I m p r o v i n g L i f e w i t h Sunzen Biotech Berhad

Transcription

1 Improving Life with

2 Contents Corporate Information Corporate Structure Directors Profile Key Senior Management Profile 5-Year Financial Highlights Management Discussion and Analysis Audit Committee Report Corporate Governance Overview Statement Directors Responsibility Statement Additional Compliance Information Statement On Risk Management And Internal Control Financial Statements List of Properties Analysis of Shareholdings Analysis of Warrant Holdings Notice of Annual General Meeting Form of Proxy

3 2 SUNZEN BIOTECH BERHAD ( W) CORPORATE INFORMATION BOARD OF DIRECTORS Tan Sri Haji Musa Bin Tan Sri Haji Hassan Chairman / Senior Independent Non-Executive Director Ooi Bee Hoon Independent Non-Executive Director Datuk Hong Choon Hau Executive Director / Chief Executive Officer Lim Eng Chai Executive Director / Chief Operating Officer Khoo Kien Hoe Independent Non-Executive Director AUDIT COMMITTEE Khoo Kien Hoe Chairman Tan Sri Haji Musa Bin Tan Sri Haji Hassan Member Ooi Bee Hoon Member NOMINATION COMMITTEE Tan Sri Haji Musa Bin Tan Sri Haji Hassan Chairman Ooi Bee Hoon Member Khoo Kien Hoe Member REMUNERATION COMMITTEE Tan Sri Haji Musa Bin Tan Sri Haji Hassan Chairman Ooi Bee Hoon Member Khoo Kien Hoe Member PRINCIPAL BANKER Malayan Banking Berhad REGISTERED OFFICE 10 th Floor, Menara Hap Seng No. 1 & 3, Jalan P. Ramlee Kuala Lumpur Tel : Fax : SHARE REGISTRAR Symphony Share Registrars Sdn. Bhd. Level 6 Symphony House Block D13, Pusat Dagangan Dana 1 Jalan PJU 1A/ Petaling Jaya Selangor Darul Ehsan Tel : Fax : /52 AUDITORS RSM Malaysia (AF 0768) Chartered Accountants 5 th Floor, Penthouse Wisma RKT, Block A No. 2, Jalan Raja Abdullah Off Jalan Sultan Ismail Kuala Lumpur STOCK EXCHANGE LISTING ACE Market of Bursa Malaysia Securities Berhad ( Bursa Securities ) Stock Name : SUNZEN Stock Code : 0148 (shares) 0148WA (warrants 2014/2019) 0148WB (warrants 2016/2021) COMPANY SECRETARIES Lim Lee Kuan (MAICSA ) Teo Mee Hui (MAICSA )

4 Annual Report CORPORATE STRUCTURE (as at 18 April 2018) Sunzen Biotech Berhad ( W) 100% Sunzen Corporation Sdn. Bhd. ( W) 100% Sunzen LifeSciences Sdn. Bhd. ( D) 70% PT Sunzen Indonesia 100% Sunzen Feedtech Sdn. Bhd. ( K) 30% 70% 51% Sunzen Palma Sdn Bhd ( D) Sunzen Agritechnology (Northern) Sdn. Bhd. ( V) 100% Sunzen Asia Urethanes Sdn. Bhd. ( D) 100% Sunzen International Investment Limited (Hong Kong)

5 4 SUNZEN BIOTECH BERHAD ( W) DIRECTORS PROFILE TAN SRI HAJI MUSA BIN TAN SRI HAJI HASSAN Male/ aged 66/ Malaysian (Chairman / Senior Independent Non-Executive Director) DATUK HONG CHOON HAU Male/ aged 41/ Malaysian (Executive Director/ Chief Executive Officer) Tan Sri Haji Musa Bin Tan Sri Haji Hassan was appointed to the Board as an Independent Non-Executive Chairman on 21 July He is also the Chairman of the Remuneration Committee and Nomination Committee, and a member of the Audit Committee. He was identified as the Senior Independent Non-Executive Director on 25 November Tan Sri Haji Musa served as an Inspector General of Police from 2006 to 2010, Deputy Inspector General of Police from 2005 to 2006, Director of Criminal Investigation Department since 2004, Chief Police Officer of Johore from 2003 to 2004, Deputy Director CID from 2001 to 2003, Deputy Director CID II from 2000 to 2001, Head of Legal Section CID from 1995 to 2000, Head of Police Law Examination Syndicate from 1991 to 1995, Law Lecturer and Head of Law School at Police College from 1986 to 1991, Intell and Ops Officer Drug Enforcement Branch Bukit Aman from 1975 to 1986, Investigation Officer & Area Inspector Alor Gajah Malacca from 1973 to 1975 and Investigation & Prosecution Officer in Malacca from 1970 to At present, he is being invited to lecture and give talks at various universities in Malaysia and also Government Departments pertaining to security development in Malaysia, leadership, management and integrity. Datuk Hong Choon Hau was first appointed to the Board as an Independent Non-Executive Director on 1 July 2014 and was subsequently re-designated to Executive Director on 21 July He was appointed as the Chief Executive Officer on 21 July He holds a Diploma in Computer Science/ Information Technology. Datuk Hong has many years of working experience in corporate and ICT Technology serving in various capacities. He was Executive Director and Financial Controller of Myworld Holdings Berhad from 2014 to Currently, he is a Non-Independent Non-Executive Director of Watta Holding Berhad and also a Director of Prodigee Sdn. Bhd. He does not have any family relationship with any Director and/ or major shareholder of the Company, nor does he have any conflict of interest with the Company. He has not been convicted for offences within the past five (5) years other than traffic offences or any public sanction or penalty imposed on him by the relevant regulatory bodies during the financial year He has attended all the five (5) Board of Directors Meetings of the Company held during the financial year ended 31 December He holds School Certificate and Malaysian Certificate of Education in 1968, Diploma in Law, University College of Wales Aberystwyth, United Kingdom in 1985, Ijazah Kehormat Doktor Falsafah (Pengurusan Teknologi) in 2010 and Advanced Management Program Templeton College University Oxford, United Kingdom in He does not have any family relationship with any Director and/ or major shareholder of the Company, nor does he have any conflict of interest with the Company. He has not been convicted for offences within the past five (5) years other than traffic offences or any public sanction or penalty imposed on him by the relevant regulatory bodies during the financial year He has attended all the five (5) Board of Directors Meetings of the Company held during the financial year ended 31 December He does not hold any directorship in other public companies and listed corporations.

