Frontken Corporation Berhad 200401012517 (651020-T) ANNUAL REPORT 2021
02 03 04 05 06 08 18 20 23 25 42 43 52 58 62 63 160 163 166 169 Corporate Information Group Corporate Structure Our Vision, Mission and Profile Our Services Financial Highlights Chairman’s Message Financial Review Board of Directors’ Profile Senior Management’s Profile Sustainability Report Statement of Directors’ Responsibilities Corporate Governance Overview Statement Statement on Risk Management and Internal Control Audit Committee Report Additional Disclosure Financial Statements List of Properties Shareholdings Statistics (as at 31 March 2022) Warrant Holdings Statistics (as at 31 March 2022) Notice of Annual General Meeting Proxy Form CONTENTS
Frontken Corporation Berhad 200401012517 (651020-T) • A N N U A L R E P O R T 2 0 2 1 2 AUDIT COMMITTEE Ng Chee Whye (Chairman) Gerald Chiu Yoong Chian Koh Huey Min NOMINATION COMMITTEE Dato’ Haji Johar Bin Murat @ Murad (Chairman) Ng Chee Whye Gerald Chiu Yoong Chian REMUNERATION COMMITTEE Ng Chee Whye (Chairman) Ng Wai Pin Dato’ Haji Johar Bin Murat @ Murad Koh Huey Min COMPANY SECRETARIES Mah Li Chen (MAICSA 7022751) (PC No. 202008002006) Chew Mei Ling (MAICSA 7019175) (PC No. 201908003198) REGISTERED OFFICE B-11-10 Level 11 Megan Avenue II Jalan Yap Kwan Seng 50450 Kuala Lumpur Tel : (03) 2166 9718 Fax : (03) 2166 9728 HEAD OFFICE Suite 301, Block F Pusat Dagangan Phileo Damansara 1 No. 9, Jalan 16/11 Off Jalan Damansara 46350 Petaling Jaya, Selangor Tel : (03) 7968 3312 Fax : (03) 7968 3316 Email : ir@frontken.com Website : www.frontken.com INVESTOR RELATIONS Tel : (03) 7968 3312 Fax : (03) 7968 3316 Email : ir@frontken.com SHARE REGISTRAR Tricor Investor & Issuing House Services Sdn Bhd Unit 32-01, Level 32, Tower A Vertical Business Suite Avenue 3, Bangsar South No. 8, Jalan Kerinchi 59200 Kuala Lumpur Tel : (03) 2783 9299 Fax : (03) 2783 9222 AUDITORS Crowe Malaysia PLT 201906000005 (LLP0018817-LCA) & AF 1018 Chartered Accountants Level 16 Tower C Megan Avenue II 12 Jalan Yap Kwan Seng 50450 Kuala Lumpur Tel : (03) 2788 9999 Fax : (03) 2788 9998 STOCK EXCHANGE LISTING Main Market of Bursa Malaysia Securities Berhad Stock Name : FRONTKN Stock Code : 0128 Reuters Code : 0128.KL Bloomberg Code : FRCB MK CORPORATE INFORMATION BOARD OF DIRECTORS NG WAI PIN Chairman / Chief Executive Officer DR TAY KIANG MENG Executive Director / Chief Scientist DATO’ HAJI JOHAR BIN MURAT @ MURAD Independent Non-Executive Director NG CHEE WHYE Independent Non-Executive Director GERALD CHIU YOONG CHIAN Non-Independent Non-Executive Director KOH HUEY MIN Independent Non-Executive Director
Frontken Corporation Berhad 200401012517 (651020-T) • A N N U A L R E P O R T 2 0 2 1 3 GROUP CORPORATE STRUCTURE As At 22 March 2022 Frontken Corporation Berhad 200401012517 (651020-T) FRONTKEN MALAYSIA SDN BHD FRONTKEN (SINGAPORE) PTE LTD ARES GREEN TECHNOLOGY CORPORATION TTES FRONTKEN INTEGRATED SERVICES SDN BHD 100% 100% PT FRONTKEN INDONESIA 95% 92.5% 45% 99.9% Frontken Philippines Inc. 100% Frontken (East Malaysia) Sdn Bhd 100% Frontken (Johor) Sdn Bhd
Frontken Corporation Berhad 200401012517 (651020-T) • A N N U A L R E P O R T 2 0 2 1 4 OUR VISION, MISSION AND PROFILE To serve our customers with complete satisfaction which includes not only the most competitive price and fastest delivery time but also the highest technical performance and reliability for all our services and products. Frontken Corporation Berhad, listed on the Main Market of Bursa Malaysia Securities Berhad, has since its inception in 1996, established itself as a world leading service provider of advanced precision cleaning and surface treatment for semiconductor process chamber parts and repair and maintenance services for the oil and gas industry. The Group uses cutting edge technology including advanced precision cleaning, advanced surface treatment and specialty spray coating to extend the lifespan of the high precision tools/equipment used in the fabrication of wafers, while significantly improving its customer’s process efficiency, operating and maintenance costs. The Group’s continuous focus on research and development helped to improve our customers’ process tool part optimisation. As a result, we were able to constantly exceed customers expectation by re-designing some of the tools to further increase the parts’ shelf life and at the same time reducing impact on the environment. The Group’s customer portfolio comprises key players in the semiconductor, optoelectronics, oil and gas and petrochemical industries around the world. To date, the Group has facilities in Singapore, Malaysia, Taiwan, the Philippines, and Indonesia with 1180 employees. OUR VISION OUR PROFILE OUR MISSION To be the leading service provider in the industry we serve.
