ANNUAL REPORT 2022 Frontken Corporation Berhad 200401012517 (651020-T)
02 03 04 05 06 08 18 20 23 25 47 48 56 62 65 66 168 171 174 177 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 2023) Warrant Holdings Statistics (as at 31 March 2023) Notice of Annual General Meeting Proxy Form CONTENTS
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2022 2 COMPANY SECRETARIES Mah Li Chen (MAICSA 7022751) (PC No. 202008002006) Chew Mei Ling (MAICSA 7019175) (PC No. 201908003178) REGISTERED OFFICE B-11-10 Level 11 Megan Avenue II Jalan Yap Kwan Seng 50450 Kuala Lumpur Tel : (03) 2203 3388 Fax : (03) 2203 3399 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 : FRKN.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 / Chief Sustainability Officer NG CHEE WHYE Independent Non-Executive Director GERALD CHIU YOONG CHIAN Non-Independent Non-Executive Director KOH HUEY MIN Independent Non-Executive Director AUDIT COMMITTEE Ng Chee Whye (Chairman) Gerald Chiu Yoong Chian Koh Huey Min NOMINATION COMMITTEE Gerald Chiu Yoong Chian (Chairman) Ng Chee Whye Koh Huey Min REMUNERATION COMMITTEE Ng Chee Whye (Chairman) Ng Wai Pin Koh Huey Min
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2022 3 GROUP CORPORATE STRUCTURE AS AT 23 MARCH 2023 99.9% Frontken Philippines Inc. Frontken Corporation Berhad 200401012517 (651020-T) 100% Frontken (East Malaysia) Sdn Bhd 100% Frontken (Johor) Sdn Bhd FRONTKEN MALAYSIA SDN BHD 100% FRONTKEN (SINGAPORE) PTE LTD 100% PT FRONTKEN INDONESIA 95% ARES GREEN TECHNOLOGY CORPORATION 92.5% TTES FRONTKEN INTEGRATED SERVICES SDN BHD 45%
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2022 4 OUR VISION, MISSION AND PROFILE 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 1320 employees. OUR PROFILE To be the leading service provider in the industry we serve. OUR VISION 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. OUR MISSION
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2022 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) • ANNUAL REPORT 2022 6 FINANCIAL HIGHLIGHTS REVENUE (RM’000) PROFIT BEFORE TAX (RM’000) EARNING BEFORE INTEREST, TAX, DEPRECIATION AND AMORTISATION (RM’000) NET PROFIT (RM’000) 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 600,000 500,000 400,000 300,000 200,000 100,000 0 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 250,000 200,000 150,000 100,000 50,000 0 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 327,218 75,615 93,484 52,257 339,911 96,261 114,835 69,170 368,319 114,253 133,343 81,968 450,222 149,866 168,156 104,504 517,183 174,790 193,212 123,292 2018 2019 2020 2021 2022 RM’000 RM’000 RM’000 RM’000 RM’000 SEGMENTAL REVENUE – BY CUSTOMER LOCATION Singapore 54,262 53,866 46,586 48,278 55,959 Malaysia 58,714 65,873 51,417 63,227 86,983 Taiwan 182,886 186,018 235,121 303,561 337,556 Others 31,356 34,154 35,195 35,156 36,685 327,218 339,911 368,319 450,222 517,183 SEGMENTAL REVENUE – BY INDUSTRY Semiconductor 261,621 265,975 311,374 378,685 413,322 Oil & Gas 46,424 57,435 42,451 50,419 82,500 General* 19,173 16,501 14,494 21,118 21,361 327,218 339,911 368,319 450,222 517,183 * 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) • ANNUAL REPORT 2022 7 FINANCIAL HIGHLIGHTS (CONT’D) SUMMARISED GROUP FINANCIAL POSITION AS AT 31 DECEMBER (RM’000) 2018 2019 2020 2021 2022 Non-Current Assets 177,493 181,523 175,361 257,937 300,195 Current Assets 277,567 334,202 442,910 460,699 505,626 Total Assets 455,060 515,725 618,271 718,636 805,821 Share Capital 118,925 118,925 118,925 118,441 118,441 Reserves 206,115 258,047 321,070 382,415 430,028 Shareholders’ Equity 325,040 376,972 439,995 500,856 548,469 Non-Controlling Interests 19,604 21,776 27,039 34,225 39,454 Total Equity 344,644 398,748 467,034 535,081 587,923 Non-Current Liabilities 12,348 15,053 12,826 22,295 31,999 Current Liabilities 98,068 101,924 138,411 161,260 185,899 Total Liabilities 110,416 116,977 151,237 183,555 217,898 Total Equity and Liabilities 455,060 515,725 618,271 718,636 805,821 SUMMARISED GROUP CASH FLOWS