L A P O R A N TA H U N A N

Transcription

1 L A P O R A N TA H U N A N 2011 A N N U A L R E P O R T

2 C O N T E N T S Notice of Annual General Meeting 2 Profile of Directors 4 Corporate Information 8 Executive Chairman s Statement 9 Statement of Corporate Governance 12 Other Compliance Information 17 Audit Committee Report 18 Statement on Internal Control 22 Statement of Directors Responsibility 24 Financial Statements 25 Group Properties 78 Analysis of Shareholdings 79 Proxy Form Enclosed

3 NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN THAT the Fourteenth Annual General Meeting of the Company will be held at Prescott Hotel Klang, No. 18A, Lebuh Enggang, Off Persiaran Sultan Ibrahim, Klang, Selangor Darul Ehsan on 29th November, 2011, Tuesday at a.m. AGENDA 1. To receive the Audited Financial Statements for the year ended 31st May, 2011 together with the Directors' and Auditors' Reports thereon. 2. To approve the payment of Directors' Fees of RM134,296 in respect of the financial year ended 31st May, (Please refer to Explanatory Note (a)) (Resolution 1) 3. To re-elect the following Directors: Datuk Simon Shim Kong Yip who retires pursuant to Article 103 of the Company s Articles of Association and being eligible, offers himself for re-election. 3.2 Mr. Lim Poh Seong who retires pursuant to Article 109 of the Company s Articles of Association and being eligible, offers himself for re-election. 3.3 Mr. Lim Zhen Qi who retires pursuant to Article 109 of the Company s Articles of Association and being eligible, offers himself for re-election. 3.4 Mr. Yap Min Lee who retires pursuant to Article 109 of the Company s Articles of Association and being eligible, offers himself for re-election. (Resolution 2) (Resolution 3) (Resolution 4) (Resolution 5) 4. To consider and if thought fit, to pass the following resolution: - THAT Mr. Wang Hak Wong Hak Tham, the Director retiring in compliance with Section 129 of the Companies Act, 1965, be and is hereby re-appointed as Director of the Company to hold office until the conclusion of the next Annual General Meeting. 5. To re-appoint Messrs KPMG as Auditors of the Company and authorise the Directors to fix their remuneration. (Resolution 6) (Resolution 7) 6. As Special Business, to consider and if thought fit, to pass the following resolution: - Ordinary Resolution Authority to Directors To Issue Shares THAT pursuant to Section 132D of the Companies Act, 1965, the Directors be and are hereby empowered to issue shares in the Company, at any time and upon such terms and conditions and for such purposes as the Directors may, in their absolute discretion, deem fit, provided that the aggregate number of shares issued pursuant to this resolution in any one financial year does not exceed 10% of the issued capital of the Company for the time being and that the Directors be and are also empowered to obtain approval for the listing of and quotation for the additional shares so issued on the Bursa Malaysia Securities Berhad and that such authority shall continue in force until the conclusion of the next Annual General Meeting of the Company. (Resolution 8) 2 PAOS HOLDINGS BERHAD A N N U A L R E P O R T

4 NOTICE OF ANNUAL GENERAL MEETING (cont d) 7. To transact any other business of which due notice shall have been given. BY ORDER OF THE BOARD HO MENG CHAN (MACS 00574) WU SIEW HONG (MAICSA ) Secretaries Petaling Jaya Selangor Darul Ehsan 4th November, 2011 Notes :- 1. A member entitled to attend and vote at the Meeting is entitled to appoint a proxy or proxies to attend and vote in his/her stead. Where two or more proxies are appointed, the proportions of shareholdings to be represented by each proxy must be specified in order for the appointments to be valid. If there is no indication as to how you wish your vote(s) to be cast, the proxy may vote or abstain from voting at his/her discretion. 2. A proxy may but need not be a member of the Company and the provision of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. 3. The instrument appointing a proxy, in the case of an individual, shall be signed by the appointer or by his attorney duly authorised in writing, and in the case of a corporation, shall either be given under its common seal or under the hand of an officer or attorney of the corporation duly authorised. 4. The instrument appointing a proxy must be duly executed and deposited at the Registered Office of the Company at No. 308, Block A (3rd Floor), Kelana Business Centre, 97, Jalan SS7/2, Kelana Jaya, Petaling Jaya, Selangor Darul Ehsan not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof. EXPLANATORY NOTES (a) This Agenda item is meant for discussion only, as the provision of Section 169(1) of the Companies Act, 1965 does not require a formal approval of the shareholders for the Audited Financial Statements. Hence, this Agenda item is not put forward for voting. (b) Ordinary Resolution - Authority To Directors To Issue Shares The effect of the resolution 8 under item 6 of the agenda, if passed, will give authority to the Directors of the Company, from the date of the above Annual General Meeting, to issue and allot shares in the Company up to and not exceeding 10% of the issued share capital of the Company for the time being, for such purposes as they consider would be in the interest of the Company. This authority, unless revoked or varied at a general meeting, will expire at the next Annual General Meeting of the Company. The proposed Resolution is to seek a renewal of the General Mandate for the issue of new ordinary shares pursuant to Section 132D of the Companies Act, 1965 which was approved by the shareholders at the Thirteenth Annual General Meeting. At the date of this notice, no new shares in the Company were issued pursuant to the general authority to the Directors for issuance of shares pursuant to Section 132D of the Companies Act, 1965 at the Thirteenth Annual General Meeting held on 26th November, 2010 and which will lapse at the conclusion of the Fourteenth Annual General Meeting. With this renewed General Mandate, the Company will be able to raise funds for the purpose of funding future investment, working capital and/or acquisitions. PAOS HOLDINGS BERHAD A N N U A L R E P O R T

