Industry Overview

I I 7. INDUSTRY OVERVIEW Q Vital Factor Consulting Sdn Bhd VITAL FACTOR CONSULTING (Company No.: 266797.T)Creating Winning Business Solutions V Square @ PJ City Centre (VSQ) Block 6 Level 6, Jalan Utara 46200 Petaling Jaya Selangor, Malaysia Tel (603) 79313188 Fax (603) 79312188 VNJW. vitalfaclor.com
24 October 2014 The Board of Directors Only World Group Holdings Berhad No.lO, Jalan Pelukis Ul/46, Section U1 Temasya Industrial Park, Glenmarie 40150 Shah Alarn Selangor Darul Ehsan Dear Sit·s and Madam Independent Assessment of the Food Service, and Amusement and Recreation Industries in Malaysia
The following is an Independent Assessment of the Food Service, and Amusement and Recreation Industries in Malaysia prepared by Vital Factor Consulting Sdn Bhd for inclusion in the prospectus of Only World Group Holdings Berhad (herein together with all or anyone or more of its subsidiaries will be referred to as OWG Group or the Group) in relation to its listing on the Main Market of Bursa Malaysia Securities Berhad. 1. BACKGROUND AND INTRODUCTION • OWG Group is primarily a provider of leisure and hospitality services incorporating the operation of food service outlets, and amusement and recreation outlets comprising water amusement parks and family attractions.
• OWG Group’s main market is Malaysia, where it derives all of its revenue.
• As such, the focus of this report is on the Food Service, and Amusement and Recreation Industries in Malaysia.

2. MACROECONOMIC INDICATORS 2.1 Key Macroeconomic Indicators for Malaysia • Generally, a favourable macroeconomic environment provides an environment conducive for businesses to sustain and expand. • Overall, Malaysia’s key economic indicator in terms of real GDP grew at an average annual growth rate (AAGR) of 5.7% between 2009 and 2013. An exception to the growth during this period was in 2009 when the economy contracted by 1.5% amidst the slowdown of the global economy. Only World Group Holdings BerJwd Page I of30 Industry Assessment -207 ­
7. INDUSTRY OVERVIEW (Colll’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions • In 2013, the Malaysian economy Malaysia’s Real GDP Growth grew by 4.7% driven by continued Actual FOroCDSIstrong growth in domestic demand, 9%underpinned by robust private 7.4%sector activity. Private consumption was supported
6%mainly by favourable employment C conditions and wage growth while
~ eprivate investment was supported C) 3%..
by capital spending in the mining, gservices and manufacturing ]sectors. … 0%
• The more moderate overall growth ~1.5% performance in 2013 was largely -3% contributed from improvements in the external sector. Demand from the advanced and regional economies were slower in the first half of 20 13 leading to an overall decline in real exports during the year. However, real imports continued to expand throughout 2013 arising from the sustained growth in domestic investment and consumption, which contributed to the contraction in net exports.
• During the first quarter of2014, the Malaysian economy grew by 6.2% where growth was fuelled by stronger expansion in domestic demand as well as turnaround in net exports. Net exports recorded growth as exports of goods and services outpaced the growth of imports. Additionally, in the second quarter of 2014, the Malaysian economy registered a stronger growth of 6.4% supported by higher exports and continued strength in private domestic demand. Real exports of goods and services grew at a faster pace while growth of real imports of goods and services moderated, resulting in a significant improvement in net exports. Furthermore, positive growth fi’om construction, manu facturing, services, agricultural and mining sectors attributed to the growth in the second quarter of20 14 (Source.’ Bank Negara Malaysia).
• With strong growth evident in the first half of 2014, the Malaysian economy is expected to register a higher than expected growth between 5.5% and 6.0% for the full year of 2014. This is underpinned by strong macroeconomic fundamentals such as high savings and foreign reserves, manageable inflation, stable labour market conditions and a sound financial system (Source: Ministry ofFinance).
2.2 Consumer Confidence • The level of consumer confidence in the economy will have an impact on consumer spending patterns. A high consumer confidence level may lead to an increase in consumer spending that will benefit businesses in Malaysia. • The Consumer Sentiment Index (CSI) contracted by 7.0% in the third quarter of2013 to 102.0 points due to dwindling income and job expectations, growth in infiationary concerns and weaker outlook on consumer spending.
• In the fourth quarter of2013, CSI fell below 100-point threshold to 82.4 points, the lowest reading in almost five years. This was attributed to deterioration of household income and job prospects, growth in inflationary concerns and prudent consumer spending.

On(v World Group Holdings Berhad Page 2 0/30 Industry Assessment -208 ­7. INDUSTRY OVERVIEW (Colll’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • The CSI improved to 96.8 points Consumer Sentiment Index (CSt) during the first quarter of 2014, supported by improving
200 30% household finances and job expectations, as well as 150 0%moderating inflationary concerns. Nevertheless, the CSI was still below the 100-point confidence
100 -30% threshold. 50 -60%
• In the second quarter of20l4, the CSI continued to record further improvement to 100.1 points,
o -90% 3Qtr13 4Qtr13 1Qtr14 2Qlr14 3Qtr14reflecting a neutral level of ..CSI –Growth Rateconsumer confidence. This was attributed to a stable but improving household income compared to the previous quarter, as well as firm employment expectations.
• The CSI fell below the 100-point confidence threshold in the third quarter of2014 to 98.0 points. This was contributed by cautious sentiment on current and expected finances, flat employment outlook and worries over rising prices by middle-income households.
3. INDUSTRY OVERVIEW AND STRUCTURE 3.1 Overall Leisure aud Hospitality Industry • The Group operates within the Leisure and Hospitality Industry.
• In general, the Leisure and Hospitality Industry is concerned with the provision of services that entertain, satisfy and/or fulfil some basic needs of customers and patrons.
• A leisure activity is a discretionary activity that an individual is not compelled to do, but chooses to carry out based on the entertainment, enjoyment or satisfaction that the individual expects to derive from carrying out that activity.
• Hospitality is primarily concerned with fulfilling the basic needs for food and shelter. However, in Malaysia’s society, hospitality extends beyond satisfying basic needs for food and shelter to include provision of different levels of luxurious accommodation and fine dining experience.
• Operators in the Leisure and Hospitality Industry may be involved in managing and operating venues or providing services directly.

 

Only World Group floldings Berhad Page 3 of30 IndustJy Assessment -209­7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • In general, the Leisure and Hospitality Industry includes five main sectors as depicted below:
CJ OWG Group operates within these sectors
• Nature, Arts and Culture refers to operating venues that are concemed with the preservation, conservation, study and/or exhibition of objects, animals, plants, and buildings and sites that possess scientific. culmral and/or historical significance. Some examples of these venues are zoos, museums, national parks and historical sites.
• Entertainment refers to the operation of venues that host live performances, motion picture projection, sporting events and similar events catering to a mainly non~ participative audience. Some examples of these venues are cinemas, theatres, stadiums and concert halls.
• Amusement and Recreation venues and facilities enable patrons to engage in sporting, recreational and amusement activities. Some examples of these venues are theme parks, arcades, bowling alleys and fitness centres.
• .Food Service is concerned with preparing meals, snacks and beverages for customers primarily for immediate on-premise or off-premise consumption. It is also referred to as the provision of food and meals away from home. Some examples of food service operations include restaurants, cafes, quick-service restaurants, food stalls, pubs, canteens and catering services.
• Accommodation refers to the operation of venues that provide lodging or short-term accommodation for business traveIlers, vacationers and others. Some examples of accommodation venues are hotels, motels, resorts, serviced apartments and bed & breakfast.
• This report will focus on the Food Service, and Amusement and Recreation sectors as the bulk of the Group’s revenue are generated by the operation of food service outlets and amusement and recreation outlets.
• Although the Group also operates a resort, which is categorised under the Accommodation sector, it constitutes only a small percentage of the Group’s total revenue and will not be covered in this report.

