High-5 Conglomerate Bhd

Folks,

Today, I interviewed the chairman of High-5 Conglomerate Bhd Datuk Dr Gan Khuan Poh at  its office in 6.1-hectare factory in Shah Alam, Selangor.

Well actually, to be exact, the company had their 20th annual general meeting today, whereby the shareholders approved and passed the resolutions of the company.

There are two main shareholders - Koperasi Permodalan Felda and Berjaya Corp Bhd. Pilgrim fund Lembaga Tabung Haji used to be one of their main shareholders, but they now have divested their stakes in this company.

The company is listed in Malaysia's stock exchange, Bursa Malaysia.

Following Securities Commissions's shariah guideline released some years back, the company said in its annual report that our shares have also been re-classified by the Securities Commission as non-shariah compliant with effect from Nov 29, 2013 due to our conventional loans being more than 33% of our total assets as at Oct 31, 2012. After the regularisation plan has been implemented, we will work towards compliance to be reclassified as a shariah counter.

The company is generally known for its bread, but the line of products are:-

1. Breads - white and wholemeal
2. Buns - sweet and savoury
3. Rolls - sweet and savoury
4. Cakes - fresh and frozen

The factory in Shah Alam has the capacity to produce 1.5 million loaves per annum.

The manufacturing plant is currently rented from AmanahRaya REIT, who has been asking High-5 to extend the lease with a rental sum of RM608,000 per month.

Being a company with shortage of funds (as of now), of course High-5 could not agree to this price. High-5 claimed that the rental amount is high, and in the latest Annual Report 2013, the board of directors felt that the rental sum was not reflective of the current commercial rate and intends to enter into further negotiations with AmanahRaya and also explore its options.

Earlier, it was reported that High-5 paid RM7.68 million and RM7.59 million for rental of the premise for the financial year ended Oct 31, 2011 and Oct 31, 2013 respectively.

Some had it that should High-5 decide to move elsewhere, it is likely to dent the rental income of AmanahRaya REIT as the land alone accounts for 11% of the REIT's gross rental income.

Now, 11% is quite a substantial sum, especially if it is a revenue-related figure!

Anyway, the main competitors in the bread segment are:-

1. Massimo
2. Gardenia - it is said to hold 60% of the bread market share in Malaysia

The company was previously known as Silver Bird Group Bhd, and I must say that this man is very instrumental in turning this company around.

For those of you who do not know, this is a financially-troubled company.

The story began when the auditor of this company then, Baker Tilly Monteiro Heng expressed a disclaimer of opinion on the company's account for financial year 2011. A "disclaimer of opinion" generally means something bad, and in this case, the auditor detected a financial loophole of RM297 million loss from the company's account.

As a result, this company is being classified as PN17 company by the stock exchange regulator. In a simpler and loose term, a PN17 is a financially-distressed company. It means that this company is in big trouble, and if something is not done to rectify the errors, the company will be in more trouble and eventually could go bankrupt.

The auditors then found out from their investigation that there is an evident of destruction of books and records, as were the evidence of computer file deletion and physical damage to the computer hard drive.

Very serious indeed.

Ever since the discovery of RM297 million loss, the board of directors led by Datuk Gan suspended and eventually sacked the group managing director Datuk Jackson Tan, executive director Ching Siew Cheong and general manager of accounts and finance Lai Poh Mei.

Subsequently, the company slapped these three directors with a lawsuit.

Last year, the company seek to change its auditor from Baker Tilly Monteiro Heng to Messrs Wong Weng Foo & Co. The reason provided by the company in their circular to shareholder dated Nov 20, 2013 (page 6) read as follow:-

The Board having reviewed the fee and engagement proposal received from Messr Wong Weng Foo & Co (WWFC) and in consultation with the Audit Committee determined that the proposal from WWFC is reasonable and cost effective in view of the financial constraints of the Group prior to the completion of the restructuring of the Group. 

Then, on December 12 extraordinary general meeting last year, shareholders' approved this resolution, along with the proposal to change the company name to its current name.