Frontken Corporation Berhad 200401012517 (651020-T) • A N N U A L R E P O R T 2 0 2 1 5 OUR SERVICES SEMICONDUCTOR ADVANCED PRECISION CLEANING Advanced Precision cleaning and surface treatment of vacuum processes equipment parts in the semiconductors and TFT industries. Decontamination of newly manufactured parts and routine maintenance. Kit management of semiconductor manufacturing components. ENGINEERING ROTATING EQUIPMENT Equipment maintenance and overhaul, mechanical fitting & assembly, dynamic balancing, heat treatment, on site machining, metal stitching, and laser alignment. ADVANCED SURFACE TREATMENT & SPECIALTY COATING Advanced Surface treatment services include thermal spray coatings, arc spray coatings, precision anodisation and precision texturing and polishing. Protection, lifetime extension, performance and efficiency improvements via advance surface treatment technology such as cold build up treatment, plating, plating & conversion coating, and specialised plasma transferred arc welding.
Frontken Corporation Berhad 200401012517 (651020-T) • A N N U A L R E P O R T 2 0 2 1 6 FINANCIAL HIGHLIGHTS REVENUE (RM’000) PROFIT BEFORE TAX (RM’000) EARNING BEFORE INTEREST, TAX, DEPRECIATION AND AMORTISATION (RM’000) NET PROFIT (RM’000) 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 120,000 100,000 80,000 60,000 40,000 20,000 0 296,580 46,147 65,550 29,858 327,218 75,615 93,484 52,257 339,911 96,261 114,835 69,170 368,319 114,253 133,343 81,968 450,222 149,866 168,156 104,504 2017 2018 2019 2020 2021 RM’000 RM’000 RM’000 RM’000 RM’000 SEGMENTAL REVENUE – BY CUSTOMER LOCATION Singapore 46,616 54,262 53,866 46,586 48,278 Malaysia 51,054 58,714 65,873 51,417 63,227 Taiwan 168,479 182,886 186,018 235,121 303,561 Others 30,431 31,356 34,154 35,195 35,156 296,580 327,218 339,911 368,319 450,222 SEGMENTAL REVENUE – BY INDUSTRY Semiconductor 235,017 261,621 265,975 311,374 378,685 Oil & Gas 41,132 46,424 57,435 42,451 50,419 General* 20,431 19,173 16,501 14,494 21,118 296,580 327,218 339,911 368,319 450,222 * Comprises power generation, marine, steel, cement, wood processing, pulp & paper, printing, agriculture, industrial manufacturing, food, construction and other sectors.
Frontken Corporation Berhad 200401012517 (651020-T) • A N N U A L R E P O R T 2 0 2 1 7 FINANCIAL HIGHLIGHTS (CONT’D) SUMMARISED GROUP FINANCIAL POSITION AS AT 31 DECEMBER (RM’000) 2017 2018 2019 2020 2021 Non-Current Assets 188,706 177,493 181,523 175,361 257,937 Current Assets 242,385 277,567 334,202 442,910 460,699 Total Assets 431,091 455,060 515,725 618,271 718,636 Share Capital 118,925 118,925 118,925 118,925 118,441 Reserves 162,675 206,115 258,047 321,070 382,415 Shareholders’ Equity 281,600 325,040 376,972 439,995 500,856 Non-Controlling Interests 24,373 19,604 21,776 27,039 34,225 Total Equity 305,973 344,644 398,748 467,034 535,081 Non-Current Liabilities 16,061 12,348 15,053 12,826 22,295 Current Liabilities 109,057 98,068 101,924 138,411 161,260 Total Liabilities 125,118 110,416 116,977 151,237 183,555 Total Equity and Liabilities 431,091 455,060 515,725 618,271 718,636 SUMMARISED GROUP CASH FLOWS YEAR ENDED 31 DECEMBER (RM’000) 2017 2018 2019 2020 2021 Net Cash Flows From Operating Activities 69,029 63,322 114,901 119,733 138,775 Net Cash Flows For Investing Activities (32,078) (7,142) (12,113) (11,900) (86,212) Net Cash Flows For Financing Activities (8,389) (27,786) (33,711) (33,949) (61,084) Net Increase/(Decrease) in Cash and Cash Equivalents 28,562 28,394 69,077 73,884 (8,521) Effect of exchange differences (6,377) 293 1,652 6,248 11,079 Cash and Cash Equivalents at Beginning of Year 98,068 120,253 148,940 219,669 299,801 Cash and Cash Equivalents at End of Year 120,253 148,940 219,669 299,801 302,359 FINANCIAL ANALYSIS 2017 2018 2019 2020 2021 Turnover growth 13.3% 10.3% 3.9% 8.4% 22.2% Profit Before Tax Growth 38.4% 63.9% 27.3% 18.7% 31.2% Net Profit Growth 49.0% 75.0% 32.4% 18.5% 27.5% Pre-tax Profit Margin 15.6% 23.1% 28.3% 31.0% 33.3% Net Profit Margin 10.1% 16.0% 20.3% 22.3% 23.2% Return on Average Shareholders’ Equity 11.0% 17.2% 19.7% 20.1% 22.2% Return on Average Total Assets 7.1% 11.8% 14.4% 14.5% 15.6% Earnings Per Share (Sen) - Basic * 1.9 * 3.3 * 4.4 * 5.2 6.7 - Diluted ^ 1.9 ^ 3.3 ^ 4.4 ^ 5.2 # 6.7 * The earning per share have been adjusted to reflect the bonus issue of two for every one existing ordinary share which was completed on 30 April 2021. ^ The Group has not issued any dilutive potential ordinary shares and hence, the diluted earnings per share is equal to the basic earnings per share. # The potential conversion of warrants is anti-dilutive as its exercise price is higher than the average market price of the Company’s ordinary shares during the current financial period and hence, the diluted earnings per share is equal to the basic earnings per share.
