2 Notice of Annual General Meeting. 10 Management Discussion and Analysis. 14 Corporate Governance Overview Statement

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2 CONTENTS 2 Notice of Annual General Meeting 4 Group Structure 5 Group Financial Highlights 6 Corporate Information 7 Profi le of Board of Directors 10 Management Discussion and Analysis 13 Sustainability Statement 14 Corporate Governance Overview Statement 26 Audit Committee Report 28 Statement On Risk Management & Internal Control 31 Financial Statements 83 Analysis of Shareholdings 85 List of Group Properties Proxy Form

3 NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN THAT the Forty-Eighth Annual General Meeting ( 48 th AGM ) of the shareholders of the Company will be held at Bukit Kiara Equestrian and Country Resort, Dewan Perdana, 1 st Floor, Sports Complex, Jalan Bukit Kiara, Off Jalan Damansara, Kuala Lumpur, Malaysia on Friday, 8 June 2018 at a.m. for the purpose of considering and, if thought fit, passing the following resolutions: - AGENDA 1. To receive the Directors Report and the Audited Financial Statements of the Group and the Company for the fi nancial year ended 31 December and the Auditors Report thereon. 2. To approve the payment of a first and fi nal single-tier dividend of 0.5 sen per ordinary share in respect of the fi nancial year ended 31 December. 3. To approve the payment of Directors fees of up to 102,000 from 1 July 2018 until the next Annual General Meeting of the Company. Please refer Explanatory Note A Ordinary Resolution 1 Ordinary Resolution 2 4. To re-elect the following Directors retiring in accordance with Article 83 of the Company s Articles of Association: - (a) Tan Sri Dato Tan Hua Choon; (b) En Aminuddin Yusof Lana; and (c) Mr Ong Sim Jeng 5. To re-appoint Messrs PCCO PLT (AF: 1056) as Auditors of the Company and to authorise the Directors to fi x their remuneration. Ordinary Resolution 3 (a) Ordinary Resolution 3 (b) Ordinary Resolution 3 (c) Ordinary Resolution 4 6. To transact any other business of the Company for which due notice shall have been received in accordance with the Companies Act,. NOTICE OF DIVIDEND ENTITLEMENT AND PAYMENT NOTICE IS ALSO HEREBY GIVEN THAT subject to the approval of the shareholders at the 48 th AGM, a fi rst and fi nal single-tier dividend of 0.5 sen per ordinary share in respect of the fi nancial year ended 31 December will be paid on 13 July 2018 to depositors registered in the Record of Depositors of the Company as at 29 June A depositor shall qualify for entitlement only in respect of: a. Securities transferred into the Depositor s Securities Account before 4.00 p.m. on 29 June 2018 in respect of ordinary transfers; and b. Securities bought on the Bursa Malaysia Securities Berhad on a cum entitlement basis according to the Rules of the Bursa Malaysia Securities Berhad. By Order of the Board Tan Shien Yin (MAICSA No ) Secretary Kuala Lumpur 30 April MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

4 NOTICE OF ANNUAL GENERAL MEETING Notes on Proxy Form 1. A member entitled to attend and vote at the Annual General Meeting is entitled to appoint one or more proxies (but not more than two) to attend and vote instead of him. A proxy may but need not be a member of the Company. Where a member appoints two (2) proxies, the member shall specify the proportion of his shareholding to be represented by each proxy, failing which the appointment shall be invalid. 2. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under the corporation s common seal or under the hand of an offi cer or attorney duly authorised. The instrument appointing a proxy shall be deemed to confer authority to demand or join in demanding a poll. 3. Where a member of the Company is an authorised nominee as defi ned under the Central Depositories Act, it shall be entitled to appoint not more than two (2) proxies in respect of each securities account it holds with ordinary shares of the Company standing to the credit of the said securities account. Where a member of the Company is an exempt authorised nominee which holds ordinary shares in the Company for multiple benefi cial owners in one securities account ( omnibus account ), there is no limit to the number of proxies which the exempt authorised nominee may appoint in respect of each omnibus account it holds. Where an authorised nominee or an exempt authorised nominee appoints more than one proxy, the proportion of shareholdings to be represented by each proxy must be specifi ed in the instrument appointing the proxies. 4. The Proxy Form shall be deposited with the Company s Share Registrars, Bina Management (M) Sdn Bhd, at Lot 10, The Highway Centre, Jalan 51/205, Petaling Jaya, Selangor Darul Ehsan, Malaysia not less than forty-eight (48) hours before the time appointed for holding the meeting or any adjournment thereof. 5. Depositors whose names appear in the Record of Depositors on a date not less than three (3) market days before the Annual General Meeting shall be regarded as Member of the Company entitled to attend and vote at the Annual General Meeting or appoint a proxy to attend and vote on his behalf. Explanatory Note A This Agenda item is meant for discussion only as under the provisions of Sections 248(2) and 340(1)(a) of the Companies Act, the audited fi nancial statements do not require shareholders approval. Hence, this item of Agenda will not be put forward for voting by shareholders of the Company. Explanatory note for Ordinary Resolution 2 The proposed Ordinary Resolution 2 is to facilitate the payment of Directors fees after each month of completed service of the Non- Executive Directors for the period commencing from 1 July 2018 until the next Annual General Meeting ( AGM ) of the Company, assuming that all the Non-Executive Directors will hold offi ce until the next AGM. In the event that the Directors fees proposed is insufficient (e.g. due to enlarged board size), approval will be sought at the next AGM for additional fees to meet the shortfall. Distribution of Refreshment Voucher A shareholder or proxy/corporate representative who represents the shareholder will be given a refreshment voucher upon registration. No door gift will be distributed. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 3

5 GROUP STRUCTURE As at 31 December MARCO HOLDINGS BERHAD (8985-P) 100% MARCO CORPORATION (M) SDN BHD (13431-H) 100% MARCO HERITAGE (M) SDN BHD ( V) 100% MARCO WORLDWIDE SDN BHD ( P) 100% SURPASS SDN BHD (74906-P) 100% Note: Companies which have not commenced active operations are excluded. 4 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

6 GROUP FINANCIAL HIGHLIGHTS For the financial years ended 31 December Revenue 154, , , , ,215 Profi t Before Tax 18,340 23,520 26,296 24,533 19,737 Profi t After Tax and non-controlling Interest Attributable to Shareholders 13,750 17,316 19,862 18,056 15,041 Dividends-Net 5,272 5,272 7,380 2,109 20,033 Shareholders Fund 181, , , , ,209 Earnings per Share Based on Profi t After Tax and non-controlling Interest 1.30 sen 1.64 sen 1.88 sen 1.77 sen 1.86 sen Net Assets Per Share sen sen sen sen sen Dividend Rate 0.5 sen 0.5 sen 0.7 sen 0.2 sen 2.4 sen REVENUE 000 PROFIT BEFORE TAX 000 SHAREHOLDERS FUND , , , , , ,340 23,520 26,296 24,533 19, , , , , , MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 5

7 CORPORATE INFOATION BOARD OF DIRECTORS Tan Sri Dato Tan Hua Choon Siau Hock Cheng Dato Wong Hok Yim Woo Hin Weng Ong Sim Jeng Siew Cheau Sheang Haji Azizzuddin Bin Haji Hussein Aminuddin Yusof Lana Minhat Bin Mion (Chairman, Non-Independent Non-Executive Director) (Executive Deputy Chairman) (Executive Director) (Non-Independent Non-Executive Director) (Executive Director) (Executive Director - Finance) (Independent Non-Executive Director) (Independent Non-Executive Director) (Independent Non-Executive Director) AUDIT COMMITTEE NOMINATION COMMITTEE REMUNERATION COMMITTEE SENIOR INDEPENDENT NON-EXECUTIVE DIRECTOR COMPANY SECRETARY REGISTERED OFFICE PRINCIPAL BANKERS REGISTRARS AUDITORS STOCK EXCHANGE LISTING Haji Azizzuddin Bin Haji Hussein (Chairman) Woo Hin Weng (MIA member) Minhat Bin Mion Tan Sri Dato Tan Hua Choon Haji Azizzuddin Bin Haji Hussein Minhat Bin Mion Tan Sri Dato Tan Hua Choon Woo Hin Weng Minhat Bin Mion Fax : (03) Tan Shien Yin No. 8, 3 rd Floor, Jalan Segambut Kuala Lumpur Tel : (03) Fax : (03) HSBC Bank Malaysia Berhad Malayan Banking Berhad Bina Management (M) Sdn Bhd Lot 10, The Highway Centre Jalan 51/205, Petaling Jaya Selangor Darul Ehsan Tel : (03) Fax : (03) Messrs PCCO PLT (AF : 1056) (Chartered Accountants) Bursa Malaysia Securities Berhad Main Market Stock Name : MARCO Stock Code : MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

8 PROFILE OF BOARD OF DIRECTORS Tan Sri Dato Tan Hua Choon Chairman, Non-Independent Non-Executive Director Male, Aged 77, Malaysian Tan Sri Dato Tan was appointed as Chairman and Director of the Company on 20 December On 20 March 2002, he was appointed to the Nomination Committee and Remuneration Committee of the Company. Tan Sri Dato Tan is a self-made businessman with vast experience in businesses and industries. He has been involved in a wide range of businesses which include manufacturing, marketing, banking, shipping, property development and trading. He has also built-up investments in numerous public listed companies and is currently the Chairman of the Boards of JKG Land Berhad, Jasa Kita Berhad and FCW Holdings Berhad. Tan Sri Dato Tan was chairman of several public listed companies, among others, GPA Holdings Berhad from 2000 to May Siau Hock Cheng Executive Deputy Chairman Male, Aged 60, Malaysian Mr Siau was appointed as Executive Director of the Group on 20 December He was redesignated as Deputy Chairman on 1 August Mr Siau holds a Diploma in Marketing, Chartered Institute of Marketing, United Kingdom obtained in November 1984 and a degree in Business Administration from the National University of Singapore. He was a Product Executive with Lam Soon (M) Berhad in 1982 and left in 1985 to join Carlsberg Brewery (M) Berhad as the Product Manager. From 1991 to 1994, he was attached with the East Asiatic Co (M) Berhad where he was the General Manager for the non-food consumer product division. He has extensive experience in the fi eld of marketing and is responsible for the overall operations of the Group. He is also a Director of Marco Corporation (M) Sdn Bhd since 1996 and Director of several private limited companies. Dato Wong Hok Yim Executive Director Male, Aged 52, Permanent Resident Dato Wong was appointed to the Board of the Company on 20 December 2001 and subsequently became an Executive Director of the Company on 1 February Dato Wong graduated from DeMonfort University, Leicester, United Kingdom with a Bachelor of Science combined studies degree majoring in Accounting and minoring in Law. Subsequently, he obtained Master in Business Administration in Finance from University of Hull, United Kingdom. He also sits on the Boards of Computer Forms (Malaysia) Berhad and several private limited companies. Woo Hin Weng Non-Independent Non-Executive Director Male, Aged 60, Malaysian Mr Woo was appointed to the Board and Audit Committee of the Company on 20 December He was later appointed to the Board s Remuneration Committee on 1 June He is a member of the Malaysian Institute of Accountants and a Fellow member of the Chartered Association of Certifi ed Accountants. He joined Jasa Kita Engineering Sdn Bhd, a wholly-owned subsidiary company of Jasa Kita Berhad, as the Financial Controller in Prior to joining Jasa Kita Berhad, he has held senior positions in accounting and fi nance. He is also a Director of Jasa Kita Berhad. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 7

9 PROFILE OF BOARD OF DIRECTORS Siew Cheau Sheang Executive Director-Finance Female, Aged 48, Malaysian Ms Siew was appointed to the Board of the Company on 27 January She is a member of Chartered Institute of Management Accountants (CIMA) since 1997 and also a member of Chartered Global Management Accountants (CGMA) respectively. She obtained Master in Business Administration from University of Bath, United Kingdom in She joined Marco Corporation (M) Sdn Bhd, a wholly-owned subsidiary company of Marco Holdings Berhad as the Finance and Administration Manager in Prior to joining Marco Corporation (M) Sdn Bhd, she had many years of experience in the accounting and fi nance fi elds from various industries. Aminuddin Yusof Lana Independent Non-Executive Director Male, Aged 69, Malaysian En. Aminuddin was appointed to the Board of the Company on 1 November He holds a Bachelor of Commerce and Administration Degree from Victoria University of Wellington, New Zealand. He is a Chartered Accountant of the New Zealand Society of Accountants and an Associate member of the Institute of Chartered Secretaries and Administrators of London and Wales. He had previously served as Director and later Group Managing Director of Renong Berhad from 1990 to 1994 and as Director and Group Managing Director of Faber Group Berhad from 1990 to He was the Managing Director of Metacorp Berhad from 1995 to He was also the Managing Director of UEM Builders Berhad from 2000 to Ong Sim Jeng Executive Director Male, Aged 42, Malaysian Mr Ong was appointed to the Board of the Company on 1 August He holds a Bachelor Degree in Corporate Administration & Management from Curtin University of Technology, Western Australia. Mr Ong was a Marketing Executive of PDI, subsidiary brand of Padini Holding Bhd from October 1999 to June He left PDI and joined AV Business System Sdn Bhd, the distributor and dealers of projectors, as Sales Manager until June From July 2004 to February 2006, he was attached with IJO Communication Sdn Bhd, an advertising agency, as Business Development Manager. Prior to his appointment to the Company, Mr Ong was the General Manager of Questeam Sdn Bhd, the sole distributor of THEFACESHOP Korean brand products in Malaysia. 8 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

10 PROFILE OF BOARD OF DIRECTORS Haji Azizzuddin Bin Haji Hussein Independent Non-Executive Director Male, Aged 60, Malaysian Haji Azizzuddin was appointed to the Board and Chairman of the Audit Committee as well as member of Nomination Committee on 9 September He obtained a Higher National Diploma in Business Studies, majoring in Finance and Accounting from Stockport College of Technology (Manchester), United Kingdom in 1979 and did his practical training in London where he was attached to a Chartered Accountants fi rm from 1980 to Upon his return to Malaysia, he ventured into private business. From 1992 to 1997, he was a management consultant and at end 1997, he joined Myriad MISM (M) Sdn. Bhd., a software development and management information system consultancy company, as its Finance & Administration Director and left in He was a director of A&M Realty Berhad, a property development company from 1994 to He was a State Assemblyman for the constituency of Mengkebang, Kelantan representing Barisan Nasional from 2004 to Between 2000 to 2014, Haji Azizzuddin was a Board member of GPA Holdings Berhad, Jasa Kita Berhad, Keladi Maju Berhad (now known as JKG Land Berhad) and Malaysia Aica Berhad (now known as Sunsuria Berhad). Currently, he also sits on the Board of FCW Holdings Berhad. Minhat Bin Mion Independent Non-Executive Director Male, Aged 71, Malaysian En Minhat was appointed to the Board and Audit Committee of the Company on 2 November He was also appointed to the Board s Nomination Committee and nominated as the Senior Independent Non-Executive Director of the Company on the same date. En Minhat holds a Bachelor of Arts (Honours) degree from Universiti Malaya in 1972 and a postgraduate Diploma in Management Science from Institut Tadbiran Awam Negara (INTAN) in En Minhat had served in the Malaysian civil service from 1972 to 1991 in the administrative and diplomatic services. During his tenure as a civil servant, he served at the Kuala Lipis Land Offi ce, Ministry of Defence, INTAN, Public Service Department, Ministry of Works, and Ministry of Health. His last position was as Under Secretary in the Prime Minister s Department. Since 1992, he had conducted his own business concentrating on the travel, tourism and construction industries. He also sits on the Boards of Jasa Kita Berhad and JKG Land Berhad. FURTHER INFOATION ON THE BOARD OF DIRECTORS Family Relationship None of the Directors have any family relationship with other Directors and/or major shareholders of the Company except for Tan Sri Dato Tan Hua Choon, a Director and major shareholder, who is the father-in law of Dato Wong Hok Yim, a Director of the Company. Conflict of Interest None of the Directors have any confl ict of interest with the Company. Conviction of Offences None of the Directors have been convicted of any offence within the past 5 years (other than traffi c offences, if any), or have been imposed with any public sanction or penalty by the relevant regulatory bodies during the fi nancial year. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 9

11 MANAGEMENT DISCUSSION AND ANALYSIS Marco Holdings Berhad is an established wholesale and distribution company in Malaysia with over 45 years of business presence. Operating principally in Malaysia, Marco Holdings Berhad is an authorized distributor for Casio, Caterpillar, Hush Puppies, Danish Design, Reebok and TW Steel brand of products. Performance Overview was another challenging year for us. Domestically, retail spending was impacted by weak consumer sentiment as consumers were generally mindful of rising household expenditure. On top of that, we were also hit by infl ux of parallel imports that swamped the local market and drove retail prices down especially in the timepiece segment, which total volume contracted by 14% compared to the previous year, resulting in 22% decline in the Group s profi t. Prudent cost management continued to be an important aspect in addressing challenges, it had mitigated the cost pressure and led to a 13% or 3.4 million reduction in operating expenses. Our Group has set out to build an agile and resilient organisation that can respond quickly to changing consumers preferences while delivering positive outcome. Throughout the year, we continued to invest behind our brands with various campaigns and activities. We have also engaged actively in the e-commerce business as competition becomes more technology driven, to stay ahead of fast-moving e-commerce trend. Financial Performance Against the backdrop of an economically challenging business environment, our Group registered a revenue of million, refl ecting a decrease of 14% compared to million registered in the previous year. This decline in revenue was mainly due to the various factors as highlighted in the above performance overview. Cost of sales as a percentage of the revenue increased in, driven by higher product prices as well as the unfavourable ringgit currency exchange. Our Group posted a lower profi t before taxation of 18.3 million, a decrease of 5.2 million, from the previous fi nancial year. We continue to maintain a strong fi nancial position supported by healthy balance sheet. As at end of, total shareholders equity rose to million from million a year ago. The increase in shareholders equity was mainly due to increase in retained profi ts of the year. Gearing ratio dropped by 48% in compared to that of due to lesser documentary credits issued for goods purchased. The closing cash and cash equivalent increased to million, an increase of 71.7 million from year. The increase was largely attributed to the disposal of the short term money market funds towards the end of the year. In line with our Group s strategies towards digitalisation, we have upgraded the existing Enterprise Resource Planning software that saw our Capex increased by 0.9 million or 79% compared to. Proposed Dividend Against this backdrop of lower profi tability for the Group, the Board has nevertheless recommended a fi rst and fi nal single-tier dividend of 0.5 sen per ordinary share for FY, to be approved by shareholders at our forthcoming Annual General Meeting. 10 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

