The Corporation. The Financials

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3 The Financials The Corporation Corporate Information Chairman s Statement Group Financial Highlights Pro le of Directors Statement on Corporate Governance Statement on Internal Control Audit Committee Report Corporate Social Responsibility Directors Report Statement by Directors Statutory Declaration Independent Auditors Report Statement of Financial Position Income Statements Statements of Comprehensive Income Statements of Changes in Equity Statements of Cash Flows Notes to the Financial Statements The Properties & Shareholdings Properties Owned By The Group Additional Compliance Information Analysis of Shareholding Notice of Annual General Meeting Proxy Form

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5 Corporate Information Chairman s Statement Group Financial Highlights Pro le of Directors Statement on Corporate Governance Statement on Internal Control Audit Committee Report Corporate Social Responsibility

6 CORPORATE INFORMATION ANNUAL REPORT Directors Tan Sri Lim Guan Teik, PSM, JMN, DMPN, DJN (Non-Executive Chairman) Dato Azaman Bin Abu Bakar, DIMP (Managing Director) Dato Lim Wan Peng, DSPN (Executive Director) Lim Chiun Cheong (Deputy Managing Director) Patrick Chin Yoke Chung, FCA (Senior Independent Non-Executive Director) Datuk Nik Ibrahim Bin Nik Abdullah, PJN, JSM, AMN (Independent Non-Executive Director) Audit Committee Patrick Chin Yoke Chung, FCA (Chairman) Datuk Nik Ibrahim Bin Nik Abdullah, PJN, JSM, AMN Tan Sri Lim Guan Teik, PSM, JMN, DMPN, DJN Secretaries Goh Ching Yee (MAICSA ) Yong Ee Chern (MAICSA ) Auditors SJ Grant Thornton (Member of Grant Thornton International Ltd) Chartered Accountants Level 11, Sheraton Imperial Court Jalan Sultan Ismail, Kuala Lumpur Tel : Fax : Registered Of ce Lot 7, Jalan 51A/241, Petaling Jaya, Selangor Darul Ehsan and Principal Place Tel : Fax : of Business Registrar Muda Management Services Sdn Bhd Lot 7, Jalan 51A/241, Petaling Jaya, Selangor Darul Eshan Tel : Fax : Principal Bankers AmBank (M) Berhad Malayan Banking Berhad OCBC Bank Malaysia Berhad RHB Bank Berhad Investment Bankers AmInvestment Bank Berhad Solicitors Raja Eleena Siew Ang & Associates Stock Exchange Listing Main Market of Bursa Malaysia Securities Berhad

7 MUDA HOLDINGS BERHAD CHAIRMAN S STATEMENT I am pleased to present to you the Annual Report and Financial Statements for the year ended 31 December Business Review The Group achieved revenue of RM1.088 billion in the year which is 1.4% lower compared with RM1.104 billion registered in the preceding year amidst a very challenging business environment. Revenue from Manufacturing Division improved by 3.3% to RM million in the year compared with RM million reported for The 5.6% growth in GDP of Malaysia for 2012 has boosted domestic consumption and generated higher demand for paper and paper products manufactured by the Group which reduced impact of competition from overseas manufacturers arising from softer external economies. Increased output during the year and higher productivity in the Manufacturing Division has improved margins in the Division. However, revenue from the Trading Division is reduced by 12.8% to RM million in the year compared with RM million reported last year due to reduced demand of recovered paper traded by the Group s operations in Singapore. Stable prices of raw material, fuel and electricity costs and concerted efforts to improve productivity has resulted in better gross margin for the year which rose from 17.8% in 2011 to 18.8% in Notwithstanding the improvement, pro t before tax of RM30.07 million is 22.7% lower than the year before due to higher operating and nancing costs. Pro t after tax for the year of RM21.17 million is 65% lower than RM60.46 million achieved in 2011 due to one-off recognition of Reinvestment Allowance in the latter. Dividend I am pleased to announce to you that the Company has proposed a rst and nal tax exempt dividend of 3 sen (6%) per share for the nancial year ended 31 December The proposed dividend, if approved at the forthcoming Annual General Meeting, will be paid on 17 July

8 CHAIRMAN S STATEMENT ANNUAL REPORT 2012 Outlook The Malaysian economy is projected to grow by 4.5% to 5.5% and global economies are expected to improve in The favourable outlook of the domestic and global economies is expected to improve consumption of our paper products and boost the performance of the Group. Despite the general optimistic sentiments, overall outlook for 2013 remains challenging due to potential rise in energy cost and the general consensus that economic recovery is expected only in the second half of Though the business environment is increasingly volatile and less predictable, it did not deter the Group from seeking growth opportunities. In January this year, the Group announced the acquisition of a piece of property and a paper packaging company in Malacca for RM20.01 million. The transaction is expected to be completed in the second half of Besides the investment in a new paper packaging company, the Group s paper mills has embarked on a new production line costing RM45.0 million to produce food grade paper from virgin pulp as part of the Group s strategy to diversify into products that is recession proof. Both of the above investments are expected to contribute to the revenue of the Group after Acknowledgement and Appreciation On behalf of the Board, I would like to thank our customers and shareholders for their continuous support. I would also like to thank fellow members of the Board and the employees for their hard work and contributions in this challenging year. Tan Sri Lim Guan Teik, PSM, JMN, DMPN, DJN 7

9 MUDA HOLDINGS BERHAD GROUP FINANCIAL HIGHLIGHTS Restated 2008* 2009* 2010* RM 000 RM 000 RM 000 RM 000 RM 000 INCOME STATEMENT Revenue 782, , ,880 1,103,800 1,088,370 Gross pro t 155, , , , ,136 Pro t before taxation 61,298 26,407 54,287 38,924 30,074 Taxation (10,054) 14,247 (10,213) 21,537 (8,901) Pro t after taxation 51,244 40,654 44,074 60,461 21,173 Pro t attributable to owners of the Company 45,545 37,844 36,010 51,663 16,015 KEY BALANCE SHEET DATA Total assets* 858, ,360 1,119,913 1,253,152 1,246,483 Total borrowings 300, , , , ,631 Total liabilities 392, , , , ,468 Net assets attributable to equity holders of the Company* 451, , , , ,866 Net assets per share attributable to equity holders of the Company (sen) Key Ratios Return on equity % 7.4% 6.7% 9.0% 2.7% Return on total assets 2 5.3% 4.1% 3.2% 4.1% 1.3% Net debt to equity * The comparative gures for 2008 to 2010 were prepared based on FRSs. If the gures were presented in accordance with MFRSs, there would be major adjustments to total assets and assets attributable to equity holders of the Company. 1 Net pro t attributable to equity holders of the Company / Total equity attributable to equity holders 2 Net pro t attributable to equity holders of the Company / Total assets 3 Total borrowings less cash or cash equivalent / Total equity Restated PER SHARE INFORMATION Market Price (RM)^ Basic earnings per share (sen) Price earnings ratio Tax Exempt dividend per share (sen) Dividend yield (%) ^ Market price represents last done price on the last trading day of December. 8