5 PROFILE OF DIRECTORS LIM CHANG CHING Executive Chairman-Non-Independent Executive Director Ms. Lim Chang Ching, aged 37, a Malaysian, was appointed to the Board of Paos Holdings Berhad ( PHB ) on 31st January, 2007 and redesignated as Executive Chairman of PHB on 25th January, She holds a Bachelor Degree in Business Studies (Honors) from University of Sheffield (United Kingdom) in Ms. Lim Chang Ching served as Commercial Manager of Asia Poly Industrial Sdn. Bhd. in May, 1998 to March, She then held position as a Business Development Manager in Paos Industries Sdn. Bhd. in April, 2000 to May, Subsequently, she was appointed as Business Development Director of Asia Poly Industrial Sdn. Bhd. in June 2001 to August, She was the Chief Operating Officer of Hospital Pantai Indah Sdn. Bhd. from September, 2005 to August, Currently, she is holding directorship in various private limited companies and subsidiaries of PHB. She is also the Director of Esthetics International Group Berhad, a public listed company. ALICE BOO MIAU LI Non-Independent Executive Director Ms. Alice Boo, aged 42, a Malaysian, was appointed to the Board of PHB on 17th April, She is a Fellow of The Association of Chartered Certified Accountants (FCCA). She has over 10 years of experience in the fields of auditing, accounting and corporate finance. Her previous appointments include an auditor with a major public accounting firm in Kuala Lumpur, Finance Manager and Senior Corporate Finance Manager of several Malaysian public listed companies. 4 PAOS HOLDINGS BERHAD A N N U A L R E P O R T

6 PROFILE OF DIRECTORS (cont d) DATUK SIMON SHIM KONG YIP Non-Independent Non-Executive Director Datuk Simon Shim, aged 54, a Malaysian, was appointed to the Board of PHB on 31st January, Datuk Simon Shim holds a Master Degree in law from University College London, London University and is a Barrister-at-law of the Lincoln's Inn, London, an Advocate and Solicitor of the High Court in Sabah and Sawarak, a Notary Public and a Justice of the Peace in Sabah. He is a Chartered Arbitrator, a Fellow of the Chartered Institute of Arbitrators and a Fellow of the Malaysian Institute of Arbitrators. He is also a member of the Malaysian Institute of Corporate Governance, a member of the Corporate Law Reform Committee and its Working Group on Corporate Governance and Shareholders' Rights. Datuk Simon Shim was appointed as Director of Hap Seng Consolidated Berhad on 16th February, 1996, the Malaysian Mosaics Berhad on 31st December, 2002, Lam Soon (Thailand) Public Company Ltd on 26th April, 2007 and Hap Seng Plantations Holdings Berhad on 9th August, 2007, all public listed companies. LEE WEE YONG Alternate Director to Datuk Simon Shim Kong Yip Mr. Lee Wee Yong, aged 63, a Malaysian, was appointed to the Board of PHB on 13th January, 2006 as the Alternate Director to David Park who resigned as director of PHB on 31st January, Mr. Lee was subsequently appointed as the Alternate Director to Datuk Simon Shim Kong Yip on 31st January, He holds a Bachelor of Commerce and Administration degree from Victoria University in New Zealand and is a member of the Malaysian Institute of Accountants and New Zealand Institute of Chartered Accountants. He had worked in Mobil Oil (N.Z.) Ltd, Zip Holdings (N.Z.) Ltd, Associated Tractors Sdn. Bhd. and Asia Commercial Finance (M) Berhad. He joined Malaysian Mosaics Berhad in 1992 and has held various senior positions in the Group, including the Group Chief Financial Officer, a position he held from 1st March, 2003 to 15th December, Mr. Lee is presently an Executive Director of Hap Seng Consolidated Berhad and its 55.16% owned subsidiary, Hap Seng Plantations Holdings Berhad. PAOS HOLDINGS BERHAD A N N U A L R E P O R T

7 PROFILE OF DIRECTORS (cont d) WANG HAK WONG HAK THAM Independent Non-Executive Director Mr. Wang Hak Wong Hak Tham, aged 70, a Malaysian, was appointed to the Board of PHB on 2nd June, He is an Associate of Chartered Institute of Secretaries and Administrators, London and an Associate of Chartered Institute of Bankers, London. He started his career as an Officer in Malayan Banking Berhad in He served the bank until 1985 before joining Perwira Affin Bank Berhad ("PABB") as Assistant General Manager in He left PABB in 1992 to join Long Huat Berhad as Group General Manager. Later, in 1993 he rejoined PABB as the General Manager of Banking & Operations Division before he retired in Thereafter, in 1997, he was appointed to the board of Kaohsiung Timber Company Sdn. Bhd., a company involved in timber logging and resigned in early Presently, he is also the Director of Woodlandor Holdings Berhad, a public listed company. LIM ZHEN QI Non-Independent Executive Director Mr. Lim Zhen Qi, aged 26, a Malaysian, was appointed to the Board of PHB on 27th January, He holds a Bachelor of Business (Marketing) in Victoria University, Melbourne, Australia in year Before his appointment as the Executive Director of PHB, he was the Regional Manager at Loyal Oil Services Pte Ltd in Singapore. 6 PAOS HOLDINGS BERHAD A N N U A L R E P O R T