Only World Group floldings Berhad Page 4 of30 Imlu.wry Assessment -210 ­7. INDUSTRY OVERVIEW (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions 3.2 Structure of the Food Service Sector • In general, the Food Service sector may be categorised into seven segments as depicted in the figure below:
“‘Including hawker s(alls and take-away shops CJ OWG Group operafes within II/ese segments
• The level of service offered by the different segments of the Food Service sector varies. For instance, some establishments provide only food and drinks for off­premise consumption, while others may provide dine-in facilities, waiting service and other amenities.
• Restaurants arc food service outlets that provide dine-in facilities with full waiting services. Types of restaurants b[lsed on cuisine include, among others, Chinese, Malay, Indian, Mediterranean, Spanish, Middle Eastern, French and Italian. Food and beverages are normally prepared and cooked on the premises, and customers can select from a varied menu.
• Cafes (ineluding bistros) are casual and relatively small dine-in outlets that provide full waiting service or partial self-service. Many cafes are similar to restaurants except that the dine-in facilities and ambience are more casual. There are various types of cafes in Malaysia. These cafes mainly focus on serving food, beverages, desserts, a particular specialty or a combination of some food and beverages. While the original meaning of cafes is outlets that focus on coffee, it has since evolved to also include non-coffee based food service outlets.
• Quick Service Restaurants are also caHed fast food restaurants. A quick service restaurant normally has a limited menu, so that food can be prepared and served qnickly. Many quick service restaurants are franchise chains with standardised food ingredients shipped to individual restaurants from central locations. A quick service restaurant tends to specialise in dishes such as hamburgers, pizzas, chicken, fish and sandwiches. While most quick service restaurants in Malaysia provide dine-in facilities, take-away, delivery and drive-through services are also common,
• Food Stalls comprise hawker stalls, take away shops, snack bars, food court and other food stalls and carts. The focus on food stalls is on casual dining or take-away.
• Pubs and Lounges are food service outlets that focus on selling alcoholic beverages for on-premise consumption. A limited range offood may also be served in pubs and lounges.

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7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions
• Catering is mainly the supply of cooked food and beverages delivered in bulk to a location determined by the customer, Catering may service private households and functions, enterprises, institutions, airlines, and other customers.
• Others may include canteens, contract supply for example for airlines, gourmet chefs that cook at the customers’ premises, and services that consolidate and deliver food from various food service outlets.

3.3 Structure of the Amuscmeut and Recreation Sector • Generally, the Amusement and Recreation Sector may be categorised into three segments as depicted below: Amusement & Recreation Sector
Amusement Park  Family Attractions  Sports and Recreation
o OWG Group operates within these segments
• An Amusement Park is a venue operating at a fixed location that is equipped with various facilities or amenities that are designed to entertain patrons. Amusement parks are typically equipped with mechanised rides such as roller coasters, merry-go­rounds and Ferris wheels; water rides such as water slides and rises; or a combination of both. An amusement park that is designed around one or more unifying settings or ideas may also be known as a theme park. A typical visit to a large amusement park can stretch over a day or even several days, for example Disney World in Orlando, Florida in the United States of America.
• Family Attractions refer to venues that provide amusement in a smaller area compared to an amusement park, and usually focuses on one attraction, ride or activity. It includes both participative as well as non-participative activities and attractions. Some of these establishments target a specific group, which may be children, teenagers, adults or families. A typical visit to a family attraction usually lasts several hours. Examples of these venues include stand-alone rides or attractions, and arcades.
• Sports and Recreation refers to venues and facilities that enable patrons to participate in sports or other recreational activities. Examples of these venues and facilities include golf courses, bowling alleys, wind surfing, white water rafting, ballooning and bungee jumping.
• OWG Group currently operates water amusement parks and family attractions. As such, this report will also focus on the Amusement Park and Family Attractions segments.

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7. INDUSTRY OVERVIEW (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions 4. SUPPLY AND SUPPLY DEPENDENCIES • Supply side information looks at the overall view of players and factors that contribute to the supply of products and services, as well as raw materials, semi­finished products and services that is required to produce the final products and services. It will also indicate any vulnerabilities or dependencies in supply faced by operators within the industries. 4.1 Food Service 4.1.1 Supply • Supply in the Food Service Industry is represented by the number of establishments. The latest available data is as follows: Number of Establishments in Food and Beverage Services (2010) Food Servicesl ,………………………… 118,277
Beverage Services2 .•.••.•.• . , 14,660 Event Catering ServicesJ 12,383 Total……………………………………………………… 145,320
Notes: (1) Includes restaurants, caJeterias!canteens, jQstfood restaurants andfood stalls;
(2) Includes pubs, bars, discotheques, coffee houses, cocktail lounges, karaoke, coffee shops and other drinking places;
(3) Includes event / food caterers and otherfood service activities. (Source: Department ofStatistics)

 

• In 20IO, there were a total of 145,320 establishments in food and beverage services in Malaysia. Food services constituted the most number of establishments at 118,277 establishments, which mainly comprises restaurants and food stalls, in 2010.
• ln 2010, beverage services and event catering services each constituted 10.1% and 8.5% respectively of the total number of establishments in food and beverage
services in Malaysia.

• The gross output value of the food service industry is as follows:

Gross Output Value for Food and Beverage Services 20tO 2012 Food Services ……. 30,741 34.576 Beverage Services .. 3.865 4,193 Event Catering Services. 3,644 3,815 AAGR 2010-12 (%) 6.1 4.2 2.3 Total . 38,251 42,585 -I 5.5 Notes.’ All units in RM million except percentages; Total does not add-up due to rounding. (Source: Department ofStatistics)
• Between 2010 and 2012, gross output value for food and beverage services had experienced growth, represented by an AAGR of 5.5%. Only World Group Holdings Berhad Page 7 ~nO Industry Assessment -213 ­7. INDUSTRY OVERVIEW (Coll/’il) o VITAL FACTOR CONSULTING Creating Winning Business Solutions
• In 2012, gross output value of food and beverage services amounted to RM42.6 billion, of which food services represented major portion of 81.2% out of the total gross output value. This was followed by beverage services and event catering services, which represented 9.8% and 9.0% of the total gross output value respectively. 4.1.2 Supply Dependencies • The normal operations of food service establishments require various food related items, which are then further processed or cooked to create food and beverages that are served to end-consumers.
• As such, the continuous operation of food service establishments are dependent on the availability of various food related items, which could be sourced either locally or through imports.

