Hai-O is a Malaysian group of companies that operates multi-level direct marketing of health food, healthcare, wellness and beauty products. Hai-O Group of Companies' ("the Group") other activities also include wholesaling and trading in herbal medicines and healthcare products, herbs and tea, operating retail chain stores, as well as manufacturing, producing and distributing pharmaceutical products and health food. Today the Group has also diversified into other industries that involved leasing of machinery and equipment, licensed money lender, insurance agent, advertising services, rental income, trading of clocks and investment holding. All of its operations are carried out predominantly in Malaysia.
Company's Overview
Established in 1975, Hai-O has become a famous household name in Malaysia. The Company originally offered a wide range of Chinese medicines, medicated tonic and health care products. Much later, the business grows into Hai-O Group of Companies and was successfully listed on the second board of Bursa Malaysia Securities Berhad in 1996. The principal business of the Group involves wholesaling, retailing, multi-level marketing, pharmaceutical manufacturing and modern Chinese Medicinal Clinics. Hai-O was the first traditional healthcare company on the stock exchange. And in 2007, the Group was successfully transferred to the main board of Bursa Malaysia. Expert in its niche, Hai-O has managed to build extensive and efficient distribution network and strong marketing strategies for the past three decades.
The Group is also known for promoting integrated health services by combining the traditional Chinese medicine ("TCM") clinic services and the effective non-decocted Chinese herbal with their existing retail stores. The TCM clinic services were provided in collaboration with the joint venture partner, Beijing Tongrentang Co Ltd.
History of Hai-O
Hai-O Enterprise Bhd. founder and managing director Tan Kai Hee was an assistant secretary-general of the Labour Party in 1960s when he was arrested under the Internal Security Act (ISA). He was 28 years old and was detained for eight years from 1965 to 1973. While many ex-prisoners have been silenced by the ISA detention and disappear from the public, Tan has showed his irrepressible fighting spirit and optimism. After failing to find a stable job for two years upon his release, he organised 80 ex-comrades to venture into the China trade by setting up Hai-O in 1975. Tan borrowed RM5, 000 from his former employer to start Hai-O with an initial capital of RM168, 000. All the 80 members were socialists, thus it was well-received that no one was allowed to control or to dominate the company. They work together as equal and their first customers were among friends and supporters. All of the 80 members were living in Klang and soon word of mouth has brought the business up in the Klang area. During the first years, none of them got paid. Nevertheless, they worked hard and take the business seriously as a full time job. They were all by then family - worked, cooked and ate together. It was enough to survive at that time. It is of this spirit and strong belief that the Group was able to break even within the first year. All of the important historical and inspiring success happened itself in 1975, the first year Hai-O was introduced.
Awards and Recognitions
Since Hai-O was introduced, the Group has successfully earned many awards for their remarkable performance. These recognitions are not only awarded to the parent company but also the top performing subsidiaries, namely the Hai-O Raya Bhd and Hai-O Marketing Sdn Bhd. In addition to being a reward of the Group's hard work, these recognitions have also helped in instilling the confidence of investors as well as the customers to continue supporting the brands and their business. Awards and recognitions received by Hai-O Group are:
Hai-O Enterprise: "Best Small Capitalisation Company (Malaysian Corporate Governance Index 2009)" - by Minority Shareholder Watchdog Group (MSWG)
Hai-O Enterprise: "Best Return to Shareholder Category First Runner Up Award" - by Malaysian Business CIMA Enterprise Governance 2009
Hai-O Enterprise: "Best Under a Billion Award" - by Forbes Asia 2009
Hai-O Enterprise: Ranked no. 6 in Top 100 Listed Company In Terms of Shareholder Values Creations 2008 - by KPMG and The Edge
Hai-O Enterprise: "Best Under a Billion Award" - by Forbes Asia 2008
Hai-O Raya: "The Brand Laureate 2008-2009" - under the Product Branding for Traditional Chinese Medicine category
Hai-O Marketing: "Malaysian Business Ethics Excellence 2008" - recognition certificate by Ministry of Domestic Trade and Consumer Affairs