Frontken Corporation Berhad 200401012517 (651020-T) • A N N U A L R E P O R T 2 0 2 1 8 CHAIRMAN’S MESSAGE MANAGEMENT DISCUSSION AND ANALYSIS A RECORD-BREAKING YEAR Frontken achieved another record-breaking year with a revenue of RM450.2 million, a double-digit growth of 22.2% compared to the same period a year ago due to improved contributions from nearly all our subsidiaries as a result of strong demand from the Group’s global customers in the semiconductor and oil & gas industries. The Group’s profit after tax (“PAT”) of RM114.2 million was also our highest, with 29.3% increase compared to RM88.3 million a year ago. Profit before tax for the year was at RM149.9 million, a 31.2% increase from the preceding financial year. The improved bottom line was attributable to the Group’s higher revenue, strict cost management and continual enhancement of processes leading to better production efficiency. The Group continued to generate a positive cash flow of RM138.8 million from its business operations. As at 31 December 2021, the Group’s cash and cash equivalents remained strong at RM302.4 million despite the higher capital investment. The Group’s capital expenditure for the year for property, plant and equipment was at RM82.8 million, all of which were internally funded. Dear Valued Shareholders, On behalf of the Board of Directors, I’m pleased to present to you the Annual Report and Audited Financial Statements of the Group for the financial year 2021 (“FY2021”). As part of this Annual Report, we have also included the Management Discussion and Analysis to provide our shareholders with a more insightful and informative details of the Group’s operation and performance. The year 2021 was both challenging and rewarding at the same time. Despite various challenges, the Group’s revenue and earnings were at an all-time high with growth across all our businesses. This speaks volume about the strength and resilience of the Group and the continuous extraordinary efforts we have put in over the years. REVENUE (RM’000) 600,000 500,000 400,000 300,000 200,000 100,000 - 181,035 190,611 261,844 339,911 222,717 296,580 368,319 250,543 327,218 450,222 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Revenue and Revenue CAGR chart from FY2012 to FY2021 CAGR +11%
Frontken Corporation Berhad 200401012517 (651020-T) • A N N U A L R E P O R T 2 0 2 1 9 CHAIRMAN’S MESSAGE (CONT’D) PAT (RM’000) 120,000 100,000 80,000 60,000 40,000 20,000 - 4,175 465 27,286 74,228 18,685 36,409 88,317 19,824 57,002 114,222 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 PAT and PAT CAGR chart from FY2012 to FY2021 CAGR +44% On the back of our strong earnings growth, the Company paid a single interim dividend of 1.5 sen per share and a second interim dividend of 2.5 sen per share bringing the total dividend to 4.0 sen per share for FY2021. The total payout amounted to RM62.8 million representing 60.1% of the Group’s total net earnings in FY2021. This is an increase of 27.5% total dividend payout compared to the same period a year ago. The Company will continue with its sustainable dividend payments to its shareholders after taking into consideration a number of factors such as earnings, financial conditions, capital commitments, acquisition related activities and reserves, amongst others. PAYOUT RATIO 51.14% 37.88% 30.08% 17.55% 0.00% 60.13% Dividend payout against net earnings ratio chart from FY2012 to FY2021 2021 2020 2019 2018 2017 2012-2016
Frontken Corporation Berhad 200401012517 (651020-T) • A N N U A L R E P O R T 2 0 2 1 10 CHAIRMAN’S MESSAGE (CONT’D) The Company also rewarded its shareholders with a bonus issue of shares and warrants on the basis of 1 bonus share and 1 bonus warrant for every 2 shares held sometime in April of 2021. As at the date of completion, the Group issued shares stood at 1,580,152,675. Every year, we set new business goals and priorities for the year ahead. In FY2021, we held our annual budget meetings where we made plans and put in place short-term and long-term targets, discussed strategic measures including business continuity plan and crisis management, amongst others. We follow up with regular reviews, analyse our progress and resolve promptly any issues that may arise throughout the year. We believe customers’ positive experience are crucial and ensure that our works are of high quality and are up to or exceeding their expectation. THE “NEW NORMAL” At this point, it has been slightly over two years from the first COVID-19 outbreak. We drew on the lessons from the past years and find areas where we can continue to improve. In our health and safety control, we continue to adhere strictly to the “Guidelines on Workplace Prevention and Control of COVID-19”. This includes safe work environment that protects our employees and associates alike from risks connected to COVID-19, including exposure and transmission. While vaccine may significantly reduce the threat of fatality caused by COVID-19, we need to continue to keep ourselves safe and maintain strict COVID-19 prevention measures such as self-testing requirements, making sure our facilities are sufficiently clean, have adequate ventilation, and reduce risk of transmission by implementing “rotation basis” to limit the number of non-production employees at work. We endeavour to ensure that the wellbeing of our employees is protected as we return to work and adjust to new realities and challenges presented by the pandemic. From the business perspective, we were able to quickly navigate and adapt in response to the rapidly changing market environment through our dynamic thinking and actions from the onset of the pandemic. We continue to adapt to the “new business environment” where everyone works together to minimise the impact from COVID-19 and limit disruptions to our operations and supply chains, where possible. Though many things have changed since then, our commitment and dedication to our customers remained the same, which is providing excellent support and services to them. HUMAN CAPITAL In FY2021, we have managed to not only grow the number of our headcounts but also expanded the range of our skillsets. We believe that a highly skilled and motivated employee is vital for our business to run successfully. We continued to encourage our employees to acquire new knowledge through continuous learning to enable everyone to stay on top of the industry trends and to remain competitive in our business. Various trainings, workshops and networking activities were conducted remotely where our employees can continue to have opportunities to learn and engage even in different learning environment. Amongst the topics covered were upskilling and reskilling allowing our employees to maximise their full potential, soft skills ability to effectively communicate and think critically, product trainings to allow everyone involved to fully understand and constantly improve their knowledge and capability. We are committed to not only hire, manage and develop but retain our skilled and talented employees. During the year, we made adjustments to our employee’s compensation plans according to their contributions and KPI’s achievement and ensure that all our employees share in the success of our Group by providing them with the appropriate incentives and rewards.