8 PROFILE OF DIRECTORS (cont d) LIM POH SEONG Independent Non-Executive Director Mr. Lim Poh Seong, aged 45, a Malaysian, was appointed to the Board of PHB on 27th January, He is a Fellow of The Association of Chartered Certified Accountants (FCCA). He has over 15 years of experience in the fields of auditing, accounting, corporate finance and overall administration of business operations. He began his career as an auditor with a major accounting firm in Kuala Lumpur in Subsequently, he joined the commercial sector where he held various positions in the finance and operations divisions of several Malaysian public listed companies. He was appointed as an Executive Director of a public listed company involved in healthcare and was put in charge of the group's overall operations and finance from April, 2001 to September, He left the group in February, 2007 as the Group Chief Operating Officer. He was an Executive Director of PHB from April, 2007 to April, 2008 and Asia Poly Holdings Berhad from October, 2007 to April, 2008, respectively. YAP MIN LEE Independent Non-Executive Director Mr. Yap Min Lee, aged 68, a Malaysian, was appointed to the Board of PHB on 22nd February, He holds a Bachelor of Art from Nanyang University, Singapore in 1968 and Master of Arts from University of Arkansas, USA in He started his career as a lecturer in Nanyang University, Singapore in He served the University until 1976 before joining PT Cakung Utama Painting & Packaging, Jakarta, Indonesia as a Deputy General Manager in 1977 until Subsequently, he joined PT Nipsea Paint and Chemicals Medan, Medan, Indonesia as Deputy General Manager in 1980 until Later, he held position as General Manager in PT Nipsea Paint and Chemicals Surabaya, Surabaya, Indonesia from 1984 to 1996 and PT Nipsea Paint and Chemicals Medan, Medan, Indonesia from 1997 to He also held directorship in PT Nipsea Paint and Chemicals Indonesia from 1995 to 2006 and PT Jasa Lestari Mandiri, Bogor, Indonesia from 1995 to NOTES : 1. Family Relationship with Director and/or Major Shareholder Ms. Lim Chang Ching and Mr. Lim Zhen Qi are sister and brother. Tan Sri Dato Lim Tong Lim Tong Yaim, a major shareholder of PHB, is the father of Ms. Lim Chang Ching and Mr. Lim Zhen Qi. Save as disclosed herein, none of the Directors has any family relationship with any other director and/or major shareholder of PHB. 2. Conflict of Interest None of the Directors has any conflict of interest with PHB. 3. Conviction of Offences None of the Directors has been convicted of any offences in the past 10 years. 4. Attendance of Directors Details of Board meeting attendance of each director are disclosed in the Statement of Corporate Governance in the Annual Report. PAOS HOLDINGS BERHAD A N N U A L R E P O R T

9 CORPORATE INFORMATION B O A R D O F D I R E C T O R S LIM CHANG CHING Executive Chairman-Non-Independent Executive Director ALICE BOO MIAU LI Non-Independent Executive Director DATUK SIMON SHIM KONG YIP Non-Independent Non-Executive Director WANG HAK WONG HAK THAM Independent Non-Executive Director LEE WEE YONG (Alternate Director to Datuk Simon Shim Kong Yip) LIM ZHEN QI Non-Independent Executive Director LIM POH SEONG Independent Non-Executive Director YAP MIN LEE Independent Non-Executive Director COMPANY SECRETARIES Ho Meng Chan (MACS 00574) Wu Siew Hong (MAICSA ) REGISTERED OFFICE No. 308, Block A (3rd Floor), Kelana Business Centre, 97, Jalan SS7/2, Kelana Jaya, Petaling Jaya, Selangor Darul Ehsan. Phone No.: Fax No.: HEAD OFFICE No. 65, Persiaran Selangor, Section 15, Shah Alam, Selangor Darul Ehsan. Phone No.: Fax No.: info@paos.com.my Website: REGISTRARS Symphony Share Registrars Sdn. Bhd. Level 6, Symphony House, Block D13, Pusat Dagangan Dana 1, Jalan PJU 1A/46, Petaling Jaya, Selangor Darul Ehsan. Phone No.: Fax No.: AUDITORS KPMG (Firm No. AF 0758) Chartered Accountants Level 10, KPMG Tower, 8, First Avenue, Bandar Utama, Petaling Jaya, Selangor Darul Ehsan. PRINCIPAL BANKERS Public Bank Berhad United Overseas Bank (M) Berhad Standard Chartered Bank Malaysia Berhad STOCK EXCHANGE LISTING Main Market of Bursa Malaysia Securities Berhad 8 PAOS HOLDINGS BERHAD A N N U A L R E P O R T

10 EXECUTIVE CHAIRMAN S STATEMENT On behalf of the Board of Directors of Paos Holdings Berhad, it is my pleasure to present to you the Fourteenth Annual Report and Audited Financial Statements of the Group and the Company for the financial year ended 31st May, Lim Chang Ching Executive Chairman FINANCIAL HIGHLIGHTS Revenue of the Group increased by 67.3% during the year to RM million from RM million recorded in the last financial year. Profit before taxation increased to RM5.20 million from RM1.89 million achieved in the preceding financial year. Correspondingly, profit for the year also increased to RM3.49 million from RM1.10 million in the previous year. The financial strength of the Group has improved with net cash generated from operating activities of RM19.37 million and a cash flow balance of RM8.31 million compared with a cash flow balance of RM4.02 million in the preceding year. Bank borrowings reduced from RM25.78 million as at the preceding year end to RM10.43 million as at this year end. Earnings per share for the financial year stood at 2.89 sen (2010 : 0.91 sen) and net assets per share were RM0.82 as at 31st May, 2011 (31st May, 2010 : RM0.81). OPERATIONAL REVIEW Paos Industries Sdn Bhd s revenue of RM million was 65.6% higher than the revenue of RM million for the preceding year mainly due to increase in revenue contribution from the manufacturing and trading division. In tandem with the higher revenue, the operating expenses of the Company increased by 65.3% to RM million from RM million. Consequently, Paos Industries Sdn Bhd registered a profit before taxation of RM5.04 million against a profit before taxation of RM2.97 million in the preceding year. Premier Oil Industries Sdn Bhd, which is involved in the rental of its property, plant and equipment, recorded a profit before taxation of RM1.07 million compared to a profit before taxation of RM1.12 million in the preceding year. PAOS HOLDINGS BERHAD A N N U A L R E P O R T

