Chairman's Statement

Extracted from Annual Report 2017

Dear Shareholders,

WARMEST GREETINGS!

With this letter come my sincere and warmest greetings to each and every one of you.

Dutifully, I am pleased to present to you the Audited Financial Statements of Scanwolf Corporation Berhad ("Scanwolf") and its subsidiaries for the financial year ended 30 June 2017 in this Annual Report.

Current economic landscape

It gives me great pleasure to pen this letter on behalf of Scanwolf Corporation Berhad. I would like to start by acknowledging the contribution of our previous Chairman Y. Bhg. Dato' Othman Bin Talib who has since retired at the last Annual General Meeting on 28 November 2016. After the Board tussle in early 2015 and being able to normalize our operation in 2016 was most eventful and fruitful. For this, we are thankful to Y. Bhg. Dato' Othman for his steadfast leadership.

On the domestic front, the Malaysian economy is expected to grow at a more moderate pace in second quarter 2017. Looking forward to second half of 2017, external demand may ease if there is a slowdown in the major export markets of the developed economies.

On the international front, we believe that political economic issues will dominate the prospects for the year 2017. In the United States of America, policies under President-elect Donald Trump will be closely monitored. Of concern is the likely repercussions of new American trade policies under his administration that could lead to a trade war between America and its major trading partners which will also affect trades in Asia and ultimately Malaysia. In Europe, the impact of the Brexit on global trade would also be critical as the region is a major trading partner of China, a country with deep linkages with Asian economies and Malaysia.

The fate of the global economy also hinges on how China can delicately balance its efforts to sustain economic growth within an acceptable range and address the imbalances which are threatening its future prospects. The Board of Directors and senior management of Scanwolf are cognizant of the current economic landscape.

The industries and our businesses

We are well aware that Scanwolf is mainly involved in two very challenging industries in Malaysia and globally. The plastics business in the world remains very competitive and the property development industry in Malaysian remains very challenging.

For our plastics manufacturing business, manufacturers in Malaysia have had to deal with volatility in exchange rates, raw material prices, manage rising labour and utility costs, which all affects competitiveness. We will continue to invest heavily in products and processes innovation. This will enable us to seamlessly react to any changes to the product mix, in terms of local and global consumption and demand. In the face of the many challenges, Scanwolf is constantly looking into revamping older production lines, improving operational efficiency and optimising product mix.

Our joint venture (JV) with Nissha Industrial And Trading Malaysia Sdn. Bhd., a wholly-owned subsidiary of Tokyo-listed Nissha Printing Co. Ltd's on 2 December 2016 is a "fantastic deal of a century made in heaven". The JV is to produce plastic goods, namely, luxury vinyl tiles (LVT) and related products. In the long term, Scanwolf will benefit from the technology transfer from Nissha. Our group's wholly-owned subsidiary, Scanwolf Plastic Industries Sdn. Bhd. is the main signatory to the JV agreement and that witnessed the birth of Nissha Industrial and Trading Malaysia Sdn. Bhd. This JV, expected to be completed within 15 months, will be financed through our internally-generated funds.

The JV will provide Scanwolf immense opportunity to expand its business in the plastics and related products internationally. It will also provide a new and consistent source of revenue to our bottom line going forward. The additional revenue contribution is expected to enhance Scanwolf's profitability and returns on shareholders' funds.

Currently, our factory can accommodate a huge capacity of at least 4,800 tons of plastic edges per annum. This includes PVC edging, PVC profile, architecture profile, custom mouldings and related products. We have also been trading LVT flooring in the past few years. After our new manufacturing plant with Nissha is completed, we will also be producing the flooring products ourselves. Our plastics subsidiary had also purchased two state-of-the-art machines to produce new edging products, gearing up our plastics and flooring products capability for the next five years. We remain upbeat in our business model going forward.

Additionally, Scanwolf will continue to invest in automating its production processes, not only to further improve efficiency, but also to reduce reliance on foreign workers. We will also explore the current world wide new Industry 4.0 manufacturing phenomenon.

As for our property development business, we are currently in year 2017 and in phase 2 of development. In October 2016, we have completed a mix development of properties 144 units of single storey link houses. There are a total of 600 units commercial suites where construction is currently in progress in 2017.

The total Gross Development Value (GDV) remains at RM317 million over 7 years ending in year 2024. Our Taman Harmorni project in Bidor, Perak is 100% completed and our Kampar Putra project in Kampar, Perak is 8% completed as at 30 June 2017.