6 Annual Report DIRECTORS PROFILE (Cont d) LIM ENG CHAI Male/ aged 47/ Malaysian (Executive Director/ Chief Operating Officer) OOI BEE HOON Female/ aged 51/ Malaysian (Independent Non-Executive Director) Mr Lim Eng Chai was first appointed to the Board as an Independent Non-Executive Director on 1 July 2014, and was subsequently re-designated to Executive Director on 21 July He was appointed as the Chief Operating Officer on 21 July Mr Lim holds a Diploma in Art & Design. He has been a Director of Excelcity Hi-Tech Sdn. Bhd. since 2004 and a Director of Angsana Edar Sdn. Bhd. and Angsana Venture Sdn. Bhd. since He was also appointed as a Chief Operating Officer of Ninetology (Southern) Sdn. Bhd. in He does not have any family relationship with any Director and/ or major shareholder of the Company, nor does he have any conflict of interest with the Company. He has not been convicted for offences within the past five (5) years other than traffic offences or any public sanction or penalty imposed on him by the relevant regulatory bodies during the financial year He has attended all the five (5) Board of Directors Meetings of the Company held during the financial year ended 31 December He does not hold any directorship in other public companies and listed corporations. Madam Ooi Bee Hoon was appointed to the Board as an Independent Non-Executive Director on 18 August She is also a member of the Audit Committee, Remuneration Committee and Nomination Committee. She graduated and obtained a Higher School Certificate qualification. Madam Ooi has more than 16 years of working experience in Telecommunication industry, which involves in the business of wholesale of mobile devices and tablets. She is currently a Director of Daily Gain Teleshop Sdn. Bhd. and Best Dg Distributors Sdn. Bhd. She does not have any family relationship with any Director and/ or major shareholder of the Company, nor does she have any conflict of interest with the Company. She has not been convicted for offences within the past five (5) years other than traffic offences or any public sanction or penalty imposed on her by the relevant regulatory bodies during the financial year She has attended two (2) Board of Directors Meetings of the Company held during the financial year ended 31 December She does not hold any directorship in other public companies and listed corporations.

7 6 SUNZEN BIOTECH BERHAD ( W) DIRECTORS PROFILE (Cont d) KHOO KIEN HOE Male/ aged 47/ Malaysian (Independent Non-Executive Director) Mr Khoo Kien Hoe was appointed to the Board as an Independent Non-Executive Director on 22 July He is also the Chairman of the Audit Committee and a member of the Remuneration Committee and Nomination Committee. He graduated with a Diploma in Commerce (Financial Accounting) from TAR College in 1995, and obtained a professional qualification in accounting from the Association of Certified Chartered Accountants ( ACCA ). He is the fellow member of ACCA and a member of Malaysia Institute of Accountants. Mr Khoo served as Audit Senior at Peter Chong & Co. from December 1995 to March 1997, and Audit Senior at KPMG from April 1997 to January He was a Finance Manager at Ins Enterprise Sdn. Bhd. from 2001 to Currently, he is a Managing Director of Bizguide Corporate Services Sdn. Bhd. He does not have any family relationship with any Director and/ or major shareholder of the Company, nor does he have any conflict of interest with the Company. He has not been convicted for offences within the past five (5) years other than traffic offences or any public sanction or penalty imposed on him by the relevant regulatory bodies during the financial year He has attended all the five (5) Board of Directors Meetings of the Company held during the financial year ended 31 December He does not hold any directorship in other public companies and listed corporations.

8 Annual Report Key Senior Management PROFILE LIM BOON KUAN Male/ aged 51/ Malaysian (Senior Head of Finance and Accounts Division/ Chief Financial Officer) KWAN CHOON YAU Male / aged 37 / Malaysian (Head of Operation Division) Mr Lim Boon Kuan is a Member of Malaysian Institute of Accountants and fellowship of Association of Certified Chartered Accountants. He is appointed as Senior Head of Finance and Accounting Division on 27 February He started his career as financial controller of DBX Express Services Sdn. Bhd. In October 2001, he joined Metroplex Berhad as Senior Accountant. In 2003, he joined Darco Water Technologies Pte Ltd as Group Accountant and was promoted to Director of Business Development and Group Financial Controller before he left for YKGI Berhad as Chief Financial Officer in He subsequently moved on to Kumpulan Powernet Berhad as Chief Financial Officer in April 2016 prior to joining Sunzen Biotech Berhad. He does not have any family relationship with any Director and/ or major shareholder of the Company, nor does he have any conflict of interest with the Company. He has not been convicted for offences within the past five (5) years other than traffic offences or any public sanction or penalty imposed on him by the relevant regulatory bodies during the financial year He does not hold any directorship in other public companies and listed corporations. Mr Kwan Choon Yau graduated from Nilai College, Seremban in 2002 with a Degree in Finance and Accounting. He served as Personal Assistant and person in charge of BP Excelcity Telecentre, involved in handling of marketing and operation from 2003 to In June 2007, he joined WF&S Tombstone Construction Sdn Bhd, a subsidiary of Nirvana Asia Ltd, as a Junior Executive and was being promoted to Assistant Manager in Marketing & Sales cum Project Operational Coordinator since He subsequently moved on to Sunzen Biotech Berhad in 2017 as Executive Assistant of Chief Operating Officer and was appointed as one of the team leaders for ISO22000 Feed Safety Team & Good Manufacturing Practice (GMP) Team. He was promoted to Head of Operation Division of Sunzen Group in He does not have any family relationship with any Director and/or major shareholder of the Company, nor does he have any conflict of interest with the Company. He has not been convicted of offences within the past 5 years other than traffic offences or any public sanction or penalty imposed on him by the relevant regulatory bodies during the financial year He does not hold any directorship in other public companies and listed corporations.

9 8 SUNZEN BIOTECH BERHAD ( W) 5-YEAR FINANCIAL HIGHLIGHTS REVENUE (RM 000) 350, ,451 PROFIT/(LOSS )BEFORE TAX (RM 000) , ,090 4, , , , , ,391 50, ,326 37,339 32,222 40, (287) (455) PROFIT/(LOSS) AFTER TAX (RM 000) ,508 3,640 TOTAL SHAREHOLDERS EQUITY (RM 000) ,335 99, ,309 53, , , (373) (60) YEAR ENDED 31 DECEMBER (RM 000) (RM 000) (RM 000) (RM 000) (RM 000) REVENUE 37,326 37,339 32,222 40, ,451 PROFIT/(LOSS) BEFORE TAX 4,090 1,391 (287) (455) 4,012 PROFIT/(LOSS) AFTER TAX 3,508 1,100 (373) (60) 3,640 TOTAL SHAREHOLDERS EQUITY 32,564 50,309 53,318 97,335 99,720

