HEXZA CORPORATION BERHAD (8705-K) (Incorporated in Malaysia)

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2 Notice of Annual General Meeting 2-4 Corporate Information 5 Five-Year Group Financial Summary 6-7 Corporate Structure Chairman s Statement Directors Profile Key Management Personnel of and Its Subsidiary Companies 14 Audit Committee Report Corporate Governance Statement Additional Compliance Information Statement on Risk Management and Internal Control Directors Report Independent Auditors Report to the Members of Hexza Corporation Berhad Statements of Profit or Loss and Other Comprehensive Income Statements of Financial Position Statements of Changes in Equity Statements of Cash Flows Notes to the Financial Statements Supplementary Information - disclosure on realised and unrealised profits or losses 95 Statement by Directors 96 Declaration by the Officer Primarily Responsible for the Financial Management of the Company 96 Statement of Shareholdings Properties owned by Hexza Corporation Berhad CONTENTS & its Subsidiaries Proxy Form ANNUAL REPORT 99

3 NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the Forty-Seventh (47 th ) Annual General Meeting of Hexza Corporation Berhad will be held at the Pusing Hall, Level 3, Kinta Riverfront Hotel & Suites, Jalan Lim Bo Seng, Ipoh, Perak Darul Ridzuan on Saturday, 19 th November at a.m. A G E N D A AS ORDINARY BUSINESS: 1. To receive the Audited Financial Statements for the financial year ended 30 th June, together with the Directors and Auditors Reports thereon. 2. To approve the payment of a first and final single-tier dividend of 4.5 sen per share (9%) in respect of the financial year ended 30 th June. 3. To approve the payment of Directors fees of 331,670 for the financial year ended 30 th June (: 315,000). 4. To re-elect Ms. Chong Yoke Seng who was appointed during the year and retires in accordance with Article 64 of the Company s Articles of Association and being eligible, offers herself for re-election as a Director of the Company. 5. To re-elect Mr. Leong Keng Yuen who retires in accordance with Article 78 of the Company s Articles of Association and being eligible, offers himself for re-election as a Director of the Company. (Please refer to Note 1) (Ordinary Resolution 1) (Ordinary Resolution 2) (Ordinary Resolution 3) (Ordinary Resolution 4) 6. To re-appoint the following Directors who retire pursuant to Section 129(6) of the Companies Act, 1965 and to hold office until the conclusion of the next Annual General Meeting: (i) (ii) Dr. Foong Weng Cheong Dato' Richard Ong Guan Seng (Ordinary Resolution 5) (Ordinary Resolution 6) (iii) Datuk Dr. Foong Weng Sum 7. To appoint Auditors and to authorise the Directors to fix their remuneration. (Ordinary Resolution 7) (Ordinary Resolution 8) As SPECIAL BUSINESS, to consider and, if thought fit, pass the following ordinary resolutions: 8. Continuing in office as Independent Directors (a) Subject to their re-appointment/re-election as Director, to retain the following Directors to continue to act as Independent Directors of the Company: (i) (ii) Dato' Richard Ong Guan Seng Mr. Leong Keng Yuen (Ordinary Resolution 9) (Ordinary Resolution 10) (b) To retain Tuan Haji Mohd Mohd Jalil Bin Sany to continue to act as an Independent Director of the Company. (Ordinary Resolution 11) 2 Annual Report

4 NOTICE OF ANNUAL GENERAL MEETING 9. To consider and, if thought fit, to pass the following ordinary resolution: Authority to issue shares pursuant to Section 132D of the Companies Act, 1965 THAT pursuant to Section 132D of the Companies Act, 1965, the Directors be and are hereby empowered to issue shares of the Company at any time until the conclusion of the next Annual General Meeting of the Company upon such terms and conditions and for such purposes as the Directors may, in their absolute discretion, deem fit, provided that the aggregate number of shares issued pursuant to this resolution does not exceed 10% of the issued capital of the Company for the time being and that the Directors are also empowered to obtain the approval for the listing of and quotation for the additional shares so issued on Bursa Malaysia Securities Berhad. (Ordinary Resolution 12) 10. To transact any other business of which due notice shall have been given in accordance with the Companies Act, NOTICE OF DIVIDEND ENTITLEMENT AND PAYMENT NOTICE IS ALSO HEREBY GIVEN that the first and final single-tier dividend of 4.5 sen per share (9%) in respect of the financial year ended 30 th June, if approved by the shareholders, will be paid on 8 th December to depositors who are registered in the Record of Depositors at the close of business on 22 nd November. A Depositor shall qualify for entitlement to the dividend only in respect of: a. Shares transferred into the Depositor s Securities Account before 4.00 p.m. on 22 nd November in respect of ordinary transfers; and b. Shares bought on Bursa Malaysia Securities Berhad on a cum entitlement basis according to the Rules of Bursa Malaysia Securities Berhad. By Order of the Board CHAN YOKE YIN (MAICSA ) CHAN EOI LENG (MAICSA ) Chartered Secretaries Ipoh, Perak Darul Ridzuan, Malaysia 27 th October Notes: 1. Agenda 1 is meant for discussion only as Section 169(1) of the Companies Act, 1965 only requires the Audited Financial Statements to be laid before the Company at the Annual General Meeting and not shareholders approval. Hence, Agenda 1 will not be put forward for voting. 2. Only members whose names appear on the Record of Depositors as at 10 th November shall be entitled to attend the Annual General Meeting or appoint proxies in his/her stead or in the case of a corporation, a duly authorised representative to attend and to vote in his/her stead. 3. A member, other than an exempt authorised nominee is entitled to appoint not more than two (2) proxies. A proxy may but need not be a member of the Company. 4. Where a member appoints two (2) proxies, the appointments shall be invalid unless he/she specifies the proportions of his/her holdings to be represented by each proxy. 5. Where a member of the Company is an Exempt Authorised Nominee which holds ordinary shares in the Company in an Omnibus Account, there is no limit to the number of proxies which the Exempt Authorised Nominee may appoint in respect of each Omnibus Account it holds. 6. The instrument appointing a proxy shall be in writing under the hand of the appointer or his/her attorney duly authorised in writing or if the appointer is a corporation, either under the corporation s seal or under the hand of an officer or attorney duly authorised. 7. The instrument appointing a proxy must be deposited with the Company Secretaries, 55A Medan Ipoh 1A, Medan Ipoh Bistari, Ipoh, Perak Darul Ridzuan, Malaysia not less than forty-eight (48) hours before the time appointed for holding the Meeting. Faxed or ed copies are not acceptable. Annual Report 3

5 NOTICE OF ANNUAL GENERAL MEETING (continued) EXPLANATORY NOTES TO SPECIAL BUSINESS: 1. Resolution 9, 10 & 11 The proposed Resolutions 9, 10 & 11, if passed, will enable the named Directors to continue to hold office until the next Annual General Meeting of the Company as Independent Directors notwithstanding that they have served a cumulative term of more than nine (9) years. In line with the Recommendation 3.2 of the Malaysian Code on Corporate Governance 2012, the Board on the recommendation of the Nominating Committee, after the annual assessment of the Directors independence have recommended that Dato Richard Ong Guan Seng, Mr. Leong Keng Yuen and Tuan Haji Mohd Mohd Jalil Bin Sany who have served as Directors of the Company for a cumulative term of more than nine (9) years, be re-appointed as Independent Directors of the Company based on the following justifications: (i) (ii) (iii) They have fulfilled the criteria under the definition of Independent Director pursuant to the Main Market Listing Requirements of Bursa Malaysia Securities Berhad. They each remain independent and actively participate in board discussions and provide an independent and objective voice on the Board. They have in depth knowledge of the Company s business operations and they are committed to devote sufficient time and attention to the Company. (iv) They act in the best interest of all shareholders and will provide the check and balance to the Board. 2. Resolution 12 The proposed Resolution 12, if passed, will empower the Directors to issue shares in the Company up to an amount not exceeding in total 10% of the issued share capital of the Company for the time being for such purposes as the Directors consider would be in the interests of the Company. This authority, unless revoked or varied by the Company in a general meeting, will expire at the conclusion of the next Annual General Meeting of the Company. The general mandate sought for issue of shares is a renewal of the general mandate sought in the preceding year. As at the date of Notice, no new shares in the Company were issued pursuant to the mandate granted to the Directors at the Forty-Sixth AGM held on 20 November and hence no proceeds were raised therefrom. The general mandate will provide flexibility to the Company for any possible fund raising activities, including but not limited to further placing of shares for purpose of funding future investment project(s), working capital and/or acquisitions. STATEMENT ACCOMPANYING NOTICE OF ANNUAL GENERAL MEETING The details of Directors standing for re-election and re-appointment are set out in the Profile of Directors and the details of their interests in the securities of the Company are disclosed in this Annual Report. 4 Annual Report

6 CORPORATE INFOATION BOARD OF DIRECTORS Datuk Dr. Foong Weng Sum Chairman & Group Chief Executive Dato' Richard Ong Guan Seng Deputy Chairman/Independent Non-Executive Director Dr. Foong Weng Cheong Non-Independent Non-Executive Director Tuan Haji Mohd Mohd Jalil Bin Sany Independent Non-Executive Director Mr. Ooi Ying Hong Independent Non-Executive Director Ms. Chong Yoke Seng Non-Independent Non-Executive Director Mr. Leong Keng Yuen Independent Non-Executive Director AUDIT COMMITTEE Dato' Richard Ong Guan Seng Chairman Dr. Foong Weng Cheong Mr. Leong Keng Yuen Mr. Ooi Ying Hong Ms. Chong Yoke Seng REMUNERATION COMMITTEE Mr. Leong Keng Yuen Chairman Datuk Dr. Foong Weng Sum Dr. Foong Weng Cheong Dato' Richard Ong Guan Seng NOMINATING COMMITTEE Dato' Richard Ong Guan Seng Chairman Dr. Foong Weng Cheong Mr. Leong Keng Yuen REGISTERED OFFICE / PRINCIPAL PLACE OF BUSINESS Lot 6 & 20, Persiaran Tasek, Kawasan Perindustrian Tasek, Ipoh, Perak Darul Ridzuan. Tel : Fax : hcb@hexza.com.my Website : REGISTRARS Symphony Share Registrars Sdn. Bhd. Level 6, Symphony House, Pusat Dagangan Dana 1, Jalan PJU 1A/46, Petaling Jaya, Selangor Darul Ehsan. Tel : Fax : AUDITORS Deloitte Chartered Accountants Level 2, Weil Hotel, 292, Jalan Sultan Idris Shah, Ipoh, Perak Darul Ridzuan. Tel : Fax : PRINCIPAL BANKERS Hong Leong Bank Berhad HSBC Bank Malaysia Berhad Malayan Banking Berhad RHB Bank Berhad United Overseas Bank (Malaysia) Bhd. STOCK EXCHANGE LISTING Main Market of Bursa Malaysia Securities Berhad Stock Code : 3298 Stock Short Name : hexza COMPANY SECRETARIES Chan Yoke Yin (MAICSA ) Chan Eoi Leng (MAICSA ) Annual Report 5

7 FIVE-YEAR GROUP FINANCIAL SUMMARY Year Ended 30 th June '000 ' ' ' '000 (restated) STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Revenue 141, , , , ,616 Profit Before Tax 20,700 19,358 10,748 10,073 8,979 Income Tax (3,422) (3,844) (2,164) (1,191) (2,176) Profit After Tax 17,278 15,513 8,584 8,882 6,802 Profit After Tax attributable to shareholders of the company 15,998 14,030 8,079 8,475 5,962 STATEMENT OF FINANCIAL POSITION Total non-current assets 135, , , , ,291 Total current assets 109, , , , ,964 Total assets 244, , , , ,255 Shareholders' fund 220, , , , ,982 Total non-current liabilities 7,759 8,488 9,304 9,889 10,397 Total current liabilities 10,232 10,938 20,141 10,533 17,394 SHARE INFOATION Per Ordinary Share Earnings per share (sen) Gross dividend (sen)* Net dividend proposed/paid (sen)* Net assets () FINANCIAL RATIO Return on shareholders' funds (%) * The proposed final dividend for the financial year ended 30 th June is subject to approval by the shareholders at the forthcoming Annual General Meeting of the Company. 6 Annual Report

8 FIVE-YEAR GROUP FINANCIAL SUMMARY Revenue Shareholders' Funds (million) (million) Year Year Profit Before Tax Total Assets (million) (million) Year Year Earnings Per Share (sen) Gross Dividend Per Share (sen) sen sen Year Year Annual Report 7

9 CORPORATE STRUCTURE AS AT 30 TH JUNE HEXZA CORPORATION BERHAD 8 Annual Report

10 CHAIAN'S STATEMENT On behalf of the Board of Directors, I am pleased to present to you the Group s Annual Report and Audited Financial Statements of Hexza Corporation Berhad (Hexza) for the financial year ended 30 th June,. Additionally, I would like to welcome Ms Chong Yoke Seng to Hexza s Board of Directors. Ms Chong was appointed as a Director of Hexza on 1 st March, and is the first female Director to serve on Hexza s Board of Directors since Hexza was incorporated on 25 th June, The months that followed the financial year ended 30 th June, have seen some significant local and global geo-political and economical changes, highlighted by substantial increases in the selling price of products which do not incur GST, like hawker food, local and imported fruits and durians. The Malaysian economy has slowed for the fifth straight quarter to 4% in the second quarter of this calendar year. Net exports have continued to decline. Crude Oil prices are hovering between US$40-50, half of what it was a year ago. Against this background, I am pleased to announce that Hexza is able to announce a slightly higher Group profit before tax of million compared to million of the previous year, an increase of 6.9%. Profit after tax amounted to million compared to million of the previous year, an increase of 11.4%. The higher after tax percentages was contributed by higher income that is not taxable and the reverse deferred tax liabilities from Norsechem Resins Sdn. Berhad. Financial Performance For the financial year ended 30 th June,, the Group recorded marginally lower revenue of million compared to million in the previous financial year. However, profit before tax rose to million as compared to million in the previous year. Earnings before interest, tax, depreciation and amortization (EBITDA) improved by 2.7% from million to million in the current reporting financial year. As a result earnings per share improved from 7 sen per share to 8 sen per share. Net tangible assets per share also improved from 108 sen to 109 sen. At the Company level, Hexza Corporation Berhad recorded a revenue of million compared to a revenue of million in the previous year. Profit before tax for year ended 30 th June, increased to million as compared to million in the previous year. EBITDA also increased to million from million in the previous year. EBITDA profit at million for the current financial year remains practically the same as profit before tax at million as the Company does not incur any interest expense, and depreciation is practically immaterial. Review of Operations As indicated by the Malaysian Gross Domestic Product which dropped to 4% from 6% of the previous financial year, Hexza s manufacturing segment in the reporting year reported a lower turnover of million compared to million in financial year ended 30 th June,. Manufacturing profit before tax retreated by 12.8% to million from million in the previous financial year. The performances of the major operating subsidiaries are indicated below:- Ethanol Division CHEMICAL INDUSTRIES (MALAYA) SDN. BHD. (CIM) CIM which forms one of Hexza s two core divisions provided an improved turnover of million compared to million of the previous year, an improvement of 11.4%. Profit before tax improved by 13.1% from 6.32 million to 7.15 million. The improvement in profits was contributed by higher sales in volume terms plus tighter cost control. Annual Report 9

11 CHAIAN'S STATEMENT (continued) Resins Division Hexzachem Sarawak Sdn. Bhd. (HCS) HCS is the larger component of Hexza s Resins Division and lived up to its designation by being the largest contributor to the Group s turnover and profits. Turnover improved marginally from million to million. However, profit before tax dropped significantly from million to 8.56 million. The lower profit performance is mainly attributed to lower average selling price and also higher distribution cost as compared to the previous year. NORSECHEM RESINS SDN. BERHAD (NRSB) NRSB was the second operating component of Hexza s Resins Division. After 5 consecutive years of operational losses incurred by NRSB, the Board decided to terminate the production and sale of formaldehyde resins by NRSB owing to overcapacity in the West Malaysian formalin resins market resulting in severe competition. NRSB has on 8 th July, entered into a sale and purchase agreement with Crystal Dignity Sdn. Bhd. (CDSB) for the disposal of its leasehold industrial land and buildings with a total carrying value of approximately 10.3 million to CDSB for a total consideration of 17.0 million. This sale and purchase transaction was completed and vacant possession was handed over to CDSB after the financial year ended 30 th June. BIO-ACETIC PRODUCTS SDN. BHD. Bio-Acetic Products Sdn. Bhd. turned in a much improved profit before tax of 189,000 compared to 71,000 of the previous year, an increase of 166%, attributed to increased sales. HIGHLIGHTS OF THE YEAR As stated in the previous year s Annual Report (FY ended June ), Hexza has entered into a Sale & Purchase and Leaseback Agreement of equipment of US$6.0 million with Tembusu Industries Pte Ltd (Tembusu) of Singapore. The equipment was for a 8 MW Heavy Oil Power Generation System in Kawthaung, Myanmar. Tembusu will lease back the equipment from Hexza for a period of 10 years. The lease period commenced on 1 st July, and the monthly rental is at US$130,205 payable in arrears on a quarterly basis. Based on an initial investment of US$6.0 million, the expected IRR works out to be approximately 22%. We expect the investment to contribute positively to the earnings of the Group commencing Financial Year for ten years. During the financial year, Tembusu had made a formal request to reschedule the agreed installment payments to a later date due to unforeseen circumstances faced by them in Myanmar. In view of this, we made a provision for a fair value adjustment on reassessment of finance lease receivable which amounted to 1.7 million. Now payments based on the rescheduled agreement has started with receipt of the July payment. DIVIDEND The Board of Directors is pleased to recommend a first and final single tier dividend of 4.5 sen per share in respect of the financial year ended 30 th June,, which is subject to the approval of the shareholders at the forthcoming Annual General Meeting. The recommended payout represents a distribution of approximately 56.7% of the net profit attributable to the shareholders of the Company. The payout ratio is lower than the payout ratio of the previous year which was at 80.7%. It is the aim of the Directors to maintain a policy of stable dividend payout to the shareholders. 10 Annual Report

12 CHAIAN'S STATEMENT OUTLOOK AND PROSPECTS The economic outlook for the current financial year is quite challenging. Crude oil prices remain at around 50% of what it was a year ago. The weakening of the Ringgit against the US$ poses serious challenges to Malaysian Manufacturers like our Group, as most of our major raw materials are imported. Local producers of raw materials should allocate the greater portion of their produce for local manufacturers, rather than to traders who may export the local produce without additional value added. In Hexza s case, in addition to value added, we can produce additional taxes in the form of excise duty and GST from our potable alcohol. In the coming years, Hexza will have to concentrate on growth. Without growth in revenue and profit, there can be no sustainability. We have to proceed on a more aggressive merger and acquisition (M&A) policy. As an example, Chemical Industries (Malaya) Sdn. Bhd., one of our two core divisions, was acquired in the year of CORPORATE SOCIAL RESPONSIBILITY While we strive to enhance the return to our shareholders, we also recognize our social responsibility to our employees, business associates and the communities within which we operate. continues to nurture its human capital with skills and intellectual development by various training and workshops. Group subsidiaries continue to provide internship to undergraduates from various institutions of higher learning. All our manufacturing subsidiaries are accredited with ISO 9001:2008 Quality Management Systems certification. continuously pursues to improve the quality of its products to meet the challenges in the market. It is our policy to disclose information to stakeholders fairly and in a timely manner. Hexza recognizes that without being socially and environmentally responsible, it is impossible to have economically sustainable operations in the long term. Corporate Social Responsibility and Sustainability are important components of long term business success. For Hexza, Corporate Social Responsibility is about having a sustainable business strategy in the face of local and global challenges. It is also about conducting business with a conscience, caring for its employees, the community, the environment, its customers, its shareholders and all stakeholders. Hexza s Corporate Social Responsibility mission is for all our Directors, Senior Executives, Management and staff to be community players in the promotion of a caring and civil society. APPRECIATION On behalf of my fellow Directors, I would like to express our sincere appreciation and thanks to all our stakeholders-shareholders, business associates, suppliers, employees and our valued customers for their loyal support and understanding. Last but not least, I wish to express my heartfelt thanks to my fellow Directors of the Company and its subsidiaries for their advice and guidance and the management and staff for their dedication, diligence and commitment to continuous improvement and problem solving resulting in creditable performance under challenging conditions. Datuk Dr. Foong Weng Sum Chairman & Group Chief Executive 30 th September, Annual Report 11