Scanwolf's total operation is back to normal and it will continue to improve in the years ahead. I strongly believe that Scanwolf's strengths lie in the good cooperation among its Board of Directors that have translated into good teamwork and know how throughout our entire organization. The bond and friendship among directors are at a healthy level which made my job as the Chairman most fulfilling.

The strong working culture and ethics forms the working philosophy of our company that in turn produces good teamwork, strong knowledge, accurate information flow and excellent communications within the company. Our management team has also successfully delegated responsibilities to a team of loyal, committed and dedicated staff to enable the company to grow in 2018. These are very important elements for the Company to continuously improve to achieve better financial results for the shareholders. This speaks volumes of our highly professional Board of Directors.

Moving forward, the Group has worked diligently to increase productivity by giving high importance to efficiency in our operations and also aggressively seeking new businesses in many lucrative markets. Our people, led by a team of highly energized, competent management personnel has put in relentless efforts and worked very hard in ensuring that the company is moving towards the right direction. Consistent growth in revenue and earnings in the future will be the Board of Directors' priorities.

Financial fundamentals & performance

Scanwolf's financial fundamentals remains intact with Issued Shares of 86,753,100 (excluding 780,900 treasury shares) and a Net Tangible Assets (NTA) of RM0.46 against its share price of RM0.29 at the close of the financial year on 30 June 2017 with a market capitalisation of RM25.384 million. The Board of Directors feels that the Company's shares are currently under valued.

For the financial year ended 30 June 2017, the Company recorded a total sales revenue of RM62.39 million compared to RM53.33 million achieved in the previous corresponding year, showing a net increase of 17% in sales revenue. Loss after tax was RM2.10 million compared to RM2.05 million in the preceding year. The revenue growth is in line with the Company's continuous expansions and improvements in the production capacity.

Our manufacturing division contributed RM37.64 million in revenue and the property division was able to achieve a revenue of RM24.74 million.

Due to the current challenging times, the Board of Directors has not declared any dividend payment. At the current levels of our share price, the priority next is to gradually increase our treasury shares if possible.

Future outlook and market prospect

Despite the current set back, overall, the Company has a positive outlook towards continuous growth and securing better results in the forthcoming financial year 2018 in terms of revenue and profitability through the on-going efforts of implementing aggressive strategies. Priority will be on increase in production capacity to achieve better economies of scale as well as further improvement in quality, cost control, efficiency and product mix across our plastics and property development businesses.

There is still much potential for Scanwolf to increase its capacity in the next five years. This will also be buoyed by the steady contribution from our JV with Nissha and sales of our Kampar Putra project.

Scanwolf remains the only three large scaled plastic extrusion manufacturers in Malaysia. Our products are currently exported to 23 countries around the world. The Group is well prepared for all eventualities, and meanwhile, is conquering new territories as well. With the advent of the internet and digital technology, we remain upbeat for gradual growth in the future.

As for our property development division, product mix and timing of new property launches remains key to our success over the next three years. The future remains bright for our project at Kampar Putra. We have started looking for more new and exciting property development projects beginning in January this year. This effort is ongoing.

In striving to create and enhance value for its stakeholders, the Management will continue exploring and consider some diversification and other strategic investments. We are confident of successfully tapping into at least one new sector and forge the ability to leverage on the Group's existing strengths.

Acknowledgement and sincere appreciation

As your new Chairman, I would like to record my sincere appreciation to the Board of Directors of Scanwolf for their cooperation, guidance, invaluable advice and contribution accorded towards me for helping move the Company forward to achieve higher level of financial success.

On behalf of the Board of Directors, I would also like to record my appreciation to all our valued customers, business associates, suppliers, bankers, fund managers, investment analysts, all media personnel as well as the regulatory bodies for their continued support and understanding over the past year. As for all the shareholders, I would like to say a heartfelt thank you for your continuous faith, support and trust towards our Company.

To the management and staff, I would like to express my sincere gratitude for their commitment, efforts and unfailing support towards the achievement of all the Group's objectives shown during the past financial year. I am very confident that with your continued support and dedication, the Group will be able to weather the challenges ahead and forge forward to greater heights.

Lastly, I value and appreciate the direct and indirect friendship of fellow directors, management, staff, business associates, suppliers, bankers, relevant authorities and others involved in the success of our business.

Thank you

Y.Bhg. Dato' Ong Boon Aun @ James Ong
D.I.M.P., S.M.P., A.A.P., A.M.P., A.M.K., A.M.N., B.K.M., P.M.C.
B.B.A. (UM-USA), M.B.A. (NU), M.Sc. (CCSU)
Independent Non-Executive Chairman
Board of Directors.

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