2009 Annual Report. Notice of Annual General Meeting 2-3. Corporate Information 4. Corporate Structure 5. Chairman s Statement 6-7

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2 2009 Annual Report CONTENTS Notice of Annual General Meeting 2-3 Corporate Information 4 Corporate Structure 5 Chairman s Statement 6-7 Directors Profile 8-9 Audit Committee Report Corporate Governance Statement Statement of Internal Control Corporate Social Responsibility Statement 23 Directors Report Independent Auditors Report Income Statements 32 Balance Sheets Statements of Changes in Equity Cash Flow Statements Notes to the Financial Statements Statement by Directors 85 Declaration by the Officer Primarily Responsible for the Financial Management of the Company 85 Statement of Shareholdings Properties Owned by Hexza Corporation Berhad and its Subsidiaries 88 Proxy Form

3 notice of annual general meeting NOTICE IS HEREBY GIVEN that the Fortieth Annual General Meeting of Hexza Corporation Berhad will be held at Regency 5, Level 11, Tower Regency Hotel & Apartments, 6 8, Jalan Dato Seri Ahmad Said, Greentown, Ipoh, Perak Darul Ridzuan on Saturday, 21st November 2009 at a.m. for the following purposes:- A G E N D A 1. To receive and adopt the Audited Financial Statements for the financial year ended 30 th June 2009 and the Reports of the Directors and Auditors thereon. (Resolution 1) 2. To approve the payment of a first and final dividend of 4% less tax plus 3% tax-exempt in respect of the financial year ended 30th June (Resolution 2) 3. To approve the payment of Directors fees of 232,500 for the financial year ended 30th June (Resolution 3) 4. To re-elect Mr. Leong Keng Yuen who retires in accordance with Article 78 of the Company s Articles of Association and being eligible, offers himself for re-election. (Resolution 4) 5. To consider and if thought fit, to pass the following resolutions in accordance with Section 129(6) of the Companies Act, 1965: (i) (ii) (iii) That Dr. Foong Weng Cheong, retiring pursuant to Section 129(6) of the Companies Act, 1965, be and is hereby re-appointed a Director of the Company to hold office until the next Annual General Meeting. (Resolution 5) That Dato Richard Ong Guan Seng, retiring pursuant to Section 129(6) of the Companies Act, 1965, be and is hereby re-appointed a Director of the Company to hold office until the next Annual General Meeting. (Resolution 6) That Datuk Dr. Foong Weng Sum, retiring pursuant to Section 129(6) of the Companies Act, 1965, be and is hereby re-appointed a Director of the Company to hold office until the next Annual General Meeting. (Resolution 7) 6. To re-appoint Messrs. Deloitte & Touche as Auditors and to authorise the Directors to fix their remuneration. 7. As Special Business, to consider and, if thought fit, to pass the following Ordinary Resolution: Authority to issue shares pursuant to Section 132D of the Companies Act, 1965 (Resolution 8) THAT pursuant to Section 132D of the Companies Act, 1965, the Directors be and are hereby empowered to issue shares of the Company at any time until the conclusion of the next Annual General Meeting of the Company upon such terms and conditions and for such purposes as the Directors may, in their absolute discretion, deem fit, provided that the aggregate number of shares issued pursuant to this resolution does not exceed 10% of the issued capital of the Company for the time being and that the Directors are also empowered to obtain the approval for the listing of and quotation for the additional shares so issued on Bursa Malaysia Securities Berhad. (Resolution 9) 8. To transact any other business of which due notice shall have been given Annual Report

4 NOTICE OF ANNUAL GENERAL MEETING NOTICE OF DIVIDEND ENTITLEMENT AND PAYMENT NOTICE IS ALSO HEREBY GIVEN that subject to the approval of the shareholders at the Fortieth Annual General Meeting, a first and final dividend of 4% less tax plus 3% tax-exempt in respect of the financial year ended 30th June 2009 will be paid on 11th December 2009 to members whose names appear in the Record of Depositors on 26th November A depositor shall qualify for entitlement to the dividend only in respect of: a. Shares transferred into the Depositor s Securities Account before 4.00 p.m. on 26th November 2009 in respect of ordinary transfers; and b. Shares bought on Bursa Malaysia Securities Berhad on a cum entitlement basis according to the Rules of Bursa Malaysia Securities Berhad. By Order of the Board CHONG YOKE SENG Company Secretary Ipoh 28th October 2009 NOTES: 1. A proxy need not be a member of the Company. 2. An instrument appointing a proxy, in the case of an individual, shall be signed by the appointor or his attorney duly authorised in writing or in the case of a corporation, shall be either under its Common Seal or signed on its behalf by an attorney or officer of the corporation so authorised. 3. In order for the proxy to be valid, it must be lodged together with the power of attorney or other authority, if any, under which it is signed, or a notary certified copy of that power or authority at the registered office of the Company not less than fortyeight (48) hours before the time for holding the meeting or any adjournment thereof. 4. Explanatory Note on Special Business: The proposed Ordinary Resolution 9, if passed, will empower the Directors to issue shares in the Company up to an amount not exceeding in total 10% of the issued share capital of the Company for the time being for such purposes as the Directors consider would be in the interests of the Company. This authority, unless revoked or varied at a general meeting, will expire at the conclusion of the next Annual General Meeting of the Company. STATEMENT ACCOMPANYING NOTICE OF ANNUAL GENERAL MEETING (Pursuant to Paragraph 8.27(2) of Bursa Malaysia Securities Berhad Main Market Listing Requirements) Details of individuals who are standing for election as Directors No individual is seeking election as a Director at the forthcoming Fortieth Annual General Meeting of the Company Annual Report 3