13 DIRECTORS PROFILE Datuk Dr. Foong Weng Sum Chairman & Group Chief Executive Male, Malaysian, aged 77 Datuk Dr. Foong Weng Sum was appointed to the Board on 7 th May 1982 as Vice Chairman. On 23rd October 1986, he also assumed the position of Group Chief Executive. He took over as Chairman of the Board on 1 st December He is also a member of the Remuneration Committee. Datuk Dr. Foong Weng Sum is a graduate in medicine from the University of London s Guy s Hospital Medical School. He has considerable business experience in various business sectors, including manufacturing, property development, financial management and investment. Dato Richard Ong Guan Seng Deputy Chairman/Independent Non-Executive Director Male, Malaysian, aged 78 Dato Richard Ong Guan Seng was appointed to the Board on 25 th March 1994 and he was appointed as the Deputy Chairman of the Board on 8 th November He is also the Chairman of the Audit Committee and Nominating Committee and a member of the Remuneration Committee. Dato Richard Ong Guan Seng is a member of the Malaysian Institute of Accountants, the Malaysian Institute of Certified Public Accountants and the Institute of Chartered Accountants in Australia. He became a Partner of Peat Marwick (now known as KPMG), Malaysia in 1971 and was appointed Deputy Senior Partner in 1989 until he retired in He is also on the Board of The Tan Sri Tan Foundation and holds directorships in several private limited companies. Dr. Foong Weng Cheong Non-Independent Non-Executive Director Male, Malaysian, aged 83 Dr. Foong Weng Cheong was appointed to the Board on 7 th May He is also a member of the Audit Committee, Remuneration Committee and Nominating Committee. Dr. Foong Weng Cheong is a graduate in medicine from the University of Melbourne, Australia and is a Fellow of the Royal College of Surgeons of Edinburgh and also a Fellow of the Royal College of Surgeons of England. He was appointed Senior Lecturer ( ), Associate Professor ( ) and Professor & Head of Department of Surgery ( ) at the National University of Singapore and Chief of University Department of Surgery at Singapore General Hospital and National University Hospital until he retired in Since 1988 he is a Consultant Surgeon at Mount Elizabeth Medical Centre, Singapore. Mr. Leong Keng Yuen Independent Non-Executive Director Male, Malaysian, aged 66 Mr. Leong Keng Yuen was appointed to the Board on 15 th September He is also the Chairman of the Remuneration Committee and a member of the Audit Committee and Nominating Committee. Mr. Leong Keng Yuen was a partner of Ernst & Young Malaysia before retiring at the end of He is a member of the Malaysian Institute of Accountants and a Fellow of the Association of Chartered Certified Accountants. He also holds a Master of Science in Management from the Massachusetts Institute of Technology U.S.A. and a Bachelor of Engineering (First Class Honours) from University of Queensland, Australia. He is also a Non-Executive Director of OSK Ventures International Berhad, company listed on Bursa Malaysia. He is also on the Board of Datin Seri Ting Sui Ngit Foundation and The Perak Chinese Welfare Association. 12 Annual Report

14 DIRECTORS PROFILE Tuan Haji Mohd Mohd Jalil Bin Sany Independent Non-Executive Director Male, Malaysian, aged 69 Tuan Haji Mohd Mohd Jalil Bin Sany was appointed to the Board on 20 th November He is a member of the Malaysian Institute of Accountants and a Fellow of the Association of Chartered Certified Accountants. He was also the General Manager/Executive Director of Hexza s resins subsidiary, Hexzachem Sarawak Sdn Bhd, for 11 years when retired in He has over 40 years of working experience in diversified industries which includes unit trusts, investment holdings, properties and hotels, banking and insurance, plantation, film distribution and exhibition, commercial agriculture, animal husbandry and book publication and distribution. He spent over 20 years of his career life in Sabah and Sarawak holding various key positions such as Chief Financial Officer, Chief Operating Officer and Directors. Currently he holds directorship in several private limited companies. Mr. Ooi Ying Hong Independent Non-Executive Director Male, Malaysian, aged 50 Mr. Ooi Ying Hong was appointed to the Board on 12 th July He is also a member of the Audit Committee. He holds a Bachelor of Business (Accounting) degree from University of Southern Queensland, Australia. Mr. Ooi Ying Hong started his career in auditing with KPMG and subsequently joined Matsushita Television Co. (M) Sdn. Bhd. He has many years of experience in various industries, including logistics, international trading, information technology, service and automotive. He also sits on the Board of Directors of various private limited companies. Ms. Chong Yoke Seng Non-Independent Non-Executive Director Female, Malaysian, aged 58 Ms. Chong Yoke Seng was appointed to the Board on 1 st March and was appointed as a member of the Audit Committee on the same day. She is a member of the Malaysian Institute of Accountants, a Fellow of the Association of Chartered Certified Accountants and a member of the Malaysian Institute of Certified Public Accountants. She has over 33 years of working experience. She began her career in the field of auditing for about 7 years. She then joined a management services company for about a year before she joined Hexza in She was the Chief Financial Officer and Company Secretary of Hexza for more than 26 years until she retired in February. She holds directorships in several private limited companies. OTHER INFOATION Family relationship with any Director and/or substantial shareholder Dr. Foong Weng Cheong and Datuk Dr. Foong Weng Sum are brothers and they are the substantial shareholders of the Company. Apart from this, none of the Directors has any family relationship with the other Directors or substantial shareholders of the Company. Conflict of interest None of the Directors has any conflict of interest with the Company and its subsidiaries. Convictions for offences None of the Directors has been convicted of any offence within the past five years and there were no public sanctions or penalties imposed by the relevant regulatory bodies during the financial year ended 30 th June. Annual Report 13

15 KEY MANAGEMENT PERSONNEL OF THE GROUP AND ITS SUBSIDIARY COMPANIES Datuk Dr. Foong Weng Sum Chairman & Group Chief Executive Male, Malaysian, aged 77 The detailed profile of Datuk Dr. Foong Weng Sum is shown in the Board of Directors profile. Mr. Lee Hee Chew Managing Director of Chemical Industries (Malaya) Sdn Bhd Male, Malaysian, aged 60 Lee Hee Chew graduated as a Chemical Engineer from the University of Bradford, United Kingdom and started his career as a Production Engineer within Hexza Group. He served in a number of subsidiary companies within the Group before taking up an expatriate position with PT Gajah Tunggal, a large conglomerate in Indonesia. He subsequently returned to Malaysia to head Tor Minerals (M) Sdn Bhd, a wholly owned American company listed on Nasdaq. He is the General Manager/ Director of Chemical Industries (Malaya) Sdn Bhd since Mr. Jimmy Leu Moh Sing Director of Hexzachem Sarawak Sdn Bhd Male, Malaysian, aged 50 Leu Moh Sing, Jimmy, a BSC (Hons) graduate from University Science Malaysia (USM) started his career as a Business Representative with IBM Business Partner, Comserv Sarawak Sdn Bhd selling the IBM Minicomputer (AS/400). He has extensive sales and sales management experiences with a few other companies notably with Roche Malaysia and National Starch & Chemical Malaysia (subsidiary of Unilever and later ICI, UK) before joining Hexza Group in July 2003 as General Manager of Norsechem Resins Sdn Bhd and later as Operation Director of Hexza Resin Division and General Manager / Director of Hexzachem Sarawak Sdn Bhd. Mr. Lim Yoong Chong Operations Manager of Summit Development Corporation Sdn Bhd Male, Malaysian, aged 57 Lim Yoong Chong was appointed Operations Manager of Summit Development Corporation Sdn Bhd on 1st September, He holds a postgraduate diploma in Civil Engineering from North East London Polytechnic, England. He has over 25 years of working experience in the property industry managing multi-disciplinary residential and commercial development projects. Ms. Chin Mun Yong Group Accountant of Hexza Corporation Berhad Female, Malaysian, aged 45 Chin Mun Yong is a member of the Malaysian Institute of Accountants and a Fellow of the Association of Chartered Certified Accountants. She started her career in auditing with a local public accounting firm after which she moved on to financial and accounting related positions in various industries which include construction and manufacturing. OTHER INFOATION Family relationship with any Director and/or substantial shareholder Other than Datuk Dr. Foong Weng Sum, none of the Key Management Personnel has any family relationship with the Directors and substantial shareholders of the Company. Conflict of Interest None of the Key Management Personnel has any conflict of interest with the Company and its subsidiaries. Convictions for offences None of the Key Management Personnel has been convicted of any offence within the past five years and there were no public sanctions or penalties imposed by the relevant regulatory bodies during the financial year ended 30 th June. 14 Annual Report

16 AUDIT COMMITTEE REPORT The Board of Directors ( the Board ) is pleased to present the report of the Audit Committee for the financial year ended 30 th June. COMPOSITION The Audit Committee comprises five members, three Independent Non-Executive Directors and two Non-Independent Non-Executive Directors. During the financial year ended 30 th June, four (4) Audit Committee meetings were held and the details of the attendance were as follows: Dato' Richard Ong Guan Seng (Chairman, Independent Non-Executive Director) Mr. Leong Keng Yuen (Member, Independent Non-Executive Director) Dr. Foong Weng Cheong (Member, Non-Independent Non-Executive Director) Mr. Ooi Ying Hong (Member, Independent Non-Executive Director) Ms. Chong Yoke Seng (Member, Non-Independent Non-Executive Director) - appointed on 1 st March No. of Meetings Attended 4 out of 4 4 out of 4 4 out of 4 4 out of 4 1 out of 1 The Company Secretary attended all the meetings of the Audit Committee held during the financial year. Other members of the Board and employees also attended the meetings upon the invitation of the Committee. The detailed profiles of all the members of the Audit Committee are shown in the Board of Directors profile. SUMMARY OF ACTIVITIES PERFOED BY AUDIT COMMITTEE DURING THE FINANCIAL YEAR The key activities carried out by the Audit Committee in line with its terms of reference during the financial year ended 30 th June comprised the following: (a) Financial Reporting (i) Reviewed the Group s quarterly results announcements to Bursa Malaysia Securities Berhad before recommending them to the Board of Directors for approval. (ii) Reviewed the audited financial statements of the Company and of the Group with the External Auditors to ensure compliance with the provisions of the Companies Act, 1965 and the applicable accounting standards prior to submission to the Board of Directors for consideration and approval. (b) External Audit (i) Reviewed the scope of work and the audit plan of the External Auditors in respect of the audit for financial year ended 30 th June. The External Auditors also highlighted the changes to the listing requirements of Bursa Malaysia Securities Berhad and the new financial reporting standards that will impact the Group. (ii) Reviewed with the External Auditors the results of the audit and management s responses to their audit findings, including corrective actions taken by the management on outstanding audit issues highlighted in the previous audit. (iii) Reviewed the audit fee for the financial year and recommended to the Board for approval. (iv) Met with the External Auditors without the presence of management including the Group Chief Executive on 23 rd August and 12 th May. The external Auditors do not have any areas of concern to highlight to the Audit Committee and they have received full co-operation from the management. (v) Reviewed and evaluated the performance of the External Auditors and made recommendations to the Board on their re-appointment. Annual Report 15

17 AUDIT COMMITTEE REPORT (continued) (c) Internal Audit (i) Reviewed and approved the internal audit plan, including the scopes and audit approach. (ii) Reviewed and deliberated on the internal audit reports from the Internal Audit Unit and management s response to the recommendations and presented the reports to the Board of Directors. (iii) Reviewed the performance of the Internal Audit Unit against the annual audit plan for the financial year ended 30 th June and the costs incurred in connection with the performance of the audits during the year. The Audit Committee has requested the Internal Audit Unit to apply International Internal Auditing ( IIA ) Standards and Committee of Sponsoring Organisation ( COSO ) framework approach on the overall internal auditing activities carried out within the Group. (d) Risk Management (i) Reviewed and deliberated on the risk assessment reports from the operating companies of the Group with requests for further actions where appropriate. The Audit Committee has requested the Internal Audit Unit to review the risk assessment report of the subsidiaries to ensure that the existing risk control measures in place are effective and there are business contingency plans. INTERNAL AUDIT FUNCTION The Company has an in-house Internal Audit Unit which provides support to the Audit Committee in discharging its duties and responsibilities. The functions and responsibilities of the Internal Audit Unit are embodied in the Internal Audit Charter. The main role of the Internal Audit Unit is to undertake independent assessments of the adequacy and effectiveness of the Group s system of internal control, compliance with operational procedures and risk management procedures. The Internal Audit Unit reports directly to the Chairman of the Audit Committee. During the financial year under review, the Internal Audit Unit conducted audits on operating subsidiaries based on the internal audit plan approved by the Audit Committee. The total cost incurred by the Internal Audit Unit during the financial year ended 30 th June amounted to approximately 111,000. The key activities carried out by the Internal Audit Unit were as follows: (i) Prepared internal audit plan for the approval of the Audit Committee. (ii) Reviewed and appraised the adequacy, effectiveness and efficiency of internal control in the Group. (iii) Ascertained the extent to which the companies within the Group comply with established policies, procedures and statutory requirements. (iv) Reviewed the effectiveness of the risk management system. (v) Followed up on matters from previous internal audit reports to ensure corrective measures have been undertaken by management. (vi) Performed special audit upon the request of management. (vii) Prepared Internal Audit reports on audit findings and recommendations for improvements to the existing system of internal control and work procedures/processes. The areas audited during the financial year comprised the general administrative and finance operations of the Company and the manufacturing, maintenance, purchasing, human resource and environmental safety & health operations of the key subsidiaries. (viii) Prepared quarterly reports and updated the Audit Committee on progress of internal audit work at Audit Committee meetings. 16 Annual Report

18 CORPORATE GOVERNANCE STATEMENT The Board of Directors ( the Board ) is pleased to set out in this statement the manner and extent in which the principles and recommendations as outlined in the Malaysian Code on Corporate Governance 2012 ( the Code ) were applied throughout the financial year ended 30 th June. This statement is made in accordance with a resolution of the Board of Directors dated 30 th September. 1. ESTABLISHED CLEAR ROLES AND RESPONSIBILITIES Principal Roles The Board is responsible for the corporate governance practices of the Group. It guides and monitors the affairs of the Group on behalf of the shareholders and retains full and effective control over the Group. The key responsibilities include the primary responsibilities recommended by the Code. These cover a review of the strategic direction for the Group, setting out short term and long term plans, overseeing the business operations of the Group, and evaluating whether these are being properly and effectively managed. Board Composition and Balance The Board currently has seven (7) members, comprising four (4) Independent Directors, two (2) Non-Independent Non- Executive Directors and one (1) Executive Director. This complies with the Listing Requirements of Bursa Malaysia Securities Berhad that one third of its Board consists of Independent Directors. The presence of four (4) Independent Directors fulfills an important role in corporate accountability. The role of the Independent Directors is particularly important as they provide independent and unbiased views, advice and judgment. The Board comprises a mixture of businessmen and professionals. The current composition of the Board brings the required mix of skills and experience required for the Board to function effectively. A brief write-up of the background of the Board members as at the date of this statement is set out in the Directors profile section of this Annual Report. Roles and Responsibilities The roles of the Chairman and the Group Chief Executive are combined and are currently held by Datuk Dr. Foong Weng Sum. The Board is mindful of the combined roles which is not in line with the recommendation of the Code but is of the view that there are a majority of Independent Directors who are professionals of credibility and repute who demonstrate independence of judgment and objectivity in the Board s deliberations and provide the necessary check and balance so as to safeguard the interests of minority shareholders. Efforts are being made to split the roles by identifying suitable candidates for the Group Chief Executive. The Board had delegated the management of the Group to the Group Chief Executive and his management team. The Group Chief Executive is responsible for implementing the policies and decisions of the Board, overseeing the day to day operations as well as coordinating the development and implementation of business and corporate strategies. The Non-Executive Directors contribute significantly in areas such as policy and strategy, performance monitoring, allocation of resources as well as improving governance and controls. The Board of Directors regularly review the strategic direction of the Company and the progress of the Group s operations taking into account the changes in business environment and risk factors. Annual Report 17

19 CORPORATE GOVERNANCE STATEMENT (continued) Board Charter and Code of Ethics The Board has adopted a Board Charter which sets out the role, functions, composition, operations and processes of the Board. The Charter provides guidance to the Board in relation to the Board s role, duties and responsibilities and authority. The Directors have also approved a Code of Conduct for Directors and employees which governs the standards of ethics and good conduct expected of Directors and employees. The Code of Conduct includes principles relating to fair dealings, confidentiality of information, conflict of interest, compliance with laws and regulations and sexual harassment. In addition, the Group s Whistle-Blowing Policy and Procedures provide an avenue for stakeholders to report concerns about malpractices, unethical behaviour, misconduct or failure to comply with regulatory requirements without fear of reprisal. The Board will review the Board Charter regularly to ensure it remains consistent with the Board s objectives and responsibilities. The Board Charter and the Code of Ethics are posted in our website at www. hexza.com.my Supply of Information The Board has unrestricted access to timely and accurate information, necessary in the furtherance of their duties. The Chairman ensures that all relevant issues requiring the Board s deliberation and approval are on the agenda and senior management is invited to the Board meetings to present the relevant issues. The Agenda and a full set of Board papers are distributed at least three (3) days prior to the Board meeting to allow Directors sufficient time to review the Board papers for effective deliberation at the meeting proper. All proceedings of Board meetings are minuted and signed by the Chairman. All Directors have access to the advice and services of the Company Secretary and senior management in carrying out their duties. There is a formal procedure sanctioned by the Board for Directors, whether as a full Board or in their individual capacity, to take independent professional advice at the Group s expense, where necessary in furtherance of their duties. Appointment to the Board The Board has established a Nominating Committee, consisting of three (3) Non-Executive Directors. The Committee is responsible for the appointment of new Directors to the Board. The Committee reviews the required mix of skills and experience of the Directors of the Board and determines the appropriate Board balance and number of Non- Executive Directors. The Committee has established the procedures and processes towards an annual assessment of the effectiveness of the Board as a whole and the contribution of each individual Director. The Board is supportive of gender diversity in the boardroom as recommended by the Code; hence, the Board has appointed Ms. Chong Yoke Seng as a Non-Independent Non-Executive Director during the year. Corporate Social Responsibility (CSR) The Board of Directors is mindful of its corporate social responsibility commitments to its various stakeholders and endeavors to operate ethically, paying attention to environmental, social and governance aspects of business. s mission is to enhance value for all stakeholders whilst taking into consideration our continued social obligations. is mindful of its social responsibilities and will continue to support its CSR activities. 18 Annual Report

20 CORPORATE GOVERNANCE STATEMENT 2. STRENGTHEN COMPOSITION The Company strives to have a balanced Board comprising members with suitable qualifications, skills, expertise and exposures. Board Committees The Board has established the following Committees to assist the Board to discharge its fiduciary duties: (a) (b) Audit Committee The Audit Committee comprises three (3) Independent Directors and two (2) Non-Independent Non-Executive Directors. A full report of the Audit Committee with details of its membership and a summary of the work performed during the financial year are set out in the Audit Committee Report of this annual report. Nominating Committee The membership of the Nominating Committee comprises exclusively Non-Executive Directors as follows: 1. Dato Richard Ong Guan Seng, Chairman (Independent Non-Executive Director) 2. Mr. Leong Keng Yuen, member (Independent Non-Executive Director) 3. Dr. Foong Weng Cheong, member (Non-Independent Non-Executive Director) The role of the Nominating Committee, set out in its terms of reference, includes among others, the following: (i) (ii) (iii) (iv) (v) To identify, assess, consider and recommend suitable candidates for directorship. To determine the appropriate Board balance and number of Non-Executive Directors. To review annually the required mix of skills, experience and other qualities, including the contributions each of the Directors bring to the Board. To assess annually the effectiveness of the Board as a whole, including its size, and composition and the Committees of the Board. To review the training needs of the Directors. The Nominating Committee had two (2) meetings in the financial year under review and all the members attended the meetings. The Nominating Committee carried out the following activities during the financial year ended 30th June : (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) Reviewed the Terms of Reference of the Nominating Committee. Reviewed and assessed the Board balance and composition of the Directors, the Directors contribution and the effectiveness of the Board as a whole. Reviewed the performance of the Audit Committee, Nominating Committee and the Remuneration Committee. Reviewed succession planning of the Chief Executive Officer and senior executives. Reviewed the training attended by the Directors. Reviewed the re-election of Directors retiring at the next Annual General Meeting of the Company. Assessed the independence of the Independent Directors. Assessed, justified and made recommendation to the Board for the retention of Independent Directors who have exceeded a cumulative term of nine (9) years. All assessments and evaluations carried out by the Nominating Committee in discharging its functions have been properly documented. Annual Report 19