Sales Vll1ue of Manufacture of Selected Food Related Items (Malaysia) AAGR 2009-13 2009 2010 2011 2012 2013 % Condensed, Powdered and Evaporated Milk.. …………… 3,183 3,183 3,184 4,181 5,010 12.0 Other Vegetable and Animal Oils and Fats….. 1,892 4,670 6,224 6,030 4,272 22.6 Sugar ………………….. 2,263 3,086 3,731 3.656 3,911 14.7
Flour Milling…. 1,844 1,759 1,993 1,923 1,958 1.5 Soft Drinks .. 1,251 1,578 1,568 1,705 1,829 10.0 Rice Milling ……………….. 1,694 1..589 1,676 1,805 1,775 1.2 Processing and Preserving ofFish and Fish Products …… 1,045 1,109 1,171 1,490 1,679 12.6 Sauces Including Flavouring Extracts such as Monosodium Glutamate .. 651 790 885 964 1,031 12.2 Production of Mineral Water. ………………… 204 231 259 372 473 23.5 Note: All units in RM mtllion except percentages. (Source: Department a/Statistics)
• Between 2009 and 20 \3, the sales value of the production of all the above food related items experienced growth.
• Between 2009 and 2013, the sales value of the production of other vegetable and animal oils and fats grew significantly from RMI.9 billion to RM4.3 billion, representing an AAGR of22.6%.
• Local production of beverage items also experienced significant growth with the sales value of the production of mineral water and soft drinks growing at AAGR of 23.5% and 10.0% respectively, between 2009 and 2013.

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7. INDUSTRY OVERVIEW (CoIII’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions
Import Value of Selected Food Related Items (Malaysia) AAGR 2009-13 2009 2010 2011 2012 2013 % Vegetables and Fruits 3,436 4,047 4,244 4,446 5.262 11.2 Coffee, Tea, Cocoa, Spices and Manufactures thereof. ……………………… 4,235 5,118 5,682 5,288 5,249 5.5 Miscellaneous Edible Products and Preparations…………………………………. 2,500 3,003 3,411 3,873 4,371 15.0 Sugar, Sugar Preparation and Honey…. 2,470 2,946 3,402 3,676 3,424 8.5 Dairy Products and Birds’ Eggs ……….. 1,565 2,025 2,550 2,676 3,291 20.4 Fish, Crustaceans and Molluscs, and Preparations thereof……….”.”………….. 2,272 2,402 2,911 3,159 3,182 8.8 Meat and Meat Preparations …………….. 1,516 1,742 2,040 2,225 2,571 14.1
Beverages………………”…,………………… 1,001 1,162 1,747 2,057 2,395 24.4 Food-Processing Machine (Exeluding Domestic) ………… ………………………….. 455 457 496 573 462 0.4 Note: All units in RiLl million except percentages. (Source: Department ofStatistics)
• Between 2009 and 2013, import value of all the above food related items achieved positive growth.
• Imports of beverages grew fastest at an AAGR of 24.4%, followed by imports of dairy products and birds’ eggs with an AAGR of20.4%.
• Food-processing machines (excluding domestic) are also commonly used by food service operators in their nonnal operations. The import value of food-processing machines grew from RM455 million to RM462 million between 2009 and 2013, representing an AAGR of 0.4%.

4.2 Amusement and Recreation • The operation of amusement parks is dependent on the availability of, among others, various types of equipment and facilities. Import and Export Values of Roundabouts, Swings, Shooting Galleries and Other Fairground Amusements AAGR 2009-13 2009 2010 2011 2012 2013 % 16.2 ExpOlt…….. 12,188 18,241 8,327 6,178 5,868 -16.7 Impolt……….. 17,015 6,164 56,941 60,995 31,028
Note: All units in RM ‘000 except percentages. (Source: Depal’tment ofStatistics)

• Belween 2009 and 2013, the import value of roundabouts, swings, shooting galleries and other fairground amusements grew from RM17.0 million to RM31.0 million, representing an AAGR growth of 16.2%. Only World Group Holdings Berhad Page 90f30 Industry Assessment -215 ­
7. INDUSTRY OVERVIEW (COliI’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions
• The significant increase in import value of roundabouts, swings, shooting galleries and other fairground amusements in 2011 and 2012 could be caused by the openings of new amusement parks in Malaysia, such as the LEGOLAND and Puteri Harbour Family Theme Park in Johor. ESCAPE Theme Park in Penang and the Water World@i-City in Selangor, all of which were opened in 2012. In 2013, import value of roundabouts, swings, shooting galleries and other fairground amusement fell by
49.1 % compared to 2012 because many of the new amusement parks were already operational and no large new amusement parks were under development.

• Between 2009 and 2013, export value of roundabouts, swings, shooting galleries and other fairground amusements fell at an average annual rate of 16.7%.
• During the period under review, Malaysia had generally been a net importer of roundabouts) swings, shooting galleries and other fairground amusements, with the exception of year 2010.
• In 2010, local production of roundabouts, swings, shooting galleries and other fairground amusements amounted to RM5.7 million.
• Nonetheless, these amusement equipment and facilities are not replaced on a frequent basis. As such, normal operation of amusement parks is generally not heavily dependent on the constant supply of equipment.

5. DEMAND 5.1 Food Service • Generally, the demand for food services is determined by consumers’ expenditure on food and beverages away from home. 5.1.1 Household Expenditure • A higher average household expenditure on restaurants and cafes represents a stronger demand for food services from Malaysian households. Average Monthly Household Expenditure in Malaysia AAGR 2004105-2009110 2004105 2009110 % Restaurants and Cafes. 204.89 233.39 Note: All units in Rlvf except percentages. (Source: Department a/Statistics)
• Between 2004105 and 2009/l0, the average monthly household expenditure on restaurants and cafes grew at an AAGR of2.6%.
• It should be noted that in addition to the growth in average household expenditures on restaurants and cafes, the overall growth in demand is augmented by an increase in the number of households. The number of households grew from 5.86 million in 2004/05 to 6.54 million in 2009/10, an AAGR of 2.2% during the period under review.

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Q VITAL FACTOR CONSULTING Creating Winning Business Solutions
5.1.2 Internal Tonrism Consnmption • Internal tourism refers to activities carried out by resident and non~resident visitors in Malaysia as part of their trips. Activities that are carried out by Malaysian residents are categorised as domestic tourism, while those carried out by non-residents are categorised as inbound tourism.
• An increase in internal tourism consumption of food and beverage serving services would imply a stronger demand for food services from tourists.

Internal Tourism Consumption of Food and Beverage Serving Services in Malaysia AAGR 2008-12 2008 2009 2010 2011 2012 % Inbound Tourism……..”… 8.929 9,703 10,177 10,245 10,149 3.3
Domestic Tourism ..”……. 3,391 3,119 3,821 4,747 5,712 13.9 Overall Internal Tourism ……………………..’ 12,321 J\ 12,822 13,998 14,992 15,862′” 6.5 Notes: All units in R.A-I miiiion except percentages; /’I. Total does not add up due to rounding. (Source: Department a/Statistics)
• Between 2008 and 2012, overall internal tourism consumption of food and beverage serving services increased at an average annual rate of 6.5%, which was mainly attributed to the increase in domestic tourism during the period.
• Inbound tourism consumption of food and beverage serving services had been growing from RM8.9 billion to RM10.l billion between 2008 and 2012, representing an AAGR of3.3%.
• Although domestic tourism consumption of food and beverage serving services only accounted for 36.0% of overall internal tourism consumption on food and beverage serving services in 2012, it had been growing steadily with AAGR of 13.9% between 2008 and 2012.