12 MANAGEMENT DISCUSSION AND ANALYSIS Product Performance Gross Revenue In Million () Proportion Time piece % Calculator 23 15% Digital Camera 6 4% Digital Keyboard 4 3% In Million () 4% 3% 15% Time piece Calculator 78% Digital Camera Digital Keyboard Timepiece Division This division distributes established timepiece brands, namely Casio, CAT, TW Steel, Hush Puppies, and Reebok. Revenue for Timepiece division dropped 11% as a result of weak consumer sentiment. This division accounted for 78% of the Group s total revenue, up 2% from. Marco celebrated its 45 th anniversary in and in conjunction with this milestone, we provided our consumers with extended one year warranty on their timepiece purchased. Our Group maintains a good relationship with Astro, during the year, we continued with the sponsorship of Miss Astro Chinese International Pageant to showcase our products to increase brand awareness. To keep the excitement going, we launched the Casio Premium Gravity Master in the month of July. Made with new Hybrid GPS/Radio Wave Captor function, it picks up time signals from atomic transmitters to deliver absolute accuracy of time. We also had our Dealer Conference running for the 8 th year in the same month. This was followed by a Charity Program with TiRatana that was held in November to encourage consumers to turn in their used watches for a good cause. Calculator Division This division distributes Casio calculators. Revenue of this division had dropped by 2% as compared to and contributed about 15% of our Group s total revenue. In, we continued to invest in school business by collaborating with state based education department to provide technical and educational training to teachers using the latest Casio scientifi c calculator, the Class Wiz FX-570EX, to impart latest technology and product knowledge to them. Through this programme, we have successfully drawn in more than 1,000 teachers to participate, generating a good cause for the education. Besides, we also participated in leading book fairs in the region, such as Popular Bookfest, Read Malaysia Book fair, Big Bad Wolf Book Fair and World of Chinese Book Fair, where we showcased the latest Casio products. Other more notable activities include branding corners to showcase Casio products in high traffi c areas. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 11

13 MANAGEMENT DISCUSSION AND ANALYSIS Digital Camera Division This division distributes Casio cameras and contributed about 4% of the Group s revenue. Revenue of this division had dropped by 54% to 6 million from 14 million in. We foresee the business will decline further in the coming year. With the world being more connected than ever, the evolution of smartphones as digital cameras that can take pictures and perform instant upload to the social media has seen the demand for digital camera plunged drastically. We believe it is a matter of time before the point and shoot cameras completely disappear as smaller and more capable device take over. Musical Keyboard Division (EMI) It has been another challenging year for the Group s EMI division that distributes Casio digital musical instruments. With competition pressure and weak buying power continue to underline the sales, the revenue for this division dropped 12% from a year before and contributed only about 3% of the Group s total revenue in. During the year, our Group launched the exciting innovations from Casio on LK and CTK model using Chordana play app. Chordana play app is an interesting learning tools where users generate a music score from the MIDI ( Musical Instrument Digital Interface ) fi le and detect chords, making it easy to learn two-handed piano pieces at their own pace; learning is also made easy by using an audio cable to connect a compatible keyboard to the smartphone or tablet, and practice using light-up keys and step-up lessons. We also continued to run various branding activities such as Celviano Grand Hybrid Piano Competition, sponsorship for GUILD examination and Trinity London College Examination to promote brand awareness. On top of that, we also participated in various road shows such as Popular Chinese Book Fest in KLCC and Popular Mega Book fair in Sunway Pyramid Convention Centre. Growing Through Technology We live in an era where technology has permeated every aspect of our lives. It is thus imperative that we embrace technology to ensure that our business model continues to thrive in an increasingly digital world. To keep pace with the phenomenal growth of e-commerce, our Group has successfully upgraded its Enterprise Resource Planning system during the year. Our Group has also launched its products through the e-commerce channels. We hope to reach out to younger consumers who are more digitally savvy. We will continue to invest in technology and automation that can help us improve productivity, reduce costs and lay a foundation for long-term sustainable growth. Risk Management Risks form part and parcel of a business environment and our Group adopts an enterprise wide risk management approach, with all the active businesses risks of the Group addressed by the management through policies and monthly review meetings. The management reviews the system and processes as well as the key responsibilities and assesses for reasonable assurance that the principal risks have been managed. There is ongoing communication among the management team to discuss strategic and operational risks and to formulate and implement proper action plans to mitigate the risks identifi ed in order to achieve a proper balance between risk incurred and potential returns to shareholders. Outlook Looking ahead, the retail environment will be increasingly dynamic, characterised by intense competition and rapidly changing consumer preferences. Consumer market will continue to be impacted by various domestic and global uncertainties whilst the sentiment is still low. In light of this current environment, our Group remains committed to meet the challenges ahead, by continuing to refi ne its business strategies, explore opportunities to extend the range of our retail products beyond our current offerings, and actively exploring business opportunities to enhance shareholders value. 12 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

14 SUSTAINABILITY STATEMENT This Sustainability Statement was prepared in accordance with the guidelines set out in the Main Market Listing Requirements relating to Sustainability Statement in Annual Report of Listed Issuers ( Guidelines ) issued by Bursa Malaysia Securities Berhad and covers the Company s business operations in Malaysia for the fi nancial year ended 31 December. Sustainability and responsibility remain an important part of our business strategy. Leveraging on our heritage as a wellestablished distribution chain in Malaysia, the Board of Directors demonstrates responsible corporate conduct across all aspects of our operations, with the help from the management team to monitor, align and facilitate adherence to the identifi ed risks and opportunities. We do so by integrating sustainability factors in business including environmental, social and governance, identify the risks associated with them and thereafter carry out the sustainability actions and manage the outcome as set out below: Focus Areas Social Governance Strategic Goals To support the community development Stakeholder engagement Material Matters and Stakeholders Customers Employees Business Partners Social changes Regulatory bodies Investment community Principal Risks Customer Satisfaction; brand value/ reputation; employees retention Non-compliance; incomplete information Mitigating Factors Regular customer survey to enhance customer satisfaction Employee training and development Employee engagement to enhance cross-functional alignment in execution of the Company s strategies and plans Annual trip and various staffs activities Community services such as TiRatana Charity Programme Provide technical and educational training to teachers using the latest Casio scientifi c calculator Class Wiz FX-570EX and exchanged their old calculators with new ones Compliance with regulatory requirements Engage with the investment community on important and informative corporate action plans through investor relation tab on the Company s website at MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 13

15 CORPORATE GOVERNANCE OVERVIEW STATEMENT The Board of Directors of Marco Holdings Berhad upholds the value of corporate governance and remains resolute in cultivating an ethical and good corporate governance culture within the Group for the sustainable growth of the Group s business. To that, the Board is committed to establish a corporate governance framework that is consistent with the principles and practices of the Malaysian Code on Corporate Governance ( the Code ) to ensure that the Group carries out its business operations within the required standard of corporate governance embodied in the Code to promote accountability and to deliver long term sustainable value to the shareholders. The Board is pleased to present below an overview of the corporate governance practices of the Group during the fi nancial year ended 31 December. The Corporate Governance Report which provides details on how the Company has applied each principle as set out in the Code is available on the Company s website at PRINCIPLE A BOARD LEADERSHIP AND EFFECTIVENESS I) Board Responsibilities Marco Holdings Berhad is led and managed by an experienced and effective Board of Directors. The Board has within it professionals drawn from varied background in the fi elds of management, marketing, administration, fi nance, accounting and horology. Together, they form a team with broad range of skills, experience and knowledge to direct and manage the Group s business activities. There is clear division of responsibility between the Board of Directors and the Management. The Board has established clear roles and responsibilities in discharging its fi duciary and leadership functions. The Board plays the role of overseeing the Company s overall activities over which it has full and effective controls and has developed corporate objectives control, including among others, the determining of the Company s overall strategic direction. The Management is accountable for the execution of the expressed policies and attainment of the Group s expressed corporate objectives in accordance with the direction of and delegation by the Board, as well as the running of the Group s day-to-day business operations. The Management team which comprises the Executive Directors and their Management team of the Company, reviews and evaluates the strategic plan and performance, sales revenue, customers feedback in light of changing consumers sentiment and unfavorable economic factors. Management meetings are held regularly and attended by the Executive Directors, general managers and section managers. The principal functions and responsibilities of the Board include the following:- (a) Reviewing and adopting a strategic business plan for the Company The Board reviews the annual strategies business plan and regularly monitors its progress throughout the year to ensure the inclusion of strategies on economic, environmental and social considerations underpinning sustainability and the support of long term value creation. The Board supervises and assesses management performance to determine whether the business is being properly managed. To ensure successful realization of the strategies business plan, the Board engages with the Management in monitoring the progress of initiatives from time to time and, where required, identifi es alternative measures to be taken. The Board also reviews the business challenges faced by the Group and approves the strategic plan proposed by the Management. In reviewing such plan, the Board constructively challenges the Management s views/assumptions in ensuring the best decisions are made after having considered all relevant aspects. Relevant Board decisions are communicated to Senior Management for implementation within a reasonable time frame. (b) Oversee the conduct of the Group s businesses The Board guides the performance of the Group s business year-to-year to evaluate whether the businesses are being properly managed. The fi nancial results, including comparison of the actual fi nancial performance of key business units against budget, are presented by the Management to the Board for review and any unfavourable budget variances are deliberated and addressed to for the enhancement of the performance of the Group in meeting the Group s business plan and corporate objectives. The Board ensures that the Group s fi nancial statements are true and fair as well as, in compliance with the applicable approved accounting standards and statutory requirements. 14 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

16 CORPORATE GOVERNANCE OVERVIEW STATEMENT (c) Identify principal risks and ensuring the implementation of appropriate internal controls and mitigation measures The Board reviews the system and processes as well as the key responsibilities and assesses for reasonable assurance that the principal risks have been managed. The Board ensures that there is an appropriate risk management framework to identify, analyse, evaluate, manage and monitor signifi cant fi nancial and non-fi nancial risks. The Board Members and the Management maintain constant communication among themselves to discuss strategic and operational risks and to formulate and implement proper action plans to mitigate the risks identifi ed in order to achieve a proper balance between risk incurred and potential returns to shareholders. Further details of the Group s system of internal controls are set out in the Statement on Risk Management and Internal Control in pages 28 to 30 of this Annual Report. (d) Succession Plan The Board through the Nomination Committee assess the performance of the individual directors (including the Executive Directors) annually to ensure all the directors possess essential skills and knowledge to discharge their responsibilities as the directors of the Group. The Board recognises the importance to attract and retain key management personnel and as such is committed to ensure that senior management has the necessary skills and experience, and that there are measures in place to provide for the orderly succession of board and senior management. The Group has in place informal practices of succession planning whereby competent and suitably qualifi ed second-in-line staffs are identifi ed by the Executive Directors for the key functions within the Group. The development of the second-in-line staffs is managed through on-the-job training and guidance as well as external trainings to close the competency gap required. (e) Overseeing the development and implementation of a shareholder communications policy The Board recognises the importance of corporate accountability to the shareholders and other stakeholders and is committed to ensure that they are kept informed in a timely and readily accessible manner of all material information concerning the Group. The Company s website is the primary medium in providing information to all shareholders and stakeholders. The Company also makes use of other communication channels like electronic facilities provided by Bursa Malaysia Securities Berhad ( Bursa Securities ), press releases and Annual General Meeting ( AGM ) / Extraordinary General Meeting ( EGM ) to disseminate material information concerning the Group. (f) Reviewing the adequacy and the integrity of the management information and internal control systems of the Group The Board acknowledges its overall responsibilities for maintaining a sound framework of reporting on internal controls and regulatory compliance. The Board through its Audit Committee reviews the adequacy and the integrity of the Group s internal control systems for compliance with the applicable laws, regulations, rules, directive and guidelines and ensures that there is a satisfactory reporting framework on internal fi nancial controls and regulatory compliance. Details on the risk management framework are set out in the Statement on Risk Management and Internal Control on pages 28 to 30 of this Annual Report. (g) Promoting good corporate governance culture within the Group which reinforces ethical, prudent and professional behavior together with Senior Management. The Board is committed to foster a healthy corporate governance culture which is founded on the principles of transparency, integrity and accountability within the Group which reinforces ethical, prudent and professional behavior together with Senior Management. There is a formal schedule of matters specifi cally reserved for the Board s decision including, among others, setting of authority limits, strategy setting, implementation and supervisory, board processes in meetings, monitoring of fi nancial performance, risk management and internal control. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 15

17 CORPORATE GOVERNANCE OVERVIEW STATEMENT Compliance with the Applicable Financial Reporting Standards The Board takes the responsibility to ensure that the quarterly results and fi nancial statements of the Group present a balanced, fair and understandable assessment of the Group s position and prospects. The Board is assisted by the Audit Committee to oversee the Group s fi nancial reporting process for quarterly results and annual fi nancial statements to ensure correctness and adequacy prior to their release to Bursa Securities via Bursa LINK. A statement by Directors of their responsibilities pursuant to Sections 251(2) & (3) of the Companies Act, is set out in page 36 of this Annual Report. Separation of the positions of Chairman and Executive Directors There is clear segregation of roles between the Chairman of the Board and Executive Directors to ensure that there is a balance of power and authority. The Chairman is responsible for the leadership and management of the Board and ensuring the Board and Board Committees function effectively. He oversees and evaluate the conduct and performance of the Group and undertake to ensure effi cient functioning of the Board and that procedural rules are followed and quality information to facilitate decision-making is delivered to Board members on a timely basis. Executive Directors oversee the day-to-day operations within their specifi c area of expertise or assigned responsibility. They represent the Company at the highest level and are decision makers on matters within their scope. They liaise frequently with the Chairman and with each other to lead the management to drive the Group forward. Board Charter The Board has adopted a Board Charter, which provides guidance to the Board in relation to the Board s role, duties, responsibilities and authorities which are in line with the principles of good corporate governance. The Board Charter acts as a source of reference for the Board members, and the same is accessible by the public on the Company s website. Code of Conduct and Ethics The Board has formalized a Code of Conduct and Ethics for its Directors and employees which sets out the standard of business conduct and ethical behavior expected of Directors/employees of the Group in the performance and exercise of their respective duties and responsibilities with the aim of cultivating good ethical business conducts to promote transparency, integrity, accountability and social responsibility. All Directors and employees are expected to behave ethically and professionally at all times to protect and promote the reputation and performance of the Company. The Group communicates the Code of Conduct and Ethics to its Directors upon their appointment. The Code of Conduct and Ethics is made available on the Company s website. Whistle Blowing The Board is committed to promoting good business conduct and maintaining a healthy corporate culture that engenders integrity, transparency and fairness. Towards that, the Board has adopted a whistle blowing policy which serves to provide an avenue for Directors, employees and external parties to raise concerns about any possible improprieties, unethical or illegal activities within the Group which they may become aware of and to provide reassurance that they will be protected from reprisals or being victimized for whistleblowing in good faith. Access to information and advice The Board of Directors has access to all information pertaining to the Group as well as to the advice of the Company Secretary and independent professional advisers, if necessary, in appropriate circumstances at the Company s expense to enable the Board to discharge its duties with adequate knowledge on the matters being deliberated. It is also kept informed of the requirements and updates issued by the regulatory authorities from time to time. 16 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

18 CORPORATE GOVERNANCE OVERVIEW STATEMENT Any Director who wishes to seek independent advice must fi rst discuss the request with the Chairman of the Board who will facilitate in obtaining such advice and, where appropriate, dissemination of the advice to all Directors. It is expected that any signifi cant issues affecting the Group are communicated to the Board. Senior Management members or professional advisers appointed by the Company to advise the Company on its corporate proposals may be invited if necessary to attend Board meetings and to provide the Board with explanation and clarifi cations to facilitate informed decision making. Prior to each scheduled Board Meeting, all the Directors were provided with the agenda for the meeting together with the detailed reports 7 days prior to the meeting or any other time agreed with the Board, to enable them to have suffi cient time to peruse the papers and if necessary, obtain further information or clarifi cation from the Management to assess all aspects of the Group s performance and make informed decision. Senior Management members are invited to attend these meetings to explain and clarify matters tabled. Minutes of Board Meetings are circulated to all the Directors for perusal prior to their confi rmation as a correct of proceedings at the following Board meeting. Apart from the Board Meetings, the Board exercises control on matters that require its approval through Directors Circular Resolutions. Company Secretary The Company Secretary is suitably qualifi ed and is a member of professional body. The Company Secretary plays a supporting role to the Board to ensure, among others, that Board procedures and the governance matters are followed and advises the Board on the corporate disclosures and Company s compliance with the Main Market Listing Requirements ( MMLR ) and other rules and regulations whichever applicable to the Company. The Secretary regularly updates the Board on new statutory and regulatory requirements in relation to the Board s duties and responsibilities. Compliance and governance issues are regularly brought to the Board s attention. The Secretary also ensures that adequate records of proceedings of Board meetings and circular resolutions passed are taken and maintained in the statutory books of the Company. II) Board Composition The Board currently has 9 members, comprising 4 Executive Directors and 5 Non-Executive Directors, 3 of whom are Independent Non-Executive Directors. The Board views that the current composition of the Board and its size constitute an effective Board in terms of background, qualifi cation, mix of skills and expertise suffi cient and optimum for the Board to discharge its duties and responsibilities effi ciently to bring a broader view to the Company s business activities. With this Board composition, the Company has fully complied with the MMLR, with regard to the constitution of the Board of Directors and the required ratio of independent directors, as well as the requirement for a Director who is a member of the Malaysian Institute of Accountants to sit on the Audit Committee. The profi le of each Board member is set out in pages 7 to 9 of this Annual Report. The Board places importance on the presence of independent directors who provide independent view and impartial judgement in the decision making process at Board level and in ensuring that no signifi cant decisions and policies are made by an individual director. In this respect, the three independent directors of the Company who are independent from management and free from business relationship with the Group and constitute one-third of the Board composition, are capable of ensuring a balanced independent judgment on issues requiring the Board s deliberation and decision in the best interest of the Group and the shareholders. In the discharge of its fi duciary duties, the Board has delegated specifi c responsibility to its three committees namely Audit, Nomination and Remuneration Committees, all of which have terms of reference to govern their respective responsibilities. The terms of reference of each of the board committees are made available on the Company s website. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 17

