Contents. Page No. Notice of Annual General Meeting Statement Accompanying Notice of Annual General Meeting Chairman s Statement...

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2 Contents Page No. Notice of Annual General Meeting Statement Accompanying Notice of Annual General Meeting... 4 Chairman s Statement Corporate Information... 7 Directors Profile Corporate Governance Statement Statement of Directors Responsibilities Audit Committee Report Statement on Internal Control Directors Report Report of the Auditors Income Statements Balance Sheets Statements of Changes in Equity Cash Flow Statements Notes to the Financial Statements Statement by Directors Declaration by the Director Primarily Responsible for the Financial Management of the Company Properties of the Group Analysis of Shareholdings Proxy Form... ( Enclosed )

3 Notice of Twenty First Annual General Meeting NOTICE IS HEREBY GIVEN that the Twenty First Annual General Meeting of the Company will be held at Lot 10, Jalan Perusahaan 4, Batu Caves Industrial Estate, Selangor Darul Ehsan on Tuesday, 29 June, 2004 at 8.45 a.m. to transact the following businesses: ORDINARY BUSINESS AGENDA 1. To receive the Audited Financial Statements for the financial year ended 31 December, 2003 and Directors and Auditors Reports thereon. (Resolution 1) 2. To re-elect the following Directors who shall retire pursuant to Article 81 of the Company s Articles of Association: (a) Dato Seri Peh Teck Quee (Resolution 2) (b) Mr. Tiong Kwing Hee (Resolution 3) 3. To approve the payment of Directors Fees amounting to RM36, for the financial year ended 31 December, (Resolution 4) 4. To re-appoint Messrs Deloitte KassimChan, the retiring Auditors as Auditors of the Company and to authorise the Directors to determine their remuneration. (Resolution 5) SPECIAL BUSINESS 5. To consider and if thought fit, to pass the following resolution, with or without modifications, as an Ordinary Resolution: Ordinary Resolution - Authority for Allotment of Shares "THAT subject always to the Companies Act, 1965 and the approvals of the relevant governmental and/or regulatory authorities, the Directors be and are hereby empowered, pursuant to Section 132D of the Companies Act, 1965, to issue shares in the Company from time to time at such price, upon such terms and conditions, for such purposes and to such person or persons whomsoever as the Directors may deem fit provided that the aggregate number of shares issued in any one financial year of the Company pursuant to this resolution does not exceed 10% of the issued share capital of the Company for the time being and that the Directors be also empowered to obtain the approval for the listing of and quotation for the additional shares so issued on the Bursa Malaysia Securities Berhad and that such authority shall continue in force until the conclusion of the next Annual General Meeting of the Company." (Resolution 6) 6. To transact any other business of which due notice shall have been given. ANNUAL REPORT 2003 I 2 I

4 Notice of Twenty First Annual General Meeting (continued) BY ORDER OF THE BOARD YEOH CHONG KEAT (MIA NO. 2736) Secretary Selangor Darul Ehsan 7 June 2004 Notes:- (i) (ii) (iii) A member of the Company entitled to attend and vote at this meeting is entitled to appoint two (2) or more proxies to attend and vote in his stead. Where a holder appoints two (2) or more proxies, he shall specify the proportion of his shareholdings to be represented by each proxy. Where a member of the Company is an authorised nominee as defined under the Securities Industry (Central Depositories) Act 1991, it may appoint at least one (1) proxy in respect of each securities account it holds with ordinary shares of the Company standing to the credit of the said securities account. A proxy may but need not be a member of the Company and a member may appoint any person to be his proxy without limitation and the provisions of Section 149(1)(a) and (b) of the Companies Act, 1965 shall not apply to the Company. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or if the appointor is a corporation, either under seal or under the hand of an officer or attorney duly authorised. (iv) The instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority shall be deposited at the Registered Office of the Company at 49-1, The Highway Centre, Jalan 51/205, Petaling Jaya, Selangor Darul Ehsan not less than forty-eight (48) hours before the time for holding the meeting or adjourned meeting. Explanatory notes on Special Business: Ordinary Resolution The Ordinary Resolution No. 6 proposed under Agenda 5, if passed, will give powers to the Directors to issue shares up to a maximum ten per centum (10%) of the issued share capital of the Company for the time being for such purposes as the Directors consider would be in the best interest of the Company. This authority unless revoked or varied by the Company at a general meeting will expire at the next Annual General Meeting. I 3 I ANNUAL REPORT 2003

5 Statement Accompanying Notice of Annual General Meeting 1. Directors standing for re-election at the Twenty First Annual General Meeting of the Company The Directors retiring by rotation pursuant to Article 81 of the Company s Articles of Association and seeking for re-election are as follows: (a) Dato Seri Peh Teck Quee (b) Mr. Tiong Kwing Hee 2. Details of attendance of Directors at Board Meetings: Director No. of Meetings Attended Dato Seri Peh Teck Quee 4 out of 4 Mr. Tiong Kwing Hee 4 out of 4 Further details of Directors standing for re-election are set out on pages 8 to 10 of this Annual Report. The securities holdings of these directors are to be found on page Details of place, date and time of Twenty First Annual General Meeting Place : Lot 10, Jalan Perusahaan 4, Batu Caves Industrial Estate, Selangor Darul Ehsan Date : Tuesday, 29 June 2004 Time : 8.45 a.m. ANNUAL REPORT 2003 I 4 I

