It is my pleasure to present to you the audited financial statements of Cymao Holdings Berhad ("Cymao" or the "Company") and its subsidiaries (the "Group") for the financial year ended 31 December 2016.

FINANCIAL PERFORMANCE

The Group registered revenue of RM115 million for the year as compared to RM132 million for last year. This represents a decrease of RM17 million amid a challenging operating environment but it is still considered respectable to achieve RM115 million revenue. The Group also registered a loss before tax of RM7.652 million as compared to a loss of RM1.234 million last year representing a deterioration of RM6.418 million due to the sluggish demand and suppressed prices.

INDUSTRY OVERVIEW

The financial year under review was a more challenging year for the plywood industry which has not rebounded from the previous year that showed signs of improvements. The continued declining supply from the natural forest can lead to shortages and irregular supplies of logs in Sabah. The industry will have to manage this constraint in the coming years.
In addition to the logs issue, the Group has to deal with cost inflation due to the implementation of minimum wages and a strong Dollar effect on other related costs leading to an increase in the production costs.
As for the plywood market, locally the demand is slow but stable. Internationally, the downturn in oil prices caused demand to soften especially from the Middle East when economy is much driven by oil revenue. The depreciation of the Russian Ruble made Russian products including plywood attractively priced to capture some demand internationally.
Despite the challenges, the Group is pleased that there is continued support from the customers both internationally and domestically. The Group will continue to focus on its core competency to produce quality plywood for the existing customers and to look for additional market going forward.

OPERATIONAL REVIEW

While there is always a conscious effort to take preventive measures to minimize the adverse effects on the operations, the Group has since the second quarter taken more aggressive measures to reduce the production costs. The Board is of the opinion that the measures have reduced the negative impacts of the adverse factors and have reduced the losses which would have otherwise been more serious for the Group especially the second half year onwards.
Arising from the cost reduction efforts and assessments, the Group has conducted a cost rationalization study and the Board has endorsed the merging of the two (2) mills in Sandakan which are 500 meters apart. The rationale mainly is as a result of reduced logs supply, the production level of the combined mills can be achieved by operating a single mill with the combining of logs, resources and manpower resulting in substantial cost cutting and enhanced operation efficiency.
The merging process has started in November 2016 and by January 2017, Cymao Plywood Sdn. Bhd.'s mill has stopped operation altogether and it is hoped that by April 2017, the combined mill located at Inovwood Sdn. Bhd.'s will achieve the production level of the two (2) mills before the merger. Also, with the merger, the mill of CPSB is released and it is in the process of being disposed of to raise fund failing which the mill can be turned into a warehousing facility to secure rental income.
The Board is therefore positive that after the merger of the two (2) mills and with the reduction in cost and the enhanced operational efficiency, the Group is looking forward to a better performance and is more nimble to face the challenges ahead.

STRATEGY AND PROSPECTS

The global economic conditions and consumers' sentiments continue to dictate the demand of the products. The demand and the pricing of plywood products is expected to remain stable for the next financial year as the forecasted GDP growth globally remains at about 2% to 3%. Malaysian plywood millers may be able to benefit from the still uncertain trade policies of the United States with looming trade wars especially with China and Mexico. The Group has received more enquiries from the US plywood buyers in the last few months which can be encouraging for the Group to sell more to the USA market.
The strategy of the Group is to focus on rationalization the operations of the Group. The foremost plan to merge the two (2) Sandakan mills is almost fully implemented and it is planned that by April 2017, the benefit of the merger will be more evident to turn around the performance of the Sandakan operations. The merger will reduce the operating cost substantially as compared to operating two mills. The lamination and trading activities based in Klang have been profitable for the past few years and the Group is putting more efforts to expand the Klang operation after the merger in Sandakan.
Despite the uncertain global economic conditions, it is expected that the Group will face some headwinds amidst a challenging timber industry landscape. The Group will continue to work towards turning around the performance by first engaging on a cost and efficiency rationalization arising from the merging of the two (2) mills in Sandakan. The Group will focus on the plan after the merger to achieve cost and production efficiency and enhanced quality control. The Group will also look into expanding the Klang operations as it is profitable and to explore the synergy with Sandakan operation with their plywood produced.

DIVIDEND

As a result of the current year losses incurred and past losses accumulated, the Company is unable to declare dividends for the year. The Board is therefore not recommending any dividend to be paid.

CORPORATE SOCIAL RESPONSIBILITY

The Group acknowledges the importance of Corporate Social Responsibility ("CSR") and believes that CSR is the integral part to the sustainable development of the Group. The Group has continued to undertake activities consistent with good corporate practices and social responsibility with initiatives on human resource development, health and safety and community support.

APPRECIATION

On behalf of the Board, I wish to extend my sincerest appreciation to the founder of Cymao Group, Mr Lin, Tsai-Rong who after 26 years of service has retired at the conclusion of the last Annual General Meeting. The Board is especially thankful for his commitment, guidance and dedication throughout the years with Cymao Group. We wish him all the very best on his retirement.
On behalf of the Board, I wish to extend my sincere appreciation to the Directors, management and employees of the Group for their continued diligence and dedication especially during this challenging period.
I also wish to express my gratitude to our valued customers, suppliers and business associates, the regulatory authorities and financiers for their support and confidence in us.
Lastly, to our valued shareholders, I wish to express my heartfelt appreciation for placing your confidence in the future of the Group.

DATO' SERI MOHD SHARIFF BIN OMAR
Chairman

Dated: 20 April 2017