Hai-O Raya: "Malaysian Business Ethics Excellence 2008" - recognition certificate by Ministry of Domestic Trade and Consumer Affairs
Hai-O Enterprise: "Best Under a Billion Award" - by Forbes Asia 2007
Hai-O Marketing: "Outstanding Contribution Towards Developing Bumiputra Entrepreneurs 2007" - recognition certificate by MECD
Hai-O Raya: "Superbrand" - 2003/2004
Hai-O Raya: "Malaysian Book of Records: Greatest Number of Traditional Healthcare Chain Stores in Malaysia 2001"
Hai-O Raya: "Golden Bull Award: Malaysia's Top 100 Outstanding SMEs 2003"
Hai-O Raya: "Enterprise 50" - by SMIDEC and Deloitte 2003
"Top Malaysian Small Cap Companies (100 Jewels 2007)" - by OSK Investment Bank Bhd
Hai-O Marketing: "13 Years Membership with Direct Selling Association Malaysia 2007"
"Diamond Club Award" - for Excellent Performance 2002, 2003, 2006
GMP Status and ISO: 9001certification by SG Global Biotech Sdn Bhd
U.S. FDA Facility Registration certificate by SG Global Biotech Sdn Bhd
Vision, Mission and Corporate Values
Emphasised on the tagline: "Turning Challenges Into Opportunities..." the Group's vision reads: "We aim to become the premier healthcare company in Malaysia and thereby bringing the greatest value and pride to our customers, business partners, employees and shareholders." This explained that their vision of being the leading healthcare company are much focused on delivering value to each key element that make up their business, internally and externally.
Hai-O has strived over 30 years to take the brand name beyond the image of Chinese medicine. The Group genuine interests in healthy culture boost their spirit to promote human's well-being. The Group's mission statement reads: "We are committed to promoting healthcare culture and improving human's well-being.
Hai-O is a Mandarin word for seagull. The Group incorporated its corporate values in the word seagull itself which image is embedded in the Group's company logo. Their 7 core values are:
Social responsibility; Hai-O strives to repay the society by helping its deserving members through actions and monetary support.
Excellent service; Hai-O strives to delight its customers beyond their expectations through excellent quality products and superior service.
Attitude; Hai-O strives to maintain a positive attitude in every dimensions of the business at any circumstances it faces.
Unity; Hai-O strives to unite its organization as one big family in Malaysian culture of different races to achieve its goals in the challenging business world.
Growing; Hai-O strives to capitalise on its competitive advantage and knowledge to remain at the forefront of time to ensure continuous improvement and growth.
Loyalty; Hai-O strives to be loyal to its business partners and its commitment to bring good results to the customers as well as the shareholders.
Learning; Hai-O strives to build a knowledge-based working environment by pulling its resources together to achieve its goals to educate consumers on healthcare and also to contribute to the research and development in the biotechnology and pharmaceutical science.
Figure 1: Hai-O Company Logo
Image source: Adapted from http://en.hai-o.com.my
Strategy
The Group has established Hai-O Marketing Sdn. Bhd. in 1992 and its business, operating multi-level direct marketing of health food, healthcare, wellness and beauty products has been the Group's principal activity since. Although the business first started with wholesaling and trading in herbal medicines, the Group's strategy in marketing its product through multi-level marketing plan has boost the business substantially. Nevertheless the Group fundamental strategies throughout the entire traditional Chinese medicine business remain in three main criteria that are choosing the right product, targeting the Bumiputra segment and venturing abroad.
Hai-O sources the raw materials for its product from the main land China. Products from China are plentiful but Hai-O is committed to only choose the right ones to bring into its product line. Only importing patented products approved by the Ministry of Health, the Group built its clients' trust by selling genuine quality products at fair price and give them the Hai-O branding. Links to China were then further consolidated in 2002 when the Group joined hands with Peking Tongrentang, a renowned company that has a 338-year history, famous for providing health practitioners for the emperor during the Qing dynasty. The Group also signed a sole distributorship agreement with Yunnan Baiyao Group Co Ltd, a traditional Chinese medicine manufacturer in 2007.
