We refer to the Company's announcement made on 25 August 2020 (“Announcement”) and the query from Bursa Securities dated 26 August 2020 ("Query") in relation to the Agreement.
Unless otherwise stated, defined terms used in this reply shall carry the same meanings as defined in the Announcement.
The Company wishes to provide the following additional information pursuant to the Query.
1. Details of the rental of the factory including rate of rental per month or per annum, duration; and whether renewable, if so, for how long.
Reply
Refer to the announcement made by the Company on 10 August 2020 in relation to the conditional tenancy agreement entered between HSG (“Tenant”) and a related party, HS Vision One Sdn Bhd (“HSV” or “Landlord”), the monthly rental for the factory is RM130,000.00 and the tenancy is for 3-year period with option to renew for another 2-year period. Pursuant to the said tenancy agreement, HSG also has the right of first refusal to take over the lease of the factory and the adjourning property for the same consideration and on the same terms and conditions as HSV is prepared to accept from a third party purchaser; and the option to take over the lease of the factory and the adjourning property during the tenancy period at a market price to be determined between both parties in the future.
The above tenancy agreement is deemed as a Recurrent Related Party Transaction of A Revenue or Trading Nature (“RRPT”) pursuant to paragraph 10.09 of Bursa Securities Main Market Listing Requirements as it involves the interest of the related parties. The tenancy agreement is subject to and conditional upon the Company obtaining the approval of its shareholders’ at an extraordinary general meeting to be scheduled later in relation to the RRPT on the tenancy (“Approval”) on or before the expiry of four (4) months from the date of the tenancy agreement.
The parties hereby agreed that upon execution of the tenancy agreement, the Tenant shall pay security deposit of RM260,000 and utilities deposit of RM130,000 (“Deposits”) to the Landlord and the Tenant shall take possession of the factory. The Tenant is entitled to a free rent for the period of four (4) months or until the period the Tenant obtaining the said Approval as stated above, whichever is earlier.
As at the date of the Announcement for the Turnkey Commissioning of NBR Double Former Glove Dipping Production Line Agreement, HSG had already taken possession of the factory upon payment of the Deposits to the Landlord.
2. The net usable area of the factory
Reply
The total net usable area of the factory is approximately 130,964 square foot.
3. The financial impact of the glove making business to the Company.
Reply
The Business is not expected to have any immediate material impact on the revenue and earnings of the Group for the financial year ending (“FYE”) 31 March 2021 as the Business is expected to commence in first quarter of the FYE 31 March 2022. It is envisaged that upon commencement of the Business, it will contribute positively to revenue and earnings to the Group in the FYE 31 March 2022. In view of the glove business to potentially contribute at least 25% or more of the net profits of MSCM Group and/or diversion of 25% or more of MSCM Group’s net assets as disclosed in Section 11 (ii) of the Announcement, the Group will seek shareholders’ approval to diversify its business to include the manufacturing and trading in glove business.
4. The production capacity of the 6 double former glove production dipping lines.
Reply
The expected production capacity and output for each double former glove production dipping line is 241,920,000 pieces per annum. Thus, the total expected production capacity and output for the 6 double former glove production dipping lines is 1,451,520,000 pieces per annum.
5. The expected date of commissioning and commencement of production of the 6 double former glove production dipping lines.
Reply
As disclosed in item 4.4 of the Appendix I in the Announcement, the first 2 production lines are expected to be delivered and commissioned within 6 months from the Contractor’s deployment and HSG is expected to produce its first glove within 6 months from the said site deployment. Thereafter, one additional production line will be expected to be delivered and commissioned every month or so from the first 2 production lines going live.
For clarification, HSG had already taken possession of the factory upon payment of Deposits to the Landlord as stated in the Reply to Query 1 above. Pursuant to the Agreement, the factory is expected to be hand over to the Contractor by October 2020 for deployment upon completion of its building works and civil services to meet the requirements of a glove manufacturing plant.
The first 2 production lines are expected to be delivered and commissioned by April 2021 (i.e. within 6 months from the Contractor’s deployment) and HSG is expected to produce its first glove by April 2021. Thereafter, one additional production line will be expected to be delivered and commissioned every month or so from April 2021 and with a total of 6 production lines in operational by September 2021.
The Company intends to provide periodical updates on the factory’s progress on the Company’s website.
6. The relevant regulatory approvals permits and/or licenses required to be obtained in order to manufacture and sell the gloves in Malaysia, and the estimated time frame for submissions to the respective regulatory bodies.
Reply
As disclosed in item 2.1(c) of the Appendix I in the Announcement, HSG shall apply and obtain the permits, licenses or approvals from Royal Malaysian Customs Department, Malaysian Rubber Board, Ministry of Environment and Water, Malaysian Investment Development Authority or any other relevant authority which is required by HSG to carry out the Business and operate the glove manufacturing plant.