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

6 CORPORATE STRUCTURE AS AT 30 TH june 2009 Hexza Corporation Berhad and its operating subsidiaries Chemical Industries (Malaya) Sdn. Bhd % Hexzachem Sarawak Sdn. Bhd. 80% Bio-Acetic Products Sdn. Bhd. 100% Norsechem Resins Sdn. Bhd. 100% Norsechem Marketing Sdn. Bhd. 100% Hexza-Mather Sdn. Bhd. 100% Summit Development Corporation Sdn. Berhad 100% 2009 Annual Report 5

7 CHAIAN S STATEMENT On behalf of the Board of Directors, I am pleased to present to you the Group s Annual Report and Audited Financial Statements for the financial year ended 30th June, 2009 (FY 2009). The 12 months comprising our Financial Year 2009, from 1st July, 2008 to 30th June, 2009 has definitely been a turbulent period for many companies around the world. This turbulence is especially exaggerated for the Group with heightened volatility of raw materials required by our Resins Division and substantially higher prices of molasses, the main raw material required by our Ethanol Division. However, I am pleased to report that the Group had remained profitable under these extremely trying economic conditions, producing a profit which will be more than able to fund our proposed dividend. Financial Review In FY 2009, the Group s revenue decreased by 6% to 166,433,115 as compared to 177,064,396 recorded for the previous financial year. The decline in the Group s revenue was mitigated by the higher selling prices of the Group s products necessitated by the substantially higher raw material prices. Although selling prices were higher the margin was significantly reduced as we were unable to pass on the full value of the increased cost of raw materials due to competitive forces, as competitors were also fighting for volume within the depressed market caused by the world recession. As a result, the Group registered a profit before tax of only 7,936,511. Deducting tax expenses of 773,897, the after tax profit amounted to 7,162,614. The after tax profit attributable to shareholders amounted to 6,986,042 after accounting 176,572 for minority interest. Earnings before interest tax depreciation and amortization (EBITDA) stands at 13,930,852. Cash, cash equivalents and bank balances added up to 63,816,089. Hexza Corporation Berhad (The Company) recorded a revenue of 11,872,968 for FY 2009 compared to 9,122,321 for FY Profit for FY 2009 amounted to 13,359,621 compared to 11,317,233 for FY Review of Operations From an economic and financial viewpoint, the year under review was even more challenging than the previous financial year which was already described as most challenging. The first half of the previous year (FY 2008) was relatively stable and though the second half started trending downwards the curve was gentle and manageable. For FY 2009, the months of July and August were relatively stable. Some raw material prices were surging to historical highs, for example urea, the imported price for which reached a peak in early September. Our Resins Division which usually carries an inventory of 6 weeks, imported a shipment at a price slightly lower than what was available in Malaysia which was experiencing a very tight market. Then on 15th September, 2008 Lehman Brothers collapsed, which turned out to be a watershed event for the whole world. Urea prices in tandem with prices of melamine and methanol collapsed and the Resins Division had to take a collective write down of 3.2 million. This together with the severe drop in demand for timber panel products as a result of global recession resulted in the Resins Division incurring a loss. Hexzachem Sarawak made a reduced profit before tax of 1,170,870 whilst Norsechem Resins incurred a loss of 1,816, Annual Report

