Corporate Information 2. Chairman s Statement 3. Group Financial Highlights 5. Directors Profile 6. Statement on Corporate Governance 10

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2 contents Corporate Information 2 Chairman s Statement 3 Group Financial Highlights 5 Directors Profile 6 Statement on Corporate Governance 10 Statement on Internal Control 14 Audit Committee Report 16 Directors Report 20 Statement by Directors and Statutory Declaration 26 Report of the Auditors 27 Balance Sheets 28 Income Statements 29 Statements of Changes in Equity 30 Cash Flow Statements 32 Notes to the Financial Statements 36 Properties Owned by the Group 80 Additional Compliance Information 86 Analysis of Shareholdings 87 Notice of Annual General Meeting 90 Proxy Form 1

3 corporate information BOARD OF DIRECTORS TAN SRI LIM GUAN TEIK, PSM, JMN, DMPN, DJN Chairman AZAMAN BIN ABU BAKAR Managing Director DATO LIM WAN PENG, DSPN Executive Director LIM CHIUN CHEONG Executive Director (Redesignated on ) DATUK HJ YAHAYA BIN YEOP ISHAK, PGDK, JMN, KMN, SMP Senior Independent Non-Executive Director DATUK NIK HUSSAIN BIN NIK ALI, DJMK, PMK Independent Non-Executive Director PATRICK CHIN YOKE CHUNG Independent Non-Executive Director DATUK NIK IBRAHIM BIN NIK ABDULLAH, PJN, JSM, AMN Independent Non-Executive Director LIM WAN HOI Executive Director (Retired on ) AUDIT COMMITTEE PATRICK CHIN YOKE CHUNG (Chairman) AZAMAN BIN ABU BAKAR DATUK HJ YAHAYA BIN YEOP ISHAK, PGDK, JMN, KMN, SMP DATUK NIK IBRAHIM BIN NIK ABDULLAH, PJN, JSM, AMN LIM CHIUN CHEONG (Appointed on ) COMPANY SECRETARY GOH CHING YEE (MAICSA ) REGISTERED OFFICE AND PRINCIPAL PLACE OF BUSINESS Lot 7, Jalan 51A/ Petaling Jaya Selangor Darul Ehsan Tel : Fax : SHARE REGISTRAR MUDA MANAGEMENT SERVICES SDN BHD Lot 7, Jalan 51A/ Petaling Jaya Selangor Darul Ehsan Tel : Fax : STOCK EXCHANGE LISTING MAIN BOARD OF BURSA MALAYSIA SECURITIES BERHAD AUDITORS SHAMSIR JASANI GRANT THORNTON (Member of Grant Thornton International) Chartered Accountants Level 11, Faber Imperial Court Jalan Sultan Ismail Kuala Lumpur BANKERS AMBANK BERHAD CITIBANK BERHAD HONG LEONG BANK BERHAD MALAYAN BANKING BERHAD OCBC BANK (MALAYSIA) BERHAD RHB BANK BERHAD UNITED OVERSEAS BANK (MALAYSIA) BERHAD MERCHANT BANKERS AMMERCHANT BANK BERHAD RHB SAKURA MERCHANT BANKERS BERHAD SOLICITOR RAJA ELEENA SIEW ANG & ASSOCIATES 2

4 chairman s statement On behalf of the Board, I have pleasure to present to you the Annual Report and Audited Financial Statements of Muda Holdings Berhad for the financial year ended 31 December FINANCIAL REVIEW I am pleased to report that the Group achieved a pre-tax profit of RM11.5 million on a turnover of RM582 million which is 92% and 2% higher respectively compared to a pre-tax profit of RM6 million and turnover of RM568million reported in the last financial year. The improvement in the profitability of the Group is attributable to the lower production cost of the Paper Milling Division. OPERATIONAL REVIEW During the year under review, the Paper Milling Division experienced favourable market condition. Strong local and external demand for locally produced goods contributed to stable selling price and demand for industrial paper and paper packaging material. The substitution of fuel oil with natural gas in our Kajang location from March 2005, which was mentioned in my last report, has contributed significantly to the profitability in the Paper Milling Division. A similar energy cost saving program will be extended to Tasek location in the second quarter of 2006 and its impact will be reflected in the results of The Group has embarked on the second phase of our energy cost saving program in the Kajang location with an investment of RM29million committed at the end of the year to construct a combined heat and power plant (CHP) to further reduce energy cost. The CHP plant is scheduled to commence operation by Besides efforts to improve cost competitiveness in the Paper Milling Division, the Group has committed an investment of RM45million to install an additional paper machine at Tasek to increase production tonnage by 36,000 metric ton. The installation of the paper machine started during the second half of 2005 and is scheduled to commence commercial production by the second half of The Paper Packaging Division continued to suffer from excess capacity in the paper packaging industry. Despite operating under difficult market environment, the Paper Packaging Division was able to maintain its revenue as compared with the last financial year. The Trading Division continued to contribute to revenue growth of the Group. In the current financial year, revenue generated from Singapore and Australia accounted for 10% of the Group s total revenue. CORPORATE DEVELOPMENT During the year under review, the Company transferred the business and the associated assets and liabilities of its Carton Operation in Kajang to Muda Packaging Industry Sdn Bhd for a total consideration of RM54.2million to convert the Company to an investment holding company. DIVIDEND The Board is recommending a First and Final Tax Exempt Dividend of 2.5 sen per share (5%) amounting to RM7,122,653 for the financial year ended 31 December 2005 and if approved at the forthcoming Annual General Meeting, it will be paid on 26 July