5.2 Amusement and Recreation • Generally, the demand for services under the Amusement and Recreation Industry is detennined by consumers’ expenditure on amusement and recreation services, which are assessed based on the statistics discussed below. 5.2.1 Household Expenditnre • A higher average household expenditure on cultural services, and entertainment, recreation and sports would imply a stronger demand for amusement and recreational activities from Malaysian households. On(y World Group Holdings Berhad Page 11 0/30 bzdustl:y Assessment -217 ­7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business SOlutions Average Monthly Household Expenditure in Malaysia 2004/05 2009/10 Cultural Services) ; , , . 24.62 34.93 Entertainment, Recreation and SportsZ , . 2.67 4.15 AAGR 2004/05­2009/10 % 7.2 9.2 Notes: Ail units in RM except percentages; (1) includes cinemas tickets, entrance fees to places of public amusement, photographing, renlal ofbooks and others, (2) includes entrance fees jo}’ go­kart racing, monthly subscription ftes for sports I recreation clubs, badminton/tennis/squash court charges and others, (Source: Department alStatistics)

• Between 2004/05 and 2009/10, the average monthly household expenditure on cultural services and entertainment, recreation and sports grew at AAGR of7.2% and 9.2% respectively.
• Similarly, growth in average monthly household expenditure is augmented by an increase in the number of households, from 5.86 million in 2004/05 to 6.54 million in 2009110.

5.2.2 Internal Tourism Consumption • An increase in internal tourism consumption on cultural, sports and recreational services would imply a stronger demand for amusement and recreational activities from tourists. Internal Tourism Consumption on Cultural, Sports and Recreational Services in Malaysia AAGR 2008-12 2008 2009 2010 2011 2012 (%) Inbound Tourism….. 1,513 1,665 1,834 2.317 1,903 5.9 Domestic Tourism … 196 258 383 570 649 34.9 ()verall Internal Tourism ……………………… 1,709 t,923 2,2181\ 2,888′” 2,552 to.5 Notes: All units in RM million except percentages; ‘” Total does not add up due to rounding. (Source: Department ofStatisticJ~
• Between 2008 and 2012) overall internal tourism consumption on cultural, sports and recreational services grew at an AAGR of 10,5%, mainly attributed to growth in foreign tourists’ consumption. Nonetheless, domestic tourists’ consumption grew at a stronger AAGR of34.9%.
• In 2012, overall internal tourism consumption of cultural, sports and recreational services in Malaysia decreased by 11.6% to reach RM2.6 billion. This was mainly attributed to decrease of foreign tourists’ consumption by 17.9% to reach RM1.9 billion in 2012.

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Q VITAL FACTOR CONSULTING Creating Winning Business SOlutions 5.2.3 Income from Leisnre Activities • The income derived from leisure activities directly reflects the total demand of the respective leisure activity. The latest available data is as follows: Income from Leisure Activities in Malaysia (2010) Operation of all sports facilities ,. 1,310.9 Activities of amusement parks and theme parks 346.3 Any other amusement and recreation activities . 282.9 Operation of botanical and zoological gardens . 127.0 Operation of museums of all kinds . 27.4 Notes: All units in RM million; Data does not include government~owned establishments. (Source: Department afStatistics)

• Among the leisure activities from the table above) operation of all sports facilities recorded highest income ofRM1.3 billion in 2010.
• In 20] 0, total income derived from the activities of amusement parks and theme parks in Malaysia amounted to RM346.3 million.

6. DEMAND DEPENDENCIES • As the demand for amusement attractions and food service outlets are ultimately dependent on consumer spending, the following factors will have a common impact on both industries: Per capita income; Household expenditure; Population growth; Tourists’ arrivals and receipts.

6.1 Per Capita Income • In general, an increase in the average affluence of Malaysia, which can be represented by per capita income, may result in an increase in consumer spending on discretionary leisure activities and food related services. Mahtysia’s Per Capita Income (Based on Current Prices) AAGR 2009-2013 _-=2”’o”-‘o9′——=2o1o._–=2′”o~1’____2~0~1~2_ __=2″’00″13’_+—(%) Per Capita Income ….. 23.841 26,175 29,661 30,856 31,843 Note: All units in RM except percentages. (Source: Ministry ofFinance)

• Malaysia’s per capita income grew from RM30,856 in 2012 to RM31,843 in 2013, representing an annual growth of3.2%.
• Between 2009 and 2013, Malaysia’s per capita income grew at an AAGR on.5%.

Only World Group Holdings Berhad Page 13 oj30 Industry Assessmellt -219 ­7. INDUSTRY OVERVIEW (Coli/’ll) o VITAL FACTOR CONSULTING Creating Winning Business Solutions 6.2 Household Expenditure • An increase in the average household expenditure may result in higher consumer spending, which is a favourable indicator for expenditure in consumer discretionary items, such as leisure activities and food services. Avel’age Monthly Household Expenditure in Malaysia AAGR 2004/05· 2004/05 2009/10 2009/1012:iL Overall Average , . 1.953.02 2,190.37 Note: Alllwits in RM except percentages. (Source: Department afStatistics)

• Overall, the average monthly household expenditure in Malaysia has increased from RM1953.02 in 2004/05 to RM2190.37 in 2009110. This reflects an AAGR of2.3% during the period under review. 6.3 Population Growth Notes: A II units in Ihousands except percentages: Total does not add~up due to rounding. (Source: Department ofStatistics)
• The population of Malaysia grew from 27.9 million to 29.7 million between 2009 and 2013, representing an AAGR of 1.6%.
• Between 2009 and 2013, Malaysia’s population aged 65 and above recorded an AAGR of 6.0%, significantly higher than the other age groups from the table above.

Only World GrOlW Holdings Berhad Page [4 ~l30 [l1dust,y Assessmelll ·220 ­7. INDUSTRY OVERVIEW (Colll’tf) ————-_._———-­Q VITAL FACTOR CONSULTING Creating Winning Business Solutions 6.4 Tourist Arrivals and Receipts • Amusement attractions and food services are also consumed by foreign tourists. As such, the demand of such services is also dependent on tourist arrivals and tourist receipts in Malaysia. Tourist Arrivals and Receipts in Malaysill AAGR 2009-2013 2009 2010 2011 2012 2013 % Tourist Arrivals (million) …………….. 23.7 24.6 24.7 25,0 25,7 2.1 Tourist Receipts (RM billion) ………… 53.4 56,5 58.3 60,6 65,4 5,2 (Sources: Malaysia Tourism Promotion Board)
• Both tourist arrivals and tourist receipts in Malaysia grew every year between 2009 and 2013. They recorded AAGR of2,1% and 5,2% respectively during the period under review.
• In 2013, Malaysia achieved tourist arrivals of25.7 million and total tourist receipts of RM65.4 billion.

7. COMPETITIVE ANALYSIS 7.1 Nature of Competition • In general, operators in the Food Service Industry and Amusement and Recreation Industry in Malaysia face normal competitive conditions, which is similar to a free enterprise environment characterised by the following:
There are no undue Government regulations or licensing requirements; The industry is not dominated by a single or small number of operators; Operators may enter and leave the industry freely; No single or small group of operators is large enough to dictate pricing,

 

• In such an environment, the industries are subjected to normal supply and demand conditions moderated by the price mechanism. Operators in the industries compete based on service differentiations and other factors of competition.