YEAR ENDED 31 DECEMBER (RM’000) 2018 2019 2020 2021 2022 Net Cash Flows From Operating Activities 63,322 114,901 119,733 138,775 142,863 Net Cash Flows For Investing Activities (7,142) (12,113) (11,900) (86,212) (58,685) Net Cash Flows For Financing Activities (27,786) (33,711) (33,949) (61,084) (50,629) Net Increase/(Decrease) in Cash and Cash Equivalents 28,394 69,077 73,884 (8,521) 33,549 Effect of exchange differences 293 1,652 6,248 11,079 (8,467) Cash and Cash Equivalents at Beginning of Year 120,253 148,940 219,669 299,801 302,359 Cash and Cash Equivalents at End of Year 148,940 219,669 299,801 302,359 327,441 FINANCIAL ANALYSIS 2018 2019 2020 2021 2022 Turnover growth 10.3% 3.9% 8.4% 22.2% 14.9% Profit Before Tax Growth 63.9% 27.3% 18.7% 31.2% 16.6% Net Profit Growth 75.0% 32.4% 18.5% 27.5% 18.0% Pre-tax Profit Margin 23.1% 28.3% 31.0% 33.3% 33.8% Net Profit Margin 16.0% 20.3% 22.3% 23.2% 23.8% Return on Average Shareholders’ Equity 17.2% 19.7% 20.1% 22.2% 23.5% Return on Average Total Assets 11.8% 14.4% 14.5% 15.6% 16.2% Earnings Per Share (Sen) - Basic * 3.3 * 4.4 * 5.2 6.7 7.8 - Diluted ^ 3.3 ^ 4.4 ^ 5.2 # 6.7 # 7.8 * 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) • ANNUAL REPORT 2022 8 CHAIRMAN’S MESSAGE MANAGEMENT DISCUSSION AND ANALYSIS ANOTHER RECORD-BREAKING YEAR Financial performance Once again, Frontken achieved a record-breaking year with growth across our top and bottom lines and also cash balances. The revenue for 2022 was RM517.2 million, a double-digit growth of 15% compared to the same period a year ago due to improved contributions and strong demand from the Group’s global customers in both the semiconductor and oil and gas (“O&G“) industries. The Group’s profit before tax for the year was at RM174.8 million, a 17% increase from the preceding financial year. At the same time, our earnings before interest tax, depreciation and amortisation (“EBITDA”) also grown by 15% compared to last year. Our profit after tax (“PAT”) of RM135.2 million was also at its highest, with an increase of 18% compared to RM114.2 million recorded a year ago. 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. Dear Shareholders, Welcome to our Annual Report 2022. On behalf of the Board of Directors, I’m pleased to present to you the Annual Report and Audited Financial Statements of the Frontken’s group (the “Group”) for the financial year 2022 (“FY2022”). 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. Over the past few years, our business has shown remarkable resilience despite numerous challenges. We were able to face and overcome these challenges placed before us as a result of the dedication, capability and resilience of our excellent team of people. REVENUE (RM’000) 600,000 500,000 400,000 300,000 200,000 100,000 - Revenue and Revenue CAGR chart from FY2012 to FY2022 CAGR +11% 181,035 190,611 261,844 339,911 222,717* 296,580 368,319 250,543* 327,218 450,222 517,183 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 *Note: Excluded the one-off ATB project for a like-for-like comparison.
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2022 9 CHAIRMAN’S MESSAGE (CONT’D) 250,000 200,000 150,000 100,000 50,000 - EBITDA (RM’000) 26,112 26,106 51,685 114,835 41,544* 65,550 133,343 45,831* 93,484 193,212 168,156 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 EBITDA and EBITDA CAGR chart from FY2012 to FY2022 CAGR +22% PAT (RM’000) 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 - 4,175 465 27,286 74,228 18,685* 36,408 88,317 19,824* 57,002 135,168 114,222 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 PAT and PAT CAGR chart from FY2012 to FY2022 CAGR +42% Dividend payout in (RM) from FY2017 to FY20221 PAYOUT (RM’million) 42 26 16 5 63 661 2022 2021 2020 2019 2018 2017 - 10.0 20.0 30.0 40.0 50.0 60.0 70.0 *Note: Excluded the one-off ATB project for a like-for-like comparison. 1Note: Assuming the proposed second interim dividend of 2.6 sen per share is approved by the Company’s shareholders during the upcoming general meeting.