8 CHAIAN S STATEMENT As a result of the relatively uncertain economic future, Hexzachem has shelved, at least for the foreseeable future, its move to Bintulu. Chemical Industries (Malaya) Sdn. Bhd., contributed a substantial portion of this financial year s consolidated group profit, although the profit is also lower than the previous year. Price of molasses has been trending steeply upwards, fueled by the continuous downward revisions of the Indian crop. It was quite clear from the start that output would be considerably lower this year, but the final sugar and molasses numbers were way below even the most pessimistic expectations. Consequently, ensuring the availability of molasses, even at significantly higher prices, will demand a great deal of senior management time. Our policy is to satisfy the requirements of our customers in terms of quality, quantity and timely deliveries at all costs. It is hoped that the recent recruitment of a senior manager experienced in procurement will enhance our purchasing efficiency. Norsechem Marketing Sdn. Bhd., made a profit before tax of 1,082,855 compared to 767,884 in the previous year. Bio-Acetic Products Sdn. Bhd., made a profit before tax of 17,114 compared to a profit of 20,277 in the previous year. As part of Hexza Corporation Berhad s corporate social responsibility, the Group has invested in the implementation of a multi-million effluent treatment plant. During recent factory shutdowns due to poor demand, no employee has been retrenched and there has been no reduction of basic pay. continues to provide employees with opportunities to attend training courses to enhance their knowledge and skills even in the current tough economic climate. The Board of Directors is recommending a first and final dividend for the current year of 4% less tax plus a tax exempt dividend of 3% which will total 6,011,401. This proposed dividend rate is the same as in the previous year. The current year s after tax profit of 7,162,614 is sufficient to fund the dividend. EBITDA of 13,930,852 provides further coverage and reassurance. sits atop a cash and cash equivalent of 63,816,089 which provides a protective umbrella. The current financial year has started with signs of economic bottoming and recovery although improvements may be slow and tentative at times. The Company has made some investments in the Stock Market with some of its cash earlier in the year at lower prices. The Directors are cautiously confident that the Group will report higher profits for the FY 2010 compared to FY On behalf of my fellow Directors, I would like to express our sincere appreciation and thanks to all our stakeholders shareholders, business associates, suppliers, employees and our valued customers for their loyal support and understanding. Last but not least, I wish to express my heartfelt thanks to my fellow Directors of the Company and its subsidiaries for their advice and guidance and the management and staff for their dedication, diligence and commitment to continuous improvement and problem solving resulting in profitable performance, albeit lower, under the most challenging conditions. Datuk Dr. Foong Weng Sum Chairman & Group Chief Executive 1st October, Annual Report 7

9 DIRECTORS PROFILE Datuk Dr. Foong Weng Sum Chairman & Group Chief Executive Datuk Dr. Foong Weng Sum, aged 70, was appointed to the Board on 7th May 1982 as Vice Chairman. On 23rd October 1986, he assumed the position of Group Chief Executive. He took over as Chairman of the Board on 1st December He is also a member of the Remuneration Committee and ESOS Committee. Datuk Dr. Foong Weng Sum is a graduate in medicine from the University of London. He has considerable business experience in various business sectors, including manufacturing, property development, financial management and investment. Dr. Foong Weng Cheong Non-Independent Non-Executive Director Dr. Foong Weng Cheong, aged 76, was appointed to the Board on 7th May He is also a member of the Audit Committee, Remuneration Committee and Nominating Committee. Dr. Foong Weng Cheong is a graduate in medicine from the University of Melbourne, Australia and is a Fellow of the Royal College of Surgeons of Edinburgh and also a Fellow of the Royal College of Surgeons of England. He was appointed Senior Lecturer ( ), Associate Professor ( ) and Professor & Head of Department of Surgery ( ) at the National University of Singapore and Chief of University Department of Surgery at Singapore General Hospital and National University Hospital until he retired in Since 1988 he is a Consultant Surgeon at Mount Elizabeth Medical Centre, Singapore. Dato Richard Ong Guan Seng Independent Non-Executive Director Dato Richard Ong Guan Seng, aged 71, was appointed to the Board on 25th March He is also the Chairman of the Audit Committee, Nominating Committee and ESOS Committee and a member of the Remuneration Committee. Dato Richard Ong Guan Seng is a member of the Malaysian Institute of Accountants, the Malaysian Institute of Certified Public Accountants, the Institute of Chartered Accountants in Australia and the Institute of Chartered Secretaries and Administrators. He became a Partner of Peat Marwick (now known as KPMG), Malaysia in 1971 and was appointed Deputy Senior Partner in 1989 until he retired in He is also a Non-Executive Director of Malaysian Mosaics Berhad and Rock Chemical Industries (M) Berhad, companies listed on Bursa Malaysia Annual Report

