MASTER-PACK GROUP BERHAD

An Overview of Master-Pack Group Berhad Business Operations

Master-Pack Group Berhad ("MPG") and its subsidiaries are primarily engaged in the business of manufacturing corrugated cartons and providing one-stop packaging solutions to its customers. The Master-Pack Group of companies has over the last 27 years, made a name for itself as an innovative niche market player in the packaging industry.

The two main company subsidiaries' packaging plants are located in Nibong Tebal and Sungai Baong, Penang in the northern region of West Malaysia and Kuching, Sarawak in East Malaysia. In addition, it has an associated company, Richmond Technology Sdn. Bhd. located in Kota Bahru, Kelantan the east coast of West Malaysia. These packaging plants are strategically located to service both east and west Malaysia markets. There is a warehouse in Bayan Lepas, Penang for Just-in time delivery to customers as part of our Total Packaging Solutions Services.

In 2018, a new facility was established in the province of Long An, Vietnam to manufacture wooden pallets and packaging to serve the Vietnam market.

VISION AND MISSION
Our vision is to be the "Preferred Total Packaging Solutions Provider" Our mission statement is "We are in the Business of Providing Total Packaging Solutions in Partnership with Our Customers"

The vision and mission are communicated internally through various mechanisms within the company such as the employee handbook to all employees within the Group.

CORE VALUES
*EXCEL IN SERVING OUR CHOSEN MARKETS
The Company focuses its resources and services to the best of its abilities and therein practices customer centric, earmarking on the Pareto Principle 80-20 rule. We specialize in customized packaging and as such we attend to customers and work closely to understand the pertinent needs to that customer, wherever possible, in order to innovate packaging best suited for each individual customer. We are a customer focused company as evidenced by our total concentration in one area of industry that is customized packaging solution for our customers. We do not sell retail products to public customers. As such our website only state details where each of our companies may be contacted.

*DELIVER HIGH QUALITY AND VALUED PRODUCTS TO OUR CUSTOMERS
Our strength lies in being professionally knowledgeable in many aspects of the business such as in design, in suitable materials and reengineering. We are one of the pioneers to obtain accreditation for ISO 14001:2004 Environment Management System signifying our commitment in doing what we think is ethically right from the start. We serve domestic and international customers adhering to high standards, conditions and structures demanded by multi-national customers.

*CARE FOR THE WELFARE OF OUR EMPLOYEES
The Company take cognizance that the strength and the well-being of its employees are of utmost importance. As such, it embraces that cross diversity can help a company to galvanize the multi-faceted mix of age, gender, race and thus has created a harmonious conducive industrial climate to garner the strength of its diverse workforce by providing fair and equitable employment terms and opportunities. Towards this end, the Company tries to inculcate a good and enjoyable work environment whilst embedding adequate measures on operational and safety procedures. The Company involves all level of employees in organizing major events i.e. company annual dinners to inculcate a culture of inclusiveness which encourages employees to mingle freely and cohesively to nurture team spirit and synergy.

As part of "work life benefits" provided by the group, employees are allowed two days paternity leave per year up to the fifth child and a maximum of six days exam leave for those motivated to gain professional qualifications. Two days compassionate leave is also provided for bereavement on the demise of the spouse, parent, grandparent, brother, sister or child of the employee including in-law.

*SERVE THE INTERESTS OF OUR SHAREHOLDERS AND STAKEHOLDERS
It is our core value that we serve the best interests of all parties who are concerned with and have interest in Master-Pack's continuous growth of business and well-being. We are focused on serving the interests of our shareholders who are after all, the owners of the company. Our shareholders are primarily interested in the return of their investments in terms of Master-Pack's profitability or dividends distributed. In a nutshell, our shareholders are interested in us, maximizing their shareholders value whilst the other stakeholders are very interested in the total well-being of our company.

