HEXZA CORPORATION BERHAD (8705-K) (Incorporated in Malaysia)

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2 Notice of Annual General Meeting 2-3 Corporate Information Corporate Structure 4 5 Five-Year Group Financial Summary 6-7 Chairman s Statement 8-10 Directors Profile Audit Committee Report Corporate Governance Statement Statement on Internal Control Corporate Social Responsibility Statement 24 Directors Report Independent Auditors Report to the Members of Hexza Corporation Berhad Statements of Comprehensive Income Statements of Financial Position Statements of Changes in Equity Statements of Cash Flows Notes to the Financial Statements Supplementary information - disclosure on realised 84 and unrealised profits or losses Statement by Directors 85 Declaration by the Officer Primarily Responsible 85 for the Financial Management of the Company Statement of Shareholdings Properties owned by Hexza Corporation Berhad 88 & its Subsidiaries Appendix I Proxy Form CONTENTS Annual Report

3 NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the Forty-third Annual General Meeting of Hexza Corporation Berhad will be held at the Meeting Room 5 & 6, 1 st Floor, Impiana Hotel, Jalan Raja Dr. Nazrin Shah, Ipoh, Perak Darul Ridzuan on Saturday, 24 th November at a.m. for the following purposes:- A G E N D A 1. To receive the Audited Financial Statements for the financial year ended 30 th June and the Reports of the Directors and Auditors thereon. (Resolution 1) 2. To approve the payment of a first and final dividend of 8% less tax plus 2% tax-exempt in respect of the financial year ended 30 th June. (Resolution 2) 3. To approve the payment of Directors fees of 281,150 for the financial year ended 30 th June (: 232,500). (Resolution 3) 4. To re-elect Tuan Haji Mohd Mohd Jalil Bin Sany who retires in accordance with Article 78 of the Company's Articles of Association and being eligible, offers himself for re-election. (Resolution 4) 5. To re-appoint the following Directors who retire pursuant to Section 129(6) of the Companies Act, 1965 and to hold office until the conclusion of the next Annual General Meeting: (i) Dr. Foong Weng Cheong (Resolution 5) (ii) Dato' Richard Ong Guan Seng (Resolution 6) (iii) Datuk Dr. Foong Weng Sum (Resolution 7) 6. To re-appoint Messrs. Deloitte & Touche as Auditors and to authorise the Directors to fix their remuneration. (Resolution 8) 7. As Special Business, to consider and, if thought fit, to pass the following resolutions: (a) Ordinary Resolution Authority to issue shares pursuant to Section 132D of the Companies Act, 1965 ''THAT pursuant to Section 132D of the Companies Act, 1965, the Directors be and are hereby empowered to issue shares of the Company at any time until the conclusion of the next Annual General Meeting of the Company upon such terms and conditions and for such purposes as the Directors may, in their absolute discretion, deem fit, provided that the aggregate number of shares issued pursuant to this resolution does not exceed 10% of the issued capital of the Company for the time being and that the Directors are also empowered to obtain the approval for the listing of and quotation for the additional shares so issued on Bursa Malaysia Securities Berhad." (Resolution 9) (b) Special Resolution Proposed amendments to the Articles of Association of the Company ''THAT the proposed amendments to the Articles of Association of the Company as set out in Appendix I of the Annual Report of the Company be and are hereby approved." (Resolution 10) 8. To transact any other business of which due notice shall have been given. 2 Annual Report

4 NOTICE OF ANNUAL GENERAL MEETING NOTICE OF DIVIDEND ENTITLEMENT AND PAYMENT NOTICE IS ALSO HEREBY GIVEN that subject to the approval of the shareholders at the Forty-third Annual General Meeting, a first and final dividend of 8% less tax plus 2% tax-exempt in respect of the financial year ended 30 th June will be paid on 3 rd January 2013 to members whose names appear in the Record of Depositors on 12 th December. A depositor shall qualify for entitlement to the dividend only in respect of: a. Shares transferred into the Depositor s Securities Account before 4.00 p.m. on 12 th December in respect of ordinary transfers; and b. Shares bought on Bursa Malaysia Securities Berhad on a cum entitlement basis according to the Rules of Bursa Malaysia Securities Berhad. By Order of the Board CHONG YOKE SENG Company Secretary Ipoh 30 th October NOTES: 1. A member, other than an exempt authorised nominee is entitled to appoint not more than two (2) proxies. A proxy may but need not be a member of the Company. 2. A member who is an authorised nominee may appoint not more than two (2) proxies in respect of each securities account held; whereas an exempt authorised nominee may appoint multiple proxies in respect of each omnibus account held. 3. A member who appoints a proxy must duly execute the Form of Proxy, and if more than one (1) proxy is appointed, the number of shares to be represented by each proxy must be clearly indicated. 4. An instrument appointing a proxy, in the case of an individual, shall be signed by the appointor or his attorney duly authorised in writing or in the case of a corporation, shall be either under its Common Seal or under the hand of an officer or attorney of the corporation duly authorised. 5. The duly executed Proxy Form must be deposited at the registered office of the Company not less than forty-eight (48) hours before the time set for holding the meeting or any adjournment thereof. 6. Only members whose names appear in the Record of Depositors as at 16 th November will be entitled to attend and vote at the meeting. 7. Explanatory Notes on Special Business: (a) The proposed Resolution 9, if passed, will empower the Directors to issue shares in the Company up to an amount not exceeding in total 10% of the issued share capital of the Company for the time being for such purposes as the Directors consider would be in the interests of the Company. This authority, unless revoked or varied at a general meeting, will expire at the conclusion of the next Annual General Meeting of the Company. The general mandate sought for issue of shares is a renewal of the general mandate sought in the preceding year. As at the date of Notice, no new shares in the Company were issued pursuant to the mandate granted to the Directors at the Forty-second AGM held on 26 th November and hence no proceeds were raised therefrom. The purpose of this general mandate is to allow the Company to take advantage of any strategic opportunities, including but not limited to, issuance of new shares for purpose of funding investment project(s), working capital and/or acquisitions which require new shares to be allotted and issued speedily and would also save the cost involved in convening a general meeting to approve such issuance of shares. (b) The proposed Resolution 10, if passed, will bring the Company s Articles of Association in line with the amendments to the Main Market Listing Requirements of Bursa Malaysia Securities Berhad, as set out in Appendix I of the Annual Report of the Company. STATEMENT ACCOMPANYING NOTICE OF ANNUAL GENERAL MEETING (Pursuant to Paragraph 8.27(2) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad) Details of individuals who are standing for election as Directors No individual is seeking election as a Director at the Forty-third Annual General Meeting of the Company. Annual Report 3

