Chairman's Statement

DEAR ESTEEMED SHAREHOLDERS,

ON BEHALF OF THE BOARD OF DIRECTORS, IT IS MY PRIVILEGE TO REPORT THAT KUMPULAN PERANGSANG SELANGOR BERHAD ("PERANGSANG SELANGOR") SUCCESSFULLY ENTERED INTO AN EXCITING ERA OF NEW BEGINNINGS IN 2016.

Fresh from having completed our Corporate Turnaround Plan, we undertook a recalibration of our investment portfolio and went full-speed ahead to set a new direction for Perangsang Selangor Group ("the Group").

I am pleased that we single-mindedly accomplished our goals: investing into high-growth yet steady-income opportunities across multiple industries to imbue a greater degree of sustainability in our business model, whilst implementing continuous operational and cost efficiencies to hone our competitive edge in the respective arenas.

Staying true to our core business as an investment holding company, Perangsang Selangor undertook a number of investments in the year under review, ensuring that each investment decision satisfi ed our stringent criteria. These comprise three broad strokes, where the Group would hold majority stake in investee companies that are clearly or have the potential to be market leaders, operating in large and high-potential growth sectors, and possessing both the scalability and management prowess to expand in the domestic and global markets.

These investments effectively prepared a formidable launch pad on which Perangsang Selangor would embark on our next step of "Growing Beyond Borders"; forming the theme of this Annual Report, and underlying the thrust of our strategic expansion blueprint.

  • Acquisition of 51.0% stake in Smartpipe Technology Sdn Bhd ("SPT")

    On 21 March 2016, we acquired a 51.0% stake in SPT, which had obtained a license from Dutch fi rm Wavin Overseas BV ("Wavin") to market, sell and install compact pipe technology pipes and other products, know-how and technology granted under the licence agreement primarily for the rehabilitation of water mains, drains and sewers. Wavin’s cutting-edge technology, already with proven track record in many parts of the world with numerous successes in pipe rehabilitation exercises, would enable Perangsang Selangor to participate in the national non-revenue water reduction programme.

    The acquisition of SPT is a strategically opportunistic investment aimed at positioning Perangsang Selangor favourably to capture the vast potential in the domestic water sector.

  • Acquisition of 60.0% interest in Kaiserkorp Corporation Sdn Bhd ("Kaiserkorp")

    On 23 May 2016, Perangsang Selangor completed the acquisition of 60.0% interest in Kaiserkorp, the holding company of a whollyowned U.S. based King Koil Licensing Company Inc, which owns the King Koil® mattress brand and related intellectual properties including trademarks and patents. The acquisition marked our venture into the licensing industry

    This is an exciting development for the Group, because it represents our fi rst foray into the international sphere in line with our objective of growing beyond borders, backed by lucrative and sustainable revenue-generating capabilities.

  • Increased shareholding in Aqua-Flo Sdn Bhd (“Aqua-Flo”) to hold direct 51.0% stake

    On 30 June 2016, Perangsang Selangor completed acquisition exercises that effectively increased our existing shareholding to hold a direct 51.0% stake in Aqua-Flo. Previously, Perangsang Selangor held an indirect stake of 36.0% equity in Aqua-Flo. Aqua-Flo is involved in the trading of water treatment chemicals and equipment, in addition to providing technical services in water, waste and sewerage treatment industries.

    We are pleased that this exercise resulted in the Group possessing a majority stake in Aqua-Flo, hence enabling us to be in the driver’s seat in steering the direction of the largest supplier of water treatment chemicals in Selangor.

  • Acquisition of Century Bond Bhd ("CBB")

    On 8 November 2016, Perangsang Selangor completed the acquisition of 71.4% of CBB shares, which required us to undertake a mandatory general offer to acquire the remaining CBB shares. The closing date of the offer was 28 March 2017 where we held 98.9% stake in CBB. CBB is the market leader in the manufacturing of cement bags with a signifi cant market share in Peninsular Malaysia, as well as presence in Indonesia, Singapore and Thailand.

    In addition to being a steady cash-fl ow generator, we strongly believe that the proven success of this dominant player has the potential to be replicated in the regional markets in the future, thus promising enhanced returns ahead.

CAPITAL MANAGEMENT

In line with our growth-centric approach, the Group invested a total of RM325.0 million during the year for acquisitions of subsidiaries, which were financed by proceeds from the Development Agreement between the Company’s subsidiary Cash Band (M) Berhad and Setia Eco Templer, a wholly owned subsidiary of SP Setia Berhad, for a mixed development project comprising residential and commercial properties in Templer Park of RM60.0 million and drawdown of new borrowings as well as internal generated funds of RM265.0 million. These investments into sustainable and cash-generative assets are anticipated to gradually enhance the Group’s overall asset base and subsequent returns to shareholders..

2016 ECONOMIC REVIEW

It must be said at this juncture that the Group’s various investment decisions were constantly held up in close scrutiny against a gloomy backdrop of the international and local economy. Numerous headwinds in 2016 made for a tumultuous year in the global arena, marked by tepid growth in advanced economies of the United States (“U.S.”), Europe and China as they struggled to fi nd equilibrium to confi dently advance their expansion. Unsurprisingly, the global demand slowdown constrained the potential uptrends in prices of crude oil and other commodities, exacerbated by supply glut worldwide. These uncertainties cumulatively placed further downward pressure on global interest rates, and reiterated the case for accommodative monetary policies.

Malaysia faced its fair share of challenges in the year under review, as the oil exporting nation grappled with prospects of lower Government receipts in light of reduced crude oil prices, and the generally muted economy adversely impacted the strength of the Ringgit compared to major international currencies.