19 CORPORATE GOVERNANCE OVERVIEW STATEMENT The Board Committees will deliberate and examine issues within their defi ned terms of reference and report to the Board with their recommendation. Nomination Committee The Nomination Committee ( NC ), which was established on 20 March 2002 and comprising three Non- Executive Directors, two of whom are independent, is charged with the responsibility of proposing suitable new nominees for appointment as Directors and to fi ll the seats on Board Committees wherever necessary. It will also carry out the process of assessing the composition and effectiveness of the Board as a whole, the Board Committees and the contribution of each individual Director. The present members of the NC are:- 1) Tan Sri Dato Tan Hua Choon - Non-Independent Non-Executive Director 2) En Minhat Bin Mion - Independent Non-Executive Director 3) Haji Azizzuddin Bin Haji Hussein - Independent Non-Executive Director Generally, the Board, via the NC, will review annually its required mix of skills, experience and other qualities, including core competencies of the Non-Executive Directors. During the fi nancial year, the NC had one meeting, chaired by an independent director wherein all the NC members performed the annual evaluation on the effectiveness of the Board of Directors as a whole and its Committees, based on the attributes of their size and structure, mix of skills, experience, qualities, diversity in age, gender, race and ethnicity, effectiveness of Board meetings, frequency of Board meetings and nature as well as extent of function performed by the Board Committees. In reviewing Board composition, the NC will consider the benefi ts of all aspects of diversity including, but not limited to, those described above, in order to enable it to discharge its duties and responsibilities effectively. whilst the contribution of each individual Director was assessed based on the prescribed criterion of character, experience, level of integrity, core competencies, contributions towards Board deliberations and various meetings held and whether they have contributed suffi cient time to effectively discharge their duties and responsibilities as set out in the Performance Evaluation Survey Form for the assessment of the respective parties to ensure that they possess the appropriate balance of expertise and ability to lead the Group towards higher level of achievement. The NC also carried out an assessment of the term of offi ce and performance of the Audit Committee and each of its members based on the requisite criteria set out in the annual assessment form. All the conclusions of the assessment and evaluation carried out by the NC were properly documented and submitted to the Board for notation. Appointments to the Board Appointment of new Director to the Board is recommended by the NC which had developed the Procedure for Nomination and Selection of Candidates for Directorship. Key criteria to be considered in selection of Directors include qualifi cation, skills, experience, understanding of the Group s business, duties and responsibilities of a director, professional qualifi cations, integrity, ability to contribute in group discussion, availability of time for the Group s affairs and meeting, and potential confl icts of interest as well as the effect of any new appointment on board diversity. The process for the nomination and selection of a Director involves the determination of relevant qualifi cations, skills and experience or competencies required to direct and manage the business of the Group for Executive Directors; whilst the identifi cation of Non-Executive Directors involves the assessment of a potential candidate s relevant qualifi cations, skills and experiences to contribute effectively during Board meeting discussions. 18 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

20 CORPORATE GOVERNANCE OVERVIEW STATEMENT Appointment of new Directors will be decided by the full Board after taking into consideration the recommendations of the NC which had established a formal and transparent procedure for the appointment of new Directors to the Board. Re-election of Directors In accordance with the Company s Articles of Association (Constitution) ( Articles ), one third of the Directors, or if their number is not a multiple of three, the number nearest to one-third, are subject to retirement and re-election at each Annual General Meeting. Newly appointed Directors shall hold offi ce until the next Annual General Meeting and shall be eligible for re-election, but shall not be taken into account in determining the number of Directors who are to retire by rotation at such meeting. The Articles also provide that all the Directors are subject to retirement by rotation at least once every three (3) years. Board Diversity The Board has adopted a Board Diversity Policy which aims to set out the approach for achieving a greater depth and breadth of a diversifi ed board for the Company s Board of Directors. The Board has not set a boardroom or gender diversity target as it is of the view that the selection of suitable candidates as new Board members should be based on the candidates competency, knowledge, skills, experience, character, time commitment and other qualities in meeting the needs of the Group. However, the Group acknowledges the importance of boardroom diversity and has always been in support of nondiscrimination on the basis of gender, age, race and religion. The appointment of a female member to the Board refl ects the Board s commitment in recognising female representation on the Board and encourages Board deliberations from different perspectives. Annual Assessment of Independence of Independent Director The existence of the Independent Directors on the Board itself does not ensure absolute unbiased judgment as it can be compromised by familiarity with the other Board members. In this connection, the Nomination Committee ( NC ) has undertaken an annual assessment of the independence of the Independent Directors via the attributes of disclosed interests, independence of management and the criteria for assessing their independence are set out in the Performance Evaluation Survey Form used by the NC in its annual assessment exercise. The Board does not have term limit for its Independent Directors. While taking cognisance of the recommendation of the Code that the tenure of Independent Directors should not exceed a cumulative term of nine (9) years, the Board is of the view that the independence of the Independent Director should not be determined by their tenure of service. The Board is confi dent that the Independent Directors themselves, having provided all the relevant confi rmation on their independence, will be able to determine if they can continue to being independent and provide objective judgement to Board deliberations and decision making. Currently, none of the Independent Directors of the Company has served the Board for a cumulated term of more than nine years. Time Commitment The Board is mindful of the importance of devoting suffi cient time to carry out their responsibilities, regularly updating their knowledge and enhancing their skills. Each Director is expected to commit suffi cient time as and when required to discharge their responsibilities. Each Director of the Company does not hold more than five (5) directorships in public listed companies, in line with the MMLR. The Board has pre-scheduled meetings annually which dates are set in advance so as to facilitate the Directors time planning. Each Board member is expected to attend at least 50% of the total Board Meetings held in any applicable fi nancial year. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 19

21 CORPORATE GOVERNANCE OVERVIEW STATEMENT During the fi nancial year ended 31 December, the Board met twice where it deliberated and considered matters relating to the Group s fi nancial performance, operational issues, business development and strategies, audit findings and the relevant recommendations from the Internal Audit Consultants. All the deliberations and conclusions of the Board meetings were properly recorded by the Company Secretary present at the meeting. The details of attendance of each Board Member at the Board Meetings held during the fi nancial year ended 31 December are set out below :- Director Status % of Attendance Tan Sri Dato Tan Hua Choon Chairman 100 Non-Independent Non-Executive Director Mr Siau Hock Cheng Executive Deputy Chairman 100 Dato Wong Hok Yim Executive Director 100 Ms Siew Cheau Sheang Executive Director - Finance 100 Mr Ong Sim Jeng Executive Director 100 Mr Woo Hin Weng Non-Independent 100 Non-Executive Director Haji Azizzuddin Bin Haji Hussein Independent Non-Executive Director 100 En Aminuddin Yusof Lana Independent Non-Executive Director 100 En Minhat Bin Mion Independent Non-Executive Director 100 Directors Training All the existing Directors have completed the Mandatory Accreditation Programme prescribed by the requirements of Bursa Malaysia Securities Berhad. The Directors have also attended various accredited seminars under the Continuous Education Programme ( CEP ) prescribed by the MMLR. The Directors are encouraged to evaluate and determine their training needs from time to time so as to keep abreast with the latest statutory and regulatory requirements and the development in the industry for the enhancement of their skills and knowledge so as to enable them to discharge their duties effectively. Besides, the Directors also received updates on new regulations and statutory requirements from time to time. During the fi nancial year, the Directors have attended talks / seminars / training courses which covered the following topics : Effective Internal Audit Function for Audit Committee Workshop; SDG Business Summit CG Breakfast Series For Directors: Leading in a Volatile, Uncertain, Complex, Ambiguous (VUCA) World Advocacy Sessions to Enhance Quality of Management Discussion & Analysis for Chief Executive Offi cers and Chief Financial Offi cers of Listed Issuers; Advocate Sessions on Corporate Disclosure for Directors and Principal Offi cers of Listed Issuers Transfer Pricing in Malaysia; and A comprehensive review of latest developments in MFRS Newly appointed directors will be provided with a brief induction of the Group for an insight of the Group s business operations, past performances and corporate exercises undertaken. In addition, the Directors were also briefed by the Company Secretary from time to time on updates and changes of statutory requirements such as amendments to MMLR. 20 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

22 CORPORATE GOVERNANCE OVERVIEW STATEMENT III) Remuneration The Remuneration Committee ( RC ) was established on 20 March 2002 and comprises wholly of Non- Executive Directors with the primary objective of assisting the Board in developing and establishing competitive remuneration policies and packages. The members of the Remuneration Committee are: - 1) Tan Sri Dato Tan Hua Choon Non-Independent Non-Executive Director 2) Mr Woo Hin Weng Non-Independent Non-Executive Director The Board has in place remuneration policy for the Executive Directors and Non-Executive Directors of the Company which sets out to provide remuneration principles and guidelines for the Executive Directors and Non-Executive Directors of the Company. The policy is subject to periodical review by the Board and is made available on the Company y s website. The RC members met once during the fi nancial year where it reviewed the remuneration packages and benefi ts accorded to the Executive Directors as well as the Non-Executive Directors fee structure. The relevant Directors do not participate in discussion to be held on their own remuneration package. Level and made-up The Board ensures that the levels of remuneration offered for Directors are suffi cient to attract and retain people needed to run the Group successfully, while taking into consideration at the same time the state of the economy in general and the performance of the industry and the Group in particular. In the case of Executive Directors, the component parts of remuneration are structured to link rewards to corporate and individual performance. In the case of Non-Executive Directors, the level of remuneration refl ects the level of participation and responsibilities undertaken by the persons concerned. Procedure The RC is responsible for recommending to the Board the policy framework of executive remuneration and the fi xing of the remuneration of individual Director. The determination of remuneration and benefi ts of Non-Executive Directors together with Non-Executive Chairman are also reviewed by the RC to ensure that the levels of remuneration offered for the Directors are suffi cient to attract and retain people needed to manage the Group successfully. The Directors concerned do not participate in making decisions on their own remuneration packages. Fees payable to the Directors are subject to the approval of the shareholders of the Company. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 21

23 CORPORATE GOVERNANCE OVERVIEW STATEMENT Disclosure Details of the remuneration of the Directors of the Company, for the fi nancial year ended 31 December are as follows : Fees () Company Subsidiary Salary () Bonus () Estimated value of benefits-inkind () Executive Directors Mr Siau Hock Cheng , ,000 - Dato Wong Hok Yim , ,000 7,200 Ms Siew Cheau Sheang ,000 52,500 19,200 Mr Ong Sim Jeng ,000 72,000 - Non-Executive Directors Tan Sri Dato Tan Hua Choon 60,000 12, Mr Woo Hin Weng 12, Haji Azizzuddin Bin Haji Hussein 12, En Aminuddin Yusof Lana 6, En Minhat Bin Mion 12, PRINCIPLE B EFFECTIVE AUDIT AND RISK MANAGEMENT I) Audit Committee The Audit Committee ( AC ) of the Board of Directors of Company which chairman is an independent director, was established on 12 April The details of the Audit Committee Report are set out in pages 26 to 27 of this Annual Report. The Board has adopted an assessment policy which set out the guidelines and procedures to be followed by the AC in reviewing, assessing and monitoring the suitability, independence and performance of the External Auditors. The AC with the assistance of the Finance Director, and having obtained the necessary feedback from the Management, shall review on an annual basis the appropriateness of External Auditors continued engagement in the light of their independence, performance and the quality of related services. The Board through the Audit Committee, maintains a formal and transparent relationship with the External Auditors in seeking professional advice and ensuring compliance with the applicable accounting standards. Signifi cant audit issues which merit the special attention of the Board and the Audit Committee would be brought up and discussed at Audit Committee meetings. During the fi nancial year under review, the Audit Committee met with the External Auditors twice without the presence of the Executive Directors and the Management to allow the Audit Committee members and the External Auditors to exchange independent views on matter which require the Audit Committee s attention. The External Auditors had confi rmed that they were, and had been, independent throughout the conduct of the audit engagement with the Company in accordance with the terms of all relevant professional and regulatory requirements. Such declaration was given in the External Auditors annual audit plan presented to the Audit Committee prior to the commencement of their audit for the fi nancial year. The Terms of Reference of Audit Committee provides that in the event of a proposal to appoint a former key audit partner of the External Auditors as a member of the Audit Committee, the Company has to ensure that such former key audit partner has observed a cooling-off period of at least two years from his/her last engagement as external audit partner for the Company. 22 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

24 CORPORATE GOVERNANCE OVERVIEW STATEMENT The Board, through the Audit Committee considered and monitor the suitability and independence of the External Auditors from the aspects of performance and quality of work based on the feedback obtained from the Company personnel who has substantial interaction with the External Auditors, non-audit services provided and the timeliness of services deliverables and was of the view that the External Auditors, who have communicated with the Audit Committee vide the Audit Planning Memorandum and audit fi ndings report, have provided the necessary quality of service and possessed suffi cient resources, competent and able to demonstrate its independence throughout the conduct of the audit engagement. The External Auditors can be engaged to perform non-audit services that are not perceived to be in confl ict with their role as External Auditors. The External Auditors are invited to attend general meetings of shareholders of the Company and are available to answer the shareholders enquiries on the conduct of the statutory audit and the preparation and contents of their audit report. The role of the Audit Committee with respect to the External Auditors is described in pages 26 to 27 of this Annual Report. II) Risk Management and Internal Control Framework The Board always places signifi cant emphasis on maintaining a sound system of internal control which encompasses fi nancial, operational and compliance controls and risk management for the Group to achieve its corporate objectives within an acceptable risk level so as to safeguard the Group s assets and shareholders investment. Such controls, by its nature, can only provide reasonable but not absolute assurance against material misstatement, loss or fraud. The Group has established an internal audit functionc which reports directly to the Audit Committee. During the fi nancial year, the Audit Committee has undertaken a review of the effectiveness of internal audit function which outcome suggested that the performance of the internal audit function was satisfactory. Ongoing reviews are continuously performed by the Internal audit function throughout the year to identify, evaluate and manage signifi cant risk for assurance of adequate and effective internal controls within the Group. The Group s overview of the state of internal controls is presented in the Statement on Risk Management & Internal Control set out in pages 28 to 30 of this Annual Report. PRINCIPLE C INTERGRITY IN CORPORATE REPORTING AND MEANINGFUL RELATIONSHIP WITH STAKEHOLDERS I) Communication with Shareholders and Investors The Board acknowledges the need for shareholders to be informed on all material developments affecting the Group s state of affairs. To ensure shareholders and investors are well informed, information on the Group s performance and corporate developments are disseminated through timely announcements to Bursa Securities, distribution of annual reports, relevant circulars to shareholders, press releases (where appropriate), all of which can be viewed at the Company s website at The Shareholders and the public can also obtain up-to-date information on the Group s new products releases and promotional activities by accessing the same website. II) Conduct of General Meeting of Shareholders The AGM is the principal forum for dialogue and interaction with shareholders. Notices of AGM and EGM are distributed to shareholders within a reasonable and suffi cient time frame and are published in a nationally circulated daily newspaper. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 23

25 CORPORATE GOVERNANCE OVERVIEW STATEMENT Shareholders are encouraged to attend and participate in the AGM where the Board presents the performance and progress of the business of the Group during the particular fi nancial year as contained in the Annual Report. They are given the opportunity to seek clarifi cations on the Group s performance, business activities and prospects as well as to communicate their expectations and concerns of the Group wherein, the Directors, Finance Director and the External Auditors are available to respond to their queries and to provide explanation on the issues raised thereat. A press conference is usually held immediately after the AGM or EGM whereat the Board members inform the media of the resolutions passed, and answer questions posed on the Group s operations and plans. En Minhat Bin Mion has been appointed by the Board as the Senior Independent Non-Executive Director of the Company to whom concerns or enquiry regarding the Company and the Group may be conveyed, if any. Poll Voting In line with paragraph 8.29A of the MMLR, any resolution set out in the notice of any general meeting, or in any notice of resolution which may properly be moved and is intended to be moved at any general meeting, must be voted by poll. Hence, voting for all the resolutions as set out in the forthcoming and future general meetings will be conducted as such. An Independent scrutineer will be appointed to validate the votes cast at the general meetings. DIRECTORS RESPONSIBILITY STATEMENT IN RESPECT OF THE AUDITED FINANCIAL STATEMENTS The Board is fully aware of its responsibility to ascertain that the presentations of the fi nancial statements of the Group and the Company are in line with the applicable approved accounting standards of Malaysia and the provisions of the Companies Act, ( the Act ) so as to give a true and fair view of the Group and the Company s state of affairs, results and cash fl ow for the financial year ended 31 December. As such, the Board ensured that in preparing the fi nancial statements of the Group and the Company for the fi nancial year ended 31 December, the Group has adopted and consistently applied the relevant and appropriate accounting policies, made reasonable judgments and estimates that are prudent and on the going concern basis. Apart from that, the Board takes the general responsibilities of : ensuring that the Group keeps adequate accounting records which disclose with reasonable accuracy, the fi nancial position of the Group and which will enable them to ensure that the fi nancial statements comply with the Act ; and taking reasonable steps open to them to safeguard the assets of the Group to prevent and detect fraud and other irregularities. 24 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

