CONTENTS Statement on Corporate Social Responsibility. Corporate Structure. 5- Year Key Financial Performance. Financial Statements 34-90

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2 CONTENTS Corporate Structure 5- Year Key Financial Performance Corporate Information Profile of the Directors Profile of the Management Team Management Discussion & Analysis ( MD&A ) Corporate Governance & Other Disclosures Statement on Corporate Social Responsibility Financial Statements List of Properties Analysis of Shareholdings Notice of Annual General Meeting Statement Accompanying Notice of Annual General Meeting Proxy Form Audit Committee Report Statement on Risk Management and Internal Control LEE SWEE KIAT GROUP BERHAD ( T) 1

3 CORPORATE STRUCTURE LEE SWEE KIAT GROUP BERHAD ( T) 100% LSK Napure Latex Sdn Bhd 100% LSK Mattressworld Sdn Bhd 100% Lee Swee Kiat Holdings Sdn Bhd 100% LSK Lamifoam Sdn Bhd 100% Mattressworld Marketing (M) Sdn Bhd 2 LEE SWEE KIAT GROUP BERHAD ( T)

4 5- YEAR KEY FINANCIAL PERFORMANCE RM 000 RM 000 RM 000 RM 000 RM 000 Revenue 62,893 61,252 73,150 72,347 64,202 Profit before tax 1,775 1,846 4,790 5,152 5,671 Profit after tax 1,156 1,375 4,101 5,011 5,235 Earnings per share (sen) Total shares issued 167, , , , ,816 Shareholders equity 26,511 27,886 31,987 36,998 42,233 Total borrowings (15,906) (13,252) (16,166) (12,160) (10,813) Cash and bank balances 3,773 5,536 13,316 10,048 13,900 Net cash / (debt) (12,133) (7,716) (2,850) (2,112) 3,087 Return on equity (%) 4.4% 4.9% 12.8% 13.5% 12.4% Net gearing ratio Dividend per share (sen) ,000 70,000 65,000 Turnover 6,000 5,000 4,000 3,000 Profit Before Tax 60,000 55,000 2,000 1, ,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Shareholders' Equity ,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Borrowings Vs Cash LEE SWEE KIAT GROUP BERHAD ( T) 3

5 CORPORATE INFORMATION DIRECTORS LEE AH LEE SWEE KIAT TAN KUIN LUAN DATO LEE KONG SIM, ERIC LEE KONG YAM, VINCENT AU THIN LOW TEEN ANN TAN CHENG LEARN, ALAN ABD MALIK BIN A RAHMAN (Chairman, Non-Independent Non-Executive Director) (Alternate Director to Lee Ah Lee Swee Kiat) (Managing Director) (Executive Director) (Senior Independent Non-Executive Director) (Independent Non-Executive Director) (Independent Non-Executive Director) AUDIT COMMITTEE ABD MALIK BIN A RAHMAN (Chairman, Independent Non-Executive Director) AU THIN LOW TEEN ANN (Senior Independent Non-Executive Director) TAN CHENG LEARN (Independent Non-Executive Director) NOMINATING AND REMUNERATION COMMITTEE AU THIN LOW TEEN ANN (Chairman, Senior Independent Non-Executive Director) ABD MALIK BIN A RAHMAN (Independent Non-Executive Director) TAN CHENG LEARN (Independent Non-Executive Director) SECRETARIES WONG WAI FOONG (MAICSA ) WONG PEIR CHYUN (MAICSA ) REGISTERED OFFICE AND PRINCIPAL PLACE OF BUSINESS Wisma LSK Lot 6122, Jalan Haji Abdul Manan Off Jalan Meru, Klang Selangor Darul Ehsan Tel : +(603) Fax : +(603) Website : SOLICITOR JM Chong, Vincent Chee & Co. SHARE REGISTRAR Tricor Investor & Issuing House Services Sdn Bhd Unit 32-01, Level 32, Tower A Vertical Business Suite Avenue 3, Bangsar South No. 8, Jalan Kerinchi Kuala Lumpur, Malaysia Tel : +(603) Fax : +(603) STOCK EXCHANGE LISTING Main Market of Bursa Malaysia Securities Berhad Stock Name : LEESK Stock Code : 8079 AUDITORS Nexia SSY (AF 2009) SSY Sentral Level 1, 2A Jalan USJ Sentral 3 USJ Sentral, Persiaran Subang Subang Jaya Selangor Darul Ehsan, Malaysia Tel : +(603) Fax : +(603) Website : PRINCIPAL BANKERS Alliance Bank Malaysia Berhad Hong Leong Bank Berhad 4 LEE SWEE KIAT GROUP BERHAD ( T)