6 Chairman s Statement On behalf of the Board of Directors, it is my pleasure to present the Annual Report and Audited Financial Statements of Mercury Industries Berhad and its subsidiary companies (the Group ) for the year ended 31 December FINANCIAL PERFORMANCE For the financial year ended 31 December 2003, the Group recorded a revenue of RM29.57 million compared to RM30.46 million in last year. The decrease of 2.92% is attributable to the lower export sales of paints products. The Group reported a profit before tax of RM0.73 million for the year ended 31 December 2003 (2002 : profit before tax RM0.81 million). During the year under review, market conditions were not conducive as consumers were holding back in anticipation of the Asean Free Trade Area (AFTA) agreement on automobiles to take effect in 2005 when import tariffs on foreign cars would be substantially reduced. The decrease in profit before tax is mainly attributable to higher selling and administrative expenses. The paints manufacturing & trading division recorded a gain before income tax of RM1.09 million for the year ended 31 December 2003, a decrease of 19.26% as compared to profit before income tax of RM1.35 million in The Group revenue registered a decrease of 2.92% to RM29.57 million from RM30.46 million in The Company has been aggressively marketing its products to both local and export markets. DIVIDEND The Board does not recommend any dividend in respect of the current financial year ended 31 December CORPORATE DEVELOPMENTS On 17 April 2004, the Company has entered into and completed an Agreement ( the Agreement ) with Lai Yun Hsin ( the Purchaser ) a holder of People s Republic of China passport No to dispose 20,000,000 ordinary shares of USD1.00 each ( the Sale Shares ) representing the entire issued and paid-up share capital of Jutai Investments Limited, for a total cash consideration of US Dollar One Only (USD1.00) on and as is where is basis. Consideration for the Disposal was arrived at on a willing-buyer, willing-seller basis. Based on the latest audited financial statements of the Company for the financial year ended 31 December 2003 and the book value of the Company s investment in Jutai is RM1.00. The Company is still exploring various possibilities and avenues to meet the minimum paid-up capital requirement of RM40 million for companies listed on the second board of the Bursa Malaysia Securities Berhad. TREND The demand for our products follows closely the economic situation over any one period. As our products are sold mainly to the repair shops and the second hand car market, the sales tend to follow the volume of vehicle sales over the periods. We are well posed for the coming of AFTA, as our products are aggressively marketed in developing countries as in Myanmar, Vietnam and Cambodia. Our venture into ASEAN countries will counter the effect of AFTA. aggressively looking for our niche in the emerging markets of China. We have taken measure to ensure that our products meet export standard and pricing. I am pleased to add that with this commitment to Quality Management System and Total Customer Safisfaction, Mercury Paints Factory Sdn Bhd was awarded the prestigious ISO 9001 : 2000 certification in I 5 I ANNUAL REPORT 2003

7 Chairman s Statement (continued) PROSPECTS AND OUTLOOK As the Group progress into year 2004 the Board of Director is bracing itself to overcame the many uncertainties in both internal and external markets, making it another challenging year. The Board will continue to adopt prudent investment procedures in all the Group s assets to safeguard the interest of the Company s shareholders. The Group is aggressively pursuing to market its paints and related products to the regional markets. In the meantime, the management is actively reviewing its business plan and seeking possible avenues to diversify its business and earnings. ACKNOWLEDGEMENT On behalf of the Board of Directors, I would like to thank the management and staff for their invaluable contribution and commitment towards the Group. The Board would also like to express its thanks and appreciation to the customers, suppliers, business associates, bankers, regulatory and government authorities for their support for the Group. FAZRIN AZWAR BIN DATO MD NOR CHAIRMAN 7 June 2004 ANNUAL REPORT 2003 I 6 I

8 Corporate Information BOARD OF DIRECTORS Fazrin Azwar bin Dato Md Nor - Chairman Dato Seri Peh Teck Quee - Executive Vice Chairman Dato Ismail bin Yusof - Independent Non-Executive Director Dr Liow Sze Yin - Executive Director Tiong Kwing Hee - Executive Director Leong Pooi Wah - Independent Non-Executive Director COMPANY SECRETARY Yeoh Chong Keat (MIA No:2736) REGISTERED OFFICE 49-1, The Highway Centre Jalan 51/ Petaling Jaya Selangor Darul Ehsan. Tel : Fax : SHARE REGISTRARS Signet Share Registration Services Sdn Bhd Level 26, Menara Multi Purpose Capital Square No. 8, Jalan Munshi Abdullah Kuala Lumpur Tel : Fax : / AUDITORS Deloitte KassimChan Chartered Accountants Level 19, Uptown 1 1, Jalan SS 21/58 Damansara Uptown Petaling Jaya Selangor Darul Ehsan PRINCIPAL BANKERS RHB Bank Berhad HSBC Bank Malaysia Berhad Public Bank Berhad STOCK EXCHANGE LISTING Bursa Malaysia Securities Berhad (Second Board) I 7 I ANNUAL REPORT 2003