10 DIRECTORS PROFILE Mr. Leong Keng Yuen Independent Non-Executive Director Mr. Leong Keng Yuen, aged 59, was appointed to the Board on 15th September He is also the Chairman of the Remuneration Committee and a member of the Audit Committee, Nominating Committee and ESOS Committee. Mr. Leong Keng Yuen was a partner of Ernst & Young Malaysia before retiring at the end of He has over 30 years involvement in the accounting profession with initial emphasis on Company Law and Secretarial Practice and later covering also Tax and Audit. He is a member of the Malaysian Institute of Accountants and a Fellow of the Association of Chartered Certified Accountants. He also holds a Master of Science in Management from the Massachusetts Institute of Technology U.S.A. and a Bachelor of Engineering (First Class Honours) from University of Queensland, Australia. He is also a Non-Executive Director of Choo Bee Metal Industries Berhad and Pulai Springs Berhad, companies listed on Bursa Malaysia and OSK Investment Bank Berhad. He is also on the Board of The Perak Chinese Welfare Association and The Perak Chinese Maternity Association, both welfare organisations. Tuan Haji Mohd Mohd Jalil Bin Sany Independent Non-Executive Director Tuan Haji Mohd Mohd Jalil Bin Sany, aged 62, was appointed to the Board on 20th November He is also a member of the Audit Committee and ESOS Committee. Tuan Haji Mohd Mohd Jalil Bin Sany is a member of the Malaysian Institute of Accountants and a Fellow of the Association of Chartered Certified Accountants. He has over 40 years of working experience in diversified industries which includes unit trust and investment holdings, properties and hotels, banking and insurance, plantation, film distribution and exhibition, commercial agriculture, animal husbandry and book publication and distribution. He has more than 20 years exposure in Sarawak and Sabah business operations. He is currently a Director of Hexzachem Sarawak Sdn. Bhd., an 80% owned subsidiary of the Company. Other Information Nationality All the Directors are Malaysians. Family relationship with any Director and/or substantial shareholder Dr. Foong Weng Cheong and Datuk Dr. Foong Weng Sum are brothers. Apart from this, none of the Directors has any family relationship with the other Directors or substantial shareholders of the Company. Conflict of interest Save as disclosed in Note 22 to the Financial Statements, none of the Directors has any conflict of interest with the Company. Convictions for offences None of the Directors has been convicted of any offence within the past ten years Annual Report 9

11 audit committee report The Board is pleased to present the Audit Committee Report for the financial year ended 30 th June The composition of the Audit Committee is as follows: Dato Richard Ong Guan Seng (Chairman, Independent Non-Executive Director) Mr. Leong Keng Yuen (Member, Independent Non-Executive Director) Tuan Haji Mohd Mohd Jalil Bin Sany (Member, Independent Non-Executive Director) Dr. Foong Weng Cheong (Member, Non-Independent Non-Executive Director) Constitution The Audit Committee ( the Committee ) was established on 6th April 1994 to serve as a Committee of the Board. The terms of reference is consistent with the Listing Requirements of Bursa Securities and the revised Code on corporate governance as set out below: Membership (a) (b) (c) The Committee shall be appointed by the Board from amongst the non-executive Directors of the Company and shall consist of not less than three members of whom all the members must be non-executive directors, with a majority of them being Independent Directors. At least one member of the Committee must be a member of the Malaysian Institute of Accountants or eligible for membership. The members of the Committee shall select a Chairman from among their numbers who shall be an Independent Director. The term of office and performance of the Committee and each of its members should be reviewed by the Board at least once every three years to determine whether such Audit Committee and members have carried out their duties in accordance with their terms of reference. Authority The Audit Committee shall, in accordance with a procedure to be determined by the Board of Directors and at the cost of the Company: (a) (b) (c) (d) (e) (f) have 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 pertaining to the Company; have direct communication channels with the external auditors and the person(s) carrying out the internal audit function or activity; be able to obtain independent professional or other advice; and be able to convene meetings with the external auditors, internal auditors or both, excluding the attendance of other directors and employees of the Company, whenever deemed necessary Annual Report

12 AUDIT COMMITTEE REPORT Responsibilities and duties The functions of the Audit Committee shall be to:- (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) review with the external auditors, their audit plans; review with the external auditors, their evaluation of the system of internal controls; review with the external auditors, their audit reports; review the assistance given by the Company s employees to the external auditors; review the adequacy of the scope, functions, competency and resources of the internal audit functions and that it has the necessary authority to carry out its work; review the scope and results of the internal audit procedures; review the quarterly results and year end financial statements, prior to the approval by the Board of Directors, focusing particularly on: (i) changes in or implementation of major accounting policy changes; (ii) significant and unusual events; and (iii) compliance with accounting standards and other legal requirements. review any related party transactions that may arise within the Company or Group; recommend the appointment of external auditors, audit fee and any question of resignation or dismissal; undertake such other functions as may be agreed to by the Audit Committee and Board of Directors; and report its findings to the Board of Directors. Meetings (a) (b) (c) The Audit Committee shall meet not less than four (4) times a year. The quorum of the Committee shall be at least two members; the majority of members present must be independent directors. The Secretary to the Committee shall be the Company Secretary. Reporting Procedures The Secretary shall circulate the minutes of meetings of the Committee to all members of the Board Annual Report 11