21 CORPORATE GOVERNANCE STATEMENT (continued) (c) Remuneration Committee The Remuneration Committee comprises a majority of Non-Executive Directors as follows: 1. Mr. Leong Keng Yuen, Chairman (Independent Non-Executive Director) 2. Datuk Dr. Foong Weng Sum, member (Executive Director) 3. Dato Richard Ong Guan Seng, member (Independent Non-Executive Director) 4. Dr. Foong Weng Cheong, member (Non-Independent Non-Executive Director) The Remuneration Committee is responsible for recommending the remuneration package for all Directors. The individual Directors play no part in deciding their own remuneration. The policy practised on Directors remuneration by the Remuneration Committee is to provide the remuneration packages according to the skills, level of responsibilities, experience and performance of the Directors in order to attract, retain and motivate Directors of the quality required to lead and guide the business direction of the Company. The remuneration of the Non-Executive Directors is determined by the Board as a whole. In addition, Non- Executive Directors are paid a meeting allowance for each meeting attended. The Remuneration Committee had one (1) meeting during the financial year under review and all the committee members attended the meeting. Directors Remuneration The details of the Directors remuneration (including benefits-in-kind) from the Company and the Group for the financial year ended 30 th June are as follows: Company 000 Salary Fees Bonus Other Emoluments Benefitsin-kind Total Executive Director Datuk Dr. Foong Weng Sum Non-Executive Directors Dr. Foong Weng Cheong Dato Richard Ong Guan Seng Mr. Leong Keng Yuen Tuan Haji Mohd Mohd Jalil Bin Sany Mr. Ooi Ying Hong Ms Chong Yoke Seng Total Annual Report

22 CORPORATE GOVERNANCE STATEMENT Group 000 Salary Fees Bonus Other Emoluments Benefitsin-kind Total Executive Director Datuk Dr. Foong Weng Sum ,320 Non-Executive Directors Dr. Foong Weng Cheong Dato Richard Ong Guan Seng Mr. Leong Keng Yuen Tuan Haji Mohd Mohd Jalil Bin Sany Mr. Ooi Ying Hong Ms Chong Yoke Seng Total ,752 The number of Directors whose remuneration (including benefits-in-kind) falls into the following bands is as follows: Band Executive Director Non-Executive Directors Below 50, ,001 to 100, ,300,001 to 1,350, The number of key management personnel whose remuneration (including benefits-in-kind) falls into the following bands is as follows: Band Key Management Personnel 100,001 to 150, ,001 to 400, ,001 to 450, ,001 to 500,000 1 The remuneration of the top 5 key executives (who are not directors) was shown on a no name basis on concern over poaching of these key executives by competitors. The fees payable to the Directors by the Company will be recommended by the Board for approval by shareholders at the forthcoming Annual General Meeting scheduled to be held on 19 th November. Currently, there is no contract of service between any Director and the Company or its subsidiaries. 3. REINFORCE INDEPENDENCE The Board consists of six Non-Executive Directors, four of them are Independent Directors and they are able to express their independent views without any constraint. The Independent Directors remain objective and independent in decision making, actively participated at meetings of the Board and Board Committees and provided constructive feedback. Three of the four Independent Directors, Dato Richard Ong Guan Seng, Mr. Leong Keng Yuen and Tuan Haji Mohd Mohd Jalil Bin Sany had served the Company for a cumulative term of more than 9 years, exceeding the 9 years as per the recommendations of the Code. The Company believes that the length of the service does not in any way interfere with their exercise of independent judgement to act in the interest of the Company. Annual Report 21

23 CORPORATE GOVERNANCE STATEMENT (continued) The Board through the Nominating Committee has reviewed the performance of the Independent Directors for the financial year ended 30 th June and is satisfied that the Independent Directors have been able to discharge their responsibilities in an independent manner. The criteria used in the assessment of Independent Directors include the following: Integrity Independence from management Absence of conflict of interest Contribution to Board s deliberation The Company does not have term limits for independent Directors. However, in line with the recommendation of the Code, the Company follows the guidelines which provide a limit of a cumulative term of nine (9) years on the tenure of the independent directors unless extended by shareholders. The Board has received and reviewed the duly signed declaration forms from these Directors to confirm their independence based on the criteria in line with the definition of Independent Directors prescribed by the Listing Requirements. The Company will be seeking shareholders approval to retain the following Independent Directors, Dato Richard Ong Guan Seng, Mr. Leong Keng Yuen and Tuan Haji Mohd Mohd Jalil Bin Sany who have served the Company as Directors of the Company for a cumulative term of more than nine (9) years based on the following justifications: 1. They have fulfilled the criteria under the definition of Independent Director pursuant to the Main Market Listing Requirements of Bursa Malaysia Securities Berhad. 2. They each remain independent and actively participate in board discussions and provide an independent and objective voice on the Board. 3. They have in depth knowledge of the Company s business operations and they are committed to devote sufficient time and attention to the Company. 4. They act in the best interest of all shareholders and will provide the check and balance to the Board. Re-election of Directors In accordance with the Company s Articles of Association, all newly appointed Directors are subject to re-election by shareholders at the first annual general meeting immediately after their appointment. The other Directors are subject to retire on a rotational basis once every three years and are entitled to offer themselves for re-election at the Company s Annual General Meeting. Directors over seventy years old are required to submit themselves for reappointment annually in accordance to Section 129(6), Companies Act, Directors standing for re-election at the Forty-seventh Annual General Meeting are detailed in the Notice of the Forty-seventh Annual General Meeting. The Directors who are due for re-election and/or re-appointment at the Annual General Meeting are assessed by the Nominating Committee and then recommendation made to the Board for endorsement to seek shareholders approval for the re-election and/or appointment as Directors of the Company. 4. FOSTER COMMITMENT Each Director does not hold more than five directorships in public listed companies to ensure that they have sufficient time to focus and discharge their duties and responsibilities. The Board is satisfied with the level of the time commitment given by the Non-Executive Directors toward fulfilling their roles and responsibilities as Directors of the Company during the financial year ended 30 th June. Board meetings The Board meets at least four (4) times a year at quarterly intervals, with additional meetings convened as necessary. There were six (6) meetings held during the financial year ended 30 th June and details of the attendance of the Directors were as follows: No. of Meetings Attended Datuk Dr. Foong Weng Sum 6/6 Dato' Richard Ong Guan Seng 6/6 Dr. Foong Weng Cheong 6/6 Mr. Leong Keng Yuen 6/6 Tuan Haji Mohd Mohd Jalil Bin Sany 5/6 Mr. Ooi Ying Hong 6/6 Ms. Chong Yoke Seng 2/2 22 Annual Report

24 CORPORATE GOVERNANCE STATEMENT Directors Training The Directors continue to undergo training on an annual basis to further enhance their skills and knowledge so as to keep abreast with new regulatory developments and the Listing Requirements. The Nominating Committee will review and determine the training needs of the Directors. The Directors are also encouraged to attend various training on their own and submit the certificate of attendance to the Secretary for record. The following were the details of training attended by the Directors during the financial year ended 30 th June : Name of Directors Training Attended Datuk Dr. Foong Weng Sum Deloitte TaxMax Growing in Strength and Sustainability Dato Richard Ong Guan Seng Future of Auditor Reporting The Game Changer for Boardroom KPMG in Malaysia Tax Summit Dr. Foong Weng Cheong Board Reward and Recognition Mr. Leong Keng Yuen Budget and Tax Conference GST Audits and Investigations Tuan Haji Mohd Mohd Jalil Bin Sany ACCA Malaysia Annual Conference Improving Board Risk Oversight Effectiveness Powerful Experiential Presentation: Position, Present and Persuade Mr. Ooi Ying Hong Board Reward and Recognition Ms. Chong Yoke Seng Future of Auditor Reporting The Game Changer for Boardroom Mandatory Accreditation Programme (MAP) for Directors of Public Listed Companies The Company Secretary circulated from time to time the relevant guidelines on statutory and regulatory requirements to the Directors. The External Auditors also highlighted changes to the Malaysian Financial Reporting Standards and legislation that affect the Company s financial statements during the financial year. 5. UPHOLD INTEGRITY IN FINANCIAL REPORTING Financial Reporting The Board aims to present a balanced and meaningful assessment of the Group s financial performance and prospects in presenting the annual financial statements and quarterly announcement of results to shareholders as well as the Chairman s statement and review of operations in the annual report. The Board is assisted by the Audit Committee to oversee the Group s financial reporting processes and the quality of its financial reporting. The Audit Committee reviews the Group s Annual and quarterly financial statements and the Group accounting policies to ensure that the Group s financial reporting comply with accounting standards and regulatory requirements. Internal Control The Board continues to maintain and review its risk management system and internal control procedures to ensure that the Group is operating effectively and efficiently in accordance with its internal policies and procedures and complying with laws and regulations. The Statement on Risk Management and Internal Control which provides an overview of the state of risk management and internal controls of the Group is presented in this Annual Report. Audit Committee The Board is assisted by the Audit Committee in overseeing the Group s financial reporting, risk management and internal control system. The composition, terms of reference and summary of the activities of the Audit Committee during the financial year are disclosed in the Audit Committee Report of this Annual Report. Annual Report 23

25 CORPORATE GOVERNANCE STATEMENT (continued) Relationship with the Auditors (a) Internal Audit has an in-house Internal Audit Unit that assists the Audit Committee in the discharge of its duties and responsibilities. The Internal Audit Unit function includes evaluation of the processes by which significant risks are identified, assessed and managed. The audits are carried out to ensure instituted controls are appropriate, effectively applied and within acceptable risk exposures and consistent with the Group s risk management policy. The Internal Audit Unit reports directly to the Audit Committee and audit findings and recommendations are communicated to the Board on a quarterly basis. (b) External Audit The Company has established a transparent and appropriate relationship with the Group s external auditors through the Audit Committee. It is the practice of the Audit Committee to meet the external auditors to discuss their audit plan, audit findings and the financial statements. The Audit Committee will have a private session with the external auditors without the presence of any executive of the Group at least twice a year. The Audit Committee has performed evaluation and monitors the suitability and independence of the external auditors in accordance to a standard criteria adopted. The Company has also obtained assurance from the external auditors confirming that they are and have been independent throughout the conduct of the audit engagement in accordance with the terms of all relevant professional and regulatory requirements. To maintain independence, the Company supports the External Auditors policy to change the lead engagement partner once every five years. The external Auditors are invited to attend the Annual General Meeting of the Company and are available to answer shareholders queries on the financial statements tabled at the AGM. 6. RECOGNISE AND MANAGE RISKS The Board has established an enterprise risk management framework to manage risk. The Risk Management Unit of each operating company is headed by the respective General Manager who oversees and coordinates the overall risk management activities of the respective company. The Risk Management Units submit risk assessment reports to the Audit Committee on a half yearly basis. has an in-house Internal Audit Unit which reports directly to the Audit Committee. The Internal Audit Unit conducts regular reviews and appraisals of the effectiveness of the internal controls processes and risk management of the Group and reports the findings to the Audit Committee on a quarterly basis. The Audit Committee reviews and evaluates the effectiveness of the internal control and risk management systems in the Group. The Board is provided with reasonable assurance from the Audit Committee on risk management and internal control system. Details of the risk management are stated in the Statement on Risk Management and Internal Control of this Annual Report. 7. ENSURE TIMELY AND HIGH QUALITY DISCLOSURE The Board exercises close monitoring of all price sensitive information potentially required to be released to Bursa Malaysia and makes material announcements to Bursa Malaysia in a timely manner as required. The Board has delegated the authority to the Group Chief Executive and Group Accountant to approve all announcements for release to Bursa Securities. The Company Secretary is responsible to release such announcement to Bursa Malaysia. As for the dealings in the Company s shares, the Directors and senior management are requested to observe the Listing Requirements on the provisions on dealing in the shares of the Company during the closed period as well as outside the closed period. 24 Annual Report

26 CORPORATE GOVERNANCE STATEMENT 8. STRENGTHEN RELATIONSHIP BETWEEN COMPANY AND SHAREHOLDERS Shareholders communication and investors relationship policy The Annual General Meeting is the principal forum for dialogue and interaction with the shareholders of the Company. Shareholders are encouraged to attend the Company s Annual General Meeting and use the opportunity to actively participate in the proceedings. They are encouraged to ask questions both about the resolutions being proposed or any issues pertaining to the Company and to give their views and suggestions for the benefit of the Company. Members of the Board and the external auditors of the Company are present to answer questions raised at the meeting. Where it is not possible to provide immediate answers, the Chairman will undertake to furnish the shareholder with a written answer after the Annual General Meeting. The annual reports and the quarterly announcements are the primary modes of communication to report on the Group s business, activities and financial performance to all its shareholders. Corporate information of the Group is available in the Company s website, Poll voting As stipulated in the Main Market Listing Requirements of Bursa Malaysia Securities Berhad, voting of all resolutions at general meetings shall be carried out by the way of poll. Dato Richard Ong Guan Seng, the Deputy Chairman is the Senior Independent Non-Executive Director who will attend to all queries relating to the affairs of the Group. DIRECTORS RESPONSIBILITY STATEMENT The Directors are aware of its responsibility for ensuring that proper accounting records are kept and the accounts and other financial reports of the Company and the Group are prepared in accordance with the applicable approved accounting standards and complies with the provisions of the Companies Act, The Directors are also responsible for taking reasonable steps as are reasonably available to them to control and safeguard the assets of the Group and to prevent and detect fraud and other irregularities. In the opinion of the Directors, the Group has applied the appropriate accounting policies and standards consistently in the preparation of the financial statements for the financial year ended 30 th June. The Board is satisfied that during the financial year ended 30 th June, save for the exceptions highlighted, the Company is in compliance with the principles and recommendations of the Code. Annual Report 25

27 ADDITIONAL COMPLIANCE INFOATION Utilisation of Proceeds No proceeds were raised by the Company from any corporate exercise during the financial year. Audit and Non- Audit Fees During the financial year ended 30 th June, the amount of audit fees and non-audit fees payable to the External Auditors and its affiliates are as follows: Audit Fees () Non-Audit Fees () Company 30,000 12,200 Group 152,000 65,200 Material Contracts and Contracts Relating to Loans There are no material contracts and contracts relating to loans entered into by the Company and its subsidiaries which involve the interests of the Directors and major shareholders entered into since the previous financial year. Recurrent Related Party Transactions of Revenue Nature The details of related party transactions of revenue or trading nature undertaken by the Company during the financial year are disclosed in Note 22 to the Financial Statements. 26 Annual Report

28 STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL The Board of Directors ( the Board ) is pleased to present the statement on risk management and internal control of the Group during the financial year ended 30 th June. This statement is prepared in accordance with the Main Market Listing Requirements of Bursa Malaysia Securities Berhad ( Bursa Securities ), Statement on Risk Management & Internal Control Guidance for Directors of Listed Issuers provided by Bursa Securities and the Malaysian Code on Corporate Governance Board Responsibility The Board recognizes its responsibility in maintaining a sound system of internal controls which includes not only financial controls but also operational and compliance controls as well as effective risk management. The Board has established ongoing processes for identifying, evaluating and managing the significant risks that matters. The Board continually reviews the system to ensure it provides a reasonable but not absolute assurance against material misstatement of management and financial information and records or against financial losses or fraud. The Board is of the view that the Group s internal control and risk management framework is in place. The key features of the internal control systems are described under the following headings:- 1. Enterprise Risk Management Framework The Board confirms that the Group continues to implement the methodologies in accordance with the enterprise risk management framework ( E ) approved by the Board. The framework ensures that there is an ongoing process for identifying, evaluating, monitoring and managing risks that matters and affecting the Group s business objective. During the financial year under review, the Risk Management Units of the operating subsidiaries continued to coordinate the risk management activities of the respective subsidiaries. The Risk Management Units continued to identify principal risks of the business on an ongoing basis, assess and evaluate the likelihood and impact of the potential risk and manage the risks by formulating action plans to mitigate the risks. The Risk Registers are updated on a timely basis. Risk assessment reports are submitted on a half yearly basis by the respective operating companies to the Audit Committee for review. The Audit Committee in turn reports to the Board its assessment and recommendations. The Board reviewed and monitored the significant risks that have an impact on the achievement of the Group s business objectives through its assessment of the internal control system. 2. Internal Audit Function has an in-house Internal Audit Unit which reports directly to the Audit Committee. The Internal Audit Unit is responsible to monitor compliance with policies and procedures and assess the effectiveness of the internal control system, adequacy of existing risk action plans developed to manage the risks that matters and make recommendations to improve the system of internal control. During the financial year under review, the Internal Audit Unit has carried out regular and systematic reviews on major business operating units of the Group to assess the effectiveness and adequacy of internal control and also on risk management and highlight areas for improvement. The annual audit plan has been reviewed and approved by the Audit Committee prior to the commencement of audit. Internal audit reports are issued upon completion of each audit which includes details on the audit objectives, scope, audit findings and recommendations and management s response to the recommendations of the Internal Audit Unit. The Internal Audit Unit prepares quarterly reports to update the Audit Committee on the status of audits performed. The Audit Committee ensures that control issues highlighted by both the Internal Audit Unit and the external auditors are appropriately addressed by the respective management of the operating subsidiaries on a timely basis. The Board reviews the minutes of the Audit Committee meeting and is briefed by the Audit Committee Chairman on a quarterly basis. 3. Key Internal Control Processes (a) Organisation Structure There is an appropriate organizational structure with well defined lines of responsibility and authority limits established for directors and management within the group in respect of day to day operations, investments, acquisition and disposal of property, plant and equipment. Annual Report 27

29 STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL (continued) (b) Group Policies and Procedures Standard Enterprise Risk Management Policy & Procedures which outline the Group s E Framework are in place to ensure clarity and consistency of risk management within the Group. Standard operational procedures, policies, guidelines and limits of approving authorities are documented in the Group Manual. uses the same accounting system for all companies within the Group to ensure consistency in the financial reporting processes. (c) Operational Monitoring and Controls The operating units hold regular management meetings to review the financial and operational performance and risk management issues. Executive Management Committee meetings are frequently held as and when necessary to monitor and discuss on investments, projects, financial performance and legal matters. Annual business plans and budgets are prepared by the operating units and submitted to the Board for approval. The performance is compared against budget on a monthly basis with explanation of variances. The Board reviews the performance of the Group on a quarterly basis. Management reports, both financial and operational performance reviews which encompass review of key performance indicators, variance analysis and compliance to policies and guidelines are generated and submitted to the Group Chief Executive for review on a monthly basis. Half-yearly Risk Assessment reports are prepared by the operating subsidiaries to ensure risk management is carried out according to procedures. Yearly review of insurance coverage and its adequacy are carried out by senior management to ensure the assets are sufficiently covered against any mishap that may result in material losses to the Group. The Board meets at least on a quarterly basis and there is a formal agenda on matters for discussion at every meeting. Chief Executive leads the presentation of board papers and provides comprehensive explanation of pertinent matters. The Board is updated on the performance of the operating units together with any significant matters by either the Group Chief Executive and/or the General Managers of the respective operating units at Board Meetings. Additional meetings are convened during the year to discuss on other specific matters which require the attention of the Board. Review of the Statement by External Auditors The external auditors have reviewed this Statement in accordance with the Recommended Practice Guide ( RPG ) 5 (Revised) issued by the Malaysia Institute of Accountants on the Review of Directors Statement on Risk Management and Internal Control pursuant to paragraph of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad and reported to the Board that nothing has come to their attention that causes them to believe that the statement is inconsistent with their understanding of the process adopted by the Board in the review of the integrity of the system of risk management and internal control of the Group. Conclusion The Board has received assurance from the Group Chief Executive and Group Accountant that to the best of their knowledge the risk management and internal control of the Group are operating effectively and adequately in all material respects, for the year under review up to the date of approval of this statement. The Board has appraised and confirmed the risk management and internal control system is satisfactory and the control issues highlighted by both Internal and External Auditors have not resulted in any material losses, contingencies or uncertainties that would require disclosure in this report. This statement was reviewed and approved by the Board in accordance with a resolution of the Board of Directors dated 30 th September,. 28 Annual Report

30 Directors' Report Independent Auditors Report Statements of Profit or Loss and Other Comprehensive Income Statements of Financial Position Statements of Changes In Equity Statements of Cash Flows Notes to the Financial Statements Supplementary Information - disclosure on realised and unrealised profits or losses 95 Statement by Directors 96 Declaration by the Officer Primarily Responsible 96 for the Financial Management of the Company FINANCIAL STATEMENTS ANNUAL REPORT

