MY FELLOW SHAREHOLDERS,
On behalf of the Board of Directors, It is my pleasure to present the Annual Report of AFFIN Holdings Berhad (the Group) for the financial year ended 31 December 2009.
The year under review was a challenging one for the Group. However, the Group was still able to chalk up another year of respectable profitability in spite of the challenges of intense competition, continuing liberalization and a more challenging business and economic environment. The 2008 financial crisis had caused financial markets to experience significant volatility which in turn affected the broader economy in most part of 2009. Despite the crisis and its resultant impact on the local business environment, the Group’s core business activities and long term prospects remain positive. Malaysia’s population is growing, young and urbanizing; the economy is fastly developing, diversifying and while still trade dependent, is supported by valuable commodity exports in the form of petroleum and palm oil. Financial services remain a developing market, but above all, we believe the execution of our business model allow us to provide a discernible difference in elevating the standard of financial service in Malaysia.
In the short term, we will reflect on the current business environment and continue to be prudent at this time and to re-examine our fundamentals for managing risks to support growth in the future.
While we embrace change, we believe change has a positive take on possibilities. Through change, our walk becomes a journey. The Group has undertaken various new initiatives such as rebranding and strengthening of our human capital through implementing new and dynamic systems and technology that will further enhance our operations and project the Group as a vibrant and dynamic organization.
YEAR 2009 GROUP RESULTS
The Group achieved respectable results overall, reporting a consolidated Profit before Tax of RM497.2 million as compared to RM404.2 million registered previously, an increase of RM93.0 million.
The Group is now recognized as a universal banking entity providing a comprehensive and seamless range of quality products and services. Branding plays an important role, especially in a challenging market scenario with increasingly discerning customers. While we have been fairly successful in establishing a recognized brand name, more can and will be done in this area. We will intensify our branding efforts as we look to attract new customers while retaining the existing customers. We will strive to meet our customers’ expectations, and ensure that our brand is automatically associated with quality products and services.
At this juncture, I would like to comment in more detail on the performance of each of our operating subsidiaries and associate during the year under review.
The Board of Directors and Senior Management of AFFIN Holdings Berhad during
its 33rd Annual General Meeting (AGM) on 20th April 2009.
Some of the attendees at the 33rd Annual General Meeting (AGM) of AFFIN Holdings Berhad on 20th April 2009.
Some of the attendees at the 33rd Annual General Meeting (AGM) of AFFIN Holdings Berhad on 20th April 2009.
AFFIN BANK BERHAD (ABB)
The Bank recorded a consolidated profit before tax and zakat of RM425.1 million for the financial year ended 31 December 2009, representing a decline of 6.5% from last year’s results of RM454.6 million. During the year, total assets increased by RM2.6 billion to RM35.6 billion from RM33.0 billion recorded in the previous year. Meanwhile, net loans, advances and financing grew by 12.8% to RM22.0 billion from RM19.5 billion registered in 2008. More importantly, the Bank further improved on its net non-performing loans (NPL) ratio of 2.2% from 3.2% in 2008. This clearly reflects the success and efforts by the management to curb the Bank’s NPL burden.
The Bank had, in 2009 emphasized on efforts to strengthen its position as a mid-sized anchor financial institution. The Bank has undertaken various bold initiatives such as rebranding and strengthening of its human capital through the implementation of new and dynamic systems and technology to enhance operations and improve on its quality products and services. The Bank will now move boldly forward with a new spirit and refreshed commitment to reinforce our position as a highly regarded medium sized bank of some prominence.
The Bank is also proud that its long term credit rating was graded upward another notch to A1 in November 2009 by Rating Agency Malaysia from A2 in 2008 while the Bank’s short term rating was reaffirmed at P1 stable. This was a major achievement where its rating was improved consecutively over a two (2) year period amidst a very challenging market environment. It is the expressed goal of the Bank to further improve on its financial position and achieve a double-A rating in the medium term.
Director and senior management of AFFIN and Boustead Group at the High Performance Leadership Programme by Professor Dr George Kohlriesser, Professor of Leadership and Organisational Behaviour from International Institute for Management Development ("IMD"), Switzerland on 4th August 2009.
The group workshop during the High Performance Leadership Programme by Professor Dr George Kohlrieser of International Institute for Management Development ("IMD"), Switzerland on 4th August 2009.
As the favourable economic outlook in 2010 is expected to have a positive impact on the performance and growth of the banking sector, the Bank is confident of its ability to capture a good portion of the available business. In 2009, the Bank took part in several road shows, exhibitions and events to promote the Bank’s business. The Bank introduced two new products, AFFIN Plus and AFFIN Gold to retail customers which were very positively received by the market.