26 OTHER COMPLIANCE INFOATION Audit and Non-Audit Fees The amount of audit and non-audit fees incurred for services rendered to the Company and the Group by the External Auditors, or a fi rm or corporation affi liated to the External Auditors fi rm for the fi nancial year ended 31 December were as below : Audit Fees () Non-Audit Fees () Company 29, , Group 87, , Material Contracts During the fi nancial year, there were no material contracts entered into by the Group involving the interest of Directors or major shareholders. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 25

27 AUDIT COMMITTEE REPORT The Marco Holdings Berhad s ( Marco ) Audit Committee was established by the Company s Board of Directors on 12 April COMPOSITION OF AUDIT COMMITTEE Chairman Haji Azizzuddin Bin Haji Hussein Members Mr Woo Hin Weng (MIA Member) En Minhat Bin Mion Independent Non-Executive Director Non-Independent Non-Executive Director Independent Non-Executive Director TES OF REFERENCE The Terms of Reference of the Marco Audit Committee is available for reference on the Company s website at MEETINGS The Marco Audit Committee held four meetings during the fi nancial year ended 31 December,. The attendance records of the Audit Committee members at the meetings are as follows : Member Date of Meeting 20/2/ 29/5/ 18/8/ 22/11/ % of Attendance Haji Azizzuddin Bin Haji Hussein 100 Mr Woo Hin Weng 100 En Minhat Bin Mion 100 The Executive Directors and Internal Audit Consultants were usually invited to attend the Marco Audit Committee meetings to brief on the activities involving their areas of responsibilities. The Audit Committee was also briefed by the External Auditors on their annual audit fi ndings and new standards introduced by the Malaysian Accounting Standards Board ( MASB ), where applicable. The External Auditors also had two separate discussions with the Audit Committee without the presence of the executive board members and the management. The proceedings and conclusions of each Audit Committee meeting were documented and distributed to each member of the Audit Committee and also to the other non-audit Committee Board members. SUMMARY OF ACTIVITIES During the fi nancial year ended 31 December, the activities carried out by the Audit Committee included, among others, the following:- a. Reviewed the unaudited quarterly reports on the consolidated results and fi nancial statements prior to tabling the same for the Board of Directors adoption. b. Reviewed the assistance given by the Management to the External Auditors. c. Reviewed the adequacy of the existing policies, procedures and systems of internal control of the Group. 26 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

28 AUDIT COMMITTEE REPORT d. Reviewed the Group Budget for the fi nancial year ending 31 December e. Reviewed various variances arising from the comparisons of the Group s year-to-date actual results against the budget and from comparison of year-to-date results for year over. f. Reviewed the Internal Audit Consultants audit fi ndings on Sales and Marketing Sales Management, Inventory Management and Business Risk Profi le of the Group s business processes. g. Reviewed the Audit Report in relation to signifi cant audit and accounting matters for the fi nancial year ended 31 December prepared by the External Auditors. h. Discussed with the External Auditors on audit issues for the fi nancial year ended 31 December. i. Reviewed the Audit Plan in relation to the External Auditors audit program and some updates on new accounting standards / interpretations / amendments applicable to the Group s fi nancial statements for the fi nancial year ended 31 December. j. Evaluated the performance of the Internal audit functions based on the requisite criteria set out in the Internal Auditors Evaluation Form. INTERNAL AUDIT FUNCTION The Group has outsourced its internal audit function to external consultants which personnel are free from any relationship or confl ict of interest or undue infl uence of others which could impair their independence, and reports directly to the Marco Audit Committee. The principal objective of the internal audit function is to assist the Board of Directors of Marco in maintaining a sound system of internal controls within the Group in order to safeguard the shareholders investment and the Group s assets. The internal audit function reviews the adequacy and effectiveness of the internal control system and make suitable recommendation for further enhancement of the internal control system. The internal audit function assists the Management to identify, evaluate and update signifi cant risks and develop risksbased audit plans for approval by the Audit Committee. The scope of the internal audit function covers the audits of all units and operations of the Group. The total cost incurred for the internal audit function of the Group in respect of the fi nancial year ended 31 December amounted to 90, A summary of the activities performed by the internal audit consultants during the fi nancial year is set out in pages 28 to 30 of this Annual Report. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 27

29 STATEMENT ON RISK MANAGEMENT & INTERNAL CONTROL Introduction In compliance with Paragraph 15.26(b) of Bursa Securities Main Market Listing Requirements and the Statement on Risk Management & Internal Control - Guidelines for Directors of Public Listed Issuers, the Board is committed to maintaining a sound system of risk management and internal control in conduct of its business operations and is pleased to present the Statement on Risk Management and Internal Control which outlines the nature and scope of risk management and internal control of the Group during the fi nancial year ended 31 December. The Board s Responsibility The Board recognises its overall responsibility for the adequacy and effectiveness of the risk management framework and system of internal controls within the Group. The Board, through its Audit Committee, reviews the adequacy and effectiveness of the risk management and internal control system in relation to the internal audits conducted at operating units by an independent assurance provider during the fi nancial year under review. The audit observations, together with management s response and agreed action plans are presented to the Audit Committee during quarterly meetings. In addition, the review of the internal audit reports is part of the agenda of the Audit committee and Board meetings. The Board ensures that the risk management and internal control systems manage the Group s relevant and key signifi cant risks within its risk appetite in pursuing its strategies and business objectives. However, the Board is equally aware that such systems and processes are designed to manage, rather than eliminate the risk of failure to achieve the policies, goals and objectives of the Group. In this regard, the risk management framework and internal control system can only provide reasonable assurance, and not absolute assurance against material misstatement of fi nancial information and records or against fi nancial losses or fraud. Risk Management Framework The Group adopts enterprise risk management approach and all the active businesses of the companies within the Group are considered and categorized in accordance with their main functional activities. Responsibility of risk management and control is delegated to the appropriate levels of management within the Group. This process has been in place for the fi nancial year under review and up to the date of approval of the annual report and fi nancial statements. The main features of the risk management process are as follows: a) Establish the context of risk in relation to the Group s risk appetite The amount of risk, on a broader level, acceptable to the Group in pursuing the various business objectives is determined by the senior management. b) Risk identifi cation in relation to the objectives of every business function The risks are identifi ed through a series of interviews and discussions with the risk owners, i.e. respective heads of each operating units / departments, key personnel and management of the Group. The risk identifi cation process includes consideration of both internal and external environment factors. External environmental factors include economic and political changes, changes in the behavior of competitors, new regulations or legislation and technological developments. Internal factors include changes in key personnel, introduction of new or revision of existing policies and procedures. 28 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

30 STATEMENT ON RISK MANAGEMENT & INTERNAL CONTROL c) Assess the potential impact and likelihood of the risks identifi ed and hence their risk levels The impact of the risk is rated on a scale of A to E (A to indicate the lowest impact and E to indicate the highest impact). Whereas the likelihood of a risk is rated on a scale of 1 to 5 (1 to indicate lowest probability and 5 indicates the highest probability). The risk level shall be rated low, medium and high according to the Risk Analysis Matrix. d) Ongoing monitor and review risk mitigating measures, risk levels and emerging risks All the identifi ed risk and mitigating measures are documented into a Business Risk Profi le. The Business Risk Profi le of the Group is updated on an ongoing basis and approved by the Board. The Business Risk Profi le serves as a tool for the heads of operating units / departments for managing key risks applicable to their areas of business. All key risks and issues are regularly reviewed and resolved by the Management team at regular meeting. Through these mechanisms, key risks identifi ed in the Business Risk Profi le are assessed in a timely manner and control procedures are re-evaluated accordingly in order to ensure that the key risks are mitigated to an acceptable level. The Internal Audit Function reviews the effectiveness and adequacy of control procedures adopted by the Company on a regular basis in mitigating the key risks identifi ed in the Business Risk Profi le. Any weaknesses noted during the audit review are reported to the Audit Committee. Through these mechanisms, the Audit Committee can be assured that the key risks of the Company are regularly reviewed and appropriately managed to an acceptable level. System of Internal Controls The key elements of the Group s internal control system are as follows: A well-defi ned organisational structure with proper delegation of responsibilities and accountability, including authorisation levels for all aspects of the business operations. To ensure the uniformity and consistency of practices and controls within the Group, Standard Operating Procedures ( SOP ) have been formalized and documented for the key business processes. The policies and procedures are regularly updated to ensure that they remain current, relevant and aligned with evolving business environment and operational needs. The trading operations are accredited with ISO 9001:2008 international quality system standard and such quality management system provides the Group with improved control of key processes and a foundation for improving quality and customer satisfaction. Annual audit is conducted by external certifi cation body to ensure these operational procedures are in compliance with ISO requirements. Annual budgets of the Group s operating units are developed in line with the Group s strategies and risk appetite are reviewed and approved by the Board. Any variances of actual performance against budget are monitored and reported on a monthly basis to Management and quarterly to the Board. Appropriate actions are devised to address any areas of concerns arising from the regular review. Financial results are prepared and presented to Management and to the Board and Audit Committee in a timely manner for effective monitoring and decision making. The Executive Directors act as the channel of communication between the Board and the Management. The Executive Directors are empowered to manage the businesses of the Group and implement the Board s directives and policies. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 29

31 STATEMENT ON RISK MANAGEMENT & INTERNAL CONTROL Capital expenditures and investment options are referred to the Board for review and approval. Regular risk-based internal audit, i.e. focusing on key risk areas are carried out to provide independent assurance on the effectiveness and effi ciency of the Company s system of internal controls and advising Management on areas for improvements. The Audit Committee meets at least four times a year. The Committee meets with the internal auditors to review the results of control assurance and internal audit activities. The Audit Committee reviews the actions taken to rectify the fi ndings in a timely manner, and to evaluate the adequacy, effectiveness and effi ciency of the Group s internal control systems. Further to this, the external auditor conducts annual statutory audit on the fi nancial statements. Areas for improvement identifi ed during the course of statutory audit by the external auditors are presented to the Audit Committee. Through the establishment of sound internal control, which includes monitoring reporting systems, the Board reports that the existing system of internal controls is satisfactory. No material losses have occurred during the fi nancial year under review as a result of weakness in internal control. The Board together with the Management continue to take measures to strengthen the control environment. Assurance from Management In accordance with the Statement on Risk Management & Internal Control Guidelines for Directors of Listed Issuers, the Board has received assurance from the Executive Directors that to the best of their knowledge the risk management and internal control system of the Group are operating effectively and adequately, in all material respects, based on the risk management and internal control described above. Review of the statement by External Auditors As required by Paragraph of the Bursa Malaysia Securities Berhad Main Market Listing Requirements, the External Auditors have reviewed this Statement on Risk Management & Internal Control. The External Auditors have reported to the Board that nothing has come to their attention that causes them to believe that this Statement is inconsistent with their understanding of the process the Board has adopted in the review of the adequacy and integrity of internal control system and risk management of the Group. STATEMENT ON RISK MANAGEMENT & INTERNAL CONTROL 30 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

32 32 Directors Report 36 Statement by Directors 36 Statutory Declaration FINANCIAL 41 STATEMENTS 37 Independent Auditors Report Consolidated Statement of Profi t or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Statement of Profit or Loss and Other Comprehensive Income 48 Statement of Financial Position 49 Statement of Changes in Equity 51 Statement of Cash Flows 52 Notes to the Financial Statements

33 DIRECTORS REPORT for the financial year ended 31 December The directors have pleasure in submitting their report together with the audited fi nancial statements of the Group and of the Company for the financial year ended 31 December. PRINCIPAL ACTIVITIES The principal activity of the Company is investment holding. There have been no signifi cant changes in the nature of these activities of the Company during the fi nancial year. The principal activities of the subsidiary companies are set out in Note 14 to the fi nancial statements. There have been no signifi cant changes in the nature of these activities of the subsidiary companies during the fi nancial year. RESULTS GROUP COMPANY Profi t for the year 13,750,410 5,934,807 DIVIDEND A fi rst and fi nal single tier dividend of 0.50 sen per share amounting to 5,271,534 in respect of the previous fi nancial year as proposed in the directors report for that fi nancial year was paid on 30 June. The directors now recommend a fi rst and fi nal single tier dividend of 0.50 sen per share amounting to 5,271,534 for the fi nancial year ended 31 December. SHARE CAPITAL The Company did not issue any shares or debentures during the fi nancial year. RESERVES AND PROVISIONS There were no material transfers to or from reserves or provisions during the fi nancial year except as disclosed in the fi nancial statements. DIRECTORS The directors of the Group and of the Company in offi ce during the fi nancial year and up to the date of this report are: Directors of the Company: Tan Sri Dato Tan Hua Choon Siau Hock Cheng Dato Wong Hok Yim Ong Sim Jeng Siew Cheau Sheang Woo Hin Weng Hj. Azizzuddin Bin Hj. Hussein Aminuddin Yusof Lana Minhat Bin Mion (also a director of certain subsidiaries) (also a director of all subsidiaries) (also a director of certain subsidiaries) (also a director of certain subsidiaries) (also a director of a subsidiary) (also a director of a subsidiary) (also a director of certain subsidiaries) 32 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

34 DIRECTORS REPORT for the fi nancial year ended 31 December Other directors of the subsidiaries: Dato Sri Tan Han Chuan Datin Hawa Binti Mohd Yassin Dato Thor Poh Seng DIRECTORS INTERESTS According to the Register of Directors Shareholdings, the interests of directors in offi ce at the end of the financial year in shares in the Company were as follows: Direct interests Tan Sri Dato Tan Hua Choon Indirect interests Tan Sri Dato Tan Hua Choon* As at 1/1/ No. of ordinary shares Bought Sold As at 31/12/ 74,767, ,767, ,040, ,040,000 * Tan Sri Dato Tan Hua Choon is the spouse of Puan Sri Datin Poo Ong Poo Choi and father of Dato Sri Tan Han Chuan and is thus deemed to be interested in their respective shareholdings. The above director by virtue of his shareholdings in the Company are also deemed interested in shares in its related corporations to the extent the Company has an interest. Other than as disclosed, none of the directors in offi ce at the end of the fi nancial year had any interest in shares in the Company and its related corporations during the fi nancial year. DIRECTORS BENEFITS Since the end of the previous fi nancial year, no director has received or become entitled to receive a benefi t (other than benefi ts disclosed as directors remuneration under Note 7 to the fi nancial statements) by reason of a contract made by the Company or a related corporation with the director or with a fi rm of which he is a member, or with a company in which he has a substantial fi nancial interest. Neither at the end of the fi nancial year, nor at anytime during the fi nancial year, did there subsist any arrangement to which the Company is a party, being arrangements with the object or objects of enabling directors to acquire benefi ts by means of the acquisition of shares in the Company or shares in, or debentures of any other body corporate. STATUTORY INFOATION ON THE FINANCIAL STATEMENTS (a) Before the fi nancial statements of the Group and of the Company were prepared, the directors took reasonable steps: (i) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of provision for doubtful debts, and satisfi ed themselves that all known bad debts had been written off and that adequate provision had been made for doubtful debts; and MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 33

35 DIRECTORS REPORT for the fi nancial year ended 31 December STATUTORY INFOATION ON THE FINANCIAL STATEMENTS (continued) (a) Before the fi nancial statements of the Group and of the Company were prepared, the directors took reasonable steps: (continued) (ii) to ensure that any current assets, which were unlikely to be realised in the ordinary course of business including the values of current assets as shown in the accounting records of the Group and of the Company have been written down to amounts which they might be expected so to realise. (b) At the date of this report, the directors are not aware of any circumstances: (i) (ii) (iii) which would render the amount written off for bad debts or the amount of the provision for doubtful debts in the fi nancial statements of the Group and of the Company inadequate to any substantial extent; or which would render the values attributed to current assets in the fi nancial statements of the Group and of the Company misleading; or which have arisen which would render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate. (c) As at the date of this report, there does not exist: (i) (ii) any charges on the assets of the Group and of the Company which have arisen since the end of the fi nancial year which secures the liabilities of any other person; and any contingent liabilities of the Group or of the Company which have arisen since the end of the fi nancial year. (d) At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in the report or fi nancial statements of the Group and of the Company, which would render any amount stated in the fi nancial statements misleading. (e) No contingent or other liability has become enforceable, or is likely to become enforceable, within the period of twelve months after the end of the fi nancial year which, in the opinion of the directors, will or may affect the ability of the Group or of the Company to meet their obligations when they fall due. (f) In the opinion of the directors: (i) (ii) the results of the operations of the Group and of the Company during the fi nancial year were not substantially affected by any item, transaction or event of a material and unusual nature. no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the fi nancial year and the date of this report which is likely to affect substantially the results of the operations of the Group and of the Company for the current fi nancial year in which this report is made. 34 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

36 DIRECTORS REPORT for the fi nancial year ended 31 December SUBSIDIARIES Details of subsidiaries are set out in Note 14 to the fi nancial statements. AUDITORS REMUNERATION Details of auditors remuneration are set out in Note 7 to the fi nancial statements. AUDITORS The auditors, PCCO PLT, have indicated their willingness to continue in offi ce. On behalf of the board TAN SRI DATO TAN HUA CHOON SIAU HOCK CHENG Kuala Lumpur Date: 6 April 2018 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 35