31 DIRECTORS REPORT The directors of HEXZA CORPORATION BERHAD have pleasure in submitting their report and the audited financial statements of the Group and of the Company for the financial year ended June 30,. PRINCIPAL ACTIVITIES The Company is principally involved in investment holding. The principal activities of the subsidiary companies are disclosed in Note 16 to the financial statements. There have been no significant changes in the nature of the principal activities of the Company and its subsidiary companies during the financial year. RESULTS OF OPERATIONS The results of operations of the Group and of the Company for the financial year are as follows: The Company Profit for the year 17,277,757 15,911,374 Profit attributable to: Owners of the Company 15,998,223 15,911,374 Non-controlling interests 1,279,534-17,277,757 15,911,374 In the opinion of the directors, the results of operations of the Group and of the Company during the financial year have not been substantially affected by any item, transaction or event of a material and unusual nature. DIVIDENDS A first and final single-tier dividend of 9.0% in respect of 200,380,036 ordinary shares proposed in the previous financial year and dealt with in the previous directors report were paid by the Company during the financial year. The directors have proposed a first and final single-tier dividend of 9.0% in respect of the current financial year. The proposed dividend is subject to approval by the shareholders at the forthcoming Annual General Meeting of the Company and has not been included as a liability in the financial statements. RESERVES AND PROVISIONS There were no material transfers to or from reserves or provisions during the financial year other than those disclosed in the financial statements. ISSUE OF SHARES AND DEBENTURES The Company has not issued any new shares or debentures during the financial year. 30 Annual Report

32 DIRECTORS REPORT SHARE OPTIONS No options have been granted by the Company to any parties during the financial year to take up unissued shares of the Company. No shares have been issued during the financial year by virtue of the exercise of any option to take up unissued shares of the Company. As of the end of the financial year, there were no unissued shares of the Company under options. OTHER STATUTORY INFOATION Before the statements of profit or loss and other comprehensive income and the statements of financial position of the Group and of the Company were made out, the directors took reasonable steps: (a) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts and had satisfied themselves that no known bad debts needed to be written off and that adequate allowance had been made for doubtful debts; and (b) to ensure that any current assets which were unlikely to realise their book values in the ordinary course of business had been written down to their estimated realisable values. At the date of this report, the directors are not aware of any circumstances: (a) which would require the writing off of bad debts or render the amount of allowance for doubtful debts in the financial statements of the Group and of the Company inadequate to any substantial extent; or (b) (c) (d) which would render the values attributed to current assets in the financial statements of the Group and of the Company misleading; or which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate; or not otherwise dealt with in this report or financial statements which would render any amount stated in the financial statements of the Group and of the Company misleading. At the date of this report, there does not exist: (a) (b) any charge on the assets of the Group and of the Company which has arisen since the end of the financial year and secures the liability of any other person; or any contingent liability of the Group and of the Company which has arisen since the end of the financial year. No contingent or other liability has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the directors, will or may substantially affect the ability of the Group and of the Company to meet their obligations as and when they fall due. In the opinion of the directors, no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely to affect substantially the results of operations of the Group and of the Company for the financial year in which this report is made. DIRECTORS The following directors served on the Board of the Company since the date of the last report: Datuk Dr. Foong Weng Sum Dato Richard Ong Guan Seng Dr. Foong Weng Cheong Mr. Leong Keng Yuen Tuan Haji Mohd Mohd Jalil Bin Sany Mr. Ooi Ying Hong Ms. Chong Yoke Seng (appointed on March 1, ) Annual Report 31

33 DIRECTORS REPORT (continued) DIRECTORS INTERESTS The shareholdings in the Company of those who were directors at the end of the financial year, as recorded in the Register of Directors Shareholdings kept by the Company under Section 134 of the Companies Act, 1965, are as follows: Number of ordinary shares of 0.50 each Shares in the Company Balance as of 1.7./ Date of appointment Bought Disposed Balance as of Registered in the name of directors Datuk Dr. Foong Weng Sum 1,083, ,083,228 Dato Richard Ong Guan Seng 250, ,000 Dr. Foong Weng Cheong 2,662, ,662,500 Mr. Leong Keng Yuen 225, ,000 Mr. Ooi Ying Hong 80, ,000 Ms. Chong Yoke Seng 590, ,000 Indirect interest by virtue of shares held by a company in which the directors have interest Datuk Dr. Foong Weng Sum 62,231, ,231,657 Dr. Foong Weng Cheong 62,231, ,231,657 Tuan Haji Mohd Mohd Jalil Bin Sany 60, ,000 Indirect interests by virtue of shares held by person connected to a director Mr. Leong Keng Yuen 275, ,000 Ms. Chong Yoke Seng 88, ,000 By virtue of their interests in the shares of the Company, Datuk Dr. Foong Weng Sum and Dr. Foong Weng Cheong are also deemed to have an interest in the shares of all the subsidiary companies to the extent that the Company has interests. DIRECTORS BENEFITS Since the end of the previous financial year, none of the directors of the Company has received or become entitled to receive any benefit (other than the benefit included in the aggregate amount of emoluments received or due and receivable by directors as disclosed in the financial statements or the fixed salary of a full-time employee of the Company) by reason of a contract made by the Company or a related corporation with the director or with a firm of which he is a member, or with a company in which he has a substantial financial interest. During and at the end of the financial year, no arrangement subsisted to which the Company was a party whereby directors of the Company might acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate. 32 Annual Report

34 DIRECTORS REPORT AUDITORS The auditors, Messrs. Deloitte, have indicated their willingness to continue in office. Signed on behalf of the Board in accordance with a resolution of the Directors, DATUK DR. FOONG WENG SUM DATO' RICHARD ONG GUAN SENG Ipoh, 30 th September Annual Report 33

35 INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF HEXZA CORPORATION BERHAD Report on the Financial Statements We have audited the financial statements of Hexza Corporation Berhad, which comprise the statements of financial position of the Group and of the Company as of June 30, and the statements of profit or loss and other comprehensive income, statements of changes in equity and statements of cash flows of the Group and of the Company for the year then ended, and a summary of significant accounting policies and other explanatory information, as set out on pages 36 to 94. Directors Responsibility for the Financial Statements The directors of the Company are responsible for the preparation of these financial statements so as to give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia. The directors are also responsible for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence that we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Group and of the Company as of June 30, and of their financial performance and cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia. Report on Other Legal and Regulatory Requirements In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report that: (a) in our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and by the subsidiary companies have been properly kept in accordance with the provisions of the Act; (b) (c) we are satisfied that the accounts of the subsidiary companies that have been consolidated with the financial statements of the Company are in form and content appropriate and proper for the purposes of the preparation of the financial statements of the Group, and we have received satisfactory information and explanations as required by us for these purposes; and our auditors reports on the accounts of the subsidiary companies did not contain any qualification or any adverse comment made under Section 174 (3) of the Act. 34 Annual Report

36 INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF HEXZA CORPORATION BERHAD Other Reporting Responsibilities The supplementary information set out in Note 32 is disclosed to meet the requirement of Bursa Malaysia Securities Berhad and is not part of the financial statements. The directors are responsible for the preparation of the supplementary information in accordance with Guidance on Special Matter No. 1 Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements as issued by the Malaysian Institute of Accountants ( MIA Guidance ) and the directive of Bursa Malaysia Securities Berhad. In our opinion, the supplementary information is prepared, in all material respects, in accordance with the MIA Guidance and the directive of Bursa Malaysia Securities Berhad. Other Matters This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility towards any other person for the contents of this report. DELOITTE AF 0080 Chartered Accountants LIM KENG PEO Partner /01/18(J/PH) Chartered Accountant 30 th September Annual Report 35

37 STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED JUNE 30, The Company Note Revenue 5 141,432, ,178,792 11,706,511 10,544,299 Investment revenue 7 6,342, ,240 6,048, ,290 Other gains and (losses) 8 (1,105,146) 856,279 (352,849) 896,813 Other operating income 9 1,115, , ,553 48,955 Changes in inventories of finished goods and work-in-progress (2,054,814) 1,581, Raw materials and consumables used (62,477,893) (72,958,078) - - Directors remuneration 10 (1,741,677) (1,540,250) (409,260) (385,000) Employee benefits expenses 10 (6,674,147) (7,162,575) (337,939) (328,442) Depreciation of property, plant and equipment 14 (3,821,142) (4,509,668) (5,056) (4,741) Finance costs 11 (18,013) (27,618) - - Other operating expenses 9 (50,297,443) (48,189,007) (912,025) (211,516) Profit before tax 20,699,741 19,357,693 15,944,370 11,350,658 Tax expense 12 (3,421,984) (3,844,237) (32,996) (174,504) Profit for the year 17,277,757 15,513,456 15,911,374 11,176,154 Other comprehensive income/(loss) Items that may be reclassified subsequently to profit or loss: Net fair value changes in available-for-sale financial assets (4,982,386) (3,694,677) (4,982,186) (3,695,277) Reclassification of (gain)/loss on disposal of available-for-sale financial assets (23,833) 263,844 (23,833) 263,844 (5,006,219) (3,430,833) (5,006,019) (3,431,433) Total comprehensive income for the year 12,271,538 12,082,623 10,905,355 7,744, Annual Report

38 STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED JUNE 30, The Company Note Profit for the year attributable to: Owners of the Company 15,998,223 14,030,207 15,911,374 11,176,154 Non-controlling interests 1,279,534 1,483, ,277,757 15,513,456 15,911,374 11,176,154 Total comprehensive income attributable to: Owners of the Company 10,992,004 10,599,374 10,905,355 7,744,721 Non-controlling interests 1,279,534 1,483, Earnings per ordinary share of 0.50 each Basic (sen) ,271,538 12,082,623 10,905,355 7,744,721 Diluted (sen) The accompanying Notes form an integral part of the financial statements. Annual Report 37

39 STATEMENTS OF FINANCIAL POSITION AS OF JUNE 30, The Company Note ASSETS Non-current assets Property, plant and equipment 14 42,160,270 58,337,645 3,880 8,936 Investment in subsidiary companies ,890,748 68,890,748 Other investments 17 63,725,550 46,824,851 63,705,550 46,804,651 Goodwill arising on consolidation 18 2,129,365 2,129, Deferred tax assets , , Finance lease receivable 19 26,787,284-26,787,284 - Total non-current assets 135,137, ,649, ,387, ,704,335 Current assets Inventories 20 16,330,983 21,793, Trade and other receivables 21 28,440,063 32,648, ,500 99,798 Finance lease receivable , ,903 - Current tax assets , ,328 - Other assets ,579 20,014,468 24,606 19,687,705 Cash and cash equivalents 24 51,417,913 62,150,011 30,092,968 52,732,054 97,385, ,607,152 31,224,305 72,519,557 Non-current assets classified as held for sale 15 12,339, Total current assets 109,724, ,607,152 31,224,305 72,519,557 Total assets 244,862, ,257, ,611, ,223, Annual Report

40 STATEMENTS OF FINANCIAL POSITION AS OF JUNE 30, The Company Note EQUITY AND LIABILITIES Capital and reserves Share capital ,190, ,190, ,190, ,190,018 Reserves ,819, ,844,122 89,423,058 87,534, ,009, ,034, ,613, ,724,824 Non-controlling interests 16 6,861,693 6,797, Total equity 226,870, ,831, ,613, ,724,824 Non-current liabilities Deferred tax liabilities 12 7,759,361 8,487, Current liabilities Trade and other payables 27 6,168,396 7,409,597 95,692 87,954 Current tax liabilities 12 1,146, ,850-32,074 Accrued expenses 2,916,905 2,821, , ,040 Total current liabilities 10,232,201 10,937, , ,068 Total liabilities 17,991,562 19,425, , ,068 Total equity and liabilities 244,862, ,257, ,611, ,223,892 Net tangible assets per ordinary share The accompanying Notes form an integral part of the financial statements. Annual Report 39

41 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED JUNE 30, < Attributable to the Owners of the Company > Note Share Capital Non- Distributable Reserve Investments Revaluation Reserve Distributable Reserve Retained Earnings Subtotal Non- Controlling Interests Total Equity Balance as of July 1, ,190,018 5,691, ,562, ,443,605 6,567, ,010,877 Profit for the year ,030,207 14,030,207 1,483,249 15,513,456 Other comprehensive loss - (3,430,833) - (3,430,833) - (3,430,833) Total comprehensive income/(loss) for the year - (3,430,833) 14,030,207 10,599,374 1,483,249 12,082,623 Transactions with owners of the Company: Payment of dividends (8,015,201) (8,015,201) (1,215,000) (9,230,201) Acquisition of additional equity interests in subsidiary - - 6,362 6,362 (38,362) (32,000) Balance as of June 30, 100,190,018 2,260, ,583, ,034,140 6,797, ,831,299 Profit for the year ,998,223 15,998,223 1,279,534 17,277,757 Other comprehensive loss - (5,006,219) - (5,006,219) - (5,006,219) Total comprehensive income/(loss) for the year - (5,006,219) 15,998,223 10,992,004 1,279,534 12,271,538 Transactions with owners of the Company: Payment of dividends (9,017,103) (9,017,103) (1,215,000) (10,232,103) Balance as of June 30, 100,190,018 (2,745,829) 122,564, ,009,041 6,861, ,870,734 The accompanying Notes form an integral part of the financial statements. 40 Annual Report

42 The Company Note < Attributable to the Owners of the Company > Share Capital STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED JUNE 30, Non- Distributable Reserve Investments Revaluation Reserve Distributable Reserve Retained Earnings Total Equity Balance as of July 1, ,190,018 5,685,143 82,120, ,995,304 Profit for the year ,176,154 11,176,154 Other comprehensive loss - (3,431,433) - (3,431,433) Total comprehensive income/ (loss) for the year - (3,431,433) 11,176,154 7,744,721 Transactions with owners of the Company: Payment of dividends (8,015,201) (8,015,201) Balance as of June 30, 100,190,018 2,253,710 85,281, ,724,824 Profit for the year ,911,374 15,911,374 Other comprehensive loss - (5,006,019) - (5,006,019) Total comprehensive income/ (loss) for the year - (5,006,019) 15,911,374 10,905,355 Transactions with owners of the Company: Payment of dividends (9,017,103) (9,017,103) Balance as of June 30, 100,190,018 (2,752,309) 92,175, ,613,076 The accompanying Notes form an integral part of the financial statements. Annual Report 41

43 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, Note CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES Profit for the year 17,277,757 15,513,456 Adjustments for: Depreciation of property, plant and equipment 3,821,142 4,509,668 Tax expense recognised in profit or loss 3,421,984 3,844,237 Fair value adjustment on reassessment of finance lease receivable 19 1,701,034 - Impairment loss of property, plant and equipment ,764 - Inventories written off ,682 82,143 Write down of inventories to net realisable value ,879 - Loss/(Gain) on disposal of available-for-sale investments 53,384 (249,230) Property, plant and equipment written off 31,557 25,033 Finance costs 18,013 27,618 Allowance for doubtful debts 1, ,254 Finance lease income (5,742,866) - Dividend income (3,157,911) (2,917,609) Interest income (1,081,783) (1,008,803) Unrealised (gain)/loss on foreign exchange (1,051,853) 28,694 Net gain arising from financial assets designated as at FVTPL (419,148) (1,004,453) Allowance for doubtful debts no longer required (331,254) - Gain on disposal of property, plant and equipment (151,788) - Cumulative (gain)/loss reclassified from equity on disposal of available-for-sale investments (23,833) 263,844 15,960,580 19,445,852 Movements in working capital: Decrease/(Increase) in: Inventories 4,601,133 (1,778,537) Trade and other receivables 4,525,325 2,246,589 Other assets 159,057 (16,114) (Decrease)/Increase in: Trade and other payables (1,228,647) (5,207,787) Accrued expenses (79,159) (448,801) Cash Generated From Operations 23,938,289 14,241,202 Dividends received from available-for-sale investments 3,157,911 2,917,609 Interest received 1,500,931 2,122,914 Income tax refunded 614,628 61,853 Income tax paid (4,401,734) (4,572,187) Interest paid (18,013) (27,618) Net Cash From Operating Activities 24,792,012 14,743, Annual Report

44 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, Note CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES Proceeds from finance lease income 542,357 - Proceeds from disposal of available-for-sale investments 423,037 7,759,789 Proceeds from disposal of property, plant and equipment 162,453 - Purchase of available-for-sale investments (23,374,365) (721,709) Purchase of property, plant and equipment under lease out arrangement (2,287,500) (19,671,600) Purchase of property, plant and equipment (757,989) (363,012) Acquisition of additional equity interests in a subsidiary company - (32,000) Net Cash Used In Investing Activities (25,292,007) (13,028,532) CASH FLOWS USED IN FINANCING ACTIVITIES Dividends paid to owners of the Company (9,017,103) (8,015,201) Dividends paid to non-controlling interests (1,215,000) (1,215,000) Repayment of short-term borrowings - (3,600,000) Net Cash Used In Financing Activities (10,232,103) (12,830,201) NET DECREASE IN CASH AND CASH EQUIVALENTS (10,732,098) (11,114,960) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 62,150,011 73,264,971 CASH AND CASH EQUIVALENTS AT END OF YEAR 24 51,417,913 62,150,011 The accompanying Notes form an integral part of the financial statements. Annual Report 43

45 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, Note The Company CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES Profit for the year 15,911,374 11,176,154 Adjustments for: Fair value adjustment on reassessment of finance lease receivable 19 1,701,034 - Loss/(Gain) on disposal of available-for-sale investments 53,384 (249,230) Tax expense recognised in profit or loss 32, ,504 Depreciation of property, plant and equipment 5,056 4,741 Dividend income (11,706,511) (10,544,299) Finance lease income (5,742,866) - Unrealised gain on foreign exchange (1,051,853) - Interest income (482,847) (790,290) Net gain arising from financial assets designated as at FVTPL (324,236) (911,430) Cumulative (gain)/loss reclassified from equity on disposal of available-for-sale investments (23,833) 263,844 Property, plant and equipment written off - 3 Movements in working capital: (1,628,302) (876,003) (Increase)/Decrease in: Other receivables (205,014) 100,225 Other assets (9,401) 4,671 Increase in: Other payables 9,480 8,960 Accrued expenses 523,959 34,506 Cash Used In Operations (1,309,278) (727,641) Dividends received from subsidiary companies 8,550,200 7,627,650 Interest received 807,083 1,701,720 Dividends received from available-for-sale investments 3,156,311 2,916,649 Income tax refunded 31,098 10,497 Income tax paid (155,496) (194,131) Net Cash From Operating Activities 11,079,918 11,334, Annual Report

46 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, Note The Company CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES Proceeds from finance lease income 542,357 - Proceeds from disposal of available-for-sale investments 423,037 7,759,789 Purchase of available-for-sale investments (23,374,365) (721,709) Purchase of assets under lease out arrangement (2,287,500) (19,671,600) (Advances to)/repayment from subsidiary companies (3,688) 5,572,058 Acquisition of additional equity interests in a subsidiary company - (32,000) Purchase of property, plant and equipment - (7,075) Net Cash Used In Investing Activities (24,700,159) (7,100,537) CASH FLOWS USED IN FINANCING ACTIVITIES Dividends paid to owners of the Company (9,017,103) (8,015,201) Repayment to a subsidiary company (1,742) (1,423) Net Cash Used In Financing Activities (9,018,845) (8,016,624) NET DECREASE IN CASH AND CASH EQUIVALENTS (22,639,086) (3,782,417) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 52,732,054 56,514,471 CASH AND CASH EQUIVALENTS AT END OF YEAR 24 30,092,968 52,732,054 The accompanying Notes form an integral part of the financial statements. Annual Report 45