10 Annual Report MANAGEMENT DISCUSSION AND ANALYSIS The Board of Directors and Management of Sunzen Biotech Berhad ( Sunzen or the Company ) are pleased to present the Management Discussion and Analysis to give a clearer picture of the Group s business, operations and financial position for the financial year ended 31 December 2017 ( FYE 2017 ). BUSINESS OPERATIONS Sunzen and its subsidiaries ( The Group ) engaged in the business of biotechnology research and development, manufacturing and marketing of animal health products and investment holding. The Group has also embarked on a new business activity into trading of crude palm oil and derivative products. Manufacturing Division The Group s existing manufacturing plants operating in Shah Alam, Selangor producing a wide range of animal health products namely Feed Supplements, Premixed products, Disinfectants, Water Soluble and Powder Fats. Our clients are mainly feed-millers, dealers and farm operators. Our products are also supplied to other countries like China, Vietnam, Philippines, Taiwan and Indonesia. The Group is also providing contract manufacturing services to clients for Powder Fats. Trading Division The Group is no longer a distributor of Zoetis Malaysia Sdn. Bhd. for the distribution of animal health products in the country following the termination of agreement with Sunzen Corporation Sdn. Bhd. The Group has diversified its business portfolio to include trading of crude palm oil and derivative products. This new business has contributed significantly to the Group s revenue as well as its profitability for FYE OBJECTIVE AND STRATEGIES The Group always places great emphasis on business sustainability to protect the values of the stakeholders and offering quality products at competitive prices to customers. To meet this end, the Group will continue exploring business opportunities as well as diversifying into other business activities. The Group continues to improve its products quality and develop new products through continued research and development in collaboration with local institutions. FINANCIAL PERFORMANCE REVIEW Financial performance of the Group for FYE RM 000 RM 000 Revenue 303,451 40,013 Cost of sales (291,981) (32,376) Gross profit 11,470 7,637 Other income 1,483 1,571 Operating profit 12,953 9,208 Operating expenses (8.845) (9,464) Finance costs (96) (199) Profit/(Loss) before tax 4,012 (455) Tax (expense)/credit (372) 395 Profit/(Loss) after tax 3,640 (60)

11 10 SUNZEN BIOTECH BERHAD ( W) MANAGEMENT DISCUSSION AND ANALYSIS (Cont d) The Group revenue increased immensely more than 7-fold to RM million for FYE 2017 relative to RM40.01 million in the corresponding financial year, mainly due to the injection of new business activity for trading of crude palm oil and derivative products in The Group registered a profit after tax of RM3.64 million for FYE 2017 as compared to a loss after tax of RM0.06 million in 2016, mainly attributed to earnings from crude palm oil and derivative products and lower operating expenses incurred on selling and distribution. Financial position review The Group posted a healthy balance sheet for FYE 2017 with a cash and bank balance of RM47.40 million with a slight decrease when compared to RM50.55 million in 2016 mainly due to the increase in trade receivables for crude palm oil trading. Net assets per share attributable to equity holders of the Company for FY2017 was RM0.21 as compared to RM0.20 in the previous corresponding year. The Group maintained a low interest bearing borrowings of about RM1.48 million for FY 2017 with gearing of time (2016: RM4.68 million and time respectively). CAPITAL EXPENDITURE, CAPITAL STRUCTURE AND CAPITAL RESOURCES The Group incurred on capital expenditure of around RM3.42 million in FYE Capital commitment approved for but not provided for as at 31 December 2017 was approximately RM4.11 million, which comprised mostly balance brought forward from the previous year for the purchase of plant and machinery funded from the proceeds of Rights Issue of shares of approximately RM44.86 million. RISKS CATEGORY IN BUSINESS OPERATION The following risks may have an impact on the operations and financial performance of the Group: 1. Business Risk Revenue and operating costs could be adversely impacted by factors such as market demand and supply, fluctuation of prices of raw materials, availability of raw materials from vendors, increase of labour costs, volatility of foreign exchange and operational efficiency of plant. The Group mitigates the risk through close monitoring of prices of raw materials, fostering cordial relationship with vendors and ensuring plant operating at optimal level. 2. Foreign Exchange Risk Animal health products business where production involves raw materials purchasing from overseas vendors and marketing of products to overseas clients with settlement of transactions in United States Dollar. To cushion the impact of the fluctuation on foreign exchange which may lead to a possible loss, the Group closely monitors the situation to ensure foreign currency accounts is maintained at a reasonable level. 3. Political, Economic and Regulatory factors Any changes in political, economic and regulatory environment in the country or overseas might have an impact on the business of the Group such as change of political leadership or government policies on interest rates, currency exchange controls and import duties on raw materials, new regulations from Ministry of Health and Department of Veterinary Services on product licensing and so forth. The Group mitigates the exposure through diversification of business activity and regular update of any latest changes affecting the business of the Group and proactive plans to curb with new requirements.

12 Annual Report MANAGEMENT DISCUSSION AND ANALYSIS (Cont d) 4. Competition Industry players in feed additive market in Malaysia face greater challenges in terms of product quality, pricing, rising cost of raw materials, brand name, new products, product seminar and promotion while sustaining or expanding their market shares. The Group mitigates the risk through continuously improving its product quality and operational efficiency, providing technical support and having good rapport with our clients. 5. Directors, key Senior Management and Skilled Personnel It always hold a belief that success of the Group is greatly dependent on the skills, experiences, abilities, team spirit and commitments of its Directors, key senior management and skilled personnel. The Group acknowledges the importance of attracting and retaining senior management personnel to ensure smooth operation of business through rewarding attractive remuneration and promotion as a recognition of his or her commitment to the success of business. OUTLOOK The Group has proposed ratification of diversifying its existing business of animal health products to include trading of crude palm oil and derivative products which has contributed positively to the financial performance for FYE The Board believes the crude palm oil trading is expected to continue to contribute significantly to the revenue and earnings of the Group. The Group has also proposed to acquire 70% stake in Ecolite Biotech manufacturing Sdn. Bhd. which is involved in the manufacturing and trading of traditional Chinese medicines, herbal health foods and beverages.

13 12 SUNZEN BIOTECH BERHAD ( W) AUDIT COMMITTEE REPORT The Board is pleased to present the Audit Committee Report for the financial year ended 31 December The Audit Committee ( AC ) conducted five (5) meetings during the financial year. The composition and details of the attendance of the AC members are set out as follows: COMPOSITION OF THE AC Name Attendance Chairman Khoo Kien Hoe 5/5 (Independent Non-Executive Director) Members Tan Sri Haji Musa Bin Tan Sri Haji Hassan 5/5 (Senior Independent Non-Executive Director) Ooi Bee Hoon 2/2 (Independent Non-Executive Director) (Appointed on 18 August 2017) Dato Dr. Mhd Nordin Bin Mohd Nor 3/3 (Resigned on 31 May 2017) TERMS OF REFERENCE The full details of the terms of reference of the AC are published on the Company s website SUMMARY OF WORK DONE DURING THE FINANCIAL YEAR The work carried out by the AC in discharging its duties and functions with respect to their responsibilities during the financial year were summarised as follows: Financial Reporting The AC reviewed the quarterly and annual financial statements required by Bursa Securities with the management team prior to making recommendation for the Board s approval. The review focused on the changes in accounting policies and practices, major judgemental and risk areas, significant adjustments resulting from the audit, the going concern assumption, compliance with accounting standards, compliance with the ACE Market Listing Requirements of Bursa Securities ( AMLR ) and other legal requirements. The AC keeps itself abreast of changes in accounting policies and guidelines through updates by the external auditors. External Audit The AC discussed with the external auditors the audit plan and scope of work for the Group, and the report on the audit of the year-end financial statements; reviewed audit findings and reservations arising from the audits, significant accounting issues and any matter the external auditors may wish to discuss and reviewed the external auditors objectivity and independence. Other main issues discussed by the AC include key audit matters, in relation to the capital work in progress, addressed in the audited report for the financial year ended 31 December The AC reviewed and assessed the performance of the external auditors and considered the reappointment of the external auditors and their audit fee, after taking into consideration the independence and objectivity of the external auditors and the cost effectiveness of their audit before recommending to the Board for approval. In assessing independence, the AC reviewed the fees and expenses paid to the external auditors during the year. The AC is of the opinion that the auditors independence has not been compromised based on the confirmation provided by the external auditors. The AC held a private session with the external auditors during the financial year to seek feedbacks from the external auditors on any difficulty encountered during the audit.