Frontken Corporation Berhad 200401012517 (651020-T) • A N N U A L R E P O R T 2 0 2 1 11 CHAIRMAN’S MESSAGE (CONT’D) SUSTAINABILITY FOR A BETTER TOMORROW Environmental, Social, and Governance (“ESG”) and Sustainability are our core priorities and play an integral part in our business. We take very seriously our responsibility to our shareholders, and our duty to build a strong, resilient, profitable and sustainable business. E - We are aware of the environmental risks created by business activities and the potential impacts on our air, land, water, ecosystems and health. Our priority have always been to minimise any of these negative impacts by preventing pollution and reducing emissions and climate risk. These include lowering costs and increasing profitability through energy, water and other efficiencies. For example, even though our capacity has increased and processes continue to be more complex, our unit production average power usage was reduced to 9.22 kWh (FY2020 = 10.16 kWh) per part produced; our unit production average water usage was maintained at 0.11 cubic meter per part (FY2020 = 0.12 cubic metre per part). In addition, our unit production average waste produced was maintained at 0.4 kg (FY2020 = 0.4 kg) per part. S - On the social aspect, we have been actively participating in social activities such as promoting health and safety, protecting our employees, human rights, giving back to the society, diversity and inclusion. We begin from within our organisation where we work together as one team while building trust and relationship amongst our employees, customers, suppliers and communities. We believe by treating our employees fairly and respectfully promote productivity and good morale. This in turn translates into reduced turnover and loyalty to the Company. For example, we recorded an employee retention rate of 98.49%, achieving 104% of our target goal. Other aspects that we will continue to work at including making positive changes through our “Corporate Social Responsibilities Project” to achieve a sustainable social impact. G - From the governance perspective, we ensure that every decision made was in the interest of all our stakeholders and that our business continue to be managed in a way that was consistent with the policies that we have put in place. These policies include Code of Conduct, Whistle Blowing Policy and Anti-Bribery & Corruption Policy, amongst others, which are available on our website. The Board maintains our commitments and operates to the highest standards of governance such as ensuring that the rights of shareholders are protected and that the Company practices transparent disclosure. The Board continued to review and strengthen our approach on applying the principles of the Malaysian Code of Corporate Governance. During the year, we have also conducted the annual board independence Board Effectiveness Evaluation to assess the effectiveness of the overall Board of Directors, sub-committee and individual director. We continued to benchmark our sustainability development with that of the GRI Framework, United Nations Sustainable Development Goals (“SDGs”), Responsible Business Alliance Framework (“RBA”) and the Bursa Malaysia FTSE Russel ESG Model Framework. As an example, we are aligned with 12 out of the 17 United Nations SDGs and we aim to achieve more if not all of these goals. In addition, our efforts to date were recognised by our inclusion in the FTSE4Good Bursa Malaysia Index and FTSE4Good Bursa Malaysia Shariah Index in FY2021. This is an encouragement for us to do better and continue to pursue our long-term goals in this area. We believe we can make a sustainable impact in our business while providing the best value to our stakeholders. Further details on the Group’s Sustainability initiatives and achievements for FY2021 are available at the Sustainability section of this Annual Report and the full report is available on our website at www.frontken.com. Frontken Sustainability Development Full Report FY2021 can be downloaded on our website at www.frontken.com
Frontken Corporation Berhad 200401012517 (651020-T) • A N N U A L R E P O R T 2 0 2 1 12 CHAIRMAN’S MESSAGE (CONT’D) Award ceremony during The Edge Billion Ringgit Club Awards ceremony in FY2021 The Edge Billion Ringgit Club for Highest Growth in Profit After Tax Over Three Years in 2021 under Technology Sector The Edge Billion Ringgit Club for Highest Return to Shareholders Over Three Years in 2021 under Technology Sector During the year, the Group’s subsidiaries also received numerous recognitions and awards from our customers and local authorities in areas including excellent business performance and ESG initiatives. These awards inspire us to continue what we have been doing and a testament that we are on the right path in achieving our goals. BUSINESS REVIEW SEMICONDUCTOR In 2021, the global semiconductor industry sales totalled US$555.9 billion, the highest-ever recorded. That was an increase of 26.2% compared to 2020, as announced by the Semiconductor Industry Association on 14 February 2022. As for the Group’s business in this segment, it was also our best achievement to date with revenue and PAT growth of 22% and 24% respectively during the year. AWARDS AND RECOGNITION Frontken, for the second year in a row, was again selected as “Forbes Asia 200 Best Under a Billion Company” in FY2021. We also emerged as a winner for third year in a row for “The Edge Billion Ringgit Club for Highest Growth in Profit After Tax Over Three Years” and two years in a row for “The Edge Billion Ringgit Club for Highest Return to Shareholders Over Three Years” in FY2021 under the technology sector. We are extremely proud of these Awards as they are recognition of our continuous effort and hard work put in over the years. Selected as Forbes Asia 200 Best Under a Billion Company in FY2021 85% 15% 2021 400.0 350.0 300.0 250.0 200.0 150.0 100.0 50.0 - Semiconductor Engineering RM’ million Semiconductor and Engineering revenue percentage chart for the Group in FY2021
Frontken Corporation Berhad 200401012517 (651020-T) • A N N U A L R E P O R T 2 0 2 1 13 CHAIRMAN’S MESSAGE (CONT’D) The pandemic has accelerated the adoption and implementation of many technologies that would have taken years, if not decades, to become conventional. It changed the way people work and triggered a massive shift to the use of digital technology. Work from home, virtual conferences, remote learning, and online shopping have driven up the demand for all things electronic in a short span of time. These needs have also highlighted the importance of the semiconductor industry and integrated circuits in our daily lives as well as the global economy. It pushed forward the deployment of 5G infrastructure, artificial intelligence (“AI”), internet of things and cuttingedge electronics. Consequently, our dependance on a wide range of applications from household electronic goods, mobile devices to automotive also increased. The unwavering focus on fundamentals of our business and push for research and development (“R&D”) to new levels allow us to stay on top of our business. We continue to develop specialised process