AFFIN Islamic Bank, the Bank’s wholly owned subsidiary strengthened its operational, IT and business processes in 2009 to grow and deepen its franchise in the domestic islamic banking market. Various marketing, promotions and product development efforts were made to raise its profile in the market.
Moving forward, ABB believes the banking climate remains robust and many opportunities exist for sustainable long term growth. Major trading economies in Asia remain vibrant with strong growth potential which will benefit the Bank in the immediate future. The Bank is firmly committed to continue to provide quality innovative products and services to meet the market needs.
AFFIN INVESTMENT BANK BERHAD (AIBB)
Despite the challenging economic environment, AIBB registered a commendable profit before tax of RM64.6 million on the back of an operating profit before loan and financing loss and provision of RM74.6 million for the financial ended 31 December 2009. Net interest income and other operating income had increased by 48.1% and 76.8% respectively to RM69.5 million and RM89.9 million for the year under review. For net interest income, these were mainly due to growth in assets coupled with improved spreads, while for other operating income were mainly driven by gains in investment income and improved brokerage income for the year. Consequently, earnings per share improved to 20.8 sen whilst registering a healthy pretax return on equity of 11.8%, while net non performing ratio had been reduced significantly from 2.4% in 2008 to 0.6% in 2009 and the loan loss coverage improving further to 105.8%.
AFFIN Bank was one of three banks that arranged a RM500 million facility for Securitisation of Mortgages between Malaysia Building Society Berhad (MBSB) with Cagamas on 29th April 2009
AFFIN Bank Signed a Memorandum of Agreement for Learning Services to the bank employees on 10th December 2009
AFFIN Bank was appointed as the "Official Bank and Forex Agent" at LIMA 2009, a world class international aerospace and maritime exhibition, which was held in Langkawi from 1st to 5th December 2009
For the banking sector in general, investment banking, equity and capital markets in particular, 2010 is expected to remain positive in light of the improvements in economic prospect going forward. In line with this view, we expect moderate improvements in our business and financial performance for 2010.
AFFIN FUND MANAGEMENT BERHAD (AFM)
AFM recorded a profit before tax of RM3.8 million for the financial year ended 31 December 2009, as compared to RM4.4 million previously. The lower profit recorded was mainly due to the lower service charges imposed on unit trust funds as compared to 2008. Nevertheless AFM registered a profit after tax of RM3.6 million against RM3.4 million previously due to write back of tax provision for year 2008.
As at end of December 2009, the total funds under management stood at RM679.6 million, an increase of 41.6% from RM479.9 million at end of 2008. However, the amount still fell short of our target for assets under management for year 2009 in view of the prevailing difficult market conditions.
Like 2009, we do not expect 2010 to be a particularly easy year. However, AFM is looking positively towards 2010 with upbeat confidence to achieve better results especially having put in place various corporate strategies, improving the quality of our staff, increasing our commitment to customers, expanding our investment in technology and our creative products offerings; we are well placed to compete effectively.
AFFIN Bank held a sales convention as a reward for its customer sales executives and mortgages sales executives in Penang from 20th to 22nd February 2009
Moving forward, AFM is cautiously positive for year 2010 with Malaysia’s economy expected to turn around with its GDP forecasted to grow at 5% in the year 2010. We expect business sentiments and corporate earnings to improve in line with the projected economic recovery with global trade and production picking up due to decreasing unemployment and better consumer demand. More capital-raising exercises are expected to take place in the local equity market, thus, improving liquidity buoyed by lower interest rates and punitive measures by the Government to attract foreign direct investment through further liberalization of the economy.
To meet the challenges ahead, AFM will enhance its market position by focusing on its core activities in asset management and product development as well as increasing its distribution channels. AFM will continue to intensify its marketing activities and services to both existing and potential customers. Our goal is to increase the clientele base as well as the size of fund under management.
AFFIN MONEY BROKERS SDN BHD (AMBSB)
AMBSB’s net turnover was RM7.2 million for the year ended 31 December 2009, a decrease of 24.2%, compared with RM9.5 million recorded previously. Net Assets as at 31December 2009 were RM7.5 million, an increase of 2.7%, compared with RM7.3 million for the previous year. The Company recorded a lower profit after tax of RM0.5 million compared to RM1.3 million in the previous year. The decrease in net turnover was due to the global financial crisis that adversely impacted on the money broking industry. This resulted in lower brokerage income received throughout the year.