Since the setting of its multilevel marketing ("MLM"), Malay consumers constitute a significant portion of its customer base and sales force, resulting a notable transformation for Hai-O. The MLM concept is working very well for Hai-O where the Malay consumer market is significant. The star performer product among the Malay consumer is the "Pur Er" tea which is regarded as a wonder tonic with numerous health benefits ranging from removing toxins to improving blood circulation. Gaining prominence among Malay consumers has changed the Group's image from previously a mainly Malaysian Chinese clientele. As a result, the brand is more accessible and well received by other citizen in Malaysia.
Recognizing the power of traditional medicine has on the today's healthcare industry, the Group decided to take the business abroad by penetrating the populous and lucrative markets of Indonesia and China. A joint venture company has been set up in Jakarta and has started business in August 2009. As for China, the Group is in the midst of obtaining the necessary rights and licences to promote Malaysia's traditional medicines and health products such as Tongkat Ali, and Kacip Fatimah in its local market. Venturing into the international market is a strategy that the Group hope will help to expose their brand even further as well as promote traditional Chinese medicine to a higher level. In addition to having the right strategy, the Group has disposed its non-core businesses to improve operational efficiency. And the non-performing retail stores have been shut down and more retail stores are open in other strategic locations.
Corporate Structure
Figure 2: Hai-O Corporate Structure
Source: http://en.hai-o.com.my
Wholesale Division
The wholesale division is the second largest contributor to the Group. They have secured exclusive agency rights for importing and distributing of more than two hundred branded products from China under the company names Hai-O Medicine Sdn. Bhd., Kinds Resources Sdn. Bhd., Grand Brands (M) Sdn. Bhd., Chop Aik Seng Sdn. Bhd. and Vintage Wine Sdn. Bhd. These products include a wide range of traditional Chinese medicines, teas and wines that are distributed through a multi-distribution channels that provide broad access to Chinese medical halls, hyper/ supermarkets, convenience stores, restaurants and retail outlets.
Direct Selling Division
The direct selling division, also known as the MLM division has been the fastest growing segment since it is first introduced in 1992. Operating under the company name Hai-O Marketing Sdn. Bhd., the division has been leveraging on a strong partnership with its distributors and has emerged as a leading local direct selling company. With the product mix ranging from healthcare to household products, Hai-O Marketing Sdn. Bhd. are now serving a distributorship of over 34,000 through more than 50 distribution centres throughout Malaysia. Hai-O Marketing Sdn. Bhd. also owns a subsidiary company, PT Hai-O Indonesia which took up a 60% stake in a joint-venture company with an Indonesian partner which has started business in August 2009, selling products manufactured from Malaysia.
Retail Division
The Group has over 60 chain stores in major cities and towns across Malaysia that carry an extensive range of traditional Chinese medicines ("TCM"), teas, wines and other healthcare products. Operating under the company name Hai-O Raya Berhad, the Group also owns retail counters in some of major supermarkets namely Carrefour and AEON Jusco. These outlets are staffed by professional herb masters who provide consultations on herbs and TCMs. Hai-O Raya Berhad also provide a franchise program for entrepreneurs who have great interests in operating a professional TCM store. In addition, the Group has also expanded into integrated clinical service in TCM in 2002 under the company name, Peking Tongrentang (M) Sdn. Bhd, a joint-venture between Hai-O and Beijing Tongrentang Co Ltd, the largest producer of traditional Chinese medicine in China. Also operating under the retail division, Hai-O Polaris (M) Sdn. Bhd. is another subsidiary company that offers extensive traditional Chinese medicine products and services.
Manufacturing Division
Realizing the importance and the fast growing demand of traditional Chinese medicine in the country, the Group made a decision to open up its own pharmaceutical manufacturing plant in 1994. Operating under the name SG Global Biotech Sdn. Bhd., the plant was the first traditional medicinal plant to comply with Good Manufacturing Practice ("GMP") standards in Malaysia. Furthermore, its commitment to quality has been rewarded with ISO 9002 in 1999 and ISO9001: 2000 in 2002. With the core businesses of producing and processing of herbal natural medicine, food supplements, and health products, the Company is also actively involved in various research and development activities. The process includes using herbs as raw material and readymade medicines based on well-known formula. SG Global has been sharing its technology and know-how with China and local counterparts of Malaysia. In addition to the promising future of the research and development area in the traditional medicine, the Group extended its operation into another subsidiary focusing on laboratory research to ensure high quality and innovation in its products. QIS Research Laboratory Sdn. Bhd. is established to provide a full service of analytical laboratory, offering a wide range of testing services in the areas of the microbiology and chemical analysis in traditional medicine and food products. The laboratory is run by a team of qualified chemists, micro-biologists and well experienced supporting staff. QIS Lab is accredited to ISO 17025 by the Department of Standard Malaysia ("DSM") under the Ministry of Science and Technology, Malaysia.
