SCOPE INDUSTRIES BERHAD

Transcription

1 We Care, We Share ANNUAL REPORT 2014

2 CONTENTS Corporate Information 02 History, Principal Activities and Group Structure 03 Chairman's Statement 04 Statement on Corporate Social Responsibility 05 Directors' Profiles Corporate Governance Statement Statement on Risk Management and Internal Control 16 Audit Committee's Report Directors' Report Directors' Statement and Statutory Declaration 23 Independent Auditors' Report to the Members of Scope Industries Berhad Statements of Financial Position 26 Statements of Comprehensive Income 27 Consolidated Statement of Changes in Equity 28 Statement of Changes in Equity 29 Statements of Cash Flows Notes to the Financial Statements Supplementary Information 74 Notice of Annual General Meeting Statement Accompanying Notice of Annual General Meeting 78 List of Properties 79 Analysis of Shareholdings Analysis of Warrant Holdings Proxy Form

3 CORPORATE INFOATION DIRECTORS Dato Philip Chan Hon Keong : Independent Non-Executive Chairman Lim Chiow Hoo : Managing Director Lee Min Huat : Executive Director Chew Kong Yoon : Executive Director Tan Poh Heng : Independent Non-Executive Director Yong Loong Chen : Independent Non-Executive Director Lim Ee Tatt : Non-Independent Non-Executive Director COMPANY SECRETARIES Chee Wai Hong (BC/C/1470) Foo Li Ling (MAICSA ) AUDIT COMMITTEE Tan Poh Heng (Chairman) Dato Philip Chan Hon Keong Yong Loong Chen NOMINATION COMMITTEE Dato Philip Chan Hon Keong (Chairman) Tan Poh Heng Yong Loong Chen REMUNERATION COMMITTEE Tan Poh Heng (Chairman) Dato Philip Chan Hon Keong Lee Min Huat REGISTERED OFFICE A Menara BHL Bank Jalan Sultan Ahmad Shah Penang Tel : Fax : BUSINESS ADDRESS SHARE REGISTRAR Symphony Share Registrars Sdn. Bhd. Level 6, Symphony House Block D13, Pusat Dagangan Dana 1 Jalan PJU 1A/ Petaling Jaya Selangor Tel : Fax : AUDITORS Grant Thornton Chartered Accountants 51-8-A Menara BHL Bank Jalan Sultan Ahmad Shah Penang Tel: Fax: PRINCIPAL BANKERS AmBank (M) Berhad Hong Leong Bank Berhad HSBC Bank Malaysia Berhad STOCK EXCHANGE LISTING ACE Market of Bursa Malaysia Securities Berhad Stock Name for Ordinary Shares : SCOPE (Stock Code: 0028) Stock Name for Warrants : SCOPE-WA (Stock Code: 0028WA) Website : 6th Floor, Menara Hap Seng Jalan P. Ramlee Kuala Lumpur Tel : Fax : SCOPE INDUSTRIES BERHAD ( D) 02

4 HISTORY, PRINCIPAL ACTIVITIES AND GROUP STRUCTURE Scope Industries Berhad ( Scope ) was incorporated in Malaysia on 2 September 2002 under the Companies Act, 1965 as a public limited company under its present name. Scope is principally an investment holding company with three (3) wholly-owned subsidiaries, namely Scope Manufacturers (M) Sdn. Bhd. ( SMSB ), Benua Mutiara Sdn. Bhd. ( BMSB ) and Scope Sales & Services Sdn. Bhd. ( SSSSB ). Besides that, Scope has a seventy percent (70%) owned subsidiary namely Pioneer Glow Sdn Bhd ( PGSB ). The core business of Scope Group are trading and manufacturing of electronic components and products as well as oil palm plantation business. The current group structure is as follows:- BMSB 100% SMSB 100% PGSB 70% SCOPE INDUSTRIES BERHAD SSSSB 100% The principal activities of its subsidiaries are as follow:- Companies Subsidiaries Date and Place of Incorporation Issued and Paid-up Share Capital Principal activities Scope Manufacturers (M) Sdn. Bhd. (SMSB) 20 November 1991 Malaysia 3,220,000 Manufacturing and assembling of electronic components and products. Benua Mutiara Sdn. Bhd. (BMSB) 28 September 1990 Malaysia 500,000 Cultivation of oil palm. Scope Sales & Services Sdn. Bhd. (SSSSB) Pioneer Glow Sdn. Bhd. (PGSB) 18 December 2002 Malaysia 20 August 1997 Malaysia 2 Investment holding and trading of electrical products. 10,600,000 Cultivation of oil palm. 03 ANNUAL REPORT 2014