7.2 Faetol’s of Competition 7.2.1 Food Service Industry • As with most free enterprise environment, competition within the Food Service Industry is based on a number of factors, including: Brand name and market reputation; Quality of products and services; Economies of scale; Halal certification,
Only World Group Holdings Berhad Page 15 0[30 Industry Assessment -221 ­7. INDUSTRY OVERVIEW (Collt’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions • Brand Name and Market Reputation Brand name and market reputation is a key competitive fuetor in the provision of food services to consumers. As such, an established brand name with a strong market reputation that appeals to target customer groups will be able to garner higher customer loyalty from existing customers, attracting new customers through strong brand equity as well as commanding higher pricing compared to less prominent operators in the industry.
• Quality of Products and Services Quality of products and services is critical to end-consumers, especially for food services, whereby consumers have a great variety of options available in the market. Operators that possess awards or other recognitions that provide assurance of the quality of the food and services are better positioned to attract more customers.
• Economies of Scale’ Food service operators which have capabilities to operate a number of outlets would have stronger negotiation power to obtain better commercial terms from their suppliers in relation to ingredients, credit terms, logistics and other arrangements. Similarly, food service operators are also able to benefit from some economies of scale through combined adveliising and promotions, administration, product development and other shared services.
• Halal Certification Food service outlets which obtained Halal Certification recognised by the Department of Islamic Development Malaysia (JAKIM) will provide assurance to Muslim consumers that the food complies with Islamic law (Syariah law). This is compulsory for Muslims, which constitute the majority of the Malaysian population. Hence, obtaining Halal Certification would enlarge the potential customer base of a food service outlet. In 2013, there were 15.0 million Malays, which represented 50.5% of the total population in Malaysia (Source: Department ofStatistic,)
7.2.2 Amusement and Recreations Industry • As with most free enterprise environment, competition within the Amusement and Recreation Industry is based on a number of factors, including: Brand name and market reputation; Variety of rides and attractions; Amusement factor; Location.

• Brand Name and Market Reputation With the target market for the Amusement and Recreation Industry being consumers, brand name and reputation are key competitive factors in this industry. As such, an established brand name with a strong market reputation that appeals to target customer groups will be able to attract more visitors through strong brand equity. For instance, Disneyland and Uuiversal Studios theme parks which are household names in the Amusement Park Industry have significantly strong “pulling factor” that attract visitors ITom all over the world.
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• Variety of Rides and Attractions Operators that provide a wide range of rides and attractions would have an advantage over operators with low or limited range of rides and attractions. Operators with a wider range of rides and attractions are better positioned to attract visitors from various age groups and cater to their diverse preferences and requirements.
• Amusement Factor Amusement factor refers to the level of satisfaction or contentment a visitor would derive from any particular attraction or ride in an amusement park. As such, operators with rides and attractions of higher amusement factor are likely to attract both new and repeat visitors.
• Location The Amusement and Recreation Industry operates in a consumer-based environment. As such, amusement attractions located close to densely populated areas would have a competitive advantage over those located further away. Larger amusement parks are typically located in suburban areas due to the large land size requirements, Nonetheless, they remain competitive with a significantly larger catchment area. While location is a key competitive factor, operators of amusement parks and recreational activities with strong brand names tend to rely less on location. On the contrary, such operators are regarded as “destinations”, in which people will make special efforts to patronise these venues. Examples of strong brand name amusement parks include Disneyland and Universal Studios theme parks.

7.3 Operators in the Industry 7.3.1 Operators in the Food Service Industry • Some of the operators in the Food Service Industry in Malaysia which operate more than one food service outlet under the same brand name include the following brands (listed in alphabetical order): eastcourt”” Esquire Kitchen; Grand Imperial; Hailam Kopitiam; Killiney Kopitiam; OldTown White Coffee; Only Mee’ Oversea Restaurant; PappaRich; RICHDAD’ San Francisco Coffee; Secret Recipe; Starbucks Coffee; Station I Cafe; Tai Thong Restaurant; The Coffee Bean & Tea Leaf.
* Operated by 0 WG Group Note: This is not an exhaustive list.
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7. INDUSTRY OVERVIEW (Colll’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions 7.3.2 Amusement Parks in Malaysia • Some of the amnsement parks in Malaysia include the following (listed in alphabetical order): Name of Am usem~en..t,;,P’;'””a..rk +”‘L’00CCc…”ti..o..n-“‘S-“tn”t”‘eL._ A’Famosa Water World Melaka Berjaya Times Square Theme Park Kuala Lumpur Bukit Gambang Water Park Pahang Bukit Mcrah Laketown Waterpork Perak Danga World Theme Park ,………………… Johor Desa Water Park……… Kuala Lumpur ESCAPE Themc Park……………. Pcnang Genting Theme Park”’………… Pahang i-City Theme Park………………… Selangor LEGOLAND Malaysia lahar Lost World ofTambun………………………………………. Perak Melaka Wonderland Theme Park & Resort. Melaka Puteri Harbour Family Theme Park lohor Sunway Lagoon………………. Selangor The Carnival! Water Park……. Kedah Water World Theme Park Sabah Wet World Air Panas Pedas Resort'” Negeri Sembiian Wet World Batu Pahat Resort'” Johor Wet World Water Park Shah Alam* SeIangor A Genling Theme Park comprises Genting Outdoor Theme Park and First World Indoor Theme Park. Genting Outdoor Theme Park was closed/or redevelopment on 1 September 2013. First World Indoor Theme Park remained open. >10 Operated by OWG Group Note: This is not an exhaustive list.