5 chairman s statement PROSPECT FOR 2006 After considering the economic outlook and the trend in world paper price, your Board is of the opinion that the Group s performance for 2006 will continue to improve. APPRECIATION On behalf of the Board of Directors, I would like to convey the Board s appreciation to Mr Lim Wan Hoi, who has retired as Executive Director on 30 June 2005 and express our gratitude for his invaluable guidance, support and contributions during his 32 years of service with the Group. We wish him happy retirement. Similarly, I would like to extend the Board s appreciation to our customers, employees, business associates, bankers and shareholders for the support and trust rendered to the Board and the Group. TAN SRI LIM GUAN TEIK, PSM, JMN, DMPN, DJN Chairman 4

6 group financial highlights 2001 Restated RM 000 RM 000 RM 000 RM 000 RM 000 INCOME STATEMENT Turnover 428, , , , ,045 Operating profit 4,278 (5) (3,447) 5,624 10,407 Exceptional items (4,355) 392 1,122 Profit before taxation 4,278 (4,360) (3,447) 6,016 11,529 Taxation 1,145 3,189 (1,543) (6,554) (3,081) Profit after taxation 5,423 (1,171) (4,990) (538) 8,448 Pre-acquisition (profit)/loss (395) 321 Minority Interests (100) (383) (1,042) (1,236) (867) Extraordinary items 2,962 1,548 Profit attributable to shareholders 4,928 1,729 (4,484) (1,774) 7,581 Dividends 4,270 2,849 2,849 5,698 7,123 BALANCE SHEET Share capital 142, , , , ,453 Share premium 4,772 4,772 4,772 4,772 4,772 Capital reserves 78,348 61,439 62,202 61,745 74,256 Retained profits 186, , , , ,315 Minority interests 4,158 3,834 5,350 6,635 7,317 FUNDS EMPLOYED 415, , , , ,113 Property, plant and equipment 491, , , , ,340 Associated companies Investments 2,919 2,182 2,305 2,200 2,068 Current assets 226, , , , ,691 Intangible assets 17,614 16,429 16,284 16,278 15,747 Deferred tax assets ,158 TOTAL ASSETS 739, , , , ,029 TOTAL LIABILITIES (323,276) (367,120) (398,527) (424,844) (451,916) NET ASSETS EMPLOYED 415, , , , ,113 Earnings per share (sen) before tax 1.3 (0.5) (1.0) after tax (1.6) (0.6) 2.7 Dividend per share gross (sen) net (sen) cover (times) N/A N/A 1.1 Profit before taxation as a % of turnover 1.0% (0.9%) (0.7%) 1.1% 2.0% shareholders equity 1.0% (1.1%) (0.9%) 1.6% 2.9% NTA per share (sen) Weighted average shares in issue during the year 282,796, ,818, ,884, ,898, ,906,136 5

7 directors profile TAN SRI LIM GUAN TEIK, PSM, JMN, DMPN, DJN Aged 71, Malaysian Chairman Tan Sri Lim Guan Teik obtained his Bachelor of Commerce Degree from Nanyang University of Singapore. Tan Sri Lim has been Chairman of the Company since 1988 and was the Group Managing Director from 1983 until April He is also the Chairman of the Executive Committee. Besides being the Chairman of Muda Holdings Berhad, Tan Sri Lim is also the Chairman of Unico Holdings Berhad. Tan Sri Lim has been actively involved in the paper industry and has more than forty years experience in the commercial and industrial sector. He was the President of the Malaysian Pulp & Paper Manufacturers Association from 1980 to 1992 and is currently one of the Advisors of the Association. He was the President of both the Associated Chinese Chamber of Commerce & Industry Malaysia (ACCCIM) from 1995 to 2003 and The Kuala Lumpur & Selangor Chinese Chamber of Commerce & Industry (KLSCCCI) from 1998 to He is now the Honorary President of both ACCCIM and KLSCCCI. Tan Sri Lim has been the Honorary President of the Malaysia-China Chamber of Commerce since Tan Sri Lim is the brother of Dato Lim Wan Peng who is an Executive Director and major shareholder of Muda Holdings Berhad and Mr Lim Wan Hoi a major shareholder of the Company. He is also the father of Mr Lim Chiun Cheong who is an Executive Director and major shareholder of the Company. He attended all the six (6) Board Meetings held during the financial year ended 31 December He is deemed to have an interest in certain related party transactions in the Muda Group as disclosed on Page 71 of this Annual Report and has not been convicted of any offences within the past ten years. AZAMAN BIN ABU BAKAR Aged 59, Malaysian Managing Director Encik Azaman Bin Abu Bakar graduated from University of Malaya in 1969 and obtained a Master in Management Degree from the Asia Institute of Management, Manila in He left Harper Gilfillan where he worked as a marketing executive to join the Urban Development Authority (UDA) in His last position in UDA was that of Director in charge of property management and marketing. He was appointed Executive Director of Muda Holdings Berhad in 1985 and subsequently as Deputy Chairman in October He assumed the post of Managing Director in April 2004 and was appointed a member of the Audit Committee in November He is also a member of the Executive Committee and Remuneration Committee. Encik Azaman Bin Abu Bakar does not have any family relationship with any other Directors and or major shareholders of the Company. He attended all the six (6) Board Meetings held during the financial year ended 31 December He has no conflict of interest with the Company and has not been convicted of any offences within the past ten years. 6