5 CHAIAN S STATEMENT On behalf of the Board of Directors, I am pleased to present to you the Annual Report and Audited Financial Statements of the Group and the Company for the financial year ended 30 June INDUSTRY TRENDS AND DEVELOPMENT The Malaysian economy continued to record strong expansion of 6.4% during the second quarter of 2014 (Q1 2014: 6.2%). This was underpinned by strong external demand and resilient domestic activity. On the supply side, the services and manufacturing sectors remained the key drivers of growth at 6% and 7.3%, respectively (Q1 2014: 6.6%; 6.8%). The agriculture sector increased 7.1% (Q1 2014: 2.3%) on account of higher production in the palm oil, forestry, other agriculture and fishing subsectors. However, the global economy is projected to expand further at a moderate pace in 2014 supported by broad-based but uneven recovery among advanced economies while emerging economies are expected to grow more slowly. Challenges to the global outlook include persistently high unemployment, sluggish productivity, high public sector budget deficit and debt, as well as fragilities in the financial sector and high household debt. (Source : Malaysian Economic Report 2 nd Quarter 2014) OPERATION REVIEW Group performance Revenue for the financial year ended 30 June 2014 was approximately million, which represents a decrease of 10.43% over the preceding year. Despite of decline in revenue, the gross profit has increased from 0.82 million in the preceding year to 1.12 million for the year to date. The group continues to work on a lean and efficient operating structure with strong emphasis on prudent management. As a result, the Group managed to reduce the loss after taxation from 4.04 million for the preceding year to 2.87 million for the year to date. Manufacturing division The manufacturing division recorded revenue of million and net loss of 1.79 million which represents a corresponding decrease of 39.39% in revenue and decrease of % in net profit. The loss recorded in manufacturing division was mainly due to the utilisation of fixed factory overheads following the lower revenue reported. Despite of net loss of 1.79 million, the manufacturing division generated positive cash flow of 2.23 million for the financial year ended 30 June Plantation division The plantation division posted % marginally higher revenue for the financial year ended 30 June 2014 of 9.61 million as compared to 3.81 million earned in the preceding year. Consequently, the plantation division reported lower net loss of 0.27 million as compared to net loss of 4.92 million in the preceding year. The improvement in the result of in the plantation division was primarily due to increase in average fresh fruit bunches ( FFB ) selling prices coupled with higher production of FFB. The total production of FFB was 18,606 metric tonnes ( MT ) for the financial year ended 30 June 2014, which represents a corresponding increase of 96.06% in production of FFB as compared to preceding year. PROSPECT Manufacturing division The market environment remains challenging and the management is continuously monitoring the manufacturing operational cost and efficiency to improve the profitability for this division. Barring any unforeseen circumstances, the performance of the manufacturing division remains challenging and the Board hopes that this division will register a better performance in the next financial year. Plantation division The selling prices of FFB are expected to remain weak in the second half of year 2014 and this would have a corresponding effect on the financial performance for the financial year ending 30 June The Board anticipates another challenging year for plantation division. Group Overall, the Group will proactively search for potential expansion, merger and acquisition opportunities especially in oil palm plantation industry in order to realize our longterm business expansion strategy, and to further enhance our revenue sources and profitability to fetch long-term premium value and returns to our stakeholders in the years ahead. DIVIDEND No dividend has been recommended for the financial year ended 30 June DIRECTORATE The Board is pleased to extend a warm welcome to Mr. Chew Kong Yoon as an Executive Director and Mr. Lim Ee Tatt as a Non-Independent Non-Executive Director. APPRECIATION On behalf of the Boards of Directors, I wish to convey my gratitude to our shareholders, affiliates, partners and esteemed customers for their support and confidence in our Group. I would like to extend my heartfelt gratitude to all of our employees for your patience, dedication, hard work and the spirit of excellence that you have all exhibited. These attributes will definitely help the Group to ride through the future challenges amidst the expected difficult business environment in the year ahead. Last but not least, my sincere thanks to my Board Members for your expert guidance and insight. I look forward to your support and commitment to secure the future growth of the Group. Dato Philip Chan Hon Keong Chairman SCOPE INDUSTRIES BERHAD ( D) 04

6 STATEMENT ON CORPORATE SOCIAL RESPONSIBILITY (CSR) Scope Group s Corporate Social Responsibility (CSR) principle emphasises on achieving commercial success in a balanced and responsible manner by addressing the interests of all stakeholders. The Group not only increases the stakeholder value through its core business but also bearing in mind of its responsibilities for the betterment of the community and the environment. This simple guiding principle ensures that CSR, as we see it, is part and parcel of how we do business. The key initiatives currently undertaken by the Group are :- Stakeholder Relations We are committed to timely and meaningful dialogues with all stakeholders, including shareholders, customers, employees, regulators, etc. Employees The Group recognises that its employees are important assets. It takes good care of the welfare of its employees and employs them under fair and equitable terms besides offering equal opportunity for career advancement based on performance and academic qualification. Training on industrial safety is frequently conducted to ensure high level of awareness on safety requirement at all levels. The Company has conducted the following safety training for its employees : - Firefighting and emergency response by Bomba - First aid and CPR courses by Ahli Persekutuan Antarabangsa Persatuan-persatuan Palang Merah dan Bulan Sabit Merah During the year, the Company has organized the following programmes for its employees : - Eye care programme inclusive of free eye consultant, free eye test, free spectacles services and obtained a special discount from the merchandises - Employees were provided special discount rate of up to 60% on the healthcare services by BP Healthcare Group. - Health check on TIBI and Malaria conducted by Jabatan Kesihatan Daerah Kerian for employees in January Community Strengthening our contribution to the community in our township and helping to foster better community care and goodwill with a target in place to employ 50% of local workforce. We have been conducting industrial training programmes to students from various universities and polytechnics for a period of 3 months with objective of equipping the students with the necessary working skills and knowledge. In December 2013, in line with the theme of Save a Life Campaign, the Company organized a blood donation campaign at its premises for the blood bank of Parit Buntar General Hospital. The objective of this campaign is to impart a sense of responsibility among employees in saving lives and also helping people live longer. The campaign received a very good response from our employees. Environment The Group is committed to environmental awareness and preservation throughout our business. Waste and sludge from production are treated before being discharged. Employees are encouraged to reduce the use of paper, recycle any recyclable items and reduce wastages. Efforts have also been made to conserve energy by ensuring that all lights and air-conditioning are operating only when there is a need. 05 ANNUAL REPORT 2014

