improved and innovative products and new processes.

The Group has also broadened its product range to various application markets ranging from air and water, oil and gas, welding, automotive, ship building, abrasion, food and beverages and chemical applications. Additionally, the Group possess the ability to manufacture and suit its customers' product requirements in terms of rubber hose sizes, pressures and temperature resistance. Our products are accredited by independent third party for product quality assurance and recognition such as SGS, Lloyd's Register, Flinders Cook, SIRIM QAS International and Malaysia Rubber Board.

Nevertheless, the Group continues to strive ahead to perform well and to maintain its dividend payout ratio of at least 50% of the net profit for the year, that was 98% in FYE 2016 (FYE 2015: 74%). Increasing customers base and revenue coupled with operational efficiencies are the key drivers of the Group to achieve its profitability. The Group's revenue and purchases primarily traded in foreign currency and it is the Group's practice to keep the foreign currency exposure to an acceptable level.

To enrich and attract the talent pool, the Group continues to recruit or engaged professionals and more experience personnel from various fields to cater for future expansion. The Group reviews its human resource policies and practices to ensure staff welfares are taken care as well as being upgraded periodically.

We trust that with the Group's strength, capabilities and concrete underlying fundamentals, the Group would be able to drive forward positively in the uncertain yet challenging economy.

INDUSTRY TREND, DEVELOPMENT AND PROSPECT

Demand for industrial rubber hoses will continue to see a gradual recovery from both emerging and developed economies. Moving forward, the Group will ensure it stays ahead of market trends, responding swiftly to changes through automation and research. In the near term, the Group expects the raw material prices to trend at higher levels due to supply and demand mechanism of raw materials and foreign exchange volatility.

Meanwhile, the additional capacity from new plant supports the Group in further strengthening its position in the market with a wider range of industrial hose. However, the outlook of the global economy remains challenging and uncertain. Nevertheless, the Group strategies are to focus on leveraging on its extensive customer network, improved productivity, quality services and product range to enhance its competitive edge.

Barring any unforeseen circumstances, the Board believes that the Group's prospects in the forthcoming financial year ending 30 September 2017 (“FYE 2017”) remains positive with challenges ahead and hopes to achieve a better result than this year. The Group will continue to be well positioned to improve our performance in forthcoming FYE 2017, strive towards maintaining the Group's vision to be the world's leading manufacturer of quality industrial hoses. We are also encouraged by our customers for continuous growth and expansion in our core business with the support from all stakeholders.

CORPORATE GOVERNANCE

The Group is committed to implement the best practice of corporate governance to enhance and increase shareholders' value. The Group has its risk management and internal control procedures in place to ensure transparency, accountability and integrity are attained and maintained in managing the Group businesses.

Policies that the Group has officially adopted includes Corporate Disclosure Policy, Fraud Policy, Whistle Blowing Policy, Enterprise Risk Management Policy, Succession Planning Policy and Emergency Succession Policy, where the Group will continue to adopt more corporate policies to ensure sustainability of the Group.

The Board of Directors' responsibilities for preparing the annual audited financial statements are disclosed in the Directors' Responsibilities Statement set in this Annual Report 2016.

The audited financial statements of Wellcall is not subject to any qualification as disclosed in the Independent Auditors’ Report to the Members.


DIVIDEND

The Board of Directors is not recommending any final dividend payment for FYE 2016.

For FYE 2016, the Company had:

i) On 23rd March 2016, paid a first interim single tier dividend of 2.30 sen per share on 331,965,037 ordinary shares of RM0.20 each amounting to RM7,635,196;

ii) On 20th June 2016, paid a second interim single tier dividend of 2.30 sen per share on 331,965,037 ordinary shares of RM0.20 each amounting to RM7,635,196;

iii) On 28th September 2016, paid a third interim single tier dividend of 2.30 sen per share on 331,965,037 ordinary shares of RM0.20 each amounting to RM7,635,196; and

iv) On 23rd December 2016, paid a special interim single tier dividend of 2.30 sen per share on 331,965,037 ordinary shares of RM0.20 each amounting to RM7,635,196.

The Group has been consistently paying out dividends with increasing trend over the past five (5) financial years and remain at 9.20 sen per share in FYE 2016. The Group has also maintained its dividend pay-out ratio over the past five (5) financial years, where stood at 98% in FYE 2016 (FYE 2015: 74%).


APPRECIATION

On behalf of the Board of Directors, I wish to express my sincere appreciation and gratitude to all our valued shareholders, business associates, government agencies, financial institutions, investment analysts, bankers and fund managers, customers, suppliers and friends for their continuous support, co-operation and confidence towards our products and services. Our appreciation is also extended to our employees for their commitment, dedication, invaluable contribution, skills, energy and professionalism towards the performance of the Group. The successes of the Group achieved in FYE 2016 could not have been possible without their efforts. I would also like to thank our fellow Directors for their valuable advice, guidance and support rendered to the Group.

 

DATUK NG PENG HONG @ NG PENG HAY

Chairman