Saudee Berhad : Reply to MSWG letter

13th Annual General Meeting (AGM) of Saudee Group Berhad ("Saudee" or the Company") to be held on 30 December 2021

With reference to your letter dated 16 December 2021, our response to your enquiries is set out below:

Operational & Financial Matters

1. Food Service (HORECA and OEM) segment revenue declined by 33.5% to RM13.01 million in FY2021 compared to RM19.56 million in FY2020, mainly due to the closure of many F&B outlets during the lockdown period especially in the second half of FY2021 (page 15 of Annual Report (AR) 2021).

1. What is the recovery in sales from the Food Service segment since the easing of Covid-19 restrictions in August 2021 under which F&B outlets are allowed to operate under strict standard operating procedures (SOP)?
2. Given that HORECA and OEM segments command higher profit margin, what are the Group's strategic growth plans to capture more market share in this segment in a post pandemic environment?

Our response:

Barring any unforeseen circumstances, the Management is of the opinion after easing of restriction by Malaysia Government in August 2021, the Company foresee demand from FPP, HORECA and OEM customers will gradually recovered. Therefore, the management is of the opinion that Company's financial performance will have a better financial performance for financial year 2022 as compared to year 2021.

2. During the lockdown periods, the Group was only able to work at 60% capacity and the Group was unable to fulfil the market demand and eventually the revenue in the second half of FY2021 had been reduced by at least 40% (page 16 of AR 2021)

1. What is the factory capacity utilisation after the easing of Covid 19 restrictions in August 2021? Is the Group able to fulfil market demand with current production capacity?
2. How has management fine-tuned the Group's operations to adapt to the new operating environment due to Covid 19? How is management making use of the opportunity to streamline/improve its workflow for better efficiency?

Our response

Yes, our production was reduce by at least 40% and this also reflected into our revenue for 2nd half of year 2021. Even with the easing of restriction of Covid-19 restriction, The Company only able to run into full production in September 2021 after 100% fully vaccinated.

With the 100% production in September 2021 onward, the Company implement stringent SOP to avoid disruption in production due to Covid-19. Besides that, the Company also implementing working at 7 days a week with rotation of working time. This eventually increase the production output in coming quarters to fulfil the demand from customers.

3. The Company raised RM100.4 million through rights issue and private placement in FY2021. RM37.0 million out of the total proceeds is to be utilised for expansion of production capacity and construction of a cold room (page 17 & 54 of AR 2021).

Please elaborate on the plans (including timeline) for the expansion project. How has the ongoing pandemic affected the plans?

Our response

Yes, based on plan as mention in circular on Right issue and private placement dated 21 May 2021, The Company intended to increase its production capacity from 600 tonnes to 1,000 tonnes per month with built up a cold room accommodating approximately 9,200 palate that can improved capacity to around 40% in production floor. The timeline of the project to complete shall within 24 months from the date started August 2021.

If the Covid-19 pandemic carried on in year 2022, it may causing a delay in implementing the expansion project as the delivery of machinery and approval from varies authorities may need more time due to more stringent procedures.

4. The Group's accumulated allowance for impairment losses on trade receivables have increased by 54% to RM3.7 million in FY2021 (FY2020: RM2.4 million) (Note 11, page 101 of AR 2021)

1. What are the profiles of the debtors with uncollectable trade receivables? How does Management assess that these outstanding receivables are uncollectable? Is the Group still trading with these debtors?

(a) Will the impairment losses on trade receivables remain elevated in FY2022?

1. What is the probability of recovering the impaired amount? To-date, how much of the impaired trade receivables have been recovered?

Our response

1. The Management applied more prudent approach that any receivables for more than 5 month outstanding will considered to do impairment allowance for doubtful debts. And every quarter the Management will review the outstanding receivables to reassess all doubtful debts that been provided to do reversal of provision or take necessary legal action if there is any uncollected debts.

1. & (c) No, the allowance amount unlikely to elevate in year 2022. The probability of reversal of impairment is high and to-date reversal is RM370,000.

5. The Company's accumulated impairment losses on investment in subsidiaries increased significantly to RM32.99 million in FY2021 (FY2020: RM nil) (Note 7, page 99 of AR 2021)

(a) Please name the subsidiary and the amount of allowance for impairment loss respectively.

1. What were the reasons for the huge impairment? Is there any potential for the allowance of impairment loss to be reversed in the future?

Our response

The subsidiary is Saudi Cold Storage Sdn. Bhd. The reason due to the subsidiary company making loss in year 2021 and we foresee the impairment will be reversed in Year 2022. As this marketing arm of the Group will improved its revenue and profitability in year 2022.