5 CORPORATE INFOATION BOARD OF DIRECTORS Datuk Dr. Foong Weng Sum Chairman & Group Chief Executive Dato' Richard Ong Guan Seng Deputy Chairman/Independent Non-Executive Director Dr. Foong Weng Cheong Non-Independent Non-Executive Director Mr. Leong Keng Yuen Independent Non-Executive Director Tuan Haji Mohd Mohd Jalil Bin Sany Non-Independent Non-Executive Director Mr. Ooi Ying Hong Independent Non-Executive Director AUDIT COMMITTEE Dato' Richard Ong Guan Seng Chairman Dr. Foong Weng Cheong Mr. Leong Keng Yuen Mr. Ooi Ying Hong REMUNERATION COMMITTEE Mr. Leong Keng Yuen Chairman Datuk Dr. Foong Weng Sum Dr. Foong Weng Cheong Dato' Richard Ong Guan Seng NOMINATING COMMITTEE Dato' Richard Ong Guan Seng Chairman Dr. Foong Weng Cheong Mr. Leong Keng Yuen COMPANY SECRETARY Ms. Chong Yoke Seng (MIA 3672) REGISTERED OFFICE Lot 6 & 20, Persiaran Tasek, Kawasan Perindustrian Tasek, Ipoh, Perak Darul Ridzuan. Tel : Fax : hexza@po.jaring.my Website : REGISTRARS Symphony Share Registrars Sdn. Bhd. No. 55 Medan Ipoh 1A, Medan Ipoh Bistari, Ipoh, Perak Darul Ridzuan. Tel : Fax : AUDITORS Deloitte & Touche Chartered Accountants 87 Jalan Sultan Abdul Jalil, Ipoh, Perak Darul Ridzuan. Tel : Fax : PRINCIPAL BANKERS AmInvestment Bank Berhad Hong Leong Bank Berhad HSBC Bank Malaysia Berhad Malayan Banking Berhad OSK Investment Bank Berhad RHB Bank Berhad STOCK EXCHANGE LISTING Main Market of Bursa Malaysia Securities Berhad Stock Code : 3298 Stock Short Name : hexza 4 Annual Report

6 CORPORATE STRUCTURE AS AT 30 TH JUNE Hexza Corporation Berhad and its operating subsidiaries HEXZACHEM SARAWAK SDN. BHD. 80% NORSECHEM RESINS SDN. BERHAD 100% NORSECHEM MARKETING SDN. BHD. 100% HEXZA CORPORATION BERHAD HEXZA-MATHER SDN. BHD. 100% SUMMIT DEVELOPMENT CORPORATION SDN. BERHAD 100% CHEMICAL INDUSTRIES (MALAYA) SDN. BHD % BIO-ACETIC PRODUCTS SDN. BHD. 100% Annual Report 5

7 FIVE-YEAR GROUP FINANCIAL SUMMARY Year Ended 30 th June '000 ' ' ' '000 Revenue 148, , , , ,064 Profit before tax 9,266 16,268 22,182 7,936 27,879 Profit after taxation attributable to shareholders of the company 6,158 12,104 15,895 6,986 22,061 Total assets 233, , , , ,031 Shareholders' funds 203, , , , ,510 Paid-up capital 100, , , ,190 66,001 Earnings per share (sen) Gross dividend per share (sen)* Net dividend proposed/paid (sen)* Return on shareholders' funds (%) Net assets per share () Note: * The proposed final dividend for the financial year ended 30 th June is subject to approval by the shareholders at the forthcoming Annual General Meeting of the Company. 6 Annual Report

8 FIVE-YEAR GROUP FINANCIAL SUMMARY Revenue Shareholders' Funds (million) (million) Profit Before Tax Total Assets (million) (million) Earning Per Share (sen) Gross Dividend Per Share (sen) Annual Report 7