7 DATO PHILIP CHAN HON KEONG DIRECTORS PROFILE Dato Philip Chan Hon Keong, a Malaysian, aged 49, was appointed as an Independent Non-Executive Chairman of Scope on 17 April He graduated with a Bachelor of Economics and a Bachelor of Laws from The University of Sydney in Upon admission to the Malaysian Bar in June 1990, he practiced in Messrs Azalina, Chan & Chia and was a partner of the firm until He then joined Messrs Skrine as a partner in the Corporate Division in January Currently, he is the co-head of the Banking and Property Unit in Messrs Skrine. In addition to his directorship in Scope, he currently sits on the board of several private limited companies and two public companies, JF Technology Berhad and Eksons Corporation Berhad. Dato Philip Chan Hon Keong is the Chairman of the Nomination Committee and a member of the Audit Committee and Remuneration Committee. He has no any family relationship with any Director or major shareholders of the Company. LIM CHIOW HOO Lim Chiow Hoo, a Malaysian, aged 51, was appointed as the Managing Director of Scope on 15 July He is a businessman by profession and is the founder of the Group. After completing his Higher School Certificate, he started his career as a Treasurer at Hup Hin Chan Rice Mill Sdn. Bhd. from 1984 to In 1990, he became a sole-proprietor when he set up his business of assembling PCB for office equipments. In 1991, he founded SMSB and his business in the sole proprietorship was subsequently transferred to SMSB. SMSB s operations expanded to include the assembly of PCB for telecommunication products. Being the founder, he is directly involved in the growth and development of SMSB since its inception in Under his stewardship, SMSB s operations have since expanded to include the assembly of PCB for various electronic products with specialisation in audio and telecommunication equipments. Backed by more than 10 years of experience in the electronics industry, Mr. Lim Chiow Hoo possesses in-depth knowledge on the overall operations of SMSB. His functional roles in the Group include the overall management of sales and marketing of the Group. He has no any family relationship with any Director or major shareholders of the Company. LEE MIN HUAT Lee Min Huat, a Malaysian, aged 57, was appointed as the Executive Director of Scope on 15 July He graduated with a Diploma in Aircraft Maintenance Engineering from Confederation College, Canada in Upon graduation, he worked as a Manager at Kalayaan Sdn. Bhd., a property developer, from 1980 to For the past 20 years, he has been involved in property development and commodity trading. In addition to his directorship in Scope, he currently holds directorships in other private limited companies. He is currently responsible for the formulation of corporate strategies, plans for the Group and oversee the Group finance and operations. Mr. Lee Min Huat is a member of the Remuneration Committee. He has no any family relationship with any Director or major shareholders of the Company. CHEW KONG YOON Chew Kong Yoon, a Malaysian, aged 72, was appointed as the Executive Director of Scope on 20 February He obtained his Diploma of the Associate of Incorporated Society of Planters in 1966, Diploma in Management (MIM) in 1977 and Bachelor of Business in Accounting (Australia) in He started his career as a cadet planter in 1961 with Ko Rubber Plantation in Johor. In 1966, he joined Seafield Amalgamated Rubber Co. as a Senior Assistant Manager and later Sime Darby Berhad as an Estate Manager. He was promoted to Planting Adviser in Mr. Chew joined Dynamic Management Sdn Bhd, the plantation subsidiary of IOI Corporation Berhad, in 1983 as an Executive Director acquiring established plantations and developing oil palm plantations from initial purchase of jungle land, establishment of palm oil mills and marketing of produce. He retired from IOI Corporation Berhad in 1997 as a Plantation Director (Sabah Division) and started his own plantation management advisory. He also undertakes project feasibility studies in Malaysia, Indonesia, Papua New Guinea and the Philippines. He has no any family relationship with any Director or major shareholders of the Company. SCOPE INDUSTRIES BERHAD ( D) 06