*CONTRIBUTE TO OUR SOCIETY
The Company believes in interacting with the community in which it operates its business. It has been our practice and our corporate social responsibility of offering people living around us the first right of refusal to work for our production facilities. We also offer people around us part time jobs when available. We provide Industrial Training Program and hence accept under-graduates from colleges and universities to gain hands-on experience in selected fields of study related to packaging business.

PRODUCTS AND SERVICES
Corrugated cartons manufactured by the Company's plants are fully recyclable products. Please refer to our company website www.master.net.my to pre-view samples of the various models of corrugated products manufactured by our company.

Our packaging is designed holistically with the product of our clients in mind in order to optimize overall environment performance; using clean production technologies and best practices; optimizing raw materials and energy. The packaging that we produce would be designed to be effective, beneficial and safe for users and communities throughout its life cycle and where possible, we aim at reducing the weight and volume of the packaging itself. We work to ensure our packaging meets market criteria for performance and cost as well as qualitatively meeting our customer's choices and expectations.

Services provided to our current customers include one stop packaging solution, warehousing as well as Vendor Managed Inventory.

BUSINESS SUSTAINABILITY
Packaging will always be in demand as packaging is required to protect and transport goods from one point to another and for many other purposes such as providing marketing appeal and information on the goods the package covers. There are many types and forms of packaging using different materials.

Packaging using paper is by and large very versatile. The process and techniques of corrugating can transform paper into all kinds of shapes and forms that are not only strong but attractive in design. Corrugated materials can also be made into other usable articles such as paper plates and cups and even furniture.

Packaging using corrugated cartons has attracted much interest lately as the public is now more aware and more informed of the dangers that affect the ozone, the contamination and depletion of natural resources and the warming up of the planet earth. So these well-informed buyers' trend towards using recyclable packaging embracing sustainable activities; and henceforth corrugated packaging is one of the preferred options selected.

Packaging using corrugated cartons is the natural alternate material in place of other forms such as plastic, foams, wooden crates and metal. Consumer awareness and preferred selection on sustainable packaging continues to provide the drive and the momentum of the entire corrugating packaging industry.

OPERATION AND FINANCIAL RISK
Corrugated original raw material comes from trees, which are managed through careful replanting and other responsible forest management practices. Long-term renewal of these resources brings the first, natural ingredient of corrugated to the paper mills in a continuous cycle that assures a steady supply of naturally, healthy and useful fibre to produce plentiful corrugated material. Today, most corrugated content is approximately 73 percent recovered from recycling i.e. proportionately more than any other packaging product material in the world.

In keeping with the Company's Sustainable Policy and our Corporate Social Responsibility, our suppliers are assessed on price, quality, timely delivery and practical technical support. Most importantly, we are committed to ensure that our paper commodity sourcing is sustainable meaning our commodity paper purchases are made only from suppliers who fulfills the Forest Stewardship Council standards and other related legislation. Our manufacturing paper wastes are sold back to the paper mills for recycling.

The main challenge in our operations is to ensure a consistently high volume of sales. The management has embarked on a program to widen its sales base to cover various industry sectors and not to rely heavily on any single industry. Currently the group's turnover is spread over a multitude of industries with the top five leading industries being solar energy, food-beverage & agro based, electronics & electrical, converter and ceramics. Furthermore, as it turns out products manufactured by the company are patented, thus providing the added advantage to us over our competitors.

INTRODUCTION / WELCOME
With another push the Group performed well again for the year 2018, registering total revenue of RM146 million compared to previous year's RM116 million, up RM30 million, an increase by 25.9%. Profit attributable to owners of the company was RM5.8 million compared to RM3.9 million for last year.

This was achieved from the support and trust of our customers, the hard work from all our associates who during the year work tirelessly to meet the demand of our customers within the constraints of human and financial resources.

MANAGEMENT DISCUSSION AND ANALYSIS
The detailed performance for the year ended 31 December 2018 is discussed in the Management Discussion and Analysis Report.

