Chairman's Statement

Extracted from Annual Report 2016

Dear Shareholders,

On behalf of the Board of Directors, I am pleased to present to you the Annual Report and Audited Financial Statements of Scanwolf Corporation Berhad ("SCB") and its Group of Companies for the financial year ended 30 June 2016.

The Year In Review

The financial year 2016 marks a period of consolidation for the Group after the turbulence of 2015. On reflection, the lessons we have learnt from the turbulence of 2015 were invaluable and will enable the Group to appreciate the need for peaceful resolution of any difficulties and/or differences in opinions that arises during the course of our business moving forward. The corporate struggle between different management groups represented in the Board not only affected the morale of employees of the company, it severely affected every layer of the company including its manufacturing processes due to lack of monitoring and control. Similarly, the Group's property division was also badly affected resulting in various problems including poor cash flow and project management.

The turbulence of financial year 2016 has resulted in immense pressure on my fellow Board of Directors and the senior management of various subsidiaries. Extra efforts was required to rectify the shortcomings resulting from the turbulence of 2015 and to ensure that SCB and its Group of Companies be guided back to its original course of profitability and good financial health. Most importantly, the Board of Directors of SCB hope to restore the confidence of all its stakeholders especially the shareholders of the Company.

For Scanwolf Plastic Industries Sdn. Bhd. ("SPI"), the management has undertaken various initiatives that include improved procedures involving recognition and movement of raw materials between various departments within the production areas. This is part of the on-going initiatives which include the refining of the production processes for quality improvements and the tightening of various controls in all areas of production and administration to minimize leakages of financial resources. To improve its revenue, SPI will continue its initiative to expand its customer base particularly in the international market. The weakening of the Ringgit and the strengthening of the Renminbi has resulted in our products becoming more competitive in terms of pricing. The situation enables us to capture new markets for our products internationally. The new markets that we export to in 2016 are South Africa and New Zealand.

The greater marketing efforts put in by your management was also complemented by the Group's continuous effort to improve the utilization of its production capacity. We have added more efficient extruders into our production equipment and will continue to explore better and more efficient production methods with the aim of improving margins.

On the property division, the overall slowdown of the property market in the country has greatly impacted our projection for the financial year. The sudden tightening of lending policy for the property sector by the financial institutions resulted in an almost complete slowdown of property sales.

During the financial year, Scanwolf Properties Sdn. Bhd. ("SPSB") negotiated the sale of 2 parcels of land measuring approximately 3.72 acres to a bus terminal operator for the purpose of constructing and operating a bus terminal within our Kampar project. These 2 parcels of land were originally earmarked for the construction of a sports complex to be constructed and operated by Scanwolf Development Sdn Bhd ("SDSB"), a wholly owned subsidiary of SPSB. Although the sale of the land resulted in SPSB incurring some losses, the Board of Directors of SCB is of the opinion that the sale is in the best interest of the Group.

Financial Performance

This financial year ended ("FYE") 30 June 2016, the Group achieved revenue of RM53.3 million (Financial period ended 30 June 2015 ("FPE 2015") RM64.3 million) and loss after tax of RM2.0 million (FYP 2015: RM4.2 million), is recovering its earnings growth.

The Manufacturing Division continues to be the Group's main revenue, recorded revenue of RM34.3 million in FYE 2016 representing 64% of total revenue.

The Property Division is able to achieve 5% growth in revenue on annual basis despite tighter lending conditions imposed by local banks.

Market Prospects And Outlook

The improvement in financial result for the current financial year has given rise to greater optimism moving into the new financial year. The changes in various areas of administration and production have resulted in a leaner and a more productive Company. Nevertheless, your Management will continue to monitor closely the economic and business conditions as they unfold and at the same time will continue to forge ahead with its business plans and strategies for the year ahead.

Our Group strategies going forward will be to further entrench our products across all furniture and building material market segments so as to further expand our geographical reach in both domestic and overseas markets. We will continue to introduce new products to serve our existing and new customers. In addition, our Group will continue to explore new potential foreign markets by participating in international trade fairs for our products.

Taking into consideration inflationary pressure and increasing competition, we will continue to strive to enhance our efficiency levels across our Group of Companies to ensure cost effectiveness to remain competitive and relevant in our respective markets.

Barring unforeseen circumstances, our Group is expected to perform satisfactorily in the coming financial year.

Acknowledgement

First of all, the Board of Directors would like to place on record our deepest appreciation and thanks to all relevant parties, particularly those who have help us in one way or another during the difficult and turbulent period.

Our grateful thanks also go to all our customers and supporters, both local and overseas who have contributed to the growth and success of the Group all these past years, as we look forward to their continued support in the years to come.

The Board of Directors would also like to express our sincere appreciation to our shareholders, business associates, government authorities and bankers for their continued confidence and support in the Group.

To our loyal and hardworking management and staff, we would like to record our sincere thanks for their continued dedication and commitment to the Group. Their cooperation and productive contribution has been and will continue to be the foundation of our continued success in the years to come.

Personally, I would like to thank my fellow Directors for the support, cooperation and useful advice that have made my job as Chairman much easier.

Dato' Othman Bin Talib

DSPN, PGPP, PSPP, KMN, AMN

MSc. (ERP), LLB

Independent Non-Executive Chairman

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