14 Annual Report AUDIT COMMITTEE REPORT (Cont d) Internal Audit The AC reviewed with the internal auditors the internal audit reports and to monitor/ follow-up on remedial action; reviewed the corrective actions taken by Management in addressing and resolving issues and ensured the adequacy of the independence, competency and resource sufficiency of the outsourced internal audit function. Related Party Transactions The AC reviewed the potential related party transaction and any conflict of interest situation that may arise within the Group including any transaction, procedure or course of conduct that raises questions of management integrity. Related party transaction during the financial year are disclosed in notes to the financial statements. Others The AC has full access to and co-operation of Management. The AC also has full discretion to invite any Director or executive officer to attend its meetings, and has been given adequate resources to discharge its functions. The AC had met with the external auditors without the presence of Management during the financial year. The AC has reviewed the Statement on Risk Management and Internal Control and AC Report in accordance with the AMLR for inclusion into the Annual Report. INTERNAL AUDIT FUNCTION The internal audit function was outsourced to an external service provider firm to assist the AC in discharging its duties and responsibilities in respect of reviewing the adequacy and effectiveness of the Group s risk management and internal control systems. During the financial year ended 31 December 2017, the internal auditors carried out duties in areas covering the review on warehouse management and production management of the Company and its subsidiaries. The Internal Audit reports were issued to the AC regularly and tabled at the AC meetings. All audit findings are reported to the AC and areas of improvement and audit recommendations identified are communicated to Management for further action. The cost incurred for the internal audit function in respect of the financial year ended 31 December 2017 was approximately RM48,000. Further details of the Internal Audit Function are set out in the Statement on Risk Management and Internal Control on page 25 of the Annual Report 2017.

15 14 SUNZEN BIOTECH BERHAD ( W) CORPORATE GOVERNANCE OVERVIEW STATEMENT The Board of Sunzen is committed in cultivating a responsible organisation by instilling corporate conscience through excellence in corporate governance ( CG ) standards at all times, including accountability and transparency are observed throughout the Group as a fundamental part of building a sustainable business and discharging its responsibilities to protect and enhance shareholder value and financial performance of the Group. This statement provides an overview on the application of the principles as set out in the Malaysian Code on Corporate Governance 2017 ( MCCG 2017 ) during the financial year under review, and this is to be read together with the CG Report 2017 of the Company which is available on Bursa Securities website: and the Company s website at PRINCIPLE A: BOARD LEADERSHIP AND EFFECTIVENESS 1.1 Board Responsibilities The Board is responsible for formulating and reviewing the strategic plans and key policies of the Company, and charting the course of the Group s business operations whilst providing effective oversight of Management s performance, risk assessment and controls over business operations. The Board delegates and confers some of its authorities and discretion on the Chairman, Executive Directors, and Management as well as on properly constituted Board Committees comprising exclusively Non-Executive Directors. Board Committees have been established to assist the Board in its oversight function with reference to specific responsibility areas. It should however be noted that at all times, the Board retains collective oversight over the Board Committees. These Committees have been constituted with clear terms of reference and they are actively engaged to ensure that the Group is in adherence with good corporate governance. The Chairman of the relevant Board Committees report to the Board on key issues deliberated by the Board Committees at their respective meetings. The terms of reference of the Board Commitees are published on the Company s websites. The positions of the Chairman and the Chief Executive Officer ( CEO ) are held by two different individuals. The Chairman of the Board is Tan Sri Haji Musa Bin Tan Sri Haji Hassan, an Independent Non-Executive Director whilst the CEO is Datuk Hong Choon Hau. The Chairman is primarily responsible for matters pertaining to the Board and the overall conduct of the Group and is committed to good corporate governance practices and has been leading the Board towards high performing culture. The distinct and separate roles of the Chairman and CEO, with a clear division of responsibilities, ensure a balance of power and authority, such that no one individual has unfettered powers of decision-making. The CEO is responsible for the vision and strategic directions of the Group as well as initiating innovative ideas to create competitive edge and development of business and corporate strategies. He is assisted by the Chief Operating Officer ( COO ) for implementing the policies and decisions of the Board but he would intervene when the need arises and he is primarily accountable for overseeing the day-to-day operations of the Group to ensure the effective running of the Group. To enhance accountability, the Board has established clear functions reserved for the Board and those delegated to Management. There is a formal schedule of matters reserved to the Board for its deliberation and decision to ensure the direction and control of the Company are in its hands. The Board also facilitates its principal roles and responsibilities which include reviewing and adopting a strategic plan, overseeing the conduct of business, risk management, sucession planning, developing and implementing investor relationships and reviewing internal control. In performing their duties, all Directors have access to advice and services of a suitably qualified Company Secretary. The Company Secretary acts as a corporate governance counsel and ensures good information flow within Board, Board Committees and Senior Management. The Company Secretary attends all meetings of the Board and Board Committees and guides the Directors on the requirements encapsulated in the Company s Constitution and legislative promulgations such as the Companies Act 2016, ACE Market Listing Requirements ( AMLR ), etc.