11 EXECUTIVE CHAIRMAN S STATEMENT (cont d) Alpine Legacy (M) Sdn Bhd, which is involved in the rental of retail podium and office space located at Kompleks Selangor, Jalan Sultan, Kuala Lumpur recorded revenue of RM3.36 million for the financial year against revenue of RM2.44 million in the preceding year. The operating profit before interest, tax and depreciation of the Company for the current year has improved to RM1.37 million from RM0.46 million in the preceding year. The 5 Elements Hotel Sdn Bhd, which operates and manages The 5 Elements Hotel located at the adjoining Kompleks Selangor property registered an operating profit before interest, tax and depreciation for the year of RM0.68 million against revenue of RM2.65 million compared to an operating profit before interest, tax and depreciation of RM0.48 million against revenue of RM2.10 million in the preceding year. DIVIDENDS During the financial year ended 31st May, 2011, Paos Holdings Berhad paid two tax exempt interim dividends totalling 5% (2010 : 5% tax exempt). The Board of Directors continues to maintain a reasonable balance between dividend payments, funding requirements and the future business growth of the Group as well as the objective of maximising stakeholders returns. PROSPECTS The volatility of petroleum prices, crude palm oil prices and interest rates are expected to continue to present challenging business conditions for the Group in the coming year. However, the Group will keep pursuing its initiatives to further optimise its operations and mitigate as much as possible the impact of higher input costs. The Group will continue to focus and adopt prudent strategies to consolidate the existing business operations and resources to overcome the current economic challenges. Efforts will continuously be made in improving productivity and cost efficiencies and to continue to improve returns on existing assets. CORPORATE SOCIAL RESPONSIBILITY Corporate Social Responsibility is part of management s initiative to continually strive to improve the Group s corporate values towards the community, environment, its employees, shareholders and other stakeholders in order to deliver sustainable growth. 10 PAOS HOLDINGS BERHAD A N N U A L R E P O R T

12 EXECUTIVE CHAIRMAN S STATEMENT (cont d) Quality management systems and work processes conforming to ISO 9001:2008 standards and Good Manufacturing Practices are constantly evaluated to minimise any possible negative impact on the environment throughout the entire production chain. The Group continues to emphasise on quality occupational health and safety in our business activities by conducting regular audits to ensure high standards of quality, safety and health are maintained. We value our employees whom we believe is fundamental to the success and growth of the Group. Towards this end, the Group recognises the importance of equipping its employees with the right skills and knowledge in order to perform their duties professionally. The Group provides relevant training to its employees to upgrade their skills and develop their potentials as part of workplace development. BOARD CHANGES We wish to record our appreciation to Tan Sri Dato Lim Tong Lim Tong Yaim, Dr. Dominic Er Kong Kiong and Mr. On Boon Kai for their contributions to the Group during their tenure as directors. We would also like to welcome Mr. Lim Zhen Qi, Mr. Lim Poh Seong and Mr. Yap Min Lee to our Board. APPRECIATION On behalf of the Board of Directors, I would like to express our appreciation to our shareholders, customers, business partners, financiers and regulatory authorities for their continued confidence and support to the Group. We would also like to thank the management and employees of the Group for their dedication, commitment and loyalty and to my fellow Board members for their guidance and contribution during the year. LIM CHANG CHING Executive Chairman PAOS HOLDINGS BERHAD A N N U A L R E P O R T