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2022 10 CHAIRMAN’S MESSAGE (CONT’D) Paying a sustainable dividend that commensurate with the performance of the Group is something we strive to do for our shareholders. The Company aims to continue to grow the dividend payout at a rate that reflects the growth of its business. In 2022, the Company paid a single interim dividend of 1.6 sen per share and has proposed a second interim dividend of 2.6 sen per share to be approved by its shareholders during its upcoming general meeting. This would bring the total dividend to 4.2 sen per share for the whole year, up 5% from a year ago. If approved, the total payout would amount to approximately RM661 million, representing 54% of the Group’s total net earnings in 2022. We envisage to continue with this sustainable dividend payments taking into consideration a number of factors such as earnings, financial conditions, capital commitments, acquisition related activities and reserves, among others. During the year, the Group continued to generate a positive cash flow of RM142.9 million from our business operations. The Group’s capital expenditure (“CAPEX”) for the year for property, plant and equipment was at RM52.7 million. Despite the additional cash outflows from dividend and CAPEX, the Group’s total cash balance as at 31 December 2022 remained strong at RM339.6 million. OVERALL 2022 After a break of 2 years due to the pandemic, this year, we were finally able to hold our physical executive team meetings where we reviewed individual unit’s past performances, shared updates on how each unit was doing and set targets for the future. During the year, we started seeing more activities as our operations were slowly getting back to normal and supply chain started to normalise. At the same time, our employees have started to return to the office for work and things are looking better again. Despite the pressure of higher material costs and tighter labour conditions, we were able to offset the same with improved productivity and efficiency. OUR WORKFORCE By the end of 2022, we have grew our headcounts by about 10% to 1,320 employees compared to a year ago. We place strong emphasis on developing and encouraging talent while preparing our employees for our future needs. We continued to encourage our employees to acquire new knowledge through continuous learning to enable them to stay on top of the industry trends and to remain competitive in our business. Like every other companies around the world, we strive to be an employer of choice. To that end, we will continue to invest in our people through various performance-based incentives, competitive benefits and skills development programmes that allow for advancement opportunities. During the year, we have also had the approval of our shareholders to implement the Share Grant Plan for the eligible employees of the Group. The share grants are in lieu of bonus and selected employees are given the option of whether to receive cash bonus or shares. We will continue to monitor and make the necessary adjustments to our employee’s compensation so that the same are in line with the current and industrial standards. This include having a compensation package that reflect their achievements based on meeting key performance indicators (in both qualitative and quantitative measures). We believe that it is vital to ensure that all our employees are compensated fairly for their skills and commitment. ENVIRONMENTAL, SOCIAL & GOVERNANCE (“ESG”) AND SUSTAINABILITY FOR A BETTER TOMORROW Our core priorities remained the same; which is to build a business that is strong, resilient, and sustainable. To achieve that, we incorporate strong ESG practices into our business. These good practices play an integral part in our business and hence, we take very seriously our responsibility in this area. We ensure that all our activities and processes adequately address current environmental concerns and at the same time maintaining a sustainable profit. OUR ENVIRONMENT — Our E encompasses protecting biodiversity, maintaining a clean and safe environment, and restoring climate change. We are aware of the impact of the environmental risks that companies are exposed to, from the energy we take in to the waste we produced. Therefore, our goal is to minimise any of these negative impact, with a focus on reducing carbon footprints. Realistically, we cannot stop global warming altogether, but we can play a part in slowing the rate and limiting the amount by preventing pollutions. One of our research and development (“R&D”) focuses has always been to look at areas where we can improve and make positive contributions to our environment. For example, through our efforts, since 2018, we have adopted the equivalent of 2,277,595 KW of electricity using solar energy, an accumulative savings of 307,623 tons of recycled DIwater, and accumulative savings of 381,196 kg of recycled waste in our operations. We have also set a long-term target of reducing our Emissions Intensity - the amount of greenhouse gas emissions for Scope 1, 2 and 3 by at least 50% by 2050; to stabilise emissions with the aim of peaking at around 2050; and to achieve Net Zero Emissions by 2060.