technology with our customers based on the input and specification that each of them require. As a result, we were able to provide our customers with the highest level of process customisation and differentiated solutions to meet their individual needs. Our continuous R&D allow us to provide solutions that help our customers improve their efficiency and reduce their operating costs without compromising on the quality of their end product. It also allows for faster turnaround time, better efficiency, and customised simple clean processes based on customers’ requirement. We continue to integrate automation and AI for some of our processes to improve uniformity and consistency in our end results. Our investment on high specification metrological equipment also allows us to provide greater accuracy, transparency of data collection and real-time documentation to our customers. We will continue to work closely and grow alongside our customers with our continuous innovation and process solutions while supporting them as they continue to advance in the leading-edge semiconductor technology. Ares Green Technology Corporation (“AGTC”), Taiwan - Over the last few years, Taiwan semiconductor industry has been leading the world in their most technologically advanced chips. With that, comes more complicated and sophisticated processes resulting in chamber process parts becoming more and more sensitive to contamination. As a leading service provider and our ability to handle these very sophisticated parts have made us a trusted and critical partner to our customers. In FY2021, AGTC once again achieved its highest ever revenue of RM310.4 million, an increase of 29.1% from a year ago. This achievement was attributable to the increased business from our key customers as a result of the ramp up of their advanced technology nodes. As announced last year, we purchased an industrial building located in the Southern Taiwan Science Park, Kaohsiung (Plant 2) at the price of NTD367.5million or RM53.3million. The Southern Taiwan Science Park (“STSP”) is one of the three main science-based industrial parks in Taiwan with key industries including integrated circuit, optoelectronics, precision machinery, telecommunications, computer peripherals, and biotechnology companies. It was also selected by the world’s leading integrated foundry for its 5nm and 3nm advanced manufacturing processes, making STSP the world’s largest IC industrial hub, according to its website. The decision to expand was made based on the projected significant increase in work from our customers and the anticipated multi-year of growth in the semiconductor space in years to come. This new facility will be fitted with the most advanced specialised equipment, comprehensive waste-water treatment and scrubber systems amongst others. Our new “state of the art” facility will allow us to position ourselves as the leading advanced high precision chamber parts service provider for the next few generations of leading-edge chips. The infrastructure and size of this plant will provide us with sufficient space to further expand our production capacity. This facility is on track to be completed in the second half of this year and will be commissioned in phases. In Progress Quality Check/Control
Frontken Corporation Berhad 200401012517 (651020-T) • A N N U A L R E P O R T 2 0 2 1 14 CHAIRMAN’S MESSAGE (CONT’D) Aerial view of Plant 2 at the Southern Taiwan Science Park, Kaohsiung In addition to that, we are also actively looking and in discussion to acquire new land for our next phase of expansion as we envisage there will be more work from our customers and that more space will be needed should Plant 2 runs out of capacity. This also echoes a large trend among chip manufacturers that are expanding their production and manufacturing capacity to meet the huge demand in the semiconductor space. We remain optimistic that our semiconductor business in Taiwan will continue to grow barring any unforeseen circumstances. In FY2021, we continued to increase our shareholding in AGTC to 91.79% from 91.25% a year ago. Frontken (Singapore) Pte Ltd (FSPL Plant 2), Singapore - Our semiconductor business in Singapore continues to face shortages of manpower due to continual border shutdown and numerous restrictions imposed by its government which caused delays in our operations and daily output. In spite of the marginal miss in revenue and profit targets, the results was still commendable considering the challenges our team encountered during the year. We have put in extra effort to alleviate the workforce shortages as much as possible such as prioritising and rescheduling all jobs, optimising our processes, customising and automating bottleneck processes. We focused on our Continuous Improvement and Productivity programmes (“CIP”) to improve on both quality and quantity of our workflow and processes. Our priorities remain the same during the year, which was to ensure a sustainable output and productivity level. We are also working with new and existing customers for new projects, processes and parts qualification. With major wafer fabs announcing their capacity expansion in recent months, we believe our business will improve further and that we will be able to benefit substantially in the very near future. Moving forward, we will continue with our strategic focus on CIP and automation projects to ensure consistent output, increased efficiency and less reliance on manual labour. FrontkenMalaysiaSdnBhd,Malaysia -Our semiconductor business in Kulim, Melaka and Kuching saw improvement in their revenue and bottom line compared to a year ago primarily due to the increased in sales to our existing and new customers. Our efforts of continual cost savings through streamlining our processes and tighter control over operation efficiencies have also contributed to the improved overall margins. During the year, we saw more contract manufacturers being registered into our new customers’ list as we managed to secure several new accounts mainly parts’ fabricators embarking into business with the Original Equipment Maker for semiconductors tool. The revenue increase from this segment almost doubled compared to the previous year. The sluggishness from Hard Disk Drive and Photovoltaic were also offset by the pick-up from the semiconductor and automotive industry. We saw increased activities from our customers from the latter and are encouraged by their upcoming expansion plans that will be completed in 2024. We will continue to work hard and look out for further growth opportunities while defending our position as one of the largest semiconductor chamber process parts service provider in the country. ENGINEERING DIVISION In FY2021, the oil & gas industry rebounded with oil prices reaching their highest level in recent years, attributable to the reopening of economies and businesses. Similarly, the Group’s engineering division saw a much improved revenue and PAT of 23% and 226% respectively during the year. We noticed significant improvement in our engineering segment in Malaysia, Singapore and the Philippines coming in from our oil & gas, petrochemical and refineries customers.