37 STATEMENT BY DIRECTORS In the opinion of the directors, the fi nancial statements set out on pages 41 to 82 are drawn up in accordance with the Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act in Malaysia so as to give a true and fair view of the fi nancial position of the Group and of the Company as at 31 December and of their fi nancial performance and cash fl ows of the Group and of the Company for the year then ended. Signed in accordance with a resolution of the directors TAN SRI DATO TAN HUA CHOON SIAU HOCK CHENG Kuala Lumpur Date: 6 April 2018 STATUTORY DECLARATION I, Siew Cheau Sheang, being the director responsible for the fi nancial management of Marco Holdings Berhad, do solemnly and sincerely declare that to the best of my knowledge and belief, the fi nancial statements set out on pages 41 to 82 are correct and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, SIEW CHEAU SHEANG Subscribed and solemnly declared at Kuala Lumpur, Wilayah Persekutuan on 6 April 2018 Before me: KAPT (B) AFFANDI BIN AHMAD, W 678 Commissioner for Oaths 36 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

38 INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF MARCO HOLDINGS BERHAD (8985-P) (Incorporated in Malaysia) Report on the Audit of the Financial Statements Opinion We have audited the fi nancial statements of Marco Holdings Berhad, which comprise the statements of fi nancial position as at 31 December of the Group and of the Company, and the statements of profi t or loss and other comprehensive income, statements of changes in equity and statements of cash fl ows of the Group and of the Company for the year then ended, and notes to the fi nancial statements, including a summary of signifi cant accounting policies, as set out on pages 41 to 82. In our opinion, the accompanying fi nancial statements give a true and fair view of the fi nancial position of the Group and of the Company as at 31 December and of their fi nancial performance and their cash fl ows for the year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act in Malaysia. Basis for opinion We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our opinion. Independence and Other Ethical Responsibilities We are independent of the Group and of the Company in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants ( By-Laws ) and the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants ( IESBA Code ), and we have fulfi lled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most signifi cance in our audit of the fi nancial statements of the Group and of the Company for the current year. These matters were addressed in the context of our audit of the fi nancial statements of the Group and of the Company as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter - Inventories Per the Group s accounting policy, inventories are valued at lower of costs and net realisable values. As explained in Note 1(d)(i), management s assessment of percentage of write down for inventories is based on the experience and judgement of the management. In addition the value of inventories as at 31 December is material to the fi nancial statements. Our audit procedures included among others are as follows: Discussed with management to understand the methodology used for Group s inventories write down policy and the assumptions applied. We evaluated the methods of measurement and assumptions used with reference to product historical performance and current market price. We also assessed the potential risk for management bias. We tested the mathematical integrity of the value of inventories written down based on the agreed methodology. We also assessed whether the inventories are valued at lower of cost and net realisable value. We found no errors in the calculation and the methodology has no indication of management bias and is consistently applied with that adopted in prior years. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 37

39 Report on the Audit of the Financial Statements (continued) Key Audit Matters (continued) INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF MARCO HOLDINGS BERHAD (8985-P) (Incorporated in Malaysia) Information Other than the Financial Statements and Auditors Report Thereon The directors of the Company are responsible for the other information. The other information comprises the information included in the annual report, but does not include the fi nancial statements of the Group and of the Company and our auditors report thereon. Our opinion on the fi nancial statements of the Group and of the Company does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the fi nancial statements of the Group and of the Company, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the fi nancial statements of the Group and of the Company or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Statements The directors of the Company are responsible for the preparation of fi nancial statements of the Group and of the Company that give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act in Malaysia. The directors are also responsible for such internal control as the directors determine is necessary to enable the preparation of fi nancial statements of the Group and of the Company that are free from material misstatement, whether due to fraud or error. In preparing the fi nancial statements of the Group and of the Company, the directors are responsible for assessing the Group s and the Company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so. Auditor s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the fi nancial statements of the Group and of the Company as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to infl uence the economic decisions of users taken on the basis of these fi nancial statements. As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the fi nancial statements of the Group and of the Company, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is suffi cient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 38 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

40 INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF MARCO HOLDINGS BERHAD (8985-P) (Incorporated in Malaysia) Auditor s Responsibilities for the Audit of the Financial Statements (continued) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group s and of the Company s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast signifi cant doubt on the Group s or the Company s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the fi nancial statements of the Group and of the Company or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Group or the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the fi nancial statements of the Group and of the Company, including the disclosures, and whether the fi nancial statements of the Group and of the Company represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the fi nancial information of the entities or business activities within the Group to express an opinion on the fi nancial statements of the Group. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and signifi cant audit fi ndings, including any signifi cant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most signifi cance in the audit of the fi nancial statements of the Group and of the Company for the current year and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonable be expected to outweigh the public interest benefi ts of such communication. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 39

41 Other Matters INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF MARCO HOLDINGS BERHAD (8985-P) (Incorporated in Malaysia) This report is made solely to the members of the Company, as a body, in accordance with Section 266 of the Companies Act in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report. PCCO PLT (LLP LCA) No. AF 1056 Chartered Accountants CHUAH SUE YIN No. 2540/04/18 (J) Chartered Accountant Kuala Lumpur Date: 6 April MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

42 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME for the year ended 31 December NOTE REVENUE 6 154,686, ,536,147 OTHER INCOME 2,750,131 2,467,482 CHANGES IN INVENTORIES OF GOODS FOR RESALE (4,619,321) 14,910,903 GOODS FOR RESALE PURCHASED (112,664,567) (149,217,733) EMPLOYEE BENEFITS EXPENSE (9,889,888) (10,701,706) DEPRECIATION AND AMORTISATION (1,074,401) (786,448) OTHER EXPENSES (10,778,884) (13,621,339) FINANCE COSTS (69,740) (67,477) PROFIT BEFORE TAXATION 7 18,339,620 23,519,829 TAXATION 8 (4,589,210) (6,203,586) PROFIT FOR THE YEAR 13,750,410 17,316,243 OTHER COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAX Items that may be reclassifi ed subsequently to profi t or loss: Fair value changes in available-for-sale fi nancial assets - 23,910 Realised gain on disposal of available-for-sale fi nancial assets (254,261) - TOTAL COMPREHENSIVE INCOME FOR THE YEAR 13,496,149 17,340,153 PROFIT FOR THE YEAR ATTRIBUTABLE TO: OWNERS OF THE PARENT 13,750,410 17,316,243 TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: OWNERS OF THE PARENT 13,496,149 17,340,153 EARNINGS PER SHARE (sen) - basic diluted The accompanying notes are an integral part of these fi nancial statements. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 41

43 CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 31 December NOTE ASSETS NON-CURRENT ASSETS Property, plant and equipment 11 1,160,634 1,132,339 Intangible assets 12 1,007,762 76,753 Investment properties 13 40,744,300 41,244,663 Other investments Deferred tax assets 16 1,539,000 1,282,000 44,451,916 43,735,975 CURRENT ASSETS Inventories 17 32,762,532 38,201,643 Trade and other receivables 18 15,916,108 20,134,777 Tax recoverable 329, ,342 Short term funds 19-58,028,466 Cash and cash equivalents ,457,908 29,821, ,465, ,547,730 TOTAL ASSETS 194,917, ,283,705 EQUITY AND LIABILITIES EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT Share capital ,986, ,430,685 Share premium - 25,556,150 Reserves 22 1,209,666 1,463,927 Retained profi ts 49,434,067 40,955,191 TOTAL EQUITY 181,630, ,405,953 CURRENT LIABILITIES Trade and other payables 23 9,633,379 10,392,876 Provisions , ,651 Short term borrowings 25 2,492,918 4,763,083 Taxation 934,143 1,469,142 TOTAL LIABILITIES 13,287,244 16,877,752 TOTAL EQUITY AND LIABILITIES 194,917, ,283,705 The accompanying notes are an integral part of these fi nancial statements. 42 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

44 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December Attributable to owners of the Parent Share capital Share premium - non distributable Fair value adjustement reserve-non distributable Revaluation reserve-non -distributable Retained profits Balance at 1 January 105,430,685 25,556, ,351 1,209,666 31,019, ,445,948 Total Profi t for the year ,316,243 17,316,243 Other comprehensive income that may be reclassifi ed subsequently to profi t or loss: Fair value change in available -for-sale fi nancial assets , ,910 Total other comprehensive income for the year net of tax , ,910 Total comprehensive income ,910-17,316,243 17,340,153 Transactions with owners Dividends (Note 9) (7,380,148) (7,380,148) Total transactions with owners (7,380,148) (7,380,148) Balance at 31 December 105,430,685 25,556, ,261 1,209,666 40,955, ,405,953 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 43

45 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December Attributable to owners of the Parent Share capital Share premium - non distributable Fair value adjustement reserve-non distributable Revaluation reserve-non -distributable Retained profits Balance at 1 January 105,430,685 25,556, ,261 1,209,666 40,955, ,405,953 Total Transfer pursuant to section 618(2) of the Companies Act (Note 21) 25,556,150 (25,556,150) Profi t for the year ,750,410 13,750,410 Other comprehensive income that may be reclassifi ed subsequently to profi t or loss: Realised gain on disposal of available-for-sale fi nancial assets - - (254,261) - - (254,261) Total other comprehensive income for the year net of tax - - (254,261) - (254,261) Total comprehensive income - - (254,261) - 13,750,410 13,496,149 Transactions with owners Dividends (Note 9) (5,271,534) (5,271,534) Total transactions with owners (5,271,534) (5,271,534) Balance at 31 December 130,986, ,209,666 49,434, ,630,568 The accompanying notes are an integral part of these fi nancial statements. 44 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

46 CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December CASH FLOWS FROM OPERATING ACTIVITIES NOTE Profi t before taxation 18,339,620 23,519,829 Adjustments for: Gain on disposal of property, plant and equipment (83,018) (14,150) Allowance for impairment on receivables 386,637 11,651 Bad debts written off 21,945 - Reversal of allowance for impairment on receivables (43,824) (128,088) Property, plant and equipment written off 1 - Reversal for repair warranty provisions (25,847) (5,714) Allowance for inventories written down 817,495 1,117,166 Amortisation of intangible assets 281,230 40,581 Amortisation of investment properties 500, ,363 Depreciation 292, ,504 Gain on disposal of short term funds (266,757) - Dividend income (1,563,025) (1,519,232) Interest income (473,564) (512,892) Inventories written off 41,656 25,248 Unrealised gain in foreign exchange - (310,245) Addition for repair warranty provisions - 13,834 Profi t before working capital changes 18,255,720 22,983,855 Working capital changes: Inventories 4,579,960 (14,936,152) Trade and other receivables 3,853,911 12,328,123 Trade and other payables (759,497) 259,115 Cash infl ows from operations 25,900,094 20,634,941 Interest received 473, ,892 Tax paid (5,349,215) (6,750,262) Net cash inflows from operating activities 21,024,443 14,397,571 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 45

47 CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December CASH FLOWS FROM INVESTING ACTIVITIES NOTE Proceeds from disposal of short term funds 75,603,967 - Proceeds from disposal of property, plant and equipment 83,019 14,151 Purchase of short term funds (17,563,005) (21,918,678) Dividend received 1,563,025 1,519,232 Purchase of property, plant and equipment (466,778) (744,408) Purchase of intangible assets (1,066,566) (3,450) Net cash inflows/(outflows) from investing activities 58,153,662 (21,133,153) CASH FLOWS FROM FINANCING ACTIVITIES Dividend paid (5,271,534) (7,428,894) (Repayment)/drawndown of short term borrowings (2,270,165) 4,763,083 Net cash outflows from fi nancing activities (7,541,699) (2,665,811) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 71,636,406 (9,401,393) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 29,821,502 39,222,895 CASH AND CASH EQUIVALENTS AT END OF YEAR ,457,908 29,821,502 The accompanying notes are an integral part of these fi nancial statements. 46 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

48 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME NOTE REVENUE 6 6,000,470 15,848,536 OTHER INCOME 233,716 81,377 EMPLOYEE BENEFITS EXPENSE (102,000) (102,000) OTHER EXPENSES (172,810) (163,033) FINANCE COSTS (100) (132) PROFIT BEFORE TAXATION 7 5,959,276 15,664,748 TAXATION 8 (24,469) (12,751) PROFIT FOR THE YEAR 5,934,807 15,651,997 OTHER COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAX Items that may be reclassifi ed subsequently to profi t or loss: Fair value changes for available-for-sale fi nancial assets - 2,436 Realised gain on disposal of available-for-sale fi nancial assets (94,462) - TOTAL COMPREHENSIVE INCOME FOR THE YEAR 5,840,345 15,654,433 PROFIT FOR THE YEAR ATTRIBUTABLE TO: OWNERS OF THE PARENT 5,934,807 15,651,997 TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: for the year ended 31 December OWNERS OF THE PARENT 5,840,345 15,654,433 The accompanying notes are an integral part of these fi nancial statements. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 47

49 STATEMENT OF FINANCIAL POSITION as at 31 December NOTE ASSETS NON-CURRENT ASSETS Subsidiary companies ,700, ,700,000 Other investments ,700, ,700,220 CURRENT ASSETS Trade and other receivables 18 5,539,846 15,463,947 Tax recoverable 39,644 30,113 Short term funds 19-19,396,964 Cash and cash equivalents 20 31,401,286 1,520,941 36,980,776 36,411,965 TOTAL ASSETS 140,680, ,112,185 EQUITY AND LIABILITIES EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT Share capital ,986, ,430,685 Share premium - 25,556,150 Reserves 22 3,639,272 3,733,734 Retained profi ts 6,014,089 5,350,816 TOTAL EQUITY 140,640, ,071,385 CURRENT LIABILITIES Trade and other payables 23 40,800 40,800 TOTAL LIABILITIES 40,800 40,800 TOTAL EQUITY AND LIABILITIES 140,680, ,112,185 The accompanying notes are an integral part of these fi nancial statements. 48 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

50 STATEMENT OF CHANGES IN EQUITY for the year ended 31 December Attributable to owners of the Parent Share capital Share premium - non distributable Fair value adjustement reserve-non distributable Capital reserve -distributable Retained profits/ (accumulated losses) Balance at 1 January 105,430,685 25,556,150 92,026 11,019,420 (10,301,181) 131,797,100 Total Profi t for the year ,651,997 15,651,997 Other comprehensive income that may be reclassifi ed subsequently to profi t or loss: Fair value change in available -for-sale fi nancial assets - - 2, ,436 Total other comprehensive income for the year net of tax - - 2, ,436 Total comprehensive income - - 2,436-15,651,997 15,654,433 Transactions with owners Dividends (Note 9) (7,380,148) - (7,380,148) Total transactions with owners (7,380,148) - (7,380,148) Balance at 31 December 105,430,685 25,556,150 94,462 3,639,272 5,350, ,071,385 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 49

51 STATEMENT OF CHANGES IN EQUITY for the year ended 31 December Attributable to owners of the Parent Share capital Share premium - non distributable Fair value adjustement reserve-non distributable Capital reserve -distributable Retained profits/ (accumulated losses) Balance at 1 January 105,430,685 25,556,150 94,462 3,639,272 5,350, ,071,385 Total Transfer pursuant to Section 618(2) of the Companies Act (Note 21) 25,556,150 (25,556,150) Profi t for the year ,934,807 5,934,807 Other comprehensive income that may be reclassifi ed subsequently to profi t or loss: Realised gain on disposal of available-for-sale fi nancial assets - - (94,462) - - (94,462) Total comprehensive income for the year net of tax - - (94,462) - - (94,462) Total comprehensive income - - (94,462) - 5,934,807 5,840,345 Transactions with owners Dividends (Note 9) (5,271,534) (5,271,534) Total transactions with owners (5,271,534) (5,271,534) Balance at 31 December 130,986, ,639,272 6,014, ,640,196 The accompanying notes are an integral part of these fi nancial statements. 50 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

52 STATEMENT OF CASH FLOWS for the year ended 31 December CASH FLOWS FROM OPERATING ACTIVITIES NOTE Profi t before taxation 5,959,276 15,664,748 Adjustments for: Interest income (79,396) (81,377) Dividend income (6,000,470) (15,848,536) Gain on disposal of short term funds (154,320) - Loss before working capital changes (274,910) (265,165) Working capital changes: Trade and other receivables (1,218) (1,370) Trade and other payables - (92,906) Cash outflows from operations (276,128) (359,441) Interest received 79,396 81,377 Tax paid (34,000) (42,864) Net cash outflows from operating activities (230,732) (320,928) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of short term funds (10,670,450) (4,959,887) Proceeds from disposal of short term funds 30,127,272 - Repayments of advances from/(advances to) subsidiary companies 9,925,319 (6,838,082) Dividend received 6,000,470 15,848,536 Net cash inflows from investing activities 35,382,611 4,050,567 CASH FLOWS FROM FINANCING ACTIVITY Dividend paid (5,271,534) (7,428,894) Net cash outflows from fi nancing activity (5,271,534) (7,428,894) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 29,880,345 (3,699,255) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,520,941 5,220,196 CASH AND CASH EQUIVALENTS AT END OF YEAR 20 31,401,286 1,520,941 The accompanying notes are an integral part of these fi nancial statements. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 51

53 NOTES TO THE FINANCIAL STATEMENTS 1. BASIS OF PREPARATION for the year ended 31 December Marco Holdings Berhad is a public listed company incorporated and domiciled in Malaysia. The Company is quoted on the Main Market of the Bursa Malaysia Securities Berhad. The fi nancial statements were authorised for issue by the Board of Directors in accordance with a resolution of the directors on 6 April (a) Statement of compliance The fi nancial statements comply with the Malaysian Financial Reporting Standards ( MFRSs ), International Financial Reporting Standards and the provisions of the Companies Act in Malaysia. The accounting policies adopted are consistent with those of previous fi nancial year except as follows: On 1 January, the Group and the Company adopted the following Amendments to published standards mandatory for annual fi nancial periods beginning on or after 1 January : Amendments Amendments to MFRS 12 Disclosure of Interests in Other Entities Amendments to MFRS 107 Disclosure Initiative Amendments to MFRS 112 Recognition of Deferred Tax Assets for Unrealised Losses The adoption of the above new Amendments do not have any material effect on the fi nancial statements of the Group and of the Company. The following new MFRSs, IC Interpretations and Amendments to published standards have been issued and are relevant but are not yet effective to the Group and the Company: Standards/IC Interpretation/Amendments Effective date MFRS 9 Financial Instruments (IFRS 9 as issued by IASB in July 2014) 1 January 2018 MFRS 15 Revenue from Contracts with Customers 1 January 2018 Amendments to MFRS 140 Transfers of Investment Property 1 January 2018 Clarifi cations to MFRS 15 Revenue from Contracts with Customers 1 January 2018 IC Interpretation 22 Foreign Currency Transactions and Advance Consideration 1 January 2018 MFRS 16 Leases 1 January 2019 IC Interpretation 23 Uncertainty over Income Tax Treatments 1 January 2019 Annual Improvements to MFRS Standards 2015 Cycle: Amendments to MFRS 3 Business Combinations 1 January 2019 Amendments to MFRS 112 Income Taxes 1 January 2019 Amendments to MFRS 9 Prepayment Features with Negative Compensation 1 January MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