10 782, , ,880 GROUP FINANCIAL HIGHLIGHTS ANNUAL REPORT ,103,800 1,088,370 Revenue (RM 000) ,298 54,287 38,924 30,074 26,407 Pro t Before Tax (RM 000) ,244 44,074 60,461 40,654 21,173 Pro t After Tax (RM 000)

11 465, , , , ,015 MUDA HOLDINGS BERHAD GROUP FINANCIAL HIGHLIGHTS Earning Per Share (sen) Shareholders Equity (RM 000) Net Tangible Assets Per Share (RM)

12 PROFILE OF DIRECTORS ANNUAL REPORT 2012 Tan Sri Lim Guan Teik was appointed to the Board on 1 November 1983 and is currently the Non-Executive Chairman of the Company. Tan Sri Lim Guan Teik held the following positions in the Company between the period from November 1983 to February 2007:- Managing Director from 30 November 1983 to 20 May 1988; Chairman cum Managing Director from 20 May 1988 to 23 April 2004; and Executive Chairman from 23 April 2004 to 18 February Tan Sri Lim Guan Teik is a member of the Audit Committee and sits on the board of several local and overseas subsidiaries in the Group. Tan Sri Lim Guan Teik graduated from Nanyang University of Singapore in 1960 with a Bachelor of Commerce Degree. He was one of the early pioneers of the paper industry in the country and has been active in this industry since He was President of the Malaysian Pulp & Paper Manufacturers Association (MPPMA) from 1980 to 1992 and is currently one of the advisers to MPPMA. Tan Sri Lim was President of the Associated Chinese Chamber of Commerce & Industry Malaysia (ACCCIM) from 1995 to 2003 and the Kuala Lumpur & Selangor Chinese Chamber of Commerce & Industry (KLSCCCI) from 1998 to He is currently the Honorary President of ACCCIM, KLSCCCI and the Malaysia-China Chamber of Commerce. Tan Sri Lim Guan Teik is the father of Mr Lim Chiun Cheong, Deputy Managing Director of the Company. He is the brother of Dato Lim Wan Peng, an Executive Director of the Company and Mr Lim Wan Hoi, both of whom are major shareholders of the Company. Tan Sri Lim Guan Teik is also a major shareholder of the Company. He is deemed to have an interest in certain related party transactions in the Group as disclosed on Page110 of this Report. Tan Sri Lim Guan Teik attended all ve (5) Board of Directors Meetings held during the nancial year ended 31 December 2012 and has not been convicted of any offence within the past ten years. Tan Sri Lim Guan Teik PSM, JMN, DMPN, DJN Non-independent Non-Executive Chairman Malaysian, 78 11

13 MUDA HOLDINGS BERHAD PROFILE OF DIRECTORS Dato Azaman Bin Abu Bakar DIMP Managing Director Malaysian, 66 Dato Azaman Bin Abu Bakar was appointed to the Board as Executive Director on 19 March 1985 and was Deputy Chairman of the Company from October 1992 until re-designation to his current position as Managing Director in April He is Chairman of the Executive Committee and a member of the Remuneration Committee and sits on the board of several local and overseas subsidiaries in the Group. He is the President of the Malaysian Pulp & Paper Manufacturers Association. Dato Azaman graduated from University of Malaya in 1969 with a Bachelor of Arts Degree and obtained a Master in Management Degree from Asian Institute of Management, Manila in He worked as a marketing executive in Harper Gil llan and joined Urban Development Authority (UDA) in His last position in UDA was that of Director in charge of property management and marketing. Dato Azaman is a major shareholder of Muda Holdings Berhad. He does not have any family relationship with any other directors and/or major shareholders of the Company. There is no business arrangement with the Company in which he has personal interest. Dato Azaman attended all ve (5) Board of Directors Meetings held during the nancial year ended 31 December He has not been convicted of any offence within the past ten years. Dato Lim Wan Peng DSPN Executive Director Malaysian, 70 Dato Lim Wan Peng joined the Board on 12 July 1976 and was appointed Executive Director in Dato Lim began his career in the Group when he joined Muda Paper Mills Sdn Bhd in 1970 as a Manager and thereafter held various senior positions in Muda Paper Mills Sdn Bhd. He has held the post of Managing Director of Muda Paper Mills Sdn Bhd and Federal Packages Sdn Bhd since 1981 and 1993 respectively. Dato Lim oversees the business affairs and operations of the Manufacturing and Trading Divisions of the Group. He is a member of the Executive Committee and sits on the board of several local and overseas subsidiaries in the Group. Dato Lim is the brother of Tan Sri Lim Guan Teik, the Non-Executive Chairman of the Company and Mr Lim Wan Hoi, a major shareholder of the Company. He is also the uncle of Mr Lim Chiun Cheong, the Deputy Managing Director of the Company. Dato Lim Wan Peng is a also major shareholder of the Company. He is deemed to have interest in certain related party transactions in the Group as disclosed on Page 110 of this Report. Dato Lim attended all ve (5) Board of Directors Meeting during the nancial year ended 31 December He has not been convicted of any offence within the past ten years. 12