16 Annual Report CORPORATE GOVERNANCE OVERVIEW STATEMENT (Cont d) PRINCIPLE A: BOARD LEADERSHIP AND EFFECTIVENESS (Cont d) 1.1 Board Responsibilities (Cont d) The Company Secretary was entrusted to record the Board s deliberations, in terms of issues discussed, ensure that deliberations at Board and Board Committees meetings are well documented, and subsequently communicated to Management for appropriate actions. The minutes of the previous Board and Board Committees meetings are distributed to the Directors/ Committees prior to the meeting for their perusal before confirmation of the minutes at the commencement of the following meeting. The Directors may comment or request clarification before the minutes are tabled for confirmation as a correct record of the proceedings of the meeting. Management provides Directors with complete and time information prior to meetings and on-going basis to enable them to make informed decisions. 1.2 Board Charter On 25 August 2016, the Board reviewed and updated the Board Charter which sets out the roles, functions, compositions, operation and processes of the Board as well as the Code of Ethics for Directors. The Board Charter will be updated in 2018 to ensure that it complies with the principles in the MCCG In discharging its duties, the Board is constantly mindful of the need to safeguard the interests of the Group s stakeholders. In order to facilitate the effective discharge of its duties, the Board is guided by the Board Charter and the same has been published on the corporate website. The Board Charter serves to ensure that all Board members acting on the Group s behalf are aware of their roles and responsibilities. It sets out the strategic intent and specific responsibilities to be discharged by the Board members collectively and individually. It also regulates on how the Board conducts business in accordance with the CG principles. The Board Charter would be periodically reviewed and updated in accordance with the needs of the Company and any new regulations that may have impact on the discharge of the Board s responsibilities. 1.3 Code of Conducts and Ethics The Group is committed to achieving and monitoring high standards pertaining to behaviour at work. The Board is strictly adhered to the Company Directors Code of Conducts and Ethics in discharging its oversight role effectively. The Code of Conducts and Ethics require all Directors to observe high ethical business standards, and to apply these values to all aspects of the Group s business and professional practice and act in good faith in the best interests of the Group and its shareholders. The Code of Conducts and Ethics is incorporated in the Board Charter of the Company which is available on the Company s website. In addition, all employees are encouraged to report genuine concerns about unethical behaviour or malpractices. Any such concern should be raised with senior Management, and an appropriate action will be taken by the Company. If for any reason, it is believed that this is not possible or appropriate, then the concern should be reported to the Senior Independent Non-Executive Director of the Company. The Chairman of the Board, Tan Sri Haji Musa Bin Tan Sri Haji Hassan has been identified as the Senior Independent Non-Executive Director to whom concerns of shareholder and stakeholder may be conveyed. He can be contacted at chairman@sunzen.com.my.

17 16 SUNZEN BIOTECH BERHAD ( W) CORPORATE GOVERNANCE OVERVIEW STATEMENT (Cont d) PRINCIPLE A: BOARD LEADERSHIP AND EFFECTIVENESS (Cont d) 1.4 Board Meetings Schedule of Board and Committee meetings are determined in advance at the beginning of every year. This enables Management to plan ahead the yearly business and corporate affairs and ensure timely preparation of information for dissemination to the Board. The Board has a defined schedule of matter reserved for Board s decision and that the Board papers for meetings will be circulated to the Board at least 5 days before the meeting. This is to ensure all Directors have sufficient time to obtain further explanation, where necessary, in order to be fully informed of the matters to be discussed during the meeting. For the financial year under review, the Board convened five (5) Board meetings and attendances of Directors are as follows:- Name no. of Board Percentage of Meetings attended Attendance (%) Tan Sri Haji Musa Bin Tan Sri Haji Hassan 5/5 100 Datuk Hong Choon Hau 5/5 100 Lim Eng Chai 5/5 100 Khoo Kien Hoe 5/5 100 Ooi Bee Hoon 2/2 100 (Appointed on 18 August 2017) Dato Dr. Mhd Nordin Mohd Nor 3/3 100 (Resigned on 31 May 2017) To ensure the Directors have the time to focus and fulfil their roles and responsibilities effectively, the Directors must not hold more than five (5) directorships in public listed companies and shall notify the Chairman before accepting any new directorships. 1.5 Professional Development of Director All Directors have completed the Mandatory Accreditation Programme as prescribed by Bursa Securities. The Directors are encouraged to attend briefing, conferences, forums, trade fairs (locally and internationally), seminars and training to keep abreast with the latest developments in the industry and to enhance their skills and knowledge. During the financial year ended 31 December 2017, the Directors have attended the following training, seminars, conferences and exhibitions which they considered vital in keeping abreast with the changes in laws and regulation, business environment, and corporate governance development:- No. Name of Director Course Attended/ Participated Date 1. Datuk Hong Choon Hau Unleash the power within 14 to 17 September 2017 MPOB transfer of Technology July 2017 Future Economy and Business 22 November 2017 Malaysian Code on Corporate Governance 6 December Key Features and Enhancements 2. Lim Eng Chai Future Economy and Business 22 November 2017 Value Investing 6 & 7 July Ooi Bee Hoon Mandatory Accreditation Programme for 6 & 7 November 2017 Directors of Public Listed Companies 4. Khoo Kien Hoe 2018 Budget Seminar 5 December 2017 GST Conference & 19 September 2017 Practical Guide to the New Withholding 14 June 2017 Tax Regime Practical GST Audit Training March 2017 Tan Sri Haji Musa Bin Tan Sri Haji Hassan was unable to attend training due to his busy schedule. There were also briefings by the External Auditors, Internal Auditors and the Company Secretary on the relevant updates on regulatory requirements from time to time during the Board and Committee Meetings. The Company will continue to identify suitable training for the Directors to equip and update themselves with the necessary knowledge in discharging their duties and responsibilities as Directors.

18 Annual Report CORPORATE GOVERNANCE OVERVIEW STATEMENT (Cont d) PRINCIPLE A: BOARD LEADERSHIP AND EFFECTIVENESS (Cont d) 2. Board Composition The Board currently comprises five (5) members, of whom three (3) are Independent Non-Executive Directors, and two (2) Executive Directors. The three (3) Independent Non-Executive Directors fulfilled the criteria of independence as defined in the AMLR. The Independent Non-Executive Directors do not participate in the day-to-day management of the Company and do not involve themselves in business transactions or relationships with the Company, in order not to compromise their objectivity. In staying clear of any potential conflict of interest, the Independent Non- Executive Directors remain in a position to fulfil their responsibility to provide check and balance to the Board. The Board composition has met the requirements in the AMLR and the MCCG 2017 for a balance board is fulfilled with Independent Directors constituting more than half of the Board. The Independent Non-Executive Directors are of the calibre necessary to provide an independent judgment on the issues of strategy, performance and resource allocation. They carry sufficient weight in Board decisions to ensure long-term interest of the shareholders, employees, customers and other stakeholders. The Board members are persons of high calibre and integrity, and provide a wealth of knowledge, experience and skills in the key areas of accountancy, business operations and development, finance and risk management, amongst others. 2.1 Tenure of Independent Director The Board has adopted a policy which limit the tenure of its Independent Directors up to nine (9) years. An Independent Director should not exceed a cumulative term of nine (9) years and upon completion of the nine (9) years, an Independent Director may continue to serve on the Board subject to the director s re-designation as a Non-Independent Director. Otherwise, the Board will justify and seek shareholders approval at the Annual General Meeting ( AGM ) in the event it retains the Director as an Independent Director. If the Board continues to retain the independent Director after 12 years, the Board will seek shareholders approval through a two tier voting process and the manner to obtain the shareholders approval on the resolution shall follow the MCCG The independence of Directors is measured based on the criteria prescribed under the AMLR in which a Director should be independent of management and free from any business or other relationship that could interfere with the exercise of independent judgement or the ability to act in the best interests of the Company. The Independent Directors, in addition to compliance with the criteria set out under the AMLR, have also declared that they will continue to bring independent and objective judgement to the Board during the review of Directors independence as part of the annual assessment carried out by the Nomination Committee. None of the independent Directors has exceeded a cumulative terms of nine (9) years as at the date of this Statement. 2.2 Nomination Committee ( NC ) The NC is responsible for identifying and recommending suitable candidates for Board membership and also for assessing the performance of the Directors on an ongoing basis. The Board will have the ultimate responsibility and final decision on the appointment. This process shall ensure that the Board membership accurately reflects the long-term strategic direction and needs of the Company and determine skills matrix to support strategic direction and needs of the Company. The NC comprises exclusively of Independent Non-Executive Directors and the Chairman of the NC is the Senior Non-Independent Director, Tan Sri Haji Musa Bin Tan Sri Haji Hassan. Management shall engage broadly to develop a pool of interested potential candidates meeting the skills, expertise, personal qualities and diversity requirements for both the Board and the Committee appointments. The NC evaluates and matches the criteria of the candidate based on the Fit and Proper standards as set out in the Board Charter, and will consider diversity, including gender, where appropriate, and recommends to the Board for appointment.