9 Directors Profile Fazrin Azwar bin Dato Md Nor Malaysian, aged 38, was appointed Chairman and as an Independent Non-Executive Director of the Company on He was appointed as a Senior Independent Non-Executive Director and also serves as a member of Nomination and Remuneration Committee of the Company. He is a lawyer by profession and he graduated from University of Malaya in He started his career with Adnan, Sundra & Low in 1991 specialising in corporate matter. In 1999, he set up the firm,azwar & Chen, which subsequently merged with another legal firm to form Michael Chen, Gan Muzafar & Azwar. During his career, he has also attended several senior management seminars and courses both locally and internationally in corporate laws. Fazrin Azwar bin Dato Md Nor is also a director of Tong Herr Resources Bhd, Ire-Tex Corporation Berhad, Poh Kong Holdings Berhad and DK Corporation Berhad. He does not have any conflict of interest with the Company nor has he any family relationship with other directors and/or major shareholder of the Company. He has not been convicted for any offences within the past 10 years. Attended all the four (4) board meetings that were held in the financial year ended 31 December Dato Seri Peh Teck Quee Malaysian, aged 57, was appointed Executive Director of the Company on He was subsequently appointed as Executive Vice Chairman on Dato Seri Peh Teck Quee also serves as a member of the Audit Committee and Remuneration Committee of the Company. He graduated as a Fellow from the Royal Melbourne Institute of Technology, Australia in Architecture in He started his career in Architecture with Ronald J. Wilson Pte. Ltd in Melbourne, Australia and upon his return to Malaysia in 1974, he commenced employment with BEP Arkitek Sdn Bhd as a Senior Architect. In 1979, he joined Project Architect Sdn Bhd as a Director responsible for the Kuala Lumpur and Sabah offices until He established his own architecture practice in 1983 known as Arkimajubina which is still in active operations up to today. In his time of practice he has initiated many major projects and notably in 1992 he was instrumental in design and development of the Plaza Rakyat development in Pudu Raya, Kuala Lumpur. He is a member of the Malaysian Institute of Architect, Pertubuhan Akitek Malaysia. Executive Director Dr Liow Sze Yin is his brother-in-law. The Company is renting office premises from Galeri Permata Sdn Bhd, a company in which Dato Seri Peh Teck Quee has substantial financial interests. He has not been convicted for any offences within the past 10 years. Attended all the four (4) board meetings held in the financial year ended 31 December ANNUAL REPORT 2003 I 8 I

10 Directors Profile (continued) Dato Ismail bin Yusof Malaysian, aged 60, was appointed Independent Non-Executive Director of the Company on He serves as the Chairman of the Audit Committee and member of Nomination and Remuneration Committees of the Company. He obtained a Bachelor of Arts (Honours) from University of Malaya in He started his career with the Ministry of Foreign Affairs in 1970 and held various positions in the ministry, locally in Wisma Putra and aboard in the Malaysia embassies in Thailand and Italy. From 1973 to the date of his optional retirement in 1991, he served the Government in various capacities in the Ministry of Home Affairs, Ministry of Defence, Ministry of Transport, Ministry of Federal Territory. Dato Ismail bin Yusof also holds directorships in South Malaysia Industries Berhad, Minho (M) Berhad, BCB Berhad and Utusan Melayu (Malaysia) Berhad. He does not have any conflict of interest with the Company nor has he any family relationship with other directors and/or major shareholder of the Company. He has not been convicted for any offences within the past 10 years. Attended all the four (4) board meetings held in the financial year ended 31 December Dr Liow Sze Yin Malaysian, aged 60, was appointed Executive Director of the Company on He obtained a Bachelor of Dentistry from University of Singapore in He started his career with the Ministry of Health in From 1970 to 1973, he joined the Malaysian Armed Forces as Short Commissioned Officer in the Medical & Dental Corps with the rank of Captain. In 1974 to 1996, he was in private practice under SY Liow Dental Surgery in Malaysia and Australia and after 1996, he became a businessman. The Executive Vice Chairman Dato Seri Peh Teck Quee is his brother-in-law. He does not have any conflict of interest with the Company. He has not convicted for any offences within the past 10 years. Attended all the four (4) board meetings held in the financial year ended 31 December I 9 I ANNUAL REPORT 2003

