14th AGM and EGM was held fully virtual yesterday. Without any further explanation, you may refer to below links to access meeting resolution of the AGM and EGM.
I’ve recorded the whole meeting process for my easy reference afterwards. All resolutions in the AGM and EGM had been duly passed and I will not discuss further details about that. Instead I’ll share the latest development of the company as well as all question and answers from the shareholders and management. The majority of the questions are regarding Covid-19 impact to the company and current JV progress of the TWSB – kindly refer to my previous post of Wellcall to get more details of the JV initial development. I’ll not list out every question, instead I will compile them into same reply hence this post won’t be too long.
Minority Shareholders Watch Group (MSWG) Questions
Q1: How USA-China trade war, Covid-19 and oil market crash and volatility impact the dynamic of demand and supply and the material cost?
A: Due to the uncertainty of global economy, demand for industrial rubber hoses has been slower. However, the company production capability is ready to meet the demand surge at any point of time (incase of the recovery of demand of hoses). Regarding the material cost, the company monitor raw material inventories at an average inventory level of 3-4 months. This is to enable the company to gauge the appropriate time to purchase at reasonable time. A separate answer to another shareholder’s question regarding Covid-19 was compiled here: the company exports about 90% to more than 70 countries. The impact is at different seriousness level at each market segment, however the company is still receiving orders from overseas. Industrial rubber hoses is needed in almost all industries for transportation and transfer. R&D team is also consistently introduce new product, and improved quality management, as well as enhancement for capital expenditure process. The company is also expecting an negative impact of 15-20% of revenue.
Q2: What is the existing and expanded production capacity of the third plant?
A: The third plant currently operate at a total of 8 production lines. Previously outsourced compounding processes is now taken place in third plant, in order to improved quality management. Third plant is now opeating.
Q3: What is the strength of research and development team in terms of numbers and experience and qualification? How much was spend on R&D per year and as a percentage of revenue?
A: R&D team is led by group MD and has a team of 4 personnels, with experienced based to degree holders from rubber related knowledge background. Spending per year is about RM1.7 million (1% of revenue).
Q4: Revenue has been dropped with a higher gross profit margin at 36% compared t0 32% last financial year. How advanced is the automation process? To what extent has automation reduced the number of workers and improved the revenue generated per head count?
A: The automation process reduces labour headcount and increase product process efficiency. E.g. production is enhanced from 40 metres to 60 metres length for a shorter period of production lead time. Overall in average, headcount per line could be reduced from 10 to 8 per production n line. Revenue generated per head count improved by approximately 5%.
Q5: What is the latest development and the performance of the TWSB JV?
A: JV progressing is now rescheduled affected by the Covid-19. Global caucious approaches has affect global economy as well as international logistic movements. The JV has rented a factory building and currently phasing to an extension of a factory building. The first production line has arrived and the following second line is expected to arrive by the end of August 2020. Due to the implementation of MCO and CMCO, the technical team from Europe is abstained from entering the country, hence installation and fine tuning of machinery is impossible. The whole installation and test run is estimated to span through 2-3 months.
Q6: Referring to Notes to the Financial Statements (Note 11), there is an amount of RM7,353,253.00 of cash management fund. Please elaborate details.
A: It is an Islamic cash management fund with a principal guaranteed amount of RM7.3 million. RM53K is tax exempted interest.
While the pre-AGM questions asked are already covered majority by the MSWG, the following is the one excluded from above.
Q: Why Trelleborg does not expand on its own but rather JV with WELLCALL?
A: The JV is to create synergies. Trelleborg focuses on transferring technology knowledge, and WELLCALL cover the manufacturing process entirely.
Q: The company is not require to perform recurrent related party transaction previous financial year. Why now? What is the annual expected transaction amount?
A: The proposed mandate for RRPT is mainly of transaction of revenue in nature, as a handover of operational work-in-progress (WIP) to Global Rubber (new company as per the management). It is also to ensure efficiency, more productive of production process, and reduce the reliance of only 1 or 2 suppliers, so that better risk management can be made to ensure non-disruptive of production. The expected annual transaction amount is RM1 Mil as per the circular to shareholder. However, the company will disclose from time to time.
My Thought on the virtual AGM and EGM
The company first virtual AGM although is a resultant action of the pandemic, however is a good initiative to be practiced in the future. I hope the company may include it as an option as not all shareholders are available physically but timely due to geographical concern. Yet, there’s still a lack of involvement between the shareholders and the management throughout the process. E.g, some question is been avoided (or maybe overlooked, I do not know) – there’s a question asking about rubber material cost and it’s impact to the production.
The answer that I’m seeking is fully conveyed. At the time being, I’m still holding ignorable amount of shares on the company – this is to motivate me to keep the company update timely. As the JV is still in the seeding phase as well as the global economy continuing under the threat of second wave of pandemic, I will not add position into WELLCALL at the moment.
All elements in this blog post included but not limited to information, facts, numbers, graphs and charts, comments are of the writer’s personal view and are researched to the best accuracy. This post should not be construed as an investment advise or recommendation. Investors should bear his/her own risks and liabilities of financial and legal should he/she make investment in the mentioned financial assets.