6 PROFILE OF THE DIRECTORS Lee Ah Lee Swee Kiat Non-Independent Non-Executive Chairman 78 years of age, Male, Malaysian Mr. Lee Swee Kiat was appointed to the Board of Directors of Lee Swee Kiat Group Berhad ( LSK ) on 3 February He is the founder of the Group. Mr. Lee started his business venture in 1975 as a furniture wholesaler under Sun Sun Furniture (M) Sdn Bhd. He ventured into manufacturing of laminated foam in the 1980s and has since laid the foundation for the Company to expand until today. Dato Eric Lee Kong Sim Managing Director 42 years of age, Male, Malaysian Dato Eric Lee was appointed to the Board of Directors of LSK on 3 February 2004 as Executive Director. He was appointed as Managing Director on 25 August He is a fellow member of the Association of Chartered Certified Accountants (FCCA), a member of the Malaysian Institute of Accountants (MIA) and a member of the Malaysian Institute of Taxation (MIT). He joined the Group since 1997 and currently also hold the position as Chief Financial Officer of the Group. Dato Eric Lee is currently the President of Kuala Lumpur and Selangor Furniture Industry Association (KLSFIA). Lee Kong Yam, Vincent Executive Director 49 years of age, Male, Malaysian Mr. Lee Kong Yam was appointed to the Board of Directors of LSK on 3 February 2004 as Executive Director. In 1999, he obtained his Master of Business Administration from Honolulu University, USA. He joined LSK Group since 1991 and currently heads the PU Foaming and Lamination Divisions. Abd Malik Bin A Rahman Independent Non-Executive Director 68 years of age, Male, Malaysian Encik Malik was appointed to the Board of Directors of LSK on 30 January 2009 as an Independent Non-Executive Director. He is the Chairman of the Audit Committee and a member of the Nominating and Remuneration Committee. Encik Malik is a Chartered Accountant member of the Malaysian Institute of Accountants (MIA). He is also a Fellow of the Association of Chartered Certified Accountants (UK), a member of the Malaysian Institute of Certified Public Accountants and a Certified Financial Planner (USA). He is a member of both the Malaysian Institute of Management and Chartered Management Institute (UK). Encik Malik held various senior management positions in Peat Marwick Mitchell (KPMG), Esso Group of Companies, Colgate Palmolive (M) Sdn. Bhd., Amway (Malaysia) Sdn. Bhd., Fima Metal Box Berhad and Guinness Anchor Berhad. He was the General Manager, Corporate Services of Kelang Multi Terminal Sdn. Bhd. (Westports) from 1994 until Encik Malik also sits on the Board of Affin Holdings Berhad, Affin Bank Berhad, Affin Hwang Investment Bank Berhad, Affin Hwang Asset Management Berhad, Boustead Heavy Industries Corporation Berhad, Boustead Penang Shipyard Sdn Berhad, CYL Corporation Berhad, Innity Corporation Berhad, and several other private limited companies. LEE SWEE KIAT GROUP BERHAD ( T) 5

7 PROFILE OF THE DIRECTORS (cont d) Au Thin Low Teen Ann Senior Independent Non-Executive Director 73 years of age, Male, Malaysian Mr. Au Thin Low Teen Ann was appointed to the Board of Directors of LSK as an Independent Non-Executive Director on 26 March He is the Chairman of the Nominating and Remuneration Committee and a member of the Audit Committee. He started his career in insurance 40 years ago with then Sime Insurance Services, an inhouse insurance division of Sime Darby Group. He was responsible for the Insurance Broking Companies in the Far East for Sime Darby and his latest position before leaving the Group was Regional Division Director. He joined Kris Jardine Insurance Brokers as Advisor in 1999 and was responsible for re-structuring the Company, which is now known as Jardine Lloyd Thompson Sdn Bhd, a member of Jardine Matheson Group and the last position held until his retirement was as The Deputy Chairman. He was an Honorary Treasurer of Insurance Brokers Association of Malaysia. Currently, he operates a Risk Management Consultancy and is an Insurance Risk Advisor to several major companies. He is an Independent Non-Executive Director and Chairman of the Nomination Committee of Classic Scenic Berhad. He is also a member of its Audit Committee. Tan Cheng Learn, Alan Independent Non-Executive Director 51 years of age, Male, Malaysian Mr. Alan Tan was appointed to the Board of Directors of LSK on 26 May 2005 as Independent Non-Executive Director. He is also a member for the Audit Committee as well as Nominating and Remuneration Committee. He worked as a palm oil dealer in 1989 to He was appointed as Director for Great Vision Risk Management Sdn Bhd since He is also a Registered Financial Planner. Tan Kuin Luan Non-Independent Non-Executive Director 76 years of age, Female, Malaysian Madam Tan Kuin Luan was appointed to the Board of Directors of LSK as Alternate Director to Lee Ah Lee Swee Kiat on 3 February She is the co-founder of the Group with Mr. Lee Swee Kiat. Note: Mr. Lee Kong Yam and Dato Eric Lee are brothers and they are the sons of Mr. Lee Ah Lee Swee Kiat and Madam Tan Kuin Luan. Saved as disclosed, none of the Directors have: (1) any family relationship with any Director and/or major shareholder of the Company; and (2) any conflict of interest with the Company; and (3) any conviction for offences within the past 5 years and particulars of any public sanction or penalty imposed by the relevant regulatory bodies during the financial year 2016 other than traffic offences. 6 LEE SWEE KIAT GROUP BERHAD ( T)