AFFIN Bank participated in Bursa Malaysia's "KL Rat Race 2009" which was held on 11 August 2009. The race is an annual event to raise funds for charity and is a platform for Malaysian companies to come together with a common objective, to help the needy in a noble way
The revenue contribution recorded by the Money Market, Fixed Income and Islamic sections were better compared to the previous year. However, the highest brokerage income contributed for the year was by Forwards / ACU / Derivatives / Options section of RM2.3 million representing 32.8% of total net brokerage income. The brokerage income contribution from the Foreign Exchange Desk was RM1.9 million, representing 27.2% of total net brokerage income.
The Money Market section was the third highest performer contributing RM1.5 million or 21.5% of total net brokerage income. This better performance compared to last year was due to higher market capitalization of local deposits and bills. The Fixed Income section contributed RM0.9 million or 12.8% of the total net brokerage income. The Islamic Instrument section contributed RM0.4 million or 5.7% of total net brokerage income.
AFFIN Bank held its annual blood donation drive, as part of its corporate social responsibility (CSR) activity on the 1st April 2009
AMBSB continues to be a highly cash generative business which allows us to invest in the development of the business and has enabled the Company to maintain a progressive approach to the dividend paid to the shareholders. The directors approved an interim dividend of 35.37 sen per share which was paid on 10 December 2009 for the year under review.
The globalization and liberalization of financial markets, as outlined in the Financial Sectors Masterplan, may see the entry of new banks and the money market players in the domestic market. Also, the entry of foreign money broking companies competing in the domestic market is also another threat and will inevitably affects margins and reduce brokerage income of the local players.
AMBSB aim to remain as a leading market player and retain its competitive edge by implementing strategic plans that include:
• Enhancing our synergy at Group level
• Formalizing strategic link with international money broking companies for the transfer of technology and professional expertise
• Introduction of new products
• Employing additional staff to increase efficiency
• Introducing attractive and aggressive marketing plan
• Provide training for staff
• Establishing a comprehensive performance based remuneration policy to retain and attract talented human capital
• Providing e-broking services in the immediate future
AXA AFFIN GENERAL INSURANCE BERHAD (AAGIB)
AAGIB’s performance was commendable during the year under review despite the challenging business environment in 2009. AAGIB ended year 2009 with Gross Written Premium totaling RM353.3 million, which is only 4.0% short of its target of RM368.0 million. However, that translated as a 9.0% growth over 2008. The growth was achieved from all lines of business, with Health and Retail again exceeding budgetary targets. Investment income surpassed budgetary target by 34.9% mainly due to slightly better economic climate in 2009. Realized gains too were better than both budget targets and previous year.
AFFIN Bank contributed its annual 'Bungkusan Hari Raya" to "Tabung Kebajikan Angkatan Tentera" on 28th August 2009 at Ministry of Defence. AFFIN bank managing Director / CEO YBhg. Dato' Zulkiflee Abbas Abdul Hamid presented these gifts to the Minister of Defence, YB Datuk Seri Ahmad Zahid Hamidi
AAGIB’s proposed acquisition of the business of BH Insurance (M) Bhd was crystallized when the approval from Bank Negara Malaysia was obtained on 18 February 2010 and the relevant agreements were executed on 2 March 2010. The strength of BH Insurance (M) Bhd in commercial business, its spread of branches, the quality of its staff and its culture will be a great complement to AAGIB’s operations. The acquisition is likely to be completed by mid 2010. Thereafter, the operations of the two entities will be merged as one.
AFFIN Bank donated 50 houses worth RM2.1 million at Taman RKSK Kg Tun Abdul Razak for the hard-core poor. the event was officiated by TYT Datuk Seri Utama Mohd Khalil Yaakob and witnessed by Malacca Chief Minister, YAB Datuk Seri Mohd Ali Rustam, Mayor of Malacca City, En Yusof Jantan and senior management of AFFIN Bank and AFFIN Islamic Bank
Having weathered the economic difficulties in 2008 and 2009, AAGIB is confident of what’s in store for us in 2010. Our strategies and plans for 2010 have been designed to focus on growth, profitability and increasing our market share. We are also working on a few key projects, namely Health, Bancassurance and a front end system which we are confident will support our objectives for 2010. As in the past, we will continue to invest in human capital and technology. We are optimistic and confident that 2010 will yield better results for us.