8 directors profile DATO LIM WAN PENG, DSPN Aged 63, Malaysian Executive Director Dato Lim Wan Peng joined Muda Paper Mills Sdn Bhd in 1970 as a Manager before being promoted to the post of Deputy General Manager in 1979 and was subsequently appointed Director of Muda Paper Mills Sdn Bhd in He has been an Executive Director of Muda Holdings Berhad since He is currently the Managing Director of Muda Paper Mills Sdn Bhd and Federal Packages Sdn Bhd. Dato Lim is actively involved in the management of the paper mills division, marketing division and overseas division. He is a member of the Executive Committee. He is the brother of Tan Sri Lim Guan Teik who is the Chairman and a major shareholder of Muda Holdings Berhad and Mr Lim Wan Hoi a major shareholder of the Company. He is also the uncle of Mr Lim Chiun Cheong who is an Executive Director and a major shareholder of the Company. He attended all the six (6) Board Meetings held during the financial year ended 31 December He is deemed to have interest in certain related party transctions in the Muda Group as disclosed on Page 71 of this Annual Report and has not been convicted of any offences within the past ten years. LIM CHIUN CHEONG Aged 42, Malaysian Executive Director Mr Lim Chiun Cheong was appointed a member of the Board on 23 April 2004 and subsequently as Executive Director on 1 September He holds a Bachelor of Science Degree from Arizona State University, United States of America and a Bachelor of Law Degree from University of Birmingham, United Kingdom which he obtained in 1986 and 1989 respectively. He was called to the English and Malaysian Bar in 1990 and 1991 respectively. He joined the Muda Group as Legal Assistant in October 1991 and assumed the post of General Manager of Intra-Muda Holdings Sdn Bhd in November He was appointed Executive Director of Intra- Muda Holdings Sdn Bhd in January 1997 and held the post until 1 September He is involved in managing the Packaging Division and Trading Division and oversees other subsidiaries in the Muda Group. He also sits on the board of several local and overseas subsidiaries in the Group. He represents Muda Paper Mills Sdn Bhd in the Malaysia Pulp & Paper Manufacturers Association and serves as a Council Member of The Kuala Lumpur & Selangor Chinese Chamber of Commerce & Industry. Mr Lim Chiun Cheong is the son of Tan Sri Lim Guan Teik who is the Chairman and a major shareholder of the Company. Mr Lim Chiun Cheong is also the nephew of Dato Lim Wan Peng who is an Executive Director and a major shareholder of the Company and Mr Lim Wan Hoi who is also a major shareholder of the Company. He attended all the six (6) Board Meetings held during the financial year ended 31 December He is deemed to have an interest in certain related party transactions in the Muda Group as disclosed on Page 71 of this Annual Report and has not been convicted of any offences within the past ten (10) years. 7

9 directors profile DATUK HJ YAHAYA BIN YEOP ISHAK, PGDK, JMN, KMN, SMP Aged 73, Malaysian Senior Independent Non-Executive Director Datuk Hj Yahaya Bin Yeop Ishak started his career with the Royal Malaysia Police in 1959 as a cadet Assistant Superintendant of Police and retired in 1987 as Director of Criminal Investigation Department. He was appointed an independent non-executive Director of the Company in He holds a Master in Business Administration Degree from Brunel University, United Kingdom which he obtained in Datuk Hj Yahaya is the President of the Malaysia Pulp & Paper Manufacturers Association and Chairman of the Federation of Asean Pulp and Paper Industries. He has been a member of the Advisory Committee on Paper and Wood Products of the Food and Agriculture Organisation of the United Nations since January He is Chairman of the Remuneration Committee and a member of the Audit Committee, Executive Committee and Nomination Committee. He has been identified as the Senior Independent Non-Executive Director to whom shareholders and the public may convey their concerns. He is also a director of PPKB Swack Berhad and is an advisor to Group 4 Falck Malaysia Sdn. Bhd. He does not hold any shares in the Company and subsidiaries and neither does he have any family relationship with any directors and or major shareholders. There is no business arrangement with the Company in which he has personal interest. He attended all the six (6) Board Meetings held during the financial year ended 31 December He does not have any conflict of interest with the Company nor any convictions for offences within the last ten (10) years. DATUK NIK HUSSAIN BIN NIK ALI, DJMK, PMK Aged 74, Malaysian Independent Non-Executive Director Datuk Nik Hussain Bin Nik Ali read his law at Lincoln s Inn, London and was called to the English Bar in Currently he is practising as an Advocate and Solicitor in Malaysia and is a senior partner in his own legal firm. He served in the civil service for some eighteen years as Assistant District Officer, Magistrate, President of Sessions Court, Senior Federal Counsel, Deputy Parliamentary Draughtsman and his last government post was as Registrar of Companies, Malaysia in He was also a member of the Malaysian Capital Issues Committee and the Foreign Investment Committee until He was appointed an independent non-executive Director of the Company in 1983 and was Chairman of the Audit Committee from July 1994 until February He is also a director of Bonia Corporation Berhad and Dragages (M) Berhad. He does not have any family relationship with any directors and or major shareholders and has no business arrangement with the Company in which he has personal interest. He attended five (5) out of the six (6) Board Meetings held during the financial year ended 31 December He does not have any conflict of interest with the Company nor any convictions for offences within the last ten (10) years. 8