8 DIRECTORS PROFILE (cont d) LIM EE TATT Lim Ee Tatt, a Malaysian, aged 44, was appointed as the Non-Independent Non-Executive Director of Scope on 2 December Mr. Lim is a graduate of University of South Australia where he holds a bachelor's degree in Mechanical Engineer majoring in Thermodynamics. He furthered his studies in business and management where he completed a post graduate diploma in Business Administration at the same university. He is also a member of the Australian Institute of Engineers. Mr. Lim Ee Tatt has worked as an engineer in Australia and Malaysia where he has acquired his expertise in solid materials handling. He has successfully designed and delivered automated systems for bulk transportation, and handling from powdered chemicals to refined sugar for various manufacturers in Malaysia and the Philippines. After a stint of 5 years in his working career as an engineer, Mr. Lim entered the business in oil palm development and investment with Wah Len Enterprise Sdn Bhd in which he is a major shareholder. Under his leadership and management, the Company grew its core plantation business from a modest 500 acres to 4,500 acres over a spread of 15 years. Currently, he holds the position as Managing Director of the Wah Len Enterprise Sdn Bhd, as well as directorships in other private limited companies. Mr. Lim Ee Tatt is the Managing Director and major shareholder of Wah Len Enterprise Sdn Bhd, which is a major shareholder of the Company. Save for disclosed relationship, he has no any family relationship with any Director or major shareholders of the Company. TAN POH HENG Tan Poh Heng, a Malaysian, aged 57 was appointed as the Independent Non-Executive Director of Scope on 13 May After completing his High School Certificate in 1977, he joined Messrs Price Waterhouse & Co. as an Audit Assistant in May 1978 until March 1983 when he completed his professional examination and qualified as an accountant. In the same year he was admitted as a member of the Malaysian Institute of Certified Public Accountants and later a member of the Malaysian Institute of Accountants in year On April 1983, Mr. Tan Poh Heng joined Messrs Peat, Marwick, Mitchell & Co. as a Qualified Assistant and was subsequently promoted as an Audit Supervisor in January He left Messrs Peat, Marwick, Mitchell & Co. in August 1985 to join South Island Garment Sdn. Bhd. as a Chief Accountant. Mr. Tan left South Island Garment Sdn. Bhd. in March 2002 when he held the position of Senior General Manager and was subsequently employed by Messrs JB Lau & Associates (now known as Grant Thornton) in June 2002 as the Senior Audit Manager, a position he held until September He re-joined the workforce in December 2004 as the Chief Financial Officer of GPS Tech Solutions Sdn. Bhd., an associated company of a public listed entity, Magni-Tech Industries Berhad, a position he held until his retirement in August Currently he is Financial Controller of Panther Precision Tools Sdn Bhd. Mr. Tan Poh Heng is also the Chairman of the Audit Committee and Remuneration Committee and a member of the Nomination Committee. He has no any family relationship with any Director or major shareholders of the Company. YONG LOONG CHEN Yong Loong Chen, a Malaysian, aged 48, was appointed as the Independent Non-Executive Director of Scope on 1 December He is a Chartered Accountant by profession as well as a member of the Malaysian Institute of Certified Public Accountants and also member of the Malaysian Institute of Accountants. He joined Messrs KMPG Peat Marwick as audit senior in year 1990 until Subsequently, he was attached with Paul Chuah & Co as Audit Manager from year 1994 to From year 1995 to 2010, he was a dealer representative with Affin Investment Bank Berhad. Currently he is the Chairman and Executive Director of Cittasukha Berhad. Mr. Yong Loong Chen is a member of the Audit Committee and a member of the Nomination Committee. He has no any family relationship with any Director or major shareholders of the Company. Notes : 1. All the Directors do not have any conflict of interest with the Company and they also had not been convicted of any offence within the past ten (10) years, other than traffic offences, if any. 2. The Directors shareholdings are as disclosed in page 80 of this Annual Report. 07 ANNUAL REPORT 2014

9 CORPORATE GOVERNANCE STATEMENT The Board of Directors of Scope recognises that exercise of good corporate governance in conducting the business and affairs of the Company with integrity, transparency and professionalism are key components for the Company s continued progress and success. These will not only safeguard and enhance shareholders investment and value but will at the same time ensure that the interests of other stakeholders are protected. The Board is pleased to report on the application of the principles of the Malaysian Code on Corporate Governance 2012 ( MCCG 2012 or Code ) and extent of compliance with the Recommendations of the MCCG 2012 as required under MCCG 2012 during the financial year ended 30 June A. BOARD OF DIRECTORS 1. Board Composition and Balance Scope is led and managed by the Board who has a wide range of competencies and experiences ranging from the accounting, business, engineering and law. Presently, the Board has seven (7) Directors comprising three (3) Executive Directors, one (1) Non-Independent Non-Executive Director and three (3) Independent Non-Executive Directors. The Chairman of the Board is an Independent Non-Executive Director. The number of Independent Directors is in compliance with the Listing Requirements of Bursa Malaysia Securities Berhad ( Bursa Securities ) for the ACE Market which requires the Board to have at least two (2) Independent Directors or 1/3 of the Board of Directors, whichever is the higher, to be Independent Directors. The Nomination Committee and the Board assesses the independence of the Independent Non-Executive Directors annually, taking into account the individual Director s ability to exercise independent judgement at all times and to contribute to the effective functioning of the Board. The tenure of all the Independent Non-Executive Directors do not exceed a cumulative term of nine (9) years as recommended by the MCCG The Nomination Committee and the Board had reviewed and assessed their Independent Non-Executive Directors during the financial year and is satisfied with the level of independence demonstrated by the present Independent Non-Executive Directors. The profiles of the Directors are presented on page 6 and 7 of this Annual Report. 2. Duties and Responsibilities of the Board The Group acknowledges the pivotal role played by the Board of Directors in the stewardships of its direction and operations. To fulfil this role, the Board is responsible for the following : Reviewing and adopting strategic plans for the Group which will enhance the future growth of the Group while addressing sustainability of the Group s business; Overseeing the conduct of the Group s businesses to evaluate whether the business are being properly managed; Identifying principal risks of the business and ensuring the implementation of appropriate systems to manage these risks; Reviewing the adequacy and integrity of the Group s internal control systems and management information systems; To consider and implement plans for effective appointments to senior management positions and Board members which includes appropriate and adequate training and ensuring orderly succession of senior management. The role of the Independent Non-Executive Chairman, Managing Director and Executive Director are distinct and separate to ensure that there is a balance of power and authority. The Independent Non-Executive Chairman is responsible for the leadership, effectiveness, conduct and governance of the Board. The Managing Director and Executive Director have overall responsibility for the day-to-day management of the business and implementation of the Board s policies and decisions. The Managing Director and Executive Director are responsible to ensure due execution of strategic goals, effective operations within the Group, and to explain, clarify and inform the Board on key matters pertaining to the Group. All decisions of the Board are made based on decision of the majority and no single Board member can make any decision on behalf of the Board, unless duly authorised by the Board. As such, no single individual or a group of individuals dominates the decision-making process. The Board has overall responsibility for the proper conduct of the Group s and the Board Charter adopted by the Board clearly sets out the respective roles and responsibilities of the Board to ensure accountability. The Board Charter will be periodically reviewed and updated to take into consideration the needs of the Group as well as any development in rules and regulations that may have an impact on the discharge of the Board s duties and responsibilities. SCOPE INDUSTRIES BERHAD ( D) 08