8. GOVERNMENT REGULATIONS AND INCENTIVES 8.1 Government Legislations and Policies Some of the regulations and policies applicable to the Food Service Sector and the Amusement and Recreation Sector are listed below: Food Service Sector • Registration of Food Premises No person shall use any food premises for the purpose of, or in connection with the preparation, preservation, packaging, storage, conveyance, distribution or sale of any food or the relabelling, reprocessing or reconditioning of any food except that the premises is registered under the Ministry of Health. A certificate of registration for food premjses shall be valid for a period not exceeding 3 years from the date of its issuance. A proprietor, owner or occupier of food premises shall conspicuously display a certificate ofregistration of food premises in the food premises.
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o VITAL FACTOR CONSULTING Creating Winning Business Solutions •  Food Handler  A proprietor, owner or occupier of food premises shall not employ or allow any food handler to work in his food premises unless the food handler has undergone food handler’s training and has been medically examined and vaccinated by a registered medical practitioner.  (Source: Food Hygiene Regulations 2009)  •  Liquor Licences  No person shall sell by retail, or offer for sale by retail, any intoxicating liquor for consumption on the premises of the vendor or at the place where they are sold, except under and in accordance to one of the below licences: (i) Public house licence -sale of intoxicating liquors (including beer but excluding toddy); (Ii) Beer house licence -sale of beer only.  (Source: Excise Act 1976)  •  Ralal Certification  All food and goods shall not be described as Halal or be described in other manner to indicate that the food or goods can be consumed or used by a Muslim unless it is certified as Halal by JAKIM and marked with the logo as specified in the First Schedule of the Trade Descriptions (Celtification and Marking of Halal) Order 201 I.  (Source: lvfinistry ofDomestic Trade, Cooperatives and Consumerism)
Amusement and Recreation Sector • Registration of Amusement Devices Category I amusement devices The owner or controller or lessee of an amusement park shall obtain the design approval of a Category I amusement device ITom the Department of Occupational Safety and Health (DOSH) and subsequently notify the DOSH state office where the device will be installed. Category II amusement devices The owner 01′ controller or lessee shall submit to the relevant DOSH state office the necessary documents for the purpose or review and inspection. (Source: Deportmelll afOccupationol Safety and Health)
Only World CrQup Holdings Berhad Page 19 0/30 Industry Assessment -225 ­7. INDUSTRY OVERVIEW (Conl’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions Accommodation Sector • Registration with Ministry of Tourism Any person who carries on or operates accommodation premises shall apply for the registration of such premises as tourist accommodation premises with the Ministry of Tourism. (Source: Tourism Industry Act 1992)
8.2 Government Incentives Tourism projects, including in-door and out-door theme parks are eligible to apply for tax incentives from the Malaysian Investment Development Authority (MIDA) as follows: • Pioneer Status A company granted Pioneer Status enjoys a 5-year partial exemption from the payment of income tax. It will only have to pay tax on 30% of its statutory income) commencing from its production day which is determined by the Minister ofInternational Trade and Industry. Unabsorbed capital allowances as well as accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company.
• Investment Tax Allowance (ITA) As an alternative to Pioneer Status, a company may apply for ITA. which grants the company an allowance of 60% on the qualifying capital expenditure incurred within 5 years trom the date on which the first qualifying capital expenditure is incurred. Companies can offset this allowance against 70% of statutory income in the year of assessment. Any unutilised allowances can be carried forward to subsequent years until fully utilised. (Source: Malaysian Investment Development Authority)
8.3 Registration of Franchise • According to the Franchise Act 1998, it is a requirement to register with the Registrar of Franchise before one is allowed to commence on the franchising business. (Source: Malaysian Franchise Association)
8.4 Trademark • In Malaysia. trademarks are governed by the Trade Marks Act \976 and Trade Marks Regulation 1997 (Amendment 200\). Trademark registration is not compulsory in Malaysia. • Trademark registration provides trademark owners with exclusive rights to use their marks in trading. Only World Group Holdings Berhad Page 20 0130 IndustlY Assessment -226 ~
7. INDUSTRY OVERVIEW (Conl’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions • The Registrar of Trade Marks is the issuing authority for the registration of trademarks in Malaysia. Registration of trademarks is valid for a period of ten years and may be renewed from time to time. (Source: Intellectual Property Corporation ofMalaysia)
8.5 Environmental Regulations • Operators in the overall Leisure and Hospitality Industry generally do not generate any waste that has an adverse effect on the environment as they are engaged in a service-based industry. 9. BARRIERS TO ENTRY 9.1 Food Service • The baniers to entry into the Food Service sector are low based on capital requirements (excluding land and building).
• The capital requirements of setting-up a food selvice outlet varies from a low amount of several hundred Ringgit for a hawker stall to one or two million for high-end fine dining. Nevertheless, the large majority of food service outlets in Malaysia would require capital set-up ofRM150,OOO to RM750,OOO.
• At this level of entry, this set-up cost is for one outlet with limited seating capacity. Capital costs would start to escalate for an operator that wants to establish a network of food service outlets in order to generate higher revenue and to achieve economies of scale.
• Operators of franchised outlets may incur additional set-up costs, including franchising fees.

9.2 Amusement and Recreation • The barriers to entry into the Amusement Park Industry are moderate based on construction cost (excluding land cost).
• The construction cost of setting-up a medium-sized amusement park that covers 10.0 acres of land would be approximately RM20 million to RM30 million. An amusement park of this size is estimated to generate revenue of approximately RM5.0 million to RMlO.O million per year.

10. THREAT OF SUBSTITUTES 10.1 Food Service • There are substitutes for food service outlets such as horne-cooked meals and prepared meals purchased fi’om retail outlets like snpennarkets.
• Food is subject to consumers’ personal preference and situation. For instance, one may choose to consume home-cooked meals most of the time due to lower costs while another may prefer to eat out at food service outlets due to convenience and the pleasure and social benefits of eating out.

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7. INDUSTRY OVERVIEW (ColiI’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions 10.2 Amusement and Recreation • There are substitutes for amusement parks and attractions. One may visit the zoo, museum, art gallery, cinema, or choose to remain at home to watch television during leisure time, depending on the personal preference of the individual.
• Nonetheless, each of the leisure activities provides a distinctly different leisure experience, As such, these leisure activities are not entirely substitutable, For instance, the entertainment and thrill one may derive from a water slide ride in an amusement park is not likely to be easily replicated by other substitutes.
• Hence, the extent to which the substitutes pose a threat is dependent on consumers \ personal preference.

11. RELIANCE AND VULNERABILITY TO IMPORTS 11.1 Food Service • Reliance on imp0l1s can be determined by the self-sufficiency level, which directly reflects the proportion oflocal production over total consumption of the good.
• A lower self-sufficiency level would mean a lower proportion of consumption satisfied by local production, implying a higher reliance on imports.
• On the other hand, a self-sufficiency level of 100 and above would suggest a zero reliance on imports as local production would constitute 100% or more of consumption of the good.
• The self-sufficiency level ofsome ofthe major food commodities are as follows:

Self-Sufficiency Level of Major Food Commodities in Malaysia AAGR 2008-12 2008 2009 2010 20Up 2012 % Food Fish 95.6 100.1 1017 123.7 134.2 8.8 Poultry Eggs .. 112.3 114.7 115.4 130.6 13 16 4.0 Poultry 1219 122.2 127.9 131.4 131.4 19 Pork .. 96.6 96.9 1017 99.3 99.2 0.7 Rice … 70.2 70.4 71.4 73.0 73.5 1.2 Fruits …. 63.7 67.7 65.8 60.1 60.5 -lJ Vegetables .. 39.6 39.2 41.2 58.0 53.3 7.7 Beef ……………. . 25.4 270 28.6 29.5 30.1 4.3 Mutton … 10.0 10.3 10.6 11.5 12.6 5.9 Milk .. 4.9 4.9 4.9 5.1 5.2 15 Notes: p = preliminaty. Alllmits in percentages. (Source: Jvfinistry ofAgriculture and Agro-based Indllstry)
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7. INDUSTRY OVERVIEW (Colll’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • Generally, Malaysia is moderately reliant on imports for some types offood.
• The local production of food fish, poultry eggs and poultIy is sufficient to provide for local consumption of these food commodities as shown above from the self­sufficiency level of above 100.