10 directors profile PATRICK CHIN YOKE CHUNG Aged 60, Malaysian Independent Non-Executive Director Mr Patrick Chin Yoke Chung is a fellow member of the Institute of Chartered Accountants in England and Wales since He joined Asian International Merchant Bankers Berhad (AIM) in 1974 and left AIM at the post of Deputy General Manager in 1994 to join Morgan Grenfell (M) Sdn Bhd as the Country Head. Thereafter, he was attached to Bankers Trust Company as Country Head/Chief Representative until the end of 1999 and was subsequently appointed Chairman of Schroeder (Malaysia) Sdn Bhd until Mr Patrick Chin was appointed an independent non-executive Director of the Company in 1994 and is also a director of Leader Universal Holdings Berhad. He was appointed Chairman of the Audit Committee in February He is also the Chairman of the Nomination Committee and a member of the Remuneration Committee. He does not have any family relationship with any directors and or major shareholders and there is no business arrangement with the Company in which he has personal interest. He attended four (4) out of six (6) Board Meetings held during the financial year ended 31 December He does not have any conflict of interest with the Company nor any convictions for offences within the last ten (10) years. DATUK NIK IBRAHIM BIN NIK ABDULLAH, PJN, JSM, AMN Aged 62, Malaysian Independent Non-Executive Director Datuk Nik Ibrahim Bin Nik Abdullah, a Malaysian, aged 62, was appointed as an Independent Non-Executive Director on 23 April He holds a B.A. (Hons) Economics Degree from University of Malaya. After his graduation, he joined Malaysian Industrial Development Authority (MIDA) in 1968 as an Economist and later served in the Ministry of Finance as Assistant Secretary from 1970 to He returned to MIDA in 1972 as Senior Economist until He then joined Bank Pembangunan & Infrastruktur Malaysia Berhad as Manager and rose to the position of General Manager, Chief Executive Officer and lastly as Chief Operating Officer until his retirement in March Datuk Nik Ibrahim Bin Nik Abdullah was appointed a member of the Audit Committee in February He is currently a Director of Techventure Berhad and sits on the board of a few other local companies. He does not hold any shares in the Company and subsidiaries and neither does he have any family relationship with any directors and or major shareholders. He attended all the six (6) Board Meetings held during the financial year ended 31 December He does not have any conflict of interest with the Company nor any convictions for offences within the last ten (10) years. 9

11 statement on corporate governance The Board of Muda Holdings Berhad recognises that the practice of good corporate governance is a fundamental element in the Group s continued growth and success. The Board remains fully committed to ensuring that the highest standard of corporate governance, based on the Principles and Best Practices set out in the Malaysian Code on Corporate Governance ( the Code ), are applied and maintained throughout the Group with the objective of safeguarding and enhancing long term shareholders value and the financial performance of the Group, whilst taking into account the interests of other stakeholders. The Board is pleased to report on the application of the Code by the Group in this Statement. BOARD STRUCTURE AND PROCEDURES The Company is led by an effective Board which sets policies that will enable them to guide the Company to achieve its goals. The Directors recognise the key role they play in charting the strategic direction, development and control of the Group whilst complying with the Code to facilitate the effective discharge of the Board s responsibilities. The Board currently has eight (8) directors comprising four (4) executive members and four (4) independent non-executive members. The role of the Independent Non-Executive Directors is particularly important as they provide unbiased and independent view, advice and judgement to take account of the interests, not only of the Group, but also of shareholders, employees and other stakeholders and they also contribute inter-alia in areas of performance monitoring, enhancing controls and standards of conduct. Together the Directors bring a wide spectrum of business acumen, financial experience, skills and perspective necessary to carry out the Group s business operations. A brief profile of each of the Directors is presented on page 6 to 9 of this Annual Report. The Board meets on a scheduled basis and has formal schedule of matters reserved for its meetings. For the financial year ended 31 December 2005, the Board held six (6) meetings. Director s attendance to these meetings can be found in the Profiles of Directors from pages 6 to 9 of this Annual Report. At Board Meetings, strategies, performances and resources of the Group are reviewed and evaluated against their budgets and targets in the light of any changing circumstances whether economic, social or political. Although all Directors have equal responsibilities for the Group s operations, the pivotal role played by the Independent Non-Executive Directors is vital to ensure that strategies formulated or transactions proposed by management are amply discussed in an unbiased and independent manner, taking into account the interests of stakeholders. BOARD COMMITTEES In discharging its fiduciary duty, the Board is assisted by Board Committees, namely the Audit Committee, the Executive Committee, the Nomination Committee and the Remuneration Committee. The Board, through these Committees addresses and monitors the principal risks affecting or that may affect the Group s operations and the measures that could be taken to mitigate such risks. The terms of reference of each of the committees have been approved by the Board. In addition, where necessary, the Board may seek advice from independent professionals in their respective fields to express their views on specific matters, in the furtherance of their duties. AUDIT COMMITTEE The composition and terms of reference of the Audit Committee together with its report are presented on page 16 to 19 of this Annual Report. 10