13 Attendance AUDIT COMMITTEE REPORT (continued) During the financial year ended 30th June 2009, four (4) Audit Committee meetings were held and the details of the attendance were as follows: No. of Meetings Attended Dato Richard Ong Guan Seng 4 out of 4 Mr. Leong Keng Yuen 4 out of 4 Tuan Haji Mohd Mohd Jalil Bin Sany 4 out of 4 Dr. Foong Weng Cheong 3 out of 4 The Company Secretary attended all the meetings of the Audit Committee held during the financial year. Documentation procedures The Secretary shall be responsible, in conjunction with the Chairman, for drawing up the Agenda and the notice of meeting. The notice of meeting and the Agenda together with the relevant papers are circulated to the Committee members at least three (3) days prior to each meeting. The Secretary is responsible for keeping the minutes and communicating the decisions made at the meeting to the relevant parties. Summary of activities during the financial year During the financial year ended 30th June 2009, in line with the terms of reference, the Audit Committee carried out the following activities in discharge of its functions and duties: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) Reviewed the audit planning memorandum in respect of the financial year ended 30th June 2009 with the external auditors. Reviewed the Groups quarterly results announcement before recommending them to the Board of Directors for approval. Reviewed the audited financial statements of the Company and of the Group with the external auditors to ensure compliance with the provisions of the Companies Act, 1965 and the applicable accounting standards prior to submission to the Board of Directors for consideration and approval. Reviewed and discussed the external auditors management letter to ensure the internal control issues highlighted are appropriately addressed by the management. Reviewed and approved the revised Internal Audit Charter. Reviewed and approved the internal audit plan. Reviewed and deliberated on the reports from the internal audit unit on the results of their internal audit visits, and management s response to the recommendations. Reviewed and deliberated on the risk assessment reports from the operating companies of the Group with request for further actions where appropriate. Reported to the Board on significant issues discussed during the Audit Committee meetings and conveyed the Audit Committee s recommendations, if any, to the Board. The minutes of the Audit Committee meetings were distributed to all Board members Annual Report

14 AUDIT COMMITTEE REPORT (x) (xi) (xii) Met with the external auditors of the Company twice during the year without the presence of the Group Chief Executive and management. Reviewed the adequacy of the internal audit functions in respect of the compliance with the Internal Audit Charter. Reviewed the performance of the internal audit unit against the annual audit plan for the financial year ended 30th June 2009 and the cost incurred in connection with the performance of the audit. Internal Audit Function The Company has an in-house Internal Audit Unit to assist the Audit Committee to undertake regular and systematic review of the adequacy, integrity and the effectiveness of the Group s system of internal control. The internal audit unit reports directly to the Chairman of the Audit Committee. The functions and responsibilities of the internal audit unit are embodied in the Internal Audit Charter which has been revised and approved by the Board during the financial year. During the financial year under review, the internal audit unit carried out internal audit reviews based on the internal audit plan approved by the Audit Committee. The total cost incurred by the internal audit unit during the financial year ended 30th June 2009 amounted to approximately 131,000. The following were the activities carried out by the Internal audit unit: (i) (ii) (iii) (iv) (v) Reviewed and appraised the adequacy, effectiveness and efficiency of internal control in the Group. Ascertained the extent to which the Group complies with established policies, procedures and statutory requirements. Reviewed the effectiveness of the risk management system. Recommended improvements to the existing internal control system. Identified opportunities for improvement in the operations of the Group Annual Report 13

15 corporate governance statement The Board of Directors of Hexza Corporation Berhad ( the Board ) is committed to ensure that the Group s Corporate Governance is in line with the principles and best practices of the Malaysian Code on Corporate Governance ( Code ) and the Listing Requirements of Bursa Malaysia Securities Berhad. The Board is pleased to report on the extent to which the principles and practices of the Code were applied throughout the financial year ended 30th June This statement is made in accordance with a resolution of the Board of Directors dated 23rd September A. BOARD OF DIRECTORS Composition of the Board is led by an effective and experienced Board of members with different backgrounds and specializations. The Board is responsible for the corporate governance practices of the Group. It guides and monitors the affairs of the Group on behalf of the shareholders and retains full and effective control over the Group. The key responsibilities include the primary responsibilities prescribed under the Code. These cover a review of the strategic direction for the Group, overseeing the business operations of the Group, and evaluating whether these are being properly and effectively managed. Board Balance The Board Composition remain the same as the previous financial year, which consists of five (5) members including three (3) independent non-executive directors, one (1) non-independent non-executive director and one (1) executive director. This complies with the Listing Requirements of Bursa Malaysia Securities Berhad that one third of its Board consists of independent directors. The Board is of the view that its composition fairly reflects the composition of its shareholders. There is a balance of executive, non-executive and independent non-executive directors. The Board is satisfied that the current Board composition fairly reflects the investment of minority shareholders in the Company. Duties and Responsibilities Chief Executive in particular is responsible 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 independent non-executive directors exercise independent view, advice and judgment in Board deliberations and provide an effective check and balance for the other directors. They do not participate in the day to day management of the Group but provide sufficient check and balance. The non-executive directors contribute significantly in areas such as policy and strategy, performance monitoring, allocation of resources as well as improving governance and controls. Together with Group Chief Executive who has an intimate knowledge of the business, the Board is constituted of individuals who are committed to business integrity and professionalism in all its activities. A brief write-up of the background of the Board members as at the date of this statement is presented under Directors profile in the Annual Report Annual Report