47 NOTES TO THE FINANCIAL STATEMENTS 1. GENERAL INFOATION The Company is a public limited company, incorporated and domiciled in Malaysia and is listed on the Main Market of Bursa Malaysia Securities Berhad. The Company is principally involved in investment holding. The principal activities of the subsidiary companies are disclosed in Note 16. There have been no significant changes in the nature of the principal activities of the Company and its subsidiary companies during the financial year. The registered office and principal place of business of the Company are located at Lot 6 & 20, Persiaran Tasek, Kawasan Perindustrian Tasek, Ipoh, Perak Darul Ridzuan. The financial statements of the Group and of the Company were authorised for issue by the Board of Directors in accordance with a resolution of the directors on 30 th September. 2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS The financial statements of the Group and of the Company have been prepared in accordance with Malaysian Financial Reporting Standards ( MFRSs ), International Financial Reporting Standards ( IFRSs ) and the provisions of the Companies Act, 1965 in Malaysia. 2.1 Adoption of amendments to MFRSs Amendments to MFRSs affecting amounts reported and/or disclosures in the financial statements In the current year, the Group and the Company have applied a number of amendments to MFRSs issued by the Malaysian Accounting Standards Board ( MASB ) that are mandatorily effective for an accounting period that begins on or after July 1,. The adoption of amendments to MFRSs has had no material impact on the disclosures or on the amounts recognised in the financial statements. 2.2 Standards in issue but not yet effective and the Company have not elected for early adoption of the relevant new and amendments to MFRSs which have been issued but not yet effective until future periods at the date of authorisation for issue of these financial statements. The directors anticipate that the adoption of these Standards when they become effective will have no material impact on the financial statements of the Group and of the Company in the period of initial application except as discussed below: MFRS 9 Financial Instruments MFRS 9 (IFRS 9 issued by IASB in November 2009) introduced new requirements for the classification and measurement of financial assets. MFRS 9 (IFRS 9 issued by IASB in October 2010) include requirements for the classification and measurement of financial liabilities and for derecognition, and in February 2014, the new requirements for general hedge accounting was issued by MASB. Another revised version of MFRS 9 was issued by MASB - MFRS 9 (IFRS 9 issued by IASB in July 2014) mainly to include a) impairment requirements for financial assets and b) limited amendments to the classification and measurement requirements by introducing a fair value through other comprehensive income (FVTOCI) measurement category for certain simple debt instruments. 46 Annual Report

48 NOTES TO THE FINANCIAL STATEMENTS Key requirements of MFRS 9: all recognised financial assets that are within the scope of MFRS 139 Financial Instruments: Recognition and Measurement are required to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are measured at FVTOCI. All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under MFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss. with regard to the measurement of financial liabilities designated as at fair value through profit or loss, MFRS 9 requires that the amount of change in the fair value of the financial liability s that is attributable to changes in the credit risk of that liability, is presented in other comprehensive income, unless the recognition of the effects of changes in the liability s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability s credit risk are not subsequently reclassified to profit or loss. Under MFRS 139, the entire amount of the change in the fair value of the financial liability designated as at fair value through profit or loss was presented in profit or loss. in relation to the impairment of financial assets, MFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under MFRS 139. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at the end of each reporting period to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised. the new general hedge accounting requirements retain the three types of hedge accounting mechanisms currently available in MFRS 139. Under MFRS 9, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been overhauled and replaced with the principle of an economic relationship. Retrospective assessment of hedge effectiveness is also no longer required. Enhanced disclosure requirements about an entity s risk management activities have also been introduced. The directors of the Group and of the Company anticipate that the application of MFRS 9 in the future may have a material impact on amounts reported in respect of the Group s and of the Company s financial assets and financial liabilities. However, it is not practicable to provide a reasonable estimate of the effect of MFRS 9 until the Group and the Company complete a detailed review. MFRS 15 Revenue from Contracts with Customers In September 2014, MFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Subsequently, amendments to MFRS 15 were issued in June which provide clarification on certain requirements of MFRS 15 and provide additional transitional relief upon implementing MFRS 15. MFRS 15 will supersede the current revenue recognition guidance including MFRS 118 Revenue, MFRS 111 Construction Contracts and the related Interpretations when it becomes effective. The core principle of MFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue recognition: Annual Report 47

49 NOTES TO THE FINANCIAL STATEMENTS 2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (continued) Step 1: Identify the contract(s) with a customer Step 2: Identify the performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the performance obligations in the contract Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation Under MFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when control of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in MFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by MFRS 15. The directors of the Group and of the Company anticipate that the application of MFRS 15 in the future may have a material impact on the amounts reported and disclosures made in these financial statements. However, it is not practicable to provide a reasonable estimate of the effect of MFRS 15 until the Group and the Company complete a detailed review. Amendments to MFRS 101 Disclosure Initiative The amendments to MFRS 101 aim at clarifying MFRS 101 to address perceived impediments to preparers exercising their judgment in presenting their financial reports. The amendments make the following changes: They clarify that information should not be obscured by aggregating or by providing immaterial information, materiality considerations apply to the all parts of the financial statements, and even when a standard requires a specific disclosure, materiality considerations do apply. They introduce a clarification that the list of line items to be presented in the statement of financial position and the statement of profit or loss and other comprehensive income can be disaggregated and aggregated as relevant and additional guidance on subtotals in these statements and clarify that an entity s share of other comprehensive income of equity-accounted associates and joint ventures should be presented in aggregate as single line items based on whether or not it will subsequently be reclassified to profit or loss. They add additional examples of possible ways of ordering the notes to clarify that understandability and comparability should be considered when determining the order of the notes and removed guidance and examples with regard to the identification of significant accounting policies that were perceived as being potentially unhelpful. The directors of the Group and of the Company do not anticipate that the application of these amendments to MFRS 101 will have a material impact on these financial statements as these amendments deal with the presentation of financial statements. Amendments to MFRS 107 Disclosure Initiative The amendments to MFRS 107 require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including changes from both cash flows and non-cash changes. The amendments should be applied prospectively and comparative information is not required for earlier periods presented. Except for providing the requisite disclosures, the directors of the Group and of Company do not anticipate that the application of the amendments will have a material impact on the Group s consolidated financial statements. 48 Annual Report

50 NOTES TO THE FINANCIAL STATEMENTS Amendments to MFRS 112 Recognition of Deferred Tax Assets for Unrealised Losses The amendments to MFRS 112 provide clarification on the recognition of deferred tax assets for unrealised losses related to debt instruments measured at fair value. In addition, the amendments also clarify that the carrying amount of an asset does not limit the estimation of probable future taxable profits and that when comparing deductible temporary differences with future taxable profits, the future taxable profits excludes tax deductions resulting from the reversal of those deductible temporary differences. The amendments should be applied retrospectively with specific transitional relief. The directors of the Group and of the Company do not anticipate that the application of the amendments will have a material impact on the Group s consolidated financial statements. MFRS 16 Leases MFRS 16 specifies how an MFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with MFRS 16 s approach to lessor accounting substantially unchanged from its predecessor, MFRS 117. At lease commencement, a lessee will recognise a right-of-use asset and a lease liability. The right-of-use asset is treated similarly to other non-financial assets and depreciated accordingly and the liability accrues interest. The lease liability is initially measured at the present value of the lease payments payable over the lease term, discounted at the rate implicit in the lease if that can be readily determined. If that rate cannot be readily determined, the lessees shall use their incremental borrowing rate. The directors of the Group and of the Company do not anticipate that the application of these amendments will have a significant impact on these financial statements. 3. SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The financial statements of the Group and of the Company have been prepared on the historical cost basis except for certain financial instruments that are measured at fair value or at amortised cost at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for assets. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group and the Company take into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of MFRS 2, leasing transactions that are within the scope of MFRS 117, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in MFRS 102 or value in use in MFRS 136. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and Level 3 inputs are unobservable inputs for the asset or liability. Annual Report 49

51 NOTES TO THE FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (continued) The principal accounting policies are set out below. Subsidiary Companies and Basis of Consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiary companies. Control is achieved where the Company: has power over the investee; is exposed, or has rights, to variable returns from its involvement with the investee; and has the ability to use its power to affect its returns. The Company reassessed whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company s voting rights in an investee are sufficient to give it power, including: the size of the Company s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; potential voting rights held by the Company, other vote holders or other parties; rights arising from other contractual arrangements; and any additional facts and circumstance that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders meetings. Consolidation of a subsidiary company begins when the Company obtains control over the subsidiary company and ceases when the Company loses control of the subsidiary company. Specifically, income and expenses of a subsidiary company acquired or disposed of during the year are included in the consolidated profit or loss from the date the Company gains control until the date when the Company ceases to control the subsidiary company. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiary companies is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Where necessary, adjustments are made to the financial statements of subsidiary companies to bring their accounting policies into line with the Group s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. Changes in the Group s ownership interest in existing subsidiary companies Changes in the Group s ownership interests in subsidiary companies that do not result in the Group losing control are accounted for as equity transactions. The carrying amounts of the Group s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary companies. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. When the Group loses control of a subsidiary company, a gain or loss is recognised in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary company and any non-controlling interests. All amounts previously recognised in other comprehensive income in relation to that subsidiary company are accounted for as if the Group had directly disposed of the relevant assets or liabilities of the subsidiary company (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable MFRSs). The fair value of any investment retained in the former subsidiary company at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under MFRS 139 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or joint venture. 50 Annual Report

52 NOTES TO THE FINANCIAL STATEMENTS Subsidiary Companies Investments in subsidiary companies, which are eliminated on consolidation, are stated at cost less impairment losses, if any, in the Company s separate financial statements. Segment Reporting For management purposes, the Group is organised into operating segments that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that related to transactions with any of the Group s other components. s reporting segments were identified based on internal reports that are regularly reviewed by the Group s chief operating decision maker in order to allocate resources to the segment and to assess its performance. s reportable segments are strategic business operations that are managed separately based on the Group s management and internal reporting structure. Revenue Recognition Revenue is measured at the fair value of the consideration received or receivable net of sales tax/goods and services tax, trade discounts and allowances. Sale of goods Revenue from sale of goods is recognised when all the following conditions are satisfied: the Group has transferred to the customer the significant risks and rewards of ownership of the goods; the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the Group; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Property development projects Income relating to property development projects is recognised upon signing of the individual sale and purchase agreements, and risks and rewards of ownership of the properties are transferred. Dividend income Dividend income represents gross dividends from quoted and unquoted investments and is recognised when the shareholder s right to receive payment is established, provided that it is probable that the economic benefits will flow to the Group and to the Company, and the amount of revenue can be measured reliably. Interest income Interest income is recognised when it is probable that the economic benefits will flow to the Group and to the Company and the amount of revenue can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial assets to that asset s net carrying amount on initial recognition. Foreign Currencies The individual financial statements of each group entity are presented in Ringgit Malaysia, the currency of the primary economic environment in which the entity operates. For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in Ringgit Malaysia, which is the functional currency of the Company, and also the presentation currency for the consolidated financial statements. Annual Report 51

53 NOTES TO THE FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (continued) In preparing the financial statements of the individual entities, transactions in currencies other than the entity s functional currency are recorded in Ringgit Malaysia at the rates of exchange prevailing on the date of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated into Ringgit Malaysia at the exchange rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised in profit or loss in the year in which they arise except for exchange differences arising on the retranslation of non-monetary items carried at fair value in respect of which gains and losses are recognised in other comprehensive income. For such non-monetary items, the exchange component of that gain or loss is also recognised in other comprehensive income. Employee Benefits Short-term employee benefits Wages, salaries, bonuses and social security contributions are recognised as an expense in the year in which the associated services are rendered by employees of the Group and of the Company. Short-term accumulating compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences. Short-term non-accumulating compensated absences such as sick leave are recognised when the absences occur. Defined contribution plan and the Company make statutory contributions to approved provident funds and the contributions are charged to profit or loss as incurred. The approved provident funds are defined contribution plans. Once the contributions have been paid, there are no further payment obligations. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in profit or loss because it excludes items of income or expense that are taxable or deductible pertaining to previous years and it further excludes items that are never taxable or deductible. The liability of the Group and of the Company for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are generally recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that taxable profits will be available against which those deductible temporary differences, unused tax losses and unused tax credits can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group and the Company expect, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. 52 Annual Report

54 NOTES TO THE FINANCIAL STATEMENTS Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group and the Company intend to settle their current tax assets and liabilities on a net basis. Current and deferred tax for the year Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items that are recognised outside profit or loss (whether in other comprehensive income or directly in equity), in which case the tax is also recognised outside profit or loss; or when they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is taken into account in calculating goodwill or determining the excess of the interest of the acquirer in the net fair value of the identifiable assets, liabilities and contingent liabilities over cost of the acquiree. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is charged so as to write off the cost of property, plant and equipment, other than freehold land and capital work-in-progress, over their estimated useful lives, after taking into account their estimated residual value, using the straight-line method. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. Capital work-in-progress including properties in the course of construction for production or administrative purposes are carried at cost, less any recognised impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group s accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. Freehold land is not depreciated. Long-term lease land is amortised evenly over the lease period of 64 and 97 years commencing from 2005 and 1989 respectively. During the financial year, the long-term lease land with lease period of 97 years has been transferred to non-current assets classified as held for sale. Short-term lease land are amortised evenly over the lease period ranging from 57½ years to 79 years commencing from 1985, 2006 and 1994 respectively. The annual depreciation rates are as follows: Buildings and improvements 2% to 10% Plant, machinery and equipment 5% to 20% Furniture, fixtures and office equipment 10% to 33 1 / 3% Motor vehicles and forklifts 20% The estimated useful lives, residual values and depreciation method of property, plant and equipment are reviewed at each year end, with the effect of any changes in estimates accounted for prospectively. The gain or loss arising on disposal or retirement of an item of property, plant and equipment is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in profit or loss. Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. as lessor Amounts due from lessees under finance leases are recognised as receivables at the amount of the Group s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group s net investment outstanding in respect of the leases. Annual Report 53

55 NOTES TO THE FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (continued) Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term. as lessee Assets held under finance leases are initially recognised as assets of the Group at their fair values at the inception of the lease or, if lower, at the present values of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation. Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group general policy on borrowing costs. Contingent rentals are recognised as expenses in the periods in which they are incurred. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straightline basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Goodwill Goodwill acquired in a business combination is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer s previously held equity interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. Goodwill is not amortised. Instead, it is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. For the purpose of impairment testing, goodwill is allocated to each of the cash-generating units of the Group expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. Any impairment loss is recognised immediately in the consolidated profit or loss and any impairment loss recognised for goodwill is not subsequently reversed. On disposal of an entity or operation, the goodwill associated with the entity or operation disposed of is included in the carrying amount of the entity or operation when determining the gain or loss on disposal. 54 Annual Report

56 NOTES TO THE FINANCIAL STATEMENTS Impairment of Assets Excluding Goodwill At the end of each reporting period, the Group and the Company review the carrying amounts of their assets (other than deferred tax assets, inventories and financial assets which are dealt with in their respective policies) to determine if there is any indication that those assets may be impaired. If any such indication exists, the recoverable amount of the asset is estimated. Where it is not possible to estimate the recoverable amount of an individual asset, the Group and the Company estimate the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cashgenerating units for which a reasonable and consistent allocation basis can be identified. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised in profit or loss. An impairment loss is reversed if there has been a change in the estimate used to determine the recoverable amount. An impairment loss is only reversed to the extent that the carrying amount of the asset does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, had no impairment loss been recognised for the asset in prior years. A reversal is recognised immediately in profit or loss. Non-Current Assets Classified As Held For Sale Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the non-current asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell. Inventories Inventories are valued at the lower of cost and net realisable value. Cost is determined principally on the Weighted Average method. Cost of raw materials and consumables, spare parts and goods-in-transit comprise the original purchase price plus cost incurred in bringing the inventories to their present location. The cost of finished goods and work-in-progress comprises the cost of raw materials, direct labour and a proportion of the production overheads. Inventories of unsold completed development units are stated at the lower of cost and net realisable value. Cost includes the relevant cost of land, development expenditure and related interest cost incurred during the development year. Net realisable value represents the estimated selling price in the ordinary course of business less all other estimated costs to completion. Borrowing Costs Borrowing costs directly attributable to construction of assets which require a substantial period of time to get them ready for their intended use are capitalised and included as part of the related assets. Capitalisation of borrowing costs will cease when the assets are ready for their intended use. All other borrowing costs are recognised as an expense in the year in which they are incurred. Annual Report 55

57 NOTES TO THE FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (continued) Provisions Provisions are recognised when the Group and the Company have present obligation (legal or constructive) as a result of past event and it is probable that the Group and the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. Financial Instruments Financial instruments are recognised in the statements of financial position when, and only when the Group and the Company become a party to the contractual provisions of the financial instruments. Where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, such financial assets are recognised and derecognised on trade date. Financial instruments are initially measured at fair value, plus transaction costs, except for those financial assets and financial liabilities classified as at fair value through profit or loss ( FVTPL ), which are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of the financial assets and financial liabilities (other than financial assets and financial liabilities at FVTPL) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Effective interest method The effective interest method is a method of calculating the amortised cost of a financial instrument and of allocating interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset or financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. Income and expense are recognised on an effective interest basis for debt instruments other than those financial assets and financial liabilities classified as at FVTPL. (a) Financial assets Financial assets of the Group and of the Company are classified into at FVTPL, available-for-sale ( AFS ) financial assets and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. (i) Financial assets at FVTPL Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is designated as at FVTPL. A financial asset is classified as held for trading if: it has been acquired principally for the purpose of selling it in the near term; or on initial recognition it is part of a portfolio of identified financial instruments that the Group and the Company manage together and has a recent actual pattern of short-term profit-taking; or it is a derivative that is not designated and effective as a hedging instrument. 56 Annual Report

58 NOTES TO THE FINANCIAL STATEMENTS A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if: such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group s and the Company s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or it forms part of a contract containing one or more embedded derivatives, and MFRS 139 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL. Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the other gains and losses line item. Fair value is determined in the manner described in Note 31. (ii) AFS financial assets AFS financial assets are non-derivatives that are either designated as available-for-sale or are not classified as loans and receivables, held-to-maturity investments or financial assets at FVTPL. All AFS financial assets with the exception of unquoted shares which are measured at cost less impairment, are measured at fair value at the end of the reporting period. Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated in the investment revaluation reserve, with the exception of impairment losses, interest calculated using the effective interest method, and foreign exchange gains and losses on monetary assets, which are recognised in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investment revaluation reserve is reclassified to profit or loss. Dividends on AFS equity instruments are recognised in profit or loss when the Group s and the Company s right to receive the dividends is established. (iii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. (iv) Impairment of financial assets Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. For equity investments classified as AFS, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment. For all other financial assets, objective evidence of impairment could include: significant financial difficulty of the issuer or counterparty; or breach of contract, such as default or delinquency in interest or principal payments; or it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or the disappearance of an active market for that financial asset because of financial difficulties. Annual Report 57

59 NOTES TO THE FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (continued) For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group s and the Company s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables. For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the financial asset s original effective interest rate. For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are debited against the allowance account and changes in the carrying amount of the allowance account are recognised in profit or loss. When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognised in other comprehensive income are reclassified to profit or loss in the period. With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the financial asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. In respect of AFS equity securities, impairment losses previously recognised in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognised in other comprehensive income. (v) Derecognition of financial assets and the Company derecognise a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group and the Company neither transfer nor retain substantially all the risks and rewards of ownership and continue to control the transferred asset, the Group and the Company recognise their retained interest in the asset and an associated liability for amounts they may have to pay. If the Group and the Company retain substantially all the risks and rewards of ownership of a transferred financial asset, the Group and the Company continue to recognise the financial asset and also recognise a collateralised borrowing for the proceeds received. (b) Financial liabilities and equity instruments (i) Classification as debt or equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement and the definition of a financial liability and an equity instrument. (ii) Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group and the Company are recognised at the proceeds received, net of direct issue costs. 58 Annual Report

60 NOTES TO THE FINANCIAL STATEMENTS (iii) Financial liabilities Financial liabilities of the Group and of the Company, including borrowings, are classified into other financial liabilities category, and are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. (iv) Derecognition of financial liabilities and the Company derecognise financial liabilities when, and only when, the Group s and the Company s obligations are discharged, cancelled or they expire. Statements of Cash Flows and the Company adopt the indirect method in the preparation of the statements of cash flows. Cash equivalents are short-term, highly liquid investments with maturities of three months or less from the date of acquisition and are readily convertible to cash with insignificant risks of changes in value. 4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the process of applying the Group s and the Company s accounting policies, the directors are of the opinion that there are no instances of application of judgement which are expected to have a significant effect on the amounts recognised in the financial statements. In the application of the accounting policies of the Group and of the Company, the directors are required to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below: (a) Impairment of Goodwill test goodwill for impairment annually in accordance with its accounting policy. More regular reviews are performed if events indicate that this is necessary. For the purpose of assessing impairment, goodwill is allocated to cash-generating units that are expected to benefit from the synergies of the business combination in which the goodwill arose. Significant judgement is required in the estimation of the present value of future cash flows generated by the cash-generating units, which involve uncertainties and are significantly affected by assumptions used and judgement made regarding estimates of future cash flows and discount rates. Changes in assumptions could significantly affect the results of the tests for impairment of goodwill. (b) Impairment of Property, Plant and Equipment and Other Non-current Assets and the Company assess impairment of assets whenever the events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, i.e. the carrying amount of the asset is more than the recoverable amount. Annual Report 59