14 PROFILE OF DIRECTORS ANNUAL REPORT 2012 Lim Chiun Cheong Deputy Managing Director Malaysian, 49 Mr Lim Chiun Cheong joined the Board on 23 April 2004 and was appointed Executive Director on 1 September 2005 until re-designation to the present position as Deputy Managing Director on 1 July He is a member of the Executive Committee and sits on the board of several local and overseas subsidiaries in the Group. Mr Lim Chiun Cheong is involved in the management of the Manufacturing and Trading Divisions of the Group. Mr Lim Chiun Cheong obtained a Bachelor of Science Degree from Arizona State University and a Bachelor of Law Degree from the University of Birmingham, United Kingdom in 1986 and 1989 respectively. He was called to the English and Malaysian Bar in 1990 and 1991 respectively. He joined the Group as Legal Assistant in October 1991 and held various senior positions in the Group from 1992 to He is a committee member of the Malaysian Pulp & Paper Manufacturers Association. Mr Lim Chiun Cheong is the son of Tan Sri Lim Guan Teik, the Non-Executive Chairman of the Company and is the nephew of Dato Lim Wan Peng, an Executive Director of the Company and Mr Lim Wan Hoi, all of whom are major shareholders of the Company. Mr Lim Chiun Cheong is also a major shareholder of the Company. He is deemed to have an interest in certain related party transactions in the Group as disclosed on Page 110 of this Report. Mr Lim Chiun Cheong attended all ve (5) Board of Directors Meetings of the Company during the nancial year ended 31 December He has not been convicted of any offence within the past ten years. Patrick Chin Yoke Chung Senior Independent Non-Executive Director Malaysian, 67 Mr Patrick Chin Yoke Chung was appointed to the Board of the Company on 29 July He is the Senior Independent Non-Executive Director of the Company, Chairman of the Audit Committee, Chairman of the Nomination Committee and a member of the Remuneration Committee. Mr Patrick Chin has been a Fellow Member of the Institute of Chartered Accountants in England and Wales since He joined Asian International Merchant Bankers Berhad (AIM) in 1974 and left AIM as Deputy General Manager in 1994 to join Morgan Grenfell (M) Sdn Bhd as Executive Director. He left Morgan Grenfell (M) Sdn Bhd in 1995 to assume the post of Chief Representative/Country Head of Bankers Trust Company until He was Chairman of Schroeder (Malaysia) Sdn Bhd in He sits on the Board of RHB Investment Bank Berhad. Mr Patrick Chin does not hold any shares in the Company and its subsidiaries and neither does he have any family relationship with any other directors and/or major shareholders of the Company. There is no business arrangement with the Company in which he has personal interest. 13 Mr Patrick Chin attended all ve (5) Board of Directors Meetings held during the nancial year ended 31 December He has not been convicted of any offence within the past ten years.

15 MUDA HOLDINGS BERHAD PROFILE OF DIRECTORS Datuk Nik Ibrahim Bin Nik Abdullah PJN, JSM, AMN Independent Non-Executive Director Malaysian, 69 Datuk Nik Ibrahim Bin Nik Abdullah was appointed to the Board on 23 April He is Chairman of the Remuneration Committee and a member of the Audit Committee, the Executive Committee and the Nomination Committee. Datuk Nik Ibrahim holds a B.A. (Hons) Economics Degree from University of Malaya. He joined Malaysian Industrial Development Authority (MIDA) in 1968 as an Economist and thereafter served in the Ministry of Finance as Assistant Secretary from 1970 to Datuk Nik Ibrahim returned to MIDA and served as Senior Economist from 1972 to He joined Bank Pembangunan & Infrastruktur Malaysia Berhad as Manager and was promoted to General Manager, Chief Executive Of cer and lastly as Chief Operating Of cer before his retirement in March Datuk Nik Ibrahim sits on the board of a few other local companies. Datuk Nik Ibrahim does not hold any shares in the Company and its subsidiaries and neither does he have any family relationship with any other directors and/or major shareholders of the Company. There is no business arrangement with the Company in which he has personal interest. Datuk Nik Ibrahim attended all ve (5) Board of Directors Meetings held during the financial year ended 31 December He has not been convicted of any offence within the past ten years. 14

16 STATEMENT ON CORPORATE GOVERNANCE ANNUAL REPORT 2012 Setting and maintaining high standards of corporate governance and constantly striving to surpass such standards is core to the culture of Muda Holdings Berhad (Muda or the Company). Putting this into practice, the Muda Group has in place sound corporate policies and business practices, as well as a sound system of internal controls, all of which individually and collectively serve to strengthen corporate transparency. It is our belief that our overall business integrity and performance has to be grounded on a foundation of good governance, so that we can maintain sustainable growth and deliver value to our shareholders. To attain this aim, our Board works together with the management team, drawing upon and ensuring close adherence to the principles and guidelines of the Malaysian Code on Corporate Governance 2012 (Code 2012) and other applicable laws, rules and regulations. This report sets out Muda s key corporate governance policies and practices against the principles and guidelines of Code Roles and Responsibilities The Board sets the benchmark and is responsible for Muda s corporate governance standards and policies and has acted in the best interests of the Company. The Board has discharged its primary responsibilities which entail overseeing the Group s business performance and affairs providing the Company with the entrepreneurial leadership and setting its strategic direction and performance objectives and monitor the implementation of those strategies including:- i. Development of corporate objectives and strategy with management and approving plans, new investments, divestments, major capital expenditure and operating expenditure and major funding activities proposed by management; ii. Monitoring actual performance against de ned performance expectations and reviewing operating information to understand at all times the state of the health of the Company; iii. Reviewing and approving the Company s annual budgets, nancial position, systems of risk management and internal compliance and control, codes of conduct and legal compliance; iv. Satisfying itself that there are appropriate reporting systems and controls in place to assure the Board that proper operational, nancial, compliance, risk management and internal control processes are in place and functioning appropriately; v. Board and Executive Management development and succession planning; vi. Delegating appropriate powers to the executive directors and senior management to ensure the effective day-to-day management of the business and monitoring the exercise of these powers; vii. Ensuring that the Company and its of cers act legally, ethically and responsibly on all matters; and viii. Ensuring corporate accountability to the shareholders primarily through adopting an effective shareholder communications strategy, encouraging effective participation at general meetings and, through the Chairman, being the key interface between the Company and its shareholders. It is the role of senior management to manage the Company in accordance with the direction and delegations of the Board and the responsibility of the Board to oversee the activities of management in carrying out these delegated duties. The Board must also ensure that the Company complies with all its contractual, statutory and any other legal obligations including the requirements of any regulatory body. During Board meetings our Directors actively participate, discuss, deliberate and appraise the matters requiring attention and decision. The Company s Code of Conduct for the Directors provides guidance for proper standard of conduct for the Board of Directors relating to vis-a-vis their duties and function and con ict of interest. 15 The Group believes in developing long term sustainable business that delivers value to our stakeholders including our employees, suppliers, business partners, shareholders and the environment and the community we operate in. The Group recycles not less than 450,000 metric tons of wastepaper per annum which are collected through our regional collection centers throughout Peninsular Malaysia. This act in itself re ects our long term commitment to protecting the environment. In caring for the environment and the community within our locality, we