9 CHAIAN'S STATEMENT On behalf of the Board of Directors, I am pleased to present the Annual Report and Financial Statements of the Group and of the Company for the financial year ended 30 th June,. For the financial year ended 30 th June,, the Group s revenue increased marginally by 1.2% to 148,616,267 as compared to 146,785,725, an increase of 1,830,542. registered a profit before tax of 9,265,721 compared to 16,268,485 in the previous year. Earning before interest, tax, depreciation and amortization (EBITDA) amounted to 14,900,882 compared to 21,862,124 in the previous year. Chemical Industries (Malaya) Sdn. Bhd. (CIM), revenue was marginally higher by 791,635 (2.7%) compared to the previous year. However, there was a marginally bigger loss at 646,918, an increased loss of 88,309 (16%) compared to the previous year. Norsechem Resins increase of revenue by 16% resulted in a reduced loss of 730,750, a reduction of 27% compared to the previous year. Hexzachem (Sarawak) Sdn. Bhd., was the only core subsidiary to operate profitably in the financial year ended 30 th June,, albeit with a reduced profit of 5,869,922 compared to 8,880,231 in the previous year. Hexza Corporation Berhad (Hexza) recorded a revenue of 10,731,182 compared to 16,988,451 in the previous year. Profit before tax for FY amounted to 12,458,097 compared to 25,430,756 for FY. Shareholders' funds stands at 203,156,136. Net tangible assets amounted to 1.00 per share. REVIEW OF OPERATIONS The year under review was the most challenging since financial year ending June 30 th, 2009 as reflected in the return on shareholders funds of 3.0% compared to a return on shareholders funds of 3.8% in FY The return on shareholders fund for FY was 5.8%. CIM which produces ethyl alcohol using molasses as a raw material is under tremendous pressure to comply with world class standards for the disposal of effluent water both in terms of COD (Chemical Oxygen Demand), BOD (Biological Oxygen Demand) and colour. Companies previously operating in Malaysia, have been known to move their operations to other countries with less stringent jurisprudence. CIM is spending senior executives time and money in its attempt to comply. However, given the level of technology and advice available in the country we should be given adequate time to comply. CIM is committed to stay in Malaysia to provide employment opportunities for Malaysians. The performance of the Group s Resins Division continued to mirror that of the preceding two years with substantially different financial results from the plant operating in Kuching, Sarawak compared to the plant operating in Port Klang, Selangor. 8 Annual Report

10 CHAIAN'S STATEMENT The plant in Kuching recorded a profit before tax of 5,869,922 for FY, albeit lower than the profit before tax of 8,880,231 of the previous year. Competitors profits were also lower as a reflection of the gloomy macro global economy highlighted by the austerity drive in Portugal, Italy, Greece and Spain. Norsechem Resins Sdn. Bhd., located in Port Klang, recorded a loss of 730,750 albeit a smaller loss compared to the loss of 1,005,567 in the previous year. OUTLOOK AND PROSPECTS Hexza, as a group, have instituted a cost cutting exercise in areas wherever possible. However, at CIM, it is difficult to increase productivity and yield to keep our cost low because of the frequent stoppages in production forced upon us by the effluent disposal problem. In spite of all these problems, management have managed to maintain losses within manageable levels. Therefore, it is hoped that once we have tackled the effluent issues and CIM is able to run production without undue interruptions, CIM will be able to contribute meaningful profits. The coming implementation of the government s minimum wage policy, while strictly applied, affects a relatively small number of employees. We are concerned that its implementation may have unintended consequences resulting in significantly higher operational costs. The extension of retirement age from 55 to 60 will belabour factories with workers earning higher wages as a result of their length of service. While Hexza is happy to extend the employment of good workers beyond their retirement age on a year to year basis, we are also having to harbour workers who are not computer literate for another 5 years. Computer or digital literacy is a required and necessary skill in the increasingly digital manufacturing environment. CORPORATE SOCIAL RESPONSIBILITY (CSR) The statement on Corporate Social Responsibility which I wrote last year has inspired me to reproduce it in full again this year. Our ideals and endeavours have not changed and for a relatively small company like Hexza I cannot improve the statement any better. Charity begins at home. During the frequent recent factory stoppages, no employee has been retrenched and there has been no reduction of basic pay resulting in a pre-tax loss for the current financial year at CIM. On the contrary, competent employees are given the opportunity to develop their knowledge and skill through training and education. Hexza recognizes that without being socially and environmentally responsible, it is impossible to have economically sustainable operations in the long term. Corporate Social Responsibility and sustainability are important components of long term business success. For Hexza, Corporate Social Responsibility is about having a sustainable business strategy in the face of local and global challenges. It is also about conducting business with a conscience, caring for its employees, the community, the environment, its customers, its shareholders and all stakeholders. Hexza s Corporate Social Responsibility mission is for all our Directors, Senior Executives, Management and staff to be community players in the promotion of a caring, learning and civil society. The above is our template and DNA. It is Hexza s social responsibility genetics. Annual Report 9

11 CHAIAN'S STATEMENT (continued) DIVIDEND Hexza s balance sheet is strong. It has very little debt. The Board of Directors have recommended a first and final dividend for the current year of 8% less tax and a tax exempt dividend of 2% which total 8,015,201 or 4.0 sen per share, the same dividend paid in FY. On behalf of my fellow Directors, I would like to extend my appreciation to all our stakeholders valued customers, business associates, loyal shareholders, the authorities and financiers for their continuous support and understanding. Last but not least, I would like to extend my appreciation to my fellow Board members for their invaluable advice and contributions. I would also like to extend my sincere appreciation to the managers, executives and employees for their contribution, dedication and commitment to the Group, under the most challenging conditions. Datuk Dr. Foong Weng Sum Chairman & Group Chief Executive 3 rd October 10 Annual Report