Frontken Corporation Berhad 200401012517 (651020-T) • A N N U A L R E P O R T 2 0 2 1 15 CHAIRMAN’S MESSAGE (CONT’D) Frontken has been the service provider in the maintenance and repair activities in the oil & gas industry for more than two decades now. To date, the Group’s engineering division captures a wide and growing set of support activities such as providing extensive technical solutions, machining and fabrication, skilled manpower supply, and specialised coating amongst others. Our engineering team have always played a pivotal role in driving our capabilities in this segment. We leverage on the skills and many years of experience that we have to expand our capabilities and services to meet the needs of our existing customers. Though our business in this sector is not always easy, we believe that our broad range of specialised skills and the continued support we provide to our customers through ups and downs allow us to stay as their preferred supplier at all time. Given the momentum we are seeing in recent months, we believe our engineering business will pick up further throughout 2022 barring any unforeseen disruptions in the oil & gas sector. TTES Frontken Integrated Services Sdn Bhd, Malaysia - FY2021 was a much busier year for our oil & gas business in Malaysia with execution of various umbrella contracts for provision of manpower supply and mechanical rotating equipment services and parts that we have with the Petronas Group of Companies. Despite sale price pressure from stiff competition and additional costs associated with COVID-19 lockdowns, SOPs compliance, flash floods, and supply chain disruptions, we achieved a much improved revenue and bottom line from efforts in leveraging on our cash reserves, technical strengths and increased joint business partnerships with our suppliers. Hydraulic Installation Works Quick Deck Support Services Turbine Supervisory Instrumentation Rope Access activity
Frontken Corporation Berhad 200401012517 (651020-T) • A N N U A L R E P O R T 2 0 2 1 16 CHAIRMAN’S MESSAGE (CONT’D) During the year, we started the construction of our new workshop in Pengerang, Johor to support the Petronas Refinery and Petrochemical Integrated Development and Pengerang Integrated Complex. This workshop was completed in early 2022 and will be our main thrust for the coming year where we will maximise our new assets, expand human capital investment and capabilities further to drive better performance and revenue across our operating units. We will continue with selective capital investments, identify strategic partners and bring other supplementary technical capabilities such as mechanical seals and valves services and minor fabrication to this new workshop. We will continue to fine tune our business plan and extend joint tendering with selective partners to capture long term integrated service contracts and further expand our market base. Our aim is to be the best, most reliable and efficient one-stop service centre to the oil & gas industry, covering all aspects of customer maintenance needs, EPCC and turnaround supports. Frontken (Singapore) Pte Ltd (FSPL Plant 1), Singapore - Our engineering business in Singapore was still largely affected by the permanent shutdowns of processing plants by oil & gas customers due to the on-going pandemic where some projects that we anticipated were cancelled in beginning of the year. The manpower shortages faced by refineries and processing plants resulted in lower scale maintenance shutdowns and reduced amount of works during these periods. However, we saw a gradual increase in activities during the second half of 2021 from across all sectors including oil & gas, petrochemical and refineries. As a result, losses for this unit were significantly narrowed compared to the year before. We saw some of our customers which have been inactive for most of 2021 sending in enquires towards the end of the year, some of which have been converted to orders in early January 2022. The significantly lower cost base and better utilisation of our resources from the operational changes made two years ago helped improve our earnings as well. Our workshop personnel were cross trained to undertake various tasks such as blasting, masking, coating, plating and spraying to enhance production efficiency and to cope during the busy period. With the closure of one of our customers’ plant in US, Carrington in the first quarter of 2021 and their relocation to Singapore, we saw an increased activity for newproducts and that this demand will continue in the coming year. In addition, the petrochemical and refinery complexes in Jurong Island have announced shutdown plans for the first half of 2022 and we are expecting to see repair works for regular pump component and rotor inspection in the pipeline. We are also collaborating with a new customer to provide spare parts, complete component management, rotor inspection and repair services. Moving forward, we will continue to engage and seek new opportunities from our existing customers and from non-traditional industries such as consumer product and solar energy manufacturers, where we have expanded our services to welding repairs and fabrication of parts in 2021. Aerial view of our New Workshop at Pengerang, Johor in December 2021
Frontken Corporation Berhad 200401012517 (651020-T) • A N N U A L R E P O R T 2 0 2 1 17 CHAIRMAN’S MESSAGE (CONT’D) Frontken Philippines Inc., the Philippines - The Group’s operation in the Philippines has been consistent over the years and 2021 was no different. We continued to deliver a steady set of results with a revenue of RM15.4 million and operating profit of RM2.5 million. We continued to focus in the power generation industry where we provide specialised manpower support, on-site inspections, and rehabilitation services for turbomachinery equipment to the two largest power generation companies in the country. To support our customer further, we acquired a new vertical lathe machine to enhance our capability in the machining needs of large diaphragms for use in the steam power plants, hydro power plants and large rotating and stationary equipment. The addition of this machine also supplements well with our existing precision machining capabilities and future projects. During the year, we have made revisions in the repair processes through simplifying workflows without sacrificing the work and quality of our output, therefore increasing efficiency, and reducing turnaround times. Our on-going efforts to develop multi skilled personnel with complementing competencies, skilled and efficient team for on-site works, reduce logistics costs and optimise service capabilities have proven invaluable to all our customers that are in areas where access can be geographically challenging. In addition, the technical alliances with strategic service providers in the energy sector allows us to have exclusive access to spare parts, work procedures and online trainings that have brought significant value to our power generation customers. Moving forward, the power generation industry will be our key target growth area. This sector is expected to double its current production output by the end of 2030 due to the ever-growing electricity demands fueled by large infrastructure projects, as well as a growing manufacturing industry. We will continue to work with our customers and strategic partners to establish and refine our technical service capabilities through training and development programmes that will cater to their maintenance and service needs. MOVING FORWARD We know that challenges are not behind us yet and the pace of recovery in the coming months remains highly uncertain as mounting geopolitical tensions and lingering effects of COVID-19 continue. However, one thing that we are certain of is our commitment and determination towards our business goals. Our aim is to not only innovate and provide the best solutions to our customers, but also to continue to grow all aspects of the performance of our business. We believe there are still a lot of room for improvement and are committed to deliver a sustainable growth in our business and profit in the coming years. APPRECIATION I would like to take this opportunity to thank our Board of Directors for its continuous guidance, strategic advice and steadfast support throughout the year. On behalf of the Board, I would like to welcome our new Non-Executive Independent Director, Ms Koh Huey Min who joined the Board in December last year. We believe her broad set of skills and experience will be an asset and we look forward to working with her. I would also like to thank all my colleagues for your relentless dedication, sacrifices, and hard work during the year. We are here because of all of you. We are extremely thankful to our customers that have continually shown their confidence in us by giving us their continued business and new opportunities. To our business associates, various ministries, government agencies and regulators of the countries where we operate in, we appreciate your trust and support that you have given to us. Lastly, I would like to thank all of you, our loyal shareholders, for your ongoing support and trust in us. We will continue to do our best in delivering the best return to all of you.