In the past years, the Group has also ventured in several other business segments. Operating under the company name Seagull Advertising Sdn. Bhd., Hai-O Credit and Leasing Sdn. Bhd., Sri Pangkor Credit and Leasing Sdn. Bhd., Hai-O Energy (M) Sdn. Bhd. and Hai-O Properties Sdn. Bhd., the Group is also involved in leasing of machinery and equipment, licensed money lender, insurance agent, advertising services, rental income, trading of clocks and investment holding.
Corporate Governance
The Board of Directors of Hai-O Enterprise Berhad ("the Board") recognises the importance of the Malaysian Code of Corporate Governance which sets out the principles and the best practices on corporate governance. In line with this, the Board commits to ensure that the principles of corporate governance are practiced and observed throughout Hai-O Group in order to ensure that the operations are conducted with integrity and professionalism to safeguard shareholders' investment and enhance shareholders' value.
Composition of the Board
The Board currently consists of eight members, comprising of three Executive Directors and five Non-Executive Directors, of who four are Independent Directors. This composition complies with the Listing Requirements of Bursa Malaysia Securities Bhd. that one-third (1/3) of the Board are Independent Directors.
The functions of Executive and Non-Executive Directors are separate and clearly defined. The Executive Directors are to manage the Group's daily operations and to implement the operational and corporate decisions while the Non-Executive Directors are to provide the Company with unbiased, independent views and decisions.
The formulation of the Group's strategies and policies are made up from the combination between the expertise of the Independent Non-Executive Directors and the knowledge and experience of the Executive Directors. Where a potential conflict of interest may arise, it is a mandatory practice for the director concerned to declare his interest and abstain from the decision making process.
The same formula adapted to the responsibilities between the Chairman and the Managing Director in maintaining a balance of authority and accountability. The Chairman provides overall leadership to the Board, without limiting the principle of collective responsibility for Board's decisions while the Managing Director, has the principal responsibility to formulate the business strategies and to implement the corporate decisions as well as to manage the overall business operations. The Board's composition represents a mix of knowledge, skill and expertise relevant to the activities of the Group.
The Board meets at least once every three months. As for the appointment and re-election of directors, the Board has delegated the Nomination Committee with the necessary responsibilities. The committee that comprises of Independent, Non-Executive Directors is responsible to identify and select potential new directors and proposing to the Board the appointment of new Directors.
The Board acknowledges that continuous education is critical for its members to gain insight into the state of economy, technological advances, regulatory updates and management strategies. Thus all the Directors of the Company have completed the Mandatory Accreditation Programme ("MAP") in accordance with the Listing Requirements of the Bursa Malaysia Securities Bhd. The Directors will continue to undergo other relevant training programmes and the Continuing Education Programmes ("CEP") to further enhance their knowledge in the latest statutory and regulatory developments as well as to keep abreast with developments in the business environment to enable them to discharge their responsibilities more effectively.
Directors' Remunerations
The Board has set up a Remuneration Committee whose members are majority Non-Executive Directors. The committee ensures the remuneration package of the Executive Directors is based on the Group's results and the individual director's performance. The committee meets as and when required to determine all aspect of remuneration and terms and conditions of service of the Executive Directors. The level of remuneration is structured to motivate the Directors to run the Group successfully. The determination of the remuneration of Non-Executive Directors is a matter for the Board as a whole. The Directors' fees, both Executive and Non-Executive are approved by the shareholders at the Annual General Meeting ("AGM").
Shareholders and Investors
The Board recognises the importance of the right of shareholders, stakeholders and general public to be well informed on the activities and performance of the Group. Hence, the Group has maintained an active and constructive communication policy that enables the Board and management to communicate effectively with its shareholders. The Group's website www.hai-o.com.my is one of the channels for corporate information that helps shareholders and investors make their own evaluation and investment decision.