61 NOTES TO THE FINANCIAL STATEMENTS 4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (continued) Recoverable amount is measured at the higher of the fair value less cost to sell for that asset and its value-in-use. The value-in-use is the net present value of the projected future cash flows derived from that asset discounted at an appropriate discount rate. Projected future cash flows are based on the Group s and the Company s estimates, approved by the management covering a period of five years and calculated based on historical, sector and industry trends, general market and economic conditions, changes in technology and other available information. The terminal value is calculated based on the projected residual value of the asset at the end of the fifth year. Management of the Group and the Company have carried out a review on their property, plant and equipment, and concluded that there is no indication of impairment during the financial year except for impairment losses of 732,764 which was recognised in one of the subsidiary companies. (c) Estimated Useful Lives of Property, Plant and Equipment and the Company regularly review the estimated useful lives of property, plant and equipment based on factors such as business plan and strategies, expected level of usage and future technological developments. Future results of operations could be materially affected by changes in these estimates brought about by changes in the factors mentioned above. A reduction in the estimated useful lives of property, plant and equipment would increase the recorded depreciation and decrease the value of property, plant and equipment. (d) Recoverability of Receivables and the Company make allowance for doubtful receivables based on an assessment of the recoverability of trade and other receivables. An allowance is established for trade or other receivable when there is objective evidence that the Group and the Company will not be able to collect all amounts due according to the original terms of transactions. The identification of doubtful receivables requires use of judgement and estimates with reference to the ageing profile and collection patterns. Where the expectation is different from the original estimate, such difference will impact the carrying value of the trade and other receivables and doubtful receivables expenses in the period in which such estimate has been changed. 60 Annual Report

62 NOTES TO THE FINANCIAL STATEMENTS 5. REVENUE The Company Manufacturing 138,276, ,634,020 Trading - 1,628,123 Dividend income: Shares quoted in Malaysia 1,858,643 2,011,140 1,858,643 2,011,140 Unquoted shares 582, , , ,080 Money market funds 572, , , ,489 Shares quoted outside Malaysia 143,309 26, ,309 26,940 Subsidiary companies - - 8,550,200 7,627, ,432, ,178,792 11,706,511 10,544,299 The following is an analysis of revenue earned on financial assets and non-financial assets: The Company Revenue earned on: Financial assets designated as FVTPL 572, , , ,489 Available-for-sale financial assets 2,584,072 2,426,160 2,584,072 2,426,160 Non-financial assets 138,276, ,262,143 8,550,200 7,627, ,432, ,178,792 11,706,511 10,544, SEGMENT INFOATION s reporting segments were identified based on internal reports that are regularly reviewed by the Group s chief operating decision maker in order to allocate resources to the segment and to assess its performance. s reportable segments are strategic business operations that are managed separately based on the Group s management and internal reporting structure. For management purposes, the Group is organised into the following operating divisions: - Investment holding - Manufacture and sale of formaldehyde based adhesives and resins for timber related industries, ethyl alcohol, natural vinegar, cooler, liquefied carbon dioxide and kaoliang wine ( Manufacturing ) - Trading - Others (property development, dormant and pre-operating companies) No operating segments have been aggregated in arriving at the reportable segments of the Group. Annual Report 61

63 NOTES TO THE FINANCIAL STATEMENTS 6. SEGMENT INFOATION (continued) Investment holding Manufacturing Trading Others Eliminations Consolidated Revenue External customers 3,156, ,276, ,432,315 Inter-segment 8,550, ,398 17,290,302 (26,422,900) 11,706, ,858,402 17,290,302 (26,422,900) 141,432,315 Results Finance lease income 5,742, ,742,866 Interest income 482, ,853 (18,917) 1,081,783 Finance costs (26,227) (10,703) 18,917 (18,013) Depreciation of property, plant and equipment (5,056) (3,807,090) (8,996) - (3,821,142) Non-cash (expenses)/ income other than depreciation (354,496) (1,113,621) (1) 94,912 - (1,373,206) Segment profit/(loss) 9,718,657 12,814,670 16,102 (88,079) (8,568,245) 13,893,105 Finance lease income 5,742, ,742,866 Interest income 482, ,853 (18,917) 1,081,783 Finance costs (26,227) (10,703) 18,917 (18,013) Profit/(Loss) before tax 15,944,370 13,406,296 5,399 (88,079) (8,568,245) 20,699,741 Income tax expense (3,421,984) Profit for the year 17,277,757 Assets Reportable segment assets 170,343, ,374,765 2,903,865 2,804, ,427,146 Unallocated corporate assets 435,150 Consolidated total assets 244,862,296 Liabilities Reportable segment liabilities (929,639) (6,162,785) (1,805,721) (187,156) - (9,085,301) Unallocated corporate liabilities (8,906,261) Consolidated total liabilities (17,991,562) Other information Capital additions - 756,561 1, , Annual Report

64 NOTES TO THE FINANCIAL STATEMENTS Investment holding Manufacturing Trading Others Eliminations Consolidated Revenue External customers 2,916, ,634,020 1,628, ,178,792 Inter-segment 7,627,650 1,222,265 14,217,747 - (23,067,662) - 10,544, ,856,285 15,845,870 - (23,067,662) 150,178,792 Results Interest income 790, , (119,619) 1,008,803 Finance costs - (135,533) (11,704) - 119,619 (27,618) Depreciation of property, plant and equipment (4,741) (4,498,393) (6,526) (8) - (4,509,668) Non-cash expenses other than depreciation (14,617) (467,119) (2) - - (481,738) Segment profit/(loss) 10,560,368 15,177, ,942 (13,444) (7,620,552) 18,376,508 Interest income 790, , (119,619) 1,008,803 Finance costs - (135,533) (11,704) - 119,619 (27,618) Profit/(Loss) before tax 11,350,658 15,379, ,238 (13,444) (7,620,552) 19,357,693 Income tax expense (3,844,237) Profit for the year 15,513,456 Assets Reportable segment assets 119,247, ,634,086 2,222,818 2,794, ,898,525 Unallocated corporate assets 358,488 Consolidated total assets 244,257,013 Liabilities Reportable segment liabilities (396,200) (9,211,457) (430,469) (192,867) - (10,230,993) Unallocated corporate liabilities (9,194,721) Consolidated total liabilities (19,425,714) Other information Capital additions 7, ,483 16, ,012 Annual Report 63

65 NOTES TO THE FINANCIAL STATEMENTS 6. SEGMENT INFOATION (continued) Segment profit represents the profit earned by each segment before interest revenue, finance costs and income tax. This is the measure reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance. For the purpose of monitoring segment performance and allocating resources: All assets are allocated to the reportable segments other than current and deferred tax assets. Goodwill is allocated to the manufacturing segment as disclosed in Note 18. All liabilities are allocated to the reportable segments other than current and deferred tax liabilities. The directors are of the opinion that all inter-segment transactions have been entered into in the normal course of business and have been established on terms and conditions agreed by the parties. Revenue from major products The following is an analysis of the Group s revenue from its major products: Formaldehyde based resins and ethanol 137,657, ,931,900 Information on the Group s operations by geographical segment has not been provided as the Group operates predominantly in Malaysia. Accordingly, the information about geographical areas as required by the standard is not disclosed. 7. INVESTMENT REVENUE The Company Finance lease income 5,742,866-5,742,866 - Interest income from: Fixed deposits 598, , , ,583 Medium term note - 277, ,088 Subsidiary companies (Note 22) - 18, ,619 6,341, ,280 6,048, ,290 Dividend income 1, ,342, ,240 6,048, ,290 The following is an analysis of investment revenue earned on financial assets by category of asset: The Company Available-for-sale financial assets 1, , ,088 Loans and receivables (including cash and cash equivalents) 6,341, ,192 6,048, ,202 6,342, ,240 6,048, , Annual Report

66 NOTES TO THE FINANCIAL STATEMENTS 8. OTHER GAINS AND (LOSSES) Included in other gains and (losses) are the following: The Company Unrealised gain/(loss) on foreign exchange 1,051,853 (28,694) 1,051,853 - Net gain arising on financial assets designated as at FVTPL 419,148 1,004, , ,430 Gain on disposal of property, plant and equipment 151, Cumulative gain/(loss) reclassified from equity on disposal of available-for-sale investments 23,833 (263,844) 23,833 (263,844) Insurance claims received - 1,300 Fair value adjustment on reassessment of finance lease receivable (Note 19) (1,701,034) - (1,701,034) - Impairment loss of property, plant and equipment (Note 14) (732,764) Realised (loss)/gain on foreign exchange (233,029) (81,133) 1,647 - (Loss)/Gain on disposal of available-for-sale investments (53,384) 249,230 (53,384) 249,230 Property, plant and equipment written off (31,557) (25,033) - (3) (1,105,146) 856,279 (352,849) 896, OTHER OPERATING INCOME/(EXPENSES) Included in other operating income/(expenses) are the following: The Company Interest received on late payments 483, , ,278 - Allowance for doubtful debts no longer required (Note 21) 331, Fees paid/payable to external auditors: Statutory audit: Current year Prior year (152,000) - (151,000) 1,500 (30,000) - (28,000) - Non-audit services (3,000) (3,000) (3,000) (3,000) Rental of equipment (3,274) (3,841) - - Allowance for doubtful debts (Note 21) (1,820) (331,254) - - Annual Report 65

67 NOTES TO THE FINANCIAL STATEMENTS 10. DIRECTORS REMUNERATION AND EMPLOYEE BENEFITS EXPENSES The Company Directors of the Company Executive director: Fees 86,000 86,000 60,000 60,000 Other emoluments 1,223,500 1,055,500 1,000 1,000 1,309,500 1,141,500 61,000 61,000 Non-executive directors: Fees 348, , , ,000 Other emoluments 83,590 77,000 76,590 69, , , , ,000 1,741,677 1,540, , ,000 Included in employee benefits expenses and directors remuneration are the following: The Company Contributions to EPF: Employee benefits expenses 630, ,030 35,596 34,974 Directors' remuneration - 4, Retrenchment payments 566, Rental paid - 2, The estimated monetary value of benefits-in-kind received and receivable by a director otherwise than in cash from the Group amounted to 10,129 (: 9,900). 11. FINANCE COSTS Interest on: Letter of credit charges 11,160 12,164 Bankers' acceptances 6,853 15,289 Bank overdrafts Total interest expense for financial liabilities not classified as at FVTPL 18,013 27, Annual Report

68 NOTES TO THE FINANCIAL STATEMENTS 12. INCOME TAX EXPENSE AND DEFERRED TAX ASSETS AND LIABILITIES The Company Tax expense comprises: Current income tax expense 4,316,600 4,959,785 74, ,000 Deferred tax relating to origination and reversal of temporary differences (690,510) (866,907) - - 3,626,090 4,092,878 74, ,000 (Over)/Under provision in prior years: Income tax (189,106) (372,394) (41,004) (15,496) Deferred tax (15,000) 123, ,421,984 3,844,237 32, ,504 s and the Company s income tax rate are at 24% for the year of assessment (: 25%). The total income tax expense for the year can be reconciled to the accounting profit as follows: The Company Profit before tax 20,699,741 19,357,693 15,944,370 11,350,658 Tax at the applicable tax rate of 24% (: 25%) 4,968,000 4,839,000 3,827,000 2,838,000 Tax effects of: Expenses that are not deductible in determining taxable profit 900, , , ,000 Unutilised tax losses and unabsorbed capital allowances not recognised as deferred tax assets 45,000 27, Income that is not taxable in determining taxable profit (2,241,000) (1,050,000) (4,264,000) (2,934,000) Utilisation of tax losses and unabsorbed capital allowance previously not recognised as deferred tax assets (46,000) (20,000) - - Reduction in deferred tax liability resulting from reduction in tax rate from 25% to 24% - (245,393) 3,626,090 4,092,878 74, ,000 (Over)/Under provision in prior years: Income tax (189,106) (372,394) (41,004) (15,496) Deferred tax (15,000) 123, Tax expense recognised in profit or loss 3,421,984 3,844,237 32, ,504 Annual Report 67

69 NOTES TO THE FINANCIAL STATEMENTS 12. INCOME TAX EXPENSE AND DEFERRED TAX ASSETS AND LIABILITIES (continued) Current tax assets and liabilities The Company Current tax assets Tax refund receivables 100, ,328 - Current tax liabilities Income tax payables 1,146, ,850-32,074 Deferred tax balances Deferred tax liabilities At beginning of year (8,487,871) (9,304,025) Recognised in profit or loss 728, ,154 At end of year (7,759,361) (8,487,871) The deferred tax liabilities are in respect of the following: Tax effects of: Temporary differences arising from: Property, plant and equipment (8,529,361) (9,102,871) Inventories 16,000 12,000 Unabsorbed capital allowances and unutilised tax losses 754, ,000 (7,759,361) (8,487,871) Deferred tax assets At beginning of year 358, ,000 Recognised in profit or loss (23,000) (73,000) At end of year 335, , Annual Report

70 NOTES TO THE FINANCIAL STATEMENTS The deferred tax assets are in respect of the following: Tax effects of: Unabsorbed capital allowances and unutilised tax losses 394, ,000 Temporary differences arising from property, plant and equipment (59,000) (3,000) 335, ,000 As of June 30,, certain subsidiary companies have unutilised investment tax allowance of 910,000 (: 910,000) and unutilised tax losses and unabsorbed capital allowances amounting to 20,563,000 (: 19,539,000), which are available for set-off against future taxable profit. Unrecognised deferred tax assets The following deferred tax assets have not been recognised at the end of the reporting period: Tax effects of: Unabsorbed capital allowances and unutilised tax losses 3,770,000 3,766,000 Investment tax allowances 219, ,000 3,989,000 3,985, EARNINGS PER ORDINARY SHARE OF 0.50 EACH - GROUP The basic and diluted earnings per ordinary share of 0.50 each are calculated as follows: Profit for the year attributable to owners of the Company 15,998,223 14,030,207 Weighted average number of ordinary shares of 0.50 each in issue at beginning and end of year 200,380, ,380,036 Basic and fully diluted Earnings per ordinary share of 0.50 each (sen) Annual Report 69

71 NOTES TO THE FINANCIAL STATEMENTS 14. PROPERTY, PLANT AND EQUIPMENT Land and buildings Plant, machinery and equipment Furniture, fixtures and office equipment Motor vehicles and forklifts Capital work-inprogress Total Cost As of July 1, ,799, ,324,946 2,230,955 2,541, , ,176,993 Additions 44,850 90,179 75, , ,012 Write offs (3,172) (82,766) (46,526) - - (132,464) Reclassification - 23,100 29,400 - (52,500) - As of June 30, 48,841, ,355,459 2,289,125 2,541, , ,407,541 Additions - 149,504 16, , , ,989 Disposals (452,452) - (452,452) Write offs - (184,339) (24,786) - - (209,125) Transferred to non-current assets classified as held for sale (Note 15) (15,022,627) (14,705,608) (29,728,235) As of June 30, 33,818,538 92,615,016 2,280,995 2,211, , ,775,718 Accumulated depreciation As of July 1, ,126,129 79,413,877 1,998,987 1,990,965-95,529,958 Depreciation charge for the year 928,042 3,266, , ,483-4,509,668 Write offs (1,146) (59,769) (46,516) - - (107,431) As of June 30, 13,053,025 82,620,552 2,057,170 2,201,448-99,932,195 Depreciation charge for the year 721,593 2,876,889 80, ,962-3,821,142 Disposals (441,787) - (441,787) Write offs - (154,931) (22,637) - - (177,568) Transferred to non-current assets classified as held for sale (Note 15) (4,683,391) (11,917,244) (16,600,635) As of June 30, 9,091,227 73,425,266 2,115,231 1,901,623-86,533,347 Accumulated impairment loss As of July 1, 2014/ June 30, - 3,137, ,137,701 Additions - 718,450 14, ,764 Transferred to non-current assets classified as held for sale (Note 15) - (788,364) (788,364) As of June 30, - 3,067,787 14, ,082, Annual Report

72 NOTES TO THE FINANCIAL STATEMENTS Land and buildings Plant, machinery and equipment Furniture, fixtures and office equipment Motor vehicles and forklifts Capital work-inprogress Carrying amounts As of June 30, 24,727,311 16,121, , , ,629 42,160,270 Total As of June 30, 35,788,140 21,597, , , ,505 58,337,645 Land and buildings of the Group consist of: Freehold land Long-term Lease Land Short-term Lease Land Buildings and improvements Total Cost As of July 1, ,385 15,389,000 8,086,400 25,308,702 48,799,487 Additions 44,850 44,850 Write offs (3,172) (3,172) Reclassification (5,859,000) 5,859,000 As of June 30, 15,385 9,530,000 13,945,400 25,350,380 48,841,165 Transferred to non-current assets classified as held for sale (Note 15) - (7,620,000) - (7,402,627) (15,022,627) As of June 30, 15,385 1,910,000 13,945,400 17,947,753 33,818,538 Accumulated depreciation As of July 1, , ,301 10,842,992 12,126,129 Depreciation charge for the year - 247, , , ,042 Write offs (1,146) (1,146) Reclassification - (455,041) 455, As of June 30, - 536,519 1,174,120 11,342,386 13,053,025 Depreciation charge for the year - 49, , , ,593 Transferred to non-current assets classified as held for sale (Note 15) - (422,673) - (4,260,718) (4,683,391) As of June 30, - 163,398 1,467,616 7,460,213 9,091,227 Carrying amounts As of June 30, 15,385 1,746,602 12,477,784 10,487,540 24,727,311 As of June 30, 15,385 8,993,481 12,771,280 14,007,994 35,788,140 Annual Report 71

73 NOTES TO THE FINANCIAL STATEMENTS 14. PROPERTY, PLANT AND EQUIPMENT (continued) The Company Furniture, fixtures and office equipment Cost As of July 1, /July 1, ,877 48,392 Additions - 7,075 Write offs - (14,590) As of June 30, /June 30, 40,877 40,877 Accumulated depreciation As of July 1, /July 1, ,941 41,787 Depreciation charge for the year 5,056 4,741 Write offs - (14,587) As of June 30, /June 30, 36,997 31,941 Carrying amounts 3,880 8,936 Short-term leasehold land with carrying amount of 3,127,594 (: 3,194,025) and long-term lease hold land and building with carrying amout of 10,339,236 (:10,373,970) were discharged during the year. The long-term leasehold land and building were transferred to non-current assets classified as held for sale as disclosed in Note 15. In, these leasehold land and building were charged to a licensed bank to secure the banking facilities of certain subsidiary companies. 72 Annual Report

74 NOTES TO THE FINANCIAL STATEMENTS 15. NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE Long-term leasehold land (i) 7,197,327 - Building and improvements (ii) 3,141,909 - Plant, machinery and equipment (ii) 2,000,000-12,339,236 - During the financial year, the Group has entered into sale and purchase agreements as follows: (i) Disposal of a piece of long-term leasehold land and building to Crystal Dignity (M) Sdn. Bhd., for a total consideration of 17,000,000. The sale proceeds substantially exceeded the carrying amounts of the assets and, accordingly no impairment losses were recognised upon reclassification of these assets as held for sale; and (ii) Disposal of machinery and equipment to Besgrade Products Sdn. Bhd. ( BPSB ) for a total consideration of 2,000,000. An impairment of 705,194 was recognised as the sale proceeds were less than the carrying amounts of the assets. The above transactions are expected to be completed within one year from the date of classification. 16. INVESTMENT IN SUBSIDIARY COMPANIES The Company Unquoted shares - at cost 84,691,442 84,691,442 Less: Accumulated impairment (15,800,694) (15,800,694) 68,890,748 68,890,748 Annual Report 73