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2022 11 CHAIRMAN’S MESSAGE (CONT’D) Scrubber system in Plant 2, Taiwan For more details specifically on our environment and climate change efforts, please visit our website at www. frontken.com for the report titled “Frontken Sustainability Climate Change Report 2023”. SOCIAL — We believe that the S aspect begins within our organisation and that is our employees are to be treated fairly and respectfully. Over the years, we maintain a good health and safety track record, support zero tolerance on all form of forced labour, provide equal opportunities, encourage training and development as well as put in place various policies such as diversity and inclusion, among others. Providing a safe and healthy work environment to our employees are of utmost importance. We undertake various protection measures, accessed risks and impacts in our operations, as well as provide mitigation plans to control any potential hazards. As for COVID-19, although vaccine may significantly reduce the threat of fatality, we will continue to keep ourselves safe and maintain strict requirements in our day to day operations. We believe by promoting good morale and a happy workforce will in turn boost productivity as a whole. In 2022, we recorded an employee retention rate of 98%, achieving 105% of our target goal. Externally, we continued to engage with our suppliers, customers and other stakeholders on ESG. We ensure that we provide our customers with the best services and good selling practices. We implemented the Responsible Supplier Management Policy to ensure our procurement process is done with transparency and fairness. On our “Corporate Social Responsibilities Project”, we continue reaching out to our community and supporting those in need, whether financially or emotionally. For example, we provide internship for students from the local universities, employment opportunities to people with health conditions, impairments and that are physically challenged among others. We believe that by supporting them, targeting their needs on specific issues will help them to rebuild confidence and in turn enable them to become self-sufficient. GOVERNANCE — The Board continues to adopt and apply the principles as set out in the Malaysian Code of Corporate Governance. The Board fosters effective stakeholder relationships aligned to the Group’s purpose while maintaining its commitment to ensure that the rights of the shareholders are protected. The Board ensures that it has in place various policies and practices that are consistent with its values and with the longterm sustainable success of the Group. For example, there are established and transparent policies in relation to raising concerns about misconduct and unethical practices through its Whistle Blowing Policy which enables employees to raise matters of concern anonymously. The Corporate Governance (“CG”) Overview Statement is included in pages 48 to 55 of this Annual Report. Further policies and CG reports are also available on our website at www.frontken.com.
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2022 12 The BRC "Company of the Year" Award CHAIRMAN’S MESSAGE (CONT’D) The Edge Malaysia ESG Awards 2022 Most Improved Performance Over Three Years RM800M to RM5B Market Capitalisation Gold OTHER AWARDS AND RECOGNITION THE COMPANY OF THE YEAR BY THE EDGE BILLION RINGGIT CLUB 2022 Another significant milestone achievement by the Group was winning the prestigious award for 2022 Company of the Year by The Edge Billion Ringgit Club (“BRC”). According to the Edge methodology on selecting the Company of The Year, evaluation criteria is based on both quantitative and qualitative factors which includes best “return to shareholders over three years”, “growth in profit after tax over three years”, “return in equity over three years” and “CR initiatives”. We are humbled to receive this award and appreciate the recognition bestowed upon us by The Edge. This award means a lot to us and it is a testament to the years of hard work and dedication by our amazing team. It motivates us to work harder and to reach for greater heights. On the Groups’ sustainability goals, we benchmark our 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. To date, we are aligned with 12 out of the 17 United Nations SDGs. Our target is to achieve more if not all of these goals. In 2022, we won The Edge Malaysia ESG Awards under the category “Most Improved Performance Over Three Years”. In addition to that, we were also included in the FTSE4Good Bursa Malaysia Index and FTSE4Good Bursa Malaysia Shariah Index. This is an encouragement for us to do better and continue to pursue our long-term objectives in this area. We believe that 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 FY2022 are available at the Sustainability section of this Annual Report and the full report on our website at www.frontken.com.