17 MUDA HOLDINGS BERHAD STATEMENT ON CORPORATE GOVERNANCE ensure minimum ink discharge by recycling waste ink into our production process, we treat our waste water to ensure minimal discharge of ef uents into the river, we reduce emission of dust with our dust bag lter system and we reduce the emission of carbon dioxide, nitrogen dioxide and sulphur dioxide through our combined heat and power plant which converts the waste heat into process steam. We value our employees and are committed to providing them with a healthy, safe and secure work place and we also provide various training and development opportunities to upgrade and enhance their skills and knowledge in order to maintain a set of highly competent and motivated employees. To our shareholders we are committed to continuously deliver pro ts and attractive dividend payout which is critical to safeguarding the interests of its long term investors as well as to build the Company into becoming a sustainable organization. For the year ended 31st December 2012, the dividend payout has been increased to 6% per share. The Board of Directors have access to the advice and support services of two (2) suitably quali ed and competent company secretaries to ensure adherence to board policies and procedures. The Independent Non-Executive Directors are encouraged to interact with senior management for purposes of gathering information, seeking updates or explanation on speci c issues under their purview. Management must provide the Board and Committees with information in a form, timeframe and quality that enables them to effectively discharge their responsibilities and duties. All Directors are to receive copies of Board Committee papers. Directors are entitled to request and receive such additional information as they consider necessary to support informed decision-making. The Board, Board Committees or individual Directors may seek independent external professional advice as considered necessary at the expense of the Company, subject to prior consultation with the Chairman or Managing Director. A copy of any such advice received is made available to all members of the Board. Strengthen Composition In order for the Board to more ef caciously discharge its oversight functions, it delegates speci c areas of responsibilities to Board Committees namely, Audit Committee, Nomination Committee and Remuneration Committee. The purpose of the Board Committees is to help the Board effectively and ef ciently ful ll its responsibilities, although the Committees do not replace the oversight responsibilities of the Board as a whole. Committees will report the results of their signi cant activities to the full Board or make recommendations to the full Board where appropriate. Each Board Committee is governed by clear terms of reference which have been approved by the Board. The Board may add, eliminate and change the charter or composition of any Committee at any time except to the extent that such change would violate the Company s Articles of Association, regulations or the listing standards of Bursa Malaysia Securities Berhad. Minutes of all Board Committee meetings are circulated to Board Members so that they are kept abreast of proceedings and matters discussed at such meetings. The Chairman of the relevant Board Committees also report to the Board on key issues deliberated by the Board Committees at their respective meetings. The Board will, if possible, rotate the membership of these Committees to comply with the requirements of prevailing legislations and regulations. The Board acknowledges the value of experience and continuity and recognizes that at times, it may not be in the best interest of the Company or the Board to rotate certain Directors. The Chair of each Committee will, after consultation with the appropriate members of the Company management, determine the agenda for each meeting. The Chairman of the Board and other Committee members may suggest the inclusion of items to the agenda. Each Committee has their terms of reference specifying the duties and responsibilities of the Committee and its members. The Audit Committee comprises of three (3) members who are all of Non-Executive Directors, the majority of whom are independent. The Audit Committee reviews the quarterly results and nancial statements of the Group and ensure that the nancial statements of the Group are in compliance with Malaysian and International Reporting Standards prior to the approval of the Board. The functions of the Audit Committee among others, includes considering the appointment, resignation and dismissal of external auditors, discussing with external auditors on the nature and scope of audit, reviewing with external auditors on their evaluation the system of internal controls, discussing problems or observations from their audit. The Report of the Audit Committee is set out on Pages 23 to 26 of this Report. The Nominating Committee comprises of two (2) members, all of whom are independent and non-executive. The Nominating Committee conducts annual review of the structure, appropriateness of the size of the Board relative to its various responsibilities, composition of the 16