• Imports constitute a minor proportion of the total consumption of pork, rice and fruits.
• On the other hand, food commodities such as vegetables, beef, mutton and milk are heavily reliant on imports. Nouetheless, the self-sufficiency levels of these food commodities have achieved growth in terms of AAGR betweeu 2008 and 2012, implying lower reliance on imports over the years.
• Food imports are an important supply source for food service operators. In 2013, import value of food amounted to RM38.9 billion and are mainly sourced from the following countries: Import Value of Food to Malaysia in 2013 RM million  People’s Republic of China  .  3,982  Argentina  .  3,770  India  ,  .  3,520  Indonesia  ,  .  3.205  Brazil  .  3,127  Australia  .  3,064  Thailand  .  2,984  United States of America  .  2,382  New Zealand  .  2,185  Vietnam  .  1,730  (Source: Department ofStatistics)
% 10.2 9.7 9.0 8.2 8.0 7.9 7.7 6.1 5.6 4.4
• Hence, as the raw materials and ingredients required for food preparation and processing are common input materials required by food service operators, food manufacturers as well as the general household, there is a large and readily available supply from local and various overseas sources. As such, the risk of a supply disruption is minimaL
• The Food Service Industry is generally not vulnerable to imports or overseas service providers as it is generally a location-based industIy. With the exception of take­away services, food and beverages are generally served and consumed in a fixed location.
11.2 Amusement and Recreation • Amusement park equipment is fairly reliant on overseas suppliers as total imports of roundabouts, swings, shooting galleries and other fairground amusements amounted to RM56.9 million, RM61.0 million and RM31.0 million in 2011, 2012 and 2013 respectively. In contrast, based on latest available information, local production amounted to only RM5.7 million in 2010.
Only World Group Holdings Berhad Page 23 of30 Illdustry AssessmeNt -229 ­7. INDUSTRY OVERVIEW (Collt’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions • Nonetheless, the Amusement Park Industry does not require a constant supply of amusement equipment as these items are a fann of capital investment, which are not “consumed” from day to day. Other items that are consumed day to day, such as food items and merchandise sold at amusement parks, can be sourced from local suppliers.
• Hence, a supply disruption is not likely to cause material impact to the existing operators of the industry.
• Amusement services are provided and consumed within a fixed location. Being a location-based industry. the Amusement Park Industry is generally not vulnerable to imports or overseas service providers.
12. INDUSTRY PROSPECTS AND OUTLOOK • The general prospects and outlook of the overall Leisure and Hospitality Industry is expected to be favourable based on the following factors that has shown positive performance.
12.1 Economic Conditions • A growing economy provides the impetus for private and public spending, which would have a positive flow-on effect on the overall Leisure and Hospitality Industry. The following are some key indicators of the Malaysian economy: Between 2009 and 2013, real GDP of the Malaysian economy grew at an AAGRof5.7%; In 2013, the Malaysian economy registered a real GDP growth of4.7%; As for 2014, real GDP for Malaysia is forecasted to grow between 5.5% and
6.0%. (Sollrces: Bank Negara Malaysia. Ministry ofFinance)
12.2 Population, Income and Expenditure • As the overall Leisure and Hospitality Industry services the general population, changes in population, income and expenditure would have an impact on the long­term prospects of the industry.
• Some of the relevant indicators are as follows: Popuilltion, Income and Expenditure Indicators of Malaysia AAGR (%) Total Population (2009-20 IJ) . 1.6 Per Capita Income (2009-2013) .. 7.5 Average Monthly Household Expenditure (2004/05-2009/10). 2.3 (Sources: Department a/Statistics, Ministry a/Finance)
• A growing population would increase the potential customer base for leisure and food services. On~y World Group Holdings Berhad Poge 24 0}30 Industry Assessment -230­7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions
• Growth in per capita income and average monthly household expenditure may result in increased spending by consumers, which could also have a positive flow on effect on the overall Leisure and Hospitality Iudustry.
• The total population is forecasted to grow to RM30.5 billion in 2015 growing at an AAGR of 1.3% between 2013 and 2015 (Source: Department ofStatistics) • In addition, Malaysia’s per capita ineome is forecasted to grow by 8.9% to RM34,682 in 2014 (Source: Ministry ofFinance).
12.3 Tourist Arrivals and Receipts • Apart from the general population in Malaysia, the overall Leisure and Hospitality Industry also serves foreign tourists travelling to Malaysia. Increasing tourist arrivals to Malaysia imply a potentially larger customer base for operators in the overall Leisure and Hospitality Industry while higher tourist receipts would mean greater expenditure by foreign tourists in Malaysia. As such, growth in tourist arrivals and receipts will contribute positively to the overall prospects and outlook of the Leisure and Hospitality Industry.
• Between 2009 and 2013, tourist arrivals to Malaysia grew at an AAGR of 2.1% to reach 25.7 million an-ivals, while tourist receipts grew at an AAGR of 5.2% to reach RM65.4 billion in 2013. (Source: Malaysia Tourism Promotion Board) 12.4 Government Initiatives • The Tourism Industry is one of the National Key Economic Areas (NKEA) under the Economic Transformation Programme (ETP). The successful implementation of this will increase tourist arrivals and receipts, thus having a flow-on effect on the overall Leisure and Hospitality Industry in Malaysia. Government support for the Tourism Industry would provide impetus for growth that will ultimately benefit players within the industry including those from the Food Service, and the Amusement and Recreation Industries. The ETP aims to achieve tourist arrivals of 36 million and receipts of RMI68 billion by year 2020. This would imply an AAGR of 4.9% and 14.4% respectively between 2013 and 2020. This is expected to be achieved through 12 Entry Point Projects (EPPs), including positioning Malaysia a duty-free shopping destination for tourist goods, establishing Malaysia as a global biodiversity hub, and enhancing connectivity to priority medium-haul markets. A sum ofRM2 billion will be provided to the Special Tourism Infrastructure Fund under Bank Pembangunan Malaysia to promote the tourism industry. The Fund will provide soft loans at low interest rates between 4% and 6%, with the Government providing a subsidy of 2%. The Fund will be used to finance the cost of building infrastructure such as hotels, res0l1s and theme parks as well as purchase and replacement of equipment related to the tourism sector. (Source: Ministry ofFinance)
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7. INDUSTRY OVERVIEW (Colll’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions 13. THREATS AND RISK ANALYSIS 13.1 Public Liability • Operators in the Amusement and Recreation Industry directly serve the general public. In many of the amusement and recreation venues, patrons use equipment, facilities and amenities. “As such, there is a risk of equipment failure or incidences leading to injuries or loss of life.
• The occurrence of any such incidents on the premises could subject the operator to legal redress, which may impact financially on the business, as well as contributing to bad publicity for the operator. Any bad publicity may discourage visitors to the venues.
• Operators of food service outlets also face potential incidences at their premises which may lead to consumers seeking for legal redress against them.

Mitigating Factors • Some incidents are unavoidable, and as such, operators of amusement attractions or food service outlets would normally obtain public liability insurance to reduce their exposure to such risks.
• In addition, operators that exercise due care, consideration and safety may be able to reduce the risk of public liability.
• For instance, operators of amusement parks may implement safety guidelines, procedures and training for employees, routine inspection and maintenance of equipment, as well as posting warning signs for patrons at rides and attractions.
• For operators of food service outlets, due care and consideration may include the proper handling and storage of foods, design of the workplace and the public areas, and other customer interaction procedures.

13.2 Reputation Risk • Operators in the Food Service Industry are sensitive to public perception as food served at outlets is consumed directly by consumers.
• Incidents such as serving contaminated food that results in food poisoning or other illness, and actions that are intended to cause harm to an operator such as sabotage and the spread of malicious rumours, may damage the public’s perception of an operator,
• Incidents that damage the public’s perception of an operator may harm its brand name and reputation, which in turn may have a negative effect on their performance.