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2022 13 CHAIRMAN’S MESSAGE (CONT’D) Award ceremony during The Edge Billion Ringgit Club Awards ceremony in FY2022 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. News Clipping on winning the Company of The Year. BUSINESS REVIEW SEMICONDUCTOR As announced by the Semiconductor Industry Association, the global semiconductor industry sales totalled US$573.5 billion in 2022, the highest-ever recorded and an increase of 3.2% compared to 20211. As for the Group’s business in this segment, it was also our best achievement to date with a record high revenue and PAT. Year on year, the revenue and PAT grew at 9% and 17% respectively. 1Source: SIA - https://www.semiconductors.org/globalsemiconductor-sales-increase-3-2-in-2022-despite-second-halfslowdown/ Semiconductor and Engineering revenue percentage chart for the Group in FY2022 REVENUE (%) 20% 80% Semiconductor Engineering
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2022 14 CHAIRMAN’S MESSAGE (CONT’D) Semiconductor is an essential component of electronic devices, from being used in communications, computing, education, healthcare, automotive, home appliances to countless other applications. As witnessed over the course of 3 years, the adoption of many technologies have accelerated in an unprecedented manner. Many of us have come to realise the importance of chips to the world and how many are used in our daily electronic devices. At one point, there was an unexpected surge in demand for these chips that led to the global supply constraints in the semiconductor space. However, many experts in the industry have anticipated that there would be some easing of the supply chain as a result of reduced spending coupled with inventory correction. If this happens, there is no doubt that, we like every other businesses may face challenges. Nevertheless, this may provide an opportunity for us to focus on new projects, fine tune and restructure our operations. On our R&D, we continue to work closely alongside our customers to support them as they continue to advance in the leading-edge semiconductor technology. Our team is constantly looking at new ideas or improve those that already exist, utilising more environmentally friendly materials and automate some aspect of our processes. As technology continues to advance, so will our processes. The requirement for the chamber process parts has become more and more stringent hence, the need to achieve close to zero particles contamination has become more important than ever. Our advanced precision cleaning process is complex and highly precise, involving as many as 50-60 different steps for each process. It involves heavy interplay of chemistries, iterative experimental method, and advanced metrology and spectroscopy, such as infra-red spectroscopy, nuclear magnetic resonance spectroscopy, and scanning probe microscopy. It also includes investigating chemical phenomena, studies of ground state of individual atoms and molecules, the excited states, and the transition states that occur during cleaning processes. The quality control of the end result is extremely crucial and is performed using advanced metrology systems and computerised data station. Having said that, our advanced precision cleaning process technology and consistency in end results make us, I believe, stronger than ever today. Other than growing organically, the Group continues to look for further growth opportunities and possibilities such as potential mergers and acquisitions in the semiconductor space. We will keep our shareholders up to date through our Company’s announcement once we have anything finalised. Based on internal data and conversations with our customers, we remain cautiously optimistic that the performance of this segment will be satisfactory in the coming year. Taiwan — In FY2022, AGTC once again achieved its highest ever revenue of RM347.4 million, an increase of 12% from a year ago. This achievement was attributable to the increased business from our key customers as a result of the higher demand by their end customers in the advanced technology nodes. Over the last few years, Taiwan semiconductor’s industry has performed well, fueled by growing demand due to its strong capabilities in wafer manufacturing in the leadingedge technology and its complete industry supply chain. The first phase of our new plant (Plant 2) at the Southern Taiwan Science Park, Kaohsiung was completed sometime Plant 2 at the Southern Taiwan Science Park, Kaohsiung
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2022 15 CHAIRMAN’S MESSAGE (CONT’D) towards the end of 2022. Plant 2 is fitted with advanced specialised equipment, comprehensive waste-water treatment and scrubber systems among others. We believe that our new “state of the art facility” will enable us to strengthen our position as one of the leading advanced high precision chamber parts service providers in the region for the next few years. With the new space, we will be able to improve on our existing process flow and efficiency of both of our facilities. At the same time, we will be introducing a new advanced cleaning technology that we have been working together with our customer over the last year in Plant 2. As mentioned in my statement last year on the next phase of expansion, we’re still continuing with our plan to acquire a new land and are actively looking for the same as we envisage that there will be more work from our customers in the future and that more space will be needed should Plant 2 runs out of capacity. Frontken Singapore (Plant 2), — Although the manpower shortages have alleviated, the lingering effect of COVID-19 on businesses and the slow down towards the end of the year have somewhat affected the sales of our semiconductor division in Singapore. To tackle this situation, we’ve made considerable effort such as streamlining our workforce, optimising our processes, and initiating continuous improvement project (“CIP”) or productivity programmes to help boost