12 statement on corporate governance EXECUTIVE COMMITTEE The Executive Committee is duly authorised and empowered by the Board to exercise management control over all operational matters, to implement the policies and decisions of the Board and to initiate business development efforts for the Group. The Executive Committee, as a general rule meets on a monthly basis. For the financial year ended 31 December 2005, seventeen (17) meetings were held. REMUNERATION COMMITTEE The Remuneration Committee s primary responsibility is to develop and to review the remuneration policy for the Executive Directors and senior management which is subject to approval of the Board. The remuneration package of Independent Non-Executive Directors is decided by the Board as a whole. The members of the Remuneration Committee during the year consist of Datuk Hj Yahaya Bin Yeop Ishak and Mr Patrick Chin Yoke Chung who are Independent Non-Executive Directors and Encik Azaman Bin Abu Bakar. For the financial year ended 31 December 2005, two (2) meetings were held, which was attended by all members of the Remuneration Committee. NOMINATION COMMITTEE The Nomination Committee s responsibility, amongst others, is to recommend the right candidate with the necessary skills, experience and competencies to be filled in the Board. The Board as a whole makes the decisions on the new appointments and is also responsible for assessing the performance of each existing Director. The members of the Nomination Committee during the year consist of Mr Patrick Chin Yoke Chung and Datuk Hj Yahaya Bin Yeop Ishak who are both Independent Non-Executive Directors. For the financial year ended 31 December 2005, four (4) meetings were held, which was attended by all members of the Nomination Committee. No new appointments were made to the Board for the financial year under review. RE-ELECTION OF DIRECTORS In accordance with the Company s Articles of Association, all newly appointed Directors are subject to reelection by shareholders at the first Annual General Meeting following their appointment. No new appointment was made for the year ended 31 December In accordance with the Articles of Association, one-third of the remaining Directors are required to retire at the Annual General Meeting held annually and that all Directors shall retire at least once in three (3) years. The Directors due to retire by rotation at the forthcoming Annual General Meeting is shown in the Notice of Meeting (Ordinary Resolution 4 and 5) on page 90 of this Annual Report. Directors over seventy years of age are required to submit themselves for re-appointment annually in accordance with Section 129(6) of the Companies Act, Directors seeking re-appointment under this Section at the forthcoming Annual General Meeting are shown on the Notice of Meeting (Ordinary Resolution 6 and 7) on page 90 of this Annual Report. DIRECTORS REMUNERATION The Company s framework on Directors remuneration has the underlying objectives of attracting and retaining Directors of high calibre needed to run the Group successfully. In the case of Executive Directors, the component parts of the remuneration package are structured so as to link rewards with corporate and individual performance. In the case of Non-Executive Directors, the level of remuneration reflects the experience and level of responsibilities undertaken by the particular Non-Executive Director concerned. The Directors remuneration paid or payable during the financial year are set out in page 67 of this Annual Report. 11

13 statement on corporate governance SUPPLY OF INFORMATION AND DIRECTORS TRAINING Board Meetings are structured with pre-set agenda which encompasses all aspects of matters under discussion which will enable the Directors to view at both qualitative and quantitive factors to make informed decisions. Board papers for the Agenda are circulated to Directors well in advance to give Directors sufficient time to deliberate on issues to be raised at the meeting. At other times Directors have unrestricted direct access to the senior managers and the services of the Company Secretary. Directors, especially the newly appointed Directors, are encouraged to visit the Group s operating centres to have an insight into the Group s various operations which would assist the Directors in making effective decisions relating to the Group. All Directors have attended the Mandatory Accreditation Programme conducted by Bursa Training Sdn Bhd. The Directors have also been attending the Continuous Education Programme which are necesssary to ensure that they are kept abreast on various issues having relevance to the changing environment within which the Group operates. For the financial year ended 31 December 2005 all Directors have attended training determined by the Board of Directors which has relevance and aids the Directors in the discharge of their duties. INVESTORS RELATIONS AND COMMUNICATIONS WITH SHAREHOLDERS The Annual General Meeting is the main forum for dialogue and interaction with shareholders of the Company. The Board encourages active participation by shareholders at the Company s Annual General Meeting. Shareholders who are unable to attend are allowed to appoint proxies to attend and vote on their behalf. Members of the Board, as well as the Auditors of the Company are present to answer questions raised at the Annual General Meeting. Resolutions tabled and passed at the Annual General Meeting are released to the Stock Exchange on the same day to enable the public to know the outcome. Shareholders are welcomed to raise queries by contacting the Company at any time throughout the year and not just at the Annual General Meeting. In addition to various announcements made during the year, the timely release of financial results on a quarterly basis provides shareholders with an overview of the Group s performance and operations. Copies of the full announcement are supplied to shareholders and members of the public upon request. In addition, shareholders can obtain information on the Group s various activities by accessing its website at The Board has appointed Datuk Hj Yahaya Bin Yeop Ishak as the Senior Independent Non- Executive Director to whom shareholders can address their concerns. At all times the shareholders may contact the Company Secretary for information on the Company. FINANCIAL REPORTING In presenting the annual financial statements and quarterly announcement of results, the Board aims to provide shareholders with a balanced and understandable assessment of the Group s financial position and prospects. The Board is assisted by the Audit Committee in ensuring the reliability and integrity of the accounting and financial reporting systems of the Group. In addition, it reviews the annual financial statements and quarterly financial reports before they are submitted to the Board for approval. 12