13 STATEMENT OF CORPORATE GOVERNANCE The Board of Directors of Paos Holdings Berhad is committed to ensuring that the highest standards of corporate governance are practiced throughout the Group as a fundamental part of discharging its responsibilities to protect and enhance shareholders' value and the financial performance of Paos Holdings Berhad. The Board is pleased to disclose to shareholders the manner in which it has applied the principles of good corporate governance and the extent to which it has complied with the best practices set out in the Malaysian Code. These principles and best practices have been applied throughout the financial year ended 31st May, 2011 and are regularly audited and reviewed to ensure transparency and accountability. (A) BOARD OF DIRECTORS (a) The Board Composition The Board comprises the Executive Chairman, two (2) Executive Directors and four (4) Non-Executive Directors, three (3) of whom are independent. The composition of the Board reflects that one-third (1/3) of its members are independent and this is to ensure that minority shareholders interests are represented. There is a clear division of responsibilities between the executive and non-executive functions to ensure effectiveness of the decision making process of the Board. The Independent Non-Executive Directors are committed to enhancing business integrity and independent judgment in the Board s activities. The Board members collectively have a wide range of working experiences drawn from accounting, financial, business, corporate, legal and academic backgrounds. The profiles of the Directors are provided in the Annual Report. (b) Board Meetings During the financial year ended 31st May, 2011, the Board held four (4) meetings and the details of their attendance are as follows: - Name of Directors Total Meetings Attended Lim Chang Ching 4 out of 4 Alice Boo Miau Li 4 out of 4 Datuk Simon Shim Kong Yip 2 out of 4 Lee Wee Yong (Alternate Director to Datuk Simon Shim Kong Yip) 2 out of 4 Wang Hak Wong Hak Tham 4 out of 4 Lim Zhen Qi # 1 out of 1 Lim Poh Seong # 1 out of 1 Yap Min Lee * 1 out of 1 Tan Sri Dato Lim Tong Lim Tong Yaim & 3 out of 3 Dr. Dominic Er Kong Kiong ^ 0 out of 2 On Boon Kai $ 3 out of 3 # appointed on 27th January, 2011 ^ resigned on 18th January, 2011 * appointed on 22nd February, 2011 $ resigned on 22nd February, 2011 & resigned on 25th January, 2011 (c) Supply of information The agenda and a full set of reports for consideration are distributed well before each meeting of the Board to provide Directors with sufficient time to study and review them. The Company Secretary is in attendance at Board meetings to ensure that Board meeting procedures are followed and applicable statutory and other regulations are complied with. Senior management staff may be invited to attend Board meetings to provide the Board with detailed explanations and clarifications on issues that are being deliberated. All Directors have also access to the advice of independent professionals, including the internal auditors. (d) Re-Election of Directors Each Director shall retire from office at least once in every three (3) years and can offer himself for re-election. Directors who are appointed by the Board are subject to re-election at the next Annual General Meeting. 12 PAOS HOLDINGS BERHAD A N N U A L R E P O R T

14 STATEMENT OF CORPORATE GOVERNANCE (cont d) (A) BOARD OF DIRECTORS (cont d) (e) Directors Training All Directors have attended and completed the Mandatory Accreditation Training Programme (MAP) prescribed by Bursa Malaysia Securities Berhad. Directors are encouraged to attend talks, seminars, workshops and conferences to update and enhance their skills and knowledge to enable them to carry out their roles effectively as Directors in discharging their responsibilities towards corporate governance, operational and regulatory issues. During financial year ended 31st May, 2011, the Directors have attended and participated in various programmes, seminars and briefings which they have individually or collectively considered as relevant and useful in contributing to the effective discharge of their duties as Directors. In addition, Directors education also includes briefings by the External Auditors, Internal Auditors and the Company Secretaries on the relevant updates on statutory and regulatory requirements from time to time during the Audit Committee meetings and Board meetings. (f) Board Committees The Board had established the following committees and delegated specific tasks and responsibilities to them. These committees are to report back to the Board the outcome and recommendations thereon for the Board to make final decision. The main committees that were set up are: - (i) Nomination Committee The Nomination Committee was established on 26th July, Composition Wang Hak Wong Hak Tham Yap Min Lee (Chairman of the Committee, Independent Non-Executive Director) (Independent Non-Executive Director) Responsibilities (a) (b) (c) (d) (e) to recommend to the Board, candidates for all directorships to be filled by the shareholders or the Board. In making its recommendations, the following of the candidates should be considered: - - skills, knowledge, expertise and experience; - professionalism; - integrity; and - in the case of candidates for the position of independent non-executive director, the candidates ability to discharge such responsibilities/functions as expected from independent non-executive director should be evaluated. to consider, in making its recommendations, candidates for directorships proposed by the Chief Executive Officer and, within the bounds of practicality, by any other senior executive or any Director or substantial shareholder. to recommend to the Board, Directors to fill the seats on Board committees. to annually review the Board s required mix of skills and experience and other qualities including core competencies which Non-Executive Directors should bring to the Board. to annually assess the effectiveness of the Board as a whole and the committees of the Board and to assess the contribution of each director including independent non-executive directors, as well as the Chief Executive Officer. During the financial year ended 31st May, 2011, the Committee met three (3) times on 26th November, 2010, 25th January, 2011 and 18th February, 2011 for the following purposes: - a) to review the Board's required mix of skills, experience and other qualities; b) to assess the effectiveness of the Board as a whole and the committees of the Board and to assess the contribution of each Director; c) to review the profile of Mr. Lim Poh Seong and Mr. Lim Zhen Qi; d) to recommend the proposed appointment of Mr. Lim Poh Seong and Mr. Lim Zhen Qi as Independent Non-Executive Directors and Non-Independent Executive Director, respectively; PAOS HOLDINGS BERHAD A N N U A L R E P O R T

15 STATEMENT OF CORPORATE GOVERNANCE (cont d) (A) BOARD OF DIRECTORS (cont d) (f) Board Committees (cont d) (i) Nomination Committee (cont d) e) to review the profile of Mr. Yap Min Lee; and f) to recommend the proposed appointment of Mr. Yap Min Lee as Independent Non-Executive Director. (ii) Remuneration Committee The Remuneration Committee was established on 26th July, Composition Datuk Simon Shim Kong Yip Wang Hak Wong Hak Tham Lim Chang Ching (Chairman of the Committee, Non-Independent Non-Executive Director) (Independent Non-Executive Director) (Executive Chairman-Non-Independent Executive Director) Responsibilities a) to review the annual remuneration packages of each individual Director (both Executive and Non- Executive) such that the levels of remuneration are sufficient to attract and retain the Directors needed to run the Company successfully. b) to recommend to the Board the remuneration packages of the Directors (both Executive and Non- Executive) of the Company. c) to review the remuneration packages of senior management and employees of the Company. During the financial year ended 31st May, 2011, the Committee met once on 29th July, 2010 for the following purposes: - a) to review the remuneration package of the Executive Directors; and b) to consider and recommend the payment of Directors Fees for the financial year ended 31st May, (iii) Audit Committee The composition, term of reference and other related report on Audit Committee are presented on pages 18 to 21 of the Annual Report. (iv) Employees' Share Option Scheme ( ESOS ) Committee The Committee was established on 8th January, Composition Alice Boo Miau Li Wang Hak Wong Hak Tham (Non-Independent Executive Director) (Independent Non-Executive Director) The Committee s responsibility is to implement and administer the Company s ESOS (the Scheme) introduced during the year. The Committee administers the Scheme in such manner as it shall in its discretion deem fit, including such powers and duties conferred upon it under the By-Law of the Scheme. The Committee ensures that the Scheme is administered in accordance with the By-Law. The Committee meets as and when is required. 14 PAOS HOLDINGS BERHAD A N N U A L R E P O R T