16 corporate governance statement Board and Board Committee Meetings The Board meets at least four (4) times a year at quarterly intervals, with additional meetings convened as necessary. There were four (4) meetings held during the financial year ended 30th June, 2009 and details of the attendance of the directors were as follows: No. of Meetings Attended Datuk Dr. Foong Weng Sum 4/4 Dr. Foong Weng Cheong 3/4 Dato Richard Ong Guan Seng 4/4 Mr. Leong Keng Yuen 4/4 Tuan Haji Mohd Mohd Jalil Bin Sany 4/4 At each Board Meeting, the Board considers the quarterly financial reports, the year to date financial performance of the Group, operations reports of the major business divisions, new business venture proposals and strategic issues affecting the Group s business. The Chairman of the Audit Committee reports to the Board on the internal control issues based on the internal audit unit s findings and the results of review of the risk assessment report. The Board has also established the following Committees to assist the Board to discharge its fiduciary duties: Audit Committee Nominating Committee Remuneration Committee ESOS Committee Supply of Information The Board has unrestricted access to timely and accurate information, necessary in the furtherance of their duties. The Chairman ensures that all relevant issues requiring the Board s deliberation and approval are on the agenda and senior management is invited to the Board meetings to present the relevant issues. The Agenda and a full set of Board papers are distributed at least three (3) days prior to the meeting to allow directors sufficient time to review the Board papers for effective deliberation at the meeting proper. All proceedings of Board meetings are minuted and signed by the Chairman. All directors have access to the advice and services of the Company Secretary and senior management in carrying out their duties. Independent Professional Advice There is a formal procedure sanctioned by the Board for Directors, whereby the full board or the individual directors can take independent professional advice at the Group s expense, where necessary and in furtherance of their duties. Appointment to the Board The Nominating Committee is responsible for establishing a formal and transparent selection process for the appointment of new directors to the Board. The Committee will review the required mix of skills and experience of the directors of the Board, and determine the appropriate Board balance and number of non-executive directors. The Committee has established the procedures and processes towards an annual assessment of the effectiveness of the Board as a whole, the committees of the Board and for assessing the contribution of each individual director. The Board is satisfied that the current composition of the Board brings the required mix of skills and experience required for the Board to function effectively Annual Report 15

17 corporate governance statement (continued) Directors Training All the directors have successfully completed the Mandatory Accreditation Programmes. The Directors will continue to undergo training on an annual basis to further enhance their skills and knowledge so as to keep abreast with new regulatory developments and the Listing Requirements. The Board will discuss and determine the training needs of the directors and the directors are encouraged to attend various training on their own and submit the certificate of attendance to the Secretary for record. During the financial year ended 30th June 2009, the training programme and seminars attended by the Directors included the following: Name of Directors Datuk Dr. Foong Weng Sum Dr. Foong Weng Cheong Dato Richard Ong Guan Seng Mr. Leong Keng Yuen Tuan Haji Mohd Mohd Jalil Bin Sany Training Attended ¾ 2009 Tax Budget Seminar ¾ Using the Appraisal Process to preview next year s objectives ¾ Using the Appraisal Process to preview next year s objectives ¾ Corporate Governance Week 2009 Programme ¾ Bankruptcy and Estate Planning ¾ Introduction to Islamic Banking ¾ Financial Instruments FRS 132, 139 and IFRS7 ¾ 2009 Tax Budget Seminars ¾ Corporate Governance Week 2009 Programme Re-election In accordance with the Company s Articles of Association, all newly appointed directors are subject to retirement and are entitled for re-election at the first annual general meeting after their appointment. The other directors are subject to retire on a rotational basis once every three years and are entitled to offer themselves for re-election at the Company s annual general meeting. Directors over seventy years old are required to submit themselves for reappointment annually in accordance to Section 129(6), Companies Act, Directors standing for re-election at the Fortieth Annual General Meeting are detailed in the Notice of the Fortieth Annual General Meeting. B. DIRECTORS REMUNERATION The Remuneration Committee is responsible for recommending the remuneration package for all Directors. The individual directors play no part in deciding their own remuneration. The policy practised on directors remuneration by the Remuneration Committee is to provide the remuneration packages according to the skills, level of responsibilities, experience and performance of the directors in order to attract, retain and motivate directors of the quality required to lead and guide the business of the Company. The remuneration of the non-executive directors is determined by the Board as a whole. In addition, non-executive directors are paid a meeting allowance for each meeting he attended Annual Report