14 statement on corporate governance DIRECTORS RESPONSIBILITY The Directors are required by the Companies Act, 1965 to prepare financial statements for each financial year which gives a true and fair view of the state of affairs of the Company and the Group as at the end of the financial year and of the profit or loss for that period. In the preparation of the financial statements, the Board has used appropriate approved accounting standards and policies and applied them consistently, made judgements and estimates that are reasonable and prudent, and stated whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the notes to the financial statements. The Directors have responsibility for ensuring that the Company and the Group keep accounting records which disclose, with reasonable accuracy, the financial position of the Company and the Group which enables them to ensure that the financial statements comply with the Companies Act, The Directors have general responsibility for taking such steps as are reasonably available to safeguard the assets of the Group and to seek to prevent and detect fraud and other irregularities. INTERNAL CONTROLS AND RISK MANAGEMENT An overview of the state of internal controls within the Group is given in the Statement on Internal Control set out on page 14 to 15 of this Annual Report. RELATION WITH EXTERNAL AUDITORS The Group has established an active and transparent relationship with its external auditors through the Audit Committee. A report on the Audit Committee which includes the Committee s role in relation to the external auditors is set out on page 16 to 19 of this Annual Report This statement is made in accordance with a resolution of the Board of Directors dated 5 April

15 statement on internal control INTRODUCTION The Board of Directors is pleased to provide the following Statement on Internal Control pursuant to Bursa Malaysia Securities Berhad s Listing Requirements. RESPONSIBILITIES The Board of Directors acknowledges responsibility for maintaining a sound system of internal control and for reviewing its adequacy and integrity. The system of internal control designed to safeguard shareholders investments and the Group s assets, by its nature can only manage rather than eliminate the risk of failure to achieve business objectives, and inherently can only provide reasonable and not absolute assurance against material misstatement or loss. For the financial year under review, the Board is satisfied that the system of internal control was generally satisfactory. In cases where exceptions were noted, they were considered not material in the context of this report and corrective actions have been taken. RISK MANAGEMENT Risk Policy The Board has put in place a formal and on-going process to identify, evaluate, report and manage significant risks faced by the Group which includes identifying principal risks, assessing the likelihood and impact of material exposure and determining its corresponding risk mitigation and treatment measures. Risk management is regarded by the Board of Directors to be an integral part of the business operations. The Executive Committee is responsible for creating risk awareness and for building the necessary knowledge on risk management. The management of various subsidiaries in the Group has the responsibility of implementing the appropriate system to manage risks. Risk Process The Group s risk management framework provides for regular review and reporting. The reports include an assessment of the degree of risk, an evaluation of the effectiveness of controls in place and the requirements for further controls. The key elements of reporting process includes presentation of a summary of significant risks to the Board on a half yearly basis which are prior reviewed by the Audit Committee. Senior managers of individual company and representatives from the Internal Audit Department attend the review and discussion of risk management reports. Comments and recommendations from the Committee were communicated to the individual companies and where appropriate, actions were taken in response to the review. ORGANISATION STRUCTURE The Board of Directors is committed to maintaining a strong control structure and environment for the proper conduct of its business operations. The Board is assisted by the various committees of the Board with clearly defined responsibilities. The overall responsibility for business objective of the Group resides with the Board of Directors. The Board is assisted by the Executive Committee in respect of corporate planning and business strategy. The Executive Directors participate actively in the business activities of individual subsidiaries and are assisted by the management of the respective individual subsidiaries. The Audit Committee comprises of a majority of independent non-executive members of the Board and has full excess to both the internal and external auditors and its meets with the external auditors without executive presence twice yearly. 14

16 statement on internal control MANAGEMENT INFORMATION SYSTEM This information system includes preparation and submission of financial reports, budgets and other information to the Board of Directors. Budgets prepared by all companies in the Group are regularly reviewed and explanation of variances is incorporated in the monthly management financial reports which are submitted to the Executive Committee for review of performance and subsequently reported to the Board on a quarterly basis. REVIEW OF INTERNAL CONTROL The risk management framework, annual internal control checklist returns from major operations and internal audit reports are key tools used by the Audit Committee to review the adequacy and integrity of internal control system within the Group. These tools complement other source of information received by the Committee member in their capacity as director of the Company. Regular meetings are held by the Audit Committee to deliberate on findings and recommendations for improvement by both the internal and external auditors on the state of the internal control system. INTERNAL AUDIT FUNCTIONS The Internal Auditor, who reports directly to the Audit Committee, conducts regular and systematic reviews on the system of internal control and the effectiveness of the processes that are in place to identify, manage and report risks. Results of such reviews are reported to the Audit Committee. The work of Internal Audit Department is prioritized according to an assessment of the significant risks and on units under the Group s core activities. In addition, the Internal Audit department also conducts investigations and special reviews at the request of management with prior approval of the Audit Committee. REVIEW OF THE STATEMENT BY EXTERNAL AUDITORS The external auditors have reviewed this Statement of Internal Control appearing in this Annual Report for the year ended 31 December 2005 and reported that there were no inconsistency between the Statement and their understanding of the process the Board of Directors has adopted in the review of the adequacy and integrity of internal control in the Group. 15