12 DIRECTORS PROFILE DATUK DR. FOONG WENG SUM Chairman & Group Chief Executive Datuk Dr. Foong Weng Sum, aged 73, was appointed to the Board on 7 th May 1982 as Vice Chairman. On 23 rd October 1986, he assumed the position of Group Chief Executive. He took over as Chairman of the Board on 1 st December He is also a member of the Remuneration Committee. Datuk Dr. Foong Weng Sum is a graduate in medicine from the University of London. He has considerable business experience in various business sectors, including manufacturing, property development, financial management and investment. DATO' RICHARD ONG GUAN SENG Deputy Chairman/Independent Non-Executive Director Dato Richard Ong, aged 74, was appointed to the Board on 25 th March 1994 and he was appointed as the Deputy Chairman of the Board on 8 th November. He is also the Chairman of the Audit Committee and Nominating Committee and a member of the Remuneration Committee. Dato' Richard Ong is a member of the Malaysian Institute of Accountants, the Malaysian Institute of Certified Public Accountants, the Institute of Chartered Accountants in Australia and the Institute of Chartered Secretaries and Administrators. He became a Partner of Peat Marwick (now known as KPMG), Malaysia in 1971 and was appointed Deputy Senior Partner in 1989 until he retired in He is also on the Board of The Tan Sri Tan Foundation and holds directorships in several private limited companies. DR. FOONG WENG CHEONG Non-Independent Non-Executive Director Dr. Foong Weng Cheong, aged 79, was appointed to the Board on 7 th May He is also a member of the Audit Committee, Remuneration Committee and Nominating Committee. Dr. Foong Weng Cheong is a graduate in medicine from the University of Melbourne, Australia and is a Fellow of the Royal College of Surgeons of Edinburgh and also a Fellow of the Royal College of Surgeons of England. He was appointed Senior Lecturer ( ), Associate Professor ( ) and Professor & Head of Department of Surgery ( ) at the National University of Singapore and Chief of University Department of Surgery at Singapore General Hospital and National University Hospital until he retired in Since 1988 he is a Consultant Surgeon at Mount Elizabeth Medical Centre, Singapore. MR. LEONG KENG YUEN Independent Non-Executive Director Mr. Leong Keng Yuen, aged 62, was appointed to the Board on 15 th September He is also the Chairman of the Remuneration Committee and a member of the Audit Committee and Nominating Committee. Mr. Leong Keng Yuen was a partner of Ernst & Young Malaysia before retiring at the end of He is a member of the Malaysian Institute of Accountants and a Fellow of the Association of Chartered Certified Accountants. He also holds a Master of Science in Management from the Massachusetts Institute of Technology U.S.A. and a Bachelor of Engineering (First Class Honours) from University of Queensland, Australia. He is also a Non- Executive Director of Pulai Springs Berhad, company listed on Bursa Malaysia and OSK Investment Bank Berhad. He is also on the Board of Datin Seri Ting Sui Ngit Foundation, The Perak Chinese Welfare Association and The Perak Chinese Maternity Association. He also holds directorships in private limited companies. Annual Report 11

13 DIRECTORS PROFILE (continued) TUAN HAJI MOHD MOHD JALIL BIN SANY Non-Independent Non-Executive Director Tuan Haji Mohd Jalil Sany, aged 65 was appointed to the Board on 20 th November He is a member of the Malaysian Institute of Accountants and a Fellow of the Association of Chartered Certified Accountants. In 1987 he attended an advanced Management Programme at Insead, Fontainebleu, France. He has over 40 years of working experience in diversified industries which includes unit trust and investment holdings, properties and hotels, banking and insurance, plantation, film distribution and exhibition, commercial agriculture, animal husbandry and book publication and distribution. In that 40 years period, he has contributed over more than 20 years in the industrial development of both the states of Sabah and Sarawak through holding various key positions as Chief Financial Officer, Chief Operating Officer and directors in investment and business organisations. He now holds directorships in several private limited companies. MR. OOI YING HONG Independent Non-Executive Director Mr. Ooi Ying Hong, aged 46 was appointed to the Board on 12 th July. He is also a member of the Audit Committee. He holds a Bachelor of Business (Accounting) degree from University of Southern Queensland, Australia. He started his career in auditing with KPMG and subsequently joined Matsushita Television Co. (M) Sdn. Bhd. He has many years of experience in various industries, including logistics, international trading, information technology, service and automotive. He also sits on the Board of Directors of various private limited companies. OTHER INFOATION Nationality All the Directors are Malaysians. Family relationship with any Director and/or substantial shareholder Dr. Foong Weng Cheong and Datuk Dr. Foong Weng Sum are brothers. Apart from this, none of the Directors has any family relationship with the other Directors or substantial shareholders of the Company. Conflict of interest Save as disclosed in Note 21 under Notes to the Financial Statements, none of the Directors has any conflict of interest with the Company. Convictions for offences None of the Directors has been convicted of any offence within the past ten years. 12 Annual Report