8 PROFILE OF THE MANAGEMENT TEAM Goh Kok Thai Technical Director for Latex Division 59 years of age, Male, Malaysian Mr. Goh Kok Thai joined LSK Napure Latex Sdn Bhd, a wholy owned subsidiary of the Group, as Technical Director since November Mr. Goh has more than 30 years of experience in natural latex foam and related products. He holds a degree in Polymer Science & Technology from the University of Science Malaysia. He is responsible for the manufacturing and Research and Development of the latex division. Ratnadewi A/P Fan Chern Hui General Manager 38 years of age, Female, Malaysian Ms. Ratna joined LSK Mattressworld Sdn Bhd, a wholy owned subsidiary of the Group, as Export Manager in February She was promoted to General Manager in February 2009 for the mattress division. She holds a degree in Economics & Management from the University of London. Ms. Ratna is responsible for the sales and marketing for local and export of mattress and latex divisions. Lee Poh Hong, Louise Production Manager 36 years of age, Female, Malaysian Ms. Louise joined LSK Mattressworld Sdn Bhd, a wholy owned subsidiary of the Group, as Marketing Executive in March She was promoted to Production Manager in 2013 for the mattress division. She holds a degree in Business Administration from University of Science Malaysia. Note: Ms. Louise Lee is sister of Mr. Lee Kong Yam and Dato Eric Lee and she is the daughter of Mr. Lee Ah Lee Swee Kiat and Madam Tan Kuin Luan. Saved as disclosed, none of the Management has: (1) any family relationship with any Director and/or major shareholder of the Company; and (2) any conflict of interest with the Company; and (3) any conviction for offences within the past 5 years and particulars of any public sanction or penalty imposed by the relevant regulatory bodies during the financial year 2016 other than traffic offences. LEE SWEE KIAT GROUP BERHAD ( T) 7

9 MANAGEMENT DISCUSSION & ANALYSIS ( MD&A ) Executive Summary for the Group The Group was established since 1975 by the founder Mr. Lee Swee Kiat. It has diversified from a furniture trading company to an integrated bedding producer specializes in 100% Natural Latex bedding. Bedding products made up more than 95% of total turnover. The Group operates from Klang and currently about 55% of its products are exported. Dear Fellow shareholders On behalf of the Board of Directors, we are pleased to present to you the annual report of Lee Swee Kiat Group Berhad ( LSK ) for the financial year ended 31 December 2016 (FY 2016). Total Group turnover was RM million with historically high profit before tax of RM5.671 million. Net profit and earnings per share both increased by 4.5% from RM5.011 million (EPS of 2.99 sen) in FY 2015 to RM5.235 million (EPS of 3.12 sen) in FY The key financial highlights are as follows: Financial Highlights RM 000 FY 2016 FY 2015 Change Turnover 64,202 72, % EBITDA* 8,289 8, % Profit before tax 5,671 5, % Net profit for the year 5,235 5, % Earnings per share (sen) % Return on equity 12.4% 13.5% - 1.1% Net cash / (Net gearing) RM 000 3,087 (2,112) + 5,199 Dividend per share (sen) N/A * Earnings before interest, tax, depreciation and amortization 8 LEE SWEE KIAT GROUP BERHAD ( T)

10 MANAGEMENT DISCUSSION & ANALYSIS ( MD&A ) (cont d) Financial Health The Group recorded lower turnover at RM million in FY 2016, which represents a decrease of 11.3% against FY The decrease was mainly due to decrease in domestic sales which again was affected by the poor consumer sentiments. The EBITDA for FY 2016 was slightly lower at RM8.289 million against RM8.437 million in FY 2015 despite the double digit decrease in turnover, mainly due to favourable foreign exchange caused by depreciation of Malaysian Ringgit against US Dollar. NAPURE The No 1 Selling Natural Latex Bedding Our flagship brand Napure was proud to be certified into the Malaysia Book of Records in December 2016 as the Largest Natural Latex Bedding Manufacturer. The award ceremony was witnessed by YB Datuk Seri Mah Siew Keong, the Minister of Plantation Industries and Commodities. The Award was based on our production of 4,008 tonnes of centrifuged latex in Our production in 2016 was lower at 3,738 tonnes of centrifuged latex due to lower sales recorded. Nevertheless, the Management is confident of exceeding the 2015 record with the new production line that comes into operation in Profit before tax was higher at RM5.671 million in FY 2016 against RM5.152 million in FY 2015, mainly due to lower depreciation charge as certain property, plant and equipment were fully depreciated in FY 2015 and continue to be in use in FY 2016 and beyond, as well as a writeback of a provision of accrued construction cost of factory building of RM0.4 million. Return on equity for FY 2016 was 12.4% against 13.5% in FY 2015, mainly due to bigger capital base. The Group achieved a net cash position of RM3.087 million as at December 2016, against a net gearing of RM2.112 million as at December This was the first time that the Group was in net cash position since our listing in General Operations - Domestic Market The challenge for the domestic market continued since the implementation of the Goods and Services Tax ( GST ) from April Consumers seemed to have curtailed spending on consumer durables under the current uncertain and tough economic situations. The further depreciation of Malaysia Ringgit against US Dollar continued to affect our distribution of imported brands which caused our imported goods to cost more, with difficulty to pass on the added cost due to poor consumer sentiments. The Management had mitigated the drop by pursuing more promotional activities including having more road shows during the year. The Group had closed down three (3) sub-performing IBG retail stores and opened two (2) new stores in FY We now have a total of ten (10) IBG stores throughout Malaysia. LEE SWEE KIAT GROUP BERHAD ( T) 9