profitability of this unit. As part of the CIP, we continued to focus on our automation projects to ensure consistent output, increased efficiency and to be less reliant on manual labour. On our long-term plan, we will continue to work with our new and existing customers for new projects, processes and getting more parts qualification. With major wafer fabs companies announcing their capacity expansion coming on board in 2024, we believe our business will improve and that we will be able to benefit substantially in the very near future. Frontken Malaysia (“FMSB”), — FMSB which operates in Kulim, Melaka and Kuching improved marginally in their revenue and bottom line compared to a year ago primarily due to the increased in sales from our existing and new customers. The improved bottom lines were very much due to the continual cost saving efforts including various measures such as identifying inefficiencies in the production and streamlining inventories. As a result of the improved efficiencies, the overall margins have also improved slightly. The sluggishness from hard disk drive and photovoltaic continued to be offset by the new businesses we secured in the semiconductor and automotive industry. Our strategies have always been to continue developing new customers whilst qualifying new products to mitigate the impact of any possible threats. During the year, we continued to look out for further growth opportunities while defending our position as one of the largest semiconductor chamber process parts service providers in the country. The semiconductor industry, in particular foundries producing chips for the automotive segment are reportedly expanding their capacity to cater for the higher demand by their end customers. One of our customers has also announced the expansion on wide-bandgap technology by investing billions of ringgits in the Kulim Hi-Tech Park. Likewise, we have also made the necessary investment to meet the expected additional demand from our customer. Additionally, we have also seen our customer in Kuching undergoing some minor expansion and has increased its monthly output. We believe these positive outlooks would be beneficial to our semiconductor business in Malaysia. ENGINEERING DIVISION The Group’s engineering division that operates in Malaysia, Singapore, the Philippines and Indonesia captures a wide and growing set of support activities which includes providing extensive technical solutions, machining and fabrication, skilled manpower supply, specialised coating among others. In FY2022, many O&G companies enjoyed record-breaking profits as prices of crude oil soared. The global economy is also recovering rapidly from disruptions caused by the COVID-19. As a result, the Group engineering division which provide maintenance and repair services to the O&G industry saw a much improved revenue and PAT of 45% and 85% respectively compared to the year before mainly attributable to our business units in Malaysia and Singapore. Given the momentum we are seeing recently, we believe our engineering business will pick up further throughout 2023, barring any unforeseen disruptions in the O&G sector. TTES Frontken Integrated Services, — Our business in this unit has grown exceptionally well compared to the year before. Despite stiff competition and cost pressure, the ability to adapt and make changes to our business strategies as well as selective CAPEX investments yielded a strong result.
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2022 16 During the year, we expanded our O&G business footprint in Malaysia with the opening of our new facility in Pengerang, Johor to support the Petronas Refinery and Petrochemical Integrated Development (RAPID) and Pengerang Integrated Complex. Subsequently, we saw work orders flowing in and increased contribution from this new facility. We will continue with our selective capital investments, collaboration with strategic partners and adding supplementary technical capabilities such as mechanical seals and valves services and minor fabrication works. Our long-term plan is to maximise our new assets, participate in broader scope of works, and further expand human capital investment and capabilities to drive asset performance and revenue across our operating units. By leveraging on the Group’s engineering resources, optimisation, and partnerships with selective suppliers, we have successfully embarked on new opportunities and expedite deliveries of works. We will continue to develop strategic collaboration partners that supplement our inhouse capabilities, scope of services and products, and participate in broader work categories, new products, full reverse engineering works, and large CNC machining in Malaysia. Our aspiration is to be the most sought after, reliable and efficient one-stop service centre for O&G companies, covering all aspects of customers’ maintenance needs, EPCC and turnaround supports. Frontken Singapore (Plant 1), — During the year, we achieved a much-improved financial performance as a result of recovery of the O&G and petrochemical sector and the continual engagement in seeking new opportunities in different areas. Subsequently, we saw a big turnaround in the bottom line of this unit in that it has finally turned positive after many years of losses. Despite facing competitive pricing pressure, shortage of skilled labour and soaring electricity bills, we were able to overcome these hurdles by improving the utilisation of our resources and cross training our skilled employees to enhance production efficiency. The significantly lower cost base from operational changes made three years ago also helped to improve our earnings. We have seen increased activities for thermal spray process from our regular customers as well as contract manufacturers, an indication of more opportunities ahead. Activities for rotating equipment such as compressors, blowers, static component etc from petrochemical complexes in Jurong Island are also expected to increase with upcoming planned shutdowns as we see work orders coming in from our customers. CHAIRMAN’S MESSAGE (CONT’D)