17 audit committee report The Board of Directors is pleased to present the report on the Audit Committee and its activities for the financial year ended 31 December COMPOSITION AND ATTENDANCE The Audit Committee which was established in 1994 comprised of the Directors listed below. The Committee held ten (10) meetings during the financial year. The membership of the Committee and their attendance in meetings are listed below: Members Mr Patrick Chin Yoke Chung, Chairman (Chairman, Independent Non Executive Director) Datuk Hj Yahaya Bin Yeop Ishak (Senior Independent Non Executive Director) Encik Azaman Bin Abu Bakar (Managing Director) Datuk Nik Ibrahim Bin Nik Abdullah (Independent Non Executive Director) (Appointed on 28 February 2005) Datuk Nik Hussain Bin Nik Ali (Independent Non Executive Director) (Resigned on 28 February 2005) Attendance of Meetings 8 out of 10 meetings 10 out of 10 meetings 10 out of 10 meetings 9 out of 9 meetings 1 out of 1 meeting ACTIVITIES DURING THE YEAR The main activities undertaken by the Committee during the financial year are as follows: Financial Reporting Reviewed the Group s Quarterly Results prior to recommending them for approval of the Board; Discussed the contents of the consolidated accounts for the financial year 2005 with the external auditors; Discussed the audit plan of the external auditors for financial year 2005; and Discussed the contents of management letter from external auditors and response from management. The Committee held two (2) meetings with the external auditors during the year without executive presence. Risk Management Reviewed the risk management report of the Company and its subsidiaries; Discussed the contents of risk management reports with senior managers of the subsidiaries; and Recommended improvement on risk management practices in the Group. Internal Control System Determined the adequacy of internal control system in the Group; Evaluated the effectiveness of the internal control; and Made recommendation on adequacy and effectiveness of the internal control system to the Board. 16

18 audit committee report Internal Audit Reviewed and approved internal audit plan; Reviewed progress report from the Head of Internal Audit Department; and Reviewed and deliberated on report of audits conducted by Internal Audit Department. INTERNAL AUDIT FUNCTION The internal audit function is governed by an approved Audit Charter and reports to the Committee. The Internal Audit Department is independent from the activities it audits. The audit plans are approved by the Audit Committee and is reviewed from time to time in response to the changing business environment and risks. The Head of the Internal Audit Department has free access to the Committee. The activities of the department during the year comprised of:- Assisting the Audit Committee in reviewing risk management reports; Facilitating adaptation of changes in risk management reporting framework by subsidiaries; Conducting assurance review on adequacy and effectiveness of the internal control systems; and Discuss results of assurance review and improvement actions with management. Reports on findings of audit work undertaken together with the recommended action plans and management responses were presented to the Committee for review. TERMS OF REFERENCE The following is the terms of reference of the Audit Committee: 1. The Committee shall be appointed by the Board from among their number and shall consist of not less than 3 members of whom a majority shall not be:- (a) (b) (c) (d) Executive Directors of the Company or any related corporation. A spouse, parent, brother, sister, son or adopted son, daughter or adopted daughter of an executive director of the Company or of any related corporation; or Spouse of brother, sister, son or adopted son, daughter or adopted daughter of an executive director of the Company or of any related corporation; or Any person having a relationship which, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the functions of the Audit Committee. 2. At least one member of the Committee:- (a) (b) (c) (d) Must be a member of the Malaysia Institute of Accountants; or If he is not a member of the Malaysia Institute of Accountants, he must have at least 3 years working experience and he must have passed examinations specified in part I of the 1st Schedule of the Accountants Act, 1967; or he must be a member of one of the associations of accountants specified in Part II of the 1st Schedule of the Accountants Act, No alternate director shall be appointed a member of the Committee. 17