11 Directors Profile (continued) Tiong Kwing Hee Malaysian, aged 46, was appointed Executive Director of the Company on He obtained a Bachelor of Arts (Hons) majoring in Business Administration from Hanover College, USA in 1982 and a Master degree in Business Economics from Miami University, USA in He started his career with Sim Lim Holdings Berhad in 1983 as an Executive Officer in charge of corporate finance and was promoted to Manager in 1984 and General Manager in He left Sim Lim Holdings Berhad in 1987 following his takeover of 190,000 acres of virgin timber concession in Kapit, Sarawak and was appointed director in charge of marketing in Wansuria Sdn Bhd. In 1994 his stake in Wansuria Sdn Bhd was sold off to Pan Pacific Asia Berhad following a reverse takeover arrangement. He does not have any conflict of interest with the Company nor has he any family relationship with other directors and/or major shareholder of the Company. He has not been convicted for any offences within the past 10 years. Attended all the four (4) board meetings held in the financial year ended 31 December Leong Pooi Wah Malaysian, aged 37, was appointed Independent Non Executive Director of the Company on He serves as a member of the Audit Committee and Nomination Committee of the Company. He started his career as an Audit Assistant with E A Kench & Company, UK in 1989 before joining KPMG Peat Marwick, Singapore as supervisor in 1996 and Ernst & Young, Malaysia as Manager in 1997 until Currently he is an Audit Partner of K K Yong & Co, Chartered Accountants. He is a member of the Institute of Chartered Accountants in England and Wales and a member of the Malaysian Institute of Accountants. He does not have any conflict of interest with the Company nor has he any family relationship with other directors and/or major shareholder of the Company. He has not been convicted for any offences within the past 10 years. Attended all the four (4) board meetings held in the financial year ended 31 December ANNUAL REPORT 2003 I 10 I

12 Corporate Governance Statement The Board of Directors of the Company is committed to ensure that the principles and best practices in corporate governance are practiced. The objective of this commitment is to ensure that the Board continuously undertakes the responsibility for the Group s efficiency and competitiveness to meet emerging global competition. The Board is pleased to report to the shareholders on the manner in which the Group has applied the principles, and the extent of compliance with best practices in corporate governance as set out in part 1 and part 2 respectively of the Code. DIRECTORS The Board The Board is primarily entrusted with the responsibility of charting the direction of the Group. The Company is headed by an experience Board consisting members with a wide range of businesses, professional and public services background. Board Meetings are held at quarterly intervals with additional meetings taking place when necessary. There were four (4) Board Meetings held during the financial year ended 31 December All Directors have attended all four meetings held during the financial year. The Board, who is the ultimate authority in decision-making for all significant matters, delegates certain responsibilities to the Board Committees, namely an Audit Committee, a Nomination Committee and a Remuneration Committee, to consider particular issues and recommend the proposed actions to the Board in order to enhance operational efficiency and efficacy. All the above Committees have written terms of reference approved by the Board. Board Balance The Board consists of six members, comprising three Independent Non-Executive Directors and three Executive Directors. A brief description of the background of each Director is set out in pages 8 to 10 of the Annual Report. The Board has complied with paragraph of the Listing Requirements, which requires that at least two (2) Directors or one-third of the Board of the Company, whichever is the higher, are independent. The Independent Directors are professional in their own respective fields and their opinions and comments were noted in Board decisions. Together they play an important role in ensuring that the strategies proposed by the management are deliberated and examined, taking into account the long term interest of the shareholders. The roles of the Chairman and the Executive Directors are clearly divided. Fazrin Azwar bin Dato' Md Nor, an Independent Non-Executive Director is the Chairman of the Board heads the Board and leads the discussion of Board level whilst three Executive Directors are charged with the responsibility for implementing the policies and decisions of the Board, overseeing the operations as well as coordinating the development and implementation of business and corporate strategies. The Code recommends the appointment of a senior independent non-executive Director to whom concerns may be conveyed. For this purpose, the Board has appointed En Fazrin Azwar bin Dato Md Nor as the Senior Independent Non-Executive Director. I 11 I ANNUAL REPORT 2003

13 Corporate Governance Statement (continued) Supply of information Board Meeting are structured with a pre-set Agenda. All Directors are provided with sufficient and timely meeting papers prior to Board Meetings to give Directors time to deliberate on the issues to be raised at the meeting. Minutes of the board meetings are maintained by the Company Secretary. The Directors also have direct access to the Management of the Group. Appointment to the Board A Nomination Committee has been established by the Board comprising solely the following members, who are Independent Non-Executive Directors:- (a) (b) (c) Fazrin Azwar bin Dato Md Nor Dato Ismail bin Yusof Mr Leong Pooi Wah The Nomination Committee is empowered by the Board to bring to the Board recommendations on the appointment of new Directors, review the Board structure, size and composition as well as those of Board Committees. The Nomination Committee has during the financial year, assessed the size, composition and effectiveness of the Board and Committees of the Board, mix of skills and experiences of the Board members. The Committee also assessed the directors standing for re-election. All Directors have attended and successfully complete the Mandatory Accreditation Programme (MAP) conducted by the Research Institute of Investment Analysts Malaysia (RIIAM). Re-election In accordance with the Company's Articles of Association, one third of the Directors or if their number is not three or a multiple of three, then the number nearest one third shall retire from office at each Annual General Meeting so that all the Directors shall retire from office once at least in every three (3) years. A retiring Director may offer themselves for re-election. Directors who are appointed by the Board are subject to re-election by shareholders at the next Annual General Meeting held following their appointments. DIRECTORS REMUNERATION The Board recognises that the levels of remuneration should be sufficient to attract and retain the directors needed to run the company successfully. The remuneration package is structured to reward individual performance. For Non-Executive Directors, the level of remuneration reflect the experience and responsibilities undertaken by them. The Remuneration Committee comprises the following members:- (a) (b) (c) Fazrin Azwar bin Dato Md Nor (Independent Non-Executive Director) Dato Ismail bin Yusof (Independent Non-Executive Director) Dato Seri Peh Teck Quee (Executive Vice Chairman) ANNUAL REPORT 2003 I 12 I