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2022 17 We are also collaborating with a new customer to provide spare parts, complete component management, rotor inspection and repair services. For rotating equipment activities, the balancing process will be central to most of the projects undertaken in this area. Additionally, we also saw an increase in frequency of enquiries from the contract manufacturers such as in the electronics sector, an area we can further explore. Frontken Philippines, — The Group’s operation in the Philippines achieved a revenue of RM13.9 million and an operating profit of RM2.0million. Although this is not our best ever performance, it is still a creditable set of numbers considering the operational challenges we faced coupled with reduced business from one of our customers, the only O&G offshore facility in the Philippines. The rising inflation rate in the Philippines that peaked to 8.1% in December 2022 from 3.6% the same time a year ago did not help with our cost as well. Understanding these challenges, we have worked to develop other revenue streams from the target segments that we have identified namely from the power generation, water utilities, manufacturing, mining and cement industries. Considering that these segments produce essential goods, the focus is to establish the same service provision such as the repair centre and manpower call-off contracts. Also, we have continuously put emphasis on improving the competency among our personnel. Cross-training programmes for skilled personnel were implemented to maintain our value-add services to the customers we serve. The simplification of the process, procedures and workflows further improved the efficiency as turnaround times were quicker for the repair works to be completed. The team established inspection and hold points throughout the process to ensure that we maintain the quality whilst improving delivery lead times. The new Vertical Lathe Machine that was purchased in 2021 was fully operational by Q1 of 2022 and has secured additional work for the power industry restoring diaphragms and large-size equipment. During the year, we have also purchased an additional Cold Metal Transfer machine and expect to utilise the same by Q2 of 2023 for both inhouse and onsite works to further enhance our capabilities and improve the lead times of the repair activities. OUTLOOK In the year ahead, like all of you, we too have read that there may be many difficult headwinds created by, among other things, the high inflation rate. Although the negative effects of COVID-19 are slowly ebbing, the ongoing conflict in Europe and trade tension continues. Uncertainties have never been good for business, and we believe we will not be spared. Having said that, we are fortunate to be in the service industry where negative impact, if any, from global economic slowdown will not be too severe on us. We will not rest on our laurel and plans are at foot for us to make changes swiftly should the worst happen. In the face of these challenges, we continue to take a long-term view of the industry and our business, which we believe is still intact. The combination of our strong brand, capabilities, strategies and great team will allow us to look to the future with confidence. I am proud of what we have achieved in the past year and I am confident that we are well-positioned to deliver further success in the future. We remain cautiously optimistic of our business and our abilities to deliver. APPRECIATION This financial result does not happen by chance but rather through the hard work and dedication of everyone in the Group and therefore, I would like to extend my heartfelt thanks to all my colleagues for their relentless sacrifices and commitment during the year. I would also like to take this opportunity to thank our Board of Directors for its continuous guidance, strategic advice and steadfast support throughout the year. We are extremely thankful to our customers that have continually shown their confidence in us by giving us their support, 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 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. CHAIRMAN’S MESSAGE (CONT’D)
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2022 18 FINANCIAL REVIEW REVENUE The Group reported higher revenue of RM517.2 million against RM450.2 million of last year, an increment of 15% which is mainly due to robust semiconductor industry and improvement in our oil and gas business. This was the highest ever revenue achieved in the history of the Group. RESULTS OF OPERATIONS in RM’000 REVENUE 450,222 517.183 15% 2021 2022 NET PROFIT 104,504 123,292 18% 2021 2022 149,866 174,790 PROFIT BEFORE TAX 17% 2021 2022 168,156 193,212 EBITDA 15% 2021 2022 114,222 135,168 PROFIT AFTER TAX 18% 2021 2022 37.3% 37.4% EBITDA MARGIN 0.1% 2021 2022 REVENUE 2022 2021 % change (by customer location) RM’000 % RM’000 % in revenue Taiwan 337,556 65 303,561 67 11 Malaysia 86,983 17 63,227 14 38 Singapore 55,959 11 48,278 11 16 Others 36,685 7 35,156 8 4 Total 517,183 100 450,222 100 15