In addition to the above, HSG shall also apply and obtain the permits, licenses or approvals from the following authorities/regulatory bodies:-
i) Local Municipal Council
ii) Ministry of International Trade and Industry of Malaysia
iii) Departmental of Occupational Safety and Health
iv) Medical Device Authority
HSG intends to submit the first application to Local Municipal Council to obtain its business license in October 2020, thereafter, submission of applications to other respective authorities/regulatory bodies will be dependent on the stages of development of the System during the period from November 2019 to April 2021.
7. Markets for the gloves apart from Malaysia.
Reply
Apart from Malaysia, the Group intends to export its gloves to USA, UK, Europe, Turkey, Middle East countries, Australia, China and etc.
8. Whether the sale of the gloves in these foreign countries requires any government approvals and permits.
Reply
The export sales in the foreign countries as disclosed in Reply to Query 7 above would require the approvals or permits from Malaysian Rubber Board (MRB), Food and Drug Administration (FDA) (for USA only), Personal Protective Equipment Directives (CE), Therapeutic Goods Administration (TGA) (for Australia only), Medical Device Directive (MDD) based on the requirements of the respective foreign countries.
9. The length of time that Howellcare will operate and run the plants on behalf of HSG.
Reply
As disclosed in item 2.1 (a) to (f) of the Appendix I in the Announcement, during the term of the Agreement, Howellcare shall provide its services (including the pre-deployment stage) to operate and run the plant on behalf of HSG as well as training the Group’s new team to take over the operations of the factory by providing the following services (“Services”):-
(a) to co-ordinate with all the contractors employed by the Customer, towards the civil and structural works of the site for deployment;
(b) the Contractor shall be responsible, at its sole cost, for obtaining in a reasonable time the Chlorination Scrubber System Approval and Air Compressor Receiver Tank Approval for the delivery, commission of the System and provision of services under the Agreement;
(c) the Contractor shall advise the Customer, at the Customer’s sole cost, to apply and obtain the permits, licenses or approvals from Royal Malaysian Customs Department, Malaysian Rubber Board, Ministry of Environment and Water, Malaysian Investment Development Authority or any other relevant authority which is required by the Customer to carry out the Business and operate the glove manufacturing plant;
(d) to set up proper quality management system and waste management system to ensure the production and manufacturing of gloves complies with the applicable regulations and/or standards.
(e) to set up the workforce and management team to undertake production and day-to-day operation and to furnish and provide all other technical expertise, knowledge necessary for the success of the Business; and
(f) to undertake all marketing and sale activities on behalf of the Customer for the purposes of sourcing business opportunities.
The Actual Completion Date for the provision of abovementioned services shall be the Actual Completion Date for the delivery and commissioning of the System (i.e. which is also the date when the System is handover to HSG) or such further extension of time as shall be mutually agreed between the Parties (as disclosed in item 4.1 and 4.2 of the Appendix 1 in the Announcement).
For avoidance of doubt, the Contract Price of RM59,400,000.00 includes the planning, designing, supplying, installing and commissioning of the System and the provision of the abovementioned Services by Howellcare for the purposes of operating and running the production and day-to-day operation of the factory on behalf of the Company for the initial stage as well as training the Group’s new team to take over the management and operations of the factory from Howellcare.
10. The duration of training to be provided by Howellcare to the Group’s new team.
Reply
Prior to 2 months before the delivery and commissioning of the production line, Howellcare will provide offsite orientation training to the Group’s new team. Upon commencement of the production line, Howellcare will provide onsite operational training and guidance to the Group’s new team until the Actual Completion Date of the Agreement.
For avoidance of doubt, the provision of the Services (as detailed in Reply to Query 9 above) shall include the provision of training by Howellcare to the Group’s new team.
If any time after the Actual Completion Date of the Agreement (i.e after the handover of the System to HSG), HSG may further extend Howellcare’s Services which to be mutually agreed upon from time to time, whenever necessary.
11. The number of staffs in the Group’s new team, expected date of joining and their positions.
Reply
Upon obtaining the shareholders’ approvals for the Agreement and for the Proposed Diversification, the Group plans to hire the following key personnel to support the Business prior to 1 to 2 months of the delivery and commissioning of the first 2 production lines.
Position | Expected no of person |
Manager/Assistant Manager - Operation | 1 |
Manager/Assistant Manager – Project & Engineering | 1 |
Manager/Assistant Manager – Production & Packaging | 1 |
Manager/Assistant Manager – Quality Assurance & Lab & Research & Development Compounding | 1 |
Manager/Assistant Manager – Supply Chain | 1 |
In addition to the above key personnel, the other required number of workforce such as technician, inspector, quality control operator, compounder, lab assistant, packer, security staff and others for the first 2 production lines is around 120 to 140 employees.
Subsequently, the Group will increase its workforce upon the delivery and commissioning of each production line accordingly.
12. The expected date/time frame of the handover of the System to the Company.
Reply
The handover of the System to HSG is expected to be by November 2021 (“Expected Actual Completion Date”).
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