11 MANAGEMENT DISCUSSION & ANALYSIS ( MD&A ) (cont d) Awards The Group obtained various awards over the years with our achievements, including the latest Malaysia Book of Records, the Brand Laureate Award 2016, ASEAN outstanding business Award 2016, Golden Bull Award, Enterprise 50 Awards as well as Malaysia Kancil Award 2016 for our creative radio advertisement on our IBG stores. Moreover, the Group achieved another milestone to be ranked among the top 100 listed companies in Malaysia based on overall Corporate Governance and Performance in 2016 by the Minority Shareholders Watchdog Group ( MSWG ) and Bursa Malaysia Securities Berhad ( Bursa Securities ). Most of the top 100 listed companies are tens and hundreds of times our size and we felt pleasantly surprise with the ranking and would continue to strive to improve our performance in the future. Specific Business Risks (i) (ii) (iii) (iv) Foreign labour Foreign labour had been a serious issue to the various Malaysian industries. Since FY 2014, the minimum wage for foreign labour had increased from RM650 per month to RM1,000 in July Moreover, with the new Employer Mandatory Commitment ( EMC ) policy, the levy of RM1,850 per worker which previously was born by the foreign workers are now the responsibility of the employer. Beside this, the freezing of new foreign workers had caused serious impact on replacement of those foreign workers who went back to their countries after completion of their contracts. We foresee the labour shortage and rising labour cost would be a long term issue. The Management had embarked on counter measures to automate our process to improve our productivity. The estimated cost earmarked for automation was RM3 million and the potential improve in productivity could be as high as 20%. Rising energy costs The natural gas tariff has risen over the past years since the Government decided to cut back on subsidy. The Group s counter measure is to research on heat recovery from our energy generation equipment to power our drying process. Once successful, the savings in energy cost could be as high as 15%. Centrifuged latex cost The commodity price has been on the rising trend since The recovery of demand from China coupled with the supply problems in Thailand due to major flood had contributed to the rapid rise over the past 6 months. During period of high latex price, efficiency would be the key to remain competitive in the world market. The Group would actively explore new export markets and target more customers. We expect to grow our market share in 2017 with our new production line and higher efficiency. Distribution agreement with Tempur The Group has been the exclusive distributor for Tempur since The agreement is subject to review annually and there is no guarantee that Tempur would extend the distribution rights in the future. Nevertheless, our relationship with Tempur has been good over the years and we do not foresee the risk of a change in distributorship in the immediate future. The main risk would be if there is a change in the business direction from Tempur to directly operate in Malaysia instead of appointing a distributor. The contribution from Tempur to the performance of the Group was less than 10% of both turnover and profit before tax in FY LEE SWEE KIAT GROUP BERHAD ( T)

12 MANAGEMENT DISCUSSION & ANALYSIS ( MD&A ) (cont d) Group Culture Our Group culture could be summarised as EIIE, being the acronym for Effective, Improve, Integrity and Efficient. We inculcate our team to strive for effectiveness in achieving our Group strategies, be one of most efficient players in the market, constantly improve oneself and grow with the Company, and finally the most important aspect, with strong integrity. We believe EIIE would be critical for the Group to face all economic challenges facing the Group from time to time, and allow us to excel over the long term. Dividend Policy The Group does not have a formal dividend policy. After years of prudent financial management and building up our equity base, we have achieved a net cash position in FY The Board decided that the time was right to start rewarding our shareholders. The Board is pleased to recommend our maiden, first and final dividend payment of 1.0 sen per ordinary share for FY 2016 ( Proposed Dividend ), subject to the shareholders approval in the forthcoming Annual General Meeting ( AGM ). The Proposed Dividend is 4 years ahead of our initial plan to start declaring dividend by year The Group will continue to consider various options to reward shareholders in the coming years. Forward Looking Statement The Management strives to build a sustainable business model to maximise long-term shareholder value. The acquisition of the Englander Trademark in FY 2015 is in line with this mission. We have eliminated the risk of non-renewal of our Englander licensing rights by the principal. Overall, the Group has had an outstanding year in Nevertheless, the performance of the Group will be affected from time to time by external factors including fluctuations in raw latex cost and exchange rate, as well as general economic situation. The Management is always cautious on various external risk factors that may affect the Group. We strive to have a relatively well balanced structure in terms of composition of export and domestic sales, as well as a natural hedging of exports and imports which would minimize the impact of any sudden fluctuation in foreign exchange. Barring unforeseen circumstances, the Management expects the performance for 2017 to be satisfactory. Acknowledgement I would like to take this opportunity to express my sincere appreciation to the Board of Directors and Management team for their positive contributions, and to thank all customers, suppliers, bankers and our dedicated team of staff for their unwavering support throughout the years. Dato Eric Lee Managing Director LEE SWEE KIAT GROUP BERHAD ( T) 11