54 NOTES TO THE FINANCIAL STATEMENTS 1. BASIS OF PREPARATION (continued) for the year ended 31 December (a) Statement of compliance (continued) The initial adoption of the new MFRSs, IC Interpretations and Amendments do not have any material effect on the fi nancial statements. (b) Functional and presentation currency The fi nancial statements are presented in Ringgit Malaysia which is the Group s and the Company s presentation currency. The functional currency of the Company is Ringgit Malaysia. (c) Basis of measurement The fi nancial statements are prepared under the historical cost convention unless otherwise indicated in the accounting policies. (d) Use of estimates and judgments The preparation of fi nancial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses, and the disclosure of contingent liabilities at the reporting date. However uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the assets or liabilities affected in the future. Key sources of estimation uncertainty The key assumptions concerning the future and other major sources of estimation uncertainty at the end of the reporting period that have signifi cant risk of resulting in material adjustment to the carrying amounts of assets and liabilities within the next fi nancial year are discussed below: (i) Inventories written down In estimating net realisable values, management reviews the inventories aging and applies certain percentages of write down on those inventories that are aged more than 240 days. The percentages are determined based on the experience and judgement of the management. The carrying amount at the reporting date is disclosed in note 17. (ii) Deferred tax assets Deferred tax assets are recognised for all deductible temporary differences to the extent that it is probable that future taxable profi t will be available against which all deductible temporary differences can be utilised. Management judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of expected taxable profi ts as well as application of income tax regulations. Details of deferred tax assets are disclosed in Note SIGNIFICANT ACCOUNTING POLICIES (a) Basis of consolidation (i) Business combinations Business combinations are accounted for using the acquisition method from the acquisition date, which is the date on which control is transferred to the Group. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 53

55 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2. SIGNIFICANT ACCOUNTING POLICIES (continued) a) Basis of consolidation (continued) (i) Business combinations (continues) For acquisitions on or after 1 January 2011, the Group measures the cost of goodwill at the acquisition date as: the fair value of the consideration transferred; plus the recognised amount of any non-controlling interests in the acquiree; plus if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less the net recognised amount (generally fair value) of the identifi able assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in profi t or loss. For each business combination, the Group elects whether it measures the non-controlling interests in the acquiree either at fair value or at the proportionate share of the acquiree s identifi able net assets at the acquisition date. Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred. (ii) Acquisitions of non-controlling interests The Group treats all changes in its ownership interest in a subsidiary that do not result in a loss of control as equity transactions between the Group and its non-controlling interest holders. Any difference between the Group s share of net assets before and after the change, and any consideration received or paid, is adjusted to or against Group reserves. (iii) Loss of control Upon the loss of control of a subsidiary, the Group derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profi t or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an equity accounted investee or as an available-for-sale fi nancial asset depending on the infl uence retained. (iv) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated fi nancial statements except when an unrealised loss may indicate an impairment loss that requires recognition in the consolidated fi nancial statements. (v) Non-controlling interest Non-controlling interests at the end of the reporting period, being the equity in a subsidiary not attributable directly or indirectly to the equity holders of the Parent, are presented in the consolidated statement of fi nancial position and consolidated statement of changes in equity within equity, separately from equity attributable to the owners of the Parent. Non-controlling interests in the results of the Group is presented in the consolidated statement of comprehensive income as an allocation of the profi t or loss and the comprehensive income for the year between non-controlling interests and owners of the Parent. 54 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

56 (b) Subsidiary companies NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December Subsidiaries are entities, including unincorporated entities, controlled by the Company. The fi nancial statements of subsidiaries are included in the consolidated fi nancial statements from the date that control commences until the date that control ceases. Control exists when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, potential voting rights are considered when such rights are substantive. The Group considers it has de facto power over an investee when, despite not having the majority of voting rights, it has the current ability to direct the activities of the investee that signifi cantly affect the investee s return. In the separate fi nancial statements of the Company, investments in subsidiaries are measured at cost less any impairment losses, if any. (c) Property, plant and equipment All items of property, plant and equipment are initially recorded at costs. Cost includes expenditures that are directly attributable to the acquisition of the asset and any other costs directly attributable to bringing the asset to working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Subsequent costs are included in the assets carrying amounts or recognised as separate assets, as appropriate, only when it is probable that future economic benefi ts associated with the items will fl ow to the Company and the costs of the items can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the profi t or loss as incurred. Subsequent to recognition, property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is provided for on a straight-line basis to write off the cost of each asset to its residual value over its estimated useful life, at the following annual rates: % Renovation 10 Furniture, fi ttings and office equipment Motor vehicles 20 The residual values, useful lives and depreciation methods are reviewed at the end of each reporting period to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefi ts embodied in the items of property, plant and equipment. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefi ts are expected from its use or disposal. The difference between the net disposal proceeds, if any and the net carrying amount is recognised in the profi t or loss. Where an indication of impairment exists, the carrying amount of the asset is assessed and written down immediately to its recoverable amount. (d) Intangible assets Intangible assets of the Group relate to computer software which are measured initially at cost. Following initial acquisition, intangible assets are measured at cost less any accumulated amortisation and accumulated impairment losses. Intangible assets with fi nite useful lives are amortised over their estimated useful lives on a straight-line basis of 20% per annum. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 55

57 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (d) Intangible assets (continued) Where an indication of impairment exists, the carrying amount of the asset is assessed and written down immediately to its recoverable amount. The amortisation period and the amortisation method for an intangible asset with a fi nite useful life are reviewed annually. Gain or loss arising from derecognition of an intangible asset is measured as the difference between the net disposal proceed and the carrying amount of the asset and is recognised in profi t or loss when the asset is derecognised. (e) Inventories Inventories are valued at the lower of costs and net realisable values. Costs of goods for resale and spare parts comprise the original costs of purchase and the costs of bringing the inventories to their present locations and conditions. Cost is determined on the weighted average basis. Net realisable value is the estimated selling price in the ordinary course of business less the estimated cost necessary to make the sale. (f) Taxes Tax charged on the profi t or loss for the year comprises current and deferred taxes. Current year tax is the expected amount of income taxes payable in respect of the taxable profi t for the year and is measured using the tax rates that have been enacted at the reporting date. Deferred tax liabilities and assets are provided for under the liability method in respect of temporary differences between the carrying amount of an asset or liability in the statement of fi nancial position and its tax base including unused tax losses and capital allowances. Deferred tax is measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on the tax laws that have been enacted or substantively enacted at the reporting date. A deferred tax asset is recognised only to the extent that it is probable that taxable profi t will be available against which the deductible temporary differences can be utilised. The carrying amount of a deferred tax asset is reviewed at each reporting date. If it is no longer probable that suffi cient taxable profi t will be available to allow the benefi t of part or all of that deferred tax asset to be utilised, the carrying amount of the deferred tax asset will be reduced accordingly. When it becomes probable that suffi cient taxable profi t will be available, such reductions will be reversed to the extent of the taxable profit. (g) Revenue recognition Revenue is recognised when it is probable that future economic benefi ts will fl ow to the entity and the revenue can be measured reliably. Revenue is measured at the fair value of the consideration received or receivable. Revenue from sales of goods is recognised when the signifi cant risks and rewards of ownership of the goods have been transferred to the buyers. Revenue from rendering of services is recognised as and when services are rendered. Dividend income is recognised when the right to receive payment is established. Interest income is recognised using the effective interest method. Rental income from operating leases is accounted for on straight-line basis over the lease terms. Incentive/service income is recognised when the right to receive payment has been established. 56 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

58 (h) Impairment of assets NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December The carrying amounts of the Group s and Company s assets other than inventories, deferred tax assets and fi nancial assets (except those measured at fair value through profi t or loss and investment in subsidiaries), are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset s recoverable amount is estimated and an impairment loss is recognised whenever the recoverable amount is less than the carrying amount of the asset. The impairment loss is recognised in the profi t or loss immediately. All reversals of an impairment loss are recognised as income immediately in the profi t or loss. (i) Share capital An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all its liabilities. Ordinary shares are classifi ed as equity instruments. Ordinary shares are recorded at the proceeds received, net of directly attributable incremental transaction costs. (j) Employee benefits (i) Short term employee benefi ts Wages, salaries, bonuses and social security contributions are recognised as expenses in the year in which the associated services are rendered by employees of the Group. Short term accumulating compensated absences such as paid leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences. (ii) Defined contribution plans As required by law, companies in Malaysia make contributions to the state pension scheme, the Employees Provident Fund ( EPF ). (k) Leases (i) Classifi cations A lease is recognised as a fi nance lease if it transfers substantially to the Group all the risks and rewards incidental to ownership. All leases that do not transfer substantially all the risks and rewards are classifi ed as operating leases. (ii) Operating leases the Group as lessee Operating lease payments are recognised as expenses on a straight-line basis over the term of the relevant lease. The aggregate benefi t of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis. (iii) Operating leases the Group as lessor Assets leased out under operating leases are presented on the statement of fi nancial position according to the nature of the assets. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term. (l) Foreign currencies For each entity in the Group, transactions denominated in foreign currencies are translated and recorded at the rates of exchange prevailing at the respective dates of transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the end of the period. Non-monetary items carried at fair values that are denominated in foreign currencies are retranslated at the rates prevailing at the dates the fair values were determined. Non-monetary items that are measured at their historical cost amounts continue to be translated at their historical rates and are not retranslated. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 57

59 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (l) Foreign currencies (continued) All exchange differences arising on settled transactions and on unsettled monetary items are recognised in profi t or loss in the period. (m) Financial assets The Group and the Company shall recognise a fi nancial asset on their statements of fi nancial position when the entities become parties to the contractual provisions of the instruments. Financial assets are derecognised when the contractual rights to the cash fl ows from the financial assets have expired or have been transferred and the Group and the Company have transferred substantially all their risks and rewards of ownership of the fi nancial assets. Financial assets are initially recognised at fair value plus transaction costs for all fi nancial assets not carried at fair value through profi t or loss. Financial assets carried at fair value through profi t or loss are initially recognised at fair value and transaction costs are expensed in the profi t or loss. At the time of initial recognition, fi nancial assets are classifi ed into the following specifi ed categories: fair value through profi t or loss, held-to-maturity investments, available-for-sale and loans and receivables. The classifi cation depends on the purpose of the fi nancial asset. (i) Financial assets at fair value through profi t or loss ( FVTPL ) Financial assets are classifi ed as at FVTPL when the fi nancial asset is either held for trading or it is designated as at FVTPL. A fi nancial asset is classifi ed as held for trading if: - It has been acquired principally for the purpose of selling it in the near term; - Part of a portfolio of identified fi nancial instruments that are managed together and there are recent actual pattern of short-term profi t-taking; - It is a derivative (except for fi nancial guarantee contract or a designated and effective hedging instrument). (ii) Held-to-maturity investments Non-derivative fi nancial assets with fi xed or determinable payments and fi xed maturity dates and that the Group and the Company have positive intention and ability to hold to maturity. (iii) Loans and receivables Loans and other receivables are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market. (iv) Available- for- sale fi nancial assets ( AFS ) AFS are non-derivative fi nancial assets that are designated as available-for-sale or are not classifi ed as loans and receivables, held-to-maturity investments or FVTPL. Investments in unquoted equity instruments whose fair value cannot be reliably measured are stated at cost less impairment loss. FVTPL and AFS are subsequently carried at fair value. Held-to-maturity investments and loans and receivables are subsequently carried at amortised cost using the effective interest method. 58 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

60 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (m) Financial assets (continued) Gains or losses arising from changes in fair value from FVTPL are recognised in profi t or loss. Gains or losses arising from changes in fair value from AFS are recognised directly in equity. Gains or losses from fi nancial assets carried at amortised costs are recognised through profi t or loss. The Group and the Company assess at the end of each reporting period whether there is any objective evidence that a financial asset or group of fi nancial assets are impaired. For fi nancial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset s carrying amount and the present value of estimated future cash fl ows, discounted at the fi nancial asset s original effective interest rate. The carrying amount of the asset shall be reduced directly through use of an allowance account. The amount of the loss is recognised in profi t or loss. If there is reversal of previously recognised impairment loss, it is reversed either directly or by adjusting an allowance account. The reversal shall not result in the carrying amount of the fi nancial assets exceeding what the amortised cost would have been had the impairment not been recognised at the date the impairment loss is reversed. The amount of reversal is recognised in profi t or loss. In the case of equity investments classified as available-for-sale, objective evidence would include a signifi cant or prolonged decline in the fair value of the investment below its cost. Signifi cant is evaluated against the original cost of the investment and prolonged against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and current fair value, less any impairment loss on that investment previously recognised in the profi t or loss is removed from other comprehensive income and recognised in profi t or loss. Impairment losses on equity investments are not reversed through profi t or loss; increase in their fair value after impairments are recognised directly in other comprehensive income. For unquoted equity instruments carried at cost, if there is objective evidence (such as signifi cant adverse changes in the business environment where the issuer operates, probability of insolvency or signifi cant fi nancial diffi culties of the issuer) that an impairment loss on fi nancial assets carried at cost has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash fl ows discounted at the current market rate of return for a similar fi nancial asset. Such impairment losses are not reversed in subsequent periods. On derecognition of a fi nancial asset, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profi t or loss. (n) Financial liabilities The Group and the Company shall recognise a fi nancial liability on their statements of fi nancial position when the entities become parties to the contractual provisions of the instruments. Financial liabilities are derecognised when it is extinguished i.e. when the obligation specifi ed in the contract is discharged or cancelled or expired. (i) Financial liabilities at fair value through profi t or loss ( FVTPL ) Financial liabilities are classifi ed as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 59

61 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (n) Financial liabilities (continued) (i) Financial liabilities at fair value through profi t or loss ( FVTPL ) continued) A fi nancial liability is classifi ed as held for trading if: - It has been acquired principally for the purpose of selling it in the near term; - Part of a portfolio of identifi ed fi nancial instruments that are managed together and there are recent actual pattern of short-term profi t-taking; - It is a derivative (except for financial guarantee contract or a designated and effective hedging instrument). (ii) Other fi nancial liabilities Other fi nancial liabilities are fi nancial liabilities that are not classifi ed as fi nancial liabilities at FVTPL. Other fi nancial liabilities are initially recognised at fair value plus transactions costs. Financial liabilities carried at fair value through profi t or loss are initially recognised at fair value and transactions costs are expensed in the profi t or loss. Other fi nancial liabilities are subsequently carried at amortised cost using the effective interest method. Financial liabilities at FVTPL are measured at fair value except for derivatives liability that are linked to and must be settled by delivery of such unquoted equity instruments whose fair value cannot be reliably measured are measured at cost. Gains or losses arising from changes in fair value from fi nancial liabilities classifi ed at FVTPL are recognised in profi t or loss. Gains or losses from other fi nancial liabilities carried at amortised costs are recognised through profi t or loss. (o) Derivative financial instruments Derivatives are initially recognised at fair value on the date the derivative contracts are entered into and are subsequently re-measured at their fair value at the end of each reporting period. The method of recognising gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. An embedded derivative shall be separated from the host contract and accounted for as a separate derivative if: (i) (ii) (iii) (p) the risks and characteristics of the embedded derivative are not closely related to the economic characteristics and risks of the host contracts; a separate instrument with the same terms as the embedded derivative would meet the defi nition of a derivative; and the hybrid instrument is not measured at fair value with changes in fair value recognised in profi t or loss. Cash and cash equivalents Cash comprises cash on hand and demand deposits. Cash equivalents are short term, highly liquid investments that are readily convertible to cash with insignifi cant risk of changes in value. 60 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

62 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (q) Dividends Dividends on ordinary shares are recognised as liabilities when the obligation to pay is established. The distribution of non-cash assets to owners is recognised as dividend payable when the dividend has been appropriately authorised. The dividend payable is measured at the fair value of the shares to be distributed. At the end of the reporting date and on the settlement date, the Group and the Company review the carrying amount of the dividend payable, with any changes in the fair value of the dividend payable recognised in equity. When the Group and the Company settle the dividend payable, the difference between the carrying amount of the dividend distributed and the carrying amount of the dividend payable is recognised as a separate line item in profi t or loss. (r) Earning per share ( EPS ) Basic EPS is calculated by dividing the profi t or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is calculated by dividing the profi t or loss attributable to ordinary shareholders and the weighted average number of ordinary shares in issue during the fi nancial year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. (s) Provisions Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of past events and it is probable that an outfl ow of economic resources will be required to settle the obligation and the amount of the obligation can be estimated reliably. Provisions are revised annually and adjusted to refl ect the best estimate of the expenditure required to settle the present obligations at the end of the reporting period. When the Company expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. (t) Investment properties Investment properties are properties which are held either to earn rental income or for capital appreciation or for both. Cost includes expenditure that is directly attributable to the acquisition of the investment property. The cost of self-constructed investment property includes the cost of materials and direct labour, any other costs directly attributable to bringing the investment property to a working condition for their intended use and capitalised borrowing costs. Investment properties are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to profi t or loss on a straight-line basis over the estimated useful life of 80 to 91 years. Where an indication of impairment exists, the carrying amount of the assets is assessed and written down immediately to its recoverable amount. An investment property is derecognised on its disposal, or when it is permanently withdrawn from use and no future economic benefi ts are expected from its disposal. The difference between the net disposal proceeds and the carrying amount is recognised in profi t or loss in the period in which the item is derecognised. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 61