10 A. BOARD OF DIRECTORS (cont'd) 3. Functions of the Board and Management The Board is responsible for the overall corporate governance of the Group, including the strategic direction, risk management and establishes the vision and strategic objectives of the Group for development which includes management development, succession planning and policies to ensure all procedures within the Group are to be carried out in a systematic and orderly manner to ease the decision-making process. The Senior Management carries out the role of managing the business of the Group under the direction and delegations of the Managing Director and Executive Director. 4. Code of Ethics The Directors observed the code in accordance with the Company Directors Code of Ethics established by the Companies Commission of Malaysia. 5. Code of Conduct In order to enhance the standard of corporate governance and behaviour, the Board adopted the code of conduct during the financial year which set out standards of business and ethical conduct to all Directors and employees in the conduct of their business. 6. Appointments of Directors The Board has established the Nomination Committee for the purpose of making recommendations on suitable candidates for appointment to the Board and for assessing Directors on an ongoing basis. Candidates recommended must be approved and appointed by the Board. The Nomination Committee is responsible for recommending the right candidates with the required skills, experience and attributes to the Board for appointment. Further details on the Nomination Committee are set out on page 11 and 12 of this Annual Report. 7. Re-election of Directors Any Director appointed during the year is required under the Company s Articles of Association, to retire and is eligible to seek re-election by shareholders at the forthcoming Annual General Meeting ( AGM ). The Articles of Association of the Company also requires that Directors shall retire from office at least once every three years at the forthcoming AGM and shall be eligible for re-election. Directors over seventy (70) years of age are required to submit themselves for re-appointment annually in accordance with Section 129(6) of the Companies Act, The Director who is seeking for re-election or re-appointment at the forthcoming Twelfth AGM is set out in the Notice of the AGM on page 75 in this Annual Report. 8. Board Meetings CORPORATE GOVERNANCE STATEMENT (cont d) Board Meetings are held every quarter and additional meetings are held as and when necessary. Besides Board meetings, the Board also exercises control on matters that require Board s approval through Directors Circular Resolutions. Key matters reserved for Board s approval include quarterly results, financial statements, major acquisitions and disposals, major capital expenditure, corporate proposal on fund raising and any other significant business direction. 09 ANNUAL REPORT 2014