13 CORPORATE GOVERNANCE & OTHER DISCLOSURES The Board of Directors ( the Board ) of Lee Swee Kiat Group Berhad ( the Company or LSKG ) and its subsidiaries ( the Group ) remain fully committed in maintaining good corporate governance principles in accordance to the Principles and Recommendations of the Malaysian Code on Corporate Governance 2012 ( the Code ) pursuant to Paragraph of the Main Market Listing Requirements ( MMLR ) of Bursa Malaysia Securities Berhad ( Bursa Securities ). The Board has therefore strived to formulate policies and objectives as a fundamental part of discharging their responsibilities in protecting and enhancing shareholders value with the practice of openness and corporate accountabilities. The Board further acknowledged and implemented the principles and best practices embodied in the Code in the manner set below. Principle 1: Establish Clear Roles and Responsibilities The roles and responsibilities of the Management and the Board are established and understood by both parties to ensure accountability and separation of duties. Board of Directors Principal duties and responsibilities reserved for the Board (a) (b) (c) (d) Review, adopt and monitor the implementation of the strategic plans for the Group by the Management to achieve long term shareholders value as well as promoting sustainability within the context of environment, social and governance. Review, adopt and monitor the annual budget for the Group with regular revision on forecast taking into account the changes in the economic, legal, social and general business environments. Constant review of various key performance ratios and embedded the performance link compensation plan in an Executive Directors Incentive Scheme for the Executive Directors, with key performance indicators including profitability, return on shareholders fund and gearing ratio target to encourage prudent financial management without involving excessive gearing. To carry out periodic review of the Code of Business Conduct and Ethics for the Group as follows: (i) (ii) To practise the Group s Motto EIIE which stands for Efficient, Improve, Integrity and Effective Compliance to all applicable laws, rules and regulations (1) The Group shall constantly be aware of all applicable laws, rules and regulations applicable for lawful Group s business operations. (2) The major laws, rules and regulations including, inter alia, the Income Tax Act, Labour Law, Bursa Securities Listing Requirements and The Goods and Services Tax Act. (iii) To promote sustainability on environment, community and working environment The Group has established in the Board Charter details of the Social Responsibility Philosophy which should be conveyed to the whole organization. (iv) To cultivate an environment of high integrity by having a Whistle Blowing Policy A Whistle Blowing Policy is in place to complement the internal audit procedures to assist the Board in deterring and early detection of fraud. 12 LEE SWEE KIAT GROUP BERHAD ( T)

14 CORPORATE GOVERNANCE & OTHER DISCLOSURES (cont d) Principal duties and responsibilities reserved for the Board (continued) (e) Identify key business risks with constant monitoring of market changes and to establish a risk management framework to manage those risks in order to safeguard company assets. The main risks identified and being monitored includes Forex Risk, Credit Risk, Default Risk, Fire Risk, Competitive Risk and Information Technology Risk. The internal auditors are assigned the job to monitor and report to the Audit Committee periodically on the various efforts undertaken by the Management to mitigate the above risks. (f) Review the internal controls and management information systems for compliance with applicable laws and regulations. (g) Establish a detailed annual internal audit plan covering various key operational and risk areas, and to monitor the execution of internal audit functions by having periodic meetings with the internal auditors. (h) Establish and review the succession plan for the Group s Board of Directors and senior management group on an annual basis, and to provide necessary training as needed from time to time. (i) To establish authorization limit which defines relevant matters and applicable limits for Chairman and Managing Director. Management s responsibilities The Management is responsible for the day to day management of the Group, in line with the strategic plan and annual budget as approved by the Board. The role and responsibilities for the Chairman and Managing Director are clearly segregated to ensure a balance of power and authority. The responsibilities of the Chairman are: (a) (b) (c) (d) (e) Chair Board meetings in proper manner. Ensure all relevant issues are tabled on Board Agenda. Ensure compliance with Board Charter. Ensure timely dissemination of Board papers by the Company Secretary to the Board members. Encourage all Directors to play an active role in Board activities. The responsibilities of the Managing Director are: (a) (b) (c) (d) (e) (f) (g) To formulate strategic plan and annual budget to ensure long term viability and sustainability for the Group. To manage the day-to-day operations and businesses of the Group. To implement the policies, corporate strategies and decisions adopted by the Board. To report material and relevant matters to the Board timely and accurately. To create long term sustainable value for stakeholders of the Group. To grow the Group both organically and through merger and acquisition in related fields with target minimum return on shareholders fund of 8%. To manage the operations of the Group with financial prudence and to work within the target gearing level of not exceeding 1 time on shareholders fund. LEE SWEE KIAT GROUP BERHAD ( T) 13

15 CORPORATE GOVERNANCE & OTHER DISCLOSURES (cont d) Whistle Blowing Policy The Board wishes to maintain a high standard to uphold legal, ethical and moral standards. The Board recognizes the limitation of internal control in detecting and eliminating fraud. To complement the internal control function, this whistle blowing policy is established to provide an additional avenue for minimising and early detection of fraud from day-to-day operations. Objectives (a) (b) (c) (d) To cultivate an environment of high integrity. To act as deterrent to potential fraud. To enhance awareness on the Group s stand on illegal, unethical and dishonest acts as well as consequences of such acts. To complement the internal audit function in minimising or early detection of fraud. Scope This policy applies to any irregularity, or suspected irregularity, involving any employee or officer of the Group with any party who has business relationship with the Group. Irregularity in this context is hereby defined as an illegal, unethical or dishonest act committed by any party or parties resulting in some party or parties, be it an employee or officer or any stakeholders obtaining financial gains at the expense of the Group or other stakeholders. Whistle blower has direct access to the mobile number and of the Chairman of Audit Committee. He may choose to remain anonymous to protect his interest. Once a report has been lodged, the Board should establish a special task force to carry out investigation. The special task force should consist of at least two suitably qualified personnel based on the nature of such fraudulent activity. External professional may be considered if the circumstances warrant such appointment. A formal report of the findings should be submitted to the Board for examination and appropriate actions (including lodging a police report if it involves serious criminal act) should be taken by the Board depending on the nature and extent of such fraudulent act. Access to information and advice The Board stresses on the importance of timely dissemination of material information among the Board. All Board papers are circulated at least one week prior to the Board meeting by both electronic as well as circulation of hard copies. The Board has recently set up a formal Whatsapp Group for all Board members and the Company Secretary to further enhance the communications among the members for all material matters. These are to assist the Board in active involvement in material matters and to be able to respond immediately should the need arises. The Board has access to advice from external professionals as needed in discharging their duties. Qualified and Competent Company Secretaries The Company Secretaries are qualified pursuant to Section 235(2) of the Companies Act 2016 as they are members of the Malaysian Institute of Chartered Secretaries and Administrators (MAICSA). 14 LEE SWEE KIAT GROUP BERHAD ( T)