63 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (u) Segment reporting For management purposes, the Group is organised into operating segments based on their products and services which are independently managed by the respective segment managers responsible for the performance of the respective segments under their charge. The segment managers report directly to the management of the Company who regularly review the segment results in order to allocate resources to the segments and to assess the segment performance. Additional disclosures on each of these segments are shown in note 30, including the factors used to identify the reportable segments and the measurement basis of segment information. (v) Fair value measurement For assets, liabilities and equity instruments (whether fi nancial or non-fi nancial items) that require fair value measurement or disclosure, the Company establishes a fair value measurement hierarchy that categorises into three levels the inputs to valuation techniques used to measure fair value. This fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets, liabilities or equity instruments and the lowest priority to unobservable inputs. A fair value measurement of an item is classifi ed as a Level 1 measurement if it is estimated using a quoted price in a active market. The active market is the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability; and for which the Company can enter into a transaction for the asset or liability at the price in that market at the measurement date. In the absence of Level 1 inputs, a fair value measurement of an item is classifi ed as a Level 2 measurement if it is estimated by an established valuation technique using inputs from the marketplace that are observable for substantially the full term of the asset or liability. In the absence of both Level 1 and Level 2 inputs, a fair value measurement of an item is classifi ed as a Level 3 measurement if it is estimated by an established valuation technique using unobservable inputs, including internally developed assumptions. 3. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group s fi nancial risk management policy seeks to ensure that adequate fi nancial resources are available for the development of the Group s businesses whilst managing its market risk, liquidity risk and credit risk, whilst the Company s operating, investing and fi nancing activities expose the Company to liquidity and credit risk. The Board of Directors reviews and agrees on policies for managing each of these risks and they are summarised below. It is and has been throughout the year under review, the Group s policy that no trading in derivative fi nancial instruments shall be undertaken. (a) Credit risk management Credit risk is the risk of loss that may arise on outstanding fi nancial instruments should a counterparty default on its obligations. The Group s exposure to credit risk arises primarily from trade and other receivables whereas the Company s exposure to credit risk arises primarily from other receivables. For banks and fi nancial institutions, only major banks are accepted. The Group s and the Company s objective is to seek continual revenue growth while minimising losses incurred due to increased credit risk exposure. The Group trades only with recognised and creditworthy third parties. It is the Group s policy that all customers who wish to trade on credit terms are subject to credit verifi cation procedures. In addition, receivable balances for Group and Company are monitored on an on-going basis. As at the reporting date, the Group has no signifi cant concentration of credit risks whilst 96% (: 99%) of the Company s receivables were due from a subsidiary company. 62 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

64 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 3. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (b) Liquidity risk management Liquidity risk is the risk that the Group and the Company will encounter diffi culty in meeting fi nancial obligations due to shortage of funds. The Group s and the Company s exposure to liquidity risk arises primarily from mismatches of the maturities of fi nancial assets and liabilities. The Group s and the Company s objective is to maintain a balance between continuity of funding and fl exibility through the use of stand-by credit facilities. The table below analyses the Group s and the Company s non-derivative fi nancial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date: GROUP As at 31 December Non-derivative financial liabilities Within 1 Year Trade and other payables 9,633,379 Short term borrowings 2,492,918 Bank guarantee give to third party 9,000 As at 31 December Non-derivative financial liabilities Trade and other payables 10,392,876 Short term borrowings 4,763,083 Bank guarantee give to third party 9,000 COMPANY As at 31 December Non-derivative financial liabilities Trade and other payables 40,800 Letter of undertaking given to banks for facilities granted to subsidiary companies 26,605,000 As at 31 December Non-derivative financial liabilities Trade and other payables 40,800 Letter of undertaking given to banks for facilities granted to subsidiary companies 26,605,000 (c) (i) Market risk Foreign currency risk management Foreign currency risk is the risk that the fair value or future cash fl ows of a fi nancial instrument will fl uctuate because of changes in foreign exchange rates. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 63

65 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 3. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (c) (i) Market risk (continued) Foreign currency risk management (continued) The Group has transactional currency exposures primary arising from sales or purchases that are denominated in a currency other than the respective functional currency of Group which is in Ringgit Malaysia (). The foreign currency in which these transactions are denominated is mainly in US Dollar ( USD ). During the year, there is no formal hedging policy with respect to foreign exchange risk exposure. The Group monitors its foreign exchange risk exposure on an on-going basis and endeavours to keep the net exposure at an acceptable level. At the reporting date, the Group s profi t and equity is not materially effected by the movement in foreign exchange rate of foreign currencies. (ii) Interest rate risk management Interest rate risk is the risk that the fair value or future cash fl ows of fi nancial instruments will fl uctuate because of changes in market interest rates. The Group s exposure to interest rate risk arises primarily from its deposits with licensed banks. The Group s exposure to interest rate risk is minimum because their fi xed deposits are at fixed rate. 4. CAPITAL RISK MANAGEMENT The primarily objective of the Group s and the Company s capital management is to ensure that it maintains a strong credit rating and healthy capital ratio in order to support its business and maximise shareholders value. The Group and the Company manage their capital structures and make adjustments to them, in light of changes in economic conditions. To maintain or adjust the capital structures, the Group and the Company may adjust the dividend payment to shareholders, return of capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the reporting period. Ordinary share capital and retained earnings are considered as Capital of the Group and of the Company. The Group and the Company are not subject to any externally imposed capital requirements. 64 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

66 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 5. FINANCIAL INSTRUMENTS BY CATEGORIES AND THEIR FAIR VALUE ESTIMATION GROUP Financial assets CARRYING AMOUNT Loans and receivables - Trade and other receivables excluding prepayments and advances to suppliers 15,732,771 18,890,842 - Cash and cash equivalents 101,457,908 29,821,502 Available-for-sale fi nancial assets - Unquoted shares at cost less impairment loss Short term funds - 58,028,466 Financial liabilities Other financial liabilities - Trade and other payables 9,633,379 10,392,876 - Short term borrowings 2,492,918 4,763,083 COMPANY Financial assets CARRYING AMOUNT Loans and receivables - Trade and other receivables 5,539,846 15,463,947 - Cash and cash equivalents 31,401,286 1,520,941 Available-for-sale fi nancial assets - Unquoted shares at cost less impairment loss Short term funds - 19,396,964 Financial liabilities Other financial liabilities - Trade and other payables 40,800 40,800 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 65

67 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 5. FINANCIAL INSTRUMENTS BY CATEGORIES AND THEIR FAIR VALUE ESTIMATION (continued) FAIR VALUE ESTIMATION Fair value hierarchy is as follows: Level 1 - Level 2 - Level 3 - quoted prices (unadjusted) in active market for identical assets or liabilities. inputs other than quoted prices included within level 1 that are observable for the assets or liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices). inputs for the assets or liabilities that are not based on observable market data (unobservable inputs). In prior year, short term funds are measured at level 1 of the fair value hierarchy. Investment properties are measured at level 2 of the fair value hierarchy. The estimated fair value of the investment properties is 56,450,000 measured using the comparison method as valued by a professional valuer. Unquoted shares represents shares held in a private company. It is not practical to determine the fair value of unquoted shares due to lack of comparable quoted prices in active market. In addition, it is impractical to use valuation technique to estimate the fair value reliably as a result of signifi cant variability in the inputs of the valuation technique. Other than short term funds and unquoted shares, fi nancial assets and fi nancial liabilities are not carried at fair value but their carrying amounts are reasonable approximation of their fair values due to their short term nature. 6. REVENUE GROUP COMPANY Distribution of electronic calculators, musical key boards, digital cameras and time pieces 153,835, ,915, Dividend income from a subsidiary company - - 5,330,000 15,288,000 Dividend income from available-for-sale fi nancial assets: - Unquoted shares Money market fund 670, , , ,486 Operating lease rental income from investment property 180,000 60, ,686, ,536,147 6,000,470 15,848, MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

68 7. PROFIT BEFORE TAXATION Profit before taxation is stated after charging and (crediting): NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December GROUP COMPANY Allowance for impairment of receivables 386,637 11, Auditors remuneration: current year 89,120 89,120 30,000 30,000 overprovision in prior year (14,910) (22,474) (4,030) (4,560) Bad debts written off 21, Directors remuneration: fees 114, , , ,000 other emoluments # 2,957,183 2,820, Direct operating expenses of investment properties 63,793 57, Realised loss on foreign exchange 264, , Unrealised gain on foreign exchange - (310,245) - - Gain on disposal of property, plant and equipment (83,018) (14,150) - - Dividend income from available-forsale fi nancial assets - money market funds (892,555) (958,696) - - Interest income from fixed/repo deposits (473,564) (512,892) (79,396) (81,377) Allowance for inventories written down 817,495 1,117, Gain on disposal of short term funds (266,757) - (154,320) - Inventories written off 41,656 25, Operating lease Rental of offi ce premises *** 209, , Operating lease Rental income from premises** (4,200) (4,200) - - Property, plant and equipment written off Reversal on repair warranty provisions (25,847) (5,714) - - Reversal of allowance for impairment on receivables (43,824) (128,088) - - Addition for repair warranty provisions - 13, * Included in employee benefi t expenses of the Group are amounts totalling 957,472 (: 911,116) contributed to the Employees Provident Fund. ** This is a cancellable operating lease whereby the tenant needs to give one month s notice for termination of this agreement. *** These consist of cancellable operating leases whereby the Group needs to give zero to one month notice for termination of these agreements, and non-cancellable operating leases whereby the operating lease commitments are disclosed in Note 27 to the fi nancial statements. # The estimated monetary value of other benefi ts not included in the above received by the directors of the Group is 7,200. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 67

69 8. TAXATION NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December GROUP COMPANY (a) Current Malaysian taxation 4,374,595 5,805,687 17,000 11,887 Deferred taxation (Note 16) (257,000) (194,000) - - 4,117,595 5,611,687 17,000 11,887 Under provision of taxation in prior year 471, ,899 7, ,589,210 6,203,586 24,469 12,751 (b) Reconciliation of tax expense and accounting profi t : GROUP COMPANY Accounting profi t 18,339,620 23,519,829 5,959,276 15,664,748 Tax at the applicable tax rate 4,401,509 5,644,761 1,430,226 3,759,540 Tax effect of expenses that are not deductible in determining taxable profi t 281, , Tax effect of income that are not included in determining taxable profi t (393,143) (309,243) (1,413,706) (3,748,276) Movement from unrecognised deferred tax assets 3, Under/(over)provision of deferred tax assets in prior year of subsidiary companies (175,835) 49, Underprovision of taxation in prior year 471, ,899 7, Tax expense 4,589,210 6,203,586 24,469 12,751 The corporate tax rate is 24% or less subject to fulfi lling certain criteria. (: 24%) Consequently, deferred tax assets in note 16 are measured using this rate. (c) The Company is able to distribute its distributable reserves by way of dividend. 68 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

70 9. DIVIDEND Paid: NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December GROUP AND COMPANY Final single tier dividend of 0.50 sen per share for year ended 31 December 5,271,534 - Final single tier dividend of 0.70 sen per share for year ended 31 December ,380,148 5,271,534 7,380,148 Proposed: GROUP AND COMPANY First and final single tier dividend of 0.50 sen per share (: 0.50 sen per share) for year ended 31 December 5,271,534 5,271,534 Dividend per share (Sen) At the forthcoming Annual General Meeting, a fi rst and fi nal single tier dividend of 0.50 sen per share amounting to 5,271,534 will be proposed for shareholders approval. 10. EARNINGS PER SHARE (a) Basic Basic earnings per share is calculated by dividing the consolidated profi t for the year, attributable to owners of the parent and the weighted average number of ordinary shares issued and paid up during the fi nancial year. GROUP Consolidated profi t for the year () 13,750,410 17,316,243 Weighted average number of ordinary shares in issue 1,054,306,850 1,054,306,850 Basic earnings per share (sen) (b) Diluted Diluted earnings per share is calculated by dividing the consolidated profi t for the year, attributable to owners of the parent and the weighted average number of ordinary shares in issue during the fi nancial year that have been adjusted for the effects of all dilutive potential ordinary shares. GROUP Consolidated profi t for the year () 13,750,410 17,316,243 Weighted average number of ordinary shares in issue 1,054,306,850 1,054,306,850 Basic earnings per share (sen) MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 69

71 NOTES TO THE FINANCIAL STATEMENTS 11. PROPERTY, PLANT AND EQUIPMENT for the year ended 31 December GROUP At cost Furniture, fittings and office equipment Motor vehicles Renovation Total At 1 January 1,490,627 1,095, ,253 3,114,739 Additions 81, , ,778 Disposal - (400,754) - (400,754) Reclassifi cation to intangible assets (383,769) - - (383,769) Written off (2,380) - - (2,380) At 31 December 1,186,362 1,079, ,253 2,794,614 Accumulated Depreciation At 1 January 1,104, , ,288 1,982,400 Charge for the year 111, ,552 33, ,808 Disposal - (400,753) - (400,753) Reclassifi cation to intangible assets (238,096) - - (238,096) Written off (2,379) - - (2,379) At 31 December 975, , ,351 1,633,980 Net book value At 31 December 210, , ,902 1,160,634 At cost At 1 January 1,262, , ,253 2,426,381 Additions 227, , ,408 Disposal - (56,050) - (56,050) At 31 December 1,490,627 1,095, ,253 3,114,739 Accumulated Depreciation At 1 January 1,008, , ,246 1,792,945 Charge for the year 96, ,213 33, ,504 Disposal - (56,049) - (56,049) At 31 December 1,104, , ,288 1,982,400 Net book value At 31 December 385, , ,965 1,132, MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

72 12. INTANGIBLE ASSETS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December GROUP COMPUTER SOFTWARE At cost At 1 January 706, ,518 Additions 1,066,566 3,450 Reclassifi cation from property, plant and equipment 383,769 - At 31 December 2,157, ,968 Accumulated amortisation At 1 January 630, ,634 Charge for the year 281,230 40,581 Reclassifi cation from property, plant and equipment 238,096 - At 31 December 1,149, ,215 Net carrying amount 1,007,762 76, INVESTMENT PROPERTIES Leasehold land GROUP At cost At 1 January and 31 December 44,246,841 44,246,841 Accumulated amortisation At 1 January 3,002,178 2,501,815 Charge for the year 500, ,363 At 31 December 3,502,541 3,002,178 Net carrying amount 40,744,300 41,244,663 Investment properties comprise two lots of vacant land as at the fi nancial year end. 14. SUBSIDIARY COMPANIES COMPANY Shares in unquoted corporations, at cost: Ordinary shares 65,500,004 65,500,004 Redeemable non-convertible non-cumulative preference shares ( RNCNCPS ) 38,200,000 38,200, ,700, ,700,004 Impairment losses (4) (4) 103,700, ,700,000 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 71

73 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 14. SUBSIDIARY COMPANIES (continued) The salient features of the RNCNCPS subscribed by the Company are as follows: (i) (ii) (iii) (iv) (v) The RNCNCPS holders shall have the same right as the holders of ordinary shares to attend and vote at general meeting of the issuer. The preference shares shall on poll carry one vote for every one share issued and paid up. Unless with the consent of existing RNCNCPS holders, there shall be no further preference shares issued ranking in priority above the preference shares already issued except for preference shares ranking equally therewith. In the event of winding-up or other return of capital, the RNCNCPS holders shall be entitled to the repayment in priority to any payment to the holders of ordinary shares of the issuer. The fully paid RNCNCPS are redeemable at the issuer s option, at its par value plus a redemption pre mium per share and any dividend accrued on them, at any time out of distributable profi ts or proceeds of fresh issue of shares. Non-cumulative preferential dividends are payable at a rate to be determined by the issuer in priority to any payment to the holders of any other class of shares out of the profi ts of the Company available for dividend. The subsidiary companies which were incorporated in Malaysia are: Percentage of issued share capital held by the Company Name of company Principal activities Marco Corporation (M) Sdn. Bhd. Importation, distribution of calculators and time pieces. 100% 100% Marco Heritage (M) Sdn. Bhd. Importation and distribution of musical keyboards and digital cameras. 100% 100% Azamara Sdn. Bhd. Investment holding. 100% 100% Golden Grandeur Sdn. Bhd. Dormant. 100% 100% Held by Marco Corporation (M) Sdn Bhd Marco Worldwide Sdn. Bhd. Surpass Sdn. Bhd Importation, exportation and distribution of calculators and time pieces. 100% 100% Trading of time pieces (: Dormant). 100% 100% 15. OTHER INVESTMENTS GROUP AND COMPANY Available-for-sale fi nancial assets: Unquoted shares, at cost Accumulated impairment losses (1) (1) MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

74 16. DEFERRED TAX ASSETS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December GROUP At 1 January 1,282,000 1,088,000 Deferred tax expenses arising from and reversal of temporary differences 81, ,225 Under/(over)provision of deferred tax assets in prior year 175,835 (49,225) Transferred from/(to) profi t or loss (Note 8) 257, ,000 At 31 December 1,539,000 1,282,000 The components of deferred tax liabilities and assets that are recognised during the financial year are as follows: GROUP Deferred tax liabilities: Capital allowances in excess of depreciation (189,588) (121,349) Unrealised gain on foreign exchange - (74,548) Deferred tax assets: Allowance for impairment of receivables 156,924 74,649 Allowance for inventories written down 810, ,412 Provision for repair warranty 54,433 60,636 Unused tax losses 50,340 - Others 656, ,200 1,539,000 1,282,000 The amounts of deferred tax assets that are not recognised in the statement of fi nancial position are as follows: GROUP Unused tax losses 3, INVENTORIES At the lower of cost and net realisable value GROUP Goods for resale: Electronic calculators and timepieces 21,712,575 21,309,013 Electronic musical instruments and camera 1,698,009 2,901,472 Goods-in-transit 9,275,754 13,873,287 Spare parts 76, ,871 32,762,532 38,201,643 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 73