OUTLOOK FOR 2019
Having stepped up a notch, we are again energized and look forward to another prosperous year. While the general economic outlook for Malaysia is somewhat hazy, the Group is confident it will continue its improvement streak though not by leaps and bounds but will steadfastly increase shareholders values.

Nevertheless we are also mindful that the Group's performance hinges greatly on several major customers and will try to mitigate these risks by expanding our customer base and exploring other lines of business.

DIVIDENDS
The Company paid an interim single tier dividend of 1.5 sen per share for the financial year ended 31 December 2018.

ACKNOWLEDGEMENT
I am very grateful to all stakeholders especially our customers, suppliers, bankers, business associates, our management team, staff, workers and Directors who has one way or another contributed to the success of the Group.

Dato Syed Mohamad bin Syed Murtaza
Group Executive Chairman

COMMENTARY ON THE FINANCIAL PERFORMANCE FOR THE YEAR ENDED 31 DECEMBER 2018

For the year 2018, revenue increased by RM29.6 million or 25.5% against revenue of the previous year due to higher deliveries to customers. The achievement was due to customers' continued support and confidence in the group's capability to meet their needs not only in terms of quality and delivery of its products but also the ability of its management to maintain its competitiveness in pricing by constantly upgrading its production facilities and talents of its workforce, improving its processes and prudent management of its financial resources resulting in improvement in profit margins.

During the year, the group set-up a new facility in Vietnam to serve one of its existing customers which is poised to contribute positively to the group's revenue and profits in the future.

Revenue Contribution from different Industry
Revenue from the solar industry contributed 48% of total revenue for 2018 while Food and Beverage Industry dropped from 20% to 15%. Electronics & Electrical Industry brought in RM14.1 million, an increase of RM3.4 million. Revenue from other sectors increased by RM12.4 million.

Contribution by percentage

Contribution in Ringgit

The changes in costs are tabulated as follows:-

Revenue increased by RM29.6 million due to the increase in deliveries to customers during the year. Corresponding to that, raw materials and related input cost also increased as well as impact of inflationary cost partly as a result of the new Sales and Services Tax (SST) that replaces the Goods and Services Tax (GST) from 1st September 2018. In the case of GST, input taxes could be claimed against output taxes but not input taxes under SST.

While direct work force had to increase to meet production output , indirect workers and office staff did not increase to keep the overall cost down. The increase in other expenses was mainly in respect of transportation cost due to the increase in number of trips to customers and expenses incurred to set up a new facility in Vietnam.

During the year, one of the group's investment properties appreciated in value by RM884 thousand when a revaluation exercise was carried out. The sale of another piece of land in the first quarter of the year yielded a profit of RM480 thousand. The sale of an investment in unquoted shares by a subsidiary realized RM447 thousand and rental income earned by a subsidiary was RM439 thousand.

The higher depreciation charge for the year was due to new machinery added during the year.

Finance cost also increased as the higher operating activities required trade funding from financial institutions as well as additional hire-purchase loans undertaken to finance the new machinery. During the year, the Group was able to secure new banking facilities amounting to RM9.5 million from a local financial institution by putting up an investment property as collateral.

Tax charge increased due to the higher operating profit and non-deductible expenses.

A valuation exercise by independent valuers of the group's properties as a at 31 December 2018 saw an overall increase of RM12.7 million in value while depreciation on its facilities charged out for the year at RM3.7 million. Appreciation in value of investment properties amounting to RM884 thousand was taken to the profit and loss account.

Increase in stocks holding, trade receivables as well as cash in hand and at bank accounted for the increase in current assets. The increase in loans and borrowings of RM2.5 million was for the financing of new machinery.

With the increase in revenue and good management of its resources, operating activities generated a net cash inflow of RM9.5 million. The sale of an investment property and an associate brought in RM2.2 million in cash in investing activities. After expenditure to upgrade its plant and equipment, net cash used in investing activities is RM0.6 million. Net cash used in financing activities is RM2.9 million, leaving a net increase in cash and cash equivalents of RM3.2 million.