14 AUDIT COMMITTEE REPORT The Board of Directors of Hexza Corporation Berhad is pleased to present the Audit Committee Report for the financial year ended 30 th June. This Audit Committee Report is prepared in accordance with the Main Market Listing Requirements of Bursa Malaysia Securities Berhad which complies with the Malaysian Code of Corporate Governance. The Audit Committee ( the Committee ) was established by the Board of Directors since April 1994 to serve as a Committee of the Board. The following are members of the Audit Committee: Dato' Richard Ong Guan Seng Mr. Leong Keng Yuen Dr. Foong Weng Cheong Mr. Ooi Ying Hong (Appointed on 25 th November ) (Chairman, Independent Non-Executive Director) (Member, Independent Non-Executive Director) (Member, Non-Independent Non-Executive Director) (Member, Independent Non-Executive Director) The detailed profiles of all the members of the Audit Committee are shown in the Board of Directors' profile. The terms of reference which spells out its authorities and duties in accordance with Paragraph of the Listing Requirements are as follows: Membership (a) (b) (c) The Committee shall be appointed by the Board from amongst the Non-Executive Directors of the Company and shall consist of not less than three members of whom all the members must be Non-Executive Directors, with a majority of them being Independent Directors. At least one member of the Committee must be a member of the Malaysian Institute of Accountants or eligible for membership. The members of the Committee shall select a Chairman from among their numbers who shall be an Independent Director. The term of office and performance of the Committee and each of its members should be reviewed by the Board at least once every three years to determine whether such Audit Committee and members have carried out their duties in accordance with their terms of reference. Authority The Audit Committee shall, in accordance with a procedure to be determined by the Board of Directors and at the cost of the Company: (a) have authority to investigate any matter within its terms of reference; (b) have the resources which are required to perform its duties; (c) have full and unrestricted access to any information pertaining to the Company; (d) have direct communication channels with the external auditors and the person(s) carrying out the internal audit function or activity; (e) (f) be able to obtain independent professional or other advice; and be able to convene meetings with the external auditors, internal auditors or both, excluding the attendance of the management, whenever deemed necessary. Responsibilities and Duties The functions of the Audit Committee shall be to: (a) review with the external auditors, their audit plans; (b) review with the external auditors, their evaluation of the system of internal controls; (c) review with the external auditors, their audit reports; Annual Report 13

15 AUDIT COMMITTEE REPORT (continued) (d) (e) (f) (g) (h) (i) (j) (k) review the assistance given by the Company s employees to the external auditors; review the adequacy of the scope, functions, competency and resources of the internal audit functions and that it has the necessary authority to carry out its work; review the scope and results of the internal audit procedures; review the quarterly results and year end financial statements, prior to the approval by the Board of Directors, focusing particularly on: (i) changes in or implementation of major accounting policy changes; (ii) significant and unusual events; and (iii) compliance with accounting standards and other legal requirements. review any related party transactions that may arise within the Company or Group; recommend the appointment of external auditors, audit fee and any question of resignation or dismissal; undertake such other functions as may be agreed to by the Audit Committee and Board of Directors; and report its findings to the Board of Directors. Meetings (a) (b) (c) The Audit Committee shall meet not less than four (4) times a year. The quorum of the Committee shall be at least two members; the majority of members present must be Independent Directors. The Secretary to the Committee shall be the Company Secretary. Reporting Procedures The Secretary shall circulate the minutes of meetings of the Committee to all members of the Board. Attendance During the financial year ended 30 th June, four (4) Audit Committee meetings were held and the details of the attendance were as follows: No. of Meetings Attended Dato' Richard Ong Guan Seng 4/4 Mr. Leong Keng Yuen 4/4 Dr. Foong Weng Cheong 4/4 Mr. Ooi Ying Hong 3/3 The Company Secretary attended all the meetings of the Audit Committee held during the financial year. Other members of the Board and employees also attended the meetings upon the invitation of the Committee. Documentation Procedures The Secretary shall be responsible, in conjunction with the Chairman, for drawing up the Agenda and the notice of meeting. The notice of meeting and the Agenda together with the relevant papers are distributed to the members at least three (3) days prior to each meeting. The Secretary is responsible for keeping the minutes and responsible for communicating the decisions made at the meeting to the relevant parties. 14 Annual Report

16 AUDIT COMMITTEE REPORT Summary of Activities During the Financial Year During the financial year ended 30 th June, in line with the terms of reference, the Audit Committee carried out the following activities in discharge of its functions and duties: (a) Reviewed the Groups quarterly results announcement to Bursa Malaysia Securities Berhad before recommending them to the Board of Directors for approval. (b) (c) (d) (e) (f) (g) (h) (i) (j) Reviewed the scope of work and the audit plan of the external auditors in respect of the financial year ended 30 th June. Reviewed the audited financial statements of the Company and of the Group with the external auditors to ensure compliance with the provisions of the Companies Act, 1965 and the applicable accounting standards prior to submission to the Board of Directors for consideration and approval. Reviewed and discussed major audit findings reported by the external auditors and management s responses, including issues highlighted in the previous audit. Reviewed and approved the internal audit plan. Reviewed and deliberated on the reports from the internal audit unit and management s response to the recommendations and presented the reports to the Board of Directors. Reviewed and deliberated on the risk assessment reports from the operating companies of the Group with request for further actions where appropriate. The Audit Chairman reported to the Board on significant issues discussed during the Audit Committee meetings and conveyed the Audit Committee s recommendations, if any. The minutes of the Audit Committee meetings were distributed to all Board members. Met twice with the External Auditors during the year without the presence of any management including the Group Chief Executive and the Company Secretary. Reviewed the performance of the Internal Audit Unit against the annual audit plan for the financial year ended 30 th June and the cost incurred in connection with the performance of the audit. Internal Audit Function The Company has an in-house Internal Audit Unit which provides support to the Audit Committee in discharging its duties and responsibilities. The main role of the Internal Audit Unit is to undertake independent assessments of the adequacy and effectiveness of the Group s system of internal control, procedures and operation. The Internal Audit Unit reports directly to the Chairman of the Audit Committee. The functions and responsibilities of the Internal Audit Unit are embodied in the Internal Audit Charter. During the financial year under review, the Internal Audit Unit conducted audits on operating subsidiaries based on the internal audit plan approved by the Audit Committee. The total cost incurred by the Internal Audit Unit during the financial year ended 30 th June amounted to approximately 85,000. The following were the activities carried out by the Internal Audit Unit: (a) Reviewed and appraised the adequacy, effectiveness and efficiency of internal control in the Group. (b) Ascertained the extent to which the companies within the Group comply with established policies, procedures and statutory requirements. (c) (d) (e) (f) (g) Reviewed the effectiveness of the risk management system. Prepared internal audit reports on audit findings and recommendation for improvements to the existing system of internal control and work procedures/processes. Conducted follow-up reviews to assess if appropriate actions have been taken to address issues raised in the previous audit. Performed review of processes upon the request of management. Prepared quarterly reports and updated the Audit Committee on progress of internal audit work at Audit Committee meetings. Annual Report 15