11 CORPORATE GOVERNANCE STATEMENT (cont d) A. BOARD OF DIRECTORS (cont'd) 8. Board Meetings (cont'd) The Board met four (4) times for the financial year ended 30 June The Board is satisfied with the time commitment given by the Directors of the Company in discharging their duties for financial year ended 30 June 2014 as evidenced by the attendance record of the Directors at the Board meeting. The composition of the Board and the individual Directors attendance of meetings during the financial year ended 30 June 2014 were as follows :- SCOPE INDUSTRIES BERHAD ( D) 10 Attendance Dato Philip Chan Hon Keong Independent Non-Executive Chairman 3/4 Mr. Lim Chiow Hoo Managing Director 4/4 Mr. Lee Min Huat Executive Director 4/4 Mr. Chew Kong Yoon Executive Director 2/2 (appointed on 20 February 2014) Mr. Lim Ee Tatt Non-Independent Non-Executive Director 2/2 (appointed on 2 December 2013) Mr. Tan Poh Heng Independent Non-Executive Director 4/4 Mr. Yong Loong Chen Independent Non-Executive Director 4/4 The Company Secretary ensures there is a quorum for all meetings and that such meetings are convened in accordance with the Articles of Association of the Company. The minutes prepared by the Company Secretary record the proceedings of all meetings including pertinent issues, the substance of inquiries and responses, members suggestions and the decisions made. This reflects the fulfilment of the Board s fiduciary duties and the significant oversight role performed by the respective Board Committees. 9. Internal Corporate Disclosure Policies and Procedures Along with good corporate governance practices, the Company is committed to providing the investors and public with comprehensive, accurate and material information on a timely basis. In line with this commitment and in order to enhance transparency and accountability, the Board has adopted an Internal Corporate Disclosure Policies and Procedures to facilitate the handling and disclosure of material information in a timely and accurate manner. 10. Sustainability The Group identified the environment conservation and social contribution as key elements in formulation of its objectives and strategies. The Group recognise the need to safeguarding and developing the workforce, strengthening stakeholders relationship and protecting the interest of shareholders. A corporate social responsibility statement is also set out in the relevant section of this Annual Report. 11. Board Gender, Ethnicity and Age Diversity Policy Under Rule 15.08A of ACE Market Listing Requirement, the Company in the disclosure of its policy on board composition in the annual report, to include not only the policy on gender diversity, but also diversity in ethnicity and age. Currently, the Company does not have the said policy and the Board will work out the gender, ethnicity and age policy to be adopted by the Company. 12. Supply and Access to Information The Board members have full and unrestricted access to information on the Group s business and affairs in discharging their duties. Prior to the meetings, all Directors are provided with sufficient and timely reports and supporting documents which are circulated in advance of each meeting to ensure sufficient time is given to understand the key issues and contents. In order to assist them in their decision making, the Board is supported by suitably qualified and competent company secretaries and has full access to the advice and service of the Company Secretaries, who is responsible to ensure that the Board meeting procedures are followed and the applicable statutory and regulatory requirements are complied with. Where necessary, the Directors may obtain independent professional advice at the Company s expense on specific issues to enable the Board to discharge their duties on the matters being deliberated.

12 CORPORATE GOVERNANCE STATEMENT (cont d) A. BOARD OF DIRECTORS (cont'd) 13. Directors Training All the Directors of Scope have attended and successfully completed the Mandatory Accreditation Programme as required by the Bursa Securities. In addition, the Directors are encouraged to attend other relevant training programmes, courses and seminars relevant in enhancing the Directors in discharging their duties. During the year, the Directors have also attended and participated at other seminars and conferences for the continuing enhancement of their knowledge and to keep abreast of developments in the market place. Among the training programmes attended by the Directors are as listed : No. Name of Director Seminar/Training Course Attended No of days 1. Dato Philip Chan Hon Keong APLMA Malaysia Loan Documentation Training (12 November 2013) Proposed Changes in Companies Act 1965 (27 February 2014) 1 day 1 day 2. Mr. Lim Chiow Hoo Malaysian Budget 2014 (6 November 2013) Half day 3. Mr. Lee Min Huat GST Awareness Seminar (12 December 2013) Half day 4. Mr. Chew Kong Yoon Mandatory Accreditation Programme for Directors of Public Listed 2 days Companies (4 & 5 September 2013). 5. Mr. Lim Ee Tatt GST Awareness Seminar (12 December 2013) Half day 6. Mr. Tan Poh Heng Malaysian Budget 2014 (6 November 2013) GST Seminar (5 March 2014) Unclaimed Money Act 1965 (27 March 2014) Forex & Economics Outlook (23 May 2014) 7. Mr. Yong Loong Chen An Update On TPPA (5 September 2013) Road Construction and Maintenance in Malaysia (10 April 2014) Nominating Committee Programme (16 June 2014) Prospects for Private Healthcare in Malaysia (19 June 2014) Half day 1 day 1 day 1 day Half day Half day 1 day Half day B. COMMITTEES OF THE BOARD To assist the Board in the discharge of their duties effectively, the Board has delegated specific functions to certain committees, namely Nomination Committee, Remuneration Committee and Audit Committee. Each committee will operate within its clearly defined terms of reference. The Chairman of the various committees will report to the Board on the outcome of the committee meetings. 1. Audit Committee The terms of reference of the Company s Audit Committee and its activities during the financial year are set out under the Audit Committee Report on pages 17 to 19 of this Annual Report. 2. Nomination Comittee The Nomination Committee which was formed on 19 November 2003 comprises of the following members and the individual Directors attendance of meetings during the financial year ended 30 June 2014 were as follows :- Attendance Dato Philip Chan Hon Keong (Chairman) Independent Non-Executive Chairman 2/2 Mr. Tan Poh Heng Independent Non-Executive Director 2/2 Mr. Yong Loong Chen Independent Non-Executive Director 2/2 11 ANNUAL REPORT 2014