14 Corporate Governance Statement (continued) DIRECTORS REMUNERATION (continued) The Committee is responsible for recommending to the Board the framework of Executive Directors remuneration and the remuneration package for each Executive Director. Executive Directors do not participate in decisions regarding their own remuneration package. Directors fees are approved at the Annual General Meeting by the shareholders. The aggregate remuneration of the Directors for the financial year ended 31 December 2003 is as follows: Salaries and other Fees Emoluments Total RM RM RM Executive Directors 18, , ,852 Non-Executive Directors 18,000 - ) 18,000 Total 36, , ,852 The number of Directors whose remuneration for the financial year ended 31 December 2003 falls in each band of RM50,000 are as follows: No. of Executive Directors No. of Non-Executive Directors Below RM50, RM 50,000 to RM100, RM600,000 to RM750, Total 3 3 SHAREHOLDERS Shareholders and Investors Dialogue Shareholders and investors are kept informed of all major developments within the Group by way of quarterly announcements, the Company s Annual Reports and other circulars to shareholders. The principal forums for dialogue with shareholders and investors remain at Annual General Meetings. Notice of the Annual General Meeting together with a copy of the Company's Annual Report were sent to shareholders at least twenty-one (21) days before the meeting. Each item of special business included in the notice of meeting is accompanied by an explanation for the proposed resolution. Shareholders are encouraged to participate and given the opportunity to raise questions or to seek for more information. During the meeting, the Chairman and Board members are available to respond to all shareholders' queries. Shareholders proposals and comments are reviewed and considered for implementation whenever possible. I 13 I ANNUAL REPORT 2003

15 Corporate Governance Statement (continued) ACCOUNTABILITY AND AUDIT Financial Reporting For financial reporting through quarterly reports to Bursa Malaysia Securities Berhad and the Annual Reports to shareholders, the Directors have responsibility to present a fair assessment of the Group's position and prospects. The Audit Committee assists the Board in scrutinizing information for disclosure to ensure accuracy and adequacy. Internal Control The Statement of Internal Control provides an overview of the state of internal controls within the Group. Relationship with the Auditors The Company through the Audit Committee has an appropriate relationship with the external auditors. Key features underlying the relationship of the Audit Committee with the external auditors are included in the Audit Committee s Report. Extent of Compliance with the Best Practices Save for the exceptions set out below, the Board of Directors considers the Group is in substantial compliance with the Best Practices of the Code on Corporate Governance. The Board is committed and will continue to enhance compliance with the best practices in corporate governance: a) There was a Nomination Committee Meeting held during the financial year for discussion on the size, composition and effectiveness of the Board and Committees of the Board, mix of skills and experiences of the Board members. b) There is no Board Charter or terms of reference for the Board. The Board considers that the current Management structure fulfils the objectives of the Board in directing and supervising the business affairs of the Group. c) The Company does not at present have a formal program for the orientation of newly appointed directors. The Board considers that the activities of the Group are not so complex as to warrant a formal program. d) The Board does not have a formal schedule of matters specifically reserved to it for decision. However, it has been the practice for the Board to deliberate on matters that involve overall Group strategy and direction, acquisitions and divestments and the review of the financial performance of the Group. e) The Board does not have an agreed procedure for Directors, whether as a full Board or in their individual capacity, in furtherance of their duties, to take independent professional advice at the Company's expense. The Board is of the opinion that it is adequate for the matter to be brought before the Board for deliberation and decision whenever a need for independent professional advice arises. f) The Company does not have a formal program or schedule of meetings with investors and shareholders aside from contacts at general meetings. The Company keeps its shareholders abreast of the Company's developments though its annual reports, announcements to the Bursa Malaysia Securities Berhad and Annual General Meetings. So far it is the opinion of the management that this arrangement has been satisfactory. ANNUAL REPORT 2003 I 14 I

16 Corporate Governance Statement (continued) Extent of Compliance with the Best Practices (continued) g) An internal audit function has not been established during the year under review given the scale and simplicity of the current operation. High level controls were implemented whereby financial figures, variances and trends were assessed and monitored regularly. Should the Audit Committee view that the circumstances warrant a formal internal audit function, the Audit Committee would consider outsourcing its internal audit services or setting up an internal audit department. OTHER INFORMATION Sanctions and/or penalties imposed Since the end of the previous financial year, there is no sanction and/or penalty being imposed on the Company and its subsidiaries. Director or management by the relevant regulatory bodies. Material Contracts No material contracts of the Company and subsidiaries involving directors & substantial shareholders, either still subsisting at the end of the financial year or entered into since the end of the previous financial year. Non-Audit Fees There were no non-audit fees paid to external auditors during the financial year ended 31 December I 15 I ANNUAL REPORT 2003