17 CORPORATE GOVERNANCE STATEMENT The Board of Directors of Hexza Corporation Berhad ("Board") supports the Malaysian Code on Corporate Governance ("Code") and is committed to ensuring that good corporate governance is practised throughout the Group in enhancing shareholders' value and the financial performance of the Group. The Board acknowledges its responsibility for compliance with the Bursa Malaysia Securities Berhad Main Market Listing Requirements ( Listing Requirements ) and all other statutory requirements. The Board is pleased to report as follows on the extent to which the principles and best practices of the Code and the Listing Requirements were applied throughout the financial year ended 30 th June. This statement is made in accordance with a resolution of the Board of Directors dated 3 rd October. A. BOARD OF DIRECTORS Board Composition and Balance The Board currently has six (6) members, comprising three (3) Independent Non-Executive Directors, two (2) Non- Independent Non-Executive Directors and one (1) Executive Director. This complies with the Listing Requirements of Bursa Malaysia Securities Berhad that one third of its Board consists of independent directors. The Board is of the view that its composition fairly reflects the composition of its shareholders. The presence of three (3) Independent Non-Executive Directors fulfills an important role in corporate accountability. The role of the Independent Non-Executive Directors is particularly important as they provide an independent and unbiased views, advice and judgment in Board deliberations. Duties and Responsibilities The Board is responsible for the corporate governance practices of the Group. It guides and monitors the affairs of the Group on behalf of the shareholders and retains full and effective control over the Group. The key responsibilities include the primary responsibilities prescribed under the Code. These cover a review of the strategic direction for the Group, overseeing the business operations of the Group, and evaluating whether these are being properly and effectively managed. Chief Executive is responsible for implementing the policies and decisions of the Board, overseeing the day to day operations as well as coordinating the development and implementation of business and corporate strategies. The Non-Executive Directors contribute significantly in areas such as policy and strategy, performance monitoring, allocation of resources as well as improving governance and controls. A brief write-up of the background of the Board members as at the date of this statement is represented under Directors profile of the Annual Report. Board and Board Committee Meetings The Board meets at least four (4) times a year at quarterly intervals, with additional meetings convened as necessary. There were four (4) meetings held during the financial year ended 30 th June and details of the attendance of the Directors were as follows: No. of Meetings Attended Datuk Dr. Foong Weng Sum 4/4 Dato' Richard Ong Guan Seng 4/4 Dr. Foong Weng Cheong 4/4 Mr. Leong Keng Yuen 4/4 Tuan Haji Mohd Mohd Jalil Bin Sany 4/4 Mr. Ooi Ying Hong 4/4 16 Annual Report

18 CORPORATE GOVERNANCE STATEMENT At each Board Meeting, the Board considers the quarterly financial reports, the year to date financial performance of the Group, operations reports of the major business divisions, new business venture proposals and strategic issues affecting the Group s business. The Chairman of the Audit Committee reports to the Board on the internal control issues based on the internal audit unit s findings and the results of review of the risk assessment report. The Board has also established the following Committees to assist the Board to discharge its fiduciary duties: Audit Committee Nominating Committee Remuneration Committee Supply of Information The Board has unrestricted access to timely and accurate information, necessary in the furtherance of their duties. The Chairman ensures that all relevant issues requiring the Board s deliberation and approval are on the agenda and senior management is invited to the Board meetings to present the relevant issues. The Agenda and a full set of Board papers are distributed at least three (3) days prior to the meeting to allow Directors sufficient time to review the Board papers for effective deliberation at the meeting proper. All proceedings of Board meetings are minuted and signed by the Chairman. All Directors have access to the advice and services of the Company Secretary and senior management in carrying out their duties. Independent Professional Advice There is a formal procedure sanctioned by the Board for Directors, whether as a full Board or in their individual capacity, to take independent professional advice at the Group s expense, where necessary and in furtherance of their duties. Appointment to the Board The Nominating Committee is responsible for establishing a formal and transparent selection process for the appointment of new directors to the Board. The Committee will review the required mix of skills and experience of the Directors of the Board, and determine the appropriate Board balance and number of Non-Executive Directors. The Committee has established the procedures and processes towards an annual assessment of the effectiveness of the Board as a whole, the Committees of the Board and for assessing the contribution of each individual Director. The Board is satisfied that the current composition of the Board brings the required mix of skills and experience required for the Board to function effectively. Directors Training All the Directors have attended the Mandatory Accreditation Programme ( MAP ) as required under the Main Market Listing Requirements issued by Bursa Securities. The Directors continue to undergo training on an annual basis to further enhance their skills and knowledge so as to keep abreast with new regulatory developments and the Listing Requirements. The Board will discuss and determine the training needs of the Directors and the Directors are encouraged to attend various training on their own and submit the certificate of attendance to the Secretary for record. Annual Report 17