18 corporate governance statement The details of the directors remuneration for the financial year ended 30th June 2009 are as follows: Executive Director Non-Executive Directors Total Fees and allowances Salaries & other emoluments 1, ,133 Estimated monetary value of Benefits-in-kind The number of directors whose remuneration fall into the following bands are as follows: Band Executive Non- Executives 50,000 to 100, ,150,000 to 1,200,000 1 The fees payable to the directors will be recommended by the Board for approval by shareholders at the forthcoming Annual General Meeting. There are no contracts of service between any director and the Company or its subsidiaries having an unexpired term of more than one year. C. SHAREHOLDERS Shareholders communication and investors relationship policy The Annual General Meeting is the principal forum for dialogue and interaction with shareholders. All shareholders are welcome to attend the Company s Annual General Meeting and to actively participate in the proceedings. They are encouraged to ask questions both about the resolutions being proposed or any issues pertaining to the Company and to give their views and suggestions for the benefit of the Company. Members of the Board and the external auditors of the Company are present to answer questions raised at the meeting. Where it is not possible to provide immediate answers, the Chairman will undertake to furnish the shareholder with a written answer after the AGM. The annual reports and the quarterly announcements are the primary modes of communication to report on the Group s business, activities and financial performance to all its shareholders. The Company has established a website, to improve the channel of communication between its shareholders and interested public. Dato Richard Ong Guan Seng is the senior independent non-executive director who will attend to answer all queries relating to the affairs of the Group Annual Report 17

19 corporate governance statement (continued) D. ACCOUNTABILITY AND AUDIT Financial Reporting The Board aims to present a balanced and meaningful assessment of the Group s financial performance and prospects in presenting the annual financial statements and quarterly announcement of results to shareholders as well as the Chairman s statement and review of operations in the annual report. The Board is assisted by the Audit Committee to oversee the Group s financial reporting processes and the quality of its financial reporting. Relationship with the Auditors The Company has established a transparent and appropriate relationship with the Group s internal and external auditors through the Audit Committee. The Audit Committee meets with the external auditors without the presence of any executives of the Group at least twice a year. The role of the Audit Committee in relation to the external auditors is described in the Audit Committee Report. Internal Control The Board is committed to maintaining a sound system of internal control to ensure that the Group is operating effectively and efficiently in accordance with its internal policies and procedures and complying to laws and regulations. The information on the Group s internal control is presented in the Statement on Internal Control of this Annual Report. E. COMPLIANCE WITH THE BEST PRACTICES has taken various steps to ensure compliance with the Best Practices of the Code during the financial year ended 30th June 2009 save as follows: Division of Responsibilities The roles of the Chairman and the Group Chief Executive are combined and are currently held by Datuk Dr. Foong Weng Sum. The Board is mindful of the combined roles but is of the view that there is sufficient balance of executive and independent non-executive directors on the Board. The independent non-executive directors are professionals of credibility and repute who demonstrate independence of judgment and objectivity in the Board s deliberations and the necessary check and balance on the Board. All related party transactions, which arose in the normal course of business involving him, have been disclosed in the notes to the financial statements. F. DIRECTORS RESPONSIBILITY STATEMENT The directors are responsible for the preparation of the Annual Audited Accounts and the Board always ensures that proper accounting records are kept and the accounts and other financial reports of the Group are prepared in accordance with the applicable approved accounting standards and complied with the provisions of the Companies Act, The directors also have a general responsibility for taking such steps as are reasonably available to them to control and safeguard the assets of the Group and to prevent and detect fraud and other irregularities. In the opinion of the directors, the Group has applied the appropriate accounting policies and standards consistently in the preparation of the financial statements for the financial year ended 30th June Annual Report

20 corporate governance statement G. OTHER INFOATION Utilisation of Proceeds No proceeds were raised by the Company from any corporate exercise during the financial year. Share Buy-Back There was no share buy-back during the financial year. Options, Warrants or Convertible Securities There was no issue of options, warrants or convertible securities during the financial year. The details of the ESOS exercised during the financial year are disclosed in Note 26 to the Financial Statements. American Depository Receipt (ADR)/Global Depository Receipt (GDR) Programmes The Company did not sponsor any ADR or GDR programmes during the financial year. Imposition of Sanctions / Penalties There were no sanctions and/or penalties imposed on the Company and its subsidiaries, directors or management by the regulatory bodies during the financial year. Non-Audit Fees During the financial year ended 30th June 2009, the non-audit fees payable to the external auditors amounted to approximately 3,000. Profit Estimate, Forecast or Projection The Company did not release any profit estimate, forecast or projection for the financial year. Profit Guarantee The Company did not make any arrangement during the financial year which requires profit guarantee. Material Contracts and Contracts Relating to Loans There are no material contracts and contracts relating to loans entered into by the Company and its subsidiaries which involve the Directors and substantial shareholders entered into since the previous financial year. Recurrent Related Party Transactions of Revenue Nature The details of related party transactions of revenue or trading nature undertaken by the Company during financial period are disclosed in Note 22 to the Financial Statements. Revaluation Policy on Landed Properties does not adopt a policy on regular revaluation of its landed properties Annual Report 19