Frontken Corporation Berhad 200401012517 (651020-T) • A N N U A L R E P O R T 2 0 2 1 18 FINANCIAL REVIEW REVENUE The Group reported higher revenue of RM450.2 million against RM368.3 million of last year, an increment of 22% mainly due to better contributions from nearly all our subsidiaries attributable to the robust growth in our semiconductor business derived from our customers’ ramp up of production and improvement in our oil and gas business. An analysis of revenue by customer location showed growth in our business particularly in Taiwan, Malaysia and Singapore. Our Taiwan business continues to show significant growth of 29% in the financial year 2021 (“FY2021”) due to its customers’ increased production to meet the high demand for their advanced nodes chips. Our Malaysia business benefitted from the improved capital expenditure allocation by their oil & gas customers which partly was attributable to the strong Brent crude oil price. The Singapore business revenue improved due to the robust semi-conductor industry and positive growth of the oil & gas business. EARNINGS The Group’s earnings before interest, tax, depreciation and amortisation (“EBITDA”) for FY2021 was RM34.8 million or 26% higher than that achieved in the preceding year mainly due to improved revenue, strict cost management and continual enhancement of our processes leading to better production efficiency and profit margin. Against the same period last year, the profit after tax increased by RM25.9 million or 29%. The consolidated net profit attributable to shareholders of the Company for FY2021 increased by RM22.5 million or 27% compared to the preceding year. This translated to basic earnings per share of 6.65 sen in FY2021 compared to basic earnings per share of 5.21 sen in the preceding year. RESULTS OF OPERATIONS in RM’000 368,319 450,222 REVENUE 22% 2020 2021 81,968 104,504 NET PROFIT 27% 2020 2021 133,343 168,156 EBITDA 26% 2020 2021 36.2 37.3 EBITDA MARGIN as a % of revenue 1% 2020 2021 REVENUE 2021 2020 % change (by customer location) RM’000 % RM’000 % in revenue Taiwan 303,561 67 235,121 64 29 Malaysia 63,227 14 51,417 14 23 Singapore 48,278 11 46,586 13 4 Philippines 15,335 3 15,397 4 - Others 19,821 5 19,798 5 - Total 450,222 100 368,319 100 22
Frontken Corporation Berhad 200401012517 (651020-T) • A N N U A L R E P O R T 2 0 2 1 19 FINANCIAL REVIEW (CONT’D) The free cash flow decreased from RM114.0 million to RM56.0 million in FY2021 mainly due to capital expenditure of RM82.8 million, an increase of RM74.9 million compared to the preceding year. The net cash inflow from operating activities for FY2021 increased by RM19.0 million to RM138.8 million. The net cash outflow for financing activities was RM27.1 million higher than last year mainly due to higher dividend payment, an increase of 87%, to reward our shareholders. Net cash used for investing activities increased from RM12.0 million in the preceding year to RM86.2 million in FY2021 attributable to capital expenditure to expand our production capacity. The Group has cash and cash equivalents of RM302.4 million as at the end of year 2021 compared to RM299.8 million at the end of year 2020. Amid the challenging business conditions, the Group will continue to exercise prudence in cash flow management while conserving the cash for dividend payment, potential future expansion and investing activities. FINANCIAL POSITION The Group’s shareholders’ fund improved from RM440.0 million as at 31 December 2020 to RM500.9 million as at 31 December 2021, an increase of RM60.9 million or 14%. Total assets of the Group increased from RM618.3 million as at 31 December 2020 to RM718.6 million as at 31 December 2021. This is mainly due to higher receivables from increase revenue and capital investment in property, plant and equipment. The Group has purchased a new facility in Kaohsiung, Taiwan to expand its production capacity to meet our key customer’s projected increase in demand for its services. The Group’s liabilities of RM183.6 million as at 31 December 2021 were higher by RM32.3 million or 21% compared to last year. The increase in lease liabilities and other payables is mainly due to the expansion of production facility in Kaohsiung, Taiwan which is expected to be commissioned sometimes during the second half of 2022. CASH FLOWS in RM’000 291,530 242,321 NET CASH 17% 2020 2021 113,997 55,971 FREE CASH FLOW 51% 2020 2021 7,890 82,830 CAPITAL EXPENDITURE 950% 2020 2021 304,500 299,439 WORKING CAPITAL 2020 2021 2%
Frontken Corporation Berhad 200401012517 (651020-T) • A N N U A L R E P O R T 2 0 2 1 20 BOARD OF DIRECTORS’ PROFILE Ng Wai Pin, formerly a Senior Independent NonExecutive Director of Frontken Corporation Berhad (“FCB”), was re-designated as the Chairman / Chief Executive Officer / Managing Director of the Company on 19 January 2012. He holds a Bachelor of Laws degree from University of Auckland and was admitted to the roll of barristers and solicitors of the High Court of New Zealand in 1989. He then continued practising as a barrister and solicitor in a leading legal firm in Auckland for a number of years before returning to Malaysia where he joined Shook Lin & Bok, a legal firm in Kuala Lumpur. He was admitted as an Advocate and Solicitor of the High Court of Malaya in 1993. He later became a Director and Chief Executive Officer of an oil and gas services company listed on Bursa Malaysia Securities Berhad with regional operations, before returning to private practice in law. From September 2005 to February 2009, he was the Chief Operating Officer of a company listed on the Singapore Exchange Limited and