19 CORPORATE GOVERNANCE STATEMENT (continued) A. BOARD OF DIRECTORS (continued) The following were the details of training attended by the Directors during the financial year ended 30 th June : Name of Directors Training Attended Datuk Dr. Foong Weng Sum Budget Seminar Dato' Richard Ong Guan Seng Budget Seminar Directors Rights, Duties, Powers and Accountability Bursa Malaysia Corporate Governance Week Sustainability: Taking Corporate Governance a step further Dr. Foong Weng Cheong CAEs Forum: Current updates on Governance Mr. Leong Keng Yuen Financial Institution Director's Education optional program, Nomination and Remuneration Committee by Bank Negara Malaysia Financial Institution Director's Education optional program, Corporate Finance by Bank Negara Malaysia Financial Institution Director's Education core program, Module B by Bank Negara Malaysia Hedging Strategies with Futures and Options Accounting for MFRS: Simplifying the Approach Personal Data Protection Act 2010 Competition Act 2010 Tuan Haji Mohd Mohd Jalil Bin Sany Bursa Malaysia Corporate Governance Week Sustainability: Taking Corporate Governance a step further Malaysian FRS Recent Development & Update Ooi Ying Hong Mandatory Accreditation Programme for Directors of Public Listed Companies Bursa Malaysia Business Sustainability: Making a Difference in Performance Re-election In accordance with the Company s Articles of Association, all newly appointed Directors are subject to re-election by shareholders at the first annual general meeting immediately after their appointment. The other Directors are subject to retire on a rotational basis once every three years and are entitled to offer themselves for re-election at the Company s Annual General Meeting. Directors over seventy years old are required to submit themselves for reappointment annually in accordance to Section 129(6), Companies Act, Directors standing for re-election at the Forty-third Annual General Meeting are detailed in the Notice of the Forty-third Annual General Meeting. B. DIRECTORS REMUNERATION The Remuneration Committee is responsible for recommending the remuneration package for all Directors. The individual Directors play no part in deciding their own remuneration. The policy practised on Directors remuneration by the Remuneration Committee is to provide the remuneration packages according to the skills, level of responsibilities, experience and performance of the Directors in order to attract, retain and motivate Directors of the quality required to lead and guide the business of the Company. The remuneration of the Non-Executive Directors is determined by the Board as a whole. In addition, Non-Executive Directors are paid a meeting allowance for each meeting he attended. 18 Annual Report

20 CORPORATE GOVERNANCE STATEMENT The details of the Directors remuneration (including benefits-in-kind) for the financial year ended 30 th June are as follows: Salary Fees Bonus 000 Other Emoluments Benefitsin-kind Total Executive Director Datuk Dr. Foong Weng Sum ,168 Non-Executive Directors Dr. Foong Weng Cheong Dato Richard Ong Guan Seng Mr. Leong Keng Yuen Tuan Haji Mohd Mohd Jalil Bin Sany* Mr. Ooi Ying Hong** Total ,559 Notes: * ceased as executive director on ** Appointed on The number of Directors whose remuneration (including benefits-in-kind) falls into the following bands is as follows: Band Executive Director Non-Executive Directors 50,000 to 100, ,001 to 150, ,150,001 to 1,200, The fees payable to the Directors will be recommended by the Board for approval by shareholders at the forthcoming Annual General Meeting scheduled to be held on 24 th November. Currently, there is no contract of service between any Director and the Company or its subsidiaries. C. SHAREHOLDERS Shareholders communication and investors relationship policy The Annual General Meeting is the principal forum for dialogue and interaction with shareholders. All shareholders are welcome to attend the Company s Annual General Meeting and to actively participate in the proceedings. They are encouraged to ask questions both about the resolutions being proposed or any issues pertaining to the Company and to give their views and suggestions for the benefit of the Company. Members of the Board and the external auditors of the Company are present to answer questions raised at the meeting. Where it is not possible to provide immediate answers, the Chairman will undertake to furnish the shareholder with a written answer after the AGM. The annual reports and the quarterly announcements are the primary modes of communication to report on the Group s business, activities and financial performance to all its shareholders. The Company has established a website to improve the channel of communication between its shareholders and interested public. Dato Richard Ong Guan Seng was appointed as the Deputy Chairman on 8 th November and he is also the Senior Independent Non-Executive Director who will attend to answer all queries relating to the affairs of the Group. Annual Report 19

21 CORPORATE GOVERNANCE STATEMENT (continued) D. ACCOUNTABILITY AND AUDIT Financial Reporting The Board aims to present a balanced and meaningful assessment of the Group s financial performance and prospects in presenting the annual financial statements and quarterly announcement of results to shareholders as well as the Chairman s statement and review of operations in the annual report. The Board is assisted by the Audit Committee to oversee the Group s financial reporting processes and the quality of its financial reporting. Relationship with the Auditors The Company has established a transparent and appropriate relationship with the Group s internal and external auditors through the Audit Committee. The Audit Committee meets with the external auditors without the presence of any executives of the Group at least twice a year. The role of the Audit Committee in relation to the external auditors is described in the Audit Committee Report. Internal Control The Board continues to maintain and review its internal control procedures to ensure that the Group is operating effectively and efficiently in accordance with its internal policies and procedures and complying to laws and regulations. The Statement of Internal Control which provides an overview of the state of internal controls of the Group is presented in the Statement on Internal Control of this Annual Report. E. COMPLIANCE WITH THE BEST PRACTICES has taken various steps to ensure compliance with the Principles and Best Practices of the Code during the financial year ended 30 th June save as follows: Division of Responsibilities The roles of the Chairman and the Group Chief Executive are combined and are currently held by Datuk Dr. Foong Weng Sum. The Board is mindful of the combined roles but is of the view that there are sufficient Independent Directors who are professionals of credibility and repute who demonstrate independence of judgment and objectivity in the Board s deliberations and provide the necessary check and balance. All related party transactions, which arose in the normal course of business involving him, have been disclosed in the notes to the financial statements. F. DIRECTORS RESPONSIBILITY STATEMENT The Directors are responsible for ensuring that proper accounting records are kept and the accounts and other financial reports of the Company and the Group are prepared in accordance with the applicable approved accounting standards and complied with the provisions of the Companies Act, The Directors also have a general responsibility for taking such steps as are reasonably available to them to control and safeguard the assets of the Group and to prevent and detect fraud and other irregularities. In the opinion of the Directors, the Group has applied the appropriate accounting policies and standards consistently in the preparation of the financial statements for the financial year ended 30 th June. 20 Annual Report

