KEY MATTERS



KEY MATTERS - 43th AGM
KEY MATTERS - 44th AGM



SUMMARY OF KEY MATTERS DISCUSSED AT THE FORTY-FOURTH ANNUAL GENERAL MEETING ("44TH AGM") OF BOX-PAK (MALAYSIA) BHD ("BOX-PAK" OR "THE COMPANY") HELD ON TUESDAY, 24 APRIL 2018 AT 10.00 A.M.

Pursuant to Paragraph 9.21(2)(b) of the Main Market Listing Requirements, a listed issuer must publish a summary of key matter matters discussed at the annual general meeting, as soon as practicable after the conclusion of the annual general meeting.

All ordinary resolutions that were tabled at the 44th Annual General Meeting were duly approved by the Shareholders through poll voting. The Shareholders also received the Audited Financial Statements of the Company and of the Group, along with the Reports of Directors and Auditors for the financial year ended 31 December 2017 (“FYE 2017”).

The results of the poll, which were verified by the Scrutineer, Quantegic Services Sdn Bhd, are as follows:

Voted in favour Voted against Total votes casted
No. of shares % No. of shares % No. of shares %
ORDINARY BUSINESS
Ordinary Resolution 1
Approval of Directors’ Fees amounting to RM600,000 payable to Directors of the Company in respect of the financial year ended 31 December 2017.
73,183,334 98.45 1,149,100 1.55 74,332,434 100.00
Ordinary Resolution 2
Approval of benefits of up to RM300,000 payable to the Non-Executive Directors of the Company for the financial year ending 31 December 2018.
73,183,334 98.45 1,149,100 1.55 74,332,434 100.00
Ordinary Resolution 3
Re-appointment of Messrs BDO, Chartered Accountants, as Auditors of the Company and to authorise the Directors to fix their remuneration.
74,332,434 100.00 0 0.00 74,332,434 100.00
SPECIAL BUSINESS
Ordinary Resolution 4
Proposed authority to Directors to allot and issue shares pursuant to Sections 75 and 76 of the Companies Act 2016.
74,239,434 99.87 93,000 0.13 74,332,434 100.00
Ordinary Resolution 5
Proposed renewal of authority for the Company to purchase its own shares.
74,332,434 100.00 0 0.00 74,332,434 100.00
Ordinary Resolution 6
Proposed renewal of mandate for the Company and its subsidiaries to enter into recurrent related party transactions of a revenue or trading nature.
8,316,313 100.00 0 0.00 8,316,313 100.00

The Minority Shareholder Watchdog Group (“MSWG”) raised the following issues via its letter dated 13 April 2018 during the 44th AGM, which were duly answered by the Group Chief Financial Officer ("CFO"):

Strategic & Financial Matters

Q1 The Group’s profit had declined consecutively for the last 2 financial years along with the decline in the gross profit margin.
  1. Please share on the measures taken to deal with the increasing labour costs, manufacturing costs and raw material pricing?
  2. When is the Group expected to reverse its deteriorating financial performance?
  3. Could the Board share with shareholders their views on whether automating the Group’s manufacturing activities could mitigate the increasing labour cost?
A1 As discussed in the Management Discussion and Analysis disclosure ("MD&A") in the Company’s Annual Report 2017, the key issue for the loss incurred in 2017 was due mainly to escalating paper cost. Paper cost which now makes up about 80% of the Company’s production cost, has been on an increasing trend since the end of 2016.

The testliners and medium papers in Malaysia had rose by 20 to 22% on average compared to 2016. The increase was rapid and steep. However, the Company is not able to adjust the selling prices of its products as rapidly as the rate of increase in paper cost. Furthermore, the Company faced strong resistance from customers when the Company proposed price increase.

Several strategies have been formulated to deal with the increasing manufacturing cost:
  1. Attempts to increase the selling price of our products to our customers to cover for the increase in paper cost. To a certain extent, the Company has dropped a few customers who did not entertain the Company’s request to share the burden of cost increase.
  2. With the proceeds raised from the Rights Issue with Warrants, the Company has invested in a new modern corrugator and converting machines in Johore. The project is expected to be completed anytime now. With the new machines, the Company hopes to increase production efficiency and reduce headcount.
  3. The Company has also engaged consultants to relook at ways to look at process engineering and to look into opportunity to automate so as to cut down reliance on labour.
With these strategies, the Company expects to reverse the deteriorating financial performance hopefully by end of the year 2018.
Q2 As stated in the Management Discussion and Analysis, the Group is in the midst of setting up a corrugated carton manufacturing plant in Myanmar.
  1. Could the Board share with shareholders their views/thoughts on the future prospect of the Myanmar venture?
  2. What is the budgeted CAPEX for the Myanmar operation for 2018?
A2 Please refer to Page 12 of the MD&A for the information on the Myanmar project.