And the company said the following on the rationale to change the company's name:-

The Company proposed to change its Company Name from “Silver Bird Group Berhad” to “High-5 Conglomerate Berhad” so that the public would better associate the Company’s main products with the Company and this would complement the branding of the Company’s products. 

Anyway, after the so-called 'eviction' of Datuk Jackson Tan, Datuk Gan roped in Covenant Equity Consulting Sdn Bhd led by main partner Vincent Chew to advise its board of directors to revive, turn-around and transform this company.

Have they been successful? That is not for me to present the data to you, and for your to comment and judge. Being a rookie journalist, I have yet to reach a level where I can provide a holistic comment on their transformation plan. My comment, if any, will be very simple and put in layman term. And it should not be construed as a recommendation to buy or sell any securities.

Anyway, the very easy way to assess is to look at financial data (and I am being very, very simplistic here - you need to perform rigorous analysis to really appreciate this subject matter more).

Let's have a look at the financial highlights of this company, as summarized in the following table:-

 Financial Highlights 

Year	Profit / (Loss) in million
2013	(RM 52.8)
2012	(RM 334.5)
2011	RM 4.93
2010	RM 3.65
2009	RM 1.44

  source: annual reports as announced in Bursa Malaysia

As you can see, this is indeed a financially-troubled company.

For the financial year ended Oct 31, 2013, the newly appointed auditor expressed the following opinion:

In our opinion, the financial statements have been properly drawn up in accordance with Malaysian Financial Reporting Standards and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 October 2013 and of the results of the operations of the Group and of the Company and of the cash flows of the Group and of the Company for the financial year then ended. 

You can also analyze this company from its stock market's share price.

As at 5:00 pm today, the share price is 10 sen. This means that the company is in the category of "penny stock".

If you look at the historical chart, the company used to float in the stock market around RM1 back in its glorious days. And a cursory glance at the stock price showed that it had trended generally traded downward to reach 10 sen.

Sample chart is produced below:

(stock price chart courtesy of Bursa Malaysia's website)

Meanwhile, from the annual reports, you can see that the company has been slapped by some 20 lawsuits ranging from:-

• dismissal of employees
• credit-related facility
• debts etc.

There is a long-list of lawsuits, and the company has successfully obtained a restraining order from the court of law to keep their creditors at bay, for now.

In the United States, there is this law called "Chapter 11", which essentially protects anyone or any firm who declares bankrupt. 

I saw Datuk Gan to be an instrumental and passionate man in bringing this company back to its glorious days. He is in the hot seat. It will not be easy for him but let's pray that he will be able to do so.

As a background, the 68-year old Datuk Gan is a trained economist, having graduated from Duke University with a master's and PhD in economics. And boy, he also has a master of business administration from Cornell University and a bachelor's degree in business economics from University of Malaya.

He has served various position in the government and the previous position hold was Senior Director of Macroeconomics in the Economic Planning Unit for 31 years.

The soft-spoken, friendly and sharp-thinking Datuk Gan currently sits in the board of Permodalan BSN Bhd and Prudential Assurance Malaysia Bhd.

And he is even willing to entertain me to take a picture with him. Very hard to find polite corporate figures these days who can layan (entertain) my somewhat childish request - but hey, I am a journalist!

(Datuk Gan and I, after the interview)

On Feb 21, 2014, the company presented to Bursa Malaysia a revised version of its proposed regularization plan - what this means is that the company is presenting a set of plan to the regulator to tell them what they intend to do in order to 'heal' this company.

Some of the proposed plans are:-

1. capital reduction
2. consolidation
3. share-premium reduction
4. debt settlement
5. rights issue with warrants
6. issuance of securities pursuant to the (first) interim funding
7. issuance of securities pursuant to the second interim funding
8. merger & acquisition amendment
9. liquidation of subsidiary companies
10. employee share option scheme

As these are very technical, I leave it to you to read it at your own sweet time.

Let's see what will happen next to High-5!