75 17. INVENTORIES (continued) NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December Inventories are written down based on the experience and judgment of the management on the basis that they reflect expected selling prices for such inventories. Obsolete inventories are written off. 18. TRADE AND OTHER RECEIVABLES GROUP COMPANY Trade receivables 16,205,736 18,247, Allowance for impairment (653,853) (311,040) ,551,883 17,936, Other receivables 99, ,262 7,460 6,242 Deposits 81,474 83,778 4,719 4,719 Advances to suppliers 155, , Prepayments 27,971 1,065, Amounts due from subsidiary companies - current accounts - - 5,527,667 15,452,986 15,916,108 20,134,777 5,539,846 15,463,947 Trade receivables are non-interest bearing and generally are on 30 days to 120 days terms. Trade receivables are considered as past due when their invoices exceed 30 to 90 days of credit terms. The Group s trade receivables denominated in currencies other than the functional currency are as follows: GROUP US Dollar 160, ,064 Ageing analysis of the Group s trade receivables: GROUP Neither past due nor impaired 11,291,201 14,856,791 1 to 30 days past due not impaired 3,390,995 2,534, to 60 days past due not impaired 1,044, ,867 More than 60 days past due not impaired (174,427) 64,639 15,551,883 17,936,802 Impaired 653, ,040 16,205,736 18,247,842 Trade receivables that are neither past due nor impaired are creditworthy customers with good payment records with the Group and losses have occurred infrequently. 74 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

76 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 18. TRADE AND OTHER RECEIVABLES (continued) The Group s receivables that are impaired at the reporting date and the movement of the allowance account used to record the impairment are as follows: Individually impaired GROUP Trade receivables nominal amounts 653, ,040 Allowance for impairment Impaired (653,853) (311,040) - - Movement in allowance for impairment: GROUP At 1 January 311, ,045 Addition 386,637 11,651 Reversal of impairment (43,824) (128,088) Written off - (4,568) At 31 December 653, ,040 Receivables that are individually impaired at the reporting date relates to those that are in signifi cant fi nancial diffi culties and have defaulted on payments. Amounts due from subsidiary companies are interest free and repayable on demand. At the reporting date, no other receivables, deposits and amounts due from subsidiary companies were past due nor impaired. 19. SHORT TE FUNDS GROUP COMPANY Available-for-sale financial asset Investment in money market funds - 58,028,466-19,396,964 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 75

77 20. CASH AND CASH EQUIVALENTS NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December GROUP COMPANY Cash in hand 12,669 12,669 1,031 1,031 Bank balances 99,636,378 27,954,807 31,400,255 1,519,910 Fixed/repo deposits with licensed banks 1,808,861 1,854, Total cash and cash equivalents 101,457,908 29,821,502 31,401,286 1,520,941 Cash and cash equivalents of the Group denominated in currencies other than the functional currency comprise 231,347 in US Dollar and 6,006 in Swiss Franc. (: 102,710 in US Dollar and 6,006 in Swiss Franc). Deposits are neither past due nor impaired and are placed with or entered into with reputable licensed banks. Fixed deposits of the Group are placed for a period of 365 days and interests earned are at respective short term deposit rates. 21. SHARE CAPITAL GROUP AND COMPANY GROUP AND COMPANY Ordinary shares No. of Shares No. of Shares At 1 January 1,054,306, ,430,685 1,054,306, ,430,685 Transfer of share premium account pursuant to Section 618(2) of the Companies Act - 25,556, At 31 December 1,054,306, ,986,835 1,054,306, ,430,685 The new Companies Act, which came into effect on 31 January, abolished the concept of authorised share capital and par value of share capital. Consequently, the amounts standing to the credit of the share premium account become part of the Company s share capital pursuant to the transitional provision set out in Section 618 (2) of the Act. Notwithstanding this provision, the Company may within 24 months from the commencement of the Act uses the amount standing to the credit of its share premium account of 25,556,150 for specifi c purposes as set out in Section 618 (3) of the Act. There is no impact on the number of the ordinary shares in issue or the relative entitlement of any of the members as a result of this transition. The holders of ordinary shares are entitled to receive dividend as and when declared by the Company. All ordinary shares carry one vote each without restriction and rank equally with regards to the distribution of the Company s residual assets. 76 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

78 22. RESERVES NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December GROUP COMPANY Fair value adjustment reserve - 254,261-94,462 Revaluation reserve 1,209,666 1,209, Capital reserve - - 3,639,272 3,639,272 1,209,666 1,463,927 3,639,272 3,733,734 The nature and purpose of each category of reserves are as follows: (a) Revaluation reserve - non-distributable This reserve includes the cumulative net change, net of tax effect, arising from the revaluation of certain investment property above its cost in previous years. (b) Capital reserve - distributable The capital reserve represents gain on disposals of investments in previous years. (c) Fair value adjustment reserve non-distributable This reserve represents the fair value changes on the available-for-sale fi nancial assets. 23. TRADE AND OTHER PAYABLES GROUP COMPANY Trade payables 184, , Retained deposits from dealers 1,773,815 1,748, Other payables 854, , Accruals and deposit 6,820,630 7,763,654 40,800 40,800 9,633,379 10,392,876 40,800 40,800 Trade payables are non-interest bearing and generally are on 30 days to 60 days terms. Trade payables denominated in currency other than the functional currency are as follows: Other payables are non-interest bearing and generally are on 30 to 60 days terms. GROUP US Dollar 199, ,093 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 77

79 24. PROVISIONS Repair warranty NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December GROUP At 1 January 252, ,531 Additions - 13,834 Reversal (25,847) (5,714) At 31 December 226, ,651 A provision is recognised for expected warranty claims on certain products sold. Management applies certain percentage to calculate the provision for repair warranty that is determined based on their experience and judgement in relation to the level of repairs and returns. 25. SHORT TE BORROWINGS GROUP Documentary credits 2,492,918 4,763,083 The documentary credits bear bank charges of 0.1% on the drawndown amounts and are repayable within 30 days. Documentary credit are denominated in US Dollar and are secured by way of corporate guarantee given by the Company. 26. SIGNIFICANT RELATED PARTY TRANSACTIONS COMPANY Dividend income from a subsidiary company, Marco Corporation (M) Sdn Bhd 5,330,000 15,288, LEASE COMMITMENTS The future minimum lease payments under non-cancellable operating lease for rental of offi ce premises are as follows: GROUP Within one year 75,204 75, MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

80 28. CONTINGENT LIABILITIES NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December GROUP COMPANY Secured Bank guarantee given to third party 9,000 9, Unsecured Letter of undertaking given to banks for credit facilities granted to subsidiary companies ,605,000 26,605,000 Bank guarantee is secured by way of corporate guarantee given by the Company. 29. COMPENSATION OF KEY MANAGEMENT PERSONNEL The key management personnel comprise directors having authority and responsibility for planning, directing and controlling the activities of the Group and of the Company either directly or indirectly. GROUP COMPANY Short term employees benefi ts 3,078,183 2,927, , ,000 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 79

81 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 30. SEGMENT INFOATION Business Segments For management purposes, the Group is organised into the following two reportable operating segments based on products and services: (i) Distribution of electronic calculators, time pieces, musical keyboards and digital cameras; and (ii) Others including investment holding and dormant companies. Management monitors the operating results of the business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profi t or loss which, in certain respects as explained in the table below, is measured differently from operating profi t or loss in the consolidated fi nancial statements. One of the subsidiary company that was dormant in prior years has commenced trading activities on time pieces during the year and now form part of the business segment on distribution of electronic, calculators, timepieces, musical keyboards and digital cameras. The comparative segment information for the above have not been restated as it is impracticable to do so and the cost to develop it would be excessive. There is also no fi nancial effect to the Group s profi t for the year ended 31 December. Distribution of electronic calculators, time pieces, musical keyboards and digital cameras Others Eliminations Notes Consolidated Revenue: External customers 153,835, ,915, , , ,686, ,536,147 Inter-segment - - 5,330,000 15,288,000 (5,330,000) (15,288,000) (i) - - Total revenue 153,835, ,915,611 6,180,470 15,908,536 (5,330,000) (15,288,000) 154,686, ,536, MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

82 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 30. SEGMENT INFOATION (continued) Business Segments (continued) Distribution of electronic calculators, time pieces, musical keyboards and digital cameras Others Eliminations Notes Consolidated Results Segment profi t 18,105,491 23,655,680 5,596,762 15,166,782 (5,362,633) (15,302,633) 18,339,620 23,519,829 Income tax expenses 4,530,315 6,185,071 58,895 18, ,589,210 6,203,586 Interest income (394,168) (431,515) (79,396) (81,377) - - (473,564) (512,892) Material non-cash items: Depreciation and amortisation 574, , , , ,074, ,448 Reversal of allowance for impairment on receivables (43,824) (128,088) (43,824) (128,088) Inventories written off 41,656 25, ,656 25,248 Allowance for inventories written down 817,495 1,117, ,495 1,117,166 Allowance for impairment of receivables 386,637 11, ,637 11,651 Unrealised gain on foreign exchange - (310,245) (310,245) Assets and liabilities Segment assets 122,455, ,841, ,730, ,530,668 (118,268,523) (119,088,000) (ii) 194,917, ,283,705 Segment liabilities 18,542,437 32,119,513 74,807 46,239 (5,330,000) (15,288,000) (iii) 13,287,244 16,877,752 Additions of noncurrent assets 1,533, , ,533, ,858 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 81

83 30. SEGMENT INFOATION (continued) Business Segments (continued) NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December Notes to the nature of adjustments and eliminations to arrive at amounts reported in the consolidated fi nancial statements: (i) (ii) Inter-segment revenue are eliminated on consolidation. Reconciling items of total reputable segments to the Group s assets: Investment in subsidiaries (103,800,000) (103,800,000) Inter-segment eliminations (14,468,523) (15,288,000) (118,268,523) (119,088,000) (iii) Inter-segment liabilities are eliminated on consolidation. Geographical segments Revenue based on geographical location of customers Malaysia 151,137, ,102,872 Indochina 3,549,063 4,433, ,686, ,536,147 The Group s non-current assets are all located in Malaysia. Information about major customer Revenue from one major customer amounted to 12,389,655, arising from sales of electronic calculators and time pieces. (: Revenue from one major customer amounted to 19,005,950, arising from sales of electronic calculators and time pieces). 82 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

84 ANALYSIS OF SHAREHOLDINGS AS AT 2 APRIL 2018 A. SHARE CAPITAL Total Number of Issued Shares : 1,054,306,850 Class of shares : Ordinary shares Voting Rights : One vote for each ordinary share held B. DISTRIBUTION OF SHAREHOLDINGS Holdings No. of Holders Total Holdings % of Holdings Less than , , , ,001-10,000 1,723 13,470, , ,000 3, ,656, ,001 - less than 5% of issued shares ,170, % and above of issued shares 3 207,807, ,582 1,054,306, C. SUBSTANTIAL SHAREHOLDERS Direct Interest Name of Shareholders No. of Shares % of Holdings 1. Tan Sri Dato Tan Hua Choon 74,767, Dato Sri Tan Han Chuan 74,767, Puan Sri Datin Poo Ong Poo Choi 58,272, D. DIRECTOR S INTEREST IN SHARES Direct Interest Deemed Interest Name of Director No. of Shares % of Holdings No. of Shares % of Holdings Tan Sri Dato Tan Hua Choon 74,767, ,040,000* * Deemed interested in the shareholdings of his spouse and child. MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 83

85 ANALYSIS OF SHAREHOLDINGS AS AT 2 APRIL 2018 E. THIRTY LARGEST REGISTERED SHAREHOLDERS Name of Shareholders No. of Shares % of Holdings 1. Tan Sri Dato Tan Hua Choon 74,767, Dato Sri Tan Han Chuan 74,767, Puan Sri Datin Poo Ong Poo Choi 58,272, Ong Huey Peng 52,315, Chew Boon Seng 49,844, Lee Pui Inn 48,539, Neoh Poh Lan 48,531, Chew Huat Heng 46,588, Ong Wee Lieh 42,329, Ong Har Hong 30,153, Ong Poh Geok 9,619, Wong Chee Choon 8,319, Sin Len Moi 7,094, Maybank Nominees (Tempatan) Sdn Bhd Benefi ciary: Pledged Securities Account for Tay Chwee Kok 5,090, HLB Nominees (Tempatan) Sdn Bhd Benefi ciary: Pledged Securities Account for Tan Lai Kuan 5,000, Yong Yeong Jye 5,000, CIMSEC Nominees (Tempatan) Sdn Bhd Benefi ciary: Pledged Securities Account for Lau Sie Kuong (Kuching) 4,788, Cheng Hon Sang 4,346, Fun Yoon Fah 3,500, Lim Ah Chai 3,500, Lau Wan Ling 3,010, CIMSEC Nominees (Tempatan) Sdn Bhd Benefi ciary: CIMB Bank for Tay Hock Soon (MY1055) 3,000, Maybank Nominees (Tempatan) Sdn Bhd Benefi ciary: Pledged Securities Account for Fong York Siang 3,000, Maybank Nominees (Tempatan) Sdn Bhd Benefi ciary: Roger Phiong Yoon Sam 2,765, Looi Chia Jan 2,700, Ong Ai Foon 2,536, Sin Len Moi 2,519, Yap Sing Fatt 2,517, Ong Poh Lin 2,427, Yap Jin Tai Gregory 2,320, MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT

86 LIST OF GROUP PROPERTIES AS AT 31 DECEMBER Date Of Acquisition Location Description Existing Use Tenure/ approximate age of building Area (sq. metres) Net Book Value as at () Lot No to & 11292, Mukim of Bukit Katil, State of Melaka Development Land Vacant Leasehold (99 years, expiring on ) 61,432 28,525, Lot No. 8, Jalan Usahawan 6, Setapak Kuala Lumpur Industrial Land Vacant Leasehold (99 years, expiring on ) 10,112 12,218,792 MARCO HOLDINGS BERHAD (8985-P) ANNUAL REPORT 85

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88 MARCO HOLDINGS BERHAD (Company No P) PROXY FO I/We NRIC No./Company No. (full name in block letters) of (full address) being a member of MARCO HOLDINGS BERHAD hereby appoint NRIC No. (full name in block letters) of (full address) representing percentage (%) of my/our shareholdings in the Company and/or failing him/her NRIC No. (full name in block letters) of (full address) representing percentage (%) of my/our shareholdings in the Company and/or failing him/her/them, the Chairman of the Meeting as my/our proxy/proxies to attend and vote for me/us on my/our behalf at the Forty-Eighth Annual General Meeting ( 48 th AGM ) of the shareholders of the Company to be held at Bukit Kiara Equestrian and Country Resort, Dewan Perdana, 1 st Floor, Sports Complex, Jalan Bukit Kiara, Off Jalan Damansara, Kuala Lumpur, Malaysia on Friday, 8 June 2018 at a.m. or any adjournment thereof. The proxy/proxies is/are to vote on the Resolutions set out in the notice of the 48 th AGM as indicated with an X in the appropriate spaces. If no voting instructions are given, the proxy/proxies may vote or abstain from voting at his/her/their discretion. Resolution For Against Ordinary Resolution 1 Ordinary Resolution 2 Ordinary Resolution 3 (a) Ordinary Resolution 3 (b) Ordinary Resolution 3 (c) Ordinary Resolution 4 No. of Shares held CDS Account No. Contact No. Date this day of, Notes on Proxy Form Signature/Common Seal 1. A member entitled to attend and vote is entitled to appoint one or more proxies (but not more than two) to attend and vote instead of him. A proxy may but need not be a member of the Company. Where a member appoints two (2) proxies, the member shall specify the proportion of his shareholding to be represented by each proxy, failing which the appointment shall be invalid. 2. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under the corporation s common seal or under the hand of an offi cer or attorney duly authorised. The instrument appointing a proxy shall be deemed to confer authority to demand or join in demanding a poll. 3. Where a member of the Company is an authorised nominee as defi ned under the Central Depositories Act, it shall be entitled to appoint not more than two (2) proxies in respect of each securities account it holds with ordinary shares of the Company standing to the credit of the said securities account. Where a member of the Company is an exempt authorised nominee which holds ordinary shares in the Company for multiple benefi cial owners in one securities account ( omnibus account ), there is no limit to the number of proxies which the exempt authorised nominee may appoint in respect of each omnibus account it holds. Where an authorised nominee or an exempt authorised nominee appoints more than one proxy, the proportion of shareholdings to be represented by each proxy must be specifi ed in the instrument appointing the proxies. 4. The Proxy Form shall be deposited with the Company s Share Registrars, Bina Management (M) Sdn Bhd, at Lot 10, The Highway Centre, Jalan 51/205, Petaling Jaya, Selangor Darul Ehsan, Malaysia not less than forty-eight (48) hours before the time appointed for holding the meeting or any adjournment thereof. 5. Depositors whose names appear in the Record of Depositors on a date not less than three (3) market days before the Annual General Meeting shall be regarded as Member of the Company entitled to attend and vote at the Annual General Meeting or appoint a proxy to attend and vote on his behalf. Distribution of Refreshment Voucher A shareholder or proxy/corporate representative who represents the shareholder will be given a refreshment voucher upon registration. No door gift will be distributed.

89 FOLD HERE STAMP MARCO HOLDINGS BERHAD (8985-P) c/o Bina Management (M) Sdn Bhd Lot 10, The Highway Centre Jalan 51/205, Petaling Jaya Selangor Darul Ehsan, Malaysia FOLD HERE

90