19 audit committee report 4. The members of the Committee shall select a Chairman among their number who is not an executive director or employee of the Company or any related corporation. 5. If a member of the Committee resigns, dies or for any other reason ceases to be a member with the result that the number of members is reduced below 3, the Board of Directors shall, within 3 months of that event, appoint such number of new member as may be required to make up the minimum number of 3 members. 6. The terms of office of committee members should be reviewed by the Board no less than every three (3) years. 7. The Committee is authorized by the Board to investigate any matter within its terms of reference and shall be given the full resources to perform its duties. The Committee shall have full and unrestricted access to any information pertaining to the Company and its subsidiary companies. 8. The Committee is authorized by the Board to obtain external professional advice and to secure the attendance of outsiders with relevant experience and expertise if it considers this necessary. 9. The Committee shall have direct communication channels with the external auditors and person(s) carrying out the internal audit function or activity. 10. The functions of the Committee shall include the following:- (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) (n) (o) consider the appointment of the external auditor, the audit fee and any questions of resignation or dismissal; discuss with the external auditor before the audit commences, the nature and scope of the audit, and ensure coordination where more than one audit firm is involved; review with the external auditor, their evaluation of the system of internal controls; review the quarterly results and year end financial statements, prior to the approval of the Board of Directors, focusing particularly on:- (i) any changes in accounting policies and practices; (ii) significant adjustments arising from the audit; (iii) the going concern assumptions; (iv) compliance with accounting standards and other legal requirements. discuss problems and reservations arising from the interim and final audits and any matter the auditor may wish to discuss (in the absence of management where necessary); review the external auditor s management letter and management s response; review the adequacy of the scope, functions and resources of the internal audit function, and that it has the necessary authority to carry out its work; review the internal audit plan and results of the internal audit programme and where necessary ensure that appropriate action is taken on the recommendations of the internal audit function; review any appraisal and assessment of the performance of members of the internal audit function; approve any appointment or termination of senior staff members of the internal audit function; inform itself of resignation of internal audit staff members and provide the resigning staff member an opportunity to submit his/her reasons for resignation; consider any related party transaction and conflict of interest situation that may arise within the Company or the Group; consider the major findings or internal investigations and management s response; review and advise appropriateness of risk management and effectiveness of internal control systems of the Company and the Group based on reports and information made available to the Committee with assistance from the Internal Auditor; and consider other topics as defined by the Board of Directors. 18

20 audit committee report 11. The Committee shall hold at least four (4) meetings per year to review the quarterly results, year end financial statements, audit plan and annual report of the Company and the Group, and such additional meetings as the Chairperson shall decide in order to fulfill its duties. In addition, the Chairperson shall call a meeting of the Committee if requested to do so by any Committee member, the management or internal or external auditor. The Committee may invite any person to be in attendance to assist in its deliberation. 12. A meeting of the Committee shall be called by at least five (5) working day s notice in writing or such shorter notice with the consent of all members concerned. 13. The Company Secretary shall be the Secretary of the Committee. The Secretary shall be responsible for keeping the minutes of meetings of the Committee and circulate them to the Committee members and to the other Board members. 14. The quorum for the meeting shall consist of a majority of non-executive Committee members. This report was made in accordance with a resolution of the Board on 5 April

21 directors report The Directors of Muda Holdings Berhad have pleasure in submitting their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 December PRINCIPAL ACTIVITIES The Company is principally engaged in investment holding. The principal activities of its subsidiary companies and associate companies are disclosed in Note 13 and 14 to the Financial Statements. During the financial year, the Company transferred its operation in manufacturing and sales of corrugated cartons to a subsidiary company. There were no significant changes in the nature of principal activities of the Company s subsidiary companies and associate companies during the financial year. FINANCIAL RESULTS Group RM Company RM Profit after taxation 8,448,190 12,896,099 Minority interests (866,530) Net profit for the financial year 7,581,660 12,896,099 Unappropriated profit at beginning of financial year 165,334,486 48,161,781 Profit available for appropriation 172,916,146 61,057,880 Realisation of revaluation reserve upon depreciation of revalued assets 521,703 21,858 Realisation of revaluation reserve upon transfer of revalued assets to a subsidiary company 15,886,805 Proposed first and final tax exempt dividend of 2.5 sen per share (5%) (7,122,653) (7,122,653) Unappropriated profit at end of financial year 166,315,196 69,843,890 DIVIDENDS The amount of dividends paid and declared since the end of the last financial year were as follows:- RM In respect of the financial year ended 31 December 2004 and paid on 31 July 2005:- First and final tax exempt dividend of 2 sen per share (4%) 5,698,123 The Directors now recommend the payment of a first and final tax exempt dividend of 2.5 sen per share (5%) amounting to RM7,122,653. RESERVES AND PROVISIONS There were no material transfers to or from reserves or provisions during the financial year other than those disclosed in the Financial Statements. 20

22 directors report ISSUE OF SHARES AND DEBENTURES There were no shares or debentures issued during the financial year. INFORMATION ON THE FINANCIAL STATEMENTS Before the financial statements of the Group and of the Company were made out, the Directors took reasonable steps:- (a) (b) to ascertain that action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts and satisfied themselves that all known bad debts had been written off and adequate allowance had been made for doubtful debts; and to ensure that any current assets which were unlikely to be realised in the ordinary course of business including their values as shown in the accounting records of the Group and of the Company have been written down to an amount which they might be expected so to realise. At the date of this report, the Directors are not aware of any circumstances:- (a) (b) (c) which would render the amount written off for bad debts or the amount of the allowance for doubtful debts in the financial statements of the Group and of the Company inadequate to any substantial extent; or which would render the values attributed to current assets in the financial statements of the Group and of the Company misleading; or which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate. No contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may affect the ability of the Group and of the Company to meet its obligations as and when they fall due. At the date of this report, there does not exist:- (a) (b) any charge on the assets of the Group and of the Company which has arisen since the end of the financial year which secures the liability of any other person; or any contingent liability of the Group and of the Company which has arisen since the end of the financial year save and except for the disclosure made in Note 31 to the Financial Statements. OTHER STATUTORY INFORMATION The Directors state that:- At the date of this report, they are not aware of any circumstances not otherwise dealt with in this report or the financial statements which would render any amount stated in the financial statements misleading. 21