16 CORPORATE GOVERNANCE & OTHER DISCLOSURES (cont d) Qualified and Competent Company Secretaries (continued) The responsibilities for the Company Secretaries are as follows: (1) Implementation of corporate governance (a) Assisting the Board and Chairman on the implementation of the Code (b) Advising the Board on the principles and recommendations of the Code and informing the Board of any breaches (c) Ensuring high standards of governance by keeping abreast with the latest developments in corporate governance changes in the legal and regulatory framework and international best practices (2) Supports the Board and Chairman (a) Providing advice to the Chairman and Directors as to their duties and responsibilities (b) Preparing the agenda with the Chairman and Managing Director and notifying all Directors of Board meetings (c) Ensuring the meetings flow effectively (d) Taking accurate and concise minutes of deliberations of the Board during meetings (e) Providing full access and services to the Board (3) Compliance with filing and administrative requirements (a) Ensuring compliance with the procedures for conducting meetings and the safekeeping of corporate documentation (b) Assisting the Board with interpreting legal and regulatory acts related to the listing rules and international regulations and developments (c) Advising the Board on its obligatory requirements to disclose material information to the shareholders and financial markets on a timely basis (d) Notifying the Chairman of any possible violation of legal and regulatory acts (4) Appointment of new Directors (a) Assisting the Board in ensuring a smooth administration of the appointment of new Directors (b) Briefing new Directors on organisational structure of the Group and procedures that regulate the operations of the Board (c) Ensuring availability of information required by new Directors for the proper discharge of their duties All Directors have access to the advice and services of the Company Secretaries. Board Charter The Board has established a Board Charter which elaborates on various aspects of the Board including Composition, Appointment and Re-election, Assessments, Duties and Responsibilities, Board Committees, Board Meetings, Financial Reporting, Director Remunerations, Directors Training and Continuing Education, Investor Relations and Corporate Social Responsibilities. The Board Charter will be reviewed annually for updates and relevance. The latest review date was on 12 April The Board Charter can be viewed at the Company s official website at under Investor Relations section. LEE SWEE KIAT GROUP BERHAD ( T) 15

17 CORPORATE GOVERNANCE & OTHER DISCLOSURES (cont d) Principle 2: Strengthen Composition Board balance & composition The Board currently comprises of six (6) Directors of whom one (1) is Managing Director, one (1) is Executive Director and four (4) are Non-Executive Directors. Three (3) of the Non-Executive Directors are Independent. Mr. Au Thin Low Teen Ann is the Senior Independent Director. The Board seeks to have a clear division of responsibilities between running the Board and the Group s operational business. The positions of Chairman ( Non-Executive Chairman ) and Managing Director are separated and clearly defined. All the Board Committees including the Audit Committee, Nominating and Remuneration Committee consists of Independent Non-Executive Directors. Appointments to the Board, re-election and re-appointment Any appointment of a new Director shall first obtain the recommendation by the Nominating and Remuneration Committee before tabling it to the Board for approval. Any new appointment would have to be notified to the Chairman. Pursuant to the Company s Constitution, at least one-third (1/3) of the Directors are required to retire by rotation from office at each Annual General Meeting ( AGM ) and may offer themselves for re-election. Every Director must retire from office at least once in every three years. The name and details of the Directors standing for re-appointment and re-election at the Company s forthcoming AGM are disclosed in the Notice of AGM and their Profile are set out in page 5 and 6 of this Annual Report. The Nominating and Remuneration Committee would conduct formal annual evaluation and assessment on the performance of all Directors as well as the Board collectively. Criteria of evaluation & assessment includes board mix & composition, quality of information & decision making and boardroom activities. Separate evaluation and assessment were carried out individually for each and every Director and collectively as a Board. The assessment results are compiled and reviewed annually by the Nominating and Remuneration Committee before proposing recommendations to the Board. Gender Diversity The Board acknowledges the benefits of a balanced gender diversity in the Board composition. The current Board consists of six (6) male and one (1) alternate female Director. The senior management level consists of two (2) females and one (1) male. The average age for the current six (6) Board Directors is 60.2 years and the senior management is 44.3 years. There are a total of three (3) females which made up about 30% of the combined Board and senior management team. Where possible, gender diversity will be taken into account when there is a need to replace or appoint a new Director to the Board. The Board target to have one additional female Director by the year LEE SWEE KIAT GROUP BERHAD ( T)