17 Statement of Directors Responsibilities Statement of Directors Responsibilities in relation to Financial Statements (in respect of the audited Financial Statements pursuant to Paragraph of the Listing Requirements) The Directors are required to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Group and Company at the end of the financial year and of the results and cash flows of the Group and Company for the financial year. In preparing the financial statements for the year ended 31 December 2003, the Directors have: adopted appropriate accounting policies and applied them consistently; made judgments and estimates that are reasonable and prudent; considered that all relevant approved accounting standards have been followed subject to any material departures being disclosed and explained in the financial statements; and prepared the financial statements on a going concern basis. The Directors have a general responsibility for taking such steps to safeguard the assets of the Group and the Company, and to detect and prevent fraud as well as other irregularities. ANNUAL REPORT 2003 I 16 I

18 Audit Committee Report COMPOSITION OF THE COMMITTEE The Audit Committee currently comprises the following members: Chairman : Dato' Ismail bin Yusof (Independent Non-Executive Director) Members : Dato' Seri Peh Teck Quee (Executive Vice Chairman) Leong Pooi Wah (Independent Non-Executive Director) COMPOSITION COMPLIANCE The Committee confirm that no alternate Director has been appointed as a member of the Audit Committee. Dato Ismail bin Yusof who is an Independent Non-Executive Director chairs the Audit Committee. TERMS OF REFERENCE Constitution & Membership 1. The Audit Committee shall be appointed by the Board from amongst their number and shall consist of not less than three (3) members and at least one member of the Committee: (i) (ii) must be a member of the Malaysian Institute of Accountants; or if he is not a member of the Malaysian Institute of Accountants, he must have at least three (3) years working experience and:- (a) he must have passed the examinations specified in Part I of the 1st Schedule of the Accountants Act, 1967; or (b) he must be a member of one of the associations of accountants specified in Part II of the 1st Schedule of the Accountants Act, A majority of the Committee members must be Independent Directors. 3. No alternate director is to be appointed as a member of the Committee. 4. The members of the Committee shall elect a chairman from among their number who shall be an Independent Director. 5. The term of office and performance of the Committee and each of its members shall be reviewed by the Board at least once every three (3) years. 6. 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 three, the Board shall, within three (3) months of that event, appoint such number of new members as may be required to make up the minimum number of three members. Authority 1. The Committee is authorised by the Board to investigate any matter within its terms of reference. It is authorised to seek any information it requires from the external auditors and any employee and all employees are directed to co-operate with any request made by the Committee. I 17 I ANNUAL REPORT 2003

19 Audit Committee Report (continued) Authority (continued) 2. The Committee shall have the resources which are required to perform its duties. 3. The Committee is authorised to obtain independent professional or other advice if it considers necessary. Functions and Duties The functions and duties of the Committee shall be: (i) To review the following and report the same to the Board of Directors: (a) with the external auditor, the audit plan; (b) with the external auditor, his evaluation of the system of internal control; (c) with the external auditor, his audit report; (d) the assistance given by the employees of the Company to the external auditor; (e) the adequacy of the scope, functions and resources of the internal audit functions and that it has the necessary authority to carry out its work; (f) the internal audit programme, processes, the results of the internal audit programme, processes or investigation undertaken and whether or not appropriate action is taken on the recommendations of the internal audit function; (g) the quarterly results and year end financial statements prior to the approval by the Board of Directors, focusing particularly on: changes in or implementation of major accounting policy changes; significant and unusual events; compliance with accounting standards and other legal requirements; significant adjustments arising from the audit; the going concern assumption; and major judgmental areas. (h) any related party transaction and conflict of interest situation that may arise within the Company or Group including any transaction, procedure or course of conduct that raises questions of management integrity; and (i) external auditors management letter and management s response. (ii) To consider the major findings of internal investigations and management s response; (iii) To discuss problems and reservations arising from the audit and any matter the auditor may wish to discuss (in the absence of management where necessary); (iv) To consider the appointment of the external auditor, the audit fee and any questions of resignation or dismissal; (v) To recommend the nomination of a person or persons as external auditors; (vi) To perform any other functions or duties as may be agreed to by the Committee and the Board. ANNUAL REPORT 2003 I 18 I

20 Audit Committee Report (continued) Quorum and Attendance at Meetings 1. A quorum shall be 2 members and the majority of members present must be Independent Directors. 2. The Head of Finance, the Head of Internal Audit (where such a function exists) and a representative of the external auditors shall normally attend meetings. Other Board members and employees may attend meetings upon invitation of the Committee. 3. The Chairman of the Audit Committee or the external auditors may call a meeting whenever they deem it necessary. Frequency of Meetings and Minutes 1. Meetings shall be held not less than four (4) times in a financial year. 2. All minutes of meetings of the Committee are to be circulated to all members of the Board and the Company Secretary for permanent filing. ATTENDANCE AT AUDIT COMMITTEE MEETINGS During the financial year ended 31 December 2003, the Audit Committee held a total of five meetings. The details of attendance of Audit Committee members are as follows: Name of Audit Committee Member Dato' lsmail bin Yusof Dato' Seri Peh Teck Quee Leong Pooi Wah No. of Meetings attended Attended all 5 meetings Attended all 5 meetings Attended all 5 meetings SUMMARY OF ACTIVITIES During the financial year under review, the Audit Committee met to review the Company quarterly and annual financial statements prior to submission to the Board of Directors for consideration and approval. The Audit Committee has met with the external auditors to review the external auditors audit plan, scope and areas of audit. Also discussed were significant issues arising from the annual audit. The Audit Committee reviewed the audit fees and suitability of the external auditors for re-appointment. The Committee also acts as a forum for discussion of internal control issues and risk management report on a quarterly basis and recommended improvement to internal controls, procedures and risk management. INTERNAL AUDIT FUNCTION An internal audit function was not established given the scale and simplicity of the current operation. However, a high level control was implemented whereby financial figures, variances and trends were assessed and monitored. Should the Audit Committee views that the circumstances warrant a formal internal audit function, the Audit Committee would consider outsourcing the internal audit services or setting up an internal audit department. I 19 I ANNUAL REPORT 2003