All shareholders are invited and encouraged to attend the Group's AGM and to participate in the proceedings. Shareholders are also informed and invited to attend any Extraordinary General Meetings through circulars and notice of meeting whenever it occurs.
Accountability and Audit
The Board has set up an Audit Committee to assist in ensuring that the annual financial statements of the group are drawn up in accordance with the requirements of the applicable approved accounting standards in Malaysia, the provisions of the Companies Act, 1965 and the Listing Requirements of Bursa Malaysia Securities Bhd.
The committee is also responsible in establishing transparent and appropriate relationship with the group's internal and external auditors. The Board acknowledges the importance of financial controls, operational and compliance controls as well as risk management. Thus the internal control system is designed to manage the risk of failure to achieve business objectives.
Board of Directors
The names and positions of Hai-O Enterprise Berhad's executive officers (as of February 17, 2010) are listed below:
Table 1: Hai-O Board of Directors
Name
Position
Y. Bhg. Tan Sri Osman S. Cassim
Chairman, Independent & Non-Executive Director
Tan Kai Hee
Managing Director - Non-Independent Director
Datin Sunita Mei-Lin Rajakumar
Independent & Non-Executive Director
Tan Keng Song
Executive Director - Non-Independent Director
Chia Kuo Wui
Executive Director - Non-Independent Director
Y. Bhg. Dato' Abdul Rani Bin Mohd Razalli
Non Independent & Non Executive Director
Lim Chin Luen
Independent & Non-Executive Director
Quek Ah Ba
Independent & Non-Executive Director
Source: Adapted from http://en.hai-o.com.my
Profile of the Board of Directors
Y. Bhg. Tan Sri Osman S. Cassim
(Chairman, Independent & Non-Executive Director)
Tan Sri Osman attended Anderson School, Ipoh and later graduated with a Bachelor of Arts (Honours) from University of Malaya in Singapore. In 1970 and 1984, he attended the Advanced Management Programmes conducted respectively by the New Zealand Administrative Staff College, Wellington and the Harvard Business School in Boston. Tan Sri Osman has extensive experience in the public sector having served as a member of the Malaysian Administrative and Diplomatic Service for 30 years. Among the posts he held during this tenure were Secretary-General in the Ministry of Labour, the Ministry of Information, and Ministry of Home Affairs. Tan Sri Osman served as Director-General of the Public Services Department Malaysia from 1980 until 1985. Later, he was appointed National Executive for Malaysia and Brunei of the General Electric Technical Services Co. Inc. (USA) and subsequently in 1988 as National Advisor to the General Electric International (USA) until 1993. He is a member of the Court of Fellows of the Malaysia Institute of Management and is currently its Vice President. Tan Sri Osman had served as a board member and chairman of Southern Bank Berhad since October 1990 up to his retirement on 18 February 2005. He was appointed to the Board and as Chairman on 31 January 2005. Tan Sri Osman is also Chairman of the Nomination Committee and Remuneration Committee.
Tan Kai Hee
(Managing Director, Non-Independent Director)
Mr. Tan Kai Hee is one of the founders, main policy and decision-makers of the group. Mr. Tan has more than 33 years of commercial experience in the trading business. He attended China Market Study Tour Program conducted by Beijing International MBA at Peking University in August 2006. Mr. Tan is also an active social worker for the past 35 years. He is the founder of the Malaysia-China Friendship Association (PPMC: Secretary-General), Malaysia - China Medicine & Health Product Association ("MCMHPA": President), Malaysia - China Chamber of Commerce ("MCCC": Honorary President) and Malaysia Ru - Shang Social Association (Honorary Treasurer). In addition, he is the Trading Services Chairman of the Malaysia China Business Council ("MCBC") and the Advisor of the Federation of Chinese Physicians and Medicine Dealers Association of Malaysia ("FCPMDAM"). He also holds directorship in Hai-O Raya Bhd., and several private limited companies. He was appointed to the Board on 30 August 1975. He is a member of the Remuneration Committee and Investment Committee. Mr. Tan is the father of Ms. Tan Keng Song, who is also the Executive Director of Hai-O Enterprise Bhd.