75 NOTES TO THE FINANCIAL STATEMENTS 16. INVESTMENT IN SUBSIDIARY COMPANIES (continued) The subsidiary companies, all of which are incorporated in Malaysia are as follows: Name of Company Effective Equity Interest % % Principal Activities Bio-Acetic Products Sdn. Bhd. # # Manufacture and sale of natural vinegar. Chemical Industries (Malaya) Sdn. Bhd Manufacture and sale of ethyl alcohol, liquefied carbon dioxide and kaoliang wine. Hexza-Mather Sdn. Bhd Manufacture and sale of alcoholic and non-alcoholic beverages. Temporarily ceased operations in financial year Hexzachem Sarawak Sdn. Bhd Manufacture and sale of formaldehyde and formaldehyde based adhesive and resins for timber related industries. Norsechem Marketing Sdn. Bhd Marketing and distribution of consumer products and industrial chemicals. Norsechem Resins Sdn. Berhad Manufacture and sale of formaldehyde and formaldehyde based adhesive and resins for timber related industries. Ceased operations during the financial year. Summit Development Corporation Sdn. Berhad Property development. Synthetic Bakelites (Malaysia) Sdn. Bhd Dormant. Trizenith Sdn. Bhd Dormant. Hexza World Trade Sdn. Bhd Dormant. NC Management Services Sdn. Bhd Pre-operating. Norse-Med Devices Sdn. Bhd Pre-operating. Norsechem Polymer Sdn. Bhd Pre-operating. # Indirect interest via the Company s investment in Chemical Industries (Malaya) Sdn. Bhd.. 74 Annual Report

76 NOTES TO THE FINANCIAL STATEMENTS Composition of the Group Information about composition of the Group at the end of the reporting period is as follows: Principal activity Place of incorporation and operation Number of wholly-owned subsidiaries Manufacture and sale of ethyl alcohol, liquefied carbon dioxide and kaoliang wine. Malaysia 1 1 Manufacture and sale of formaldehyde and formaldehyde based adhesive and resins for timber related industries.* Malaysia 1 1 Manufacture of natural vinegar. Malaysia 1 1 Marketing and distribution of consumer products and industrial chemicals. Malaysia 1 1 Property development. Malaysia 1 1 Dormant/Pre-operating. Malaysia * The subsidiary had ceased operations during the year. Principal activity Place of incorporation and operation Number of non-wholly-owned subsidiaries Manufacture and sale of formaldehyde and formaldehyde based adhesive and resins for timber related industries. Malaysia 1 1 Dormant. Malaysia Details of non-wholly-owned subsidiary companies that have material non-controlling interests are as follows: Name of subsidiary Place of incorporation and principal place of business Proportion of ownership interest and voting rights held by non-controlling interests Profit allocated to non-controlling interests Accumulated non-controlling interests % % Hexzachem Sarawak Sdn. Bhd. ( HCSSB ) ,279,591 1,479,728 6,859,594 6,795,003 Individually immaterial subsidiary companies with non-controlling interests (57) 3,521 2,099 2,156 1,279,534 1,483,249 6,861,693 6,797,159 Annual Report 75

77 NOTES TO THE FINANCIAL STATEMENTS 16. INVESTMENT IN SUBSIDIARY COMPANIES (continued) Summarised financial information in respect of the Group s subsidiary company, that has material non-controlling interests, HCSSB, is set out below. The summarised financial information below represents amounts before intragroup eliminations. HCSSB Current assets 26,649,821 26,102,362 Non-current assets 17,012,422 18,481,338 Current liabilities (6,891,356) (7,974,251) Non-current liabilities (2,472,929) (2,634,439) Equity attributable to owners of the Company (27,438,364) (27,180,007) Non-controlling interests (6,859,594) (6,795,003) Revenue 72,906,489 69,696,285 Income 584,269 28,649 Expenses (67,092,810) (62,326,295) Profit and total comprehensive income for the year 6,397,948 7,398,639 Profit and total comprehensive income attributable to owners of the Company 5,118,357 5,918,911 Profit and total comprehensive income attributable to non-controlling interests 1,279,591 1,479,728 Profit and total comprehensive income for the year 6,397,948 7,398,639 Dividends paid to non-controlling interests 1,215,000 1,215,000 Net cash from operating activities 6,535,887 10,998,023 Net cash used in investing activities (20,619) (57,954) Net cash used in financing activities (6,075,000) (11,175,000) Net cash inflow/(outflow) 440,268 (234,931) 76 Annual Report

78 NOTES TO THE FINANCIAL STATEMENTS 17. OTHER INVESTMENTS The Company At fair value: Shares quoted in Malaysia 37,277,245 40,106,220 37,257,245 40,086,020 Warrants quoted in Malaysia 271, , , ,984 Shares quoted outside Malaysia 22,295,885 2,540,847 22,295,885 2,540,847 59,844,750 42,944,051 59,824,750 42,923,851 At cost: Unquoted shares 3,880,800 3,880,800 3,880,800 3,880,800 63,725,550 46,824,851 63,705,550 46,804, GOODWILL ARISING ON CONSOLIDATION Goodwill arising on consolidation 2,129,365 2,129,365 Impairment tests for cash-generating units ( CGU ) containing goodwill The carrying amount of goodwill is allocated to the manufacturing and related sales functions of Chemical Industries (Malaya) Sdn. Bhd. and Hexzachem Sarawak Sdn. Bhd.. During the financial year, the Group carried out a review of the recoverable amount of the CGUs containing goodwill. The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use cash flow projections based on a financial forecast, approved by management, covering a period of five years from the financial years 2017 to The following key assumptions were used to generate the financial forecast: Sales volume growth rate 5.0% to 10.0% per annum Inflation rate 5.0% per annum Discount rate 8.0% Receivables and payables turnover periods were estimated to be consistent with the current financial year. The above key assumptions were determined based on past business performances and management s expectations of future market development. No impairment loss was recognised during the financial year as the recoverable amounts of the CGUs exceeded their carrying amounts, including the goodwill allocated. Annual Report 77

79 NOTES TO THE FINANCIAL STATEMENTS 19. FINANCE LEASE RECEIVABLE and The Company Current finance lease receivable 738,903 - Non-current finance lease receivable 26,787,284 - Leasing arrangements 27,526,187 - and the Company entered into a Sale & Purchase and Leaseback Agreement to acquire part of the equipment for a 8MW Heavy Fuel Oil Power Generation System of USD6,000,000 (equivalent to 24,168,000) from Tembusu Industries Pte. Ltd. ( TIPL ). Under the said agreement, TIPL agrees to lease back the equipment for a period of 10 years commencing on July 1,, with monthly lease rental of USD130,205 (equivalent to 524,466) payable in arrears on a quarterly basis. TIPL shall take ownership of the equipment at the end of the lease for a further payment of USD10,000 after due performance of all the terms and conditions under the lease agreement or the exercise of Buy-out Option by the lessee as stipulated in the agreement. Amounts receivable under finance lease receivable and The Company Present value of minimum Minimum lease payments lease payments Not later than one year 7,342, ,903 - Later than one year and not later than five years 29,894,547-10,693,253 - Later than five years 25,214,635-16,094,031-62,451,702-27,526,187 - Less: Unearned finance income (34,925,515) Present value of minimum lease payments receivable 27,526,187-27,526,187 - Unguaranteed residual values of assets leased under financial leases at the end of the reporting period are estimated at USD10,000 (equivalent to 40,280). The interest rate inherent in the leases is fixed at the contract date for the entire lease term. The average effective interest rate contracted is approximately 23.36% per annum. Finance lease receivable is denominated in United States Dollar ( USD ). At the end of the financing period, the finance lease rental instalments have been revised and fair value adjustment on reassessment of finance lease receivable amounted to 1,701,034 was recognised as disclosed in Note Annual Report

80 NOTES TO THE FINANCIAL STATEMENTS 20. INVENTORIES Raw materials and consumables 9,754,787 11,861,160 Finished goods 4,508,462 6,573,301 Goods-in-transit 1,909,711 3,034,507 Completed development units for sale 77,397 77,397 Spare parts 66, ,938 Work-in-progress 14,399 4,374 16,330,983 21,793,677 The cost of inventories recognised as an expense during the financial year for the Group was 94,803,395 (: 117,611,145). Included in cost of inventories recognised as an expense are the following: Raw materials and consumables written off 584,682 82,143 Inventories written down to net realisable value: Raw materials 182,826 - Finished goods 94, TRADE AND OTHER RECEIVABLES The Company Trade receivables 28,459,619 33,238, Less: Allowance for doubtful debts (379,989) (709,423) - - Net receivables from third parties 28,079,630 32,529, Other receivables 360, , ,167 14,153 Net amount owing by subsidiary companies (Note 22) ,333 85,645 28,440,063 32,648, ,500 99,798 Trade receivables comprise amounts receivable for sale of goods. The credit periods granted on sale of goods ranged from 30 to 150 days (: 30 to 150 days). Allowances have been made for estimated irrecoverable amounts from sale of goods of the Group of 379,989 (: 709,423), and have been determined based on estimates of possible losses which may arise from non-collection of certain receivable accounts. Annual Report 79

81 NOTES TO THE FINANCIAL STATEMENTS 21. TRADE AND OTHER RECEIVABLES (continued) Movements in allowance for doubtful debts are as follows: Trade receivables Balance at beginning of year 709, ,169 Allowance for doubtful debts no longer required (Note 9) (331,254) - Allowance for doubtful debts (Note 9) 1, ,254 Balance at end of year 379, ,423 Included in allowance for doubtful debts are individually impaired receivables amounting to 379,989 (: 709,423). The impairment recognised represents the difference between the carrying amount of these receivables and the present value of expected collections. The ageing of the impaired receivables as mentioned above is more than one year. The currency profile of trade receivables is as follows: Ringgit Malaysia 28,351,739 33,238,821 Singapore Dollar 107,880-28,459,619 33,238,821 Included in trade and other receivables of the Group are receivables with total carrying amounts of 4,562,999 and 54,537 (: 7,261,073 and 204) respectively which are past due at the end of the reporting period for which the Group has not provided for impairment loss. does not hold any collateral over these balances nor does it have a legal right to offset against any amounts owed by the Group to the counterparties. 80 Annual Report

82 NOTES TO THE FINANCIAL STATEMENTS Ageing of trade and other receivables which are past due but not impaired as at the end of the reporting period is as follows: Trade receivables Number of days past due: 1-30 days 1,821,370 3,821, days 986,987 1,095, days 545, , days 1,186,217 1,574,384 More than 120 days 23,237 63,501 4,562,999 7,261,073 Other receivables Number of days past due: More than 120 days 54, seeks to maintain strict control over its outstanding trade receivables and has a credit period policy to minimise credit risk. Overdue balances are reviewed regularly by management. has not provided for impairment loss on these trade receivable accounts that are past due as there has not been any significant change in credit quality and the amounts are still considered recoverable. Transactions with related parties are disclosed in Note RELATED COMPANIES AND RELATED PARTY TRANSACTIONS Subsidiary companies The Company Amounts owing by subsidiary companies consist of: Current accounts 9,836,306 9,832,618 Allowance for doubtful debts (9,746,973) (9,746,973) Net amounts owing by subsidiary companies (Note 21) 89,333 85,645 Amounts owing to a subsidiary company consists of: Current accounts (Note 27) 69,052 70,794 The Company Movements in allowance for doubtful debts are as follows: Balance at beginning of year/at end of year 9,746,973 9,746,973 Annual Report 81

83 NOTES TO THE FINANCIAL STATEMENTS 22. RELATED COMPANIES AND RELATED PARTY TRANSACTIONS (continued) Included in allowance for doubtful debts are individually impaired receivables amounting to 9,746,973 (: 9,746,973). The impairment recognised represents the difference between the carrying amount of these receivables and the present value of expected collections. The ageing of the impaired receivables as mentioned above is more than one year. The amounts owing by/(to) subsidiary companies classified under current accounts arose mainly from expenses paid on behalf and advances which are unsecured, interest-free and are repayable on demand. Loans granted by subsidiary companies bear interest at a rate of 6.85% (: 6.60%) per annum. The loans were fully settled as of the end of the financial year. During the financial year, transactions undertaken by the Company with its subsidiary companies are as follows: The Company Gross dividends received/receivable 8,550,200 7,627,650 Loan granted 4,700,000 7,000,000 Interest received (Note 7) 18, ,619 Professional services rendered 26,275 42,955 The transactions with subsidiary companies are aggregated as these transactions are similar in nature. Compensation of key management personnel Directors remuneration are as disclosed in Note 10. The remuneration of the management personnel other than the directors are as follows: Short-term employee benefits 1,467,710 1,810,212 Gratuity 60,000 - The estimated monetary value of benefits-in-kind received and receivable by the key management personnel otherwise than in cash from the Group amounted to 14,500 (: 37,687). 82 Annual Report

84 NOTES TO THE FINANCIAL STATEMENTS 23. OTHER ASSETS The Company Progress payments - 19,671,600-19,671,600 Refundable deposits 122, ,058 2,030 2,030 Prepaid expenses 234, ,810 22,576 14, ,579 20,014,468 24,606 19,687,705 In, the Group and the Company have made progress payments of 19,671,600 to Tembusu Industries Pte. Ltd. ( TIPL ) to acquire part of the equipment for a 8MW Heavy Fuel Oil Power Generation System under a Sale & Purchase and Leaseback Agreement entered into on January 30,. During the financial year, the amount had been reclassified to finance lease receivable as disclosed in Note CASH AND CASH EQUIVALENTS The Company Money market funds 27,046,359 40,259,217 24,433,529 37,591,299 Fixed and short-term deposits with licensed banks 18,019,793 11,988,702 5,119,793 11,988,702 Cash and bank balances 6,351,761 9,902, ,646 3,152,053 51,417,913 62,150,011 30,092,968 52,732,054 The above balances represent cash and cash equivalents of the Group and of the Company. The interest rates are as follows: The Company % % % % Fixed and short-term deposits Money market funds The maturity periods of the deposits of the Group and of the Company is 3 days to 1 month (: 3 days to 6 months). Annual Report 83

85 NOTES TO THE FINANCIAL STATEMENTS 25. SHARE CAPITAL < and The Company > Number of ordinary shares Number of ordinary shares Authorised: Ordinary shares of 0.50 each 400,000, ,000, ,000, ,000,000 Issued and fully paid: Ordinary shares of 0.50 each 200,380, ,380, ,190, ,190, RESERVES The Company Non-distributable reserve: Investments revaluation reserve (2,745,829) 2,260,390 (2,752,309) 2,253,710 Distributable reserve: Retained earnings 122,564, ,583,732 92,175,367 85,281, ,819, ,844,122 89,423,058 87,534,806 Movement in the investments revaluation reserve is shown in the statements of changes in equity on pages 40 to 41. The entire retained earnings of the Company is available for distributions as single tier dividend to the shareholders of the Company. 27. TRADE AND OTHER PAYABLES The Company Trade payables 3,412,798 6,018, Other payables 2,755,598 1,390,916 26,640 17,160 6,168,396 7,409,597 26,640 17,160 Amount owing to a subsidiary company (Note 22) ,052 70,794 6,168,396 7,409,597 95,692 87, Annual Report

86 NOTES TO THE FINANCIAL STATEMENTS The currency profile of trade and other payables is as follows: The Company Ringgit Malaysia 6,168,396 6,650,106 95,692 87,954 United States Dollar - 759, ,168,396 7,409,597 95,692 87,954 Trade and other payables comprise amounts outstanding for trade purchases and ongoing costs respectively. The credit periods granted to the Group for trade purchases ranged from 1 to 90 days (: 1 to 90 days). Transactions with related parties are as disclosed in Note SHORT-TE BORROWINGS has bank overdraft and other credit facilities obtained from licensed banks to the extent of 52,922,500 (: 54,300,000) which are secured by a negative pledge on the assets of the subsidiary companies and guaranteed by the Company. The bank overdraft facilities bear interest at a rate of 8.10% (: 7.85%) per annum. The other credit facilities bear interests at rates ranging from 1.00% to 8.10% (: 1.00% to 8.10%) per annum. 29. DIVIDENDS < and The Company > Net dividend per share Recognised during the financial year: First and final dividend paid: 9.0% single-tier (: 8.0% single-tier ) 9,017,103 8,015, Sen Sen A first and final single-tier dividend of 9.0% in respect of 200,380,036 ordinary shares proposed in the previous financial year and dealt with in the previous directors report were paid by the Company during the financial year. The directors have proposed a first and final single-tier dividend of 9.0% in respect of the current financial year. The proposed dividend is subject to approval by the shareholders at the forthcoming Annual General Meeting of the Company and has not been included as a liability in the financial statements. Annual Report 85

87 NOTES TO THE FINANCIAL STATEMENTS 30. CAPITAL COMMITMENTS As of June 30,, the Group has the following commitments on capital expenditure in respect of property, plant and equipment: Contracted but not provided for 63,753 97,484 Approved and contracted for 32,403 - Approved but not contracted for 3,167, ,399 3,263, , FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT Categories of financial instruments The Company Financial assets Loans and receivables: Trade and other receivables 28,383,761 32,648, ,234 14,153 Finance lease receivable 27,526,187-27,526,187 - Refundable deposits 122, ,058 2,030 2,030 Amount owing by subsidiary companies ,333 85,645 Fixed deposits, cash and bank balances 24,371,554 21,890,794 5,659,439 15,140,755 Available-for-sale: Other investments 63,725,550 46,824,851 63,705,550 46,804,651 At fair value through profit or loss: Money market funds 27,046,359 40,259,217 24,433,529 37,591,299 Financial liabilities Other financial liabilities: Trade and other payables 6,168,396 7,409,597 26,640 17,160 Amount owing to a subsidiary company ,052 70,794 Accrued expenses 2,641,234 2,821, , , Annual Report

88 NOTES TO THE FINANCIAL STATEMENTS (a) Financial Risk Management Objectives and Policies Risk management is integral to the whole business of the Group and of the Company. Management continually monitors the Group s and the Company s risk management processes to ensure that an appropriate balance between risk and control is achieved. Risk management policies and systems are reviewed regularly to reflect changes in the market conditions and the Group s and the Company s activities. There have been no changes to the Group s and the Company s exposure to these financial risks or the manner in which they manage and measure the risk. Foreign currency risk management and the Company transact business mainly in United States Dollar ( USD ). The carrying amount of USD denominated monetary assets of the Group and of the Company at the end of the reporting period is disclosed in Notes 19 and 27. Foreign currency sensitivity analysis and the Company are mainly exposed to the currency of USD. The management considers that the impact of other currencies to be minimal. The following table details the sensitivity of the Group and of the Company to a 3.00% (: 2.00%) increase/ decrease in Ringgit Malaysia ("") against the relevant foreign currency. These sensitivity rates are used when reporting foreign currency risk internally to key management and represents management s assessment of the reasonably possible change in foreign exchange rates in the next 12 months. The following sensitivity analysis includes only outstanding foreign currency denominated monetary items. If the foreign currency denominated monetary items of the Group and of the Company at the end of the reporting period were translated into with a 3.00% (: 2.00%) fluctuation in the exchange rates against the following relevant foreign currencies respectively, the effect on profit net of tax in profit or loss and other reserve are as follows: and the Company Profit or loss Other reserve Profit or loss Other reserve USD impact 1,328,382-15,134 - The above impacts are mainly attributable to the exposure to USD on the financial instruments outstanding at the end of the reporting period in the Group and in the Company. In the opinion of the management, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the year end exposure does not reflect the full exposure during the year. Market risk management and the Company have in place policies to manage the Group s exposure to fluctuations in prices of key raw materials and consumables used in operations through management s constant survey on market prices and its awareness of market trends. For marketable securities, the Group and the Company use an investment committee to monitor fluctuations in market prices and to establish suitable cut loss procedures. Annual Report 87

89 NOTES TO THE FINANCIAL STATEMENTS 31. FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT (continued) Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group and to the Company. The maximum exposure to credit risk in the event that the counterparties fail to perform their obligations at the end of the reporting period in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the statements of financial position. and the Company do not hold any collateral on the balance outstanding. and the Company establish policies on credit control which involves comprehensive credit evaluations, setting up appropriate credit limits, ensuring the sales are made to customers with good credit history and regular review of customers outstanding balances and payment trends. and the Company consider the risk of material loss in the event of non-performance by the customers to be unlikely. Concentration of credit risk of the Group relates to amounts owing by 2 (: 3) major customers which constituted approximately 22% (: 47%) of the total trade receivables of the Group at the end of the reporting period. These trade receivables are regular customers that have been transacting with the Group. uses ageing analysis to monitor the credit quality of the trade receivables. Any receivables having significant balances past due or more than 90 days, which are deemed to have higher credit risk, are monitored individually. The credit risk on liquid funds is limited because the counterparties are licensed financial institutions with high credit standings. Financial Guarantee The Company provides unsecured financial guarantees to licensed banks in respect of credit facilities granted to subsidiary companies. The Company monitors on an ongoing basis the trend of repayments made by the subsidiary companies. The maximum exposure to credit risk amounts to 49,550,000 (: 51,050,000) representing the total credit facilities of subsidiary companies in which financial guarantees are given by the Company as of the end of the reporting period. At the end of the reporting period, there was no indication that the subsidiary companies will default in repayment. Other Financial Assets The credit risk on liquid funds are limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. Interest rate risk management Interest rate risk is the risk that the fair value or future cash flows of the Group s and of the Company s financial instruments will fluctuate because of changes in market interest rates. manages its interest rate exposure by maintaining a prudent mix of fixed and floating rate borrowings. Sensitivity analysis for interest rate risk No sensitivity analysis was presented by the Group and by the Company for the current financial year as there was no interest-bearing borrowings as of the end of the current reporting period. 88 Annual Report