19 18 SUNZEN BIOTECH BERHAD ( W) CORPORATE GOVERNANCE OVERVIEW STATEMENT (Cont d) PRINCIPLE A: BOARD LEADERSHIP AND EFFECTIVENESS (Cont d) 2. Board Composition (Cont d) 2.2 Nomination Committee ( NC ) (Cont d) Consideration will be given to those individuals possessing the identified skill, talent and experience. The NC will contact those persons identified to determine their interest in serving the Company. This communication will ensure that prospective Board members have clarity regarding the nominating process as well as Director/Board profiles, roles and responsibilities, expectations of time commitments and other information as required. The Company also adopted Fit and Proper standards for Directors in ensuring that they are of high calibre, sound judgement, high integrity and credibility on a continuing basis. The Fit and Proper standards is set out in the Board Charter of the Company. For the appointment of Ooi Bee Hoon as an independent director during the financial year 2017, the Company sourced the candidate through Management s recommendation. The appointment of Ooi Bee Hoon as an Independent Director, was recommended by Management of the Company. The independent sources was not utilised to identify suitable qualified candidates as the Board is of the view that the selection of a candidate should be based on the candidate s skills, expertise, integrity, character, commitment etc, irrespective of the source of referral (i.e. internal nomination or independent source). 2.3 Diverse Board and Senior Management Team The Board views that the workplace and Board diversity is important to facilitate the decision-making process by harnessing different insights and perspectives. The Group adopted a policy of non-discrimination of any form, whether based on race, age, religion and gender throughout the organisation, which includes the selection of Board members. The Board encourages a dynamic and diverse composition by nurturing suitable and potential candidates equipped with competency, skills, experience, character, time commitment, integrity and other qualities in meeting the future needs of the Company. Notwithstanding the challenges in achieving the appropriate level of diversity on the Board, the Board continues to work towards addressing this as and when vacancies arise and suitable candidates are identified. The Company s prime responsibility in new appointments is always to select the best candidates available. On 18 August 2017, first female Director, Ooi Bee Hoon, joined the Board. The Board will endeavor to achieve 30% female directors by 2020 subject to the review of the Board from time to time. The Board through the NC should take steps to ensure that women candidates are sought as part of the recruitment exercise. 2.4 Annual Assessment The Board reviews and evaluates its own performance and the performance of its Committees on an annual basis. The Board evaluation comprises a Board Assessment, an Individual Assessment and an Assessment of Independence of Independent Directors. The assessment is based on specific criteria, covering areas such as the Board Structure, Board operations, roles and responsibilities of the Board, the Board Committees and the Chairman s roles and responsibilities. For Individual Assessment, the assessment criteria include contribution to interaction, quality of inputs, and understanding of roles. The results of the assessment would form the basis of the NC s recommendation to the Board for the reelection of Directors at the next AGM. Based on the annual assessment conducted, the NC was satisfied with the existing Board composition and concluded that each of the Directors has the requisite competence to serve on the Board and had sufficiently demonstrated their commitment to the Company in terms of time and participation during the year under review, and recommended to the Board the re-election of retiring Directors at the Company s forthcoming AGM. All assessments and evaluations carried by the NC in discharge of its functions were properly documented.

20 Annual Report CORPORATE GOVERNANCE OVERVIEW STATEMENT (Cont d) PRINCIPLE A: BOARD LEADERSHIP AND EFFECTIVENESS (Cont d) 2. Board Composition (Cont d) 2.4 Annual Assessment (Cont d) 3. Remuneration The Board is of the view that its present size and composition is optimal based on the Group s operations and that it reflects a fair mix of financial, technical and business experiences that are important to the stewardship of the Group. A summary of key activities undertaken by the NC in discharging its duties during the financial year under review is set out below: Reviewed the appointment of new Independent Director and recommended the appointment to the Board; Reviewed and assessed the independence of Independent Directors; Reviewed and recommended re-election of Directors who are due for retirement by rotation for shareholders approval at the forthcoming AGM; Assessed Directors training needs and noted the training programmes attended by Directors; Reviewed the size and composition of the Board based on the required mix of skills, experience, knowledge and diversity; assessed the effectiveness of the Board as a whole, the Board Committee and the contribution of each individual Director; Reviewed and assessed the term of office and performance of the Audit Committee and each of its members; and Reviewed and assessed the performance of Senior Head of Finance & Accounts Division. The Remuneration Committee ( RC ) and the Board ensure that the Company s remuneration remains supportive of the Company s corporate objectives and is aligned with the interest of shareholders, and further that the remuneration packages of Directors and key Senior Management Officers are sufficiently attractive to attract and to retain persons of high calibre. The RC reviews annually the Directors Remuneration (including non-executive directors) for recommendation and approval by the Board. The Directors remuneration payable to the Non-Executive Directors will be tabled at the AGM for approval of shareholders. The RC reviews annually the performance of the Executive Directors and submits recommendations to the Board on specific adjustments in remuneration and/or reward payments that reflect their respective contributions for the year, and which are dependent on the performance of the Group, achievement of the goals and/or quantified organisational targets as well as strategic initiatives set at the beginning of each year. The remuneration package of the Executive Directors consists of monthly salary, bonus and benefits-in-kind such as company car and the benefit of Directors and Officers Liability Insurance in respect of any liabilities arising from acts committed in their capacity as Directors and Officers of the Company. The Directors and principal officers are required to contribute jointly towards the premium of the said policy. Details of the Directors remuneration (including benefits-in-kind) of each Director during the financial year 2017 are as follows:

21 20 SUNZEN BIOTECH BERHAD ( W) CORPORATE GOVERNANCE OVERVIEW STATEMENT (Cont d) PRINCIPLE A: BOARD LEADERSHIP AND EFFECTIVENESS (Cont d) 3. Remuneration (Cont d) The aggregate remuneration of Directors received from the Company and on Group basis for the financial year ended 31 December 2017 is as follows: Salaries EPF and and SOCSO Meeting Fees allowances Bonus Contribution allowance Total Category (RM) (RM) (RM) (RM) (RM) (RM) Company: Executive Directors* Datuk Hong Choon Hau Lim Eng Chai Non-Executive Directors Tan Sri Haji Musa Bin Tan Sri Haji Hassan 60, ,800 Khoo Kien Hoe 26, ,000 27,000 Ooi Bee Hoon 9, ,050 Dato Dr. Mhd Nordin Bin Mohd Nor ^ 10, ,430 Group: Executive Directors* Datuk Hong Choon Hau - 231,400 15,000 38, ,385 Lim Eng Chai - 302,900 21,000 50, ,292 Non-Executive Directors Tan Sri Haji Musa Bin Tan Sri Haji Hassan 60, ,800 Khoo Kien Hoe 26, ,000 27,000 Ooi Bee Hoon 9, ,050 Dato Dr. Mhd Nordin Bin Mohd Nor ^ 10, ,430 * The remuneration paid to the Executive Directors were in respect of their employment with the Company/ Group. ^ Dato Dr. Mhd Nordin Bin Mohd Nor resigned on 31 May There are two (2) senior management whose remuneration (comprising salary, bonus, benefits in-kind and other emoluments) for the financial year ended 31 December 2017 within the successive bands of RM50,000 is as follows: Remuneration Band number of senior management RM0 - RM50,000 - RM100,001 to RM150,000 2

22 Annual Report CORPORATE GOVERNANCE OVERVIEW STATEMENT (Cont d) PRINCIPLE B EFFECTVE AUDIT AND RISK MANAGEMENT 1. Audit Committee ( AC ) The AC is relied upon by the Board to, amongst others, provide advice in the areas of financial reporting, external audit, internal control environment and internal audit process, review of related party transactions as well as conflict of interest situation. The AC also undertakes to provide oversight on the risk management framework of the Group. The AC is chaired by an independent director who is distinct from the Chairman of the Board and all members of the AC are financially literate. The composition of the AC, including its roles and responsibilities as well as a summary of its activities carried out in year 2017, are set out in the AC Report of this Annual Report. The AC has yet to adopt a policy that requires a former key audit partner to observe a cooling-off period of at least two (2) years before being appointed as a member of the AC. Nonetheless, the AC shall observe the said application in the event that a former key audit partner is appointed to the Board of the Company. The AC is responsible for reviewing audit, recurring audit-related and non-audit services provided by the external auditors. These recurring audit-related and non-audit services comprise regulatory reviews and reporting, interim reviews, tax advisory and compliance services. The terms of engagement for services provided by the external auditors are reviewed by the AC prior to submission to the Board for approval. The AC has reviewed the provision of non-audit services by the external auditors during the year 2017 and concluded that the provision of these services did not compromise the external auditors independence and objectivity as the amount of the fees paid for these services was not significant when compared to the total fees paid to the external auditors. The external auditors had provided a confirmation of their independence to the AC that they are and have been independent throughout the conduct of the audit engagement in accordance with the terms of all relevant professional and regulatory requirements. The AC had adopted an external auditors performance and independence checklist to assist the AC in the process for the evaluation of the external auditors suitability, resources, competency and independence. The AC had conducted annual assessment of the suitability and independence of Messrs. RSM Malaysia and having satisfied with their performance, the AC recommended the re-appointment of Messrs. RSM Malaysia to the Board, upon which the shareholders approval will be sought at the AGM. Based on the AC s assessment of the external auditors, the Board satisfied with the independence, quality of service and adequacy of resources provided by the external auditors in carrying out the annual audit for financial year In view thereof, the Board has recommended the re-appointment of the external auditors for the approval of shareholders at the forthcoming AGM. 2. Risk Management and Internal Control Framework The Board has overall responsibility for maintaining a sound system of risk management and internal control of the Group that provides reasonable assurance of effective and efficient business operations, compliance with laws and regulations as well as internal procedures and guidelines. The AC oversees the risk management of the Group and advises the Board on areas of high risk faced by the Group and the adequacy of compliance and control throughout the organisation. The AC also reviews the action plan implemented and makes relevant recommendations to the Board to manage residual risks. The Group has established a formal risk management framework to oversee the risks management of the Company and engaged an external consultant to assist the Company in identifying, assessing and managing the risks in areas that are applicable to the Company s business and ensure that the risk management process in place and functioning effectively. The Company continues to maintain and review its internal control procedures to ensure the protection of its assets and its shareholders investment. The Company has outsourced its internal audit function to a professional services firm, namely H.H. Fong & Co. to assist the AC in discharging its duties and responsibilities in respect of reviewing the adequacy and effectiveness of the Group s risk management and internal control systems. The Statement on Risk Management and Internal Control included in this Annual Report provides the overview of the internal control framework adopted by the Company during the financial year ended 31 December 2017.

23 22 SUNZEN BIOTECH BERHAD ( W) CORPORATE GOVERNANCE OVERVIEW STATEMENT (Cont d) PRINCIPLE C INTEGRITY IN CORPORATE REPORTING AND MEANINGFUL RELATIONSHIP WITH THE STAKEHOLDERS 1. Communication with stakeholders The Board recognises the importance of being transparent and accountable to the Company s stakeholders and acknowledges the continuous communication between the Company and stakeholders would facilitate mutual understanding of each other s objectives and expectations. As such, the Board consistently ensures the supply of clear, comprehensive and timely information to their stakeholders via various disclosures and announcements including quarterly and annual financial statements which provide investors with up-to-date financial information of the Group. All these announcements and other information about the Company are available on the Company s website at which shareholders, investors and public may access. In addition, the Directors engage with shareholders at least once a year during the AGM to understand their needs and seek their feedback. 2. Conduct of General Meetings The AGM is the principal forum for shareholder dialogue, allows shareholders to review the Group s performance via the Company s Annual Report and pose questions to the Board for clarification. At the 12th AGM held on 21 June 2017, all the directors (including the chair of the Board Committees) were present in person to engage directly with, and be accountable to the shareholders for their stewardship of the Company. During the AGM, shareholders participate in deliberating resolutions being proposed or on the Group s operations in general. The Directors responded to all questions raised and provided clarification as required by the shareholders. In line with good corporate governance practice, the notice of the 13th AGM was issued at least 28 days before the AGM date. The Chairman/ Senior Non-Executive Director ensures that the Board is accessible to shareholders and an open channel of communication is cultivated. This CG overview statement is made in accordance with the resolution of the Board dated 18 April 2018.