16 STATEMENT OF CORPORATE GOVERNANCE (cont d) (A) BOARD OF DIRECTORS (cont d) (f) Board Committees (cont d) (v) Investment Committee The Investment Committee was established on 29th October, Composition Datuk Simon Shim Kong Yip Alice Boo Miau Li Wang Hak Wong Hak Tham Lim Chang Ching (Non-Independent Non-Executive Director) (Non-Independent Executive Director) (Independent Non-Executive Director) (Executive Chairman-Non-Independent Executive Director) Responsibilities a) to report appropriately to the Board of Directors. b) to develop procedures and guidelines for the investment of available funds. c) to make recommendation with respect to asset allocations principles for investment portfolio and investment policy. d) to keep under review the investments and to recommend such sales and reinvestments. e) to act in an advisory capacity when the Board decides on amount to be invested. f) to generally meet when necessary. (B) DIRECTORS' REMUNERATION Details of the Directors remuneration for the financial year ended 31st May, 2011 are as follows: - (a) The aggregate remuneration (within the Group) of the Directors of the Company is as follows: - GROUP 2011 RM Executive Directors - Salaries and other emoluments 1,042,782 - Fees 2,244 - Benefit-in-kind Non-Executive Directors - Salaries and other emoluments 13,000 - Fees 132,052 - Benefit-in-kind (b) The number of Directors of the Company whose total remuneration falls within the following bands are: - Executive Directors RM350,000-RM400,000 1 RM300,000-RM350,000 1 RM250,000-RM300,000 1 Below RM100,000 1 Non-Executive Directors Below RM50,000 7 The above disclosures are inclusive of remuneration of Directors who have resigned during the financial year ended 31st May, PAOS HOLDINGS BERHAD A N N U A L R E P O R T

17 STATEMENT OF CORPORATE GOVERNANCE (cont d) (C) SHAREHOLDERS (a) Relationship with Individual Shareholders and Investors The Board acknowledges the importance of regular communication with shareholders and investors via the annual reports, circular to shareholders, quarterly financial reports and the various announcements made during the year, through which shareholders and investors can have an overview of the Group s performance and operation. The Company encourages direct dialogue with individual shareholders and investors especially during Annual General Meeting ( AGM ). (b) AGM The AGM provides an opportunity for the shareholders to seek and clarify any issues and to have a better understanding of the Group s performance. During the AGM, they have direct access to the Board of Directors and are given opportunity to ask questions during the question and answer session prior to adoption of the Company s audited financial statements. They are encouraged to ask questions about the resolutions being proposed and the Group s operation in general. (D) ACCOUNTABILITY AND AUDIT (a) Financial Reporting The financial statements are prepared in accordance with the requirements of the applicable approved accounting standards in Malaysia and the provisions of the Companies Act, The Board is responsible to ensure that the financial statements of the Group and the Company give a true and fair view of the state of affairs of the Group and the Company. (b) Internal Controls The Statement on Internal Controls furnished on pages 22 to 23 of the Annual Report provides an overview of the state of internal controls within the Group. (c) Relationship with the Auditors The Company maintains a close and transparent professional relationship with the external auditors, Messrs KPMG. The external auditors were present at meetings that deliberate on the Company s annual audited financial results, as well as during reviews of the Company s and Group s accounting policies. (E) STATEMENT OF COMPLIANCE WITH THE BEST PRACTICES OF THE CODE The Company is committed to achieving high standards of corporate governance throughout the Group and to the highest level of integrity and ethical standards in all its business dealings. The Board considers that it has complied throughout the financial year with the Best Practices as set out in the Code. This Statement is made in accordance with a resolution of the Board of Directors on 19th October, PAOS HOLDINGS BERHAD A N N U A L R E P O R T

18 OTHER COMPLIANCE INFORMATION 1) UTILISATION OF PROCEEDS During the financial year ended 31st May, 2011, the Company did not raise any proceed from any corporate proposal. 2) SHARE BUY-BACK During the financial year ended 31st May, 2011, the Company did not enter into any share-buy-back transaction. 3) OPTIONS, WARRANTS OR CONVERTIBLE SECURITIES The Company has not issued any options, warrants or convertible securities during the financial year ended 31st May, ) DEPOSITORY RECEIPT PROGRAMME The Company has not sponsored any depository receipt programme in the financial year ended 31st May, ) SANCTIONS AND /OR PENALTIES There were no sanctions and/or penalties imposed on the Company and its subsidiaries, Directors or management by the relevant regulatory bodies during the financial year ended 31st May, ) NON-AUDIT FEES During the financial year ended 31st May, 2011, non-audit fees paid to the external auditors by the Company amounted to RM9, for reviewing the Statement on Internal Control. 7) VARIATION IN RESULTS The Company did not release any profit estimate, forecast or projection for the financial year. There is no significant variance between results for the financial year and the unaudited results previously released by the Company. 8) PROFIT GUARANTEE There is no profit guarantee in respect of the Company during the financial year ended 31st May, ) REVALUATION POLICY ON LANDED PROPERTIES The Group does not adopt a policy of regular revaluation of its properties. 10) MATERIAL CONTRACTS The Company and its subsidiaries do not have any material contracts involving the interest of its Directors and/or major shareholders. 11) MATERIAL CONTRACTS RELATING TO LOANS The Company and its subsidiaries do not have any material contracts relating to loans involving the interest of its Directors and/or major shareholders. PAOS HOLDINGS BERHAD A N N U A L R E P O R T