90 NOTES TO THE FINANCIAL STATEMENTS Other price risk management and the Company are exposed to equity price risks arising from equity investments. Equity investments are held for both strategic and trading purposes. Equity price sensitivity analysis The sensitivity analysis below has been determined based on the exposure to equity price risks at the end of the reporting period. If equity prices had been 5% (: 5%) higher/lower, the Group s and the Company s: net profit for the year ended June 30, would have been unaffected as the equity investments are classified as available-for-sale and no investments are expected to be impaired; and investments revaluation reserve would increase/decrease by 2,992,238 and 2,992,238 (: 2,147,203 and 2,146,193) respectively as a result of the changes in fair value of available-for-sale investments. s and the Company s sensitivity to equity prices have not changed significantly from the prior year. Liquidity and cash flow risks management practises prudent liquidity risk management to minimise the mismatch of financial assets and financial liabilities and to maintain sufficient credit facilities for contingent funding requirement of working capital. s and the Company s principal source of liquidity have historically been cash flows from operations and funds obtained from long and short-term borrowings. and the Company expect that the cash generated from their operations, their existing credit facilities and the trade terms provided by their suppliers will be sufficient to meet the Group s and the Company s currently anticipated capital expenditure and working capital needs for at least the next 12 months. has bank overdrafts and other credit facilities of approximately 52,922,500 (: 54,300,000), of which only 5,043,340 (: 6,477,700) has been utilised for bank guarantees and trade facilities at the end of the reporting period. and the Company expect to meet their financial obligations from their operating cash flows and proceeds from maturing financial assets. The maturity profile of the Group s and of the Company s non-derivative financial assets and financial liabilities at the end of the reporting period based on contractual undiscounted repayment obligations are as follows: On demand or within one year One year to five years Over five years Total Non-derivative financial assets: Loans and receivables 60,220,720 29,894,547 25,214, ,329,902 Available-for-sale 63,725, ,725,550 At fair value through profit or loss 27,046, ,046,359 Total undiscounted non-derivative financial assets 150,992,629 29,894,547 25,214, ,101,811 Non-derivative financial liabilities: Other financial liabilities 8,809, ,809,630 Net undiscounted non-derivative financial assets 142,182,999 29,894,547 25,214, ,292,181 Annual Report 89

91 NOTES TO THE FINANCIAL STATEMENTS 31. FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT (continued) On demand or within one year One year to five years Over five years Total Non-derivative financial assets: Loans and receivables 54,680, ,680,360 Available-for-sale 46,824, ,824,851 At fair value through profit or loss 40,259, ,259,217 Total undiscounted non-derivative financial assets 141,764, ,764,428 Non-derivative financial liabilities: Other financial liabilities 10,230, ,230,993 Net undiscounted non-derivative financial assets 131,533, ,533,435 The Company Non-derivative financial assets: Loans and receivables 13,310,556 29,894,547 25,214,635 68,419,738 Available-for-sale 63,705, ,705,550 At fair value through profit or loss 24,433, ,433,529 Total undiscounted non-derivative financial assets 101,449,635 29,894,547 25,214, ,558,817 Non-derivative financial liabilities: Other financial liabilities 998, ,691 Net undiscounted non-derivative financial assets 100,450,944 29,894,547 25,214, ,560, Annual Report

92 NOTES TO THE FINANCIAL STATEMENTS The Company On demand or within one year One year to five years Over five years Total Non-derivative financial assets: Loans and receivables 15,242, ,242,583 Available-for-sale 46,804, ,804,651 At fair value through profit or loss 37,591, ,591,299 Total undiscounted non-derivative financial assets 99,638, ,638,533 Non-derivative financial liabilities: Other financial liabilities 466, ,994 Net undiscounted non-derivative financial assets 99,171, ,171,539 Capital risk management and the Company manage their capital to ensure the Group and the Company will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of debt and equity balance. s and the Company s overall strategy remain unchanged from. The capital structure of the Group and of the Company as of the end of the current reporting period consists solely of equity of the Group and of the Company. and the Company are not subject to any externally imposed capital requirements. (b) Fair Values of Financial Assets and Financial Liabilities The carrying amounts and the estimated fair values of the Group s and of the Company s financial instruments are as follows: Note Carrying Amount Fair Value Carrying Amount The Company Fair Value As of June 30, Financial assets at FVTPL Money market funds 24 27,046,359 27,046,359 24,433,529 24,433,529 Loans and receivables Finance lease receivable 19 27,526,187 27,526,187 27,526,187 27,526,187 Available-for-sale ("AFS") financial assets Other investments - unquoted shares 17 3,880,800 * 3,880,800 * - quoted shares and warrants 17 59,844,750 59,844,750 59,824,750 59,824,750 Annual Report 91

93 NOTES TO THE FINANCIAL STATEMENTS 31. FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT (continued) Note Carrying Amount Fair Value Carrying Amount The Company Fair Value As of June 30, Financial assets at FVTPL Money market funds 24 40,259,217 40,259,217 37,591,299 37,591,299 Available-for-sale ( AFS ) financial assets Other investments - unquoted shares 17 3,880,800 * 3,880,800 * - quoted shares and warrants 17 42,944,051 42,944,051 42,923,851 42,923,851 The fair values of quoted shares and warrants are determined based on open market prices as at the end of the reporting period and approximate their carrying amounts. The fair value of the finance lease receivable was determined in accordance with straight-line basis over the lease term based on discounted cash flow analysis. The fair value of money market funds is determined using the money market funds net asset value per unit as at the end of the reporting period. * It is not practical to estimate the fair values of unquoted investments. As of year end, based on the management financial statements, the Group s and the Company s share of the net tangible assets of the unquoted investments amounted to approximately 4,531,000 (: 4,196,000). The carrying amounts of other short-term financial assets and financial liabilities as reported in the statements of financial position approximate their fair values due to the short-term maturity of these instruments. 92 Annual Report

94 NOTES TO THE FINANCIAL STATEMENTS (c) Fair value measurements recognised in the statements of financial position The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. Level 1 Level 2 Level 3 Total Financial assets at FVTPL Money market funds 27,046, ,046,359 Loan and receivables Finance lease receivable ,526,187 27,526,187 AFS financial assets Other investments - unquoted shares - - 3,880,800 3,880,800 - quoted shares and warrants 59,844, ,844,750 86,891,109-31,406, ,298,096 Financial assets at FVTPL Money market funds - 40,259,217-40,259,217 AFS financial assets Other investments - unquoted shares - - 3,880,800 3,880,800 - quoted shares and warrants 42,944, ,944,051 42,944,051 40,259,217 3,880,800 87,084,068 Annual Report 93

95 NOTES TO THE FINANCIAL STATEMENTS 31. FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT (continued) The Company Level 1 Level 2 Level 3 Total Financial assets at FVTPL Money market funds 24,433, ,433,529 Loan and receivables Finance lease receivable ,526,187 27,526,187 AFS financial assets Other investments - unquoted shares - - 3,880,800 3,880,800 - quoted shares and warrants 59,824, ,824,750 The Company 84,258,279-31,406, ,665,266 Financial assets at FVTPL Money market funds - 37,591,299-37,591,299 AFS financial assets Other investments - unquoted shares - - 3,880,800 3,880,800 - quoted shares and warrants 42,923, ,923,851 42,923,851 37,591,299 3,880,800 84,395,950 There were no transfers between Levels 1 and 2 during the financial year, except for current year reclassification of money market funds. Significant assumptions used in determining fair values of the above financial assets are as disclosed in (b) above. 94 Annual Report

96 NOTES TO THE FINANCIAL STATEMENTS 32. SUPPLEMENTARY INFOATION - DISCLOSURE ON REALISED AND UNREALISED PROFITS OR LOSSES The breakdown of the retained earnings of the Group and of the Company as of June 30, into realised and unrealised profits or losses, pursuant to the directive issued by Bursa Malaysia Securities Berhad on March 25, 2010, is as follows: The Company Total retained earnings of the Company and its subsidiary companies Realised 114,625, ,113,295 91,123,514 85,281,096 Unrealised 7,938,904 6,470,437 1,051,853 - Total retained earnings as per statements of financial position 122,564, ,583,732 92,175,367 85,281,096 The determination of realised and unrealised profits or losses is based on Guidance of Special Matter No. 1 Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Securities Listing Requirements as issued by the Malaysian Institute of Accountants on December 20, This supplementary information has been made solely for complying with the disclosure requirements as stipulated in the directives of Bursa Malaysia and is not made for any other purposes. Annual Report 95

97 STATEMENT BY DIRECTORS The directors of HEXZA CORPORATION BERHAD state that, in their opinion, the accompanying financial statements are drawn up in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the provisions of the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as of June 30, and of the financial performance and the cash flows of the Group and of the Company for the year ended on that date. The supplementary information set out in Note 32, which is not part of the financial statements, is prepared in all material respects, in accordance with Guidance on Special Matter No. 1 Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements as issued by the Malaysian Institute of Accountants and the directive of Bursa Malaysia Securities Berhad. Signed in accordance with a resolution of the Directors, DATUK DR. FOONG WENG SUM DATO' RICHARD ONG GUAN SENG Ipoh, 30 th September DECLARATION BY THE OFFICER PRIMARILY RESPONSIBLE FOR THE FINANCIAL MANAGEMENT OF THE COMPANY I, MS. CHIN MUN YONG, the officer primarily responsible for the financial management of HEXZA CORPORATION BERHAD, do solemnly and sincerely declare that the accompanying financial statements are, in my opinion, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, MS. CHIN MUN YONG Subscribed and solemnly declared by the abovenamed MS. CHIN MUN YONG at IPOH this 30 th September. Before me, CHOW MIN YEE Commissioner For Oaths Ipoh 96 Annual Report

98 STATEMENT OF SHAREHOLDINGS AS AT 23 RD SEPTEMBER Authorised Capital : 200,000,000 Issued & Fully Paid-Up Capital : 100,190,018 Class of Securities : Ordinary Shares of 0.50 each fully paid Voting Rights : One vote per 0.50 Ordinary Share ANALYSIS OF SHAREHOLDINGS as at 23 RD September Range of Shareholdings No. of Holders % of Holders No. of 0.50 Shares % of Issued Capital Less than , , , ,001 10,000 5, ,796, , ,000 1, ,330, ,001 10,019,000 (*) ,407, ,019,001 and above (**) ,581, TOTAL 8, ,380, Note: * - Less than 5% of issued holdings ** - 5% and above of issued holdings SUBSTANTIAL SHAREHOLDERS as at 23 RD SEPTEMBER According to the Register of Substantial Shareholders required to be kept under Section 69L of the Companies Act, 1965, the following are the substantial shareholders of the Company: Direct Interest (A) Deemed Interest (B) Total Interest (A+B) Name of Substantial Shareholders No. of shares % No. of shares % No. of shares % Summit Holdings Sdn. Bhd. 60,581, ,581, Datuk Dr. Foong Weng Sum 1,083, ,231, ,314, Dr. Foong Weng Cheong 2,662, ,231, ,894, Note: 1. Deemed interested by virtue of their shareholdings in Summit Holdings Sdn Bhd and Sumivest Holdings Sdn Bhd pursuant to Section 6A of the Companies Act, DIRECTORS INTEREST IN SHARES as at 23 RD SEPTEMBER According to the Register of Directors Shareholdings required to be kept under Section 134 of the Companies Act, 1965, the Directors interests in the ordinary share capital of 0.50 each of the Company and its related companies are as follows: Direct Interest (A) Deemed Interest (B) Total Interest (A+B) Name of Directors No. of shares % No. of shares % No. of shares % Datuk Dr. Foong Weng Sum 1,083, ,231, ,314, Dr. Foong Weng Cheong 2,662, ,231, ,894, Dato Richard Ong Guan Seng 250, , Mr. Leong Keng Yuen 225, , , Tuan Haji Mohd Mohd Jalil Bin Sany , , Mr. Ooi Ying Hong 80, , Ms. Chong Yoke Seng 590, , , By virtue of their interests in the shares of the Company, Datuk Dr. Foong Weng Sum and Dr. Foong Weng Cheong are also deemed to have an interest in the shares of all the subsidiary companies to the extent that the Company has interests. Notes: 1. Deemed interested by virtue of their shareholdings in Summit Holdings Sdn Bhd and Sumivest Holdings Sdn Bhd pursuant to Section 6A of the Companies Act, Deemed interested through the shares held by his spouse. 3. Deemed interested by virtue of his shareholding in MJS Maju Sdn Bhd pursuant to Section 6A of the Companies Act, Deemed interested through the shares held by her spouse. Annual Report 97

99 STATEMENT OF SHAREHOLDINGS AS AT 23 RD SEPTEMBER THIRTY (30) LARGEST SHAREHOLDERS as at 23 RD September Shareholders No. of Shares % of Issued Capital 1. Summit Holdings Sdn. Bhd. 60,581, Lim Ah Choo 6,018, HLB Nominees (Tempatan) Sdn. Bhd. 3,379, Pledged Securities Account for Chee Sai Mun 4. CIMB Group Nominees (Asing) Sdn Bhd 2,965, Exempt AN for DBS Bank Ltd (SFS) 5. Dr. Foong Weng Cheong 2,662, UOB Kay Hian Nominees (Asing) Sdn. Bhd. 2,279, Exempt AN for UOB Kay Hian Pte. Ltd. (A/C Clients) 7. Citigroup Nominees (Asing) Sdn. Bhd. 1,849, Exempt An for OCBC Securities Private Limited (Client A/C-NR) 8. Sumivest Holdings Sdn Bhd 1,650, Lim Seng Chee 1,390, Lim Tai Soon 1,371, Chong Cheong Leong 1,111, Datuk Dr. Foong Weng Sum 1,083, HLB Nominees (Tempatan) Sdn Bhd 1,060, Pledged Securities Account for Surinder Singh A/L Wassan Singh 14. Xiang Ling Capital Sendirian Berhad 1,049, Lew Yuen Lew Ah Kee 1,000, CIMSEC Nominees (Asing) Sdn Bhd 981, Exempt AN for CIMB Securities (Singapore) Pte Ltd (Retail Clients) 17. Kenanga Nominees (Tempatan) Sdn Bhd 810, Pledged Securities Account for Seraya Makmur Sdn Bhd 18. Liew Yoon Yee 800, Kenanga Nominees (Tempatan) Sdn Bhd 795, Pledged Securities Account for Chin Kiam Hsung 20. RHB Capital Nominees (Tempatan) Sdn Bhd 780, Pledged Securities Account for Teh Kian Lang (CEB) 21. Tan Wee Ben 757, Public Nominees (Tempatan) Sdn Bhd 700, Pledged Securities Account for Chee Sai Mun (E-KLC) 23. Cheong Mei Yik 683, Liew Yoon Yee 630, Chong Wei Yong 613, Chong Yoke Seng 590, Lim Hong Liang 552, Chai Beng Hwa 550, Triple Boutique Sdn Bhd 506, Lim Lu Bee 501, TOTAL 99,702, Annual Report

100 PROPERTIES OWNED BY HEXZA CORPORATION BERHAD & ITS SUBSIDIARIES AS AT 30 TH JUNE Location Tenure Approximate Area in sq. meter Approximate Age of Buildings in years Net Book Value Year of Acquisition(A)/ Completion(C)/ Last Revaluation(R) Existing Usage Lot 6, Tasek Industrial Estate, Tasek Drive, Ipoh, Perak Darul Ridzuan. Leasehold Expiry , ,289 R:2012 Factory 13 1,951 C:2004 Office 11 1,621 C:2006 Factory Lot 20, Tasek Industrial Estate, Tasek Drive, Ipoh, Perak Darul Ridzuan. Leasehold Expiry ,141-1,717 R:2012 Factory Lot 70071, Tasek Industrial Estate, Tasek Drive, Ipoh, Perak Darul Ridzuan. Leasehold Expiry ,245-1,747 R:2012 Vacant industrial land Lot 5, North Klang Straits Industrial Area, Port Klang, Selangor Darul Ehsan. Leasehold Expiry , ,339 R:2012 Factory Lot 799, Block 7, Sejingkat Industrial Estate, Muara Tebas Land District, Kuching, Sarawak. Leasehold Expiry , ,260 R:2012 Factory Lot 3057, Block 26, Kemena Land District, Bintulu, Sarawak. Leasehold Expiry ,235-3,128 R:2012 Vacant industrial land Annual Report 99

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102 Proxy Form I/We... (FULL NAME IN BLOCK CAPITALS) NRIC No./Company No.... of (FULL ADDRESS) being a member/members of HEXZA CORPORATION BERHAD, hereby appoint the following person(s): Name of proxy & NRIC No. No. of shares % or failing him/her or failing him/her, the Chairman of the Meeting as my/our proxy, to vote for me/us and on my/our behalf at the Forty-Seventh (47th) Annual General Meeting of the Company to be held at the Pusing Hall, Level 3, Kinta Riverfront Hotel & Suites, Jalan Lim Bo Seng, Ipoh, Perak Darul Ridzuan on Saturday, 19 November at a.m. and at any adjournment thereof in the manner indicated below in respect of the following Resolutions: Ordinary Resolution No. Ordinary Business FOR AGAINST 1. To approve the payment of a first and final single-tier dividend of 4.5 sen per share (9%) in respect of the financial year ended 30 th June. 2. To approve the payment of Directors' fees. 3. To re-elect Ms. Chong Yoke Seng as Director. 4. To re-elect Mr. Leong Keng Yuen as Director. To re-appoint the following Directors pursuant to Section 129(6) of the Companies Act, 1965: 5. (i) Dr. Foong Weng Cheong 6. (ii) Dato Richard Ong Guan Seng 7. (iii) Datuk Dr. Foong Weng Sum 8. To appoint Messrs. Deloitte as Auditors and to authorise the Directors to fix their remuneration. Special Business To retain the following Directors to act as Independent Directors: 9. (i) Dato Richard Ong Guan Seng 10. (ii) Mr. Leong Keng Yuen 11. To retain Tuan Haji Mohd Mohd Jalil Bin Sany to act as an Independent Director. 12. To authorise the issuance of up to 10% of the issued share capital of the Company. Please indicate with ( ) how you wish your vote to be cast. If you do not indicate how you wish your proxy to vote on any resolution, the proxy shall vote as he thinks fit, or at his discretion, abstain from voting. No. of Shares Held CDS Account No. Telephone No.... Signature of Shareholder/Common Seal Date:... Notes: 1. Only members whose names appear on the Record of Depositors as at 10 November shall be entitled to attend the Annual General Meeting or appoint proxies in his/her stead or in the case of a corporation, a duly authorised representative to attend and to vote in his/her stead. 2. A member, other than an exempt authorised nominee is entitled to appoint not more than two (2) proxies. A proxy may but need not be a member of the Company. 3. Where a member appoints two (2) proxies, the appointments shall be invalid unless he/she specifies the proportions of his/her holdings to be represented by each proxy. 4. Where a member of the Company is an Exempt Authorised Nominee which holds ordinary shares in the Company in an Omnibus Account, there is no limit to the number of proxies which the Exempt Authorised Nominee may appoint in respect of each Omnibus Account it holds. 5. The instrument appointing a proxy shall be in writing under the hand of the appointer or his/her attorney duly authorised in writing or if the appointer is a corporation, either under its Common Seal or under the hand of an officer or attorney duly authorised. 6. The instrument appointing a proxy must be deposited with the Company Secretaries, 55A Medan Ipoh 1A, Medan Ipoh Bistari, Ipoh, Perak Darul Ridzuan, Malaysia not less than forty-eight (48) hours before the time appointed for holding the Meeting. Faxed or ed copies are not acceptable.

103 Then fold here 80 SEN STAMP (Within Malaysia) THE COMPANY SECRETARY HEXZA CORPORATION BERHAD 55A Medan Ipoh 1A, Medan Ipoh Bistari, Ipoh, Perak 1st fold here

104