18 STATEMENT ON CORPORATE GOVERNANCE ANNUAL REPORT 2012 Board, the required mix of skills and experience and other core competencies of Non-Executive Directors. The Nominating Committee also carries out the process to assess the performance and effectiveness of the Board as a whole, board committees and contribution of each Board member. The Nominating Committee also assists the Board in annual assessment of the independence of independent directors benchmarked against the criteria set out in Main Market Listing Requirements of Bursa Malaysia Securities Berhad. Where appropriate, the Nominating Committee identi es and nominates suitable candidates to ll up the vacancy in the Board and reviews suitability of candidate for appointment to the Board against criteria such as expertise of the individual, business experience, integrity, skills, breadth of experience, knowledge of Company s business or industry, compatibility with other Board members and willingness to devote time and effort to the Board. The chairman of Nominating Committee is the Senior Independent Non-Executive Director. The Remuneration Committee comprises of three (3) members where a majority of the members are non-executive. The Remuneration Committee reviews and recommends to the Board the remuneration packages of Executive Directors which takes into consideration the competency, experiences and the responsibility undertaken by each director. The remuneration of the Executive Directors comprises of basic salary, bene ts-in-kind, fees and allowances that are competitive and re ective of their performance, duties and responsibilities. The remuneration of Non-Executive Directors takes into account their level and quality of contribution and their respective responsibilities, including attendance and time spent at Board meetings and Board Committee meetings. The remuneration of the Non-Executive Directors consists of fees, attendance allowances and bene ts-in-kind that commensurate with their roles, duties and responsibilities. Fees payable to Directors of the Company are subject to yearly approval of shareholders of the Company at the Annual General Meeting. The remuneration of the Executive Directors and Non-Executive Directors of the Company are set out on Pages 101 and 102of this Report. Reinforce Independence The Board currently comprises a Non-independent Non-Executive Chairman, a Managing Director, an Executive Director, a Deputy Managing Director and two (2) Independent Non-Executive Directors; the composition of which is in line with Paragraph of Bursa Malaysia Listing Requirements. A brief pro le of each of the Directors are presented on Pages 11 to 14 of this Report. The concept of independence adopted by the Board is in compliance with the de nition of an independent director in Paragraph 1.01 and Practice Note 13 of Bursa Malaysia Securities Berhad Main Market Listing Requirements. After having assessed the independence of the Independent Directors, the Board is satis ed that the two (2) Independent Directors who have served a cumulative term of more than nine (9) years each have remained objective and independent in participating in deliberations and decision making of the Board and Board Committees. They have continuously demonstrated independence in expressing their view and carrying out their role as members of the Board, Audit Committee, Nominating Committee and Remuneration Committee. The Board has recommended that shareholders approval be sought at the forthcoming Annual General Meeting of the Company to give authority to Mr Patrick Chin Yoke Chung and Datuk Nik Ibrahim Bin Nik Abdullah who have served as Independent Directors of the Company for a cumulative term of more than nine (9) years each to continue to act as Independent Directors of the Company in accordance with the recommendations of Code To ensure balance of authority, increased accountability and a greater capacity for independent decision-making, the roles of the Chairman and Managing Director are distinct and separate with clear division of responsibilities between the Chairman and the Managing Director, so that no individual or group dominates the decision-making process. The Board is led by a Chairman who is responsible for the leadership and management of the Board and ensuring the Board and its Board Committees function effectively. The Chairman assumes the formal role of a leader and chairs all Board meetings, leads discussions among Directors and provides leadership to the Board in its oversight of management. The Managing Director is responsible for the attainment of the Company s goal and vision for the future, in accordance with the strategies, policies, programs and performance requirements approved by the Board. 17 The Board was of the view that that having regard to the size of the Company and the composition of the Board of Directors, the Board did not consider it necessary for a majority of the Board to be independent even though the Chairman is not an independent director. However, for future appointments to the Board, the Board of Directors will have regard to the desirability of balancing the Board towards greater number of independent directors and to also promote gender diversity to the board room. Mr Patrick Chin Yoke Chung is the Senior Independent Non-Executive Director appointed to serve as a conduit to whom shareholders concerns and queries may be raised and as an alternative channel of communication if shareholders have concerns where contact through

19 MUDA HOLDINGS BERHAD STATEMENT ON CORPORATE GOVERNANCE the normal channels of the Chairman, Managing Director or other Executive Directors has failed to resolve or for which such contact is inappropriate. The Board has also provided an avenue for shareholders queries to be ed directly to the Senior Independent Director at or directed to Lot 7, Jalan 51A/241, Petaling Jaya, Selangor Darul Ehsan, Malaysia. Foster Commitment The Board is satis ed that all its members have committed their time towards ful lling their roles and responsibilities as Directors of Muda as evidenced by their attendance at all the ve (5) Board of Directors Meetings held during the nancial year ended 31st December 2012:- Director Number of Meetings Attended Tan Sri Lim Guan Teik 5/ Dato Azaman Bin Abu Bakar 5/ Dato Lim Wan Peng 5/ Mr Lim Chiun Cheong 5/ Mr Patrick Chin Yoke Chung 5/ Datuk Nik Ibrahim Bin Nik Abdullah 5/ The Board members are encouraged to attend external professional programs to update on the latest amendments/changes of the laws and regulations to discharges their duties effectively as Directors. The Directors keep themselves abreast with the latest development of paper mills industry by attending meetings with local association and participating in numerous overseas exhibitions and fairs. During the nancial year, all the Board attended the following training programs:- Directors Program Date Duration Tan Sri Lim Guan Teik Transfer Pricing day Dato Azaman Bin Abu Bakar Transfer Pricing day Dato Lim Wan Peng Transfer Pricing day Mr Lim Chiun Cheong Transfer Pricing day Mr Patrick Chin Yoke Chung Transfer Pricing day Datuk Nik Ibrahim Bin Nik Abdullah Transfer Pricing day Uphold Integrity In Financial Reporting The Board of Directors ensures that the nancial statements of the Group gives a true and fair view of the state of affairs of the Group and are prepared in compliance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the Companies Act, 1965 in Malaysia and made proper judgments and estimates that are prudent and reasonable. The Audit Committee reviews the integrity and reliability of the Group s quarterly and yearly nancial statements prior to recommending them for approval of the Board of Directors. 18

20 STATEMENT ON CORPORATE GOVERNANCE ANNUAL REPORT 2012 Recognise and Manage Risks The Company maintains a sound internal control system with a view to safeguard its assets and shareholders investment. The Board has established an internal audit function which is headed by the Internal Audit Manager who reports directly to the Audit Committee. The Head of the Internal Audit Department provides assurance to the Board that the internal controls of the Group are operating effectively. Internal auditors conduct regular reviews and appraisals on the effectiveness of the governance, risk management and internal control system in the Group. The Statement on Internal Control on Pages 20 and 22 of this Report sets out in detail the framework on risk management and internal control of the Group. Ensure Timely And High Quality Disclosure The Company is committed to providing timely, consistent and credible dissemination of material information, in compliance with the disclosure requirements set out in Chapter 9 of Bursa Malaysia Securities Berhad Main Market Listing Requirements and other legal and regulatory requirements in order to keep the shareholders and other market participants fully informed and to enable orderly behaviour in the market. The Company has established corporate disclosure procedures for adherence by employees to facilitate and ensure timely and accurate disclosure in compliance with the Listing Requirements. The procedures sets out the roles and responsibilities of Directors, management and employees with set level of authority accorded to designated persons in handling and disclosing material information. Strengthen Relationship Between Company And Shareholders The Annual General Meeting (AGM) of the Group is still the principal forum for dialogue with shareholders. The Notice of Meeting of the AGM is dispatched to the shareholders at least 21 days before the date of the AGM. At the Company s 41st AGM held on 28th June 2012, shareholders raised numerous questions to the Board with regards to the performance and business operation and strategy of the Company to which the Directors responded appropriately. The resolutions put forth at the 41st AGM consisted of business that is normally transacted in an AGM such as adoption of audited nancial statements, payment of directors fees, payment of dividend, re-appointment/re-election of directors and reappointment of external auditors; which were carried and passed at the 41st AGM by show of hands and was announced to Bursa on the same day. The Board has put in place systems to facilitate poll voting at the AGMs of the Company when the need arises. The Board will also consider adopting electronic voting to facilitate wider shareholders participation at general meetings and to ensure accurate voting process. The Company maintains an of cial website at for the expeditious and effective dissemination of information through information technology. The Board Charter, Annual Report and Announcements are available to shareholders in the Company s website. This Statement is made in accordance with a resolution of the Directors dated 9th April