Mitigating Factors • Operators [n the Food Service Industry can reduce the risk of food contamination by implementing food preparation processes that are certified to comply with recognised standiU’ds (such as the ISO 22000 food safety management system). continuously enforcing safe and proper food handling procedures at their outlets, and maintaining clean and hygienic premises. Only World Group Hoidings Berhad Page 26 ~r30 lndust/y Assessment -232 ­
7. INDUSTRY OVERVIEW (Colll’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions
• While acts of sabotage and the spread of malicious rumours are beyond an operator’s control, operators may mitigate the harm caused by them by ensuring that their food preparation and handing procedures are adhered to at all times, proactively investigating such incidents in a timely manner, and responding to public concerns.

13.3 Fluctuations in Prices of Raw Materials • Operators in the Food Service Industry use various types of raw materials and ingredients in the preparation of food and beverages. As such, increases in the prices of raw materials and ingredients could have an impact on the operator’s perfonnance. Alternatively, if the increase in cost is passed on to consumers, the operator may not be as price competitive as its competitors. Mitigating Factors • Some raw materials such as sugar, wheat flour and cooking oil are classified as price­controlled items by the Ministry of Domestic Trade, Co-operatives and Consumerism (MDTCC). This would provide a certain level of protection from price fluctuations of these raw materials.
• Other raw materials which may not be price controlled items in Malaysia are generally commodities that are subjected to world prices. As such, all operators who use these raw materials are equally affected.

 

13.4 Economic Slowdown • Any widespread and/or prolonged economic slowdown would affect consumer confidence and income, and subsequently their propensity to spend. The uncertainty over the global economies, particularly resulting from the euro zone debt crisis, may also affect the Malaysian economy.
• This may cause consumers to be more cautious in their spending, particularly in relation to discretionary items such as amusement attractions and food services. As such, the perfonnance of operators in the Food Service, and Amusement and Recreation Industries may be affected by the risk of economic slowdown.

Mitigating Faclors • As for 2014, real GDP ofthe Malaysian economy is expected to grow between 5.5% and 6.0%. This is relatively higher than the projected real GDP growth rate for advanced economies* in 2014, which is estimated at 2.0%. Note: *Includes Australia, Austria, Belgium, Canada, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong, Iceland, Ireland, Israel, Italy, Japan, Korea, Lu.xembourg, Malta, Netherlands, New Zealand, Nonva.y, Portugal, San Marino, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland, Taiwan, the United Kingdom and the United States ofAmerica. (Source: Ministry ofFinance; Secondary research by Vital Factor Consulting)
• Various initiatives introduced by the Government such as the 10th Malaysia Plan and ETP will continue to provide opportunities for operators in the Food Service, and Amusement and Recreation Industries, particularly through measures that encourage tourism, such as positioning Malaysia as a duty-free shopping destination for tourist goods) establishing Malaysia as a global biodiversity hub) and enhancing connectivity to priority medium-haul markets. Only World Group Holdings Berhad Page 27 of30 IndustJY Assessment -233 ­
7. INDUSTRY OVERVIEW (Colll’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions • These initiatives are expected to stimulate tourist arrivals and spending, which would help counter the negative effects of a slowdown in the local economy, should one occur. 14. DRIVERS OF GROWTH • Some of the drivers of grbwth for the Food Service Industry and the Amusement and Recreation Industry are as follows: Socio-economic growth such as growth in GDP and population would drive the demand for discretionary items such as food services, and amusement and recreation activities. Increasing consumer affluence as evidenced by increasing per capita income may result in greater purchasing power of the general population, which may translate into an increase in the consumption of discretionary items such as leisure activities and food services. Change in consumer lifestyle such as an increasing preference for eating out would provide growth opportunities for operators within the Food Service Industry. Food service outlets cater to consumers’ need for convenience, socialisation, and new and varied dining experiences. Similarly, an increasing preference or willingness to spend on leisure, hospitality, amusement and recreational activities would be beneficial for operators. Government initiatives as reflected in the Tourism NKEA of the ETP would provide the impetus for growth for operators in the overall Leisure and Hospitality Industry. Growth in the tourism industry, as shown by increasing tourist arrivals and receipts, will translate into greater sales for operators in the industry.
15. CRITICAL SUCCESS FACTORS 15.1 Food Service Industry • Critical success factors for operators in the Food Service Industry include the following: Established Brand Name and Market Reputation: Established brand names and market reputation for food service outlets playa vital role in winning new and retaining existing customers. Operators that have established brand names and market reputation would have better control of their business directions and at the same time create customer loyalty to sustain and grow the business. Keeping Abreast with Consumer Tastes and Preferences: It is essential for operators to keep abreast of consumer tastes and preferences to retain existing customers and to attract new customers. In addition, it will enable operators to address emerging business opportunities to sustain and grow their business. Financial Stability: Operators who are in a healthy financial position will be in a better position to upgrade its facilities including the seating and kitchen areas, expand its premises to increase capacity, and undeliake development of its brand through advertisements and promotions.
Only World Group Holdings Berhad Page 28 0/30 Industry Assessment -234 ­7. INDUSTRY OVERVIEW (Conl’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions 15.2 Amusement Indnstry • Critical success factors for operators in the Amusement Industry include the following: Range of Rides and Attractions: Amusement park that offers a wide range of rides and attractions will be able to meet the diverse preference and requirements of the potential consumer base. Uniqueness and Innovation: Operators of amusement parks that invest in continuous innovation and redesign of its rides and attractions would be able to address the changing patterns of consumer tastes and preferences. This will prevent fading customer loyalty from their existing customers. Established Brand Name and Market Reputation: An established brand name and market reputation is important in creating a positive image for an amusement park operator as it could provide potential customers with a stronger sense of security, trust and recognition. As such, effective branding would enable operators to sustain and grow its customer base efficiently. Capacity and Queue Management: Effective capacity and queue management can be a critical success factor as it ensures customer satisfaction, particularly during peak hours or peak seasons. Financial Strength: Operators with a stronger balance sheet will be in a better position to upgrade and replace its equipment and facilities, and undertake development of its brand through advertisements and promotions.
16. MARKET SIZE AND SHARE 16.1 Food Service Market Size • In 2013, the market size of the Food Service Industry in Malaysia was estimated at RM46 billion based on the sales value of operators offood services. Market Share • In 2013, OWG Group had a market share of less than one percent of the Food Service Industry based on the Group’s sales value from the operation of food service outlets. 16.2 Amnsement Park Market Size • In 20 13~ market size for amusement and theme parks in Malaysia was estimated at RM438 million based on the sales value of operators of amusement and theme parks. Market Share • In 2013, OWG Group had a market share of approximately 2% of the amusement and theme parks in Malaysia based on the Group’s sales valne derived from the operation of its water amusement parks (Source: Vital Factor Consulting Sdn Bhd). Only World Group Holding.l· Berhad Page 29 0(30 Industry Assessment -235 ­7. INDUSTRY OVERVIEW (Collt’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions We, Vital Factor Consulting Sdn Bhd, had prepared this report in an independent and objective manner and had taken all reasonable consideration and care to ensure the accuracy and completeness of the report. It is our opinion that the report represents a true and fair assessment of the industry within the limitations of, among others, secondary statistics and infoIDmtion, and primary market research. Our assessment is for the overall industry and may not necessarily reflect the individual performance of any company. We do not take any responsibilities for the decisions or actions of readers of this document. This report should not be taken as a recommendation to buy or not to buy the shares of any company. Yours sincerely
Wooi Tan Managing Director Only World Group Holdings Berhad Fage 30 Qf30 IndusfJ:v Assessment ·236·

 

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