This is a green field project and the investment cost involved is approximately USD40 million. It is funded by internally generated funds, the rights issue proceeds and borrowings. About USD12 million has been accounted for in FYE 2017 with USD25 million firmed up capital commitment.

It is expected to contribute positively within 5 years from commencement of operations.
Q3 As reported in Page 89 of the Annual Report that the gain on fair value adjustments on derivative instruments increased substantially from RM2.6 million in FYE 2016 to 7.0 million in FYE 2017. What were the reasons for the substantial increase in the gain on fair value adjustments on derivative instruments? Would such a gain, which was recorded consecutively in the past 2 financial years, be sustainable?
A3 The nature of the derivatives is disclosed in Page 11, second and third last paragraph under Foreign Currency Exposure.

In a nutshell, the Company extended a USD loan to the Company’s Vietnam subsidiary in 2012, and to avoid unnecessary exposure on foreign currency exchange rate, the Company entered into a cross currency swap arrangement with a financial institution to manage the exposure.

Essentially, this is a tool used by the Management to manage foreign currency exposure in relation to USD loan extended to Vietnam entities. The loan will be fully repaid in 2019 and the derivative assets or liabilities will be reduced to zero.

Under Note 20(c) on Page 89, the Company recorded a gain of RM6.951 million in FYE 2017. This is used to counter the unrealised foreign currency loss of RM7.061 million as disclosed in Note 27, Page 93.

In FYE 2016, the Company recorded a gain on derivative of RM2.639 million and this is to counter an unrealised foreign currency loss of RM3.102 million in that year.

Corporate Governance (“CG”)

MSWG is promoting CG best practices in PLCs. In this regard, we hope the Board could address the following:

Q1 We have accessed the Company’s website on 5 April 2018 and noted that there was no publication of the "Key Matters Discussed" at the Company’s 43rd Annual General Meeting held on 24 April 2017 as required under Chapter 9, Paragraph 9.21(2) of the Main Market Listing Requirements of Bursa Malaysia.

Why has the Company not complied with the said requirements and what are the actions being taken to comply with the Listing Requirements?
A1 The "Summary of Key Matters" discussed at the AGM in 2017 has since been posted on the Company’s website.
Q2 The Company in its Corporate Governance Overview Statement had stated that “If the Board continues to retain the Independent Director after the twelfth (12th) year, the Board must seek shareholders’ approval annually through a two (2)-tier voting process.” This is contrary to Step Up 4.3 of the Malaysian Code on Corporate Governance 2017 (“MCCG”) which does not provide for any extension of tenure beyond the 9-year tenure of INEDS.

We hope the Board would take note of this.
A2 We took note of your comment. We would like to stress that none of the current Board members has exceeded the 9-year tenure and the Company have revised its CG Report accordingly.
Q3 The Company in its Corporate Governance Report had stated that it had applied Practice 12.3 of MCCG, Practice 12.3 refers to facilitating or providing platform for shareholders to vote remotely without being physically present at the Company’s AGM. Based on the Company’s explanation given on the application of Practice 12.3, we wish to highlight that the Company has not applied the Practice.

We hope the Board would take note of this.
A3 We took note of your comment. However, the Company has 1,272 shareholders only as at 30 March 2018. In addition, the Company’s general meetings are held at its registered office which is easily accessible, and at reasonable hours. Shareholders who do not intend to attend the general meetings are encouraged to vote via their proxies. Hence, the Company will explore the use of technology to facilitate voting in absentia and/or remote shareholders’ participation at general meetings only in the event its number of shareholders has grown large enough and also taking into consideration, the accuracy and stability of such technologies, applicable laws and regulations, and resources required in relation to the benefits.

A question was also raised from the floor on whether the ban on import of paper scraps and increase in import duty by China has impacted Box-Pak?

The Group CFO responded that China has sourced the raw materials like testliners and medium papers from regions here, thereby causing a spike in the demand and hence prices of such materials. The spike has affected the Group as earlier mentioned.