19 AUDIT COMMITTEE REPORT COMPOSITION OF MEMBERS The Audit Committee appointed by the Board of Directors comprises of: - Wang Hak Wong Hak Tham Lim Poh Seong Yap Min Lee (Chairman of the Committee, Independent Non-Executive Director) (Independent Non-Executive Director) (Independent Non-Executive Director) TERMS OF REFERENCE Objectives The objectives of the Audit Committee are to comply with the Main Market Listing Requirements and the Malaysian Code on Corporate Governance and to relieve the full Board of Directors from detailed involvement in the review of the results of internal and external audit activities and ensure that audit findings are brought up to the highest level for consideration. Members a) The Audit Committee shall be appointed by the Board from amongst the Directors of the Company and shall consist of not less than three (3) members. All members of the Audit Committee must be Non-Executive Directors, with a majority of them being Independent Directors. At least one member of the Audit Committee :- i) must be a member of the Malaysian Institute of Accountants; or ii) if he is not a member of the Malaysian Institute of Accountants, he must have at least three years' working experience and: - (aa) he must have passed the examinations specified in Part 1 of the 1st Schedule of the Accountants Act, 1967; or (bb) he must be a member of one of the associations of accountants specified in Part II of the 1st Schedule of the Accountants Act, 1967; or iii) fulfils such other requirements as prescribed or approved by the Bursa Malaysia Securities Berhad. b) No alternate Director shall be appointed as a member of the Audit Committee. c) The members of the Audit Committee shall elect a Chairman from among their numbers who shall be an Independent Director. Functions The functions of the Audit Committee shall be a) to review the following and report the same to the Board of Directors: - i) with the external auditors, the audit plan; ii) iii) iv) with the external auditors, the evaluation of the system of internal controls; with the external auditors, the audit report; the assistance given by the employees of the Company to the external auditors; v) the adequacy of the scope, functions, competency and resources of the internal audit functions and that it has the necessary authority to carry out its work; 18 PAOS HOLDINGS BERHAD A N N U A L R E P O R T

20 AUDIT COMMITTEE REPORT (cont d) TERMS OF REFERENCE (cont d) Functions (cont d) a) to review the following and report the same to the Board of Directors: - (cont d) vi) vii) the internal audit programme, processes, the results of the internal audit programme, processes or investigation undertaken and whether or not appropriate action is taken on the recommendations of the internal audit function; the quarterly results and year end financial statements, prior to the approval by the Board of Directors, focusing particularly on: - (aa) changes in or implementation of major accounting policy changes; (bb) significant and unusual events; (cc) compliance with accounting standards and other legal requirements; and (dd) going concern assumption. viii) any related party transaction and conflict of interest situation that may arise within the Company or Group including any transaction, procedure or course of conduct that raises questions of management integrity; ix) any letter of resignation from the external auditors of the Company; x) whether there is reason (supported by grounds) to believe that the Company's external auditors are not suitable for re-appointment; xi) xii) the external auditors' management letter and management's response; and the list of eligible employee and the allocation of Employees' Share Option Scheme (ESOS) to be offered to them. b) to do the following, in relation to the internal audit function: - i) review any appraisal or assessment of the performance of members of the internal audit function; ii) iii) approve any appointment or termination of senior staff members of the internal audit function; and take cognisance of resignations of internal audit staff members and provide the resigning staff member an opportunity to submit his reasons for resigning. c) to consider: - i) the major findings of internal investigations and management's response; ii) iii) other topics as defined by the Board; and the nomination of a person or persons as external auditors together with such other functions as may be agreed by the Audit Committee and the Board of Directors. d) to discuss problems and reservations arising from the interim and final audits, and any matter the auditors may wish to discuss (in the absence of management where necessary). PAOS HOLDINGS BERHAD A N N U A L R E P O R T

21 AUDIT COMMITTEE REPORT (cont d) TERMS OF REFERENCE (cont d) Authority The Audit Committee shall have the authority to: - a) investigate any matter within its terms of reference; b) have the resources which are required to perform its duties; c) have full and unrestricted access to any information pertaining to the Company; d) have direct communication channels with the external auditors and person(s) carrying out the internal audit function or activity; e) obtain independent professional or other advice; and f) convene meetings with the external auditors, the internal auditors or both, excluding the attendance of other Directors and employees of the Company, whenever deemed necessary. However, the committee should meet with the external auditors without Executive Board members present at least twice a year. Meetings and Reporting Procedures a) The agenda for Audit Committee meetings shall be circulated at least five (5) days before each meeting. b) The Audit Committee shall meet as the Chairman deems necessary but not less than four (4) times a year. c) The Chairman shall be entitled, where deemed appropriate, to invite any person(s) to meetings of the Audit Committee. d) The Chairman should engage on a continuous basis with senior management, such as the chairman, the chief executive officer, the finance director, the head of internal audit and the external auditors in order to be kept informed of matters affecting the Company. e) In order to form a quorum in respect of a meeting of the Audit Committee, the majority of members of the Audit Committee present at the meeting must be Independent Directors. f) The Secretary is responsible for sending out notices of meetings, preparing and keeping minutes of meetings and circulating the minutes of meetings to all members of the Board. During the financial year ended 31st May, 2011, the Committee met four (4) times. The number of meetings attended by each member is as follows: - Name Total Meetings Attended Wang Hak Wong Hak Tham 4 out of 4 Lim Poh Seong # 1 out of 1 Yap Min Lee* 1 out of 1 Dr. Dominic Er Kong Kiong ^ 0 out of 2 On Boon Kai $ 3 out of 3 # Appointed on 27th January, 2011 * Appointed on 22nd February, 2011 ^ resigned on 18th January, 2011 $ resigned on 22nd February, PAOS HOLDINGS BERHAD A N N U A L R E P O R T