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2022 19 The free cash flow increased from RM56.0 million to RM90.2 million in FY2022 mainly due to higher cash flow generated from operating activities and lower capital expenditure, a decrease of RM30.2 million, compared to the preceding year. The net cash inflow from operating activities for FY2022 increased to RM142.9 million. The net cash outflow for financing activities of RM50.6 million in FY2022 was mainly due to higher dividend payment, an increase of 22%, to reward our shareholders. Net cash used for investing activities decreased from RM86.2 million in the preceding year to RM58.7 million in FY2022 due to lower capital expenditure. The Group cash and cash equivalents increased from RM302.4 million to RM327.4 million as at the end of FY2022. FINANCIAL POSITION The Group’s shareholders’ fund improved from RM500.9 million as at 31 December 2021 to RM548.5 million as at 31 December 2022, an increase of 10%. The Group’s total assets as at 31 December 2022 was RM805.8 million, an increase of RM87.2 million or 12% from RM718.6 million a year ago. As at 31 December 2022, the Group’s property, plant and equipment was RM229.3 million, an increase of RM31.5 million. The cash and bank balances increased by RM67.7 million to RM317.4 million as at 31 December 2022. The Group’s liabilities of RM217.9 million as at 31 December 2022 were higher by RM34.3 million or 19% compared to last year. The increase in lease liabilities was due to the expansion of production facility in Kaohsiung, Taiwan and the money market loan was for the working capital of a subsidiary in Singapore. FINANCIAL REVIEW (CONT’D) An analysis of revenue by customer location showed growth in our business particularly in Taiwan, Malaysia and Singapore. Our Taiwan semiconductor business continued to benefit from the higher demand in the semiconductor space. The improvement in the Group’s local business was largely due to pick-up in orders for its maintenance and repair services of mechanical rotating equipment and manpower supply through its various contracts that it has with Petronas Group of Companies. Our engineering division in Singapore also saw an increase in activities partly attributable to the improvement in the oil and gas industry. EARNINGS The Group’s earnings before interest, tax, depreciation and amortisation (“EBITDA”) for FY2022 was RM25.1 million or 15% higher than that achieved in the preceding year mainly due to improved revenue and strict cost management. Against the same period last year, the profit after tax increased by RM20.9 million (18%). The performance would have been better if not for the slight delay in the qualification of our new facility at Kaohsiung City, Taiwan (“Plant 2”). If the Group were to exclude Plant 2 operational cost, the foreign currency exchange and the withholding tax impact from the equation, for a like-for-like comparison, the current year performance would have been 26% better than the preceding year The consolidated net profit attributable to shareholders of the Company for FY2022 increased by RM18.8 million or 18% compared to the preceding year. This increased the basic earnings per share to 7.8 sen from 6.7 sen in the preceding year. CASH FLOWS in RM’000 242,321 277,883 NET CASH 15% 2021 2022 55,971 90,238 FREE CASH FLOW 61% 2021 2022 82,830 52,660 CAPITAL EXPENDITURE 36% 2021 2022 299,439 319,727 WORKING CAPITAL 2021 2022 7%
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2022 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 57, Male, Malaysian • Appointed to the Board on 10 April 2006 • Member of Remuneration Committee DR TAY KIANG MENG Executive Director / Chief Scientist / Chief Sustainability Officer • Aged 58, Male, Singaporean • Appointed to the Board on 10 April 2006
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2022 21 BOARD OF DIRECTORS’ PROFILE (CONT’D) 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. Gerald Chiu Yoong Chian holds a BA (First Class Honours) in Engineering and Master’s in Engineering (with distinction), both from the University of Cambridge, United Kingdom. He joined Dymon Asia Capital in 2012, helped establish Dymon Asia Private Equity (“DAPE”), and is a member of DAPE’s investment committee. DAPE is focused on making private equity investments in Small and Medium Enterprises in South East Asia, and aims to contribute both capital and expertise to the companies it invests in. DAPE’s current funds are Fund I (SGD300 million), Fund II (USD450 million) and Fund III (USD650 million). DAPE has offices in Singapore, Malaysia and Thailand, and has invested in 27 companies/exited 8 companies across these geographies. 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 Independent Non-Executive Director • Aged 57, Male, Malaysian • Appointed to the Board on 31 July 2019 • Chairman of Audit Committee and Remuneration Committee, Member of Nomination Committee GERALD CHIU YOONG CHIAN Non-Independent Non-Executive Director • Aged 49, Male, Singaporean • Appointed to the Board on 31 July 2019 • Chairman of Nomination Committee, Member of Audit Committee
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2022 22 BOARD OF DIRECTORS’ PROFILE (CONT’D) Koh Huey Min is a Fellow Member of the Chartered Institute of Management Accountants and a member of the Malaysian Institute of Accountants. She has more than 30 years of experience in finance, accounting, tax, treasury fields, marketing, business development, property investment and development and shopping complex operations. She was an Executive Director of Berjaya Assets Berhad (“BAssets”) from 23 June 2017 to 31 August 2021. Prior to that, she was attached to PricewaterhouseCoopers and subsequent to that, she worked in Hong Leong Group of Companies as an Accountant. She joined Berjaya Times Square (“BTSSB”), a wholly-owned subsidiary of BAssets in March 1994 as the Head of Finance and Admin. She was appointed as an Executive Director of BTSSB from 8 January 2013 to 31 August 2021. She anchored the overall property development and investment division and also managed the overall operations of Berjaya Times Square Group. She also held directorships in various subsidiaries of BAssets. Currently she is an Independent Non-Executive Director and a member of the Audit Committee, Nomination Committee and Remuneration Committee and Risk Management Committee of Scientex Packaging (Air Keroh) Berhad. She has no family relationship with any other Directors or major shareholders of the Company. She has not been convicted of any offences within the past five years. She has no conflict of interest with the Company. KOH HUEY MIN Independent Non-Executive Director • Aged 57, Female, Malaysian • Appointed to the Board on 1 December 2021 • Member of Audit Committee, Nomination Committee and Remuneration Committee
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