The manufacturing sector further noted operational challenges in the form of higher raw material prices and labour shortage, particularly the supply of foreign workers. Nonetheless, domestic exporters took advantage of the weaker Ringgit, leveraging on enhanced competitiveness vis-à-vis regional counterparts in targeting overseas markets. In the public sector, the Government maintained its public spending on key projects, especially high-impact infrastructure projects.

Overall, this mixed bag of fates resulted in Malaysia recording a slower pace of growth, with Gross Domestic Product ("GDP") expanding 4.2% in 2016, versus the 5.0% in the previous year.

2017 OUTLOOK

Following the moderated growth pace in 2016, the International Monetary Fund has projected for global economy to regain its momentum in 2017, on the back of encouraging indicators in advanced economies in terms of reduced inventories and recovering manufacturing output. The gradual improvements in housing sales and unemployment rates in the U.S. paint a positive outlook for the general consumer market, propping up expectations of accelerated buyer behaviour.

Still, global trade projections stand to be greatly impacted by ramifi cations of possible policy changes by the changing U.S. administration, which could potentially derail global economic recovery.

While these developments are expected to have a negative spill over effect on the export-focused Southeast Asian region, developing economies such as Malaysia have committed to strengthening the resilience of its economy. Bank Negara Malaysia has imputed anticipated GDP growth of between 4.3% to 4.8% in 2017, spearheaded by private domestic consumption and public sector expenditure for key infrastructure developments, ranging from transport-related highways and expressways, to utilities enhancement projects.

This relatively positive outlook undergirds our prospects for the coming years, and we at Perangsang Selangor endeavour to capture the tremendous opportunities in the local manufacturing and infrastructure-related sector, as well as the international consumer market.

INDUSTRY RECOGNITION AND ACHIEVEMENTS OF 2016

Risk Manager of the Year 2016

Alongside ongoing endeavours to expand the breadth of our business, we have always upheld the highest standards and sought to implement best practices of corporate governance in order to achieve business sustainability and shareholders' rewards.

We are heartened that our efforts to this end have been recognised by the industry. Therefore, I am pleased to announce that Perangsang Selangor clinched the reputable "Risk Manager of the Year 2016" award bestowed by the Malaysian Association of Risk and Insurance Management ("MARIM"). The award was presented to Perangsang Selangor during the MARIM Risk Management Conference held at Sunway Resort Hotel and Spa, witnessed by more than 100 delegates representing at least 40 corporate organisations across Malaysia.

Of the total 10 organisations from various industries that participated in this year’s competition, only two companies were shortlisted in the final round. This accolade demonstrates the industry’s recognition of our high-impact initiatives, structured Enterprise Risk Management ("ERM") framework, tremendous efforts in promoting good risk management practices as well active involvement across levels from the Board of Directors and senior management to all employees.

For the record, this is the third consecutive award received by Perangsang Selangor under the same category within a span of four years, after being amongst the Top 5 fi nalists in 2013 and winning the second runner-up in 2015. Kudos to the team!

Invitation and appointment to MARIM Executive Committee for the 2017-2018 Term

Further to the commendations for our Risk Management practices, I am pleased to announce that Perangsang Selangor has been elected by the members of MARIM to the MARIM Executive Committee for a 2-year term from 2017 to 2018, during the recent MARIM Annual General Meeting. This appointment to the national Risk and Insurance Management Association is certainly an honour for the Group, which would allow us to be part of the leading role in promoting, encouraging and sharing of best practices via establishments of various initiatives; which would further enhance the Risk and Insurance Management practices amongst the risk practitioners.

Top 22 in achieving high Return on Equity ("ROE") among Top Government-Linked Companies ("GLCs")

In a study undertaken by business weekly Focus Malaysia, Perangsang Selangor garnered acclaim for achieving the 22nd highest ROE amongst the top 45 GLCs in 2016.

Achieving strong ROE is one of the key indicators favoured by investors as a measure of the Group’s profi t-generating capabilities on shareholders' investments. This notable mention endorses the competence of the Board and Management of Perangsang Selangor in efficiently maximising the capital entrusted by investors, and certainly spurs us to attain even higher returns going forward.

Top 26 in Corporate Governance among PLCs on Bursa Malaysia Securities Berhad ("Bursa Securities")

I am further delighted to report that Perangsang Selangor earned top 26 among 280 selected PLCs in Bursa Securities in the Analysis of Corporate Governance Disclosures in Annual Report 2015-2016.

Across the six Principles of Malaysian Code on Corporate Governance 2012, Perangsang Selangor scored an average of 81.2% in 2015, exceeding the average industry score of 68.7% in 2015, and outpacing our average score of 71.1% in 2014. While pleased with our positive progress, the Board and Management have taken note of the various areas of improvement, and will continue its efforts in evaluating its governance disclosures in response to the evolving best practices and the changing requirements.

CORPORATE SOCIAL RESPONSIBILITY ("CSR")

Through its far-reaching CSR programmes over the years, Perangsang Selangor has maintained its unceasing and steadfast commitment to continuously develop and elevate the wellbeing of the community in Selangor across key socio-economic aspects, including entrepreneurship development, education, sports and health development, religious programmes and community enhancements.

As disclosed in the CSR Statement in this Annual Report, I am heartened that these initiatives have achieved the desired impact to our target communities, and we strive to gather more momentum in this respect going forward.

APPRECIATION

While 2016 was undoubtedly a challenging year, I am heartened by the formidable commitment and collaboration of my fellow Directors and key management in charting the course for Perangsang Selangor towards long-term growth.

I would also like to record my appreciation to our trusted employees, partners, business associates and shareholders for their continued support for our endeavours. We hope to count on your continued loyalty going forward.

RAJA DATO' IDRIS RAJA KAMARUDIN
Chairman