21 MUDA HOLDINGS BERHAD STATEMENT ON INTERNAL CONTROL Introduction The Board of Directors ( Board ) is committed to maintaining a sound system of risk management and internal control and is pleased to provide the following Statement on Internal Control (the Statement ) which outlines the nature and scope of risk management and internal control of the Group during the financial year ended 31 December 2012 pursuant to paragraph 15.26(b) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad. Board s Responsibility The Board is committed to maintaining a sound system of internal control and effective risk management practices in the Group to safeguard shareholders investment and Group assets. The Board af rms its overall responsibility in reviewing the adequacy, integrity and effectiveness of the Group s systems of internal controls including nancial, operational and compliance controls and risk management procedures and practices. The Board acknowledges that due to the limitations inherent in any system of risk management and internal control, the system is designed to manage rather than totally eliminate the risk of failure to achieve the Group s business and corporate objectives. Accordingly, the system could therefore provide only reasonable but not absolute assurance against failing to achieve business objectives, material misstatement, operation failures, fraud, losses or breaches of laws or regulations. The Board has established an ongoing process of identifying, assessing, evaluating and managing signi cant risks of the Group that may impede the achievement of the Group s business and corporate objectives. The management assists the Board in implementing the Board s policies and procedures on risks and control by identifying and assessing the risk faced, and in the design, operation and monitoring of appropriate internal controls to mitigate and manage these risks. This process has been in place for the nancial year under review and up to the date of approval of this Statement. There were no control de ciencies noted during the nancial year under review which may have a material impact on the Group. The Board has assurances from the Managing Director and Group Financial Controller that the Group s risk management and internal control system is operating adequately and effectively, in all material aspects, based on the risk management and internal control system of the Group. Risk Management The Board has established a formal risk management framework to mitigate risks that may impede the achievement of the Group s business and corporate objectives. The risk management framework includes an ongoing process to identify, evaluate, report and manage signi cant risks faced by the Group. The framework also addresses the compilation of risk register and speci c risk pro les of each company in the Group. The Board is assisted by senior managers within the Group to identify principal risks in critical areas, assessing the likelihood and impact of material exposure and to determine its corresponding risk mitigation and treatment measures. Senior managers of subsidiaries are required to submit half yearly risk management reports to the Board which is coordinated by the Internal Audit Department and reviewed by the Audit Committee. During the nancial year, senior managers of subsidiaries attended Audit Committee Meetings to thoroughly deliberate, discuss and review risks identi ed, action plans and other pertinent issues raised in the risk management reports with the Audit Committee and the Head of Internal Audit Department. In the review of the risk management reports, comments of the Audit Committee on the adequacy and effectiveness of management s action plans to address the identi ed risks are communicated to the Board. 20

22 STATEMENT ON INTERNAL CONTROL ANNUAL REPORT 2012 Internal Audit Function The Audit Committee evaluates the internal audit function to assess its effectiveness in the discharge of its responsibilities. The Head of Internal Audit Department reports directly to the Audit Committee, conducts regular reviews on adequacy and effectiveness of the internal control system of the Group based on an approved annual audit plan. Audit reviews are carried out to ensure instituted controls are appropriate, assessed and managed. The scope of work of the Internal Audit Department is planned according to an assessment of signi cant risks in key processes and core activities of various business units in the Group. In addition, the Internal Audit Department also conducts special audit and reviews at the request of management with prior approval of the Audit Committee. The Audit Committee holds regular meetings with senior managers of operating subsidiaries to deliberate on audit observations and recommendations together with management s responses and proposed action plans. Post audit reviews on status of management s action plans are also conducted by the Internal Audit Department. Internal Control The key elements of the Group s internal control system are described below: Planning, Monitoring and Reporting The Audit Committee reviews the Group s quarterly unaudited nancial results, together with management, which is subsequently reported to the Board. The Board is provided with comprehensive management reports on a regular and timely basis to facilitate nancial and operational reviews on all operating units of the Group. The reviews encompass areas such as nancial and operational key performance indicators, variances between budgets and operating results and compliance with laws and regulations. Organisation Structure With Clearly De ned Lines Of Responsibilities And Delegated Authority The Board is assisted by Board Committees and management in development of corporate objectives and business strategy. Appropriate powers are delegated to Executive Directors and senior management to ensure effective day-to-day management of business of all operating units. The Audit Committee comprises of a majority of independent directors, all of whom are non-executive members of the Board. The Audit Committee has full access to both the internal and external auditors and meets with the external auditors without the presence of Executive Directors and management at least twice yearly. The Audit Committee assists the Board in the review of the adequacy and effectiveness of system of internal controls through the review of internal control issues reported by the Internal Audit Department and the external auditors, risk management reports and annual control self-assessment returns by subsidiaries of the Group. Limits Of Authority And Responsibility The approval and authority limits have been de ned for Executive Directors and management for operating expenses, capital expenditure, investments and divestments, bank borrowings and other operational matters. Major capital expenditures are reviewed by the Executive Committee for approval of the Board of Directors prior to implementation. Written Policies And Procedures 21 Internal operating and nancial policies and procedures are established, documented and updated to strengthen the internal control systems, to re ect changing risks and to address operational de ciencies, when necessary.