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AFFIN Bank and AFFIN Islamic participated in 'Kempen Hari Pahlawan 2009" on 27 July 2009, where the wife of Hon. Prime Minister YBhg Datin Seri Rosmah Mansor received a donation worth RM180,000 from AFFIN Bank
AXA AFFIN LIFE INSURANCE BERHAD (AALIB)
The financial year 2009 for AALIB finished on a strong note. On an expansion mode, AALIB experienced strong growth despite an increasing competitive business environment and challenging economic conditions. In 2009, AALIB recorded a gross premium of RM177.7 million against RM43.9 million registered last year. Gross new business premium increased 5 folds to RM161.7 million in 2009. With the strong growth, AALIB posted a profit before tax of RM5.3 million as compared to a pretax loss of RM23.0 million in the previous year.
AXA AFFIN Life Insurance Berhad brought cheers to 30 under privileged students of Sekolah Kebangsaan (1) Taman Selayang, Batu Caves by sponsoring a visit to the Aquaria KLCC on 8th August 2009 to educate the children on the conservation of the Malaysian Marine Life
There has been much focus to continually build the multi distribution platform throughout 2009. The Bancassurance division grew more than 3 folds following an impressive performance through Bank partnerships. Bancassurance Financial Executive model with AFFIN BANK grew from 49 to 64 AFFIN Bank branches by end 2009, broadening the coverage in the Klang Valley, Northern and Southern regions. AFFIN Bank continues to be a conduit for growth for AALIB.
The Direct Marketing/Telemarketing (DM/TM) initiative launched in February 2008 produced excellent results exceeding its target of RM6.5 million.
On the tied agency front, AALIB set up 4 branches in 2009 to support the development of its agency force.
AALIB was the first in the market to launch Unemployment Premium Refund Program (UPRP) in May 2009 as a proactive response to the economic slowdown. UPRP offers 100% premium refund guarantee to its customers should they become unemployed by reason of redundancy or lay-off within 12 months from the policy issue date.
Should the customer become involuntarily retrenched and face difficulties in continuing with their financial protection, they will have the option of a full premium refund to ease their financial burdens.
ValuePac was another product launched in June 2009. ValuePac is uniquely developed to provide affordable financial protection with high coverage for customers seeking to start a financial protection plan. The plan is suitable for those who would like to have insurance protection but have limited means or for those who are seeking pure protection at minimum cost.
AALIB will continue to grow its multi-distribution channels in order to achieve stronger growth in 2010. With innovative product offerings, strategic business alliances and strong marketing and public relations initiatives in place, AALIB is geared to aggressively grow its presence and increase its profile as a significant Insurance player in the market place.
AFFIN Bank and AFFIN Islamic Bank sponsored the "Wacana Patriotisme" at Universiti Islam Antarabangsa (UIA) on 7th August 2009 as part of the Group's CSR activities to support the spirit of national patriotism
AFFIN GROUP’S CORPORATE SOCIAL RESPONSIBILITY (CSR) INITIATIVES
As AFFIN group forges ahead with the next stage of growth, AFFIN group believes in maintaining good relations with the community and strives to create an image of a good corporate citizen that cares for the community. Over the years, the Group has undertaken numerous corporate initiatives that take into consideration the interest of the community, employees, environment, shareholders and other stakeholders. Given that AFFIN’s major shareholder is Lembaga Tabung Angkatan Tentera (LTAT) and in line with the aspiration of the Group to improve the well-being of retired and serving Armed Forces personnel and their families, the Group has pledged an annual contribution of over RM2.0 million to Yayasan Warisan Perajurit. The objective of the Yayasan is to promote and assist in the material and educational welfare of the members and children of the serving and retired Armed Forces personnel who are in need. The CSR initiative of the Group is not just an organization with profit objectives, but is an organization which believes in being a responsible and caring corporate citizen.
ACKNOWLEDGEMENT
On behalf of the Board, I would like to take this opportunity to thank everyone involved with the AFFIN Group, my colleagues on the Board and the Board of subsidiary and associate companies and the management team and staff of all companies under the Group. I would also like to thank our shareholders, Lembaga Tabung Angkatan Tentera (LTAT) and Boustead Holdings Bhd and our customers for their trust, confidence and continuous support. Our progress over the years would not have been possible without the trust, commitment, dedication and integrity of our people. They have certainly contributed much to the positive results I have just had the pleasure of highlighting to all the shareholders and other stakeholders of the AFFIN Group.
Last but not least, my sincere thanks and appreciation to Bank Negara Malaysia for their support and guidance.
Gen. (R) Tan Sri Dato’ Seri Mohd Zahidi bin Hj. Zainuddin
Chairman, AFFIN Holdings Berhad