18 CORPORATE GOVERNANCE & OTHER DISCLOSURES (cont d) Audit Committee The Audit Committee was established on 26 July The terms of office of the Audit Committee is reviewed annually and may be re-nominated and re-appointed by the Nominating and Remuneration Committee. Its role and function is to assist the Board in overseeing the Group s activities within its clearly defined terms of reference. The Audit Committee Report for the current financial year can be found in pages 26 to 28 of this Annual Report. Nominating and Remuneration Committee On 24 November 2016, the Board resolved to merge the Nomination Committee and Remuneration Committee as Nominating and Remuneration Committee ( NRC ). The terms of office of NRC is reviewed annually and may be renominated and re-appointed by the Board. Its role and function is to assist the Board in nominating new nominees to the Board of Directors, assessing the performance of the Directors of the Company on an on-going basis and assessing and reviewing the remuneration package of the Executive Directors. The members of the NRC are as follows: Chairman Au Thin Low Teen Ann Senior Independent Non-Executive Director Members Abd Malik Bin A Rahman Independent Non-Executive Director Tan Cheng Learn Independent Non-Executive Director The duties and responsibilities of the NRC are as follows:- A. Nomination New Appointment (i) (ii) (iii) Consider and recommend to the Board, candidates for directorship proposed by the Managing Director/ Chief Executive Officer and, within the bounds of practicability, by any other senior executive or any Director or shareholder, taking into consideration the candidates skills, knowledge, expertise and experience, time, commitment, character, professionalism and integrity. For the position of Independent Non-Executive Directors, the NRC should also evaluate the candidates ability to discharge such responsibilities as expected from Independent Non-Executive Directors; Before any appointment by the Board, evaluate and assess the balance of skills, knowledge, experience and diversity on the Board; Review the role and capabilities required for a particular appointment for the Board s recommendation. In identifying suitable candidates, the NRC may: (a) (b) (c) (d) use the services of external advisors to facilitate the search; consider candidates from a wide range of backgrounds; consider candidates on merit and against objective criteria with due regard to diversity including gender and the appointees time commitment; and request to consider the disclosure of any business interests that may result in a conflict of interest. (iv) (v) (vi) In the case of the appointment of a Chairman, review the position description, including time commitment expected. Any significant commitment should be disclosed to the Board prior to appointment and any changes should be reported to the Board as they arise; Recommend to the Board, candidates to fill the seats on Board Committees, in consultation with Chairman of those committees. In the event that the Chairman s position (regardless of Board/Committee) is to be filled, to consult with the Board; Ensure that on appointment to the Board, Non-Executive Directors receive a formal letter of appointment setting out clearly what is expected of them in terms of time commitment, Board Committee involvements and involvement outside Board meetings; LEE SWEE KIAT GROUP BERHAD ( T) 17

19 CORPORATE GOVERNANCE & OTHER DISCLOSURES (cont d) Nominating and Remuneration Committee (continued) A. Nomination (continued) Re-election, Re-appointment and Resignation/Termination (vii) Recommend to the Board, candidates for re-election of Directors by shareholders under the annual re-election provisions or retirement, with due consideration to the extent to which the interplay of the Director s expertise, skills, knowledge and experience with those of other Board members, as well as their roles as committee members. Attention should be paid to Independent Directors who are retained beyond nine years as the Board had to provide strong justification in exceptional circumstances and seek shareholders approval; (viii) Matters relating to the continuation in office of any Director at any time, including the suspension or termination of service of an Executive Director as an employee of the company subject to the provisions of the law and their service contract; (ix) The re-appointment of any Non-Executive Director at the conclusion of his term of office having given due regard to his performance and ability to continue to contribute to the Board in terms of knowledge, skills and experience required; Specific Nominations and Succession Planning (x) (xi) Recommend suitable candidates for the role of Senior Independent Director, as applicable; Report to the Board on succession planning for the position as Board Chairman, Directors and key management personnel, particularly the Managing Director. The Board should work with the NRC to evaluate potential successors, taking into account the challenges and opportunities facing the Company, and the skills and expertise, including diversity, needed on the Board in the future; Annual Performance Assessment of Board, Committees and Individual Directors (xii) Annually review the required mix of skills, experience, diversity and other qualities, including core competencies and effectiveness of the Board, the Board Committees and the Board/Committee members. All evaluations carried out by the NRC in the discharge of its functions should be properly documented. This process should be coordinated by the NRC, with the assistance of the Company Secretary, and thus, reporting to the Board at the end of each financial year with an assessment of the Board s performance and areas in which the Board, Board Committees or individual Director could improve; (xiii) Annually review the time required of Non-Executive and Independent Directors. Performance assessments should be undertaken to assess whether the Directors are spending enough time to fulfill their duties; Induction training and training needs analysis (xiv) Review the induction and training needs of Directors. Ensure the training programme attended by the Directors must be one that aids the Director in the discharge of his duties; Size of Board and Independent Directors (xv) Assess the desirable balance in Board membership by reviewing the size, gender, structure, diversity and composition of the Board, taking into consideration the number of directorships; (xvi) Assess desirable number of Independent Directors; and (xvii) Consider the representation of interest groups as part of Boardroom diversity. Factors to consider may include gender, race, religion, nationality, professional background and culture. 18 LEE SWEE KIAT GROUP BERHAD ( T)