23 MUDA HOLDINGS BERHAD STATEMENT ON INTERNAL CONTROL Financial Control Annual budgeting and target setting processes are in place wherein operating units are required to prepare budgets for approval of the Board. Variances between budgets and operating results are explained by management of operating subsidiaries in the monthly management accounts submitted for review by the Executive Committee which is then reported to the Board on a quarterly basis. Human Resource Policies And Procedures Guidelines for recruitment and termination of staff, systematic annual or semi-annual performance appraisals have been established and continuous training is provided to employees across all functions to maintain high level of competency and capability in carrying out their duties and responsibilities. Comprehensive Insurance Cover Adequate insurance and physical safeguards on major assets are in place to ensure that Group assets are suf ciently protected against any mishap that could result in material loss. Review Of Statement By External Auditors The external auditors have reviewed this Statement on Internal Control for inclusion in the annual report of the Company for the nancial year ended 31 December 2012 and reported to the Board that there are no inconsistencies between this Statement and their understanding of the processes adopted by the Board in reviewing and assessing the adequacy and effectiveness of the system of risk management and internal control of the Group. This Statement on Internal Control is made in accordance with a resolution of the Directors dated 9 April

24 AUDIT COMMITTEE REPORT ANNUAL REPORT 2012 Composition and Attendance The Audit Committee ( Committee ) was established on 30 June 1994 and comprises of three (3) members; two (2) of whom are independent non-executive directors and one (1) of whom is a non-executive director. The Committee assists the Board of Directors in the discharge of its responsibilities for corporate governance, corporate control and nancial reporting. The Committee held eight (8) meetings in the nancial year During the year, the Managing Director, Deputy Managing Director and Executive Director attended some of the meetings by invitation of the Committee. Senior management of subsidiary companies also attended selected meetings with the Audit Committee to review audit reports and risk management reports. The Committee met with the external auditors without presence of Executive Directors and management twice during the nancial year ended 31 December The Committee was briefed by the external auditors on their audit ndings and other observations that were noted during the audit process. The attendance of each of the members at the Committee meetings held during the nancial year under review is set out below:- Name of Committee Member Designation Attendance at Committee Meetings Patrick Chin Yoke Chung Chairman 8/8 Senior Independent Non-Executive Director Datuk Nik Ibrahim Bin Nik Abdullah Member 8/8 Independent Non-Executive Director Tan Sri Lim Guan Teik Member 8/8 Non-Executive Director Membership All members of the Committee should be nancially literate and at least one member of the Committee:- - must be a member of the Malaysia Institute of Accountants; or - if he is not a member of the Malaysia Institute of Accountants, he must have at least 3 years working experience and:- - he must have passed examinations speci ed in Part 1 of the 1st Schedule of the Accountants Act, 1967; or - he must be a member of one of the associations of accountants speci ed in Part II of the 1st Schedule of the Accountants Act, No alternate director shall be appointed a member of the Committee. The members of the Committee shall select a Chairman among their members who is not an executive director or employee of the Company or any related corporation. If a member of the Committee resigns, dies or for any other reason ceases to be a member with the result that the number of members is reduced to below 3, the Board of Directors shall, within 3 months of that event, appoint such number of new member as may be required to make up the minimum number of 3 members. The terms of of ce of Committee members should be reviewed by the Board no less than every three (3) years. Meetings Meeting shall be held not less than four (4) times a year. 23 The quorum for a meeting shall consist of a majority of non-executive Committee members. The Company Secretary shall be the Secretary of the Committee. The Secretary shall be responsible for keeping the minutes of meetings of the Committee and circulate them to the Committee members and other Board members.

25 MUDA HOLDINGS BERHAD AUDIT COMMITTEE REPORT Authority of the Audit Committee The Committee shall have the authority to: investigate any matter within its terms of reference; have the resources which are required to perform its duties; have full and unrestricted access to any information and documents pertaining to the Company and its subsidiary companies; obtain such independent professional advice as it considers necessary; and be able to convene meetings with the external auditors, the internal auditors or both, without presence of Executive Directors and management staff whenever deemed necessary; Functions of the Audit Committee The functions of the Audit Committee include the following:- To review the quarterly results and year-end nancial statements, prior to the approval of the Board of Directors, focusing particularly on: - any changes in accounting policies and practices; - signi cant adjustments arising from the audit; - the going concern assumptions; and - compliance with applicable approved nancial reporting standards and other legal and regulatory requirements To review related party transactions of the Company and of the Group in complying with the Listing Requirements; To review adequacy and effectiveness of risk management, internal control and governance systems in the Group; To discuss with external auditors before the commencement of audit, their audit plan, nature and scope of the audit, and ensure co-ordination where more than one audit rm is involved; To review external auditors reports, its management letter and management response; To review the appointment of external auditors and their independence, effectiveness and recommendation of their proposed audit fees to the Board; To review assistance given by the employees of the Company to the external auditors; To review adequacy of the scope, functions, competency and resources of the internal audit function and ensure that it has the necessary authority to carry out its duties; To review the internal audit program and results of internal audit process, ensuring that appropriate actions are taken on the recommendations of the internal audit function. To approve any appointment or termination of senior staff members of internal audit function; To take cognizance of resignation of internal audit staff members and provide the resigning staff members an opportunity to submit his reasons for resigning; To verify and con rm allocation of options pursuant to the Company s share option scheme as being in compliance with the criteria set out in the by-laws of the share option scheme. 24

26 AUDIT COMMITTEE REPORT ANNUAL REPORT 2012 Summary of Activities During the nancial year 2012, the Committee carried out the following activities: Reviewed the quarterly unaudited nancial results and annual nancial statements of the Group prior to recommending for approval by the Board of Directors which focuses on: - any changes in accounting policies and practices; - signi cant and unusual events; - the going concern assumption; - compliance with the applicable approved nancial reporting standards and other legal and regulatory requirements. Reviewed the Group s related party transactions; Reviewed risk management reports of key operating units on key risk pro les and risk management activities with senior managers and provided comments on the adequacy and effectiveness of management s action plans to address the identified risks which was subsequently reported to the Board of Directors; Reviewed with external auditors on the audit plan, audit strategy and scope of work for the year and results of their annual audit, audit report and management letters together with management s response to their ndings; Evaluated performance of external auditors and made recommendations to the Board of Directors on their reappointment and remuneration; Reviewed and approved annual audit plan of Internal Audit Department; Reviewed internal audit reports, recommendations and management responses to these recommendations. Discussed improvement actions in areas of internal control, system and ef ciency enhancements recommended by internal auditors with management; Reviewed implementation status of audit recommendations through follow up of audit reports; Reviewed the adequacy of resource requirements and competencies of staff within the Internal Audit Department and approve any appointment or termination of senior staff members of the Internal Audit Department. Reviewed the Audit Committee Report, Statement on Risk Management and Internal Control which is recommended to the Board of Directors for approval prior inclusion in the Company s Annual Report; and Assessed the independence and objectivity of the external auditors during the year. The Committee received from the external auditors their assurance regarding their independence and measures used to control the quality of their work. 25