22 CORPORATE GOVERNANCE STATEMENT G. ADDITIONAL COMPLIANCE INFOATION Utilisation of Proceeds No proceeds were raised by the Company from any corporate exercise during the financial year. Share Buy-Back There was no share buy-back during the financial year. Options, Warrants or Convertible Securities There was no issue of options, warrants or convertible securities during the financial year. American Depository Receipt (ADR) /Global Depository Receipt (GDR) Programmes The Company did not sponsor any ADR or GDR programmes during the financial year. Imposition of Sanctions / Penalties There were no sanctions and/or penalties imposed on the Company and its subsidiaries, Directors or management by the regulatory bodies during the financial year except for the payment by a subsidiary company for inability to satisfy the requirement of the Department of Environment. Non-Audit Fees During the financial year ended 30 th June, the non-audit fees payable to the external auditors amounted to approximately 3,000. Profit Estimate, Forecast or Projection The Company did not release any profit estimate, forecast or projection for the financial year. Profit Guarantee The Company did not make any arrangement during the financial year which requires profit guarantee. Material Contracts and Contracts Relating to Loans There are no material contracts and contracts relating to loans entered into by the Company and its subsidiaries which involve the Directors and substantial shareholders entered into since the previous financial year. Recurrent Related Party Transactions of Revenue Nature The details of related party transactions of revenue or trading nature undertaken by the Company during financial year are disclosed in Note 21 to the Financial Statements. Annual Report 21

23 STATEMENT ON INTERNAL CONTROL Introduction The Board of Directors of Hexza Corporation Berhad ("Board") is pleased to present the following Statement on Internal Control of the Group for the financial year ended 30 th June pursuant to Paragraph (b) of the Listing Requirements of the Bursa Malaysia Securities Berhad (Bursa Securities) and the guidelines provided by Bursa Securities on Internal Control Guidance for Directors of Public Listed Companies. Board Responsibility The Board recognises its responsibility in maintaining a sound system of internal controls which includes not only financial controls but also operational and compliance controls as well as effective risk management. The Board has established on-going processes for identifying, evaluating and managing the significant risks that matters. Due to the limitations that are inherent in any system of internal control, the system is designed to manage the Group s risk within acceptable level, rather than eliminate the risk in order to achieve business objectives. The system can only provide reasonable, and not absolute assurance against material misstatement of management and financial information and records or against financial losses or fraud. The Board s primary objective and strategic direction in managing the Group s business risks are to enhance its ability to achieve its business objectives. The role of management is to implement the Board s policies, procedures and guidelines on risk and control by identifying and evaluating the risks faced and implemented action plans and time frame to manage the risks identified. The Board through its Audit Committee reviews the management of the principal risks areas and the evaluation of the adequacy and effectiveness of internal control system and integrity of the financial information. The Nominating and Remuneration Committees review issues within their terms of reference and report to the Board for decision making. Enterprise Risk Management Framework The Board confirms that the Group continues to implement the methodologies in accordance with the enterprise risk management framework approved by the Board. The framework ensures that there is an on-going process for identifying, evaluating, monitoring and managing risks that matters and affecting the Group s business objective. The risk register with detailed information on individual risk profiles is regularly updated by the operating subsidiaries. During the financial year under review, the Risk Management Units of the operating companies continued to identify principal risks of the business, assessing the likelihood and impact of the potential risk and evaluate and manage the risks by formulating action plans and time frame to mitigate those risks identified. The risk assessment reports are submitted on a half yearly basis by the respective operating companies to the Audit Committee for review and comments. The Audit Committee in turn reports to the Board its assessment and recommendations. The Board reviewed and monitored the significant risks that have an impact on the achievement of the Group s business objectives through its assessment of the internal control system. Internal Audit Function The internal audit function has the primary objective of carrying out a review of the internal control system to determine if the internal control procedures have been complied with and to make recommendations to strengthen the internal control system. During the financial year under review, the Internal Audit Unit carried out regular and systematic reviews on major business operating units of the Group to assess the effectiveness and adequacy of internal control and highlights areas for improvement. The annual audit plan was reviewed and approved by the Audit Committee prior to the commencement of audit. Internal audit reports with details on the audit objectives, scope, audit findings and recommendations and management s response to the recommendations of the Internal Audit Unit are issued upon completion of each audit. The Internal Audit prepares quarterly report to update the Audit Committee on the status of audit and audit performed. The Internal Audit Unit also checks to ensure that the risk management strategy, framework and methodology implemented are consistently applied by the major operating subsidiaries. 22 Annual Report