21 Statement on Internal Control The Board acknowledges its responsibility for maintaining a sound system of internal control and for reviewing its adequacy and integrity. Because of the limitations that are inherent in any system of internal control, this system is designed to manage rather than eliminate, the risk of failure to achieve corporate objectives. Accordingly, it can only provide reasonable and not absolute assurance against material misstatement, loss or fraud. The review of the Group s internal control system covers all companies within the Group except for Jutai Investments Limited and its subsidiary companies. The Board is of the opinion that the Company has ceased to have effective control and influence over the management of the said subsidiary companies. KEY ELEMENTS OF THE GROUP S INTERNAL CONTROL SYSTEM Risk Management The risk management process carried out by the management team starts from risk identification and evaluation. In the risk identification process, major risks are being identified and analysed. The identified risks were prioritised according to the degree of impact and likelihood of occurrence. Additionally, the existing corresponding controls of the Group were assessed for adequacy, taking into account the level of risk involved. Control Activities The following initiatives were undertaken to control and monitor the business and operations: 1. Clearly defined systems and procedures for operations and accounting treatment. 2. Proper segregation of operations and accounting duties. 3. The Audit Committee meets quarterly to discuss risk management issues in order to ensure that weaknesses in controls highlighted are appropriately addressed by management. Reporting and Review On a quarterly basis, detailed reporting of financial information for both current and historical with variances and exceptional items identified and explanations provided for presentation at each Audit Committee meetings. The Board is of the view that the current system of internal control of the Group, except for Jutai Investments Limited and its subsidiary companies which are not consolidated, is adequate to safeguard shareholders interests. There were no material internal control failure except for the inability to quantify the financial effects arising from the non-consolidation of Jutai Investments Limited and its subsidiary companies. Should the Audit Committee views that the circumstances warrant a formal internal audit function, the Audit Committee would consider outsourcing the internal audit services or set up an internal audit department in the future. ANNUAL REPORT 2003 I 20 I

22 Directors Report for the year ended 31 December 2003 The directors of MERCURY INDUSTRIES BERHAD have pleasure in submitting their report and the audited financial statements of the Group and of the Company for the financial year ended 31 December PRINCIPAL ACTIVITIES The principal activities of the Company are investment holding and provision of management services to its subsidiary companies. The principal activities of the subsidiary companies are disclosed in Note 12 to the Financial Statements. There have been no significant changes in the nature of the activities of the Group and of the Company during the financial year. RESULTS OF OPERATIONS The results of operations of the Group and of the Company for the financial year are as follows: The Group The Company RM RM Profit/(Loss) before tax 725,851) (346,828) Income tax expense (382,079) (33,211) Net profit/(loss) for the year 343,772) (380,039) In the opinion of the directors, the results of operations of the Group and of the Company during the financial year have not been substantially affected by any item, transaction or event of a material and unusual nature other than the non-consolidation of the financial statements of Jutai Investments Limited and its subsidiary companies and the effect of the change in accounting policy for the recognition of deferred tax assets and liabilities as disclosed in Notes 3 and 30 to the Financial Statements, respectively. DIVIDENDS No dividend has been paid or declared by the Company since the end of the previous financial year. The directors also do not recommend any dividend payment in respect of the current financial year. RESERVES AND PROVISIONS There were no material transfers to or from reserves or provisions during the financial year other than those disclosed in the Financial Statements. ISSUE OF SHARES AND DEBENTURES The Company has not issued any new shares or debentures during the financial year. I 21 I ANNUAL REPORT 2003

23 Directors Report for the year ended 31 December 2003 (continued) SHARE OPTIONS No options have been granted by the Company to any parties during the financial year to take up unissued shares of the Company. No shares have been issued during the financial year by virtue of the exercise of any option to take up unissued shares of the Company. As at the end of the financial year, there were no unissued shares of the Company under options. OTHER FINANCIAL INFORMATION Before the income statements and balance sheets of the Group and of the Company were made out, the directors took reasonable steps: (a) (b) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts, and had satisfied themselves that no known bad debts need to be written off and that adequate allowance had been made for doubtful debts; and to ensure that any current assets which were unlikely to realise their book values in the ordinary course of business had been written down to their estimated realisable values. At the date of this report, the directors are not aware of any circumstances: (a) (b) (c) (d) which would require the writing off of bad debts or render the amount of the allowance for doubtful debts in the financial statements of the Group and of the Company inadequate to any substantial extent; or which would render the values attributed to current assets in the financial statements of the Group and of the Company misleading; or which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate; or not otherwise dealt with in this report or financial statements which would render any amount stated in the financial statements of the Group and of the Company misleading. At the date of this report, there does not exist: (a) (b) any charge on the assets of the Group and of the Company which has arisen since the end of the financial year which secures the liability of any other person; or any contingent liability of the Group and of the Company which has arisen since the end of the financial year. No contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the directors, will or may substantially affect the ability of the Group and of the Company to meet their obligations as and when they fall due. In the opinion of the directors, no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely to affect substantially the results of operations of the Group and of the Company for the succeeding financial year. ANNUAL REPORT 2003 I 22 I