27 MUDA HOLDINGS BERHAD AUDIT COMMITTEE REPORT Internal Audit Function The Board of Directors and the Committee are supported by an in-house Internal Audit Department in maintaining a sound system of internal controls. The internal audit function in the Company is aligned with the Malaysia Code on Corporate Governance The Head of Internal Audit Department reports directly to the Audit Committee and administratively to the Managing Director. The purpose, authority and responsibility of the Internal Audit Department are re ected in the Internal Audit Charter which is approved by the Committee. The Internal Audit Department has no operational responsibility and authority over the activities it audits so as to maintain its independence and objectivity. The annual audit plan, nancial budget and human resource requirements of the Internal Audit Department are approved by the Committee. The Committee reviewed the annual audit plan from time to time in response to changing business environment and risks. The primary role of the Internal Audit Department is to undertake regular and systematic review of the systems of internal controls so as to provide reasonable assurance that the Group has sound system of internal controls and that established policies and procedures are complied with and continue to operate effectively and ef ciently. It is the responsibility of the Internal Audit Department to provide the Committee with independent and objective reports on the state of internal control of the various operating units within the Group. At every Committee meeting, the Head of Internal Audit Department reports on the audit findings, recommendations and management responses to these recommendations. Senior Managers of the operating units are invited to attend the Committee meeting to provide clari cations on the audit ndings and their commitment for recti cations of control lapses within a speci ed timeframe. Follow-up reviews were also conducted to determine the adequacy, effectiveness and timeliness of actions taken by management and the Committee was updated on status of implementation of audit recommendations on a regular basis. The total cost incurred for the internal audit function in respect of nancial year ended 31 December 2012 amounted to RM 555,944. This Report was made in accordance with a resolution of the Directors dated 9 April

28 CORPORATE SOCIAL RESPONSIBILITY ANNUAL REPORT 2012 Shareholders, Environment and Community Our organisation operates our business in an open, accountable and transparent manner to deliver long term value to shareholders through growing our business in a sustainable manner, through continual, conscious efforts in nurturing our people, giving back to our community and doing our part for the environment. While striving to achieve better returns to shareholders and to meet customers expectations, we have to also ensure that our business processes are managed in a way that minimizes its impact on our environment. We are constantly pursuing to reduce emissions, ef uents and discharge of waste materials that are known to have a negative impact on the environment by adopting new or cleaner technologies to improve ef ciency of our operations, having waste water treatment plants to ensure minimal discharge of ef uents into the rivers, disposal of hazardous waste to Government approved and licensed contractors, reduction of emissions of dust with installation of dust bag lter system, recycling waste ink into our production process and reduction of greenhouse gases with use of combined heat and power plant which converts waste heat into process steam. The Group abides by the standards set by the Government and local authorities on the quality of waste water discharged and the level of dust emitted which will translate into reduction of cost of legal compliance and prevent costly con ict with local communities and regulatory authorities. In 2012, the Group recovered more than 450,000 metric tons of waste paper nationwide in line with the Government s green endeavours to cultivate and heighten awareness of the bene ts of recycling to foster a more sustainable way of life for the future generation. The Group continued with its campaign to RE-USE, REDUCE AND RECYCLE and calligraphy competitions were held in schools in the Kuala Lumpur and Selangor for the purpose of increasing public awareness and interest in recycling. The Group continued with its program to provide assistance to the under-privileged students within our community with the distribution of uniforms, shoes, stationeries and school bags to Sekolah Rendah Jenis Cina Yu Hua and Sekolah Kebangsaan Taman Rakan. We also contributed to the school assembly hall building fund of Sekolah Kebangsaan Taman Rakan. 27

29 MUDA HOLDINGS BERHAD CORPORATE SOCIAL RESPONSIBILITY Workplace and Human Capital We aim to become an employer of choice by providing our human capital with continuous training and development and a work environment that promotes health and safety. The Group places high emphasis on health and safety at the work place environment for the wellbeing of all our employees and aims to maintain its excellence in Occupational Safety and Health standards. During the year, various training programs including on-the-job training and lectures were conducted to instil a sense of awareness amongst its employees and to accept responsibility for safety and health issues in their work environment. In collaboration with Department of Occupational Safety and Health (DOSH) of Penang, a Safety Week was launched in July 2012 to provide the additional impetus to raise the level of safety awareness amongst our employees. Representatives from the National Institute of Occupational Safety and Health delivered a talk on safety issues at work place. Safety equipment, yearly audiometric tests by external consultants to ensure zero risk of hearing impairment and tests on exposure to radiation required by the Automic Energy Licensing Board for Radiations Protection Officer and Radiations Protections Supervisor were provided to ensure occupational safety, reduction of potential work hazards and for protection of employees wellbeing. Safety and re ghting competition were conducted at all our operating units to ensure that our re- ghting squads are equipped with the proper skill and techniques at all times. In 2012, our operations in Penang participated in the competition organised by the State Fire Department of Penang where we emerged champions for both individual male and individual female category in the Hose Reel Section and also as champion for the individual male category in the Fire Fighting Equipment Section. When a freak storm ravaged the houses of our employees who live in the locality of our factory in February 2012, the Group extended aid and assistance to ease their hardship. We also motivate our employees children by rewarding those who have achieved excellent results in their UPSR, PMR, SPM and STPM examinations. The Group has long service awards to recognise contributions of the loyal and dedicated long service employees of the Group. Long Service Awards for 10 years to 30 years were given to 123 employees in Additional health screening bene ts were extended to employees based on the grades of the employees. Our employees are also encouraged to attend various in-house and out sourced training programmes sponsored by the Group and incentives are provided to staff upon attainment of work related quali cation to promote professionalism and excellence amongst employees. Agreements covering various staff bene ts for unionised employees are also in place. 28