13 B. COMMITTEES OF THE BOARD (cont'd) 2. Nomination Comittee (cont'd) The duties and responsibilities of the Nomination Committee are guided by its terms of reference. The main responsibilities of the Nomination Committee included the following :- Nominate the right candidates with the required skills, knowledge and experience for recommendation to and appointment by the Board. Regularly review the structure, size and composition (including the skills, knowledge and experience) required of the Board compared to its current position and make recommendations to the Board with regard to any changes. Review and recommend the membership of the Audit and Remuneration Committees, in consultation with the chairmen of those committees. Assess the effectiveness of the Board and the contribution of individual directors and his independence where applicable. To develop, maintain and review the criteria to be used in the recruitment process and annual assessment of directors. The Nomination Committee has developed criteria to assess the effectiveness of the Board, the Board committees and individual Director. The evaluation on the Board s effectiveness is divided into four sections on the following key areas :- Adding value Conformance Stakeholder Relationship Performance management CORPORATE GOVERNANCE STATEMENT (cont d) The process also assess the competencies of each Director in the areas of integrity and ethics, governance, strategic perspective, business acumen, judgement and decision making, teamwork, communication and leadership. The Nomination Committee also undertakes annual assessment of the independence of its independent directors based on required mix skills, criteria of independence as per requirements of ACE Market Listing Requirements, meeting attendance, ability to ensure effective checks and balances on the Board s decision making process, constructively challenge business propositions and contributes to the development of business strategy and direction of the Company, ensures that adequate systems and controls to safeguard the interests of the Company are in place and continuous updating of knowledge and enhancing of skills through attendance of business related trainings. When considering new appointment, the Nomination Committee shall evaluate the balance of skills, knowledge and experience on the board, and, in the light of this evaluation prepare a description of the role and capabilities required for a particular appointment. In identifying suitable candidates the Committee shall consider candidates from a wide range of backgrounds and consider candidates on merit and against objective criteria, taking care that appointees have enough time available to devote to the position. The Nomination Committee and the Board does not set any target on gender diversity. Currently, the Company will provide equal opportunity to candidates with merit. The Nomination Committee meets at least once a year and as and when necessary. The Nomination Committee had met twice during the financial year and to activities of the Nomination Committee is summarised as follows :- (a) (b) (c) (d) Reviewed and assessed the effectiveness of the Board, the committees of the Board and the contribution of each individual director, including Independent Non-Executive Directors. Reviewed and recommended to the Board on the nomination of Mr Lim Ee Tatt as Non-Independent Non-Executive Director and Mr Chew Kong Yoon as Executive Director. Reviewed and recommended the re-election of Directors who were retiring and seeking for re-election at Eleventh Annual General Meeting. Reviewed and assessed the Independent Non-Executive Directors. SCOPE INDUSTRIES BERHAD ( D) 12

14 CORPORATE GOVERNANCE STATEMENT (cont d) B. COMMITTEES OF THE BOARD (cont'd) 3. Remuneration Committee The Remuneration Committee which was formed on 19 November 2003 comprises of the following members and the individual Directors attendance of meetings during the financial year ended 30 June 2014 were as follows :- Attendance Mr. Tan Poh Heng (Chairman) Independent Non-Executive Director 1/1 Dato Philip Chan Hon Keong Independent Non-Executive Chairman 1/1 Mr. Lee Min Huat Executive Director 1/1 The Remuneration Committee is governed by its terms of reference and its primary function is to be responsible for recommending to the Board from time to time, the remuneration framework and package of the Executive Directors in all forms to commensurate with the respective contributions of the Executive Directors. The Executive Directors are to abstain from deliberations and voting on the decision in respect of their own remuneration packages. The Board as a whole decides on the remuneration of the Non-Executive Directors, including the Non-Executive Chairman. The individual concerned should abstain from deliberations of their own remuneration packages. Directors fees are subject to shareholders approval at the forthcoming AGM. 3.1 Remuneration The Directors are satisfied with the current levels of remuneration, which are in line with the responsibilities expected by the Company. In general, the remuneration is structured so as to link reward to corporate and individual performance, as in the case of the Executive Directors and senior management. As for the Non-Executive Directors, the level of remuneration reflects the experience, expertise and level of responsibilities undertaken by the particular Non-Executive Directors concerned. The details of the nature and amount of remuneration paid or payable to the Directors of the Company for the financial year ended 30 June 2014 are as follows : Executive Non-Executive Total Salaries & bonuses 475, ,580 Fees 38,000 48,000 86,000 EPF 51,174-51,174 Allowance 5,000 6,500 11, ,754 54, ,254 The number of Directors whose remuneration falls into the following bands for the financial year ended 30 June 2014 are as follows : Number of Directors Range of Remuneration Executive Non-Executive Below 50, ,001 to 100, ,001 to 150, ,001 to 200, ,001 to 250, ,001 to 300, ANNUAL REPORT 2014

15 CORPORATE GOVERNANCE STATEMENT (cont d) C. SHAREHOLDERS The Board recognises the value of investor relations and endeavours to maintain constant and effective communication with shareholders through timely and comprehensive announcements. The AGM is the principal forum dialogue with all shareholders. The participation of shareholders and investors, both individual and institutional, at general meetings is encouraged whilst requests for briefings from the press and investment analysts are usually met as a matter of course. The Chairman of the general meeting would inform the shareholders on their right to demand for a poll vote at the commencement of the general meeting and would conduct poll voting if demanded by shareholders. Notice of Annual General Meeting and the annual report are sent to shareholders at least 21 days before the date of the meeting. Information of the Group is also accessible through the Company s website ( which is updated on a regular basis. Information available in the website includes among others the Group Annual Report, quarterly financial announcements, major and significant announcements, press release and latest corporate developments of the Group. D. ACCOUNTABILITY AND AUDIT 1. Financial Reporting The Board has a responsibility to present a true and fair assessment of the Group s position and prospects primarily through the quarterly reports to the Bursa Securities and the Annual Report to shareholders. The Audit Committee assists the Board in scrutinising information for disclosure to ensure accuracy and adequacy. 2. Statement of Directors Responsibility for Annual Audited Financial Statements The Directors are responsible for the preparation of financial statements each financial year in accordance with the requirements of the Companies Act, 1965 and Financial Reporting Standards in Malaysia. Central to those requirements is the need to ensure that these financial statements present a true and fair view of the state of affairs of the Group and the Company, the results, cash flows and statement of changes in equity. In the preparation of these financial statements for the year under review, appropriate accounting policies have been selected and they have been applied in a consistent manner. The Directors have the general responsibility of taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. 3. Internal Control The Group s Statement on Risk Management And Internal Control is laid out on page16 of this Annual Report. 4. Relationship with the Auditors The role of the Audit Committee in relation to the External Auditors may be found in the Report of the Audit Committee set out in pages 17 to 19. The Group has always maintained a close and transparent relationship with its auditors in seeking professional advice and ensuring compliance with the appropriate accounting standards. 5. Statement on the Compliance with the best practices of the Code The Board is satisfied that in financial year 2014, save for the above relevant explanations, the Group is in substantial compliance with the principles and recommendations of the Code. SCOPE INDUSTRIES BERHAD ( D) 14