24 Directors Report for the year ended 31 December 2003 (continued) DIRECTORS The following directors served on the Board of the Company since the date of the last report: Dato Seri Peh Teck Quee Dato Ismail bin Yusof Dr Liow Sze Yin Fazrin Azwar bin Dato Mohd Nor Tiong Kwing Hee Leong Pooi Wah Dato Seri Peh Teck Quee and Mr. Tiong Kwing Hee retire by rotation under Article 81 of the Company s Articles of Association and, being eligible, offer themselves for re-election. DIRECTORS INTERESTS The shareholdings in the Company of those who were directors at the end of the financial year, as recorded in the Register of Directors Shareholdings kept by the Company under Section 134 of the Companies Act, 1965, are as follows: Shares in the Company Number of shares of RM1 each Balance Balance as of as of Bought Sold Dato Seri Peh Teck Quee - held directly 5,000) - ) - ) 5,000 - held through nominees (registered in the name of ORIX Nominees (Tempatan) Sdn. Bhd.) 663,500) - ) - ) 663,500 Fazrin Azwar bin Dato Mohd Nor - held through nominees (registered in the name of OSK Nominees (Tempatan) Sdn. Bhd.) 592,000) - ) - ) 592,000 Dr Liow Sze Yin - held directly 1,000) - ) - ) 1,000 Tiong Kwing Hee - held directly 2,000) - ) - ) 2,000 By virtue of their interests in the shares of the Company, all the above directors are deemed to have interest in the shares of all the subsidiary companies of the Company to the extent the directors have their interests. The other directors in office at the end of the financial year did not hold shares or have beneficial interest in the shares of the Company during and at the end of the financial year. I 23 I ANNUAL REPORT 2003

25 Directors Report for the year ended 31 December 2003 (continued) DIRECTORS BENEFITS Since the end of the previous financial year, none of the directors of the Company has received or become entitled to receive any benefit (other than the benefit included in the aggregate amount of emoluments received or due and receivable by directors as disclosed in the Financial Statements or the fixed salary of full-time employees of the Company) by reason of a contract made by the Company or a related corporation with the director or with a firm of which he is a member, or with a company in which he has a substantial financial interest except for any benefits which may be deemed to have arisen by virtue of rental of premises amounting to RM304,510 paid or due and payable to a company in which a director of the Company has substantial financial interests. During and at the end of the financial year, no arrangement subsisted to which the Company was a party whereby directors of the Company might acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate. AUDITORS The auditors, Messrs. Deloitte KassimChan, have indicated their willingness to continue in office. Signed on behalf of the Board in accordance with a resolution of the Directors, DATO SERI PEH TECK QUEE TIONG KWING HEE Kuala Lumpur 31 March 2004 ANNUAL REPORT 2003 I 24 I

26 Report of the Auditors to the Members of MERCURY INDUSTRIES BERHAD (Incorporated in Malaysia) We have audited the accompanying balance sheets as of 31 December 2003 and the related statements of income, cash flows and changes in equity for the year then ended. These financial statements are the responsibility of the Company s directors. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the directors, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. As mentioned in Note 3 to the Financial Statements, the financial statements of Jutai Investments Limited and its subsidiary companies for the financial years ended 31 December 2003 and 2002 have not been consolidated with those of the Company as the directors are of the opinion that the Company has ceased to have effective control and influence over the management of the said subsidiary companies as a result of the on-going intention of the Company to eventually dispose of Jutai Investments Limited as disclosed in Note 28 to the Financial Statements. The non-consolidation of the said subsidiary companies represents a non-compliance with Malaysian Accounting Standards Board Standard 11, Consolidated Financial Statements and Investments in Subsidiaries, which requires a company which issues consolidated financial statements to consolidate all subsidiary companies. The financial effects of the non-consolidation of the said subsidiary companies on the consolidated financial statements of the Group are not quantified as no audited or management financial statements of Jutai Investments Limited and its subsidiary companies for the financial years ended 31 December 2003 and 2002 are presently available. In our opinion, except for the non-compliance with the applicable approved accounting standard and the effects on the financial statements of the non-consolidation of the subsidiary companies referred to in the preceding paragraph: (a) the abovementioned financial statements are properly drawn up in accordance with the provisions of the Companies Act, 1965 and the applicable approved accounting standards in Malaysia so as to give a true and fair view of: (i) the state of affairs of the Group and of the Company as of 31 December 2003 and of the results and the cash flows of the Group and of the Company for the year ended on that date; and (ii) the matters required by Section 169 of the Act to be dealt with in the financial statements and consolidated financial statements; and (Forward) I 25 I ANNUAL REPORT 2003