21 statement on internal control Introduction The Board is committed to maintaining a sound system of internal control throughout the group to safeguard shareholders investments and the Group s assets, and is pleased to provide the following Statement on Internal Control of the Group for the financial year ended 30th June 2009 pursuant to Paragraph 15.26(b) of the Listing Requirements of the Bursa Malaysia Securities Berhad (Bursa Securities) and the guidelines provided by Bursa Securities on Internal Control Guidance for Directors of Public Listed Companies. Board Responsibility The Board recognizes the importance of good corporate governance and that it is responsible for the Group s system of internal controls which includes not only financial controls but also operational and compliance controls as well as effective risk management. s existing system of internal control includes financial, operational and risk management procedures which are designed to meet the Group s particular needs and to manage the risks to which it is exposed. Due to the limitations that are inherent in any system of internal control, the system is designed to manage, rather than eliminate, the risk of failure to achieve business objectives. The system can only provide reasonable, and not absolute assurance against material misstatement of management and financial information and records or against financial losses or fraud. The process of identifying, evaluating and managing the risks that matters is maintained throughout the financial year under review and the effectiveness, adequacy and integrity of the processes are reviewed by the Board regularly. The Board s primary objective and strategic direction in managing the Group s business risks are to enhance its ability to achieve its business objectives. The role of management is to implement the Board s policies, procedures and guidelines on risk and control by identifying and evaluating the risks faced and implemented action plans and time frame to manage the risks identified. Enterprise Risk Management Framework The Board believes that the development of the system of internal controls is an ongoing process and continues to take steps to improve the internal control system. The Board reviewed and monitored the significant risks that have an impact on the achievement of the Group s business objectives through its assessment of the internal control system. Any material risks identified will be discussed and appropriate actions taken to address the risk identified to ensure the risk is properly monitored and managed to an acceptable level. continues to implement the methodologies in accordance with the enterprise risk management framework approved by the Board. All the operating companies within the Group follow the procedures laid down in the manual on the Group s Risk Management Policy and Procedures. The operating companies maintain a risk register with detailed information on individual risk profiles which is updated periodically. During the financial year under review, the Risk Management Units of the operating companies continued to identify principal risks of the business, assessing the likelihood and impact of the potential risk and evaluate and manage the risks by formulating action plans and time frame to mitigate those risks identified. The Risk assessment reports are submitted on a half yearly basis by the respective operating companies to the Audit Committee for review and comments Annual Report

22 statement on internal control Internal Audit Function The internal audit function has the primary objective of carrying out a review of the internal control system to determine if the internal control procedures have been complied with and to make recommendations to strengthen the internal control system. During the financial period under review, the internal audit unit carried out regular and systematic reviews on major business operating units of the Group to assess the effectiveness and adequacy of internal control and highlights areas for improvement. The annual audit plan was reviewed and approved by the Audit Committee prior to the commencement of audit. Internal Audit reports are submitted to the Audit Committee for review on a quarterly basis. The internal audit report summarises the audit objectives, scope, audit findings and recommendations and management s response to the recommendations of the internal audit unit. The internal audit unit also checks to ensure that the risk management strategy, framework and methodology implemented are consistently applied by the major operating subsidiaries. The Audit Committee ensures that control issues highlighted by both the internal audit unit and the external auditors are appropriately addressed by the respective management of the operating subsidiaries on a timely basis. A number of minor internal control weaknesses were identified by the internal audit unit as well as the external auditors during the period, all of which have been, or are being addressed. None of the weaknesses have resulted in any material losses, contingencies or uncertainties that would require disclosure in this report. The Board reviews the minutes of the Audit Committee meeting on a quarterly basis. Other Key Control Processes Apart from the risk management and internal audit mentioned above, the other key control processes of the Group s internal control include the following: There are proper organizational structures with well defined lines of responsibility and authority matrix. Standard operational procedures, policies, guidelines and limits of approving authorities are documented in the Group Manual which is subjected to review as and when necessary. uses the same accounting system to ensure as far as possible, consistency in the financial management processes. The operating units hold regular management meetings to review the financial and operational performance and risk management issues. Annual business plan and budget are prepared by the operating units and submitted to the Board for approval. The actual performance is compared against budget on a monthly basis with explanation of variances. The Board reviewed the performance of the Group on a quarterly basis. Management reports, both financial and operational performance reviews which encompass review of key performance indicators, variance analysis and compliance to policies and guidelines are generated on a monthly basis and submitted to the Group Chief Executive on a monthly basis Annual Report 21