22 AUDIT COMMITTEE REPORT (cont d) Activities Undertaken The Committee has during the financial year ended 31st May, 2011 carried out the following: - (a) (b) (c) (d) reviewed the unaudited quarterly results and audited financial statements of the Company and the Group and recommended the same to the Board for approval prior to the announcement to Bursa Malaysia Securities Berhad; reviewed with the external auditors the audit plan, results of the audit, the audit report and the management letters, management s response and the recommendations arising from their findings; reviewed the Internal Audit Reports presented by the internal auditors on findings and recommendation with regards to system and control weaknesses noted in the course of their audit and management s responses thereto and ensuring material findings are adequately addressed by management; and reviewed the Statement on Internal Control. Internal Audit Function and Summary of Activities The Group s Internal Audit function, which is outsourced to a professional service firm, is an integral part of the assurance mechanism in ensuring that the Group s systems of internal controls are adequate and effective. The Internal Audit function reports directly to the Audit Committee. The costs incurred in maintaining the outsourced internal audit function for the financial year ended 31st May, 2011 amounted to RM48, In respect of the financial year ended 31st May, 2011, the Internal Auditors had carried out internal audit reviews on the following subsidiaries: - a) Paos Industries Sdn. Bhd. covering the following business process/areas: - a) Financial Close Process; and b) Human Resource Management b) The 5 Elements Hotel Sdn. Bhd. covering the following business process/areas: - Food and Beverages Operation (Restaurant/Cafe/Bar); Food and Beverage Cost Control; Procurement; and Inventory Management The reviews were conducted to assess: - the adequacy and effectiveness of the Group s system of internal control its compliance with the group policies and procedures over its business processes This could enhance the existing system of internal control and process efficiency of companies and thereon provide recommendations for improvement. Statement by the Audit Committee The Committee confirms that the allocation of options offered by the Company to eligible employees of the Group complies with the By-Law of the Company s Employees Share Option Scheme. This report is made in accordance with the resolution of the Board of Directors on 19th October, PAOS HOLDINGS BERHAD A N N U A L R E P O R T

23 STATEMENT ON INTERNAL CONTROL INTRODUCTION The Board of Directors ( the Board ) of Paos Holdings Berhad ( the Group ) is pleased to present its Statement on Internal Control for the financial year ended 31st May, 2011, which has been prepared pursuant to paragraph 15.26(b) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad and as guided by the Statement on Internal Control: Guidance for Directors of Public Listed Companies. BOARD S RESPONSIBILITY The Board acknowledges its responsibility in maintaining a sound and effective system of internal control and in reviewing the adequacy and integrity of the internal control systems to safeguard shareholders investments and the Group s assets. The Board also acknowledges that due to the limitations that are inherent in any system of internal controls, the internal control system can only reduce but cannot totally eliminate all risks that may impede the achievement of the Group s business objective. Therefore, such a system of internal control can only provide reasonable and not absolute assurance against material misstatement, error or loss. RISK MANAGEMENT Risk management is regarded by the Board to be an important element of business operations. Key management staff and Head of Departments are delegated with the responsibility to manage identified risks within defined parameters and standards. Managing the significant risks is an ongoing process carried out on a continuous basis. During the year under review, management meetings were held to discuss key risks and the appropriate mitigating actions to manage such risks. Significant risks affecting the Group s strategic and business plans are highlighted and monitored by the Risk Management Committee at their scheduled meetings. The Risk Management Committee which is made up of key management staff and Executive Directors will meet to review the risk profile of the Group on yearly basis. During the year, the risk profile of the Group was updated by the Risk Management Committee. The abovementioned risk management practices of the Group are the summary or overview of the process used to identify, assess and manage key risks faced by the Group. INTERNAL AUDIT FUNCTION The Audit Committee and Board currently obtains regular assurance on the adequacy and effectiveness of the internal control system through independent reviews performed by the internal audit function, which is outsourced to a professional service provider firm. During the financial year ended 31st May, 2011, the internal audit function conducted reviews in accordance with the internal audit plan approved by the Audit Committee. Based on the internal audit reviews carried out, the results and recommendations for improvement were presented to the Audit Committee at their quarterly meetings. In addition, follow up visits were also conducted to ensure that corrective actions have been implemented on a timely manner. During the financial year under review, the Board is of the opinion that none of the internal control weaknesses noted have resulted in material losses, contingencies or uncertainties that would require a separate disclosure in the annual report. For the financial year ended 31st May, 2011, the total costs incurred for the outsourced internal audit function is RM48, PAOS HOLDINGS BERHAD A N N U A L R E P O R T