16 E. OTHER INFOATION 1. Share Buybacks During the financial year, the Company did not enter into any share buyback transactions. 2. Options, Warrants or Convertible Securities During the financial year ended 30 June 2014, there were 5,000,000 new ordinary shares of 0.10 each issued pursuant to the exercise of warrants. Save as disclosed above, there were no issuance of convertible securities during the financial year. 3. Depository Receipt (DR) During the financial year, the Company did not sponsor any DR programme. 4. Imposition of Sanctions and/or Penalties There was no public imposition of sanctions and/or penalties imposed on the Company and its subsidiaries, directors or management by the regulatory bodies during the financial year. 5. Profit Guarantee The Company did not receive any profit guarantee from any parties during the financial year. 6. Material Contracts There were no material contracts entered into by the Company and its subsidiaries involving Directors and major shareholders interests either still subsisting as at 30 June 2014 or entered into since the end of the previous financial year. 7. Recurrent Related Party Transactions of a Revenue or Trading Nature There was no recurrent related party transaction of a revenue or trading nature during the financial year ended 30 June Variation in Results There were no material variations between the audited results for the financial year ended 30 June 2014 and the unaudited results released for the financial quarter ended 30 June Utilisation of Proceeds During the financial year ended 30 June 2014, there were no proceed raised by the Company from any corporate exercise. 10. Non-Audit Fees CORPORATE GOVERNANCE STATEMENT (cont d) During the financial year, there was no non-audit fees paid to the external auditors of the Group or a company affiliated to the auditors firm. 15 ANNUAL REPORT 2014

17 STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL The Board is committed to nurture and preserve throughout the Group a sound system of risk management and internal controls in accordance with the Statement on Risk Management and Internal Control: Guidance for Directors of Listed Issuers issued by the Institute of Internal Auditors Malaysia and as adopted by Bursa Malaysia Securities Berhad. Board Responsibility The Board has overall responsibility for internal control and risk management, and for reviewing the adequacy and integrity of those systems. The Board fully understands its responsibility to maintain a sound system of internal control to safeguard the interest of shareholders. The systems in place are designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable but not absolute assurance against material misstatement or loss. Risk Management The Board recognises the importance of establishing a structured risk management framework to sustain and enhance good corporate governance practices. The Board has a structured Risk Management framework that undertakes the Group s desires to identify, evaluate and manage significant business risks. The framework includes examining of business risks, assessing impact and likelihood of risks and taking management action plans to mitigate and minimise risks exposure. Key Elements of the Group s Risk Management and Internal Control System The Board maintains an organisational structure with clearly defined levels of responsibility and authority and appropriate reporting procedures. The following outlines the main elements of the Group s control system :- (a) (b) (c) Supplying comprehensive financial and management reports to the Audit Committee and the Board on a quarterly basis for review. Stringent recruitment policy is set to ensure only capable and competent staff are employed which in turn ensure each operating unit is functioning effectively. The Group s performance is monitored through management and operational meeting attended by senior management. The Managing Director and Executive Directors are involved in the day to day operations of the Group. Internal Audit Function During the financial year, the Group has appointed an independent internal audit service provider to carry out internal audit reviews on assessing the adequacy and integrity of the internal control systems of the business units within the Group. The internal audit team highlights to the executive and operational management on areas for improvement and subsequently reviews the extent to which its recommendations have been implemented. The reports are submitted to the Audit Committee, who reviews the findings with management at its quarterly meetings. In addition, the management s response to the control recommendations on deficiencies found during the internal audits in order to provide an added assurances that control procedures are in place, and being followed. The cost incurred for the internal audit function in respect of the financial year ended 30 June 2014 was 10,000. Conclusion The Board has received assurance from the Managing Director and the Financial Controller that the Group s risk management and internal control system is operating adequately and effectively, in all material aspects, based on the risk management and internal control system of the Group. Overall, the Board and Management are satisfied that the process of identifying, evaluating and managing significant risks that may affect achievement of the Group s business objectives are in place. There are continuing efforts to strengthen the internal control environment taking into consideration the recommendations from the internal auditors. SCOPE INDUSTRIES BERHAD ( D) 16