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Extracted from Annual Report 2016

On behalf of the Board of Directors, I am pleased to present the Annual Report and the Audited Financial Statements of BHS INDUSTRIES BERHAD and its subsidiary companies for the financial year ended 30 June 2016.

FINANCIAL PERFORMANCE

The depressed oil prices and a strong US currency have continued to affect our export markets in 2016. The sales were affected in the first three quarters. For the last quarter, sales picked up to about RM10.5 million. On a year basis, the revenue dropped from RM31.7 million in 2015 to RM28.3 million in 2016, a drop of RM3.4 million. The lower revenue did not match the higher fixed costs and thus it incurred an after tax loss of RM1.5 million in the year. The issuance expenses of RM910,000 arising from the rights issue in the year were charged to Profit and Loss Account as an expense. In addition, the pre-operating expenses of RM750,000 of the new business activities had also been incurred and charged to Profit and Loss Account. These had contributed to the Loss After Tax of RM3.2 million compared with Profit After Tax of RM2.8 million in 2015.

OUTLOOK

Under the prevailing economic condition, the business of printing is challenging. The ability to control the costs of production becomes paramount. As cost of paper forms more than 50% of the entire production costs and therefore it is essential for a company to be able to source cheaper paper for its production. In this respect, the Group has embarked on a diversification in the year to produce cheaper paper using Green Technology to turn empty fruit bunches into pulp and paper. However, there is a gestation period for the production to come on stream. It is expected that in the later part of the first half of 2017 we would be able to use our own paper in the printing. For all these years, the Company was renting industrial lots from its previous majority shareholder through his private company. It missed out an opportunity to ride on the recent appreciation in prices of the properties. Therefore in December 2014, the Company bought a leasehold factory for RM15.6 million. The purchase has enabled the Company to plan its production facility and work flow more efficiently. In addition, the Company also invested about RM7 million in purchasing a printing machine and a binding machine in the year. The acquisition helps the Company to stay more competitive in bringing the printing costs lower as the newer machine is more cost efficient. With the realignment of the production facility and training of the staff in the operation of the new machine, the Company will be able to take advantage of the economy when it recovers.

APPRECIATION

On behalf of the Board, I would like to thank all our valued customers, suppliers, business associates and especially the shareholders for their continuous support and confidence in BHS through this challenging period. I would also like to express my sincere appreciation to all the management and staff and to all the Board members for their support and dedication.

Dato' Sohaimi Bin Shahadan
Chairman
20 October 2016