Datin Sunita Mei-Lin Rajakumar
(Independent & Non-Executive Director)
Datin Sunita graduated with a Bachelor Degree in Law from University Bristol, United Kingdom in 1990. She is also qualified as a Member of Institute of Chartered Accountants of England and Wales in February 1994. She was an Audit Manager in Ernst & Young, London for 4 years. Subsequently, she joined RHB Sakura Merchant Bank, Kuala Lumpur as a Manager. In 2000, she was appointed as the Vice President of Corporate Finance in Petra Technologies and Director of Corporate Finance in Southern Plastic. Datin Sunita was also appointed as the Venture Capital Consultant in MIMOS Berhad until 2002. Currently she is the Director/Principal and Fund Manager of Artisan Encipta Ltd, Bermuda. She was appointed to the Board on 5th January 2009. She is a member of the Audit Committee.
Tan Keng Song
(Executive Director - Non-Independent Director)
Ms. Tan Keng Song graduated from University of Western Australia in 1997 with a Bachelor Degree in Commerce, majoring in Management and Marketing. Prior joining Hai-O, she was a Business Development Executive in one of the leading automobile corporation in Malaysia, UMW Group and in charge of System Development and Training for 3 years. She joined Hai-O Raya Bhd. on 12 June 2000, as MIS Executive in charge of Point of Sales and Management System ("POS") for all the retail outlets throughout Malaysia. On 1 January 2001, she was promoted as Group MIS Executive, in charge of group IT and MIS division. Currently she is assigned as the group Office Support and Service Manager leading the Business Administration, Human Resource and Management Information System of Hai-O Group. She was appointed to the Board on 26 December 2001 and is a member of the Investment Committee. She also holds directorship in several private limited companies. Ms. Tan Keng Song is the daughter of Mr. Tan Kai Hee, the Managing Director of Hai-O Enterprise Bhd.
Chia Kuo Wui
(Executive Director - Non-Independent Director)
Mr. Chia Kuo Wui graduated with a Bachelor of Commerce, Accounting from Curtin University Western Australia in 2001. He obtained a Charles Stuart University Master of Business Administration from Help University College Kuala Lumpur in 2006 and joined Hai-O Corporate Planning and Investor Relation Department. He held key positions in several Hai-O Group of companies. He also holds directorship in several private limited companies. Mr. Chia Kuo Wui was appointed to the Board on 14 November 2008.
Y. Bhg. Dato' Abdul Rani Bin Mohd Razalli
(Non Independent & Non Executive Director)
Dato' Abdul Rani obtained his Senior Cambridge Certificate in 1952. Later in 1953, he joined the Government Service and was attached to the Government Royal Custom & Excise, Malaysia for 32 years. He retired from Government Service in 1985 as the Deputy Director General of Customs, Malaysia. Later, he ventured into commercial business in the fields of warehousing, freight forwarding, transportation, shipping agency and manufacturing as well as acting as advisor and consultant. He also sits on the board of several other private limited companies. He was appointed to the Board as Executive Director on 4 January 1995 and was re-designated as Non Executive and Non Independent Director on 16 June 2003. He is a member of the Investment Committee.
Lim Chin Luen
(Independent & Non-Executive Director)
Mr. Lim Chin Luen was involved in the dealing of Chinese traditional medicine and
herbal product business for more than 15 years. He also operates his own nourishing food and noodles stores in Singapore. He was appointed to the Board on 16 December 1997. Mr. Lim is a member of the Remuneration Committee, Audit Committee and Nomination Committee.
Quek Ah Ba
(Independent & Non Executive Director)
Mr. Quek Ah Ba has worked as an Accountant and Operational Manager in various organisations and has served two of the Securities firms, Noone & Co Sdn Bhd (1980-1983), and C.S. Securities Sdn Bhd (1986-1989). Mr. Quek became a member of Australia Society of Accountants (A.S.A.) in 1973. He is also an associate member of CPA (Australia). He was appointed to the Board on 26 December 2001 and he is also Chairman of the Audit Committee and a member of the Nomination Committee.