was seconded as the Chief Executive Officer of a company listed on the Australian Stock Exchange. He is also the Executive Chairman of Ares Green Technology Corporation, a public company in Taiwan, R.O.C., a subsidiary of FCB. He has no family relationship with any other Directors or major shareholders of the Company. He has not been convicted of any offences within the past five years. He has no conflict of interest with the Company. Dr Tay Kiang Meng holds a Bachelor of Engineering (First Class Honours) in Manufacturing Systems Engineering from University of Portsmouth, and a Master of Science in Advanced Manufacturing Systems and a PhD in Engineering from Brunel University, United Kingdom. He is responsible for research and development leading the Group’s technology roadmap, spearheading research and development (“R&D”) activities, formalising the Group’s quality systems, developing critical manufacturing technologies for FCB’s semiconductor technology and advanced materials engineering, and exploring new technology opportunities for the Group. He has more than 20 years of professional experiences in technology development, R&D, and has led some of the most significant technology innovations in semiconductorrelated manufacturing technology and advanced materials engineering. An engineer and scientist by training, Dr Tay began his professional R&D experience with research think tank, Gintic Institute of Manufacturing Technology, Singapore. Dr Tay has received honours and awards in many of his academic, research and technology development work. Dr Tay also sits on the board of the FCB’s subsidiary, Ares Green Technology Corporation. He has no family relationship with any other Directors or major shareholders of the Company. He has not been convicted of any offences within the past five years. He has no conflict of interest with the Company. NG WAI PIN Chairman / Chief Executive Officer • Aged 56, Male, Malaysian • Appointed to the Board on 10 April 2006 • Member of Remuneration Committee DR TAY KIANG MENG Executive Director / Chief Scientist • Aged 57, Male, Singaporean • Appointed to the Board on 10 April 2006
Frontken Corporation Berhad 200401012517 (651020-T) • A N N U A L R E P O R T 2 0 2 1 21 BOARD OF DIRECTORS’ PROFILE (CONT’D) Dato’ Haji Johar Bin Murat @ Murad graduated with a Bachelor degree in Malay Studies from Universiti Malaya in 1971. He has worked in various government agencies, such as the Ministry of Science, Technology & Environment, the Ministry of Finance, the Ministry of Public Enterprises (now known as Ministry of Entrepreneur and Co-operative Development) and Economic PlanningUnit of PrimeMinister’s Department. During his tenure of service in the Ministry of Finance (1996 – 2000), he was a director of the following organisations: • Yayasan Tun Razak (Tun Razak Foundation) • Perbadanan Kemajuan Negeri Selangor (Selangor State Economic Development Corporation) • Majlis Sukan Negara Malaysia (National Sports Council) • Lembaga Pembangunan Labuan (Labuan Development Authority) • Syarikat MKIC Malaysia (Malaysia Kuweity Investment of Malaysia) • Jawatankuasa Pengurusan Hutan Serantau (Regional Forestry Management Committee) • Majlis Penyelidikan dan Kemajuan Sains Negara (National Council of Science and Research Development) When hewas theDeputy SecretaryGeneral (Operations) of the Ministry of Science, Technology & Environment from 2000 to 2003, Dato’ Haji Johar was also an Alternate Director of Lembaga Pengarah Technology ParkMalaysia, MIMOS Berhad, SIRIMBerhad, Malaysian Agriculture Research and Development Institute, Malaysia Technology Development Corporation, Composite Technology Research Malaysia Sdn Bhd, Malaysia Design Council and National Science Centre. He was also the Chairman of Audit Committee of MIMOS Berhad and a member of the Board of Tender for MIMOS Berhad and SIRIM Berhad. Currently, he sits on the board of several other private companies. He has no family relationship with any other Directors or major shareholders of the Company. He has not been convicted of any offences within the past five years. He has no conflict of interest with the Company. Ng Chee Whye is a Chartered Accountant with the Chartered Accountants Australia and New Zealand and holds a Bachelor of Commerce degree from the University of Canterbury, New Zealand. He began his professional career with KPMG Peat Marwick in Auckland, New Zealand, gaining experience with clients from varied industries. Following which, he relocated closer to home to assume varied Senior Finance roles with various IT related entities in Singapore and Malaysia, namely Hewlett-Packard Singapore (Pte) Ltd, Creative Technology Ltd and Electronic Data Systems IT Services (M) Sdn Bhd. He subsequently moved on to assume Chief Financial Officer roles with various Wealth Advisory and Fund Management entities at Prudential Fund Management Bhd, AXA Financial Services and Nexus Financial Services Pte Ltd. He has no family relationship with any other Directors or major shareholders of the Company. He has not been convicted of any offences within the past five years. He has no conflict of interest with the Company. DATO’ HAJI JOHAR BIN MURAT @ MURAD Independent Non-Executive Director • Aged 74, Male, Malaysian • Appointed to the Board on 10 April 2006 • Chairman of Nomination Committee, Member of Remuneration Committee NG CHEE WHYE Independent Non-Executive Director • Aged 56, Male, Malaysian • Appointed to the Board on 31 July 2019 • Chairman of Audit Committee and Remuneration Committee, Member of Nomination Committee
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