20 CORPORATE GOVERNANCE & OTHER DISCLOSURES (cont d) Nominating and Remuneration Committee (continued) A. Nomination (continued) The NRC also takes recognition of the requirement that the Board has to consist of an appropriate balance of a broad range of skills, expertise, experience and competence and encourages diversity in gender, age, culture and socioeconomic backgrounds. During the FY 2016, the NC held two (2) meetings. The NC carries out an annual assessment on the contribution and performance of Board, Board Committees and each individual Director against a set of criteria that encompasses a diverse set of skills and experience via performance evaluation form. The NC also carries out assessment on the independence of the Independent Directors. The Board is satisfied with the contribution and performance of each individual Director. The Independent Directors comply with the criteria of Independence based on the MMLR of Bursa Securities. There is no change to the composition of Directors in All the Directors complied with the fit and proper criteria approved by the Board. B. Remuneration (i) (ii) (iii) (iv) (v) Ensure that the remuneration package of Directors is aligned with the business strategy and long-term objectives of the Company and to reflect the Board s responsibilities, expertise and complexity of the Company s activities; Review and recommend the remuneration of Non-Executive Directors to the Board for the approval of shareholders in general meeting. The remuneration shall be at a level which will attract and retain the services of Independent Directors; Approve the design of, and determine targets for, any performance-related pay schemes including bonuses and benefits in kind operated by the Company and approve the total annual payments made under such schemes; Oversee any major changes in employee benefits structures throughout the Company or Group; Work and liaise with other Board Committees, if necessary. The NRC set remuneration for Directors at levels which are sufficient to attract and retain suitable candidates for long term sustainable operation of the Group. Various parameters including skills, years of relevant experience, function, workload and responsibilities involved are taken into consideration. The Group has established an Executive Director Incentive Scheme ( EDIS ) to reward the Executive Directors based on the Company s annual performance objectively. Various Key Performance Indicators ( KPI ) including profit before tax, return on shareholders fund and gearing level of the Group are assessed to arrive at the annual performance incentive. The KPI are selected to encourage improved performance of the Group based on efficient use of the shareholders fund prudently and without incurring excessive borrowings which may increase default risks. For the FY 2016, about 41% of the total Directors Remuneration are incentive-based payments based on KPIs. The Group has adopted an Executive Director Car Benefits Policy as part of the Remuneration Policy on February Independent Directors will be paid a basic fee as well as a meeting allowance. The level of remuneration will reflect the contribution and responsibilities undertaken by the Independent Directors. The fee will be subject to the approval of shareholders at the AGM. Where necessary, a service contract may be drawn to attract suitable candidate to be an Executive Director. LEE SWEE KIAT GROUP BERHAD ( T) 19

21 CORPORATE GOVERNANCE & OTHER DISCLOSURES (cont d) Nominating and Remuneration Committee (continued) B. Remuneration (continued) Aggregate remuneration of Directors is as follows: Received from the Company Categories Fees Salaries & Other emoluments Total RM 000 RM 000 RM 000 Executive Directors Non-Executive Directors Total Received on Group Basis Categories Fees Salaries & Other emoluments Total RM 000 RM 000 RM 000 Executive Directors 10 1,507 1,517 Non-Executive Directors Total 92 2,186 2,278 The Directors remuneration is broadly categorised into the following bands: Received from the Company Categories Executive Directors Non-Executive Directors Below RM50, Received on Group Basis Categories Executive Directors Non-Executive Directors Below RM50,000-3 RM300,001 RM350,000-1 RM350,001 RM400,000-1 RM400,001 RM450, RM1,050,001 RM1,100, * Remuneration paid to an Alternate Director who is a Non-Executive Director of the subsidiary has been placed according to the classification of the principal director. 20 LEE SWEE KIAT GROUP BERHAD ( T)

22 CORPORATE GOVERNANCE & OTHER DISCLOSURES (cont d) Principle 3: Reinforce Independence Chairman and Managing Director The roles of Chairman and Managing Director are undertaken by separate persons. The Chairman is a Non-Executive member of the Board. The Group does not have a majority of Independent Directors in the Board as recommended by the Code. The Board is of the opinion that current Board composition with all two Board Committees consisting solely of Independent Directors, serves well for the Group in discharging the duties of the Board with proper check and balance in place. The tenure of an Independent Director shall not exceed a cumulative term of nine (9) years. Upon completion of the nine years, an Independent Director may continue to serve on the Board subject to the re-designation as Non-Independent Director. The said Director may continue to serve as an Independent Director with shareholders approval at AGM. The approval shall be valid until the next AGM. The Company Secretary ensures that all the necessary information is obtained and that all legal and regulatory obligations are met before the appointment is made. As at the date of this report, both Mr. Au Thin Low Teen Ann and Mr. Tan Cheng Learn have served the Board as Independent Non-Executive Directors of the Company for a cumulative term of more than nine years. The Board recommended them to continue to act as Independent Non-Executive Directors based on the following justifications: (a) (b) (c) (d) They have fulfilled the criteria under the definition of Independent Director as stated in the MMLR of Bursa Securities, and thus, they would be able to function as a check and balance, bringing an element of objectivity to the Board; They have vast experience in a diverse range of businesses and therefore would be able to provide constructive opinions; they exercise independent judgment and have the ability to act in the best interest of the Company; They have devoted sufficient time and attention to their professional obligations for informed and balanced decision making; and They have continued to exercise their independence and due care during their tenure as Independent Non-Executive Directors of the Company and carried out their professional duties in the interest of the Company and shareholders. Principle 4: Foster Commitment Board meetings All Board members are expected to commit their time in proper discharging of their duties by attending at least 75% of meetings conducted by the Group. All Directors do not hold more than 5 directorships in listed companies as required under Paragraph of the MMLR. The Board endeavors to meet at least four (4) times a year, with additional meetings to be convened when necessary. The annual meeting calendar was prepared and distributed to all Directors at the beginning of the financial year. Six (6) Board meetings were held during the FY Details of attendance are as follows: Directors Attendance (1) Lee Ah Lee Swee Kiat 6/6 (2) Dato Lee Kong Sim, Eric 6/6 (3) Lee Kong Yam 6/6 (4) Au Thin Low Teen Ann 6/6 (5) Tan Cheng Learn 6/6 (6) Abd Malik Bin A Rahman 6/6 LEE SWEE KIAT GROUP BERHAD ( T) 21