24 Annual Report DIRECTORS RESPONSIBILITY STATEMENT The Directors are responsible for ensuring that: i. The annual audited financial statements of the Group and of the Company are drawn up in accordance with applicable approved accounting standards in Malaysia, the provisions of the Companies Act, 2016 and the AMLR of Bursa Securities so as to give a true and fair view of the state of affairs of the Group and the Company for the financial year; and ii. Proper accounting and other records are kept which enable the preparation of the financial statements with reasonable accuracy and taking reasonable steps to ensure that appropriate systems are in place to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. In the preparation of the financial statements for the financial year ended 31 December 2017, the Directors have adopted appropriate accounting policies and have applied them consistently in the financial statements with reasonable and prudent judgements and estimates. The Directors are also satisfied that all relevant approved accounting standards have been followed in the preparation of the financial statements.

25 24 SUNZEN BIOTECH BERHAD ( W) ADDITIONAL COMPLIANCE INFORMATION The following is presented in compliance with the AMLR of Bursa Securities:- 1) Utilisation of Proceeds raised from Rights Issue of shares As at 31 December 2017, the gross proceeds of approximately RM44.86 million raised by the Company from the Rights Issue of shares have been utilised as follows: Intended timeframe Proposed Actual from the utilisation utilisation listing date* Variance Purpose RM RM (month) RM Notes Purchase of machineries 17,000,000 7,758, Upgrading of building 2,800,000 1,699, Working capital 24,405,000 24,108, ,286 1 Estimated listing expenses 650, , (296,286) 1 Total 44,855,000 34,512,780 - Notes: * Listing date of Right Issue of shares on 4 March Shortfall of the listing expenses incurred is adjusted from the working capital. 2 The Company announced on 5 September 2017 a further extension of time for the utilisation of balance proceeds up to 4 September ) Audit and Non-audit Fees AUDIT FEES non-audit FEES group Company Group Company RM RM RM RM Audit and non-audit fees paid or payable to external auditors for the financial year ended 31 December ,158 29,000 4,500 4,500 The provision of non-audit services by the external auditors of the Group is both cost effective and efficient due to their knowledge and understanding of the operations of the Group, and did not compromise their independence and objectivity. 3) Material Contract involving Directors and Major Shareholder s Interest There were no material contracts entered into by the Company and its subsidiaries that involve Directors, Chief Executive who is not a director or major shareholder s interests. 4) Recurrent Related Party Transactions ( RRPT ) of a Revenue or Trading Nature There was no shareholders mandate obtained in respect of RRPT of a revenue or trading nature during the financial year ended 31 December ) Share Issuance Scheme ( SIS ) On the establishment of SIS of up to 30% of the Company s total number of issued shares (excluding treasury shares) for the eligible Directors and employees of the Company and its subsidiaries (excluding dormant subsidiaries), the Company has yet to finalise the details of the eligibility and allocation criteria as well as exercise of the SIS. 6) Corporate Social Responsibility ( CSR ) The Company recognises the importance of CSR, in particular towards community, society and environment and is committed to give any forms of supports in discharging such responsibility. During the financial year, the Company has arranged a donation to Dana Pembangunan Pendidikan dan Kebajikan Mubarak Melaka to support the orphan children and single mother family.

26 Annual Report STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL INTRODUCTION The MCCG 2017 requires the Directors of listed companies to maintain a sound system of internal control to safeguard the Group s assets and shareholders investments. Pursuant to Rule 15.26(b) of the AMLR of Bursa Securities, the Board of Directors is required to present the Statement on Risk Management and Internal Control in its annual report which outlines the state, nature, the process and scope of risk management and internal controls carried out during the current financial year. RESPONSIBILITY The Board is ultimately responsible for the Group s system of risk management and internal control which includes the establishment of an appropriate control environment and framework to ensure effective risk management policies are in place to safeguard the interest of shareholders and all major stakeholders as well as the assets of the Group. The Board regularly appraises the Group s system of risk management and internal control by reviewing the adequacy and integrity of the system in place and identifying, evaluating, monitoring and managing significant risks that may affect the achievement of business objectives throughout the year. However, such system is designed to reduce rather than eliminate the risk of failure in achieving its business objectives, and can only provide reasonable but not absolute assurance against material misstatement or loss. RISK MANAGEMENT The Board and management implements a systematic and proactive significant risks identification on on-going basis, particularly when there are any major changes in the nature of activities and/or operating environment, or venture into new operating environment which may entail different sets of risk profiles. The Group has appointed a service provider to conduct a risk management review on the business operation, risk management and mitigation procedures. INTERNAL AUDIT The Group has outsourced its internal audit function to an independent Internal Audit firm, H.H. Fong & Co. to assist the Board and Audit Committee in providing independent assessment on the adequacy, efficiency and effectiveness of the Group s internal control system and ensuring operational compliance with standard operating procedures within the Group. The outsourced internal audit function adopts a risk-based approach in developing its audit plan which addresses the key risk areas. Scheduled internal audits are to be conducted and reported to Audit Committee on areas for improvement and Internal Auditors will subsequently follow up to determine the extent of their recommendations that have been implemented by the Company. All Internal Audit reports issued are deliberated by the Audit Committee and reported to the Board for clarification and subsequently, remedial actions thereon taken by the management are evaluated and monitored an on-going basis. During the year, our outsourced internal auditors have completed two (2) follow up audits which involved warehouse management and production management. Various aspects of risks and risk consequences were identified, evaluated and findings were presented to the Audit Committee together with recommendations to the management for appropriate controls. CONCLUSION For the financial year under review and up to the date of approval of this statement for inclusion in the annual report, based on inquiry, information and assurance provided by the CEO and COO, and the Senior Head of Finance & Accounts Division, the Board is of the opinion that the risk management and internal control system was generally satisfactory and sufficient to safeguard the Group s assets, as well as the shareholders investments, and the interests of customers, regulators, employees and other stakeholders. The Board and the Management will continue to take necessary measures and ongoing commitment to strengthen and improve its internal control environment and processes. REVIEW OF THE STATEMENT BY EXTERNAL AUDITORS As required by Rule of the AMLR of Bursa Securities, the External Auditors have reviewed this Statement on Risk Management and Internal Control. Their limited assurance review was performed in accordance with Recommended Practice Guide (RPG) 5 (Revised 2015) issued by the Malaysian Institute of Accountants. RPG 5 (Revised 2015) does not require the External Auditors to form an opinion on the adequacy and effectiveness of the risk management and internal control systems of the Group. The external auditors have reported to the Board that nothing has come to their attention that cause them to believe that the Statement intended to be included in the annual report of the Group, in all material aspects: 1. has not been prepared in accordance with the disclosures required by paragraphs 41 and 42 of the Statement Risk Management and Internal Control: Guideline for Directors of Listed Issuer; or 2. is factually inaccurate This statement is made in accordance with the resolution of the Board of Directors dated on 18 April 2018.

27 Financial Statements Directors Report Statement by Directors Statutory Declaration Independent Auditors Report Statements of Financial Position Statements of Profit and Loss and Other Comprehensive Income Statements of Changes in Equity Statements of Cash Flows Notes to the Financial Statements